This column will address at least some of these questions, but its aim is more to guide the interested reader towards some significant works that delve much further into the murky field of dictatorships.

There are now some 52 countries with dictators, which is actually down somewhat from the numbers in the 1970s. However, an estimated 72% of the world’s population currently lives under some form of dictatorship. But like all statistics, we need to be clear about what is being measured.

Dictatorship? Or merely authoritarian rule …

Authoritarian rule and dictatorship are sometimes used interchangeably. This is understandable, as typically both imply government by a single ruler who has unbridled power and whose decisions are not subject to the rule of law. Unlike many (perhaps most) dictators, authoritarian rulers are not necessarily malevolent; they might genuinely strive for what they believe is in the interests of their subjects. However, typically the freedoms of those subjects are severely constrained, and they have little or no say in government decision-making. Singapore’s Prime Minister Lee Kuan Yew and the Sultan of Oman are seen as fitting that model.

Because of the challenges of defining “dictatorship”, the data can give only approximate estimates. In round numbers, since 1900 there have been 200 military or violent coups and some 100 “legal” takeovers. The highest number of dictator leaders has been in Sub-Saharan Africa (e.g. Amin in Uganda, Mobutu in the Congo) and Latin America (Pinochet in Chile, Castro in Cuba).

Are dictators always male? No: there are numerous examples throughout history of female dictators: Empress Wu Zetian of China; Queen Ranavalona I of Madagascar; Indira Gandhi in India (during her State of Emergency); Catherine the Great of Russia; Queen Mary I of England; and Isabel Peron of Argentina.

The type of dictatorship a country is ruled by typically comes down to the methods the dictator used to obtain power and how they maintain it. Natasha M. Ezrow and Erica Frantz, Dictators and Dictatorships: Understanding Authoritarian Regimes and Their Leaders (Bloomsbury Publishing, 2011), identify five types:

• Military dictatorship — power is obtained and maintained through military might.

• Monarchy — power is obtained and passed on through family connections.

• Personal dictatorship — a leader who may be supported by a party or military, but still retains the overwhelming majority of power, and places those loyal to the leader in positions of power (whether or not qualified).

• Single-party dictatorship — a one-party state which makes all the rules and controls elections, so they win every time.

• Hybrid dictatorship — involving elements of some of the above, e.g. a single-party dictatorship with a powerful leader.

Economic Origins of Dictatorship and Democracy, by Daron Acemoglu and James A. Robinson (Cambridge University Press, 2005), is arguably still one of the most significant contributions — a blend of political science, economics and development. They employ the standard tools of economics and rely on incentives and game theory to analyse the path to democratic or non-democratic political systems (along with a good dose of mathematics, which generally simply restates the obvious).

They build their analysis on the premise that society can be divided into the “elite” and the “people”, and each struggle for power and control of resources. They illustrate four pathways with selected examples.

• From non-democracy gradually but inexorably leading to a sustainable democracy (e.g. Britain)

• Where democracy is created but soon collapses (e.g. Argentina)

• Where non-democracy is sustained and stable because society is relatively egalitarian and prosperous (e.g. Singapore)

• A society so highly unequal and exploitative that any prospect of democracy is so threatening to the elite that they employ repressive means and violence to avoid it (e.g. South Africa prior to the collapse of the apartheid regime).

The characteristics of dictators

So what are some of the characteristics of dictators? John Gartner, a US psychologist, identifies them as malignant narcissists.

He attributes this term to the psychologist Erich Fromm, a German Jew who escaped from the Nazis. In his book Escape from Freedom (Farrar and Rinehart, 1941), Fromm developed the theory that people accept authoritarian rule as it provides structure and certainty in their lives, in contrast to a world of individual freedoms. Fromm used this concept to explain (in part) the rise of Hitler after the chaotic period in Germany following World War I.

A similar period of unrest and political instability occurred in Italy, and together with a fear of communism proved fertile ground for the rise of Mussolini, a fascist dictator. The account by Donald Sassoon, Mussolini and the Rise of Fascism (HarperCollins, 2007), is consistent with Fromm’s thesis that the calm, order, and structure of society under authoritarian rule was preferable to the previous chaos, even at the cost of loss of some freedoms.

Military dictators typically impose strict order (ever noticed that the rocks on the roadsides in the base are painted white!) and the result is often a greatly improved level of public safety. When I lived in Colombia, a Chilean colleague and his family would return to Pinochet’s Chile on leave, and on return report how much safer and freer they were in Santiago than in Cali, Colombia.

The dictator personality type

Let me return to Fromm’s defining characteristics of the personality type of dictators:

There is perhaps no better case that embodies virtually every one of those characteristics than Rafael Leónidas Trujillo Molina, who took over the presidency of the Dominican Republic in a military coup in 1930 and ruled until his assassination in 1961, as documented in Robert D. Crassweller, Trujillo: The Life and Times of a Caribbean Dictator (Plunkett Lake Press, 2023).

Trujillo came to power by overthrowing a corrupt and incompetent President, Horacio Vásquez. There began one of the most violent and brutal regimes inflicted on a small island nation. He was called “the goat” by his enemies because it symbolised his gluttony and insatiable sexual appetite.

He hated Black people and immigrants — these were mostly Haitian farm workers who came to work on sugar plantations. He accused them (falsely) of being criminals and rapists, and he ordered the mass slaughter of some 20,000. The event is known as the Parsley Massacre. Dominican soldiers would (supposedly?) hold up two sprigs of parsley and ask a suspect to pronounce the name of it. Should they answer in French (persil) rather than in Spanish (perejil) they were shot instantly.

Trujillo demanded total loyalty, and any courtier suspected of the slightest disloyalty was summarily executed; as were Dominican nationals in exile in Cuba and the USA suspected of organising rebellion against the Trujillo government. He was exceedingly vain: always impeccably dressed — he had over 2,000 military dress uniforms. He renamed Santo Domingo, the capital city, as Ciudad Trujillo, he also renamed a province and the Republic’s highest mountain after himself. He built an extravagant palace and owned several mansions. He had some 2,000 statues of himself erected throughout the country. He required the priests to insert the following into any prayer used in the churches: “You are requested to pray for the health of Generalissimo Trujillo, the benefactor of the country.”

The country was turned into a total kleptocracy. Trujillo expropriated plantations, mines, cattle farms, and endless businesses. At his death, 111 companies were in his name or that of his family members, and it is estimated he controlled or owned 60% of the national GDP.

Perhaps surprisingly, even in the case of Trujillo, there were some positive aspects. He invested in education, health services and infrastructure, perhaps (cynically) as a way to build popular support and defuse any potential rebellions.

Can dictators do good?

This brings us to a question: do dictators ever do any good? A comprehensive analysis of the economic data has been undertaken by Stephanie M. Rizio and Ahmed Skali in How often do dictators have positive economic effects? Global evidence 1858-2010.1

Supposedly well-intentioned dictators are often cited as drivers of economic growth. We examine this claim in a panel of 133 countries from 1858 to 2010. Using annual data on economic growth, political regimes, and political leaders, we document a robust asymmetric pattern: growth-positive autocrats (autocrats whose countries experience larger-than-average growth) are found only as frequently as would be predicted by chance. In contrast, growth-negative autocrats are found significantly more frequently.

These results are not surprising. Expropriation and nationalisation of enterprises create uncertainty and discourage investment, both domestic and foreign; they remove competitive forces and lead to inefficiency; they misallocate resources away from their most efficient uses; and they encourage rent seeking by sycophants.

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Life after dictatorship

The removal of a dictator is not necessarily accompanied by a return to economic order and efficiency. In fact, removal is typically followed by civil unrest, political instability, and chaos rather than sunshine and roses, to varying degrees. No better illustration exists than the case of the Congo. In the later part of the nineteenth century, King Leopold II of Belgium was the founder and sole owner of the so-called Congo Free State. He plundered the Congo and around 10 million of its people died of murder, mutilation, torture, and slavery — as explained by Adam Hochschild in King Leopold’s Ghost: A Story of Greed, Terror and Heroism in Colonial Africa (Mariner Books Classics, 2020).

Under the dictatorship of King Leopold, the rule of law and respect for property rights were absent; institutions were weakened or eliminated, and investment in human capital was virtually nil. By the end of his rule, the Congo had 60 university graduates, mostly in exile. This is amply documented in David van Reybrouck, Congo: The Epic History of a People (Ecco, 2015). The consequence was that even well-intentioned post-colonial leaders faced an almost impossible task. Civil unrest resulted in the country’s Prime Minister, Patrice Lumumba, being assassinated within a year of taking office, as detailed in Patrice Lumumba: The Life and Legacy of the Pan-African Politician who became Congo’s First Prime Minister (Charles River Editors, 2019).

Anne Applebaum introduces a new form of autocracy in Autocracy, Inc.: The Dictators Who Want to Run the World (Penguin, 2024). Rather than the stereotype bad guy, she argues that in today’s world a consortium of corporations and financial institutions dominate and control much of society. Applebaum’s thesis is reminiscent of the argument made in 1967 by John Kenneth Galbraith in The New Industrial State (Princeton University Press, 2015). He argued that the United States was no longer a competitive free-market economy (was it ever?) but one dominated by large corporations, who controlled both the supply side and “created a need” for new products among consumers. A permissive regulatory environment allowed them to flourish.

And on a lighter note

Victoria Clark and Melissa Scott, Dictators’ Dinners: A Bad Taste Guide to Entertaining Tyrants (Gilgamesh Pr Ltd, 2014), explore the food eaten by dictators from the gluttonous to the frugal.

In a similar vein, Witold Szabłowski covers much of the history of modern Russia as seen through interviews with chefs in What’s Cooking in the Kremlin: From Rasputin to Putin, How Russia Built an Empire with a Knife and Fork (Penguin, 2023).

Finally, Peter York has two books: Dictator Style: Lifestyles of the World’s Most Colorful Despots, and Dictators’ Homes. Both highlight the almost universal appalling lack of taste displayed in the palaces (ballrooms?) they built and the furnishings therein.

All your favourite dictators are here: Hitler, Lenin, Stalin, Tito, Mussolini, Mobutu, Idi Amin, Ferdinand and Imelda Marcos, each with their own uniquely frightful chic.

By Grant Scobie

»»»» Previous issues of 2B RED.

Editor’s note: My sincere apologies for the break in service over the summer months. Work and other commitments got the better of me. This post marks a resumption of normal service — Dave.

In a terrible accident, Derek suffers fatal injuries to his body while his brain is unharmed. His two brothers are also involved in the accident, but suffer different consequences; they are brain-dead with healthy bodies. Faced with the aftermath of the accident, surgeons split Derek’s healthy brain in half, and put each half in the body of his siblings. When they wake up, the two resulting people believe they are Derek, remember living his life, and have his personality. Their bodies are similar to Derek’s before the accident.

One identity, two instances

What became of Derek? Did he die, or did he double? Is one brother him and not the other? For whom does his family hold a funeral? This thought experiment is one of several by philosopher Derek Parfit, compiled in his epic tome Reasons and Persons (1984).

Parfit concludes there would be no one identical to him after the surgery. “There will be two future people, each of whom will have the body of one of my brothers, and will be fully psychologically continuous with me, because he has half of my brain,” he writes. If identity mattered, he argues, then this result would be just as bad as death. But the result cannot be as bad as death, since he has two psychologically continuous selves. “Since I cannot be one and the same person as the two resulting people, but my relation to each of these people contains what fundamentally matters in ordinary survival, the case shows that identity is not what matters.”

Over the course of several chapters, Parfit methodically explores the ramifications of this conclusion. He argues that what matters is psychological continuity and connectedness, which is a relation of degree; you might feel strong psychological connectedness between yourself today and tomorrow, but weak or non-existent connection with yourself in ten years’ time.1 Given that, over sufficient time, psychological connection with ourselves can cease, connectedness can be stronger with other people in the present than with yourself in the distant future.

Parfit acknowledges there is a difference between logic-ing your way to a conclusion and actually feeling within yourself that it holds truth, but he encourages us to stick with it:

When I believed [that personal identity is what matters], I seemed imprisoned in myself. My life seemed like a glass tunnel, through which I was moving faster every year, and at the end of which there was darkness. When I changed my view, the walls of my glass tunnel disappeared. I now live in the open air. There is still a difference between my life and the lives of other people. But the difference is less. Other people are closer. I am less concerned about the rest of my own life, and more concerned about the lives of others.

One identity, one unique identifier

On the third floor of Victoria University of Wellington’s Rutherford House, there’s a swipe-card-protected door which only opens to those who have been granted approval for their research by Stats NZ, hold good-enough coding skills, have undergone online training in confidentiality, and have signed a legally binding lifetime commitment to keep the data they encounter confidential.

The privileged room in Rutherford House is one of many datalabs across New Zealand, which quietly capture space in government offices, universities and research institutions. Each datalab has its own quirks, some with desks so close together that researchers knot themselves up to slot in the empty chair, while others have carefully placed blinkers between desks as a constant reminder of the sanctity of the space.

When aerial window cleaners set up ropes around Rutherford House and began bungeeing past the third floor, datalab use was only permitted with the blackout blinds fully extended, to prevent curious eyes outside from spotting a morsel of confidential information. On that specific occasion, the risk was very, very small. The chance of someone being able to see and interpret information on a computer screen several metres away through glass glistening with soap suds, while researchers, sitting inches from the screen, strained to make sense of spreadsheet cells, red error messages, data dictionaries and metadata, was small. But it was not zero, and it could be reduced to zero, and so it was.

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The Integrated Data Infrastructure (IDI) is a web of data on the people of New Zealand, which can only be accessed in these locked rooms. I first used the IDI in 2017 as a PhD student and have since used it in fits and starts, as and when my workplaces needed it. Administrative data, the residue left behind from every interaction with the state, is collected by government departments and sent to Stats NZ, which strip the names and replace them with that person’s unique identifier, a stream of numbers about eight to ten digits long. Correctly managed, a person’s number is assigned to them each time their data arrives at Stats NZ, so the information from each source can be linked at the person level.

When I think about myself-as-administrative-data, I can easily imagine my information; my university course enrolment and grades, each time I left and entered the country, every medicine I picked up from the pharmacy, my visas, monthly earnings, ACC reimbursements, my census responses, and my state-recognised partnership, which links me to my anonymised partner and all his data too.

I get excited about the potential this data holds, for really saying something; to reveal some kind of truth which holds for a group of people at a specific point in time. But when it comes to actually carrying out research, administrative data drags significant challenges along with it. I have to constantly remind myself that this data is subjective, an abstraction. The variables recorded are not conceived of by a divine, omnipotent statistical overlord, but iteratively, sometimes accidentally, for operational purposes.

The one part I never thought to question was the unique personal identifier.2 A person is a person is a person; one of the few essential truths the IDI can stake a solid claim to. That is, until I read Derek Parfit’s Reasons and Persons. If I am, psychologically speaking, closer to other people now than I am to myself in the future, why are individual people set in individual grooves for our entire administrative lives, as if our continuities are defined by national health identifiers (NHIs), passport or IRD numbers? What would happen to Derek’s unique identifier in the event of the accident and surgery? Is there a person who decides?

I’m not arguing for the removal of the person-level unique identifier; the IDI is not for making metaphysical claims about the nature of self, but for research, and for research purposes it’s helpful to simplify a person down to their bodily boundaries. I actually think Parfit would have loved the IDI. He was fundamentally concerned with representation, always asking if he was looking at the thing itself or a copy, and to what extent they are the same.

The IDI is a fantastically big representation of ourselves and it does matter, in that it offers opportunity for knowledge. But it is not what matters. Just as the IDI can’t fulsomely capture what matters from a research perspective — happiness, safety, social connection, purpose — neither can it capture what mattered to Derek Parfit; overlapping chains of memories, beliefs, intentions and characteristics, and the strength of those links.

While waiting for my inelegant code to process, I imagine what Parfit would do if he got a research project approved, passed confidentiality training and learned SQL,3 and was on the desk next to me in the datalab. Would he combine the unique identifier and time variables to create a scale for each person, indicating how different any record in the past is from their present? Would he have an alternative to the individual fixed effect I’ve been using all these years under the assumption that a person is consistent over time? What research questions would he answer with his alternative coding of the individual, and would his results improve the wellbeing of New Zealanders?4

One identifier, zero instances

Derek Parfit died in 2017, in London, aged 74. His death would have been confirmed by a health professional, and entered into a spreadsheet; his UK National Health Service identifying number would have been deactivated and never issued again; the death of an administrative identity. For Parfit, his death was more a question of degrees.

When I believed [that personal identity is what matters], I also cared more about my inevitable death. After my death, there will be no one living who will be me. I can now redescribe this fact. Though there will later be many experiences, none of these experiences will be connected to my present experiences by chains of such direct connections as those involved in experience-memory, or in the carrying out of an earlier intention. Some of these future experiences may be related to my present experiences in less direct ways. There will later be some memories about my life. And there may later be thoughts that are influenced by mine, or things done as the result of my advice. My death will break the more direct relations between my present experiences and future experiences, but it will not break various other relations. This is all there is to the fact that there will be no one living who will be me. Now that I have seen this, my death seems to me less bad.

Administrative systems require fixed identity, but Parfit reminds us that what morally matters may not map onto those fixed units.

By Olivia Wills

This implies that people who own assets generating tax-free capital gains have an advantage over others. Many tax experts share this view. For example, Burman and White argued that taxing capital gains enhances equity because they are a form of income and other forms of income are taxed, while the Tax Working Group argued that “…taxing capital gains would improve the fairness of the tax system by reducing inconsistency in the treatment of income, no matter how it is earned.”2 These views suffer from three fundamental problems, which I outline in this post.3

Problem 1: Double taxation

Take a capital gain that arises solely from the retention of earnings that have already been taxed as company profits. Taxing this gain would be double taxation of the retained earnings — once as profit, and again as a capital gain.

For example, suppose that a person A pays $10m to purchase all the shares in company B. Over the next year B earns a pre-tax profit of $1m, which is taxed at 30%,4 leaving $0.7m, which B retains as cash. B’s total value is now $10.7 million. Next, A sells the shares to C for $10.7m. A has made a capital gain of $0.7m, which attracts a CGT (at the 30% rate) of $0.21m. The $1m was only earned once, yet it has been double-taxed, first as profit of B and then a second time as capital gains of A, for an effective tax rate of 51%.

Problem 2: Semi-strong market efficiency

Even if capital gains on an asset do not arise from retained earnings and therefore the absence of CGT constitutes favourable tax treatment of the asset, this favourable tax treatment is impounded into the price paid for the asset. Therefore the recipient of the capital gains does not benefit from the absence of CGT. For example, suppose that a person purchases farmland and leases it out for grazing, and this currently generates revenue of $10m per year, and none of these lease revenues are retained for further investment into the property. Suppose also that there is no CPI inflation, and therefore all capital gains or losses are real.5 Since real GDP is expected to grow, and land is in fixed supply, its value and the grazing revenue are expected to grow, at a rate of 2% per year. Real capital gains are therefore expected, but they do not arise from retention of some of the asset’s earnings.6

Suppose further that investors are risk neutral, i.e., they require no compensation for risk. In addition, the government borrowing rate (the “risk-free” rate) is 5% per year and the personal tax rate is 30% for all investors. These assumptions imply that all assets must be priced so that their expected rate of return after all taxes is equal to that on government bonds, and the latter rate is 5% (1 – 0.3) = 3.5%. In addition, suppose that the farmland in question is owned via a company, whose lease revenues are taxed at the corporate rate of 30% and the after-tax revenues are paid as dividends to the landowner. Furthermore, dividend imputation operates, with the result that the company taxes that are paid generate imputation credits that fully offset any personal tax on the dividends.7 So, the discount rate on the after-company tax cash flows from the land is 3.5% per year. The value of this land would then be $467m as follows:

A person buying the land at this price then expects to receive a cash yield (after company tax) on their investment of $10m(1 – 0.3)/$467m = 1.5% in the first year, and a tax-free capital gain of 2%, for a total of 3.5%. Their after-tax expected rate of return therefore matches that on the risk-free asset (and every other asset) despite part of it being tax free. So, the fact that part of their return is tax free gives no benefit to them because the price they pay for the asset is higher to reflect that tax feature.

If capital gains were taxed, the cost of capital would be higher to reflect that fact. In particular, it would be higher by the product of the CGT rate and the expected rate of capital gain (2%).8 So, if capital gains were taxed at 30%, the cost of equity would be:

Using this in substitution for the earlier cost of equity, the value of the land would then be $333m:

A person buying the land at this price then expects to receive a cash yield (after company tax) on their investment of $10m(1 – 0.3)/$333m = 2.1% in the first year, and an after-tax capital gain of 2%(1 – 0.3) = 1.4%, for a total of 3.5%. Again, their expected rate of return matches that on the risk-free asset (and every other asset). So, asset owners gain no advantage nor suffer any disadvantage from the tax treatment of their assets, so long as the tax treatment predates their purchase.9

This analysis assumes that market prices already reflect all public information, including tax rules. Economists call this the semi-strong form of the efficient markets hypothesis. It is supported by an immense body of empirical work.10

Problem 3: Transitional unfairness

Consider the example above, with no CGT and therefore a value for the asset of $467m. If a CGT were introduced, the asset value would immediately fall to $333m, causing a capital loss for whoever owns the asset at that moment.11 Subsequent owners of the asset would not be affected by the introduction of the tax, despite them also paying it, because the lower price they paid for the asset would compensate them for these taxes. Thus, the only owners who would be adversely affected by the tax are those holding the asset at the time the tax is introduced. This is highly inequitable, and especially so since those holding the asset at this time never benefited from the earlier absence of the tax.12 So, introduction of the tax creates a new inequity, and without eliminating any existing unfairness.

One might then wonder who has benefited from the absence of CGT on farmland. Most land purchases in NZ ultimately derive from settlers purchasing it from the Government, who in turn acquired it from Māori. The prices in these transactions between settlers and the government reflected the absence of CGT, i.e., higher than they would otherwise have been. So it was actually the Government that benefited from the absence of a CGT.

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Conclusion

Many capital gains simply reflect profits that have already been taxed once and retained. Charging CGT on these would amount to taxing the same earnings twice — first as company profits, then again as capital gains. Even when capital gains arise from other factors, their tax treatment is already built into the price of the asset. Buyers pay more for tax-favoured assets, so they don’t actually enjoy any benefit from the favorable tax treatment. Introducing a CGT would therefore hurt only current owners, whose asset values would drop overnight. New buyers wouldn’t be worse off. A CGT would create new inequities without fixing old ones.

By Martin Lally

With private investment in generative AI rocketing to $33.9 billion globally, and 78% of surveyed organisations reporting the use of AI in at least one business function in 20241, it’s clear AI is transforming the way we do business.

Join us online for an evening of fresh ideas and meaningful conversation. You'll hear insights from our keynote speaker Professor Sir Ashley Bloomfield on leading through change and uncertainty, followed by our multidisciplinary panel on Thriving in tomorrow’s workforce, featuring the Business School’s own Dr. Deepika Jindal and Professor Alexandra Andhov speaking with other UoA thought leaders about how AI is transforming industries, careers and society - and how we can adapt to thrive.

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Whether you're interested in the future of work, AI ethics, or staying resilient in a fast-moving world, this event offers insights worth sharing.

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By Hannah Taniwha

1

Stanford University Human-Centered Artificial Intelligence (2025). AI Index Report 2025.

The view from Canada

My first three selections are about New Zealand, but written by John C. Weaver, a Canadian professor of history at McMaster University, Hamilton, Ontario.

Adam Smith's Islands: New Zealand's Incomparable Restructuring, 1980-1995 (McGill-Queens University Press, 2025) is the product of a seven-year research project supported by McMaster University, Victoria University of Wellington, and the Deane Family Foundation. It is a massive work, providing a highly detailed account of the economic reforms in New Zealand. It sets those reforms in an international context of changes in economic and social policies that were already underway in other countries (recall Reagan and Thatcher).

The chapter on the currency crisis — with the intriguing subtitle “Forex Frenzy: A Freeze, A Run, A Cut, and a Float" — takes the reader through every step of the political drama, draws out the relationships between the key personalities, and highlights the erratic behaviour of Prime Minister Muldoon. His rejection of the advice of Roderick Deane, then acting Governor of the Reserve Bank, merely added to the chaos. Muldoon twice overrode the recommendation of the Bank's Board that Deane should be appointed Governor.

The book's undoubted strength is the careful and detailed recounting of the narrative. However, the author does not really provide the reader with an overall assessment. A critical evaluation of the reforms arguably might have been a more prominent theme of the concluding chapter. (Incidentally, the book ends on a depressing note about our lacklustre productivity growth.)

To say the book is well referenced would be a gross understatement. Following 435 pages of text, there are 163 pages of notes, 26 pages of bibliography, and a detailed index of 32 pages. Don't be put off by the sheer magnitude of the book; it is an important contribution to New Zealand's economic history. Though one does tend to pine for a 10-page executive summary!

This was not Weaver's first book about New Zealand. An earlier book is on an altogether different theme. Suicide is a human tragedy; a ghastly social reality from which we can’t escape. The chances are you knew someone who died by suicide. Weaver’s A Sadly Troubled History: The Meanings of Suicide in the Modern Age (McGill-Queen’s Associated Medical Services of Medicine, Health, and Society, 2009) tackles this difficult and emotional topic in a sensitive manner. His database is 7,000 suicide cases between 1900 and 1950 in New Zealand and Queensland. He documents thousands of suicide inquests, and draws on witnesses' testimony, death-bed statements, and suicide notes. Without any pretence at offering "solutions," his work surely leads to an enhanced understanding of major social problem.

And finally, another book by John C. Weaver contributes to our understanding of our colonial era, warts and all. The Great Land Rush and the Making of the Modern World, 1650-1900 (McGill-Queens University Press, 2003) documents

how the landscapes of North America, Australia, New Zealand, and South Africa were transformed by the pursuit of resources. He underscores the tragic history of the indigenous peoples of these regions and shows how they lost "possession" of their land to newly formed governments made up of Europeans with European interests at heart.1

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Colonial history from a Māori viewpoint

In the May edition of 2B RED we met Lauren Keenan (Ngāti te Whiti o Te Ātiawa), a rising New Zealand author who, in an award-winning historical novel, portrayed and analysed the cultural interfaces between European migrants and the indigenous Māori population.

Keenan has followed up with Toitū Te Whenua: Places and People of the New Zealand Wars (Penguin Books, 2025). This non-fiction work looks at key points in New Zealand's colonial history by presenting significant events and individuals from a Māori perspective.

Complete with detailed maps and easy-to-follow driving directions, Toitū te Whenua: Places and People of the New Zealand Wars is the perfect companion for exploring these historic sites. As the only guide of its kind written from a Māori viewpoint, it is an invaluable resource for anyone looking to deepen their understanding of Aotearoa New Zealand history.2

And forthcoming …

At this point I will interject with a forthcoming book. The author was a former international consultant on employee benefits, and later co-founder and director of the Retirement Policy and Research Centre at the University of Auckland. His great-great-great grandfather William Cook arrived abandoned and injured in Paihia in 1823. He was nursed by Tiraha, the daughter of the Ngapuhi chief Tamaki Waka Nene. Michael Littlewood’s William and Tiraha: A Biographical Novel (Quentin Wilson Publishing, 2025) is a blend of historical evidence and fiction writing. 2B RED looks forward to reading it.

The Oxford Five

Sir James McNeish was a novelist, playwright and biographer, author of some 25 books. He died in Wellington in 2016, aged 85, several days after submitting his final manuscript, Breaking Ranks, to HarperCollins. In 1999 he was awarded a Fellowship which allowed him to spent time at Oxford University. This led to the publication of Dance of the Peacocks: New Zealanders in Exile in the Time of Hitler and Mao Tse-Tung (Penguin Books, 2003). It is a multi-biography of five prominent New Zealanders James Bertram, Geoffrey Cox, Dan Davin, Ian Milner and John Mulgan. They all studied at Oxford in the 1930s, four of them as Rhodes scholars. Given their inclination toward socialist systems one might view them as the (Kiwi) Oxford Five, drawing a possible parallel with the infamous Cambridge Five of the same era (Philby, Burgess, Blunt, Maclean and Cairncross) although the latter group, convinced of the superiority of the Soviet communist system, were active spies.

Dance of the Peacocks traces the lives of the five scholars from their studies at Oxford, their friendships, to their various involvements in the turmoil of the times: the Spanish civil war, Hitler's Germany, North Africa, Eastern Europe and China. Altogether they knew five wars and three revolutions. Additionally, Ian Milner was accused (wrongly) of being a Cold-War spy.

New Zealand must have seemed increasingly small and parochial after spending decades based in England, and only Bertram returned to live here, taking a Senior Lectureship in English at Victoria University. Some of the others had, from time to time, expressed interest in returning to New Zealand, but despite their illustrious careers and worldly experiences, were never offered a position they considered satisfactory. So they remained in "exile" as the subtitle rather oddly states, given that they left voluntarily and faced no barriers to returning had they been willing to compromise professionally.

Female spies in WWII

The Last Secret Agent: The untold story of my life as a spy behind Nazi enemy lines (Allen & Unwin, 2024), by Pippa Latour with Jude Dobson, is the astounding true story of one of the last female special operations agents in France to get out alive after its liberation in WWII.

Women played a critical role in many aspects of WWII. Of particular note were their contributions to the French resistance under the auspices of Churchill's Special Operations Executive (SOE). Notable among them was Wellington-born nurse and journalist, Nancy Wake (named by the Gestapo as The White Mouse).

But another New Zealander was among the 39 women recruited for the SOE: Phyllis (Pippa) Latour. (I confess to stretching it a bit: Pippa Latour was born in South Africa, but she moved to Auckland after WWII and died there at the age of 102 in 2023, the last remaining survivor of the 39. The Kiwi connection is strengthened by the fact that Jude Dobson, her co-writer, is a New Zealander.)

Born in 1921, Pippa Latour became a covert special operations agent who parachuted into a field in Nazi-occupied Normandy. Trained by the British, Pippa was lauded for her fluency with languages (her father was French physician) and her coding ability – attributes she put to remarkable use when she posed as a teenage soap-seller, often selling her wares to the German soldiers and sending back information via code to England. She kept her codes on a piece of silk concealed in a shoelace which she used as hair tie. During her time in Normandy, Pippa sent 135 secret messages conveying crucial information on German troop positions in the lead-up to D-Day. Pippa continued her mission until the liberation of Paris in August 1944. For decades, Pippa told no one — not even her family — of her incredible feats during WWII. It was not until recently, when her children encountered information about their mother on the internet, that the story emerged.

Our next entry in this vein is a novel by New Zealand author Soraya M. Lane. The central character of The Last Correspondent (Lake Union Publishing, 2020) is a journalist who was denied access as a war correspondent; the authorities simply stated the front lines were no place for a woman. Unwilling to accept this ruling, she disguised herself as a nurse and stowed away on a hospital ship to Normandy. This resulted in her being the first journalist to report on the landing. The story is closely modelled on the true story of a female journalist who did exactly that to reach the front lines as a war correspondent, one Martha Gelhorn (who incidentally also married Ernest Hemingway).

Ageing is an inescapable fact …

It is now a well documented and an inescapable fact that our ageing population will bring with it wide-reaching economic (and political) ramifications. The rising dependency ratio (i.e. retirees per worker) would result in a massive rise in net public debt if current superannuation policies were to be sustained. This is but one aspect of a "New" New Zealand explored by Paul Spoonley, a leading New Zealand social scientist. His The New New Zealand: Facing demographic disruption (Massey University Press, 2020) is an excellent place to start for anyone wanting an overview of what demographic changes hold in store.

Economists in wartime

Our final two entries are by Alan Bollard, a leading New Zealand economist who, in addition to having held a number of the most senior positions in the public sector both here and overseas, and holding a professorship at Victoria University of Wellington, somehow finds time to write books – some 17 in total covering fiction, non-fiction and economic matters. Bollard’s Economists at War: How a Handful of Economists Helped Win and Lose the World Wars (Oxford University Press, 2020) is a blend of biography of seven economists and economic history, set in the years leading up to and encompassing WWII.

Each chapter could be a standalone biography for each one of the seven economists. Bollard links their stories so as to make a coherent whole. The economists were:

• Takahashi Korekiyo, the Japanese Minister of Finance (whose ideas eventually led to his assassination);

• H.H. Kung, the Chinese Minister of Finance (who became inordinately wealthy by dubious means);

• Hjalmar Schacht, a top German advisor (who ended his career opposing Hitler's policies and who was acquitted at the Nuremberg trials);

• J.M. Keynes, economist, academic, investor, philanthropist (whose work laid the foundation for modern views of fiscal policy);

• Leonid Kantorovich (whose programming skills tried to improve efficiency in the USSR);

• Wassily Leontief (whose Russian language and mathematical skills contributed to US intelligence in WWII); and

• John von Neumann (a mathematical genius who helped make US bombing raids more accurate).

The author enriches each of their stories with captivating and often amusing anecdotes about their lives.

Bollard followed Economists at War with another "handful of economists" book: Economists in the Cold War: How a Handful of Economists Fought the Battle of Ideas (Oxford University Press, 2023). The Cold War, starting after the end of WWII and lasting for 45 years, was characterised by conflicting political and economic ideas, rather than military confrontation. Any reader with an interest in economic history, global politics, the Cold War, or the history of economic thought, will benefit from this book. The central theme is that the work of these economists led to significant advances in economic theory and policies. The book describes the complex positions these economists found themselves in and how they used their economic discipline and their personal abilities to change things.

The seven central chapters analyse the context, the life and the work of seven chosen economists. But an outstanding feature of the book is the fact that the views of each are juxtaposed with those of other prominent economists who held alternative views. The central figures with their alternates (in parentheses) are: Harry Dexter White (J.M. Keynes); Oskar Lange (Friedrich von Hayek); John von Neumann (L. Kantorovich); Ludwig Erhard (Jean Monnet); Joan Robinson (Paul Samuelson); Saburo Okita (Zhou En-lai); and Raul Prebisch (W. Rostow). So really one is geeing fourteen economists for the price of seven! And as each chapter evolves, the work and views of yet others are woven into the narrative.

The author again manages to inject into the narrative little sidelights, often entertaining, that reveal the character and human side of each economist. A very extensive bibliography and a comprehensive index will also make this a most useful reference work.

By Grant Scobie

»»»» Previous issues of 2B RED.

Principles such as these reflect basic economic analysis. Property rights and competitive prices are essential elements in the bedrock of a successful economy that supports higher living standards by rewarding enterprise and innovation.

Consequently, economists should respond when Parliament considers legislation that will restrict the property rights of a group in the general population or will impose a price control in one of New Zealand’s most competitive markets. Below we discuss a current example of each.

A restriction on property rights

The Marine and Coastal Area (Takutai Moana) (Customary Marine Title) Amendment Bill is concerned with customary rights that Māori hold in the management and use of certain coastline resources.

These rights go back well before 1840, when tikanga (Māori customary law) managed access to coastal resources in each tribal area. Common law is clear on the validity of these property rights under the rule of first possession. Professor R. A. Epstein explained this in a lecture he gave in Wellington in 1999:1

Thus in any conflict between a first possessor and somebody who acquires the land later through force or machination, the law will regard prior in time as higher in right.

Consistent with the rule of first possession, the Court of Appeal in 2003 suggested the Māori Land Court might have authority to assess Māori customary title to some coastline areas. Parliament intervened with the Foreshore and Seabed Act 2004, which vested ownership in the Crown. This led to widespread protest and a new political party in Parliament.

The Marine and Coastal Area (Takutai Moana) Act 2011 replaced that Act. Although it was a compromise that attracted criticism, including from the Waitangi Tribunal, the Act created a framework for Māori customary titles that can be recognised through the Courts.

Case law is still developing under this Act, including a recent decision in the Supreme Court. Nevertheless, the new Amendment Bill increases the threshold that must be met before the Courts can recognise a customary marine title. This will reduce property rights, as currently understood by the courts, held by Māori groups for centuries.

This is an example of interference with private property rights that the Regulatory Standards Bill wants to constrain. Section 5 of that Bill, however, specifically excludes the Marine and Coastal Area (Takutai Moana) Act 2011 from its coverage. On this point, Māori are not being treated equally before the law.

Imposing a price control

The interference with competitive prices comes from the proposal to prevent retailers from adding a monetary surcharge when customers use certain payment methods to complete a purchase.

EFTPOS technology has transformed the retail experience, paying for itself in reduced cash handling and other costs. Inserting a card into a machine and typing a four-digit PIN allows a customer to immediately transfer money to the retailer’s bank account.

A further service provided by most retailers allows credit or contactless payments. Using this technology incurs extra costs; for example, a greater risk of fraud when a PIN is not required. The retailer pays a merchant fee to cover these extra costs.

Consequently, retailers often add a surcharge for customers who choose to use this service. The Commerce Commission advises a surcharge might be justified up to 0.7% for contactless debit payments and no more than 2% for credit payments.2

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Parliament is being asked to fix the surcharge at zero, below the marginal cost of the merchant fee paid by the retailer. Although this interference may seem relatively trivial, there are several reasons to be concerned.

First, any ECON101 graduate should know that a price cap unambiguously lowers social welfare. Managers know their businesses, competitors, and customers far better than Parliament. Competitive prices mean they also know the marginal benefit and marginal cost of their services. A price cap set by Parliament can add nothing except an inferior outcome.

Second, the proposal departs from the acceptance on both sides of the House since 1984 that Parliament should promote market competition. Even if a subsidy or tax might be justified, business managers in competitive industries should be free to set prices their customers are willing to pay.

Third, once this principle is breached, the risks of escalation are high. If one side of the House imposes a price control on retailers, the other side will be tempted to impose price controls that benefit their own political supporters, all at the expense of total social welfare.

Further, it feeds a culture where citizens come to feel entitled to receive personal benefits while shifting the associated costs to the general population or to future generations. In our view, this is already evident in some current debates about local government and rates.

Damage to the economic bedrock

The doctrine of Parliamentary sovereignty means Parliament can pass any law it chooses. Nevertheless, our representatives should understand that these two proposals undermine foundational principles for a flourishing economy.

By Paul Dalziel and Caroline Saunders

Paul Dalziel is Research Economist at Wellbeing Economy Alliance Aotearoa. Caroline Saunders is Professor Emeritus at Lincoln University.

  Doing the garden, digging the weeds,
  Who could ask for more?
  Will you still need me, will you still feed me,
  When I'm sixty four?

I’ve recently had a birthday — and yes, it’s the one in the Beatles’ celebrated song. It’s a somewhat unwelcome reminder of changes to come, many unavoidable.

I thought I’d share an economic perspective on ageing, and what that can mean for some of the ways we think about inequality.

Perhaps unsurprisingly, I have changed my mind on a few things over the past 40 years. At age 24, my total financial wealth might just have scraped into four figures. I’m sure that I would have said then that I would never need (or want) to be a millionaire, and further than nobody else would (or should) ever need that much money.

Inflation means that being a millionaire1 today is much easier than it was in 1985.2 Even so, a million dollars remains a lot of money — around 15 years’ income at today’s average after-tax wage of $66,210.3

The retirement savings game

Retirement (i.e. permanently leaving the workforce) is an event for some people, and a drawn-out process for others. (I expect to be in the latter camp.) From a financial perspective, retirement is the changeover point from accumulating financial wealth to running it down.

The tricky question in the decades leading to retirement is how much to save. Then, as one gets close to retirement age, it becomes too late to start saving in earnest. So, the
tricky question morphs to: given your previous savings choices, at what age can you afford to retire?

That, it turns out, depends crucially on two questions:

• how long do you expect to live?

• how much income do you need/want each year in retirement?4

For illustration, let’s take a fictitious couple, both of whom turn 65 next year.

How long can a 65-year-old couple expect to live?

According to the New Zealand cohort life tables, the female can expect to live a further 23.4 years and the male 21.0 years, living until 88 and 86 respectively.

Those expectations are medians, so there is a 50% chance of living beyond those ages. But, and likely more importantly, the life tables are based on today’s mortality rates. This implicitly assumes a plateau in improvements for treating the ailments of age, and in living standards more generally. That’s a big assumption! Life expectancy at 65 has been rising for at least a century, and shows no sign of letting up.

To be on the safe side, our couple should plan to live into their 90s.

How much income will they need?

That’s a hard question. (My experience doesn’t help here — I haven’t tried retirement yet! My prediction track record for what I’ll be doing a few years’ hence is poor — knowing what I’ll be doing over the coming decades, and how much that will cost, seems near impossible.)

The 2024 New Zealand Retirement Expenditure Guidelines say that a two-person household in a metro area need around $90,000 on a “choices” budget. (The amount is lower for provincial areas and for a “no frills” budget.) This assumes that the couple own a house without a mortgage.

For illustration, I’ll take $90,000 per year as a target income.

What assets will they need at retirement to generate that income?

There is plenty of advice out there on retirement savings. (Sorted.org is a suitable place to start.) The general view is that it is good to aim to own a house (without a mortgage), collect NZ Super5, and have a pot of savings (financial assets) from which you can draw down between 4 and 6% each year.6

The average NZ house is now around $900,000 — I’ll round that to $1m. (It’s more like $1.2m in Auckland.)7 A 65-year-old couple owning a $1m house and $1m in financial assets are both millionaires, by definition.8 If they receive NZ Super and draw down 5% of their financial assets each year, they will have a combined pre-tax income of roughly $100,000 per year, around $85,000 after tax.9

Depending on the pre-retirement income you’ve become used to, $85-90,000 might seem like a lot — or not much at all. But even the mere idea that one might need to be a millionaire to have a comfortable retirement would likely have startled my 24-year-old self.

The tax-and-transfer system moves money across our life cycles

Whether or not you retire on the dot of 65, your financial relationship with other New Zealanders will likely change. As you can see in this chart, New Zealanders aged between 25 and 64 make a net contribution (on average) to the state’s coffers.10 The reverse applies to those aged below 25 and above 65.

The big change between the 60-64 group and the 65-69 group is the jump in income support (in orange; mostly attributable to NZ Super). In-kind benefits (in blue; mostly public healthcare and education) also jump up at this boundary.

Direct taxes (in grey; mostly income tax) drops a little, but perhaps not as much as I might have expected. A plausible explanation is a combination of late retirements and taxable earnings from investments, the latter peaking in one’s 60s.

Indirect taxes (in gold) are dominated by GST, which is proportional to consumption (i.e. personal expenditure). This doesn’t change much between ages 40 and 74, after which it declines slowly. The decline is associated with a lower income and higher health costs; so it is plausible that people are running out of savings, and/or having their activities curtailed by health problems. (It is also likely that consumption preferences change in one’s 70s.)

There’s also a lesson here for me: my past 10 years’ expenditure may be a good guide for my next 10 years.

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Two cheers for wealth inequality!

Wealth inequality indicators are cross-sectional, that is, they compare every adult’s wealth measured (or estimated) as at one date.

From time-to-time, wealth inequality hits the headlines. This doesn’t seem to be driven by substantive changes in the data; wealth shares have barely moved over the past 30 years, as can be seen in this chart.11

Wealth inequality indicators combine between-person inequality (my wealth is different from that of my same-aged neighbour) with across-time inequality (my wealth is different from that of my past and future selves.)

Taking myself as an example, I’m pleased to be much wealthier — in financial terms — than my 24-year-old self. Offsetting that, at 24 I had better health, and 40+ years of income-earning potential ahead of me — factors that are not included in these wealth-inequality measures.

On a moral dimension, across-time inequality is not necessarily bad. It may even be good. I personally find the idea of a millionaire aged 24 rather uncomfortable (how did they earn so much, so quick?), whereas being a millionaire at age 64 so as to fund one’s retirement seems more like prudent financial management than sin.

One downside of wealth taxes

Wealth taxes are often proposed as a revenue source, and sometimes as a way of punishing the “sin” of being rich. (Of course, no single tax can efficiently serve both purposes.)

However, following the logic in this post, most people’s wealth will peak at their retirement age. A wealth tax that does not adjust for age will likely reduce the amount saved before retirement, and increase the drawdown rate after retirement. Post-retirement incomes will take a substantial hit. And that, in turn, may create its own drag on public finances.

One million over 65s

Retirement is a big topic; one I’ve only touched the surface of here. Will a shrinking number of taxpayers gladly support a growing number of retirees? What is the outlook for those with fewer assets than the fictitious millionaire couple? And what if lifespans in the 100s become normal in coming decades? There is lots to explore in forthcoming posts.

One thing I can be sure of — my ageing self will have plenty of company. New Zealand is ageing — its over-65 population is expected to reach one million in 2028.

By Dave Heatley

The spirit level

Richard Wilkinson and Kate Pickett published The Spirit Level in 2009. This book reframed inequality as a driver of public health and social dysfunction. Their argument was simple: countries that are more unequal fared worse across a range of social indicators, from mental health and education to social trust and violence.

One striking observation from Wilkinson and Pickett was that more unequal countries treat lawbreakers more punitively. While their work was confined to OECD countries, we have replicated this finding globally. Income inequality is closely tied to higher rates of incarceration (per 100,000 people). The relationship is particularly pronounced for high-income nations.

The chart below presents the relationship between income inequality (on the x-axis) as measured by the Gini Index, the standard measure for inequality1; and the incarceration rate (on the y-axis), which indicates the number of people imprisoned per 100,000 population.2 Each dot represents a country.

Take the United States: it imprisons over 650 people per 100,000, the highest in the developed world. It also has one of the highest Gini coefficients among wealthy countries. South Africa, similarly, combines high inequality with a high prison rate of approximately 280 per 100,000. By contrast, countries with lower inequality see far fewer people behind bars; Norway and Germany, for example, have just 56 and 68 per 100,000, respectively.

Wilkinson and Pickett argued that inequality leads societies to punish more harshly. Our recent work suggests that the direction of causality may be in the opposite direction; punishment, especially when based on noisy information, can lead to greater inequality.

In recent times, New Zealand’s coalition government has been arguing strongly in favour of more punitive measures for lawbreakers, such as limiting how much judges are allowed to reduce sentences and reinstating “three strikes” sentencing rules. We argue that in the presence of unreliable information, punitiveness exacerbates inequalities.

Who gets punished, and how?

Consider the following cases:

• Caroline Ellison, a 30-year-old Stanford graduate and daughter of eminent scholars and professors at MIT, was found guilty of helping her then boyfriend, Sam Bankman-Fried, misappropriate around US $8 billion of investor money through the cryptocurrency trading platform FTX. In October, she was sentenced to 2 years in a minimum-security prison. The decision was surprising to many, who expected Ellison to walk free in return for cooperating with the prosecution and testifying against Bankman-Fried.3

• By contrast, 21-year-old Ta’Kiya Young, an African American woman pregnant with her third child was shot dead in Columbus, Ohio after an altercation with police officers who had accused Young of shoplifting. As she tried to drive away, one officer shot and killed her.

• David Coulson was locked up for life for stealing $14 under one of the more extreme “tough on crime” laws in the US.

While blue-collar crimes are often more directly violent than white-collar ones, the harm caused by large-scale financial misconduct is far from negligible. Billions in lost investments can ruin thousands of lives and wipe out life savings, directly and via destabilising entire markets. The harm is real, even if no weapon is drawn.

In a perfect world, authorities would punish every crime accurately and proportionally. But real-world monitoring is uneven. Lower-level crimes are more visible, easier to prosecute, and harder to defend against. White-collar offences, by contrast, are often obscured by complexity, resources, and legal firepower. Our system doesn’t just punish wrongdoing; it punishes visibility.

A recent investigation by the New York Times highlights how offenders accumulate significant, often overwhelming debts during their time in the prison system. Bail fees, and a host of other charges such as court costs and administration fees, quickly add up.

Proponents of tougher sentencing argue that they target real offenders – true positives. Any practical criminal justice system will have both false positives (non-offenders get punished) and false negatives (offenders escape punishment). Reasonable people can take different views as to how to trade off these risks. Generally, however, harsher punishments make false positives more costly.

Simulating society in the lab

To explore how imperfect information affects cooperation and punishment, we designed a laboratory experiment as part of ongoing, unpublished research. The study incorporates a classic social dilemma problem, where there is tension between cooperating for the common good and free-riding to maximise individual self-interest. Cooperation is measured by how participants contribute to a public pot. Everyone contributing maximises the public good returns. But self-interest suggests zero contribution.

Our game was dynamic with earnings accumulating over multiple rounds – mimicking how real-world wealth builds over time. Just like in real life, where a small advantage early on can compound over time, early cooperation allowed participants to build up wealth that they could reinvest in later rounds. Groups that contributed generously from the outset saw their wealth grow. Those that didn’t began to fall behind. Before long, inequalities began to emerge, both within and between groups.

Then we added two features: punishment and imperfect monitoring.

Instead of modelling a state-sanctioned centralised punishment mechanism, we implemented decentralised peer-to-peer punishment. This situation fits well in the absence of a powerful state actor or where the social dilemma is of a localised nature limiting the degree of state intervention. Peer enforcement differs from judicial sanctioning, but it helps us isolate key mechanisms that underlie real-world dynamics: what happens when punishment decisions are made under imperfect information?

In some groups, participants could punish others at a small cost, a proxy for social sanctions. Participant contributions could be clearly seen by the potential punishers, i.e. information was perfect.

In other groups, monitoring was imperfect. Participants observe others’ contribution imperfectly, as the information about those contributions was displayed with introduced noise. Sometimes cooperative members appeared to hold back under these conditions, raising the risk of false positives.

Finally, in a third treatment, we combined punishment with imperfect information, a situation that reflects the reality of our justice system, where decisions are made under uncertainty.

What did we find?

We found that peer punishments under perfect monitoring did boost average contributions. When participants knew they could be sanctioned, they were more likely to cooperate. But the averages tell only part of the story. Beneath the surface, there was significant gap between groups. A few groups cooperated early, stayed on track, and built substantial wealth – enough to pull the average up. But many groups struggled. Cooperation broke down, and by the end, they were left with little to nothing.

Imperfect monitoring on its own had little effect. But when combined with punishment, the picture changed drastically. Contributions fell. Wealth declined. And inequality within groups rose sharply. The reason? When you can’t reliably tell who’s cooperating, people start punishing the wrong targets. This kind of “antisocial punishment” – directed at those who were actually playing fairly – became common. As misdirected punishment increased, cooperation collapsed.

While our experiment relied on peer punishment – not formal, state-led sanctions – it still points to a familiar risk: when information is unreliable, punishment often misses its mark. Even well-intentioned enforcement can deepen inequality and erode cooperative norms. As seen in real-world justice systems, imperfect monitoring and unequal visibility often distort who gets punished and how.

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What does this mean for the justice system?

The prevailing view, advanced by Wilkinson and Pickett, is that unequal societies punish more harshly. But our findings suggest the relationship may also run the other way: when punishment is applied under conditions of imperfect information, it can itself become a source of inequality. Our experiment showed that when enforcement relies on noisy or unreliable signals, even well-intentioned punishment risks doing more harm than good – reducing cooperation and widening inequality.

Injustice often stems not from intent, but from imperfect monitoring and unequal visibility, which shape who is punished and how. Blanket calls for tougher sentencing tend to overlook these subtleties. Yet it is precisely such details that determine whether justice policies reduce harm – or quietly entrench it.

By Sanket Sen & Ananish Chaudhuri

A 2023 Australian study by EY puts the value of cycling at a staggering A$18.6b, so I thought it was worth taking a closer look at how they came up with that number, and how New Zealand might compare. About A$17.6b of that is the economic contribution of cycling and e-scooters, with another A$0.954b of health and social benefits. Let’s start with the contribution to economic activity.

Cycling’s contribution to economic activity

Like a lot of economic studies, the EY methodology is clearly designed to create an impressive number. The headline total uses an estimate of gross (total) spending as opposed to value added. In other words, this total includes money spent on importing cycling goods, despite such spending not generating value to the local economy.

The headline number calculation then uses input-output tables to multiply that spending through the economy, creating an estimate of total indirect spending as a result of cycling. In the detail the study concedes that: “direct value add is commonly put forward as the most appropriate measure of the relative contribution of an industry to the economy.” They are correct — so we’ll stick to the direct value-add figures here.

The estimate of direct value-added for Australia is A$3.525b for cycling and A$0.159b for e-scooters; a total of A$3.684b (the total direct spend was A$6.947b). This figure is mainly made of sales of cycles, cycle related purchases and tourism. Given New Zealand’s population is 19.8% of Australia’s and our GDP is 14.6%, that would put our likely value between $537-729m.

Do we have any data that could improve on this estimate?

While we don’t have detailed data on all cycling-related purchases in New Zealand, we do have cycle and e-scooter sales figures. Statistics NZ publishes both the number and value of imported bicycles and electric micro-transport devices (largely comprised of e-bikes). Of particular note here are the rapid increases in e-bike sales. Volume of sales has risen by almost 300% and spending has risen by almost 600% in the last five years. For comparison over the same time period the value of car sales rose about 30%. Given the sharp drop off in electric vehicle imports since the removal of the feebate scheme, this means that e-bikes appear to be the fastest growing category of transport in the country.

Despite being their poorer cousin, cycle sales compare favourably with Australia. In fact, we buy similar numbers per capita as they do. For the total sales value we have to add a markup; NZTA assumes this is 40%. I sense-checked this with bicycle retailers in Wellington and they thought to be a little on the high side. So, to be conservative, I’ve used a 35% markup for conventional bicycles and 25% for electric and e-scooters. This gives a total spend of $392m. Even with the more conservative mark-up, our spending per person is slightly higher than Australia, which is probably a result of our weaker currency. Australia’s total cycle-related purchases (excluding tourism which we will come to below) were about 2.7 times the spending on cycles alone. Assuming this result holds in New Zealand the gross cycling-related spend would be $1.069b.

The other major component of the Australian analysis by EY is a figure for cycle tourism. Given the relative importance of tourism to New Zealand’s economy this is less likely to follow the same per capita spending trend and is worth separating out. The MBIE work on the economic benefits of the Great Rides put the spending in regional economies as a result of cycle journeys (food, transport, accommodation) at $951m. This analysis was undertaken in 2020/21 so cycleway use was likely disrupted by Covid (when tourism was mostly domestic). Given this context there is uncertainty around these numbers but overall they are likely to be conservative as the Great Rides network covers only a portion of total cycle tourism. When updated for inflation the total spend on cycle tourism is $1.16b. As predicted, this compares favourably on a per capita basis with the Australian total of A$1.885b.

Together, this suggests a total direct spending of $2.229b on cycling and e-scooters in New Zealand. Thanks to the impact of tourism this is much higher per capita than Australia. Assuming the same ratio of value added to total spend applies here as in the Australian study, the value-added portion of this is $1.182b.

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Cycling’s contribution to health

The Australian study put the health benefit of cycling at A$954m, made up of:

• avoided healthcare costs — A$313m

• productivity benefits — A$540m

• value of life years gained — A$101m

New Zealand estimates of the health benefits are considerably higher per capita. According to the Domestic Transport Cost and Charges (DTCC) study, cycling generates an average health benefit of $1.51 per kilometre travelled. With around 436 million km of travel by bicycle every year, this adds up to a total benefit of $658m.

In large part this difference will be due to the value of a saved life that is used in each country. New Zealand’s value is over twice that used in Australia, even accounting for differences in the value of the currency. Here in New Zealand there are valid questions over how appropriate it is to use the value of a saved life more broadly than the use it was designed for; namely in reducing the road toll.1 However, there is currently no better alternative.

Even accounting for this, there are still differences in the size of figures beyond what we would expect given comparable cycling levels in the two countries. This is likely due to methodological differences. The Australian study only counts the health benefits when cycling is crucial to an individual meeting their recommended daily or weekly exercise guidelines. The New Zealand methodology applies a simple average benefit per km travelled.

It is beyond my capacity to ascertain which methodology best stands up to scrutiny. On face value we should expect declining marginal returns to exercise, which suggests the Australian approach is more valid. However, the idea that exercise only has benefits in such limited circumstances seems overly conservative. Also, New Zealand’s estimates already take some account of diminishing marginal returns to exercise: In the monetised costs and benefits manual, NZTA estimated the marginal benefit of encouraging an otherwise sedentary person to take up cycling. This estimate is even higher; $4.90 per km of cycling on a conventional bike, and $2.50 per km of cycling on an e-bike.

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Reduced costs (benefits) arising from cycling as a mode choice

The DTCC study highlights a few other benefits arising from cycling as a mode choice that the Australian study doesn’t pick up, including personal travel cost savings and benefits to other road users/ society.

These numbers are based on the long term average per km cost of travel, comparing the cost of travel by bicycle with the cost of travel in a private passenger vehicle (assuming average occupancy). This assumes that the journey has value and that the alternative – if a bicycle wasn’t used – would be to use a private car to make the same journey. Given that 90% of trip km are taken by this mode, this seems a reasonable counterfactual. However, it is worth noting that a more sophisticated analysis would take account of all modes.

The numbers are long term average costs in that the cost of asset ownership is averaged over all trips using that mode. The difference between the two is a reduced cost (or benefit) due to cycling as a mode choice. Given that these are “average” costs and bicycles are more likely to be used in congested urban environments with expensive parking, they are likely to be an underestimate of the total savings of using a bicycle.

The table below sets out the cost estimates per km for cars and bicycles, the savings per km accrued by bicycles, and the total monetary value of these savings each year.2

This is derived by multiplying the cost saving per km by the total number of km travelled by bicycles. According to the Household Travel Survey the average distance travelled by bicycle between 2020-23 was 436m km per year, made over 102m legs (or 4.27km per trip leg).

Big numbers like savings of millions of dollars can come across as hypothetical. A more tangible number for people to grasp might be the savings that each person makes by cycling. Given that the average leg is 4.27km, the average return trip by bicycle saves around $4.70. Assuming that a person working a standard five day week makes 80% of their commutes by bicycle then that person would save $855 per year. The health benefits are about triple that figure; while that might not directly save people money it could displace the need to spend between $800-1,700 on a gym membership.

Summary

As a quick recap we have the following estimates for NZ:

1. economic value-add (GDP) attributable to cycling (cycles, cycle-related spend, tourism) — $1,182m

2. health benefits from cycling — $658m

3. personal travel-cost savings (lower operating and parking costs, faster journeys) — $239m

4. Benefits to other road users/society from cycling (mostly reduced congestion) — $144m

As we have seen with the Australian EY study there is a tendency to use this sort of analysis to come up with a big, attention-grabbing number. I don’t intend to recreate that here, but I will note a couple of points for those that might wish to.

First, as I have noted, cycling has multiple benefits. Many of these are impossible to value.

Second, those that can be valued don’t always make sense to sum into one figure. This is because the values are based on different perspectives of who benefits from cycling. In particular, it is counterintuitive to combine cycling’s contribution to economic activity with the personal cost savings from cycling. This is because the benefits in one category (cycle and cycle related spending, number 1 above) become a cost in the other (personal cost savings, number 3 above).

Third, the remaining figures (health and benefits to other road users/ society, number 2 and 4 above) are externalities from cycling as a mode choice, which could conceivably be added to either number. While the health estimates may be uncertain, given that not all benefits of cycling are captured the overall figure seems unlikely to be an overestimate of the total value generated.

Concluding thoughts for future analysis

This is by no means a comprehensive analysis of the costs and benefits of cycling. Many of the benefits in particular are likely to be missing and could only be captured by, for example, sophisticated survey techniques. However, a few interesting points in the analysis could point to further work.

One is that 98.5% of cycle trail users at the time of this analysis were New Zealanders, presumably due to Covid reducing international tourism during that period. Given its tourism benefits, the value of cycling to the users must extend past the direct cost savings.

A second point is that this result is indicative of a significant “consumer surplus” from the act of cycling. For example, this could include the health benefits. An estimate of this consumer surplus could be estimated via a willingness to pay survey for cyclists (particularly when they can do so safely).

My final point is the meteoric rise in sales of e-bikes and other micro-mobility in recent years. This is a trend worth watching closely, and one that could potentially transform the way Kiwis travel.

By Geoff Simmons

This work was undertaken in my private capacity. With thanks to Caroline Shaw and Stu Donovan who offered comments and helped me navigate the murky depths of the DTCC study. All errors are my own!

Part 1 concludes that use of the SRTP can induce the wrong decision on the acceptance or rejection of a risk-free non-commercial public sector project.

Risky projects

Risk-free projects are a useful benchmark. However, risk is an inescapable feature of the real-world, so it should not be assumed away.

Consider a non-commercial project requiring an investment now of $100m and delivering an uncertain payoff in ten years’ time with $160m expected. I’ll assume that the current ten-year real government bond rate is 4%.2 If the payoff had no risk, it would be $160m for certain and would warrant discounting at 4%, giving rise to a present value for the future payoff of $108m, which exceeds the investment now of $100m and therefore the project would be socially desirable.

Suppose the uncertainty in the payoff is positively correlated with the general state of the economy at that time. This is “systematic” risk. The parties who will experience the consequences of this systematic risk are the general public, and the risk (in the form of the project’s benefits being higher or lower than their expectation of $160m) will be felt by the general public. This risk will be systematic if it is correlated with GDP at the time. An example of this is a health project whose benefits are the saving of Quality Adjusted Life Years (QALYs), which are conventionally valued at GDP per capita.3 Higher GDP means higher benefits from the project, and therefore positive systematic risk.

Furthermore, people in general are averse to risks, and especially to systematic risks because these cannot be mitigated by diversification. The expected rate of return on a typical portfolio of equities is about 6% more than the government bond yield, and this “market-risk premium” is a manifestation of the risk aversion of those who own equities, either directly or indirectly through an investment intermediary (such as a fund managing a KiwiSaver account).4 The 6% premium is a manifestation of the risk aversion of a large proportion of the general public, and therefore a good indicator of the risk aversion of the rest. So, it should be used for public-sector projects whose systematic risk matches that of a typical portfolio of equities, with a higher or lower rate used if the project’s systematic risk is higher or lower, i.e., if its beta is more or less than 1. If its beta is zero, no adjustment for systematic risk is warranted.

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However, the Ramsay model does not allow for systematic risk. This is unsurprising because it was developed in 1928, which was over 30 years before the concept of systematic risk was even recognised in the economics literature and reflected in the first (1964) version of the Capital Asset Pricing Model (CAPM). Versions of CAPM are currently the premier models for determining the premium for risk in any SOC.5 So, the Ramsay model is unsuitable for assessing a risky non-commercial project. The model does allow for annihilation risk — but this is not systematic risk and constitutes only a small fraction (about 1/40^th) of the Ramsay discount rate whilst systematic risk is the dominant component of the default rate in Treasury’s SOC model.6

In a paper accompanying The Treasury’s work, Grimes notes that under certain conditions the SOC and SRTP coincide, and therefore either could be applied to a risk-free project. He then adds that “In each case, an appropriate risk premium would be added to the risk-free rate.”7 However, The Treasury does not add an allowance for risk to its SRTP, contrary to the advice of Grimes.

Returning to my example of a risky project, suppose that the systematic risk on it is similar to that on equities in general. Its discount rate should then be raised by 6% to compensate the general public for the risk they face on that project. Doing so raises the discount rate from 4% to 10%, and the present value of the project’s payoff then falls to $62m, which is less than the investment of $100m. This signals that the project should be rejected.

Equivalently expressed in compounding terms, faced by a project costing $100m now and delivering a payoff in ten years with an expectation of $160m and subject to systematic risk comparable with equities in general, investing the $100m instead into equities with the same systematic risk (at 10% per annum compounded for ten years) would give rise to an expected payoff of $260m, which would just compensate taxpayers for the risk they would experience. This expected payoff of $260m is far higher than the expected payoff of $160m from investing in the project. Accordingly, the expected payoff of $160m on the proposed project would not adequately compensate taxpayers for the systematic risk they would experience. Adoption of the project would therefore leave society worse off, consistent with the results of the discounting exercise using a rate of 10%. Accordingly, it is not in society’s best interests to discount the project’s benefits using an SRTP of 2% when the real government borrowing rate is 4% and the compensation for systematic risk is 6%.

Conclusions

In summary, Treasury has changed it discount rate methodology for assessing non-commercial projects, from use of the SOC to a schedule of SRTP rates determined in part by the Ramsay model. Using that latter model the Treasury estimates the SRTP at 2% real for payoffs in years 1-30, and lower rates for payoffs in later years determined in accordance with the Weitzman analysis. SOC rates are market based, and designed to determine the market value of the project. The market value of a non-commercial public-sector project is not meaningful and therefore it might seem that market-based rates are irrelevant to them. However, even when not being used in discounting exercises to determine market values, market costs of capital are still project costs relevant to the assessment of non-commercial projects. This can be demonstrated through compounding exercises.

In particular, if a project with payoffs up to 30 years away has some systematic risk, the Ramsay model will not take account of it. This may lead to accepting some projects whose expected payoffs are insufficient to compensate society for the systematic risk it bears, and such projects should be rejected. Even if a project with payoffs up to 30 years away has no such risk, but the current real government bond rate is more or less than 2%, the Ramsay model will again lead to accepting some projects whose benefits do not cover the cost of borrowing to finance them (and are therefore undesirable to society), and rejecting some projects whose benefits do cover the cost of borrowing to finance them (and are therefore desirable to society).

The Ramsay model is only suitable for a project with no systematic risk and when the real government bond rate is currently about 2%. Even in these idealised conditions, it has no advantage over simply using the current real government bond rate. These comments about the Ramsay model also apply to any discount rate that does not appropriately allow for systematic risk or fails to apply the current government bond rate to risk-free projects.

By Martin Lally

Dieter Katz, in a recent Asymmetric Information post, described these changes and explored some consequences.

In this post I’ll dig deeper into how Treasury came up with the rate for the SRTP. I’ll explain how using it may induce the wrong decision on the acceptance or rejection of risk-free non-commercial public-sector projects. In part 2, I’ll explain how this conclusion extends to risky projects.

The social opportunity cost of capital approach

The SOC methodology is intended to determine the market value of a project. It accords with standard private-sector practice in relying on market costs of capital, most particularly the yield to maturity on government bonds plus a premium for risk determined from expected rates of return on listed equities. Since the private but not the public sector pays company tax, the SOC is raised to offset the tax difference and therefore match the value that the private sector would place on the project.

The SOC default rate is 8% real, but a different rate can be used if its systematic risk does not accord with the default value of 0.67. This SOC rate is applied to “commercial” projects, i.e., those that might be undertaken by both the public and private sectors.

The social rate of time preference approach

By contrast, the SRTP is a discount rate applied to the benefits and costs of public-sector projects, so as to determine those projects whose adoption would be beneficial to society. It does not use market costs of capital.

There are various ways of estimating the SRTP. The Treasury Circular’s links to relevant material suggest that it is based upon Treasury’s Working Paper 25/01, because the conclusions in that Working Paper exactly match the rates prescribed in the Treasury Circular.3 The Working Paper estimates the rate at 2% real for payoffs in years 1-30, using the Ramsay (1928) model, and lower rates for payoffs in later years in accordance with the Weitzman (1998) analysis.4

The Ramsay model involves a number of components, of which the largest is the product of the expected growth rate in real consumption per capita and the elasticity of marginal social welfare with respect to consumption. The Treasury applies these rates to “non-commercial” projects.

This post focuses upon the use of the Ramsay model to determine the 2% discount rate on non-commercial projects with payoffs up to 30 years hence.

As noted, the role of the SOC is to determine the market value of a project. In so far as non-commercial projects are clearly identifiable, and therefore the public sector is not competing with the private sector over these projects (now or in the future), the market value of a non-commercial project is not meaningful.

It might then seem that the public sector would be free to choose its discount rate methodology for these projects without being bound to the use of market costs of capital. This conclusion is not correct. Even when not being used in discounting exercises to determine market values, market costs of capital are still project costs relevant to the assessment of even non-commercial projects. This can be demonstrated through compounding exercises.

Assessing risk-free projects

Since the New Zealand government runs fiscal deficits, the marginal effect of the public sector undertaking a non-commercial project is to increase public-sector borrowing, which incurs the government borrowing rate.

Suppose a non-commercial project requires an investment now of $100m and generates real non-commercial benefits of $130m (for certain) in ten years. Suppose also that the current real ten-year government borrowing rate is 4%.5

Using the SRTP of 2%, the present value of the future payoff is $107m, which exceeds the investment now of $100m and therefore the project seems desirable. However, if the real ten-year government borrowing rate was 4%, the present value of the future payoff using that rate is $88m, which is less than the investment now of $100m, signalling that the project should not be adopted.

To more clearly appreciate the social undesirability of this project, suppose the government borrowing for the project was structured so that all interest and principal payments occurred in ten years. At that point, the (compounded) sum of interest and principal payments would be $148m, which exceeds the project payoff at that time of $130m. Investing in the project would therefore inflict a loss on society of $18m in ten years’ time, for certain. So, the project should be rejected.

Discounting the project’s benefits using the government borrowing rate and comparing this to the initial investment is mathematically equivalent to the compounding exercise, and therefore provides the correct signal even though the market value of the project is not meaningful here. So, discounting a risk-free non-commercial project at any rate other than the government borrowing rate may lead to a wrong decision (in this example, by accepting a project that leaves society worse off). Even if the project’s benefits arrive outside the lifetimes of those currently living (an “inter-generational project”), the generation receiving benefits of $130m will not be thankful for the accompanying need to pay $148m to the capital suppliers.

It might be argued that the benefits of a risk-free project to society are quite different to the benefits to a private-sector firm, and therefore the SRTP could differ from the government borrowing rate. For example:

“It is possible that individuals in their political roles as citizens might be more concerned about future social outcomes than is reflected in their day-to-day decisions about their own personal consumption and investment. … This would mean that the discount rate implied by a market-based SOC would be too high for certain public projects, particularly in the social sector, as it would overlook preferences that would tend to lower the discount rate. An SRTP approach is a direct way of trying to capture these preferences.”6

However, in the context of the above example, the preferences of “individuals in their political roles as citizens” are reflected in the figure of $130m ascribed to the project payoffs. By contrast, the figure of $148m is payment to capital suppliers at the prevailing government borrowing rate of 4% per year and those lenders neither know nor care how government uses the money. Since 4% is the rate paid, it must be the rate used to determine the payment in ten years (of $148m), and therefore it must also be the rate used in the mathematically equivalent discounting process. At such a rate, the payoff of $130m does not cover the payment to capital suppliers and the project therefore leaves society worse off.

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The example above is concerned with a situation in which the current real government bond rate exceeds the SRTP and the difference in rates leads to acceptance of the project when using the SRTP and rejection when using the real government bond rate. Of course, there will be occasions when the two rates match, and other occasions when they give rise to the same decision despite the rates differing. In such cases no harm would be done in using the SRTP. However, there will sometimes be times when risk-free projects that should be adopted (when properly assessed using the government bond rate) are instead rejected when using the SRTP, and therefore society would be worse off by applying the SRTP. There will also sometimes be times when risk-free projects that should be rejected (when properly assessed using the government bond rate) are instead accepted when applying the SRTP, and therefore society would again be worse off by using the SRTP.

The extent of this problem depends upon the variation over time in the real government bond rate, and it is substantial. The yields on inflation-indexed government bonds issued in November 1995 and maturing in February 2016 ranged from 1.0% to 5.9% over their life. Those issued in November 2012 for maturity in September 2025 have so far ranged from -1.0% (the minus sign is not a typo) to 2.8%.7 An SRTP of 2% is within the range but well above the lowest yield of -1.0% and well below the highest yield of 5.9%. With such variation over time in the real government bond rate, it is highly likely (in respect of risk-free projects) that use of a SRTP of 2% will frequently lead to decisions that leave society worse off.

The analysis above assumes that the government is running a deficit, and therefore finances public-sector projects by borrowing. If the government was not running deficits, and therefore financed projects from taxes, those taxes would come from taxpayers just as a firm investing in a project with equity finance acquires those funds from its shareholders. Taxpayers have alternative uses for those funds, and an alternative with the same (zero) risk would be for taxpayers to invest the $100m into government bonds (which pay the government bond rate). To benefit society, the proposed project must do at least as well as this, i.e., deliver payoffs in ten years of at least the $148m taxpayers would receive if they retained the $100m and invested it in government bonds for ten years.8 However, undertaking this project provides a payoff of only $130m in ten years, which is inferior to taxpayers retaining the funds and using them in other ways. One such way is to invest in government bonds that deliver $148m in ten years. Since the project must do at least as well as the government bond rate per year to make taxpayers better off, the present value of its benefits must be discounted using the government bond rate and this must be at least the initial investment. So, regardless of whether a risk-free non-commercial public-sector project is financed by government borrowing or taxes, the benefits must be discounted using the government borrowing rate.

The above analysis assumes that the SRTP rate of 2% is based entirely upon Treasury’s Working Paper 2025/1, and therefore upon the Ramsay model. However, Treasury has drawn my attention to an OIA request that indicates that the 2% rate places some (unspecified) weight on the estimate for the Ramsay model (using an earlier version of Treasury’s Working Paper 2025/1) and some on the prevailing real government bond rate.9 The weights are unclear because both approaches gave rise to an estimate of 2% at the time. In so far as some weight is placed upon the real government bond rate prevailing at the reset point, the resulting estimate of the SRTP will tend to be closer to the prevailing real government bond rate. This reduces errors arising from using an SRTP in assessing projects at that time. It does nothing to address errors arising from the real government bond rate changing over the following three years whilst the SRTP remains fixed.

The Ramsay model is only suitable for a project with no systematic risk and when the current real government bond rate is about 2%. Even in these idealised conditions, it has no advantage over simply using the current real government bond rate.

Risk-free projects are a useful benchmark. However, risk is an inescapable feature of most real-world projects. In part 2 of this post, I’ll extend this analysis to risky projects.

By Martin Lally

The Black Death and the rise of Europe

Our first entry The World the Plague Made: The Black Death and the Rise of Europe (Princeton University Press, 2022) is from leading New Zealand economic historian Jamie Belich, until recently at Oxford University. Perhaps he is most well-known at home for his books and TV series challenging conventional views of the Māori Wars, “New Zealand's civil wars” as he referred to them. In his recent book he challenges the "pessimists" view that the Black Death left Europe devastated and impoverished for decades after the initial pandemic in the mid fourteenth century.

(I have had a long standing interest in the plague ever since the first question on an examination paper for admission to my doctoral programme was: Analyse the economic consequences of the plague. I struggled with the answers to a couple of other questions, but a good answer to this got me through.)

The central thesis of the book is encapsulated in its title, namely that the impact of the plague had far-reaching consequences and shaped the history of Europe for centuries. In particular, the more immediate consequence (from 1350 to 1500) was an economic boom, which the author argues could be regarded as a "golden age".

This "optimists" view rests on the simple and now obvious fact that the plague killed an estimated 50% of the population; but the non-human capital of societies was untouched. The lands, the farms and their livestock, the roads, ports, ships – in short, the infrastructural capital of society — was still there. So the simple arithmetic follows that per-capita wealth doubled. The story that Belich tells stems from this fact.

The shortage of labour lead to a significant rise in real wages and disposable incomes, which benefitted a wide swath of society from landless peasants and labourers, to petty traders and merchants. Concomitant with the rise in incomes was an expansion in aggregate demand especially for "luxury" items like spices, sugar and fine textiles hitherto unattainable for all but a few. This in turn lead to innovations in labour saving technology, to greater use of waterpower, to increased international trade, to bigger and faster ships, and to institutional changes in finance and business. By the 1700s, when the population numbers eventually recovered, the expansion ran out of steam. But the aftermath of the plague had already shaped much of Europe.

In an effort to assign causality to the plague in underpinning and moulding so much of society, economies and technology, the author at times needs to draw a long bow. But he is careful to distinguish between examples where he finds solid documented evidence and those where he suspects it was the plague that "caused" what followed.

A study of this nature always demands that we consider the counterfactual; namely how, in what ways, and at what speed would Europe have developed without the plague? There are never easy answers to these questions. One might try and extrapolate from the pre-plague economic growth rates; or one might compare the performance of “similar" economies escaped the plague. Both have their challenges and limitations.

In a lecture at Balliol College in 2024 the author indirectly addressed the counterfactual, hinting that absent the plague, there would have been some expansion but "I doubt Europe would have expanded and developed so much without the Blank Death's terrible pruning."

In addition to the central theme, the book contains an enormous amount of associated history reflecting a huge amount of research (and resulting in 640 pages).

Careless people

Our next New Zealander has been making headlines of late: Sarah Wynn-Williams author of Careless People: A Cautionary Tale of Power, Greed, and Lost Idealism (Flatiron Books, 2025). Wynn-Williams was born in Christchurch and graduated with a Masters degree in Law from Victoria University.

She has had what has to be called a "stellar" career: at only 45 years old she has worked on international security, international law, and human rights at the United Nations General Assembly; served as the Chief Negotiator for the United Nations on biosafety liability; practiced law at Mallesons, Stephen, Jacques law firm in Sydney; been seconded to Niue’s Attorney General’s Office to work on counterterrorism measures and human rights issues; managed the political affairs and government relations office at the New Zealand embassy in Washington, DC; been appointed as an adjunct law lecturer at Victoria University; and most recently, Sarah been Head of Relations with the World Bank and IMF for Oxfam International.

Of particular interest here is that part of her career at Facebook (now renamed as Meta). After leaving the NZ Embassy position, she joined Facebook in 2011 (after pitching for a job which they created for her) and became the Director of Global Public Policy. In this role she made countless trips (in the CEO's private jet) to many countries "selling" Facebook, or more often than not negotiating to minimise government regulations that constrained Facebook or even in some cases threatened to shut it down. In 2017 she was fired. What happened in the intervening years is documented in a tell-all book.

The longer she worked at Facebook the more disillusioned she became. Her disillusionment has two major strands: personal and corporate. On the personal side she documents a toxic work environment, very family-unfriendly with brutal working hours, "compensated" for by many benefits from free meals at work, transport from home and even laundry service – all designed to save time from the daily chores of life and consolidate the power of Facebook over employees. She was made to work during a brief maternity leave and was sending emails from her laptop when propped up in the delivery room minutes away from the birth of her first child. Sexual harassment was ever present, including insistence by one senior manager, Sheryl Sandberg (number 2 to CEO Mark Zuckerberg) that Sarah go to bed with her (the refusal was not career enhancing).

On the corporate side, she constantly raised concerns about Facebook's disregard for potential harms the platform might create and its arrogant and superior attitudes toward governments and even heads of state. She documents how in the lead up to the 2016 US presidential election, Facebook had a team embedded in the Trump campaign. A data base named Project Alamo was created with the individual profiles of 220 million people in the USA. It encompassed such things as gun registration, voter registration, credit card and shopping histories, websites visited, type of vehicle they owned and the last time they voted. Facebook used its algorithms to send targeted messages to individuals — many of the ads contained inflammatory misinformation that drove down the price of advertising. As a voter suppression tactic, they sent dark posts as targeted at three groups of Democrats: young women, blacks, and white liberals.

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The author describes how many times over an extended period she considered resigning — sometimes arguing that she could not afford to, or to lose health insurance (a claim that did not ring very true, given the eye watering salaries they were paid).

Meta's poorly conceived attempt to gag the author and stop her promoting the book, as well as attempting to enforce a non-disparagement agreement and legal manoeuvres to shut her down (or up?) have done more to increase sales than the inherent literary quality of the book would ever have justified. But the book reveals the good, the bad and the ugly of corporate power – and that is a contribution.

A clash of cultures

Continuing the theme of New Zealand authors, but departing from the usual fare, I offer a novel (no, not economics per se!)

Lauren Keenan (Ngāti te Whiti o Te Ātiawa) has written a gripping piece of historical fiction, The Space Between (Penguin 2024). Set in Taranaki in 1860, its central theme is the clash of cultures between Māori and the settlers. There are two central characters: Frances, a 30 year old spinster who has migrated from London after her family fell on hard times; and Mataria, a Māori woman married to an Englishman, a fact which largely results in rejection by her own iwi.

Mataria is a former slave who impresses the reader with her dignity throughout the book: "Why should I swear allegiance to a queen I have never met?" and "why would I require a pass to walk on the land where my ancestors have been for generations?"

The juxtaposition of the two cultures is underscored by the literary technique of having Frances and Mataria tell their stories in alternating chapters. Neither woman feels fully comfortable and accepted by their own culture, and hence tend to fall in the space between.

This is a beautifully written book with deep insights into an aspect of New Zealand history. One can appreciate why in 2025 it has been awarded the New Zealand Booklovers' Award for the Best Adult Fiction.

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Oil is a tranquilizer

Weshah Razzak has had a distinguished career as an economist, academic and consultant. Throughout his career he has published extensively. Few "retired" economists could match his recent research output. The following are three books he has published recently since leaving full time employment.

In Inflation Dynamic: Global Positive Economic Analysis (Routledge, 2023), Razzak analyses inflation using time series data for 42 countries from 1960. The work is based on clearly specified hypotheses and careful econometric testing. The influence of monetary policy such as inflation targeting (where New Zealand was a leader) is assessed. Theory and estimation of the Phillips Curve is addressed in detail. There have been a range of "newer" theories and models of inflation. The author considers twelve such theories, including the fiscal theory of the price level and Modern Monetary Theory. Readers will find this compendium of these alternative theories a valuable guide.

Razzak spent nearly a decade as an economic adviser in the Middle East; firstly at the Arab Planning Institute in Kuwait, and later at the Central Bank of Oman. The following two books reflect the depth of his experience and understanding of the economics and politics of the region.

The (uncontroversial, but nonetheless interesting to explore) central thesis of The Future of Economic Development in the Gulf Cooperation Council States: Evidence-Based Policy Analysis is that these oil-rich countries are facing a finite non-renewable resource, and will inevitably have to adjust their fiscal policies to achieve sustainable budget and current account balances; and perhaps more importantly institute changes in the structural and institutional settings.

In the final entry, OPEC’s Dilemma and the Future of Oil: Navigating the Path to Net Zero (Routledge, 2024), Razzak highlights the challenges for OPEC of a world moving to net emissions of zero by 2050. The oil sector in each of the producing countries is a state owned monopoly with strong entrenched interests. The author makes the case for a more competitive structure which could respond more effectively to changes in world markets.

Moving toward net zero will reduce global oil demand and depress prices. OPEC may cut production to hold up prices, but reduced output means a lower GDP for those countries. OPEC countries are well aware of the need to diversify their economies, but the ongoing dependence on oil tends to kill off the incentives for faster industrialisation and improved productivity in the non-oil sectors (shades of Dutch Disease). As Razzak says, "Oil is a tranquilizer especially when the price is high". Anyone with an interest in the future of fossil fuels, emission reduction, and climate change will benefit from this book.

By Grant Scobie

»»»» Previous issues of 2B RED.

Specifically, the Treasury now recommends distinguishing between commercial proposals and those with environmental or social outcomes. For commercial proposals, it proposes an updated discount rate of 8%, consistent with the approach taken by the Treasury in previous years, but for social and environmental proposals it now proposes a discount rate of 2% for short-term proposals of less than 30 years, declining to 1.5% and 1% for proposals of long duration (30+ years).

Before this change in policy, all proposals were discounted at the same rate, except for adjustments to reflect different risk profiles. So, the main change is a very large reduction in the discount rate for both short- and long-term social and environmental proposals.

The Treasury has not disclosed its justification and its thinking in writing. However, at a recent seminar,1 its representatives said that they had placed heavy reliance on a paper by Professor Arthur Grimes, which is on Treasury’s website.

There are three main reasons why I think this change is problematic. I will explain these in turn.

1. The distinction between commercial, and social or environmental proposals, is muddy

Professor Grimes’ paper says that “the use of dual (or, more generally, multiple) discount rates embodying different rates of pure time preference for different goods can reflect differing societal weights placed on future streams of services from differing goods.” He recommends that dual discounting should be investigated further. Further investigation seems sensible, since neither he nor the Treasury identified any empirical research that would provide a basis for a 2% discount rate for social or environmental proposals.

In any case the distinction between “commercial” and “social” proposals is far from clear. Most government initiatives have elements of both. The guidance in the Treasury Circular is difficult to apply. This creates scope for inconsistent application, and for agencies to classify proposals strategically to benefit from the lower rate.

To illustrate, consider the construction of a new road. The main benefit is usually travel time savings. There is no market for these. Is it therefore a “social” investment? Applying the criteria in the Treasury circular, I find “industry and trade” impacts, and “business and economic” impacts. But there is no expectation of a commercial financial return, the road will not compete with commercial private sector firms, risk is not commercialised, and investments are not “partially privately financed on a commercial basis”. There are distributional, equity, public safety, health, environmental and climate change impacts. On balance, it would therefore seem to be a social investment.

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But if consideration is being given to whether the government should build the road itself or whether to let a contract under a public-private partnership (PPP), then using a 2% discount rate would massively bias the choice towards government provision.

2. Opportunity cost ignored

Neither the Treasury guidance nor Professor Grimes’ paper, nor the technical paper on Treasury’s website that sets out the calculation of the social rate of time preference (SRTP), seem to take into account the opportunity cost of resources employed.2

Opportunity cost is a fundamental concept in the theory of value. It refers to the value of the next best alternative foregone. In other words, it’s what you give up to get something else.

The discount rate is in effect a hurdle rate of return. It means that proposals with a rate of return exceeding the discount rate are acceptable for investment. If another proposal has a higher rate of return, then that means that it too would have a positive net present value (NPV), even under a higher discount rate.

If the discount rate is set so that it represents the rate of return of the most valuable proposals available to government, then in effect it becomes equal to the proposal’s opportunity cost. 2% does not represent any investment’s opportunity cost, as clearly it is possible to invest at a higher rate of return.

It is important to remember that the thrust of the Treasury’s long-standing CBA guide is to provide methodologies to adjust all intangible and other non-market values to a common metric so that they are comparable to market values. So, why should one accept a proposal with a 2% rate of return, when there clearly are other ways of investing resources that yield more value?

3. Lack of transparency

At the recent seminar referred to above, the Treasury representatives indicated that the purpose of the change was “to promote long-term social and environmental outcomes relative to purely commercial proposals”. However, it is clear from the Treasury circular that the low rate also applies to social and environmental proposals that are short-term.

The Treasury, and Professor Grimes’ paper, justify promoting certain kinds of proposals over others with an appeal to ethical considerations. But the ethical views espoused by the Treasury will not necessarily be shared by other officials, economists, the government of the day, or by the population at large. It seems inappropriate for such views to be buried in a technical device that most non-economists don’t understand. Decision-making would be more transparent if decision-makers are presented with a neutral analysis. Ethical or political considerations should be introduced into decision-making separately.

A low discount rate can also represent a hidden subsidy. Consider the example of a museum or a park, which might have a low rate of return even when visitors’ valuations (willingness to pay) and other intangible values are taken into account. The Treasury would presumably classify these as social investments. It is legitimate for government to make such investments. But if the CBA is given a low discount rate and the cost of capital is not recognised, then not only will the project seem cheaper than it is in opportunity cost terms, it will add to Crown debt, and create an interest rate and repayment liability that is not recognised by the CBA. It will involve a subsidy that is partially hidden at the time of making a decision, reducing fiscal transparency.

Other considerations

Much discussion about the choice of discount rate seems to be motivated by a concern about the impact of climate change on future generations, or more generally by a concern about environmental degradation and species extinction.

The consequences of climate change are a unique and unprecedented problem for the world. A CBA, which is a partial equilibrium analysis, is not the right tool for this. This is well argued in a 2022 paper by Stern, Stiglitz and Taylor.3

A common rationale for using lower discount rates is that high rates "de-value" the future, leading to little value being placed on environmental degradation that impacts on future generations. But this ignores that scarce or irreplaceable resources tend to increase in value. A well-conducted CBA should reflect this in its forecasts. Often this has not been done very well, and maybe this is where the Treasury should look to develop more guidance. Lowering the discount rate is a blunt and imprecise way to distinguish between replaceable and irreplaceable resources.

A more general observation is that people often seem wedded to a particular solution or outcome, and don’t like the fact that discounting “de-values” that solution. As Grimes illustrates in his paper, any value discounted over 100 years becomes almost negligible. But this is looking at the issue through the wrong end of the telescope. A more positive approach is to remember that a proposal usually involves a consumption sacrifice (an investment of some kind), which it is hoped will provide positive future outcomes. The aim is surely to find the proposal that maximises the value of those future outcomes relative to the sacrifice made. To illustrate, if we invest $1 today in a project that has a 5% rate of return, and the benefits accumulate over 100 years, then that $1 will grow to more than $130 in 100 years’ time. But if the project only has a 2% rate of return, then over the 100 years the $1 invested will only grow to $7.24!

Conclusion

It is not clear what the Treasury is basing the 2% discount rate for social and environmental proposals on. On the one hand, they derive it from a theoretical calculation of the SRTP, which however ignores the opportunity cost of capital; on the other they claim it to be motivated by ethical considerations.

Moreover, the distinction they are drawing between commercial and other kinds of proposals is far from clear. And it ignores the long literature on economic valuation methodologies to enable comparison of social and commercial values side by side.

Decision-making would be more transparent if decision-makers are presented with an analysis that is as neutral as possible, as has been the practice to date, using a discount rate that has some empirical basis and reflects the opportunity cost of capital. Any ethical or political considerations should be presented to decision-makers separately.

By Dieter Katz, ex-Treasury official.

This is an important topic and is something that has been of interest to economists for decades. Indeed, J. M. Keynes famously said in 1933, “look after the unemployment, and the budget will look after itself.”

Keynes argued that during economic downturns, government spending, especially on welfare, would increase while taxes would fall. When the economy improves, welfare spending should decrease, and revenues rise, automatically balancing the budget.

However, as Robert Skidelsky, a biographer of Keynes, noted in 1996, the idea of letting the budget look after itself “would be fine if budget deficits were purely cyclical, as they were in Keynes’ day. But they are now structural products of steady upward pressure on spending, combined with tax resistance.”1

Beware the debt ratchet

The result is that debt can build up during recessions and not be cleared during booms, leading to a debt ratchet. It is, as the Treasury argue, easier to increase spending during downturns than to cut it during upturns, potentially leading to rising debt levels over time.

Further, the relationship between fiscal policy and economic shocks and the business cycle does not just go in one direction. Not only do economic conditions affect fiscal policy, but fiscal policy influences these conditions themselves.

With all of this in mind, the Treasury drew several conclusions on the role of fiscal policy. I have summarised some of the highlights below.

While both macroeconomic and fiscal policy should be “on the field” during a crisis, the primary tool for stabilising the economy should be monetary policy run by an independent central bank. Compared to fiscal policy, monetary policy changes can, the Treasury reckon, be deployed more quickly, and are more easily reversed.

Nonetheless, fiscal policy does have a role to play, particularly when monetary policy is constrained, where there is concern for maintaining key government services, or for achieving distributional objectives.

To avoid debt ratcheting up, the Treasury argue that rules for using discretionary fiscal policy need to be set out ahead of time. These rules need to ensure that discretionary policies are timely, temporary, and targeted.

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They also identify a menu of options, including policies such as lump-sum transfers to the public, and liquidity support or credit guarantee schemes for businesses. They emphasise that such options should be designed with clear exit strategies to avoid long-term economic inefficiencies.

Good governance plays a role too. The Treasury highlight the importance of transparency and medium-term fiscal sustainability targets. They also canvass the idea of establishing an independent fiscal institution.

As the focus shouldn’t just be on providing a fiscal ambulance at the bottom of the cliff, they highlight the importance of helping build up the resilience of the private sector. This can reduce the need for, and cost of, fiscal responses.

The key here is to maintain features of the economy that keep it flexible and adaptable to change, along with the building of what the Treasury calls “resilience infrastructure,” such as earthquake codes and private insurance markets.

They also reinforce the importance of maintaining prudent debt levels, which give future governments the fiscal headroom to respond to future shocks.

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Large shocks occur frequently

This isn’t just a consideration for some distant time in the future. We shouldn’t underestimate the frequency of large economic shocks. Indeed, the Treasury estimate that since the late 1980s the cost of government responses to shocks has averaged about 1% of GDP per year.

Longer-term considerations matter too, and these include interest rate and growth trends, along with long-term fiscal pressures from population ageing and climate change. While not the subject of the briefing released last week, the Treasury will revisit these topics in its Long-Term Fiscal Statement later this year.

In the meantime, the Treasury is encouraging submissions on its Long-Term Insights Briefing, which you can find on their website along with information about making a submission.

These topics are important and seem especially timely given the current international economic environment. A better understanding could help New Zealand navigate future challenges while safeguarding the wellbeing of future generations. I encourage NZAE members and other Asymmetric Information readers to read the briefing and let the Treasury know your thoughts.

By Patrick Nolan

The first launch of Blue Origin’s New Glenn rocket in January successfully delivered a payload to orbit. That success was only slightly marred by the explosion of the rocket’s first stage, while attempting an ambitious return to a waiting landing barge.1

The next day saw the 7th test launch of SpaceX’s giant Starship rocket. Its first stage aced its return to land, but the upper stage exploded during ascent — an RUD or “rapid unscheduled disassembly” in rocket-nerd language. Undeterred, SpaceX launched its 8th test on 6 March. This one was pretty much a re-run, including the explosion, which was visible from Florida and the Bahamas. Both failures have been attributed to harmonic oscillations in the system supplying methane to the rocket engines. SpaceX will no doubt try a 9th test launch in the next month or two, hopefully fixing this issue.

On March 30, European firm Isar Aerospace launched its new Spectrum rocket. Its flight lasted just 40 seconds, ending — you guessed it — with an explosion.2 Putting a positive spin on the outcome, a company spokesperson announced that they now have 40 seconds of valuable data, which could not have been obtained any other way.

NZ-US company Rocket Lab is developing a mid-sized rocket Neutron to replace its successful small-sized Electron. Neutron’s first launch is expected in the second half of this year. Fireworks might be expected …

These companies, along with other wannabes, are responding to radical shifts in the economics of space launch. But firstly, what’s so hard (and expensive) about getting stuff into space?

The physics of space launch is really punishing

Space launch reminds be of the early Everest expeditions. To get a team of say 10 climbers and their food and equipment to base camp, you needed say 100 porters. But then those porters needed food and equipment, requiring even more porters. Who also needed food and equipment, and so on. An expedition might start out 300 strong, sending porters home as food stocks are consumed.

Rocket design faces a similar problem. A rocket needs to carry all the fuel it might need, which makes it heavier, needing even more fuel. For example, the Saturn V rocket, which launched the successful Apollo missions to the moon, weighed nearly 3000 tonnes on the launch pad.3 90% of that was fuel.4

A 3000 tonne rocket was necessary to get around 130 tonnes to low-earth orbit. And of that 130 tonnes, just 5.6 tonnes made it back to Earth. The Apollo missions left a trail of debris behind. Hardware no longer required fell into the ocean; burned up in Earth’s atmosphere; or was abandoned on the lunar surface, or in orbits around the sun or the moon.

Rocket fuel is cheap, relatively speaking. But rocket hardware is not. It’s arguably more complex than aircraft hardware, which doesn’t come cheap. For example, a Boeing 777-300ER, a common long-haul jet, costs around US$375m. Airline travel is affordable because the fixed costs of aircraft get spread across large numbers of flights. A 777-300ER can, in theory, perform 60,000 trips, or up to 160,000 flying hours.5 A disposable stage of a rocket makes only one trip, which might last just minutes.

Reusability drives a cost revolution

For 50 years, space was the business of governments. And, among the many priorities of government, cost reduction rarely receives a high priority. This can be clearly seen in the following graph.6 (And yes, the Y-axis really does have a log scale. The bend would be much more dramatic if the graph had a linear scale.)

What was behind that bend? Reusability, combined with scale. To date, it's mostly a SpaceX story.7 It launched a used Falcon 9 booster in March 2017; since then it has launched over 400 of them, reusing individual boosters up to 26 times. In the process, SpaceX has radically reduced the cost of launch.

Reusability has also led to an improvement in reliability. As every engineer knows, brand new hardware hasn’t had the bugs ironed out. Customers noticed that reflown hardware is more reliable. Insurers have also noticed — insuring a launch on a reused rocket costs 25-40% less than one on a disposable rocket.8

SpaceX’s many competitors are racing to catch up on partial-reuse. Meanwhile SpaceX iterates towards full reusability of its Starship rockets … with the odd explosion along the way.

NASA’s space shuttle pioneered reusability. The shuttle had a reusable orbiter and solid booster rockets, with a disposable external fuel tank. However, as you can see in the graph above, the shuttle turned out to be more expensive on a $/Kg basis than its disposable predecessors.

There are many reasons why the space shuttle failed to turn partial reusability into lower costs. Robert Zubrin, founder and president of the Mars Society, attributes it a change in how NASA operated.

[NASA] “has two distinct modes of operation, and one I call the purpose-driven mode and the other is the vendor-driven mode. In the purpose-driven mode [e.g. Apollo], the purpose comes first, you spend money to do things. In the vendor-driven mode, you do things in order to spend money ...

“We have to have a program leadership which is committed … not as a way to get pet technology programs funded, or pet constituencies funded, or pet vendors funded, or any of that stuff.”9

My two-cents’ worth is that the shuttle required human pilots, which eliminated the possibility of iteratively refining its design by trying-and-failing. High consequences of failure also led to long and expensive testing and refurbishment between flights.

High costs and long gaps between flights led to fewer flights overall, and poor scale economies. In all, the shuttle flew 135 missions over a 30-year period. By contrast, 134 Falcon 9 rockets were launched last year alone.

Lower costs ⇒ increased demand, increased possibilities

With lower launch costs, many ideas have moved from the realm of science fiction to frenzied startups, and even into the hands of consumers. My standard mobile phone, when out of cell tower range, now connects to the GlobalStar network for SOS calls, and to the SpaceX Starlink network, for texting.10 Who would have thought that possible, even a few years back?

Old ideas like orbiting power stations are back on the cards. As is space tourism, for the very well heeled at least.

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Beyond reuse …

Under US$200/Kg to low-earth orbit will very cheap by historical standards. But low-earth orbit is really not that far away. The International Space Station, for example, orbits just 400 km above us. Space launch will likely remain outrageously expensive compared to air travel — I can fly the 500 km from Wellington to Auckland for around US$2/Kg (or even less on a discount fare).

The high costs of launch make anything actually in orbit very valuable. That potentially includes space junk — used launch vehicles and non-functional satellites. And where resources are both cheap to purchase11 and valuable in another use, there is the economic opportunity to recycle.

British startup Magdrive has announced the development of a revolutionary engine for satellites that uses solid metal as fuel. This technology could help utilize space junk — turning old satellites into an energy source for rockets proceeding beyond the confines of Earth’s gravity.

Explode, reuse, recycle!

By Dave Heatley

»» Other posts from Dave.

9

Faster, Please!

🚀 Mars or bust! My chat (+transcript) with aerospace engineer Robert Zubrin

In his famous 1962 address to Rice University, President Kennedy declared…

Listen now

a year ago · 8 likes · 3 comments · James Pethokoukis

Productivity performance is crucial for living standards, as Paul Krugman famously concluded that

“Productivity isn't everything, but, in the long run, it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

The Treasury has addressed the NZ productivity question in countless reports over the last three decades. A recent and comprehensive piece, by John Janssen, Margaret Galt and Giles Bollinger, is New Zealand’s Productivity Performance: Taking a Broader View.1 The authors make a valiant attempt to paint a rosier picture than is usually depicted, with some judicious adjustments to the measurement of productivity; but in the end are forced to conclude that even these fail “to restore New Zealand’s past productivity or income relativities against high-income OECD comparators.”

Arthur Grimes and Shine Wu focused on consumption rather than labour productivity as a measure, and in a similar vein provided alternative productivity measures in Reinterpreting Productivity: New Zealand’s Surprising Performance or The shortcomings of an engineering approach to productivity measurement.2 The authors concluded:

“When we measure productivity based on this approach we find that New Zealand had very low productivity growth from 1970 to the early 1990s. Since then, however, New Zealand’s performance has been impressive and is stronger than for most other developed countries.”

Whew — at last, some good news!

Let’s back up 200 years …

Perhaps if we were to delve into history for a bit, we might see some clues. Just what was behind the enormous rise in productivity and living standards starting in the 18th century?

After all, we don’t have to add too many great greats to those with European ancestry before we are back in a time where lives were short and brutal. But in the space of 200 years real incomes rose many fold from the grinding poverty and stagnant growth of the medieval ages.

Jenny Uglow has written a significant book detailing the lives and work of an outstanding group of people whose work and findings arguably underpinned much of the productivity growth we observed in the west from the second half of the 18th century: The Lunar Men: The Friends Who Made the Future, 1730-1810 (Faber, 2011). First a word of explanation for the title of the book. These friends were a group of men who got together in Birmingham on a Monday evening close to the full moon, reputedly so the moonlight would illuminate their walk home (after a few brandies?). So, who were these chaps?

A founder of the group was Erasmus Darwin, a physician and inventor and evolutionary theorist, laying the groundwork for the subsequent work of his grandson Charles Darwin. Other members included Joseph Priestly (who discovered oxygen), James Watt (the steam engine), Josiah Wedgewood (potter), Matthew Boulton (toy-maker), John Whitehurst (clockmaker), James Keir (chemist) and Richard Edgeworth (inventor – and father of 22 children from four marriages!)

A surprising number of these were Scots. Being of direct Scottish descent — my father was a migrant from Scotland — I am reminded of Arthur Herman: How the Scots Invented the Modern World: The True Story of How Western Europe's Poorest Nation Created Our World & Everything in It (MJF Books, 2001), which even discounting the hyperbole in the title, is a worthwhile read. But I digress.

The friends were almost all from modest backgrounds — none were academics, all were self-taught. Adam Smith had noted that mill-wrights, artisans, mechanics and toy-makers were responsible for many improvements in industrial processes. However, substantial advances needed “a man of observation”, one whose whole trade is not to do anything — rather just observe — essentially in today’s parlance, to think outside the box. The Lunar Men virtually all encompassed both dimensions, that is, they were thinkers and doers.

James Watt epitomizes this dual role: “he loved puzzles – he had a craft background and was not afraid to get his hands dirty.” But he did not just rely on trial and error experiments. “He was concerned with the principles of his subject, the laws of hydraulics and hydrostatics, the findings of variable temperatures and pressures, and the application of mathematical theory.”

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Many disciplines were involved – mathematics, medicine, chemistry, astronomy and mechanics to name but a few. And typically, any one of these people had a command of more than one area. This led to a great deal of cross-disciplinary research. It is also notable how they shared information and worked together (the Monday night social gatherings doubtless facilitated the interchanges). That sharing eventually led to exchanges with a much wider group from different locations who were not necessarily attendees of the Monday night club. People such as Benjamin Franklin and Joseph Banks were amongst this wider network, which extended to Germany and France.

As is so often the case, technical advances have flow on effects and new institutional arrangements emerge. (Douglass North developed these concepts in Institutions, Institutional Change and Economic Performance, Cambridge University Press, 1991). In this case, Josiah Wedgewood was improving and expanding the output of his pottery factories. But getting fragile crockery and ornaments to the domestic markets, and to ports for shipping to export markets, was a challenge; the roads were poor and the carriages carrying the goods were slow and constantly jolted, so that breakages ran as high as 30%. Working with others Wedgewood was instrumental in developing canals. New institutional arrangements were needed for the operation and management of canals. And as constructing canals required a large investment, new finance arrangements emerged.

In addition to their constant search for a better understanding of the underlying theoretical principles, the Lunar Men relied on experimentation and observation. Today’s scientists would surely envy the fact that these early pioneers were unfettered by writing research proposals for grant funding, obtaining academic tenure, and building a publication record.

Could it be that in the highly specialized, compartmentalised world of science today, we have lost some of the key elements that underpinned the outpouring of advances, both theoretical and practical, that came from the Lunar Men?

By Grant Scobie

»»»» Previous issues of 2B RED.

The conference is open to all with an interest in economics, across public, private and academic spheres.

We have confirmed three keynote speakers for this year’s conference:

• Wendy Carlin — Professor of Economics at University College London (UCL), Research Fellow of the Centre for Economic Policy Research (CEPR), and external professor at the Santa Fe Institute.

• Jason Potts — Distinguished Professor of Economics at RMIT University and Director of the Blockchain Innovation Hub at RMIT.

• Jacques Poot — Emeritus Professor of Population Economics at the University of Waikato.

Join us for discussions and networking, as well as keeping up to date with the most recent developments across many areas of economics.

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If you’d like to submit a paper or poster for presentation at the conference, then please submit an abstract by Wednesday 2^nd Friday 11^th April. Submissions are eligible for a number of prizes, including student awards. Abstracts, of no more than 250 words, should be submitted here.

So get cracking on those abstracts. And please put the following dates, as appropriate, in your diary.

• Wednesday 26th March: Conference registration opens

• Wednesday 2nd Friday 11^th April: Abstracts due

• By Monday 21st April: Notification of acceptances

• Wednesday 14th May: Registration deadline for presenters

• Wednesday 14th May: Deadline for early-bird registration

• Friday 30th May: Full papers due for entries to prizes

• Wednesday 25th June: Conference start

• Friday 27th June: Conference closes

More details can be found at https://www.nzaeconference.co.nz/. I look forward to seeing you there!

By John Saunders
NZAE Conference Committee

Councils in New Zealand raise most of their revenue from property taxes, specifically the application of rates to land values, improvement values, or both (i.e. capital values). This rates revenue is subsequently used to fund Council services.

The survey

We circulated the survey amongst NZAE members on 14 October 2024 via Asymmetric Information. Responses were open for one week.

Twenty-eight respondents answered the survey. 71% of respondents were male, and 54% held a PhD. Most respondents worked in academia or in the government (75%). The 41-50 age group was best represented (39%).1

The survey asked respondents to

consider a situation where a Council is deciding how to raise a fixed amount of rates revenue and indicate how strongly you agree with the following three statements:

Promoting development?

Q1. A rating system based on land value is more likely to promote faster and/or more intensive development than is one based on capital value.

The majority (83%) of respondents either agreed or strongly agreed. There was little difference between respondents working in academia vs. those in government, but respondents in academia tend to be less extreme with their response (agreed vs. strongly agreed).2

Promoting fairness?

Q2. A rating system based on land value provides a fairer mechanism for meeting the costs of council-provided public goods than one based on capital value.

Here, I observed a large degree of variation in responses. The majority, 46%, either agreed or strongly agreed, 25% were uncertain, and 24% either disagreed or strongly disagreed. I found little weight on extremes, with less than 20% of weight put either on strongly agreed or strongly disagreed. This suggests a reasonably high level of uncertainty. I found little differences between respondents in academia vs. those in government.3

Promoting horizontal equity?

Q3. A rating system based on land value is more horizontally equitable (i.e. treating individuals with similar land holdings more equally, regardless of the capital improvements they’ve made) than is one based on capital value.

I found that about 72% of respondents agreed or strongly agreed, while 20% either disagreed or strongly disagreed. Interestingly, respondents in the government sector tended to agree/strongly agree, while opinions among respondents in academia vary from strongly disagree to agree, with a substantial mass among those who disagree/strongly disagree.4

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In summary

Overall, the majority of respondents agreed that a land-value based rating system would more likely promote faster and more intensive development compared to a capital-value based system, and that the land-value based system would be more horizontally equitable. When it comes to whether such a system would provide a fairer mechanism for meeting the costs of public goods, the respondents tended to agree, albeit with substantial heterogeneity.

Weighting

The survey also elicits the confidence in the answer to each of the three questions. This information can be used to weight the responses. I present the unweighted (raw) and weighted survey responses below.5 The results reported above are unweighted, unless otherwise specified. We found little divergence between the weighted and unweighted results for the questions in this survey.

A big thank you to the members who participate in our surveys. Visit the Surveys section of the Asymmetric Information website for the results of all of our member surveys.

By Dennis Wesselbaum

1

Descriptive statistics

2

Q1. A land-value based rating system promotes development?

3

Q2. A land-value based rating system promotes fairness?

4

Q3. A land-value based rating system promotes horizontal equity?

Slow procurement and deployment of vaccines had economic costs

I do remember frustration at New Zealand’s slow procurement of vaccines, and delays in rolling them out. Vaccines were an obvious key to protecting people from severe illness and death, and to making it possible to open for business as usual — especially once more contagious variants arrived, making border closures and lockdowns unsustainable and ineffective. Details of the procurement process were murky (perhaps reflecting commercial sensitivities), but reports suggested that officials had missed options offered. Some argued that New Zealand should let other countries with greater need (to protect lives) be ahead in the queue, a claim that did not stand up to the slightest scrutiny.

H&H say that Australia blundered big time in procuring vaccines. The Government first chose two candidates — AstraZeneca and a local vaccine developed through the University of Queensland. The AstraZeneca vaccine proved less effective than the Pfizer and Moderna mRNA vaccines and had higher rates of adverse side effects. In the end, Australia made little use of it and had to abandon the University of Queensland vaccine. Having passed up earlier opportunities to acquire mRNA vaccines Australia eventually procured them in May 2021 in sufficient quantities to vaccinate the population. H&H say this was “roughly nine to ten months later than should have been the case under any competent vaccine procurement strategy”.

For H&H, a competent purchase strategy, given uncertainties about success, would have been to take options in a diversified vaccine portfolio, and pre-purchase much more than sufficient to vaccinate the whole Australian population. “All it [the procurement strategy] required is the sort of basic economic logic that is taught to first-year undergraduates”. H&H note, for instance, that Canada bought six times the number of doses required for its population.

H&H costed the delay in procuring vaccines, using Australian Treasury estimates of the weekly direct economic costs of lockdowns “relative to a counterfactual scenario where there was no lockdown and no pandemic”. If Australia had procured and deployed vaccines as early as Israel, for instance, it would have avoided additional lockdowns that “cost the nation more than $30 billion in direct economic costs alone – and more in indirect costs”. H&H describe then Prime Minister Scott Morrison’s view that “This is not a race” as “profoundly stupid”. The cost of pre-purchasing an excess number and variety of vaccines would have been far less than these direct economic costs of delay. H&H do not examine the Treasury estimates in detail, but the orders of magnitude of the economic costs compared to the additional vaccine costs make their argument persuasive.

Unlike Australia (at least as described by H&H), New Zealand took a portfolio approach to procuring vaccines according to Phase I of the New Zealand Royal Commission of Inquiry into Covid-19 (NZRC1), but officials anticipated that the supply of vaccines would be limited until at least mid-2021. Small batches of the Pfizer vaccine first arrived in February 2021 already provisionally approved for use. In March the Government announced that it had purchased enough vaccine for the whole population, for delivery in the second half of 2021. But the outcome (in terms of initial vaccine shots in arms) was quite like Australia’s. New Zealand started a little earlier, but from around July 2021, Australia edged ahead in initial vaccination rates. Both countries substantially lagged Singapore, the United Kingdom and Sweden (for example) until at least September 2021. Thereafter they performed better in terms of coverage than other countries that NZRC1 looked at (except Singapore).

NZRC1 commented that “… New Zealand’s immunisation programme was very effective in quickly delivering high levels of vaccine coverage at an overall population level.” NZRC1 found that by combining the vaccine roll out with its earlier “elimination strategy”, New Zealand experienced an exceptionally low level of excess mortality from the pandemic, compared to other countries.

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NZRC1 did not examine the economic costs of delays in deploying the vaccine in New Zealand, nor provide detailed comment on reasons for the delay. Despite rumours to the contrary, NZRC1 found no evidence that “New Zealand received lower priority by vaccine manufacturers and distributors in the vaccine supply chain …”. NZRC1 did find that delays in vaccine rollout and uptake among Māori and Pacific people resulted in more hospitalisations and deaths during the Auckland Delta outbreak and likely extended the final Auckland lockdown. Following H&H’s logic, earlier deployment of vaccines would have facilitated safe earlier easing of lockdowns in 2021 and earlier opening of the border. The economic costs of delay relative to GDP were likely as large in NZ as those that H&H find for Australia.

Overall, Australia and NZ weathered the pandemic comparatively well

H&H echo the Australian Treasury in arguing that “the most effective economic policy response [to the onset of the pandemic] would be an effective public health response, while an effective public health response necessitated an effective economic policy response”.

H&H find that overall Australia weathered the pandemic successfully — through a combination of early lockdowns, early closure of the border, rapid provision at scale of financial assistance for affected firms to retain employees, and rapid deployment of vaccines once procured. The excess‑death rate was comparatively low, and the economy quickly rebounded, with robust employment growth up to 2024. New Zealand was even more successful than Australia in avoiding excess deaths through early lockdowns and border closures, and experienced a rebound in GDP, like Australia and the US, at least over the first three years.

Hamilton suggests that New Zealand policy may have influenced Australia’s approach to financial assistance for firms. The New Zealand Secretary of the Treasury at the time was an Australian economist who had previously worked in the New South Wales Treasury.

Both Australia and New Zealand’s financial assistance was better targeted to maintain employment, and more timely and thus more effective than the US’s broad stimulus through cash to households. The US lacked the administrative machinery and political institutions that would have allowed rapid deployment of more targeted assistance. The inflationary and debt effects of the fiscal measures and whether their effectiveness justified later costs are another story — one being tackled by Michael Reddell.

Slowness in approving and deploying RATs also had economic costs

Australia’s slowness in approving and deploying Rapid Antigen Tests (RATs) to replace Polymerase Chain Reaction (PCR) tests, was another costly blunder according to H&H. Ironically PCR testing was too precise (bringing into the test and tracing net too many people who were not or not very infectious). It was also too slow, so testing overwhelmed labs when the more contagious Delta and Omicron variants, with shorter incubation periods, emerged. The health and medical establishment resisted approval and deployment of RATs until the ineffectiveness of a testing strategy based on PCRs became more than obvious. The Australian authorities finally approved RATs for use in November 2021 (a year after the FDA had approved them for use at home in the US). NZRC1 described even longer delays in New Zealand in approving RATs to underpin a testing strategy — early 2022. Neither H&H nor NZRC1 attempted to put an economic cost on the delay in adopting RATs.

H&H think that an optimal strategy, given asymptomatic cases, incubation periods, and increasing contagiousness of successive variants would have been using RATs to do random, frequent large-scale testing. This would have allowed more targeted “stay-at-home” orders in local hotspots and have provided people with confidence to resume or carry on ordinary everyday activity. Based on Paul Romer's work, they estimate that the average Australian would require testing roughly once every four days during the early months of community transmission. Neither Australian nor New Zealand policy makers appear to have examined such a strategy as an option.

H&H give short shrift to the arguments for vaccine scepticism (or, for that matter, the right to refuse tests). They point to the social benefits of high vaccination rates and population immunity that justify mandates of some sort. They acknowledge, though, that different ethical judgements might give greater weight to an individual right to refuse medical treatment in the form of vaccines and tests.

The uneven effectiveness of Australia’s response to the pandemic reflects the different mindsets and capabilities within lead agencies, according to H&H. The economic agencies were well-equipped with a policy development and payments infrastructure that enabled them to rapidly configure and deploy a well-targeted economic response at scale. The health agencies ignored the economic costs of delay. They were overly cautious in following received safety paradigms and had conflicting incentives from existing investments in medical infrastructure. The “medical-regulatory complex repeatedly ignored international evidence and experience … our political leaders capitulated to their advice”.

More broadly, Australia’s political institutions (like New Zealand’s) centralise a lot of power in the federal executive, enabling a rapid and broadly effective response. This “would simply not have been possible in the United States” with its much sharper division of powers across the different branches of government, and between the federal government and the states. The US also lacked a payments infrastructure to undertake a well-targeted and rapid economic response at scale.

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State capacity was a key to the successes but a lack had big economic costs

H&H conclude: “If this book is about anything, it’s state capacity”. They point to the federal payments system which enabled support for firms to be put in place, and the Australian states’ ability to quickly set up vaccination hubs and ensure that hospitals adapted and were not overwhelmed by Covid cases.

H&H recommend that Australia prepares for a future pandemic in specific ways, assuming that it could be a respiratory virus. They recommend that Australia should:

• Develop the capacity to manufacture mRNA vaccine (already in progress), while planning a portfolio approach to procuring vaccines.

• Procure and use RATs as soon as they are available (“No more elitist and crony-capitalist monopolisation of testing by ‘gold-standard’ PCR testing.'')

• Completely overhaul its “medical-regulatory complex. Even if we were never to face another pandemic, this would be effort well spent.” Reform would attend to the composition and culture of the complex — so that it better understands the risks of inaction and not just the risks of action.

• Keep investing in its economic infrastructure (for example developing a real-time GST turnover reporting capability).

The New Zealand Royal Commission of Inquiry into Covid-19 has moved on to a second phase, to report by February 2026. Phase II has new commissioners, and new terms of reference which focus on the (interconnected) issues around approval and use of vaccines, testing technologies, and the use of lockdowns. Phase II provides an opportunity to advance our understanding of the economic costs of delay in procuring and deploying vaccines and in approving and deploying RATs, and so to draw sharper lessons for the future than were derived in Phase I.

By Ron Crawford

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All things Humboldt

My AI assistant rightly informed me that “a vast number of things are named after Alexander von Humboldt, including numerous animal species, plants, geographical features like mountains, rivers, and ocean currents, as well as several universities and research institutions, with some estimates stating there are hundreds of items bearing his name; making him one of the most frequently referenced namesakes in the world.”

So who exactly was this chap? Friedrich Wilhelm Heinrich Alexander von Humboldt was a German naturalist born in Berlin in 1769. From a young age he was an avid collector of rocks, plants and insects and much more. He was orphaned in his teens and inherited a considerable sum of money which eventually helped finance his expeditions.

After graduating and becoming a mines inspector he started an extraordinary series of travels to Spanish America from 1799 to 1804. Here he documented in enormous detail not only aspects of the climate, topography and plant and animal species, but much on the condition of the people under Spanish domination. He subsequently was an anti-slavery activist and become a close colleague and supporter of Simón José Antonio de la Santísima Trinidad Bolívar Palacios Ponte y Blanco (or Simon Bolivar should you ever have trouble recalling his full name), the liberator of much of Central and South America.

Humboldt develop a deep understanding of the natural world. Above all he emphasised that natural systems were highly integrated and interdependent. Mess with one part and you will get unforeseen consequences in other parts, he warned. In another statement,bar almost prescient of today’s concern for climate change, he argued “man has the power to destroy the environment and the consequences could be catastrophic.” In this he has come to be regarded as the father of ecology (a term coined by the German zoologist Ernst Haeckel in 1866) and of environmentalism.

So after that introduction you will surely want to read Andrea Wulf’s 2015 book The Invention of Nature: The Adventures of Alexander von Humboldt, the Lost Hero of Science.

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But wait, there is more. In Barkskins (Charles Scribner’s Sons, 2016), the American writer Annie Proulx has written a fictional account, which in essence is a grisly tale of chopping down men and trees. It tells of how colonists from France, starting from 1693, settled in New France (Quebec) and both there and spreading south to Maine and beyond, proceeded to destroy the lives of the indigenous populations and their environment. Their ill treatment of the native peoples was compounded by destruction of the ecosystems on which those people depended. All of this carried out with the objective of “taming the wilderness” to create fields and farms for crops and livestock. In this, their underlying “justification” stems from Genesis Ch.1, v 28, which God commanded “go forth and multiply and replenish the earth and subdue it and have dominion over the fish of the sea, the fowl of the air and of every living thing that moveth upon the earth.”

The book traces a family dynasty for over 300 years. In essence it reflects and builds on the very issues so ably documented by Humboldt. Proulx’ prose is rich and the descriptions of the characters, and the damage to the landscape and the people, are compelling.

While we are on the theme of horrific treatment of peoples, Daniel Finkelstein has written an account of his family in Hitler, Stalin and Mum and Dad: A Family Memoir of Miraculous Survival (William Collins, 2023). This is a powerful, moving and revelatory account of the Holocaust. Finkelstein‘s mother’s family were from Germany and his father’s from Lwow in Poland, now Lviv in Ukraine. Both parents were active in the Jewish community and following the outbreak of the war the books reads like a thriller as they try to escape. The author is a noted British economist, member of the House of Lords, political advisor and former member of the Monetary Policy Committee of the Bank of England.

Economics for the festive season

Well, if all that has been a bit too gruesome for the festive season, let me end with a lighter (but still serious) recommendation. Andrew Leigh is an MP in the Australian Federal Parliament and, as a former professor of economics at ANU, he has not forsaken economics.

How Economics Explains the World: A short history of humanity romps through history in 200-odd pages in which economic insights abound. Leigh is an engaging writer, and this book made The Economist’s list of the best books in 2024 ($).

Happy holidays from 2B RED.

By Grant Scobie