Sunday, July 31, 2005

Economic policy

Again the left aims for equality the right aims for efficiency as a result of government not interfering.

I suggest the government should try to follow economically optimal policy on each issue. This means it will tax money where it can do something sensible with that money that will give a return on investment. For example general policy areas like education or specific policies like buying Air NZ. Each decision should be valued on its own merits like a business would value decisions and made with a very long term outlook in mind.

Taxes - I think there are many economically rational things the government can do - I also think that there is a lot of wastage in government. I therefore support higher taxes to fund the new rational policies and lower taxes where they are justified by reductions in spending. It doesn’t really mater where the tax level is as long as you create more value than you destroy since it will just push up incomes.
Taxation also serves the purpose of fighting the increace in the spread of incomes - this is good because it preserves the market and reduces the slow monopolization of money and reduction of incentive to work for certain sectors.
It is nonsense to have a target level of taxation without a target level of spending and the level of spending is a moving target. I generally am in favour of paying off debt where that debt is not directly attributable to an investment that earns a rate of return exceeding the cost of that debt. Basic economics.

Export/industry - the government should have a highly coordinated export/industry policy it has gone some way to structuring this in its growth and innovation framework but it can go further in enacting the policies.

Tariffs - I am very in favour of free trade HOWEVER other countries must reciprocate - otherwise we pay for their development. Furthermore there are certain situations where protecting an industry may help it to develop and if this can be done without retaliation it makes good pragmatic policy. We must prevent politics from being a reason for such protection. In the vast majority of countries with protections the main reason is getting support from interest groups - for example French farmers. Farming is not an industry that should be protected because it does not offer the development potential that would be required to justify the protection. If you want to be a technology powerhouse you won’t get there by just focusing on being a really efficient farm - worse yet the farmers may well force through policies that undermine the other industries. You may at some stage have to discourage certain industries in order to encourage progress to another level - this is what Singapore did.

Employment relations - discourage strikes - strikes destroy value and are what I term a negative strategy. People and organizations that cause strikes should be exposed to the costs they cause for others. However in place of these union strikes the employers must have protection - too often laws go unenforced in he workplace and therefore there needs to be a fairly powerful fining authority for workplace disputes. However I am generally anti red tape so laws should be made as simple and flexible as possible.

Roding and infrastructure - the resource management act has stood in the way of projects like the eastern corridor - remove the act so that these projects can proceed. As act says the "Primary role of government should be to ensure that the road system is efficient whether publicly or privately provided. Encourage introduction of economic pricing for road usage." (The first one I can quote!) Beautiful pragmatism there.

Also we should prevent local input into whether there will be speed bumps or high curbs on the roads - no one wants noisy cars driving down their roads but it serves no purpose just forcing them to someone else’s road.


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