Labour’s alternative budget

By Matt Nolan 14/05/2014


I suppose that this was Labour’s alternative budget.  They’ve taken the policy documents they’ve put together recently and stuck them together in a blog post.  Fair enough, it is a good idea to put together policy documents so why not – I really like the idea of detailed policy documents by the opposition as well, so good work on that!

As a result, I don’t have much to say about it (the monetary policy has been discussed here and here – I should look into the others at some point and do posts), I summed up my view on Twitter:

However, there is one bit that gets on my wick a bit, it did for the ACT release as well – this rubbish about targeting an “unemployment rate”.  The government doesn’t really “set” the unemployment rate.  People go into and leave work all the time, and sometimes there is a bit of a skill mismatch which implies people have to train and/or change the wage they are demanding – given this we will always see some ‘unemployment’ in a changing economy, but it isn’t bad.

What is bad is when people are excluding from the labour market for prolonged periods of time (either because of structural barriers, a prolonged cyclical slowdown, or rapid change).  Long-term unemployment is concerning, and is something we may want to include policy about.  And considering the integration of education, training, and the workplace is a useful thing.  But this sort of stuff:

Is empty platitudes.  Note, if the government does try to “lift demand” to get people working – this will just force the RBNZ to lift interest rates.  So either Labour is saying they will “magically” make matching in the labour market work more efficiently, or they are just saying words for the sake of saying words.

Given there is nothing in their write up that suggests how they will achieve lower unemployment than National, and given that estimates suggest the clearing UR is just under 5%, having unemployment at 3.5% actually suggests there is something wrong in the economy, and that the situation is a mixture of unsustainable and inefficient (in terms of workers and employers having trouble “matching”).  Economists believe that some unemployment is good, not because we are trying to suppress the masses by keeping a pool of surplus labour, but because these rates represent a labour market when people are actively trying to, and interested in, changing jobs.

Now this actually can be a pretty complicated thing to work through (eg this rate may actually be different from the 5% I’ve discussed above, or the matching failures might be something we can inherently deal with), and ‘unemployment’ is a justifiably loaded term – which is why my preference is NOT targeting the unemployment rate, but in targeting long-term unemployment and poverty … the areas where we actually can articulate clear perceived failures and injustice.

And here is what surprises me.  Our main left part has nothing to say about social policy and poverty, but plenty to say about subsidising exporters and other industrial subsides … very interesting.