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When you have the wrong Board Chair and wrong Governor of a Central Bank, who aren't up with state-of-art thinking about how interest rates should be set, its a recipe for throwing an economy into chaos. And so it is with NZ and our Reserve Bank. Last month the Bank cut the Official Cash Rate by 50 basis points. "Members [of the Monetary Policy Committee] agreed that an OCR of 4.75 percent is still restrictive". In common language, that means you're still being bankrupted by your mortgage costs, all for the cause of further crushing inflation. The Bank stated in its October Summary Meeting Record, "Members are confident inflation is converging to target". The Meeting keeps repeating the word "converging", over and over again: "The Committee assesses that annual consumer price inflation is within its 1 to 3 percent inflation target range and converging on the 2 percent midpoint".


These lines are in formal breach of the Reserve Bank's Remit, and hence the legal authority under which the Bank is bound to act. What does its Remit say? It says that annual inflation should be kept "between 1 and 3 percent over the medium term, with a focus on keeping future inflation near the 2 per cent midpoint", as signed by Finance Minister Willis. Note the word "near", not "at". You may think this Blog is about to make a small point, but you will be surprised. According to the author of the world's most popular text-book in economics and former Chair of the US President's Council of Economic Advisers, Greg Mankiw, its a very important point. So much so, that its behind the crushing of the Kiwi economy. What's the reasoning? Inflation in NZ is 2.2% and the Governor and his Monetary Policy committee have declared they've not yet achieved their target - only that "inflation is converging" to it - but we aren't there right now. In their view, NZ is still missing it by 0.2% (= 2.2% - 2.0%). That's what "converging" means. But what does the Remit (and law) say? It certainly does not say the Bank has to converge to a 2.0% inflation rate, only get "near" to 2%.


The Reserve Bank's way of thinking, aside from being illegal, is damaging our economy due to its effect on interest rates. Ask people drowning under mortgage stress. A few months ago, Mr. Mankiw penned an influential article (below) stating," I feel strongly that a target of 2% is superior to a target of 2.0%. The difference between these targets, of course, is the number of significant digits. If you recall science classes in high school, you learned that the number of digits a person reports should reflect the precision of their estimate. Central bankers often forget that lesson. They sometimes speak as if they are targeting an inflation rate of 2.00 percent. It would be better if Central Bankers admitted how imprecise their ability to control inflation is. They shouldn't be concerned if inflation falls to 1.6. That rounds up to 2. And they should be ready to declare victory in fighting inflation when the inflation rate gets back to 2.5%. As the adage goes, that is good enough for government work".


Mankiw is unequivocal. When inflation is measured at 2.2%, as it is currently in NZ, you've already fully hit your targets. It rounds to 2%. We're already at the Remit's "mid-point". NZ is not "converging" to it, unless you make the mistake, like the RBNZ, of thinking inflation can be accurately measured & controlled to several decimal places, which it can't. The RBNZ thinks we're at 2.2% inflation & it has to get us to 2.0%. That's nonsense. Keeping monetary policy at a "restrictive level", continuing to "engineer a recession", because we're still "converging" to target tells me one thing: the Chairman & Governor of the Bank aren't up with the play and are causing untold harm as we speak. The law instructs the Bank to keep inflation "near" 2% - not at 2.0%. To keep "restrictive monetary policy", financially strangling Kiwis, arguing its necessary because inflation has still not hit the target, breaches the Bank's Remit. My view is that, as such, the RBNZ Board & Governor should be dismissed.




Telecom company, Spark NZ, is in trouble. It started this year with a share price of over $NZ 5. Its now around $NZ 2.80 - a decline of nearly 50%. Shareholders who've seen their wealth wiped are furious. A Main Stream Media journalist said its bosses had to field "hostile" & "misogynistic" questions at its General Meeting. Blaming gender is reprehensible. Let's instead take a look at the diversity of Spark's senior leadership. Many folks have tried linking less diversity on Boards to worse performance. A former NZ Treasury Secretary said "Having greater diversity broadens the experiences & perspectives within organizations .. [it] enables better ideas, solutions & services” I've never understood this line - isn't it important to hire the best, regardless of background, gender & ethnicity? Shouldn't merit be the deciding factor? Anyway, let's just go with the Treasury Secretary & compare the background of Spark Chairperson, Justine Smyth, to its CEO, Jolie Hodson. They're on LinkedIn (see below).


  1. CEO Hodson is an Aucklander, having done a Bachelor of Commerce degree at the University of Auckland. Chairperson Smyth is an Aucklander, having done a Bachelor of Commerce degree at the University of Auckland.


  2. CEO Hodson's BCom was in Accounting. She graduated in 1991. Board Chair Smyth's BCom was also in Accounting. She graduated in 1990. The two of them overlapped, in terms of doing the same degree, at the same University, in the same subject.


  3. The CEO and Chair of Spark are almost the same age - in their early 50s - they finished their undergraduate degrees at similar times.


  4. CEO Hodson worked at accounting firm, Deloitte's from 1992 to 2000. Chairperson Smyth, worked at Deloitte's from 1997 to 2000. They again appear to have overlapped.


  5. CEO Hodson then worked at Lion, the brewery, in Sydney, Australia, from 2000 to 2003. Chairperson Smyth also worked at Lion - it also appears in Sydney - from 2000 to 2012. They again appear to have overlapped.


  6. CEO Hodson became Spark's Chief Financial Officer around 2013. Chairperson Smyth became Spark's Chair in 2017. In 2019, Hodson was appointed the new CEO.


To work at the cutting edge of telecoms technology, may it not be a tad important to have (at least some) of the top bosses having top class engineering backgrounds? Or at least a bit of diversity in their backgrounds? Look at former French state-owned telecoms provider, Orange (Spark is former state-owned provider, Telecom NZ). Its CEO is Christel Heydemann, an engineer from the École Nationale des Ponts et Chaussées. She worked at Schneider Electric. Board Chair, Jacques Aschenbroich, is also an engineer from a top French School.


But good luck to Spark - its like most other Kiwi public companies run by folks with BCom-LLB degrees - without backgrounds in the technology behind their industries. Go ask Kiwi Rail. Go ask Fletchers. Who needs an engineer in those outfits? After all, you can just put the ferry on autopilot. Maybe the NZ private sector should blame itself for NZ's low productivity. Maybe my mates - many of whom are mathematicians, engineers & computer scientists, left NZ since Corporate NZ put them down and threw them in the data & engine rooms, telling them they don't have leadership and comms skills. Funny how many of them now own their own companies or are CEOs of foreign corporations.




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