ECONOMICS OF THE QUAKE

This is something we have heard quite a lot about and we are delighted to see that superb economist Brent Wheeler has done a really good analysis of the economic pluses and minuses of the Canterbury Quake. Its a really interesting blog and Brent has done a great job of telling something relatively complicated in a way that even blondes and brunettes can understand.

ANOTHER VIEW

Economist Brent Wheeler isn't so kind when it comes to oldies keeping their gold card benefits.

We reckon that upping the age is the fairest way to go. Up to 70 seems sensible. However Brent, as economists do, says that the oldies forget that they have been looked after by the state in past decades.

He has no problem with giving them a subsidy- just questions the reasoning.

Not just the gold card either…. the argument is in common use in respect of numerous other things old people consider “I’ve always paid my taxes” gives them some right to.

The logic of this is faulty. At the time these people paid their taxes they consumed government services – education for their children, health care for themselves, a Police Force…. and myriad other things.

They consumed their “taxes worth” back then – more in fact – which is why we have run up various deficits at various times.

If we want to give old people money for being old – fine. But let’s not pretend that its because tax is some kind of saving scheme to be cashed in when you are over 65. If we stopped thinking like this we might see bribes like the gold card for what they are. Cheap vote grabbing schemes which penalise people who are still working and still paying tax.

His whole blog is here

CACTUS ALL BULL NO COW

Now it seems that Cactus came from a dairy farm so you would think she knows a bit about the milk biz and indeed she shows a reasonable understanding of what goes on and even a fine grasp of economics as she backs Economist Brent Wheelers views on the mega dairy hotel planned for the McKenzie Basin.

And she so eloquently describes Dairy farms - green underfoot they maybe but we are kidding ourselves as a nation if we believe it is Milk au naturelle...

She also misses on one critical point and stunningly its about sex and cows or sex with cows and bulls.
There is no one time coupling with a rampant bull - nope.The closest a cow gets to the bovine hanky panky is a brief encounter with a sterile straw of semen. The poor cows don't even get to have a bit of natural nooky.

We agree with Cactus and Brent. The market needs options - and the McKenzie mega cow hotel will give the international market options. And at least this way our bloody streams wont get overrun with cowshit.

OF PHILANTHROPY AND INVESTMENTS

Brent Wheeler has an interesting piece on Canterbury University's little fund raising effort. Well worth the read as usual.

SCALDED MILK

We gave a column from Brent Wheeler an airing the other day and it has been fisked by No Minister..

The comments are worth a look. Heres the best.

Dumb analysis. Try reading it again. Brent is saying that the incentives on farmer suppliers are to maximise the return on supply - which is what they are good at.

They face very poor, in fact perverse incentives, to maximise the return from value add, because value add requires capital, and capital requires Fonterra to hold-back dividend returns.

You can't have both. Its logically inconsistent, and a cash starved, dumb, politically driven beast is the result.

Fonterra can't even get their PR straight, are they managing the redemption risk, or are they trying to capitalise the value-add business? Can anyone tell?

Nope. The model is doomed, if Fonterra can scrape together a couple of hundies from this they put off the day of reckoning another year or two. So keep kicking the can down the road there Sagenz!

The fact your rellies were dumb enough to invest in the financial services industry is a non-sequitor. Whats that got to do with whether a regulated monopoly is a doomed whale thrashing around? I should also remind you that Dairy Farmers of Britain is in receivership. A classic example of what happens when a Co-op over leverages itself - it hands itself to its creditors.

There is your future under the co-op model. Fonterra is a price taker, not a price-maker.

Look at saturday's Herald. Fonterra is down to 21% assets to debt, this is dangerous territory for a Co-op with a redemption clause and just while I am piling on, Fonterra is NOT a price maker. That is just dairy propaganda.

If they were price makers, why was everyone surprised when the price went down. D'oh! Was it some cunning plan to disguise Fonterra's market power? Or was it that they take the world price?

Nor is Fonterra the largest dairy trader in the world. It is the largest player in the freely traded global commodity market. These are not the same things.

Most milk is traded under regulated protections (the EU and US in particular).

Fonterra is probably the best producer of basic dairy ingredients in the world. Thats fine, but it means NZ dairy farmers are in the commodity supply business. That is a business with low returns, and all the value is captured at the other end of the food chain. NZ dairy farmers are already at the mercy of those evil commodity traders, and no amount of propagandising can hide the fact that Fonterra is over leveraged and in trouble.

Hence the need to manage the redemption risk, by encouraging farmers to invest even more of their equity in the business.

So which bit of Brent's analysis were you disagreeing with again?

BAGS ARE GOOD FOR YOU.

Apparently there is a whole other side to the plastic bag argument. We like it when economists get stuck into issues and one economist whose common sense and irreverence we have always admired is Brent Wheeler.

Anyway has a lovely take on plastic bags. Feel free to recycle at your leisure.