"CROAKING CASSANDRA" —- THE CONTRARY VIEWS OF A FORMER RESERVE BANK ECONOMIST

Michael Reddell is a monetary economist, a committed evangelical Christian and a pain in the Reserve Bank’s side.

Until three months ago he was the Bank’s Special Advisor on Economics and previously headed the Bank’s Monetary Markets operations.

He has been an alternate director on the International Monetary Fund and was seconded to central banks in Papua New Guinea and Zambia.

Not the sort of CV that might suggest his latest role, as the blogger “Croaking Cassandra” which critiques New Zealand economic policy and the Bank and often finds it wanting.

Since he set it up three months ago after taking redundancy at the Bank It has captured the attention of  Wellington’s  inner circle of politicians, policy makers and journalists.

POLITIK was alerted to it by a National MP.

Riddell’s fundamental argument is that New Zealand has failed over the past 25 years to enjoy the level of growth that it should have.

And he argues that is because the exchange rate has been too high and that we have not produced a whole range of profitable new export businesses.

Though he has plenty to say about the way the Reserve Bank goes about its day to day business it is his argument on the exchange rate that is likely to be his most controversial.

TOO MUCH IMMIGRATION

That’s because he believes the fundamental reason the exchange rate is too high is because of the upwards pressure placed on interest rates by what he argues is excessive immigration.

Of course any argument like that makes the proponent vulnerable to the charge that they are promoting New Zealand First and Winston Peters.

And that was exactly the reaction he got when he first presented his argument when he worked at Treasury.

“They said these are really interesting ideas.

“But — but — they sort of sound like Winston and we don’t know what to do with that!”

Reddell says everything changed after the large outflows of New Zealanders to Australia during the 1970s and 80s.

“Around the end of the 80s we changed our policy and we said, it’s a terrible thing that people are leaving, we need more people in New Zealand, let’s try and bring a whole lot in.

“The real big change was to say instead of bringing in 10,000 a year net from abroad, let’s try 30 to 40,000 a year.

“If you are bringing in that many people they all need roads, schools, hospitals.

“The whole capital stock needs to be built and New Zealand’s a country that doesn’t save very much.

“No one fully understands why but we have very low savings rates.

“If you haven’t got much capital and you’ve got a lot of labour coming in what that does is it puts a lot of pressure on interest rates and on the exchange rate.”

Reddell says that for the past 25 years New Zealand interest rates have been persistently higher than other countries.

“All the demand from these people puts pressure on interest rates and outs pressure on exchange rates and it means our resources are devoted to building houses, roads and schools for these people and that crowds resources out of the export sector.”

THE GOVERNOR BECOMES FURIOUS AND  “REFUSES TO TALK TO ME” 

Perhaps not surprisingly ideas like this have led to a certain frostiness between Reddell and his former employer, the Reserve Bank.

He started to question the Bank’s flagship policy to restrain the Auckland housing market; the loan to value ratios. (LVRs)

He argued that though the Bank was responsible for the stability of the New Zealand banking system, the Auckland housing market did not threaten that stability.

Furthermore the Bank had done no research on what the likely impact of the controls might be.

“When I criticised the LVR’s, the Governor (Graeme Wheeler) was both furious and refused to talk to me for two years,” he said.

He says the Bank has a culture of arrogance which goes back a long way.

“There seems to be a closed defensiveness about the Bank.

“It has tended to treat itself as a bit special and different from other Government agencies and above the fray.”

BANK WILL NOT ACKNOWLEDGE MISTAKES 

He says this leads to a slowness to acknowledge mistakes such as the way it refused to loosen official cash rate high right through last year.

He produces a paper from the Bank of England Chief Economist which he has received overnight which also refers to this.

Reddell criticised the Bank’s decisions last year to raise the Official Cash Rate from 2.75 to 3.5% over the year.

“I disagreed with Graeme on this at the start of last year on tightening rates but monetary policy is one of those areas where there is a huge amount of uncertainty.

“People can make mistakes. It’s the nature of the thing.

“What I criticise more is the slowness of recognising a mistake — the fact that as late as December we were still talking about raising rates further and the reluctance to come out and say as I suggested that, yeah, we did make a mistake.”

Perhaps what fortifies Reddell in his often contrary positions is his very solid Christian faith.

CHRISTIANS NEED TO ENGAGE INTELLECTUALLY 

He is the son of a Baptist Minister and says that Christ is the most important thing in his life.

And though he holds positions that many would regard as those of a conservative Christian on moral issues, the central bank economist comes through even when he talks about his faith.

He argues that Churches have become therapeutic organisations, more concerned with the feel good aspect of life rather than engaging their adherents intellectually.

He believes that New Zealand is the most secular country in the world but that the Church should aim to contribute to public debate with “respectable, rigorous grounded contributions that are smart and well thought out.”

And now having taken leave form the Bank and a stay-at-home dad to his three young children, he has the time to write his two blogs, “Croaking Cassandra” (on economics) and “Among Traditions” (on theology).

He is also making speeches and talking to his contacts in the capital about economics.

New Zealand has always had economists who have engaged in public debate — people like Bryan Philpott, Sir Frank Holmes, Don Brash or Gareth Morgan.  

But they were commentators rather than practitioners.

It is Reddell’s unique and lengthy experience inside the reserve Bank and his Christianity which make him unique and which suggest that he is going to have a significant influence on economic debate in this country.