The Treasury needs economists

Dr Eric Crampton
The National Business Review
27 July, 2018

Last year, the Treasury received the Deloitte IPANZ Public Sector Excellence Award for its revised blinded graduate recruitment programme. Under the programme, Treasury’s recruiters did not know whether their potential hires held a degree in critical theory or in economics. It received its award, in part, for having succeeded in hiring no graduates whose qualification was solely in economics.

The Treasury celebrated this achievement, but it made me more than a little nervous. The Treasury is meant to be the place where other ministries’ policies are tested against economic realities. That is hard to do when the Treasury’s economic expertise is eroded. And it is harder to do when that erosion is celebrated rather than stemmed.

I was particularly nervous because of the context of the award.

When I was on faculty with Canterbury University’s economics department, the Treasury and the Reserve Bank competed for our strongest graduates. Every year our best students would complete an internship with either Treasury or the central bank before beginning their honours year. The students would generally have a job offer from either of them a few months into their honours year – with the other ministries and banks running their recruitment after the Treasury and Reserve Bank had completed their competition for the picks of the litter.

That had changed by 2016 when Canterbury’s honours-bound economics students no longer took on the Treasury internship.

Didn’t feel wanted
Reports back from Canterbury suggested top students no longer found the Treasury attractive. Treasury recruitment presentations emphasising that students needn’t have any economics training to get a job at the Treasury had left the economics students with the impression that they were not particularly wanted there.

If that impression were inaccurate, it would be odd to find the Treasury last year celebrating its success in failing to hire economists. It would rather be re-emphasising the importance of economics in its work.

Treasury’s core business is economics. It does a lot of additional work, and not all of its work requires economists to pull the levers. But it does need a substantial core of economists.

I asked the Treasury how many economists it had left among its ranks of analysts, senior analysts, principal advisers and senior managers – those who would be tasked with providing core economic advice.

The economists are outnumbered.

At the analyst level, 19 have a qualification in economics or finance, 14 have another qualification, and the qualifications of 34 are unknown.

At the senior analyst level, 14 have a qualification in economics or finance, 34 have another qualification and 45 are unknown.

Among principal analysts, the qualifications of 12 are in economics or finance, 12 have another qualification and 11 are unknown.

Economists have stronger representation among senior managers: 23 have a qualification in economics or finance, 15 have another qualification and 17 have an unknown qualification.

The Treasury has eight staff at those levels known to have a PhD. Of those, two are economists (a senior analyst and a senior manager), one is a sociologist (principal adviser), one is an accountant (senior manager), and four have a PhD in “major not specified.”

In any case, it appears the New Zealand Initiative, with a total staff of 14 including administrative staff, includes more PhD economists than the entire New Zealand Treasury – but perhaps it only appears that way because smaller organisations are more likely to know the disciplines of all of their staff members’ doctorates.

A separate OIA request by the NZ Taxpayers Union showed that four of 24 hires at the analyst level last year had an economics qualification. Among those hired last year with an honours degree or higher, two of 14 had an economics qualification. That suggests the Treasury has not been trying to boost capacity on the economics side, though it couldn’t rule out more senior hiring boosting economic capabilities. But the stock of trained economists at the Treasury remains low.

Click here for a data visualization.

More economists in the past
It was not always thus.

Malcolm McKinnon’s history of the Treasury describes the Treasury’s push for greater professionalisation and higher skills during the mid-1980s. It then established an occupational class of economic and financial analysts and shed parts of its operations not core to its business, like routine accounting.

Total staffing at the Treasury fell from 500 in 1986 to 313 in 1991 but half of those on staff were classed as economic and financial analysts. Not all of those would have had qualifications in economics or finance but the proportion would not have been small. Today, only 68 of the Treasury’s staff in analyst, principal adviser, and senior managerial roles are known to have degrees in economics or finance.

The want of economists matters, and especially where the Treasury has built a hefty new rod for its own back – developing an entirely novel system of public accounts attempting to measure living standards and setting budgets within that new framework.

The Treasury’s core analytical work – ensuring that regulatory impact statements are sound, that the cabinet receives solid economic advice about policy, and that the economic forecasts are right – is substantial. Spreading scarce analytical resources thinly to also cover its fashionable new Living Standards Framework risks slippage in the quality of advice. In constrained environments, qualified analysts are saved for policy problems with billions of dollars of implications – with relatively smaller issues relegated to others.

The Treasury’s graduate development programme does provide training to its incoming recruits. Since 2015, just over half of the recruits to the graduate development programme arrived with an economics major, and the Treasury claims the other half learned economics during the short programme.

Boot-camp training
But while it is plausible that economists can be trained in policy analysis during an 18-month programme, it is rather less likely that an 18-month boot-camp can provide sufficient background in economics for any serious work. Would we consider it a laudable cost-saving device if hospitals began hiring engineers to operate as physicians after a brief in-house training programme?

This especially matters where the junior-level staff have little economics training and the trained economists are occupied in managerial roles. Being able to provide sound economic advice on the array of policy questions that are thrown at the Treasury, without the luxury of weeks or months to learn the material, requires having at least a solid honours degree in economics. Only 48 of the 68 at Treasury known to have training in economics or finance have at least an Honours degree – the remaining 20 have undergraduate qualifications.

Some reports even suggest that Treasury secondees in ministers’ offices often have no background in economics, despite those officials’ important role in providing policy advice. The excellent reputation the Treasury built up over decades is being eroded.

Core economic policy is important and getting things wrong can be exceptionally costly. The Treasury is often called on to produce advice on short notice, and that requires having enough trained economists around to handle the demand. If Treasury advice is to have economic content, the Treasury must start hiring economists again.

It might not win awards for trendy hiring practices but it is what the country needs.


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