Matt Nolan

The morality play of the “non-morality play”

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In an interesting piece over at Economist’s View the case is made from moving away from “morality arguments” and just looking at how we can pull ourselves out of the depression now.

Although the piece provides a clean argument, and involves discussions by economists as intelligent and convincing as Martin Wolf and Paul Krugman I have to admit I nearly completely disagree with it.

Fundamentally, I believe that these economists are making an implicit moral judgment when they state that we need to “improve current outcomes” through employment and consumption. I am not saying that they are wrong, however trying to make their conclusions sound value free is incredibly misleading.

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Matt Nolan

Merry Christmas

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Have a good one.

Try to avoid time inconsistent behaviour during the break 😛

Matt Nolan

Claiming the individual – breaking the system: A shared tenet of economists and their critics

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I was just hanging out around Dani Rodrik’s blog when I read this interesting post. In it he criticizes Naomi Klein for celebrating the collapse of the Argentinian economy.

Reading his comments, my own feelings, and NK’s comments I realised something – there is some level where we all agree. Fundamentally, we are all interested in maximising the welfare of individuals in a given situation.

Now, if we all agree on this noble aim, why is the view of Dr Rodrik and myself so different to Dr Klein’s?

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Matt Nolan

GDP continues to drop

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So New Zealand gross domestic product slid 0.4% in the September quarter.  If we stick to thinking about it in “C+I+G+X-M” terms, like we have earlier, it actually fell by 0.7%.

Although everything came to pass as expected, it is still one hell of a downer – given that we are probably heading into a rough time for the global economy.

The key statistic for me is the terms of trade – if the terms of trade collapses, then the next year will be tough, if the terms of trade mystically holds up at current elevated levels I seriously don’t think the recession will get that deep.  Households are responding to the rising cost of debt, falling house prices, and a shock to job security – this is fine in my books as long as the income earned in our country doesn’t start to fall as well (hence the concern about the terms of trade).

Of course – all indications are that our terms of trade is going to be in big trouble, come the start of 2009.

The next three months are going to be incredibly interesting.

Note: In the TOT wikipedia article, why is there a random dig on inflation targeting?  I think the person has got confused by the fact that the lift in the exchange rate redistributes the gains of a rising TOT (from rising world export prices) between importers (like consumers) and exporters – thanks to a rising exchange rate back in 2007 we all nicked a piece of the farmers rising income 😉

Matt Nolan

The upcoming war of succession and the future of Macroeconomics!

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It appears that economics is on the verge of war … ok maybe I’m being melodramatic – but the change in tone of economists recently (well, actually mainly macroeconomists) has been startling!

During the credit crisis, more and more economists have moved towards a panicked position.  However, the first true indication that this might be different than a few little methodological spats came to me from these posts (Econlog and VoxEU).

These posts indicated that the very structure of economics was preventing research into valuable fields – we had failed to achieve knowledge by focusing on “equilibrium”, “mean reversion”, and/or the constant obsession by ignoring the depression when we analyse data.

There are two primary areas where I think the main set of criticism will fall – and the size and scope of this criticism will determine whether it is war, or merely an evolution of ideas.  These areas are 1) aggregation and stability conditions (so macroeconomics and its current foundations) and 2) behavioural assumptions (a more widely shared issue).  Tyler Cowen links on both issues to some degree 1,2.

Hopefully there is a realisation that economic methods and models are useful – even if the value judgments economists make aren’t always up to scratch.  My concern is that disputes about value judgments will lead to a situation where the entire framework is thrown to the side.  However, if this occurs it will be partially the result of some economists inability and unwillingness to describe their assumptions openly – something we should all keep in mind.

Matt Nolan

CPI: Christmas Price Index

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Even with indications that consumer price growth is falling quickly, we know that at least one CPI is rising fast – the Christmas Price Index!

In the US it appears that the price of the bundle of “Christmas goods” has risen by 8.1% over the past year.  My suspicion is that the New Zealand index would have risen even faster as our exchange rate has dropped like a stone in the past year.

Just to be clear, this index is made up of:
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