Matt Nolan

Precommitment – the dressing down edition

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When I drink on Friday I suffer from a commitment problem (likely stemming from my own time inconsistency *). Fundamentally, before drinking I don’t want to go into town and drink too much (as I have work to do on Saturday), the next day I would prefer it if I hadn’t drunk a lot, but once I start drinking I find it hard to stop 😉

One way to pre-commit to not drinking too much is to not drink. However, I don’t like this solution at all. I want to have a few drinks with my work mates, and with my friends later on – but I would like to avoid drinking too much. Now, the “too much” bit actually occurs when I go out into town after work drinks – as a result if there was some way I could commit to not going out, I would be able to pre-commit to not drinking too much!

That is what I have done today – by taking casual Friday to the extreme I have ensured that most bars in Wellington will not let me in, removing the temptation to go into town by taking away my ability to. However, I will still be able to have a couple of beers at work and then head around to my friends house for a few beverages – thereby ensuring that I reach a superior outcome to the “don’t drink” scenario.

Matt Nolan

The great August/September consumer confidence rebound?

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Following the improvement in business confidence, New Zealand has now experienced a rebound in consumer confidence:

Source (Roy Morgan)

Now consumer confidence is still at low levels compared to recent history – however, it is now in net “optimistic” territory, a sure sign that consumers are becoming more willing to open their wallets.

Furthermore, the magnitude of the decline in consumer confidence over the June quarter was what first pointed to the sharp decline in household economic activity over this period. The rebound in confidence since the end of July (the early August survey) has been similarly impressive – indicating that there could well have been a sharp increase in household economic activity over the September quarter, relative to June.

However, there is one provision that we have to place on this improving outlook:

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Matt Nolan

8% weekly interest rates: What’s going on

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Following the “revelation” that a loan shark in Porirua was charging 8% interest per week on loans, the government has offered to do nothing. Blogs on the left hand side of the spectrum were irritated by this, as they feel that people are being taken advantage of (the Standard) (Tumeke) (Frontline – prior to this incident). Lets investigate the issue.

Now I am not disputing the fact that people are, in some sense, “being taken advantage of”, however I do disagree with the solution that the other blogs follow – setting a cap on interest rates. In this sense I am in agreement with government policy. Read more

jamesz

Prices slashed on war this century!

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We’ve resisted talking about Iraq pretty well on this blog, unlike the rest of the internet. Unfortunately we’re suckers for a pretty picture or two, so here’s a nice one showing how much the war has cost the US relative to other wars. Note that the numbers are all inflation adjusted.
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jamesz

Why we shouldn’t rely on the regulators

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I sometimes get asked why economists spend so much time thinking about incentives in situations which the government regulates anyway. Why do we care about what firms want to do when there’s only one course of action legally available to them? Here’s one reason why we care: the economy might operate in a far more laissez-faire fashion than a reading of the law would lead us to believe. Read more

Matt Nolan

Australian June GDP and interest rates: What does it mean for NZ?

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The RBA lowered the official cash rate to 7% yesterday, while GDP growth was a measly 0.3% over the June quarter. It appears likely that the RBA will cut rates again in October and further cuts following that cannot be ruled out.

Given that this is the case I am not going to comment on the fact that the majority of economists in Australia appear to be painfully dovish (excluding the insightful commentary from Dr Stephen Kirchner of course). I am instead interested in how falling Australian interest rates, and weakening Australian growth (assuming that it says weak over the coming couple of quarters) impacts on the NZ economy.

Lower interest rates in Australia will directly lower demand for Aus dollars, as our dollar likes to hang out with the Aussie dollar, this is likely to dampen demand for NZ dollars as well – weakening our currency. Think of it this way: We are a small economy that people don’t know much about, however people assume that as we are next to Aussie we must be moving in a similar way – as a result, changes in the Aussie economy and interest rates give people (perceived) information about the NZ economy (specifically given that both currencies are strongly related to movements in commodity prices).

On the straight economic growth terms, a slowing domestic Australian economy is no good for us. Looking at the latest merchandise trade figures (July) we are told that over the last 12 months, exports to Australia accounted for 23% of total exports – much larger than the second biggest destination (USA at 10%). Although this figure has become inflated with “intermediate goods” (crude oil to refineries in Australia) it still indicates that a slowdown in Aussie could hit our exports hard.

Overall, we need to keep an eye on our big neighbour to the east – big new over there will probably be big news over here as well.