Matt Nolan

Striking and economics

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I’m always confused when I hear the economists are against strikes. After all, it is perfectly sensible to place strikes in the bargaining relationship between employees and employers.

I think the confusion stems from the fact that many economists also say that there is a definite limit to strike action – as if it is set up by a significantly powerful union it merely represents the action of a monopoly against a weaker consumer (in this case the firm). As we know that market power leads to suboptimal outcomes, the case of a strong union and a weak firm will lead to a suboptimal outcome – namely too little production, because too much of the surplus is extracted by the seller (labour).

However, this does not imply that economists are completely against the option of striking being available.

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Matt Nolan

The June GDP deflator in the US: Conspiracy theory edition

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Over at the Big Picture, Barry Ritholtz has been constantly complaining that the GDP deflator is underestimating inflation. Well I’m not particularly surprised since the GDP deflator does not measure inflation persee.

His specific concern is that the rising oil prices have decreased the GDP deflator – he thinks this is ridiculous, however, if we are willing to stop being conspiracy theorists for a little while we will see that it is fine.

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Matt Nolan

Compensation and the ETS

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Although the blogs appear to be quite quiet about it, I’ve heard a number of people complaining about the government compensating people for the impact of the emissions trading scheme.

Effectively, people who are unhappy about it are telling me that such compensation appears to be pointless as it “cancels out the effect” of pricing carbon in the first place. Ultimately, we can discuss the issue in a little more detail then that. Lets try to figure out how it works – and discuss what this compensation implies, both in terms of achieving carbon/Kyoto liability funding goals, and in terms of social welfare.

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Matt Nolan

August 08 NBNZ Business outlook

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July discussion here.

I don’t usually talk about the Business outlook stats – but I did last month, and I should this month (*).

Own activity expectations moved back into positive territory, business confidence is at its highest rate since November, and inflation expectations are at record levels (3.79% – even higher than the expectation numbers reported by the RBNZ for the September quarter).

This is a surprising result for the market, and makes our blogs pick of an economic recovery from September and annual consumer price index growth of 5% in September both seem a little more likely 😉

Lets ask if these numbers describe any of the issues we mentioned in July:

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Matt Nolan

Good question!

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Over at Econlog Bryan Caplan asks a good question – he asks why economists who often rail against the free market will also often state that they strongly support civil liberties. Fundamentally he is asking, why do these people not support freedom to trade but do support freedom of expression.

Now I agree with Dr Caplan that economists should use the same tools to discuss civil issues as they do trade issues – any limits on civil liberties should be the result of externalities, asymmetric information on the value or relevance of ideas, or the undue power of an idea which in turn reduces social welfare (in the same way that in trade, people will rally against externalities, asymmetric information, and undue market power).

However, this does not suddenly imply that I am a stanch supporter of a completely free market – in the same way that I am not a stanch support of blanket calls to remove regulations that reduce civil liberties. Ultimately, in both cases there are trade-offs, and our ultimate goal is to maximise social welfare.

Lets discuss the “social-democrat economist’s bias” a bit more below the flap:

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