Matt Nolan

Trade-ins: What’s the point

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Yesterday I was talking to my partner about the lack of videos available for her iPod. I was prattling on about how there probably isn’t many videos because the penetration of the video iPod is probably quite low. The reason I believed that the penetration was quite low, was because I couldn’t see lots of people forking out for a new iPod with video – when the old iPod would still do the main bit of playing music.

My partner then said they should do trade-ins for the old iPod, so you can get the new one more cheaply. At first I was dismissive of this idea, stating that, unless you could get money back for the parts what was the point. However, I soon realised that I was completely wrong – there are a large number of circumstances where my partner was right and a trade-in deal made sense.

Now, I haven’t actually seen any trade-in deals for iPods, but I certainly have for the xbox and playstation. As a result, I’m going to discuss why firms that sell durable goods may want to have trade-in deals.

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Matt Nolan

Current account deficit is not a big deal: Discuss

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So, New Zealand has a stock of debt that is equivalent to 86% of annual GDP and ran a 7.8% current account deficit over the year to March 2008.

My article in the Dom today states that “this isn’t a big deal”.  Discuss 🙂

Matt Nolan

What is modern business cycle theory

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If you want to know, have a look at this post. It is completely non-technical, and explains the way macro-economists look at things pretty danged well! (ht Marginal Revolution).

Fundamentally, this view of the business cycle is highly focused on methodological individualism – the business cycle occurs in the context of individuals maximising their happiness given constraints.

Before this strain of thought came out, business cycle theory was a surprising holistic section of economics – something that did not match with the individualistic nature of microeconomics (see Schumpeter). Furthermore, business cycle theory, long-term growth theory, and near term macroeconomics (effectively old school Keynesianism) were relatively incompatible.

Following the collapse of the “consensus” in macroeconomics during the oil crisis the one ray of hope was that we macroeconomics could be recreated in a way that is consistent with microeconomics. According to Kids prefer cheese this research area is still active – which is exactly what we want to hear.

Update: Paul Walker discusses the same article.

Matt Nolan

Capacity constraints and borrowing to spend

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Over at the Standard, Steve Pierson raises the fair point that borrowing to “spend” at the moment is likely to increase inflationary pressures – as capacity in the economy is limited. He uses this idea as a criticism of Nationals “borrow to fund infrastructure policy”.

As a purely demand story this makes sense – however we have to keep in mind where the spending is going, and what it is doing. If funds are being spent reducing capacity constraints by improving truly dilapidated infrastructure, then National is actually right that borrowing to spend on infrastructure will reduce inflationary pressures.
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Matt Nolan

June 08 Labour market: Part Two (Revenge of the hours worked)

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This follows from Part One.

Well, the unemployment rate rose to 3.9% – this was above market expectations, so the immediate feeling would be that the labour market is in trouble.

However, then you see the increase in employment and HOURS WORKED (the indicator I wanted to keep an eye on) and you realise “this employment data isn’t hot – but it is a definite improvement on what last quarter implied”.

So what am I talking about, and why am I talking in the third second person? (ht CPW) Well lets start with the first question, and lets look at the hours worked numbers.

Note: Other blogs on the numbers (Rates Blog) (The Hive) (The Standard) (Kiwiblog)
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Matt Nolan

Brian Fallow article on inflation

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Just had to say that Brian Fallow’s column on inflation in the NZ Herald was really good – I think everyone should read it.

Generally, economists seem to be running with a consensus about what inflation is and why it is bad (outisde of Berl at least – although they have toned down the anti-targeting rhetoric of late, and focused it more to a duel target mandate) – we currently differ insofar as we have different outlooks for NZ economic growth, and therefore different outlooks for where inflation will head in the current monetary policy setting.

There is a lot of economic information out today – however, this means I will be very busy.  As a result, don’t expect to much from me until later this afternoon 🙂

If anyone has any economics topics they would like covered at some point – mention them in the comments and I’ll see what I can do.