Matt Nolan

The lump of labour fallacy

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I have noticed that there is a belief out in New Zealand that there is a set “lump” of jobs – and if foriegn people come in they take them, and “New Zealander’s miss out”.

Now if this matters to us this may be concerning – however, we have been talking about migrants “creating work” and saying that they do “different jobs” than the New Zealand trained workers.

The idea that there is a fixed lump of jobs does not fit this description. However, the idea has a name: The lump of labour fallacy.

The confusion stems from a fundamental misunderstanding surround what labour is. Labour is an input to production. However, as people (who we value in society) get their income by acting as an input we sometimes view work as income. From this step – we end up saying that other people are “stealing our income” by doing this work.

However, what this argument ignores is that labour is an input to production – if you bring in more people, more stuff can be produced. If the addition person is really productive (skilled labour, or domestic poorly provided unskilled labour) then when they come in to society they quickly help everyone else.

As a result, policies to kick current skilled labour out of the country will be counter-productive. Even if we didn’t care about the welfare of foreign people (which of course we do – and really should equally, but oww well) we are effectively cutting off our nose to spite our face. Keep that in mind.

Matt Nolan

Support of inheritance tax in NZ and the UK

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Two of my favourite applied economists have come out in support of inheritance taxes (to some degree):

In NZ we have David Grimmond of Infometrics:

A means of correcting for dynastic privilege is to introduce a uniform tax on capital. The absence of bequest taxes, in combination with a lack of uniform tax on capital, is a stark aberration in the New Zealand tax system

Then in the UK we have Patrick Nolan of Reform:

In this environment it is unclear why reducing inheritance tax should be a priority. It could be argued that falling property prices mean it would now be relatively cheap, with some estimates indicating that the cost has fallen by almost half to £1.3bn for 2011-12. Yet this is money that could be put to better uses – including reducing other more harmful taxes.

I am a fan of inheritance taxes – as they don’t distort economic behaviour to the same degree as other taxes.  If we want to change the tax system this is the sort of tax we should be introducing – with a corresponding cut to the top tax rate.

Matt Nolan

Jobs and production

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In the comments to the “Sigh” post, rainman raises the following reason for government action against currently employed temporary workers:

What then do the displaced workers like the welder in this story do? Go on the dole?

Now, the primary argument against this is that the “displaced workers” aren’t solely displaced. The immigrants are doing a job making things, and therefore this will “create work” for other people.

However, there is another, more fundamental argument against that. And it comes from the idea that we aren’t actually after “making work” (work is a cost after all) we are after making stuff and having a nice living standard for people.

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Matt Nolan

More bad tax policy …

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There is a good reason why I want tax policy to be set independently – so that the true cost associated with the dumping of the regional fuel tax can be realised.

Lets ignore the conjectures and hyperbole about how we are raising funds to “electrify the railway”.  If government is going to spend a certain amount of money (which it is whether it is a regional body or a national body paying for the electrification) we should be interested in raising funds for this spending in the most efficient way possible.  Furthermore, we would prefer to tax in such a way that we actually get people who benefit from the spending to pay for it.

There are two ways that I see the fuel tax as more efficient than what the government is suggesting – which is effectively higher income taxes in the future.  Firstly, the fuel tax was an externality tax.  Because the social cost of fuel consumption is greater than the private cost the government can place a tax and (potentially) improve outcomes!  Even once this justification is used up, we have another one – Ramsey Pricing.  Demand for petrol is inelastic, so we can raise a set amount of revenue with a lower “dead-weight loss” (loss of happiness from the tax) than if we taxed goods with more elastic demand.

Secondly the fuel tax was at least partially targeted – as it raised the revenue for the public good work from the region where the work was going to happen.

Dumping the this tax implies that national income taxes will have to be higher than they would have otherwise been.  This implies that we are using a less efficient, and less targeted, means of taxation to achieve a level of government spending in Auckland and Wellington (which in this case just happens to be on a railway – something that needs to have its merits debated separately).  Bad policy.

Matt Nolan

Stimulus package for bloggers

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If we have to have a stimulus package in New Zealand (because the government feels it HAS to do something), then maybe they could have a stimulus for bloggers.  The case is made here (ht Marginal Revolution).  It is a 14 point argument – so it must be right!

I would add that there is a concern surrounding entry – people may flood into the blogger industry trying to get the subsidy as there is virtually no barrier to entry.  Sure this will increase employment – but it will make the cost of the subsidy unbounded.  As a result, they should restrict the subsidy to bloggers on the current Tumeke rankings 😉

Matt Nolan

On the RMA reforms

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So the National government is reforming the Resource Management Act, interesting.

Now anyone that says the changes are to help “during the crisis” is tripping – changing the RMA is a structural, long-term, issue not a “stimulus” issue. Framing it as a stimulus issue may help National to sell it – but that is not really why, or why they should be, doing it.

From listening to people (and reading this from Nick Smith) talk about it there appears to be three main thrusts of attack on the RMA:

  1. Stop the use of the RMA as an anti-competition device,
  2. Reduce the ability of the RMA to be used as a “hold-up” device against initiatives.
  3. “Streamline” consents of “national interest”.

The first change is brilliant and well needed – any policy that can be used in an anti-competitive fashion needs to have provisions to deal with it.  The second concept is also very true – there are times when people use the law to increase the return they will make from the consent, this is no good.  However, the third concept is a bit dodgy for me – I think we need to be a bit careful when using it.  Here is the way I see “national interest”:

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