Matt Nolan

Why all the talk about a new currency?

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I’m lost here.  According to this article, and a bunch of others like it, we need a new international currency to protect little countries (like NZ) and relatively undeveloped countries.

There are two ways of taking this:

  1. Using the US$ as a sole reserve currency is too risky, we need a basket of currencies.
  2. We need to fix some exchange rates.

The first justification is ridiculuos, as nations choose to use the US$ as a reserve currency – it isn’t forced upon them.  If they want to instead hold reserves in a “basket of currencies” then they can.

The second justification is also something I disagree with.  The exchange rate is a price, and a return to Breton woods style fixing of exchange rates merely implies that we aren’t letting the market express the appropriate price between countries.  This would not matter if prices INSIDE a country were perfectly flexible – but since they aren’t fixed exchange rates lead to a misallocation of resources.

As a result, what is the point?

Will Taylor

Fonterra auction to “blame” for high milk prices?

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Back in November (I need to post more often, lol) I posted about how retarded it was that the Fonterra auction was being blamed for low milk prices.

Reading in the news today that prices on the acution are up 24%,  I wonder if the auction will also be “blamed” for this change in prices?

I somehow doubt it, I think people will continue to attribute “blame” to the auction when prices don’t swing their way rather than look at the underlying reasons behind the change. Something like what Matt and I did after my last post on the auction (here).

Matt Nolan

Are nations just large labour unions?

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We generally allow capital and goods to flow freely between nations nowadays – which is a good thing. However, that leaves us in the situation where the whole purpose of a nation appears to be working for the benefit of labour in that country.

Now it may well seem like the best thing to do – if we didn’t do it we would undoubtedly have lower incomes. However, this would be because the people in abject poverty overseas now have more options and will be able to manage a higher living standard.

Often people blame globalisation for the abject poverty we see overseas. But it isn’t globalisation that is the problem – it is the lack of globalisation. Closed labour markets, which are effectively massive labour unions, are a large part of the reason why poor countries can’t pull themselves out of poverty.

Now we may value the welfare of local citizens more than we do foreign people – some people have said so here. But even in the case where loosening migration would lead to worse outcomes for locals (which is not always the case), we would have to discount “non-local” people quite substantially not to let them in. Remember that the human cost isn’t all on one side – when we close off migration we are implicitly falling the lives of people overseas as well.

How is this like a labour union? Well labour unions do all they can to increase workers wages, often at the cost of the unemployed (who are the competition of the employed). Unions thrive by hurting the unemployed through artificial barriers – and they inherently value employed people more than unemployed people. Change unemployed to “non-local” and employed to “local” and we have the same thing for nation states.

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

Is New Zealand fighting a wave of protectionism?

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Protectionism is a scary thing during a global downturn. A bunch of nations trying to “protect” their own interests can turn a bad situation into a worse one.

New Zealand wants to fight off what it sees as protectionism – namely subsidies for dairy farmers in Europe. However, although there is too much protectionism out there I’m not sure our argument against this set of policies is watertight.

If we think that the current shock to dairy prices is temporary, and that dairy prices will come back when the current massive increase in supply works through the system, then it makes sense for Europe to temporarily subsidise farmers in the face of a MASSIVE CREDIT CONSTRAINT.

Industries all around the world are struggling to sort out their cash flow because of a freeze up in lending. If the firms are still profitable given the expectations of future prices, then it makes sense for domestic government to prevent the industries from failing.

Do you think this type of intervention is defendable – discuss 😉

Matt Nolan

British reject “smart stimulus”: Should we?

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I noticed that the British government rejected the idea of a “wage subsidy” that was put forward by unions (who would have guessed 😉 ). Now, whenever a government outright rejects an idea I usually ask myself the question “how could that idea have worked” followed by “would that idea have worked”. In this case there is definitely a how, and it might even work in the current situation.

Just before I began writing my ideas I saw this post on Econlog on a “smart stimulus”. In the post they support the idea that cutting the employers share of payroll tax would solely give money to employers (as wages are sticky). This money would both support employment by lowering the relative price of labour (which is too high given the shock to productivity), and it would incentivise “business activity” by increasing profits.

Ok, well I agree with the possibility of the idea that has been discussed at Econlog – but I need to look at it in more detail before I can say whether I would support it “in the current situation”. Lets try that:

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