Matt Nolan

No tax cuts?

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So Bill English has said there is now no room for tax cuts, specificially:

New Zealand had to get out of the tax-cut “mode” it had been in for the past five years, he said, because of the new economic conditions, which see budget deficit forecasts of up $12 billion for the next 10 years.

So since not cutting taxes in the face of inflation is actually “increasing real taxes” Bill English is saying we need to get rid of the Budget deficit by gradually increasing taxes.

There is another way – cut real spending. If New Zealanders are in “tax-cut mode” because they think real spending is too high, and would rather have a government that is a smaller share of GDP, then we should cut taxes and actually do something about spending.

Mr English is attempting to soften the ground for what could be some radical ideas emerging in the next few months from the comprehensive tax review being undertaken by leading tax experts.

I am glad to see that they are looking at ways to improve the tax system. But this is only part of what needs to be looked at. I know that we are being told they are cutting spending, but I’m not sure if there is much more scope for cutting morning teas to public servants.

We need to look at the hard issues (namely: Working for families, interest free student loans, our high level of infrastructure spending) and then we need to ask, is this what we should be spending societies effort and production on?

Note:  To be fair I have a lot of respect for the fact that Bill English admitted the limits on tax cuts and spending.  That sort of transparency is an important part of good government, so it is awesome to see.

Matt Nolan

Private costs are not policy relevant

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Repeat after me:

Private costs are not policy relevant

Private costs are not policy relevant

Private costs are not policy relevant

Now when the Law Commision says (on pg 169) (ht Offsetting behaviour):

These are controversial issues and the Law Commission is in no position as
yet to arbitrate in this debate which has become highly charged.

What they really mean is that, they would like to pretend private costs are policy relevant. However, since they don’t want to be criticised for it they will pretend they aren’t making that value judgment.

How do I know they are making a value judgment – well they come up with policy recommendations like “increasing the tax on alcohol”. Making a recommendation involves making a value judgment, regular readers will remember this.

Law Commission, you have come out on a specific side by giving a policy recommendation. Pretending you are being objective when you aren’t (which reminds me of this quote the Hand picked up) is not cool.

Update:  Anti-Dismal covers as well.

The Hand

NZIER on emissions targets

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So NZIER thinks it doesn’t matter whether we reduce local emissions or just pay off third-world countries to reduce them for us. Apparently the only important issue is whether we satisfy our responsibilities that we’ve committed to. The money quote is:

It allows emissions reductions to take place in the country where it is cheapest to do so. The climate doesn’t care where the emissions reductions occur, so nor should we.

Economists just love to assume the world’s a perfect place but, so often, reality bites them on the ass. Yeah, I’d like to THINK that when I bought a credit from Somalia they were implementing a project to reduce their forecast emissions. In reality they probably spent the cash on guns and powerboats like your Tracker Targa boat, and forged the certificate of additionality. The fact is that a lot of credits available on the international market either have dubious additionality value, or cheaply reduce GHG emissions by destroying the environment in other ways. When you buy on the international market instead of reducing your emissions domestically that’s the sort of thing you’re buying into. If you don’t believe me then ask the gospel 😉

Ultimately, the environment doesn’t care if NZ satisfies its international obligations, it only cares how damaged it gets. When you buy on the international market you just have to accept that you’re not doing it to help the planet, you’re doing it to meet the letter of the law. If that’s the way you want to play international diplomacy then fine, but don’t pretend it’s because you’re a greenie at heart!

Matt Nolan

An economist licence

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We licence other service professions, why not applied economists?

What I’m thinking is that economists could get a licence through a university where they have to sit an exam on certain, essential, points of economics. They would have to resit it every 5 years. Don’t make the licence compulsory persee, just make it something that economists can put up when they talk – like a master builder sticker.

This way we could make sure that all registered economists have a full recollection of concepts likes the “impossible trinity“, the lack of a long-run Phillips curve, how to interpret relative prices, the prisoner’s dilemma, and what comparative advantage is.

Note: Of course, different types of economists need different fundamental skills, so there might have to be a slight range of licences.

I mean, I would definitely enjoy the occasional refresher course on central concepts in economic analysis and I think setting it up in this way could be a useful way for non-economists to recognise that if they are getting a certain standardised level of economic advice.

Matt Nolan

July 09 OCR Review: Easing bias strengthens?

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At least that is my first impression from the statements.

Although last statement was the effectively the same:

“We consider it appropriate to continue to provide substantial monetary policy stimulus to the economy. The OCR could still move modestly lower over the coming quarters. We continue to expect to keep the OCR at or below the current level through until the latter part of 2010.”

However, the differences are interesting.  In June the RBNZ said:

We have cut the OCR by a large amount over the year. We expect the effects to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing.

They told us they had cut a long way – this is “anti-easing”.  In July they said two things:

The level of the dollar in particular, is not helping the sustainability of future growth, and brings with it additional economic risks

The forecast recovery is based on a further easing in financial conditions. If this easing does not occur, the forecast recovery could be put at risk. In these circumstances we would reassess policy settings

So they think monetary conditions are too tight (exchange rate and interest rates) implying that they may respond with a lower OCR in order to loosen conditions.

Note that the market was expecting the easing bias to go away, and they expected the sudden improvement in the housing market to be mentioned as a risk – but they were not.

Now if the RBNZ is really worried about the “sustainability of future growth” I don’t think a rate cut is appropriate.  Why when it makes the $NZ lower?  Well because it does that through lower interest rates, which makes consumption now more attractive than investment – the exact imbalance they seem to have been concerned about recently.

Matt Nolan

Big ups to the NZ econblogsphere

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Kiwiblog’s link to a new economics blog called Progressive Turmoil got me thinking.

I now count 12 14 economics blogs in New Zealand that are still going (list at bottom – note all the blogs I have linked to have a lot of economics opinions in them, even if this isn’t their primary description. To me this makes them worthy of being called an economics blog 😉 ). I’m sure there are plenty of others – tell me if I missed anyone in the comments!!

As we have a population of 4.3m (thanks Stats), so that is approximately one per 358,333 307,143 people.

This is epic. It makes me proud of our country thats for sure 🙂 [FYI, I’m not being ironic, I’m an economics addict 🙂 ]

Note: I count 5 blogs with some sort of relationship with Victoria University and 3 3.5 with a relationships with Canterbury Uni – where is Auckland Uni 😉 and 1.5 with a relationship with Auckland Uni.