Matt Nolan

Is NZ fiscal stimulus lower than the rest of the world?

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There have been accusations from some blogs that the NZ fiscal stimulus is too small relative to the rest of the world (No right turn, the Standard). However, I didn’t think this was right.

Now the OECD has shown that this isn’t right:

fiscal-impulse

Now this isn’t to say that the fiscal response is right – it may be too small or too big. But it is to say that we aren’t pumping in a small response relative to the rest of the world. In GDP terms we are sixth – just behind Aussie.

Update: Link to OECD report (ht Keith Ng)

Update 2: Appears that some countries were undermeasured by the report (ht Gareth):

As an illustration, tax cuts decided in 2006 or 2007 but implemented over the period 2008-2010 in Denmark, France, Poland and Spain are not included, although they may have contributed to cushion the economic downturn

This explains why the stimulus in these countries (excl Spain) was so low.  And I can understand why Spain would need a larger stimulus with their high unemployment rate (* note I suspect that the 17.4% figure is an exaggeration – as I think they include more potential types of unemployment than we do)

Matt Nolan

Why are they making my beer more expensive?

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Pressure from parliament has led to supermarkets finding a way to collude and increase prices for alcohol sales. That is what I read from this article in the Herald.

Of course it is being framed this way so that it sounds like a winner:

The two big supermarket chains say they have stopped selling alcohol below cost as a “loss leader”, after claims the cheap deals lead to alcohol abuse

What a load of rubbish.

As long as the tax associated with alcohol consumption represents the costs and benefits (a hard issue as has been discussed in many places) then we don’t need to fluff around with this type of rubbish – as the price would represent market competition AND the social cost, thereby implying that the choices being made are in the social interest. But instead, in order to seem hard on something people view as a vice supermarkets have been pushed into a situation where they can collude in order to increase profits.

How? Well, it is true that alcohol is being treated as a loss leader. But its effectiveness as a loss leader depends on the price charged by the other firm. Under the guise of “the social good” the supermarkets have been able to agree to both increase prices slightly – keeping the relative “loss leader” advantage while making more money off alcohol sales.

It just goes to show – when people start getting the government to pressure firms based on the arbitrary morals they want to force on society, we will end up being taken advantage of by someone. I want my cheap beer back …

Update:  Paul Walker and Brad Taylor both have good posts on the issue.  Starting from this comment Agnitio brings up interesting points regarding how to view the socially optimal price in this setting – his criticism of my view is very good, even if I don’t agree with it yet (you can tell it is a good criticism because my defence isn’t very clear – the best I can do is say that it is a transfer from producers to beer consumers, but the GE impact is foggy).

Matt Nolan

Dom post article: Beware those bearing gifts of productivity

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Article is here.

Discussion on Rates Blog is here.

Money quote:

Both political parties are unwilling to face that, with respect to government policies, there is a fundamental trade-off between some social values (fairness, justice, etc) and the level of productive activity.  This trade-off is one of the primary reasons for the existence of government – and yet neither of the political parties seem willing or able to recognise it.

As a result, next time we hear the government discuss the importance of productivity, or we hear some international body talk about the goal of productivity growth, let’s try not to forget that there is a trade-off – and let’s ask exactly what this trade-off is.

Matt Nolan

NZIER: Suggestions for unemployment policy

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Interesting piece from NZIER on unemployment policies.

It is a fairly broad sweep over the issues – and so does not go into many of the technical or policy related issues of some concepts. However, it provides a clear way of viewing a number of the potential policies.

However, I was surprised to see no mention of the “paradox of thrift” or how unemployment was fundamentally a “surplus” and thereby represented a “market failure”. If we are going to discuss a set of explicit unemployment policies we need these factors to justify it.

Matt Nolan

What was with the strong wage growth?

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The recent labour market data illustrated that employment was falling – but interestingly average wages rose 5.3% on a year earlier.  Does this mean things are stronger than expected?  [I would note that this number didn’t surprise any of the economists I have talked to today – it is just possible that some people may see it as surprising].

The short answer is no.  Lets look at some reasons why:

  1. Wages are a lagging indicator – generally, people move wages based on where wages have moved previously as well as what they can negotiate.  In such a situation it takes wage growth longer to change than employment.
  2. We are looking at a “mean wage” – as a result the composition of jobs matters.  If only unproductive jobs are getting flushed out, the “mean wage” will grow more strongly than the effective underlying wage in a fully employed economy.
  3. When employment is falling, staff are getting fired.  At some level this may increase the “marginal product” of staff in a similar role.  If this is what is going on, then firms will share the cost savings associated with sacking some staff with the other staff through wage increases.

Fundamentally, wages lag movements in the economy.  So don’t let anyone tell you that the strong wage growth implies that our economy is looking super duper – as that isn’t the normal direction of events.  Keep an eye on the leading indicators:  house sales, durable goods sales, consumer and business confidence, and commodity prices.

goonix

Shopping for electricity – Powershop

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Recently Meridian established a new retailer in the electricity market, called Powershop. The marketing tells me that:

Powershop is a revolution in the way you buy power. We’re the world’s first online energy store, a retail outlet where electricity suppliers compete for your custom. This brings you a whole new level of choice and control over the way you shop, helping you save money and power.

Effectively you buy electricity in kWh units. You choose how many units you buy and for what period. The price of the electricity varies, depending on how you buy it. For example, if you buy a ‘bulk’ pack, you can typically get a cheaper per unit price than if you buy units in smaller bundles.

At the moment, with Southern Lakes brimming, prices are far cheaper than competing retailers. For example, the cheapest retailer that I could access in Wellington was charging 21.6 c/kWh (taking into account their discount), as well as a daily rate of around 80 c/day. Compare this to Powershop, where I have been buying electricity at around 18-19c/kWh, without any daily charge, and you can see the potential for savings.

The obvious risk from buying through Powershop is hydrological. Meridian (currently the only ‘major’ retailer on Powershop) generates the vast majority of their electricity through South Island hydro generation. If there was a dry winter, I imagine that prices over this period would be higher than that charged by a fixed-price, variable volume contract typically offered by other retailers. Thankfully Southern Lakes are brimming, so that shouldn’t be a problem…

…so long as the power can get from the South to North Island. Just this week the HVDC link that connects the islands tripped, meaning that the islands became electrically separated. As such, Meridian wouldn’t have been able to get their generation north. The threat of such an event occurring again means that Meridian will have to price this into Powershop rates.

At the very worst, if winter prices raised significantly due to hydrological/transmission problems, one can always switch back to another retailer, as Powershop has no contract term (switching costs are pretty low in my experience. I think I’ve changed retailer three times in as many years).

One nifty, if somewhat surprising, trick that I’ve been able to perform on Powershop relates to refunds. The other day I purchased a large block of electricity for just under 20 c/kWh. Later in the day I saw that the price of this unit had fallen to just over 18 c/kWh. I was able to refund the initial purchase and buy the cheaper power.

My experience with Powershop has been entirely positive and I’d recommend it if you can be bothered devoting a little time to your electricity purchasing (hell, even if you can’t be bothered with the transaction cost, you can set a default electricity product to purchase when you run out).