jamesz

Alcohol and addiction: part II

/18 Comments/in , /by

We posted recently criticising the method in which the Law Commission has decided to approach its revamp of alcohol regulation. In the comments there was some vociferous criticism of the BERL report on which the Law Commissions relied for its estimates of the harm of alcohol usage. We were also lucky enough to have a personal reply from the author of the report, explaining why BERL did things the way that they did. I thought this would be a good time to clear up any confusion about where I stand on the issue. Read more

Matt Nolan

April 09: RBNZ cuts OCR to 2.5%

/6 Comments/in /by

The RBNZ cut the official cash rate by 50 basis points to 2.5%. This wasn’t to surprising. However, the statement was a hell of a lot more dovish than I expected, especially:

We expect to keep the OCR at or below the current level through until the latter part of 2010.

So the RBNZ is stating that it will leave the OCR at or below 2.5% until LATE-2010. That is a commitment to expansionary policy for quite sometime. In that case, the RBNZ’s outlook for economic activity must have deteriorated substantially for late 2009 and 2010.

Matt Nolan

Why keep long rates low?

/1 Comment/in , /by

Bank economists are saying that we should aim to keep “long-term” rates low – through the RBNZ committing to a future path of the OCR for the next 3-5 years at a low rate.

At first brush we could be cynical and say this appears to be in their interest – the OCR does determine their cost of borrowing from the RBNZ after all.  But I am not that cynical about the bank economists.  Ultimately when you look at their beliefs, the commitment to a low OCR makes sense.  They believe:

  • Growth and “capacity” will remain well below trend for the medium term.  Specifically – we will be below our “natural rate of output”.  This implies that we don’t have to worry about inflationary pressures (until we are heading back to the natural rate).
  • Short rates have already headed nearly as low as they can go – so they can’t be cut much further.
  • The RBNZ’s growth path is “too strong” – and so the market expects rates to begin rising in 2010.
  • If medium term rates are higher this provides a disincentive to investment – something that depresses near term activity further, thereby increasing the risk of some sort of “downward spiral” through unemployment.

So ultimately, the retail banks are saying that the RBNZ is too optimistic (as if they weren’t their implicit forecasts would commit a lower medium term set of rates).  I guess we will see what the RBNZ does on Thursday and find out if they agree …

Matt Nolan

More quality quotes from the civil service

/1 Comment/in , /by

As if they were inspired by yesterday’s post – some civil servants from Housing New Zealand dropped this train of thought:

The submission said listing housing projects as nationally significant would help prevent the delays and extra costs caused by objections from neighbours – “a situation commonly referred to as NIMBY [not in my backyard] opposition”.

So the government should be able to force projects through without regards to the impacts on individuals they aren’t interested in – doesn’t sound like social welfare maximising policy to me.

At least National came out and said this was a bridge too far. Seriously though – where the hell do some of these people get off talking like this. Do they not listen to what they say …

Matt Nolan

Interest free loan lollyscramble part II

/10 Comments/in , /by

Not content with the interest free student loan scheme the government has decided it might be time to add an interest free home loan scheme (ht Rates Blog).

Now, this is essentially a transfer from everyone (taxpayers) to first home buyers and the people they are selling to.  In such a situation I have to ask why?  It certainly doesn’t seem fair to take money from people and give it to first home buyers and the section of the property market they are involved in … (disclaimer:  I would be able to get the loan as I would be a first home buyer – just like I have an interest free student loan.  This doesn’t stop me as an economist saying that they are bad policies)

The government says it is to “encourage building” – if this is the case, then why this scheme?  Why not a direct subsidy to home builders.

Furthermore, why do we want to encourage building – why aren’t we doing enough building.  The answer I believe is that in the current environment residential builders are credit constrained – so why doesn’ the government just offer them loans (at a MARKET rate of interest).

Bad policy idea …

goonix

Plastic bags: industry-based solution versus regulation

/10 Comments/in , , , /by

Foodstuffs have recently announced that they will voluntarily introduce a 5c charge per plastic bag consumed through their New World and 4 Square supermarkets, with the revenue generated being used for an “environmental initiative” (previous post on the issue here).

Foodstuffs account for over half of all supermarket sales in New Zealand through their New World, 4 Square and Pak ‘n’ Save brands, while supermarkets in general account for 80% of plastic bags. Foodstuffs has got its own warehouses and wide spread distribution chain. Maintaining a warehouse is a challenging task. Visit https://kljconsultingaz.com/choosing-dock-equipment/ for some tip.

This move follows the likes of the Warehouse and Borders who already charge for plastic bags (and North Island Pak ‘n’ Save stores have long charged for plastic bags, albeit for different reasons).

One might assume from this positive action by Foodstuffs that an industry-based solution to the perceived problem of plastic bag over-consumption would negate the need for any regulation. But the thing that jumped out at me from the article was this quote from the Greens Russel Norman:

“What we need now is for the Government to back up Foodstuffs’ good initiative by introducing mandatory product stewardship for plastic bags”

Why would the Government need to mandate anything to do with plastic bags when the industry is clearly finding a solution to the perceived problem? Regulation is costly, not just in terms of resources needed to enact a bill or other measure, but also due to unforeseen outcomes that may arise from such intervention. Regulation should always be a last resort. In this instance I think regulation is blatantly unnecessary.

One might argue that it is due to the threat of regulation that Foodstuffs took this action in the first instance. This may be true, we don’t know. But given the moves made by Foodstuffs and other retailers I think that to now clamour for regulation is just plain silly and unfortunately seems to be a reflection of the Greens approach to everything – regulate!

No matter what the issue, you should always give industry a chance to resolve a perceived problem before intervening.