Matt Nolan

Dom post article: Time for a fiscal stimulus?

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In today’s Dom Post column we discuss whether a fiscal stimulus is necessary at the moment – our conclusion is that it is not.

Four criticisms I would have of my own logic are:

  1. There may be distributional reasons why you would want to change spending,
  2. An “improvement” in government spending would be beneficial,
  3. In the face of sticky prices and reference based utility from consumption (that marginal utility from consumption depends on consumption in the previous periods) there could be a role for stabilisation even if the shock is permanent.
  4. Fiscal policy is better targetted.

My answers to these would be:

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goonix

Metering and the market for water

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The DomPost contained an article on the potential for metering Wellington’s water supply. The question is asked: should Wellingtonians pay for their water? This issue is a hot topic, having been discussed at Kiwiblog, Infometrics and TVHE earlier this year.

Historically, water has been provided for by the various Wellington councils out of rates. Water is not currently metered, which implies that regardless of how much water each household takes, their rates do not vary. This arrangement has led many to believe water is in some way ‘free’, as they are not forced to pay for their specific usage and the cost is embodied in rates which cover many council services across many households. With water use of 400 litres per person per day in Wellington, relative to the national average of 160 litres, it appears water users here are not internalising the cost of their water usage.

Current arrangements do not allow for the pricing of scarcity. Read more

Matt Nolan

Thoughts on the price of milk

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This is from an email exchange between Agnitio and myself on why dairy prices rose, following his post on Fonterra’s auctions:

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Matt Nolan

Why politics and savings don’t mix

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Over at the Standard they discuss Bill English’s statement that we will become a “nation of savers”.  Now their attack line is relatively weird, especially given that he is just saying that if we need a bigger deposit to buy a house we will have to save it – he doesn’t say we should take on policy that imply “save more”.

However, he illustrates a strange view that National have of savings when he suggests that tax cuts will lead to an increase in savings – it will increase private savings but it is also dis-savings for the government, hence it will lower national savings (unless you believe it will magically cause a massive increase in economic activity).

Obviously the term “savings” is being used in a loose way – which is also “loaded” in the sense that these people assume that an “increase” in savings is a good thing.

I think it would be good if we review a series of posts which was (and eventually will be extended into) our “productivity series“.  In the four posts here we discuss Kiwisaver, national savings, and what savings is.

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Will Taylor

Nats to bail out big business?

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I was slightly concerned when I saw the headline on stuff this morning “Nats eye bailout of big business”

If the government is saying ex ante that they will bail out big businesses I would be concerned as this has the potential to cause a moral hazard problem. This is where firms know they will get bailed out and thus make riskier decisions. The actual quotes from Bill English don’t appear the be as explicit as I originally thought they might be

“You’re in an environment when almost anything any government could contemplate doing is getting done somewhere in the world,” he said.

“There is a small chance that events that have transpired elsewhere could transpire here. You can’t ignore that and so we need to give some thought to the extreme event.”

Are quotes like this enough to give the big companies in NZ enough comfort that they will bailed out? Only time will tell….

Matt Nolan

Picks for the December RBNZ meeting

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I’m going with a 75 basis point cut on December 4. Now no-one might agree with this, iPredicit certainly doesn’t (putting the probability at 3% when I looked), but there are reasons:

Update: I brought some 75 shares in iPredict after posting this post – because agnitio told me to.

  1. Petrol price collapse (which might be seen as inflationary),
  2. Mortgage rate collapse,
  3. Wholesale cost of credit is falling.

In fact, I would go for a 50 if it wasn’t for the fact that 2 year ahead inflation expectations tumbled to 2.7% in the December quarter! Let me sort of sketch out why.

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