Matt Nolan

The Railway buy back decision and economic sense

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Over at the Standard, Steve Pierson points out a TV1 poll that shows that the majority of New Zealander’s are happy with the decision to buy back the railroad at a cost of over $1bn. That is cool, if society is happy with doing something and has full knowledge of the costs and benefits, then it is the right decision. Ultimately, the purpose of government is to maximise social welfare, and as long as the welfare cost to the 24% who don’t like the decision is less than the welfare benefit gained by the 68% of people that are for the decision then this appears like a fair tact to take.

However, I was a bit confused about this comment:

The Government has acted in a way that makes economic and environmental sense. The only opposition has been from the ‘free market is always right’ lobby and National.

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Matt Nolan

iPredict and prediction markets

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Just been looking at the blog of the iPredict internet venture (site here, blog here). It looks like interesting stuff, and is definitely a good way of illustrating the “wisdom of crowds”.

One thing that did excite me was a “recession contract” (blog post here, contract details here). If it turns out that we have had a recession over the first half of the year then each share pays out $1 – otherwise it pays out zero.

As a result, you lose if March is revised up, and/or if the June quarter experiences real growth. While it seems quite likely that we have had a recession, the current contract price is $0.8661, which sort of implies that the market is pricing in a 86.61% chance of a recession. This appears to be a touch high – given that none of the partial indicators are actually out yet.

However, with petrol prices up 7% over the quarter, indications the drought will have reduced agricultural volumes further, and the fact that inventories in many industries were at high levels in March (and the market is working with production, not expenditure, GDP) I suppose betting that there was a recession is fairly safe money 🙂

The main risk in my mind isn’t that the June number will be negative, but that March might be revised up into positive territory! You just can’t trust those danged seasonally adjusted numbers 😉

Matt Nolan

Why are we using market mechanisms to fight climate change?

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Over at No Right Turn, Idiot/Savant appears to view the idea of using markets to fight climate change as a touch silly. This view is captured in the following quote (here):

What’s important is that we reduce emissions now, not whether our chosen policy is perfect and cleaves to neo-liberal orthodoxy.

Now I think this skepticism of using a market mechanism stems from the way he views the issue of climate change policy, take for example this quote: Read more

Matt Nolan

July 08 OCR reveiw preview

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So on Thursday the Reserve Bank decides whether to cut interest rates or not.  Last I heard the market is pricing in a 56% chance of a cut, while economists are picking a 45% chance (I’m surprised its not 50% 😛 ).

Now I think it is clear from the writing on this blog that I don’t think we should cut – but this preview isn’t about what I think SHOULD happen, but about what I think WILL happen.  Ultimately, I don’t think that they will cut on Thursday – however, the September meeting is looking good for a cut.

There are a number of reasons why I think they won’t cut:

  1. This is the start of an easing cycle.  It is nice to start an easing cycle with as much information as possible, July is a OCR review date, not an MPS date (when they release their forecasts) – as a result, if they cut in July they will be unable to “guide” the market as to the length of cuts they expect to make.  Cutting at the same time they release new forecasts will give them this “guiding” opportunity.
  2. Labour market data is out in August.  Given the fact that inflation expectations are rising and given the length of time that non-tradable inflation has been out of the bag, the Bank will probably want some confirmation that the labour market is easing, before easing themselves.
  3. They will not want to terribly surprise the market with rate cuts because of how close we are to the election – as they want to keep the image of political independence.  Given that July would surprise many market participants but September wouldn’t, it seems a fair bet that they will wait.
Matt Nolan

Progressive puts the squeeze on wholesalers: What does this mean for consumers?

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Normally, when we hear that a supermarket is putting the screws on its suppliers it is a good thing for consumers. When supermarkets get better prices for wholesale products, some of those savings will be passed on to consumers!

However, this case of squeezing the wholesaler does not appear as consumer friendly. Progressives are telling wholesalers that there product cannot be “promoted” by other store types at the same type that Progressive is promoting it. If they the wholesaler breaches this “no-clash” agreement, then they are liable for the cost associated with Progressives lowering the price to meet competitors.

Now how could this lead to lower competition? Read more

Matt Nolan

The paradox of petrol prices and inflation

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Explain this to me. According to some New Zealand retail banks:

If petrol prices increases, it will slow the economy, which will reduce inflationary pressures, and this will allow the Reserve Bank to cut interest rates.

If the petrol price falls, imported costs are lower, which will reduce inflationary pressures, and this will allow the Reserve Bank to cut interest rates.

Why are some people willing to take contradictory pieces of information as proof of their own fabricated story – this disappoints me. Come-on guys, lets be less reactive and lets use our awesome tools to give New Zealander’s better information!
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