Matt Nolan

Discussion on how to screw up a terms of trade increase II

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As promised, I will now discuss Queen Bee’s fear that the Emissions trading scheme will limit our ability to take advantage of the wealth gains New Zealand will get from high food prices.

First we should accept that there is a liability we have to pay. If anyone wants to comment saying we should just not pay our Kyoto Liability, do it somewhere else (If it makes you feel better, we will assume that the world will punish us by more than the cost of the scheme if we drop out). So given that we are looking at the situation where New Zealand has to pay for it, why is there concern around the ETS.

One concern that Queen Bee has, which is of course correct, is that rushing into an emissions trading scheme without thinking about the issues surrounding it is a mistake, but is that what we are doing. Compared to other polices the ETS has had a ton of work done around it, general equilibrium models, real options analysis of forestry stocks, all sorts of stuff. Some of the technical issues surrounding the measurement of liabilities need to be cleaned up, but in the economic sense I’m pretty happy with where we are sitting.

The feeling that we haven’t properly costed the ETS stems from the NZIER GE model on an ETS (something we discuss here). Read more

Matt Nolan

Discussion on how to screw up a terms of trade increase

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According to Statistics New Zealand our terms of trade is now at its highest point in almost three and a half decades. To some degree this lift appears to be structural, with growing demand for protein goods from Asia and the increasing prevalence of biofuels two of the main factors driving up prices permanently.

However, Berl and the Hive have identified what they believe to be the main policy factors that could mess up our chance to take advantage of this national increase in income (h.t. the Hive). These factors were Inflation targeting (Berl) and the Emissions trading scheme (the Hive).

Here I aim to discuss the Berl argument – the warning is that it might sound a bit technical (more down to my inability to explain myself clearly than anything else 🙂 ). After that I will do another post on the argument that the Hive raised, and maybe even state what I think is a major policy risk 🙂

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Matt Nolan

A technical recession in New Zealand: What’s the big deal?

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Since the March quarter retail numbers have been released it has been apparent that New Zealand was heading down the road of a technical recession (two quarters of negative economic growth – seasonally adjusted). This has led the countries finance minister to once again admit that a technical recession is likely – (something he admittedly said earlier in the year, much to my irritation at the time 😉 ).

By Tom Scott 20/06/08 (link)

The fact that we are so close to a recession that it has gotten the attention of foreign economists – in a sense we could be viewed as world leaders, in so far as we are the first developed country heading towards a technical recession 😉

For some reason or another the idea of a recession scares us. For example Queen Bee at the Hive is stating that it is imperative that the Bank now cuts interest rates. However, in order to understand whether cutting rates is appropriate, we have to ask ourselves – why are we suffering from a recession.

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Matt Nolan

Liquor ban: Is there a rational

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After reading this excellent post on the liquor store regulation idea on Kiwiblog (which aggregates the thinking of a number of other blog authors posts on the issue are found ,,,), I’ve decided to do a little thinking out loud about the issue.

Now, to analyse what it going on we have to ask why we want to have tighter controls on liquor outlets in the first place. From what I can tell, liquor outlets aren’t the direct cause of harm – the consumption of alcohol is. As a result, these measures are based on the causal link: More liquor outlets -> more liquor consumption -> more crime.

For fun, lets take as given that more liquor consumption leads to more crime. We still need the prevalence of more liquor outlets to cause more liquor consumption for this story to float. How does this work?

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Matt Nolan

Inflation targeting failure: Why inflation targeting?

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Article from Dom Post on Saturday is here (*).

Other New Zealanders discussing inflation targeting can be found here (*) and here (*).

In order to make justify the defense of inflation targeting let me note down a few points about why inflation targeting is used and how it should work.

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Matt Nolan

Fiscal responsibility in taxes

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With the actions of the finance minister and the RBNZ both contradicting what I have learned about sound economic management it is time for me to take to task some of the more aggressive issues I have avoided up until now.

Today, my aim is to discuss the (lack) fiscal responsibility associated with Dr Cullen’s nine years in charge of taxes.

Now, there are two ways people have stated that his tax policy is a success:

  1. Through Keynesian economic management,
  2. By increasing progressiveness.

However, if either of these were his goals – the means he has used to achieve them has not be satisfactory. Let me explain.

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