Matt Nolan

Capital market intervention: How can we make it sound like a good idea?

/5 Comments/in , , , /by

A post at Kiwiblog reminded me of an issue I have wanted to discuss for a while – the optimality of capital market intervention. In this post I aim to discuss some of the basic issues surrounding capital market intervention from a selfish-country perspective.  Furthermore, I want to paint a picture where capital market intervention is actually optimal.

As DPF mentions it is fundamentally unfair that we want other countries to allow us fair access to their capital, but we are unwilling to give access to our own capital. Although this is true, the government of New Zealand is elected to maximise the welfare of New Zealander’s – not the welfare of people around the world. As a result, we have to ask if such controls are in the interest of New Zealand itself. Note: I would like it if other countries in the world cared about other people – sadly governments are really just local institutions that have been created to increase the bargaining power of a select group, so this isn’t the reality of it.

Read more

Matt Nolan

Emissions trading scheme and inflation

/4 Comments/in , /by

Inflation is an important issue for everyone in New Zealand at the moment, with rising food and oil prices driving our annual inflation rate has fallen outside the Reserve Bank’s target band (hitting 3.2%pa in December). The fact that inflationary pressures are elevated will make it difficult for monetary policy to respond to any slide in real economic activity – a definite concern for New Zealand.

At the same time there has been a lot of talk about how the emissions trading scheme will impact on inflation. Both the Reserve Bank and Westpac are telling us that it will lead to a higher rate of inflation, and commentators seem to have accepted that it will – but how does this work?

Read more

Matt Nolan

Should we dump the tax cuts?

/1 Comment/in , /by

I find it weird when people tell me that we should not cut taxes because a slowdown in the economy means we are going to run a fiscal deficit. Now you might think I’m weird for thinking its weird – after all many people see it as equivalent to this: think of it like a household, when your income falls you should cut back on spending so that you have more to spend in the future.

However, thats the question – has our countries ‘lifetime’ tax take fallen (which would imply that we need higher tax rates to fund current spending), or is this budget deficit just the result of a cyclical movements in our countries income. As it seems like we are moving into a cyclical slowdown, there is no reason to take tax cuts off the table.

Read more

Matt Nolan

March 2008 MPS: Rates on hold at 8.25%

/in /by

It came as no great surprise that the official cash rate was left on hold today. As a result, attention should move to the statement and the forecasts.

What struck me in the statement was this:

“The outlook for economic activity has deteriorated somewhat since we reviewed the OCR in January.”

That has to be a poor sign. However, the chance of any cuts was dashed by this:

“Given this outlook, we expect that the OCR will need to remain at current levels for a significant time yet to ensure inflation outcomes of 1 to 3 percent on average over the medium term”

Read more

Matt Nolan

Auckland airport – what’s the issue?

/5 Comments/in /by

So the government has announced changes that have been pushed through parliament in order to ensure that “ministers will be able to block the sale overseas of any land or assets if it runs counter to the need to maintain New Zealand control of strategically important infrastructure on sensitive land“.

Now I’m not an expert on why or how we should maintain New Zealand control of strategically important infrastructure. Around the blogsphere, I see some people arguing against this proposal (here, here, here, and here) and people arguing for it (here and here). From all our special conversations about positive and normative economics we know that we cannot make a definitive conclusion with making some value judgments – however that shouldn’t stop me from describing some of the things I believe are pretty close to facts about this policy.

Read more

Matt Nolan

The luxury of cheese: A reply

/in /by

There was an article in the Dominion post by Linley Boniface. In the article she talk about how cheese used to be a staple, and now it is a luxury.

Now I find I don’t need to argue with her, as she practically makes her own case against herself in the second paragraph, namely:

Bikes were always second-hand, a new coat was a purchase that needed to be weighed up for months in advance, and meals in restaurants were for birthdays only. When I think back to my childhood, the only thing I can remember being given access to in unlimited abundance was cheese.

So she is saying that people can now afford bikes, new clothes, meals in restaurants etc but not cheese.  The reason for this is that we are trading with countries that make these things more relatively more efficiently than we do, it’s called comparative advantage .  I’m willing to pay a higher price of cheese for the lower price of goods such as TVs, cars, computers etc, but then again I don’t like cheese 😉

She also levels the claim that we aren’t hearing enough about the issue (which by itself is a lie – there are several articles a week on it) because it is the poor that are suffering.  However, aren’t the poor gaining from access to ridiculously cheap manufactured goods (washing machines, clothes, shoes, TVs).  If they are actually net losers from trade out there, then why don’t we compensate them (akin to Kaldor-Hicks) – wait a second we do with the level we set welfare payments.