Matt Nolan

From a listener: Statistics NZ talk on wellbeing

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As you saw from Shamubeel’s post this morning, there was a discussion on well-being and statistics to celebrate the International Year of Statistics – an event that Shamubeel spoke at.  Donal summarised the event here.

It was good times and all, well-being is important, as is measurement.  All the speeches were good, with Phillip Walker drilling home the importance of measuring wellbeing, Mai Chen adding that we need to be more intelligent about how we consider social capital and culture (as well as measuring it), Shamubeel pushed everyone to think past aggregates and consider data in relation to the choices of individuals, and Campbell Roberts indicated that the reporting of statistics, and the narrative, are incredibly important.  Another key point that Roberts stated was that statistics offers a lens on reality and in this way they are useful – very much so.

However, we have a summary from Donal and Shamubeel’s post on his speech.  Given I was in the audience trying to eat all the food Shamubeel told me I should post something – so I thought I would point out that there were a couple of areas where I felt a touch nervous.  This isn’t to criticise anyone – it was a great day with a lot of good points raised.  However, I just felt I should add some detail on a couple of points I felt were left to the side during the day – perhaps because they were too obvious, or seen as inconsequential at the time.

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Matt Nolan

NZ inequality statistics: Some of the research

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Donal over at Economics New Zealand posted up some OECD figures that indicate that the Gini coefficient over the OECD was the same in 2010 as it was in the mid-1990s, and that it is actually lower in New Zealand.

As I have noted earlier, I am going to start writing about inequality on the blog.  So I have been spending a little bit of time reading about it!

Given this, I’ve realised we can take this analysis a step further.  Bryan Perry from MSD discussed the Gini coefficient, and other indicators, in his introduction for the inequality conference in July.  I wasn’t there – but I know the document is here, and I know Figure D.17 (third page of the pdf) has a graph of the Gini coefficient through time, and a trend line through it.

A couple of things should stand out when we look at this:

  1. The Gini coefficient has more been “flat” rather than “falling” since the mid-1990s if we look at the trend – the drop the OECD recorded looks like it may have been from comparing direct points, which are volatile
  2. When people complain about the large increase in the Gini coefficient they are not talking about the mid-1990s to today – they are talking about the reform period.  This figure shows that there was a very sharp increase in the Gini coefficient between about 1987 and 1992.

So unlike other countries, the complaints are NOT about a creeping increase in inequality through time – but about the level shift in inequality that New Zealand experienced following the reforms.  Ultimately, there is a view by these groups that the “equity-efficiency trade-off” New Zealand decided to make at that point wasn’t the right or just one.

Now I am not sure how we are even supposed to evaluate that claim without thinking about why, and how, inequality has changed.  To give some flavour for this, I’ll comment on a few of the New Zealand specific research papers we have had about this change – if you know any other similar work, flick me a line in the comments 😉

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Infometrics

Are the LVR restrictions riskier than meets the eye?

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This time, David Grimmond discusses the loan-to-value speed limits that the RBNZ introduced from October 1 (Infometrics link).

David covers a range of concerns about LVR’s in his piece, however he is also concerned about whether having a central bank use such policies is appropriate and whether it is really a reasonable part of their mandate:

First rather than addressing the tax-related root cause to an excessive demand for home ownership it is trying to curb demand by introducing a new set of regulations. If you cannot change the tax rules then there may be some merit in a LVR scheme, but the result will invariably be worse than an approach that directly addresses the tax design issue.

The second issue relates to one of the political mandate for the LVR regulations.

Tax laws are determined by government and parliamentary votes.

If it is the political will to have a tax system that favours home ownership, what is the political mandate for a non-elected body like the Reserve Bank to introduce regulations to “protect” people from taking advantage of these tax rules?

Ultimately the Bank is imposing highly selective regulations that are limiting free choice and redistributing wealth across society.  These are the type of actions that normally require a political mandate, and it is not obvious that the Bank possesses this mandate.

Unlike the elected government, we do not have the recourse to vote out the Reserve Bank Governor at the next election if we are not happy with the Bank’s performance.

A very important point, and one a lot of economists out there (including the economists at the RBNZ) are puzzling over.

Shamubeel Eaqub

Creative destruction: Discworld style

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Ok, so I am a geek. That should come as no surprise to anyone. One of my favourite book series is Discworld by by Terry Pratchett.

The latest book, Raising Steam, has a nice description of creative destruction: Read more

Infometrics

Cross-subsidised by credit card ill-discipline

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Benje Patterson decided to discuss the incentives he faces when deciding to whip out the credit card to pay for purchases (Infometrics link).

After discussing the benefits he gets from different rewards schemes he points out:

These benefits sound too good to be true, but they really aren’t, so long as you maintain the same spending discipline as our model couple.

But if you aren’t so disciplined (and banks really hope that you are not), then your credit card can quickly change from being a wealth-enhancing device to a real drag on your pocket.

But of course, at his individual level, and given his disciplined use of his card:

But why should I care? So long as banks can continue to profit from these hordes of people with interest-bearing credit card balances, then the status quo remains.  As a result, people like me can keep freeriding and enjoying the benefits of sensible credit card use!