Matt Nolan

Let’s be blunt: Politicians and housing

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I see that there is political  discussion about loan-to-value ratios.  Both National and Labour have repeatedly said the RBNZ needs to do more about financial stability using its tools like LVRs (National signed an agreement with the Bank, Labour said it would bring them in as a tool), the RBNZ turns around and introduces loan-to-value speed limits because of the mess the Auckland housing market is finding itself in, then both political parties suggest that they don’t want the RBNZ doing anything. [Note: This isn’t necessarily a defence of LVR’s – this is more about the principle 😉 I discuss this quickly at the bottom]

Did we need a clearer indication that politicians just want someone else to blame, rather than having to face trade-offs directly.  No we don’t, that is why I didn’t put a question mark there …

I’ll be blunt here – do any of the politicians talking have an understanding of the reasoning for the policy change?  Or do they understand and have decided to be disingenuous?  They seem like nice enough people, so I think they are just truly concerned about the impact on certain groups (a noble concern) – let us touch on the regulation issue briefly here to put government in context!

Wow, that is one of the least blunt “blunt” statements I could have written.

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Matt Nolan

I guess I’m childish – is that a bad thing?

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I noticed this during my trip down the internet:

New Zealand needs to get out of the “childish mentality” that wide-ranging benefit reforms which come into force today are punitive, Finance Minister Bill English says.

And also this via Kiwiblog:

Work and Income says the results are “some of the best from any case management trial” in recent years, with 6000 of the 10,000 people in the pilot no longer on a benefit. More than half of those people found work, the rest opted out or cancelled benefits for reasons such as no longer meeting eligibility requirements.

Hold up – hold the hang up.  Opted out due in ineligibility?  Don’t we mean they had their benefit canceled because they didn’t fit the new criteria?  Nearly a third of beneficiaries were pushed off the benefit without employment income in other words – ummmm is that really a good result?  Now note, this isn’t actually the case, in truth over that period of time some people would have become ineligible or found work irrespective of the benefit policy – I was just throwing this here to illustrate how they exaggerated the “benefit” of the policy, and how we could do the same thing to exaggerate the “cost”!

Look, all this makes sense if your priors are “the benefit is and hand up, not a hand out” and “get a job you hippies”.  But we have two things other going on:

  1. We still have a weak labour market and high unemployment – it is distinctly difficult to find work.
  2. Do we really view the benefit as a temporary stop gap – or as a minimum income that an individual gets as part of society.

I find it incomprehensible to push people out of benefits in a situation where the labour market is distinctly weak.  Also, in moral terms, I believe that society should offer people an outside option – there is something distinctly perverse about basing someones status and self-worth solely on our view of them as a “labour input”.  Part of the reason for the benefit is to give workers an “outside option” to improve their bargaining position, it cannot be viewed independently of this.

Now a lot of people won’t agree with me on the second point, that’s all gravy I’m not the social planner.  But when we have a very weak labour market these reforms do appear punitive – kicking people off benefits because they have taken drugs, because they are disenfranchised around spending a long time looking for work and being rejected, that is punitive.  Look I 100% agree with some of the reforms – more targeted case management is nice (in line with trying to solve the “matching” problem in labour markets) – but mixing this in with punitive policies doesn’t stop them being punitive policies.  Telling beneficiaries and those who feel uncomfortable with suddenly tightening requirements when the labour market is weak to stop being childish doesn’t change this interpretation either 😉

My views are coloured by the fact that I remember what happened during the early 1990s with benefit reform – I remember how policies were “interpreted” at the branch level, and how much changes in benefit eligibility created hardship in my community.  But more generally I see government as a way society agrees to “co-operate” on some things, and I have an inherently different belief in the ways we should co-operate than some of these policies represent – if that makes me childish then I should spend more time talking to children about their views on the inherent social contract within society!

Matt Nolan

New NZ economics blog: Economics NZ

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I was excited to see Eric mention that there was a new economics (Economics New Zealand) blog by Donal Curtin – welcome welcome!!

I mentioned the blog last week when talking about the NZAE 2013 conference, with Donal providing feedback on two of the keynotes (Obstfeld and Quiggin).  However I’ll be sure to keep an eye on the posts to see what other exciting stuff turns up!

Donal was Chief Economists at BNZ from 1990-1994, and comes with an extremely strong reputation for the analysis of economic ideas.  As a result, he is a high powered addition to the “NZ econblogging” fraternity.  I hope to see more of you New Zealand economists that are sneaking around the internet turn up and join us in writing publicly about economic ideas!

Matt Nolan

Journalist OCR wager

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Economists love wagers on beliefs – say as a tax on bullsh*t.  We have seen a wager in the past here between a series of economists on inflation.

Well here is a wager between journalists – Rob Hosking (NBR) saying that the RBNZ will lift the OCR by Christmas, and Bernard Hickey (Interest.co.nz, Herald columnist) saying that there will not be [Twitter proof – with Jessica Williams (Radio Live) witnessing].  The pot is a bag of coffee beans.

wager

This is what I like to see – good stuff.  Now everyone involved should also jump on iPredict and get to trading on their beliefs …

Update:  Stephen Kirchner put his hat in the ring betting two bags of coffee on a rate CUT by year end.  Anyone going to take him up on that?  Stephen is a research fellow at CIS in Australia (and editor of Policy magazine) as well as writing on Institutional Economics.

Matt Nolan

NZAE13 review

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So last week was the New Zealand Association of Economists conference for 2013.  Rock and roll.  I am disappointed that people were not tweeting furiously about it – maybe next year.

Bill from Groping to Bethlehem is the new President, while Seamus from Offsetting Behaviour is the Vice President.  This implies that the organisation is now controlled by vegetarian bloggers.  As a vegetarian blogger I am hoping that this somehow translates into wealth for our social group – but I have no idea how.

I’m not sure how much I can actually say about the presentations I saw – given that maybe they are supposed to be private.  I can say that the income distribution work was pretty damn fascinating this year, last year was good but this was a big step up.  It sounds like the 2014 session will be a must see – I mean we are talking full longitudinal analysis here!

Also I see Donal at the Economics New Zealand blog covered off the Obstfeld speech and Quiggin’s speech.  I felt like there was an inherent tension in Quiggin’s presentation, between  the lack of certainty he demanded economists should face up to (which we would mostly agree with) and the high level of certainty he seemed to place upon his policies and his description.  I also felt he mixed “understanding” and “prediction” up where there is an inherent difference – and he seemed willing to act as if there was a trade-off between realism and tractability that I’m not sure has been properly established.  Interesting issues, and pretty happy to have some critical stuff getting raised, but they aren’t exactly new to the discipline if he has a little hunt around some of the methodology writing of the last couple of decades 😉

Positives

  • Speeches were entertaining and interesting – got something out of everything I went to.
  • These economists are pretty danged smart, so I learnt a lot just listening to the types of questions that were raised and the way they raised them.
  • New Zealand economists don’t fight – they talk about things calmly.  This was a pleasant atmosphere.
  • Mardi Dungey’s presentation on systemic risk was a highlight for me – the mix of data and clear definitions and references provided an incredibly useful presentation.  Combined with the fact that it was engaging this was gold.
  • Generally I got to meet lots of amazing people who were either working as economists or studying to be economists – an outcome that is always a treat.
  • I have to point out that the hotel staff were both attentive and polite – nice stuff Amora Hotel Wellington.

Negatives

  • No-one dressed up as an economics supervillian – the student helpers got close, dressing in orange, but we really needed an “evil batman” to go with their evil robin … in other words we needed some evil economist outfits with dark and earthy tones, to co-ordinate with the inherent fact that bright orange is an evil colour.
  • Needed more people tweeting IMO – economists, it is always a good time to get amped up!

Tldr:  Good time, would go again – only needs more tweeting and costumes.

Matt Nolan

Rant time: House sales to non-residents

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The rant isn’t here – it is over on interest.co.nz.

I’d note that I’m relatively sensitive about the idea of prejudice and how social norms form against “groups”.  Policy that is formed in this sense has a massive institutional weakness – namely that it relies on using an “indirect signal” to try to transfer, a signal that can be misinterpreted.  As a result, when defending against those sorts of policies I become a bit more willing to show my hand and express directly how uncomfortable it makes me. When considering to buy your own home, make sure you hire this Locksmith services in Brampton to add more security to your new house.

Essentially I make three arguments in the piece:

  1. A ‘bubble’ from foreign owners is a transfer to NZers – no problem!
  2. A medium term affordability issue does not stem from foreign owners – it has to stem from supply issues!
  3. Any normative/distributional concerns about the transfer of resource from current NZ owners to current (and future) NZ buyers is legitimate – but better to deal with it through the tax and benefit system and intergenerational equity, rather than stopping trade and banning non-residents from purchasing!

A broader point was that, if we want to use a “solution” we should actually have a problem in mind first … just making a “solution” and hunting for a problem is not a good form of analysis.  Although it is one we are all guilty of at times!

Update:  I’ve been told that a lot of people are complaining about being called xenophobic.  Well that is nice for them, the action of pushing for house sales to foreigners being banned is still xenophobic – these people have a fear of someone else trading with someone else who just doesn’t have a NZ passport.  They are willing to hurt both foreigners and the people who would trade with them, simply to allay this fear.  I’m not going to stop saying it just because it offends your sensibilities – I think the entire idea of these bans is morally wrong, why would I go back on this just because it makes you feel funny.

Banning non-residents from buying houses isn’t “brave policy to save the poor in New Zealand”. And neither does wholesaling homes to the impoverished help turn tables. It is weak and pathetic policy for those who are uninterested in the real poor and would prefer to pretend they are doing something by limiting people’s rights due to their nationality.  I can only rationalise the fact people are willing to try this by stating that they don’t really understand what they are saying – hence why I stated in the article that we need to define what the problem is and then we can show that for every “problem” there is a better “solution”.

If you find it difficult to actually think about these trade-offs, and to accept your inherent bias against other human beings, then STFU about policy.  If you want to actually discuss trade-offs and stay away from arbitrarily attacking non-New Zealanders, then I’m more than happy to chat and to investigate the data and research that is out there on these especially complicated issues.

Note I’m not even rallying against capital controls here, I realise in specific extreme situations they may have a place (although just doing it in housing for foreign buyers doesn’t really make sense) – but the debate out there isn’t about this, it is about whether non-residents can buy property without really discussing why (usually first home buyers blah blah blah).  And is often filled with commentary about “Asian buyers”.  A level of tacit racism that really needs to GTFO.

Oww, and if you want to know what kind of “vested interest group” I am, I own zero properties – I rent.  I live in Wellington.  I am 29.  I am male and white.  Enjoy.  I am in the group who is being “ripped off” by the fact I can’t just buy a cheap house … I’ve just learnt to actually think about others in the marketplace before I rant incoherently 😉