Matt Nolan

Price discrimination based on gender: Sexist or fair?

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I see via Stuff that women have to pay more for haircuts.  This is true – in fact there are a number of service related areas where the woman’s version of that service costs more than the man’s version.  Undeniably, we are seeing price discrimination at work.

Now I’m not terribly against price discrimination – if the price discrimination is taking place based on a freely obsevable factor such as sex, then the outcome is efficient … and to be honest, price discrimination is going to become a larger part of our lives over time.  Now this doesn’t mean its fair, or unfair … in order to understand that we have to apply a series of “value judgments” about fairness.

Let’s look at the example of haircuts.  It is true women are charged more than men.  This happens due to women, on average, valuing the service more than men and generally being “less responsive” to the price.  Furthermore, even for the same haircut for a man and a woman, the service offered is not the same – not just because the women values the haircut subjectively “more” but because the physical service that is offered is usually different.

The hairdressing industry is an interesting one as well, it is hardly a place where “competition” issues exist – there are hairdressers everywhere.  As a result, a hairdressers ability to charge a premium above cost is severally limited – although it is the case that women value a haircut more than men, the very competitive nature of the hairdressing industry and the existence of a price gap seems to indicate that the “haircuts” a woman gets costs more than the haircuts a man gets.

If this is the case, I struggle to see how we could view this as unfair.  If we were to “ban” such price discrimination based on sex male haircuts would have to cross-subsidise womens cuts – to me this sounds like much more sexist pricing.

There is also the issue of choice.  Say that, somehow, all the 100 million hairstylists in Wellington were able to inforce an OPEC type relationship – and thereby collude on the price of haircuts to women.  I don’t understand what is to prevent:

  1. Entry of another hairdresser – the fixed costs seem reasonably low.
  2. Women going to a mens barber – a lot of mens barbers in Wellington wouldn’t care … if you were getting the same cut as a guy

I think this specific example shows how careful we have to be about criticising “price discrimination”.  Such discrimination is often a good thing – even given its negative sounding name.

 

Matt Nolan

BERL report on changing the PTA

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I tend to avoid criticising other economists, especially inside New Zealand.  However, the BERL-NZ First report into inflation targeting has crossed a threshold where I feel saying nothing would be more inappropriate than voicing my disagreement.

I have discussed the issue on my work website here.  In that article I solely discuss the idea of hot money – and how they don’t properly articulate the idea that someone in NZ has to borrow the money, and that this is a key factor to try and understand to figure out where any “failure” is.  However, there are several more issues I have with the piece:

  1. The alternate rule isn’t actually defined in the article – this makes it hard to analyse.
  2. Having inflation expectations anchored doesn’t mean ditching inflation targeting is costless – changing monetary regime will unanchor inflation expectations!
  3. The credit figures quoted aren’t inflation, or asset price, or GDP, adjusted – they are all just in current prices, and so exagerate everything.
  4. The rule the RBNZ sets for setting the official cash rate is endogenous with the economy – as a result, you can’t really say “the interest rates are too high”, instead you need to ask what core economic drivers are making it so.
  5. Monetary policy is cyclical – when any fair reading of the evidence suggests that, if there is a problem, it is a structural one that is independent of this (I expect this point, and the one before, to be a bit more contensious – even though they are relatively mainstream).
  6. The costs and benefits listed are relatively partial and don’t seem well considered – they should also be compared through models and evidence rather than ad hocly thrown around.
  7. Insulting “mainstream economists” is douchey … seriously, they are CGE modelers, they often use mainstream economic methods.

Feel free to rant about how I’m part of a “mainstream conspiracy” or that I’m only doing this because they are “competition”.  But no matter what, my core belief here is that structural issues in the New Zealand economy need to be researched, and sensible changes to fiscal, financial, and competition policy should be made where appropriate.  Ill informed changes to monetary policy and the PTA are not a silver bullet, and are very likely to be inappropriate.

Update:  Paul and Eric also discuss.  So does the ODT.

Bah:  Article link is being a punk.  Here it is in any case:

 

Read more

Matt Nolan

Farewell Dr Bollard

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Alan Bollard has now pretty much finished his role as governor of the RBNZ following today’s MPS.  He, and the RBNZ, did a great job of helping to steady the NZ economy during the global financial crisis – I think there are few other people in the world who would have felt that sort of pressure before, so it really is quite incredible.  As a result, I’d definitely like to thank him for a job well done during a time that was viciously confusing and extremely important!

Bernard Hickey (*) does the same:

I hope he celebrates his last Monetary Policy Statement news conference and parliamentary select committee appearance. He deserves at least a strong cup of coffee from his favourite café, Daniel’s, next door to the bank at the bottom of the Terrace. That’s because Reserve Bank Governor Alan Bollard can retire on September 25 with his head held high.

He presided over monetary policy and New Zealand’s financial system during the most turbulent period in our economic history since late 1984, when a run on our currency forced a shock devaluation and nearly bankrupted the nation.

Alan Bollard has managed the blunt instrument of the Official Cash Rate (OCR) and the much less simple instruments of banking regulation through New Zealand’s strongest period of economic growth in 50 years and then its deepest and longest recession in 20 years.

Very good.

Matt Nolan

Why macroprudential regulation?

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With the RBNZ asking for comments on the upcoming countercyclical capital adequacy  regulation, and the RBA/APRA releasing a report on macroprudential policy now is a good time to ask – why?

I have seen many people justify these types of policies based on “debt being high” – but this doesn’t answer “why”.  I’ve heard a large number of people say it is because government savings made the private sector borrow, leading to financial instability – this not only doesn’t answer why, but it doesn’t involve any sort of sensible role for private agents and so is incoherent.

However, economists aren’t keen to let this issue slide – thank goodness!  The key concern, as previously mentioned, is trying to figure out what the market failure involved is.  What factors drive the systemic risk in the financial sector?  One interesting approach to microfound the incentives through the cycle that lead to this market failure is found here – one I found interesting at least, as there are many more 🙂

Now, it is useful to ask why for a couple of reasons:

  1. We can explain why these policies are actually a good idea – remember, just because something is volatile doesn’t make it bad instead we have to explain why to understand it in this sense.
  2. We can understand the impact of the policies – remember that it is likely that some financial regulation will involve a trade-off between output and stability.  When that is the case, we want to actually decide whether this trade-off is worthwhile.

If we can answer these, we can put in place good policy, policy we can explain, with impacts we can describe, and outcomes we can understand (and hopefully anticipate).

Matt Nolan

Free food in schools: Equality of opportunity?

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Recently the Labour party has suggested we have free food in low decile New Zealand schools.  At the same time, Kiwiblog suggested that this was nonsensical.

So how do we should we view this policy?

Generally, having the government buy something and give then give it out is relatively inefficient – we get no clear signal of the “value” associated with it, and the lack of clear discipline often leads to the government over spending on the service.

However, we could provide this same argument for the provision on “education”, or the provision of healthcare, or the provision of roads.  In each case, we are willing to move away from strict market provision for a reason.

We need to think about primary and secondary school education more clearly to get a good idea about the policy of free lunches.  Why do we provide this sort of education, and what does public provision achieve?  We provide this type of education to ensure there is equality of opportunity for individuals in society.  On that note, having shared lunches at school ensures the same thing – we know that appropriate nutrition at a young age is essential for the physical and mental development of an individual.  We know that, especially in low decile schools, there is a definite “underinvestment” in this attribute for kids.

Now we may feel that it is due to families having insufficient income, and we may say that instead of free lunches a more appropriate solution would be to increase benefits and transfer payments.  But is this the whole explanation?  Potentially the real limiting factor is time, parents do not have the time, or information, to provide their kids with lunches in this case.  If this was the case, then ensuring that the school provides lunch would save these parents the time, ensure that food is provided, and would benefit from “scale” in the provision of lunches. For families that needed help getting food we taught them how to apply for food stamps in louisiana. To be honest, as an individual I have always thought the provision of lunch at school makes sense from an equality of opportunity standpoint – you ship kids off to an institution for most of the day, we may as well make sure that the institution provides the services required.

Personal responsibility is a very important thing, but when it comes to children and education there is only so far such an attitude can take us.  I agree with this Labour party policy for the most part, although I wouldn’t just have it in low decile schools – I would probably make it an option for all schools to spend part of their budget on.

 

Matt Nolan

PTA’s, currency, and monetary policy

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Recently I was sitting at my computer looking at Twitter, when the following popped up in my feed:

NZIER calls for changes to the RBNZ’s Policy Targets Agreement to combat the overvalued NZ dollar – http://bit.ly/Q6aOWX

I found this surprising, as earlier in the day I had read a piece on the NZIER site that I felt was saying something very different to this.  It turned out it was the same article, however it was interpreted in different ways.

Let me state how I took the NZIER piece after several readings.

They stated that, due to the current PTA including several goals, the Bank had not reacted strongly enough to credit growth during the “boom” – essentially, concerns about the exchange rate had prevented them from appropriately responding to what was going on.

As a result of this, if we leave the PTA unchanged, the Bank requires other instruments in order to achieve the “multiple goals” it faces in the current PTA.  Anti-Dismal recently had a post where Don Brash made the same point.

But what about the jazz about the exchange rate at the start

Yes, the article discusses in detail how the NZ currency appears to have been persistently overvalued – and that there has been a chronic imbalance between savings and borrowing.  However, it never lays this down as the Bank’s fault – it merely says that the Bank is facing undue pressure about the exchange rate as a result of this.

As we have discussed a myriad of times, a PERSISTENT IMBALANCE is not the fault of monetary policy – it indicates that the real exchange rate is out of whack in NZ for real economy reasons.  This could be fiscal policy, this could be an issue an issue of competition, this could be an issue of “impatience” by New Zealanders.

Macroprudential regulation can be used to help against these issues in a “financial stability” sense – and the article makes the claim that they can help monetary policy BY reducing policial and social pressure regarding factors monetary policy is uninvolved with.

The article DOES NOT say that we should change the PTA to deal with the currency directly – and if that was actually NZIER’s intention I would be more than happy to have a open, and long, discussion with them regarding why this is the case.