Matt Nolan

Forecasts are wrong, but is there some reason for them?

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I see that, once again, we have people attacking forecasters because what happened was very different to the numbers that they pulled out of their computer (here and here).

Now if your belief is that this is the role of a forecaster, then this criticism is fair enough – after all, there is so much that is “unknown” and “unknowable” about the world it is pretty ridiculous to think you can state exactly what will happen, especially when the numbers themselves are often both wrong and meaningless.  But I don’t believe this is the role of someone in this sort of position, and it is definitely not how they should “sell themselves”.

I would be seen as a forecaster myself – but outside of making sure my data is up-to-date and that my empirical methods are robust, I spend all my time catching up on reading, talking to people, and trying to bring as much information together as I can.  I then distill it down and try to give it to clients in an easy to digest way – so that they can understand what is going on, and what the risks are for the future.

Its a service, we are paid to provide information, and to always be available to help inform people in government and business – so that they can make the decisions they think are appropriate.  If any of you have been to one of my presentations, you’ll remember how much I bang on about this – and how I spend the whole time focus on “why” and discussing “risks” and the reasons for them, rather than focusing on arbitrary numbers.

Now, I thought this would be obvious – as Peter says it is entrepreneurs that make the choices, and so they will value this type of service insofar as it helps give them information that allow them to make better informed choices.  Explanation, discussion, and helping to make the economic jargon transparent, is the sort of service that is provided by all these guys … so what’s with the angst?

But the view of the last year has been very wrong

Undeniably, and if it was possible to forecast the sharp rise in fuel prices, the impact of new banking regulations (with no relevant history), the global droughts, the earthquakes in Canterbury, the snow storms during lambing in the South Island, and government policy changes they would have been less wrong – but there is no change someone would have picked the actual numbers.

But just because so much is “unknowable” does not mean there isn’t value in discussing what we do know – and keeping informed.  If a client feels ill-informed, the guy is failing and needs to up their game – that is the issue that really needs to be looked at if we want to judge these people.

Matt Nolan

Do we need the same job as our friends: The country edition

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Via Kiwiblog I see that another member of the Labour party is shooting themselves in the foot, again.  This issue has been done to death, and we’ve already had Dim Post and No Right Turn discuss the ridiculousness of what was stated.

But I’m an economist, I don’t care about “politics” in this party sense – and I especially don’t care when it is just someone making a dumb-ass statement that they don’t really mean.  Given I don’t think Clare Curran wants to remove democracy, what really concerned me more was at the end of the post:

Our economies are too important for the juggernauts of China and other bigger nations to turn us into service economies.

This appears to be saying that New Zealand shouldn’t focus on the things it has a comparative advantage over – instead it should be looking to model itself like other countries, larger countries who have greater scale and greater advantages at making things like manufactured goods.  I find this strange.

Although I don’t like comparing countries to individuals, one clear way to see this from my perspective is to think about me.  I am a service economy.  I have to admit it works pretty well for me, I get to write, I get to do economics all day AND I get to trade income from this to rent a house and buy a computer … excellent.

If other people are investing in making computers better, and improving the quality of the rental stock – that is GREAT for me.  It would be weird for me to then say “hell, I need to start building my own computers”.

Yet this is exactly the sort of few that Curran is trying to push – she seems willing to lower living standards in New Zealand and among our trading partners, just so we can make the same stuff as them (but more poorly).  For me, it is this sort of thinking that is preventing me from voting Labour – far moreso than the latest political gaffe by one of their MPs.

Matt Nolan

Creeping nationalism

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You know what I love, this article from the Dom by Nigel Pinkerton.  Read this:

Z Energy’s advertisement was, at best, sloppy and, at worst, a deliberate attempt to build its brand on a misguided sense of national pride by implying that New Zealander’s deserve those jobs, even at a higher wage, more than foreigners.  As the world’s separate economies become increasingly globalised, allowing labour to move more freely between regions and allowing companies to outsource, it will not only deliver cost savings to businesses and consumers, but also help correct the vast global inequalities our world still tolerates.

Boom!

Now I have to admit some interest – he is a work colleague.  He showed me the ad the other day (as I tend to avoid watching TV) and I was also shocked.  When did we think it was alright to say we are shutting people, often people that are much poorer than ANYONE in NZ, out of the opportunity to work – no only is it alright, but its comical.  I suppose it became alright at about the same time we decided it was fine to be xenophobic, which if I remember correctly started at the beginning of the recession … although it was probably sitting in the back of peoples minds to start with … come to think of it, even during the good times we liked to push buy NZ made 🙁

There are a lot of good things with nationalism: belonging to a group, pride in one self, building opportunities with others in the group – but when nationalism moves people to exclude others, doesn’t that seem a bit wrong.

Personally, I have been hurt by the xenophobia that has become apparent in recent years (*, *, *, *) and it was nice to read someone else who felt the same way.  As people, why can’t we just care about other people – who cares what country they were lucky (or unlucky) enough to be born into.

Matt Nolan

A point on “wealth”

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People keep telling me that the top 1% own some large chunk of the wealth – and that this is obviously unfair.  And hey, it might be.  But I think the conception of wealth that is being used here isn’t really appropriate.

The wealth that is being looked at is the asset value of these people – so this tells us the expected discounted sum of profits from this physical capital.  Fair enough.

However, what we are missing is human capital – we can’t really compare “wealth” levels unless we look at all forms of capital.  As a result, we need to add in the expected discounted sum of labour income into peoples measured “wealth” before we can start to make any sort of comparison.  I suspect that this may change the story somewhat …

The thing here is that, we may feel that a lot of physical capital is “owned” by too few people – but the requirement of labour in this case implies that the surplus created by the physical capital will be shared between workers and capital owners through profits and labour income.  We can’t just look at one side of this and bemoan it – we would need to show that there is some type of issue in the wage bargain between workers and capital owners AND we would need to use a measure including human capital to get an idea of the true distibution of capital.  Once we have done that we can start throwing around our value judgments – but the current case is merely being cherry picked to fill a narrative that wealth is too concentrated (which is may be), without fully putting together the case.

Matt Nolan

A point on debt

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Around the world there are a lot of complaints that there is too much debt, that debt will prevent a recovery, and that debt is the root of all problems – be it fiscal deficits, debt fueled consumption, or a debt powered housing market.

While there are undeniable issues to keep in mind, there are a few things to remember with these large debt levels – and one of the most important is that there are some people on the otherside of this debt.

Unknown to some is the fact that, as a planet, we are not actually in a net debt position with the rest of the galaxy (although the statistics say otherwise, I think there is an error – rather than us owing money to Martians).  As a result, for every person who has a liability owing there is another person or group who views that as an asset.  When we look at what the “issues” are with debt, we have to keep this point in mind.

Now this sounds like me stating the bleedingly obvious AGAIN … but lets think about some of the conclusions that come out of this:

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Matt Nolan

More on the recent labour market data

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Via Twitter, James Shaw informs me of the following critique of my post where I stated the media were misrepresenting the latest wage-price data.

Lies, damn lies & statistics. A friend reckons TVHE is also only painting a partial picture. QES includes merit promotions, so wages have kept up with inflation *if* you got promoted. Promotions are meant to be about getting ahead, not keep…ing up, otherwise how’s the next guy going to feed his family? Moreover, while TVHE strips out tax changes from inflation (a little rough if employers factor this into wage rounds), it ignores that Stats themselves picked out food and electricity as rising by more than the headline 5.3%. The Salvation Army reckons that CPI actually understates how difficult it is for lower income families to afford the basics.

There are a lot of points here – and while they are important things to keep in mind, I’m sticking to my conclusion that the initial headline was misleading.  Let me try to explain myself here.

[Note:  The new headline and first paras of the article I linked to in the initial piece are completely reasonable – as I’ve just gone back to read it again to see if there had been changes.  As a result, I am not criticising the article in its current form – I actually quite like the current one.  However, I am still criticising the initial suggestions that came from the article and other ones like it which will be discussed below … what can I say, there is only so much you can listen to John Campbell talking cr*p before you have to write something about it 😉 ].

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