Matt Nolan

Oct 1 GST increase: Transfer from the old to the young

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There has been a large number of people, specifically Gen X and Gen Y people, saying that baby boomers are selfish and have eaten up all the resources for themselves.

The case has been that baby boomers took free education, then when they got jobs they cut taxes and charged their children for education, then they purchased multiple houses and charged their children rent.  Sure, this is all probably true.

However, today GST has gone up and income tax has fallen.  This implies that younger people, who generally borrow to build up human and physical capital, have experienced a lifetime tax cut.  Meanwhile, older people who have assets and net savings have experienced an increase in their lifetime tax burden.

Yet have we heard any more rubbish about “intergenerational war” and transfers between generations in the lead up to this?  Well no.

Ultimately, the idea of intergenerational transfers has been overplayed.  New generations are benefiting from the established capital stock and technology – in fact if we care about each generation equally we would WANT to transfer resources backwards in time.  I get the feeling that Gen X and Gen Y (my generation) are simply a little bit to argumentative, and would like to pretend that they are being horrendously wronged – this makes sense to me, as I happen to be very argumentative myself 😉

There is a good article on the issue here, by Nigel Pinkerton from Infometrics.

Matt Nolan

Actors back union out of self-interest

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I agree with Peter Jackson that the Aussie film union is a “bully boy”.  And I find the actors supporting a boycott of the Hobbit highly self-interested.

For one, we know that having the unionisation of the workforce will lead to fewer movies, and the exclusion of potential “actors” who would work for lower wages – but can now not get a job.

Given this though you might say, how are the wealthy actors being self-interested?  After all, these minimum conditions have nothing to do with them!  However, this is just not true.

Since we know that unionisation limits the potential pool of actors, and that the acting skill requires “learning by doing“, we can say that this type of unionisation limits competition for actors roles – and so will push up the wage these actors can demand.

How can we say that labour in the NZ film industry is being exploited?  These people are willing to work for the current wage – and there is an industry here willing to hire them.  The fact that some of the workers want to exclude other workers from the industry to drive up their own wages is abhorrent – and I don’t understand why these big name actors believe they are taking the moral high ground when they are simply acting in their own self-interest

Matt Nolan

Quakes aren’t good for the economy

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Hey, I’m currently running so busy that I dont’ even have time to look at the other blogs – so I’m sure this has been covered somewhere else.  However, I felt I have to say something.

When Stephen Toplis and Cameron Bagrie say that GDP growth will accelerate due to the earthquake they ARE NOT saying that it is good for the economy.  That headline is completely inappropriate.

Effectively, a bunch of our capital stock was destroyed.  Because of this, the “marginal product” of capital is probably a little higher, and so the “flow” of capital (investment) will temporarily pick up – driving up GDP growth.  We’ve still lost a bunch of wealth.  We are simply having to “work” (which is costly) to try to regain some of it.  In no way does this mean that it is good for the economy – and that is not what these two economists were getting at.

I suspect the author of the article and/or the editor got confused between the flow concept, which is investment and GDP, and the stock concept, which is capital and underlying wealth.  We have lost capital, and we have lost wealth – this negative shock is not just sucky for the people who had to face a disaster, but it IS a “negative for the economy” in terms of measured wealth.

I mean flip, if destroying a city is “good for the economy” why don’t we send the tanks into Wellington to blow it up right now?  Actually, I’m in Wellington – lets make that Auckland instead 😉

I imagine that neither of these economists is particularly pleased that they are being sold as “merchants of doom” in this sense …

Matt Nolan

Brief thoughts on NZ’s debt position

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On Saturday I had an article in the Dominion Post on New Zealand’s debt levels, and why I think we need to spend a bit of time thinking about “why” this level of debt arose before yelling out for things like compulsory superannuation.  My conclusion was:

This issue deserves a much more in-depth analysis then the quick look over the statistics I have provided here.  It requires time looking over the data and trying to understand where there is a distortion in the market, either resulting from market or government policy failure.  Then any savings policies that are introduced should be based on our analysis of these distortions – not on the eagerness of fund managers to receive funds from compulsory savings schemes.

The article is here.  If anyone wants to quote from it or any such, please attribute it to the Dominion Post.

If you merely want to discuss it with me, do so in the comments.  Note, I am very tied down at the moment, so it will be a while till I respond to comments – however, in time I will 😛

Matt Nolan

Sigh, more like SCF?

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So this isn’t what I wanted to hear:

Mr Key also warned that other finance companies may go under and the government would continue to look after investors by keeping the guarantee on investments in place.

I think he meant:

Mr Key also warned that other finance companies may go under and the tax payer would continue to take on all the risk for investors by keeping the guarantee on investments in place.

Look.  I had no problem with the idea that we needed to do something in wholesale markets during the credit crisis to prevent an effective “bank run”.

But the two problems with keeping this going now is that:

  1. This problem is gone now,
  2. Given the fact that funds flooded into risky assets after the guarantee there is a definite case that we should have done less.

Contrary to what Kiwiblog said that “It is easy in hindsight to say that one should not have had the guarantee scheme, but in late 2008 the wordl financial system was on the brink of possible collapse, and pretty much every OECD country did much the same as a stability measure” I think it is perfectly fine to critique the scheme.

Why?  Well we KNEW there were issues with our finance firms, and we stuck them into a scheme rapidly without doing due diligence on a whole lot of the stuff.  And we made this f’ing critique AT THE TIME – so we are allowed to make it now 😉

Lets just think here for a second.  Effectively government was taking on all the risk, so why weren’t the insurance premiums insuring that all the return also went to government?

If it is hard to observe the price, couldn’t we have just said that people who entered the scheme couldn’t increase lending – this would have allowed the scheme to protect deposits without leading to the “increased risk taking” that has taken place.

Bah.

Matt Nolan

Policy success measured by decline in consumer surplus

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Via the Herald (ht Education Directions):

The Illicit Drug Monitoring System report found the price – commonly regarded as the best measure of police success against the drug – had increased each year.

Interesting.  So they use ever rising prices as a measure of ever rising success.  This is weird on two grounds:

  1. We are using regulation, not the market – yet using prices as an indicator seems to point out that we could use a market mechanism here.
  2. If we accept the market mechanism, then even in the face of externalities there is an appropriate “price” – if we go past that I wouldn’t call that a “success”

Also, they seem to have trouble attributing appropriate causation:

Dr Wilkins said dealers around the world had reacted (to restrictions) by filling the (Ectasy) pills with other substances, including methamphetamine, which could create a highly dangerous cocktail of drugs.

…

A revival in LSD use, possibly as Ecstasy users look for a stronger drug.

So they attribute the rise in LSD use to “addicts” wanting a stronger fix – even though they have already admitted that the consumers value of Ecstasy has been lowered by tightening restrictions overseas, which have reduced quality and increase the potential health impact.  If anything I would say that the “obvious” reason for the substitution from Ecstasy to LSD would be the result of these tighter restrictions …