Matt Nolan

Compulsory 10 hours of unpaid work

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Inspired by this post on compulsory superannuation, here is a post on “compulsory work” (eg slavery).

Without compulsory work New Zealand is destined to become an economic backwater. Our relative standard of living, particularly when compared to Australia, will continue to decline.

Two important actions can reverse our long term economic decline, effective labour market regulation and compulsory work.

Compulsory work had been an unmitigated success in the New World and has helped transform their economy. While NZ academics can argue about whether or not it has increased their overall savings rate, it is clear that it has improved the amount that is produced in the economy.

Moving back away from the sarcasm let me say:

  • Compulsory superannuation is the love child of fund managers – as they can’t see past the idea that “more savings = more funds = more investment”.
  • Even those that do see past self interest only think of “GDP”.  However, the goal of policy is to maximise welfare not output – if people want to consume they should be allowed.  Forcing people to save is abhorrent.
  • Yes compulsory saving leads to more saving, and possibly to more investment (at least to lower borrowing).  But it does this by making people credit constrained – implying that people can’t smooth consumption over time and have lower lifetime satisfaction.

To me, compulsory superannuation/saving schemes are very wrong.  The people trying to push them need to learn that the purpose of policy isn’t to increase GDP or fatten their wallet, it is to ensure that we have a society where welfare is maximised.

Matt Nolan

We need a new Green party

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So I’ve been told by CPW that the Green party has a new policy regarding electricity generation. I will discuss it here, and then explain why I’ve titled the post as such – overall, I do think we need an actual Green party who aren’t just redistributionists in green drag …

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Matt Nolan

Quote of the Day: Selling ideas

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From Bernard Hickey in the Herald:

Floating an idea that you don’t really believe in is never a good idea.

This is a great quote, completely true.

I also think he makes good points discussing Goff’s chat on tax and inflation policy.

Update: Dim Post makes a good point on the “framing” of policies, and how justifications for policies can seem inconsistent.  This is why economics is awesome in my opinion 😀

Matt Nolan

Drugs and anti-paternalism

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On Saturday I had an article in the Dom ranting about how harm minimisation was a dumb goal – as there are benefits from the consumption of drugs.  This argument has been on the internet a million times (see these two searches for example), so there is no need to rehash it here.

Originally, the article was a little different.  It was a direct attack on the paternalism implicit in the policy making associated with the anti-drug crusade and the policy target of minimising harm.  Fundamentally, this is a critique of what the Law Commission has done – they are an independent body that should critique how the law differs from the target of policy (which they do well IMO) AND critique where policy differs from its practical aim (something they haven’t done).  Often the implementation of laws differs from policy because the policy is bad!

The last three paragraphs from this far more libertarian style article were:

However, why as a society are we determined to stop people hurting themselves?  Part of life is learning to take responsibility when your own choices and actions hurt you – having a government act in a paternalistic way to stop this, and make it harder for people to learn about individual responsibility, seems dangerous to me.

Even if we do have sufficiently little faith in our fellow man, and believe that the government should act like our parents, is this type of policy intervention equivalent to good parenting?  A good parent will set some boundaries, but also give a child the opportunity to learn from their mistakes, and will be there to help if things go wrong – only a bad parent would focus only on potential harm and ignore any benefit to the child when setting boundaries.  In this sense, even the most paternalistic people must agree that solely focusing on harms from any action is a poor way to ensure that we have the happiest society possible.

Ultimately, I’m of the opinion that a truly civilised society must be based on compassion, not control – it should be based on people’s happiness and freedom, not the desire of some policy wonks to create their ideal world.

Comments and criticism of this view welcome.

Update: Relevant points from Eric Crampton (Uni of Canterbury/Offsetting Behaviour) and Luke Malpass (Centre for Independent Studies).

Matt Nolan

Labour market improving rapidly. But still weak.

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Yes the labour market is recovering incredibly rapidly.  Yes the labour market is still weak.  This illustrates it:

In the same vein the Reserve Bank is right that it should lift rates.  But should still keep them in stimulatory territory at present.  How long it should stay there is an issue for debate – and one where I am sure a lot of different people and economists will disagree 😉

The labour market data is strong than expected, but it is a very backwards looking indicator.  It appears that workers have been willing to take lower wages to get back in the labour market – moving us down the demand curve and helping reduce the “surplus of labour” (see the QES and LCI for the wage data).  As a result, growth may still be moderate going forward even off the back of this.

I’d take this as a sign that our labour market is more dynamic, robust, and flexible than I’d previously realised.  That is good.  But it doesn’t mean the NZ economy is on the verge of taking off.

Update:  Kiwiblog discusses here.  A lot of good points are raised in the post definitely worth a look.  However the December to March comparisons are a little bit misleading IMO.  Why?  Two reasons:

  1. Well the September to December 09 increase was substantial and unexpected – there is some feeling that this increase “overstated” the real weakness in the labour market.  As a result, comparing December to March may, in some sense, overstates the improvement in labour market conditions.
  2. Seasonal patterns can break during recessions, and the movements in the SA numbers in December and March are a good example of how this may occur methinks.
goonix

A novel solution to the student loan ‘problem’

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In the 2005 election the Labour Government found itself in a very tight battle to retain power. In order to mobilise the student vote, Labour promised interest free student loans. The bribe assisted Labour in returning to Government for their third consecutive term.

At the time National called the interest free loan scheme “irresponsible”. Since coming to power in 2008, however, they have maintained the policy, presumably for similarly cynical political reasons as led to the policy being introduced in the first instance.

As a result of the policy, students have been encouraged to borrow more and pay back less. Debt has ballooned. There are obviously other factors to take into account, such as increasing student numbers during the economic downturn. Nonetheless, it is clear that when given the option of borrowing interest free money, those with student loans have limited incentive to pay anymore than the minimum from their loan, for which they might as well borrow the maximum.

What is National’s response to the perceived student loan problem? The introduction of a $50 administrative fee that student loan borrowers must pay annually. Note that National have also provided an incentive for students to voluntarily pay back their loans through a 10% discount on their loans.

I propose a rather simpler solution. Abolish the half measures currently in place and start charging interest on student loans again. Only then will the correct incentives be instilled.