Matt Nolan

Economic analogies explained

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Via a self-confessed “long time reader, first time contributor” came this excellent Onion article on job growth being akin to a slug.

And to clarify, sources emphasized that the current employment climate isn’t being described as sluggish because it looks like a slug. That reportedly wouldn’t make any sense. No, the slug term is being evoked due to the performance of the job market, which in spite of moderate gains in the manufacturing sector is currently, you know, slow.

Just like a slug, sources again confirmed.

Look, this reportedly still may not be totally clear. But how about this: If you think of job growth as an animal—and you don’t necessarily have to do that, but sources confirmed it can be a useful way of explaining things—it makes sense to choose an animal based on its speed, as that’s how the overall economy itself is usually assessed.

Aha, excellent.  There is no way economists abuse analogies  …

Sidenote:  For the social scientists is this (via Robert Went on Twitter).  If  this does not make you lol, you must be having an annoying day, and I’m sorry 🙂

Shamubeel Eaqub

First home buyer help – lets repeat others’ mistakes

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National has announced policy to support first home buyers to take on more debt. It will have an entirely predictable outcome: higher house prices and higher debt. This will drastically increase the cost of the homes, which are as of now being sold. I recently took the assistance of a company to sell my house fast Arizona and not only did the house get sold remarkably soon, but the money was transferred to my bank account without any delay. So this policy which has just got introduced could make things for potential home buyers a little difficult.

The only good thing about this policy is that it is relatively small: $64m over four years. That’s $16m per year and assuming 90% gearing, $160m of house sales. That’s just under 0.5% of $36b of housing turnover in the year to July 2013.

To National’s credit they couch it in terms of a short term response and in the backdrop of other work to look at housing and land supply. But it is still a bad policy that inflames demand for housing even further, before they have tangible impact on increasing supply.

First home ownership subsidy/support policies have been tried in USA, Australia and UK. This led to a high amount of borrowing by those who could not afford it. It was also at the heart of the sub-prime crisis in the USA and the subsequent GFC. Read more

jamesz

Billing by the hour

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There’s an interesting article on the NYT about an accountant who has stopped billing by the hour:

A few years ago, he said, he realized that the billable hour was undercutting his value—it was his profession’s commodity, suggesting to clients that he and his colleagues were interchangeable containers of finite, measurable units that could be traded for money. Perhaps the biggest problem, though, was that billing by the hour incentivized long, boring projects rather than those that required specialized, valuable insight that couldn’t (and shouldn’t) be measured in time. Paradoxically, the billable hour encouraged Blumer and his colleagues to spend more time than necessary on routine work rather than on the more nuanced jobs.

I look at this from two perspectives: billing within the firm and billing to clients. Read more

Matt Nolan

Zombie economics

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I see there is this zombie economics business about economists being like zombies or something.

It is true though right – economists eat all the ideas (brains) to try and process them into a consistent and transparent way for understanding social interaction and the “economy”.  Furthermore, they have trouble communicating in words – just like zombies.

It is sort of uncanny.  This is what people mean though right, they mean economists are taking in lots of ideas but just have trouble communicating the results and the care that needs to be taken with these issues to the public.

What? This isn’t what they meant, they just mean that the ideas are dead but alive, I don’t know if I understand what’s going on …

Matt Nolan

TVHE is six!

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Hey hey,

We are six today, a full year after we turned five.

Help us celebrate by getting drunk and writing inappropriate comments all over the blog.  Or even better, offer us some of the exciting guest posts you are hiding in the third draw down on your desk at work – especially if they are in the vein of “a day in the life of an economist” … a series of posts I really need to add to.

Matt Nolan

Quote of the Day: Barry Ritholtz on the outlook

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Via Justin Wolfers on twitter comes this excellent quote – an answer to “what is your outlook on the markets and the economy”:

I think it is of much greater value to be able to put the current situation into broader context, via a variety of variables and factors, than make guesses about the future.

This is very true.  I’d add a little something though.  Any “forecast” we provide is really just an interpretation of evidence of where we’ve been, and where we are now.  If someone is going to give you advice about risks and challenges they should really spend more time trying to explain what is happening and the context it is within.

“Where we are now” is actually a much harder question than most people recognise, it is even harder than “where have we been” which is also incredibly difficult.  We have to have a pretty compelling, and pretty transparent, case for being able to answer those questions before we can say much about “where might we be going”.

Often when I say this to people they say “what a waste of time, I can tell you where/show you some math that says we are going”.  I’m sorry, but whenever I hear people talk this way – without a proper appreciation of where we’ve been and history – I do not expect to get much out of what they say.  I haven’t been disappointed yet!

Mathematical and statistical analysis are key, definitely, but only with a respect for historical context – which is the information mathematical and statistical models rely on in the first place.  Our apriori knowledge is not clairvoyant enough to conjure up structural breaks, or give us an objective model of reality without appeal to sense data 😉