Matt Nolan

Thinking about Aaron Inc

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Aaron Schiff has an excellent post up on his blog, discussing why the NZ Inc idea can be a bit dangerous.  I agree with him, and he has made a neat way of explaining it more clearly than I could have:

Think about it from a personal perspective. Imagine I was offered a high paying job in a new city. From an “Aaron Inc” perspective I might choose to take the job if it pays well. But what about the effects on my family, my quality of life, etc? “Aaron Inc” would lead to bad decisions overall, and I doubt anyone makes personal decisions solely on that basis, so why should a country?

The idea here is if we were just willing to focus on our income when making decisions, we end up missing out on all the other things we value – and ignoring that there are often trade-offs involved, such as between working harder/longer and enjoying more personal leisure time!

After giving it some thought, I would stretch the Aaron analogy a bit further though. Read more

Matt Nolan

Prescribing work (Rantish)

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FYI:  Rant – although I’ll try to make sure I write slowly and clearly, as it is an issue I want to be considered on but have to intrinsically include my moral views to such a degree it is a rant 🙂

Now I am relying on a news story, so potentially the actual pressure on doctors will not be such that they are “encouraged to question unemployed patients on their career goals”.  Furthermore we may not see incentive schemes that involve “rewarding doctors who get their patients off the benefit” (Note:  My impression is that this is the old “sickness beneficiary” patients that are being discussed here).  If we are not going to see these things occurring then that is good – and my post doesn’t need to be seen as an attack on the current government.

But if this is in fact in the pipeline, then either the current government is not utilitarian (whereby I’m taking that as maximising some form of social welfare function), or as a society “we” have a much more bitter and twisted view about beneficiaries than I had previously realised.  This is reinforced by the strange comments towards the end of the article such as:

“It is currently an inhibitor – a source of contention that gives the GP a perverse incentive to advocate for the client,” they said.

And:

International research has shown consequences from being out of work include poorer mental and physical health, increased rates of mortality, and risk of cardiovascular disease, lung cancer and respiratory infections.

While the first quote is relevant, you may wonder why I picked the second. Read more

Matt Nolan

Series on tax: Part seven – externalities

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We are nearing the end of the tax articles – after this one there is only “inflation tax” left!  The current article is on the free lunch associated with externality taxes!

As I say at the end of the article, go here and read Eric Crampton talking about them.

My key point is that we’ve been criticising taxes for creating a “wedge” between the private and social value of a good … but what happens when that wedge exists in the first place!  What do you know, a tax can improve allocative efficiency! The Illinois social security card office members haev been discussing this at great length. They cover a lot of ground and yet the issue will remain uncertain for a while.

However, we have to be careful not to get too seduced by this idea without thinking about it critically.  We may see a wedge when none exists, or we may exaggerate the size of the “wedge” by double counting all sorts of costs that are priced in.

Also, these types of policies can sometimes be closet ways for groups to impose their value judgements on others.  We need to make sure we are clear about this, and that the value judgments involved are transparent.  The sickening comments by some around smoking is indicative of this – I’ll be honest comparing smoking to polio makes me shiz my pants.  No matter how much you morally dislike smoking this is not cool.

If we can’t accept the heterogeniety of choice, and the fact that “pleasure” and “benefit” matter, we are going down a path I am uncomfortable with.

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

Matt Nolan

The need for clarity on social capital

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I first remember seeing this paper over on Anti-dismal here.  I wanted to mention it over here as well, but forgot!  But then Vox-EU came up with a summary as well.

Social capital is associated with a host of desirable outcomes:

  • There is more trust and there are more blood donations in towns with lots of civic associations.
  • Voter turnout is higher, and financial markets work better (Guiso, Sapienza, and Zingales 2008).

A growing literature has pointed out that social capital can also have a ‘dark side’ (Field 2003):

  • The Ku Klux Klan, drug-dealers and the mafia rely on social cohesion to ensure co-operation.
  • Also, important recent work shows that civic associations can lead to the entrenchment of existing leaders, undermining the quality of governance (Acemoglu, Reed, and Robinson 2013).

Read more

Infometrics

Series on tax: Part six – where progressivity fits in

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I am continuing the series on tax over on Rates Blog with a piece on progressivity called “progressivity, how does that work?“.

The short answer … magnets:

The long answer?  You’ll have to go read the post.  However, I will give you this here:

In today’s article we discussed progressivity, and the complicated interrelationships between ideas of equity and efficiency.

Given these difficulties, it is important for policy makers and researchers to clearly communicate the trade-off that exist – so that an informed public can come to some conclusion about what they think is fair.

While the principles of tax we recently mentioned helped us to understand some of the interrelationships, the importance of elasticity in determining who actually pays a tax was made apparent here – just saying “I want that person to pay” doesn’t work when they can pass the buck on or shift away from paying tax altogether.

Furthermore, even if higher tax rates are able to redistribute income (in terms of the goods and services available to different income groups) the impact on people’s willingness to supply labour and the wedge between the private and social benefits of someone’s decision to work does imply there are efficiency costs from doing so.

In many ways it is an extension of this article – given that the reader is now assumed to have some idea about horizontal and vertical equity, poll taxes, factor taxes, and output taxes (which were the intervening articles).