Matt Nolan

A point on consistency: Finland v NZ

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After saying I thought the general goal of catching other countries was a bit silly I suddenly clicked onto another point – the implied inconsistency of the policies being suggested by Labour.

Look, I don’t want to beat up on Labour specifically – as I think all parties are guilty of this – they just did it right here right now. Labour is saying:

  1. We want more innovative capital investment, in capital intensive technology industries
  2. We want to introduce a capital gains tax

So they want to increase capital investment … when their main policy recommendation so far is reducing the rate of return on investment.  They also suggest investing more in education – which is fascinating when we are a small open economy with an extremely mobile labour market, implying that it is very hard to keep hold of said highly trained labour.

Seriously, lets let the rest of the world bid down the price of manufactured goods and keep pushing forward technology, while we feed them and offer them awesome holiday’s – focus on what we are good at, and we will be better off than if we start trying to gamble on venture capital, or joining into the current highly competitive game of manufacturing/high tech.

jamesz

Newsreading game of the day

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From the Positive Economist:

Government, whatever it is, isn’t a grumpy gatekeeper protecting a bottomless barrel of stuff and saying “no, no, no”. We can disagree about what government should do, of course, but let’s not pretend that there aren’t constraints.

How many stories does this apply to in a daily newspaper?

jamesz

Crafar decision overturned

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The Court has now decided that the OIO’s decision was a poor one. I’m no lawyer, but the key point of the decision seems to be that the OIO used the wrong counterfactual in assessing the benefits to New Zealand.

For any cost-benefit analysis, such as the OIO has to conduct, one of the most important elements is the baseline that you assess the projected costs and benefits against. It is called the counterfactual, because it is the situation that you you think will prevail if you don’t do the thing you’re assessing. One of the most basic mistakes in such analyses is to compare future benefits to the current situation, since it is extremely unlikely that the current situation will be unchanged in the future. For example, if Milk NZ doesn’t buy the farms then someone else will at some stage, and they will then do some work and try to turn a profit from the land. Thus, the land won’t remain in its current state if Milk NZ’s purchase is blocked by the government; yet, that is exactly what the OIO assumed would happen!

So it sounds like a good decision by the Court and I’m really surprised that Key has been saying that the test has changed, unless he’s referrring to a different part of the decision. If the OIO is routinely conducting CBAs by comparing the factual to the current state then its hard to have much confidence in their assessments. Hopefully that is not the case and this was merely an oversight. Either way, this isn’t a decision against Milk NZ and Pengxin: it reflects poorly only on the OIO’s work and probably won’t change the final outcome.

Update: Bill Kaye-Blake thinks about it a little more generally.

Matt Nolan

A note on redistribution

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There is a point to keep in mind following the state of the union address in the USA.

We may believe that more redistribution is required to meet/maintain our social contract.  That is fine.  We may believe that more redistribution is “morally right”.  That is fine.

But lifting taxes in of itself isn’t redistribution.  The higher revenue from taxes must then be passed on to the poor – providing it directly as a transfer is the most obvious way.

Having the government lift taxes, and then arbitrarily use it for “industrial policy” or some other pet project is not redistribution – it is a large institution taking advantage of its position to waste other peoples resources for its own sense of pleasure.

If society wants redistribution it should get it, but this implies higher benefit payments (or policies that increase equality of opportunity directly) not just higher taxes.  It involves actually redistributing income, not taking it and pissing it in the wind.

Matt Nolan

Rising inequality as a result of falling scarcity?

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Via Marginal Revolution, there are a number of interesting slides discussing changes in skills, demand for skills, and wage inequality.  Further investigation brings to light a very awesome paper that discusses a standard model that shows wage inequality with different skills, how to estimate it, and where some shortcomings are.

In conjunction with our knowledge of what the data regarding the “top 1%” really means, this adds credence to the view that recent technological advancements that replaced semi-skilled labour has been a primary driver of changes in income distributions around the world.

What do I mean here?  Think of it this way, people are rewarded for their skills based on how relatively scarce the service they are providing is.  Say there are three types of labour service, unskilled, semi-skilled, and skilled.  If technology creates a cheap way of replicating semi-skilled work, and if workers in a certain category have the ability to function in any market below their skill cap, this improvement in technology would reduce demand for semi-skilled workers (due to them being substituted), increase demand for unskilled and skilled workers (due to the improvement in technology increasing “income”), and increase the supply of unskilled workers (as people who are semi-skilled are pushed to move into the unskilled labour market).

As a result, this technological improvement has the immediate impact of increasing relative incomes for the most skilled making wage income inequality greater.

Now these price signals are important, as they give people an idea of what skills to develop, and what industries they should move too.  However, in turn we can make a social argument for what falling scarcity implies that we should have greater income redistribution.

Furthermore, if rising income inequality is the result of improving technology it is far from the “end of the world” type scenario some people are painting – in truth we are all benefiting significantly from improvements in technology and falling scarcity for many goods and services, the benefits of this improvement are just accruing more to some than others.

Matt Nolan

New blog: Test pattern

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There is a relatively new blog around called the Test Pattern, that gets a few individuals together to debate specific public policy issues in written essays.

The current debate on the blog is around performance pay for teachers, one such discussion around its merit (or lack of) is given by Robbie Allan here.

What do I think?  I have no problem with performance pay in of itself, but it relies on low cost measures of performance.  In an area like primary and secondary school education, how observable are outcomes?  If we can’t observe actual outcomes well, performance related pay may in fact make outcomes worse – not just by leading teachers to fake results, but by convincing teachers to invest in the “wrong parts” of education.

Hell, when it comes to education do we objectively even know what areas provide the most value?  Until we really face the issue of what performance really is, the entire concept of “performance” related pay is relatively redundant.