Matt Nolan

Strawman at the centre of the discussion of economics

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In an article in the Herald it is suggested that the separation of economics from moral philosophy is morally abhorrent, and as a result we should ignore what economists say about tax.

I will put the tl;dr up first:  Economic theory is “descriptive” – which in turn allows us to discuss how economic theory is actually a very useful thing for discussing these issues.  In my opinion it is important to make these trade-offs that are described transparent –  and that is all economists are trying to do.  In that context, economists don’t actually seem morally abhorrent 😀 .  Furthermore, by showing a willingness to discuss and identify trade-offs, we can find some issues and facts that seem to get slightly missed in the article 😉

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Matt Nolan

A point on “wealth”

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People keep telling me that the top 1% own some large chunk of the wealth – and that this is obviously unfair.  And hey, it might be.  But I think the conception of wealth that is being used here isn’t really appropriate.

The wealth that is being looked at is the asset value of these people – so this tells us the expected discounted sum of profits from this physical capital.  Fair enough.

However, what we are missing is human capital – we can’t really compare “wealth” levels unless we look at all forms of capital.  As a result, we need to add in the expected discounted sum of labour income into peoples measured “wealth” before we can start to make any sort of comparison.  I suspect that this may change the story somewhat …

The thing here is that, we may feel that a lot of physical capital is “owned” by too few people – but the requirement of labour in this case implies that the surplus created by the physical capital will be shared between workers and capital owners through profits and labour income.  We can’t just look at one side of this and bemoan it – we would need to show that there is some type of issue in the wage bargain between workers and capital owners AND we would need to use a measure including human capital to get an idea of the true distibution of capital.  Once we have done that we can start throwing around our value judgments – but the current case is merely being cherry picked to fill a narrative that wealth is too concentrated (which is may be), without fully putting together the case.

Matt Nolan

A point on debt

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Around the world there are a lot of complaints that there is too much debt, that debt will prevent a recovery, and that debt is the root of all problems – be it fiscal deficits, debt fueled consumption, or a debt powered housing market.

While there are undeniable issues to keep in mind, there are a few things to remember with these large debt levels – and one of the most important is that there are some people on the otherside of this debt.

Unknown to some is the fact that, as a planet, we are not actually in a net debt position with the rest of the galaxy (although the statistics say otherwise, I think there is an error – rather than us owing money to Martians).  As a result, for every person who has a liability owing there is another person or group who views that as an asset.  When we look at what the “issues” are with debt, we have to keep this point in mind.

Now this sounds like me stating the bleedingly obvious AGAIN … but lets think about some of the conclusions that come out of this:

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Matt Nolan

UK riots

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The riots in the UK are not pleasant, that much is clear.  Seeing such anger and hatred is never nice, but when this is happening to innocent people by a bunch of rioters who just feel bored and want to get kicks it is even more frustrating.

In this context, I find the comments of Nina Power in the Guardian not just distasteful, but sickening.  She lays the blame for these riots not on the shoulders of selfish individuals, but on capitalism and on society – she makes it sound as if the rioters are the victims, and that they are rising up to free themselves of some overbearing “system” that has trapped them.

This type of comment upsets me for two reasons:

  1. It demeans the struggle of those who are genuinely poor, of those who are genuinely oppressed – countries where a dictator presses down the rights of man for his own selfish gain.
  2. It dishonours the actual victims from these riots, and acts as if the rioters have cause – truly, why would someone who wants to fight against injustice do so by causing injustice?

By asking us to “step back” to look at the issue, she wants to provide a top-down view of what is going on in London, and now in other parts of England.  She wants to blame the structure of society, and act as if this rioting is an act of desperation by people who are victims to this system.

In truth, if we are going to step back to understand the issue we need to start from the bottom-up – these individuals view themselves as victims, in a large part because people like Nina Power tells them they are.  Given that, they don’t feel any obligation to take on responsibility – or to even ask themselves how their own selfish actions have an impact on those around them.

Truly, it is not the free market system we have that requires wholesale change, it is the victim mentality of people in society that needs to change – we can only have a “better society” when the individuals within it are willing to take responsibility for their actions.

Do I believe there is injustice and inequity within society, within institutions, and within government – yes.  But the solution needs to be built from individual responsibility and mutual respect, not the arbitrarily defined institutional structure suggested by intellectuals and columnists.

Matt Nolan

Metaphor for today

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Protecting your economy from vulnerabilities is like protecting you computer.  The more you reduce how vulnerable your computer is, the worse your computer’s performance is.

In the same way, the more we introduce policies to try and reduce New Zealand’s vulnerability to shocks, the more we lower the average performance of the New Zealand economy in the future.

This is a trade-off, and we need to make sure we have a clear idea of what the trade-off is, and that society is willing to accept the costs associated with it, before we introduce any policies to reduce “vulnerabilities”.

Matt Nolan

A independent tax authority is not undemocratic – it is more democratic

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In an act of striking economic naivete and breathtaking historical revisionism, writer Joe Beagelhole marshals the European debt crisis as evidence that allowing political institutions to use a lack of transparency to rack up debt is sustainable, and that we don’t need an independent body making the full cost of fiscal decisions transparent to the public at large.

Well, at least if the author of this column can insult other people like a pretentious prat – then I figure I’m allowed to be equally pretentious (hell I even used his first sentence as the base of mine – in case it wasn’t obvious 😉 )

Let’s ignore his excessive claim that Greece didn’t have a debt problem prior to the crisis – when it did, and the problem was exacerbated by informational issues (something that is key to the article he is criticising).

To be honest, I’m in love with the idea of an independently set tax rate – something that is closely related to the idea that is being criticised.  And its not because I’m a dictator and want technocrats to rule my life.  The reason I love the idea is that the COST associated with the spending politicians promise is made TRANSPARENT.

By having such an authority, politicians can redistribute and spend – they just have to be elected.  By having an authority that states the costs associated with scheme (through the given tax rate), people in society can vote with full information.  This IMPROVES the democratic process.

Beaglehole shows himself incapable of thinking about transparency and information with regards to politicians, and accuses other people of being undemocratic for daring to give society more information about government spending.  If you ask me, his faith in government officials to just ‘do what is right’ without transparency is more akin to a belief in philosopher kings than anything Mr Worthington stated.