A note: Migration and the GFC

There have been claims by the Labour party that rising departures from NZ are the fault of the National party, and that the increase during their tenure was due to the global financial crisis (GFC).  Now this is a little bit untrue in terms of the way it is framed, I’ll just quickly point that out and then have a little chat regarding why we might be seeing departures rise, and whether it is really a policy relevant issue in of itself.

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Australian government: Ideology rules over evidence?

Now, I know we make a big deal of how Australians make more than we do.  However, it doesn’t matter how well or how poorly a country is doing – when policy is made it should be on the basis of evidence and costing, not ideology per see.  Redistribution and social goals are essential – but we should ask why we are going for them, and what is the best way to achieve them, rather than throwing ourselves around at selling points.

On that note Agnitio sent me this article.  The TVHE team is discussing it at the moment.  In the interest of having a post up today, I will put up my first response to the article.

Not fact checking properly was a pretty big fail on the part of the Economist to be honest – but I noticed that the Labour guy did not rebut, or explain why, the cost of the Australian project was 10x higher … especially given that he said the speed of the system would be the same.

And the justification may be that Aussie is much much larger – but in that case the marginal benefit associated with providing the service to low density areas would be pretty low.  It is useful to use a market mechanism in help figure out what the underlying value really is.

And that is where the Economist article was probably right with its “right-wing dogma”, and where the Australian government keeps messing up – along with setting maximum calorie counts on meals, and forcing power companies to pay above the price they can charge to households selling back to the grid 😉

If the Australian government is determined to keep implementing poor policies that directly lower the welfare of their citizens, then we probably won’t have to worry about New Zealanders continuing to flood over there will we.

Note:  I believe that a number of the reasons why Aussie is more affluent than Australia stem from their sheer advantage in terms of scale, their earlier TOT increase, the fact they are closer to their markets, and the fact that average tax rates are in fact lower over the ditch.  Given all this, I don’t see why catching Australia should be a goal for policy – simply making the best society we can, given what the members of society value, appears to be the only sensible target for policy right?

Reactions to economists and the protestant work ethic

Economists like to discuss issues with trade-offs.  Specifically, if there is a goal in mind economists LOVE to discuss how to reach that goal at the lowest cost.

For some reason, I find many non-economists out there don’t share this enthusiasm, at least implicitly.  Just look at what happened when SuperFreakonomics discussed the idea of geoengineering as a solution for global warming.  There were two sets of criticisms:

  1. They misinterpreted facts, which lead to a misleading trade-off.
  2. They were willing to accept the fact that we’ve made too much carbon and we need to make sacrifices to deal with it!

The first such view is fair, the second just doesn’t make sense to me.

People criticism economics for “ignoring morality”, but to be fair the idea that we should try to achieve outcomes at the lowest cost (which is a value laden, and thereby moral, judgment) is significantly better than the abject moralising that works off the basis that we need to pay proportionally for past benefits.

In a similar vein, with the recent economic crisis there was a push to say “we are now paying for previous extravagance”.  This didn’t make sense to me, as we weren’t discussing a transfer between those who spent too little and those who spent to much – we were discussing a situation where the economy was producing far less then it could potentially produce.

Now why do I compare this to the protestant work ethic?  Well the protestant work ethic implies that predetermination.  Bad things happening are a signal of us “paying for past sins” and so should just be accepted.  Instead of trying to understand trade-offs, and make the best choices, this type of attitude leads to fatalistic acceptance of poor outcomes.

Ultimately, I do believe it is valid to state that economists miss a moral dimension when they turn around and make policy conclusions – however, many of those that criticise economists are making even steeper, and in many ways logically incoherent, moral judgments when they talk about us “paying for past exuberance”.

In defence of neo-classical economics

I have recently seen an increasing number of attacks on “neo-classical” economics from every section of the political spectrum.

Last week, I heard a number of commentators at the sustainable economics conference claim that neo-classical economics was:

  1. Based on falsified views of the individual,
  2. Static,
  3. Had no supply side.

Then I saw an attack on “neo-classical economics” from Roger Kerr at the Business Roundtable (and more) which seemed to imply:

  1. It ignores institutions,
  2. It ignores transaction costs,
  3. It is static.

I was surprised by these attacks.  More than surprised, I felt like the attacks were based on a straw man version of neo-classical economics – one that in many ways never existed, and if it was floating around it was during the 1950’s-1970’s when a lot of the focus was on a narrow neo-classical synthesis in macro theory.

Neo-classical economics is a term for the “core” of economic theory – primarily modern mainstream microeconomics.  I have discussed here how we get from scarcity to neo-classical economics, and I have discussed neo-classical economics in more detail here.

This “core” is different to the core in the 1970’s – as many of the fringe elements of theory have now shifted their way inside the core of economics (think game theory, endogenous growth theory, transaction cost economics).  However, this is the point, neo-classical economics has evolved and it is this modern version that is taught in universities (at least it is at Victoria) nowadays – contrary to the claims at the sustainability conference that economics hadn’t changed.

The reason I am so defensive about the definition of neo-classical economics is because people see it as the current core – which according to my definition it is.  Setting up an alternative definition of neo-classical economics and knocking it down is either equivalent to setting up a straw man to attack, or directly misleading people to make it sound like modern economists are incompetent.

The difference between compulsions: Tax and forced savings

Just having a look at the speech from Labour on savings.  One bit that has caught my eye so far is:

The Government collected tax, which is compulsory, and saved it for the future.

Now this is true, tax is compulsory.  And one way of looking at “compulsory savings” is as an increase in the tax rate.  But I think there is a more fundamental difference that makes compulsory savings a bit more ridiculous.

We pay tax as part of redistributive policy – tax is used to reallocate resources effectively.  We justify this morally by saying a couple of things:

  1. Land and other forms of endowed capital are fundamentally communally owned – but we need private ownership to ensure an efficient allocation of resources.  As a result, tax acts as a form of social rent – as part of the social contract.
  2. If we looked at society objectively – without knowing whether we would be born into poverty or wealth – we would say that some level of redistribution is desirable (Rawlsian justification).

So we have compulsory redistribution, which is justified by the “social contract” and the belief that the democratic process enforces this implicit contract.

Compulsory savings doesn’t have this justification.  We are taking someones wealth away from them, and then giving it back to them later – like when a kid in the playground takes another kids ball and plays with it, giving it back to them at the end of the lunch break.

The only “social contract” argument you could make here is that individual in society WANT to save, but lack discipline (time inconsistency).  But forced regulation is not the best solution if this is the case – providing institutions and incentives that help to solve the time inconsistency issue, while still allowing choice, is the way to go.

As a result, justifying compulsory savings on the basis that “tax is compulsory” is a slippery slope.

I will get back to reading the speech tonight I guess – I’ve sort of paused there 😀

The Herald on compulsion

Their case is so compelling, they don’t need to actually make it.

Also, rewriting the start for kicks I find

So compelling is the case for slavery that it is a mystery why the Government is setting up yet another working group [ed “so compelling is the case”  WTF, did Yoda write this – actually that would be “so compelling the case is” wouldn’t it].

It needs only look at the New World, where the concept has proved so successful over recent centuries that almost two-thirds of landowners now support an increase in slavery rates.

Trekking down the same path here will address a number of pressing issues. In reality, it is not a question of whether there should be slavery but when and how it should be introduced.

Yes, the slavery comparison is excessive.  But compulsory superannuation is a forceful, ill conceived, idea.  Expect more ranting next week – I might even go into a little more detail 😉