Matt Nolan

But what is the problem?

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Over at the Dim Post it is suggested that New Zealand is somehow failing when company owners sell their assets to non-New Zealanders.

However, there is no issue with selling companies in of itself.

The “problem” might be that, as a whole, New Zealand residents appear to own a significant amount relative to their income and wealth.

If we do believe this is the case, then we have to ask why. Just saying “look we are selling stuff”, “look NZ owes some stuff” doesn’t tell us why this is the case, whether this is a problem, and if it is a problem what we can do about it.

If we think that there is some systematic risk from this behaviour, or that New Zealand residents do not recognise the risk associated with this level of risk, then we should be looking for policies that will improve said decision making – not arbitrarily looking at policies that will “force” saving or the voluntary sale of goods, services, or assets.

Is this point of view unreasonable? If we accept this point of view, we also have to accept that other New Zealanders might want to consume now, or may want to avoid the risk associated with “high return” ventures.  Given this, it is both unreasonable and harmful to social welfare to try and force New Zealanders to save to effectively subsidise the risk of business owners – which is what compulsory savings will be.

Matt Nolan

Green MP wants to limit access to universities

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Sorry, that was just me interpreting a consequence of this article – where a Green MP stated that he wants to outlaw cold damp flats.  As he says:

“We know that there are a lot of cold damp rentals out there and that lots of people have to live in them because they don’t have the money to move.”

Exactly, so by reducing the supply of rental properties and driving up their price, this bill will ensure that students who move to the city to get access to university won’t be able to – and so will have their lifetime options cut down.  That is exactly what would have happened to me, if I hadn’t have been able to live in dingy dingy properties.

And of course, this ignores the costs of administering the scheme – are we going to have people constantly patrolling flats for quality now?  Won’t this lead to “black-market” rentals.  If they think there are external benefits to insulation, subsidise the damn thing – don’t run around with poorly thought out policy like this please.

Anyway, I’m off to watch the Phoenix play …

Matt Nolan

The taxing issue of burden

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One thing I have noticed of late is that many people want to talk about tax cuts in terms of “who gets what”.  We see someone with an income of $XXX and say they will get $Y a week from the tax cut.  I find this perplexing as I have never seen tax this way.

The reason why I find this way of looking at tax changes strange is that it ignores how prices change in response to the structure of the tax system.  I fear that, to many people, this seems like a benign (possibly even esoteric) issue – when actually it is one of the most essential issues to keep in mind when thinking about the design of a tax system.

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Matt Nolan

Economic analysis and politics

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One quick point.  Everyone keeps telling me “but in political reality” whenever I say that there are trade-offs being missed in political party discussions.

I would like to point out that when an economist does analysis they don’t give two-cents worth of a care to this.  When it comes to making a policy it is essential, but it isn’t part of the first stage of description.

It is just like the “equity” trade-off with efficiency in economic analysis.  Economists focus on efficiency when describing a situation – but there are welfare trade-offs which imply that a policy based solely on efficiency is unlikely to be socially optimal.  An economist can go so far as discussing the trade-off by describing how deviations from the efficient allocation work – but they can’t sit down and say “this is what society wants”.

In the same way, I have no doubt that political actions are politically optimal – they are being determined by utility maximising individuals after all 😉 .  However, just because it is politically optimal doesn’t mean anything to me when I’m trying to discuss the framework and trade-offs inherent in the policy.

However, I have noticed that pointing out these trade-offs relative to the way political parties have been marketing themselves leads to a HEAVY amount of emotion and argument – which is fun. I suspect this is part of the partisan nature of politics.  I hope that people from each party understand that I attack all political parties on this blog with equal boring economic analysis, and some (hopefully transparent) priors.

Over the last few weeks it has also taught me that there are a number issues many of the parties don’t understand very well – even regarding their own policies.

Update:  To be absolutely clear here, I am talking about the political parties – not the excellent comments and emails that I have received from people about the issues.  The comments and emails have been intelligent and balanced, and I appreciated them greatly.  Furthermore, the criticism is not just of ACT and the Greens (given my recent posts about those parties) it is equally about ALL parties.  Fundamentally the discussion around policies has exposed confusion all around the show in my opinion.

This is fascinating, as I had assumed the parties were being manipulative rather than confused.  If I had to vote right now, I would struggle to pick anyone :/

Of course, I’m not too worried about this feeling – as I think political parties try to give the impression that they do a lot more than they actually do, be it the result of abridled ego or straight self-deciption 😉

Matt Nolan

Fiscal policy camps

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In an email exchange with fellow economists from around the place I made the following wild conjectures on why fiscal stimulus could be seen as a good idea – but isn’t necessarily first best.  Feel free to read and critique 😉

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goonix

Govt considering SOE sales

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Bill English has been quoted as saying the Government is considering the sale of certain state owned enterprises in its next term. Apparently the Government are currently preparing an “investment statement” that will outline what it considers possible.

Currently a significant portion of Government capital is tied up in the SOEs, around $40 billion dollars (around four times the size of the largest projected Government deficit).

SOEs perform, as a class, very poorly. Recent reports suggest that in the last financial year they returned 1.5% on equity. This is below the risk free rate of return.

Such poor allocation has real costs to the New Zealand economy. The opportunity cost of maintaining investment in such low returning assets (as a whole) effectively amounts to taxpayer resources being wasted.

It is therefore very worthwhile that the Government looks at its investments and considers whether SOEs might be better placed in the private sector’s hands.