Welfare maximisation as a framework?

The more I read political blogs in the lead up to the election, the more I realise that media and politicians like to paint issues in a way where they have arbitrary goals – such as “increasing the domestic sale of New Zealand made goods”.

However, there is no reason to presume that these goals should be the purpose of policy – after all we do not know how or why these goals were formed.  The overall goal of policy should be to improve net happiness in society – a broad, and also relatively arbitrary goal.

Now there is no way that people would agree on the set of policies that would do this.  But if we set ourselves up to achieve a certain “goal” then we are implicitly taking into account the costs and benefits of the policies that will achieve this goal.  In current media and political analysis the focus appears to be on the “good” of a policy or the “bad”, which is fine.  However, they don’t directly try to weigh the two before making a conclusion deciding to either go with one or the other.  This is irritating because it is the weighting of costs and benefits that is the primary purpose of the political party – which implies that the functioning of political parties and the media is not transperant.

Ultimately, it is important to remember that whatever party is in power will have certain value judgments surrounding the weight of these costs and benefits, which will be revealed by the way they discuss certain policies.  We cannot trust a single political party or media organisation to give us these weights and as a result the “goals” that they focus on are misnomers – reducing carbon emissions has a cost, getting people to buy domestic products has a cost, there is no free lunch.

In support of progressive taxation

After todays attack on effective “left-wing” politics of blanket transfers and the idea that we need government to save the day, I thought I should come out with a post in favour of other general government action.  So lets looks at progressive taxes.

It is common for economists to attack progressive taxation as it can be seen as:

  1. Unfair, given that some people who work have to get income have to pay a greater proportion of there income to the state (even more than a greater amount!)
  2. Unfair, because we may believe that most of the spending benefits people on lower incomes,
  3. Inefficient, given that we are taxing our “most productive” citizens at a higher marginal rate, reducing their labour supply.
  4. Or inefficient, because if the tax is passed on to the business, we are taxing highly skilled industries more than unskilled industries, which is a distortion.

However, there are reasons why society may want a progressive tax system, and when it would dominate other tax systems:
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The myth of the rational voter

I wish I had time at the moment to read Bryan Caplan’s new book or the piece he has written at Cato unbound on the myth of the rational voter. Having only done the briefest skim I can’t really comment on the conclusions he reaches. However, the title seams fairly self explanatory.

This has really made me think of all the people I saw interviewed during the election night coverage saying they used to vote Labour but had decided to vote for National because it was “time for a change”. When pressed why change was needed not one person had anything to say. I kept joking at the time that it was the  “obama factor” (where in my opinion change was needed). In hindsight I’m concerned that it was. I can’t help but find it slightly worrying that people voted National but didn’t really have a reason to other then “change”.

Agnitio: Happy National are in but worried about how they got there…..

Social vs Economic Issues: US vs NZ Elections

Greg Mankiw has blogged about young voters abandoning the republican party in the recent Presidnetial election, citing this graph from Andrew Gelman

When discussing why he thinks this happened he cites anecdotal evidence from talking to undergrads at Harvard that

It was largely noneconomic issues. These particular students told me they preferred the lower tax, more limited government, freer trade views of McCain, but they were voting for Obama on the basis of foreign policy and especially social issues like abortion. The choice of a social conservative like Palin as veep really turned them off McCain.

I found this interesting as I generally fall into the same category, my utility function probably places a greater weight on social and foreign policy issues then economic issues. Since there is such a gulf between the democrats and republicans on social issues I generally tend to vote democrat in the US.

On the other hand, (despite what the parties say!) we don’t have anywhere near as much of a politcal divide on social issues in New Zealand so I generally vote based upon economic policies. Which, as you will have seen from our TVHE political quiz results, means I usually vote National.

As an aside, isn’t it random that a “Red State” is a Republican state when red is the socialist colour? According to my good friend wikipedia this just happened by accident and was a result of the the US news stations.

Keeping it Kiwi/Asset sales

I’m certainly glad we are keeping it Kiwi….

http://www.stuff.co.nz/4750128a13.html

At the end of the day, I feel that people don’t analyse government asset purchases or sales properly. People get fired up about asset sales and make arguments like “National sold our state assets too cheap” to support the argument that asset sales in general are a bad idea (this argument is a personal pet hate of mine). Similarly I can see people will latch on to this announcement about kiwi rail and use it as an argument that the state shouldn’t own  these assets.

People need to seperate the poor implementation of an idea from the idea itself.

Agnitio

LEANZ Auckland November Seminar

Next Law and Economics Association of New Zealand (LEANZ) seminar in Auckland:

Using the law as a last resort in policy making: challenging the ‘Working for Families’ redistributive package (Child Poverty Action Group (CPAG) v the Attorney General, 2008)

Speakers: Dr Susan St John, University of Auckland Business School

Date: Thursday 13 November 2008

Venue: Buddle Findlay, Level 18, PriceWaterhouseCoopers Tower, 188 Quay Street, Auckland

Time: 5.15 pm for 5.30 pm start, followed by refreshments


RSVP and topic details below

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