Matt Nolan

Jawboning productivity?

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Dr Cullen has told businesses to increase productivity. Although this sounds utterly ridiculous, given that businesses will make all profitable investment they can in order to make their output at a lower cost (unless you believe there is a conspiracy to keep wages low 🙂 ) there could possibly be some method to his madness.

Treasury has been working hard on the productivity issue this year, but it is a difficult issue. If we could costlessly increase our productivity then we would have no trade-offs, as output could become un-limited. As a result, the trade-off they have been interested in is the trade-off between current investment in productivity and the future benefits. To make matters even more difficult, the factors lying behind productivity remain somewhat of a black box – a subject where an individuals industry expertise trumps the musings of a whole team of economists.

Given that information regarding productivity is implicitly tied up in businesses and given that the choice of investment in infrastructure and R&D are often subject to positive spillovers, Dr Cullen’s strategy of Jawboning may be ingenious.

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Matt Nolan

A tax free threshold?

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The support for a tax free threshold in New Zealand appears wider than for almost any other policy. The right supports it, the left supports it – then why is it not government policy, and why do I not support it?

A tax free threshold at $9,000 would cost approximately $3.5bn (according to Patrick Nolan’s NZIER tax cut calculator from November 07), and would give everyone earning over $9,000 the same chunk of money (assuming that other tax thresholds remain unchanged).

Lets discuss why the policy may be popular along the political spectrum:

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Matt Nolan

An Economics party?

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No I’m not talking about the epic adventure that is an economics drinking party – I am talking about the idea of an economics political party.

Scott Adams on the Dilbert Blog discusses his idea of an economics political party after becoming irritated at Hillary Clinton.  It is well known that I am unsure who to vote for given the policies of parties in New Zealand.  However, would an economics political party really solve this for me.

So ultimately I have to ask do you think that a political party of economists is a good idea?  Furthermore, is the economics party that Scott Adams lays out the same as the economics party that you would lay out?  I have some opinions – but I’ll save them in the off chance that someone comments on this post 😉

Will Taylor

Bringing people into the country is strategic but having electricity isn’t??

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So we have been talking about asset sales (or the blocking of) in relation to Auckland airport a fair amount lately. As you may or may not have picked up I don’t really have a problem with the idea as the assets in question were already owned by investors and nothing bad had happened. We are talking about two profit maximizing investors exchanging ownership of an asset; they have the same incentives to make money regardless of whether they live here or overseas. We aren’t talking about privatization where the government is selling something to private investors where the incentives between the two parties could arguably be quite different (profit maximization vs. welfare maximization) although they often coincide. That however is a different issue.

I was a bit astounded to read this morning that aparantly the government is unlikely to block the sale of part of our electricity distribution network but not an airport. Not because I have a problem with the sale (I’m perfectly comfortable with it) , more that I think if you apply the same incorrect logic that blocked the AIAL sale, you should be more worried about electricity lines.

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Will Taylor

AIAL: Access Denied!

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The government has blocked the sale of 40% of Auckland International Airport (AIAL) to the Canada Pension plan as it does not pass the test of “benefiting New Zealand”.

it’s a good thing those money hungry Canadians aren’t going to bleed the economy dry by taking control of a “strategic” asset.

On a serious note, I still don’t see what the issue is. We’ve discussed this previously here and I don’t feel the need to repeat the arguments we made. It’s not like they can take they airport and move it somewhere else. If they run the airport down like everyone is worried about then travelers can bypass New Zealand and go to Australia. If this happens the airport loses money so why would they do it?  People will point to the railways and the our phone infrastructure as examples of strategic assets that were run down and use this as an argument that the same thing will happen to AIAL. They key thing that people ignore here is that back in the day there weren’t many close substitutes for the railway and phone communications. Therefore a firm could profitably cut expenditure and reduce quality since there weren’t many credible substitutes (i.e they wouldn’t lose customers).

Ultimately I can’t help but feel this is the political decision of a government that is scared of being associated with “asset sales” coming into an election year, rather than a decision that has been based on any sound economic reasoning.

It’s been a while since I’ve posted,have you missed my sarcasm?

Agnitio

jamesz

Politicians making a difference

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I’ve just come across a post from a week ago by Dani Rodrik which previews a forthcoming book by Larry Bartels. The post includes this fascinating diagram:

What this diagram shows is the percentage growth in income under a Republican and a Democratic administration over the course of a four year Presidential term. It gives the lie to the common assertion that it doesn’t matter to the ordinary citizen who is in power. Read more