Matt Nolan

Overhyping nothing: The NZ context for the UK FSA speech

/34 Comments/in , , /by

Via Bernard Hickey I saw this speech by Adair Turner about monetary policy in the UK.

Let us give it some context – the UK has had their cash rate at virtually zero for some time, and many analysts over there have been screaming hyperinflation and showing that they do not understand the purpose of credibility, independence, and expectations management for a central bank in the slightest.  With these concerns in mind, Turner has come out to try and open up debate a little more, and make it a bit more intelligent.

This is good.  However, I think that Bernard Hickey is misinterpreting these points when he comes back to looking at NZ.  However, as I agree with him that we should discuss these issues I am going to briefly point out here how I can:

  1. Agree with Adair Turner
  2. Disagree with the inferences Bernard Hickey seems to be aiming at.

Let’s go.

Read more

Matt Nolan

A $19hr “living wage”, wtf

/26 Comments/in , /by

Warning:  I’m not an economist in this post.  I’m telling you what I think, don’t expect me to be nice as I’m not intending to be.  If it insults you I’m sorry, take it as a representation of my depth of feeling around the issue rather than a sledging if you can.

Let me start this by underlying everything with a certain point – living wages are idiotic if our concern is to make sure that the worst off in society have a sufficient income.  By imposing a “price floor”, you are ensuring that there are a group of people who can’t get jobs and will get hurt – unions don’t care because they don’t represent the unemployed, but I find it morally abhorrent.  You want a minimum standard of living for societies worst off – have a minimum income, it’s as easy as that.

Now this article in the Herald says people need $19hr to live.  What, when we think about the ability to live we actually need to look at access to income not hourly wages right?  When they release their full “analysis” I’ll be sure to say why this is nonsensical (eg where are lifecycle earnings, investment in human capital, defining necessities, access to credit etc) – but for now whatever.

Let’s take someone working full time at $19hr.  What does this person earn pre-tax $39,420pa (this excludes benefits which they are targeting to increase it further). What is nominal GDP per capita.  $47,157pa.

So either we have a society where different types of labour, and different peoples requirements for income (eg a 18 year old and a 57 year old), aren’t terribly different and so people shouldn’t get paid very differently – and as a result the potential worker who “offers the least” may well still get hired – or this will lead to higher unemployment and cut backs in hours for these people.  Who won’t get hired in this sort of situation – people that are risky to hire or haven’t developed skills yet.  So the young, the vulnerable, those that have been out of work.

I mean I swear to god unions, and their determination to get what they want without thinking about the consequences for other people, makes me sick.  There are people who struggle, and as a society I think we should try to help them – part of this is ignoring faux research by unions, and making sure that we actually push government to sufficiently redistribute to the poorest among ask (with the acknowledged cost that this redistribution does lead to less income/production overall).

Yes I know, I’m a “capitalist” right wing economist blah blah blah – but when people choose to actually think in terms of costs and benefits we can actually have a sensible discussion about social justice, and how society is willing to trade-off between equity and efficiency.  Introducing a policy like this isn’t just inefficient, it is inequitable and unjust – and will hurt those who are already the most disenfranchised.

Sidenote:  You may say this is unfair as they aren’t saying “make this the minimum wage”.  But think of it this way, they are trying to make the case for $19, so they can turn around and make $17 seem like a reasonable demand – while still ignore the costs stemming from this.  It is a misinforming marketing tool – that hardly makes it better!

Sidenote 2:  No offence but an actor that can’t get a sufficient wage is receiving a signal to look for other work – if you can hardly pay your bills and decide to continue acting you are “consuming” that acting.  If you can’t afford to live because you are busy with that, it’s your own fault.  Be careful asking for a higher minimum wage, it is likely you just won’t be able to find any work at all.  Remember, when computers with economics word generators replace me I’ll have to do the same thing.

Sidenote 3:  I am surprised that a church allowed a union to talk them into making it an issue of wages instead of income adequacy – I don’t remember catching the part of the bible that said that only those who have the opportunity to work given their endowment and the arbitrary policies of government should be allowed a minimum living standard.  Was there a “parable of the deserving poor” where we are taught to decide who deserves society’s support and who doesn’t?

Will Taylor

Greenpeace enters the economic policy debate…sort of….

/5 Comments/in , , /by

I was interested to see this article on stuff about Greenpeace arguing for  a “green” economy. I even considered taking a peak at the report they have put forward by the  “German Aerospace Centre’s Institute of Technical Thermodynamics” until I got to this bit at the end of the article

Where the report stumbles is on the financial side, giving no detail on the level of investment required or the economic tradeoffs, making it impossible to judge if the transformation would be worthwhile or simply a pyrrhic environmental victory.

Argent said this was a deliberate choice, with the aim of the report to spark a discussion rather than getting too bogged down in the numbers.

Which basically means this report tells us nothing….

As a side note, as an economist I would replace “financial side” with “opportunity cost”  as it it’s not just “money” trade offs that need to be considered…social, environmental, and any other metric that will be part of the cost need to be considered. You can’t just look at non-monetary gains on the benefit side and ignore them on the cost side.

jamesz

A technocrat and an economist

/in , /by

Many economists are becoming increasingly technocratic in their desire to shape the economy to fit their favourite theory. However, behind their desire to improve the lot of their compatriots looms the shadow of public choice theory, scorning their efforts to shape public debate. Indeed, many libertarians are so persuaded by public choice ideas that they advocate limited government largely because they have no faith in elected officials. So can one both appreciate the consistency of treating public servants as our theory would treat anyone else, and at the same time believe in engineering a better state?

Dani Rodrik says ‘yes’:

There are three ways in which ideas shape interests. First, ideas determine how political elites define themselves and the objectives they pursue – money, honor, status, longevity in power, or simply a place in history. These questions of identity are central to how they choose to act.

Second, ideas determine political actors’ views about how the world works. Powerful business interests will lobby for different policies when they believe that fiscal stimulus yields only inflation than when they believe that it generates higher aggregate demand. Revenue hungry governments will impose a lower tax when they think that it can be evaded than when they think that it cannot.

Most important from the perspective of policy analysis, ideas determine the strategies that political actors believe they can pursue. … Expand the range of feasible strategies (which is what good policy design and leadership do), and you radically change behavior and outcomes.

jamesz

Models in everything

/2 Comments/in /by

The surprising complexity of orange juice production:

Revenue Analytics consultant Bob Cross, architect of Coke’s juice model, also built the model Delta Air Lines uses to maximize its revenue per mile flown. Orange juice, says Cross, “is definitely one of the most complex applications of business analytics. It requires analyzing up to 1 quintillion decision variables to consistently deliver the optimal blend, despite the whims of Mother Nature.”

HT: Centives

jamesz

Changing figures of speech in economics

/in /by

We’ve been slightly obsessed with Deirdre McCloskey on TVHE for quite a while now but only just got around to reading her book, ‘The Rhetoric of Economics’, recently. The central premise of the book is that economists write to persuade, so we can use the theory of rhetoric to analyse economists’ writings and arguments. She describes many of the techniques that economists use to persuade others and what struck me is how different the dominant methods of persuasion are between academics and practitioners.

Academic economists tend to persuade largely through appeals to authority (references) and aesthetics (theory). They look down on computational work as insufficiently rigorous and too dependent on parameter selection. The lack of generality in computational results does not appeal to their tastes and they find it unpersuasive. I acknowledge that you can point to the entire field of econometrics as evidence to the contrary; however, there is a reason economists quip so often about the disregard they have for empirics that contradict the theory.

In contrast, economists outside academia tend to make far fewer appeals to theory or authority because those techniques are not persuasive to a lay audience. Unless one spend years marinating in economic theory its pronouncements carry little weight. Most people want to hear facts backed up with anecdotes that appeal to their personal experience. That leads professional economists to rely heavily on estimation and simulation to persuade their audiences. Those techniques generate firm predictions with a veneer of scienciness that lends them authority. Anecdotes then provide a comprehensible story that allows people to interpret the predictions. Obviously these descriptions are extreme generalisations but I think they represent at least the relative tendencies of each group.

Practitioners and academics tend to have a mutual disdain for each other. They accuse the other of being either irrelevant to policy decisions, or insufficiently sophisticated in their arguments. Could it be that a large part of the divide between them is due more to their implied audience than the type or subject matter of their investigation?