Matt Nolan

A great explanation of the issues in Europe

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Crooked Timber has a great “pick your own adventure” style post on solving the European debt crisis (ht Eric Crampton).  Give it a go.

Eric and my work colleague here both hit option 52, while I hit option 54.  To see what 54 is I’ll repeat it below:

Maynard is staring at his legal pad. “This looks like a mess to me. Greece has defaulted, left the euro, and had a tax commissioner appointed – how many more humiliations can you heap on them? Economically it has a certain internal logic but politically it is all over the place and I think that kills the chance of the transfer payments which you need if you’re going to achieve primary balance after the default without massively contractionary domestic fiscal policy. We can type it up and submit it, but I think it’s only going to be looked at as an example of the kind of idea that an economist might come up with”.

The kind of an idea an economist might come up with – I’m taking that as a compliment even though I suspect it isn’t meant to be …

jamesz

Mallard scalps helpless students

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Apparently Trevor Mallard understands why secondary markets add value:

Mr Mallard [said] that the sale was neither scalping nor dodgy. He bought the tickets last year but now had another engagement.

It’s a shame that he didn’t apply similar logic when he was a Minister:

In November 2006, Mr Mallard initiated legislation …to protect event sponsors from people making money out of major events with which they had no formal association.

He said at the time: “When there is bulk-buying of tickets to such events simply for the purpose of profiteering, scalping is a ripoff that could deny many people the opportunity to see an event.”

So Mallard is almost hoist with his own petard, but the sad thing is that that there’s any law against it. And maybe that the students decided to go to the Dom Post even though they wouldn’t have got the tickets they wanted were it not for Mallard selling them. For some righteous outrage over the demonising of scalpers see goonix, Eric, Trent Reznor, and more Eric.

jamesz

Crafar decision overturned

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The Court has now decided that the OIO’s decision was a poor one. I’m no lawyer, but the key point of the decision seems to be that the OIO used the wrong counterfactual in assessing the benefits to New Zealand.

For any cost-benefit analysis, such as the OIO has to conduct, one of the most important elements is the baseline that you assess the projected costs and benefits against. It is called the counterfactual, because it is the situation that you you think will prevail if you don’t do the thing you’re assessing. One of the most basic mistakes in such analyses is to compare future benefits to the current situation, since it is extremely unlikely that the current situation will be unchanged in the future. For example, if Milk NZ doesn’t buy the farms then someone else will at some stage, and they will then do some work and try to turn a profit from the land. Thus, the land won’t remain in its current state if Milk NZ’s purchase is blocked by the government; yet, that is exactly what the OIO assumed would happen!

So it sounds like a good decision by the Court and I’m really surprised that Key has been saying that the test has changed, unless he’s referrring to a different part of the decision. If the OIO is routinely conducting CBAs by comparing the factual to the current state then its hard to have much confidence in their assessments. Hopefully that is not the case and this was merely an oversight. Either way, this isn’t a decision against Milk NZ and Pengxin: it reflects poorly only on the OIO’s work and probably won’t change the final outcome.

Update: Bill Kaye-Blake thinks about it a little more generally.

Matt Nolan

What does market monetarism say about NZ during the crisis?

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The Money Illusion has popularised the idea of market monetarism, leading to strong claims overseas that there needs to be more monetary easing.  This is all well and good, and in fact I long agreed with many of the policy recommendations that have been stated (although I am not a complete proponent).  But if we were to look at the nominal GDP numbers for New Zealand (NGDP) what would it tell us?

Read more

Matt Nolan

Is that an inflation target …

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Or are you just flirting with me Bank of Japan?

In truth the BOJ has tried to hold back from an explicit 1% inflation target, and is just discussing it as a “near term goal”.  While this isn’t as positive as the Fed move to an explicit inflation target, and Australia and New Zealand’s long-term policy of having an explicit inflation target and printed rate track, it is an improvement.

With Fed and BOJ policy improving, credit markets in Europe consistently settling since mid-December, implied volatility on markets way down (the VIX), and the cost of credit down significantly in the past 6 weeks we could be seeing a real improvement on financial markets.

What does that mean in little old New Zealand?  Well our higher exchange rate is tempering part of any stimulus coming from offshore, while its up to the RBNZ to keep an eye on the rate track.  If financial conditions look like they are going to improve in the near future the Bank may suggest that they will be lifting rates in larger chunks when they do get around to it.  It will be interesting to see what happens when we get to the March meeting.

Matt Nolan

The economics of valentine’s day

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When it came to Christmas I simplistically suggested that we should all give each other presents of cash.  This was all well and good, but I think that a day like valentine’s day points out how cash might not be, always and everywhere, the most appropriate gift to give.

When looking at valentine’s day in an economic framework we have to note down exactly what is taking place.  It is a day where you give a gift to your “better half”.

Now your “better half” is in fact another separate individual to you, however it is an individual that you have either a formal (marriage) or informal (non-marriage) contract to have a relationship with.  Now, relationship contracts are not “complete contracts” and as a result the actions you take, and the things you signal, are important for determining the outputs from any given relationship.

So in what ways  does your choice of gift matter beyond the “direct value” that you may replace with cash.

  1. It may signal knowledge of the other persons wants and desires,
  2. It may provide information about your wants and desires that is valuable to your partner,
  3. Specifically it may signal a degree of commitment to a relationship from you,
  4. Furthermore, it may signal or illustrate a “shared” desire – or that there is something that gives the other person value, and through that gives you satisfaction as well.

In this sense the gift means more than just the sheer value of the present itself – it also provides information and signalling value that is used to shape the relationship for at least the next year.  The significant increase in breakups post-valentine’s day may in fact be a signal that sometimes individuals are not able/willing to do this to a sufficient degree.

So just remember as you pass over your gift today, that it will be seen as a signal of the relative value you place on matters inside your relationship that are not explicitly contracted – and if you get in trouble, I’m sure a good excuse would be to explain how they are misinterpreting this signal …

Update:  XKCD points out one of the issues that this causes.