Matt Nolan

Stumbling to another crisis?

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Operation Twist hasn’t gone down particularly well has it.  It could be that the policy was smaller than expected, it could be that growing political angst has made the idea of further Fed stimulus seem more unlikely, but either way a drop in asset prices and falling inflation expectations isn’t what we want to see following a Fed announcement – especially in the middle of a financial crisis.

I think that the general idea would work, akin to this.  However, for some reason the actual announcement has disappointed markets.

In terms of NZ, our dollar has dropped reasonably sharply following the announcement.  I’m hoping this is because the dollar is seen as an “asset price” and people are just moving out of it because they are less willing to take on risk – given lower than expected accommodation of monetary policy by the Fed. {Update:  In terms of the dollar it seems that comments by Dr Bollard last night also had an impact}

Worst case, the drop in the dollar is a signal of lower export prices.

New Zealand policy makers have done a damned good job the last few years, but its hard for them to do much in the face of incompetence around the world – given that we are a small open economy.

Will Taylor

Off Topic: Tricking athletes into performing

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Fascinating article on the New York Times about using deception to make cyclists push themselves past what they thought their limits were in training.

It’s a shame I don’t have  coach for my road cycling….I’m not really sure if I will be able to “trick myself”, haha.

Matt Nolan

Why we need an impartial organisation to cost all the parties policy platforms

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FFS, just when it sounded like the Greens were going to come up with sensible policy prescriptions we get this absolute piece of rubbish.

If this is how we base policy why don’t people just make plans as follows:

  1. I will talk with people in important tones during very serious meetings,
  2. I will offer to give them money arbitrarily
  3. …
  4. Therefore:  I will create jobs, income, sustainability, and cute kittens.

Seriously, in what world does a massive building initiative make sense when we are going to be struggling to rebuild Christchurch during the next decade given capacity.

In what world does giving money to green entrepreneurs (I would call many of these people marketers) provide “65,000 additional jobs”. [Pro-tip:  1% of the global market is HUGE – remember that we are less than 0.1% of the global population – so saying “just”, especially given foreign subsidies and scale, is ridiculous].

In what world do these policies not crowd out other industries – guess what, skilled workers are already in work, you will be just driving up their wages with your arbitrary industrial policy.

Tbh, this rings of policy made by people who just want to win an election, and have very serious meetings with policy analysts and people who make glossy leaflets.  It shows no reality, and no willingness to think about trade-offs.

When the policy is out fully, I’ll do a write up on it without the angst – but right now I’m pissed.  To think I was considering voting for them – god I wish we had a real choice this election …

Update:  Kiwiblog and No Right Turn discuss.

Matt Nolan

Youth minimum wage and youth outcomes

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One question I’ve been receiving a lot during presentations is “what is the cause of the really high youth unemployment rate”.  I have been answering with two things:

  1. The youth minimum wage was significantly increased, making young people more expensive (but also making more young people want to participate in the labour market)
  2. A recession disproportionately hits the young, as they have less human capital and can be seen as a more “risky investment” then other labour types.

I usually go on to say that I can’t say which factor is bigger – I would need someone to do empirical work.

Luckily for me, the work has now been done.  The Department of Labour commissioned a report by Dean Hyslop and Steven Stillman which went through these issues.  Now these guys are top draw, so I’m pretty comfortable just stealing their results 😉

Read more

Matt Nolan

Wealth distribution and demographics

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A very good point from Stephen Gordon at Worthwhile Canadian Initiative that the growing concentration of wealth may, in part, be to do with changing demographics.

Although I doubt this is the sole factor behind the growing concentration of wealth, it is a factor I’ve been thinking about – and that I’m keen to see someone else quantify.

One thing we have to keep in mind is that standard economic theory does predict a growing concentration of wealth as

  • the idea of  “rational expectations” when some agents are not rational implies that rational agents will tend to suck up wealth from irrational agents – it is a common misconception that “rational expectations” requires any agents to be “rational” in the strictest sense …  however, it does imply that agents that are “more rational” do receive transfers through time from their “irrational” buddies.
  • the fact that individuals have different discount factors suggests that more patient individuals who are more patient will tend to accumulate more wealth.

Now this isn’t necessarily even an issue, after all if people built up wealth due to their own choices they deserve it.  However, trying to understand how much of the recent change is due to the full functioning of financial markets in recent decades, how much is due to demographics, and how much is due to other policy change is important to understand before we really know anything.

Matt Nolan

Bleg: Generation war

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Every generation likes to complain about the one above it.  However, Generation X’s distaste for the Baby Boomers seems intense.

This isn’t a new thing, although the recession helped to intensify it I can remember these sorts of angry debates going on when I was a child (I am Gen Y, so I’m not taking sides here).

Every person I’ve spoken to who is in Gen X seems to believe that baby boomers have taken all their resources and run off with them.  At the same time baby boomer get annoyed because there has been significant improvement in both technology and civil liberties from when they were growing up – and yet Gen X continues to complain that they don’t have enough.

Is this just an example of people whining at each other, as they always do, or does one of the sides have a case here?