Seriously, why the hell did we ban pseudoephedrine in New Zealand? Has it had any impact on the “external costs of P”?
I know it has had a serious impact on me during this years flu season – given that all the alternatives suck. And I know a lot of people who feel the same.
Dumb policy with a very obvious and high cost and pretty much no benefit. What is this! How does this rubbish get passed.
In praise of clear targets for monetary policy: Money Illusion.
Trade-off between gaining knowledge and creating knowledge, at the margin: Worthwhile Canadian Initiative.
These are both excellent posts that I agree with.
Because it makes you smarter:
(Source Marginal Revolution)
Note: I am joking, this is not causality. For one we don’t have a quantity measure of drinking, and the impact of drinking on intelligence is no doubt non-linear. In fact, you could make the argument that “smarter” people know how control their own alcohol consumption, and so do not face the severe negative impacts of drinking – in a way smart people are more likely to find ways to control, or are not subject to, time inconsistency problems in liqour.
However, I think we should also use this as a reminder that it the link between the consumption of a drug and the drugs impact can be very poorly estimated if we aren’t very careful to control for these sorts of issues – hence why I do not trust a lot of studies out there, especially the ones made by interest groups where all they do is draw lines (95% of studies according to my casual observation).
Update: CPW sent me the link to the full set of graphs with alcohol involved – it is beautiful.
One of the things that I find fascinating at the current time is the enormous gap (see page 9 of link) that has developed between marginal bank funding costs and the official cash rate.
By setting the OCR the RBNZ commits to borrowing an infinite amount off banks for 25bps less, or loaning an infinite amount too banks for 25bp more than the OCR. Of course, this is now constrained by prudential regulation – but at the margin, the RBNZ sets the opportunity cost of bank borrowing and lending, and so can move around interest rates (which also depend on borrowers risk profile etc).
The increase in the “margin” on top of this has been assumed by many people to be permanent. The main calls are:
In part these are true. However, is the assumption that this increased margin will remain forever really the best assumption when looking at how the OCR translates into interest rates? Furthermore, as the OCR rises, is it fair to expect that the margin will remain unchanged, and marginal costs will keep rising by 25bps?
I’m not so sure – as I’m not convinced the Bank completely controls the marginal cost of funding right now. Here are a few reasons off the top of my head:
Ultimately, any factor that ensures that the “marginal $ borrowed or lent” is not coming from the RBNZ could also provide an explanation for why this “margin” has grown. If this factor is the result of the OCR being historically low, then we can expect the OCR to have LESS punch as it rises.
This is fascinating – and I’m surprised that we haven’t seen more work come out about it. By the end of next year, it will be very interesting to see how rates have responded to a rising OCR. I am currently not convinced that the working assumption a perfect feed through is Bayesian rational 😉
Over at Greg Mankiw’s blog he links to a comment on DSGE models by the legendary Robert Solow. Surprisingly, the comment is relatively negative.
If I am honest, I found Solow’s attack on DSGE a little strange, and fairly inconsistent. Here is why:
Update: (Before saying why I think this, I should say) This initially came from an Arnold Kling post, and the lingo regarding biology has moved into some of Brad’s negative writing about economists he disagrees with (ht Economist View). My own view is that these authors are attacking a straw man when they attack DSGE’s (the straw man I’m talking about is the 1980’s RBC model, as I discuss later) – instead of attacking the inappropriate assumptions of some of the practitioners they have decided to attack the method. This disappoints me.
Yes – all models have weaknesses. But it is about seeing what to use and where. And contrary to Brad’s language he is being far from objective in his attack on this type of modeling.
Now, back to the post as it was a few days ago 😉
… why don’t we just have a land tax, instead of trying to restrict voluntary trade of land between individuals.
My impression has always been that one of the fundamental reasons for tax was to proxy for a social return on a nations capital – such as land. By doing this we get the advantage of actual property rights on land, even though in essence we hold a belief that society as a whole owns that land.
Now my impression of this debate is that NZ society DOES believe it implicitly owns the land. If we had a land tax that proxied the “rental income” for society, it wouldn’t matter who owned the property right to use the land and this whole debate about foreign ownership could be chucked out the window.
Another point in favour of land tax is it?
Update: Danylmc at Dim Post discusses the same article. I’m not sure I would interpret history the same way as him – was there really much of a cost from the running down of our grossly inefficient railway system? However, lets not argue about this point here – as it is peripheral to both posts. There are two primary points that need to be raised beyond my land tax call above.
Firstly, if the problem is that the government sold the asset too cheaply, then we should raise that as the issue.
Secondly the arbitrary idea of a “strategic asset” might crop up – if we want to think along these lines, lets actually do some thinking. We should ask “is it a public good”, “are there competition issues” and/or “are there externalities from the assets use”. If these things hold, then we can ask what is the best way to define ownership.
Yes there are cases where the government should own assets – but they should be determined by analysis instead of arbitrary catch phrases like “strategic asset”. Obviously there are too many management consultants floating around government at the moment given the amount that term is floating about.