Matt Nolan

On “the” fiscal stimulus

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Over at Kiwiblog there is discussion of the Democrat loss in Massachusetts.  Reading through the piece David Farrar stated:

Priorities. Obama’s fiscal stimulus did little bar increase the deficit massively, and turn the country into deficit hawks. Unemployment went well beyond his worst forecasts

Now I found this statement unusal in that David’s writing is usually very balanced, and yet I do not find this statement balanced at all.  Why?

  1. We have no idea if Obama’s fiscal stimulus did anything until the data is all finalised.  In a couple of years researchers will be able to look over the data and discuss the design, implementation, and need of the scheme and reach an educated conclusion.  At the moment people can only present an opinion on the basis of ideology.
  2. Personally (going onto my ideology 😉 ), I think the fact that unemployment rose even further than expected was the result of the shock being larger than expected (and areas of the US economy being more fragile).  During the crisis the US government was able to borrow cheaply and use this borrowing to undertake investment when the cost of building this investment was cheap (thanks to the spare capacity in the economy) This sounds like a good thing to me …
  3. Unemployment as high as  10% indicates to me that there was a hole in demand – I do not believe that “structural” economic issues could be sufficient enough to warrant 1/10 people who want a job not being able to get a job.  With the Fed unwilling to soften its monetary stance further the government is in a position to be “consumer of last resort”.  Although I don’t really like the idea of this, in the face of sticky prices and a massive shock to the economy I have to concede that such a role exists in extreme circumstances.

As a result, if I had to guess I would say that the immediate crisis would have been worse if the stimulus hadn’t happened. This appears to be a moderate position among economists, between the “stimulus did nothing” and the “we needed more stimulus” extremes.

Now, we may find that the long run impact of this borrowing will be bad, and we may look back on the evidence and find that the scheme is flawed.  However, the point that “Obama’s fiscal stimulus did little bar increase the deficit massively” is an extreme view (that could potentially turn out to be true) – not an objective fact.

Matt Nolan

Tax working group: The corporate tax rate

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The Tax Working Group has released their report, as you all already know.  The recommendations are as expected, so its not particularly exciting in that sense.

However, there are some issues I would like to discuss – lets start with the idea that we “urgently need to cut the corporate tax rate” if Australia does.

Currently there is talk that, if Aussie cuts the corporate tax rate to 30% we need to do the same immediately.  We are told this as if it is a self-evident truth, and told that if we don’t all investment will head to Australia.  This is a touch over the top.

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Will Taylor

Apparently China needs censorship because Chinese people are stupid….

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….that is the justification offered by a Chinese journalist in this article related to the Google vs China row (blow by blow at Ars technica here). This quote is shocking:

The Chinese society has generally less information bearing capacity than developed countries such as the U.S., which is an objective reality that no one can deny. Chinese intellectuals living in China should show understanding to the motherland’s weakness.

Matt Nolan

Need more behavioural relationships please

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I started life as a microeconomist, which is why the sort of discussion about nominal shocks going on between Sumner, Kling, and Woolsey seems a little weird to me.

To horrendously oversimplify the positions in order to make this post easier to tie together, Sumner seems to state that the Fed needs to print money with a nominal GDP target in mind, Woolsey suggests that the Fed should change inflationary pressure given a set real GDP target, and Kling states that we only have real shocks and so the idea of a “nominal shock” is not of use.

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The Hand

Minimum wage vs inflation: A TVHE discussion

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We are sadly too busy to really post anything at the moment.

As a result, to fill in time we will put up a recent discussion between TVHE writers.  The one thing this conversation shows:  we all agree that arbitrary policies that are introduced to indirectly target a problem (eg changing the minimum wage to target inflation) tend to do more harm than good.

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The Hand

Means testing fines: economic efficiency, or unjust policy.

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As recently reported, European nations are increasingly pegging speeding fines to income levels, in an attempt to standardise punishment for such infringements.

The intuition is simple: a $100 fine to a person of wealth in excess of a billion dollars is trivial. Clearly, there is no (or at the least little) incentive to curb one’s behaviour.

However, in examining a recent USD $290,000 (euro203,180.83) speeding ticket slapped on a millionaire Ferrari driver in Switzerland,  one cannot help but feel this is somewhat excessive.

Conversely, it would seem that such laws have the potential to induce ridiculously low penalties to those without any assets. Is New Zealand society willing to burdening the rich with the external risks created by the poor?