Matt Nolan

Merry Christmas

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From TVHE.

And don’t forget – if it wasn’t that we arbitrarily valued the idea of people spending time “thinking” about our gifts (and that the gift givers sometimes value looking like they are thinking) it would just be optimal for us to give each other money 😉

Also note that the cost of Christmas dinner has fallen 3.5% this year (or closer to 5% in real terms).  Is this the result of deficient demand, improving productivity, or some other shock.

Christmas always raises a lot of important economic questions 😛

Matt Nolan

September quarter NZ GDP

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What happened!  It will be here.

I’m not around (I am currently visiting our lucky neighbour in Australia).  I bet that we had a negative quarter didn’t we.  That would be a pretty negative shock for people, given that some OK growth was expected.

If we did have negative growth does that mean we are back in recession?  Having one positive quarter doesn’t seem like enough to rule a recession out (that is if June wasn’t revised down to be honest).

My pick for what just happened?  I think June has been revised negative and September is a small positive.

Matt Nolan

Wages and recovery: A note

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There seems to be some hatred for the idea that if nominal wages were more flexible unemployment would not rise as high (here, here, and here).

However, I am a fan of the flexibility argument – and not just because my mind struggles to get outside of partial equilibrium 😉

When I view wage flexibility I think about it in THREE ways that would lead to an improvement in outcomes – in so far as they would reduce the “market failure” that leads to a “surplus of labour”.  These are both RELATIVE PRICE arguments:

  1. Wages relative to substitute inputs:  Wages need to be able to adjust more quickly than other inputs.  If this is the case then employers would cut back on other inputs ahead of labour.  Given that there is both substitutability and complementarity in inputs this is a difficult issue – but nonetheless.
  2. Wages relative to goods:  Wages need to be able to adjust more quickly than goods prices.  That way real wages will decline, making labour relatively cheaper.
  3. Relative wages:  This is the big one for me.  Often during a recession there may need to be a reallocation of labour resources, or there may be uneven shifts in demand for types of labour.  If relative wages can adjust then we ensure that the cost (in terms of climbing unemployment and general economic inefficiency) can be minimised.
Matt Nolan

Monetary policy discussion in the US

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Sounds like what we’ve been saying here.  From over there:

  1. The Fed should have a single nominal target.
  2. The Fed needs to be transparent and have specific and well-defined monetary policy goals.
  3. The Fed should focus only on monetary policy, and regulation of the large banks.

From over here:

  • At its heart, the consensus between the two main parties was to do with the target of monetary policy – monetary policy must be implemented by an independent Reserve Bank to ensure that inflation remains within a low and narrow band.
  • Giving the Bank multiple instruments to simultaneously achieve multiple targets would be a recipe for confusion, and would ultimately damage its ability to achieve any of its targets
  • Warping the Reserve Bank Act to focus on a multitude of different goals will not solve these underlying issues; it will just cloak the symptoms by damaging other sections of the economy
Matt Nolan

More reasons to legalise drugs?

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When this article appeared in Stuff it seemed to want to give the impression that drugs = bad.  That is good for it.  However, when I read it it simply made me think that we should legalise said drugs.  Here is why.

Ecstasy users are unwittingly taking other potentially more dangerous substances including P, as drug dealers become more reckless, officials warn.

And this is happening because of the large number of drug raids, restricting the supply of Ecstasy right.  So legalisation would improve quality and safety.  Also.

When it burst on to the scene in the 1970s it was pure MDMA and its reputation as an uncomplicated party drug exploded. However, once MDMA was made illegal in the late 1970s, ecstasy’s make-up changed.  The legend of the “round shiny tablet with a logo on it” had grown out of proportion.

So making it illegal lead to a degradation of the quality of the product, which made it more dangerous.

So lets legalise these things and regulate the industries, no?

Matt Nolan

Quote of the day: Band aid vs Core solutions

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I agree with this quote 100%:

There is often a discussion about the great divides in economics – Neoclassical vs. Keynesian, Freshwater vs. Saltwater, Left-Wing vs. Right Wing, Top-Down vs. Bottom-Up, Elites vs. Populists, etc. Another one should be between economists who feel the way to counter the distortions caused by 34 different government policies is to created a 35th policy and those who believe in countering root causes and would like to avoid Rube Goldberg-type policy structures. I said ‘should be’, because there are so few of the latter kind of economists out there. We could hold our meetings in a phone booth.