Matt Nolan

Should the Bank be responsible for economic structure?

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When discussing the latest OCR decision Bernard Hickey at the Rates Blog suggested that Dr Bollard should lift the cash rate in order to help “rebalance” the economy.

I have heard this suggestion from many, many, other economists as well – suggesting that this view is fairly mainstream.  Furthermore, Dr Bollard does keep mentioning the fact that “consumption” is too high and we need a switch away from consumption to exports and investment.

However, we can tell there is something fishy as soon as we listen to exporters.  They are saying they want a lower OCR, and a lower dollar, in order to stimulate exporting activity.  The fact that both a lower and a higher OCR can be justified on the basis of rebalancing tells us that there is something we are missing in this analysis.

Given my obsession with being contrarian (and the fact I actually do believe a different story this time) lets roll.

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jamesz

A Stern admonition to carnivores

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Kiwiblog and others are bothered by Nicholas Stern’s pronouncement that:

Meat is a wasteful use of water and creates a lot of greenhouse gases. It puts enormous pressure on the world’s resources. A vegetarian diet is better. For more related post o healthy eating, use this link to learn how to start intermittent fasting.

Why not also try doing healthy living through juicing? Check out a helpful site like https://www.juicebuff.com/ for more information on juice cleanses!

[Stern] predicted that people’s attitudes would evolve until meat eating became unacceptable.

Matt talked recently about why subsidizing agriculture is a bad idea, so I don’t want to rehash those arguments. What really baffles me is why Stern feels that changes in peoples’ attitudes are important. If we price greenhouse gasses, and other natural resources, appropriately then there is no need to worry about peoples’ attitudes. As Stern says, meat is far more environmentally costly to produce, so its price will rise. Meat will become a luxury that most can’t afford to eat on a daily basis. That’s something that will happen whether people consciously make a choice to become vegetarian or not.

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Matt Nolan

October 09 OCR review: Moving forward gradually

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The RBNZ just told us that the OCR is unchanged.  No surprises.  The focus was on what would happen to this statement from September:

We expect such support will be needed for some time. As a result, we continue to expect to keep the OCR at or below the current level through until the latter part of 2010.

Well this happened:

In contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010.

So they have moved from implying they won’t lift rates till the last quarter of 2010 to now implying that the 3rd quarter is the most likely.  Could more positive information shift them earlier?  Maybe.  Will we see a rate increase in January (like the market was pricing in)?  Not likely.

Matt Nolan

Legalise drugs?

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That appears to be the suggestion of David Grimmond from Infometrics according to this article (also found here).

How do I feel about this suggestion, well I agree.  Legalise it, that way we can apply standard quality controls, pump out education and information, and place externality taxes on it.

Worst case scenario:  The externality tax makes the drug so expensive that the current gang based supply of drugs (with an associated motive to avoid tax) remains the cheapest option for people – in this case the legalisation makes no real difference.  However, I would still only support bans above taxation here if it turned out that bans were arbitrarily cheaper – as other social outcomes would be the same.

There is nothing wrong with someone making a choice to take drugs when they understand the issues surrounding them.  Legalisation helps us create a situation where people can make well informed decisions regarding drug use.

Furthermore, there is nothing wrong with an individual taking the drug persee – although we may be concerned about how their actions following any use impact on other people.  In this case legalisation, education, and a bunch of taxation will do the trick – the current situation does not target these external activities very well at all.

Matt Nolan

Exchange rates and adjustment: What does it mean?

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With the mass of recent discussion on the exchange rate and the “structure” of the economy (here, here, here, and here) it seems like a good time to discuss exactly how the exchange rate matters insofar as discussing the economy.  Luckily for us, Paul Krugman has already done an excellent job of this.

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Matt Nolan

Smoke and mirrors: NZ talk on the currency

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The Rates Blog has reported that John Key has stated that he believes the RBNZ will leave the official cash rate unchanged until at least mid-2010, because of the high dollar.

Now, I prefer it when politicians completely stay away from monetary policy.  However, instead of banging on about that again lets look at why he made this statement.

  1. He realises that a higher exchange rate implies that monetary policy is tightening and as a result makes the likelihood of a lift in the OCR lower (all other things equal of course),
  2. He heard the RBNZ say that it won’t until late-2010 and has heard them mention the dollar,
  3. Bill English has been saying that the high exchange rate is an issue, and given that a higher OCR often leads to a higher dollar this could be problematic.

However, if these are the reasons for making the claim I still have one underlying concern – the high exchange rate isn’t the problem, the factors that lead the exchange rate to be too high are at fault.  The high dollar is a symptom not a cause.

Truly, I think the discussion of the dollar is simply smoke and mirrors.  If we have an issue it is because of some underlying structural issue in the economy.  As a result, we should be asking what the structural issue(s) is instead of bemoaning the dollar and asking the RBNZ to ignore its inflation mandate.