Latest Dom Post article, any discussion will be found here.
Just realised I was sort of implicitly agreeing with Sen’s capability approach. I didn’t write it with that in mind, but it was probably hanging in the back of my head.
Feel free to discuss – I promise to get back to real blogging some time in the next few weeks 😉
From the Institutional Economist blog we’ve just seen an article on peak oil. I agree with the author that markets will facilitate any movement from using oil to using a substitute. As yes, the market will help to develop further exploration for oil fields – which will provide more oil. But I feel two points are underplayed:
Ultimately, I think there is some oil in the ground and the best way to allocate when are where this oil is consumed is with markets. However, we should definitely not ignore the fact that, one day, the oil could run out and that would have a negative consequence on society – negative consequences that we can’t do anything about.
Peak oil theorists aren’t “economically illiterate” persee, they are just concerned about the fact that we could have this negative outcome.
Am I the only person left that believes in this rule of thumb? From a Herald article on the IMF:
Policy makers will need to employ judgment to look at what is driving asset price movements and discretion to avoid costly policy mistakes
Now to be fair, they also suggest that maybe central banks should have some other tools than just the interest rate. But the fact is that, for now, they don’t. Banks should not be targeting asset prices with interest rates at the same time as they are targeting inflation – its a recipe for policy failure.
Sure, use prudential regulation and try to deal with information issues in financial markets and the such to try and ensure that people face more of the risk regarding their own actions. But don’t use the interest rates to attack asset prices.
There is no discretion here. The central bank is trying to hold inflation at a target level given their interest rate tool. Just do that. It is mechanical, yes. It is boring, yes. It will not prevent crises, yes. It is best policy, yes.
Ht Big Picture
To be fair, economics is a wide ranging social science and we can’t criticise some parts of the discipline on the basis of poor forecasts. Furthermore, even in the realm of economic forecasting, the goal is to paint out risks given limited data and an imperfect knowledge of the complex world around us – so judging the discipline on ex-post outcomes makes little sense (we have discussed the range of issues constantly).
However, in so far as sometimes economists come out and discuss their expectations like they are true fortune tellers, this cartoon has some weight 😉
So, the recession is over – not what I expected.
I had an ipredicit contract saying that GDP would be positive, but then I covered my position yesterday. That will teach me 😉
Update: Looks like it was the cold winter that pulled us out of recession – the increase in electricity generation more than accounted for the increase in production GDP over the quarter.
Randomly, RGNDI per person rose 1.7% in the quarter as well. This is something I’m going to have to spend some time looking at, as on the face of it that is an awesomely good result.
Update 2: Miguel points out the leap in RGNDI is because of yesterday’s reported movement of funds from BNZ.
GDP is out later today, and there are calls from some that growth turned positive again in June.
While a mild bounce-back from the sharp March 09 fall is conceivable in of itself I’m not sure if I buy it. Partial indicators have still been poor and the NZIER QSBO was still incredibly weak for the June quarter.
Personally, I would not be surprised seeing a moderate contraction for June above what the market is picking (currently a 0.2% fall).
Of course, the more concerning factor for me will be the sharp decline in RGNDI – which is a far better indicator of the true cost of the recession than GDP.