Matt Nolan

An economist licence

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We licence other service professions, why not applied economists?

What I’m thinking is that economists could get a licence through a university where they have to sit an exam on certain, essential, points of economics. They would have to resit it every 5 years. Don’t make the licence compulsory persee, just make it something that economists can put up when they talk – like a master builder sticker.

This way we could make sure that all registered economists have a full recollection of concepts likes the “impossible trinity“, the lack of a long-run Phillips curve, how to interpret relative prices, the prisoner’s dilemma, and what comparative advantage is.

Note: Of course, different types of economists need different fundamental skills, so there might have to be a slight range of licences.

I mean, I would definitely enjoy the occasional refresher course on central concepts in economic analysis and I think setting it up in this way could be a useful way for non-economists to recognise that if they are getting a certain standardised level of economic advice.

Matt Nolan

July 09 OCR Review: Easing bias strengthens?

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At least that is my first impression from the statements.

Although last statement was the effectively the same:

“We consider it appropriate to continue to provide substantial monetary policy stimulus to the economy. The OCR could still move modestly lower over the coming quarters. We continue to expect to keep the OCR at or below the current level through until the latter part of 2010.”

However, the differences are interesting.  In June the RBNZ said:

We have cut the OCR by a large amount over the year. We expect the effects to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing.

They told us they had cut a long way – this is “anti-easing”.  In July they said two things:

The level of the dollar in particular, is not helping the sustainability of future growth, and brings with it additional economic risks

The forecast recovery is based on a further easing in financial conditions. If this easing does not occur, the forecast recovery could be put at risk. In these circumstances we would reassess policy settings

So they think monetary conditions are too tight (exchange rate and interest rates) implying that they may respond with a lower OCR in order to loosen conditions.

Note that the market was expecting the easing bias to go away, and they expected the sudden improvement in the housing market to be mentioned as a risk – but they were not.

Now if the RBNZ is really worried about the “sustainability of future growth” I don’t think a rate cut is appropriate.  Why when it makes the $NZ lower?  Well because it does that through lower interest rates, which makes consumption now more attractive than investment – the exact imbalance they seem to have been concerned about recently.

Matt Nolan

Big ups to the NZ econblogsphere

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Kiwiblog’s link to a new economics blog called Progressive Turmoil got me thinking.

I now count 12 14 economics blogs in New Zealand that are still going (list at bottom – note all the blogs I have linked to have a lot of economics opinions in them, even if this isn’t their primary description. To me this makes them worthy of being called an economics blog 😉 ). I’m sure there are plenty of others – tell me if I missed anyone in the comments!!

As we have a population of 4.3m (thanks Stats), so that is approximately one per 358,333 307,143 people.

This is epic. It makes me proud of our country thats for sure 🙂 [FYI, I’m not being ironic, I’m an economics addict 🙂 ]

Note: I count 5 blogs with some sort of relationship with Victoria University and 3 3.5 with a relationships with Canterbury Uni – where is Auckland Uni 😉 and 1.5 with a relationship with Auckland Uni.

Matt Nolan

Supermarket competition is a good thing!!

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Is someone trying to be ironic when they say that a new chain store that sells close to expired stock cheaply is a bad idea because it will “cause obesity”. Adolf at No Minister is right here when he says that these guys are doing the right thing, and that the critique on the grounds of obesity seems out of place (ht Kiwiblog).

If people want to eat enough and put on some weight that is their decision. After all WTF is an “obesity epidemic” – I didn’t realise people could gain weight just from looking at me after I’ve eaten 😉

Say that there is an externality from obesity – well then we should try to solve that, not regulate the supply of food. No the idea of an externality may lead to a “fat tax“. Poor information for consumers might drive us to label foods in better ways. But there is no value to be gained from refusing to allow competition in supermarket sales.

Truly, these people that focus on obesity DO NOT CARE about the happiness of people – they only care about the fact that they don’t like obesity. It makes me sad 🙁

And if you try to defend these claims on a basis similar to “people don’t know what’s good for them” I suggest you just write down what you just thought and read it …

Matt Nolan

High dollar is a symptom, not a cause

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BERL’s (cheif) economist Ganesh Nana has been telling people that the Reserve Bank needs to act to get the exchange rate down. I disagree in the most part and agree in another arbitrary part.

The fact is that the “high” NZ dollar is the result of a bunch of factors: peoples willingness to lend to us, the willingness to take on risk, our own willingness to accept their credit, a high terms of trade, our higher real interest rates, and a belief that the asset value of our dollar is higher than it was in the 90’s. There is no issue with the dollar doing what it does here.

I do agree that we have an issue of “production” vs “consumption”, namely we are taking on a great amount of debt and as a country this makes us vulnerable. But in this case the questions should be “why are we taking on all this debt?’ and “is there a problem with this debt accumulation?” (like we asked here) – not “is the dollar too high?”.

The Reserve Bank should not move to crack the $NZ down, instead we should all ask why New Zealand as a whole has taken more debt on and figure out if their are any structural issues in the economy that a change in government policy can improve.

Note: Another thing I would note is that the RBNZ can lower the dollar by trying to temporarily lower real interest rates (by printing money and dropping the nominal interest rate). This again promotes consumption above investment, and surely wouldn’t help correct any “imbalance” that we are focusing on here! Let us not forget the impossible trinity here (we discussed this here).

Focusing on the dollar is like focusing on easing a patients symptoms while leaving the underlying disease untouched!!

Update:  Scott Sumner does a small discussion on prices.  The exchange rate is a price, as he notes the important thing is “why the price has changed” not what the price is per see.  The price is not the underlying issue but the factors driving the price.

Matt Nolan

The basic frame of a firm: Cournot

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It seems that the debate about the fundamental “theory of the firm” is going on. Now there are issues with the theory of the firm, things that economists have been busy plugging away on for a long time now – but the critique that Steve Keen has put forward is not one of these issues. In this post I will attempt to discuss his push to change the Cournot model, which I don’t agree with. This will give us scope to discuss perfect competition another time.

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