Matt Nolan

More suggestions …

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And some more …

Other ideas include:
* $10,000 interest free loans to new house buyers;
* Government-funded crisis managers to help companies in strife;
* A fund from the sale of government bonds to add liquidity to the consumer finance market;
* Tax holidays for struggling businesses; and
* The Government offering loan guarantees to small and medium sized businesses.

Why give home buyers money? What is the social benefit from someone buying a house!

Are we actually facing a liquidity constraint in the consumer finance market? I didn’t think we were? Households have decide they WANT to cut back spending given uncertainty.

Guaranteeing loans?? Sure, that is a great way to make sure we get productive investment going 😛

Crisis help and tax holidays are potential goers – although, there would need to be more detail before I could say I agree with it.

Update: At 2.15 Bill English said NZer’s will decide whether this is a “talk-fest” or a “do-fest”. What he means is that NZer’s need to be adaptable because this is a permanent shift. This is true.

However, if the whole adjustment needs to be done by NZer’s, what is the point of this “talk-fest”? Note I call it a talk fest because he is practically saying that the adjustment needs to be done by people outside the meeting, and that policy can’t really help.

Update 2:  From here:

Those in the building industry have asked for subsidies for wood frame homes arguing it will boost both the construction and forestry sectors

The lobbyists are having a FIELD DAY!!!

Matt Nolan

Job summit supporting culls to migration?

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Or at least that was a suggested option in the latest update …

Some of the ideas written on white boards around the conference centre include:

* Encouraging workers to take unpaid leave.
* Easing up on immigration
* Clarifying the carbon trading scheme
* Supporting businesses to develop hedging capability
* Giving tax exemptions for workers upskilling
* Bringing forward capital investment
* Targeting entrepreneurial migrants to invest and/or move to New Zealand

So we have a pile of capacity to provide for domestic spending, but NZ citizens don’t want to spend anymore – how exactly is preventing the inflow of other people who can spend domestically useful? Then they could all start working in export markets and “hey-presto” we’re in a great place.

Even if we were “concerned” about the medium term (we should be) let us remember – New Zealand has a small population. Increasing our population could conceivably provide us with some increasing returns to scale in the long-term.

Furthermore – if we were interested in maximising “global welfare” the case for allowing in immigrants would be unambiguous. However, I’ve noticed that this isn’t how we seem to feel as a nation …

(Update:  As Insider points out “easing up” might mean the opposite of what I assumed.  If that is the case, I would like to note that I am also not a fan of arbitrary increasing inflows – I prefer consistency and certainty surround population growth.  If we came to an international agreement for free international migration that would be a different story again …)

Matt Nolan

Leaving the labour force is not like unemployment …

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This from Laila Harre at the Job Summit:

Ms Harre said people also need to keep in mind the “hidden redundancies” amongst the casual work force.

She said workers in the casual sector who leave are simply not replaced and that amounts to a redundancy.

People leaving jobs and leaving the workforce are fundamentally different to workers who are unemployed – and that distinction is VERY important when trying to understand the market failure surrounding the labour market.

The market failure stems from the labour market not clearing:  There are people who want to work at the current wage, but can’t.  This provides a “surplus” of labour.  If people are leaving the workforce, then the supply of labour is falling, something that helps moderate the size of this surplus.

If a worker leaves the labour market and is not replaced, it is because there is no demand for their position anymore.  Trying to get treat this the same way as unemployment degrads the REAL difficulties associated with actual unemployment – and the fundamental market failure we should be interested in helping to address (if the government is able to).

Policy that attempts to stop people who want to stop working under current conditions from leaving is not helpful.  Hopefully the job summit will not lead to more thinking along these lines …

Matt Nolan

More “insightful” analysis from the Job summit …

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Excuse my cynicism – but I’m relatively unimpressed with the piles of rhetoric coming out of the summit.  In the latest update we hear:

Economic Development Minister Gerry Brownlee said there were two key messages coming out of the discussions he had been involved in at the summit today: the need to cut red-tape and the difficulty small and medium-sized businesses are facing in trying to raise capital in the current climate

Now if we asked businesses what is “restraining” their activity three years ago we would have gotten the same two responses – plus maybe a lack of skilled labour.

Businesses always want less constraints on their activities and cheaper, easier, capital.  However, if the capital markets are pricing the risk associated with the firms, and the red tape is constrained to areas where there is a clearly identifiable market failure, we should stop.  This isn’t a “stimulus/recession” issue – this is a structural issue.

Let’s hope that the politicians remember the other side of the debate here – it isn’t about trying to magically make credit cheaper, it is about trying to make sure that the cost of credit is appropriate to the risk businesses are taking on!!  I hope the government doesn’t use the spectre of a recession to push through policies that are not welfare maximising (something that insider has suggested is happening).

Matt Nolan

Are macroeconomists ignoring the research program of the last 30 years?

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There is a large set of people saying that macroeconomists have just ignored what they have researched over the last 30 when trying to deal with the recession. In fact, many of the posts I have written could be seen as tacitly agreeing with this point of view.

However, my answer to the posted question would be NO – macroeconomists are not ignoring their recent research.

Many people may then ask: Why are people giving Keynesian, or IS/LM, style explanations to the crisis? Why do economists differ so heavily in what they think is the right policy? Why do they differ on what they think is actually going on!

My answer would be that macroeconomists are using old school language to EXPLAIN the conclusions they have reached with more modern methods. People are more comfortable with the idea of IS/LM etc, and so macroeconomists can use this type of language to explain what they are doing – even though it isn’t the real justification 😛 . I don’t particularly like this – but I’m sure I do it myself 🙁

Economists also disagree so heavily about PRESCRIPTIONS and DESCRIPTIONS. This is because the recent “research program” has not removed the importance of value judgments – fundamentally, people may agree on a general framework but there is no central model for stating the values of the parameters in a given game.

Even if economists could agree with that, the importance of game theory has opened up the realm of the FOLK THEOREM and MULTIPLE EQUILIBRIUM. Fundamentally, macroeconomists can now explain anything in multiple ways – making any explaination by itself empirically empty. Microeconomists discovered this a long time ago – and it is still a vexing methodological issue.

So macroeconomists are not ignoring recent research – recent research just hasn’t put macroeconomics in a position where it is all encompassing and all powerful. Something that some macroeconomists need to realise methinks 😀

Matt Nolan

Math <3 Econ?

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First, is <3 a heart?  That is what I’ve run with – but it always looked like an ice-cream to me!

I have just seen this awesome 1 page paper by some mathematicians (ht William J Polley).  Why is awesome?  Well it talks about some ideas they had about studying society – and what they described represents a chunk of the way economists already view society.

Whether they meant this as a complement, they think we are not smart enough to think of it this way, or (most likely) they have a better way of doing the same things we do – I don’t know 🙂