Matt Nolan

Quote of the day – tax cuts paying for themselves

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This is from Alex Tabarrok:

Mark Thoma makes fun of Judd Gregg for thinking that tax cuts pay for themselves. Mark is right to make fun. What a ridiculous thing to believe. All the good economists know that it is spending increases that more than pay for themselves.

😀 . BTW, this is sarcasm – which is why it is awesome 😉

Also, apologises for the lack of substantial updating – I am extremely busy doing that “predicting things” stuff that I always say economists shouldn’t do …

Matt Nolan

Blegging again: On Singapore refined oil …

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Thank you for the excellent responses to my previous bleg on refined oil prices.

Sadly I am in need of a little more help 🙂

According to the data series kindly provided by John Macilree the price of refined fuel has jumped pretty sharply, even as crude prices have stayed low.  I am wondering if anyone knows why this has happened.

I have five potential theories:

  • A cost shock to refineries around the world,
  • World demand for oil has recovered increasing demand for the refined product – however, there has been stocks of crude oil (implying that it won’t show up in the crude price until later),
  • Recent price movements have given refiners a view of the elasticity of demand – and they have discovered that the profit maximising price is actually higher,
  • Refiners have fallen into a position where it is easier for them to tacitly collude,
  • Prices had fallen “too sharply” as crude fell, and the recent steep increase is a correction to equilibrium.
Matt Nolan

Cutting costs is not recessionary

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Over at Kiwipolitico Anita states that the government will cut spending on government services by at least the same amount that they are going to increase the size of the fiscal stimulus by spending on infrastructure – and implies that this means that the fiscal stimulus is even smaller

Now, if the government cuts spending but continues to produce the same output this ISN’T akin to “removing stimulus” persee – we instead need to find the appropriate counter-factual.

First say that the government is going to cut the unproductive spending and use it somewhere else – in this case the action would actually increase the immediate income of the economy and help pull us out of the recession.

Say instead that the government held the money – this reduces the amount of debt they are going to take on, which allows the private sector to borrow (lower future tax burden and all that jazz 😉 ). Of course, people are currently more willing to loan money to government instead of firms – so this may not be a wise move on the part of the government in terms of short-term stimulus. However, then the question should be “why don’t you spend this saved money productively” not “why don’t you keep throwing the money at areas that are not producing anything”.

The main counter to this may be that “government cost cutting will lead to a lower level of government outputs”. If this is the case then we have an issue. This brings us to the fundamental question – is the $250m of spending the government is looking to cut currently being put to its best use? If it is then Anita is right – if it isn’t then the government is right.

Matt Nolan

Query (or Bleg): Singapore refined petrol data

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So, where do I get figures on Singapore refined petrol prices?

Crude oil has been falling, the exchange rate has stayed stable, but rising refining costs have driven up the retail price of petrol.  If anyone knows where I can find the figures it would be much appreciated 😉

Matt Nolan

The issue of data

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I will give people a little more time to write comments on this post on economists and predictions before I discuss it – let me say that I’m very happy with the two comments (from HH and Kimble) so far.

There is a related issue that I think needs a bit of attention before we start discussing these things – data. Statistics New Zealand does an excellent job getting together data and putting together clear, transparent, and useful, data series. However, even with all the hard work they put into the process there will always be some issues with the data, namely:

  • Not all the survey responses arrive, or arrive at the same time – implying that there is constant revisions to the data,
  • Changes in methods mean that there is constant revisions to the data
  • Changes in methods implies that some data series for the same thing (eg private consumption over time) are incompatible,
  • Seasonal adjustment and trend estimates can be subject to an “end point bias” – which implies that the figure we have at the time is different to the “true” figure that will be available in the future,
  • Quality adjustment is a subjective process – but the adjustments are not always transparent,
  • In a country like NZ sufficiently disaggregated data cannot be released,
  • In a small country the “timeliness” of surveys can be poor (GDP is out three months after the event for example),
  • The length of data series – for many types of statistics there just isn’t much data!
  • Even if the definitions of what the data does is transparent – the data will often be misused by people interpreting it.

What does all this mean – well, even though Statistics NZ does the best job in getting data that is possible, and even though economists might make the best use of the data that they can, it takes a long time (several years) until it is clear (in a quantifiable sense) what has actually happened.

Matt Nolan

Question: Have economists been over-confident regarding their ability to predict things?

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My unequivocal answer here would be yes – but I’m not asking me, I’m asking you.

Do you guys think that economists have been over-confident about their ability to predict things?

We have repeatedly said on this blog that economic science “frames issues” – but predictions only stem from virtually untestable value judgments (although we can inform these, and narrow the band of judgments, by using data).

However, it appears that many economists have tried to sell their ability to predict – something that has caused issues.

This blog post really sums up how I think people think about economists right now (ht Market Movers).  I think the issue is that economists have sold this story to the public about their ability to predict – an ability that doesn’t exist.  The risk from this is that the value that economists can add (framing issues, even describing what has happened) may get ignored as a result of this perceived failure.