Matt Nolan

Administration things I would like to see from National

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Labour did some things that very much improved the accessibility of information about the New Zealand economy – namely make information from Statistics New Zealand free at Infoshare!

However, the removal of health sector productivity statistics was a concern. This concern appeared again in the back of my head when hearing about National’s plans for health.

Now that National is in, there are a couple of major analytical releases I would like them to produce (that they should be able to make without too much hassle):

  1. Productivity measures for different government sectors,
  2. A Treasury created measure for analysing the quality of government spending (as suggested by ANZ),
  3. A independent board/organisation that creates a measure of the quality of government spending.

There has been a lot of talk about taxes, however the purpose of taxes is merely to raise revenue for some target level of government spending. We have been unable to discuss whether the spending is appropriate (especially given the cost of raising the tax revenue) because the benefit of the spending has not been transparent.

Adding transparency here would increase the quality of policy – and would allow the democratic process to properly represent how much government spending society is willing to pay for.

goonix

SKY TV and the market for live sport

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The previous Labour government bestowed a legacy upon NZ that included the first ever review of broadcasting regulations.

Essentially the question being asked in this review is: does the current market situation warrant government intervention?

Read more

Matt Nolan

Tyler Cowen and others: Lessons from the New Deal

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Excellent article by Tyler Cowen in the New York Times. (ht Economists View, Marginal Revolution).

Paul Walker at Anti-Dismal has also covered this issue heavily (here, here, here, here, here, and here).

Fundamentally, for New Zealand, there appears to be no reason for any change to fiscal policy to help deal with the slowdown – something we have discussed here.

Show me the actual “market failure” – then we can figure out how the government can improve outcomes. If there is no market failure, then government action to “stabilise” the economy will simply make matters worse.

Note: This is different to government actions to try and help cushion the impact of a sharp change in fundamental economic conditions. Although a change in the economic situation may change the optimal allocation of resources, a labour market that allows people to upskill and gives them firm institutions to rely on in the bad times will help to reduce the welfare cost associated with the change. This is subtly, but importantly, different from a simple “fiscal expansion”.

Matt Nolan

And we wonder why interest rates are rising …

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It appears that the UK wants to spend their way out of a recession. The US has a plan too, as does New Zealand, Europe, and Australia. Governments all across the world want to spend their way out of a recession – however, there is only three ways they can get the money together.

  1. Increase taxes – knocking out any stimulus anyways,
  2. Borrow,
  3. Print money.

Assume that monetary policy will act to constrain any excessive “money printing” that will be going on this leaves us with borrowing.

If all the governments in the world want to increase their borrowing, this will increase demand for global credit, which will push up interest rates – won’t it? This will lead to an increase in private savings, and will just move around the allocation of resources rather than creating wealth.

There is no free lunch when it comes to “getting out of a recession” – give me the “market failure” we are facing, then we can talk about improving outcomes!

Matt Nolan

Forcing savers to help borrowers?

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Over at the Standard they discuss one of Lord Keynes’s “real ideas” – namely an international organisation that tries to push savers to spend, by buying the things borrowers save.  When I put it this way the idea sounds ridiculous – which it is.

This unusual view comes from a belief that a trade deficit or surplus is a “imbalance” that needs to be “solved” by a benevolent organisation.  This is of course rubbish, nations, like individuals, should be able to run trade balances or surpluses based on the preferences of the individuals involved.

Now I haven’t heard this idea before, and if Keynes did come up with it I think it has more to do with the elitist world view of the Cambridge school combined with some foggy mercantilist sentiment than with the practical relevance of such a policy.

“Imbalances” that are caused by market failures are the ones we should solve – not arbitrary imbalances that we have assumed exist because we want to regulate.

Ultimately, there has been a disjoint between risk and return in some areas of society, a problem that has been able to occur because of large information asymmetries across the financial market.  Transparency of information and wider education surround risk are the best ways to improve outcomes in the financial market – not arbitrary regulation based on a view that “all countries should run a trade balance”.

Matt Nolan

Quote: 11) Thomas Sowell on economics and politics

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Although I don’t agree with all Thomas Sowell has to say, this quote is brilliant:

The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics

I think this quote is apt following an election. All political parties prefer to ignore trade-offs – they just focus is ability in different policy areas 😛