Matt Nolan

Kiwisaver and the current crisis

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How do we think the introduction of Kiwisaver has influenced the current economic environment?

Well, Kiwisaver will have worked through a number of channels but fundamentally, in the short term, it would have propped up savings (note, when I say savings I am talking about PRIVATE savings, not NATIONAL savings) and thereby reduced CONSUMPTION. Where does it increase savings:

  1. It effectively implies a higher tax rate – as money going into Kiwisaver is money that could have been redistributed through the tax system.
  2. By using tax money as a carrot it increases the incentive to save beyond that implied by the market – fundamentally, the government takes your own money and says it will only give it back if you save.

As we are struggling with a crisis of confidence, a short-term decline in consumption is probably not what we needed 😛

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jamesz

Is marriage really the answer?

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Family First and Rochester divorce lawyers have just released a report on the costs of the breakdown of the family unit. I might not have given it a second glance save that it is written by Dr Patrick Nolan, the more qualified sibling of our Dear Leader.

The thrust of the document, as you might expect, is that costs of having fewer intact marriages are very high. The report points to a bunch of private and social costs, such as increased risks of poverty, mental illness and infant mortality, and tries to put a dollar value on them. It ends up suggesting that the fiscal cost of the reduction in the number of marriages is about $1 billion per year.

I don’t have a sociology background or the knowledge to challenge any of the assertions made by the report, and I trust that Dr Nolan has calculated his costs in as objective a fashion as possible. However, it’s what the report doesn’t monetarise that is most concerning. Read more

Matt Nolan

Should we be bullish about food prices?

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According to Tony Arthur at BNZ we should be.  This is an essential issue for NZ as it determines where our Terms of Trade stays elevated – or whether it falls.  In turn it determines our national income, given what we produce.

I agree with many of the factors he states (although he is a bit bullish on them) but I think he ignores factors around the long run elasticity of supply of food.  So I thought I’d try a poll (my first one 🙂 ), and do a post based on discussing the dominant view later:

jamesz

The Greens on economics

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There has been a lot of chatter about the Green’s understanding of economics lately, so I thought it might be apropos to have a look at their economic policy, just released. The key points appear to be:

  • Income taxes cut;
  • Taxes on waste, pollution, speculation and scarce resources;
  • Commitment to buying NZ made and Kiwisaver investment in NZ;
  • Only citizens and residents allowed to purchase land.

Let’s start with the good bits. Read more

Matt Nolan

Bank guarantee “here to stay”

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So says Dr Cullen, and I think his description of why is pretty spot on:

it will be difficult in two years to return to a situation where bank deposits were no longer insured by the government

When financial institution base there decision on the fact that this new framework exists, changing the framework would be problematic and painful – making it harder to remove it. Furthermore, as he says, when every other country has a scheme we sort of get stuck having to have one – or else we have to pay a higher premium on our credit (assuming of course that the private sector can’t provide insurance as efficiently – a debatable assumption).

Dr Cullen also points out a major concern that:

excessive amounts of money that could flow into finance companies to chase the guarantee for two years

In that case, why don’t they let the Reserve Bank adjust insurance premiums based on risk – the companies have to show a credit rating anyway, so the better the rating the lower the premiums. At the moment the larger organisations, which also have better credit ratings, are paying MORE for this insurance – it is ridiculous.

As Dr Cullen has identified the problem, why doesn’t he fix it?

Matt Nolan

Quote 3) Frederic Bastiat: Cause and effects

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Frederic Bastiat:

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them

ht Kimble.

I have not read any Bastiat – so I have very little to say.