Matt Nolan

Comic: NZ deposit insurance for finance companies

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Mike Moreu is on the money again! The link is here.

Why is there no haircut for the insurance? Why are the fees not linked in inherent risk?

I agree that in some countries governments need to “recapitalise” banks by buying parts of them. I agree that a deposit insurance scheme can avoid bank runs (and can do so in a way the private sector may struggle with because asymmetric information leads to “too little” insurance). However, effectively charging the safe institutions more for insurance (which is what is happening to the banks) is RIDICULOUS – and will lead to too much risk being taken on in the future, at the taxpayers expense.

Will Taylor

Agnitio Finance: Coming soon

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With the announcement of deposit insurance by the government for all our dodgy finance companies, being an economist who understands the concept of moral hazard (although in this case it would actually be adverse selection given that I would enter into the contract with government with the intent of exploiting an information asymmetry), I thought I would start my own finance company. Here’s what I figured would go on our ads which will feature a very trust worthy has been celebrity telling you how much you can trust us (any suggestions?).

Agnitio Finance will exclusively invest in the highest risk hedge funds available. We will offer an interest rate on deposits of 30%.  While there will be a serious disconnect between the riskiness of our assets and liabilities, don’t worry, we offer extensive deposit insurance, which you don’t actually have to pay for. In fact, you get to share the cost of this insurance with every other tax payer in the country!

Agnitio Finance: Zero Down side

Matt Nolan

2008 Economics Nobel Prize: Paul Krugman

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Paul Krugman won the 2008 Economics Nobel prize for his work on trade theory.

This was a surprising result for me, as he is still relatively young and I expected Sargent to win. However, he is a deserving winner – congratulations are in order.

Anti-Dismal goes into more detail, and links to a number of economics blog reactions on the prize, enjoy.

BTW, No Right Turn is correct that it is not really a strict Nobel prize – but I don’t think that fundamentally knocks down its importance.  After all behind the Nobel peach prize I was say the “not-Noble” economics prize comes second in terms of international awareness.

Matt Nolan

What is the labour market

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My recent post on universal student allowances was relatively provocative (I thought it might be a little more provocative – maybe it would have been if I said all students and all unemployed people should borrow money instead 😛 ). As a result, it is a good time to briefly go through the way I see the labour market and a few of the things I think are important for analysing it.

The labour market is a difficult thing to analyse given that it is the only input to production where we also value the outcome for the input!  The best way to look at labour in this case is to separate out the person selling the labour and the “labour input” – so when you go to work you are “selling an input” and the price you receive is your compensation for that – the wage.

Fundamentally, the labour market starts with the core bit – actual working labour. There are people who are employed in firms working for those that own capital.

Now, just by looking at employees and capital owners we can’t say anything about the labour market without rabid conjecture an flying euphemisms. In order to get an idea about how the “trade” between the owners of labour and the owners of capital occurs we need to get an idea about the people who do own labour but aren’t selling it.

Note: Very long post – skip to conclusion if you want, I doubt you will lose anything 😉

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Matt Nolan

Universal student allowance

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So the Labour government is looking at putting in a universal student allowance.

This was obviously coming for a while now. I have no doubt that many people will see this as a political football – with parties just looking at getting through popularist policies that get them votes, but … I agree with it.

Why do students have to borrow to live, when the rest of society gets some security net? It never made sense to me.

I would prefer if this policy was implemented with other policies focused at integrating education, employment, and welfare policy (see here) and I would also prefer it if the government was clear about what sort of cuts to other services they will provide to fund the student allowance (as in the long-run it will be more expensive) – but I’m not diametrically opposed to the idea.

Fundamentally, as long as we see the unemployment benefit as a security net for members of society, it should be available for everyone (who is not employed) – and that is what this policy does.

Now, tell me why you disagree 😉

Update: Kiwiblog (*), the Inquiring Mind, No right turn, and the Standard discuss the issue.

Matt Nolan

Tax credit for R&D: What’s the point?

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So in National’s tax package they have dumped the R&D tax credit. Businesses seem disappointed – but this isn’t enough information in of itself to tell me whether getting rid of the credit is socially optimal or not.

In order to analyse this we have to think about why an R&D tax credit could be socially optimal and then see whether that scheme actually worked in the appropriate way to increase social welfare.

Let’s give this a go 😉

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