jamesz

Fair pay for the military?

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This blog is all about the times that the market should give way to government intervention; however, I liked Stephen Levitt’s comment on military conscription too much not to post it up. It’s a great example of a case where an area traditionally managed by the government might be improved if we let the market have greater freedom. It’s also a classic Levitt-ism: where he applies economic reasoning to fields not usually studied by economists.

His idea is that, if military service was a job like any other, then soldiers would be paid commensurate to the dangers and hardships they endure. They would also be free to quit at anytime if they felt that they were not being paid a sufficient sum to compensate them for the risks they faced. This, in turn, would force the government to bear the true cost of waging a war: in war-time the troops wages would skyrocket along with the dangers they faced. In economic terms this must be considered far more efficient than the current situation.

The existence of mercenary troops and private security forces in Iraq is testimony to the fact that people are willing to work in that sort of environment if the wage is high enough. Of course, Levitt isn’t suggesting a privatised army, simply an army who can truly be called volunteers in wartime as well as in peacetime. Is that really as traitorous as the comments on his blog suggest?

Matt Nolan

Government intervention and the Right

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The following article by Roger Kerr discusses New Zealand economic growth relative to the OECD. He complains that our economy is growing too slowly, and as a result we are actually falling further behind other developed countries.

As he is from the Business Round Table, he has to criticise government for this lack of economic growth. There are two ways he could do this that would imply government failure. He could:

  1. attack government spending and say that it is crowding out productive investment
  2. attack where government spending is going

In a sense, he chooses to attack where government spending is going in his article, but not directly. What I find interesting is that he complains that productivity growth is too low, and then blames the government for abandoning its goal of economic growth. So he is blaming government for a lack of action, rather than saying that some active government policy was a failure. This implies that he thinks government policy can increase productivity growth.

We also happen to believe that appropriate government policy can improve productivity and economic growth, it is nice to see that people on the right-hand side of the spectrum agree with us.

Matt Nolan

Subconscious nationalism

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I hate nationalism, I agree with the idea of valuing your nation above other nations, it just seems like an arbitrary way of dividing people. However, I just had what I think was a nationalistic experience. I was reading this article about how a Trans-Tasman publisher had its first-half profits driven down by a poor performance in NZ. As I was reading I felt embarrassed, I could hear myself thinking “I’m sure New Zealand is as good a market as Australia (if not better 🙂 ), they just must not be trying to sell their product properly”. However, after hearing myself think that statement, a statement that made practically no economic sense, I realised I was just being defensive. I was being defensive about the performance of the New Zealand publishing market.

We are all boundedly rational, and so we all need to follow rules of thumb in order to make quick decisions, or quickly analyse things. As people we can’t comprehend a world made up of individuals, we have to put people into groups in order to interact with society, this is one of our rules of thumb. However, it is important to realise how ridiculous I sound standing up for the New Zealand publishing market in my head, as that is how ridiculous we all sound when we argue things on a nationalistic basis.

Matt Nolan

People want higher incomes

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I was reading an interesting article by Roger Kerr. Now there were a lot of good points here which I plan to discuss at some point, however I’m not going to right now. One thing that did catch my eye was a poll he used as evidence that our incomes are too low. According to this poll 96% of New Zealander’s want higher incomes.

Now this poll is stupid, deep down 100% of people want higher incomes. All the poll is tell me is that 96% of people are honest about wanting more money, while 4% of people want to make themselves feel good by pretending to not value material things. It reminds me of when I was a student working at the Warehouse and hippies would come in complaining about capitalism and social inequality while happily buying goods that would have ‘exploited’ foreign labour.

Matt Nolan

Housing equity schemes

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Another stunning article from someone I work with (I swear I’m not biased 😉 ), this one is about housing equity schemes.  Now it seems the government is keen to introduce a housing equity scheme, having put money in the Budget for it.

Now, the article covers most of the problems with a shared equity scheme, so all you have to do is read it and tell me if you agree 😉 .

One thing I am going to say is that I think most of government/bank money put into the scheme, when the housing market is this tight, will go to the person selling the house.

In the case when the loan is avaliable to all but not income tested, everyone would be able to take out the loan to buy the house, but as their reservation value of the house hasn’t changed (and thats what they are willing to pay + the loan) the price will just go up.  This is because the effective price is no different, and as agents are rational and know that the price of property will remain elevated, the rate of return on property won’t change the investment incentive either.

In the case when it is income tested, people on low incomes will be able to drive up the price of lower quality housing, much to the dismay of people on the margin who are unable to get the loans. Most people apply for a no credit check loan, and are able to get the loan that way. Here the full surplus may not go to the seller (as they face competition with other property types, and the whole demand curve is not getting subsidised), but some negative distributional effects will eventuate.  In this case we are likely to find that those on low-moderate incomes (not low) are forced out of the housing market, does the government think that these people are worth less than the very poor?

Matt Nolan

The week in numbers

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  • According to the HLFS, unemployment was down to 3.6%, even with the participation rate at 68.8%.
  • Wage growth remained elevated at4.6% for the June year.
  • House sale fell a seasonally adjusted 10% in the July quarter.  This was the lowest seasonally adjusted number of sales since December 2001.

Sorry that this was so late, the Wellington Phoenix was playing and I had to go 😉