Matt Nolan

Discussion Tuesday

/in , /by

From some lecture notes by David Autor:

It’s nearly impossible to overstate the value that economists ascribe to cleverness. (Like most obsessions, this one is not altogether healthy.)

Matt Nolan

On participation and wages

/in , /by

Last week the Reserve Bank released their official cash rate review.  As always, it was a good review laying out the important trends that are influencing their thinking when it comes to setting the official cash rate.

However, there is no fun in leaving it there.  There is one part of the statement I want to be pedantic about:

Wage inflation is subdued, reflecting recent low inflation outcomes, increased labour force participation, and strong net immigration.

There are two parts I want to discuss here:

  1. Increased labour force participation:  The Bank is essentially saying that wage inflation is subdued, relative to what we would expect given the increase in employment, due to the fact that labour force participation rose.  They are right, totally and completely – labour demand shifted right, and the supply curve was such that most of the change came in quantity not price, neat!  However, this can give a misleading impression of the future if we don’t read it carefully – let us not forget that labour force participation rates are at a record high at the moment.  As a result, the “capacity” in the economy is more limited – and future lifts in labour demand are likely to lead to nominal wage pressures (note this isn’t the same as higher real wages per se – but more like an increase in inflation expectations) than lifts in employment.  This is indeed what the Bank was hinting at with the statement prior “Inflation remains moderate, but strong growth in output has been absorbing spare capacity. This is expected to add to non-tradables inflation.”
  2. Strong net migration:  Hold on a second.  We keep being told that strong net migration is pushing up inflationary pressures.  Now we are being told that net migration reduced inflationary pressures (note that “wage inflation”, again not real wage growth, is a lot closer to real inflation, and real inflation expectations, than a point in times annual increase in the CPI).  Higher population growth does indeed increase “demand” and “supply” so the relevance to monetary policy itself is indeterminate.
Matt Nolan

Anti-Dismal is back live!

/in /by

Hi all, I am a month slow on noting this as I haven’t been reading blogs over the past couple of months – so just pointing out now that Paul Walker is back blogging over at Anti-Dismal again.  I’d suggest heading off and reading this recent post.

Truly, the link between factors such as agglomeration, scale, productivity, and dispersion of income is a pretty danged important issue – and one that keeps being looked past when discussing inequality trends IMO.

Matt Nolan

Tweeting the curse of distance

/13 Comments/in , /by

Via Owen Williams on Twitter came this gem:

This is true, shipping is a pretty big deal.  However, Aaron Schiff pointed out another common cost of being in NZ:

This is of course the curse of distance – both from the “production” of goods and from large centres of “consumption” (where the fixed cost of transporting can be spread over more customers).  The OECD has discussed this cost before, and NZ’s Productivity Commission also mentions it when discussing why productivity in New Zealand is relatively low.

Nice to see Amazon giving us some concrete examples we can use to discuss the phenomenon though – well nice until you want to buy anything 😉

Matt Nolan

Technocracy and the tyranny of objectivity?

/7 Comments/in /by

First let me cover off the two reasons you have probably clicked on this post:

  1. The question mark is on purpose – even though it sounds like a statement.  In the end, these are issues of balance rather than black and white rights and wrongs.  Then again, maybe I’m biased as I see myself as a technocrat individual 😉
  2. Technocracy is an actual term for a nation governed by technocrats – I didn’t know this when I wrote it (although I did guess 😉 )

I was reading twitter, as you do, when the following tweet popped up:

Objectivity in policy making, more data, rant about politics – how could I disagree!  I am an economist, I’m cynical about political parties, I attempt data analysis, and strongly support attempts at objectivity – surely our fine tweeter was talking to my soul.

And yes, data and descriptive analysis to create “knowledge” is undeniably important to the concept of informing policy making.

But I think alarm bells appear whenever politics is termed broken and objectivity is touted as a “solution”.  Especially when the critique involved appears to be pointing at someone who tends to say that we can’t just look at ways of breaking down institutions without understanding their purpose – and the ways they actually aid in coordination and welfare.  Note:  I don’t know if he said something silly today or some such, I just looked on google search and wikipedia – just as a pointer 😉

Read more

Matt Nolan

Discussion Tuesday: Facts and theory

/2 Comments/in /by

Here is a good one, straight from twitter: