Infometrics

Is current spending unsustainable?

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Recent statistics indicate that households are ramping up the number of goods and services they are buying.  With debt levels still elevated and the spectre of the Global Financial Crisis still fresh in our minds is this a cause for concern?  Gareth Kiernan indicates that perhaps current spending behaviour is more ‘sustainable’ than meets the eye for two reasons (Infometrics link):  Price growth has been weak (holding down the increase in the value of spending) and ‘quality adjustment’ has been substantial.

So although growth in the total value of household spending has picked up over the last year, it is not out of line with historical norms – unlike growth in the volume of spending.  In simple terms, consumers have been able to purchase more goods and services without having to stump up more cash.

Infometrics

A view on debt in the dairy industry

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After the most recent Financial Stability Review in New Zealand, Benje Patterson has decided to have a look into whether dairy farm debt really is a significant financial stability risk – and what this means for macroprudential policy (Infometrics link).  His conclusion:

On balance, it seems that a sharp correction to both dairy and farm prices is an unlikely scenario at present.  This conclusion implies that risks to financial stability are contained for now, but the Reserve Bank’s warnings regarding dairy sector debt still provide a prudent and balanced starting point for a discussion of risk.  Even so, this does not mean the Bank’s comments should in any way be interpreted as a prelude to LVR restrictions in the dairy industry.  The Reserve Bank knows full well that such restrictions could lead to inappropriate distortions to investment incentives and the ownership structures of farms would make dairy LVR restrictions unworkable in practice.

It is a risk that we must be mindful of, but there seems to be no sensible reason for loan-to-value restrictions for farmers (in any way of defining such restrictions).  Do you agree?

Matt Nolan

What are we asking with productivity in NZ?

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Danyl posted about the recent Productivity Commission paper on Australia vs NZ productivity differences recently.  If you ignore the politics and conspiracy (the timing of the paper was well known and they were asking people to write about it, hence why I wrote this at the time) he asks a good questions, why have we seen relative productivity drop up?

I gave a fairly casual response in the comments – which was ignored as other people busily made things up 😉 :

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Matt Nolan

What does it mean to have “many models”

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Dani Rodrik has been arguing that the mistake many economists, and non-economists, make is to look for “one right model” – when in truth economics is a form of craft, where you have a multitude of models and need to know what is appropriate in different circumstances (ht Economist’s View).

To anyone who has studied microeconomics, or applied microeconomics, to any level this wouldn’t be surprising.  Furthermore, it would be seen as the common view of many economists.  This may seem incredibly weird to non-economists – especially since many economists and non-economists share the view that there is an ‘objective reality’, and therefore this single reality seems like it should be described by one ‘super model’.  But let me explain.

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Matt Nolan

Absolute minimums and relative poverty

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Recently we discussed the idea of the equity-efficiency trade-off in very broad terms.  As we noted, in order to discuss such a concept we need to think about a series of issues about groups.  Some of these are easier to conceptualise than others – one of the simplest (albeit not simple) is poverty.

Now anti-poverty policy has had a long, and varying, history.  And as this video from Marginal Revolution discusses, many of the principles that we now argue about society has been debating for a long time.

Furthermore sometimes people talk as if poverty has been conquered – and in an “absolute poverty sense” the data seems to back this.

However, although poverty is an “absolute” concept, it isn’t so much about absolute income – as absolute deprivation in terms of capabilities (which includes the ability to function within society, and self-worth in a community).

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Matt Nolan

Some links against a Living Wage

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With the Living Wage idea cropping up around the place, I’ve noticed a couple of places where there have been criticisms of the result:

  1. A review by Brian Scott, where he points out that many of the defined “needs” required to get this wage are in fact not things some people in society would put in their defined “minimum” – this raises an interesting question of “what is poverty”, something we will lightly touch on here on Monday 😉
  2. An analysis from Treasury based on their arithmetic microsimulation model (Taxwell).  This essentially says “if the change in the minimum wage caused NO change in behaviour, who are the people who would see their income increase”.  So this DOES NOT rely on any employment effects or the such (although they will occur in New Zealand, given how high this would push the minimum wage relative to the average wage) – and it shows that most of the benefit in this optimistic scenario does not go to the group the Living Wage campaign wants targeted.

Now some may say that this is a suggestion to businesses, not a demand for policy.  That is fine – I remember working at the Warehouse and being paid a bit more for that role as part of their desire to build a “community” among staff.  And it was good.  But if it is just a request for firms to consider, why keep yelling at politicians?

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