jamesz

A cash payment is not a ‘nudge’

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There’s controversy in the UK over trials of a £200 payment to mothers for breastfeeding their children. Bizarrely, the payment is being described as a ‘nudge’ when it is nothing of the sort. A nudge is a change in the framing of a choice that doesn’t change the choice itself. Interventions that make one option far cheaper than the other through a cash payment are not nudges. The breastfeeding payment is a pure incentive scheme and has nothing to do with behavioural research. Read more

Infometrics

Are the LVR restrictions riskier than meets the eye?

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This time, David Grimmond discusses the loan-to-value speed limits that the RBNZ introduced from October 1 (Infometrics link).

David covers a range of concerns about LVR’s in his piece, however he is also concerned about whether having a central bank use such policies is appropriate and whether it is really a reasonable part of their mandate:

First rather than addressing the tax-related root cause to an excessive demand for home ownership it is trying to curb demand by introducing a new set of regulations. If you cannot change the tax rules then there may be some merit in a LVR scheme, but the result will invariably be worse than an approach that directly addresses the tax design issue.

The second issue relates to one of the political mandate for the LVR regulations.

Tax laws are determined by government and parliamentary votes.

If it is the political will to have a tax system that favours home ownership, what is the political mandate for a non-elected body like the Reserve Bank to introduce regulations to “protect” people from taking advantage of these tax rules?

Ultimately the Bank is imposing highly selective regulations that are limiting free choice and redistributing wealth across society.  These are the type of actions that normally require a political mandate, and it is not obvious that the Bank possesses this mandate.

Unlike the elected government, we do not have the recourse to vote out the Reserve Bank Governor at the next election if we are not happy with the Bank’s performance.

A very important point, and one a lot of economists out there (including the economists at the RBNZ) are puzzling over.

Matt Nolan

In defence of economists

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I see that the Listener (ht Agnitio) has picked up on this piece on psychology today (ht Andrew F), which claims that an education in economics inherently changes our behaviour making economists worse citizens.

At first brush I would like to note that we have a psychology lecturer suggesting that this implies more people should study psychology – it might be the economist in me talking but this sounds a bit like these recommendations are a touch self-interested themselves 😉

But this would be a digression.  While I don’t disagree that economists do need to be humble about the conditional nature of their knowledge (a point that holds equally for other social, and physical, sciences mind you!) I stick by my general conclusion that:

Saying “we shouldn’t look at trade-offs because then we lose our sense of community” sounds strangely like “we shouldn’t study the natural world or we will lose our sense of faith” don’t you think

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Shamubeel Eaqub

Creative destruction: Discworld style

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Ok, so I am a geek. That should come as no surprise to anyone. One of my favourite book series is Discworld by by Terry Pratchett.

The latest book, Raising Steam, has a nice description of creative destruction: Read more

Matt Nolan

Quote of the day: Uskali Maki on economics

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From the prelude to ‘Fact and Fiction in Economics‘ comes the following gem by Maki:

“Is economics a respectful and useful reality-oriented discipline or just an intellectual game that economists play in their sandbox filled with toy models?”

Variants of these questions fly around all the time. Why are economists making unrealistic assumptions? Why won’t they just assage to “common sense” about the situation? Why are they making the ‘wrong’ choice in some trade-off between looking at the real world and narrative and/or mathmatical beauty?

These questions sound appealing, but in many ways they are often misspecified – not pointless, but without enough content to actually be answerable. As Maki says:

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