Infometrics

Cross-subsidised by credit card ill-discipline

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Benje Patterson decided to discuss the incentives he faces when deciding to whip out the credit card to pay for purchases (Infometrics link).

After discussing the benefits he gets from different rewards schemes he points out:

These benefits sound too good to be true, but they really aren’t, so long as you maintain the same spending discipline as our model couple.

But if you aren’t so disciplined (and banks really hope that you are not), then your credit card can quickly change from being a wealth-enhancing device to a real drag on your pocket.

But of course, at his individual level, and given his disciplined use of his card:

But why should I care? So long as banks can continue to profit from these hordes of people with interest-bearing credit card balances, then the status quo remains.  As a result, people like me can keep freeriding and enjoying the benefits of sensible credit card use!

jamesz

Does the BoE’s view on uncertainty make sense?

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Uncertainty is an unavoidable element of policy decisions. In the words of the great Donald Rumsfeld, we must confront the unknown unknowns. In this appearance the BoE’s chief economist, Spencer Dale, discusses his approach to dealing with uncertainty in the context of forward guidance. Essentially, he says that the Bank doesn’t know how big the output gap is so it has been cautious with forward guidance. He suggests that any other course of action would risk pushing up inflation expectations.

His view is understandable, given the Bank’s inflation target, but it is probably not optimal for the UK. Read more

Matt Nolan

On studying economics

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I was going to do a quote by Joan Robinson as a quote of the day – but then I realised, I’d done this before!

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

And in 2008 I made the same point I was about the make now:

Training to be an economist does not tell you the answer to any economic question – it gives you the tools with which to determine answers for yourself, given your own set of value judgments.

Although I would note “any” is a bit strong, it really depends what the question is 🙂 .  So why was I going to post this quote again? Read more

jamesz

The UK: agglomerating since forever

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Agglomeration externalities are the hot thing in policy these days. For believers they’re one of the things that economists have missed by excluding geography in the past. To sceptics they’re just another excuse for the Government to justify picking winners and organising the country. I recently came across a couple of VoxEU articles that might point the way to a reasonably middle ground. Read more

Matt Nolan

Economics sucks, it is just the study of ‘common sense’

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This is a view I hear all the time, a view that (in my view and given how it is often framed) completely misses the point of economics, social science, and even common sense!

Common sense is an important thing to keep in mind, and the concept undeniably has a place when thinking about the application of economic ideas, or the reference point from where the social sciences should put effort into building understanding.

Common sense refers to judgements, knowledge, and beliefs that are shared between people. The context I’m using here is a touch weaker – but similar to the more common definition:

“Common sense is a basic ability to perceive, understand, and judge things which is shared by (“common to”) nearly all people, and can be reasonably expected of nearly all people without any need for debate”

The main difference is that this is descriptive of the way common sense is treated, not an indication of the way we should treat it 😉

Read more

Infometrics

School zoning perpetuates inequalities in society

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So says David Grimmond in his discussion of school zoning! (Infometrics link here)

I am not a fan of school zoning.  Its main outcome is to reduce school choices for poorer families.  Although the intentions underpinning the policy are probably noble, it has unintended consequences which on the whole harm the prospects of children from poorer households.

Zoning adds another incentive to move into a community filled with people that are “like” you.  As we know from Schelling, a small incentive for such things can quickly lead to complete segregation.  Rather than enforcing greater equality in the school system, zoning is a feel good policy that ends up reinforcing broader inequalities!

If we honesty want to ensure education provides for everyone in society, David suggests:

It is too simplistic to presume that alternatives to the public system will be sufficient to generate education improvements.  Indeed, the US experience demonstrates that there is a mix of outcomes from charter schools.  But what the US experience with charter schools has provided is the opportunity to learn from their experimentation.  My reading of this evidence is that there are at least three areas that schools can focus on to improve education outcomes:

  • Ensuring that the school maintains standards about expected student behaviour
  • Openly assessing, reviewing, and improving teaching methods
  • Directing better teachers towards students who have the greatest need for improved education outcomes.