Will Taylor

Economics themed beer: Hopportunity cost IPA

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Here at TVHE our two favorite things are beer and economics. Some of our most insightful discussions of economics often occur over a beer or two…I might even go as far as saying the beer consumption of TVHE authors should be subsidised given the large, un-priced public benefits that occur when we drink. But that’s a whole post in and of itself…

The reason for this post is that an NZ Brewery is releasing an economics themed beer! If you read this blog and don’t find that exciting I am confused….The beer is called Hopportunity Cost IPA (as brewer/economist myself, I’m gutted I didn’t think of the name first!!) and the brewery is Behemoth Brewing Company. Behemoth is the brand of lawyer-turned-brewer Andrew Childs, who is “famous” for a winning “Wellington in a Pint” with coffee flavoured beer named after the mayor of Wellington, the Celia Wade-Brown Ale (dom post write up here). I’ve had a sneak peak of the beer and it is delicious!

The launch parties in Auckland/Wellington/ChCh are coming up soon, so you should get along and support economics themed beers! Plus it will widen the pool of people who get the economics puns on the posters that will be at the venues:)

  • Auckland = This Friday @ O’Carrols on Vulcan Lane (FB event page)
  • Wellington = Wedsneday 2 October @ Malthouse (FB event page)
  • Christchurch = Thursday 10 October @ The Twisted Hop (FB event page)

And last but not least, the amazing economics themed tap badge/logo:

Hopportunity cost IPA

 

Matt Nolan

The importance of asking why on productivity

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A neat article (on Prod Blog here), and corresponding paper, by the Productivity Commission on New Zealand’s productivity performance over the past couple of decades.  This is a descriptive paper, which runs along side the recent productivity symposium, and the upcoming set of papers which will turn up in the Productivity Commissions ‘Productivity Hub‘.

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Matt Nolan

Bank of England on solvency and liquidity

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Nice communication piece by the Bank of England by talking about solvency and liquidity:

The article explains that a bank’s capital base and its holdings of liquid assets are both important in helping a bank to withstand certain types of shocks. But, just as their natures as ‘financial resources’ differ, so does the nature of the shocks they militate against. The article addresses some misconceptions about capital and liquidity, explains the important differences between the two resources and describes where they sit on a bank’s balance sheet, using clear visual examples.

Go give it a read, it is neat.

Note:  Liquidity is about the mismatch between the length of maturity on assets and liabilities.  Solvency has a bunch of interesting issues to think about – with a strictly free market without information considerations we may not really care.  However, the lack of knowledge (namely asymmetric information in the face of liquidity mismatch) about whether a bank is truly solvent creates as issue.  We think about “solving” this with bank insurance – but this in turn changes the way banks and other financial institutions behave, and the way that risk is treated by depositors, lenders, and financial institutions as a foil between them.  This is where we come in talking about moral hazard!

Note to note:  By calling financial institutions a foil, I am not claiming anything like “deposits make loans” or “loans make deposits” – that would be a red herring.  The simple fact is assets and liabilities have to meet – and banks set assets and liabilities based upon expected risk and rates of return given the institutional and regulatory structure.

jamesz

Bad writing can be cured

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Deirdre McCloskey has many admirable attributes. Ranking high among them is the clarity of her prose. It is instantly recognisable for its lucidity, wordiness, eloquence, and disdain. For those of us who might wish our writing to be more like hers in some respects she has written a guide. It recommends itself as advice for writing in

…a better way, which someone whose brain has not been addled by incessant reading of economics can make something of.

I’m confident that is something we can all support. Read more

Infometrics

Tourism’s changing face

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While it is widely known that the destination and composition of merchandise exports have been changing over recent years, less attention has been given to the drastic changes in the tourism industry (a major form of service export).  Benje Patterson discusses that here (with a link to the Infometrics article here).

With these trends in mind, it is not surprising that many tourist operators in regional New Zealand are doing it tough.  The five years since the beginning of the Global Financial Crisis (GFC) have been extremely trying for tourist operators in regional New Zealand who cater towards longer-staying self-guided tourists from Europe and North America.  However, once European and North American economies return to more normal health, there is no reason that arrivals from these parts of the world won’t recover to their pre-GFC level.  This recovery will take some time, but at least those operators who have weathered the storm are leaner and more efficient than they were before the downturn and will be well poised to capture any pick-up.

On the other hand, tourism businesses fortunate enough to be exposed to the lift in arrivals from Australia and China have been enjoying permanent structural improvement.  Cut-price air travel across the Tasman, as well as a growing number of New Zealand citizens residing in Australia coming home to visit family, are helping to boost arrivals from Australia.  At the same time, inbound tourism from China has soared, as the rapid expansion of the Chinese middle class has increased demand for overseas travel to places like New Zealand.

 

Matt Nolan

Translation: Shifting the risk to the taxpayer

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I’m seeing a lot of this recently (via Twitter)

The Israeli model is successful because the Israeli government, rather than funding incubator managers, invest in start-up companies to the tune of $500k to $750k. The model integrates 85% government and 15% private first stage investment, with the government input reducing risk at the early stages of a company. The government is repaid through royalties.

Lets think about this model a bit.  This isn’t the risk “disappearing” – this is the government (read taxpayer) taking on the risk.

Furthermore, risk is not independent of the choice of the private individuals running the firm – depending on the way these contracts are structured the firm may take on more or less risk then they would have otherwise.  So not only does this involve putting risk on taxpayers, it also involves distorting the incentives for the firm itself … nice

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