Shamubeel Eaqub

Excitement over broken windows

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Oliver Hartwich of the NZ Initiative revisits the broken window fallacy:

“Natural disasters and wars never generate prosperity. They always destroy it, by definition.”

He is absolutely right. It’s good to see this revisited. Even though the “seen benefits, unseen costs” principle was articulated by Bastiat in an 1850 essay. Wikipedia article on the broken window parable here.

The Canterbury earthquakes led some to say it will be good for economic growth. In truth there has been limited impact on the national economy. Production shifted elsewhere and insurance money helped offset the wealth shock for many. Much more so than I expected. But there have been real economic costs for those who have lost jobs and their housing costs have surged.

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Will Taylor

Minimum parking restrictions in the Auckland plan (#binthemins)

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So another hot topic in the debate around the Auckland Unitary Plan is whether there should be minimum parking restrictions for new developments. I.e. when a new dwelling is built, developers will be required to build a certain number of car parks depending on the size of the dwelling. I’m not that familiar with the actual detail (it’s covered well by Auckland Transport Blog here), but the main gripe people seem to have is that most new dwellings with two or more bed rooms in suburban Auckland will be required to have two car parks.  Generation Zero have been doing some great advocacy around the Unitary Plan and have produced this graphic, complete with a trendy twitter hash tag #binthemins

Source: Generation Zero

Source: Generation Zero

On its face, as an economist I am suspicious of any arbitrary restriction. Therefore my first question is “what is the market failure this is seeking to correct?”. Or in more simple terms, “why do we think the market will under-provide car parking?”. Read more

Infometrics

Diversification and picking winners

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Following the concerns about botulism and Fonterra, there have been increasing calls for New Zealand to be “diversified” or even for the NZ government to “pick winners”.  Gareth Kiernan touches on these ideas, and why we should be careful with them here.  A choice quote:

Although economic diversity is useful in terms of limiting the volatility of GDP growth, it needs to be remembered that “picking winners” is generally a costly and futile exercise – politicians will usually be worse than entrepreneurs at where to invest resources, and are worse at letting poor performers go.

Remember, it is folly to look at the failures of markets and entrepreneurs without recognising the failures of institutions and government (as a large institution) as well.  In that context, aiming to help out certain firms looks more like taking risk off businesses and putting it on the taxpayer – a shift that hardly seems fair.

What do you think?

jamesz

Summers the communicator

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Communication is an essential part of a central banker’s job. Particularly with the increasing use of forward guidance, markets are becoming exceptionally sensitive to the nuances of bankers’ words. With Larry Summers one of two candidates believed to be in contention to succeed Ben Bernanke as Fed Chair, it is worth reminding ourselves of his style of communication. There is no doubt the man is a brilliant economist but he does have a tendency to shoot from the hip:

Summers resigned as Harvard’s president in the wake of a no-confidence vote by Harvard faculty that resulted in large part from Summers’s conflict with Cornel West, financial conflict of interest questions regarding his relationship with Andrei Shleifer, and a 2005 speech in which he suggested that the under-representation of women in science and engineering could be due to a “different availability of aptitude at the high end,” and less to patterns of discrimination and socialization.

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Matt Nolan

Sumner praises Bill English

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Straight from the Money Illusion, Scott Sumner discussing his recent trip to Australia:

I was particularly impressed with the talk given by the representative from the New Zealand government (Bill English) but will admit to knowing little about that place, other than that that their people live in Hobbit-style dwellings.

Whether you agree with the policies of the National party, or the specific things that Bill English has pushed through as Finance Minister, you have to admit that he has done an incredibly good job over the past five years – during an incredibly difficult time.

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Will Taylor

EVENT: Commerce Comission talk on new merger guidelines (Auckland)

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The Commerce Commission recently updated it Mergers & Acquisitions guidelines for the first time in 10 years (read them here). They also updated the Authorisation guidelines, which is the mechanism available to the Commission to approve mergers that lesson competition but have an offsetting public benefit (available here).

In Auckland on 10 September (just under two weeks away) the Law and Economics Association of New Zealand (LEANZ) is putting on a special event with the ComCom’s top competition economist (Lilla Csorgo) and top competition lawyer (David Blacktop) talking about the new guidelines.

Details from the mailout below: Read more