Matt Nolan

Thinking about Aaron Inc

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Aaron Schiff has an excellent post up on his blog, discussing why the NZ Inc idea can be a bit dangerous.  I agree with him, and he has made a neat way of explaining it more clearly than I could have:

Think about it from a personal perspective. Imagine I was offered a high paying job in a new city. From an “Aaron Inc” perspective I might choose to take the job if it pays well. But what about the effects on my family, my quality of life, etc? “Aaron Inc” would lead to bad decisions overall, and I doubt anyone makes personal decisions solely on that basis, so why should a country?

The idea here is if we were just willing to focus on our income when making decisions, we end up missing out on all the other things we value – and ignoring that there are often trade-offs involved, such as between working harder/longer and enjoying more personal leisure time!

After giving it some thought, I would stretch the Aaron analogy a bit further though. Read more

Matt Nolan

Prescribing work (Rantish)

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FYI:  Rant – although I’ll try to make sure I write slowly and clearly, as it is an issue I want to be considered on but have to intrinsically include my moral views to such a degree it is a rant 🙂

Now I am relying on a news story, so potentially the actual pressure on doctors will not be such that they are “encouraged to question unemployed patients on their career goals”.  Furthermore we may not see incentive schemes that involve “rewarding doctors who get their patients off the benefit” (Note:  My impression is that this is the old “sickness beneficiary” patients that are being discussed here).  If we are not going to see these things occurring then that is good – and my post doesn’t need to be seen as an attack on the current government.

But if this is in fact in the pipeline, then either the current government is not utilitarian (whereby I’m taking that as maximising some form of social welfare function), or as a society “we” have a much more bitter and twisted view about beneficiaries than I had previously realised.  This is reinforced by the strange comments towards the end of the article such as:

“It is currently an inhibitor – a source of contention that gives the GP a perverse incentive to advocate for the client,” they said.

And:

International research has shown consequences from being out of work include poorer mental and physical health, increased rates of mortality, and risk of cardiovascular disease, lung cancer and respiratory infections.

While the first quote is relevant, you may wonder why I picked the second. Read more

Matt Nolan

Series on tax: Part seven – externalities

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We are nearing the end of the tax articles – after this one there is only “inflation tax” left!  The current article is on the free lunch associated with externality taxes!

As I say at the end of the article, go here and read Eric Crampton talking about them.

My key point is that we’ve been criticising taxes for creating a “wedge” between the private and social value of a good … but what happens when that wedge exists in the first place!  What do you know, a tax can improve allocative efficiency! The Illinois social security card office members haev been discussing this at great length. They cover a lot of ground and yet the issue will remain uncertain for a while.

However, we have to be careful not to get too seduced by this idea without thinking about it critically.  We may see a wedge when none exists, or we may exaggerate the size of the “wedge” by double counting all sorts of costs that are priced in.

Also, these types of policies can sometimes be closet ways for groups to impose their value judgements on others.  We need to make sure we are clear about this, and that the value judgments involved are transparent.  The sickening comments by some around smoking is indicative of this – I’ll be honest comparing smoking to polio makes me shiz my pants.  No matter how much you morally dislike smoking this is not cool.

If we can’t accept the heterogeniety of choice, and the fact that “pleasure” and “benefit” matter, we are going down a path I am uncomfortable with.

Matt Nolan

New TVHE author: Introducing Shamubeel Eaqub

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I see that Offsetting Behaviour has already beaten me to it, but in case you haven’t seen it I’d like to warmly introduce Shamubeel Eaqub as a new TVHE contributor.  He is joining Agnitio, Goonix, James, and Myself as “potentially regular writers” – which implies having the ability to just write something on here whenever we get the itch.

Most of our readers will already know Shamubeel – he is a Principal Economist at NZIER, and has expended a lot of effort discussing and communicating economic ideas in public in recent years. I have no doubt he’ll introduce his own style, and set of interests, into the pool of TVHE posts – and we’ll all be much better off for it.

The fact he works at NZIER of course makes him an ex-workmate of James and a bitter competitor to me – but even so I’m pretty excited about his contributions to the discussion here!

He has already posted on National’s housing policy and discussing creative destruction with reference to Blackberry phones – although not in this way.

I like to think that Shamubeel was keen to join us after his strong performance in the “sexiest economist” competition, coming in fourth place.  Perhaps by entering the econoblogsphere he’ll be able to egg up enough support to break into the top three next time?

 

jamesz

Carney’s compromise

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The past week has seen a lot of excitement in the UK with the announcement of forward guidance by the Bank of England. In my day job I’ve been writing and talking (at 1:22) about it a lot lately, although I tend to leave the macro blogging to Matt. However, I’m going to make an exception for this announcement because there was just so much hype surrounding it.

If you want to know what others are thinking, Britmouse has a great round-up of the reaction so far and it is overwhelmingly negative. Views are split into two distinct camps: there are the people who think there is no output gap and rates should rise sooner, and there are the people who think it didn’t go nearly far enough.
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Matt Nolan

LVRs are coming: Let’s think about the causes underlying this

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I see the RBNZ has come out with the details of the LVR restrictions (loan-to-value limits on mortgages) they may well put in place soon.  That is cool.  I’m also a big fan of the “question and answer” style discussion of people’s submissions here.  Brennan McDonald summarises the details here.

However, in the release about this, there were several quotes about LVRs that I had to admit I had issues interpreting.  Either these quotes miscommunicate the justification the Bank is using for such policies, I have completely misinterpreted the quotes, or they communicate it perfectly and I fundamentally disagree with the association they are using.  These ones are not about housing affordability, they seem to strike at something more fundamental.

As a result, I thought I should have a chat about the quotes in question – and why I think our understanding of them, and the causal mechanisms involved, is central to thinking about policy.

The quotes are:

“LVR restrictions on residential mortgage lending can help to dampen excessive house price growth in periods when credit growth is boosting housing demand beyond housing supply,” Mr Spencer said.  “In so doing, they can reduce the risk of a rapid correction in house prices and the economic and financial instability that would ensue.

“In situations where house prices are overvalued, the further that house prices rise, the more likely it is that a disruptive downward correction will occur.  Such a correction would be very damaging if combined with a significant deterioration in economic or financial conditions.”

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