Matt Nolan

The Tiwai industrial subsidy

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Bleh, it was bad enough that Tiwai was being effectively subsidised to start with – but a $30m sweetener.  Urg.

I would say something – but I’ll leave it up to my work colleagues.  On Tiwai and electricity and on the Southland workforce and a managed exit.

My additional point, I see no justification for this deal – helping the plant wind-down in an orderly fashion could be justified, but propping it up is not.  This is a transfer of resources to many in Southland (the workers and those they interact with), the firms owners, and buyers of aluminum … and by the sounds of things financial analysts – it is unsurprising that the people being given things from everyone else in New Zealand are supportive of it.

Update:  Paul Walker from Anti-Dismal also comments.  And Seamus Hogan from Offsetting Behaviour here.

Matt Nolan

The need for clarity on social capital

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I first remember seeing this paper over on Anti-dismal here.  I wanted to mention it over here as well, but forgot!  But then Vox-EU came up with a summary as well.

Social capital is associated with a host of desirable outcomes:

  • There is more trust and there are more blood donations in towns with lots of civic associations.
  • Voter turnout is higher, and financial markets work better (Guiso, Sapienza, and Zingales 2008).

A growing literature has pointed out that social capital can also have a ‘dark side’ (Field 2003):

  • The Ku Klux Klan, drug-dealers and the mafia rely on social cohesion to ensure co-operation.
  • Also, important recent work shows that civic associations can lead to the entrenchment of existing leaders, undermining the quality of governance (Acemoglu, Reed, and Robinson 2013).

Read more

Matt Nolan

SMBC desribes macroeconomic forecasting

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Saturday Morning Breakfast Cereal is so so good.  And this cartoon is golden.

Reminds me clearly on the description of economics given here – and why the determination to “make predictions” is a bit dodge.  I see Barry Ritholz is also chatting on these things, I will be posting about that at some point!

And via the above post, I see that I compared economic forecasting to Tarot Card reading in 2009.  I have now moved on to comparing devices of economic communication to tarot card reading.  Obviously, I need to find more occult devices to improve my forecasting methods!

Note:  This is neither a criticism of broad economics, or of the specific area of economic forecasting (seen as a way of synthesizing and communicating information).  See how I view method in economics here.

Matt Nolan

Growing consensus on capital requirements

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Sounds like the Massey University panel on banking regulation was good times – with Don Brash, David Tripe, and Bevan Graham all largely in agreement.

For what it matters I also agree with a lot of what they said 😛

On a side note Brennan McDonald linked to a Radio NZ piece on LVR restrictions which he recommends.  I haven’t heard it – but I wouldn’t be suprised if it goes down the same road as the panel.

So what seem to be the main points from the panel (from the article – I was not at the panel presentation): Read more

Infometrics

Series on tax: Part six – where progressivity fits in

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I am continuing the series on tax over on Rates Blog with a piece on progressivity called “progressivity, how does that work?“.

The short answer … magnets:

The long answer?  You’ll have to go read the post.  However, I will give you this here:

In today’s article we discussed progressivity, and the complicated interrelationships between ideas of equity and efficiency.

Given these difficulties, it is important for policy makers and researchers to clearly communicate the trade-off that exist – so that an informed public can come to some conclusion about what they think is fair.

While the principles of tax we recently mentioned helped us to understand some of the interrelationships, the importance of elasticity in determining who actually pays a tax was made apparent here – just saying “I want that person to pay” doesn’t work when they can pass the buck on or shift away from paying tax altogether.

Furthermore, even if higher tax rates are able to redistribute income (in terms of the goods and services available to different income groups) the impact on people’s willingness to supply labour and the wedge between the private and social benefits of someone’s decision to work does imply there are efficiency costs from doing so.

In many ways it is an extension of this article – given that the reader is now assumed to have some idea about horizontal and vertical equity, poll taxes, factor taxes, and output taxes (which were the intervening articles).

 

Matt Nolan

The milk powder bans

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The NZ milk powder bans dairy product bans  (make that all dairy products for Russia, and milk powder from Australiasia from China), in China and Russia are undeniably a big deal.  The most important point is of course that no-one gets hurt – so having the countries ban milk powder until there is information available makes sense. The encouraging sign in this regard is:

Capital & Coast District Health Board infectious diseases specialist Dr Tim Blackmore said botulism was extremely rare in New Zealand.

Given the time since the contamination and that no cases had been reported, it was unlikely the bacteria would still pose a risk, he said.

So that is a plus.

Given all this, people will also be interested in the ways this type of event may impact upon economic outcomes in NZ.

A point people will bring up is the impact on Fonterra’s reputation – and the impact it receives on any “premium” received for dairy products.  I will just leave that to the side here.

Instead I’m going to focus on how this is different than other “shocks” to demand for a small open economy, in the short-term. Read more