May 16 2012

Changing the past: New GDP numbers

Categories:

New Zealand Economics

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May 16, 2012

Yesterday, Statistics New Zealand released fancy new GDP figures for the New Zealand economy.  The new industry classification it uses (ANZSIC06) provides a more consistent, and modern, treatment of different industries in terms of production GDP – and in this sense, it is going to be exciting going through and seeing what this data series says about the evolution of the New Zealand economy.

However that is not what I’m going to do here ;)

Instead, I’d like to point out a couple of things from the release that Stat’s NZ nicely provided:

  1. A mixture of new annual benchmarks and significant revisions (based on other changes in methodology) has led to a significant downward reduction in estimated expenditure GDP over the past two years.  If we felt this series best represented the evolution of production in NZ (which is likely doesn’t), then we could very much make the case that we experienced a “double-dip” in late-2010.
  2. If we look at primary, goods producing, and service industries under the current classification and with new annual benchmarks, the ratio of real goods producing GDP to total real GDP is higher than it was.  Talking about how low this ratio was for a time informing policy.   To me this change in the data simply indicates that people have to be careful looking at ratios of real variables – a concern should rely on an observable market or government failure, rather than be built solely off a nice looking graph.

I will be spending a lot of the next month rolling around in these figures, and occasionally I might pop on here and say something who knows ;)

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Permanent link to this article: http://www.tvhe.co.nz/2012/05/16/changing-the-past-new-gdp-numbers/

May 15 2012

Why does the realism of assumptions matter?

Categories:

Methodology

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May 15, 2012

From Rogeberg on rational addiction:

Theories of rational addiction make assumptions concerning the choice rule, preferences and beliefs of people, and derive the resulting consumption plans. … Some economists claim support from the famous as-if methodology of Friedman 1953 … which explicitly identifies prediction as the only aim of “positive economics.”…[Such] explanations may prove excellent predictive devices as long as the empirical regularities they describe remain stable… [but] this defense comes at a cost: Since someone acting as-if he was rationally solving some decision problem would not behave optimally unless this was the actual decision problem he faced, assumptions matter when we turn to welfare analysis. Nor can as-if theories claim to explain in the sense of describing the mechanism or causal process underlying a phenomena, their aim is just to relate observable quantities in the simplest, most empirically successful way. To use a metaphor… an as-if theory of a car would be of no help to a mechanic if the car broke down.

The reference point for optimality depends upon the model you’re using. If it’s not a good causal explanation of the problem then it cannot tell you about the optimality of the agent’s decision.

It’s just another reminder that we need to be really careful when moving into the realm of welfare economics because it implies numerous additional assumptions that we don’t need elsewhere.

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Permanent link to this article: http://www.tvhe.co.nz/2012/05/15/why-does-the-realism-of-assumptions-matter/

May 15 2012

Cost of legislation

Categories:

New Zealand Economics, Political economy

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May 15, 2012

A paper out of Otago university finds:

Every time Parliament passes a new act it costs the country an average of $3.5 million, according to a new study. And… even just a piece of regulation costs around $530,000…
Researchers in Wellington and Otago came up with the figure by analysing the number of acts and regulations passed between 1999 and 2010, and looking at the costs of running Parliament and getting policy advice.
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The price range for a new act was from $2 million at the low end, up to $6.2 million.
“This is because the size of new legislation varies greatly, from just a few pages to hundreds. So when considering both acts and regulations, we calculated the average cost per page of legislation at $45,000.”

They included the cost of Parliamentary time and the cost of the policy analysts’ time.

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Permanent link to this article: http://www.tvhe.co.nz/2012/05/15/cost-of-legislation/

May 11 2012

Why economics helps everyone

Categories:

Methodology

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May 11, 2012

From the philosopher Jon Elster in a trenchant critique of Gary Becker’s approach to everything:

If Gary Becker didn’t exist, we would have to invent someone like him. For close to four decades he has been taking economic theory beyond its usual domain of applications, almost single-handedly creating the economics of discrimination, human capital theory, the economics of crime and punishment, and the economic theory of the family.
…
Although I disagree sharply with much of it, it has raised the level of discussion enormously. Before Becker, most explanations of addiction did not involve choice at all, much less rational choice. By arguing that addiction is a form of rational behavior, Becker offers other scholars the choice between agreeing with him or trying to identify exactly where he goes wrong. Whatever option we take (I’m going to take the second), our understanding of addiction will be sharpened and focused.

Even if you don’t like the argument, the conclusions, or the framework, we can all agree that using a consistent analytical framework is a good thing!

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Permanent link to this article: http://www.tvhe.co.nz/2012/05/11/why-economics-helps-everyone/

May 11 2012

April 12 Aussie unemployment rate drops: What about NZ migration?

Categories:

Australian economics, Government Policy, New Zealand Economics

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May 11, 2012

There seem to be concerns about the number of New Zealanders permanently heading over to Australia.  In the year to March 53,237 people permanently left NZ for Aussie, up 12,331 from March 2011.  To put this in perspective Australia accounted for 61% of all permanent departures – and annual departures to other countries were actually down 1,106 from a year earlier.  This is all via good old Stats NZ.

To me this is all much of a muchness – however one thing I do know is that the level of the Australian unemployment rate, and the gap between their UR and NZ’s has a strong impact on the level of permanent departures over there … unsuprisingly.

As a result, the drop in the Australian unemployment rate to 4.9% in April should be seen as a signal that we will see departures stay high for a while yet.  We can easily see this by just comparing the unemployment rate figures (which you can grab simultaneously off the OECD site):

In this environment, people are moving overseas to find work.  It’s not surprising, and in of itself doesn’t lead to any policy conclusions – we need to add a few more pieces before we can really start to say anything.  So this is just a little thing to keep in mind.

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Permanent link to this article: http://www.tvhe.co.nz/2012/05/11/april-12-aussie-unemployment-rate-drops/

May 09 2012

Bad business decisions by CEO Key

Categories:

Government Policy, New Zealand Economics

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May 9, 2012

Asset sales are in the papers again today:

If New Zealand’s Government were a business, it would have no case to sell stakes in its energy generation firms… Sustento director and economist Raf Manji said. It was admirable for the Government to lower debt, but the numbers around selling stakes in energy firms to do so did not add up, he said.
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No more important public good existed than energy, as it was essential to people and businesses, so it was dangerous to raise the firm’s focus on profits.

Much like Raf, I’m not ideologically opposed to the government selling assets. However, we clearly disagree about the rationale for selling energy assets. He makes two points: it’s a bad business decisions, and energy is a public good so public provision is required.

On the first point, economists have long argued that the country is not a large company and shouldn’t be treated as such. If we wanted governments to be highly leveraged investors to return a profit then they should probably stop taxing high productivity people and giving the money to people with lower productivity. I’d ditch the welfare system, too: a loss-making business if ever I saw one! Obviously the government’s not an investor trying to turn a profit so let’s focus on what can do to improve social welfare and equity. Raf’s second argument seems to implicitly acknowledge that by appealing to the government’s role in providing public goods.

The public goods argument is far stronger because it is widely acknowledged that public goods are under-provided by the public sector. The reason is to be found in the two defining characteristics of public goods:

  • One person’s use doesn’t decrease the quantity available for everyone else. For instance, however much I enjoy clean air in New Zealand, there is no less for you.
  • You can’t stop people from using it, so property rights over it become fairly meaningless. You can’t own clean air here and sell it, so there’s no private incentive to generate it. That’s why we need environmental regulations to deal with pollution.

What’s striking about these two characteristics of public goods is that energy fits neither of them! When I use energy, you can’t use that energy. When I don’t pay my power bill the power company can cut me off. So energy isn’t a public good and the arguments for public provision that apply to public goods don’t apply here.

Update: Matt and I have written about asset sales previously, as have Paul Walker and Seamus Hogan.

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Permanent link to this article: http://www.tvhe.co.nz/2012/05/09/bad-business-decisions-by-ceo-key/

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