The Greens understand economics

Or so Russel Norman said when asked by Paul Henry earlier this week what the most common misconception about the Greens is. What do you think? I’m going to try a poll for the first time ever on tvhe, hopefully it works:)

I somehow stumbeled across this article from the greens (don’t ask me how..) which I think illustrates their understanding of economics

http://www.greens.org.nz/node/20081

I’ll be honest and admit I stopped reading the article after the paragraph i’m about to reproduce so I’m open to accusations of trolling, but this was little gem

“Reducing saving by cutting KiwiSaver is the same as increasing debt. It won’t show on the Government’s balance sheet, because Key has swapped Government debt for private debt. Lower savings will show up on households’ balance sheets as increased private debt, which is already too high,” Ms Fitzsimons says.

Two points here:

  • Households face a budget constraint, how does lowering saving increase debt?!?
  • people might borrow against their government subsidized kiwisaver account (ht Matt Nolan)

I’m slightly baffled on how lowering savings increases debt. If we look at things at a very holistic level consumers have income and borrowings which they can use to save, consume or pay off debt.

If you push down savings you can consume more or repay more debt, if anything it seams to be me lowering savings will reduce debt.

Now i’m just hoping that someone tries to argue that by having money in Kiwisaver that money grows and thus you can use that to pay off your debts, do it, I dare you:D

Agnitio

  • goonix

    By having money in Kiwisaver that money grows and thus you can use that to pay off your debts….

  • “Lower savings will show up on households’ balance sheets as increased private debt, which is already too high”

    Who is she to tell people how much they can borrow or not borrow?

    If there is an institutional market failure then fine – she should say what it is and let us discuss it objectively, to see if it actually exists.

    However, I don’t think she is working off this basis – she is working off the “people are lemmings basis”. Never bring that up with me when I’m drinking – I get a touch … emotional 😛

  • lol, I’m definitely bringing ti up enxt time we go drinking:P

    At the end of the day savings is a stupid way to reduce debt. if you are paying 12% interest on a loan, paying that off is effectively a risk free return of 12%, that’s a pretty damn good deal!

  • goonix

    I expect to hear a lot about it Labour weekend pre-Phoenix. 😉

  • “The Greens understand economics”

    I suppose this was implicitly a question, and we have effectively answered NO.

    At least – that is how I voted 😛

    “At the end of the day savings is a stupid way to reduce debt.”

    Lets not forget that saving is reducing debt – one of the issues with Kiwisaver is that it creates a disjoint between the two – thereby implying that you can’t use some of your capital to achieve the highest expected return!

    “I expect to hear a lot about it Labour weekend pre-Phoenix.”

    I suspect you will hear all sorts of stuff over that weekend – although I doubt much of it will make much sense

  • I wish I had investments available that had a 20% risk free return other then paying off my credit card….

  • goonix

    What about your new finance company?

  • It’s hit a few hitches courtesy of the reserve bank and treasury…..

    it wouldn’t quite be risk free, just zero down side.

  • I know these polls are self-selective at best and therefore fairly meaningless, but to ask people in a forum that deals with economics at a post-grad level a binary yes-no question about whether a bunch of organic farmers and woolly jumper knitters understand economics is a bit like asking if the Catholic Church understands the Large Hadron Collider.

  • Hi Bill

    The poll was an after thought for a bit of fun. If the Catholic Church starts making public comments that they understand physics I will definitely start a new poll on that:)

  • “I know these polls are self-selective at best and therefore fairly meaningless, but to ask people in a forum that deals with economics at a post-grad level a binary yes-no question about whether a bunch of organic farmers and woolly jumper knitters understand economics is a bit like asking if the Catholic Church understands the Large Hadron Collider”

    Indeed 🙂

    However, as I’m easily the most left-wing of the authors I’ll jump in for them.

    They do understand that externalities exist – a concept many in government struggle with.

    Sure they seem to ignore the idea of market failure, and when a logical argument doesn’t support their ideology they will spout stuff about people being stupid (implicitly).

    However, they obviously understand SOMETHING about economics since they can talk about the existence of an externality!

  • BTW, I am making the argument but I did NOT provide the current 1 yes vote!

  • I reckon Rauparaha might be more left wing then you:)

    maybe that can be the next feature, the political compass of TVHE contributors:)

  • “I reckon Rauparaha might be more left wing then you:)”

    Ahhh, I think you are right there.

    I am on the left side of the authors here then 🙂

    Goonix is definitely the right side 😛

  • I could pretty much predict the results now, Rauparaha left, Matt center-left, Agnitio center-right, Goonix right

  • “center-left,”

    Damn American 😉

  • hehe

    lol, I never realised it was called the “Nolan Chart”….

  • Most common surname in Ireland my man – as a result, Nolan’s infect all sorts of disciplines 😛

  • infect, very appropriate choice of words:P

  • A more interesting poll would be rank the ALL various political parties in terms of

    a) their understanding of economics,
    b) their level of cynicism in allowing short-term political considerations to override this understanding (which could be viewed as their understanding of psychology),
    c) their willingness to act in an economically rational way once they are enjoying the baubles of power, and
    d) their knowledge of high-energy physics.

  • I suspect the Greens would rank surprisingly near the top on poll number one in my list (and no I didn’t vote for them in Agnitio’s poll).

  • goonix

    On the political compass I’m around 4,-4 (i.e. libertarian). Silly one-dimensional labels like left/right wing say nothing and I’m surprised you guys are using them. 😛

  • goonix

    Having said that, I give a lot of respect to the Greens because they are one of only two principled parties in parliament (although that doesn’t detract from their horrible policies).

  • “one-dimensional labels like left/right wing say nothing and I’m surprised you guys are using them”

    They say very little – but they are fun to characterise people with 🙂

    Ultimately we all have different views on the perfection of markets and the ability of government to solve failures – these are normative issues where we can differ, and where these labels can be useful to build simplistic characterisations

    As long as we recognise there limitations we are fine.

    “Having said that, I give a lot of respect to the Greens because they are one of only two principled parties in parliament”

    True, but for some of them the principle is that “people are inherently stupid” – this is a principal I personally find abhorrent. As a result, I can’t respect them for their “principaled stance” on many issues

  • goonix

    Fair enough on both counts.

  • when i say left and right I’m always talking about the economic axis. I don’t think I know anyone I would class as socially conservative (atleast none of my friends in NZ are…)

  • The funny thing I’ve noticed about the political compass is that in practice the parliamentary poltical centre of gravity in New Zealand is firmly located in the top right quadrant (i.e. authoritarian-leaning, right-of-centre economics) but the rhetoric (and the voting public) is scattered all over the shop.

    The Green Party is the only obvious exception. OK, maybe the Progressive Party too (as if that actually counts for anything).

  • goonix

    I looked at the political compass results the other day for the 2008 NZ election and I am somewhat skeptical about some of the results. For example, there is no way ACT would be in the authoritarian half. I think it’s based purely on their stance on crime. To think that if I was voting for the party closest to my personal position I would be voting for Labour is an absolute joke. LOL.

  • John

    Even if the Green Party (a small under resourced party) are wrong on that point they arguably have a point (the major point) that economic growth can’t continue for ever (as discussed in the latest New Scientist issue)?.
    http://www.newscientist.com/channel/opinion/mg20026786.000-special-report-how-our-economy-is-killing-the-earth.html

  • John

    Presumably when politicians get in power the public service have some influence?

  • Hi everyone, I’m new to this blog but I’ve really fallen in love with the content. If anyone is interested in Asian economics, you should check out http://www.asiaecon.org. It’s an excellent resource for exclusive research, news, and statistics.

  • “To think that if I was voting for the party closest to my personal position I would be voting for Labour is an absolute joke”

    Really, I always thought you’d look good at a Labour party conference Goonix.

    “Even if the Green Party (a small under resourced party) are wrong on that point they arguably have a point (the major point) that economic growth can’t continue for ever (as discussed in the latest New Scientist issue)?.”

    Not necessarily. As long as technology provides a means to make more output from the same number of inputs there is always scope for growth – as long as the “growth” exceeds the loss of “natural capital”.

    I think that the “growth” position that many media people use is indeed unsustainable – but hopefully that is not the basis for growth people use in analysis.

    Note: Economic theories do not assume growth a lot of the time – as they do not assume increases in the “supply” side of the economy. I would trust scientist more with the figures for changes in natural capital, which I think could then be used to separate growth from resource use and growth from technology – this could be used to estimate a “natural” rate of growth from technology.

    “Presumably when politicians get in power the public service have some influence?”

    As advisors yes – but if the government does not want to listen they can get the public service to justify the policies they want. A move that is a bit disappointing. I think that most of the public service should be on external contracts to government – that would help.

  • goonix

    The Greens latest brilliant policy is to cap NZ’s population at 5.7m. Not 5.6m, or 5.8m, but 5.7m. This perfect number is achieved through limiting the amount of children NZers have here but at the same time increasing immigration.

    Stunning.

    http://www.3news.co.nz/Green-Party-suggests-think-twice-about-having-babies-for-sustainable-future/tabid/419/articleID/76238/Default.aspx?ArticleID=76238

  • You should do a post on it Goonix. I’ll read about the policy at some point, I am currently a bit busy trying to estimate the damage recent events will have consumption in NZ 😛

  • Aye carrumba.

    I decided to have a look at the entire press release.

    I’m not the sharpest knife in the draw but IMHO the rest of the article only reinforces your initial impression, Agnito.

    I’m pretty sure there is a lot of good work done out there on “green economics”. It’s just a shame that the Greens have not bothered to actually do the leg work or at least employ someone who understands economics to give some intellectual rigour to their policies.

    It strikes me that the Green Party do not like choice – and despite them having some intelligence, this is a reflection of their immaturity as a political party. It is entirely possible to have green policy outcomes – you just need to provide the appropriate choice or in new-speak “have the right nudge.” Instead, they all to often go for the “I know better than you, so do what I tell you to” approach.

    But then that might also require some thinking about economics….

  • “you just need to provide the appropriate choice or in new-speak “have the right nudge.” Instead, they all to often go for the “I know better than you, so do what I tell you to” approach.”

    Completely agree Dismal, completely agree!!

  • Bill

    The Greens have at least one economist who just wants to save the planet, but there are a hoard of crankies in dominance.

  • “The Greens have at least one economist who just wants to save the planet, but there are a hoard of crankies in dominance.”

    Sounds like government organisations in general 🙂

  • John

    I see Not PC calling Paul Krugman an”alleged economist”.

    Some of those (economists?…… (Not sure where they belong)) people such as George Reisman , Owen McShane, seem to see the world as a big toy: man climbs in and provided he follows the system man always comes out smelling of roses. There is no overpopulation or resource depletion and you can’t wreck the environment.

  • Kimble

    “I see Not PC calling Paul Krugman an”alleged economist”.”

    He was, once. Today he is more of a pundit, if not outright political hack.

  • Kimble

    “It strikes me that the Green Party do not like choice…”

    They just dont like people making choices they disagree with. Most politicians are the same. The difference is that the Greens are the ones most disposed to use governmental power to force compliance.

    They are so intent on working against human nature that they will inevitably resort to complete social domination to do their “good” work.

    The NZ Greens: voted ‘Most likely to oppress their fellow man’ in their college year book

    They spent most of the following year tracking down all copies of the year book and replacing the term “fellow man” to “fellow person”.

  • “There is no overpopulation or resource depletion and you can’t wreck the environment”

    Actually there is – the market price takes into account the scarcity of resources over time – that is one of the major points of a price. The Greens don’t accept this, and as a result they assume the very problems in the system that they want to fix without explaining why – however, without understanding why we don’t know how best to fix them.

    “He was, once. Today he is more of a pundit, if not outright political hack.”

    To be fair, he still does a lot of reasonable public analysis – when he isn’t being a party hack.

    “They are so intent on working against human nature that they will inevitably resort to complete social domination to do their “good” work.”

    They refuse to acknowledge there own ideological predispositions – and that is why they fail.

  • Kimble

    repeat the last sentence in the voice of Yoda

  • “repeat the last sentence in the voice of Yoda”

    Dude, economists are hard out like Jedis. I’ve forgotten why, but when I remember there will be a blog post 😛

  • The “invisble hand” reminds me a lot of the force:)

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