Matt Nolan

Universal student allowance

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So the Labour government is looking at putting in a universal student allowance.

This was obviously coming for a while now. I have no doubt that many people will see this as a political football – with parties just looking at getting through popularist policies that get them votes, but … I agree with it.

Why do students have to borrow to live, when the rest of society gets some security net? It never made sense to me.

I would prefer if this policy was implemented with other policies focused at integrating education, employment, and welfare policy (see here) and I would also prefer it if the government was clear about what sort of cuts to other services they will provide to fund the student allowance (as in the long-run it will be more expensive) – but I’m not diametrically opposed to the idea.

Fundamentally, as long as we see the unemployment benefit as a security net for members of society, it should be available for everyone (who is not employed) – and that is what this policy does.

Now, tell me why you disagree 😉

Update: Kiwiblog (*), the Inquiring Mind, No right turn, and the Standard discuss the issue.

Matt Nolan

Tax credit for R&D: What’s the point?

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So in National’s tax package they have dumped the R&D tax credit. Businesses seem disappointed – but this isn’t enough information in of itself to tell me whether getting rid of the credit is socially optimal or not.

In order to analyse this we have to think about why an R&D tax credit could be socially optimal and then see whether that scheme actually worked in the appropriate way to increase social welfare.

Let’s give this a go 😉

Read more

Matt Nolan

Depression contract

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Intrade has launched a US depression contract (ht Institutional economics).

This depression is defined as:

a cumulative decline in GDP of more than 10.0% over four consecutive quarters

Do you think NZ’s very own iPredict would like to make up a similar contract for NZ?

Matt Nolan

Deposit insurance: Was it necessary in NZ

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We have Deposit insurance in NZ now.

I’m not sure. Even if it is the right thing to have (as Bernard Hickey on the Rates Blog suggests) I still fear that this sort of action leads to a signaling problem.

The act of committing to deposit insurance could suggest to people overseas that our banking system is also in meltdown. Fundamentally, people assume that the government may have some information that they do not. To external people our banks look safe, but seeing the fact that the NZ government has come in to offer an insurance scheme to banks may shake this view. This type of signaling issues is probably one of the reasons why the RBNZ didn’t cut rates a few days back.

I’m just a little uneasy, and I’m not sure why – I blame my educations focus on signaling models 😉

I’ll read the details and comment later tonight – if you want to comment now, yell at me in the comments section of this post 😉

Update: Good article by David Hargreaves. Note:

The decision by the Australian government (and let’s say that it WAS their decision) suggests a nervousness about the position of the Australian banks that hasn’t been indicated before. And that’s not a comforting thing.

Hmmmm

Update 2: Forget about risk – the government will pay for it.  Hmmmm.

Matt Nolan

Quotes: 2) Lionel Robbins on “historical indication absent theory”

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Lionel Robbins:

In the absence of rational grounds for supposing intimate connection, there would be no sufficient reason for supposing that history “would repeat itself”. For if there is one thing which is shown by history, not less than by elementary logic, it is that historical induction unaided by the analytical judgment, is the worst possible basis of prophecy.

From Chapter 4 of The Nature and Significance of Economic Science.

Matt Nolan

Quotes: 1) John Maynard Keynes on “the master economist”

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John Maynard Keynes:

… the master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher–in some degree.  He must understand symbols and speak in words.  He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought.  He must study the present in the light of the past for the purposes of the future.  No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.

ht Anti-Dismal, Bluematter, and India’s Development. Note it is also mentioned under the Economist post on Wikipedia.