Matt Nolan

Are we overplaying the crisis

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I noticed that there were some end of 2008 articles by Michael Laws and Fiona MacDonald.

Both take economists to task, one for doomsaying and one for obsessing about growth. Fundamentally, both articles have one theme in common – economists are exaggerating the impact of the crisis for the man on the street.

Sure, there is always some truth in this. Not everyone will be made worse off – in fact, many people will actually end up better off as a result of the recession (namely those that can keep their jobs and elevated wages). Anyone that reads this blog can tell that the authors here do not feel that the impact on New Zealand will be as severe as it will be for the US or UK. However, New Zealand is not immune to the gyrations of the international economy!

A collapse in the price New Zealand receives for the things it sells overseas is now a distant possibility (infact, in some respect it has already happened). Furthermore, New Zealand has borrowed a lot – with overseas investors now more nervous about lending this is bound to lead to some hardship.

Stating that things will be fine, or that we need further increases in real wages to remove our debt (which have been rising strongly in New Zealand, contrary to the authors statements), illustrates either a misunderstanding of what is going on or a blatant disregard for the risks we face. I would rather listen to the educated panic of the Bernard Hickey’s and Gareth Morgan’s then the arbitrary rambling provided by Michael Laws. Of course, I am an economist 😛

Matt Nolan

Technology as king?

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Over the holidays I had a little peek at “the Universe in a nutshell” by Stephen Hawking.  Early on in the book he states that it is technology, not political systems or economic dogma, that has led to the vast improvement in living standards in modern times.

Now to a large degree, economists agree with this idea (here, and here).  Technological progress increases the usability and availability of resources, expanding choice and satiating desires.

However, the creation of technology also relies on the political and economic system of the day.  An environment that rewards and promotes progress is likely to experience more “technological advancement” than one that doesn’t.  As a result, there is a trade-off between technology and types of social structures – and issue that does involve political science and “economic dogma”.  Just because technology is a closer link in the chain towards higher living standards does not mean that other elements are inconsequential.

Furthermore, the social structure of a group does influence living standards – in so far as it influences happiness.  The belief that better technology will increase happiness is just that – a belief.