Matt Nolan

Culling the commerce commision during a recession: WTF

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In a Herald editorial the possibility of weakening the CC during a recession is put forward.  To be fair, the article is saying that the people that want to weak the CC are missing the benefits – but the article still states:

If conditions deteriorate badly, there may just be a case for temporarily relaxing some elements of competition law to help the corporate sector

This doesn’t make sense to me.  How do you “help” the corporate sector by allowing anti-competitive processes.

During a recession the primary problem is that prices ARE NOT ADJUSTING and so the allocation of resources is inefficient and this is costly.  Allowing firms to keep prices artificially high won’t help the economy – it will hinder it.

There is too much of a micro focus on “keeping a businesses afloat” – the important issue is actually making sure that the allocation of resources across the economy is as efficient as possible.  Allowing prices to get stuck outside of their competitive level isn’t going to help this …

Matt Nolan

Accidental landlords and rent

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There is a popular story going around that rental growth has slowed because of rising numbers of “accidental landlords”.  These are people who brought a new house to move into – but haven’t been able to sell the old house, and so have become landlords.

Now, given that we are supposedly in a position of housing “under-supply” this argument holds little water with me.

Think of it this way – say the housing stock is fixed (which it pretty much is at the moment).  When someone buys a new house they are buying a house, cool.  Now the other house would normally be sold – but it isn’t it is rented.  As a result, we know that the “supply” of rented houses goes up – that seems to be the argument for the rent story.

However, the housing stock is fixed – implying that there is now one less “owned home” out there.  As a result, there should be another household looking to rent, increasing demand for rental property, as testified by Emerald Property Management Company.

Given this I can’t see how more people becoming landlords with a fixed housing stock actually influences the level of rents.  Off the top of my head four theories of what is going on are:

  1. Accidental landlords are less interested in maximising profit – and so put downward pressure on the rental price,
  2. Lower interest rates have lowered the cost to property owners.  As property owners follow a “markup” rule of thumb this has reduced the rents they charge,
  3. Rents are set on house prices (rule of thumb) which are falling,
  4. The value of keeping a tenant during a recession is higher – leading to lower rents being charged.

Only the first theory supports the “accidental landlord” argument – and I find it one of the least convincing …

jamesz

Wellington City Council are not welfare maximisers

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The Wellington City Council seems pretty keen to tear up Manners Mall and turn it into a bus route. As any good local body would they’ve had a round of consultation which resulted in 74% of the 722 submitters opposing the plan and 20% in favour.

You may think that would give the council pause for thought. However, they commissioned a survery of 500 constituents which suggested that 68% supported the plan. They are now using that survey to suggest that the submissions form a biased view of what the electorate wants. How can we make sense of this data and which number should we prefer? Read more

Matt Nolan

Another NZ econ blog closure

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Sadly Bernard Hickey has stopped posting at his Show Me the Money blog.

Luckily he still has the Rates Blog to post on.

On the sad side, Dismal Soyanz and Partially Unexpected have gone quiet.

But on the plus side, as of last month Anti-Dismal is back.

I hope New Zealand can keep a good number of economics blogs going – it is a good way for us all to discuss and learn about NZ specific economic issues. Is there any NZ economics only blogs that I have missed here?

Note: Kiwiblog, Not-PC, TUMEKE, and the Standard deserve honorable mention for the amount of relatively in depth economics discussion they put together – the other NZ blogs on my blogroll (and beyond) also put down a fair amount of economics discussion, which is excellent.

Update:  Following a comment I’ve just seen another NZ economics type blog – Brad Taylor’s blog.  If I had more categories I would say political economy to be more precise.  I have a lot of time for political economists – they have a lot of useful skills I don’t have!

Matt Nolan

Cartoon: Intergenerational Equity

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A great illustration of intergenerational transfers in action:

Source(* Dilbert Cartoons)

Matt Nolan

Is credit card availability falling?

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In the US it appears that this may be the case.  American express is offering some clients a $300 gift card to close their accounts and pay off credit card debt in the next few months (ht Marginal Revolution).  This is interesting, given that a few months ago (in the middle of the explosion of the credit crisis) there still appeared to be plenty of available credit for consumers.

Will we see the same sort of deals in New Zealand?  According to RBNZ figures (here) credit card limits are still growing at a reasonable clip (4.3%pa).  Furthermore, we know that credit card rates have fallen – implying to me that banks/credit card companies are still willing to provide credit to consumers.

However, interest bearing debt has also risen quite sharply – as “interest bearing debt” is generally debt that is in some way overdue this way be a concern.  In the US it was concern about overdue payments that has lead to a pull back in credit card availability – implying that there is scope for it to happen here. When looking for a new credit card which you will sure get approved, visit this review of the surge mastercard.

Personally, I think a sharp decline in peoples willingness to use credit cards will be the primary factor behind growth in credit debt going forward – as a result, I would expect the interest rate on credit cards to fall further as well.  I don’t think we will have to worry about credit card companies trying to restrict lending amounts …