Matt Nolan

Is NZ fiscal stimulus lower than the rest of the world?

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There have been accusations from some blogs that the NZ fiscal stimulus is too small relative to the rest of the world (No right turn, the Standard). However, I didn’t think this was right.

Now the OECD has shown that this isn’t right:

fiscal-impulse

Now this isn’t to say that the fiscal response is right – it may be too small or too big. But it is to say that we aren’t pumping in a small response relative to the rest of the world. In GDP terms we are sixth – just behind Aussie.

Update: Link to OECD report (ht Keith Ng)

Update 2: Appears that some countries were undermeasured by the report (ht Gareth):

As an illustration, tax cuts decided in 2006 or 2007 but implemented over the period 2008-2010 in Denmark, France, Poland and Spain are not included, although they may have contributed to cushion the economic downturn

This explains why the stimulus in these countries (excl Spain) was so low.  And I can understand why Spain would need a larger stimulus with their high unemployment rate (* note I suspect that the 17.4% figure is an exaggeration – as I think they include more potential types of unemployment than we do)

Matt Nolan

Why are they making my beer more expensive?

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Pressure from parliament has led to supermarkets finding a way to collude and increase prices for alcohol sales. That is what I read from this article in the Herald.

Of course it is being framed this way so that it sounds like a winner:

The two big supermarket chains say they have stopped selling alcohol below cost as a “loss leader”, after claims the cheap deals lead to alcohol abuse

What a load of rubbish.

As long as the tax associated with alcohol consumption represents the costs and benefits (a hard issue as has been discussed in many places) then we don’t need to fluff around with this type of rubbish – as the price would represent market competition AND the social cost, thereby implying that the choices being made are in the social interest. But instead, in order to seem hard on something people view as a vice supermarkets have been pushed into a situation where they can collude in order to increase profits.

How? Well, it is true that alcohol is being treated as a loss leader. But its effectiveness as a loss leader depends on the price charged by the other firm. Under the guise of “the social good” the supermarkets have been able to agree to both increase prices slightly – keeping the relative “loss leader” advantage while making more money off alcohol sales.

It just goes to show – when people start getting the government to pressure firms based on the arbitrary morals they want to force on society, we will end up being taken advantage of by someone. I want my cheap beer back …

Update:  Paul Walker and Brad Taylor both have good posts on the issue.  Starting from this comment Agnitio brings up interesting points regarding how to view the socially optimal price in this setting – his criticism of my view is very good, even if I don’t agree with it yet (you can tell it is a good criticism because my defence isn’t very clear – the best I can do is say that it is a transfer from producers to beer consumers, but the GE impact is foggy).

Matt Nolan

Dom post article: Beware those bearing gifts of productivity

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Article is here.

Discussion on Rates Blog is here.

Money quote:

Both political parties are unwilling to face that, with respect to government policies, there is a fundamental trade-off between some social values (fairness, justice, etc) and the level of productive activity.  This trade-off is one of the primary reasons for the existence of government – and yet neither of the political parties seem willing or able to recognise it.

As a result, next time we hear the government discuss the importance of productivity, or we hear some international body talk about the goal of productivity growth, let’s try not to forget that there is a trade-off – and let’s ask exactly what this trade-off is.

Matt Nolan

Wages: Real debt, relative prices, and the labour market

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In a recent column by Paul Krugman, he bemoans the fact that wages appear to be falling (ht Economist’s View). His primary justification for this comes from the following section:

Read more

Nigel Pinkerton

Judith Tizzard down but not out?

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I saw this in the Herald today and it got me thinking:

If Ms Lee wins the byelection, the next person on National’s list, Cam Calder, will enter Parliament.

Correct me if I’m wrong, but electorate seats aren’t supposed to change the total number of seats a party gets (unless you win more than your party vote like the Maori party did). Labour avoided the “Vote Twyford, get Tizard” dilemma when Phil Tyford stepped aside. But the fact that the Greens will split Labours vote and give the fresh face of Melissa Lea a chance raises an interesting possibility.

If Melissa Lea wins the seat then her title will change from list MP to MP for Mt Albert, but National won’t get any extra seats in parliament. This will leave a vacant seat that Labour will have to fill by taking the next person on their list.

So is it “vote Lea get Tizzard” after all?

Update: Seems that if National wins they do get another seat – so a byelection can change the proportionality of parliament. Seems weird!

Matt Nolan

NZIER: Suggestions for unemployment policy

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Interesting piece from NZIER on unemployment policies.

It is a fairly broad sweep over the issues – and so does not go into many of the technical or policy related issues of some concepts. However, it provides a clear way of viewing a number of the potential policies.

However, I was surprised to see no mention of the “paradox of thrift” or how unemployment was fundamentally a “surplus” and thereby represented a “market failure”. If we are going to discuss a set of explicit unemployment policies we need these factors to justify it.