Matt Nolan

Monetary policy discussion in the US

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Sounds like what we’ve been saying here.  From over there:

  1. The Fed should have a single nominal target.
  2. The Fed needs to be transparent and have specific and well-defined monetary policy goals.
  3. The Fed should focus only on monetary policy, and regulation of the large banks.

From over here:

  • At its heart, the consensus between the two main parties was to do with the target of monetary policy – monetary policy must be implemented by an independent Reserve Bank to ensure that inflation remains within a low and narrow band.
  • Giving the Bank multiple instruments to simultaneously achieve multiple targets would be a recipe for confusion, and would ultimately damage its ability to achieve any of its targets
  • Warping the Reserve Bank Act to focus on a multitude of different goals will not solve these underlying issues; it will just cloak the symptoms by damaging other sections of the economy
Matt Nolan

More reasons to legalise drugs?

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When this article appeared in Stuff it seemed to want to give the impression that drugs = bad.  That is good for it.  However, when I read it it simply made me think that we should legalise said drugs.  Here is why.

Ecstasy users are unwittingly taking other potentially more dangerous substances including P, as drug dealers become more reckless, officials warn.

And this is happening because of the large number of drug raids, restricting the supply of Ecstasy right.  So legalisation would improve quality and safety.  Also.

When it burst on to the scene in the 1970s it was pure MDMA and its reputation as an uncomplicated party drug exploded. However, once MDMA was made illegal in the late 1970s, ecstasy’s make-up changed.  The legend of the “round shiny tablet with a logo on it” had grown out of proportion.

So making it illegal lead to a degradation of the quality of the product, which made it more dangerous.

So lets legalise these things and regulate the industries, no?

Matt Nolan

Quote of the day: Band aid vs Core solutions

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I agree with this quote 100%:

There is often a discussion about the great divides in economics – Neoclassical vs. Keynesian, Freshwater vs. Saltwater, Left-Wing vs. Right Wing, Top-Down vs. Bottom-Up, Elites vs. Populists, etc. Another one should be between economists who feel the way to counter the distortions caused by 34 different government policies is to created a 35th policy and those who believe in countering root causes and would like to avoid Rube Goldberg-type policy structures. I said ‘should be’, because there are so few of the latter kind of economists out there. We could hold our meetings in a phone booth.

Matt Nolan

Against the Paradox of toil

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In a recent post Paul Krugman raises the “paradox of toil” to explain why tax cuts are silly and government spending is good during a recession:

So what’s the paradox of toil? If you cut taxes on labor income, this expands labor supply — which puts downward pressure on wages and leads to expectations of deflation, which increases the real interest rate, which leads to lower output and employment.

However, this is completely misleading.  Cutting a tax doesn’t really “shift the supply curve” (which is what expanding the labour supply means) in this way.  Lets have a little think about wages and what cutting the tax probably does.

Read more

Matt Nolan

No comment responses until the New Year

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At least from me.  I am away.

There will be posts, I’ve got a number of little delayed ones coming along.  And I’ll try to respond to comments when I get back – we will see 😉

Matt Nolan

Farewell Paul Samuelson

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His work and his methods drove economics into the position it is today.  In terms of driving the economic method forward (and establishing “economic science”) he is the most important economist of the 20th century in my opinion.

Here are some links discussing his life and work:

Economist’s View.

Marginal Revolution (and, and)

Anti-Dismal.

Paul Krugman.

Econlog.

This quote from Lucas is apt:

Samuelson was the Julia Child of economics, somehow teaching you the basics and giving you the feeling of becoming an insider in a complex culture all at the same time. I loved the Foundations. Like so many others in my cohort, I internalized its view that if I couldn’t formulate a problem in economic theory mathematically, I didn’t know what I was doing. I came to the position that mathematical analysis is not one of many ways of doing economic theory: It is the only way. Economic theory is mathematical analysis. Everything else is just pictures and talk