Matt Nolan

The best reason for blogging

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A short post by Tyler Cowen at Marginal Revolution lays down what I think is the most important element of economics blogging.

People who learn economics through the blogosphere also receive feedback, especially if they sample dialogue across a number of blogs of differing perspectives.  The feedback comes from which arguments other people found convincing.  Do the points you wanted to hold firm on, or cede, correspond to the evolution of the dialogue?  This feedback is not as accurate as Rybka but it’s an ongoing test of your fluid intelligence and your ability to revise your opinion.Not many outsiders understand what a powerful learning mechanism the blogosphere has set in place.

For both the author, readers, and people that comment that blogging experience adds value, not just from the initial post, but from the conversation that takes place following the post.

I know my reasons for blogging are purely selfish.  I want people to tell me why I’m wrong about things, and how I can improve my understanding of issues.  Furthermore, I like the idea of having a historical record of my opinions – so if similar events happen in the future I can quickly jog my own memory.

Matt Nolan

It’s National’s turn for awful policy

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So I see that pseudoephedrine based medication is being made prescription only, and possibly even banned in the “war against P”.  This policy has broad-based support in parliament, with both National and Labour supporting it.  And like all policies with broad based support it is bad policy.

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Matt Nolan

Multipliers and New Zealand

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In an interesting piece on Vox, Ethan Ilzetzki, Enrique G. Mendoza, and Carlos A. Vegh discuss their estimates of fiscal multipliers, and some of the reasons they differ between countries.  As multipliers are often used to justify the government spending during a recession, it would be useful to note down how their results related to a small open economy like New Zealand.

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Matt Nolan

Freer markets, freer people?

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Latest Dom Post article, any discussion will be found here.

Just realised I was sort of implicitly agreeing with Sen’s capability approach.  I didn’t write it with that in mind, but it was probably hanging in the back of my head.

Feel free to discuss – I promise to get back to real blogging some time in the next few weeks 😉

Matt Nolan

Peak oil, the market will save us (at a price)

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From the Institutional Economist blog we’ve just seen an article on peak oil.  I agree with the author that markets will facilitate any movement from using oil to using a substitute.  As yes, the market will help to develop further exploration for oil fields – which will provide more oil.  But I feel two points are underplayed:

  1. The market facilitates this change by increasing the relative price of oil to other things.  This is costly to society.
  2. A natural resource like oil is like “capital stock”.  As it is non-renewable it is limited.  By consuming oil we are consuming this capital stock – I wonder if the author would be as happy to see firms cut back their capital stock in order to increase production.

Ultimately, I think there is some oil in the ground and the best way to allocate when are where this oil is consumed is with markets.  However, we should definitely not ignore the fact that, one day, the oil could run out and that would have a negative consequence on society – negative consequences that we can’t do anything about.

Peak oil theorists aren’t “economically illiterate” persee, they are just concerned about the fact that we could have this negative outcome.

Matt Nolan

One instrument, one target

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Am I the only person left that believes in this rule of thumb?  From a Herald article on the IMF:

Policy makers will need to employ judgment to look at what is driving asset price movements and discretion to avoid costly policy mistakes

Now to be fair, they also suggest that maybe central banks should have some other tools than just the interest rate.  But the fact is that, for now, they don’t.  Banks should not be targeting asset prices with interest rates at the same time as they are targeting inflation – its a recipe for policy failure.

Sure, use prudential regulation and try to deal with information issues in financial markets and the such to try and ensure that people face more of the risk regarding their own actions.  But don’t use the interest rates to attack asset prices.

There is no discretion here.  The central bank is trying to hold inflation at a target level given their interest rate tool.  Just do that.  It is mechanical, yes.  It is boring, yes.  It will not prevent crises, yes.  It is best policy, yes.