Matt Nolan

Why keep long rates low?

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Bank economists are saying that we should aim to keep “long-term” rates low – through the RBNZ committing to a future path of the OCR for the next 3-5 years at a low rate.

At first brush we could be cynical and say this appears to be in their interest – the OCR does determine their cost of borrowing from the RBNZ after all.  But I am not that cynical about the bank economists.  Ultimately when you look at their beliefs, the commitment to a low OCR makes sense.  They believe:

  • Growth and “capacity” will remain well below trend for the medium term.  Specifically – we will be below our “natural rate of output”.  This implies that we don’t have to worry about inflationary pressures (until we are heading back to the natural rate).
  • Short rates have already headed nearly as low as they can go – so they can’t be cut much further.
  • The RBNZ’s growth path is “too strong” – and so the market expects rates to begin rising in 2010.
  • If medium term rates are higher this provides a disincentive to investment – something that depresses near term activity further, thereby increasing the risk of some sort of “downward spiral” through unemployment.

So ultimately, the retail banks are saying that the RBNZ is too optimistic (as if they weren’t their implicit forecasts would commit a lower medium term set of rates).  I guess we will see what the RBNZ does on Thursday and find out if they agree …

jamesz

Weight and global warming

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While searching for articles about fat taxes I came across this piece about fat and global warming:

Overweight people eat more than thin people and are more likely to travel by car, making excess body weight doubly bad for the environment, according to a study from the London School of Hygiene & Tropical Medicine.

They estimate 10% increased emissions from being overweight. Sadly I don’t have time to read the original articel right now, but at least the newspaper’s conclusion sounds shaky. For a start, do fat people eat any more than slim people of the same weight? Are the decisions to overeat and drive more both explained by unobserved cultural factors, rather then one explaining the other? Read more

jamesz

Fat taxes revisited

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Matt’s previously advocated a fat tax, but really he was talking about a tax on unhealthy food. Now United Airlines has decided to tax people for just being big: if you’re too big to fit in one seat then you’ll have to buy two. There are two reasons why they get large people to pay more:

  • Large people cost more in fuel to fly.
  • Large people bother other passengers by encroaching on their space.

I’m totally fine with people paying their way, but this seems a bit extreme. I have to side with William Saletan at Slate here in suggesting that they could have gone about their pricing scheme a little better. Basically, they’re missing out on revenue from all those people who are too big for one seat but unwilling to pay for two. They’re also likely to enrage a lot of people through their stance. Read more

jamesz

Alcohol regulation: economists would do it better

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The NZ Law Commission is on the way to cutting back on the availability of alcohol. Their justification is twofold:

  1. The contribution that excessive use of alcohol led to law and order problems in the country.
  2. The serious health and injury effects from alcohol consumption, as well as a list of other social harms.

And the principle they used to weigh these issues: harm minimisation. What, you say: What about weighing the benefits? What indeed! Eric Crampton takes to the second point of the report thoroughly:

The study counts as costs reduced labour productivity. … If we only count costs, then these get included: costs to society via lost output and costs to the government via reduced tax revenues. But if we worry about NET costs rather than gross costs, these have to disappear. Why? Because if I decide to drink and be less productive at work, I’m less likely to get a promotion or a salary increase. My productivity affects my wages. If I decide to be less productive and have a lower expected salary path, that’s between me and my employer: I’m bearing the costs. If I decide to do it, that’s prima facie evidence that I weigh the benefits as greater than the costs.

Not only do they miscount costs, but they also fail to take into account any net benefits: the enjoyment of drinking, or the higher salaries that come with it. Read more

jamesz

Framing farts

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Cognitive Daily reports that the study of framing is alive and well, although possibly in the running for an IgNobel Prize:

A team led by Simone Schnall asked students walking outside on a college campus to answer questions about scenarios like this, rating them on a scale of 1 (extremely immoral) to 7 (perfectly okay). The catch was that they had rigged a trash can near the experimenters’ desk with fart spray. Some respondents read and rated the stories in the presence of a mild stink (four sprays of fart scent), some had a strong scent (eight sprays), and a lucky third group completed the experiment with no scent at all. Here are the results:

Read more

jamesz

Scary fact(oid) of the day

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OK, so this sounds a little incredible to me, but it’s in The Guardian so it must be true, right 😛

Shipping by numbers

The world’s biggest container ships have 109,000 horsepower engines which weigh 2,300 tons.

Each ship expects to operate 24hrs a day for about 280 days a year

There are 90,000 ocean-going cargo ships

Shipping is responsible for 18-30% of all the world’s nitrogen oxide (NOx) pollution and 9% of the global sulphur oxide (SOx) pollution.

One large ship can generate about 5,000 tonnes of sulphur oxide (SOx) pollution in a year

70% of all ship emissions are within 400km of land.

85% of all ship pollution is in the northern hemisphere.

Shipping is responsible for 3.5% to 4% of all climate change emissions

Whoah!!! So, if countries start introducing carbon trading, will the ships be covered? Unless the oil producing nations sign up I guess that they’ll still be able to get untaxed fuel and they can always sail under the flag of a country that doesn’t care. Can anything be done about them (presuming stuff gets done about any climate change)?

ht: Treehugger