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Chris Worthington from Infometrics has spoken out against a fiscal stimulus in NZ in the current environment.
I agree, as I have said before. Note, I also raised some criticisms of my idea which could be applied here.
Overall, there is a time and a place for special, temporary, fiscal policy (although, even in this special case monetary policy may be superior). However, even now we are not in this special place …
Seriously, lets all go and read Scott Sumner. He discusses how monetary policy can still be effective even when the cash rate hits zero, and I find it difficult to fault his reasoning.
I would suggest reading all the posts, but there are a few that touched me:
Read more
The RBNZ stated today that long-term interest rates have risen too quickly. There forecast recovery was premised on a low dollar and a relatively flat yield curve – however, it seemed a bit disingenious to suggest that we would have a foreseeable strong recovery and a flat yield curve 🙂 . However, this logic was based on a special assumption – a slumping terms of trade.
As a result, the bank is likely to slash rates by at least 50bp at the next meeting. This was already more likely than during the meeting given the exchange rate – as we’ve discussed. This is a big announcement on their part – effectively we may well be pushing towards the lower bound of the OCR. In this case, we need to think more carefully about our monetary policy …
There will be a post at 11am that points out some good suggestions on this issue.
Note that the general market also feels this way – hence:
Source NBNZ
Apparently Red Hat, a vendor of a commercial linux distribution, has been doing well during the recession. This makes sense intuitively, people are looking for ways to cut costs due to the economic climate, and giving Microsoft less money seams to be a good way to go about it.
This reminds me of a classic interview question people get asked by investment banks, “Can you think of an asset with a negative beta?”
So next time someone gets asked that question they can say something besides “funeral homes” (stocks brokers jump out windows during recessions etc.. the most common answer or so I’m told!) . They can say that open source software vendors might also:)
I was surprised to read that are willing to pay more when they pay by credit card. Apparently they actually have a higher willingness-to-pay if a credit card is used, relative to a cash payment. Freakonomics reports an instance where a beggar made more money than ever by just holding a sign which solicited credit card donations online!
I’m baffled as to why people would pay more by credit than by cash. Does spending just feel more tangible when you have to hand over a wad of cash? If so, I wonder if EFTPOS encourages more spending than cash!?
Ezra Klein channels his econ-geek and laments that price signals don’t tell the whole story these days:
…we hope that prices include the relevant information. That’s been the goal of the environmental movement’s effort to build the cost of carbon emissions into the price of goods. Rather than asking each consumer to act as a climate scientist when wandering through Costco, the climate change community is trying to let them act as a consumer.
It’s a fair point. These days we can promote labelling and the dissemination of information, but all information processing takes time. What’s the difference between free-range, organic and eco-friendly eggs? Does the SPCA standard mean they’re free-range or just that they’re not battery hens? Is organic meat humanely slaughtered? Were the cattle raised on a farm that pollutes the local stream? Read more