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The NZIER December QSBO is out. Ohhh dear …
Let’s just say that the domestic economy appears to have cooled rapidly in the December quarter – and businesses are running scared of the March quarter.
It does appear that there is more than a structural correction going on now – confidence, and as a result demand, have given way.
The labour market data will be key for determining whether the RBNZ cuts 100 basis points, or more …
This blog tries to remain relatively apoliticial. I do not intend to break this by illustrating as opinion on the Israel-Palestine conflict, it is a difficult issue which I could do no justice. However, I do like to try to understand the world around me, so a relatively generalised model that describes these types of conflicts and “international policy advice” in the situation would be useful to me.
I aim to sketch out a few thoughts I have based on the study of economics. If there is a political scientist out there (or anyone else for that matter), I would be more than happy to hear about the multitude of logic flaws in my description 😉
Over in the good old US the Congressional Budget Office has released their forecasts (ht Paul Krugman). It is an ugly sight, as would be expected, with growth falling miles below its “potential” level and a large negative output gap opening up.
As Paul Krugman points out, this type of large output gap would provide massive deflationary pressure – he suggests that we could have a deflation rate of between 3-5%!
Now, I’m sure his logic is spot on given this estimate of potential output – however this raises a question for me, has potential been forecast correctly? Generally, growth in potential output is forecast to be relatively stable – and trends along with historic growth. But this doesn’t feel quite right. There are two reasons why this may fail:
I work (if you can call it that…) for an organisation that uses a suite of Microsoft applications. In addition to Windows XP it runs MS Office. For the ability to do this, a licensing fee, probably quite sizeable (I don’t know though) is paid to Microsoft.
Now, it was pointed out to me that an open source alternative, “Open Office” is compatible with MS Office, and has most all of the same functionality. There would have to be some retraining, however, to ensure that everyone could use it correctly.
It was put to me that my organisation could save quite substantial sums (even after the cost of retraining for its use) from changing to this alternative, and that there would be very few costs to the change.
I searched for reasons why this person was wrong:
Why do we all pay so much to use Microsoft intellectual property? I have my suspicions why, but would like to hear from others.
Recent posts below (see “Taxing congestion: how I might justify it“) have sought reasons as to why toll-roads are so often touted as an economically efficient measure. For my part, I am quite sceptical that the are universally efficient, and struggle to find a compelling reason why they are even efficient most of the time. However there are some circumstances where it is quite conceivable that they can be efficient. Where there is a (slower) alternative to the road with a congestion charge, and different drivers place different values on congestion free travel, congestion charges/tolls can lead to an efficient sorting of road users between the (faster) toll road and the (slower) free road, resulting in socially optimal outcomes.
The intuition goes something like this:
In some of my most egotistical (although sometimes cynical) moments, I enjoy ranting about the similarities between economists and Jedi’s (at some point I might do a post – if I can actually be bothered trying to figure out what the similasrities are 😛 ).
In this context I found this old dialogue between Tyler Cowen and Bryan Caplan fascinating (ht Marginal Revolution).
On one side, Tyler argues against the Jedi order – effectively the existence of the order creates the very evil it means to prevent. Byran on the otherside believes that the Sith (the bad guys) would still exist in the absense of the Jedi – but would have no-one to truly counter them.
Both sides are right in part, and the ultimate result depends on an empirical relationship – does the Jedi order destroy more evil than it creates.
For fun, lets bring this back to an economics example. In this sense, if we heroically took economists to be Jedi’s my guess is that market failure would the Sith. Economists believe that their form of analysis helps to prevent, or improve outcomes in the face of, market failures. However, is it possible that the very act of economic analysis shifts peoples actions in a way that makes market failures MORE likely.
For an example we can go to “Freakonomics“. There is a story about how a daycare centre set a fee for “additional after hours care”. Once they set this fee, a the prior “tacit” agreement between the day care and its patron to avoid leaving children after the set hours collapsed. Even when the price was removed, this tacit agreement could not be restored.
As a result, the existence of economists and the need to set explicit prices destroy implicit institutional relationships that exist in society may thereby create the failures that economists are charged to prevent!