I’m sick of this …

Serious, what in the hell.  I am sick of reports that talk about these massive benefits of government spending without actually looking at them in context with, you know, opportunity cost.

I was annoyed with the way a PWC report was used, and now this release on a Covec report is similarly dodgey.  The report is probably fine (although I have not had the good fortune of reading it), and probably defines exactly what they are looking at and why – I have faith in NZ economists.  But this:

Williams said the report showed that the Government’s contribution to a rescue package should be at least 25 per cent because the tax receipts would make it cost-neutral.

It makes me angry.  So angry I am going to avoid writing any more as I will end up viciously attacking politicians such as Mr Williams for obvious mis-information.

The only reason to get involved is real externalities, doing a partial eqm analysis and saying the tax take rises involves ignoring where the hell the tax comes from and the opportunity cost.  Treasury is right when they say this is neutral.

Update:  Paul Walker comes out in favour of this irritation.

Update 2:  Covec report is found here, and pdf here.

24 replies
  1. Eric Crampton
    Eric Crampton says:

    Covec, that’s Small’s outfit, right? Best I understand things, he’s a straight-up guy; I’d expect him to correct folks’ misinterpretations of his report. Perhaps we ought to keep an eye on his blog to see if any clarifications come up.

  2. Matt Nolan
    Matt Nolan says:

    @Eric Crampton

    Fair enough. Doesn’t stop me getting annoyed at Williams policy prescriptions from it.

    If Williams wants to look at tax changes do a f’ing GE model. This is fundamental stuff. The fact he is asking for a report that doesn’t do this smacks of mis-representation and mis-information. And all economists hate mis-information.

  3. Eric Crampton
    Eric Crampton says:

    Oh, Williams is doing exactly what politicians tend to do with reports: pull a number from it without the caveats and use it in a way for which it was wholly unintended in order to support a policy that he wants for other reasons. Hopefully, Treasury having weighed in on neutrality ought keep the dumbworms from infecting Parliament too much on this one…of course, I’ve been disappointed on that front more than once.

  4. Matt Nolan
    Matt Nolan says:

    @Mark Hubbard

    “Neoclassical economics cannot prevent major cyclical crashes crashes and asset bubbles”

    LOL!!! They do realise that “neoclassical economics” was like the American Keynesian school. It took a load of Keynesian waffle (which is not necessarily bad given uncertainty in society) and attempted to make it tractable and objective in some sense.

    I wish people would stop throwing around economics terms without know where they come from 😛

    I guess it just betrays a lack of knowledge about the things they want to change policy on – not exactly the best way to get good policy 😉 Go politicians!!!

  5. WH
    WH says:

    More economics in schools would just mean politican’s with a better understanding of public choice theory and voter block behaviour. Could do more damage than good – imagine Eric or yourself being let loose to run the country, no honestly would that really be a good thing or an opportunity for lots of fun 🙂

    Given the need for reports to present ever bigger numbers than the last report (either riskier – more people will die, go hungry, whales disappear, world end etc) – I wonder if we can assess the publics utility function to consume these reports and at what point utility reverses (if it does at all – we could end up in a world simply consisting of big scarey reports – hey maybe thats the next risk/cost problem which we need to regulate/do something about – were going to end up with really really big scarey reports).

  6. Matt Nolan
    Matt Nolan says:


    “Could do more damage than good – imagine Eric or yourself being let loose to run the country”

    The best thing we could do would be to take power away from ourselves 😛

    “Given the need for reports to present ever bigger numbers than the last report (either riskier – more people will die, go hungry, whales disappear, world end etc) – I wonder if we can assess the publics utility function to consume these reports and at what point utility reverses”

    My main issue is that there is a negative externality. The public will tar all reports with the same brush, even when the report is actually discussing a policy relevant cost/benefit.

  7. Eric Crampton
    Eric Crampton says:

    @Matt: That last bit is what really got me going on BERL last year. Given their report’s masquerading as economics, it could bring the whole profession into disrepute: the differences between that kind of thing and economics needed some explicit spelling out.

  8. Matt Nolan
    Matt Nolan says:

    @Eric Crampton

    I’m giving the same criticism to the way policy people treated all three reports – I refuse to actually blame any of the economists involved in any of these reports.

    You know how it rolls 😉

  9. Eric Crampton
    Eric Crampton says:

    I guess we have different standards. Me, I expect the policy people to misrepresent things, and the consulting firm then to correct the misrepresentations. Refusing to correct misrepresentations that have a chance of affecting policy — that I don’t like.

  10. Matt Nolan
    Matt Nolan says:

    @Eric Crampton

    I have sympathy for that view.

    But given that these people are merely acting on incentives, and given that policy people are meant to represent the greater good in some sense, I find their actions poor and focus on that.

  11. Matt Nolan
    Matt Nolan says:

    @Eric Crampton

    Yes. By virtue of where they have put themselves politicians should adhere to a higher standard. Economists are just like any other profession.

    Now my personal moral standard is different, and so is the moral standard I apply in person – this is just the standard I apply when writing on the blog. I try to keep track of these standards in an excel spreadsheet …

  12. John Small
    John Small says:

    hi All

    Given some of the statements made concerning the leaky buildings issue it is necessary for me (as one of the authors of the Covec report) to clarify a couple of points that have been raised. First, the fact that the Govt obtains tax revenue from spending on leaky building repairs does not by itself mean that there is an economic justification for the Govt to necessarily fund repair. Second, as has been correctly pointed out, such tax receipts should not be considered additional ‘bonus’ revenue and we have not described them as such in our report.

    The report is not yet available for release but we hope it will be later this week; from our perspective it is therefore unfortunate that it has been publically discussed already.

    However, we do believe that there is a strong policy rationale for some form of Govt intervention to reduce the high costs of the current dispute resolution process for leaky buildings. For the country to spend an estimated $11bn to fix an $8bn problem strikes me as rather inefficient. If the implementation of a more efficient resolution process were to require the Govt to contribute towards some of the repair costs to eliminate the incentive for parties to use the existing litigious processes, we think that a full cost-benefit analysis would likely support such a policy.

  13. Matt Nolan
    Matt Nolan says:

    @John Small

    Hi John,

    Agreed with your points. I hope it is clear that my irritation is with the policy discussion stemming from the council – not from the report per see. There is no way I could criticise a report without reading it.

    However, as Eric pointed out this is the nature of politicians, which is a pity really …

  14. John Small
    John Small says:

    No offence taken Matt. We are looking forward to being able to release the report and will let you know when that’s done.

  15. Eric Crampton
    Eric Crampton says:

    Fortunately, there’s little chance that Williams’s misinterpretation will affect policy outcomes as Treasury’s already batted that one down; nice to see John noting here that Williams has misinterpreted things.

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