Matt Nolan

Need more behavioural relationships please

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I started life as a microeconomist, which is why the sort of discussion about nominal shocks going on between Sumner, Kling, and Woolsey seems a little weird to me.

To horrendously oversimplify the positions in order to make this post easier to tie together, Sumner seems to state that the Fed needs to print money with a nominal GDP target in mind, Woolsey suggests that the Fed should change inflationary pressure given a set real GDP target, and Kling states that we only have real shocks and so the idea of a “nominal shock” is not of use.

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The Hand

Minimum wage vs inflation: A TVHE discussion

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We are sadly too busy to really post anything at the moment.

As a result, to fill in time we will put up a recent discussion between TVHE writers.  The one thing this conversation shows:  we all agree that arbitrary policies that are introduced to indirectly target a problem (eg changing the minimum wage to target inflation) tend to do more harm than good.

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The Hand

Means testing fines: economic efficiency, or unjust policy.

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As recently reported, European nations are increasingly pegging speeding fines to income levels, in an attempt to standardise punishment for such infringements.

The intuition is simple: a $100 fine to a person of wealth in excess of a billion dollars is trivial. Clearly, there is no (or at the least little) incentive to curb one’s behaviour.

However, in examining a recent USD $290,000 (euro203,180.83) speeding ticket slapped on a millionaire Ferrari driver in Switzerland,  one cannot help but feel this is somewhat excessive.

Conversely, it would seem that such laws have the potential to induce ridiculously low penalties to those without any assets. Is New Zealand society willing to burdening the rich with the external risks created by the poor?

Matt Nolan

Love is a prisoner’s dilemma

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Well that is one of the interpretations from the Google autocomplete results for the search “how can I get my boyfriend/girlfriend to” (ht Offsetting Behaviour).

Why?  Well the third highest result when asking about boyfriends, and the fifth highest when asking about girlfriends is “how can I get my boy/girl to love me again”.  The prevalence of the search suggests that love is something that is valued by both sexes, yet even in terms of a relationship (which is partially just a tacit agreement for providing the service of love) there appears to be an underprovision of love.  (More evidence of a hole in love provision?)

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Matt Nolan

A note of caution for NZ

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Things are generally looking better for New Zealand.  Consumer, business, and forecaster expectations of growth have improved, our trading partners are stabilising, and financial markets are functioning.  Yay.

But one piece of data that leaves me a little cautious is the money stock data.  The broadest measure of the money stock (M3)  declined 2% on a year earlier in November.  This was the largest decline on record (going back to 1960).

Furthermore, following this release the New Zealand dollar has climbed sharply.

If the declines in the money stock are sustained, and the higher dollar is also sustained, there is one clear interpretation – market expectations of demand driven deflation.

Of course, this data is volatile and rising commodity price expectations and the such can be used to explain the change in the dollar, but …

Matt Nolan

Economists and opportunity cost

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The Wall Street Journal has an article that discusses how economists are “cheapskates”. I probably wouldn’t use that term, I would say that economists understand the opportunity cost of different choices and so can pick more objectively between alternatives.

Anyway, what struck me was this passage:

Economist Robert Gordon, of Northwestern University, says he drives out of his way to go to a grocery store where prices are cheaper than at the nearby Whole Foods, even though it takes him an extra half hour to save no more than $5.

So an economics professor only values his time at $10 an hour?  Seriously, what the hell.  This seems like a terrible choice to me.  The only ways I can rationalise this are:

  1. He is exaggerating because he gets some pleasure from that,
  2. He gets some consumption value from driving out to the other supermarket and saving a bit of money.