Matt Nolan

When illegitimate is legitimate

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Over at Not PC a number of economic and social concepts are termed “illegitimate” namely:

  1. Externalities,
  2. Opportunity cost,
  3. Free-rider problems,
  4. Stake-holder theory.

However, these are some of the most important – and legitimate – concepts that should be looked at when forming policy.  I don’t like to use the word should lightly – but in this case these are central legitimate concepts.  Ignoring them would simply lead to bad policy.

So, to illustrate this, let me briefly discuss each concept:

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Matt Nolan

Oct 1 GST increase: Transfer from the old to the young

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There has been a large number of people, specifically Gen X and Gen Y people, saying that baby boomers are selfish and have eaten up all the resources for themselves.

The case has been that baby boomers took free education, then when they got jobs they cut taxes and charged their children for education, then they purchased multiple houses and charged their children rent.  Sure, this is all probably true.

However, today GST has gone up and income tax has fallen.  This implies that younger people, who generally borrow to build up human and physical capital, have experienced a lifetime tax cut.  Meanwhile, older people who have assets and net savings have experienced an increase in their lifetime tax burden.

Yet have we heard any more rubbish about “intergenerational war” and transfers between generations in the lead up to this?  Well no.

Ultimately, the idea of intergenerational transfers has been overplayed.  New generations are benefiting from the established capital stock and technology – in fact if we care about each generation equally we would WANT to transfer resources backwards in time.  I get the feeling that Gen X and Gen Y (my generation) are simply a little bit to argumentative, and would like to pretend that they are being horrendously wronged – this makes sense to me, as I happen to be very argumentative myself 😉

There is a good article on the issue here, by Nigel Pinkerton from Infometrics.

Matt Nolan

Actors back union out of self-interest

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I agree with Peter Jackson that the Aussie film union is a “bully boy”.  And I find the actors supporting a boycott of the Hobbit highly self-interested.

For one, we know that having the unionisation of the workforce will lead to fewer movies, and the exclusion of potential “actors” who would work for lower wages – but can now not get a job.

Given this though you might say, how are the wealthy actors being self-interested?  After all, these minimum conditions have nothing to do with them!  However, this is just not true.

Since we know that unionisation limits the potential pool of actors, and that the acting skill requires “learning by doing“, we can say that this type of unionisation limits competition for actors roles – and so will push up the wage these actors can demand.

How can we say that labour in the NZ film industry is being exploited?  These people are willing to work for the current wage – and there is an industry here willing to hire them.  The fact that some of the workers want to exclude other workers from the industry to drive up their own wages is abhorrent – and I don’t understand why these big name actors believe they are taking the moral high ground when they are simply acting in their own self-interest

Matt Nolan

The importance of economics education

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Is keenly illustrated here:

Asked about overseas investment funds profiteering during a period of economic uncertainty, she said:  ‘I see some of them looking for returns of 20 or 25 per cent, at a time when fellatio is almost non-existent.’

Read more: http://www.dailymail.co.uk/news/article-1315472/French-MEP-Rachida-Dati-confuses-oral-sex-inflation.html#ixzz10lY3rnMT

Then again, everyone is saying there is too little inflation at the moment – so surely a bit of confusion won’t hurt anyone.  Another issue for the Reserve Bank to include in its mandate perhaps?
Matt Nolan

Thoughts on a good economist

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A good economist is like a petulant child.  They always ask why, never fully accept an answer, and rarely fully reject one.

Yes, a great economist will have a bunch of other skills – both normative and analytical.  However, I’d say the desire to question and keep an open mind provides a necessary condition for any strong performance by an economist.

Yes, this is more filler – I barely have time to read the news right now, let alone post 😀

So you are getting whatever is in my head this minute 😉

Matt Nolan

Quakes aren’t good for the economy

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Hey, I’m currently running so busy that I dont’ even have time to look at the other blogs – so I’m sure this has been covered somewhere else.  However, I felt I have to say something.

When Stephen Toplis and Cameron Bagrie say that GDP growth will accelerate due to the earthquake they ARE NOT saying that it is good for the economy.  That headline is completely inappropriate.

Effectively, a bunch of our capital stock was destroyed.  Because of this, the “marginal product” of capital is probably a little higher, and so the “flow” of capital (investment) will temporarily pick up – driving up GDP growth.  We’ve still lost a bunch of wealth.  We are simply having to “work” (which is costly) to try to regain some of it.  In no way does this mean that it is good for the economy – and that is not what these two economists were getting at.

I suspect the author of the article and/or the editor got confused between the flow concept, which is investment and GDP, and the stock concept, which is capital and underlying wealth.  We have lost capital, and we have lost wealth – this negative shock is not just sucky for the people who had to face a disaster, but it IS a “negative for the economy” in terms of measured wealth.

I mean flip, if destroying a city is “good for the economy” why don’t we send the tanks into Wellington to blow it up right now?  Actually, I’m in Wellington – lets make that Auckland instead 😉

I imagine that neither of these economists is particularly pleased that they are being sold as “merchants of doom” in this sense …