Why economists are so popular
(Via SMBC)
Come on, revealed preferences are all you need. There is no way we’re going to make our own explicit value judgments!
Archive for month: September, 2011
Missing the point on value
Wow, sorry milk manufacturers but these comments make you sound insane:
Milk product manufacturer Goodman Fielder’s head of dairy, Peter Reidie, said yesterday that the debate around the price of milk had created a false perception about the value of milk.
Goodman Fielder took 210 million litres of the 600 million that Fonterra was required to make available to competitors, and sold to supermarkets.
A 2-litre bottle of branded milk for $4.80 “is outstanding value, and we are talking the New Zealand consumer in to saying that it isn’t“, Reidie said.
“So they are buying Coca-Cola or V or something else instead, and that is not good messaging.”
Ok. Consumers know what milk is. They know what coke is. They can see the price of both in front of them. They choose coke because the relative price of milk is too high … implying that the value they receive from it is too low. The consumer says this.
Instead of accepting that, the milk manufacturer is saying “you should be willing to pay more for milk”. That is his entire comment.
This has nothing to do with the “debate around milk” and it has everything to do with the relative price of milk being higher than other substitute goods. Given that this high price represents the scarcity of milk, that is fine. Given that consumers are substituting away given these prices this is fine. However, there is no merit to the idea that “consumers aren’t buying milk because they don’t realise how good it is” – that sounds like the comment of a desperate sales person.
NZ downgrade on high debt, foreign incompetence
That is the story for this, that and the fact that our stock of debt is still elevated.
My view of where we are heading has been heavily downgraded over the past week. NZ policy makers have done a great job, the government and the RBNZ have been sensible. NZ households have worked with what they’ve been given, and our businesses have responded to changing external conditions.
But Europe, and to a lesser extent the US, are mammothly incompetent. We’ve now reached a point where it looks like these nations are pushing the world into a crisis – a slow moving train wreck type of crisis. Hopefully, someone wakes up and taps the brakes soon.
On the note of the downgrade Fitch said:
New Zealand’s high level of net external debt is an outlier among rated peers – a key vulnerability that is likely to persist as the current account deficit is projected to widen again, reflecting a structural savings/investment imbalance.
This is a structural issue we should indeed chat about more at a later date.
Update: List of feedback on Rates Blog.
Update 2: Off goes S&P.
Another reason why we miss Friedman
Here. If he was around to push the policy debate maybe we wouldn’t be in this much of a mess.
On that note, people who know nothing about economics or the allocation of resources more generally like to demonise Friedman – this is nonsensical. The guy pushed for a negative income tax/minimum income level, he wanted us to accurately respond to the trade-off’s inherent in monetary policy, and he wanted to improve institutional structures to help protect individuals. People like Naomi Klein who turn around and try to treat him like the bad guy of the past 60 years are living in a fantasy world.
Why the US is looking increasingly like Japan
I genuinely can’t believe the things I’m reading.
If they said that the current slump was solely down to supply side factors then their position would be coherent. But instead the argument is that, when we are in a liquidity trap, we should just ride it out.
In terms of the literature, using higher inflation in the future to escape a liquidity trap now is accepted … at least that was my interpretation. However, policy makers in the US don’t care – just like they didn’t in Japan for a long time (and counting). Lets hope the policy failure doesn’t end up as costly in the current case.
A point on inflation for all of us to remember
From the always excellent Money Illusion blog:
The key point is that if the Fed pays attention to inflation at all, it should be increases in the price of stuff built with American labor. They shouldn’t care about the inflation rate that matches some mythical “cost of living,” as the Fed can’t do anything about adverse supply shocks.
In a small open economy like New Zealand we are constantly peppered by supply shocks. In such an environment what the RBNZ “should” and “can” be doing is very different to targeting the “cost of living” – which is truly set by real economy factors.
A lot of people in NZ get confused, and think that the RBNZ sets the cost of living – this is a myth that comes from, IMO, poor explanations by economists regarding what inflation is and why we should target it. This myth needs to be dispelled.
We have discussed this all before in the “inflation debate“, specifically with regards to what is inflation here and what are the costs here.