Will Taylor

Off Topic: Tricking athletes into performing

/4 Comments/in /by

Fascinating article on the New York Times about using deception to make cyclists push themselves past what they thought their limits were in training.

It’s a shame I don’t have  coach for my road cycling….I’m not really sure if I will be able to “trick myself”, haha.

Matt Nolan

Why we need an impartial organisation to cost all the parties policy platforms

/25 Comments/in , /by

FFS, just when it sounded like the Greens were going to come up with sensible policy prescriptions we get this absolute piece of rubbish.

If this is how we base policy why don’t people just make plans as follows:

  1. I will talk with people in important tones during very serious meetings,
  2. I will offer to give them money arbitrarily
  3. …
  4. Therefore:  I will create jobs, income, sustainability, and cute kittens.

Seriously, in what world does a massive building initiative make sense when we are going to be struggling to rebuild Christchurch during the next decade given capacity.

In what world does giving money to green entrepreneurs (I would call many of these people marketers) provide “65,000 additional jobs”. [Pro-tip:  1% of the global market is HUGE – remember that we are less than 0.1% of the global population – so saying “just”, especially given foreign subsidies and scale, is ridiculous].

In what world do these policies not crowd out other industries – guess what, skilled workers are already in work, you will be just driving up their wages with your arbitrary industrial policy.

Tbh, this rings of policy made by people who just want to win an election, and have very serious meetings with policy analysts and people who make glossy leaflets.  It shows no reality, and no willingness to think about trade-offs.

When the policy is out fully, I’ll do a write up on it without the angst – but right now I’m pissed.  To think I was considering voting for them – god I wish we had a real choice this election …

Update:  Kiwiblog and No Right Turn discuss.

Matt Nolan

Youth minimum wage and youth outcomes

/2 Comments/in , /by

One question I’ve been receiving a lot during presentations is “what is the cause of the really high youth unemployment rate”.  I have been answering with two things:

  1. The youth minimum wage was significantly increased, making young people more expensive (but also making more young people want to participate in the labour market)
  2. A recession disproportionately hits the young, as they have less human capital and can be seen as a more “risky investment” then other labour types.

I usually go on to say that I can’t say which factor is bigger – I would need someone to do empirical work.

Luckily for me, the work has now been done.  The Department of Labour commissioned a report by Dean Hyslop and Steven Stillman which went through these issues.  Now these guys are top draw, so I’m pretty comfortable just stealing their results 😉

Read more

Matt Nolan

Wealth distribution and demographics

/in , , /by

A very good point from Stephen Gordon at Worthwhile Canadian Initiative that the growing concentration of wealth may, in part, be to do with changing demographics.

Although I doubt this is the sole factor behind the growing concentration of wealth, it is a factor I’ve been thinking about – and that I’m keen to see someone else quantify.

One thing we have to keep in mind is that standard economic theory does predict a growing concentration of wealth as

  • the idea of  “rational expectations” when some agents are not rational implies that rational agents will tend to suck up wealth from irrational agents – it is a common misconception that “rational expectations” requires any agents to be “rational” in the strictest sense …  however, it does imply that agents that are “more rational” do receive transfers through time from their “irrational” buddies.
  • the fact that individuals have different discount factors suggests that more patient individuals who are more patient will tend to accumulate more wealth.

Now this isn’t necessarily even an issue, after all if people built up wealth due to their own choices they deserve it.  However, trying to understand how much of the recent change is due to the full functioning of financial markets in recent decades, how much is due to demographics, and how much is due to other policy change is important to understand before we really know anything.

Matt Nolan

Bleg: Generation war

/4 Comments/in /by

Every generation likes to complain about the one above it.  However, Generation X’s distaste for the Baby Boomers seems intense.

This isn’t a new thing, although the recession helped to intensify it I can remember these sorts of angry debates going on when I was a child (I am Gen Y, so I’m not taking sides here).

Every person I’ve spoken to who is in Gen X seems to believe that baby boomers have taken all their resources and run off with them.  At the same time baby boomer get annoyed because there has been significant improvement in both technology and civil liberties from when they were growing up – and yet Gen X continues to complain that they don’t have enough.

Is this just an example of people whining at each other, as they always do, or does one of the sides have a case here?

Matt Nolan

Targeting non-tradable inflation: Some points

/in /by

Bernard Hickey has stated that the RBNZ needs to target non-tradable inflation.  Fair enough, I’ve heard the argument for that before.

However, he says we should do it because of the “structural flaw” in our economy and to “help exporters”.  Ok, but remember that the RBNZ controls monetary policy – not all the structural policies in the economy.  So what happens when they target “non-tradable inflation”

  • The RBNZ lowers non-tradable inflation by increasing interest rates further … likely leading to an even higher currency.

In this context, the stated aim of targeting non-tradable inflation doesn’t met the goal.

Now Bernard Hickey likely believes that there are structural reasons why non-tradable prices are growing more quickly than relative-tradable prices.  And he would right.  The reasons are:

  • The Baumol effect, where services become relatively more expensive as we become more wealthy
  • A related issue that tradable goods experience larger increases in productivity than non-tradable goods (as they tend to be more capital intensive, and face more competition)
  • Competition issues due to our scale
  • Issues of the size of government
  • The combined impact of our rising terms of trade and productivity improvements in developing economies (which has held down imported cost pressures – ex fuel).

In this context the only two “policy relevant” issues that have changed the “structure” of our economy are competition issues and the size of government – both things that fiscal authorities and competition authorities should look at … not the RBNZ.  All the other changes were responses to fundamental changes in our economy.

Protip:  Our manufacturing sector is shrinking because it is relatively less efficient than the rest of the world – we are “relatively better” at making other things (comparative advantage).  NZ has done amazingly well from this – with our real incomes holding up, and our employment ratios still elevated, even WHILE the world has experienced the largest economic shock since the Great Depression.

tl;dr  Targeting non-tradable inflation won’t give the “structural changes” that are desired here – and “structural” issues are due to competition and fiscal policy, not inflation targeting.  Changing around the inflation target will actually lead to the opposite outcome than the one that is being targeted.