Matt Nolan

Actually, I disagree: Why we are better off than before

/6 Comments/in /by

On Sunday I was sent a copy of an article where I was taken completely out of context.  While I am sure that this wasn’t intentional I would just like to point out that I believe the opposite of what the article suggests – I believe that households are significantly better off than back in the day.

So let me cover off the bit that was directly attributed to me:

Infometrics economist Matt Nolan said all recent government policy had been about getting second earners into the labour market, but that extra income – thanks to easy credit – was simply going into extra debt in the form of larger and flasher houses.

“That income has gone into building bigger and better houses than they had before. The square metreage has doubled.”

The conversation with the author went like this.  He said to me that 2 income households worse off than 1 income households used to be.  I said that was patently false, and that there were a bunch of reasons why we had more 2 income households now (social acceptance, Working For Families) and as a society we just need to look at the policy setting to see if we agree with what we are subsidising.

He then reiterated that the median household was worse off – which I disagreed with.  In fact, median real incomes have risen significantly – and the common comparison with the situation in the US is wrong.

At this point he asked me why debt levels have risen so much.  I stated we needed to ask why some people were borrowing, and why people were willing to lend to them.  Two things we had seen when debt was built up were currency intervention in Asia through significant savings, and households willing to invest a lot in property by increasing building and A&A work.  This is investment and it is fine – if we think there is a policy or market failure somewhere in there we need to find it, not just assume it.

Given that most of what I said did not fit into the central thesis of the article it was put to the side, that’s fine.  However, what I did say about housing wasn’t in quite the same context as it is described in the article 😉

In the article, a mixture of conjecture and moralising over debt is tied together in order to prove a false statement – that the current generation is worse off than the previous one.  While other people may be happy to have their name attached to a false claim, I’m not.

Are there people who are struggling?  Well yes, and there always will be.  But the New Zealand middle class has no idea how lucky they are, or how things have improved for them in the past couple of decades – both with underlying real income gains and increasing transfers from government.  The thesis raised in this article is a steroypical middle class complaint – ignoring the real hardship for those who live on the fringes of society in order to justify more hand-outs for themselves.

jamesz

Measurable goals for the nation

/in /by

The advantage of tough, measurable goals with strong incentives attached is that people work hard to achieve them. That’s what managers do when they’re settings targets for staff, so it makes sense that John Key’s gone that route. But what can happen when one organisation is responsible for both meeting the goals and measuring their achievement?

jamesz

Why wine tastes better decanted

/in /by

Because it looks fancier and more expensive.

9 wine judges from France, Belgium and the U.S. tasted French against New Jersey wines. The French wines selected were from the same producers as in 1976 including names such as Chateau Mouton-Rothschild and Haut Brion, priced up to $650/bottle… Although, the winner in each category was a French wine (Clos de Mouches for the whites and Mouton-Rothschild for the reds) NJ wines are at eye level. Three of the top four whites were from New Jersey. The best NJ red was ranked place 3. An amazing result given that the prices for NJ average at only 5% of the top French wines.

A statistical evaluation of the tasting, conducted by Princeton Professor Richard Quandt, further shows that the rank order of the wines was mostly insignificant. That is, if the wine judges repeated the tasting, the results would most likely be different. From a statistically viewpoint, most wines were undistinguishable. Only the best white and the lowest ranked red were significantly different from the others wines.

See The New Yorker’s piece for all the details and make sure you decant your plonk and serve it in appropriate glasses. It makes much more of a difference to your guests’ perception of the wine than spending up on a fancy bottle!

HT: MR

Matt Nolan

The missing price of food

/5 Comments/in /by

According to this story on Stuff, the people of the world are simultaneously threatening to eat all the worlds resources – while being obese.

If that sounds non-nonsensical to you then you would be right – this is the nature of discussing the allocation of resources without taking account of prices.

Here is their “scientific” money quote:

If populations in other countries began to take after the United States, where 36 per cent of the population is obese, the amount of energy required to support all that extra weight would increase by 481 per cent.

Now it is true, the world has finite resources, and our ability to utilise them is constrained by the set of technology available.  If everyone tries to consume lots and lots of food, it will push up the price of food – in essence we can only consume the stock of food we are able to produce, and we will produce food (instead of other goods and services) on the basis of the relative value placed on food … which is shown by the price of food relative to other goods and services.

Merely assuming that everyone will start noming the same amount of food as in the US, and then complaining that we will have obesity and be destroying the world is both unscientific and patently ridiculous.  Essentially, the argument here is that food is “too cheap” for some reason (government subsidies provides the only legitimate driver I can think of here) – if this is the issue, then we should focus on that, instead of arbitrarily attacking obesity.  Furthermore, if we don’t believe food is too cheap then we should just genuinely stop complaining.

Sidenote:  Not to be too cynical, but in what discipline does it take SIX authors to look at the distribution and averages of different populations, multiple to make all the averages equal to the highest one, and write down what the result is?  With six authours you think they could have looked at issues of allocation a bit more intelligently, no?

jamesz

Bike lanes beget bicycles

/in /by

Meta-research shows that more bike lanes generate more cyclists:

Buehler and Pucher found that the presence of off-road bike paths and on-street bike lanes were, by far, the biggest determinant of cycling rates in cities. And that’s true even after you control for a variety of other factors like how hot or cold a city is, how much rain falls, how dense the city is, how high gas prices are, the type of people that live there, or how safe it is to cycle. None of those things seem to matter quite as much. The results, the authors write, “are consistent with the hypothesis that bike lanes and bike paths encourage cycling.”
If that sounds overly obvious, the authors do note that previous research was somewhat scattered on this question. A few studies had found that more bike lanes in a city were associated with more cycling, though it was unclear which was causing which.

The tricky question here is the direction of causation, and it’s likely that causation runs both ways. To claim that bike lanes generate cycling we really need a plausible hypothesis for why that might happen. Thankfully, it’s not that hard: bike lanes lower the cost of cycling because they’re more pleasant and less dangerous. Lower prices mean increased demand for cycling.

OK, so building bike lanes makes cycling cheaper, which gets more people cycling. More and more people are actually getting road bicycles for beginners and changing their lifestyle. But that doesn’t mean they’re a good idea, unless more cycling is just inherently good. To decide whether it’s good policy to build more bike lanes we need to compare the cost of building them to the price that people are willing to pay to use them (plus any externalities). Hopefully that’s what’s being done, even though the local newspaper makes it sound as if the main issue is the strength of the cycling lobby!

jamesz

Elinor Ostrom

/2 Comments/in /by

I only just found out that Elinor Ostrom died last week. She is the only woman to win a Nobel Prize in economics (although Joan Robinson probably should have got one) and the magnitude of that achievement is magnified by the fact that she didn’t train as an economist! If you’re not familiar with her life then have a read of her obituary over at the NYT.

As I was taught it, her work deals with the conditions under which communities will be able to avoid a tragedy of the commons in managing common resources. Tyler Cowen said of it:

Elinor Ostrom may arguable be considered the mother of field work in development economics. She has worked closely investigating water associations in Los Angeles, police departments in Indiana, and irrigation systems in Nepal. In each of these cases her work has explored how between the atomized individual and the heavy-hand of government there is a range of voluntary, collective associations that over time can evolve efficient and equitable rules for the use of common resources.
…
For Ostrom it’s not the tragedy of the commons but the opportunity of the commons. Not only can a commons be well-governed but the rules which help to provide efficiency in resource use are also those that foster community and engagement. A formally government protected forest, for example, will fail to protect if the local users do not regard the rules as legitimate… Ostrom’s work is about understanding how the laws of common resource governance evolve and how we may better conserve resources by making legislation that does not conflict with law.