The government illusion

Again, I’m hearing increasing talk about managing the economy – specifically, I have people telling me that they don’t think the government is managing growth properly.  Now, anyone reading here knows this statement is patently ridiculous – the government is not a management committee, and John Key is not the nations CEO.

However, this reminded me of a vision that an old work colleague had towards the end of 2010 in this article.  A key point in this vision, which captures the increasing push towards such arbitrary management, is this:

The Glorious Leader displayed a humility belying his greatness when he announced that His Plan has been inspired by patriotic newspaper columnists and internet bloggers.  The Glorious Leader said that these people are not blinded by the failed and discredited dogma of His asinine predecessors.  “The baby and the bathwater both need to be thrown out because the baby grew from devil’s spawn and the bathwater has been poisoned”.  “Shrewd columnists and internet bloggers acknowledge that the nation desperately needs my pragmatic and sensible guidance to allocate the nation’s resources in the right areas” the Glorious Leader said.

Like all good economics, this is an exaggeration, a caricature, of what is actually happening.  But such extreme examples can make key points clear – namely that a determination to “pick winners” and “micromanage” the economy is folly.  As has been shown repeatedly in the past – ultimately, such policies are the result of a mere illusion of control.

Son, you can’t have it both ways

I see that the news of Australian firms relocating in New Zealand has finally hopped over from Australian news (where it was during Christmas) to New Zealand news.

There are complaints that firms are moving over here because we have lower wages than in Australia, and that is causing anger and concern for people that enjoy complaining.

However, these same people are also complaining that the strong NZ dollar against a number of countries (primarily China and the US) is leading us to loss jobs by making labour less competitive – in other words, by making New Zealand labour relatively more expensive, in other words by pushing up peoples real wages.

If we think there is a market or government failure somewhere, go ahead, complain about it.  But don’t simultaneously complain that wages/labour costs in New Zealand are too high and too low.

This is why I hate politics – always looking for a reason to attack each other, instead of accurately describing the trade-offs that exist and giving the electorate a real choice.

The economics of love

My latest piece in the Dom post was about the “economics of love” – where I compared a relationship to a firm, and worked out some basic conclusions.

Now, the article in the Dom was focused on relationships, specifically marriages.  However, there are times where the optimal formation for a relationship is more akin to a set of “independent contractors negotiating and renegotiating each time they want to work together to provide a product”.

So what factors are likely to be behind this?

  1. Option value:  Available and interesting individuals appear in your life, of a varying quality, according to some probability distribution.  If you commit to a relationship, it is very difficult/costly to take up a “better” person if you run into them.  By saying as an individual contractor, you are able to take advantage of these opportunities.
  2. Diminishing marginal utility:  Often, the more you consume something, the less additional value you gain from it.  Setting up your relationship profile such that you enter temporary contracts with a number of different individuals may provide higher overall satisfaction than committing to only one permanent contract.
  3. Diversifying risk: Focusing on one relationship involves taking on all the idiosyncratic risk associated with that individual – if you set up an appropriate portfolio of relationships, you may be able to remove this risk while still achieving the same expected return.

So the optimal solution to the formation of your relationship is a complicated issue – there are the benefits of a strict relationship mentioned in the article, and benefits for non-strict relationship status as mentioned here.  I have only covered some of the very basics, in comments feel free to add some more 😉

Law vs economics: preventive detention

From Andrew Geddis:

National plan to legislate to permit the ongoing “civil detention” of offenders deemed at high risk of future sexual or violent offending even after their jail sentence [is] complete. Civil detention[,] now apparently called “Public Protection Orders”… would thus be a retrospective restriction applied to some prisoners on top of the original sentence that they received for their crimes, based purely on the prediction that they inevitably will commit further offences when and if released.

the proposed Public Protection Orders differ from preventive detention in that they are imposed not because of a crime already committed, but rather purely because of predictions of a crime to come. A social security disability lawyer michigan will be able to provide the right advice.

That’s a difference that has been held important by the European Court of Human Rights (see here), as well as the United Nations Human Rights Commission (see here and here). Both of these bodies have said it is OK for a country to sentence someone to an indefinate period of detention for something they have done (combined with a justified fear of what this shows they may do when released). However, altering a person’s prison sentence once this has been imposed purely because of fears the person may do bad things in the future is a no-no from a human rights perspective.

As I understand it (not being a lawyer) there will now be two ways to spend an indefinite period of time in jail: either you committed a crime, posed a risk to the community at the time of sentencing and still pose a risk to the community, or you committed a crime and pose a risk to the community at the time of release. Apparently the latter is more problematic for lawyers because the ‘indefinite’ bit happens after sentencing. From the perspective of an economist I find that a bit perplexing. This article from Mike G Law will cast light on many of these questions.

First of all, let’s suppose that we think putting people who pose a risk to the community in jail indefinitely is a good thing. Presumably the motivation for doing it is to protect the community from harm; any other motivation seems hard to justify. So, at what point following the conviction for a crime would we be concerned about harm to the community? Certainly not when the person is incarcerated, and probably not when they’re in custody awaiting sentencing. Surely the time at which we might be concerned is when we have to make a decision about releasing them. Does it matter when, between conviction and potential release, they were adjudged to be a risk to the community? Well, certainly not from the perspective of the potential victims. So why would there be some fundamental difference between preventive detention and an equivalent test incorporated in a Public Protection Order (PPO)? To go a bit further, if it’s a good idea to keep people who are a risk to the community in jail, surely we want the option to keep them there up until they are released. Anything else risks being unable to react appropriately if the convict develops risky behaviours while in jail.

Now I can understand that people might be concerned about abuse of power and the unethical use of PPOs, but there seem to be similar problems with preventive detention. The best one can argue is that the PPO gives more time for the justice system to abuse its power, but I can’t see why judicial checks on that would be any less effective than judicial discretion over preventive detention.

I’d very much welcome any lawyers to clear it up for me, because I may very well be entirely confused here!

Is housing affordability the issue?

The productivity commission has released its final report on “housing affordability”.  Now there are a number of important points in the report, and there are undeniable issues in the New Zealand housing market which have caused a “misallocation” of resources.

However, the justification for their being a housing affordability issue in the report is not fully covered off – something that is surprising given that this is the issue that appears in the title of the report.

Read more

More NZ economics blogs

Given recent hectic times I’ve neglected to mention a couple of new New Zealand economics blogs.

There is Fair play and forward passes (via Anti-Dismal), where an economics lecturer from Massey discusses sports and New Zealand economics.

There is also Welly Gnome, where a Vic University undergrad takes it upon himself to get into economics blogging.

I of course encourage everyone studying, teaching, and practicing economics in New Zealand to start blogging – see it as a way for us to communicate ideas.  In the end it might not be for everyone, but I think its an important way of getting discourse regarding the New Zealand economy (which is at times lacking).

Some people might be worried that there would be too much “noise” – so that whatever is good won’t get through.  Given how few economics blogs currently exist in New Zealand I would say that, even if  the worst case scenario where the noise of a million screaming economists drowns out any useful information is what would happen, we are a long long way away from that now …