Matt Nolan

A point on consistency: Finland v NZ

/2 Comments/in , , /by

After saying I thought the general goal of catching other countries was a bit silly I suddenly clicked onto another point – the implied inconsistency of the policies being suggested by Labour.

Look, I don’t want to beat up on Labour specifically – as I think all parties are guilty of this – they just did it right here right now. Labour is saying:

  1. We want more innovative capital investment, in capital intensive technology industries
  2. We want to introduce a capital gains tax

So they want to increase capital investment … when their main policy recommendation so far is reducing the rate of return on investment.  They also suggest investing more in education – which is fascinating when we are a small open economy with an extremely mobile labour market, implying that it is very hard to keep hold of said highly trained labour.

Seriously, lets let the rest of the world bid down the price of manufactured goods and keep pushing forward technology, while we feed them and offer them awesome holiday’s – focus on what we are good at, and we will be better off than if we start trying to gamble on venture capital, or joining into the current highly competitive game of manufacturing/high tech.

Matt Nolan

Finland and New Zealand

/1 Comment/in /by

So there is talk of comparing New Zealand to Finland.  Fine, I still think this is as pointless as comparing us to Australia – but not to worry.

The plus of comparing us to Finland rather than Australia is that Finland is a small open economy more in our mold.  However, they are also significantly closer to market – so any thoughts that we can become like Finland have to be tempered by this fact.

Deep down I don’t believe in government oriented “transformational change”.  If anything, if the rest of the world is busily trying to compete in making information technology and manufactured goods then it is doubly good that we stick to our comparative advantage of making food – because it will become relatively more valuable (just look at our current terms of trade).

However, I have to take issue with this attack on using Finland as an area to compare us to.  Given both parties accept that we should arbitrarily compare ourselves to other countries (which I don’t) the current unemployment rate is not a fair figure to look at – instead we should keep an eye on PPP adjusted GDP per capita.  Finish people are, on average, 30% more wealthy than we are.  So the “final goal” associated with copying Finland seems to be the same goal that the current government is suggesting – magically increase incomes by 30%.

Matt Nolan

The bad side of independence?

/in , , /by

For me, the independence of central banks is one of the greatest institutional changes that has taken place in the past 30 years when it comes to “economic management”.  This independence has allowed central banks to clearly articulate goals and ensure that the arbitrary monetary distortions that previously occurred no longer take place – governments can not use storage, and central banks are generally less likely to accidentally tighten or loosen conditions inappropriately.

But this independence, and this view that a central bank provides some central “management” role has led an increasing number of writers to believe that the central bank truly controls the economy.  Not just in a broad sense, but there is a belief that a central bank can meet many disparity micro goals, changing the structure of the economy, controlling firms pay structures, changing inequality.

There was a time not so long ago when it was clearly recognised that STRUCTURAL issues were the responsibility of Treasury – if there was a clear defined market/institutional/government failure to deal with.

But now an increasing number of these broad structural issues are being blamed on central banks, there is an increasing belief that by changing an interest rate the Bank can separately determine a myriad of clear “good and bad” potential outcomes – and people appear to get frustrated because they feel that central banks are purposefully making things worse.

But this is not true, monetary policy is inherently cyclical, financial stability issues are just that … issues of financial stability.  If there are failures in the more general economy it is due to either the imperfection of the world we live in or the inappropriateness of government policy settings (in either direction) – it is not due to the central bank setting the wrong interest rate, or making the wrong comment in their latest statement.

I just hope this fundamental lesson will be remembered before people decide to start diluting the independence of, or stretching the role of, our central banks.

Update:  This issue is discussed more sensibly on the Money Illusion.  Choice quote:

Monetary policy should be boring, as it is in Australia; not exciting, as it is in the US and Japan.  Most of my readers think I am advocating use of monetary policy as a tool.  Most think I want it to be exciting.  Nothing could be further from the truth.

jamesz

Do lawyers really understand economics?

/2 Comments/in , , /by

With more and more policy being founded in economic analysis, lawyers are having to become ever more familiar with economic concepts. Competition law (antitrust to Americans) is an area that has become particularly mired in economic analysis. In New Zealand we have seen plenty of debate over large cases in which anti-competitive behaviour has been alleged. So it is apropos to find two economists asking whether “antitrust [is] too complicated for generalist judges”:

We find that decisions involving the evaluation of complex economic evidence are significantly more likely to be appealed, and decisions of judges trained in basic economics are significantly less likely to be appealed than are decisions by their untrained counterparts. Our analysis supports the hypothesis that some antitrust cases are too complicated for generalist judges.

One of the authors has an interesting and detailed (for a blog post) discussion here. It’s certainly a worthwhile topic for investigation, since the decisions in these cases can be extremely expensive for the parties involved. If there is enough evidence, does it point to the need for specialist judges in this field?

jamesz

Sex offender registration

/in , /by

Keeping up the theme of interesting empirical results as I catch up on my journal reading, here’s some research out of the US on the effect of maintaining a register of sex offenders and notifying the community where they reside.

Sex offenders have become the targets of some of the most far-reaching and novel crime legislation in the U.S. Two key innovations in recent decades have been registration and notification laws which, respectively, require that convicted sex offenders provide valid contact information to law enforcement authorities, and that information about sex offenders be made public. …We find evidence that registration reduces the frequency of sex offenses by providing law enforcement with information on local sex offenders. As we predict using a simple model of criminal behavior, this decrease in crime is concentrated among “local” victims (e.g., friends, acquaintances, neighbors) with no evidence of less crime occurring against strangers. We also find evidence that notification has reduced crime, but not, as legislators anticipated, by disrupting the criminal conduct of convicted sex offenders. Our results instead suggest that notification deters nonregistered sex offenders, and may, in fact, increase recidivism among registered offenders by reducing the relative attractiveness of a crime-free life.

So notifying the community, probably the most controversial aspect of sex offender registration policies:

  • Deters new offending; but,
  • Encourages repeat offending.

The policy-relevant part is probably the overall reduction, but it’s interesting to note the contrast between common wisdom and the results: the notion that notification helps the community protect their children appears to be unfounded and it actually makes previous offenders more dangerous.

jamesz

Does anyone really read reviews?

/in , , /by

It’s common to hear people complain about negative reviews, and they’re the ones that seem to garner all the press. If you’re a New Zealand music fan you’ll be familiar with Simon Sweetman’s famously scathing reviews of popular bands, for example. It’s also becoming much more common to hear of business collapsing at establishments that receive poor online reviews. Because of that I was fascinated to read a recent study that examined whether demand for wine is affected by expert reviews. The study conducted in Sweden found that there is an effect, but it’s not the negative review that people act on:

The effect of a positive review peaks in the week after the review with a demand increase of 6 percent. …There is a weak positive effect on demand of a review per se and no effect of a negative review. …The demand enhancing effect of a favorable review is greater for higher priced wines, for red wines and lower for reviews that appeared in tabloids.

Now put this together with what we know about wine tasting:

[The reseracher] took a middling Bordeaux and served it in two different bottles. One bottle was a fancy grand-cru. The other bottle was an ordinary vin du table. Despite the fact that they were actually being served the exact same wine, …[f]orty experts said the wine with the fancy label was worth drinking, while only 12 said the cheap wine was.

So being an expensive wine gets you a good review and a good review boosts sales. What can we take from this? Well, you’ll get the best drinking experience from a positively reviewed wine that know is expensive! Feed the cognitive biases, don’t fight them 😉