Matt Nolan

Equilibrium

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Good Noah Smith post on economic equilibrium.

Equilibrium is a term that is often thrown around as an insult (I used to hear people talk dismissively about it at university), but in truth our concern with a model isn’t that it involves some sort of equilibrium but that we believe some of the core assumptions are inappropriate.  Articulating this claim, and why we think certain assumptions are inappropriate, is where value comes from specific criticism.

I find it quite cool that the main criticisms I hear nowadays are about equilibrium and the endogeneity of the money supply – as I’ve always felt those were issues where communication feel down.  Essentially, when discussing economic phenomenon I have always used the process of equilibrium as a way to describe tendencies – rather than pin down outcomes.  Interestingly, for a concept I’m saying is important I can only find four instances where I mentioned economists looking at tendencies (here, here, here, and here) … and one time when when I misspelt tendencies and compared Economists to Jedi 😛 .

Obviously, I need to actually write some blog posts on Mill.

Matt Nolan

If we have a bank tax, make it a deposit levy

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I argue the deposit levy point (as a form of insurance) here.

The only point I have to add is that some may say “why charge poor old depositors”.  I’d note here that we need to think about the “incidence of tax” – if it is true that depositors have no market power, then the entire burden of the tax will fall on banks and borrowers.

This is all part of a broader debate on deposit guarantees (here, here) – if we rule them out, we rule out the justification for a levy as well.  I’d add there is a big issue I haven’t touched – what is our ability to limit deposit insurance given concerns about “bank stability”, and what do we do when banks are just too big (think Ireland and Iceland).  My real desire is to see transparent, and credible, ex-ante policy … and to be honest about the trade-offs we are facing and accepting.

Either way, my focused has switched back to methodology issues as I’ve realised I need to intensify work on my NZAE paper this year (posts here and here) … in case they actually decide to accept the abstract I’ve just submitted.  As a result, when I next get a chance to sit down there are two posts I want to write about assumptions, and then I might start blogging some of the background material I’ve already written about for the paper.

However, knowing me I’ll just start ranting about whatever I see in the paper instead 😉