Matt Nolan

NZ isn’t the US: Employment rates

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So often we hear that, even though the unemployment rate is falling in the US, employment is low.  It is the low level of employment, and the lack of integration in the community that entails, that is causing so much anger over there.  The lack of opportunity illustrated through the low employment rate is one of the key pieces of information pulled out to suggest something must be done.

Often people in New Zealand talk as if whatever is happening in the US is happening here, therefore something must be done.  However, lets be a bit more careful – especially as in the case of the employment rate that is untrue.

 

remprSource:  Stats NZ.  Quandl.

Yes, the story is more complicated (Working for families increased the number of second earners in the labour market, a factor that will in of itself have pushed up the participation and employment rates).  But if anything that suggests we need to be a lot more careful applying “lessons” from the US situation to New Zealand.  We are not the United States – a point we’ve noted when looking at median income comparisons in the past 😉

 

 

Matt Nolan

Nobel 2013: Fama, Shiller, and Hansen

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Yah, Nobel prize.  All guys that deserved it … I just wouldn’t have expected them to get it together.  To be honest, the reasoning makes sense though – they have all added significantly to the empirical analysis of asset prices, albeit in quite different ways 🙂

Still, don’t read me.  Read Cochrane (here, here, here, here, here).  And Marginal Revolution (here, here, here, here, here, here).

Also I enjoyed this.  And this post on why the Chicago school gets so many Nobel laureates is a good counter-measure to all the arbitrary bile that can be thrown around on the interwebs 🙂 .  I also enjoyed this post from Noah Smith.

I have a bias towards Shiller in all of this because of my interests.  He is a big proponent of trying to view economic phenomenon through a lens of history dependence (with the regulatory difficulties that entails) and has talked about how exciting neuroeconomics is – completely agree.  However, this has nothing to do with empirical finance in of itself, as this is not my field.  While I think some of the stuff is pretty cool (and remember really like GMM a few years back) I have nothing to say.  Hence why you should be going back and clicking those links to Cochrane and Marginal Revolution 😉

Matt Nolan

Marriage, investment, and sunk costs

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At the moment, many of my friends are getting married.  At the same time some of my other friends who are not married are telling me they don’t understand why people get married.

While I am not married, I think the idea of marriage is grand.  I think it is a great way of dealing with a social issue that involves both search and relationship specific investment! When entering into a relationship, make sure that you are a perfect match. There is a reputable dating site that will help you find the right one for you. Visit this website, https://www.perfect12.com/, for more hints about ideal dating.

Now, you may think I’m being too romantic here by bringing up terms like “relationship specific investment” – but let us not forget the awesome power of economics for dealing with these ideas.  The question is, given marriage as an institution what specific type of co-ordination failure did marriage turn up to solve?

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Matt Nolan

Why nobody likes me: Incentives

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In a recent email conversation with some other economists we realised that sometimes people get upset when we talk about people following incentives – as it makes them sound harmless.  Within the conversation I discussed how this was due to the different ways economists and non-economists interpret the word.  My email went as follows:

It could be that people confuse “following incentives” as “making a conscious choice to hurt others”.  There are three key differences:

  1. The incentive we are discussing is at the margin and conditional – the other “good” factors matter, but holding those constant the incentive has an impact at the margin
  2. Not all decisions to follow incentives “hurt others” – in fact the vast majority don’t
  3. And adding to those two is the way we use beliefs and how our unconscious mind functions – often it changes our subjective perspective of and beliefs around things to make doing actions in your personal interest seem more palatable for your conscious mind.  This made sense in an evolutionary sense, as people that were able to ensure the survival of their genes in “good conscious” were more likely to actually survive.  Of course it gets more complicated than that – but it seems consistent with observation and evolutionary game theory.
Of course, stating this would just make peps look at us funny.  Maybe I should put it up as a blog post?
As you can tell, I decided to make a blog post.
Oft times I suspect that much of the most passionate disagreement between economists and non-economists comes from different definitions for shared terms.  I am not sure that this post has helped in that regard 😉
However, sometimes the difference does stem from underlying moral disagreement.  Being able to tell the difference between miscommunication and genuine arguments would be useful.  On a sidenote, here is a cool post on financial economics.
Infometrics

Co-ordintation: Daylight savings and global warming

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This week (Infometrics link here), Matt Nolan discuss daylight savings, specifically discussing the way an economist would probably look at it – as a type of ‘co-ordination game’ where a government can help individuals co-ordinate actions. When it comes to causing the environment less harm the Carbon Click can help in many ways as they have their set of techniques to help us help the environment.

He then goes on to discuss a prisoner’s dilemma that exists between government around global warming – implying that organisation that may help individuals co-ordinate in some place (daylight savings) may fail to co-ordinate themselves about broad action (such as global warming).  Concluding he states:

Here we have concentrated on examples where government, and other institutions, can help individuals co-ordinate their actions – helping improve outcomes.

This is a great way to view, and understand, government policy.  However, we always need to keep in mind that individuals are co-ordinating themselves, by making choices given the incentives they face.  Prices, which are determined by the relative supply and demand of products, offer the main device for co-ordination in our society.

To understand the role of government, we need to think about how the use of prices, and co-ordination move generally, may fail – and in what ways government can sensibly recognise this and lend a hand.

The hard thing with global warming is that individual governments do not have an incentive to solve this problem, which was the original justification for the Kyoto Protocol.  With that failing there is a genuinely concerning policy issue here, which the global community does not appear to be able or willing to face.

Matt Nolan

Bleg: Grimes on bubbles

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Arthur Grimes recently gave an interview to Reuters, all I’ve seen so far is this write up via Raf on Twitter (cheers).  Now Grimes is an incredibly good New Zealand economist, to put things in perspective I would generally put more weight on a single line of his opinion of something than I would on my own intuition and analysis of issues – an given that as individuals we are strongly biased towards our own views that is pretty significant.

But anyone who reads TVHE knows what I’m like, I just really really want to know ‘why’ certain things are being said!  I emailed a few economists and some suggested I do a bleg asking, so why not!

In the Yahoo story there are a couple of segments I’m a touch confused on and I’d like it if someone could answer them for me 🙂 (Note:  Seamus from Offsetting offers some example answers at the bottom of this post)

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