Matt Nolan

Quote of the day: Amartya Sen on inequality

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I am currently reading “Inequality Reexamined” by Amartya Sen, as I’ve never read his books – only his papers.  This suits my current binge reading of inequality, income distribution, and methodology of economics and econometrics books I’m trying to read (albeit too slowly for my own liking).

Anyway, the prologue immediately neatly summarises a point worth noting.  I was reading a little way into the book, and decided that the stuff in the prologue served as a neat “taster” and that I wanted to share it.  So here we go!

The central question in the analysis and assessment of inequality is, I argue here, ‘equality of what?’

…

Not only do income-egalitarians (if I may call them that) demand equal incomes, and welfare-egalitarians ask for equal welfare levels, but also classic utilitarians insist on equal weights on the utilities of all, and pure libertarians demand equality with respect to an entire class of rights and liberties.  They are all ‘egalitarians’ in some essential way.

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Matt Nolan

The importance of evidence for policy

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Good paper by the Prime Minister’s Chief Science advisor on policy – focused strongly on transparent evidence based policy.  I can’t disagree with this as a framework!

1) identifying problems; 2) measuring their magnitude and seriousness; 3) reviewing policy options; 4) systematically assessing likely consequences of options; and 5) evaluating results of policy interventions.

When the Chief Scientist discusses evidence “nudging” policy, he is prescribing a Bayesian view of how we update our priors based on evidence.  This is all cash.

However, I don’t feel that the first stage is ever covered off particularly well … by anyone really.  Read more

Matt Nolan

RIP Ronald Coase

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Extremely sad news that Ronald Coase passed on today.  His work on economics had a profound impact upon the discipline, and significantly added to the way economists think about the allocation of scarce resources – so economics itself.  There are few people who have had this sort of impact.  While I was going to write a couple of things about his work, I found that A Fine Theorem covered this off a much more satisfactory way than I could:

Sad news today that Ronald Coase has passed away; he was still working, often on the Chinese economy, at the incredible age of 102. Coase is best known to economists for two statements: that transaction costs explain many puzzles in the organization of society, and that pricing for durable goods presents a particular worry since even a monopolist selling a durable good needs to “compete” with its future and past selves. Both of these statements are horribly, horribly misunderstood, particularly the first.

I would suggest reading the whole post.  These are two ideas that were an important part of my economics study, however there were links to the literature in there that I had not seen before and that helped breath further life into these ideas for me.

Paul Walker also pays his respects here.  While for some story telling about interpreting the Coase theorem this McCloskey piece is golden.

Daniel Taylor

Social Capital and Micro Credit Lending

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Via Matt, the topic of Social Capital (SC) was recently raised, with some emphasis placed on recognising its oft-ignored “dark side”. Now, I am by no means an authoritative voice on SC, but I have done a bit of work in the past looking into specific Microfinance Institutions (MFI’s) who employ an SC based approach to their micro credit lending strategies. To this end, Matt has kindly invited me to briefly blog about SC within this context, and hopefully, get us thinking a little more about how the drive for increased SC may not always result in sunshine and rainbows at the end of the day for all involved.

Just a bit of conceptual grounding first as I’m well aware that a universally accepted definition of SC is an elusive beast, and from my own experience that this non-specificity often leads to confusion both within and between the social science disciplines when discussing the perceived value of SC (why it’s of worth (or not), or if it’s even a thing at all).  As this is an economics blog, and not a sociology journal, I don’t really want to get into this debate. Instead, I will rely on how MFI’s themselves (by in large) equate SC for framing purposes– namely that social networks between individuals within a community hold implicit and explicit economic value.

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Matt Nolan

How exactly should the West “rethink”

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I’m not quite sure how to take these comments by Gareth Morgan – once they’ve written up some more details of their experience they will likely point out that they are talking about the individuals and communities in North Korea.  In this way they will be talking about the amazing way these people are trying to work through hardship – something that doesn’t get enough play in the West.  And I appreciate that.

However, what they’ve decided to say in this brief post was one of the clearest example of beating on the West because it is fashionable – there is a line between showing a respect for those who are struggling, and trying to switch the blame away from a corrupt regime and onto everyone else:

What they found surprised them – a people who were poor, yes, but wonderfully engaged, well-dressed, fully employed and well informed. In Gareth’s view, what North Korea has achieved economically despite its lack of access to international money has been magnificent.

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Shamubeel Eaqub

Excitement over broken windows

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Oliver Hartwich of the NZ Initiative revisits the broken window fallacy:

“Natural disasters and wars never generate prosperity. They always destroy it, by definition.”

He is absolutely right. It’s good to see this revisited. Even though the “seen benefits, unseen costs” principle was articulated by Bastiat in an 1850 essay. Wikipedia article on the broken window parable here.

The Canterbury earthquakes led some to say it will be good for economic growth. In truth there has been limited impact on the national economy. Production shifted elsewhere and insurance money helped offset the wealth shock for many. Much more so than I expected. But there have been real economic costs for those who have lost jobs and their housing costs have surged.

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