Bah, I come back from a conference to this. Film subsides/protectionism is back in vogue I see. Not happy with just spending other people’s money to get to go to functions about the new Avatar movies, our politicians have decided to increase the amount of other people’s money they will give to all people who decide they feel like filming here.
Those who are too smart to engage in politics are punished by being governed by those who are dumber.
Economists like to think they’re above politics and deal only with positive questions. Is that really much of a boast?
I’ll admit a bias here – my middle name is Francis, so no doubt I am being overtly generous to his comments when I discussed them on Rates Blog last week 😉 . Or potentially I’m am being harsh, because I am particularly unhappy that I ended stuck with a middle name I didn’t particularly want.
All kidding aside, the way different economists reacted to the Pope’s comments was fascinating for me – and also helped to reinforce the idea that often when we discuss things as economists, it can be hard to hide our normative assumptions. As I pointed out here, I was raised with a fairly significant Catholic upbringing – and in the context of what I remember being told about when I was young his comments were not terribly strong. I felt he was making some statements that were factually wrong, but it was on the basis that those within the Church actually believe in a more equitable distribution of wealth (even if it is significantly less wealth).
These normative value judgments about the distribution of income run past economics – economics is a descriptive discipline that allows us to fairly represent the trade-offs, not to determine what trade-off is right. However, as an individual I would also note that the normative value judgments of the Catholic Church are hardly going to be representative of society as a whole – as a result, we do not need to say that the Pope is wrong with what he is saying in order to disagree with him.
However, as the end of my Rates Blog piece does point out, factually his two main “testable changes in society” are completely false. Make of that what you will.
I was at the Press Gallery Christmas function last night in Wellington. Great do. I have renewed respect for journalists’/government relations types’/politicians’ drinking ability.
At some stage I got cornered on what would happen to Auckland house prices. Having no good answer I resorted to the Keynes line that markets can remain irrational for longer than you can remain solvent.
This morning I thought I would have answered it more as The Economist writes:
“Manias can last much longer than investors think, as many contrarians discovered to their cost during the dotcom boom of the late 1990s. Nor do investors know whether a bubble will be resolved through a sharp fall in prices or a long period of stasis, in which inflation erodes prices in real terms.”
And the folly of forecasting asset prices is neatly encapsulated by Irving Fisher (Professor of Economics at Yale University), in 17 October 1929, soon before the crash:
“Stocks have reached what looks like a permanently high plateau.”
The Household Labour Force Survey (HLFS) data has been volatile recently. It is survey based and is usually benchmarked to Census data. Sampling is also affected by Census results. The latest Census data suggest some big revisions ahead for many of the published HLFS indicators, including employment.
The RBNZ today exempted new home builds from high loan to value restrictions.
The reason for putting the policy in place is financial stability. That is to reduce the accumulation of high-risk debt in the banking system. By this test, and this should be the reasonable test, this is bad policy.
By this exemption the RBNZ is saying that it is less risky to borrow to build a new house than to buy an existing house. I disagree that new house prices move less than existing house prices. So, the RBNZ is now exercising a policy of exclusion – against those high LVR borrowers who want to buy existing homes.
The justification that we need to build more houses, surely is retorted with, is this the right policy to address that problem? It also raises the question of why was this not a consideration before the LVR policy was implemented? What did the RBNZ actually know about how high LVR loans were being used, by whom and where?
By increasing highly leveraged credit flow to new builds will not solve issues to slow land release and planning restrictions.
By seemingly bending to industry and political pressure, the RBNZ has tarnished its shield of independence. I am fearful of ongoing lobbying and political interference it invites heading into the 2014 election.
