Matt Nolan

A couple of recent NZ posts on inequality and poverty

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I enjoyed these two posts by Bill Kaye-Blake – one on inequality, and one on poverty. [Also add this recent post]

I suggest you go give them a read if you haven’t already 😉

Note:  Looks like this accidentally turned into a link post …

Note this is good.  Real good.  The sheep analogy is one of the banes of my life … it gets whipped out whenever someone wants to make a social claim but not actually defend it 😉

Also, good post in a series on poverty here.

And Ryan Avert discussing the Piketty book.  Also assortative mating – I remember my high school economics teaching talking to me about this with regards to inequality!

And this post where a physicist discusses economics saying what “scientists” would look at with inequality.  That is fine, his description of what a scientist would do looks like an oversimplified view of what economists already do so that is all gravy 😉

Krugman makes a good point about negative labour supply effects.   Something that increases labour supply does not necessarily increase welfare/satisfaction etc etc, the fact the two often get mixed up has vexed me for a long time.  Krugman is also very right here when he discusses the return of “macroeconomic popularism” – the effect of policy is a harder question than many people give it credit for!

Marginal Revolution touches on income volatility for high income earners.

I heard that I was in this Radio NZ report.  Hopefully I didn’t say anything too inflammatory – I save that for when I’m blogging.

Matt Nolan

A defence of the calculation of the living wage

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Over at The Standard I noticed this defence of the recent living wage calculations from the two critiques that had popped up (which I linked to here).  The key points seem to be:

  1. The living wage concept was being defined in a different way by critics – making the attacks a wee bit of a straw man.
  2. The living wage concept is not being sold as a policy, or as mandatory.  It is about articulating certain fairness principles with regards to need.
  3. A discussion of the costings, countering many of the specific claims.

That is cool, thinking about poverty requires discussions about many of these issues, and I think that this defence was clear and completely legitimate.

In this context, I agree with the authors.  However, there are a few points I would raise – points that I think are especially important when judging Treasury’s analysis, and points I touched on when initially blogging about this.

  1. The Treasury work was largely pointing out that, if the living wage was to bind, the number of people who fall into this “specific group” is quite small (especially relative to the full number of people who earn below the living wage).  As a result, any policy relevance is a bit murky.
  2. Although the authors say the policy is not mandatory, or a call to government, it is being used widely as a call to government to “do stuff”.  It is fine to say something such as “we are trying to ethically motivate firms”, but many people do not take the concept that way.  In this way, Treasury’s response was almost preemptive.
  3. We can have a reasonable debate about relative poverty.  In this way, having Brian and the living wage authors argue about these things is choice – as it makes the value judgments involved in discussing “need” more transparent!
  4. For me I get a bit confused about why we talk about need and poverty in terms of a wage, rather than in terms of minimum income.  If we are interested in poverty and opportunity, it makes more sense to articulate these in terms of bundles of goods and income – and think through that – rather than stating that those who are employed should reach that standard, while those that are not shouldn’t.  This is where I probably disagree with both NZ’s left and right – but not to worry!
Infometrics

The Reserve Bank of Air New Zealand

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With Bitcoins and Argentinian hyperinflation in the news, it seems like an apt time to discuss what currency actually is.  In a novel way Benje Patterson discusses this with regards to Air New Zealand’s airponts program – and given this he tries to figure out how exactly this program should be valued (Infometrics link)!

Airpoints Dollars conform to the standard definition of a currency – they are a medium of exchange for goods and services, they can be used to store value through time, and they are a quotable unit of account.  Air New Zealand operates a fixed exchange rate policy for its currency, where one Airpoints Dollar can be redeemed for one New Zealand dollar worth of flights.

Furthermore, in addition to being a currency, the Airpoints Dollar loyalty scheme also adds to Air New Zealand’s bottom line.  Air New Zealand is the sole institution with the ultimate authority to issue the Airpoints Dollar currency and back-of-the-envelope calculations show that the value of the airline’s loyalty scheme could be around $400 million.

 

 

Matt Nolan

Will Wilkinson on discussing inequality with those who won’t define it

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I really like this rant by Will Wilkinson, it reminds me of the sort of thing I wish I could write when I’m annoyed.

I’ll be honest, a lot of people out there talking about “let’s tackle inequality” aren’t actually interested in social justice, policy, the poor, or anything that matters – they are interested in looking cool to their friends and fitting into their “in-group”.  Running into these people and trying to discuss policy trade-offs is about as much fun as when, after breaking my leg, my teacher at primary school kept lifting me up to try to get me to stand because “it didn’t look broken” (Note:  She was a lovely teacher, it was just a particularly sore experience).  Here is the opener of his piece:

I’m tired of arguing about inequality. It’s frustrating. It’s unproductive. Nobody is really interested in the analytical arbitrariness and moral insidiousness of measuring intra-national economic inequality. Nobody is really interested in the fact that multiple mechanisms–some good, same bad, some neutral–can produce the same level of measured inequality, rendering the level of inequality, taken in isolation, completely useless as a barometer of social or economic justice. Nobody really cares. Because many different combinations of causes can produce the same level of inequality, it’s not so clear that high inequality, as such, can reliably cause anything. The consequences of inequality depend on the mechanisms driving inequality. Nobody cares.

Now, there is some disagreement from me here. Read more

Matt Nolan

Conceptual introduction to tax-benefit microsimulation

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I am currently writing up a few documents on slightly more technical ideas about income inequality.  For each one I also plan to do a presentation, and attach the presentation slides to this site (along with the document).

I delivered the first one a couple of weeks ago – however, as it wasn’t one that is of public interest I only gave it to a few close economists.  It was on microsimulation models and income analysis.  It was a high level conceptual piece, really just a literature review, but it will act as a start.  The document, and the slides.

This is a form of modelling used to try to understand tax-benefit policy, and the distribution of income, given the fact that people are inherently different!  If you are interested in how I justify the modelling technique with reference to methodology (there is a bit of a discussion of the Lucas Critique in there) you may like to look at the document, but I suspect most readers would find it boring and not particularly useful – which is understandable 🙂

The next one will be on income inequality indices.  I am already part of the way through it, the goal is to write up a bit of a history, build up the idea of thinking about “social welfare” and “need” in terms of these indices, discuss some axioms that we would presume should hold for them, then discuss the individual indices in detail.  Hopefully this will be a bit more exciting.

Matt Nolan

ICT, factor shares, employment, and inequality

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I am going to take you on a journey of a series of fortunate events, and at the end hopefully I have a point!  The journey is below the flap … Read more