Matt Nolan

Policy and heterogeneity: A point

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Via Geoff Simmons came this interesting post about new health policy in New Zealand.  This isn’t my area of expertise, but I found the post really insightful – I’d definitely recommend it as a read.

However, a small part of the post did spark my imagination, and will lead me to write on a loosely related, but important issue.

In the post, when talking about potential issues with the new scheme, the author says:

We hear echoes of the Bolger-led Government adoption of social capital in the late 1990s. Remember that? It placed social problems and their solution-generation with ‘communities’. There is a worthy role for this type of policy in a wider package, but it can also be used as a distancing policy to shield a government and the state from its responsibilities (e.g. on welfare benefits), deflecting the blame and responsibility for solutions to the level of communities.

This is a fair point, words like “community” and “opportunity” are often used by politicians on the right to avoid action.  However, politicians on the left are just as eager to push inappropriate policy at a national level by dismissing these claims.  In truth, the relative importance of “community”/”opportunity” as opposed to nationwide determination of policy depends on our assumption about how different people are – to whip out some jargon, we need an idea about how heterogeneous individuals are with regards to the issue we are looking at.

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Matt Nolan

Discussion Tuesday

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A double-barrelled one today.  Once again, remember that these are points for discussion – I am not saying I agree or disagree with them.

Other people both have more differences, and are more similar, to us than we assume they are when making day to day choices, judgements, and decisions.  Ultimately people are more complex than the rules we use to understand them.

To understand the individual we have to make assumptions.  Acknowledging these assumptions, their usefulness, and their limitations, is important.

Matt Nolan

Are we all confusing status competition and ‘inequality’: Short answer, yes

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The authors of the Spirit Level have done a piece on the relationship between inequality and negative outcomes here.

Now I’ve previously strongly disagreed with the Spirit Level here.  However, I feel that I can discuss this specific post separately – I feel that it is clear and more focused than the book.  I am still unhappy with this post, however I think they have picked the clearest and most fundamental of their arguments to discuss here.

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Matt Nolan

In defence of the RBNZ’s upcoming hike

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Although I no longer have the time to keep up with the literature on financial stability policy (and so am not commenting on it – this is due to my switch to detail income data analysis), I still spend a bunch of time looking at the national economy and monetary policy.

I see that a section of my work place thinks we need the RBNZ to be more hawkish than it is.  There are also many people who think lifting soon is madness.  I am not personally not in either camp – I actually think the Bank has got this right now!  The Bank’s decision to lift soon and get rates back to neutral does make sense given what they are facing, and that they are doing it the right way.

[As a disclaimer, I was more hawkish than the Bank during the crisis (I was wrong) – although my forecasts of economic variables were surprisingly accurate then, that was because their actions were more appropriate, not because I had any foresight … another indication of why forecast performance isn’t always the best judgment variable 😉 .  From late-2011 until the end of 2012 I was more dovish than the Bank was.  Now, I find their discussion consistent with my own narrative and models – including the discussion of the risk.  So it is hardly surprising I’m so willing to defend them 🙂 ]

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Infometrics

Should we hit inflation hard and fast?

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With a hawkish statement from the Reserve Bank of New Zealand yesterday it is a good time to ask – do we need a preemptive strike against inflation, David Grimmond thinks so (Infometrics link).

This reasoning brings us to the need for the Bank to make an early strike at growing inflation pressures.  Given weak New Zealand and world demand conditions, inflation outcomes have remained below 2%pa for more than two years.  But there are a number of reasons to be concerned that inflation pressures could quickly mount this year.  To begin with, the low inflation outcomes of recent years have been largely a world inflation outcome, with declines in tradable prices offsetting non-tradable inflation that has persistently been above 2%pa.  With the period of deflation for tradable goods coming to an end, the headline inflation rate could begin climbing very quickly in 2014.

…

With inflation expectations also on the rise, it would suggest that a prudent Reserve Bank would seriously consider increasing interest rates sooner rather than later – perhaps less in need of reducing current demand pressures, but rather to strongly signal its continued resolve for maintaining price stability, and pre-empting a build-up of inflation inertia.

Do you agree that, given the rebuild and rising economic momentum the Bank needs to act confidently to maintain its credibility?  Or with pricing pressures, and expectations of price pressures, still relatively low would this be jumping the boat in an overzealous attempt to maintain credibility?

 

 

Matt Nolan

Expanding on the idea of “more competition in the services sector”

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We’ve established in the past that, when looking at productivity, it is important to answer questions about “why” productivity is doing what it is doing and why we care.

Having accepted that there are industry specific differences in productivity between New Zealand and Australia (a relatively comparable nation), the Productivity Commission has been focused on competition in the services sector – which includes many of the underperforming industries.  Although they’d identified occupational licencing as an issue previously, they are putting that to the side to now (although that and patents are still areas of interest), and in their new report are focusing on two things:

  • stimulating a more competitive environment; and
  • the successful adoption of information and communications technology (ICT) by service firms.

Discussion below the flap.  Update:  I see the PC has a summary and an infographic.  Nice.

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