In praise of clear targets for monetary policy: Money Illusion.
Trade-off between gaining knowledge and creating knowledge, at the margin: Worthwhile Canadian Initiative.
These are both excellent posts that I agree with.
Apologises in advance for this heavily value ladden post. I am touching on infinitely busy (again), I’m very tired, and I’ve been listening to “too much” Irish music. As a result, I’m posting what is in my head rather than proactively trying to find an economic issue to write “objectively” about – as this is easier, and it still involves getting a post done 
When forming my value judgments regarding “moral vices”, I like to listen to the Dubliners. Having a proud Irish heritage helps in this regard, and I feel that they raise a number of important points regarding addiction to common commodities I can relate to (alcohol, women, cigarettes, roving).
Listening to their songs recently, two underlying points suck out – points I felt would be useful in informing part of the debate on alcohol regulation.
I like to place the odd sports bet. In New Zealand I have no official option but to do this through the TAB, which is a state-sanctioned monopoly.
In other countries there are often many competing institutions offering odds on various events, including sports. In fact, there are now many companies that operate across borders in many countries, such as BetFair and Bet365.*
The lack of competition in the betting market in New Zealand stifles innovation in the betting options they offer. One recent pundit proclaimed the TAB “the most conservative betting agency in the world”. Essentially the TAB has no incentive to innovate, as they know punters have limited ability to legally gamble through other avenues.
The TAB have started opening more interesting books on the FIFA World Cup, such as whether Lionel Messi will score more goals during the campaign than the All Whites combined (Messi the hot favourite at $1.55!).
If the gambling market were officially opened up to competition I suspect we would see a lot more of this innovation.
*I’m not sure of the legal status of these organisations in New Zealand, although I understand it is possible to open accounts with them (legally or otherwise).
“Raquel Welch has blamed the contraceptive pill for the breakdown of sexual morality.”
That is the first sentence from this newspaper article. Now I have no doubt that the introduction of the pill led to a higher steady state level of promiscuity. Yet, there is an undercurrent of negativity in the article – suggesting that this is a bad thing. However, this is not necessarily the case.
This illustrates to me one of the issues that often makes explaining economics, or even trying to do analysis, difficult – moral relativism. In the current case, the existence of the institution of marriage and the idea of low numbers of sexual partners is seen – in of itself – as a good thing. People have followed a rule of thumb that the given set of outcomes in the social situation they are the best outcomes. Anything that in turn undermines those institutions is “bad”.
I use the term moral relativism because that sort of behaviour is indicative of it – what people view as the appropriate set of institutions is based on the set of institutions that are in place at the time. When we look back at what people believe is “morally right” we will often see rules based on the society they are in not some underlying true prior morality (although I believe that does exist to some degree as well). As a result, if we try to say that the underlying situation has changed (the pill has turned up) and these old institutions that were optimal are now suboptimal, people get annoyed.
Economics is a great social discipline, because it tries to side-step the issue of moral judgments (and thereby the issues associated with moral relativism) for as long as it can in the process of analysis. So following a “shock” an economist will try to describe the social elements, the trade-offs involved, the change in choices, how the corresponding change in institutions and choices impacts on future choices, and eventually where the social situation will settle. Once we understand how the “distribution/allocation” of things changes, we can mix in some value judgments and come to a conclusion.
In the case of the pill, it seems highly believable that the introduction of something that made sex with a lot of partners much less costly lead to a lot more sex – that is fine. However, we can’t conclude whether this is a good or a bad thing until we introduce value judgments to our analysis.
Those that are anti the pill will say that the introduction of the pill lead to greater promiscuity, but also made it more costly for people who didn’t want promiscuity to not be promiscuous – as a result, people who would have preferred a low sex but married social equilibrium may be worse off. This analysis is fine, but it does rely on a set of value judgments.
Personally, I think the final steady state from the introduction of the pill will end up with more mature and responsible discussion around sex and relationship. We can hardly say that the institutions of marriage and religion led to “magically optimal” outcomes in these matters – and people that bemoan the loss of such institutions are often looking through very rose tinted glasses. Social interactions between people are supposed to be difficult, and I am sure individuals and the institutions that surround them will evolve in interesting ways given the pill. However, my belief that the ultimate outcome will be better is again based on my set of value judgments.
Were inextricably linked. A quote that illustrates this to me strongly came from a Bloomberg article today. The ECB decided to tell the countries that have high soverign debts to go to hell, and now that they aren’t going to take on the risk themselves private investors aren’t willing to and are selling.
This makes sense, previously people purchased the junk on the basis that someone else would pay for it – high return low risk! Now that they have to face the real risk profile they are like “f**k that”. However, Bloomberg (or at least David Kovacs) stated:
The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk(y) assets
No s**t. An asset appeared low risk, and now it is high risk, and the expected return is (at most) unchanged – so the risk adjusted return is lower. No wonder they want to sell.
Now we are in a crisis, and if there is a run on good quality debt because of concerns we have to do strange things – sure. But we need to come up with a system that rips this moral hazard out of the system. It is the moral hazard that helps to drive crisis after crisis ultimately.
In the 2005 election the Labour Government found itself in a very tight battle to retain power. In order to mobilise the student vote, Labour promised interest free student loans. The bribe assisted Labour in returning to Government for their third consecutive term.
At the time National called the interest free loan scheme “irresponsible”. Since coming to power in 2008, however, they have maintained the policy, presumably for similarly cynical political reasons as led to the policy being introduced in the first instance.
As a result of the policy, students have been encouraged to borrow more and pay back less. Debt has ballooned. There are obviously other factors to take into account, such as increasing student numbers during the economic downturn. Nonetheless, it is clear that when given the option of borrowing interest free money, those with student loans have limited incentive to pay anymore than the minimum from their loan, for which they might as well borrow the maximum.
What is National’s response to the perceived student loan problem? The introduction of a $50 administrative fee that student loan borrowers must pay annually. Note that National have also provided an incentive for students to voluntarily pay back their loans through a 10% discount on their loans.
I propose a rather simpler solution. Abolish the half measures currently in place and start charging interest on student loans again. Only then will the correct incentives be instilled.
Hot off the press from NBER, I was particularily interested in one of the main conclusions from the abstract:
Results from a rudimentary instrumental variables strategy and accounting for whether sex is immediately preceded by alcohol use suggest that binge drinking directly leads to risky sex. Some binge drinking-induced promiscuity seems to occur among students, especially males, involved in long-term relationships
I could have told you that without doing any econometrics!
Note: I have read nothing but the abstract so can’t comment on the actual econometrics carried out!
If doing actions that reward a future self is perceived as costly could we justify these actions. If thinking about our wealth, human capital, or ability to live in 10 years time is inconceivable, will me over consume now?
In essence this sort of discussion is saying that we discount our future selves TOO steeply (compared to whatever the underlying presumption of a “fair discount factor” is). Is this a fair value judgment to make in policy? It is not one I would make, but it appears to be the basis of some overaching policies such as universal healthcare and superannuation.
In this case, we don’t need to worry about a “moral hazard problem” even though (empirically) the actions of moral hazard will appear. Why? Because the actors aren’t thinking about the future selves and so these “inefficient” outcomes would have occurred in the first place! Policy helps to correct this by transfering resources to our future selves to improve outcomes relative to the REAL counterfactual (rather than the idealized one where agents choose on the basis of our subjectively fair discount rate).
I think it is important to keep this issue in mind, because it is a closet behavioural assumption behind most policy. If we buy this value judgment, then we will believe in a larger role for government then if we didn’t.
Via Dim Post, No Right Turn mentions an article from Werewolf.co.nz by Gordon Campbell. The article supports the idea of exempting GST on food. There were a number of interesting facts, I definitely enjoyed the articles.
However, even if all the premises are correct and even given significant social justice goals, I think we have to be clear regarding why we think an exemption is the way to go – and in the end I still disagree regarding any exemption.
I was impressed by the title of a NZ Herald article today “Fat is normal“. I was like, yes it is perfectly rational for an individual to put on weight, contrary to what we are often told. I began to think that if policy wonks would treat the idea of putting on weight sensibly we could avoid weird “anti-fat” policies.
However, then inside the article I saw it was written by a nutritionist – the worst of the prescriptive disciplines in my opinion. Furthermore, they decided to take an entirely holistic approach to weight gain, removing any individual responsibility and blame the environment. Namely:
Professor James said that in countries such as Britain and New Zealand, the reason for many people’s obesity was a genetic predisposition in an environment which allowed it to happen with an “out-of-control” food industry and the constant use of cars
What is this.
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