Price controls and inflation – is this time different?

Note – this was going to be a video, but the day after writing it up I already saw better posts on it here and here and also here.  However, the text I wrote is kept below as it adds an occasional additional point – so feel free to read those posts and this one 🙂

The increase in prices in the US over the past year has been generating considerable angst – and comments that “price controls are needed to deal with inflation, due to corporate greed”.  This has led to lots of people saying things on Twitter, with individuals who different people may see as authorities taking very different views on the topic:

Mariana Mazzucato on Twitter: “Excellent by ⁦@IsabellaMWeber⁩ on the real cause of inflation and what to do about it. https://t.co/9epjBGOIpg” / Twitter

Aaron Hedlund on Twitter: “Did I miss the macroeconomics lectures where they teach that antitrust (https://t.co/EWD1CjAOpp) and price controls (https://t.co/oskR2ATzpu) are effective inflation-fighting strategies, or is economic illiteracy just running rampant again in some corners of the popular press?” / Twitter

How about we step back from the name calling to try to think about what these terms mean and what people are saying – as in the end it is likely people are talking a little bit past each other, and when that happens the rest of us can just get confused!

Read more

COVID-19 is a watershed moment for government involvement in the economy

The RBNZ released a report estimating the economic impact of COVID-19 containment measures back in May. They estimate that one week of alert level four (L4) costs the economy about $2.2 billion in GDP. Stats NZ recently registered a 12.2% fall in GDP for the June quarter. Sobering stuff.  These are big, scary numbers. Scarier still for those in tourism or hospitality who are wearing a disproportionate amount of that cost. Clearly there is substantial economic suffering, but how can we think about government responses?

About the author: Byte Size Story connects everyday economic issues with the big picture. The views expressed here are the authors. If you have any questions about the post please email bytesizestory@gmail.com

Read more

The game of mask wearing

Now that we are back to level 2 lockdown in New Zealand (apart from Auckland where it is level 3) the issue of “should we wear a mask” has cropped up.

A lot of “words” have been spread across the internet on the issue, with people arguing about their effectiveness, complaining about how it hurts their “liberty and freedom”, and people saying they don’t like how it makes it harder to breath – hence why random idiots on the street feel empowered to yell at people who wear a mask, without realising that their willingness to lash out at other people makes them sound simultaneously stupid and scared.

But I digress before I’ve even gotten started – when it comes to wearing masks this tweet raises a great point:

I made a similar point when I was teaching on Thursday (having come in with a mask) – so I thought it could be fun to think about it a bit more here.

Read more

Is it time to promote working from home?

Over the past few weeks I’ve been working mostly from home as part of the COVID lockdown.  However, now with the move back to Level One I’m heading back into the office on a more full-time basis.  

In the first few days back, I have heard a lot of people from around the building talking about how they prefer different work arrangements – and I’ve heard a lot of people say that they felt more work was being done away from the office.  And yet, teams appear to be making the choice to move back to the office.  Why is this the case?

Although it may be the case that the teams stated and real preferences differ, I suspect there is something else at play – strategic complementarity.  Once we understand this concept it can become clear why we can end up in a worse equilibrium with regards to our work arrangements even when given flexi-choice, and why explicitly promoting working from home could be a “win-win”.

Read more

What does cash hoarding mean for the economy?

New Zealand banks noticed an increase in cash withdrawals by households since the day of lockdown announcement. Banks believe this might be due to the panic stockpiling of nervous households as was mentioned in the article.

In this post I want to discuss what drives the households to behave in this way, and how this comes into our thinking about economics and monetary policy. 

Read more

Does monetary policy need to respond to the surge in inflation during pandemic?

Inflation went up to 2.5% in the March quarter, its highest rate since 2011. This was a fair amount above expectations, with the RBNZ expecting a 2.2% rate. They were not alone with private sector forecasters also expecting weaker inflation outcomes. 

This raised two questions from me:

  1. Is this evidence that COVID was a supply shock more than a demand shock?  
  2. And does it mean that monetary policy should respond? 

I want to think about the later point in this post – as the first question will get answered as we work through it.

Read more