Matt Nolan

Potential output in monetary policy

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When it comes to “potential output” there is often a view that the economies potential to produce is determined by the labour, land, and forms of capital that are available to create this output from – and this is right!  Furthermore, each of these factors tends to produce a diminishing amount of additional output as you use more of it.  Although the factors of production are often complementary this often implies a situation where – in the long-run – the potential for output (and growth in said output) in a nation is fundamentally about technological change and the quality of institutions.

However, in a recent speech by John McDermott of the RBNZ he points out that, when it come to considering monetary conditions, the type of “potential output” we are interested in is a bit different.

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Will Taylor

Rates and property values: it’s the relativity that matters

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I have a very minor quibble with today’s article in the herald titled “Higher rates the flipside of soaring house prices“.

The crux of the article is this redacted quote

If you live in Auckland and neighbouring houses have sold for unheard-of prices in the past two months, you can expect your home’s official value to shoot up.

…

The flipside? The new values will be taken into account when setting new rates next year.

While I’m not privy to the precise detail of how rates are calculated (nor do I want to be!), my understanding is that the council sets a fixed amount they want to raise via rates, and then allocates that across houses via relative values.

Because the pot is fixed as such, if all house values increase by the same amount, we would expect the share of rates that each house pays to stay the same (this is where I expect someone with an intricate knowledge of rates calculations to jump in and correct me…).

Therefore it is only if your property value  increases by more than other properties, we would expect your share of rates to increase. So if you own a house in an area that has rapidly gentrified since rates were last set (Guessing places like Onehunga, New Lynn etc…), then the share of rates you pay will probably increase, since your property value has likely increased by more than the city wide average.

The first sentence of the article I have quoted is probably getting at this, but I just thought it was worth making it explicit that the general increase in house prices in Auckland doesn’t necessarily mean you are going to pay more rates.

Matt Nolan

More rhetoric on restricting the choice of the poor

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I see that leading Stuff today is an article on New Zealand’s “obesity epidemic”, and how we must changes some things because we are “killing ourselves”.  The policy suggestions are:

In a report published today, the association calls for drastic cures for the bulge, including taxing or minimum prices for sugary drinks, restricting food advertising aimed at children, and taking fast food out of schools.

I’ll be honest, I can see a reasonable justification for everything except the minimum price.  I can see a good justification for changing policies around children, based on habit formation.  This isn’t the point.  The point I’m touching on involves the inappropriateness of quotes like this:

Otago University health researcher Professor Jim Mann said he supported the report’s recommendations, particularly a fizzy drink tax. Kiwis were becoming so big that they were almost blind to obesity. “Parents can’t even identify when their children are overweight or obese. Obesity is fast becoming normal.”

New Zealand’s poverty rates, particularly among children, and cheap access to fatty tasty foods were largely to blame, as was a lack of political will. “There is this obsession with the nanny state, that we shouldn’t be telling people what to do.”

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Matt Nolan

Top 10 on Global Warming

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So Interest.co.nz allowed me to pop up another one of these “Top 10” links things – where I blatantly use more than ten links to make some arbitrary point about some arbitrary subject.  This time, global warming – go over and give it a look.

However, there are a few links that I missed.

An excellent post by Eric Crampton from 2010, considering NZ policy choices.  I hear he is doing the next Top 10, so it will be interesting to see if he expands on this!  He discusses the idea of what policy we should put in place, given the fact that the lack of an international agreement removes the “externality” argument from play.  Ideas such as investment in technology (risky, with high potential reward, strategy) and investment in adaption and insurance become much more important here – it is an honest conversation we need to have!

Also, the links in this tweet:

Our views, and expectations of, global coordination are an essential part of what is “right” policy here.  Let’s try to be honest about that.  Yes, we can decry the impact on future generations, and we can do things to signal our concern (that is why I support a tax, even though it does nothing to the chance of a GWE).  But these issues are too important to only be controlled by the tyranny of ‘good intentions’, without considering what the actual future impact will be – if we actually believe that global coordination is fraught, we instead need to think about ways to coordination nationally to insure against/limit the impact where appropriate.  Ranting instead will just see us sacrificing future generations of New Zealander’s to make ourselves sound “moral” now 😉

Matt Nolan

Productivity in the UK and NZ

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I see that Patrick Nolan has an article in Public Finance talking about UK and New Zealand productivity.  Go read it, but come back here to comment as they don’t seem to have a comment system.

As we are a NZ audience, I’ll quote this bit:

While New Zealand faces different challenges, its experience can throw light on the UK’s situation. OECD research recently published by the New Zealand Productivity Commission has shown that the country has good resources – investment in physical capital and average years of schooling are broadly consistent with other countries – and policy settings. It is one of the easiest countries in the world in which to set up a business and its tax and regulation regimes are often seen as world class.

Indeed, the OECD estimates that New Zealand should have GDP per capita 20% above the OECD average. But its productivity performance means it is 20% below. In short, New Zealand poses a real challenge for standard prescriptions for what countries should do to lift their productivity performance.

– See more at: http://www.publicfinanceinternational.org/features/2014/06/solving-the-productivity-puzzle/#sthash.qZST25PS.dpuf

Matt Nolan

On free-riders and externalities

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Today I wrote a brief post on the Green announcement of a carbon tax.  I do support the carbon tax, but just wanted to raise some specific issues to think about.

However, a number of people on twitter were unhappy with me saying that, without Kyoto, we didn’t have an externality here – and I think their point is worth discussing.  I think a key issue here is the “group” involved and how we think of policy.  Hopefully by having a brief discussion here I can help to clarify what I was talking about in the prior post.

If this brief rundown isn’t sufficient, I don’t have anything more to say unless you add a comment here with a new framework – I’ve been as clear about my framework as I can be and really need to get back to work 😉

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