Category Archives: Political economy

GST rates and inflation: Why Mr Peters is actually wrong

Posted on by

At his rates blog and his blog on stuff Bernard Hickey often has a number of insightful things to say. Sadly this piece where he forces himself to agree with Winston Peters is not one of them.

Specifically he states:

In fact, a GST cut is the perfect tax cut right now. It is a deflationary tax cut targeted at the poorest and at those with the most squeezed disposable incomes.

This is a common misconception which results from the way us economists often teach people to think of inflation. For this error I apologise. However, fundamentally, a cut to GST rates is just as inflationary as a cut to personal income tax rates. As I’ve stated here:

inflation is the rate at which prices grow – not the price level

The inflation that economists are scared off is the rate at which the price level grows. Continue Reading →

Should the government reward effort?

Posted on by

Recent posts by two of the most prominent New Zealand left wing blogs (the Standard and New Z Blog) lament the fact that the wage people are paid does not necessarily relate to the effort they put into their work. As a policy solution to this inequitable result of the free market both blogs suggest that the government provides tax cuts that give the poor more.

However, no matter how sympathetic I am to the idea that effort and reward aren’t correlated in a way that most people would view as “fair”, I don’t think that adding further progressivity to the tax scale is the appropriate mechanism with which to achieve this social goal.  Furthermore, I don’t think the trade-off between production in society and the achievement of our “equity” goals is appropriately mentioned in these posts.
Continue Reading →

Jawboning productivity?

Posted on by

Dr Cullen has told businesses to increase productivity. Although this sounds utterly ridiculous, given that businesses will make all profitable investment they can in order to make their output at a lower cost (unless you believe there is a conspiracy to keep wages low :) ) there could possibly be some method to his madness.

Treasury has been working hard on the productivity issue this year, but it is a difficult issue. If we could costlessly increase our productivity then we would have no trade-offs, as output could become un-limited. As a result, the trade-off they have been interested in is the trade-off between current investment in productivity and the future benefits. To make matters even more difficult, the factors lying behind productivity remain somewhat of a black box – a subject where an individuals industry expertise trumps the musings of a whole team of economists.

Given that information regarding productivity is implicitly tied up in businesses and given that the choice of investment in infrastructure and R&D are often subject to positive spillovers, Dr Cullen’s strategy of Jawboning may be ingenious.

Continue Reading →

A tax free threshold?

Posted on by

The support for a tax free threshold in New Zealand appears wider than for almost any other policy. The right supports it, the left supports it – then why is it not government policy, and why do I not support it?

A tax free threshold at $9,000 would cost approximately $3.5bn (according to Patrick Nolan’s NZIER tax cut calculator from November 07), and would give everyone earning over $9,000 the same chunk of money (assuming that other tax thresholds remain unchanged).

Lets discuss why the policy may be popular along the political spectrum:

Continue Reading →

An Economics party?

Posted on by

No I’m not talking about the epic adventure that is an economics drinking party – I am talking about the idea of an economics political party.

Scott Adams on the Dilbert Blog discusses his idea of an economics political party after becoming irritated at Hillary Clinton.  It is well known that I am unsure who to vote for given the policies of parties in New Zealand.  However, would an economics political party really solve this for me.

So ultimately I have to ask do you think that a political party of economists is a good idea?  Furthermore, is the economics party that Scott Adams lays out the same as the economics party that you would lay out?  I have some opinions – but I’ll save them in the off chance that someone comments on this post ;)

From “Strategic Assets” to “Sensitive Land”: The Circus Continues

Posted on by

As may have noticed I find the whole “strategic asset” thing a little ridiculous. If I thought the situation was stupid before, you can imagine how I felt when I read Dr Cullen saying that the law actually states that it must be a “strategic asset” on “sensitive land”. Where sensitive land is “defined in the Act, it borders reserves, or foreshore and seabed, or whatever it may be.” In the words of the good Dr Cullen.

Wow. So AIAL couldn’t be sold because it is on some pretty land despite the fact that if everything goes to hell we could build an airport at Whenuapai. What happens if the Wellington electricity network is run down? Someone else can’t exactly come in and build another network. But apparently it’s not whether the land is the only place the asset could be, i.e is the land “strategic”? which I think the land the power network is on is and the airport isn’t (the motorway from the city doesn’t connect to the airport, it’s does my head in). Instead it is whether the land gives us warm fuzzies?

Continue Reading →