Matt Nolan

Should the US really keep blaming the exchange rate with China?

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Bemoaning the Chinese exchange rate when talking about the structure of the US exchange rate is looking increasingly unreasonable.  I don’t think either country should be messing around with trade policy and intervention, and I think they are both doing irresponsible things.  But if we are just going to look at the exchange rate lets actually look at it (thanks FRED).

Take into account that inflation has been stronger in China than it has in the US, and you get a story where the real exchange rate is probably lower than it was in 1994!

China is buying up US bonds at an incredibly low rate of return, as long as US isn’t “pissing the money in the wind” I can only see this sort of action hurting China – not the United States.  If the US is going to criticise China for creating and now maintaining “imbalances” I would like a slightly more sophisticated argument than “look at the exchange rate”.

How about “look at the artificially low rates of return in the past due to excessive artificial savings” – you make that argument, and it becomes obvious that fighting against China loosening global monetary conditions during a period where the world is suffering from tight money (even with amazingly low interest rates – as the equilibrium real interest rate has dropped markedly) and the  developed economy’s central banks wont doesn’t really make sense …

Matt Nolan

A point on NGDP targeting and inflation expectations

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I’m increasingly hearing people call for an NGDP target.  I’m not really convinced it is superior to inflation/price level targeting to be honest.  Let me discuss below.

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Matt Nolan

The top 1%: A few facts

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There have been protests about the amount of income going to the top 1%.  In of itself, I have never thought we could tell too much about what is the “right” distribution of income with a certain number – after all, we would expect the top 1% to have significantly more income in some sense.

The claim I found more disconcerting was how much it increased in the United States – from around 8% in the 1970s to near 18% now (all data from here, via Paul Krugman).  This led me to ask:

  1. How do these figures look for New Zealand?
  2. What are the drivers of this.

It turns out I discovered a little bit more than I was expecting when I ran through the numbers …

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Matt Nolan

More protesting for the sake of it: Economics students

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I know what its like to be a student, and feel like you know everything there is to know.  But the truth is that you don’t, you really don’t.  And that is something that the students walking out of Econ 10 should realise.

I learnt this the easy way – I listened to my lecturers, asked about the issues, and was able to tell that they were significantly smarter than me … and that they had critically analysed many of the same issues in the past.

From this I discovered that economics provides a framework that can be used for understanding the allocation of resources when we have scarcity.  It doesn’t prescribe to us what policies are right or wrong, it just gives us a transparent framework where we can hang up our dirty assumptions for everyone to see and then look at what conclusions pop out.

Look, there is nothing wrong with critical thinking – hell critical thinking is essential in the framework I’ve described about.  But they are complaining about a course that leaves all its assumptions out in the open, leaves itself open to criticism, and helps the student to engage in critical thinking.

If you want to know how poor the understanding of the students is look here:

There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory

Comments like this show to me that the students actually know nothing – and just want to protest the course because they don’t know what the course is, or what economics is.

In fact, I’m surprised at this idiocy.  I’m a fluffy business economist – nowhere near academia or study – but I read the General Theory and Wealth of Nations in my first year of study.  At that point I knew the fact that “Adam Smith’s theories” and “Keynesian theories” were about different things, and shared a lot in terms of the fundamental framework – the framework that is taught by Mankiw in Econ 10.

I find it difficult to believe that anyone could have the arrogance to walk out like this when they have no knowledge or understanding – but then again, maybe I’m underestimating the arrogance of Harvard students …

And this is my issue with a lot of the protests at the moment.  There are real issues in the US and Europe, where protesters SHOULD be out complaining – and the knowledge gained from a course like Econ 10 would help to provide this.  In fact, once you start to understand allocation, you begin to realise just how much there is to protest about – especially with regards to the developing world, and the inequities we tolerate for the worlds real poor.  Instead, the protests are dominated by self-centred narcissists who want attention and want to “fight the system” – giving the whole idea of protest a bad name.

Update:  Mankiw discusses here.

Update 2:  Reading the comments to the articles linked to by Mankiw is one of the most depressing things I’ve ever done.  I hope to god these aren’t actually Harvard students, because the comments are:

  1. Moronic
  2. Filled with a lack of evidence gathering – with people discussing Marx who don’t seem to understand that Marx’s method was Ricardian economics, and people saying there are no empirical studies in economics …
Matt Nolan

A message to tomorrow’s protesters

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Update:  The protest that I’m arguing against in the first half of the post isn’t till the 5th of November (thanks Seamus!).  However, my main critique in the second half applies to both protests insofar as the first protest is focused on inequality again.

Personally I AGREE with a some of the issues being put down for the first protest – and would potentially head along if it wasn’t that the bullshit inequality line is being sold so hard (including in the picture for the site).  Sigh

I see that a number of people have decided that, on Saturday, they are going to camp outside the Reserve Bank of New Zealand in Wellington to protest.  After seeing a similar protest on Wall Street these protesters have stated that they are the “99%” (a statement that implies that they aren’t part of the 1% that is assumed to own most of the capital) – and they are protesting for “change”.

I understand why people feel worn down, I understand the power and importance of non-violent protest, but I have to say something that will likely upset the protesters and many of my closest friends:

This protest and its message are wrong, and by doing it you both ignoring the real issues in the world and acting in a selfish way – and for that reason I think less of every single one of you.

That’s a pretty damned cutting statement – so let me discuss why I believe this.

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Matt Nolan

Protectionism: What the ….

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The US is pushing to start introducing duties on Chinese goods to make a “level playing field” given the currency “misalignment.

Hold up a second.  China maintains a “low” exchange rate by “saving” too much – and using that savings to do things like by US currency and bonds right.  Any subsidy on Chinese exports is “implicit”.

If  this is indeed the case, introducing duties is not the way to go about things – and by ignoring the central issue it will at best lead to an uncomfortable situation and poorer US consumers, and at worst will lead to a full scale trade war and a severe economic crisis.

If you think that having China save excessively creates risks to your own economy (as that sort of subsidy actually sounds pretty welfare enhancing in a direct sense – so we need to think about risks), then deal with it directly – eg by taxing capital flows from that specific country.  Don’t start rubbish protectionism.