Submission on Indicators Aotearoa

As I have suggested that everyone else puts in a submission to “Indicators Aotearoa” I thought I should as well – and that for kicks I would share it with you.

Now such a process is a representation of the views and values I have – not an example of economics.  I am not submitting my views on this as an economist, I am submitting it as a person – the fact that I have studied economics does not gives my values any more weight, it just gives me a neat language that allows me to clearly articulate those values.

In case this also sounds to critical I would like to point out that this is a cool idea, I like how easy they have made the process, and how they are making us all feel appreciated about giving our feedback – good work Statistics NZ!  The discussion is supposed to be constructive here, that is my goal 🙂

So with that in mind, give it a read below – or as a pdf (MN Indicators submission):

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Geoff Simmons, Politics and “career suicide for an economist”

Disclaimer:  I used to work in the same space as Geoff, and I know him as a guy who is genuine, wants to improve social outcomes, is a mad good communicator, and who works hard on the issues.  But none of this would prevent me from disagreeing with him if I did (such as my comments on food here and here and here and here), so I swear there is no bias involved 😉

In a cool interview over at interest.co.nz Geoff Simmons outlines what is going on with the TOP party, which he has just become leader of.  For the sake of clarity I think he’ll be an excellent leader for this party.  What I want to concentrate on is this quote though:

How can the public know I am serious about the long haul? When Cortez took on the Aztecs, he trashed his ships to make sure his men had no choice but to fight with everything they had. The reason I bring up that story is what I am doing right now is pretty much career suicide for an economist. There’s no going back.

Haha, this is good – I like the nifty description of a commitment mechanism.  But I’d like to ask a couple of questions about it.

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Top 10: What has been happening in NZ?

I have spent most of the last four years trapped in a small space, pouring over legislation and microdata to figure out details of the New Zealand tax-transfer system prior to 2014 – with short breaks to deliver some lectures at Victoria University.  I learnt a lot, but I had no chance to keep up with the New Zealand economy.

So now I’m back, and I have questions.  This is what I bring up in my Top 10 over at interest.co.nz that went up this weekend.

So what are the key issues I’m struggling with:

  1. Why is the participation rate so high – this helps to describe it, but why? [Related facts:  It has been full time work climbing, with increasing participation by those over 65 AND rising female participation]
  2. Why has the NIIP liability position improved to the degree it has – this helps to describe it, but why?
  3. How are we seeing “late cycle” without input price pressures? [Note:  The RBNZ does not see this as late-cycle judging by this]
  4. The OCR looks low for “late cycle” – what is this due to?  I’m going to split this in two:  What part is due to real economy issues, and what part is due to changes in bank regulation/macroprudential policy?

Related questions – which are likely answered by the answers to the questions above are:

  1. Why is labour productivity so low?
  2. Why is the part-time employment as a percentage of employment so low?
  3. Why are house prices so high?
  4. Why is there no product price pressure – especially non-tradable prices?  This describes some – but why are non-tradables doing this now?
  5. Why is the terms of trade rising to the degree it is?

As you can tell reading this, I genuinely don’t know anything … but as someone who has a pretty clear view on macroeconomics and a good grasp on the NZ data and data history prior to 2014, I haven’t found any accessible answers to these questions easily.  So I am hoping you can help me here 😀

 

Economics is not consequentialist

A lot of people won’t care about this post – and the ones that do will care a bit too much.  So I will keep this relatively short.  But just believe me that this post is the first in a series of three that will eventually get to the point 😉

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Automation of an economist

While undertaking some research on income inequality I could no longer help Infometrics Ltd out with forecasting.  But before I left I caught economist Mieke Welvaert working on blueprints for my replacement.

Although I’ve defended these robots in the past (here and here) it has always been with respect to being compensated for my human capital losing value.  I’ll be sure to tell you all how that is going in future posts 😉

Vertical and horizontal equity: What are they?

This post is dry.  But if we want to talk about policy and fairness we gotta do some of the hard work making sure we understand how our ethical principles can be measured.  See it as part of trying to build more measures to help us understand arguments around policy given what Sen raises here.  So with that in mind lets define equity:

Equity.  Is the word economists unjustifiably confuse with fairness in order to pay lip service to distributional concerns

Ok I’m being a bit of a dork – in all fairness equity is a good start in asking these questions, but we have to see these measures as only a start!

At the most basic level, when we think about output/income and its distribution in society we consider the average of the income distribution (the mean) and its dispersion (the variance).  If incomes are rising over time as they have been for 200 years, then the variance also rises so we normalise such measures.  This is where inequality measures like the Gini coefficient come from.

The idea of (income) equity goes a step further than just describing the general distribution of income – it considers what happens when we impose an external policy that changes that distribution.  It measures a couple of principles that we may – or may not – value when applying a policy that changes the distribution of income:

  1. Vertical equity:  Captures the proportionality of the system applied – if we introduce taxes are people with higher initial incomes paying proportionally more, if we introduce transfer payments are people with lower initial incomes receiving proportionally more?
  2. Horizontal equity:  When we have two individuals we see as “equals” does this policy system treat them the same way?

With taxes and transfers these measures involve comparing the way people are treated by the tax-transfer system based on a view on what constitutes “equals”.  Specifically, these two concept can only fit together without conflict when looking at income if equals are defined as people with the same income.

Now in this post I will concentrate only on Vertical Equity – we can do Horizontal Equity another time!  And in line with my desire to be a bit more useful I want to focus on how we might measure these concepts, and what we are assuming when we do.

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