The living wage again: Considering policy choices and trade-offs

I see a new living wage has been released (Via Kiwiblog).  We have posted about this recently, briefly noting some areas that need to be considered when thinking about this concept.

To help think about policy choices more broadly, Richard Meadows asked a few economists about making the minimum wage equivalent to the living wage (not what the living wage proponents are suggesting – but it is something people keep suggesting) and removing Working For Families.  The results of his conversations were here.

It was a good article, although I would note that I didn’t intend to come out quite as harshly against a tax-free threshold as I did – conceptually I see issues, but I want to leave my mind open until there is modelling work done to articulate the impacts and any potential trade-offs.  I did enjoy seeing the conclusions:

Crampton says he simply can’t say whether it’s better to take money from childless people – both rich and poor – and hand it over to low to middle income parents.  Economists can talk about the trade-offs involved and the likely effects of the policy, but moving beyond that becomes a value judgement, he says.

Hazledine is prepared to take a stand. ”I have long believed that excessive population growth is one of the major contributors to the problems of the modern world,” he says. ”So I am opposed to any pro-natalist ‘buying babies’ policies in any country, including our own.”

Nolan has read literature saying we should have higher birth rates – and other material saying just the opposite. ”Ultimately, this is an open question, and one that I don’t think is particularly useful for policy.” Instead, he says the best way to think about it is to consider people’s needs – and the trade-offs from the policies which are trying to address them.

I’ve asked Richard if I could put up the notes I scrapped together when discussing his piece – and he said that is cool.  As a result, my views and some of the questions that were asked, can be found below the flap.

This was written as a word document, and I have just pasted it across.  It hasn’t been edited into a blog form, hope people can still make use of it.  Would be happy to discuss the ideas in the comments, I’m a touch busy so it may take me a while to reply though :)

Note:  Eric does his write up here!

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A ‘Top 10′ economics links for romance and matching

On Valentine’s Day I had the opportunity to write a Top 10 at 10 for the always good Rates Blog.  As it was Valentine’s Day I thought linking to some romantic economics might be a good idea.

As the sexiest economist competition started that day – I didn’t have the opportunity to point this out.  As a result, I’m doing it now!

Note:  If I had spotted it beforehand, this would have been in there.  Tim Harford is so good at communicating economic ideas!

Woodford’s neuroeconomics

This post by John Cochrane points to a lot of neat papers.  I imagine the Gorton and Ordonez paper will get the most attention (eg Noah Smith’s tweet) – Gorton’s view of what happened during the global financial crisis is compelling, and his ‘bank run in the shadow banking system’ thesis is what I use to understand the GFC.

But there is a Woodford paper about neuroeconomics there, one that is related to the quote we had up for today’s ‘discussion tuesday‘.  The paper can be found here.

I had no idea that Woodford did neuroeconomic models of discrete choice – this is an area I’m ridiculously interested in.  I have his “interest and prices” sitting next to me, and it is a very good monetary economics book, but neuroeconomics is a whole other field!  Did anyone else know this?  Does anyone else have any extra literature I should take a look at?  I certainly know what I’ll be reading before bed tonight!

Discussion Tuesday

An interesting quote on an exciting subject today:

An understanding of the mechanics of the brain will allow us to reduce human behaviour down to something ‘deterministic’, thereby increasing our understanding of the allocation of scarce resources more fully (neuroeconomics)

Once again, remember that these are points for discussion – I am not saying I agree or disagree with them.

Bleg on solar loans

I’m not an energy economist, and am currently a bit short on time, so I thought I’d outsource discussing the new Greens policy on solar.  As a matter of principle I see it as saying “consumers are credit constrained, the energy sector has issues of competition, and the installation capacity exists, given that government loans at a market interest rate (which we can quibble over) may help”.  I have no real problem with that, although I’d like to spend time with the details.

A few questions though:

  1. Why does the government think this will reduce competition?  I’m not quite sure what is being said?
  2. Paying it back through rates, when it is a central government scheme, seems inelegant.  Wouldn’t a more direct scheme where the government installs and then charges make sense.
  3. Given that, if solar is actually effective (hopefully it is getting there), why don’t we have someone in the market trying to lease panels – is the installation cost (given the capital) that much of a pain?
  4. The question of feed in tariff prices, and how that actually works with the grid, is a damned hard one.  Remember, people will be generating “excess power” at times of the day with low demand – the real big problem is storage!

In some ways this feels like a policy trying to “tick a lot of boxes” at once – perhaps the best option would be to deal with perceived competition issues directly, if they exist.  Credit constraints are an interesting one on a number of dimensions – I have some sympathy for the idea that lack of access to credit reduces opportunity, however how much of this is due to the fact that the type of lending is risky?

I’ll leave my mind open to be persuaded either way on this, but when Meridian says there are problems with it (when they are one of the key players trying to get solar power working in NZ at the household level), I am uncertain about the scheme itself.

Clint Smith discusses on Twitter.

Salvation army “state of the nation” report

Via the Herald I spotted this State of the Nation report by the Salvation Army (Note:  The core report can be found here).  It is nicely put together, taking a whole series of publicly available data and making it fit for public consumption!  Also I appreciate their focus on shining attention on issues that get underplayed in public – let us be honest, house prices and interest rates get more play in the media than they really deserve, while some issues around poverty and discrimination receive less play.  I don’t blame the media for this, it is just the way of things, but having analysts publicly trying to talk about these other issues (as the Sallies is) is choice.  I tried to make this point when discussing the report on the panel.

Of course, you know me.  I find the “scoreboard format” a bit naff – making these things into strict “targets” can be a bit misleading.  Furthermore, the report embodies a set of value judgments – and these just may not be the moral judgments of the public.

Here are the notes I quickly tied together when I found I would have to speak on the report.  The notes have very little to do with anything I said – as they involved discussing and critiquing the report, when the interview ended up being a defence of the focus of the report.

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