Truth is a strong word when discussing inequality …

Over at Polity Rob Salmond has promised us the truth about the gap between NZ’s rich and the rest (via Toby Manhire)!  This would be encouraging, given the complexity of the data.

I just want to say at the start I have full respect for people who want to discuss these important issues, including the use of data.  However, after reading his post I think he may have oversold his claim.  Don’t get me wrong, what he posted was interesting – if you go over to his post you will see a graph that shows aggregate taxable income for three groups – those being taxed on $150k a year, those being taxed on $100-$150k a year, and those being taxed on less than $100k.

I do not have the data sadly, but I have some reservations stemming from what I see in the post.  For some reason he is only quoted gains since 2010/11 – ignoring the whitewash for high income earners that occurred in 2009/10 due to the global financial crisis.  Furthermore, the income changes he quotes are biased (to the point that they aren’t representative of household income at all) in two ways:

Update:  Rob has re-evaluated the data and changed his interpretation of what it is saying, he has also blogged saying so – full respect for that.  His intent, of going through the data to try and figure out what is going on with policy relevant issues is admirable – and it is good that there is this blogging format where we can work through data and interpretation online.  With income inequality getting a bigger focus, there is going to be a lot more writing across New Zealand sites on this issues in the coming year.  For those who aren’t interested, the internet is a big place :)

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Thinking more carefully about gifts

Mieke Welvaert recently discussed gift giving, pointing out that it was significantly more complicated than the “just give cash” statement Matt Nolan made a few years back.  For example a gift is an inherently different good to the same self-purchased product – I good is not just the set of physical properties that constitute it:

There are some things people like to receive but probably wouldn’t buy if you gave them the cash to do so. Flowers and chocolate come to mind for this category.  I personally, much prefer to receive flowers than to buy them for myself.  I understand that many people enjoy a box of chocolates free of guilt if they were given the chocolates rather than if they bought them for themselves.

Furthermore let us not forget the importance of signalling – gift giving can be a signal, which may have value, or may in itself be waste.  When it comes to gifts the key point that comes out is that “efficiency is a really hard idea”.

Quick note on Labour tax annoucement

I have very little time to write anything substantive – and an internet connection that is awful at best.  But I just wanted to say I agree with David Cunliffe’s comments here when it comes to dumping the tax free threshold and tax-free fruit and vege policies:

We believe there are better ways to help struggling Kiwi families

Indeed, both these policies seemed poorly targeted – although I always leave the option open for analysis to prove otherwise :)

We will see what they announce this year I guess!

Discussion Tuesday

Criticising broad economics for measuring and discussing issues on the basis that macro forecasts predictions are inaccurate is equivalent to criticising climate science because weather forecasting is inaccurate.


Thinking about what ‘economics’ is

I am trying to gradually clarify my perception of what economics is.  Here are some cliff notes from a recent discussion I had:

Economists try to answer questions about “the allocation of resources given scarcity”.  Every question is quite specific and different, economics education involves learning a broad set of skills that allow us to tackle questions.  To do this economists use models.  Models embody a set of assumptions, assumptions that create an “artificial world” that we can deduce conclusions from given these assumptions.  We then use data, robustness testing, and rhetorical debate to help us inductively infer conclusions about the real world question we are asking from these artificial worlds.

As a result, economics is a discipline that can discuss a wide range of social questions that range from deterministic statements, to prediction, to description, to exploration – but the answers provided are always conditional on the question asked, and the assumptions we have made for answering that specific question.

Further details can be found in these (in order):

  1. What is economics in the most general sense.
  2. On economics as method.
  3. On assumptionsand again on assumptions.
  4. What does it mean to have many models?
  5. Economics and science – careful with the prediction call.
  6. Before railing against economics – what economists do.

If you know of any literature I should peek at to help inform myself on the status of the accumulation of knowledge and method in the discipline (as there is A LOT of improvement I can do in my understanding here) I would really appreciate it.