Are we all confusing status competition and ‘inequality': Short answer, yes

The authors of the Spirit Level have done a piece on the relationship between inequality and negative outcomes here.

Now I’ve previously strongly disagreed with the Spirit Level here.  However, I feel that I can discuss this specific post separately – I feel that it is clear and more focused than the book.  I am still unhappy with this post, however I think they have picked the clearest and most fundamental of their arguments to discuss here.

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In defence of the RBNZ’s upcoming hike

Although I no longer have the time to keep up with the literature on financial stability policy (and so am not commenting on it – this is due to my switch to detail income data analysis), I still spend a bunch of time looking at the national economy and monetary policy.

I see that a section of my work place thinks we need the RBNZ to be more hawkish than it is.  There are also many people who think lifting soon is madness.  I am not personally not in either camp – I actually think the Bank has got this right now!  The Bank’s decision to lift soon and get rates back to neutral does make sense given what they are facing, and that they are doing it the right way.

[As a disclaimer, I was more hawkish than the Bank during the crisis (I was wrong) - although my forecasts of economic variables were surprisingly accurate then, that was because their actions were more appropriate, not because I had any foresight ... another indication of why forecast performance isn't always the best judgment variable ;) .  From late-2011 until the end of 2012 I was more dovish than the Bank was.  Now, I find their discussion consistent with my own narrative and models - including the discussion of the risk.  So it is hardly surprising I'm so willing to defend them :) ]

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Should we hit inflation hard and fast?

With a hawkish statement from the Reserve Bank of New Zealand yesterday it is a good time to ask – do we need a preemptive strike against inflation, David Grimmond thinks so (Infometrics link).

This reasoning brings us to the need for the Bank to make an early strike at growing inflation pressures.  Given weak New Zealand and world demand conditions, inflation outcomes have remained below 2%pa for more than two years.  But there are a number of reasons to be concerned that inflation pressures could quickly mount this year.  To begin with, the low inflation outcomes of recent years have been largely a world inflation outcome, with declines in tradable prices offsetting non-tradable inflation that has persistently been above 2%pa.  With the period of deflation for tradable goods coming to an end, the headline inflation rate could begin climbing very quickly in 2014.

With inflation expectations also on the rise, it would suggest that a prudent Reserve Bank would seriously consider increasing interest rates sooner rather than later – perhaps less in need of reducing current demand pressures, but rather to strongly signal its continued resolve for maintaining price stability, and pre-empting a build-up of inflation inertia.

Do you agree that, given the rebuild and rising economic momentum the Bank needs to act confidently to maintain its credibility?  Or with pricing pressures, and expectations of price pressures, still relatively low would this be jumping the boat in an overzealous attempt to maintain credibility?



Expanding on the idea of “more competition in the services sector”

We’ve established in the past that, when looking at productivity, it is important to answer questions about “why” productivity is doing what it is doing and why we care.

Having accepted that there are industry specific differences in productivity between New Zealand and Australia (a relatively comparable nation), the Productivity Commission has been focused on competition in the services sector – which includes many of the underperforming industries.  Although they’d identified occupational licencing as an issue previously, they are putting that to the side to now (although that and patents are still areas of interest), and in their new report are focusing on two things:

  • stimulating a more competitive environment; and
  • the successful adoption of information and communications technology (ICT) by service firms.

Discussion below the flap.  Update:  I see the PC has a summary and an infographic.  Nice.

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Discussion Tuesday (on Wednesday)

This one came from beer, and the housing market.  Once again, remember that these are points for discussion – I am not saying I agree or disagree with them.

Wisdom and luck are different.  Wisdom is the result of investment in order to improve the expected value of choices.  Luck is simple chance.  Confusing the two leads to malinvestment in human capital.

New Zealand’s sexiest economist 2014: Nominations open

NOTE:  Nominations are now closed

Last year I learnt a very important lesson – I am not the only person that thinks that the study and application of economics is sexy.  The sexiest economist competition led to a lot of discussion, a deserved winner (don’t let me forget to pass on a trophy at some point), and two comments I heard repeatedly for the rest of the year:

  1. Are you going to do this again next year so I can vote for X.
  2. Where is this person Y I really wanted to vote for – specifically mentioning the lack of female contestants.

I had no intention of doing a 2014 version of this competition, but I’m also vulnerable to peer pressure, so here we go again!

However, things will be a bit different this time.  I am asking for your nominations for New Zealand’s sexiest (public facing) economist – you are allowed to nominate multiple economists.  Details are below the flap.

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