Matt Nolan

September quarter QES and LCI – what happened?

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I do not know what happened, as I am writing this post several days before the results came out.

So what did happen?

Key statistics for me are:

  • Hours worked:  How much did they decline?  This is the “labour input” in its entirety – if domestic activity is declining this will tell us.
  • Retail/construction/wholesale/business and property services employment:  These sections of the labour market should be getting hammered – are they?
  • Hours x average hourly pay:  How is nominal household income growing?  If this slows sharply then we should start to be concerned
  • Adjusted labour cost index:  This is an indication of true, fundamental, inflationary pressure – I suspect that quarterly growth will be over 1% (given that September is typically strong for wage claims), however market expectations are lower.  A result under 0.5% for the quarter is weak – and suggests that slowing economic activity is taking down inflationary pressures.

Give me a run down so I can read it in a couple of weeks 😉

Matt Nolan

Matt is away

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Matt is away for the next two weeks.

There will still be posts from me – which are time delayed.  However, my response to any questions will also be significantly time delayed as I will not have access to the internet.

Other authors will be posting and commenting while I am away – I just wanted to inform you that if I don’t reply it is because I am not here, not (just) because I’m a bastard 😉

Matt Nolan

Quote: 7) John Maynard Keynes – on self-sufficiency

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John Maynard Keynes:

I see three outstanding dangers in economic nationalism and in the movements towards national self-sufficiency, imperilling their success. The first is Silliness–the silliness of the doctrinaire. It is nothing strange to discover this in movements which have passed somewhat suddenly from the phase of midnight high-flown talk into the field of action. We do not distinguish, at first, between the color of the rhetoric with which we have won a people’s assent and the dull substance of the truth of our message. There is nothing insincere in the transition. Words ought to be a little wild–for they are the assault of thoughts upon the unthinking. But when the seats of power and authority have been attained, there should be no more poetic license.

I found this quote on Paul Krugman’s blog. In the paper it comes from “National Self-Sufficiency” Keynes states that self-sufficiency in some things is a luxury society may be willing to pay for – this makes sense given that people inherently value goods made domestically by more, even if there is no difference in the quality or prices. Stats NZ 2008 year book took a survey that recorded 90% of people felt this way.

However, this article was merely a critique of economists that felt that “free-trade” in itself is the goal – in this quote he turns the argument back onto the “economic nationalists” when try to push self-sufficiency as the goal.

Ultimately, the goal of any policy should be to increase the happiness of society. The language of economics allows us to describe situations at this level in a fairly “objective fashion” – a tool that allows us to assault the thoughts of the unthinking and hopefully put these issues in their proper context.

Matt Nolan

Quote: 6) Vernon Smith – Unconscious optimisation

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Vernon Smith:

That economic agents can achieve efficient outcomes which are not part of their intention was the key principle articulated by Adam Smith, but few outside of the Austrian and Chicago traditions believed it, circa 1956. Certainly I was not primed to believe it, having been raised by a socialist mother, and further handicapped (in this regard) by a Harvard education, but my experimental subjects revealed to me the error in my thinking (emphasis added)

Economists do NOT think that people analyse every decision they make in a pile of analytical detail.  However, economists do believe that the actions that people act within their “interests” – and that this process can be described using mathmatics.  Maths provides a language to describe action – the agents themselves do not need to be able to do the maths.

Matt Nolan

National’s redundancy package

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So National’s redundancy package is out. It is different to my initial impression and slightly different to the Labour package.

As well as randomly asking banks to be generous National said it was increasing the accommodation allowance for people who are made unemployed and also increase working for families for people who are made unemployed – both temporarily.

Again, I don’t agree with temporary stimulus measures, as our high household borrowing levels suggest that we aren’t really suffering from “demand deficiency” IMO.

But how to the scheme compare? Well they cost (about) the same, but the Labour package is less targeted on those who will be struggling. The Labour scheme makes more sense as a long-run adjustment (which it is not) the National scheme makes more sense as a temporary stimulus methinks. However, the Labour scheme seems simpler – which means that it will probably distribute the funds more efficiently. I guess it ultimately depends on where you think any stimulus should go in the face of a recesssion – what you believe is equitable.

These are my first impressions, what do you guys think?

Update:  Kiwiblog gives an excellent breakdown (here).

Matt Nolan

Redundancy package

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So Labour is making it that people who lose their jobs during the economic downturn can get the benefit straight away – and over the first 13 weeks no-one will take account of their spouses income (ht the Standard).

Tell you the truth, this sounds a lot better than the scheme National are indicating they will put in place I suspect National is going to put in place – it is less distortionary and actually targets those who are in trouble. Of course, the reason it sounds better is because they are doing less – I still don’t think it is particularly constructive policy.

My only question is, why have no stand-down period during a recession and a stand-down period outside of a recession? Personally I think the two should be consistent. I buy CPW’s argument that a greater proportion of the unemployed are “unfortunate” during a recession and so we want to be lighter on them at such a time – however, again I am torn by the fact that I’m not sure whether society wants the UB as a security net, or as a guaranteed minimum income for people. The way we treat it will differ in each case – and until we are CLEAR about what we have it for, we will continue with inconsistent policy.

Personally, I would make all benefits means tested (taking into account the liquidity of a persons assets) but have them turn up as soon as you are fired (I’m not sure about when you leave a job – I’ll have to think about that one).  Update:  Why has no-one tried to argue this – it is supposed to be contensious.  I blame Friday 😛

Lets see what Nationals actual plan today is – then we can “compare”.