The Dim-Post

July 9, 2014

NZ Household incomes

Filed under: economics — danylmc @ 10:10 am

I’ve been reading Capital in the Twenty-First Century (11% of the way through!) and the recent publication of the 2014 Household Incomes Report makes me wonder if the core hypothesis holds in contemporary New Zealand. Via the Herald:

Growing income inequality is largely a myth, according to the latest household income figures, though the pockets of the poor are hit the hardest by rising housing costs.

Income inequality is a major political issue this election, as the Labour and Green Parties have tried to paint a picture of a widening gap between the haves and the have-nots under the National-led Government.

The 2014 Household Incomes Report, released yesterday, showed income inequality had mostly remained the same since the mid-1990s, and is slightly higher than the OECD average.

Household incomes had rebounded by 4 per cent from 2011 to 2013, making up lost ground after the Global Financial Crisis and the Canterbury earthquakes. The report showed:

Lower earners were hit hardest by the recession, but riches from the recovery were more evenly spread. Overall from 2009 to 2013, average incomes were stagnant for the bottom half of earners, but grew by 5 per cent for the top half.

May 18, 2014

This actually happened

Filed under: books,economics — danylmc @ 6:58 am

I read the introduction to Piketty last night, then dreamed that my computer stopped working because – it claimed – it was contributing to the aggregate increase in the rate of return on capital over economic growth. I do not remember how the dream ended.

I will write more about the actual book later. But I’ve been interested in the debate in the economics blogosphere. Left-wing economists all seem to think Pikety is right and right-wing economists all seem to think he’s wrong. (I would note that the objections I’ve heard from some on the right: ‘Piketty disregards the decline of inequality between nations, cf the development of China,’ or ‘Pikety disregards the ability of education and skills transfer to reduce inequality,’ seem to be issues Piketty addresses in the introduction to his book. Maybe there are more substantive critiques out there?).

Anyway, my point is that the question Piketty asks is important: does capitalism reduce or increase inequality over time? He reckons it increases inequality, left-wing economists agree with him; right-wing economists reckon he’s wrong. What are non-economists supposed to make of a discipline that splits along partisan lines over a fundamental empirical question?

April 29, 2014

Labour’s monetary policy

Filed under: economics — danylmc @ 2:21 pm

According to their web site (btw, I notice that Labour’s Red Alert blog hasn’t been updated for about six weeks, indication that Matt McCarten has made a positive contribution) Labour will

  1. Maintain the Reserve Bank’s independence and its inflation target.
  2. Broaden the objective of the Reserve Bank to include the external balance and allow it to use current tools to tackle our overvalued dollar.
  3. Give the Bank a new tool to adjust universal KiwiSaver savings rates as an alternative to raising interest rates. This would mean Kiwis would pay money to their retirement savings instead of higher mortgage payments to overseas banks.

Universal KiwiSaver and a tool to adjust KiwiSaver rates to keep mortgage rates low? I think you can do one of these but not both. If you’re going to compel people to save their money because its good for the economy then that’s one thing. But if you’re going to compel people to save money and then modify the rates to benefit a smaller subset of people who have mortgages you’re in the tricky position of higher rates having a disproportionate impact on lower income earners – who are unlikely to own a home – and benefiting higher income people with mortgages. That’s hard to justify.

April 10, 2014

Vox summary of Pikkety’s Capital

Filed under: economics — danylmc @ 9:10 am

I’ve asked my university library to order in a copy. It’s not here yet but the basic argument seems very simple. Matthew Yglesias writes:

The main concepts Piketty introduces are the wealth-to-income ratio and the comparison of the rate of return on capital (“r” in his book) to the rate of nominal economic growth (“g”). A country’s wealth:income ratio is simply the value of all the financial assets owned by its citizens against the country’s gross domestic product. Piketty’s big empirical achievement is constructing time series data about wealth:income ratios for different countries over the long term.

R is a more abstract idea. If you invest $100 in some enterprise and it returns you $7 a year in income then your rate of return is 7%. Piketty’s “r” is the rate of return on all outstanding investments. A key contention of the book is that r is about 5 percent on average at all times. The growth rate (“g”) that matters is the overall rate of economic growth. That means that if g is less than 5 percent, the wealth of the already-wealthy will grow faster than the economy as a whole. G has, in fact, been below 5 percent in recent decades and Piketty expects that trend to continue. Because r > g, the rich will get richer.

Let’s assume that Piketty is correct and he’s discovered something deep and important about the nature of capitalism. That’s a really big deal, and Pikkety’s work looks like it’ll be a landmark in its field.

Now, obviously I’m not an economist, but from a layman’s point of view this doesn’t seem like this is a very difficult or opaque idea. Pikkety looked at the historic data and noticed a trend. It’s not like, say, Heisenberg’s work on quantum theory – which was so counter-intuitive and nonsensical even subsequent Nobel Prize winners are baffled as to how and why he developed his ideas, but which happened to be correct and revolutionised physics. It’s a little disturbing that after two hundred years of capitalism we’re only now discovering critically important but fairly simple insights into how it works.

April 8, 2014

Politics, lies and the Economy

Filed under: economics,Politics — danylmc @ 1:20 pm

From Russel Norman’s twitter feed:

money

Does borrowing fifty billion dollars over the last six years mean the Nats are bad with money? I don’t think so. We had an external shock in 2008 (the GFC) and then a massive earthquake, both of which had a huge negative impact on our economy. Interest rates for the government to borrow on the international markets were super-low during this time, so borrowing money was actually a really smart thing to do. We probably should have borrowed more and invested it in infrastructure instead of selling our energy companies and frittering money away on National’s tax switch, which cost billions and totally failed to stimulate the economy.

And I suspect Russel Norman would agree with that. What Russel is responding to here is the massive gap between National’s economic rhetoric and the stuff it actually quietly does. Yes, John Key and his Finance Minister Bill English have borrowed $50 billion dollars from overseas investors over the last six years. But John Key and Finance Minister Bill English have also spent the last six years roaring with horror at the economic plans of Labour and the Greens who want to BORROW MONEY from OVERSEAS INVESTORS! That’s why asset sales are so important, according to English – it’s the prudent, sensible alternative to BORROWING MONEY from OVERSEAS INVESTORS which will wreck the economy, except for the $50 billion he borrowed which was FISCAL and PRUDENT.

Likewise government spending. Interest rates went up recently and the Governor of the RBNZ has forecast more rises over the next two years, so we’ve heard some very stern warnings from English and Key about how the policies of Labour and the Greens will CAUSE INTEREST RATES TO GO UP! We’ve also heard a lot of dire warnings from Bill English about GOVERNMENT SPENDING. So here, via Treasury, is English’s record of government spending over his tenure as Finance Minister:

hyfu

Again, having the government spend money during an economic down-turn and period of national crisis is a good thing to do. You just don’t get to do it while simultaneously thundering about how the opposition parties want to spend money, which will destroy the economy. Or rather, National does for some reason.

The point I’m trying to make here is that almost every statement Key and the Finance Minister make about the economy is nonsense, pure disinformation dipped in hypocrisy, sprayed with drivel and then airbrushed dry with horrible fucking lies. That’s not part of the conventional wisdom though, especially among political commentators who all have Bill English as a straight-talking dour, fiscal, prudent conservative instead of a big-spending, big-borrowing outrageously dishonest hypocrite who vomits out floods of obvious lies every time he opens his mouth.

It’s a big problem for the opposition. In macro terms National has done pretty-much what Labour and the Greens would have done – with some obvious exceptions like the tax cuts – but pretended that they’ve done the opposite, and warned the country that Labour and the Greens are going to introduce fiscal policies which are basically identical to National’s but which National warns will destroy the economy. It’s all such a gigantic, egregious yet successful lie that countering it is all but impossible.

February 24, 2014

The economics of homemade Thai Green curry

Filed under: economics — danylmc @ 8:42 am

Dita De Boni suggested in the Herald that the government set up its own chain of supermarkets that, like KiwiBank, introduce competition to a market that doesn’t seem to be working very well.

Matt Nolan hits back against the idea, writing:

Let us think about Progressive vs Foodstuffs a bit here.  If both organisations are thumping around their wholesalers, and the duopoly is competitive (due to the organisations selling a homogeneous product where consumers have good information about prices), then the lower cost for products is PASSED ON TO THE CONSUMER!

If Progressive is bullying, and Foodstuffs isn’t, then Progressive has a lower cost structure than Foodstuffs.  As a result, Progressive can bid down prices, but is likely to keep a large part of the surplus to themselves.  In this case, Foodstuffs is squeezed, and may lose market share, so they have an incentive to bully their wholesalers as well!

If neither firm bullies their wholesalers, they both just charge higher prices, and the consumer pays the difference.

So here is the thing.  We feel bad for the wholesaler being bullied by these big companies – understandably!  However, if we look at the issue more broadly, their bullying activity may well be reducing the price of some goods and services for the consumer.  If we force them to give up their bullying, the consumer then pays a higher price.  There are always trade-offs, let’s at least make a slight attempt to remember that – instead of pretending that government ownership will somehow come in and make everything magically better.

I’d just make one point here which is that its really easy to take a look at the prices at the supermarkets, compare them to competing vendors and see if bullying suppliers does lead to lower prices. And, like I’ve pointed out before, places like farmers markets and green-grocers are consistently way, way, way cheaper than the supermarkets. As an urban-liberal I need a steady supply of lime and coriander and spring-onions and these are usually available at the farmer’s market at around a third of the price the super-markets sell them for.

But, an economist could say: the supermarket adds value because I can buy things other than fruit and vegetables, like, say, coconut milk and and pistachios, and the overheads of building and running a gigantic supermarket are built into that cost. Which is true. But compare the cost of chippies, soft-drinks, chocolate and wine in the super-markets to the cost in your local dairy. It’s usually 100% to 150% more than the supermarket.

So products sourced from small local growers are far more expensive in the supermarket while products sourced from large corporations are a lot cheaper. That suggests to me that (a) suppliers get treated very differently depending on their size and (b) the lower prices being gouged from small, local suppliers aren’t being passed onto the consumer.

January 29, 2014

Something that’s bugged me for a while

Filed under: economics,Politics — danylmc @ 8:38 am

Via the Herald

Labour’s $60-a-week child payment scheme may produce less work and more babies, economists say.

The scheme, announced on Monday, may put some average wage-earners off working more hours because they will lose two-thirds of every extra dollar they earn through a combination of reduced child payments, tax, ACC and KiwiSaver payments.

But Canterbury University economist Dr Eric Crampton said it would also raise New Zealand’s fertility rate.

“Some people will be thinking, can we afford to have another kid, and just deciding at the margin, no we can’t,” he said. “This extra bit could be enough to do it.”

Now, I agree with Eric on this second point. That’s why I think all the rhetoric from people like DPF has been counterproductive for National: its a policy that might give middle-class voters the freedom to have another child and they’re ranting about sluts breeding for cash.

But this stuff about ‘average wage earners’ turning down work because of marginal tax rates etc? Models in which workers make rational decisions based on perfect information and work more/less in response to proposed policy is standard economist stuff and gets trotted out all the time – but how many actually existing jobs in the modern 21st century economy pay wages and let workers set their own hours? Economist lecturers certainly don’t get paid like that. They’re on salaries! And lower income workers who do get paid by the hour tend to work on a ‘whenever the boss tells you to’ basis. I mean, I’m sure there are some wage jobs out there for part-time Mums who get to set their own hours and will make a rational decision to work less because of higher marginal tax rates but I’d like to see some actual stats on whether those jobs even constitute, say, 0.1% of the workforce before we start speculating that it will impact on the entire country’s productivity rate.

January 7, 2014

Chart of the day, also political rorschach test of the day

Filed under: economics — danylmc @ 9:31 am

From a new paper by the Productivity Commission on why New Zealand industries lag behind Australia, published – you might even say ‘dumped’ – on the Thursday before Christmas. Sent in by a reader (let me emphasise that I was not reading Productivity Commission reports over the summer break).

gdpausThe paper finds:

. . . the majority of the gap is due to productivity differences in the same industry across the two countries. Across most industries, Australian firms have invested more in capital while New Zealand firms do not use capital and labour as effectively as in Australia.
The chart shows what happened historically. I think. There was terrible allocation of capital under Muldoon – the famous ‘think big’ programs. And then Roger Douglas became Finance Minister and his reforms just annihilated our productivity, a disaster we haven’t really acknowledged let alone recover from. But I’m always interested in alternate explanations . . .

October 7, 2013

Undesirable plot

Filed under: economics — danylmc @ 9:31 am

I didn’t pay much attention to the Reserve Bank’s LVR policy. I’m sorta inside a bubble in which everyone I know has equity in a home in a nice part of Auckland or Wellington.

So I had a good laugh at Labour’s case study: some 23 year old trying to buy a $500,000 investment property. It’s not until you talk to people outside that bubble who are trying to enter the property market – trying to buy a fix-er-up house in an outer suburb of Wellington for $350,000, say – but now can’t because they need to save a deposit of $70,000 on average salaries while still paying rent on their current accommodation, that you understand the magnitude of the RBNZ’s policy.

Wheeler explains that policy here. I guess it makes sense to him from his 20,000 feet up perspective, but to the people affected – prospective property owners on low and medium incomes – it seems like the government is deliberately locking them out of the market. It seems unfair. And it is! And when the government does stuff that seems really unfair to tens? hundreds? of thousands of people, opposition parties get to oppose it. Right?

Here’s John Armstrong on the subject:

 . . . some kind of consensus between the two main parties would be of considerable assistance to the Reserve Bank if they stopped questioning its efforts to cool a dangerously overheated property market as it sees fit.

The central bank has put its credibility very much on the line as to whether its swingeing intervention in the home mortgage market will work or not.

It could do without political parties – most notably Labour – making promises that would sacrifice the bank’s flexibility solely for naked political self-interest.

The Conventional Wisdom is that the Reserve Bank MUST be independent, because the Reserve Bank must be independent. It’s sacred! But when you see the Reserve Bank pursuing a near-zero inflation policy at a time of high unemployment it does make you wonder why an independent central bank is so vital. And now this! It’s like the RBNZ is handing left-politicians a gun and begging them to shoot them.

May 28, 2013

Epic dissent of the day

Filed under: economics — danylmc @ 8:42 am

Matt Nolan takes (strong) exception to this post and graph. I hope to respond when I find time, and courage.

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