The visible hand in economics

Archive for January 2008

We’ve previously talked quite a bit about the issues around the Warehouse case  (here,here,here,here,here,here). The Commerce Commission pretty much set a new record in how many times they delayed their original decision. At the end of last year the high court overturned the Commission’s decision clearing the way for Woolworths and Foodstuffs to try and takeover The Warehouse.

Today the Com Com has been cleared to appeal the decision. While I think it’s fairly obvious that I think a takeover should happen, that is neither here nor there. Due process must be followed and the Com Com has a right to appeal (even though I think it is a huge waste of resources!! but hey, the Com Com has to justify it’s existence some how….). After letting this drag on for soooo long I am glad the high court wants the hearing to happen next month. The Com Com’s request to have the hearing put back till April or May is ridiculous. This saga has gone on for long enough and needs to be resolved one way or the other. Investors need certainty and this fiasco will no doubt make firms think twice about mergers in the future when they consider the protracted process they may be put through, and that is not a good thing .After all, the bankers need to pay for their champagne somehow ;)

Agnitio

This article came out at 9.30am stating that the New Zealand dollar was going to test $US0.80 again.

Even with an positive surprise in the merchandise trade figures, this is what happened:

nzdusd_1_hourlygif.jpg

Macro-man notices a similar trend with Economist magazine covers.

Update:  If anyone wonders why the dollar is falling, it is because of concerns in the US (we are a carry trade currency, so if something goes wrong in the US people sell our currency and buy US dollars crazy huh) about some bond issuers.

As the market expected the Fed cut its Federal Funds rate to 3.0% (down 50 basis points), a full 125 basis points lower than it was at the last meeting.  In the accompanying statement they touched on all the issues that they have previously complained about:  Weak housing market, softening labour market, and the erratic credit market.  The main issue for the Fed appears to be liquidity, as the idea of a financial accelerator comes into play.

They did also mention inflation they said that they expect it to moderate.  However, any upside shocks on the inflation front could cause concern for the Fed.

On the GDP side the market received a downside surprise, with a growth estimate for the December quarter of 0.6% (this is equivalent to approximately 0.15% quarterly, seasonally adjusted growth).  A poor turnout for residential investment and a strong de-stocking in inventories were the main driver of this easing in growth.  A good description of the data is given by Econbrowser.

What does this mean for New Zealand?  Well our dollar jumped half a cent against the US$ as the yield gap rose, we are now pushing $0.79US again.  The market didn’t seem terribly phased by the GDP figure, given underlying ‘strength’ in consumption and exports.  As a result, commodity prices should hold up at least a little longer ;)

Yesterday John Key delivered the National Party’s new plan for youth. I leave commenting on the many social issues related to the plan to others with who are better equipped to discuss whether his ideas will work. The thing that bothered me was when I was watching the news last night and they mentioned that opponents are labeling John Key’s plan for 16 and 17 year olds to not be able to receive a benefit if they are not working or attending a course that the government will pay for.

I don’t see what’s wrong with this. I’m not old enough to know what went wrong with the working for the dole scheme and why it has such dirty connotations in New Zealand, but on the face of it I don’t have problem with the idea. I have absolutely no problem with a welfare system, but it’s a safety net. It is there for people who can’t work for various reasons and people who are transitioning between jobs. Maybe it’s just my terrible upbringing where my parents told me that if you want something in life you have to work for it combined with that gem of a saying in economics that there is no free lunch, but I have no issue with people taking courses to receive their benefit. My sister was once dating a guy who was 18 and on the dole. He was making absolutely no effort to do anything with his life, he just played American football and thought it was perfectly normal for him to cruise along doing nothing while the government supported him. I realize (and hope) that he doesn’t represent all young people on the dole and I don’t want to stigmatize the welfare system, I just don’t see what the problem is with requiring people who are able to, to give something back to society in return for the support they receive from it?

Again, I wasn’t around when New Zealand had a work for the dole scheme so maybe I’m missing something here, I just don’t understand why there is a stigma being attached to requiring young people who can, to contribute if they are going to receive welfare.

Apologies for the rant :)

Agnitio

David Farrar links to a Herald article on a report that came out of Waikato University’s management school saying that Kiwisaver is going to increase income inequality.

Their policy analysis that rich people will restructure their activities to get tax benefits in a way that poor people cannot seams relatively sensible. I don’t claim to know anything about the the tax implications of Kiwisaver so I’m willing to trust them on that. This isn’t the only way that rich people can take advantage of the tax system in NZ. Last time I checked to top personal tax rate in NZ was much higher than the company tax rate, and businesses get gst back which gives people the incentive to structure as much under their company as they can. Incentives are king, this kind of behavior is nothing new.

What does bother me about this article is that they conclude that Kiwisaver has not “inspired new saving but rather a “reshuffling” of existing savings” based upon 598 completed mail surveys they sent out. Read the rest of this entry »

I was just looking at the economics chat meter at 26 econ and noticed this interesting graph:
recession.png

The graph shows the frequency of use of the word ‘recession’ in blog posts since the 2nd of August – a few days after the subprime mortgage market woes began to drag on market confidence.  January has been a ripper of a month for recession talk, with the US Fed cutting rates in a move that smells of panic, and the US government attempting to push through ‘stimulatory packages’.

The world seems scared of recession, should New Zealand be?

As everyone knows, Radiohead recently released their album ‘In Rainbows’ online for a nominal sum. It was suggested to me today that perhaps that is the future of the music industry and record labels will soon be obsolete. I agree that a release similar to Radiohead’s could be a good move for some groups, but I don’t think it will signal the end of labels as we know them.

I like Radiohead’s strategy because it shows some smart third degree price discrimination (although I think the internet price could have been higher). Read the rest of this entry »


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