The visible hand in economics

Archive for the ‘Political economy’ Category

I see there is some talk of compulsory redundancy payments after this sad story.

Now even though it would be nice if those people hadn’t been left high and dry after all their years of commitment, it is important that we try to get an objective idea about the costs associated with the scheme.
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I have no doubt that my views here will be contentious – but they need to be put forward nonetheless.

I think that Treasury (or some mix of part of Treasury and IRD) should function at arms length in the same way as the Reserve Bank, and that they should set tax rates in the same way that the RBNZ sets interest rates.

Now, let me discuss why.

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My favourite article of NewScientist’s series is Herman Daly’s. The father of modern ecological economics lashes out at the way economists ignore the source of inputs to production and the capacity of the waste sinks that we have. As he puts it, we should imagine the economy as a system within the world’s ecosystem. Read the rest of this entry »

A recent article on VoxEU discusses the link between poverty and violence in Africa. It’s a tricky topic because there are good arguments to be made for causation in both directions and the direction of causation matters hugely for aid policy. Read the rest of this entry »

The Standard has been stating that tax cuts should be “fairer”. Now in principle I have no problem with things being “fairer” – however, defining what is fair very is subjective, and what the Standard sees as fair and what I see as fair might be different.

Still, both the Standard and No Right Turn go on to quantify what they feel is an injustice – the fact that a greater proportion of the tax cut will go to the wealthy. However, for what they are saying to be true, the wage everyone is paid following a tax cut must not change (or must change by the same lump sum) regardless of their current income – yet this is not the case.

Many moons ago we discussed tax incidence – I think it is time to run with this again, taking for granted some of the assumptions about the labour market that the Standard has provided us with over time.

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The DomPost contained an article on the potential for metering Wellington’s water supply. The question is asked: should Wellingtonians pay for their water? This issue is a hot topic, having been discussed at Kiwiblog, Infometrics and TVHE earlier this year.

Historically, water has been provided for by the various Wellington councils out of rates. Water is not currently metered, which implies that regardless of how much water each household takes, their rates do not vary. This arrangement has led many to believe water is in some way ‘free’, as they are not forced to pay for their specific usage and the cost is embodied in rates which cover many council services across many households. With water use of 400 litres per person per day in Wellington, relative to the national average of 160 litres, it appears water users here are not internalising the cost of their water usage.

Current arrangements do not allow for the pricing of scarcity. Read the rest of this entry »

Over at the Standard they discuss Bill English’s statement that we will become a “nation of savers”.  Now their attack line is relatively weird, especially given that he is just saying that if we need a bigger deposit to buy a house we will have to save it – he doesn’t say we should take on policy that imply “save more”.

However, he illustrates a strange view that National have of savings when he suggests that tax cuts will lead to an increase in savings – it will increase private savings but it is also dis-savings for the government, hence it will lower national savings (unless you believe it will magically cause a massive increase in economic activity).

Obviously the term “savings” is being used in a loose way – which is also “loaded” in the sense that these people assume that an “increase” in savings is a good thing.

I think it would be good if we review a series of posts which was (and eventually will be extended into) our “productivity series“.  In the four posts here we discuss Kiwisaver, national savings, and what savings is.

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