The visible hand in economics

Ed Prescott has written some pretty brainy stuff in his time. I’m particularly a fan of his work on dynamic inconsistency in economics with Finn Kydland. But, here we see why you should not make heroes of people. Read the rest of this entry »

In an interesting speech by the RBNZ governor Alan Bollard we are told that everyone needs to play their part during the economic crisis. Specifically he stated:

We would hope that the electricity industry does not take advantage of its market position and keep increasing rates, that local authorities realise they need to set rates increases below inflation for a change, that the construction materials industry respond to much weaker demand, that the food industry react to lower international commodity prices with price cuts, that petrol companies keep cutting forecourt prices, that the transport industry pass on fuel price cuts, and that the banks pass on interest rate cuts. Only then will all these firms be playing their proper role in New Zealand’s recovery.

Now, putting the hard word on industries that do not face market pricing (like local councils) is fine – but attacking businesses for setting prices in their own interest – what the hell!

Firms aren’t passing on costs because they aren’t. If they had increased prices as strongly as cost pressures demanded on the way up then the inflation figure would be a lot worse than 5.1!

Think of it this way – if businesses are pricing “too high” they will face a situation where prices are “relative elastic”. Then it is “in their own interest” to cut prices. If they aren’t doing so, then prices aren’t too high, and if the RBNZ is really worried about inflationary pressure they should batter away with their own instrument instead of making arbitrary calls about “sharing the pain”. If there is a competition problem, complain to the commerce commission, otherwise stop trying to create scapegoats because of the fear surrounding a potential policy failure!

Other comments: Inquiring Mind, Rates Blog.

Copyright tvhe.wordpress.com ©

After seeing Adam Smith at the Inquiring Mind reach 2,250 posts here, I decided to check my own post number. I noticed that I hit 500 posts with this one.

As a result, I expect some beers from Rauparaha, Agnitio, and Goonix on Saturday ;)

This post is the 678th post on this blog overall. Note that we will be changing the format soon – so keep your eyes peeled :P

Copyright tvhe.wordpress.com ©

In net terms I am AGAINST the probation policy being put through today. That puts me in a pretty significant minority among my economics peers, oww well it gives us something to talk about. However, I would also add that I am NOT THAT against it – I am only against it in net terms because of value judgments.

Read the rest of this entry »

Please, explain to me how the current probation policy is different from the one National is going to introduce!

I know about economics, but these subjective terms like “natural justice” do not have a clear meaning to me :( .

I was all ready to rail against the scheme this morning because I thought they were making probation period compulsory – however, now that I can see that isn’t the case I need to find out more about it before I say what I think.

Tane at the Standard states that:

All National’s proposed legislation would do is remove the right to fair process and natural justice

So how exactly does this impact on policy. What are the definitions of “fair process” and “natural justice”. Once I have an idea I’ll talk about the policy, and I’ll compare it and the current scheme to the extremes of “compulsory” and “no probation” – using economics to frame the issue.

Update: I have been informed that the main differences are:

The 90-day provision will apply to any workers employed by businesses with fewer than 20 staff. Workers who are sacked by their employer in their first 90 days on the job will be unable to challenge their dismissal or take a personal grievance case.

Is there anything else?

Kiwiblog has a good run down here.

Copyright tvhe.wordpress.com ©

A recent survey stated that New Zealand exports were “resiliant” in the face of a massive global recession.

Now this is something that, at first, might seem unusual. New Zealand relies on exports so much, and if the global economy is collapsing surely we will have no-one left to sell too.

However, it is important to remember the difference between “prices” and “quantities”.

Read the rest of this entry »

Over at Financial Armageddon they state that:

Analysts naturally factor in the number of people who are out of work when they try to figure out future consumption patterns. But there is more to it, of course. People who are afraid they might lose their job are just as likely to economize or clamp down on spending as those who have no real choice in the matter. In fact, some might say that changes in the attitudes and behavior of the 85-95 percent (depending on which statistics you believe) of those who are employed matter much more than the financial wherewithal of those who aren’t

Now this implies that analysts don’t look at the feeling of those who are employed and as a result will not expect as sharp a fall in consumption. However, as an analyst I can say that we do pay attention to this fact – which is why we put such a weight on the unemployment rate when we forecast.
Read the rest of this entry »

Add to Google
Follow

Get every new post delivered to your Inbox.