The visible hand in economics

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Dear avid TVHE readers,

We’ve finally set up our own hosting and have a new site  at, if you could be so kind as to set your links/bookmarks/feeds to the new web address it would be much appreciated!

We have lots of exciting things planned for the blog in the future (including some new commentators and some tax calculators for you to play with!), we look forward to seeing you there:)


The TVHE team


I was slightly concerned when I saw the headline on stuff this morning “Nats eye bailout of big business”

If the government is saying ex ante that they will bail out big businesses I would be concerned as this has the potential to cause a moral hazard problem. This is where firms know they will get bailed out and thus make riskier decisions. The actual quotes from Bill English don’t appear the be as explicit as I originally thought they might be

“You’re in an environment when almost anything any government could contemplate doing is getting done somewhere in the world,” he said.

“There is a small chance that events that have transpired elsewhere could transpire here. You can’t ignore that and so we need to give some thought to the extreme event.”

Are quotes like this enough to give the big companies in NZ enough comfort that they will bailed out? Only time will tell….

Apparently the Aussies are blaming Fonterra’s Global Dairytrade online auction platform for lowering the price of milk.

Interesting. If the auction is simply reflecting the true value of milk then the I feel no sympathy. This quote from the manager of the auction system sums up it’s purpose

Fonterra’s global trade managing director Kelvin Wickham said the auction was all about “the international market getting a transparent price” and all global dairytrade was doing was “making it more transparent more quickly”.

As an economist that is music to my ears. On the other hand here’s the quote from the Aussies

“Given things are bleak with the economic outlook, people are holding back on purchasing to see what happens with the auction,” Ms Bills said.

“Mostly, the price doesn’t recover. It is fine to want to have a transparent price system, but why not open at the closing price? If you put a price out there for something in an auction, people see it as a reserve.

“Buyers are waiting to see the price from the auction before they make their purchase.”

So basically they want the auction setup so that it props up the price of milk, can’t say I really have much sympathy for that view….

The Standard don’t see the point in them and Fletcher Building would  rather have a standard construction contract that doesn’t transfer  risk to them and doesn’t require them to incur costs setting the arrangement up.

I’m FAR from an expert on the issue of PPPs, and there may be some valid concerns using them for roads in New Zealand. However it is important to recognize that PPPs can take many forms with different levels and types of risk shared between the two parties. One of the key purposes of a PPP is to let the party that can best manage  each source of risk bear it. if designed properly this doesn’t sound like a bad idea, if they aren’t designed properly it’s a bad idea!

Anyways, sorry I can’t provide more definitive commentary about this, if anyone wants to learn more about PPPs and there purpose/benefits I recommend checking out this report from Deloitte. It’s a couple years old now and I haven’t read it in a while so can’t really comment on its contents, but I remember it being a good coverage:)

Hello avid TVHE readers

Given that we are currently constrained to use wordpress themes (we will get our own hosting eventually and go custom), we keep a watch on the new themes that get added to see if any are more functional/look cooler then our current one.

One that appears to be a little more functional (I’m not sure I would say it’s cooler as it is a little girly!) has been released and we thought we would we would give it a go and see what you guys think.

The comment and post links on the right are a lot clearer and the posts also show the author, category and number of comments quite clearly at the beginning. Quotes are demarcated in text and it just feels a little less cluttered.

Please, let us know what you think!

I wish I had time at the moment to read Bryan Caplan’s new book or the piece he has written at Cato unbound on the myth of the rational voter. Having only done the briefest skim I can’t really comment on the conclusions he reaches. However, the title seams fairly self explanatory.

This has really made me think of all the people I saw interviewed during the election night coverage saying they used to vote Labour but had decided to vote for National because it was “time for a change”. When pressed why change was needed not one person had anything to say. I kept joking at the time that it was the  “obama factor” (where in my opinion change was needed). In hindsight I’m concerned that it was. I can’t help but find it slightly worrying that people voted National but didn’t really have a reason to other then “change”.

Agnitio: Happy National are in but worried about how they got there…..

Update: Thanks to the journalistic skills of Kimble and StephenR we know this chart is a hoax, it has however sparked some amusing comments on the IQ/party matches for NZ:)

While procrastinating doing work on the weekend I found this little stunner

Would be interesting to see a similar exercise for the 08 election


Greg Mankiw has blogged about young voters abandoning the republican party in the recent Presidnetial election, citing this graph from Andrew Gelman

When discussing why he thinks this happened he cites anecdotal evidence from talking to undergrads at Harvard that

It was largely noneconomic issues. These particular students told me they preferred the lower tax, more limited government, freer trade views of McCain, but they were voting for Obama on the basis of foreign policy and especially social issues like abortion. The choice of a social conservative like Palin as veep really turned them off McCain.

I found this interesting as I generally fall into the same category, my utility function probably places a greater weight on social and foreign policy issues then economic issues. Since there is such a gulf between the democrats and republicans on social issues I generally tend to vote democrat in the US.

On the other hand, (despite what the parties say!) we don’t have anywhere near as much of a politcal divide on social issues in New Zealand so I generally vote based upon economic policies. Which, as you will have seen from our TVHE political quiz results, means I usually vote National.

As an aside, isn’t it random that a “Red State” is a Republican state when red is the socialist colour? According to my good friend wikipedia this just happened by accident and was a result of the the US news stations.

Agnitio:Votes blue in both countries

For those of you who don’t subscribe to the Commerce Commission’s media releases, they have just announced that they are investigating mobile termination rates. (Reasons here). In simple terms, the termination rate is what vodafone charges telecom every time a telecom customer calls a vodafone customer and vice-versa. The CC has decided that the rates are probably too high so they have launched an investigation.

What is particularly interesting is that they are including Fixed to mobile (FTM) as well as Mobile to mobile (MTM) in this investigation. This is interesting because they already investigated FTM back in 2004 (see the ridiculous amount of submissions that occur ed during that investigation here). So pretty much everything is on the plate this time round. It will be interesting to see what happens:)


I’m certainly glad we are keeping it Kiwi….

At the end of the day, I feel that people don’t analyse government asset purchases or sales properly. People get fired up about asset sales and make arguments like “National sold our state assets too cheap” to support the argument that asset sales in general are a bad idea (this argument is a personal pet hate of mine). Similarly I can see people will latch on to this announcement about kiwi rail and use it as an argument that the state shouldn’t own  these assets.

People need to seperate the poor implementation of an idea from the idea itself.


Next Law and Economics Association of New Zealand (LEANZ) seminar in Auckland:

Using the law as a last resort in policy making: challenging the ‘Working for Families’ redistributive package (Child Poverty Action Group (CPAG) v the Attorney General, 2008)

Speakers: Dr Susan St John, University of Auckland Business School

Date: Thursday 13 November 2008

Venue: Buddle Findlay, Level 18, PriceWaterhouseCoopers Tower, 188 Quay Street, Auckland

Time: 5.15 pm for 5.30 pm start, followed by refreshments

RSVP and topic details below

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It’s good to know investment bankers still have a sense of humor. I just these jokes in an email from some friends in finance. From the Wall Street Journal apparently.

Given that a major NZ investment bank has just had a large culling of its staff I guess they need something to lighten the mood around the office!



Gallows humor. Wall Street might have lost tons of money, but that doesn’t mean traders have lost their ability to laugh. Some faves making the rounds:

— What’s the definition of optimism? An investment banker who irons five shirts on a Sunday evening.

— What is the capital of Iceland? About $3.50

— I tried to get cash from an ATM today, but it said “insufficient funds.” I don’t know if that meant them or me.

— What’s the difference between an investment banker and a large pizza? The pizza can still feed a family of four.

— What does a hedge-fund manager with no fund to manage say? Would you like fries with that sir?

— The credit crunch is getting bad, isn’t it? I mean, I let my brother borrow 10 bucks a couple weeks back. It turns out I’m now America’s fourth-biggest lender.

The Law and Economics Association of New Zealand (LEANZ) is hosting an interesting seminar in Wellingotn next Monday on the free trade deal with China. It is being presented by some people in MFAT who were involved the behind the scenes economic and legal analysis of the deal. I (Agnitio) went to this seminar in Auckland and enjoyed it.

Seminar and RSPV details below

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So you’ve probabaly read with great interest Matt’s post on the NZ election political quiz. I also noticed that the same quiz has a verison for the US presidential election so I thought it might be fun for us to repeat the exercise.

You may be surprised by the results:)

Agnitio: Obama (79%), Nader (72%), McCain (72%).

Agnitio Comment: Given I voted for Obama (I also hold US citizenship) I’m not surprised by this. I’m also not particularily surprised I have a high rating with McCain given I generally lean a little to the right economically.

Goonix: Barr (73%), McCain (59%), Nader (53%), the other candidate (53>x>38%), Obama (38%)

Goonix Comment: Consistent with my results of the NZ version of the quiz. There is no way I could vote for the economic policies of either major parties’ candidates (especially Obama). Similarly, I could never vote for the archaic social policies of the Republicans, or their pro-war stance (one which Obama seems to be pretty keen on now too). But I still can’t believe Barr is standing as the Libertarian candidate and is anti-choice!

Matt:Nader (68%), McCain (63%), McKinney (60%), Barr (60%), Obama (60%)

Matt Comment: Although my results were in a narrow band the politicians did very differently in the individual components I choose. Overall, this gives me the impression that US politicians are inconsistent “between-issues” at least in my little slice of reality. Thank goodness I live in Aotearoa – where politician’s inconsistency is equally spread between all the facets of governance 😉

For those of you who missed the magic, before the credit crisis we were worried about a property crisis.  In the midsts of this madness Matt Nolan was itnerveiwed by Paul Henry on breakfast.  I was bored so I thought I would track down this video and relive the magic.  At Matt’s gesturing I’m posting the link on the blog so that we can “make fun of how wrong I was (as house prices are already down 5.8% on a year ago) :P”

So here it is

I don’t claim to know much about the proprty market,so instead I’ll make fun of his hair, watch the video to see Matt’s long (OK it’s not THAT long…) flowing mane of hair, then click below the flap to see Matt’s photo from the Infometrics website to see what he looks like these days


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