Government deficits are all the rage these days, and understandably this antagonises those on the far-ish right, who really, really wanted tax cuts (*). Common on both the linked blogs is a habit of calling deficits 'fiscal child abuse'. I think this overstates the issue, and I don't think that, morally speaking, the effect a deficit will have on future generations is a terribly bad thing. There may be other reasons to oppose a deficit. But concern for our children's welfare should not be one of them.
Firstly, child abuse a singularly monstrous thing. I think you strip it of meaning somewhat by comparing it to every policy which has a negative effect on future generations. Child abuse is child abuse, but nothing else is.
Secondly, we don't actually have child labour in New Zealand. So by the time they are paying taxes, they will be adults. So it is really, if anything, 'future adult abuse'. This sounds less dramatic, because it is.
Thirdly, provided the recession doesn't last forever (or the 'anti-growth people don't get into power), our children are going to be far richer than us. Because we get richer by such small percentages every year, we don't really notice it. But it compounds, and the reality is that we are far richer than our grandparents, and our children and grandchildren will live lives of luxury we can only dream of, drastic climate change notwithstanding. So perhaps we should worry a little less as to how they'll find the money to pay for it, and take some time to look after ourselves.
* The discerning reader will notice that tax cuts actually increase deficits. Of course advocates for far more limited Government want matching spending cuts. But it interests me that they appear to prefer tax cut advocacy over spending cut advocacy (what is the ratio of posts that complain about cancelled tax cuts in the budget to the posts that complain about spending levels?). Perhaps this is a more politically palatable strategy, or perhaps they simply don't care about future generations as much as they say. That's fine, they shouldn't.
Show Me the Magic!!
It's budget day, so naturally the macroeconomy is one of the big issues. For me, this means revisiting the fiction from my youth and drawing instructive analogies which can enrich ordinary discourse. Today, its Harry Potter.
On my 5th or 6th re-read of the series recently, I was struck by the basic incoherence of the principles which underpin the wizarding economy. Essentially, there is no scarcity. You need food? Gamp's law of transfiguration says that as long as you have some, you can increase its quantity as much as you want. Limited space an issue? Just build a room of requirement which can expand or contract with the wishes of the user. Issues like these bug me, somewhat destroying the realism of the novels.
But more relevant to budgetary concerns is this puzzling fact. Once students graduate Hogwarts (or Beauxbatons or even (heaven forbid) Durmstrang) there seems to be very few employment oppurtunities available. Either you join the Ministry of Magic, whose entire purpose is to keep the muggles oblivious. Or you become a teacher. Or you work on Diagon Alley in a retail store. There seems to be very little primary commerce going down in the wizarding economy.
Of course for wizards, this is not an issue, because they can just substitute magic for industry and everthing is sweet. But supporters of big government spending who believe that this can pump money into an economy and stimulate employment should learn from this. Maybe it would work if Dumbledore was the Minister of Finance. But for those of us tethered to the muggle realm, conjuring economic productivity is not so simple.
Thus ends my frivolous take on macroeconomics.
Old School
Give your mind a break from fiscal policy for a second.
Marrou, H.I. A History of Education in Antiquity, 1956, page 215. On Athenian students.
Plus ça change, etc
"(Students gave the town) a typically 'Latin Quarter' atmosphere of rowdy, lawless, carefree, frivolous youths, who got into trouble with the police, wasted their time playing ball games, were mad on horse-racing and other shows, and had a weakness for feeble practical jokes ... and of course there was sexual immorality"
Marrou, H.I. A History of Education in Antiquity, 1956, page 215. On Athenian students.
"The novitate... was set upon and badgered by the senior men about him. If he was very fresh, and inexperienced in repartee, they resorted to vulgar banter, but if he showed any quickness in retort, they tried upon him all the resources of their practised wit.... when the nerve of the freshman had been tested, they took him in and at last, the trials of novitate were over"W.W. Capes, University Life in Ancient Athens, 1877, pages 100-101
Plus ça change, etc
NZ Budget 2009
Political detective/MP for Hutt South Trevor Mallard announces on the Labour Party Blog that he has some leaks as to the content of the NZ Budget to be released later this week:
I personally would be happy with minimal spending cuts, and perhaps some tax cuts also. In times of hardship firms quite reasonably cut discretionary spending, but the Government does not and should not have this luxury. I like a balanced budget as much, if not more than, the next man, but most economists would accept that if it is to be done, budget-balancing should be counter-cyclical, as it is economically contractionary. This was done quite excellently by the previous administration, something I think is under-recognised by the its critics, who frequently focus too heavily on tax cuts as the sole metric of good policy.
As an aside, there appears to be very little comment on the NZ blogs that I read as to what people expect to see in this week's budget (aside from very good satire).
It will be interesting to see if these are in there or if Mallard has been mislead (or is being misleading). These are all cuts - despite the risk of a credit downgrade I highly suspect that National will have a few radical new spending plans in there, mainly for PR reasons.
- Playcentres not to get the funding promised in Nats election policy for at least another year.
- Modern apprenticeships abolished.
- Polytechnic funding for trades courses slashed.
- Sparc budget slashed.
I personally would be happy with minimal spending cuts, and perhaps some tax cuts also. In times of hardship firms quite reasonably cut discretionary spending, but the Government does not and should not have this luxury. I like a balanced budget as much, if not more than, the next man, but most economists would accept that if it is to be done, budget-balancing should be counter-cyclical, as it is economically contractionary. This was done quite excellently by the previous administration, something I think is under-recognised by the its critics, who frequently focus too heavily on tax cuts as the sole metric of good policy.
As an aside, there appears to be very little comment on the NZ blogs that I read as to what people expect to see in this week's budget (aside from very good satire).
Depression Chic and the Philosophy of Fashion
The fashion industry irritates me. Designers and editors pontificate about 'it shoes' and 'statement handbags' and models preen and primp themselves before strutting around in whatever happens to be 'in' at the time. In response, we consumers collectively swoon and shell out the moneys. It has always seemed to me to be a vacuous circle, tapping into the crude social status circuitry in our heads in a vainglorious attempt at making our lives more fulfilling.
If aesthetic value can truly be ascribed such a weighty role, then we should spend more time celebrating this function, rather than allowing the rhetoric of fashion to descend into mindless platitudinous back-slapping. That would certainly stop me from so glibly dismissing the fashionistas.
From the standpoint of human behaviour, I think fashion reveals two things. Firstly, I see it as an example of a cultural institution being moulded out of our genetic clay, and then misfiring spectactularly. Secondly, I think it can be used as a textbook example of monopolistic competition in a market traditionally thought of as quite competitive, and that might be illustrative of general anomalies in economic thinking. These are of course major theses in their own right, and deserve more thorough consideration which I will give them in due course.
But for now I have a different agenda. The Atlantic recently published a stimulating feature on fashion in the depression economy and the challenges the industry faces going forward. It is a great read, arguing that as we enter a winter of financial discontent, consumers will rethink their conspicuous consumption of fashion. However, the designers are ready for this, and will respond with a panoply of new trends which continue to push the envelope, assisted of course by Michelle Obama, that heraldic doyenne of all things glam. What can that family not do?
What particularly piqued my interest though was this:
Fashion’s singular ability to marry aesthetics and psychology, formalism and eroticism...consumers of fashion are undergoing a “values correction"
Sounds fascinating. But wait, there's more:
Fashion is both a form of self-expression and an outward means of defining and altering selfhood....It famously, complicatedly blends art and commerce, and perhaps the highest compliment one can pay a designer is to say that he or she understands the customer: a good part of the art lies in fathoming her mood, her desires, and her ambitions, and the ways these may shift from season to season and year to year and evolve as she ages.
The suggestion seems to be that self-identity, hopes and ambitions, emotional moods and personal narrative, nothing less than the fundaments of consciousness, can be manifest in fashion. Yes, this is a somewhat ponderous extrapolation. But to me it represents a fundamentally different way of looking at this industry and its values and purpose.
Generational Racism
I recently read this very bizarre article in the New York Times on 'proms' in Georgia. Apparently many schools hold segregated proms - one for black people, and one for white people (although of course, white people are allowed to attend the 'black prom').
However, the article appears to want to argue that racism isn't the issue - it's just a desire to respect tradition. Several kids are interviewed. Typical quote:
We could draw from this that younger generations are more tolerant, less racist, etc. Before we get caught up, however, in our excitement at the coming tolerant utopia when today's youth are in power - a few cautionary notes.
Firstly, surely there is a bit of a Bradley effect. Small-town people, especially adolescents, when interviewed by an author for the New York Times, are going to want to seem more tolerant than they are.
But secondly, and perhaps more importantly, why are their parents apparently so racist? The majority of them would have been very young through the US Civil Rights movement, if they were even born(assuming they're about 40-50 years old). Institutionalised racism has essentially been abolished their whole lives! The obvious answer is that institutionalised racism is just a symptom of a culture of racism - which doesn't get abolished quite so quickly. But if their parents managed to learn to be racist from their parents, we should be sceptical that the current generation is somehow going to grow up racism-free.
However, the article appears to want to argue that racism isn't the issue - it's just a desire to respect tradition. Several kids are interviewed. Typical quote:
“It’s awkward,” acknowledges JonPaul Edge, a senior who is white. “I have as many black friends as I do white friends. We do everything else together. We hang out. We play sports together. We go to class together. I don’t think anybody at our school is racist.”The impression the author leaves us with is that none of the kids are in any way racist - the tradition is enforced by their domineering parents. None of the parents are interviewed.
We could draw from this that younger generations are more tolerant, less racist, etc. Before we get caught up, however, in our excitement at the coming tolerant utopia when today's youth are in power - a few cautionary notes.
Firstly, surely there is a bit of a Bradley effect. Small-town people, especially adolescents, when interviewed by an author for the New York Times, are going to want to seem more tolerant than they are.
But secondly, and perhaps more importantly, why are their parents apparently so racist? The majority of them would have been very young through the US Civil Rights movement, if they were even born(assuming they're about 40-50 years old). Institutionalised racism has essentially been abolished their whole lives! The obvious answer is that institutionalised racism is just a symptom of a culture of racism - which doesn't get abolished quite so quickly. But if their parents managed to learn to be racist from their parents, we should be sceptical that the current generation is somehow going to grow up racism-free.
Newton, Einstein and Behavioural Econ
In his recent post Udayan took me to task for my fairly conservative desire to treat neo-classical economics (and particularly the concept of homo economus) with serious respect, or at least, more respect than he thought it deserved. To clarify, I also think that behavioural economics is an exciting and fascinating new field. But I think that we should be careful, lest our excitement get the better of us, and we end up forgetting how useful our previous models were.
Uday used a useful analogy of Newtonian vs. Eisteinian physics. Newtonian physics gave us a good approximation of how the world worked for hundreds of years - but as Einstein showed, it turned out to be fundamentally misconceived. Einstein's insights gave us a deeper, more accurate understanding of how things actually work.
But have we since abandoned Newtonian physics? Of course not. In the vast majority of observable situations (that is, except for research physicists) Newton's laws still appear to hold. Engineers need not worry that people moving around in their buildings will increase in mass as they move and thus crash through the floor, for example.
I think the same applies in behavioural economics. We can use it to refine our explanations of markets, and to explain areas where the neo-classical model fails. But we should be very sure that the neo-classical model has actually failed, lest we get ironically caught up in our irrational exuberance to find more complex ways of explaining the easily explainable. In particular, there needs to be very clear and testable implications of our theory.
One very simple example is the phenomenon of hyperbolic discount rates, where people discount future payoffs inconsistently. This has clear, testable consequences for people's saving behaviour. Compare this to Udayan's post - which claims that a particular outcome is due to people not seeking to maximise utility. This may be true, but it is very vague and not susceptible to easy testing. In the comments Udayan provides a clearer and more useful explanation, but I think his post is indicative of a trend to revert to claiming cognitive biases without really exhausting other possibilities, which would be necessary to explain how your theory differs from standard predictions. This is classic scientific method, but in our rush to claim psychological experiments as the Einstein of economics it is sometimes sadly swept to the wayside.
Uday used a useful analogy of Newtonian vs. Eisteinian physics. Newtonian physics gave us a good approximation of how the world worked for hundreds of years - but as Einstein showed, it turned out to be fundamentally misconceived. Einstein's insights gave us a deeper, more accurate understanding of how things actually work.
But have we since abandoned Newtonian physics? Of course not. In the vast majority of observable situations (that is, except for research physicists) Newton's laws still appear to hold. Engineers need not worry that people moving around in their buildings will increase in mass as they move and thus crash through the floor, for example.
I think the same applies in behavioural economics. We can use it to refine our explanations of markets, and to explain areas where the neo-classical model fails. But we should be very sure that the neo-classical model has actually failed, lest we get ironically caught up in our irrational exuberance to find more complex ways of explaining the easily explainable. In particular, there needs to be very clear and testable implications of our theory.
One very simple example is the phenomenon of hyperbolic discount rates, where people discount future payoffs inconsistently. This has clear, testable consequences for people's saving behaviour. Compare this to Udayan's post - which claims that a particular outcome is due to people not seeking to maximise utility. This may be true, but it is very vague and not susceptible to easy testing. In the comments Udayan provides a clearer and more useful explanation, but I think his post is indicative of a trend to revert to claiming cognitive biases without really exhausting other possibilities, which would be necessary to explain how your theory differs from standard predictions. This is classic scientific method, but in our rush to claim psychological experiments as the Einstein of economics it is sometimes sadly swept to the wayside.
The Behavioural Faultlines of Price Theory
In reply to my previous post, Tom was scpetical of the general approach I took to explaining the missing market. He said:
People aren't perfectly rational, but it shouldn't be our default explanation for every slightly perplexing feature of the market
Well...why not?
This doesn't mean we have to argue that markets are always and everywhere a non-starter. It is merely an acknowledgment that the model proferred by neo-classical economics is not the final draft of economic explanation, but that it is akin to the Newtonian Physics awaiting its Einsteinian upheaval. For me this is tremendously exciting, as it opens up the study of economics and allows its foundations to be put under the experimental zoom lens. If people are predictably irrational, then it is something we need to be aware of as empirical scientists and integrate into our models of market behaviour.
I personally am quite enamoured with this approach, while Tom is less so I believe. This should make for much fruitful disagreement into the future, exactly what the discipline needs if we want to dispel the shrill pundits wailing about the death of capitalism and all that other nonsense.
Failure in Markets for Market Information
Below, Tom is vexed by the lack of information markets. I would suggest that the failure is on the demand side, a consequence of consumers who aren't as rapacious in their search for a bargain as neo-classical theory would predict.
Most people simply wouldn't care enough about finding the absolute cost minimising option. Instead, their estimation of the value would be pegged to the price they already pay, and as long as it doesn't rise too rapidly from this baseline, they will continue to think they have scored a good deal. Unfortunately, people don't maximise their utility subject to budget constraints. Instead, I (and others) suspect they pick a product, and mould their preferences around it.
Tom alludes to this in his mention of meta-information markets. If people don't know about the primary information markets, this is probably because they don't have enough of an impetus to look for it rather than the lack of secondary information markets. These would only spark a somewhat postmodern recursion of meta-markets, where we need to be informed about the information that we could use to inform ourselves....ad infinitum.
I think market failure arises here due to a divergence between the rational man of economic theory and the actual man paying power bills.
Conservatives and Individualism
In this excellent piece by Will Wilkinson (which you should read the entirety of), this quote stood out for me:
The difficulty for American conservatives is that America has strong traditions of individual rights, individualism, etc. Conservatives want to defend these things because they are conservatives, but their philosophy is essentially a collectivist one, so often they end up confusing themselves. Conservative rumblings on nationalism are an excellent case in point - nationalism is a highly collectivist ideal, yet one embraced wholeheartedly by those who like to think that they are all about the individual.
Wilkinson makes similar points but in a far funnier way, I suggest you read his piece if you have not yet done so.
For too many conservatives, “individual rights” is code for their right to remain unburdened by whatever exercise of state power they happen to dislike.Indeed the relationship between conservatives and individualism is a tricky one. My (fairly cursory) reading of Burke and Oakeshott is that they are fairly collectivist, compared to modern liberal and libertarian philosophers.
The difficulty for American conservatives is that America has strong traditions of individual rights, individualism, etc. Conservatives want to defend these things because they are conservatives, but their philosophy is essentially a collectivist one, so often they end up confusing themselves. Conservative rumblings on nationalism are an excellent case in point - nationalism is a highly collectivist ideal, yet one embraced wholeheartedly by those who like to think that they are all about the individual.
Wilkinson makes similar points but in a far funnier way, I suggest you read his piece if you have not yet done so.
Markets in Market Information
Not too long ago, a New Zealand power company Meridian came out with a new service (which is actually a wholly owned subsidiary) - Powershop. The idea behind Powershop is simple - you sign up and it finds you the lowest cost power plans. It reviews them constantly so that you are always paying for the cheapest power (from the brands that it buys from).
This made me wonder why these sorts of services aren't more ubiquitous, either in this form where you delegate your purchases, or in a weaker form where the firm just aggregates the information and lets the consumer decide, like interest.co.nz. It seems like it would easy enough for it to be profitable - the firms could get economies of scale by looking for the cheapest deals for lots of similar groups of people simultaneously. It seems a pretty good market-based solution to problems of information, at least in markets for non-differentiable goods. Update: Thinking about it, this could obviously apply to products where the goods are near substitutes as well.
I suspect there are several reasons.
First, firms (to avoid confusion, let's call them 'product firms') might refuse to sell their products to such companies ('information firms'), because encouraging them might force greater competition and lower profits. However they would play a dangerous game if they do so - if the information firm gained enough of a market then the product firm would lose custom by not selling to it. The dominant strategy would depend on what the information firm's probability of success was, which would depend on all sorts of market dynamics.
Secondly, I suspect there might be laws about buying someone else's product and onselling it, which would increase the initial fixed cost for the information firms.
Those caveats aside, I still don't get why there aren't more firms like this. Or perhaps there are and I'm missing out? Perhaps there should be a meta-information firm which provides information on all the information firms. Why is there not? These ideas seem like they would be profitable, and the fact the Meridian is investing in one suggests that they agree.
Does anyone have any ideas?
This made me wonder why these sorts of services aren't more ubiquitous, either in this form where you delegate your purchases, or in a weaker form where the firm just aggregates the information and lets the consumer decide, like interest.co.nz. It seems like it would easy enough for it to be profitable - the firms could get economies of scale by looking for the cheapest deals for lots of similar groups of people simultaneously. It seems a pretty good market-based solution to problems of information, at least in markets for non-differentiable goods. Update: Thinking about it, this could obviously apply to products where the goods are near substitutes as well.
I suspect there are several reasons.
First, firms (to avoid confusion, let's call them 'product firms') might refuse to sell their products to such companies ('information firms'), because encouraging them might force greater competition and lower profits. However they would play a dangerous game if they do so - if the information firm gained enough of a market then the product firm would lose custom by not selling to it. The dominant strategy would depend on what the information firm's probability of success was, which would depend on all sorts of market dynamics.
Secondly, I suspect there might be laws about buying someone else's product and onselling it, which would increase the initial fixed cost for the information firms.
Those caveats aside, I still don't get why there aren't more firms like this. Or perhaps there are and I'm missing out? Perhaps there should be a meta-information firm which provides information on all the information firms. Why is there not? These ideas seem like they would be profitable, and the fact the Meridian is investing in one suggests that they agree.
Does anyone have any ideas?
Baby Born...Thinking?
Why do we care more about humans than animals? Some might demur from stating it publicly, but I reckon that if people had a choice between saving a human life and saving an animal life, everyone would pick the human. My personal instincts are even stronger: it strikes me as positively immoral to even consider saving the animal, no matter who the person is.
I suspect this is just my evolutionary tribal instinct kicking in. But for now, I'm happy to restrict my moral sphere of influence to the human race, at least as a first approximation. The 'human race' is the code-word I use for a particularly level of cognitive competence which I consider necessary for full moral consideration. There may be more things in heaven and earth than in our philosophy, but at least we humans have the sentience to appreciate it.
But animal rights activists often produce what they think is a rhetorical trump card in response. "Babies really aren't that much different from adult great apes" they smirk. "You're just a bigoted speciesist! Ha!". The central conceit of course is an empircal assertion. If chimps, gorillas and bonobos are indeed as smart or smarter than infants, then perhaps my moral instincts should yield to the hard data.
I am no expert of course, but the claim that babies and apes are intellectually equivalent has always struck me as a little suspect. While they might seem to be comparable in their mental achievements, the obvious potential of a baby's mind (in that it becomes an adult human mind) is immense. By comparison, apes never develop anything more than rudimentary language or achieve the kind of social intelligence that is de rigeur for humans. Just generally, they seem to lack the ability to respond to cultural scaffolding in the same way that we can.
Jonah Lehrer suggests why. The brain of a baby isn't inactive. Rather it is hyperactive, abuzz with neuronal activity and absorbing information much more broadly than adults do. Young children seem to lack the sort of cognitive sieves that humans typically use to filter out irrelevant information and attend to particular tasks. This is not a hinderence, but rather a cunning adaptation to accelerate the environmental learning that development requires. As we grow up, this open-ended information sink is gradually pruned down to the focussed processing machine that is the adult brain.
To me, results like this highlight our exalted status in the natural order. We shouldn't be bashful - we truly are on a different plateau to the rest of the animal kingdom. Basing the moral uniqueness of the human race on a sophisticated IQ test might feel like shaky ground. But this edifice doesn't crumble as easily as we might think.
Needy People
Reading this post on the new NZ Labour Party blog got me thinking about how someone could 'need' a tax cut. Claire Curran MP says:
What does it mean to need anything? I don't think that the concept of 'need' is strictly meaningful in this sentence, which admittedly is quite common usage. It seems that a concept of 'need' has meaning only in a relational sense - A 'needs' B to do P, which means that without B, A could not perform P.
Often we associate 'need' with what is really just a strong desire - everyone as a child had a toy or similar that they said they 'needed', but in reality just wanted really badly. Occasionally however, and this is the sense I think Curran is getting at, P is equated to 'to live', or even more loosely, 'to live comfortably, or in a manner we might consider a minimum in society'. In these circumstances P is often not stated - we say that people 'need food' rather than 'need food to live', or 'in the modern age, everyone needs access to the internet'. Here we have to become very careful of abusing the word 'need', and I think if we force ourselves to always state what the things are needed for, it can be quite revealing. When we leave out our P's, we allow a whole lot of assumptions to be made.
What does it mean to say that rich people don't 'need' tax cuts? Obviously people need money to live, and the rich don't 'need' any extra help here. I would hope that the amount of people that actually do need extra money (on top of current transfers) to survive in New Zealand is vanishingly small. But I also like to imagine we live in a society slightly less bleak than one where people are only permitted wealth that meets their basic physical needs. The Labour Party is not a communist party, and I am sure they agree with me. But this confused rhetoric is indicative of a party that is not serious about ideas but cheap political partisanship and playing off the visceral disgust many New Zealanders feel for small groups of their compatriots whose supply and demand curves for labour are sloped differently.
Here are a few more meaningful statements Curran could have made:
"National has provided
1) ... tax cuts that will generate lower Keynesian multipliers as the rich have a lower MPC"
2) ... tax cuts that will mainly focus on the groups that gain the least marginal utility from them"
3) ... tax cuts that make our tax scheme less progressive"
etc. Obviously it is silly to expect a politician to talk like an economist, but even something that gave the gist of the above would have been far more meaningful, and easier to judge a) its truth value and b) value as a goal.
(National have delivered) tax cuts that put extra dollars in the pockets of only those who don’t need them...This was only a throwaway comment in the general scheme of the post, so what follows is slightly unfair, but hopefully stimulating nonetheless.
What does it mean to need anything? I don't think that the concept of 'need' is strictly meaningful in this sentence, which admittedly is quite common usage. It seems that a concept of 'need' has meaning only in a relational sense - A 'needs' B to do P, which means that without B, A could not perform P.
Often we associate 'need' with what is really just a strong desire - everyone as a child had a toy or similar that they said they 'needed', but in reality just wanted really badly. Occasionally however, and this is the sense I think Curran is getting at, P is equated to 'to live', or even more loosely, 'to live comfortably, or in a manner we might consider a minimum in society'. In these circumstances P is often not stated - we say that people 'need food' rather than 'need food to live', or 'in the modern age, everyone needs access to the internet'. Here we have to become very careful of abusing the word 'need', and I think if we force ourselves to always state what the things are needed for, it can be quite revealing. When we leave out our P's, we allow a whole lot of assumptions to be made.
What does it mean to say that rich people don't 'need' tax cuts? Obviously people need money to live, and the rich don't 'need' any extra help here. I would hope that the amount of people that actually do need extra money (on top of current transfers) to survive in New Zealand is vanishingly small. But I also like to imagine we live in a society slightly less bleak than one where people are only permitted wealth that meets their basic physical needs. The Labour Party is not a communist party, and I am sure they agree with me. But this confused rhetoric is indicative of a party that is not serious about ideas but cheap political partisanship and playing off the visceral disgust many New Zealanders feel for small groups of their compatriots whose supply and demand curves for labour are sloped differently.
Here are a few more meaningful statements Curran could have made:
"National has provided
1) ... tax cuts that will generate lower Keynesian multipliers as the rich have a lower MPC"
2) ... tax cuts that will mainly focus on the groups that gain the least marginal utility from them"
3) ... tax cuts that make our tax scheme less progressive"
etc. Obviously it is silly to expect a politician to talk like an economist, but even something that gave the gist of the above would have been far more meaningful, and easier to judge a) its truth value and b) value as a goal.
If You Support Tax Cuts, You Should Not Support Tax Cuts
This graph I appropriated from Greg Mankiw a while ago. It shows Government revenue as a percentage of GDP. It also shows that every time Government revenue noticeably decreased in the last 100 years, it increased by more in the next five years or so.
I think this is a good illustration of why in the short run, people that want tax cuts should not advocate for them alone, because under the status quo they are not and will not be enacted efficiently, and will just lead to greater tax increases in the future.
The reason is simple - Government services will never be proportionally cut with tax. Tax cuts to modern Governments don't represent any commitment to a smaller Government in the long run, they just represent political bribes and deferred greater tax rises. This is because is very often (this graph would suggest almost all the time) the Government can have their cake and eat it too - they can pander to some groups through tax cuts and others through Government transfers.
Yes, people are often aware of this, but a) the marginal benefit to any given individual of making a big enough deal about this in order to earn his/her own share of tax back is probably negative, and b) cutting services is often seen as mean or an attack on the wellbeing of specific individuals, again because the cost to each individual of providing Government services is percieved to be low. Paying for one person to dig holes and refill them might cost the Government $40,000 - this is less than 1c per person in New Zealand. Most people would be quite happy to pay this to support someone - so it seems harsh to cut the job for being wasteful. Obviously there are far greater costs from having a general policy of arbitrary make-work - our economic situation up until the 1980's being the primary piece of evidence. But I think the costs are subtly aggregated across the entire economy and thus to an extent out of sight, and out of mind.
So I think that arguing for Government to cut services is at the moment more or less a lost cause. If we support tax cuts we should not advocate tax cuts in and of themselves -they will not be sustained by corresponding service cuts. The best route to take in New Zealand would, I believe, argue for privatisation of SOE's - and use that money to firstly pay off Government debt, and secondly to provide tax cuts. In this sense the tax cuts will be seen as a windfall from a sale, rather than taking bread out of the mouths of soon-to-be-destitute state employees. Privatisation is also frequently a hard sell, partly because in New Zealand it has often taken the form of hocking off monopolies then shamefacedly buying them back. But it doesn't share those factors I outlined above which make cutting other Government services so difficult - so I think it should be a preferred route. Once this goal is achieved perhaps others ought to be considered. But until then I think arguing for tax cuts will be counter-productive.
It is true that National have promised not to sell off SOE's in their first term. So I suppose we just have to twiddle our thumbs until then.
Public Debate
The Victoria Debating Society is supporting a public debate next Monday, on the topic 'That Capitalism is in Crisis'.
On the affirmative are Catherine Delahunty (a Green Party MP), Don Franks (a member of the Workers' Party), and one speaker to be confirmed. Update: It will be Jackson Wood, editor of Salient.
On the negative are Roger Kerr(Executive Director of the Business Roundtable), Stephen Whittington (student debater, researcher to Sir Roger Douglas MP) and Phil Barry from the consulting firm Taylor Duignan Barry.
The debate is at Rutherford House (by Parliament) on Monday the 11th May at 6:30, entry by gold coin donation. If you live in Wellington you should definitely come - previous public debates held by the society have been great fun and excellently attended. The obligatory facebook event is here.
Updated final affirmative speaker.
On the affirmative are Catherine Delahunty (a Green Party MP), Don Franks (a member of the Workers' Party), and one speaker to be confirmed. Update: It will be Jackson Wood, editor of Salient.
On the negative are Roger Kerr(Executive Director of the Business Roundtable), Stephen Whittington (student debater, researcher to Sir Roger Douglas MP) and Phil Barry from the consulting firm Taylor Duignan Barry.
The debate is at Rutherford House (by Parliament) on Monday the 11th May at 6:30, entry by gold coin donation. If you live in Wellington you should definitely come - previous public debates held by the society have been great fun and excellently attended. The obligatory facebook event is here.
Updated final affirmative speaker.
Sentence to Misread
It all comes down to the long forgotten chicken wars of the 60s.That is Robert Lawrence writing on Dani Rodrik's blog. This had me thinking of some cool science-fiction scenario, but in fact it is in reference to retaliatory tariffs which the author argues are responsible for the parlous state of the United States Automobile industry. It is a very interesting read.
Why Banks Should Offshore Jobs
...if they want. It has been argued by certain politicians (who really should know better) that banks should 'do their bit' for jobs and stop firing New Zealand workers to hire overseas workers. There are two reasons why they should be able to offshore.1) It makes the majority of New Zealanders better off. New Zealand banks are in a relatively competitive market - and any lack of competition is often made up for by the massive political and media focus they endure on every level of their pricing structure, and thus the hugely negative responses they get if they raise prices. Banks save money by sending jobs offshore - that's why they do it. Reducing their costs enables them to reduce prices for their various products, meaning New Zealanders have more money in their pockets.
Yes, jobs are lost, and it this can be very difficult for people. Firstly though, because prices have gone down, people will be spending more money in other sectors, creating jobs in those sectors. So the net job loss to New Zealand is less than the total number of local jobs cut by banks.
2) It makes foreign countries better off. Most of the offshoring creates jobs for very poor foreigners(*). Yes, they are low-paid jobs. But low-paid is better than no-paid. There is no evidence to suggest that people are coerced into working call centres or there is some sort of cognitive bias in play - so we can infer from the fact that these call centres (and the like) actually have staff that they are making people better off. If they weren't, no-one would choose to work there! Furthermore, these people spend the money they earn in their local communites, creating further jobs.
The second point I think is really important. It is often said that we should be 'looking out for Kiwis', or 'protecting Kiwi jobs', but the flip side is that by doing this we are taking bread out of the mouths of desolate foreigners. If you are worried about New Zealand reducing or restructuring foreign aid, you really have no grounds to oppose banks offshoring jobs. The two things are really morally identical, and it frustrates me that they garner support (and opposition) from such divergent political interests.
None of this analysis is particularly complex or heterodox. In this circumstance, it is highly irresponsible of politicans (and unions) to try to pretend they are doing anything else than protecting the interests of a very small group of people at the expense of the majority.
I have more to say on the bank guarantee and bank lending rates, and this will be coming in the next few days.
* Kiwibank being the exception - for some reason they offshored to a higher wage economy! Perhaps this country is already ahead of us and has offshored their workers, creating high local supply and thus lower prices than here? I'm otherwise a bit unsure as to why they might do this.
Hugs for Cash
This guy makes $36US in two hours, and he's competing with someone who gives it away for free!
Via Andrew Sullivan.
Via Andrew Sullivan.
Posting...
... will be scarce for the next few days - Udayan and I are away over the weekend and then have an economics midterm on our return. Have a good weekend!
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