Kiwiblog

Just as Scrubone has become the dedicated fisker of No Right Turn, B K Drinkwater has appointed himself as the fisker for Marty G at The Standard. His latest response to the suggestion that monetary policy should target inflation, unemployment and the exchange rate is:

Genius! What the RBNZ should do is this: pick a point on the Philips Curve and manage New Zealand’s economy towards it! If only some genius thought of this before.

Oh, wait. Someone did, and it didn’t work. Apparently, some guy called Friedman accurately predicted its failure …

Stagflation in the 70s proved Friedman correct, but this is where Phil Goff wants us to go back to.

I actually can’t figure out whether Marty wants the interest rates to be low or high. He thinks that if they’re too high, then the currency carry trade will create a “flood of credit”, making mortgage rates too low. His preferred solution—abandoning inflation-targeting—clearly implies that he wants the OCR lower than it is, and that by doing this, somehow mortgage rates will go up.

He’s very confused.

And then Blaise sums up:

So Marty wants the following:

• A lower OCR
• Higher mortgage rates
• Jobs, or in other words, investment in New Zealand
• Reduction in the currency carry trade, a big chunk of such investment

My head hurts.

Need more be said.

Phil Heatley announced yesterday:

From today those state house tenants in a position to buy the house they live in can do so, says Housing Minister Phil Heatley.

Over the next week, Housing New Zealand will be approaching about 3,800 state tenants who pay market rent and live in a home that is available for purchase, to make them aware of the opportunity.

Letting a family who may have lived in a state house for years and years, maybe even decades, buy the house is such common sense, you have to wonder if anyone could possibly think it is a bad idea. Well Labour do of course/

Marty G at The Standard has said he is not oppossed automatically to state house sales, and proposes four conditions:

Housing NZ must use all revenue from sales to buy new houses – we don’t want the amount of housing available for the most needy decreasing.

I’m surprised he does not realise that is Government policy – that the money from sales will go to purchase new housing.

It must not sell all the houses in wealthy areas only to construct state house only neighbourhoods - the poor and the wealthy should not be physically separated by government policy.

Now having just argued for the importance of not decreasing the amount of state housing available, Marty then argues for a measure that will decrease the number of available houses.

The median house price in Manurewa is $250,000. In Mt Eden is is $600,000. If you sell 10 houses in Manurewa and replace them with houses in Mt Eden you can only afford four houses.

I’d rather have ten families in state houses, than four, for the same investment.

There are more than enough modestly priced areas to have state houses, without creating state house only neighbourhoods.

The houses must only be bought by their current tenants – we don’t want them claimed by wealthy investors, locking out the poor.

That also happens to be Government policy. I note Marty makes a classic mistake by assuming that people living in state houses are poor. They certainly were poor when they first moved in, but the 3,800 paying market rents are no longer poor. You could argue that their houses should be sold to anyone, with them just given first option.

This is the problem of providing housing assistance through having lower rentals for state houses, as opposed to income assistance regardless of who your landlord is.  To provide maximum equity, you really should evict tenants from their state houses once their income rises so they no longer are “poor”, But no one does that because of the fuss it would create. But what this means is that you have people on a waiting list for a state house who are far worse off income wise than the current tenants.

Likewise when the number of people living in a state house reduces (as kids leave home), you should ideally shift them to a smaller house. Not doing so again leaves more needy tenants on the waiting list (and there will always be a waiting list). This is one reason why I think income assistance rather than lower rentals is a better policy approach.

There must be a caveat on the titles to the properties preventing them being rented out by a private landlord - that way they can’t be bought out by property investors as happened in the 1990s.

Now this is just bizarre. If for example an elderly couple need to more into a retirement home, they can’t rent out the house they own. Blaise Drinkwater responds to this point on his blog:

What Marty G wants to do is sell the house to the tenant—because the tenant is Needy and home-ownership is A Good Thing—, but then dictate who this buyer may sell the asset to at a future date. This kneecaps the value of the house: to restrict the pool of potential buyers is to decrease demand artificially. The needy tenant is disadvantaged by this.

There is envy implicit in Marty G’s calculus: property investors must not be allowed to own ex-state houses because they’re rich and that’s bad. This leads him to a policy preference designed to restrict the wealth of the wealthy by diminishing their economic opportunities, but has as a side-effect: it also restricts the wealth of the needy by diminishing their economic opportunity. It turns out you can’t have one without the other.

Repeat after me: if you outlaw a voluntary transaction, you’re hurting all the parties that would benefit from that transaction, and not just the ones you’re trying to hurt.

Blaise sums it up well.

I have previously covered the damning critique done my Eric Cramption and Matt Burgess of the BERL study which found the cost of alcohol consumption was around $5 billion a year. Crampton and Burgess cited multiple errors in the BERL study (including no counting of benefits) and concluded it was actualyl less than 5% of that.

NBR reported last week a response (finally) from BERL:

Adrian Slack says Berl was only commissioned by the Ministry of Health and ACC to look at the social costs and not the benefits of alcohol, and would have needed an additional $135,000 were it to extend its remit to examining the benefits and policy implications. …

A pity that it was not made clear at the time it was costs only. I wonder why the Government would see value in commissioning a paper that looks at costs without benefits. Anyway onto the next comment my Mr Slack:

He accused Dr Crampton & Mr Burgess’s critique as being based on strong assumptions about perfect markets, perfect information, and individual rationality.

“So for example someone who murders someone, from the individual’s point of view, Eric would be, I presume, quite comfortable with that. The person who decides to murder someone else makes an evaluation of what are the benefits and costs to me of this action? Society says ‘well some people do murder other people’, but society says ‘that’s not good.’”

Now that was not a type. He just said that Eric Crampton would be comfortable with someone murdering someone (from an economic perspective). This is BERL’s response instead of a detailed point by point response to the 30 to 40 errors cited in the report?

Paul Walker responds with disbelief – not just from the sillyness of the analogy, but the repeating of economic mistakes:

If the only costs of murder were the internal cost to the murderer then we may not be too concerned with murder. BUT, there are some obvious, to most people if not Adrian Slack, external costs to murder, that is, the loss of life of the victim. The victim is the victim because they have not willingly agreed to be murdered, that is what makes murder, … well … murder.

I have no doubt that both Eric and Matt are opposed to murder, and for the very good reason that it violates the victim’s property right in themselves. Murder is not a market transaction in the sense that it is not a voluntarily agreed to trade resulting in both parties being made better-off.

One of the major points that Matt and Eric made about the BERL report is that BERL didn’t seem to know the difference between internal and external costs. The Slack quote above only reinforces that point.

Indeed an own goal. Eric Crampton also responds:

Economists tend to think that murder is a bad thing. Why? Well, despite the murderer presumably enjoying the act, his gain comes at a cost that he doesn’t personally bear: the death of his victim. That’s the kind of cost that economists tend to call an externality. And so economists tend to support laws against murder. We similarly tend to support laws against theft: while the thief tends to think taking other folks’ stuff is a good idea, the thief’s victims tend to be hurt by it and the thief won’t weigh those folks’ losses against his gains. In these kinds of cases, individuals’ rational calculation of their own costs and benefits lead to socially bad outcomes because of the substantial external costs.

Eric goes on to say that having BERL paint him as pro-murder (economically) is gettign close to a version of Godwin’s Law where you should concede defeat if that is the best you can do.

Blaise Drinkwater also comments on the costs vs benefits issue:

But just because I buy that the BERL report is a costs curvey only, I’m not obligated to buy the report, which bungled the costs badly. Remember, the BERL report said that alcohol costs New Zealand’s society the equivalent of $4,794m, using an “international framework” that seems to have as its main justification the academic equivalent of a circle-jerk. Burgess and Crampton, employing more mundane economics, came up with a figure of $662m. BERL is yet to explain satisfactorily why their headline figure seems to out by a factor of seven.

That is what I am most interested in. I do hope BERL does a more robust and detailed response than they have to date, so people can then judge with confidence which figure is most useful.