Eric the murdering economist

July 7th, 2009 at 1:04 am by David Farrar

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.

How to reduce obesity in children

June 2nd, 2009 at 4:00 pm by David Farrar

Paul Walker blogs another example of unintended consequences:

Results suggest that [child care] subsidy receipt is associated with increases in BMI and a greater likelihood of being overweight and obese.

I await the Obesity Action Coalition to call for reduced child care subsidies to fight obesity!

Blog Bits

November 24th, 2008 at 9:52 am by David Farrar

Idiot/Savant looks at what would happen if the Foreshore and Seabed Act was repealed. I tend to favour repeal of the Act, but also would like the Court of Appeal ruling to have been tested by appeal to the Privy Council or the Supreme Court. Maybe one can repeal the Act, legislate to allow the Supreme Court to hear an appeal from the Court of Appeal ruling, and then whatever the Supreme Court decides, forms the basis of negotiations between Crown and Iwi.

Adam Smith at The Inquiring Mind links to an article in The Times on the huge number of subtitling mashups done of the bunker scene from Downfall. Over 150 mashups have been done, including three by Whale Oil. They are Winston’s Downfall, Helen’s Downfall and Judith’s Downfall.

Aaron Bhatnagar blogs on how Waiheke Island and Great Barrier Island residents will be polled on whetehr they want to remain part of Auckland City, or transfer to the Thames-Coromandel District Council. I don’t think many do want to change but as 10% o residents signed a petition, the Local Government Commission is obliged to run a poll.

Paul Walker retires from blogging. A real pity – I enjoy all the economist blogs, even though they are not high traffic. Maybe if they all combined together?

Bryce Edwards has done a series of posts on the party that shall not be named. They are a fascinating background read. One day he should publish them as children’s horror stories 🙂

Finally Adam Smith scans in and blogs every day a good Letter to the Editor. Have a look at this one from the Co-vice-president of the Maori Party responding to Chris Trotter.

Economic Literacy

November 18th, 2008 at 7:16 pm by David Farrar

The Visible Hand in Economics gives a neat lesson in economic literacy on the issue of productivity growth.

Paul Walker also joins in, dismissing the argument that merely increasing productivity doesn’t necessairly boost GDP or wages, and they quote Paul Krugman of all people:

Economic history offers no example of a country that experienced long-term productivity growth without a roughly equal rise in real wages. In the 1950s, when European productivity was typically less than half of U.S. productivity, so were European wages; today average compensation measured in dollars is about the same. As Japan climbed the productivity ladder over the past 30 years, its wages also rose, from 10% to 110% of the U.S. level. South Korea’s wages have also risen dramatically over time. (“Does Third World growth hurt First World Prosperity?” Harvard Business Review 72 n4, July-August 1994: 113-21.)

Both major parties in Australia understand the importance of productivity growth. That is why they support the Australian Productivity Commission.

The challenge for John Key is to have policies that will help productivity growth.


November 2nd, 2008 at 4:59 pm by David Farrar

Paul Walker has blogged Zimbabwe’s new annual inflation rate.

It is 10.2 quadrillion precent. That is 10.2 million billion or 10,200,000,000,000,000%.

That makes me feel better about NZ hitting 5.1%. But only slightly.

10 economic propositions

August 10th, 2008 at 9:55 am by David Farrar

Paul Walker blogs a list of 10 economic propositions accepted by almost all the top economists:

  1. The market economy is the most efficient of all economic systems.
  2. Free trade helps economic development.
  3. Good institutions help development.
  4. The best measure of a good economy is its growth.
  5. Creative destruction is the engine of economic growth.
  6. Monetary stability, too, is necessary for growth; inflation is always harmful.
  7. Unemployment among unskilled workers is largely determined by how much labor costs.
  8. While the welfare state is necessary in some form, it isn’t always effective.
  9. The creation of complex financial markets has brought about economic progress.
  10. Competition is usually desirable.

Walker concludes:

Sorman closes this piece by noting that one of the hardest ideas to translate into language that public opinion will accept is the fact that even the best of all possible economic systems is still imperfect. Markets are one of the many human institutions that are the result of human action, but not of human design. But they are based on people and without perfect people you are unlikely to get perfect markets. But for all these imperfections, we have yet to find a better economic system.

Market economies are indeed not perfect. But as Paul Walker says, no-one has found a better system. It reminds of the Churchill quote about how democracy is the worst possible way to choose a Government – except for all the other ways!

Paul Walker on food prices

July 25th, 2008 at 2:00 pm by David Farrar

Paul Walker takes a long hard look at the causes of global food inflation. He looks at the three theories:

  1. Newspapers have cited an internal World Bank document as having found that 75% of the price increase was due to biofuels
  2. Several governments and commentators see speculation as a major driving force.
  3. Widely held view has it that rapidly growing food demand in the emerging economies is pushing up global food prices.

So how does theory 2 hold up:

Yet, there is no hard evidence that “speculation” has added much to the price increase on spot markets. After all, it is only when “speculators” actually buy produce on the spot market that they can drive up the price, and this would have to be reflected in growing stock levels – but stocks appear to have declined throughout the period of rising prices

So how about theory 3 – blame China and India:

Food demand in China, India, and other emerging economies is rising as their incomes grow. However, domestic food production in most of these countries is growing in parallel. China, for example, has been a consistent and growing net exporter of cereals (including rice). The Agricultural Outlook expects China’s net cereals exports to decline only very gradually in the coming decade. For India, the picture is similar, though there was significant variability in its net trade position in the past. In short, growing food demand in the major emerging countries cannot be held responsible for the rise in world market prices for cereals.

So that leaves theory 1 – biofuels:

The use of agricultural products, in particular maize, wheat, and vegetable oil, as feedstock for biofuel production has expanded dramatically in recent years. Between 2005 and 2007, i.e. in the period when food prices began to explode, nearly 60% of the growth in global consumption of cereals and vegetable oils was due to biofuels. Global output of cereals and vegetable oil did not decline during that period, but just grew slower than the rapid expansion of use.

In a situation of depleted stocks and very low demand and supply elasticities, this gap between use and output growth has pushed prices up very strongly.

And the conclusion:

Thus we find that there cannot be much in the way of doubt that biofuels are a significant factor in the rise of worldwide food prices. Add to this the fact that other research suggests that biofuel support policies are disappointingly ineffective on environmental grounds, then it should be clear that governments need to reconsider their support for biofuels. But many governments, including New Zealand’s, seem to want to push ahead with such policies despite the kind of evidence Tangermann brings to bear on the issue.

Stefan Tangermann, quoted by Walker, is Director of Trade and Agriculture for the OECD.

Blog Bits

June 25th, 2008 at 6:45 pm by David Farrar

Gordon Campbell looks at National policies and has many legitimate questions about them. He may or should regret this line though:

In Ryall’s opinion, money isn’t the main issue anymore in health care – its more about the cultivation of fruitful and personally fulfilling caring, on current rations. “Money talks, but it is not the only, or even the prime, motivator.” Lean thinking, Ryall concludes, is bringing nurses at Middlemore hospital back to the bedside, and lean thinking is allowing them to do what they had trained to do. “They’re happier, enjoying work and doing more.” Truly, as the sign used to say over the gateway to Dachau concentration camp, work will make you free.

That goes beyond tacky.

Frog blogs (?in support) of a James Hansen who is trying to prosecute CEOs of large oil companies for “crimes against humanity and nature”. And their crimes:

Undermining public understanding about global warming

Is that not the most scary thing you have read? This mad bastard wants to lock up or execute people (normal punishment for crimes against humanity) because they disagree with him on global warming. There are fanatics and there are eco-fascists.

Frog doesn’t offer a view as to whether the Greens support jailing and execution of climate change sceptics.

Whale Oil is detecting some photoshopping amongst Labour.

No Minister notes the irony hypocrisy in the following sentence:

A spokesman for Foreign Minister Winston Peters, said it was of “grave concern” that Shameem and the military were using what appeared to be hacked private emails.

Truly no shame.

Paul Walker looks at some research on campaign finance reform, and how mostly it benefits incumbents.

Finally a useful economic problem!

June 12th, 2008 at 10:47 am by David Farrar

Paul Walker tackles an issue dear to many people and which has baffled economist for decades.

Why does popcorn cost so much at the movies?

Sunday Snippets

June 8th, 2008 at 12:40 pm by David Farrar

For that long Sunday afternoon:

The NZ Book Council have a very cool website to encourage reading. They’ve done it as a Windows operating system.

Scrubone does a fisking of No Right Turn’s outrage at National over citizen juries. Also on that issue, Russel Norman at Frog Blog agrees with some of my suggestions around Citizen’s Juries – specifically the need for multi-partisan agreement not narrow agreement.

Paul Walker responds to Matt McCarten’s hysteria over the Business Roundtable.

Whale Oil likes his stats comparison with Kiwiblog. Obviously girls and guns work 🙂

Craig Foss looks at how Dr Cullen is financing his tax cuts – he is borrowing $6.4 billion and also selling $6.4 billion of financial assets breaking one of his four tests. This last one is particularly cunning as it allows him to claim gross debt remains on track. This si why net debt is the better indicator.

Colin Espiner reviews the Reserve Bank MPS and the polls.

Bernard Hickey believes Alan Bollard has gone soft on inflation, as does the Westpac Chief Economist.

Economic Freedom Benefits

April 14th, 2008 at 2:13 pm by David Farrar

Paul Walker blogs on the benefits of economic freedom, and mentions Hong Kong and Cuba:

An interesting point of comparison is that in 1958 Cuba’s per capita GDP was $3,170 while Hong Kong had a per capita GDP of $2,924. Since then these two countries have followed very different development paths in terms of economic freedom . Today Cuba is one of the poorest countries in Latin America, very different from today’s Hong Kong.

So in 1958 Cuba had a higher GDP per capita than Hong Kong. And today?

Hong Kong is US$41,944 (PPP) compared to around US$4,500 for Cuba.

Cuba has a state which is basically 100% of GDP. In Hong Kong it is under 20%. In NZ it is 42%.