October 19th, 2009 at 12:00 pm by David Farrar

Goonix defends scalpers at TVHE:

Events in high demand that have limited capacity sell out. See for example the Wellington Sevens or Toast Martinborough, which sold out in three minutes and thirteen minutes respectively. These events sell out as demand far outstrips supply at the price that the seller sets. In other words, many of those purchasing the tickets would be willing to pay much more than they actually do pay in order to attend said event.

High demand events such as these are the capitalist world’s version of queuing for basic food items in a communist shit-hole. When buyers are unable to adequately express their willingness to pay, due to blunt ‘one-for-all’ pricing and an inability of the seller to price discriminate, shortage ensues.

Enter the scalper. Scalpers are typically demonised by the media in New Zealand. However, scalpers simply allow buyers to reveal their true willingness to pay. When a scalper auctions off a ticket on Trademe, buyers are able to pay exactly what they value their attendance at said event at. What ensues is the efficient allocation of resources – scarce resources are allocated to those that value them highest – an admirable economic goal. Contrast this with the lottery that is the current ‘log-in and hope’ method of ticket allocation. Rather than be vilified, scalpers should be commended for their actions that facilitate the clearing of the market!

Indeed, a commentator at the NBR goes further, calling scalpers “unsung entrepreneurs”. I tend to agree with this sentiment.

I can only agree also. My only restriction would be to limit how many tickets one can buy, so one company doesn’t buy up every ticker to resell them.

I wonder if the more efficient way might be to auction off tickets for events like the Sevens. People can bid for blocks of tickets and the highest bidders win.

Or, if there is some reasons you want to fix the maximum price, it would be better to have a proper lottery with random selection of those who want tickets at that price. That would be preferable to the nonsense of 100,000+ people all trying to buy tickets within 180 seconds online, and everything overloading.

Nolan on commun currency

August 24th, 2009 at 10:52 am by David Farrar

Matt Nolan at TVHE looks at the pros and cons of a common currency with Australia.


  1. Lower transaction costs.  As Aussie is our main trading partner this is a biggie.
  2. Removes exchange rate risk for trade between nations, both in terms of relative prices and account reporting.
  3. Prevents damage from exchange rate verring from fundamental level.
  4. Makes trade protectionism more difficult.
  5. Added I would also add that, in this case, having the Aussie dollar will reduce the risk premium we have to pay for credit


  1. Can’t use monetary policy to compensate for region specific shocks – dairy price crashes and we can’t use a lower interest rate to help buffer the fall.  This is the primary concern.
  2. Can’t use inflation to lower public debt – our monetary policy is now determined by Aussie.  However, we don’t do this so it doesn’t matter.
  3. As fiscal policy is independent it can cause issues with splitting “seigniorage revenue“.  With a low inflation target this is not a biggie at all.
  4. Speculative attacks prior to the union.

I have not checked myself, but understand it has been very rare for the NZ Reserve Bank to be increasing interest rates while the Australian RB is lowering them, and vice-versa.

Hence it seems to me the pros rather outweigh the cons.

Correlation vs Causation

April 15th, 2009 at 8:00 am by David Farrar

Matt Nolan at TVHE rips into an academic who claims higher mortgage rates lead to higher house prices, confusing correlation and causation.

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.

Inflation Expectations

September 1st, 2008 at 7:00 pm by David Farrar

Matt Nolan at TVHE has some nasty grpahs of inflation expectations. This convinces me the Reserve Bank lowered rates too soon.

Reserve Bank lowers cash rate

July 24th, 2008 at 11:54 am by David Farrar

Before I get onto the main topic, I noted on the Reserve Bank website there has been a new appointment to the Board of the Reserve Bank. Dr Chris Eichbaum. Dr Eichbaum recently published a fascinating paper on the role of Ministerial Advisors.

I have absolutely no view on the suitability of Dr Eichbaum’s appointment. I do note however that the Minister forgot to mention that Dr Eichbaum worked in the Ministerial offices of Steve Maharey, Mike Moore and Geoffrey Palmer. That would have been useful to disclose.

The Government has been busy with over a hundred appointments in recent times – they also just appointed four Labour/left people to the new Land Transport Board.

Anyway back to the official announcement:

“Recent oil and food price increases mean that annual CPI inflation should peak around 5 percent in the September quarter of this year. However, we expect that inflation will return inside the target band in the medium term. The weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed.

So the cash rate dropped 25 basis points to 8.00%. I would like to know exactly when the Reserve Bank thinks inflation will drop back to under 3%? 2009? 2010? 2011?

TVHE comments:

Even ignoring inflation, it appears that the Reserve Bank values the livelihood of those who have mortgages above people who are struggling to pay their food and fuel bills (which will go up, as a lower exchange rate will increase the New Zealand price of both).

I predict inflation will remain outside the target band for some years.

Fiddling with Monetary Policy

July 4th, 2008 at 3:02 pm by David Farrar

It is a sign of the desperation in Labour’s ranks that both Mallard and Cullen are now hinting at abandoning the 20 year consensus on monetary policy being used to keep inflation low.

Using the cash rate to keep inflation low is not perfect. People accept that. In fact one of the best criticisms I have seen of the model came at the Business Roundtable Retreat of all place.

But just as Winston Churchill said democracy is the worst way to choose a Government, except all the other way – the same tends to apply to monetary policy.

Despite what WInson Peters says, there is no evidence at all that having higher inflation will lead to lower unemployment. We have emperical evidence for this in NZ, where we have had one of the lowest unemployment rates and low inflation.

If you go easy on inflation, you may get a short-term economic boost, but in the medium to long-term you are worse off. This is why almost evert OECD country has a similiar monetary policy to New Zealand. Only fringe dwellers seriously disagree with the basics.

Now as I said the status quo is not perfect. The question is whether one can find a better solution. The Visible Hand in Economics is canvassing that issue.

The most appealing proposal I have seen is from Don Brash who has an unorthdox solution that the Reserve Bank be given an additional weapon or lever – the rate of petrol tax. Brash advocates that as petrol consumption is fairly price inelastic, an increase or decrease in petrol tax could warm up or dampen the economy in a similiar way to changing the cash rate. But with the benefit that exporters are not so badly affected by the exchange rate going up due to higher interest rates.

There are constitutional issues around such a move (Brash suggests over the long term it would have to be revenue neutral so the RBNZ is not making profits from it).

I certainly think it is an idea worthy of study. My initial question (and I would love it if an economist could crunch some numbers) is how much would one have to increase or decrease the rate of petrol tax to be equal to say a 25 point change in the cash rate?

Calculating Tax Cuts

May 23rd, 2008 at 10:39 am by David Farrar

The Deloitte team who were behind me in the lockup gave me a copy for the blog of their Deloitte Tax Cut Calculator (now on their website) which is an excel spreadsheet.

It not only shows you how much your tax will be in Oct 2008, April 2010 and April 2011 but also what the same tax would be in Australia.

They have also calculated how much you need to earn to be paying less tax in NZ than Australia. It used to be $1,571,922 but now life gets better in NZ at merely $1,284,992.

The Visible Hand in Economics has also links to three other calculators

  1. Infometrics which gives you the annual and weekly reduction in tax and percentages
  2. Labour, which includes WFF for the breeders 🙂
  3. NZIER which has an Excel spreadsheet

Worth remembering that the annual figure for Oct 2008 will be half that, as it only applies for half the year.

NZIER helpfully also shows you what your tax would have been in 2000 in both NZ and Australia. So if you are on $100,000 you would have been paying the same tax in 2000 ($22,057 in NZ and $22,446 in Australia). In 2010 it will be $30,588 and $26,569 respectively. This assumes 3% wage growth.

Matt Nolan at TVHE also looks at the impact of both tax cuts and huge spending increases on inflation. He thinks it is possible inflation may hit 5%, which would suggest interest rates staying high for a while yet.