The financial sector is at the very core of our economy, and yet following four years of persistent financial crises there is a feeling that this core is rotten – made up of corporate welfare without any value to society. However, it is not the greed of bankers that is at fault – but the incentives that policy makers have given them. Only by understanding these incentives can we figure out what must be done.
The first job I ever had was babysitting the neighbours’ children when I was 14. My pay rate of $5/hr was almost 20% below the minimum wage, but that only applied to people over 20 anyway. Besides, the kids generally weren’t any trouble, so I was happy to be paid $5/hr to basically do my homework and watch Beverley Hills 90210.
If there is anything this World Cup has shown me it’s that I enjoy the occasional drink. While this is all well and good, I often find that my plans to only have one or two drinks while watching the game fall apart – and that I end up severely regretting the excessive drinking the next day. Luckily, economists have studied this issue in detail. Let me share with you why economists believe this issue exists, and how we can use this knowledge to improve our drinking experiences.
In a previous column I suggested that Wellington was New Zealand’s richest region and Northland was the poorest. How we measure wealth and well-being in regions and countries is complex and a topic of much debate. The debate is gaining increasing attention worldwide as various alternative measures of well-being are developed, especially those which incorporate the notion of sustainability.
One of the features of a capitalist economy is that vested interest frequently masquerade as public interest. Example are not hard to find. A particularly egregious example of late is the submission to the Alcohol Reform Bill by the Hospitality Association of New Zealand (HANZ).
Last week I heard a discussion about a book that has some fascinating epidemiological insights about the rise of obesity and accompanying illnesses such as Type 2 diabetes. I defer to the epidemiologists’ expertise in these matters. However, what concerns me is epidemiologists making ill-informed assertions about economics.
Last November the findings of a wide-ranging review of theUK tax system – "the Mirrlees Review" – were released. The review provided anup-to-date report card on the nightmare that is the UK tax and welfare system(providing a salutary lesson on what not to do) and sought input from academiceconomists renowned internationally for their theoretical and empirical work inthe field of tax and welfare. The chair of the review was Sir James Mirrlees,winner of a Nobel Prize in economics.
A recently published paper provides insights into how management practices contribute to variation in business performance between countries. Nicholas Bloom and John Van Reenan have conducted a study that investigated the relationship between management practices and business performance in 5,850 middle sized firms (100 to 5,000 employees) in 17 countries. Although their study did not include New Zealand it still offers a number of insights that are likely to be relevant here. Bloom and Van Reenen construct a measure of management performance based on firm responses to interviews that rated the sophistication of management practices in three broad areas:
Recessions always create winners and losers, which is why we have a welfare system to smooth part of the burden. But at least society as a whole is now getting wealthier again right? Unfortunately it’s not quite that simple, and economists have taken the 0.1% growth recorded in the June quarter with a grain of salt.
The market is a concept that takes many guises and forms. For some the market is a mythical beast that provides people with ultimate freedom, while for others the market is seen as a dictator determined to hold people down. The collapse of Lehman Brothers, and the subsequent credit crisis, has seen calls for both more and less government intervention. However, in order to understand what (if anything) needs to be done we need to think of how the market relates to the freedom of choice.