Choice and Economic Growth

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.

The tax and welfare “mess”

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.

Measuring the contribution of good management

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:

Taking the P out of GDP

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.

Freer markets, freer people?

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.

Copy cats

It seems common sense that people are more likely to obey rules or laws if they understand and agree with the reasons behind them. Perhaps this explains why many, otherwise law abiding citizens, appear to have no qualms about downloading copyrighted material. The recent amendment to New Zealand’s copyright law is problematic at best, and at worst a perversion of natural justice. When considering a legal framework, the rights of artists and producers need to be balanced against the enjoyment consumers lose when copyrighted material is priced prohibitively.

The pursuit of happiness starts with the economy

The policy structure most supportive of an expanding economy deserves to be a central topic of debate in the forthcoming election. Although there is little academic agreement about how to achieve a fast-growing economy (after the basics are in place, as they are in New Zealand), it seems uncontroversial to state that the size of the economy will remain a limiting factor of our ability to pursue other social goals.

Measures of allocative efficiency

In the last few weeks my colleagues, Gareth Kiernan and Adolf Stroombergen, have discussed the importance of what economists call allocative efficiency – ensuring that the nation’s resources flow into those activities where they are most valued. I continue with that theme. My aim is to present a measure of how big a deal allocative efficiency is for the New Zealand economy.

User pays would help alleviate water shortages

The recent hot summer has not only been bad for my skin, but for famers as well. A drought has reduced production of agricultural goods, undermining a major source of New Zealand export income. Furthermore, growth in both the number of people and cows has begun to stretch the water infrastructure in some regions, suggesting that a longer-term problem of water shortages beckons. When an economist hears the word shortage there is one thing we think – put the price up. So it is about time we set a price for water, by establishing a market.