31/05/2012 § Leave a comment
Possibly out of the usual topic areas, but here goes. A preacher in North Carolina in the U.S. has been stirring up the usual anti-gay hatred. I grew up just one state north, so it is all depressingly familiar. I am fairly inured to intolerance because (a) there is so much of it and (b) picking fights with it only makes it stronger.
My first thought really is, haters gonna hate:
One of the arguments is that homosexuality is unnatural: because gays and lesbians won’t procreate, how could the gene be passed down? I built a toy model as an explanation. It didn’t quite work but let me explain the logic.
From an evolutionary perspective, genes want to reproduce themselves. Note that this isn’t about the longevity of an organism. It is about producing offspring who survive to produce offspring. Biologists know that this can be achieved with different strategies. One strategy is to protect and foster a few offspring. Another is to have lots of offspring and hope some survive.
Human genes have gone for the nurture-a-few strategy (in comparison to, say, 13-year cicadas). What if the genes could ensure not two adult guardians but three? That might give the offspring a larger chance of surviving. Maybe a set of genes could sort itself so that some offspring specialised in breeding and others specialised in providing material support for the next generation.
And that is why hereditary homosexuality can be ‘fit’ from an evolutionary perspective: it can provide extra aunts and uncles to protect the littlies. The genetic trick is to get the right proportion of breeders and non-breeders across the generations. That’s what I was working on modelling. I found that the ideal proportion of non-breeding adults was directly proportional to its impact on survival, a fairly trivial result.
So be glad for your gay relatives — they signal your own genetic fitness.
30/05/2012 § 3 Comments
We’ve just had to deal with EQC. There’s clearly an electrical fault in our property in Christchurch. It has arisen since the earthquakes and been accepted as earthquake-related. The fault is causing problems with the lights in the house. An electrical fault is also, of course, a fire hazard.
The tenants in the house would like it fixed.
EQC has said no. They will fix it when they get to it.
I realise that I am now an accidental slumlord, renting out a substandard house, a potential firetrap, in a market with few vacancies.
Who is responsible? EQC now knows about the problem, but it is choosing to follow its bureaucratic process rather than provide safe housing. I know about the problem and could pay a sparky to deal with it. The last time I paid out of pocket for earthquake work, it took nearly a year to get the invoice paid, and only after serious wrangling with EQC. I paid for my EQC cover — why should I have to foot the bill?
I wonder where my insurance company stands on this? If there’s a fire, am I covered? Or will they decline the claim on the basis that someone should have done something?
Let’s hope we don’t have to find out.
30/05/2012 § Leave a comment
The Dominion Post published a list of the ‘top 10 jobs most in demand in New Zealand in 2012′ — these are vacancies needing to be filled. The list?
- Sales reps
- Skilled trades
- IT staff
- Accounting & finance
- Marketing/PR/ communications
First, it is important to think about where the list comes from. ManPower did the research, but the perception of shortages came from firms. These are businesses working in the economy trying to produce goods and services, and finding that they are held back by staff shortages. One presumes that these businesses are actually seeing unfilled demand — work they could be doing, if only they had the staff. Unfilled demand is just jargon for ‘people want stuff but can’t get it’.
What kinds of skills are in short supply? Frankly, I don’t see any real pattern to this list. There are jobs for different skills levels, amounts of experience, interests, lifestyles. The only thing missing is something for unskilled workers, but a training programme could turn an unskilled worker into a candidate several of these jobs inside a year or so.
Why do I bring this up? Two reasons:
- An economy has all sorts of jobs for all sorts of people. Shortages show up in all sorts of places. Government programmes that focus on specific jobs and specific qualifications often miss the bigger picture. I notice this most in the push for more tertiary-educated workers, particularly in the sciences. That’s not necessarily the binding constraint. From the article:
Institution of Professional Engineers New Zealand president Graham Darlow said there were no real surprises in the survey. “The biggest shortage is in technicians and not professional engineers,” he said.
- A high-tech economy depends on technology graduates, yes. But an economy has all sorts of other necessary skills — sales, finance/accounting, and management are crucial. Even amongst tertiary graduates, only a minority can be gainfully employed in science and tech. Businesses need all these other skills, too.
This list from ManPower is a good reminder: economies are big and complex, and they generate jobs for all sorts.
29/05/2012 § 6 Comments
Welly Gnome wasn’t happy with the Budget. Quoth the Gnome:
It is morally abominable that Billy Bunter and Don Key refuse to raise the retirement age from 65….Paying people who no longer produce anything when New Zealand is losing tens of thousands of productive people overseas every single year is demographic insanity.
I’m not convinced that we necessarily have to raise the retirement age. Earlier writers and economists speculated that all this machinery and technology accumulating around them could lead to more leisure and intellectual advancement. There’s a work-leisure trade-off, in the present, over one’s lifetime, and across members of society. We could all retire at 55, for example, but in smaller houses with fewer toys.
But I point to Welly Gnome because of the explicit recognition of the current inter-generational conflict. WG’s ‘About Me’ page says that the writer is 22 years old and believes that there aren’t enough Gen Y/Echo/Millennial voices on the Web. WG’s youth is central to the writer’s blogid(entity). And this youth is angry.
For good reason, I might add. There was a time in New Zealand when child healthcare was free, university was free, and houses were affordable. Now, not so much. The people who are now reaching retirement age and demanding their full pensions are the same people who introduced fees for child healthcare (now that they no longer need it) and university fees (now that they have their degrees), and support local land-use regulation that underpins high section prices in the major cities. Yeah, I’m looking at you, Boomers.
We have to be a bit careful, of course. Back in those days of free education, getting foreign exchange was something of a mission. Now, I pay my Amazon bill with my credit card and think nothing of it. Cars are easier to buy and more reliable. Many things are better now than they were then.
At one level, though, it doesn’t matter what I think. It matters what the Millennials think. And some of them, like WG, think they are getting raw deal. As the world economic troubles make it harder to join the workforce (have you seen the unemployment stats for young adults?) and user-pays means they get charged for everything, they may look for ways to raise their take-home pay. What better way to do that than reduce transfers to the generation that got all that free stuff to begin with?
As Phyllis Diller said, always be nice to your children because they are the ones who will choose your rest home.
28/05/2012 § Leave a comment
The Green Party responded to the Budget with this graphic:
I carry around in my head a vague sense of the income distribution of New Zealand. The Green’s figures did not match that distribution. So, I went looking for the numbers. Helpfully, the Party’s website had more information (pdf) about how these incomes were calculated.
- Solo parent: ‘$333 a week DPB, student allowance and housing allowance of $125 per week, $80 working income, and $88 Family tax credit. This actual puts her in the middle of the 3nd decile – ie 20% of household [sic] have lower incomes.’ I can’t verify the income because I’m not familiar with these government programmes. The additional comment, that 20% of households have lower incomes, is misleading. According to the NZ Income Survey, 15% of households have one member so may not be poorer per person. Also, some of these payments are specifically aimed at lifting children out of the poorest deciles, which they appear to be doing.
- The typical family: $71,500 seems high for the ‘typical family’. The Greens link to the NZ Income Survey, which reveals that the figure is indeed the median for a family of at least five (‘Couple with three or more dependent children’). They aren’t really ‘typical’ — they are only 5.7% of all households, and only 14.0% of households with dependent children (there are more solo parent households — 16.4% of households with dependent children).
- The top 10% family: The additional information states that the $250,000 was ‘Estimated from Household Income Survey (Income) data’. I don’t know how they ‘estimated’ this figure, but it is a fairly high estimate of the top 10%. IRD income statistics make this clear. Only 1.4% of earners (in 2010) have an income of $150,000 or higher. Assuming that the part-time earner can only make $50,000, then the main earner needs to bring in $200,000; there are 0.7% such earners. So, this isn’t a top 10% family but a top 1%.
- The top 1%: This is the average taxable income per earner for the top 1% of earners, using IRD figures. However, it isn’t a household figure (like the others are) and it isn’t a median (which would be a better representation of this distribution).
The IRD figures don’t tell us about families and households because they are only taxable incomes and include earners like students who are working part-time. But, they are a guide. More than half of earners make less than $25,000. The top 10% of earners make about $70,500 or more — the top 10% of ‘families’ will be higher.
What all this means is that the Green Party figures are skewed upwards. What they are presenting as ‘typical’ isn’t. Even when they talk about the ‘top 10%’, they overestimate the income. So, why?
I can make a few guesses:
- It probably maximises the increases and decreases they calculate for the various families. So, the choices are political rather than economic.
- They may be trying to emphasise the distance between the majority and the top 10%. However, they are simply wrong. People making over $100,000 are under 5% of earners, so there are still lots of the top 10% making under that.
- They don’t know how lucky they are. Many of the people who brought you this analysis are themselves in the top 10%. But life is expensive — housing, kids, cars, insurance, etc. They don’t feel rich. They can’t quite believe that 90% of the country toughs it out on less — a lot less. So, they recalibrate their mental model of the income distribution with themselves in the upper middle instead of the top.
25/05/2012 § 4 Comments
Another budget, eh? Two surprises for me (but maybe I wasn’t paying attention):
- the increase in RS&T spending
- Kiwisaver information provisions.
I support both of these, although the devil will be in the detail. The first one is generally a public good (non-exclusive, non-rival), and the other overcomes an information asymmetry.
But what I really want to talk about is this: it’s another take-your-medicine-like-a-good-kid sort of budget. Haven’t we had this before? Over and over again? When does this prescription run out?
To show what I mean, here’s a timeline. This is the approximate mental model I carry around in my head of the economy over the last forty years:
- 1970s – stagflation and oil shocks
- early 1980s – recession
- mid 1980s – not bad
- late 1980s – stock market drop, Savings and Loan scandal
- early 1990s – recession
- mid to late 1990s – tech boom
- early 2000s – tech bust
- mid 2000s – not bad
- late 2000s to now – recession, turmoil
(I did a graphic of this, but can’t get it out of Word into this post.)
Yeah, it’s totally non-scientific, just my personal perspective. It reflects where I’ve lived and what I’ve been doing. But other people look at the economy with their mental models – vague personal recollections connected in some sort of narrative. And what’s the story? About 5 to 10 good years when the economy was humming, maybe 10 to 15 years of moving sideways, and lots of difficult years.
So, when do we get to stop taking all this economic medicine?
When is the patient going to be healthy?
24/05/2012 § 2 Comments
I’m traveling today, so no post of any substance. However, I found myself thinking about this song on the way to the airport. It seemed appropriate for another zero budget day. Oh, and mildly NSFW — I guess I’m losing my ‘G’ rating.
23/05/2012 § Leave a comment
MED recently published some research I did for them with a few co-researchers. The work is a little old but it’s nice to see it on the MED website.
The research was part of a larger programme investigating the interaction between businesses’ strategies and their job vacancies. The programme was based on work by Geoff Mason in the UK on business growth, innovation, and employment.
Here is the blurb from the MED website:
This research explored the interaction between strategy and employees’ skills, and differences between high value-add (HVA) and medium value-add (MVA) firms, through interviews with firms and analysis of the 2008 New Zealand Business Operations Survey.
We were trying to understand how businesspeople thought about their business plans or strategies and link that to the success of their firms. A critical part of running a business — and implementing a plan — is having the people to do it. So, we focused in particular on key employees and skill gaps.
Two interesting findings:
- Most firms had trouble recruiting key employees. They reacted by recruiting from overseas, training an existing employee, relaxing the criteria, or simply leaving the position unfilled.
- MVA firms focused more on production methods, technical skills, and margins over costs. HVA firms focused more on the business skills of a few, professional core employees, as well as the marketing aspects of their products.
The first finding underlined that there are skill shortages in New Zealand. It may seem a trivial finding to economists, but it is important to remember the matching problem. Available workers may not match the available openings. In addition, most domestic firms are small, so a poor hiring decision can really hurt them. Throw in a bit of risk aversion, and firms are willing to let positions sit unfilled for years and work around the gap.
The second finding was, in a general sense, about the difference between cost-plus pricing and value pricing. MVA firms tended to be more cost-plus — they figured their cost of production and added a margin. As a result, they couldn’t really be high value-add firms unless they added a high margin, which they were loath to do. The HVA firms tended to work more on the basis of ‘value to customers’, and then charge accordingly. Of course, in a Walrasian equilibrium, cost-plus and value pricing would yield the same results. In the non-equilibrium world of actual firms, value pricing leads to higher value-add.
Always interesting to get out in the economy and talk to people in it, rather than just sitting at my desk teasing something out of the numbers.
22/05/2012 § 2 Comments
Let’s not be naive about this. The Green Party didn’t go looking for someone to tell them that the government should sell everything and stick to assigning and protecting property rights. If they had, there are economists who would have obliged. The obvious question, given that the report supports the party position, is how good the economics are.
This is an example of a central issue with consulting: providing clients with what they need or want while maintaining professional credibility. It’s an issue we’ve discussed here and one that Eric Crampton has also considered.
This BERL report is a great example of a consulting report. How did they do it? Here are some techniques:
- Limit the question: The report calculates the impact on government finances from three scenarios. It doesn’t ask what the economic or GDP impact of public ownership is. That’s a harder question; it would also get into more complex assessment of efficiency of ownership structures and political analysis of allocative issues. BERL avoids those questions by focusing on government finances. This technique has the same function as ‘defining your terms’ and ‘setting the terms of reference’.
- Show your work: The BERL calculations are shown in detail so you can check the maths. This keeps everything transparent and shows that the consultants have nothing to hide. Making a public display of the calculations hides things in plain sight, like Poe’s ‘The Purloined Letter’. When the consultants are challenged, they can say they have been completely honest. The key is that the calculations make no difference to the findings.
- Assume your answer: Inputs drive the outputs in a model. So, choosing the right inputs or the right assumptions is key. BERL does this very clearly. They assume that any new asset has the same dividend as any asset that is sold, but takes a while to start yielding a return. This has the effect of assuming a loss, which they then calculate. They also, in the text, indicate that this is a key assumption and changing it could change the results of the analysis (see, ‘Show your work’).
This report does something valuable for the asset sales debate. It asks, ‘What are the stated reasons, and what calculations could we make to assess the reasoning?’ It then lays out a simple financial model. In doing this, the report suggests that the stated reasons don’t really hold up to analysis, which is useful by itself. The report also challenges supporters of the asset sales to say which input values are wrong and reveal their own assumptions. That changes the debate from ‘good versus bad’ to ‘what rate of return do you expect?’ That’s progress.
UPDATE: Now that coffee #3 is working through my system, I have finally noticed that Eric at Offsetting Behaviour has weighed in on this report, questioning the validity of the assumptions. Also, TVHE started with a bleg and ended with an informative comment thread.
21/05/2012 § Leave a comment
The G8 summit running over the weekend issued a communique on the global economy, and this was picked up by the international press. Unfortunately, the press wasn’t particularly helpful in understanding the economics. They repeated the statements in the communique, but without analysis or explanation. These statements are fundamentally political, so they aren’t much help understanding the economics.
For starters, the leaders of the G8 said this:
Our imperative is to promote growth and jobs…. [W]e commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us.
Of course their imperative is growth and jobs. The G8 isn’t going to announce its support of stagnation and unemployment. The current debate is how to promote growth and jobs. Some pretty clear lines have been drawn in economic theory and economic policy. One side supports the view that Aggregate Demand is cyclically low, and should be supported by the consumer of last resort, the government. The other side supports the view that short-term boosts will only create long-term problems; creative destruction is reallocating resources to more productive uses, and governments must strengthen their balance sheets. Both theories share the same goal: economic growth.
The G8 statement doesn’t take sides in this debate, so it is fundamentally meaningless as economics. Politically, it leaves the door open to be all things to everyone: ‘the right measures are not the same for each of us’.
Further down the communique, one statement that got people talking was this:
We agree on the importance of a strong and cohesive Eurozone for global stability and recovery, and we affirm our interest in Greece remaining in the Eurozone while respecting its commitments.
At first glance, this looks like support for Greece, and that’s how Reuters reported it (‘World leaders back Greece’). Except the G8 might just as well have come out for unicorns and rainbows. And free wi-fi. All they have done is confirm their support for two principles. These two principles currently happen to be at odds. One way or another, the conflict is going to be resolved, and then we are going to find out their preference ordering.
Here is what they said. They want:
- Greece in the Eurozone
- Greece ‘respecting its commitments’, which means paying back all the money it owes everyone.
The OECD statistics paint a grim picture. Government debt in 2010 was about 150% of GDP and continues to grow. Government expenditure accounts for 50% of the official economy, although the informal economy is large. The difference between government revenue and expenditure in 2010 was 10% of GDP. Recall that the Stability and Growth Pact calls for a public debt of 60% or less. Put these numbers together, and the net result is this: if the government can reduce its spending by 40% (or 20% of GDP), then the country can meet its eurozone obligations in about 10 years. At least half that decrease is a real reduction, because the government is no longer spending borrowed money. The other half — the part that is paying off past borrowing — may or may not come back to Greece in the form of increased exports. Because they are euro loans, the creditors can take the repayments and spend them elsewhere.
The G8 communique is saying that they support Greece in the eurozone on terms that make it impossible for Greece to remain in the eurozone. That is why the document is fundamentally political. The business and economics journalists should say so.