Originally posted on Orderstatistic:

Warren Buffet’s article in the Wall Street Journal reminds me of some postsI wrotea while backon fighting income inequality. His article contains a lot of wisdom. Some excerpts:

The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like.

He writes that an expansion of the minimum wage to 15 dollars per hour

would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty. […]  The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC).

I agree entirely and so would Milton Friedman.

Unlike the…

View original 212 more words

Originally posted on Why Evolution Is True:

Until recently I didn’t know of the English writer Nick Cohen (we Americans are so parochial!), but having read several of his pieces in the last few months, I’m becoming more and more impressed. Although I’m told he’s been in bad odor in the UK for having supported the Iraq War (shades of Christopher Hitchens), that is no reason to devalue the pieces he’s writing now defending good old-fashioned liberalism.

And, in the April issue of Standpoint, Cohen has perhaps the best essay on free speech that I’ve seen in several years, “Political correctness is devouring itself.” Not only does it reprise the classic arguments for free speech, but shows how the principle is being rapidly eroded by the very people who once espoused it—the Left. More and more, Cohen—as I—finds himself alienated from the Left, but no less disdainful of the Right, as the principles of the Enlightenment…

View original 901 more words

Image  —  Posted: May 26, 2015 by Jim Rose in economics of media and culture
Tags: ,

image

via After Shorten’s shabby Milne send-off, can Labor’s Greens resentment end? | Jason Wilson | Comment is free | The Guardian.

image

Source: OECD StatExtract

A Reawakening of Monetary Policy Research

Posted: May 25, 2015 by Jim Rose in economics

Originally posted on Economics One:

Last May a group of economists, central bankers, market participants, and financial journalists convened at Stanford’s Hoover Institution “to put forth and discuss a set of policy recommendations that are consistent with and encourage a more rules-based policy for the Federal Reserve and would thus improve economic performance…”  Here’s the agenda, the published volume, and my summary.

Since then much has happened:  The House Financial Services Committee passed a policy rules bill out of committee, the Senate Banking Committee proposed a similar bill with other structural reforms (which also passed out of Committee), the Bank of England instituted significant communication reforms, a slew of economists and Fed officials weighed in (both pro and con) on proposals to make central bank policy rules more transparent, and Congress held several public hearings.

To analyze these new developments, many of the experts from last year’s conference and others convened last week…

View original 1,282 more words

 

 

via 10 Things That Are Banned In San Francisco – BuzzFeed News.

The Council of Trade Unions scored something of an own goal in the 2014 election campaign when it was denouncing the Employment Contracts Act 1991 as the reason for wages growth have not kept up with GDP per capita growth since its passage in 1991. Its evidence in chief against the deregulation of the New Zealand labour market is in the snapshot below showing their graph of real GDP per capita and average real wages from 1965 to 2014.

image

Source: Low Wage Economy | New Zealand Council of Trade Unions – Te Kauae Kaimahi.

The chart selected by the Council of Trade Unions shows several distinct trends in wages growth and real GDP growth  per capita in New Zealand. None of these trends nor breaks in trends support the hypothesis that the days prior to the Employment Contracts Act 1991 were the good old days where workers shared generally in gains from economic growth.

From about 1970 to 1975 in the snapshot below of the Council of Trade Unions chart there was rapid real wages growth, well in excess of real growth in per capita GDP. This wages breakout was followed by some ups and downs but essentially wages in 1995 were no different from what they were in 1975. Real wages were about $24 per hour in real terms in New Zealand for about 20 years – from 1975 to 1995.

image

These are the good old days in the eyes of the Council of Trade Unions. No real wages growth for 20 years. There was no real GDP per capita growth from 1975 until 1979 nor in the five years leading up to the passage of the Employment Contracts Act 1991 in the chart selected by the Council of Trade Unions in the snapshot above.

The period leading up to 1975  in the preceding wages breakout was the zenith of union membership with nearly 70% of all workers belonging to a union – see figure 1. What followed from 1975 was a long declining in trade union membership that did not end until just after the Employment Contracts Act in 1991 – see figure 1.

Figure 1: Trade union densities, New Zealand, Australia, United Kingdom and United States, 1970–2013 

image

Source:  OECD StatExtract.

Whatever happened to union power in New Zealand happened before the passage of the Employment Contracts Act 1991 and with it the deregulation of the New Zealand labour market. 20 years of no real wages growth and economic stagnation may explain part of the decline of unions in New Zealand.

Real GDP per capita growth was pretty stagnant after 1975 to 1994 in the chart of data selected by the  Council of Trade Unions, which is why I have previously referred to 1974 to 1992 as New Zealand’s Lost Decades – see figures 2 and 3.

Figure 2: Real GDP per New Zealander and Australian aged 15-64, converted to 2013 price level with updated 2005 EKS purchasing power parities, 1956-2013, $US

Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics

Figure 2 shows that New Zealand lost two decades of productivity growth between 1974 and 1992 after level pegging with Australia for the preceding two decades.

These lost decades of growth are the unions’ good old days but workers cannot share in the general gains of economic growth when there isn’t any economic growth as the chart selected by the Council of Trade Unions and figure 2 both show.

New Zealand returned to trend growth  in real GDP per working age New Zealander between 1992 and 2007, which is straight after the passage of the Employment Contracts Act 1991 – see figure 2. Coincidence?

Figure 3: Real GDP per New Zealander and Australian aged 15-64, converted to 2013 price level with updated 2005 EKS purchasing power parities, 1.9 per cent detrended, base 100 = 1974, 1956-2013, $US

Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics

In Figure 3, a flat line equates to a 1.9% annual growth rate in real GDP per working age person; a falling line is a below trend growth rate; a rising line is an above 1.9% growth rate of real GDP per working age person. The trend growth rate of 1.9% per working age person is the 20th century trend growth rate that Edward Prescott currently estimates for the global industrial leader, which is the United States of America.

Figure 3 shows that there was a 34% drop against trend growth in real GDP per working age New Zealander between 1974 and 1992; a return to trend growth between 1992 and 2007; and a recession to 2010. this 34% drop against trend productivity growth is looked upon by the Council of Trade Unions as some sort of good old days.

A long period of no labour productivity growth and little real GDP per capita growth are pretty good reasons to rethink New Zealand’s economic policies at a fundamental level, which is exactly what happened after 1984 with the election of a Labour Government.

The unions have conveniently provided another explanation for the Lost Decades of growth in New Zealand from 1974 to 1992. That is the rapid growth of real wages ahead of real GDP per capita in the seven years before growth stalled in New Zealand in 1974 in the snapshot above. This real wages breakout was followed by two decades of lost growth.

Most ironically of all, steady growth in real wages in New Zealand did not return until after the passage of the Employment Contracts Act in 1991! After nearly 20 years of no real wages growth, real wages growth returned at long last in 1995.

After staying at about $24 per hour for 20 years from 1975 in the good old days of union power and collective bargaining, average wages in New Zealand have increased from $24 an hour to about $28 per hour by 2014 in one of the most deregulated labour markets in the world.

The Council of Trade Unions regards the return of real wages growth after a 20 year hiatus as an unwelcome development or something to complain about.

The Economics of John Nash

Posted: May 25, 2015 by Jim Rose in economics

Originally posted on A Fine Theorem:

I’m in the midst of a four week string of conferences and travel, and terribly backed up with posts on some great new papers, but I can’t let the tragic passing today of John Nash go by without comment. When nonacademics ask what I do, I often say that I work in a branch of applied math called game theory; if you say you are economist, the man on the street expects you to know when unemployment will go down, or which stocks they should buy, or whether monetary expansion will lead to inflation, questions which the applied theorist has little ability to answer in a satisfying way. But then, if you mention game theory, without question the most common way your interlocutor knows the field is via Russell Crowe’s John Nash character in A Beautiful Mind, so surely, and rightfully, no game theorist has greater popular name recognition.

Now…

View original 2,144 more words

Image  —  Posted: May 25, 2015 by Jim Rose in Murray Rothbard, war and peace
Tags:

Originally posted on econfix:

Lance ArmstrongDrug-taking in professional sport has long been a major concern and there is no better example than seven times Tour de France winner Lance Armstrong who admitted to doping. Furthermore in the period from 1997 until 2002 among 64 world class 100 metre sprinters 25% have been convicted of doping and this doesn’t include two American sprinters who tested positive this year. So why do athletes continue to dope eventhough you could get banned for life if caught?

Prisoners Dilemma to Inspection Game to Metagame

Game theory deals with differences of opinion between groups who know each other’s inclination but not their genuine objective or choice. It then concludes the optimum course of action for any rational player. In this scenario the parties involved are the competing athletes and although both are better off if neither takes drugs, they cannot trust each other so both engage in doping – Prisoners…

View original 611 more words