The Holy Roman Empire in 1789

Wind Industry’s Armageddon: Wind Farm Output Collapse Leaves 110,000 South Australian Homes & Businesses Powerless

STOP THESE THINGS

sherlock-holmes Pinning a massive blackout on plummeting
wind power output is elementary, my dear Watson.

****

STT could be forgiven for being just a little smug after events unfolded last Sunday night (1 November 2015) in Australia’s “Wind Farm Capital”, South Australia.

As our post – Wind Power Disaster Unfolds: SA Facing Total Blackouts, Rocketing Power Prices & Thousands More Chopped from the Grid – was being put together for an airing on Monday, unbeknownst to STT – a bit after 10pm on Sunday – 110,000 South Australian homes and businesses were plunged into darkness.

STT’s SA operatives were quick off the mark, informing us of their unscheduled trip to the Dark Ages – with emails and comments on that post.

Without warning, traffic lights were dimmed to dangerous pointlessness; street lights were out, leaving less surefooted and vulnerable pedestrians creeping home nervously in the dark; hotel, cinema and restaurant owners…

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Aditya Chakrabortty’s one sided Radio 4 polemic on economics

longandvariable

Last night I caught AC’s Radio 4 program on teaching economics after the financial crisis.  It’s a great story, well told.  But, it is just that.  In its totality, a distorting dramatisation, on account of allowing multiple silly, uninformed critiques to go unchallenged in the program.  Yet presented as a reasonable, impartial take on what is going on in economics.  If this were an op-ed in a newspaper, it would be forgivable.  Most people know that when they read comment that they are getting selective advocacy.  But I think a lot of listeners think of Radio 4 as a station they can trust to explain things how they really are.  This program reveals that sometimes the editors slip up.

Here are some examples the one-sidedness that undermines AC’s attempt to portray himself as your friendly, impartial, interlocutor.

1.  The tale of the panics and bubbles course that Manchester University…

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If I was devising a panics and bubbles course…

longandvariable

In a recent FT article, Claire Jones reported on the decision by Manchester University to reject a proposal for a course on ‘Panics and bubbles’, the initiative of the Manchester students’ pressure group ‘Post Crash Economics‘ and sympathetic academics.

On the limited evidence of the course reading list, I thought that the course missed a great deal.  I also thought that Claire’s article was a bit one-sided, implying that the decision to ditch the course illustrated the continued, ostrich-like stupidity of the economics profession.

Claire’s article invoked two wise spirits in favour of the Manchester course.  One was Wendy Carlin, who has led an Economic and Social Research Council-funded effort to overhaul the teaching of macroeconomics.  But Wendy’s (excellent effort) doesn’t urge binning the macroeconomics canon in favour of Austrian or informal analysis [as the PCE lot seem to advocate].  It’s centrepiece is to try to get…

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Did @MaxRashbrooke make his case for wealth and inheritance taxes?

Veteran left-wing grumbler Max Rashbrooke yesterday argued for a wealth tax and inheritance taxes in New Zealand because of a widening wealth gap. He wants to tax inheritances of more than a mere $200,000 over your lifetime!

Yeah, I mean, we really are an international outlier in the sense that we don’t really tax wealth in any form. We don’t tax capital gains except now in very limited circumstances. We don’t tax inheritances. We don’t tax gifts. We don’t tax wealth in general, and this is a complicated area. In a lot of countries inheritance taxes are falling out of fashion. They get called death taxes and that kind of thing. But in response to that, what a lot of people are talking about are things like kind of a lifetime capital receipts tax. So rather than taxing the giver, you tax the recipient, and you say, ‘Look, over your lifetime, you can inherit, say, $200,000 tax free,’ so that your parents can pass on a bit to you.

That means an inheritance tax on the family home given current house prices in Auckland and Wellington and small families. I can’t see the Labour Party or even the Greens following him in on that one if they want to win office ever again.

Did Rashbrooke make a case for a widening wealth gap by looking at a 2004 survey of income and wealth?

Currently, the most recent publicly available information on wealth inequality in New Zealand comes from the 2004 round of the Survey of Family, Income and Employment, known as Sofie… Because wealthy people often refuse to take part in surveys such as Sofie, such data tends to underestimate how much of the pie is owned by the wealthiest people and overstate the share of everyone else. But it is still the best data we have.

Rashbrooke used this 2004 survey to draw a number of conclusions about the distribution of wealth in New Zealand:

The wealthiest tenth of individuals (including that wealthiest one per cent) had 52 per cent of all assets. In contrast, the poorest half of the country had just five per cent of all wealth. Some 190,000 people had negative net worth (more debts than assets), owing $4.7 billion between them.

Did Rashbrooke make his case that there is 52% of all assets in New Zealand are held by the wealthiest 10%? He did not because his definition wealth is too incomplete. Because of that, his focus on inheritance taxes and wealth taxes as solutions are equally poorly made. Any definition of wealth including that by Rashbrooke that doesn’t include human capital or acknowledge the limitations of not including human capital isn’t worth serious attention in public policy circles.

Source: Gary Becker, ‘Give Us Your Skilled Masses’ (2005).

Rashbrooke ignores 70% of the capital, the wealth in any economy. Gary Becker’s estimate that human capital is 70% of all capital in the US economy travels well to New Zealand as shown in the chart below.

Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006), Table 4.8: Human and physical capital stocks.

Over 70% of all capital in New Zealand is human capital. That cannot be ignored in any discussion of a widening wealth gap or in a case for inheritance and wealth taxes.

Dollar value estimates were available to Rashbrooke of human and physical capital of the same vintage as his wealth data from an excellent New Zealand PhD thesis by Lˆe Thi. Vˆan Tr`ınh. Her estimates of the aggregate dollar value of New Zealand physical and human capital are charted below. These estimates show that physical capital doubled between 1981 and 2001 but New Zealand human capital quadrupled.

Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006), Table 4.8: Human and physical capital stocks.

The rich are clearly not getting richer and the poor getting poorer and some people have no wealth at all. Human capital is the dominant form of capital in New Zealand and is growing rapidly. Any discussion of wealth does not include estimates of human capital or acknowledge the limitations of not having those estimates, which are easily available, should not be considered in public policy debates on inequality.


Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006).

The only group in New Zealand that doesn’t have more human capital in 2001 than in 1981 were the unskilled as the chart above shows. This was because their numbers dropped by one-third as a share of the working age population.

Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006), table 3.1.

I don’t think a solution to skills gaps is to increases taxes on those who investing in human capital. But that is the logic of Rashbrooke. When someone gets ahead, drag them back down rather than lift everybody up.

The reason for the lack of growth in the dollar value of unskilled human capital is the massive increase in investment in higher education in New Zealand. More New Zealanders go to university, Polytech or other diploma education. Working class New Zealanders are taking the advice of that unrepentant Stalinist but brilliant screenwriter Dalton Trumbo.

What is most disappointing is the unrepentant lack of gender analysis in the writings of Max Rashbrooke on inequality and wealth. Without a gender analysis, no discussion of wealth and inequality in New Zealand has any meaning.

Few labour market statistics have any meaning unless broken down by gender. Whenever you don’t see statistics with a gender breakdown, the first question for any sort of credible audience is “Gender analysis! Gender analysis! Where is your gender analysis?”

Max Rashbrooke inadvertently illustrated the meaningless of statistics that don’t have a gender analysis when griping recently about poverty and inequality in New Zealand as compared to the good old days before the economic reforms of the 1980s.

To paint pre-1984 New Zealand, pre-neoliberal New Zealand as an egalitarian paradise, Rashbrooke had to ignore two thirds of the population. He brushed over the inequalities they suffered in the heavily regulated, heavily taxed economy so looked upon with dewy eyes by the left of politics:

“New Zealand up until the 1980s was fairly egalitarian, apart from Maori and women, our increasing income gap started in the late 1980s and early 1990s,” says Rashbrooke. “These young club members are the first generation to grow up in a New Zealand really starkly divided by income”.

Racism and patriarchy can sit comfortably with a fairly egalitarian society if you are to believe a leading spokesman of the Left. I disagree as would John Rawls with this boy’s own view of trends in New Zealand inequality. Boy’s own because trends in gender inequality are not discussed. No weight is given to the closing of the gender pay gap, a massive increase in female employment and women out-numbering male university new graduates for well over a decade.

Perry (2014) reviews the poverty and inequality data in New Zealand every year for the Ministry of Social Development. He concluded that:

Overall, there is no evidence of any sustained rise or fall in inequality in the last two decades. The level of household disposable income inequality in New Zealand is a little above the OECD median. The share of total income received by the top 1% of individuals is at the low end of the OECD rankings.

As there is no evidence of any sustained rise or fall on inequality New Zealand for the last 20 years, the case for inheritance and wealth taxes simply doesn’t get out of the box.

Source: OECD Employment Database.

That case for inheritance and wealth taxes by Max Rashbrooke doesn’t deserve to get into the box to go under starter’s orders if that analysis doesn’t include an analysis of human capital and a gender analysis. For example, male human capital increased by 31% in New Zealand between 1981 and 2001. Over the same period, female human capital increased by 112%. This not insignificant achievement in gender empowerment by capitalism and freedom bears celebration in any discussion of inequality.

Source: Lˆe Thi. Vˆan Tr`ınh, Estimating the monetary value of the stock of human capital for New Zealand, University of Canterbury PhD thesis (September 2006).

The only group of women for whom the gender pay gap has not all but disappeared over the last 30 years are the top 10% of women. This is the very group that Max Rashbrooke wants to tax heavily to prevent them accumulating and inheriting wealth.

The reason for those taxes on wealth and inheritances on successful women in the professions and business is growth in inequality but there is little to no evidence of that in New Zealand for at least 20 years.

The case of wealth and inheritance taxes as a way of coping with inequality is just not keeping up with recent trends in superstar wealth. New Zealand top 1% is lazy when compared to their more entrepreneurial American brothers.

Source: The World Top Incomes Database.

Our local top 1% earns the same share of total income as 30 years ago or even 60 years ago. Any growth in wealth gaps in New Zealand isn’t showing up in top incomes shares.

Source: The World Top Incomes Database.

As for overseas, Piketty and Saez (2003) concluded that a substantial fraction of the rise in top incomes was due to surging top wage incomes. These world-renowned social economists concluded that top executives (the ‘working rich‘) replaced top capital owners (the ‘rentiers’) at the top of the income hierarchy in the USA and Canada. The largest portion of the top incomes comes from earning wages. Top wage earners work for their living founding, building and/or directing successful businesses.

Gordon Tullock and Collective Preferences and Democracy

@oxfamnz @GreenpeaceNZ get your ODA priorities straight

Image

If We Want Prosperity, Prices Should Be Determined by Markets rather than Politicians

International Liberty

The communist economic system was a total disaster, but it wasn’t because of excessive taxation. Communist countries generally didn’t even have tax systems.

The real problem was that communism was based on central planning, which is the notion that supposedly wise bureaucrats and politicians could scientifically determine the allocation of resources.

But it turns out that even well-meaning commissars did a terrible job. There was massive inefficiency and widespread shortages. Simply stated, notwithstanding the delusions of some left-wing economists (see postscript of this column), the system was an economic catastrophe.

Why? Because there were no market-based prices.

And, as explained in this video from Learn Liberty, market-based prices are like an economy’s central nervous system, sending signals that enable the efficient and productive allocation of resources in ways that benefit consumers and maximize prosperity.

And just in case it’s not obvious from the video, a price system can’t…

View original post 372 more words

@PhilTwyford fantastic @nzlabour policy breakthrough on housing affordability

Labour yesterday announced an excellent policy on housing affordability. The reforms proposed by Labour stress increasing the supply of land and improvements to local government finances surrounding infrastructure investments for new housing:

Labour will free up density and height controls to allow more medium density housing and reform the use of urban growth boundaries so they don’t drive up section costs. This will curb land bankers and speculators.

Labour has struck at the heart of two major constraints on urban land supply New Zealand: restrictions on density and height of new developments, and much more importantly, the use of urban growth boundaries to drive up land prices. These proposed regulatory reforms could not be more welcome.

The other shoe of Labour’s housing affordability reform proposals is improving the incentives for local councils to support new housing developments:

The other new element is changing the way we fund infrastructure for new developments. Currently those costs are either subsidised by the ratepayer or passed by the developer onto the price tag of a new home. That makes houses much more expensive. It also means they are paid off through mortgages at expensive bank interest rates.

Our new policy will see infrastructure funded by local government bonds, paid off over the lifetime of the asset through a targeted rate on the properties in the new development. This will substantially reduce the cost of new housing.

The reforms proposed by Labour to local government financing will reduce the financial burden on existing ratepayers of the local government funded infrastructure necessary to support new land developments.

Source and notes: International House Price Database – Dallas Fed June 2015; nominal housing prices for each country is deflated by the personal consumption deflator for that country.

These Labour Party reforms are fantastic because the main party on the left-wing of New Zealand politics has faced up to restricted land supply as a key reason behind housing unaffordability. I wonder what the New Zealand Greens will think of these major new reforms.

Of course, nothing is perfect in the art of policy development. New Zealand Labour continue to want government to build 100,000 affordable houses and scapegoat foreigners for high housing prices.

A few more sensible economic and fiscal policy announcements such as those today by the New Zealand Labour Party and it will start looking like a credible alternative government.

 

Why are Scandinavians so thin? Still few overweight Japanese

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