Four Reasons Financial Intermediaries Fail
28 Jul 2016 Leave a comment
in applied price theory, business cycles, macroeconomics, monetary economics Tags: bank panics, banks runs
@metiria house prices won’t drop 40% by raising taxes, banning foreigners
27 Jul 2016 Leave a comment
in applied price theory, economics of regulation, politics - New Zealand, urban economics Tags: housing affordability, land supply, New Zealand Greens, RMA, zoning
Just increase the supply of land. Extending the capital gains tax and banning foreigners from buying land will do no good. An average house price 10 times the average income in Auckland is not a demand-side problem.

Source: Is Your Town Building Enough Housing? – Trulia’s Blog.
There are plenty of examples of US cities with different land supply restrictions but common national surges in demand for housing such as prior to the GFC. Cities with liberal land supply experienced only small increases in house prices.

Source: Regionally, Housing Rebound Depends on Jobs, Local Supply Tightness – The Long-Awaited Housing Recovery – 2013 Annual Report – Dallas Fed from Federal Housing Finance Agency; Bureau of Economic Analysis; “The Geographic Determinants of Housing Supply,” by Albert Saiz, Quarterly Journal of Economics, vol. 125, no. 3, 2010, pp. 1253–96.
The Greens should follow ACT and the Labour Party in calling for the abolition of the Auckland urban limit and changes in council finances so they can fund the necessary infrastructure quickly.
Milton Friedman Speaks – Free Trade: Producer vs. Consumer
27 Jul 2016 Leave a comment
in applied price theory, international economics, Milton Friedman Tags: free trade
Elasticity and Slave Redemption in the Sudan in the 1990s
24 Jul 2016 Leave a comment
in applied price theory Tags: unintended consequences
Tullock vindicated by how the Romanian revolution succeeded
16 Jul 2016 Leave a comment
in applied price theory, comparative institutional analysis, constitutional political economy, defence economics, economics of bureaucracy, Gordon Tullock, Public Choice, rentseeking Tags: economics of revolutions, fall of communism, military coups, people power, Romania
The obituaries today for Victor Stanculescu, the Romanian army chief at the time of the 1989 revolution, vindicated Gordon Tullock’s view that popular revolutions are in fact military coups.
Tullock argues that any dictator can survive popular revolts as long as he has
- a secret police that is moderately competent and willing to torture and kill; and
- offers large rewards for informing on members his own entourage plotting to overthrow him.
Ordinary citizens obey dictators because if they don’t, they are highly unlikely to make any difference in any revolt and could get killed during the uprising even if it succeeds. Worse awaits them if the revolt fails.
Most dictators do not anoint a formal successor while they are in office. Tullock argued that as soon as a likely successor emerges, loyal retainers start to form alliances with that person and may see private advantage in bringing his anointed day forward.
More than a few autocrats were murdered in their sleep. To his very last day, Stalin locked his bedroom door because he did not trust the bodyguards who had been with him since the 1920s.
The role of street protests in the Arab Spring was to throw in the possibility of mutinies and desertions in the army and police. Previous alliances are thrown into doubt especially as the autocrat is old and sick, but had for many years grooming his 39 year-old son to inherit power.
Turning back to the Romanian revolution, Victor Stanculescu was the recently appointed army chief and initially stuck by the regime. He ordered the troops to open fire on protesters and at least 1000 died from in the shootings in the street.
In common with the Arab Spring, a large street protest did led him to reconsider his position:
Sniffing Mr. Ceausescu’s defeat, General Stanculescu quickly returned to Bucharest, where he faked a broken leg to avoid further counterrevolutionary deployment. Promoted to defense minister after the incumbent minister killed himself, he helped Mr. Ceausescu and his wife, Elena, flee by helicopter from the roof of party headquarters.
But fearing that the copter had been spotted by radar and would be shot down, the pilot hastily landed. Mr. Ceausescu hijacked a passing car, but he and his wife were soon surrounded and arrested.
After the couple were captured, General Stanculescu organized their trial by a military court and recruited the firing squad (before the verdict, by some accounts) that executed them on Christmas Day. He then joined the new government.
But for this late switch by the army chief, the popular revolt would never have succeeded. The army was needed to put down the still loyal security police. The army chief’s top priority was to execute Ceausescu as quickly as possible so that he was not a rallying point for a counter coup.
Ceausescu found out that his game was up when who he thought was his still loyal army chief arrived at his hideout with military judges to try and execute him.
About 10 years later, the Romanian government turned against the man who made the revolution and put him in prison for the many deaths in the street when he was on the side of the regime putting down the revolt.
Not so good an idea. A little bit of forgiveness carries a lot of weight encouraging late switching within the ruling elite and army that makes the difference to bringing down the old regime.
The O-Ring theory of development
15 Jul 2016 Leave a comment
in applied price theory, development economics, economics
David Friedman on “Future Imperfect”
15 Jul 2016 Leave a comment
in applied price theory, David Friedman, law and economics
Division of Labor: Burgers and Ships
15 Jul 2016 Leave a comment
in applied price theory Tags: division of labour
Why are there too many castles on the Rhine river?
09 Jul 2016 Leave a comment
in applied price theory, industrial organisation Tags: competition and monopoly, monopoly pricing
If it was 2007 again, what would @jamespeshaw @PhilTwyford do on housing affordability?
08 Jul 2016 Leave a comment
in applied price theory, economics of regulation, politics - New Zealand, urban economics

Source: Housing ‘challenge’ still not a ‘crisis’ | Radio New Zealand News.
Neither Labour nor the Greens have explained where the new land will come from inside the Auckland Metropolitan Limit to build their 100,000 additional houses nor why their proposals will be granted resource consents under existing resource management legislation.
The National Party is unwilling to push shared with resource management law reform despite having 61 votes to do so because of fear of losing votes in the centre.
The Economist Crony Capitalism Index
08 Jul 2016 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, constitutional political economy, development economics, economics of bureaucracy, entrepreneurship, financial economics, growth disasters, growth miracles, industrial organisation, politics - USA, Public Choice, rentseeking, survivor principle Tags: crony capitalism, superstar wages, superstars, top 1%
Nitpicking @stevenljoyce reply 2 @TaxpayersUnion on corporate welfare @JordNZ
05 Jul 2016 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, economics of bureaucracy, industrial organisation, politics - New Zealand, Public Choice, rentseeking, survivor principle Tags: creative destruction, endogenous growth theory, industry policy, innovation, picking losers, picking winners, public goods, R&D, water economics
The best the Minister for Economic Development, Steven Joyce, could do in response to my recent report on corporate welfare was nit-picking. Joyce said my definition of corporate welfare was flawed and that spending on R&D will grow the economy. He said
“To brand things like tourism promotion and building cycle-ways as corporate welfare is, I think, creative but not accurate at all.”
Joyce also said my report was
just somebody picking out a whole bunch of government programmes that in many cases don’t involve payments to firms at all…
Those that do involve payments to firms are specifically designed to encourage the development for example of the business R&D industry. Politicians don’t choose them.
Payments in kind are business subsidies. R&D is so important to the economy that the last thing you want is its direction to be biased by funding from government. Bureaucrats have a conservative bias and do not fund oddballs and long shots. The oddballs and hippies in the picture below could only afford the photo because they won a radio competition in Arizona.
The R&D expenditure that was criticised in my report was commercialisation, not basic research, which was specifically praised. Which research to commercialise is for entrepreneurs.
There is no reason whatsoever to think bureaucrats administering R&D subsidy budgets set by politicians are any better than private entrepreneurs at picking the next big thing.
Page 33 of "An Illustrated Guide to Income" more economic #dataviz at: bit.ly/10M7lqR http://t.co/FcmaqZWB32—
Catherine Mulbrandon (@VisualEcon) May 09, 2013
If bureaucrats were any good at picking winners, were any good at beating the market, they would go work for a hedge fund on an astronomically better salary package. The salary package of one top hedge fund manager exceeds the entire payroll budget of most New Zealand government departments including those administering R&D subsidies and other hand-outs.
Government expenditure in vital areas such as innovation should be justified on the basis of cost-benefit ratios and a rationale for why bureaucrats have superior access to information about the entrepreneurial prospects of unproven technologies and product prototypes.
Subsidies should not be defended because of their popularity and sexiness as Mr Joyce did for the film industry, tourism promotion and ultra-fast broadband
If they told New Zealanders that in their view tourism promotion should be cancelled, the film industry should close down, that their shouldn’t be any ultra-fast broadband…I don’t think people would be that enamoured with it.
On irrigation funding, Mr. Joyce cited a report by NZIER that found irrigation contributes $2.2 billion to the economy. Irrigation is a private good which can funded by pricing it properly including the recovery of capital costs. There is no case for a subsidy.
Public goods have spillovers, private goods such as water and irrigation do not. Users can fund the irrigation themselves buying as little or as much water as they are willing to pay out for out their own pockets. The NZIER report noted that it was not about the case for public funding:
… we are not able to quantify the environmental or social impacts if irrigation had never occurred. We also do not attempt to investigate the relative merits of public versus private sector funding of the schemes.
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