
Source: Environmental and Urban Economics: Climate Change and Economic Growth.
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
03 Dec 2015 Leave a comment
in applied price theory, economic growth, entrepreneurship, environmental economics, global warming, macroeconomics, Robert E. Lucas Tags: climate alarmists, endogenous growth theory, entrepreneurial alertness, exogenous growth theory, global warming, Matthew Kahn, neoclassical growth theory, offsetting, Robert Solow, unbalanced growth, unintended consequences
02 Dec 2015 Leave a comment
in applied price theory, Austrian economics, entrepreneurship, history of economic thought, industrial organisation, Ludwig von Mises, survivor principle Tags: competition as a discovery procedure, consumer sovereignty, entrepreneurial alertness, market process, market selection, profit and loss, The meaning of competition
02 Dec 2015 Leave a comment
in applied price theory, budget deficits, business cycles, economic growth, economic history, economics of regulation, Euro crisis, fiscal policy, global financial crisis (GFC), great depression, great recession, macroeconomics, monetary economics Tags: adverse selection, bank panics, bank runs, banking crises, deposit insurance, economics central banks, financial crises, moral hazard, sovereign defaults
02 Dec 2015 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, economic growth, economic history, entrepreneurship, industrial organisation, macroeconomics Tags: creative destruction, endogenous growth theory, entrepreneurial alertness, innovation, international technology diffusion
Michael Reddell was right to run his sceptical eye over the enthusiasm of the New Zealand government for promoting local R&D. Politicians are obsessed with boffins in lab coats who invent thing rather than the entrepreneurs who risk import technologies and adapt them to local markets.
New Zealand is a technology follow-up. 99% of global R&D is undertaken abroad. The key innovation policy question for New Zealand is how to adopt those technologies rather than how to invent them.
https://img.quozio.com/img/a6dd47b6/1025/The-fraction-of-US.jpg
Appropriate institutions and distance for the global technological frontier
As technology followers such as New Zealand approach the global technological frontier, the institutions appropriate for continued productivity growth change.
As a country moves closer to the global technological frontier, the impact of each successive technology import will decline. The latest imported technology is usually a smaller and smaller upgrade on before. A more skilled workforce and greater entrepreneurship is needed to squeeze out all of the available productivity and product quality gains from the latest imported technologies.
The institutions appropriate to further growth are context-dependent
The political, tax and regulatory institutions that favour the more ready-made implementation of more standardised imported technologies do not necessarily favour the growing demand for the domestic innovations in New Zealand as the global technological frontier nears. There is a growing demand for more highly skilled workers to master and adapt the leading-edge technologies to the distinctive circumstances of each New Zealand workplace to stay ahead in rapidly changing competitive environments and meet the changing needs of customers.
Productivity growth is not manna from heaven. Every increase in productivity and in product quality and variety are the sum of many inventions that must be first discovered by prospective innovators building on past ideas and developed, tested, adopted and adapted by profit-minded entrepreneurs and workers. Investments in R&D, in human capital and in on-the job learning and in the entrepreneurial judgments about risking investments in the new technologies that all underpin further growth in productivity are all influenced by public policies.
Moving from implementation-based to innovation-based policy regimes
As a country approaches the global technology frontier, continued technological imitation is no longer enough to keep productivity growing at the trend rate of two per cent per year. There must be an institutional switch from a technology implementation-based policy regime to an innovation-based policy regime.
The end by 1990 of the EU’s productivity convergence on the USA has been partly attributed to not making the policy shift from technology implementation enhancing institutions to innovation enhancing institutions. EU members invested far less than the USA in R&D and tertiary education had more rigid labour and product markets, had less entry and exit of firms, and much higher taxes.
Institutions must adapt to distance from the technological frontier
As a country approaches the global technology frontier, there must be younger firms, fewer incumbents, better educated workers, more R&D, more entry and exit, more flexible product and labour markets and lower taxes. These dynamic entrepreneurial features were not common-place in pre-1984 New Zealand.
New Zealand too had to switch to institutions that enhanced innovation and entrepreneurial entry just to return to growing at the global trend rate of 2 per cent per year. The political, tax and regulatory institutions appropriate prior to 1973 when New Zealand was a colonial farm for the UK are different to the institutions that are growth-enhancing in a less sheltered economic environment. There is no reason to suppose that the rising burden of knowledge and product proliferation has in any way ebbed to lighten the pressure for continued reform.
The institutional foundations of prosperity and stagnation
Questions about greater prosperity of New Zealand must be correctly posed and should focus on the fundamental causes of productivity growth rather than the proximate causes. The proximate causes of productivity and prosperity are the accumulation of more human and physical capital and technological progress.
Institutions are the fundamental cause of prosperity and cross-country differences in per capita incomes. Institutions determine the incentives and constraints on working, learning and investing, and influence, in a profound way, investments in physical and human capital and R&D and the importing of new technologies. It is premature to conclude that the national institutions and policies of OECD member countries are fairly similar and that the institutional differences that they do have are minor in their impact on respective national productivity and income levels.
There have been periods of prosperity, divergence, depression, recovery, catch-up and no catch-up at difference times in OECD member countries and usually for country-specific reasons. These large changes in fortune are not by chance. The differences in policy that gave rise to these divergences in income levels and extended periods of prosperity and stagnation should be open to analysis so that policy improvements can be discovered for possible application in New Zealand.
The Productivity Hub is a partnership of agencies which aims to improve how policy can contribute to the productivity performance of the New Zealand economy and the wellbeing of New Zealanders. The Hub Board is made up of representatives from the Productivity Commission, the Ministry of Business, Innovation and Employment, Statistics New Zealand and the Treasury
The Productivity Hub yesterday hosted a symposium in Wellington with the title “Growing more innovative and productive Kiwi firms”. “Growing” things is usually something gardeners do – people doing stuff to things. So the title perhaps carried somewhat unfortunate connotations of successful firms being the products of government action. That probably wasn’t their intention, at least not wholly, but then again it wasn’t entirely out of line with the list of attendees – 161 names, of whom at least 150 would have been bureaucrats, academics, and the like. There appeared to be only a very…
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02 Dec 2015 Leave a comment
in applied price theory, discrimination, economic history, economics, economics of love and marriage, gender, human capital, labour economics, occupational choice, personnel economics Tags: asymmetric marriage premium, compensating differentials, entrepreneurial alertness, gender wage gap, marital division of labour
When I was studying in Japan, they were at the end of phasing out working on Saturdays. The staff at my university work on Saturday mornings for four hours and then went home.
The Japanese working week was reduced by law from 48 to 44 hours per week in 1988 and to 40 hours per week from 1993 (Prescott 1999; Hayashi and Prescott 2002). The Japanese stopped routinely working on Saturdays over the 1990s. The number of national holidays was increased by three and an extra day of annual leave was also prescribed by law.
While feuding with strangers on an unrelated matter about the gender wage gap, it somehow occurred to me that the six-day working week might have something to do with what is on the face of a large amount of sexism in Japan and a large gender wage gap.
That feud with strangers was about unconscious bias as a driver of the gender wage gap in New Zealand. The gender wage gap Japan is attributed to conscious prejudice.

Source: OECD Stat.
In the above chart I have plotted the average weekly hours worked of Japanese workers and the Japanese gender wage gap. Two things can be noticed from the above chart:
In a country where it is standard to work six days a week, the price of motherhood would be much higher than in other countries industrialised countries that phased out the 48-hour week decades previous. The asymmetric marriage premium would also be much higher if one partner to the marriage worked a six-day week while the other looked after the children.
Other drivers of the gender wage gap that arise from human capital specialisation and depreciation and from the differences of a few years in the marrying ages of men and women would be intensified if people worked another day per week. The payoff from a marital division of labour and human capital specialisation where one worked long hours and the other focused on investing in human capital that allow them to care for the children and move in and out of the workforce with less human capital depreciation would be much larger.
Much is made of the distinctiveness of Japanese culture and its sexism. In my time in Japan, the thing I notice most distinctively about Japanese culture was its extraordinary pragmatism and willingness to change rapidly. The Japanese economic miracle was founded on rapid industrialisation, innovation and repeated renewal of human capital. That requires an entrepreneurial spirit and open-mindedness.
Cultural and preference based explanations of the gender wage Including that in Japan underrate the rapid social change in the role of women in the 20th century in all countries in all cultures. As Gary Becker explains:
… major economic and technological changes frequently trump culture in the sense that they induce enormous changes not only in behaviour but also in beliefs. A clear illustration of this is the huge effects of technological change and economic development on behaviour and beliefs regarding many aspects of the family.
Attitudes and behaviour regarding family size, marriage and divorce, care of elderly parents, premarital sex, men and women living together and having children without being married, and gays and lesbians have all undergone profound changes during the past 50 years. Invariably, when countries with very different cultures experienced significant economic growth, women’s education increased greatly, and the number of children in a typical family plummeted from three or more to often much less than two.
A good explanation of this rapid social change is in Timur Kuran’s “Sparks and Prairie Fires: A Theory of Unanticipated Political Revolutions” and “Now Out of Never: The Element of Surprise in the East European Revolution of 1989“.
Kuran suggests that political revolutions and large shifts in political opinion will catch us by surprise again and again because of people’s readiness to conceal their true political preferences under perceived social pressure:
People who come to dislike their government are apt to hide their desire for change as long as the opposition seems weak. Because of the preference falsification, a government that appears unshakeable might see its support crumble following a slight surge in the opposition’s apparent size, caused by events insignificant in and of themselves.
Kuran argues that everyone has a different revolutionary threshold where they reveal their true beliefs, but even one individual shift to opposition leads to many others to come forward and defy the existing order. Small concessions embolden the ground-swell of revolution.
Those ready to oppose social intolerance or who are lukewarm in their intolerance keep their views private until a coincidence of factors gives them the courage to bring their views into the open. They find others share their views and there is a revolutionary bandwagon effect.
Plenty of people have had personal experiences of this in the 1980s and the 1990s when there were rapid changes in social and political attitudes about racism, sexism and gay rights. This includes Japan.
In the case of the Japanese gender wage gap, the move from a six-day to a five-day working week radically changed the asymmetric marriage premium and the payoff from investing in both specialised human capital and in human capital that depreciates quickly when away from work.
This large shift in incentives to work and invest in human capital would embolden a change in social attitudes. This is because the previous views were no longer profitable and many would gain from the change. Others who prefer just to go along with crowd would quickly follow them in to stay in tune with whatever is now popular.
Much of Japanese sexism may be the preference falsification that was low-cost when there was a six-day working week. The move to a five-day working week greatly increased the cost of that sexism and the profits from finding new ways of organising the workplace that better matched motherhood and career in Japan.
Undervalued workers are an untapped business opportunity for more alert entrepreneurs to hire these undervalued workers. In the case of Japan, with a five-day working week, hiring women for jobs that involved considerable investment in firm-specific human capital became more profitable. Previously under a six-day working week it was more profitable to invest in men because they undertook few childcare responsibilities. Under a five-day working week, that payoff matrix favours women more than in the past.
02 Dec 2015 Leave a comment
in applied price theory, applied welfare economics, energy economics, environmental economics, global warming Tags: climate alarmism, Little ice age, younger dryas

02 Dec 2015 Leave a comment
in applied price theory, human capital, labour economics, occupational choice

01 Dec 2015 1 Comment
in applied price theory, economics of bureaucracy, industrial organisation, politics - New Zealand
For some months now I’ve been trying to ascertain the latest performance of the state owned enterprises (SOE) portfolio. The last Crown Portfolio Report was issued in December 2013. That was two long years ago. I therefore asked for access to the quarterly report on the Crown commercial portfolio to the Minister of Finance by the Treasury.

My Official Information Act request to the Treasury was declined on commercial in confidence grounds. Not only was my request to the Minister of Finance similarly refused, he told me to do the analysis myself by working my way through the 49 annual reports of the state owned enterprises in New Zealand.

Source: Bill English, Minister of Finance, Response to Official Information Act request, 30 November 2015.
Look it up yourself is not a good approach to public accountability to busy taxpayers who have lives to lead. There is a very well-paid Treasury that can do that analysis and has been doing that analysis every year until two years ago.
There is been no explanation for the non-publication of the Crown Portfolio report for two years. That is unacceptable in terms of tax payer accountability.
What is weird about this blow to taxpayer accountability is I have been refused access to Treasury analysis of public information. I’m not actually asking for the analysis. I am asking for a tabulation of 49 annual reports of state owned enterprises. Somehow a tabulation of public information is commercial in confidence despite the fact I can do it myself. This makes no sense.
It appears that for two years now the Minister of Finance has not been advised on the annual rates of return of the state owned enterprise portfolio as a whole. If he had, the Treasury and the Minister of Finance would have supplied that data to me in the course of my Official Information Act requests because it was obvious that I was after that information and they have a duty to be helpful when processing Official Information Act requests.
The Minister of Finance should be more curious about tens of billions of dollars in taxpayer’s assets that currently struggle to offer a positive return.

Source: The New Zealand Treasury, Crown Portfolio Report 2013, p. 41.
No publicly listed company could fail to publish its annual report. The fact that this has not been picked up as an example of why public ownership is inferior. No one profits from highlighting these governance shortcomings.
If the state owned enterprises were listed on the stock exchange, investors would sell off a company that missed its reporting date. Missing a reporting date is a sure sign of both poor governance and poor performance. Entrepreneurs would see a poorly governed company as a takeover opportunity. There are no similar disciplines for state owned enterprises whose governance and transparency falls short.
By the way, the original objective of my research was to compare state-owned enterprise performance under the current and previous governments. The Treasury was unable to supply data further back than 2007. Everything before then is on paper. The individual company reports have to be looked up by hand.
Nothing is at the fingertips of the Treasury if the Minister of Finance was interested in knowing whether his stewardship of state owned enterprises was superior to that of his predecessors.
30 Nov 2015 Leave a comment
in applied price theory, discrimination, gender, labour economics, managerial economics, occupational choice, organisational economics, personnel economics Tags: gender wage gap, preference formation, unconscious bias
28 Nov 2015 1 Comment
in applied price theory, applied welfare economics, economics of crime, law and economics, transport economics, war and peace Tags: offsetting the, risk risk trade-offs, unintended consequences, war against terror
27 Nov 2015 Leave a comment
in applied price theory, economics of crime, economics of media and culture, economics of regulation, industrial organisation, law and economics Tags: marijuana decriminalisation
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
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