Not more creampuffs

The subtitle of Kenneth Rogoff's recent article in the Washington Post says a lot, No More Creampuffs: The Government Is Willing to Let Wall Street Firms Fail. That's Good. And it is good.

Rogoff writes,

This past weekend, the U.S. Treasury and the Federal Reserve finally made it abundantly clear that they won't bail out every significant financial firm in America. Certainly this came as a rude shock to many financiers. In allowing the nation's fourth-largest investment bank, Lehman Brothers, to file for bankruptcy, and by forcefully indicating that they are prepared to see even more bankruptcies, our financial regulators showed Wall Street that they are not such creampuffs after all.

It would have been better if they had let all of them go to the wall but I guess it's better late than never.

Rogoff continues

Letting a big investment bank go, as the Fed and Treasury did this weekend, was a calculated risk in a difficult situation. And the risks are very real. With the immense interconnectivity of the financial system, there really is no telling where the unprecedented failure of a big investment bank might lead. On the other hand, ponying up tens of billions in tax money, as the Federal Reserve did in March when another investment bank, Bear Stearns, collapsed, is no answer, either. With the housing market still weakening, with U.S. exports likely to suffer as the global economy falters and with unemployment rising, it is clear that simply bailing out Lehman Brothers would not stop the rot in the financial system.

In March, the Federal Reserve took on $29 billion in risky Bear Stearns assets. Bailing out Lehman probably would have involved at least as large a commitment. If such a maneuver could have put an end to the crisis, it might have been justified, but that is hardly the case with many other giants teetering. This is not to mention the trillions of dollars in liabilities the Treasury took on 10 days ago in bailing out the mortgage giants Fannie Mae and Freddie Mac. These alone will probably end up costing taxpayers $100 billion to $200 billion, assuming inflation-adjusted housing prices fall another 10 to 12 percent.

Rogoff ends by saying

But by placing some of the burden on the shareholders and bondholders of the big financial institutions, financial regulators have at least forced some discipline onto the system, making bankers and investors think twice before they once again head off to the races. By allowing firms that took excessive risks to fail, regulators also reduce the political pressure to overregulate the system in the aftermath of the crisis. Let's hope they hang tough for at least a little while longer.

Let's hope they hang tough forever.

Scalpers are good

Reading Not PC has drawn my attention to the stupid comment made by Peter Leitch that scalpers selling high priced tickets to the Warriors-Roosters match are "bloody mongrels". They are not. They are doing doing both the buyer and seller (themselves) good. Leitch needs to learn a bit of very basic economics. As the guy who taught me microeconomics, Dr John Fountain, has explained it on his blog, Strategic Economics,

Fans, and the general public, who are critical of ticket resellers ("scalpers") need to go back to demand and supply basics. Ticket reselling in an open competitive retail market situation like Trade-me is a good thing for fans, not a bad thing. Every resale of an event ticket on Trade me is to the mutual advantage of both the buyer and the seller. There is no coercion. There is no monopolistic price gouging. There are no secret back door dealings.

The real question here is Why do promoters price in such a way as to give people the incentive to set up a resale market? Given that such a market exists the promoters and/or the club are missing out on profits. So why didn't they increase the price of the tickets to the game until supply equals demand? Or at least do what is done overseas and set up a resale market themselves? Someone should ask Leitch why profit making opportunities are being ignored. Is the club really so wealthy it don't need to worry about its income? I somehow doubt it.

Views on "The Shock Doctrine"

Tyler Cowen reviews Naomi Klein's "The Shock Doctrine: The Rise of Disaster Capitalism" in the New York Sun. He writes

Naomi Klein's "The Shock Doctrine: The Rise of Disaster Capitalism" (Metropolitan Books, 446 pages, $28), the latest anti-capitalist best seller, tries in vain to discredit the economic system that brought about modern America, the Industrial Revolution, and high standards of living around the world.

The energy of the book is real and there is no doubt it will mobilize most of its readers to higher levels of outrage and action. It's probably the most effective brand of emotional nonfiction to be published this year. But when it comes to the underlying message, and the standards of evidence used to support it, "The Shock Doctrine" is a true economics disaster.

Brad DeLong reads Cowen's review and writes

He reads her book. He doesn't think it meets minimum intellectual standards. I think he is right ...

At The Fly Bottle Will Wilkinson writes

Conspiracy theory will always find an audience among the ignorant, but there is no real chance that Naomi Klein matters much in the end. There is Naomi Klein and then there is the way the world is. Well-functioning market institutions will continue to lift the world’s poor from misery. It remains that Milton Friedman did immensely more to avoid avoidable human misery than did three generations of Richard Rortys and Naomi Kleins, who in stark contrast helped drive tens of millions of human beings straight into it. And Naomi Klein is a dishonest, self-infatuated hack. With a little help from people who know what they are talking about, it all works itself out.

Bias in scientific peer review?

Andy Eggers at the Social Science Statistics Blog writes

In a working paper entitled "Can We Test for Bias in Scientific Peer Review?", Andrew Oswald proposes a method of detecting whether journal editors (and the peer review process generally, I suppose) discriminate against certain kinds of authors. His approach, in a nutshell, is to look for discrepancies between the editor's comparison of two papers and how those papers were ultimately compared by the scholarly community (based on citations). In tests he runs on two high-ranking American economics journals, he doesn't find a bias by QJE editors against authors from England or Europe (or in favor of Harvard authors), but he does find that JPE editors appear to discriminate against their Chicago colleagues.

Eggers goes on to point out that it's not entirely obvious what citation counts, and hence the approach, are measuring. Oswald's approach of course rests on the assumption that citations provide an unbiased measure of the quality of a paper which is probably not true. Also, Oswald uses within-journal paper order as a signal of the editor’s assessment of quality. Again this may not be true. Still, the technique and results are interesting.

(HT: Organizations and Markets.)

A note for the rugby union and the government

In the current issue of Econ Jounal Watch Dennis Coates and Brad Humphreys ask Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events? (pdf). The answer is yes, and economits are opposed to such subsidies. 

The, lengthy, abstract/introduction to their paper reads

State and local governments in the United States have long been called upon to subsidize the construction of stadiums and arenas. Indeed, the first wave of government subsidization dates to the years between 1917 and 1926, the first boom in stadium construction. Since then, one thing that has changed substantially is the rationale for public-sector support. In 1926, The Playground said the goal was for “the stadium to have as broad a use as possible.” It recommended the once-familiar horseshoe shape because it facilitated egress via the open end and included a long straightaway suitable for a procession. The implicit rationale was for the facility to serve the broad public interest by hosting pageants, parades, rallies, and festivals, as well as sporting contests of all sorts from track and field to football and baseball. Today, stadium subsidization focuses on a single use, namely, hosting professional sports franchises, which usually have substantial control over the facilities’ availability for other events.

The change from public provision of venues available for a wide array of events to public subsidization of largely privately controlled facilities is a fairly recent phenomenon. The change occurred gradually. The first steps may have occurred with baseball-franchise relocations –the Braves’ relocation in 1953 from Boston to Milwaukee, the Browns in 1954 from St. Louis to Baltimore, and the Athletics in 1955 from Philadelphia to Kansas City. In each case, new or recently renovated publicly owned facilities were made available to baseball franchises on quite generous terms. For example, The New York Times reported on March 15, 1953 that the Braves were offered a flat rental of $1,000 for the first two years on the new County Stadium in Milwaukee.

Ralph Wulz (1957) argued that public ownership of stadiums was justified if “private enterprise could not provide the service which the public demanded and at the same time realize an adequate profit on its investment.” However, Wulz did not foresee private businesses being subsidized in their use of these facilities, stating that subsidization might be suitable for “governmental activities and perhaps activities at which no admission is charged,” but that “commercial type activities pay the full cost of the services or facilities which are provided” .

Wulz’s (1957) discussion raises the question of the possible theoretical justification for the subsidies we see today. Subsidies can, in general, be justified either on efficiency or distributive grounds. For example, a subsidy could be justified if the unsubsidized market would supply too little of the good. This is the classic situation of positive externalities. The subsidy would induce greater provision. Alternatively, subsidies could be justified as a means of redistribution. For example, public education is paid for out of taxes, with wealthier individuals paying more in taxes than the cost of the services they receive and poorer individuals paying less than the full cost of the education. We will address each of these justifications for stadium and arena subsidies in turn.

To justify a stadium subsidy on efficiency grounds requires an explanation of how the market outcome will result in “too little” quantity. That is, one must explain how marginal social benefit from the stadium exceeds the marginal social cost. A difficulty in this case is that sports facilities are very lumpy; the debate often focuses on whether to build a facility, not about increasing the seating capacity by an additional seat. The market outcome, therefore, may be no construction of a stadium or an arena at all, and consequently no sporting events. This is the market failure justification implicit in the “build it and they will come” strategy of cities whose intent is to lure an existing franchise away from some other city or to induce a professional league to grant the city an expansion franchise. It is also the justification for a city to replace an existing facility to keep the current team or teams from moving.

A recent example from the NBA illustrates the kind of thing that often goes on now. The Seattle Supersonics were unhappy with their former home, KeyArena, and sought to have the city of Seattle build a new arena. Seattle refused and the team explored moving, which would require breaking their lease with the City of Seattle for KeyArena. A lawsuit ensued and they settled out of court, with the team moving to Oklahoma City, for the 2008-2009 season, and paying Seattle tens of millions of dollars to break the lease. Oklahoma City attracted the team by promising to spend $100 million renovating its existing arena to bring it up to current NBA standards and an additional $20 million to construct a practice facility. The existing arena in Oklahoma City was built without an occupant during the 1990s as part of a downtown redevelopment plan. The Seattle-Oklahoma City case suggests relevant lessons: Professional sports leagues are able to restrict entry and play one city off against another to extract the best subsidy deal. In doing so, there is a significant positional element—one city’s fan-base loses, another gains. And teams exploit the cities where politics most effectively taps the taxpayers.

In this paper we examine the economic research on subsidies for sports franchises, stadiums, and mega-events. We ask whether economists who conduct such research reach a conclusion. Our investigation suggests that such economists largely agree that subsidization is undesirable. Before turning to the economic literature, we examine the results of a recent survey, and frame the issue in terms of economic intuition. (Emphasis added.)

In their conclusion they write,

We have seen that economists in general, as represented by Whaples’s survey (2006), oppose sports subsidies. Economists reach the nearly unanimous conclusion that “tangible” economic benefits generated by professional sports facilities and franchises are very small; clearly far smaller than stadium advocates suggest and smaller than the size of the subsidies. The fact that sports subsidies continue to be granted, despite the overwhelming preponderance of evidence that no tangible economic benefits are generated by these heavily subsidized professional sports facilities, remains a puzzle.

The debate on shall-issue laws

In 1997 a furor was created a by the publication of John Lott and David Mustard's paper "Crime, Deterrence and Right-to-Carry Concealed Handguns" in the Journal of Legal Studies. Lott and Mustard found that shall-issue states had lower violent crime rates, presumably because the laws result in more people carrying concealed weapons. Criminals might be deterred by the greater likelihood of others being armed, and of arms being concealed.

(Roughly, "shall issue" right-to-carry concealed weapons laws require authorities to issue concealed-weapons permits, allowing the permit holder to carry a concealed handgun, to anyone who applies, unless the applicant has a criminal record or a history of mental illness.)

This paper started a still ongoing debate. Two of the most influential papers opposed to the Lott and Mustard findings are by Ian Ayres and John J. Donohue III, "Shooting Down the More Guns, Less Crime Hypothesis" and "The Latest Misfires in Support of the More Guns, Less Crime Hypothesis", both published in the in Stanford Law Review. They find contrary to Lott and Mustard that shall-issue laws actually lead to an overall increase in crime.

A new study has now appeared in the latest issue of Econ Journal Watch. This study is The Debate on Shall-Issue Laws (pdf) by Carlisle E. Moody and Thomas B. Marvell.

Moody and Marvell review the main threads of the discussion in the literature and extend the debate with their own statistical analyses. In particular, they extend the investigations of Ayres and Donohue. Moody and Marvell state,

The new statistical analysis contained in the present article finds that shall issue laws are generally beneficial. Purists in statistical analysis object with some cause to some of methods employed both by Ayres and Donohue, by us, and by the literature in general. But the new investigation presented here upgrades Ayres and Donohue in a few significant ways, so, at least until the next study comes along, our paper should neutralize Ayres and Donohue’s "more guns, more crime" conclusion.

Part of the Summary and Conclusion of their paper reads

Many articles have been published finding that shall-issue laws reduce crime. Only one article, by Ayres and Donohue who employ a model that combines a dummy variable with a post-law trend, claims to find that shall-issue laws increase crime. However, the only way that they can produce the result that shall-issue laws increase crime is to confine the span of analysis to five years. We show, using their own estimates, that if they had extended their analysis by one more year, they would have concluded that these laws reduce crime. Since most states with shall-issue laws have had these laws on the books for more than five years, and the law will presumably remain on the books for some time, the only relevant analysis extends beyond five years. We extend their analysis by adding three more years of data, control for the effects of crack cocaine, control for dynamic effects, and correct the standard errors for clustering. We find that there is an initial increase in crime due to passage of the shall-issue law that is dwarfed over time by the decrease in crime associated with the post-law trend. These results are very similar to those of Ayres and Donohue, properly interpreted.

The modified Ayres and Donohue model finds that shall-issue laws significantly reduce murder and burglary across all the adopting states. These laws appear to significantly increase assault, and have no net effect on rape, robbery, larceny, or auto theft. However, in the long run only the trend coefficients matter. We estimate a net benefit of $450 million per year as a result of the passage of these laws. We also estimate that, up through 2000, there was a cumulative overall net benefit of these laws of $28 billion since their passage. We think that there is credible statistical evidence that these laws lower the costs of crime. But at the very least, the present study should neutralize any "more guns, more crime" thinking based on Ayres and Donohue’s work in the Stanford Law Review.

The only thing you know for sure in this debate is that this won't be the last word on this topic.

The wisdom of bailouts

Alex Tabarrok at Marginal Revolution on the subject of the The Wisdom of Bailouts,

Thanks goodness we bailed out Bear Stearns back in March if we hadn't we might have lost Fannie Mae and Freddie Mac, Lehman Brothers, Merrill Lynch and who knows what else. Oh wait...

Well said that man.

EconTalk this week

Robert Shiller of Yale University talks with the host of EconTalk Russ Roberts about the current housing mess and related financial market problems. Shiller argues that the decade-long run up in housing prices was a bubble where speculative fervor outweighed any economic fundamentals. He also discusses the genesis of the Case-Shiller housing price index and his idea for how it might be used to reduce risk in the mortgage market.

Note this podcast was recorded before Secretary of the Treasury Paulson put Fannie Mae and Freddie Mac into conservatorship.

Prediction markets and the (US) election

At the Becker-Posner Blog, Richard Posner discusses Prediction Markets and the Election. This post covers mainly the Iowa Electronic Market. Posner writes

IEM, on which I'll focus, has correctly predicted the outcome of every presidential election since 1988, and its predictions have been consistently more accurate than the polls. An interesting comparison between the Gallup Poll and the Iowa market in the 1996 presidential campaign (www.biz.uiowa.edu/iem/media/96Pres_VS.html) reveals that throughout the entire campaign the Iowa market’s predicted outcome was much closer (in margin of victory) to the actual outcome than the Gallup Poll was. Studies have found that prediction markets beat polls and other prediction tools even when a prediction market uses play rather than real money.

Gary Becker comments on Political Prediction Markets. At one point Becker writes

I believe that online political prediction markets, and other online prediction markets as well, should be legal in the United States and elsewhere, even if the amounts bet were quite large. There is no important substantive difference between such online betting markets and the Chicago Mercantile Exchange and other exchanges that allow individuals and organizations to take positions on movements of stock indexes, housing price indexes, and prices of other derivatives. A distinction is sometimes made between political betting markets and derivative markets since participants in derivative markets may be hedging other risks that they face. Yet this distinction has little substance since if larger bets were allowed in online political markets, groups whose welfare depended greatly on political outcomes would make greater use of these markets. For example, if a Republican presidential win would mean greater spending on military weapons, companies in the arms business might hedge their risks by betting on Barack Obama.

Oil and Water

David Zetland has a second guest post at Freakonomics. The topic this time, Oil and Water. Zetland opens by saying

Over the past few months, newspapers, blogs, and television screens have been filled with stories of two precious liquids — oil and water. Although the stories seem similar (demand outstripping supply), they report fundamentally different means and success in coping with “shortage.”

Ironically, we are coping better with scarce oil — nearly 60 percent of which we buy from abroad — than scarce water, which falls from the sky.

But why is there such a contrast? The answer is of course markets. We have them for oil but not, by and large, for water. Zetland puts it this way,

Why such a contrast? Because oil is bought, sold, and marketed as a commodity. Water, in contrast, is treated as a “human right” that should not be allocated by price. Because scarcer oil costs more, quantity demanded falls to equal supply. Because scarcer water does not cost more, demand exceeds supply and rationing, misallocation, and hardship result.

Put differently, we would not have water shortages if water prices rose and fell with supply and demand. But prices do not change that way.

The bottom line in this case,

We don’t have a gas shortage because gas is expensive; we will have a water shortage until water is expensive. Want more water? Pay for it.

Alex Tabarrok lives dangerously

At Marginal Revolution Alex Tabarrok lives dangerously and tries to explain economics to his mother. He starts by pointing out to her

Many people think that price is determined by historical cost. Price is never, ever, determined by historical cost. Price is determined by supply and demand. If supply or demand change then the price changes regardless of historical cost. Last year's fashions? The price falls regardless of cost. Chopped up dead sharks? If demand is high, the price is high regardless of historical cost. If the demand for gas were to suddenly fall, the price of gas would fall too, regardless of cost. In the present situation the supply of gas has been reduced and the price has gone up. Historical cost is always irrelevant.

And then he get to the issue of price gouging.

Is the high price due to supplier gouging? Not at all. If you want to blame anyone for the high price blame your fellow buyers not the suppliers. A high price means that some other buyer is outbidding you to obtain the limited supply. It's buyers who push up prices in a competitive market and it's suppliers who push prices down!

It's true that some suppliers are making big profits but people have the cause and effect backward. It's not the high profits which are causing the high price. It's the high price which is causing the high profits. If you were to tax the high profits, for example, you wouldn't reduce the price. Indeed, quite the opposite because the high profits motivate suppliers to increase the quantity of gasoline as quickly as possible.

Tabarrok then adds an Addendum,

Is it just me or did Ken Arrow ever feel the need to correct his Mom on economic matters? Did Adam Smith? "Look Mom, I know you're upset about the price of mutton but let me tell you about this new theory I've been working on..."

NZ makes the news overseas

This comes from a Miami Herald story Airline seeks bald men as walking billboards

WELLINGTON, New Zealand -- New Zealand's national airline is offering to pay bald travelers to use their heads - literally - in a new advertising campaign.

Air New Zealand said it wants 70 recruits to stand in lines in three airports - while wearing temporary tattoos on the back of their heads so the displays can be seen by people lining up behind them.

The airline would pay 1,000 New Zealand dollars ($660) for each walking billboard, a company official said.

The tattoos will promote a new system that is meant to reduce check-in waiting times.

I guess there are markets in everything, even bald head advertising.

(HT: Carpe Diem)

A picture is worth a thousand words

Is it any different in New Zealand?

(HT: Carpre Diem)

Quote of the day

Swedish economist Assar Lindbeck once observed

Rent control appears to be the most efficient technique presently known to destroy a city--except for bombing

With this thought in mind read this article, Rent Control Is the Real New York Scandal, by Eileen Norcross from the Wall Street Journal.

The labour market in Germany

Michael Burda,Professor of Economics at Humboldt University Berlin, is interviewed by Romesh Vaitilingam in this VoxEU.org audio. They discuss the supply side reforms have had a positive impact on the labour market in Germany, raising job creation and reducing the unemployment rate.

Quote of the day

Jonathan Sacks, Chief Rabbi of Great Britain:

It is through exchange that difference becomes a blessing, not a curse.

Steve Horowitz at The Austrian Economists blog asks

Have the benefits of specialization and exchange ever been presented more concisely and beautifully than in that one sentence?

Alex Tabarrok at Marginal Revolution suggests that

Maybe this should be sentence of the year.

(HT: The Austrian Economists)

US economic performance

In this VoxEU.org audio Edward Paul Lazear, Jack Steele Parker Professor of Human Resources, Management and Economics at Stanford University's Graduate School of Business; and Morris Arnold Cox Senior Fellow at the Hoover Institution, talks to Romesh Vaitilingam about the performance of the US economy over the past ten years.

More on the trans-Tasman income gap

Earlier I commented that Closing the trans-Tasman income gap will take time. I have now read the NZIER working paper that the NBR news article was based on. The working paper makes interesting reading.

The working paper makes the point that the current gap between income in New Zealand and in Australia is large. Income in all of this will be defined to be GDP per capita. For the year to June 2007 New Zealand’s GDP averaged NZ$41,100 per person, equivalent to US$31,100. This is 74% of Australia’s average of US$42,300 per person. The table below comes from page 2 of the NZIER report. It shows that when we use purchasing power parity (PPP) to adjust for differences in the cost of living between countries the ratio of New Zealand income to Australian is 76%.

This tells us that if the basket of goods and services used in deriving PPP is in fact typical of what Australians and New Zealanders do consume, the average living standards of New Zealanders in 2007 were 24% lower than those of Australians. Or in other words, relative to living standards in New Zealand, Australia’s were 32% higher.

The graph below, from page 2 of the paper, shows that the income gap is not only large but getting larger. In 1974 New Zealand's average income was slightly higher than Australia's but by 1990 it was 16% lower and by 2000 it was 23% lower. Exactly the wrong trend.

Given this gap the question now is, How long would it take for New Zealand to catch up with Australia?

Note that over the period 2000 to 2007 New Zealand's average income grew at a rate slightly above that of Australia. An average of 2.02% per year, compared with 1.81% average annual income growth in Australia. If incomes continued to grow at these rates, it would take New Zealand 140 years to close its income gap with Australia.

Obviously to catch up sooner New Zealand need to grow significantly faster than we are now. The NZIER report states

If New Zealand’s growth accelerated by half a percentage point (about 25% higher than the average annual rate for 2000 to 2007), it could close the gap with Australia in 41 years (Table 4). If New Zealand’s growth rate doubled, the income gap would disappear in 13 years. At the latter, New Zealand would be able to close the gap with Tasmania in two government terms of office (six years) and with Australian Capital Territory, Australia’s richest non-mining state, in just over a generation (30 years). (p.4)

Table 4 referred to above is given below, from p. 5 of the report.

For New Zealand to close the income gap with Australia in 10 years, it would need to grow at 4.7% per year. To close the gap in five years, it would need to grow at 7.6% per year. See Table 5, from p. 5 of the NZIER working paper, below.

The next question would be, Can we actually produce such rates of growth? Given our past economic performance its seems unlikely. Over the past five decades, there have been just seven years during which New Zealand has annual growth rates of at least 4.7%. This includes only three years of annual growth exceeding 7.6%. The early 1960s produced a five-year period with average growth in excess of 4.6% per year, while the best performance over an 11-year timespan was just 3.5%, around the late 1950s. Not all that great.

If we want to achieve higher growth one of the important drives will be higher labour productivity. As Figure 5, reproduced below from p. 8 of the NZIER working paper, shows from the mid-1980s to mid-1990s, New Zealand actually outperformed Australia in terms of labour productivity growth.

That is the good news, the bad news is that since 2000 we have been performing worse. Worse still is that New Zealand's labour productivity growth is slowing.

With these kinds of trends New Zealand is unlikely to attain the faster growth rates needed to catch up Australia any time soon.

Closing the trans-Tasman income gap will take time (update x2)

A lot of time it seems if we don't change our economic policies. The National Business Review has an article which states

It will take 140 years for incomes in New Zealand to catch up with those in Australia if the economy here travels at the average rate it achieved the period 2000-2007.

This result comes from work done by Dr Trinh Le of the New Zealand Institute of Economic Research. Closing the gap in incomes between New Zealand and Australia looks to be a much bigger task than anyone has previously thought.

The NBR goes on to say

"Catching up with Australia is not impossible, but very unlikely without major changes to New Zealand's policy direction," the NZIER paper written by economist Trinh Le said.

In 1974 New Zealand's average income was slightly higher than Australia's. A little over 30 years later, in 2007, it was three-quarters of Australia's.

New Zealand's gross domestic product per capita is currently one-third lower than Australia's. Even Australia's poorest state, Tasmania, now has a 13 percent income advantage over New Zealand.

To close the income gap with Australia in the next five years New Zealand's GDP per capita would have to increase by 7.6 percent a year.

The NZIER along with the OECD and the Treasury have argued that the important issues for growth are freer markets, freer trade and a better regulatory environment.

Update: The paper referred to above is When will New Zealand catch up with Australia? (pdf) Public discussion document, NZIER working paper 2008/03, September 2008. The abstract reads,

New Zealand’s average income, defined as GDP per capita, is now three quarters that of Australia and even lower than in Australia’s poorest state, Tasmania.

Over the last seven years, New Zealand has grown slightly faster than Australia, but at these rates, it would still take 140 years to close the trans-Tasman income gap. To catch up with Australia in five to 10 years, New Zealand would need to grow at between 4.7% and 7.6% per year. This exceeds New Zealand’s highest average annual growth rate over a five-year period of 4.6%, in the early 1960s.

These calculations hold Australian growth rates constant at its annual average over 2000 to 2007. If Australia were to grow faster than its recent performance, the growth rates required of New Zealand to catch up with Australia would be even higher. While such growth rates are not impractical, New Zealand is not currently on track to achieve them, given its recent poor record on labour productivity.

Catching up with Australia is not impossible, but very unlikely without major changes to New Zealand’s policy directions. The challenge is for its policy makers to put forward sensible policies and to carry them through to fruition in the years to come.

Update 2: The NZ Herald says Money matters hard to pin down and We're just 140 years behind Aussies.

When is it wrong to vote?

An interesting question given we have an election not too far away. At EconLog Bryan Caplan points us to a paper by philosopher Jason Brennan who defends a very Caplanian answer to this question in his new paper "Polluting the Polls: When Citizens Should Not Vote",

Irresponsible individual voters ought to abstain rather than vote badly. This thesis may seem anti-democratic. Yet it is really a claim about voter responsibility and how voters can fail to meet this responsibility. On my view, voters are not obligated to vote, but if they do vote, they owe it to others and themselves to be adequately rational, unbiased, just, and informed about their political beliefs. Similarly, most of us think we are not obligated to become parents, but if we are to be parents, we ought to be responsible, good parents. We are not obligated to become surgeons, but if we do become surgeons, we ought to be responsible, good surgeons. We are not obligated to drive, but if we do drive, we ought to be responsible drivers. The same goes for voting.