Scroogenomics: why you shouldn’t buy presents for Christmas

In this audio from VoxEU.org, Joel Waldfogel of the University of Pennsylvania’s Wharton School talks to Romesh Vaitilingam about his new book, Scroogenomics. They discuss his measurements of the deadweight loss of Christmas gift giving over time and across countries, the motivations that people have for giving, and his ideas for encouraging charitable giving at the holidays.

Trade and the trade-income link

The effects of distance on trade and of trade on income have been a puzzle for economists for centuries. A new column, at VoxEU.org, by James Feyrer entitled The 1967-75 Suez Canal closure: Lessons for trade and the trade-income link, presents new evidence on this issue from an usual natural experiment – the 1967-1975 closure of the Suez Canal.

Feyrer's results suggest that a 10% decrease in ocean distance results in a 5% increase in trade. Also, he estimates that every dollar of increased trade raises income by about 25 cents. These income increases occur relatively quickly, reaching a new level four to five years after the shock.

Moreover this particular example has the nice property that the closure of the canal caused movements in trade that are unconnected to income for most countries and thus the causality clearly runs from trade to income and not the other way around. Increases in trade volumes appear to lead to higher income.

The full paper is Feyrer, James (2009), “Distance, Trade, and Income – The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment,” NBER Working Papers 15557.

Karl du Fresne on the "new wowsers"

I have covered the economic aspects of the current outbreak of Wellington wowerism on this blog a number of times before, see BERL for some examples. Now Karl du Fresne writes on One in the eye for the New Wowsers. He says

The New Wowsers have their tails up at the moment because they sense that the public, caught up in a moral panic over binge drinking and alcohol-related crime, will be receptive to a puritanical backlash against liquor consumption.

They are skilled in the selective use of statistics which paint a picture of a country gripped by alcohol addiction. One of their favourite claims is that 700,000 New Zealanders are “heavy drinkers”, based on World Health Organisation criteria.

Selective use of statistics and economics, just look at the BERL report. du Fresne continues,

But they ignore inconvenient statistics that show we are drinking slightly less alcohol per head than we did 30 years ago, and that New Zealand is ranked only 28th out of 190 countries (many of which ban alcohol altogether) for per capita alcohol consumption – well behind Germany, Britain, France, Switzerland and Denmark.

Even using the New Wowsers’ own criteria, the percentage of “potentially hazardous” drinkers has remained stable since 1996, despite the recent teenage binge drinking phenomenon.

The New Wowsers don’t want to acknowledge that alcohol abuse is confined to a relatively small – if highly visible – minority, and that most New Zealanders are moderate and responsible drinkers. And they can’t see, or don’t want to see, that our social drinking habits are vastly more civilised than they were before the liberal reforms of the 1980s and 90s.

Deficits are bad, but the real problem is spending

Huge deficits and skyrocketing debt levels are creating considerable worry. This Center for Freedom and Prosperity Foundation video explains that that government borrowing is excessive - and will get worse in coming decades. But this video explains that deficits and debt are merely the symptoms, and a rising burden of government spending is the real problem.

Incentives matter: education file (updated)

The Press is reporting that

Students' poor grades will hit university bank balances under sweeping Government changes

Tertiary Education Minister Anne Tolley yesterday released the Tertiary Education Strategy 2010-2015.

Tertiary institution funding will be linked to performance, the strategy says.

Initially, this will focus on student results.

Easy answer to getting lots of money, give everybody an A+! Grade inflation on speed.

Update: Eric Crampton notes that the only answer to the grade inflation he can think of is moving back to the old system of purely external assessment, with all papers being (set and) graded offshore. Imagine the cost! But even this may not be perfect, if we get to pick the external examiners then we will pick a few mates who will give the grades we want. Eric also points out that,

The Press article notes that while funding will initially be linked to student results, it'll eventually move to being linked to graduates' eventual jobs. I wonder how they'll track that. We don't even know where most of our undergrads wind up. What do they do with the large chunk of students who head overseas for their OE after finishing University?

This could all prove interesting. If it's the simple "first grades, then whether employed (or salary on employment)", the equilibrium is grade inflation plus refusing admission to anyone with a poor statistical chance of achieving decent employment outcomes.

Current account surplus 'first in 20 years'

This from the NZ Herald

New Zealand recorded a seasonally adjusted current account surplus of $340 million in the September quarter - the first such surplus since late 1988.

Interesting.

The article continues

The recession has caused people to tighten their belts and spend less - which means importers spent less overseas on bringing goods into the country.

Publishing the data today, Statistics New Zealand (SNZ) said the change from a deficit to a surplus was mostly due to a narrowing of the investment income deficit. This indicates a drop in profits by companies who have a presence in New Zealand but are owned overseas.

and then the Hearld gets it wrong,

The actual balance of payments was a better than expected deficit of $1.4 billion in the September quarter, compared to the median forecast of economists in a Reuters poll for a deficit of $2.6b.

As the BoP is zero, by definition, I'm not sure what this means and I'm not sure where the $1.4 figure comes from. StatsNZ says that the (unadjusted) current account deficit was $5.7 billion. The NBR reports,

The other factors are on the investment income part of the account.

The largest factor – and it is a huge one – is the tax disputes overseas-owned banks are having with Inland Revenue. Four of those banks have lost cases with the taxman (though they are appealing). In the interim, they brought $1.366 billion to account during the quarter to cover those tax transactions.

May be the $1.4 Herald figure refers to this $1.366 tax figure. Don't know. FinData says

Today Statistics New Zealand (SNZ) revealed a surplus of $340 million in the September quarter compared to a $1.4b deficit in the same quarter last year, beating economists' forecasts.

So may be the $1.4 figure is last year's (seasonally adjusted) deficit. But I think the September 2008 figure was -3,996 million, so I'm not sure where the FinData figure comes from either.

The Herald goes on,

The current account, also known as the balance of payments, measures all of New Zealand's transactions with the outside world.

Err no. The BoP is made up of the current account plus the capital account plus the financial account and the total of these three accounts sums to zero.

The media release from StatsNZ says

New Zealand's current account deficit was $5.7 billion (3.1 percent of GDP) for the year ended September 2009 and the smallest as a percentage of GDP since March 2002, Statistics New Zealand said today. The deficit has fallen from 8.4 percent a year ago, when the current account deficit was $15.4 billion.

Contributing to the smaller deficit in the latest year was the first quarterly seasonally adjusted current account surplus since the December 1988 quarter. The September 2009 quarter surplus was $340 million, compared with a deficit of $4.0 billion for the September 2008 quarter, driven by falls in the investment income deficit and imports of goods. A surplus in the current account means that New Zealand's earnings abroad are greater than its expenditures.

Economic journalism in this country isn't getting better.

Creative destruction

At Aid Watch Bill Easterly writes

The Wall Street Journal featured this awesome chart yesterday. Only 8 of top global 25 companies in 1999 are still in top 25 in 2009, and some of them have shed a lot of market cap.

One reaction is that free markets are very scary if you were an employee or shareholder of one of the 1999 companies that crashed. OK this kind of destruction scares ALL of us.

Another reaction is that creative destruction is one of the triumphs of the market. The consumer is king: in 2009, the consumer wants iPhones in their Xmas stocking and not whatever Worldcom had been pretending to be producing. The radical uncertainty of how to please consumers is an argument FOR free markets

Where does all that tuition go?

The following comes from an AEI report "Where Does All That Tuition Go?" by Mark Schneider.

We know that the costs of attending postsecondary institutions are increasing at a rate higher than inflation. And there is evidence that institutions are using a disproportionate share of these revenues for institutional and administrative costs rather than for instructional ones. This (mis)allocation is taking place in an environment in which the federal and state governments continue to pump large amounts of money into higher education without asking institutions to meet performance standards.

The above is based on US data, but I would be very surprised if there was not a similar trend in New Zealand. There appears to be an totally elastic supply of unnecessary administrators around the traps.

(HT: Carpe Diem)

"Too big to fail"

Oliver Hart and Luigi Zingales write in How the Tricks That Crashed Wall Street Can Save the World

What really caused the 2008 meltdown -- and is certain to create and burst bubbles in the future -- are the financial industry's distorted incentives. For the past three decades, the most fail-safe way to make money on Wall Street has been to take on risk, borrow, and bet; the crisis did not change that. Either you are lucky and you make a bundle, or you are unlucky and you walk away. In other situations, creditors dampen this opportunistic behavior by imposing covenants and monitoring borrowers. But why bother if the government will bail out ruined gamblers? Then, loans are valuable for borrowers and lenders alike, albeit disastrous from the taxpayer's point of view.

The problem of moral hazard resulting from "too big to fail".

Hart and Zingales continue

The implicit policy of bailing out large financial institutions -- those behemoths widely thought of as "too big to fail" -- will become explicit if the administration's regulatory reforms are approved. They do not stop the encouragement of bald risk-taking by removing the guarantee that the government will never let big, systemically important banks crater.

That is, the US government's plan to reform its financial sector does not address the fundamental cause of the crisis, nor will they help the world avoid more financial disasters down the road. The problem of moral hazard resulting from the government's regulatory framework is a ticking time bomb.

A Beginner’s Guide to Liberty

A Beginner’s Guide to Liberty is the new book from the Adam Smith Institute. The guide consists of the following ten chapters, all of which are jargon-free and written in clear, simple language:

* The importance of liberty by JC Lester
* How markets work by Eamonn Butler
* Free Trade by Daniel Griswold
* Taxation and government spending by Daniel J. Mitchell
* Property rights by Karol Boudreaux
* Why government fails by Peter J. Boettke & Douglas B. Rogers
* Sex, drugs and liberty by John Meadowcroft
* Welfare without the state by Kristian Niemietz
* Banking, inflation and recessions by Anthony J. Evans
* The role of government by Stephen Davies

The book can be downloaded as a pdf file or purchased from the Institute. Well worth a read.

EconTalk this week

James Hamilton of the University of California, San Diego, and blogger at EconBrowser talks with EconTalk host Russ Roberts about the rising levels of the national debt and the growing Federal budget deficit. What is the possibility of an actual default, or an implicit default where the government prints money to meet its obligations and causes inflation? What might signal an impending default? And what is the long-range forecast for the U.S. government's obligations? Later in the conversation, the subject turns to oil prices, an area of Hamilton's research. Hamilton explores the causes of the increasing price of oil over the last decade and the implications for the economy.

Interesting blog bits

1. Don Boudreaux notes that the F.T.C. Sues Intel. Yes the US government has done something dumb. Just who is surprised?
2. Steven Horwitz on The False Dichotomy of Rothbardian Anarchism and Hayekian Classical Liberalism.
3. David Warsh on Paul Samuelson’s Legacy. I have to say Samuelson wasn't my favourite economist. But many others think better of him.
4. Eric Crampton notes that their is a Year end clearance sale: event derivatives at iPredict.
5. Peter Klein ponders the Ironies of Avatar.
6. Not PC asks Is Christmas too commercial? And answers hell, no!
7. Matt Nolan on Monetary policy discussion in the US. Sounds like the argument here.
8. Carmine Guerriero on Agreeing on what really matters: The slow evolution of legal institutions toward efficiency. Do different types of legal system have a lasting effect on the economy? The emerging consensus would argue “yes”. This column suggests that types of legal system can change depending on the culture and political institutions of the country. Determining the effect on the economy is not straightforward.

Zimbabwe switches into official monthly deflation

This piece of news comes from the Mail & Guardian Online.

Zimbabwe, for years plagued by hyper-inflation, has switched narrowly into an absolute price fall on a monthly basis, official data showed on Friday, following adoption of foreign currencies.

The central statistics office said that prices in November were 0,1% lower than in October when monthly prices had shown a rise of 0,8%.

The total disinflationary change from October to November is therefore 0,9 percentage points.

The adoption of foreign currencies is behind the fall,

Since January, inflation has slowed rapidly after the country shelved use of the local currency and adopted various currencies such as the dollar, South African rand, British pound and Botswana pula.

So if you can stop governments printing money you can stop inflation.

Economists putting their money where their mouth is

David Henderson from EconLog and Bob Murphy have agreed to the following bet,

At any point between now and January 2013, if there is a year/year increase in seasonally adjusted CPI that is at least 10%, then I pay Bob at that time $500.

If we get to January 2013, and there has not been any 12-month stretch in which the above happened, then Bob pays me $500 at that time.

It will be interesting to see who pay who, but I think I would rather be David than Bob in the bet.

Exorcising the asset sale bogy

At Infometrics John Carran argues for Exorcising the asset sale bogy. Carran writes,

The New Zealand Government has a considerable amount of capital tied up in commercial assets on its balance sheet – around $15bn as at 30 June 2009. Examples of State Owned Enterprises include New Zealand Post, TVNZ, KiwiRail, and the government-owned electricity generators. Consider what could be achieved for taxpayers if a proportion of that capital was freed for use elsewhere. For instance, it could be invested in much needed infrastructure such as roads, or it could be invested in schools, hospitals, and other public amenities. Alternatively, the Government could reduce the burgeoning public debt burden. This would improve New Zealand’s overall debt position, helping to improve our sovereign credit rating and lowering the cost of financing for all New Zealand businesses.

and

There is a wealth of evidence to suggest that on average privately owned businesses are run more efficiently, innovate more, and provide better customer services than government owned businesses. The nub of the reason for this is because private owners are acutely responsible for the financial performance of their companies. Sustained bad performance will result in a private company going out of business. Government owners of commercial businesses on the other hand don’t have their own “skin in the game” as they say. In many cases the true objectives of government commercial entities are unclear or conflicting (profitability versus social objectives versus “strategic” objectives) making accountability for results difficult to determine. Poor performance can be supported by taxpayers indefinitely to their ultimate detriment.

As to the evidence on the subject the following comes from the summary of chapter 4, 'Empirical Evidence on Privatization's Effectiveness in Nontransition Economies', from William L. Megginson's book The Financial Economics of Privatization, New York: Oxford University Press, 2005,

The 87 studies from nontransition economies discussed in this chapter offer at least limited support for the proposition that privatization is associated with improvements in the operating and financial performance of divested firms. Most of these studies offer strong support for this proposition, and only a handful document outright performance declines after privatization. Almost all studies that examine post-privatization changes in output, efficiency, profitability, capital investment spending, and leverage document significant increases in the first four measures and significant declines in leverage.

The studies examined here are far less unanimous regarding the impact of privatization on employment levels in privatized firms. All governments fear that privatization will cause former SOEs to shed workers, and the key question in virtually every case is whether the divested firm's sales will increase enough after privatization to offset the dramatically higher levels of per-worker productivity. Three studies document significant increases in employment [Galal, Jones, Tandon, and Vogelsang (1992); Megginson, Nash, and van Randenborgh (1994); and Boubakri and Cosset (1998)], but most of the remaining studies document significant-sometimes massive- employment declines. These conflicting results could be due to differences in methodology, sample size and make-up, or omitted factors.

However, it is more likely that the studies reflect real differences in post-privatization employment changes between countries and between industries. In other words, there is no "standard" outcome regarding employment changes.

Perhaps the safest conclusion we can assert is that privatization does not automatically mean employment reductions in divested firms, though this will likely occur unless sales can increase fast enough after divestiture to offset very large productivity gains. Since the empirical studies discussed in this chapter generally document performance improvements after privatization, a natural follow-up question is to ask why performance improves. For utilities, the need to introduce competition and an effective regulatory regime emerges as key, but there is no "silver bullet" answer for what makes privatization successful for firms in competitive industries. As we will discuss in the next chapter, a key determinant of performance improvement in transition economies is bringing in new managers after privatization. No study explicitly documents systematic evidence of this occurring in nontransition economies, but Wolfram (1998) and Cragg and Dyck (1999a,b) show that the compensation and pay-performance sensitivity of managers of privatized U.K. firms increases significantly after divestment. Studies that explicitly address the sources of post-privatization performance improvement using data from multiple nontransition economies tend to find stronger efficiency gains for firms in developing countries, in regulated industries, in firms that restructure operations after privatization, and in countries providing greater amounts of shareholder protection.

Sunita Kikeri and John Nellis write in their article, An Assessment of Privatization, "The World Bank Research Observer", vol. 19, no. 1 (Spring 2004)

This article takes stock of the empirical evidence and shows that in competitive sectors privatization has been a resounding success in improving firm performance. In infrastructure sectors, privatization improves welfare, a broader and crucial objective, when it is accompanied by proper policy and regulatory frameworks.

Mary M. Shirley and Patrick Walsh write in Public versus Private Ownership: The Current State of the Debate, Working Paper, The World Bank,

Our review found greater ambiguity about ownership in theory than in the empirical literature. In the debate over the effects of competition, theory suggests that ownership may matter and if so, that private firms will outperform SOEs. The empirical studies squarely favor private ownership in competitive markets. Theory’s ambiguity about ownership in monopoly markets seems better justified, since the empirical literature is also less conclusive about the effects of ownership in such markets. Theories that assume a welfare maximizing government suggest that SOEs can correct market failures. In contrast, public choice theories are skeptical of the benevolent government model. Corporate governance theories suggest that even well intentioned governments may not be able to assure that SOE managers do their bidding. The empirical literature favors those skeptical of SOEs as a tool to address market failures. In studies of industrialized countries, where we might expect more developed political markets to motivate greater government concern with welfare maximization or better information and incentives to overcome corporate governance problems, private firms still have an advantage. The private advantage is more pronounced in developing countries, where market failures are more likely.

As to the New Zealand experience let me deal with one obvious recent example: Kiwirail.

In the July 2009 issue of Competition and Regulation Times put out by the New Zealand Institute for the Study of Competition and Regulation (ISCR) the question is asked, Kiwirail: strategic asset or strategic blunder? The article summaries an ISCR research paper "The history and future of rail in New Zealand" by Dave Heatley.

My view has, for awhile, been nearer the blunder end of the scale than the asset end. The Times article and the research paper argue along similar lines. Heatley opens his Times article by noting that back in 1999 one of the first projects undertaken by the ISCR was a study of the long-term economic performance of New Zealand railways.

Public rail ownership was characterised by declining performance, beginning in the 1920s and culminating in a very poor prognosis in the 1990s. There were signs that since 1993, privatisation had led to improved productivity and profitability; however, the business was still far from achieving financial sustainability. The ISCR report predicted that private-sector ownership would result in better incentives for productivity-enhancing decision making, but in the long run it was unlikely that in its current form the business would be able to generate returns sufficient to cover the costs of the very large sums of capital employed. Given these facts, a rational private owner would likely rationalise services and reduce the scale of the network to the point where it constituted a sustainable long-run business. Revenues freed up from repeated cycles of historic government-funded capital injections and operating subsidies could then be applied to more productive uses, to the wider benefit of the New Zealand economy.

Given that rail is again in the hands of the government it is timely to re-examine the assumption that government ownership will result in superior long-term outcomes for the long suffering taxpayer owners. Heatley writes,

The 2009 analysis reveals little evidence to suggest that overall the economic outlook for rail has improved since 1999. Despite gains in operational productivity, rail's share of the land freight task has declined over the period examined. Profitability has remained poor, suggesting an ongoing lack of competitiveness vis-a-vis other freight modes.

and continues

Rail networks offer benefits from economies of density (increasing use of existing tracks), but not necessarily from economies of size (increasing size of the network).' In a rail network with uneven patterns of use, such as New Zealand's, the economics of density means that the closure of lightly used lines will, in general, improve the overall economic performance of the network.

Importantly Heatley notes that

It proved difficult for private owners to rationalise the size of the network efficiently, due to poorly aligned incentives and political intervention in operational decisions such as exiting from the provision of certain long-distance passenger services.

The retention of land ownership by the Crown at the time of privatisation muted private incentives to rationalise the network as the private operator was unable to access the potential land-sale benefits from closing unprofitable lines. Private-sector owners have been incentivised to persevere with a strategy (originating under public ownership) of retaining otherwise uneconomic lines for their current income-generating potential, but refraining from investing in replacement infrastructure such as sleepers, tracks and bridges.

A return to integrated land, infrastructure and operational ownership resolves the incentive misalignment, enabling its new owners to rationalise network infrastructure efficiently. Yet perversely, extensive recapitalisation has followed re-nationalisation. The government has invested $2.9 billion in rail since 2002, and has committed a further $0.9 billion through to 2013. It is unlikely that the government will earn a reasonable financial return on this investment, as the strong incentives of private owners for ongoing productivity improvements will likely be muted under government ownership, and the scope for political intervention in strategic and operational activities has increased.

The consequences of political intervention are evidenced in the targets set for a modal shift from road to rail freight in the New Zealand Transport Strategy. Any increases in rail freight's share must ultimately come from substitution at the margins away from competing transport modes. Extensive competition from both road and sea freight restrains the ability of rail to set prices. Rail exhibits few apparent cost advantages, even with subsidies from the written-off opportunity cost of capital. So modal shift can only be driven by increasing the level of subsidies in order to lower prices artificially and therefore induce movement of marginal freight away from more efficient road and sea freight. Such shifts will be to the detriment of the overall economic performance of the transport sector and the wider New Zealand economy.

There is little evidence that the real costs of the current government ownership and investment strategy have been adequately assessed in terms of foregone benefits in other taxpayer-funded areas, such as health and education.

After this, an obvious question to ask is, Is there light at the end of the tunnel? Heatley comments,

The 2009 analysis confirms that the issues identified in 1999 still remain, and are unlikely to be addressed by recent changes in governance, ownership and policy direction. Yet rail still remains a viable transport medium for those segments to which it is intrinsically well-suited - long-haul carriage of heavy, bulky freight (coal, logs, manufactured goods, etc.) and high volume urban commuter services. The challenge for rail's new owners is to find a viable subset of the current rail network. Given current and projected freight and passenger types and volumes, it appears a viable subset exists at around 1500-2000 kilometres in length - less than half the present size. Line closures and land sales could fund upgrading of the core network to 21st-century standards.

So, rail makes sense for a small portion of the current network. However I can't see the changes in government policy and public perceptions need for rationalisation of the network coming to pass any time soon. So the taxpayer gets stuck with yet another white elephant

As to a general argument on the value of privatisation we can ask when is government control and production preferable? As a general guide, Hart, Shleifer and Vishny ("The Proper Scope of Government: Theory and an Application to Prisons", Quarterly Journal of Economics, 112(4): 1127-61, November 1997) argue that the case for government provision of goods or services is generally stronger when non-contractible cost reductions have large deleterious effects on quality, when quality innovations are unimportant and when corruption in government procurement is a severe problem. It has been argued that the case for government production is strong in such services as the conduct of foreign policy, police and armed forces. The case can also be made reasonably persuasively for the case of prisons. The case for private sector provision is stronger when quality reducing cost reduction can be controlled through contract or competition, when quality innovations are important and when patronage and powerful unions are a severe problem inside the government.

Its not clear that the government's interventions have been in areas where the Hart, Shleifer and Vishny arguments would suggest the government should be involved. Banking, for example, is not a area where cost reduction come at the expense of quality, where innovation is unimportant or where there are any problem with government procurement. So why have the government owning a bank? Also government involvement in Air New Zealand is hard to justify on these grounds. As noted above, the case for private sector provision is stronger when quality reducing cost reduction can be controlled through competition, and the airline industry is very competitive, when quality innovations are important, and we want a high quality and innovative airline industry, and when patronage and powerful unions are a severe problem inside the government, which are things we wish to avoid with an airline. Here private provision makes sense.

So I would say that Carran is right when he says,

Sale of public commercial assets needn’t be seen as a bogy. In reality it would result in no great changes in the distribution of power and wealth in New Zealand and confer long-lasting benefits to taxpayers and consumers. Sounds like a free lunch. And it is if sales are an open process and markets are properly regulated. Sales of public commercial assets will help us wring extra performance out of our economy without the economic upheaval that some fear.

Quote of the day

... textbook orthodoxy [the neoclassical model] provides the theory of the firm mainly for economists who are not much interested in the theory of the firm per se. (Winter 1993: 186)

Winter, Sidney G. (1993). `On Coase, Competence, and the Corporation'. In Oliver E. Williamson and Sidney G. Winter (eds.), The Nature of the Firm: Origins, Evolution, and Development, New York, Oxford: Oxford University Press.

Media coverage of economic issues in New Zealand

In a recent article, Media's dimissal of task force premature, in the Otago Daily Times on the 18 December 2009 (or here or here), Roger Kerr makes a couple of important points when he says,

Public understanding about what constitutes good economic policy will ultimately dictate the economic performance of New Zealand.

and when he writes,

The mainstream media have a key role in shaping public understanding (although the blogosphere is becoming increasingly important).

In passing, with regard to the New Zealand economics orientated blogsphere, let me recommend, Offsetting Behaviour, TVHE, Progressive Turmoil, Defective Equilibrium, Not PC, Brad Taylor's Blog and BK Drinkwater. Not that I always agree with them, but at least there is a reasonable, rational, informed standard of debate, something missing in much of the traditional media.

Kerr is right when he says that the media has an important role to play in shaping public understanding of economic policy. The problem is that the aforesaid media understand little about economics and thus are of limited use in informing public debate. Kerr asks, with regard to the 2025 report,

How well did journalists communicate the 2025 Taskforce report to the public?

and answers not too well. Some of the examples of mainstream reporting he gives are,

Some seemed not to have read it at all, or at least taken it in. For example, Martin van Beynen of the Christchurch Press simply asserted that Australia was rich because of minerals, even though the Taskforce devoted 10 paragraphs to debunking this myth.

and

Others dismissed the 2025 goal as just an ACT idea.

But before the 2008 election prime minister John Key had this to say: "I came into politics because I believed New Zealand was underperforming economically as a country. I don't think it's good enough that so many New Zealanders feel forced to leave our country each year to seek higher wages in Australia ... You have my personal commitment that if I am elected prime minister in eight days' time I will work tirelessly over the next three years to deliver the stronger economic future our country deserves."

and

Brian Fallow of the Herald saw the Taskforce as "rooted in 1980s thinking" - Helen Clark's so-called "failed policies of the past", even though she didn't fundamentally change any of them.

Consider also the recent coverage by the traditional media of the BERL report on alcohol or the coverage of the Regulatory Responsibility Taskforce report. In both cases, what coverage there was didn't rise to any great heights.

Kerr then gets to the heart of the problem,

Most journalists don't have strong economic expertise, but they can consult those who do. If, for example, they had spoken to recipients of the NZIER awards for public policy, they would have found that the vast majority approved the Taskforce's report.

If they had bothered to ask most economists I'm sure they would have found support of much of the Taskforces's recommendations.

Kerr concludes from his discussion that

[i]t is easy to get depressed about economic journalism in New Zealand, particularly in contrast to high quality and less sycophantic writing in Australia.

And not just Australia. When you look at economic journalism in most parts of the world you see a much higher standard than in New Zealand. Where are New Zealand's Sir Samuel Brittan, Martin Wolf, Tim Harford, George Will or David Warsh? And who could possibly qualify as New Zealand's Frederic Bastiat or Henry Hazlitt? Do any of the journalists in New Zealand who write on economic issues have an economics background? Also a common feature of overseas newspapers is regular opinion pieces from leading economists. The likes of Paul Krugman, Tyler Cowen, Russ Roberts, Don Boudreaux, Edward Glaeser, Thomas Sowell, John Taylor and Greg Mankiw are just some of the (semi)regular contributors to the traditional media overseas. Too little of this is seen here. Brian Easton writes in The Listener, Roger Kerr writes regular pieces for a number of papers, Eric Crampton and Stephen Hickson do the odd article for The Press, but I don't know of much beyond this.

But I would argue the main problem with the traditional media's coverage of economic issues is the point Kerr makes about the lack of journalists with any genuine economic expertise, knowledge or understanding. Serious debate is unlikely given that those helping to frame the debate don't understand the issues. If we are to fix this problem then it must come to pass that those training journalists actively seek out trainees with a serious economics background and the media companies pay them enough to make economic journalism a worthwhile career.

There is, I guess, at least one counterargument to my position, namely, that the media simply panders to its audience and thus the lack of good economics coverage reflects the fact that people are not interested in economic policy debate, no matter how important it may be. Depressing, but there may be something to it.

The legacy of economist John Maynard Keynes

From the PBS NewsHour comes these videos of Lord Robert Skidelsky and Professor Russ Roberts discussing The Legacy of Economist John Maynard Keynes:

The Essential Keynes


Keynes in Historical Context



Keynes and the Roots of Today's Financial Crisis



Keynes and the Cure for Today's Crisis



Keynes on Morality and Inequality

The gnomes of Canterbury

Eric Crampton, at Offsetting Behaviour, posts on the history of the term "The Gnomes of Canterbury ". Eric writes,

I checked around a bit this morning for where the term "The Gnomes of Canterbury" originated. Best I can reckon, it's this Bruce Jesson article from Auckland Metro, August 1986.

and

He [Jesson] then lists the formidable opponents of the "Treasury View", primarily centered at Victoria University but also at Massey and Auckland. Treasury supporters, on the other hand, are found at one place above all:

Support for the Treasury approach is concentrated at Canterbury where Professor Richard Manning, Labour Party adviser and Reserve Bank appointee, is the intellectual authority. Many Treasury officials are Canterbury graduates, which means that government policies are dominated by the thinking of a particular university department.

The article is consequently titled "The Gnomes of Canterbury".

Yes there were many Canterbury grads up in Wellington at the time. Canterbury was probably the econ department with the strongest support for the 1980s reforms. Many of the then staff were free market supporters, something rather odd for economics departments in New Zealand at the time.

Manning taught most of the third year microeconomics course when I did it. This was his last year at Canterbury before departing for the US. Sadly Manning died not long after he went to the States. It was the loss of one of New Zealand's best economists.

Essay competition

Given the recent release of the 2025 Taskforce report, this essay competition seems very topical:

The Charles G. Koch Charitable Foundation, in cooperation with the Association of Private Enterprise Education, announces the:

2010 POLICY COMMUNICATORS CONTEST

How do public policies influence measures of economic performance?

The 2010 Policy Communicators Contest invites college professors and graduate students from all disciplines to submit essays on the relationship between public policy and economic growth. It is of particular interest to compare and contrast individual countries, states, regions or major metro areas—why some are succeeding and others are failing. Diverse public policies have resulted in an equally diverse set of outcomes affecting economic performance. Therefore, it is of great importance to discern what lessons can be drawn from specific experiences. Winning entries will analyze the economic effect of specific public policies, incorporating new and existing research into a compelling narrative for a general audience.

First Prize: $15,000
Second Prize: $7,500
Third Prize: $4,000

Audience
The Policy Communicators Contest intends to reward skilled communication of sound academic research to non-academic audiences. The persuasive effect should be founded upon the support of academic research. Winners will be selected based on how effectively they deploy their academic expertise in presenting our best scholarly understanding in a package that anyone can easily grasp.

Further details are available here.

May be Don Brash should enter.