Still Defective...

This blog has been down and out for a while now. I'm happy to blame this on Tom, the chief contributor in 2009, who suddenly decided to stop thinking and commenting about economics and politics in the level-handed, even-headed way that he was so fond of. I know not of his plans for the New Year, but I will attempt to make a more concerted effort this year to keep this forum alive. And so we'll get up off the mat, at least for a little while.

My interests are a little more obscure than Tom. I too dabble in politics and economics, but more or less tend to stay more aloof from the fray. The topics that interest me are more 'philosophical' to be crude about it. But philosophy is simply a tool to chip knowledge and understanding down to size before it can be dealt with by other disciplines, so I intend to stay fully grounded, or at the very least to leave some ballast in the 'real world'.

At the moment I am thinking about what it means to be a person in a sea of social ideas, how to best understand the nature of our artistic engagement and also some issues to do with meaning and symbolic representation. But really, I promise not to be too esoteric. Let's see how it goes.

Wrong, wrong, wrong

Looks like I got thoroughly schooled by the University of Canterbury econ-blogging team in picking Nobels.

On the plus side, apparently Elinor Ostrom is the first woman to win the economics Nobel, which is cool.

Fama for the Nobel?

Greg Mankiw reports that Eugene Fama is, according to a betting agency, the favourite to win the Nobel Prize for economics this year.

If this were a prediction market rather than an old-school betting agency, I would be heavily short on this contract - I just don't think this is likely. Not because I don't think Fama is an excellent candidate and thoroughly deserving of a Nobel - he is basically the father of modern finance. However, Nobels measure largely the influence someone has had on their profession - and since the financial crisis I think it's safe to say that Fama's Efficient-Market Hypothesis is not at the peak of its popularity (although I am still a fan). For that reason, Fama would be a pretty controversial pick.

The same reasoning applies to Kenneth French, who is also quite high up.

Who will win it then? I don't know. I'm also sceptical of Paul Romer (who is just behind Fama on the odds), so my bet would be with Ernst Fehr, whose work on behavioural finance and neuroeconomics is looking pretty good about now.

That said, I hope to be proven wrong and see Fama win, I think he's awesome. Here's an interesting video interview with him about his life.

Quote of the Day, supporting VSM edition

From Stuff:

Weltec students association association president Therese Keil agreed that it would cause financial issues.

"We will have to cut back on services like stationery, coffee and tea facilities and perhaps we would just look at offering only advocacy services," said Ms Keil.

Sounds good to me.

Emissions Hand-Out Scheme

Via The Standard it seems that the Government have released some details on New Zealand's emissions trading scheme. There's some pretty weird details in it.



My first thought though is that for people that should be all too aware of the negative effects of rapid structural changes in the economy (eg), many on the left are pretty quick to criticise policies designed to ease the transition. We pollute a lot, and it's not something you can painlessly change over night.

In terms of the actual plan however, it's a little bizarre. Firstly, it's not really a true cap and trade scheme, because it has a cap on marginal emissions rather than an overall cap (if I understand it correctly) - it's kind of a cross between C&T and a carbon tax. The actual effects of this are a little hard for me to intuit - if any of my micro-economics-loving readers (eg paging Matt Nolan) are able to explain how this is going to work I would be most grateful. It feels like it should be distortionary but I can't quite get my head around it.

Secondly, they have a 'transitional fixed price' - apparently to ease businesses into the scheme. For an allegedly market-oriented party, price fixing is an odd tack to take, and I don't know any good justification for it in this case. Were I very cynical, I would suggest that National expect the market price would be lower than their cap - enabling them to increase the price paid to the firms they choose to hand out credits to, thus rewarding the favoured firms.

I am cynical enough to entertain this as a serious possibility, and the justification they give that it will help businesses 'limit costs' and thus 'enhance stability' is not all that encouraging. Surely the whole point of a scheme like this is to increase business' costs to adequately reflect the costs of carbon emissions to society. That brings me to another point, which is the scheme, when compared to previous efforts, will

... halve the price impact on households for fuel and electricity to 3.5c/l and 1c/kWh.

Forgive me if I sound a little heartless, but the whole point of emissions trading schemes is to increase the costs of things like electricity! It's because of the externalities associated with these things that the market over-produces them in the first place. People that want to reduce carbon while keeping the cost of actually emitting it nice and cheap are simply deluding themselves, and a Government which thinks it can do so is destined to fail.

So I am pretty unimpressed with this scheme. Transitional effects are important - but if you want to reduce them you don't need to do so by giving away credits for free, or engaging in amateurish price-fixing. Simply make the cap start low and gradually increase it. Unfortunately it looks like Greg Mankiw's 'fundamental theorem of carbon taxation' is sinisterly accurate, that is,

cap and trade = carbon tax + corporate welfare.