The intention of this blog is to highlight economists’ work and provide material to support education and general understanding, especially as it relates to economics in New Zealand. It is not a forum for advocacy (other than better use of economics). Posts are categorised using the JEL Classification System and tagged as considered appropriate. Authors are generally Councillors of the NZAE. Anyone can provide comments. Any views expressed are not necessarily those of the NZAE.

Call for Papers (1st round)
Growth, Development and Social Justice
The Ninth Forum of the World Association for Political Economy
May 23-25, 2014, Vietnamese Academy of Social Sciences
Hanoi, Vietnam

The 8th forum of the World Association for Political Economy (WAPE) was successfully held in Florianopolis, Brazil on May 24-26, 2013. About 100 participants from 18 countries attended this forum. Ninety three papers or abstracts were submitted. Theotonio dos Santos (Brazil) and Wei Xinhua (China) were granted the Marxian Economics Award, and nine professors from USA, UK, France, China, Japan, Brazil, and Vietnam were granted the Distinguished Achievement Award of World Political Economy of the 21st Century. A Statement on “Inequalities and World Capitalism: Analysis, Policy and Action” was released at the closing ceremony of the forum.

The 9th WAPE Forum “Growth, Development and Social Justice” will be held at Vietnamese Academy of Social Sciences, Hanoi, Vietnam on May 23-25, 2014.

Topics to propose
You are welcome to propose topics on the theme “Growth, Development and Social Justice” and all other topics related to Marxist political economy before June 30, 2013. Please email your proposals to wapemember@gmail.com.

How to apply to attend the 9th WAPE Forum
Please register at http://www.wapeweb.org with your personal information, upload one of your photos, and submit your full curriculum vitae and a paper abstract of 500 words in English. Once your abstract is accepted, please pay your registration fee online. When your payment is confirmed, please submit your full paper. You will then receive an official invitation. You also have the option to apply to attend the forum without a paper.

Both individual papers and complete panels on the theme and proposed topics are welcome.

• Important dates
Deadline for abstract: October 31, 2013;
Notice of acceptance: November 30, 2013;
Deadline for full paper: March 31, 2014.
Full papers submitted after March 31, 2014 will not be included in the conference proceedings.

All accepted papers will be considered for publication in World Review of Political Economy.

• Registration fee
US$160 for online payment before March 31, 2014;
US$220 for online payment after March 31, 2014 or onsite payment on May 23-25, 2014.

• Official Language: English

• Schedule
1. On site registration on May 22 through May 23, 2014.
2. WAPE Council meeting/WRPE Editorial meeting on May 23, 2014.
3. Official program on May 24 through May 25, 2014.

What is the benefit of joining WAPE?
While applying to attend the 9th WAPE forum, you have the option to join WAPE. It is highly recommended that you choose to join WAPE. Please find below the details on WAPE membership.

• General Membership
WAPE has decided to develop itself as a membership organization in order to facilitate the exchange of knowledge, new thought and research across the divide of language and geography, and offer its members access to certain benefits. These include:
• Free digital copies of the organization’s peer reviewed academic journal, World Review of Political Economy (WRPE), which is published four times a year.
• Publishing of members’ selected articles on our websites.
• Translation of selected books and articles into Chinese and publishing them in China.
• Invitations to attend a variety of conferences in China.
• Scholars who are members may be invited to China on a lecture tour.
• Members will be invited to join panels, which WAPE will organize for various international conferences held in different countries.
The general membership fee of WAPE is only US$30 per year, and the membership fee including a hard copy of WRPE is US$100 per year. Membership taken out in 2013 has the added benefit of members receiving eight digital issues of WRPE Volumes 3 and 4.

Marxian economists from all over the world are welcome to attend the forum whether or not they will present a paper. The WAPE Forums aim to encourage cooperation among Marxian economists and to enlarge and strengthen the influence of Marxian economics in the world.

• WAPE. The World Association for Political Economy, registered in Hong Kong, China, is an international academic organization founded in 2006 by Marxian economists and related groups around the world. The mission of WAPE is to utilize modern Marxian economics to analyze and study the world economy, reveal its laws of development, and offer policies to promote economic and social progress on the national and global level. The last six WAPE forums were successively held in Shanghai, Shimane(Japan), Beijing, Paris, Suzhou(China), Amherst(USA), and Mexico City (Mexico), Florianopolis (Brazil) during 2006-2013. Participants in past WAPE forums have come from over 50 countries in Asia, Australia, Africa, Europe, and North and South America.

• WRPE. The World Review of Political Economy is a peer-reviewed quarterly journal of Marxian Political Economy sponsored by WAPE and published by Pluto Journals. For more information including types of submissions that will be considered, please go to http://www.wapeweb.org.

• WAPE Awards. The Distinguished Achievement Award of World Political Economy of the 21st Century, established by WAPE, has been granted annually since 2009 to recognize an outstanding book or article in political economy. It is intended to promote research in modern political economy around the world by granting the award to economists who have made important innovations in the theory or methodology of political economy since the year of 2001. The Marxian Economics Award, established by WAPE in 2011, is given to recognize an outstanding lifetime record of achievement in political economy. Its purpose is to promote the development of the research of Marxist economics around the world by granting the award to economists of different countries in the world who have made important innovations in the research of theories, methodology and application of Marxian economics. The 2014 WAPE Awards will be granted at the opening ceremony of the Ninth WAPE Forum. Nominations and applications can be sent to wapemember@gmail.com.

The WAPE Secretariat
June 10, 2013

LECTURER IN POLITICAL ECONOMY (2 vacancies)

FACULTY OF ARTS AND SOCIAL SCIENCES

SCHOOL OF SOCIAL AND POLITICAL SCIENCES

REFERENCE NO. 628/0412

  • Join a leading arts faculty
  • Work in a collaborative and supportive interdisciplinary environment
  • Full-time, continuing: $104.6K – $124.2K p.a. (including salary, leave loading and up to 17% super)

The University of Sydney is Australia’s first university and has an outstanding global reputation for academic and research excellence. It employs over 7500 permanent staff supporting over 49,000 students.

The Faculty of Arts and Social Sciences offers one of the most comprehensive and diverse range of humanities and social science studies in the Asia Pacific region and is regularly ranked in the top 20 faculties of its kind.

The School of Social and Political Sciences (SSPS) is composed of the departments of Anthropology, Government and International Relations, Political Economy, Sociology and Social Policy, and Peace and Conflict Studies. SSPS is the focus for the strategic development of the social sciences at Sydney with a view to our becoming Australia’s leading centre for research and teaching in the area.

Our Department of Political Economy is the largest of its kind in Australia and is internationally recognized as a leading centre of political economic analysis and teaching. Research and teaching in the department are founded on heterodox traditions of economics (including Marxian, Post-Keynesian, Classical, Institutional and Feminist economics).

We are also a major stakeholder in several interdisciplinary programs within SSPS, including the Bachelor of International and Global Studies and the Masters in Development Studies. In addition we play a leading role in interdisciplinary initiatives around the themes of markets and society, financialisation, the environment and climate change.

We are currently seeking to appoint two lecturers and as a successful appointee you will:

  • teach into the department’s core curriculum which focuses upon analysis and application of heterodox economic traditions
  • make a contribution to the research strengths of the school, including the pursuit of research grants and regular publication in journals of high standing . supervise research higher degree students
  • be a source/centre for interdisciplinary collaborations within the university and with external stakeholders
  • contribute to academic administration.
  • To be successful in this role you will possess:
    a PhD in political economy, economics or closely related field expertise in the department’s core curriculum which focuses upon analysis and application of heterodox economic traditions
  • evidence of teaching ability and experience, including potential to supervise honours and higher degree research students and contribute to curriculum development
  • an active research agenda in the field of political economy and a strong publication record, relative to opportunity, in this field.
  • Desirable for appointment is your:
    administrative experience
  • course co-ordination experience
  • experience supervising postgraduate research students
  • ability to contribute to one or more of the interdisciplinary programs and/or initiatives with which the department is involved (e.g. Masters in Development Studies).

This role presents an excellent opportunity to grow and develop your academic career in a school that offers innovative degrees at undergraduate and postgraduate levels, that attract the very best students from Australia and overseas.

All applications must be submitted via the University of Sydney careers website. Visit sydney.edu.au/positions and search by the reference number for more information and to apply. CLOSING DATE: 7 June 2012 (11.30pm, Sydney time) 

The University reserves the right not to proceed with any appointment.

The University is an Equal Opportunity employer committed to equity, diversity and social inclusion. Applications from equity target groups and women are encouraged.

© The University of Sydney

It is a truism that Western economies face a demographic problem: more older people and fewer working-age people will mean a higher dependency ratio. This future problem, we are told, requires action now, Now, NOW! We must prepare for the future by raising the retirement age and reducing superannuation payments.

Except that the future is already here, and no one has pushed the panic button.

Brad DeLong gives us the US statistics:

The employment-to-population ratio has fallen in the US. Therefore, the number of people being supported by each employed person has increased. While this is not an increase in the dependency ratio (which is defined by age cohorts), it has the same effect: fewer workers supporting more people. And yet, I’m not hearing the same urgency, the same concern to move heaven and earth to solve the actually existing problem.

I had a look at the NZ statistics, to see how we compare (courtesy of StatsNZ’s Infoshare). I can’t swear to have this exactly right, but this is what I found:

I calculated the proportion of adults employed as (all employed, seasonally adjusted) divided by (people aged 15+), and labour force participation as (all employed + registered job seekers) divided by (people aged 15+). The proportion of adults employed has, indeed fallen by 2 percentage points since 2008. Meanwhile, labour force participation has actually increased. That is, we have people ready and willing to go to work, but we aren’t using them.

Having fewer people employed to support our population is a concern for the future. However, it is also a problem now.

Alex Tabarrok posted at Marginal Revolution about sticky wages. It’s an interesting bit of mathematics. I can see his point, that sticky wages for employed people can keep the labour market from adjusting. Because the unemployed are a minority of the labour force, even large reductions in the wages they are willing to accept have a small impact on the total wage bill.

My reaction to this bit

If all employed workers accepted a 5% pay cut (or if the government ordered such a cut) and the Fed kept targeting inflation, we’d experience rapid economic growth.

was, ‘What’s this “we” stuff?’.

Tabarrok is saying that if ‘we’ take a 5% pay cut, ‘we’ can have economic growth. What kind of economic growth entails having less? My only explanation is that Tabarrok is treating labour costs only as costs, as something to be reduced. There is no recognition that those costs are also the returns to people’s labour, and that increases in those returns are exactly what most people experience as growth.

The second problem with this idea is that it doesn’t fix the problem. The US economy is depressed because of low aggregate demand. Tabarrok’s solution is to take the same insufficient demand and spread it amongst more people. That will put more people back to work, but it doesn’t really solve the underlying problem.

This sort of analysis seems to forget that the economy exists to provide people with goods and services. It isn’t some separate entity whose growth somehow has nothing to do with the people involved.

I’ve been turning this over in my head for weeks. Obviously, the economic/political problems in the US are one of biggest economic issues going, and I’ve not blogged about them. Part of the reason I haven’t is that it is very difficult to separate the political from the economic.

I should also say that I’m not a macroeconomist. I discussed this a bit here (p. 6), but I studied macro in the 1980s, and what I remember most is confusion. Our professors tried to teach us all the contemporaneous strands – Keynesian, neoclassical, monetary – but I didn’t understand until much later that they couldn’t all be true. Going into the problems of 2007, I didn’t have good models for thinking about what was going on. For example, I saw the huge build-up of the money supply, and thought it would bring inflation.

I have learned a lot about macro in the last few years. I have spent a fair amount of time reading articles and blogs, trying to make sense of what has been happening in the US. What I have found is that Krugman and DeLong have been right, and lots of other economists have not. That is, they have been able to say, ‘here is what we would expect to happen in this situation’, and they have been right.

Thus, it is also a distinct disappointment to find posts like this one from kiwiblog. He has the economics all wrong. The economic situation is what we would expect – given the correct model – from this type of recession and the tepid government response. The US is suffering from a lack of aggregate demand, and the government can currently borrow at zero percent to lift demand now. To quote Krugman:

By contrast, the Krugman/Thoma/DeLong axis (I still like it!) is basically using standard macroeconomics, applied to a nonstandard situation. The Hicks/Keynes model — in which demand drives output in the short run, interest rates are determined by the tradeoff between liquidity and yield, and extreme negative shocks push you into a liquidity trap in which conventional monetary policy loses traction and deficits don’t crowd out private spending — has worked very well in this crisis, which is why we keep using it with a few twiddles (such as emphasizing the role of private debt).

We are lucky, here. I shouldn’t say this too loudly, but I think NZ is probably well-placed to weather this storm without too much trouble. Government debt is low. Our main trading partners are Australia and China, both doing well. We export food, which people still need. We should take the opportunity to learn from other countries’ pain. We could learn which models fit the facts, and which ones don’t.

NZIER (where I work) has just published a new Insight on the next steps for water policy. The Royal Society recently published an issues paper on ecosystem services. Natural capital and the value it creates for the economy is clearly topical.

It isn’t just a neat research area, either. I had an interesting conversation today with some District/Regional Council people, and they are grappling with ecosystem degradation. In their case, the amount of water available is declining, and the quality of drinking water is falling below international standards. If their ecosystem weren’t overloaded, then the aquifers would be recharging and the natural water-cleaning processes would be adequate. That’s not happening.

I’ve spent a little time on environmental/ecological issues. I keep coming back to the saying, ‘what gets measured, gets managed.’ If we want to manage our ecosystems, we have to measure the aspects of it that we think are important.

At the NZAE conference, Tim Harford had some interesting things to say about measurement. He pointed out that when we enact policies, we are in effect conducting experiments. We should take measurements just like we would in a laboratory. Often, though, the funding isn’t available to take measurements. We conduct experiments but let them go to waste. Sometimes, measurement is even actively avoided.

When it comes to ecosystem services, I don’t think we have that luxury. These are big, complex systems that we don’t fully understand. We need as much data as we can get so we can continue to enjoy New Zealand’s relatively clean environment and profit from it (depending on our preferences).

But we also need the right data, so there is an important role for economists. As the Royal Society paper points out, the value of ecosystem services is bound up in human activity. It is about the services provided to people, and how they value them. It isn’t just about water chemistry, or about how the chemistry leads to clean water, but also about what value people put on the clean water. So economists are integral to this work.

The NZIER and Royal Society publications are helpful additions to the discussion. I hope we can build on them.

I generally stay out of tax debates. I don’t know the economic theories, and valid comparisons are difficult to make.

This comparison by Rodney Hide (via Kiwiblog) bothered me, however:

A business generates $100 a year. The going discount rate is 10 percent. The value of the business is $1,000. That’s if there’s no tax.

Introduce a tax of, say, 30 percent, and the business now yields only $70 a year. The business is worth only $700. The tax liability is capitalised into the value of the business.

Hyde’s no-tax baseline may be official ACT policy, but it isn’t the correct counterfactual. We should compare the tax treatments of different investments, given the objectively observed existence of taxes. Let’s look at the tax treatment of an alternative investment:

A bond yields a return of $100 per year. The going discount rate is 10 percent. The bond yield is treated as income for tax purposes and taxed at 30 percent. The bond is worth $700.

Under current rules, income from capital ownership that is treated as interest income is taxed, while income from capital ownership treated as capital gains is not. Instituting a capital gains tax would address this difference.

But let’s take this one step further. Consider human capital, not physical capital. We’ll start with Hide’s introduction, but change the ending:

Imagine a young widow with children ….’ She has immigrated to New Zealand after her husband was brutally murdered by Maoist tax collectors. She gets an entry-level job in tourism. She starts attending university to integrate into her new country and better her family’s future. She graduates, and becomes General Manager – Tourism for her company.

In this situation, she has invested in her education from after-tax dollars. The return on her investment is also taxed, and at a higher marginal rate than before. This situation certainly looks like double taxation.

By Hide’s logic, the educated among us are over-taxed. There’s a policy position I could support.

Tim Harford, columnist for the Financial Times and author a new book, Adapt, will be delivering the opening keynote address at the NZAE conference on 29 June in Wellington. The main idea (apparently – I’m waiting until the conference to buy a copy) is that we need to adapt through trial and error, rather than relying on experts to design grand solutions.

Slate had an excerpt from the book that I found thought-provoking. It addressed the issue of how to design science funding systems that permit or even encourage new ideas, which are, by definition, unconventional. I have some sympathy for the view that science funding needs flexibility.

The Financial Times liked the book:

[Harford] has assembled a powerful combination of anecdotes and data to make a serious point: companies, governments and people must recognise the limits of their wisdom and embrace the muddling of mankind.

A review of the book takes on the central thesis, however, and finds it lacking (h/t to Crooked Timber):

Tetlock divided his experts into foxes (good at many things) and hedgehogs (good at one thing) and argued that hedgehogs are over-confident because they “reduce the problem to some core theoretical scheme’… and they used that theme over and over, like a template, to stamp out predictions”. And that’s exactly what Harford does here. He sees evolution as a fox-like strategy (trying many things and selecting a few) but doesn’t notice that at the level of individual species, evolution gives us both foxes and hedgehogs, and both do perfectly fine.

So, food for thought. I’m looking forward to hearing Tim speak. Won’t you join us?

It started out as a simple question: is a $75,000 liquidator’s fee for the $117,000 sale of a small shop appropriate? Thus I enter the disreputable world of business deaths and promises not met. One online search leads to another and I start to question whether my combing of court liquidation records is proving informative or simply entertaining (a type of schadenfreude). Then the suggestion is made that the business failure in question would not have happened had the shop been within a franchise – few franchisees fail, so it was claimed. Meanwhile the Franchise Association of New Zealand – the obvious next search target – is reporting “… around 4 out of 5 independent businesses cease trading within five years from their launch”. My quest now turns from one of checking the efficient use of time to a search into the efficiency of statistics – do the numbers being quoted reduce the data to information representative of the population of small businesses, be they franchises or independents?

  • It turns out that in the US and UK more than half the franchise systems disappeared within 10 years of starting during the 1980s (Stanworth (1998) and also Shane)
  • The same study reports US franchisee closure rates of around 4% p.a., rising to 9% if franchisee sales are also included, and something similar in the UK
  • A quick glance through the failure list of franchisee loans guaranteed by the US Small Business Administration (NB presumably a biased sample given they were seeking a SBA guarantee in the first place) shows some very large failures.

The picture emerging from these and other studies is that franchise systems can offer some real advantages – the obvious buying power and brand that comes with size, plus the financial management discipline that small businesses often lack – but it comes at a price and is no assurance that business will succeed. Some franchisors and some franchisees do fail but this proportion varies by sector, by age of the business and according to the business cycle. As for independents …

  • Of the small NZ business started in 2003, there were 47% of businesses with 1-5 employees still in existence by 2010 and over half still in existence amongst the 6-19 employee firms i.e. discontinuance of around 8-11% p.a. (Statistics NZ)
  • A look within some NZ shopping malls in the 1990s showed the rate of shops ‘closing to prevent further losses’ averaging 4% p.a., similar to an earlier study in Australia (Cox and Vos (2005))

These statistics are hardly definitive, but that’s the point. Small businesses vary a lot, be they franchises or not. There is a high churn – many closures but even more start-ups, and plenty of business sales – and a variable proportion ‘failing’; creative destruction at work, we trust. And here’s the rub: the business in question failed largely because of a death and a preference to seek an opportunity elsewhere. In other words, it was personal. Small business is personal, and we do things for reasons other than wealth maximization. So, no, a franchise was unlikely to have prevented this one failure but my colleague was on the right track: the signaling advantage of a franchise system would probably have prevented having to pay the exorbitant liquidation fee when it came to selling up.

My family just got a new game, Rummikub. The last game we bought was Yahtzee. We bought both of them at the shop, and paid $28 to $40 for each one.

We didn’t have to buy either one. Instructions for both are available on the Web. Rummikub can be played with two standard card decks and two jokers. Yahtzee requires five dice and some custom scoring sheets, but the sheets are also on the Web.

So, why did we pay for these games?

In the case of Rummikub, the plastic tiles are easy to use and will last longer than cards. Durability is a reason to pay more. On the other hand, they are also likely to outlast my kids’ interest in the game. In the case of Yahtzee, I have to admit I was annoyed when I realised what the big box actually contained.

By revealed preference theory, we were willing to pay for these games, even though cheaper versions were available. Why?

  • I think, first, that we cannot discount ignorance. I didn’t know what Yahtzee was, so I didn’t make an informed decision. Rummikub? Well, we had played it at a relative’s house. I suspected that it could be played with cards, but hadn’t really looked that hard.
  • A related factor is convenience. Everything we needed to play the games was in one place, ready for use. No searching needed! We spent a little money to save a little time.
  • Uncertainty also came into our decision. We could have learned more about the games before we bought them. However, without conducting the search, we couldn’t know what we would find. They were ‘unknown unknowns’, to use a memorable phrase. We could decide to conduct a search, but without knowing what we would find, it was hard to decide whether the search would be worthwhile.
  • One really important reason was the rule books, the official rules to both games. We now have a way to resolve our disputes when we play. We are also ready to play these games with other people. We can participate in a common standard, or at least we have a way to find out what it is.

And this takes me to my point. The main thing we bought was reliable information. We felt that it was better to spend some money than to spend time on a potentially fruitless search. We also wanted to guarantee that we had some common understanding with the rest of the world. We bought membership in the network or community that plays Yahtzee.

That reliable, useful information, which in turn allows us to interact easily with others, cost money. All this talk about the explosion of information, costless information, ‘information wants to be free‘, and the like, isn’t the full story.

I have two new games to prove it.