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Insights 05: 19 February 2016
The Local Formula: Myths, Facts & Challenges
Check out the Initiative's blog, The Sandpit
The end of Europe? Oliver Hartwich on the EU's crises of 2016

Punchy Official Information requests
Dr Eric Crampton | Head of Research |
Blaming the thug for punching you is only one way of looking at things. After all, if a thug’s punch flies in the forest and your face is not there to meet it, there really is no problem at all. Should we blame the fist, or your face for being in the way?

And in that spirit, it looks like ex-RBNZ economist Michael Reddell may be partially to blame for the Reserve Bank’s tightening up on access to official information under the Official Information Act.

Alex Harris requested, by OIA, the new RBNZ policy on OIA requests. The RBNZ’s response noted an increase in the volume of OIA requests handled by the bank since 2010. They particularly noted 16 requests this year (presumably 2015) by Reddell, and his request for all of the papers he wrote while at the Bank. Processing requests is not costless, and with demand very high at a price of zero, cost-recovery may be a good idea.

My opening example was tongue-in-cheek. But that kind of Coasean insight is often important. We have to think about where costs really come from. In this case, is the cost of OIAs due to the request, or is it due to the decision to handle requests in very costly ways?

Reddell wrote rather a few discussion notes and memoranda while at the Bank and sought permission to use them, excluding one which he knew to be potentially sensitive. A low-cost way of handling that request would be to release papers that are no longer current, perhaps after a quick triage. A high-cost way is to go through each paper individually looking for reasons not to black things out.

Where Reddell’s work focused more on bigger picture issues and where he did not deal either with the Minister or regulated entities, the lower cost route may have been the more appropriate. Work focusing on prudential regulation of banks and containing confidential details of bank balance sheets, by contrast, would require the higher cost route.

The NBR’s Rob Hosking pointed out in January that the billions spent on bureaus’ information management systems should have made OIA retrievals cheaper, not more expensive. The decision to put simple requests through costly procedures then seems more than a little heavy handed.

The end of capitalism
Dr Oliver Hartwich | Executive Director |
“Will capitalism and globalisation survive the next Global Financial Crisis?” That was the question I put to a panel of international investment strategists at a PortfolioConstruction Forum conference in Sydney this week.

To be more accurate, I only passed it on. It had originally been asked by the London Daily Telegraph’s Allister Heath.

In a provocative column, he wrote that “no developed nation today could possibly tolerate another wholesale banking crisis and proper, blood and guts recession.”

Heath fears that another GFC would lead to a populist backlash. This would threaten “the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes”.

The panel in Sydney did not succumb to such apocalyptic visions. One after one found reasons why Heath was wrong.

To begin with, there was not much of capitalism and globalisation left anyway, two of the discussants told the audience. And indeed, how could one call a world increasingly run by central bankers a free market? Or a world that has given up on genuine free trade and resorts to managed trade instead?

Such sophistry, however, missed Heath’s real point: that whatever is left of free markets now might be swept away by the next financial crisis.

On that point, the rest of the panel was decidedly more optimistic. They just could not imagine how our world, globalised as it is, would give up on the blessings of trade. Would it even be possible given the way countries are now linked by technology? And would anyone really want to turn back the clock?

But just because it is stupid does not mean it will never happen. In fact, it has happened before.

Before the Great War, the world was already a globalised place. It was a time with passport-less travel, blossoming international commerce and global supply chains. You can read about it in John Maynard Keynes’ book The economic consequences of the peace.

What happened afterwards were two World Wars and one Great Depression, which triggered a wave of nationalisation, protectionism and regulation. It took until the 1980s until the damage to trade was repaired.

Perhaps investment strategists are a more optimistic bunch than your average columnist or economist. Or maybe they are just so steeped in the present and the future that they have forgotten about history.

Of mystery, romance...and economists
Jason Krupp | Research Fellow |
Economics provides us with a useful toolbox with which to analyse the world. From Pareto efficiency, to perfect competition and rational irrationality, there is an economic theory that will just about explain anything. Anything, that is, except the romance between economists.
Yes, this is unchartered territory that most of us (I’m not an economist) are uncomfortable thinking about. A bit like a teenager realising their parents still have an active sex life.
However uncomfortable and unnatural the topic is, thoughts of economists and romance recently sprung to mind after the discovery of a nifty Bloomberg app that used marriage data to show how professions pair up. It threw up some surprising results. Male boilermakers, for example, tended to partner up with female auditors. Who knew? Perhaps it has to do with pressure.
Another surprise was that economists had a tendency to marry other economists. Had we not had the internet, this would not be a surprise. After all, how can romance not bloom between two economists as they solve for r2 between the dusty tomes in a university library?
But we do have the internet and digital matchmaking tools that significantly lower the transaction cost of finding that perfect someone, such as distance. Furthermore these digital platforms are designed to reveal people’s true preferences upfront, further streamlining the search process.
So why do economists choose economists when they don’t necessarily have to? One explanation is that they may be more in tune with their own preferences. And unlike John Maynard Keynes, who married a ballerina, the preference is for other economists.
Then again, perhaps the real explanation has more to do with analogue dating than digital apps. It is highly unlikely that anyone but an economist is going to be charmed by the pickup line: “Our society is under producing but I’m sure if we hooked up we’d achieve an efficient allocation of resources.” 

On The Record
All Things Considered
  • Graph of the Week: Who marries whom? If you're a vending or amusement machine servicer, you're more likely to marry an insurance underwriter, a teacher or dental assistant, or a nurse. See your pairing on Bloomberg's interactive chart here
  • In case you needed more proof that dogs are fantastic, meet Mahe, an autism assistant dog
  • Why is the heart symbol so anatomically incorrect?
  • This must be the worst English language school on the planet.
  • Painful break ups never tasted so good...
  • It's probably a given that getting tasered would hurt. But what does it do to your brain?
  • "Rarely comes the time when we sit back and consider the history of the shopping cart. But gather, friends: that time has come."
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