Tuesday, March 24, 2020

Economic tide reveals naked policies


Superannuation

It seems that when people want to withdraw their money from super, the money is not there, and it requires asset selling that reduces asset prices across the board. This same effect happens ALL THE TIME. That is why a scheme that requires nearly 10% of wages to be spent on asset purchases is a bad idea, as it boosts asset prices. When the super system needs to pay out more than it gets in, asset prices are squeezed, and the value of what we thought we had saved begins to fall.

If only someone had warned about this.

Valuing life and the cost of lockdowns

Every policy involves trade-offs that can not only be measured in the monetary value of resources, but in blood. It is very standard to think of gains from health policy in terms of Quality-Adjusted Life Years (QALYs) as a metric of performance. Every public policy—from road rules to medical funding, to retirement, to workplace safety, to minimum standards—has an implicit trade-off of resources for lives.

Yet everyone has lost their shit about coronavirus as if lives lost this way are worth orders of magnitude more than lives lost any other way. In two to three weeks time the reality will set in that there are real costs of locking down society that can be measured both in value of resources wasted and in blood. All perspective has been lost at present.

Money was never an issue

Perhaps the greatest change from the crisis is that money was never a constraint. Politicians spend on things they like and don't spend on things they don't like. The budget was always an excuse.

I have often told policy advocates to stop arguing to politicians how cheap their solutions are to homelessness, or environmental losses, and other issues. They should instead argue how large of an investment is required to fix them! At the moment we are in a political vortex of one-upping each other in the ‘tough on the virus’ stakes, and this is coming with ever bigger cash splash promises.

But this is actually how things work all the time. Useless “ego-infrastructure” projects that give politicians a plaque and a ribbon-cutting photo-op are the norm. Big spending decisions are driven by political egos, not logical resources trade-offs. 

Housing was always a macro issue

I have heard for years from experts in my field of housing economics that zoning was constraining supply and rezoning would see a construction boom like never before. In fact, according to their numbers, we could double, or triple, the rate of construction by changing just a few words in a few town plans to allow higher densities.

But I have yet to hear rezoning proposed as the solution to the inevitable construction crash. Why not? Could it be that the argument was always bullshit and that housing supply is (you will never guess) constrained not by regulations, but by demand from new buyers? When buyers leave, construction falls.

This is not some radical “crisis-only” situation. This is always the case.

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