Morning roundup

A closing of the browser tabs:

• The Economist's write-up of Barcelona's new Museum of Prohibited Art. The museum's website is here. 
• Europe considering pricing agricultural emissions.
• Bill Gates on some of the climate tech in the pipeline.
• Cass Sunstein on goods that people buy but wish did not exist. Fun as a logical exercise - this class of goods could exist in this way. But banning them would just push status-seeking onto other margins. Other margins can be worse. And what if there's an additional class of goods: ones that people loudly claim they wish didn't exist, but secretly enjoy? In that case, could you ever tell which ought to be banned?
• Stephen Jennings's Conversation with Tyler. Great stuff on building new cities in Africa, and a gloomy bit about New Zealand. 
• What happens when central government tries to centrally plan daycare. Maybe Stephen Jennings is right to be pessimistic about the place. 

Maybe spend less on stuff that isn't pipes?

If this is correct, it seems even more irresponsible for Wellington Council to be spending any substantial amount of money on anything other than the pipes for a while. 

A billion dollars a year is what it would take to fix Wellington’s water woes, but the boss of Wellington Water, Tonia Haskell, says that is a figure beyond councils to fund.

“Councils can’t afford it and a new water entity probably could not afford that either, unless the Government chips in,” Haskell said in an interview with The Post.

...She describes $1b as an “unconditional budget” and notes that it could take many years to do the work required. “I do not know at what point that tails off.”

The annual figure of $1b includes the cost of such things as a new wastewater outfall pipe for Hutt Valley, installing meters, new reservoirs, upgrading wastewater storage and treatment plants across the region and completely renewing the piping network.

I do not know whether there's gold-plating in the treatment plant upgrades that could be trimmed back. If the costs here include completely renewing the piping network, the costs of that renewing ought to be spread over decades rather than borne up-front. And note that these costs are for the whole region rather than just Wellington. 

But however you structure it all, the costs won't be small. The same set of households and businesses will be paying the combination of rates and water charges to cover the bills over the decades to come.

Spending a hundred million more than necessary on a central library, and another hundred million on town hall, and the convention centre, and who knows what bill yet to come on the Michael Fowler Centre and the Opera House and the insane-looking subsidy to a multinational movie theatre company and whatever's going on in transport... c'mon folks. Give it a rest until we know what kind of burden we're all looking at for fixing the pipes. 

Or at least quit whining to central government that you need bailouts when you're simultaneously deciding to spend a heck of a lot on projects that look pretty iffy while the pipes are falling apart. 

Forced de-banking

AML compliance in the US is imposing a lot of harm on people mistakenly suspected of moneylaundering. 

The New York Times provides a few worrying examples. The algorithm flags something, and accounts go poof. 

Bryan Delaney has owned several New York City bars over the decades, and he and his business partner and general manager, Jennifer Maslanka, have a longstanding system for handling cash: It goes to the bank on Fridays and Mondays.

As card use has increased over the years, the size of the deposits has decreased. To make the accounting easier on new staff who started working during the pandemic, Mr. Delaney and Ms. Maslanka often rounded deposits down to the nearest thousand and kept the rest of the cash on hand to make change.

This year, Chase closed the bar’s account, plus personal checking and credit-card accounts for Mr. Delaney, his wife and Ms. Maslanka, giving them a handful of weeks to make other banking arrangements.

Federal law requires depositors to fill out a form if they’re depositing or withdrawing more than $10,000 in cash. Sometimes, in an attempt to avoid the gaze of the authorities, account holders will engage in “structuring,” making a series of transactions just under $10,000. It’s one of the top reasons that banks file suspicious activity reports.

Mr. Dubrowski, the JPMorgan Chase spokesman, said the bar’s series of deposits was indeed the problem.

“We must know our customers and monitor the transactions that flow through our bank,” he said. “That includes instances where we see a pattern of cash deposits that are just below federal currency reporting thresholds.”

Mr. Delaney said he had not been engaged in structuring when depositing money in round numbers. All the cash had come from the bars, he said, and he reported his income and paid his taxes as he was supposed to.

The bank’s explanation is especially maddening, given that he and Ms. Maslanka had filled out plenty of the $10,000 forms over the years. “What’s to gain from not filling it out?” he said. “What’s the risk of filling it out? I’ve done both when deposits warranted that.”

“I’m still so confused,” Ms. Maslanka said. “Do you think I’m part of some underground Mafia, laundering money through my little beer bar?”

I wonder how common this is in NZ. 

Morning roundup

The closing of the tabs....

• Free speech used to be a US left-wing value. On American campuses, only conservative students would support allowing a controversial speaker they disagreed with to speak on campus. This is very bad. 
• There's some support for free-speech on the NZ left, mostly Chris Trotter and Josie Pagani and Bryce Edwards. The rest pretends that free speech is some American neoliberal imposition and that we need nuanced approaches in which enlightened Wellingtoneans (themselves) would get to tell everyone else what speech is allowed. I wish we had better data on broader preferences.  
• The growth of the public sector over the past six years.
• The US National Institute of Justice rated the South Dakota 24/7 sobriety project as promising. Their whole database is likely useful for those keen on approaches that have some evaluation. 
• A $1 increase in US minimum wages is associated with a 0.92 percentage point reduction in percentage of employers offering health insurance and a 1.93 p.p. increase in prevalence of plans with deductibles. Always remember that total compensation bundles are more than just wages, and that squeezing one element of that bundle may affect the others. 
• The Paul Ramsay Foundation thinks Evidence Institutes, which trawl the lit [like the US National Institute of Justice, above] are a good idea. 
• Oh, I'm going to have to come back to this one as a dedicated post or column. Luming Chen's job market paper at UW-Madison. Policy uncertainty around wind energy destroys $5.9 billion in value in the US. 

Just make it easy to delist buildings

My column in the weekend papers:

There is one other alternative. It is an alternative Wellington officials downplayed. But it is one that the council should take or that central government could progress instead.

Why not make it easy to remove buildings from the district plan?

A council needing legislation to address a local issue can propose a local bill. The Parliamentary Counsel Office can assist in drafting. An MP, who need not necessarily support the bill, puts their name to it. The bill is introduced and has its first reading on the third sitting day after introduction.

Wellington City Council could propose a local bill enabling the council to remove buildings from the district plan, or to pre-empt their listing, by a simple majority vote. The bill would make delisting nonjusticiable, with no opportunity for appeals or challenge. It would deem the delisted building to have no special value for any other consenting process.

Officials worried this option could take years, but local bills can be very fast. If an incoming government is a bit frustrated by a council that seems able to find hundreds of millions of dollars for everything other than its water network and is not too annoyed by shenanigans around Let’s Get Wellington Moving, it could well shepherd this bill quickly through committee.

The Michael Fowler Centre and the Opera House were listed as earthquake-prone in August. The Opera House is listed on the district plan. The Fowler Centre is covered by the Civic Centre Heritage Area. Heritage New Zealand has also received a nomination for Fowler’s inclusion on the New Zealand Heritage List.

Wellington’s officials are still exploring local bill options, championed by councillor Ben McNulty and a 9-7 vote in favour, with councillors John Apanowicz, Tim Brown, Ray Chung, Sarah Free, Iona Pannett, Tamatha Paul and Nicola Young opposed.

If the council proposes this kind of local bill, a newly formed government should let Wellington get on with the job.

Or it could find time to add a government bill to the agenda. How many towns and cities face similar problems, where cost-effective approaches to mandatory strengthening are just too hard?

A National-led government might also support increased accountability the option would bring. If a council chose not to delist a building, it could not blame others for the cost.

Easy delisting doesn't solve the underlying problem. The underlying problem is a heritage preservation system that foists incredible cost onto the owners of heritage buildings, particularly if they are in need of earthquake remediation, while providing little support. A comprehensive fix would flip the system - abolishing the regulatory restrictions and instead providing annual payments for provision of the public good. 

But easier delisting would ease some of the worst pressures in the interim. 

Real ESG

If you care about corporate social impact, start measuring consumer surplus. 

From the NBER:

An Economic View of Corporate Social Impact

Hunt Allcott, Giovanni Montanari, Bora Ozaltun & Brandon Tan

WORKING PAPER 31803

ISSUE DATE October 2023

The growing discussions of impact investing and stakeholder capitalism have increased interest in measuring companies' social impact. We conceptualize corporate social impact as the welfare loss that would be caused by a firm's exit. To illustrate, we quantify the social impacts of 74 firms in 12 industries using a new survey measuring consumer and worker substitution patterns combined with models of product and labor markets. We find that consumer surplus is the primary component of social impact (dwarfing profits, worker surplus, and externalities), suggesting that consumer impacts deserve more attention from impact investors. Existing ESG and social impact ratings are essentially unrelated to our economically grounded measures.

Meanwhile, the Financial Times provides an excellent synopsis of the other version of corporate ESG.

Born in sanctimony, nurtured with hypocrisy and sold with sophistry, ESG grew unchallenged for a decade, but it is now facing a mountain of troubles, almost all of them of its own making.

The problems of investing with an environmental, social and governance framework start with assessing what it measures, which has changed over time and reflects its revisionist history.

ESG started as a measure of goodness, built around a UN document enunciating the principles for responsible investing, with significant establishment buy-in. As the selling of ESG to investors ramped up, its salespeople recognised that goodness had limited selling power. So they switched gears, arguing that ESG was an instrument for delivering higher returns without concurrent risk.

That case worked well through much of the last decade, mostly because of ESG investors’ abhorrence of fossil fuels and embrace of technology firms, but the Russian invasion of Ukraine changed the calculus. As sector funds underperformed, advocates moved on to claim that higher ESG scores lead to less risk and lower costs of capital. Perhaps because both risk claims are questionable, they now contend that ESG’s primary purpose is disclosure about material issues.

It serves ESG advocates to keep the definition amorphous, since, like the socialists of the 20th century whose response to every socialist failure was that their ideas had never been properly implemented, the defence against every ESG critique is that it is incorrectly defined or implemented. The truth is that ESG scores today measure everything — consequently, they measure nothing.

Consumer surplus is more reliable. 

Charting a course

My column in Newsroom this week makes a few guesses about where NZ local water policy may be headed. 

Labour forced the amalgamation of water services into new entities that National promised to throttle before they can get going. What happens next?

No election platform survives contact with post-election coalition negotiations.

But one outcome seems rather obvious – the Labour government’s Three Waters reforms will be repealed. In its place will be a model based on the Castalia model commissioned by the set of councils that objected to Labour’s reforms – Communities 4 Local Democracy.

The change could come reasonably quickly. The parties likely to be in coalition agree, at least at a high level, on a reform agenda. And an incoming government will have a head start on the necessary policy work and legal drafting.

...

Normally, this kind of policy reform work can take years. The set of officials who were strong advocates for Labour’s policy reforms may not be likely to deliver workable replacement legislation in any kind of hurry.

For the better part of this year, the New Zealand Taxpayers’ Union has been coordinating policy work to flesh out the Communities 4 Local Democracy/Castalia model – including drafting instructions and drafting for a replacement Local Water Infrastructure Bill.

Malcolm Alexander, former Chief Executive of Local Government New Zealand and with a background in electricity reform, chairs the Technical Advisory Group for the bill. I have assisted on the group, along with David Hawkins, formerly of Watercare and former Mayor of Papakura; Christchurch Councillor Sam McDonald, and NZ Taxpayers' Union economist Ray Deacon – who formerly served on the Major Electricity Users Group..

The proposed reforms would shift drinking water and wastewater assets into Council-Controlled Organisations (CCOs) – for councils where water is not set as a CCO. Stormwater is fundamentally different – with assets plausibly including parks, recreation areas, ditches and roads – and is left out of the proposed structure.

A CCO can be owned by a single council, or by a set of councils. If councils find it more effective to deliver water services through a shared service model, they retain ownership of the shared entity.

But unlike Wellington Water, council water CCOs in the proposed structure would own the water assets and earn revenue through water charges, rather than be stuck like Wellington Water in attempting to manage the underlying councils’ water assets on whatever funding the underlying councils might wish to provide.

It’s a far sounder model. And, at the outset, they could be required to satisfy the minister that they are appropriately capitalised and that councils have not loaded them with non-water debt.

Water CCOs would prepare and publish their own asset management plans and be accountable for outcomes.

They would also be subject to commercial regulation by the Commerce Commission ensuring that the Council-owned monopoly water providers were setting appropriate water rates..

Councils like Wellington have slowly stripped their water infrastructure assets by failing to maintain and renew the network, allowing Wellington Council to fund all manner of showy above-ground projects while not increasing rates proportionately.

The proposed CCO structure would mean water would stop cross-subsidising other council activities. Water utilities would be able to charge what is needed to bring their networks up to standard and to keep it at standard.

It would also mean that other councils, or taxpayers more generally, would not be on the hook for some councils’ long-term negligence.

An incoming coalition government that broadly supports the Communities 4 Local Democracy proposal can then have a running start. Much of the legal drafting for a potential replacement bill has already been completed, along with drafting instructions for sections requiring technical detail held within government.

That running start will be needed. National has committed to repeal Labour’s Three Waters legislation in its first 100 days, but legislation for a replacement regime will be needed quickly. Councils will need to know the regime within which their water services will operate if Labour’s Water Service Entities are abolished.

Post-election coalition negotiations usually make it hard to predict just what will come of parties’ campaign promises. But, in this area, the waters are reasonably charted.