Wednesday, 1 December 2021

Cochrane on Reserve Banks

John Cochrane will be joining us at the Initiative for a webinar tomorrow. The topic: What central banks should and shouldn't do. 

We've been increasingly concerned by the Reserve Bank of New Zealand focusing on a rather wide range of policy areas far from their remits in monetary policy and prudential bank regulation. 

The case for incorporating climate change into prudential regulation looks particularly weak; the Bank simply hasn't any evidence of systematic risk to the banking system from either rising sea levels or carbon price risk that might justify its expeditions into climate regulation. There's plenty of evidence that sea levels will rise and that carbon prices will as well. But that doesn't in itself make a case for the Bank's getting involved. 

Central bank independence in the matters properly in its jurisdiction matters. But the deal has been that Banks get necessary independence, with a quid pro quo that they don't abuse that independence to stray into areas that are really Parliament's concern. 

John Cochrane has been looking at similar issues in Europe, and at the Federal Reserve. 

And I'll be very keen to hear what he has to say about it. 

The blurb for the event, along with Zoom links and Slido links for questions, is below. Note that times are New Zealand time. Not Pacific Time. 

Webinar tomorrow with John H. Cochrane: What central banks should and shouldn't do

Central bank independence in monetary policy was hard fought and desperately needed. The deal was simple. Central government would stay out of a Reserve Bank’s way as it dealt with monetary policy, and the Bank would not abuse its independence in pursuing other agendas.

That deal is fraying badly, if it has not fundamentally broken. If central bank independence in monetary policy is lost as consequence, rebuilding the institutions will be costly.

Join us for an insightful webinar with John H. Cochrane, Senior Fellow at Stanford University's Hoover Institution.

Event details:
Time: 11.00am – 12.00pm
Date: Thursday, 2 December
Registration: Please register for this event via Zoom.

We encourage you to ask questions you have through Slido.
The access code for our event is: #024262

About the speaker:
John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution. He is also a research associate of the National Bureau of Economic Research and an adjunct scholar of the CATO Institute.

Before joining Hoover, Cochrane was a Professor of Finance at the University of Chicago’s Booth School of Business, and earlier at its Economics Department. Cochrane earned a bachelor’s degree in physics at MIT and his PhD in economics at the University of California at Berkeley. He was a junior staff economist on the Council of Economic Advisers (1982–83).

Cochrane’s recent publications include the book Asset Pricing and articles on dynamics in stock and bond markets, the volatility of exchange rates, the term structure of interest rates, the returns to venture capital, liquidity premiums in stock prices, the relation between stock prices and business cycles, and option pricing when investors can’t perfectly hedge. His monetary economics publications include articles on the relationship between deficits and inflation, the effects of monetary policy, and the fiscal theory of the price level.

Cochrane frequently contributes editorial opinion essays to the Wall Street Journal,, and other publications. He maintains the Grumpy Economist blog.

If you wanted to hear John range more broadly, his conversation with Tyler is here. We'll be keeping to a narrower remit. 

Tuesday, 30 November 2021

Afternoon roundup

The closing of the browser tabs brings some worthies:

  • The shift to Zoom, and away from face-to-face, is costly. Fund managers losing access to the kind of information you can get through local contact reduces fund returns. "We show that soft information originates mainly from physical human interactions, primarily in cafes, restaurants, bars, and fitness centers; and the virtual world based on Zoom/Skype/Team fails to substitute physical interactions fully, thus cannot provide sufficient soft information." Now think about NZ firms seeking capital internationally, and the long-term effects of border systems that prioritise Ministerial pet projects over business travel. 
  • The blackouts back in August? It was a Transpower screwup. Here's what we'd said at the time.
  • Wellington ICU's co-director pleads that ICU nurses be added to the immigration skill shortages list.
  • Avoiding Tarras while on any South Island holidays might be advisable. If they haven't enough vaccinated people to staff a cafe...
  • Another Commerce Commission market study is coming: building materials. Like supermarkets, any lack of competition here is mainly due to crazy regulatory barriers to entry. For supermarkets: zoning and the Overseas Investment Act and consenting processes and uncertainties around liquor permits make it hard to be a new at-scale entrant. For building materials supply: good luck getting a house signed off by council if you've built it with imported materials. Ideally ComCom will recommend fixing the regulatory barriers to entry and easing councils out of joint-and-several liability for buildings they consent. But they could instead recommend breaking up each of the existing suppliers into little pieces and forcing separation between them and retailers. The latter would be stupid. The starting question really should be: if I get a container ship in Vancouver, fill it up with all the pieces needed to build a house there (flipping the 110 volt electrics to 220), would I be able to use it to build a house? If not, why not?

Enabling housing and the longer term

Right now, there's bipartisan consensus on the Enabling Housing Supply legislation that basically abolishes single family zoning across most urban centres. 

I hope that that consensus survives the National Party's current leadership turmoil.

While Labour has the votes to just pass the thing on its own, bipartisan consensus matters in setting longer-term expectations. And I worry that National pulling out from the thing could bring about the kinds of development that the legislation's opponents feared all along.

Suppose everyone expects that, because there's consensus on the legislation, it is politically durable. It will stick across changes in government. That sets expectations about ongoing development priorities, infrastructure needs, and the kinds of housing that's worth developing. 

There's a housing shortage and a building boom currently. With the legislative change, townhouses will be allowed everywhere. But if you slap something together in a hurry that isn't great quality (but still meets code), you shouldn't expect much buyer interest. They'll know that more houses are coming. And they could just wait for one that doesn't suck. 

Developers will know that and optimise accordingly.

Now suppose instead people expect a 40% chance that the legislation flips in 2023 and a 60% chance it flips in 2026. Under those incentives, you might want to rush to have things all signed off before any potential legislative change that would thwart you. You might at least want to get projects started, so that they'd be in ahead of any legislative change, on expectation that they can't retrospectively require that started projects need consent to finish. 

And that risks getting you a bit of a mess. Projects will start where they can get going in a hurry, rather than where they might make more sense if developers knew they'd be competing also against the new homes that buyers would be expecting to come on-stream after 2023. 

Or another way of thinking about it. Suppose you expected that, after the election, import of all non-electric cars would be banned. Do you maintain or lower the standards of cars that you might want to rush into the country ahead of the ban?

And if that happens, and it's all a consequence of short-term incentives provided by the prospect of a hammer coming down, nobody will see that that's what happened. They'll just blame liberalisation and work to stop its ever happening again. 

Anyway. I'd said on Twitter that I don't care about anything in the National leadership race other than that cross-party consensus on the Enabling Housing Supply legislation is maintained. I just can't care about the internal faction stuff. I hate soap operas. But it would be nice if they didn't wind up breaking important stuff in the process. 

Wednesday, 24 November 2021

Missed opportunities

Kate MacNamara keeps digging into New Zealand's botched vaccine procurement last year. 

Things could have been so different.

Labour Minister David Clark was sent a key Pfizer letter on June 30 last year, in which the drug company pressed the head of New Zealand's "vaccine taskforce" to meet and discuss its vaccine candidate.

Taskforce officials, however, were not equipped at the time to begin talks with the drug company, and over six weeks elapsed before a first meeting took place.

The Cabinet finally armed the taskforce with funds both to contract specialist negotiation expertise and to make vaccine purchases on August 10; officials signed a non-disclosure agreement with Pfizer on August 13 and a first meeting with the company took place the following day, on August 14.

Clark, the then Health Minister, refused to answer questions about the letter, including whether he read it at the time and whether he made any effort to hasten the readiness of the taskforce to begin meetings and negotiations with the drug company.

Clark was beset by calls to quit his post at the time the Pfizer letter arrived and he resigned as Health Minister two days later, on July 2. An upcoming election, then scheduled for September 19, added sensitivity to Clark's predicament.


Pfizer's June letter noted: "We have the potential to supply millions of vaccine doses by the end of 2020, subject to technical success and regulatory approvals, then rapidly scale up to produce hundreds of millions of doses in 2021.

"I would welcome an opportunity to discuss our candidate vaccine development in more detail, and open discussions on how we might work together to support planning for potential Covid-19 vaccinations in New Zealand and continue to build a strong partnership for the future," the letter said.


It's unclear whether earlier engagement with Pfizer could have secured a larger quantity of early vaccine doses for New Zealand.

New Zealand contracted to buy 1.5 million doses of the Pfizer vaccine candidate on October 6, 2020.

Earlier this year an Auditor-General Report noted that "the Taskforce wanted to purchase more doses of the Pfizer vaccine [in its first contract] but, at the time the agreement was signed, Pfizer was in negotiations with other potential purchasers and could not commit to supplying more doses of the vaccine to New Zealand. However, the purchase agreement included an option to purchase further doses of the vaccine if they became available."

By October, New Zealand lagged many of its peers in signing so-called bilateral advance purchase agreements with drug companies for vaccine candidates.

The delay in starting negotiations, because Clark was distracted and because, for incomprehensible reasons, the bureaus hadn't prepped themselves to think about vaccine procurement, meant we were competing against other places for supply. 

If we'd started when Pfizer sent the letter, decent odds we could have started the vax rollout with a lot more doses a lot sooner.  

Think about what that means.

The government made a laudable effort to push vaccines out to elderly Māori in remote communities. But they had hardly any doses at the time and were also trying to vaccinate border and health workers. They could have made that push a vaccination event, vaccinating whanau at the same time. The vax rates by ethnicity by age, at least when I'd last looked at them, had no particular ethnic gap for Māori at older ages - because of that push. But the gap at younger ages is substantial. How much of that gap could have been bridged if they'd had enough doses to vaccinate the whole community while they were out there? 

Here's the most recent data.

The lowest vaccination rates are for younger Maori in more remote places. 

But their grandparents are vaccinated. 

They could have been vaccinated at the same time, or at least everyone 16+ could have been.

But the government didn't have enough doses. 

And it's awful likely that that's because Clark, Bloomfield, and Crabtree sat on a letter from Pfizer for 6 weeks.

When the letter was released, only its main recipient was noted: Dr Peter Crabtree, the chair of the vaccine taskforce.

However, in response to a subsequent written question by Bishop last month, Hipkins revealed that the letter, delivered by email, was copied to Minister Clark and also to Bloomfield.

You'd think they'd have learned by now. But while Canada's vaccinating 5-11 year olds, and the US has been for weeks, New Zealand just isn't. And the odds-on bet on why we aren't is that they screwed up procurement again, because they didn't see any need to hurry.  

Tuesday, 23 November 2021

NIMBY tears

The taste of NIMBY tears. It's palpable in Simon Wilson's latest Herald column. 

But by my reckoning this new bill subverts the NPS-UD in at least nine ways.

Julie Stout, a leading architect and member of the Urban Design Forum (UDF), a coalition of design professionals, calls it "a slum enabling act".

Those nine factors:

1. While "up to three" dwellings can be built on any site, there are to be no minimum section sizes. You could put two extra dwellings on your section, or subdivide it into two, or three, or more, and put three dwellings on each new site.

That allows for more housing so more awesomeness. 

2. The "do it anywhere" provision is an invitation to developers to build where it's easiest and cheapest.

That also enables more housing so more awesomeness.

That, says Auckland Council, "would see widespread intensification dispersed across the city in places not served by essential public transport, water and community infrastructure and in areas located far away from employment centres. This includes smaller coastal and rural towns on the outskirts of the city." It's an invitation to urban sprawl.

The nice thing about bus routes is that you can redraw them if people move to different places. 

The Environmental Defence Society (EDS) says this could even lead to "areas with significant landscape and environmental values, like Waiheke Island, being destroyed".

The map of Waiheke already has piles of land cordoned off as sites of ecological significance.

3. Developers will no longer be required to consider sunlight, privacy, safe pedestrian access, access to nature, servicing and the interface with the street.

Buyers of the properties will consider those. Along with whether the house is comfortable, well-built, and everything else. 

4. There are standards governing size and location, but even they are flawed. They'll encourage what's called "sausage flats": rows of apartment blocks running back at right angles from the street, with little usable land for a garden or backyard.

The Coalition for More Homes submission encouraged getting rid of setbacks so that perimeter blocks could emerge as alternative. 

5. Want to object? Sorry, it's all "permitted activity". The council can't do much, either. Even on matters of national environmental significance, there's no recourse to the Environment Court. The minister for the environment will decide.

Housing should be a permitted activity. 

6. Will developers have to include any social housing in their projects? Nope. What about universal design standards, so at least some of the units are fit for people with disabilities? No again.

If you allow building everywhere, housing costs come down. Social housing issues will all get easier. Developers wanting to sell houses will build them to suit what people want. Shifting from housing scarcity to ample housing means developments compete for buyers. We have an aging population. Plenty of developers will want to cater to those needs to attract more buyers. And even if none of them did, there would still be far less pressure on existing accessible homes as buyers who didn't need those amenities would be looking elsewhere. 

7. Are they preserving environmental standards or keeping up with the demands of a changing climate? Also no. Encouraging urban sprawl fails that test. So do the lack of standards for construction techniques and emissions over the life of the building. There's no requirement for trees or other vegetation, either on sections or in public spaces near larger projects. "The first casualty," says Stout, "will be the trees of the city."

Oh come on. The building code still applies. That covers construction techniques. The Emissions Trading Scheme covers urban emissions, including building and transport. The city can put trees on the verges by the sidewalk if it wants. If a developer is putting in a larger project with public spaces, and figures the sections will have an easier time selling if there are trees in the public spaces, there'll be trees in the public spaces. 

8. The "rules and standards one might expect to find in a district plan", as the EDS puts it, now rest with the Government. It means councils could become bystanders in the development of the cities they are supposed to be running.

The rules and standards that one might expect to find in a district plan are the problem the legislation seeks to fix. 

9. Why the rush? The announcement was just over a month ago and already the deadline for submissions has passed.

Here I won't disagree. I will note though that this is a general problem. Lots of legislation is going through in rather hasty fashion. 

Our submission on it all is here. We're supportive of the legislation, and propose a few measures to make it even better. 

Update: the more I look at this piece, the weirder the framing is. The column's structure is "Here are a pile of people who initially said nice things about the legislation but then, on reading it, recanted or had second thoughts. The first half of the column cites politicians (Woods, Collins, Parker, Willis), organisations (NZ Initiative, Coalition for More Homes, and Infrastructure Commission), and an academic (Tookey) as supportive.

Then there's the bridge. It initially read, "Then they all read the bill. And were appalled." It's since been updated to "many" being appalled. 

After the bridge, it cites an architect, Stout, who says it enables slums. It cites Auckland Council/Mayor in opposition, along with EDS. 

It cites Tookey noting an urgent need for more "strategic investment, skills training and availability of finance. That's what the NZI said too." That's about right on our side, but hardly counts as opposition. It's more of a "Yes, and". I can't speak for Tookey, who may or may not have changed views. I don't know Tookey. 

And it cites Coalition for More Homes supporting the intent of the bill but wanting some tweaks.

I wonder whether a single one of the people or organisations cited at the outset would agree that they were appalled. 

International Ed

Australia's reopening to international students.

New Zealand isn't. 

This is just getting crazy. 

There are safe protocols that can be run here. 

New Zealand could allow travel from safer countries, with a pile of testing and vaccination requirements. 

Start by requiring up-to-date full Covid vaccination for getting a student visa. That's pretty simple. Vaccination requirements have been part of international student visa requirements all over the place long before Covid. 

Then add in some testing. Require the standard PCR test a couple days before travel. Add a requirement that travelers pass a rapid antigen test administered at the gate before boarding, with Covid-positive students denied boarding. Add another RAT on arrival, with any remaining positive cases shunted into isolation. Remember that this is the protocol that was used in a trial for travel between the US and Italy late last year through early this year. There were just under 10,000 travelers. The RATs caught 4 positive cases at the airport before boarding and one more on arrival - among a group of people who'd all recently passed a PCR test. The folks running the trial concluded the RATs were pointless because 5/10,000 wasn't that risky. But we could do it. We could require it for airlines departing for New Zealand. 

And we could make it even safer. Take a saliva sample on arrival for PCR testing, require everyone to get the Covid tracer app, and require them to provide contact details. Add in a requirement to present for a Covid test a few days after arrival. 

Sequences of tests make it increasingly less likely that anyone passing all the tests are infected. There's just no way that someone coming in on that regimen is more risky than the random-draw person in Auckland currently. 

Or do all that and have the universities run a few days of MIQ, as they proposed doing back at the start of all this. It's far less risky now that vaccination is available. 

The borders are looking increasingly absurd. There are safe ways of doing all this. 

Friday, 19 November 2021

Risk assessment of risk assessment

Great piece out today in Science on vaccination for kids.

I've copied it below, with a couple of updates for New Zealand. The strikethroughs are mine. So are the bolded bits. 

Earlier this month, the US Centers for Disease Control and Prevention (CDC) recommended Pfizer’s COVID-19 messenger RNA (mRNA) vaccine for children between 5 and 11 years of age—that’s 28 million children. Yet surveys show that 42 to 66% of parents of these children The Ministry of Health and MedSafe are reluctant or opposed to happy to impose substantial delays on seeking this protection. Without vaccination, it is likely that almost everyone—including young children—will be infected with severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) at some point in their lives. So, the question for parents and caregivers The Ministry of Health and MedSafe is: Which is worse, vaccination or natural infection?

Make no mistake—COVID-19 is a childhood illness. When SARS-CoV-2 entered the United States early in 2020, children accounted for fewer than 3% of cases; today, they account for more than 25%. More than 6 million US children have been infected with SARS-CoV-2, including 2 million between the ages of 5 and 11. At the end of October 2021, about 100,000 children per week were infected. Of the tens of thousands of children who have been hospitalized, about one-third had no preexisting medical conditions, and many have required the intensive care unit. Almost 700 children have died from COVID-19, placing SARS-CoV-2 infection among the top 10 causes of death in US children. No children have died from vaccination.

Many parents New Zealand officials are concerned that Pfizer’s mRNA vaccine was not adequately tested in young children. In a study of approximately 2400 children between 5 and 11 years of age, performed when the Delta variant was the dominant strain, vaccine efficacy was 90.7% against symptomatic disease. However, Pfizer’s phase 3 study in adults involved about 40,000 participants. How could the CDC be certain that the vaccine was safe in children given the small size of the study, specifically regarding the problem of myocarditis? In postauthorization studies, myocarditis occurred in approximately 5 per 1,000,000 individuals receiving mRNA COVID-19 vaccines, possibly as high as 1 per 10,000 in young men. But context is important. Vaccine-associated myocarditis has been relatively mild and self-limited—an outcome fundamentally different from the cardiac effects associated with acute COVID-19 or multisystem inflammatory syndrome, which typically involve cardiac dysfunction and require critical care. Moreover, both in Israel and the United States, the incidence of myocarditis in children 12 to 15 years of age receiving mRNA vaccines is less than that in the 16- to 25-year-old age group. And because the dose of Pfizer’s mRNA is one-third that given to older adolescents, myocarditis in the younger age group will likely be even rarer.

Myocarditis is only one piece of the risk-benefit analysis. Children need to go to school, play with friends, and participate in extracurricular activities for their social and emotional development. This is their life. Since August 2021, more than 2000 schools in the US have been forced to close because of COVID-19 outbreaks, affecting more than 1 million students. The disruption of school activities has harmed children more than any detectable vaccine side effect, including worsening of mental health, widening education gaps, and decreased physical activity. These harms have disproportionately affected people of color, Indigenous persons, and individuals of lower socioeconomic status, further exacerbating inequities. Avoidance of routine health care and routine vaccination has also emerged, with potentially devastating future consequences. Furthermore, children live closely with and rely on adults to whom they can pass SARS-CoV-2 infection—adults who can be overwhelmed by this infection. And children grow up. Countries are going to need a highly protected population for as long as COVID-19 exists in the world, which will likely be for years if not decades. Vaccinating all children against SARS-CoV-2 could be among the most impactful public health efforts the US New Zealand has seen in decades.

Although it is true that most children experience asymptomatic or mild disease, some will get quite sick, and a small number will die. It’s why children are vaccinated against influenza, meningitis, chickenpox, and hepatitis—none of which, even before vaccines were available, killed as many as SARS-CoV-2 per year.

Some parents regulators are understandably hesitant to allow parents to vaccinate their young children. However, a choice not to allow children to get a vaccine, or to delay vaccinating kids until 2022, is not a risk-free choice; rather, it’s a choice to take a different and more serious risk. The biomedical community must strive to make this clear to MedSafe the public. It could be one of the most important health decisions a parent Medsafe will make.

In the past two weeks, almost 10% of American kids aged 5-11 have been vaccinated. 2.6 million children

Canada is expected to approve on Friday, and they expect to receive about 3 million doses in the next few days

MedSafe might have a risk assessment paper ready in the next two to three weeks. We might get a small number of doses in December. 

I can understand wanting to delay a broad rollout until we had more data out of the US, if only to increase confidence.

I can't understand not making it available to those eager for it.