Monday, 14 October 2019

The Bank's Bully Pulpit

This is bad.

The article is good. But the situation described is very bad.

Here's Kate MacNamara on Orr and the RBNZ.
It would be an open process, the bank said, welcoming all views. But that characterisation was soon at odds with the governor's behaviour.

Numerous parties involved in the submission process described a pattern of behaviour by Orr of belittling and berating those who disagreed with him.

Orr has penned his critics letters and threatened to broadcast them. He has confronted submitters on the sidelines of industry conferences. Sometimes he called them up at odd hours to tear a strip off them for their views.

There is reason to believe that his pointed criticism has diminished the range of parties willing to participate in the debate.

At least one corporation that submitted views at an earlier stage in the capital review (before Orr was governor) decided not to participate this time. The company is not in the banking business, though like most it cares what bank services are offered and at what price. But it ultimately decided it wasn't worth wading into such troubled water.

Non-bank lenders similarly withheld their views. Sources say they feared being singled out for other consequences (one non-bank lender active in New Zealand is owned by an insurance company, an area of business that is also under scrutiny by the Reserve Bank).

It is worth pausing here to consider Orr's position.
I have heard these stories as well.

And here's the governance failure:
Orr's chequered behaviour is not something on which the Reserve Bank chairman, Neil Quigley, is prepared to act.

"I have not received a formal complaint from any party about the governor's interaction with them," he said. "The Board has full confidence in Adrian Orr's leadership."
Might those who would make formal complaints trust that their identities would be kept confidential, or that the particulars of any complaint would not identify them to Orr? Remember that Orr can destroy any of the companies he regulates at the stroke of a pen.

Meanwhile, over at Michael Reddell's blog, ex-RBNZ's Geof Mortlock (or at least someone writing under that pseudonym), comments:
None of what we are seeing with Adrian Orr surprises me in the least. It is precisely what I had expected when he was appointed as governor. The problems so clearly revealed now for all to see were very much evident to me and many others when Orr was deputy governor and head of financial stability in the period 2003 to 2007. He created a sense of panic when there was no need for it. He engaged aggressively with Australian banks when mature, adult dialogue would have been far more effective and appropriate. He facilitated and abetted an aggressive and petulant fight with APRA, RBA and Aussie Treasury over trans-Tasman regulatory issues rather than seeking to resolve them in a considered, intelligent manner. He engaged aggressively with staff and routinely bullied them. He created a deep level of stress in the RBNZ among staff that contributed to the departure of some key people. I can attest to what it was like working with him. I and others departed the RBNZ because of the severe impact he had on morale and because of concerns over mismanagement of issues and because of the appalling culture that he and others created in the RBNZ. Bollard presided over much of this, either unaware or unconcerned, and did nothing to address the matter from what I could see.

Now that Orr is governor, his unsuitability for the job is evident for any impartial observer to see. The lack of judgement, unsuitable temperament, lack of maturity, inadequate knowledge of the issues and a serious failure to intelligently address the policy issues are all obvious to anyone who cares to look at his performance.

Sadly, the RBNZ Board seems to lack the competence or mettle to do anything about it. Its recent annual report was a pathetic effort at exercising meaningful scrutiny over Orr. Even more sadly we seem to have a minister of finance who is asleep at the wheel and either turning a blind eye to Orr’s appalling incompetence in handling the tasks entrusted to him or who is happy to see Orr playing an overtly political role that is totally inappropriate for someone holding office as governor.

It is time that the people with authority over Orr did something about his conduct, statements and handling of policy issues. The RBNZ’s credibility is at stake. And serious policy outcomes are under threat. Robertson and the Board need to take action to address the Orr problem.
I understand that, inside the Bank, there is a view that opposition is grounded in interested objection to the heightened capital requirements.

For my part, I don't care what the capital requirements are so long as the underpinning analysis is adequate and the process makes sense. That process would have to involve a real consultation period after the full cost-benefit analysis of the proposed regulation is published.

Thursday, 3 October 2019

Special licences

Whenever a Rugby World Cup is on, Parliament has to legislate around the bureaucratic hurdles that District Licensing Committees have put in the way of issuing special licences.

Special licenses are supposed to allow bars to open at hours other than their normal licensed hours, if there's some kind of special event on. And Parliament even noted international sporting events in the rationale for the special licences.

Aimee Dartnall goes through the problems in how that works in practice:
Generally, applying for a special licence is a bureaucratic nightmare. First, applicants must contrive a special "event", and charge people to attend.

Then they need to file an application at least 20 working days before the event to give the police, the medical officer of health and the licensing inspector time to report on the application. Fees can cost up to $575.

Once the application has been reported on, it goes to the local district licensing committee for a decision.

The problem is that some DLCs agonise over whether a World Cup game can be legally classified as an "event". Some applications were refused on the basis that a World Cup game is not an "event" unless organisers host proper viewing parties, with raffles, streamers or guest speakers. 
It's nonsense that it's all come to this. If you read the Committee Report on the Sale and Supply of Alcohol Act, special licences were intended to be used for international sporting events.
118. In response to concerns around champagne breakfasts and international sporting events outside the maximum hours, we recommend amending the Bill to permit special licences outside the maximum hours. Special licences may only be issued for a particular event or series of events, and should therefore permit such occasions without creating a way for licensees to remain open outside maximum hours on a business-as-usual basis.
These things were designed as a way of letting bars stay open during international sporting events. The fact of the international sporting event was supposed to have been enough for it to be classified as an "event". And yet we have to have Parliament legislate around the DLCs whenever there's a World Cup on.

Dartnall has a few suggestions:
The special licence rules need to be changed permanently to get rid of unnecessary hurdles and bring the focus back on harm minimisation.

Existing licensees shouldn't need to apply for special licences for every World Cup match – they already have responsible supply rules in place. 

Applications shouldn't turn on arbitrary requirements such as the need for a special "event". 

The nature of the event is only relevant as an indicator of the risk profile. A special licence for a 21st party will need to be scrutinised more carefully than an application for drinks at a gallery opening. But the number of balloons in the building has nothing to do with alcohol-related harm. 

The World Cup amendments are a step in the right direction. But please, extend the rules to cover the netball too.  
That all sounds good, but how do you legislate that a DLC must be sensible?

Tuesday, 1 October 2019

Referendums are great

I just love this thread about Saskatoon's 1988 referendum on school store closing times. I'd not heard of it before; I was 12 years old in Manitoba when this would have happened.

When I was in grad school, Bryan Caplan liked to tweak a standard rally chant:
The People!
Will Never Be Defeated Coherent!
I wish that I'd known about the Saskatoon referendum when I was teaching public choice.

Update - I dunno what happened the first time I wrote the first line. I was thinking about schools perhaps.

Monday, 30 September 2019

Afternoon roundup

The worthies on the closing of the browser tabs:

Policy bets

I'm a big fan of betting, but rules that stop players and coaches from betting make sense. You don't want somebody to throw the game to make sure that their bet goes the way they'd hoped.

Bernard Hickey's morning roundup includes the following bit of news:
Prepare for policy shock - The UN-supported Principles for Responsible Investment group, which has nearly 500 fund managers looking after nearly US$90 trillion in assets, warned last week that financial markets had not priced-in the likely near-term policy response to climate change. It issued a report on a new project called ‘The Inevitable Policy Response,’ which sees a political and financial tipping point by 2025 that forces dramatic political action. That would include “bans on coal, and on internal combustion engines; an increase in nuclear capacity and bioenergy crops; greater effort on energy efficiency and re/afforestation; wider use of carbon pricing and increasing the supply of low-cost capital to green economy projects.”

“Government action to tackle climate change has so far been highly insufficient to achieve the commitments made under the Paris Agreement, and the market’s default assumption appears to be that no further climate-related policies are coming in the near-term. Yet as the realities of climate change become increasingly apparent, it is inevitable that governments will be forced to act more decisively than they have so far,” the report’s authors PRI, Vivid Economics and Energy Transition Advisors write.

“The question for investors now is not if governments will act, but when they will do so, what policies they will use and where the impact will be felt. The IPR project forecasts a response by 2025 that will be forceful, abrupt, and disorderly because of the delay.”
And this is all fair enough. Lots of investment decisions depend on assessments of policy risk. The big funds will have all kinds of folks watching over those policy risks to try to make sure they're appropriately positioned.

I'd bet substantially against bans on internal combustion engines, but I'd bet in favour of wider use of carbon pricing - if the government hadn't banned iPredict. I'd count the increase in nuclear capacity as wishful thinking - I wish it would happen, but there are a lot of layers of stupid to cut through to get there. And I expect that private-sector funds who've signed up to the Principles will take the report's predictions with a bit of scepticism.

But here's the part that worries me:
The NZ Super Fund is a founding signatory and the project is due to start publishing detailed modeling from late September on the effects of this shift on the macro-economy and asset values.
If the sovereign wealth funds start making plays predicated on their assessment that governments will ban internal combustion engines by 2025 (etc), and if governments do not want their sovereign wealth funds to realise substantial losses, does that start affecting policy. 

Do we want rugby referees betting on the game they're officiating?

Friday, 27 September 2019 long as they can write the hymnbooks

I took Wednesday afternoon off to attend a do at my daughter's primary school. They had their own World of Wearable Arts show.

For those outside of NZ, the WoW Festival happens annually in Wellington (it used to be in Nelson) and shows of just incredible design skills. I've attended a few times, and it's awesome.

There's sometimes an underlying message in the costumes, but often they're just fun.

The school went for themes for their costumes, but things varied by classroom.

The first classroom had students working in pairs or trios; one or two would read off a description of the work while the other modelled it.

The first classroom had:
  1. An orange, telling us to make healthy food cheaper;
  2. A carrot, telling us to make healthy food cheaper;
  3. A broken television, telling us that we have too much screen time;
  4. A medley of items telling us how special the sea is and that plastic straws are bad;
  5. A medley of items telling us that electric cars are important;
  6. An ambulance telling us about allergies, and that there should be more free ambulances;
  7. A medley of items telling us that fast food is bad;
  8. A medley of items telling us that littering is bad and recycling is good and that we should stop having more roads so we can save the environment;
  9. A medley of items reminding us of the need to stop ocean pollution, perhaps by having more rubbish bins near the beach;
  10. A medley of items reminding us of the problems of plastic pollution in the ocean, and that we need more recycling.
The second classroom had a very different theme and take. Students again were in trios, with the first student costumed as a material, and the next two costumed as things that come from those materials. The students had some rhyming verse about what they each were - it was nicely done. 

These were:
  1. A tree, followed by wooden items, and by money because money makes people happy (though I'm pretty sure NZ money is made from plastic);
  2. A tree, followed by an eraser, and wooden items;
  3. A grapevine, followed by some grapes, and by some wine!
  4. A gold mine, followed by a gold nugget and a gold weight;
  5. A sheep, followed by some wool and by a jumper;
  6. A bird, followed by a feather and then by a feather rug;
  7. A gold nugget, followed by a gold bar, and then by some jewellery; 
  8. A chicken, followed by an egg, and then by a cupcake.
The third classroom - a combined large classroom - had costumes themed around the topic of global warming. 

And here's what they had (often items attached to shirts, hats and masks representing these things), with this being as verbatim a summary as I can provide from the descriptions read by the students
  1. A costume celebrating walking to school to reduce emissions;
  2. An electric car;
  3. An electric car and icebergs;
  4. A lightning bolt hero for electric cars;
  5. Melting ice and polar bears
  6. Solar panels and wind;
  7. Thunder and lightning because thunder and lightning cause hurricanes and you should buy an electric car;
  8. A fridge (very well constructed) representing the problems facing the ozone layer and you should stop burning fossil fuels to save the ozone layer;
  9. Don't use CFCs to save the ozone layer;
  10. Deforestation: a superhero reminding us that deforestation hurts the ozone layer;
  11. Deforestation: animals harmed by it;
  12. A tree reminding us that deforestation is bad;
  13. A bird encouraging us to use Forest Stewardship Council endorsed products
  14. Replant trees!
  15. Landfills are bad: garbage trucks
  16. Landfills are bad: reuse plastics or don't use them at all
  17. Plastic pollution is bad: reuse plastics and use fabric bags;
  18. Plastic is bad; bamboo is good;
  19. Reuse plastic or use less plastic;
  20. Reuse plastic or use less plastic;
  21. A bird reminding us that fabric bags are better than plastic bags;
  22. Rising sea levels and melting ice caps;
  23. Rising sea levels are bad, turn down your thermostat to use less energy;
  24. A monster representing rising sea levels (very well acted).
My daughter had the Forest Stewardship Council costume - at least that recommendation is pretty sensible, and she hadn't asked my advice on it.

I do wish someone had had a dollar-sign costume in praise of carbon pricing.

Saturday, 21 September 2019

On the merits of perspective

Me, over in Stuff, with a few helpful numbers that can provide perspective. Perspective is important. If you know a few basic figures about the size of the country, the economy, and government spending, you'll have a better nose for detecting and dismissing nonsense claims. 

I lead off with the silly claims about the volume of litter:
That extrapolation generated big big numbers – 10 billion littered cigarette butts around the country, almost 395 million litres of littered disposable nappies, and the like.

Anyone with a sense of perspective would have known those numbers were fishy.

The government collects just under $2 billion in tobacco excise per year, and excise on a cigarette is just under a dollar per stick, so it's likely around 2 billion cigarettes are smoked in the country per year. Is it likely that a country that smokes about 2 billion cigarettes per year has 10 billion littered cigarette butts strewn about?

Similarly, is it likely that a country where about 60,000 kids are born annually can generate that volume of littered nappies? Suppose a littered nappy is about a litre, and that a baby uses eight nappies per day in its first year. That gives us just over 175 million nappies used by the country's newborns every year. How then is the volume of littered nappies more than double that figure?

Nobody reporting on these figures seems to have a sense of perspective. Fortunately, Keep New Zealand Beautiful has, after no small amount of prodding from me, pulled the dodgy stats from its website and from its report – but has issued no formal correction or retraction. The numbers will live forever in uncorrected newspaper accounts and be cited in uncountable school essays and newspaper articles to come. 
Uncorrected accounts, as of 21 September, include:

I have prodded Morton more than a few times on Twitter on this one, because I expected better of a science reporter. It seems hopeless.

Here are a few more numbers worth memorising. They help in providing a sense of perspective. You can use them when benchmarking claims to see whether they make a lick of sense.

New Zealand has about 5 million people. When you see a big number for the country as a whole, dividing it by the population can help check whether the number seems plausible.

New Zealand's Gross Domestic Product (GDP), by the expenditure measure, was just under $300 billion for the year to March 2019. A 5 million population gives us a per capita GDP of about $60,000.

The government's budget for 2019/2020 was just under $111b – the government spends about $22,000 per person. Just over $24 billion is spent on benefits through the Ministry of Social Development, with $15.5b of that going to NZ Super. The total health budget is about $18b. Police get just under $2b. Pharmac is about $1b.

So when you hear claims that alcohol costs $7.8b per year, it becomes immediately obvious the figure isn't a measure of costs to the public health system or police – unless you're happy to believe that alcohol can be blamed for 40 per cent of total government spending in those areas. Rather, the number includes a lot of private costs like spending on alcohol – and as I've previously shown, counts some of those things twice.

New Zealand is a big place: just under 27 million hectares. As of 2012, urban land comprised about 228,000 hectares: only about 0.85 per cent of the country is urban land. So we are in no danger of urban sprawl, or landfills, taking over the whole country.

A moderate, healthy sense of perspective is far from dangerous.

It is vital? Yes, especially when journalists seem to err on the side of having none whatsoever.
Perhaps our newspapers, news magazines, and news broadcasts should come with a health warning label.