Saturday, 18 August 2018

Zombies live

Nine years ago, BERL put out its study on the costs of alcohol use.

They're now pushing an inflation-adjusted version of the figure. The figure isn't good, and that they're pushing it now is worse.

The study was riddled with problems and became a laughingstock among economists. Among the methods BERL used to get a gigantic figure on the costs of harmful alcohol use:
  • Including every dollar spent by drinkers on alcohol if they consumed more than a medically-set threshold. You can't do this unless you're assuming that there are zero benefits associated with those drinkers' consumption. The threshold was equivalent to about two pints of strong beer per day. That's more than I drink, but it's odd to assume that folks consuming at that level get zero benefit from it.
    • Oh - that spending included excise tax. They included the excise tax paid as a social cost. So whenever you increase alcohol excise tax, you increase the measured social cost of alcohol unless consumption drops by at least enough to offset the increased expenditure per-unit. They eventually fixed that part when I mocked them for it; dunno if the updated figure includes excise paid by heavier drinkers as a social cost or not. 
  • Double-counting by including lost output among those who die early because of excessive alcohol use, and the value-of-statistical-life measure used by MoT which is inclusive of all costs of death including lost output.
  • In tallying health costs, they took Collins & Lapsley's aetiological tables that give the proportion of the burden of each disorder associated with alcohol use, then zeroed out all the disorders where alcohol reduces health costs. 
  • In tallying crime costs, they used a survey of prisoners who were asked how much alcohol contributed to their offending. Possible answers were "not at all", "a little", "some", "a lot", or "all". If the offender said at least "some", BERL attributed 100% of the costs of that crime to alcohol. 
    • Oh - they also counted the lost output costs of incarceration by assuming that those in jail would have been on the average wage otherwise. That doesn't make any sense unless you're trying to inflate figures. 
I could go on. The full tally is summarised here; the full report is here. Remember Marge listing Homer's failings at Catfish Lake? Anyway, maybe about a fifth of BERL's tallied figure could plausibly count as policy-relevant costs under more normal ways of handling things. 

BERL did not come out well from that study. Nana had to defend it on Jim Mora's show. That did not go well. It was called "Shonky" by a Treasury Deputy Secretary in the National Business Review - but I understand they had to pull back from that because the reporter had characterised it to the Dep Sec as a cost-benefit assessment that had forgotten to run the benefits side rather than as a cost-of-illness study that included a pile of private costs as net social costs by assuming the associated benefits to be zero. 

They presented it at the NZAE meetings; I was discussant. It was standing-room only because Matt Burgess and I had released our review of the report ahead of the meetings.

Geoff Palmer defended the study, and hired Marsden Jacob Associates to back him up on it since he was using it in his Law Commission review. They presented it as an independent review, but note that it's Marsden who was presenting at the anti-alcohol conference this past week. I'd summarised the Marsden-Jacob review here

This past week, BERL provided an updated measure at an anti-alcohol conference. The reporter who called me about it said it was an inflation-adjustment of the old figure rather than new workings; I haven't seen the new figure's workings to check. It's a higher figure than you'd get by inflation alone, so I expect they took the per-capita equivalent of the old figure, inflation adjusted it, then inflated by population increase over the period - but I don't know for sure.  
Eric Crampton, from think tank NZ Initiative, said many of Nana's figures were based on the 2009 study which had been mocked in economic circles for things such as double-counting and counting factors that shouldn't be counted.
Using total cost figures to inform policy was useless in cases such as this. For example, raising excise on alcohol may penalise moderate drinkers but studies showed would only slightly deduce what heavy drinkers drank.
That's not quite right. I'd said that my remarks were based on the 2009 study and would apply to the current one to the extent it relied on the old one. I haven't seen the new one.

But there are two big annoying things.

First, we're again back in the "let's make a big stupid number" world rather than thinking about cost-effectiveness. 

More worryingly, it appears BERL no longer worries about reputation cost associated with that prior work, which was plausibly by now well behind it. Why would you tie your name back to that mess now? None of the plausible answers are good. 

Tuesday, 14 August 2018

SST on vaping


While overall it's pretty favorable to that folks should be able to switch from smoking to vaping, there's still an overlay of unease about the companies that might be providing vaping kit. Regulatory uncertainty here has kept larger companies out, like the larger tobacco companies' vaping products; smaller NZ and international players have supplied vapers here instead.
With Big Tobacco-owned brands dominant in many markets, former smokers increasingly buy vapes from the same companies that sell the cigarettes they have given up.

Although Big Tobacco describes this pivot as about providing healthier options for smokers, others are cynical.

"What is the evidence that the tobacco industry is moving to a non-tobacco business model?" asks George Thomson, an Associate Professor at University of Otago's Department of Public Health.
Some tobacco companies are pushing hard on vaping, others haven't moved as far into that space. But I don't much get why any of that would be relevant to an appropriate regulatory framework here for vaping. Requiring plain-packaging warnings designed for smoking on reduced harm products doesn't make sense, regardless of whether the product was made by a tobacco company or someone else.
"The lesson that both New Zealand and the world has learnt is that you have to keep the tobacco industry out of the policy process," says Thomson.

"I think that equally applies to the vaping industry. Their business is to sell an addictive product to people and to make money from it."
It would be bad to let large incumbents set the rules in any industry - it would be hard to avoid bias against smaller competitors. But it's silly not to listen to those who have to run their businesses under those regulations.
"The worst thing New Zealand can do is introduce an overly restrictive regulatory framework," says [The New Zealand Initiative's Jenesa] Jeram.

"That's the kind of framework that favours the big companies that can afford to put in large applications and to meet all of the regulatory hurdles, and would come at the expense of the smaller players."

In contrast, Thomson — a self-acknowledged hard-liner on vaping — favours stringent regulation as a step toward New Zealand eventually becoming nicotine free.
It's good that Thomson's made clear that his goal is a nicotine-free New Zealand rather than just reducing the harms from smoking. Regulation intended to stamp out all use of nicotine will differ from that intended to reduce harms. If you want to minimise use, then setting up costly regulations to create a quasi-cartel among the largest companies will reduce consumption.

Jenesa's report on vaping is here.

Monday, 13 August 2018

Bag Ban

The Ministry for the Environment's consultation document on banning plastic bags is out.

The key table is in the appendix. Or at least the most interesting table. It shows, from a Danish study, the number of times a reusable shopping bag would have to be reused to have less environmental impact than current disposable bags.

The consultation document provides no cost-benefit assessment, but Question 8 asks those making submissions to assess whether the benefits might outweigh the costs.

I can only speak for our own household, but I doubt we're that we're that atypical.

We have a few reusable bags at home. The ones we have get reused a lot, because we use them on planned trips to the store. But most of our trips aren't like that. Most of them are grabbing a few things on the way home after getting off the bus. Maybe other people are happy to carry around reusable grocery bags every day on the off chance that they might need to grab milk, bread, eggs and butter on the way home. I'm not. On those trips, we use the disposable plastic bags. Because what else are you going to do? Walk home, get a bag, walk back to the shop? It's absurd.

The more likely outcome: buying the reusable bags on those trips, accumulating a stack of them at home, then finding some way of disposing of them down the line. The number of times these things get reused will be endogenous to whether disposable plastic bags exist. I'm expecting that the reuse rates will be dropping.

I also have a few hundred of the disposable bags now on order from Ali Baba because they're too useful around the house to do without. It may also be fun to bring those to the market for use as shopping bags after the ban.

Oh - another depressing part. MoE includes this line.
Retailers will profit from not having to provide free bags and by selling alternative carriers, and are in a good position to help their customers to transition.
Not a lot of economic intuition on display here. If it's true, it means that customers will choose stores based on whether bags are available. If that's true, the value destroyed by banning them is substantial. 

Saturday, 11 August 2018

A beclowning to come

Remember how Parliament beclowned itself in the Committee hearings about Uber? They fundamentally didn't understand the technology or how it worked.

If this makes it as far as select committee, we can at least console ourselves that the hearings will be entertaining.
New Zealand could follow the United Kingdom in bringing in age restrictions for online pornography and blocking websites which refuse to comply.

Department of Internal Affairs Minister Tracey Martin, who also holds the children's portfolio, says young people are being "bombarded" by internet pornography and she wants censorship laws to be strengthened.

"This is a really, really big issue to New Zealand and we are going to have a serious conversation about it," she told the Herald.

"And I hope to make sure we have this conversation in this term of Government."

Martin supports the approach of the United Kingdom, which has ambitious - and controversial - plans to introduce mandatory age verification for pornographic websites later this year.
Interesting questions could include:

  • How will government develop a list for a Great Filter? Does it know about the problems in the UK's list and age verification setup
  • How does this mesh with New Zealand's privacy regime? If a foreign website is compelled to collect personally identifiable details on Kiwis that they would never otherwise wish to collect, what obligations do they face under our privacy regime? How can we tell whether those obligations are being met? What recourse might a Kiwi have in case of breach? Could a Kiwi sue the government if information produced under state compulsion were leaked and used inappropriately? 
  • Does the government know what the letters V, P, and N might together mean in this context?
  • What will be the appeal provisions for sites wrongly listed as being pornographic in nature, and age-blocked? Would they impose undue burden on millions of website owners, and on every Kiwi who wants to find information on topics where bots do a hard time in knowing it when they see it, from sexual health to breast cancer?
  • If they follow the Brits in having "porn viewing codes" issued to those over the age of 18, what do they do when somebody leaks the code number and tracked viewing habits of Cabinet Ministers? Like, if Winston Peters is worried somebody leaded his Superannuation details...
  • Will our porn-watching habits be included in IDI? 
  • Why does the government think there is any market failure here when parents can already make use of parental controls if they wish?

Wednesday, 8 August 2018

A picture of a conflict of laws

I'd noted there were likely to be fun conflict of laws issues when reduced harm tobacco products were simultaneously required to comply with tobacco plain-packaging warnings about the dangers of smoking, and forbidden from making misleading claims on the labeling under standard consumer law.

Here's what it now looks like. Philip Morris's Iqos device heats tobacco without combustion. And this is how they are required to package the 'heets' tobacco sticks used by the device.



I wonder how the Commerce Commission will treat it if someone complains that the packaging is misleading. They could not provide any prior advice about how they would treat it

Friday, 3 August 2018

A weak Treasury response

A friend sends me Secretary Makhlouf's response to my NBR column in last week's Treasury's internal newsletter:

Economics and the Treasury There is an opinion piece in today’s NBR critiquing the representation of economists at the Treasury, with a strong focus on our hiring of non-economists.  I hope that nobody takes this opinion piece personally.  Economics expertise is absolutely valued by the Treasury – we need it and want to build our capability in it – and we are always delighted to get job applicants with tertiary qualifications in economics.   But we also know that considering only people with economics degrees would mean shutting ourselves off from a very big pool of talented applicants.  Doing our job well requires knowledge, analytical skills, an understanding of context, and the ability to explain clearly.  It depends on the minds, insights, and life experiences of the people that make up our organisation.  Broader thinking strengthens rather than dilutes our capabilities as the Government’s lead economic and financial adviser, and our high performance in areas like forecasting, tax advice, analytics, long-term funding advice and many other fields demonstrates this.  I want everyone to know that we value the contribution you make to the Treasury irrespective of what your particular academic discipline is.
 Moreover, and more fundamentally, I think that this critique represents a strain of thinking which narrows the role of the Treasury and what good economics is actually about. I’ve spoken about this publically many times in the last few years.  And you can expect me to continue to stress this point in the public domain.
Good economics is broad. It encompasses any area where choosing agents face opportunity costs. I am not arguing for a narrowing of the domain but of a deepening of the economic talent pool at Treasury to make sure they're able to produce reliable economic analysis across it.

It would be absurd to claim that Treasury should only hire economists. A fresh economics graduate would make a hash of things if set to do Vote analysis work unless under the guidance of someone who really knew the accounts. I've got a PhD but I haven't any accounting background - I wouldn't be suited to a lot of that work either. Treasury needs accountants. It needs tax specialists. It needs lawyers.

But it doesn't need recruitment rounds where only one of nine recruits has a graduate qualification in economics when it's also been losing more senior economic talent.

And it doesn't need to be setting a recruitment framework that tells good economics graduates that Treasury is a place where they are not wanted. New Zealand is a small town. When Treasury goes around the country making recruitment pitches emphasising that you don't need economics to work at Treasury, and celebrate having not hired any single-major economists, decent graduates who want to do economics can easily conclude that that work is no longer welcome in Treasury.

And I know that I am far from the only one noticing the problem.

Working for Families as employer subsidy - again

Susan St John takes issue with what I'd written on Working for Families.

I'd tried posting a reply to her over at the Daily Blog, but my comment disappeared into the ether immediately, and when I tried logging in with Twitter, it told me I wasn't allowed. Maybe they don't like me there.

I'll hit it here instead, but wish I didn't have to type it again. And here's my original blog post.

Prof St John's primary argument is that subsidy incidence does not apply because of the lump-sum nature of Working for Families. It isn't a wage subsidy on top of earnings. Rather, the In Work Tax Credit provides you with $72 per week so long as you're working at least 20 hours per week, then abates if your family income gets high enough.

But I think about WFF around the extensive margin, with the in-work tax credit helping to front the fixed costs of being in work in the first place. Reservation wages can wind up being high if you have to deal with the hassle of sorting out being a working parent, but once that's fronted, things can be different.

Consider a worker with a high reservation wage, because of those fixed costs, and where the reservation wage is then higher than any employer's willingness to pay. For some people, the IWTC would be at least sufficient to flip things at that extensive margin by covering those fixed costs. You then get, from the employer's perspective, a normal looking labour supply curve from that worker that begins at the 20-hour mark, and unwillingness to supply less than that amount of labour. I don't see why you wouldn't get some division of the IWTC between employer and employee. But it hardly seems the most important thing going on with IWTC.

As I understood things in the mid-2000s, the point of WFF with the IWTC was to encourage people off of benefits and into work. Employment among single parents has increased - although at a cost to hours worked by married women and (to a lesser extent) by married men because of the higher EMTRs in the clawback ranges. Abolishing the work requirements for the IWTC, as St John recommends, turns the programme into a family-income-linked child benefit that doesn't do the same job in encouraging labour force participation. I suppose folks can argue the merits of that; I prefer the work linkage.

I still expect it would make more sense to boost the incomes of working families with dependents by increasing the in-work tax credit than by increasing minimum wages.

And I'm a bit perplexed by Prof St John's suggestion that I want to turn WFF into EITC (America's wage subsidy), and her consequent demand that I defend EITC. The in-work tax credit is broadly similar to EITC, except without a phase-in period.* I'd have to look a lot more closely at both to make any suggestions about changing WFF here to be EITC. 



* And FFS don't make a big list of all the other differences and damn me for not listing them all.