Monday, 23 January 2017

Kiwisaver and net wealth - again

David Law and Grant Scobie continue to look at Kiwisaver's effects on net wealth. In line with prior work by Scobie and coauthors, they find that it didn't do anything to increase net wealth. Instead, it just diverts other savings.
The objective of this paper is to analyse the extent to which membership of KiwiSaver has been associated with greater accumulations of net wealth. The paper utilises two linked sources of data which cover the period 2002–2010: Statistics New Zealand’s Survey of Family, Income and Employment and Inland Revenue Department administrative data on KiwiSaver membership. Two approaches are employed: difference-indifferences (where the outcomes of interest are changes in net wealth) and various panel regression techniques. Results appear consistent with earlier evaluations of KiwiSaver. Neither approach suggests KiwiSaver membership has been associated with any positive effect on net wealth accumulation.
I'd commented here on the 2014 Treasury working paper version of the paper, now published in NZ Economic Papers. Whatever problem Kiwisaver is meant to be solving, it doesn't seem to be doing much.


Friday, 20 January 2017

Risky Teens and the maternal gaze

Christian Jarrett at the British Psychological Society's Research Digest blog reports that kids take fewer risk when mum's watching:
João Moreira and his colleagues scanned the brains of 23 15-year-olds (9 girls) while they played a risk-based game that involved going through a set of 26 traffic lights as quickly as possible and deciding at each set whether to accelerate or brake as the lights turned amber. Accelerating saved time usually, but also carried the risk of a crash which would lead to a greater delay than braking. The teens played the game twice: once in the presence of their mother who was located in the scan control room, and the other time in the presence of an unfamiliar female professor who was described as an expert in adolescent driving behaviour (some played the game with mum present first, others with the stranger present first).

There was a tendency for the teens to take fewer risks when their mum was present, as compared with the professor, but this difference didn’t reach statistical significance. However, at a neural level there were statistically significant differences between the conditions: when mum was present, the teens’ brains showed more reward-related brain activity after making safe decisions and less reward-related brain activity after making risky decisions. Mum’s supervision seemed to make caution a more pleasurable approach, at least at a neural level.
The researchers interpreted their findings as suggesting there is something unique about the influence of a parent (or a mother, at least) on the way a teenager’s brain processes risk, which could have practical implications. For example risk-prevention educational programmes for teenagers, which often struggle to make a difference, might be more likely to be effective if parents are directly involved.
I have a simpler explanation. If Mum sees that the kids are driving like hoons in a simulation even when she's watching, she won't give them the car keys next time they ask. Because the kids know that whatever happens in the game affects Mum's behaviour out-of-game, fun risk-taking is less rewarding. It isn't that Mum being there makes them different people or that they're better learning how to behave, it's just fear of out-of-game sanction.

Or at least that'd be my prior on it, if I were inclined to draw any conclusion whatsoever from a study scanning the brains of 9 teenage girls.

Thursday, 19 January 2017

De-risking: another cost of AML

Steve Liddle points to an underappreciated cost of New Zealand's Anti-Money Laundering regime: difficulties in international remittances.
For the past nine months I’ve been working with a group supporting Somali-New Zealanders as they attempt to re-establish a low-cost channel for remittances into the Horn of Africa and South Sudan.

Despite hiring an anti-money laundering advisor, satisfying all security requirements for registering a financial service company and meeting all government and Companies Office regulations, no New Zealand bank is willing to send refugees’ money offshore.

The security requirements the banks impose on us include “getting to know your customer” vetting systems, maximum money limits, regular transaction checking and oversight. Despite this, all six banks approached refused to handle remittances, simply citing a US-instigated sanctions list or so-called “de-risking” policies.
Get your AML compliance wrong, and you could be up for fines or losing your banking license. The stakes are high, and that means the small earnings they'd get by facilitating international remittances isn't worth it.
Despite the New Zealand Reserve Bank’s declaration two years ago that trading banks here “were not justified in blanket de-risking”, they continue to do so. Acknowledging “varying degrees of risk for banks” and the call in our legislation for “measured risk management”, the Reserve Bank made it clear that money remitters should be judged on their merits. It urged banks to do due diligence on remitters to enable money transfers to continue.

Yet it seems that New Zealand banks are unwilling to risk the steep fines imposed by anti-money laundering and terrorist financing legislation and fall back on a blanket policy of refusing to handle any remittances to countries deemed high risk.

While in the past Pacific Island remittances were subject to the highest number of blocks, the situation is now eased and for the last three years New Zealand refugees from the Sub-Sahara, Horn of Africa and the Middle East are most affected.
Case by case checking is expensive relative to either what banks can earn on these small transactions, or relative to the penalties for getting things wrong.
Neither governments nor banks seem prepared to acknowledge the unintended consequences. Of course no responsible country wants to aid the financing of terrorism. But measures designed to prevent money laundering and starve terrorists of funding have also encouraged illegal money trafficking now beyond any accounting – of either amounts or the identities of recipients.
It looks like Liddle's group jumped through a pile of hoops trying to prove that their remittances were neither money laundering nor terrorism, but it wasn't enough. That shouldn't be surprising to anybody who followed the saga leading to AML regs killing iPredict.

As I understand things, banks stopped providing platforms for companies doing international remittance work as the AML regs came in. Kiwibank was about the last to move, as it took them longer to come into AML compliance than the other banks. For a while the remittance companies banked through them, but that lifeline ended when Kiwibank got its regulatory affairs in order.

There's be a reasonable business for someone using Bitcoin to facilitate all this stuff, but I'd be surprised if anyone getting big enough in it didn't quickly find themselves subject to AML for the "turning dollars into bitcoin" part of the transaction.

Wednesday, 18 January 2017

Manitoba poultry predicaments

Supply management in Canada continues to be a reason Manitobans can't have nice things. This time, specialty free-range chicken. From the Winnipeg Free Press:
With the introduction of the new ASQP [Annual Specialty Quota Program] — meant to increase the availability of speciality products such as organic chicken, pasture raised, Silkie, and kosher — exemption permits traditionally held by chicken farmers have been cancelled by the supply management board.
Farmers who had been producing 60,000 kilograms of chicken a year, for example, will have to scale back by half or pay fees, Veldhuis explained.
"Some of those people are participants in the St. Norbert Farmers’ Market and they’re either having to pay more to produce the same amount and the tariff is about 25 per cent that they’re being asked to pay," Veldhuis said. "So I think most of them just won’t produce it.
Here in New Zealand, if you want to grow and sell a chicken, you grow and sell a chicken. In Manitoba, you need to have quota. Small-scale producers who previously operated under exemption permits can't any more.
Erin Crampton, owner of Crampton’s Market (1765 Waverley St.), believes the new quota program will increase the cost of Manitoban chicken her store carries by about 20 per cent, if it’s available.
The seasonal market in Waverley West carries fresh, sustainable, antibiotic-free chicken raised in Manitoba and organic chicken from Ontario. Crampton said if the quota program is implemented as is, there is a good chance the market would no longer receive fresh roasting chicken on a weekly basis or carry frozen chicken pieces from producers in Manitoba.
"We would probably have to bring in products from Ontario if we were wanting to sell sustainably raised chicken," Crampton said. "The cornerstone of our business is local food first so it would be absolutely heartbreaking."
Crampton is hoping the MCP will review the ASQP and hold further consultation with existing producers in an effort to maintain mid-level production.
"Unfortunately, (Manitoba Chicken Producers) didn’t collaborate with those existing producers to ask them what they needed to have the industry grow," Crampton said.
"There’s a huge trickle down effect and it’s so important for people to let the government and the Manitoba Chicken Producers know that they didn’t get it quite right, and maybe go back to the table and have a chat with the people who are affected."  
According to Crampton, who is a former member of the Manitoba Farm Products Marketing Council, there is room in the market for specialty, small-scale, and large-scale producers alike.
"We think there’s enough space for everyone and (large scale producers) need to share a little more," she said.
Read the whole thing, and be thankful you live in a sane place like New Zealand rather than over in the inside of the asylum.

Tuesday, 17 January 2017

Some kind press

Philip Matthews provides a kind write-up about me in the weekend's Dominion Post and Christchurch Press. An excerpt:
As one of the New Zealand Initiative's ancestors was the Business Roundtable, it is sometimes called a Right-wing think tank. Crampton would rather say they "like market-oriented solutions". He cites a report on interest-free student loan policies that recommended shifting money spent on subsidies for mostly rich kids into better tertiary preparation for poor kids.

"I thought that was a very Left-wing recommendation to stop giving money to privileged people and put it where it's going to do good for people who don't have as much. I prefer to think of it as just looking for policy solutions that work."

Politics can become bogged down in short-term thinking based on voter appeal and what is expected from party affiliations. It tends to be binary and reactive. People in think tanks like this one are public intellectuals who can step past those political boundaries, and it is telling that one of Crampton's key influences and close mentors when he taught at Canterbury University was the late Denis Dutton, another North American contrarian and original thinker.

Dutton was more famous for what he did outside the university than what he did within it. In other words, he was acting as a critic and conscience of society, which is harder than ever in the current tertiary environment. Putting ideas out there and appearing in the media to discuss or defend them is "not in the normal nature of an academic department," Crampton says. He has found he can have more direct impact on government in his current role than he ever did as an academic staffer.

Canterbury was his first academic job after graduate school at George Mason University in Washington DC. Before that, he studied at the University of Manitoba in Winnipeg, Canada. New Zealand's relaxed regulatory environment appealed to a classical liberal who stands for political and civil liberties and limited government.
The piece ran as a full-page B.3 spread in the Dom; advantages of a slow summer news season.

Monday, 16 January 2017

You may be in the global 1%

The Oxfam report on global inequality continues to make news in New Zealand. A few tidbits from the Credit Suisse report on which Oxfam's figures are based:
  • If you have net assets of $2,200 USD ($3,098 NZD), you're in the world's top half.
  • If you have net assets of $71,560 USD ($100,760 NZD), you're in the world's Top 10%. You fat-cats! There are about two million Kiwis in this category.
  • If you have net assets of $744,400 USD ($1.05m NZD), you're in the world's Top 1%. Auckland's average house price cracked the million mark last September. So if you own the average house in Auckland, debt-free, that likely puts you into the world's Top 1%. About 272,000 Kiwis are in the world's Top 1%.
It's also fun to think about how New Zealand's Superannuation system affects these figures. New Zealand has an indexed public pension system. If you're 65 and expecting to live to 95, the value of the future Superannuation payments is about half a million dollars. That does not count as wealth in any of these wealth inequality figures. If the government tomorrow abolished NZ Super and deposited the present value of your superannuation entitlement into your Kiwisaver account, it would count as wealth in the wealth inequality figures. The real extent of wealth inequality is then overstated in measures that ignore transfers that everybody gets. 

The same Credit Suisse report provides gini coefficients on wealth inequality across countries. New Zealand sits at 69.1. A few other countries, for comparison purposes:
  • Australia: 68.2
  • Belgium:  64.1
  • Canada:   73.2
  • China:     81.9
  • Denmark: 89.3
  • Finland:   76.6
  • Germany: 78.9
  • Italy:       68.7
  • Sweden:   83.2
  • UK:         73.2
  • USA:       86.2
It's not at all obvious to me that any of these numbers are right or wrong; New Zealand's seems to stand at the lower end of the range, but isn't particularly remarkable. It's a lot lower than egalitarian Sweden's, for example. What isn't shown in the numbers is the process by which wealth is accumulated. I think that matters far more than what any particular number is. If you get rich by crony deals in corrupt countries, your wealth has been at the expense of the poor and of the country's long-term prosperity. If you get rich by providing goods and services that others value more than the money they had in their pockets, then that's hardly hurting anybody.

Oxfam and inequality again

Oxfam's on another tear about inequality. I liked them when they focused on projects alleviating severe poverty. With global severe poverty lower than it's ever been, I guess they need something else to worry about.

Here's some stats background before we look at Oxfam.

Below is Max Roser's chart on global poverty. The decline over the past two decades has been staggering.

Meanwhile, here in New Zealand, income inequality has been stagnant over the past two decades; consumption inequality is lower than it was in 1984; and, wealth inequality is on par with OECD averages. Here's the table on wealth inequality from our recent report on inequality.
The top 1%'s share there is a bit under 20%. Work on SOPHIE data has it hovering over or under the 20% line depending on the HES year. This is pretty well known, or should be, to anybody who's played with this data.

Anyway, over to Oxfam:
According to the Oxfam research, the richest 1 per cent of Kiwis have 20 per cent of the wealth in New Zealand, with 90 per cent of the population owning less than half of the country's wealth.

Rachael Le Mesurier, executive director of Oxfam NZ, said the organisation was shocked to discover such a level of wealth inequality.
"The gap between the extremely wealthy and the rest of us is greater than we thought, both in New Zealand and around the world. It is trapping huge numbers of people in poverty and fracturing our societies - as seen in New Zealand in the changing profile of home ownership."
The numbers they're reporting as shocking aren't really much different from the last couple sets of numbers on wealth inequality that Statistics New Zealand has put out. You shouldn't be shocked by these figures unless you really haven't looked at them before.

But, Oxfam is right that there are serious problems in New Zealand's housing markets.

The Herald's Nick Jones asked me for comment; he quotes me well in his article. I've copied below the full bit I emailed him; there was never going to be room for all of it in the published piece.
The share of the world population living in absolute poverty Is lower than it has ever been. Work by Max Roser at Oxford shows just how dramatic the drop in poverty has been. More than half of everyone in the world lived in extreme poverty in 1960, defined as living with less than $1 per day, inflation-adjusted. It was worse before then. By 2015, less than 10% of the world lived on less than $1.90 per day. Roser's figures similarly show substantial decline in global income inequality over the same period; it's projected to drop even further through 2035. Longer term data series on wealth shares are harder to come by, but work by Tony Atkinson and coauthors earlier this year showed that the top 1% in the UK held 70% of UK wealth in the late 1800s and early 1900s; that declined to about 15% of UK wealth by the early 1990s and even today is around 20%. The big story of the past century is the global diffusion of wealth and income, and a massive decline in poverty.

And so Oxfam's focus on wealth inequality is strange. It is entirely appropriate to look closely at wealth inequality in countries where tinpot rulers immiserate their citizens for the benefit of themselves and their ruling cliques. In those places, political regimes focused on extracting the country's wealth for the ruling elite simultaneously cause high inequality and very poor conditions for everyone else, and low rates of economic growth. But elsewhere, people become wealthy by producing goods and services that others value. Bill Gates becoming a dollar richer immiserates no one.
While I have not seen this year's Oxfam report, just over 450,000 Kiwis counted as being in the world's wealthiest one percent in last year's figures. Owning a house in Auckland mortgage-free was just about enough to guarantee membership in the global top 1%. Oxfam tells us nothing new in 'revealing' that NZ's top 1% own about 20% of all wealth; similar figures were released by Statistics New Zealand last year - and also showed that New Zealand's wealth concentration is pretty middling in OECD rankings. The New Zealand Initiative's report on inequality last year also covered these statistics. One should also be cautious about figures assessing the wealth share held by the bottom fraction of the population in countries like New Zealand, where a lot of graduates' student debt will count against them while their degrees do not count in their favour. If we took these kinds of statistics too seriously, a new doctor graduating with a $100,000 student loan would count as poorer than families experiencing real hardship but who have less net debt.

Inequality's real bite in New Zealand, as our recent report shows, comes through effects in broken housing markets. Inequality in access to affordable, quality housing, because zoning rules prevent its being built, is an incredibly serious issue.
Me in the NBR on last year's iteration of this thing...