Wednesday, 22 August 2018

Overestimating soda tax effects

Waikato University's Professor John Gibson's letter in the Economist (18 August 2018):

Tuesday, 21 August 2018

A simple landfill calculation

That this one comes up so often speaks poorly of our basic numeracy and sense of scale. There's basically no chance that landfills expand to take up any substantial part of the country.

This is the kind of back-of-the-envelope thing that everybody should be able to do in their head.

Kate Valley services Christchurch. It has 1000 hectares total, only a tiny part (37 hectares) of which is actual landfill - the rest is forest buffer and the like. But let's call it 1000 hectares. It has a 35 year life expectancy. The Christchurch area is about half a million people. Let's keep all the numbers round to make life easier - we're looking for order of magnitude stuff here really.

If Kate Valley can handle 500,000 people's trash in a 1000 hectares for 35 years, then it could handle a million people's rubbish for 17.5 years. A thousand hectares divided by 17.5 is about 57 hectares per year per million population.

Let's be conservative and round that on up to a hundred hectares per million population per year. It makes the numbers easier. I'm pretty sure that Kate Valley covers the whole Canterbury region of about 600,000 people, so I should be rounding down instead. But it really isn't going to matter, and I can't be bothered to check fiddly details.

New Zealand's land area is about 26 million hectares. Let's restrict ourselves to agricultural, non-arable land. Basically land that isn't in crop but can be accessed. There's about 10 million hectares of agricultural, non-arable land. I ruled out arable land because it's more expensive and y'all have some kind of potato fetish that if anybody proposes doing anything on ground that could be growing potatoes, your heads explode because importing potatoes is somehow worse than importing anything else. So we won't include that land in the calculations. Pukekohe is safe. But I'd expect there's a pile of other land that could be used that I'm not including too. 10 million hectares is a nice round number for easy order-of-magnitude calculations.

Let's suppose that New Zealand's population doubled to 10 million people. Those ten million people would be using a thousand hectares per year. That's another easy round number.

There are a thousand thousands in a million, and ten million hectares to play with, so it would take about ten thousand years to use up all of the non-arable agricultural land for landfill. Those are numbers big enough that it's impossible for errors in my rough figures above to much matter. If the use rate is double what I'd put up, then it's 5,000 years instead of 10,000 years.

"But we'll run out of land!" arguments never have an appropriate sense of scale. Nor do they ever have any appreciation of basic economics. If scarcity did start biting, land prices would bid up. In the landfill case, that would mean tip fees would go up - and markets would do their usual thing. So don't come away from this with the dumb-take that Crampton figures that all the paddocks should turn into landfills. I'm pointing out rather that land is far from scarce and putting some ballpark numbers on it for a sense of scale. And if land ever started becoming scarce, the price system already deals with scarcity.

Addendum: I've switched to screencaps from Twitter's embed code because too many folks have started nuking their accounts and making my old posts that embed them look like bomb sites.

Treasury needs more than more economists

Suppose that the Minister of Finance asked Treasury for advice about a Ministry of Health budget bid. In our hypothetical case, one of the District Health Boards had mishandled hiring over several years. The Medical Officer of Health’s office had staffed up with armies of lawyers able to object to every single alcohol licence renewal, but the DHB had not hired nearly enough doctors and nurses. The budget bid showed that, without additional doctors, a lot of people were likely to suffer badly for want of service.

It would be hard for government not to bail out this hypothetical DHB. But we might hope that Treasury would advise some governance changes at the DHB to prevent the problem from recurring there or elsewhere. Treasury must balance different Ministries’ competing claims for scarce funding; economists at Treasury would understand the incentive problems created by rewarding poor practice with greater funding.

In last week's National Business Review (print edition), I went through more of the problems with Treasury's having de-emphasised economics. Just hiring more economists there isn't enough.

I noted the worrying bits I'd been told about from Treasury's internal staff survey.

I've copied a few snippets from the print piece below; I'll link it once it's online.
I have requested the [2017 external stakeholder] survey as well as Treasury’s reasons for failing to follow prior years’ practice in putting it up on Treasury’s website. But I have also informally seen parts of it, as these things have a way of floating around town.

And I think I know why Treasury has not released it.

The summary table shows every single measure of stakeholder satisfaction has declined since 2015.

Results in prior years were worse on some measures than in 2015, so it would be a mistake to call this an across-the-board longer-term downward trend. But for the key issues related to economic capabilities, decline is evident – and especially from 2015 onward. Perceptions that Treasury staff are well-informed ranged from 74% to 76% from 2011 through 2015 before dropping to 66%.

Confidence that staff do a good job ranged from 74% to 77% from 2011 through 2015 before dropping to 68%. And the only measure on which 2017’s result was not the lowest was agreement that “I can offer the Treasury insights” – a measure of ambiguous interpretation.

I also understand the sharpest drop in satisfaction with Treasury was among those who generally interact with Treasury about economics. The 2015 survey showed that 70% of stakeholders interacting with Treasury about economics, macroeconomics, or fiscal projections were satisfied with that interaction. I understand that the current survey has that figure below 50%.
I also put up the declining internal quality scores assigned to Treasury policy advice papers (from the annual reports).

The measure of the quality of advice suggests there's a problem. The internal staff survey says there's a problem. The external stakeholder survey says there's a problem. But Treasury still goes and celebrates getting an award for not hiring economists. Treasury needs more economists. But it also needs to be the place where good economists want to work. Celebrating not hiring economists doesn't help with that.

During my time at Canterbury, Treasury and the RBNZ competed for our best honours students - and nobody bothered trying to hire until those two had had their picks of the litter. In the prior era, nobody moved before Treasury and RBNZ because they expected that the best students preferred to wait to see whether they'd get an offer from Treasury or the Bank.

I've been told since then that some are hiring before Treasury and that that's making it harder for Treasury to hire, but that has to be endogenous to how graduates rank an offer from Treasury relative to other places. If folks are moving ahead of Treasury, it might be because folks aren't expecting to be left hanging while an applicant offered a job waits to see if an offer from Treasury's coming.

Perhaps Treasury should be having chats with the graduate studies coordinators in the different departments to see what's going on.

If a private company showed declining product quality, staff saying they were losing expertise and that expertise in the core business isn't valued, and external stakeholders saying things were going down, and it were all consequent to a push by the Chief Executive to diversify away from the company's core business...

Monday, 20 August 2018


Those keen on hearing a different kind of Canadian take on immigration and diversity from that which would have been provided a few weeks back in Auckland might hit this coming talk by Canada's Immigration Minister at Victoria University:
Managing Migration - The Canadian experience

27th Aug 2018 11:45am to 27th Aug 2018 1:00pm
Rutherford House Lecture Theater 2 (RHLT2)

The Honourable Ahmed Hussen, Canada’s Minister of Immigration, Refugees and Citizenship, is visiting at the invitation of the Government of New Zealand. In this public presentation, co-hosted by Victoria University of Wellington and the High Commission of Canada in New Zealand, Hussen will discuss Canada’s “managed immigration model”.

Canada’s approach to immigration is based on a multi-year plan for permanent immigrant admission levels and economic, family and humanitarian programs to grow Canada’s economy and contribute to an inclusive society. Through settlement services and partnership with community actors and all levels of government, Canada supports newcomers to fully participate in the economic, social, cultural and political life of Canada.

There will be an opportunity for a questions and answer session, followed by light refreshments once the talk concludes.


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.