Offsetting Behaviour: September 2009

As you can see above, when Key went on Letterman and teased Kiwis that we now have a Cinnabon (which we still don't), Google Search traffic in New Zealand showed that searches on Cinnabon spiked well above searches on both brands we don't have in New Zealand, like Krispy Kreme, and ones we do have, like McDonald's.

Again, strong evidence of pent up demand. Somebody ought to get on with it.

I'm told that a franchise costs about a million bucks though. Surely setting up a "Cinnabuns" or "Schminnabon's", using one of the reverse-engineered Cinnabon recipes easily found online, would cost less than that.

If somebody uses this analysis and goes on to open a shop in Auckland and not in Christchurch, though, I won't be impressed.

TVHE has a couple of worries about peak oil. First, oil prices will go up and this could have negative economic consequences. Second, it's a non-renewable resource so we're eating up a capital stock.

It's hard for me to see severe consequences from peak oil.

Hotelling's work on pricing of non-renewable resources remains as salient now as when he wrote it almost 80 years ago. If he's right, we ought just to expect oil prices to rise approximately in line with interest rates, with adjustment upwards if demand is rising faster than that and downwards if technology makes extraction more efficient.

The best case I can think of for breaking Hotelling is that property rights over many oilfields are insecure, or that the ruling juntas in the mid-east have shorter time horizons dictated by keeping political power in the medium term, leading to inefficiently-fast extraction. The best counterargument I can think of is that OPEC seems to work to restrain production, keeping supply now lower than it would otherwise be, and that we're not seeing the big oil companies deciding to just sit on reserves in anticipation of big ramp-ups in prices once the mid-east slows down. If some folks with current rights over oilfields have insecure tenure leading to high discount rates, this leads to locational distortion of production rather than to intertemporal distortion unless those kinds of fields wind up being the whole of the market. And best I can tell, oilfields in the US and Canada are still pumping: if folks expected a big drop in Saudi production, they'd be holding those fields back in anticipation of big price increases to come.

So we shouldn't see sharp spikes upwards as supply dwindles; rather, our best expectation ought to be a steady rise in price. And those kinds of things don't cause big problems.

Ministry of Justice releases its proposal document on NZ campaign finance; looking forward to reading it.

There is no such thing as cultural authenticity: all culture is syncretic. Nothing as Irish as Guinness? Think again. HT: Marginal Revolution.

Lindsay Mitchell on alcohol an moral panics: per capita alcohol availability just hasn't grown much.

Lindsay Mitchell has excerpts from an interview with Hone Harawira in which he figures that prohibiting tobacco would be just great, with none of the adverse consequences we've seen from other forms of prohibition. Strange beliefs.

Brad Taylor notes that Brew Dog has come back from its scrap with the Brit regulators by releasing a low alcohol beer called "Nanny State". Excellent. Taylor double-dog dares Luke Nicholas to brew a beer as offensive as Brew Dog's "Tokyo" (18%). If anybody would do it here, it would be Nicholas...

Boris Hampton's "Diary of a Wellington Insider" remains excellent. This week's had this gem:
Tuesday 22 September 2009

To the Ministry of Education for a working group to discuss a new health and safety initiative in schools. There has been growing concern in the ministry about children walking on the cracks in the pavements.

According to some research, it causes anyone who does it to marry a rat, later in life. Another school of thought says that if you stand on a crack, you’ll break your back. Another further stream of work indicates that a pupil who stands on a line will marry a porcupine.

The Ministry has commissioned several work-streams on this. They have discovered that there is a higher degree of crack-walking among the decile one to four schools. This has them both worried but gratified.

They are also worried about whether crack-walking fits within the Treaty of Waitangi.

And passive crack walking opens up a whole new area of work.

I ask whether this work fits with the Minister’s priorities for education. But everyone just sniggers.

Back while I was in grad school, Tyler Cowen presented a paper on animal welfare to the Buchanan House brown bag seminar in which he concluded (if I recall correctly) that, so long as animals are happier having been born than not, vegetarians are reducing animal welfare by inducing fewer of them to be born; he also argued that while there may be some cause to want more animals to move from the meat sector to the pet or zoo sectors, animals cannot readily bargain with owners to effect the transfer. Extensive discussion followed on whether animals' welfare ought to count per se or whether it only should count because people care about animals. I threw in that the reason that we ought to care about animal mistreatment isn't so much the violation of the animal's rights but rather that the kind of person who enjoys torturing animals probably also enjoys beating his children; Buchanan jumped in to agree.

The updated version of the paper uses a thinner reason for caring about animal welfare: it counts only inasmuch as people care about animals. In the thinner formulation, vegans may do good, but vegetarians do harm by inducing a shift in animals from the meat sector, where they're happier, to the dairy sector, where they're less happy.

Under either standard, what's gone on at Crafar Farms is repugnant. I grew up on a mixed farm with beef cattle. Calves would be born on February nights at 30 or 40 degrees below zero, and Dad would be out there, every night that a cow seemed likely to be dropping a calf, to make sure things went well. And if a calf was having problems in learning to drink, he or I would be out there a few times a day teaching the calf how to get on with it.

Baby calves are a joy. Here's a nice unicorn chaser for folks who hit the link through to Crafar Farms. I cannot understand how the farmers at Crafar could allow this to happen. I cannot understand how any human could stand by to watch this happen. But I suspect that they're very close kin, in terms of utility functions, to the Kahui whanau, who either murdered their twin boys or stood by and let it happen. Smithian sympathy fails: they couldn't step into the mind of the other and imagine the suffering they were causing, and I consequently can't step into theirs.

There's a dark side out there.

Following my posts on this a few weeks ago (here and here), I spoke with Andy Pratt, a very smart biochemist in the Department of Chemistry here at U of C.

My question was why we should care about methane emissions from cows that are part of a closed cycle in which the carbon in the grass is converted into methane inside the cow, belched into the atmosphere as a highly potent greenhouse gas that then relatively quickly breaks down into CO2, and then gets reasorbed as renewed pasture growth.

The faithful readers of this blog suggested two reasons why it may not be a closed cycle. One was that the carbon content of urea derived from fossil fuels might represent a net injection of carbon into the atmosphere. The other was that pasture that is not eaten would otherwise degrade and form a carbon sink in the ground.

Andy tells me that neither is an issue. Urea is potentially a contributor to GHG emissions, but that is because of the enormous amounts of energy required in its production, rather than the carbon content of the urea per se.

So we should think about methane issues as a closed cycle and be concerned only about the effect of the flow on the steady-state stock, not on the flow itself.

There are two reasons, however, why we might want to focus on methane, one economic, one political. The economic reason is that, despite the impact of methane emissions being far less than the "20 times as potent as CO2" mantra would suggest, it could still be the case that reducing the steady-state of methane in the atmosphere would be a more cost-effective strategy for limiting the growth in the stock of GHGs (in CO2 equivalent units) than reducing use of fossil fuels.

The political reason is that international agreements such as Kyoto focus on reducing emissions below a benchmark set by the country's prior behaviour. In this context, it makes sense for us to overstate the contribution our methane has made to GHG emissions in order to give us an easier benchmark from which to make our reductions.

I am now convinced, however, that my original logic is right. If methane is 20 times as potent a GHG as CO2, it is not the case that the optimal Pigouvian tax on methane emissions would be 20 times that on CO2 emissions.

In April 2002, Susan and I were married at Phipps Conservatory in Pittsburgh.

I see they've relaxed their entrance standards somewhat since then, with this bunch of ne'er-do-wells now in attendance.

Or see the Channel Four report.

Fun wedding invitation calibration exercise: rather than run A and B list invitations (common practice in the US when you've a venue of fixed size and you don't want to go over capacity), we assigned a probability to each invited guest's attendance and sent out invitations to 125 expected guests (a total of a bit over 200 actual invitations). One late cancellation had us in at 124 attendees. We were a bit nervous at the start as RSVPs came in -- the folks who say yes are quicker to send in the RSVP card than the folks who say no, so our 0.7 and 0.8 folks quickly turned into 1s while our 0.3s took longer to turn into zeros; the spreadsheet started reporting ominously high numbers for expected attendees. But it all worked out, for our initial probability assessments were unbiased. We like to live on the edge.

In an even-handed article for the New Zealand Drug Foundation, freelance journalist David Young assesses the Hurly-BERLy.

Palmer concluded, “We have sufficient evidence to consider whether some of the costs isolated in the BERL report should be internalised to the liquor industry. I doubt that such a proposition will be met by great enthusiasm, but it does seem to me that the taxpayer should not be asked to shoulder as much of the burden as is currently being met from public funds.”

It appears this comment in particular attracted the attention of Crampton, who says he was surprised to see Palmer using the BERL report. From his first look, Crampton had concluded, “It couldn’t really be used for policy analysis.”

Crampton began criticising the BERL report and its use by the Law Commission on his popular economics blog, Offsetting Behaviour. He wrote a commentary on the matter in The Press, and eventually, with fellow economist Matt Burgess (Research Associate at the Institute for the Study of Competition and Regulation), published a 42-page referenced review of it. This effort was not funded by any outside organisation, but was enough to attract attention from reporters, bloggers and pundits.

What is the BERL report, and why has it become so controversial?

I like that Offsetting Behaviour counts as popular. 17th among NZ blogs for number of RSS feed subscribers through Google Reader (my preferred ranking, since it's the one on which I fare best).

The article includes one bit from Slack I hadn't previously seen:

Lead author Adrian Slack has commented: “In terms of forming policy… it gives you some direction on where are the biggest problems, where should we focus” and has noted that the report was not prepared for the Law Commission.

Actually, their report doesn't give very good direction on where the biggest problems are. Before separating out internal costs, it was manifestly unclear that crime costs were the single largest component of policy-relevant external costs, followed in distant second by health care costs and subsequently by road crash costs.

From today's National Post:

Pork-barreling in Canadian politics is hardly new. The task of the politician is to climb the tree to shake down the acorns to the pigs below, conceded Sir John A. Macdonald in a moment of, presumably drunken, sincerity.

Now we have Gordon Landon, regional councillor for the Town of Markham and the nominated Conservative candidate in the Ontario riding of Markham-Unionville.

In what will likely prove to be a career-limiting move, he admitted on live television that the reason his riding has not received federal funding for a medical testing centre is that the Member of Parliament is a Liberal.

From Jean Chretien's mouth, 2002 (link is to Free Dominion, but the quote was also in a Paul Wells story from the National Post, February 2002...will they ever put up their back archive?)

“For 25 years, the people of Lac-St.-Jean and Chicoutimi were promised roads by the former Jonquière MP [Lucien Bouchard, former head of the Bloc Quebecois]. Now that they have a Liberal MP, they have hope.”

The National Post story suggests heavy weighting of federal Canadian stimulus spending towards Conservative-held districts. I found no such distortion in overall spending under the much-maligned HRDC Transitional Jobs Fund and Canada Jobs Fund under the Liberals: if anything, the average Liberal district received much lower funding correcting for the unemployment variables on which decisions were meant to have been made. However, Liberal cabinet ministers received much much more.

It would be nice to have the dataset that the Libs are talking about. In the HRDC case, it was much easier: the scandal resulted in the release of the data, and grant allocations were supposed to be based on unemployment criteria; consequently, I could check actual allocations against the criteria for being given grants. Not sure that could be done in this case. I'd also worry about using a sample of all projects where the sample was chosen by the Liberal opposition rather than by a random draw.

Prime Minister John Key was on Letterman. #10 on his Top 10 reasons to visit New Zealand was that the Auckland Airport now has a Cinnabon.

I'd be tempted to fly to Auckland from Christchurch just for that if it were true.

For context, I once entered Australia for the sole purpose of getting Krispy Kreme. Layover in the international transit lounge in Sydney on the way from Christchurch to Canada and I knew there was a Krispy Kreme on the other side of customs. So on my immigration form I listed my reason for entering Australia as "doughnuts" and my expected time in Australia as "20 minutes". The customs guy scowled at me something fierce, but he stamped my passport and let me through. On my return through customs, I again listed the purpose of my visit as "doughnuts" and that I was leaving the country with a mixed dozen Krispy Kremes and had bought nothing else on my visit. Customs official on the way out was far more understanding and said she'd have done the same. Christchurch's KO doughnuts are decent, but nowhere near as good as a Krispy Kreme. I ate 9 of them in the half hour before my connecting flight. Marvelous. I did the same on my return flight, except that I brought the doughnuts home to share with Sue rather than eating them all before arrival. Fortunately, the NZ biosecurity folks didn't count a jelly-filled doughnut as verboten or I'd have had to have gulped those ones down before clearing customs.

A quick search of the Auckland airport website suggests Key was lying about Cinnabon. Ok, it's almost certainly the Letterman writers who wrote the line. But it was awfully mean of him to get my hopes up. Cinnabon is at least as good as Krispy Kreme. And neither of them is available in New Zealand as best I'm aware.

Cinnabon: get to work and open up an outlet. Preferably in Christchurch. Krispy Kreme: you too. And somebody open up an Ethiopean restaurant somewhere in New Zealand. And a Peruvian chicken shack. And NZ Immigration should open up immigration for the relevant ethnic communities to make sure that there's a decent customer base for each of those restaurants so they don't wind up blanding down.

And hurry up. I'm hungry.

Update: since posting, SiteMeter says that 15 of the last 30 visits to Offsetting Behaviour have come from Google Searches on Cinnabon + Auckland or Cinnabon + New Zealand. Obvious evidence of strong latent demand. Somebody could make a mint by either bringing Cinnabon to NZ or by using one of the many online versions of Cinnabon's recipe to open similar shops. Get to it folks.

Update 2: Now 32 of the last hundred...

Ok, there isn't really a market in it yet. The sole item produced cost over half a million dollars to make; they're hoping to sell it to a museum. But it is beautiful.

It took more than a million spiders and a team of Malagasy weavers. Wow.

I wish there were video of their silk extraction process.

Nice reporting and pictures at NY Times, linked above, as well as at Discovery, Wired.

Want to touch....

Slate has been on fire of late against paternalism.

Jacob Weisberg: First they came for the Marlboros:

The underlying left-right divide is not about whether government has the right to promote private virtue but, rather, about what kind of virtue it should promote. Republicans demand paternalistic policies that uphold morality or social order. In Indiana, where I recently spent my vacation, you can pick up fireworks or a handgun anywhere, but good luck buying a six-pack on Sunday. Democrats, by contrast, deploy paternalism for health and safety reasons, yielding a different set of absurdities. In California, pot is on the verge of becoming more permissible than cigarettes. Both left and right take pleasure in mildly persecuting those who fail to meet their civic ideals.

Dan Engber: Abolish the Fat Tax!

Obese people have shorter life spans. Since the elderly are by far the costliest patients, it's possible that early deaths save taxpayers money in the long run. In fact, fatal diseases almost always return net-cost savings to public health care. Smoking, which causes a host of particularly deadly conditions, turns out to be especially cheap—which is to say, government attempts to curb nicotine addiction have actually cost the United States money. (Niggling mental disorders and musculoskeletal diseases tend to be more expensive.)

Jeff Merron, "Workus Interruptus", on the stupidity of most "costs to society" measures:

Often, though not invariably, "costs to the U.S. economy" are self-serving sums concocted by lobbyists, companies, and advocacy and trade groups in order to grab attention. Basex, for example, is a consulting company that—you guessed it—would love to help you cut down on all those pesky interruptions, for a fee.

William Saletan, "Then they came for the Fresca"

My real interest is in the authors' third basis for regulation: market failure that
results from time-inconsistent preferences (i.e., decisions that provide short-term gratification but long-term harm). This problem is exacerbated in the case of children and adolescents, who place a higher value on present satisfaction while more heavily discounting future consequences.
Wow. This isn't socialism. It's sheer paternalism. It applies even if you cover every cent of your medical expenses. You buy and drink soda because you want the "short-term gratification." Later, you regret this purchase because of its "long-term harm." This, according to the authors, is a market failure that justifies taxation to alter your behavior, totally apart from its impact on public health costs.

This is what worries me about the crackdown on death sticks and edible crap. There's no end to its ambitions. We'd better start applying some brakes.

Indeed.

One decent argument against the socialization of health care in the United States is that the arguments for health paternalism would then become more appealing to the kinds of folks who'd otherwise not give two hoots about your dietary habits. Once you socialize the downside costs, pressures for regulation of risk-taking behaviour become pretty strong.

It would be great to run a study looking at whether the extent of government involvement in health care correlates with the extent of nanny-state health regulations across a panel of countries. I'm sure I can get data on government health care expenditures. Any pointers on an index of "health nanny statism"?

The ACT party put forward a bill proposing a three-strikes rule that, in its initial form, eliminated marginal deterrence at the third strike: 25 year sentence on third strike regardless of the offense. Of course, we know this can induce a severity shift among offenses on the strike list and provides little inducement for criminals to leave witnesses hanging about.

Kiwiblog reports that negotiations between ACT and National has led to a bill that National would support at second reading which would require judges to impose the maximum penalty on a third strike. Where Farrar emphasizes the fairness aspects of not having relatively minor offenses draw a 25-year sentence, I'm far more interested in the maintenance of marginal deterrence. Having the third strike draw the maximum sentence for that offense does a pretty good job: there's no reason to expect a severity shift among offenses since they all still draw differential penalties. Perhaps we could expect such a shift within a particular offense, but that can't have too large an effect.

Joanna Shepherd's work shows rather convincingly that strike-type legislation in California was remarkably successful in deterring even first strikes. The approach here proposed would avoid some of the worse potential consequences of the California law (severity shift, excessive prison costs) while keeping a decent chunk of the benefits.

We'll have to wait for the final bill that comes through. There are lots of ways of maintaining marginal deterrence:

Second strike: maximum penalty; Third strike: some multiple of the maximum
Second strike: minimum penalty is no less than 75th percentile of penalties awarded on first strike for that offense; Third strike: maximum penalty
If you were paroled after 1/3 of your sentence on the prior strike, adding 2/3 to your next-strike sentence

David Friedman's work shows reasonably convincingly that you need to have a higher penalty for a second offence than for a first one just to maintain deterrence; maintaining marginal deterrence then also requires that there aren't flat portions of the expected punishment curve across severity of offence. Lots of ways of achieving that, but a mandatory 25-year sentence for any third-strike isn't one of them.

Scanning the table Razib presents, it looks like New Zealand has the second highest per capita meat consumption: 142.1 kg per person. While we're behind Denmark on the raw measure, we score above the Danes when adjusted for income: we're 164% of our predicted level where the slack Danes are only 157%.

No surprise which country punches highest above predicted consumption. No surprise if you've ever been to a Mongolian BBQ restaurant anyway. Mmmm.

I do my best to offset my co-blogger's vegetarianism....

A colleague has long argued that academia could reasonably be described as a sheltered workshop for smarts. Bruce Charlton instead calls us "clever sillies":

In previous editorials I have written about the absent-minded and socially-inept ‘nutty professor’ stereotype in science, and the phenomenon of ‘psychological neoteny’ whereby intelligent modern people (including scientists) decline to grow-up and instead remain in a state of perpetual novelty-seeking adolescence. These can be seen as specific examples of the general phenomenon of ‘clever sillies’ whereby intelligent people with high levels of technical ability are seen (by the majority of the rest of the population) as having foolish ideas and behaviours outside the realm of their professional expertise.

In short, it has often been observed that high IQ types are lacking in ‘common sense’ – and especially when it comes to dealing with other human beings. General intelligence is not just a cognitive ability; it is also a cognitive disposition. So, the greater cognitive abilities of higher IQ tend also to be accompanied by a distinctive high IQ personality type including the trait of ‘Openness to experience’, ‘enlightened’ or progressive left-wing political values, and atheism. Drawing on the ideas of Kanazawa, my suggested explanation for this association between intelligence and personality is that an increasing relative level of IQ brings with it a tendency differentially to over-use general intelligence in problem-solving, and to over-ride those instinctive and spontaneous forms of evolved behaviour which could be termed common sense. Preferential use of abstract analysis is often useful when dealing with the many evolutionary novelties to be found in modernizing societies; but is not usually useful for dealing with social and psychological problems for which humans have evolved ‘domain-specific’ adaptive behaviours. And since evolved common sense usually produces the right answers in the social domain; this implies that, when it comes to solving social problems, the most intelligent people are more likely than those of average intelligence to have novel but silly ideas, and therefore to believe and behave maladaptively.

I further suggest that this random silliness of the most intelligent people may be amplified to generate systematic wrongness when intellectuals are in addition ‘advertising’ their own high intelligence in the evolutionarily novel context of a modern IQ meritocracy. The cognitively-stratified context of communicating almost-exclusively with others of similar intelligence, generates opinions and behaviours among the highest IQ people which are not just lacking in common sense but perversely wrong. Hence the phenomenon of ‘political correctness’ (PC); whereby false and foolish ideas have come to dominate, and moralistically be enforced upon, the ruling elites of whole nations.

One of the strong advantages of having government liquor outlets is that unscrupulous profit-minded private liquor outlets, preying on ignorant alcoholics, might attempt to pass off shoddy inferior product as being higher quality where a state monopoly liquor outlet definitely wouldn't. Oh wait..... HT: CanWest.

Note that I don't think that there's anything wrong with folks importing grapes or grape juice for wine-making. If the technology for turning grapes into wine is fairly homogeneous for low-end plonk, if there aren't substantial economies of scale, and if grape juice or whole grapes ship more easily than wine, I could see the argument for importing the juice and processing it in BC.

I just think it's hilarious that the government-owned liquor stores were in collusion with the producers to pass it off as fully domestic product. And it's doubly hilarious that if you want to be sure of getting the real deal, you do better by going to a privately owned BC-VQA shop that sells independently and (for now) privately certified Vintner's Quality Alliance wines. Wikipedia suggests that VQA certification is moving to a government body though....

Loyal reader Simon points me to Google Video hosting of the full "Free to Choose" Milton Friedman series.

Kiwi house prices now only 1.4% below their peak of November 2007. Housing affordability remains a concern

The rather awful consequences of sex offender registration legislation coupled with expansive definitions of what counts as a sex offender. HT: Balko

Some teaser findings from the latest Goldwater Institute Survey (HT: NotPC)

A majority of Arizona public high school students got only one of these questions correct, with 58% correctly identifying the Atlantic Ocean as being off the east coast of the United States, with 42% unable to do so. It was all downhill from there. 29.5% of students identified the Constitution as the supreme law of the land, 25% of students identified the Bill or Rights as the first 10 amendments to the Constitution (12% said they were called “The Constitution” and 16% “The Declaration of Independence.”)
Twenty three percent of Arizona public high schoolers identified the House and Senate as the chambers of Congress. Nine point four percent that the Supreme Court has nine justices. Only 25% of students correctly identified Thomas Jefferson as the author of the Declaration of Independence. An almost majority of 49.6 percent identified the two major political parties, only 14.5% answered that Senators are elected for six year terms. Finally, only 26.5% of students correctly identified George Washington was the first President. Other guesses included John F. Kennedy, Ronald Reagan, George Bush and Barack Obama.

Only 26% could identify the President as being in charge of the Executive Branch. All in all, only 3.5% of public school students passed the test by getting six or more items correct. That’s 40 students out of a sample of 1,134 district students.

There were no major differences in performance based on grade (Seniors did approximately as poorly as Freshmen) nor by ethnicity. Profound ignorance is quite equally distributed in large measure across students in the public school system.

Of course, this isn't unique to America.

Recent surveys that have tried to gauge Americans' opinions about capitalism reveal either a public terribly confused about it, or remarkably perceptive about differences between its theory and its American manifestation. In the dark days of December 2008, as General Motors careened toward bankruptcy, a poll by Rasmussen Reports found 70% of voters endorsing a "free market" over any economy steered by government. A subsequent poll, just months later, found only 53% endorsing "capitalism" over socialism, while a third, around the same time, found that two out of three Americans believe government and big business collude in ways that hurt consumers and investors. "The fact that a ‘free-market economy' attracts substantially more support than ‘capitalism' may suggest some skepticism about whether capitalism in the United States today relies on free markets," said pollster Scott Rasmussen, trying to square the results. Americans seem to believe in free markets; they're just not sure they're getting them.

From today's National Post. The skeptics are right...

Jeff Friedman on the causes of the crisis. Friedman argues that the Recourse Rule, an amendment in the US to Basel rules on bank capitalisation, provided banks with strong incentive to securitize their mortgage assets so as to be subject to lower capital requirements. An explanation I hadn't heard before, and plausible.

Patri Friedman on public choice reasons for fiscal rather than monetary stimulus

Patri Friedman: does decentralization lead to social regression?

And now some non-Friedman links

David Levine beats up on Krugman (HT Mankiw) Krugman responds to freshwater critics.

Crowdsourcing on the Mechanical Turk

John Tierney on drug prohibition. He links to a nice New York Magazine review.

Latest updates on the great potato mashup:

Erin writes that many of her farmers are under pressure not to speak out against the potato marketing board

The Winnipeg Free Press reports
Now Schriemer claims he's been warned not to sell potatoes anywhere, not even at the farmers' markets, small groceries and roadside stands where he says he sells most of his product.

"They told me nobody is allowed to sell potatoes unless they are a registered grower through Peak of the Market," said Schriemer, owner of Schriemer Family Farms, whose crop mostly consists of the small creamer potatoes sought out by foodies at farmers' markets and specialty stores.

In the lingo of industrial marketing, small, thin-skinned spuds are called "immature potatoes." Peak of the Market, which typically sells larger, thick-skinned spuds that mature later in the season, sent Schriemer an order after finding out he sold some more substantial potatoes to Sobeys.

"Ninety per cent of my market is small potatoes. This year I happened to have marketed my large potatoes to a couple of Sobey's stores, and that was a horrible thing, apparently," he said. "Now they're telling me I can't even sell potatoes in a shack on my own property."

Peak of the Market, which supplies retailers and restau rants with 120 varieties of Manitoba veggies grown by 40 different producers, has typ ically ignored small producers and retailers in the past, said president Larry McIntosh. Schriemer was sent an order because he sold to a national chain, he said.

But Peak of the Market is planning to come up with new regulations next year to formalize the way small producers sell to farmers' markets, whose popularity is increasing as more consumers seek out local produce and desire knowledge about the origins of their food.

"Technically, they're covered under the regulations. Historically we haven't worried about farmers' markets because it's a small acreage," McIntosh said. "I can't speculate until I meet with my board, but we're not go ing to do anything to put out the local producer. We want to do what's best for the industry as a whole."
The story also has a nice picture of Erin in her shop. Note the very active comments section on the story -- folks seem pretty mad about the potato monopoly. Sounds like there's some pent up anger out there.

Update 21 September

The Winnipeg Free Press ediorializes:
There are numerous marketing boards regulating a variety of producers in Manitoba, although fruits and most vegetables producers have chosen to work through associations rather than a mandatory registration system, complete with penalties for scofflaws.

The growth and popularity of market gardens, however, reveals consumers are looking for a more direct connection to the farmer, wanting to know the person tilling the land and harvesting the vegetable. Yet, if it's a potato or a root vegetable (except some onions), the small or large farmer must first sell through or to the middle man. So while there are now twice as many days those gar deners can meet the public at market gardens, they are permitted to do so only through the authority of the marketing board.

That farmers such as Trevor Schriemer have sold their small potatoes outside of Peak of the Market until now was a sign only of the board's indulgence. Because Mr. Schriemer was caught selling to Sobeys, his small spud sideline is off line, now.
It is a reminder that for some industries, there's no such things as small potatoes, which is how monopolies consolidate power.

Evidently, that doesn't sit well some small growers. The marketing board should find a way to accommodate their sideline operations or risk losing support among a portion of consumers who seek wider choice in the way they connect with food and farmers.

Commenter Jim at the above link reports:
This above story only reflects a single farms battle with Peak of the Market. I'm a potato producer and two years ago our farm signed a contract with a fruit and vegetable wholesaler in Montreal that supplies large red potatoes to restaurants to be used for french fries. Once Peak of the Market caught wind of this contract Peak of the Market sent inspectors to the farm yard who actually brought electronic recorders to try and capture evidence to be used against us to prevent the sale of our produce. Peak of the Market has legislation in their favor that provides them with power to control the selling of root vegetables in Manitoba, this can be and is used against potato producers. Peak promotes itself like a friendly small business but operates with market monopoly, they certainly don't have to play by the same rules every other business is faced to deal with. Making a long story short my farm had to dump 30000cwt of red potatoes as cattle feed which equals 3000000lbs of potatoes because of the battle we faced with Peak and the monopoly they have. Talk about taking a huge business opportunity away from our farm. I also know their are many similar stories from potato producers. And by the way, not all produce sold by Peak comes from Manitoba as consumers are led to believe.

I'm wrong about this, but I don't know why I'm wrong. I know that I'm wrong

Because it's never been done and
Because Tullock says there is no solution

But I don't know why I'm wrong. Maybe you can help me out.

Tullock in 1976 wrote about the Transitional Gains Trap. Suppose that the government puts in place a regulation that confers rents on a few companies. So each of those companies earns an extra $1 million per year, now and forever. The value of the new rental stream has to be capitalized into the price of the fixed asset that draws the rent. And so New York City taxicab medallions, which give their owners the right to run a vehicle as a taxicab, sell for about $750,000. The link is from the homepage of a firm that provides loans to help folks buy taxicab medallions. And in Canada's ridiculous dairy quota management system, the right to milk a cow costs about $25,000. The value of the rent gets capitalized into the asset that's in fixed supply: the permit to run the cab, the right to milk a cow, the land that's eligible for tobacco growing, and so on.

After that capitalization has taken place, the person benefiting from the rental flow is again earning only a normal rate of return on his investment. All of his gain was transitional: the rent-seeker gets a one-off increase in capital value, but no ongoing benefits. Of course, over time, ownership changes; the new owners never enjoyed the transitional gain and earn only a normal rate of return.

Tullock says that, as consequence, reform is well-neigh impossible. While the folks getting the rent are not made better off by it, getting rid of it would impose massive capital losses on them; they'll then lobby up to the expected value of the capital loss to prevent it. And, he says further that there's no way out of it.

The solution seems remarkably simple in principle; since it's not been done, I must be wrong.

For New York Taxis, the City of New York stumps up to buy out all existing medallion holders at a price equal to the average selling price in the quarter prior to folks started talking about a buy-out. They finance this rather large purchase ($750K times about 13,500 licenses = $10 billion) by a bond issue. They then put in place a specific sales tax on taxi rides that leaves the post-change price lower than the prices charged under the medallion system but nevertheless is sufficient to pay off the bond because of reduced deadweight losses and increased numbers of cab rides. The tax expires when the bonds are fully paid off.

The scheme compensates the losers from the change by a tax on the beneficiaries. In the absence of companies that exist solely to facilitate medallion sales, it would be Pareto efficient; instead, it's likely only Kaldor-Hicks. We could imagine some compensation to Medallion Financial Group, though, that would still make the whole thing Pareto.

In the Canadian dairy case, it would be much more complicated because of the way that the Canadian system runs cross-subsidies from "industrial" milk to consumer fluid milk: the tax would have to be on the portions of milk sales that currently earn a premium. Otherwise, it would be similar but would cost a lot more -- best guess, around $25 billion. 978,000 cows * $25,000 per permit.

Think about those numbers. The capitalized value of the rents conferred by the Canadian dairy system and the New York City taxicab system together amount roughly to thirty percent of New Zealand GDP. Ugh.

Ok, so why am I wrong? It looks Pareto to me. What am I missing?

Clicking the image should make it bigger. Or, run the search yourself. Red line shows Google searches for "Swayze", with a peak at "A", date of his death. Blue line shows Google searches for "Borlaug", with a peak at "B".

But hey, what's saving a billion lives compared with Red Dawn (still one of the greatest movies ever)?

In tutorial today in my public choice class, I talked about chilling effects on third party speech caused by the prior Labour government's campaign finance legislation. And Bryce Edwards now posts an exceedingly helpful essay detailing the effects. He concludes

It is beyond the scope of this chapter to ascertain the EFA’s effectiveness in achieving its stated objectives, but it is worth nothing that part of the EFA’s stated purpose was to ‘ensure that the controls on the conduct of election campaigns: (i) are effective; and (ii) are clear; and (iii) can be efficiently administered, complied with, and enforced’ (EFA 2007, s 3). Yet the experience of many participants showed that these goals were not achieved. A second major stated purpose of the EFA was to encourage participation in elections, but as this paper has shown, there is evidence to suggest that the opposite occurred in terms of the participation of third parties.

It is notable that after its election loss, the Labour Party not only voted with National in Parliament to abolish the EFA, but also later made a submission to the Ministry of Justice on electoral law that advocated that third parties should be subjected to much looser regulation during elections. In an indication of how unpopular the regulation of third parties was in 2008, Labour revised its stance to advocate that there should be no limits on third party expenditure, and that the threshold for requiring registration should be considerably higher than in 2008, with a figure of $100,000 suggested.

There is no doubt that the EFA created a much more comprehensively state-regulated campaigning environment, which consequently reduced the freedom of some individuals and organisations to participate in political discourse. Proponents of this increased regulation argued that the provision of such civil freedoms and rights needs to be balanced against other goals for the political system. The desirability of promoting political equality for voters and for preventing political corruption, for example, meant that the restrictions inherent in the EFA, such as the reduction of political freedom, were warranted. But the experience of many third parties would suggest otherwise.

Go read the whole thing - lots of details on third party campaigns.

In Manitoba, it is illegal to sell potatoes from your small garden plot at farmers' markets. Because the selling of potatoes is a monopoly awarded to Peak of the Market. And Peak of the Market will fine you $10,000 if you try it. So writes my sister at the blog for her local produce market in Winnipeg.

We were supposed to receive 2 more deliveries of those beautiful small new crop potatoes this week. That was before Peak of the Market served my farmer, and dozens like him in the province with cease and desist orders. The farmers ignored the papers served to them at first. Then Peak of the Market lawyers showed up at their doors with fines in the amount of TEN THOUSAND DOLLARS each, unless they destroyed their potato crops. Ten thousand dollars is a lot of money so my potato farmer, and his colleagues either destroyed their fields by tilling them up, or harvesting the remainder of the crop, delivering it to food banks around Manitoba.

So right you you are probably wondering what the FRICK is going on!! I'll bet that you all thought that Peak of the Market supported small Manitoba farmers, that is what is implied in their TV commercials. Here's the scoop.

Peak of the Market legally controls potato production in Manitoba. Until this year, farmers who did not grow potatoes for Peak of the Market were allowed to grow 4 acres of potatoes to sell on their own. This year Peak of the Market changed the rules as of July 15th. Now farmers are not allowed to grow potatoes to sell unless they have a Peak of the Market quota and sell only to Peak of the Market. This includes small gardeners who wish to sell at farmers markets, as well as farmers who wish to sell to independent grocery stores like mine. It is now illegal to grow and sell your own potatoes in Manitoba. Peak of the Market has the legal authority to fine farmers who break these rules, and the fines are high.

Because I still want to purchase potatoes from local small independant farmers, I will no longer be posting where our potatoes come from, and I will be telling neither my staff nor my customers the names of the farmers who produce them. This is to protect these growers from Peak of the Market legal action.

Ecraser l'infâme! Awesome stuff, Erin. Of course, go to her blog to read the whole thing.

From Agriculture Manitoba:

The marketing of all potatoes produced in Manitoba is regulated under The Manitoba Vegetable Producers’ Marketing Plan, Regulation #247/87. This regulation authorizes Peak of the Market to pass certain orders and regulations controlling the marketing of potatoes produced in the province of Manitoba. Potatoes grown under a preplant contract with a specific processor for processing crop processing on their premises are exempt from these regulations and orders. However, marketing in excess of the contracted volumes for processing (surplus) does fall under the regulations and orders of Peak of the Market. At the present time, Peak of the Market has entered into an agreement giving the processing associations (Keystone Vegetable Growers Association and the Chipping Growers Association of Manitoba the authority to act as Peak of the Market’s agent to sell surplus potatoes destined for the processing market only.

Peak of the Market is a non-profit corporation under the direction of nine members elected by registered producers. Five members are potato producers, one is a member at large and three are root crop producers. Peak of the Market operates as a central selling desk, with growers delivering produce based on a quota and delivery system. Peak of the Market also sells non quota and surplus quota potatoes on a direct price basis to markets outside the quota market area.

Peak of the Market also regulates the packaging of potatoes, with packaging being carried out by Peak of the Market and Stella Produce (1981) Ltd.

For those really keen, the Farm Products Marketing Act Manitoba Vegetable Producers Marketing Plan Regulation 117/2009 which authorizes Peak of the Market to levy fines (see section 22).

Would Wonko the Sane have set up the Asylum earlier if he'd seen Regulation 117/2009 before reading the instructions on the packet of toothpicks?

Update Aaron, in the comments at Erin's blog, provides some great context.

Basically, Peak of the Market sells and administers "quotas" for table potatoes within Manitoba. When this board was created 30ish years ago quotas were fairly cheap, but now they have become very pricey, and it prevents most farmers from selling their potatoes as table potatoes. Apparently the board is suppossed to be "elected", but only those that already HAVE quotas can vote. This basically stifles any kind of opposition. Besides, removal of the board could only happen if over %75 of the 5-9 person board voted to abolish the organization....

Again, read the whole thing.

Update 2 CTV news reports here.

Update 3 Aaron, above, retracts his comment. Either the comment was true and the farmers he quoted were getting in trouble for it, or he was trying to jerk folks around. The tone of the comment surely didn't sound like the latter explanation holds.

Andrew Leigh on the economics of prostitution
First, some basic facts. According to recent work by the Australian Institute of Family Studies, there are around 20,000 prostitutes working in Australia at any given time, suggesting that Australia has around twice as many prostitutes as dentists.

David Hakes and Bruce Benson on mathematics and economics at Econ Journal Watch

Andrew Leigh and Josh Gans versus Andrew Norton on measuring media slant in Australia.

Leigh and Gans bring Groseclose and Milyo's method to Oz, but use public intellectuals rather than think tanks due to the paucity of the latter. Recall that the original Groseclose and Milyo method didn't benchmark to partisanship but rather to ideology: the US has ADA scores for representatives, so each representative is rank-ordered from liberal to conservative and an imputed ideological score is then given to each think tank. Robustness checks in Leigh and Gans include expert coding of front-page newspaper articles, both political and overall, and coding of newspaper editorials.

Norton says the ranking of intellectuals lacks face validity: that their left-right positions don't correspond to casual observation; moreover, public intellectuals tend to be ideological rather than party partisan so the method may not work.

I certainly don't know enough about Australian public intellectuals to know whether there's a lack of face validity in Leigh and Gans's ordering, nor do I know whether the public intellectuals tend to be party hacks or ideological hacks. But I'm pretty sure that Groseclose and Milyo were able to drop negative or reverse mentions from their analysis (things like a National MP saying, "Even Brian Easton agrees with X", for example) while Leigh and Gans weren't able to given their initial dataset. On first thought, so long as both sides tend to do this with equal frequency, it might just add noise to their estimates rather than much bias. On the other hand, I can imagine those reverse mentions happening a lot more for the tails of the distribution, which would greatly narrow the measured range of public intellectuals' opinions and could lead to a centrist-bias in the results. Leigh and Gans say that folks don't much cite public intellectuals for the purpose of bashing them (a truly negative mention), but I can imagine a fair number of the "Even prominent Labour supporter X agrees..." mentions. In the end, their robustness checks mostly give them the same answers: most papers are largely centrist in Australia - so I'm less worried.

One thing that they can't control for over their period is whether slight evidence of slant in favour of the Coalition government reflected incumbency bias or pro-Coalition sentiment. Presumably they'll be able to test for that in a replication after the next election.

Cool that Leigh and Gans have taken this on. I've told my classes that a New Zealand replication of Groseclose and Milyo is likely impossible given:

Party line voting makes ADA scores impossible, so we can't benchmark against median voter ideology.
A paucity of think tanks makes the mapping impossible.

Folks could argue that media concentration in New Zealand makes it tougher, but even if Fairfax owns a lot of outlets, partisan or ideological market segmentation could well be profit-maximizing, so I tended not to worry so much about that one.

Measuring partisan slant rather than ideological slant seems possible using Gans and Leigh's method. Congrats guys.

A month ago, I said

Now, it could be the case that some property investors who improve and resell properties quickly are able to disguise normal income as capital gains by this mechanism, but I'd be surprised if the efficient solution were a broad capital gains tax rather than IRD just watching things a bit more closely.

From the National Business Review, we find that Reserve Bank Governor Bollard agrees.

“We’re particularly interested in the prospect of seeing a flattening of the tax incentive structure around housing investment.

“It seems to me the most obvious part of that would be around taxation on people who intend to flick on investor housing.”

And, asked by Mr Cunliffe whether he believed the current tax system favours of property investment, Dr Bollard drew a big breath and said, “the short answer is yes.”

That though is somewhat short of calling for anything, let along a capital gains tax. As Dr Bollard well knows there are existing provisions in the income Tax Act which allow the Commissioner for Inland Revenue to treat the gains on the sale of property by people who are consistently buying and selling properties as income.

What it boils down to is determining those people are buying and selling property so frequently they are essentially traders, and any capital gain is treated as part of their income.

There is no need for a capital gains tax to remove purported distortions in the housing market. I can imagine a case for a move from an income tax to a land tax as efficiency-augmenting, but I have a hard time believing that such a move would be an equilibrium.

I'd previously noted a game reviewer's discovery of the socialist calculation problem in Dawn of Discovery. Loyal reader Max Marty bought the game and emails the following:

I've always been a fan of city-building sims so when I read your post on the "Dawn of Discovery" game I decided to go try it for myself.

So you might find this interesting, the game rates the size of your city on I think it was a 5 point scale or such, from a tiny borough to a metropolis. The problems don't start showing up till somewhere around stars 2-3, at which point the issues behind the socialist calculation debate start becoming evident. And the worst part is that if you have an accident happen, which could include a fire or forgetting to check your storeroom for the 30 different goods you must keep stocked at all times, it will lead to a cascading effect that can destroy the entire province. Towards the end of the game I even downloaded a special program that ran in the background which could grant me all sorts of resources (infinite money, different kinds of goods), and I was still spending nearly all my time using the cheat program just to stay alive and maintain the status quo (The bailouts always required more bailouts!).

Anyway! I thought you might be interested in reading up on a new one that seems to be coming out in October. Its called "Cities XL", its billed as a "social-networking online city building experience", or some such business. The screenshots look amazing, and from what I've read, its going to be a fantastic game - but it doesn't seem like its going to involve spontaneous order of any sort. Though apparently folks can trade across their cities between on the social-network, so the "agent" level here may be the city itself and Hayek may get some screen-time after all.

Cool findings on Dawn of Discovery. No way I'm going to try Cities XL though: a version of SimCity that's full time social play? Too perilous.

Norman Borlaug dies at age 95. An environmentalist and humanitarian who won the Nobel Peace Prize back when it meant something. Reason's 2000 interview with him remains the best summary of his work. Obit at Reuters. Other blog roundups: BK Drinkwater, Radley Balko; Update: NotPC has a better compilation of obits and write-ups than I have.

Anti-immigrant stupidity in New Zealand. HT: LibScott

Andrew Coyne over at Canada's National Post occasionally lauds the merits of PR systems, sometimes making note of NZ's MMP system. Turns out the Kiwis don't much like it anyway. Or, rather, as many folks like it as don't. Which I suppose isn't a bad result for MMP, given that folks can choose whatever their preferred system is for the "not" option. It's still hardly overwhelming support though. Rather, it's a strong meh.

The last word anyone would use to describe Tyler Cowen is shrill. He's often the first to dampen libertarian worries about some new egregious piece of legislation, showing that it probably won't have large effects; he's also often the first to bring in political second best arguments about overall social stability as counterarguments against free-marketers' preferred policy moves.

And so when I read him saying this, I get nervous

FOR years now, many businesses and individuals in the United States have been relying on the power of government, rather than competition in the marketplace, to increase their wealth. This is politicization of the economy. It made the financial crisis much worse, and the trend is accelerating.
...
Even worse, these political deals threaten open discourse. The dealmaking may be inhibiting some people in health care from speaking out in opposition to the administration’s proposals. Robert Reich, who served as secretary of labor in the Clinton administration, deserves credit for complaining about this arrangement, but not enough people are asking where such dealmaking might stop.

The banking sector has been facing similar constraints; if bankers criticize the Treasury or the Fed, they risk losing their gilded cages and could get a bad deal when the next bailout comes. When major economic sectors can be influenced in this way, are we really very far from the nightmare depicted by Ayn Rand in “Atlas Shrugged”?

It's later than I'd thought....

John Cochrane on that Krugman article. Reminds me of the very nice open letter from Rogoff to Stiglitz in 2002. HT: Mankiw

Frank Furedi on experts. HT: ALDaily

Marginal Revolution points us to a new biscuit harm index calculated for the UK. Turns out that many Brits injure themselves while eating biscuits. If their biscuits are as hard, rough, and prone to tongue-laceration as the Kiwi ANZAC biscuit, I can understand.

Perhaps BERL could use this data to produce a biscuit harm index showing the social costs that could be avoided if only biscuits didn't exist. Then the New Zealand Police could release stats showing the social harms that they have prevented through biscuit-eradication activities.

So to counter yesterday's post, here's one for the other side: the ANZAC biscuit, which best ought be classed as a munition. Only a people who find the itch of woolly sweaters either comforting or a more practical alternative to the cilice could appreciate this weapons-grade cookie.

Luke Malpass at CIS argues that the government should realize its losses and sell off KiwiRail: privatisation and immediate culling of unprofitable lines makes more sense than continued stagnation. He's right.

Grocery line optimisation algorithms. I'm glad to see that I'm not the only person in the world trying to run these models in his head while standing in line. Long story short: ballpark 50 seconds per person ahead of you with fewer than 3 items and add in an additional 3 seconds per item beyond that. Of course, adjust for the usual confounds like chatty or trainee clerks or elderly folks in the queue. In NZ, add in 10 second fixed cost per person in line with alcohol so the clerk can get a manager's check on age. HT: Marginal Revolution

Another for the list: when some nutjob firebombs the Prime Minister's electorate office, the police probe it as a normal arson attack. No terror alert level to raise from hysteria to hyper-hysteria, no machine-gun humvees flitting around.

John Key's National Government, elected partially due to public annoyance at Labour's "nanny state" initiatives, is talking about lowering the drink driving limit from 0.08 to 0.05.

David Farrar rightly asks, given that the vast bulk of drunk drivers killed in car crashes had well over 0.08, would the reduction in deaths among folks in the 0.05-0.08 range be worth the cost in terms of reduced enjoyment of nights out.

I've heard rebuttals of this question pointing out that most drivers who have wine with dinner are in fact under the 0.05 limit anyway and so would not be affected. This seems a nonsense though. It's difficult to know with certainty what your blood alcohol level is after any given quantity of beer or wine, so sensible folks who weigh heavily the costs of being caught over the limit will target a level sufficiently below 0.08 that they will not err and be over the limit. The wider the confidence interval around your point estimate, the lower will be your targeted level to avoid the risk of erring on the upside.

So, if the limit is dropped from 0.08 to 0.05 and most folks currently target somewhere around 0.04, their drinking, and their enjoyment of a night out, will drop considerably even though the dropped limit remains theoretically unbinding. And the folks who are happy to be caught for the 10th time driving on a suspended license at four times the legal limit will continue to ignore the limit.

Isn't it better to have a sensible limit with heavy punishment rather than a low limit that cannot have a punishment sufficient to deter the really dangerous folks? With a limit at 0.08, really dangerous anti-social deviants like this guy can have the book thrown at them; with a limit at 0.05, there would be no support for heavy punishment because the net is cast too wide.

Seamus has shown that there's pent-up demand out there for global warming posts - I'm massively impressed with the quality of our commentariat, by the way - so here's a bit of fun. Bjorn Lomborg has commissioned a new expert panel. Even though tackling warming came very low on his prior panel's list of things worth doing (relative to spending money on malaria alleviation, for example), his new panel is charged with finding the best way of spending $250 billion targeted at climate change. High on the list: climate engineering proposals, research, and adaptation. Low on the list: carbon taxes. Even lower on the list: carbon trading regimes.

Unfortunately for Seamus, methane mitigation makes their top ten - partially because of its short lifespan. Decreases in methane output strongly reduce steady state methane levels in the atmosphere. They focus on science fixes rather than culling the herd.

HT: National Post

I was disappointed to see a dearth of eulogies praising Ted Kennedy's laudable work in helping to push through airline deregulation in the US under Carter.

Today's National Post tells me something I didn't know before: intercity buses in Canada are under the same kind of ridiculous regulatory regime that stifled the US airline industry pre-deregulation. In short, dominant carriers get protected access to more profitable routes coupled with mandated service on loss-making routes. So folks busing between big cities cross-subsidize folks going from Winnipeg to Manitoba's far north. And now Greyhound has pulled out of the entire deal as the package was no longer profitable.

Ugh. If there's some compelling social interest in providing subsidized busing to remote areas, the government would do much better by simply paying a per-ticket subsidy to any operator running the route and allowing free entry into service provision on all routes. It's hard to see why it makes more sense to force relatively poor folks taking the bus from Winnipeg to Calgary to foot the bill for the even poorer folks taking the bus from Winnipeg to Terrace Bay than for the subsidy to come from the general tax take. The deadweight losses from cartelization of the main routes have to be large.

It's also thoroughly unclear why mucking about in prices is preferable to just using the second welfare theorem: charge market prices for everything but give poor people more money and let them decide whether to live in the middle of nowhere or not. But that's perhaps a bigger policy shift than Canada would be comfortable with. At minimum they ought to shift from route cross-subsidisation to direct subsidisation of otherwise underserviced routes.

Even Ted Kennedy knew that the cross-subsidisation system was a nonsense (though it helped that he was from Boston, one of the bigger providers of cross-subsidies to other places). Perhaps Canada will catch on someday too.

My Bleg from last week has generated two different possibilities for why we should be taxing methane emissions from cows. BK Drinkwater and John Small (who have both weighed in with their own posts here and here, respectively) have posited the fertiliser theory: If the fertiliser used on the land grazed by cows contains carbon taken from the earth, then the methane emissions from a steady-state stock of cows will produce a continued increase in the stock of GHGs in the atmosphere (measured in CO2 equivalents).

John suggests that the source of the net carbon would be urea, although it is not clear from a quick reading of the Wikipedia article on it if the CO2 used to create the urea is a net addition of has already been created as a by-product of existing processes. In any event, as John points out, the policy implication would be to tax the use of urea.

The other possibility, suggested by PaulL in the comments is that the concern about methane is that the stock of GHGs in the atmosphere affects the flow of temperature increases, at least until temperature catches up. Paul suggests that this provides a reason for taxing a one-off increase in methane levels every year for a century.

The trouble with this line of reasoning, as I see it, is that the same argument would apply in spades to on-going emissions. That is, if methane is twenty times as powerful a GHG as CO2 for the same amount of carbon, my logic suggests that the tax on methane emissions that are part of a natural cycle (assuming no net additions from fertiliser) should be way less than 20 times the tax on CO2 emissions.

The American airline industry has such a perfect record of happy customers with no delays or crushed guitars that there's absolutely no need for foreign carriers to be able to fly between American cities. Consequently, cabotage is forbidden. There is no need for competition from foreign carriers and so it must be banned.

Moreover, it is so supremely important that American carriers be protected from foreign competition that the Obama administration has wisely decided that it is better to risk ruining the NHL season than to allow Canadian teams on charter flights to fly between American cities.

In a furious exchange with the Obama administration over the mid-August ruling, Canada has launched its own investigation and will soon close its skies to U.S. sports team charters in retaliation, warns Transport Minister John Baird.

The sticking point is an eight-year-old exemption that had allowed sports and celebrity charters to make several pit stops in American cities. Under existing open skies agreements, regular Canadian airline flights can only visit one U.S. city before returning.

NHL Deputy Commissioner Bill Daly warns the charter ban will create a complicated "patchwork" of travel that could "wreck havoc" with the oncoming hockey schedule, including early league games in Europe, as teams scramble to book flights under the new rules.

This is for the best under this, the best of all possible Administrations with the best of all possible Presidents.

Growth measures always understate welfare gains when new products are of superior quality; quantifying the gains from categories of goods previously unavailable is even tougher. One example: the introduction of sugar, tea and coffee into Britain in the 1600s-1700s.

Using historical data on prices and quantities for these “new luxuries”, we estimate their value to consumers. It turns out to have been very large. By 1850, English consumers were better off by 15-20% as a result of new goods. The Age of Discoveries boosted peoples’ well-being – not by changing the quantities or prices of goods that Europeans already knew in 1500, but by expanding the range of goods that consumers could buy.

Comparing these gains to more recent new goods, we find that – from a welfare perspective – sugar, tea, and coffee mattered more back then than did the recent introduction of the internet, computers, satellite television, and mobile phones combined.

They find that sugar, coffee and tea went from 0% of household budgets ('cause they weren't available) to 7.2% of household budgets, with rich and poor alike enjoying the benefits of increased product diversity. Their results suggest Greg Clark's work understates true increases in real incomes over the period.

Call me a cornucopiaist if you like, but life just keeps getting better. Or, as Don Boudreaux asks, would you rather live in 1960 with 2009's median income, or in 2009 with 1960's median income? Pick up an old catalog from the 60s and figure out what you'd be missing....

Update: Paul Walker also likes this one.

George Thompson, one of the usual suspects at Otago at Wellington's Public Health department, warns that his preferred nanny state interventions are increasingly being accurately labelled as nanny state.
“There’s a need to reframe public health activity as stewardship that protects people. Governments are expected to balance the public good against the interests of big business, and to care for the vulnerable in society. We need to create the language to reflect this, which looks behind slogans and the stereotyping of opposition to unhealthy products.”

Dr Thomson said there’s a need to reframe and analyse businesses that inflict health damage to people, as leeches on society.
What a world view. Leeches? Liberty Scott rightly takes him to task. I wonder whether folks at his outfit are getting worried about the cushy government contracts drying up with the change in government.

Brad Taylor points to an excellent DeSoto video (the economist, not the car)

Tetris made me smarter

Guarding against date-bots: a truly excellent XKCD

I've previously complained that nobody else seems to have noticed that Auckland's amalgamation will reduce Tiebout competition. I hadn't seen Sir Roger Douglas's submission.

On the community level, Councils should be designed to allow greater choice and competition between Community Councils, as well as providing for greater community control over expenditure.

Mechanisms that allow individuals to opt out of certain Council functions, and groups of individuals to switch Community Council, create a new Community Council, or amalgamate with an adjacent Community Council will foster greater competition between Councils. Such competition will allow more diversity and experimentation within Local Government.
...
Only when Government bodies are held responsible for setting and collecting rates and expenditure will there be adequate checks on their capacity to spend. The rates set by Community Councils could be collected on their behalf by the Greater Regional Council, but it is most important that the resident knows which portion of rates goes to the Community Council and which portion goes to the Greater Regional Council.

While the Government’s position on Community Councils – a position which departs from the Royal Commission’s absurd proposal to have only six local Councils beneath the regional authority – is generally sound, it is also important that Community Councils are held accountable for what they spend. This will only occur if they raise their own revenue.

...a group of citizens adjacent to another Community Council should be able to opt-out of their current Council, joining the neighbouring Council, if they think their mode of service delivery is more suitable to their wishes. The capacity to change Council will create competition for ratepayers, which is likely to see value for money being delivered by Local Government. Although this choice would only be able to be used by those at the edges, the capacity for others to change providers drives efficiency and therefore benefits all ratepayers.

Lots of other great suggestions in there, like having line-item council tax bills and allowing residents to opt out of certain items in favour of private providers. Hope the Local Government Minister was paying attention.

From "Politics and Meddlesome Preferences", in volume 13 of the Collected Works of James Buchanan:

Consider the following politically orchestrated regulations:
Prohibition on private leaf burning.
Prohibition of the possession of handguns.
Prohibition of the sale or use of alcoholic beverages.
Prohibition of smoking in public places or places of business.
Prohibition on driving or riding in an automobile without fastening seat belts.
Prohibition on driving or riding on a motorcycle without wearing crash helmets.
...It seems quite possible that at least in some political jurisdictions a majority of voters might be found to support each and every one of the six activities listed. As noted earlier, however, the critical weakness in ordinary majoritarian procedures is that the intensities of preference are not taken into account. [So long as each supporter of each regulation values the regulation weakly but feels strongly the pains on the one dimension he opposes, then] The political process may well work so as to make each and every person in the relevant community worse off with enactment and enforcement of all of the prohibitions listed than he or she would be if none of the prohibitions were enacted.

My worry is there's a well-funded and vocal minority preferring prohibition across all margins in addition to folks' weak preferences.

...These prohibitions and regulations, existing or proposed, may be based on "scientific grounds." These critics might allege that leaf burning releases dangerous elements in the atmosphere; that handguns kill people; that alcohol is addictive and a causal factor in disease; that smoking is dangerous to health; and that seat belts and crash helmets save lives.

These arguments are highly deceiving in that they attempt to introduce, under the varying guises of "science," an objective value standard, one that "should" be imposed on all persons. Strictly interpreted, of course, almost any activity each of us undertakes is, in some way or another, a possible risk to our health. Once this is recognized, the question is one of drawing lines, and there is no well-defined set of activities that fall into one category or other.

Towards a Sumptuary Constutitution

We have been caught up in a wave of politicization for several decades. As a result, the set of activities that have been subjected to governmental-bureaucratic prohibition, regulation, and control has been expanded dramatically. Once politics was discovered as the apparent low-cost means of imposing preferences on behavior, a Pandora's box was opened that shows no signs of closing itself.

In these as in other aspects of the relationship between the citizens and the government, the dangers of excessive politicization cannot be avoided merely by a change in the makeup of political parties or by a change of politicians. In democracy, politicians respond to the electorates, and electoral majorities may, in a piecemeal fashion, close off one liberty after another. Prediction of such a prospect suggests that genuine reform can come only by constitutional rules that will prevent ordinary democratic majorities, in the electorates or in legislative assemblies, from entering too readily into the sumptuary areas of activities. Until and unless we recognize that politics, too, must operate within constitutional limits, each of our liberties, whether valued highly or slightly, is up for grabs.

Smart guy, Buchanan. Nobel in Economics 1986. Follow-up questions for my Econ 336 and 653 students:

Why would logrolling not ensure the satisfaction of mean rather than median voter preferences across all issues?
To what extent does the existence of fiscal externalities through the public health system affect the problem?
While majoritarian democracy may have this problem, under what conditions might we expect a free-market anarchy of the type discussed by Caplan and Stringham to exhibit similar problems with meddlesome preferences?

A new Mercatus Center primer on sin taxes points me back to an excellent volume handily available on my shelf: William Shughart's edited book "Taxing Choice". Excerpts are available from Google Books; whole volume from the Independent Institute.

Richard Wagner's chapter on alcohol and social costs is particularly nice. Important points made there:

Costs of lost production are internal, not external
Citing Alan Woodfield's 1986 study, abolition of alcohol abuse would hardly turn alcoholics into people otherwise indistinguishable from the general population
In a system of private health insurance, health costs also are internal; if insurance companies do not find it worthwhile to adjust premia to reflect additional risks from alcohol use, then there's an externality on other insurance purchasers but not one that can be meliorated at any cost less than the benefit
It's important to worry about the difference between alcohol being a contributing factor to crime or car crashes and alcohol being a critical factor
Excise taxes punish moderate drinkers; fines and jail sentences for actually causing social harms is first best and excise taxation should only be considered if it's very very difficult to punish criminals
Moreover, in the presence of a set of efficient penal sanctions, there is no place for corrective taxation. The penal sanctions achieve a cost-effective reduction of drunk driving, or at least have that capability. There is no scope for the taxation of alcoholic beverages to improve matters. In the presence of penal sanctions, excise taxes cannot serve as instruments of correction, but can only serve as instruments for raising revenue. To be sure, it might be argued that existing penal sanctions are not strong enough to achieve efficient deterrence. This argument, however, is a plea for stiffer sanctions, not a call for higher taxation.

How did I forget about this book? Another highlight: Tom DiLorenzo's chapter on the use of collected excise taxes to fund politically-correct propaganda. And Shughart's chapter worries about these reports being cloaked in the language of economics. I may have been reinventing the wheel with much of I've been doing here, but the folks on the other side have been advocating the use of square tyres despite the superiority of round ones having been shown now more than a decade ago.

I'm going to have to some time replace one week of my current policy issues class with a week on the economics of paternalism....

Does any faithful reader of Offsetting Behvaiour know enough physics to answer a question for me? I don't understand why NZ should be trying to reduce its methane emissions from cows as part of an anti-global-warming strategy.

This post is not about whether global warming is real and man-made, whether the benefits of reduced carbon emissions outweigh the benefits, or what role a small country like New Zealand should take as part of a global strategy. It is simply about the science of methane.

I am puzzled about why we should worry about methane emissions, given that they result from a circular process whereby carbon in grass is converted into methane by cows, but then carbon is reabsorbed from the atmosphere to re-grow the grass.

I understand that methane is considered to be twenty-times more potent than carbon dioxide as a greenhouse gas. (A nice primer on the science of this is here: HT Marginal Revolution.)

But I also have read that methane quickly oxides into carbon dioxide, with a half-life of only seven years. Yes, increasing our number of cows would increase the steady-state levels of methane in the atmosphere, but once our cow numbers are in steady state, won't the on-going net flow of greenhouse gas emission from that stock of cows be zero?

Leeson and Pirates in the New Yorker (HT: Marginal Revolution)

Alex Tabarrok's theory on why Latvian women are beautiful. Note the position of New Zealand on the chart!

New Zealand's property market recovers

Ezra Levant will be pleased: Canada's Supreme Court strikes down hate speech law (or at least the penalty provisions) as contrary to the Charter of Rights and Freedoms. Readers unfamiliar with Levant's battles with Canada's speech censors really ought to read his blog or pick up his book.

And peak oil keeps moving farther off into the distance. HT: Hickey.

Kiwiblog a few days ago pointed to a very nice British study looking at how much the Brit government spends on lobbying itself: funding advocacy groups or research reports whose main function is to "independently" demand that the government do something that the government would very much like to do anyways but needs to be seen to be being pushed to do. So where things like fat taxes would be opposed if they were proposed by the government, if they're proposed in an "independent" study the government can always say:

But look, this "independent" sciency research report says that we'll save billions of dollars and millions of lives! Unless you want to waste a month of your life digging through the report, unpaid, to show how it's wrong, just accept its conclusions! It's sciency! And sciency is almost as good as science!

And so yesterday's Christchurch Press and the New Zealand Herald report on work commissioned by the prior Labour government undertaken by, you guessed it, one of the usual suspects in the Department of Public Health at the University of Otago at Wellington's School of Medicine, showing the benefits of subsidizing healthy food options.

Lindsay Mitchell and Bernard Darnton have already nicely discussed the proposal. I won't be fisking this new O'Dea report, but I had gone through the prior O'Dea report on tobacco taxation here (ungated version here).

If Treasury ever pulls its thumb out and stops the Ministry of Health from commissioning reports the sole purpose of which is to lobby government, one wonders how BERL and the Wellington School of Medicine will earn their keep. Somebody ought to run a New Zealand replication of the UK Taxpayers' Alliance report linked-to above.

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