Monday, January 31, 2011

Ok, who hit the stupid button this morning?

Front page of today's Christchurch Press urges the adoption of warning and nutritional labels on foods:
A warning that alcohol is bad for you will appear on glitzy liquor and wine labels if proposals for trans-Tasman food labelling laws are adopted.

An alcohol warning is one of many proposals made by an independent panel, commissioned by the Australia and New Zealand Food Regulation Ministerial Council.

The panel also recommends fast-food outlets highlight the calorie counts of their burgers, chips and other foods.
The Press then goes to the usual suspects for comment about how critically important this move is. Except that we already know it doesn't work. People do not change behaviour when they read the calorie counts on fast food. Some eat more, having previously figured fast food had to be really really full of calories and being informed that the calorie count isn't as high as they'd previously thought. Evidence is accumulating.
Canterbury Community and Public Health nutritionist Janne Pasco said people would be "astounded" to see the calorie content of fast food.
Yup - it's not as bad as you'd thought, so have more.

Lion Nathan, one of the two big NZ breweries, has moved defensively:
In response to the report, brewer Lion Nathan promised to "voluntarily adopt consumer health messages that support responsible drinking choices, including during pregnancy".
The real killer though would be if they forced calorie counts on beer. That's a reasonable fixed cost. Lots of the smaller brewers here do unique one-offs that might well not be economical if they had to submit all their brews to nutritional analysis. And that's the Commission's Recommendation 26. NZ's craft brewers might want to keep an eye on this one. How much does it add to the cost of your new seasonal brew to have to submit a sample to the lab at time of bottling, wait on results, print up new labels with the calorie count, then label before shipping? This pushes brewers to having a set stable of beers rather than interesting and changing portfolios.

Any chance the brewers will be allowed to note the health benefits of moderate drinking on their bottles while putting on the official warnings?

The Commission also recommends mandatory GE labelling - tough call when there's easy potential for unintentional presence. Who bears the lab costs? Doesn't it make more sense to run certification for those wanting to advertise as GE-free for folks with strong preferences? It's not like non-organic foods have to advertise the pesticides that have been used.

Item the second. Wellington taxi companies try on having the City Council cartelize them, and Council seems interested. Fortunately, they may not have the power to do it directly. Here's the Dom:
There are too many taxis in Wellington and it is time to put a limit on them, the mayor says.

The taxi industry agrees and has called on the Government to introduce legislation to cap or reduce numbers in the city.

Celia Wade-Brown believes part of the problem stems from "overqualified" immigrants being funded by Work and Income into an industry that has hit saturation point.

"There seem to be too many for the city and they aren't getting a good living wage in some cases."

The New Zealand Transport Agency issues taxi licences, but legislation that deregulated the industry in 1989 does not allow the agency to set limits.

There are 1237 taxis licensed for Wellington City. About 400 were on the road before deregulation. This tripling of taxis in the past 20 years has led to overcrowded taxi stands and dubious parking practices as drivers clamour for business, especially in the late-night Courtenay Place party zone.
Mr Tyler [Taxi Federation Wellington branch secretary and rent-seeker] said the only solution he could think of for Wellington's taxi congestion woes would be for the Government to introduce legislation to cap the number of taxis at current levels.

"It would mean they [NZTA] couldn't issue any more licences in Wellington until it could be demonstrated that there is a need for it."

A less palatable option would be to return to full government regulation, which would pre-set cab numbers.

"Then they would have to reintroduce fare fixing. If you are going to limit the supply, then you have to control the costs as well."
Fortunately, it seems illegal for NZTA to set quantity restrictions. But you can have similar results by ramping up compliance costs, like they did last year with mandatory cameras. If any other industry made a bunch of claims that amount to "Please help turn us into a cartel", would NZ journalists take it at face value?

Saturday, January 29, 2011

State versus Private Ownership

John Key's proposed running in 2011 on partial privatization of state owned assets.

The response from both sides has been pretty disappointing.

On the one side, besides the usual knee-jerk opposition to any kind of privatization and fearmongering about that foreigners might buy shares, there's the claim that we lose money by selling an asset that currently pays the government a dividend higher than the government's net borrowing costs. So if some SOE pays a 7% dividend to the government and the government's cost of borrowing is 5%, they reckon it makes more sense to keep the asset and to borrow money to cover shortfalls.

Forget SOEs for the moment. If any firm is providing a rate of return that seems to consistently be beating the market, we'd expect the stock price to rise until the rate of return falls into line with market norms, right? And if that doesn't happen, it's probably because there's something a bit nasty hiding in the risk profile. Now think about the SOEs. If they're earning a high return, it's either because their valuation is out of whack or because there's some risk. In the former case, the government can do well through an IPO - they'll get more for it than they thought it was worth. If instead it's just that the assets are risky, looking at the gap between funding costs and rate of return misses something a bit important.

Now, a reasonable counterargument is that the stock market rate of return is higher than the government's borrowing costs in general, so the asset price won't be bid up sufficiently to make the difference. But note two big problems. Sovereign debt from reasonable countries is safer than most stock market investments: the market index has to pay investors for the additional risk they take on. So selling a very safe asset (a bond) at a low interest rate while buying a riskier one (keeping an SOE) isn't a "Hey! Free Money!" deal. If it were, we'd also have proven that the government should borrow heavily on the international markets and buy up shares on the NZX. Most of us don't think that would work. So why do we think there's anything particularly special about the government's current set of asset holdings? If the argument for keeping Solid Energy in government hands is that the government's rate of return on coal investments is higher than its borrowing charges, then the government should also buy up any other firm providing a high enough expected return.

On the other side, folks largely overestimate the benefits of partial privatization. Sure, having shares trade on NZX is nice, but the government maintains a 51% share. There's no potential for an external shareholder to force changes in management if things are run inefficiently. We get some extra discipline from constant daily signals of what the market is saying about the firm's performance via the stock price, and if the share price plummeted, the Minister might want to have a chat with the CEO.

AntiDismal and Roger Kerr pointed out the limitations of partial privatization. Kerr worries that political incentives continue to be given too strong of weight in a partially privatized firm. Imagine for the moment that some town owned most of the local port company through a holdings company and that lots of retirees had put their money into this safe utility. At the margin, Council might prefer that money be paid as dividends to help keep local body rates down and to keep local retirees happy. Both make Council more likely to be re-elected. Problems stemming from deferred maintenance - those don't show up 'till somebody else is the mayor, and might be covered by insurance if there's a handy earthquake. Some folks arguing for partial privatization have pushed for restrictions on international share purchasing: the greater the requirements for local ownership, the more SOEs start looking like the stories about this hypothetical port and town.

I worry too that partial government ownership makes bailouts or other government support more likely. Socialisation of downside risk and privatisation of returns isn't a particularly good model, but incentives under partial privatisation lean that way at the margin.

Partial privatization seems unlikely to be worse than the status quo - it just seems insufficiently better to be worth the hassle. If Key's going to take flack for any use of the P-word, it would have been nice if he'd have gone just a bit farther with it. Here's a model I think could have worked well. Issue just over eight million shares in, say, Solid Energy. Just under half get sold via a float on the NZX. The rest are distributed, one each, to the just over four million New Zealanders. The SOEs get the benefits of full privatization. If "we" own the SOEs through the government, why not just hand us each a share and stop having the government as intermediary? The only plausible argument is that certain social goals are better advanced through state ownership than regulation. That's potentially plausible in regulation of natural monopolies, but we'd still need that the losses on the social side outweigh the usual benefits of private over state ownership. And while you could make that argument for the lines companies, you'd have a harder time doing it for a coal company

Andrei Shleifer noted the conditions under which we prefer state to private ownership. It makes little sense that we're privatizing our prisons before things like property valuation, red meat inspection services, or a coal mining company.

Friday, January 28, 2011

An anti-drinking campaign I can endorse

We know that the risk of death is lower for moderate drinkers. Folks consuming about a drink per day have only 85% of the mortality risk of non-drinkers, correcting for all the confounds.

The New Zealand Drug Foundation is encouraging politicians to sign up for its FebFast fundraiser, where folks pledge funds and commit not to drink for a month. The money goes to charity. The increased mortality risk goes to politicians, though those who otherwise were drinking more than 4-5 drinks per day would see a net reduction in mortality risk. Sounds like a pretty good deal.

Since the real lushes in Parliament are least likely to sign up for this kind of thing, it's an initiative that I can endorse. In fact, there are a few that I'd even consider helping to sponsor. Please take it as a complement if I turn you down if you ask me for sponsorship: it's for your health. I can't think of more than a couple of MPs that I'd refuse. I'd also refuse Winston, but only because I think he might pocket the money, renege on the deal, then threaten defamation suits against any media outlets showing pictures of him having a drink during February.

*Please do not take this as my being serious about wishing harm or increased risk of all-source mortality on any politicians in New Zealand or elsewhere, especially if such thoughts could be held against me.

Caldwell vs Farrant: Round Two

What does "planning" really mean? The latest issue of Challenge has Caldwell again battling with Andrew Farrant and Ed McPhail over whether Hayek intended his argument in Road to Serfdom to apply only to planning in the Soviet/Nazi sense [Caldwell] or to planning as practiced by the Attlee government in Britain [Farrant/McPhail].

Let's recall first the context of the debate. Farrant initially argued that the Road to Serfdom was wrong and insulting: for the mechanism to work, would-be planners in England would have had to have preferred totalitarianism to liberalism. Otherwise, they would have retreated from planning before the Rise of the Demagogue. Further, since none of the European welfare states that started on the road to planning wound up at Serfdom, Hayek was wrong.

When Glen Beck started selling Hayek as a tome for our times against Obama, Farrant & McPhail wrote a piece arguing that Beck's interpretation of Hayek was correct but that Hayek was wrong.

Bruce Caldwell, probably the world's leading Hayek scholar, has replied. He notes the differences between Hayek's critique of the welfare state and his critique of planning and says Farrant & McPhail conflate the two. Hayek said that welfareism would kill liberty through many small cuts intended to patch up the flaws of the welfare system; planning would lead more quickly to jackboots.

Farrant & McPhail argue that Hayek intended his critique to apply to planning in Britain at the time of writing, and that "planning" in Britian at the time referred to the mix of interventionism, planning and welfarism.

Farrant points to a somewhat obscure 1945 Hayek article, "Genius for Compromise", written in response to a Harold Nicholson piece arguing that one can stop on the road to serfdom. Hayek's response there makes very clear that Hayek had in mind the partial planning undertaken under Attlee:
Signs are not wanting that some of those who are largely responsible for the present craze for planning are beginning to be uneasy about the forces they have loosened, and to feel a little like the sorcerer's apprentice who cannot lay the ghosts he has raised. Once prices or incomes are guaranteed to some producers, there is little ground left for refusing the same to any others. If the supply of pig iron or coal cannot be left to the unregulated forces of competition there is no reason why that of tobacco should. If you argue for a particular purpose that "individuals have no machinery for limiting imports to the level of exports" you must not be surprised if your disciples insist that the government should individually match each item of imports with a corresponding item of exports. And if you generally denounce the "humbug of finance" you must not expect the people to respect the particular piece of financial machinery of your own design.
Our planners are likely to be equally mistaken when they think they can stop the movement long before any of the horrors are reached which most of the more sensible among them admit that a completely planned society would involve. It takes a long time before such a tendency can be stopped, once the intellectual forces driving it on have got well under way. What I am pleading for is that it is time to stop and reflect if the momentum of the movement is not to produce very unpleasant results.
All three of Farrant, McPhail, and Caldwell know far more about the Hayek literature than I do. My assessment is that Hayek meant Road to Serfdom to apply to Britain in 1945. The planning he then referred to was mostly industrial policy and nationalization. If Beck and Limbaugh hold up American nationalization of car companies as setting us on the road to serfdom, they're not out of line with what Hayek was saying. And while Hayek's mechanism for the welfare state differs a bit from that in RTS, I don't think it would be wrong to say that Hayek's mechanism there leads us to the kind of planning that's consistent with the RTS mechanism: maybe it's the driveway that leads to the Road.

Do hit the Hayek tag below for the previous posts in this series. While I think the mechanism in RTS is wrong, I'm a fan of Hayek overall. The Use of Knowledge in Society is probably the most important piece of economic writing in the 20th Century. What should we take from Hayek today, as far as welfare and planning are concerned?

First, you can't do full scale planning without totalitarianism. Yeah yeah, you tell me - we all know that. Really? How many on the left cheered the rise of Chavez, thinking it would all work out just swell?

Second, a broad welfare state and social insurance system beget regulations that work to the detriment of liberty. Private actions that otherwise might well be thought left private become regulated, taxed or prohibited because of the socialization of downside costs. I have a hard time believing that regulation of demerit goods like smoking, drinking and "bad" eating would be anywhere near as popular absent the fiscal externality argument. This doesn't lead us to serfdom but to nannydom.

I don't much disagree with Caldwell's assessment of what we should today take from Hayek even if, following Farrant and McPhail, that isn't quite what Hayek had in mind when he was writing.

Thursday, January 27, 2011


Mark Oppenheimer's half-apologia for snobbery is excellent fun, even if he is likely the type to eat inefficiently. After a lengthy discourse on how he became a snob and how it's changed his life, for better and worse, he wonders about passing along the inheritance:
Now that I have three young children, I worry about burdening them with this most unhelpful tendency. There are all kinds of vices that are rather fun to indulge, and can be quite harmless, up until the moment one has a family. Promiscuity, for one. Sloth. Recreational enjoyment of hallucinogens. All are well and good until there's a wife or child whom you're not coming home to. Does snobbery belong on that list, that list of things one must abandon to be a responsible family man? Well, that is complicated. Yes and no.

Yes, because snobbery is ultimately a dysfunction, and if my daughters were to lose potential close friendships, and someday lovers or partners, because of the trivia they imbibed, via their father, from The Official Preppy Handbook and Class, then I would have a lot to answer for. And once you learn snobbery, it is very hard to unlearn. They would be wrecked for life, like me.

Also, of course, snobbery is immoral. It is unkind, and frequently vicious, and built upon lies about what other people are really like.

And yet I am not convinced that I can give up snobbery so quickly. Because as much as it could harm my daughters, it could also make them Oppenheimers. For after all, snobbery is one of the great midwives of human closeness. Almost nothing I can think of unites two people better than shared snobberies. I never feel more married to my wife than when we enter another couple's house for the first time and, on seeing that the television is a bit too large, or too prominently placed in the front room, look at one another and—well, I was going to say "arch out eyebrows," but of course we do not even need to do that. The mere look, the meeting of the eyes, does it all.
I've little to add. Were Denis still here, the essay would top the relevant ALD column.

It almost makes me regret that a farming background entirely precluded early development of high-form snobbishness. Instead, mine is low-form: too particularistic to be really worth much.

Imposing choices

Barbara Kay argues badly in favour of infant circumcision:
Passing to the moral realm, the argument of “informed consent” is easily demolished by the fact that we routinely vaccinate our children against disease without their consent for their own good. Even before we knew of the HIV connection, amongst those circumcising their sons, health and hygiene were always the reason. STDs are much more common in uncircumcised men, and circumcision causes a 12-fold reduction in the incidence of urinary tract infections. Complications from circumcisions performed by experienced surgeons and mohels are as rare as those springing from dental procedures or vaccinations: that’s to say, statistically negligible.

On to the pernicious myth that male circumcision, a 30-second procedure, is a “mutilation” and the obscene canard that it is the equivalent of sexist FGM. FGM is a horribly protracted and painful cutting of girls under terrifying circumstances...

“Mutilation” is a disgusting word to apply to the excision of a non-essential bacteria trap, nearly painless and instantly forgotten (those who claim otherwise are fantasizing; no credible study demonstrates lasting effects)....

Set aside the rights-based rhetoric. It’s about sex: Circumcised men have greater pre-orgasmic endurance; non-circumcision permits more frequent ejaculations. What matters most to the anti-circumcision activists is their diminished pleasure with frequently changing sexual partners, as befits an era where the number of conquests is a more common metric of romantic success than long-term relationships. Our legislators have better things to worry about than this.
Let's construct a reasonable argument from the hash she's made of things above. But let's not avoid smacking Kay around a bit first. The vaccination analogy fails utterly as the main health benefits of circumcision come after the individual is old enough to make that choice himself. Second, in a counterfactual world in which female circumcision were done under medical anaesthetised conditions and offered minor health benefits (slightly reduced risk of various problems), would Kay recommend it? We can easily imagine a gender reversing of her final paragraph that would make its obnoxiousness a little clearer. Fewer utils is a cost, not a benefit.

Here's the more reasonable form of the argument. Medical procedure X correlates with certain health benefits but also with reduced capacity for enjoyment. If it's undertaken before the individual is capable of making choices, the short term costs of the procedure are relatively low; if it's done after the individual is capable of making choices, the short term costs are much higher (more traumatic, longer recovery time). The long term costs and benefits are identical. If the short term costs are high enough and if the parent thinks it likely that the child's eventual optimization would result in his choosing the procedure, it's best for the parent to impose X. So imagine that removing a kid's tonsils in infancy were simple and painless, that doing it after age 12 were horribly painful, and that half of all adults who hadn't had their tonsils removed would get a tonsil infection with high mortality rates. Would I impose a tonsillectomy on my kids in infancy? You betcha. And I'd expect them to thank me for it. Would I agree with a procedure that would dull the kids' enjoyment of food (say excising half the taste-buds) if it correlated with reduced obesity and diabetes rates? Hell no.

In the case of circumcision, if you lived in a country where HIV rates were very high, access to condoms were difficult, sanitation were a problem, urinary tract infections were dangerous, and medical progress that would either reduce disease burden or reduce the costs of an adult undertaking circumcision were unlikely, then imposing that choice on your child might be optimal. If you're in a country where HIV is relatively rare, access to condoms is relatively easy, urinary infections are easily prevented through sanitation and fairly minor if contracted, then you're really infringing on autonomy by imposing that choice.

Kay's arguing against a proposed Canadian ban on infant circumcision. I'd also side against a ban. But not because the procedure's a great and wonderful thing; rather, because there are bounds within which violations of parental autonomy are worse than violations of the child's. This one's getting close to the border though.

Previously: Western symbolic forms of female circumcision that may prevent worse outcomes.

Wednesday, January 26, 2011

Always look to the margin

Richard Vedder again reminds us that deciding whether enough folks are going to college requires looking at effects for the marginal entering student, not results for the average graduate.
An even-handed interpretation of the data is that college is “worth it” for some significant number of young people, but is a far more problematic investment for others. The call by President Obama, the Lumina and Gates Foundations, and many higher education advocates to rapidly and radically increase the number of college graduates is fundamentally off-base.


For years, economists have written that the rate of return on college investments tends to be high -- 10 percent is an oft-cited estimate, greater than the average investor is likely to earn in alternatives such as stocks, bonds or real estate. Thus the studies have concluded that going to college typically makes sense, independent of any non-pecuniary advantages college offers. Yet these studies have failed to account for the added risk associated with it -- the probability of dropping out.

Two new studies have attempted to correct for this problem, one by Gonzalo Castex and the other by Kartik Athreya and Janice Eberly (both are available for download here). They suggest that the reported superior rate of return on investing in college disappears when investments are adjusted for risk.

At the individual student level, it is possible to reasonably estimate the risk. A student who was at the top of her class at a top-flight suburban high school, had a composite SAT score of 1500, and plans to attend a private college with relatively low dropout rates is probably going to get a reasonable return on her investment, although even that is no certainty. By contrast, a student who is below average in his graduating class from a mediocre high school, has a combined SAT score of 850, and is considering a college with high dropout rates is very likely not to graduate even in six years, and probably will get a very low return on his college investment. That student might well do much better by going to a certificate program at a career college, learning to be a truck driver, or becoming a barber, for example.

In short, a good maxim is “different strokes for different folks.” A one-size-fits-all solution does not work as long as human beings have vastly different aptitudes, skills, motivations, etc. On balance, we are probably over-invested in higher education, not under-invested. The earnings data reflect less about human capital accumulation imparted to college graduates by their collegiate experiences than the realities of information costs associated with job searches.
I would warn strongly, and perhaps self-interestedly, against applying any of this to New Zealand.

Tuesday, January 25, 2011

Planning rents

Demographia finds house prices remain severely unaffordable in many major metropolitan centers. Relative to median household income, Atlanta is most affordable and Hong Kong the least.

When we were on the housing market in 2005, it was really clear really quickly that a pretty big component of Christchurch house prices was regulatory rents. As you can see from the map below, there's no shortage of physical land to the north, west, and southwest where Christchurch could expand. But a 1000 square meter residential section on the outskirts of Christchurch costs $200K - $200 per square meter; a 10.1 hectare (10,100 square meter) agricultural section a half hour from Christchurch has an asking price of $159,000: $15 per square meter. That difference isn't just commuting costs and in-town amenity value. Rather, it's land use restrictions that prevent Christchurch from expanding outwards. And so land prices in town get bid up.

View Larger Map

Demographia ranks Christchurch as 288th most affordable city in the world, with median house price of six times median household income. They note a September Quarter house price of $333,800 and median household income of $55,600. I wonder if they might have Christchurch income a bit on the low side: Stats NZ has Canterbury's median household income in 2010 at $65,000. That will include some higher income dairy farmers but also some poorer households in small towns; our median multiple would only drop to a shade over 5 (on par with Toronto) with that adjustment.

Says Demographia:
House prices have skyrocketed principally because of more restrictive land use regulations that have virtually prohibited new house construction on or beyond the urban fringe. This is particularly evident where there are "urban containment" measures, such as urban growth boundaries. Land value differentials of ten or more times, have been documented immediately across urban growth boundaries (such as in Portland and Auckland). These adjacent properties have values (referred to as "urban echo values") that are substantially higher than true rural values.
There's little chance that this changes. A city council that eases zoning to make housing more affordable will also impose capital losses on the city's homeowners. Homeowners are more likely to vote than renters. And cue Olson on the Logic of Collective Action.

Land use restrictions let richer homeowners feel good about themselves while promoting policies that protect their wealth and kinda screw over poor folks.

I'd be curious to hear from folks involved in Christchurch property development: what are the binding constraints? Are land prices here bid up more by restrictions on outgrowth on the fringes or by prohibitions on building more than two or three stories in most parts of town?

Full disclosure: We own a home in South Brighton and hope that, should Council ever decide to stop screwing over poor folks and ease back on zoning, we'll be somewhat protected from falls in land prices because the beach has actual scarcity value rather than just regulatory scarcity value.

Monday, January 24, 2011

Is three strikes working?

I really don't know. But this isn't the test:
News that there are now 132 violent and sexual offenders who have been convicted of a 'Strike' offence and given their first 'Strike' warning comes as no surprise and simply serves to highlight that the 'Three Strikes' policy is working exactly as ACT intended, ACT New Zealand Justice Spokesman Hilary Calvert said today.

"These offenders now know their behaviour will not be tolerated, and will be well aware of the consequences of further similar offending," Ms Calvert said.
Here's the test. Take the set of all offences going back a few years. If there's a decrease post Three-Strikes coming into effect in those offences on the strike list relative to non-strikeable offences, Three-Strikes is effective. If not, it isn't, or at least isn't so far.

If New Zealand follows American experience, we ought to see a decrease even in first-strike offences, but a small increase in non-strikeable offences as offenders substitute into categories that have lower long-run cost. We might also see a severity shift within the list of strikeable offences: fewer of the lowest severity crimes (substitution down into non-strikeable offences) and a higher proportion of the more severe strikeable offences (as the granting of a first strike acts as a level shift in the severity of future sentences, though marginal deterrence is maintained within the second strike).

Give it another year or so, then run the test. If nobody else has done anything on it by early next year, I'll assign it as an honours project.

I prefer staking out what an appropriate test would be before taking it to the data.

Sunday, January 23, 2011

Sustainable stupidity

A Canadian academic flies to New Zealand with 15 Canadian students to lecture New Zealand on how cruise ships are unsustainable.
The cruise ship industry is a brilliant business model, but it would be hard to find a more environmentally destructive form of transport, Canadian academic David Brown says.

Cruise ships used the lowest quality oil for fuel, had limited controls imposed on the dumping of waste at sea and the whole premise of the industry revolved around excessive consumption, he said.
So, David, you'd prefer that low quality oil be used on land where its higher particulate matter and smellier emissions and would actually impose costs on people? If we're going to worry about human waste being dumped from cruise ships on the high seas, should we also be setting up water treatment plants for whales? How much more effluent does a cruise ship generate than a pod of whales and the school of krill it's chasing?
Prof Brown acknowledged the irony of his own air travel, and that of 15 Canadian students taking his course, although he pointed out that all were encouraged to pay for plantings to offset their air travel.

While this was not ideal, returning to sailing ships, rather than flying was not realistic.
During the course, students will explore whether the consequences of the ever-increasing quest for mobility can be managed.
Hasn't there been, like, a whole lot of work done showing that ocean transport is about the lowest carbon cost per mile of any kind of transport? And he's flying people around to complain about cruise ships?!
He noted that of the 19 New Zealand students taking his paper, none was a tourism major, indicating there was wide interest in the subject.
Interesting. If we in Econ flew somebody in to teach a course for us, and none of our majors took it, we might draw some different conclusions. I'm not one who worries about sustainability stuff. But I'd have thought that folks who care a lot about sustainability stuff might have, umm, tried videoconferencing?

Matt Nolan was right. Sustainability just isn't sustainable. Look at the nGram below on use of the term. The bubble's starting to burst.


Saturday, January 22, 2011

From the department of irrelevant prescriptions

Before the results came in, Brown told me to keep my expectations low. The sex regions might stay dark. She told me, "I actually think men in your situation" — meaning married with young kids — "should be encouraged to go to the Internet and look at pornography, because it brings novelty into the home. When you look at [porn], you're going to have some hormonal flooding. Which is needed in the 'captivity' situation."
My limited unscientific surveys of men in that situation suggests that such prescriptions may have no effect on the extensive margin.

The recommendation comes from Helen Fisher, Prof of Anthropology at Rutgers who specializes in the neurochemistry of love.

Fisher put A.J. Jacobs, author of the Esquire piece linked, into an MRI machine to see how much he loves his wife. They mapped his brain while he looked at pictures of his wife compared to pictures of Angelina Jolie. Noted Fisher:
When I told friends and family I was trying to scientifically assess my love for Julie, they all had the same response: "No good can come of this."
Lots of fun pop neuroscience in the article.

Friday, January 21, 2011

Academic rigour

A new report says kids aren't learning anything at university. Why?
The main culprit for lack of academic progress of students, according to the authors, is a lack of rigor. They review data from student surveys to show, for example, that 32 percent of students each semester do not take any courses with more than 40 pages of reading assigned a week, and that half don't take a single course in which they must write more than 20 pages over the course of a semester. Further, the authors note that students spend, on average, only about 12-14 hours a week studying, and that much of this time is studying in groups.
I'm teaching Economics and Current Policy Issues, a second year elective, in the second semester this year. I last taught it in 2009. From that year's edition of the syllabus:

The reading list contains several recommended readings for each week (and one required reading in most weeks). You should aim to read at least two articles each week comprising at least 40 pages worth of reading – so three or four short readings or a couple of longer ones. In each week’s tutorial, you’ll be expected to contribute to discussion and debate; your contributions there should build on your reading. I will expect you to cite arguments presented in the readings when answering exam questions: I will provide choice among a few open-ended questions that will allow you to draw on your knowledge of the readings in providing an answer.

Do not expect to do well on the exam if you have not kept up with the readings.
But I've not been assigning 20 pages of writing in that class. The course rates highly among those who took it (Median answer on the main survey questions "Overall this is a good quality course" and "Overall the lecturer is an effective teacher" were 5/5), but it also ranks as being more difficult and having a higher workload than other courses. And that margin seems to be the one to which enrollment is most elastic. I'd likely drop from 40-50 students in the course to maybe 15 were I to bump the essay from a 4 page policy briefing up to a 20 page paper. And then the course would be cancelled.

I'm not sure the pedagogic gains would be that high in moving from 4 to 20 pages at second year anyway. For many, it's the first essay of any kind that they've ever written. For many others, it just seems that way. Better to get short essays at the lower levels, with feedback, followed by longer ones at the higher levels.

I'm not sure whether any Canterbury students read Offsetting who haven't already taken my courses, but those who do ought to consider Econ 224 for second semester. Regular readers might even get a pre-req waiver (conditions apply, like showing me you can handle basic price theory).

Thursday, January 20, 2011

Libertarian migration [updated]

Ilya Somin correctly notes that broad immigration patterns favour free places over less free ones.
Eric Crampton is right that New Zealand may be freer than the United States right now, and that few libertarians value the difference enough to move there. But I don’t think that proves that libertarianism is just “cheap talk.” The difference in economic freedom between New Zealand (82.3 on the Heritage scale) and the United States (77.8) is relatively small. Moreover, it has often been smaller still in past years, and could easily shrink again in the future. The difference in noneconomic freedom is probably also minor, and in some areas (especially freedom of speech and gun control) may cut in favor of the US.

The real test of whether libertarians (or anyone else) are willing to move to secure greater freedom is the pattern of migration when people have a choice between jurisdictions where the difference in freedom is substantial. Here, there is plenty of evidence that people tend to “vote with their feet” for societies with greater economic freedom.
I will quibble with Ilya on personal freedoms: campaign finance is restrictive, but we have nothing like the thousands of pages of FEC regulations. South Park and HBO series air, unedited, on broadcast. Gun laws here are more restrictive than the best US states but less restrictive than the worst. And I put a whole lot of weight on that there's zero chance here that the armed offenders squad (our SWAT team) will bust down my door in a wrong-address no-knock raid and point guns at my kids, or that I'd be shot by the cops for goofing around on my lawn with a water hose. But folks put different weights on different aspects of personal freedom. The police state stuff weighs heavily for me, less for others.

I'm not particularly puzzled by that folks in general don't move to New Zealand: we're poorer, it's an expensive place to live, and it's awfully far from family. I'm a bit surprised that more US libertarians - the really high demanders - don't move. But the costs aren't trivial.

But why do so many American libertarians choose to live in less-free states?

I took a quick flip through the contributors to Block's libertarian autobiographies. When I could match a contributor to a US state of residence through a Google search, I did. Of the 56 I think I've placed correctly, ten lived in California (Mercatus score -0.413), eight in Virginia (0.275), six in New York (-0.784), six in Texas (0.346), four in Arizona (0.279), four in Alabama (0.092), and others elsewhere. The median freedom score enjoyed by this set of libertarians is 0.019. None seemed to live in the four most-free states: New Hampshire (0.432), Colorado (0.421), South Dakota (0.392), and Idaho (0.356). Lots lived in the least free state: New York.

The median (I'm sticking with medians in the likely case I miscategorized some of the 56) libertarian lives in a state like North Carolina (0.019) while the median American lives in a state like Delaware (-0.008). At least the difference is in the right direction; I'd feared that the median libertarian would be in a less free state than the median American because of the number of academic jobs in the Cal State and New York systems.

Unless already living in one of the most free states, it's hard to imagine anything a libertarian can do to increase the level of freedom he enjoys that is more effective than moving.

Some bottom lines:
  • Libertarians regularly choose to be less free than they could be in exchange for better job opportunities, more income, better amenities, or a host of other gross substitutes. But it's not like we didn't already know that.
  • There is nothing wrong with being a pluralist and putting weight on a whole bundle of things besides liberty.
  • Rights-based libertarians who take a hard line, or at least it's been my experience in various barroom arguments, will say that where efficiency and liberty diverge, we have to pick liberty.* I tend to think that blackboard economics has overestimated the extent to which we can increase efficiency by treading on liberty, but there surely are some policies that fit the bill. I'm just not sure it squares well to claim always to prefer liberty to efficiency while, for example, living in New York rather than commuting in from New Jersey or Pennsylvania.
  • Walter Block's list has some of the most committed libertarians. If many of them choose to live in New York and California and none choose to live in New Hampshire (Free State promises aside), the potential for "Going Galt" just might be overstated. Fortunately, Seasteading's initial business model, as I understand it, will rely more on temporary visits, medical tourists, and specialized research rather than on a bunch of libertarians actually being willing to make a high cost move.
  • A very good counterargument is that freedom is heterogeneous and that you're living in California because access to medical marijuana dispensaries outweighs the other nonsense.
  • If you've moved to a less free state because it has better amenities/job opportunities, and then complain about the regulations and policies, how different is that from moving next to a pig barn (because the land prices are cheap) and then complaining about the smell? In the latter case, it might be worth your while to go and chat with the neighbors to see if you could pool your money to pay the pig farmer to reduce emissions - just like it might be worth your while in the former case to point out the real world costs of the regulations and policies and hope you can help coordinate folks around a change most will prefer. But if the neighbors say that the smell doesn't bother them, why spend so much time being angry about the stench instead of just moving? And if the difference in price between the stench-house and one a ways farther down the road was $5000, and you chose the stench-house, we can probably put some bounds on how offensive the smell really is.
I agree with Ilya that it's important to look at overall migration patterns. Those do demonstrate an average preference for liberty among those making the moves, though there will be some confounding.

It's just surprising that seemingly few ideological libertarians are the ones making the move, and why I found Walter Block's choice of title, "I Chose Freedom", a bit fun. "I Would Have Chosen Liberty But The Academic Job Market Was Thin The Year I Went Out and The Weather Here Is Nice And Who Wants To Live In Flyover Country Anyway" would be cumbersome.

*I'm a pluralist: if the efficiency gains are big enough relative to the loss of freedom, I'll sign on. How could I not? If I put that much value on freedom, I'd be out living in the bush somewhere instead of South Brighton where the swimming pool inspectors hassle me.

Update: Ilya comments further; I'd like to make a couple of clarifications. First, I left DC folks out of the measures entirely: DC isn't ranked in the Mercatus study (or maybe I missed it), and it's too hard without home addresses to tell if DC folks live there (horribly anti-free place), in Virginia (decent), or Maryland (also horrible). If we put the DC folks back in as DC, the median would move a bit, but not much. That's the nice thing about the median - it's robust to my screwing a few things up. The difference between "libertarian-chosen" and the American median is trivial. The median American lives in a state two spots worse in terms of freedom than the median libertarian (by the measure above). If we put the two DC folks in as being in DC, it would be a one state rank order difference. That's trivial in a small sample.

I'd mentioned a couple of pro-freedom things about NZ. What impressed me most when I interviewed here? First, the safety nuts hadn't taken over. Cavestream had one minor warning sign. Back in the States, there would have been someone with a rifle ready to kill (for his own good) anybody who tried doing it without five permits and a guide. All kinds of crazy dangerous roads had no safety rails. I wouldn't mind safety barriers on our dodgy roads, but it was a signal of a place where the safety nuts were kept in line. Second, political discourse seemed far more free. On an evening news programme, a sitting MP told the interviewer to "stop shooting rapid fire questions at her like some 15 year old premature ejaculator." A bit more fun than C-SPAN.

The problem with reductio

I'd thought mandatory ski helmets and "social costs of skiing" an appropriate reductio to including the private costs of a drinker's drinking as socially relevant. Then The Herald started pushing for mandatory ski helmets.

I'd also suggested a sex tax as another reductio: if STDs put costs on the public health system, doesn't the state have a compelling interest in what you get up to and with whom?

And here, from the loonier parts of the US:
Politicians are always talking about taxes. Some of them want to “soak” the rich; others want to raise “sin” taxes on alcohol and cigarettes. But I can think of one “consumer item” we’ll never see a tax on: sex. But maybe we should. Sex—the wrong kind of sex, that is—is driving up the cost of government.

In a recent column, marriage expert Mike McManus explores the high cost of out-of-wedlock sex. For instance, over 7 million American couples live together. Four out of five of those couples will break up without ever tying the knot. But, McManus writes, if they’ve had a baby, many of those mothers and children will be eligible for Medicaid, housing and day-care subsidies, and food stamps.

Second, even when co-habiting couples DO marry, according to a Penn State study, they suffer a higher divorce rate than couples who don’t live together first. On average, each divorce involves one child. And like the never-married mother, the divorced mom is often eligible for many government benefits. According to the Heritage Foundation, McManus writes, “13 million single parents with children cost taxpayers $20,000 each, or $260 billion in the year 2004.” The total probably comes to $300 billion today, McManus says.

And that’s just the beginning.

A child born out of wedlock is seven times more likely to drop out of school, become a teen parent, and end up in prison. They are 33 times more likely to be seriously abused.

And we’ve all heard of the high rates of STDs affecting America’s teenagers—diseases that cost billions of dollars to treat.

So maybe we SHOULD consider a tax on non-marital sex—everything from one-night stands to living together arrangements. It’s costing us a lot of money. And such a tax might indeed pay off the national debt.
He goes on to propose, rather than taxes on sex per se (which he seems to oppose less because they're invasive than because they're impracticable and unpopular), a bunch of pro-marriage initiatives.

If we let fiscal externalities determine the appropriate range of government regulatory activity, there isn't much that's out of scope.

Wednesday, January 19, 2011

Pirate nation?

Canada's Industry Minister Tony Clement thinks that failure to implement American-pushed updates to Canada's copyright law could make Canada a pirate nation:
"If Canada is not au courant with copyright then we run the risk of being a pirate nation and that will mean that people won't have an incentive to create in our society and that will be a problem. That will be a problem economically and a problem in terms of our ability to be an innovative society."
Michael Geist notes that C-32 would have Canada implement some of the strictest copyright rules around anti-circumvention, though it loosens some parts of current law around fair dealing and time/format shifting (absent digital locks).

I suppose Clement could be right in the trivial sense: since everybody is already ignoring prohibitions against format shifting, failure to allow it would mean that Canada would continue to be a nation of pirates. Otherwise, I find it a bit of a stretch that failure to tighten Canada's copyright rules would make it a pirate haven.

Cory Doctorow has also been keeping abreast of Canada's proposed copyright changes.

Canadian cultural policy worries a lot that Canadians consume too little Canadian (read too much American) music, television and film. So they subsidize production of Canadian culture through broadcast mandates and direct grants. I wonder whether this regime, coupled with strong copyright, is really better than eliminating all the grants and mandates, easing up considerably on copyright, and imposing a bandwidth levy. Revenues from the levy could be distributed to Canadian artists proportionately to their share of torrent traffic. I'm not in favor of such a policy because I don't particularly think that there's any market failure in the amount of Canadian-produced content consumed by Canadians. But I'm also not sure that it's worse than current policy. It would at least direct funds to the Canadian artists that folks in Canada actually want to watch or listen to.

Here are the Canadian pirates that give me the most nightmares.

Tuesday, January 18, 2011

Straw man rationality

Dan Ariely analogizes:
Here’s one way of thinking about this. Imagine that you’re in charge of designing highways, and you plan them under the assumption that all people drive perfectly. What would such rational road designs look like? Certainly, there would be no paved margins on the side of the road. Why would we lay concrete and asphalt on a part of the road where no one is supposed to drive on? Second, we would not have cut lines on the side of the road that make a brrrrrr sound when you drive over them, because all people are expected to drive perfectly straight down the middle of the lane. We would also make the width of the lanes much closer to the width of the car, eliminate all speed limits, and fill traffic lanes to 100 percent of their capacity. There is no question that this would be a more rational way to build roads, but is this a system that you would like to drive in? Of course not.
Assume rational drivers who have to exert effort to keep a perfectly straight track and with heterogeneous driving ability that affects the amount of effort that has to be exerted to keep a perfectly straight track. Add in random shocks to attention, like a kid that darts out from the side, wildlife, sun glare, a screaming toddler in the back seat or whatever, such that even the best driver devoting full attention to driving occasionally veers from a perfectly straight track.

The drivers are perfectly rational but have constraints. Optimal road design will incorporate things like paved shoulders and buzz lines to give more margin for error and feedback about errors. We could even want speed limits if drivers vary in ability and risk tolerance (both rationally) and if variance in speed contributes to accidents. All of these things build in room for error; without them, driving would be a horribly nervewracking experience: the slightest error could mean death. We'd all have to devote far too much effort to driving. I don't know why we'd need to assume irrationality to get any of the road features that Ariely seems to think can't be explained without it. Rather, I think it's a straw-man version of rationality that insists that we can never err.
What I find amazing is that when it comes to designing the mental and cognitive realm, we somehow assume that human beings are without bounds. We cling to the idea that we are fully rational beings, and that, like mental Supermen, we can figure out anything. Why are we so readily willing to admit to our physical limitations but are unwilling to take our cognitive limitations into account? To start with, our physical limitations stare us in the face all the time; but our cognitive limitations are not as obvious. A second reason is that we have a desire to see ourselves as perfectly capable— an impossibility in the physical domain. And perhaps a final reason why we don’t see our cognitive limitations is that maybe we have all bought into standard economics a little too much.
It's not irrational to err if there are information costs. It's not irrational to use heuristics if there are computation costs. We might sometimes pick the wrong heuristic, but we shift if we find a better one. It's no more irrational to pick the wrong heuristic when there are search costs over the domain of heuristics than it is to buy a car that costs $200 more than the one across town if there are search costs when buying a vehicle. The existence of price dispersion lets entrepreneurs profit by building price comparison websites; heuristic dispersion lets entrepreneurs profit by writing self-help books or working as life coaches.

And it's not irrational for folks to do things in maximizing their own utility functions that would be downright silly if they were trying to maximize mine.

Monday, January 17, 2011

Living in the Undying Lands

Peter Thiel's investing heavily in New Zealand. I appreciate his naming conventions:
Thiel has set up a local venture firm called Valar Ventures. Valar Ventures LP was registered in New Zealand in July 2009, more than a year before Thiel's first known New Zealand investment, and is managed by Valar Capital Management LLC, based in San Francisco, according to official records.
Does that make San Francisco Mithlond and Thiel Círdan?

Finding the birds

Nick Rowe (this time, definitely him) describes a recent bird-hunt: an econometric search for which courses at Carleton were outliers in terms of grading standards.
The basic model is this:

Student i's grade in course j = student i's smarts + course j's birdiness + random error.

I think it's called a "two-way fixed effects model with panel data". We don't observe student i's smarts, so each individual student gets a dummy variable. We don't observe course j's birdiness, so each course gets a dummy variable. That's a very large number of dummy variables, for a medium sized university, even though we did it by department and year-level, rather than down to the level of specific courses.

We got the data (stripped of anything that could put a name on an individual student) and Marcel fed it into a supercomputer, which made a loud crunching sound for a long time, simultaneously estimated every student's smarts and every course's birdiness, then spat out the answers for birdiness. That was the success. The model gave me a numerical estimate of each department's birdiness.

But closer inspection revealed that Operation Birdhunt had failed miserably. The standard errors were very large -- larger than the difference between any two departments' estimated birdiness. So I was unable to say, with any confidence whatsoever, that department X was more birdy than department Y.
He says the problem was too few students who did courses in both Arts and Sciences, so identification was an issue.

Our version at Canterbury is a bit more relaxed. Every student's grades go into the computer. The student's grade in a course, relative to his average grades across all courses at the same level, is taken. So if Joe gets a B average but gets an A+ in Econ 104, then he's scored four points higher in 104: Econ 104 earns a +4. Then, the average of those differences across all students for a particular course is taken and called the difficulty index. Papers that award grades on average a full grade above the enrolees' average in other courses are tagged as "easy"; "hard" courses on average give grades a full grade lower than enrolees' other course grades. Then every academic in the University is forwarded a PDF report listing the outlier papers for those courses with sufficient students. In 2009, our first year macro paper was rated as hard. We were a bit surprised as we'd relaxed the grading standards a bit to keep our intro papers in the middle of the pack.

The method we use isn't as robust as it would be if there were lots of students taking courses from different faculties: if Economics students tend to take courses from other departments with relatively easy standards rather than ones from other departments with relatively harder standards, Econ courses will be flagged as hard more often than they should be. So we don't impose a curve on our outliers. Instead, negative outliers who haven't particular reason for being negative outliers (core courses intended for honours-bound students ought to show up as "hard") note the data and adjust grading to avoid eventual drops in student numbers (and potentially having to put on an extra course to compensate). We haven't many easy graders to worry about.

Sunday, January 16, 2011

This can't be an equilibrium

OK Cupid finds that women whose pictures generate high variance in rated attractiveness do better than those with the same average but lower dispersion. That's not too surprising: suppose that your rule is to send a message to any woman you rate a 5/5. A woman whose image generates a lot of 5s and a lot of 1s will do better than a woman whose image gets a 4 from everyone.

But Cupid also found, in regression analysis, the greater the number of 1/5 ratings, the more messages sent. 2s and 4s reduced total messages, and 5s increased them a fair bit. They chalk this up to game theory: if you think the woman you're rating highly won't be in too strong of demand, you'll send her a note. But if you think she'll have mass appeal, you'll not bother as your message will be lost in the swamp. As Yogi Berra might have put it "That woman's so cute, nobody asks her out anymore."

Two points to note. First, I have a hard time seeing this as an equilibrium now that this is a full information game. Once everyone knows that fewer messages are sent to the girls with mass-market appeal, they'll increase their likelihood of sending messages to those girls, right?

Second, I wonder what would happen if the regression were switched to have the dependent variable be "man sends a message" rather than "number of messages received by a woman". Run it as a probit. It's not completely implausible that some men send messages to women they've rated a one (so long as that rating isn't seen by her!), if he figures she'll be getting few invitations.

I can't disagree with OK Cupid's concluding advice:
But our advice can apply to anyone. Browsing OkCupid, I see so many photos that are clearly designed to minimize some supposedly unattractive trait—the close-cropped picture of a person who's probably overweight is the classic example. We now have mathematical evidence that minimizing your "flaws" is the opposite of what you should do. If you're a little chubby, play it up. If you have a big nose, play it up. If you have a weird snaggletooth, play it up: statistically, the guys who don't like it can only help you, and the ones who do like it will be all the more excited.
OK Cupid is big enough that there'll be a niche market in everything. Playing to the niche means that you're pre-screening for folks likely to be good matches rather than letting the screening happen after investments of time and effort.

I'm just lucky that that strategy worked for me in a non-online, much lower N environment back in '99 when this particular niche product found an interested match. Hi Susan!

Saturday, January 15, 2011

Obstinateness is hereditary

I don't like nudge-style policies that try to shape my behaviour.

Neither does my two year old.

First attempt at toilet training: a reward for successful task completion. A stamp or sticker. Stopped working after two successes.

Second attempt: carrots and sticks. A messy filled diaper put a toy in toy jail, but a successful task completion would get a toy out of toy jail (or a treat if no toys in jail). Worked twice. Then he decided it was fun to put toys in toy jail.

Rewards for inputs rather than outputs (time attempting task rather than achievement) predictably led to lots of time on inputs with no output, followed by messy diaper ten minutes later because he just prefers producing it there. Moral suasion has been useless. High salience rewards and punishments are illegal and probably inadvisable anyway. And who makes a Taser that's safe for toddlers anyway?

I think it's time to start rewarding him for producing messy diapers. Or just follow Gans's lead and leave it to the experts.

Erecting some entry barriers

John Small hits on the main problems with proposals for a code of ethics for economists. These sorts of things only work if there's some professional body offering certification. Where's the bite from failing to uphold a code of ethics if you can't be disbarred? Matt Nolan and I have a tentative list of folks suitable for disbarment, but I'm sure I'd be on other folks' lists too.
All of this links into broader questions about the way economic analysis is framed, assumptions made and conclusions drawn. Its the same can of worms because what ultimately matters is the quality of the argument, not the funder. In highly contentious settings like court cases, quality of argument is what counts. But a lot of policy advice does not have this wonderful attribute, and indeed there can sometimes be a strong demand from bureaucrats & politicians for the ‘wrong answer’. In such cases, supply is pretty likely and you can’t always tell whether the supplier is actively pandering to demand or just a bit hopeless.[emphasis added]

I’ve tried a few times, without success, to think up a workable review system that would catch such things. Ultimately, the problems are (a) a very thin market for professional economists and (b) the existence of a demand for rubbish. If you want a silly plan blessed by someone that calls themselves an economist, you’ll probably be able to achieve that aim. The way this problem is solved in other professions (medicine, law, accounting) is through professional societies that have disciplinary functions and, most importantly, barriers to entry. [emphasis added]

Maybe there is another way, but I can’t see a code of conduct having any real effect without some kind of big stick to back it up. Expulsion to the other side of the entry barrier is how other professions do it, but they have more members and more homogeneity of work, so they are more easily able to stand the fixed costs of such a system. Plus the idea of deliberately erecting a barrier to entry might not sit well with your average economist.
Small nails this one. Thin markets mean that rubbish analysis often is let to stand: there's little market in taking sledgehammers to things like the PriceWaterhouse Coopers report on Adult and Continuing Education. Who'd fund it? And who has the time to do it for free? It's obviously completely shonky. But folks who find its numbers politically convenient keep citing it.

And pretty much anybody here can call himself an economist. Without compiling any lists, it's surprising the thin level of qualifications of all kinds of media-prominent economists. Chief Economist for X may only have a Bachelor of Commerce in Economics. But he's still cited as Chief Economist for X whenever quoted on radio. Not that having a Masters or PhD stops you from being an idiot either - it just improves the odds. We're well past the days where folks like Marshall, Keynes, Hicks, Coase and Tullock typified the non-PhD economist.

The best we can perhaps hope for is that the New Zealand Association of Economists start providing a paid refereeing service for consultancy reports.

Friday, January 14, 2011

Revealed preferences and liberty

I've been teaching the two year old a bit about economics. When I ask him, "Ira, how can we tell that voluntary trade is Pareto-improving", he now knows to say "General axiom of revealed preference!" It's very cute. Next job is to teach him what it means.

The latest Heritage survey puts New Zealand again above the US on economic freedom. If we care about a bundle of freedoms rather than just economic freedom, I think NZ does better than the folks above it on the Heritage list: Australia (widespread internet censorship, thuggish police), Singapore (heavy restrictions on personal liberties), and Hong Kong (much better than Singapore?).

How much libertarianism is just cheap talk? Or, rather, what price do libertarians put on liberty? I'd outlined some of NZ's advantages on EconLog four years ago. Since then, the top marginal tax rate has dropped by 6 percentage points, sales taxes have increased by two and a half points, and some of the nanny state stuff has gotten a bit worse (though Happy Meals remain happy). Most worryingly, we've recently implemented an asset forfeiture regime that kicks back seized funds to the police; this will start to bite in a decade or so. We've ranked at or above US levels of economic freedom since Heritage started keeping score. And I'm rather sure we're still better on civil liberties. If you want to have your junk mauled by someone in uniform, you'd have to pay for it in one of our numerous legal brothels; you don't get it for free at the airport.

By the general axiom of revealed preference, the increment of liberty isn't worth the loss of income (and inconvenience of moving and living abroad) for the vast majority of libertarians.

"I Chose Liberty" is Walter Block's collection of intellectual autobiographies of a bunch of libertarians, the large majority of whom live in the US and many of whom live in states like New York and California which rank in the bottom quintile of freedom.

I wonder how many will move to Seasteads.

Update: Peter Thiel, always on the vanguard, is betting on New Zealand.

I don't get it

Canada's Supreme Saskatchewan's Appeals Court has ruled that civil celebrants cannot discriminate against same sex couples. So if they're licensed as celebrants, they have to take all comers.

I'm more a freedom of association guy. I don't like the kind of preferences that would have the celebrant turn down a gay couple, but I don't much think the government ought be forcing people to take clients. I know that mine is a minority view. I still hear Walter Williams's lectures on discrimination in the back of my head: how he discriminated when he chose Mrs. Williams over all the other women who wanted him and how nobody could have forced him to date a selection of women that reflected the diversity of America's ethnic composition before making his choice.

The bit I really really don't get is why anybody would want to have their wedding day ruined by having an officiant there who hates them or who hates that they're being married. What kind of utility function gets more joy from the discomfort of someone forced to officiate over them than pain from having a horrible awkward wedding day?

We had no officiant at our wedding (more below). But had we been forced to have one, and we found that the officiant we'd picked hated Canadians and thought it a sin that Canadians be allowed to marry Americans, we'd have been looking for another officiant rather than a lawyer. I can understand the utility of making a political point. But getting smugness jollies by having someone who hates you and your marriage preside over your wedding? I just don't get some folks' utility functions.

When Susan and I married, we had no officiant at all. Pennsylvania law lets non-Quakers use the Quaker-style ceremony. The Quaker church hasn't a hierarchy, so weddings there simply formalize the community's recognition that a couple has married. So everyone in attendance at our wedding signed on as witnesses to our wedding contract; Susan and I officiated our own ceremony to which representatives of neither god nor government were invited. Instead we were married on the recognition of our friends and family - people we like, who like us, who we wanted there and who wanted to be there. Self-uniting marriages are recognized more broadly than Pennsylvania. I don't know why more libertarian atheists don't use them. You still need to get the marriage licence authorized by the state, but why invite the state to the ceremony if you hate the state?


I'm to be part of a debate end-March over at Lincoln University as part of their lead-up to Earth Hour. Kim Hill is to moderate. Caroline Saunders, Bob Frame and Steve Wratten are to be on the enviro side; I'm to be on the other side with Ruth Richardson and someone from Chevron Oil. I'm told Ruth requested me for her side; I hope I don't disappoint.

Caroline's work on food miles, showing the concept largely to be nonsense, has been very good. But I'm sure that the organizers will find a topic such that we can disagree.

I spent Earth Hour two years ago building a new power box for our circuit board. Figured that the best time to use a bunch of power tools was when electricity demand had a downward spike. The expressive benefits of paying homage to electricity by building it a new home were purely coincidental and inframarginal. Otherwise, we tend just to ignore the enviros' special day.

Thursday, January 13, 2011

Diversity hiring

Fortunately, we've never had diversity mandates forced on us at Canterbury. A report from the field in the US:
Even in this economy, we've had trouble recruiting minority faculty. We've made offers, but we keep losing out to places with higher salaries or lower teaching loads. Minority candidates are in much higher demand than others, so even in this market, they can command offers far sweeter than what we can muster. And faculty salaries here are determined by a pretty mechanistic collective bargaining agreement.

We've exhausted the low-hanging fruit. We advertise in venues likelier to attract minority applicants. We have racially mixed search committees. We screen job posting language carefully to ensure that nothing in them creates unnecessary barriers. The low-cost, nonconflictual stuff is already done.

Which means, in practice, that the available options are few.

One is to simply make the salary offers the contract allows, and to hope for the best. When we get turned down, turn to whomever else is available. It's legally clean, but in practice, it makes an already very white faculty that much whiter. It winds up placing a value of 'zero' on diversity, with predictable results.

Another would be to go above the grid and simply endure the grievances. If paying an extra, say, 5k will make the difference, and the Trustees have determined that the difference is worth making, then so be it. The advantage of this approach is that it stands a greater chance of actually recruiting people. The disadvantages, though, are several. For one, it virtually guarantees protracted legal battles with the union. For another, it stirs up resentments that tend to get ugly fast. And at a really basic level, it raises the question of just what, exactly, the candidate is being paid for.
Our Department is rather diverse. Judging by the flags next to our profile pictures, we've four full Kiwis, six half-Kiwis, three full Americans, one half-American, a Pole, a Canadian, two half-Canadians, a Finn, a Slovak, a half-Spaniard, three half-Brits, a Czech, a half-Frenchman, two Indians, two undisclosed (one German, one Kiwi) and some clown from Gondor. Maybe it's easier assembling an international cast if you're outside the States; the US seems committed to making it hard for foreigners getting PhDs in the states to stay there. Or maybe that's not the kind of diversity they're trying to achieve.

We're very lucky that, thus far, folks here seem to recognize that imposing quotas on departments forcing them to reflect the ethnic makeup of New Zealand would be devastating.

The culture that is Alberta

Alberta continues to list homosexuality as a “mental disorder” along with bestiality and pedophilia, and doctors used the diagnostic code to bill the province for treating gays and lesbians more than 1,750 times between 1995 and 2004, government records show.

The province has known about the classification for more than a decade and the Conservative government first promised to change it in 1998. On Tuesday, Health Minister Gene Zwozdesky repeated that promise.
So noted the Western Standard's Shotgun blog, who puts it up to a Bootleggers and Baptists story. The bootleggers are the doctors providing the cure-the-gayness treatments; the baptists are, well, the baptists.
The political cost is low for keeping gayness treatments on the books, but it's moderate for getting it off the books. A fair chunk of the Alberta Tory base does think homosexuality is a mental disorder, or worse a sin according to their religious doctrines. Why modernize the diagnostic code if it's going to piss off both a small clutch of doctors and the gay-is-sin crowd? Best to leave well enough alone. Until the political cost rises.

Beneath the politicking, there's a genuine issue at stake. The overwhelming majority of us know, at least from the time of puberty, whether or not we prefer those of the opposite sex. For a small minority, finding their orientation is less clear cut.

Sorting out sexual identity is an emotionally fraught experience that can take years, even decades. There is a role for specially trained psychologists to help people work out these concerns. It's a sensitive issue that the blunt hand of a bureaucratic state is ill equipped to deal with. Homosexuality isn't a mental disorder. Believing that government health care can cure "gayness" is, however, some sort madness.

Wednesday, January 12, 2011

Pricing anomaly

Under New Zealand's MMP system, a party is awarded seats either by winning an electorate or by gaining at least 5% of the popular vote.

Winston Peters heads the New Zealand First Party.

A contract paying $1 in the event Winston Peters is elected to Parliament is trading at $0.36. So there's a 36% chance of Peters making it into Parliament.

A contract paying $0.01 for every percentage point of the popular vote earned by New Zealand First at the next election is trading at $0.06. So traders there reckon New Zealand First will earn 6% of the popular vote.

So, is the vote share market wrong, are the probabilities of different vote outcomes for NZ First crazily skewed (most likely outcome below 5% but a fat right tail), or are traders reckoning on Peters not making Parliament despite NZ First gaining seats? The latter could happen if Peters stands down in favour of someone else (unlikely), doesn't survive to the election (unlikely, unless political rhetoric is even more powerful than folks reckon), or if Peters gets into legal difficulties and is dropped by NZ First or is otherwise barred from entering Parliament.

I've done minor shorting on the vote share contract and am slightly long on NZ First entering Parliament, mostly because I'd hit a few bargains earlier on.

Spreading the fixed costs

You'll recall Wellington's one-day-a-week Ethiopean restaurant.

TechDirt points to another way of spreading those fixed costs: folks who set up facilities for rent by small clients. TechDirt points to a New York incubator for culinary startups:
On a block in Long Island City, Queens, shared by car washes, plumbing parts manufacturers and livery-car garages, the three, as well as other cooks, pay by the shift to use a commercial kitchen equipped with 80-quart mixers, deep-frying caldrons and walk-in ovens, churning out food they sell on the Web and at farmers’ markets and coffee shops.

The kitchen’s 5,500-square-foot work space is both a refuge for dreamers and a life preserver for the unemployed.

“There are a lot of career-changers here, a lot of casual gourmets who channeled their energies into cooking as a way to make money,” said Meg LaBarbara, a former travel consultant who makes dips and spreads at the kitchen, called the Entrepreneur’s Space, on 37th Street near Northern Boulevard.
Unfortunately, the space seems not to be commercially viable as yet:
The kitchen, rare in its approach, solves many problems. It offers cooks space they do not have at home, is fully equipped and complies with the city’s health code. The place has also fostered an informal network, where cooks combine purchasing orders for things like butter and olive oil to save money, or rely on one another as taste testers.

But like many of its users, the kitchen suffered when the economy cratered. It used to function as a training ground for unionized workers, available for rental to commercial cooks at night and on weekends. Once grants and donations dried up, though, the Consortium for Worker Education, the union-backed nonprofit group that sustained it, could no longer afford to lease the space.

The kitchen was supposed to close at the end of August, but its manager, Kathrine Gregory, hatched a survival plan and enlisted the cooks to help her.

One made vegan pâté. Another baked Finnish ruis bread. Ms. LaBarbara made sun-dried tomato hummus, and Ms. Angebranndt, of course, baked whoopie pies. The food was laid out before a small group of officials from the city and nonprofit groups who had gone to the kitchen to hear Ms. Gregory’s pitch. They left extending a bailout package worth more than $250,000 and a $1-a-year lease agreement for the equipment.
Some tech business incubators are publicly funded, or at least their initial set-up costs are subsidized. Private funding here could work if the investor reckoned at least some of the renters would make it big and that he could get an equity stake in exchange for space at the incubator. But the selection mechanism will differ a fair bit: I'd expect a higher proportion of satisficers among folks leasing kitchen space than those leasing tech business incubation space. But Wikipedia article suggests reasonable graduation rates from kitchen incubators. Here's hoping the New York incubator proves viable in the longer term.

Tuesday, January 11, 2011


Labour's criticizing National for New Zealand's relatively high youth unemployment rates.

Jacinda Ardern, Labour's Youth Affairs spokesperson, gives a few reasons not to blame the prior Labour government's big increases in the youth minimum wage.

Her first reason: youth unemployment was also really high in the early 1990s when young folks didn't face the adult minimum wage. But the adult unemployment rate was also much much higher then. September quarter HLFS figures had unemployment among 15-19 year olds at 23.3%. The unemployment rate for folks twenty and up was 5.1%. Prior to 2008, the last time the youth unemployment rate was at or above 23.3% was March 1994 when it hit 24%. The adult unemployment rate at the time was 8.4%: more than one and a half times higher than the current adult unemployment rate. The youth unemployment rate is very high relative to the current adult unemployment rate.

Second, she notes the big increases in the youth minimum wage under Labour in the 2000s weren't associated with increases in youth unemployment. This is true. It's also true that anybody who could fog a mirror could get a job in the mid 2000s in New Zealand. She cites a youth unemployment rate of 11.8% in December 2005 (matches my figure); she doesn't note that the adult unemployment rate at the time was 2.9%. The youth minimum wage simply wasn't terribly binding in the mid 2000s. That's one reason that Hyslop and Stillman's very nice piece didn't find any employment effects of increases in the youth minimum wage at the time. Note further that Hyslop and Stillman found evidence of employment decreases for youths until 2003; unemployment rates for folks aged 20 and up dipped as low as 2.9% in 2004. Once the adult labour market completely overheated, there was no effect of changes in the youth minimum wage on youth unemployment.

Here's an analogy. State Highway 73 runs from Christchurch over to the West Coast. The first part of it is flat and straight. We're all driving along to the West Coast. But we're a bit annoyed at a few slow drivers. So we put up a minimum speed limit - say at Kirwee where the road is still nice and flat. 50 kph minimum speed for cars with 2 litre engines, no minimum speed for cars with smaller engines. No problem. Any cars that were driving slow just speed up a bit. Then we increase the minimum limit, say around Darfield: 70 kph for the powerful cars, 50 kph for the ones with smaller engines. Still nobody notices. So we up the minimum speed to 75 kph for all cars regardless of engine size at Springfield. Things are fine for a bit - a couple of scooters had to pull over and the small cars have turned off their air conditioners. Then we hit the Southern Alps and even reasonable cars have to work hard to get up the hills. The smaller cars can't keep up with that minimum speed limit and have to pull over. Hyslop and Stillman found that small cars weren't affected by increases in the minimum speed limit from Christchurch to Darfield. But their data didn't include the Southern Alps, never mind Springfield. The mountains still loomed.

It could be the case that something other than the abolition of the differential youth minimum wage explains the rather large increase in the youth unemployment rate relative to the adult unemployment rate. But Ardern's blaming National's failure to invest in youth training courses doesn't seem the simplest or most plausible explanation.

In praise of exclusive access

One of my favourite Kiwi enviropreneurs is Elm Wildlife Tours down in Dunedin. I always recommend that folks visiting the Department book in with them if heading that way. Elm partnered with a local farmer whose land had Yellow-Eyed Penguin habitat: Elm gets exclusive access for its tour groups and works to improve the habitat. Making the resource excludable encourages conservation.

Now the Kiwi Federation of Freshwater Anglers complains of exclusive access deals on land surrounding some high country rivers with good fly fishing.
Kiwi anglers are being "locked out" of top fishing spots by businesses cutting expensive deals with private landowners, angry fishermen say.

In a growing number of "exclusive capture" deals, mostly in prime backcountry, "large sums" have been paid to landowners for the sole right to fish on their land, the New Zealand Federation of Freshwater Anglers says.

Rich foreigners and celebrities, including former United States president Jimmy Carter, actors Liam Neeson and Timothy Dalton, and former Australian prime minister Malcolm Fraser, pay thousands of dollars for guided helicopter fishing expeditions on New Zealand's most prized trout rivers.

But there are now fears more access will be lost to ordinary Kiwi fly fishermen – thought to number about 100,000.
I love the scaremongering about both rich people and foreigners.
The Government says the deals are the "legitimate right of a property owner" but it has asked the new Walking Access Commission to try to negotiate for open access "where there is access restricted".

Federation president Jim Hale said parts of rivers in the North Island and South Island had been captured by "unscrupulous commercial interests".

"It is practised by those who have captured these trout fishing waters for their own financial profiteering, even though the running water and the fish within them do not belong to them.

"We will fight this scourge wherever we find it, with whoever is involved, with all of the determination and resources at our disposal," Mr Hale said.
Compare the landowner's incentives to maintain and enhance habitat when such work brings greater access fees with those incentives when there's zero excludability.

Wouldn't it make more sense for the Federation to up its membership fees and maybe start paying for member access in deals that could enhance habitat protection?

Update: Also see HomePaddock.

Monday, January 10, 2011

Dutton's Due

From the Wall Street Journal:
Denis Dutton was one of the most prominent patrons of the arts of the 21st century. This fact has only become apparent in the past 10 days, as writers and editors have begun to think about his legacy in the wake of his death from prostate cancer at the age of 66.

The unexpected news of Dutton's passing left many of us feeling stunned and guiltily remiss. The shock came in part because Dutton had kept his illness private and had never given any obvious sign of weakening powers. The guilt was due to the realization that his contributions to contemporary intellectual life had never been properly esteemed during his lifetime.

Most readers knew of Denis Dutton—if they knew of him at all—as the creator of a popular website, Arts & Letters Daily. To writers and editors, he was an influential arbiter of culture to whom we appealed to help promote our work. The reality is that he did more for serious cultural criticism than any other figure in the Internet age. Dutton's life was rich and varied—he was, often concurrently, a professor, philosopher, writer, editor and entrepreneur. But it is for his website, launched in 1998, that he will be remembered.

Sunday, January 9, 2011

PR oopses

I'd reckoned the retailers' campaign to impose GST on low value internet import transactions not that great an idea.

It looks now to have been a PR disaster, at least over in Oz. Inside Retailing is scathing:
For nearly a week now Australia's dumbest PR consultancy has fuelled blanket publicity telling every Australian consumer loud and clear that they'll get great savings by shopping online on off-shore sites. Not only will they save GST of 10 per cent, the media has educated us all, but there are greater savings of as much as 50 per cent on some lines - and even free shipping on some websites.

Television news programs, talkback radio, websites and newspapers have been packed with graphic examples of the savings to be made by shopping off-shore and the whole community now understands that charging GST on imported goods valued at under $1000 would make no difference to consumers' purchasing decisions.

The overriding message in consumers' minds? 'Have you tried shopping online yet? You'll save a fortune!'


Even Gerry Harvey now appears to have conceded it was all a big miscalculation. 'Giant cock-up' would be a more apt phrase.

Harvey apparently told The Age that he felt his involvement was "suicidal" and that the full page advertisements during the Boxing Day sales was "bad timing". He claimed the message had been poorly communicated.


In the end, the retailers in this poorly-counselled coalition have invested $200,000+ promoting to the Australian community how much better off they are shopping offshore.

They've alienated their existing customers, discouraged would-be customers and shipped sales right out the door to the US or EU.

Far from presenting a valid, cohesive case for what is essentially taxation reform, this coalition and its PR campaign strategists have actively damaged the market for every single retailer in Australia.

This is the sort of misadventure that will be used in case studies in universities worldwide in future years, a breathtaking illustration of public relations ineptitude.
At least the Kiwis here, to the best of my knowledge, haven't poured money into the campaign. At least I've not seen any ads.