Saturday, April 30, 2011

Appreciating little bits of freedom

It's good to stop every now and then to appreciate things.

We take for granted in Christchurch that you can run a few chickens in the back yard and sell the eggs. Our back neighbours have a few chooks; folks the next block over sometimes have a sign out advertising surplus eggs for sale.

In lots of cities in the States, you'd be fined for keeping chickens. Here's Christchurch's very sensible alternative:
While you can keep poultry / birds on your residential property, if you can't control your rooster's crowing at unreasonable times (prior to 7am), it will need to be removed from your property.
In Canada, you'd likely be in trouble with the egg marketing monopoly for selling the eggs even if you were in a place that allowed backyard chickens.

We've no plans to keep chickens. But I like that our neighbours have that freedom.

Business schools

Economics departments usually sit uneasily in business schools. Here's one reason why:
Paul M. Mason does not give his business students the same exams he gave 10 or 15 years ago. "Not many of them would pass," he says.

Mr. Mason, who teaches economics at the University of North Florida, believes his students are just as intelligent as they've always been. But many of them don't read their textbooks, or do much of anything else that their parents would have called studying. "We used to complain that K-12 schools didn't hold students to high standards," he says with a sigh. "And here we are doing the same thing ourselves."

...

Business majors spend less time preparing for class than do students in any other broad field, according to the most recent National Survey of Student Engagement: Nearly half of seniors majoring in business say they spend fewer than 11 hours a week studying outside class. In their new book, Academically Adrift: Limited Learning on College Campuses, the sociologists Richard Arum and Josipa Roksa report that on a national test of writing and reasoning skills, business majors had the weakest gains during the first two years of college. And when business students take the GMAT, the entry examination for M.B.A. programs, they score lower than do students in every other major.
While Canterbury's economics department is in the College of Business and Economics, we award degrees in each of Arts, Sciences and Commerce; we sit in all three Faculties. Most of our majoring students complete the Bachelor of Commerce. I tend to pitch my courses towards those students coming in via the Arts pathway, partially because most of my colleagues don't and partially because it suits me.

As we move down the path towards AACSB membership, I wonder how many of our Econ students will flip from Commerce to Arts, substituting mandatory courses in management and information systems for electives across political sciences, history, philosophy and psychology.
A forthcoming report from the Carnegie Foundation for the Advancement of Teaching praises 10 American colleges of business as models for integrating the liberal arts and practical training.

One of the objects of praise is business-oriented Babson College. Its president, Leonard A. Schlesinger, says that concrete business skills tend to expire in five years or so, as technology and organizations change. History and philosophy, on the other hand, provide the kind of contextual knowledge and reasoning skills that are indispensable for business students.

"If we didn't provide that kind of timeless knowledge to our students, we would be providing a seriously inadequate education," Mr. Schlesinger says. At the same time, Babson requires an ambitious practicum experience. In groups of 30, first-year students plan and create small businesses, with real money at stake. Last spring's businesses sold flip-flops, speakers, and chocolates. Any profits at the end of the year are donated to charity.
The biggest obstacles are student fears that employers put less value on an Arts degree than a Commerce degree, and that the degree now effectively has to be chosen before the student sets foot on campus; the mandatory courses for Commerce students are mostly completed in first year, after which the marginal costs of switching to an Arts or Science degree are high. But as for employers:
According to national [Note: US. Your mileage may vary for NZ] surveys, they want to hire 22-year-olds who can write coherently, think creatively, and analyze quantitative data. They're perfectly happy to hire English or biology majors. Most Ivy League universities and elite liberal-arts colleges, in fact, don't even offer undergraduate business majors.

Back in 1980, J. David Hunger, the St. Benedict/Saint John's fellow, wrote a monograph about the travails of undergraduate business education. He has never quite resolved his ambivalent feelings about the field. "At some times in my life," he says, "I've argued that we don't really need a business major."
There could be a nice market niche for an Australasian business school that followed the less travelled path.

Friday, April 29, 2011

...and on the Right

I've been wrong on every turn on the ACT contracts on iPredict, but through some decent arbitrage plays was able to limit my losses to about $21 in total.* My crystal ball is very dim; discount things as you like.

Don Brash as incoming ACT Party leader will face the same strategic problem that ACT has faced for rather a long time. If they're a strong force on the economic right but cement themselves into social conservatism, they only have bargaining power with a future National government to the extent that they can commit to bringing down a National government, or preventing one's creation, in favour of a Labour-led alternative. National's policies would have to be very far from economic liberalism before that threat became credible.

ACT's best hope is if National wants to have a scapegoat for sensible but unpopular economic policies. But blame the coalition partner only gets you so far, as Key knows. Were Key inclined to break campaign promises and blame the coalition partner, ACT would have been happy to help out in the first term. Were Key even inclined to support the reversal of legislation that National opposed and that National did not rule out changing during its campaign, like the youth minimum wage, he could just have supported Douglas's youth minimum wage bill and blamed ACT for it. The minor party that can't plausibly flip to the other side has constrained bargaining power. They'll get more with more seats, but I'm unconvinced that an ACT party with 10 seats would have much more bargaining power with National than the Green party with 10 seats has with Labour. Or, rather, let me put it another way: I'm unconvinced that they'll get policy concessions beyond those that National would likely have enacted anyway had ACT died. Regardless of ACT's existence, National was going to have to start on the serious work of fixing the structural deficit in its second term. It's been laying the groundwork preparing folks for it. The counterfactual matters.

This had been my biggest critique of Rodney Hide's leadership: in his estimation, ACT did best by proving themselves a safe and reliable partner for National - the loyal supporter that would receive its policy dues. Such was Hide's loyalty that he even backed Key against Roger Douglas's very sound critiques of government economic policy. All the effort and opprobrium of handling the Auckland Supercity campaign could be worth it if the Regulatory Responsibility Bill had gotten through. The unified opposition of the bureaucracy, Treasury, and the legal community to the bill suggests that there might be some problems with it as drafted, however worthy and necessary its intentions are. And I'd bet that that will yet kill it in committee. In which case the last term's not really come to much - supporting National through a bunch of nonsense to no policy benefit.

I had rather strongly misread Brash's play. I'd thought that his push for the ACT leadership was designed as an offer to be refused: lots of negotiations through the media and teasing them with that he'd commissioned some polling that would be available a fortnight after he launched his attack on Hide - it looked more to me like somebody trying to make sure that everyone had seen that he'd given it a go than like someone who really wanted the job. Seems I was very wrong.

I'd thought that Brash wanted the pretence of having sought the ACT leadership before launching his own vehicle that was free of some of the ACT baggage and to which the more liberal side of ACT might have fled. Then, he could have launched an economically right wing party free of the social conservatism that's been far too dominant in ACT over the last few years. A few key socially liberal policies like easing up on the drug war and eliminating asset forfeiture could have had a truly liberal party in a spot where it could credibly join up with the Greens to make civil liberty demands in a coalition with Labour. Then, post election, the new liberal party could put up a small set of "must do" and "mustn't dos" as condition of coalition with either National or Labour/Green. In that kind of position, a liberal party could keep Labour from doing anything too horrid on the economic front while promoting civil liberties, or keep National from doing anything too awful on civil liberties while promoting sound economic policy. I think the numbers are there that would back that kind of liberal party, but it couldn't easily happen if ACT were still in play.

In hindsight, it was entirely wishful thinking. I should have paid more attention to the talk of John Banks being onside for whatever play Brash was making; Banks is not an obvious first choice as a partner in a liberal party. But I'd never paid any attention to the former Auckland mayor and didn't realize the significance of his entry. In today's interview with Kathryn Ryan, Banks talks about being able to implement conservative policies (check 17:18, which is followed by an awfully embarrassing ebullience about the upcoming royal nuptials). I really hope he's only thinking about economics. But it'll be interesting to see where Brash takes the party. Campaigning on a straight platform of "Implement the 2020 Taskforce's Recommendations" would be great. But if they also wind up working to stomp on what's likely to come from the Law Commission's review of the Misuse of Drugs Act, they'll have done more harm than good.

A Brash-led ACT will do much better in the polls. iPredict's contracts on ACT returning to Parliament stopped being pulled downwards with the drop in the price of the contract on Hide's keeping Epsom and started being pulled up by the contract on Brash leading ACT. I was shorting the "At least one ACT MP to be elected to next Parliament" contract a few weeks ago when it was around the 50 cent mark; it's now closer to $0.90. ACT's projected share of the Party Vote has gone up to 7.5% from 3; National's has dropped from around the 46% range to about 45%. National's probability of winning the next election is back around the 85% range - about where it was trading when it looked more likely that ACT would fold and ACT voters would go back to National. The market says National's chances of forming government are little affected by the change in ACT leadership but that ACT's survival is greatly enhanced. And so Rodney Hide did the right thing by ACT, and very graciously, in standing aside.

* My losses, though they could have been worse were it not for some timely noticing that the sum of bids on contracts spanning particular spaces often summed to more than one (for example, Brash was hardly going to both form a new party AND run ACT, now, was he?):
  • Closed stocks
    • $12 on Hide keeping his seat in Epsom
  • In the running
    • $3 on Hide losing his position as ACT leader
    • $23 on ACT returning to Parliament
    • $12 on Brash becoming ACT leader
  • But against these are $29 gain on whether a new party would be formed on the right

Keynes versus Hayek, Round II

I'm blown away by the production quality on this one. Check it in HD on full screen.
Massive kudos to the production team. See how many faces you recognize among the reporters at the end.

WATCH

Stadiums

The Rugby World Cup folks have apparently been getting tetchy about the Herald's critiques of the cost of the RWC
Former All Black Frank Bunce said it had been known from the beginning that money would be lost.

Mr Snedden, CEO of Rugby NZ 2011, lashed out on radio on Tuesday night against the Herald's survey of costs.

"In my view, it's a piece of junk," Mr Snedden said.

"And it's really rare that I would get into any sort of public slanging match about the media."

Mr Snedden said it was unfair to count projects that the tournament could have been staged without.

"For God's sake, the Rugby World Cup could easily have taken place without anything being done to the airports or ports."

He also said ticket revenues should have been included as an economic benefit to the country.
I've not looked at the Herald's tabulation of costs in any particular detail. Treatment of ticket revenues is a fun one though. Assume that the event were a purely private enterprise. Ticket revenues would be a benefit to the event organizers, a cost to the public, and the smallest possible lower bound estimate of the gross benefit enjoyed by those attending the event. None of those is an "economic benefit to the country", though the surplus net of ticket cost enjoyed by those attending the event is a benefit accruing to those attending and the surplus of ticket revenues over event costs is a benefit accruing to the promoter.

Now suppose that the event were entirely publicly funded, with the government as residual claimant on profits and losses. Every dollar spent on a ticket then counts as a cost to the attendee, a benefit to the government, and a lower bound estimate of the potential gross benefit enjoyed by attendees. In that case we'd be right to count ticket revenues as a benefit to the country inasmuch as it offsets some of the crazy losses we're imposing on taxpayers. It would be a mistake to tabulate the costs to the government without considering the ticket revenues accruing to the government.

Whether to count ticket revenues then as a benefit to the country depends on the contractual arrangements between RWC and the government. If the government is on the hook for losses and if ticket revenues reduce the amount by which the government is on the hook, we can count those revenues as a benefit to the country - a reduction in the gross cost for which we're otherwise liable. If the ticket revenues accrue to the promoter, it's a benefit to the organizer. So Snedden's right in the case in which the government is residual claimant on losses net of ticket revenues. If every dollar that RWC fails to lose is a dollar for which taxpayers won't be liable, then ticket revenues get to count as a benefit. But we'd want to be sure that the cost estimate also includes all the potential operating losses for which the government would be on the hook.

Michael Dickison noted some of the relevant literature in today's New Zealand Herald. Where he's previously had Tim Hazeldine citing the economic insanity of benefit estimates on these kinds of events, he now has me on deck. That probably counts as a broad consensus of New Zealand economists. It looks like Tim's done the work reverse engineering the purported benefit figures. Excellent.

Here's some of the relevant literature:
  • Zimbalist and Noll. "Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums". Brookings Institution, 1997. The book's key findings are summarized here. They come out strongly against such spending, noting that government investments in stadiums are regressive, with the main benefits going to rich folks (players, team owners). The key takeaway for NZ purposes:
    As noted, a stadium can spur economic growth if sports is a significant export industry—that is, if it attracts outsiders to buy the local product and if it results in the sale of certain rights (broadcasting, product licensing) to national firms. But, in reality, sports has little effect on regional net exports.

    Sports facilities attract neither tourists nor new industry. Probably the most successful export facility is Oriole Park, where about a third of the crowd at every game comes from outside the Baltimore area. (Baltimore's baseball exports are enhanced because it is 40 miles from the nation's capital, which has no major league baseball team.) Even so, the net gain to Baltimore's economy in terms of new jobs and incremental tax revenues is only about $3 million a year—not much of a return on a $200 million investment.
  • Dennis Coates's work. he has a lot of papers out on the topic, but the main findings are summarized in this article in The American. Note that Brookings, above, is a top notch center-left think tank; AEI runs center-right. In one telling paper, he finds that strikes in professional sports leagues impose no economic cost on cities that have sports franchises; if the economic benefits of stadiums and sporting events are high, we'd expect serious losses. Instead, there's no effect. Others have found the same thing, or that effects are relatively small.
  • John Crompton, "Economic Impact Analysis of Sports Facilities and Events: Eleven Sources of Misapplication". He lists some of the ways folks fudge the numbers when they want to purport that stadium spending confers large national benefits. It would be mildly interesting to run it as a tick sheet against benefit estimates for the RWC.
  • Baade and Dye, "The Impact of Stadium and Professional Sports on Metropolitan Area Development".
    The evidence presented here is that the presence of a new or renovated stadium has an uncertain impact on the levels of personal income and possibly a negative impact on local development relative to the region. These results should serve as a caution to those who assume or assert a large positive stadium impact.
    See also Baade 1996
And of course Cowen's classic "Should Governments Subsidize Stadiums and Events?".

Paul Walker gave a nice summary as well in the leadup to the government's decision to subsidize stadium construction in Dunedin.

Thursday, April 28, 2011

Seeing the violence inherent in the system

Our incarceration rituals mask the violence done upon a growing segment of the population. The medicalization of capital punishment - turning it from an explicit act of public retribution to a sanitized procedure that anaesthetizes the process for the audience if not for the victim - is the most explicit form of this transformation. But so too is incarceration as compared to the forms of physical punishment that once were common.

And so Peter Moskos wants to bring back flogging. Not because he wants to beat prisoners but rather because making the punishment a more unpleasant spectacle for the voters who demand harsh sentences for minor offences might make them reduce their demand for punishment. Moskos proposes allowing convicts to choose two lashes per year of incarceration in lieu of incarceration. He writes:
When I started writing In Defense of Flogging, I wasn't yet persuaded as to the book's basic premise. I, too, was opposed to flogging. It is barbaric, retrograde, and ugly. But as I researched, wrote, and thought, I convinced myself of the moral justness of my defense. Still, I dared not utter the four words in professional company until after I earned tenure. Is not publishing a provocatively titled intellectual book what academic freedom is all about?

Certainly In Defense of Flogging is more about the horrors of our prison-industrial complex than an ode to flogging. But I do defend flogging as the best way to jump-start the prison debate and reach beyond the liberal choir. Generally those who wish to lessen the suffering of prisoners get too readily dismissed as bleeding hearts or soft on criminals. All the while, the public's legitimate demand for punishment has created, because we lack alternatives, the biggest prison boom in the history of the world. Prison reformers—the same movement, it should be noted, that brought us prisons in the first place—have preached with barely controlled anger and rational passion about the horrors of incarceration. And to what end? Something needs to change.

Certainly my defense of flogging is more thought experiment than policy proposal. I do not expect to see flogging reinstated any time soon. And deep down, I wouldn't want to see it. And yet, in the course of writing what is, at its core, a quaintly retro abolish-prison book, I've come to see the benefits of wrapping a liberal argument in a conservative facade. If the notion of tying people to a rack and caning them on their behinds à la Singapore disturbs you, if it takes contemplating whipping to wake you up and to see prison for what it is, so be it! The passive moral high ground has gotten us nowhere.

...

So is flogging still too cruel to contemplate? Perhaps it's not as crazy as you thought. And even if you're adamant that flogging is a barbaric, inhumane form of punishment, how can offering criminals the choice of the lash in lieu of incarceration be so bad? If flogging were really worse than prison, nobody would choose it. Of course most people would choose the rattan cane over the prison cell. And that's my point. Faced with the choice between hard time and the lash, the lash is better. What does that say about prison?
The essay engages and provokes throughout. Moskos argues that incarceration replicates one of the harsher historic punishments - banishment.

I'm pulled to agree with Moskos. But I worry. I worry that the best evidence seems to suggest that prison deters crime mainly through incapacitation - criminals cannot commit crimes except against other criminals while behind bars. There's good evidence for deterrent effects through things like California's three strikes legislation, but incapacitation matters a lot. Longer term crime rates could go down with a switch from prisons to flogging if those committing crimes were better able to maintain a connection to the community and if prisons encourage recidivism. But rates would almost have to increase in the short term: those viewing flogging as much cheaper than a jail term would expect a reduction in the effective expected punishment for a criminal act. I'd hope that Moskos's prescription would maintain the use of prisons as preventative detention for the really scary crazy dangerous cases.

A decade ago I would have worried that reducing the price of punishment experienced by the state would increase the total amount of punishment. If it's expensive to keep a prisoner for a year, the state might be reluctant to put marginal offenders in jail. That's not proven much of a constraint, so I worry rather less about that now.

But I do worry that the mob used to enjoy the spectacle of a public hanging.
There’s a fascination about a hanging, or a good flogging, and the first time I saw a man shot from a gun – at Kabul, that was – I couldn’t take my eyes off it. I’ve noticed, too, that the most pious and humanitarian folk always make sure they get a good view, and while they look grim or pitying or shocked they take care to miss none of the best bits.
Bonus points for those who pick the quote without Googling.

I hope men would recoil and think better of a public flogging of a cancer sufferer whose only crime was smoking a weed that stopped his chronic vomiting long enough to let him eat. But an awful lot of people enjoy watching Cops. I worry Moskos might be overly optimistic about the elasticity of public willingness to punish with respect to the unpleasantness of the display. I wonder how many would really be averse to seeing the violence inherent in the system.

Pacifism

Bryan Caplan advocates pacifism.

He lives in Fairfax County, which has one of the more militarized and non-pacifistic police forces in the United States. Fairfax SWAT teams murder dentists who wager on sports; best I'm aware, Sal Culosi's murderer is still on the police force. Here is the list of people officially killed under authority of the State of Virginia since 1982. I'm not going to make a guess as to the Caplan household tax burden, but about a fifth of his federal taxes go to the military.

How much weight does pacifism have in Bryan's overall utility function? He almost certainly rightly concludes that the total amount of pacifism in the world is unaffected by his marginal tax contribution to Virginian and American anti-pacifism, and that he probably does more to further pacifism where he is now as compared to moving to a place like New Zealand where less than a twentieth of his taxes would go to pay for a military whose main function is assisting in civil defence, emergencies, and enforcing property rights in fishing quotas in New Zealand's territorial waters.* But if Bryan's pacifism includes an unwillingness to pay for a war machine as well as a refusal to serve in one, I'd be very happy to have Bryan as a neighbour some day.

* Here's the appropriation summary for Vote.Defence 2010. Total NZ military spending of some $2.85 billion includes only some $79 million on "operational deployments"; I'd have to guess most of that is the Afghanistan deployment. If I'm one of two million or so taxpayers, my share is about $40. I doubt that the overall Afghanistan mission passes cost benefit, but at least the NZ involvement is relatively minor. New Zealand has no air combat wing (Kiwis are flightless). This has far less to do with New Zealanders being inherently pacifistic than with that we face such tiny external threat, and such low odds of repelling any country with sufficient blue water forces to actually get out here, that the optimal level of national defence is near zero.

Wednesday, April 27, 2011

We don't really want to know

I expect few people will sign up for this service. But Robin Hanson might.
As humans, we naturally want to know what others think of us, either to boost our egos or to help us know what skills we need to work on. Failin.gs puts the concept of brutal honesty to the test by letting you post opinions from those who know you, without revealing who says what. Basically, failin.gs wants to help you answer that age-old question:
"What do people think of me, really?"
Create a profile, blast your social networks, connect with friends (and critique them too)!

Don't worry, you can easily make your profile completely private so you're the only one that can see your feedback.
HT: LifeHacker.

CatBert, the evil HR director, would recommend that the Pointy Haired boss set up two dozen different accounts on Failin.gs and send a different profile to each of his employees. Then use the results in setting the tone for their annual performance reviews.

Peer effects aren't an externality

Suppose you started hanging out with Canadians. After a couple of months, a social scientist found that you had increased your likelihood of wearing plaid. And, you'd started listening to Rush. Does this mean that a taste for good fashion and good music constitutes a policy-relevant externality and we should subsidize flights to New Zealand from Canada to facilitate these positive interactions?

How about if you started skiing more after you started dating a skier? If folks generally disapproved of skiing, would this provide an argument for taxing skiers' romantic encounters?

Well, poor fitness may be contageous. Now forthcoming in the Journal of Public Economics, here's the paper by Carrell, Hoekstra and West. Air Force Academy Cadets were randomly assigned to residential social networks to test the effects of social connections on fitness.
We find statistically significant peer effects that are 40 to 70 percent as large as the own effect of prior fitness scores on current fitness outcomes. Evidence suggests that the effects are caused primarily by friends who were the least fit, thus supporting the provocative notion that poor physical fitness spreads on a person-to-person basis.
It's not at all implausible that peer effects of this sort matter. If you hang out with a bunch of fitness buffs, an extra five pounds will make you feel like a slob and you'll be more likely to do something about it than if all your friends are twenty pounds overweight and you're the (relatively) thin one.

I'm happy to take the empirics on this one. But I'm pretty sceptical about what folks are drawing as policy conclusion. Here's Kevin Milligan, via Twitter:
Forthcoming in J.Pub. Econ: http://bit.ly/i3GzZK. Finds obesity affected by peers--externality cld be corrected by pigouvian measure?

That's not an endorsement of fitness tax credits. But it does suggest that obesity has more than individual consequences; invites policy.
There's one case where I can agree with Kevin that it could be a policy-relevant externality: where you're coerced into being part of a particular social network. If you're forced to be in a public school where all your classmates are obese, the effect of their obesity on your fitness habits could be seen as an externality. Or, symmetrically, if your classmates are fitness nuts, the costs they impose on you to keep up could be an externality. This breaks down as soon as folks start being able to form their own peer groups as subsets of the people with whom they're mandated to share a class, and it's nowhere shown that the external effect is actually Pareto relevant, but it's not crazy to think about. The same would hold true for prison cellmates.

But out in the normal world, people choose their peers. Interpersonal effects within these voluntary arrangements can hardly be seen as externalities. As always, I follow the Buchanan and Stubblebine delineation of external costs. An external cost is only Pareto-relevant when there is the potential for gains from trade: if the gains to the affected party would be sufficient to compensate the affecting party for a marginal change in behaviour. How could we ever presume that a cost one friend imposes on his peers isn't part of an optimal equilibrium involving potentially complex side-payments? If people voluntarily choose to continue to associate with one another, shouldn't our presumption be that they've sorted things out? We all impose burdens on our friends and family; where the relationships continue, it's pretty likely that the abatement costs exceed the costs imposed.

Now maybe you could start building a case if you added in information market failures: that you didn't know that hanging out with your particular chosen peer group would have you adopt more of their habits. I'm pretty sure a whole chunk of the self-help book industry centres around picking friends who aren't bad influences. But it's still a big leap to claim failure; it's at least as plausible that the person with the less fit peer group realizes that his less fit friends are healthy and happy and that the folks over in that other peer group are wasting their time (and suffering a whole lot) by exercising too much and forgoing too many tasty treats. Further, we can build as strong a case for that too-fit people impose an external cost through peer effects in forcing others to exercise more. The case for a gym tax is as strong as the case for fat taxes if we worry about peer effects and don't want to presume to decide whose norm is the right one.

And even if we were to assume that the external cost existed, and we assume that it's the less fit that are imposing the relevant cost rather than the gym nuts, policy solutions can only be efficient where the burden avoided is less than the burden imposed. Is it really likely that the benefits to the thinner members of peer groups exceed the rather large costs imposed on everybody by any plausible policy targeted at obesity?

I worry when we assume that all interpersonal effects constitute Pareto relevant externalities as the scope for government intervention is then without bound. Suppose the Air Force study cited above sorted people into social network groupings where the behaviour of interest weren't fitness but rather were sexual activity. And suppose they found that being put in a grouping with more promiscuous peers made cadets more likely to become more sexually active. Such a result wouldn't be surprising. Would it make your sex life the legitimate object of policy because of potential effects on your non-participating peers? Only if we're willing to forget the difference between interpersonal effects and externalities.

Monday, April 25, 2011

Prediction Act

Will former National Party leader Don Brash take the ACT Party leadership? Will he start a new party on the right? Here's the odds over at iPredict:
  • Rodney Hide to win Epsom as an ACT Party candidate: 29% chance. Contract had been trading over sixty cents for most of the last month. Recall that ACT needs to keep Epsom, take another electorate, or get over 5% of the ballot to return to Parliament. It's now 30%, but only because I bought a few shares. The contract's fun for its volatility; I have no special insight into Epsom.
  • At least one ACT MP to be elected to next Parliament: 51%. Had been trading around 64% for most of the last month. Nudged up past 70 cents on the early rumours of Brash taking over ACT, then collapsed to the mid 40s before starting back. The market's expecting ACT's chances outpace Hide's where previously the two markets ran in lock step.
  • What share of the party vote will the ACT Party win at the next election? 3%. I've never put a huge amount of faith in the continuous vote share markets as the payoff curve is too flat for really reliable results. But the market isn't seeming to think that ACT's 50/50 shot of returning to Parliament is coming from a surge in the popular vote or from Hide's keeping Epsom.
  • Rodney Hide to depart as leader of ACT: 34%. Don Brash to lead ACT: 32%. Perhaps punters are figuring Brash would take an electorate seat for ACT if he took the leadership. Or perhaps they're reckoning that Brash winning a leadership challenge would lead to higher poll numbers where a successful Hide defence would nevertheless prove pyrrhic: something like 1/3 chance of 7% of the vote under Brash plus 2/3 chance of 1% of the vote under Hide - that gets you the 3% trading price in the vote share market. But there are other ways of making the numbers work, and I'm wary of reading too much into the 3% price in the vote share market.
  • Rodney Hide to win Epsom as an independent or representing a party other than ACT or National: 3%. This contract was basically dead prior to the current unrest; it's since seen a couple of spikes up to 8% and down to zero. Whoever had the big orders in at the bottom of the book has hopefully done well. Somebody's presumably thinking that Hide will be rolled and will then run as an independent. I'd throw in a few standing shorts around 8%, but then I'd be in constant terror that I've not been watching Twitter closely enough.
  • New right wing party (with Brash) to be registered before the next General Election: 40%. This had been trading south of 10% for a few weeks before spiking up to 70% with the Don Brash interviews; it's now back down to 40%.
Current prices suggest ACT's chances would be better with a change in leadership, but they're far too volatile to draw strong conclusions for now. I've had to update prices twice while drafting the post. Stay tuned.

Election blackouts

I'd almost forgotten this fun bit of Canadian election law. If you live in Toronto, you'll get election results from ridings in the Eastern time zones as the polls close. But if you blog about them before the polls close in British Columbia, you're violating the election laws.
Realistically, Elections Canada cannot possibly enforce a nationwide ban on premature Tweeting or blogging or Facebooking of election results. It's the equivalent of King Canute commanding the sea to go back.

Nonetheless, John Enright, who speaks for Elections Canada, says his agency has no choice but to administer the law as written. Citizens are allowed to phone or text friends, or send private e-mails. But posting to a Facebook wall, to a webpage or to Twitter will be considered a violation.
You can phone or text friends (not transmitting to the public), but you can't Tweet to friends. What if you have a closed account so only "friends" can see your tweets? And what if you're not particularly discriminating about who your friends are? How many friends can you tell before your private conversations become public transmissions?

The law's worried that voters in the West either gain strategic advantage over those in the East if they can condition their voting on outcomes in the East or that voters in the western time zones are unduly affected by bandwagon effects. It's not crazy. It was always disheartening to turn on the TV in Manitoba to be told what government the Ontarians and Quebecois had foisted on the rest of us; it's unclear though that being told that in real time would have had substantial effect. It's conceivable that folks Ontario westward might have been more inclined to vote Reform in 1993 on seeing the complete decimation of the Tories in the Atlantic provinces and that a few ridings in the West where the Liberals or NDP came up through a split Tory/Reform vote would have had some Tories flipping to Reform.

But what evidence is out there from the States suggests there's little to worry about. America spans slightly fewer time zones and doesn't restrict election night broadcast of results from the East. At most, early poll results may depress turnout where the election is an unexpected landslide. The losses from that seem rather less than the intrusion on democratic speech imposed by broadcast restrictions. The strongest case I've heard made is that folks in the Florida panhandle in 2000 were put off by early incorrect reports that the rest of Florida was to be a landslide. But that only mattered because Florida was effectively a single district for purposes of the Electoral College; no Canadian electorate boundaries span time zones as best I'm aware. Maybe I've missed something on the two-minute lit search, but if there's no strong evidence from the US that folks in California are seriously affected by hearing how New York voted, it's hard to make the case for continued broadcast restrictions in Canada.

Saturday, April 23, 2011

Markets in Everything: Things that make Kiwis laugh at Americans edition

If it weren't for New Zealand's ridiculously onerous quarantine restrictions on dogs, we'd be well set as a luxury vacation destination for bored American border collies with rich owners. This piece from the WSJ is now a few months old, but I'd missed it between Christmas and New Year's.
Herding experts—yes, there is such a thing—say it's increasingly common for people who get border collies as pets to wind up renting or buying sheep just to keep their dogs busy. "It's something that's snowballing all the time," says Jack Knox, a Scottish-born shepherd who travels the U.S. giving herding clinics.

Each day, an average of 18 dogs visit Fido's Farm outside Olympia, Wash., their owners paying $15 per dog to practice on the farm's 200-head flock of sheep. Herding revenue at the farm is up 60% over the past five years, says owner Chris Soderstrom, who bought the farm in 2004.

"We get many people sent down here from the dog park in Seattle," says Ms. Soderstrom, 63 years old. "They need to get their dog a job."

...

Border collies appear willing to herd until they drop. In fact, they never appear to grow bored of organizing sheep. If they do, for an extra $5 dogs at Fido's Farm can also herd ducks.
It's as though Tom Sawyer went pro in the "Take a Turn at Whitewashing" business:
Tom gave up the brush with reluctance in his face, but alacrity in his heart. And while the late steamer Big Missouri worked and sweated in the sun, the retired artist sat on a barrel in the shade close by, dangled his legs, munched his apple, and planned the slaughter of more innocents. There was no lack of material; boys happened along every little while; they came to jeer, but remained to whitewash. By the time Ben was fagged out, Tom had traded the next chance to Billy Fisher for a kite, in good repair; and when he played out, Johnny Miller bought in for a dead rat and a string to swing it with – and so on, and so on, hour after hour. And when the middle of the afternoon came, from being a poor poverty-stricken boy in the morning, Tom was literally rolling in wealth. He had besides the things before mentioned, twelve marbles,part of a jews-harp, a piece of blue bottle-glass to look through, a spool cannon, a key that wouldn’t unlock anything, a fragment of chalk, a glass stopper of a decanter, a tin soldier, a couple of tadpoles, six fire-crackers, a kitten with only one eye, a brass door-knob, a dog-collar – but no dog – the handle of a knife, four pieces of orange-peel, and a dilapidated old window sash.

He had had a nice, good, idle time all the while – plenty of company – and the fence had three coats of whitewash on it! If he hadn’t run out of whitewash he would have bankrupted every boy in the village.
If only Tom's clients could have paid in things exchangeable for more whitewash.

HT: Isegoria

Friday, April 22, 2011

Of death and blogging

I'm no Stoic. And of the things in death that give me pause, not being able to blog or tweet doesn't make the top five. But I don't blog nearly as well as Justin E.H. Smith.
I often find that the idea of my own death is simply too hard to grasp. It may be that I am more Stoic than Nagelian: what concern is the world of mine, if the world will no longer have me? I expect my loved ones will absorb the loss; I have no large estate that will need worrying about, no mythology of transmitting my legacy through a healthy son weighing upon me; I am more than content to transfer my teaching load to someone else; and so on. I think I can even imagine my own body decaying in its coffin without being too troubled (I shiver a bit, but this is more a titillation arising from a taste for the macabre than it is a horror). But here is the thought that makes death formidable again: it is the moment after which I will never post to my blog again, after which I will never write another Facebook status update, I will never again tweet. My soul cries out: “But I can’t live without doing these things!” And death answers back: “No. But you can die.”

This is to say that my life is wrapped up with an activity from which I will have to leave off at death. But it is also the activity, I am increasingly coming to think, of actively constructing my self, and this activity, when it leaves off in death, will leave an accurate and vivid trace of a life. My online activity is, as I already put it, both mask and gravestone at once.
Many thanks to Xavier Marquez for the repeated pointers from his shared items feed. A few notable Smith hits:

Thursday, April 21, 2011

Quit freaking out about the (NZ) dollar

Yes, the New Zealand dollar is high currently relative to the US dollar. This has some folks all in a tizzy. But it's not like we're the only ones appreciating relative to the US. Should we be as worried about the drop in the NZ dollar relative to the Australian dollar? The very mild increase relative to the Euro and the Yen? Should we fear that the ghost of Muldoon has come and ensured a devaluation only relative to the Australian dollar? Ok, the ghost of Muldoon does scare me. He's been tweeting.

Here's the New Zealand dollar relative to other major trading partner currencies. I left out the Yuan since it just follows the US dollar. The link gets you the Kiwi versus the US Dollar; add in the others by hitting the "compare" box.

The New Zealand dollar is high relative to the US dollar and the Pound but has only seen lukewarm appreciation relative to the Canadian dollar and the Yen and mild depreciation against the Australian.

Here's the decline in the US dollar relative to everybody else. They've held steady relative to the Pound, but that's about it.
The US is dropping relative to everybody except the Brits.

You should be asking about my choice of start dates. I truncated the series just before a big data glitch in Yahoo Finance where an error in the recorded value of the New Zealand dollar wrecks the whole graph.

Journalist Alex Tarrant pestered Labour leader Phil Goff about the exchange rate, reminding him that a high exchange rate (which Goff opposes) mitigates relatively high current inflation rates (which Goff also opposes). Goff's answer? That economics is a dismal science so making one thing better often makes another thing worse, but that current high exchange rates induce unemployment and that inflation has worse effects when unemployment is high.

Goff didn't say it, but I suppose the policy implication is changing the policy targets agreement to tolerate higher inflation outcomes (or otherwise messing around with the Reserve Bank's mandate), resulting in a lower dollar, potentially higher employment in the short term, and rather higher inflation. But if his real policy preference is higher inflation outcomes with (he hopes) lower unemployment, it would be hard to discern that from his constant sniping at National for the increase in the price level that came from the GST increase - an increase that was fully compensated by income tax cuts. Labour's apparent proposed hike in the inflation rate would be compensated by hopes that the long run aggregate supply curve isn't vertical.

Kids Prefer Torture

In the latest survey, younger Americans are rather more likely than their elders to approve of committing war crimes: torturing enemy soldiers, killing enemy prisoners, taking civilian hostages.
The Atlantic blames Bush and Abu Ghraib. I'd be reluctant to draw that conclusion without having a bit of time series evidence. It would not surprise me at all if there's been a level shift upwards in Americans' acceptance of torture post 9/11. But the age patterning suggests less to me about cohort effects (the folks for whom 9/11 has always been a part of adulthood) and more about lifecycle patterns in aggressiveness.

It worries me a lot more that a straight majority of those surveyed, whether adult or youth, said that it is ok to deny prisoners visits from neutral third parties (like the Red Cross) and that torturing enemy combatants for military information is just fine. Anybody still surprised that Obama hasn't closed Guantanamo or allowed folks to visit Bradley Manning?

HT: Cheryl Cline

Wednesday, April 20, 2011

Rents and the social nexus

I postponed grad econometrics by a year to take James Buchanan's Constitutional Political Economy course. Buchanan there argued* that taxation is legitimate because any income above that which would accrue in the state of nature can be seen as a rent stemming from participation in the social nexus that would have been impossible absent the state. So taxation and redistribution wasn't theft.

Leaving aside problems of how to accrue the gains where the sum of marginal products is greater than one, I asked Professor Buchanan instead whether we could similarly argue for forced live kidney donations by folks over the age of 35 or so. Life expectancy beyond that which would have accrued in the state of nature could similarly be viewed as a rent. Buchanan favoured somewhat egalitarian income redistributions but not somewhat egalitarian kidney redistributions; I don't recall any particular reason why the one was acceptable but the other wasn't.

I'm reminded of this because Blunt Object points to Megan McArdle's similar drawing of parallels:
John Quiggin complains that what the classic essay I, Pencil actually shows is the wonders of a mixed economy, not the market. The essay traces all the amazing transactions that need to occur for a simple pencil to be made, pointing out that not one of the people involved could make a pencil by themselves, and most of them don't even know that they're involved in producing a pencil. But what about the US Forestry Service? Rail rights of way? The education system?

This is an argument to which the left-wing has a great deal of recourse whenever anyone suggests that people have a right to keep what they earn from voluntary transactions. You can only make money in the context of society, and so society has a right to regulate your transactions, and seize the proceeds, in any way that society sees fit.

And yet, the argument applies just as well to our sex lives or our political beliefs: they take place in the context of all sorts of government protections, from rape prosecutions to whistleblower laws. Without markets and the government, the "anything between two consenting adults" morality to which the majority of the elite subscribes would be impossible; the closest substitute for these things is family, and families have a very clear, deep, and persistent interest in regulating the sexual behavior of their members.
I'd expect that Kings could also thereby have justified Droit du Seigneur.

The argument goes farther than Megan thinks. If we only had a life expectancy of about 35 years back in the state of nature, then every year of life beyond that is a rent subject to appropriation or redistribution. So is every year of life for someone who would have died in infancy in the state of nature.

Quod nimis probat, nihil probat.

* Alas, all my notes are in my still-red-stickered office, so I can't double check.

Some days, you just can't get rid of a dictator

The New York Times suggests one impediment to getting rid of Qaddafi is that there's no place to which he can flee and consider himself safe from prosecution.

Qaddafi of course should be prosecuted in a first best world. But if we're choosing among second best worlds, the one where he has an exit option and lives on without being punished - and his people are freed - rather likely dominates the one where he doesn't and has to fight on 'till the end.

Wronging Rights says this is wrong as the International Criminal Courts wouldn't have jurisdiction over most of the crimes committed by Qaddafi, including the Lockerbie bombing. I really have no expertise in the nuances of international criminal law applying to dictators, but I would expect that what matters less is the letter of the law and what matters more is Qaddafi's expectation of whether he would be prosecuted. I don't think there's any way that the US can credibly tell Qaddafi that he'll be left alone if only he goes into exile anywhere other than perhaps China or North Korea.

Prosecuting Pinochet didn't help make it easier to convince other dictators to go peacefully.



...and the obvious lesson: if you've got a bomb with a lit fuse, you ought to make sure there's some place you can throw it.

Tuesday, April 19, 2011

Strategic voting in Epsom

Recall that if Rodney Hide keeps his district seat in Epsom, New Zealand's MMP rules mean that ACT is awarded seats proportionate to its share of the party vote even if its share of the party vote is below the five percent threshold.

Matthew Hooton Saturday predicted that Key would use current high poll ratings to finish off ACT, which he reckons would be a mercy killing.

Monday, Rob Hosking reported instead:
National’s message to its Epsom supporters looks likely to boil down to: “take a long anaesthetic swig of single malt, go down to the polling booth and vote for Hide.”
The iPredict contract on ACT electing at least one member dropped a bit with Hooton's column then came back up with Hosking's. The contract on Hide's winning Epsom didn't move with Hooton's column, but moved a bit subsequent to Key's comments reported by Hosking. The market had already priced in Hooton's analysis but moved in response to Key's statements. There's currently about a 64% chance that ACT returns to Parliament, deriving entirely from Hide's chances of winning Epsom.

Farrar notes some of the strategic voting implications for Epsom. I'll add a few more.
  • If you believe that ACT is an effective party on the right:
    • Labour and Green should want to kill off ACT and choose National for their electorate vote.
    • National supporters should vote for ACT.
  • If you believe that ACT is ineffective and, in the absence of ACT, either economic liberals will move back to National and move National's preferred policy position or form a new and more effective liberal party:
    • Labour and Green voters should vote for Rodney Hide in Epsom.
    • Centrist National voters who genuinely like Key's current policies should vote for Hide in Epsom
    • Bluer National voters should vote for National in Epsom.
It will be awfully interesting to have a look at the details of split ticket voting in Epsom after the election.

Monday, April 18, 2011

RBNZ vs Sumner

Scott Sumner's been a one-man and very influential crusader for central bank nominal GDP targeting over inflation targeting.

The NZPA asked the RBNZ for comment. Their response:
  • Inflation targeting has been successful and continues to be used by all those who adopted it;
  • GDP numbers are subject to large revision, making policy difficult to communicate;
  • the Policy Targets Agreement allows RBNZ to respond to output and to look-through one-off price level adjustments.
I'd definitely take Sumnerian NGDP targeting over a mismash of central bank policy targets. But I'd expected a better reply from RBNZ. "Everybody's doing it" isn't a good answer to Sumner's "Everybody's wrong." They're right to point to their very specific mandate to ignore one-off changes in price levels - a more mechanistic form of inflation targeting could have negative real consequences. Their pointing to the broadening of the PTA worries me, as always, though that's the fault of the PTA, not the RBNZ. And I'm not convinced by the potential for GDP adjustments to bollocks things: surely in an NGDP targeting world RBNZ would be running output gap models and setting policy to make up the difference. It might be harder to hit an NGDP target, but that just argues for larger error bands around the target.

The better answer Sumner gave himself: NGDP targeting works best in large diversified economies anyway. I can imagine a few problems resulting from our GDP figures' sensitivity to global dairy prices.

Further, NGDP targeting would have hit the exact same problems as inflation targeting over the last decade. In 2005/6, RBNZ was too loose relative to its own inflation target; why do we think that an NGDP target would have then been any the more constraining? In 2008, RBNZ saw the crisis coming and increased the money supply; I'm not convinced that they would or should have done more in an NGDP regime than they did do under inflation targeting.

As a final note, I'm really hoping that, once NZPA is gone, somebody else takes up asking the RBNZ questions about policy papers coming out of the Adam Smith Institute.

The usual caveat that I am neither a macro nor a money guy applies.

Saturday, April 16, 2011

Hidden faults

Well, that our house in South Brighton is right on the edge of a fault plane is a little worrying. But by a very lucky break, our place is, I think, on about the fourth blue contour line from the saddlepoint - so only about a twenty centimetre rise. We have added protection against any stray tsunamis.

I was at work when the quake hit, but my parents were home with the kids. They reported that the house felt like it jumped up. Well, it did. About eight inches. Not a good enough standing jump for the NBA, but pretty good for an 80 year old weatherboard place on piles on a sand dune.

The fault plane's extension offshore helps to explain all the aftershocks I've been enjoying from that direction.


In rather depressing news, Canterbury Employers' Chamber of Commerce head Peter Townsend reckons most of the central business district will need to be bulldozed along with about twelve thousand homes.

But I've also heard rumours of some really cool rebuilding initiatives on the boil; I'm really hoping they pan out.

Friday, April 15, 2011

Two disgraces that are, and one that isn't

Disgrace Number 1: Singer Tiki Taane was arrested and charged with disorderly behaviour likely to cause violence after playing NWA's "Fuck the Police" while MCing at a bar in Tauranga and apparently leading the crowd in a singalong. There is no indication that the crowd was set to riot against any police who might have been there. I can imagine such charges coming if, for example, Taane had started playing it while a crowd was advancing on a police officer with baseball bats. But just for doing normal MC stuff with a song decrying very real police abuses of minority kids in the States? Taane's statement is here.

Disgrace Number 2: Tauranga MP Simon Bridges's response to the charges:
An outraged Tauranga MP Simon Bridges yesterday called Taane a "disgrace" and added: "I'd hope we never see Tiki Taane in Tauranga again."

"I've had a lot to do with the police over the years as a Crown prosecutor and still have some involvement with police as an MP. I have the utmost respect for the work they do," Mr Bridges said.

"People often tell me they're concerned about their safety on The Strand and on Harington St. There's a strong public interest in police being there in the early hours of the morning and to be critical of them doing their job is outrageous."
There is absolutely nothing inconsistent in having the utmost respect for the work police do when they're following Peelian Principles, but also decrying the abuses of those who don't. And didn't the actions of the cops who arrested Taane because they didn't like his song sound a lot more like the latter than the former? It's not like there are no bad cops in New Zealand either. It's a bit worrying that the Deputy-Chairperson of the Justice and Electoral Committee thinks talking smack about the police is worthy of arrest, charges, official censure and suggested banishment from Tauranga. I'll retract if there's evidence that the crowd was actually being incited to do violence on the officer that was checking the liquor permit. But I'd want something beyond the officer's word for it.

Not a disgrace: Tiki Taane, or anyone else, playing NWA at a club. Or Bodycount.

HT: Frog.

Thursday, April 14, 2011

Too many people?

Bryan Caplan's new book tries to convince middle to upper income folks to have more kids. The kind of folks who are holding back because they reckon that they can't afford the time investment. Caplan argues that kids don't need to be as big a time sink as folks think - since the marginal effect of parental effort on kid outcomes is very low, why not just have fun with your kids instead?

It's a reasonably convincing argument. It won't change the equilibrium size of our household as we don't think we can afford the additional childcare expenditures and we'd likely need a bigger house. And if your consumption bundle requires family trans-Pacific travel, additional kids are definitely not low marginal cost.

But I've been most surprised at one of the more common lines of critique he's been getting in comments. Here's a representative selection.

From NPR:
Boy, what an appropriately named book. I'm amazed that with dwindling natural resources your show would promote the selfish (and environmentally irresponsible) act of having more than two children in a family. That makes me one of a very significant minority, but I don't think it's something to brag about in the current environment. At some point, societies are going to have to address the spread of humans is having on the planet--not unlike a virus.
128 people "recommended" this comment over at the New York Times:
There are great reasons to have fewer children, or none. Overpopulation, for one--and it's behind so many of the other social problems we have. ...
I didn't see any such comments over at the Wall Street Journal.

Even if you want to come down on the side of the folks freaking out about population, middle to upper class Americans having more kids is hardly the cause of any problems. It's far more likely rather to be a solution.


Caplan's talking to Trevor and Carol, the couple who hesitated too long and had no kids, not to Clevon, whose great great great grandkids wind up starring in "Ow My Balls!" It's mildly insane to think that his argument, directed as it is, does harm by contributing to overpopulation.

The more kids Bryan and Corina have, the better for everyone else.

Will Wilkinson's critique misses the mark as well, and more widely if you consider just how damned good he is on everything else.
Economists generally begin from the assumption that we’re rational decision-makers who do the best we can to achieve our aims given the constraints we face. In Mr. Caplan’s previous book, “The Myth of the Rational Voter,” he lays out an elaborate theory of “rational irrationality” in order to explain how it is possible for voters to act on irrational beliefs about politics and policy without having to abandon the economist’s foundational rationality assumption. But Mr. Caplan offers us no analogous theory of the rationally irrational mother. He simply begins with the ad hoc hypothesis that mothers are forgoing body-reconfiguring pregnancy, excruciating childbirth and the massive time-cost of additional children (which women disproportionately shoulder) not because they are rational beings taking into full account the manifold considerations relevant to profoundly life-shaping choices, but because they are in error about the power of parenting to shape “adult outcomes.” I like it better when Mr. Caplan reasons like an economist.
All that is required for Caplan's argument to hold is that parents largely misattribute good outcomes to high parental effort when high parental effort generally is confounded by good genes. The misattribution leads to overestimation of the amount of effort required for good outcomes and consequently leads parents to perceive the marginal effort cost of acceptable quality children as being higher than it really is. If the amount of effort needed for good outcomes is really lower than folks think, at least some of those people will be having fewer than their optimal number of children. Caplan's not trying to convince folks like Will to have children - best evidence suggests he sees them as a bad rather than a good; rather, he's trying to convince the folks who already like kids and are waivering about having one (another) because of the costs.

Suppression of market-relevant information

I don't know about you, but I tend to expect that how somebody handles his own finances gives some information about how well he'd handle my money if I invested with him.

And so I'd be spitting tacks at District Court judge James Weir were I one of the many who was burned by Hanover Finance.

Read the Herald and weep.

Mark Hotchin, director of Hanover Finance, and Kerry Finnigan, another director and CEO of Hanover, successfully were granted name suppression of that that they were among the victims of a Ponzi scheme.
Mr Hotchin said in his 2003 affidavit requesting name suppression that he believed if the facts of his having invested in the scams became known:

- "There would be concern over the investment strategies adopted within the Hanover organisation because of the loss of credibility and damage to my reputation."

- "Investors and third parties with whom Hanover and its entities deal could well come to the conclusion that if one of the directors of Hanover was making inappropriate investment decisions personally then he could well be doing the same for the group. This in turn could cause a lack of investor confidence and support potential for a run on funds, the possible collapse or restructure of the Group with obvious impact on its 600 employees."

...

But there is no indication in the decision by District Court judge James Weir that the judge considered that investors and potential investors were entitled to the information to make a balanced assessment of their capabilities.

Mr Hotchin and Mr Finnigan were prominent figures in finance companies which failed. Together the ventures had a billion dollars of investors' money at risk.

Millions of dollars were invested in Hanover after name suppression was granted and at a time when its advertising was based on claims of prudence, careful strategies and the experience of its managers.

By suppressing an example of poor judgement by a co-owner and director and an executive director, Hanover investors were denied means to measure its claims of prudence and care.
Simply amazing.

The state can induce market failures, when it tries hard enough.

Wednesday, April 13, 2011

Picking the high variance play

Yeah, I know that Bill Easterly has thrown a big monkey wrench (data quality) into the notion that dictatorships produce high variance outcomes relative to democracies. But it's not implausible that a good choice of dictator could yield better than average outcomes. And far worse outcomes too.

No Right Turn lists some of the features of the legislation [draft as at first reading linked] under which Christchurch folk will be living for the next few... months? years?
CERA has the power to demand any information about anything from anyone. No warrant, no oversight, no safeguards. This is more power than the Serious Fraud Office, and with fewer checks and balances.

CERA, which means the Minister, also has wide powers to "assist" the rebuilding of Christchurch. They can:And all of this without any effective rights of appeal and with only limited rights of compensation.

And to cap it all off, there's the same dictatorial power to amend laws by regulation originally seen in CERRA v1.0.
Dean Knight provides a few detailed objections.

Let's leave aside for now my usual weeping about the decline in rule of law and the lack of a constitutional spirit among voters that would restrain such things. Instead, let's look at the legislation as a high variance play.

A best case use of these powers could be really beneficial for Christchurch. If Ikea wanted to set up in Christchurch, they could probably start construction the day after buying some property out near the airport. We'd effectively be a special economic zone within New Zealand where competitors couldn't stop things through RMA objections. There will be at least some developments of this sort that come of the lifting of the regulatory lid; fast-tracking some of these kinds of projects through what would otherwise have been a multi-year regulatory approval process seems very beneficial.

But a plausible worst case use of the powers isn't particularly nice. I'm most worried about the potential for expropriation: consolidating some land titles downtown for urban renewal will be awfully tempting. I have a hard time imagining the worst case would be much worse than this; the government does face a re-election constraint. But I also would have had a hard time imagining a lot of what's already happened.

The case for expropriation is pretty weak. In normal times, government turns to expropriation with compensation as a solution to hold-out problems. In the US, this has often been used to steal people's homes and turn them over to developers (Go to Google, type Kelo v. City of New London); I've heard of nothing comparable here.

But imagine that government deemed it critical to reconstruction that some new private facility gets built downtown. If there were only one possible location for the facility, and if all the current owners knew that, each would try to extract maximally when setting selling prices; government might then try compulsory acquisition at post-quake prices, and hopefully they'd settle on something reasonable. But the earthquake has flattened enough of downtown that there ought to be multiple potential locations for any facility the government might want. Dominant assurance contracts should then have a good chance of working.

Here's a scenario. Suppose that sites A, B, and C are potential decent spots for some new project. Titles are spread over a dozen owners in each place. The developer approaches each of the three dozen owners and offers the following deal:
I'm looking to build and I'm eyeing up a few different sites. But I need a big enough space that I need to buy from a few folks to make things work. Here's the deal. I'll pay you $(some non-trivial amount) right now for an option to buy your property at the land assessment value from 2007. You get the cash in hand whether I exercise the option or not. If everybody else in the block of land where your property is signs on, I might exercise the option. Or I might go with one of the other sections if everybody signs on there. Point being - you get cash in hand right now if you sign on, and a great price for your land if I exercise the option. Can I get you a pen?
Holdout problem solved, and with it any need for expropriation is gone. I really hope that the government encourages this kind of thinking, or at least uses some of the properties Council already purchased over the last few years, before looking at compulsory acquisition.

Tuesday, April 12, 2011

The magic washing machine

My mother explained the magic with this machine the very, very first day. She said, "Now Hans, we have loaded the laundry; the machine will make the work. And now we can go to the library." Because this is the magic: you load the laundry, and what do you get out of the machine? You get books out of the machines, children's books. And mother got time to read for me. She loved this. I got the "ABC." This is where I started my career as a professor, when my mother had time to read for me. And she also got books for herself. She managed to study English and learn that as a foreign language. And she read so many novels, so many different novels here. And we really, we really loved this machine.

And what we said, my mother and me, "Thank you industrialization. Thank you steel mill. Thank you power station. And thank you chemical processing industry that gave us time to read books."
So says Hans Rosling in a wonderful address cautioning against anti-global warming schemes that depend on denying washing machines to the third world.

Here's hoping Thorium works!

GST and inflation

RBNZ rightly looks through the one-off hike in price levels that came with the GST increase. That's not inflation. But that level shift working its way into wage settlements would be.

From the latest survey of employers:
  • Roughly a third say that the GST increase has been or is expected to be a factor in future wage negotiations (see Table 68)
  • A majority of large (50+ employee) firms say wages and salaries either take account of past inflation outcomes, take account of expected future inflation, or are contractually linked to inflation (Table 67). Note that headline inflation numbers will include the GST hike.
I'm so going to win my bet with Matt.

Monday, April 11, 2011

A law and order agenda I can support

I'm not worried about overall crime rates, which seem on the long term decline. But if we have to do something, why not do something sensible?

Frances Woolley over at WCI points to three potential policies. The first two: voluntary incapacitation of at-risk youth. What's voluntary incapacitation? Give them something that makes them want to hang out indoors instead of committing crime. And the published evidence suggests that violent movies (the kinds of movies that attract would-be thugs) reduce violent crime rates. Same for violent [read too quickly, study can't distinguish across game types] video games.

Sure, you could argue that violent movies and games might turn some marginal kids bad. But the overall effect seems negative:
Using nation-wide US figures, Dahl and Della Vigna find that "an increase of one million in the audience for violent movies reduces violent crime by 0.5 to 0.9 percent." (Part of this is due to the incapacitation effect, part is also due to decreased alcohol consumption).

Yet even a great movie will only lead to a few days of voluntary incapacitation. Is there a way of getting at-risk youth off the street for longer?

A study by Michael Ward published this month in Contemporary Economic Policy (earlier version ungated here) suggests that there is. He finds that an increase in video game availability, as measured by the number of video game stores, leads to a significant reduction in rates of robbery, burglary, larceny, motor vehicle theft and mortality.

Video game availability makes more difference than police officers, Ward argues. He found that the relationship between crime rates and the number of police officers was statistically insignificant, except in the case of robbery.
So the usual folks on Radio New Zealand's The Panel can stop their endless handwringing about those awful movies and video games that ruin kids.

The policy conclusion would then be to ease up on age restrictions for movie access.

Frances's third suggestion: legalize and tax marijuana. Agreed.

I'll add one more: pornography reduces rape rates. I don't think any policy response is necessary, at least in countries without censorship. But it's worth remembering.

Update: LemmusLemmus says the study above linked is inconclusive. I'll trust him on this. Inconclusive is hardly sufficient for the crusades against pornography that we do see though.

Earthquake incidence, with catfish

A series of Japanese woodblock prints from the mid-1800s describes the incidence of earthquakes. Giant catfish, namazu, thrashing about in underground lairs cause the earthquakes. Some folks in the prints pray that the namazu quiets while others egg him on.

This print shows a namazu engaged in a fierce game of "neck tug-of-war" with the god Kashima. A group of earthquake victims root for Kashima, while those who typically profit from earthquakes (construction workers, firemen, news publishers, etc.) root for the catfish.
Hit the link for the full set of prints. From the text descriptions under the pictures, construction workers are by far the biggest namazu abettors. Eight prints show construction workers profiting from earthquakes or praying for them while only one print shows a carpenter praying for an end to earthquakes. Prostitutes are the next biggest beneficiaries, except those in the Yoshiwara red-light district, from which I'd gather that there there were many earthquake fatalities. Other notable earthquake profiteers: sellers of ready-to-eat foods, firemen, and news publishers. Those harmed include earthquake victims, entertainers (musicians, comedians...), teahouse proprietors, eel sellers, sellers of luxury and imported goods, the elderly, young wives, and china-shop owners. Physicians get a bob each way.

In Print 9, the god of wealth, Daikoku, restrains a namazu. Wealth can't stop earthquakes, but it sure lessens their burden.

Sentiment against price gouging makes more sense if you figure those profiting were partially responsible for the disaster. If namazu caused earthquakes and responded to lobbying, I too would oppose price gouging.

HT: @adzebill

One reason I don't trust contingent valuation surveys

When faced with a thorny moral dilemma, what people say they would do and what people actually do are two very different things, a new study finds. In a hypothetical scenario, most people said they would never subject another person to a painful electric shock, just to make a little bit of money. But for people given a real-world choice, the sparks flew.

The results, presented April 4 at the annual meeting of the Cognitive Neuroscience Society, serve as a reminder that hypothetical scenarios don’t capture the complexities of real decisions.
Morality studies in the lab almost always rely on asking participants to imagine how they’d behave in a certain situation, study coauthor Oriel FeldmanHall of Cambridge University said in her presentation. But these imagined situations are missing teeth: “Whatever you choose, it’s not going to happen,” she said.

But in FeldmanHall’s study, things actually happened. “There are real shocks and real money on the table,” she said. Subjects lying in an MRI scanner were given a choice: Either administer a painful electric shock to a person in another room and make one British pound (a little over a dollar and a half), or spare the other person the shock and forgo the money. Shocks were priced in a graded manner, so that the subject would earn less money for a light shock, and earn the whole pound for a severe shock. This same choice was given 20 times, and the person in the brain scanner could see a video of either the shockee’s hand jerk or both the hand jerk and the face grimace. (Although these shocks were real, they were pre-recorded.)

When researchers gave a separate group of people a purely hypothetical choice, about 64 percent said they wouldn’t ever deliver a shock — even a mild one — for money. Overall, people hypothetically judging what their actions would be netted only about four pounds on average.

But when there was cold, hard money involved, the data changed. A lot. A whopping 96 percent of people in the scanner chose to administer shocks for cash. “Three times as much money was kept in the real task,” FeldmanHall said. When participants saw only the hand of the person jerk as it got shocked, they chose to walk away with an “astonishing” 15.77 pounds on average out of a possible 20-pound windfall. The number dipped when participants saw both the hand and the face of the person receiving the shock: In these cases, people made off with an average of 11.55 pounds.
Says Wired.

A person says he wouldn't shock people, not even for a lot of money, will jump at the chance when it's real money instead of hypothetical.

How much should you trust surveyed folks who say they'd be willing to pay lots extra to have "GE Free" foods?

Sunday, April 10, 2011

Globalization

It ain't new:
HYDERABAD: A Roman gold coin weighing 7.3 grams issued by the 7th Roman emperor Nerve Ceaser (96-98 AD) was unearthed at a Buddhist site in Phanigiri in Nalgonda district during the course of archaeological excavations recently.

Prof. P. Chenna Reddy, Director, Department of Archaeology and Museums, who inspected the site on Wednesday said so far 60 lead coins of the Satavahana and Ikshvaku dynasties have been recovered. The latest find of a gold coin was interesting as it indicated the fact that there was a brisk trade between the erstwhile Telugu country and Rome. It is also for the first time that a Roman gold coin is recovered from a Buddhist site in the State.
HT: @MonteSolberg

Saturday, April 9, 2011

An unpleasant calculus

If we do not put a brick over our toilet seat and keep the lid closed, we face unknown but small probability p that sewerage works will cause a horrendous poo explosion in our bathroom. Denote the cost of same as C.

If we do put a brick over our toilet seat and keep the lid closed, we face unknown but much higher probability r that the delays caused by said brick will result in a toilet training failure involving the three year old. Denote the cost of same as M.

p < r
C >>> M
pC < = > rM ???

Insurance may somewhat attenuate cleanup costs C. But we are with AMI.

Thus far, we have no brick on our toilet. I hope we don't need a bailout.

Green Growth or Gas Guzzlers

Video from the "Hot Energy" debate is now up. Hopefully the embedded file works. If not, the link back to the Lincoln site is below.



It is also available at the Lincoln website. I've tried embedding it here, but Blogger has issues with my uploading a 300+ MB file. I start around the 20 minute mark, after they sorted out some issues with the microphone. The draft text for my opening was posted here a few weeks ago.

Friday, April 8, 2011

Prices prices prices

Post-quake Christchurch is hardly back to normal. Here in the eastern suburbs, we're warned that excessive power consumption will result in blackouts; we have to curtail power use. Fortunately, the folks in the eastern suburbs are also the ones more likely to be running woodburners or old illegal coal burners (yes, I do smell it driving around from time to time), so they're more likely to have options. And everyone in town is warned against letting too much water go down the drains lest the sewage treatment plant overload and be turned into a cesspool that can't be fixed for months.

Prices can help solve one of these problems.

It can't help with water, at least not with current infrastructure. While we all have individual water meters, they're only read about once per year and manually. In an ideal world, we'd have electronic metering with per unit pricing. In that world, the solution on water would be pretty simple.

Step one: figure out how much water each household used last year from April through to October (or whenever they think that restrictions will have to last until).

Step two: multiply that number of litres by the amount of a reasonably substantial water price increase.

Step three: give every household a cheque such that if they bought as much water as they did last year, they'd be no more out of pocket than they were last year.

Step four: increase the price of water to the new higher level.

Ta dah! No household is worse off (I will smack anybody who tries to tell me that the scheme above with higher prices hurts the poor) and every household has incentive to reduce water use. The First and Second fundamental theorems of welfare economics in application.

We can't do it for water. We don't have a baseline reading on the individual meters for starters. And I'd be surprised if Council didn't have better things to do than get a whole pile of new water meter readers to go out and check things.

But we can do it for electricity - we've already got monthly (at worst) readings. Double the power prices in the eastern suburbs and give every household in the eastern suburbs a cheque that would leave them no worse off if they chose to use as much power as they did last year. Some of the scheme's funding would come from windfall gains from the power surcharge, but a decent chunk would have to come out of general revenues - ideally from the property tax assessments of folks who get to not have blackouts over the winter.

Whatever arguments you want to make about folks coming together in crises and all pitching in and price mechanisms eroding that goodwill - I can't see that lasting through the winter. Instead the massively public goods nature of power conservation will become blindingly obvious. In anticipation of which, it's time for me to call the chimneysweep to repair some minor earthquake damage inside our logburner.