Can't kill a bad stat

I thought I'd put a stake through the Ministry of Health's estimate that smoking costs the health system $1.9b per year. But, the Dominion Post cites it again this weekend.

Of course, reducing tobacco sales will reduce the $1 billion a year the Government gets from taxing it, but that needs to be weighed against the nearly $2b a year smoking-related illnesses cost the health sector and the untold cost of lost working hours and productivity.

The Ministry of Health figure seemed to assume that smokers, if they never smoked, would never impose end-of-life costs on the health care system; their figure counted the brought-forward end-of-life costs as a cost of smoking but didn't net from the figure the end-of-life costs that otherwise would have obtained a decade or so later.

MoH has been pretty quiet about that number lately. I can't find reference to it on the site - my previous links to their documents that had it are now deprecated; website restructurings build memory holes. They didn't cite it in their documents listing what would be necessary to achieve the Smokefree 2025 goal; we might have expected to see it in the preamble listing the harms done by smoking.

Where can I still find the figure, or something close to it? The RIS on last year's excise changes:

A 2007 estimate put the cost of smoking to the health system at $300 to $350 million per annum; however current work within the Ministry of Health suggests that figure may be as high as $1 to $1.6 billion per annum [²].
...
2. Please note that this analysis is work in progress and methodological issues are currently being addressed.

I'll point again to O'Dea's estimate: smoking costs MoH about $350 million. And the Dom is lazy and wrong when they say the costs of lost productivity are "untold". They're very extensively tabulated in the O'Dea study. His "social costs" figure has gotten a reasonable amount of attention in the press. Here's his breakdown, my editorialising:

Here are the components of O'Dea's $1.7 billion figure (Table B.1, p.44); you judge for yourself whether the Herald's right to call these costs on the public:

• Reduced production from mortality: $570m (I call private)
• Reduced production from morbidity: $280m (I call private)
• Resources diverted for tobacco consumption: $650m (I call batsh*t insane to consider this public: it's what smokers spend on their cigarettes net of excise taxes)
• Resources required to treat induced diseases and other consequences: $350m (public external transfer cost. This is the real cost to the health system)
• Smoking-induced fires: $15m (largely private, barely worth arguing about as such a small part of the overall figure)

So more than a third of the $1.685 billion is smokers' spending on cigarettes and only $350m are real external costs through the health system. [Note: O'Dea nets from the $1.865 cost $180m in presumed benefits to smokers of smoking.]

So the "untold" cost are maybe around $850m, largely borne by smokers through lower earnings. If that's a social cost, deciding to work part time and enjoy more leisure instead of working very hard, or deciding to take vacations, would also impose social costs.

I expect that MoH is a bit stuck. Associate Health Minister Tariana Turia would be angry if they publicly backed away from the figure. I suspect that at least some at MoH don't trust the figure and don't want to have to defend it. So they're just not saying much about it. And that's fine where the number isn't already floating around being cited and building public pressure for policy measures that would enjoy less support if voters didn't think that smokers were imposing net costs on the tax system.

By MoH's last published note, they've retreated from their prior $1.9b estimate to $1-$1.6b: much lower than the Dom's cited number. I'd be curious whether MoH ever completed the work in progress and addressed the methodological issues.

Meanwhile, the South Australian government wants to bring suit against tobacco makers to compensate them for smokers' health care costs.

That's an interesting one. The 2008 Collins & Lapsley report finds very high "social costs" of smoking, mostly consisting of things like smokers' expenditures on tobacco, the presumed valuation of reduced mortality, and deceased smokers' forgone household production. But actual medical costs aren't all that high.

Here's Table 42 of the Collins & Lapsley report.

Even if you include reduced taxes paid by smokers* due to excess mortality and morbidity, tobacco excise dwarfs everything else. Counting GST here is a bit tough; in the absence of smoking, smokers would instead spend their money on a mix of products some of which attract GST and some of which don't. But even ignoring the GST entirely, it seems hard to find much merit in suing the tobacco companies for health care costs incurred by state governments. You could maybe fault the federal government for not kicking back part of the collected excise revenues to defray state-level health care costs, but that's hardly the fault of the tobacco companies.

* I am not endorsing their numbers here; I've not examined them closely. We found problems in their estimates of reduced productivity due to alcohol use, but haven't looked at their similar tobacco estimates.

The grass is rarely greener

It's always worth remembering that things are often worse elsewhere.

The University of Canterbury annual reports have expenditures on academic salaries at $82m, with another $79m for general staff. So we're still spending more on academics than on administrators.

I doubt that's true at the University of California, if today's report is correct [HT: Marginal Revolution].

Data available from the UC Office of the President shows that there were 2.5 faculty members for each senior manager in the UC system in 1993. Now there are as many senior managers as faculty.  Just think: Each professor could have his or her personal senior manager.

I'd be pretty surprised if the general staff didn't outnumber the academic staff at Canterbury - while the upper echelons of administrators will earn a fair bit more than most academic staff, that's not the bulk of the general staff. We wouldn't be spending more on academics than on general staff if we had a senior manager for each line academic.

But, the time series may not be that different. The 2000 Annual Report had UC paying $52.7m in academic and technical staff salaries and $28.1m for general staff. I don't know whether technicians in the bench sciences count among academic or general staff for the 2011 salary breakdown; if their categorization changed, that explains some of the time path.

I like Cowen's summary of academia. It's worth keeping in mind whenever all-staff emails make you shake your head in wonder.

The United States circa 2012 is one of the most productive economies of all time, arguably the most productive if you take into account size and diversification (rules out Norway, etc.).  Internationally speaking, in the richest and most productive global economy of all time, which is our most competitive sector?

Hollywood?  Maybe, but it could well be higher education.  Students from all over the world want to go to U.S. higher education.  If we had nicer immigration authorities, this advantage would be all the more pronounced.

In other words, I work in what is perhaps the most competitive and successful sector in the most competitive and successful economy of all time.

And yet what I see around me is a total, total mess.  And I believe my school to be considerably above average in terms of how well it is run.

Dilbert is universal; the grass is rarely greener.

A picture of commerce

Fleeming Jenkin illustrated barter exchange as a rather beautiful dance.

 

And here's a picture of one step of the commerce dance, in an international monetary economy: the production of a laptop computer.

Somebody ought to make a Sourcemap for a pencil.

Living Outside of the Asylum

If 100% Pure New Zealand has run its course, I'd like to suggest an alternative.

New Zealand: The Outside of the Asylum

We constantly rank at or near the top of international measures of transparency, lack of corruption, economic freedom, and personal freedoms. Every day my Twitter feed brings me new stories of how absurd the rest of the world is getting.* The US Department of Labor wants to ban farm kids from working on farms. The TSA destroys personal liberty and dignity in a vast theatrical demonstration that does less to stop terrorists than it does to enable TSA agents to mule drugs across the country. The American CFTC bans event derivatives as serving no useful purpose.

Meanwhile, in New Zealand, our Ministry of Labour worries about safety standards on quad bikes but nobody would dream of banning kids from working on their parents' farms. Our airports encourage travel, only imposing idiotic security measures when they're required as condition of flying back into the Asylum. And, iPredict provides an events derivatives market that brings us ever-closer to Arrow-Debreu worlds.**

We've been backsliding a bit since 2005 or so, and especially in Christchurch this past year, but we still retain a comparative advantage in not being utterly insane. A sane regulatory environment is what has Peter Thiel investing here. We're sanely considering disallowing software patents. Our anti-piracy legislation sanely demands that rights-holders compensate ISPs for some costs in delivering infringement notices. We sanely spend very little on national defence, knowing there's pretty much nothing we could do to deter somebody who could put up sufficient blue-water navy to get here.

Instead of having activists worried about the threat to our "100% Pure" image if a place that already markets itself on mining tourism opened another mine, we could have worries about our 100% Sane image whenever we deviated from sane policy.***

The customs inspection queue at every airport could have big signs welcoming new entrants: "Welcome to the Outside of the Asylum." It would be great.

And in the international departure lounges, we could have big signs warning people that, in the Asylum, whether their pastries will attract 20% VAT will depend on whether the pastries are supplied hot or supplied cold with ready access to a microwave. Or that, inside the Asylum, wardens may relieve you of your cash on flimsy pretext if you're stopped in a forfeiture corridor. Or that, inside the Asylum, all of your web traffic may be monitored by the wardens for the inmates' protection.

If you're reading this from inside of the Asylum, you have my sympathies. I'll head out to the beach with the kids this weekend to put up some decorations to make the Asylum a bit prettier.




* Recall Wonko the Sane:

One day, after coming across a set of detailed instructions on a set of toothpicks, John Watson, distressed and fearing for the world's sanity, built The Asylum to put it in and help it get better.

The Asylum can be described as a four-walled house turned inside out.

To elaborate: the ceiling turns outwards, the furniture and carpet rests on the coast, the door one would normally believe to lead into a house leads outwards to a lawn with benches and walking paths, an area John calls "Outside the Asylum", in which is mounted the instructions for the toothpicks to discourage going back in it.

** Just this morning, New Zealand's top political blogger started tweeting claims that both the opposition Labour leader's chief press secretary and his advisor quit. As the leader's performance hasn't been awe-inspiring, this could be early warning of a coup to come. Less than an hour later iPredict launched a contract on it and asked him to put his money where his mouth is. He has, and invites those who disagree to give him some of their money. As of 1:40 Friday afternoon, an hour after contract launch, we've had 121 trades and a price of $0.6755. I've no money in that market as I have zero information on which to trade. But I love that here, outside of the Asylum, it is dead simple for a legal market to open real money contracts demanding that pundits put their money where their mouths are. Just imagine how much more sane American talking-heads shows would be if there were real money markets where these guys could be held to account. I chalk it up to a lack of demand for sanity inside the Asylum.

*** Sane policy is neither right nor left, it just requires a commitment to acknowledging tradeoffs and setting policy consistent with desired ends. More and less redistributive systems are both eminently sane in pursuit of different goals. But there are more and less sane ways of getting there. Helping poor people by giving them money is sane. Helping poor people by giving home heating rebates to the elderly is insane, as is helping poor people by cutting the GST on fresh fruit. Do we really want to risk our 100% Sane image?

Doing it right

It's great to read a story where fan-sourced content is appreciated by the original work's author instead of stomped on. I'd seen the blog for the "Game of Thrones" cookbook after one of its bloggers visited here after I'd posted on food stores in Westeros. But I hadn't read the backstory of how they moved from blog to publication. The Wall Street Journal gives the story.

The book began as the brainchild of Chelsea Monroe-Cassel and Sariann Lehrer, two Boston twenty-something housemates who are “pretty obsessed” with the Martin books and the HBO series, Ms. Monroe-Cassel said.  Last March, the friends decided to blog about making food inspired by Mr. Martin’s books.  In May, they emailed Mr. Martin to let him know about their blog, and were stunned when he wrote back, saying he would mention the project to his publishers.

For his part, Mr. Martin was interested, because though readers over the years had suggested he write a companion cookbook to his series—detailed food descriptions run throughout the books—“I can’t cook,” Mr. Martin admitted in his forward to the cookbook.

With a penchant for taking creative projects to the extreme, Ms. Cassel-Monroe said she “organized a conspiracy” for Mr. Martin’s “A Dance with Dragons” book tour last summer, delivering baskets of pork pies, and oat and lemon cakes and organizing fellow fans to deliver similar baskets to Mr. Martin as he traveled the country.

And so they went from blogging to writing the official Game of Thrones cookbook.

There's also an unofficial Game of Thrones cookbook.

If you read TechDirt too much*, it's easy to get a bit depressed about rights-holders who seem more interested in stomping on their fans than in encouraging projects that are complementary to their product. It's great that George R.R. Martin gets it.

I'm looking forward to feasting when the book ships end-May. I wonder if David Friedman will review it.

* Today's edition of how-not-to-do-it: Hasbro, whose toys are now less likely to wind up in my shopping basket.

Blaming deregulation

Phillip Longman and Lina Khan at Washington Monthly blame airline deregulation for high cost, low frequency flights between less-travelled American cities. Some cities are losing major business headquarters because of poor flight logistics. They recommend a return to airline regulation with cross-subsidization of low-volume routes. I'd be awfully surprised if that fixed things.

As best I'm aware, Air New Zealand is under no mandate to provide cheap travel between smaller New Zealand ports of call. So as a quick test, I checked the price on Air New Zealand for travel from Christchurch (population 330k or so, South Island) to Napier (population 100k or so, North Island) for a month from now. They're quoting NZ$273 ($218 US) round trip with no connections. There might be cheaper flights; I didn't check any aggregators. A shorter (about two-thirds the distance) hop within the US, Pittsburgh to DCA, for the same dates, is US$374 (including $43.21 in taxes and fees) on Orbitz with a stop in Boston. In real terms, the shorter US flight costs more and is less convenient. If I want a next-day flight, the NZ round trip is NZ$642 (US $514); Orbitz has the PIT-DCA route at US$635.

If you change things to American cities that are more comparable in size, like a routing from Toledo, Ohio to Erie PA, the New Zealand advantage gets a fair bit stronger: the next-day flight between those two is $1000 US and has two stops. Maybe there's just something weird about the airport combinations I've picked; they were random draws based on rough city size.

Point-to-point domestic travel within New Zealand has lots of small planes going between lots of small places, as well as a few higher volume routes with bigger planes. And, in general, it's a joy: rock up to the airport 20 minutes before your flight and walk straight onto your plane after waving your phone at the machine at the gate. If you have checked baggage, add another 20-30 minutes to be safe. When the weather is clear, just watching the mountains out the window is almost worth the price of the airfare.

So, if deregulation is the problem, why is flying within New Zealand relatively cheap? It isn't going to be fuel costs: I'd expect that domestic air travel attracts carbon charges via our emissions trading system. And small-country maintenance and engineering costs have to be higher: engineering works have a big fixed cost component, though I think AirNZ has outsourced some of that work.

Further, whatever subadditivity and network problems might require network regulation in the US ought to apply doubly hard in New Zealand, where Australian airlines can cherry-pick whatever higher margin NZ domestic routes they like. Cabotage is forbidden in the US, but flying is less expensive here.

If I had to point a finger at anything in the States, I'd start with airline security. You get enough stories about TSA agents making 4 year old kids cry, or stealing money from 95 year old war veterans [or allowing that the money be stolen; who knows what happened], or molesting women, and people don't want to fly. Lengthy security-induced queues at airports add a fair bit of time to your total flight cost. So more people choose to drive. That sucks in industries geared up for bigger passenger volumes that now have to spread those fixed costs across a smaller number of fliers. Worse, airline security measures increased the fixed costs of flying at the same time as they reduced the number of travellers over which those costs could be spread. New Zealand lets small airports provide low cost services.

Want cheaper flights and better service within the US? Look at airport slotting fees, cabotage rules, and security arrangements before putting in price and route controls.

How Beer Created the World

From the "If it's on the Discovery Channel, it must be true" file.



They argue we moved to agriculture in order to get beer.

My biggest complaint? They forget that beer also gave us modern hypothesis testing: Student's t-distribution wasn't given its name because it's useful in undergraduate econometrics; it's the pseudonym that was used by William Sealy Gosset when he published his statistical results. Gosset was a brewer and chemist working for Guinness who needed to know how many trials he needed to run to be confident in his results. And so we have the t-distribution.

I don't put huge confidence in each and every claim, and a lot of the innovations that were pushed by brewing likely would have come anyway for other reasons; it's implausible that somebody wouldn't have figured out refrigeration even if Pilsner had never existed. But would we be so wrong to claim that people who hate beer must also hate civilisation itself?

HT: @MitchellHall

The Price of Milk, revisted

Salient, the student newspaper at the University of Victoria of Wellington,* tries to get to the bottom of popular complaints about the price of milk.** Skimming this late at night, I missed the bits about reptilian Masonic conspiracies and only caught the nonsensical economic claims - nonsensical, but not off the scale relative to typical journalistic standards. So I was doing my usual head-shaking "none of those claims really make any sense..." bit when I came to this part:

At this stage I still had more questions than answers, but only had one more name on my list: a controversial right-wing economist, Nick Crampon. He was noted for writing in support of the failed policies of the 1980s, and just this week had blogged against raising the minimum wage. Still, I presented my findings to him for comment.

“Ummm…” He said, looking confused and uncertain, “Ummm… none of those claims really make any sense…” He then proceeded to draw a number of graphs which I found hard to follow.

Mr Cheice was not impressed.

“Well, he would say that, he’s an economist, a discredited pseudo-scientist. He even once said in his blog that Roger Douglas had done some things right. Absurd. Everyone knows that the Reptilians do nothing for the common man, only for their Lodge-mates!”

That guy Nick sounds dodgy. I'd avoid him.

* Sex Robot University

** For less satirical results, see TVHE and AntiDismal

Ethical elasticity

If Otago medical ethicists think it's abhorrent that organ donors might be compensated, why is it ethical for the University of Otago Medical School to pay for the cremation of cadavers donated for research?

From the Department of Anatomy's guidelines:

Funeral service         

Because the donor's body has to be specially embalmed very soon after death, it is not possible to hold the usual funeral service with the body present.  However, a memorial service can be held without the body being present, if the donor or the relatives wish.  This is to be arranged at the estate's expense. 

Costs paid by the Department of Anatomy

The Department pays the expenses of our special methods of embalming, and for transporting the body from the place of death to the Department in Dunedin.  The Department also pays the cost of cremating the remains.  The donor's estate will be required to register the death in the usual way.

So, what's cremation worth? SimplyCremations charges $1,495 for body removal, cremation, and return of the ashes without memorial service. Otago can return the ashes to the family, but prefers to scatter them without service at the local cemetery; the service is roughly what the budget cremation service above provides.

Recall what the University of Otago's Professor John McCall said about ethics, cash, and organs:

Where commerce has had things to do with organ donation, terrible things happen. If you make it legal it’s still open to exploitation, and I think trading organs for money is fundamentally ethically untenable. The people who are most exploited by that tend to be the poor.

There are ethical considerations in the anatomy department as well:

The most resounding of such ethical concerns, according to Professor Jones, was the appropriateness of using “unclaimed” bodies as medical cadavers. As he says, “Those [unclaimed] bodies tended to be from the poor, the disadvantaged, the outcast, and generally the most vulnerable people of society. Altruistically bequeathed bodies seemed to me to be far superior, ethically.”


Although the University of Otago now relies solely on bequeathed bodies, Professor Jones aims to get the anatomical profession worldwide to think seriously about the repercussions of using unclaimed bodies. “[Use of unclaimed bodies] opens the door to very dubious, ethically slippery circumstances. 

...

Indeed, the interests of the body’s family are granted high regard in matters concerning body bequests – as I’ve already mentioned, they have the power to veto the whole donation process. Is it really fair to give the wishes of the living such weight over the wishes of the dead? Professor Jones thinks that, “…ethically, this is an area that’s full of tension. And it’s exactly the same when it comes to donation of organs… If the family says ‘no’, then they override [the intention of the donor]. The families’ wishes and feelings are placed above those of the donor, and that’s a highly debatable issue.”

Professor Jones insists though, that it’s important to realise that the gift of a body is not just a gift from the deceased, but also a gift from the deceased’s loved ones. Once again, this brings us back to the central motivation of altruism – an attitude which Professor Jones stresses is important throughout all aspects of medicine: “The issues that we encounter here are very similar to the issues that we encounter in clinical medicine. And that the basic ethical value of altruism really was, and should be, the main driving force.”

It's fortunate for Otago's anatomy department that they are able to get enough bodies for their purposes through altruistic donation, and that their ethicists don't view a $1,495 cremation subsidy as interfering with the altruistic decision by the deceased or the deceased's family.

Would that similar consideration to organ donors be deemed ethically acceptable.

Wedding Hacker

While I cannot award a door prize for the 300,000th visitor to Offsetting, I can thank the visitor's referrer.

At The Wedding Hacker, two of my former students, who go by the monikers Mr. and Mrs. Cake, have begun chronicling their adventures in wedding optimization. They point to my old post on an alternative to wedding invitation A and B lists - assign probabilities to each guest's attendance and send out invitations such that the expected number of attendees matches venue capacity. We projected 125 expected attendees from 225 invitations; we got 124 attendees with a late cancellation due to illness. So long as you're comfortable with a bit of risk, this is much more fun than assigning friends and family to A and B lists.

Mrs. Cake provided me an excellent supply-and-demand themed cake after my Economics and Current Policy Issues course back in 2008. You can follow her adventures in baking here.

And you kids out there, remember that romance can bloom in the economics classroom.

Nanny ascendant

Kiwi healthists have been busy this past week.

Here's more from Doug Sellman on soft drink addiction (and other addictions):

People needed to find an activity pleasurable to want to repeat it. If they repeated it enough, it would become a habit, which could then become an addiction.

"As they're doing that there are genetic switches that change free will into a dehumanised state of drug craving and compulsion."

Christchurch-based researchers at the University of Otago developed a new list of 49 foods people should avoid and published their findings in the New Zealand Medical Journal earlier this year. The list is of the most addictive foods, Sellman said.

The foods were energy and calorie dense, high in fat and/or added sugars, prepared using a high fat cooking method such as frying or roasting, or low in essential nutrients.

They included muesli bars, ice cream, cakes, chocolate, doughnuts, jam, honey, pies and pastries. Energy drinks, cordial and fruit drinks also made the list. [EC: updated the link to one that works, emphasis added]

Sellman says those 49 foods are the most addictive. The list includes quiche, sausages, salami, and muesli. If I eat enough quiche, I could trigger genetic switches that will turn me into a dehumanised craver of quiche.* We really ought to remember how Sellman sets the bar on addiction whenever we read him about what has to be done about alcohol, tobacco, fatty foods, soft drinks, muesli, or pastries, or when he compares companies selling unhealthy food to drug dealers. Human agency disappears in his model pretty quickly.

Meanwhile, the anti-tobacco folks are pushing not just for plain packaging, discussed last week, but also for some seriously large excise tax increases. 3 News says the Ministry of Health is pushing for $100 per pack prices. And, helpfully, they've linked the OIA-released MoH advice to the Minister of Health.

The MoH document wasn't nearly as bad as I'd expected.** Instead, it looks like they've commissioned NZIER to do some work on what would actually be necessary to achieve the National-led coalition's goal of a tobacco-free New Zealand by 2025. Unsurprisingly, it'll take some pretty big policy changes: large tax increases, lots of anti-tobacco advertising, and potentially stronger alternative measures. I think at paragraph 6 they might be alluding to tobacco by prescription only when they say "At what point might it be preferable to consider alternative approaches, eg. a new regulatory regime that stringently controls tobacco as a highly toxic, hazardous substance and/or as an extremely addictive, harmful drug?"

At paragraph 54, MoH notes the potentially regressive nature of the excise increase but argues "although the tobacco tax is of itself regressive, increases in the tobacco tax are actually progressive." This might actually be true at the tax levels they're talking about. Marginal changes in tobacco excise are highly regressive; few people quit relative to the increase in tax paid by poor smokers who continue smoking. The O'Dea report said that even a 50% increase in tobacco prices would see 36,990 non-quitting Decile 1 households each spend an extra $928 per year while an estimated 4,110 quitting Decile 1 households would save $2,981; the poorest cohort then winds up spending a net extra $22 million in tobacco excise while decile 10 households spend a net extra $31 million. Excise hikes of the magnitudes being thrown around could conceivably wind up reducing total tobacco excise paid by low decile groups. But they would have other problems:

A leading academic says an extreme increase in the price of cigarettes could lead to black market dealing.

Speaking in response to a Ministry of Health discussion to raising the cost of a packet of cigarettes to $100 over the next eight years, Otago University health economics lecturer Des O'Dea said: "We all remember the days of prohibition in the United States and what that did to foster organised crime."

"While I don't think it would be anywhere near the scale of that, we could well see raids on retailers and a black market develop for cigarettes," he said.

I don't put a lot of weight on concerns that plain packaging legislation would lead to counterfeiting and smuggling; at least I'm not yet convinced of it. Is it really that hard currently to print fake labels for cigarette packets or to put anti-counterfeiting features into plain cigarette packs? But $100 packs of cigarettes have to yield a fair bit of home-grown tobacco outside of the excise regime and a fair bit of smuggling.***

Hopefully making it clear just what is needed to achieve the SmokeFree 2025 goal will have the government think again about the whole thing.


* I choose to avoid this risk, preferring the perilous whole milk and butter. I fear for Seamus though.

** I've read it twice, and I can't find a single reference to the "costs of smoking" number that MoH had been pushing a couple of years ago. Matthew Everett's the MoH contact person on the briefing document and is presumably the same Matthew Everett with whom I'd had fairly extensive discussion about the MoH's figure at the time. I'm glad to see that MoH doesn't seem to be pushing that figure any longer in its policy recommendations.

*** For both alcohol and tobacco, if anybody has ever seen estimates on the elasticity of informal supply through home production or smuggled goods with respect to excise changes, I'd love to see it. I worry that measured estimates of price elasticity of demand might overstate actual consumption decreases if there are reasonable shifts into illicit supply.

Connect the dots

The Canterbury District Health Board is starting to worry about the health consequences of overcrowded, damaged homes on the east side of town. The government's payouts in the red zone are generous - owners have the option of selling out to the government at the property's rateable value, or selling only the land to the government at its rateable value and settling with the insurance company for a repair or rebuild payout. But land values on the east side of town were never very high and new sections aren't cheap. Some on the east side can take out mortgages after using their red zone payout as down-payment, but that's a tougher option for the retired or for those who hadn't yet build up much equity.

What sections are going in are catering for folks a bit higher up the income distribution. Those wanting to move salvageable homes off of damaged land aren't having an easy time of it. David Haywood wanted to move his old Avonside villa to a new section but found covenants on most developments prevented it.

However, most Canterbury subdivisions forbid relocations among rules aimed at maintaining values.

Deane McKenzie, sales manager at Ngai Tahu Property, the city's biggest subdivision developer, said none of the iwi's sites allowed section buyers to bring in an existing home.

"You have to build with new materials, so relocating would be a breach of the covenant," he said.

"Ninety-nine per cent of subdivisions in Christchurch don't allow it, so for anybody wanting to shift their house, that could be a difficulty for them."

... 

Red-zoners David Haywood and Jenny Hay hunted unsuccessfully for a Christchurch section for their Edwardian Avonside villa, and will now shift it to Dunsandel instead. They found even small, private subdivisions in established neighbourhoods had restrictive rules.

"All the land is now stitched up in these covenants.

"The only land you can get has some weird problem, like high-voltage power lines or contamination, or was 50 minutes out of town," Haywood said.

Some subdivisions also restricted the size, weight and breeds of pets, banned cars more than 3 years old and dictated paint colours. He described them as an "outrageous intrusion on individual rights".

About a dozen others from their neighbourhood had wanted to shift houses out of Avonside but had given up, and their homes would now be demolished.

So when we'd expect Christchurch to be importing a pile of pre-fab housing, we're instead exporting perfectly liveable red-zone homes to Southland and Central Otago instead of putting them on sound land on sections near town.

So, why would developers put in covenants precluding people from moving in older houses?

Imagine that there are a few different tiers of buyers. The top tier couple of tiers are willing to spend an awful lot to make sure that they don't have any neighbours from the next tier down.* There's some risk that somebody from a lower tier will luck into a bit of wealth that might let them afford a house outside his tier but subsequently not be able to maintain it. Covenants that impose ongoing costs, like banning older cars, can help ensure the separating equilibrium holds. Restrictions requiring new construction of particular standard rather than moving in houses from elsewhere serve similar purpose. And neighbours willing to put up with a pile of seemingly arbitrary restrictions are probably also pretty good rule-followers on other margins, like noise ordinances.

In a well-functioning property market, this just means you wind up with rich neighbourhoods with expensive covenants, some middle-tier ones with weird restrictions, and other neighbourhoods of rather more mixed character. But when tight restrictions on how much land can be opened up for development at all are combined with a pretty big jump in demand for new sections, the marginal section can earn rents by putting in the kinds of restrictions that the richer tiers value. So we don't see many developments where David could move his house.

It's remarkable that Council has chosen to keep zoning sufficiently tight that we're exporting houses from Christchurch instead of moving them to new parts of town. I know a lot of folks get their backs up about the idea of sprawl. But, sprawl doesn't have to be as costly as people imagine. Municipal utility districts can help new section buyers bear the development costs over time. And congestion charges are a good idea regardless of zoning changes. But even if neither of those worked, is a bit of sprawl really worse than the current relevant alternative?

* This doesn't have to be true of all buyers. But so long as somebody with a subdivision can make more by putting on a covenant than by not, expect covenants.

Dangerous drinks

A New Zealand woman died after many years of consuming 4.5-8 litres of Coke per day. I wasn't going to touch this story, but now the woman's family is calling for warning labels on soft drinks and the ever-eager Doug Sellman's using it as a hook for excise taxes on soft drinks.

If you're drinking that much of anything per day, you're likely going to kill yourself. At least the Stuff story, unlike the Radio New Zealand one, is pretty clear on that point.

Drinking up to eight litres of any liquid a day can kill you, regardless of how much sugar or caffeine it contains, a Wellington dietician says.

Foodsavvy's Sarah Elliott said that when "extreme" amounts of fluid were consumed regularly, the body's cells could rupture.

"Ten litres of fluid a day could kill you, no matter what it is."

Specialists recommend that humans do not drink more than four litres of liquid a day.

Water has an LD50 of 90ml/kg, at least in rats. If that LD50 applies to people, drinking 4.5 litres of water in a go would kill half of all people weighing 50 kilograms. I have no clue what this woman weighed, but drinking 8 litres of water would kill half of all people weighing 89 kilos at that LD50, and the Radio NZ piece said she sometimes drank up to 10 litres of Coke in a day.

Here's Sellman:

National Addiction Centre director Doug Sellman says companies are promoting fizzy drinks as harmless.
He says an excise tax needs to be introduced to soft drinks, to warn people that it could have health effects.

Drinking that much water would have health effects. Warning labels there too? How about plain packaging on drinking taps?

Tobacco policy experiment

New Zealand seems on course to mandate tobacco plain packaging legislation; we'll see how the Australian court challenge pans out.

There isn't any real-world evidence on the effects of cigarette plain packaging legislation, mostly because nobody's really done it yet. What we have are a bunch of surveys of smokers and non-smokers on how cigarette packaging makes them feel, whether they think different designs are more or less likely to encourage them to smoke, and the like. In other words, a bunch of hypothetical musings in low consequence environments.

If we're stuck having Tariana Turia's proposed legislation, let's do some good with it. Set it up as an experiment. Implement plain packaging in part of the country, but not elsewhere. Then see what happens. If it seems successful after a few years, implement it everywhere; if it doesn't, abandon it. Either way, publish all the results so we have a better handle on what works. So plain packaging in Christchurch but not in Dunedin, in Wellington but not in Rotorua. I'm sure there are plenty of folks who specialize in designing randomised control trials of this sort who'd be able to run things. We may need a third treatment group to avoid problems that can result when you know you're part of a treatment group as compared to the control, but other folks know more about these design issues than I do. We'd probably also need to compensate the tobacco companies for increased distribution costs over the duration of the trial - the excess of current tobacco excise revenues over demonstrable costs to the health system should provide plenty of money that could be used here.

If we apply plain packaging to the whole country at once, we have no way of knowing whether the policy does anything. A careful randomised control trial could tell us something useful.

I've reasonable "get off my lawn" opposition to the policy, but if we're going to be stuck with it, why not learn something at the same time?

Competitive Governments on the Ocean

Patri Friedman and Brad Taylor make the case for Seasteading in the latest issue of Kyklos.

We argue that those advocating the reform of current political systems in order to promote jurisdictional competition are in a catch-22: jurisdictional competition has the potential to improve policy, but reforms to increase competition must be enacted by currently uncompetitive governments. If such governments could be relied upon to enact such reforms, they would likely not be necessary. Since existing governments are resistant to change, we argue that the only way to overcome the deep problem of reform is by focusing on the bare-metal layer of society – the technological environment in which governments are embedded. Developing the technology to create settlements in international waters, which we refer to as seasteading, changes the technological environment rather than attempting to push against the incentives of existing political systems. As such, it sidesteps the problem of reform and is more likely than more conventional approaches to significantly alter the policy equilibrium.

I love this line of work. Milton Friedman said that good government is best-case thinking; we need to constrain government. David Friedman said that constrained government is best-case thinking; we need market-based anarchy. Patri and Brad say that market-anarchy is best-case thinking; no government will cede territory to let it happen.

They aim a cannon at public choice theory:

Public choice theory tells us that we have bad rules because we have bad meta-rules. This merely shifts the question one level higher, however: why do we have bad meta-rules? This question has received much less attention from public choice theorists.² Constitutionalists generally fail to extend their dispassionate critique of policy choice to the constitutional level (Farrant, 2004), arguing that current decision-making rules tend to produce bad policy outcomes yet expecting the same flawed institutions to produce good constitutional rules (Witt, 1992).

And, they give a solution to Caplan's Tiebout capitalization problem:

... dynamic geography addresses the concern of Caplan (2001b) that Tiebout competition is undermined by the fact that governance quality is capitalized into real estate values. When land is tied to a particular jurisdiction, reductions in the quality of governance will immediately lower land prices. This means that landowners have no incentive to exit bad jurisdictions, since they have the choice between putting up with low-quality governance and taking a capital loss when they try to sell. Fascinatingly, however, this is not the case on the ocean. Since floating real estate can be moved between jurisdictions, its value is not permanently reduced by a property tax increase, because there is the alternate use of moving the real estate to a new jurisdiction. This restores the property of a well-functioning market, where resources go to their highestvalued use. Floating real estate will move to the jurisdiction where it is the most valuable whenever the value difference is greater than the cost of moving it. This cost will be substantial, yet based on the cost of moving oil platforms, is likely to be a small fraction of the value of the real estate. Thus, exit remains a check on government power on the ocean.

Harford argues for experimentation and failure as a way of figuring out what's best. Friedman and Taylor argue Seasteading provides a mechanism for polities to fail gracefully:

Unfortunately, political instability tends to be accompanied by bloodshed, producing a tradeoff between peaceful stability with high levels of rent-seeking and violent instability with low levels of rent-seeking. Seasteading allows us to have political instability without bloodshed (Chamberlain, 2009). If rent-seeking becomes too harmful in an ocean polity, the population will gradually float away. This allows the polity to die without being overthrown violently. Dysfunctional governments would no longer take up valuable land, but would wither and die based on the preferences of citizen-consumers.

Where David Friedman looked to saga-era Iceland as example of anarchist order, Patri and Brad look to the Bajau Laut's pagmunda moorages.

The biggest challenge remains existing territorial governments; should Seasteads prove too successful as competition, we could easily imagine the French sending in dive teams with explosives or the Americans sending in a carrier group. Patri and Brad reckon business models focusing on relatively innocuous applications like innovative medical tourism will not only avoid annoying existing governments but could also build support for Seasteads from within those countries' existing voter bases: would you really support bombing the place that's working out nanobot alternatives to the hip replacement surgery you're going to need in a few years? I still worry this might be a bit of best-case thinking; the Americans can always fabricate an incident whipping up support for a bombing run if they want to.

But I still reckon Seasteading the best value play around. The odds on its all panning out still aren't great. But the upside gains are potentially very very large.

Court Costs

Remember the absurd copyright trolls Larrikin Music? The ones who went after Men At Work for including a short flute riff in "Land Down Under" as part of its homage to all things Australian?

Here's the tragic denouement [ht: @lawgeeknz].

Two years on and it seems the musician was still affected by the court decision, which is believed to have had a significant impact on his financial situation. The 58-year-old's body was discovered by friends at his North Carlton home yesterday - in a modest house he recently moved into after being forced to sell a grand property nearby bought during the Men At Work days and later turned into a studio where Archie Roach's Charcoal Lane was recorded.

Detective Senior Sergeant Shane O'Connell said there were several unexplained circumstances surrounding the death, but would not go into detail.

The cause of death remains unknown, but a close friend of Ham's told The Age last night that he believed Ham had begun using heroin heavily and also abusing alcohol after the Kookaburra case. ''The whole case had undone him,'' said the friend, who asked not to be named.

Dragging people senselessly through the courts has costs.

Congratulations, Larrikin.

Sex Robots from the Future

Academia in New Zealand's always had a bit of a public perception problem. Because credential inflation came very late to New Zealand, a large number of very talented people have been successful without having bothered to go to university. They're sceptical about whether universities add much value.

The New Zealand press yesterday gave extensive coverage to research from the University of Victoria at Wellington predicting that, by 2050, we'll have extensive robot-based sex tourism, and it'll be based in Amsterdam. Here's the original paper.

At first I'd thought the least plausible prognostication is that customers would be paying €10,000 for a robot brothel experience, but the fault was in the reporting rather than in the original article. The press reported €10,000 as the typical price paid by tourists: wholly implausible absent massive inflation or really pernicious turns in patent law. But the original article says it's the price at the "top" club for business travellers. It's not nuts to think the Dominique Strauss-Kahn or Max Mosley of the future would pay those kinds of prices. Otherwise, the price seemed more likely to be on par with the cost of buying a robot, not the cost of renting one.

They reckon dangerous STDs are going to be a big push for robot-sex. I'd expect cheap personal tricorders would let customers and workers sort out really quickly whether STDs are an issue. The only thing that would stop this would be masking agents deliberately taken to avoid STD detection, but it's also pretty plausible that there would be reasonably strong criminal penalties attached to using masking agents.   And, it would then just be an arms-race with the tricorders. Once we've worked out tricorders, we probably wind up with an STD segregation equilibrium in dating and sex markets. I can buy improved services as a demand-based reason for the shift; I'd be very surprised if it were STD worries.

I should probably leave it there.

SkyCity

I talked about the SkyCity - Convention Centre deal on The Panel on Monday. I come in around the 20 minute mark.

John Key's offered SkyCity a deal where they get permission to put in more gambling machines in exchange for SkyCity building a new convention centre for Auckland. Key indicated in the press that a government-funded one here could never meet its capital costs, so was looking for options that didn't cost the government anything.

On the plus side, it's unlikely this arrangement yields another Claudelands. SkyCity's on the hook for costs. They've reasonable incentive to keep things running properly: the Centre would complement their existing operations. The more conventioneers, the more potential customers at the nearby casino.

But it isn't true that the deal doesn't cost the government anything. If they were instead to hold an auction for the right to put a bunch of new pokie machines, people would bid for those rights. The value of the winning bid in that auction is the cost of the Convention Centre to the government. We would expect, though, that the amount paid in that kind of auction is less than the value of the concession to SkyCity; those rights, bundled with Convention Centre provision, are less likely to be eroded by toughened regulations on pokie machines from some future government than would be rights otherwise auctioned off. And, if I owned a pokie machine concession in a bar in South Auckland, I'd be awfully worried that the deal for SkyCity would come at the expense of an increased likelihood my pokie licences wouldn't be renewed sometime down the track; those are the folks most likely to bear the incidence of the concession if there's any holding to a sinking lid policy on overall pokie numbers. So it costs the government nothing in roughly the same way that the old French monarchs got money for free by selling state monopoly concessions. They're very likely getting a better deal from SkyCity than they'd get if they just put it up to auction, but that doesn't mean it's costless.

I'm no particular fan of "economic effects" numbers being used in selling the deal. The $90 million estimated "boost" to the economy is likely just estimated spending figures from conventioneers; spending isn't the same thing as benefits. And while the literature on the economic effects of convention centres is not as well developed as the literature on stadiums, I'd be pretty surprised if they were all that beneficial. Even the former head of the Tourism Auckland says convention centres typically lose money.

Bottom line: I do not believe the "broader benefits" case for building convention centres. Nothing stops hotels near a proposed centre from getting into sponsorship arrangements where they pay for listings in standard convention centre marketing materials to help fund the centre; I find it more likely that the benefits are too small to make it worthwhile than that public goods problems, easily resolved by assurance contract, stop things. But if we're going to have a new convention centre, this might be the least bad way of limiting fiscal risks. That's not a strong endorsement, because I don't particularly like the potential regulatory takings from the local pubs currently hosting pokies if the new machines are part of the sinking lid policy, and because there's a whiff of cronyism to the whole thing. But honestly, who else would be able to pull off the casino-convention centre combination in Auckland?

Update: See also Sam Richardson and Bill Kaye-Blake. Bill likes the deal less than I do; he worries about gambling being regressive taxation. I'd expect that it won't be as regressive as Bill thinks, mostly because of the likely closure of other machines in pubs and the consequent shifting of gambling clientele towards international casino visitors. Sam wonders about construction and other employment effects.

Take-over

Central government has taken over responsibility for fixing downtown Christchurch. Here's Chris Hutching's take:

No more $500 million light rail schemes or reverting one-way streets to two-way at a cost of $91 million.

Today, Canterbury Earthquake Recovery Minister Gerry Brownlee ditched the Christchurch City Council’s recovery plan.

Mayor Bob Parker put a brave face on things at the media conference today, even claiming the city plan’s “visionary” Volume 1 themes had been enshrined.

The new arrangement would be a “true partnership”, he said.

But the reality is that the actual proposals contained in Volume 2 have been thrown out of the recovery scenario.

They included the mayor’s pet light rail project that would have soaked up $500m of the $2 billion recovery plan.

I'm more than happy to see the back of the woollier Council proposals; I hope Hutching's right that we're binning both the changes in the one-way system and the light rail scheme.

I don't think Hugh Pavletich is far off the mark in pushing for substantial devolution to local boards to help get things done; I'd have leaned that way rather than to a new centralized control body.

But at least the new board's talking some of the right talk for downtown. The new team's emphasis on quickly establishing the sites for major public infrastructure pieces like the convention centre is important - the hotels won't want to move until they know where these kinds of facilities will be placed. And restaurants will want to know where the hotels are going to be.

I really hope that, when they talk about land amalgamation, they give some thought to Tabarrok's dominant assurance contracts rather than compulsory acquisition. Applying Tabarrok's model to land acquisition, Councils effectively buy options to purchase a lot of properties, then exercise those options on the best set of properties for the development.

We invoke eminent domain to avoid hold-out problems where the last owner to sign on for a major development can extract a good part of the project's surplus. Buying options across a lot of potential sites can be more expensive, but eliminates the hold-out problem where different bundles of properties could serve similar purpose. So long as the strike price is a fair one, you've a dominant strategy in selling the option to the government. If the government doesn't exercise the option on your property, you're up by the option payment; if they do, you're no worse off.

See also Bruce Benson's work on solutions to land amalgamation problems that do not do violence to existing ownership rights.

I hope that whatever aesthetic vision the planners might want to impose is done by setting examples in the design of the new public facilities rather than by mandating standards. I'd be really happy to hear an announcement that they're planning structures designed around innovative wooden laminates. U Canterbury is doing some work in the area if they're looking for people with expertise.

A final hope is that the new agency pushes hard to get insurance issues sorted. Does full replacement cover mean coverage to the ex ante or ex post building code? Getting a few declaratory judgements on issues facing a lot of property owners could help get things moving.

Perhaps the best thing about the take-over is that it's now very clear what voters need to do come the next election if Christchurch remains buggered. Parker's already toast, at least according to iPredict. If Christchurch is back on track come the next election, vote National. Otherwise, don't. At least for Canterbury, the next election ought now to wind up being a referendum on how they've handled Christchurch.

NZIER reports on the latest economic indicators for post-quake Christchurch.

Here's the latest on building consents. See also Bill Kaye-Blake.

More building consents than elsewhere in the country, but we're not even meeting the numbers of consents issued through most of the 2000s. National hasn't long to get things moving.

Correlation, causation, and alcohol

It isn't hard to find studies linking heavy alcohol use to bad social outcomes; it's harder to find ones that adequately correct for individual risk-seeking behaviour.

A few relevant bits of news this past week.

Teenagers who drink are more likely to have played the "choking game". Now I'll take this one with a fair bit of scepticism; it isn't hard to imagine that a fair number of the 6% of Oregon eighth-graders who reported that they enjoy asphyxiation might just have been messing around with the survey team. It's the kind of thing I'd have thought was fun as an eighth-grader. But, here's the alcohol connection:

His team's findings are based on a 2009 survey given to more than 5,000 Oregon eighth graders. The researchers found that kids who were sexually active and those who used drugs or alcohol were more likely to have played the choking game.

At least nobody seems to be claiming that alcohol use is a gateway drug to asphyxiation play.

Second bit of news: a French study shows people with more tattoos drink more alcohol.

People with tattoos drink more than their tattoo-less peers, a new study from France suggests.

The researchers asked nearly 3,000 young men and women as they were exiting bars on a Saturday night if they would take a breathalyzer test. Of those who agreed to take it, the researchers found that people with tattoos had consumed more alcohol than those without tattoos, the researchers said.

Previous studies have shown that tattooed individuals are more likely to engage in risky behaviors, such as unprotected sex, theft, violence and alcohol consumption, compared to people without tattoos.

The researchers suggest educators, parents and physicians consider tattoos and piercings as potential "markers" of drinking, using them to begin a conversation about alcohol consumption and other risky behaviors.

Again, nobody seems to be claiming that alcohol's a gateway drug to getting tattoos. Both of these point to underlying risk-preference as driving outcomes.

Finally, this one points to a more causal relationship. I'm not sure that causality is all that strongly established, but here's the abstract via Bakadesuyo:

A within-person multilevel approach was used to model the links between alcohol use and sexual behavior among first-year college students, using up to 14 days of data for each person with occasions (Level 1, N = 2879 days) nested within people (Level 2, N = 218 people; 51.4% male). Between-persons (Level 2) effects were gender, relationship status, person means of alcohol use, and alcohol-sex expectancies for sexual affect and sexual drive. Within-person (Level 1) effects were weekend days, number of drinks consumed, and the interaction between drinks consumed and alcohol-sex expectancies. Independent of average alcohol use, consuming more drinks on a given day was associated with a greater likelihood of oral sex and with experiencing more positive consequences of sex that day. Significant Alcohol Use × Alcohol-Sex Expectancies interactions were found for oral sex and total sex behaviors, indicating that individuals with more positive expectancies were more likely to have sex after drinking. The negative association between drinks and condom use was at a trend level of significance. Results support the potential for promoting sexual health by focusing on cross-behavior expectancies among late adolescents.

The full paper is here. I still wonder whether the within-person design isn't picking up that the same person will behave differently when going out "for a good time" than he or she would on average otherwise. But, the paper at least suggests that if we're worried about an "alcohol leads to more sex" relationship, we should just maybe put some weight on that this might not be a bad thing on average.

We might also note that there's some evidence that reported correlations between drinking and risky sexual activity are driven by underlying risk preference as well. The linked paper finds that people who use condoms when sober also use them when drinking, and that those who don't when sober, don't when drinking. The researchers there also worry that extensive public warnings about that heavy drinking leading to risky sex may well prime people to do exactly that:

Based on a critical review of this literature, we conclude that it is imprecise (and even misleading) to disseminate the message that alcohol leads to sexual risk behavior. Other authors (Bolton et al., 1992) have noted that if there is no association at the event-level (and therefore no causal association) then disseminating this message may have the effect of giving people an excuse to engage in risk behavior when drinking. This idea is plausible, especially when expectancy theory is taken into account. Because alcohol expectancies can be acquired from a variety of sources other than personal experience (Goldman et al. 1999), delivering a message that alcohol use proximal to sexual activity causes riskier sexual behavior may have the effect of “teaching” sex-related alcohol expectancies to intervention participants who may not have previously held them, and may reinforce expectancies in other participants.

I worry about this too. There's pretty wide variation across countries in how people behave after drinking. Breaking the expectation that drinking gives you an excuse to do dumb things might be more important than reducing drinking. Alcohol use should be something that adds to the probability of being charged and punished when committing offences rather than being exculpatory.

Agriculture and the ETS

Federated Farmers asks the right question:

The Ministry for the Environment is also starting a series of regional ETS consultations as a pre-regulatory move; change is on the way. What we do know is that Kyoto's first commitment period comes to a halt at the end of this year and we have to set a national "carbon budget" to 2020. Will we sign up to Kyoto's second commitment period or revert back to United Nation's looser Framework Convention on Climate Change?

Big emitters in the G10 members have signaled retreat. Canada, Japan and Russia have all stepped back from Kyoto while the United States never made it to the start line. Minister for Climate Change, Tim Groser, believes we have to have an ETS or overseas trade will become problematic. That's incorrect. Canada, when faced with a multi-billion dollar bill for its coal fired power stations, withdrew from the Kyoto Protocol last year. There has been no impact on its exports and not even calls here to boycott Maple Syrup. We are also yet to see Greenpeace activists chaining themselves to Toyota dealerships, in protest of Japan's decision not to sign up to a second commitment period.

I'm generally a fan of revenue-neutral carbon taxes set at relatively low levels but capable of being ramped up as more of our trading partners adopt them. But I've also wondered whether we'll be Python's lonely Sergeant-Major marching up and down the square by himself on Kyoto penalties, with the rest of the squad headed off to see a film. Recall that Kyoto penalties are only binding if we choose to sign on for the successor agreement. If few are signing on, there may be more effective things we can do on climate change than buying carbon credits from defunct Russian factories.