If a store opens in Wanaka, should anyone in Auckland care?

Members of Parliament representing Dunedin, Waikato, Hutt, Ikaroa-Rawhiti, Mana, Mangere, Manukau East, Manurewa, Mt Albert, Mt Roskill, New Lynn, Palmerston North, Port Hills, Rongotai, Te Atatu, Te Tai Tonga, Wellington, West-Coast, and Wigram think so. And so MPs for Hamilton West, Hunaua, Ilam, Invercargill, Maungakiekie, New Plymouth, Tamaki, Taupo, and Whangarei. And a bunch of List MPs living nowhere near Wanaka.

New Zealand prohibits stores from opening on Easter Sunday, Good Friday, half of ANZAC day, and Christmas Day. Unless you're in an exempt category.

Jacqui Dean, MP for Waitaki, which encompasses Wanaka, put up a bill that would have allowed shops in Wanaka to open on Easter Sunday. The Warbirds over Wanaka biannual event most typically runs over Easter. Thousands of tourists come to Wanaka to see the show and are legally prohibited from shopping for two of the days they are there.

Parliament shot down the Bill on first reading after National allowed a conscience vote while Labour, the Greens, and NZ First block-voted against it.

Particularly egregious in the Hansard:

• Rajan Prasad, Labour, questioning whether there's any evidence that the bill would see people spend more. Tens of thousands of people show up in Wanaka for the Warbirds show and are legally banned from shopping, except at those places already exempt. 
• Darien Fenton's complaints about Christians who might be forced to work on Easter Sunday. Surely every religion has its own special day. And what of Festivus? And if anybody forces me to work on the Feast of Maximum Occupancy, I'm not going to be happy. 

There were more sensible critiques, like that there should be more general legislation allowing individual local councils to make their own decisions about Easter trading. But surely if the people in Waitaki thought this a particularly bad idea, they'd have a really good way of expressing their discontent in 2014: voting out the local MP who pushed through the bill. And surely an MP who wants to be re-elected would have canvassed for local support before introducing the bill.

The trading bans that coincide with Christian holidays seem particularly odd in a country where the Census tells us those reporting no religion outnumber any Christian denomination. When we first arrived here, we were really surprised by the ban: we headed up to Nelson for a holiday over Easter long weekend, booking in at a backpackers and planning on buying groceries as needed. But everything was a ghost town. City centre was empty. We only found out afterwards that it was because the shops were all prohibited from opening. 

I can understand wanting to have Easter and such as statutory holiday, where employers must provide employees extra compensation if they want to be open. But complete bans are nonsensical. 

If ACT were a liberal party, they'd have had an MP in the House speaking in support of the Bill and demanding it be extended more broadly. Hansard doesn't list John Banks as having voted.

No transitional gains traps?

Don Wittman is right: the transitional gains trap is a bit of a puzzle.

Recall first how the transitional gains trap works. One a rent-seeker has a rent conferred upon him, the value of that rent is capitalized into whatever draws the rent: the quota permit for Canadian dairy farmers; the taxicab medallion for New York taxi firms; the liquor licence for permit holders in places where licences are in restricted supply, for example. After that capitalization happens, the owner of the permit earns only a normal return on the total value of his capital, including the capitalized value of his regulatory rents. Permits change hands such that whoever earned the windfall initial gain takes his rent and leaves; eventually, nobody who currently owns the permits has earned any kind of excess return by having owned them. But try to get rid of the regulatory inefficiency that draws the rent and each and every one of these permit holders will scream blue murder as you're wiping out a good chunk of their capital: some permit holders could easily go bankrupt over it if they took out loans to buy the business and both they and the bank were counting on a continuing flow of regulatory rents.

Now, Wittman would rightly point out that if this is really so inefficient, there has to be a move that buys out the losers out of the gains to the winners. If it's Kaldor-Hicks efficient, this has to be the case. If you run the compensation, then the policy switch is Pareto-efficient.

The usual answer is that the transactions costs are too high to prevent the move towards more efficient policy. But in the case of taxis, or the Canadian dairy cartel, that really doesn't seem to be the case. For dairy, as I've suggested many times, all you need to do is put a tax on dairy products in Canada at the same time as you abolish all of the tariffs on imports and abolish supply management. The tax keeps the price to consumers a bit below where it was prior to the shift and is sufficient to pay off the bonds you issue to buy out the quota holders.

But, there's a reason that opaque transfers are preferred. That reason? Voters. Don't believe me? Read the comments section on Stephen Gordon's Globe and Mail piece where he suggests my "tax dairy and buy out the cartel" solution. For example:

professor_x

2:56 PM on November 16, 2011

I read the word screaming clear TAX.

We want to TAX dairy to make it even more expensive to 34 million Canadians who have to pay off $30 billion dollars in outstanding quota values.

Opaque transfers are opaque. Nobody understands tax incidence, never mind this kind of thing.

Add in the generalized worries about trade, insecurity issues about the Americans, and just general weirdness about food, and you wind up with voter support for a policy that makes them worse off. I'd batted back some of these fallacies. Even if Canada gets rid of supply management, Canada will still have a dairy sector; if Canadians want to ban GE milk, or milk where hormones are used in production, they can do it by direct regulation; and, if Canadian dairy farmers want to form a voluntary cooperative to get some efficiencies of scale while avoiding being contract operators for others, Canada has a strong tradition of agricultural cooperatives.

The best counter-argument I've heard is that the government can't constrain itself against bailing out farmers, so the one-off payment is likely to be followed by some additional support down the line. But isn't it better for government to try to come up with some mechanisms for self-discipline? It's a general purpose technology worth developing. And it's hard to believe that the costs of any potential future support package would trump the cost the supply management system imposes every year with certainty.

Martha Hall Findlay, Canadian Liberal Party leadership contender, makes the case for abolishing supply management in combination with a temporary tax on dairy used to fund a transitional support package for dairy farmers. She suggests the main problem is overcoming dairy farmer resistance and points out that dairy farmers are a trivially small proportion of the voting population; there's no reason that the Conservatives, or anyone else, couldn't just abolish the system, lose every single dairy farmer vote, and not expect much difference in the allocation of seats in Parliament.

I love Findlay's proposal. But I worry that the problem isn't the angry dairy farmers voting against incumbents. Rather, it's angry dairy farmers putting up ads on TV scaring voters about imported milk combined with voters really not understanding that a temporary tax on milk, under this system, reduces the cost of milk rather than increasing it.

I expect that the Canadian Dairy Cartel will use the threat of this kind of public campaign to negotiate for a bigger payout. So it's good to see the folks at EconomyLab helping to inoculate voters against the "make voters dumber" campaign that's likely to come. But if Stephen Gordon or Mike Moffatt were to put something up slowly explaining why free trade in agriculture won't mean that Canadian consumers are suddenly forced to drink poisoned milk, that would probably also be pretty useful. I know it's obvious to us, but it isn't obvious to the folks who can veto the play.

Noble Lies: alcohol and pregnancy edition

Light drinking during pregnancy - say a glass of wine every second or third day - really doesn't seem to do any harm. One pretty thorough study in 2010 showed that kids of mothers who drank moderately during pregnancy had better outcomes than those born to abstainers. I expect that most of that effect is due to unobserved cohort heterogeneity, but it would be pretty tough for that confound to reverse the sign of the effect. I'd summarized:

First, some summary data. About eight percent of their sample - just over 900 mothers - reported moderate or heavy drinking during pregnancy. Incidence was slightly skewed towards lower education cohorts, with just over three percent of low education mothers reporting heavy or binge drinking as compared to just over two percent of mothers in the top educational category. Highly educated mothers were the ones most likely to report light drinking during pregnancy, though the modal highly educated mother reported absention during pregnancy. Among the lowest educational cohorts, absention during pregnancy was by far the most likely reported behaviour. So if you're a highly educated mother who sneaks a drink occasionally, you're certainly not alone.

They ran regressions on child outcomes controlling for maternal drinking and for the confounds. The unadjusted data showed massive benefits to being born to a light-drinking mother, but that was mostly due to the confounds; results attenuated in the full models, as you'd expect if it's the higher education parents who are more likely to have a little but not a lot. Controlling for the parental factors didn't reverse the effects, but it really knocked back the magnitude and statistical significance. Typical coefficients on cognitive benefits to the child of the mother's light drinking were knocked back to a third of their baseline magnitude with the full set of controls; it's consequently more than plausible that remaining uncontrolled things that differ between "not during pregnancy" mothers and light-drinking mothers could be responsible for at least some of the remaining gap. An IV strategy would be needed to estimate things more precisely.

But the bottom line seems to be no bad effect, and some (small) chance of a positive effect, of a pregnant woman's drinking up to a drink or two "per week or per occasion" instead of abstaining during pregnancy. I wouldn't bank on the positive effects holding up to an IV model, but I'd also be very surprised if those techniques drove things to a negative effect.

The usual bunch gave a lot of warnings about "no safe level", along with some reasonable critiques of some of the sillier journalistic takes on the study - like those that reported uncorrected differences in means rather than coefficient estimates. My best takeaway from the paper is that low level drinking is very unlikely to do harm, but heavy drinking is very likely to do harm.

Another set of papers is out showing much the same thing: low levels of drinking, or even occasional binge drinking, doesn't seem to do much harm, but heavy drinking does. And the usual bunch gave the usual party line:

Christine Rogan, Health Promotion Advisor (Coordinator of the Fetal Alcohol Network NZ), Alcohol Healthwatch, comments:

“These types of studies do not provide a reason for pregnant mums to pop the champagne! Sadly though that is often the effect they have. The public (media) love good news headlines about drinking and the headline always wins, no matter the fine print such as the authors themselves conclude that no safe level of consumption has been established.

I'm not sure what gets to constitute proof that something is safe if repeated findings of "no more risky than abstinence" don't count. And Rogan is wrong when she says that results came only from teachers' reports on the students rather than from testing of the students themselves: this paper in the set, at least, included measures of the child's IQ at age 5.

Otago's required evidentiary standards seem to depend a lot on the conclusion. If you want to say anything about whether women should be a bit more relaxed about having a drink every two or three days during pregnancy, nothing outside an ethically forbidden randomized control trial seems to suffice. If you want to ban smoking outside of bars, surveying 13 people you met on Facebook is enough.

I can't help but run anything coming out of Otago's healthists through the "noble lie" filter: are they saying what they really believe, or are they scared that idiots will take findings of "light drinking does no measurable harm" as justification for very heavy and harmful drinking during pregnancy?

Dave Guerin at Ed.co.nz seems to agree; he summarizes:

Alcohol in Pregnancy Danish research on the impact of alcohol during pregnancy was interpreted in quite heroic ways by academics to support the current public health view in NZ (SMC, NZ Herald, Fairfax, One News).

A Shill for Big Bacon

From such humble roots can a campaign be born.

When I heard about the Burger King Bacon Sundae a couple weeks ago, I sent a single tweet saying I'd hoped it would come to New Zealand. 

Bacon Sundae? Please tell me that this will come to NZ Burger Kings. I promise to buy one. Maybe more than one. j.mp/M4FbbP
— Eric Crampton (@EricCrampton) June 13, 2012

A week later, a reporter for the Herald on Sunday hit me on Twitter asking why I wanted to try the bacon sundae. I sent the reporter an email saying that maple syrup goes well with both bacon and ice cream, so it's not crazy to think bacon and ice cream could go well together. And, the bacon sundae had the added advantage of annoying the sorts of people who it's useful to annoy now.

So the Herald wrote:

Here, Eric Crampton from Christchurch has been campaigning on Twitter for its sale in New Zealand.

"I'd never thought of putting bacon and ice cream together but it makes sense - maple syrup makes bacon taste better and it goes really well with ice cream too," he told the Herald on Sunday.

"And a bacon ice cream sundae annoys all the sorts of people who really need to be annoyed from time to time."

I hadn't really thought I was campaigning. I hadn't sent pleading letters to BK, or stood outside BK with placards, or put out press releases, or put up a whole pile of blog posts with regression analyses purporting to demonstrate that the interaction effect of bacon and ice cream yields hedons* the likes of which would make all of Doug Sellman's nightmares of food addictions seem a pleasant daydream. But, the article was fun.

Then I saw Michele A'Court's piece in this weekend's Christchurch Press (not online).

Meanwhile, on the other side of the States, you can still get a fast-food chain bacon sundae – ice cream with bacon bits smeared with chocolate and caramel sauce, garnished with a strip of deep fried bacon. It’s been described by one appalled nutritionist as ‘‘15 teaspoons of sugar with some pig in it’’.

There’s a guy in Christchurch campaigning to bring it here. I admire his chutzpah – if that’s not an indelicate word to use when discussing bacon. He is quoted as saying not only does it sound like a great flavour combo, but its very existence will annoy ‘‘the sorts of people who really need to be annoyed from time to time’’. See comment from nutritionist above.

I may well try one. Or a small portion of one. And bring the rest home for this dude in my lunch box.

Hmm. While I want to try one, I think I'd prefer making my own to eating somebody else's leftovers. I don't even like eating stuff my kids have pecked at.

Then Colin Peacock at MediaWatch wondered how much of a campaign there really can be if it's just one guy from Christchurch and a student in Auckland. Indeed. Especially when the guy from Christchurch isn't even really campaigning.

But I still want a bacon sundae. If Burger King brings it to New Zealand, I'll even try one. But I fiercely defend my independence: if it doesn't taste as mindblowingly awesome as I expect, I'll tweet the appropriate meh.

* You can't actually count hedons. If I tried putting a t-statistic on that kind of thing, McCloskey should have me shot. Utility is ordinal!

Technical matters

Comments on Offsetting are migrating over to Disqus. I'm hoping that it gives me some better moderation options. The archive of comments is still here; I just don't know how to make them visible while Disqus runs its import procedure.

Hopefully, normal service will resume without undue delay.

Update: Anybody who doesn't have a profile image gets one from here!

Update2: I think I have the bugs fixed. I'll evaluate things through Monday, then put up a poll to see what you folks think.

Showing you care: charity run edition

Charity runs remain a far more effective way of showing that you care about something than of actually achieving much. Here's Tristin Hopper in the National Post:

In May, 2011, runner Scott Cannata set out from St. John’s, Newfoundland with the aim of collecting $70-million for cancer research in a marathon-a-day journey across Canada.

Eight months later, Mr. Cannatta arrived in Port Renfrew, B.C. having only generated $40,000. Without even factoring in the money Mr. Cannata spent on food, a support vehicle and 19 pairs of runners, the sum is only about $10,000 more than what the average Canadian worker would have earned in the same time period.

Since May 9, Alick Brooke and Guy Bourassa have been riding on horseback from Edmonton to Halifax in a bid to raise money to combat child exploitation. Setting out with a goal of $1 million, as of June 22 the pair’s website only counted $7,500.

“It is kind of puzzling that people do this,” said Christopher Olivola, a post-doctoral fellow at the U.K.’s Warwick Business School and a researcher on the science of charitable giving. “After all, the act of running itself doesn’t generate money, so why would you give to someone who is running a marathon instead of doing something else?”

One of my first blog posts, back when I did a guest stint at EconLog, hit on the inefficiency of charity races; I revisited it last year.

Here's what I sent Mr. Hopper when he emailed asking for comment; he used a short piece of it.

“Charity runs and races are a great way of raising awareness about causes – who can fail to notice when local streets are closed to accommodate a run? But they’re not a particularly efficient way of generating donations, especially when we consider the time and effort that participants put into training. People who have hit me up for donations for their participation have told me they’ve trained forty hours or more for some of these events; most participants could do more for their chosen cause by taking a part-time job or putting in overtime, donating the results to charity, and hitting up their friends to join in and do the same. It’s pretty hard for me not to come to the conclusion that donating does more to encourage a friend’s gym attendance than to help the charity.”

“Charities do keep running these events, so they must either judge the publicity benefits to be worth a fair bit or estimate that most people wouldn’t bother giving anything if there weren’t a big public event. But wouldn’t it be better if we could get people to put in 40 hours volunteering for their charity and then have a big parade for the volunteers instead of having them put in 40 hours training followed by a race? If the charities reckon they would have fewer participants under that kind of system, what does that tell us about what the race participants are really trying to achieve?”

“Charity races provide a complicated bundle of goods to participants in exchange for a bit of revenue. As best I can tell, the biggest benefit to a lot of participants is an enforced exercise regimen. Your friends will be watching to make sure you complete the race, and you can’t complete the race unless you train pretty hard. This gets bundled with a lot of warm fuzzy feelings about helping a charity, which also can help motivate people to go to the gym and train by helping them convince themselves that they’re helping a lot of people by spending time on the treadmill. But surely volunteering for the charity, or taking a part-time job and donating the proceeds, has to do more for your chosen charity than running on a treadmill. It’s then not all that different from Canadian accountants flying out to the Philippines to work on Habitat for Humanity projects: they could hire a couple dozen trained carpenters with what they’re spending on airfares, but they wouldn’t get the trip to the Philippines or the warm fuzzy feelings. I don’t feel too guilty when I decline either kind of solicitation.”

Scams: Type I and Type II error

Sometime after the September 2010 earthquake, I got a call from somebody claiming to be "The Earthquake Recovery" promising that, because I'd had chimney damage, I could get a free heat pump. All they needed were a few of my details. I laughed and hung up on them - everybody has chimney damage, the offer sounded too good to be true, and "The Earthquake Recovery" sounds about as plausible as "The Commonwealth Lottery" or "I'm calling from the Windows Operating System".

After I figured out it wasn't a scam, I sent them an email saying that if they wanted to give me a free heat pump, I'd be happy to take one, but noting that the damaged chimney leads to an open fireplace that hasn't been used in at least a decade. I never heard back. I suppose if I am eligible for an extra free heat pump, my opt-out contractor will let me know about it tomorrow morning.

I made a Type I error, rejecting the true null hypothesis that the caller was genuine.

David Farrar reports a more costly error on the Type II side. I suppose if 419 scams didn't work with low probability, nobody would bother trying.

I'll stick with my current heuristics.

Tax incidence: alcohol edition

Pop quiz: if the alcohol excise tax is charged to consumers rather than to producers, are winemakers better off? The New Zealand Winemakers seem to think so:

While the industry accepted the government has to collect income tax, the excise is not reaching the market as a social policy goal, Smith said.

"We believe it should be shifted to be collected off the consumer rather than off the producer so it becomes a price disincentive as it was meant to be. The tax could still be taken, just at the other end of the cycle," he said.

Standard tax incidence theory says it doesn't matter whether a tax is collected from a producer or from a consumer; the burden of the tax depends on relative supply and demand elasticity rather than who cuts the cheque to the IRD.

There can be good administrative reasons for collecting the tax from one side of the market or the other. Exported product isn't subject to excise; who's best placed to keep track of what's exported and what's domestically consumed isn't obvious. If a winemaker operates a cellar door or otherwise sells to consumers online, he would have to submit an excise bill to the government even if it were retailers that otherwise had to do it. And while it's true that an alcohol producer will have some cash float issues around having to pay excise in advance of receiving payment for his product, it's also possible that administrative costs on the whole increase if all the excise submissions have to be handled by the hundreds of small retailers who might have a few bottles of wine along with other stuff in their shoppes. The opportunity cost of the short-term loan extended from alcohol producers to the government in terms of interest income forgone isn't zero.

I don't know whether having retailers, wholesalers, or producers submit the excise return minimises the aggregate administrative burden associated with alcohol excise; I can imagine it going either way. It's a question best left to the tax accounting specialists.

But this part does seem wrong:

Smith thinks the excise should be collected after GST so when an item is purchased, the excise tax is added on top.

"It sends a clear price signal to the consumer."

Winegrowers chief executive Philip Gregan agreed the excise should be firmly considered in a social policy context. "If you're going to achieve some social policy goals with it, then you're levying it entirely in the wrong place."

Most wineries aren't able to pass the increases onto the retailers and Gregan says their data shows some wineries haven't had a price increase in five years but have to keep absorbing the annual excise adjustment.

First, if excise is compensation to the government for some kind of expected external burden associated with consumption, then those government services included in the product price ought to have GST applied to them; excise should be subject to GST.

Second, levying excise at point of sale either makes no difference where it's included in the sticker price, or leads consumers to expect actual prices to be lower than they are by having sticker prices much lower than the price that will be levied at the till.

Third, if wineries haven't been able to pass along excise increases, they should also expect to bear the burden of a tax assessed at point of sale via similar reductions in demand.

But something that Kiwi winegrowers ought to be watching out for is the potential for changes to Australia's WET. As I understand things, small producers, including small NZ producers, get a rebate on the Wine Equivalent Tariff levied in Australia. I wouldn't be surprised if NZ wineries stopped getting that concession from the Australians.

HT: David Hargreaves. Thanks!

Post-apocalyptic bureaucracies

You've gotta have goals. And @Keith_Ng has a new one. Not content with being a data visualization wizard, here's what he wants to tackle next. Well, conditional on there being a zombie apocalypse.

New life goal: Become ED of Post-Zombie-Apocalypse policy thinktank. Influence policy, debate about market solutions to zombies.
— keith_ng (@keith_ng) June 21, 2012

I suggested a better, more feasible goal:

@keith_ng Better goal: develop TV series around that concept. Ep1: you try to ease regs to let people kill zombies without DoC concession.
— Eric Crampton (@EricCrampton) June 21, 2012

We settled on a Zombie version of The Wire as being pretty fun. You follow the free-market think-tank types, the bureaucracy, a vigilante crew, and the zombies at the start of the zombie apocalypse. A few story ideas:

• The City mandates expensive burial methods to protect against zombies but doesn't do anything to help low-income families cover those costs. Poorer families then move to more "informal" burial techniques, with predictably bad results.
• The crematorium is over-capacity and belching out more smoke than its consent allows; the local Environmental Authority debates shutting it down entirely until they're able to bring PM10 concentrations back down to acceptable levels, but settles on barring cremation during the hours when people have their washing out, at least until more powerful scrubbers arrive from overseas by ship. The over-capacity problem worsens, with predictably bad results.
• A private charity's attempt to set up extra crematoriums to handle the load, and especially for poorer families, run up against the local Environment Authority's mandate to reduce the number of non-compliant PM10 nights. While people with existing crematoriums are allowed to keep using them and can replace them (subject to the time-of-day regulations above), you can't build any new ones, even if they would have very low emissions. The Government doesn't consider changing the Environment Authority's targets in light of the problem, noting that the zombies are likely temporary.
• Council declares a "Red Zone" for the worst zombie-affected areas of town. Residents have to evacuate their (still very defensible) homes. But they make no provision for alternative housing arrangements while insisting on strict enforcement of all the pre-zombie regulations that kept housing in short supply. Higher income people leave town; lower income people start living in far less defensible cars, tents, and garages, with predictably bad results.
• Local hoteliers complain of lost custom from the zombie outbreak. Council sends the Mayor out on a tourism promotion campaign to encourage more people to come to the infected city. The results are, well, you guessed it.
• Government bars schools from excluding zombie-infected-but-still-living-and-certainly-contagious children. Local teachers' unions rally not against the regulation but instead against the publication of league-tables that would tell parents which schools had the worst infection rates. 
• The vigilante crews that kill zombies are brought up on charges because the zombies still count as people under the law. The Government passes legislation under urgency allowing zombie-killing, but only under fairly stringent licensing guidelines demanded by a coalition partner ensuring that tapu is respected. Anybody who wants to kill a zombie has to get a certificate that they've completed relevant tikanga training. You have to fly to another city for training because the normal Council training facility is overrun by zombies.
• The Department of Conservation modifies their 1080 poison traps with "extra brain flavouring" to knock out the zombies. Environmental campaigners lobby to stop them because the new traps also attract endangered snails; the government proposes partial privatization of DoC. The lobby group opposes the latter part because it doesn't go far enough, and opposes the former part because it crowds out private zombie-eradication service providers.
• The government sets up a Super-Ministry with powers plenipotentiary to stop the zombies. The Super-Ministry spends most of its time trying to figure out how we can still have a full rugby season despite the outbreak. Ignoring the mess of regulations stopping people from dealing to the zombies on their own, or that make things worse, the Minister says we should leave it to the market to sort out.
• Keith would likely insist on an episode where we find out that smoking makes you more likely to be infected by zombies, with the lobby group then opposing more tobacco regs. I dispute the science on that one. Either way, the Ministry of Health is very happy that none of the zombies seem to be smokers.
• Overseas scientists come up with a virus that kills only zombies. As it was constructed using genetic modification techniques, the Greens oppose its use in New Zealand. Eventually, some farmers get fed up with the bureaucracy and import it on their own. But because they don't do a great job in dispersing it, it only knocks the zombies back for a few weeks before new and resistant zombies lurch forward.
• Despite signs that the zombie outbreak will almost certainly spread to other towns, other towns' councils insist on sticking with current consenting processes that require notified consent and RMA approval for adding defensive features to your home. Owners of heritage buildings are prohibited from replacing zombie-prone stained glass windows with steel-mesh reinforced versions.
• Paul Krugman writes a tasteless op-ed about the benefits of zombie outbreaks when we're in a liquidity trap.
• In most episodes, the think-tank plays a Cassandra role (or at least in my version). In Keith's, they'd probably be more malevolent. Either way, it's key that even if policy were set properly, good outcomes are far from guaranteed. 

Tell me there's a single implausible bullet point above. Other than the existence of zombies.

I'm very glad we don't have zombies.

Update: Hit #ZombieNZ

Dairy Puzzle

Dairy products are cheaper in New Zealand than in Canada, where the dairy cartel keeps prices high.

But the Dairy Farmers of Canada VP Ron Versteeg points me to an interesting puzzle: FAO stats showing NZ consumption of some dairy products is lower than that in Canada.

Here's an FAO table showing NZ and Canadian consumption. Or, at least, I'd expect that this has to be per capita consumption rather than production given that total NZ production is higher than total Canadian given relative herd sizes.

I threw these into Excel and plotted the series as ratios: in each case, the line shows New Zealand per capita consumption as a multiple or fraction of Canada's. You might need Java enabled for the graph to work.

We consume a lot more butter than do the Canadians, and more whole milk, but a lot less cream.

Here's the aggregate consumption data for 2007, the last year for which there's data.

Country	Item	Consumption (kg/capita/yr)
Canada	Butter, Ghee	2.51
New Zealand	Butter, Ghee	9.33
Canada	Cheese	12.73
New Zealand	Cheese	4.92
Canada	Cream	8.85
New Zealand	Cream	0.17
Canada	Milk - Excluding Butter	206.83
New Zealand	Milk - Excluding Butter	103.79
Canada	Milk, Whole	35.45
New Zealand	Milk, Whole	54.22
Canada	Whey	7.38
New Zealand	Whey	n/a

A few puzzles:

• Cheese here costs about NZ$9/kg including 15% GST - that's about Cdn$6.30. And, honestly, standard cheap cheese here tastes better than the somewhat rubbery stuff with the chemically orange food colouring I remember from back home. But NZ cheese consumption is very low relative to Canada's.
• Differences in standard fluid milk prices don't seem huge. Ron says his local supermarket supplies at $4.47 Cdn for 4 litres, or NZ$1.42/l; we pay NZ$4.49 for 3 litres, or $1.50/l, though the dairy on my drive home sells it for $1.35/l. Price differences seem small. But NZ drinks a lot more milk than Canada.
• The totals in the FAO table don't match the components; the difference would have to be stuff like ice cream that's not included. But if it's right, then Kiwis are consuming about half as much dairy product as are Canadians despite that dairy products here, compared to other food items, are relatively cheap.

Any candidate hypotheses?

Externalities: A Primer

It is far too easy to come away from a lazy version of Econ 101 thinking that, because externalities are pervasive, the range of meliorative government policy is very broad indeed. It's hard to think of any part of life that doesn't involve external costs of one sort or another.

When you get past Econ 101, you start getting all the caveats. The range of externalities that actually generate inefficiencies is pretty small relative to the universe of externalities. And, even those that can potentially be fixed by policy aren't necessarily best handled by policy. Private solutions to some kinds of externality problems do emerge; layering policy on top of private solutions can make things worse than leaving things alone.

Let's start by walking through a narrative version of Buchanan and Stubblebine's seminal work. And, we'll start by separating out two very different kinds of ways that other peoples' behaviour can affect you.

Suppose that you and I both attend a house auction. I show up wearing a t-shirt that is so offensive that you feel physically ill.* In fact, you would have been willing to pay me $100 to have worn a different t-shirt this morning. I would have been willing to have changed shirt for any payment greater than $20. Despite your nausea, you are able to bid on the house. But, because I'm bidding against you, you wind up paying $10,000 more than you otherwise would have.

My bidding against you at auction imposes a cost on you, but one that does not change the efficient outcome. The house goes to the person who values it most: you. And while you have to pay more for it, the seller receives more for it: my action has caused a transfer from you to the seller. When we model things more formally, these effects run through your budget constraint rather than your utility function. You have less money with which to do things, but we have no reason to expect that anybody is choosing the wrong mix of goods given their budgets. We call these budget-affecting externalities "pecuniary externalities". When economists say, "Oh, but that's only pecuniary", that means that it's something that we don't really need to worry about if what we care about is efficiency. We only care about externalities because they induce resource misallocation; pecuniary externalities don't do that. There might be other justice-based reasons for worrying about pecuniary effects, but to the extent that we do, we generally conclude that those kinds of concerns are really best handled by just giving money to poor people.

But the nausea that I imposed on you with my careful choice of t-shirt is a real external cost. It's easy to imagine that you'd be willing to pay some amount to change the state of the world - that means it's potentially Pareto-relevant. A Pareto-efficient outcome is one where it's impossible to make anybody better off without making somebody else worse off at the same time; a Pareto-improving move is on that makes at least one person better off while making nobody worse off. A Pareto-relevant externality is one where a Pareto-improving move is available: the total willingness to pay to change the outcome, aggregated across all the people affected, is enough to generate a change in the outcome. You suffered costs of $100; I would have been willing to accept $20 to avoid imposing those costs. Eighty dollars worth of value was forgone by my having worn the wrong shirt. So the externality was Pareto-relevant: had I chosen a different shirt, the gains to you would have outweighed the losses to me. We call externalities of this sort technological: they affect others directly through their utility functions rather than indirectly through the budget constraint.

We expect technological externalities may induce inefficient outcomes. The real costs that I impose on you through your utility function are not factored into my decisions and so I can wind up choosing the wrong consumption bundle. But, again, not necessarily. If it would have cost me $100 to change shirt, and the burden on you was only $20, the efficient result is that I wear the t-shirt. The externality was only potentially Pareto-relevant, not actually Pareto-relevant.

Eli Dourado's Mercatus Working Paper on cybersecurity walks nicely through the difference between inframarginal externalities and marginal externalities, along with a host of policy and private solutions to externality problems. David Friedman's treatment is excellent; he also cautions in Law's Order of problems that can arise when we couple Coasean solutions to externality problems with tax-based approaches [see Chapter 4 in particular].

What about externalities that affect you through the tax system? Edgar Browning calls these "Fiscal externalities". They would count as pecuniary by the Buchanan and Stubblebine definition, but they also are effects that operate outside the market process. David Roberts worries about these when weighing the case for taxes on sugary drinks. In the presence of a public health system, any decision you make that affects your health also has effects on others through the tax system. To what extent is it efficient to worry about them?

First, imagine the limiting case in which nobody's behaviour changes as consequence of health care costs being borne by others: everyone behaves as though they had private insurance that charged actuarially fair premiums. In that limit case, every health cost borne through the tax system is only a transfer. It's a transfer from richer and healthier people to poorer and less healthy people, and it's a transfer from risk-averse to risk-preferring people, but it has no efficiency consequence. There is no simple efficiency case for worrying about it, though you could build complicated cases around the cost of raising money via taxes versus the costs of abating health care costs via other mechanisms.

Now, let's take the more realistic case where individual behaviour is at least somewhat responsive to that somebody else is paying for your hospital care and that your premiums do not vary with your costs. There's reasonable evidence for this: Jon Klick and Thomas Stratmann show that when state governments mandated that private insurance plans cover substance abuse treatment, people increased their alcohol consumption by an amount equivalent to about "48 extra beers per person per year".

What are the policy implications? Let's recall first that the cost imposed by the behavioural change is likely to be small if consumption changes are small relative to the total amount that would otherwise have been consumed: average per capita beer consumption in the US is 78 litres according to Wikipedia. Imagine that we had no public health insurance but instead we gave a lump sum of cash to everybody and required that they use it to purchase health insurance; insurers could charge what they liked. How much would we really expect anybody to cut back on their consumption of sugary drinks? People bear very direct personal costs of being in poor health; the monetized value of that will not be trivial even relative to expensive insurance premiums. In other words, the effect may mostly be inframarginal. I refrain from engaging in extreme mountain biking even though ACC would cover all of my health costs: I really don't like pain and injury. I would pay multiples of the cost to the health system of a broken arm to avoid breaking my arm.


So any policy seeking to internalise the external costs of individual health-affecting decisions ought to focus on the incremental costs caused by the extrernalisation of those costs through the public health system, not the aggregate burden of related diseases. Browning, in the piece above-linked, shows that the set of taxes and subsidies that would be necessary to nudge everyone back to what they would have been doing if the health system didn't distort behaviour winds up replicating the insurance premiums individuals would have been paying under private insurance but at very high administrative cost. Private insurers can set premiums based on individually specific characteristics; governments are more typically constrained to using linear tax schedules. But for things like sugary drinks, health costs are likely exponential in consumption, not linear; for alcohol, it's a J-curve with health benefits from moderate consumption and costs from excess consumption. Your insurer might decide only to increase your premiums if you're a heavy drinker; governments are restricted to linear taxes on alcohol that overcharge moderate drinkers and undercharge heavy drinkers.

Setting excise taxes to try to internalise the largely pecuniary effects of consumption decisions can induce technological externalities by causing some would-be moderate consumers to consume too little.

A few bottom lines study notes for the exam, as this will also now be part of the readings for my Economics & Current Policy Issues class:

• There is no market failure case for responding to pecuniary externalities. 
• While there can be a market failure case for policies addressing technological externalities, we have to be awfully careful because private markets often have already internalised them. A decent rule of thumb: if people are linked through a contractual or quasi-contractual nexus, intervening is likely a bad idea. We don't need policies to address the costs screaming babies impose on other airline passengers; the airlines are residual claimant.
• Most of the "cost to the taxpayer through the public health system" aspect of individual consumption is pecuniary rather than technological. Any policy in this area has to be very careful to address only the parts of consumption behaviour that are directly caused by the potential for public defraying of health care costs; the risks of inducing inefficiency by setting policy to address pecuniary effects are real.
• Note too that the actual burden on the health system may be pretty complicated. Smokers cost the health system more in every year that they are alive, but potentially save the health system money in the long run by dying early - and they definitely save the government money in total when we consider that smokers die before drawing too much in superannuation. It's even pretty plausible that healthy people wind up costing the health system more in total because they impose costs for a long period of time. What do we do if we find out that it's the gym rats who wind up costing everybody more because they spend ten years in a publicly funded dementia ward instead of dying of a heart attack at 67?

This is part 2 of a two-part series; in part 1, I took a more rights-based approach. And see here for prior posts on externalities.

* Only weirdos would be offended by these fine shirts, but they count in the social welfare function too. Anybody stumped for Christmas presents for Crampton can send me one of these shirts; I'm likely a medium.

Externality chains

Are there really no bright line rules separating actions with external costs from those that are properly left entirely to individual choice? David Roberts sees only shades of grey:

Take sodas, for instance: The costs of health care in the U.S. are socialized to some degree, so individual decisions to get unhealthier do affect me. I pay when rates are driven up, or when people end up in the emergency room.

So whatever the line is — between the sphere of rights and sovereign individuality on one hand and the sphere of interconnectedness and social responsibility on the other — it can’t be “actions that don’t affect others.” There are none!

Perhaps, then, the distinction is between actions that mostly affect me and those that substantially affect others. If I dump trash in a neighbor’s yard, obviously I’m violating her sovereignty and the state has a legitimate right to constrain my liberty; no one would call that “paternalism.” But the causal chain between my decision to drink a big soda and the effect on health-care costs is long, tenuous, incremental, and uncertain. Perhaps I decided to jog home after my soda! Do I get a tax credit for that? In the case of soda, the claim to individual sovereignty is more immediate, more tangible, than the long thread connecting the decision to impacts on the collective welfare.

What this reveals is that state decisions to restrict individual behavior can not be guided by a clean line between the individual and collective spheres; there is no clean line. Restrictions on individual liberty will always be judgment calls about whether negative effects on others (externalities) outweigh the presumption of sovereignty.

This dilemma is on the mind of anyone who covers climate and energy.

I'll argue for two separate bright-line rules: the first based on individual rights (but pretty influenced by economics), and the second where I ditch the rights-based argument and stick to the economics.

Let's compare Roberts' first two examples, sticking to a rights-based approach for now; the pure economics version will be a separate post.

The only mechanism by which somebody else's obesity really hurts me is when either my insurer is legally barred from charging actuarially fair premiums, or when health care is covered through generalized taxes.* Let insurers charge the obese for their actual expected risk and there is no cost on anybody else. Let the government get out of the business of providing health care and instead get into the business of giving poor people money and mandating that they buy private health insurance with it, and obesity again puts no cost on anybody else. It's perverse to tell people:

"In exchange for forcing you to be part of a public insurance scheme that you might not want, I'm going to set up an apparatus of regulations, subsidies and taxes to force you to behave in ways that reduce the costs on the system that I'm forcing you to join. You're welcome."

Roberts' long causal chain runs directly through deliberate policy choices that work to socialise the costs of individual behaviour. And if we let things run through that mechanism, there is absolutely no end to the range of behaviours that can legitimately be subject to the heavy hand of the state. Remember that STDs cost the government money too.

By contrast, carbon emissions do affect others directly and in a way that's awfully hard to handle through tort. Setting up a clean carbon tax seems the best way of minimizing aggregate rights violations: the tax is an imposition, but so too are the emissions.

When we ditch the rights-talk and stick to economics, we have to look at pecuniary, non-pecuniary, and fiscal externalities. That's likely worth a separate post since it comes up an awful lot and I'd rather like to be able to point to it on its own in future. In short, the economic case for intervening in response to external effects depends not on whether other people are bearing costs but rather on whether there are efficiency consequences.

* There can be a case where the insurer is allowed to do it but it isn't worth the insurer's time and effort. Aggregate losses in this case can't be very large - the insurer doesn't spend much time assessing your risk of paper-cuts for similar reasons. The same holds for other kinds of transactions where there are apparent effects. Airlines have tried to require that very large people purchase two seats to accommodate their girth; some countries have socialised this cost by mandating that airlines give fat people two seats for the price of one; others have banned it as discriminatory. The obese cost you money in higher airfares because the government has forced the airline to make it so.

Anchor Projects

It always made a kind of sense that some parts of the downtown Christchurch rebuild were being help up while property owners waited to see where the "anchor projects" might land: hotels would want to wait to see where the Convention Centre might sit before deciding where and whether to rebuild. Bars might want to know whether there'd be a downtown sports venue.

But I hadn't caught this angle: expropriation risk. From this weekend's Press:

So the CCDU [Central City Development Unit] was set up as a development agency to do it the other way around - begin with the project and then design it to achieve the masterplan's objectives. Let the building heights, parking access and other details flow from the logic of the intended outcome.

Elder says this is what surprised him - the boldness of the new approach.

The CCDU design consortium, led by planning consultant Boffa Miskell, has been told to forget about land ownership, road grids and other restrictions, and simply put anchor projects, such as a new conference centre or sports stadium, where they make most sense, he says.

The city's problem is that property is split into thousands of individual titles, so any rebuild was always likely to be a disjointed, piecemeal affair.

However, the CCDU, backed by the power of Cera, can now come in over the top. Land can be amalgamated, by force if necessary. Owners are even being warned that new buildings that get in the way may get knocked down.

Elder says there is a clear determination to develop areas of the city as a coherent package.

"Getting the right result is more important than being constrained. We will fail through being timid."

It is the only way to bring in the corporate-scale investment needed - the offshore money from Australia and Asia, he says.

"They're saying we will put out a proposal call on two city blocks for this type of development in there - whether it's a health precinct, residential, business, a convention centre and hotels - and get people to come and bid.

"And if we have to get rid of a landowner or two, or close streets to do that, then we will if the quality is good enough and the business case is good enough."

There will be property owners who will complain, says Elder, but for most it will be a better deal. They will end up with shares in a larger land-owning company. [Emphasis added]

How much work would you put into planning what to do with your property if, on top of the insurance and regulatory hassles, this kind of thing loomed?

You don't need compulsory acquisition to amalgamate lots of small titles. Just buy options on the properties you think might be needed for any project. Any of the option contracts can specify a schedule of compensation prices that rise with how far any owner's gotten through redevelopment when the government wishes to exercise the option. Do it right, and there's no incentive to sit around waiting to see if you'll be expropriated.

There's a great case for buying out landowners to make way for big projects so long as those projects are worthwhile. But I'd be awfully nervous about this kind of language if I were a downtown land-owner and wondering whether I should bother rebuilding.

Free advice

We've hit the point where the perception of a rental housing crisis in Christchurch probably matters more than the underlying stats.

Gerry Brownlee points to aggregate figures on rental prices in Christchurch to argue that our increases haven't been astronomical relative to those elsewhere in the country, but aggregates can conceal a lot. A forty dollar a week increase in average rental prices implies very different things about overall affordability if it comes from large increases at the bottom end of the market and minor increases at the top than if it comes from proportionate increase across the board; I suspect the former is what's going on.

Every time I read the comments sections on The Press's reporting on the housing crisis, I see evidence of strong heterogeneity across the market. Lots of people report large rent increases and trouble finding anything that's liveable within their budget; a few landlords report problems in finding tenants for decent sounding properties at reasonable prices. Location matters in housing though - people have jobs in fixed locations, kids in schools, and might need access to public transport.

Even if Brownlee were right and my hunch were wrong, he still comes across as heartless. And Brownlee is right about one thing: proposed rental subsidy schemes will just push up the price of rental housing absent supply moves.

Some supply moves are coming. Housing New Zealand's stock of social housing seems almost ready to come back on-stream. I expect that the biggest part of the delays here have been insurance related - Housing NZ owns a lot of properties and I'd expect that their insurance coverage is split across multiple insurers. If different insurers covered different portions of the burden of costs coming from different events, as would have been the case, for example, if some insurers wanted to reduce their exposure subsequent to the September event, then there were almost certainly fights among the insurers about what proportion of damage across the hundreds of Housing New Zealand owned houses were caused by September, Boxing Day, February, June, and other events. Rushing to repair before the insurance were sorted would make it impossible to sort out which insurer were liable for which portion of costs and likely would have wound up costing the government rather a lot in forgone insurance payouts for repair costs.

My free advice to Big Gerry. Get some data on rental availability at the bottom tail of the distribution: stop looking at averages. One place you could look is bonds placed with the Tenancy Board.* Separate bonds out by quartile and look at the movement in the bottom quartile of bonds placed over the last five years. Then say something like the following.

When we look at aggregate changes, Christchurch's rental price increases have been higher than elsewhere, but not alarmingly so. But averages mask a lot. There has been a substantial reduction in the number of rental properties available and, in particular, at the lower end of the market. While we applaud the sentiment behind some proposed initiatives, like rental subsidies, these do not really address the core problem: lack of available housing options at the bottom end of the market.

Then announce that you have instructed Christchurch Council via your Powers As Grand Poo-Bah to allow home owners to build self-contained flats into their current properties. This is the single best thing you can do to get properties on-stream quickly and at reasonable cost. Why?

• You need to sort out insurance messes to build new houses. Anybody building a flat into his currently owned and insured property already has insurance; the coverage just extends.
• Building new greenfield or substantial brownfield developments requires sorting out infrastructure. That takes time. A whole bunch of individual homeowners each putting in a small flat spread out across the city does not. 
• If I'm right about heterogeneity mattering, then who is better placed to figure out which parts of town need more rental accommodation than homeowners in those parts of town who can see what's going on with rents and availability in their neighbourhood?
• It is a policy that costs nothing if there actually is no housing crisis. I'm sure that more than a few folks in government remember the big push last winter that led to a pile of unused rented caravans meant for the homeless. 
• It's scaleable and only scales to the extent that property owners expect there to be real demand for the properties. 

It's a policy that works if it's needed, isn't a bad idea even if it's not, and is a good political move in either case relative to denying the existence of any kind of housing availability problem. 

* Landlords charge up to four weeks' rent as bond; this money is placed with the Department of Building and Housing. Surely they know how much money has been put up as bond over time and the number of weeks' rent it represents. Advantage: this gets you current rental cost for folks switching houses - the people who are displaced and are seeking new accommodation. Average rents might not have increased by as much as rents on those shifting properties if landlords worry about long term relationships with existing quality tenants. 

Downtown awesome

Rebecca Macfie's must-read article on Christchurch redevelopment highlights some of the grassroots downtown awesome going on in Christchurch. Case in point: the Dance-O-Mat:

“The response was overwhelming,” says Reynolds. “They [supporters and volunteers] said ‘you have to keep doing it’.” Since then, Gap Filler has become a charitable trust, Winn has become the paid co-ordinator, and many more gaps have been filled. One of the most outrageously successful was the Manchester St Dance-O-Mat – an open-air dance floor and a coin-operated washing machine converted to provide 30 minutes of light and power to an iPod and speakers. Reynolds: “People said Christchurch people wouldn’t dance in public. Well, Christchurch showed us.”

On one freezing Friday night in late May I learnt ceroc, salsa and swing moves among dozens of strangers; suddenly, it didn’t matter that we were surrounded by demolition sites and that the central city was gone. Based on the number of $2 coins pushed into the slot over the project’s two-month life, Winn calculates the floor was danced on by 2000 people. Although the dance floor’s now been packed away for winter, she says the Christchurch City Council is keen to re-establish it permanently. “So we may gift it to the council.”

It’s hard to overstate just how powerful and invigorating this is: young, clever creatives with little money but a huge appetite for trial and error are doing urban design on the fly, and proving that small-scale, inventive spaces will draw people out and restore life to a wasteland. And, says Just (who is also a Gap Filler trustee), it’s radical on another level, too. “It’s turning private space into public space. So a 60-year-old becomes an urban activist by dancing on the Dance-O-Mat.”

We hit the Dance-O-Mat one Friday night, along with a colleague and her family. Two economists, two econ-spouses, and three kids, dancing to the Hayek-Keynes rap. Was excellent.

Macfie points to some of the problems in routing through the bureaucracy for the Smash Palace bar:

Eventually, he alighted on a bare section at the corner of Victoria St and Bealey Ave, and came up with the idea of parking an old bus on the site and converting it into a relocatable bar. There’d also be a caravan where his sister Rosie would run a cafe, and a couple of temporary buildings for toilets and kitchen. The wind and dust would be kept out by plastic sheeting attached to scaffolding around the perimeter of the site.

The city council’s planners were enthusiastic, as was business support agency Recover Canterbury. Lots of people lent moral and practical support. He started working on the site in October, with ambitions of having the new bar, called Smash Palace, trading by Christmas. Then began a protracted Kafkaesque battle with the Christchurch City Council’s consenting division. Because the bus was judged to be a building, it needed building consent. That meant concrete foundations had to be laid, and the body of the bus tied down.

The handrails had to turn down 90 degrees at the end, and the way they connected to the decking around the bus had to be drawn up by an architect. The wheelchair ramps had to be at a gradient of 1:12. A near-enough 1:10 was not good enough. Then it turned out the scaffolding was also classed as a building. Moore mounted futile protests before complying with the consent department’s demands to provide engineering certification – only to be told the council needed to farm out the approvals to a consultant in Auckland. At his cost.

... But Moore believes the whole process cost him an extra $50,000, and it drove him to his wits’ end. “Personally and mentally it broke me down. I got to the point where I was seethingly angry. I’d go to bed angry and dream hateful dreams towards the council and I’d wake up hateful.”

He found himself drinking and smoking too much, losing sleep and chewing his nails. Without more pragmatic interpretation of the rules for temporary outfits like his, quakehit businesses will be driven from the city, he says. “The Building Act is fine when it’s business as usual. In Christchurch at present it’s not business as usual.” The council’s building operations manager, Ethan Stetson, is unapologetic. Yes, he says, post-quake Christchurch needs creative entrepreneurs like Moore, who are “the life-blood of the city.” But building quality, fire protection and disabled access still matter.

Read the whole thing. If the son of the former Mayor can't get through the bureaucracy except at massive personal cost, what hope is there for others?

Meanwhile, Christchurch's new "Ministry of Awesome" is trying to encourage fun new projects for downtown. Lots of the ideas there highlighted are patently absurd, and one is just a bit too goatse. Update: somehow, I lost the last line: But it's great to have a way of getting ideas out there!

Paternalist visions

Will Wilkinson and a colleague at The Economist have been sparring over paternalism. Where M.S., Wilkinson's colleague, argues paternalistic policy is an acceptable democratic way of getting towards desirable social goals, Wilkinson reminds us that a liberal democracy tries to leave a lot of decisions about the good to the individual.

Notice that we may convert any paternalistic argument into a benignly "democratic" argument simply by asserting that the intended subject of the proposed law is the character of society as a whole. Well, do we want a society in which the influence of heretics is left wholly unchecked, threatening public spiritual health? Torquemada didn't. The Taliban doesn't! Suppose we concede, just for the sake of argument, that this sort of public-spiritedness isn't paternalistic. Is it better than paternalism? It may be democratic. But is it liberal?

Liberal democracy is liberal in the first instance because it removes the protection of basic rights from the domain of collective deliberation. Do we want to be the kind of society that allows people to worship any way they like? That allows poor people to vote? That lets folks say sexy things, communist things, impertinent things, stupid things, Thomas Friedman things. Yes, yes, and mostly yes. Indeed, we think this stuff is so important, we mostly agree it ought to be illegal to put it up for a vote! My colleague suggests that there's something downright anti-social in making a principled argument against limiting the scope of peaceful individual choice. But I love society. Especially liberal ones.

The liberal society allows the existence of a personal sphere that's outside of the political sphere; I really like bright line rules keeping the two separate.

But I share Wilkinson's concerns about "Thomas Friedman things".

Brian Wansink and David Just, two of the academics on whose work Bloomberg leaned when pushing his ban on big soda cups, warn that their work really can't justify Bloomberg's ban; people forced to consume less than they'd like tend to compensate on other margins. Canada's Dan Gardner disagrees, suggesting changes in social norms coming from the changed cup size can, in the longer term, change consumption:

It wasn’t so long ago, remember, that no one expected to be able to buy 64-ounce soft drinks. Or even conceived of such a thing. If “mega jugs” were to go the way of leaded gasoline, the banning of which was also fought and resented, they would some day be forgotten. Like leaded gasoline.

It's an empirical question whether the ban winds up affecting anything. But there's a categorical difference between bans on leaded gasoline and bans on large soft drinks. Leaded gasoline increases concentrations of environmental lead and imposes harms on others; bigger drinks at the cinema might make a bigger mess if spilled on a non-drinker but otherwise only really affect the drinker.

If the state has no place in the bedrooms of the nation, why does it get a seat beside me in the theatre?

Happiness and process

The Economist notes that rising incomes in China in the last two decades haven't increased measured happiness as much as we might have hoped. Why?

“It is a mistake to think that rising income gaps are the main or even a primary source of popular discontent in China,” Mr Whyte says. It is, he adds, procedural injustices, abuses of power and the lack of recourse that make people angry enough to take to the streets.

Most migrant workers know first-hand what Mr Whyte is talking about. Lei Pengcai, 61, moved to Beijing last year from a small town in Hunan province and took work washing the dishes in a restaurant. His monthly wage is 1,400 yuan ($220), most of which he sends back home to his wife and family. Moving to Beijing has opened his eyes to the kind of wealth that some enjoy, but he sees income disparity as a fact of life. “I haven’t been, but isn’t there great inequality in America and England too?” he asks.

Mr Lei declares himself pleased with the past decade’s reduction in rural taxation; not too bothered by moderately rising prices of goods; and somewhat concerned that, although his basic health care is adequate, his coverage would not suffice if he were to suffer a severe illness or injury. But he is clear on the one thing that does make him unhappy: official corruption. In his hometown, official posts are handed out to friends or bought and sold. Once installed, he laments, officials can grab land, charge fines, and demand bribes under threat of closing down a business. They do whatever they want, he says, and the people cannot stop them.

Fairness matters. And, it's revealed more in process than in outcomes.

Exam security

Canterbury takes its invigilated exams pretty seriously.

Students in our big 100-level exams have to leave all of their materials at the front of the room save a pencil, pen, ruler or non-programmable calculator (as needed for the exam). Hats have to be left at the front of the room. We arrange students through the room in a checkerboard; we know where each student is seated so we can check scripts later on if we suspect somebody's copied from a neighbour. Two invigilators stalk the room throughout. We leave a blank row after every second row of students so the invigilators can get up to any student who's asking a question, or who is peeking a bit too often up a shirt sleeve.

What are the key features of this set-up?

• Students can't tell where they'll be seated before entering the room. They'll likely be seated near somebody with an alphabetically close last name, but they can't tell where in the room they'll be.
• Students can't easily smuggle answers in; the only materials they're supposed to have in front of them are the ones they have to have, though we'll usually allow a water or drink bottle.
• Students don't have access to the blank exam booklets, which vary colour from year to year and, occasionally, by whatever the lecturer happens to have had in his older stock. It's not always easy to predict what the colour of the exam booklet cover will be, so it's harder to smuggle in one that has notes inside.
• Invigilators can approach any student from an oblique angle; as they can be behind a student, it's hard for a student to tell when he's being watched.

Turns out that those measures would thwart most of the exam hacks that students taking this government cybersecurity course tried when they were instructed to try to cheat on the exam. The quiz asked them to write the first hundred digits of pi. Some of the hacks were very nice, but students didn't have to try all that hard given the reasonably lax exam setting.

 

Here's the working paper: Embracing the Kobayashi Maru. What did the students try?

• Variants of encoding the answer onto materials they were allowed to bring into the exam with them: textbooks; the back of name tags that always sit on desks; notebooks; course schedules; post-it notes; food; coffee cup sleeves; random materials that might be in a pencil case; hidden in a watch bezel; bringing in a pre-completed answer sheet hidden among other papers.
• Variants of hacking the exam room: writing on ceiling tiles; writing the answer on sheets of paper in the pile that the invigilators were likely to distribute on request for blank papers; hiding the answer within the computers on the desks;
• Hacking the grader's or invigilator's laziness: Memorize the first ten digits, then provide random numbers.

Most of these won't work given our processes. To what sorts of attacks could we still be vulnerable? Security through obscurity is a pretty poor solution and I'm sure our students are more creative than I am anyway. So here are a few potential options:

• Notes written on or around drink bottles or coffee cup sleeves;
• Notes hidden on one's person and accessed in the privacy of a toilet stall, especially if you've drawn the lucky straw and both invigilators are of not-your-gender;
• Small notes written on erasers or taped inside the sleeve of a programmable calculator;
• Small notes hidden inside pencil cases if the invigilator isn't strict enough on the "pencils and pens only" rule;
• A note hidden under a pony-tail or in dreadlocks.

Options are near limitless for variants on open book or open notes exams; fair systems would let students either bring in anything (completely open book) or restrict students to bringing in only one or two sheets of paper of specified size. Otherwise you're just encouraging students to encode notes on the cover or in the text of the book.

Perhaps I should include a "Please cheat on this question" question in the midterms next semester. Academic misconduct and a visit to the proctor for cheating on other questions, but only a zero on that question if caught cheating on it with bonus points for demonstrating the hack afterwards; then we'd have a better list of things for which to watch out for subsequent cohorts. But as I'm not even sure it's a good idea, it's pretty unlikely that I'd be able to convince the various "Powers That Veto" that it's all that hot.

No exam system will ever be hack-free. It's important to set a strong anti-cheating norm, demonstrating that students could reasonably expect to be caught if they try so they don't expect to be disadvantaged if they don't cheat. Our processes probably do more to encourage honesty by showing that we care about honesty and setting the right expectations than by thwarting the most determined of exam hackers.

Group One Carcinogens!

I love how newspapers always catch the really scary carcinogens in the Group 1 list for comparison purposes. Turns out diesel exhaust is a Group 1 carcinogen.

Here's the Toronto Star:

The decision is a result of a week-long meeting of independent experts who assessed the latest scientific evidence on the cancer-causing potential of diesel and gasoline exhausts.
It puts diesel fumes in the same risk category as noxious substances such as asbestos, arsenic, mustard gas, alcohol and tobacco.

Otago Daily Times:

The decision puts diesel fumes in the same risk category as a number of other noxious substances including asbestos, arsenic, mustard gas, alcohol and tobacco.

Our public broadcaster, OneNews:

Diesel engine exhaust fumes cause cancer in humans and belong in the same potentially deadly category as asbestos, arsenic and mustard gas, World Health Organisation (WHO) experts say.
...The decision puts diesel fumes in the same risk category as a number of other noxious substances including asbestos, arsenic, mustard gas, alcohol and tobacco.

3News:

Reclassifying diesel exhaust as carcinogenic puts it into the same category as other known hazards such as asbestos, alcohol and ultraviolet radiation.

But, 3News also helps put things in perspective:

"It's on the same order of magnitude as passive smoking," said Kurt Straif, director of the IARC department that evaluates cancer risks.

The Christchurch Press and NZ Herald give the same summary as 3News. But the Herald gave a scarier assessment in a second article:

The exhaust from diesel was added to the World Health Organisation's list of most carcinogenic substances yesterday. It ranks alongside arsenic, asbestos, formaldehyde, mustard gas and plutonium as a major health hazard.

Plutonium! That's really scary! Way scarier than passive smoking!

So, what else is in Group One? Here's the Cancer Society. Lots of scary stuff like plutonium. But also a few other things that are a bit less worrying. As I wrote back in 2009 when Doug Sellman was putting alcohol up against plutonium and Gamma Radiation and Mustard Gas:

But here are some other known carcinogens that could have been listed alongside alcohol instead and would have been perhaps a bit less scary: ciclosporin (used to prevent organ rejection after transplant), estrogen-based oral contraceptives and menopausal therapy, risky sex (Hepatitis B & C, HPV, HIV), the sun, mineral oils, salted fish, wood dust, painting, boot and shoe manufacture and repair.

I call a win for the news outlets that quoted the IARC specialist that diesel exhaust is about as bad as second hand smoke. It's a heck of a better way of putting risks in perspective than pointing to freaking plutonium. I call place for those that gave a range of risks that included UV radiation - people have a handle on the riskiness of the sun. And a great big loss to anybody reckoning plutonium comparisons helped enlighten their readers. It would have been helpful if the Science Media Centre had put up the quote from Straif that helps readers contextualize things.

I still don't get how import restrictions on older vehicles, including both petrol and diesel, make more sense than better smog checks on older cars. I sit behind an awful lot of very horrible smelly mid 90s Toyota LandCruisers in Christchurch. Old vans are terrible too. Banning the import of 2004 models seems a pretty roundabout way of getting those stinkers off the roads.