Wednesday, February 29, 2012

Welfare reform

New Zealand moves towards welfare reform, with a greater emphasis on moving recipients, especially those on the DPB (our version of AFDC) into work. Those with children aged 14 and up will be expected to make serious efforts to find full time work; those with children over the age of 5 should be finding part-time work.

The change will, hopefully, lead to most income support for single mothers being handled through Working for Families, a wage subsidy scheme similar to the EITC, and indirect subsidies for childcare via both government subsidization of early childhood centrestax credits for childcare expenses, and additional subsidies for childcare for low income families.

My usual worry on requiring parents on the DPB to seek work when their youngest child hits age X is that it provides reasonable incentive to have another child at that point: if MSD made data available, it would be awfully interesting to run probit on likelihood of an additional birth conditional on hitting that age threshold. Apparently 4,000 children were born last year to women who were already receiving the Domestic Purposes Benefit.

The latest changes have taken some account of this incentive. The birth of an additional child while on benefit provides one-year's respite, followed by a resumption of the status that existed ex ante. So if your youngest child was 5 when the next one came along, the expectation of part-time work would resume after the one-year hiatus. The Greens were worried the government might go farther and require long term contraception as condition of receiving a child-related support package; it looks like National's not going that way. It's not immediately obvious to me why such requirements are so objectionable, but neither is it obvious that the chosen policy alternative won't work. If we're going to worry about fiscal externalities imposed by those who choose to drink too much, or perhaps even ski without helmets, I can't see what logically keeps this off the table.

The changes also incorporate some targeted paternalism. Teen parents and young people on benefits will receive extra payments for completing budgeting and parenting courses; rather than receiving payments directly, their rent and utilities will be paid directly by the government with remaining funds under stricter monitoring through payment cards. Bill Kaye-Blake doesn't like the programme's paternalism:
The ‘managed system of payments’ just sounds awful. It message is, ‘You haven’t learned to take care of yourself, so we’ll just do it for you. Here’s your pocket money’.
I'm no particular fan of paternalism either. But if it's going to be anywhere, targeting it here isn't crazy. Scott Beaulier and Bryan Caplan make a pretty convincing argument that the behavioural anomalies that behavioural economists worry about hold especially strongly among the poor. Note: my post above-linked suffered linkrot; the original Beaulier & Caplan article is here. Beaulier and Caplan argue for reducing the size of the welfare state, but you can also take the article as implying that welfare payments ought to be combined with fairly prescriptive approaches to benefit use combined with directed training to help recipients learn the skills to help keep them off of benefits when time limits hit. Combining the paternalism with training to wean them off the paternalism doesn't sound nuts.

Bill worries too about consequences for existing children whose parents are on the benefit. I'd share some of those worries, but just look at the scope of support already available to working poor families. And payments aren't killed for failure to find a job given an honest attempt; they're killed by proving to a welfare case officer that you're utterly uninterested in trying to find work.

More broadly, the reforms are in keeping with a reasonable social contract for social support payments. Middle class support for welfare disintegrates when it becomes seen as a way of life for those who could work but choose not to. Charles Murray documented that in the US in the 1980s; Bill Clinton's welfare reform followed. Reforming welfare such that it provides temporary support for those falling on hard times, longer-term support for the disabled, and incentives keeping those getting a helping hand from becoming dependent on the system is a pretty good way of ensuring that the social compact over welfare doesn't break down over the longer term. The Greens' complaint that it's unfair  to require DPB mothers to look for work after a year rings pretty hollow for those of us whose kids have been in daycare since they were three months old so we could earn enough to pay the taxes to pay for the system.

Critics also ought to keep in mind that, the longer things are left before reform, the greater the likely support for tougher approaches. American welfare reform brought lifetime maximum welfare eligibility of 5 years for most folks.

Do follow Lindsay Mitchell for what's likely to be the best ongoing coverage of NZ welfare reform.

Tuesday, February 28, 2012

Behavioural blackboards

Behavioural economics usually leaves a bad taste in my mouth. Too much of it just feels like market failure theory as it was done in the 50s and 60s. Back then, you'd find papers with 20 pages of math proofs about how markets could never yield theoretically ideal outcomes, followed by a short paragraph talking about how government should therefore institute some policy to fix things; comparative institutional analyses weighing both the failures of markets and those of politics were rare. Substitute lab experiments for the math proofs and you've got rather too much of the behavioural economics. Niclas Berggren found that while a fifth of behavioural papers proposed paternalistic interventions, less than five percent worried about whether the behavioural anomalies giving rise to the policy interventions applied also to those who'd run the system. I'd touched on some of these issues in my talk at the CIS last week.

And, just as folks used to work backwards from the desired policy intervention to the market failure theory that could justify it, they can now work backwards from the desired outcome to the behavioural economics rationale. So if you don't like people getting compensation for organ donation or blood donation, just say that it'll interfere with altruistic donation and cite some experimental evidence on warm glow.

Mario Macis finds that, contrary to the behavioural blackboard, real world field experiments giving people real money for blood donations increases donations
As an economist, I wondered: Can we use economic incentives to stimulate blood donations? Economic intuition would suggest that the answer is yes, but theories in psychology and behavioral economics indicate that incentives might actually backfire if they conflict with people's intrinsic motivations to perform altruistic acts.

Together with Nicola Lacetera and Robert Slonim - my two research colleagues - I wanted to find a more definitive answer. We conducted a randomized controlled trial involving nearly 100,000 individuals, in partnership with the American Red Cross in Northern Ohio, to study the effect of economic incentives on blood donations.

In our study, we found that an advertised offer of a $5 gift card increased the likelihood of giving blood by 26 percent. A $10 gift card produced a 52 percent rise. And a $15 card caused an uptick of 72 percent. The offer of gift cards even caused people to motivate others to donate, including people who previously had never given blood. The incentives also induced people to switch the locations and dates of their usual blood donations to sites where the rewards would be available. Also, there was no effect on the share of individuals who presented at the drives but were ineligible to donate for medical or other reasons.

We concluded that economic incentives significantly increase donations from the public and can be used to increase donations in areas and at times of the year when blood supplies are particularly low.
Here's the paper (ungated). Some of the effect is due to displacement - some donors move to areas providing the incentives. But the result holds: supply curves slope upwards.

Moving to donor payment for blood might still not pass cost-benefit analysis: because you also have to pay for inframarginal units, the cost of the whole scheme in terms of new units donated wound up being $42 per unit. They reckon this easily passes cost-benefit given some estimates of the value of blood product collected.

Alas, under public health systems, the fiscal costs would fall on the government while the benefits would accrue to folks then able to get needed transfusions.

Update: Lynne Kiesling agrees on behavioural econ...

Monday, February 27, 2012

Why is this hard?

Infrastructure on the east side of Christchurch is a mess.* The street in front of our house has been torn up since July of last year. First they tore it up to replace the sewer lines, then they patched it up for regular driving use for a month over Christmas, then they tore it up again in January to replace the water lines.**

Water outages aren't uncommon. But we rarely get notice. Whoever turned off the water to make a repair knows he's done it, but nobody's telling folks up the street when it's about to happen, or how long it'll last. On 24 December, after the 23 December aftershocks, the water went out before dinner, came back on when it was time to do the dishes, but was out again when it was time for the kids' baths. With a bit of forewarning, we could have filled the bath early. Awesome that the Council workers were out there on Christmas Eve Day fixing things - great effort! But we could do better with a bit of back-end support.

First, tie each property to a contact cell phone number or email address. Make it a voluntary online registration system where people input their own details. Next, whenever a city crew is going to be making repairs that knock out power or water to a set of houses on the street, have them key into the system the set of houses that are going to be affected along with a terse explanation. Then, the computer automatically pushes out text messages or emails to those who are going to be affected. The database requirements are trivial. Send out the notice as soon as you know the work needs to be done. Even 10 minutes warning can be really helpful. The city worker defines the affected area (or, the tap that's going to be turned off is linked to the affected addresses), then the system pushes out notifications automatically.

Minor annoyances like water or power outages are an awful less annoying when you can plan around them. This morning, we had water at 6 am but not at 6:30. If anybody had told us they were about to turn things off, we could have had everyone in the shower early. Impossible for Council to phone everybody or to drop leaflets for emergency work, but an automatic push-notification when they've decided that they're going to have to do something would be easy to implement and would make life a bit nicer.

Added advantage: if the City ever needs to quickly get notice of whatever out to most folks on a street, it's simply done.

* Note to any international full-fee students considering the University of Canterbury: the West side of town, where the University is located, is almost entirely immune to this nonsense. Stay in Ilam or Avonhead and you'd probably not even notice there'd been an earthquake.

** I could have the order wrong on those.

Inducing an obligation

Tyler at Marginal Revolution points to a nice field experiment on charitable giving. People go out of their way to avoid folks soliciting charitable donations; they estimate the social pressure costs of turning down someone soliciting donations to be $1.40 for out-of-state charities and $3.80 for in-state.
Our calculations suggest that our door-to-door fund-raising campaigns on average lower the utility of the potential donors.
In other words, the warm fuzzy feelings among those giving donations are outweighed by the costs on those who'd rather not be bothered and who feel bad about saying no.
In the benchmark specification, a visit is estimated to lower welfare by $1.10 per household contacted for the in-state charity and by $0.44 for the out-of-state charity. The more negative welfare impact for the in-state charity is counterintuitive because more people are willing to donate to this better-liked charity. At the same time, however, the social pressure cost of saying no is also significantly higher for the local charity, and the second force dominates.
I'll admit that, after a bad day, I can get a fair number of utils from telling the Greenpeace door-knocker exactly why I won't give him any money. But their method is robust to those odd utility functions.

I'd note further that some charities seem to go out of their way to generate this "feel bad for saying no" disutility: the folks who send out free greeting cards painted by the disabled or free address labels are clearly setting up the recipient to feel an obligation to reciprocate. I just throw all that stuff out, but I'm a pod-person.

Katja Grace wonders if this phenomenon is tied to findings of inefficient charitable giving. As there's no chance that any of us barring Bill Gates can substantially push any charity down its marginal return curve, it makes no sense that we give little bits of money to lots of charities rather than just a big slog of money to the one we think does most good. So folks who'd get disutility from saying no can just cite efficient charity:
Maybe the campaign for efficient charity can have some effect on this section of givers. It provides a convincing excuse. I don’t feel so bad declining those who solicit donations when I can claim that as soon as they make the top of Giving What We Can or Givewell’s lists I will be morally permitted to consider them. Users of this excuse need not actually donate anything to better charities however.
Fortunately, door-to-door fundraisers are very rare in our neighbourhood - less than a visit per year. Even politicians rarely do door-to-door visits; instead, you'll see signs around that some politician will be at this particular street-corner at 7:30 to answer questions and talk with residents, and another sign down the road for 7:45 at the next corner. As this makes it easier for me to avoid campaigners, I'm very happy with the NZ norm.

Saturday, February 25, 2012

Confounds, alcohol and violence

It's plausible that increased alcohol consumption in a neighbourhood directly affects assault rates. But I don't think you can tell it from this study (HT: Bakadesuyo).

Methods and Findings

We performed a population-based case-crossover analysis of all persons aged 13 years and older hospitalized for assault in Ontario from 1 April 2002 to 1 December 2004. On the day prior to each assault case's hospitalization, the volume of alcohol sold at the store in closest proximity to the victim's home was compared to the volume of alcohol sold at the same store 7 d earlier. Conditional logistic regression analysis was used to determine the associated relative risk (RR) of assault per 1,000 l higher daily sales of alcohol. Of the 3,212 persons admitted to hospital for assault, nearly 25% were between the ages of 13 and 20 y, and 83% were male. A total of 1,150 assaults (36%) involved the use of a sharp or blunt weapon, and 1,532 (48%) arose during an unarmed brawl or fight. For every 1,000 l more of alcohol sold per store per day, the relative risk of being hospitalized for assault was 1.13 (95% confidence interval [CI] 1.02–1.26). The risk was accentuated for males (1.18, 95% CI 1.05–1.33), youth aged 13 to 20 y (1.21, 95% CI 0.99–1.46), and those in urban areas (1.19, 95% CI 1.06–1.35).
What's the problem? They don't seem to be controlling for day-level fixed effects or, even better, day-city fixed effects. Suppose there's a big hockey game on Saturday night that both brings a pile of folks onto the street and increases alcohol purchases. You can get a correlation between increased alcohol sales (relative to the week prior) and assaults entirely as artefact of the underlying variable driving both assaults and alcohol sales. A big hockey game, a holiday long weekend, even a big concert in town - none of those are addressed by comparing alcohol sales with those a week prior.

How do you fix this? Controlling for simultaneous alcohol sales in a similar part of town that's far enough away that it's unlikely to have had effects on the part of town in question would be a start, but might not catch localized effects of events that drive both alcohol sales and violence.

Friday, February 24, 2012

Why not Becker?

I think Becker's model of the family is just a little more generalizable than Erin Fletcher suggests:
Much of the dominant thinking in family and household economics has roots in Gary Becker’s A Treatise on the Family. It rests on ideas that can only politely be called antiquated. Women are in charge of domestic production (cleaning, child-rearing, cooking, laundry, etc) and men are in charge of bringing home the bacon. It’s specialization at the household level. Very economist-y. On some level, it probably made a lot of sense to think about marriage in this manner, particularly when women’s wages were much, much lower than men’s. In fact, it made so much sense that it partly earned Becker a Nobel Prize in Economics.

At some point during my fourth year of graduate school, I ordered my own copy. It was a simple (though really expensive!) purchase. A paperback, just a book, but a book that essentially formed much of the dominant thinking in my field. Even then, I knew its time in the spotlight was waning. I’ve still never read the whole thing. Despite knowing it was a classic, I can still only look up passages when I think they’re relevant. Reading more than a few pages makes the feminist in me absolutely boil.
Surely all you need is that one of the partners has a comparative advantage in domestic production. Ignore the husband/wife framing; it's an artefact of its time. But note too that biology weights things: maternity necessarily imposes a larger burden on female workplace production than does paternity. And, where couples' skills are similar and both weighted towards production outside of the home, we get outsourcing.
And this is where the Brooklyn jerky specialist comes in. He's actually making a product that homemakers once made themselves. We've become so much more productive in our specialized roles in the workforce that we can't afford the time to make our own jerky. That is, we've become specialists at making things that aren't beef jerky. And that provides the opportunity for a whole new industry to thrive — the all-natural jerky specialist.
I can't see any of this as being inconsistent with the broad Becker framework. When parameters change, outcomes change.

Alas, New Zealand suffers here: high minimum wages and little recourse to illegal immigrants makes outsourcing of a lot of domestic services available only to folks much higher up the income ladder.

I wonder how much of New Zealand's lower productivity is due to the relative cost of these complementary inputs to high ability folks' labour. Shifting to capital instead doesn't much help given the typical NZ price shock: The Roomba 530 sells for $500 NZ = $420 US; Buy.com has it for $290. Dry cleaning is unbelievably expensive relative to the States.

I suppose there's fodder for a future honours project: compare household time use surveys for professionals in the US and NZ to see how much household production wastes Kiwis' time, figure out how much of it is substitution away from labour and how much is forgone leisure, and quantify the loss in GDP relative to a world in which Kiwi professionals had access to comparably priced complementary labour or capital substitutes for household production.

Here's Becker's Treatise. Or, what bits of it are available from Google Books.

Thursday, February 23, 2012

What counts as research

The bar ain't high, if you're in the right field.

Now out in Tobacco Control, impact factor 3.077 (Comparable to Economic Inquiry), a New Zealand study where 13 young adults were interviewed about their smoking habits. The authors then call for a ban on smoking outside of bars on the basis of interviews with these thirteen subjects.
They frequently expressed disgust and remorse at how they felt after binge smoking and drinking, and nearly all saw smoking and drinking as activities that went together.
"Because alcohol plays such a pivotal role in facilitating social smoking, extending smoke-free areas to the outside of bars would decouple drinking from smoking in this environment," the study said.
Such a policy would create a physical barrier that, for some, would make getting to the smoking zone too difficult.
Nearly all participants supported the proposal, and agreed it would lead them to reduce or cease smoking, the study said.
I'm in the wrong field. And the Otago Medical School Public Health Department's press office ought to get some PR award for being most consistently able to sell this kind of thing to the press as having policy significance.

Next time I'm at the bar, I'll interview 13 selected smoking drinkers about what they think ought to be done to the folks who would ban them from smoking and drinking. I don't think the results would be publishable. But they could form the basis for policy improvements.

See also Simon Clarke.

Emissions elasticity and car import regulations

New Zealand now bans the import of cars that fail to meet the Japan 05 emission regulations, which effectively bans older car imports. In 2010, those imports constituted some 39% of fleet entry.

Radio New Zealand reports (HT: @zentree)
Used vehicle imports have plummeted following the introduction of stricter vehicle emissions standards.
The third phase of the exhaust emissions rule came into effect on 1 January. It prevents importers bringing in vehicles that do not meet what is known as the Japan 05 standard.
The Imported Motor Vehicle Industry Association says just over 3000 vehicles were imported in January, less than half that of the same month a year ago.
Chief executive David Vinsen says the sharp fall was expected as not only are importers adjusting to the new rule, but a lot of stock was brought in before January.
He says imports are likely to continue at 3000 - 4000 per month for the rest of the year.
It will be interesting to watch what happens to used car affordability and to average fleet age. If newer used imports become too expensive, folks will hold onto older cars with worse emissions for longer. The aggregate emissions profile can then get worse despite a cleaning up of the incoming cohort of vehicles. Chalk this up as a potential honours project for a couple years from now.

Wednesday, February 22, 2012

Upcoming Sydney engagement

I'm giving a talk in Sydney at the Centre for Independent Studies tomorrow night. If you're in Sydney, please do hit the link to RSVP and say hi after the talk. I'd love to be able to put faces to more of my readers, especially the folks who show up in the comments section.

I'll be talking about paternalism. The work I've done on social costs of alcohol (and other sins) will show up, as well as more general discussion on how the framing of paternalistic policy in terms of economic social costs short-circuits public debate about the extent to which government should be doing things to us for our own good.

Misquoted?

Can this really be an accurate quote?
The cancer society has issued its own a clarion call to municipalities, asking them in a position paper to “join the growing trend” of smoke-free outdoor bylaws. The Canadian Council for Tobacco Control says outdoor bans protect families, and that even passing exposure to second-hand smoke is harmful, despite the “false sense that smoke blows away.”

“Smoking is not one of our rights and freedoms,” said Robert Walsh, the council’s executive director. “In a socialist country like Canada, we want regulations that will help people make the choices that will help the common good. It’s part of our culture.” [emphasis added]
I'd thought the anti-tobbac were working hard to avoid the issue's being framed as one of personal liberties versus collective control. Maybe Walsh didn't get the memo.

Tuesday, February 21, 2012

You can take it with you [updated]

Life insurance policies, at least in New Zealand, will pay out subsequent to diagnosis of terminal illness. But if you can't quite wait that long, well...
Prominent unionist and left-wing agitator Matt McCarten is taking offers on his life insurance policy in an attempt to settle a $150,000 tax debt.
The cancer-striken Unite union boss said the policy had a face value of $230,000 and prompt payout was highly likely following a terminal diagnosis.
“I was given odds last year, in September, of a 0.8% chance of survival,” he told the National Business Review of the cancer that has spread to his liver.
“If anyone wants to buy the policy I’m open to offers. They can invest in my death, bet on it, and give the tax department the money that I owe them,” he said.
Mr McCarten said he was happy to provide potential bidders with access to his medical records “if they want to make it a calculated gamble”.

...

Parties interested in purchasing the policy should contact Mr McCarten who is seeking a quick sale. “I’m aware that I’m running against the clock and I’m determined not to die in debt,” he said.
I don't know that there's any rule barring sale of beneficiary rights in a life insurance policy, nor do I think there should be any such rule, but I'm still a bit surprised that this is allowed.

Update: A former student and current solicitor tells me [this doesn't constitute legal advice, should not be interpreted as legal advice, etc] Section 43 of the Life Insurance Act 1908 allows such transfers; here's the form for assigning policy benefits to someone else. Again, this provision makes a ton of sense. But given that life insurance was illegal for a really long time because folks viewed it as betting on someone's death, that the 1908 legislation let somebody buy out your policy is a bit surprising. I'd have thought we'd have had policy failure due to voters viewing such markets as repugnant.

Idiotic? Perhaps not.

Optimal financing for the Christchurch rebuild involves a mix of spending cuts elsewhere, debt now, and future tax increases. But what about asset sales? Gordon Campbell says forcing Council to divest assets would be idiotic: you'd only get fire-sale prices in the current environment. 

Big picture, he's almost right. Unless privatization comes with an increase in firm profitability, there's an equivalence between the value of the flow of dividends coming from the asset and the selling price of the asset. In that case, fire-sale prices reflect the real reduction in value that comes from holding a damaged asset: it's worth less either to Council or to a private firm. So it doesn't make much difference whether Council borrows against the flow of earnings from its holdings or sells its holdings. It's not idiotic to sell off assets, but it doesn't do a lot of good. Unless the privatization increases value. Or, unless Council faces financial market constraints on borrowing. I'd explored things in more depth a year ago.

So I'm not sure there's much case for selling off the Council's power lines company, Orion. We'd have to replace monopoly Council ownership with regulation of a natural monopoly; I can't see a whole lot of gain to be had either way. It's sure not the first place I'd look for potential privatization.

But what about Lyttelton Port of Christchurch? An insurance-funded rebuild of the Port's capital stock could put it in better shape than it was prior to the earthquake; there's a good case to be made for privatization bringing efficiencies to port operations. It's (as best I understand things) the threat of those efficiencies that had Port Otago block Christchurch Council Holdings' attempt to sell the port to Hutchison Port Holdings five years ago. It wouldn't be crazy to argue that Council might never get a better price for the Port than when it's all bright and shiny with fresh infrastructure, so long as LPC is able to get insurance settled. If the Port can earn greater returns under private ownership than under Council ownership, then privatization is far from idiotic. At latest share prices, it's worth about $200 million. 

Release windows and piracy

It takes a long time for movies to be released in New Zealand. How long? Mike Dickison's been trying to figure it out, while plotting his escape from Christchurch*. So far, it looks like about a 50 day wait on average. What's that like? I didn't know there was a remake of Girl With a Dragon Tattoo so figured the new posters up meant that the film we'd seen a couple years ago was finally having a broader theatrical release. Perhaps that's just me being dense, but it didn't seem crazy.

So while we're hearing all our friends tweet about the latest releases, the only way of staying in the conversation is piracy. Two-month delays in getting films here might have made sense when they had to be carried by steamship; it's perhaps a bit ridiculous when theatres with digital projection equipment can have the movie emailed to them.

I'd wondered whether these release windows explained New Zealand's robust file-sharing culture. Stealing content just doesn't seem that wrong where content providers refuse to provide a legal way of accessing it. So I started casting about for ways of getting data on NZ filesharing to test whether length of release delay explains filesharing volume.

Looks like I won't have to bother. Danaher and Waldfogel have an excellent paper up at SSRN. Here's TorrentFreak's summary. Long story short, the introduction of BitTorrent depressed box-office revenues outside of the US in a way that correlates with the length of the window between US and foreign release. Within the US, the introduction of BitTorrent hasn't sharpened the gradient for revenue drop off with weeks since first release, which we would have expected if greater online availability increased with time (which it does) and depressed box office revenues.

If studios delay the release of films that they expect to be less popular in a particular foreign market and rush in films they expect will have more viewers, then we'd see lower revenues for those longer-window films even in the absence of piracy. But, as they use a difference-in-difference approach with films released before and after BitTorrent, we'd need that studios suddenly became better at this post 2003 for the results to be contaminated. They also run a robustness check using a triple difference-in-difference approach exploiting that sci-fi and action movies are more heavily downloaded than, for example, romance films. Longer international release windows depress box office earnings, with the effect likely due to BitTorrent.

The paper also provides an very nice explanation for studios' use international windowing:
  • Cost of physical prints is high, so it's cheaper to send films abroad after a first run in the US. This also goes some way toward explaining our sometimes grainy film quality at theatre: every theatre is effectively a second-run theatre.
  • Most foreign markets are theatre-poor relative to the US, so they have to be more selective in which films to screen. Waiting to see what's successful in the States before committing to a run here can make sense. 
  • Promotions centred around film star appearances require international windowing.
Those three things have to dominate the piracy cost of their windowing strategy, unless we want to assume the studios are idiots. The authors estimate that piracy reduced weekend box office returns by $240 million in 2005. I'd be a bit surprised if the gains coming from the three bullet points above outweigh that, but I'm not the one with money on the line in this game. Or it could be that the studios are pushing hard on legal solutions as a way of keeping the benefits of international windowing while avoiding piracy losses. I'm pretty sceptical that that's going to work.

Update: The OatMeal is on point.

* While we're thinking about things that aren't working, here's Mike's piece in the Herald. Depressing but realistic.
After the first quake shock had worn off, there was a unexpected elation in the air. People were itching to reclaim the rubble and turn destruction into a fresh start. The Gap Filler project screened outdoor movies in an empty lot, and made a book exchange out of an old fridge; Greening The Rubble built parks where there used to be buildings. The urge to help-to do something -filled community meetings and swamped the City Council with suggestions for the rebuild, giving rise to that utopian document the Central City Plan, which painted a picture of tree-lined cycleways, green markets, and inner-city apartments.

Not only would the quake damage be fixed, so would decades of urban sprawl and central city neglect. Ponies for everybody. Ponies with free wireless.

...
Apart from a fortnight when I was barred from my apartment by a police cordon, I've been living in the central city since the February quake, watching earthquake tourists circle the Red Zone on sunny weekends, and seeing buildings gradually disappear week by week. I've watched the crack in my wall get slowly wider, and energy and optimism leak away, replaced by frustration, cynicism, and a dawning realisation that bringing a heart and life back to the city will take a decade or longer. And that the only people who can speed that up are politicians and insurance companies, not the citizens.
I'm a bit more optimistic than Mike. New life is popping up all over the suburbs. EPIC will break ground downtown and provide an anchor for new development. So long as we can keep Council from stuffing it up...

Monday, February 20, 2012

Meanwhile, in Canada

The same government that considered the mandatory long form census so strong an invasion of privacy that it was worth destroying the continuity of the census data series is requiring ISPs to maintain extensive logs on users and to hand them over to police without warrants; ISPs are banned from telling customers of any government snooping unless given explicit permission by the police.

Tony Clement, back in 2010:
“It is not appropriate to compel citizens to divulge how many bedrooms they have in their houses, or what time they leave for work in the morning,” Clement said. “The government’s approach is about finding a better balance between collecting necessary data and protecting the privacy rights of Canadians.”
Vic Toews, Public Safety Minister, last week:
Critics of a bill that would give law enforcement new powers to access Canadians' electronic communications are aligning themselves with child pornographers, Canada's public safety minister says.

"He can either stand with us or with the child pornographers," Vic Toews said of Liberal public safety critic Francis Scarpaleggia during question period on Monday, after Scarpaleggia asked about a bill expected to be tabled Tuesday.
Odd that it's more of an intrusion to have to tell the government how many bedrooms you have than to #TellVicEverything about what sites you might be visiting while in the bedroom. Australia is no better.

Meanwhile, some Canadian universities will start letting IP folks trawl through faculty emails to see if anybody's sharing gated journal articles. I expect most folks at Toronto and Western to flip quickly over to Gmail. This while the #AAASmtg has been exploring the notion that research has been biased towards materials faculty can access; this adds a hurdle to research efforts for folks at smaller schools with less extensive online journal holdings. It would be interesting to see what bias was induced into paper citations by JSTOR's moving wall.

New Zealand is getting worse too. But it's getting worse slower than other places. Shame that the National government hasn't figured out that one of our comparative advantages is in freedom, and in particular tech freedom; we ought not have bent over so quickly when the FBI came calling for Kim DotCom. American tech folks looking for exit options have noticed...

Friday, February 17, 2012

Trusting econometrics

One of my profs at Mason told the story of how he'd been offered a new boat if he could get the coefficient in a regression to be below two - which would have allowed a merger to proceed. He turned it down, but not everybody does. Unfortunately, in a whole pile of empirical work, you either have to really trust the guy doing the study, or make sure that his data's available for anybody to run robustness checks, or check that a bunch of people have found kinda the same thing. Degrees of freedom available in setting the specifications can sometimes let you pick your conclusion, like getting a coefficient that hits the right parameter value or the right t-stat.

David Levy and Susan Feigenbaum worried a lot about this in "The technological obsolescence of Scientific Fraud". Where investigators have preferences over outcomes, it's possible to achieve those outcomes through appropriate use of identifying restrictions or method - especially since there are lots of line calls in which techniques to use in different cases. They note that outright fraud makes results non-replicable while biased research winds up instead being fragile - the relationships break down when people change the set of covariates, or the time period, or the technique.

Note that none of this has to come through financial corruption either: simple publish-or-perish incentives are enough where journals are more interested in findings of significant than of insignificant results; DeLong and Lang jumped up and down about this twenty years ago. Ed Leamer made similar points even earlier (recent podcast). And then there's all the work by McCloskey.

Thomas Lumley today points to a nice piece in Psychological Science demonstrating the point.
In this article, we accomplish two things. First, we show that despite empirical psychologists’ nominal endorsement of a low rate of false-positive findings ( ≤ .05), flexibility in data collection, analysis, and reporting dramatically increases actual false-positive rates. In many cases, a researcher is more likely to falsely find evidence that an effect exists than to correctly find evidence that it does not. We present computer simulations and a pair of actual experiments that demonstrate how unacceptably easy it is to accumulate (and report) statistically significant evidence for a false hypothesis. Second, we suggest a simple, low-cost, and straightforwardly effective disclosure-based solution to this problem. The solution involves six concrete requirements for authors and four guidelines for reviewers, all of which impose a minimal burden on the publication process.
Degrees of freedom available to the researcher make it "unacceptably easy to publish "statistically significant" evidence consistent with any hypothesis." They demonstrate it by proving statistically that hearing "When I'm Sixty-Four" rather than a control song made people a year-and-a-half younger.

The lesson isn't radical skepticism of all statistical results, but rather a caution against overreliance on any one finding and an argument for discounting findings coming from folks whose work proves to be fragile.

Thursday, February 16, 2012

Trevor Mallard Agrees With Me

I wrote, in opposition to the former Labour government's legislation, initiated by Trevor Mallard, banning ticket scalping for the Rugby World Cup:
I also can see no particularly good reason that somebody with a ticket that somebody else values more shouldn't be able to make a buck in the transfer. Why should all the surplus go to the buyer?
Trevor Mallard writes today, after taking some stick for scalping (on-selling at prices above face value) some tickets for an event which he found he could not attend:
"I'm slightly surprised if promoters with whom I spend several hundred dollars a year on tickets complain when I sell some I can't use to someone who wants them using a Kiwi-based online auction."
He listed the tickets at face value, but let the auction run above $500 because he "knew that they were worth more".
"It's an auction system, I mean apparently there's some system when you can 'buy now'...I do [know] now because people have been telling me about it but I've never used it at all in the past."
The young people he had sold the tickets to had seemed perfectly happy when they came to pick them up, he said.
Exactly, Trevor. Shame you didn't see it that way when you banned everybody else from doing it a few years back. Would somebody offering to refund the money when caught have been given a break under your legislation?

HT: TVHE, Farrar, half of twitter....

Hit the scalping tab below for a rather extensive series of prior posts; this one's still my favourite.

Wednesday, February 15, 2012

Queueing

The opportunity costs of doctors' time is higher than that of most of their patients, so it makes sense that there's typically a small backlog of patients in the waiting room. If somebody finishes early, the next in line jumps in and the doctor isn't left waiting around. Because of our willingness to wait around a bit, we all wind up paying a bit less for the doctoring services.

That's enough to explain short queues in the waiting room. But it isn't enough to explain half-hour waits. I'd wondered why the appointment scheduling software doctors use doesn't automatically send out update notifications to patients via SMS or email when backlogs hit the 20-minute mark; @GraemeEdgeler figured the cost of the system could never be recouped by most doctors.

That might be true in New Zealand, and especially for services provided under contract to the public health system. But the system is up and running in the States: MedWaitTime charges doctors $50/month, or $300/month for a full medical facility, for patient updating services. There's an iPhone app for patients. The doctor's secretary spends 30 seconds updating the doctor's status from Green to Yellow (moderate wait) or Red (long wait). Patients check the iPhone app before heading in. It's apparently not yet integrated directly into the doctors' appointment scheduling software, but I really can't see how that's all that hard; it's surprising that the folks who make the appointment and patient management software haven't already integrated in this kind of feature. The gains to patients avoiding long queues has to exceed $300/month for even a single doctor, never mind a practice.

It'll likely come to New Zealand. Eventually. After it's pervasive in the American system and enough ex-pats complain about not having it here.


Tuesday, February 14, 2012

Why retire?

I've never quite understood why academics retire. Jeremy Bentham wanted his auto-icon propped up in the University long after his death; he's apparently still brought out for the occasional meeting of Council where he's listed as "present but not voting". That doesn't seem all that bad.

Nick Rowe wonders why people bundle so much leisure into retirement. It's difficult to conceive of models in which doing so is optimal. Sure, work gets harder as we get older, but so too does leisure.
The obvious answer is that our productivity falls as we age. So it makes sense to consume more leisure when the opportunity cost is least. But there's also an obvious problem with that explanation. If our productivity at work falls as we age, maybe our productivity at leisure falls as we age too. Which will get worse more quickly: my ability to give an economics lecture; or my ability to portage a canoe?
Honestly, there's a very short list of things that would have me retire from lecturing:
  1. Being forced to retire;
    • But this does require either legislation mandating a retirement age, or constraints on recontracting for reduced duties and wages commensurate with depreciated human capital. I'm pretty sure Canada has the former. [David Giles, in comments, says Canada no longer forces retirement.]
  2. Health problems that affect labour in more embarrassing fashion than leisure coupled with a stronger sense of shame than I currently have;
  3. Strong technological innovation in leisure-complementary activities;
  4. Technological changes in academia that make lecturers obsolete [read read read]
The fourth I most worry about because it could hit rather sooner than I'd like. Society invests too much in higher education. The bottom tier of students would do better in taking a trade qualification than a Bachelor's; rather too many undergraduates are learning absolutely nothing* [HT: Isegoria]. Things like MITx (InsideHigherEd) will let top institutions provide more credentialling services for those who ought to have university training. Government R&D funding has been being crowded out, so when the sector eventually loses the funding coming from students who never really should have been there, academia will contract (and especially severely if MITx takes off). The good times can't last forever.

On the plus side, much of what universities provide isn't really instruction. Instead, it's a bundle of instruction, signalling, consumption, and complex relational and social capital not easily provided elsewhere. The instruction can be handled by MITx, but I'm not sure the rest of it can be. Teleconferencing hasn't eliminated either face-to-face business interactions or academic conferences. That gives me hope I can still be in the classroom in my 80s. But if teleconferencing ever advances sufficiently for virtual conferences to supplant traditional ones,** I'm going to get just a little bit nervous.

* The book cited finds no improvement in complex reasoning, writing, or reading skills among a substantial proportion of undergrads. I haven't read the just-released book, but I expect the problem's largely one of fit. A bottom tier of students just cannot be taught by the methods that are appropriate to the middle and upper tiers of their classmates and would have better outcomes in community college or technical training environments. Starting g matters.

** I think it'll require holodeck-style virtual hospitality suites.

Optimal tax theory - contraception edition

Tyler points to some data on the price elasticity of demand for the Pill as contraception among college-aged American women. A price increase from $5-$10 per month to $30-$50 per month resulted in a 2 - 4 percent drop in use of the Pill. The paper says the price increase was "more than three-fold". If a 300% increase in the price of the Pill results in a 3% drop in demand, that's about the lowest price elasticity of demand I've ever seen - around 0.01.

Oh, the fun tax theory exam questions that could flow from this! Recall that the naive interpretation of Ramsey tax theory says that you want to tax more heavily those goods that are inelastic in demand: that way, deadweight costs are lower. But the more accurate interpretation of Ramsey (here too) is that you want to tax more heavily those goods that are complements to untaxed leisure in a world in which we can't tax leisure directly. Further, we have Pigovean reasons for taxing public bads and subsidizing public goods.

So, is the Pill a complement to leisure or to labour? Tyler points to some evidence from the paper's abstract:
Women who lack insurance and have sex infrequently appear to substitute toward emergency contraception; uninsured women who are frequent sex participants appear to substitute toward non-prescription forms of birth control. Additionally, we find small but significant decreases in frequency of intercourse and the number of sex partners, suggesting that some women may be substituting away from sexual behavior in general.
If intercourse is leisure rather than investment in work-related social capital, then we might have some Ramsey argument for taxing contraception. But it's not immediately clear in which direction any Pigovean argument might run. Neither is it even immediately clear in which direction any long-run Ramsey argument might run if you think through some general equilibrium arguments about sex, positional goods, and hypergamy; easy to imagine how it could go either way.

There's at least a short essay exam question in there on tax theory for anybody who's lecturing tax in public economics next year; it's a nice one where there are lots of clearly wrong answers but also many potentially right answers so long as the argument is reasonable.

Happy Valentine's Day!

Monday, February 13, 2012

In praise of liability

Christchurch City Council helped ensure that a dozen people died last February. Ann Brower, who lectures at Lincoln, narrowly missed being one of them; she was the only survivor when an old dangerous building fell on top of the bus she was in. She catalogues the failures that led to her very close brush with death.
Regulatory failure at its most murderous made Colombo St run red that day. Responsibility falls at the feet of the building owners, Parliament, and most of all the Christchurch City Council.
In the Building Act 2004, Parliament encouraged and enabled, but failed to require, councils to enforce a minimum safety standard for known "earthquake prone" buildings.
Christchurch City Council chose a "passive" policy, of no strengthening requirements. Parliament failed to require, the council failed to enforce, and the owners failed to reinforce - in 1982, in 1991, in 2005, after September 2010, and after December 2010. For 30 years, the owners and the council did nothing.
On Day 1 of the hearing, the building owners blamed the council, for delaying demolition with the consent process. Council solicitors blamed the Resource Management Act, for requiring consents, and said they had no discretion in the matter.
Council's hands were tied, they said.
Yet, on September 14, 2010, a unanimous Parliament untied council's hands when it passed the Canterbury Earthquake Response and Recovery Act 2010. It gave the Crown power to amend or repeal any law, in the interest of public safety and earthquake recovery. Then they issued an order in council that expanded the situations in which council could demolish without consent. City council had the power.

...

The evidence, five centimetres thick, makes it searingly obvious that everyone knew what would happen. It was predicted but not prevented. It's not a case of trying, but failing, to protect public safety. Everyone failed to try, likely because neither council nor the owner bore the risk of deaths and injuries.

ACC bore the risks. I bear the scars. And 12 died. Under ACC, the government absorbs all liability, no matter who is at fault. So to the owners, safeguarding the building was all cost and no benefit. Since council failed to enforce building standards, why repair? Absorbing all liability creates a moral hazard. That's economist-speak for unwittingly encouraging risk by cheaply insuring against it. This rewards irresponsible behaviour by failing to penalise it.

The regulatory framework in place on February 22 forced taxpayers to subsidise risks that should have been borne by building owners and their insurers. Subsidies render unaffordably risky activities affordable, like repeatedly failing to reinforce an unreinforced brick building less than 200 kilometres from the Alpine Fault.

Without the taxpayers' subsidy of the risk through the no-fault ACC Act, many of the unreinforced masonry buildings would have been too expensive to insure, and the 12 who travel with me might still be alive. If there are to be subsidies, it is better to subsidise safety with public funding for earthquake strengthening than to subsidise risk.
I wonder to what extent other nested bits of regulations caused problems. I've often heard rumours about that some of Christchurch's charming deferred maintenance on older buildings stemmed from that getting consents to do any upgrading triggered requirements to bring older buildings up to newer code. And then this will interact with regulations on heritage buildings making any particular level of structural engineering upgrade far more expensive and time consuming. Small marginal upgrades that could have made small bits of difference for some buildings, if that's correct, then required owners to take on reasonably large upgrading costs. In worse cases, heritage regulations effectively barred earthquake strengthening altogether, although 603-13 Colombo was not on the Heritage Register. [Update below]

What's a way forward?
  1. Require building owners to carry liability insurance for risks their buildings pose.
  2. Establish Council funds, to which people would be invited to provide supplementary voluntary contributions, that would pay owners of buildings with heritage amenity value an annual subsidy for the positive contribution they make to the City. The burden of heritage preservation ought to fall on those enjoying the external benefits; that's best captured through payments by Council and voluntary contributions from high-demanders.
  3. Abolish existing heritage protection legislation and fix the RMA - make it extremely easy for building owners to demolish or make safe their buildings. While CERA can stomp on RMA in Christchurch for the time being, I wonder how tough it is for an owner of an older Wellington building to get the permissions to fix it.
New Zealand building insurance markets seem relatively seized up; it could take a few years before private insurers are willing to start writing contracts on these risks. But that's no reason not to start the ball rolling. Announce this year that liability insurance will be required as of say 2018 and that the regs easing up on demolitions and building strengthening will be in place for 2015. That gives Councils a couple of years to start figuring out which buildings really merit subsidy and for owners to figure out whether their buildings are viable in a world in which they bear the risks of failure.

If the choice were between ACC and America's broken tort system, I pick ACC. But I'm not sure that we can't make improvements at the margin.

Full disclosure: Ann is a coauthor of Canterbury's Phil Meguire and, back before the earthquakes, sometimes joined us for drinks at Canterbury's Staff Club. I hope to be able to buy her a drink when the staff club is repaired and when she's again up for the trip out to Ilam.

Update: Ann emails:
Also it was a category 4 heritage building, meaning it was municipally (not regionally, nationally, internationally) significant and it was desirable (not important, very important, or essential) to keep it.  So under the city's own plan, they had the discretion to demolish without consent, even without resorting to the special powers granted by parliament.

Council staffers were far more rigid than the legislation required. Rigid structures collapse in earthquakes. We can't afford non-ductile Councils in earthquakeland. See also this excellent post from TheAntiplanner.

Econ valentines

Justin Wolfers has been pointing to the best of the #FedValentines hashtag. This one's still my favourite:

I have nothing to add, except for this fun tune from Jesse Irwin.

52 Week High

It's more an investment banking valentine. But excellent.

Saturday, February 11, 2012

Oh not another one

UK Parliamentarians are throwing around aggregate social cost figures mostly consisting of costs borne by drinkers as representing costs to British taxpayers of harmful drinking. Nanny state Labourites? Nope. A Tory. Read the excellent Chris Snowdon for the details.*

This is the corruption that comes of social cost studies that disguise private costs as publicly borne unless you check their work more carefully than any journalist or parliamentarian ever will.

* I'll quibble with Chris on a couple minor points. Crime costs can be legitimate social costs, even if they're not a financial hit to the government. It's just that these studies utterly confound "committed a crime after having recently had a drink" with "crimes in which alcohol was causal and which would not have occurred but for the consumption of alcohol".

Friday, February 10, 2012

What is wrong with housing anyway? (Warning: wonkish)

This is a post I have been meaning to write for some time, but the current spur is the Treasury briefing for the incoming minister. It is mostly very good, but included in it is the canard about over-investment in housing. This is a refrain we hear repeatedly, usually in phrases like “New Zealanders love affair with housing”, but I think the theoretical and empirical basis for the assertion of overinvestment is weak at best.

The main issue is one of tax-induced distortions. With owner-occupied housing, the purchase of a house is an investment, which generates an inputed rent that the owner pays to himself. The payment of this imputed rent is not subject to GST, nor is the rental income subject to income tax. There is also the issue of whether the absence of a capital gains tax is a further distortion, but I have discussed that issue here, here, here, and here. In this post, I want to explain why I don’t find it obvious that there is a distortion due to the lack of tax on inputed payments of a homeowner to himself. In part, this is a response to comments by Phil Meguire in the first of the capital gains posts.

To start with, let’s get an obvious point out of the way. Housing is a good thing, and nicer housing is better than worse housing, holding all else the same: If non-neutral taxes induce more investment in housing and less in other forms of investment than a neutral system, there is a cost, but it is the difference between the value of the flow of goods that would have been produced and the value of the flow of services produced by the housing, a difference which is not necessarily significant. I suspect that some of those decrying our love affair with housing are making the mistake of thinking that just because the purchase of housing services is a non-market transaction it doesn’t contribute to economic well-being. Similarly, it is irrelevant if the alternative investment would increase labour productivity, increase exports, etc. productivity and exports are just means to increasing the value of the goods the economy can consume; so is building houses. (Surprisingly, Greg Mankiw appears to make this mistake here, but to be fair we can attribute this to the need for simplification in an op-ed article, and his basic point—that the U.S. should get rid of the crazy mortgage-interest deduction—is sound.)

The next point to note is that the optimal tax rate on owner-occupied housing has to be considered in the context of an existing distortion: With an income tax, saving is subject to double taxation. If I choose to work today in order to buy consumption goods today, there is a difference between the value of what I produce and the value of what I consume, because of an income tax. But if I choose to work today in order to buy consumption goods in the future, there is an even bigger distortion between the value of what I produce and the value of what I consume, because the value of my work is taxed twice, once on my labour income and again when the interest income is taxed. We then have a classic second-best Ramsey taxation problem. The theoretical optimal tax on the return from investing in owner occupied saving will be somewhere between having no taxation on the saving (so as not to distort the decision between consumption today and investment in housing), and the full double-taxation rate applying to other forms of saving (so as not to distort the decision between investment in housing and other investment). So if normal investment returns are taxed at, say, 33%, the optimal housing tax will be positive but less than 33%.

And finally, here is the point that is overlooked in all the commentary on housing investment that I have seen. The flow of services from owner-occupied housing is currently subject to a tax. In other words, this graph, taken from the Treasury’s briefing to the incoming-minister, is wrong.


To see why, consider how a value-added tax like the GST works. Businesses charge GST on their sales, but deduct from their net tax liability the GST they have paid on purchases of goods and services. Expenditure on investment therefore reduces their tax liability, which is what makes the GST ultimately a tax on consumption and not investment income. When consumers buys a new house, they are making an investment, the return for which is the flow of housing services they will receive over time. The inputed payments they make to themselves are not subject to the GST, but unlike other business investment, the initial house purchase is, which has the same effect. (And, as I noted in an earlier post, the existence of a GST pushes up the prices of second-hand goods by the rate of the tax, so the argument is no different for owners who purchase an existing rather than newly built house.)

This is another example of the beauty of pure value-added taxes. By shifting in part from an income tax to a value-added tax, the rate of double taxation on delayed consumption is reduced. At the same time, the effective rate of taxation on the consumption of owner-occupied housing is increased from zero. We end up with a system where the tax rate on owner occupied housing is somewhere between 0 and the rate applying to other investment, just as Ramsey tax theory would stipulate. Whether it is higher or lower than the optimal rate is a difficult empirical question to which I don’t know the answer. But I have not seen any of “New Zealander’s love-affair with housing” commentators seek to address it. Furthermore, given that there are no simple methods of increasing the tax rate on owner-occupied housing that don’t bring their own problems (we have no mortgage-interest deduction to get rid of, for instance), I find it hard to believe that we have an over-investment problem that is worth solving.

Benchmarking the minimum wage increase

New Zealand's $13 minimum wage is now scheduled to go up by $0.50. The government says that's as much as they can increase it without bad employment effects, though I can't yet find any RIS or Treasury statement in Cabinet Papers assuring us of the safety of a 3.8% increase.

The Greens are mad because the CPI was up 4.6% in the year to September:
The nominal increase is 3.8% – but at the same time the Consumer Price Index increased 4.6% in the year to September 2011 and 1.8% in the year to December 2011.  So it is not “boosting incomes” at all, as Minister of Labour Kate Wilkinson claims, it is just keeping pace with inflation.
50c an hour is not going to help the people that need it most – people like the Bradley family who were profiled in the Herald this week, where dad is having to work three jobs just to feed the family. And even so, the parents are having to go without food some days just to feed the kids.
But let's not forget that the September quarter annual results include the one-off effect of the GST increase: a tax shift that was fully compensated for lower income earners through income tax cuts. So it's the December quarter annual results that form the relevant comparison. And the minimum wage increase is more than double that; there's no indication of any looming inflation on the horizon. The real minimum wage increase is pretty substantial. Real take home income is higher than the CPI would have you think, unless you're looking at December-quarter results (where the GST hit has washed out).

Most importantly, it's substantial relative to generalized wage movements. The latest figures from the Labour Cost Index show salary and ordinary time wage rates were up about 2% on average from December 2010 to December 2011.* The minimum wage hike is 1.9 times as large as average year on year average salary growth.

The 2012 New Zealand Income Survey isn't due 'till June quarter (October release). But if median hourly earnings wind up being up 2% up on the June 2011 results, they'll be around $20.79. The minimum wage will then be 65% of the median. This is more than high enough to start ringing alarm bells about disemployment effects.

To summarize:
  • The minimum wage increase of 3.8% is well in excess of average LCI wage growth. Describing it as miserly ignores the context of recent wage and price growth in New Zealand. 
  • The minimum wage is on track to hit 65% of the median wage. This is very high. Recall that American minimum wage campaigners have been trying to get the minimum wage to half of the median wage. The current US minimum wage, $7.25/hr (federal; individual states do vary upwards), is about 38% of the median US wage. While it's plausible that changes around that level within the US have had little effect on aggregate employment figures, it is reckless to extrapolate from those findings to minimum wage rates that are, relative to median wages, far higher.
I'm going to second what Ryan Avent blogs at The Economist. Minimum wage increases are a bad policy for poverty reduction relative to wage subsidies and are an especially bad idea in periods of high unemployment and low inflation.

And yet I can't find anybody quoted in the press saying anything other than that National's here being stingy. Tracy Watkins at Fairfax finds lots of folks calling it paltry. Radio NZ quotes a united opposition saying it isn't enough and the unions whining. The Herald's Amelia Romanos follows the same narrative. Same in the Yahoo poll Seamus cited. Nobody seems to have checked whether the minimum wage increase was above, below, or about the same as growth in median wages over the last year. It's not like that number's a secret; Stats New Zealand released it the day before the minimum wage hike was announced. Big headline "Wage rate growth steady at 2.0%". But hey, who cares about the real numbers. All that matters is reporting on the political horse-race and how outraged the opposition is.

Any minimum wage increase shy of giving into the opposition's demands for a $15 minimum wage would be met with the same scorn from the media and from the opposition. If Key takes as much stick for a fifty cent increase as for a zero cent increase, the marginal cost of his doing the right thing and following the advice Treasury gave him last time around really isn't high. Shame he rarely decides to do that.

* Hit Table 3.3 at the XLS file above. Series ref LCIQ, SH41Z9 at tab 3.3 or, better, SI511-515 at tab 5.3 that counts the percentage increase of salary and ordinary time wage rates by skill level. The lowish percent increase I'm quoting here clearly isn't because of any miserliness in prior minimum wage increases as it's the same across the board in skill levels (the SI511-515 series). I'm using the LCI here rather than QES because LCI gives figures adjusted for changes in workforce composition and skill - how much an employer needs to pay in salary for a fixed quantity and quality of worker. I think this is the relevant comparison for assessing the generosity, or otherwise, of minimum wage increases; the increase doesn't affect the quality of an incoming minimum wage worker except perhaps through disemployment of the lower tail of the productivity distribution. The unadjusted LCI figure is 3.2%, still less than the "stingy" increase in the minimum wage.

Thursday, February 9, 2012

Tragedy of the Anti-commons: Medieval Storytime and Christchurch

In the story of Sir Cleges, a generous Knight falls on hard times due to some extremely bad planning: he dissipates his estate in holding elaborate Christmas feasts. But as reward for his generosity, he finds a fruited cherry branch at Christmastime. He brings the fruit to King Uther Pendragon as Christmas gift, but is stopped along the way by three veto-players - the porter, the usher, and the steward - each of which in turn demands, in exchange for access to the King, a third part of whatever bounty the King might bestow upon him.

And so when Sir Cleges finally reaches the King and is asked what reward he might wish, he requests a dozen hard blows. A third go to the porter, a third to the usher, and a third to the steward.

It's a beautiful solution to the tragedy of the anti-commons. Recall that where the tragedy of the commons obtains when no player has veto rights over the use of a resource, the tragedy of the anti-commons ensures the underexploitation of a resource when there are too many veto-players.

If only a beneficent King existed to hear the entreaties of the Christchurch entrepreneurs being trodden upon by some of Tony Marryatt's functionaries [HT: Homepaddock , and see here]. A city can stand a lot of stupid during normal times. Examples of it are legion. And cities with nice climates that are otherwise desirable places to live see some erosion in the city's amenity value as consequence, but things tick along; there's a lot of ruin in a city. But we can't afford the normal local government stupidity when we're trying to convince people to stay here and rebuild.

I don't really care what Tony Marryatt is paid, although Glenn Boyle nicely surveys the relevant comparable salary packages and finds the Chief Clerk's been systematically overpaid by Christchurch City Council. Still, even if he were paid a million dollars instead of a half million, that would still be about three bucks per capita. Know what? I spend more than that on coffee on the typical day. And so do you. If you realized that the equivalent of your contribution to Clerk Tony's salary fell out of your pocket two blocks back on a walk, you'd likely shrug it off rather than go looking for it. It's a lot, and more than he's worth, but it's not something about which I'd go to the barricades. But if you're interested in the extent to which Marryatt is overpaid, go and read Glenn Boyle's analysis at the link above.

But I care that he's presiding over a local government important parts of which are failing at a time that they cannot afford to fail. As we're getting ready for the one-year anniversary of the February 22nd earthquake, we're only just starting to have land approved for subdivisions on the fringes of town. We could barely afford the stupidity of local land use regulations prior to the earthquake, but we were hardly alone in having those kinds of problems. But the rigidities imposed by those regulations verge on insane in a post-quake world. Hugh Paveltich notes here, about 2/3 of the way down, Christchurch's disastrous performance in getting new building consents through as compared to neighbouring Selwyn and Waimakariri.

Building regulations, zoning rules, insurer requirements, a less-than-friendly city plan still under development, RMA, EQC and CERA - each of those is a pretty substantial veto step in the way of developers who might want to reinvest their insurance payouts in Christchurch. More Council staff should be helping residents and investors navigate their way through the morass rather than providing additional veto points. There have been some moves in that direction, but it's getting a bit late.

It's also getting just a bit late for all the folks who can't fix their homes without CERA approval, can't live in their homes because Council won't let them, and whose temporary accommodation insurance payments are running out. Kafka rules. Council should be advocates for these guys.

I don't know whether firing Tony Marryatt and having early elections solves things. I'm less than convinced that a new lot of Councillors is likely to achieve much. But worries about employment law potentially requiring that Marryatt receive a substantial payout if he's fired quickly are a sideshow. I'm not yet convinced that it's worth doing. But if it's worth doing, I'm happy to pony up my $10 share to be rid of him. The costs of having a poorly performing Chief Clerk are an awful lot higher than what we'd have to pay to be rid of a poorly performing Chief Clerk. A good Chief Clerk, like King Uther in the story, would be distributing beatings to ticket-clipping veto-players.

Meanwhile, Joe Bennett's been given official permission to live in his own home (previously, and here). Small bright sparks.