Saturday, March 31, 2012

Stat of the week

I think I've found a winner for the next StatsChat "Stat of the Week" competition. Auckland University's Statistics Department gives a weekly prize for the best or the worst journalistic use of statistics. This is another submission on the bad side.

The Christchurch Press runs a story by Jason Krupp arguing that tobacco costs the New Zealand public health system $7 billion per year.
According to the World Health Organisation's Economics of Tobacco Toolkit, health costs attributed to smoking account for between 6 per cent and 15 per cent of national healthcare expenditure in developed countries.
In Australia, smoking costs equated to between 2.1 per cent and 3.4 per cent of gross domestic product.
New Zealand was not featured in the report but, if the results were comparable here, it would mean Kiwi taxpayers fork out about $7 billion a year to treat smoking-related diseases.
That number seems very high. Recall that New Zealand is a country of about 4.4 million people. Is it any way plausible that each and every one of us are shelling out about $1600 per year to cover smoking-related illness? That's the first thing that a numerate journalist should have thought about: a sense of scale.

Next plausibility check: how much does the government spend on the health system in total? Treasury's site is down again and so I'll have to trust in this infographic; it's from Keith Ng, so it's almost certainly correct. It cites numbers of $13.2 billion for 2011 and $13.9 billion for 2012. Does it seem plausible that smoking accounts for half of total government health expenditures? That we could double health services but for the existence of smokers?

Numbers that far out of whack demand a bit of fact checking. What would five minutes on Google tell you about prior estimates of the costs borne by the New Zealand Health System? You'd probably find the Ministry of Health's $1.9 billion estimate, but that one was predicated on the assumption that smokers would otherwise live forever with zero health costs: they didn't account for that smokers do eventually have to die, even if they don't smoke, and so most of the health costs of smoking are just bringing forward costs that would otherwise be borne by the health system even if smoking had never existed. Here's a piece from the Christchurch Press noting, and critiquing, that MoH estimate.

Next, you'd find the study by Des O'Dea, commissioned by Action on Smoking and Health, and by the SmokeFree Coalition, that concluded that smokers cost the health system some $350 million in 2005: 5% of the figure cited by Krupp. Inflation hasn't been that high over the last 7 years. O'Dea cites total figures including smokers' spending on tobacco and a bunch of other costs properly viewed as privately borne that amount to $1.7 billion: still rather smaller than Krupp's figure even though in includes a really broad assortment of costs other than those falling on the government.

And, you might find the New Zealand Cancer Society saying the total cost borne by the health system is $250 million.

And we'd also want to remember that smokers pay about a billion dollars a year in excise taxes.

I really hope that Krupp isn't based at the Press and is just part of the Fairfax stable. Because I gave a talk at The Press last year that I'd hoped would cure them of this particular kind of innumeracy.

Is it too much to ask that the Fairfax papers not invent statistics that leave their readers worse-informed for having bought their newspapers?

Friday, March 30, 2012

Copyright stagnation

Paul Heald demonstrated the effect of the stagnant US copyright wall in seminar at Canterbury last week.

Recall that books published through 1922 are in the public domain in the US; those published since then are covered by copyright.

Heald dug through some Amazon stats to see what happens to books as they come out of copyright. Here's the rather stunning graph.

So any arguments about underexploitation of unprotected works seem untenable.

If this were a moving wall, maybe it wouldn't be so bad: eventually, books would come out of copyright and be released in new editions. But Disney does keep going back and insisting that nothing can ever be returned to the Commons from which they so liberally drew, and Congress loves Disney; we might reasonably expect another copyright term extension act to keep the wall fairly rigid.

So while I can get Pride and Prejudice in remix with either vampires or zombies,* I'm not betting on being able to read a version of Good-bye, Mr. Chips in which he protects his students from the werewolf menace as well as offering them solace through the Great War. The werewolf version practically writes itself - the Germans infect some injured British soldiers with lycanthropy just after a full moon, knowing they'll be back in Britain by the next full moon....

Here's Paul's SSRN page. The chart above isn't in any of his released papers, but is an update to some of the matters he covered here. His talk for the department is embedded below; the audio isn't fantastic, but all the slides are there.

* Pride and Prejudice is unreadable except in remix.

Update: Paul Heald clarifies the chart source data:
Hi, I just wanted to note that Amazon does not know when a book it sells was first published. It only knows the date of publication of the volume that it is selling, e.g. Treasure Island could have a date of 2002, if that’s the edition Amazon is selling. I had to check each of the 2500 books at the Library of Congress to determine the actual initial publication date. This is why stats taken from an Amazon “year of publication” stats don’t match up. Cheers, Paul Heald
See also discussion at Marginal RevolutionMatthew YglesiasKevin DrumRebecca Rosen [made 8th most popular on The Atlantic's front page], Brian DohertyKevin Kelly, and FAIR. It's hit MemeorandumRedditHacker NewsThe Glittering Eye, the CEI's Open Economy BlogPolitikon, and LISNewsTopsy tracks the tweets; here are the +Ripples. And TechDirt.

Thursday, March 29, 2012

Economic retrospective voting in dictatorships

Dictators have an interest in strong economic performance. In an Olson model, the dictator wants to maximize his total tax take, which generally means getting the underlying economic structure right but taxing at a rate that's too high from the perspective of maximizing GDP but just right from the perspective of maximizing the dictator's share of GDP.

But what happens when the dictator's tenure is at issue? Results then are less clear. If improvements in economic performance reduce unrest, then the dictator might tax less than would be otherwise optimal in order to lower his policing costs; if a strong economy builds alternative power bases that might provide threats to the dictator's position, then things are less clear.

ANU's Paul Burke looks at political survival in democracies and autocracies, finding that both autocrats and democrats are more likely to lose power when they preside over poor economic performance. In fact, they seem about equally responsive to economic conditions:

The LPM estimates in Table 10 provide no evidence that the short-run impact of economic growth on political survival differs between democracies and autocracies. Interestingly, the IV estimates suggest that the impact of the growth rate on next-year leader exit odds is smaller in democracies than autocracies, although the difference is only significant in the estimate in column 2 (and only at the 10% level). The IV estimates in columns 3 and 5-6 indicate that the short-run impact of growth on leader exits remains negative in democracies, albeit smaller (in absolute value terms) than that for autocracies.
Policy upshot?
Crisis assistance conditioned on the benevolence of national leaders may be valuable in shoring up the positions of benevolent leaders during times of economic hardship, while ensuring that corrupt or autocratic leaders do not receive relief from domestic political pressures at the very moment when these pressures are building in strength.

Antipodean Dreaming

New Zealand seems flavour of the month in the States. There's a new book out making the case that New Zealand's living the dream of an egalitarian society based on fairness; it's been getting a fair bit of press. I'm a third of the way through and will blog a proper review when done.*

Thomas Friedman visited the Antipodes this week; he files this report.  

I agree with Friedman that the relative absence of a strong religious right makes politics relatively more sane. Religious movements of the more politically active sort tend to be based around Pacific island immigrant communities and lean Labour; a strong secularist bent within the upper Labour echelons keeps things in line. And so Labour legalized prostitution and created gay marriage via civil unions.** Atheists outnumber any single Christian denomination in New Zealand; I'd be surprised to see any Labour or National leader making a point of being seen making any religious observances other than the annual Ratana Church pilgrimage, which to this migrant has always seemed more a recognition of the mana of the Ratana movement than a demonstration of faith.

But I only wish the U.S. Democrats were sufficiently sane that this line of Friedman's could be true:
In New Zealand and Australia, you could almost fit their entire political spectrum — from conservatives to liberals — inside the U.S. Democratic Party.
Here is a short list of current policy, broadly agreed upon in New Zealand politics (as best I can tell), that I cannot imagine fitting inside the U.S. Democratic Party. Just the things that come to me in thinking about it for fifteen minutes; I'm sure there are many many more.
  • A relatively flat income tax system topping out at 33% (Labour would prefer 38 or 39).
  • No capital gains tax (Labour now claims to favour one, but did not implement one in their last decade in power).
  • A highish (15%) and very very clean VAT in the form of GST. Zero politically-motivated exemptions. Books are taxed. Kid's clothes are taxed. Even your city council property taxes include GST: council provides you a service, and that service attracts GST so as not to introduce other distortions in the choice between Council and private provision of services.
  • Same thing in income taxes: they're generally very very clean. Most salary and wage earners don't have to file any taxes at all. It's just withheld at source. 
  • Free trade in agriculture without subsidy. Imagine Obama, today, abolishing the entire edifice of U.S. agricultural protectionism. Labour did it in New Zealand in the 1980s and there's no going back.
  • Neither National nor Labour have any interest in ramping up military spending.
  • A crazy woman tried hijacking one of our planes a couple of years ago. The country said meh, as did the politicians. I am flying to Auckland later today. I will arrive at the airport a half hour before boarding. If the plane is large, I will walk through a metal detector; otherwise, I will walk directly to the gate. When I get to the gate, I will wave my phone at the sensor. And then I will walk on board. 
  • New Zealand's abortion policy is de facto liberal but de jure restrictive. Nominally, women need a medical reason for having an abortion. That makes the social conservatives happy. Actually, depression caused by not wanting to have a baby is a medical reason for having an abortion. That makes women who want abortions happy. In America, identity politics would prevent this happy equilibrium
  • Parliament opens with a prayer. I chalk this up to status quo bias. Knocking it out would slap the religious people around over something pretty trivial. Folks here just seem a lot more willing to give the cheap tokens of respect that keep everything running over smoothly.
  • Kiwis largely traded away the right to sue for damages in exchange for a government accident insurance fund: ACC. ACC has loads of problems. But, in second best worlds, NZ's solution seems far better.  (National's potentially considering privatizing ACC but not wrecking tort.)
I'm also a bit skeptical about Friedman's claims that Antipodean sensibility comes down to compulsory voting systems. The story isn't crazy, and Justin Wolfers seems to endorse it. If you can be assured your base will turn out, then you don't need to do crazy stuff to play to them. But while Australia has compulsory voting, New Zealand doesn't. And I've seen no evidence that New Zealand election campaigns are nastier than Australian ones. 

Friedman continues:
To be sure, conservatives out here have all the low-tax, free-market, free-trade, less-government instincts of their American colleagues, but it is tempered by the fact that campaign donations and lobbying are much more restricted.
Ok. Labour*** governed as strong free traders under Helen Clark, giving New Zealand a bilateral free trade deal with China, something else that wouldn't exactly fit within the scope of permissible policy views within the Democratic Party. 

But I wonder in which direction causality runs on campaign donations.The NZ Electoral Commission recently released the numbers from the 2011 election; no party reached its spending cap. If the government here is less likely to award rents, then we expect less rent-seeking. 

I'll look forward to finishing the Hackett Fisher book.

* Tyler blogged on this ages ago. When it popped up there, I called the University bookstore. They said they could have the book to me end-March for twice the price that BookDepository quoted. So I got it mid-March from BookDepository. I had to get a book on New Zealand - not just any book, but a big scholarly tome from Oxford Press - shipped to me from the UK because it wasn't yet here at the University bookstore. Very much enjoying the book thus far.

** This is almost the perfect compromise legislation. If the religious folks get mad about the word marriage, call it civil union and give it all the same legal status. Except gays married under NZ's civil unions legislation have a hard time in adoption: it's apparently not easy to have the partner listed as adoptive second father (mother) of the other's child or of a child adopted by both. Otherwise, hooray for Labour.

*** Labor governs Australia (but likely soon won't); Labour has governed New Zealand and are favourites to govern again in 2014. I'm sure that Friedman drops the "u" from Labour by accident rather than implying that we've taken the option of Australian statehood.

Wednesday, March 28, 2012

Dangerous booms

Geoff Bertram warns that the NZ west coast mining boom could be dangerous. Because booms end.

There is some evidence for that areas with primarily extractive resource bases have lower growth rates; in the development literature, it's called the "resource curse": rents from mining are dissipated through rent-seeking corrupt governments, with little ongoing benefit for the population. And, there's some evidence for it in U.S. county level data too: Stratford Douglas finds that Appalachian counties with more coal fared worse than others in later growth.

But this is hardly an argument for barring resource development on the West Coast; we could as usefully tell Lotto winners to tear up their tickets because a lot of them wind up bankrupt. Rather, it says we need to ensure that collected royalties are used sensibly and that government infrastructure investments should recognize the potentially transitory nature of the boom.

Bertram also worries about effects on other industries via exchange rates - the "Dutch Disease". Again, this, I think, provides more argument for sensibly banking the royalties so it's easier to adjust when the boom ends.

It's also a bit odd that Bertram reckons mining on the Deniston Plateau would really hurt tourism. We were there the summer before last. There's a whole ton of tourism around the region's mining history. We visited a coal museum; we drove up the top of a small mountain to check out the old mining equipment. It was great. And my parents went to see the working mine; we abstained 'cause it wouldn't have worked out with the kids. The Buller region markets itself on that coal mining tourism. You might as well say that gambling really makes Las Vegas less attractive to tourists. Is an open cast mine in an area already marketed for mining tourism really that damaging for international tourism?

Science Status

One way of breaking out of the Great Stagnation: raise the social status of scientists such that more folks pick science over, say, law. Here's the Forbes piece on Cowen from last year:

Raising the social status of scientists

Cowen’s only concrete recommendation to improve the great stagnation is to “raise the social status of scientists”.  He says: “I don’t want a bunch of extra science prizes given out by the White House; what I want is that most people really care about science and view scientific achievement as a pinnacle of our best qualities as leaders of Western civilization.”
Such a raise in status is devoutly to be wished, particularly the rise in the status of scientists relative to overpaid executives in the financial sector. However such a rise in status is unlikely to have any immediate impact on innovation or growth.
Innovation depends not on how many scientific ideas are out there. It depends on how quickly the already abundant ideas are implemented in the marketplace.
New Zealand columnist Rosemary McLeod also points to the problem, although without any concrete solution:
By contrast to Deen, I doubt very much that any women pant after Stephen Wolfram, the balding and totally average-looking maths genius, now middle-aged, who wrote his first book on particle physics at the age of 14 and had a PhD at 20.

I mention this because somewhere in the great system of evolution there is a definite glitch that needs to be explained in a hurry if our species is to work out how to survive in this world we currently make such a mess of.

It is the likes of Wolfram we should be aiming our simpering selves at, surely, rather than an average Joe with a single, rather common ability that requires almost no IQ.

We should be wanting to breed - if sex still has any relation to reproduction - with blokes who are not only clever, but also rich.

We should thrill to words like "cosmology" and "quantum field theory", then, for the very good reason that we haven't a clue what they mean, but guess that they may come in handy one day.
A lot of should, but no way of getting there from here. Science, alas, isn't generally seen as all that alpha in the only metric that matters in the long run.

Rugby, on the other hand, does not lack for social approbation.
On Saturday, New Zealand learned that we had lost one of our greatest minds.  Sir Paul Callaghan, the 2011 New Zealander of the Year, held many accolades including being a Principal Companion of the New Zealand Order of Merit.  His list of credentials are as long as they are impressive.  However, despite this, his death and ultimate loss to New Zealand was relegated to the fourth most important news item on both One News and 3 News, something I thought was worth lamenting.
Only 11 days earlier, another Companion of the New Zealand Order of Merit member passed away.  His death lead both bulletins.  This of course was Jock Hobbs: former All Black and the man who has been bestowed the honor of saving New Zealand rugby and of securing the 2011 Rugby World Cup hosting rights.
On the day the Jock Hobbs died, both networks deemed the story as being more ‘important’ (i.e. higher up in the bulletin) than news of a major breach of privacy at ACC, the conflict in Syria, the Urewera 4 trial, Asia Air X ending its service to Christchurch, the Ports of Auckland strike and the Chris Cairns libel case.
Compare this to when Sir Paul Callaghan passed away, One News thought the return of a sporting event to Christchurch, the refit of a sports stadium and an incident involving a hot air balloon in which everyone was safe were more important. 3 News had the jailing of a Kiwi duped into smuggling cocaine in Argentina, the cost to rent a house in Auckland and President Obama’s statement about a killed teenager in Florida.
Re-read that list of stories again.  Is it not appalling?  Is it not disrespectful?  Could you go as far as asking if it’s fair, balanced or even reasonable?
It's lamentable, but perfectly understandable. Media plays to what the public wants in a competitive marketplace. And here they want rugby and mostly reckon scientists a bunch of tosser eggheads who should be forced to find real jobs. Not that it's particularly better anywhere else.

We'll know things have changed when scientists have groupies. I'm not betting on its ever happening. I remember stories about one socially obtuse grad student (a few years ahead of me in school, and who will remain nameless) who went around introducing himself to ladies saying "Hi! I just had this paper published! I wrote this!" He was, unsurprisingly, unsuccessful. But I'd expect an athlete of similarly poor social skills would have found more success by saying "Hi! Look at my MVP ring!"

Tuesday, March 27, 2012

So far, so good ... so Santorum!

Dave Mustaine, lead singer for Megadeth, told the CBC's George Stroumboulopoulos that freedom of speech is his biggest worry.

He then told Stroumboulopoulos, "To me, the guy who makes the most sense out of all those guys is Rick Santorum. He just looked like he could be a really cool President, kinda like a JFK kinda guy."

Rick Santorum wants to assign a little man with a big eraser to wipe out pornography.*

I know that Mustaine turned born-again Christian a few years ago. And if Mustaine's current vision of freedom of speech is consistent with banning pornography, then I'll just disagree with him.

But wouldn't it be nice if there were some kind of knowledge test attached to a ballot so if you were casting a vote for somebody because you say he supports X, but he's actually very publicly promised to ban X, you'd have your ballot discarded? It would be for the voter's own good: a voter protection measure.

HT: @acoyne

* Ah, the good old days.

...they pull me back in

I've been off the youth unemployment file for a few quarters. National's looking like it's done all it's going to do, so it's been on the backburner as other projects demand more attention. ACT's pulling me back in though; their latest press release calling for the reintroduction of a lower youth minimum wage cites one of the numbers from the last post I'd written with those numbers. The NBR picked up the story and asked me for comment; I'll be writing up something a bit more thorough for their weekend edition.

The NBR casts it as ACT having "appropriated" my research; really, I'm exceedingly happy when anybody appropriates anything in my posts so long as there's attribution. It's usually a good idea to drop me a note first to make sure that nothing's been updated or superseded, but I do always hope posts will be "appropriated" somehow or other.*

I'm happy for now to stand by that, subsequent to the changes in youth minimum wages, unemployment outcomes among 16-17 year olds were about 7-8 percentage points higher than we would have expected given prior trends in the youth unemployment rate relative to the adult unemployment rate. In the post from which ACT would have sourced the number, I'd said the table provided:
the expected rate if youth unemployment performance were no worse than in the worst prior quarter relative to the adult unemployment rate.
The 13,100 figure cited is excess youth (15-19 year old) unemployment relative to the trend that prevailed prior to the changes in the youth unemployment rate. I subsequently received more finely grained data from StatsNZ on the age-by-age breakdown; that gave me the 7-8 percentage point figure that's more strictly applicable to the 16-17 year old cohort affected by the most recent legislative change. But we also have the complication that the prior changes affecting 18-19 year olds look to have become binding during the more recent recession.

I'm always reluctant to say "causal". Or at least I try to be. My method is difference-in-difference, so it leers suggestively at causality, but I can't rule out that something else might have happened with the exact same timing that really hit youth unemployment rates relative to adult unemployment rates. I cannot fathom what that "something else" might be, and I think I've ruled out a couple of the potential ones (changes in apprenticeship budgets seem insufficient to explain things), and I'd put money on its being the changes in youth minimum wages. But I can't rule out that it's just my lack of imagination. I do my best to avoid saying "causal" because I can't prove causal.

I'd also caution about getting our hopes up about the speed of any effects coming from a restoration of a lower youth minimum wage. I fully support having a lower minimum wage for youths. But it'll take a while for it to start having real effects. It's faster to kill jobs by hiking the minimum wage than it is to reverse things by lowering it: wages are downwards sticky; employers might be reluctant to hire new kids earning less than very similar kids who'd be sitting next to them the day after a law change. But they might do it a year later.

Anyway, I've asked StatsNZ for the age-by-age breakdowns they'd previously given me, but for the more recent quarters. I'll aim for an updated reckoning for this weekend's NBR.

Had ACT asked me for a usable quote, I'd have said something a bit more nuanced and I'd have cited the 7-8 percentage point figure as likely being due to the prior legislative change.

But ACT is right that letting the youth minimum wage be well below the adult minimum wage is pretty sound policy. The UK gets it: they just last week froze youth minimum wages while mildly increasing adult rates. The adult minimum wage there is £6.19; £4.98 for 18 to 20-year-olds and £3.68 for 16 to 17-year-olds. Double all those numbers to roughly get the New Zealand equivalents: about $12 for adults, $9.67 for 18-20 year olds, and $7.14 for youths. And wonder just a little bit why New Zealand's National Party generally reckons it a good idea to force employers to pay $13 per hour - more than the UK adult minimum wage - for a 16 year old except under exceptional circumstances. And that's going up to $13.50 as of 1 April: £6.96 at current exchange rates. And the NZ New Entrant's rate will be $10.80: £5.56. Less than the UK adult minimum wage rate, but more than their minimum wage for 20 year olds.

* Occasionally I only find out about such appropriations when the University's media monitoring service highlights them. Apparently my suggestion that international students in New Zealand be given permanent residence in New Zealand on graduation made Mike Williams' show on Newstalk ZB earlier this month. Alas, it hasn't seemed to have gotten much traction otherwise.

Leaving the farm

Bill Kaye-Blake says there's not much that can be done about long-term trends towards rural depopulation. And he puts rural New Zealand especially on the wrong side of broader trends:
Technology isn’t going to be the saviour of rural New Zealand. We’ve been hearing for years that new communications technologies (will) allow us all to work from home, the cafe, and the beach. We do that to some extent. A few people do build business empires on the back of broadband. But we also spend lots of time in our offices, seeing and talking with our co-workers. One of the interesting economic geography arguments I’ve seen is that technology is making face-time more valuable. As a result, work that requires us to spend time with each other is becoming more highly paid, and work that can be made routine and parceled out in bits and bytes is becoming less valuable. New Zealand is on the wrong side of that trend, and rural areas even more so.
Let's take the agglomeration economic geography arguments as starting point. Tech is more a complement to big cities than they are a substitute for face to face interactions. Who gets the strongest benefit from this in a world that's mostly free-trading? Big global cities, not Auckland. Our small size makes us, over time, less competitive in sectors that compete with international big-city industries; our comparative advantage then pushes farther towards agricultural production.

This is already happening too: it's not crazy to see the "Dutch Disease" stuff as just being international markets telling us to put resources into the sector where we have a comparative advantage (dairy, ag production), abandon the ones where we don't, and build non-traded services around the sector where we have the comparative advantage. Our cities would then wind up doing more to provide domestic support services for the ag sector than building innovative non-agricultural products for international markets. And then it's a bit of a race between productivity increases in domestic agriculture pushing down needed labour and relative prices pushing towards intensified agricultural production yielding migration flows to the countryside.

Best counterargument: Peter Thiel is investing heavily in the NZ tech sector, seeing here perhaps a comparative advantage in sane regulatory approaches (albeit one that's eroding).

I still favour strongly increased immigration coupled with fixing urban land use policy to make our cities more internationally competitive. And who knows - maybe some of those migrants would then decide they'd prefer to live out in the countryside. It is ridiculously beautiful out there.

Monday, March 26, 2012

Sick of the Swiss

When Canada decided it needed some national nemesis other than the Americans (anti-Americanism having become ridiculously overdone at the CBC), we turned to our national comedy act, The Kids in the Hall. We've been at pretend war with the Swiss ever since.

When Cabinet decided New Zealand needed a national nemesis, they should have left it to the Topp Twins. Or, if they weren't available to hate on the Finns, Flight of the Conchords are almost as good.

Instead, we got this in the House from the Hon. Gerry Brownlee. (Vid HT: The Listener, who covers more of the controversy)

Brownlee goes just a bit over the top at 3:52.

But I did enjoy Federated Farmers's Twitter response to a quip about how they have Nokia and we have sheep:
Oh, Finland, it's so on.

Update: I'm so sick of the Swiss.

Network effects - blogging edition

The Economist says America's number one in EconBlogging. Why? They have a blogosphere, where Europe only has blogs. It's the links and the discussion that makes the whole thing worthwhile. They point to Bruegel's assessment:
As Ronny Patz noted in a recent post (hat tip to the European blogs aggregator bloggingportal), European blogs are still very much “unconnected”. That is, they use hyperlinks far less than their American counterparts or do it and in a way that doesn’t create two-way debate. In brief, Europe has bloggers, but no blogosphere: it lacks a living ecosystem to exchange and debate. Of most leading European blogs, only 1 in 5 were linked to other online content. This is a pretty striking number but one that is somewhat consistent with the use that Europeans make of blogs (ie. just another media but not an interactive one).
How did America make it work? The Economist's R.A.:
How did America's economics blogosphere develop the necessary density? Early buy-in by important economists mattered, but the growth of the community has been more driven, in my opinion, by an aggressive horde of strivers. Economists, journalists, and would-be pundits with less access to traditional outlets (newspapers, conferences, and journals) were attracted by the low barriers to entry of the web. This ready group of writers created sufficient "liquidity" of opinion to drive an effective conversation, the value of which has subsequently pulled in other respected voices.
New Zealand's getting better. Paul Walker and the TVHE team drew me in, and together we dragged in Seamus (occasionally), Bill Kaye-Blake, and now Sam Richardson. Let's hope we can pull a few other folks into the conversation.

Saturday, March 24, 2012

Bad management

Managers are strong complements to workers; with bad managers, everyone's productivity goes down the toilet.

Eli Dourado reckons the cost of managerial complements makes a case for zero marginal product workers: the worker might be producing more value than he's taking home in pay, but not enough to cover the cost of the manager that lets the worker produce positive-value products. Read the whole excellent post.

And we can see this when the managerial complement goes awry. Case in point: Mexico
Mexico City’s Buena Vista Walmart is the first super-market I’ve ever seen paralised by a trolley-jam. It is not more busy than any other large city supermarket, and not understaffed. No: the reason it takes ten minutes to walk from one side of the store to the other every single night is because they have no baskets—only large trolleys. To my sample of Mexican Walmarts, this is unique; most Mexican Walmarts have trolleys and baskets. And so the error must have been made by the managers of that particular outlet. Of course, this is only a small example of inept management in Mexico, but it’s sadly representative—labour productivity in Mexico is about a third of that in the US. If Mexico were as well managed as the US, it would be as rich.
This all raises a few questions: why are managers in Mexico (and the developing world in general) so terrible? why are those in the US so good? and how much of the difference is able to be affected by policy?
James Savage chalks it up to Mexico's caste system, nepotism / seniorism, and an awful school system. If your first worry is about hiring somebody who won't steal from you, you'll weight connections over competence. But again, read the whole post and despair at the morass of interlocked problems that reinforce each other and make solutions difficult. Foreign firms coming in and bringing with them stronger demand for competence has to be part of the solution, but the Walmart example suggests it might take a while.

Air Canada provides a different problem. Here's Josh Gans, lamenting just how awful Air Canada is compared to what he's been used to in Australia. Where Virgin in Oz had in-flight face painting for the kids at the back of the plane - effectively in-flight child entertainment far away from the parents - Air Canada seemed determined to make sure his family of 5 were separated throughout the plane. Josh very nicely explains the obvious points about just how terrible it is for all fliers that Air Canada made it impossible for him to sit beside his kids; it would be surprising if Air Canada's gains in forcing families to book through the Air Canada system outweighed the losses they get from ruining everybody else's flight.
The less sinister explanation is that Air Canada have a very poorly executed booking and flight reservation system. Someone, somewhere forgot about families and deep in the code there is no way for Air Canada to sort out the mess. My bias is on incompetent planning rather than evil attempts at price discrimination in these matters.
This is observationally equivalent to my hypothesis, formed about a decade ago and now potentially out of date: a too-large proportion of Air Canada staff actively hate the passengers.

I don't think Josh's explanation is sufficient; Air Canada could always choose to release third-party booked seat allocations more than 24 hours ahead of flights. And my "they hate the passengers" explanation is not only more plausible than that it's profit maximizing to impose potentially massive costs on full-fare paying flyers to keep price-sensitive families from using aggregators, it's also parsimonious, explaining much of the overall Air Canada experience.

Again, like James's Mexico problem, we've got a set of interlocking issues: this time around union rules, seniority, effective domestic monopolies, and government bailout backstops making for soft budget constraints. But this one seems easier to unravel. Canada could unilaterally allow cabotage on its routes instead of waiting for a bilateral agreement with the States. Let Virgin America run intra-Canada flights, drive Air Canada into bankruptcy, sell off the planes to new entrants, and start over with new management that doesn't hate passengers.

I'll continue to be very happy with Air New Zealand (regardless of changes to its AirPoints upgrades system), and even more happy with Emirates on the Trans-Tasman.

Friday, March 23, 2012

Botching the counterfactual

The Tobacco Atlas lists the costs of smoking to health systems around the world.

On the plus side, they have a sensible ballpark estimate for New Zealand (if anything, it's likely on the low side).

But there's a problem with the infographic.*
Yes, if tobacco use had no associated health costs, New Zealand would have an extra NZ$350m in real resources floating around for other uses,** and a loss in utility to smokers who enjoyed smoking. But if we magically made smoking disappear, the government would take a very large fiscal hit: tobacco excise revenues utterly dwarf tobacco-associated healthcare expenditures. 

You can view tobacco's health costs as representing forgone government spending in an "if only there were no smoking" sense IF you're willing to assume that, were smoking to disappear, government would increase other tax rates sufficiently to make up the lost tobacco excise revenues and to compensate for the added burden on the superannuation system (net of increased tax revenues from smokers, who tend to be further down the income distribution and consequently more likely to be net tax consumers than tax contributors). Or if you're willing to assume a counterfactual where smoking doesn't have health costs. Neither is quite as simple as "no smoking = more school construction". 

* Theorem: there's a problem with every infographic except perhaps those made by @Keith_Ng

** I'm going to stick with Des O'Dea's numbers here, which had it at $350m, not the NZ$250m the infographic cites.

HT: NBR who, surprisingly, forget that tobacco users pay excise.

Academic salaries

Marginal Revolution points to an international index of PPP-adjusted faculty salaries. Alas, New Zealand isn't there listed. We'll work up the NZ figures; the Inside Higher Ed table is cribbed at the bottom of the post.

Entry-level in New Zealand is Lecturer; Assistant Lecturer is a rank generally reserved for those still finishing up their Doctorates. Or, at least, that's how it's used in Commerce at Canterbury.

OECD says the PPP exchange rate for 2010 was about 1.6

The starting rung on the Lecturer scale is around NZ$71,500. As a monthly salary, that's NZ$5,950. Or US$3720. Between Italy and Australia.

A mid-range Senior Lecturer gets around NZ$100k, or US$5,200 per month. Between Germany and The Netherlands.

The middle of the Professorial scale sits around NZ$150k, or US$7800 per month. Higher than Oz and the US.

What's missing? Non-salary compensation is going to be a bigger part of the bundle at US schools than at NZ ones, so differences are somewhat understated. Further, I'm not sure whether the salaries reported for the States are 9 month or 12 month; while in New Zealand we're on annual salaries, a lot of American schools have faculty on 9 month contract that are supplemented by summer research grants that might not be included in these figures

Also, American averages mask a lot more dispersion than do Kiwi ones that tend to be pretty flat across disciplines. Our compensation schedules are consequently relatively generous in English literature and relatively weaker in business disciplines.

On the whole, though, we're more competitive than I'd thought. Especially once you account for that, once you're here, you adjust your consumption bundle with the changes in relative prices instead of just trying to buy the bundle you would have bought in the US - things could look a bit different if we used a Kiwi consumption bundle as benchmark.

[note: updated to fix formatting]

Monthly Average Salaries of Public Higher Education Faculty, Using U.S. PPP Dollars
Czech Republic
United Kingdom
Saudi Arabia
United States
South Africa 

Thursday, March 22, 2012

Dogmatism and memory constraints

Jeff Ely shows how dogmatism can be the consequence rather than the circumvention of rational thinking. We may process information rationally, arrive at a position, discard the workings that got us to the position to save memory space, then move on to the next area for rational deliberation.
So what you optimally, rationally, perfectly objectively do is allow yourself to forget everything you know about A including all the reasons that justify your strongly-held views on A and to just make an indelible mental note that “The right-wing position on A is the correct one no matter what anyone else says and no matter what evidence to the contrary should come along in the future.”
The reason this is the rational thing to do is that you have scarce memory space. By allowing those memories to fade away you free up storage space for information about issues B, C, and D which you are still carefully collecting information on, forming an objective opinion about, in preparation for eventually also adopting a well-informed dogmatic opinion about.
I do this all the time. It's actually one of the reasons I blog: to keep track, in easily searchable and keyword-indexed format, of the reasons that led me to hold positions. It's surprising how often I've found myself searching back through the archive to remind myself of what I'd concluded about something, and how often I curse myself for having arrived at some position before I started blogging.

But I do enjoy that rather a few of you come along for the ride.

HT: @Nonicoc

What if?

U.S. House Budget Committee Chair Paul Ryan asks a good question:
Let me ask you a question: what if your President, your Senator and your Congressman knew it was coming? What if they knew when it was going to happen, why it was going to happen and more importantly, what if they knew what they needed to do to stop it from happening and they had the time to stop it? But they chose to do nothing about it, because it wasn't good politics?

What would you think of that person? It would be immoral.

This coming debt crisis is the most predictable crisis we've ever had in this country. And look what's happening. [emphasis added]
Now, I've not been following American budget politics and am consequently agnostic about whatever budget plan he might be proposing; I'd be surprised if it made more sense to cut Medicaid, which helps poor people, than to cut cut Medicare, which helps old people many of whom are wealthy. There's more informed analysis of American budget politics elsewhere.

But I really liked the question. Recall New Zealand Prime Minister John Key's position on maintaining former Prime Minister Helen Clark's policy of zero-percent student loans:
Charging interest would bring in considerable extra revenue for the Government, but Key said he would be voted out if National did so.
"Bluntly, if you want me to be really crude about it there are 565,000 student loans out there. If we add interest back on the student loans, it doubles repayment time of the loan.
"If your loan is $50,000, and it's estimated it will take you eight years to pay it off, we effectively turn it into a loan that is about $90,000 with interest that takes you about 15 years to repay," Key said.
"That is about the only thing that will get [young people] out of bed before 7 o'clock at night to vote, but it's not politically sustainable to put interest back on student loans. It may not be great economics, but it's great politics. It is a bit of a tragedy because it sends the wrong message to young people, it tells them to go out and borrow debt." [emphasis added]
What do we think about this person? Here's what Matthew Hooton thought.

At least Key's not pretending it's good economics; politicians more typically convince themselves that whatever's politically popular is also economically sound.

But instead of leading a national conversation about the size of the deficit and ways of addressing the problem, including reintroducing interest on new loans and phasing interest back in on existing loans over time, he shuts the door on sound policy. Recall Justin Wolfers' argument against forgiving student loans; zero percent loans aren't that different - they forgive a good chunk of the proper present value of the debt.

Budget constraints do bind; Key last year suggested limiting access to loans rather than charging market interest rates. The coming budget is likely to have more restrictions on loan access: rationing the zero-interest credit. And such restrictions aren't necessarily bad economics either: if government-backed loans solve a market failure in credit markets that stems from inability to collateralize human capital, restricting people with other assets that could serve as collateral from accessing zero percent loans reduces costs without any particular policy cost. Or, if some degree programmes or student cohorts are exceedingly unlikely to see sufficiently enhanced earnings for the policy cost to be recouped through the tax system, restricting loan access there also doesn't necessarily do harm relative to a policy of loans issued at market interest rates. But it smacks a bit of government picking winners rather than letting students make their own choices after looking at the expected loan repayment burden at market interest rates.

And, there are other negative consequences for tertiary policy that flow directly from maintaining zero percent loans. The Government caps tuition increases, ostensibly for the students, but really because it can't afford to dish out loans at zero percent were tuition to rise. Similarly, the government has moved to limit domestic tertiary enrolment via capped enrolment at the universities - a policy that would be superfluous if tuition were higher and students charged market interest rates.

I sure hope the budget has something other than "Yeah, the deficit is really big. But everywhere we looked for savings would have somebody complaining, and Labour would then get elected and boy wouldn't that be worse. So we're not really going to do anything - not even commit to raising the age of superannuation eligibility two decades from now. It's horrible economics and boy the Treasury guys will get mad at me. But it's great politics."

iPredict says there's a 43% chance National wins government again in 2014. Pulling out a couple of high variance plays might not be crazy.

Wednesday, March 21, 2012

Ikea-based globalization measures

This week's inbox brought a new "Index of Globalization" measure. New Zealand fared a bit worse than I expected - 78.3 points, well outside of the top 15, so I had a peek at the sub-indices.

Thirty-seven percent of the aggregate figure comes from "Social Globalization"; thirty-one percent of that figure is a measure of "cultural proximity" [11.5% of the overall score], forty-five percent of which is "Number of Ikea (per capita)". So that's a five percentage point reduction in New Zealand's overall score because we have no Ikea.

The highest "Cultural Proximity" score was Singapore, 2001: 97.4. New Zealand scored a 50.2; if we went from zero Ikea per capita to the top of the scale, we'd then have scored a 95.2. So it's not particularly puzzling that NZ scored very very badly on this measure.

You could say it's pretty silly to base 5% of a measure of overall globalization on the number of Ikeas in a country. But not having Ikeas does signal something relevant either about local demand or about how local planning authorities treat international firms, the latter likely as consequence of domestic competitors lodging anti-competitive complaints through the RMA about effects on traffic.

We also score relatively poorly in Political Globalization, undoubtedly affected by the smallish number of countries that reckon it worthwhile keeping embassies here and by that we participate in relatively few UN Security Council Missions. I'm less than convinced we ought to worry much about either of these.

But I was surprised that New Zealand scored poorly on measures of trade restrictions. If phytosanitary restrictions count as "hidden import barriers", then that could perhaps account for it. But our mean tariff rate is very low, taxes on international trade are a trivial part of current revenue unless they count excise-equivalent duty on imported alcohol and tobacco collected by Customs NZ as being tax on international trade, and there aren't really any capital account restrictions.

If I hear back from KOF on why they scored NZ poorly on trade restrictions, I'll update.

Tuesday, March 20, 2012

Entrepreneurial migration to NZ

Our Prime Minister encourages rich people to move here; our immigration authorities make it easy too.

Kiwi tech entrepreneur Lance Wiggs provides some advice for potential migrants. His advice is targeted at Kiwis coming home but is more broadly applicable:
Coming back to New Zealand is often difficult after a heady career dealing, say, in billions of dollars. The economy and industry tiny here, our domestic industries are often sleepy versus their foreign peers, and many don't seem to understand offshore experiences.
So for those coming back after a senior career offshore, a word of advice: don't look for a job. Look instead to enter the really dynamic part of our economy by starting something new. As Prof. Paul Callaghan is fond of saying, we are very good in New Zealand at doing everything else.
Not for us the big dirty industries, nor the global consumer goods we all own, but instead the quiet conquering of global niches, such as online accounting or frequency control. There are plenty of people and tools to help, and New Zealand is a wonderfully easy place to start and run a business.
So if you are considering leaving, then make sure you come back bursting with ideas and energy to start something. And if you are considering a return, then now is the hour. New Zealand is doing reasonably well during this global recession, and it's time to get going and do something about addressing the markets in our enormous trade free zone.
Forbes today listed NZ as second overall among best countries for business. [Note: they seem to be using Heritage's rankings on trade freedom. I don't buy Heritage's rankings on trade freedom.]

We get top rankings in lack of red tape, investor protection, lack of corruption, and personal freedoms. The last one I find most important, but Forbes used a very broad brush in marking the personal freedom category. Most OECD countries wind up getting a rank of 1.

Personal liberties are a bundle of a whole lot of different things. For the bundle of freedoms about which I care most, NZ comes out on top. But I suppose that somebody who puts lots of weight on firearm ownership rights relative to not being subject to arbitrary exercise of police power could rank the US higher than NZ.

I also put reasonable weight on that, flying domestically in NZ, there's often not even a metal detector, never mind this sort of thing:

I continue to be amazed at how few American libertarians emigrate.

Base rates and piracy

Since NZ's anti-downloading regime came into force, we've seen a big drop in total Torrent traffic and a big increase in secure tunnelling and remote access protocol use. The latter two are much less likely to draw infringement notices from rights-holders.

Does this mean that downloaders have just shifted tactics? It's impossible to tell from the National Business Review's article. Here's the graphic:

But as we can't tell anything about the ex ante base rates for tunnelling or remote access, we can't tell whether those increases are effectively replacing Bittorrent use. Total downloading could be up, down, or constant; we just can't tell. I'd be surprised if that many people were tunnelling prior to the law change; I'd bet on total downloading consequently being down.

Downloading and not paying for copyrighted works that are legally available in New Zealand when you would have paid for the works were the free version unavailable seems unambiguously wrong. But I have a hard time seeing where we move from "right and fine" to "wrong" in this continuum.
Protagoras: Let us agree that enjoying copyrighted works for which we could have paid but chose not to pay is wrong.

Glaucon: Yes, let us agree to that, Protagoras. But you borrowed my legitimately purchased DVD of Idiocracy last week. You enjoyed it, and returned it to me.

Protagoras: Yes indeed. The sleeping man's struggle, and failure, to teach virtue and wisdom to the diminished men of the future was instructive. But when you purchased that DVD, you also purchased the right to lend it to me. Consequently, you paid more for the DVD than you otherwise would have paid; the rights-holder was compensated.

Glaucon: Indeed he was, Protagoras. Know too though that I have been ripping my DVDs onto hard discs: to protect against the failure of physical media when the children have sticky fingers, to save room in the bookshelves, and to avoid the irritating copyright warnings which the DVD-makers in their wisdom will not allow us to skip.

Protagoras: Is such "ripping" here allowed?

Glaucon: Shifting the format of a purchased file is entirely legal for music. Let us restrict ourselves to consideration of the old Portishead CD I lent you a month ago, the return of which I still await.

Protagoras: So stipulated. And I will return the CD to you Monday hence.

Glaucon: That is appreciated. But know too that I ripped the CD to my hard disc some time ago. Does my having ripped the CD make my lending of it immoral?

Protagoras: If you did not listen to the ripped copy of the CD while the CD was in my possession, it is hard to see what harm could have been done to the rights-holder. It would have been wrong to sell the CD after ripping it, but I see no harm in your having lent it.

Glaucon: I am heartened to find we have not acted immorally, at least thus far. Suppose now that, instead of lending you the physical media, I lent you a thumb-drive with the files along with a promise that I would not listen to the music on the CD while you were listening to the mp3s?

Protagoras: The form of the lending ought matter not. If we were not both listening to the same song at the same time, the situation is analogous to your having lent me the physical media.

Glaucon: I agree, Protagoras. Not suppose that, instead of lending you a thumb-drive with only that CD, it were more convenient for me to lend you my backup hard drive with my entire music library - all of which consists of ripped versions of CDs I legitimately purchased. Does anything change?

Protagoras: So long as neither of us are listening to the same song at the same time, I see not the difference between this case and the case in which we meet frequently and you lend me CDs.

Glaucon: Now, suppose that I quickly require the return of my backup drive that I might update its contents. If you have not had the time yet to listen to that Portishead album, would it be wrong for you to make a copy of the backup drive for later listening?

Protagoras: I see where you are headed with this line of argument, Glaucon. You will attempt to argue that we each could be in possession of copies of each others' files, without loss of virtue, so long as we are not listening to the same files at the same time. And, with sufficiently large music libraries, the likelihood of our listening to the same file at the same time is so small as not to merit consideration.

Glaucon: Indeed. The argument seems to imply that we may all share .mp3 copies of CDs we have legitimately acquired, so long as we share sufficiently large numbers of .mp3s that the likelihood of simultaneous listening to any particular track is very small.

Protagoras: Whether the law allows it is not necessarily a measure of the virtue of a thing, but would the law allow me to make a copy of your backup drive?

Glaucon: No, it does not.

Protagoras: I think I have identified a flaw in your argument. When you lend me a CD, you remove from yourself the option of listening to the CD, even if would not have exercised that option. You feel the loss of the CD and it pains you; had you not the backup copy, you surely would earlier have demanded the return of the Portishead CD. An extensive music library provides option value. Lending the CD diminishes that value for the entire period that the CD is in my possession, while only restricting yourself against listening to the file when I might also be listening to the file barely affects that option value.

Glaucon: But, by your earlier argument, the ability to lend you the CD increased the amount by which I valued the CD, did it not? So being able to lend you a song for only three minutes, rather than for the months you tend to take to return CDs, surely increases that CD's value and increases the price I would then have been willing to pay for it at the outset. Imagine now a virtuous music-borrowing service. We each upload our CD libraries to the service and listen to the music through a specially configured music player that prevents more than one person from listening to any particular uploaded file at the same time. Surely this is akin to a very efficient borrowing regime.

Protagoras: I must admit the force of your logic here. And we can take it one step farther. Where once it was the CD or the album that was the natural musical unit, it now is tracks. But we could similarly view the natural unit as being tiny measures of a song. So long as none listened to the same tiny measure of a song at the same time, the analogy to borrowing seems to hold. And so the virtuous player need only slightly stagger individuals' playing such that very small units of time separate each listener's enjoyment of the song. If we both wish to listen to the same song, the player might delay my song initiation by a second such that we are not delivered the same tone at the same time.

Glaucon: Now, Protagoras, is there any practical difference between the regime you describe and your simply copying my backup drive? It is impossibly unlikely that we could ever decide to begin listening to the same song at exactly the same time.

Protagoras: I see none. And external hard drives are now about $0.10 per gigabyte.

Glaucon: I still fear we have erred in our logic. But I see not how. Shall we go shopping?

Protagoras: Agreed. But we should also be sure not to lend our backup drives to too many people; if a very very large number of people all share the same files, the chances that two individuals might listen to the same tone from the same song at the same time potentially becomes non-trivial. And moral responsibility for the act of theft then becomes more difficult to determine than responsibility for the death of one killed accidentally by a thrown javelin.
What, if anything, have Protagoras and Glaucon missed?

Nothing in this post ought be interpreted as advocating anything deemed illegal in the jurisdiction in which you might happen to live.