Knowable, but not known to me

In the futile hope that maybe, just maybe, folks' views about welfare policy might just stand to be informed by data, here are a few testable hypotheses I've seen floating around. They posit things that are knowable, and I'm sure data exists to resolve things. Let's walk through a few of them.

First, how do poor people use money? I tend to say we ought to just give money to poor people if we want to make poor people better off. Other folks think that they'll just waste it on booze and cigarettes rather than helping their kids. I don't discount that that's also possible; it's an empirical question.

@ericcrampton Is there any research on how people on low incomes spend their money, and what changes when get more cash per week?
— Jackson James Wood (@_jjw_) May 28, 2013

Now why does this matter? If you think that parents will waste money given them, you might prefer in-kind benefits provided directly to the children of poor parents rather than cash transfers. School breakfast programmes can fall into that category, despite that they're rather ineffective and largely go towards feeding kids who would have been fed anyway. I think that some of the support for wrecking the GST by exempting merit goods also comes from this kind of view, though I think this rather misguided: vouchers for merit goods could be a rather less ruinous way of achieving the desired end.

So, the test. Get household consumption survey data, look for some shock to benefit payments, and check the effects on different consumption categories. If extra money going to poor households disproportionately increases consumption of lotto tickets and booze, then the paternalists who want to make sure that money given to the poor is used for particular things are right in wishing for more in-kind benefits; if not, then the paternalists should back down on such assertions.

I can't imagine that this empirical test has not been done by somebody somewhere; I just don't know the results. I also don't expect that it will change many minds. Paternalists will want paternalism for its own sake, and anti-paternalists won't mind that poor people enjoy some consumption goods. I'm one of the anti-paternalists, but if the data showed little benefits to kids of cash transfers to families intended for kids, I'd shift towards preferring rather more in-kind benefits to kids. Any readers able to point to relevant NZ studies are welcome to do so in the comments.

Second, "can't feed 'em, don't breed 'em". Twitter and the NZ blogs have a bunch of folks yelling at each other about whether the main problem in child poverty stems from poor people's unwillingness to engage the prudential constraint or whether it's bad luck. Those on the right note that if poor people stopped having kids they couldn't afford, then child poverty would be less of an issue. People on the left instead remind those on the right that birth control can fail and that people in good financial circumstances can fall on hard times for reasons outside of their control and after they've set their family size.

So, a test. Start with DPB numbers. What is the current fertility rate of women receiving the Domestic Purposes Benefit, and how does it compare to the fertility rate of women of similar age and marital status who are not receiving government support for the raising of children? If the fertility rate among women on the Domestic Purposes Benefit is roughly what we would expect given known rates of contraception failure, then score a point for the left. If women on government support are instead choosing to have more children while in poverty, then score a point for the right. I would bet that the data shows rather more childbearing than would be expected from contraception failure alone, but less than the fertility rates among similar-aged women not on the DPB, but I've not seen the data.

Again, I'd be surprised if this kind of data didn't exist somewhere. I expect that the data could actually potentially make some difference here, though it depends which way it goes. If current rates of childbearing by women in poverty are consistent with failure rates of reliable and available birth control methods, I don't think many on the right would shift to demanding abstinence and abortion. But if current rates of childbearing by women in poverty are consistent with deliberate choice to bring more children into poor households, I expect that most on the left would shift to a fairness argument about that those in poverty shouldn't be constrained against choosing to have more children. And then there'd be the obvious counterargument about how it's a bit perverse that richer households deciding to have fewer children because of the costs are compelled to subsidise the fertility decisions of those happy to raise a kid in very bad circumstances; those on the right then might wish to advocate for that reliable birth control be a precondition of welfare receipt. Those are values-based arguments I can't adjudicate, though I expect that if, for many, the point of social insurance is to insure against bad outcomes, and if there were reasonable evidence of that many on the DPB were choosing to have many more children, there could be reasonable support for that birth control be among the conditions of welfare receipt.

A second test: what is the elasticity of childbearing among the poor to changes in benefit rates? Those on the right worry about paying women to have children they can't afford and think that paying more to benefit existing poor kids does a lot to bring more poor children into the world; those on the left think that the elasticity is pretty low and that we need to focus on the potential first-order benefits of higher transfers to existing poor children. I don't know if this elasticity is known, but it's definitely knowable. Find some shock to the generosity of payments to poor children and see whether it has any effect on subsequent fertility decisions. If little to no effect, score a point for the left; if things are reasonably elastic, score one for the right.*

Again, those with data or studies that might help resolve the second question are welcome to provide pointers in the comments.

If this stuff turns out to be in the "knowable, but not known to anybody" category rather than just "not known to me", file this under "future honours projects".


* I'm on some orthogonal dimension where I reckon it's good that more kids be brought into existence conditional on their enjoying their existence, even if they are poor. I worry instead about net effects when higher income people forbear from having their third child because of the income effects of the taxes taken from them to subsidise the bringing-into-being of a lower income person's third child. And then we get into the empirical question of relative elasticities and some rather thorny questions about trade-offs.

Shirking air traffic controllers

It sure sounds like it would improve safety. Everybody knows that being an air traffic controller can be pretty stressful. All those planes up there, have to keep them from bumping into each other. So it just makes sense that you'd want to provide stress leave for those controllers who are obviously suffering, right? What could go wrong?

Doug Allen, currently visiting at Canterbury's Economics department as Erskine Fellow, points me to this classic 1982 piece in the American Economic Review.

The Federal Employees' Compensation Act (FECA), which provides income insurance for government workers injured or disabled on the job, changed in 1974. Employees with at least one dependent would receive 75% of their base salary as tax-free compensation if out on leave. Because air traffic controllers earned a lot, their net take-home pay was higher if they were out on disability. On-the-job stress is pretty hard to disprove.

FECA amendments in 1974 let employees submit evidence from their private clinical psychologists as evidence of disability; prior to that, the government selected the doctor. And, unlike things like "leg cut off" where most doctors would agree, it's harder to verify whether any doctor's diagnosis of stress is all that valid. So Staten and Umbeck predicted that we'd see the most action post-FECA change in claims for non-verifiable things like stress.

They also note that OWCP examiners, who check the veracity of claims, were told to check for specific indicators of on-the-job stress. Deterioration in job performance over time counts. And everybody's monitoring air traffic controller performance all the time, making sure that planes don't get too close together.

So what happens? After the rule change, a bunch of air traffic controllers figure out that they can earn more by demonstrating on-the-job stress, choose times of the day when it's safest to breach minimum separation between aircraft so there aren't actual collisions, and encourage planes to get just close enough to each other to trigger their near mid-air collision sensors. Controllers with more experience have much stronger incentive to do it, as the compensation is based on the employee's salary, and there's a reasonably steep salary progression. Before the law change, inexperienced staff and those with more than 10 years' service (actual burnout) reported the most 'system errors' (violation of separation rules). After the law change, those with 5-10 years' service started experiencing the most system errors.

They conclude:

The steady increase in controller compensation awards and retirements during the 1970's has been cited recently as evidence of stress in the occupation. However, it seems clear that this is in large part a product of making compensation and retirement less costly to obtain. Concern has also been expressed over the relation between job pressures placed on controllers and aviation safety. If one is willing to take reported System Errors as a measure of workforce efficiency, it is clear that measured efficiency deteriorated following the FECA amendments, but not because of traffic increases or equipment failures. We have argued that in attempting to formalize the criteria for adjudicating controller psychological claims, OWCP created an incentive for controllers to demonstrate deteriorating performance. 

We have attempted in this paper to constrain theory of shirking behavior to generate refutable propositions. The methods described in the paper can be employed in the investigation of any type of contract. However, the nature of the FECA provisions and the air traffic control profession provided the elements essential for demonstrating the effectiveness of this approach. That we chose air traffic controllers in particular is, of course, no reflection on the integrity of the profession. The maximization postulate upon which micro theory relies leaves no profession exempt from marginal responses to gains from shirking. We offer this study as a demonstration that economics as a behavioral science can provide useful insights into behavioral patterns likely to result from incentives to shirk.

In later work, they show that air traffic controllers became a lot more likely to do this kind of thing after finding a doctor who's willing to certify stuff as being stress-related.

Regulations should always pay some heed to that people respond to incentives.

More on the censorship bill

So Parliament is debating legislation that would let the government put you in jail for longer for possessing objectionable materials. You'd think this would mean that they have some authoritative list of what's banned and that they'd keep it up to date so that if standards change over time, you couldn't be hauled in for something that was objectionable in 1960 but would be considered tame today.

Well, no.

I'd noted a few problems here. No Right Turn lists a few more; he also points to one list of banned books. If you do a full text search, "Marijuana" shows up 33 times in the list of 1310 books. Six books about growing psilocybin mushrooms are also prohibited. A bunch of books about lesbians are prohibited; it's hard to tell whether those books are banned because they include depictions of children, other currently prohibited content, or whether somebody in the 1960s reckoned lesbianism was objectionable per se. A lot seem to be hangovers from days of yore.*

On that list is "Fanny Hill". I'd noted that one previously and emailed the Censor's Office about it. Here's the state of play. 

Dear Eric

Thank you for your emails.

The 1981 decision of the Indecent Publications Tribunal classified a paperback edition of Fanny Hill as Indecent, meaning its current classification (under the Films, Videos, and Publications Classification Act 1993) is Objectionable. You are correct in your reading of the Gazette entry, that this decision applies to the illustrated edition which contains sexual photographs and in the words of the Tribunal ‘appears to be little relationship between the text and the photographs’. This classification decision remains in force. The Gazette entry is the extent of the information we have on record for the Tribunal’s classification decision.

The 1965 decision classifying a paperback edition of the book Fanny Hill: The Memoirs of a Woman of Pleasure as restricted to those aged 18 and over also remains in force.

The Classification Office is not undertaking a project of reclassifying historical decisions. Should a person wish to have classification decisions such as these revisited, they would need to apply for a reconsideration of the decision under section 42 of the FVPC Act.

A classification decision on a publication, by either the Indecent Publications Tribunal or the Office of Film and Literature Classification, applies to identical versions of the publication. For example, it would be in breach of the classification to import, possess, or distribute the banned version of the book (as classified in 1981), including possession or distribution online. The Classification Office is not responsible for enforcing the classification law – this is done by enforcement agencies such as Police, Customs and the Department of Internal Affairs. We encourage people to contact us if they’re uncertain about the legal status of a publication they wish to access.

I hope this information is of use to you – please feel free to contact me if you have any further questions.

So the Censor's Office has prohibited one photographically illustrated edition of Fanny Hill. But, it does not know which one, except that the photographs have the models in period costume and that the photographs have little relationship to the text. Maybe there is only one edition published prior to 1982 that fits that description. Maybe there are dozens. You can get up to 10 years in jail, under Judith Collins's bill, if you have the wrong one.

An illustrated Fanny Hill, even if it contains no photographs of children, could be considered to meet the new Section 132B(2) definition of "describing, depicting, or otherwise deal[ing] with sexual conduct with or by children, or young persons, or both". The text describes a girl in her mid-teens. And while the text itself is not forbidden, an illustrated version could be: Japanese comic books are banned for depictions. Repeat offences under this provision carry the presumption of imprisonment and up to 10 years in jail.

And just look at Section 124A(1).

A person of or over the age of 16 years is liable to imprisonment for a term not exceeding 3 years if he or she intentionally exposes a person under the age of 16 years (the young person) to indecent material (whether written, spoken, visual, or otherwise, alone or in combination) in communicating in any manner, directly or indirectly, with the young person.

The preamble says that this is to prevent adults from sexually grooming children. I'm no lawyer, but it looks like it also can throw you in jail for 3 years if you're 16 and show something to your 15-year-old friend.

The Select Committee has a lot of work to do on this one.

* Here's Censor R.S.V. Simpson's decision from 1972 on the book "Portrait of a Lesbian", by Samantha Golden. It's currently listed as a collectible by Amazon.

The first-named 11 books [including Golden's] can be grouped together. There are some minor differences of quality among these books. What they share is the intention of exploiting morbid sexual interest through the fictional portrayal of various forms of sexual activity.

They demonstrate in their grossly exaggerated incidents, their exclusion of any experience that is not sexual, their reduction of human relationships to the juxtaposition of organs and their crude, repetitive language, the worst kind of commercial pornography. No book in this group has any element that would require qualification of the view the Tribunal takes of them as blatantly indecent.

The Tribunal classifies these books as indecent.

There are plenty of things on the current list of banned books that simply should not be there. They're relics of a time when homosexuality was illegal. Increasing the penalties for possessing works classified as Objectionable has to go hand-in-hand with a purging from the list of works that should not be there.

Breakfasts

John Key's announced a fairly small-scale breakfast-in-schools programme: they're expanding the current 2-day per week KidsCan programme in decile 1-4 schools with a 5-day version.

Recall that decile 1-4 schools are the same cohort that was included in the Mhurchu et al randomised control trial that found low uptake and little benefit. I summarised the literature here. When NBR reprinted it, it drew a lot of angry comments. Heck, even suggesting on Radio NZ that the Mhurchu et al piece showed fairly small effects can get you called a dickhead on twitter. The government had to do something in this space; this was something. It will be very popular.

The programme is not set to cost very much. I do not expect that it will achieve much, but it will achieve little at less expense than would Hone Harawira's plan that would also be likely to achieve little but at much greater expense. So it has that going for it.

Seamus wonders whether the government will roll out the programme in such a way as to facilitate testing of effects. It would be great if they did. And, it wouldn't be hard either. Randomly assign decile 1-4 schools to phase into the programme at different times and survey kids all the way through so that you could check whether the programme were doing much. Even better if they varied delivery as part of the trial to see whether different implementation techniques were more or less effective in encouraging hungry kids to take part, then put out some best practice guidelines in a few years' time.

If a genie gave me wishes, one of them would be: "Where the government can roll out some new scheme in such a way as to allow for effect evaluation at relatively low cost, it do so by default." I'd also like a pony, and infinite more wishes.

It is forbidden except where it is compulsory

It's illegal to run a cartel in most western countries. Government have great big agencies whose whole job is to look out for price-fixing, other forms of collusion, or mergers that do more to promote monopoly than to enhance efficiency. I'm an antitrust skeptic, but I know that isn't a majority position in economics.

Canada is no exception on antitrust vigilance. And, it looks as though things have been getting tighter. Where I'd previously understood Canadian competition law as weighing equally producer and consumer surplus and allowing activities that reduced consumer surplus if they were sufficiently efficiency-augmenting, it looks now like they're putting more weight on effects on competition per se.

Here's one summary of Canadian cartel regulation. Cartels are illegal. Arrangements with competitors to control supply, allocate territories, or fix production, are punishable as an indictable offence with up to a 14 year prison sentence and up to a $25m fine. 

So cartels are pretty illegal.

Except where they are compulsory.

A group of Manitoba fishermen formed a voluntary co-op and tried to sell their fish to a processing plant in Chicago. What happened next? [HT: Mom]

Court was told that the WWM co-op, which represents about 300 fishers in the areas of Duck Bay, Lundar, Ashern and Lake Winnipegosis, had obtained a licence in December 2010 to sell fish to the U.S. independent of the Freshwater Fish Marketing Corp. so long as it wasn’t competing with the monopoly for customers.

The co-op found a customer in Chicago, a fish processing plant, but unknown to the co-op, the processing plant was then re-selling the co-op’s fish to another customer in New York, which happened to be an existing customer of the Freshwater Fish Marketing Corp.

Court was told that the co-op was instructed to stop selling to the Chicago processor but continued to do so and its license was subsequently revoked in June 2011.

The co-op decided to continue selling to the Chicago processor, which resulted in one of its shipments being seized in July 2011.

Stevenson and the co-op were originally charged with three counts of selling without a licence but the other two charges were stayed once they pleaded guilty to the one charge.

They got $2000 fines for trying to break the government-enforced cartel.

Look back at the anti-cartel legislation.

Section 45 - conspiracy

Section 45 provides that:

• every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges:
• to fix, maintain, increase or control the price for the supply of the product;
• to allocate sales, territories, customers or markets for the production or supply of the product; or
• to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product; and
• every person who commits an offence under the above-mentioned subsection is guilty of an indictable offence and liable on conviction to imprisonment for a term not exceeding 14 years or to a fine not exceeding C$25 million, or to both.

Section 45 is a criminal offence and, as such, to obtain a conviction, the prosecution has the burden of proof to establish the offence ‘beyond a reasonable doubt’.

So one part of the government throws people in jail for forming cartels while the other part of government fines people for not being in the cartel.

Canada, you're schizophrenic. Seek therapy.

Objectionable publications [Updated]

Two years ago, the New Zealand Police tried to have banned a few issues of NORML's "High Times" magazine. As I had a short piece in one of the relevant issues critiquing the ludicrous New Zealand Drug Harm Index, I would have been a contributor to a banned publication, had the Censor's Office decided to give the police what they'd wanted.

Individuals knowingly in possession of objectionable materials can receive up to five years in prison.

Among the books banned by the New Zealand Censor as Objectionable (or under classifications brought over from prior censorship tribunals, including "indecent", "unconditional indecent") are:

• A Guide to Growing Marijuana in Cool Climates
• Indoor Marijuana Horticulture
• Indoor Marijuana Cultivation
• Inside Linda Lovelace (available from Amazon here)

You can search the Register of Classification Decisions; alas, they run everything through a back end that precludes direct linking to decisions. 

The Office has been reviewing some of its old classifications; "Bloody Mama", which had been banned by the Indecent Publications Tribunal in 1971, is now listed as "unrestricted". I expect that if you were in possession of something that was banned in 1971 and has not been revisited, you might ask that it be re-examined; I don't know the extent of the legal risks. 

The banned book list includes a lot of titles that indicate they would be of interest to the homosexual community, to the S&M community, to growers of marijuana, and books whose titles suggest incest or paedophilia. 

If you search on "Fanny Hill", a 1748 book (Wikipedia), you'll find a film classified R18 (1984), a book classified Indecent 18 (1965), an audio recording deemed not indecent (1975), a book deemed indecent (1981), and various others ranging from R16 to indecent. I have absolutely no clue whether, in New Zealand, it is legal or illegal for me to go to Project Gutenberg and download the text of Fanny Hill. Drilling to the Gazette decision, it looks like a specific edition of the text was banned because of accompanying photographs; there is no indication of that the pictures were of minors.* The 1965 decision restricted possession to those over the age of 18; I expect that that is the decision that continues to hold for the text.

Booksellers NZ writes:

There are approximately 1300 titles which are ‘objectionable’ (banned) in New Zealand. Approximately 1225 were classified as indecent by the Indecent Publications Tribunal (IPT) in the period 1963-1994. The remainder are decisions of the Office of Film and Literature Classification (OFLC).

Unless a more recent decision has been made on any title, a classification decision is still in force. For example a book banned by the IPT in 1963 will still be banned, unless the edition is sufficiently different to constitute a new publication.

Most books which have been ‘banned’ deal with weapons and drug manufacture and other criminal acts, dog fighting and the sexual exploitation of children and young persons. It is likely a number of older titles if they were classified today, under current legislation, would still be classified as ‘objectionable’. This is because of the activities that these books support.

A couple of months ago, Ronald Clark was jailed for downloading Japanese anime cartoons. Now Clark was hardly a harmless guy: the Daily Mail reports he had prior convictions for indecently assaulting a teenaged boy. And maybe a guy like that should have a ban on possessing manga as part of his post-release conditions if the psychologists reckoned, for this individual, that they were more complement than substitute for actually hurting kids. But it seems a bit 'inside the asylum' that you can be arrested for bringing Japanese comic books into the country, despite that absolutely nobody was harmed in their production.

Why bring this up?

The Government is increasing the penalties for being in possession of objectionable publications. Nobody's going to defend those who produce child pornography. And even those who view those produced images or films do harm by increasing demand for those products; some argue that viewing such films or pictures adds additional harm by re-victimising the subject even where the subject never knows it's happened.** But not all people convicted as being in possession of objectionable materials are either producers or consumers of actual child pornography.

Here's The Press:

Most than 400 people had been convicted of the offence of having objectionable material between 2004 and 2011, most of which where sexual images of children.

Of these, only 33 per cent were jailed. ''That is totally unacceptable and I think we need to deal with it and this is what this bill is all about,'' Ms Collins said.

''I'm telling the judges that we're changing the law so that they can get tougher and of course they are bound by sentencing guidelines.''

Now here is the Bill. Everything in the General Policy Statement talks about the evils of child pornography.

A key purpose of this Bill is to implement the Government's post-election action plan to increase penalties for producing, trading, or possessing child pornography. The Government's objective is to ensure that sentences for child pornography offences reflect the seriousness of the offending and send a strong message that the exploitation and abuse of children will not be tolerated.

To achieve that key purpose, and otherwise improve objectionable publications and indecency legislation, this Bill—

• increases maximum penalties for possession, import, export, supply, distribution, and making of objectionable publications – which include child pornography publications:

That's all well and good, but "which include" is a bit broad. Looking further into the preamble, we find:

Clause 6 amends section 131A, which relates to offences of possession of objectionable publications, knowing or having reasonable cause to believe that the publications are objectionable. The current maximum available penalty for an offence against section 131A(1) committed by an individual is imprisonment for a term not exceeding 5 years, or a fine not exceeding $50,000. The amendment increases that maximum available term of imprisonment from 5 years to 10 years.

Clause 7 inserts a new section 132B, which contains a presumption of imprisonment for certain repeat offenders. New section 132B applies (new section 132B(1)) only to an offender who—

• has been convicted of and is to be sentenced in respect of a specified publications offence committed after the commencement of new section 132B (the repeat offence); and
• before the conviction for the repeat offence was entered, had been convicted of 1 or more specified publications offences committed before or after that commencement.

A specified publications offence (new section 132B(2)) is one against a provision specified in section 132A(1)(a) to (e) if the publication that was the subject of the offence does (to any extent) any or all of the following things (specified in section 132A(2)(a) to (c)):

• promotes or supports, or tends to promote or support, the exploitation of children, or young persons, or both, for sexual purposes:
• describes, depicts, or otherwise deals with sexual conduct with or by children, or young persons, or both:
• exploits the nudity of children, or young persons, or both.

Again, look at the "any or all". This looks to include Japanese comic books if the judge thinks that reading manga promotes child exploitation. And it might include 1748's Fanny Hill, depending on which decision of the Censorship Office you want to run with  if you have an illustrated edition.*

I'm no lawyer, but this doesn't look like the "Outside of the Asylum" kind of legislation for which I thought we here aimed. Hopefully the Select Committee will fix things so you can't get 10 years in jail for looking at comic books. And gawd help you if there are any instructions for growing marijuana somewhere in the comic's text.

* UPDATE: It is impossible for me to link here to the Gazette decision of 5 February 1981, but the text suggests that it was a specific issue of Fanny Hill that included a series of photographs that was banned. There is no indication in the decision that the photographs were of children. Here is the text:

A sample copy of Fanny Hill was imported commercially and seized at Auckland in September 1980. As the importer has disputed forfeiture the Customs Department has referred the publication to the Tribunal for classification, prior to the commencement of condemnation proceedings pursuant to the Customs Act 1966.
Fanny Hill is a paperback publication, supposedly based on the original classic by John Cleland. Samples of these writings have been selected from the original book, and used in conjunction with a series of photographs which place considerable emphasis on sexual activities, to give an impression that the paperback is an accurate precis of the original classic. In fact, there appears to be little relationship between the text and the photographs, even though the photographer has dressed his models in period costume. In view of the nature of the publication, there is a distinct lack of honesty of purpose. Accordingly, though the original classic is not indecent, we classify this edition of Fanny Hill as indecent.

So the original .txt should not be viewed as indecent. Wouldn't it be nice if the database search said as much!

Update 2: The Censor's Office has confirmed that the one illustrated edition is the one that is banned. However, the Censor's Office also does not know which edition that is. The only thing they know about it is what is in the Gazette. So if you have some pre-1982 illustrated version of Fanny Hill, it may or may not be the one deemed objectionable by the Censor in 1981. If it is, then you can go to jail for a decade. If it isn't, enjoy!

** It being impossible to discuss the pros and cons of such a view without risking being fired, I will abstain.

Buchanan's Soul

Andrew Farrant points me to this lovely tribute to James Buchanan from Geoff Brennan and Mike Munger.

Brennan and Munger note the seeming incongruity of one of Buchanan's titles, "The Soul of Classical Liberalism". I hadn't realised the strength of Professor Buchanan's anti-theism; it never really came up when I was at GMU. Geoff Brennan provides the following anecdote:

“It was Ash Wednesday – probably 1978 or 79. I had, in the manner of ‘Episcopalians in good standing’, taken myself to church that morning before work and had been duly signed on the forehead with ashes as a symbol of my mortality: “Dust thou art, and unto dust shalt thou return!” Although one is technically not supposed to do this, under normal circumstances I would have washed off the ashes before proceeding to work. But on this occasion I went directly to the office from church. Though I intended to visit the bathroom to clean up immediately on my arrival, by the time I got to work I had become pre-occupied with other things and simply forgot. So it was that, when Jim sauntered into my office at around 11, he immediately pointed at me, and the following conversation ensued:

Buchanan: “What’s that on your face?”
Brennan (somewhat absentmindedly): “Oh, that must be my ashes. It’s Ash Wednesday and we get marked with the cross from the ashes of last year’s palms from Palm Sunday”.
Buchanan (instantly furious): “That’s god d**ned gross! That’s the grossest thing I’ve ever seen. You going around displaying your religion like that! I might as well go round indulging in indecent exposure!”⁴

The situation deteriorated from there. ...

⁴ This is a somewhat expurgated version of the remark. The original entailed too much anatomical detail to be admissible among this respectable readership!

VPI was a ridiculously productive place, and a seemingly pretty explosive one. I here linked to a few Tullock tales.

The whole piece is well worth reading.

The Price Elasticity of Belief: Beavers are Fish edition

I am so using this when I lecture on the price elasticity of beliefs in my public choice class next semester.

Suppose that you're trying to convert to your religion a bunch of people who eat a lot of beaver meat. And suppose that you want to ban them from eating meat on Fridays in Lent. And suppose that they don't want to give up beaver during Lent. What do you do?

In addition to disease, the European settlers also brought Catholicism with them, and successfully converted a large proportion of the indigenous population. And the native Americans and Canadians loved their beaver meat.

So in the 17th century, the Bishop of Quebec approached his superiors in the Church and asked whether his flock would be permitted to eat beaver meat on Fridays during Lent, despite the fact that meat-eating was forbidden. Since the semi-aquatic rodent was a skilled swimmer, the Church declared that the beaver was a fish. Being a fish, beaver barbeques were permitted throughout Lent. Problem solved!

The Church, by the way, also classified another semi-aquatic rodent, the capybara, as a fish for dietary purposes. The critter, the largest rodent in the world, is commonly eaten during Lent in Venezuela. “It’s delicious,” one restaurant owner told the New York Sun in 2005. “I know it’s a rat, but it tastes really good.”

Chalk this one up on the supply-side in the market for irrational beliefs.

Alcohol wage puzzles: Churchill-Stalin edition

There's a longstanding alcohol wage puzzle: drinkers earn more than non-drinkers even after correcting for a bunch of stuff. Chris Auld found that moderate drinkers earn 10% more than non-drinkers and that heavy drinkers earn 12% more than non-drinkers; plenty of other studies have found similar effects.

One not-unreasonable explanation is that drinking together builds trust among co-workers, making them jointly more productive (and higher paid) despite the occasional productivity-reducing hangover.*

Radio New Zealand provides a nice bit of anecdotal evidence.

Josef Stalin and Winston Churchill had an all-night drinking session in Moscow that lasted until 3am during World War II.

Relations between the Russian and British leaders were stiff until Churchill arranged a late-night banquet in August 1942 with Stalin, according to files held by Britain's National Archives.

The event was recorded by Foreign Office permanent under-secretary Sir Alexander Cadogan.

The mood was "merry as a marriage-bell," he added, though Churchill was complaining of a "slight headache" when Cadogan came to find him at 1am.

The two men did not engage in much military talk during the meeting, which went on until 3am.

The evening was dubbed a success by Cadogan, as the two men got on.

"Certainly Winston was impressed, and I think the feeling was reciprocated," he wrote in a letter.

"We broke up soon after 3(am), giving me just time to get back to the hotel, pack, and leave for the aerodrome at 4.15(am)."

The BBC reports the letter was among almost 600 government files dating from World War II and the early years of the Cold War, released by the National Archives.

Do all-nighters really end at 3am?

I wonder whether the anti-alcohol activists of 1942 would have bemoaned the wartime losses caused by Churchill's slight hangover the next day while ignoring that getting on well with the Soviets was rather more important.

* Note that Google Insights for Search provides reasonable evidence that hangovers are concentrated on the weekend. I mean, look at this and tell me that the folks who take average weekly hangovers as a measure of productivity losses aren't just a bit mischievous.

Comorbidity and costs

Another for the "underlying variables very likely cause both substance abuse AND negative outcomes" file, via +Ole Rogeberg . It appears that novelty-seeking and conduct disorder strongly predict future alcohol, tobacco, and other drug use among youths.

They suggest that early identification of those likely to be at risk and subsequent management of conduct disorders and of novelty-seeking behaviour might reduce the risk of substance abuse.

Behavioral or pharmacological treatment of disruptive disorders in children and adolescents is likely to have lasting effects across multiple disruptive psychopathologies due to the common thread that underlies ADHD, CD [Conduct Disorder], and NS [Novelty Seeking] — the inability to plan out actions, inhibit actions, and consider the implications of actions (impulsivity) (Miller, Stephen, & Tudway, 2004). For instance, preliminary findings from our lab recently determined that higher levels of CD and ADHD symptoms are associated with higher levels of initial sensitivity (e.g., subjective and autonomic experiences, such as reports of pleasure, liking the taste, nausea, heart rate) to alcohol and tobacco during adolescence, which suggests that these individuals may be primed to be more responsive to substances of abuse (Bidwell et al., 2012; Palmer et al., 2012; Wills et al., 1994).

Think back to how social cost studies tend to attribute the costs of substance abuse. They begin by defining as counterfactual the average outcomes for all individuals of similar age and gender; the monetised difference in outcomes between average non-abusers and substance-abusers is taken as social cost.

But those likely to become heavy substance-abusers would not have had average outcomes had drugs, alcohol, or tobacco never existed.

The relevant counterfactual group are those who were at similar risk of becoming substance abusers and who managed to avoid it. And even that will lead to overestimates because the general-purpose technology that lets those lucky individuals avoid substance temptations would itself drive outcomes.

It's entirely likely that substance abuse aggravates things for those with disruptive psychopathologies and that the costs they impose on others are consequently higher than they would have been. But substance abuse is only responsible for part of that cost - not for the whole she-bang.

It's also worth pointing out that this new study tilts the scales further in favour of Ole Rogeberg in his argument with the Dunedin folks about cohort selection effects. I still wish that Dunedin could be convinced to put up a GSS-style front end for their data so that other researchers could check results while not compromising privacy.

The value of outreach

I enjoyed the CBC's radio show, The Invisible Hand. Rather than take a Freakonomics-style "wow, isn't this counterintuitive" take, they instead simply presented standard economic theory as it is understood by professional academic economists.

• Episode 1 covered price gouging, with a nice contribution from Mike Munger. (audio)
• Episode 2 takes on value theory. In the event of a zombie apocalypse, chickens rise in value relative to gold (as the Lannisters may yet discover when winter comes). (audio)
• Episode 3 explains why profit isn't a bad word and shows that rather a few capitalists - people who make their living from investments - look rather more like our parents and grandparents than like Mr Scrooge. (audio)
• Episode 4 covers love, marriage and economics. (audio)
• Episode 5 explains moral hazard and insurance. (audio)
• Episode 6, on sweatshops, includes Ben Powell along with a former sweatshop worker. (audio)
• Episode 7 demonstrates that David Suzuki knows absolutely nothing about economics: we have ways of dealing with externalities. (audio)
• Episode 8 explains a bit of macroeconomics: the old Paradox of Thrift. (audio)
• Episode 9 walks through one of my favourite topics: perverse incentives (see the masthead). Frances Woolley helps out. (audio)
• And Episode 10 explores some of the behavioural economics literature. (audio)
• [Update: the audio at the CBC link isn't working, but the (audio) link should take you to the podcast version. Thanks to Wobbly in the comments!]

Worthwhile Canadian Initiative's Stephen Gordon provided academic assistance for the project.

The CBC more typically airs standard economic fallacies as fact, or at least it did back when I was in the country, so this was really rather nice.

What reaction did they get? Here's the show's producer Matthew Lazin-Ryder. Start listening at the 14 minute mark. At 15:55 he talks about his "honest to goodness depression" about the show's being criticized for being "brazen right-wing propaganda". He says [transcription errors mine]:

We wanted to make a show that had a completely different perspective from the things most people hear. And our probably naive anticipation was that people would take it in that way. We didn't honestly expect the angry backlash that we got. ... Our agenda was to present how mainstream economists think about things. 

He also tweeted: 

"Lightning Rod For Hatemail" was the working title for the series. RT @danieloong: A show like that'd be a lightning rod for hate mail.
— The Invisible Hand (@CBCTheHand) April 12, 2013

There is a body of things that economists know about the economy. Sure there's stuff we argue about, but especially in microeconomics, we kinda know what's going on. And the basic set of things about which economists agree diverges wildly from how the public thinks the economy works. The profession attaches perhaps too high of reward for deriving the results of some model when you change a plus to a comma in a utility function when the first order welfare gains are in just getting the voting public to appreciate principles-level economics.

I get irritated when bog-standard economics is cast as having a "right wing" agenda. Mainstream economics helps you figure out what works and what doesn't work for achieving any particular end and the trade-offs that are involved. If you want a fair bit of redistribution, that's entirely consistent with mainstream economics so long as you set up the transfers appropriately; heck, it drops out of most models where you assume diminishing marginal utility of income.* But bog-standard mainstream economics in Canada says a lot of unpalatable things: ditch supply management to reduce milk prices; get rid of barriers to both interprovincial trade and labour mobility; get rid of all the zany exemptions in the GST and adopt New Zealand's version instead.

Imagine a genie gave you a button. If you push the button, every voter in the country thoroughly and intuitively understands principles-level economics. At the same time, the most recent n issues of every academic journal in economics disappear along with all knowledge of their results: we would need to re-invent or rediscover every one of them, with some chance of never finding them at all. Up to what value of n do you leap to push the button? 5 years' worth? More?

Imagine a world where the physicists and engineers spent most of their time figuring out how to get internal combustion engines from 20 to 22 percent efficiency but where, outside of the lab, everyone else is riding horses because they think engines are evil and witchcraft and tools of capitalist oppression. Maybe it's not quite that bad in economics, but it isn't far from it.**

Update: Brennan McDonald suggests, or at least this is what I draw from his comment, that there may be little potential trade-off between high-powered theorem building and public conversion efforts since the public broadly isn't truth-seeking. In that he echoes Patri Friedman's complaint about folk activism. But we are all part of the equilibrium, and I do think that we could use to move a bit at the margin.

* But be careful! Cowen points out that utilitarian theories may be less egalitarian than you'd like. I asked a couple years ago about appropriate egalitarian policy when we start opening up the margins:

Pity the borderline Asperger's investment banker who, despite his financial success, seems at a bit of a disadvantage in dating. Reddit posted the 1600 word email that the would-be suitor sent to the woman who dumped him after the first date; it's since shown up all kinds of places. But folks snickering at it seem an awful lot like a rich one-percenter laughing at a pleading email from a starving man.

If I can play armchair psychiatrist, the same Asperger tendencies that helped this poor guy in investment banking have killed him in dating.

If you're an egalitarian, what is appropriate policy? Is this guy better or worse off than the poor musician who dates easily? With whom would you rather trade places, taking both their positions and their characteristics? If we redistribute income because the investment banker's last dollar is worth less to him than it would be to the poor musician, think too about the marginal utility of the musician's last date relative to the banker's.

 And should we compensate the beauty-challenged?

** See, for example:

• Caplan on systematically biased beliefs
• Me on economic thinking in NZ

Is it May already? Asset sales edition

It must be May. The Christchurch Press is reporting that Council is considering selling some assets to pay for the quake.

May 2, 2011: The Press wondered the same thing. I put up the general conditions under which Council should sell assets.

May 21, 2012: Another round of speculation about Council asset sales. Labour was outraged by that the City might contemplate selling dividend-paying assets. I pointed out that, unless there are really serious problems in asset markets, dividend flows get capitalised into asset prices. I'd written:

Cosgrove can only be right where the asset is more efficiently owned by local council, or where there are serious problems in IPO markets, or where the Council has a particular kind of stupidity.

If the asset is best owned by government, then the selling price will be less than the discounted value of the dividend flow. Otherwise, local Councils can do better by selling off the asset and taking the cash.

If there are serious problems in IPO markets, then things sell for less than fundamental value at IPO. But there's no particular evidence of this.

The last one might be more of a worry. Imagine a guy who has a trust fund that pays him a modest annual income. He generally is foolish in how he spends it, but he's always able to pay his bills. If he is given the investment as a lump sum, he blows it all on pop rocks and bungee jumping and has no income flow for the next year. That guy is probably better off not being able to sell off the dividend-paying asset. Is Christchurch Council that guy? Hopefully not. But post-quake, unless they're dumb enough to blow it all on stadiums, there are tons of productive ways they could be spending the money - roads, sewers, turning Red Zone into useful parks.

And, if Council is dumb enough to blow any divestiture returns on pop rocks and stadiums, are they smart enough to handle the asset properly if they own it in the first place? Note that an asset like the Lyttelton Port of Christchurch isn't like a hands-off trust fund; it requires annual decisions about asset maintenance versus dividends. Cosgrove talks about how the revenue stream from assets helped kept rate rises in check; what reports I'd heard on maintenance standards at the Port as of a few years ago suggested that Council was putting a fair bit more weight on current dividend flow than on maintaining the assets. Divestiture may be a bad idea if Council is prudent enough to manage the asset properly while they own it, but profligate if they're handed a lump sum of cash; under the current circumstances, with plenty of really pressing financial needs, I'm less worried about this one.

And here we are, May 2013. In today's Press:

A Christchurch city councillor says the city could offload non-core assets, including its own offices, to help pay its share of big-ticket rebuild projects.

Cr Tim Carter said last night that less important assets were expendable if it helped ease the council's debt burden in funding anchor projects such as the new convention centre and roofed sports stadium.

...He was against selling strategic, money-earning assets such as Christchurch International Airport, Lyttelton Port, Orion, and Enable, which is installing ultra-fast broadband in Christchurch.

His comments come as Prime Minister John Key yesterday weighed into the council asset sales debate.

Key told Firstline it was up to the council to ask whether the people of Christchurch wanted "the nice-to-haves".

"Then they'll ask how are you going to pay? That could be through rates or asset sales," he said.

The case against selling the airport isn't that it's a money-earner. A money-earning airport will sell for a LOT of money at IPO. Rather, the case is that the local monopoly airport would be tempted to set fees to maximise its own profits without considering that reduced traffic into town might have some broader costs. It might even do things like charge really high fees to taxicab companies for the right to operate from the airport, increasing the costs of Christchurch as a travel or conference destination.

I still think that Council should fully divest assets that are managed at least as well by the private sector and don't have the kind of problem that the airport could have, partially divest other assets, and use the money for roads, sewerage, overbridges, and for topping up the costs of rebuilding and repairing Council facilities. But if John Key wants Council to sell off the Port to fund a big covered stadium or a huge convention centre, well, I discussed that case last year.

If it saves only one life... oops.

New Zealand's been pretty gung-ho about banning smoking. Tobacco taxes have been rising pretty sharply; tobacco can't be displayed by retailers and instead has to be kept concealed; the Government's unattainable aspirational goal is a SmokeFree New Zealand by 2025.

As part of this push, New Zealand banned smoking in prisons. And some hospitals have been a bit aggressive in banning smoking not only within the premises but also on the grounds outside of the hospitals. It's pretty easy to argue that folks going to hospital to get well shouldn't be smoking. Hey, maybe that gives them the extra shove they need to quit. Right? Oops.

A mental health patient who killed himself was put off seeking hospital treatment because he was not allowed to smoke onsite, a lawyer leading a judicial review application on smoking in hospitals says.

A smoking ban on hospital grounds including outside psychiatric wards by the Waitemata District Health Board is a breach of human rights, barrister Richard Francois argued at the High Court at Auckland today.

He is calling the proposal "torture" on the hospitals' most vulnerable patients.

"Psychiatric patients are segregated," Francois said in his opening statement.

"They're locked in a room and told they can't smoke cigarettes in a time they're under extreme stress, have been hauled away from family, friends and employment."

He argues that research does not back up the need for psychiatric patients to give up smoking on hospital grounds for their health or the health of others, and is simply a breach of rights which will create a barrier for patients wanting to seek help.

This kind of response shouldn't have been all that surprising.

There is a rather extensive literature on comorbidity of smoking and serious mental illness. Some argue that nicotine can serve as self-medication for those with specific mental illnesses; others say instead that it's a way for those with serious mental illness to impose some structure on their days and is a changeable part of the culture of mental illness. Either way, it's pretty hard to avoid that smoking rates among the mentally ill are much higher than those among the general public. That can provide a pretty decent argument for finding ways of helping those with mental illness to quit smoking. Or, from the other side, you could argue that those with lower life expectancies and who have a harder time enjoying life to start with oughtn't be deprived of those things that they do enjoy.

Either way, banning those placed in psychiatric hospitals from smoking outdoors on hospital grounds seems remarkably punitive. It seems pretty unlikely that enforced cold-turkey treatment while being hospitalised for mental illness is best for anybody.

He [Francois] raised an example of a Hillmorton Hospital patient in Christchurch who used to self-refer himself to the psychiatric ward after attempting suicide.

His mother had said he "quite liked" being there but this changed after a smoking ban came in, Francois said, reading from a Coroner's report.

"He killed himself this time. Smoking was everything to him, it was like the be all and end all of it really."

Wouldn't it have made more sense to have specialised smoking-cessation help for those with mental illness? Pretty sad when smoking is someone's alpha and omega. Even sadder when we get this instead.

Update: just so we're clear, I disagree with the synopsis that I reckon the policy killed the patient. Causality is way too hard to establish to say anything like that. Barriers to entering treatment seem a bad idea; the policy made this kind of incident more likely. And it seems an awfully hard policy to restrict access to pleasurable things to those people who have a harder time experiencing pleasure.

Convention Centre Business Cases

Does the SkyCity convention centre deal have any particular implications for whether Christchurch should have a big convention centre too? I think it's a bit tough to argue that it increases the optimal convention centre size here, but opinions vary. Here's what I told Marc Greenhill from the Christchurch Press when he asked.

"It's possible that Hon. Gerry Brownlee is right that a Christchurch Convention Centre could get a lot of overflow traffic from Auckland. Perhaps the new Auckland centre will generate a ton of international excitement about New Zealand as a convention destination, and conference organisers finding out that Auckland is fully booked will decide to stick with New Zealand and come to Christchurch instead. I'm not sure that I'd bet a lot of money on that happening, but it isn't impossible." 

"And, Minister Brownlee is also right that some parts of Convention Centre business do not cannibalise across different centres. Armageddon Expo visits each of the main centres, for example. And national organisations will often shift their annual conventions across different centres in rotation; again, a nicer Auckland centre doesn't cannibalise that kind of traffic. But whether expansive convention centres in both Auckland and Christchurch would tend to do more to build international demand for New Zealand in total or to split the "let's have our conference in New Zealand this year" market, well, it would be interesting to see the business case backing that call."

As best I'm aware, we as yet have no business case for the proposed Christchurch convention centre. I'd be interested in perusing the document when it comes into existence.

Budget 2013

Last week's budget announcement wasn't all that exciting; I declined to put my hand up with the University's press guy asked who'd be keen to comment.

I strongly approve of that the country's housing supply problems were noted even in the budget. I'm glad that Bill English has been able to get this on the agenda; it's probably the most important thing that National can plausibly fix this term. I hope they're able to open things up both to increased density and to new development.

Having spent the weekend thinking about it, here's what I'd have done differently within the existing set of political constraints.*

I like the budget's focus on getting back to surpluses, but I would have handled this differently. I would have focused less on current debt reduction and more on medium-to-long term restructuring around superannuation. I think we buy more flexibility by fixing looming superannuation problems, implementing what the Productivity Commission already recommended, than by taking a pretty hard line on debt in the current period. I think this is politically feasible, but John Key's the one facing the re-election constraint and seems to disagree.

Fixing superannuation now would give us a bit of breathing room on current debt. 

Debt is the best way to pay for earthquake rebuilds; I'd also expect it could be somewhat useful in recapitalising EQC as part of a rather needed complete overhaul. The EQC model is broken - it simply doesn't work for large-scale disasters like Christchurch. It always feels like they're screwing down on costs because they just don't have enough money to cover the actual costs of fixing everything. There's reasonable risk that we wind up with substantial costs down the line when it turns out that many of the repairs didn't do the job. 

I also hear rumours that SCIRT's having to define down what's acceptable on engineering standards in order to meet tightened budget constraints; I now try to avoid the Moorhouse overbridge, or at least when there's a traffic queue that would mean sitting on the thing for any substantial period. The infrastructure costs of the quake seem more likely to increase than decrease; Mayor Parker says that central government is leaning on Christchurch Council to put more money into a bigger convention centre than Christchurch needs [ht: NoRightTurn]. It makes sense for Council to sell some of its assets to pay for the infrastructure rebuild; blowing money on stadiums and convention centres is something else entirely. Debt and asset sales to make sure we have quality roads and sewerage may be boring, but it's important. 

Lastly, and discount this one for obvious self-interest as much as you like, but the government has got to make up its mind about whether it wants there to be a University of Canterbury that's worth having. 

It's not unreasonable to argue that a country of 4.4 million people does not need all of the University of Auckland, the Auckland University of Technology, the University of Waikato, Massey University, Victoria University at Wellington, the University of Canterbury, Lincoln University, and the University of Otago [have I missed anybody?], and that we could use to consolidate things by abolishing a couple of them. It's also not unreasonable to argue that the University of Canterbury is an excellent institution, with a fine history, a superb engineering school, and a top-notch international reputation that deserves to continue to exist. I really love this place and think we have the best programme in the country for teaching students how to think like economists. 

Christchurch is currently a less attractive place for students. Housing costs here are high, nightlife is rather worse than it was, and who could fault local high school students for wanting to get away from it all for a little while? The earthquakes are over, sure. But whenever you travel from here to somewhere else, just being in a place that isn't undergoing massive reconstruction is ridiculously uplifting (though, when in Wellington, tinged with the terror of looking up at unreinforced masonry,  seeing the "earthquake prone" warning on the building, and hearing the Alpine Fault countdown timer ticking in your head). 

This is a temporary thing. The west side of town, where the University is located, is so close to over the quakes that you could mistake anything still going on for normal scheduled road maintenance. The downtown demolition job is months from done, downtown will be back in a couple years, and a whole pile of nightlife is coming back in other parts of town. Incoming academic visitors, who travel from the airport on the extreme West side of town to our Ilam campus, express surprise that there's so little evidence of there having been an earthquake - until they tour downtown. The biggest impediments to student life are housing costs**, which could be high for a while, and difficulty in accessing normal nightlife. 

But the effects on the University could easily be permanent. We went from about 15,000 students pre-quake to about 13,000 last year; this year, we're down to 11,000***. At the same time, the University is incurring exceptional infrastructure costs and the same insurance problems as everyone else in the city. The government has helped the University through this over the last two years by maintaining its contribution to the University as though we still had the same number of students that we had in 2010, though our income from student fees remains rather lower than it had been.

The government, not entirely unreasonably, wants some evidence of that the University is trying to reduce costs before it will commit to further support. It feels like Stephen Joyce is squeezing the University to see what it can come up with; that squeeze has pushed down to the Colleges. The process is yielding a fair bit of uncertainty about which programmes will be cut. 

Students and their parents hate that kind of uncertainty. If you have choice among a number of rather good universities in New Zealand, do you choose the one where you think your major might have its honours programme cut (or, worse, the whole major), with consequent turbulence in staff numbers and course offerings, or one somewhere else? Declining first year numbers sparked by worries about programme stability can easily turn into self-fulfilling prophecies. Colleagues attend orientation events at the local high schools. One colleague reports that a local high school career counselor is advising students to go anywhere but Canterbury for Arts because of programme risk. Other colleagues report that the first question high school students ask is which programmes will be cut and why they should come here given programme risk; from those reports, even students considering majors in the bench sciences are pretty worried. It's hard to blame them for those kinds of worries when the modal story about the University in the Christchurch Press focuses on its financial situation.

It is very easy to imagine unravellings such that the University is not able to recover once the city's amenities are back up to scratch. If covering the earthquake-related downturn requires cutting half the honours programmes in Arts and substantial reductions elsewhere, it's hard to build back from it. I know everyone has the impression that all universities have a lot of academic deadwood that can usefully be abolished. But, as best I can tell, and given how performance assessment here has been handled over the last several years, the only way of doing that while remaining compliant with New Zealand labour law is by deeming whole programmes surplus to requirements or by inviting all staff in a department to reapply for a smaller number of positions. The former case throws often the baby out with the bathwater; the latter has staff simultaneously applying for positions elsewhere and Canterbury being left with those who didn't find greener pastures. The deadwood, if there is any, can be the hardest to cull. And while it's easy (and often right) to point to excessive administrative overheads, the quakes rather drastically increased the place's fixed costs while reducing the number of students over which those costs can be spread.

So my alternative budget would either have scheduled a path for the closure of the University of Canterbury, including arrangements for less-than-proportionate expansions to Vic, Otago and Auckland, or provided firm indications of support such that students could be confident in choosing Canterbury. This middle ground has too high a risk of yielding rather poor outcomes.

* My unconstrained recommendation would be rather different, but why waste time wishing for ponies? 

** Again, I'm very glad that the government has been talking about the kinds of restrictions that are keeping housing prices rather higher than they need to be.

*** The same Press piece says that last year's final numbers were 12,000 rather than the 13,000 noted in the annual report; it could be that the 2012 annual report figures were based on projections. 

The Price of Wool and Economic Growth

You know how most comments sections are, well, terrible?* Not this one. Gerald Silverberg blogs on the New Zealand 1951 GDP data point and the Reinhart-Rogoff mess. I'm going to leave refereeing on Reinhart-Rogoff to Justin Wolfers. But just look at the depth of wonkery that goes into a single cell in an Excel spreadsheet. Careful data collection and distribution is ridiculously undervalued.

Gerald tries working out New Zealand growth rates for 1946-1952, contrasting Maddison's data with others. The Reinhart-Rogoff data doesn't look like Maddison's. Then commenters, likely including at least one data maven from the bowels of the NZ bureaus, start helping out.

Commenter Oscar first points to an FT piece showing that Maddison uses calendar years while the Stats NZ series uses March years. Then Silverberg starts wondering whether 1951 was due to the waterside lockout or to the wool price boom, quipping:

Who would have thought that you would have to become an expert on NZ wool exports and labor relations in 1951 to decide if public debt affects economic growth.

It gets much much wonkier from there. Mark Sadowski provides a short history of the waterfront dispute and the wool boom:

I was convinced from the start of the HAP/R&R controversy that the New Zealand part of this story was explained by the 1950-1951 New Zealand Wool Boom and not the 1951 New Zealand Waterfront Dispute.

The 1952-53 New Zealand Yearbook shows that wool sales were 47.1 million NZ pounds in 1949-50, 107.5 million NZ pounds in 1950-51 and 52.7 million NZ pounds in 1951-52.

Most of this was caused by a change in price, not a change in output. The average price of wool rose from about 38 NZ pennies a pound in 1949-50 to 88 NZ pennies a pound in 1950-51 and fell back to 40 NZ pennies a pound in 1951-52. (There were 240 pennies to a New Zealand pound.) Production was about 298 million pounds in 1949-50, 294 million pounds in 1950-51 and 315 million pounds in 1951-52.

According to the HAP/R&R dataset New Zealand's nominal GDP (NGDP) was 1.101 billion NZ pounds in 1949, 1.396 billion NZ pounds in 1950 and 1.446 billion NZ pounds in 1951, so that was a substantial proportion of New Zealand's economy.

A good paper about the New Zealand Wool Boom is here.

I can't locate a free copy, nor can I save a PDF file I can cut and paste but I would summarize the episode as follows.

Demand for wool had been strong since WW II ended but supply had been unresponsive to elevated prices. When the Korean War started in June 25, 1950 there was an immediate elevation in the price of wool. Between that date and March of 1951 the price of wool went up two to three fold depending on grade (lower grades went up more, mainly because that was the kind of wool the military was buying). Demand wasn't simply driven by US military stockpiling as retailers actually used rising prices to induce even higher sales.

In January 26, 1951 the United States Office of Price Stabilization (OPS) imposed a general price ceiling measure designed to freeze the pre-war price-wage structure. The price ceiling on wool brought trading in Boston (the central US wool market) to a standstill and caused US participation in New Zealand wool auctions to more or less cease. This led to falling New Zealand prices until February 7 when an emergency exemption was granted to the US military through April 1. This caused prices to recover but once the exemption expired prices fell sharply. By June 1951 they had fallen by 50% and by March 1952 they had fallen a total of 70%.

Now, my sense from reading the history of the Waterfront Dispute is that it was less a strike than a lockout. The government brought in 3000 troops an unknown number of scabs to keep the dockyards running, and thereby crush the union.

The 1954 New Zealand Official Yearbook shows the Cargo Manifest Tonnage "cleared" (exports) fell from 1,163,934 tons in 1950 to 1,129,629 tons in 1951. It rose up to 1,173,577 tons in 1952.

In other words the mass of cargo moved fell by only 2.9% and rose by 3.9% the following year.

What about the actual value of exports? Exports *rose* from 183,752,000 NZ pounds in 1950 to 248,127,000 NZ pounds in 1951, and fell back to 240,561,000 NZ pounds in 1952

Wool exports rose from 74,653,000 NZ pounds in 1950 to 128,176,000 NZ pounds in 1951 and fell to 81,998,000 NZ pounds in 1952. Note that wool exports increased by over 70% in 1951 and amounted to nearly 52% of all exports that year.

So it would appear that the 1951 Dockyard Dispute had little effect on actual exports. [note: links tidied from source]

And all of this over one cell in a rather large Excel table. Raise a toast tonight to the wonks whose work provides every cell of every spreadsheet on which we rely.

* Except at Worthwhile Canadian Initiative, somehow.