Copyright Chilling Effects

It seems that the lawyers at Sky didn't like my post on Netflix. They've not been in touch with me about it, nor did they get in touch with the folks at SciBlogs about it when I syndicated it there.

But late last week, the National Business Review asked if they could run it as part of their Weekend Edition. I agreed, as I always do. Shortly after it went up at NBR, I received an email from NBR's Head of Digital saying that they'd had to pull the piece after a legal threat from Sky TV. Sky's lawyer wanted excised from the article the instructions on how to access Netflix from New Zealand. In my piece, I linked to an Australian website providing instructions on how to access Netflix. I also included a postscript noting that Hola seemed to work very well.

At Offsetting and at SciBlogs, that postscript reads:

* Wanting to verify that circumventing geoblocking was easy, I installed Hola. My Chrome install at work is a bit buggy; I have to manually unpack and install extensions. Nevertheless, in about 2 minutes I was into Netflix as though I were American. And now I see that they're only charging $8 per month. I suppose I'll have to install this on the machine at home and sign up.

At NBR, it now reads, with edits by NBR:

* Wanting to verify that circumventing geoblocking was easy, I installed a a free piece of software that allows you to use Netflix as though you are an American. It was a little buggy, but I was up and running in a couple of minutes.

I'll note that Hola wasn't at all buggy. My Chrome install at work is a bit buggy and gets mad whenever I try to install any extension. Anyway, my mentioning Hola seemed to have Sky's lawyers heated up. Aloha, Sky! And Hola! And Unblock-us.

On what basis could Sky try issuing that kind of take-down request?

First, note that New Zealand generally allows "parallel importation". The New Zealand Government, in general, does not think that it is its job to enforce whatever exclusive dealing arrangements that some overseas manufacturer wants to enter into with a domestic distributor. There is a minor exemption on DVDs and films where you cannot import films for commercial distribution for a period of five months from the date that the film is first made available to the public. This lets the theatres get a run where international windowing delays release here relative to the US. However, the ban specifically allows import of legitimate copies for personal non-commercial use. It would be reasonable to read accessing Netflix for personal use as falling into this category, though note that I am not a lawyer. I discussed the temporary ban here.

Second, the 2008 Copyright (New Technologies) Amendment Act bars the publication of information enabling or assisting another person to circumvent a technological protection measure if the person intends that the information will be used to infringe copyright in a work protected by a technological protection measure. I intended my discussion only as a part of a cursory academic discussion of why Netflix might not wish to move officially into the NZ market rather than to help people infringe copyright: if using Hola or Unblock-Us is really easy, then my story could make sense. If using such measures were really complicated, then maybe not.

But that's all beside the point because, well, this:

226 Definitions of TPM terms.

b. for the avoidance of doubt, [TPM or technological protection measure] does not include a process, treatment, mechanism, device, or system to the extent that, in the normal course of operation, it only controls any access to a work for non-infringing purposes (for example, it does not include a process, treatment, mechanism, device, or system to the extent that it controls geographic market segmentation by preventing the playback in New Zealand of a non-infringing copy of a work) [emphasis added]

So if I put up a blog post telling people how to crack copy-protected video games, rather than just allowing playback of geocoded game discs, I could be in trouble. And I wouldn't do that, and not just because I wouldn't have the faintest clue of how to do it.

But, by my read of 226b, the variety of mechanisms described at this Australian site simply work to circumvent a system controlling geographic market segmentation by preventing playback in New Zealand of a non-infringing copy of a work. Netflix's catalogue of films and TV shows in the US is non-infringing in exactly the same way that a DVD on sale in the US is non-infringing. And buying a DVD there, bringing it here, and watching it on a region-free DVD player should be as protected as subscribing to Netflix via something like Hola or Unblock-us. Maybe it violates the Netflix terms of service in the US, and Netflix could be justified in cancelling somebody's account if they deemed such use to be in violation of their Terms of Service. I expect that bringing a Region 1 DVD here and watching it on a region-free player might violate the DVD's Terms of Service as well. But a take-down notice based simply on the use of the word Hola or a simple description stating that installing Hola was really easy? Again, I'm not a lawyer; hopefully I won't have to consult one. I'll rattle a tip-jar if I do and if it winds up being at all pricey.

I'd be a bit surprised if it were illegal though. Here are other NZ-based sites explaining precisely how to access Netflix from New Zealand.

• NZ Tech Podcast
• GeekZone NZ
• Social Media NZ

So, why might Sky have written a threatening letter to the National Business Review? If everybody in New Zealand subscribed to Netflix, the only reason left for subscribing to Sky could well be for sport. If folks can get faster and more convenient access to content via Netflix for USD$8 per month rather than from Sky for NZD$46.92 per month, why would anybody bother with Sky? If the main thing stopping people from making the switch is fear that the process is complicated, shouting Hola! might seem threatening.

I am so very glad that I have never given a dime to Sky. Freeview plus YouTube plus buying DVD sets from abroad gives me much better value for money.

Update: I have deleted one comment from my prior post on Netflix. The commenter had suggested other ways of getting Netflix in New Zealand but, on reading this post, requested that his comment be deleted. Chilling effects....

Precious bodily odors

So newborn baby smell lights up dopamine pathways in the brain in ways not unlike drugs or sex.

So:

Step 1: Bottle that newborn baby smell
Step 2: ???
Step 3: Profit

I wondered whether Step 1 could lead to Step 3.

@BKDrinkwater @1petermartin Wonder if real estate agents could get an aerosol spray to use prior to open homes....
— Eric Crampton (@EricCrampton) September 25, 2013

I liked Drinkwater's stab at Step 2:

@EricCrampton @1petermartin pump it through the air system in malls and casinos.
— BK Drinkwater (@BKDrinkwater) September 25, 2013

@BKDrinkwater @1petermartin Wonder if real estate agents could get an aerosol spray to use prior to open homes....
— Eric Crampton (@EricCrampton) September 25, 2013

But Luis sounded a cautionary note:

@EricCrampton Ssh. How long till Otago researchers start asking for regulations on baby smell?
— Luis A. Apiolaza (@zentree) September 25, 2013

Other profitable ideas?

HT: @1PeterMartin

In praise of the North Korean Diet

Gareth Morgan is featured in today's Christchurch Press. Alas, no online version. From Nikki Macdonald's article:

He's barely off the plane after a 40,000-kilometre ride across Russia and Korea. Controversy trailed after him like his billowing motorcycle exhaust, with critics accusing him of becoming a propaganda pawn on his six-year-in-the-planning tour of North Korea.

But he's still gushing about the experience, and how he lost 6kg in the absence of the processed food - "crap basically" - that dominates the New Zealand food supply. That and the fact there was less food in general, and the wine was terrible. 

There it's all whole food, that fills you up, takes longer to eat and delivers more nutrients for less energy.

And there, in a nutshell, is the thrust of Morgan's new book, Appetite for Destruction, co-written with offsider Geoff Simmons. Fake food, he says, is killing us.

Ah, the wonders of North Korea. Where there is no fake food to kill them.

For another take, here's Asia News:

Juche, the ideology of self-reliance launched by dictator Kim Il-sung in the 1950s, is wiping out North Korea. So many North Koreans are hungry that they are resorting to eating wild grasses, when they find it, or just starving to death. Looming on the horizon is a popular uprising that might lead to a mass exodus to the South, this according to officials from five US-based aid agencies who have sounded the alarm after returning from a trip to North Korea....“It is all true,” a Korean source told AsiaNews. “People have nothing to eat. I have seen personally children eat dirt."

Dirt: it fills you up and takes longer to digest. Low carb I suppose. And see here and here and here.

Note: updated to correct a couple of typos helpfully pointed out in comments.

Update: The UN Commission of Inquiry is still accepting submissions on the human rights situation in Korea. I hope Morgan submits his travelogue. Here's what they've been hearing so far:

“Unspeakable atrocities” reported by the UN Inquiry into the Human Rights Situation in North Korea

The head of a UN-appointed inquiry into human rights in North Korea reported Tuesday that testimony heard so far by his panel pointed to widespread and serious violations in every area it had been asked to investigate.

“What we have seen and heard so far – the specificity, detail and shocking character of the personal testimony – appears without doubt to demand follow-up action by the world community, and accountability on the part of the Democratic People’s Republic of Korea,” Michael Kirby, chair of the UN Commission of Inquiry on Human Rights in the DPRK, said in an oral update to the Geneva-based UN Human Rights Council.

While the inquiry’s final conclusions and recommendations must await the end of the investigation and a final report in March, Kirby told the council that testimonies received in a series of just-completed public hearings in South Korea and Japan indicated a large-scale pattern of abuse that may constitute systematic and gross human rights violations in the DPRK. He cited a host of alleged abuses, ranging from abductions, torture and a policy of inter-generational punishment to arbitrary detention in prison camps marked by deliberate starvation and “unspeakable atrocities.”

“We heard from ordinary people who faced torture and imprisonment for doing nothing more than watching foreign soap operas or holding a religious belief,” said Kirby, a retired Australian judge with broad international experience.

“Women and men who exercised their human right to leave the DPRK and were forcibly repatriated spoke about their experiences of torture, sexual violence, inhumane treatment and arbitrary detention. Family members of persons abducted from the Republic of Korea and Japan described the agony they endured ever since the enforced disappearance of their loved ones at the hands of agents of the DPRK…”

The Commission has made its hearings public. Why?

18. How will greater public awareness improve the human rights situation in North Korea?
Despite the fact that many testimonies about the human rights situation in DPRK have been provided, including through televised programs in South Korea, much of the world remains largely unaware of the scale of the problem. By hearing testimonies in public, the Commission of Inquiry hopes to raise the profile of this issue -- not just with a general international audience, but also with members of the United Nations. A video recording of the hearings will also be made available to all members of the Human Rights Council. It is hoped that the testimony will eventually be added to appropriate websites and available online to the public and the international community.  

But maybe what we really need are bike tours talking about the wonders of the North Korean diet.

Organ nudges

It's hard to tell what's a nudge.

Recall the basic thesis of Thaler and Sunstein's libertarian paternalism: the choice of defaults couldn't help but influence choices, so give some thought to the default chosen.

In New Zealand, and many other countries, you're not an organ donor unless you make an explicit choice to become one: you have to choose to sign your organ donor card. Because thinking about death is unpleasant, there will be some people who would wish to sign their card but haven't gotten around to it. The default has affected the number of people signed up. Flip the default around to presumed consent, where those who do not wish to be donors have to opt out, and you'll have higher donation rates. And indeed, that's what's found in most countries running presumed consent systems.

Can we call this a nudge though? A team of researchers running an international comparative study of nudge policies think so.

In early July the passage of the Human Transplantation (Wales) Bill through the Assembly made Wales the first UK nation to adopt a presumed consent system for organ donation.

The Bill, which comes into effect in 2015, should undoubtedly be celebrated: it will lead to far more people being on the Organ Donor Register in Wales, as presumed consent systems have in other countries where they have been introduced, and it will save lives.

The historic significance of the Bill, however, lies not only in the lifesaving difference it will make, but in fact that it is the most discussed aspect of a broader shift in systems of government in Wales and the UK.

This shift is characterised by the increasing use of psychological insights about the nature of human behaviour within the design of public policy.

Commonly referred to as “nudge” policies, these new ways of governing are based on the principles of soft paternalism, or the idea that governments should use policies to make it easier for people in act in ways that support their own, and the broader public’s, best interests.

Nudge policies are clearly in vogue.

It seems like a nudge. Flip in default position? Check. Easy opt-out? Check. But wait:

Bad idea “@ideas42: Wales has become the first country in the Uk to adopt an opt-out policy for organ donation: http://t.co/Cy3gg9uhUO”
— Richard H Thaler (@R_Thaler) September 25, 2013

Bad idea? Why?

To be clear I prefer prompted choice for organ donation. Wales "soft opt out" where families are asked is esp bad since no opt in list.
— Richard H Thaler (@R_Thaler) September 26, 2013

I agree with Thaler that there's nothing wrong with a prompted choice system.

I don't know enough about the system in Wales. New Zealand's opt-in system doesn't really have a list; families are asked whether or not the donor has ticked the box on the driver's licence. If they're moving in Wales from a system that never asks families while presuming you're out absent having signed an organ donor card to one where you're presumed in but your family can veto, then that does impose burden on the families. The change imposes a burden, and that burden counts:

@leemovic @ideas42 opt out puts burden on family members who have no clue of donor's wishes. I prefer prompted choice as in Illinois and CA
— Richard H Thaler (@R_Thaler) September 25, 2013

Policy has to be very specially crafted to count as a nudge, following Thaler's setup. Thaler entirely disavows any connection between the UK's internet porn filter and his nudge prescriptions because of the burden the opt-in regime imposes on families who might prefer not to have to have explicit conversations about such things. Just because something is opt-out doesn't make it a nudge, in Thaler's view. And yet Wales's 'opt-out plus bother the family' system is being sold as a nudge.

Now, a few folks, a few years ago, were just a bit worried that the policy application of Sunstein and Thaler's insights would be rather more hamfisted and that opening up this whole nudge project would yield a pile of things that Thaler would view as shoves. Thaler dismissed those worries as variety of bathmophobia: the fear of slopes of the slippery kind.

But it isn't just the politicos who get things wrong. Here's how the research team working on the international nudge comparison project sees things:

Beyond organ donation, we can now find nudge-type policies in a range of policy areas. The default setting has been changed on company pension schemes in the UK so now it is assumed that employees want to enrol. There are also new plans to change the default setting for domestic access to internet pornography, with households having to opt in to getting access to such sites.

It's always worth keeping half an eye out for how one's bright ideas might be mangled in policy application. Whitehead et al, the research team funded by the Economic and Social Research Council to run the international comparison of nudge policies, have a few insights. While definitely counting the porn filter as a nudge, they also have a worry:

What is most concerning is that I don’t hear any researchers offering alternative viewpoints on the political value of the Nudge theory. Rather, they seem busy trying to get onto the advisory boards of various Behaviour Change research networks, centres and institutes – perhaps in order to fulfil their duties to serve policy-makers in their research and to secure research ‘impact’ – now a pre-requisite of almost any research funding in an increasingly competitive funding environment.

They perhaps could read the Cato Unbound symposium on Nudge - the one where Thaler dismissed his critics' fears as paranoid - for a few alternative viewpoints on the political value of Nudge theory.

Drink driving limits revisited

A member's bill proposing a reduction in the drink driving limit was drawn from the ballot.

Last year, I ran some ball-park numbers on what would be needed for it to make sense to reduce the drink driving limit from 0.08 to 0.05. While you would have some reduction in crashes among drivers in that range, you'd also have losses in consumer surplus among drinkers who would have driven home safely at 0.07. My very rough conclusion was that if those in the .05-.079 range suffered reduced consumer surplus of less than $4 per night out, then the policy could make sense, and if those in that range suffered losses greater than $4 per night out, then the policy would fail.

Let's suppose that the costs of non-fatal accidents are on par with the self-imposed fatality costs incurred by drinking drivers so the $4 is ballpark ok (but note the overestimate problems as it includes people in the 0.08 to 0.105 range). Do you expect that most people enjoying a night out would be willing to accept $4 to be subject to a 0.05 rather than a 0.08 limit? Don't tell me "Oh, I would, because I never have that much anyway." This question isn't for you. This question is for those who go out for the night and either worry that they've exceeded 0.05 or know that they're in the 0.05 to 0.08 range. As you walk into the bar someone offers you $4 and says "You can have this $4 if you can guarantee that you'll stay under 0.05 tonight." If most drinkers subject to the risk take the $4, and if the $4 is ballpark correct, then moving to 0.05 makes sense. If you'd have to offer them more than $4, then it's a value-destroying proposition.

The numbers were pretty rough. I was then waiting for the folks at MoT to provide me with some more recent figures on the proportion of drivers on the road who are in the .05-.08 range. They never got back to me after promising me the numbers, but I didn't pester them either as I got busy with other things. It looks like I'll have to start pestering again so I'll have a chance of running the numbers before the Bill is debated.

Currency controls invite arbitrage

Among the items of Departmental Lore handed down through the ages to me, a then recent migrant to the country and member of the Department, were the tales from New Zealand's dark ages of capital controls and import controls.

Prior to the reforms of the 1980s, you needed permission from the government to purchase foreign currency as capital controls were needed to maintain the fixed exchange rate. Import controls also protected the domestic car industry: you could not import a car from abroad, although there was an exception where those moving to New Zealand could bring their car with them.

Lore being lore the story below is almost certainly wrong in many respects. But, as a colleague once said, even if the facts are wrong, it's still a beautiful story. And so here is the story, handed down to me through the ages.

A member of the Department in the 1970s enjoyed taking many sabbaticals and academic visits abroad. Doing so allowed him access to foreign currency. Every time he could buy a car and bring it back to Christchurch with him, then sell it at a tidy profit: decent used cars here could sell for more than the new car price abroad.

I'm also told he was a pretty strong supporter of the tight economic controls of the time and had great admiration for even more rigid systems.

The Department, and the country, both have rather changed for the better.

Alex at Marginal Revolution reports on a current Venezuelan variant.

Flights out of Venezuela to anywhere are 100% sold out, months in advance. Yet many planes are flying half-empty. Why? The official exchange rate is 6.3 bolivars per dollar but the black market rate is more like 42 bolivars to the dollar. Few people are allowed to convert bolivars to dollars at the official rate but there is an exception for people with a valid airline ticket. As a result people with an airline ticket can convert bolivars to dollars at the official rate and then sell the dollars at the much higher black market rate. Reuters has the story:

“It is possible to travel abroad for free due to this exchange rate magic,” said local economist Angel Garcia Banchs. The profit is realized from an arbitrage process known locally as “el raspao,” or “the scrape.” Credit cards are used abroad to get a cash advance — rather than buying merchandise. The dollars are then carried back into Venezuela and sold on the black market for some seven times the original exchange rate. The large profit margin easily absorbs the cost of flights and accommodation for a trip. “I’ve been able to buy new clothes and give some cash to all my closest family members!” said one delighted Venezuelan lady, just back from a trip to Europe. …Some Venezuelans do not even bother leaving the country, but merely send their credit cards to friends overseas, who swipe the cards and send the cash back to Venezuela. “This is the reason many airlines are sending half-empty planes,” Ricardo Cusanno, head of a local tourism council, told Reuters, saying the government should cross-reference flight lists with those requesting foreign exchange to outwit the no-shows.

I'm curious why the airlines haven't adjusted by massively overbooking flights out of Venezuela.

Whenever you're imagining your favourite way of controlling the economy, give some thought as to how people who are more clever than you are might profit by your regulatory initiative, and whether it might undercut the reasons for your proposed control.

Surveillance math

Suppose there's a low probability chance that any one of us could be pulled aside at Customs for more extensive discussions. It's not happened to me while entering New Zealand anytime in the last, well, decade of living here. But for a couple years, I got the star treatment whenever I arrived in Australia. Why? I think it's because I entered Australia for doughnuts.

I had a couple hours of layover in Sydney on a flight back to Canada. Rather than just twiddle my thumbs in the transit lounge, I cleared Australian customs so I could get some Krispy Kreme on the other side. I doubt that it was the grouchy grouchy Australian customs guy who put me on some watch list, but I rather expect that people who flip into Oz for less than an hour are way more likely to be drug dealers or otherwise dodgy than are other people. One suspicious trip had me on the pull-aside list for a couple years. It got pretty annoying. But it likely made sense from a statistical perspective.

Seeby Woodhouse, a New Zealand tech entrepreneur and, recently, anti-surveillance activist, noted on Twitter last night that he'd been pulled aside for star treatment at NZ customs. I'd reckoned it was just random draw bad luck, but he's since noted that it had never happened on prior trips and that it's also happened to another of the speakers at an anti-surveillance forum.

I don't know the population base rate for being pulled aside by NZ customs. I also expect that the pool of people more likely to speak up at anti-GCSB rallies are also the kind of people who would have greater than average chance of being of interest to Customs officials for other reasons. So even on random-draw pull-asides, a couple of the speakers being pulled aside by Customs after an anti-GCSB rally might not be that improbable even if there hadn't been any rallies.

Martyn Bradbury finds it pretty suspicious, though I suspect he has a pretty low trigger threshold. Let's take his characterisation of the stylised facts though:

One of the most amazing revelations that came out of last nights TICS Bill public meeting in Wellington was Seeby Woodhouse telling the audience that since he spoke out against the Government’s GCSB legislation he was stopped entering America and questioned about his business and shockingly he was pulled aside and questioned by NZ officials when re-entering NZ.

Seeby has been overseas 8 times and has never been questioned, but since speaking out he suddenly gets this type of intimidation. They knew his itinerary, what he had purchased on credit cards and questioned him on what he was doing.

Being pulled aside by the Americans - that seems a reasonably high-probability event for any short duration business trip. Being pulled over on both sides of the trip seems a bit special. Whatever list I was on with the Australians because of my suspicious love for doughnuts didn't get me onto any NZ list, although that was now rather a few years ago. It's plausible that, since then, being pulled up on one side predicts being pulled up on the other.

Not knowing base rates, I can't really run the numbers. If two of the small number of anti-GCSB rally speakers were pulled aside after the rally, and if both hadn't been pulled aside before, and if there's no particular evidence of Customs having otherwise stepped up broad-based enforcement, that does start seeming a bit suspicious.

For now, I'm still calling random-draw. But we're getting close to the threshold where I wouldn't.

Netflix and fixed costs

My usual explanation for Netflix's absence from the New Zealand market has been rights and licensing issues. The fixed costs of getting things sorted out for a small market mean that the game's not worth the candle for Netflix, so they're not here.

As we always tackle the big issues in the Canterbury econ department staff lunchroom, we yesterday argued about Netflix. And Stephen Hickson raised a reasonable counter to my fixed cost argument around navigating rights: iTunes sells movies in New Zealand. If iTunes could handle the fixed costs of dealing in a small market, why couldn't Netflix?

So I checked and it is indeed true that you can download a lot of movies on the New Zealand version of iTunes. But they're expensive. A standard rental is around $8. Purchasing a film is $25. Last I'd checked, Netflix charged $9 per month for all-you-can-eat downloading of anything from their base of movies. Maybe it's since changed: I'd have to circumvent geoblocking to be able to tell.* But if the iTunes standard model is really expensive access to recent films, and the Netflix model is really cheap access to a great big pile of movies, then it's entirely plausible for fixed costs and rights issues to keep Netflix out while iTunes is able to make a go of it. And where Sky has a lot of rights sewn up, they might care rather more about competition from a Netflix style model than about competition from the New Zealand version of iTunes which seems more expensive than either the video rental store or buying DVDs.

For now, then, I'm sticking with my story around fixed costs of navigating rights arrangements. Netflix needs rights to a pile of lower-value films to make their model work, and negotiating for each of those for a small market like New Zealand just isn't going to be worthwhile.

A lot of the high demanders would already have simply circumvented geoblocking (it really isn't hard) and subscribed that way. While Netflix likely gets better margins out of the low demanders - the ones who pay and who download little - it likely just makes more sense for them to take grey market subscription payments from Kiwis who've ungeoblocked than to sort out the rights messes to get the tail of low demanders in a small market.

* Wanting to verify that circumventing geoblocking was easy, I installed Hola. My Chrome install at work is a bit buggy; I have to manually unpack and install extensions. Nevertheless, in about 2 minutes I was into Netflix as though I were American. And now I see that they're only charging $8 per month. I suppose I'll have to install this on the machine at home and sign up.

Previously:

• Caught in the stone age
• Caught in the stone age - Australia too

Third in freedom, last-equal in Cinnabon

New Zealand again ranks third in the 2013 Economic Freedom report, after having caught first place in a more comprehensive index of human freedom (both personal liberties and economic freedoms) earlier this year. Here's the Fraser Institute's latest report. New Zealand's been third in the Economic Freedom rankings since 2004 and in the top 5 since 1995.

But there are a few different conceptions of freedom.

The Economic Freedom index captures an important one: the freedom to engage in economic transactions without coercion, secure in the knowledge that your property rights will be enforced, that money is sound, and that taxation's burden doesn't weigh too heavily. This measure of freedom tends to be a pretty strong predictor of economic well-being. If the regressions that my honours student is working up are right, people mostly value economic freedom instrumentally: they migrate from one country to another based on the differences in income that economic freedom generates rather than because of economic freedom per se. Personal freedoms seem to be driving rather a lot. But I'll post on that work when we're a little farther along.

But another important freedom is the freedom to purchase a Cinnabon. And while I am not banned from here buying one, there exists not a single Cinnabon anywhere in Australia or New Zealand. I expect that somebody's bought the franchise rights and hasn't bothered doing anything with them. Here's an alternative freedom ranking, based on the number of Cinnabons in a country. I haven't weighted by population yet: that is left as an exercise for some future student. Ideally, you'd want a measure of the time cost for the average trip to a Cinnabon. For New Zealand, you'd need to fly to the Phillipines or to Los Angeles. If you lived in Ramallah, in the Palestinian Territory, you might be able to just walk next door.

Here is the Cinnabon Freedom Index (crude). I hope someone improves upon it. We simply here have the number of outlets per country, as listed on their website today. I wonder whether some of the numbers are out of date: their website stopped adding news stories back in December 2012. But here are the numbers.

Country	Rank	Number of Outlets	Econ Freedom Rank
United States	1	531	17
Saudi Arabia	2	144	60
Russia	3	56	101
United Arab Emirates	4	36	5
Egypt	4	36	108
Venezuela	6	31	152
Mexico	7	23	94
Canada	7	23	8
Philippines	9	22	56
Kuwait	10	19	55
South Africa	11	18	88
Panama	12	14	67
Ecuador	13	12	134
Honduras	14	11	56
Bahrain	14	11	8
Colombia	14	11	96
Japan	17	9	33
Puerto Rico	18	7
Malaysia	18	7	68
Costa Rica	18	7	63
Romania	21	6	45
Aruba	21	6
United Kingdom	23	5	12
Guatemala	23	5	56
Dominican Republic	23	5	61
Qatar	26	4	23
El Salvador	26	4	73
India	26	4	111
Jordan	26	4	13
South Korea	30	3	33
Thailand	30	3	94
Trinidad	30	3	79
Oman	30	3	46
Austria	30	3	27
Cyprus	30	3	18
Peru	36	2	22
Greece	36	2	85
Kyrgyzstan	36	2	102
Lebanon	36	2	38
Malta	36	2	21
Palestinian Territory	41	1
Poland	41	1	59
Syria	41	1
Turkey	41	1	68
Germany	41	1	19
Guam	41	1
Italy	41	1	83
Latvia	41	1	46
Nicaragua	41	1	54
Azerbaijan	41	1	117
Chile	41	1	11
Curacao	41	1

See New Zealand or Australia on that list? No. We're last equal at zero. Tied with Antarctica. And Greenland. And Iran.

I wonder whether adding per capita Cinnabon density to any of Chris's migration regressions would improve fit.

It's four years ago that Prime Minister John Key appeared on the David Letterman show announcing that New Zealand now had a Cinnabon in the Auckland Airport. It wasn't true then and it isn't true now. I blame Letterman's writers. But I'm still disappointed.

Of Free Riders and Forced Riders: America's Cup edition

We're all familiar with the typical free rider problem. If there's some public good, individual incentives to contribute towards its funding are attenuated by non-excludability: if you benefit from the good whether or not you pay for it, why pay? And so we get all kinds of arguments for government provision of various public goods.

A couple of days ago, my former Econ 224 student Brennan McDonald sagely suggested that the America's Cup bid be funded via Kickstarter. Economists know that most of the "economic benefits" case for these things is, as Shamubeel Eaqub so precisely put it, bullshit. What's left then? If the fun from a big party outweighs the cost, fine. Otherwise, not. Brennan then suggests:

If we host the next America’s Cup, Kickstarter or some other sort of crowd-funding is the only responsible choice. We should be forcing these special interest groups to put their money where their mouth is. I’m sure that a non-trivial proportion of Kiwis would donate to such a campaign. The deal with council and government could be that if you reach $XX million in voluntary contributions, we’ll streamline the resource consents necessary.

I think Brennan's largely right here. Kickstarter's pretty well placed for funding things that provide warm glow benefits, though they're not the only one. I gave some money to the Indegogo campaign for SeaSteading's current fundraising initiative; I'll get a polo shirt to wear. Actually, a third identical blue polo shirt with a nice Seasteading crest. I get warm glow and get to show affiliation, they get money, I get some prospect-theory-based utility.

Will Taylor then raises the usual objection:

@EricCrampton @brennansmacro @tvhe agree, though free-rider problems would be an issue.
— Will Taylor (@WillTaylorNZ) September 18, 2013

Yup, free-riding still could be an issue even for a decent Kickstarter. If we don't make payment mandatory, we'll get some free-rider problems from those who enjoy the benefits but refuse to pay. Sure. And I'm certain that Will here is simply raising the theoretical point rather than taking it as an argument for state funding of yacht races. However, others would use this argument as justification for state support: free-riding on a public good can provide reason for funding.

But there's a necessary complement to free-rider problems. If we do make payment mandatory through taxes, we'll get a forced rider problem: lots of people who get epsilon, zero, or negative utility from the yacht race are forced to pay for it through their taxes. I would currently be willing to pay $50 for the America's Cup to simply cease to exist; I'd pay more to abolish the Olympics. I hate the America's Cup. It clogs up tv, the Twitter Stream gets a bunch of unblockable nonsense added into it, radio blather gets worse. The America's Cup is almost intolerable being held a Pacific Ocean away; it would be unbearable in Auckland. At least it wouldn't be held in Christchurch.

Yes, I'm being ornery and maybe I'm exaggerating just a little. But worries about free-riders' benefiting from the America's Cup without paying lead people to force me to pay for stuff I do not want and the abatement of which I would view as a good. I wouldn't really push a button to abolish these things because I can't know that I wouldn't be doing more harm than good. But none of the darned boosters seem to give a hoot about whether they're doing more harm than good when they want to force everybody to pay for their parties. That's why they keep trying to frame this nonsense in "aggregate economic benefit" terms - so that they can pretend that even people who don't like the Cup get some notional benefit from it. And the merits of that argument were succinctly summarised by Shamubeel.

Free-riders can be a reason for government funding of public goods. It's possible for the aggregate true willingness-to-pay for something to exceed the cost of provision but for the payment not to be forthcoming because of non-excludability. But for stuff like the America's Cup, it's entirely plausible* that the losses from impositions on forced riders exceed, by orders of magnitude, the gains from avoiding free-rider problems. Please let's not go about creating political failures that are worse than the purported market failures they seek to solve.



* James Zucollo asks for evidence that forced rider problems will here be greater than free rider problems. I'll confess that I haven't gone around and run surveys on it. But surely the onus ought to be on those who would use force to compel my payment for a yacht race to prove that the thing creates rather than destroys value. And it's not that hard to turn Brennan's suggestion of Kickstarter into something more like Alex Tabarrok's Dominant Assurance Contracts. In that system, everyone who pledges towards the Kickstarter gets some small reward for their pledge whether or not the Kickstarter raises enough money to activate. If the campaign raises enough money, everyone has to pay up for their pledge. But because everyone is rewarded for pledging regardless of whether the project goes ahead, free-riding problems are reduced. Maybe it's not perfect as you still need some high demanders fronting a bit of cash for the up-front payments to supporters, but it's a decent way of reducing free-rider problems while avoiding forced-rider problems. That boosters of major events typically go for compulsion first suggests, to me at least, something about their expectation that individuals have more than notional demand for these kinds of things.

I'm having a rather harder time imagining how you run a Kickstarter for "No America's Cup Bid For New Zealand". Sure, I can imagine a site taking donations. But where a pro-Yacht Kickstarter would actually pay for the event, an anti-Yacht Kickstarter would have to be providing something to the governing coalition in order that they not go ahead with an America's Cup bid. It couldn't just donate to the National Party as too many potential donors would be put off by that and because Parties can't actually be seen to be selling policy. Instead it would likely have to be providing some desirable-to-the-government public good but only in the case that there's no Cup bid.

Update: I've been informed that if New Zealand wins the racing, the next America's Cup will be held in New Zealand. While I still think this is better funded by Kickstarter if it does go ahead, it's seeming increasingly likely that there might be me and maybe two other people in the country who might be annoyed by having to pay for a yacht race. A lot of people seem to be getting utils out of this thing. And while I think that this makes it way more likely that you could get a million people each shelling out $10 - $15 to support the cup in exchange for exclusive supporter t-shits, it also means that Zucollo could be right: losses from forced riders could be low. Bread and circuses are popular.

Other people's money

When you're playing with other people's money, you have different incentives. Take Corporate Social Responsibility, for instance.

Suppose that there's a trade-off between profitability and CSR mandates. Why might this be the case? Any CSR initiatives that increased profitability would have already been adopted under normal profit-seeking strategies.

Managers want to think themselves good people and enjoy doing CSR things. They get approbation from others for doing so. They'll get in trouble with shareholders if profitability drops too much, so they won't do the nuttiest things. But they'll take some CSR as consumption.

NBER points to some relevant evidence. From the abstract of Cheng, Hong and Shue's new paper:

We find support for two key predictions of an agency theory of unproductive corporate social responsibility. First, increasing managerial ownership decreases measures of firm goodness. We use the 2003 Dividend Tax Cut to increase after-tax insider ownership. Firms with moderate levels of insider ownership cut goodness by more than firms with low levels (where the tax cut has no effect) and high levels (where agency is less of an issue). Second, increasing monitoring reduces corporate goodness. A regression discontinuity design of close votes around the 50% cut-off finds that passage of shareholder governance proposals leads to slower growth in goodness.

In short, the more skin that decision-makers have in the game, the less they go for CSR policies. And the more that those with skin in the game can monitor the decision-makers, the less they go for CSR policies. It's slack in the principal-agent relationship that allows managerial consumption of "do-good" benefits.

Sometimes, we need Larry the Liquidator.

Ladies and Gentlemen... the Greens' would-be Finance Minister

Russel Norman, recently ruled out as Finance Minister in any Labour-Green coalition by Labour, tweets from the Finance Committee:

Sitting in Finance Cttee listening to Treasury officials describe tax as a 'burden'. Right wing political ideology runs deep in Treasury!
— Russel Norman (@RusselNorman) September 17, 2013

Tax is price we pay to live in a civilised society. If Treasury thinks it's a 'burden', perhaps they'd suggest abolition of public health.
— Russel Norman (@RusselNorman) September 17, 2013

Taxes are a bad, public services are a good. Saying the first doesn't mean denying the second.

More importantly, economists use the word 'burden' in a particular way. A few useful notes about Principles-level (maybe intermediate) economics for someone who thinks himself qualified to be finance minister:

• 'Burden' measures the total cost of a tax. The 'excess burden' is the amount by which the cost of a tax exceeds the amount collected. Treasury tends to reckon that excess burden is around 20%: it costs us about $1.20 to raise $1.00 in tax. The $1.00 raised is a transfer from the public to the government; the $0.20 is pure loss due to distortions in economic activity consequent to increases in our current mix of taxes.
• Tax incidence theory is important: it tells us who bears the burden of any particular tax. Suppose we wanted to add another 5% compulsory Kiwisaver contribution. The 'burden' of the tax would fall on both workers and on employers with the precise mix depending on how employers and employees change their labour demand and labour supply with changes in wages: it doesn't much matter whether we say that employers have to pay it or whether employees have to pay it. Regardless of statutory incidence, economic incidence - the burden - will remain the same. Meteria Turei understood this when she said that the accommodation supplement paid to tenants is largely a subsidy for landlords. Alas, public understanding of such things is imperfect, allowing for shenanigans where measures imposing burdens on one group are framed as costing somebody else instead.
• If a genie appeared able to provide public health services, for free, this would be a good thing, right? It's impossible, but it would be good. The services paid for by taxes are good, the taxes are bad. We need to be sure that the value delivered by services are greater than the burden imposed by the tax. At current measures of excess burden, a project must return at least $1.20 for every dollar in spending. 

Russel Norman suggests only "right wing" economists talk about tax burden. Here is a JSTOR search on "tax burden". There are 61 pages of search results with 100 results per page. Item number 177 on a date-sorted list is famous Right Wing Economist John Maynard Keynes discussing the Colwyn Report on Natinoal Debt and Taxation. Item 398 is rabid right-winger Nicholas Kaldor's call for wage subsidies to reduce unemployment (1936).

Burden is just the term used by economists to describe the cost of the tax and to help sort out the difference between statutory and economic incidence. Like "While X writes the cheque to IRD, the burden of the tax falls on Y and Z." That's it. It's the standard term used in the main texts to describe this thing. Richard Musgrave (centre, maybe centre-left) uses it. James Buchanan (right) uses it. Pick a random public finance text, you'll find "tax burden" or "excess burden" somewhere in it.

Update: egads, it gets worse. Lance Wiggs tries explaining that it's just a word we use. Russel Norman replies:

@lancewiggs Taxes do change behaviour. To call it a burden or distortionary does buy in to general equilibrium model w all its problems
— Russel Norman (@RusselNorman) September 18, 2013

Update 2: this is way too funny. A Twitter correspondent points me to two press releases by Russel Norman.

First:

"It's not fair to expect income-earning New Zealanders to carry a disproportionate share of the tax burden while some of New Zealand's wealthiest individuals pay none," said Green Party Co-Leader Russel Norman.

Second:

Unlike the National Government that has chosen to shift the tax burden on to the lowest paid New Zealanders, our tax changes would focus on those not currently paying their fair share.

Some advice for David Cunliffe.

Dear David,

Congratulations on winning the leadership of your party. Now the hard work begins. By that, I don’t mean uniting your party; I mean persuading the electorate that you are offering a coherent alternative to National, particularly on economic policy. Now I am an economist not a political commentator, but it seems to me that there are a few principles you need to follow that have been missing from your party over the past five years:

1. Ask yourself in private, what do you really stand for? Politics is the art of the possible. But this should mean asking what desired outcomes you have to give up on in order to be in a position to implement the ideas that really matter to you. Too often in recent years, it has seemed like your party has based its manifesto purely on what it thinks would maximise its chances of winning an election without any thought about why it wants to win.
2.  You will need to sacrifice some principles for populism; that is the nature of democratic politics. But you should aim to form a government that can win more than one election and will be judged well by posterity and so resist the temptation to cynically promote policies you know to be damaging. Your party’s 2011 promise to remove the GST from fresh fruit and vegetables was an example of such a policy.
3.  As a corollary of point 2, minimise your use of bad economics. Regrettably, bad economics can often be good politics, but too much—in particular excessive promising of free lunches—will be seen as non-credible by the electorate.
4.  In particular try to appear to be operating from consistent principles, not just offering to scratch the latest political itch. Your colleague, Clayton Cosgrove, recently and quite correctly in my view, castigated the government for paying a subsidy to Rio Tinto to keep the Tiwai Point aluminium smelter open. Three days earlier, you gave a speech as part of your leadership race in Dunedin in which you castigated the same government for “gutting” the Hillside Workshops in Dunedin. Campaigning against National’s corporate welfare could be a strong election plank for you, but not if you simultaneously criticise National for not having enough of it.
5. This means, you should take economics seriously. Don’t take your advice from courtiers seeking to flatter or consultants prepared to provide any answer you are prepared to pay for. Your party’s recent fiasco in which you repeatedly cited the Wolak report as justification for your electricity policy only to have Frank Wolak repudiate your claims, was an entirely predictable outcome of your not having sought to understand the report before citing it.

Follow these points, and you could be leading a party that operates with a few core principles and with policy proposals that follow logically from those principles. And that would certainly be a way to distinguish yourself from your political opponents!

The scream test

Imagine two policies.

Policy A would have government nationalise all liquor companies and distribute their product, for free, for anybody who wants some, with costs borne out of general taxation. There would be no compensation of the liquor companies.

Policy B would strengthen alcohol intervention programmes for prisoners with alcohol abuse problems. They'd spend a fair bit on it and work hard with prisoners, both while in prison and during their re-integration back into the community, to help them to avoid falling back into substance abuse.

Now Alcohol Action NZ proposes a "scream test" to tell whether some proposed policy would reduce alcohol harm. In their model, industry profits are increasing in the harm imposed by alcohol, and industry screams when profits are threatened. Anything that reduces harm reduces profits, so the scream test tells us which policies are likely to reduce harm.

I suggest instead that industry would scream a lot about Policy A, and would likely support Policy B. I also suggest that Policy A would increase harm and Policy B would reduce harm. Note further that National is already implementing something like Policy B - kudos to them. I've yet to hear screams from industry.

The scream test is a bad one. Profits are perhaps increasing in total consumption, but they're likely decreasing in alcohol's harms not only because of the policy reaction function but also because moderate consumers' consumption is likely decreasing in perceptions of harm.

The one spot where Sellman's scream test could be right would be policies potentially hitting the very heaviest consumers. There are discrepancies between median reported consumption figures and total alcohol available for consumption suggestive of that there is a small group consuming booze by the barrel. Policies disproportionately hitting that group could potentially reduce both harm and profits. But I hardly expect that mandatory 1 am bar closing times fit the bill.

TANSTAAFR

Ladies and gentlemen, the Owlbear song.

Geek cred to the first commenter explaining my cryptic title and the problem in Marcotte's song to which it alludes.

Marcotte's D&D works are up on Spotify (and here and here). Listen to them during your next campaign.

HT: my search on Spotify for the word "Owlbear". This is the only song that came up. If you need to ask why I'd have searched Spotify for Owlbears, you've not been reading me long enough.

Information failures and risky buildings [updated]

There's a trade-off when government agencies disclose known risks. Take, for example, AIDS disclosure laws. Some US states require that partners or others likely to be at risk from a patient testing positive for HIV;  others fear that the effect of such disclosure laws is to induce those at risk to avoid being tested. I've certainly not seen any data sufficient for running that cost-benefit analysis,* but it's plausible that either regime could be the correct one.

Wellington Council has a list of buildings sharing the same design flaw as the collapsed CTV building in Christchurch. But they won't tell anybody which buildings are on that list. Is this likely to be efficient? It depends on how Council knows and what they do with the information. If these kinds of flaws get found when Council officers dig back through the old building plans, then there's little risk that disclosure induces building owners to hide flaws. If they're found instead when owners inform Council, then disclosure could induce owners to keep quiet. So, in the former case, disclosure makes sense. In the latter case, it's a trade-off. Whether it makes sense to keep things quiet then depends on the number of owners who would likely be deterred from revealing risks in the disclosure regime and on whether Councils actually do anything to ensure that risky buildings are made safe. If buildings of that sort fall under the usual "you have 30 years to fix it" rule, then it seems unlikely that we're doing much good by keeping things quiet. If they're working towards much quicker repairs of disclosed faults, and if we think that tenants would overreact to the risk disclosure, and if we think that building owners would hide faults in a disclosure regime, then perhaps non-disclosure makes sense.

I'm inclined to agree with NoRightTurn that the case for disclosure seems strong - and especially since the justification seems to be to avoid imposing losses on the owners of risky buildings rather than to avoid that other owners notify Council of building deficiencies. But I'd reverse that call if it turned out that Council were really pushing to get this fixed and if there were substantial risk from unknown building flaws that would fail to be notified under a disclosure regime.

Update: 'An Engineer', in comments below, suggested that errors in the list would be sufficient reason for non-notification. I agreed, noting that there would then be reason for Council to get in touch with owners to ensure that buildings were up to scratch, with disclosure if they weren't fixed. Now looks like half the buildings have been cleared.

* This state-by-state variation seems eminent fodder for empirical work on the effects of disclosure laws on testing rates. File under "future honours projects" if it's not already been done.

Still seeing red: Blame the rules not the ref

I really, really hate 15 on 14 rugby. Three years ago, I wrote a venting post when in the space of five All Black tests we had seen 3 yellow cards and 1 red. On Saturday night in the test match between the All Blacks and South Africa, we saw that quantity in a single game, three for foul play and one for a professional foul. 

The first yellow card to Bismark Du Plessis was clearly wrong; the second to the same player was clearly correct (as were the cards to Nonu and Read) according to the rules. The problem was that the rules state that a second yellow card automatically leads to a red, and so the original error was compounded and South Africa had to play most of the second half one man short, to the detriment of the game. 

Most of the discussion in the main-stream media and social media since has focused on the error by Roman Poite in carding Du Plessis for what was a perfectly legal tackle. This misses the point. Yes, Poite made was in error*, but errors are inevitable. Rugby is played at a furious pace. Split second judgements are required from both players and referees and all of them are going to make mistakes. The rules need to be written with a view that this is going to happen. The two-yellow-equals-a-red rule is simply too draconian to a world where errors of judgement can happen. 

Part of the problem, here, is that there isn't any coherence in the incentives that the rules seek to create. Partly we want to punish individual players for behaving in a reckless way causing unnecessary endangerment to other players. Partly we want to punish teams for illegal actions of individuals that give their team an advantage. For the latter, it is appropriate that the punishment lead to an advantage for the other team in the course of the game being played. For the former, the punishment can occur after the game in the form of suspensions, fines, etc. If the point of a card is to put a team at a disadvantage to mitigate the advantage caused by some illegal act, why does it make a difference if the same player transgresses twice, or two players from the same team transgress once each? And if the point of the two-yellows-equals-a-red rule is to increase the punishment for habitual offenders, why does it make a difference if that player earns a yellow card once in two successive games or two yellows in a single game? 

I come back to the rule I suggested in my 2010 post: If foul play merits sending a player off, let him be replaced so the game continues to be 15 on 15, but take appropriate action at the post-match judiciary (including being open to the possibility that the on-field decision by the referee was a mistake). If the problem is professional fouls, change the incentives so that conceding a penalty does not give the infringing team an advantage in terms of possession and field possession, and instruct referees to be more liberal in awarding penalty tries. But please, no more 15-on-14; it is a blight on the game. 

* As an aside, why has the criticism all been placed on Poite rather than, George Ayoub. Poite made a call based on what he saw; he asked for guidance from Ayoub, the television match official. Ayoub instead of clearly stating that there was no foul play simply said that he couldn't make a determination and that Poite should go with the call as he saw it. Ayoub had the benefit of slow motion, multiple replays and different angles; Poite did not. Why, then, is Poite the one blamed? 

Competition in small markets

Another for the "New Zealand's Fixed Costs Matter" file: Aaron Schiff posts on the relative lack of competition in New Zealand. Where inefficient firms are driven from the market in other places, New Zealand has a long tail of pretty unproductive outfits.

Roger Procter has dug into the stats a bit deeper and found that some New Zealand firms have very high productivity but there is a very long tail of unproductive firms that are able to survive.

He notes that the ratio of the productivity of the firm at the 90th percentile (i.e. near the top) to the 10th percentile (bottom) of the productivity distribution in New Zealand industries is around nine.

In other words, a firm that is nine times less productive than the best in the same industry can survive in New Zealand. In Denmark, for example, the ratio is reported to be around 1.6 to 3.5. Danish firms that can’t achieve at least a quarter of the productivity of the best firms get killed off quickly.

Roger argues, and I agree, that lack of competition is a major reason for this. Competition forces firms to increase productivity and kills off those that don’t.

Aaron agrees with Procter's assessment that New Zealand's low level of international trade hurts things, then makes a rather interesting argument for import-led growth.

We’re stuck in a low-competition, low-productivity, low-trade equilibrium. New Zealand domestic markets are too small to support enough intense competition to get us out of this state. Exporting is hard work and not enough firms are motivated (or forced) to drag the economy up the productivity mountain.

On the other hand, if low cost imports from productive foreign firms start coming in, maybe NZ firms will be forced to improve their game, or get killed off.

I realise this is a harsh “stick” type strategy, rather than an export “carrot”. Exports create jobs and imports can destroy them, at least temporarily. Maybe I’m getting soft in my old age but there might need to be assistance for some workers during the transition. But given the dire productivity stats, maybe a strong shock to the system is required.

There's not a lot that we can do to make New Zealand even more open to imports: tariffs are very low, GST rules around imports currently make sense, and we see no need for the New Zealand government to enforce at the border any exclusive dealing arrangements that foreign manufacturers have seen fit to make with New Zealand retailers. But getting rid of our ability to run parallel importing, or doing dumb things imposing GST on low-value imports, or forcing a policy preference for New Zealand Made products, would do harm.

Taking less offence - revisited

Loyal readers will recall that New Zealand's Broadcast Standards Authority decides which words are particularly offensive by surveying New Zealanders. Alas, where they once ran face-to-face surveys asking them which of a series of pretty rude terms were particularly offensive, and in which contexts, they now run it via an internet panel survey. I had no end of fun imagining Eric Cartman volunteering to run a door-to-door version of the survey.

The BSA's 2013 list came out this week. It's called "What not to swear: the acceptability of words in broadcasting, 2013". They warn that the report contains language that some would find offensive. There hasn't been great changes in acceptability since 2009; the 2009 figures showed a fairly substantial increase in tolerance of robust language as compared to 1999.

One interesting bit from their summary:

• When comparing the different demographic groups, it is evident that
  
  • Males tend to be more accepting of the words than females
  • Younger respondents tend to be more accepting than older respondents
  • Those that state they have no religion tend to be more accepting than those of religious belief
  • Those of Māori ethnicity are generally more accepting than those of other ethnicities, while Pacific peoples are less accepting
  • Those on high household incomes tend to be more accepting

I wish they'd run some regressions rather than just comparisons of means. Pacific groups tend, in New Zealand, to be lower income and more religious. Are differences between Pacific responses to swearing based on religious differences between Pacific and Maori groups, or something else?

I try to set the dial, for lecturing, to avoid terms considered offensive to a majority in the context of "people being interviewed (TV or radio)".

The very very best part of the report is Appendix I, where respondents were invited to fill in those terms that they personally found offensive. They make a point of reminding readers that the comments are copied verbatim. Words typed in range from "goodgracious" and "Doodoohead" and "OMG, Oh My God" to very creative spellings of other terms. Just go read it. And imagine what you'd have added in, had you had the chance. Please do not contribute suggestions in the comments though. We're not that kind of blog.

We remain impressed by the robustness of language frequently heard on broadcast television, after 8:30, in New Zealand.

Living Wages - Canadian economist(s) edition.

Simon Collins's Herald piece on living wages makes for interesting reading.

He opens with a story of a couple who both work shifts cleaning at a mix of buildings, some housing government-owned entities, some private. They both earn $14.10 per hour, less than the union's $18.40 living wage recommendation. He then points out the current version of Labor candidate pledges:

Grant Robertson pledged to set a timetable to pay the living wage to all government workers and contractors.

David Cunliffe promised to "roll out a living wage as a minimum for public servants and, as we can afford it, through the contractor process".

But the third contender, Shane Jones, refused to commit to the policy, and Prime Minister John Key said it would cost $2.5 billion and destroy 26,000 jobs.

If Labour puts in a $18.40 minimum wage for government workers, the featured family would likely only be getting this for their shift cleaning at a school unless the school contracts out facilities maintenance. And the school might shift to contracting out to keep costs down unless the government topped up its budget to make up the difference. If contractors also have to pay it, then the featured family does better in the short to medium term. But recall that if the potential benefits are large, so too are the incentives to shift to renting serviced facilities and so to have cleaners and other maintenance staff out from under the living wage mandate. So either it doesn't do much, or it gets circumvented. Collins also notes in passing that Ofa, one member of his featured family, is a delegate for the Service and Food Workers Union. I expect that the unions as a whole do well out of the measure, if it's extended to contractors, because it blunts the force of contracted outsourcing in keeping costs (and wages) down.

Collins then works through some of the costing estimates on living wage mandates, correctly noting that increasing the minimum wage to $18.40 would be very expensive. He then quotes me on the likely disemployment effects of an $18.40 minimum applied only to the government sector:

Those taxpayers would have less to spend, but low-paid state workers would have more. Even right-wing blogger Eric Crampton, a Canterbury University economist, wrote this week that the net effect would be minor: "Lots of people queue for jobs in the high-paying sector, but they'll take lower-paying jobs in the private sector."

I do expect that there wouldn't be much change in aggregate employment with a living wage mandate applied only to government workers and contractors because I expect that the government has close to a vertical labour demand curve for such workers and tasks.* There would be job rationing - in other words, more people wanting to work as cleaners in the public sector than there are available jobs - and the unions could extract higher dues as consequence. But Councils and Government would be likely, in the short term at least, just to pay more and make it up with increased taxes. In the medium to longer term, I still would expect a shift to government departments taking up tenancies in serviced buildings, but where the cleaning budget is a small part of the overall calculus, the effects mightn't be large.

Collins nicely does cite the literature on that living wage mandates are very poorly targeted and that we could do rather better by increasing targeted benefits. Then he cites U Vic's Morris Altman:

Morris Altman, a renowned Canadian economist who moved to Wellington's Victoria University in 2009, argues that a living wage is "a moral imperative situated in the natural rights of individuals".

His research suggests that a wage rise can actually pay for itself by raising productivity through motivating workers to work harder and stay in their jobs, and by inducing employers to introduce new technology and train workers to work smarter.

But that is only true, he warns, if wages are raised at a rate that productivity can keep up with. "So one has to be ultra-careful about by how much one increases. If it's a radical increase, that might be too much to deal with in the short-term," he says. "You might need a bit of an adjustment period to get productivity up."

I choose to take it as a compliment that Collins seems to have assumed that I'm Kiwi.

I haven't read Morris's work on living wages. I'd disagree pretty strongly with him on moral imperatives and natural rights, but I'm pretty sure neither of us gets to trump the other on that kind of question. And I can believe that, in some cases, salary increases can be self-financing - that's the general basis underlying efficiency wage theories (which also typically generate equilibrium unemployment). But we expect that firms choosing to increase wages on this kind of basis do so because they expect the salary increase to be worth the cost. I'm a bit curious why we'd expect those results to hold where employers are forced to pay more, but I'll perhaps have to look up his book this summer.


* I do hesitate a bit here though. I remember when the University set up a sustainability framing for a change in how they handled departmental waste collection. Instead of cleaning staff going into each office every night and emptying the bin, academic staff were asked to bring their trash and recycling bins to a central waste bin on each floor and those central bins would be collected every night. Maybe you could make some kind of sustainability case for it where staff who hate the cost of shuffling off doing a trash run every night might instead produce less waste. I'm not sure I believe it. But I am pretty sure they were able to cut the costs of building cleaning because of the policy change. At a minute per room for unlocking, collection, and relocking... well, it adds up. So there's often a margin, even where we don't expect there to be one.

Cupcake Freedom

Campbell Live tonight reported on Auckland Council's shutting down of some kids' cupcake stands at a local mall. Because the mall ran the kids' day once a month, according to the story, it then counted as a commercial market. And so the kids had to produce their food in a commercial kitchen.

I initially thought that the new Food Bill was to blame. It was introduced back in 2010 and got a fair bit of push-back in early 2012. But that cannot be the case. Submissions on the Bill closed only a month ago. Since I had never heard of Councils in NZ hitting kid bake stands like this, and as Auckland was blaming national regulations, I incorrectly assumed that the Food Bill had to have gone through. And so I apologise for blaming the Food Bill and its sponsor, Kate Wilkinson.

I still would very much like to know whether there is basis in existing national regulations for Auckland's rather heavyhanded actions in this case. Either the regulation has existed and hasn't been enforced elsewhere, the regulations have changed, or Auckland's interpretation is incorrect.

The original post follows below. It is based on an incorrect premise. I have run a strikethrough tag through it so that it's obvious that it ought not be relied upon.

Update: And I thank @mellopuffy for the correction.
Update 2: More detail here.

Kate Wilkinson promised us this wouldn't happen. And yet here we are.

Her op-ed of January 2012 sought to put to rest petitioner fears that the Food Safety Bill would shut down a lot of small scale entrepreneurship. She wrote:

Those behind the online petition opposing the bill claim it will seriously impede initiatives like community gardens, food co-ops, heritage seed banks, farmers' markets and roadside fruit and vegetable stalls. This is nonsense.

At most, people involved in such activity, where it presents a low risk, will be provided with information.

Events such as sausage sizzles, home bake sales, and other fundraising events will still occur as they always have.The bill is intended to protect, not harm such events, as the bill's critics would have us believe.

Bartering of food is currently included in the Food Act 1981. The proposed bill simply clarifies that those bartering with food, as part of a food business, must ensure it is safe and suitable.

Many small-scale bartering activities will only be subject to food handler guidance – for example, those bartering home-grown produce for goods and services. However, larger scale bartering of food exists and it is appropriate that those enterprises are subjected to the same risk-based measures as those selling their food products in a more conventional manner.

I wrote:

So is the new regime worth the cost? That depends on the compliance costs that will be faced by small and mid-sized traders. Wilkinson assures us that small traders won't face onerous burdens, but I'd really prefer seeing proper analysis of the Bill from someone like Otago's Andrew Geddis. And we have to keep in mind that a substantial proportion of the costs Wilkinson cites might actually be voluntary choices consumers are making that, on lucky draws, yield tasty goodness any diminution of which consequent to regulation ought be counted against the Bill's possible health benefits. Banning me and others like me from having my hamburgers medium-rare might save the health system a bit, but it'll certainly cost me some utils. Equally bad is what a big fixed-cost regime would do to food startups. I really hope that the legislation isn't as costly on those two fronts as some folks fear; I'd love to see independent legal analysis.

So: I was worried about compliance costs on small traders; Wilkinson promised there was nothing to worry about.

Tonight's Campbell Live has Auckland Council shutting down a mall's efforts to support young entrepreneurs. Once a month, they let the kiddies set up little stands selling their cupcakes. Council says that they're forced to shut it down because of Kate Wilkinson's Food Safety Bill. Hit the link to watch the video.

Kate, if you were serious about what you wrote in 2012, you will fix this, right? If your op-ed was right, Auckland shouldn't be interpreting your legislation this way. Please tell them, and tell every other Council, that they are not required to do what Auckland is doing. The problem is Auckland's interpretation, right? Because when I tweet stories from the States about Council health people knocking over kids' lemonade stands, I usually append an #emigrate tag.

Surely here in New Zealand we're not going to need a cupcake equivalent of this?