Nominal wage rigidity and low inflation: minimum wage edition

Here's Workplace Relations Minister Michael Woodhouse:

Workplace Relations Minister Michael Woodhouse says an increase to $15.25 per hour will directly benefit approximately 152,700 workers and will increase wages throughout the economy by $75 million a year.
“With annual inflation currently at 0.1%, an increase to the minimum wage by 3.4% gives our lowest-paid workers more money in their pocket, without imposing undue pressure on businesses or hindering job growth,” he says.

Woodhouse just mandated a 3.4% nominal hike in the minimum wage, which is also a substantial real increase at low inflation.

Median hourly earnings at the 2015 Income Survey were $22.83 per hour. And so the minimum wage is about two thirds of the median wage.

The DoL background papers aren't up yet. It would be nice if they updated this chart.

The minimum wage was $12.00/hour when National took office in 2008. Median hourly earnings were then $18.75. The minimum wage was 64% of the median. Since then, the minimum wage increased to $15.25, a 27% increase. Median hourly earnings* are up to $22.83, about a 22% increase. 

I wonder what National would have said, in the 2008 election, if Labour had then campaigned on minimum wage increases outstripping median wage increases, and on getting minimum wages to being no lower than 66% of the median.

Economists dicker over whether nominal wage rigidity is really a great explanation for equilibrium unemployment: employers could just offer lower starting wages at the outset if it were the main issue, and there are puzzles around why fired workers would continue to be sticky. But minimum wages at 66% of the median wage are a rather more concrete form of downward nominal wage rigidity.

And remember that we shouldn't extrapolate from American findings on small effects of minimum wages, where minimum wages are around 40% of the median, to scenarios where minimum wages are 66% of the median. 

* This will update when the 2016 figures are out. We shouldn't really be basing this on the 2015 median income figures, but we have this problem every year: minimum wage changes are effective April; income data is on the June NZ Income Survey figures. 

Assortative outcomes

The effects of assortative mating are finally starting to hit the mainstream. Here's the New York Times on growing class divisions driven by stronger assortative mating:

The Don Drapers of the world used to marry their secretaries. Now they marry fellow executives, who could very well earn more than they do.

With more marriages of equals, reflecting deep changes in American families and society at large, the country is becoming more segregated by class.

“It’s this notion of this growing equality between husbands and wives having this paradoxical effect of growing inequality across households,” said Christine Schwartz, a sociologist who studies the topic at the University of Wisconsin-Madison.

...Assortative mating is the idea that people marry people like themselves, with similar education and earnings potential and the values and lifestyle that come with them. It was common in the early 20th century, dipped in the middle of the century and has sharply risen in recent years — a pattern that roughly mirrors income inequality in the United States, according to research by Robert Mare, a sociologist at the University of California, Los Angeles. People are now more likely to marry people with similar educational attainment — even after controlling for differences between men and women, like the fact that women were once less likely to attend college.

So far so good. And they get this part right too:

Researchers say the rise in assortative mating is closely linked to income inequality. The two have increased in tandem, Dr. Schwartz, the sociologist from the University of Wisconsin, said: “People who are married tend to be more advantaged, and on top of that, more advantaged people are marrying people like themselves, so those people tend to be doubly advantaged.”

If the base model in your head is like mine, outcomes like income and employment depend on the interaction of ability and effort. Ability depends on genetic endowment and, to a lesser extent, childhood environment - at least within conventional bounds. If childhood environment is terrible, it'll munt ability. But otherwise, Caplan's results on the effects of environment hold.

The large story of the 20th Century, in America, is then one of sorting. America had huge gains in the early through mid 20th Century as agricultural productivity improved. Fewer kids were needed to take over farms, and fewer smart kids stayed in small towns. Agglomeration and the big cities ramped up. Now, agriculture is again very skilled, requiring exceptional management ability over very large operations. But it needs far fewer people.

You had huge income mobility over a broad meritocratic sorting period. But that sorting is now largely done.

Couple that with much stronger assortative mating you get lower income mobility, stronger class differences, and much stronger regional heterogeneity. Where the class differences also turn into partisan assortment, things start looking not so nice.

If every child's base endowment is the parents' mean with some reversion to population mean, then stronger assortative marriage drives greater real heterogeneity in child endowment. That can be compounded by that those parental endowments will also cash out into greater environmental heterogeneity. But there's an increase in the amount of income inequality you should expect: the closer the world is to pure meritocracy based on ability and effort, the more inequality you're going to get when assortative mating strengthens and where ability is heritable.

As fun aside, consider that the change in inequality in New Zealand is rather muted compared to the change in the US. If it's due in part to that New Zealand disproportionately sees out-migration at the higher end of the ability distribution, we should not be so quick to celebrate.

But where does the Times take it?

The effects could become more pronounced in future generations. Studies tell us that parents’ income and education have an enormous effect on children’s opportunities and achievements — and children today are more likely to grow up in homes in which parents are more similar than different.

That's largely an environmental story.

It's not entirely wrong, and it does make the case for school funding in America being more like school funding in New Zealand, with a strong egalitarian lean in the per-student funding scheme.

When I play with the Ministry of Education's funding formulas, our kids' school would get about 66%* $1000 per student more government funding if it were Decile 1 (poorest) rather than Decile 10 (richest). This is a baked-in part of New Zealand's system that is constantly missed: everybody talks about how high-decile schools get way more in parent donations, nobody mentions the strong progressivity of the government's funding formula.** If you grow up in a poor neighbourhood, your school's funding depends a lot less on the localised tax base. And school funding can matter.

But ignoring the role of trait heritability would be a huge mistake. You'll wind up underestimating how well some schools in poor communities are performing, overestimating how well schools in some rich communities are performing, and overestimating the extent to which any of it can be affected by transfers.

Previously:

• Cargo Cult Reading: In which books in the home is a better signal of what parents have passed down through their genes than of home environment.
• Assortative Mating. In which people are Lancasterian goods and we all get the best spouse we can afford given our characteristics. 
• Cinderella Men: assortative mating dynamics at the bottom of the distribution
• Genetic Performance: Heritability of academic outcomes and test scores.

* The Ministry's calculator here is on the operational grant, not on staffing. So the percent difference will be much smaller than I'd initially written. Thanks to Chris, in comments, for the correction. He's also dead right that lower decile schools can't use funding to attract and keep better teachers, or at least not through pay.

** On this one, work by Chris Ball and others is great. They show how measures of inequality would change if you accounted for goods and services provided by government for free to everybody. But even that understates the case: they there take education spending as the average amount spent per student across the whole system rather than recognising the strong by-decile differences in school funding.

In the table below, market income is your pay; disposable income is your pay net of taxes and transfers; final income starts with disposable income and adjusts for the value of government-provided services like education. You'd shave a bit more off that final number if you accounted for that poor schools get dramatically more public money than rich schools. Remember: when folks quote Gini on market income as argument for greater redistribution, they're trying to deceive you. Existing redistribution mechanisms have to be accounted for when thinking about this stuff: final income then is the better measure.

The ongoing alcohol crisis

2015 had the lowest per-capita alcohol availability since the data series started in 1986.

And The Press's news story on it didn't even have anybody from the public health side giving an it's still-a-crisis spin. Very nice. Maybe that's why there's only been the one story so far on the StatsNZ press release. Source: Infoshare, series ALC021AA.

Genetic performance

Identical twins have school test scores that are more closely correlated than scores from fraternal twins.

de Zeeuw et al look at data from the Netherlands Twin Register.

Even children attending the same primary school and taught by the same teacher differ greatly in their performance. In the Netherlands, performance at the end of primary school determines the enrollment in a particular level of secondary education. Identifying the impact of genes and the environment on individual differences in educational achievement between children is important. The Netherlands Twin Register has collected data on scores of tests used in primary school (ages 6 to 12) to monitor a child's educational progress in four domains, i.e. arithmetic, word reading, reading comprehension and spelling (1058 MZ and 1734 DZ twin pairs), and of a final test (2451 MZ and 4569 DZ twin pairs) in a large Dutch cohort. In general, individual differences in educational achievement were to a large extent due to genes and the influence of the family environment was negligible. Moreover, there is no evidence for gender differences in the underlying etiology.

Standard measures of trait heritability look at the variance of outcomes across identical twin pairs (monozygotic) and compares it to the variance of outcomes across fraternal twin pairs (dizygotic). Where identical twins are much closer together than fraternal twins, the trait is more heritable. Where identical and fraternal twins have more similar variances in outcomes, the trait is less heritable.

Common environmental effects refer to parts of the environment that are shared by twin pairs. So: home environment, classroom environment (where they're in the same classroom), neighbourhood and the like. Unique environmental effects are things unique to the individual and not shared with the twin.

Results?

Genetic effects were the most important contributor to individual differences in educational achievement in arithmetic (60–74%), word reading (72–82%) and reading comprehension (54–64%) and for most grades in spelling (33–70%). Common environmental effects had a negligible influence on arithmetic (0–8%), word reading (0–7%) and reading comprehension (1–12%) and a slightly larger influence on spelling (0–29%). Unique environmental effects explained the remaining variance in arithmetic (26–34%), word reading (11–29%), reading comprehension (32–35%) and spelling (30–39%). Genes were also the largest contributor to the variation in the educational achievement test (74%). The heritability differed somewhat between the educational domains measured with this test, i.e. arithmetic (68%), language (67%), study skills (60%) and science and social studies (56%). The common environmental effects were also small for the total score (8%), arithmetic (5%), language (10%), study skills (6%) and science and social studies (21%). Unique environmental effects explained the remaining variance (18–34%).

And the necessary policy caveat:

Although the individual differences between children in their achievement across different educational domains are for a large part due to innate differences, one must keep in mind that this heritability does not equal determinism. First of all, the variance between children may be heritable, but the mean can be positively influenced by a school environment of good quality.

That's true. But it's also true that if there are systematic differences in students across different schools, you can expect systematic differences in outcomes across schools.

Poverty, homeownership, political economy, and a modest proposal

The New Zealand Initiative today launched a report on the state of poverty in New Zealand. Two key findings for us today:

1. Poverty in New Zealand, relative to other countries, is highly concentrated among children. The elderly have very very low poverty and hardship rates. Children, not so much.
2. Poverty is substantially affected by housing costs. Before housing cost measures of income poverty are much better than those after housing costs. 

This is in part due to NZ Super. Every old person gets a transfer from the government equal to two-thirds of the median wage. Since poverty lines are generally defined around that fraction of the median wage, you don't get old people in poverty. You also have disproportionately high homeownership rates among the elderly, so the rise in housing costs doesn't really affect them.

Yesterday's Auckland Council meeting on the Unitary Plan demonstrated much of what's wrong with urban planning in New Zealand. Elderly home-owning people, resistant to any potential change anywhere near them, are very likely to vote, do not care about the costs of home ownership (and, indeed, mock younger people showing up at those hearings), and are able to bully councillors into blocking any increases in density. Renters' interests then are not particularly well represented.

And so, my modest proposal:

Henceforth, eligibility for NZ Super will be means-tested, but in a particular way. Eligibility will be restricted to those who do not own a house, either themselves or through a trust, and who do not rent their home from a family member. Those approaching retirement would be entirely free to sell their home, bank the proceeds, and rent a home; or, they could maintain their home while foregoing NZ Super.

I'm still not sure whether I'm serious on this one.* But it is fun to think about.

Update: The money saved from the NZ Super bill could, in this proposal, be redirected towards targeted programmes in lower decile schools.

* Update 2: It is likely impracticable. Just think of all the workarounds. Prohibited from owning? Sell to a younger friend with a long-term lease agreement and an option for your own kid to buy back at a fixed price at a later date. But it's still fun to think about.

Update 3: I was far too quick in the paragraph about NZ Super. NZ Super is set at two-thirds of the average after-tax wage for a couple, and single elderly get 65% of that rate. That won't get either a couple, or an individual, up to the relative poverty line on its own. The elderly don't show up in the relative poverty stats when a 50% of median household income line is used, and don't show up in material hardship measures, and don't show up in AHC measures of poverty, but do show up in the "relative to 60% of BHC median income" measure. I thank Bryan Perry for the reminder.

The Preference for Choice

Bias or preference?

Tyler at Marginal Revolution links to a new paper by Sunstein and co-authors showing that people in the lab prefer not to delegate responsibility for choices over to advisors, even when doing so would expectationally improve payoffs.

Now underdelegation can be a real problem in business and organisational environments: figuring out how to delegate well is important for productivity.

But think too on the flip-side of this. Some branches of behavioural economics suggest that people need to have choices taken away from them, or that their choices need to be strongly guided towards particular outcomes.

This paper suggests that people just hate having choices taken away from them, even when it reduces the payoffs they get in the lab.

Our results demonstrate that participants are willing to forgo rewards for the opportunity to control their own payoffs. This preference was observed not only when faced with potential gains (in accord with Owens et al. 2014), but also when faced with potential losses. Moreover, our findings indicate that participants accurately assess the (sub)optimality of their delegation choices, suggesting that they are aware of the premium they are paying to maintain control. 

Was it because people are stupid and overconfident about how well they'll do making their own decisions?

The results could not be explained by participants’ overconfidence in their ability to maximize rewards and minimize losses, as their beliefs regarding their own ability were elicited and accounted for. In fact, on average participants did not express overconfidence in Experiment I and were only slightly overconfident in Experiment II. This is not surprising, as the task was designed to minimize overconfidence; participants (1) were unlikely to hold prior beliefs about their ability from “real world” experience (2) had a 50% likelihood of making the correct choice on every trial, and (3) were given plenty of experience with the task. Participants were also given complete information about potential advisors, which would allow them to make rational decisions. Thus, under-delegation could not be attributed to a systematic misperception of either the subject’s expected utility or the advisor’s expected utility. Indeed, when questioned about their ability to delegate accurately, participants provided surprisingly accurate assessments.

People are willing to pay a premium to control their own choices: the ability to choose has value. On the flip side, though not in this paper, taking those choices away from people is insulting.

Would that the value of choice were not assumed away in policy applications of behavioural economics.

Fiji tourist calculus

Suppose that, when Air NZ stopped flying to Vanuatu, you exchanged your tickets for tickets to Fiji - with flights scheduled in a couple of months for a family vacation.

Here are some post-hurricane considerations:

• If the Fijian government is optimising correctly, it will be allocating resources across the tourism and civilian relief sectors to weight both short term pain and long term recovery. Getting tourism working faster, when about a quarter of Fiji's GDP is tourism, means the longer term recovery can also be more effective. Farmers with ruined fields shifting into construction, both privately in the resorts and on the government's budget fixing roads and clearing mess, is better funded where tourists get back quickly. 
• At the margin, you'd then want a bit more emphasis on getting the tourist side going well so that you can draw in the resources for the longer term recovery. But they'll have to take into account that tourists don't like seeing suffering, and that sipping cocktails at the beach doesn't feel nice if there's dysentery from contaminated water not too far away. And even if the tourists didn't care about that, dysentery is communicable. 
• If the Fijian government is extractive, rather than social welfare maximising, it will divert loads of resources from hard-to-see places to the tourist sector to get government revenues up more quickly. 
• In the former case, tourists coming back quickly definitely helps. In the latter, it might hurt things. I have no strong priors on which case applies. The Fijian government certainly seems more competent than that in place in Vanuatu, but competence can be overrated if benevolence is in question.
• On balance, I expect that going does more good than harm, and that the case for it is clearer the farther out in time you are from the hurricane. 

On the purely self-interested side:

• Hurricanes make a mess of mosquito eradication efforts. This matters when mosquito-borne disease is at play.
• We'd planned on doing maybe 3 days in the resorts (pricey) then 4 days on the main island at hotels and touring around. The latter is now far more likely to be unpleasant, and more days in the resorts are too expensive.

Those with information that would assist are welcome to provide it in comments. I've found @alexperro's reporting for RNZ most useful thus far.

Repugnant intent?

The Ontario courts have struck down a bequest that would have established scholarships with particular restrictions on eligibility:

An obituary says Priebe worked as a radiologist at Windsor’s Hotel Dieu Hospital for years before retiring more than 20 years ago.

Court documents say his will was written in 1994, more than two decades before he died at age 83 on New Year’s Day 2015.

In it, he instructs his trustee, the Royal Trust Corporation of Canada, to provide funds for awards and bursaries for white, single, heterosexual men in scientific studies at the University of Western Ontario or the University of Windsor.

“Students with the necessary academic qualifications who through work histories have demonstrated that they are not afraid of hard manual work in their selection of summer employment shall be given special consideration in the selection process,” the document says.

“No awards to be given to anyone who plays intercollegiate sports.”

A similar award is also to be created for a “hard-working” white, single woman “who is not a feminist or a lesbian.”

The will was written in 1994 in Ontario. Ontario, then, under Bob Rae's administration, was pushing pretty hard on affirmative action policies. One reading of the bit above is that it's a reaction to that policy environment: the donor wished there to be scholarships for groups that otherwise were not given special attention (though who of course could do well in general scholarships). Note the exclusion of athletes, who can get athletic scholarships.

The Judge thought differently:

An Ontario judge has ruled that a deceased doctor’s plan to create scholarships for white, single and heterosexual students as part of his will amounts to discrimination and must be quashed as a matter of public policy.
In a decision published last week, Ontario Superior Court Judge Alissa Mitchell says the stipulations laid out in Dr. Victor Priebe’s will “leave no doubt” that he intended to discriminate based on race, marital status and sexual orientation.

As a result, she says, they are “void as being contrary to public policy.”

... “I have no hesitation in declaring the qualifications relating to race, marital status, and sexual orientation and, in the case of female candidates, philosophical ideology...void as being contrary to public policy,” Mitchell wrote in her decision.

“Although it is not expressly stated by Dr. Priebe that he subscribed to white supremacist, homophobic and misogynistic views... (the provisions laid out in the will) leave no doubt as to Dr. Priebe’s views and his intention to discriminate on these grounds.”

Here is one list of Canadian scholarships, many of which have interesting eligibility requirements, some of which could be read as having strong implicit ideological constraints. Just not the same constraints as Priebe.

HT: Marina Adshade

Tobacco prices

Tobacco control folks have been calling for a rather substantial hike in tobacco excise in New Zealand. I thought it might be worth having a bit of context for that.

Here's prices for cigarettes and tobacco against the CPI. 1971 Q1 is the baseline, as that's when the tobacco series starts.

If you want to check my numbers, go to Infoshare. I'm using CPI009AA for the CPI data, and CPI012AA for the Level 2 Subgroup Cigarettes and Tobacco.

Shipping the good apples back

Mike Moffatt writes on the tragedy of Canadian immigration policy for skilled graduates. Some of the world's best go to Canadian universities. After graduation, Canadian Immigration makes it impossible to employ them, so they have to go home.

The issue stems, in part, from year-old changes to Canada’s express entry system which makes it impossible for someone in the PGWPP program to gain express entry without a Labour Market Impact Assessment, as chronicled by Nicholas Keung:

The problem, which the federal government denies, lies in the significance given to a certificate called the Labour Market Impact Assessment (LMIA). It is issued by Ottawa to ensure a candidate’s skills are sufficiently in demand to warrant hiring an immigrant.

Ottawa says applicants for Express Entry, such as international graduates, do not need an LMIA to qualify. But Express Entry acceptance is based on a point system and it’s not possible to earn enough points without an LMIA, immigration experts say.

“The new system is flawed,” said Toronto immigration lawyer Shoshana Green. “We want people who went to school and have work experience in Canada. These people are already fully integrated. And now we are ignoring them. It is just bizarre.”

The process to obtain a LMIA is arduous for smaller growth companies, and navigating it can be difficult, as immigration lawyer Ronalee Carey describes:

Last month I sent a young woman back to Japan. She’d come to Canada as an international student first to finish high school, then to attend Sheridan College in their Animation Program. Her employer consulted me after their Labour Market Impact Assessment (LMIA), because her position was denied. They had been paying her the median wage for Ontario, as opposed to Ottawa, which was slightly higher. Meanwhile, they had no idea there were median wages specific to Ottawa. They offered her a raise and resubmitted the LMIA application.

But it was too late.

The young woman had been working on a post-graduate work permit. It had expired, and she’d applied for an extension. However, a positive LMIA was required for the extension. Ultimately, her work permit application was denied, because the new LMIA application had not yet been processed.

And so on the plane she went.

These stories are all too common according to the tech firms I have spoken to. In order to obtain an LMIA, one must prove to the federal government that “there is a need for the foreign worker to fill the job you are offering and that there is no Canadian worker available to do the job.” Not only does this place a large burden on growth companies to convince a bureaucrat about the lack of Canadians for the position, it is also completely counterproductive for communities where there is a desperate need for young talent. Furthermore, it may be impossible for these companies to prove this point to the government’s satisfaction. As immigration lawyer Evan Green asked the Globe and Mail, “…how do you prove for someone with [little] work experience that there is no Canadian to do the job?”

New Zealand's system is a bit better. The Study to Work visa lets graduates stay after graduation. But, there's a catch. The graduate can get a one-year post-study work visa while looking for a job. If they then get a job, they can put in for a post-study work visa (employer assisted) which gives another two years.

If you're an employer looking at a likely candidate with six months left on the post-study work visa, you have to weigh up the risk that Immigration might say that the job isn't sufficiently relevant for the qualification the graduate has completed and consequently decline the visa application. It would be more than a bit disappointing to get the employee up to the point where they start being useful, then have them sent away. Probably easy for engineering grads in engineering jobs; maybe not so much for political science grads going on to general office jobs.

The country that moves first in offering permanent residence by default to new grads will have an advantage in attracting great students.

Risk Factors

Treasury has put a lot of work into identifying risk factors for future offending and other bad outcomes. Outcomes for kids with two or more from the following list wind up worse than for those without them:

• Having a CYF finding of abuse or neglect
• Being mostly supported by benefits since birth
• Having a parent with a prison or community sentence
• Having a mother with no formal qualifications.

They say 7842 kids have all four risk factors. Poor outcome measures include contact with youth justice services, leaving school without qualifications, receiving benefits for more than two years before age 21, winding up in jail before age 21, and being on benefit over the age of 25.

Here's the data visualisation tool. And here's the paper showing all the workings.

This is good and important stuff. Knowing where risks are concentrated can make it easier to target programmes. 

What I'm really looking forward to seeing is comprehensive work looking at the effectiveness of the different interventions MSD is trying. 

There's a Light(box)

New Zealand's regime for classifying streaming content is nonsensical. And Lightbox is pushing back.

As reminder: broadcast content comes with content ratings provided by industry. A broadcaster would not earn kudos from its viewers by putting porn on a G rating; they have incentive to get this stuff right.

DVDs and movies shown in cinemas, by contrast, have to be rated by OFLC. OFLC's view is that Kiwis need standardised New Zealand ratings and that industry self-rating isn't good enough. But their rating scheme is expensive. It's long been a hindrance for art-house films: high fixed costs screw over low volume content where those fixed costs can't be spread over a broad base.

And OFLC has wanted jurisdiction over streaming.

Tom Pullar-Strecker has an excellent piece for the Fairfax papers going through the whole mess.

Spark may stop submitting Lightbox programmes to censors for classification, amid confusion over the legal obligations faced by internet television providers.

Lightbox chief executive Kym Niblock stressed the Spark online television subsidiary would continue to label programmes itself so viewers had an idea as to whether they were appropriate for them to watch.

...Spark said it had received conflicting information from experts, noting that after getting advice, it had decided to submit Lightbox programmes that were new to New Zealand to the Film and Video Labelling Body (FVLB) for classification. Those programmes included the likes of Outlander and Black Sails, some episodes of which were classified as R16.

But Niblock said submitting programmes to the FVLB cost Lightbox "a great deal of money" and it was now reviewing its process to "see whether or not we will stop that".

"If we can get the same outcome in a different way, then clearly we are going to want to not spend that cash," she said.

I wish Lightbox every success here. New Zealand has enough problems getting content; adding stupid unnecessary fixed costs doesn't help.

HT: @DuncanJones

Sci-Hub

If you don't have access to a university library, give Sci-Hub a shot.

It's not quite Napster for academic papers, but it's close. You don't peer. Instead, some with access to gated articles have given their keys to Sci-Hub. Whenever you download from Sci-Hub, it first checks whether the paper's available at Libgen. If it is, you get it that way. If it isn't, it uses one of those keys and uploads a copy over to Libgen for the next user.

Don't know how long it'll last. I'd suspect that the journals would start noticing pretty quickly if some userids started being used very intensely and over a much broader range of journals.

Hopefully, the lovely folks who snuck last-minute changes into TPP haven't made using it illegal. It would be nice if MFAT could have another read through the final legal drafting for this kind of thing. It would be a shame if the primers they issued in October weren't accurate any longer. I am not a lawyer; hopefully a Kiwi lawyer is looking into things.

Safety nets protected by moats

The stronger you build your safety net, the higher you build your castle walls and the deeper you dig your moats.

I'd caught this one last week, but it's now made international news. A top mathematician's abandoned his post at Auckland Uni because Immigration New Zealand didn't like the costs his autistic son might someday impose on the State.

The Twitter left has been rightly outraged, but they're misdiagnosing the problem. Yes, in a first-best infinite-resource world, the government wouldn't be worried about this and would just let him stay. And even in just a saner version of the existing world, the government would recognise that the family is going to be strong net taxpayers on the top marginal tax rate and waive the son in.

But the real underlying problem is that safety nets build moats and walls. Maybe there could have been a sane workaround for this guy. But what about the desperately poor person abroad who could be just a little bit poor here, working on the minimum wage? He'd be massively better off by moving. But there's risk of needing welfare, there'd be transfers through WFF, and nobody likes having poorer people in visible places. So they're on the other side of the moat and wall, to avoid potential burdening of the net.

Nets don't just support. They constrain and bind. It's easy to ignore the tradeoff, but it doesn't make it less real.

The forgotten plain packaging battle

John Key says New Zealand's likely to follow Australia's lead on plain tobacco packaging by the end of the year, noting the Australian government's win against Philip Morris under the Australia-Hong Kong FTA.

He didn't mention the ongoing WTO disputes. The most recent one, by Indonesia, should have a final report out in the second half of 2016. I am not a lawyer; I expect that the Prime Minister's statement about NZ being on strong legal ground if it mandates plain packaging means he reckons Australia will win in the set of WTO disputes.

There's no good outcome of the WTO fights. Either WTO rules against Australia and NZ winds up being in WTO trouble if it goes ahead with plain packaging, or it rules in favour of Australia and we wait to see which country wishes to be first to impose plain packaging on wines including New Zealand's. Otago public health has suggested plain packaging for soda....

Previously:

• Plain Packaging and Evidence. In which I went through some of the arguments on plain packaging and smuggling. 
• It's hard to tell what the effects of plain packaging are if you bundle them with simultaneous tax hikes. But you might need simultaneous price hikes to counter downshifting in brands and consequent increased consumption at the lower price point, if you want to reduce consumption. 
• If NZ is determined to do it, why not roll it out as a policy trial to try and figure out what the effects actually are?
• On the consumption value of beautiful packaging.

And more about that Mexican study

In January, I'd noted a couple problems with the latest BMJ study on soda taxes.

To recap, they found that poor cohorts in Mexico substantially reduced their soda consumption on the implementation of a peso-per-litre SSB tax. That tax in the public health press has been characterised as a 10% tax, and that's made it easy for those who want to see big effects to characterise it as showing strong price elasticities in poorer communities.

I'd noted that if Mexico has discount brands similar to New Zealand, the peso-per-litre on a cheap off-brand product would be far more than a 10% tax and that they're then overestimating the elasticities. I've also noted that a peso is just under 2% of the daily minimum salary reported in the paper's sample, and that if we wanted a tax here that had comparable effects on affordability, it would need to be more like $2 per litre. Normally we'd just go with elasticities at means, but here the main effects were really concentrated in the poorest households. I do not know what the price of off-brand soda is in Mexico though.

But that's as far as I went with the critique. I also worried about the difference-in-difference empirical technique, but I left that to one side. Let's get to that now.

Difference-in-difference actually started in public health. Angrist and Pischke's text notes its first use in figuring out whether cholera was spread by water or by air. When one part of town flipped to an upriver water source and saw a big reduction in cholera as compared to the district that maintained the downstream water source, the difference in differences (the change in the difference between the two places over time) pointed to water. Nothing in the control district should have been affected by the treatment district's change in water supply and so it gives a nice counterfactual trend. Since the treatment district dropped sharply and control didn't, we had an answer.

A normal diff-in-diff needs a control group. Everyone in Mexico was subject to the soda tax, so it won't be a "this group of people were affected and this group weren't affected" diff-in-diff. It would instead have to get a counterfactual consumption trend from consumption of some other good that isn't itself affected by the soda tax.

Suppose that soda consumption is affected by the weather and by general wealth. When it's hot and you have money, you buy soda to cool off. In that case, you could take, say, consumption of suncreen as your control group - if the trend in sunblock sales were predictably related to the trend in soda sales in the pre-tax period. I don't know whether it is or isn't: I'm just saying the kind of control group we should be looking for. Maybe t-shirts. Or fans. Anything that had a regular correlation with consumption of taxed beverages before the tax took effect would work - so long as that group weren't also affected by the tax. If bottled water sales co-moved with soda sales before the tax, you couldn't use bottled water to predict things after the tax: if the tax did induce a shift away from taxed beverages, some of that would flow over to bottled water. If you then forecast what soda consumption would have been but for the tax based on the observed increase in water sales, you'll overestimate the tax's effect.

The only comparison group talked about in the BMJ paper is untaxed beverages, and that cannot have been the basis for a difference-in-difference: consumption of untaxed beverages will have gone up because they weren't taxed, so using that would strongly bias upwards the estimated effect of the tax.

I think, but do not know for sure, that what they've done is look at the pre-tax trend in sales, the post-tax trend in sales, and called the difference between the two a difference-in-difference because a trend is the difference between two points. It's the only thing that makes sense, but I've not really seen this kind of thing described as a difference-in-difference before.

In the abstract, and in the text, the paper's authors talk about how they've used a difference-in-difference approach to estimate the effects of the SSB tax. Here are some examples.

To test whether the post-tax trend in purchases was significantly different from the pretax trend, the authors used a difference in difference fixed effects model, which adjusts for both macroeconomic variables that can affect the purchase of beverages over time, and pre-existing trends.

Difference in difference fixed effects analyses
As the tax was implemented nationally, it was not possible to construct a true experimental design to study the association between the tax on sugar sweetened beverages and purchases. Therefore we applied a pre-post quasiexperimental approach using difference in difference analyses along with fixed effects models,36 37 with fixed effects at the household level. Fixed effect models have several advantages, mainly that they account for non-time varying unobserved characteristics of households (for example, preference for certain types of beverages). As such, non-time varying measures (for example, region of household’s residence) are omitted in the model.

Model predicted differences in beverage purchases in stores: overall findings

Supplemental table 2 presents the coefficient estimates for each of the beverage categories from the difference in difference fixed effects models at the household level controlling for socioeconomic status, age, and sex, and for contextual measures of households. Based on these estimates, we back transformed the predicted log volumes for each of the 12 post-tax months using Duan smearing.38 We compared estimated counterfactual volumes purchased in the post-tax period based on pretax trends (expected volumes if the tax had not been implemented) to adjusted volumes purchased in the post-tax period (based on predicted values from the model) and derived the absolute and relative differences from January to December 2014.

Table 2 and figure 1 show that for taxed beverages the absolute and relative differences between the post-tax volume and its counterfactual widened over the 12 post-tax months from −11 mL/capita/day (−5.6% relative to the counterfactual) in June to −22 mL/capita/day (−12% relative to the counterfactual) by December 2014, giving an average change of −6.1% over 2014. In total, during 2014 the average urban Mexican purchased 4241 mL (seven 600 mL or 20 oz bottles) fewer taxed beverages than expected (based on pretax trends). This was related to a decrease in purchases of non-carbonated sugar sweetened beverages (−17% relative to the counterfactual) and taxed sodas (−1.2% relative to the counterfactual). See supplemental Figure 2.

And here is Supplemental Table 2:

And here's Figure 1, where they illustrate things.



A standard diff-in-diff would let you have rather more confidence in what's going on. For example, suppose that beverage consumption is a lot higher when it's hotter out, and that your control group tracked that well. If 2014 were cooler than 2013, you'd expect less consumption. If your diff-in-diff tracked that already, you wouldn't need to worry about it. If what you have instead is just a panel fixed effects study, you need to account for more of the seasonality. Just putting in month-by-month dummies might not do it if June 2014 is more than a degree colder than June 2013.*

In short, I'm way less confident that anything going on in here is causal. When I usually see diff-in-diff, I expect something that at least leers a lot more suggestively at causality than we'd get out of a plain panel fixed effect study. And this isn't that.

Meanwhile, Geoff Simmons and David Farrar have conflicting views about the nature of the underlying data.

Here's Geoff:

The researchers looked at actual sales data from a sample of over 6,000 households in Mexico. They found that the 10% tax reduced soft drink consumption over the year by 6%, but this had risen to 12% by the end of the year. For poor people the effect was even greater – reducing consumption by 9% on average but 17% by the end of the year. Consumption of untaxed beverages – especially bottled water – rose by 4%.

And here's David:

You see Katherine Rich points out in this article that the Popkin paper relies on reported data from respondents, not actual sales data. So this entire paper is based on people saying they think they are now drinking less. It is far from robust, despite peer review.

It can't both be sales data and not sales data, can it? Well, it's a bit of both, kinda. Here's the paper:

Enumerators visited the households every two weeks to collect diaries, product packaging from special bins provided for this study (scanned by the enumerators), and receipts, and to carry out pantry surveys. Bar code information provided all other data.

It isn't sales data, but it isn't just survey data either - if the paper's description of the Nielson household survey is right. It's rather a mix combining diary data with checks on that by enumerators looking at receipts and checking folks' shelves and discarded packaging.

It's probably the best that can be done in terms of data on what that sample of households is up to, and I wouldn't dismiss it as being subject to the same recall problems as straight diary data.

But it also squares poorly with aggregate sales data.

And this puzzles me. If household consumption is dropping, why would aggregate sales be going up? The time period is too short for changes in demographics to have generated a Simpson's Paradox.

Anyway, if we take the study entirely at face value, and consider it to be entirely causal despite not really having a difference-in-difference method, and don't ask too many questions about why they used Duan smearing rather than just GLM or Poisson with a log-link despite likely heteroskedasticity, then the paper says the peso-per-litre tax reduced consumption of sugar-sweetened beverages for poor households by 35mL per person per day. About two tablespoons per day, or one 600mL bottle every 17 days. For a per-litre tax equivalent to 1.7% of the daily minimum salary reported in their survey.

Meanwhile, an experimental study in the US subsidising folks' purchases of healthy foods wound up increasing purchases of unhealthy foods through income effects. Smaller numbers in that sample, but a proper experiment rather than observational correlations with poor adjustment for potentially time-varying trends.



*August 2014 turned out warmer than August 2013. I'm not going to go through and pull each month.

It's Reddell's fault

That whole "let's charge everybody for their OIAs" thing? Looks like it's Mike Reddell's fault.*

From an OIA request by Alex Harris:

I'd have thought that giving Mike the papers he'd written wouldn't involve a lot of work. He could probably even rattle off the names, dates, and file locations for them to make it simple.

* It really isn't Mike's fault.

Update: Note Reddell's comment below, and RossM and Elinor Dashwood on how much bureau work goes into each OIA request.

Update 2: Reddell comments here.

Green subsidies

Christchurch Council's been giving out grants for more energy efficient buildings. Will Harvey at The Press asked me for comment on one of these; his story is here. He covers my comments accurately.

I'd said:

Christchurch’s energy grants scheme, which covers some of the cost of putting in more environmentally friendly heating or electricity options, makes a lot more sense than early versions of the downtown plan that would have required building owners to meet environmental standards in order to have permission to build to seven stories. And it makes a lot more sense than having overly stringent energy efficiency standards built into the building code. Different choices work for different buildings and for different purposes, and building code mandates can make buildings just too expensive.

But, even still, it seems a bit odd to provide strong subsidy for things like ground-source heat exchangers as a demonstration project. If other businesses take as lesson that the technology is not viable without a subsidy, does that really provide that useful a demonstration? The grant could make sense if there are engineering issues that need to be solved to use this technology at all downtown, with the first project then reducing the cost of all subsequent ones. But, otherwise, it is a bit hard to see the case for it.

Jordan Williams is also quoted there, saying it's pure corporate welfare. I didn't say it wasn't, but there are worse things Council could have done in this space.

I also note that my parents, in Canada, put in their own ground-source heat exchanger to heat their shop and processing plant. It's harder to draw heat out of the ground in Canada, where you have to bury the pipes well below the frost line. And, electricity is far cheaper in Canada than here, so the potential benefits of switching out are smaller. But they didn't need a subsidy to do it. Bit strange that folks in NZ would need one.

Creating externalities

If the obese are less productive, they'll be paid less by their employers or, ultimately, fired. Consequently, externalities from obesity running through employment and productivity should not be particularly large, or at least no more worrisome than any other employee-level behaviour that affects on-the-job productivity: laziness, conscientiousness, pleasantness and so on.

Well, except if the law goes and makes it a problem. Here's Cullen Law's discussion of obesity and employment.

New Zealand law imposes similar [to the previously discussed Australian case - hit the link] obligations on employers under the good faith requirements of the Employment Relations Act which requires employers to be “active and constructive” and “responsive and communicative”. Additionally, employers must consult employees before a decision likely to have an adverse effect on the continuation of their employment is made.

In 2014 the New Zealand Employment Court case of Dunn v Waitemata District Health Board discussed the extent of employers’ obligations when dealing with an employee who is medically unfit for work. The Court stated that an employer is not required to keep a job open indefinitely where an employee is suffering from a prolonged illness. Much depends on the circumstances, including the employer's needs and what can and cannot reasonably be accommodated, and the anticipated timeframe for any return. A fair process must be followed. In the Dunn case, the dismissal was also held to be justifiable.

Alternatively it is possible that in a case similar to Parahi’s, that the law of frustration would apply. Frustration occurs when there is an unforeseen change of circumstances, through no fault of the parties, which means that the performance of an agreement will be either impossible or something radically different from that which was contracted for. Such cases are not considered dismissals but rather a termination by operation of law. The usual circumstances of frustration of employment relationships include sickness or injury.

Although the chances of being fired for obesity are very minimal and limited only to where it would impinge directly on your ability to fulfil your job, it is an interesting problem that has only recently been brought to the fore. Obesity has historically been a non-issue but as the 2015 New Zealand Health Survey found that 31% of adults in our country are obese, it is bound to be a developing area of employment law. I am sure we all, as New Zealanders, will watch with interest whilst trying to avoid being in the 31% of people at risk.

Doesn't seem a big issue thus far. But if it becomes difficult to dismiss people for not being able to do their job where obesity is to blame, then the combination of a bad law and obesity would make for externalisation of cost. And it'll be tallied as a cost of obesity rather than as a cost of stupid laws.

What a mess

The case against Jian Ghomeshi.

To recap for Kiwi readers, Ghomeshi was a minor rockstar in Canada, fronting Moxy Fruvous, then went on to TV fame hosting a CBC programme. In 2014, a whirlwind of sexual assault and harassment allegations ended his career.

Christine Blatchford writes on the trial. The prosecution's case seems to have dissolved.

If it turns out that the case was groundless and based on false sworn statements from the complainants, what should we make of how the justice system handles these kinds of cases? If there's overwhelming public interest in police taking a very credulous stance when presented with complaints, so that they do not deter real complaints' being made, is there not corresponding public interest in compensating those harmed by such a stance? The prosecution and police seem to have had all the investigative ability of a Rolling Stone reporter.

Vape!

Here's Massey University's Marewa Glover on the case for unregulated e-cigs:

“Vaping is not a public health issue,” she told factasia. It should not attract precious funding away from very real threats to public health. Like many other products, electronic cigarettes and e-liquids are already covered by existing consumer laws. Because of the huge cost involved in assessing, consulting, lobbying and debating new regulations or laws, I oppose the call for regulation of electronic cigarettes, e-liquids and vaping. The money is needed elsewhere – it should not be wasted on this. I do not think it is even necessary to legislate for “safety and product quality”. Existing consumer protection laws should be sufficient.

Prof Glover acknowledged there are “vociferous groups who are opposed to vaping on ideological (not medical or scientific) grounds. They may be scientists and medical professionals, but they are also all ideologically driven to recreate society in their image and or in accordance with their decision about what ‘a better world’ will look like.”

She says vaping (use of electronic cigarettes) “should only receive any attention in terms of the potential for rapidly reducing tobacco smoking prevalence and consumption in New Zealand. No attention at all should be wasted on work effort to regulate, legislate or police vaping. Existing surveys can include questions to enable monitoring of the prevalence of vaping and inform review at a later time.”

Regulatory structures can be pretty fraught if you go beyond the standard Consumer Guarantees Act protections. They all sound nice, but can wind up being a mess.

Put in requirements that each product be approved and you'll kill off any innovation in creating new flavours as each would need a separate costly approval process. Let the public health ideologues lock them up behind prescriptions and you make it that much harder for real-world smokers to make the switch. And taxing them both discourages switching and complicates retail availability.

Watching the public health establishment's response to a massive technological change that promotes harm reduction but that doesn't run through channels where they can clip the ticket along the way, and that also lets people enjoy psychoactive and addictive substances without deleterious health consequences, has been interesting.

Maths shortages

So, a potted history. Or, I suppose, a hypothesis.

The government worried that there weren't enough students in sciences. And so they shifted a pile of tertiary funding into STEM disciplines: Science, Technology, Engineering and Maths. Disciplines that required numerate students but weren't STEM-funding-preferred suffered: economics, finance, and high school maths teaching.

And there's now a big shortage of potential maths teachers. Good experienced maths teachers are retiring and there isn't much of a cohort following behind them. Meanwhile, jobs for science grads can be hard to come by.

There was a decent-looking workaround. TeachFirst would hothouse university grads so they'd be able to jump into the classroom without a teaching degree so long as they had other degrees that would be useful.

The PPTA won a court case knocking them out: the implementation seemed to run against collective agreements. As of December, the government said there'd have to be a review of TeachFirst.

The government might wish to consider whether its STEM funding push has contributed to declining numbers of numerate Kiwi students considering careers in teaching, and consider hastening the review that would let science grads flip quickly into the classrooms where they are needed.

Industry Insights

The editor-in chief at Public Health Nutrition makes a backhanded case for including industry as referees on academic papers.

As recap: that journal accepted a paper last June titled "Ultra-processed foods have the worst nutrient profile, yet they are the most available packaged products in a sample of New Zealand supermarkets".

Katherine Rich, of the Food & Grocery Council, wrote a letter to the editors of the journal noting substantial methodological problems with the paper. Most importantly, the authors did not seem to understand how the Nutrient Profiling Scoring Criteria works. Breakfast cereals, for example, are poorly treated in the NPSC data: a cereal that is, say, 50% fibre would show up as being 4.7% fibre. Much of the content is then missing in that data. Rich demonstrates how this would bias their figures.

The published letter is far more in-depth than most referee reports I've seen. Rich goes beyond identifying a potential problem to show exactly how that problem biases the results presented. It is not common to have a journal referee replicate part of your work, fix it, and show you the consequences of what you've messed up.

The journal then contacted the Chief Public Health Nutrition Officer at Food Standards Australia New Zealand to check whether Rich were right. And the editorial on it all says:

The subsequent submission of a letter from Dr Mackerras, the Chief Public Health Nutrition Officer at Food Standards Australia New Zealand (FSANZ), reiterated some of the same methodological concerns(15) and confirmed the value of addressing those concerns in detail.

The editorial notes that had Rich submitted her findings as a peer-reviewed article rather than as a letter, it likely would have "received closer scrutiny or been met with greater scepticism" than one received by an author without an obvious conflict of interest.

The editor goes on to try to justify one-sided scepticism, noting cases where industry has tried to skew things, and impugning Rich's character. But it seems a bit of an odd turn where Rich pointed out a problem that only an industry expert would have caught. Rather than thanking her for correcting errors, they highlight that Rich plays an advocacy role and criticise her for having published her critique on the FGC's website. Nowhere are the academics who wrote the paper criticised for not having checked into their data source.

As a side note, we were concerned that the methodological issues raised by Ms Rich and Ms Mackerras from FSANZ should have been caught during the review process and perhaps were missed because the findings confirmed what the reviewers hoped or expected. In this case, however, the comments raised by the three reviewers appeared to be quite balanced overall. The points raised by Ms Rich and Ms Mackerras were perhaps only obvious to people who were very familiar with and invested in the scoring system used in the paper. Our concern about ‘confirmation bias’ in the review process relates to the possible role of undisclosed, ideological interests – a second pitfall of disclosure statements.

I don't know how many times I've heard public health activists say that industry deserves no place at the table. But leaving them out systematically biases things. You mess things up when you deliberately leave out people who know things that you don't.

Imagine if journal editors considered including as referees industry folks who actually know what's going on in their area. The Editor always can ditch silly suggestions that come of it, and the industry referees would know that. But if an author's doing violence to the data in ways that only someone working with that data would know about, doesn't it make sense to, well, ask one of the industry people who works with that data?

I wonder how many in industry would take the time if asked.

TPPA reversals

I think it's fair to say that Brian Easton sits to the left of the NZ economist punditsphere, and that Mike Reddell sits to the right of the same. I'm not using punditsphere in any derogatory sense here: they're both serious economists worth taking seriously; they also happen to put their views out there.

In the past couple days, they've both put out their views on the TPPA. Reddell winds up arguing generally against it, though without saying it shouldn't be signed, and Easton in favour, though not that enthusiastically. Both make nuanced arguments. Easton talks about the flow-on consequences of rejecting the deal at this point. Reddell talks about how the layers of bureaucracy to which we may well be signing up will do nothing to improve New Zealand's declining productivity, though he falls short of saying NZ should reject the thing from where we're at. He notes by email that he'd agree with Easton: from where we are, it should be signed. But he's not all that enthusiastic.

I'll remain a fence-sitter as it would take just too much work to come to a strong view on it. My confidence interval on whether the thing's worth signing spans low/mid positive and low negative figures, and it wouldn't be easy to tighten that up. If Congress decided not to pass it and the other partners could then clear out the worse parts on copyright, it wouldn't bother me that much - though the deal on copyright is far better than I'd thought it could have been.

Meanwhile, Stuff polls six celebrities for their views on the thing. Unsurprisingly, Lucy Lawless doesn't like it. News!

Copyright chats

My Tuesday night chat with Bryan Crump at RadioNZ's Nights covered copyright and the digital world. The content will be familiar to readers here, and to those who'd taken my Econ 224 course at Canterbury.

My notes for the chat are up at The Initiative's Sandpit blog. An excerpt:

Consider further what infinite copyright would look like. There was a great sci fi short story in the 80s called Melancholy Elephants. In that copyright dystopia, all works have to be run through a plagiarism engine to make sure nobody is copying any prior ideas. And they’re considering making the duration of copyright infinite.

That latter part might sound nuts, but one Australian academic has suggested copyright should be infinite.

In the Melancholy Elephants story, a senator’s backing a bill that would extend copyright to being infinitely lived. Our protagonist warns him that this would mean the end of the creative world: the regime checking all works against anything that had been created within the copyright period had already killed new creation, because everything builds on everything and just about nothing is entirely novel. Extending it to infinity would mean that nothing could be new and, worse, nobody rediscovering things anew would have that joy: they’d quickly be told that somebody else had had the idea 40 years ago and that maybe they’d heard a snippet of the tune when they were a kid. Never forgetting would mean never feeling the thrill of (re)discovery.

Now that short story is fiction from the early 80s. But the lawsuit by Larrikin Music from a few years ago was not. There, Larrikin had bought the rights to an old Aussie folk tune. Men at Work payed homage to that piece of Australiana in Land Down Under in an 11-note flute sequence. And they got sued, and lost. And, subsequently, the suicide of one of the band members was attributed in part to his dismay at having been thought a plagiarist.

We also covered copyright provisions in the TPPA.

Healthy subsidies

What happens when you give shoppers a discount on healthy foods? Not very much, according to a new field study by Cawley, Hanks, Just and Wansink.

Their mechanism was neat. Shoppers' purchases at a supermarket were tracked via loyalty card; participating households also received a debit card. Depending on the treatment group, they either got a 10% rebate on all food purchases or a 10% wedge between healthy and unhealthy foods that was either framed as a tax on unhealthy foods, a subsidy for healthy foods, or as both: in all of those treatments, the real effect was a 15% discount on healthy foods and a 5% discount on unhealthy foods. Groups were evaluated relative to their baseline readings before treatment began, during which they all received a 10% rebate on all purchases; they then can run difference-in-difference to get treatment effects.

What did they find? No significant effect on actual purchases, but a lot of perceived effects.

In the survey conducted after the treatment concluded, subjects were also asked whether or not participating in the study influenced their shopping. The unconditional means by group are reported in Table 12. Those in the treatment groups (all pooled) expressed greater agreement with the statements that they were buying more starred (nutritious) foods, more healthier foods, and a higher percentage of healthier foods, but the difference between the treatment and control groups is not statistically significant in any of those cases.

There are significant differences in the mean response to these questions by frame. Specifically, those in the tax/subsidy frame tend to express greater agreement that the study led them to buy more nutritious foods, buy healthier foods, and buy a higher percentage of healthier foods, relative to those in the subsidy frame. Notably, we did not see such a difference in our data in the actual expenditures and quantities purchased.  

Some of the lack of effect is due to low power in a sample of about 200.

But they did run a neat permutation analysis afterwards checking to see whether the effects they did find across the groups made sense: they re-ran everything over a thousand iterations in which each participant was randomly assigned to having been in a different treatment than the participant actually was in. And they there found that 70% or more of the random-draw assortment showed larger effects than the ones found in the main estimates that looked at the effects of the group the person was actually in.

What do the point estimates say in a low(ish) power study? Treatment groups spent $1.11 more on nutritious foods and $1.55 less on less nutritious foods per week. If you look solely at lower income households, they spent much more on both nutritious ($7.03 per week) and less nutritious ($7.11) foods: the income effect of the subsidy mattered. Households in the treatment group increased the share of expenditures on nutritious foods by about a percent. That effect was smaller among poorer households because they spent a lot more on both categories.

The biggest effect they find is when they split things out by treatment frame and by income category: low-income households told that the debit card provided them a subsidy for nutritious food substantially increased purchases of less nutritious food ($21.23 per week), with no statistically significant (but still a large point estimate) increase in purchases of nutritious food of $11.58 per week. We should be careful on this one though as low powered tests will only find large effects to be significant.

They conclude:

Taxes on energy-dense foods are arguably the most commonly-advocated anti-obesity policy. The results of this paper have several implications for such policies to promote more nutritious diets. First, taxes may need to be large to change behavior. In the U.S., taxes on soda pop and snacks average one to four percent (Chriqui et al., 2014), but we find no significant impact on expenditures or purchases from a 10 percent relative price change. Second, price changes may have different impacts by income; we find that subsidies for nutritious food may lead low-income households to buy more of all food, including more of the less nutritious food that the policy is attempting to discourage. 

...while giving the usual caveats about drawing inferences from studies that might not have sufficient power.

Co-morbidity and the irrationality stick

It irritates me when economists reach quickly for the irrationality stick when they see a behaviour that they wouldn't themselves choose and that they don't like.

Here's Frances Woolley's review of Phishing for Phools. She there takes on their argument that alcohol is more harmful than tobacco:

So it's not that hard to show alcohol is more harmful than tobacco. The trick is to focus on total harm, as opposed to harm per user, and on measures of morbidity, rather than mortality.

The belch in Akerlof and Shiller's argument is that they mostly ignore this evidence on disability, focussing instead on a radically different type of harm: "loss of affect" or "loss of capacity for intimacy". Alcohol, they argue, causes "subjective, hard-to-observe changes in personality", and leads to divorce and the break up of relationships.  The major piece of evidence backing up this position is the Harvard Grant Study, which tracked Harvard students from the classes of 1939 to 1944, and found that those abused alcohol at some point in their lives (23%) died young. Moreover, "alcohol wrecked their ability to relate to others."

Making any kind of statement about the psychological impacts of alcohol is hard, because so many people use alcohol to self-medicate. As Eric Crampton has argued here, alcohol abuse can be symptom of depression, anxiety, or other personality disorders, rather than a cause. Akerlof and Shiller argue that the alcoholics in the Harvard Grant study were, at the start of the study, "no different from their more sober peers" in terms of their personalities and family backgrounds. Instead, "alcoholism had changed their personalities." This reading of the evidence seems to seriously underrate the ability of present or future alcoholics, and their families, to lie and dissemble, and seriously overrate the assessment abilities of late-1930s social scientists. I can believe that alcohol use impacts people's personalities. But I find it hard to believe that, absent alcohol use, alcohol abusers would be just like anyone else.

I'd point to this post on alcohol and co-morbidity.

Co-morbidity is complicated and hard. Just comparing the life satisfaction survey figures, or other outcomes, between users and non-users is hardly sufficient: where some substance use is part of self-medication for prior illnesses, attributing the total difference between users and non-users to use is simply wrong. Could be that outcomes are better than you might have expected, if the self-medication works; could be that outcomes are worse. Either way you need to be looking at the marginal increment against the proper baseline rather than just comparing outcomes across users and non-users.

You might think this is just a problem for crappy cost-of-illness studies that nobody should ever take seriously anyway. But look at the psychiatric hospitals that went and banned smoking. Turns out now that smoking behaviours among schizophrenics is very plausibly self-medication. See also here.

People consume psychoactive substances for reasons. Assuming away those reasons and concluding people are irrational or phools...

Costing policy

My Friday column at The NBR noted some of the potential difficulties in the Greens' proposed policy costing regime.

• Housing it in Treasury is a bad idea as compared to in an independent office of Parliament, so it would not have to conduct a substantial body of work that it would need to keep secret from the Minister overseeing the agency;
• A rule or norm that every policy be costed means that it will be more difficult to cost policies than you might expect for currently costed policies. Why? Right now, parties can refrain from costing silly policies. In the alternative, they'll have reason to delay and obfuscate, making it harder for agencies to undertake a costing;
• New spending at each election can be big, but even bigger is the body of existing policy that is rarely revisited.

And so I concluded:

But the bulk of the government’s spending – the big line items that do not change much from budget to budget – receive rather less attention.
Take the government’s student loan programme. Labour’s zero-percent student loan policy drew attention during the 2005 election campaign and again in 2008. But we do not often hear discussion of the $5 billion gap between the nominal value of the loan and their carrying value.
The vast majority of government spending simply carries on, from year to year, without much notice.
Perhaps an agency established to cost new political party proposals could, between elections, spend its time running rolling reviews of existing spending programmes, ensuring they continue to deliver value for money.

After I filed the column on Wednesday, I found that Mike Reddell had some similar things to say. He also helpfully points to international examples. He also suggests it could be at least as good to simply provide funding to political parties that they then be able to commission independent evaluations. Here's Reddell:

On balance, I still think there is a role for something like a (macro oriented) fiscal council in New Zealand, perhaps subsumed within the sort of macroeconomic or monetary and economic council I suggested here (but perhaps that just reflects my macro background). And there is probably a role for better-resourcing select committees. But when it comes to political party proposals, if (and I don’t think the case is open and shut by any means) we are going to spend more public money on the process, I would probably prefer to provide a higher level of funding to parliamentary parties, to enable them to commission any independent evaluations or expertise they found useful, and then have the parties fight it out in the court of public opinion. The big choices societies face mostly aren’t technocratic in nature, and I’m not sure that the differences between whether individual proposals are properly costed or not is that important in the scheme of things (and perhaps less so than previously under MMP, where all promises are provisional, given that absolute parliamentary majorities are very rare). If there are serious doubts about the costings, let the politicians (and the experts each can marshall) contest the matter.