Cultural preservationism

Branko Milanovic worries that a world of free migration would be a world where some cultures would cease to exist. He says some countries would empty quickly under open borders, and suggests their cultural traditions would then end.

Destroying the variety of human traditions is not costless, and I can see that one might believe that maintaining variety of languages and cultures is not less important that maintaining variety of the flora and fauna in the world, but I wonder who needs to bear the cost of that. Should people in Mali be forced to live in Mali because somebody in London thinks that some variety of human existence would be lost if they all came to England? I am not wholly insensitive to this argument, but I think that it would be more honest to say openly that the cost of maintaining this “worldwide heritage” is borne not by those who defend it in theory but by those in Mali who are not allowed to move out.

There is a clear trade-off between the maintenance of diversity of cultural traditions and freedom of individuals to do as they please. I would be happier if the trade-off did not exist, but it does. And if I have to choose between the two, I would choose human freedom even if it means loss of tradition. After all, are traditions that no one cares about worth preserving? The world has lost Marcomanni, Quadi, Sarmatians, Visigoths, Alans, Vandals, Avars and thousands others.  They have disappeared together with their languages, cultures and traditions. Do we really miss them today?

Those trade-offs exist at the margin, but consider this too:

The dancing snow-shovellers are from the Maritime Bhangra Group in Halifax, Canada. 

Culture is dynamic. We've lost the Visigoths, but we've also lost the French as they existed in 1600 (though we have some reads into it from literature, music, and rural Quebec). Insisting on cultural preservationism in the cross-section by preventing migration would not be that much different from insisting on cultural preservation in the time-series by setting out enclaves isolated from further cultural development. Like Amish communities, but set out to preserve "America as it was in 1950", or endless other iterations. One neighbourhood in Portland might be required to maintain man-buns, forever.

Milanovik is right in his ultimate policy conclusion - that any benefit there might be in preservationism is dwarfed by the improvement in welfare generated by letting people move to places where they can have happier lives. 

But I think he's too pessimistic about cultural preservation within multicultural western societies like Canada's. The cultural traditions of home adapt to the local conditions. Like Bollywood-style snow-clearing. 

I also expect he's not right in the general equilibrium. In the first stage, sure, you'd get big migration in response to open borders. But huge existing differences in incomes due to institutional and policy inefficiencies are maintained over time in part because of border walls. Tearing down those walls pushes us closer to Tiebout worlds, where differences across communities' policies are driven by heterogeneous preferences rather than by whether you're stuck with powerful kleptocratic rulers. Maybe, just maybe, the resulting cultural differences across countries would be more authentic than the ones we get where the Dictator has his own ideas about what national culture should look like.

The targeted cohort

If you're surprised by the latest results from the Dunedin cohort study, you haven't been paying attention:

We integrated multiple nationwide administrative databases and electronic medical records with the four-decade-long Dunedin birth cohort study to test child-to-adult prediction in a different way, using a population-segmentation approach. A segment comprising 22% of the cohort accounted for 36% of the cohort’s injury insurance claims; 40% of excess obese kilograms; 54% of cigarettes smoked; 57% of hospital nights; 66% of welfare benefits; 77% of fatherless child-rearing; 78% of prescription fills; and 81% of criminal convictions. Childhood risks, including poor brain health at three years of age, predicted this segment with large effect sizes. 

A relatively small group generates the preponderance of social cost. And it's G-loaded. A rough measure of child intelligence at age 3 predicted a lot of bad outcomes.

Some of those relationships eased back in multivariate analysis with childhood SES included. But that's a tricky thing. If income is increasing in IQ (albeit concavely), then childhood SES depends on parents' IQ, but parents' IQ is a predictor of the child's adult IQ independently of of childhood SES. Some of the effect of childhood measures of brain health on adult outcomes is then unduly attenuated by inclusion of childhood SES in the regressions as some of the IQ effect could be picked up as a measured SES effect. On the other side, a higher IQ kid born into a lower SES household with lower IQ parents would select into worse environments for cognitive development over time, following the Dickens-Flynn kind of model. You need twin studies or adoption studies to start teasing that out properly.

While a fifth of the Dunedin cohort was responsible for massive amounts of the cohort's crime, prescriptions, hospital stays, fatherless children and social welfare costs, another cohort had almost nil costs.

The paper is optimistic about the potential for interventions on the identified group to reduce long-term costs and improve outcomes. I agree that identifying the cohort for targeting is important, but I'm a bit more pessimistic about the chances of success.

They note the data is right-hand censored at age 38 years. I wonder how many children had accrued to people in each of the above-pictured cohorts by that age.

Stay weird, Portland - but not like that

Weird can be good and bad.

Good weird:

Bad weird:

Today, Portland, Oregon, became the first jurisdiction in the United States to use the tax code to address the phenomenon of outrageous CEO pay. The City Council passed an ordinance, sponsored by City Commissioner Steve Novick, that requires publicly traded corporations to pay a surtax if they pay their CEO more than 100 times their median worker.

It looks like the levy would run through the business license tax for firms that operate in Portland and who consequently would have to get a business license. The Tax Foundation comments:

Whatever the ratios turn out to be, however, the Portland ordinance, if approved, might be little more than window dressing—more of a gesture than a policy prescription. Maybe CEO pay is too high and maybe it isn’t, but a Fortune 500 corporation is unlikely to renegotiate its chief executive’s compensation package to avoid an additional tax hit of a few thousand dollars in Portland, Oregon.

And even if somehow the tax did lead some company (perhaps a Portland-based business, with much higher liability in the city) to reconsider executive compensation packages, there is very little reason to believe that any of the savings would accrue to employees. Like it or not, businesses are not benevolent societies, and it would be curious if companies with allegedly inequitable compensation schemes would, having made a savings on executive compensation, simply gift that amount to employees in the form of pay raises. Rather, any savings would likely accrue to shareholders or perhaps be reinvested in the company.

Assuming there are any savings at all. Corporations presumably seek to avoid paying their CEOs more than they are worth to the company. They may get this wrong—perhaps even frequently. If they thought that the company would do just as well with a lesser-compensated chief executive, though, they would likely go that route, and if their initial judgment was correct, a company that actually feels compelled, for tax purposes, to curtail executive compensation would see a decline in its fortunes, with attending losses for shareholders and wage earners alike.

So a surtax that raises little in revenue but makes a statement about the weirdness of Portland. I prefer Darth Vader with flaming bagpipes on a unicycle.

HT: Glenn Boyle

Assorted links

The Friday closing of the browser tabs brings us a few gems:

• Noah Smith is absolutely correct. The academic mill is partially to blame for declining trust in science. Why? Lots of people who aren't really up to producing great, or even just good work, face strong incentives to publish anything. For similar reasons, I worry about accounting being subject to the same research and publication requirements as other disciplines in New Zealand.


• Danyl Mclauchlan's take on Key is excellent. I disagree with him a bit at the end though. New Zealand's system on emissions trading lets New Zealand automatically get serious about carbon emissions when the rest of the world does too: prices here will lift when international acceptance of dodgy credits ends, which is when everybody else is getting serious, which is when we should be too. 


• Kiwis with American friends have always had friends ship stuff over that's not here available. Great to see some entrepreneurs making this available to everybody. 


• Thomas Schelling died last week. Here is Schelling's explanation of organised crime. See also Ortmann and Cowen.


• The new process for settling Kaikoura EQNZ insurance claims is far better than the one that applied in Christchurch. EQC had told the government before the Christchurch quakes that its job should only be to cut cheques, not to run assessments. EQC had to take on a bigger job than that in Christchurch; it didn't go well. Those with insurance claims in Christchurch will be able to deal instead with their private insurer. Hooray! Meanwhile, Lew Stoddart provides a bit of commentary on Brownlee's push-back against criticism from folks dissatisfied with other parts of the government's response.


• Arthur Grimes and Richard Fabling find that Ultra-Fast Broadband on its own did nothing to improve firm productivity, but that firms that jointly invested in UFB and organisational ICT-based changes did do well. The average effect on productivity's being insignificantly different from zero will not be encouraging for those expecting more than that. 
• Market indicators to watch to tell how Trump's doing: foreign policy edition.


• Diet soda also increases obesity: consumers of diet sodas eat more afterwards. View these results, as all results in this area, with due scepticism. 


• The evidence strongly suggests that the world entered a bizarro-timestream somewhere around June of this year. 


• Brendan O'Neill's celebration of Christmas excesses.


• This headline makes no sense. "Euthanasia debate: 'Those in pain shouldn't have to die like a dog because of ego and conceit of others'. But vets euthanise dogs that are in pain. People don't get that option. I blame Trump for the "like a dog" thing.


• New Zealand's drug laws disproportionately affect Māori 

So endeth the lunchtime closing of the browser tabs. My but they accumulate. 

Different strokes for different folks

Yesterday, the Initiative's excellent policy analyst Jenesa Jeram squared off against the Ministry of Health's superb health economist Sarah Hogan for a fun Christmas debate for the Government Economics Network. The moot? "New Zealand needs a sugar tax to protect us from Christmas excesses".

The positions were assigned by the hosts; Sarah had to argue the case for a sugar tax. She did as good a job in doing so as is really possible, given the inherent indefensibility of the thing. And Jenesa's case against was very good as well. I really liked the introduction; one of our hosts suggested that the moot should have been "New Zealand needs a sugar tax like it needs a hole in the head."

I was less enthralled with one Wellington sugar-tax campaigner [lousy Chatham House rules] who zipped in at the end, not having caught the presentations properly, to ask Jenesa whether she were 'totally cool' with high diabetes rates since she argued against a sugar tax. Where a sugar tax has tiny effects on consumption, one can both not like diabetes and think that a sugar tax is a bad idea, as Jenesa pointed out to him more kindly than I'd have been tempted to in her place.

The attendees at the debate voted at the end to reject the moot (and so to reject a sugar tax) by about a 2:1 margin; Sarah won for best presentation - she did do an excellent job in presenting the far more difficult case. I had urged Jenesa to follow the example set by MoH economist Bronwyn Croxson when she debated against me on the merits of Christmas full-stop: she plied the audience with chocolate-covered almonds. Unfortunately, Jenesa's scruples are too binding for such things.

As I clear through the browser tabs at the end of the week, here's the New York Times with a reminder against One Big Thing approaches to obesity. Different diets work for different people - obesity and its treatment can be rather person-specific. Some can have massive success with one diet, which does nothing at all for somebody else, and appetite-suppressing drugs can also work for some people too.

Cataloguing Outcomes

Ever wanted to know what the government's targeting, how it's measuring outcomes, and what programmes are intended on hitting those outcomes?

Here's Superu's Treasury and Superu's Government Outcomes Catalogue Tool. The rather slick Excel tool lets you select the domain you want, the sub-domain, and filter a bit on demographic, unit or coverage basis. Hit Search and it'll tell you what initiatives are in place, the indicators they're using as measure of the stated outcomes, whether it's part of the better public service goals, and for what groups the outcomes are measured.

And some of the outcome domains:

I can't see any linkage through yet into what the figures are on the measured outcomes, but I'd expect those would come in time. At least now you can tell pretty easily what initiatives are out there, their status, and how they're intending on measuring things.

Kudos to Superu for getting this out. 

UPDATE: Credit where credit is due, and apologies. It is on Superu's site, but it looks like Treasury did the bulk of the work on this one. Apologies!

Iwi assets

A new report from Phil Barry and his team at TDB highlights some great success in iwi asset management.

We estimate the total assets of the post-settlement entities are now valued at around $6b. This report considers eight iwi - Ngāi Tahu, Ngāpuhi, Ngāti Porou, Ngāti Whātua Ōrākei, Port Nicholson Block, Rangitāne o Wairau, Tūhoe and Waikato-Tainui - with combined assets of around $4.3b.

Treaty settlements provided substantial assets to iwi. By and large, they've been well managed. The separation between commercial and social arms seems important:

The eight iwi we have reviewed generally have similar corporate structures. While these structures are often complex, typically there is an overarching trust that makes decisions about distributions and the nonfinancial objectives of the group, while a separate commercial entity has been established to manage the group’s commercial assets and to make investment decisions under a commercial mandate.

One side is profit maximising; the other side uses the earned profits to achieve iwi social objectives. Keeping a clean line between the two forces a harder line on asset management. The report notes a bias toward property investment which puts some risk into the portfolio.

And whoever at  Ngāi Tahu negotiated the relativity payments is a genius.

Over the last 10 years, Ngāi Tahu has nearly tripled its asset base, from $561m in 2006 to $1,504m in 2016. With little debt, Ngāi Tahu’s net worth has grown significantly over this period. 2016 was no exception, with the asset base increasing by 12% and net worth increasing by 11%. Ngāi Tahu has received numerous relativity payments from the Crown over the period, with payments in 2013, 2014 and 2015 of $69m, $13m and $29m respectively.

Solvable problems

The world has plenty of hard unsolveable problems. It's irritating when easy to solve problems fail to be solved, although they too may point to a broader difficult problem.

Item the first: New Zealand's great walks are, well, great, and very popular with tourists. But they're losing millions of dollars per year, meaning that taxpayers are shelling out to provide tourists with great walks at discount prices. And nobody wants to increase charges for locals. The solution seems obvious: charge tourists more than you charge locals, unless something really weird is going on and we're already on the inelastic part of the tourists' demand curve.

Item the second: Christchurch Council wants to encourage water-saving. They have meters on the properties already, but they're not charging residential users based on consumption. If that's because the efficiency gains from metering and charging are small relative to the costs of reading the meters, fair enough. But if it's because people are worried about poor households not being able to afford water, that's a totally solved problem. It bugs me when people jump to that one. Totally solved, and obviously solveable were it not already totally solved. Just think.

Finally, Andrew Little doesn't want to raise the age of eligibility for NZ Superannuation because some manual labourers may not be physically able to work past the age of 65. But wouldn't the obvious solution to that problem be to introduce a new disability benefit for those over the age of 65, unable to work, and not yet eligible for NZ Super if the age went up? That isn't necessarily my preferred solution to NZ Super overall, but it seems a blindingly obvious solution to the stated objection to raising the age of eligibility.

On all of these, it seems like folks hit a "but here's a problem" issue and stop thinking when they should instead be wondering about how to solve the imagined roadblock. Inertia is powerful, and encountering a plausible-sounding reason for doing nothing lets people not fix problems.*

Inertia's a bigger and harder problem.


* If you've dealt with the public sector, how often have you heard "Oh, but privacy considerations..."

Quiet achiever or quite an unachiever?

Roger Partridge and I took on Key's legacy in last week's Initiative newsletter. He highlighted the highlights; I hit on the disappointments. Had either of us written a single piece, we'd likely have incorporated a fair bit of what the other said.

Here's a snippet from Roger:

Against this background, the Key years have been remarkable. Stable government itself has been an achievement. A simple comparison with Australia will suffice: during Key’s time as prime minster he has witnessed four leadership changes across the Tasman. Steady-as-she-goes may have been bad for our media, but it undoubtedly contributed to New Zealand’s rising business confidence, and to long term investment and growth.

The government’s fiscal discipline has also been impressive: not just by resisting the spending affliction that gripped others, but by quickly returning the government’s accounts to surplus – and healthy ones too. Again, the contrast with Australia is stark. While Bill English can take much of the credit for this achievement, it is Key who granted him the licence to be prudent.

Key’s was also a reforming government. After the Fourth Labour government, it was perhaps New Zealand’s most radical in the post-war era. The GST for income tax swap, welfare reforms (the likes of which might have brought down another government), the investment approach to social services; labour market reform, partial-privatisation, reforms in education, including national standards and charter schools: these may have occurred incrementally, but together they comprise a prodigious package of reform.

And me:

Blaming coalition partners let National have its cake and eat it too. Home-owning voters got rich off the back of National’s failure to fix the planning apparatus, and National got to jawbone about reform without ever doing anything about it. The renting victims are poorer, less likely to vote, and are more likely to vote Labour anyway. 

Auckland’s housing crisis was a sin of omission. Post-quake Christchurch was a sin of commission. 

The government allowed Gerry Brownlee to play SimCity with CERA and the CCDU, ignoring the property rights of downtown owners, causing destructive regime uncertainty in which owners simply could not tell what they were allowed to do, and failing to deal with substantial emerging problems in EQC assessments that kept costs to government down but ignored the terms of homeowners’ insurance agreements. We are lucky that Christchurch, Waimakiriri and Selwyn were not forced into a supercity before the earthquakes.

Think back to National’s campaign of 2008. They railed against Clark’s nanny-state. But can we see the massive increase in health and safety compliance costs as anything but a continuation of that regime? And what of the anti-money laundering regulations that had no reasonable cost-benefit assessment? Because of those rules, I could not even bet on iPredict that English would succeed Key.

Meanwhile, productivity continues to stagnate and superannuation’s long-term costs loom. 

Failing to follow the rest of the world’s descent into madness is good. The bar should be set higher for a country that has bigger aspirations than that.

Like Grandpa Simpson said of whether FDR beat Superman by a furlong...

The Gibson Critique - sugar tax

Waikato's Professor John Gibson last week delivered at Motu what has to be the most devastating critique of the empirical estimates on sugar tax effects that I've yet seen. Gibson's slides are here.

Minister of Health Jonathan Coleman has been holding off on sugar taxes, saying that he needed to hold on the results of a couple of forthcoming studies, one of which is Gibson's. Julie Anne Genter and the Greens have been arguing that his opposition relies on one industry-linked report; I'm not sure how they missed Gibson's work, as I've pointed Julie to it many, many, many times. 

Gibson's presentation at Motu goes beyond what I'd seen him present at the Ministry of Health a few months ago, and which we cited in Jenesa's report The Health of the State. 

He walks slowly through the problems of demand elasticity estimation where there can be consumer response on the quality as well as quantity dimension when all you have is household expenditure data. Price variation on the quality dimension is huge. If you infer consumption by how much people spend, but people respond to price changes by downshifting in quality, you will overestimate the price elasticity of demand. And even more so if people stockpile when things are on sale for later consumption. He shows how Deaton's method of inferring price elasticity by restrictive assumptions on cross-brand shifting fails. 

Here's Gibson on the Mexico studies:

He later shows that hardly any of the existing papers out there deal reasonably with quality substitution, and that there are other substantial problems out there.

But the more interesting part comes at the end, where Gibson contrasts how economists read a literature and how public health people do. 

Sugar tax advocates in New Zealand need to stop pretending this work isn't going on. Gibson's final report isn't due out in a while. The sugar tax people can't continue claiming that all the opposition to sugar taxes is somehow motivated by Big Sugar. There are serious empirical issues in the literature and I have pretty big doubts that any of the sugar tax proponents have been able to wrap their heads around those issues. 

3 strikes, redux

We still don't know what effect New Zealand's 3-strikes law has had on recidivism.

Graeme Edgeler had undertaken a bit of ocular least squares last year; I'd commented on it here. It then looked like the number of second strikes had dropped, although the conclusion was still tentative. It turns out that the data Graeme was using wasn't as comparable across the two time periods as he had thought, and so he retracted his post. I've updated my post as consequence.

In theory, the law should be effective and at lower cost than American alternatives, for the reasons I laid out here. The American version gets rid of marginal deterrence by having the same hefty penalty across broad categories of offending, so you may expect a severity shift in offending among third-strike offences. New Zealand sets things on the third strike to the maximum penalty for the offence, without parole, unless it would be manifestly unjust to impose the penalty without parole, so proportionality across offence categories is maintained. 

Judges so far seem to be undermining Parliament's intent in the legislation. The two second-strike cases that have come up involving murder, where judges are to impose the maximum sentence without parole unless the 'without parole' provision were manifestly unjust, have both had the non-parole period waived as being manifestly unjust; the only third strike offence so far has also used the 'manifestly unjust' provision for waiving of the without-parole condition. Radio New Zealand reports on the three cases here. 

It would not take many more uses of that provision before offenders expected that judges had no intention of following Parliament's intent, and so deterrence would be lost. Maybe each of the three cases so far really are the exceptions that Parliament intended have this kind of exception. But say that the provision were intended for 10% of cases. The odds that the only three to come up all happened to be manifestly unjust are one in a thousand. Is it more likely that we are seeing the one-in-a-thousand sequence, or that the judges have little intention of following Parliament's intent?  

And so any future empirical study might expect a rise in strikeable offences from 2017 onwards, as judicial credibility diminished - barring changes in sentencing practice that change expectations.

UPDATE: In comments below, Andrew Geddis notes it's been five second-strike murders, and that the judges deemed applying Parliament's intended sentence in all cases would be manifestly unjust. I doubt that's an accident. 

Prime Minister English?

If outgoing Prime Minister John Key has any influence over the choices, and if Bill English wants the job, I expect English will succeed Key as Prime Minister and Steven Joyce will move to the Finance portfolio.

More than anybody else in government, as best I've been able to tell, Bill English thinks in terms of incentives and institutions. He sees the long game in changing structures to get better policy outcomes. And I have only ever heard him talk about that long game in terms of policy outcomes, not politics.

As Finance Minister, English's vision was clear. He wants government spending to be effective. This isn't bean-counting stuff, it's about wanting that outcomes actually improve because of policy and spending decisions. And he wants the institutions to be in place to provide the incentives for that to happen.

English's enthusiasm for Statistics New Zealand's Integrated Data Infrastructure was built on using it to figure out where government spending is working to improve outcomes, where it isn't, and setting up the mechanisms so we can distinguish between those. I remember his visit to Canterbury University beseeching us to use the IDI to help him figure out where the government does well, and where it could improve.

At the Victoria University School of Government awards ceremony a couple of weeks ago, English also highlighted the importance of institutions. He there, and this is my paraphrase, said that policy graduates need to think beyond the shift from inputs and outputs to outcomes, although that's important too, but rather towards the incentives that lead to those outcomes, and the institutions that shape the incentives. He noted that he has a lot more time for "these are the institutional features leading to bad policy leading to bad outcomes" thinking than for "here are bad outcomes, change this policy to get better outcomes".

As Prime Minister, English would be in a better, and worse, position to promote and execute that vision. On the plus side, he will be better placed to make the changes necessary. I expect he might take a harder line in Cabinet if RISes fail to meet the necessary standard, and ultimately bureau willingness to supply those depends on bad ones being batted back by Cabinet. And there are tweaks that could make IDI work better.

But on the downside, he'll need Treasury working well for in order to implement the investment approach, and he wouldn't be the Minister to which Treasury reports any longer. That will matter too.

Housing solutions

Paavo Monkkonen has a few solutions to California's housing affordability problem.

First, California’s current Housing Element framework should be strengthened. It gives cities goals for new affordable housing but is now an almost symbolic exercise. Cities that fail to meet their targets should face fines or legal action, while cities that meet or exceed targets should be rewarded through infrastructure funding or other means. In addition, the state should reform the way it determines regional housing needs. The current system relies on population estimates, which underestimate the need in high-cost areas flush with jobs, amenities and public services. Vacancy rates or an affordability index would be more accurate and have a greater impact on affordability.

Second, the state must encourage a more diverse group of residents to take part in the planning process. Planners must actively seek meaningful input from families, low-income renters, young people and those unable to attend public meetings. If outreach is too cumbersome, cities should consider cutting off input that unduly benefits small groups. For example, neighborhood councils could be eliminated, as was recently done in Seattle.

Third, some planning decisions should be moved from the local to metropolitan or state levels since housing and labor markets operate beyond city limits. Where neighborhood opposition is a persistent roadblock, developers could be granted “by right” approval for projects that meet existing rules, exempting them from some reviews and public input. California’s density bonus law – which grants developers additional density in exchange for a share of affordable units – is an important example of this kind of approval. The state might expand the types of projects that are eligible.

Council incentives and infrastructure financing are at the heart of the problem here too. I've liked the idea of having a national default plan that takes effect if housing costs are more than five times median income. Do what you want locally so long as housing remains affordable. Turn unaffordable for too long, and allowed density in every spot is automatically doubled, everyone has by-right permission to build up to three stories, and urban growth boundaries are wiped out.

The greatest superhero of them all

I look forward to future episodes of this one, in which The Utilitarian (ΣU) gets in a big fight with The Utilitarian (Max median(U)) and The Utilitarian (Max U-bar) about just what they should be doing.

ΣU: Stop what you're doing! He clearly prefers being alive to your killing him, and his existence is a net addition to total utility (unlike that criminal from before)!

Maximize average: Nobody will even notice that he's gone, and he just barely prefers being alive anyway - thanks to you. What the hell did you do to increase the birth rate by so much anyway? 

ΣU: Zapped all the contraceptive plants. People enjoy life less because of less sex, but the addition of more people is clearly worth it. You were too busy stealing from people to give to the utility monster to notice (and I didn't mind that either). 

Median U: I noticed...

Guaranteed Employment for Lawyers

Our excellent Research Fellow Dr Rachel Hodder warns about potential legal nightmares in the government's proposed pay equity framework.

Last week, the government announced that it would accept the Joint Working Group’s recommendations, which will allow employees to take pay equity disputes directly to their employers.

These changes were motivated by the landmark ruling in the TerraNova case where it was ruled that female-dominant aged care work has been historically undervalued due to gender discrimination. This has opened the door for a flood of similar claims to be made in other female-dominant industries.

The intentions of the changes are laudable but good intentions do not always make good policy. Overseas experience with similar pay equity laws is a good reason to be concerned.

There is little evidence that similar laws have reduced gender pay gaps. Adjusting pay in undervalued female-dominant industries is a blunt tool compared with adjusting pay for individual undervalued female employees in any industry.

Ironically, some studies have demonstrated that pay equity laws have widened the pay gap. Making employers pay more in whole industries reduces the number of jobs available, pushing many women into lower paid work.

A review of similar pay equity laws in Ontario is discouraging. The costs of administering the system ate up much of the available compensation change.

Establishing plans for compensation systems was much easier said than done. These costs were disproportionately felt by small employers where often the administrative costs were more than the recognised pay differences.

Difficult in practiceDisputes turned into a litigation nightmare. Rules to determine what counted as equivalent work seemed simple on paper but were difficult to evaluate in practice.

This led to endless disagreements about what male-dominant industries could be considered as relevant comparators. The main winners of the laws were consultants and lawyers, not women.

One would hope the government has been advised on the likely problems the new laws could encounter based on overseas experience.

It would be very interesting to know just how much warning Treasury or the ministries provided about the difficulties encountered in Ontario, and likely difficulties here. One should be especially careful about the quality of advice in areas where there is a lot of wishful thinking, and a lot of social sanction for even suggesting that outcomes might diverge from intentions.

Meanwhile, The Listener does not give us reason to hope for reasonableness:

The law change won’t be a magic wand. Comparing the relative value of different jobs in disparate industries was a contentious issue within the working party and threatens to be a sticking point in workplace negotiations. A suggestion by the New Zealand Educational Institute that pay rates for teacher aides be linked to those of Corrections officers, whose work entails risks not generally present in primary schools, isn’t a promising start.

The government hasn't drafted the legislation yet; I hope that the government gets some better advice around this stuff before it does.

Tax and trade barriers

Trump's potential incoming Commerce guy, Wilbur Ross, has a bizarre take on sales taxes. And it might mean that New Zealand should rethink how we treat imports and exports in GST. 

Ross co-authored an economic policy paper that proposed renegotiating NAFTA and included a call for combating the use of foreign consumption taxes that render American-made goods less competitive. Trump echoed the paper’s views in campaign speeches.

The document argued that foreign countries offer a sales-tax rebate on their own goods shipped abroad, but then tax incoming products from the U.S., which does not have a value-added tax. The net effect, he said, is to invite U.S. companies to relocate.

“Like many countries, Mexico has shrewdly exploited the (value-added tax) backdoor tariff to further its competitive advantage,” Ross wrote in the 31-page paper, co-authored in September with University of California business professor Peter Navarro.

“It is thus not surprising that U.S. corporations want to move their factories offshore and then export their products back to the U.S.”

Canada's GST is a mess, but even then it's tough to see how the heck this works. If a US manufacturer makes things in the US and sells in the US, no GST applies because the US has no GST. If it exports to Canada, GST applies on sales in Canada. If the plant moves to Canada and sells in Canada, GST applies on sales in Canada, but not on exports to the US - exactly the same as if it were US-based.

So the whole thing is nuts.

But that's not a constraint on Trumpist economics. And so what should New Zealand think about this? We have a clean GST that's charged on a point-of-consumption basis: imports draw GST (barring the GST-free threshold for low-value imports), but exports are zero-rated.

If a Trump administration thinks that's a trade barrier, they're nuts - but their being nuts doesn't much matter. It can take the WTO a long time to slap back stupid things the Americans decide to do, and who knows whether Trump would agree to pay whatever penalties they'd impose anyway.

But there is a workaround that solves another problem at the same time.

Last year, Seamus found a beautiful solution to local retailer complaints about GST on imports. The retailers association gets real mad about the de minimus threshold for imports. In their view, it makes an unfair playing field. The 15% GST difference is absolutely trivial relative to the cost difference between local retail and direct-to-consumer imports in way too many cases for the de minimus threshold to be distorting things, but doing away with it would serve as a big barrier against imports because there's no clean way of applying at the border without wrecking direct-to-consumer imports.

Except for Seamus's solution.

Seamus reminded us of Lerner symmetry. A tax on imports (like GST) is identical to a tax on exports - they're both taxes on trade, effectively. Long run, imports match exports. So flipping from taxing imports to taxing exports causes a one-off drop in the exchange rate equivalent to the tax, but doesn't mess anything else up. And so he argued that New Zealand should shift to zero-rating imports, which are tough to police at the border anyway, and apply GST to exports. The price of all exports would go up by that 15%, but we face world prices: that means the value of the dollar drops. I'll quote Seamus in full here:

My proposal will not just deal with the distortion that purchases by consumers that are made directly from overseas through on-line retailing receive a favourable tax treatment relative to those that are processed through an importer. It will also deal with a larger distortion in the GST. As it currently stands, the GST applied to imports does not apply to purchases made by New Zealanders while travelling overseas, and similarly the zero-rating of exports does not apply to the sale of services to foreign tourists while in New Zealand. That is, the current GST regime favours overseas tourism by New Zealanders over other imports, and penalises the New Zealand tourism industry relative to other exports.

So here is my proposal: Completely exempt all imports from the GST, and at the same time stop zero-rating exports and require firms to charge GST on all sales, including those to foreigners. Retail New Zealand should be happy, they would no longer be treated in differently from overseas on-line sellers in their tax treatment in New Zealand. And firms selling both overseas and in New Zealand would be happy to no longer have to have separate out sales overseas and domestic sales when filing their tax returns.

This idea runs completely counter to our inner mercantilist instincts, but our instincts don’t cope well with general-equilibrium reasoning. In my experience the greatest eye-opening moment you can give students in economics—the sort of epiphany that has them changing instantly from “this is obviously wrong” to “this is obviously right” is the Lerner symmetry theorem,  which shows that an import tax is exactly equivalent to an export tax. The idea here is that a tax on exports or imports is really a tax on trade. In the long-run, the present value of exports has to equal the present value of imports, as they are just opposite sides of the equals sign in a budget constraint. A tax on exports is a tax on imports, as it shifts resources away from producing for overseas (with the consequent importing from overseas that that allows) to producing for local consumption. (I was told that, during the Muldoon era, Treasury, knowing that it could not pursuade Muldoon to reduce tarrifs encouraged him in his policy of export subsidies, knowing that the latter would counteract the former.)

In a country with a floating exchange rate, the way that the Lerner equivalence theorem would play out if it were to adopt the change from levying the GST on imports to levying it on exports, would be through a depreciation of the currency by the amount of the GST. So sure exporters would have to put up their prices to foreigners in NZ dollars by 15%, but the goods would not seem to be more expensive to foreigners because of the 15% depreciation. Similarly, the 15% GST coming off imports would be offset by the depreciation. In general, therefore, there would be no change, but with a few exceptions. On-line purchases would become 15% more expensive in NZ dollars due to the depreciation with no offsetting change in taxes. Trips overseas would similarly become 15% more expensive, but at the same time, New Zealand would become a far cheaper place for foreigners to visit, again.

It's a clean solution for the online GST / import issue, but seemed politically difficult. If the incoming US administration thinks that zero-rated exports are some kind of trade distortion warranting sanction, though, we could flip to zero-rating imports and taxing exports. Ta-dah. Trump's inner mercantilist will love us for it, and we know it makes no difference. Like Seamus's example on Muldoon.

I thank @TrevorTombe for the pointer. He's a convert to Seamus's beautiful tax idea. You should be too.

@EricCrampton I'll admit: didn't read whole thing. ;) Just did now, and... outstanding point. Must let sink in, you changed my thinking.

— Trevor Tombe (@trevortombe) December 1, 2016

Compensating organ donors

It is illegal to pay organ donors for their gift. Economists can easily explain the consequences: at a price of zero, you have a big shortage. This is particularly the case for live donors, where donors face real personal costs, both in the transplant process and in recuperation.

Chris Bishop's bill, which passed Third Reading in the House yesterday, will compensate live organ donors at 100% of their lost income, and makes sure they're not left out of pocket for costs.

Here's Chris's speech at third reading.

Kidney transplants save the government over $120k in dialysis costs, net of the cost of the transplant and ongoing care.

For a long time, we were stuck in the worst of all worlds on this one. People don't like the idea of trade in organs and money being involved, and so governments made it illegal to pay anybody anything for an organ. Well, except for the surgeon, the nurse, the orderly, the person who mops the floor, the people running the kitchen at the hospital, the people making the equipment for the transplants - all of them, well, their choices are by definition uncorruptable and totally not based on coercive money being involved. Just the person who might donate an organ. That person had to be protected from coercive cash - and the consequence of a mandatory price of zero was a massive shortage in donor organs.

Most of the time, economists would just take this as example of the stupid that happens when people can't think clearly about prices and exchange.

Al Roth instead saw it as a constraint to work around, and came up with matching donors as a way of making things suck less given the constraint that money can't be involved.

And Chris Bishop, in an excellent bit of policy entrepreneurialism, saw the opportunity to save lives by repackaging things. The New Zealand system will compensate donors for their lost income for up to 12 weeks of recuperation. Gary Becker had estimated that you'd get an infinitely elastic supply of organs at around the $15k/kidney mark in the US. Compensation at the median wage for 12 weeks is just over $10k. That doesn't get us quite as far as would be ideal, but it is a massive improvement on the system as it was.

I like to think that we helped a bit in this. I've been blogging on this topic for a while now, and have pointed out the Israeli compensation system. The last honours project I assigned at Canterbury was running the CBA on live organ transplant. Bob Reed took over supervision of Liz Prasad's project as I left for the Initiative, then Liz turned it into a Masters with me helping a bit in the supervision.

When Chris's bill was drawn from the ballot, we quickly turned Liz's thesis into a research note and submitted on the bill. We didn't get all the changes we'd there have wanted - I still really like the Israeli priority system - but it was good. Donor compensation was strengthened from 80% of lost wages to 100%, and I like to think that our showing that the government still saves money on the deal helped in that.

Chris did all the hard yards on this one though. He built phenomenal cross-party support for a proposal that routes around one of the stupider constraints we've had in the system, and gets us a heck of a long way towards better outcomes. Huge kudos to Chris.

And this should be a lesson for the American system as well. Stop talking about buying and selling organs, start talking about letting insurers compensate donors for their lost wages while in recuperation. It ain't perfect, but it's a big step towards a better world.

UPDATE: On prompting by Ilya Somin, I've checked through the US law. I thought it was banned in the US as valuable consideration, but compensation for lost wages is allowed for. And yet it still is a substantive barrier to donation in the US: while it's allowed, it isn't done. In that case, as the public system there does fund a lot of transplants through medicare, I expect they'd just need an administrative decision to provide that compensation.

Predictions and forecasts

The Prime Minister rubbished Treasury's long-term fiscal forecast:

Key: "When we came in in 2008, the predictions from the Treasury were much more short term than that, so they were saying by about, I think, 2022, 2023 — we were back —they were predicting debt-to-GDP to be 60%, right? The sort of numbers that you’re talking about now. Okay, so what really happened was under a National-led Government, we got on top of the expenditure that the country was facing. We had years of zero budgets and being cautious with our expenditure and all of those things. We also grew the economy much faster than they thought."

Q. So you’re basically telling me you’re betting your legacy on Treasury being wrong?

Key: Let me just finish this point, because it’s a really important point. They said that within 15 years debt-to-GDP would be 60%. What it really is is 24.5%. So what those things are worked on is a static model that says if the government doesn’t make all sorts of changes.

Q. You’re telling me that you’re doing— You’re not going to do any of those—

Key: I’m telling you it’s a load of nonsense, because they can’t get predictions in 44 days right, let alone in 44 years.

Q. So, you know that— You know that Super is going to be a huge draw on us, and you’ve said that you’re not going to do anything about that. So I’m just wondering what you know that Treasury doesn’t, if you know better.

Key: Well, I mean, okay, go back and ask the Treasury, then, and say — when they gave us those predictions in 2008, when I became Prime Minister and Bill became Minister of Finance, what did the Government do? And in the course of the last eight years; it grew the economy faster; it was far more cautious on its expenditure; it took careful steps in a number of different areas. The overall mix of the economy changed in terms of what was happening. The population changed in New Zealand. My point is these are very static models. 44 days before putting together Budget 2015 and Budget 2016, the Treasury were a mile out in terms of predicting what the budgets would be. These guys are saying, on a totally static basis, we do absolutely nothing; everything carries on. So you said Super — it’s 4.9% of GDP today. In theory, if nothing ever happens and the population doesn’t change, it tops out at about 7.5%, maybe

As reminder:

1. The long-term projections are "if nothing changes in policy, this is what is going to happen." If you change policy and cut the rate of growth of government expenditure, you'll avoid getting the projected debt-to-GDP ratios. That isn't Treasury being wrong, it's the government having done what it should have in response to the projections.
2. Long term projections can be in some ways easier than forecasting things 44 days out. I don't know what the weather will be tomorrow, but I can expect that June will be colder than December in New Zealand, and that temperature in a century will likely be a degree or two higher than it is now. 
3. Key's right that they're static models. But avoiding the big debt-to-GDP numbers requires something to change those projections. Like faster economic growth, or increasing migration by working-aged folks to outweigh the superannuation hit that will come, or pushing out the age of pension eligibility. It is odd to say that Treasury can't forecast because you changed policy so that things wouldn't look like that, then to simultaneously say you don't need to do anything about the other longer-term forecast.

I have plenty of issue with Treasury's quality of analysis on a few fronts. I don't have any particular reason to doubt their long term fiscal projections. 

Blocking content

The UK is Brexiting from a sizeable chunk of the internet: content that the British censor wouldn't rate for DVD sale.

Web users in the UK will be banned from accessing websites portraying a range of non-conventional sexual acts, under a little discussed clause to a government bill currently going through parliament.

The proposal, part of the digital economy bill, would force internet service providers to block sites hosting content that would not be certified for commercial DVD sale by the British Board of Film Classification (BBFC).

It is contained within provisions of the bill designed to enforce strict age verification checks to stop children accessing adult websites. After pressure from MPs, the culture secretary, Karen Bradley, announced on Saturday that the government would amend the bill to include powers to block non-compliant websites.

In order to comply with the censorship rules, many mainstream adult websites would have to render whole sections inaccessible to UK audiences. That is despite the acts shown being legal for consenting over-16s to perform and for adults in almost all other liberal countries to film, distribute and watch.

The best tweet I saw summarising this suggested that the Brits would allow the British internet the full range of British sexual preferences by distributing six pictures of Sean Connery from the 1960s. Alas, couldn't find it again.

Here in NZ, I was annoyed when the NZ Censor's Office seemed to be making a play to block parallel importation of digital content using censor regs as vehicle. The regime remains in need of modernisation. The UK is going in the wrong direction.

Spring cleaning

Wellington's quake-prone heritage-listed buildings remain scary. My column in this week's NBR ($) suggests prioritising the risky heritage buildings, pulling the heritage listings from the scariest ones, and putting public money into the ones where the heritage amenity is really worth it. 

Or, Council could just buy the buildings from their owners, fix them itself, and sell them afterwards - though they would almost certainly take a pretty big loss in doing so. The loss is the same loss they're currently imposing on private owners via the heritage listings, but putting it on the public account never feels quite as nice for the regulators.

A snippet:

The most recent data say Wellington has 641 registered earthquake-prone buildings. Of those, 20 are Category 1 places listed by the Historic Places Trust and 44 more have Category 2 status. Another 62 are listed by Wellington Council but not by the trust.

These listings are their own kind of basement clutter.

Looking through our basement, I often had a hard time remembering why we had gotten some of that stuff in the first place. Looking through the heritage listings has a similar feel: buildings added to the list with little background documentation on how they ever got there.

It seems amazing that the Gordon Wilson Flats were ever heritage listed, despite their apparently rare status as a state housing high-rise built by a National rather than a Labour government. While I can throw out the ugly wedding present in the garage given by a long-deceased relative, it’s harder to get rid of heritage-listings on dangerous buildings. Appeals processes are still under way for the Gordon Wilson flats.

Those delays can be deadly. In Christchurch, the owner of a heritage-listed building on Colombo St wanted to demolish it after the September earthquakes. The council blocked demolition pending the right processes being undertaken.

February’s earthquake did not bother with consenting processes and killed 12 people in a bus outside the building without seeking the leave of any council official. The council staff who delayed demolition faced no liability for their choices.

I covered similar themes in last week's Insights newsletter, focusing on the Human Rights Commission's report on property rights in post-quake Christchurch.

Hot tub talk machine

Last weekend, I argued environmental policy with David Round, Sam Mahon, and Camila Nieuwlands in a hot tub full of warm milk at CoCA, Christchurch's Centre of Contemporary Art.

A snippet from my column in this week's Insights newsletter on it. Trigger warning if you hit the link: There are pictures.

Gaby Montejo is one of Christchurch’s more interesting artists, and the post-quake Christchurch arts scene is especially entrepreneurial. Gaby, and others, improvised wonderfully around the city’s demolished and ruined spaces, giving everyone little bits of whimsy and beauty.

I couldn’t really say no when he asked if I’d join in a performance exhibition he was putting on at Christchurch’s Centre of Contemporary Art (CoCA).

He wanted a panel discussion about dairy and the environment in an art space surrounded by other works on environmental themes, but different. Rather than sit at the front of the room at a table with a lectern, we sat in Gaby’s “Honeymoon Latte” – a warm hot tub full of milk – for a conversation about dairy, the environment, and economics, and the amusement of a few dozen spectators who came around to listen in.

I assumed my job was to add a few shots of espresso to the mix, and so had a lot of fun.

You can subscribe to our newsletter with the little form at the bottom of the column above-linked. If you want a subscription link that doesn't come with risk of pictures of me in a hot tub filled with milk, sign up via Jason Krupp's column on the launch of his report on local government, or Martine's on data and education policy.

New Zealand is totally different from Ontario

New Zealand may be heading toward 1988-Ontario-style Pay Equity rules.

Here's The Herald's summary:

The changes will mean employees who believe they are underpaid because they do work in fields dominated by women will be able to approach their employer to raise a pay equity claim.

The Government has today announced it has accepted the recommendations from a joint working group, led by Business NZ and the NZ Council of Trade Unions, that were delivered to Cabinet earlier this year.

When putting up a pay equity claim, employees need to find another non-female-dominated job they can compare their work to.

As well as establishing a process for employers and employees to follow to address pay equity, ministers have also decided to clarify how to choose an appropriate job for comparison when making a pay equity claim.

PSA national secretary Erin Polaczuk said Cabinet had proposed a "start close then move out" mechanism, where employees must try to find a comparison in their own business, then their industry, then their sector.

She said the PSA would now raise pay equity claims for thousands of low-paid women.

I am absolutely confident that our experience will be absolutely nothing like Ontario's. I only put the Ontario experience up here as illustration of what goes wrong in other places. Here it will be wonderful, as I am certain all right-thinking people would have to agree.

On administrative costs, here's a report by Morley Gunderson (University of Toronto) and Paul Lanoie (École des Hautes Études Commerciales) for CIRANO. You should read the whole thing, so you can satisfy yourself that the clear differences between Ontario and New Zealand mean we are entirely safe. Here is a snippet.

Based on these figures, in some back-of-the-envelope calculations, Gunderson (1994, p. 88) estimated the administrative costs for the 20 percent of the persons in an establishment who may receive an award, to be approximately $750 or about 20 percent of the average award of around $4,000. That is, about 20 cents of every dollar transferred is "eaten-up" in the employer’s cost of administering the system. This may be an underestimate to the extent that it does not include the actual cost of the job evaluation procedure, or the hidden indirect cost (e.g., managerial time) or the cost to other parties. It may be an overestimate to the extent it does not net out other benefits that may result from the process. Furthermore, many of the administrative costs may be one-time only, while the pay equity adjustments may continue.

Based on her consultations across the province, Read (1996, p. 4) also indicated: "For some smaller private sector employers, the cost of compliance sometimes exceeded the actual adjustment made." That is, more than 100 percent of the adjustment would get "eaten-up" in the real resource cost of administering the system. She cites (p. 38) survey evidence from the Canadian Federation of Independent Business indicating that for small businesses the total cost of consulting fees10 averaged around $5,400, which was considerably higher than the total amount of around $4,000 that went into wage adjustments.

As an illustration of the costs incurred, we present the process that was involved in the hospital that served as one of our case studies. First, a job description had to be done for all occupations by people of the HR services. The job description was then presented to the supervisors who submitted them to all workers for approval. Four pay equity committees (one for every bargaining unit and one for non-unionised workers), each of them involving 5 or 6 persons then proceeded to the job evaluation. This took many weeks, involving a countless number of meetings. The results of the job evaluation and the consequent wage adjustment were then presented to supervisors before being posted. Once the plan was posted, HR officers had to meet a large number of workers to discuss the results and the wage adjustment they received. The pay equity law also requires that firms maintain pay equity, which means that every time a job description is changed (because of a re-engineering, because a worker uses a new equipment, etc.), the pay equity process has to be done again.

When the pay equity system was first conceived in Ontario, it is not likely that the complexities and "litigation nightmare" were anticipated11. Nor were the long delays and legal wranglings of the Tribunal over seemingly simple, but inherently complex and important matters12. Examples of issues dealt with by the Tribunal include13: the definition of the establishment and the employer; gender composition of the job; gender bias in job evaluation; appropriateness of certain male comparators; exemptions for bargaining strength; retroactivity in the wage adjustment; language difficulties in understanding the pay equity plan; disclosure of documents; the possibility of an "officially induced error" if a Review Officer gives an opinion; and the rights of employees to paid time off to participate in the Tribunal hearing.

The job-to-job comparison procedures were likely utilised because of the apparent simplicity of comparing one job to another once the appropriate comparison group was established -- not anticipating the complexity of selecting the comparison group. This could be minimised by allowing the estimation of paylines, but that too can give rise to endless technical wrangling. The problem of a lack of male comparator jobs was not likely anticipated, nor was the complexity of proportionate value methods (with their paylines) or proxy comparisons to close those loopholes. Regulations beget further regulations to close the loopholes, with the process often bordering on the impenetrable to all but a few. Of course, there is money to be made by such complexities, but that money does not go to those for whom the system was designed to assist.

The CIRANO piece concludes:

Pay equity can be a complex procedure even if it is intended to be simple. That very complexity can give rise to negative features when judged according to program evaluation procedures. Not all persons in the target groups are assisted and in a manner sufficient to fully redress their problem. Significant spillover benefits can leak to non-target groups. Otherwise similar groups can receive very different treatment. The process may foster rather than break down the sex segregation of jobs. Significant real resources can be used up in the administration and implementation of the complex procedures. Such procedures are not transparent and well understood by the parties.

Our assessment is that these negative features especially associated with the complexity of the policy are a significant barrier to the effective implementation and wider adoption of the policy. Pay equity runs the very real risk of "imploding" under its own weight. The problem is exacerbated by the fact that simple rules for its application are elusive. Rather than closing loopholes, further regulations seem to add more complexity, begetting even further regulations. The pie gets eaten up in the process of administering the pie.

These problems appear to be inherent in the nature of the policy, at least when it is applied proactively and on unit-by-unit bases, as is inevitable when applied to the private sector. This raises the danger that the legislation will be ignored because it is unwieldy, a possibility enhanced by the fact that settlements have been much smaller in the private sector than the public sector.

Pay equity was instituted in large part because of the limitations and ineffectiveness of conventional equal pay policies in reducing the male-female wage gap17. Unfortunately, we know remarkably little about the overall effectiveness of initiatives like Ontario’s pay equity initiatives. We know that Ontario is a leader in the world in the area of pay equity, and we know that its system has turned out to be complex, but we do not have an answer to the bottom-line question: has pay equity been successful in closing the wage gap or in achieving other social objectives?

They didn't have an answer to their bottom-line question in 1999 when that piece was written. What have we learned since? Here's McDonald and Thornton (sci-hub link)

Evaluating the effect of pay-equity laws is important and yet difficult as one needs to deduce what would have occurred without the policy intervention. We use a new tool, synthetic-control method, to examine the effects of Ontario's Pay Equity Act on the gender pay gap. This tool enables us to create a “Synthetic” Ontario, which resembles Ontario more closely than does any other single province. Using Synthetic Ontario to compare what actually happened in Ontario to what would have happened, we find that the act has had little or no effect on the female-male wage gap in Ontario.

New Zealand will be totally different. Here we never create systems that layer up tons of bureaucratic processes imposing massive cost for little discernible benefit, and surely that will continue to be as true as it ever was.

Uber ignorant

A lot of people who should have failed intermediate microeconomics like to make the following argument.

1. The theory of perfect competition has perfect information as an underlying assumption
2. Nobody has perfect information
3. Therefore, government must regulate to protect people from bad choices because market failure.

It's wrong on a pile of grounds. First, and most importantly, the first welfare theorem gives us sufficient conditions for optimality, not necessary ones. But even leaving that aside, we need a Demsetz move into comparative institutional analysis. How do people act to overcome their information problem? Are there profitable opportunities for some entrepreneur to bridge the knowledge problem so that consumers and producers can meet up successfully? Are there heuristics that consumers use in response to information problems and how close to optimality do they get us? And, most importantly, do the legislators and bureaucrats have any better clue themselves?

On that latter point, here is how New Zealand's Parliament covered itself in glory this afternoon in the select committee hearings on Uber. Parliament's deciding how to modernise the transport regs so that innovation can happen. There are some problems in the proposed legislation, but the Transport Committee has the MPs who are most expert in the committee's area. The best of the best. Here's what they thought about how Uber works:

Appearing before Parliament's Transport Committee, Uber New Zealand general manager Richard Menzies tried to argue that the company should not have to adopt outdated taxi requirements like logbooks, signage and stringent driver and vehicle checks.

But first he was forced to explain to the committee, over and over again, that Uber was not a "rank and hail" taxi company.

National MP Alastair Scott was the first to bite.

"We're concerned that you could get some gypsy operators who are not licensed by anyone appearing on a taxi rank."

Labour MP Sue Moroney interjected, offering a more politically-correct term: "Cowboys".

"Cowboys, gypsies, whatever," Scott said.

Menzies politely explained that an Uber vehicle could only be ordered through its app.

"People can't simply spot at Uber and jump into random car," he said.

Labour MP Sue Moroney wasn't convinced.

"How do you know that? How do you know that people who are your drivers are not sitting at taxi stands or being hailed?"

Menzies, looking slightly bemused, said: "We don't use taxi ranks."

None of these people seems to have ever used the service, or ever to have talked with anyone who has.

Green MP Jan Logie noted that the law change would allow Uber to use taxi ranks - how did Uber feel about that?

Menzies, again: "The way our system is currently set up, we don't need taxi ranks."

The whole point of Uber is to not have drivers sitting around at freaking taxi ranks, idling. They go to where demand is expected.

As it was becoming apparent that no MP on the committee had ever used the Uber service, National MP and technophile Maurice Williamson piped up that he was a "massive fan".

But he did not favour the ordinary Uber, he said. He wanted to know when Uber New Zealand would roll out Uber Black - the company's VIP service.

By now, Uber's committee appearance had gone well overtime. But Moroney wanted one last shot, asking Uber whether it would actually follow any rules set by Parliament.

"All I want to hear is that you won't be breaking the law," she said.

Menzies raised his hands in front of his face, wordlessly, as the committee chairman brought the session to a close.

I have a different argument we might wish to consider, in place of the one with which I opened. I think it works better.

1. Good laws don't require that MPs have perfect information about the industries that they're attempting to regulate, but they should be at least half-way to having a clue.
2. They don't. Not even close. And the feedback loops that help normal people get a clue when they make mistakes - those don't operate for MPs. They can be wrong, forever, with no personal consequence. They may even be more likely to be re-elected rather than less if they're wrong in particular ways.
3. Therefore, Parliament should get out of the way. Stop pretending you're protecting me from bad cab drivers or whatever with rules that protect incumbents when you have absolutely no clue how Uber even works. Get Out Of The Way. Everything else has far more risk of doing harm than of doing good. 

Uber flexible

Roger Partridge lays out some of the problems with the government's proposed changes to the taxi regs. While the government talks a good game about flexibility, the rules do the opposite. For example, paper logs for drivers makes little sense when drivers' records are all already in the Uber app, and where someone with 2 hours on-shift might be far more fatigued than the driver who's been on 6 hours, if the former just came off the day job.

The upshot of the rules is to increase the fixed cost for prospective drivers. And that wrecks what seems one of the main benefits of Uber for drivers: flexibility. When fixed costs are high, that pushes things towards a smaller group of drivers putting in lots of hours rather than a greater number of drivers putting in a bit of time here and there when it suits their schedule.

That flexibility matters, as a new NBER working paper by Jonathan Hall and Alan Krueger shows:

Uber, the ride-sharing company launched in 2010, has grown at an exponential rate. This paper provides the first comprehensive analysis of the labor market for Uber’s driver-partners, based on both survey and administrative data. Drivers who partner with Uber appear to be attracted to the platform largely because of the flexibility it offers, the level of compensation, and the fact that earnings per hour do not vary much with the number of hours worked. Uber’s driver-partners are more similar in terms of their age and education to the general workforce than to taxi drivers and chauffeurs. Most of Uber’s driver-partners had full- or part-time employment prior to joining Uber, and many continued in those positions after starting to drive with the Uber platform, which makes the flexibility to set their own hours all the more valuable. Uber’s driver-partners also often cited the desire to smooth fluctuations in their income as a reason for partnering with Uber.

The paper uses, among other things, administrative data from Uber on drivers' driving patterns: when they're active picking up fares, and when they're not on the clock.

Another interesting tidbit: the survey of drivers shows only a fifth of drivers see it as a full-time job, and only a fifth had worked in transport in their previous job. The New Zealand government still wants drivers to have a P-endorsement. If you weren't working as a cab or commercial driver in your previous job, that's a pretty big barrier. Given the proportion of drivers in the US who came to Uber from outside of the commercial transport sector, it's a barrier that matters.

The paper makes really rather clear that the flexibility Uber offers matters for drivers.

First, the Uber platform provides a great deal of flexibility for driver-partners, and this characteristic of work in the on-demand economy may attract workers who supply labor to the sector more generally. Responses to the BSG survey indicated that many driver-partners valued the flexibility to choose their hours and days of work. Furthermore, the administrative data indicate that a large share of driver-partners avail themselves of this flexibility and vary their hours from week to week. Compared with traditional taxi drivers, Uber driver-partners tend to work substantially fewer hours per week. For example, taxi drivers and chauffeurs were five times more likely to work 50 or more hours per week. The high fixed costs of obtaining a medallion to drive a taxi in many areas could explain the longer hours of taxi drivers. The finding that hourly earnings for Uber’s driver-partners are essentially invariant to hours worked during the week also makes Uber an attractive option to those who want to work part-time or intermittently, as other part-time or intermittent jobs in the labor market may entail a wage penalty.

Second, Uber’s driver-partners are more similar in terms of age and education to the general workforce than to taxi drivers and chauffeurs. There are many possible explanations that could have contributed to this result. First, the U.S. economy was operating at less than full employment during the period studied, and more highly educated and younger workers may have had fewer alternatives available than is normally the case in this time period. Uber may have represented a particularly attractive bridge option for these workers. Second, entry barriers in traditional taxi and limo services may prevent a broader segment of the workforce from gaining such jobs. And third, a segment of the general public may be drawn to Uber over traditional taxi and chauffeur jobs because Uber permits greater flexibility in terms of scheduling. The fact that new drivers continued to partner with Uber at an accelerating rate in late 2014 and 2015, when the economy strengthened and the unemployment rate fell below six percent, suggests that weakness in the economy was not the major reason why driver-partners partnered with Uber. In addition, most driver-partners were employed prior to joining Uber. These considerations suggest that Uber has attracted driver-partners with a wide range of backgrounds because they value the type of opportunity for flexible work that Uber provides. 

Let's hope the NZ government doesn't wreck that flexibility. More on that momentarily.

Heritage Costs: Who wants an old church?

Heritage fans have a chance to put their money where their mouths are. A beautiful old rimu church is going for $1 reserve auction.

But it does have a few encumbrances.

If you buy it and keep it on-site, you couldn't use it without strengthening it to meet earthquake code - it's currently at 8% of code. And it's a Category 2 Heritage-listed building, so strengthening will not be cheap as you'd have to find a strengthening solution that makes the Historic Places Trust happy. If you keep it on-site, your final use, at seller's insistence, has to be not incompatible with Christian faith, so I suppose a brothel is out.

If you buy it and want to move it, you'd need to get a resource consent for moving it, and nobody knows how hard that would be given the heritage listing.

TradeMe says it's now sold for $11,100. I wonder if the buyer knows what's coming.

The Q&A on the listing is instructive. Some snippets below. Heritage New Zealand listings really should come with a standing option for the owner to sell the building, and all of its encumbrances, back to Heritage New Zealand, at a pre-set price.

This is a pretty sad case. But if an earthquake hit, it's unlikely that an empty church in a small town would kill people.

There are dozens of buildings in Wellington for which this is not true. The masonry facades will fall off the buildings, onto the street and sidewalk, and kill people. And nobody who made those buildings too hard to fix will face any liability whatsoever for the deaths they will have helped to cause.

HI COULD IT BE SAVED AS A CHURCH i GUESS IT NEED NEW PILES AND BEING A TIMBER BUILDING SHOUDNT BE TO HARD TO DO WITH THE HELP OF CHURCH MEMBERS i COULD OFFER HELP

sandra18 (1071 ) 7:41 pm, Sun 20 Nov

A. Thanks for the offer. Does need new piles and maintenance. Congregation mostly old and unable to do the work. Not interested in spending money of a building no longer suitable for current worship 6:43 am, Tue 22 Nov

can we demolish

rottnott1 (197 ) 7:37 pm, Tue 22 Nov

A. The Church building is listed with Heritage NZ and WBOP as category 2. We are attempting to have it de-listed to enable demolition, but Heritage NZ insist on every effort being made to find someone to relocate and restore it. If this is not possible we would be happy to have it demolished. 6:14 am, Wed 23 Nov

what a shame .

thisles5 (3083 ) 8:31 pm, Tue 22 Nov

A. The shame is that when a building is no longer suitable, and requires more in maintenance than can be afforded by its owners, it can't be got rid of for no other reason than it is old. 6:18 am, Wed 23 Nov

I have just come across this listing. I see there are a few current bidders but no info on who is bidding. I really would like to see this building relocated, restored and put to a worthwhile purpose compatible with its history and Christian faith. Please can this auction auto extend to give time to investigate some possibilities. Bless you.

yas6 (493 ) 10:48 am, Wed 23 Nov

A. We are happy to give as much time as needed for serious developers / restorers. The process of getting resource consents will not be short. 8:25 pm, Wed 23 Nov

Given the removal isn't a fait accompli (you haven't received permission to do this) don't you think you're leading people up the up the garden path with this auction?

nyron (21 ) 9:02 pm, Wed 23 Nov

A. You are right. Removal is not a fait accompli. We are trying to find someone who loves old buildings enough to go through the long process of resource and other consents to achieve relocation. If we can't the old church will continue to deteriorate until it begins to fall down. 8:06 am, Thu 24 Nov

Hello there, can you tell me why rhe church has been unused for so long? Is it unsafe? Thankyou

mopar.man (1038 ) 10:39 pm, Wed 23 Nov

A. The Church is only 8% of current earthquake standards, requiring re-piling and strengthening before it can be used by the public 8:08 am, Thu 24 Nov

I live in Waihi and am currently bidding. If a listed building, is there a possible grant towards restoration/conversion. If there is any correspondence with regards would this be available to purchaser.

kotkinsmith (2 ) 2:37 am, Thu 24 Nov

A. Heritage NZ and others talk about grants but nothing has materialised 8:10 am, Thu 24 Nov

This trade me listing is very misleading. Firstly it says it is listed with the WBOP District whereas actually it is the HDC and the listing means that it cannot be either demolished or removed without a resource consent. From memory that is a non complying activity in the HDC District Plan, which would not be easy to get.

ugmine (173 ) 6:52 am, Thu 24 Nov

A. You are right on two counts. My mistake. I wrote WBOP instead of HDC. Removal or demolition is non complying. As it stands the church can't be used, demolished or removed. A case can be made for preserving it by relocation, but it will take time and effort. 8:15 am, Thu 24 Nov

Do you have any idea how much the resource consent would cost for removal?

sjr24 (66 ) 8:36 am, Thu 24 Nov

A. No Idea. It depends very much on how long it takes to convince HDC relocation and restoration is the best option 8:45 am, Thu 24 Nov

What would happen if after months/years petitioning to relocate the council / heritage NZ still do not approve it - what then would be the responsibilities of the new owner?

justinsa6 (41 ) 8:47 am, Thu 24 Nov

A. Had not thought that one through. It seems logical to me that if it HDC and Heritage are adamant that it can't be moved it would fall back on us .. and we would leave it to fall to bits 8:50 am, Thu 24 Nov