Wednesday, 12 December 2018

Hard Spirits

I write a lot of columns. I rather like how this one turned out. It was up at Newsroom Pro yesterday; it's ungated here, and copied below.
Hard Spirits

It was during the discussions of measuring spiritual capital that the ghost of Sir John James Cowperthwaite hovered near. The shade whispered in my ear, “When I was Financial Secretary of Hong Kong, I refused to collect economic statistics for London. Why? For fear that I might be forced to do something about them.”

I wish more people at last week’s Indicators Aotearoa New Zealand indicator selection event had been able to hear him.

Statistics New Zealand’s Indicators Aotearoa project aims to build a comprehensive suite of (you guessed it) indicators measuring wellbeing. Where SNZ’s 2014 Progress Indicators Tool, now discontinued, included 16 measures ranging from adult educational attainment to distribution of selected native species, the new framework aims to include about 100.

The project is linked to Treasury’s Living Standards Framework and to the Government’s desire for more measures of wellbeing. Treasury has been developing its own suite of wellbeing indicators as part of the Living Standards Framework; whose indicators will reign supreme remains a bit up in the air. If Treasury’s framework and indicators wind up satisfying the Government’s wellbeing needs, then Statistics New Zealand’s indicators project – or at least those indicators that do not make it into Treasury’s framework – might yet follow its predecessor into the bin of discontinued data series.

So the bureaucratic stakes are high, as far as these things go.

Statistics New Zealand took a reasonable approach in trying to figure out which measures to include: they asked New Zealanders what wellbeing means to them in a series of workshops around the country, along with an online campaign. Then data experts tried to figure out which of those might possibly be meaningfully quantified among those that are not already measured.

That led to a long list of indicators to be pared down at last week’s indicator selection event, where I was visited by the ghost of Sir Cowperthwaite.

Inputs, outcomes and A3 posters

There’s a management truism that what gets measured gets managed, and what doesn’t get measured doesn’t get managed. Choosing the right measures then matters, especially if these kinds of indicators get targeted by a Government desperate to be seen to be improving our wellbeing.

The big headline measures should reflect final outcomes (like healthy life expectancy) rather than intermediate outcomes (like cancer rates) or inputs (like the proportion of people using sunscreen appropriately).

If there are lots of intermediate outcomes that are all captured by the final outcome, promoting intermediate outcomes into being final outcomes is a very bad idea. It invites paying more attention to those selected measures rather than to other ones that Government might more usefully target. In the example above, if an intervention targeting diabetes did more to improve healthy life expectancy than an intervention targeting cancer, the latter might nevertheless be preferred if cancer is a headline statistic and diabetes is not.

Turning inputs into headline statistics is at least as bad, for similar reasons. Inputs might be detrimental to some measures of wellbeing, but useful for others. An index of health-related behaviours, counting exercise, diet, and various consumption choices would be a poor one to include in headline statistics on health. To the extent that those behaviours improve health, they are already captured in the healthy life expectancy statistic. But including them as a headline measure risks targeting them for improvement in ways that may hurt other measures of wellbeing.

And, finally, the outcome measures chosen should be things that the Government might plausibly have any business doing something about. We might wish to be careful about what gets measured lest we be managed into improving our wellbeing in ways we might not welcome.

To take an obvious example, I have yet to see a survey of wellbeing or happiness that, if it included satisfaction with one’s sex life as a measure, failed to find that it mattered considerably. If any participant in Statistics New Zealand’s workshops had been honest and reported that sexual fulfilment mattered greatly in their wellbeing, their input did not make it into the workshop. Really, if the number proved to be a bit softer than we might have wanted, what on earth should policy seek to do about it? All options seem atrocious.

Unfortunately, the process of outcome selection at the Statistics New Zealand event was less fruitful than it should have been.

About 150 people attended at the Michael Fowler Centre.

Two hours of introductory remarks included a welcome from the Government statistician, a hand-clapping game, an invitation to check our privilege with the help of a bingo-sheet of privilege indicators like not being red-haired, and an extensive discussion from a PhD candidate who warned (among other things) about consulting with Ngāi Tahu on issues Māori because they are too corporate.

The two hours of introductory remarks did not include any discussion of the difference between final outcomes, intermediate outcomes, and inputs. Nor did it point out that current measures of inputs and intermediate outcomes would continue to be collected regardless of whether they became headline statistics.

After being encouraged to reflect on my privileges in being able-bodied, not hard of hearing, having a loud speaking voice, and not being red-headed, I joined a group of about 50 people who all had to stand for an hour around an A3 poster to discuss the proposed health indicators – before moving on to stand and talk around other A3 posters. Those unable to stand for extended periods were denied effective participation, as were those even of normal hearing if they were not very close to some of the very soft-spoken participants. Microphones and chairs may not have gone amiss, but I am probably in too privileged a position to have standing to comment on that. Our facilitator did his best but had a difficult task.

Because nobody had explained the difference between inputs and outcomes, or that failure to select particular measures did not mean they would cease to be measured, conversations had to keep coming back to those basic points. Every worthy-sounding input measure had its proponent for inclusion in the mix.

And many of the indicators seemed, well, problematic. Some outcomes were listed as “contributing unambiguously to progress” when they seemed manifestly contestable. For example, the response to the Initiative’s report last year lauding the merits of diversity and immigration suggested not everyone agrees diversity is a good thing. But appreciation of diversity was included as a potential outcome variable deemed to contribute unambiguously to progress. It seems a political argument to win rather than an outcome variable to technocratically maximise. If it were unambiguously associated with progress, we would have received less hate mail insisting on the demerits of diversity and that New Zealand needs fewer immigrants from culturally dissimilar places.

A dangerous thing to attempt to measure

Most contentious in the health discussion was the inclusion of spiritual health as a desirable outcome. And it is there that the spirit of Sir John James Cowperthwaite visited me – as I am a very spiritual person in my own utterly non-spiritual way.

Sir John is generally credited with Hong Kong’s transformation from a desolate place at the end of the Second World War into about the richest and most economically free city in the world. He credited some of his success to his refusal to provide Whitehall with the statistics they might attempt to use in applying Atlee-style management to the Hong Kong economy. His policy of positive non-interventionism certainly outperformed the UK’s more scientific-looking approach built on a mountain of economic statistics.

His spirit warned me that spiritual health is a dangerous thing to even attempt to measure as a headline wellbeing outcome, even if it is deeply meaningful to many communities. There is the obvious problem that atheists like me would not have a clue how to begin answering a survey question on whether we are spiritually fulfilled as the area, to those who share my views, is meaningless. But there is the far worse problem that what gets measured may be managed. If a headline outcome measure of spiritual fulfilment were half of what people expected, or double(!), what on earth should the Government ever do about it? The measure invites management. And any attempt at management would be worse than the measured problem.

I do not envy Statistics New Zealand the task ahead of them. The workshop will not have been as useful as it could have been in selecting an appropriate set of indicators. Will they weigh more heavily what makes sense as outcome measures, or what participants claimed to want? Either way, they will be stuck with trying to measure the things – while being unsure whether much of the project will be superseded by Treasury’s work. All this while battling with what seems an ever-worsening problem in getting the Census out.

I wish Statistics New Zealand good spiritual health in the months ahead, as they will need it.
I feel bad for Stats.

They took a fair bit of stick about having us fill out a Privilege Bingo form. I think that we wound up doing the privilege bingo exercise by accident. They had time to fill when a video screwed up, and rather than fill the time with something useful (see the column), the team scheduled to give that presentation scrambled for something tangentially related to their having asked lots of different communities for input into their data exercise.

They were utterly utterly oblivious to that they were stepping in very firmly on one side of the culture wars, perhaps because those involved were so ensconced in one side of it that they couldn't anticipate that it was problematic. If it hadn't been a late fill-in, maybe somebody with some nous would have headed it off. But it wasn't completely last minute. They had had time to have photocopied Privilege Bingo sheets on everyone's seats along with the day's agenda.

And today, the Census problems alluded to in my penultimate paragraph hit the front page of the Dom and Radio NZ.

I wonder about the usefulness of the community consultation exercise. It is very very easy for those things to make it very hard for people with potentially dissenting views to say anything. Remember the kinds of preference falsification exercises that Timur Kuran talked about, and information cascades? I wonder if anybody at Stats reads this kind of stuff.

If you're in a room where a couple people have just made very clear that the inclusion of spiritual wellbeing is more than just important to them, that they'd take it as a slight to their entire way of being and sense of self if anyone challenged that measure's inclusion (like, not explicitly, but in the way they make the argument), how many would be happy to step in and challenge it? At the poster session, we could put stickers on particular measures. Before discussion, there were about 10 red stickers on spiritual health, suggesting ten people wanted it demoted, and 2 green stickers, suggesting two people disagreed with the red stickers. I spoke against the inclusion of the measure, then a couple of people spoke about how sacred the measure was to them, and not a single other person who had put up a red sticker was willing to say a word.

If there's just been strong discussion of the importance of kaitiakitanga in land management, would you be the one willing to say "You know, my family settled our farm a hundred years ago and has worked and loved that land for four generations. Shouldn't we count too?" Like, the two can work together, but it is hard to get to that kind of discussion.

A friend gave an analogy that seems to fit. Suppose you've got a juggler who's really really good at juggling five balls. The business-as-usual stuff at Census is the five balls - there is a pile of it. In a Census year, they have to juggle six or seven balls. And they do a great job of that too, because they can manage six or seven for a short period. But throw another ball in the mix and everything starts falling down because eight is way harder than five. I wonder whether the Indicators project isn't that deadly eighth ball.

Census woes

I don't know what normal people talk about at drinks. For the past few months, whenever I'd catch up with other economists over drinks, it's been rumours about just how bad things are at Census. 

The mess hit the front page of the Dom Post today.
Documents released under the Official Information Act show the department is planning for an August 2019 deadline, and continues to stare down a high risk it may not produce viable results.

A low turnout during Census 2018 has caused considerable pain for Stats NZ, which last week announced it would not make the third deadline it set - July 2019 - and promised to announce a release date in April.

Stats NZ failed to count an estimated one in 10 New Zealanders in Census 2018, previously providing an interim response rate of at least 90 per cent of individuals providing full or partial information.
Some tales have it that the incomplete census responses are on top of the 10% non-response rate rather than part of the 10%.
It was announced in June that other sources of Government data would be used to fill gaps in the results.

Both the actual number of responses received and the number of additional data for 2018 were redacted from documents, and Stats NZ declined to release them.

The documents show "high risks" Stats NZ continues to face include: the failure of methods to patch census data; census data failing to be fit for purpose, leading to "less than ideal" decisions being made; and a failure to provide information for the re-drawing of electorate boundaries.
I really hope that they're flagging interpolated data in the back-end systems so that analysts know whether they're dealing with generated regressors. So, for example, suppose you're trying to estimate the relationship between a bunch of admin back-end variables and some Census result. If the "Census" result was really generated by those back-end variables in the first place for some of the respondents, you're going to botch your analysis unless you know that that's gone on. You could just be rediscovering the algorithm used to generate the data rather than any real relationship.
Also described are a "severe incident", where some data fields on the census forms failed to cross over to another system and contributed to a month-long setback.
... BERL chief economist Dr Ganesh Nana said Stats NZ needed to "draw a line" under Census 2018.

"We all might have to put our hands together and say, 'Okay, the data won't be as rigorous and robust as previous census'. We might just have to admit that."

A standard census release would have BERL using the data intensively over a six-month period from about now, he said.

"That's clearly been put out of kilter this time around. The biggest concern for us is the timing of the data … the data is already starting to become stale."
And drinks chatter has speculation over whether the whole thing will yet require a do-over.

It isn't the first year that they've combined online and paper - I filled in my Census online in Christchurch last time. Quite why everything's gone wrong this time - I'd love to know.

I'd made brief allusion to the problems at Census in my column at NewsRoom yesterday ($). That column wasn't about Census but about the fun they're having with the Indicators Aotearoa project. Will post on that one soon.

Update: Ganesh Nana talks with Kathryn Ryan about it on Nine to Noon.

Tuesday, 11 December 2018

The Globlish solution

A couple weeks ago, I'd suggested NCEA ought to make things simpler for students who do not know basic words like trivial by restricting itself to the 3000 most commonly used words.

Globlish takes it one step further by reducing the language to the 1500 most commonly used words and simplified grammatical structures. It is intended to be the minimal vocabulary necessary to conduct global business among people who are not native English speakers.

Just think about how New Zealand's measured literacy scores could improve if we restricted assessment to only those words that the students really need to know, instead of all those extra ones.

HT: Sam Hammond, who imagines a fun movie based on it. You should follow him on twitter.

Thursday, 6 December 2018

Morning roundup

The morning worthies:

Wednesday, 5 December 2018

Cannabis reform

Russell Brown's take on cannabis law reform over at RNZ:
Yet, the CRC may still learn lessons from what's happened abroad. Alison Holcomb, the criminal justice director of American Civil Liberties Union in Washington state, who helped design the successful initiative there seven years ago, says that "voters responded strongly to messages that reassured them about tight control of this novel policy experiment. Messages about freedom and individual rights fell flat. I continue to believe that acknowledging basic human nervousness about change is always important."

Tamar Todd, legal director of the Drug Policy Alliance, who jointly authored California's Proposition 64, says voters in her state wanted reassurance in detail. That's what they got: the full text of Proposition 64 ran to more than 100,000 words of legal and technical definitions and proposed amendments to laws and regulations, together making up the Adult Use of Marijuana Act.
This is one reason I think we should be modelling cannabis legalisation on our existing framework for supply and sale of spirits. There is no time before the referendum to write up the kind of detail provided in Prop 64. But we could adapt our existing framework.

Tuesday, 4 December 2018

Stadium logic

Sporting events would create around 20 big occasions with any of the options. The covered stadium options enable many smaller events: music, conferences, other community events. These are forecast to produce small 'profits', as opposed to the uncovered option that would generate small 'losses'. A massive caveat is that when the 25-year life cycle of ALL of the options is considered, (big venues need substantial reviews every 25 years or so), all of them lose about $7-8m a year.

Hence the report favours the bigger spend, arguing it would create more activity, and lose about the same amount of money over the long term. It is worth stressing this again; even with the most optimistic predictions for stadium use in the report, the best-case scenario still forecasts it costing us $7-8m year; on top of the $474m construction cost.
They also hit all the points that should be hit around the difference between creating new events and shifting events from one place to another.

Every time a NIMBY cries...

The Court of Appeal has quashed resource consents granted for a $500 million development in Wellington at Shelly Bay.

The Court found the Wellington City Council made an error of law when determining whether or not to grant resource consent.

"As a result of the error, matters such as the environmental effects of the proposed development were not given appropriate consideration and weight by the Council," the judgement said.

The Wellington Company Limited applied for consent in September 2016.

The original proposal at Shelly Bay would have involved the construction of 12 apartment buildings hosting 280 apartments, 58 townhouses and 14 individual homes.

A 50-room boutique hotel, an aged care facility and buildings for commercial and community activities were also planned.
The original consent application was over two years ago. Everything since then has been consent process and litigation. 

Dom Post covers it here:
The Court found that the council had misinterpreted the Housing Accords and Special Housing Areas Act. The act had more permissive rules for housing consents, and was intended to be used to increase the supply of houses, and housing affordability, in areas with a housing shortage.

The city council did not notify the application for public consultation and did not hold a hearing.

The court said the council had used the housing accord law to effectively "neutralise" all other considerations. Had the correct approach been adopted there might have been a different outcome, the court said.

Usual planning considerations were still relevant and the Court of Appeal found the council failed to properly consider matters such as the preservation of the natural character of that part of the coast and the protection of historic heritage from inappropriate use and development.

The council had also used the need to increase housing supply to make a finding that the environment effects of the development were "no more than minor".

The aim of increasing housing was not logically relevant to deciding whether an environmental effect was more than minor, the court said.
 The SHAs were supposed to get around this kind of red tape.

Wednesday, 28 November 2018


This is absolutely not how a member of a government that is trying to defend the World Trading Organisation's rules-based framework should be behaving. 

From Question Period late yesterday:
David Seymour: Has the Minister had advice in any form that some of his provincial growth fund expenditure may have to be reported to the World Trade Organization as it qualifies as agricultural subsidies—the first time New Zealand would have reported such subsidies in 25 years?

Hon SHANE JONES: Yes. Naturally, advice has been sought from the foreign affairs department. However, given that the adjudication and the appeals of so-said international trade body are in a state of disarray, I'm not bothered by that at all.
The WTO is under substantial threat. New Zealand desperately needs the continuation of a strong rules-based trading system.

It is bad enough that Shane Jones's provincial growth fund threatens New Zealand's subsidy-free agricultural system. But saying, effectively, that he doesn't care what the WTO thinks because it's useless - that completely undermines everything Minister Parker has been working for in our international trade positioning.

Update: I'd caught this on Morning Report this morning, but couldn't remember at what point in the broadcast. They've helpfully pointed me to it. Radio NZ also reports that Shane Jones's outfit had to change a press release about a loan to Taranaki Pine; a reference to the loan helping to make the factory competitive was removed.

But if that was part of the reason for providing the loan, whether or not it's mentioned in the press release should be irrelevant to whether it's something that gets us in trouble with WTO.

Labour needs to keep a closer eye on what its coalition partner is up to here. They are putting too much at risk.

Wednesday, 21 November 2018

Just use the darned ETS

If the government had just used the freaking ETS to reduce emissions rather than banning the natural gas industry in Taranaki, or subsidising hydrogen production, we wouldn't be seeing this kind of stupidity.

The linked RNZ story suggests the government's provincial growth fund was used to subsidise development of hydrogen options for heavy vehicles, and that that led to the proposal to subsidise a much bigger hydrogen plant in Taranaki - but that the Taranaki gas ban means too uncertain a supply of the raw material for hydrogen production. So that presumably means higher equilibrium subsidies are needed to attract the thing, to compensate for the stupid gas ban.

I have no clue whether it would have made sense to build hydrogen plants in Taranaki in the absence of the gas ban. I worry about Shane Jones engaging in the kind of winner-picking that might have even made Joyce blush. I expect the best folks to assess whether it makes sense to build hydrogen plants in Taranaki are the investors whose money would be on the line.

But if it did make sense, the gas ban makes it pretty unlikely anybody would decide to make a pile of costly infrastructure investments that depend on a reliable source of gas.

Under my preferred "Just use the freaking ETS and otherwise get out of the way" alternative, there wouldn't be a subsidy for hydrogen plants but hydrogen plants would have a lower effective cost of using natural gas because they wouldn't have to be purchasing ETS credits for GHG emissions, presuming that the stories of carbon dioxide capture are accurate.

And if the hydrogen plant stacked up without subsidy, then we've just found another way that the gas ban can wind up increasing emissions relative to the counterfactual.

Tuesday, 20 November 2018

GE Time

Parts of the farming community say they should have choice over whether to use GMOs or not.

But others, including the Minister for the Environment David Parker, argue there is no need to jump the gun on introducing GMOs into the environment.

In his last report as Chief Science Advisor for the prime minister, Sir Peter Gluckman has laid out the ways genetic modification or gene editing can benefit the agricultural sector with pasture management and emissions.

"New Zealand scientists have developed promising forages using genetic technologies that could be used to make major progress through higher energy, lipid rich rye grasses which are now in field trials in the United States.
We still don't have an answer to this question:
I suggest that, as part of any agricultural accession into the ETS, the Crown be liable for any additional costs falling on farmers because of the ban on using GE pastoral systems.

Monday, 19 November 2018

Trivialising vocabulary

A teacher provides a defence of not expecting kids to know the word trivial, and not using hard words like trivial on NCEA exams. 
And yet the incidence of an apparently innocuous word causing such consternation amongst exam candidates speaks to a number of interesting issues. The first is how quickly language changes, and how difficult it is to pick up these changes when they are intergenerational. The people setting the exam have no doubt been surprised that the word ‘trivial’ is not widely recognised by the young. So was I. I had no idea it had slipped out of common usage. But then I teach mathematics and have an interest in philosophy and trivial has an important meaning in both those fields. Even if I didn’t, I grew up in a world where the word was often used. I also grew up in the countryside and so as a child knew the difference between a cow, a heifer and a steer. None of these things speak to the general state of my vocabulary, just the context in which it was acquired.

Speaking to a history teacher following the exam, I was interested to hear that the problem with ‘trivial’ was not confined to struggling students, but affected candidates of all abilities. Top students were caught out because the examiners did not realise a word was no longer widely understood. Students were able to make guesses based on the usages they were familiar with, specifically trivia quizzes of various kinds. So some students assumed that trivial meant highly detailed and specific. And fair enough too – the questions in Trivial Pursuit are rarely trivial in the way implied by the quote in the exam. So it might be less a case that students don’t know what trivial means, and more a case that the meaning of the word trivial is changing.
I hadn't known that trivial had fallen out of common usage. If it has, it's been in the last decade. Google ngrams run through 2008. The decline in word usage since the 70s has looked fairly trivial.

A sympathetic and compassionate future policy would restrict all NCEA exams, including those for final-year students in history, to use only words that show up on the list of the 3000 most common words in the English language.

Scripts using words beyond the ones on that list should be downgraded. Not only does the use of bigger words make those of more limited vocabulary feel bad, but we should also expect that, when NCEA achieves everything it is destined to achieve, the graders themselves will only know 3000 words.

Getting down to the list of 3000 may take some time. But the Eleventh Edition NCEA Dictionary will finally have whipped the language into its final shape - the shape it's going to have when nobody speaks anything else. It will have cut the language down to the bone. There is great wastage in the verbs and adjectives, but there are hundreds of nouns that can be got rid of as well. If you want a stronger version of "good", what sense is there in having a whole string of vague useless words like "excellent" and "splendid" and all the rest of them?

Friday, 16 November 2018

More than trivial

Students sitting the NZQA Level 3 History causes and consequences paper on Wednesday were confronted with the word in a quote from Julius Caesar: "Events of importance are the result of trivial causes."

Students were asked to analyse the extent to which they agreed or disagreed with Caesar, with reference to the causes and consequences of a historical event.


Some of his peers thought trivial meant "significant", he said.

"Trivial isn't a word that you hear too frequently, especially not if you're in Year 13," he said.

A definition of the word should have been included in the exam, he said.

Chairman of the New Zealand History Teachers' Association, Graeme Ball, agreed.

He called the exam a "little bit of a snafu" on the part of NZQA, and said the language used in questions should be "accessible to all".

The exam was not testing comprehension, so it was "unfair" to make that part of the assessment, he said. 
New Zealand's schools are giving diplomas to illiterates. Knowing the word trivial should be trivial.

Try using it in a sentence. The failures in New Zealand's education system are more than trivial.

Thursday, 15 November 2018


I'm not sure quite what I was expecting out of NZ First's Regional Growth Fund, but it wasn't this. From Richard Harman's Politik newsletter (well worth the subscription):
Regional Economic Development Minister Shane Jones has announced Provincial Growth Fund (PGF) support for a new 560-tonne travel lift for Oceania Marine Group. The new lift will better serve the growing demand for refit and building services of workboats and superyachts and will help fund civil works at South Shipyard – including new piers, hardstand reinforcement and other works. "The PGF will support this important investment with a loan of up to $4.8 million, and further discussions are taking place on terms and conditions” Shane Jones said.   
I'd thought the fund was for public infrastructure stuff that might enable regional growth, and maybe for helping out councils having to shell out for facilities for tourists who don't spend much in the area.

I don't get the justification for this one. Why is the government subsidising outfits fixing superyachts? Is there some failure in credit or capital markets that's specific to boats? Why aren't private investors seeing the opportunity and rushing to fund the project? Don't owners of superyachts pay fees for service that could cover the cost of the lift over time?

I hope that due diligence around this stuff is tight....

Bias toward action?

Kiwis so-inclined can petition their Parliament for legislative change. But they cannot petition Parliament to maintain the status quo.

Victoria University's Chris Eichbaum wants the government to ban private fireworks displays.
I kinda like fireworks, so I submitted a petition asking the government to maintain the current rules. I started from Chris's petition, added the word 'not' in a couple spots, listed some of the ways that fireworks are awesome, and submitted it.

A few days later, I got a very apologetic phone call from the Clerk's Office saying that it's only possible to petition Parliament to change a law, not to leave a law as it is. He was exceptionally helpful, listing all the things people could do if government did move to legislate in response to the petition - I already know them, but some folks don't, so that was nice.

And then I got the official email rejecting the petition.

High numbers in support of a petition signal something about the strength of support for the petition, but tell you nothing about the strength of opposition. I suppose it's nice that those opposing petitions don't need to rally the troops to counter-petition every darn thing, but when a government cites the number of letters from school-kids in support of a policy as reason for doing things....

Wednesday, 14 November 2018

Complicated Gains Tax

Newsroom reports on a talk by two members of the Tax Working Group that lays out the difficulties with any capital gains tax.

One part that's probably underappreciated: the extent to which everything in the tax system is built around the rules as they're currently structured, and how much would need to be rejigged if a CGT were put in place. 

One example:
The report itself highlights this complexity in the application of a capital gains tax to KiwiSaver and Portfolio Investment Entities (PIEs). Most KiwiSaver schemes take the form of multi-rate PIEs (MRPIEs). While there are a number of features in the MRPIE tax regime the group would not want to see disturbed by any new rules, a CGT would affect MRPIEs that invest in property, or Australasian shares. An individual would be subject to a tax on those asset types, so it follows that the MRPIEs should similarly be taxed.

However, these are open-ended funds into which investors come and go. That means a fund would have to allocate gains and losses to an individual investor by taking into account the change in value during the time that investor was actually involved in the fund. It would require detailed record-keeping, as well as various adjustments for gains and losses already recognised due to redemptions from the fund. And while that’s not simple, it’s even more complex in reality. This is because units are issued and redeemed on a daily basis, MRPIEs often invest in other MRPIEs, and a retail KiwiSaver scheme may invest in a wholesale PIE that in turn invests in a specialist PIE.
Having a CGT is complicated. Not having a CGT is complicated too because the tax system has to adapt to make sure that labour income doesn't pretend it's capital gain. The latter isn't perfect, but it's in place - the system's kinda built around the absence of a CGT and tries to account for it. That means that 'just' putting in a CGT means going back over everything that's been designed around the absence of one.

NB: I do not pretend to understand MRPIEs. But I'm not the one insisting on changes to a complex system that's evolved since the 80s reforms.

The Calculus of Carbon

I had to trim last week's NBR column to fit the page. Here's the original. Enjoy!
New Zealand’s climate change policy could stand to be just a little more vanilla.

When Cyclone Enawo hit Africa’s east coast in 2017, it wiped out about 16% of the world’s vanilla production. The cyclone came on the back of droughts that hurt the 2016 crop; there was no huge buffer to meet demand.

So, globally, vanilla users had to cut back their consumption by about a sixth – and in a hurry. Of course, unless you were directly involved in the vanilla industry, or were a baker using vanilla in weekend pancakes, you probably did not even notice.

There were no Ministers in Charge of Vanilla Change sending out a dozen press releases a week proving they were taking the problem seriously. There were no Vanilla Commissions or Taskforces. No Productivity Commission reports on the best ways for New Zealand to respond to its shared vanilla crisis. No MBIE advice on preferred ways of subsidising alternatives to vanilla in ice cream.

Bernard Hickey didn’t even show up to propose special taxes on “Vanilla-guzzling” concoctions from Wellington ice cream and gelato institution Kaffee Eis, with all taxes collected helping subsidise vanilla for the Girl Guides in hope of bringing back their soon-to-be-cancelled vanilla-flavoured biscuits.

Instead of all that ruckus, markets simply worked their regular vanilla-flavoured magic. Prices worked.

Economist Alex Tabarrok says prices are a signal wrapped in an incentive. The spiking price of vanilla signalled relative scarcity, along with an incentive for everyone to change their behaviour. Those most readily able to reduce their use of vanilla would be the first to adapt. Vanilla by-products started being pressed into service – spent vanilla flecks almost quadrupled in price, according to the Financial Times.

And those for whom vanilla was most critical, as they judged for themselves and demonstrated with their own money, simply lumped the price increase.

It is exceptionally difficult to come up with policy options that beat simply letting prices work.

Every alternative I have suggested around grand government vanilla strategies would have been worse. If the government was exceptionally lucky, it would have required firms here to do what they had already figured out would be best for them in their own particular circumstances. But in every other case, the government would have enforced unnecessarily costly adjustments. No Minister or Ministry can tell what the best substitutes are for different users, or which uses are most valuable to whom. That kind of knowledge can only emerge from the interplay of buyers and sellers in markets, and is otherwise invisible to Wellington desk-jockeys.

The New Zealand government has committed to reducing our greenhouse gas emissions. Fortunately, New Zealand has a functioning Emissions Trading Scheme (ETS). Every litre of petrol or diesel you purchase includes the cost of the New Zealand Units (NZU) purchased in the ETS to cover the fuel’s eventual carbon dioxide emissions. Electricity is in the ETS, so every kilowatt of power put into the system by coal, gas or geothermal generators requires those generators to purchase carbon credits. And the government has also committed to strengthening the ETS.

If there were no way of pricing carbon dioxide emissions, the government would be forced into a lot of rather second- or third-best alternatives. The government would have to guess how different industries, firms and consumers would behave in a world with carbon prices and then set regulations, taxes and subsidies to encourage those behaviours. It would be dreadfully inefficient compared to what prices can achieve through the direction of no one, but there would be some interventions that would still likely be worthwhile.

When we do have a functioning ETS, though, layering additional subsidies and regulations on top of the scheme, and particularly for those sectors already covered by the ETS, very easily risks New Zealand failing to do nearly as much as it could to reduce emissions.

The best that a government committed to reducing greenhouse gas emissions can do is to make sure the ETS is working as well as possible, then buy back and retire credits in the system. Those able to most easily reduce their own carbon emissions will be the first to sell; those for whom change is difficult will be last to sell – exactly how people responded to vanilla price increases. No Minister or Ministry has to guess who can most easily adapt.

Buying back credits within the ETS, rather than forcing particular sectors to change through regulation or bans, helps make sure New Zealand gets the greatest emission reductions per dollar’s worth of effort put to the cause.

Regulatory options, like mandatory fuel economy standards, or electric vehicle subsidies, risk doing harm because of the good forgone. An electric vehicle subsidy is unlikely to increase greenhouse gas emissions. But it would increase emissions compared to putting the same amount of money towards buying up and retiring credits in the ETS.

Different policies have very different costs per tonne of carbon dioxide mitigated. A government using regulatory alternatives has to pray it has modelled those costs correctly and found the carbon best-buys.

Work published in the fall issue of the Journal of Economic Perspectives summarises recent estimates of the static costs of policies mitigating greenhouse gas emissions. Corporate Average Fuel Economy standards in the United States cost between US$48 and $310 per ton of carbon dioxide mitigated. But NZU is selling on the spot market for around NZ$25. Imposing similar rules here would then be, at best, about a third as effective in reducing emissions than simply expending the same resources on buying and retiring NZU.
NBR graph
Kenneth Gillingham and James Stock. 2018. "The Cost of Reducing Greenhouse Gas Emissions" Journal of Economic Perspectives 32:4 (Fall).

The journal article does note that dynamic effects can vary: If there were no electric vehicle charging stations, a chicken-and-egg problem could prevent people from taking up electric vehicles if those make sense for them, so policy could help. And if a government as large as America’s starts subsidising buying huge volumes of solar panels, it could encourage technological innovation that reduces costs across the board.

But neither case seems particularly relevant: There are few major transport routes without charging stations now, and New Zealand demand for batteries or solar panels is not likely to be large enough to drive broader technological change. And while New Zealand could plausibly lead change through biotechnology advances in better low-emissions pastoral systems, if the grasses cutting greenhouse gas emissions were developed using genetic engineering, the government already bans their use.

It is also rather likely that successful dynamic investments of this sort are easier to identify in hindsight than with foresight. Buying back ETS credits yields more certain returns.

New Zealand’s climate change policy could stand to be a lot more vanilla. Simply making sure the market is working well, strengthening it where needed, and then buying back credits might sound boring. But vanilla really can be excellent. If you don’t believe me, try the Vanilla Bean at Kaffee Eis.
I particularly recommend adding coffee to the Vanilla Bean as an affogato.

Tuesday, 13 November 2018

A regulated market model

Over at Newsroom Pro ($), I make the case for basing legislation and regulation for cannabis markets on our existing rules for spirits.

The government has to have a referendum on cannabis by November 2020 and might want to have it earlier than that to not coincide with the general election. All the experts say that the referendum question should ask voters to endorse or reject a piece of developed legislation, with rejection meaning that the status quo stands. Writing legislation and regulation around some bespoke model for cannabis, to hit that deadline, would be a mess.

But it wouldn't be a mess if we had a good starting point. Existing rules around alcohol (spirits in particular - retail in specialist outlets rather than at the supermarket) handle a lot of problems that any regulatory framework for cannabis would have to solve too. How do you license retailers? How do you prevent minors from having access? How can we have both home production and commercial production? What should the rules be around advertising and marketing for commercial production? How much say should local councils have? How do consumers know what's in the product and what strength?

I'm not saying that the alcohol rules are perfect. But for any "But Whaddabout" question that comes up for cannabis, the starting point for an answer is looking at how we already deal with it for alcohol, see if the answer there for alcohol basically works for cannabis or whether it would need to be tweaked, then move on to the next one.

If we basically treated cannabis like spirits:
  • People could grow at home for non-commercial use, sharing with friends; if they discovered that they had an excellent green thumb, they could set up a business and be subject to the rules for commercial supply, including excise. Remember how 42 Below got its start? A lot of folks in the cannabis community seem to think that allowing commercial growing and sale would kill the grassroots as big players would run everything, but just look at the thriving craft beer community and the developing craft distillation community. They all coexist along with lots of folks who brew and distil at home. 
  • Products available for retail sale would have concentrations listed on the packaging. Alcohol has the strength and number of standard drinks. Excise would be based on product concentration.
  • Councils could set Local Cannabis Policies that varied from the National Default Policy if they wanted, along with cannabis-ban areas where they might not want people smoking.
  • Products couldn't look too attractive to kiddies - important for the edibles market. Same goes for advertising. There aren't really comparable alcohol edibles - there'd likely have to be additional packaging requirements to make it really clear that it's a cannabis-based product.
  • On-licenses would have host responsibility requirements. Hopefully the SmokeFree Environments Act wouldn't kill on-licences or restrict on-licences to edibles - supervised consumption like this could be harm-reducing. 
  • Retailers would be terrified of selling to kids because they'd face fines, licence suspensions, or complete loss of licence. 
  • People involved in the sector would be declaring their earnings to IRD and paying tax on those earnings; companies in the sector would be paying company tax; purchased product would carry GST; producers would be able to claim back the GST on their inputs. 
  • Cannabis-based products would be ineligible to be prizes in raffles. For some reason, alcohol is on the list of prohibited prizes. Cannabis would wind up there too if we just follow alcohol. Also, as aside, "vouchers or entitlements to commercial sexual services" are prohibited prizes under the same rules. Bans on alcohol as prizes for raffles at school fairs is a pain; I've not known the ban on raffling off brothel vouchers as being a binding constraint at school auctions. It would be rather fun to buy tickets for that raffle under other peoples' names though, just to make the prize drawing more fun. "Superintendent Chalmers wins the $500 voucher for Il Bordello!"
Update: worth checking out Russell Brown's summary of Friday's cannabis conference. I was there chatting with Labour's Greg O'Connor about his experiences in drug policing and his study tours to places that have steered away from prohibition. Here's Greg at a cannabis shop in Colorado

Monday, 12 November 2018

Sugar tax advice

Ministry of Health Chief Science Advisor John Potter's advice to the Prime Minister about sugar taxes, a two-page set of unreferenced bullet points, ignored the comprehensive review commissioned by the Ministry and released only a few days before Potter's advice. NZIER's report was released 31 January 2018; Potter's memo was dated 16 February.

I was curious whether Prof Potter had seen the NZIER work prior to writing his bullet points. So I asked the Ministry.

Potter was provided a copy of the report on 15 August, 2017, in an email from the Ministry's Chief Economist.

The Ministry holds no records showing feedback from Potter, so he might have missed it. But the report did draw a fair bit of media attention - and not just from me here on the blog.

The Herald covered it on 2 February.

Newsroom had it on 7 February.

It even made the Toronto Globe & Mail on 12 February. 

And it surely would have come up in discussions within the Ministry between August and February.

What's particularly interesting in Croxson's email is the suggestion that it be put on the Ministry website after getting it to the Minister and presenting it to ELT. The email is dated 15 August. It did not make it onto any Ministry website. Instead, it showed up on NZIER's website, rather a while after I made OIA request that it be released, and more than five months after the Ministry received it. 

Friday, 9 November 2018

Better horses

I have a bit of fun in this week's Insights newsletter:
Winston Peters’ tax credit for pretty horses fights the wrong battle when it comes to improving New Zealand’s bloodstock.

New Zealand has no obvious problem with ugly horses. Maybe farmers keep the ugly horses hidden so townies out for a drive don’t see them, but it seems unlikely.

I have yet to see an ugly horse here. They’re all beautiful in their own way.

But we do seem to have, dare I say it, cowardly horses. Every time Guy Fawkes Day comes around, we hear calls for banning fireworks because they worry the horses.

It wasn’t always this way.

Rudyard Kipling’s classic “Her Majesty’s Servants” tells the story of camp animals that served the British Army in India and Afghanistan. The troop-horse took pride in its bravery, telling the other animals it was trained to lie down to let its master fire across its back.

New Zealand sent more than 10,000 horses to serve in the Great War. The army selected its horses for their bravery rather than beauty. Cavalry was then on the wane, so fewer horses might have had to serve as shield for their riders. But they faced bullets, poison gas, and artillery.

Only four returned home. The remaining survivors were either sold to foreign interests or shot.
A generation of New Zealand’s bravest horses was wiped out. The most cowardly horses stayed home, and today’s pathetic stock are their descendants.

New Zealand does not need tax credits to make the country’s horses more attractive. Who can really judge that anyway? What we need instead are tax credits to build a braver bloodstock.

My modest proposal would require that every horse in the country attend boot camp, along with their owners, to re-instil the lost martial equine spirit. The worst performing horses would be gelded on the spot, preventing their contaminating future generations. The best performing horses could attract Winston’s tax credit. That tax credit would follow through to those horses’ descendants, but only if bred to other similarly creditable stock.

And the best-of-the-best could be drafted to make Winston’s proposed Police Flying Squad a mounted unit.

Kiwi horses would come to welcome Guy Fawkes Day fireworks as reminder of the comradery they shared with each other in boot camp.

And my proposal is no more ridiculous than tax credits for engineering beautiful horses. 
Subscribe at the link at the bottom of the page...

Carbon Calculus

If you want to reduce greenhouse gas emissions, improve the ETS and use it to buy-back and retire credits rather than mucking about with sector-specific stuff. 

Me in this week's NBR print edition. A snippet:
The New Zealand government has committed to reducing our greenhouse gas emissions. Fortunately, New Zealand has a functioning Emissions Trading Scheme (ETS) that the government has promised to strengthen. Every litre of petrol and diesel includes the cost of the ETS credits purchased to cover the fuel’s eventual carbon dioxide emissions. Electricity is in the ETS, so every kilowatt of power comes with its ETS credit as well, where necessary.

Sector-specific tax and regulation options, like subsidies for planting trees, regulations on industrial practices like methane flaring, or automotive fuel economy standards, could make sense in the absence of a price on emissions. In that world, the government would have to guess what people would be doing if carbon were priced, and then regulate to encourage those behaviours. And some of those interventions could even be cost-effective.

But layering additional feebates, incentives or regulations on top of sectors already covered by the ETS very easily risks New Zealand failing to do nearly as much as it could to reduce emissions.

An electric vehicle subsidy is unlikely to increase greenhouse gas emissions. But it would increase emissions compared to putting the same amount of money towards buying up and retiring credits in the ETS. Why? Buying credits always encourages those who can reduce emissions most cheaply to sell their credits, and electric cars might not be the best-buy for reducing emissions.
I'll add a link once there's a version online. Update: link!($)

Thursday, 8 November 2018

Have you considered using prices?

Talk about an elephant in the room.

Radio New Zealand's story on unregulated informal sperm donor networks is a great chronicle of what happens when you ban payments for sperm donors, without once mentioning that the whole thing is consequence of a ban on payments for sperm donors. It's like a murder mystery where all the facts are laid out, but nobody has figured out who the obvious killer is. It really is the butler! Why hasn't anyone arrested the butler!

What do we find in this story?
  • Waits at official fertility clinics of 18 months to two years (blamed in part on increased demand from single women);
  • High costs at fertility clinics: $300 for an initial consultation, donor's testing costs of $1500...
  • Men shunning clinics because donating at the clinic is costly to them: "The clinics, they just don't simplify the process. The donor has a life too. If I have to go through a clinic, I have to do a consultation and therapy and it takes six months to help one person. It's too much."
What don't we find in this story?

13 Commercial supply of human embryos or human gametes prohibited(1) No person may give or receive, or agree to give or receive, valuable consideration for the supply of a human embryo or human gamete.
(2) Every person commits an offence who contravenes subsection (1) and is liable on conviction to imprisonment for a term not exceeding 1 year or a fine not exceeding $100,000, or both.
If the clinics could pay the donors for the increased hassle they face in going through all of the rigamarole required for that process, supply would increase. If demand increased, clinics could up the offer price to encourage greater supply. There wouldn't be 18-month queues.

It isn't like not paying the donors saves the customers a lot of money. The clinics just get the money instead - though it is a puzzle that they haven't increased fees by even more: Simple AI is cited as (only) $1500 per cycle.

The article notes the risks in the informal sector (potential lack of disease testing, etc). Maybe, just maybe, if the clinics could pay the donor at least enough to cover the hassles they face in going to the clinic, things would change.


Wednesday, 7 November 2018

A Wisconsin Waste

When I taught Public Choice, I liked to give my undergrads a news story for their take-home final, and just say "Discuss with reference to the theory developed in your lectures and readings."

Dan Kaufman's story in the New Yorker on Wisconsin's Foxconn mess would have been a bit late in the year to make the final, but it was final-worthy.

A snippet:
But as the public has become aware of the spiralling costs for these jobs, the Foxconn deal has become something of a political liability for Walker, particularly among voters outside of southeastern Wisconsin. Those costs include taxpayer subsidies to the company totalling more than $4.5 billion, the largest subsidy for a foreign corporation in American history. Since Wisconsin already exempts manufacturing companies from paying taxes, Foxconn, which generated a hundred and fifty-eight billion dollars in revenue last year, will receive much of this subsidy in direct cash payments from taxpayers. Depending on how many jobs are actually created, taxpayers will be paying between two hundred and twenty thousand dollars and more than a million dollars per job. According to the Legislative Fiscal Bureau, a nonpartisan agency that provides economic analysis to the Wisconsin state legislature, the earliest citizens might see a return on their Foxconn investment is in 2042.
Oh - and much of the land for the deal was stolen by the Wisconsin government under eminent domain provisions.
To make space for Foxconn’s development, which will also necessitate many miles of new roads, the Village Board has been buying properties, sometimes using the threat of eminent domain to force reluctant homeowners to sell at a price determined by the village. Several weeks before the groundbreaking, the seven-member board went further. By a 6–1 vote, the board designated the entire twenty-eight-hundred-acre area “blighted,” which will allow Mt. Pleasant to issue bonds that are exempt from both federal and state taxes, and may also grant the village a more expansive use of eminent domain to seize the property of the few remaining holdouts, a small if highly visible group, whose property-rights fight embodies a wider sense of disenchantment with the Foxconn deal.
And it looks like Wisconsin's post-Kelo move to restrict takings was a sham.
Kim reached out to her political representatives, including her congressman, Speaker of the House Paul Ryan. “His response was: this is not a federal issue,” Kim said. “And that I should reach out to my state representatives.” That surprised her. In 2005, Ryan co-sponsored the Private Property Rights Protection Act, which was written in reaction to the Supreme Court’s decision in Kelo v. City of New London. That ruling allowed New London, Connecticut, to use eminent domain to take several homes for an economic-development project. “When someone works years to secure a home or establish a successful family store or restaurant, only to be forced by the government to give it up so a corporation can redevelop the land, that’s wrong,” Ryan said in a statement supporting the measure. The bill passed the House, 376–38, but failed in the Senate. (Ryan also attended Foxconn’s groundbreaking ceremony in Mt. Pleasant.)

The same year, Wisconsin passed its own law in response to Kelo, co-sponsored by Leah Vukmir, now the Republican U.S. Senate nominee. It outlawed the use of eminent domain to seize a property for use by a private corporation, with one exception: if the property was “blighted.” Kim believes the state law was written in such a way as to protect a new home like hers—it defined blighted property as one that is “detrimental to the public health, safety, or welfare.” However, the Village Board has relied on a different statute, one that applies the designation for property that, among other things, “impairs or arrests the sound growth of the community.”
New Zealand needs to be very careful in giving Councils expanded powers for takings with urban development authorities. We need not follow America into that asylum.
For Kim Mahoney, the issue reinforced her determination to keep fighting. She pointed to the Creuziger’s Land of Giants Pumpkin Farm, the last big holdout. The four-hundred-acre property has been in the Creuziger family for ninety-two years, but the family was ordered to vacate on October 8th. (After the Cruezigers challenged the move in court, the village withdrew the order, saying it won’t need the land for another year.) “If they’re allowed to do this, they can do this to anybody at any time,” Kim said. “Wisconsin’s eminent-domain laws and private-property-rights laws are meaningless. All they have to do is rezone it and call it blighted.” On my last visit with the Mahoneys, the big Caterpillar machines were working closer to their house than usual, and the noise was louder. Jim and I were standing outside in his driveway. A brilliant orange-red sunset lit up the horizon, but it was hard to escape the sound. “It used to be so quiet here,” Jim said.

Tuesday, 6 November 2018

Rational voting?

Andrew Gelman argues it could be rational to vote. Sure, you're only trivially likely to change the outcome. But if you do change the outcome, the outcome is changed for lots of people. Add up the benefits across that broad set, specify that people are at least somewhat altruistic, and all's good, right?

He could be right in the current election cycle. I expect there is substantial value in the GOP being punished hard in each and every place it can be, all the way down to the vote on city dog-catcher. That outfit has to understand that reputation matters, and that failing to constrain Trump has more cost than benefit. It should be made to understand that backing a demagogue brings electoral death. It needs to be more scared of supporting Trump than of not supporting Trump. The party needs to be turned off and on again.

But the argument does require that the voter places himself or herself in an epistemically privileged position. You only change the outcome if you make or break a tie. You only make or break a tie if half of the voters in your district think you're providing a public bad with your vote rather than a public good.

Why do you think that your half of the electorate's the right one and the other half's wrong? Shouldn't you be updating, at least a bit, based on that half the electorate disagrees with you? Maybe you're the one who's done all the sums and has gotten things right, and the other side is full of idiots who'd wreck the country. But maybe there's a marginal voter on the other side who's your mirror image and thinks the same of you.

There's probably somebody reading this now who thinks my second paragraph is complete rubbish and that there's a lot of value in stopping particular Democrats from being elected. And that person could be right!

So I don't think this makes for a generalised "Yes, it's rational to vote" argument. It could be combined with a Jason Brennan "If you're going to vote, you have a duty to vote well", so that it's rational to vote if you have really good reason to think you're better informed than other voters. Feel lucky?


Disruptive classmates

You can do great work on education in New Zealand's Integrated Data Infrastructure. It lets you link kids to their parents and families, so full family background from parents' education to criminal records can be used as explanatory variables.

But you can't do this. From Scott Carrell, Mark Hoekstra and Elira Kuka in the November AER: The Long-Run Effects of Disruptive Peers.
A large and growing literature has documented the importance of peer effects in education. However, there is relatively little evidence on the long-run educational and labor market consequences of childhood peers. We examine this question by linking administrative data on elementary school students to subsequent test scores, college attendance and completion, and earnings. To distinguish the effect of peers from confounding factors, we exploit the population variation in the proportion of children from families linked to domestic violence, who have been shown to disrupt contemporaneous behavior and learning. Results show that exposure to a disruptive peer in classes of 25 during elementary school reduces earnings at age 24 to 28 by 3 percent. We estimate that differential exposure to children linked to domestic violence explains 5 percent of the rich-poor earnings gap in our data, and that each year of exposure to a disruptive peer reduces the present discounted value of classmates' future earnings by $80,000.
The IDI can tell you which school a kid attends, but cannot tell you which classroom that child is in. You can neither link children to their teachers nor to their classmates because that information isn't held in central government's administrative data. So the best you could do is get the school's proportion of kids with relevant CYF notifications or family policing records.

It's a bit of a shame - I wonder whether much of what parents seek in higher decile schools isn't educational quality, but avoiding disruptive peers.

Monday, 5 November 2018


There's an old joke that profs aren't paid to teach, they're paid to grade. Teaching is a joy. Grading is a nightmare. 

Back at Canterbury, I taught relatively small classes and so didn't get assistance with the grading. But you had to get it done and get the grades back to the kids so that, if they were seriously getting things wrong, they had time to chat with you about it before the finals - or at least have feedback .

Auckland University of Technology's union members are doing a disservice to those students. 
AUT students are frustrated they're having to sit final exams without knowing whether they've passed previous assignments as staff on a marking strike withhold their grades.

More than 750 Tertiary Education Union (TEU) members at the university are refusing to release students' marks unless AUT agrees to raise their salaries by three per cent and pay the lowest paid staff the Living Wage – $20.55 an hour – to more adequately reflect the "time, energy and skill that staff put into their jobs".

Students said it was unfair they had been left in the lurch by the strike and that being kept in the dark about their academic progress was making the exam period more stressful.
The worst part of this isn't anything here mentioned.

Yeah, kids will have a bit of a harder time figuring out how to optimise their studying efforts across classes - but I've never been all that convinced that knowing precisely how many points they need on the exam to pass the course really is all that helpful.

The worst part is that they could be studying from saved versions of their assignments without knowing whether those assignments are right or not.
A student in his final year of AUT's bachelor of computer and information sciences said he and his classmates were yet to receive marks for any of their assignments – one of which was submitted more than a month ago – for one paper due to the strike.

He and his classmates sat their final exam, worth 50 per cent of their total grade, on Tuesday.
The AUT Student Association has come out against the tactic, but could be doing a bit more for future students. If this had happened while I was a student, I'd have wanted a list of lecturers who'd pulled this stunt so I could avoid their courses. I wonder if the Student Association has considered doing that.

And I wonder what the university will do with grade appeals of the form "I screwed up this question on the final exam because I had no feedback on the assignment covering this section and so no opportunity to correct my error. I would have passed the exam had I had that feedback."

Thursday, 1 November 2018

Electric trains

In 2016, Kiwirail decided shift to an all-diesel fleet. At the time, it made some pretty compelling arguments for the change:
  • Running an electric bit in the middle of a diesel network meant shifting everything from one set of engines to another set of engines;
  • Running two sets of maintenance yards is expensive;
  • Shifting to an all-electric North Island system would cost at least a billion dollars for the trunk lines and would still need diesels on the feeder lines that didn't have the electric infrastructure, so you'd still have all of the engine-switching problems. And the Wellington power system is different from the Auckland system in ways that matter for setting this stuff up;
  • The overall costing of diesel engines over the operational life was 20-30% lower than the cost of electric engines;
  • Rail emissions are only 1% of all transport emissions, and transport is 17% of overall emissions. 
    • So - things that make rail less attractive as compared to trucks can wind up doing more harm than good (my point rather than theirs)
This week, Labour decided that Kiwirail should keep its electric railway-within-a-railway, keep switching engines mid-course, and refurbish its old electric engines. Because climate change. A Massey prof said they should have gone further and electrified the whole system. 

All of this seems insane. If we care about climate change, as we should, the best way of dealing with it is by working through the ETS. If the costs of diesel went up because the carbon charge in the diesel went up enough, maybe switching to an all-electric fleet would make sense. But if it didn't, then the government playing at political football with a State-Owned Enterprise means we're paying over-the-odds in mitigating carbon emissions. 

Does it really seem likely that the government can do the most good in mitigating emissions by pouring this kind of cash into the electrification of the rail system rather than by buying up NZU on the ETS and retiring the credits?

Update: A reader runs a few back-of-the-envelope numbers on this, copied below. It gives a rough measure of the costs of abating carbon emissions by electrifying rail. Add some appropriate confidence intervals around it, but it's at least an order of magnitude more expensive than current carbon prices - you could abate emissions by about ten times as much by putting comparable resource into buying and retiring NZU in the ETS.

Here goes.

NZ Gross emissions: 78,700,000
Transport share of gross: 17.3%
Rail share of transport: 1%

Rail emissions then on the order of 136,151 tonne per annum.

Cost of diesel conversion: $1 billion, minimum
At 6% discount rate, annualised cost: $60,000,000
Cost per tonne emission reduction: $518/tonne.

(assumes 15% fossil fuel based electricity generation, but also assumes complete rail carbon abatement but for that 15% - which won't happen because the feeder lines still have to be diesel). 

Birthright citizenship

President Trump's proposed end to birthright citizenship not only goes against the 14th Amendment, it also targets the wrong group.

Kids born in America and raised there are going to be American. Work by Cato shows that migrants to America share Americans' values; the children of migrants look a lot like everyone else.

But there is a group of people made American citizens at birth who shouldn't be. If they want citizenship, they should at least be forced to apply for it when they turn 18 and demonstrate an actual commitment to America.

I'm talking about the children born to those least patriotic and least loyal of Americans - those Americans who have fled to live abroad. Like all migrants, they wind up sharing the values of the country where they live. Their children will be born in foreign places, will not be raised with American values, and yet are American. America insists that those children are American - they do not have the option not to be.

Leave America to join Isis, have kids there, and raise them to share decidedly un-American values? Those kids get an American passport whether they want one or not. Flee to Canada in protest against Trump and raise the kids you have there to hate the American flag? Those America-hating Canadian kids are American. Run to North Korea because you love communism, have kids there, and raise them to follow the juche philosophy? Those kids are American too and can come back on an American passport any time they like, without the permission of anyone. [Update: without the permission of anyone in America anyway! Getting the actual passport could prove difficult.]

You wouldn't want to completely cut those kids' ties to America. It's not their fault their parents are traitors. But you should check that those kids don't actually hate America before considering them citizens. Right now, they're American whether they want to be or not. They can show up and collect American welfare, any time they want.

The 14th Amendment says that "all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside." Somehow, Congress has expanded that to include all persons born outside of the United States if one of their parents, no matter how disloyal, is American.

Kids born abroad to American parents who have been resident abroad for a while and aren't just on holiday somewhere else - they shouldn't be American by birthright. They should be eligible for a very easy path to citizenship, on application, when they turn 18, or if their parents move back to America with them. Otherwise, it seems nuts to consider them American. Fixing this is consistent with the 14th Amendment and should be supported by everyone who thinks that citizenship requires at least some kind of commitment to your country. It devalues American citizenship to so liberally throw it around.

Wednesday, 31 October 2018

Excise to reduce road crash costs?

I often like to borrow Ed Stringham's analogy between harmful alcohol use and speeding. We don't use petrol excise to try to deter speeding, we use road patrols and traffic cameras. Does it really make sense to use alcohol excise to go after problem drinkers?

Linda Cobiac, Anja Mizdrak and Nick Wilson argue the case for an alcohol excise hike to prevent car crashes. The article is not linked in any of the news stories on it, but I think it's this one. Those without institutional subscriptions can find it on SciHub. The study was funded by the Health Research Council, so it's not like you didn't already pay for it.

Before we get to the new work, let's get some context. The old BERL study, using 2005/6 figures, claimed about $700 million in road crash costs. Now that study had a lot of problems, including double counting. And it counted a pile of costs falling only on the drinkers themselves which would have to be weighed against benefits in a better analysis. But let's leave all that to one side and call it the maximum implausible estimate of the social costs of alcohol-related car crashes in NZ in that year.

Since then, alcohol-related road crash injuries and fatalities have dropped by about 20%. So a current maximum implausible figure should be about 20% lower, but CPI adjusted. Taking those together, a current value would be $685m (I used a 2005-2015 CPI adjustment after reducing the 2005 costs by 20% to reflect the drop in the crash numbers). This is rough-and-ready rather than precise, but should be in the ballpark if you wanted an update from the old figure. Cobiac et al's work is baselined to 2011. The maximum implausible figure for 2011 would be $777 million.

Cobiac et al argue for a 15 cent ($0.15) per standard drink increase in excise. A cheap bottle of wine has about 8 standard drinks and sells for $8. So a standard drink at the lower end, current-excise-inclusive, costs about $1. They're then arguing for about a 15% increase in prices at the lower end.

Their modelling work says this would reduce social costs by about $240 million, plus QALY savings that would bump that up to about $280 million.

But recall that the maximum implausible estimate of road crash costs for 2011 is about $777m.

Does it seem plausible that a 15% increase in the price of alcohol at the lower end of the cost scale would reduce the social costs of road accidents by about 30%? Either they have a much higher overall cost estimate for road crashes (and recall that BERL's was implausibly high), or something strange in the modelling.

Unfortunately, I cannot find the online supplemental materials where details on the elasticity figures used are meant to be hiding. The main paper explains the main method, but doesn't have the elasticity figures used.

The modelling work they describe first estimates the effects of an excise increase on consumption. They do not report whether they use lower price elasticity estimates for the binge and heavier drinkers they take as the population likely to drink drive; I expect the supplementary tables would have more detail.

But they then scale up all consumption "to account for survey under-reporting". Basically, survey measures don't line up with sales figures - less is reported by survey respondents than gets reported in the tax data. Some of that will be under-reporting, but some of it will be that New Zealand gets a ton of tourists, and tourists are going to drink while here but don't show up in the alcohol use or household expenditure surveys.

After getting an estimated effect of excise on consumption, which will overstate things if they haven't used a lower elasticity for binge drinkers, they then estimate the effect of lower consumption on drink driving:
Modelling health effects of changes in alcohol consumption

From the change in alcohol consumption, we determined the change in risk of motor vehicle and motorcycle road deaths and injuries using a population impact fraction approach (online supplementary text S1). In these calculations, we applied dose–response relative risk curves for high-risk (binge) drinkers.19 These relative risks were adjusted to reflect the proportion of the day spent at increased risk, using a function that predicts exposure time based on estimated rates of alcohol clearance by the liver.5

To model the future health impact of alcohol consumption changes in the New Zealand population, we used multistate life-table modelling methods used previously to model the health impacts of alcohol taxes in Australia20 and Denmark,21 and previously adapted in New Zealand for modelling health impacts of tobacco taxes.22 In these analyses, we focused on modelling the impact of changes in alcohol intake on motor vehicle and motor cycle road transport injuries.
So they use that to go from a modelled reduction in binge drinking to a modelled reduction in motor vehicle accidents. The modelled reduction in costs comes out of that modelled reduction in accidents. But at the end of that chain of modelled links, they wind up claiming an implausibly large reduction in road accident costs from a 15% increase in the cost of cheaper alcohol.

They claim that their results are robust to different assumptions about elasticities of consumption with respect to price, but all that meant was that, in the absence of NZ estimates, they first applied UK estimates and then applied Australian estimates. It doesn't say how robust their figures are to different assumptions about the relative elasticities of binge and regular drinkers.

Anyway - colour me more than a little bit sceptical. If I were looking for best-buys for reducing drink driving, I'd be looking hard at South Dakota's 24/7 and Hawaii's HOPE programmes.

For a fun alternative way of approaching the problem, here's Robert McClelland and John Iselin of the Urban Institute and Brookings Institution's Tax Policy Center. They use a synthetic control method to estimate the effects of two large excise increases in Illinois. The synthetic control method looks for states whose consumption patterns were a lot like Illinois's patterns prior to the tax change, then use the combination of those states to build a synthetic version of Illinois - what consumption in Illinois would have looked like absent the tax change. The effect of the tax is then estimated against that counterfactual. They find a temporary reduction in accidents in counties that don't border other states, but even that washes away pretty quickly. There'll be other studies that find reductions in accident rates, but I kinda like this synthetic control method for establishing a counterfactual.

Tuesday, 30 October 2018

Correcting corrective taxes

Over at the NBR, I have a look at the Tax Working Group's advice around excise ($). The advice, and the documents in support of it, aren't bad. They do miss a trick when it comes to tobacco excise though:
The main health risks of smoking are from combustion. Does it make sense to apply the excise levied on smoked tobacco to reduced harm products? Excise is slightly lower for tobacco products other than cigarettes but still seems excessive for reduced-harm products that do not involve combustion.

A 10-gram package of snus selling for $18, containing 15 sachets, would draw $10.33 in excise if the 10-gram weight is an accurate measure of the taxable weight – about $0.69 per sachet. Excise is more than 130% of the cost of the base product. The excise content of the cost of a HEETS stick is lower than the excise content of a cigarette but mostly because HEETS contain less tobacco.

It does not help encourage people to switch to less harmful alternatives when those less harmful alternatives draw substantial excise levies.   
I argue for a low/no excise category for noncombusted tobacco. 

I had a minor quibble around their treatment of alcohol. The TWG Secretariat's background paper cites others claiming that alcohol excise may be progressive because richer people spend more on alcohol. But excise will be a bigger fraction of the purchase price of alcohol purchased by poorer people if people buy fancier alcohol when they're richer. The percentages here now come from very out of date HES findings. But the excise figures are current.
The secretariat noted that poorer households spend only 1.9% of their income on alcohol and richer households spend 2.8% of their income on alcohol. But if the poor household mostly bought $15 cask wine and the richer household mostly bought $30 bottles of wine, the poorer household would be spending 0.74% of its income on alcohol excise while the richer household would be spending only 0.21% of its income on excise.
An ungated copy of the piece will be up at the Initiative's website in due course.

Those interested in snus as alternative to smoking might check out NZ Snus. None of their products would be recommended for non-smokers, but this curious non-smoker who tried one of their stronger products particularly suggests not trying the stronger variants unless you're used to getting a lot of nicotine.

Thursday, 25 October 2018

Afternoon roundup

Posting has been light as other deadlines press. But I have accumulated too many browser tabs. Here are some worthies:
  • Colby Cosh on the case for using prices to reduce carbon emissions. 
    Is there really absolutely nothing you can do, even if you’re quite lower-middle-class, to create energy savings in your life? You never go to the fried chicken place across town instead of the one on the next block? Are you sure you need to own a pickup for one home reno project or a bit of landscaping every three years? Have you even looked into smart thermostats or checked your window seals? Invested in a Snuggie? Taken the old incandescent Christmas lights off the hot tub?

    The real problem is that you can’t ask these questions — even hypothetically, or even just to point out that every single household might ask hundreds of them — without sounding like an obnoxious schoolmaster. A carbon tax is social engineering — it is just an optimum, consciously designed, maximally market-friendly way of going about it. Any economist will add the implied caveat that all taxes are social engineering, and other taxes are engineering society in dumb or bad ways. A “carbon tax” is meant, for better or worse, to discourage the emission of free carbon. “Income tax,” which discourages honest work, starts to look pretty ridiculous when you follow the logic just a few inches further. But those are always the hardest inches to cross in the face of a policy novelty.

  • Pattrick Smellie reminds us how New Zealand's ban on Taranaki oil exploration can wind up increasing emissions globally:
    The oil and gas ban is proving to be a two-edged sword politically, particularly since no matter how often Woods denies it, the evidence is strong that the ban is more likely to increase than decrease global emissions of greenhouse gases.

    Especially questionable has been her claim that the vast quantities of methanol currently made from natural gas in New Zealand won't end up being produced in China, using higher-emitting coal because of China's emissions trading scheme.

    As climate change policy expert Christina Hood told the Environmental Defence Society's recent business and climate change conference in Auckland, the Chinese ETS is not really an ETS yet and currently only applies to the electricity sector.
    Our submission on the ban is here.

  • Former NZ Ambassador to Beijing John McKinnon's speech on New Zealand's relationship with China is excellent. Recommended reading.
    China is also now, what is was only potentially in 1972, a great power. The fabric of international society is woven by the ability of the international rule of law to constrain the interests of large powers such as China. This means that New Zealand, as a country which invests in and benefits from the international rule of law, has expectations of China, as it does of other great powers. That they will comport themselves appropriately, especially towards those who have less power than themselves. That is the true mark of greatness. It is pleasing to see how China has responded to these expectations, such as through its policies on climate change, and its championing of the multilateral trading system. New Zealand, along with many other countries, will be represented at China’s international import expo, to be held in Shanghai in November, and marking the 40th anniversary of reform and opening up. There are many areas where New Zealand welcomes China’s voice and can and does work with it in international forums.

  • Susan St John is entirely correct about the need to better sort out residence issues with NZ Superannuation. The government is currently considering legislation that would require people to be resident longer in New Zealand to have access to the New Zealand Superannuation scheme. St John reminds us that we also need better treatment of the private retirement plans of those who bring their 401(k) with them to New Zealand.

  • New Zealand's copyright industry is trying on a push for extending the duration of copyright and messing with our current ISP notification regime for infringement; I don't wish them luck.

  • Net migration has slowed. This shouldn't be surprising. Migrants are only somewhat sticky; a lot of them leave a few years after arriving. That means that net migration figures will always look stronger than they should during upswings in inbound numbers, and weaker than they should during downturns in inbound numbers. Current year net migration is a function of current year inflows and lagged departures from prior year inflows. Net migration was always going to flatten off unless inbound figures continued to grow. As soon as inbound figures level off, then the outflows from prior year waves catch up. I'd be surprised if the anti-migrant tone of the last election campaign, combined with increased restrictions on those here without a residence visa (can't buy a house), hadn't amplified this.

  • Some folks are complaining that Christchurch might have 'too many' houses now. What a terrible problem to have! We should be thanking Selwyn and Waimakiriri for allowing growth and solving Christchurch's post-quake housing crisis. And for those who don't like the sprawling suburbs - perhaps the Crown could consider selling off some of its downtown land holdings using a descending bid auction to find out what the value of that land really is. It's felt like unwillingness to realise losses against inflated downtown land values has been a hold-up there, but I'm not close enough to it to really know.