Tuesday, 22 May 2018

Reader mailbag: Caveats on policy costings

This morning's inbox came with excellent comment from an informed reader about the difficulties in getting reasonable independent policy costings. The email reads (and is shared with permission):

  • Do not underestimate how effective agencies can be at blocking information they do not want others to know. One reason the costings will be poor is because all kinds of information will not be unavailable because the agency, not the minister, do not want to be challenged. You will find "privacy" and "computer systems" becomes big issues...
  • The main advantage of a single separate agency is consistency in the assumptions. At the moment they change depending on the whim of the needs of a budget bid. If agencies have to write down and be long term accountable for the assumptions, that will be a big step forward in like for like comparison. Even if the costings themselves are no more accurate, they comparison between policy costs (bigger, smaller, etc) will be more robust
  • My experience of independent agencies is not good: stats NZ, Office of the Auditor General, Ministry for Women, SuPERU, etc They are all small agencies with some kind of "advocacy" role that they use to justify pursuing their own agenda. Ministerial accountability has its limits, but it is at least real accountability.

I agree with most of this. Privacy seems to be the default "Computer says no" reason for not doing things. Also agree that on the advantages of having a single consistent, if biased, ruler over having multiple different rules with different biases. 

My prior piece had looked at the ways a party might avoid having rigourous costings applied. Accountability for the costing agency would be a fun one - perhaps reinstate betting markets on whether policies wind up costing what they're advertised to cost? Ex-post assessments?

Costing policy

As the Greens' proposal for a policy costing unit looks like it'll be going ahead, here are some of the fun bits they'll have to deal with in setting it up. 

From my piece on it over in the NBR a couple years ago, when the Greens first pitched the idea:
The Greens’ proposal that election campaign promises be costed has drawn the praise it is due: it is an excellent proposal.

But it is a harder job than it might seem.

Even during the normal course of events outside of election periods, adequate costings or cost-benefit assessment of policy seems more the exception than the rule.

If the government is to build civil service capacity to cost all political party promises during the election period, why not use that opportunity to build an agency able to review policy over the course of the government’s term?

Let’s start with the difficult part on election policy costings.

Parties wanting costings on their policies can get them through the Treasury – although that potential is far more notional than real.

The State Services Commission’s Guidance for the 2014 election included guidelines for costing party political policies; the Treasury also provides a high-level guidance document.

Going through minister

But requests for costings must go through the minister of finance. This is no fault of current or previous governments – the Treasury is responsible to that minister.

A party outside of government requesting a policy costing could well worry the minister might request sensitive details. So it seems unlikely opposition parties would seek such costings under the existing guidelines.

Were an independent agency of Parliament to undertake the costings, what the agency might lose in expertise would be made up for in credibility: asking an agency responsible to a minister to undertake work that would be kept confidential from that minister does not work well. The Greens’ proposal consequently could be better housed elsewhere.

Suppose that agency provided costings on a voluntary basis. If everything were working properly, parties wanting policy costings from that kind of independent agency would request them early in the election period.

Time to do the research

The agency, and the ministries with which it might need to coordinate, would then have sufficient time to undertake the work. The parties could still time their policy releases throughout the election campaign but they would have had to have developed them early enough to have them costed.

Policies that parties would prefer not be costed would not be costed, while those that are costed have the cooperation of the party requesting it. Policies would be costed when parties expect they would fare well under evaluation.

That changes when an agency is charged with costing all policies.

Imagine you were a political consultant who came up with some policy that you, and your party, reckoned would be great politics, even if it were terrible economics.

Currently, you would never seek a sound costing on that policy – and you would hope the Taxpayers’ Union would not hire someone to run an eye over it.

Were all election promises costed by an independent agency, you would be well advised to delay submitting your policy for costing so that only a cursory take on it could be provided.

You would also be tempted to wrap the policy in enough complexity that any costing provided in a hurry would have to make simplifying assumptions. Or, conversely, you could avoid providing any of the details necessary for a costing, saying the finer points would be worked out while in office.

You could then attack any assumptions the costing unit might be forced to make as being Treasury ideological “burps” – as former Finance Minister Michael Cullen once dismissed sound Treasury advice.

An agency doing this job would need to have a fair bit of in-house expertise in costing. It would also need to have a strong reputation for down-the-line analysis. And, for it to do any good, there would have to be underlying voter demand for sound policy costings.

That last requirement is a bit of a worry. You might think that, if voter demand for policy costings were strong, parties would already be seeking independent and credible costings of their main policy planks.

Switching the default might make a difference. Currently, policies are only costed where parties want them costed. In the alternative, policies would only fail to be costed if the party had something to hide, or if the party came up with its policy proposals late in the game.

Voters who came to expect costed policies might draw the proper inference from ones that were not able to be costed.

And so while I really rather like the idea of all policies’ being costed, it will not be a small job where parties might want to throw sand into the works – for some policies.

But the attention to the costs of policy is strongly welcome.

The cost of existing policies, unfortunately, draw rather less attention. Even in the absence of independent costings, political parties have reasonably strong incentive to draw attention to the costs of their opponents’ platforms.

New policies proposed after the election at least draw cursory assessment as part of standard regulatory impact analysis – even if Sapere’s analysis last year found that 20% of regulatory impact statements completely failed to meet quality assurance guidelines and only 30% fully met them. Strengthening independent evaluation there might not go amiss.

Usual spending untested

But the bulk of the government’s spending – the big line items that do not change much from budget to budget – receive rather less attention.

Take the government’s student loan programme. Labour’s zero-percent student loan policy drew attention during the 2005 election campaign and again in 2008. But we do not often hear discussion of the $5 billion gap between the nominal value of the loan and their carrying value.

The vast majority of government spending simply carries on, from year to year, without much notice.

Perhaps an agency established to cost new political party proposals could, between elections, spend its time running rolling reviews of existing spending programmes, ensuring they continue to deliver value for money.
Bryce's report with Khyaati goes through these kinds of fiscal councils, and some of the other tasks that they might usefully undertake. 

Monday, 21 May 2018

Legalise it already

Marijuana legalisation started in America over twenty years ago with medical marijuana in California. It's expanded considerably since then. It is hard to look at the overall experience and conclude that New Zealand should not follow suit.

Remember that we are not talking about inventing marijuana for the first time or something. Marijuana exists and is consumed regardless of whether it is legal. Arguments about how bad marijuana is are a bit stupid. However bad you think marijuana is, you should be more worried about whether those harms are better mitigated by current prohibitionism, or by legalisation.

I had a chat with Bryan Crump over on Nights at Radio NZ about it a couple weeks ago, then wrote up my notes a bit more fully for a column over at Interest. A snippet:
Next up, the children. Won’t somebody think about the children? It has never seemed plausible that prohibition particularly discourages youths from using marijuana. A dealer of illegal drugs will not care about his clients’ ages unless there are sufficiently higher penalties for selling to children than for selling to adults though licensed retailers care about keeping their licenses. But, again, it is an empirical question. Legalisation could normalise or de-stigmatise marijuana use and could consequently increase youth uptake. Did it happen?

No. Anderson, Hansen and Rees showed that medicinal marijuana laws, if anything, led to a slight decrease in youth uptake of marijuana. Sarvet et al’s later metastudy looked across eleven different studies of adolescent marijuana use and found no support for the idea that legal medicinal marijuana encourages youth uptake.

How about marijuana as a gateway drug – or as substitute for other drugs? Victoria University of Wellington’s Luke Chu showed that medical marijuana laws did increase overall marijuana consumption, but also resulted in a 20% drop in medical admissions for heroin-related treatment, with no effect on cocaine. By that measure, marijuana access reduced use of harder drugs.

And Powell et al’s recent study showed that medical marijuana laws reduced opioid mortality rates. Opioids have become a scourge in much of rural America, with abuse of Oxycontin being rampant. But access to medicinal marijuana dispensaries cut opioid overdose rates by about a quarter. And, in the earlier period when regulation around dispensaries was less tight, the reduction in opioid mortality rates was even higher.
If a couple decades of American experience plus a Labour/Green coalition here can't get us toward legalisation, I wonder what can.

Friday, 18 May 2018

Budget 2018

Yesterday, I attended my first budget lock-up.

It was less interesting than it sounds.

But egads the Treasury staffers there are good.

For three and a half hours, you can look at the budget and ask any of dozens of Treasury people floating around the room about how different numbers were established. If they don't know, they know the person in the room who does know. And if nobody in the room knows, they'll phone the person back at the office who does know and will get back to you within minutes.

It is simply amazing. If I do it again, I'm going to have to come into the room with a big long list of all the things I always wanted to know but didn't know who to ask. Because they'll sort every one of them.

The one I was particularly curious about was the tobacco excise forecast. The government earns a lot of money from tobacco excise. And the government has now legalised vaping. The prior path of tobacco excise hikes would have had total tobacco tax revenues increasing a bit further despite volume declines. But with the availability of new and safer substitutes, the prior relationship between prices and consumption wouldn't be reliable.

So I asked! The tobacco excise forecast is based on an assumption of a two percent reduction in volume per year, based on historic trends. If those trends continue, and if excise freezes after the currently scheduled round of hikes, then excise reaches $1.86 billion by 2021 and starts falling a bit thereafter. I doubt that 2% per year volumetric drop is the right forecast as vaping becomes more mainstream and legal-legal instead of just pretty legal, but I'm not sure what the right forecast is. If consumption drops by 10% per year instead of 2% per year, though, you pretty quickly wind up with half a billion less in excise revenue than you might have been banking on. What has been pretty inelastic demand can turn pretty elastic once substitutes become widely available.

I'd provided budget takes for the Dom Post, the Spinoff, and this week's edition of our Insights newsletter. I tried to hit on bits other than the usual "This is who gets what" stuff ably handled elsewhere.

I also had a bit of a chat with Andrew Dickens at Newstalk ZB, but technical meltdowns at their end meant things ended at the commercial break rather than continuing afterwards. Alas.

Thursday, 17 May 2018

Minimum wages and the margin

Michael Reddell makes a lot of sensible points about the government's intended hikes in the minimum wage. He reminds us that:

  • Improving measured average productivity by disemploying the least productive is a false economy;
  • Improving capital investment by forcing a substitution towards capital by making lower skilled labour too expensive is not the kind of productivity boost that improves overall economic performance.  
I'd add another bit. 

If a minimum wage becomes binding, firms have a few ways of responding. They can disemploy workers, change hours and rosters, and substitute towards labour-saving capital. But they can also chisel on other margins of the employment deal so that their effective labour costs go down. Every job is a bundle of tasks of varying desirability and a bundle of rewards of varying value to the worker and cost to the employer. 

Suppose that the total compensation bundle provided to an employee costs $20/hour, including money wages and on-the-job amenities like whether the air-conditioning and heating is set to comfortable temperatures, the comfort of the chairs or workstations, the ease of slotting shifts into your preferred schedule rather than the employer's preferred schedule, the degree of monitoring of on-the-job activities and breaks, and a host of other things that are part of the deal. 

If the minimum wage goes up, one of the margins on which employers can and will respond is in reducing costs on those other margins. Most of those margins are invisible to employment law, but do make work less pleasant. Among those workers who continue to be employed after a minimum wage hike, we should expect that at least some of the benefit of the higher wages is chiseled away in worse conditions. And we should expect that many workers will not prefer the resulting overall bundle - otherwise they could have contracted for fewer on-the-job amenities and higher wages in the first place. 

One margin that is visible to employment law is off-the-books hours: morning meetings before the official clock starts; clean-up after the clock stops; working lunches and the like. There's been a fair bit of press around that part lately. Off-the-clock hours make minimum wages less binding. 

As minimum wages ramp up toward 72% or 73% of the median wage under Labour's schedule, expect more of this kind of thing. If it comes with greater policing around easily monitored stuff, like unpaid hours, expect more chiseling on unmonitored things, or greater disemployment. 

Wednesday, 16 May 2018

Sweet slopes

Slippery slope arguments are only a logical fallacy if you don't have a mechanism. 

In health and lifestyle regulation, there are a couple of plausible ones. A rather plausible one is that establishing control regimes over consumption behaviours in one domain reduces the marginal cost of implementing similar control regimes over other consumption behaviours. Eugene Volokh covered rather a few mechanisms over a decade ago.

Here's Grant Schofield, the Ministry of Education's special health advisor and public health professor at AUT:
“[This Government] might not do a tax right away, but they can certainly start….with any of the points in our paper that we’ve suggested.”

Anti-tobacco laws over the years are used by Schofield and his co-authors to show the importance of Government intervention in making sugary foods less available and affordable in shops. Changes at the supermarket, ensuring sugary food and drink are not “loss-leading” and easy, end-of-aisle temptations, are among the recommendations.

Organisations providing dietary advice should also be banned from accepting money or endorsing products that market processed food, Schofield says. If they do accept or promote companies that have processed food, that should be publicly declared to show a conflict of interest. 
[Schofield] also points out that anti-sugar policies could be tacked on to current “infrastructure” restricting sale and advertising of alcohol and tobacco.

“We’ve got quite strict controls [over alcohol and tobacco sale]. I know people enjoy them, but they cause harm. It’s exactly the same with sugar and junk food.

“We already have all the infrastructure to do that with alcohol and tobacco, so let’s just chuck sugar in there as well.

Schofield also uses tobacco to rebut “industry arguments” regarding potential loss of business.

“At every point [when changes were made], there was interference. When smoking was stopped in bars and pubs, the industry… said it was going to be the end of everything and there would be people out of business. Actually the exact opposite happened. The country was just a better place.”

Overall, the public health problems stemming from excess sugar consumption are not too different from those associated with tobacco.

“You can say there is no safe level of tobacco, but there is a safe level of sugar,” Schofield admits.

“But there’s no nutritional value for sugar. I’m not saying we’ll ban it, it will still be in society, but we’ve got to change its availability - it’s pretty obvious.”
I care less about plain packaging on cigarettes per se than about the slope it puts us on. Remember what Jack Banzhaf told us about tobacco in the 90s?
"They use the 'slippery slope' argument. 'My God, if they can do this to smokers today they can do this to people who eat Haagen-Dazs ice cream or whatever.'"
Yup. They did. And they were right. Adjust your priors accordingly.

Bit depressing though. Wasn't it only a couple of months ago that NZIER and the Ministry of Health both advised that sugar taxes were a pretty bad idea?

Tuesday, 15 May 2018

Regressive excise

The latest inflation figures sort inflation by household expenditure quintiles. Poorer households are more likely to include smokers. The government continues its annual excise hikes on tobacco. Meanwhile, the government has made the first year of tertiary study free. Richer kids are more likely to take up tertiary study.

And so living costs for poorer households have gone up more than for richer households.
“Like the March 2017 quarter, prices for cigarettes and tobacco have seen large rises due to the annual tobacco tax increase,” consumer prices manager Geraldine Duoba said. “The tax increase was implemented at the beginning of the year, bringing the average price for a packet of 25 cigarettes up to $35.14.”

Of the different household groups measured, Māori households saw the highest inflation in the March 2018 quarter (up 1.3 percent), compared with 0.8 percent for all households. This increase for Māori households was driven by higher prices for cigarettes and tobacco, and interest payments.

The lowest-spending households experienced more inflation than the highest-spending households in the March quarter, partly because cigarettes and tobacco are a greater proportion of their living costs. Cigarettes and tobacco make up approximately 3 percent of total household living costs for the lowest-spending households, compared to 1 percent for the highest-spending households. Price increases for rent (up 0.7 percent) and petrol (up 2.5 percent) made the next-biggest contributions to price rises for the lowest-spending households.

The introduction of the Government’s new ‘first year free’ policy for tertiary education had a dampening effect on inflation for all households. The highest-spending households received the greatest benefit because they spend proportionally more on tertiary education. These households also experienced the greatest effect from the seasonal price drop in international air transport.
We warned about these distributional effects around education in our report on zero-percent loans a couple of years ago.

I'd run the numbers on the effects of National's tobacco excise hikes back in 2016. They'd then locked in 10% excise hikes every year through 2020. I'd focused on effects on Maori households, using the Otago public health peoples' numbers on quit rates.
So for every 1000 Maori, we have:
  • 773 who would not have smoked regardless,
  • 13 who quit because of the tax and enjoy health benefits, save some money, and may or may not be happier from having quit – we’ll assume happier,
  • 214 who keep smoking about 90% as much as they had been smoking. Each and every one pays about $1020 more in excise per year than they otherwise would have paid.
For every Maori smoker who quits, 16.46 Maori smokers will pay a bit over a thousand dollars more in excise per year – assuming they start with a half-pack-a-day habit. Some will pay more, some less. The 2014/2015 NZ Health Survey says that Maori daily smokers smoke on average 10.3 cigarettes per day, so that’s about right. On the other side, the same survey says that current prevalence of daily smoking is 35.5% among Maori. If Wilson’s figures underestimate baseline smoking in 2020, then the tax hike would have a few more current smokers quitting than here estimated, and a lot more current smokers paying that extra thousand bucks per year.

The NZ Health Survey notes that daily smoking rates are 25.4% overall in the most deprived neighbourhood quintile (as compared to 8.3% in the least deprived quintile). MoH estimates there are 178,000 daily smokers in the most deprived quintile. If each of them is pays an extra $1000 in tax, the government is pulling $178 million more dollars out of our poorest communities.
When the Otago Public Health people talk about the package of policies that they support, and that I'm evil for not supporting, they mean the continued excise hikes. That's what "implementation of cutting-edge methods to reduce the affordability" means. It's more tax hikes on the poorest people in New Zealand.

My package of reforms? Freeze the excise hikes. Reduced harm products are now legal in New Zealand. Allow them to be advertised - they should not have the same advertising restrictions as smoked tobacco. Make sure that nobody tries applying plain packaging to them. Weigh seriously the trade-offs with an R18 status - if you keep it R18, then monitor to see whether that's winding up making youth smoking rates higher than they need be. Heck, distribute leaflets about reduced-harm products in the dairies and shops that sell cigarettes and let the dairy owners know about distributors who can supply them with reduced-harm products.

Over the next few years, there'll be a lot of switching to reduced-harm products. Eventually, you'll be left with a small number of continuing smokers for whom reduced-harm products simply don't work. Punishing that group with high levels of excise - I don't know what the point of it is. Schedule a reversal of the excise hikes, recognising that excise is less needed where there are better substitutes for smoking available. You just don't need as high an excise rate to discourage use when acceptable substitutes are more readily available. That's just maths and how elasticity works. Goods with more substitutes are more elastic in demand. Any excise hike does more to curb consumption for relatively elastic goods than for relatively inelastic goods. So you don't need as high of excise to induce any given demand reduction if you've been able to make more substitutes available. It's bizarre that parts of the public health community have worked so hard to make sure that acceptable substitutes don't become available.

It really annoys me when people say stuff like "The taxes are regressive but the health benefits are progressive!" Why? The person paying the tax isn't getting much health benefit from the tax. Quitters get the biggest health benefit, but there aren't that many of them.* Current smokers cut smoking rates a bit, but they'll also draw harder on each cigarette to compensate. And it's a bit funny to laud excise for the health benefits of a 10% reduction in the number of cigarettes smoked while damning vaping because some vapers will have the occasional cigarette as well.

Bottom line: the continued hikes in excise should not be part of any reasonable harm reduction package. The harms that excise imposes on those who continue to smoke are substantial. The now-legal status of reduced-harm devices means that you don't need to beat people up with excise.

And if you like excise because it beats up on tobacco companies, think again. Cigarette supply is basically infinitely elastic at the world price. Demand is highly inelastic, in no small part because there have not been good available legal substitutes. Basic tax incidence means the burden of tobacco excise falls predominantly on the relatively inelastic side of the market. That's the demand side.

* And there's still the more difficult question of whether they then see themselves as better off. Many will, some won't.

Monday, 14 May 2018


Mike Reddell wonders why I support CANZUK, the movement wishing to expand the Australia-NZ free mobility area to include Canada and the UK.
I’ve never been quite sure what to make of the CANZUK cause. I read a lot of imperial/Commonwealth history, and ideas like this sort of free movement area among the old ‘white Dominions’ are strikingly reminiscent of calls for an imperial federation or, much later, for imperial trade preferences (which became a big thing as the UK moved away from free trade itself).  I could be a little provocative and suggest that is wasn’t entirely dissimilar to the sort of immigration policies New Zealand and Australia ran until a few decades ago, that could be  –  not entirely inaccurately –  characterised as “white Australia” or “white New Zealand” policies.  In that sense, I’ve always been a bit puzzled by Eric Crampton’s enthusiasm for this particular formulation, when he is so ready to characterise sceptics or opponents of New Zealand’s current immigration policy as “xenophobes”.   The logic of his position looks as though it should favour open borders more generally, not just among these four advanced, fairly culturally similar, countries.  And yet, for example, even as an example of Commonwealth sentiment, not even South Africa –  let alone Zimbabwe, Kenya or Namibia – appears in the CANZUK proposal.
I favour global free trade. My first-best preference would be that every tariff and trade barrier would be abolished tomorrow. Where that isn't possible, I prefer unilateral tariff reductions and membership in as many free-trade areas as possible. I supported the free trade deal with China, but that was hardly in opposition to supporting free trade with other places too.

I understand that there is a lot more opposition to immigration than there is to trade. But most of the usual criticisms of free migration don't apply to a free migration area between Canada, the UK, Australia and NZ. People flocking here from any of those to get free health care? Nah. People flocking here from any of those to collect welfare? Not plausible. They'll destroy our culture somehow? Depends on your thoughts on British cuisine I guess.

I don't buy those arguments against more liberal immigration policy with other countries either, but I expect I'm there in a minority.

It would be an odd free-trader who'd object to a free-trade deal with China when one's on the table just because it isn't a global free-trade deal.

It would be a puzzle if I supported a Fortress version of CANZUK that would close the borders to immigration from outside the region. I don't support that. CANZUK, plus continue letting people from other places become Canadians, Kiwis, Australians and Brits.

Sunday, 13 May 2018

Misleading labelling

This is what the public health people want to put on your next bottle of beer or wine:
As always, it's all-source mortality that will matter most where alcohol protects against some stuff and increases the harm of other stuff. And the best estimate on that is still a small reduction in all-source mortality among those drinking about a standard drink per day.

The health warning labels are then highly misleading. It's true that most people will get little or no health benefit from low levels of drinking. But it's also true that most people will not get cancer from drinking, even at high levels of drinking. Small changes in things that are low overall risk are like that.

Even that study that just came out that everyone was trumpeting as showing that there is no benefit from light drinking showed that there is in fact a benefit from light drinking. The researchers were a titch misleading about it in the press release and in the headline charts, but they did put the real result in an online appendix. Where they'd made the J-curve disappear by truncating the x-axis, it comes back if you show all the data.

It's illegal to advertise things on products that aren't true. If you put a label on saying that something is New Zealand made, you'll get in trouble if the thing wasn't actually New Zealand made. But what about things that are highly misleading? That set of labels together provides a pretty misleading overall perception about the health risk of drinking.

If we wanted truth in labeling, we'd mandate this chart on every bottle instead. Compared to not drinking, there is a reduction in overall mortality risk with light drinking. Drinking about 3 drinks per day is as risky as not drinking. And drinking more than about 3 drinks per day is riskier than not drinking. And if you were really keen, you could flatten the curve a bit for whatever lifestyle confounding you think is still in there, making the base of the J a bit closer to the zero-line, but also flattening out the other end of the J-curve too.

Friday, 11 May 2018

Otago and disagreement

Every time I think that the University of Otago's Public Health people can't get any worse, they go and surprise me.

Today, the Initiative launched Jenesa Jeram's excellent report on vaping and reduced-harm alternatives to smoking. It walks through the evidence on the risks of vaping, heat-not-burn products, and snus, and makes some recommendations around liberalising access so that smokers might be able to choose ways of getting nicotine that don't involve breathing in smoke.

The report has drawn some reasonable support. Here's Action on Smoking and Health:
And here's Massey University's Prof of Public Health, Marewa Glover:
The Science Media Centre ran a bit of an expert round-up. They asked Massey Health Sciences Senior Lecturer Dr Penelope Truman, who had a lot of sensible things to say:
“I welcome this policy input from the New Zealand Initiative.

“New Zealand has been at the forefront of tobacco control initiatives, with strong and largely successful policies in such matters as tobacco tax increases, restrictions on the places where people can smoke, restricting point of sale displays and, recently, introducing plain packaging.

“However, decreases in smoking rates in New Zealand have slowed, particularly for some groups (including Māori). Further, tax increases have reached the stage of encouraging illegal activity, such as the much-publicised dairy robberies. Smoking addiction is bearing especially heavily on those households with a low disposable income, and onlookers are increasingly questioning the ethics and efficacy of taking our ‘force them to quit’ approach to smoking cessation much further.


“The major worry, of course, is that vaping may become attractive to children and teenagers, become a gateway to nicotine addiction and, from there, encourage smoking. While it is obvious that youth are experimenting with vaping, I have never yet found anyone who can explain to me why, if e-cigarettes are a gateway to smoking, youth smoking is declining markedly everywhere that vaping is available.

“My reading of the data is that young people may experiment and may even take up vaping for a while (with or without nicotine) but that vaping diverts a significant proportion of those who might otherwise have taken up smoking from ever doing so. This may well be because nicotine by itself, in any form, is just not as addictive as smoking is.

“In the meantime, we have over 600,000 New Zealand smokers, who have not yet stopped smoking in spite of all the pressure to do so. The indications currently are that many might stop or reduce smoking if vaping were to become more readily available as a substitute, while very few non-smokers will take up vaping, beyond short-term experimentation.”
Lots of agreement on the importance of reduced-harm alternatives.

But Science Media Centre also asked Janet Hoek and Richard Edwards. Otago University. Here's their take on Jenesa's report.
“The dismissal of effective public health measures is perhaps unsurprising for a group funded in part by the three largest tobacco companies operating in New Zealand (British American Tobacco, Imperial Tobacco and Philip Morris). These are the companies already making or developing the ‘Heat not Burn’ products that the report promotes.

“We recommend that readers refer to an action plan developed following broad consultation with the New Zealand tobacco control sector. This sets out a multi-faceted strategy comprising an intensification of current approaches, including enhanced support for smokers wishing to quit; implementation of cutting-edge methods to reduce the affordability, availability, appeal and addictiveness of smoked tobacco products, and making nicotine-containing e-cigarettes and e-liquids widely available to smokers who wish to use them to help quit or as substitutes for smoking if they cannot or do not wish to quit.

“This comprehensive and evidence-based plan is far more likely to succeed than a limited approach that seems inspired more by the corporate interests of its backers than any real desire to achieve the Smokefree 2025 goal. It is difficult to view Ms Jerram’s report as anything other than ‘prugging’ – PR under the guise of research.”
So Action on Smoking and Health, Dr Truman and Prof Glover welcomed the report. Edwards and Hoek didn't like it - and that's fine. People can disagree. But what isn't fine is Edwards and Hoek's assertions around why our report isn't what they'd have written. They think our report reaches different conclusions than they've reached because the Initiative is a member-funded organisation and we have tobacco company members.

And yet ASH, and others in public health, agreed with the report - or at least found it well-informed and accurate. Are they somehow bought out by industry? I could understand people starting to question our intentions if there had been a bunch of errors or strange interpretations in it that all skewed one way, but it's Otago that's the outlier here - not us.

Our report recommends a regulatory framework that would keep the playing field open to new products and new producers. That hardly favours big players. A recommendation for very costly pre-market testing for every new product and every new flavouring would effectively lock the whole thing up such that only the largest companies could participate - and discourage people from switching away from traditional smoked tobacco. That is not what we recommended.

This is basic regulatory economics. Big companies are able to front the fixed costs of dealing with costly regulatory systems, and little guys aren't. That's why big companies sometimes welcome regulatory frameworks that sound like they'd be harmful to them - it hurts their competitors more. One of my favorite stories on that one was American washing machine manufacturers welcoming costly energy efficiency standards because, while it hurt them, it devastated the cheap imports then available. It hurt the competitors more. A lot of regulation is like that.

Otago simply seems unable to conceive of that people can disagree with them honestly - even though a good chunk of the New Zealand tobacco harm reduction academic community seems to disagree with them. Could it be possible that we disagree with Otago for reasons like those listed by Dr Truman?

And they couldn't even spell Jenesa's name correctly. It's Jenesa Jeram. Not Jerram.

I'm damned proud of Jenesa's report. And Otago's Public Health department is a disgrace to academia.

Thursday, 10 May 2018

Afternoon roundup

Today's closing of the browser tabs brings a greater share of stupid New Zealand policy than I'd like.

  • The SuperGold Card scheme was always stupid. Why? It's badly targeted. If you want to alleviate poverty, give money to poor people. Giving free transport to old people doesn't make a lot of sense. And as Duncan Greive over at the Spinoff points out, there's a big subsidy to rich retired (or just old and still working) people who live up on Waiheke Island - and who can get a free 23km ferry ride any time after 9am. Greive shows that this is just under $2m of the $28m government travel subsidy provided to old people. One upshot from Andrew Leigh's visit to New Zealand earlier this month: where Australia's government tries to give money mostly to poor people, New Zealand's government tries to give money mostly to old people. 
  • Biddy Fraser-Davies is a hero. It takes a hero to fight MPI, year after year, to be able to make cheese despite MPI's regulatory efforts. It shouldn't take a hero to do this, and yet here we are. .
  • The Public Health People are trying to ban schools from getting special alcohol licenses for school events. It's not like anybody's giving booze to kids. Sometimes there'll be parent events and fundraisers at which they want to be able to serve wine. It's harmless. But the nannies just can't help themselves. At least they've not been as successful as they'd like.

And one bit of news from outside of New Zealand: dictators lie about their GDP figures. And we can tell by the night sky
I study the manipulation of GDP statistics in weak and non-democracies. I show that the elasticity of official GDP figures to nighttime lights is systematically larger in more authoritarian regimes. This autocracy gradient in the night-lights elasticity of GDP cannot be explained by differences in a wide range of factors that may affect the mapping of night lights to GDP, such as economic structure, statistical capacity, rates of urbanization or electrification. The gradient is larger when there is a stronger incentive to exaggerate economic performance (years of low growth, before elections or after becoming ineligible for foreign aid) and is only present for GDP sub-components that rely on government information and have low third-party verification. The results indicate that yearly GDP growth rates are inflated by a factor of between 1.15 and 1.3 in the most authoritarian regimes. Correcting for manipulation substantially changes our understanding of comparative economic performance at the turn of the XXI century.
I do like this bit from the conclusion. Is GDP too 'hard' a measure as proxy for how well things are going? Looks like things go the other way:
These results provide additional justification for the use of innovative and ‘harder’ measures of economic performance, such as nighttime lights, in the study of economic development.

Is Vaping Legal? The Ministry's position: yes it is.

I've been wondering about the effects of Philip Morris v Ministry of Health. The Ministry has now put out a statement.

The Ministry will not be appealing the decision which said that PMI's IQOS, a heat-not-burn device, was not covered by the section of the SmokeFree Environments Act which banned chewed tobacco. The Court ruled that IQOS was not like chewing, and that the "or other oral use" clause had to be read as things that were like chewing.

So the sale of tobacco products previously banned under that provision is now legal. I would be exceptionally surprised if this did not include Swedish snus, which is not chewed.

The Ministry believes that most of the rest of the SmokeFree Environments Act's controls will apply to these reduced harm products. MoH writes:
Therefore, the same SFEA regulatory controls apply to smoked tobacco, heated tobacco and vaping products that are manufactured from tobacco. This includes the ban on sales to minors and restrictions on advertising.

The ban on smoking in indoor workplaces, early childhood centres and schools only applies to smoking. It does not apply to vaping or products that are not smoked, such as heated tobacco products. Individual employers and business owners decide whether or not to include vaping in their smokefree policies.

The Ministry of Health is considering how best to apply risk-proportionate regulation across all tobacco products including smoked tobacco, smokeless tobacco and vaping products.

Until the SFEA is amended, retailers should continue to trade responsibly and, in particular, not to advertise or sell vaping products to children and young people under 18 years of age.

Consumers of vaping products should not notice any difference as nicotine vaping liquid has been available for purchase in retail shops for some time.

Heated tobacco products might also become available for sale in New Zealand.
First up, it is excellent that MoH is not wanting to extend the ban on indoor use of cigarettes to other reduced harm products. They wish to leave it up to individual employers and business owners, and that is 100% correct. Awesome.

Second, it looks like the former 'grey market' status of vaping e-liquids has been upgraded to legal-to-sell. But, the Ministry considers that all the regulatory controls on advertising in SFEA apply to reduced-harm devices. The Court decision didn't say anything on this front, but it did have much broader language from the judge saying that application of cigarette controls on reduced harm products was contrary to the purposes of the Act.

I expect that means that if someone wanted to sell vaping kit, heat-not-burn devices, or snus, and advertised their products in ways that would be illegal if the product were a regular cigarette, the Ministry might pursue action against them. If the case wound up in front of the same judge, it would be interesting to see whether the judge would deem those restrictions also to be inconsistent with the purposes of the Act. Reduced harm products can do a lot less good if you're not really allowed to tell current smokers about them because of the advertising restrictions. Dhaval Dave et al found that restricting television advertising of e-cigarettes prevents people from flipping from cigarettes to vaping.

But it might wind up being moot depending on how far along the Ministry is in getting a new regulatory framework ready for reduced harm products. If it's a long way off, somebody might be tempted to test the law.

I'm also not sure on what the excise position would be for products like snus or the heets sticks for IQOS would wind up being. They're far less harmful than smoked tobacco. I do not know whether Customs would reckon them to be the same thing as tobacco for smoking, for excise purposes. Vaping e-liquids wouldn't count as tobacco for excise though.

Interesting times.

In related news, my colleague Jenesa Jeram releases her report on tobacco harm reduction tomorrow morning. Stay tuned!

Wednesday, 9 May 2018

Crowding out

You should always worry at least a bit about whether a government programme crowds out some other private sector initiative. A state-provided daycare centre could crowd out existing private providers. A welfare programme could crowd out existing charitable programmes. And government house-building schemes could crowd out private development.

The mechanism for crowding out is simple if you spend a few minutes thinking about it, but often isn't obvious to people unless it is pointed out. If there are only so many construction workers currently available in New Zealand and if they're all already employed, the government's Kiwibuild programme will have to crowd out some existing private construction simply by bidding construction workers away from other house-building activities.

But I never expected it to be this transparent!
The Government wants to buy private housing developers' existing plans to add homes to the KiwiBuild tally.

Housing Minister Phil Twyford announced the 'buying off the plans' initiative on Tuesday.

The initiative would see the Government use its $2 billion KiwiBuild fund to purchase developers' land to build KiwiBuild homes on, or purchase existing dwellings to be resold as KiwiBuild homes.
So they'll be taking existing properties that either would have been developed anyway, or that are already either built or in process, and on-selling them as KiwiBuild properties.
Property Council New Zealand chief executive Connal Townsend said the initiative worked in favour of the Government and residential developers who struggled to lend money from "nervous" banks, he said.

It reduced risk for the residential construction industry that faced hurdles from labour and building material shortages, he said.

"It's not a silver bullet, but a very helpful initiative. [It] speeds up the process hugely. Time is money to a developer."
The government is set to make access to finance way worse, at least for apartment projects, by banning foreigners' involvement.

Other than that, well, I guess there are some upsides in the government getting more first-hand experience with the consequences of its building materials supply regime, its immigration restrictions on foreign labour, and the occasional forays into anti-dumping tariffs. If the government thinks that, in a housing crisis and in a country where building materials are really expensive, it's a good idea to throw anti-dumping tariffs on Malaysian wire-nails, I kinda like that the government gets to experience more of that cost of that nonsense a bit more obviously and directly.

If the Property Council's right that there are risk and time costs being offloaded to the government, I'd hope that the prices reflect that appropriately.

But it's an odd way overall to run a government house-building initiative.

I have a few other ideas, like how we could have KiwiCar where the government buys a bunch of Hondas and puts a fern sticker on them before selling them here. It'll be great to have a domestic car industry again. Or KiwiShirt, where the government buys a lot of t-shirts from Malaysia or something, and puts New Zealand labels on them. It'll be great. Maybe the labels could be printed in New Zealand.

Monday, 7 May 2018

More problems with the stupid foreign buyer ban

I had missed the ADLS submission on the foreign buyer ban. It's another one of those "This is obvious when it's pointed out" things.

This bill is just so ridiculously bad.

Here's the ADLS's section 6.7.
A further serious consequence of the Bill would involve inheritance laws and the drafting of wills. Existing owners, whether they are New Zealand citizens, or considered as an overseas owner as per the definition in the Bill, if they bequeath part of their estate which includes residential or lifestyle land to a spouse, child or other person who would be considered an overseas person would need to take into consideration the hurdles that the Bill will put in their way. This may include overseas beneficiaries of a New Zealand family trust. We suggest that beneficiaries of a trust who are overseas persons must make a commitment to rent the property out or to divest themselves of the property within a given time frame. A couple may name their three children as executors of their will however one may be an overseas person. Would OIO consent be needed to transfer estate property to executors in this instance?
This gets messy for migrants living here with their kids, but where the rest of the family is back in the old country.

And here's 6.6
There could be unintended consequences of narrowing this wording, and even of including residential land as sensitive land in the Bill. Under section 10(1) of the current Act, a transaction requires consent for a transaction which will result in an overseas investment in sensitive land. Under section 12, an overseas investment in sensitive land is one where an overseas person or an associate of an overseas person acquires an interest in any land that is included in the Part 1 Schedule 1 list of sensitive land. This raises questions about the position of a married couple where one spouse is either a New Zealand citizen (and therefore is not captured by the Bill) or holds a permanent resident visa, and the other spouse holds a resident class visa but does not yet have a permanent resident visa. The second spouse would be captured by the Bill and would need to go through the onerous hoops of gaining consent before the couple could purchase a home. This could have serious consequences for property ownership within a relationship, the structuring of relationship property agreements, and divorce proceedings.
It will be interesting to see how much of this mess gets fixed in committee, and how much of it was intentional. Things that don't get fixed we might reasonably view as intentional. And a lot of what's in there, if it was intentional, is evil.

Friday, 4 May 2018

Learning nothing in education

What a waste. New Zealand set up a great little policy experiment in the partnership schools. And now that model's ending without really having been evaluated.

From my column in last week's NBR:
A government with access to the world’s best microdata, and with a strong stated commitment to evaluation, simply failed to commission or undertake any real assessment of its experiment with partnership schools.

Whether or not the schools actually improved outcomes for the students they taught, an experiment without measurement and evaluation is a failure.

Not rocket science

It is not as though this kind of evaluation work is either rocket science or unprecedented. America’s thousands of charter schools spawned a small academic industry of rigorous assessment. By my rough count, there are about 80 published academic studies of charter schools for every 100 American charter schools – and that counts only those studies published in economics books and journals.


Evaluation should have been built into the initiative from day one.

Admission to charter schools should have incorporated a lottery element so that outcomes could have been more fairly compared.

But even absent lotteries, New Zealand’s rich administrative data provides ample opportunities for better evaluation. For every student who switched to a partnership school, an analyst might have found a statistically similar student who stayed with the initial public school – or who switched to a different public school. Outcomes like performance on externally invigilated NCEA standards could have been compared across the groups.

Or, even more simply, outcomes could have been compared for partnership school students and public school students after adjusting for all of the family background characteristics we know matter in educational performance.

But none of that was in the evaluation’s terms of reference. So you might not be surprised that there were no meetings of the ministry’s senior leadership team at which the report was discussed. There was nothing really to learn from the report.

David Seymour was the MP responsible for partnership schools under the previous government. When I asked why there had been no rigorous evaluation of the partnership schools, he was livid. He told me he had desperately wanted proper evaluation, and cited some good evaluation models, but said those efforts had been blocked. He had been told it was not necessary because a better evaluation framework was coming for all schools and so no partnership-specific evaluation was needed. But that framework never came.

The government conducted an educational experiment without learning. We do not know whether students at the different partnership schools did better, worse, or about the same as comparable students in traditional schools.

That is even worse than running an experiment and finding out that all of the schools failed. If they failed, and we knew that, we would at least know that. We might start teasing out what parts succeeded, and which ideas really did not pan out. But we do not even know that. Neither can we celebrate any successes among the schools that did improve outcomes for their students.

Some of that work can still be done. Data still sits with Statistics New Zealand that could help us tell which schools did well under a model that will have ended by the time any analyst looks at it.
On the plus side, I suppose, National has become great cheerleaders for the schools - after having set up a model that guaranteed they would be killed by an incoming Labour government.

A government that loved the model and didn't care about evidence would have just started with a huge broad roll-out, so that any future government killing it would face a lot more angry parents.

A government that was properly interested in the evidence would have set the model early in its administration and would have run evaluation with it all along the way, watching things like school drop-out rates, NCEA subjects chosen and achievement in them, and what happened to students after school - comparing like with like.

And a government that just kinda hated them but was forced into doing something by ACT would do basically what National did - set them up without any proper evaluation so it would be easy for the next government to roll them back.

We've an ungated version of the NBR piece here now.

Wednesday, 2 May 2018


We've known about the problems of publication bias at least since 1992. If it's easier to get statistically significant results published than insignificant results, then there are whole literatures that become untrustworthy. 

Andrea Menclova at Canterbury is doing something about it. This has been a while in the making - we were talking about it when I was still at Canterbury. Good things take time, and now it's live.

Suppose your paper has been rejected from an EconLit-indexed journal, with the only important issues raised by the referees being that the results are unsurprising or insignificant.

Submit your paper along with the referee reports and the letter from the rejecting journal, and it will be considered at SURE Journal: Series of Unsurprising Results in Economics
Aim and Scope

The Series of Unsurprising Results in Economics (SURE) is an e-journal of high-quality research with “unsurprising” findings.

We publish scientifically important and carefully-executed studies with statistically insignificant or otherwise unsurprising results. Studies from all fields of Economics will be considered. SURE is an open-access journal and there are no submission charges.
SURE benefits readers by:
  • Mitigating the publication bias and thus complementing other journals in an effort to provide a complete account of the state of affairs;
  • Serving as a repository of potential (and tentative) “dead ends” in Economics research.
SURE benefits writers by:
  • Providing an outlet for interesting, high-quality, but “risky” (in terms of uncertain results) research projects;
  • Decreasing incentives to data-mine, change theories and hypotheses ex post or exclusively focus on provocative topics.
I love this project. I hope it attracts a lot of great work that would otherwise be accumulating dust in file drawers.

Tuesday, 1 May 2018

GST at the border - hitting the big guys

The Government will release a discussion document on Tuesday proposing to make foreign firms levy GST on items valued at less than $400 that they ship to customers in New Zealand from October next year.

The proposal would change the current regime under which most consumer items valued at less than $400 can be bought from overseas tax free. A lower threshold has applied to goods that still attract import duty such as clothes and shoes.

Import duty and biosecurity fees on low value goods will be axed, softening the blow for consumers. Foreign firms that sell less than $60,000 of goods to New Zealanders each year would be excluded from the obligation to levy GST.
In a first-best world, GST would apply regardless of whether goods were sourced domestically or from abroad. But transactions costs will wind up mattering.

I've had two worries around GST at the border.

The first is that collection costs can easily outweigh the amount collected on low-value items - and the particularly worrying collection costs are those faced by consumers. Unless foreign vendors find it worth collecting tax for the New Zealand government in order to have access to the New Zealand market, the hassles facing consumers at the border if they had to run the same drill as they have to run currently for goods over $400 would be a massive non-tariff barrier.

Where GST would be collected by Amazon and remitted to the government, that worry's gone. Amazon will face some costs in submitting GST returns to the NZ government, but that's not particularly different to the costs facing any other NZ retailer - and Amazon's scale is big enough that it's worth it to front the fixed cost of learning how to do that. Not applying import duty or biosecurity fees on low-value goods also avoids imposing that border-barrier. That does mean that there continues to be some cross-subsidisation of biosecurity services from higher-value to lower-value imports, but that's the same under either regime. I'd expect there would have to be some additional cost to Customs in somehow tracking which foreign-based retailers are nosing up on their $60,000 threshold, but it isn't nearly as bad as it would have been if Customs were having to run GST on each package coming through.

The second worry I've had is that requiring foreign retailers to submit GST to the New Zealand government might dissuade smaller ones from dealing with New Zealand at all. Firms hovering near the $60,000 threshold might decide it's not worth the hassle of learning how to deal with New Zealand rather than risk going over the threshold. Firms doing multimillions of business in NZ will comply; smaller internet vendors might not unless they're shipping through an aggregator like Amazon that might handle the tax issues for them.

That worry is still live - but it's an empirical question.

It'll be interesting to see the paper that's released later today. So far it sounds rather pragmatic, but it'll be hard to tell without reading the full paper. The pragmatic version would just get the larger outfits that ship to NZ to comply, keep half an eye out for firms whose shipments become large enough to worry about, and not worry about fringe imports.

I'd have wanted a much higher threshold than $60,000 in shipments, and I worry that could deter some small players - if those firms are making, say, 5% profit on each shipment, then once you're earning $3k per year in profits from shipping to New Zealand, you must learn how to keep track of all your NZ shipments for sending tax to the NZ government. Would the accounting fees for that be less than $3k, if you're based outside NZ?

Overall, it's far less bad than it could have been. No holding goods up at customs pending payment, no separate rigamarole for customers, and no extra customs handling fees. I'd consequently expect only small effects on the proportion of goods purchased online from abroad.

Not so imaginary hypotheticals - foreign buyer edition

I'd constructed a few scenarios of folks that might be hit by Labour's ban on foreign home buyers in my piece over at The Spinoff
First up, the bill is hardly restricted to ‘overseas’ people. If you live in New Zealand on a work visa, you’re covered. If you live in New Zealand as a permanent resident, but split your time between here and overseas, you might be covered depending on how many days you spend here.

That will not just hit fat-cats you might want to punish just for the sake of it.

A doctor moving to Greymouth from London on a work visa to set up a general practice would not be able to buy a house. And if she had planned on setting up practice in a house on residential land, that’s tough too.
Their Facebook mob didn't find the scenario all that believable. 

Hoisted from the comments at Offsetting, where I summarised the whole mess, comment from someone whose IP address in Disqus resolves to Canada.
Excellent post. I am actually a Canadian doctor looking at moving to NZ, having worked there before as a physician on a locum contract. I have been in contact with Southland DHB about work in Invercargill and also with Taranaki DHB about work in Hawera. Unfortunately, it seems I won't be able to buy a house in either place if the bill goes through as written, nor could I buy land and then build on it (without being forced to then sell within a year). Neither of these places has a housing or land shortage, as far as I can tell. In a way, maybe the gov't is doing me a favour by keeping me from getting burnt by the Kiwi property bubble, which has to pop one of these days, just like the bubbles here in Canada. Still, the overall effect is that I may just stay away.
One of the great things about moving to New Zealand, in 2003, was that it really didn't seem to matter here that you were a migrant. In America, it was rubbed in your nose constantly. Every interaction with the state was misery if you were not a citizen (I had an F-1 visa, then a Green Card). In New Zealand, that didn't happen.

And that just isn't true anymore. It has me contemplating citizenship for the worst possible reason - as protection against what Labour is currently doing and might yet do to people who aren't citizens.

Monday, 30 April 2018

Electoral lists - a simple recommendation

The Electoral Commission is worried that its published electoral lists - the list of each voter and that voter's address - could be misused. From Bryce Edwards' summary:
Currently there is almost a “free for all” in the use of printed electoral roll data. All sorts of companies, such as debt collectors and marketers make use of the printed electoral roll in order to carry out their commercial activities. There are huge privacy issues involved, which the law appears to be ignorant of, and there are people who therefore choose not to enroll to vote precisely because they don’t want their residential addresses to be made public.

There are also increasing concerns about analytical manipulation of personal data, and cyber incursions, which is made more possible by advances in technology. So, if the electoral roll data gets into the wrong hands, there could be significant personal privacy breaches. And, of course, such misuse of electoral data could undermine confidence in the Commission and the electoral process.

The risk is made worse by the fact that the political parties are provided with the electoral roll in electronic form. This is a provision designed by the politicians so that their parties can more effectively send election advertising to voters and so forth. It’s questionable whether the parties should be given this data, and it seems that it’s an accident waiting to happen, as there are no procedures or guarantees that any of the 16 registered political parties will prevent this personal data falling into the wrong hands. The Commission certainly raises questions about whether recipients really use the data safely and appropriately.
I have a very simple suggestion. If the Commission is particularly worried about the electronic roll, why not put a couple different dummy names into the lists supplied to each party? Those dummy names could share an address with, say, the head of the Elections Commission. Or a cousin. If the fake names start getting mail in ways that suggest improper use of the electronic list, then the Commission could do whatever it does about that kind of thing.

Sure, parties could guard against that by running the printed electoral list against the electronic one, but doing that would basically would require recreating the electronic list - unless there is stuff on the electronic list that isn't on the print version.

Even suggesting that they have done it might be enough.

Monday, 23 April 2018

Banning 'foreign' buyers

The Government has hit back at International Monetary Fund claims that New Zealand's foreign buyer ban is "discriminatory", saying Kiwi homes should not be traded on the global market.

IMF officials, in New Zealand this week, called the Overseas Investment Amendment Bill "discriminatory" and hinted that banning foreign investment in housing was an over-reaction to a problem that might not even exist.

"Foreign buyers seem to have played a minor role in New Zealand's residential real estate market recently," IMF division chief for Asia and Pacific Thomas Helbling said on Tuesday. He added that there were other ways for the Government to respond if large volumes of unwanted foreign money suddenly flowed into New Zealand's property market.

Associate Finance Minister David Parker said the Government disagreed with the IMF.

"It's a matter of values," he said yesterday. "We believe New Zealand homes should not be traded on an international market."
Except his government's bill does more than that. It hits a lot of people who live in New Zealand - not just 'overseas' speculators. And it makes it hard for developers to build new housing. If the developer is considered an overseas entity because it has more than 25% foreign shareholding - which happens easily if you're publicly listed - then there's more hurdles in front of your next project. If your planned apartment tower is going to be partially financed by off-the-plans sales to foreigners who'd rent the apartment out to Kiwis, and if there aren't locals who'll pay the same price off-the-plan, then you're going to have a harder time financing that apartment building.

And there are a whole host of other problems too. Very few of the problems were caught in Treasury's Regulatory Impact Assessment, or more likely Treasury knew about it and chose not to say anything to avoid picking a fight with the Minister about the very obvious adverse consequences in the bill.

I covered some of those off in a couple of pieces at The Spinoff last week. The first one went through how we wound up with a dumb ban on foreign buyers, and the second one went through a lot of the problems with the legislation as written. And I summarized in this past week's Insights newsletter.

And it is darned depressing if Treasury pulled its punches in laying out the likely consequences of the bill in the Regulatory Impact Assessment for fear of getting offsides with the Minister.

There is very little evidence that New Zealand homes are really traded on an international market. Banning people who live here from buying houses and banning people who would help get more housing built from doing so seem very bad ways of addressing the housing shortage. The former does nothing to alleviate any shortage because people who live here still would have demand for housing - they'd just shift from owning to renting. The latter makes it harder to get new stuff built.

The only real way that foreign speculators contribute to a shortage of housing is if they buy a place and leave it empty. The housing shortage is the difference between the number of dwellings being built and the growth in demand for dwellings that accumulates over time. Empty houses can contribute to the problem. But there's no evidence that there's a growing problem in houses being held vacant, and no evidence that any vacant dwellings are disproportionately foreign-owned. And if there were a problem with vacant housing, you find a way of dealing with vacant housing rather than banning foreign buyers. Or, even better, just ease up the rules and make it easier to build so it doesn't matter if somebody keeps a house vacant for a bit.

Twitter and Facebook comments on my Spinoff pieces lead me to believe that a lot of Kiwis think they'd be banned from buying houses abroad, or would face big hurdles in doing so - and especially in places where there are housing shortages.

Let's take a spin. Please tell me if I have any of these wrong.

Here's Experts for Expats on the rules on buying property in the UK - London included. London is crazy expensive. What are the rules? You might have trouble getting a mortgage if you're based abroad, but that's about it. A Kiwi can buy a house in London. A Brit won't be able to buy a house in Dunedin.

San Francisco. That's the classic crazy one, right? Huge housing shortages. Could a Kiwi buy a house there without living there - and even maybe leave it vacant? Yes. Or I can't find any evidence there being any rules against it. Here's one real estate adviser website on it. Expect a few hassles around anti-money laundering stuff, but that's it. It'll just be proof-of-identity stuff. And that's the same for the whole rest of the US. A Kiwi can buy a house anywhere in the USA, regardless of whether there's a housing shortage in that city. An American won't be able to buy a house in Kapiti.

The only place in Canada that has any kind of restrictions thus far is a tax on foreign home buyers in Vancouver. You can go and buy a house or apartment in Montreal or Winnipeg the same way that I could - by paying the owner of it. But a Canadian wouldn't be able to buy a house in Nelson.

Heck, it will be easier for a Kiwi to go and buy a chateau in France than it would be for someone in Paris to buy a house Haast. And selling a house in Auckland could pretty easily let you afford a French chateau too.

This isn't just making things even with other places that put restrictions on Kiwis. Other places don't do that. Or at least not other reasonable places like the US, the UK and Canada. The Labour government is putting more restrictions on a foreigner buying a house in New Zealand than even Trump has put in on foreigners buying a house in America.

Labour seems to get a bit tetchy about being compared to Trump. On this one, they have out-xenophobed Trump by miles. The parts of the left that used to get mad about xenophobia have gone kinda quiet because their team's in office. If you think this bill is targeted at 'foreign speculators', you're deluded. The bill isn't written that way. It blocks people who live here from buying property. And since it does nothing to increase the number of houses available, and arguably reduces construction, it sure isn't a housing proposal. It's an anti-immigrant proposal.

And if your answer is "Why should foreigners be allowed to buy houses in the first place?", your whole morality is backwards. The presumption should be that voluntary transactions among consenting adults should be allowed, not the other way round. Banning people from doing things requires evidence of real harms to others. And nobody has provided any on the foreign buyer ban.

Friday, 20 April 2018

Precious arable land

I just don't get the fixation with making sure that nobody builds a house on agricultural land.
The government plans to make it harder for councils to approve new homes and lifestyle blocks on productive land near urban areas.

A report out today, called Our Land 2018, shows New Zealand's urban sprawl is eating up some of the country's most versatile land.

It highlights that between 1990 and 2008, 29 percent of new urban areas were built on some of the country's most versatile land.

Lifestyle blocks were also having an impact - in 2013 those blocks covered 10 percent of New Zealand's best land.

Environment Minister David Parker said one area that was at particular risk was Pukekohe, known as Auckland's food basket.

"We obviously need more housing around Auckland, but we also need to protect our elite soils.

"So we are proposing a National Policy Statement under the Resource Management Act which will require the councils when they are planning where to allow subdivisions or even rural lifestyle properties, they'll have to make sure that they don't encroach upon our most precious soils."

Mr Parker said the horticultural sector had been saying for some time that too much of its best land was being lost to housing and lifestyle blocks, and it was time to take some action.
Where to start.

First up, it's probably worth agreeing with one bit that the anti-sprawl people have right. Zoning in Auckland is stupid. It is stupid that people who live on major transport and passenger rail corridors can't turn their houses into apartment buildings to accommodate a lot more people. All of the restrictions against building up encourage building out instead - to the extent that that is allowed. And if infrastructure charging is wrong, that problem will be compounded.

But the solution to that problem isn't banning people from building out. The solution to that problem is a massive upzoning everywhere in town combined with congestion charging and better user-pays forms of infrastructure delivery like special purpose tax vehicles to pay off the bonds levied to put in infrastructure kit needed for urban expansion.

And it's very much worth fixing all that.

But suppose you have an agricultural paddock near town. The land can produce horticultural crops worth, say, $1m per year net after costs. The present discounted value of that stream of profits gets capitalised into the price of the land. And so the price of the land will already reflect peoples' expectations about the value of the agricultural produce that will come out of that land over the long-term.

If a developer is able to pay the farmer more than that, that tells us something important. It tells us that the value of that land in housing is higher than the value of that land in agricultural use. The value of all the agricultural output is already accounted for in the price of the land.

So you really don't need to protect valuable agricultural land from developers. The price of agricultural land already does that. If for some other policy reason government has decided to artificially subsidise building on that land as compared to other places, the solution to that isn't banning the development, it's getting rid of the subsidy. Shift the infrastructure to a user-pays basis.

Banning development on that land only makes sense if you really really believe that the person putting in the ban knows better than either the owner of the land or the purchaser of the land the future price path of agricultural products or dwellings. And in that case the person putting in the ban should just be buying the land directly and reaping the huge and obvious profits from knowing better than the market about futures prices.

We got into this stupid housing mess because the "Let's protect Precious Agricultural Land" people teamed up with the "Let's protect Precious Neighborhood Amenity" people and banned anybody building anything anywhere.

I get depressed when a government that came in promising to fix the housing crisis screws this stuff up.

Update: To address the likely first objection before it shows up: you don't have to worry about the "what if everybody did that" scenario. If land were being bid out of agricultural production and into use in housing, then the expected future price path of food would be a bit higher than otherwise - and the price of the next bits of agricultural land will be bid up. We do have access to imports too. And to address the second likely objection - if you're going to complain about the cost of food rising as consequence while ignoring that the cost of housing would drop, and ignoring that food can be imported while housing can't - there's something wrong with you.

Saturday, 14 April 2018

Choice of baseline matters

Looks like folks are back to arguing about whether there's a J-curve in alcohol consumption. The J-curve plots out the relationship between all-cause mortality and drinking. Non-drinkers are at the left-hand upwards tip of the J, light-to-moderate drinkers are in the dip, then heavy drinkers are in the upwards tilt at the right hand side.

And the ballpark numbers I keep in my head on this are from Di Castelnuovo and Donati's metastudy from 2006 that has light drinkers (about a drink a day) with a relative risk of about 0.84 as compared to non-drinkers when former drinkers are excluded.

The Lancet has a piece up that the press are covering as showing no J-curve.

But they start their curve with a reference category of light drinkers: people consuming a small amount of alcohol per week. The J-curve normally starts with non-drinkers as a reference category. If you pull the non-drinkers out of any J-curve, then you'll have a hockey-stick instead: no downward tilt followed by a sharp upwards lift.

And, as Chris Snowdon points out, they do have the standard form buried over in an appendix. Page 31 of the appendix. I've copied that figure below. The one on the right is the all-cause mortality one. Once you put non-drinkers back in, you have a J-curve again. If you also have ex-drinkers, you have a sharper J-curve. The ex-drinkers are the even higher risk folks at the far left.

The reference category are people consuming from 0 to 5 standard drinks per week - so a bit under a drink a day. The category that always has the lowest all-source mortality because they're drinking a bit less than a standard drink per day. And the risk from drinking about 4 standard drinks per day (300 grams per week) is the same as the risk among never-drinkers - with much higher risk beyond that.

The same as we've known since Donati 2006.

Am I missing something? The newspapers are yelling about how the study means there's no J-curve.

Friday, 13 April 2018

US CTPP accession?

Trump's made some noises about seeking to join the CTPP agreement - after having pulled the US out of the TPPA negotiations. 

Should the CTPP countries let him in?

Recall that Trump's steel tariffs, from which Australia are exempt but New Zealand is not (or at least wasn't when last I checked) were justified on national security grounds. WTO Article XXI allows tariffs to protect industries critical for national security. The tariffs weren't put in place for national security. They were put in place for domestic political reasons or because of demons in Trump's head. But try proving that quickly or cheaply in a WTO dispute tribunal.

The CTPP has similar protections built in.
Article 29.2: Security Exceptions
Nothing in this Agreement shall be construed to:
(a) require a Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests; or
(b) preclude a Party from applying measures that it considers necessary for the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.
These kinds of provisions (standard in trade agreements I believe) work among states that you can expect to behave like adults. The United States isn't like that currently. Why let them in? If they are admitted, what are the odds that Trump just invokes security exceptions again to undo whatever's negotiated?

There's risk we'll have eaten dead rats on copyright only for Trump to declare butter in need of protection for national security reasons.

Is Vaping Legal?

The Fairfax papers have a good summary out today of what's going on in vaping - as of a month ago. 

They write:
When British public health experts first said vaping (using e-cigarettes) poses only a fraction of the health risk of tobacco smoking, the trend surged in popularity around the world, including in New Zealand.

But it remains illegal to sell or manufacture nicotine juices, or devices here. So how come there are shops openly touting vaping products containing nicotine?


Currently, it's legal to import juices containing nicotine, but only enough for personal use. Nicotine juices and devices, however, still cannot be legally sold in New Zealand.

But anyone who vapes knows stores sell those products anyway, and aren't likely to get prosecuted. Basically, the law just isn't enforced.
But I don't know that that's right anymore.

Let's put up a giant caveat here first though. I Am Not A Lawyer. This Is Not Legal Advice.

The Court decision in the Philip Morris case on their Heat-Not-Burn said that the SmokeFree Environments Act [SFEA] doesn't apply to oral tobacco products unless they are used in a manner sufficiently similar to chewing. That's the bit that was used previously to block the sale of vaping and Heat-Not-Burn.

Unless the Medicines Act restrictions on nicotine are read as applying to nicotine formulations used in vaping - and nobody seems to know whether it should be read that way - vaping and sale of all the associated kit is legal in New Zealand.

And it's also important that the judge said that the restrictions on reduced-harm products were contrary to the purpose of SFEA. I expect that means that that same judge would not look kindly on back-door efforts to bring stuff back under SFEA - or on other attempts to sue manufacturers and distributors of reduced-harm products through plain packaging rules and the like.

That's it on the law stuff. Was a bit surprised that it wasn't mentioned in the piece. But we still have a ton of uncertainty out there. Nobody knows if the Ministry will appeal. Whether or not it appeals, it can still choose to implement a regulatory framework for reduced-harm devices. And Nicky Wagner's member's bill is sitting in the ballot that would bring vaping back under the SmokeFree Environments Act - that bill was relatively liberal relative to the status quo of a few months ago, but is very restrictive relative to what I think the current status quo is.

Wednesday, 11 April 2018

The Heckman Curve is flat

It sounded good in theory. Interventions targeted at youths could very plausibly have been rather more effective than programmes targeted at older cohorts. Heckman's foundation thing made a pretty infographic about it.

But it's fundamentally an empirical question. The infographic is based rather more on intuition than on any real lit survey. 

Rea and Burton checked it out. They went into the big Washington State intervention database, sorted interventions by age, and just plotted out the cost effectiveness. There was no curve - just a noisy mess. And the regressions found nothing either. 

Here are the key tables. 

Figure 3's the kicker. Compare it to the stylized Heckman curve. Ocular least squares really are enough here. 

It also links into my other worries about the Perry preschool stuff that Heckman's been pushing and that seems really not to have fared well in broader roll-outs in Tennessee or in Quebec. 

If there is a Heckman Curve, it's hard to see it in the programme evaluation work compiled in the Washington State database