Wednesday, 22 August 2018

Overestimating soda tax effects

Waikato University's Professor John Gibson's letter in the Economist (18 August 2018):


Tuesday, 21 August 2018

A simple landfill calculation

That this one comes up so often speaks poorly of our basic numeracy and sense of scale. There's basically no chance that landfills expand to take up any substantial part of the country.



This is the kind of back-of-the-envelope thing that everybody should be able to do in their head.

Kate Valley services Christchurch. It has 1000 hectares total, only a tiny part (37 hectares) of which is actual landfill - the rest is forest buffer and the like. But let's call it 1000 hectares. It has a 35 year life expectancy. The Christchurch area is about half a million people. Let's keep all the numbers round to make life easier - we're looking for order of magnitude stuff here really.

If Kate Valley can handle 500,000 people's trash in a 1000 hectares for 35 years, then it could handle a million people's rubbish for 17.5 years. A thousand hectares divided by 17.5 is about 57 hectares per year per million population.

Let's be conservative and round that on up to a hundred hectares per million population per year. It makes the numbers easier. I'm pretty sure that Kate Valley covers the whole Canterbury region of about 600,000 people, so I should be rounding down instead. But it really isn't going to matter, and I can't be bothered to check fiddly details.

New Zealand's land area is about 26 million hectares. Let's restrict ourselves to agricultural, non-arable land. Basically land that isn't in crop but can be accessed. There's about 10 million hectares of agricultural, non-arable land. I ruled out arable land because it's more expensive and y'all have some kind of potato fetish that if anybody proposes doing anything on ground that could be growing potatoes, your heads explode because importing potatoes is somehow worse than importing anything else. So we won't include that land in the calculations. Pukekohe is safe. But I'd expect there's a pile of other land that could be used that I'm not including too. 10 million hectares is a nice round number for easy order-of-magnitude calculations.

Let's suppose that New Zealand's population doubled to 10 million people. Those ten million people would be using a thousand hectares per year. That's another easy round number.

There are a thousand thousands in a million, and ten million hectares to play with, so it would take about ten thousand years to use up all of the non-arable agricultural land for landfill. Those are numbers big enough that it's impossible for errors in my rough figures above to much matter. If the use rate is double what I'd put up, then it's 5,000 years instead of 10,000 years.

"But we'll run out of land!" arguments never have an appropriate sense of scale. Nor do they ever have any appreciation of basic economics. If scarcity did start biting, land prices would bid up. In the landfill case, that would mean tip fees would go up - and markets would do their usual thing. So don't come away from this with the dumb-take that Crampton figures that all the paddocks should turn into landfills. I'm pointing out rather that land is far from scarce and putting some ballpark numbers on it for a sense of scale. And if land ever started becoming scarce, the price system already deals with scarcity.

Addendum: I've switched to screencaps from Twitter's embed code because too many folks have started nuking their accounts and making my old posts that embed them look like bomb sites.

Treasury needs more than more economists

Suppose that the Minister of Finance asked Treasury for advice about a Ministry of Health budget bid. In our hypothetical case, one of the District Health Boards had mishandled hiring over several years. The Medical Officer of Health’s office had staffed up with armies of lawyers able to object to every single alcohol licence renewal, but the DHB had not hired nearly enough doctors and nurses. The budget bid showed that, without additional doctors, a lot of people were likely to suffer badly for want of service.

It would be hard for government not to bail out this hypothetical DHB. But we might hope that Treasury would advise some governance changes at the DHB to prevent the problem from recurring there or elsewhere. Treasury must balance different Ministries’ competing claims for scarce funding; economists at Treasury would understand the incentive problems created by rewarding poor practice with greater funding.

In last week's National Business Review (print edition), I went through more of the problems with Treasury's having de-emphasised economics. Just hiring more economists there isn't enough.

I noted the worrying bits I'd been told about from Treasury's internal staff survey.

I've copied a few snippets from the print piece below; I'll link it once it's online.
I have requested the [2017 external stakeholder] survey as well as Treasury’s reasons for failing to follow prior years’ practice in putting it up on Treasury’s website. But I have also informally seen parts of it, as these things have a way of floating around town.

And I think I know why Treasury has not released it.

The summary table shows every single measure of stakeholder satisfaction has declined since 2015.

Results in prior years were worse on some measures than in 2015, so it would be a mistake to call this an across-the-board longer-term downward trend. But for the key issues related to economic capabilities, decline is evident – and especially from 2015 onward. Perceptions that Treasury staff are well-informed ranged from 74% to 76% from 2011 through 2015 before dropping to 66%.

Confidence that staff do a good job ranged from 74% to 77% from 2011 through 2015 before dropping to 68%. And the only measure on which 2017’s result was not the lowest was agreement that “I can offer the Treasury insights” – a measure of ambiguous interpretation.

I also understand the sharpest drop in satisfaction with Treasury was among those who generally interact with Treasury about economics. The 2015 survey showed that 70% of stakeholders interacting with Treasury about economics, macroeconomics, or fiscal projections were satisfied with that interaction. I understand that the current survey has that figure below 50%.
I also put up the declining internal quality scores assigned to Treasury policy advice papers (from the annual reports).

The measure of the quality of advice suggests there's a problem. The internal staff survey says there's a problem. The external stakeholder survey says there's a problem. But Treasury still goes and celebrates getting an award for not hiring economists. Treasury needs more economists. But it also needs to be the place where good economists want to work. Celebrating not hiring economists doesn't help with that.

During my time at Canterbury, Treasury and the RBNZ competed for our best honours students - and nobody bothered trying to hire until those two had had their picks of the litter. In the prior era, nobody moved before Treasury and RBNZ because they expected that the best students preferred to wait to see whether they'd get an offer from Treasury or the Bank.

I've been told since then that some are hiring before Treasury and that that's making it harder for Treasury to hire, but that has to be endogenous to how graduates rank an offer from Treasury relative to other places. If folks are moving ahead of Treasury, it might be because folks aren't expecting to be left hanging while an applicant offered a job waits to see if an offer from Treasury's coming.

Perhaps Treasury should be having chats with the graduate studies coordinators in the different departments to see what's going on.

If a private company showed declining product quality, staff saying they were losing expertise and that expertise in the core business isn't valued, and external stakeholders saying things were going down, and it were all consequent to a push by the Chief Executive to diversify away from the company's core business...

Monday, 20 August 2018

#NotAllCanadians

Those keen on hearing a different kind of Canadian take on immigration and diversity from that which would have been provided a few weeks back in Auckland might hit this coming talk by Canada's Immigration Minister at Victoria University:
Managing Migration - The Canadian experience

27th Aug 2018 11:45am to 27th Aug 2018 1:00pm
Rutherford House Lecture Theater 2 (RHLT2)

The Honourable Ahmed Hussen, Canada’s Minister of Immigration, Refugees and Citizenship, is visiting at the invitation of the Government of New Zealand. In this public presentation, co-hosted by Victoria University of Wellington and the High Commission of Canada in New Zealand, Hussen will discuss Canada’s “managed immigration model”.

Canada’s approach to immigration is based on a multi-year plan for permanent immigrant admission levels and economic, family and humanitarian programs to grow Canada’s economy and contribute to an inclusive society. Through settlement services and partnership with community actors and all levels of government, Canada supports newcomers to fully participate in the economic, social, cultural and political life of Canada.

There will be an opportunity for a questions and answer session, followed by light refreshments once the talk concludes.

Register

Saturday, 18 August 2018

Zombies live

Nine years ago, BERL put out its study on the costs of alcohol use.

They're now pushing an inflation-adjusted version of the figure. The figure isn't good, and that they're pushing it now is worse.

The study was riddled with problems and became a laughingstock among economists. Among the methods BERL used to get a gigantic figure on the costs of harmful alcohol use:
  • Including every dollar spent by drinkers on alcohol if they consumed more than a medically-set threshold. You can't do this unless you're assuming that there are zero benefits associated with those drinkers' consumption. The threshold was equivalent to about two pints of strong beer per day. That's more than I drink, but it's odd to assume that folks consuming at that level get zero benefit from it.
    • Oh - that spending included excise tax. They included the excise tax paid as a social cost. So whenever you increase alcohol excise tax, you increase the measured social cost of alcohol unless consumption drops by at least enough to offset the increased expenditure per-unit. They eventually fixed that part when I mocked them for it; dunno if the updated figure includes excise paid by heavier drinkers as a social cost or not. 
  • Double-counting by including lost output among those who die early because of excessive alcohol use, and the value-of-statistical-life measure used by MoT which is inclusive of all costs of death including lost output.
  • In tallying health costs, they took Collins & Lapsley's aetiological tables that give the proportion of the burden of each disorder associated with alcohol use, then zeroed out all the disorders where alcohol reduces health costs. 
  • In tallying crime costs, they used a survey of prisoners who were asked how much alcohol contributed to their offending. Possible answers were "not at all", "a little", "some", "a lot", or "all". If the offender said at least "some", BERL attributed 100% of the costs of that crime to alcohol. 
    • Oh - they also counted the lost output costs of incarceration by assuming that those in jail would have been on the average wage otherwise. That doesn't make any sense unless you're trying to inflate figures. 
I could go on. The full tally is summarised here; the full report is here. Remember Marge listing Homer's failings at Catfish Lake? Anyway, maybe about a fifth of BERL's tallied figure could plausibly count as policy-relevant costs under more normal ways of handling things. 

BERL did not come out well from that study. Nana had to defend it on Jim Mora's show. That did not go well. It was called "Shonky" by a Treasury Deputy Secretary in the National Business Review - but I understand they had to pull back from that because the reporter had characterised it to the Dep Sec as a cost-benefit assessment that had forgotten to run the benefits side rather than as a cost-of-illness study that included a pile of private costs as net social costs by assuming the associated benefits to be zero. 

They presented it at the NZAE meetings; I was discussant. It was standing-room only because Matt Burgess and I had released our review of the report ahead of the meetings.

Geoff Palmer defended the study, and hired Marsden Jacob Associates to back him up on it since he was using it in his Law Commission review. They presented it as an independent review, but note that it's Marsden who was presenting at the anti-alcohol conference this past week. I'd summarised the Marsden-Jacob review here

This past week, BERL provided an updated measure at an anti-alcohol conference. The reporter who called me about it said it was an inflation-adjustment of the old figure rather than new workings; I haven't seen the new figure's workings to check. It's a higher figure than you'd get by inflation alone, so I expect they took the per-capita equivalent of the old figure, inflation adjusted it, then inflated by population increase over the period - but I don't know for sure.  
Eric Crampton, from think tank NZ Initiative, said many of Nana's figures were based on the 2009 study which had been mocked in economic circles for things such as double-counting and counting factors that shouldn't be counted.
Using total cost figures to inform policy was useless in cases such as this. For example, raising excise on alcohol may penalise moderate drinkers but studies showed would only slightly deduce what heavy drinkers drank.
That's not quite right. I'd said that my remarks were based on the 2009 study and would apply to the current one to the extent it relied on the old one. I haven't seen the new one.

But there are two big annoying things.

First, we're again back in the "let's make a big stupid number" world rather than thinking about cost-effectiveness. 

More worryingly, it appears BERL no longer worries about reputation cost associated with that prior work, which was plausibly by now well behind it. Why would you tie your name back to that mess now? None of the plausible answers are good. 

Tuesday, 14 August 2018

SST on vaping


While overall it's pretty favorable to that folks should be able to switch from smoking to vaping, there's still an overlay of unease about the companies that might be providing vaping kit. Regulatory uncertainty here has kept larger companies out, like the larger tobacco companies' vaping products; smaller NZ and international players have supplied vapers here instead.
With Big Tobacco-owned brands dominant in many markets, former smokers increasingly buy vapes from the same companies that sell the cigarettes they have given up.

Although Big Tobacco describes this pivot as about providing healthier options for smokers, others are cynical.

"What is the evidence that the tobacco industry is moving to a non-tobacco business model?" asks George Thomson, an Associate Professor at University of Otago's Department of Public Health.
Some tobacco companies are pushing hard on vaping, others haven't moved as far into that space. But I don't much get why any of that would be relevant to an appropriate regulatory framework here for vaping. Requiring plain-packaging warnings designed for smoking on reduced harm products doesn't make sense, regardless of whether the product was made by a tobacco company or someone else.
"The lesson that both New Zealand and the world has learnt is that you have to keep the tobacco industry out of the policy process," says Thomson.

"I think that equally applies to the vaping industry. Their business is to sell an addictive product to people and to make money from it."
It would be bad to let large incumbents set the rules in any industry - it would be hard to avoid bias against smaller competitors. But it's silly not to listen to those who have to run their businesses under those regulations.
"The worst thing New Zealand can do is introduce an overly restrictive regulatory framework," says [The New Zealand Initiative's Jenesa] Jeram.

"That's the kind of framework that favours the big companies that can afford to put in large applications and to meet all of the regulatory hurdles, and would come at the expense of the smaller players."

In contrast, Thomson — a self-acknowledged hard-liner on vaping — favours stringent regulation as a step toward New Zealand eventually becoming nicotine free.
It's good that Thomson's made clear that his goal is a nicotine-free New Zealand rather than just reducing the harms from smoking. Regulation intended to stamp out all use of nicotine will differ from that intended to reduce harms. If you want to minimise use, then setting up costly regulations to create a quasi-cartel among the largest companies will reduce consumption.

Jenesa's report on vaping is here.

Monday, 13 August 2018

Bag Ban

The Ministry for the Environment's consultation document on banning plastic bags is out.

The key table is in the appendix. Or at least the most interesting table. It shows, from a Danish study, the number of times a reusable shopping bag would have to be reused to have less environmental impact than current disposable bags.

The consultation document provides no cost-benefit assessment, but Question 8 asks those making submissions to assess whether the benefits might outweigh the costs.

I can only speak for our own household, but I doubt we're that we're that atypical.

We have a few reusable bags at home. The ones we have get reused a lot, because we use them on planned trips to the store. But most of our trips aren't like that. Most of them are grabbing a few things on the way home after getting off the bus. Maybe other people are happy to carry around reusable grocery bags every day on the off chance that they might need to grab milk, bread, eggs and butter on the way home. I'm not. On those trips, we use the disposable plastic bags. Because what else are you going to do? Walk home, get a bag, walk back to the shop? It's absurd.

The more likely outcome: buying the reusable bags on those trips, accumulating a stack of them at home, then finding some way of disposing of them down the line. The number of times these things get reused will be endogenous to whether disposable plastic bags exist. I'm expecting that the reuse rates will be dropping.

I also have a few hundred of the disposable bags now on order from Ali Baba because they're too useful around the house to do without. It may also be fun to bring those to the market for use as shopping bags after the ban.

Oh - another depressing part. MoE includes this line.
Retailers will profit from not having to provide free bags and by selling alternative carriers, and are in a good position to help their customers to transition.
Not a lot of economic intuition on display here. If it's true, it means that customers will choose stores based on whether bags are available. If that's true, the value destroyed by banning them is substantial. 

Saturday, 11 August 2018

A beclowning to come

Remember how Parliament beclowned itself in the Committee hearings about Uber? They fundamentally didn't understand the technology or how it worked.

If this makes it as far as select committee, we can at least console ourselves that the hearings will be entertaining.
New Zealand could follow the United Kingdom in bringing in age restrictions for online pornography and blocking websites which refuse to comply.

Department of Internal Affairs Minister Tracey Martin, who also holds the children's portfolio, says young people are being "bombarded" by internet pornography and she wants censorship laws to be strengthened.

"This is a really, really big issue to New Zealand and we are going to have a serious conversation about it," she told the Herald.

"And I hope to make sure we have this conversation in this term of Government."

Martin supports the approach of the United Kingdom, which has ambitious - and controversial - plans to introduce mandatory age verification for pornographic websites later this year.
Interesting questions could include:

  • How will government develop a list for a Great Filter? Does it know about the problems in the UK's list and age verification setup
  • How does this mesh with New Zealand's privacy regime? If a foreign website is compelled to collect personally identifiable details on Kiwis that they would never otherwise wish to collect, what obligations do they face under our privacy regime? How can we tell whether those obligations are being met? What recourse might a Kiwi have in case of breach? Could a Kiwi sue the government if information produced under state compulsion were leaked and used inappropriately? 
  • Does the government know what the letters V, P, and N might together mean in this context?
  • What will be the appeal provisions for sites wrongly listed as being pornographic in nature, and age-blocked? Would they impose undue burden on millions of website owners, and on every Kiwi who wants to find information on topics where bots do a hard time in knowing it when they see it, from sexual health to breast cancer?
  • If they follow the Brits in having "porn viewing codes" issued to those over the age of 18, what do they do when somebody leaks the code number and tracked viewing habits of Cabinet Ministers? Like, if Winston Peters is worried somebody leaded his Superannuation details...
  • Will our porn-watching habits be included in IDI? 
  • Why does the government think there is any market failure here when parents can already make use of parental controls if they wish?

Wednesday, 8 August 2018

A picture of a conflict of laws

I'd noted there were likely to be fun conflict of laws issues when reduced harm tobacco products were simultaneously required to comply with tobacco plain-packaging warnings about the dangers of smoking, and forbidden from making misleading claims on the labeling under standard consumer law.

Here's what it now looks like. Philip Morris's Iqos device heats tobacco without combustion. And this is how they are required to package the 'heets' tobacco sticks used by the device.



I wonder how the Commerce Commission will treat it if someone complains that the packaging is misleading. They could not provide any prior advice about how they would treat it

Friday, 3 August 2018

A weak Treasury response

A friend sends me Secretary Makhlouf's response to my NBR column in last week's Treasury's internal newsletter:

Economics and the Treasury There is an opinion piece in today’s NBR critiquing the representation of economists at the Treasury, with a strong focus on our hiring of non-economists.  I hope that nobody takes this opinion piece personally.  Economics expertise is absolutely valued by the Treasury – we need it and want to build our capability in it – and we are always delighted to get job applicants with tertiary qualifications in economics.   But we also know that considering only people with economics degrees would mean shutting ourselves off from a very big pool of talented applicants.  Doing our job well requires knowledge, analytical skills, an understanding of context, and the ability to explain clearly.  It depends on the minds, insights, and life experiences of the people that make up our organisation.  Broader thinking strengthens rather than dilutes our capabilities as the Government’s lead economic and financial adviser, and our high performance in areas like forecasting, tax advice, analytics, long-term funding advice and many other fields demonstrates this.  I want everyone to know that we value the contribution you make to the Treasury irrespective of what your particular academic discipline is.
 Moreover, and more fundamentally, I think that this critique represents a strain of thinking which narrows the role of the Treasury and what good economics is actually about. I’ve spoken about this publically many times in the last few years.  And you can expect me to continue to stress this point in the public domain.
Good economics is broad. It encompasses any area where choosing agents face opportunity costs. I am not arguing for a narrowing of the domain but of a deepening of the economic talent pool at Treasury to make sure they're able to produce reliable economic analysis across it.

It would be absurd to claim that Treasury should only hire economists. A fresh economics graduate would make a hash of things if set to do Vote analysis work unless under the guidance of someone who really knew the accounts. I've got a PhD but I haven't any accounting background - I wouldn't be suited to a lot of that work either. Treasury needs accountants. It needs tax specialists. It needs lawyers.

But it doesn't need recruitment rounds where only one of nine recruits has a graduate qualification in economics when it's also been losing more senior economic talent.

And it doesn't need to be setting a recruitment framework that tells good economics graduates that Treasury is a place where they are not wanted. New Zealand is a small town. When Treasury goes around the country making recruitment pitches emphasising that you don't need economics to work at Treasury, and celebrate having not hired any single-major economists, decent graduates who want to do economics can easily conclude that that work is no longer welcome in Treasury.

And I know that I am far from the only one noticing the problem.

Working for Families as employer subsidy - again

Susan St John takes issue with what I'd written on Working for Families.

I'd tried posting a reply to her over at the Daily Blog, but my comment disappeared into the ether immediately, and when I tried logging in with Twitter, it told me I wasn't allowed. Maybe they don't like me there.

I'll hit it here instead, but wish I didn't have to type it again. And here's my original blog post.

Prof St John's primary argument is that subsidy incidence does not apply because of the lump-sum nature of Working for Families. It isn't a wage subsidy on top of earnings. Rather, the In Work Tax Credit provides you with $72 per week so long as you're working at least 20 hours per week, then abates if your family income gets high enough.

But I think about WFF around the extensive margin, with the in-work tax credit helping to front the fixed costs of being in work in the first place. Reservation wages can wind up being high if you have to deal with the hassle of sorting out being a working parent, but once that's fronted, things can be different.

Consider a worker with a high reservation wage, because of those fixed costs, and where the reservation wage is then higher than any employer's willingness to pay. For some people, the IWTC would be at least sufficient to flip things at that extensive margin by covering those fixed costs. You then get, from the employer's perspective, a normal looking labour supply curve from that worker that begins at the 20-hour mark, and unwillingness to supply less than that amount of labour. I don't see why you wouldn't get some division of the IWTC between employer and employee. But it hardly seems the most important thing going on with IWTC.

As I understood things in the mid-2000s, the point of WFF with the IWTC was to encourage people off of benefits and into work. Employment among single parents has increased - although at a cost to hours worked by married women and (to a lesser extent) by married men because of the higher EMTRs in the clawback ranges. Abolishing the work requirements for the IWTC, as St John recommends, turns the programme into a family-income-linked child benefit that doesn't do the same job in encouraging labour force participation. I suppose folks can argue the merits of that; I prefer the work linkage.

I still expect it would make more sense to boost the incomes of working families with dependents by increasing the in-work tax credit than by increasing minimum wages.

And I'm a bit perplexed by Prof St John's suggestion that I want to turn WFF into EITC (America's wage subsidy), and her consequent demand that I defend EITC. The in-work tax credit is broadly similar to EITC, except without a phase-in period.* I'd have to look a lot more closely at both to make any suggestions about changing WFF here to be EITC. 



* And FFS don't make a big list of all the other differences and damn me for not listing them all.

Thursday, 2 August 2018

More on that 'new' study on alcohol and pregnancy

I'd posted yesterday on some new work being reported by Radio New Zealand on drinking during pregnancy.

I didn't know where that work had been published because it's the rare New Zealand media outlet that will ever link to a journal. So I went to the older Superu work with which I was familiar. The numbers in the reporting looked very similar to the old study, so I figured it was safe to look to the old study's numbers on the more detailed breakdowns of heavier and lighter drinking. There's a sharp difference between heavy drinking during pregnancy and having a drink or two per week, and the media stuff I'd seen was all on the prevalence of any drinking rather than getting into that detail.

I'd figured that the new work must have been using an updated version of the Growing Up In New Zealand data - maybe a new wave of mothers had entered the dataset.

And then the Science Media Centre pointed me to the new study, out last Friday at the New Zealand Medical Journal. The nine-author piece uses the same dataset as the Superu study. The main analysis is very similar to the Superu study. It does not cite the Superu study but rather presents itself as new work.

Both studies present the raw stats and the proportion of women falling into the different consumption buckets at the different stages of pregnancy.

Both studies run some multivariate analysis using logistic regressions to get characteristics associated with different levels of drinking at different stages of pregnancy.

Superu includes some neat transition probability matrices that the new NZMJ piece didn't.

I have some difficulty in seeing the contribution provided by the new 9-author NZMJ piece given the existence of the 3-author Superu piece of three years ago.

And the NZMJ piece by Fiona Rossen, David Newcombe, Varsha Parag, Lisa Underwood, Samantha Marsh, Sarah Berry, Cameron Grant, Susan Morton, and Chris Bullen did not cite the prior work by Superu's Jit Cheung, Jason Timmins and Craig Wright.

Some questions we might then wonder about:
  • How does it take nine authors at Auckland University to replicate part of the work undertaken by three authors at Superu three years ago?
  • Did none of the nine authors know about the prior Superu work? Are any of those authors part of the Growing Up In New Zealand team? It may matter - I'm pretty sure that access to that study's data is by application, so somebody had to have authorised Superu's access three years ago. It isn't a public dataset where it's plausible that work could be undertaken that the data provider wouldn't know about. This one's locked up
  • If none of the authors and none of the referees at the NZMJ knew that this work had already been done by Superu, what does that say about standards of that journal?
I have let the journal editor know about the problem, and to their credit they're following it up (I apparently wasn't the first to note it to them either).

I wonder what the outcome will be.

I find it remarkable that the referees chosen by a local field journal in one of their areas of specialisation (go and count the number of alcohol articles that the NZMJ publishes by the public health crowd) did not catch the prior Superu work. 

Coasean noises

I loved this picture making the rounds on Twitter.
And so I made a small suggestion.

Where residential development is proposed adjacent to a noisy thing, put a note on the title that noise control officers will entertain no complaints from those properties about the noisy thing. If it is on the Land Information Memorandum, it will be noted by buyers. Developers then have a few options:

  • Develop as usual, know that the buyers will see the noise notice on the LIM, and sell at a lower price;
  • Install more substantial sound-control insulation than would otherwise be in place, and note the insulation in the marketing for the properties;
  • Pay the owners of the adjacent noisy thing for abatement of the noise.
Which is chosen will depend on how much people hate noise, how expensive it is to insulate the houses, and how expensive it would be for the noisy thing to be less noisy. 

Making it very explicit on the title, and potentially requiring active explicit disclosure of the noise restrictions and sign-off by the buyers, helps guard against the usual political economy worry that people will buy the property at a discount (because of the noise) then lobby for the banning of the noise. 

Wednesday, 1 August 2018

Alcohol in pregnancy stats [updated]

Radio New Zealand reports on a new iteration of the Growing Up in New Zealand study looking at maternal alcohol use during pregnancy. I have been unable to find the cited study, so we'll go with RNZ's reporting for now:
The lead researcher of a new study that has found nearly a quarter of women drink alcohol during the first three months of pregnancy says the findings prove more needs to be done.

The findings were part of the Growing Up in New Zealand study following nearly 7000 children from birth until they are aged 21.

The study found while 71 percent of women drank alcohol before becoming pregnant, 23 percent continued through the first trimester and 13 percent continued to drink further into pregnancy.

It concluded drinking was common in New Zealand women, particularly among Pākehā and Māori, and some women drank alcohol heavily during pregnancy.

Auckland University professor Chris Bullen said the findings show New Zealand's drinking culture needed to change.

"I think why we're seeing it in European and Māori women is because of the prevalent drinking culture and I think that's fundamentally where things need to change, so that alcohol isn't a norm and it certainly isn't regarded as a thing that you do if you are possibly, likely or currently planning to be pregnant."
Again, I haven't the study. But we do have the prior iteration of it that Superu looked at a couple years ago. Keep in mind that there's a vast difference between having a drink or two per week, and having several drinks per day.

Here's Superu's 2015 take on it. First, the question asked:
“Now, thinking just about alcohol, and thinking about before you were pregnant, and
during your pregnancy.
On average how many drinks of alcohol – beer, wine, spirits …
  1. Did you drink per week before becoming pregnant or before you were aware you were pregnant
  2. Did you drink per week in the first 3 months of pregnancy
  3. Did you drink per week after the first 3 months of pregnancy”
The following possible responses were listed on a showcard: “I did not drink alcohol”,
“Less than 1 drink per week”, “1 drink per week”, “2 drinks per week”, “3 drinks per week”, “4–6 drinks per week”, “7–9 drinks per week”, “10–14 drinks per week”, “15–19 drinks per week”, “20–39 drinks per week”, “40 or more drinks per week”.
I expect the first three months' figure will then be an average of the period before they knew and after, so the drop from the pre-awareness category to the first-trimester category will understate the drop after the respondent became aware of the pregnancy.

Here's what they found:


86.6% in that prior iteration did not drink after the first trimester, so 13.4% did. And 77.4% did not drink during the first trimester, so we're at the same 23% consuming during the first trimester. Both figures match the newly reported study.

But the older Superu work had the finer details on consumption patterns - since the broad aggregates are identical, I doubt we're far wrong in looking to the older breakdowns in the absence of the new study. Why oh Why won't RNZ link to the studies they're reporting on?

The vast majority of those who consumed alcohol after the first trimester, in the Superu study, consumed less than four drinks per week.

Superu wrote:
There is a sharp contrast between the patterns of alcohol consumption before and after awareness of pregnancy. Around seven in 10 women (71 percent) reported drinking alcohol before becoming aware of their pregnancy. The proportion quickly reduced to 23 percent in the first trimester, and to 13 percent after the first trimester.

...

In the first trimester after becoming aware of their pregnancy, more women chose to stop drinking or consumed less alcohol. More than three-quarters of women (77 percent) reported that they did not drink alcohol in the first trimester, which was more than double the percentage who did not drink prior to awareness of pregnancy. Percentages of women for all other levels of alcohol consumption during the first trimester were lower than before. However, there were still 7 percent of women who reported drinking four or more drinks per week during their first trimester while knowing they were pregnant.

In the second and third trimesters the percentage of women not drinking alcohol increased to 87 percent. Of the women who said they drank alcohol during the second and third trimesters, two-thirds consumed less than one drink per week and less than 1 percent of all pregnant women reporting drinking four or more drinks per week during those periods.
There are pretty strong demographic correlates among the heavier drinking cohort suggesting that targeted interventions might make more sense than population-wide measures.

Recall also Emily Oster's literature survey [the full treatment is in her book] around the relative risks of light drinking as compared to heavier drinking. Castigating women for having a drink or two per week seems like bullying.

UPDATE: The excellent Science Media Centre emails me to let me know the study is in the latest NZ Medical Journal. Here's the key table.


It is identical to the 2015 Superu study. It is amazing how media picks this stuff up as new findings and absolutely fails to notice that there's nothing new here. The NZMJ piece has some logistic regressions; so did Superu. The main difference is that NZMJ takes this a strong call for population-level restrictions on alcohol (along with an accompanying editorial from, you guessed it, Sellman and Connor), where Superu just puts up the numbers and provides a fairly reasonable conclusion:
On a more positive note, the analysis reveals the presence of a strong, across-the-board intention to reduce alcohol intake, even among the “Hardy drinkers”. The challenge for public health is how to help these women translate this good intention into successfully stopping drinking as early as possible during pregnancy. For each of the different pathways identified in this report, different levels and types of support may be needed and the women may need to be encouraged to stop drinking at different stages of the pregnancy. Women who made changes slowly will need to be incentivised differently from those who made changes quickly. Women who drifted or regressed will need to be supported at the critical times to stop them from reverting back to drinking.
Figuring out how to encourage the <1% of women whose drinking during pregnancy is risky to scale back is really important. And I doubt like heck that there's any kind of evidence base for Connor and Sellman's suggestion that banning alcohol sponsorship in sport might help with this.

I do not understand how this got published at the NZ Med Journal. At any decent economics journal, it either would have gotten a desk reject if the editor knew the area or a referee would have looked at it, saw that made no particular contribution given the existence of the Superu report, and recommended rejection.

The authors didn't even cite the prior Superu report. Did they know it existed? Did the referees? Did the editors? What a clownshow.

Oh, and it took the NZMJ article 9 authors to come up with analysis similar to what Superu did 3 years ago with 3 authors.

Monday, 30 July 2018

Dispatches from the Core

I'd hit some of the highlights of this year's NZAE meetings over at the National Business Review shortly after the meetings. I'd delayed posting it here until more of the conference papers were up on their website; that happened while I was out skiing.

It's up now though, so here you go:
We are lucky that, last year, economist Aaron Schiff provided us with an excellent collective noun for a grouping of economists. Owls, in concert, form a parliament. Economists, in convention, form a core.

Or at least they hope to.

In economics, the ‘core’ is the set of alternatives that cannot be beaten by some option from outside of the set. So a good economics conference will bring together all of the ideas that cannot be beaten by ideas that didn’t make it to the table.

Last week brought the 59th annual conference of the New Zealand Association of Economists. I attended and here bring dispatches from the core. I learned a lot about a lot of things.

Boston University’s Robert King led with a plenary address highlighting the importance of reserve bank credibility. Everyone understands that point: Credibility is expensive to build if you don’t have it, and important to guard when you do. Professor King’s work tries to understand what happens when people are not sure whether the reserve bank really will follow through on its intentions.

I take as implication that a bank must especially guard its reputation when undergoing changes that might bring uncertainty about its intentions – as in any transition to a dual mandate.

Understanding maternity
AUT’s Lydia Cheung explained how the 20-hours free early childhood education policy resulted in a 4-10% decline in earnings for new mothers. Anticipating the subsidy that would come in at age three, new mothers worked less during their child’s first two years. Motu’s Isabelle Sin showed the substantial drop in earnings for new mothers relative to new fathers, with large drops in the number of hours worked and reductions in hourly wages that are particularly large for mothers who took more than a year to return to work. Understanding the wage gap requires understanding maternity.

Victoria University’s Ilan Noy demonstrated the regressive effects of EQC’s land coverage. A substantial portion of claims wind up coming from landslips on slopes from relatively more expensive properties but land coverage is free with every EQC policy with prices that do not vary with land risk. Related work by Motu’s Sally Owen, showing the regressivity of EQC coverage in the Canterbury earthquakes, won the Seamus Hogan Memorial Prize.

The plenary address from New York University’s Julia Lane was beautiful and filled me with despair. She explained how America is starting to build toward the kind of linked administrative data that New Zealand has in its Integrated Data Infrastructure. Unless Statistics New Zealand is able to adopt some of the more open data practices being developed in the US, I expect our IDI will be lagging American data within a few short years.
Some of the papers I'd noted that hadn't then been available now are - links now in the blockquote above (but not in the NBR original). More papers are available via the conference website - which weren't available at the time of the conference.

Other work of note now available online:

Friday, 27 July 2018

Treasury needs economists

If you hated economists and wanted to punish them by throwing a dart at a group of Treasury analysts, odds are you wouldn't hit an economist even if you did hit somebody. 

I run through the numbers in this week's print edition of the NBR, following on from a couple of OIA requests. I'd asked Treasury about the qualifications of people employed at Treasury as analysts, senior analysts, principal analysts, and senior managers. UPDATE: the NBR piece($) is now online, along with Nevil Gibson's take on it.

Independently, but potentially as result of mutual commiseration about the state of the world, the Taxpayers Union put in a request looking for the proportion of new graduate analysts with economics qualifications.

Here's the current state of Treasury.
At the Analyst level, 19 have a qualification in economics or finance, 14 have another qualification, and the qualifications of 34 are unknown.

At the Senior Analyst level, 14 have a qualification in economics or finance, 34 have another qualification, and 45 are unknown.

Among Principal Analysts, the qualifications of 12 are in economics or finance, 12 have another qualification, and 11 are unknown.

Economists have stronger representation among senior managers: 23 have a qualification in economics or finance, 15 have another qualification, and 17 have an unknown qualification.

Treasury has eight staff at those levels known to have a PhD. Of those, two are economists (a Senior Analyst and a Senior Manager), one is a sociologist (Principal Advisor), one is an accountant (Senior Manager), and four have a PhD in “Major Not Specified”.

In any case, it appears that the New Zealand Initiative, with a total staff of fourteen including administrative staff, includes more PhD economists than the entire New Zealand Treasury – but perhaps it only appears that way because smaller organisations are more likely to know the disciplines of all of their staff members’ doctorates.

A separate OIA request by the New Zealand Taxpayers Union showed that four of 24 hires at the Analyst level last year had an economics qualification. Among those hired last year with an Honours degree or higher, two of 14 had an economics qualification. That suggests Treasury has not been trying to boost capacity on the economics side, though it couldn’t rule out more senior hiring boosting economic capabilities. But the stock of trained economists at Treasury remains low. 
How Treasury's meant to manage building a brand new system for running budgets under the living standards framework, while handling its rather important day-job tasks, and not really having that many trained economists around... I don't know. Treasury doesn't work in some kind of magic world without opportunity costs.

You'll have to pick up the NBR for the rest.

But check out this beaut visualisation of the problem that our excellent Joel Hernandez put together.

After the NBR went to press, I noticed another OIA that the Taxpayers Union had run. This is the qualifications list of the 2018 graduate cohort hired in.


Double-major undergrads, at least at Canterbury, ran a pretty thin version of the economics degree: principles-level micro/macro, intermediate micro/macro, then any four papers at 300 level. Double-major heading to Honours at least would be taking the serious papers.

The 2017 cohort was about as bad. The 2019 cohort's better, depending on how seriously you take the economics training of people doing double-undergraduate degrees with three majors. 10/15 had some economics in their degrees, but only 4/15 have Honours or better in economics or finance. Honours is the minimum training for a professional economist.

I expect to be following this up in more columns yet to come.

Oh - and don't pretend that this is some problem for which you can blame the Labour government. This mess very much started under Bill English's watch as Minister of Finance.

Update: the underlying OIA requests:


Thursday, 26 July 2018

Afternoon roundup

The closing-of-the-tabs worthies:

Risks we don't even know about

Isn't it great that MBIE's out there, protecting us from risks that we don't even know about?




If only someone were out there protecting us against the risk of MBIE safety campaigns that manifestly fail cost-benefit assessment.

Treasury used to do that job, but since they kinda stopped hiring economists, they have had to save their trained economists for deemed-more-important work, like inventing wholecloth entirely new budgetary frameworks to account for living standards.

Our report on the scaffolding regulations is here; NZIER's confirmation that things were at least as bad as we thought is here.

And my critique of Treasury's hiring practices is in tomorrow's NBR.

Tay on the education of economists

Frank Tay, back in 1966, in the inaugural issue of New Zealand Economic Papers, suggested the minimal training prerequisites for professional economists in New Zealand:
Thirdly, I would stress a four-year full-time honours programme as the minimal "professional preparation for economists". I have in mind one which, in terms of depth of specialization in technical economics, falls between the level of the M.A. and Ph.D. courses recommended by H. R. Bowen, especially in the degree of theory, mathematics, statistics and economic history required.19 Obviously, this would violate the "depth and breadth" criterion of some teachers.20 But, unlike Professor Holmes, I believe this pedagogic conflict is real rather than potential and that a more effective solution than the "B-B variant" might be realised through the "Knight's Move". This consists in allowing students who have a first degree in the sciences and technology to sit, after a year's preparation, for a preliminary examination in economics equivalent to the Stage III level, say, in Macro and Micro economics, International Economics, Econometrics and Economic History, and then march straight into the Honours or Master's programme. True, such a scheme favours the Beta-plus and the more mature students, especially those with a substantial core of "Q" work behind them. However, a four-year Honours programme or the "Knight's Move" should give students a reasonably firm intellectual foundation for their own post-graduate professional development.
He wasn't, and isn't, wrong. Note that he was responding to Frank Holmes's suggestions around the curriculum.

This is relevant to tomorrow's column in the NBR on Treasury's hiring practices.

Wednesday, 25 July 2018

European antitrust time-warps

It’s astounding. Time seems to be repeating. European madness takes its toll.

Two decades ago, the European Commission (EC) worried that Microsoft was abusing its dominant position. Microsoft’s operating system was the way most people interacted with computers, and the operating system came bundled with a media player and an internet browser. The EC reckoned that Microsoft was exploiting its dominant position in the operating system market to lock up other markets.

And so, late in 2004, it required Microsoft to offer European versions of Windows that did not include a media player. Five years later, it required Microsoft to offer users choices among internet browsers when installing Windows so Internet Explorer would not be privileged by Windows’ dominant position.

It was always ludicrous. Installing alternative media players, or browsers, was and is trivially easy. Microsoft’s dominance was driven by its superior products. In areas where Microsoft’s products lagged, Windows’ dominance provided it with no advantage. A typo in Internet Explorer’s URL bar would lead the user to an MSN Search window, but Google provided the better search engine and users chose it despite the Commission’s contrived arguments about consumer lock-in.

Early last year, Google’s Android overtook Microsoft Windows as the most popular way of getting to the internet. The EC decided this week, in a bit of a mind flip back into the 2000s, that it should be harder for Android users to access Google services like Google search. It fined Google €4.34 billion, or just under NZD$7.5 billion.

The EC’s complaint is at least as ludicrous as its 2000s worries about Internet Explorer. It was as simple for me to install Firefox in the early 2000s on my Windows machine as it is for me to install DuckDuckGo on my Android phone today. Google’s search dominance depends on keeping ahead of its competitors.

And while the EC sees anticompetitive purpose in Google requiring that manufacturers build from its version of Android, the better explanation is that apps available in Google’s Play store might not work well on alternative versions.

New Zealand is on the sidelines of this dispute but does have a stake. Kiwi app developers may have to look forward to coding for compatibility with a bevy of Android variants. And if Google has to fund Android development through licensing fees rather than bundled search tools, we can expect higher phone prices.

I hate doing this time warp again.
Me in last week's Insights newsletter.

I like Julian Morris's take over at Truth on the Market as well:
The importance of these factors to the success of Android is acknowledged by the EC. But instead of treating them as legitimate business practices that enabled the development of high-quality, low-cost smartphones and a universe of apps that benefits billions of people, the Commission simply asserts that they are harmful, anticompetitive practices.

For example, the Commission asserts that
In order to be able to pre-install on their devices Google’s proprietary apps, including the Play Store and Google Search, manufacturers had to commit not to develop or sell even a single device running on an Android fork. The Commission found that this conduct was abusive as of 2011, which is the date Google became dominant in the market for app stores for the Android mobile operating system.
This is simply absurd, to say nothing of ahistorical. As noted, the restrictions on Android forks plays an important role in maintaining the coherency of the Android ecosystem. If device manufacturers were able to freely install Google apps (and other apps via the Play Store) on devices running problematic Android forks that were unable to run the apps properly, consumers — and app developers — would be frustrated, Google’s brand would suffer, and the value of the ecosystem would be diminished. Extending this restriction to all devices produced by a specific manufacturer, regardless of whether they come with Google apps preinstalled, reinforces the importance of the prohibition to maintaining the coherency of the ecosystem.

It is ridiculous to say that something (efforts to rein in Android forking) that made perfect sense until 2011 and that was central to the eventual success of Android suddenly becomes “abusive” precisely because of that success — particularly when the pre-2011 efforts were often viewed as insufficient and unsuccessful (a January 2012 Guardian Technology Blog post, “How Google has lost control of Android,” sums it up nicely).

Meanwhile, if Google is unable to tie pre-installation of its search and browser apps to the installation of its app store, then it will have less financial incentive to continue to maintain the Android ecosystem. Or, more likely, it will have to find other ways to generate revenue from the sale of devices in the EU — such as charging device manufacturers for Android or Google Play. The result is that consumers will be harmed, either because the ecosystem will be degraded, or because smartphones will become more expensive.

Tuesday, 24 July 2018

Afternoon roundup

This afternoon's worthies:

Net debt

I don't get the Salvation Army's push against the net debt target.
Salvation Army social policy analyst Alan Johnson said there was a real danger that the crisis in mental health, social housing and well-being of older New Zealanders would become ingrained.

"One of the things with those caps is that they were literally straight out of the National Party rule book, which was disappointing that both the Greens and the Labour Party signed up for them even before the election.

"They are unnecessary and they could be relaxed I think without a massive impact on our credit rating, and the cost of capital and borrowing," Mr Johnson said.

Finance Minister Grant Robertson does have some wriggle room.

Core government spending is forecast to be about 28 percent of the value of the economy for each of the next four years.

In the 2018 financial year, the gap between the Mr Robertson's spending plan and the 30 percent cap equates roughly to an extra $6bn.

Net debt already sits just above its 20 percent of GDP target - four years early.

That's still not enough for Ricardo Menendez March from Auckland Action Against Poverty.

He wants the cap set much higher.

"I would say their limits should be at least twice as much.

"Some European countries have established 60 percent of core Crown spending in relationship to GDP and I don't think that's unreasonable," Mr Menendez March said.

"But ultimately the spending limits should be based on what society actually needs."
It is consistent to argue for higher taxes and higher spending in support of more government social service delivery. I'd rather like government not to expand relative to the overall size of the economy, but reasonable people can disagree with me on that. But pushing for increases in social services and the government's share of GDP on the back of higher debt targets rather than as part of a higher tax regime I don't think is consistent with the Public Finance Act.

Nana's argument for more debt for infrastructure funding is more coherent - you should use debt to finance long-lived infrastructure. But that infrastructure still has to pass a CBA. And if we're looking at infrastructure for urban growth, we should be thinking about mechanisms that set the incentives for long-term growth and not just the current crisis.

Monday, 23 July 2018

Tobacco harm reduction

It's great that the Ministry of Health's latest Health and Independence Report points to the benefits of vaping. But there's still work to do here. 

The report notes that smoking is most prevalent in poorer communities and that while smoking rates have been declining, there's no way that current trends get the government to its preferred <5% smoking rates by 2025. And the report points to how e-cigarettes might help:
E-cigarettes: an option to help smokers to quit

Although the best thing smokers can do for their health is to quit smoking completely, the Ministry of Health considers that e-cigarettes have the potential to contribute to the Smokefree 2025 goal and could disrupt the significant inequities that are present. How much e-cigarettes can help improve public health depends on the extent to which they are a route out of smoking for New Zealand’s 529,000 daily smokers, without providing a route into smoking for youth and non-smokers.

Expert opinion is that e-cigarettes are significantly less harmful than smoking tobacco but not completely harmless. A range of toxicants have been found in e-cigarette vapour, including some cancer-causing agents. In general, levels of these toxicants are much lower than they are in tobacco smoke or are unlikely to cause harm. Smokers switching to e-cigarettes are highly likely to reduce their health risks and that of those around them.

Where smokers want to use e-cigarettes to quit smoking, the Ministry of Health encourages them to seek the support of local stop-smoking services. Local stop-smoking services provide smokers with the best chance of quitting successfully and should support smokers who want to quit with the help of e-cigarettes (Ministry of Health 2017f).
But there are still problems in getting there:

  1. There remain interesting conflict of laws problems around plain packaging rules and the Fair Trading Act. Plain packaging rules for tobacco products would include heated tobacco, including Iqos. And, in theory, would also cover any nicotine derived from tobacco for vaping too. But putting the big smoking warnings on packages of products that are not smoked could be considered illegal under the Fair Trading Act's prohibitions around false representations and misleading conduct.

    I emailed MBIE asking about this, and they punted to ComCom. When I asked ComCom, they said that they cannot vet specific advertising or business practices for any company - and that companies would have to seek independent legal advice. So it is legal to sell vaping products - but if MoH believes the nicotine to be tobacco derived, it might consider it to be subject to the plain packaging rules. And it might be illegal to put those plain packaging warnings on the packages. But the government will not tell you. Seems pretty dumb. And it's an odd kind of dumb - companies that are cagey about how their nicotine is derived are probably ok, but ones that publicly state that their nicotine is derived from tobacco may not be. 

  2. MoH is of the view that the Iqos decision does not apply to snus. Snus has seemed rather important in getting people away from smoked tobacco in Sweden. Why they want this to still be illegal - I don't get it. I expect that if they ever sued NZ Snus for selling the stuff, that the prohibition could easily be deemed inconsistent with the purposes of the Act.

  3. Excise rates on non-combusted tobacco for reduced harm devices remain unjustifiably high. This doesn't affect vaping, which is not subject to excise (phew!), but would be a problem for other products. And what about the display bans and bans on advertising less harmful alternatives? 
Meanwhile, Imperial Tobacco / KPMG's annual report on illicit tobacco is out. They figure illicit tobacco consumption in New Zealand is now around 200,000 kilograms, most of which is Australian or Chinese packaged cigarettes coming in here - with an estimated excise value of $180m. Their method in figuring this out is interesting - one of the ways they do it has folks out collecting empty packs from roadsides and garbage bins, then checking the proportion that were not labelled for NZ domestic sale. The whole report's an interesting read for those who are keen on the organisation of illicit markets.

Here's a picture of the potential gains from getting foreign-sourced cigarettes to the NZ market.


I hope the government does not set a new path of excise hikes and rather focuses its attention on making sure the regs aren't in the way of selling less harmful alternatives. 

Working for Families as employer subsidy?

In fact in 2004, the left-wing critique of Working for Families was stronger than Key's, that it would operate as a subsidy of low-paying employers.

That is, using Key's original numbers, if there was a job to do worth $60,000 a year, an employer could hire someone with two kids, pay them just $38,000 a year, and they'd end up with almost the same pay in the hand.

Union bosses rightly feared it would be difficult to get workers with children to sign up for a pay campaign if it made little difference whether they earned $38,000 or $60,0000 a year.

Worse, if Government subsidises something, there will be more of it, in this case low-paid jobs. To an employer, Working for Families screams out: "Don't buy more plant and machinery or invest in on-job training, just hire a few more low-skilled labour units and get the government to pick up a big hunk of the tab."

There is very little doubt Working for Families has led to lower productivity and wages across the economy than had Clark not launched it as her big 2004 Budget bribe to fend off Don Brash's Orewa-speech challenge.

That is bad for everyone but the most pernicious effects of Clark's bribe are on those without children trying to save for a first home, such as young nurses, teachers, doctors, and police officers.

They suffer from the economy-wide lower wages caused by Working for Families but without the top ups.
Let's think this through. Labour markets are generally competitive - employers have to compete for workers, and workers have to compete for jobs.

The incidence of the wage subsidy through Working for Families, like the incidence of any other tax or subsidy, will wind up depending on relative elasticities. The relatively inelastic side of the market draws the larger portion of the burden of a tax, or the benefit of a subsidy.

If the demand for labour were perfectly inelastic (and labour supply were other than perfectly inelastic), a government wage subsidy would only benefit employers. They would employ the same amount of labour at a lower cost (to them), with workers taking home the exact same amount as before. The supply of labour depends on the after-tax-and-transfer salary on offer, and take-home pay would not change.

But labour demand is hardly perfectly inelastic. And labour supply can be pretty inelastic. I haven't the labour demand estimates to hand [anyone who knows them off the top, point me at them!], but here's Creedy and Mok's estimates on labour supply elasticity:


Elasticities on labour supply range from very low for married men, to less inelastic for sole parents. Any number below 1 is inelastic, so all of this shows ranges of inelasticity. Is it then particularly likely that the main thing going on in WFF is a transfer to employers?

A few bottom lines:

  • Unless one side of the market is perfectly inelastic, both sides of a market wind up sharing the burden of a tax or the benefit of a subsidy. The more inelastic side gets the larger share of either. Labour supply is reasonably inelastic. I haven't labour demand elasticities to hand, but it would be unlikely for labour not to be benefiting substantially from the transfer. 
  • At least some of the point of Working for Families was to increase the benefit of being in work relative to being on benefit for people like single parents. The simulation models have it having increased sole parent labour supply, but reduced labour supply among married women with children - the latter due to the combination of income effects and high EMTRs.
  • There are big problems yet with the Effective Marginal Tax Rates in some of the abatement ranges [which I had wished the Tax Working group had had a chance to look at]. But how else you run a programme to provide an in-work cash transfer to those with kids to build a gap between earnings in work and earnings on benefit? There are variants of Milligan's trilemma that are going to apply here. Like, pick two of {not incredibly costly; reasonable wedge; low abatement rates}. If we want lower abatement rates, either benefits have to go down or the overall cost of the programme has to go up. And if the overall cost of the programme goes up, then we're trading off a reduction in a very high EMTR affecting a small group (which can often be hurdled by working more hours) with an increase in EMTRs for a very broad group.
  • Wage subsidies place the burden of supporting the employment of those with lower productivity on the tax base in general. Minimum wages place that burden on those who would employ those workers, their customers, and on workers disemployed in the process. The former seems to me both more efficient and more equitable. 

Friday, 13 July 2018

Kiwibuild lotteries

I'd put together a few notes on the Kiwibuild lottery last week in advance of a radio slot that got bumped in favour of an interview with Lauren Southern.* I blame all of you who complained about her visit. Nobody would have even known she and that Molyneux guy were coming to New Zealand if there hadn't been the reliable outcry demanding they be banned, and then that makes a story that makes them win regardless of whether they're barred entry to New Zealand. Just silly.

Anyway, back to Kiwibuild.

As background: the government's trying to get a lot more houses built in Auckland, and one of the ways it's doing that is through the Kiwibuild program, which will be building some houses directly and guaranteeing the purchases of others off the plans - the latter part might be a consequence of the government having banned foreign buyers from buying those houses and apartments off the plans to rent out and consequently screwing up the financing of new developments.

The houses are not going to be cheap, but are going to be cheaper than a lot of houses on offer in Auckland. But setting a low income ceiling guaranteeing them to low-income buyers could mean built houses would go unsold because they're still pretty expensive. So they have a high income cap and a lottery if they're oversubscribed.

I'd put together a few notes before the scrubbed interview; they're below.
  1. Kiwibuild is only a very minor part of the real efforts to restore housing affordability. The real action is in changes in infrastructure supply that can enable more land to be brought into use in housing, and that can enable greater density in town. The constraints have been that Council has not been able to run the infrastructure the city needs under its current debt limits. Fortunately, the government’s latest statement on Kiwibuild noted that they’re looking at things like project-based financing that can unlock land for housing.

  2. A substantial part of what Kiwibuild is doing is just displacing other construction that would have happened anyway. Treasury and MBIE disagreed a bit over the figures on this, but Treasury at least was taking displacement seriously while MBIE assumed there would be no displacement. Displacement is very likely when the construction sector is running at or near capacity – workers and materials that would have been used in other developments will get used in Kiwibuild houses instead (whether they’re built directly by government, or bought off the plans by Kiwibuild from existing developers).

  3. Leaving that aside, Kiwibuild provides affordable housing not so much by selling houses below market prices, but rather to the extent that it increases the overall supply of housing. If all that happens is a displacement of existing building and sale at below-market prices, then there is that potential lottery problem. But if it expands housing supply successfully, then overall prices can start easing back and there’s less of the lottery component because house prices ease back. I understand there’s a 3-year ownership rule in place before the owner of a Kiwibuild home can on-sell it. 

  4. The proposal to require Kiwibuild owners only to on-sell their house at below-market prices to another Kiwibuild-qualified buyer, or to let the government take a proportion (half?) of the sale proceeds, risks skewing homeowner incentives around maintenance and upkeep. I own my house, and I pay to keep it up to spec not only because it makes it nicer to live in, but also because it maintains the resale value should I ever want to sell. If I expected that the government would take a pile of the proceeds from any sale, then I’d do a lot less of that. To avoid that problem then starts getting into messy accounting finagling of keeping track of all of your receipts for home maintenance and charging that against the government’s side of any Kiwibuild sale proceeds – and invites inflating those figures with other shenanigans. 

  5. Basically, the hassle doesn’t seem worth it unless the government is really convinced that Kiwibuild and the government’s other initiatives to address housing affordability won’t work. If prices ease back, the lottery aspect does too. But that makes for a bit of a catch-22. The other problem I worry about a ton is that the real cost of Kiwibuild is in bureaucrats’ time and attention. There are only so many folks in the Wellington bureaucracy who can actually manage to do anything. Some of the good ones are working hard on getting things right for infrastructure financing. The more of the good ones that get pulled over to sort out messes around Kiwibuild, which is still far less important than sorting out infrastructure, the less likely we are to get out of this mess.
* At point of queuing this post for ski-holiday-week, I don't know whether the interview is to be rescheduled. 

Wednesday, 11 July 2018

Hate the game - Sale & Supply of Alcohol edition

The outcome is absurd. Someone should not be prevented from buying a bottle of wine just because they have their teenager with them. But the problem isn't the store or the check-out clerk, it looks instead to be the rules.

The Herald's rounded up several cases of folks being turned away from the supermarket checkout because they have alcohol in the cart and the kids in tow.

Here's the Sale & Supply of Alcohol Act 2012.

Section 239(1) makes it an offence to allow alcohol to be sold or supplied to any person under the purchase age. 239(8) says you're in trouble if you know or have reasonable grounds to believe that the alcohol is intended for a person under the purchase age. While section 240 provides an exemption for on-licences, so if you have your parent along, it's all fine, but I can't see any parallel rule for off-licences.

So if I'm reading all of that right (I am not a lawyer), it is legal for a parent to buy alcohol, bring it home, and supply it to their minor child. It is legal for a parent to go to the pub with their minor child and to buy a beer for their child. But if the check-out clerk at the off-licence has reasonable reason to expect that a parent at the supermarket is buying the alcohol for a minor who is with them, then the store can be up for fines of up to $10k and potential loss of licence for up to seven days. Since the police like running stings and the penalties are high, you should expect risk aversion.

One potential solution would be to extend the exemption in Section 240 to off-licences. I have no clue how the supermarket clerk could tell that the two people at the check-out are parent and child, but neither do I have any clue how the bartender can verify the same thing at the pub if the parent passes the beer to the seventeen year old.

Monday, 9 July 2018

Sugar messes with your brain

Boyd Swinburn endorses a new Chilean study on sugar taxes.
Chile increased its sales tax on soft drinks above a threshold by 5%, from 13% to 18% (the high-tax soft drinks), and reduced its tax on lower sugar soft drinks by 3%; there's a separate no-tax soft drink category presumably covering diet drinks.

Here's the key table.


If we believe the result, increasing the tax on high-tax soft drinks by 5%, reducing it on low-tax soft drinks by 3%, and not changing the tax on no-tax soft drinks did nothing to consumption among low-SES groups but massively cut consumption of high-tax and no-tax soft drinks by high SES groups. 

And the later tables say that tax pass-through was imperfect: there was a 1.6% increase in the price of all soft drinks: a 1.9% increase in high-tax item prices and a 1.7% drop in the price of low-tax items. So the wedge between high- and low-tax products, as seen by consumers, increased by 3.6%. The proportionate change in high SES consumption of high-tax drinks was a 31.3% reduction. Where we struggle to find evidence of effects in other studies, this one says there's an incredibly high price elasticity of demand among rich people but no effect among poor people. 

Chris Snowdon finds the results unbelievable; I'm not sure he's wrong. The big drop in consumption of no-tax soft drinks suggests something else is going on. 

Just as a guess - was the tax accompanied by a vilification campaign against soda generally? High-SES groups might then have responded but low-SES groups ignored the messaging. Low tax soda became cheaper, so there was some substitution to that category from both no-tax and high-tax soda that coincided with an across-the-board drop in soda consumption among high-SES groups. That is just a guess though. The results don't make a lot of sense. 

Here's the thing about this debate. As far as I can see there is virtually no downside to the tax. Products that include a lot of sugar would cost more. So what? There is literally no hardship to that because nobody needs them. We can choose to buy them, or not. No biggie, and if we do buy them, the state gets the benefit of the revenue. So even if it has no effect on obesity at all it seems benign because the tax is largely optional, unlike (say) petrol duty. And if it does have an effect on obesity, even better.
I always struggle when trying to see the world as people like Nick R see it. As I look at the world, if someone enjoys something, and you take it away from them, that has to be a harm to them as they see it. Like if Nick R enjoyed, I dunno, fancy cars, and I proposed a big luxury tax on the kinds of cars that lawyers like, surely it would sound ridiculous to claim "there is literally no hardship to that because nobody needs an Audi. Lawyers can choose to buy them, or not. No biggie, and if they do buy them, the state gets the benefit of the revenue." But it's nonsense, right? Those who buy something else instead are harmed by the tax. That excess of cost to consumers over the tax revenue to the state matters. And who am I to say that Audi-lovers should be taxed more than people like me who drive a ten-year-old Honda?

As Elron McKenzie might put it, "If everyone taxed all that they hated, where would we be? There would be nothing left. Because sooner or later, no matter how nice the things are that you like, somebody will hate those things too, and will want to tax them. And then, next thing you know, your favourite stuff is gone. So, like, what good is it, eh? So just keep the neutral GST."