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 59^th 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:

• Richard Meade's look at some NZ economic history: the effects of the Native Land Act's Ten Owner rule. I had no clue about this, and Richard wrapped it all up in a beautiful little model. Read the paper. 
• Peter Nunns looks at housing supply elasticity. 
• Greenaway-McGrevey, Pacheco and Sorenson look at the redevelopment premium: owners of already-developed properties see a price drop when their neighbours are allowed to intensify with a rezoning. 
• Cheung and Brooke show that newspaper advertising rates are lower in places with free suburban newspapers - competition matters. 
• Robert MacCulloch and Sir Roger Douglas provide a reimagining of the welfare support system
• I did not attend Treasury's session in which they noted Treasury's diversity and inclusion programme which saw the scrubbing of the word "analysis" from Treasury's recruitment ads as overly male-coded saw the identification of the word 'analysis' as gender-coded, and attempts to de-gender the ads (the paper doesn't say that they scrubbed the word analysis - I read it too quickly). Those interested in priorities at Treasury might wish to read the paper.

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:

• Mine
• The Taxpayers Union (1) - used in the data visualisation
• The Taxpayers Union (2) - which is excerpted above in image form

Afternoon roundup

The closing-of-the-tabs worthies:

• Toby Young: when the heckler's veto rules the world, or at least wrecks his world.
• Every law is violent. In the limit, every law is enforced at the point of a gun. Don't legislate just to 'send a message'. Legislate where, in the limit, you are happy for guns to be used. HT: Marginal Revolution. Unfortunately, I can only read the MR summary as the Bloomberg one is subscription.
• Europe remains crazy on GMOs.
• Decentralisation is good, but requires mobility.  
• Trump and the rule of law.
• Extreme capitalism: New Zealand needs a hefty dose of it. Aldi in Australia. 

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.

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.

Afternoon roundup

This afternoon's worthies:

• Things that make me wish genetic data were in New Zealand's Integrated Data Infrastructure: polygenic scores predict 11 percent of the variance in educational attainment. (full paper here). 
• Matt Nolan's back at TVHE, defending GDP against the fashionable types. 
• There's reasonable support in New Zealand for some cannabis legalisation, but people are still way conservative about allowing marijuana sales in stores - only the Greens are sensible on that one. Me on that stuff from earlier this year; NZIER from before that. 
• The Productivity Commission's terms of reference for its review of local government look good, but note that Labour has excluded discussion of capital recycling through privatisation of some existing Council assets. One excellent way of generating the capital for a new project is selling off an old one. Prod Comm's not allowed to say that. 
• Do you want pirates?
• Epistocracy now!
• Dick Puddlecote on vaping developments in NZ. And note that the Smokefree Coalition's now suggesting a pause on tobacco excise increases. I'd say we should be rolling back the last ones, but great to see more support for a pause. 
• I'm very glad that New Zealand sporting events aren't military recruitment drives. Meanwhile, in America...
• Caving in to internet bullies sets bad precedents.

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.

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?

Matthew Hooton critiques WFF in the Herald:

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. 

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. 

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.

Sugar messes with your brain

Boyd Swinburn endorses a new Chilean study on sugar taxes.

The empirical evidence on SSB taxes keeps coming- more than for any other obesity prevention strategy @HelenClarkNZ @EricCrampton https://t.co/DBbdFpd3xK

— Boyd Swinburn (@BoydSwinburn) July 4, 2018

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. 

In related news, commenter Nick R suggests the following:

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."

Paying for more hostages

Ok, here's a fun one.

Set up an industry through heavy subsidies. An ancillary education sector sets up around it, training workers for that industry. Then when it comes time for an economic impact study, count as a benefit of maintaining the subsidies that workers trained for the subsidy-industry would have a drop in wages if they had to shift to another industry. Meanwhile, keep ramping up training schemes to build up more hostages for the subsidy-industry.

Or, in other words, Gordon Campbell didn't like my take on New Zealand's film subsidies. Here's Campbell, taking issue with the bit Matt Nippert quoted from me in the Herald:

Crampton said the Sapere report - in concluding the subsidies generated more than $2 of economic benefit for every taxpayer dollar spent - was flawed in concluding most of the workforce would be left stranded out of work or in lower-paying jobs. "While that may be true during recessions, it is not true either on average or currently. And it is especially dubious where most of the film activity occurs in Wellington and Auckland," Crampton said.

Sure. Everyone knows there are 2,000 high paying, high skills jobs ready and waiting out there in Wellington. Or maybe they all could go north, and pick kiwifruit. Despite his vested interest in this issue, Peter Jackson was probably closer to the mark in the same NZ Herald article, to which he offered this observation:

"You seem to be asking whether New Zealand needs incentives. In my mind it's very simple: Does New Zealand want to have a film industry?"

There are two things going on here.

The Sapere report looks at multiplier effects through the rest of the economy with film subsidies. That's the part where I'm really dubious at current employment rates. In the absence of film subsidies, folks in the flow-on-effect industries wouldn't be jobless. There'd be some reduction in wages, but it wouldn't be substantial - and at least not in the medium term.

People directly employed in the industry currently would see job losses, shift overseas, or take employment at lower wages - yes. But where government is also helping to fund industry training for the next generation of hostages [zero percent student loans; normal tertiary subsidies], we might need to look at dynamic effects.

In the absence of subsidies, people would train for other industries instead, with smaller effects. Heck, it's plausible that while those who otherwise would have trained for and worked in the film industry would be made worse off training for other work, their salaries could be higher if film work carries a wage discount because of the prestige.

Anyway, it just seems odd to justify continued subsidies for an industry on the basis of wage and employment costs to workers who have specific skills in that industry when we're also training up new workers for that industry.

Winning hearts and minds

Sunday morning's pleasant brunch at home wound up having me shushing the kids a bit more than usual. 

Jeremy Rose's Mediawatch segment had this to say about New Zealand's media landscape:

After universities, think tanks and sector groups are the next most prolific contributors of opinion pieces.

And well out in front among those is The New Zealand Initiative – a think tank funded in the main by the country’s leading corporates. The think tank has a weekly column in the National Business Review, a fortnightly one on Interest.co.nz and in 2017 published about 40 op-eds in the country’s newspapers. The Council of Trade Unions by comparison had 10 or so op-eds published last year.

The NZ Initiative op-eds tend to be well researched and strident. Here’s how its chief economist Eric Crampton began an op-ed on Stuff back in March:

"To begin with, sugar taxes are offensive. They presume that some government official knows better than you about what food choices are best for you. And when we think about how they're generally aimed at things like soda rather than expensive coffee drinks, they're also deeply classist. They presume poor people are too dumb to make the 'right' choices and must be guided by their betters."

And he concluded that piece with a dig at some Otago University public health academic who had written in support of sugar taxes.

"It is time that public health activists simply admitted that they got this one wrong and left us alone."

Despite describing public health professors as activists there was no disclosure on his own op-ed acknowledging that the New Zealand Initiative membership includes Coca Cola – a vocal opponent of sugar taxes internationally – plus the major supermarket chains.

On a subsequent op-ed on the NZME-owned Healthcentral.nz Eric Crampton included this disclosure:

"The Initiative is funded by a broad range of corporate members including ones the Otago People wouldn’t like. Their membership has zero influence on my views of the Otago People’s work."

So things can get a little testy in the op-ed world. ...

While I do like that Radio NZ online has linked to the opeds, that's of little benefit to listeners who might be surprised to find out that the bulk of the Dom Post piece was about the Ministry of Health's advice on sugar taxes and the literature review that MoH commissioned from NZIER.

Both of those reached the same conclusions I have about sugar taxes.

Here's the bit Radio NZ didn't excerpt:

But don't just take my word for it.

The Ministry of Health commissioned the NZIER (New Zealand Institute of Economic Research) to review the literature on sugar taxes around the world.

NZIER found little effect of sugar taxes on consumption, and no evidence of health benefits.

And documents released to the New Zealand Initiative by the Ministry of Health showed that the ministry had reached a very similar conclusion about sugar taxes, advising the minister that there is "insufficient evidence that a sugar tax would be effective in reducing obesity".

The ministry also warned that the quality of evidence presented in favour of sugar taxes "is a major concern".

All of that means that, even if sugar taxes were easy to implement (and they are far from easy to implement), there would still be no good reason to do it.

It is time that public health activists simply admitted that they got this one wrong and left us alone.

Radio listeners could be forgiven for being led to believe that I hadn't put up any evidence in support of my views and that my views were based only on our membership. They might be surprised to see that the whole thing was based on publicly funded work.

Apparently my pointing to the Ministry's work on this stuff needs some kind of health warning, but all the anti-sugar advocates who either ignore that work or make such a hash of reporting on it that you wonder why NZIER hasn't sued them for libel - that doesn't need a health warning.

Anyway, all of it led to former-Prime Minster Helen Clark being mad on Twitter.

I don't know that I won any hearts or minds in the exchange, but I had my fun.

.@radionz 📻 #Mediawatch analyses media coverage. This report on who gets op eds printed is fascinating. It points to the prolific presence of a think tank funded by corporates including by #BigSugar. No surprise then that it rails against #sugartax. @WHO https://t.co/sYfcz6N6Yu

— Helen Clark (@HelenClarkNZ) July 1, 2018

I rail against sugar taxes because the evidence is against them. The Dom Post piece cited is here.https://t.co/bRXbq4gvZn

It points to OIAed work at MoH and funded by MoH showing they don't work. That evidence is here:https://t.co/g20plB7YnZ

— Eric Crampton (@EricCrampton) July 1, 2018

There is plenty of evidence that a #sugartax will reduce consumption. It defies belief for the industry & its acolytes to assert that that has no health benefit; indeed the sector sounds more & more like the tobacco industry. @BoydSwinburn @robbeaglehole @SandroDemaio @kentbuse

— Helen Clark (@HelenClarkNZ) July 1, 2018

I am well aware of those reports & do not consider them sound. Perhaps you should also acknowledge that members of your employer, the NZ Initiative, include Coca Cola & tobacco companies. @SandroDemaio @robbeaglehole @iPHC2 @WHO @sudhvir @kentbuse @UCLGenderHealth @DavidClarkNZ

— Helen Clark (@HelenClarkNZ) July 1, 2018

Yes - the members of the NZ Initiative which employs you are on the website and include Coca Cola and tobacco companies.

— Helen Clark (@HelenClarkNZ) July 1, 2018

I really rather doubt that. It is the first thing people bring up when criticising our arguments. Actually taking on our arguments is pretty rare. Casting aspersions based on our membership - incredibly common.

— Eric Crampton (@EricCrampton) July 1, 2018

Clark punted to public health advocate Sudhvir Singh when I asked what specific problems she could point to in either MoH's work or NZIER's; he pointed to a table of jurisdictions that have implemented taxes and some estimates of effects, but wouldn't provide any detail on whether NZIER botched anything in their review. She also endorsed Swinburn in pointing to the Otago blog post that criticised NZIER for not including publications that were outside of the commissioned review window.

NZIER report author Sarah Hogan waits still for a reply on this one.

We at NZIER would like to know in what way our report is not sound so that we can at least respond. Can you please explain? We would be happy to discuss and or clarify.

— Sarah Hogan (@SarahHo48755599) July 2, 2018

This also amused me.

And here's prices online at Countdown.

Check for yourself.https://t.co/k4cWfM9Ccbhttps://t.co/ZvQ5OZyIQK

Cheapest water: $0.06/100mL

Cheapest no-sugar cola: $0.07/100mL

Cheapest sugared cola: $0.09/100mL pic.twitter.com/RrMcEOyrk8

— Eric Crampton (@EricCrampton) July 2, 2018

For my sins, my Twitter notifications window are filled with public health zealots retweeting and liking Helen Clark's ponderings about the price of soda and bottled water; none of them seem to have noticed the links to prices at Countdown.*

Just look at this hot mess.

#BIGSODA be like #BIGTOBACCO, the #KillerCan like the #CancerStick ... #CokeIsHappiness #NewportPleasure must #DEFEATSODATRON to beat #NCDS join us for #InternationalQuitSodaDay Oct 20th #IQSD #BeatNCDS #WaterOnlySchools 🏆 pic.twitter.com/iFZJzfaVsk

— Dr. Johnny Fever (@DrJuanFiebre) July 3, 2018

Defeat Sodatron? Barking. Absolutely barking. One for Chris Snowdon's slippery slopes file.


* And yes I know water can be more expensive than Coke in some dairies or petrol stations - that's just the local retailer having some local pricing power, knowing their market, and knowing that the kind of people who want to buy water are pretty price inelastic at that point. They could always choose to stock the cheaper varieties at lower price points if they wanted.

Around the traps...

I've not had a lot of time for blogging over the past week, but you can catch a few bits from me around the traps:

• Of course there was always going to be a surge of purchases by 'foreigners' in advance of the stupid foreign buyer ban. Anybody living here on a work visa would be rushing like hell to get their house sorted before the ban hits. 


• But Labour seems to be successful in scaring away foreign investors. Most places want to attract foreign investment and have to work hard to do it. Scaring it away, that's pretty easy. If you have an Overseas Investment Office application in for buying a farm property and then have to worry about whether you're able to live in a house on the property or rebuild it when the time comes, perhaps easier just to find some other place to live where the government doesn't hate foreigners as much.  


• The zero-percent student loans scheme was bad enough. Switching to fees-free study is worse. Folks on twitter got mad about this one and thought I was making numbers up, but it's right there on the darned Education Counts website. The government last year wrote off $0.4452 on every dollar it lent out. That's $662 million that could do a lot more in improving access to tertiary study if shifted over to means-tested student assistance and help for secondary schools in improving preparation for tertiary study. 


• I don't like film subsidies. Will have a post on this later. 

Interesting take on evidence-based policy

The anti-alcohol folks are pushing for stronger and mandatory warnings on drinks about the dangers of alcohol consumption during pregnancy. 

This bit was particularly interesting:

RESISTANCE FROM INDUSTRY TO BE EXPECTED 

Baddock argues attempts by the alcohol industry to promote measures to reduce FASD have been ineffective and rather seek to debate the evidence.

The NZMA submission urges decision-makers to be aware of, and pre-empt, industry counter-arguments to public health measures such as mandatory labelling.

Baddock says a standard alcohol industry tactic has been to cite lack of evidence as a reason not to do something, which has been used by others such as the tobacco industry to "thwart and delay" public health measures like plain packaging.

"It's not just alcohol. I think any industry tends to be resistant to anything mandatory that might affect their sales."

However, she is hopeful the alcohol industry will "come on board" with mandatory pregnancy warnings. 

"I would love to see the alcohol industry put up their hand and say FASD is a real problem and we need to be helping reduce the harms done [by alcohol]." 

Traditionally, the status quo has some weight. Those proposing changes to the status quo have to provide some evidence that the change will be beneficial - that the gains will exceed the costs. In areas where evidence on gains and harms is hard to come by, we can look to international evidence - or run trials.

It is a bit odd to pre-emptively say (my paraphrase): "Hey, we don't have any evidence that our policy proposal will do any good. We ran some focus groups suggesting that people don't pay much notice to current labels, but we have no particularly good reason to expect that mandatory labeling will change real-world behaviour in the cohort we should be worried about. But anybody pointing out the absence of evidence - we're going to pre-emptively say that they're industry shills."

Another fun bit - the anti-alcohol people worry that messages like 'it's safest not to drink while pregnant' might strengthen beliefs that light drinking in pregnancy is harmless.

Here's Emily Oster on that. She included a nice section on alcohol in her review of all of the evidence on the dos and don'ts during pregnancy.

There exists no large (or even small) randomized trial about drinking during pregnancy; such a thing is never likely to exist. This is not unique to drinking, of course – there are no large randomized trials of Tylenol usage in pregnancy, either, just a lot of large observational studies. And some women will read the existing evidence and still choose to abstain. But there is a growing body of data suggesting that, if women choose to have a glass of wine, there is no evidence they are harming their baby.

Telling women that an occasional glass of wine is more harmful to their baby than heroin or cocaine is misleading and may also be potentially dangerous. It surely would not be supported by the vast majority of the medical establishment. Focusing on punishing and shaming women who choose to have an occasional glass of wine during their pregnancy also takes away important focus from helping women who are struggling with truly problematic drinking and the social problems that often come with it. 

So they're worried that people might draw the correct conclusion from the labeling - that heavy drinking during pregnancy is a very very bad idea, but a glass of wine every other day is going to be fine.

Again - the anti-alcohol people will not be happy until they have incrementally gotten us to alcohol plain packaging. It's salami-slice tactics, exactly the same as used in the push against tobacco,  incrementally piling on restrictions until the only thing allowed on the packaging is warning labels and small-print indication of the manufacturer.

Tax Working Group Tea Leaves

Tom Pullar-Strecker has a flip through the new documents released by the Tax Working Group.

The group, chaired by Sir Michael Cullen, has been advised by officials not to recommend cutting company tax or offering a specially discounted tax rate to small businesses.

However, it has been encouraged to consider dangling a couple of other lollies in front of investors and businesses.

In particular, Inland Revenue and Treasury officials advising the working group said there was a case for inflation-adjusting the tax system – even though they acknowledged that would be a "significant change".

That would be a boon for people with money in bank savings accounts and term deposits.

They would then only pay income tax on interest on their savings after interest payments were adjusted for inflation, rather than on the whole sum.

Age Concern, Consumer NZ, the Financial Services Council and the Taxpayers' Union lobby group argued for the change in their "Fair Tax for Savers" campaign in 2014.

It had already been raised as a possibility by Cullen in March.

Inflation-adjusting the tax base would remove "one of the biggest distortions" in the tax system and would also have implications for business tax, the officials said.

But in less positive news for some taxpayers, the officials advised against cutting New Zealand's 28 per cent company tax rate.

They said the rate was "relatively high by international standards" and looked at the implications of cutting it to 23 per cent.

But they concluded a cut would not be in the country's best interests, mainly because a lot of the benefits would go to foreign investors.

I like inflation-adjusting interest earnings. The current setup means that during times of higher inflation, the real tax on interest earnings is very high. This builds a wedge between returns from investing in real assets and investing in interest-bearing assets.

It would also mean there would be little case for a capital gains tax where getting rid of the interest distortion would get you most of the way towards what capital gains tax fans want anyway.

On company tax, you're always balancing a few margins. Too high a company tax rate relative to other countries and you scare away foreign investment. But too big a wedge between the top personal tax rate and the company rate and you encourage sheltering income in companies. So, all else equal, if international company tax rates are dropping, then New Zealand's should also drop somewhat, but if top personal tax rates are increasing, then the company tax could go up a bit.

Recommending a hold-steady on company taxes despite declining international rates then could be a signal of income tax increases at the top end. Or a recognition that the current government has shifted scaring away foreign investors to the benefit side of the ledger.