The market's a harsh mistress

I have a bit of fun in this week's Insights newsletter. Our first column tends to hit the big issue of the week; our second one generally hits a bit of our research work; the third one's where we play.

It was the year 2019 and Kiwis had had enough. It was time for legislation to finally protect the interests of those of us stuck in the car leasing market.

It wasn’t always this bad. The market used to be able to keep up with demand for cars. Mostly. Sure, the cars available overseas were better and cheaper. Some overseas families even had more than one of them! Normal people couldn’t really get those cars here because of import controls.

The 1980s reforms hadn’t touched the car market. Petone still made lots of cars.

But the reforms had touched it indirectly. People saw the cars available overseas, either while travelling or on television, and wondered why the new ones here were of such poor quality and high cost by comparison – and why so many people were stuck driving old and run-down ones. Higher incomes built greater expectations.

The government tightened car regulations to try to close the gap, but that always wound up either making cars worse in other ways, or increasing prices for those who could least afford it, or both.

It was annoying, but we put up with it.

Fat-cat families with more than one car had started leasing their second cars to those who couldn’t afford one in the late 80s. Car ownership rates started their long decline. And we started seeing stories on how cars in Houston didn’t cost multiples of the median income.

The leasing market was never that nice. If the owner’s kid came back from OE a bit early, you might have to scramble to find another car in a hurry. You were usually stuck doing far more of your own maintenance than expected. And the lease price could jump at the owner’s discretion – take it or leave it.

The immigration boom made everything worse. Some brought their cars with them – lording their well-built Honda Civics over everyone else. But the rest simply added to the pressures on the car market. The local production plants just couldn’t keep up. People even wanted to ban immigration to restore automotive affordability.

Finally, in 2019, the government decided to really fix things and protect renters.

It opened the market to imports.

Scarcity is power. Fixing the rules that artificially constrain supply enables the best regulator of all: the competitor down the road.

Renting a house as easily as leasing a car doesn’t have to be science fiction.

The government's looking at strengthened tenant protection. But the best protection for tenants is a high apartment and rental home vacancy rate. If you don't let people build to keep up with demand, landlords have power. You can try to fix that with stronger tenancy tribunals and changes to mandatory provisions in tenancy agreements, but ever notice how we don't need car leasing tribunals?

I get that there are problems in the rental market. If the underlying problem is a low vacancy rate, and low vacancy rates give landlords power, regulation is like squeezing on a balloon - the constraint pops out in other places. And worry too that if the incidence of some of these measures now is on landlords in constrained markets, that incidence will flip once housing supply issues are eased.

It'll be worth revisiting whatever Labour puts in on tenancy protection if Twyford's housing supply measures prove successful.

Police effects

Geoff Simmons makes some good points about overreliance on prisons, but I think he's got this part wrong:

The Labour/NZ First answer of more police is also no real solution either. More police means more people in prison and we know more people in prison just leads to more crime.

Empirical work on police numbers and crime is hard because of obvious endogeneity issues: police hiring is also a response to crime rates.

But the best approach I've seen to the problem finds an elasticity of crime with respect to police numbers of -0.3. A ten percent increase in the number of police reduces the crime rate by 3 percent in US work. If we figure that police have diminishing marginal effects at the relevant margins, and that our policing intensity is lower than America's, then effects here would be stronger. I'd done some back-of-the-envelope reckons on this a while back suggesting that police hiring could be rather cost effective. Increasing the probability of being caught can be pretty strong deterrent.

Non-serious students, one serious problem

John Gerritsen at RNZ picks up last week's NBER study on how the PISA rankings would change were students to take the test more seriously and rounds up some local reaction:

Michael Johnston, senior lecturer in education at Victoria University, said the study's assumption that New Zealand students were not trying hard enough if they left questions unanswered might not be correct.

Dr Johnston said it might be a by-product of the NCEA assessment system.

"In NCEA students can opt out of certain standards and certain aspects of assessment and still get credits for what they do, whereas in most other countries that's not true," he said.

"So if our students are used to that way of thinking about assessment then perhaps that's why they show up as being more likely to be what the researchers call non-serious."

Dr Johnston said NCEA could be improved, but it should not be changed merely in order to improve the country's PISA scores.

"That would be a perverse thing to do," he said.

A bit of context is likely necessary: New Zealand's rise in the rankings, were everyone to take the test seriously in all countries, is second only to Portugal's. So the problem affects New Zealand's ranking far more than it does most countries' ranking.

I agree with Michael that it would be odd to re-jig NCEA just to goose the PISA numbers.

But I wonder whether the habits some of these kids get at NCEA carry over to university - to their detriment.

Once you hit university, you don't have standards, you have proper courses. You have to learn all of the material in the course if you want to do well, and you can't opt out of the parts of it that you don't like. The exams at mid-year and at year-end are comprehensive, across the whole of the material covered in the paper, rather than just little unit tests after each chunk of learning. And deciding at the end of the year not to do the exam doesn't mean that you just get no score and no record of having attempted, it means you get a fail. 

I agree with Richard Dykes' suggestion later in the RNZ article that teaching to the PISA test would be a poor idea. Reminding kids that those kinds of tests require filling in all the answers, and handing out an old one for the kids to practice with at home if they've never seen that kind of test before, does seem a good idea.

Low stakes PISA

New Zealand's low PISA rank seems, in part, due to Kiwi students not taking the test very seriously.

Akyol, Krishna and Wang develop a measure checking whether a student is taking the PISA test seriously (leaving questions blank while having time left, for example), and see whether it affects country rankings compared to simulations where children take the test seriously. [HT: Marginal Revolution].

New Zealand's PISA rank is 17th for the year they're checking. In a simulated world in which students in every country took PISA seriously, New Zealand's ranking would rise to 13th. If New Zealand students stayed as they are but all other countries moved to take PISA seriously, we'd fall to 26th in the simulations. And if only New Zealand moved to have all students take PISA seriously, we'd rise to 10th.

The change for New Zealand is substantial. Portugal would see the largest PISA rise in a simulated world where all students took PISA seriously - an increase of five places, from 31st to 26th. New Zealand's four-place rise from 17th to 13th ties with Russia's rise from 39th to 35th as second highest. Germany, Switzerland and Sweden would all rise three places, Japan would rise by two places, and seven countries would rise by one place.

Singapore's top position would be unaffected in any state of the world.

Unfortunately, this is only a single-year snapshot so we can't say whether it explains any of the decline in NZ's PISA rankings. We'd need a similar simulation for earlier PISA years.

This could be a fixed-effect that has always obtained for slacker Kiwi students. In that case, the PISA decline is real and unaffected.

It could be an effect that's not as bad now as it used to be. The paper suggests that, in countries with a lot of high-stakes testing, test fatigue may have students treating PISA less seriously. Kiwi kids up to that age wouldn't have seen a lot of high-stakes testing, but would have in earlier waves of PISA.* If there's been a decline over the period in the frequency of high-stakes testing, that would suggest more test fatigue in the earlier era. According to the paper, that would mean even more unseriousness in the prior era, so our earlier scores higher scores would be adjusted upward even more than our current scores.

Or you could imagine that the lack of high-stakes testing would have kids just not even thinking that it might matter to put in the best quick guesses on the last questions if they're short on time - in which case the decline could be due in part to kids now generally not knowing how to write tests. That would be consistent with observations of cohorts of incoming university students that seemed to get worse at test-writing.

Whatever the case, it does suggest that New Zealand could improve its ranking by rewarding kids for doing well on their PISA tests.


* The authors don't provide their coding of whether countries are counted as high-stakes or low-stakes.

MMP Horse Trading

Occasionally Canadian politicians and pundits get excited about electoral reform and some will point to MMP. 

Here's what MMP coalition politics currently looks like. New Zealand First got just over 7% of the vote and 9 seats.

New Zealand First's loyalty to the racing industry has galloped beyond tax breaks for good-looking race horses to include several all-weather race tracks for the industry.

Racing Minister Winston Peters secured a tax change in the Budget this year to allow new investors to claim deductions for the cost of horses based on the "virtue of its bloodlines, looks and racing potential''.

It's now been revealed $30 million of contingency funding in the Provincial Growth Fund has been earmarked for the coalition government pet projects and the racing industry is set to benefit.

Regional Economic Development Minister Shane Jones said the money set aside is at the upper limit of what he expects will be needed.

The projects, which include a Dunedin centre of digital excellence, the Te Hiku Sports Hub in Kaitaia and several all-weather tracks for the horse racing industry, all came out of coalition talks between Labour and NZ First.

Cabinet has effectively already approved them and while final costings are yet to be done, the provincial growth fund will stump up the cash.

"These projects can be seen as a coalition dividend, the origins go back to the formation of the government. And now that they're moving through the machinery of government I can assure everyone that they'll be treated in a robust and thorough manner by the officials.''

Politics always involves horsetrading...

Jumping off bridges just because everyone else is

I thought we were above this kind of stupidity.

There has been no increase in New Zealand's terror threat level. But documents released by the Aviation Security Service (Avsec) under the Official Information Act note the scanners "are becoming the norm" in international airports.

We're getting the stupid porno-scanners, with some modesty-shielding on the pictures. Expect your airport experience to come with worse delays for no benefit.

We had a good run. I loved how this place avoided following along with everybody else's stupid overreactions to everything. I just have to keep remembering that everywhere else is still worse.

Overestimating soda tax effects

Waikato University's Professor John Gibson's letter in the Economist (18 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 (we have an ungated version here now).

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...

#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

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. 

SST on vaping

This weekend's Sunday Star-Times had a look at 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.

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. 

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?

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.

Philip Morris's press release on it is here. 

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. 

I expect this area of law is best covered in this excellent text. 

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.

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.

So good. pic.twitter.com/fXFRInFEog

— Erin Delahunty (@della79) July 30, 2018

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. 

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.