Carbon costs and first movers

There was a genius to the old New Zealand Emissions Trading Scheme. It was linked to a global system that allowed trading in dubious credits.

It would be better for the world as a whole for those credits not to be there, but New Zealand's being in the scheme and accepting them was hardly all for the bad. Rather, it was a commitment mechanism. As soon as the rest of the world took global warming seriously and ditched the dodgy credits, New Zealand would be part of a more serious global carbon trading system - but not until that happened.

New Zealand's decoupled from the system

Nature put up a new measure of the country-level social cost of carbon. It gives a measure of the experienced costs in each country, over different time horizons and under different scenarios, of a ton of carbon dioxide emissions from anywhere.

Assuming the numbers are right, a purely self-interested country with no expectation of international coordination would set a local carbon price equal to the experienced cost of carbon within its own borders. A purely altruistic country would set a local price of carbon emissions equal to the global cost of emissions - the sum of costs across all countries.

The fun part is that the authors also put up a data explorer letting you play with it.

Under the default short-run scenario, the social cost of carbon in New Zealand is USD$0.002 per ton; in the US, it's $47.80; in China it's $24.07.

Flipping to the long run, costs in New Zealand are $0.66, while they're $213.70 in the US and $80.08 in China.

Under the most pessimistic scenario for New Zealand*, the median cost estimate here is $1.67, in the US it's $165.69, in China it's $227.39 and $221.35 in India.

The countries that emit the most and have the strongest potential to reduce emissions also have the strongest incentive to do so because they experience the highest local costs of carbon dioxide emissions, whether those emissions are generated domestically or internationally. Again - even a purely self-interested country should want to have a local price of carbon matching the local social cost of carbon.

New Zealand should move in line with everyone else in mitigating greenhouse gas emissions, but moving faster than everyone else seems a bit odd under those figures. Every ton of carbon we fail to emit saves New Zealand no more than $2 in costs, while saving America from about $50 to over $200.

It's a bit like spending a pile of money on gardeners to clean up your own lawn so that you don't spread dandelion seeds over to the neighbors, while the neighbors' lawns are nothing but weeds with seeds flying everywhere. But hey! You did the right thing in making sure that, if everyone spent as much on gardening as you did, the neighbourhood wouldn't be taken over by weeds.

Meanwhile, the Productivity Commission's report on all this... I'm not used to being disappointed by Prod Comm reports. This one was disappointing.

The terms of reference set by the government asked the Commission to figure out the best way of achieving net zero carbon emissions by 2050. They weren't allowed to ask whether that made sense, or whether it made sense only if the rest of the world were also doing their part.

The terms of reference weren't their fault. But all the marketing of it afterwards had an uncomfortably heavy "Hey, here are the somethings that we identified; we must do them." The terms of reference were conditional: if you want X, do Y. The marketing dropped the conditional, and didn't bother with any cost-benefit assessment.

Net zero emissions could make sense - if everyone else is game. Since global warming costs in China and the US are going to be highest, we should be expecting them to take the lead in wanting robust international trading systems. We should be helping them in achieving that, but 2050-or-bust, on our own, seems a bad idea.

And this part is just nonsensical. I don't know who was doing QA here, but they must have fallen asleep.

It is also possible that other policy measures may need to change to fully capture the benefits of a circular economy. For example, the Sustainable Business Network (2018) suggests that changing the Goods and Services Tax (GST) structure for circular products may act as a powerful driver encouraging this approach. A similar model is currently being considered by the European Commission (2018b).

The report muses about breaking the GST in order to achieve some circular economy ideal, but completely ignores the potential of GE grasses in reducing pastoral emissions. The credulity around the circular economy work was a bit concerning.

Mike Reddell hit the ProdComm report earlier this month. I expect that his concerns about immigration and the carbon targets could be handled by simply population-adjusting the targets; the rest of it is more worrying.

I hadn't posted on the report since Reddell covered it well. But I hadn't caught the "let's break the GST for the sake of the circular economy" bit in the 600 page report. It just felt more depressing than all the rest.

It might wind up being worthwhile going through the circular economy stuff more thoroughly sometime. It's somewhere between wrong and not-even-wrong. It starts from a moral presumption that it's wrong to throw anything away and that there's almost no cost that's too high in reusing things that are expensive to re-use or re-purpose. It seems a great way of breaking parts of the economy. 

* I ran a lot of permutations but not all possible ones; maybe you can find a worse one.

MBIE discount rates

Treasury's cost-benefit guidelines say that the public sector should normally use a 6% discount rate in assessing normal projects.

People can argue about whether that's the right discount rate, and especially when it comes to very long term projects.

But at least having a single recommended discount rate puts all projects on a common basis. If it's weighted too heavily towards the present, it's so-weighted across all policy areas. No pick-and-choose to put in a high discount rate for projects with back-loaded costs to get it over the line, or a low discount rate for projects with front-loaded costs and later benefits.

MBIE's RIS on the government's Taranaki oil ban uses a different set of discount rates.

First up, we should be giving bouquets to MBIE for putting through advice that it had to know would be unwelcome. The government had already announced the ban - it simply didn't care about normal policy processes or potential costs. MBIE would have felt some pressure to say nice things about an already announced policy, and they didn't do that.

They have taken stick for the choice of discount rates though. They presented a range of costs to the Crown under different scenarios, including a 3% discount rate, a 10% discount rate, and an undiscounted flow of tax, royalties, and industry profits. Their midpoint estimates came from the 3% discount rate figures.

It looks like there's prescription in the rules around assessing permit applications requiring a 3% discount rate normally, and a 10% discount rate when proxying for industry cost of capital.

I don't know why that prescription is there. I am also not nearly a good enough interpretation guy to know whether this requires that rate in this context, or whether these rules were superseded by other rules I don't know about.

But I am curious why a 3% rate is here prescribed. I'm happy to entertain arguments that we should use a lower discount rate for really long term projects, but I'd want that to be set across all really long term projects rather than just some of them.

If anybody knows the backstory here, the comments section is open...

Carbon emissions and the Taranaki ban

MBIE's advice on Labour's ban on Taranaki oil and gas exploration suggested that global emissions could go up.

Could that happen? It depends on what you think's going on in the rest of the world. 

Suppose that the whole world were under a binding emissions cap under a global cap and trade regime. If New Zealand produced less natural gas and some stuff that used to be produced with natural gas here instead were produced using coal in China, global emissions would not go up. There'd be a slight decrease in emission permit purchases in New Zealand and a somewhat larger increase in emission permit purchases in China. The price of permits would go up, some lower-valued things that otherwise emitted carbon would stop happening (with those permits then sold back into the system) or some production processes elsewhere would change to be a bit less carbon intensive. 

Under that regime, there is no increase in greenhouse gas emissions. But there could be an increase relative to a counterfactual path if you think that higher carbon prices make it harder to reduce the total cap.

The most efficient way of reducing global GHG emissions under a binding global emissions cap-and-trade system is buying and retiring credits, allowing the market to figure out the cheapest way of mitigating emissions. The Taranki ban instead forces a higher cost way of achieving mitigation, and that makes it harder to reduce global emissions by buying and retiring credits - each credit is now a bit more expensive.

But there is no global cap and trade system. 

If you think that there is no GHG abatement response in China if some production shifts from NZ to China, then you could have a net increase in emissions in replacing a natural gas process with a coal process. 

No response is rather unrealistic. But if we think that whatever a country is doing to abate emissions is responsive to the cost of abating emissions, then we might worry that the shift will have made it harder for China to reduce total emissions. And so they will abate by less than they otherwise would have. Total emissions would then go up, but not by the full amount that you would have expected on the naive no-response assumption. 

Bottom line: it seems plausible that net emissions wind up increasing as consequence, but I doubt that the magnitude is substantial. China has good reason for taking carbon emission costs seriously - they're projected to incur some of the higher costs of global emissions. 

The bigger problem is that it's just a dumb way of mitigating emissions. If you want lower emissions, make sure the ETS is working well. Since New Zealand's ETS is not linked to the international system, check where the price of carbon is lowest among places that have non-dodgy systems, then buy and retire credits from the place where doing that is cheapest. Global warming doesn't care whether you stop a ton of emissions from New Zealand or from somewhere else; it cares about the total reduction. Buying and retiring credits where it's cheapest to do so and where the system is credible lets you do the most good. Pushing "Carbon Neutral by 2035" or "Fully Renewable Electricity by 2050" are good ways of doing far less good than you otherwise could if abatement costs are lower in other places or in other sectors. 

It would have been nice if the MBIE paper had spelled more of this out, but I don't think they're wrong to worry that emissions could increase. Emissions increase if any cap in China is not currently binding, or if the path to a lower cap becomes more expensive there and consequently slower. 

Morning roundup

The week's closing of the browser tabs brings some fun:

• Supermarkets find consumers nicking the shopping carts when they no longer can get plastic bags. Carrying bags around everywhere just in case you might realise you need to do some shopping might work for some people (and hooray for them!) but not for everyone. I wonder if anybody is tracking how many of the reusable bags are winding up in the tips because nobody needs the dozens of bags that easily accumulate - they're of little use as bin liners.


• Oliver Hartwich says it's time for a little game theory on Brexit


• SmokeFree Action UK's poster encouraging pregnant women to vape instead of smoke sends the right message. Nice. 


• In similar line, I liked this chart in the Annual Review of Public Health earlier this year. I continue to wonder why we aren't looking at a risk-proportionate excise regime where less harmful tobacco products would carry far lower excise than smoked tobacco. 
  


• Alex Tabarrok points to Matt Levine's proposal to free people to invest in things the SEC thinks are dumb investments. Basically, you sign a form agreeing that it's a dumb investment, an SEC employee slaps you hard across the face, then you're allowed to invest. Less rigamarole than the 'accredited investor' regime. 


• The economics of apologies. The best form of apology compensates the harmed party. 


• Trackless trams. Neat. Allows for far more flexibility, and is much cheaper than putting in rails. 


• MBIE notes the advantages of flexible workplaces with coming technological change. It'll all be ruined if we get fair pay agreements specifying terms and conditions across entire industries and occupations, but nice to think about. 

Quality control at the New Zealand Medical Journal

In late July, the New Zealand Medical Journal published an article by an Auckland University public health team that largely covered the same ground as a 2015 report by Superu, and didn't mention the Superu report. 

I'd noted a few potentially interesting questions about that:

• 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. 

The latest edition of the NZMJ has a letter from one of the study's authors. I copy it here in its entirety.

Clarification on maternal alcohol consumption

On 27 July 2018 our peer-reviewed paper¹ was published in the New Zealand Medical Journal. The article presented important findings on maternal alcohol consumption in New Zealand and attracted considerable media interest.

Subsequently, our attention has been drawn to a similar analysis undertaken by SUPERU (the previous government unit whose work focused on “what works to improve the lives of families and whanau”, between 2004 and 2018). The report was published online as a technical report in 2015 (http://www.superu.govt.nz/research-report-patterns-dynamics-alcohol-consumption-during-pregnancy).

We wish to acknowledge this earlier report, of which we had been unaware. We accessed data from the GUINZ dataset having applied for data access for our analyses in 2014. The SUPERU researchers used the same data in their analyses. We can categorically state we did not draw our data from the SUPERU report and apologise if there was confusion about this.

The fact that many of our findings were in common with those presented in their technical report speaks to the quality of the dataset and expertise in both groups of researchers, and underlines the confidence we have in this information for public health action.

It would have been odd to claim that they drew their data from the Superu work; the regressions are specified differently and so have different coefficients.

I don't know how a team of nine researchers in this space has nobody that knew about the prior Superu work, but I guess that's what's happened.

I have a harder time understanding how none of the referees caught it.

There remains no note on the original published article linking to the clarification letter, nor any note in the Journal about what improvements in refereeing they might be considering.

Consider this a public health warning about alcohol research published in the New Zealand Medical Journal. If the article lends itself to an accompanying editorial by Doug Sellman and Jennie Connor, quality control might not be quite what you'd have hoped for.

Police academy

Otago's University Proctor has some odd ideas about what a Proctor's allowed to do. 

A Leith Street flat says University Proctor Dave Scott trespassed and stole their property when he entered their house while they were out and took several bongs/water pipes.

About three weeks ago, the proctor was visiting flats on Castle Street and Leith Street North to deliver letters about initiations. The entire flat was away, apart from one person who was asleep upstairs. The flatmates said the proctor let himself in through the unlocked back door, where he found several water pipes sitting out on a table and took them.

Because they weren’t home, the flatmates didn’t know what had happened to the pipes and assumed they had been robbed. They estimated the pipes were worth $400.

“We thought someone had stolen them, but then we thought that if anyone had done it around Castle/Leith someone would recognise our pipes as they are well known,” one flatmate said.

The proctor returned the next day, and told them that he had gone into their flat and confiscated the pipes. According to the flatmates, he told them that as long as they cleaned up the flat, he would let them off with a warning and wouldn’t take it to the police.

...The Proctor is not a police officer and does not have the ability to get search warrants to enter homes, nor does the Code of Conduct give the proctor the ability to enter private homes without permission.

When I was at Canterbury, the University Proctor was an academic. I'm not sure who is Proctor there now, but Prof of Laws Ursula Cheer is the one I mainly remember. [See substantial update below]

Otago chose a different way of picking a proctor. Their magazine reported as follows, in the appointments section:

Mr Dave Scott as Proctor. He was previously the Dunedin Area Response Manager with Dunedin Police, and Southern Police District Centre Co-ordinator. He took up his role in May.

Somebody ex-Police, I'd have thought, should have known you can't walk into somebody's house without permission and steal a bong - although it isn't hard to imagine cops thinking it's ok to do that rather than charging somebody with marijuana possession and that they would be being lenient in doing so.

I'm not sure why a University would appoint a police manager as Proctor. The Proctor's job does have some policing aspects to it - investigating breaches of discipline. If you caught a student plagiarizing or cheating in an exam, the case could ultimately wind up in front of the Proctor. Having a Laws academic in that role made a lot of sense. They'd know the rules and procedures, and would know academic practice and context.

Otago is a strange place.

UPDATE: The Proctor at Otago is nothing like the Proctor at Canterbury. I had wrongly assumed that the University Proctor in both places handled the same role. At Canterbury, the Proctor checks against discipline breaches, including academic conduct violations. At Otago, the Proctor seems to be the name they give for the head of security. It makes perfect sense to hire somebody with a policing background for that kind of a role where it wouldn't have for one with responsibilities over student academic conduct. Thanks to @Jacky_Braid for the tip that the Proctor role there might be different than the one at Canterbury.

Good stuff from Treasury

Two kudos for great work at Treasury - I've given out enough brickbats lately. 

First up, this week Treasury released its advice on the government's proposed Fair Pay Agreements. I don't know who requested it by OIA, but it's on their OIA release website, and available here. They get this one dead right. My summary:

1. The Cabinet paper provides no evidence that industry- or occupation-wide bargain could address the purported problems of employer monopsony power;
2. Neither does it provide any evidence that any imbalances in bargaining power have anything to do with wage and productivity concerns noted in the Cabinet paper;
3. There is no evidence base suggesting this could help improve wages and productivity in any occupation or industry;
4. Having a working group set this kind of policy is dangerous when they have only a high-level sense of that there's a problem and no clue what they're really doing - and the effects could be substantial structural changes to the labour market;
5. International experience shows it's easy to mess these things up, to screw over outsider firms, and to build in fragility in case of economic shocks;
6. And, regional heterogeneity will be a big problem that the working group would need to sort through too. 

Treasury consequently recommends extending the policy process to allow for further analysis.  

Appendix 1 provides Treasury's comment in the Cabinet paper:

The Treasury considers more departmental policy work is required ahead of Cabinet’s consideration of, and agreement to, the recommendations in this paper. The policy proposal is significant: Fair Pay Agreements could make substantial structural changes to the labour market and – as referenced in this paper – misapplication of the policy could have large negative effects on productivity, worker terms and conditions, and employment. The policy is also in the early stages of development: Cabinet’s in-principle agreement is being sought to an outline of the policy direction; initial work by officials has not identified an occupation or industry in which the proposed system would address wage or productivity issues; and the working group is being tasked with answering foundational policy design questions.

Given the significance of the proposal, we recommend extending the departmental policy development process to enable further analysis of the causes of the wage and productivity concerns identified in the paper, options to address those concerns, and the conditions for the success of industry-level bargaining. This would enable Cabinet to make decisions with a clearer view of the purpose, scope, and impacts of the proposal, and ensure the working group’s terms of reference are tied to this purpose and Government priorities.  

This is exactly the kind of unwelcome but important advice that Treasury has to be willing to give. Excellent. We put out a press release on it this afternoon.

Next up, and belatedly, Treasury's advice around Labour's proposed minimum wage hikes. See in particular the 14 December part. The team make the same points I make:

• Risk of higher youth unemployment - but starting-out rates could mitigate
• Minimum wage is a poor way of supporting low-income families because it's poorly targeted - most are workers starting out who then move on to higher wages, and abatement of other income-linked benefits eats most of it anyway
• It is likely to bite in tougher labour markets, and especially where our minimum wage is already very high relative to median wages - and this is most likely to hurt the most vulnerable.

Again, this is good sound advice on a Labour election policy plank. Kudos to Treasury for providing it. 

Treasury Board

This week's column at Newsroom takes another look in at the problems at Treasury. A snippet:

'We're doing something about it'

Treasury’s response notes that Treasury has now put in place a work programme focused on economic capability, including training and developing existing staff and recruitment for economists.

But in the 2019 recruitment round for graduate analysts, while ten of fifteen had at least some background in economics, only four had at least Honours-level training in economics or finance. The recruitment process did little to distinguish candidates with an undergraduate minor in economics as part of another degree from those candidates with a Masters or Honours degree in economics.

And Treasury does not have any comprehensive way of tracking staff capabilities. It simply does not know if it is losing more trained economists than it is hiring. One wonders how Treasury would ever be able to tell whether it had succeeded in lifting its economics capabilities.

'Focus on the core business'

This matters. While a wide range of skills are required in policy analysis, Treasury’s unique role as lead economics advisor to the Government requires having substantial depth of economics capability. Treasury has to be able to apply a rigorous economic ruler across proposals coming from the other Ministries and to provide sound economic advice to its Minister and Cabinet.

That advice need not always be decisive, but it should always be reliable. And while that advice could often annoy Treasury’s stakeholders in other Ministries, they should not have reason to question Treasury’s competence in producing it.

Keeping all the stakeholders happy would be impossible. But doing a good job in Treasury’s core business is not. Treasury should focus on it.

I've been able to get a few things clarified by Treasury, with a few more yet to come under OIA. The blinded recruitment process for graduate analysts, at least for the most recent year, worked as follows.

Team managers told HR that they needed economists. So HR took all the applications and put them into two piles. Into the first pile went any application from someone with a minor in economics, a major in economics, an Honours degree in economics, a Masters in economics, and so on. Into the second pile went anybody without at least a minor in economics.

Then they ran a points sieve over the two piles. If you had a Masters in economics, you got 20 points. If you had Honours, you got 15 points. But there were points for a pile of other things as well. Strong Maori competence provided points. A pile of other things provided points, like their statement of interest in working at Treasury. Strong volunteer work gave 10 points. "Accolades" could give up to 10 points.

And then the highest ranked candidates would be able to get an interview.

See the problem? It's potentially a very flat payoff curve for training in economics, above a minor in economics, depending on how many points were available in all the other categories.

Getting a minor in economics is easy. There are thin routes through to a minor with next to no math and little theory. At Canterbury currently, that means Principles of Micro, Principles of Macro, a semester of intermediate microeconomics, one other 200-level paper, and one 300-level paper.

Honours and Masters is different. You have to take the more rigorous papers all the way up (or at least if you want to make it through with any decent grades), then do the more serious graduate coursework.

So I now have another OIA in checking on the points and categories. But it basically looks like HR there thinks economics can be picked up on-the-job by anybody with a minor in economics, so there's not much point in hiring folks with proper training.

Some teams, like the macro forecasting team, could put in more rigorous requirements for their group. But anybody not specifying that might be surprised by what HR considers to be an economist.

I again remember Frank Tay's piece in the inaugural issue of New Zealand Economic Papers explaining the minimum 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.

Emphasis added.

I hope that the OIA comes back showing I'm wrong. But Treasury's HR department being blind to the difference between a minor and Masters could explain at least some of the rot there. It cannot explain why the Chief Executive has allowed it to happen, but it can explain the hiring outcomes in the graduate cohorts, and it can explain why Treasury sees no need to track the outflow of trained economists relative to hiring.

I've also wondered how Treasury's Board has allowed this to happen. Any corporate board seeing these kinds of results would not be happy with the CE.

Yesterday, by complete coincidence, the Treasury and the New Zealand Initiative each announced a new addition to their respective Boards.

Treasury:

Livia Esterhazy has been Chief Executive Officer of WWF-New Zealand since May 2017. She has a strong professional background in marketing, brand and communications, including senior leadership roles with Clemenger BBDO (Managing Director 2015-2017), Assignment Group (Managing Partner 2012-2014) and Saatchi & Saatchi (General Manager 2009-2012). Her career has also included management positions with Kiwibank and the Commonwealth Bank of Australia. Livia Esterhazy is on the Board of Wellington Trails Trust and is a previous member of the Advertising Standards Board.

Us:

The New Zealand Initiative welcomes entrepreneur Stephen Jennings, CEO and Founder of Africa’s largest urban development company, Rendeavour, onto its Board of Directors.

“It is an honour to have Stephen join our Board,” said Roger Partridge, Chairman of The New Zealand Initiative. “Our mission is to create a more prosperous New Zealand for all New Zealanders. Jennings is a visionary international business leader and will bring valuable insights to the Initiative’s work.”

“I am delighted to be joining The New Zealand Initiative Board. The Initiative’s methodological, fact-based approach to policy is ideally placed to improve public understanding on many of the key challenges and opportunities facing New Zealand,” said Jennings.

Jennings is one of New Zealand’s most successful entrepreneurs. For more than 20 years, the Taranaki-born economist and investor has been living and working in emerging markets. A pioneer of capital markets in Central and Eastern Europe and Africa, he is responsible for more than $200 billion worth of investment into these regions.

As the leader of Africa’s largest urban development company, Rendeavour, Jennings now helps build city-scale developments in some of the fastest growing cities in Kenya, Ghana, Nigeria, Zambia, and the Democratic Republic of Congo. The developments include homes, offices, industrial areas, schools and hospitals and allow residents to live and work within their community without the burden of commuting across already congested cities.

Despite his long international career, Jennings has always maintained great interest in New Zealand. He shared his views on the future of New Zealand’s economy at a dinner lecture hosted by the Initiative in 2016.

It's awesome that Stephen's on board with us. 

Stephen Jennings' dinner address is embedded below.

Confidence in the Vice Chancellor

In a prior life, I was on Academic Board at the University of Canterbury as Economics Department representative.

The meetings were usually tedious. Much of the point seemed to be to provide a forum for people to air their grievances so they could feel they were listened to, but without consequence. There'd usually be somebody who'd make a five-minute speech about how neoliberal managerialism was ruining everything, and then would be happy enough until making the same speech again a few months later. It all helped me realise that the point of meetings often is not to achieve any outcome at all, but to make people feel listened to. But it was also an important way of finding out what was all going on in the rest of the University and initiatives being pushed that we needed to pay attention to.

Universities run under a dual governance system. The academics run curricular affairs through one governance structure culminating in Academic Board; the administrators run financial management through a parallel and overlapping one. It's confusing as all heck for anybody outside of the system, and for many within it. The Dean of Sciences is the one responsible for academic matters within all of the degrees awarded under the Sciences. The Pro-Vice Chancellor for Sciences is responsible for financial management of the College of Sciences, HR and the like. Sometimes the Dean and Pro-Vice Chancellor are the same person. And any curricular changes would have to run through both systems because they had both academic and financial implications.

Academic Board would be the one that would be watching for things like policy around academic freedom.

The meetings generally included a report from the Vice-Chancellor on what was all going on at the University.

I'm trying to imagine going to a meeting of Academic Board after finding out that the Vice-Chancellor had apparently lied to the head of Academic Board.

The Chair of Massey's Academic Board met with their Vice-Chancellor Jan Thomas about free speech issues at Massey. David Farrar got a pile of documents by OIA from Massey, showing that the Vice-Chancellor had been working to keep Brash from visiting Massey well before any security concerns were raised. That presumably prompted somebody at Massey to send David the email that the Chair of Academic Board sent around at the University subsequent to her meeting with the Vice-Chancellor. Farrar quotes this bit.

I asked the Vice-Chancellor how long she had been aware of Dr Brash’s proposed lecture before she took the decision to cancel the lease of the room to the students. She told me that she had been aware of the event for many weeks and had been invited to attend. The students had also informed her that their planned programme of talks would include politicians from all New Zealand’s major political parties.

My understanding from what Professor Thomas told me, is that she had not considered cancelling the event at any point during that period, because she had no pressing reason to do so. She did not deny that she does not agree with Dr Brash’s views, but she pointed out that she had not at any stage banned him from campus nor insisted that the students disinvite him.

Maybe the Chair of Academic Board hadn't gotten things right. But if the Chair did, then the OIA documents show that the Vice-Chancellor was scrambling to find ways of blocking Brash's visit - and that suggests she was lying to the Chair of Academic Board.

I don't know how things will play out at Massey.

Vice-Chancellors do not report to Academic Board; they provide updates to Academic Board. The Vice-Chancellor reports to University Council, chaired by the Chancellor. Sometimes the VC sends the Deputy Vice-Chancellor to report instead if there's a scheduling conflict, but during my time on Academic Board, the VC did seem to make a point about being available to front to Board.

But I'd expect that a Chair of Academic Board who had been led to mislead colleagues because the Vice-Chancellor had lied to her would be in an impossible situation if the Vice-Chancellor continued; resignation as Chair of Academic Board would seem most appropriate. Academic Board is made up of academics on permanent appointments; it isn't like the Chair would be quitting her day-job. I can't imagine wanting to continue in that position, which requires having a decent working relationship with the VC, if the VC had lied to me and caused me to mislead my colleagues.

And I would hope that somebody on Academic Board would ask the Vice Chancellor, at her next report to Board, why they should believe a word she says when she seems to have lied to the Chair of Academic Board.

I would hope that the Chancellor would step in to resolve things before it ever came to that.

Not-so-sweet advice

Imagine that you were the Chief Science Adviser for a Ministry.

You need to produce a short briefing note to the new government for some issue in your Ministry's remit.

Your Ministry had, just a couple weeks earlier, released a comprehensive report on the topic that your Ministry had commissioned from a top economics consultancy. Your Ministry had had the report since August, but had only just released it.

What the hell must be going through your head if your briefing note to the Prime Minister via the office of the government's Chief Science Adviser presents the opposite conclusion to the commissioned study and doesn't even mention that the commissioned study exists?!

So Peter Gluckman was on Radio New Zealand a while back. He talked about mounting evidence for sugar taxes. I'd heard him on the radio and wondered what the heck he was on about, but he's always had a soft spot for sugar taxes and never seemed to understand the economics around it.

But Nick Jones at the Herald followed up with an OIA request asking what he was basing things on.

And his office provided a two-page document produced by the Ministry of Health's Chief Science Adviser, Dr John Potter, summarising his views on sugar taxes. It was a very cursory document - tons of bullet points saying things like "Recent studies from Berkeley", so it's hard to tell which ones he's talking about.

But his note to the Prime Minister is dated 16 February. [updated on double-checking the date]

The NZIER report on sugar taxes, which said that most of the studies in the area are terrible but the ones that are sound find that the effects of sugar taxes on consumption are too small to have any plausible health effects, came out in January. It came out after I'd OIAed it from the Ministry - the Ministry had been sitting on it since August. [Update: I received the OIA on 31 January; NZIER released its report on its website on the same day]

And Potter didn't even see fit to tell the Prime Minister, in his memo on sugar taxes, that a comprehensive report commissioned by his Ministry reached the opposite conclusion to his two-page list of bullet points.

Just amazing. I can't imagine that Potter wouldn't have known about the NZIER study.

Anyway, Nick Jones got in touch with me yesterday asking for comment on Potter's two pages of bullet points; I had a chat with Hosking about it it his morning as well. [update: link here]

Our prior OIAed stuff is here; the NZIER report is here.

In the prior OIA stuff, Potter's a big fan of sugar taxes - and completely fails to understand John Gibson's work. But all that to one side: if you've got a report your Ministry commissioned and you disagree with it, better practice would be to note its existence and why you disagree with it rather than pretend it doesn't exist. Yeesh.

The sins of the Canadian father will be visited upon the Kiwi children

Visiting Canada with my kids would be a lot simpler if I weren't Canadian.

The kids are Kiwis. If we were all Kiwis and I didn't have Canadian citizenship, we'd just get an easy tourist visa. Done.

Canada's changed the rules for entry at the border. If they think you might be Canadian, you must travel on a Canadian passport. If Dad's Canadian, born in Canada, then the kids are likely sufficiently Canadian to need a passport.

But getting them Canadian passports requires proving that they're sufficiently Canadian. The process for proving somebody is Canadian is designed to weed out people faking being Canadian and who want to be Canadian and live in Canada.

It isn't designed for people forced to be Canadian by accident of their father's birth and who just want to go visit people.

And so there's a pile of stupid paperwork requirements that might make sense in the context of immigration control and making sure that non-Canadians can't fake being Canadian,* but that just stink when you're forced to do it if you want to be able to just go visit people.

If only there were some certificate of not-currently-deemed-Canadian that were easy to get and that would let them just use their Kiwi passports for travel. But oh no. Can't do that. Have to satisfy the High Commission that they're really Canadian enough.

The kids are currently sufficiently Canadian to be turned away at the Canadian border [or not allowed onto a plane] if they don't have a Canadian passport, but not sufficiently Canadian to have any easy way of getting a Canadian passport.

There's a big long form, and I have to send in my birth certificate, their birth certificates, a fee, wait five months for processing, then they'll have some "Yes you're a Canadian and you can now apply for a passport" certificate. And then we can apply for their passports.

You can check out of the Canadian Asylum any time you like, but you can never really leave.....

Anyway, I'm double checking with the High Commission on this one. It seems absurd, but it's a Canadian kind of absurd....

Update: the reply from the High Commission advised me to check the "Am I Canadian" quiz they have to see if the kids need to get their certificate of citizenship (less fun than it sounds). They also helpfully provided a list of some of the benefits of citizenship, none of which warmed my heart.

* We still need Canadian inspectors checking American backpacks for fraudulent Canadian sew-on flags in Europe....

Private-Public health partnerships

If I ever get homesick for Canada, a five-minute conversation with a Canadian government official's usually an excellent cure. It always reminds me why I left.

On Friday, I met with a few visiting Canadians to give a bit of a state of play on policy. One of them asked about the Pharmac system. I noted it seems the best part of the overall health system, but that I can't imagine that a larger country could get away with it - and especially not a country right next door to the US.

But as part of the background, I'd noted that we have a fairly standard mixed private-public health system: a public health system combined with a private system that seems to work rather well. The public health system can contract in expertise and capacity when it needs it; having that available makes the public system better.

And I got to hear the ever-so-Canadian phrase two-tier. It's the phrase that Canadians use to give themselves an excuse for not thinking. Somehow, Canada got its national identity wrapped up in being not-American, and the public health system is a big part of that. Canada's version of a public health system is not like New Zealand's - there isn't a complementary private system in the same way. Anybody suggesting one gets accused basically of treason. Because any private provision would be two-tier, and result in outrage on the CBC and claims that the system was becoming Americanised, rather than just being like most other public health systems.

So stories like these would never happen in Canada. Instead, the queues would just get longer.

Capacity constraints see Canterbury DHB spend $143m on private surgeries

Thousands of hip, knee and other elective procedures have been outsourced to private providers in Canterbury over the past five years at a cost of about $143 million.

Canterbury District Health Board (CDHB) members say increased outsourcing has been necessary to meet demand, especially given post-earthquake capacity constraints.

"There's no point having a philosophical objection to using the private sector, because if we weren't able to access it thousands of people would have missed out on publicly-funded elective surgery," Andy Dickerson said.
...
CDHB member Aaron Keown said the health board had been closely monitoring the volume and cost of outsourcing. The CDHB could be penalised for not meeting Ministry elective surgery targets, he said, and people needed to realise bringing operations back in-house did not necessarily result in large savings.
...

The CDHB spent the most on outsourcing procedures to private providers including Canterbury Orthopaedic Services, which trades as Leinster Orthopaedic Centre, Southern Cross Hospitals and St George's Hospital.

NZ Private Surgical Hospitals Association president Richard Whitney said the private sector was already the dominant provider of elective surgeries in New Zealand,.

It could perform many procedures "for the same price that the public sector would be credited with" and would play an increasingly important role as demand for surgeries increased, driven by an ageing and growing population.

Private health insurance here remains cheap. We have a high-deductible plan basically as catastrophic coverage. I cannot be bothered saving receipts for reimbursement for any of the routine stuff - and why bother? We don't have car insurance to protect against the costs of an oil change.

The mixed system just works.

But boy did hearing the term two-tier in that Canadian accent bring back terrible memories of how stupid public policy debates are back in the Asylum. So glad to be out.

Zombie alcohol stats

We thought we'd killed it with fire a decade ago. But BERL's social cost of alcohol has shambled out of the grave. I hit it anew over at Newsroom:

Zombies are hard to kill. Since the classical zombie only really occurs in fiction, accounts vary. But it never seems easy. Things that would kill or at least stop any normal living creature barely seem to faze the undead.

Zombie statistics are at least as hard to kill. These statistics, despite being horribly unsound, insinuate themselves into public debate and stay there. Tim Harford’s excellent BBC series More or Less makes a running feature of the statistics that, no matter how often you think you’ve cut them down, pick themselves up and lumber on.

I was very surprised to see one of New Zealand’s worst zombie statistics come back to life a couple of weeks ago. Put to the grave almost a decade ago, it returned at Alcohol Action New Zealand’s conference in August. BERL’s Ganesh Nana was reported to have claimed that alcohol-related harm costs every New Zealander $1,635 per year, for an annual total of $7.8 billion.

The figure seems to be an inflation and population-growth update of BERL’s 2009 estimate of the social costs of harmful alcohol use. The figure was nonsense at the time; an inflation adjustment to nonsense is hardly an improvement.

Let’s go through just what went wrong in that prior study, and why I was surprised to see its resurrection.

Satisfaction (Treasury stakeholders can't get no)

So Treasury sat on its 2017 external stakeholder survey for a year. In February, it told itself that it would release the results of the survey when it had achieved sufficient progress in improving things. It provided me the survey this week in response to an OIA request, but who knows when they would have otherwise gotten it up on their website.* 

The 2015 version of the survey was up within a couple of months.

The survey results aren't all bad. But on the key area I've been worried about around Treasury's economic capabilities, they aren't good. We can apply our usual bit of skepticism where a lot of the respondents to these surveys would be other Wellington types who might have their own unreasonable reasons for being mad at Treasury, but that should be in the fixed effect.

I go through it in this week's Insights newsletter.

Among those people interacting with Treasury about its core business of economics, macroeconomics, and fiscal projection, satisfaction dropped from 70% in 2015 to 47% in 2017. The proportion of stakeholders viewing Treasury staff as well-informed dropped significantly, as did overall confidence that staff do a good job, that Treasury challenges thinking on critical issues, and that Treasury can offer insights.

One highlighted survey response noted that “Treasury staff are personally a pleasure to work with, but they don’t have a strong background in economic analysis.” It is no particular surprise that lifting the quality of staff was near the top of the list of things stakeholders wanted Treasury to focus on.

The August survey results were reported to the Executive Leadership Team in November 2017 and discussed in February 2018. This week’s letter from Treasury says they are working on building economic capabilities through measures like training existing staff and through recruitment.

When Treasury would have released the Stakeholder survey, barring being prodded, is anyone’s guess. Only four of fifteen hired by Treasury in the 2019 graduate recruitment round had at least Honours-level training in economics and finance; I doubt that counts as addressing the concerns raised in the survey.

The consequences of Treasury’s failed experiment in de-emphasising economics will be felt for a long time. Treasury needs again to be the place where top economics graduates want to work.

The OIA materials are all available at the link above as well.

I have another couple of requests now in; the OIA due date will be 4 October.

Treasury said that they're working on building economic capabilities through training and recruitment.

So I have asked for details on their in-house training programme, including any syllabus and curriculum, and any assessment or review that Treasury might have undertaken benchmarking knowledge provided through that programme against university training in economics.

On building capabilities through recruitment, I have asked for detail on the qualifications and fields of analysts, senior analysts, principal advisors and senior managers hired for each of the past several years, as well as the same detail on people leaving Treasury for the past several years. I know of a couple of great senior people who have joined Treasury recently, but I also know of other great people who have left. It would be nice to have a sense of that flow.

Finally, I've asked for more detail on Treasury's award-winning blinded recruitment programme.

I understand that the process also blinded the applicant's field of study, or at least that it did so for some recent years. I want to know more about that. 

I'd like to know:

• at what levels of recruitment it applied;
• over which years' recruitment it ran;
• what evaluation framework was set up when they implemented the thing and any evaluation that was subsequently undertaken;
• whether it really did scrub out the applicant's field of study
• and, if so, over what period;
• and, if so, what analysis formed the basis for deciding to do that, and what analysis was undertaken in assessing the effects of doing that;
• on what basis Treasury was able to choose among applicants if they knew nothing about the applicant's grades, degree level, or university; 
• what the applicant pool looked like in each of the last few years, what the pool of applicants extended interview invitations looked like, and what the pool of extended offers looked like (degree and majoring field). Basically, I want to know if economists stopped applying to work at Treasury or whether the blinding knocked econ applicants out, and what the time path there looks like. 

Stay tuned. Maybe they'll tell me.

* Update: the thing's on their website, but only listed as 2017. They don't say when it was undertaken in 2017. Colmar Brunton ran the survey in early August; responses were received by respondents from about 31 July, with a four-week response window. So all responses would have been in by late August. This was in the email I'd received from Treasury as a respondent, so you can see the timeline here:

What happens to the results?Colmar Brunton will analyse the results and provide a report to the Treasury in September.  The report will be published later on the Treasury’s website. Previous research has provided valuable information on what the Treasury needs to do to better engage our stakeholders.

Maybe they've only sat on it for 11 months if they received it late September. It's well out from 2015's 2-month turnaround.  

Sentence first, verdict after

It isn't crazy to think that maybe information problems have people are consuming a less healthy diet than they'd otherwise eat. If people had an underlying desire to eat healthier foods, you'd expect that providing more information might change their choices. 

But if provision of information didn't change their choices, that tells us something too. I'd interpret it as saying that people had basically been making the choices that were right for them all along and that information problems hadn't been affecting decisions.

Public health people conclude differently:

University of Auckland researchers looked at the way in which shoppers used Traffic Light Labels and Health Star Ratings on various food products and were surprised to find the labels made little difference to which foods were purchased.

The study's lead author, Professor Cliona Ni Mhurchu, said people who were interested in healthier choices used the labels more than the majority of survey participants, but overall none of the labels significantly changed what people bought.

There were other ways people could be encouraged to eat more healthily, including making healthier food available in different settings such as schools, workplaces and hospitals, she said.

"But what we also know is unhealthy food is readily available and heavily marketed so we really also need to be looking at marketing regulations."

Professor Ni Mhurchu said the government needed to become more involved in setting standards around how food was marketed, rather than leaving that to the Advertising Standards Authority.

"[Advertising is] not being monitored, [it's] not being evaluated, it's not the government setting the standard."

If you have really strong priors that nobody would choose to eat potato chips if they had full information, then showing that people don't stop buying potato chips when there's a health star rating on them only shows that people are too dumb to interpret the ratings. In that view, maybe we need plain packaging and big graphic health warnings. 

The same data always has multiple possible interpretations I guess. But the health people never seem to weigh the chances that a lot of people have different preferences and goals than the health people would like them to have, and that those preferences are also worthy of respect.

Easterlin?

I'm glad that Thomas Coughlan and Richard Harman went to the Wellbeing Revival this week so I didn't have to.

Coughlin highlights the Easterlin paradox:

The case for assessing the welfare implications of Budget bids rests on what is known as the Easterlin paradox.

Developed by economist Richard Easterlin in the mid-1970s, the Easterlin paradox describes the point at which rising GDP ceases to translate into greater happiness.

Examples can be found at both ends of the scale. Countries riven by war and poverty would be markedly happier if they could add to their wealth, but the world’s wealthiest country, the United States, faces an epidemic of suicide and opioid addiction — clear symptoms of rising unhappiness.

The obvious question, then, is how will a Wellbeing Budget fix these problems? 

If that formed much of the basis for what was going on at the meetings, that's a bit of a worry. The Easterlin paradox was resolved a decade ago. 

Stevenson and Wolfers show that there is a link between economic development and happiness and between economic growth and happiness - at least across Europe and Japan. When they take another indicator, net affect (positive experience less negative experiences), they find strong correlation with log household income and log GDP per capita. 

They conclude:

The time-series part of our analysis is necessarily only suggestive: repeated (and comparable) surveys of subjective well-being data are both noisy and scarce, and hence they speak less clearly. In many cases we find happiness within a country rising during periods of economic growth and rising most rapidly when economic growth is more rapid. The United States stands out as a notable exception: Americans have experienced no discernable increase in happiness over the past thirty-five years (and indeed, happiness among U.S. women has declined). In contrast, Japan stands out as a remarkable success story, recording rising happiness during its period of rapid economic growth. So, too, life satisfaction has trended upward in Europe, and this trend has been most evident in those countries in which economic growth has been most robust. All told, our time-series comparisons, as well as evidence from repeated international cross-sections, appear to point to an important relationship between economic growth and growth in subjective well-being. Quantitatively, the time-series well-being–GDP gradient yields a role for income similar to that seen in our within- and between-country
contrasts. Taken as a whole, the time-series evidence is difficult to reconcile with earlier claims that economic growth yields no boost to happiness. 

It would be stupid to say that income is the only thing in a utility function. There are lots of things in a utility function. But it's also odd to be hanging much on the Easterlin Paradox. 

The Equalizer

My column in last week's National Business Review ($) went through a new StatsNZ series on government spending on health and education by income quintile. 

A snippet:

Statistics New Zealand’s latest figures show that while households in the highest income quintile spend about $150 (or about 38%) more on education services than households in the poorest quintile, government spending on education services is about $1100 higher for households in the poorest quintile. Central government education spending in 2015-16 averaged just under $1500 for households in the highest income quintile and just over $2600 for households in the poorest quintile – despite tertiary education spending that skews toward richer households.

A more thorough analysis would and should adjust for age differences across households in different income quintiles; that work is impossible from the data released.

Government service effects

We can look, though, at the effect of government spending on in-kind transfers like health and education on one measure of inequality: the ratio between the highest and lowest quartile, or the Q5:Q1 Ratio. That ratio has a lot of problems as well, not least of which being that it takes annual snapshots of household incomes and misses how household income moves over an individual’s life cycle. But it does let us get a handle on the effects of government services.

Gross disposable income, which includes taxes and cash transfers, is about six times higher in the top 20% of households than in the bottom 20% of households. Adjusted disposable income adds in government spending on in-kind transfers like health and education. Once we adjust for those in-kind services, the ratio drops by a third.

Vacancy rates

Sitting at my desk in Wellington, it's easier for me to tell you the housing rental market vacancy rate for any city in Canada than it is for me to tell you the rental market vacancy rate anywhere in New Zealand, Wellington included.

The Canada Mortgage and Housing Corporation (CMHC - a government outfit) has stats on the vacancy rate in every metropolitan region from 1992 through 2016. I don't know if they've stopped producing the series - the last update was March 2017.

In New Zealand, the best I'm aware of is disjointed stats from the different real estate companies about vacancy rates for the properties they handle.

Why does it matter to know? In Canada's stats, we can see that the 2016 vacancy rate in Saskatoon, Saskatchewan was 10.3% while it was less than 1% in every part of British Columbia. My old home town of Winnipeg had a vacancy rate of 2.8%.

In last week's Insights newsletter, I argued that one plausible explanation of poor tenant experiences is lack of competition among landlords in markets where vacancy rates are low. That's a testable hypothesis. If tenancy outcomes are no better in places in New Zealand with high vacancy rates, then that's a different problem. We'd also hope that, were land use rules fixed, low vacancy rates would be a leading indicator for new construction. But it isn't easy to find anything reliable for New Zealand. When I'd checked, I could find news stories written on the back of one property company or another's release on vacancy rates on the properties they handle, but nothing systematic.

It doesn't seem like the kind of figure that would be hard for the new Ministry of Housing to put together out of tenancy bond data and the number of properties for rent by town or city on TradeMe.