Disgraceful

This is absolutely not how a member of a government that is trying to defend the World Trading Organisation's rules-based framework should be behaving. 

From Question Period late yesterday:

David Seymour: Has the Minister had advice in any form that some of his provincial growth fund expenditure may have to be reported to the World Trade Organization as it qualifies as agricultural subsidies—the first time New Zealand would have reported such subsidies in 25 years?

Hon SHANE JONES: Yes. Naturally, advice has been sought from the foreign affairs department. However, given that the adjudication and the appeals of so-said international trade body are in a state of disarray, I'm not bothered by that at all.

The WTO is under substantial threat. New Zealand desperately needs the continuation of a strong rules-based trading system.

It is bad enough that Shane Jones's provincial growth fund threatens New Zealand's subsidy-free agricultural system. But saying, effectively, that he doesn't care what the WTO thinks because it's useless - that completely undermines everything Minister Parker has been working for in our international trade positioning.

Update: I'd caught this on Morning Report this morning, but couldn't remember at what point in the broadcast. They've helpfully pointed me to it. Radio NZ also reports that Shane Jones's outfit had to change a press release about a loan to Taranaki Pine; a reference to the loan helping to make the factory competitive was removed.

But if that was part of the reason for providing the loan, whether or not it's mentioned in the press release should be irrelevant to whether it's something that gets us in trouble with WTO.

Labour needs to keep a closer eye on what its coalition partner is up to here. They are putting too much at risk.

Just use the darned ETS

If the government had just used the freaking ETS to reduce emissions rather than banning the natural gas industry in Taranaki, or subsidising hydrogen production, we wouldn't be seeing this kind of stupidity.

The linked RNZ story suggests the government's provincial growth fund was used to subsidise development of hydrogen options for heavy vehicles, and that that led to the proposal to subsidise a much bigger hydrogen plant in Taranaki - but that the Taranaki gas ban means too uncertain a supply of the raw material for hydrogen production. So that presumably means higher equilibrium subsidies are needed to attract the thing, to compensate for the stupid gas ban.

I have no clue whether it would have made sense to build hydrogen plants in Taranaki in the absence of the gas ban. I worry about Shane Jones engaging in the kind of winner-picking that might have even made Joyce blush. I expect the best folks to assess whether it makes sense to build hydrogen plants in Taranaki are the investors whose money would be on the line.

But if it did make sense, the gas ban makes it pretty unlikely anybody would decide to make a pile of costly infrastructure investments that depend on a reliable source of gas.

Under my preferred "Just use the freaking ETS and otherwise get out of the way" alternative, there wouldn't be a subsidy for hydrogen plants but hydrogen plants would have a lower effective cost of using natural gas because they wouldn't have to be purchasing ETS credits for GHG emissions, presuming that the stories of carbon dioxide capture are accurate.

And if the hydrogen plant stacked up without subsidy, then we've just found another way that the gas ban can wind up increasing emissions relative to the counterfactual.

GE Time

Radio NZ has a good summary of the case for allowing genetically modified plants and crops:

Parts of the farming community say they should have choice over whether to use GMOs or not.

But others, including the Minister for the Environment David Parker, argue there is no need to jump the gun on introducing GMOs into the environment.

In his last report as Chief Science Advisor for the prime minister, Sir Peter Gluckman has laid out the ways genetic modification or gene editing can benefit the agricultural sector with pasture management and emissions.

"New Zealand scientists have developed promising forages using genetic technologies that could be used to make major progress through higher energy, lipid rich rye grasses which are now in field trials in the United States.

We still don't have an answer to this question:

This matters.

New Zealand's agricultural sector could have a much-reduced carbon footprint if the government would let them use better grasses.

Do the Greens care more about global warming, or about banning GE? https://t.co/6kHGgdrmn0

— Eric Crampton (@EricCrampton) September 11, 2018

I suggest that, as part of any agricultural accession into the ETS, the Crown be liable for any additional costs falling on farmers because of the ban on using GE pastoral systems.

Trivialising vocabulary

A teacher provides a defence of not expecting kids to know the word trivial, and not using hard words like trivial on NCEA exams. 

And yet the incidence of an apparently innocuous word causing such consternation amongst exam candidates speaks to a number of interesting issues. The first is how quickly language changes, and how difficult it is to pick up these changes when they are intergenerational. The people setting the exam have no doubt been surprised that the word ‘trivial’ is not widely recognised by the young. So was I. I had no idea it had slipped out of common usage. But then I teach mathematics and have an interest in philosophy and trivial has an important meaning in both those fields. Even if I didn’t, I grew up in a world where the word was often used. I also grew up in the countryside and so as a child knew the difference between a cow, a heifer and a steer. None of these things speak to the general state of my vocabulary, just the context in which it was acquired.

Speaking to a history teacher following the exam, I was interested to hear that the problem with ‘trivial’ was not confined to struggling students, but affected candidates of all abilities. Top students were caught out because the examiners did not realise a word was no longer widely understood. Students were able to make guesses based on the usages they were familiar with, specifically trivia quizzes of various kinds. So some students assumed that trivial meant highly detailed and specific. And fair enough too – the questions in Trivial Pursuit are rarely trivial in the way implied by the quote in the exam. So it might be less a case that students don’t know what trivial means, and more a case that the meaning of the word trivial is changing.

I hadn't known that trivial had fallen out of common usage. If it has, it's been in the last decade. Google ngrams run through 2008. The decline in word usage since the 70s has looked fairly trivial.


A sympathetic and compassionate future policy would restrict all NCEA exams, including those for final-year students in history, to use only words that show up on the list of the 3000 most common words in the English language.

Scripts using words beyond the ones on that list should be downgraded. Not only does the use of bigger words make those of more limited vocabulary feel bad, but we should also expect that, when NCEA achieves everything it is destined to achieve, the graders themselves will only know 3000 words.

Getting down to the list of 3000 may take some time. But the Eleventh Edition NCEA Dictionary will finally have whipped the language into its final shape - the shape it's going to have when nobody speaks anything else. It will have cut the language down to the bone. There is great wastage in the verbs and adjectives, but there are hundreds of nouns that can be got rid of as well. If you want a stronger version of "good", what sense is there in having a whole string of vague useless words like "excellent" and "splendid" and all the rest of them?

More than trivial

Despair:

Students sitting the NZQA Level 3 History causes and consequences paper on Wednesday were confronted with the word in a quote from Julius Caesar: "Events of importance are the result of trivial causes."

Students were asked to analyse the extent to which they agreed or disagreed with Caesar, with reference to the causes and consequences of a historical event.

...

Some of his peers thought trivial meant "significant", he said.

"Trivial isn't a word that you hear too frequently, especially not if you're in Year 13," he said.

A definition of the word should have been included in the exam, he said.

Chairman of the New Zealand History Teachers' Association, Graeme Ball, agreed.

He called the exam a "little bit of a snafu" on the part of NZQA, and said the language used in questions should be "accessible to all".

The exam was not testing comprehension, so it was "unfair" to make that part of the assessment, he said. 

New Zealand's schools are giving diplomas to illiterates. Knowing the word trivial should be trivial.

Try using it in a sentence. The failures in New Zealand's education system are more than trivial.

Uplifting?

I'm not sure quite what I was expecting out of NZ First's Regional Growth Fund, but it wasn't this. From Richard Harman's Politik newsletter (well worth the subscription):

Regional Economic Development Minister Shane Jones has announced Provincial Growth Fund (PGF) support for a new 560-tonne travel lift for Oceania Marine Group. The new lift will better serve the growing demand for refit and building services of workboats and superyachts and will help fund civil works at South Shipyard – including new piers, hardstand reinforcement and other works. "The PGF will support this important investment with a loan of up to $4.8 million, and further discussions are taking place on terms and conditions” Shane Jones said.   

I'd thought the fund was for public infrastructure stuff that might enable regional growth, and maybe for helping out councils having to shell out for facilities for tourists who don't spend much in the area.

I don't get the justification for this one. Why is the government subsidising outfits fixing superyachts? Is there some failure in credit or capital markets that's specific to boats? Why aren't private investors seeing the opportunity and rushing to fund the project? Don't owners of superyachts pay fees for service that could cover the cost of the lift over time?

I hope that due diligence around this stuff is tight....

Bias toward action?

Kiwis so-inclined can petition their Parliament for legislative change. But they cannot petition Parliament to maintain the status quo.

Victoria University's Chris Eichbaum wants the government to ban private fireworks displays.

This is just phenomenal. With this level of support we now have an opportunity to get them issues in front of law makers and to push for the necessary changes https://t.co/Ada1CsW6xv pic.twitter.com/5bpeJgoLym

— Chris Eichbaum (@ChrisEichbaum) November 6, 2018

I kinda like fireworks, so I submitted a petition asking the government to maintain the current rules. I started from Chris's petition, added the word 'not' in a couple spots, listed some of the ways that fireworks are awesome, and submitted it.

A few days later, I got a very apologetic phone call from the Clerk's Office saying that it's only possible to petition Parliament to change a law, not to leave a law as it is. He was exceptionally helpful, listing all the things people could do if government did move to legislate in response to the petition - I already know them, but some folks don't, so that was nice.

And then I got the official email rejecting the petition.



High numbers in support of a petition signal something about the strength of support for the petition, but tell you nothing about the strength of opposition. I suppose it's nice that those opposing petitions don't need to rally the troops to counter-petition every darn thing, but when a government cites the number of letters from school-kids in support of a policy as reason for doing things....

Complicated Gains Tax

Newsroom reports on a talk by two members of the Tax Working Group that lays out the difficulties with any capital gains tax.

One part that's probably underappreciated: the extent to which everything in the tax system is built around the rules as they're currently structured, and how much would need to be rejigged if a CGT were put in place. 

One example:

The report itself highlights this complexity in the application of a capital gains tax to KiwiSaver and Portfolio Investment Entities (PIEs). Most KiwiSaver schemes take the form of multi-rate PIEs (MRPIEs). While there are a number of features in the MRPIE tax regime the group would not want to see disturbed by any new rules, a CGT would affect MRPIEs that invest in property, or Australasian shares. An individual would be subject to a tax on those asset types, so it follows that the MRPIEs should similarly be taxed.

However, these are open-ended funds into which investors come and go. That means a fund would have to allocate gains and losses to an individual investor by taking into account the change in value during the time that investor was actually involved in the fund. It would require detailed record-keeping, as well as various adjustments for gains and losses already recognised due to redemptions from the fund. And while that’s not simple, it’s even more complex in reality. This is because units are issued and redeemed on a daily basis, MRPIEs often invest in other MRPIEs, and a retail KiwiSaver scheme may invest in a wholesale PIE that in turn invests in a specialist PIE.

Having a CGT is complicated. Not having a CGT is complicated too because the tax system has to adapt to make sure that labour income doesn't pretend it's capital gain. The latter isn't perfect, but it's in place - the system's kinda built around the absence of a CGT and tries to account for it. That means that 'just' putting in a CGT means going back over everything that's been designed around the absence of one.

NB: I do not pretend to understand MRPIEs. But I'm not the one insisting on changes to a complex system that's evolved since the 80s reforms.

The Calculus of Carbon

I had to trim last week's NBR column to fit the page. Here's the original. Enjoy!

New Zealand’s climate change policy could stand to be just a little more vanilla.

When Cyclone Enawo hit Africa’s east coast in 2017, it wiped out about 16% of the world’s vanilla production. The cyclone came on the back of droughts that hurt the 2016 crop; there was no huge buffer to meet demand.

So, globally, vanilla users had to cut back their consumption by about a sixth – and in a hurry. Of course, unless you were directly involved in the vanilla industry, or were a baker using vanilla in weekend pancakes, you probably did not even notice.

There were no Ministers in Charge of Vanilla Change sending out a dozen press releases a week proving they were taking the problem seriously. There were no Vanilla Commissions or Taskforces. No Productivity Commission reports on the best ways for New Zealand to respond to its shared vanilla crisis. No MBIE advice on preferred ways of subsidising alternatives to vanilla in ice cream.

Bernard Hickey didn’t even show up to propose special taxes on “Vanilla-guzzling” concoctions from Wellington ice cream and gelato institution Kaffee Eis, with all taxes collected helping subsidise vanilla for the Girl Guides in hope of bringing back their soon-to-be-cancelled vanilla-flavoured biscuits.

Instead of all that ruckus, markets simply worked their regular vanilla-flavoured magic. Prices worked.

Economist Alex Tabarrok says prices are a signal wrapped in an incentive. The spiking price of vanilla signalled relative scarcity, along with an incentive for everyone to change their behaviour. Those most readily able to reduce their use of vanilla would be the first to adapt. Vanilla by-products started being pressed into service – spent vanilla flecks almost quadrupled in price, according to the Financial Times.

And those for whom vanilla was most critical, as they judged for themselves and demonstrated with their own money, simply lumped the price increase.

It is exceptionally difficult to come up with policy options that beat simply letting prices work.

Every alternative I have suggested around grand government vanilla strategies would have been worse. If the government was exceptionally lucky, it would have required firms here to do what they had already figured out would be best for them in their own particular circumstances. But in every other case, the government would have enforced unnecessarily costly adjustments. No Minister or Ministry can tell what the best substitutes are for different users, or which uses are most valuable to whom. That kind of knowledge can only emerge from the interplay of buyers and sellers in markets, and is otherwise invisible to Wellington desk-jockeys.

The New Zealand government has committed to reducing our greenhouse gas emissions. Fortunately, New Zealand has a functioning Emissions Trading Scheme (ETS). Every litre of petrol or diesel you purchase includes the cost of the New Zealand Units (NZU) purchased in the ETS to cover the fuel’s eventual carbon dioxide emissions. Electricity is in the ETS, so every kilowatt of power put into the system by coal, gas or geothermal generators requires those generators to purchase carbon credits. And the government has also committed to strengthening the ETS.

If there were no way of pricing carbon dioxide emissions, the government would be forced into a lot of rather second- or third-best alternatives. The government would have to guess how different industries, firms and consumers would behave in a world with carbon prices and then set regulations, taxes and subsidies to encourage those behaviours. It would be dreadfully inefficient compared to what prices can achieve through the direction of no one, but there would be some interventions that would still likely be worthwhile.

When we do have a functioning ETS, though, layering additional subsidies and regulations on top of the scheme, and particularly for those sectors already covered by the ETS, very easily risks New Zealand failing to do nearly as much as it could to reduce emissions.

The best that a government committed to reducing greenhouse gas emissions can do is to make sure the ETS is working as well as possible, then buy back and retire credits in the system. Those able to most easily reduce their own carbon emissions will be the first to sell; those for whom change is difficult will be last to sell – exactly how people responded to vanilla price increases. No Minister or Ministry has to guess who can most easily adapt.

Buying back credits within the ETS, rather than forcing particular sectors to change through regulation or bans, helps make sure New Zealand gets the greatest emission reductions per dollar’s worth of effort put to the cause.

Regulatory options, like mandatory fuel economy standards, or electric vehicle subsidies, risk doing harm because of the good forgone. An electric vehicle subsidy is unlikely to increase greenhouse gas emissions. But it would increase emissions compared to putting the same amount of money towards buying up and retiring credits in the ETS.

Different policies have very different costs per tonne of carbon dioxide mitigated. A government using regulatory alternatives has to pray it has modelled those costs correctly and found the carbon best-buys.

Work published in the fall issue of the Journal of Economic Perspectives summarises recent estimates of the static costs of policies mitigating greenhouse gas emissions. Corporate Average Fuel Economy standards in the United States cost between US$48 and $310 per ton of carbon dioxide mitigated. But NZU is selling on the spot market for around NZ$25. Imposing similar rules here would then be, at best, about a third as effective in reducing emissions than simply expending the same resources on buying and retiring NZU.

Kenneth Gillingham and James Stock. 2018. "The Cost of Reducing Greenhouse Gas Emissions" Journal of Economic Perspectives 32:4 (Fall).

The journal article does note that dynamic effects can vary: If there were no electric vehicle charging stations, a chicken-and-egg problem could prevent people from taking up electric vehicles if those make sense for them, so policy could help. And if a government as large as America’s starts subsidising buying huge volumes of solar panels, it could encourage technological innovation that reduces costs across the board.

But neither case seems particularly relevant: There are few major transport routes without charging stations now, and New Zealand demand for batteries or solar panels is not likely to be large enough to drive broader technological change. And while New Zealand could plausibly lead change through biotechnology advances in better low-emissions pastoral systems, if the grasses cutting greenhouse gas emissions were developed using genetic engineering, the government already bans their use.

It is also rather likely that successful dynamic investments of this sort are easier to identify in hindsight than with foresight. Buying back ETS credits yields more certain returns.

New Zealand’s climate change policy could stand to be a lot more vanilla. Simply making sure the market is working well, strengthening it where needed, and then buying back credits might sound boring. But vanilla really can be excellent. If you don’t believe me, try the Vanilla Bean at Kaffee Eis.

I particularly recommend adding coffee to the Vanilla Bean as an affogato.

A regulated market model

Over at Newsroom Pro ($), I make the case for basing legislation and regulation for cannabis markets on our existing rules for spirits.

The government has to have a referendum on cannabis by November 2020 and might want to have it earlier than that to not coincide with the general election. All the experts say that the referendum question should ask voters to endorse or reject a piece of developed legislation, with rejection meaning that the status quo stands. Writing legislation and regulation around some bespoke model for cannabis, to hit that deadline, would be a mess.

But it wouldn't be a mess if we had a good starting point. Existing rules around alcohol (spirits in particular - retail in specialist outlets rather than at the supermarket) handle a lot of problems that any regulatory framework for cannabis would have to solve too. How do you license retailers? How do you prevent minors from having access? How can we have both home production and commercial production? What should the rules be around advertising and marketing for commercial production? How much say should local councils have? How do consumers know what's in the product and what strength?

I'm not saying that the alcohol rules are perfect. But for any "But Whaddabout" question that comes up for cannabis, the starting point for an answer is looking at how we already deal with it for alcohol, see if the answer there for alcohol basically works for cannabis or whether it would need to be tweaked, then move on to the next one.

If we basically treated cannabis like spirits:

• People could grow at home for non-commercial use, sharing with friends; if they discovered that they had an excellent green thumb, they could set up a business and be subject to the rules for commercial supply, including excise. Remember how 42 Below got its start? A lot of folks in the cannabis community seem to think that allowing commercial growing and sale would kill the grassroots as big players would run everything, but just look at the thriving craft beer community and the developing craft distillation community. They all coexist along with lots of folks who brew and distil at home. 
• Products available for retail sale would have concentrations listed on the packaging. Alcohol has the strength and number of standard drinks. Excise would be based on product concentration.
• Councils could set Local Cannabis Policies that varied from the National Default Policy if they wanted, along with cannabis-ban areas where they might not want people smoking.
• Products couldn't look too attractive to kiddies - important for the edibles market. Same goes for advertising. There aren't really comparable alcohol edibles - there'd likely have to be additional packaging requirements to make it really clear that it's a cannabis-based product.
• On-licenses would have host responsibility requirements. Hopefully the SmokeFree Environments Act wouldn't kill on-licences or restrict on-licences to edibles - supervised consumption like this could be harm-reducing. 
• Retailers would be terrified of selling to kids because they'd face fines, licence suspensions, or complete loss of licence. 
• People involved in the sector would be declaring their earnings to IRD and paying tax on those earnings; companies in the sector would be paying company tax; purchased product would carry GST; producers would be able to claim back the GST on their inputs. 
• Cannabis-based products would be ineligible to be prizes in raffles. For some reason, alcohol is on the list of prohibited prizes. Cannabis would wind up there too if we just follow alcohol. Also, as aside, "vouchers or entitlements to commercial sexual services" are prohibited prizes under the same rules. Bans on alcohol as prizes for raffles at school fairs is a pain; I've not known the ban on raffling off brothel vouchers as being a binding constraint at school auctions. It would be rather fun to buy tickets for that raffle under other peoples' names though, just to make the prize drawing more fun. "Superintendent Chalmers wins the $500 voucher for Il Bordello!"

Update: worth checking out Russell Brown's summary of Friday's cannabis conference. I was there chatting with Labour's Greg O'Connor about his experiences in drug policing and his study tours to places that have steered away from prohibition. Here's Greg at a cannabis shop in Colorado. 

Sugar tax advice

Ministry of Health Chief Science Advisor John Potter's advice to the Prime Minister about sugar taxes, a two-page set of unreferenced bullet points, ignored the comprehensive review commissioned by the Ministry and released only a few days before Potter's advice. NZIER's report was released 31 January 2018; Potter's memo was dated 16 February.

I was curious whether Prof Potter had seen the NZIER work prior to writing his bullet points. So I asked the Ministry.

Potter was provided a copy of the report on 15 August, 2017, in an email from the Ministry's Chief Economist.

The Ministry holds no records showing feedback from Potter, so he might have missed it. But the report did draw a fair bit of media attention - and not just from me here on the blog.

The Herald covered it on 2 February.

Newsroom had it on 7 February.

It even made the Toronto Globe & Mail on 12 February. 

And it surely would have come up in discussions within the Ministry between August and February.

What's particularly interesting in Croxson's email is the suggestion that it be put on the Ministry website after getting it to the Minister and presenting it to ELT. The email is dated 15 August. It did not make it onto any Ministry website. Instead, it showed up on NZIER's website, rather a while after I made OIA request that it be released, and more than five months after the Ministry received it. 

Better horses

I have a bit of fun in this week's Insights newsletter:

Winston Peters’ tax credit for pretty horses fights the wrong battle when it comes to improving New Zealand’s bloodstock.

New Zealand has no obvious problem with ugly horses. Maybe farmers keep the ugly horses hidden so townies out for a drive don’t see them, but it seems unlikely.

I have yet to see an ugly horse here. They’re all beautiful in their own way.

But we do seem to have, dare I say it, cowardly horses. Every time Guy Fawkes Day comes around, we hear calls for banning fireworks because they worry the horses.

It wasn’t always this way.

Rudyard Kipling’s classic “Her Majesty’s Servants” tells the story of camp animals that served the British Army in India and Afghanistan. The troop-horse took pride in its bravery, telling the other animals it was trained to lie down to let its master fire across its back.

New Zealand sent more than 10,000 horses to serve in the Great War. The army selected its horses for their bravery rather than beauty. Cavalry was then on the wane, so fewer horses might have had to serve as shield for their riders. But they faced bullets, poison gas, and artillery.

Only four returned home. The remaining survivors were either sold to foreign interests or shot.
A generation of New Zealand’s bravest horses was wiped out. The most cowardly horses stayed home, and today’s pathetic stock are their descendants.

New Zealand does not need tax credits to make the country’s horses more attractive. Who can really judge that anyway? What we need instead are tax credits to build a braver bloodstock.

My modest proposal would require that every horse in the country attend boot camp, along with their owners, to re-instil the lost martial equine spirit. The worst performing horses would be gelded on the spot, preventing their contaminating future generations. The best performing horses could attract Winston’s tax credit. That tax credit would follow through to those horses’ descendants, but only if bred to other similarly creditable stock.

And the best-of-the-best could be drafted to make Winston’s proposed Police Flying Squad a mounted unit.

Kiwi horses would come to welcome Guy Fawkes Day fireworks as reminder of the comradery they shared with each other in boot camp.

And my proposal is no more ridiculous than tax credits for engineering beautiful horses. 

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Carbon Calculus

If you want to reduce greenhouse gas emissions, improve the ETS and use it to buy-back and retire credits rather than mucking about with sector-specific stuff. 

Me in this week's NBR print edition. A snippet:

The New Zealand government has committed to reducing our greenhouse gas emissions. Fortunately, New Zealand has a functioning Emissions Trading Scheme (ETS) that the government has promised to strengthen. Every litre of petrol and diesel includes the cost of the ETS credits purchased to cover the fuel’s eventual carbon dioxide emissions. Electricity is in the ETS, so every kilowatt of power comes with its ETS credit as well, where necessary.

Sector-specific tax and regulation options, like subsidies for planting trees, regulations on industrial practices like methane flaring, or automotive fuel economy standards, could make sense in the absence of a price on emissions. In that world, the government would have to guess what people would be doing if carbon were priced, and then regulate to encourage those behaviours. And some of those interventions could even be cost-effective.

But layering additional feebates, incentives or regulations on top of sectors already covered by the ETS very easily risks New Zealand failing to do nearly as much as it could to reduce emissions.

An electric vehicle subsidy is unlikely to increase greenhouse gas emissions. But it would increase emissions compared to putting the same amount of money towards buying up and retiring credits in the ETS. Why? Buying credits always encourages those who can reduce emissions most cheaply to sell their credits, and electric cars might not be the best-buy for reducing emissions.

I'll add a link once there's a version online. Update: link!($)

Have you considered using prices?

Talk about an elephant in the room.

Radio New Zealand's story on unregulated informal sperm donor networks is a great chronicle of what happens when you ban payments for sperm donors, without once mentioning that the whole thing is consequence of a ban on payments for sperm donors. It's like a murder mystery where all the facts are laid out, but nobody has figured out who the obvious killer is. It really is the butler! Why hasn't anyone arrested the butler!

What do we find in this story?

• Waits at official fertility clinics of 18 months to two years (blamed in part on increased demand from single women);
• High costs at fertility clinics: $300 for an initial consultation, donor's testing costs of $1500...
• Men shunning clinics because donating at the clinic is costly to them: "The clinics, they just don't simplify the process. The donor has a life too. If I have to go through a clinic, I have to do a consultation and therapy and it takes six months to help one person. It's too much."

What don't we find in this story?

Section 13 of the Human Assisted Reproductive Technology Act 2004:

13 Commercial supply of human embryos or human gametes prohibited(1) No person may give or receive, or agree to give or receive, valuable consideration for the supply of a human embryo or human gamete.
(2) Every person commits an offence who contravenes subsection (1) and is liable on conviction to imprisonment for a term not exceeding 1 year or a fine not exceeding $100,000, or both.

If the clinics could pay the donors for the increased hassle they face in going through all of the rigamarole required for that process, supply would increase. If demand increased, clinics could up the offer price to encourage greater supply. There wouldn't be 18-month queues.

It isn't like not paying the donors saves the customers a lot of money. The clinics just get the money instead - though it is a puzzle that they haven't increased fees by even more: Simple AI is cited as (only) $1500 per cycle.

The article notes the risks in the informal sector (potential lack of disease testing, etc). Maybe, just maybe, if the clinics could pay the donor at least enough to cover the hassles they face in going to the clinic, things would change.

Previously:

• The most predictable thing ever
• Unintended consequences: Assisted reproductive technologies edition

A Wisconsin Waste

When I taught Public Choice, I liked to give my undergrads a news story for their take-home final, and just say "Discuss with reference to the theory developed in your lectures and readings."

Dan Kaufman's story in the New Yorker on Wisconsin's Foxconn mess would have been a bit late in the year to make the final, but it was final-worthy.

A snippet:

But as the public has become aware of the spiralling costs for these jobs, the Foxconn deal has become something of a political liability for Walker, particularly among voters outside of southeastern Wisconsin. Those costs include taxpayer subsidies to the company totalling more than $4.5 billion, the largest subsidy for a foreign corporation in American history. Since Wisconsin already exempts manufacturing companies from paying taxes, Foxconn, which generated a hundred and fifty-eight billion dollars in revenue last year, will receive much of this subsidy in direct cash payments from taxpayers. Depending on how many jobs are actually created, taxpayers will be paying between two hundred and twenty thousand dollars and more than a million dollars per job. According to the Legislative Fiscal Bureau, a nonpartisan agency that provides economic analysis to the Wisconsin state legislature, the earliest citizens might see a return on their Foxconn investment is in 2042.

Oh - and much of the land for the deal was stolen by the Wisconsin government under eminent domain provisions.

To make space for Foxconn’s development, which will also necessitate many miles of new roads, the Village Board has been buying properties, sometimes using the threat of eminent domain to force reluctant homeowners to sell at a price determined by the village. Several weeks before the groundbreaking, the seven-member board went further. By a 6–1 vote, the board designated the entire twenty-eight-hundred-acre area “blighted,” which will allow Mt. Pleasant to issue bonds that are exempt from both federal and state taxes, and may also grant the village a more expansive use of eminent domain to seize the property of the few remaining holdouts, a small if highly visible group, whose property-rights fight embodies a wider sense of disenchantment with the Foxconn deal.

And it looks like Wisconsin's post-Kelo move to restrict takings was a sham.

Kim reached out to her political representatives, including her congressman, Speaker of the House Paul Ryan. “His response was: this is not a federal issue,” Kim said. “And that I should reach out to my state representatives.” That surprised her. In 2005, Ryan co-sponsored the Private Property Rights Protection Act, which was written in reaction to the Supreme Court’s decision in Kelo v. City of New London. That ruling allowed New London, Connecticut, to use eminent domain to take several homes for an economic-development project. “When someone works years to secure a home or establish a successful family store or restaurant, only to be forced by the government to give it up so a corporation can redevelop the land, that’s wrong,” Ryan said in a statement supporting the measure. The bill passed the House, 376–38, but failed in the Senate. (Ryan also attended Foxconn’s groundbreaking ceremony in Mt. Pleasant.)

The same year, Wisconsin passed its own law in response to Kelo, co-sponsored by Leah Vukmir, now the Republican U.S. Senate nominee. It outlawed the use of eminent domain to seize a property for use by a private corporation, with one exception: if the property was “blighted.” Kim believes the state law was written in such a way as to protect a new home like hers—it defined blighted property as one that is “detrimental to the public health, safety, or welfare.” However, the Village Board has relied on a different statute, one that applies the designation for property that, among other things, “impairs or arrests the sound growth of the community.”

New Zealand needs to be very careful in giving Councils expanded powers for takings with urban development authorities. We need not follow America into that asylum.

For Kim Mahoney, the issue reinforced her determination to keep fighting. She pointed to the Creuziger’s Land of Giants Pumpkin Farm, the last big holdout. The four-hundred-acre property has been in the Creuziger family for ninety-two years, but the family was ordered to vacate on October 8th. (After the Cruezigers challenged the move in court, the village withdrew the order, saying it won’t need the land for another year.) “If they’re allowed to do this, they can do this to anybody at any time,” Kim said. “Wisconsin’s eminent-domain laws and private-property-rights laws are meaningless. All they have to do is rezone it and call it blighted.” On my last visit with the Mahoneys, the big Caterpillar machines were working closer to their house than usual, and the noise was louder. Jim and I were standing outside in his driveway. A brilliant orange-red sunset lit up the horizon, but it was hard to escape the sound. “It used to be so quiet here,” Jim said.

Rational voting?

Andrew Gelman argues it could be rational to vote. Sure, you're only trivially likely to change the outcome. But if you do change the outcome, the outcome is changed for lots of people. Add up the benefits across that broad set, specify that people are at least somewhat altruistic, and all's good, right?

He could be right in the current election cycle. I expect there is substantial value in the GOP being punished hard in each and every place it can be, all the way down to the vote on city dog-catcher. That outfit has to understand that reputation matters, and that failing to constrain Trump has more cost than benefit. It should be made to understand that backing a demagogue brings electoral death. It needs to be more scared of supporting Trump than of not supporting Trump. The party needs to be turned off and on again.

But the argument does require that the voter places himself or herself in an epistemically privileged position. You only change the outcome if you make or break a tie. You only make or break a tie if half of the voters in your district think you're providing a public bad with your vote rather than a public good.

Why do you think that your half of the electorate's the right one and the other half's wrong? Shouldn't you be updating, at least a bit, based on that half the electorate disagrees with you? Maybe you're the one who's done all the sums and has gotten things right, and the other side is full of idiots who'd wreck the country. But maybe there's a marginal voter on the other side who's your mirror image and thinks the same of you.

There's probably somebody reading this now who thinks my second paragraph is complete rubbish and that there's a lot of value in stopping particular Democrats from being elected. And that person could be right!

So I don't think this makes for a generalised "Yes, it's rational to vote" argument. It could be combined with a Jason Brennan "If you're going to vote, you have a duty to vote well", so that it's rational to vote if you have really good reason to think you're better informed than other voters. Feel lucky?

Previously:

• No it can't!
• Economist irrationality

Disruptive classmates

You can do great work on education in New Zealand's Integrated Data Infrastructure. It lets you link kids to their parents and families, so full family background from parents' education to criminal records can be used as explanatory variables.

But you can't do this. From Scott Carrell, Mark Hoekstra and Elira Kuka in the November AER: The Long-Run Effects of Disruptive Peers.

A large and growing literature has documented the importance of peer effects in education. However, there is relatively little evidence on the long-run educational and labor market consequences of childhood peers. We examine this question by linking administrative data on elementary school students to subsequent test scores, college attendance and completion, and earnings. To distinguish the effect of peers from confounding factors, we exploit the population variation in the proportion of children from families linked to domestic violence, who have been shown to disrupt contemporaneous behavior and learning. Results show that exposure to a disruptive peer in classes of 25 during elementary school reduces earnings at age 24 to 28 by 3 percent. We estimate that differential exposure to children linked to domestic violence explains 5 percent of the rich-poor earnings gap in our data, and that each year of exposure to a disruptive peer reduces the present discounted value of classmates' future earnings by $80,000.

The IDI can tell you which school a kid attends, but cannot tell you which classroom that child is in. You can neither link children to their teachers nor to their classmates because that information isn't held in central government's administrative data. So the best you could do is get the school's proportion of kids with relevant CYF notifications or family policing records.

It's a bit of a shame - I wonder whether much of what parents seek in higher decile schools isn't educational quality, but avoiding disruptive peers.

Grades

There's an old joke that profs aren't paid to teach, they're paid to grade. Teaching is a joy. Grading is a nightmare. 

Back at Canterbury, I taught relatively small classes and so didn't get assistance with the grading. But you had to get it done and get the grades back to the kids so that, if they were seriously getting things wrong, they had time to chat with you about it before the finals - or at least have feedback .

Auckland University of Technology's union members are doing a disservice to those students. 

AUT students are frustrated they're having to sit final exams without knowing whether they've passed previous assignments as staff on a marking strike withhold their grades.

More than 750 Tertiary Education Union (TEU) members at the university are refusing to release students' marks unless AUT agrees to raise their salaries by three per cent and pay the lowest paid staff the Living Wage – $20.55 an hour – to more adequately reflect the "time, energy and skill that staff put into their jobs".

Students said it was unfair they had been left in the lurch by the strike and that being kept in the dark about their academic progress was making the exam period more stressful.

The worst part of this isn't anything here mentioned.

Yeah, kids will have a bit of a harder time figuring out how to optimise their studying efforts across classes - but I've never been all that convinced that knowing precisely how many points they need on the exam to pass the course really is all that helpful.

The worst part is that they could be studying from saved versions of their assignments without knowing whether those assignments are right or not.

A student in his final year of AUT's bachelor of computer and information sciences said he and his classmates were yet to receive marks for any of their assignments – one of which was submitted more than a month ago – for one paper due to the strike.

He and his classmates sat their final exam, worth 50 per cent of their total grade, on Tuesday.

The AUT Student Association has come out against the tactic, but could be doing a bit more for future students. If this had happened while I was a student, I'd have wanted a list of lecturers who'd pulled this stunt so I could avoid their courses. I wonder if the Student Association has considered doing that.

And I wonder what the university will do with grade appeals of the form "I screwed up this question on the final exam because I had no feedback on the assignment covering this section and so no opportunity to correct my error. I would have passed the exam had I had that feedback."

Electric trains

In 2016, Kiwirail decided shift to an all-diesel fleet. At the time, it made some pretty compelling arguments for the change:

• Running an electric bit in the middle of a diesel network meant shifting everything from one set of engines to another set of engines;
• Running two sets of maintenance yards is expensive;
• Shifting to an all-electric North Island system would cost at least a billion dollars for the trunk lines and would still need diesels on the feeder lines that didn't have the electric infrastructure, so you'd still have all of the engine-switching problems. And the Wellington power system is different from the Auckland system in ways that matter for setting this stuff up;
• The overall costing of diesel engines over the operational life was 20-30% lower than the cost of electric engines;
• Rail emissions are only 1% of all transport emissions, and transport is 17% of overall emissions. 
• So - things that make rail less attractive as compared to trucks can wind up doing more harm than good (my point rather than theirs)

This week, Labour decided that Kiwirail should keep its electric railway-within-a-railway, keep switching engines mid-course, and refurbish its old electric engines. Because climate change. A Massey prof said they should have gone further and electrified the whole system. 

All of this seems insane. If we care about climate change, as we should, the best way of dealing with it is by working through the ETS. If the costs of diesel went up because the carbon charge in the diesel went up enough, maybe switching to an all-electric fleet would make sense. But if it didn't, then the government playing at political football with a State-Owned Enterprise means we're paying over-the-odds in mitigating carbon emissions. 

Does it really seem likely that the government can do the most good in mitigating emissions by pouring this kind of cash into the electrification of the rail system rather than by buying up NZU on the ETS and retiring the credits?

Update: A reader runs a few back-of-the-envelope numbers on this, copied below. It gives a rough measure of the costs of abating carbon emissions by electrifying rail. Add some appropriate confidence intervals around it, but it's at least an order of magnitude more expensive than current carbon prices - you could abate emissions by about ten times as much by putting comparable resource into buying and retiring NZU in the ETS.

Here goes.

NZ Gross emissions: 78,700,000
Transport share of gross: 17.3%
Rail share of transport: 1%

Rail emissions then on the order of 136,151 tonne per annum.

Cost of diesel conversion: $1 billion, minimum
At 6% discount rate, annualised cost: $60,000,000
Cost per tonne emission reduction: $518/tonne.

(assumes 15% fossil fuel based electricity generation, but also assumes complete rail carbon abatement but for that 15% - which won't happen because the feeder lines still have to be diesel). 

Birthright citizenship

President Trump's proposed end to birthright citizenship not only goes against the 14th Amendment, it also targets the wrong group.

Kids born in America and raised there are going to be American. Work by Cato shows that migrants to America share Americans' values; the children of migrants look a lot like everyone else.

But there is a group of people made American citizens at birth who shouldn't be. If they want citizenship, they should at least be forced to apply for it when they turn 18 and demonstrate an actual commitment to America.

I'm talking about the children born to those least patriotic and least loyal of Americans - those Americans who have fled to live abroad. Like all migrants, they wind up sharing the values of the country where they live. Their children will be born in foreign places, will not be raised with American values, and yet are American. America insists that those children are American - they do not have the option not to be.

Leave America to join Isis, have kids there, and raise them to share decidedly un-American values? Those kids get an American passport whether they want one or not. Flee to Canada in protest against Trump and raise the kids you have there to hate the American flag? Those America-hating Canadian kids are American. Run to North Korea because you love communism, have kids there, and raise them to follow the juche philosophy? Those kids are American too and can come back on an American passport any time they like, without the permission of anyone. [Update: without the permission of anyone in America anyway! Getting the actual passport could prove difficult.]

You wouldn't want to completely cut those kids' ties to America. It's not their fault their parents are traitors. But you should check that those kids don't actually hate America before considering them citizens. Right now, they're American whether they want to be or not. They can show up and collect American welfare, any time they want.

The 14th Amendment says that "all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside." Somehow, Congress has expanded that to include all persons born outside of the United States if one of their parents, no matter how disloyal, is American.

Kids born abroad to American parents who have been resident abroad for a while and aren't just on holiday somewhere else - they shouldn't be American by birthright. They should be eligible for a very easy path to citizenship, on application, when they turn 18, or if their parents move back to America with them. Otherwise, it seems nuts to consider them American. Fixing this is consistent with the 14th Amendment and should be supported by everyone who thinks that citizenship requires at least some kind of commitment to your country. It devalues American citizenship to so liberally throw it around.