Friday, 15 February 2019

Breaking the pharmacy cartel

I wish that government spent even half as much time looking at how its existing regulatory structures create cartels as it did in the rest of its antitrust enforcement.

The Herald reports that a new entrant has finally started shaking things up in pharmacy, reducing costs to consumers. They get the framing entirely backwards, focusing on reduced earnings among the Chemist Warehouse's nearby competitors.

I wish they'd open an outlet in Wellington so I could have a look. Here's a dumb small example of what things are like here. I occasionally have minor heartburn. In North America, I'd buy a big bottle of Tums antacid. It'd take me a year to go through the big bottle. Now they sell them there in even bigger bottles: 330 tablets for $13.44 - $0.04 per tablet. Add on exchange rates and GST and you're still under $0.07 per tablet. The things are also great as placebo when a child is malingering. 

Here's what you can buy in New Zealand. The cheapest per-unit is a tiny little pack of Quick-Eze. They taste rubbish. And they're $0.15 per tablet. 

Every single thing in NZ pharmacies feels like a giant rip-off. My wife and son are lactose intolerant. Here's what lactase should cost: 9 cents US per tablet (9000 lactase units per tablet) - about 15 cents NZD with GST. Here's what it does cost: 76.5 cents per tablet - five times what it should cost. If you need a couple of these things to eat an ice-cream cone, New Zealand adds about 40% to the cost of an ice cream cone for the lactose intolerant - at least for those who haven't worked out ways of getting them imported. 

It would have been nice if the reporter at the Herald had compared prices at the new discount pharmacy warehouse; I'm curious. 

Anyway, why has it been so hard to get decent prices on anything pharmacy in New Zealand? The government screwed up the whole industry, forcing everyone to pay too much for everything, by putting in a rule saying that every pharmacy must be 51% owned by a pharmacist. I don't know how Chemist Warehouse has solved this problem: it's not easy to find one person, who happens to be a chemist, who has the capital to put up to build something like that. Maybe there are interesting ways around it with a clever debt structure. 

The prior National government was looking to get rid of the rule in changes to the Therapeutic Products Regulatory Regime. The pharmacists didn't like it. 

The Bill as currently drafted, and currently under consultation, seems to leave the ownership question open. Or at least I can't find any requirement in it that pharmacies be owned by pharmacists, but I can find a requirement that the responsible persons for the licence have qualifications as determined by the rules - with the rules not specified. I think that's because Minister Clark has left it open. But he does provide some discussion in December's background paper:

The pharmacists' organisation raised a pile of concerns about market concentration in the absence of the rule, but remember that the point of competition law is to improve outcomes for consumers, not to prevent concentration per se. The current model delivers terrible prices for New Zealand consumers - and especially for those consumers least able to route around the current mess by importing the products they need.  

There is absolutely no good reason to require that the person owning a pharmacy be a pharmacist. There are good reasons to require that dispensing be done by a pharmacist. 

The government is taking submissions through 18 April. If you think submitting makes any difference, here's the link.

That the criminalisation provisions in current New Zealand competition policy do not apply to regulators who create cartels continues to frustrate me. New Zealand has a lot of small-market problems that make things a bit less competitive automatically. But everywhere people think they see cartels or anticompetitive activity - dig a little to find the regulatory apparatus blocking competitors' entry.

Tuesday, 12 February 2019

Reader mailbag - supermarket zoning edition

From today's reader mailbag:
Hi Eric,

Why not make supermarkets a permitted activity in any Rural zoned area?

Then another chain could be developed with a lower cost base as they wouldn't be paying retail zoned land prices. Large supermarkets could sit on the outskirts of most cities and towns in NZ with minimal effects. Huge dairy factories and timber mills are permitted activities - why not a supermarket?

There are Aussies chains avail - only Woolworths is here. Also Aldi and Lidl - though they only need quite small sites

One tiny change to the RMA and you could knock food prices down by 25% I reckon. Westfarmers would be here in a heartbeat - they own Bunnings.

Graeme Farr
I thought Aldi was starting to look at New Zealand. But in-town zoning does seem a substantial barrier to entry. In Christchurch, Raeward ran a very nice big supermarket just outside of town by the airport.

Are there currently barriers to putting up supermarkets on rural zoned land? I expect there would be transport infrastructure needed, but there's a lot of rural land on highways. 

Graeme notes the price difference between identical products in New Zealand and Australian supermarkets. A lot of that will be differences in warehousing and transport costs between the two countries, so I'd be surprised if prices came down by quite as much as advertised. But that's not a reason not to open things up. 

Let's make a polling deal

Inland Revenue has admitted it was wrong to ask for New Zealanders' political persuasions in a survey they are carrying out for the Government on the eve of the release of a crucial tax reform report.

The taxman is researching the public's views on globalisation and fairness in the tax system. Questions had included where respondents sit on the political spectrum, prompting questions of whether taxpayers are funding sensitive political polling.
It would be bad if IRD were doing this kind of polling to help its political masters to sell whatever tax changes might be coming, but that's not the only possible interpretation.

We can also imagine scenarios where the political masters wanted changes that IRD knew to be a bad idea, that the politicians thought were popular, and that IRD wanted to be able to demonstrate were not only bad policy but also bad politics. "See? It isn't just rich pricks and right-wingers who hate this particular part of your tax package which we've also told you is a terrible implementation issue. Would you please now consider not doing this?"

I have zero inside line on this one, but it's not unimaginable.

Perhaps, as penance, IRD could just release the polling data for all of us to play with. It would be super awesome to have the full results. And then there'd be no worries about whether they were doing secret political polling for Labour - the results would be up for everyone to play with.
Around 1000 people are being asked questions about their views on Inland Revenue, whether they are generally trusting, believe what they read in the media, pay too much tax or whether public services should get more funding.

A question on where respondents sit on a left/right political spectrum threatens to skirt the department's legal obligation for political impartiality.

Polling experts said the results could give politicians valuable insight on how different demographics view the tax system
I for one would love... hmm. I'll try OIAing the full results.

Monday, 11 February 2019

Counting jobs

I really really hope that somebody in the bureaus is running proper probity over whatever Shane Jones is up to in the Provincial Growth Fund. Because every time we hear news on it, it's just a bit off. 

Here's Jason Walls in today's Herald:
Numbers published on the Ministry of Business, Innovation and Employment (MBIE)'s website show more than 10,000 jobs are expected to be created as a result of Provincial Growth Fund (PGF) announcements made last year.

Of that, 7000 – almost 70 per cent – are estimated to come from just one project: The East Bay of Plenty Regional Development Project Implementation.

This project was allocated just under $240,000 for "funding a position to manage and report on 65 key economic development projects".

That 7000 jobs estimate is based on a feasibility study provided to the Provincial Development Unit, which oversees the PGF, by the Ōpōtiki District Council.
It isn't nuts to run forecasts of expected employment from projects that haven't yet gotten started, but this kind of accounting doesn't seem right.

And this seems just a bit off as well, from the head of the Provincial Development Unit:
The day after Goldsmith said just 54 PGF jobs had been created, the Provincial Development Unit issued a press release which said "job creation does not happen overnight" and that more than 10,000 jobs may be created as a result of all the PGF investment approved to date.

Speaking to the Herald, the head of the Provincial Development Unit Robert Pigou said the statement was only released to provide "clarity" around how the PGF was structured.

He said he was not able to say how many jobs had been created because of the PGF last year, as he "did not have that detailed information yet" but said it would be higher than 54.

"We're working with the [PGF] applicants because many of them are just starting to get into that employment phase [of the projects]."

The 10,000 jobs expectation is based on the estimates of the PGF project applicants, a Provincial Development Unit spokesman said.

"When applicants outline their project, they include an estimate of the number of jobs to be created both directly through the project and indirectly, as a result of the investment."

For larger scale projects, such as the $40 million to expand the TranzAlpine service, financial modelling by an independent economic firm has been used.
I would expect Shane Jones to advertise numbers based on the job creation estimates provided by folks seeking grants from him; he is a retail politician.

I would expect a neutral and impartial public service to be a bit more sceptical about claims made in those applications and not use them to tally up big numbers to put on the Ministry's website. And that makes me a bit nervous about what the heck is going on over there more generally.

It’s always been a mistake to try and sell this stuff on short-term job creation numbers. The point of the fund, as I’d understood it, was to get infrastructure and other bits in place for longer term development in the regions. There are better and worse ways of trying to do that – a pile of loans to business that no commercial outfit would take a punt on isn’t a great idea, but getting better infrastructure in place so that regions that don’t have a strong enough economic base can have a fair go – that’s not crazy.

So I think it was silly to advertise this stuff as aiming at lots of jobs quickly.

That said, it is a bit odd to count as current benefits the estimated increase in jobs that might transpire if a bunch of other projects that haven’t yet been funded all panned out as well as expected by the folks pitching the projects. I haven’t seen the underlying studies, but if the Herald’s description is accurate – it’s an odd way to do things. It’s fine to base expected numbers on projections from studies, but we might have expected the basis to be a bit stronger than that.

I also really hope that there are sufficient checks in place in the bureaus vetting these projects and approving them, making sure that none of them would cause problems for any of our international agreements around subsidies, and making sure that there’s sufficient probity around the projects.

Thursday, 7 February 2019


Government should seek value for money in its procurement policies. Using procurement as a way of forcing or encouraging other ends is generally going to be a bad idea: You get a worse deal on what you're trying to purchase, and there are likely going to be more cost-effective ways of encouraging whatever goal you're after.

Or to put it another way, does it seem generally likely that the most cost-effective way of encouraging X is by paying more for goods and services produced by companies committing to X?

And so the cabinet paper on procurement is a bit of a worry. It's from October; I hadn't noticed it at the time. 

The paper starts off well, reminding us of the decent procurement framework we already have, and contrasting it with the messes elsewhere:
The government procurement policy framework in New Zealand consists of a combination of principles, rules and good practice guidance. It aims to support and encourage procurement practice that delivers good commercial outcomes. In contrast, some other international frameworks, such as in the European Union, have very prescriptive rules which result in procurement practices that are more compliance-driven.
...New Zealand is generally internationally perceived as having an exemplary government procurement framework and as being open, fair and transparent. In the World Bank’s Benchmarking Public Procurement 2017 report, New Zealand scored highly on the quality of its tender processes and is highlighted as having effective and efficient payment and complaints systems.
That approach is not universally loved - it's good to be hated for the right reasons:
Businesses can be, and often are, critical about government procurement. They have been most vocal about large contracts being awarded to offshore suppliers – such as the Christchurch Convention Centre contract, which was awarded to an Australian-based supplier that then engaged its own supply chain, rather than hiring local firms, to do the sub-contracting work. Some New Zealand businesses would like to see New Zealand take the Buy Australian, Hire Australian approach of some Australian states and territories.
I have no clue about the merits of various bids, but I would lean heavily against Buy NZ approaches. It would risk the rather nice outcomes we've been able to achieve:
Overall, New Zealand’s government procurement policy framework is effective. It treats businesses fairly, is open and transparent, and encourages good procurement practice. It promotes the use of simplified processes and documentation, early engagement with the supply market, and early notice of opportunities. It supports New Zealand’s exporters as tender responses are assessed on the basis of merit rather than country of origin. This enables New Zealand businesses to compete for government contracts in our trade partner countries on the same basis. I note that the Ministry will continue to work with agencies to improve procurement practices.
The Cabinet Paper starts going a bit ... off ... after that. It's making the best fist it can of a conflicting mess of coalition and agency objectives around procurement, where the different parties want to use procurement policy to push a pile of other barrows. The paper suggests four outcome priorities be bundled into procurement:

  1. "Increasing New Zealand businesses' access to government procurement" - basically, support helping non-traditional suppliers to navigate the GETS system.
  2. "Increase the size and skill level of the domestic construction sector workforce". I read this one as prioritising construction bids by firms committing to take on apprentices and the like.
  3. "Improve conditions for workers and future-proof the ability of New Zealand business to trade. Agencies would require suppliers in targeted industries to ensure their business, sub-contractors and domestic suppliers comply with employment standards and demonstrate good health and safety practice. This priority aims to protect workers from unfair and unsafe behaviour, and incentivise well-performing firms while ensuring they are not undercut by firms who have reduced costs through adopting poor labour practices." - I expect that unionised firms would wind up getting preferential treatment in contracting through this one. 
  4. "Support the transition to a net zero emissions economy and assist the Government to meet its goal of significant reduction in waste by 2020." This one makes little sense for contracting in sectors covered by the Emissions Trading Scheme. There's also mention in here of prioritising timber: "This would include consideration of the life cycle environmental benefits of timber reflecting the Think Timber policy currently being developed by the Ministry for Primary Industries." 
The first priority seems a non-crazy way of dealing with New Zealand's First's insistence on prioritising New Zealand suppliers - which would risk breaking international trade agreements from which NZ suppliers benefit when hoping for fair treatment in bidding for government contracts abroad. 

The second one could prove costly where construction projects start trying to achieve employment goals rather than just building stuff. From the document:
This priority has been agreed to by Cabinet as part of the Construction Skills Action Plan 68(DEV-18-MIN-0187). Its intent is to use Government procurement as a lever to encourage suppliers to invest in workforce development and training. Agencies will be required to give consideration and a weighting to skills development and training in the tender process of construction projects valued over $10 million. Other initiatives of the Action Plan will also support employment opportunities for targeted groups (e.g. NEETs, women, Māori, Pacific people) within those government construction projects.
The third one risks being a de facto way of skewing contracts towards union shops.

And the fourth one is guaranteed to be a more expensive way of mitigating carbon dioxide emissions than by contracting with the most efficient provider and using the savings to buy back and retire ETS credits. Some of it seems a sop to NZ First's timber interests.

But it could have been rather worse had they listened to all the stakeholders.
98. A number of agencies noted that leveraging broader outcomes is likely to add cost to contracts and complexity to procurement processes and operationalising the approach would need to minimise those costs. This has been covered in the implications discussion.

99. Several agencies have asked for additional outcomes or targeted areas to be prioritised;

99.1 The Ministry for Primary Industries proposes alignment of this proposal’s priority outcomes with the Think Timber policy currently being developed by the Ministry for Primary Industries. In response, the Think Timber proposed policy has been added to the list of potential areas for priority four.

99.2 The Treasury proposes that government suppliers be encouraged to adopt diversity and inclusion workforce policies and for those firms with boards – policies that support diversity of board members. The Ministry for Women have proposed that a gendered expectation of a minimum percentage investment across-government be included in all contracts.

99.3 Te Puni Kōkiri proposes the paper explores the possibility of preferential purchasing to support Māori firms or other demand side options within free trade rules and explain how the Government’s progressive trade agenda may lead to changes to the way New Zealand considers how procurement is dealt with in free trade agreements in the future.

99.4 The Government Communications Security Bureau and New Zealand Security Intelligence Service propose that security must be a guiding principle for government procurement decisions. In response, it is already planned that the next iteration of the Rules will have a reference to protective security requirements and protocols.
It's always particularly disappointing when Treasury is among the agencies pushing to skew policy.

Friday, 1 February 2019

Household wealth and housing wealth: first quintile oddities edition

In my column over at Newsroom this week, I noted one strange feature of New Zealand's household wealth statistics:
Unfortunately, data on wealth is far worse than data on income – the Government gathers a lot less data on wealth. For example, Statistics New Zealand reports that people in the least wealthy 20 percent have $1.75 in property debt for every $1 in property assets – but no bank in the country would extend a loan on that basis. It is more likely that the survey data misses some houses owned through family trusts where, for example, a 25-year-old takes over the mortgage and effective ownership of their parents’ second home held in the family trust. The mortgage payments and mortgage debt are noted in Household Economic Survey data, but the ownership may be missed. This means their parents’ net wealth will be overstated, their own net wealth will be understated, and measured wealth inequality among younger cohorts would be somewhat understated but overall measured wealth inequality would be somewhat overstated. 
There's an ungated version of the column here.

The effect wouldn't be large because there aren't many households in that situation. But it's odd. So I asked Statistics New Zealand what's up with that, wondering whether the trusts explanation might be what's going on. I'd also asked whether Stats were able to ask follow-up questions of their HES respondents to see what's going on.

Stats' Statistical Analyst Michelle Griffin helps me out:
We’ve had a look at the distribution of owner-occupied property assets and owner-occupied mortgages for those in net worth quintile one. There are about 30 more households (unweighted) with mortgages than homes, and because of this difference, you need to go further along the mortgage distribution to get to the median, resulting in a larger mortgage median and hence a larger debt to asset ratio. So it’s looking like the high ratio is due to a mix of under-reporting and distribution differences.

We’ve had a look at only those with both a home and a mortgage to see what they look like (this is excluding those with a home in a business or trust), and this brings the ratio down to $1.44. This drops even further when you take the median of each household’s individual debt to asset ratio (to $1.26).

We’ve had a quick look at the households with only a mortgage to try and see what might be happening. They appear to be a mix of households with the home in a trust or business which is assigned to someone else (which could be a situation like you’ve described below), and households which say the home is in a trust or business but then don’t mention this trust/business later on (could be partly due to misreporting or respondent burden leading to households not answering fully). I think the fact that there are so few households in net worth quintile one with owner-occupied property is making this quintile more sensitive to these issues. Unfortunately, we can’t follow up with the respondents later on to confirm these situations – although it would certainly be interesting!
So restricting things to those households in the first quintile fixes some of the problem, but we're still at a debt-to-equity ratio on housing debt well out of step with sane banking practice, let alone existing LVR rules. And while there aren't many households with mortgages without homes, it's hard to tell whether debt to asset ratios for a broader set of respondents elsewhere mightn't be wrong too. 

Michelle suggests that keeners might apply for microdata access to really drill down into what's going on. It would be a great Honours thesis for somebody wanting to get microdata experience who has a qualified supervisor.

Many thanks to Michelle and to Statistics NZ for the helpful and detailed response.

Update: An informed reader writes:
A couple of thoughts about the data on wealth:
  • There is a wider problem with data for people at the top and bottom of the distribution. Surverys include lots of trade offs between clarity, comprehensiveness and accuracy. For instance survey data on the benefit population substntially under-reports income from second and third tier payments (that is all loans, one off payments, disability allowance and accommodation supplement). Since this is a relatively small part of the population, SNZ makes the reasonable decision not to overcomplicate their survey to deal with the problem, but the consequence is continuous understatement of income for many people. The same applies at teh top where it is hard for surveys to capture the many different assets people with many assets have.

  • More technically there is problem using a small number of  discrete categories like quintiles to describe a continuous variable. The general point is that if someone makes a mistake they have have to go somewhere in the discrete categories, so effectively there is a cut off at the top and bottom that will skew the results. It's easy to think of this through an intuition. If a person's income is roughly in the middle, say $50 000, and they miss a zero then they drop to the bottom of the distribution ($5000) while if they add a zero by accident ($500 000) they go to the top of the distribution. However a person whose income really was $5000 who makes a mistake either stays in the same place or goes up (ie income is $500 or $50 000); while a person with income at $500000 either goes down, or stay at the top. Even if we assume the liklihood of a person making an error and its direction are independent of income, the measured income will be pushed to the extreme quintiles. "On average" it may be right, but it will overstate the dispersion. My guess is this will be even more pronounced with wealth because it is so much harder to measure and thus more likely to generate error-prone answers.

  • Finally, they are using snapshots for variables that change over time. I know this is a problem with flows like income and employment, but I sometimes wonder what it means for wealth. In particular, there is an issue with measuring transitions. The following example is made up, but gives a clue what might be happening. Say some % of people selling a house to buy another spent a couple of weeks where they had two mortgages while the paper work was settled. For the individuals the cost might be a few hundred dollars - which is not a lot when you get real estate agents involved! - but two weeks is approx 4% of the year so you would expect your snapshot survey to include some small % of people with double the mortgage debt relative to their asset. It is not many people, but it does not need to be because they will be a small percentage of the population but they will concentrated in decile/quintile. 
To me the deeper problem is that surveys tend to be designed to be "on average right", whereas the data is often used to make distributional statements. And Bryan Perry’s incomes report notes the problems with the extreme tails of the distribution.

Thursday, 31 January 2019

Fun studies for someone else to do: contraceptive access

"While current dispensing restrictions limit how often a person can collect their Levlen ED prescription, this should not stop patients from accessing their medicine or taking it as directed.

"We thank pharmacies and wholesalers for their assistance in helping to manage this stock issue and apologise for any inconvenience," Fitt explained.

Concerns about the availability of Levlen in New Zealand were raised earlier this month.

Recently, pharmacies had been asked to dispense the pill in one-month courses, rather than the three-month courses usually given out.

But on Friday that request will become mandatory as officials step up efforts to maintain sufficient supply until the medication was restocked in late March.
So a fun Masters thesis for somebody: use regional variation in the timing here to check the extent to which the fixed costs of going to the dispensary affects both the likelihood of scripts being filled and unplanned pregnancies. Prescriptions like this should be in Pharmac data accessible in IDI.

I'm not sure what you could do with this second natural experiment though, noted in the same story:
In April, medical professionals were asked to ration prescriptions of Durex condoms for men with large penises, as increased demand contributed to a global shortage.

Durex Confidence 56mm condoms and Gold Knight Larger were the Pharmac-funded brands affected by dwindling supply.

At the time, Pharmac said the Durex condoms would be temporarily unavailable in New Zealand, but the brand's five other varieties in differing sizes were available.

In July, a disagreement between the brand's owner and its Indian partner cut up to 60 per cent of supply.
Of course, condoms remain accessible (at a somewhat higher cost) at the supermarket; it's just the subsidised ones that are short. No non-prescription options for birth control pills.

The Stuff comments thread is more amusing than most.

Wednesday, 30 January 2019

Wealth inequality

I go through some of the complications in trying to weigh up wealth and inequality in this week's column over at Newsroom ($).

A few fun (and perhaps surprising) facts:
  • Government provision of some services can increase measured wealth inequality even if they result in no change whatsoever to anyone's lived experience. Converting each Kiwi's NZ Super entitlement into a private account would reduce measured wealth inequality by giving everyone a lump-sum. Converting each Kiwi's health system entitlement into a lump sum transfer into a medical savings account (with government top-up for big events) would have similar effect. 
  • Stats NZ's data shows median wealth increased from 2015 to 2018.
  • Credit Suisse data has half of all adults in the global top 10% for wealth - and showed a drop in NZ's wealth Gini coefficient from 2015 to 2018. 
  • On the Credit Suisse Gini, NZ sits midway between France and Canada; on the OECD's measure of the share of wealth held by the top 10%, we're below Denmark, the Netherlands and the US, roughly on par with Canada, France, the UK, Ireland and Austria, and more concentrated than Japan and Italy. We're also more concentrated than Australia - but remember that Oz has greater reliance on private retirement accounts.

Red meat tax?

Boyd Swinburn's group wants rather a lot more controls on what we all get to eat. 

Radio NZ covers his report here; Chris Snowdon's summary of it is best.
The lead author of the report is Boyd Swinburn, a New Zealand doctor and food campaigner who declared last week on Twitter that the EAT-Lancet report shows where diets need to get to while his report shows how to get there. They are two sides of the same coin and whilst there is no shortage of policy suggestions in the EAT-Lancet document, including rationing and the outright prohibition of certain food products, the Lancet Commission takes it a stage further by calling for a global treaty.

Swinburn is obsessed with the web of corporate interests he sees all around him, thwarting his efforts to get the public to eat their greens. In 2017, New Zealand’s Ministry of Health commissioned the New Zealand Institute of Economic Research to look at the pros and cons of taxing sugary drinks. When the economists concluded, accurately, that ‘the evidence that sugar taxes improve health is weak’, Swinburn wrote a furious article denouncing ‘economists steeped in last century’s economic theories’, ‘merchants of doubt’ and the ‘vested interests of the food industry’. It is a theme he returns to with tedious regularity in the Lancet report.


Swinburn et al. seem to believe that the only barrier to governments leaping headlong into an extensive systems of taxes, warnings, bans and restrictions is ‘Big Food’. Whilst it would be naive to think that the various food lobbies have no influence on government policy, the authors never consider the possibility that this is because the industry’s arguments about trade, jobs, choice and prices appeal to politicians and, ultimately, to the public. ‘Big Food’ may not want tobacco-style regulation, but it is a logical fallacy to infer from this that politicians who reject such an approach have only done so because of ‘powerful lobbying’.

Whether or not the authors actually believe this narrative, it serves two useful purposes. Firstly, it allows wealthy activist-academics in the multi-billion dollar ‘public health’ industry to view themselves as plucky underdogs fighting Goliath. Secondly, it absolves them from answering difficult questions about whether their demands are reasonable, fair, or even realistic
Do read Snowdon's whole piece. Stuff has some of the government's response:
Associate Minister of Health Julie Anne Genter​ said the Government did not plan to tax red meat "at this stage", but an increase in awareness about climate change was affecting people's behaviour.

"Obesity and climate change are often framed as problems for individuals to change. This report shows it has been a failure of public policy and we need government action to protect our health and our climate."

The commission called for a global treaty, like those established for climate change and tobacco, to help governments restrict the influence of the food industry on policy and the establishment of a global philanthropic fund of US$1 billion (NZ$1.46b) "to support social movements demanding policy action".

The Lancet editor-in-chief Dr Richard Horton said the business model of large international food and beverage companies led to over-consumption of junk food in both high-income countries and, increasingly, low and middle-income countries.

Genter said she was "interested to learn more about how a global treaty would work, as politicians need to play their part too".

Swinburn said the food industry should be excluded from the "policy-making table" as the profit motive would always win out over improving health and reducing climate change.
There's a very good case for agricultural emissions globally coming under emission trading schemes or carbon taxes. In the absence of international coordination, the case gets tougher because you have to worry about whether production gets displaced to places where meat production is more carbon-intensive. Animal product prices would go up after agricultural emissions were included in the ETS, or in carbon taxes, but it would be a mistake to call that a red meat tax. It's more like, if you had a GST that excluded food products, getting rid of the exemption isn't a "food tax".

Going beyond that though, to tax and regulate and nudge and force everyone into eating and drinking only Boyd-Approved products - no thanks.


Tuesday, 29 January 2019

Reader mailbag - Licensing trusts edition

Karl du Fresne had a great 2017 story on New Zealand's anachronistic alcohol licensing trusts.

The West Auckland trust is coming under a bit of pressure from a residents' group that would like to see things opened up, removing the trust's monopoly.

TrustAction's Nick Smale writes to let me know what they've been up to:
I believe most of the licensing trusts' public support results from misinformation and misunderstanding. I've been surprised and disappointed with the actions of both our licensing trusts and our local public health service (ARPHS) in informing the public. For example, the Advertising Standards Authority recently found against The Trusts for making claims about alcohol related crashes. Also attached is a flyer published by the ARPHS which I think is effectively campaigning on behalf of The Trusts.

As a group of non-expert residents advocating for change, we feel somewhat overwhelmed by the public resource being used to support the status quo.
The Auckland Regional Public Health Service has been campaigning to keep the trust, at least according to their flyer Nick passes along.

For those of you living in West Auckland, here's the petition against the Trust's monopoly

Monday, 28 January 2019

Afternoon update

The worthies of the afternoon closing of the browser tabs:

Monday, 21 January 2019

Oxfam - again

Every year, Credit Suisse puts out its October report on global wealth.

Every January, Oxfam releases a gloss on that report. Every time, the policy recommendation is the same - tax wealth.

The Dom Post's Tom Hunt went for Oxfam's bait this time round. It was a bit frustrating because Oxfam didn't have its report up on its website until this afternoon; Hunt's story was on the Dom's front page first thing in the morning. Hunt's headline: Rich richer, poor poorer (at least on the print edition).

The only mention of New Zealand in the Oxfam report is in a note that Oxfam NZ is a local partner in the report. But their data comes from two sources. They use Forbes' rich list (why not NBR's if they actually want anything local?), and Credit Suisse's October report.

What do we find in the October Credit Suisse report? Currency movements. Total NZ wealth dropped from $1,037 billion USD last year to $1,010 billion USD this year - in current exchange rate terms. At constant exchange rates, wealth instead increased from $995 billion to $1,053 billion.

Recall that middle-wealth households have disproportionate amounts of wealth tied up in their houses. If the exchange rate moves, their reported wealth in USD terms will drop. Recall that richer households have more substantial financial assets (relative to their housing assets) and will be diversified. They're hit less by exchange rate changes. So when the exchange rate drops, it looks like richer households are hit less than poorer households. The report notes a -7.2% change in the value of the NZ dollar against the US dollar.

What else can we quickly see in the Credit Suisse report? The Gini coefficient for New Zealand, this year, is 70.8. Last year it was 72.3. That's the opposite of Hunt's headline. I think that headline came from Forbes' figures on the two richest people in New Zealand rather than from the more comprehensive Gini stat. A headline coming out of the Credit Suisse report could easily have been "Wealth Inequality Drops". But that isn't the story Oxfam wants to tell, and nobody at the Dom seems to have checked the source data.

I can't be bothered turning Credit Suisse's PDF into a Google Sheet this go-round; the drop is equivalent (against last year's data) to moving six places in last year's ordinal rankings.

What else is in there?

Since 2000, the start year of their data, median wealth per adult increased from $26,933 to $101,718 last year to $98,613 this year; mean wealth per adult went from $71,632 to $300,988 last year to $289,798 this year. So the median is 3.7 times higher than it was in 2000 and the mean is 2.9 times higher than it was at the start of the period. Both mean and median wealth dropped from last year. So another headline could have been "New Zealand is poorer (but it's mostly currency movements)."  Note that these numbers vary substantially from last year's go round - the base figures are different than they then were. I assume that they've updated exchange rates but I don't really know.

New Zealand now has 1,725,000 adults with more than $100,000 USD in wealth, and 155,000 with more than $1,000,000 USD in wealth. Again, owning a house in Auckland mortgage-free gets you pretty close to that million dollar mark. But twenty thousand fewer Kiwis make the cut for the global top 1% - we're on the list of the world's biggest losers in that category. So another headline could have been "Far fewer Kiwis among the global elite - and wealth inequality is down too."

Pretty much the whole country is in the world's top 3 wealth deciles - or at least the number of Kiwis falling into the lower deciles rounds down to zero when calculating our share of those global wealth deciles. We have 0.4% of the world's top 10%, top 5%, and top 1%. We're 0.2% of the global 9th decile, 0.1% of the global 8th decile, and rounding error below that. So another headline "All things considered, we're pretty wealthy."

Anyway, go look at the Credit Suisse report for yourself. Journalists should be a bit less credulous about Oxfam's reporting on the figures, especially where Oxfam pulls this exact same stunt every year. Hunt paints a picture of wealthy Kiwis getting richer and poor Kiwis getting poorer. The Credit Suisse figures instead show we all got poorer (and wealth inequality dropped), but that it's mostly changes in exchange rates.

I like my headlines above better than the one the Dom picked for Hunt.


Friday, 18 January 2019

Ration books

The IEA's Chris Snowdon tries to live by the ration book that The Lancet's public health people would impose on the UK.

First up, the recommended diet, from page five of their report.

I like that they have a 31 gram ration of sweets.* 

Anyway, Chris does his best. But it doesn't look all that appealing. 
Here's breakfast:
And lunch
And, finally, dinner for a hungry Chris.

As Chris points out, it's nice that this crowd has outlined an end-goal for once rather than the series of nibbles that always otherwise come with denials that there's a next step just around the corner. The report recommends measures like zoning bans on unhealthy food outlets, taxes and subsidies, reduced choice, reduced portions - and some non-daft things like finally getting water and effluent pricing right. But they have the whole thing back-to-front. 

Food choices shouldn't be targets. They should be the outcomes that emerge when distortionary subsidies are removed and when environmental effects are properly worked into prices. I'd be surprised if models that appropriately incorporated full environmental costs didn't result in changes in those choices. But you don't force it by nudges and shoves to get particular menus; you just make sure that prices incorporate costs properly and let people make whatever choices they want within that. 

* We can thank them for increasing the chocolate ration from 20 grammes to 30. 

Drug convictions

The Drug Foundation's State of the Nation 2018 report has some nice stats that aren't typically seen all in one place. Here are drug convictions. 6000 per year in a country of 5 million seems high.

Thursday, 17 January 2019

Health and heritability

Public health puts a lot of weight on SES in explaining disease. I don't think it's a strawman to generally characterise the field as arguing for sharp increases in redistribution to improve health outcomes.

Lakhani et al used ACS and health insurance data (724,513 sibling pairs; 56,396 twin pairs) to tease out the relative contributions of heritable factors, shared environment, and socioeconomic status across a whole pile of disorders; it's in Nature: Genetics.

Here's a decent write-up.

They also put up a great site letting you look at the relative contributions over a range of disorders.

Here's what things look like for morbid obesity. h2 (green bar) is genetics. c2 (peach bar) is shared environment, adjusting for SES factors. SES (small purple bar) is SES.


Wednesday, 16 January 2019

Afternoon roundup

This afternoon's worthies on closing out the accumulated browser tabs:

Tuesday, 15 January 2019

What should Knightean economists do?

Although Milton Friedman and Arnold Harberger became involved with Pinochet's Chile in the mid‐1970s, an increasingly influential body of scholarship argues that James M. Buchanan was similarly eager to provide Pinochet's dictatorship with advice. Buchanan reportedly had a heavy influence on the development of Chile's 1980 Constitution and similarly helped to design Chile's binomial electoral system. Buchanan's seeming willingness to advise Pinochet's dictatorship provides a stark contrast to his longstanding advocacy of Frank Knight's view that democracy is “government by discussion” and Buchanan's oft‐repeated insistence that democratic consensus trumps economic expertise. This article draws upon a wealth of largely ignored archival evidence and Chilean primary source material to engage and evaluate whether Buchanan—a Knightian economist par excellence—abandoned his advocacy of “government by discussion” and provided early 1980s advice that helped Pinochet's regime of “institutionalized terror” (Valdes 1995, p. 30) design a constitution that would chain any subsequent Chilean democracy.
So what happened?

Buchanan was invited by the Dean of Universidad Técnica Federico Santa Maria Business School, Carlos Cáceres, for the school's 25th anniversary.
Although Buchanan subsequently told Cáceres that the “tentative arrangements that you suggest for the visit seem fully satisfactory to me” (February 25, 1980), there is no evidence to indicate whether Buchanan was initially aware that Cáceres was a member of the Council of State—an advisory body created in early 1976—which met between November 1978 and July 1980 to review the earlier Anteproyecto de Constitución Política (Preliminary Draft Political Constitution) that the Ortúzar Commission had submitted to Pinochet in October 1978 (Barros 2005, p. 174).

MacLean (2017) suggests that the “wicked genius of Buchanan’s approach to binding popular self-government was that he did it with detailed rules that made most people’s eyes glaze over” (p. 159). By contrast, the relatively brief set of outline notes that Buchanan drafted shortly before he traveled to Chile signify that Buchanan thought it “Difficult to know what to talk about … [but I] Propose to do more or less what I did at a lecture in Lisbon, Portugal in November, 1978 … [i.e., provide a] general summary of ‘An Economic Theory of Political Constitutions’” (Chile Lectures 04/28/80, BHA). Although Buchanan noted that “My own work has been, and is, in this, also relevant to Chile (as to Portugal). … ‘Politics without Romance’ … Stick to constitutional issues” (p. 1), he similarly noted the “Influence and importance of Wicksell (on me, on others) … Top rank … Wicksell’s warning to economists [i.e., not provide policy-advice] … Look instead at institutions. How they work” (BHA).18

According to MacLean (2017), Buchanan provided his Chilean hosts with a wealth of
“detailed advice on how to bind democracy, delivered over the course of five formal lectures [Buchanan only gave four lectures to Chilean audiences] to top representatives of a governing elite [e.g., the undergraduates at UTFSM] that melded the military and the corporate world” (pp. 158). In particular, MacLean’s (2017) narrative places much weight on Buchanan’s May 8 lecture to the approximately 250 “government representatives, business people, university professors, and executives” (Que Pasa, May 1980, p. 17) who attended the “Open Lecture and Panel” on “Economics and Public Choice.”

Buchanan’s draft lecture notes (initially written for his May 5 lecture to UTFSM undergraduates and barely revised before he gave his subsequent lecture at the Hotel Carrera Sheraton) signify that his May 5 and May 8 lectures—both titled “Economics and Public Choice”—provided his UTFSM and Hotel Carrera audiences with a substantively identical and fairly basic overview of public choice and constitutional economics.19 Similarly, Buchanan’s notes for his May 6 lecture at the Chilean Naval Academy show that he provided his audience with a basic outline of public choice theory and welfare economics which included a brief overview of the “History” and “development” of the theory of rent-seeking (“Tullock, Posner, Krueger … Export licenses, import. Turkey, India”) and a basic account of the theory of bureaucracy provided by “Tullock, Downs, Niskanen … Bureaucrats and budgets—government growth” (BHA).20
Farrant goes on to note that while MacLean holds Buchanan responsible for Chile's binomial electoral system, "To my knowledge, Buchanan never wrote anything about the binomial electoral system over the course of his lengthy career, and he similarly appears to have made no mention of binomial representation in any of his May 1980 lectures in Chile."

I took Buchanan's Constitutional Political Economy course in 1999 and every graduate course in Public Choice on offer at GMU in the late 1990s and early 2000s. I went to pretty much every seminar at Buchanan House and at the Public Choice Center while there. I don't recall ever having heard the term 'binomial electoral system' before Farrant's article.

Cáceres was certainly no democrat, as Farrant shows. But it looks like Cáceres understood neither Buchanan's work on democracy, nor his constitutional views. And Buchanan's talks had little influence on the constitution then adopted:
Ultimately, the evidence signifies that Buchanan provided his various Chilean audiences with a series of lectures which were substantively similar to the analyses that he provided for any other late 1970s or early 1980s audience. Similarly, the evidence suggests that Buchanan’s May 1980 visit did not particularly influence the subsequent drafting of the Chilean Constitution.
And Buchanan learned a bit about Chile as well:
Ultimately, Cáceres and Ibáñez appear to have had scant grasp of the individualist-constitutionalist-contractarian-democrat—“terms that mean essentially the same thing to me” (Buchanan 1975, p. 7)—tenets of Buchanan’s social philosophy and political economy. As noted earlier, however, Buchanan self-confessedly had little knowledge about the Chilean economy, and he began his May 8 lecture at the Hotel Carrera by providing his audience with a relatively brief summary of his “Week” in Chile. In particular, Buchanan told his audience that he had “Learned more than you have,” and he subsequently told Cáceres that “As I said several times, I learned a great deal” (Buchanan to Cáceres, May 12, 1980). Importantly, Buchanan appears to have learned
much about the anti-democratic views of his Chilean hosts. Indeed, when Buchanan subsequently visited Chile in late 1981, he provided his MPS audience with a steadfast defense of universal suffrage, and publicly upbraided a number of European and South American MPS advocates of the “naïve belief that dictatorships are the only or the best way of establishing a free economy.” Similarly, Buchanan told his MPS colleagues—Cáceres and Ibáñez included—that the MPS had a “moral obligation” to “look for ways of improving democracy” (El Mercurio, November 22, 1981, p. D4).56
The whole article's well worth reading. Here's a Sci-Hub link. Hayek's views on Chile were not admirable, and are discussed.

Farrant concludes:
Consequently, I ask how an advocate of Knight’s view that democracy is fundamentally equivalent to “government by discussion” might best respond when they receive an invitation to visit a country ruled by a dictator. The easy answer is “not go,” but Buchanan accepted Carlos Cáceres’ invitation and subsequently visited Chile in May 1980. Thus I ask what exactly does a self-avowed Knightian economist do when they visit a country ruled by a dictator.62 Do they provide policy advice? Do they meet with the dictator? Do they design a constitution? The available evidence suggests that Buchanan’s answer to the “Frank Knight—dictatorship” question was to do exactly what he would do in a late 1970s classroom in Blacksburg or lecture hall in London.

Monday, 14 January 2019

Good character?

National's associate health spokesman Shane Reti said medicinal cannabis manufacturers and employees should be "fit and proper persons".

National has proposed clean slate legislation requiring no terms of imprisonment and no convictions for seven years for employees, and even tougher standards for licence holders including no associations with gangs.

"The industry was adamant that it understood the need to be absolutely squeaky clean in this new industry and they were up for that," Reti said.
David Farrar suggests it is appropriate that those in the industry have no convictions within the past seven years.

I keep saying the best approach to cannabis legalisation is to look at alcohol and see whether the rules there would work for cannabis. For alcohol, a license applicant's suitability matters:
Suitability of an applicant may take into account: business or industry knowledge to effectively operate a licensed premises; recent experience in the industry; criminal history, association with undesirable people, or previous behaviour relating to the sale of alcohol. Suitability of the applicant is an issue that Police considers in the investigation of licence applications as it has access to information not generally available to the public. However, community groups can provide information that may not be available to Police.

Where an existing licence is being renewed with no changes to conditions, the suitability of the applicant will be the only ground for objection.
I would expect that this, applied to cannabis, should mean that people with current gang affiliations would not be deemed suitable, that those with criminal histories not relating to cannabis would not be deemed suitable unless they had cleaned up their act, and that those whose prior offending related only to the sale, supply, or possession of cannabis should be deemed suitable. I would also expect that the licensing authority would weigh things up as a whole for any applicant.

So I would hope that someone who had a criminal record as a drug dealer would not be excluded from being a potential licensee. Otherwise, I'd hope that the licensing authority just uses the same kind of criteria it uses when deciding on alcohol licensees. A new licensee's prior expertise with cannabis should count positively, rather than negatively, in that evaluation.

It would be manifestly unjust if those who have been most harmed by prohibition were locked out of a newly legal industry in which they have developed some expertise.