Rea and Burton on the Heckman Curve

Now available in early edition at the Journal of Economic Surveys, Rea & Burton's article testing the Heckman curve against the ROI in projects compiled by the Washington State Institute for Public Policy.

Abstract

The Heckman Curve characterizes the rate of return to public investments in human capital as rapidly diminishing with age. For the disadvantaged, it describes investments early in the life course as having significantly higher rates of return compared to later in life. This paper assesses the Heckman Curve using estimates of program benefit cost ratios from the Washington State Institute for Public Policy. We find no support for the claim that social policy programs targeted early in the life course have the largest benefit cost ratios, or that on average the benefits of adult programs are less than the cost of the intervention.

You may have caught the working paper version over at Andrew Gelman's place, or here. The key graph remains this one.

I wonder whether Heckman might provide any comment in the eventual issue of the journal - this is just the 'early view'.

Reader mailbag: Weird urban planning edition

Hoisted from the inbox:

Weird urban planning stories: Melbourne's Eastern Freeway is being considered for heritage listing.

Heritage Victoria has backed the Andrews government’s application to heritage list Melbourne’s Eastern Freeway, finding that the road’s “naturalistic landscape setting” and “series of distinctive concrete road overpasses” make it worthy...

In his recommendation to the Heritage Council, Heritage Victoria Executive Director Steven Avery has supported the Andrews government’s heritage application in a report describing the road as “a fine, intact, influential and pivotal example of a freeway”.

“The Eastern Freeway – Stage One is also historically significant for the prolonged and at times violent community protests that met its announcement, construction and opening,” Mr Avery found.

This is the second-worst urban planning story I've read this week. However, it turns out that the heritage listing is intended to block construction of a connecting freeway with a BCR of 0.8, so perhaps this is actually good from a broader economic efficiency perspective?

This is the worst urban planning story I've seen this week, and possibly ever.

I suspect that the second-best case fails to hold - there will surely sometime be a project that would have a better BCR that will get blocked by this. I don't know if the same nonsense applies to roads as to houses, but even a resurfacing could wind up being tricky, or repainting the lines.

That last link is pretty bad.

Things our civil service needs to be told

The Government has produced a "Guide for Maintaining Health and Wellbeing". It contains a lot of valuable advice. I understand it has been distributed broadly in hard copy, but it is available online for the rest of us.

Here is some of the advice provided. It is comprehensive.

At page 118, it provides helpful tips for waking up.

After you wake up, you might want to tend to your emotional and physical health.

I'd thought that the absolute safest might have involved only one person, but I understand that the Chief Censor's been taking a dim view of such things. 

After all that, why not some breakfast? 

And what do we do after we eat our breakfast?

It goes on, but I'm sure I can trust you to read for yourself. It has plenty of helpful tips on optimising your spiritual health and spending quiet time in nature, in case your score on the resilience self-assessment tool comes in at less than 70. 

If you get too annoyed by their giving advice about using power poses (debunked in a succession of studies), or about their advice to use margarine instead of butter (yech), you can just take their advice about other ways of combating stress. Like a breathing exercise, or counting to 10.

And you can rest easy, knowing that the kind of people who need to be reminded to brush their teeth are busy drafting the rules telling the rest of us how to live our lives. That's why everything works out so well!

The hard copy is a beautiful thing though. 134 pages, ring bound, shiny glossy paper, with those notched pages helping you find the section you're looking for. There's no way these things are less than $20 each even on a big print run. I wonder how big that print run was. 

Strengthening the ETS

Looks like climate policy is coming together:

The main proposal is a change to the ETS so that there is an overall limit on the amount of emissions credits in the system, and a price cap of $50 instead of $25, along with a $20 price floor.

The current price of European emission allowances is 25 euros per tonne, or NZD$42. A price cap at $50 then isn't nuts. I still think that best policy remains a dirty cap, where we set a path for the cap that tracks to the government's commitments, but where the cap stops tightening or even relaxes a bit whenever prices get out of step with prices in Europe.

Setting that as policy commits New Zealand to achieving the government's climate goals, but only to the extent that the rest of the world plays along. Letting prices here get ahead of prices in Europe could prove pretty expensive. Carbon-abating tech will be developed in line with prices in the big markets; if we run ahead of prices in Europe, we'll be frontloading abatement efforts in particularly costly ways.

And before everybody freaks out about what this means for fuel prices, remember that the ETS charge in a litre of petrol is around 7 cents. If ETS prices doubled, then the price of petrol would go up by about 7 cents. That's not the end of the world; that's less than the discount you might get with one of the good supermarket vouchers.

I don't know why the government wants to bundle this in though. This is exactly the kind of thing that you don't need to do if you've published a credible price path for carbon.

One of the main prongs of the proposal is something of a war on the use of coal for heat.

All new coal boilers for low and medium temperature heating would be banned under the proposal.

Medium temperature heating includes drying milk powder and wood products, while low temperature heating is used to heat spaces and water.

Existing coal boilers used for low-temperature activities would be phased out by 2030.

Coal boilers would still be allowed for high temperatures of above 300C - used for things like making steel.

The Government is keen to do this quickly as new boilers have a long life and lock in emissions once installed.

If a coal boiler makes the most sense over the lifespan of the kit, despite a carbon charge set to rise to $40 in the medium term and to rise from there, then folks should be able to put in a coal boiler. Every bit of carbon dioxide emitted by the thing has to be paid for through the ETS, and with a binding cap that can't mean a net increase in CO2. It just means that the coal boiler outbids other potential uses of CO2, so other emission sources cut back their emissions.

That's the magic of the ETS - it makes sure that the tonnes of CO2 emitted are the ones that are most important to be allowed to be emitted, while making sure that total emissions are capped, without anyone having to make big central calls about which emissions are most important. That information simply cannot be known by carbon planners; the ETS harnesses dispersed information about which emissions can most easily be abated, without need for that central planning.

How can the government know that coal boilers are sufficiently low value that they can be banned? If the government is right, folks with money on the line will see that too and will avoid investing in coal. If the government is wrong, then firms will be forced into up-front investments that have a higher cost-per-tonne of CO2 abatement than the ETS price.

Tourism and the ETS

Eloise Gibson covers the carbon costs of tourism over at Newsroom:

But in reality: “value-led tourism growth may actually worsen those pressures that are linked with consumption. Higher-value visitors, by definition, consume more goods and services, all of which have an associated greenhouse gas and solid waste footprint. To the extent that these goods and services are relatively energy intensive (e.g. car rather than bus travel, hotel rather than campground accommodation, helicopter rides rather than hiking), high-value visitors will again have a relatively large greenhouse gas footprint.”

While the report concludes it is possible for smaller number of wealthier tourists to put less pressure on wastewater and waste disposal services, that only works if the total number of visitors falls.  “Any such improvement relies crucially on any growth in higher-spending tourists being accompanied by
 a reduction in their lower-spending peers. It is far from clear that this is the intention. The New Zealand-Aotearoa Government Tourism Strategy states that “we want the value of tourism to continue to grow faster than volume”, but provides no mention of limiting volume itself.”

Time to limit cruise ship visits?

Responding to Upton's office's report, Michael Lueck, a professor of tourism at AUT's School of Hospitality & Tourism, said the government should consider outright caps. "It appears that the main problem is the sheer number of tourists, and we need to look at slowing this growth. The often cited 'high-value tourism', or 'quality over quantity' does not always work, but it would be fairly easy to, for example, limit the number of cruise ships coming into the country. These put a disproportional burden on New Zealand’s infrastructure, environment, and culture, while the economic benefits are comparatively small," he said.

When we think about domestic issues [emissions from international travel are their own mess needing international agreement], and remember that we have an ETS that's moving to a binding cap, the implications change.

It isn't that tourists would then increase NZ's net emissions; it's rather that they bid up the price of carbon and you could then imagine potential equity concerns in the same way that there could be equity concerns if international tourists had disproportionate effect on other rivalrous goods that are in absolutely fixed or declining supply.

But the solution to none of that is capping tourist numbers. You don't solve equity issues by mucking about on that side; you do it instead by finding ways of providing transfers to those on the short end of that equity stick, which they can then use however they like. If richer foreign tourists can outbid kiwis for things kiwis enjoy and are in fixed supply (like carbon credits), then you need to find ways of providing side-payments - transfers from the winners to the losers.

If tourists bid up the price of carbon, and emitting industries like agriculture were provided initial allocation units, then the increased price can increase the cost of farming but that's offset by an increase in the value of the allocated units - so that has the compensation built right in.

Crown sales of NZU into the system ultimately for purchase by foreign tourists at the fuel pumps could provide cash that could be used to provide other side-payments.

There's a strong case for getting more tourist-facing facilities onto a proper user-pays basis, with potential for price differentiation between foreign and domestic visitors - like charges for access to national parks that apply to foreign visitors. Some of the things that seem to be in fixed supply around national parks seem more like a policy decision neither to properly charge for access nor to fund the facilities to meet demand at the going price. Letting prices work would allow effective supply to increase and would provide basis for some of those side-payments.

Fees-free

It isn't like they weren't warned that this kind of thing could happen. 

Here's John Gerritsen:

Less than a third of the tertiary students in the zero-fee scheme last year came from decile 1 to 5 schools, Tertiary Education Commission figures show.

Of the 42,227 students in the scheme in 2018, just 12,191 students - or 29 percent - came from schools in deciles 1-5.

Most of the low-decile group, 5052, were enrolled in a university and 4161 went to an institute of technology or polytechnic.

Schools in deciles 9 and 10 accounted for 26 percent of the students in the zero-fee scheme last year.

Fees were never the big barrier to tertiary participation. Not when the government backs heavily subsidised student loans and collects repayments through an income-contingent scheme. The barrier instead is preparation for tertiary study. Instead of wasting billions on further transfers to those likely to wind up among the well-off through no-fee study, Labour could have decided to boost funding at secondary and primary school - figure out what helps in smoothing the path through to tertiary completion. They could have coupled that with means-tested funding in those cases where fees might have been a barrier.

This is, again, one of those very frustrating spots where a lovely well-being rhetoric wraps itself around a vote-buying effort, with zero consideration given to policy assessment, either ex ante or ex post. If the government's action matched its rhetoric, it would have started out by looking for the barriers to tertiary participation and figuring out the most cost-effective ways of getting those out of the way. Failing that, it would have sunsetted the fees-free policy with any re-up depending on its passing evaluation.

Danyl on social media and the attention economy

Great piece from Danyl Maclauchlan over at The Spinoff.

The journalist Auberon Waugh often wrote dismissively of “the chattering class”: the upper middle-class cliques of journalists, academics, artists, intellectuals and activists (Thomas Piketty refers to it as “The Brahmin Left”, reflecting its 21st century transformation into a priestly caste primarily concerned with moral transgressions). They form the leadership and core constituency of leftwing political parties, and they still attempt to play a gatekeeper role around political debate. But instead of policing the window of debate – pretending to impartial objectivity while excluding what it feels should or cannot be said – it amplifies messages it believes lie outside the bounds of acceptability. The ruthless logic of the Attention Economy rules progressive online and media spaces; everyone competes for attention by demonstrating their moral and intellectual superiority, so any and every public statement that breaches progressive taboos or activates this class’s (very acute) sense of threat can easily earn massive media coverage.

The incentive structure here is terrible. The worst ideas and most deceitful statements are often the most amplified and therefore the most successful. The sustained moral panic about “fake news” (but only on the right), incentivises the manufacture of fake news. We can see this mechanism at work in almost everything the National Party has done this year: their policy work on criminal justice was a rather dry discussion document on how the party’s “social investment” model can apply to this sector, but it was launched with the announcement that “Strike Force Raptor”, would crack down on gangs, which are currently expanding due to Australia’s criminal deportation policy. This prompted the expected response from progressive commentators: that gangs aren’t a criminal problem, but rather a deeply fascinating and complicated epiphenomenon of colonialism and capitalism, a suite of arguments that sound deranged to most of the population who aren’t fortunate enough to reside in the leafy university-proximate suburbs that enjoy the lowest crime rates in the country.

This week’s National Party transport policy announcement is also pretty dry stuff: integrated ticketing; fuel efficiency; urban transport authorities. But the headline announcement was a plan to fine cyclists – cycling being a sacred activity among progressive elites – and this provoked the absolutely predictable response and led the web pages of all the media outlets. National has also taken to producing highly dubious graphs with deliberate errors like disproportionate bar widths, that it releases on Twitter – the heartland of progressive moral panic and intellectual contempt – that its opponents then compete against each other to amplify. Naturally these graphs don’t feature in its policy documents or press releases.

I was expecting a lot of bicycle-twitter outrage about the piece, but there's no evidence of it as yet. Wonder if they've not noticed it, or have properly appreciated it.

Afternoon roundup

The worthies on a very much belated closing of the tabs:

• Nice roundup in Nature on psychology's problems in social priming

  A promising field of research on social behaviour struggled after investigators couldn’t repeat key findings. Now researchers are trying to establish what’s worth saving.

• Somebody is gluing miniature cowboy hats to pigeons in Los Vegas.

  “They look like happy pigeons to me. It is hard to know, of course, because they will not talk to us.”

• This one's more depressing. The Dean of the University of Virginia's School of Education writes a column for the Washington Post on education and education funding. You'd expect the column would be decent, right? The Washington Post is one of the newspapers that seems to be doing well on subscriptions; heck, I pay for a subscription there. And he's the Dean of the School of Education at one of the top universities in the US. But he claims that real per-student education expenditures have been dropping. Corey DeAngelis points to the actual data showing a 36% real increase over the period. This was a couple days ago, and there's as yet no correction at the Post.


• Average is over: geographic segregation edition. An ultra-Catholic community in Kansas. Excellent long-read; the kind of thing I'd have pointed to Denis for Arts & Letters Daily, back in the day.


• Randy Holcombe on Gordon Tullock on inequality and redistribution. Self-recommending. We might note, though, that New Zealand's overall system has been one of the more targeted ones - I wonder how that ranking's been affected by sillier policies like extra free years of tertiary study.

  People can afford to be charitable with their votes when they know their one vote will have no effect on the outcome of an election. This may be Tullock’s most important contribution to the literature on redistribution and inequality—the observation that because of incentives inherent in the political process, people are likely to vote for redistribution programs they would not choose if the choice were theirs alone.
  
  Tullock (1971) anticipates the arguments made by Brennan and Lomasky (1993) and Caplan (2007), explaining how people can vote expressively and even irrationally for outcomes that redistribute more than they privately prefer. This adds a wrinkle to Tullock’s analysis of motives and justifications for redistribution. Tullock (1997) dismisses justifications for redistribution and looks at motives—the desire to receive transfers, the wish to help the poor, and envy—to conclude that government redistribution will not be very effective at helping the poor. But he suggests government redistribution is larger than the median voter would prefer because of the incentives in the democratic political process that cause people to be more charitable in their voting behavior than when considering private charitable giving done individually (Tullock 1971). Perhaps this unintended consequence of democratic decision making renders democratic government a better mechanism for helping the poor than Tullock (1997) recognized.

• When New Zealand's declining PISA scores were released, we heard a lot about how PISA scores don't matter. I rather prefer Australia Labor MP Andrew Leigh's take on Oz's declining scores.

  Forget how we’ve slid relative to other countries -- it’s enough to compare our own students with their predecessors. Year 9 students today score worse than year 8 students would have done at the turn of the century. If this was a sporting contest, we’d be running slower, dropping the ball more often, and missing more goals.
  
  The PISA tests matter because they are designed to capture the skills that young people will need in the workplace. These tests don’t measure memorisation and rote learning -- they aim to capture the essential talents that will be needed in the labour market.

• Kudos Doc Nolan!


• Phil Twyford continues to provide speeches showing he gets housing better than anyone in Parliament. I don't agree with everything in here, but it's good. And we finally now have the infrastructure financing legislation coming through - the Bill has been introduced, and they're expecting to have it done mid 2020. About three years after they came into office. New Zealand's electoral cycles are too darned short given the length of time it takes to get substantial legislation ready.

  I now want to look in a little more depth at housing and land markets, and transport.
  
  I started by saying urban planning has lacked an economic underpinning. An example of this is the use of the urban growth boundary which is a common planning tool ostensibly to stop cities growing outwards, often described pejoratively as sprawl.
  
  Sprawl is often meant as development on the fringes of a city, far from the centre. But I want to make the point that the better way to think of it is in relation to the time value of travel.
  
  If you are building homes let us say in Pukekohe in the south of Auckland, where people who work in the city centre might face a drive of 90 minutes on a bad day, that might be characterised as sprawl. But when we electrify the rail line to Pukekohe, and build an additional line on the main north-south corridor, as we are about to do, those people will have a 30 min express commuter ride into the city, is it sprawl then? I don’t think so.
  
  The most harmful effect of the urban growth boundary where there is rising demand is to create an artificial scarcity of land driving section prices up.
  
  The boundary is much loved by land bankers whose business model is to buy up rural land and sit on it until the local council shifts the boundary in response to growth pressures, changing the zoning from rural to urban, and then sell it sometimes at ten times its former value.
  
  My intention is not to vilify land bankers. Their behaviour is a rational response to bad policy.
  
  If the urban growth boundary wasn’t bad enough, restrictions on height and density, often justified as protecting the amenity of the low-rise garden suburb, ration floor space, stopping the city growing up and restricting the supply of apartments, and of course driving up prices across the market.
  
  Urban planning has too often failed to grasp that whenever rules stop people building or living in places they want to (typically close to amenity, jobs or transport interchanges) they deny people housing choices, restrict supply and drive prices up.
  
  As Ed Glaeser says, every time you place a restriction on intensification you deny a family access to the city.

• More evidence against Sachs's Millennium Villages. Small or null results on core indicators, no spillover benefits.

Revisionist RBNZ history

A couple years ago, the Initiative surveyed its members [update: and, Roger reminds me, a pile of other businesses - about 200 in all!] about their experiences with their regulators. It was less about whether they were happy with the outcomes that obtain, but whether the officials they deal with know the landscape, can make decisions - that sort of thing. It was a broad survey of our members about the regulators they deal with. 

The result was a report released early last year. I was a bit surprised that the RBNZ showed up poorly in its role as prudential regulator. Overall, it looked like proper governance boards mattered in regulator performance; Roger Partridge, the report author and our Chair, recommended that the RBNZ look to its governance structure.

Accordingly, we recommend that:

1. The board governance model should be adopted for all independent regulatory agencies in New Zealand, including the Commerce Commission and the RBNZ.
2. For the Commerce Commission, this should be achieved by:
   • reshaping the commissioner role so it is largely a governance (or board member) role, with substantial decision-making power delegated by the commissioners/board members to the commission’s CEO; and
   • broadening the skills set of the commissioner/board members of the commission to include members with industry expertise.
3. For the RBNZ, this should be achieved by:
   • legislative reforms that make the RBNZ governor accountable to the RBNZ board for the exercise of prudential regulatory policymaking and decision-making power; and
   • broadening the skills set of the RBNZ board to include more banking and insurance expertise.

The report was released just as Governor Orr was coming in; the results couldn't possibly reflect on his Governorship.

He welcomed the report at the time. Here's Hamish Rutherford from April 2018:

Adrian Orr, the new governor of the Reserve Bank, has written to the chief executives and chairs of New Zealand's banks alerting them to a damning report fed by their anonymised comments.

An improbable star of New Zealand finance, Orr, 55, started in the role on March 27, arriving at a central bank which he acknowledges is under fire.

"This place is a diamond, but it needs significant polishing in places," Orr said in an interview in the Reserve Bank headquarters.

"We need to think much harder about how we behave, how we roll, how we explain, how we do things. That's a cultural challenge for the bank."

A survey by think tank the New Zealand Initiative, released on April 13, drawing responses from "some of New Zealand's largest financial institutions" had most respondents claiming the bank's consultation and engagement was poor.

Respondents did not believe management was well-respected, did not find staff constructive and most said the bank did not learn from its mistakes. Verbatim comments from the survey would make for difficult reading for Reserve Bank staff.

"RBNZ [staff are] completely divorced from the reality of how things are done," one told the survey. Another described the bank as "archaic", adding that entrenched officials "don't get challenged".

Written by NZ Initiative chairman Roger Partridge, a former executive chairman of leading law firm Bell Gully, the report gained limited attention in the days after its release.

But Orr has decided to amplify the message, acknowledging the bank's reputation is below what he believes it could be.

As well as posting the comments of the report on the Reserve Bank's internal intranet, Orr had written to bank bosses with the message that: "Hey, this doesn't print well. We hear you. We need to do something about it."

He expected that writing the letter and making public statements would elicit "free, unsolicited advice about how this place can do better".

His letter to the chairs of New Zealand's banks will mean he has written to former prime minister Sir John Key, who is now chair of ANZ New Zealand, alerting him to criticisms that Key probably be familiar with.

The approach of the bank to contact with both the media and the organisations it regulated had been "highly transactional," Orr said.

"It needs to be more strategic, about building that reputation, targeting the things we want to be world best at, letting other things go."

We were really happy with that response; it seemed exactly right. It was encouraging.

And so I was a bit surprised to have these comments of Orr in interview with the NBR's Tim Hunter passed along to me. Subscribers might find it here; I'm on the wrong side of the paywall.

“When I turned up as governor [in March last year] and I walked into this vacuum, the first thing I received was a NZ Initiative report on how we don’t ring, we don’t write, we don’t come to see you, we don’t explain ... this damning report where they’d interviewed eight people.”

The report was the NZ Initiative’s Who guards the guards report from April last year, which found fault with the RBNZ’s governance.

“I felt the bank had almost become a free hit and it was fine just to criticise or throw things at the bank,” Orr. said

“So I deliberately removed the ‘free’ component of that to say ‘well hang on, if you say that, expect to be questioned’.

“We are humans behind this concept called the central bank. You can’t just abuse us. It’s hashtag not ok.

“That we wanted to be open, accessible, and not put up with abuse, came as the biggest shock to the usual customers or the usual behaviour.”

Orr's historical revisionism was a bit surprising, since he was in print last year saying the exact opposite of what he's now saying. He had seemed sincere last year in his welcoming of the report.

The survey overall (lots of members over lots of regulators) was rather broader than "8 people". The number of people who Roger surveyed who deal with the Reserve Bank on prudential regulation won't be huge, sure, but the population of people in the banks who deal with prudential regulation and interface with the Reserve Bank is not vast; our survey went to those on point. A survey of 2000 random-draw members of the public would have been bigger, but utterly useless.

Orr has been far less a fan of our criticisms of the process around the changes in the bank capital requirements, where we have strongly urged that there be a consultation round allowing for testing of the Bank's cost-benefit assessment - which was only published along with the final regulations with no opportunity for such testing.

I've also been critical of the Bank's taking on too many objectives as part of its prudential regulation.

I don't know whether any of that's caused any change in views of our report released last year.

It feels like a revisionist history though, and it's a bit disappointing that the NBR didn't notice the change.

Reader mailbag - competition for the sporting market edition

A learned reader writes in response to the post on competition among sporting leagues:

You are generally right about the lack of competition for the market in sport but I suggest you have a look at FINA, the world body and Olympic entity for most aquatic sports: swimming; diving; water polo; artistic swimming (formerly synchronised swimming); high diving; and open water swimming, along with masters for all these events. It faces competition for the sport in high diving, open water swimming, swimming and provision of competitions for masters (ie the geriatric). In swimming there are three competitors to FINA: international life saving that has a lot of swimming events, including many held in pools with international competitions; NCAA, about which you will know more than me; and now the International Swimming League (ISL). The latter runs a series of international teams events with some different formats for competition e.g. skins.

After some argie bargie and arm wrestling FINA and ISL have worked out how to co-exist in competition. You can now set FINA world records at an ISL event i.e. they have decided it is pointless to have two sets of world records.

Guess what? Among the world bodies controlling sport I think you will find that FINA is right up there in terms of innovation and trying to satisfy participants and the audience. Way ahead of IAAF, FIFA and most of the other Olympic bodies. The only organisation that comes close, that I am aware of, is UCI, the controlling body of road cycling, track cycling, bmx, cyclocross and mountain biking. UCI effectively contracts out its major road cycling events around the world to commercial entities. The events these companies run largely fund UCI and the companies have a big say in driving it. Swimming at the Olympics draws the largest female/male audience. Gymnastics the largest female audience and Athletics the largest male audience. You don’t see much swimming in NZ on TV as they are very much into rugby, soccer and other team sports and tennis i.e. New Zealanders like watching on TV sports where they can get very annoyed by the referees interfering in the outcome.

... Two of the [FINA] innovations were the introduction of mixed relays (2 men and 2 women) and use of wet suits in cold water temperatures in Open Water swimming. Why NZ would favour these innovations is pretty obvious. Both these have been adopted and have been great successes among participants and audiences.

Why has FINA “tolerated” competition but many other international sporting organisations do not or have not faced it? Am I right about the results of competition for the sport in swimming?

I'm also reminded of an excellent student essay in my graduate public choice class from... over a dozen years ago now... looking at the political economy of Formula One racing and how the threat of teams exiting to form their own league forced some innovation and changes in revenue sharing. In car racing, there's innovation within codes, and competition across codes (F1, Indy, NASCAR, probably more that I don't know about). 

We're heavily into territory where I haven't enough grasp about the stylised facts to be able to do much. It feels like the lack of credible threat of exit will matter in the North American leagues. 

The year of delivery

Stuff reports:

The Government will move to ban non-compostible fruit stickers today in response to a huge new report about single-use plastic, Stuff understands.

It's understood the Government will also move to ban plastic cotton buds and single-use plastic cutlery, items which both have biodegradable alternatives made out of bamboo.

Compostible apple stickers do exist but are not in wide-use.

The announcement will be made on Sunday morning as part of a response to report from the Prime Minister's chief scientist, alongside a host of other measures.

Have seen a lot of support on twitter for this from people annoyed at having to peel stickers off of apples; I suspect shops will switch to the biodegradable ones unless there's some other better and cheaper tech out there to let shop clerks quickly tell whether they're ringing up a $3.99/kg apple or a $5.99/kg fancy apple.

On the plus side, the bit about plastic cotton buds had me quickly checking their availability at Ali Express - and they're easily available there, along with the wooden stick ones, and at much lower prices than I'm used to seeing here.

I wonder whether the government will yet be making any announcements of the kinds of infrastructure bonds that Phil Twyford talked about in opposition and during the election, and that I know that Treasury has been working on.

One policy instrument for each target, and every agency in its place

My column in today's Fairfax papers argues that central banks really don't have any business playing in climate change policy. It isn't that climate change isn't important; it's rather that central banks have one big job - two if they're also responsible for prudential regulation. 

A snip:

In October, the Reserve Bank's general manager for governance, strategy and corporate relations highlighted the bank's growing focus on climate change. As part of the same press release, governor Adrian Orr noted the bank's role in "greening the financial system" and managing environment and climate-related risks.

Some of this makes sense as part of the Reserve Bank's role in prudential regulation. If a bank's capital stock includes a lot of farm mortgages that would be underwater with a change in emissions policy, then those risks should be considered when weighing that bank's overall position.

Of course, there are policy risks across many different sectors - just think about how Trump's tweets can affect different portfolios.

But the Reserve Bank seems to wish to go further than that, noting the importance of integrating sustainability factors into portfolio management, and recently purchasing US$100 million of green bonds. The current remit of the Monetary Policy Committee includes a preamble noting the government's economic objective of moving towards a low-carbon economy.

And there we start worrying about whether the instruments are suited to the targets, and whether the bank may be over-reaching.

Getting policy around climate change right is incredibly important. But it is not a job to which a central bank is well suited. We would not ask the Reserve Bank to help ensure that vaccination rates are high enough to prevent outbreaks of contagious disease, and we should raise an eyebrow if it started volunteering to do the job. It is a job better suited to others. And climate change policy is better left with the Climate Change Commission. The Emissions Trading Scheme is the best instrument for mitigating New Zealand's emissions.

If prudential regulation reaches beyond considering climate change risk as one of many factors affecting the soundness of a portfolio, to instead start nudging companies into changing their practices around climate risk, we start getting into Tinbergen's problem. Making prudential regulation more about climate change makes it less about the soundness and efficiency of the financial system. We then risk doing poorly for both.

This weakening of focus on core central banking business is hardly unique to New Zealand. Traditionally, central banks have sought to be sectorally neutral in their market operations: if a reserve bank must purchase bonds as part of monetary policy, it tries to do so without skewing the pitch in favour of one sector or issuer or another.

If pitch-skewing is appropriate, that is for democratically accountable parliaments to decide rather than central banks. But Christine Lagarde, the recently appointed president of the European Central Bank, is reviewing whether its bond portfolio should shift from market neutrality to preferring green investments.

These kinds of policies do not just violate Tinbergen's warnings. They also risk the independence of monetary policy if parliaments object to reserve banks taking actions going beyond monetary policy and normal prudential regulation.

And there are dangers too if markets come to expect that central banks might not pursue purely monetary goals in any crisis requiring quantitative easing.

This stuff shouldn't be hard, and it shouldn't be part of the RBNZ's remit.

Make sure that the ETS is working properly. Have a binding cap. Share the burden of getting the cap down to where it needs to be through a declining allocation to grandparented emitters and crown buyback and retirement of emission permits. Keep an eye on the ETS prices to make sure that they don't run ahead of prices in places that also take this stuff seriously. And set a regime, in concert with the OECD, for running carbon-equivalent tariffs for imports from places without a carbon price, and for exemptions of carbon charges on exports to places where the product would compete with products without a carbon charge.

None of that needs a greening or re-jigging of the financial system. It all works better if the financial system is working well, but that's about it.

Reserve Bank independence depends on strong cross-party consensus that the matters over which the Bank is independent are matters that require that independence, and that the Bank isn't straying from its wheelhouse.

Meanwhile, Rod Oram argues that ACC and other government investment funds should divest themselves of anything relating to oil, but with broader implications of course.

ACC’s role, though, goes far beyond a fiduciary responsibility. By being less than world class in its investment policies and practices on carbon, it is exacerbating climate change. That in turn only adds to our health burdens which ACC is meant to help alleviate.

I suppose that sort of thing sends a moral signal and stuff, but it just doesn't make much sense. If you want folks to use less stuff that generates GHG emissions, put a price on GHG emissions.

Imagine that there are two companies on the stock market, a dirty one and a clean one. There's no carbon tax. Ex ante, expected returns to investment in both stocks must be equivalent or funds would shift from one to the other until they were equivalent.

Then, the great awokening happens and a large investor decides it doesn't want to invest in the dirty one anymore. So it sells off its shares and uses the funds to buy shares in the clean company. If the large investor is large, then that action starts pushing down the share price in dirty and increasing the share price in clean. But there's no carbon tax - remember. The expected return on dirty starts going up - nothing in the fundamentals has changed. Investors who just care about return on investment will sell their shares in clean at over-the-mark prices to buy the bargain dirty stocks.

If the large investor is not large enough to buy up all the shares in clean, then we just wind up with the large investor owning nothing but clean, and other investors holding more dirty in their portfolios.

If it is large enough to buy up all those shares and still have cash left over, then things start getting more interesting. It can signal a desire to put more capital into clean, so clean can fund its next project which it otherwise couldn't have funded because the return on that project was (expectationally) lower than the going rate. So the large investor can start reducing the cost of capital for clean, but only at the expense of lower returns for its investors. So it cannot simultaneously be true that the clean investor both affects the real world, and earns expectationally higher returns on its investment.

So the ethical investing push does nothing unless it winds up having those investors forgo returns.

But putting a price on carbon would reduce the return to investing in dirty and increase the return to investing in clean.

And if we wind up in a spot where the government's various funds are pursuing investments based on the ethical views of those funds' directors rather than based on what makes most sense given their risk appetite and time horizons, then again we get into messes. There is risk of these things turning into government slush funds. Bright lines on this stuff are valuable - the funds should be pursuing the strongest possible returns rather than seeking to achieve other objectives.

Data preservation, IRD, and the OIA - the saga continues

About a month ago, I made an OIA request for IRD's documentation around data sentencing for the Colmar Brunton poll data.

As you'll recall, IRD had initially refused my request for the Colmar Brunton poll data citing tax secrecy, but updated that in November. They said that they should have refused the request on grounds that the data requested did not exist, because they'd requested that Colmar Brunton delete the data before I'd requested it.

I received a response yesterday.

I've replied noting that I have made a new request - I'd like the records around the sentencing decision. If IRD wishes to withhold that information on same tax secrecy grounds as it refused my prior request for the data, I think they'd need to say so.

I'm interested in how IRD viewed its requirements under the Public Records Act. IRD has authority to sentence its own records to destruction, but there are processes required around that. And I'd like to see whether those were considered.

It sounds like they wish to withhold that information under the tax secrecy provisions in Section 81 of the Tax Administration Act; I've followed up with IRD to check (and expect it to take another 20 working days for them to tell me). Pretty broad power, that one, if so. Is there anything that IRD would reckon isn't a tax secret?

If the government had wanted to exempt IRD from the OIA full stop, wouldn't they have written that into the OIA legislation in the first place?

Of IRD were not in compliance with its requirements under its disposal authority, it sounds like it would be impossible for anyone to know that because anything establishing it would be deemed a tax secret and withheld.

Update: IRD has advised that they are still considering my additional request, and that they have extended the deadline on that request to 17 January. So, see you next year on that one.

Chicago and Academic Freedom

Vic Uni Associate Dean Michael Johnston, and colleagues, want New Zealand's universities to adopt the Chicago Statement on academic freedom and free speech. 

I cover the case for it over at Newsroom today ($). A snippet:

The Foundation for Individual Rights in Academia chronicles violations of academic freedom and student speech rights in America, regularly tallying abuses like Northwestern University’s censorship of a department’s academic journal and its chilling investigations of other scholars; Texas State University’s threats to the funding of a student newspaper over content the administration did not like; and, DePaul University’s requiring a socialist student organisation not only to have security officers monitor their discussion with the author of a book on Karl Marx, but also to cover the security cost.

New Zealand seems far removed from these kinds of problems. But we are hardly immune.

Massey University’s blocking of an invited lecture by Dr Don Brash seemed to be rather more about the Vice Chancellor’s political differences with the former Reserve Bank Governor than about any purported security concerns. But it would be a problem in either case: neither the heckler’s veto, nor the ideologue’s, should have standing.

And when universities are caught between student groups protesting China’s repression of Hong Kong, and students from China potentially pressured by the Chinese Communist Party into launching counterprotests, appropriate responses are more difficult without a strong commitment to academic freedom for both faculty and students.

Universities can come to different decisions about how to handle difficult cases. When universities have a strong commitment to academic freedom and explain their decisions within that framework, differences in views about how any particular case should be treated can be fodder for the usual debates within a university.

But without that commitment, contentious decisions can look a lot more like a weakening of support for academic freedom. And that has implications for academia more broadly.

I expect an ungated version will be up at the Initiative's site tomorrow for those without a subscription.

I hope that Michael's initiative enjoys a lot of support.

Update: Ungated link

Sport and competition for the market

Colby Cosh's latest column would be great fodder for grad classes in Industrial Organisation.

We can think about sporting competition in a few ways. The obvious one is competition within the market. Teams compete against each other to be the best within the league's set of rules.

There's also a weak form of competition against other sports in the overall market for attention. Leagues adjust their rules to maximise profits across the set of teams; if the game isn't fun to watch, people will watch something else. So if the competitive balance gets out of whack, the league might use salary caps or entry drafts to make the game more competitive.

But there doesn't seem to be much competition for the market within a sport. If you want to watch professional hockey in North America, there's the NHL and its set of rules. If you want to watch professional basketball, there's the NBA and its set of rules. Canada and the US run different rules for gridiron football: CFL versus NFL, but it isn't like you can choose one over the other if you want to go out and see a game one day. The city you're in says which league you get to watch.

So we get to Colby's rather fun question. All the leagues have evolved to a stable form of the game with about 30 teams in each league and no interesting rule variants. Baseball gets a designated hitter rule in the American league but not the National league, and that's about it. Why isn't there more competition for the market?

Here's Cosh (go read the whole thing!):

In these league structures as we have come to accept them, teams become local monopolies, with little natural incentive to care for or experiment with their sport. Major league baseball was once the senior level of a healthy, commercially successful universe of ballplaying; now, “baseball” exists mostly to serve a televised spectacle that is 30 businesses in large metropolitan areas. All other play of the game above (or even at) the amateur level is defined by its relationship to those businesses. And this is more or less equally true of the other sports.

Which might be fine if it didn’t have other terrible effects. But the One True Business Model makes all the pro sports extremely conservative and incestuous. And each league is wedded to a single, all-prevailing rule set; even the vestigial divide in baseball that gave one “league” the designated hitter would no longer be tolerated.

Any new idea in rules or playing conditions must either be rejected or accepted wholesale after limited experimentation. (The “minor leagues” in the big four sports are suffered to exist partly for the purpose of trying out new rules, but this only emphasizes their status as subject principalities.) This, in turn, leads to endless tinkering inflicted on every fan simultaneously: witness the strife in American football over how to police pass interference, or the torment all sports have suffered over use of instant replay in officiating.

If you are a fan nostalgic for the game of basketball as it was played before the three-point line existed, or for hockey before the shootout, you have nowhere to turn. But it could be worse: you could be a player whose relevant skills are rendered obsolete by some singular, irreversible change in the rules and corresponding strategic imperatives. What are you going to do, go play in the other NFL?

The worst of it is that even as these cartels stagger toward a perceived single optimum of entertainment value, they can struggle, with equal difficulty, to let go of traditional axioms that are dragging them down. Major league baseball’s increasing transformation into a contest of strikeouts and home runs, with roughly 12 relief pitchers appearing in every game, is the obvious example.

I love all four of these games, but watching them is ever more like visiting a nice relative in an intolerable and dangerous neighbourhood. And, actually, I think there is a great long-term commercial reward for the first one of these major leagues to start seriously reconsidering its own monolithic structure. The most obvious candidate is the National Basketball Association, whose brilliant commissioner, Adam Silver, has put forward a proposal to interrupt the 82-game NBA regular season with a winter tournament.

This isn’t the orgy of destruction for which I long; I prefer to imagine a total anarchistic dissolution whose extreme limits even I cannot see. (What if there were no permanent teams, and everyone in baseball or basketball were a free agent every year? What if the L.A. Dodgers-Kings-Chargers-Lakers were one club that had to play all four sports in a calendar year with a strict 50-man roster?) But at least, dear God, Adam Silver is thinking about the future; he is thinking about attacking the unexamined, boring premises of his game/sport/cartel, which include “having a single ‘regular season’ that is a prelude to a single playoff tournament.”

If we contrast to New Zealand, cricket gives us three forms of the game. Some prefer 20/20, some prefer ODI, and the best people prefer a proper Test. International teams face all three forms of the game. Rugby takes a different tack, with different teams playing rugby union and rugby league, and not much player cross-over between forms.

And so the fun fodder for an IO seminar: Why do we get three forms of cricket within the same league where each team needs to be able to play all three; two forms of rugby played by different teams where there are often franchises of both leagues in the same city (Wellington has both the Lions and the Hurricanes); but, only one form of professional-grade sport in the North American leagues? Is it really plausible that the North American professional leagues have really evolved to the best-possible forms of the game?

I like the thought-experiment of the 50-man combined LA Dodgers-Kings-Chargers-Lakers.

Open for business?

Bryce Wilkinson and I go through some of the proposed changes to New Zealand's Overseas Investment Regime over at Stuff.

Well, went through. The piece came out last week, but I'd missed that they'd put it up.

An opening snippet:

Sometimes, being at the front of the queue isn't a good thing.

If you lined countries up in a row, starting with the places least friendly to foreign investment, and ending with the places with the fewest restrictions, New Zealand would be near the front of the queue. In the OECD's 2018 survey, only Jordan, China, Malaysia, Russia, Indonesia, Saudi Arabia and the Philippines were more restrictive – and most countries were far more liberal.

So it is a bit odd to hear Trade Minister David Parker talking this week about the need to tighten up New Zealand's foreign investment regime. The Overseas Investment Act and its implementation need reform, but substantial tightening is not what needs to happen. Are we trying to catch up with China or vault past Russia in these leagues?

Afternoon roundup

This afternoon's worthies:

• Vic Uni's James Kierstead and Michael Johnston in defence of free speech. 

  Liberalism and democracy, as Karl Popper recognised, rest on substantive values, values that have to be defended if liberal democracy is to survive and flourish. And it’s up to all of us to do the work of defending these values. If we say nothing while governments, corporations and ideologues threaten and quash the free expression of ideas, we are, at least tacitly, voting democracy out of existence.

• What a beautiful validity check. Do better teachers really make students taller?


• Business regulations and poverty

  Using panel data for 189 economies from 2005 to 2013, this paper shows that business-friendly regulations are correlated with the poverty headcount at the country level. This association is significant using the World Bank's Doing Business indicators on getting credit and contract enforcement. The findings suggest that the conduit for poverty reduction is business creation, as a source of new jobs and a manifestation of thriving entrepreneurship.

• Mark Zuckerberg, Patrick Collison and Tyler Cowen talk progress.

Diversity in the Boardroom

I just loved Isabelle Solal and Kaisa Snellman's piece over in Organisation Science. 

They look at the effect of the gender of a company board appointment on subsequent sharemarket performance (Tobin's q). They summarise the existing literature, concluding (in line with the rest of the academic literature) that there is no particular effect of boardroom gender on company performance.

But then they do something rather neat. They look at how things vary based on company rankings on the KLD corporate social performance index. That index ranks companies by their commitment to corporate social responsibility objectives, and includes an index ranking a company's commitment to gender diversity.

They find that the gender of a board appointee has no effect on sharemarket performance, among firms with a low ranking on the KLD index. But firms with a high ranking on the KLD index, the appointment of an additional female director reduces Tobin's q. They reason that investors infer different things in the two cases:

We examine investor responses to board diversity and highlight a previously unexplored mechanism to explain negative market reactions to senior female appointments. Drawing on signaling theory, we propose that an increase in board diversity leads investors to update their beliefs about firm preferences. Specifically, we argue that a gender-diverse board is interpreted as revealing a preference for diversity and a weaker commitment to shareholder value. Consequently, firms with more female directors will be penalized. We test our argument using 14 years of panel data on U.S. public firms. We find that firms that increase board diversity suffer a decrease in market value and that this effect is amplified for firms that have received higher ratings for their diversity practices across the organization. These results suggest that observers respond to the presence of female leaders not simply on their own merit but as broader cues of firm preferences and that firms may counteract any potential signaling effect through careful framing.

I liked the piece enough that I made it my column over in the Fairfax papers today.

It is too easy to convince ourselves of things that are not true.

We all do it and it is hard to avoid. Some beliefs, from religion to sport, are just comforting. And when some comforting beliefs are very popular, being the one to say otherwise can be a bit risky.

But, at least in business, believing things that are not so can eventually get you into trouble. Businesses face the market test. And, for publicly listed companies, share prices can provide a quick signal that you may have made a bad decision.


The latest issue of Organisation Science, a top academic management journal, provides a wonderful case study.

...

And that helps us to understand why investors might respond in the way that Solal and Snellman discovered.

It may now be a bit passé to say it but improving shareholder value is a company's ultimate responsibility. There are plenty of wonderful things that companies do to help the communities they serve, but shareholder value is a hard bottom line. It is part of the market test.

Companies that keep that sharp focus on the bottom-line will make board appointments that they think will do the most to improve the company's performance.

When investors have little worry that the latest board appointment was made for any reason other than improving the company's performance, the gender of the latest board appointment has no effect on share prices. Investors simply expect that the best candidate was chosen.

But among firms highly rated for their commitment to gender diversity, an additional female appointment to the board reduced the firm's market value relative to the value of the company's physical assets (Tobin's q) by almost 6 per cent.

Solal and Snellman suggest that investors infer, in those cases, that the company is less worried about shareholder value than about other objectives. And that can be a worry if you care about your portfolio's returns.

While the literature showing no particular effect of boardroom gender on corporate performance is rather substantial, Solal and Snellman's results are still just one study. Others could yet overturn it.

But it does provide a bit of a warning for companies that put substantial effort into advertising their corporate social responsibility credentials.

If Solal and Snellman are right, then investors can be quick to infer that companies demonstrating their commitment to popular but mistaken beliefs have taken their eye off the ball.

The market test matters. And mistaken beliefs can be costly. 

The piece has not met with universal acclaim.

Over at LinkedIn, Sky director Rob Campbell writes:

I’m not sure whether Dr Crampton has ever worked in a listed company or been a director of one. As an academic he would not get much traction by grabbing one study in a quite active literature, even one based on meta analysis, and building an argument on it. The academic world has its own rigour.

But back in the listed corporate world the thinking runs a good deal deeper than “let’s appoint a woman or two and see if it lifts the share price”. We are all looking to improve the performance levels of our boards and management and it would be foolhardy to ignore the negative impacts of mono gender, mono ethnicity, mono experience on that. Not least because our shareholders (rightly) demand that we make the shift. So sell your shares in any business I’m involved with Dr Crampton, we will keep searching for better solutions.

It's a bit funny really. I note how desperately people want to believe something to be true that isn't true, and pointed to the metastudies of dozens of prior studies that show that there is no effect of boardroom gender on company performance, and that's the reply.

I hadn't known about the KLD index before. Someone's likely already done this study, but if it hasn't been done, it would be a lot of fun.

I'd be keen to know whether firms subject to greater regulatory risk show up differently in the KLD index. Maximising shareholder value, for some firms, also involves making sure that the regulators have warm feelings towards a firm because the regulatory risk is substantial. Anticipating the social preferences of those regulators and working to demonstrate shared values could be a way of buying friendlier relationships with the regulators.

Different firms and industries will face different regulatory risks from different administrations. There'd then be potential for identifying effects by looking at the composition of congressional oversight boards, or changes in the Presidency as the regulatory agencies will be affected by the tone set in the Executive, or firms that face regulatory risks in different states as well as federally.

You might think that, in general, firms that depend more on friendly relations with regulators will invest more in CSR efforts where doing so buys friendlier relations. It would be neat to see whether that's the case. One does hear incredibly interesting anecdotes consistent with that kind of story, but does it show up in the data?

Really protecting tenants

The government is making it harder for landlords to evict tenants, among a few other changes to the Residential Tenancies Act. 

It's a brilliant bit of politics. 

Suppose that successive governments have so screwed up the rules around getting new housing built and the incentives facing councils to consent new housing that we wound up with a housing shortage. 

Suppose further that your government got elected on a promise to fix the mess - but has achieved close to nothing on the file after two years with an election coming. Kiwibuild was never going to work, and wound up being a costly distraction from the real supply issues at play.

And suppose further that you really need anger about broken housing markets to be directed away from the government. 

What better play than changes to the Residential Tenancies Act? You get a lovely set piece then where landlords yell about the changes, and everybody who's mad about the status quo gets to blame landlords for the mess rather than sheeting that blame home to where it belongs. 

Of course it won't do much to protect tenants. It's palliative. When Auckland is deep in a housing shortage, it doesn't really matter how you fiddle with the Residential Tenancies Act. It's all second-order stuff. 

If you really care about protecting tenants, you need to have massive increases in housing supply. You need to have landlords competing for tenants. You need to have the run-down, damp, grotty dungers left vacant because people have other places that they can afford to live instead. When you're in a massive housing shortage and the alternative to a crappy house is a garage or a car, crappy houses get rented out. If we instead had a surplus of housing, those places would be left vacant and their owners would have to decide whether to refurbish or tear down. 

If you look over at the car leasing market, the provisions in standard lease agreements are way more friendly to the car's owner than are the provisions in house rental agreements. But consumers don't get shafted in those markets because there's ample competition among suppliers and it's easy to set up shop and import more cars if the others are doing a poor job. Like, if the only cars available for lease here were 30 year old Holdens with holes in the roof and a heater that would only work if you held your knee against the centre console just right - somebody would make a buck by opening a new company leasing better cars. 

But importing a car is pretty easy. If you want to build a new house, there are years of process. Auckland Council will make you hold everything up while deciding on street names FFS. We don't make car dealers hold the cars at the port until they've come up with unique names for each car that are culturally sensitive and have passed community consultation, but we hold up housing supply for it. 

I go through all of that over in my Newsroom Pro column this week. Well, not the political conspiracy theory part of it. I expect that the Prime Minister sincerely believes that this will help. And parts of it might. It could just be convenient coincidence that it gives them a nice set piece for landlords and tenants to yell at each other rather than noticing the lack of action on the substantial housing shortage. 

A snippet:

Charles Dickens quipped that an annual income of twenty pounds would result in happiness if annual expenditure were six pence less than twenty pounds, but misery if expenditures were instead six pence over twenty pounds.

Housing is a bit like that.

If we had 600,000 dwellings in Auckland and some 580,000 households needing housing, the result would be happiness. Instead we have about 540,000 dwellings and 580,000 households needing housing, and the result is obviously miserable.

...Tenancy regulation will not build more houses. It can only address some of the current symptoms of a fundamentally broken housing market.

Worse, it is the kind of move that makes the most sense if the Government is pessimistic about its chances of fixing the real underlying problem – making it easier to get new housing built.

Those numbers are a bit rough. The household estimate comes out of the 2013 Census because I've not seen yet any release of TA-level household counts from the 2018 Census - I used the 2013 midpoint estimate which I expects lowballs things. But the number of dwellings count is current.  

Police and guns

If this is right, it looks like New Zealand needs better police rather than stricter firearms laws. 

Here's Derek Cheng at the Herald:

The man accused of the March 15 terror attack was supplied 2300 rounds of ammunition by using a police mail order form that also revealed to police he had an AR-15, a parliamentary select committee has been told.

The information was part of a submission from licensed firearms dealer Paul McNeill to the finance and expenditure committee, which is considering the Government's second tranche of gun law reform.

McNeill, who is also director of the Aoraki Ammunition Company, appeared before the committee on Friday via video link, but his submission was quickly taken offline in case it might affect the accused's right to a fair trial.

He told the committee he received a police mail order form from the Dunedin arms officer in December 2017 to supply the accused with 2300 rounds of ammunition.

"At the time, Brenton Tarrant was issued with a 10 year [firearms] licence, expired 8 September 2027, indicating he was issued a licence in September of 2017, which from my information was only a matter of five or six weeks after he arrived in the country," McNeill told the committee.

"This time, he has no family, no partner, no job, no footprint in the community, yet he was vetted as being fit and proper and obviously given a full licence which allowed him to arm himself."

McNeill said the mail order form also said the accused was in possession of a Norinco semi-automatic rifle as well as an AR-15 - the type of military-style semi-automatic firearm the Government made illegal in the aftermath of the March 15 attacks.

"So the police were aware he had these firearms," McNeill said in video footage that was removed from the Parliamentary website, but was later posted on social media.

So. The police granted the guy a 10-year firearms licence on minimal background check. They approved his getting 2300 rounds of ammunition. They knew or ought to have known that he had an AR-15.

I don't think the problem here at all is the lack of a gun registry. The problem instead seems to be that the unit in police that dealt with firearms checking stuffed up.

And I wonder how much police pushing for tighter gun control is to distract from that.

In last week's Insights newsletter, I noted some related problems: 

Policing by Consent

New Zealand’s basic bargain around firearms ownership and policing always seemed rather sensible. It was very much a feature of New Zealand’s general “Outside of the Asylum” approach to policy.

Background checks on potential firearm owners limit access to firearms in the interest of public safety. The police then have no need to be routinely armed. It seems a far more sensible approach than America’s, where a heavily armed public has increasingly led to a militarised police force.

New Zealand’s bargain seems to be breaking down with an increasingly armed police force coinciding with far tighter restrictions on civilian firearm ownership. It puts at risk basic principles of good policing dating back to London’s Metropolitan Police Force in 1829.

New Zealand is one of the few countries that has maintained an unarmed constabulary. Police Commissioner Mike Bush put things well in 2009 after a rare shooting of a police officer led to calls for arming the police. He described our unarmed constabulary as a unique and cherished feature of New Zealand policing, and warned that routine arming of police would make community policing considerably more difficult.

The fundamental relationship between police officers and members of the public changes when one of them has a sidearm at the ready. The trial of roving squads of armed police ready in case of armed incidents has already led to their use in more routine stops.

Sir Robert Peel outlined the basic principles of policing that have stood for almost two centuries as the foundation for policing by consent. Those principles recognise that policing and good order depends on the public approval of police actions and the willing cooperation of the public, and that both of those are diminished when police are too quick to resort to force and shows of force.

Policing is challenging. But there has been no surge in violent or property crime involving firearms; police statistics going back to 2015 suggest a flat or somewhat declining trend in court action. And restrictions on private firearms ownership have strengthened considerably over the past year.

New Zealand’s experiment with roving armed police should end. It is an unneeded show of force. And it is contrary to Peel’s dictum that the best test of police efficacy is the absence of crime and disorder rather than the visible evidence of police action in dealing with them.

Confusing the Monster-Ometer with the Frog Exaggerator - again

The latest results from the NZ Health Survey are up.

And so is Alcohol Healthwatch's take on those stats. They take it all as reason for tightening control on alcohol.

Go and have a look at the stats for yourself. For each of a pile of indicators, MoH slices up the data by gender, by age, and by ethnicity. It then says whether the difference between the latest stat and last year's stats, or 2014/15's stats, or the 2011/12 stats for the series that go back that far, are statistically significant.

Now one immediate problem is that if you've sliced up the data two dozen ways and you're running comparisons between three pairs of years for each of those slices, you've got a lot of potential comparisons. 24 comparisons per indicator times 3 year-pairs of comparisons, for the indicators where they have data going back over the whole period - which they don't for some because they changed their definition of hazardous drinking along the way. 

When you're slicing the data that way, you need to adjust your statistical tests for the problem of multiple comparisons. Why? Jellybeans. I'm pretty sure that MoH hasn't done that and that they're just running naive tests for each one.*  

So keep that in mind when noting changes that pop up as significant. Some of those will really just be noise. 

While the mean prevalence figures cited in each group are not age-standardised, the p-values are. 

Here is the full list of all statistically significant changes across the indicators. They always compare 2018/19 to 2014/15 and to 2011/12 when those years can be compared; I don't know why they don't run comparisons to the start of the series in 2006/07. The 2006/07 figures are almost always higher than the current ones. For most stuff, there was a big drop between 06/07 and 11/12, then a flattening. 

• Past year drinking. There are 72 potential comparisons. One is down. Twelve are up. And 59 are unchanged. 
• Up from 78.7% last year to 80.3% this year, an increase significant at p=.05. But not significantly different from 2011/12 (lower, but not significantly) and not significantly different from 2014/15 (higher, but not significantly). 
• Down among 55-64 year olds when compared to 2011/12 (but not when compared to 2014/15 or 2017/18)
• Up among 75+ when compared to 2011/2 or 2017/18, but not when compared to 2014/15
• Up among Maori when compared to 2011/12 or 2017/18 but not when compared to 2014/15.
• Up among Maori men when compared to 2017/18, and up among Maori women when compared to 2011/12 (but not the other years for either)
• Up among Pacific when compared to 2017/18, and up among Pacific women in every year comparison
• Up among Asian women when compared to 2017/18, but not when compared to 2014/15 or 2011/12
• Overall this looks like a bit of an increase on last year's stats, but still more than three percentage points down on 2006/07 (to which they don't make comparisons). 
• Hazardous drinkers (AUDIT score 8 or higher, among total population). Here there are only 24 potential comparisons because their data doesn't go back earlier than 2015/16 because of a data redefinition. 
• Across those 24 potential comparisons, there are zero statistically significant changes. 
• Looking at the changes without looking at significance, compared to the start of the period, 8 of the 24 are higher and the rest are lower. Compared to last year, 17 of the 24 are higher and the rest are lower. 
• Hazardous drinkers again, but this time restricted to the set of those who consumed alcohol in the past year. Same drill as last time on the years of data. And, same as last time, zero significant changes out of 24 comparisons.
• Heavy episodic drinking (at least 6 standard drinks), at least monthly, total population. I don't think 3 pints of decent beer is heavy, but I suppose these things are subjective. 24 potential comparisons because of year restrictions. One statistically significant change over last year: a drop among those aged 75+. That's it.
• Same thing again, but restricted to past-year drinkers: identical. A drop among those aged 75+, no other statistically significant changes. 
• Heavy episodic drinking, defined as before, total population, except this time at least weekly. 
• Up among men; Up among those aged 18-24, Up among those aged 15-24, Up among European/other men - all as compared to 2017/18. The remaining 20 comparisons are unchanged. Doesn't look much different for those as compared to 2015/16, but they don't run that comparison. 
• Heavy episodic drinking, at least weekly, among past-year drinkers.
• This time, it's only up among European/other men. None of the remaining 23 comparisons are significant. 

So. We've got 240 comparisons. Of those, 17 show statistically significant increases, 3 show statistically significant decreases, and 220 show no change. I was doing eyeball-counting here, so let me know if you've caught a miscount. 

If they've not adjusted the p-stats for multiple comparisons, we've likely overstated the number of significant results. 

If you want to use a Frog Exaggerator, you can point to some of the significant changes among the 240 potential comparisons and say that they're big. But folks should know you're using a Frog Exaggerator rather than a Monster-Ometer.

 

And while the old and new indicators on hazardous drinking aren't comparable, we might expect that the direction of change in the measures would be comparable. There were big drops in hazardous drinking among youths 15-17 from 2006/7 to 2011/12 on that earlier measure, then a flattish trend after that - and similarly for those aged 18-24. Over the longer period, drops among youths are washed out by increases in older cohorts. Hazardous drinkers, among those 15-17, dropped by over 40% from 2006/7 to 2015/16, and dropped by about a quarter among those aged 18-24. Any recent flatlining should be read in context of prior unmentioned drops in youth hazardous drinking. 

Similarly, consumption of 6+ drinks at least weekly on the old measure showed that 25.6% of 18-24 year olds were in that category in 2006/07, with prevalence dropping to 20.6% in 2011/12 and then bouncing around to land at 15.1% in 2015/16 - a drop of over ten percentage points over the interval. By the new measure, prevalence in 2015/16 was 20.4%, dropped to under 17%, then came back up to 21.1% in 2018/19. So that's an increase on last year, but it will still be a decline on 06/07.

* Update: MoH confirms that they're reporting the unadjusted stats. That's all fine - there are plenty of folks who'd need the naive t-stats. But it does mean that if you're looking across the set of them, you need to remember that you probably need a tighter threshold for the p-values. 

** For those who don't know that excellent Simpsons episode: Professor Frink thought he'd found the Loch Ness monster. The machine was going nuts with beeping. But it was just a frog. Why? He was using the Frog Exaggerator rather than the Monster-Ometer. One might ask why he bothered bringing a Frog Exaggerator out on that scientific expedition in the first place. But good on Frink for letting everyone know he'd accidentally pulled out the Frog Exaggerator. Not everyone does that. 

Film subsidies are stupid, a continuing series

So. 

The New Zealand government, committed to wellbeing, believing that tax is love, wanting to ensure that every loving tax dollar spent provides the greatest possible increase in wellbeing, and fronting the Christchurch Call to stop harmful speech, has put $243,000 towards a Chinese propaganda film with the tagline "Anyone who offends China, no matter how remote, must be exterminated."

Thomas Coughlin has the story over at Stuff:

The film was not made directly by the Chinese Government, but by a slew of Chinese state-owned enterprises, including the China Film Group Corporation, China's largest film producer, and Bona Films.

Bona Films is a subsidiary of China Poly Group, another state-owned enterprise. China Poly Group is an unusual conglomerate housing the world's third largest art auction house and a real estate business, and has "longstanding ties to the military and the family of the former Chinese leader Deng Xiaoping," according to The New York Times.

The strong allegations made against the Chinese film industry's activities in New Zealand are made in forthcoming research from China expert Professor Anne-Marie Brady.

In it, she says growing cooperation between the Chinese and New Zealand film industries, combined with New Zealand's screen production grant means "taxpayers are now subsidising China's propaganda films".

Her concerns aren't just confined to Chinese films — she said the growing ties could have a chilling effect on New Zealand's own cinematic output. 

I don't know quite how you get around this if you're going to have an international film subsidy regime.

Like, maybe you could imagine some vetting to make sure we're not subsidising the production of propaganda films (dammit, I always misspell this and have to go back and correct, and I blame these guys) for authoritarian governments. But can you imagine the diplomatic mess where an arm of the NZ government tells film companies linked to the Chinese military and linked to the high echelons of the Chinese Communist Party folks that the NZ government considers their film to be authoritarian propaganda?

Not having international film subsidies would be a pretty clean way of not having to make those kinds of calls.

And, as reminder, the arguments for the subsidies are largely bunk.

You'll most frequently hear the argument that the subsidy is just a rebate on taxes paid here on activity that otherwise wouldn't have occurred here, so it's costless.

But that's wrong in general equilibrium. In the absence of film subsidies there would be fewer films made here, but people would work in other industries instead. Industries that do not get a tax subsidy. Those other industries are smaller than they otherwise would be because resources have been competed away by the subsidised industry. The subsidy won't increase total employment, it'll rather shift the kinds of tasks that are undertaken here as compared to abroad.

The more sophisticated argument is that the artificially-large film sector makes it cheaper and more feasible to produce NZ content here. International film subsidies have brought production that's built facilities and expanded capabilities, so it's then easier for NZ On Screen to get actual New Zealand work produced.

And that's certainly true. But we have to ask about value for money. International film subsidies cost on the order of $100 per household per year - or at least that's what it worked out to when I'd looked at the budgeted spend for 2020 earlier this year. Add in additional cost for training subsidies to work in that industry to keep it at that scale. And think about what other valuable services all the smart folks working in that industry, because of subsidies, could have been providing elsewhere if they hadn't been pulled into film work because of the subsidy regime.

Is it really plausible that the typical household, if offered the chance to decide, would really want $100 from their annual tax bill going to pay for international film production here rather than being shifted to health, to education, to Pharmac, or to themselves in lower taxes?

2020's budgeted international film subsidies are $171.6 million. Pharmac's budget is around a billion per year. You could then increase Pharmac's budget by around 17% if you stopped paying international film companies to make movies here instead of elsewhere, and put the money instead into Pharmac.

Is it plausible that whatever benefits are generated by international film subsidies, including that it makes it easier to produce great stuff like Wellington Paranormal and Hunt for the Wilderpeople, are higher than what we'd get by giving the money instead to Pharmac?

As for the argument that we have to keep subsidising the film industry because so many people now work in that industry... my column in our Insights newsletter earlier this year:

We all know that best policy is not paying off the kidnappers. Countries that get in the habit of paying the kidnappers encourage the taking of more of their nationals as hostages. It’s a dangerous game to get into because it’s so hard to stop.

But would any country be so daft as to not only pay the kidnappers, but also deliver to them the next round of hostages as part of the bargain?

If you think no country would be so mad, think again. It’s how the film subsidy regime in New Zealand works – as it does in every other place that chooses to play the game.

Last September, The Herald’s Matt Nippert reported that the Labour-led government had decided to continue the previous National government’s film subsidy scheme. Minister Parker ruled out changes where thousands of jobs could be at risk because business viability was threatened by ending subsidies, and where commitments by the National government risked lawsuits if the subsidies ended.

So there are your hostages: thousands of workers in the film industry who would have to shift to other employment, or shift offshore, if the subsidies ended. And here’s the payment to the kidnappers: the budget estimated that New Zealand will spend $113.6 million on screen production grants targeting international productions this year, with $171.6 million budgeted for 2020 – or about $100 per household.

Meanwhile, a host of New Zealand government-funded polytechs and universities train students towards diplomas and bachelors in screen production, diplomas in on-screen acting, bachelors of design (stage and screen), certificates in applied filmmaking and television, and more.

The government is subsidising specialised training students for jobs in an industry that would shrink dramatically in the absence of further subsidies to that industry, and further subsidies to that industry are justified on the basis of the jobs that would be put at risk if the subsidies ever ended.

To put it plainly, the government is teeing up the next round of hostages.

Had governments been this smart in the early 1900s, subsidies for training in the fine art of making buggy-whips would have been accompanied with bans on cars to protect the jobs of the whip-makers.

To crib a line from an excellent ’80s Cold War film, the only winning move in the international film subsidy game is not to play.