Reader Mailbag: the proposed forestry legislation

Back in April, BusinessDesk warned about some pending legislation around logging; I went through some of it then at Newsroom:

BusinessDesk last week reported that Jones is considering levies on log exports to fund some kind of “re-setting” of local industry, or a variety of regulations to ensure domestic lumber processors have their needs met before logs are exported.

The story noted how local lumber processors are struggling to compete with processors elsewhere when international prices for logs are high. Jones viewed protections were necessary to ensure a viable domestic log processing sector in New Zealand.

But it’s worth explicitly stating what that means. Jones, as Minister, would effectively be setting a price cap on logs, restricting exports whenever international demand is high. This would be a transfer of money from timber farms, which would otherwise profit from higher prices, to sawmills.

It would also mean a substantial shift in New Zealand trade policy. If another country banned the export of raw materials to New Zealand to subsidise its own processors, New Zealand’s processors might see that as basis for a complaint about unfair trade practices. New Zealand’s trade negotiators can boast about New Zealand’s clean record in following trade rules. If Jones has his way, those negotiators will have New Zealand’s trade restrictions in lumber thrown at them any time they object to trade practices which disadvantage Kiwi companies.

So it is misguided on pragmatic grounds that it will disadvantage New Zealand as the world leans toward greater protectionism – New Zealand has more to lose than most from a weakened rule-based international trading system. Wellington should be working to support that system rather than help tear it down.

The legislation is working its way through now. And it looks to be a complete disaster. BusinessDesk again had some excellent reporting from the Select Committee hearings, and on consequences like cancelled plans for lumbermill expansions.  

Stephen Layburn emails me today with more on the legislation:

Here’s one live example – the Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill

The submissions on the Bill are illuminating. Sadly, they are much more illuminating than officials’ reports.

IMHO, this has to be amongst the leading contenders for the worst piece of emergency legislation promulgated by the Government.

A glance at the regulatory impact statement elicits some truly worrying signs, in terms of both:

• strained application (or disregard – depending on your point of view) of the most basic of economic concepts; and
• a fundamental misunderstanding of the economics of domestic wood processing – and the nature of the NZ wood resource and its uses. 

Where, for example, is the comparative analysis of the over-arching policy espoused in support of the Bill - and the investment policies of the Provincial Growth Fund? Both are overseen by the same Departments.

From where I sit, the much-needed restructuring of domestic processing must be part of a much wider analysis of the wood resource, its uses and the new technologies coming on stream. To take just one example, surely, a key part of that study must include what New Zealand is going to do about important issues such as social housing. On the latter score, the appalling spectacle of clusters of campervans being used, during the COVID-19 lockdown, to house families in rural Northland – because they provided a better solution to the leaky, cold, houses available to those affected families must be a wake up call that technology such as prefabricated housing (using available domestic timber resource) needs to be applied urgently to address a problem that most New Zealanders would (if asked) agree needs to be addressed – right now.

Instead, we have another go at occupational licensing and more regulatory hurdles - that will hobble an industry and stifle innovation.

What next, legislate to require the coarse wool industry to prop up ailing carpet mills? Or force fine wool growers to supply the local craft industry rather than pathfinders like Icebreaker?

This is just a subsidy disguised as public good legislation and should be confined to the dustbin.

I am sure that it was Bernie Galvin who said (30 years) that past Presidents of the Manufacturers Association were buried 3ft under – so they could still get the next hand out.

I am not an economist or an industry expert, I have just spent a lot of time saving or closing down processing facilities. One issue that simply isn’t mentioned is that one of the reasons I am advised the economics of LVL plants are “challenging” – is that the resource isn’t stiff enough.

So you have the PGF, Scion and NZTE putting a huge amount of $$ into new technology (which will fix the stiffness issue) – and then the (same) Govt implementing a protection racket for old world technologies. Just terrible.

Could the government perhaps consider, well, not doing this?

New normals

I had a chat with RNZ's Emile Donovan for The Detail as part of his whip-round of views on where this is all taking us. I show up last in a roundup including Simon Wilson, Sam Sachdeva, and Megan Tyler. 

Enjoy!

Fingers crossed! Dave Guerin on The Border Issue

From Dave Guerin's excellent Tertiary Insights newsletter ($):

Quarantine Winston Peters was supportive of opening up now to international students. That comment came as Jacinda Ardern announced officials and industry representatives were working on a Trans-Tasman bubble. She said that it could be in place by September, but we suspect she’s continuing to underpromise so that she can overdeliver on an opening in, say, Jul. Officials are also working on international student quarantine options. The ODT had more on SIT’s proposals for a student quarantine centre in Queenstown, which is supported by the Queenstown mayor.

If they are planning on having things good to go earlier, it would be nice to tell folks about it. You can't admit international students for July semester entry if you don't know until July that entry might be allowed!

I really hope Dave's right

RBC and COVID

From my column in this week's Newsroom Pro (ungated)

No recession is purely of one model. A Reserve Bank failing to respond properly to a real shock can compound a real recession with a monetary one. Second-round effects from a real shock, as unemployment rises and people fear for their jobs, can bring a more Keynesian-flavoured problem. And easy credit to prop up zombie firms can sow the seeds of more Austrian-style problems down the line.

But this time, it’s real – or at least that’s the underlying problem. Let’s go through some of those issues.

The major changes in business practices brought on by a contagious disease – for office desk spacing and consumer preferences about being near other people – mean that existing configurations of workers, buildings and equipment will evolve.

Economists will describe this as a technological shock. Five months ago, the recipe for mixing workers, equipment, buildings and supplies yielded profits.

After the shock, that recipe becomes impossible but no new recipe is as profitable, yet. Meatpacking plants were never designed for 2m worker spacing, for example.

Some of these changes will only last until New Zealand returns to Alert Level 0. But some will linger as the virus remains overseas. The international arrivals lounge may take some time to get back to normal.

But that is hardly all of it.

The collapse in tourism is a lot more like a huge negative price shock to an important export commodity than it is to a traditional Keynesian domestic aggregate demand problem.

Supply chain issues when international suppliers and deliveries are less reliable is another kind of technological shock: firms used to rely on speedy delivery of needed materials, now they need to store greater stockpiles.

Shifts to working from home is its own kind of shock to the demand for services in cities – simply giving people more money will not jumpstart demand at Lambton Quay lunch counters or retail outlets when fewer people want to be downtown. It’s a real change, not just one caused by issues in aggregate demand.

More than anything, firms now need an easier path to reconfigure and change. Policy must embrace greater dynamism, rather than building in protections to entrench current practices.

Last week, The Spinoff reported Vodafone’s adaptation includes training its retail staff as online chat agents to help clients which have shifted to digital. In many countries, rigid labour market regulation stymie that kind of change – and it is easy to imagine similar policy changes might happen here.

The Government has so far mainly reached for familiar tools and policies to fix this recession: quantitative easing to avoid unintentionally contractionary monetary policy, fiscal stimulus to boost aggregate demand. Things like the wage subsidy scheme were more directly keyed to the specific nature of the Covid-19 problem.

But who is thinking about simplifying business adaptation?

If a restaurant wants to turn its disused car parks into outdoor seating areas, would city planners get in the way by enforcing minimum parking restrictions that never made sense and now make even less sense?

If a building owner wants to change some commercial offices into apartments, would the zoning laws allow it?

If a company needs more capital to leverage a post-Covid opportunity, would new restrictions in the Overseas Investment Act and a lack of domestic capital sources scuttle the business?

And if a tourism operator wants to pivot to support high-income visitors for months’-long stays, rather than a fortnight (with appropriate quarantine and testing), will the border even be open?

Coming out of months of restrictions, the Government must start thinking of ways to enable everyone to get on with the job of recovery. There is a lot of work to do.

A principled border re-opening

As much as I don't look forward to Avatar sequels, I can't argue against the government's letting the film crews back in. They underwent quarantine, so the entry was safe.

What I do worry about is the process. It seems to get things backwards.

Currently, entry is barred to foreign nationals unless there is a strong economic reason for their coming in. If they meet that threshold, they're quarantined and then allowed to operate. 

But that requires the government to pick and choose among potential visitors and that path is fraught. It also causes a lot of damage: lots of folks on work visas desperate to come home, but unable to.

Lawyer Alastair McClymont has been inundated with hundreds of pleas from migrants desperate to get back into the country along with calls from employers in industries like agriculture who want their managers and workers back. 

"There is a complete vagueness around the rules and an inconsistency in how the rules are being applied. It is just creating mayhem." McClymont said.

"Within the migrant community they're worried about what's going to happen."

"They need to really make a decision and they need to make it very quickly and they need to be very clear about who's going to qualify and who's not going to qualify."

The principle should be reversed. If you're able to enter the country safely, you should be allowed in (subject to the normal visa stuff that's always applied). Basically it would require showing proof of having a spot at a quarantine facility when you rock up to the ticket counter to board a flight to New Zealand. The government wouldn't have to provide the facilities but would probably want to have an oversight role in certifying them and ensuring compliance. 

What happens under that model? If there are more people wanting to come here than spaces available, prices bid up. If prices bid up, more hotels and other facilities get converted into quarantine facilities. Eventually you hit a point where the cost of bringing the next quarantine room on-stream just outweighs the value of getting here to the next person who wants to come here. Government doesn't have to decide which uses are most economically important; people demonstrate it instead in the usual way - just as we don't have government deciding who should get the next car or computer or anything else.

I've been pleading that the border be reopened to safe entry (testing, quarantine, more testing) in time for students to come here for the July semester. Auckland Mayor Phil Goff also is very keen for international students to be allowed back in. 

Here's me on the AM Show talking about it. If nothing else, my having missed last week's appointment at the barber's because I was home sick may have provided amusing results. 

Otago epidemiologist Dr Michael Baker also agrees:

Otago University epidemiologist Dr Michael Baker said in principle there was no reason why foreigners should not be treated in the same way as returning New Zealanders, who have been allowed into the country on condition that they stay in quarantine for two weeks.

"The current extreme form of management is 14-day quarantine, but there is a reasonable chance that a mix of other measures could shorten that," he said.

It's just so frustrating. In every other area, we desperately hope that sectors can get up to a fraction of what they were at pre-COVID. With international education, there's a strong growth potential - getting students who'd otherwise have gone to the US to come here instead for a normal university experience. 

It's also very frustrating and disappointing on a more personal front.

Since moving to Wellington, we've helped host students attending the Campbell Institute. It's an English language school. Students from overseas can billet with families. In some cases, they pay room and board. In others, like ours, they provide some assistance with childcare before and after school. It's a wonderful programme. 

Campbell had the international connections into schools around Europe and beyond, vetting the students coming here for those who'd be suitable for the demi-pair programme while vetting local families. Our kids get to learn a lot more about the world beyond New Zealand; the students get an immersive English-language experience. We've hosted students from Germany, France and Argentina. 

Last week, the school told host families and students that it will be closing. With no prospect of the border reopening, there's nothing else for it. There's an obvious market niche for this kind of thing, but economies aren't machines - they're organic. This isn't something like replacing a broken cog when it's time for the machine to run again. It's more like cutting down a tree and never quite knowing whether another like it will take its place. Developing the connections and nous to make this kind of business run is hard work. The school only needed to know when it might be able to bring students in again under quarantine. The government's continued dithering killed it. Meanwhile, the government spends billions on make-work schemes.

Some job losses and business failures with COVID are inevitable. International export education could instead be a growth sector. 

Oh the Vogonity. 

The COVID and the damage done

Wednesday's Law & Economics Association of New Zealand lunchtime panel discussion on limiting the economic fallout of COVID included Andreas Heuser, me, and Richard Meade. 

Panel Discussion on Limiting COVID Economic Fallout – 27 May 2020 from Andreas Heuser on Vimeo.

Richard made the case for running something like the student loan scheme for non-students, and for business. Richard and I independently hit on the idea of extending the student loans scheme to non-students. I'd pitched it back in March as part of our initial COVID-response batch of papers. I still think it rather preferable to helicopter-money options.

I went through the importance of scaling up contact tracing as alternative to future lockdowns, suggesting we use a structure like the Army Reserves. Get trained in it, spend a weekend a year on a refresher course, and be ready to be called into service if needed. Then I went through the case for safely reopening the borders before re-emphasising the need to maintain fiscal prudence if we want to get out from under the debt COVID makes us take on.

Andreas covered impending liquidity crunches and contrasted NZ's business support regimes with some of those found abroad. I still need to wrap my head around the idea that IRD is acting now as a bank. 

Afternoon roundup

A much belated closing of the browser tabs brings some worthies:

• Kiwibuild never made sense. If it were needed, it couldn't work because the same things that block private development would block Kiwibuild. And if it could work, it wasn't needed. The government tried anyway, sticking bloodymindedly to a stupid election promise dreamed up on the back of a napkin in a taxi as the legend has it. And it continues to be a disaster. I hate to say I told you so, but ...


• Kiwiblog links to Adam Creighton at The Australian on NZ's economic problems. Creighton's been on the crankier side when it comes to matters Covid, but he's not wrong on the economic worries here. Notable is that he has Graham Scott on record raising concerns as well; he's former Treasury Secretary and recently retired from the Productivity Commission. 


• Nouriel Roubini is more grim than usual:

  What I have argued this time around is that in the short run, this is both a supply shock and a demand shock. And, of course, in the short run, if you want to avoid a depression, you need to do monetary and fiscal stimulus. What I’m saying is that once you run a budget deficit of not 3, not 5, not 8, but 15 or 20 percent of GDP — and you’re going to fully monetize it (because that’s what the Fed has been doing) — you still won’t have inflation in the short run, not this year or next year, because you have slack in goods markets, slack in labor markets, slack in commodities markets, etc. But there will be inflation in the post-coronavirus world. This is because we’re going to see two big negative supply shocks. For the last decade, prices have been constrained by two positive supply shocks — globalization and technology. Well, globalization is going to become deglobalization thanks to decoupling, protectionism, fragmentation, and so on. So that’s going to be a negative supply shock. And technology is not going to be the same as before. The 5G of Erickson and Nokia costs 30 percent more than the one of Huawei, and is 20 percent less productive. So to install non-Chinese 5G networks, we’re going to pay 50 percent more. So technology is going to gradually become a negative supply shock. So you have two major forces that had been exerting downward pressure on prices moving in the opposite direction, and you have a massive monetization of fiscal deficits. Remember the 1970s? You had two negative supply shocks — ’73 and ’79, the Yom Kippur War and the Iranian Revolution. What did you get? Stagflation.



• If you haven't sorted out a VPN yet, you might want to. Tracy Martin wants to be the boss of what you get to see on the internet: content filters that always risk misclassifying content and creeping to cover more and more stuff. Just VPN around the stupidity.


• The Shane Jones problems in forestry continue: his musings about nationalising the industry (go ahead and call it something else if you want, but setting something up where Shane Jones gets to decide which logs get sold to whom and at what prices...) have stopped the expansion of a pulp and timber plant in Tangiwai. BusinessDesk has the details (you should subscribe).

  "Submitter after submitter have told the committee the consultation on the Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill has been farcical and its rushed implementation under Budget urgency an abuse of process.

The Kiwi dollar is our currency and nobody else's problem

Oliver Hartwich in The Herald:

A small economy like New Zealand should be cautious. Being small has some obvious advantages, not least that smaller countries can be nimbler in changing circumstances. But that tiny size also limits the ability to get away with bad policy.

To illustrate this point, consider the United States. As the world's largest economy, it has a greater ability to retreat from the rest of the world. To be clear, even a very large country like US must exploit its comparative trading advantages. But because the US' market is huge, it could withdraw from international trade and still keep the impacts on its consumers and businesses moderate.

The same is true for monetary and fiscal policy. The US is not just the largest economy on the planet. It also has (at least for the time being) the luxury of being able to print the world's de facto reserve currency. Or, as John Connally, the Treasury Secretary of the Nixon Administration, once said, "The dollar is our currency, but your problem." As a result, the US can run massive fiscal deficits and money printing programmes without much restraint.

As a small country, New Zealand simply does not have the ability to withdraw into its shell like the US can. Reducing New Zealand's participation in global trade would be a catastrophic outcome of this crisis. For a start, too many products are not made in New Zealand. Cars, specialist machinery and pharmaceuticals are all imported. For lack of scale, import substitution would be a disastrous choice.

Given New Zealand's small size, the percentage of its economy traded internationally has been relatively low for some time. As a percentage of GDP, imports and exports are just over 50 per cent, a remarkably low number by comparison with other small economies like Denmark (103 per cent), Switzerland (119 per cent) or Ireland (208 per cent). New Zealand is trade-dependent but not nearly trading as much as expected or hoped.

The same is true for monetary and fiscal policy. The NZ dollar may be the world's 10th most traded currency, but that ranking overestimates our dollar's importance. It is only involved in about 1 per cent of global trades and is not regarded as a reserve currency. To paraphrase Connally, the Kiwi dollar is our currency and nobody else's problem.

New Zealand cannot debase or inflate its currency as much as other countries. It is dependent on other countries having faith in the stability of the NZ dollar, so any political moves to undermine it are potentially dangerous. If New Zealand or its dollar disappeared tomorrow, the world would barely notice.

The general picture for New Zealand is becoming clear: this country is too small to be a must-have in anyone's portfolio. Against this background, the political direction of travel in the Covid-19 crisis is worrying.

Since March, New Zealand First ministers have announced a wish to reduce New Zealand's trade engagement. Shane Jones openly toyed with a tariff on log exports and is now rushing through legislation to redirect forestry towards national manufacturing. Winston Peters has talked about onshoring manufacturing even when goods are more expensive to produce in New Zealand.

The Government is also making it harder for international investors to come to New Zealand. Minister David Parker is pushing through changes to the overseas investment rules requiring Government approval for buying 25 per cent of Kiwi businesses, regardless of the dollar value.

None of these initiatives will improve New Zealand's international trading position. Combined with the inevitable decline in the country's export revenue from the shuttering of tourism and export education, serious problems are emerging for both New Zealand's current account and net international investment position.

On top of this is the slow merging of fiscal and monetary policy. The Reserve Bank has signalled it would monetise government debt if it is asked and it has already started a large quantitative easing programme, which Governor Adrian Orr has indicated could be expanded if needed.

The pandemic requires our firms to be able to be nimble. They have to be able to adjust, retrench, find what new opportunities they can, and rebuild in ways that fit the current environment. New microeconomic rigidities that the government might throw in, including trade and capital restrictions, just make all of that harder.  

Real Business Covid

There are lots of different models of business cycles because there are lots of different kinds of business cycles.

If a downturn stems from something in the real economy, rather than something messed up on the monetary side or in finance, we need to think about Real Business Cycle models. 

What are the stylised facts of the current mess, at least for NZ?

• Massive negative technological shock across a broad range of sectors meaning that existing combinations of labour and capital are far less productive than they once were. Restaurants need more space to accommodate the same number of clients, or fewer clients in the same space. Factories, meatpacking plants, and offices need more spacing between workers. Some of this shock will be temporary - we will eventually get to Alert Level 1. But even then some of the shock will be longer-lasting: the international arrivals lounge will be very different when folks coming in from Covid-places have to shunt over to a quarantine facility and have to be kept separate from those coming in from Australia. 
• A collapse in tourism that feels a lot more like a huge negative price shock to an export commodity than it does like any domestic aggregate demand problem. If world milk prices dropped by 95%, we wouldn't dream of trying to solve it with domestic "drink more milk!" campaigns.
• Supply chain issues that also feel like a negative tech shock.
• A shock to work arrangements for office types now more able to work from home; many of us will take advantage of it for as long as possible, with consequent effects on demand for lunches in town. This isn't a normal kind of AD shock - just giving people more money wouldn't increase demand for lunches in town when people prefer to work from home and are now allowed to do so. Some of this could persist for a long time if firms have discovered that a lot of workers are no less productive when working from home and prefer working from home.  
• Jump in unemployment consequent to all of that.
• Oh, and a massive drought in some dairying parts of the country - the exemplar RBC shock. 
• Shifts in consumer demand to online. 

Am I missing anything there? None of that would argue for accidentally contractionary monetary policy - RBNZ needs to keep us within the inflation bounds. 

But this is way different from the GFC. We could yet get GFC messes out of Europe, but I don't think we're there yet. Fingers crossed. The underlying problem is a massive terrible tech shock. And that puts us into RBC land.

What do you do in RBC-land to get out of the mess? You don't tell firms to run four-day work weeks! Rather the opposite: you should be looking for ways of removing labour market rigidities to make it easier to adjust! Fortunately, things already are pretty flexible here. Vodafone retrained and redeployed retail centre staff to be chat assistants for online customers for example. That would be impossible in some places due to rigid work role definitions. Remember that episode of Community where they couldn't get a bulletin board replaced because of union job definitions?

Sure, there's a quasi-Keynesian role that would be played by income support measures. And I still like the idea of letting non-students access the student loan system. But the underlying problem is supply, so we need to figure out how to let supply adjust to the temporary new normal, and to the longer term changes.

A short potential list:

• Sorting quarantine at the border to start letting visitors back in. It wouldn’t fix all of the problem, but international students would come back real strongly – us and Oz would be the only places going able to offer a normal university experience. It just blows my mind that they haven't sorted this out. It isn't just international education that's an opportunity here. Anything else that could relocate and that depends on not being disrupted by Covid - is it that hard to imagine international sporting codes shifting to here and Oz to keep up the TV revenues? Film and tv - they're looking at no filming for a while over there. What else? I don't know, and that's the point: set the quarantine rules and facilities on a user-pays basis and then let folks come in subject to quarantine and testing. Entrepreneurs will be the ones to figure it out, rather than boffins designating new classes of allowed entry. Instead of the America's Cup people lobbying to get in, they'd just need to have sorted out quarantine for their arrival. 
• Lengthening school days and shortening school holidays so the kids make up for lost time and so the parents have an easier time working longer if they want to. Everybody hates this idea when it's pitched this way - imagine it instead as a proposal for free after-school care with enhanced learning outcomes and educational holiday programmes. Does that make it sound better? I really enjoyed the couple months home with the kids and expect they learned more than if they'd been at school. That won't have been the case universally. Lots of kids will have fallen badly behind. 
• Reducing rather than increasing holiday entitlements or stat holidays. I know that won't fly, but we at least shouldn't be increasing things. Egads. I still think it would be a good idea to deal to the Easter problem though. 
• Checking what bits of labour market reg could be abated, even temporarily, to make it easier for everyone to adjust
• Easing consenting regs to make it easier to do things. The Auckland Unitary Plan is like six thousand pages. Germany’s planning guide for the whole country is 500 pages, with 100 pages being the actual rules and the rest being references and explanatory notes. We know that rigidities in land use planning are making a mess of things. Peter Nunns put figures on it a couple years ago. Ease them! If someone wants to make a bet that demand for downtown office space will be permanently lower and wants to convert an office tower into apartments, zoning shouldn't get in the way of that right?
• Ease access to capital to make it easier for firms to finance their response – the Overseas Investment Act changes look to make it harder instead.

Anything else I'm missing? 

Tax attitude data - the IRD OIA slowly progresses

It's been a long saga, and it isn't over yet. But the end is in sight. 

On 12 February, 2019, I put in an OIA request for the data from the polling that IRD had commissioned from Colmar Brunton on tax attitudes. 

On 12 March, 2019, IRD declined the request on grounds that it would be considered sensitive tax data. I brought the matter to the Ombudsman the next day. But it later turned out that they had ordered the data destroyed. 

On 1 November, 2019, IRD gave me revised grounds for having refused the request: that the data had been destroyed. 

I had a chat with the Archivist's Office about what's required for that kind of destruction of public records, then went back to the Ombudsman.

On 12 March, 2020, the Chief Ombudsman provided a substantial slap to IRD and directed them to get the data. 

Some particularly nice bits from that report:

You have acknowledged that IR’s original decision to refuse the request on this basis was incorrect. I agree. It is difficult, in circumstances where IR has not reviewed the information at issue, to be satisfied that its disclosure would be contrary to the Tax Administration Act.

This is particularly nice because IR claimed its original decision was wrong on the basis that the data had been destroyed and consequently couldn't be supplied. They didn't say that their original justification for withholding the data, had it existed, was incorrect. The Ombudsman here is telling them that their withholding as tax secret was wrong full stop.

IR has contended that, in retrospect, Clause 4.3.2 of its Disposal Authority, DA418, authorises the disposal of this kind of information. It is possible this is correct.8 However, as IR did not document its decision of 9 February 2019, I am unable to satisfy myself that IR properly turned its mind to its Disposal Authority when it decided to instruct Colmar Brunton to delete the political leanings data. It is, in short, not clear that its disposal was properly authorised.

I therefore consider that IR was obliged, in the circumstances set out above, to contact Colmar Brunton to seek access to any backups of the political leanings data held by it or Dimensions while considering Dr Crampton’s request. In the absence of such efforts, I am not persuaded, subject to your further comment, that IR was entitled to refuse the request under section 18(e) of the OIA.

The Chief Ombudsman also referred the matter to the Chief Archivist to check whether IRD was also in breach of its obligations under the Public Records Act. 

The Ombudsman asked that, by 9 April 2020, IRD provide him with the steps they would take to give effect to his recommendation.

On Tuesday, 19 May 2020, IRD provided me this update:

Dear Dr Crampton

I am writing to advise you of our next steps with regards to your complaint to the Ombudsman.

As advised by the Ombudsman in his final letter, we requested the data for the Trust in IR research survey from Colmar Brunton. We are currently working through the data and will let you know the result of your request for the data in due course.

Kind regards

Government & Executive Services 

So, fifteen months after my original request, IRD says that they're working through the data to see what they can give me. Stay tuned. I'll have to set a calendar flag to follow this up in 20 working days if I've not heard anything. 

Gemmell on the budget

Norm Gemmell's piece over at Newsroom is harsh but fair. 

Before the Budget, I called for a stimulating, but prudent, Budget. That meant:

- moving away from universal, to more targeted, wage subsidies

- setting up flexible spending programmes now that respond to needs as they arise

- reprioritising spending away from short- and longer-term ‘nice to haves’ to essential recovery support

- presenting a credible future debt track beyond the immediate recovery.

Pretty reasonable. 

What did the Budget deliver? Arguably none of the four.

Firstly, another two months of universal wage subsidies with slightly stricter conditions (a bigger fall in business revenue) doesn’t make them ‘targeted’. This is despite projections that the economy is already getting back to 80 percent or more of normal working, with a few sectors likely to continue suffering. And when we’re two months closer to that election, the $20+ billions of ‘unallocated’ Recovery Fund can be strategically dropped into the election battle as further subsidy extensions and other vote-targeting sweeteners.

There's good reason to have unallocated funding when you can't guarantee that there won't be renewed outbreaks. But where a lot of the current budget and post-budget spending announcements really sound like election campaign spending - like the increases in Early Learning Centre funding for places with 100% qualified teachers - we may fear that contingency funds will be put to similar purpose rather than held against worsened Covid conditions.  

Thirdly, what of ‘reprioritising’ spending? There is negligible evidence of the Minster’s pre-Budget promise that some spending would be ‘put on ice’. On the contrary, almost every spending ‘vote’ (or should that be ‘special interest group’?) gets a boost over 2020-24, including making sure future inflationary costs are covered. Sweeteners everywhere, from arts and culture to conservation to $75 million for the Ministry of Social Development’s office refit programme. No fiscal constraints here, no public sector pay restraint or postponing ‘nice to have’ project for a year of two.

Do we really need those new Inter-Islander ferries right now when we have massive, more urgent spending needs? And an extra $1.6 billion for ‘retraining’ and apprenticeships. How many Air New Zealand flight attendants or Queenstown tour guides does he think are up for retraining to move on to farms?

Matt Burgess made similar points in the Dom last Friday.

Why are we paying $3 billion (up from $0.4 billion ‘prescribed by formula’) to the New Zealand Super Fund in 2021-22 to pre-fund future pension spending, while we also borrow massively to fund today’s crisis? Answer: Labour in opposition criticised the National government for precisely this after the global financial crisis. It dare not be seen now to be doing the same, even though suspending payment makes more financial sense.

I wonder instead why the government isn't going even further: spending down the Super Fund while cutting entitlements from a decade or more from now to balance the thing out. 

From a healthy Crown net worth of 43 percent of GDP at the time of last year’s Budget, this FSR forecasts net worth at 34 percent in 2020. Fair enough – we are coping with extra crisis spending and lower revenues. But, following the Budget, Crown net worth is projected to drop to just 9 percent of GDP by 2024 and only get back to 12 percent by 2030. In other words, a decade from now, during which time another serious crisis could easily have hit us, the Government’s plans for net worth are so diminished that we would be woefully unprepared financially for another fiscal bail-out of the economy.

Let’s be clear. New Zealand economists are not calling for future ‘austerity’ to get the Government’s books back into balance within a few years. Instead, there is widespread support for suitable, not profligate, spending to assist faster growth of the economy to reduce the debt burden to previous levels over, say, a decade or more.

But the Crown’s projected financial vulnerability a decade on reflects Robertson’s failure to offer any credible plan to raise net worth through fiscal prudence down the line. This is despite official forecasts of quick economic improvement: real GDP growth is forecast to be massively positive at 8.6 percent in 2022, and 4.6 percent in 2023.

And Robertson wouldn't say whether he views 42% debt-to-GDP ratios in 2034 as the new normal for fiscal prudence. 

Missing the boat

Grant Robertson thinks New Zealand could reopen to international education next year. 

Robertson said tourism and international education, two of the largest parts of the country’s services sector, were under “real strain”, but potential opportunities regarding international education could arise next year.

I hope we're not missing the boat. 

North American semesters have August (US) or September (Canada) start dates. Semesters run then until May or June. Students will typically have sorted out their next-year study options well before now, but with Covid on, everything's up in the air. 

But waiting until January means missing the cohort of students that lock in to North American options that are harder to exit mid-year. 

And waiting also misses those students that start looking around to see whether any international options are available for quality English-language instruction in the North American fall semester and see Australia gearing up. Being able to pick some of them up, before they lock into Australia, could matter - Australian universities generally outrank options here. 

I guess I'm just not understanding what the government is taking as the constraint against an earlier opening subject to very strict and rigorous quarantine and testing provisions for inbound students from places that are not Taiwan. 

Here's Pattrick Smellie over at the Herald - excellent piece. 

Yet, if jobs are so important, why did Finance Minister Grant Robertson emphatically squash Education Minister Chris "Chippy" Hipkins' enthusiasm for reopening the country to international students a little over a week ago?

On the Wednesday of the week before last, Hipkins responded to some kite-flying on the issue by university representatives at the pandemic select committee by saying he would look at it "within 24 hours".

The news swept through the tertiary education sector like wildfire, producing a burst of optimism, not only from universities, but also polytechs and private training providers.

The latter two can accept intakes of students more regularly through the year than the universities.

Mark Rushworth, the chief executive at the country's largest private training establishment, UP Education, began talking to media immediately about the potential to bring students in as early as July or August.

Within hours, however, Robertson had hosed down such expectations, citing "next year" as the earliest the sector might see students return.

Smellie's sounding as frustrated as I am: 

And with a quarantine system now working well for returning New Zealanders, there is no logical reason not to treat fee-paying foreign students exactly the same way.

By all means, make them take more tests for Covid-19 before they leave their home country.

And hell! UP Education would happily pay the $3000 to $5000 the quarantine process would cost. That's also cashflow for local accommodation providers and caterers who are currently bleeding out for lack of custom.

He puts it up to four barriers: 

At play now in the policy discussion are four inter-related elements:

• Sequencing: It is completely unrealistic to imagine that international students from third countries will be allowed to start arriving here before the transtasman travel bubble is up and running. The earliest that can start, let alone be subject to a high level of confidence, is July.

But why? There's no logical necessity that trans-Tasman travel, without quarantine, be reopened before quarantined travel from other places. That makes us hostage to Australia's getting their case numbers down. 

• Progress against the virus: A revival of international education will only become viable if the current progress in New Zealand is maintained and there is no resurgence of Covid-19, either globally or in key countries of origin for international students — mainly in Asia.

There'd be no demand for study-abroad in New Zealand from overseas students if we lost the covid-free advantage. Agree. But Covid breaking out in other places makes study here more attractive. And if it's done with quarantine and testing, then it's kept safe. 

• Quality of educational offering: It seems the opportunity will be taken to rethink what kinds of international education providers are desired. Low-rent English language "academies", particularly in Auckland, have been hotbeds of unethical practice, shadow permanent migration scams, and exploitation by New Zealand-based employers of migrant students. There is no desire to facilitate the resurgence of that part of the international education sector.

That's an argument for Immigration NZ to start processing student visas for the universities first along with secondary schools, then for polytechs with degree options where there are either no associated work rights for incoming students or where those work rights are tied to a credible part of the programme of study or are part of homestay arrangements where students billet with families, providing childcare around study for room and board. Why hold everything up? 

UPDATE: to be *real* clear, I'm not here agreeing with the view around 'low-rent English language "academies"'. I haven't seen decent evidence on it. I'm saying that if that's your concern as government, then you could *at least* free things up for the sectors you're less worried about more quickly. All of the thinking in this space currently is going to be entirely messed up by lump-of-labour fallacies. 

• Labour market dynamics: A very large number of New Zealanders who had jobs pre-Covid are going to be looking for new ones very soon. Many of those unemployed will have worked in tourism and hospitality. The last thing the Government wants is for international students to return in numbers to become competitors for those jobs.

As above.

So, international education is more firmly on the Government's agenda than it may have appeared.

But it's complicated.

Meanwhile, the Universities are looking at job cuts. Here's AUT. 

I went through related issues in this week's column at the Stuff papers. 

Lifeboats are tricky things. If they are overburdened, they can tip and spill everyone out.

Even with lots of room for other passengers, hauling someone out of the water is precarious and may mean everyone drowns.

When you’re in a lifeboat, you have to be careful.

But is there any image more emblematic of the kind of thing New Zealand isn’t than a guy (and it’s almost always a guy), alone in a lifeboat, rowing furiously away from a sinking ship and ignoring everyone bobbing in the water around him?

It certainly isn’t a very nice picture.

Bigger lifeboats are much easier to row to safety when more people can help. Leaving them to drown, when they could be helping with the rowing, isn’t just nasty, it’s self-defeating – so long as there’s a way of safely pulling others onboard.

New Zealand is an awfully big lifeboat in some rather treacherous waters. Watching the coming tsunami of a terrible recession, this country could use all the help it can get. If a way was found to safely let others on board, shouldn’t it be followed?

It can be done. And it matters.

The first issue is safe entry. If there is no way of safely letting people on board, it matters less how much they could help.

And the first place to look is to neighbours that are as safe as New Zealand – other lifeboats. Boats that raft up together are more stable.

Compared with New Zealand, Taiwan has fewer active Covid-19 cases, a lower average daily case count, tight border controls and a stronger pandemic response system. Auckland has had more recent cases than Taipei. Sitting here in Wellington, an incoming flight from Auckland poses greater personal risk than an inbound flight from Taipei.

New Zealand could, unilaterally, decide to allow visitors from Taiwan – while maintaining the option of closing the border again should its conditions worsen.

But unless Taiwan is sufficiently comfortable with New Zealand’s pandemic response, returning visitors would face quarantine.

Hopefully, negotiations between New Zealand, Australia and Taiwan are underway to let these lifeboats raft up together. If that means some Taiwanese oversight of New Zealand’s tracking, tracing and testing systems, so much the better for New Zealand: it would be like inviting a lifeboat expert onboard to ensure everything’s in order as we raft up together.

It’s hard to argue against rafting up for stability; it’s entry into that set of rafted boats that’s more contentious. But it can be made safe.

Last week, Laurel Chor tweeted her experience of flying to Hong Kong from Paris via Heathrow. Arriving passengers filled in quarantine orders, health declarations, were issued tracking bracelets, and sat, with appropriate spacing, in a wide hall.

They underwent Covid-19 testing and waited for eight hours for the results before heading to two-weeks’ mandatory and monitored quarantine.

Safe entry is certainly possible. It is a hassle, and it would not be cheap. But inbound travellers from riskier places could bear that cost through a biosecurity levy. Mandatory quarantine would put off most casual tourists but others would join New Zealand’s lifeboat for a while to help with the rowing task ahead.

Two weeks ago, I argued for this kind of entry regime for international students. Last week’s Reserve Bank Analytical Note showed international students contribute 1.1 per cent towards New Zealand’s Gross Domestic Product. This takes into account their expenditures in the broader community. Rather than facing the prospect of bailing out the universities, the Government could allow overseas students to safely join this lifeboat and help row the boat faster.

This would not just help the universities, it would help the country. Substantial employment depends on those students’ contributions while staying here. And with a bit of marketing, New Zealand could attract top tier students who would rather not attend online classes at US universities.

The California State University system announced last week it would only have online instruction during this autumn semester. New Zealand can provide a far better university experience by letting them onto its lifeboat. But this requires speedy action to attract students who are already looking at August semester start dates in the US.

Many others could help with the rowing if a quarantine system was in place – from international film productions to international sporting leagues and more. Making the recession less bad helps this country while helping them. And it can be done safely.

It would be silly to be in a lifeboat, trying to outpace a coming tsunami, and leaving others to the waters when they could safely be brought onboard to help. The rowing job ahead is not a small one. 

Crisis budgets and returns to prudence

The Spinoff asked me for comment ahead of last week's budget.

Here's some of what I'd told them, hit the link for the rest:

The government should have two priorities in this budget. First, and most importantly, the health system needs to be ready for the medium-to-long term changes that the pandemic has forced on the country. Second, the government needs to ensure the temporary measures necessary are in place for all of us to deal with the current mess.

Those two priorities lead to one unavoidable consequence. Permanent spending increases – increased spending on matters unrelated to the pandemic that are locked in and hard to reverse – means less room for dealing with the pandemic.

Why is that the case? The government will need to take on debt to deal with the current crisis. Tax revenues will be down and spending will have to be higher. But while the Public Finance Act allows this kind of response to emergencies, it also requires the government to think about the path back to prudent debt levels. This requirement makes a lot of sense: we just cannot know when the next crisis will hit; the Alpine Fault is overdue. We will need room to deal with the next crisis too.

Returning to prudent debt levels after this is all over will be much harder if the government locks in increases to baseline expenditures; that would limit how much debt the government could afford to take on now. An adequate response to the current crisis requires fiscal discipline about matters unrelated to the pandemic response.

After lockup ended, I wondered why the government didn't seem interested in the tiny investments it would take to be able to start reopening the border to safe travels: travel from safe places, or under strict quarantine and testing requirements.

I had a bit of a chat with Duncan Grieve about it at Spinoff. 

Then I filed this with Stuff:

The Budget headlines will focus on the extent of the Government’s additional support for households and businesses through extensions of the wage subsidy programme, worker retraining initiatives and job creation schemes in areas like environmental improvement and house-building.

The Government avoided locking in too many increases to entitlement spending. But it will still take until 2034 for its net debt levels to fall to levels twice what they were prior to this crisis.

What seemed more absent was a vision for economic recovery grounded in some of the advantages New Zealand now enjoys. The Budget presents a vision of a Government-led recovery with a comforting message: the Government is there to provide support, jobs or retraining — a sealed lifeboat bobbing on rough seas until the storm clears.

But small investments in setting rigorous quarantine facilities so others can safely join our lifeboat would pay off rapidly — and many times over — while enabling different visions.

One bit that did worry me during lock-up: the budget documents project net debt rising to well over 50% of GDP, but only dropping to 42% of GDP by 2034. I asked Minister Robertson whether he viewed 42% Debt-to-GDP ratios as being the new long-term fiscal prudence, or how much longer it would take to get back to normal levels. Rather than answer the question (which I thought was a fairly simple one), he said he viewed himself as acting prudently and in line with his obligations under the Public Finance Act. But I hadn't said that taking on debt was imprudent. I had wondered about whether the end point in the forecasts was just because they couldn't see getting back to prudent debt levels within the forecast window, or if they'd revised their view on what counted as prudent. 

It's important to know. Matt Burgess's column in the Dom was on-point.  

However, Government borrowing is considerably greater at $140b over the next five years. New operating spending, excluding welfare and health, peaks in 2022, long after the economy is expected to have turned the corner.

It is also hard to find evidence of the reprioritisation referred to by Grant Robertson. Nearly every part of the public service sees new spending.

Documenting what led to lockdown

Marc Daalder goes through last week's document dump and plots out the path to lockdown.

You need to read the whole thing and subscribe to Newsroom. 

When Ardern announced the alert level system on March 21, it was met with an immediate outcry by epidemiologists and other health professionals for a move to Level 4.

Baker, who had been calling for lockdown for the better part of a week, reiterated his view on RNZ shortly after the announcement. He was convinced New Zealand's testing wasn't ready to find the cases out there and also raised a handful of concerns about contact tracing.

In the end, it was the contact tracing that would prove the slowest to scale up. A report on contact tracing commissioned by the Ministry of Health from University of Otago infectious diseases expert Ayesha Verrall found Public Health Units (PHUs) were overwhelmed by the case numbers they faced in late March.

"When New Zealand moved to Alert Level 4 on 25 March, many PHUs were at or beyond their capacity to manage cases and contacts, even with increasing support from the newly established [National Close Contact Service]. During that week, nationwide daily case numbers ranged from 70-86," Verrall wrote.

Even two weeks into lockdown, only 60 percent of contacts could be easily reached by phone and PHUs had no insight into what happened to cases they referred to the centralised NCCS. Verrall wanted to see the PHUs and NCCS able to trace all the contacts of 1000 new cases every day, up from just 70 on March 25.

In fact, the documents released by the Government show that by March 18, PHUs could trace fewer than 50 cases a day. On the same day, 39 Covid-19 cases entered the country. The situation was quickly spiralling out of control.

Exactly why the country was so unprepared for Covid-19 remains unclear. Newsroom has previously reported on international assessments in which New Zealand scored just 54 out of 100 points for pandemic preparedness. Domestic epidemiologists, including Baker and fellow University of Otago expert Nick Wilson, had long raised these concerns.

Nonetheless, the country's poor preparedness meant there was no viable alternative to lockdown. While countries like Taiwan and South Korea have managed to chart a suppression or elimination path without resorting to lockdowns, they also have far more robust public health systems than New Zealand.

In February and March, I just wasn't expecting failure to scale up contact-tracing to be the problem. I'd thought that part was simple - just hire more people. Not doing it proved expensive.

Newsroom also provides this helpful timeline.

 

Evening roundup

The evening closing of the browser tabs brings the following worthies:

• Farah Hancock at Newsroom continues to push the government for more detail on the Covid cases. This stuff is important. 


• More voluntary initiatives to get PPE to the front lines: 3D-printed face shields. 


• Tyler Cowen lays out just what a mess American universities are looking at for the coming year, predicting a fair few families will opt for a gap year. If we could get quarantine sorted out, NZ could put on a credible alternative. 


• Any sane version of pandemic rules would have aged care facilities protected against entry of Covid. Meanwhile, in the UK, Councils are withholding funding from care homes refusing to take in Covid patients. 


• Danyl McLaughlin writes in defence of Covid-19 contrarians.

  I trust the prime minister a lot more than her critics do. But I also believe that a lot of her cabinet ministers are incompetent, and others are highly unscrupulous, and that this government makes operational and policy blunders on a scale we haven’t seen in our last few decades of technocratic centrism (as I was writing this the news broke that the entire lockdown may have been illegal). And they’re currently making huge decisions based on incomplete information because there is no expert consensus or reliable data available.
  
  So I think there’s value to disrespectful questions and politicised critiques, and even some of the contrarianism, even if a lot of it is misguided or in bad faith, or simply wrong. And I think we need a space for those critiques in our mainstream politics and media instead of shouting it down and leaving it to circulate on the shadowy fringes of the internet.

Cable-ready infrastructure

My column in Newsroom this week ($) suggests that the government might look to some of its own necessary infrastructure upgrades, particularly around back end servers. We could be getting so much better and more timely data on what's all going on. 

A snippet:

More timely data is possible. But it would require unclogging the pipe running from Inland Revenue to Statistics New Zealand.

Income tax in New Zealand is delightfully simple. The Pay As You Earn (PAYE) system has firms submit income tax to IRD on workers’ behalf, rather than the workers themselves.

It has an additional advantage. Inland Revenue is receiving daily updates on the state of the economy. Every day, IRD receives PAYE from companies on behalf of workers across the country. It knows which companies are sending in payments on behalf of which workers. If a worker’s PAYE stub comes in a bit light this week, as compared to last fortnight’s pay, it either means the worker put in fewer hours or took a pay cut.

From that data, it would be simple – at least in principle – to produce daily updates on the state of the economy. How did today’s PAYE earnings compare to the same day in the pay cycle last year? How much worse is it today than it was a month ago? Or a fortnight ago? Daily data would be noisy – Covid-related pressure can make for late filing. But rolling weekly averages could smooth out some of that noise. GST data could be similarly useful.

Jobseeker benefits data is a lagging indicator of the real state of the economy. It’s like sitting out at the Basin Reserve, watching the cricket, and listening to an audio feed that’s two balls behind the play. Payroll data would be more up-to-date. Hopefully the IRD is already providing some of those updates to Cabinet. If it is, it would be very nice if the results were released more broadly.

But it could be even better. Statistics New Zealand (SNZ) maintains the Linked Employer-Employee Dataset (LEED) tying together tax data provided by IRD with company data from SNZ’s “Business Frame.” It uses that data to provide updates on average and median earnings in different industries. Unfortunately, the most recent update to LEED is from December 2018. In a few years, it might show what’s been going on at the industry level during the current pandemic – interesting for academic researchers who are not in a hurry, but useless for current policy purposes.

It surely is not beyond the wit of the boffins, with a bit of encouragement and funding, to fix the pipes so that daily data could make its way from IRD to SNZ for rapid economic updates detailing just what is going on with payroll at the industry level, and possibly even the occupational level, in each city and region.

The amount of resource that Stats NZ poured into the useless IANZ project is especially galling when you consider what they could have been doing instead.  

Lockdown porn

Just imagine being the kind of person who frets about porn consumption during lockdown.

The Herald has this fun bit from Friday's document dump:

Massive spike in porn and online harm

The day New Zealand went into lockdown, there was a massive spike in PornHub's traffic.

In a briefing on online harms from the Minister for Internal Affairs Tracey Martin, a graph from Pornhub showed a 20.6 per cent increase in their New Zealand traffic when the country moved to alert level 4 on March 25.

It dropped back to 4.8 per cent increase by March 29 but then crept back up to 15.8 per cent on April 2.

When not even the shovels are shovel-ready

My column from last week's Insights newsletter. 

There’s an old short-handled shovel hanging in our garden shed. The plastic handle has split, but the blade and shaft are fine. With a bit of work, that shovel could again be shovel-ready. But it isn’t just yet.

This past week brought news stories that really should have been tied together. The Government is readying changes to the Resource Management Act to fast-track shovel-ready megaprojects in the Government’s preferred priority areas. Meanwhile, contractors have been digging up and re-building the same bits of Transmission Gully for some time. Nobody knows when it will end.

Together, the stories remind me of that old shovel in the back shed. If even a half-built road isn’t really shovel-ready, what hope is there for the rest of the giant projects? Even a shovel isn’t always shovel-ready.

Megaprojects are risky and pinning recovery hopes on them may be a mistake. If employment is the only criteria for success, Transmission Gully has been remarkable. Workers could dig up and re-lay the same section of road forever. But as bad as unemployment is likely to get this year, there are surely more productive uses of everyone’s time.

The whole approach is taking the shovel by the wrong end. Anyone who lived through the Christchurch Earthquakes ought to remember just how bad an idea it can be to pin one’s hopes on a few anchor projects that can take years to get going.

Myriad smaller projects could be progressed if the consenting were just a bit easier.

We were rather lucky that the bulk of our home renovation work was done before lockdown. But the consenting was a hassle and isn’t done yet. Our balcony collects the rainwater that once fell directly onto the cement driveway. But, as far as Council is concerned, that rainwater can neither be returned to the driveway where it would have fallen, nor can it go to a garden sump.

If I could take the bit of bureaucratic red tape and use it to repair the handle on that old shovel, my garden sump project would be shovel-ready.

Thousands of other shovels could surely be ready to go. Easing the rules so we can all get on with our own shovel-ready projects may make a bit more sense.

You can subscribe to the newsletter at the bottom of the page.  

Morning roundup

The closing of the browser tabs brings a few worthies:

• Andrew Gelman goes through the paper that had claimed to show that cities with a stronger response to the 1919 flu had subsequently stronger economic growth - it looks rather like the data doesn't show much.
• What do you do if you're convinced that the rest of the world is getting something important seriously wrong and that shouting about it now won't do much? Put it up in hashed form so you can counter "nobody could have known" later.
• I have heard two separate and independent accounts of very bad use of the government's requisitioning powers. I've put out OIA requests about the use of those requisitioning powers to Civil Defence, MoH, and the DHBs. I'll let you know what I hear back. 
• From the "things very likely to be inframarginal" file - Covid-19 may also be present in semen, so it could maybe also be sexually transmitted. 
• Google's Sidewalk Labs gives up on Toronto because of the NIMBYs. If the government's looking at expedited RMA processes for big and interesting projects, well, Google has a big and interesting project.
• Kate MacNamara breaks a few illusions about NZ's pandemic response for a Canadian audience.
• Physicists have come up with a new solution to Xeno's paradox. I tend to prefer the brute force solution: walk to the end of the room, notice it didn't take infinite time, then get back to work. 
• Global trade has a very long history. The pandemic brings a protectionist turn, but the gains from trade are too big to ignore for long. 

A rather costly failure

Lockdown wasn't a failure; it was a symptom of a failure.

From where we were at when the government shut the country down, they had to do it.

But we didn't have to be in that position at all.

The Herald's been going through the Friday afternoon document dump and caught this one.

Contact-tracing capacity has repeatedly been referred to as a weak point in New Zealand's Covid-19 response and has been ramped up in recent weeks to a point where director general of health Ashley Bloomfield now refers to it as a "gold standard" system.

But on March 17, a document proactively released by the Health Ministry put the capacity at the time as "estimated at 10 active cases".

That morning the Covid-19 case count was 11 confirmed cases and two probable cases.
The paper said that the capacity needed to be improved within a month so the contacts of 50 cases a day could be traced.

On 17 March, we had 3 new cases. On 20 March, we had 11 new cases, then 13, then 14 on the 22nd. On the 23rd we went into partial lockdown with 36 new cases; full lockdown on the 25th.

Source: Newsroom

Contact tracing for 10 active cases - there's no way it could have kept up. Even 50 cases a day wasn't going to be enough.

Had the government scaled up contact tracing capabilities from January, would we have needed lockdown? Border closures along with contact tracing and quarantine of both cases and contacts of cases could have done the job.

This wasn't the failure mode I was expecting in January or March; I just hadn't considered that the system would fail to scale up contact tracing.

Pretty pricey mistake.

Real quarantine

When we lived in Christchurch, we'd tour occasionally out to Quail Island. Quail Island had been home to New Zealand's leper colony, and also served more generally for quarantine. Here's a bit of that history.

Although most migrants arrived fit and well, the authorities implemented disease prevention measures at the major ports. Before anyone disembarked, officials checked the health of the government migrants and the condition of the ship, and heard complaints. Ships with sick people aboard had to raise the yellow flag and go into quarantine, a dismal introduction to the New World for people who had already been cooped up for three to five uncomfortable months at sea.

Construction started before the island’s sale could be completed, so the government built cheaply and simply. In February 1875 the Rakaia (which had lost 11 passengers and still had 100 mumps cases aboard) became the first ship to use Quail Island. It would not be the last, but with migration tapering off in the late 1870s and steam taking over from the mid-1880s, the need to quarantine people declined sharply. From 1881 livestock were also detained here, most famously the dogs and ponies used by Antarctic explorers. Between 1901 and 1929 the Shackleton, Scott and Byrd expeditions all used Quail Island.

But sickness still drove people here. In 1918 victims of the influenza epidemic were sent here as Canterbury struggled to meet the crisis. Between 1906 and 1925 there was also a small leper colony. Just a few minutes’ walk from the barracks you will find the walls, concrete foundations and drain channels from the leper colony that sat on its own isolated terraces. Another few minutes’ walk away a solitary grave lies behind a neatly painted white picket fence. It belongs to the only leper to die here, 20-year-old Ivan Skelton, who was visiting relatives at Westport in 1918 when he was diagnosed with the ancient curse. Shipped off to Quail Island, he died five years later, far from his family.

I was increasingly aghast with the lack of quarantine or health checks as folks came in ahead of the border closure, then again with the rather informal nature of quarantine for residents returning from places where Covid was rife. The country had ample empty hotels.

I wonder how much of the total lockdown could have been avoided had we collectively not forgotten how to run proper case tracking, followed up by quarantine.

It does have a long history. Here's Lyman Stone's excellent summary. Read the whole thing. A few snips:

Before we get into what centralized quarantine might look like today, it’s worth walking through the history of this strategy. In Leviticus 13 and 14, Moses gave the people of Israel instructions on how to deal with outbreaks of infectious diseases (in this case, a skin condition; widely translated as leprosy, it is actually very unlikely that the disease described was true “leprosy.”). The instructions are a Bronze Age version of “test and quarantine.” Detailed diagnostic criteria are listed for experts to use to provide a diagnosis. Any cases that meet a very low standard for a “possible positive” were then isolated from the rest of the community in a secure location until they completed a certain window of time without symptoms.

This is textbook “centralized quarantine.” Infected people didn’t shelter in place, and isolation was not limited to highly infectious people. The instruction of God Almighty through His prophets to the people of God when they confronted a contagious disease was very simple: Isolate large numbers of people who might be infectious at a safe distance from the community.

...

Detailed study of medieval cemeteries in Scandinavia has yielded an answer. Leprosy was driven to extinction in many Danish cities before 1400. It persisted longer in rural areas. The cities where leprosy declined share a common trait: lazar houses. They established “leprosaria” where infected people were isolated. This resulted in a dramatic decline of infection in the wider population.

...

It is also, as it turns out, extremely beatable. There are numerous cases of bubonic plague being successfully controlled without modern pharmaceuticals, but the best-documented case is the city of Ferrara from 1629 to1631. Strikingly, the scientific paper about Ferrara’s successful management of bubonic plague was accepted for publication in December 2019, and just officially published last month.

From 1629 to 1631, a terrible wave of plague killed tens of thousands in every city in northern Italy. Except for Ferrara, where there were fewer than a dozen plague deaths. This was not due to luck: Several towns around the region’s official borders were hit hard, suffering thousands of deaths. But Ferrara, alone in the center of northern Italy, stood resilient and relatively plague-free.

Among the city’s strategies: Strict travel restrictions limited who could come to the city; trade goods were repackaged before being locally sold. Movement was limited, and most city gates were sealed. Mostly, these strategies worked. But not entirely. In August 1630, several cases broke out in the city. This should have been the end for Ferrara: Once you’ve got a few bubonic plague cases, it tends to spread. But the city’s officials deployed all options they had on hand: All those who were sick were put in centralized quarantine in the now-empty leper colonies. So were their close contacts, business partners, families, and others. Their houses were sealed up while they were away, and after a safe period of time scrubbed with a kind of medieval bleach.

There were a few other scares, which demonstrate how extreme the measures were. A postal worker got sick: He and everyone on his route were put into quarantine. A school child showed some symptoms: School was canceled for two months. If this all sounds surprisingly modern for 400 years ago, don’t be surprised: “Plague protocols” were written for many cities around the world. Unfortunately, they were often ignored. Ferrara is unique, not for having written rules, but for actually following those rules. Politicians in Ferrara shelled out a huge amount of money from their budget to pay for food for quarantined people, have doctors check on the poor, and generally keep their city safe. They succeeded.

As we come down into level 2, and desperately would like to stay there, it's worth considering proper quarantine for cases as they come up.

The question is why Americans didn’t leap to this response. Why did we, rather than using existing legal authorities and time-tested procedures, instead choose to lock down all of society, despite no precedent for such a response, and little evidence it would work? Why did we, instead of deploying a simple, easy-to-understand, low-tech solution that any local government could have implemented, focus on a futuristic testing-and-trace regime that is never going to be fully deployable? The legal authority for quarantine is very clearly codified in law, the historic basis for its effectiveness is obvious, and it was even used as a strategy against the 1918 influenza pandemic, polio, and against recent novel influenzas.

It's a good question here too. I disagree that there's anything futuristic about testing and tracing - but there is something silly about seeing it as a way of avoiding quarantine. I'd thought that testing was just a more accurate version of the older medical diagnosis, allowing for a narrower set of people to be quarantined. And contact tracing is needed for any kind of quarantine anyway. Wouldn't it rather be a strong complement to everything else, and a substitute for the broader and far more costly lockdowns?

Ownership and control

The line between state-owned and 'private' firms starts getting messy in bailout-worlds. 

AUT's excellent Akshaya Kamalnath provides an interesting example with the bailout conditions on Air France - KLM.

There’s much to say on the topic of airline bailouts unfortunately. Today’s post is about Air France-KLM and the strings its bailout comes with. (My previous posts on this are here and here.)

Apparently the French government will make a loan of £6.15bn to the airline on the condition that it scraps domestic air routes. The stated motivation for this is environmental do-goodery. Bruno Le Maire, the economy minister, provided the following reasoning: “When you can travel by train in less than two and a half hours, there is no justification for taking a plane.”

We talk about conflicts of interest in corporate law all the time. Usually, this is in the context of board decisions. Let’s use the same lens to examine this bailout condition and ask, who owns the French Railways (SNCF). No prizes for guessing that it is fully state-owned. Incidentally the SNCF has also been running under losses since before COVID-19 and the situation has only worsened after COVID-19.

(Thanks to Leonid Sirota for inspiring this post.)

And Leonid is also at AUT in laws. Huh. I'd known they had an interesting econ department doing lots of administrative data work; hadn't twigged that both Leonid and Akshaya were at the law school there.

Foreign students fleeing to New Zealand could consider putting together an interesting joint degree between the two departments.

Almost anything beats prohibition, including the draft cannabis legislation

The draft cannabis legislation, as written, is better than prohibition. Even without amendment, those inclined to vote should vote for it.

There's still a lot in it that I don't like though.

The prohibition on growers also running retail operations, presumably intended to prevent large commercial grow operations with vertically integrated retailers, will also prevent anyone from running the kinds of cellar-door operations that have been very important in wine tourism.

Sure, cannabis is nothing like wine. But is it that hard to imagine folks spending a morning at a grower's in Northland, seeing he fields, meeting the growers and workers, touring the facilities, sampling some of the product , having a bit of lunch maybe with a nice wine, ordering some for delivery back home, then bicycling over to tour a different one in the afternoon?

A whole lot of that would be illegal under the legislation as drafted.

The grower is not allowed to run a licensed consumption facility. Licensed consumption facilities are not allowed also to have alcohol. And prohibitions on advertising would likely make it hard even to put up a normal product list with descriptions and prices within the shop. The names of products and prices are fine; any additional notes wouldn't be.

Russell Brown, who's more a fan of the legislation than I am, also worries about this part

The bottom line of the section quoted above also embodies a more recent approach: a ban on vertical integration, which has been an element of reform in Mexico. No business will be able to both produce cannabis and sell it to the consumer, which restricts market dominance.

The economist Eric Crampton has already noted that the vertical integration ban would preclude “cellar door” type operations, where a producer could show and sell farm-grown cannabis to visitors (which would undoubtedly be popular with tourists). But I think there are larger impediments to that, most notably in the banket ban on advertising – including advertising inside R20 stores. You won’t be able to smell or see your weed – or even a picture of it – just a price list.

It’s not clear to me the extent to which even attributes of of the products will be able to be described, to tight is the advertising ban. But the particular effects of any given cannabis strain strain are governed as much by which terpenes are present as by THC level – weed that smells like cheese will have a very different effect to weed that smells like piney or citrusy, believe or or not – and anyone buying it needs some way of knowing that.

I do think there’s a level where this gets infantilising. If we’ve decided, as a nation, that adults can use this drug, then not letting them see it or get information about it, even on licensed premises, until they’ve bought it – when they will be free to look at it, smell it and consume it, even right there on the spot – just seems a bit silly.

And the cap on the quantity of cannabis that can be sold in the commercial market will make it very hard for the market to respond to changes in demand that can come with, for example, the return of tourism. Quantity restrictions will push prices up whenever demand is higher than normal, and that will encourage shifts back into the illegal or informal market. If the government had any intention of setting excise to try to maintain retail prices to consumers around where they are now, it'll be harder to do that under the quantity restriction.

The cap is likely to turn into a sinking lid where the cap is supposed to be set with a view to the purposes of the Act and the Harm Reduction Strategy, all of which focus on minimising the harms of use.

The Authority has to decide among potential growers vying for a share of the annual production cap. They're meant to take into account factors listed in Section 85, including representation of communities traditionally harmed by cannabis, generation of social benefits and employment.

Those applications come in for the share of the annual cap, so every year there will be costly application processes trying to prove the social worthiness of one grower relative to another.

There's no mention of potential tradeability of permits; it's presumably prohibited where the point of the permitting process is to make sure that the portions of the cap are divvied up according to the preferences of the Authority as guided by the Act. But that also could cause problems if a grower experiences crop failure in one year, for example. With wine, if one part of the country has a great year and another part is a bit average, it all washes out. If there's drought hitting apples in Hawkes' Bay but Central Otago's fine, then we get apples from Central instead. Nobody has to reallocate permits in accordance with social worthiness.

This whole thing looks rather ripe for rent-seeking.

And while the regime at least doesn't punish those under the age limit for being in possession of cannabis - or at least avoids criminalising them - it would criminalise social supply to 19 year olds in cases where, for example, a parent may prefer to provide a bit from their own home-grown supply than have the kid rely on informal supply from less savoury folks. Sure, in theory, illicit supply's supposed to be wiped out. But suppose you have an 18 year old at home that you know is getting weed elsewhere and that it's dodgy-as. Unless you're able to find and dob in the kid's supplier, you can't really block that access route. And you can't supply small amounts of better product for supervised consumption.

And if you regularly have guests over who consume cannabis, be careful about Section 177: you could be considered to be running an unlicensed premise for the purpose of cannabis consumption even if no money changes hands.

On the good side though:

• Excise would be based on weight and potency rather than ad valorem;
• Edibles will be allowed - though I don't see any mention of the standard-dose kinds of packaging that have been useful elsewhere;
• There's a review 5 years into the regime to see how it's working;
• It isn't as bad as prohibition. 

Media funding, prizes and public goods

The government's paid $50m to help shore up newsmedia companies' finances during Covid.

But the overall media funding problem is bigger than the current Covid mess.

I went through things in a bit more detail in Newsroom last week (ungated here). Too many news types want to find ways to have the government strongarm tech companies into rebuilding the old advertising-based funding model that worked until the 2000s - it's basically nostalgia for an era that just won't come back.

But where we wouldn't see any need to support buggywhip manufacturers against the rise of the car, there are reasons to expect the optimal amount of journalism is higher than we might wind up with where the personal benefits of being informed aren't all that high. 

I talked about it all with Jesse Mulligan yesterday afternoon on RNZ.

But you can get the nut of it from this snip from the piece at Newsroom.

That would not be a problem on its own. But there are reasonable ‘public good’ aspects to a thriving news sector. If an investigative journalist exposes a city councillor’s corruption, the benefits extend far beyond that newspaper’s subscribers being better informed. Worse, the benefits of being better informed have always been just a little ephemeral.

Sure, there is prestige in being able to hold one’s own in conversations about current events, but most of us really could ignore almost everything that’s going on in politics, and in policy, and in sport, without really noticing the loss.

It is then no surprise that the most typical findings of the academic literature on voter knowledge are that voters know very little.

This is hardly a new phenomenon. Even in the heyday of journalism, in 1964, well before the great decoupling of newspapers from classifieds and other advertising, only 38 percent of surveyed Americans knew that the Soviet Union was not a member of NATO – despite that the Cuban Missile Crisis had almost brought the powers to nuclear war only two years earlier.

And so we get to the nub of the problem. For most people, there is little personal benefit in getting the kind of information provided by serious journalists. So there is less effective demand for news than would be ideal, both because serious journalism directly provides benefits in democratic accountability, and because a better-informed voter base is likely to yield better outcomes at the ballot box.

There are two basic ways of trying to solve the problem. News producers could be directly subsidised, whether by philanthropists or by taxpayers. Or the rewards for being better informed could be strengthened. Let’s take each in turn.

Last year, the Stigler Center for the Study of the Economy and the State’s Final Report on Digital Platforms suggested taxpayer-funded vouchers could help fund news. Under this scheme, each adult would receive a $50 voucher to be used as a donation to their favourite news outlet. The proposal has a lot of advantages over other forms of state-funding. Rather than the Government or a panel of anointed experts doling out the money, individuals would reward outlets they most wish to support.

The proposal is interesting. The authors have thought through most of the obvious objections. But while the scheme would help reward the investigative journalism so important for democratic accountability, it would not do as much to encourage people to read the stories.

There is another way of encouraging people to pay a bit more attention to the world around them.

Growing up in Canada, radio stations often ran contests where they would phone someone at random and give them a prize if they could name the song the station had just played. It encouraged people to pay a bit more attention.

Imagine if the Government allocated $36.5 million to a prize pool. Every day, the editors of the various news outlets overseen by the Media Council would submit skill-testing questions drawn from the more important stories they had recently produced. Every day, some lucky Kiwi would get the phone call promising a $100,000 prize for successfully answering one of the questions of the day – with calls continuing until someone got the prize.

Suddenly, knowing what’s going on would matter for more than just water cooler kudos. Even if the odds of getting the call were low, the pain of getting the call and not knowing the answer would encourage paying attention to current events. That would help to drive subscriptions to the news outlets providing the news and build a better-informed electorate.

That seems more promising than letting the Government adopt mafia-style standover tactics to force tech companies to fund journalism.