Boat race people and MIQ

A few months ago, I was curious about how many scarce spaces in MIQ were being taken up by people coming in for the boat race. So I made an OIA request. 

Now, months later, it looks like the answer is that MBIE officially has no clue how many boat race people from the boat race overseen by MBIE were put by MBIE into the MIQ facilities overseen by MBIE.

Here's the trail so far. 

From: Eric Crampton <eric.crampton@nzinitiative.org.nz>
Sent: Tuesday, 29 September 2020 12:05 PM
To: *OIA <OIA@mbie.govt.nz>
Subject: [RELEASED FROM QUARANTINE][SUSPECT SPAM]America's Cup managed isolation

Dear MBIE,

I’ve a short OIA request.

I’d like to know how many people have sought border exceptions for accommodation in the MIQ system in relation to the America’s Cup, how many have been granted those exceptions, and how many more are expected.

Many thanks!

Eric Crampton

It was funny because they had to pull it from their spam filter and called that process "release from quarantine"

They replied a week later asking clarification. They wanted to know whether I wanted the number of requests to not have to go through MIQ at all [exemptions from MIQ], or border exemptions to be allowed into the country despite the current border closures, and from there into MIQ. I replied, four minutes later, to clarify that I wanted to know how many came into MIQ.  

From: MIQ Ministerial Servicing <miqministerialservicing@mbie.govt.nz> 

Sent: Tuesday, 6 October 2020 3:26 PM
To: Eric Crampton <eric.crampton@nzinitiative.org.nz>
Subject: RE: America's Cup managed isolation [UNCLASSIFIED]

Good afternoon Mr Crampton

I refer to your OIA request below. I need to clarify a few points to determine how best to respond to your request.

Border exceptions is a separate process to the Managed Isolation and Quarantine accommodation system.

At current, everyone entering NZ is required to stay in managed isolation or quarantine for at least 14 days and return a negative COVID-19 test before they can go into the community, unless an exemption has been granted.

Exemptions to managed isolation are rare and will only be issued in very limited circumstances and where the health risk is low and can be managed.

Border exceptions relate to who are allowed to enter New Zealand currently under the border closures.

Are you after the number of people entering New Zealand for the America’s Cup who have sought exemptions to MIQ or are you after the number of people who have asked to be allowed into NZ in order to participate in the America’s Cup? 

From: Eric Crampton <eric.crampton@nzinitiative.org.nz>
Sent: Tuesday, 6 October 2020 3:30 pm
To: MIQ Ministerial Servicing <miqministerialservicing@mbie.govt.nz>
Subject: RE: America's Cup managed isolation [UNCLASSIFIED]

The number who have been allowed into MIQ please! Many thanks!

Eric

On 28 October they extended their deadline to 25 November.

Yesterday, 21 December, I received MBIE's answer, such as it is: 

Dear Eric Crampton

Thank you for your email of 29 September 2020 to the Ministry of Business, Innovation and Employment (MBIE) requesting, under the Official Information Act 1982 (the Act), the following information:

I’d like to know how many people have sought border exceptions for accommodation in the MIQ system in relation to the America’s Cup, how many have been granted those exceptions, and how many more are expected.

The scope of your information request was clarified with you on 22 October 2020 [Note - they later corrected this error - the correct date was 6 October] to be the number of America’s Cup participants and personnel who have gone into Managed Isolation and Quarantine (MIQ) facilities and how many have sought and been granted exemptions to staying in MIQ.

As you will be aware, mandatory MIQ came into effect after 11.59 pm on 9 April 2020. Since then, every person entering New Zealand is required to stay in a MIQ facility for at least 14 days and return a negative COVID-19 test before they can go into the community, unless an exemption is granted.

Since mandatory isolation is required of every individual who enters New Zealand, unless an exemption is granted, detailed information regarding visa, residence, or citizenship status is not collected by MIQ officials. I am unable to answer your question as data on the individuals who have entered New Zealand for the America’s Cup has not been collected by MIQ officials. I am therefore refusing your request under section 18(f) of the Act, as the information requested cannot be made available without substantial collation or research.

MBIE regularly publishes data on MIQ occupancy, including the total number of people that have gone through MIQ. This information can be found at the following website: www.mbie.govt.nz/business-and-employment/economic-development/covid-19-data-resources/managed-isolation-and-quarantine-data/.

As you also may be aware, the process of transitioning oversight of MIQ from the All-of-Government (AoG) Response Group to MBIE began on 13 July 2020. This included the transitioning of the Exemptions function from the Ministry of Health (MoH) to MBIE. Between 13 July 2020 and 22 October 2020, the Exemptions team within MBIE received 2,439 MIQ exemptions applications.

None of these applications indicate that they were related to the America’s Cup or America’s Cup personnel.

MBIE is unable to provide you with information on how many more exemptions applications are expected with any meaningful accuracy as information is only collected once an application has been made.

In short, MBIE claims it does not know how many people in MIQ are there for boat-race purposes.

MBIE is the responsible Ministry for the whole boat-race thing. Every bit of correspondence on boat race things will go to them.

MBIE is the responsible Ministry for deciding who gets classed as an essential worker - the prelude to being allowed into MIQ as a non-citizen or non-resident.

MBIE also is responsible for allocating the scarce spaces in MIQ - deciding who among the many many claimants will win the scarce spaces.

It would be remarkable if there were not volumes of correspondence from boat-race types about when they'd be staying at MIQ, when they'd be arriving, what the arrangements would be like, whether the facilities were to their liking - basically all of the hassle that anyone who has ever had to deal with in trying to organise events has had to go through. Like - organise a conference where you're putting on the accommodation, and you'll be dealing with endless back and forth about who is staying at which times and where the taxi stand is and whether there is wifi and whether their very particular dietary needs might be handled at the hotel buffet. MBIE would have been on the receiving end of so much of that. 

But MBIE claims not to know how many boat race people it has put into MIQ. 

So I replied, ccing the Ombudsman:

I’m a bit surprised on this one.

You’ve refused my request on the basis that it would be too hard to compile the data on the number of persons granted exemptions as critical workers into MIQ for the America’s Cup.

After I made the request, around the time you extended the deadline, journalist Andrew Voerman noted that some of the figures were available in a proactive release. The MBIE Briefing note “Covid-19: Request for exemptions to border restrictions for essential workers in two 36^th America’s Cup syndicate teams”, dated 9 June 2020, sought that Minister Twyford designate America’s Cup syndicate teams be considered “other essential workers” for the purpose of exceptions to border restrictions, and tallied 102 American Magic workers, 104 associated family members, 86 INEOS Team UK workers, 128 associated family members, and 1 nanny, for such consideration.

I have attached the relevant Briefing Note.

Surely it would not be difficult to tell whether that requested number of exemptions was granted, or whether the final number varied. It stemmed from a briefing note request to the Minister from your Ministry.

Ombudsman’s Office: please note that MBIE’s extension of 28 October promised a response no later than 25 November. It’s now 21 December, and they have failed even to disclose the existence of the Briefing Note listed above. I would not have known about that Note but for a helpful pointer from Andrew Voerman.

Sincerely,

Eric Crampton

MBIE replies:

As per the attached email, the scope of your original request was clarified with you on 6 October 2020.

The original wording of your request ‘I’d like to know how many people have sought border exceptions for accommodation in the MIQ system in relation to the America’s Cup, how many have been granted those exceptions, and how many more are expected’ is confusing as border exceptions and the Managed Isolation and Quarantine process are two separate processes.

As previously explained, everyone entering NZ currently is required to stay in managed isolation for at least 14 days and return a negative COVID-19 test before they can go into the community, unless an exemption has been granted.

Exemptions to managed isolation are rare and will only be issued in very limited circumstances and where the health risk is low and can be managed.

While border exceptions relate to those who are allowed to enter New Zealand currently under the border closures. America’s Cup personnel have been granted entry into New Zealand as critical workers. This decision sits with Immigration New Zealand and is unrelated to Managed Isolation and Quarantine and the MIQ exemptions process.

The briefing you are referring to is in relation to the border exceptions, not MIQ. You have clarified that you are after MIQ information so your request was responded to in that regard.

As explained in your response, MIQ cannot answer your question as to how many America’s Cup personnel have stayed in MIQ as MIQ does not collate detailed visa information. This is because everyone who has entered New Zealand is required to stay in MIQ regardless of whether they are a resident, citizen, or are entering the country as a critical worker.

Please advise if you would like to request additional information in relation to border exceptions rather than the MIQ exemptions process. 

They're here, in my view, playing jargon games. If you're not a returning Kiwi, you need an exemption to get into the country, then you need to go into MIQ. I've clearly asked how many boat-race-associated people have gone through that. They tell me it's impossible to know how many has because MIQ doesn't track it. 

I have added a request for the tally on border exceptions, which I guess would form an upper bound on how many MIQ spaces the boat race people have snaffled. It could be that some are travelling as couples, and so would only use one room. But you can't tell - if they arrive at different times, they'd have different rooms. 

Meanwhile, here's a petition encouraging MBIE to consider veterinarians as essential workers so that they might be allowed into the country to deal with some rather pressing shortages. 

Everything at MIQ is run on the Aristocracy of Pull. 

The Boat Race People have pull, and the government would, by all appearances, very strongly prefer that nobody might ever know how many scarce MIQ spaces have been taken up by the boat race people. 

Veterinarians, at present, do not have pull. But enough signatures and they might. Which might displace someone else whose visit might be even more pressing. It's not a great way to allocate resource the shadow value of which, at the current margin, must easily be in the hundreds of thousands of dollars per stay.

Improved Covid-leave

The government has announced a strengthening of the Covid-leave scheme. From early 2021, presumably once they have the mechanics worked out, businesses will be eligible for support if workers need to self-isolate after a Covid test, while waiting on a result, and are unable to work from home.

From the Beehive's release:

A new Short-Term Absence Payment will be available to eligible employers to support eligible workers who cannot work from home to follow public health guidance and stay home while waiting for a COVID-19 test result. It is also available to eligible self-employed workers, and to parents or caregivers of dependents who are required to stay at home awaiting a test result where they need support to do so. 

This will help businesses to continue to pay people who can’t work from home while waiting for a test result to protect others from possible COVID-19 transmission. The payment will be a one-off flat-rate payment of $350 for each worker who meets the eligibility criteria and will be available from early 2021. 

Employers or the self-employed will be able to apply for the STAP once in any thirty-day period per eligible worker (unless a health official or medical practitioner advises or requires the worker to re-test). If a worker needs to self-isolate following a positive test result they then may also be eligible for the existing two week Leave Support Scheme. The Leave Support Scheme remains available at all levels. 

I'd worried that absence of this kind of payment discouraged people from going for testing. 

My column from the Dom back in November: 

Every sick day kept in the bank is valuable. You might get sick later in the year and be caught short. You might need to stay home to tend to a sick kid. Unless this day is likely to be one of the five worst days of the year, workers aren’t likely to stay home.

On the other side, and especially for smaller employers, scrambling to fill an unexpected vacancy can be costly. If you have a hundred people on deck, you’d expect one or two to be absent and have enough staff to cover. Sorting out that coverage can be much harder for a small firm. If every worker stayed home with every mild cold, your sick leave budget would blow out.

During a pandemic, it is incredibly risky if neither the worker nor the employer really want a worker to wait on a test result. But measures like doubling the number of available sick days are both too blunt and too costly.

They are too blunt because, for mild symptoms, the calculus doesn’t change much: Unless the day is likely to be in your 10 worst of the year, you’ll prefer to go in. And when accommodating sick leave is costly, it is very easy to start wondering whether an employee is taking the mickey

The costs of having each worker out for an additional five days per year, if it’s all used up, do add up.

How to square the circle? On January 29, Singapore implemented its Quarantine Order Allowance Scheme. The self-employed or employers of workers falling under a Quarantine Order could claim $100 per day. Employers needed to show proof that they continued to pay the quarantined workers, and employees were required not to break the quarantine order.

That scheme solves the incentive problem. The employer cannot access the funding unless the worker maintains quarantine. And the worker must not break the order. Both have a reason for the worker to stay home.

New Zealand’s Covid-19 Leave Support Scheme took a page from Singapore’s book, but needs a few tweaks to really be effective. The scheme compensates employers, including the self-employed, if they need to self-isolate and cannot work from home.

It provides excellent coverage for workers who have been required to self-isolate because they have Covid or because they have been told to self-isolate as a close contact of a case.

It covers you if your child has been told to self-isolate and you need to provide support.

And, for a few workers in a few critical health sectors, it also provides coverage while waiting on a test result.

All of that is laudable.

But if you’re a hospitality worker, or a retail clerk, or a bus driver, you will not be eligible if you’ve developed symptoms, gone to a mobile testing station, and are waiting on results. The pernicious calculus remains. Are your symptoms really that bad? How many sick days do you have left? How annoyed is the manager going to be if you need to stay home for a couple of days?

The Covid-19 leave scheme should be updated to avoid those kinds of problems. Really, it should never have had those holes in coverage in the first place.

In the week to November 13, 24,574 people not linked to the border were tested for Covid-19. If each spent two days at home while waiting on a test result, that’s about 50,000 days of Covid-leave. The median weekly wage is about $1000. If every person staying home were compensated, it would cost about $10 million per week.

A week of Auckland being at alert level 3 costs, by one estimate, $440m per week. If a nationwide Covid-leave policy reduced the chances of a four-week Auckland lockdown by only a single percentage point in each week it was in place, it would have paid for itself almost twice over.

And we could, like Singapore, couple the scheme with rather substantial penalties for firms telling workers to show up while waiting on test results.

The 2020 Budget was meant to have allocated enough funding to cover the Covid Response. But actual public health measures, like proper Covid-leave to encourage people to stay home when they may be infectious, have been nickel-and-dimed. Meanwhile, the budget included over $70m in support for horse racing – enough to cover about seven weeks of proper Covid-leave.

Rather glad that the government is moving to fix this one! 

Who would you have picked to run the Productivity Commission?

The National Business Review ($) has a roundup of reactions to Ganesh Nana's appointment as head of the Productivity Commission. It includes some minor comment from me, and you can probably guess what I think about it.

But it also includes this somewhat intriguing bit from Sam Warburton:

Former Treasury Economist Sam Warburton said he could not name an economist in the public realm that would be suitable for the commissioner role at the moment - a comment that spoke to the credibility of the profession, which he said had not been high for the past few years.

Imagine that you're the recruiter tasked by Grant Robertson with finding the right candidate. You want a Commissioner who is a credible economist, who is respected by the profession, who has some profile beyond other economists, who is able to communicate to a broader audience, and who has public sector nous. 

It's a somewhat difficult Venn diagram to construct, and especially if you layer on the obvious political constraint that you can't select someone who's relatively 'dry' on economic issues. 

But it's still hardly an empty set, even if we restrict ourselves to people currently in the country. 

I would have hoped that Arthur Grimes and John McDermott would have been on that list. I don't know whether Arthur would have left Vic for it, or John would have left Motu, but you'd think a recruiter would have called them up to check. Norm Gemmell would have been a great pick, but I'm not sure whether Robertson would have seen him as too dry? 

There are Motu-affiliated folks who've done interesting work in the productivity space. Dave Maré and Richard Fabling in particular. But they haven't done as much public-facing work, so would likely be ruled out on those grounds. 

Tim Maloney at AUT should also have been on any reasonable short-list. He's not just done interesting work on labour markets, he's also served as Chief Economist at the Ministry for Social Development. Rhema Vaithianathan at AUT could also reasonably have made the list, though perhaps a bit further down only because her work is further from core productivity issues. 

Who do you think should have been ahead on the list? Leave out anyone who'd be ruled out as being too dry. Imagine yourself as an honest recruiter for Robertson for the position, knowing full well that folks like my excellent colleague Bryce Wilkinson would never be considered. 

Who would you have called? 

Update: A few additions to the shortlist, via Twitter, and others that have come to mind:

• Gail Pacheco (via Tony Burton; I'd not considered those currently in at the Commission)
• Bill Rosenberg (via Mike Reddell; I'd not considered on same basis as Gail)
• Alan Bollard (via Fran O'Sullivan)
• Tim Hazeldine
• Bob Buckle 

No room at the MIQ

Stephen Joyce canvasses the usual excuses for delays in getting normal travel arrangements with Australia. 

He finds them wanting, as I have as well.

The Prime Minister's reasons for further delay, as reported in the Herald yesterday, are ridiculously weak. There were basically three of them. Let's take them in turn.

The PM is reportedly concerned that Australia could have a looser definition of a Covid flare-up than New Zealand. It seems like there is an easy solution to this. New Zealand retains sovereign control over its borders and the Government could reinstate a quarantine requirement at any time. Having a bubble doesn't mean always agreeing with Australia's definition of risk.

The second problem is apparently that having fewer Australians in quarantine facilities would allow more people from other countries at greater risk to come into our quarantine facilities. This would increase the numbers of people in quarantine that could have Covid.

Let's think about that for a second. Are we really keeping people arriving from Australia in isolation, even though it's not necessary, in order to reduce the number of people from other countries in quarantine who could have Covid? Seriously?

An alternative view is that freeing up nearly half of the quarantine facilities currently taken up by travellers from Australia would allow faster processing of critical workers and Kiwis from elsewhere who are currently queuing on the other side of the border. Which would surely be a good thing.

The third problem identified is what happens to Kiwis already in Australia if we have to close the bubble again. Well, I'm thinking they would then have to use quarantine to come back. Which seems a no-brainer. And if this is an argument for not opening a bubble we will never open one.

That's pretty much it. The Prime Minister is suggesting that we need to postpone our end of a transtasman bubble till at least February to deal with these supposedly intractable issues, which a competent set of people could solve in roughly five minutes.

I think underlying some of this is a worry about political pressure if a pile of Kiwis wound up stranded in Oz if we had to re-impose border controls. So you'd have to have a very strong caveat emptor around airfares and warnings that people needed to be ready to hang around on the other side of the Tasman if controls were re-imposed. They can't just use quarantine to come back - there would be too many of them. 

But there seems no willingness to think through solutions. 

If the actual binding constraint on getting more people through MIQ is that even a perfect system can handle only so many positive cases because of constraints in the health system, then we need ways to make it less likely that infected people travel here. A starter for 10: put an MIQ facility on the West Coast of the US close to an underused airport that could handle AirNZ planes. If someone turns up positive, keep them from getting here in the first place. It can't be that hard. 

If that's the binding constraint. But there always seems to be some other underlying constraint such that solutions to whatever excuse has most recently been offered doesn't solve whatever the real constraint is. It's always jam-tomorrow when it comes to normal travel arrangements with places that do not have Covid. 

Meanwhile, the costs of closed borders and bureaucratic cruddy decision processes for allocating scarce MIQ spaces keep adding up. 

Here's an open letter from a veterinary recruiter who's been desperate to get vets in from overseas. There are long term skills shortages for vets. But they haven't made the cut for whoever at MBIE is the decider. They don't have the pull. Film crews and boat race people have the pull. And pull decides.

Prime Minister, I would like to invite you to join me in visiting a couple of veterinary hospitals so that you can hear first-hand what it’s like for the amazing, dedicated, hard working and totally stressed out professionals working on the front line.

I would like you to hear first-hand how they’re not sleeping at night. How they’re so totally stressed out that sometimes they can’t even form coherent sentences. How their spouses and families are concerned for their physical and mental health. Prime Minister, these professionals need a break.

Sorry, no room in MIQ.  

For a carbon dividend

My Dom Post column this week makes the case for a carbon dividend. Canada imposes a carbon tax on provinces that haven't their own carbon pricing regime, and is set to substantially hike the tax to $170/tonne. 

How is it politically feasible? Money collected in each province is sent back as a grant to residents in each province. Carbon prices maintain incentives at the margin to change behaviour; redistributing the revenues in lump-sum manner preserves those incentives while addressing equity concerns and making the thing politically possible. 

Here, the Climate Commission and government are behaving as though higher explicit carbon prices are impossible. There is no defensible explanation for carbon measures that would cost over ten times as much per tonne abated. If you want to do the most good possible, you have to buy all the cheapest ways of abating carbon first. The only half-way defensible explanation is that they view themselves as heavily politically constrained - that it's impossible to use transparent carbon prices through the ETS if those prices rise to levels that would cause political backlash. 

But that's just stupid too. We teach every darned intermediate micro student that the first welfare theorem tells us to use prices, and the second welfare theorem says to deal with any resulting equity difficulties with lump-sum transfers. This is stuff that any decent undergrad should be able to think through. 

So apply it here. 

Too hard to get an industry like agriculture into the ETS? Provide bundles of annual ETS credits, on a declining schedule over time, to industry to bring them in, and set the allocations based on average output rather than a farm's specific output so you wind up rewarding rather than punishing farms that moved earlier to abate emissions. 

Too hard to bring the cap down more quickly over time because ETS prices would make fuel prices too high and be hard for poorer households that might rely on less fuel efficient vehicles? Take the money raised by government sales of ETS credits into the market and give it back to people in lump-sum fashion. Still think that doesn't do enough to address equity? Boost the payments for those with Community Services Cards. 

This stuff is absolutely not hard in principle. There's stuff to be worked out in implementation, but the base principles are easy. But it's hard to see evidence that anyone's working on it. Instead, they're working on ludicrous schemes that will wind up costing hundreds or thousands of dollars per tonne abated, because they're scared of letting ETS prices rise. 

Frustrating world when people seem determined to push for the 10th best when a 2nd or 1st best is entirely feasible. 

Anyway, here's the column. A snippet:

The federal government solved the problem in a rather ingenious way. It takes all of the carbon tax revenue raised from a province, puts it into a pot, and then gives it back to people in that province.

Provinces that produce more carbon emissions will pay more in carbon taxes. Households in those provinces then get a higher rebate payment back from the federal government. In Ontario, the first adult in a household receives an annual payment of $224. The second adult receives $112, and each child receives $56. The amount of the payment varies from province to province and will increase as the carbon tax rises.

This kind of rebate programme solves important equity problems. Richer households spend more money on everything, including on things that generate carbon emissions. A flat per-household payment funded by taxes disproportionately paid by richer households makes for a progressive transfer scheme.

And it also makes higher carbon prices politically possible. Most households will wind up receiving more back in carbon rebates than they will pay in carbon taxes. By 2030, the average family of four in Alberta will be receiving a carbon rebate amounting to about $3200 per year.

Work by University of Calgary economist Trevor Tombe demonstrates that the vast majority of lower income households will receive far more in carbon rebates than they will ever pay in carbon taxes.

Heatley on Covid

The Productivity Commission's Dave Heatley blogged on some of his work on Covid policy.

His conclusions?

Cross-country data does not support a health vs. the economy framing of responses to Covid. Nor does the data support a get health right and the economy will follow.

Achieving the lowest health costs over both the short and long term requires choosing policies that work in protecting citizens from Covid while minimising economic costs.

New Zealand should seek to improve its policies, finding those that work at lower economic cost. It is likely that we can learn much from Taiwan, South Korea and other high-performing countries.

Keeping Covid down seems necessary but not sufficient for economic recovery. That of course isn't an argument against keeping Covid down. 

There is a lot that New Zealand has gotten right. But we also have missed a lot of opportunities to do rather better.

Heatley will be presenting on some of this work tomorrow.    

Island logistics

I'm a bit curious about logistics over on the Islands now.

RNZ writes:

Ten containers of watermelons were scheduled to be shipped to New Zealand on 5 December.

However, the trucking companies assigned to transport the melons to the wharf in Tongatapu did not arrive to the growers' farms to pick up the produce, as RNZ Pacific Correspondent Kalafi Moala explained.

"The government, in particular the Ministry of Agriculture had organised for the trucks to come pick up the melons and so the fact that it didn't happen over the weekend, the responsibility falls back on them," he said.

Why is the Ministry of Agriculture responsible for organising freight logistics there?

If a grower contracts with a trucking company for critical deliveries like this, I'd have expected penalty clauses for failures. I have no clue what to expect when the Tongan government is intermediary.

RSE, MIQ, and WTF

Last week, the government announced it would allow 2000 seasonal workers into New Zealand's Managed Isolation and Quarantine system on Recognised Seasonal Employment (RSE) scheme, with workers to arrive from January to March 2021. 

There's just so much that's backward in all of this. 

The RSE scheme is open to workers from the Federated States of Micronesia, Fiji, Kiribati, Nauru, Palau, Papua New Guinea, the Republic of the Marshall Islands, Samoa, the Solomon Islands, Tonga, Tuvalu, and Vanuatu.

The most recent World Health Organization COVID-19 situation report for the Western Pacific notes that the Federated States of Micronesia, Kiribati, Nauru, Palau, Samoa, Tonga and Tuvalu have not reported a case to date - as of 25 November. Since then, Samoa has had two positive cases caught at their border. 

Meanwhile, Papua New Guinea has large-scale community transmission - you wouldn't want to restart RSE entry from there. 

Does it make any kind of sense that scarce MIQ spaces are being taken up by people who come from places that do not have Covid-19? Why couldn't we just admit RSE workers as usual from places without Covid, on an understanding that the gate would be shut if their Covid-status changed?

Does it seem plausible that the most valuable uses of scarce spaces in MIQ is for people coming in for fruit-picking, if those workers are coming in from places where Covid is prevalent? If it were the outcome of an auction for spaces, I'd take that seriously - I could too easily be wrong! 

The policy simultaneously plausibly lets too many RSE workers into MIQ, and too few RSE workers into the country. It seems unlikely that the highest valued use of an MIQ space is for someone who would come in to pick fruit at $22/hour, but it also makes no sense at all that they be required to be there in the first place. 

There are very reasonable concerns about Covid getting back to the Islands from NZ if we had an outbreak. But there are very reasonable ways of mitigating that risk that do not involve banning safe people from travelling here. For example, RSE employers could be required to provide isolation for workers before they went back to the Islands, with those returnees tested before departure. 

Surely the odds of catching Covid are higher in a NZ MIQ facility, including in transport to those facilities with people who are coming in from far riskier places, than in the Covid-free Islands. 

Recall the stakes on the RSE programme. Here's John Gibson and David McKenzie on it.

Their abstract:

Seasonal migration programs are widely used around the world, and are increasingly seen as offering a potential “triple-win”- benefiting the migrant, sending country, and receiving country. Yet there is a dearth of rigorous evidence as to their development impact, and concerns about whether the time periods involved are too short to realize much in the way of benefits, and whether poorer, less skilled households actually get to participate in such programs. New Zealand's Recognised Seasonal Employer (RSE) program was launched in 2007 with an explicit focus on development in the Pacific alongside the aim of benefiting employers at home. We present the results of a multi-year prospective evaluation of the impact of participation in this program on households and communities in Tonga and Vanuatu. Using a matched difference-indifferences analysis based on detailed surveys fielded before, during, and after participation in the RSE, we find that the RSE has indeed had largely positive development impacts. It has increased income and consumption of households, allowed households to purchase more durable goods, increased subjective standard of living, and had additional benefits at the community level. It also increased child schooling in Tonga. This should rank it among the most effective development policies evaluated to date. The policy was designed as a best practice example based on lessons elsewhere, and now should serve as a model for other countries to follow.

Here are some of the gains:

The results show that the RSE has had large positive effects on sending households in Tonga and Vanuatu. We find per capita incomes of households participating in the RSE to have increased by over 30 percent relative to the comparison groups in both countries, with per-capita expenditure also increasing, although by less than income. Subjective economic welfare is estimated to have increased by almost half a standard deviation in both countries, and households have purchased more durable assets such as DVD players, radios, ovens, and in Vanuatu, boats. In Tonga RSE households also doubled the rate of home improvement, and in both countries, households became more likely to have a bank account, likely reflecting more formal savings. School attendance rates increased by 20 percentage points for 16 to 18 year olds in Tonga, and community-level effects were generally modest, but positive. Overall these results show that the seasonal worker program has been a powerful development intervention for the participating households, and that the RSE policy appears to have succeeded in its development objectives in the short run.

I've bolded the most important bits.

In order to prevent a trivial risk of Covid coming in from places that do not have Covid, the Labour Government is preventing the vast majority of RSE workers from coming in to do the seasonal work that they traditionally have done successfully. The consequence of that is, in all likelihood, a substantial decrease in incomes in affected households, declines in their subjective economic welfare, and reductions in schooling for those families' kids. 

I suspect, but cannot know, that the government is doing all of this deliberately, to kill the RSE programme. Sufficiently advanced incompetence is indistinguishable from malice. Are the relevant officials being purposefully obstinate when they refuse to see obvious safe ways of getting those workers here and preventing transmission back to the islands? It's hard to tell.

Mattress Factories and broken council incentives

The Initiative's Exec Director, Oliver Hartwich, loves telling stories about German towns that did everything they could to encourage businesses to come to their area, as well as new housing, because their finances depended on having a successful local economy.

New Zealand's a bit different.

In last week's Politik newsletter, Richard Harman goes through how Environment Minister David Parker has had to signal readiness to get involved in a scrap between the Waikato District and Regional Councils. 

District Council wants to allow the Sleepyhead Mattress Company to build a new factory and village; the company figures they can't have a plant if there's nowhere for workers to live. 

Regional Council doesn't want to rezone land to let it happen. Why?

The Council’s submission said that by enabling an isolated, car-dependent urban settlement at Ohinewai with few community services, the proposed rezoning would be contrary to the Waikato Regional Policy Statement “and therefore, unlawful.”

But now the question becomes whether the foam factory can exist without the houses and if it cannot (which would seem probable) whether Parker will then use the fast track again to approve the houses.

In short, is Parker using the fast track for the factory as a prelude to fast-tracking the entire development.

Parker here is on the side of the angels, but it really shouldn't take Ministerial intervention for somebody to be able to put up a mattress factory and some housing. That isn't a model that scales well. 

Afternoon Roundup

Egads the browser tabs. Enough! I haven't shut down the computer in a week in hopes of giving each of these its proper due; time to give up and move on. 

The worthies that each deserved a proper post:

• Ending the pandemic is worth between 5-15% of total wealth. For one potential sense of the gains in NZ's having ended the pandemic, here. 
• Trump likes to hate on immigrants. Unfortunately, there's a lot of it in NZ as well, except the ideological positioning of it flips. In the US, everyone rightly recognizes Trump's racism for what it is. And Kiwis recognise Trump's racism for what it is. But NZ does love itself a bit of discussion about banning "low skilled" migration. Ilya Somin had a nice roundup of migrants' contributions to the development of the Covid vaccines - worth 5-15% of total wealth. The Pfizer vaccine comes courtesy of the children of two Turkish guest workers who moved to Germany. 
• Robert MacCulloch is blogging! He's Prof of Econ at Auckland Uni, and one of the country's most-cited economists. He posts on the Northland Tooth Fairy - a woman in Northland who's been helping locals to fix their dentures. Newshub reports she's been doing a great job; unfortunately, she hasn't the appropriate licences, so folks in Northland can go back to using pliers to pull out their own teeth if they can't afford a dentist. 
• One reason we can't have nice things: the police can't be bothered to help out a guy whose mobile ice-cream shop was stolen. They still have plenty of time to go out hunting for people growing cannabis though. 
• Wellington's pipes are very leaky

Building Pressure

Capacity constraints are building in the construction sector. Some of it is weird supply-chain issues with the global pandemic; some of it is a substantial building boom here and worker and material shortages. 

The Herald goes through it, noting some promising SNZ data:

Stats NZ has been highlighting strong building activity lately.

In the year ended September 2020, 37,725 new dwellings were consented, up 3.5 per cent from the previous year. Auckland alone had consents issued for 15,470 residences, up 5.7 per cent.

This month, Stats NZ said that for the first time, the monthly value of building consents issued in Auckland exceeded $1b and accounted for about 44 per cent of the national total of $2.4b.

Auckland makes up about one-third of New Zealand's population, it noted.

"This is the first time a region has issued more than $1b worth of building consents in a single month, with more than $700m coming from residential projects," acting construction statistics manager Bryan Downes said on November 2.

"This reflects both the rising volumes of building consents and higher construction costs," Downes said.

The sector running at full-speed is still nowhere fast enough to address the shortage though. 

My column from Newsroom, last week: 

If Parliament had a pressure gauge, the needle would be redlining. That pressure risks venting through policies to target the symptoms of the current shortage while worsening the real problem.

The Prime Minister highlights government schemes like Welcome Home Loans and the First Home Loan grant that support people buying their first home. She also pointed how hard it is for new buyers face in building a deposit for a first home. It would be rather surprising if Ministries have not been asked to give her some policy options to assist those buyers.

But programmes that subsidise home buyers, when housing supply is constrained, will mainly boost the price of existing homes. They won’t get new housing built. If real estate auctions are a game of musical chairs with more buyers than available seats, giving bidders more money only increases prices.

Boosting housing demand through subsidies to buyers, when construction cannot keep up with demand, might look helpful but is actually making things worse.

The Government has other unhelpful ways to vent political pressure.

The Green Party has proposed wealth taxes; Bernard Hickey proposes land taxes. But it is difficult to see how new taxes get more houses built.

The current shortage combined with house price inflation benefits landlords, making rent control policies more attractive. But those policies can make investment in new apartments and townhouses even more fraught. In the immortal words of Swedish economist Assar Lindbeck, rent control is “the most efficient technique presently known to destroy a city – except for bombing.”

And policies to help tenants while supply is tightly constrained – like rental warrants of fitness – risk doing harm over the longer term.

The real problem is hard to solve in a hurry, which is a problem when you’re in a pressure-cooker.

Meanwhile, Ardern today blames the housing shortage on Kiwis not liking Capital Gains taxes. 

. @jacindaardern says public bears some responsibility for housing crisis after failed taxation attemptshttps://t.co/eGJryWLfUx pic.twitter.com/s4gydf5FSX

— 1 NEWS (@1NewsNZ) November 29, 2020

Egads.  

AFR on the RBNZ

Harsh stuff from Grant Wilson at the Australian Financial Review ($):

Even with the RBNZ flagging macro-prudential tightening next year, via the reimposition of loan-to-value ratios, house prices are now a de facto constraint on monetary policy.

The "least regrets" formulation also assumes that the RBNZ’s approach to unconventional monetary policy, which was first articulated back in 2018, holds up.

While we agree that the first round of LSAP, in conjunction with other measures announced in March and April, was highly effective in lowering the local term structure of interest rates, the jury otherwise remains out.

We highlight (again) that the RBNZ’s expectation of LSAP imparting downward pressure on the NZD via the portfolio balance channel is in doubt.

In contrast to their pass-through model, non-resident holders of local bonds have not sold to the RBNZ.

Their percentage of ownership has fallen sharply this year (from 47 per cent to 30 per cent at end September), but the stock of holdings has remained steady, in a range of NZ$35 billion to NZ$40 billion.

Speaking plainly

Beyond these substantive points, there is the RBNZ’s communication strategy.

Back in May we noted that Governor Orr is known for speaking plainly, including his questionable comment that direct government financing was "achievable", and that there is "no right and wrong".

Assistant Governor Hawkesby managed to top this in mid-October, saying that preparations for negative rates were "not a game of bluff".

Perhaps not. But certainly the RBNZ over-represented its hand (in poker terms).

The result was seen on Wednesday, with the local money market strip abruptly repricing higher (and from negative to positive yields), by fully 30 basis points.

Then on Thursday, Hawkesby made perhaps the most asinine comment we have a seen from a central banker this year, in suggesting that the repricing was due to sell-side banks revising their forecasts, rather than the RBNZ’s decision.

As any intraday chart will illustrate, this was a daft thing to say. It belongs in the domain of alternative facts.

Journey ahead

Looking ahead, the RBNZ has its work cut out. It will need all the institutional credibility it can muster in tapering the LSAP program and in cooling the increasingly parabolic housing market.

Rather than continuing to emphasis the downside, the RBNZ would be well advised to contemplate the upside.

This includes the tourism sector, where Australians comprised nearly half of international visitor arrivals prior to COVID-19.

The RBNZ does not need to be the hero of the hour. It just needs to do its job.

I'm not a macro guy, and I'm certainly not one who watches the mechanics of these markets. 

It seems obvious that the Bank's policies have had the consequence of inflating house prices. If the supply side were less constrained, Bank easing would help fund more construction. The Governor is certainly right that the supply side needs addressing. Monetary policy needs mates, as they say. But given the constraint, it would be nice to think that the Bank views what is happening in housing prices as an unfortunate consequence to be mitigated.

I don't think the Bank should be blamed for having gloomy forecasts earlier in the year. Erring on that side seemed a lot less bad than what could have happened instead, and everything then looked horrible. Being unintentionally contractionary when the velocity of money plummets isn't good. 

Despite everything the Bank has pushed on, inflation expectations over the next two years seem firmly planted in the 1-2% range. If pushing the throttle to the floor keeps the speedo constant, is it because the engine's broken, because you're in the wrong gear, or because you're driving up the Otira Viaduct and Friedman's thermostat is running?* If it's the former, you might want to check into what's going on. A broken engine spraying oil all over the housing market without moving the speedo otherwise isn't the greatest. If it's the latter, shifting into neutral before cresting risks rolling downhill. And if it's because you're in the wrong gear, running a QE policy rather than implementing negative interest rates, well, I'm not enough of macro guy to know.

I do wonder whether there's anything the Bank could be doing to mitigate flow-through into asset prices though. 

* For those unfamiliar with Friedman's thermostat, here's a bit from Nick Rowe from the link:

And it bugs me even more that econometricians spend their time doing loads of really fancy stuff that I can't understand when so many of them don't seem to understand Milton Friedman's thermostat. Which they really need to understand.

If the driver is doing his job right, and correctly adjusting the gas pedal to the hills, you should find zero correlation between gas pedal and speed, and zero correlation between hills and speed. Any fluctuations in speed should be uncorrelated with anything the driver can see. They are the driver's forecast errors, because he can't see gusts of headwinds coming. And if you do find a correlation between gas pedal and speed, that correlation could go either way. A driver who over-estimates the power of his engine, or who under-estimates the effects of hills, will create a correlation between gas pedal and speed with the "wrong" sign. He presses the gas pedal down going uphill, but not enough, and the speed drops.

How could the passenger figure out if the gas pedal affected the speed of the car? Here's a couple of ideas:

1. Watch what happens on a really steep uphill bit of road. Watch what happens when the driver puts the pedal to the metal, and holds it there. Does the car slow down? If so, ironically, that confirms the theory that pressing down on the gas pedal causes the car to speed up! Because it means the driver knows he needs to press it down further to prevent the speed dropping, but can't. It's the exception that proves the rule. (Just in case it isn't obvious, that's a metaphor for the zero lower bound on nominal interest rates.)

2. Ask the driver. If the driver says that pressing the gas pedal down makes the car go faster, and if the driver says he wants to go at a constant 100kms/hr, and if you see the car going a roughly constant 100kms/hr, then you figure the driver is probably right. Even more so if you ask him to slow the car to 80kms/hr, and he says "OK", and then the car does slow to a roughly constant 80kms/hr. If the driver were wrong about the relation between gas pedal and speed, he wouldn't be able to do that, and it wouldn't happen, except by sheer fluke. (Just in case it isn't obvious, that's a metaphor for inflation targeting.)

3. Find a total idiot driver, who doesn't understand the relation between gas pedals and speed, and who makes random jabs at the gas pedal that you know for certain are uncorrelated to hills or anything else that might affect the car's speed, and then do a multivariate regression of speed on gas and hills. But you had better be damned sure you know those jabs at the gas pedal really are random, and uncorrelated with hills and stuff. Which means this can only work if you are certain that you know more about what is and is not a hill than the driver does. Or you are certain he's pressing the gas pedal according to the music playing on the radio. Or something that definitely isn't a hill. Are you really really sure your instrument isn't a hill, or correlated with hills? And if so, why doesn't the driver know this, and why does he jab at the gas pedal in time with that instrument? You had better have a very good answer to those questions. And no, Granger-Sims causality does not answer those questions, or even try to.

Fixing Covid leave

My column in today's Dom Post:

New Zealand’s Covid-19 Leave Support Scheme took a page from Singapore’s book, but needs a few tweaks to really be effective. The scheme compensates employers, including the self-employed, if they need to self-isolate and cannot work from home.

It provides excellent coverage for workers who have been required to self-isolate because they have Covid or because they have been told to self-isolate as a close contact of a case.

It covers you if your child has been told to self-isolate and you need to provide support.

And, for a few workers in a few critical health sectors, it also provides coverage while waiting on a test result.

All of that is laudable.

But if you’re a hospitality worker, or a retail clerk, or a bus driver, you will not be eligible if you’ve developed symptoms, gone to a mobile testing station, and are waiting on results. The pernicious calculus remains. Are your symptoms really that bad? How many sick days do you have left? How annoyed is the manager going to be if you need to stay home for a couple of days?

The Covid-19 leave scheme should be updated to avoid those kinds of problems. Really, it should never have had those holes in coverage in the first place.

I think it makes rather more sense than doubling the number of sick days. Or added to a doubling of the number of sick days if they really wanted to double the number of sick days. But the case around changes in sick leave entitlements should hang on non-Covid matters, with specific Covid-leave to deal with what's in front of us.  

Boiling credits

The price of carbon dioxide emissions in the ETS is $35/tonne. The scheme has a binding cap. If you buy a tonne of credit and then refuse to use it, you have reduced New Zealand's net emissions by one tonne. Somebody, somewhere, will not be able to buy that tonne. That person or company will emit less. 

Every time the government does something through regulation or other spending that costs more than $35/tonne to abate emissions, it is forgoing the opportunity to do even more good by buying credits and running them through the shredder. 

The waste documented in Marc Daadler's story is just infuriating.

Cleaner boilers in government buildings have a 20 year lifespan, a cost of $80m, and an annual emission reduction of 26,000 tonnes. Assume a zero discount rate, that's 520,000 tonnes abated at $80m, or $153.8 per tonne. The same amount of money put toward buying and scrapping carbon emission rights would have stopped 2.29 million tonnes of emissions, if the move didn't push carbon prices up much from the current $35/tonne.

But it gets even worse. Remember that the ETS exists. If the government isn't buying ETS credits to run boilers, somebody else buys those credits instead. Actual emission reductions aren't 520,000, they're zero because somebody else increases their emissions by 520,000 tonnes, using up the now-available credits.

The story notes that other process heat reductions cost $110/tonne, in shifting to biomass from fossil fuels, or $250/tonne, in shifting to electric. Both are much much higher than the current ETS price. 

I simply don't get why journalists on this beat aren't comparing the cost of a measure, and what it achieved, with what could have been achieved by buying and retiring ETS credits. 

Rationing scarce MIQ spaces

Imagine yourself in the place of the MBIE boffin tasked with deciding which application for a scarce MIQ space is most deserving or most needed.

The job isn't easy.

The government keeps a small number of spaces in MIQ for getting critical workers in. But somebody has to decide which workers are most critical. Applicants fill in forms to make their case, but that won't help a pile. Every applicant will have incentive to present the most sympathetic case possible, and whoever is assessing the cases has to figure out how much overstatement is present in any of them.

Think only about agriculture for a moment. 

I can easily sympathise with the horticulture folks who are looking at just horrible losses because they can't get workers in through MIQ to do the picking. 

There are lots of calls for them to just pay more, but it can easily be the case that differences in worker productivity at wages paid, combined with fairly elastic demand for the picked product, mean that the growers really don't have space to move. If paying what it would take to get Kiwis to move out to where the crops are and pick them would exceed the value of the picked crop, it makes more sense to let it rot in the field. 

Should the expert zucchini picker from Thailand get the next space?

Or should it go instead to experts in driving the specialised equipment used in silage harvesting? Seven Sharp covered it last month, suggesting that certification in driving the rigs is a five-year process. I've watched the video, and honestly it doesn't look that much different than the old Gleaner L2 we ran decades ago. Hydrostatic drive, rear wheel steering, pick-up header, more controls (and steering!) on the joystick than the L2 had but the basic concepts are the same. I'd imagine that, in a pinch, any retired farmer could do it if they had basic familiarity with other harvesters. Heck, I'd even like to imagine that I could do it if I watched an expert driving around for a few rounds then had the expert supervise me for a few rounds - even though Dad never let me drive the Gleaner and instead had me in the dusty dusty grain trucks as opposed to the lovely air-conditioned cab of the L2. I'd watch the tutorial, note the autopilot button (no tractor I've ever driven had autopilot!), and have at.

But I could really really easily be wrong, and those machines are worth a lot of money. Some of the fields here have crazy hillsides and hazards that might really really need an expert, especially if they're often running a straight-cut header rather than just a pick-up reel.  

How is it that some desk-jockey in Wellington has to decide whether it's more pressing to get a harvester-driver in, or a horticulture worker, or an engineer? Some applications sound more plausible, but Wellington desk jockeys like me aren't expert in any of it even if we drove tractors when we were kids. We don't have the knowledge necessary to make the call and we can't acquire the knowledge necessary to make the call. Who should get the next spot will depend on a big mix of how expensive it is to get a local trained up to do the job, how urgent it is, the value at risk if the job doesn't get done or gets done to a lower standard, and piles of other considerations that would be hard to credibly convey to somebody at a desk in Wellington.  

The shadow price of MIQ spaces has to be in at least the tens of thousands of dollars, and much higher than that in cases that would be inframarginal in any sane world but are still knocked by by MBIE bureaucrats. We hear of cases of projects running in the tens and hundreds of millions that are held up because the relevant MBIE officials figure that engineers are all perfect substitutes for each other and that a specialist from overseas could be perfectly replaced by a local who doesn't know the kit. To me those engineering cases sound more plausible than that a retired farmer couldn't train up to drive newer harvesting equipment, but that's just a reckon on my part. I can't know for sure. And neither can the MBIE decider.  

The only real way of knowing which uses are highest value for a fixed number of scarce spaces would be to auction the spaces held for overseas workers. The companies that would have the hardest time finding a local to do the job and with the most value at stake would outbid the others. 

I really doubt that someone who might pick zucchinis would get the next space, but fair enough if so. The point of an auction system is to discover the most valuable ways of allocating scarce spaces. 

And if you don't like that money then picks winners, consider that the alternative saves piles of spaces for stupid boat races because Ministers think that subsidised boat races are more important than any other business purpose or family need. The alternative to letting those benefitting from the spaces decide it amongst themselves through an auction is leaving it with people with less knowledge and worse incentives. Imagine if we tried dealing with housing scarcity in Auckland by abolishing house auctions and letting the Ministry of Housing evaluate applications to buy houses. They'd have given half the houses in Auckland to the boat race people by now, and another quarter to anyone involved in horse racing. 

Afternoon roundup

 The afternoon's worthies on the closing of the browser tabs for a system update:

• This mess has been a long time coming. There are piles of small rural water schemes that largely supply stock water. The government has been trying to figure out how to apply water quality standards to that sector where the number of people on those water supplies is tiny, where treating huge volumes of water intended for stock is just stupid, but where government and councils worry that cost-effective solutions could leave them legally liable if anything goes wrong. You'd think there'd be some way of letting households on those schemes install their own UV filtration on a caveat emptor basis. Three cheers for the Local Democracy Reporting fund that helps this kind of journalism. 

• Getting a tenant who terrorises the neighbours evicted apparently takes long enough that the neighbours have all gotten security cameras installed, there have been multiple police calls, and finally the tenant breaking into the neighbour's house at night. It's great that the Tenancy Tribunal granted the immediate eviction, but you've got to wonder about a process that takes all that to get there. I wonder what things would look like if landlords, including state housing providers, could evict a problem tenant on having letters requesting it from a supermajority of neighbours. 

• The Ministry of Health does not like to comply with the Official Information Act. Just read through this mess. Some journalists wanted to be able to map out vaccination rates by neighbourhood. The data exists. It wouldn't have been hard for the Ministry to aggregate it up from meshblock to neighbourhood if it wanted to confidentialise, but nothing really enforces the Official Information Act. 

• I am still angry about an old Circa Theatre play that cast developers as moustachioed villains, and NIMBYs as heroes. Continuing to try to get housing built in a housing crisis, despite the best efforts of the politically powerful, is heroic. So three cheers to Ian Cassels, and brickbats for everyone else trying to stop Shelly Bay.

• The RBNZ is again talking about LVRs. House prices are terrible, and RBNZ policy is exacerbating things because of the existing supply constraints. But Michael Reddell's critiques the last time through remain pertinent. Is there really a plausible financial stability / prudential regulation basis for the rules? They never made much sense to me on that basis, or at least the case for them hadn't seemed to have been made. I could kinda see how they might make sense if the Bank were targeting not just CPI but also wanting to pull the peaks down on asset price inflation. 

• Jack Vowles starts parsing the numbers on party switching in the NZ election. For every voter National lost to ACT, it lost about 2 to Labour. And Labour pulled in a pile of votes from people who hadn't voted in the prior election. One bit relevant to some speculation:

  There has been speculation that many of those switching from National to Labour did so to keep the Green Party out of a coalition and thus prevent any possibility of a wealth tax being introduced. When asked the reason for their vote, five people who switched from National to Labour did mention the wealth tax and the need to keep the Green Party out of government. For only three of these was this the major reason for their vote shift; and these people form a small minority of the 500 National to Labour switchers in the sample. In their responses to another question in the survey, two thirds of those 500 switchers indicated they were actually in favour of a wealth tax. 

In search of Arrow-Debreu worlds: housing futures

My Newsroom column this week wishes that New Zealand had Case-Shiller markets. 

The relevant bit (Update: now ungated here):

House prices have been ramping up with lower interest rates, perhaps in expectation that the new Government will not enable sufficiently more construction for some time.

If an investor expects house prices to drop, owners of rental properties can reduce their exposure, but otherwise it’s a hard market to short.

Similarly, those wishing to build up enough funds for a house rely on KiwiSaver portfolios that may bear little relationship to the cost of housing.

What’s missing are markets like the US “Case-Shiller” indices. These track house prices across major US metropolitan markets (Canada also has a version). Traders at the Chicago Mercantile Exchange then buy and sell contracts based on the performance of the index.

Saving to buy a house in San Francisco? Buy futures contracts on the index tracking San Francisco house prices. The value of an investment tracks the cost of housing in a desired location. Live in San Francisco and feel dangerously overexposed to an overvalued market? Short the transaction instead.

These kinds of markets let people buy little bits of exposure to the property market in ways a KiwiSaver portfolio generally does not. The value of an investment may fluctuate in dollar terms, but it will move in parallel with the cost of the cute little cottage next to the waterfront.

None of that helps solve New Zealand’s housing shortage – at least not directly.

But it might provide an indirect benefit. It could help in figuring out if policy changes are likely to enable more housing. Suppose the Government tweaks infrastructure financing – or urban planning, or council incentives or new building – and promises more housing within the next few years. If investors found the plan credible, the price of futures contracts on the housing indices would be an early signal.

Letting potential buyers put a toe into the market by buying futures contracts on house prices in a desired area could help them save for that cottage. And it would make their walks through neighbourhoods where house prices outpace some of the best stock-pickers’ portfolios just a bit less vertigo-inducing.

I would love to be able to short housing. 

It isn't so much that I'm expecting a price collapse, but rather that I'm among those who are terrifyingly exposed to housing. Buying a house in Wellington, unless you're on a lot higher income than we are, means a huge portion of your household wealth will be tied up in a house in an earthquake zone. Insurance might fix your house after The Big One, but there's reasonable odds that the city substantially shrinks, and that house prices in the city collapse.

What can you do? You can't insure against that kind of loss. Borrowing against your house to buy other assets doesn't help much because there's no jingle-mail in New Zealand: you can't just hand the bank the keys to a house that's underwater on a mortgage. You still have to pay off the full amount, even if the house is worthless. 

If there were a Wellington Case-Shiller market, you could construct a rolling short. Short the futures market, take the cash now, invest it in other stuff, cover the short later by shorting the next period's market. In effect you'd be able to extract equity from your house without taking on a mortgage, losing the upside of some capital gains, but hedging against falls in the local housing market. If the earthquake hit and collapsed house prices, covering the short would be way cheap. 

There are broader benefits to having signals about market expectations of future relative scarcity. If the government touts some big policy as being The Solution, and futures prices don't move, well, maybe the market's wrong or maybe the policy won't work. 

It could be that NZ just isn't big enough for there to be much liquidity in those markets. Maybe I reason too much from introspection. But if I were currently trying to save for a house, the gulf between house price appreciation and Kiwisaver returns would be driving me nuts. Saving in part by buying the house price index would mean that those savings wouldn't lose value relative to the housing market. 

And from where I am now, I'd like to own less house. Like, if somebody wanted to pay me to buy a third of the upside of any capital gains in my house and taking the same third of any potential capital losses (me paying no rent but them paying no maintenance/rates), giving me a wad of cash that I could invest in things that wouldn't go foom in a Wellington earthquake, well, contracting costs might be a substantial issue but I'd be open to it in principle. Past me would be very keen to pay current me for some exposure to housing, and current me would be happy to sell to past me. Surely there are others out there now who are where I was when we were saving for a house. It feels like the kind of market that should be able to exist, at least if there were enough folks around who think about these things in similar ways. 

Things that don't make sense when you have an ETS

RNZ reports on the potential effects of the ban on coal in industrial heating.

Fonterra supported the ban. Smaller industrial users didn't:

Horticulture New Zealand said in its submission that the consultation document did not appear to consider impacts of the proposals on greenhouse-grown crops.

It said phasing out existing coal boilers used for space heating of greenhouses would be "devastating" to indoor vegetable crop production.

Barnes said food production in New Zealand could be dramatically affected.

"If things move too fast we could end up seeing some of our members go out of business before they're able to implement new alternatives, which would mean you would be getting potentially more imports and less locally produced product, particularly in the South Island."

We have an Emissions Trading Scheme with a binding cap. Industrial process heat is covered. Every lump of coal that's burned in the covered sector has to buy an emission credit. If that credit doesn't get purchased to cover the emissions from an industrial heating plant, it'll get purchased instead by someone else for some other bit of emission. The binding cap binds. 

If it happens to be the case that the lowest cost way of stopping the next bit of carbon emissions is in industrial process heat, then those will be the uses that stop as the binding cap binds and emission prices go up. At best, the ban gets you the same outcome that the ETS would give you. But there's no particular reason to believe that those plants are the cheapest spots for reducing carbon emissions. The ban in that alternative case just means forcing higher-cost ways of abating emissions.

Tax burdens and the proposed new tax rates

Susan Edmunds at Stuff asked me what effect Labour's proposed new tax rate on earnings above $180k might have on the usual "people in the top x% pay y% of all income tax" figures.

The actual answer is complicated. Some on those kinds of incomes can just reduce their wage income and keep income within a company structure, where it would hit a lower tax rate until earnings might be dispersed. 

But Labour had had estimates of that the new tax rate would earn $550m per year from the top 2% of earners. If we take the total income tax paid by those on >$150k per year, add the $550m from those above $180k, you can ballpark it. 

Using 2019 figures, the top 3% of earners on $150k+ paid 23.5% of all income tax. Adding the expected revenues from the new tax rate would increase that to 24.7%.

I don't think that's any material difference. 

So my notes back to Susan included this bit that she used:

“Income tax is only one part of the Government’s overall tax take, though. GST, company tax and excise all also matter. Focusing on income tax alone would then overstate the proportion of overall revenues paid by the highest-earners.

“On the other hand, the Government provides many income transfers, some of which are targeted by income, some of which are universal.”

He said data from 2010 showed the bottom 40 per cent of households each received about $20,000 more in services than they paid in taxes, while the top 10 per cent of households paid about $50,000 more in tax than they received in services and transfers.

Crampton said lower-income people had been more heavily affected by Covid-19 job losses, which could skew the tax bill even further to higher incomes.

But he said some higher earners would also restructure their affairs to make the most of lower company and trust tax rates, to reduce their overall tax bills when facing a new, higher rate. Most companies are taxed at a flat rate of 28 per cent.

It would be great to get an update of those 2010 Policy Quarterly figures; it would be a big job to do it though. 

For my sins in being helpful when a reporter called asking for an update on a commonly-used figure: 

(The story the NZ Initiative is trying to put around is here: https://t.co/VtXU8xkBco. As Zucman points out claims like this partly just highlight how unequal NZ is, and how much is earned by the top 3%. It’s no reason for alarm.) /2

— Max Harris (@MaxHarr03421445) November 5, 2020

I think it's pretty funny. Running a simple calc when a journalist calls asking for an update on a basic number, well, if that's raising an alarm, I'm not quite sure how I'd characterize my more normal ways of raising alarms. 

When I'm trying to raise some kind of alarm about something, it isn't that hard to tell. I'll be jumping up and down about it on Twitter, putting out press releases, and writing reports or short policy notes. 

I'd not bothered running the calculation before because I'd never seen it as being all that important. 

I had seen misperceptions of the effects of the Greens' proposed wealth tax as being important. 

My raising the alarm about stuff tends more to look like this:

The Greens' proposed wealth tax would catch WAY more than 6% of Kiwis.

Over 20% aged 66-69 have over $1m in net wealth. Somewhere between a fifth and a quarter of Kiwis should expect to be liable, if the thresholds adjust with inflation.https://t.co/1Il8W3xxuV pic.twitter.com/3tJIcELQPf

— Eric Crampton (@EricCrampton) October 12, 2020

Newstalk:

One economist claims the Greens' wealth tax will hit more Kiwis than the Party thinks.

The Greens say the tax, which has become a hot issue in the final week of the election, would only affect the top six per cent of the population.

However, New Zealand Initiative economist Eric Crampton told Heather du Plessis-Allan the real number's closer to 20 per cent.

He says right now, about 20 per cent of retirees would be subject to it.

And he expects future generations will also build wealth over their lifetime, reaching a peak after retirement.

"We need to be thinking not just about who is currently subject to the wealth tax, but who can we expect to be subject to the wealth tax."

Newsroom

But the Greens’ numbers have their own problems. To go through those, we need a brief detour through basic wealth dynamics. It is a problem plaguing every iteration of wealth inequality surveys using static comparisons to make claims about what proportion of wealth is held by which proportion of people.

Wealth builds over time, and that matters for every question about wealth measurement.

Most people start life with little wealth. Taking on student loans to earn a higher income later on means beginning adulthood with a heavy net debt position, as education does not contribute to measured wealth on Statistics New Zealand’s balance sheets. As graduates move into employment, they begin paying down their student loan debt while (hopefully) building up savings. If they buy a house, they take on debt that has an offsetting and appreciating asset. Otherwise, they build up retirement savings.

Individual net wealth peaks shortly after retirement. Retirees then draw on those savings.

A cross-sectional snapshot of the country will reveal a lot of people with net debt, a lot of people with few net assets, and a few people with a lot of net assets. That, and the failure to account for the effects of New Zealand Superannuation, can make wealth distributions look more unequal than they really are.

Even if every Kiwi followed exactly the same wealth trajectory, beginning with net debt and ending with the same retirement net worth, simple differences in ages would mean that a small proportion would be wealthy at any given time.

The Greens argue that only 6 percent of Kiwis would be subject to their wealth tax. But that seemed almost certainly to be based on a misleading cross-sectional snapshot. A reasonable proportion of today’s youth would be subject to the tax as they reach retirement. After prodding their representatives on Twitter more than a few times if they had checked what proportion of retirees might be subject to the tax, I decided to ask Statistics New Zealand instead.

I asked Stats to go back through the 2018 Net Worth Survey and sort net wealth holdings by age.

Without any sorting by age, the 2018 survey suggested 8 percent of individuals held net wealth in excess of $1m – so that was already rather higher than the 6 percent suggested by the Greens.

And, as expected, there was a severe age skew in the data. While only 1.5 percent of those aged 15-44 held a $1m in net assets, that proportion rose steadily for older age groups. Just over 18 percent of those aged 60-64 reported more than $1m in net assets, along with just under 18 percent of 65-year-olds. Wealth peaks among those aged 66-69 which means 21.8 percent of retirees would be liable for the wealth tax.

I'm not exactly subtle when I'm actually raising an alarm about something. I tend to get a bit excited and go on about it. 

Far from the frontier

Richard Harris spent a bit of time going through firm-level panel data on NZ firms, looking at the productivity frontier here and the distance to the global frontier.

Here's the upshot:

The most important conclusion from this study is that while there is some evidence of a failure of productivity-enhancing technologies to diffuse from firms operating at the national productivity frontier, the major problem is failure of productivity-enhancing technologies to diffuse from firms operating at the global productivity frontier. New Zealand’s major problem is that frontier firms are underperforming because of their characteristics (e.g. small and lacking international connections) while productivity is overall adversely affected by a lack of competition, which generally creates barriers to exiting and insufficient reallocation of market shares from lower- to higher-productivity firms. In terms of the policy response needed in New Zealand, Andrews et al. (2015, p. 93) note that ‘innovations at the global frontier do not immediately or inevitably diffuse to all firms ... frontier innovations often need to be adapted to national circumstances’. However, to increase the likelihood of diffusion from the global frontier, there is a need for a sufficient level of global connections via trade, FDI, participation in global value chains and the international mobility of skilled labour. New Zealand does not do well on any of these factors. In addition to improving the trajectory of firms at the national frontier (towards the global frontier), there is also the need to ensure greater resource reallocation towards more productive firms. As Andrews et al. (op. cit., p. 97) argue: 

If small firms are (on average) old, this might reflect barriers to post-entry growth and weak market selection mechanisms ... A key message is that creative destruction and up-or-out dynamics are central: entry matters but what happens next is crucial – all else equal, young firms should grow rapidly or exit (i.e. “up-or-out”) but not linger and become small-old firms. 

With respect to New Zealand, there does appear to be clear evidence that here are higher exit barriers (except for frontier firms where the wrong firms, with higher productivity, were exiting 2001–16) due in part to a lack of competition associated with an over emphasis on producing for small domestic markets.

One particularly depressing bit: the data from his study ended in 2016. Over the fifteen years covered, "only mining saw a substantive upward trend in the frontier." 

Which part of mining? 

"In mining, being located in the rest of the lower North Island provides a nearly 11% greater probability (cet. par.) of belonging to the frontier in this sector (reflecting the gas and oil sector that is predominantly located in the Taranaki region." 

Tarankai's oil and gas industry was speeding ahead of the rest of the sector, and ahead of every other sector. 

Of course, that kind of behaviour cannot long be tolerated around here. 

Renting sucks

 Leigh-Marama McLachlan notes one of the bizarre things about renting in New Zealand.

After encouraging me not to stress about inspections, my new property manager hit me w/ a breach of tenancy for a dirty mirror in my room (boys sticky hand marks) and vacuuming (small part in toy room) and wiping down kitchen cupboards. The house was bloody clean. Ridiculous.

— Leigh-Marama McLachlan (@leighmarama) October 31, 2020

Landlords here do 3-monthly inspections, and they can be rather a bit more invasive than anything you'd be used to if you've lived in North America.

It's worth thinking about why things are like this. The knee-jerk reaction is to want to ban it; I'm more interested in why this happens. Banning symptoms tends not to fix problems. 

Some potential explanations:

1. New Zealand houses are of worse quality than those overseas. Without constant vigilance, they turn to mold and rot. Owners have incentive to monitor and make those investments; renters do not.
   1. This could be part of it, but does that really require visits every three months? And while checking that vacuuming and the like is done might be a way of getting a signal on tenant type and whether less noticeable things are being done, it does seem more than a little over the top. Couldn't a landlord do better by easing back the intrusiveness as they get a better sense of tenant type?
2. Perhaps it's harder to evict a problem tenant in NZ, so running processes that are guaranteed to provide a pretext if needed can have value.
   1. Again, perhaps part of it, but still seems to be overkill.
3. Insurers require regular inspection of rental properties
   1. Sure, but nothing requires that the inspections be crazy over-the-top, right?
   2. And this just pushes the problem back a level: why do insurers require this?
4. More small-time landlords here, so each investment property is likely to be a much larger fraction of the landlord's wealth.
1. If you're a shareholder in a firm that owns hundreds of rental properties, that firm will exercise due diligence over all of them but any tenancy-gone-wrong is hardly world-ending. If you own one rental property that is a substantial part of your wealth, a tenancy-gone-wrong can be a catastrophe.
2. While I find this plausible, it doesn't explain why insurers would require it as part of landlord cover. The insurers would be diversified, and they still demand it, so there has to be something else going on as well.
5. Property management companies expect to be sued by the owner if they're not hyper-vigilant and something goes wrong, so they go over-the-top.
1. Much of this remains question-begging: why don't they then strike better contracts with the owners? Why would owners prefer contracts like this to ones that might let them charge tenants a bit more in money rent rather than in hassle-rent?

The fundamental underlying problem I think is still the massive shortage of housing. 

In a housing shortage, landlords can extract higher rents. And in a rental rationing equilibrium, that won't just be on money rents. 

Were we in a land of plenty, landlords would have to compete harder to get tenants. An insurer that didn't require 3-monthly inspections would outcompete others because landlords who wanted decent tenants would want to offer something that felt less like prison cell inspections. You could still have problems with (4), but worse landlords would be competed out, and those landlords would do better by selling their properties to those who could rent them out more efficiently.