You Had One Job

The Economist questions the expansion of central bank remits to cover rather more than price stability and prudential bank regulation. 

As all this has occurred, both governments and central bankers have also taken a more expansive view of the latter’s mission. Many central banks were handed new financial-stability responsibilities after the financial crisis. Now another rethink seems to be under way. Last month the Reserve Bank of New Zealand was instructed by the government to take account of house prices when setting monetary policy. Some monetary officials are paying more attention to inequality and the welfare of marginal workers. The Fed recently revised its policy framework, partly in recognition of the fact that premature tightening tends to impose disproportionate harm on black and Latino workers. Climate change has become a hot topic. In January Ms Lagarde said the ecb was assessing how it might contribute to European climate goals. Mark Carney, a former governor of the Bank of England, was also vocal on the matter of climate change. As a consequence of Mr Sunak’s announcement, the bank will adjust its corporate-bond-purchase scheme so as not to subsidise firms with large climate footprints.

Some of this new expansion of horizons is defensible. Where climate change poses financial-stability risks (by threatening systemically important insurers, say) central banks are right to take note. Had the Fed worried more about joblessness early in the 2010s it might have been less eager to tighten monetary policy—and more likely to hit its inflation target. But, where they were once granted independence because governments could not help but inflate, central banks now plead for more government spending to help reflate depressed economies. Meanwhile, central banks’ insulation from politics makes them a convenient place to delegate jobs that elected officials would rather not handle. Politicians seem as though they’re ducking their responsibilities—and, in the process, make central banks seem like political actors. The ambiguous and occasionally conflicting nature of tacked-on goals encourages a view of central bankers as multi-tasking dilettantes, rather than stolid guardians of the currency.

I worry that RBNZ is going rather beyond checking that banks and insurers don't fall over if carbon prices or sea levels rise. 

From RBNZ's submission to the Climate Change Commission: 

There's suggestion the Commission should make recommendations around re-engineering financial systems to ensure that finance is available for green projects:

Given the importance of finance and investment as an enabler of change, and the interlinked nature of policy and investment flows, it may be beneficial to draw together these threads in a discrete chapter (or expand the current section 6). 

This could include the quantum of investment required, the environment required to facilitate these investments and the interplay between the economy, investment/finance and policy (mutually reinforcing or at odds). It could review the efficacy/efficiency/equity of different investment/financial instruments (e.g. subsidies, government bonds, ETS) in particular contexts. It could also highlight the risks to the broader economy/finance system should finance flows fail to be redirected in a timely manner or New Zealand fail to meet its international targets.

There's pushes for disclosures regimes that seem less about making sure that investors know about potential balance sheet risks if carbon prices rise, and more about enabling activist investors to target and punish companies that aren't hewing to net-zero financed emissions. Remember that if you're in a place with an ETS that's targeting Net Zero, financing emissions doesn't increase emissions. 

Despite these challenges, in our view further disclosure regarding financed emissions makes sense. It would help identify transition risks in the economy and is in step with demands from investors who increasingly see climate risk as investment risk.15 For example, Climate Action 100+, a group of over 500 institutional investors controlling over $47 trillion of assets, is demanding that the world’s 161 highest emitting companies (representing 80% of industrial emissions) publish strategies to reduce emissions by 45% by 2030 and to reach net zero by 2050. Internationally, there is significant momentum in large financial institutions pledging to reach netzero financed emissions by 205016 including Barclays, Morgan Stanley, HSBC and JPMorgan Chase.17

They also suggest tax breaks or subsidies for green bonds - again, remember we have an ETS.

New Zealand’s market for green bonds may continue to grow organically but it is difficult to see how this would happen at the scale or pace required. Some form of intervention may be required to grow capital markets to attract green investment, beyond investor preference. This could be in various forms of incentives or disincentives such as tax breaks, guaranteed backing or liquidity provisions. However, any intervention would need to be weighed carefully to avoid unintended consequences such as the risk of crowding out other investments or fund raising capabilities.

Adding a 'with regard to the effect on house prices' into the RBNZ's mandate on monetary policy seems rather small in comparison.

Imagine, if you will, an incoming government that shares a commitment to net zero, but does not share the Climate Commission's dirigiste preferences, endorsed by RBNZ, and that thinks central banks should focus on core business. That government would clash immediately with the current Governor on matters unrelated to monetary policy. Interesting times. 

User fees and park access

I attended Otago University's tourism policy conference held in Queenstown last week, giving a brief keynote opening to a panel session on covering the costs. 

New Zealand's policy has generally been to charge a price of zero for access to congestible resources, then to get really mad about tourists overwhelming those places. Charging access fees, where possible, makes rather more sense. 

I wrote it up for the Stuff papers; it was in this morning's Dom Post and is online as well. A snippet:

Last week, Otago University’s Tourism Policy School held its annual conference in Queenstown. I attended, ready to make the case for charging for access to places that suffer from overcrowding. But I found I was hardly the only one arguing for it.

The Parliamentary Commissioner for the Environment’s report on tourism, released in February, had also made the case for charging for access. The report highlighted the fees charged for park access abroad, and that those fees often differentiated between international tourists and locals. International tourists then can help fund better infrastructure, environmental remediation, and a better experience for local visitors.

Tourism Minister Stuart Nash also found it absurd that New Zealand just gives away some of the most scenic experiences in the world. He pointed out that charging for access can solve some of the problems.

It is pretty easy to see how the country got itself into this situation, but that makes it no less frustrating. For most of the period since colonisation, visitor numbers really have not been high enough to substantially degrade either the environment or the experience at New Zealand’s most scenic places.

When there is no real scarcity, there is no real need to try to manage scarcity. Kiwis came to see zero-price access to national parks as something of a birthright. But visitor numbers quadrupled from 1990 to 2019. And while tourists came to contribute some $1.8 billion in GST per year while here, central government only recently allocated $25 million per year to improve infrastructure in places tourists visit.

Tourists, overall, may well be more than paying their own way. But they’re doing it in ways that don’t wind up helping to preserve and restore the places that they, and we, care about. The Tourism Infrastructure Fund seems only a drop in the bucket.

The overall setup almost guarantees conflict.

I expected brickbats; I've received a few when previously recommending charging fees for this stuff.

Instead I received a friendly note by email in response to the column, reproduced with permission:

I read with interest your article on paying for access to tourist sites and I'm grateful you felt moved to take the time to put that together.

In November 2020 my wife and I with another couple cycled the Otago rail trail, and it never occurred to us that there wouldn't be a fee for using this tourist attraction. So at the end of the trail and in amongst the normal chit-chat we asked trip organisers how much of the fees was for access to the trail itself - '...nothing it's free....'

We were in disbelief that there was no charge for using this resource, but then of course we thought back to the degraded track, parts of which are dangerous because of lack of or poor maintenance, and we could see that actually there is no money being reinvested, and I guess some local farmers do a little bit of work to keep it rideable. 

It is a complete nonsense that people can use this and not pay any money to be put towards maintenance and development of the attraction. On our last night and Clyde we happened to run into the area manager, for I think Fulton Hogan, and spoke with him in the bar about this issue. He said that civil engineering companies periodically spoke to DOC about a maintenance contract - which would be relatively easy, but there was simply no meaningful response from these people. 

So we are left with the hopeless situation of this government department being unable to even set up a contract to have a contractor drag a couple of angled brooms behind a quad bike along the track once or twice a week. 

Anyway thank you for taking the time to put something into the media, and I hope something comes of it. If we can't organise some fee and ticket system utilising the be digital world we seem to live in, then we may as well pack up and close it down. 

I hope Minister Nash makes progress on this one.

I always learn interesting things at these sorts of industry events. 

I don't think that I've ever been to one that more closely fitted Adam Smith's warning: 

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.

I heard calls for reductions in the number of cruise operators in Milford, not to address environmental consequences but to reduce capacity and increase prices from $100 per ticket to $200. I heard calls for DoC concession licences to include piles of provisions around living wages and net carbon zero measures [even in sectors fully covered by the Emissions Trading Scheme!] that seemed well designed to raise rivals' costs. 

Only one of the sessions was like that, but it was a bit jaw-dropping. 

And to the Ombudsman again

Ages back, MoT came out with some ridiculous work on the merits of subsidising electric vehicles. 

Treasury provided some rather decent advice about it, released under OIA at the time, but with some substantial bits excised because it was still under active policy consideration. 

Treasury were not fans of these measures, recognising that transport is already covered by the ETS and that petrol emissions are consequently already accounted for. 

In January, I emailed the section manager who was responsible for the advice asking whether I could now see the redacted bits. I got an email bounceback because it had shifted to a different manager, so I immediately emailed him.

He replied 12 February saying it would have to be an OIA request and asking whether I wanted to go ahead with it. I replied that I would, and appended one additional and separate request:

Thanks for your reply. Please do send my request in the prior email through into the OIA system.

As additional and separate request, please provide any discussion by Treasury of the relative merits of regulations pertaining to car emissions, including but not limited to bans on the import of petrol-powered vehicles, or fuel economy or emission standards, as compared to relying on the binding cap in the Emissions Trading Scheme for emissions that will entirely be covered by the binding cap in the Emissions Trading Scheme. The matters sought would include any advice provided by Treasury in these areas, Treasury internal discussion documents, and draft work comparing the costs of these various alternative measures.

Please treat this as a separate request, so that if one of the requests takes longer than the other, it won’t hold both of them up. 

So that all went into the OIA system.

Today I received a reply saying that everything would be delayed for consultation until it was kinda useless for the Climate Commission's consultation process. Recall that the Climate Commission proposes banning petrol vehicle imports. And recall further that the Climate Commission refuses to share its workings until after its final report, and potentially after government has legislated to effect its recommendations. I've written on the importance of this stuff being shared. 

And so today this went to the Ombudsman (with a couple minor bits redacted):

Dear Office of the Ombudsman,

Submissions on the Climate Change Commission’s draft report are due on 28 March.

The Climate Change Commission has proposed bans on imports of petrol vehicles.

Treasury produced advice years ago on work by the Ministry of Transport relating to the costs and benefits of such policies.

Treasury has extended the deadlines on these OIAs until such time as they will not be able to affect the submissions process. The first has been extended to 24 March. We might be able to incorporate the relevant information from that request at that point, but it severely hinders the submissions process. We are already circulating our draft submission to others for feedback and for them to consider in their own submissions.

The second OIA is extended until April. Treasury here began by misstating the date of my request – I requested the information on 12 February, not 19 February. I have attached my email of 12 February to [redacted] making the request.

I have a question on how dates should here be considered.

My first request was sent to Treasury on 28 January. I sent it to the relevant section manager. You can see that in the email trail. He replied 12 February saying it would have to be treated as an OIA request, and I replied immediately asking that it be sent into the system. Does the clock on this stuff really then start on 12 February? Or does it start when I made the initial request? [And I have no clue where 19 February came from].

In any case, I argue there is compelling public interest in this information being available in sufficient time for it to feed into submissions in the Climate Change Commission’s process.

Many thanks for any assistance your office might provide.

It's getting just a little frustrating.

The Climate Commission refuses to share its workings. We suspect that they've screwed the pitch with assumptions about the costs of EV transitions that don't mesh with reality, and that there's something off with their economic modelling that seems to have very little sensitivity of GDP to carbon prices. But we can't know for sure. And who knows what other mistakes might be hiding in there. Piles of it are in Excel. 

The Ministry for the Environment, who stewards the ETS, has a CE who fronts by Zoom to a meeting of economists at Waikato last week and manages to have an internet failure preventing her answering my question on why they support weird bolt-on regulation to address equity issues when they could just provide a carbon dividend out of the money the government collects when it auctions units.

And when I ask Treasury for the work they'd previously done on the costs of EV subsidies, it all gets punted until after the submissions deadline for the Climate Commission.  

Is this really good enough for a policy process of this scope?

Important vaccination stats to keep in mind

Thomas Lumley runs the numbers on herd immunity and vaccination:

Cutting transmission by 90% would need nearly everyone to be vaccinated. What if only 50% were vaccinated? Well, suppose someone with the virus would have passed it on to two people, but one of them is vaccinated. Instead of two new cases, we get one new case. Or, in a super-spreader event, suppose they would have passed it on to 10 people, but half of them of them are vaccinated. Instead of 10 cases, we get maybe four or five or six cases.

If infected and vaccinated people were spread evenly throughout the country, 50% vaccination would reduce transmission by 50%x90%=45%. For every 100 cases before vaccination we would average only 55 cases after vaccination. Is that enough? Unfortunately not. Under the same approximation about even spread, the R number for the virus, the expected number of new cases for each existing case, is about 2.5. Reducing that by 45% gives about 1.4, which is still over the critical threshold of 1.0. Vaccinating half the population isn’t enough on its own, though it might be enough to stop an outbreak at level 2 instead of using lockdowns.

In fact, 50% reduction gives a picture a lot like the Break the Chain animation. To get R from 2.5 down to below 1.0 we would need more: at least 64% vaccination: 2.5x(1-0.64)/0.9=1. We’d like more than that, to get R down further and provide some margin of safety.

Things are more complicated than that, though. First, the B1.1.7 strain of the virus, the one responsible for the Valentine’s Day cluster, spreads faster than the original strain: R is higher, so we need more people vaccinated. If R was 3.5 before vaccination, we’d need about 75% of the population vaccinated just to get R to 1.

The government said the borders open at the end of the vaccine roll-out. The new strains then mean we need 75% vaccination rates.

The government is looking to make vaccination a condition of employment for frontline workers. But that hardly seems strong enough. A public health order could also make it a condition of working at the front-line, overriding any other clauses in employment agreements. 

Recall the pieces (here and here)  at Newsroom in 2019 by Eloise Gibson showing that piles of hospital staff didn't have measles vaccinations in the middle of a measles epidemic. At least 20 DHB staff caught measles. Who knows how many were vaccinated; only two DHBs bothered to track whether their staff were vaccinated. 

A small-sample survey commissioned by MoH last year suggested pretty high rates of vaccine hesitancy in some communities, but that it could be overcome if safety were sufficiently assured. About half of those hesitant said it came down to safety assurance. 

It's going to be tough to hit 75% without some decent effort. The safety record overseas, with millions of doses safely delivered, should help.

Vaccination priorities

Chris Hipkins announced some of the government's prioritisation for the coming vaccination campaign. 

I don't quite get it, given the situation here differs considerably from the situation abroad.

Here and abroad, there's been priority on those at most risk.

But who's at most risk differs.

Here, it's people working in the border system, and the government has been entirely correct to prioritise those workers and their families. That absolutely makes sense. 

They're also prioritising South Auckland, where we have had outbreaks because that's where leakages from the border system turns up.

But the rest of it is sounding way too much like prioritisation for MIQ.

They're looking at having a national significance category which will let them vaccinate anyone who the government wants to be able to travel abroad, like for representing NZ in sport. And then they're having another category on compassionate grounds, for people who have to travel abroad for one reason or another. 

It is just so easy to predict how this plays out. The cricket team and whatnot will get vaccinated if they need to tour. Businesses who need to send workers overseas will have to beg and plead, and decisions will be arbitrary because they cannot be other than arbitrary. 

Late last year, John Cochrane made the case for just selling vaccines to the highest bidders.

People can argue about that in places where there really are lives on the line because there's uncontrolled community transmission. I think John's right: the US wound up wasting doses and prosecuting doctors who tried to avoid wasting doses, because they insisted on the government's priority list being the only way to do things. But at least it's there debatable.

If you're looking at a place like New Zealand, where there is no community transmission, and where vaccination of border workers makes community transmission less likely, that has to be different right?

Here's an alternative.

First call absolutely has to be the border system and health workers and their families. That keeps everybody else safer. 

After that, differences in risk faced by an 80 year old here and a 20 year old here are trivial because there is no covid here. We'll all wind up getting the vaccine, and the government says the border can open again once everyone's gotten it. For those who have no plans to go abroad, and who aren't anywhere near the border system, it really doesn't matter much whether you're early or late in the queue. 

But for those who need to head abroad, it's really very different. And the government has no good way of sorting who needs to travel in a hurry and who doesn't. The government has proven that in the way it has allocated scarce MIQ positions. Minister Hipkins right now is talking about designing strict criteria around compassionate grounds, and trying to avoid people pushing themselves up the queue. He's also very clearly suggesting that sport will wind up being national interest. It all sounds like MIQ. 

Another rather feasible option: open up bidding for a decent fraction of the earlier vaccination slots AFTER all of the border and health system are vaccinated. Most people are in no hurry at all. Some have pressing needs or risk of pressing needs. Instead of setting up definitions of national interest and compassionate need that will wind up making a mess, let the cricket team pay a bit to get earlier vaccination slots - along with anyone else needing to be vaccinated faster so they might travel. 

What do you do with the money raised? Subsidise vaccination at the later stages. Take the money paid to get early slots, and spread it across all the later days as payment to the later-vaccinated. It won't take long before you have very few people willing to pay for a priority slot, 

Advantages:

1. No need to set national interest criteria that will wind up giving 50 vaccinations to anybody with a horse or a boat or some kind of horseboat and none to people with critical business needs to travel and none to people who fall between the cracks in compassionate grounds definitions;
2. Lots of people see that lots of other people are willing to pay a lot to be vaccinated: vaccination is safe and desired! Look at how much those crazy people are willing to pay to get it first! I won't be a mug like them, I'll get paid to be vaccinated later!
3. Encouraging efficient sorting by time;
4. Encouraging people to slot in in those last periods when it's the vaccine-hesitant who are the ones left and when encouraging herd immunity gets important. 

You could still run the compassionate category alongside all this if you wanted to - this mechanism would let people who need to travel but don't fit the government's criteria to do so. 

Good News! Vaccines!

Justin Giovannetti's piece at The Spinoff last week was more than a bit of a worry, because it reflected exactly what I'd been hearing around Wellington as well. Lots of officials weren't seeing vaccination as any way out of the border restrictions. Rather, risk of new variants meant border restrictions would be with us for a lot longer.

He wrote:

Hipkins’s best-case scenario sees, in early 2022, a world not radically different from where we are now. “A series of ongoing incremental changes”, he says, mean we worry less on a daily basis about a virus that is still very much around. Managed isolation and quarantine facilities are still operating at the country’s border, but they’re better at catching the coronavirus. There’s some international travel into the country, and maybe some of it’s Covid-free, but exactly how much is still unknown.

It very much wasn't my view on how things should play out, but if the government wanted to go that way, it seemed time to pull the pin and build border facilities suitable for quarantining tens of thousands of people at a time. 

But today brought rather better news. 

First up, we're likely to be requiring visitors to have been vaccinated. That makes absolute sense, and it's great to see it. Kiwis who don't want to be vaccinated will have to spend time in MIQ instead, hopefully at their own expense if there's no issue in accessing vaccines in the place they're coming from. 

Hipkins said part of the vaccine approach will be keeping records of who has been vaccinated so Kiwis can access their proof of vaccination easily. 

"We will be keeping a record of everyone who has been vaccinated and it's likely that at some future point people will need to access those records to travel internationally."

"If you look at yellow fever, for example, you can only visit some countries if you have a certificate to say you have been vaccinated for yellow fever.

"It's likely that is going to become a pretty global standard around COVID-19 so we need to make sure people can access their records and produce that proof that they have been vaccinated and with what vaccine." 

All of this makes perfect sense.

But it gets better:

"When you have a highly-effective vaccine such as Pzifer, which is 95 perfect effective successful in reducing symptomatic Covid-19, that means basically you're cutting off the virus' opportunity to form a chain of transition."

Opening up borders at the end of the year would coincide with a completion of the roll-out, Ardern said.

She said details about how these moves would be co-ordinated in a way that didn't risk lives or the economy, would be announced later this month.

This is a rather sharp change in tone from last week. Last week, Hipkins sounded like the Ministry of Health - border restrictions forever. This week, the PM says the borders can open when we're all vaccinated. 

Richard Harmon at Politik covers a bit more of the PM's comments:

“The more of us that are vaccinated, that means that there isn’t a path for Covid anymore, and eventually that’s when we will see it globally peter out.”

But that won’t mean an end to the need for vaccines.

“We need to think about this program like the flu,” she said. “It will be something we’ll be doing each year.”

Ardern said that the major part of the vaccination programme would begin in the second half of the year but that she would lay out the schedule by Wednesday.

Now the rug could yet be pulled out from under all of it. If new variants come out that can get around the Pfizer vaccine, then border restrictions may come back. But we have to be able to get to far more risk-sensitive approaches if that happens. 

Even if the vaccine doesn't provide 90%+ protection against new variants, it can still prevent outbreaks. So long as the vaccines keep R0 below 1, we remain in a far different world than we have been in.

The change in tone in all of this is striking, and very very welcome. 

NZ Economics Forum

Last week's 2021 NZ Economics Forum at Waikato University was rather good, and the whole thing was livestreamed. 

You can catch video replays of the talks here. 

I particularly recommend:

• John Gibson going through how differences in economic structure (like the size of the service sector) affected economic performance through the pandemic;
• Alan Bollard on difficulties of getting infrastructure built under current consenting rules;
• My colleague Matt Burgess on the merits of the Emissions Trading Scheme;
• Sharon Zollner on the economic state of play and risks inherent in growing leverage.
• Bill English's after-dinner talk was absolutely superb, but was not recorded. Sorry. 

The talks I haven't linked haven't yet been broken out by the conference organisers; they're in the full-day video. 

There are a few more that you might want to catch because they give a worrying insight into what's going on in some of the agencies:

• MBIE Chief Economist Donna Purdue is rather taken with Mariana Mazzucato's vision of an entrepreneurial state. Here's Alberto Mingardi's critique of that work. Here's Deirdre McCloskey's book on it with Alberto Mingardi. Here's McCloskey and Mingardi's column on their book. The Ministry of Everything seems to want to be the Ministry of Everything. It's a worry. 
• Vicky Robertson from MfE on their take on Net Zero. Unfortunately, her video link in from Wellington was shaky, so she was unable to answer my question about whether they've looked at all at carbon dividends instead of tacking a pile of regulatory measures on top of the ETS.

The panel session I was in is here:

Kudos to the conference organisers. Academic conferences are often a bit of a shambles as compared to corporate ones, but this one wasn't - despite changing alert levels and consequent shifts to some presentations by Zoom.