Not the Outside of the Asylum

Time flies.

From the time I got here, until relatively recently, NZ really seemed to be Douglas Adams's Outside of the Asylum. The last sane place as the rest of the world goes mad. Or at least the place going mad more slowly than other places.

I think we've left the Outside of the Asylum and have taken up camp with another of Adams's tribes: the Golgafrinchans.

Remember the Golgafrinchans? They're the ones who convinced their planet's useless people that their planet was doomed, loaded them up on Arkship B, and sent them off on a collision course with Earth. Once here, they displaced the cavemen who'd been working away at providing the ultimate answer to the ultimate question of life, the universe and everything. 

After crash-landing, they did the thing that useless people do: have loads of committee meetings rather than get on with doing anything useful, like inventing fire or the wheel. 

Like so:

The Captain made a sort of conciliatory harrumphing noise. 

"I would like to call to order," he said pleasantly, "the five hundred and seventy-third meeting of the colonization committee of Fintlewoodlewix..." 

Ten seconds, thought Ford as he leapt to his feet again. 

"This is futile," he exclaimed, "five hundred and seventy-three committee meetings and you haven't even discovered fire yet " 

"If you would care," said the girl with the strident voice, "to examine the agenda sheet..." 

"Agenda rock," trilled the hairdresser happily. 

"Thank you, I've made that point," muttered Ford. 

"... you... will... see..." continued the girl firmly, "that we are having a report from the hairdressers' Fire Development Sub-Committee today." 

"Oh... ah - " said the hairdresser with a sheepish look which is recognized the whole Galaxy over as meaning "Er, will next Tuesday do?" 

"Alright," said Ford, rounding on him, "what have you done? What are you going to do? What are your thoughts on fire development?" 

"Well I don't know," said the hairdresser, "All they gave me was a couple of sticks..." 

"So what have you done with them?" 

Nervously, the hairdresser fished in his track suit top and handed over the fruits of his labour to Ford. 

Ford held them up for all to see. 

"Curling tongs," he said. 

The crowd applauded. 

"Never mind," said Ford, "Rome wasn't burnt in a day." 

The crowd hadn't the faintest idea what he was talking about, but they loved it nevertheless. They applauded. 

"Well, you're obviously being totally naive of course," said the girl, "When you've been in marketing as long as I have you'll know that before any new product can be developed it has to be properly researched. We've got to find out what people want from fire, how they relate to it, what sort of image it has for them." 

The crowd were tense. They were expecting something wonderful from Ford. 

"Stick it up your nose," he said. 

"Which is precisely the sort of thing we need to know," insisted the girl, "Do people want fire that can be applied nasally?" 

"Do you?" Ford asked the crowd. 

"Yes " shouted some. 

"No " shouted others happily. 

They didn't know, they just thought it was great. 

"And the wheel," said the Captain, "What about this wheel thingy? It sounds a terribly interesting project." 

"Ah," said the marketing girl, "Well, we're having a little difficulty there." 

"Difficulty?" exclaimed Ford, "Difficulty? What do you mean, difficulty? It's the single simplest machine in the entire Universe " 

The marketing girl soured him with a look. 

"Alright, Mr. Wiseguy," she said, "you're so clever, you tell us what colour it should have." 

The crowd went wild. One up to the home team, they thought. 

Ford shrugged his shoulders and sat down again. 

"Almighty Zarquon," he said, "have none of you done anything?" 

NZ's Energy News has been documenting our decline. Read this and tell me that Kiwis are not the true descendants of the Golgafrinchans. Remember that nobody (except me) likes landfills, and that we are looking at energy shortages. 

Environment Canterbury has declined to process the revised application for a proposed waste-to-energy plant in South Canterbury.

“This is due to insufficient information being supplied relating to the activity and its effects on the environment – in particular, the lack of a cultural impact assessment,” the regional council body says.

In November 2022, South Island Resource Recovery Limited lodged seven applications for reassessment, after its initial applications were returned in October.

ECan regional leader of consents delivery Hayleigh Brereton acknowledges the resubmitted application addresses many of the matters raised in the previous version regarding adverse effects of the discharges to air, stormwater and wastewater. But she says one critical issue has not been addressed.

“This is a very large proposal and the first of its kind in New Zealand, and would have some wide-reaching potential effects, including many unknown effects on mana whenua,” Brereton says.

“A site-specific Cultural Impact Assessment is required to be completed either by, or in close consultation with Te Rūnanga o Waihao. This remains an outstanding matter, and we, therefore, consider the application incomplete.”

The application has been returned under Section 88(3A) of the RMA. Waimate District Council has also returned the application.

ECan says if South Island Resource Recovery Limited wishes to proceed with an application, it must submit a new one in full.

“If it disagrees with our decision, it can lodge an official objection.”

We can't have a waste-to-energy plant because it didn't have a site-specific Cultural Impact Assessment. Declined by Environment Canterbury. After it provided all the paperwork necessary showing that it didn't cause problems for air or water - the traditional environmental concerns. 

Almighty Zarquon. We're doomed. 

Economics of regulation and medical licensing

The economic theory of regulation, following Peltzman, highlights regulation as a bargain that's subject to cost pressures. Change the cost conditions enough and you'll change the equilibrium.

Regulation of medical services seems ripe for disruption.

Over at The Conversation, Johanna Thomas-Maude documents the problems facing foreign-trained medical professionals wanting to work in New Zealand. It's basically impossible. And that's by design. 

The system is set, deliberately, to frustrate entry, with chokepoint after chokepoint. The player at each chokepoint will blame all the other chokepoints for the problem. 

Want to train more doctors? Ah, we can't. Only two med schools and they only can train so many.

Want to open a new med school? Ah, we can't. The universities' cartel reminds us that there aren't enough supervised positions at the hospitals, so even if more graduates were trained, there wouldn't be places at the hospitals for them to get their final sign-off. We'd just be training doctors to go and practice abroad. And who wants to put taxpayer money into that?

Want to solve it with foreign-trained doctors? Can't do that either. Not enough supervised positions at the hospitals. And even if someone's demonstrated competence elsewhere, that's just not good enough for New Zealand. No. They have to prove it in a supervised role here too. But there aren't any supervised roles for them. 

Want to increase the number of supervised slots? Afraid we also can't do that. None of the doctors want to take on more supervisions, you see. They're all flat out because there aren't enough doctors. 

It has long been a horrible cartel - one of the ones protected against ComCom action by the Commerce Act exemption of statutory regimes, even if they are absolutely a cartel. 

But the conditions seem ripe for change. When doctors are leaving the profession or the country because working conditions are terrible because there aren't enough doctors, there's opportunity to fix the regulations so that competent doctors from elsewhere could practice more easily. 

Here's Johanna:

Potentially hundreds of other doctors already in New Zealand are also waiting to take the required local clinical skills exam (NZREX), which is only open to 30 people at a time. The exam has only been offered four times – instead of the usual nine – in the past three years, with only one currently scheduled for 2023.

A few hundred doctors may not sound like much, but patients are being turned away from GPs all over New Zealand. Up to half of practices are not accepting any new patients.

Just one GP can safely have around 1,400 patients on their books, although this number is currently up to 2,500 for many overworked GPs.

Dr Orna McGinn, Chair of the New Zealand Women in Medicine (NZWIM) Charitable Trust, recently surveyed almost a thousand doctors working in New Zealand. McGinn noted that doctors’ concerns around a medical workforce crisis have been dismissed and diminished.

Read her whole column; I'd chatted with Johanna a few months ago as she was getting going on this project. She's been interviewing foreign-trained doctors who want to practice here. Simplest seems to be to pass the exam here, then go and practice in the UK for three years, and then consider coming back. 

All of it feels like it's ripe for change. The doctors' survey suggests lack of colleagues is biting, and that'll eventually have to feed its' way up into the licensing cartel. 

If the Commerce Commission did decide to take up medical services for its next market study rather than some populist boondoggle demanded by the Minister in an election year, it could do an awful lot of good. 

To be rescued from the Wellness Regime

TVNZ's "Creamerie" series was excellent. In it, a virus has killed off all the men. The surviving women implement a dictatorship of wellness. 

I wonder if its writers spent too much time dealing with the New Zealand public service. 

Josie Pagani skewers some dripping work out of Treasury.

The Treasury has released a new report to accompany its Living Standards Framework.

The framework is a salad of abstract concepts like ‘’knowledge’’, ‘’voice’’ and ‘’subjective wellbeing’’ attractively arranged in columns and bubbles with no development of logical relationships between them. Nor any use of old-fashioned analytic tools such as whole sentences.

...

I expect policy advice to highlight the costs and benefits of alternatives, to strip bare tradeoffs, and present practical menus of options. I expect sophisticated evaluation of whether policies are achieving what they are meant to.

When advice instead hides choices behind wellbeing mush, no political constituency is ever built for underlying ideas. If no-one can disagree with ‘’wellbeing’’ then no-one can ever win an argument for it either.

The idea of ‘’wellbeing’’ as a political project has emerged from the takeover of our social institutions by an educated middle class that thinks it's being progressive. Instead it signals its elite status.

Treasury is meant to be the government's lead economic advisor. Parts of it seem unfit for purpose. 

Raising rivals' costs - research edition

Leave aside for the moment noble intentions and think through effects. 

Academics have discretion over what research questions get pursued, and over approaches for answering them. Some questions are general and could find useful data anywhere. Others are more specific.

Suppose you substantially increase the cost of pursuing quantitative work on a subset of the population in a country that has only ever been of peripheral research interest to the major journals in any field. 

What are the likely effects?

Academics with discretion shift from topics that can only be answered using data on that population subset to questions that can be answered using other groups, and from using data involving those groups for answering more general questions to using data from other groups.

And research focused on that group is left to qualitative researchers, and those quantitative researchers with the strongest idiosyncratic interest in that subgroup. 

So. 

Colonial approaches to data by universities are harming Indigenous communities throughout the world.

That’s a finding from the 10th International Indigenous Research Conference, hosted in Aotearoa last month and attended by more than 600 researchers from across the globe.

Now, a collaboration of academics from the conference are urging universities to fundamentally shift the way they collect, analyse, store and distribute indigenous data.

AUT Professor Jacquie Kidd (Ngāpuhi) was part of that collaboration and said a key problem for universities was a lack of involvement in the research process.

“So we know that ethics committees are really interested in how indigenous data is collected and managed and made available,” she said.

“Increasingly, they're looking at the principles of data sovereignty, but universities tend to step outside of that.”

If this goes ahead, expect fewer research projects that answer questions relating to outcomes among indigenous peoples, that research in those areas becomes less quantitative, and that any findings in the area become less open to being examined and contested by external views. 

If you don't want those outcomes, you're going to need substantial funding boosts for research in these areas if you want to encourage quantitative researchers to front those costs. 

Underemployment and immigration

Alexandra Turcu over at the Asymmetric Information substack goes through some of the underemployment figures. 

The answer matters. One story I'm regularly given about why Labour wants to maintain very tight immigration settings is that Labour ministers believe there is still a lot of slack in the labour force, despite inflation and despite the positive output gap, because of the seemingly high underemployment figures. 

Turcu finds:

We analysed data from New Zealand's Household Labour Force Survey (HLFS) spanning the six years between Q2 of 2016 to Q2 of 2021, finding that under-employed workers were only working one hour per week less than their fully-utilised counterparts. For those working full-time, this equates to 40 hours worked by the underemployed compared to 41 hours worked by the fully-utilised.

The key difference between the underemployed and the fully-utilised is not hours worked; rather it seems to be household and individual income. As an example, part-time underemployed workers earn 28% less than their fully-utilised counterparts, and this gap widens to 32% when we compare the full-time underemployed to to fully-utilised full-time.3

These findings challenge the tempting assumption that underemployed workers are just not working enough. It also begs the question: Is the issue that underemployed individuals aren’t working enough hours, or that they can’t increase their incomes while working a 40-hour week? We cannot determine this from the HLFS, as a “not enough income” option was not offered to respondents.

If you click through to the full paper, you find that there are about as many underemployed full-time workers as there are underemployed part-time workers and that the average underemployed worker puts in about one fewer hour per week than the average fully-employed worker - whether full-time or part-time. So a part-time worker who says they're underemployed works about an hour less than a part-time worker who says they're fully utilised. 

If Minister Wood thinks that there are a pile of underemployed workers who could put in a lot more hours if it weren't for those dirty dirty immigrants, well, there ain't much slack there. The paper suggests that a lot of reported underemployment is dissatisfaction about current income rather than hours.

Pure waste

Richard Harmon over at Politik (via his daily newsletter) reports that the government put $30 million into Auckland Film Studio upgrades via the Infrastructure Reference Group, and that Auckland Council also threw in some money. 

Make you weep. They'd have done better by burning the money. Zero joke.

Every dollar spent on that, given the state of the labour market, has pulled a construction worker away from more valuable tasks. How do we know the other tasks are more valuable? They didn't need to be subsidised. 

It's not just a waste of money, it's a destruction of real resources relative to what could have been done instead.

Worse, the infrastructure goes to support an industry that only exists at current scale by virtue of gigantic government subsidies to international film production. 

Had the government burned the money instead, it might have at least reduced inflation by a tiny amount. 

ComCom's punt on building materials

The Commerce Commission's final report on building materials supply recommends some patches that would make a bad situation less bad, but fails to strike on important root of the problem.

Councils under joint-and-several liability stand very high odds of being last-man-standing if anything goes wrong with a building. Work by Sapere, commissioned by MBIE not too long ago, found that councils wind up 100% liable in 48% of cases in which damages are assessed. 

That drives councils to avoid risks. They bear zero upside for allowing anything new and innovative and have about even odds of being 100% responsible if anything goes wrong.

And a pile of pathologies flow on from there.

Because councils are reluctant to sign off on anything new, architects and engineers specify plans with materials and methods that council officers are comfortable with. That's a huge advantage for incumbents, and especially where councils won't easily sign off on equivalent substitutions by the builder because council can wind up liable for that too. 

Getting councils out from under joint and several liability would start fixing the problem. Lots of ways of doing it. They could be carved out and held only proportionately liable, but that requires that you trust that the courts wouldn't decide that the council's proportion is 100% if there's nobody else with pockets deep enough to compensate someone who didn't get insurance. Capping councils' proportion could be less risky. Or taking them out entirely and setting a compulsory builders' warranty or insurance programme that would shift liability over to insurers. 

I covered the mess in this week's column for the Sunday Star Times. 

The Commerce Commission’s own findings suggested that liability is a far bigger issue than MBIE has claimed.

But the commission presumably saw the area as politically futile, saying: “Given the previous consideration of these matters, the position statement, the ongoing work of the reform programme, and the lack of any clearly better alternatives, we have not focused in this study on the nature of liability faced by BCAs or its impact on competition.”

But there is a rather obvious alternative – like the plug for the leaky boat.

Exempting councils from joint and several liability would encourage sharper diligence when purchasing and commissioning homes. If that kind of bare caveat emptor regime were too harsh on its own, the Government could add the kinds of building insurance or warranty requirements that are common internationally.

Liability would shift from councils to insurers or warranty guarantors who would have stronger reasons to weigh both the costs and the benefits of new materials, making them easier to use. A warranty or insurance scheme would add to the cost of a house but could pay for itself through lower building material costs and better buildings.

The commission’s recommendations will help. But the boat will still be leaking. A closer look at the most obvious plug for that hole would have been warranted.

Morning roundup

Another 'everything is stupid and broken' compilation from the closing of the browser tabs.

• Pharmac's comms team lied, repeatedly, to Today FM about an upcoming announcement. Then when Today FM reported on the very strong rumours it had heard, Pharmac's CE, perhaps mistakenly believing that TodayFM had had an embargo copy and had broken an embargo, announced they were blacklisted from any future interviews. Pharmac had set up a cozy feel-good exclusive for Patrick Gower so he could gush about the announcement. The drug is incredibly expensive per quality-adjusted life-year that it provides. Nobody has said anything about whether Pharmac has negotiated a good price, or whether cost-effectiveness has stopped being primary at Pharmac. If it's the latter, then Pharmac could have done more to help people by putting its limited budget to other uses. But Gower apparently teared up about how great it all is so all must be fine. Those providing 'fawning coverage' will get the exclusives. Others won't. 


• Our Prime Minister describes what was, odds-on, a deliberate attempt to entrench policy while under urgency and in very severe violation of constitutional norms - and criticised as unconstitutional and undemocratic by the country's main constitutional law experts - as 'quirky'. Quirky. Right. 


• Hiringa Energy tries setting up a windfarm and hydrogen plant, which would initially produce urea fertiliser. Greenpeace ties it up in the courts for years because it doesn't like urea. There are ample other suppliers of urea who would provide it if Hiringa didn't. Making sure freshwater management is set properly and that emissions from fertiliser on-paddock are correctly accounted really matters, but you sure as heck don't fix any of that by blocking one potential plant. The point was probably to excite Greenpeace donors about their fight against Big Fertiliser. A better court system would make Greenpeace face the full cost that it has imposed on others. We do not have a better court system.


• Wellington Hospital's emergency department is falling apart at the seams. 


• We're in a desperate labour shortage. The Immigration Minister still wants to make it harder for the spouses of migrants on work visas to take up employment. This kind of crap has been one reason some medical professionals have been leaving NZ - it's just too hostile to the rest of their families. 


• TVNZ's Jack Tame interviews the Broadcasting Minister. It becomes very clear that the Broadcasting Minister thinks Tame should be toeing a company line on policy. He goes on to criticise Tame's "negative interviewing" style. Thomas Coughlan is good on this episode. In that same interview, Jackson says Meta and Google have three to six months to cough up enough money for NZ media companies or he'll act. This is the behaviour you would expect of a Minister of a half-way respectable country, or of an extortionate mafia thug?

Rotten

A group get together for their regular poker game.

Before dealing the cards, they agree on the rules.

Anything within the game, following the rules, is fair play. Bluffing and misleading each other is all part of the game. 

But if one of them, after looking at her cards, snuck through a change to the rules making Queens wild, and nobody noticed the rule change until after the next round of betting - that just wouldn't be on. 

Constitutions are sets of rules and conventions about how rules are made. They're the metarules of the game. 

Bluffing, misleading, and sharp play are all expected in in-period politics. 

But lying about constitutional changes snuck through under urgency is the kind of thing that threatens the constitutional order.

There are no edifying explanations for last week's shenanigans, only varying degrees of badness.

In the least bad potential version of what happened, Minister Mahuta failed to understand the importance of Eugenie Sage's SOP that would entrench parts of the Three Waters legislation. She then failed to convey to Caucus the importance of what was at play, and nobody in Caucus read Sage's SOP.

This isn't completely implausible. It is very bad, and the reasons for it are bad. Ardern has an army of policy staffers at DPMC and DIA whose whole job is making sure this kind of thing does not happen. The only way that this could happen is when the system is overwhelmed because Ardern decided to try and rush thirty pieces of legislation through Parliament under urgency in the couple of weeks before Christmas. 

If I ran over a dozen kids crossing the street because I'd slept in, was driving at triple the speed limit to make it in on time, and was distracted while trying to do three different conference calls at the same time, it wouldn't be like I was trying to run over all those kids. It would be reckless disregard and manslaughter. 

This kind of reckless disregard is the least bad explanation for what happened. If this is what happened, then Ardern should immediately have fired Mahuta for failing to make caucus aware of what was going on in her area of policy responsibility. Either Mahuta never understood it, or managed to fail to explain it to her colleagues.

Either way, the result was a cast Labour vote for entrenching a piece of policy. The Minister must be fired.

The worse version would be if Ardern did understand. In that case the Prime Minister would have at least tacitly supported this kind of play. It is difficult to consider a government legitimate that engages in this kind of play. 

Would you keep at the poker table people who made a habit of scribbling changes to the rules onto the rule-sheet while nobody was looking? Or would politely ask them to leave the table and have a think?

Pharmacy cartel

BusinessDesk reports:

A group of independent pharmacies have gone to court claiming health authorities got the law wrong in letting Countdown run pharmacies and dispense prescriptions. 

New Zealand Independent Community Pharmacy Group (ICPG) is seeking a review in the high court at Wellington of decisions granting pharmacy licences to Countdown in Gisborne and Wainuiomata in Hutt City. 

The group argued that the Countdown pharmacies are not under the full control of its pharmacists as required by law and that the company was running a loss-leading strategy to drum up business.  

The ICPG said the decision-making processes were flawed because they were made with insufficient evidence, and there was no rational connection between the evidence that was available and the decisions made.

Difficult not to laugh on reading this assertion:

Lawyer Robert Kirkness said the two former DHBs made a number of errors in law when deciding to grant contracts to Countdown pharmacies.  

Kirkness said while pharmacies might have commercial interests, that was not the primary role of pharmacists in NZ, nor the driving force in the ICPG seeking the review.  

"It is not an attempt to protect commercial interests but to protect the quality of care to the New Zealand public," he said. 

Regulating entry

This week's column in the Sunday Star Times picks up on last week's post on grocery entry and the new grocery regulator.

It concludes

The surest protection consumers have in any market is vigorous competition among suppliers and potential suppliers for their trade. Economists know that even the threat of potential entry can provide substantial and real competitive discipline.

Hasty legislative drafting from a Government trying to get too many things done simultaneously is more likely to blame than a deliberate effort to prevent new grocers from entering. It could yet be fixed by select committees.

But legislative urgency makes it more likely that bad ideas and drafting errors turn into policy failures.

And any sufficiently advanced incompetence does become indistinguishable from malice.

I have to submit my SST columns on Thursdays. I didn't then know about the entrenchment games in the Three Waters legislation - the kinds of mess that happens under urgency. That one looks a lot more like malice. Good that they're retreating from it. But if there'd been no furore, they'd have kept it.  

Afternoon roundup

The closing of the tabs:

• Environmental review laws have long been used for NIMBY purposes. This is a new one. The best that could come of this is a recognition that environmental review needs to be fixed.
• If Australia starts enabling nuclear power, NZ should consider a trans-Tasman approach that would let us piggyback on some of their regulatory efforts. There are economies of scale in this kind of reg. And Australia should be sure to kick NZ out of the arrangement if we start behaving like dicks. 
• The simplest explanation for Labour's approach to labour-market regulation is that they base their expectations of employer behaviour on how government behaves when it is a monopsonistic employer. 
• The simplest explanation for occupational regulation for medical workers is that it's a cartel arrangement that proved sticky when conditions changed.
• They've stopped pretending to be playing at anything other than extortion. “By doing things with news organisations, Facebook was attempting to reduce the risk of government hitting them with a big invoice,” one publisher said. “By pulling out, they’ve made it more likely that they will be whacked with regulation.”
• Could make for a fun test around Peltzman effects, if they gathered numbers on it.
• More reasons to be sceptical of the value of peer review, in some disciplines. The most obvious explanation for the problem (department demographics will reflect international demographics in the field, with some home-country bias, rather than home-country demographics full-stop) is ignored. But the paper's problems are bigger than that. Almost reads as a Sokal hoax. But it seems sincere. At U Manitoba, where I went for undergrad, there were more profs who were US Vietnam draft dodgers than there were in the Winnipeg population overall. An overrepresentation of them necessarily means an underrepresentation of the Canadian-born. Which is totally fine. Canadians will be overrepresented on US university faculties too. 
• David Harvey on problems in proposed changes to hate speech regs.

Inflation accountability

Susan Edmunds at Stuff asked me whether the RBNZ is to blame for current inflation outcomes. 

She only had room for a shorter snip, so here's the full bit I'd sent through:

Economists say that the central bank moves last. That means, whatever else is going on that might affect inflation rates, the central bank gets to take it into account when deciding on monetary policy. So if a government runs imprudent deficits when the economy is overheated, an inflation-targeting central bank’s job is to undo the effect of that spending by increasing interest rates by more than it otherwise would have. Surprises can happen. But if a central bank is credible and everyone knows that the central bank will do what it takes to get inflation back within bounds, then that surprise does not much affect either inflation expectations or inflation. When credibility is eroded, everything becomes harder and more costly. 

So while many things contributed to the current inflation rate, including initial large and sustained monetary stimulus, Covid shocks, substantial and highly inappropriate fiscal stimulus, and war in Europe, inflation outcomes are the responsibility of the central bank and monetary policy. Remember as well that New Zealand has a floating exchange rate which provides a buffer between local inflation and international prices. If other countries run very loose monetary policy and New Zealand does not, the New Zealand dollar appreciates and international inflation does less to affect local prices in New Zealand dollars.

But it has not helped that the Remit of the Reserve Bank, which is the agreement between the Bank and the Minister of Finance about the objectives that the Bank will seek, has weakened considerably. When inflation targeting is only one of several parts of a Remit that also includes multiple references to other government policy objectives, it is easier for a central bank to stray from its core business in pursuit of other interests. And when the Reserve Bank and the Minister of Finance consider it a conflict of interest for academic economists with a specialist research interest in macroeconomics and monetary economics to serve as external members of the Monetary Policy Committee, external voices with expertise to break a misguided internal consensus are shut out. Responsibility for those lies jointly between the Reserve Bank and the Minister of Finance. And responsibility for the reappointment of a Governor who presided over these issues lies with the Minister of Finance and the Reserve Bank’s Board

Discouraging grocery entry

The main potential problem in retail grocery competition, in New Zealand, is the near-impossibility of at-scale entry. 

Now we have another one. New entrants could be forced to supply their competitors with products at regulated prices after having been here for five years - so why would they ever want to enter?

We'll save that bit to the end. 

First a refresher on the existing problem. 

A foreign entrant would face uncertain lags and outcomes through the Overseas Investment Office. Not many sites are zoned for grocery retail. The supermarkets have been voiding restrictive covenants that have tied up some zoned properties against use in grocery retail, but assembling a network of sites where large-footprint grocery retail is permitted will be a challenge. Then there are long and variable lags in council consenting processes. And the background suspicion that at least some towns, like Ashburton, are owned by cartels of existing town-centre property owners who'll block competitors no matter what the zoning is. 

Basically a pile of legislation, regulation, and standing practice caused by the regulatory thicket makes entry impossible. 

After the Commerce Commission's market study, the government moved to legislate in support of something the supermarkets were already doing - getting rid of those restrictive covenants.

But the Commerce Commission also had recommendations on zoning. It suggested that District Plans and Regional Spatial Strategies should be required to include sufficient land for choice of sites in development of grocery retail, that there should be minimum proportions of urban land zoned for retail grocery, and that positive outcomes of trade competition should be able to be considered in planning instruments. See 9.35 at page 386.

None of that's turned up in the draft legislation. Worse, the NBEB seems to forbid consideration of effects on trade competition full-stop. In parts it's ruling out rent-seeking uses of consenting to block a competitor's opening or expansion. And that's fine. 

But in other parts Commissioners, Independent Hearings Panels, and planning committee are instructed to disregard effects on trade competition full-stop. 

Some examples.

• The IHP, in formulating its recommendations, must disregard trade competition and the effects of trade competition. Schedule 7 126(1)(e).
• When formulating recommendations, commissioners must disregard trade competition and the effects of trade competition. Schedule 7 60(d).
• A person who could gain an advantage in trade competition through a submission may make the submission only if directly affected by an effect that (a) adversely affects the environment; and, (b) does not relate to trade competition or the effects of trade competition. Schedule 7 20 (4)(b)
• Note that this one blocks rent-seekers, but would also block Aldi from putting in a submission saying "Hey! You're zoning for only one supermarket! Make room for us too!"
• When considering a requirement and any submissions received, a regional planning committee must not have regard to trade competition or the effects of trade competition 512 (1)(d)

Just go to the bill, hit Control-F, type in "trade competition". Some restrictions against rent-seeking, some bans on considering trade competition full-stop. And ComCom said that they needed to make room to consider the positive effects of competition. 

Either it's poor drafting or they want to block pro-competitive effects from being considered. 

In any case, they're not easing the barriers to entry. And they haven't instructed the Overseas Investment Office to make darned sure it's simple for new entrants to come in.

Instead, they're doing something else. 

They're putting in a big new regulatory regime for existing groceries that will have a backstop of mandated wholesale access. Legislation being introduced under urgency, but with some time for submissions.

The regulation proposed is a mess. 

Leave to one side for now all the problems in regimes mandating that an integrated grocery operator supply competitors at regulated prices for heterogenous and perishable goods. 

Sections 22 through 25 say that additional retailers can be made subject to the wholesale supply requirements after having been operating here for 5 years. How does that work?

A grocer can be designated as having wholesale supply obligations under section 23, on the Minister's recommendation in Section 24. 

24

24 Minister’s recommendation for designation under this Part

(1)

The Minister may recommend that a person (A) be designated as a regulated grocery retailer under this Part only if—

(a)

the Commission has given the Minister a recommendation about whether A should be designated; and

(b)

the Minister has had regard to the Commission’s recommendation; and

(c)

A has been carrying on business as a grocery retailer in the whole or any part of New Zealand for 5 years or more.

(2)

In deciding whether to make a recommendation, the Minister may do any of the following:

(a)

accept the Commission’s recommendation that A be designated if the Minister is satisfied that the criteria set out in section 25(2)(b) are met:

(b)

reject the Commission’s recommendation:

(c)

request that the Commission reconsider any matter (such as an error, an oversight, or competing policy interests):

(d)

make any other decision that the Minister considers is in the public interest.

(3)

For the purposes of subsection (1)(c), A must be treated as carrying on a business referred to in that paragraph if—

(a)

A is a member of a group of interconnected bodies corporate, and that group (or any part of it) has been carrying on business as a grocery retailer in the whole or any part of New Zealand for 5 years or more; or

(b)

A acquires (directly or indirectly) the whole or any part of the business of a regulated grocery retailer.

Ok. So suppose the Minister receives a recommendation from the Commission not to designate a retailer as being subject to the wholesale supply requirements. 

That satisfies 24(1)(a). The Minister has received a recommendation. Doesn't say anything about the direction of the recommendation now does it? 

The Minister can then have regard to it in (1)(b), reject it (2)(b), and make any other decision that the Minister considers is in the public interest (2)(d).

In short, if the Minister considers it as being in the public interest to force Costco, or Aldi, or any other new entrant to provide rent-seeking New Zealand competitors with access to its products at regulated prices, the Minister can go ahead and do that. 

Unless the legislation is changed. Like maybe they just assumed that the Minister would only proceed if the Commission had recommended that a grocery retailer fall under the designation. But nothing in the legislation specifies that. The Minister need only have been given a recommendation about whether the retailer should be designated. 

Anyone with kids is smart enough to see the problem here. If you tell the kids they can do something only if they ask their mother, without having said that their mother has to say they can do the thing, you're just asking for trouble. "You can if your mother also confirms it is okay with her" is safer. 

Now. Suppose you're an international grocer who's spent decades building supply chains. And New Zealand's started looking potentially more open for business. Maybe zoning and consenting does get fixed, and maybe the Overseas Investment Office eventually gets told to approve new grocery retail.

If you figure that five years after you're considered to be operating as a grocery retailer in New Zealand, you'll be forced to open up access to every rent-seeking New Zealand competitor at regulated prices at the whim of the Minister, why would you ever want to open up shop here?

I guess one bottom line is that the Commission should refuse to provide any recommendation unless they actually want the Minister to make the designation - unless the legislation gets changed to require a positive recommendation. 

But more substantively, government needs to be assuring potential entrants that they won't just be expropriated after having been here for five years if you want them to open here, rather than spelling out an obvious mechanism for existing and potentially preferred incumbents to get access to new entrants' supplies.

Everything is stupid and broken and getting stupider and more broken. 

Afternoon roundup - everything is stupid and broken edition

The tabs:

• There's a desperate shortage of housing in Queenstown, so Commissioners insist that a development plan reduce some 13-storey towers by five storeys. The buildings would have had apartments, hotel rooms, and commercial space. Even hotel rooms take pressure off housing given the number of houses serving as Airbnbs. 
• There's a desperate shortage of nurses, so the process that the Nursing Council runs for recognising foreign nurses' qualifications takes so long to sort anything out that nurses who started their applications in March have now given up. 
• There's a desperate shortage of GPs. Salaries for GPs in Australia are much higher than in New Zealand. The government closed the border to the normal flow of foreign medical staff for a couple of years but wasn't able to keep NZ-trained staff from leaving for Oz. It hasn't done anything to make it easier, now that the borders are open, for GPs from comparable systems to show up and hang up a shingle. When asked why training hundreds of GPs led to a net increase of only 15 GPs, the Minister of Health said "I haven't interrogated that figure." 
• The government believes there to be too few competitors in grocery, so rather than open up the Overseas Investment Act and zoning/consenting so that it's easier for foreign entrants to come in, it's proposing legislation that would, among other things, let them force any new international entrant to open up its wholesale side to rent-seeking Kiwi competitors after a five-year grace period. If that doesn't encourage international chains to jump through OIA hoops, nothing will.

Resource Management and degrees of freedom

The Natural and Built Environment Act has eighteen different outcomes and sub-outcomes that regional planning must seek to achieve, without hierarchy among them. 

When I see this many outcomes, with no way of weighing across them, and without a requirement to run some kind of CBA across the set, I see infinite degrees of freedom for a regional planning body to just go ahead and do whatever the heck it wanted to while justifying it by pointing to one or several of the outcomes.

I mean just look at this.

5 System outcomes

To assist in achieving the purpose of this Act, the national planning framework and all plans must provide for the following system outcomes:

(a) the protection or, if degraded, restoration, of—

     (i) the ecological integrity, mana, and mauri of—

          (A) air, water, and soils; and

          (B) the coastal environment, wetlands, estuaries, and lakes and rivers and their margins; and

          (C) indigenous biodiversity:

               (ii) outstanding natural features and outstanding natural landscapes:

               (iii) the natural character of the coastal environment (including the coastal marine area),  wetlands, and lakes and rivers and their margins:

(b) in relation to climate change and natural hazards, achieving—

     (i) the reduction of greenhouse gas emissions:

     (ii) the removal of greenhouse gases from the atmosphere:

     (iii) the reduction of risks arising from, and better resilience of the environment to, natural hazards and the effects of climate change:

(c) well functioning urban and rural areas that are responsive to the diverse and changing needs of people and communities in a way that promotes—

     (i) the use and development of land for a variety of activities, including for housing, business use, and primary production; and

     (ii) the ample supply of land for development, to avoid inflated urban land prices; and

     (iii) housing choice and affordability; and

     (iv) an adaptable and resilient urban form with good accessibility for people and communities to social, economic, and cultural opportunities; and

(d) the availability of highly productive land for land-based primary production:

(e) the recognition of, and making provision for, the relationship of iwi and hapū and the exercise of their kawa, tikanga (including kaitiakitanga), and mātauranga in relation to their ancestral lands, water, sites, wāhi tapu, wāhi tūpuna, and other taonga:

(f) the protection of protected customary rights and recognition of any relevant statutory  acknowledgement:

(g) the conservation of cultural heritage:

(h) enhanced public access to and along the coastal marine area, lakes, and rivers:

(i) the ongoing and timely provision of infrastructure services to support the well-being of people and communities.

6 Decision-making principles

(1) To assist in achieving the purpose of this Act, the Minister and every regional planning committee, in making decisions under the Act, must—

     (a) provide for the integrated management of the environment; and

     (b) actively promote the outcomes provided for under this Act; and

     (c) recognise the positive effects of using and developing the environment to achieve the outcomes; and

     (d) manage the effects of using and developing the environment in a way that achieves, and does not undermine, the outcomes; and

     (e) manage the cumulative adverse effects of using and developing the environment.

(2) If, in relation to making a decision under this Act, the information available is uncertain or inadequate, all persons exercising functions, duties, and powers under this Act must favour—

     (a) caution; and

     (b) a level of environmental protection that is proportionate to the risks and effects involved.

(3) All persons exercising powers and performing functions and duties under this Act must recognise and provide for the responsibility and mana of each iwi and hapū to protect and sustain the health and well-being of te taiao in accordance with the kawa, tikanga (including kaitiakitanga), and mātauranga in their area of interest.

I don't think there exists a possible regional spatial plan that can meet all of the objectives without trade-offs between the objectives. And there's enough of them that you could write up whatever spatial plan you preferred (based on aesthetics or whatever else), and then just point to how any alternative worsens one or several of the named outcomes relative to your starting point. 

"Oh, we'd love to allow more density in this region. But as I'm sure you're aware, that area's important for the preservation of cultural heritage. And while we'd like to enable urban expansion at the fringes, we're simply surrounded by land that either has high agricultural value, or is ancestral land, or both. So I'm afraid our hands are tied. We aren't NIMBYs who just hate change and newcomers; we'd love to be able to do what you recommend. But we must give regard to a broad set of outcomes. It is unfortunate."

Unless councils have a lot stronger incentive to want growth, they'll have plenty of degrees of freedom for blocking it. 

My column at Newsroom this week covers it. Ungates tomorrow by dropping /pro from the URL. 

The game of whack-a-mole in which central government legislates against each new way that councils find to obstruct growth seems likely to continue – unless councils are made to welcome urban growth by sharing in its benefits.

Transport Maths

Transport projects run their own version of benefit-cost accounting. It's weird to the sector, but apparently common internationally. 

Normally you'd want to go ahead with a project if it provides net benefits, where benefits are counted comprehensively and costs are counted comprehensively. If a project provides net benefits, it'll also have a benefit-to-cost ratio that's greater than 1. 

I never much worried about it whether they were using BCRs or net benefits.

But transport BCRs aren't really benefit-to-cost ratios. 

They're instead something a lot more like a "net benefit per dollar of transport expenditure" measure. Costs that aren't financial costs to NZTA wind up as disbenefits that are netted from benefits in the numerator of their ratio. 

And that difference can matter.

Imagine two projects, each of which would result in one statistical life-saving valued at $5m. That’s on the benefit side. Neither project has any other benefits. 

Project A would impose $4m in costs on drivers through reduced speed limits (increased travel time) and a $100,000 financial cost to NZTA in changing speed limit signs. So it has net benefits of $5m - $4m - $0.1m = $900k. 

Its true benefit-cost ratio, where all benefits are counted on the benefit side and all costs are counted on the cost side, is 1.2:1. NZTA’s 'net benefit per dollar spent' measure would have it as 10:1. 

Project B would spend $1m on median barriers and impose $100,000 through visual disamenity costs and hassles while the barriers are being installed. It has net benefits of $5m - $1m - $0.1m = $3.9m. The true benefit-to-cost ratio, where all costs are weighed against all benefits, is 4.5:1. NZTA’s 'net benefit per dollar spent' measure would have it as 4.9:1. 

In this example, project B has much higher net benefits, and a much higher true BCR. 

But a transport ranking would prefer project A. 

It's a made-up example with made-up numbers, but I wonder how many real-world cases wind up with this problem. 

If NZTA were mainly weighing up projects that had comparable bundles of financial and 'disbenefit' costs it probably wouldn't much affect things. But where more of the options, like blanket reductions in road speeds, mainly have costs that get netted from numerators while having trivial financial cost to NZTA, it could be a problem. 

It might be worth NZTA checking whether their method remains fit for purpose or whether it's likely to cause issues. Alternatively, it would be a fun student project.

Medical cartels

The Medical Board of Australia has proposed new guidelines under which anyone going for cosmetic surgery, including face lifts, nose jobs, liposuction and breast augmentation, would need a GP's referral. 

Australian Doctor expects (HT Dylan Mordaunt) this could involve up to 100,000 GP consultations per year. 

All patients going for cosmetic surgery would require a GP referral under proposed new guidelines from the Medical Board of Australia, which aim to protect patients from aggressive marketing tactics.

The board has gone a step further than its independent cosmetic surgery review — which merely noted that GPs were often out of the loop — by suggesting patients “must have” a GP referral before undergoing major cosmetic procedures.

These included procedures that “involve cutting beneath the skin”, such as rhinoplasty, surgical face lifts, liposuction and breast augmentation, its consultation paper published on Monday states.

“The referring GP must work independently of the medical practitioner who will perform the procedure and must not perform cosmetic procedures themselves,” it adds.

And at least two consultations would be required before surgery. 

They claim it's to protect patients from aggressive marketing - like pictures of people with perfect bodies or unrealistic before/after shots. 

I expect that Australian consumer law has the same kinds of restrictions against false advertising that are prevalent elsewhere and that cosmetic surgery would be under the same restrictions as other services. 

The simplest explanation is the standard bootleggers-and-Baptists drill that operates in medicine. The public interest rationale is just veneer over top of measures that restrain competition. 

Mandatory superfluous consultations pre-surgery prevents anyone from chiselling on cartel arrangements by offering speedy services. 

GP referrals can block new entrants or force new entrants to go and work for an established practice, if the GP's recommending where to go for the surgery. 

And the GPs, and everyone associated with them, will convince themselves that it's all part of protecting patients.

I really hope that NZ's Commerce Commission will run a market study on medical services, focusing in on whether Medical Council rules unduly restrict entry. It's a tough problem. Government hasn't the knowledge to set the rules in a complex, changing, high-stakes area. It has to rely on experts to tell it what the standards have to be. But delegating standard-setting to a body whose members have a financial interest in restricting entry and restraining competition is also risky.

Cartel-stuff isn't everything going on in this. But it's certainly consistent with some of it. 

If the doctor's cartel were solely acting to maintain standards, rather than to maintain standards and restrict competition, wouldn't doctors from Canada or the US in good standing with their own professional bodies, and not under investigation for malpractice or misconduct, be able to just set up shop here after some short course outlining how systems here work and to reminding them that some parts of NZ are more developing-country than developed?

Afternoon roundup

The worthies, as I try to stop Chrome from crashing and crashing and crashing...

• The 9th Edition of Cato's Handbook for Policymakers is up. The things that can happen in bigger countries with much larger thinktanks...
• Simply amazing. A Korean provincial government backed the bonds for building Legoland Korea. Then an incoming provincial government wanted to change the terms. And the entire Korean bond market exploded. Remember kids: using the government's balance sheet to back bonds and bring down interest costs doesn't reduce the real cost. It just shifts risk onto the government's books. And sometimes that all goes ridiculously badly. 
• Some parts of NZ policy are frustrating because obvious ways of fixing things are ignored. Other parts are frustrating because they seem to be unfixable. Consider the current messes in immigration policy. 
• The folk economics of housing is folked up. "As Larry Summer said, "There are idiots. Look around.""
• It is illegal to access the updated vaccines in New Zealand and the government is ignoring advice around masks. 
• One potential conclusion from the latest from Arthur Grimes: allow unlimited inbound migration of happy people.
• Environmentalists oppose NZ biofuel mandates. Biofuel mandates never make sense, but they especially don't make sense when the sector's covered by an ETS with a binding cap. 
• Piles of detail on fights over consenting on the Waiau River.
• Government just doesn't seem all that good at managing pay structures. Also, if the government wants more nurses, requiring unpaid hospital placements like this as part of the training for new nurses might not be helping. 
• Matt Levine's rollercoaster ride through FTX.

MIQ v3

Marc Daalder at Newsroom points to the government's contingency plans should it wish to again stand up an MIQ system at the border. 

Unfortunately, it looks an awful lot like the old system. Government would contract with hotels to provide facilities, scaling up to provide 6000 rooms over 8 weeks. 

We'd put up a sharply different alternative in the winter of 2020. In that setup, government would flip from contracting for rooms to certifying and auditing standards-compliance while providing vouchers to support the costs of MIQ stays for those whose stays the government wished to subsidise. The hotels could contract with government, or other providers, for security and other services. But the government would be sharply monitoring standards and compliance.

Under that flipped system, government would be within its proper role and comparative advantage, while the private sector could handle what it does well. There'd be no need for government to set priority categories or manage queues. It would just require that anyone boarding transit to New Zealand present evidence of a booking at an authorised facility. The facilities could manage their own bookings. Hotels know how to do that. Governments don't. And the system could expand to meet demand when it needed to, so long as there was willingness to pay for it. 

It seems unlikely that MIQ v3 will be invoked. Or at least the situations that would warrant it would seem to simultaneously require a renewed lockdown where we wouldn't otherwise be able to tell whether the new variant had already gotten here. And there seems little chance that the government would do that where they won't even look back again at mask requirements during surges in cases. But whatever MBIE's put together now will also be the playbook if some new disease crops up requiring it. 

I can kinda get why the government didn't want to shift to my proposed system in July 2020. They were scared of breaking anything. But now we're looking at setting a system for future events. There's time to not screw it up. They've screwed it up anyway. 

Add it to the list of things that will need to be attended to by some future better incoming government. 

Also mildly amused in thinking back on all the Labour brainworm people who thought I was some kind of death merchant in 2020 for proposing a workable better system that wasn't Labour's system. I'm now the only one wearing a mask at public events, while they're all drinking Ardern's let's-all-get-Covid kool-aid. And my system still makes more sense.

Afternoon roundup

The worthies:

• Google helping test whether seagrass pastures can help with carbon sequestration.
• A satellite launched by Rocket Lab from New Zealand is about to enter lunar orbit.
• The government's launching another carbon exchange. Hard too see the point where existing secondary markets seem to work well. 
• BNZ's drawing more from the RBNZ's Funding for Lending programme, which continues to provide cheap funding to the banks while the RBNZ is otherwise trying to tighten monetary conditions. 
• Josh Hendrickson's explanation, as at 11 November, of what the heck was going on with FTX. 

If prices can't allocate, we may need greater prudential reserves

My column at the Sunday Star Times this week harkens back to the petrol shortages in Christchurch after the earthquake. Stations on the west side of town, where there was still power, had substantial queues and were running out of fuel. But prices didn't go up.

If prices could go up in a crisis, that would provide incentive to invest in capacity against such crisis. But if you fear consumer backlash, legislation, or expropriation, it won't happen.

Last week, Minister Woods announced new rules requiring fuel companies to maintain onshore reserves against scenarios where international fuel shipments are disrupted. It'll increase the cost of fuel during normal times to maintain some capacity during a crisis. It wouldn't be needed if prices could allocate in that event. But it seems rather unlikely they'd be allowed to. 

The column concludes:

Letting prices ration scarce supplies would not just save everyone the cost of queueing. Companies would also have stronger incentive to invest in capacity. If a company expected to be able to sell fuel at multiples of normal prices in an emergency, it would make sense to invest in tanks to hold that supply ready.

High prices in the crisis would cover the cost of building capacity ahead of time. There would be no need for mandates, though the Government might still want to purchase emergency supplies for emergency services.

But no one will invest enough in that capacity if they expect punishment for increasing prices when the crisis happens. Consumer backlash, Government edicts, or punitive taxes on gains that populist governments portray as ‘windfalls’ are all very real risks.

So we are stuck in a very second-best world. In a better world, those of us most willing to pay for fuel in times of crisis would be the ones who cover the cost of that capacity. And we could get by with less emergency capacity because high prices would reduce demand during the crisis.

Instead, regulation is buying us a form of insurance. We all will pay a premium for fuel during normal times and less than we otherwise might if fuel supplies are disrupted.

Whether the Government has chosen the right amount of insurance against these kinds of scenarios is anyone’s guess. Over insuring is a real risk. But forcing us all to pay for at least some insurance through higher fuel prices is not mad.

The real madness was the pumps running dry in Christchurch when no one dared to increase fuel prices. Clear thinking about prices in a crisis is too scarce.

Perhaps we need an emergency reserve of it somewhere.

Morning Roundup

The tabs...

• Australia considering changes in governance at the Reserve Bank, including setting a Monetary Policy Committee. Hope that they avoid the errors NZ made around unqualified Board members and ruling out monetary policy expertise on the Monetary Policy Committee.
• Regulations shifting toward open banking are coming. It seems in-principle a good idea.
• Vic Uni's Martien Lubberink with some cautions about attempts to tax bank profits.
• The government's delaying biofuel mandates. That's great, but better would be abolishing them. When tech and carbon prices make them a cost-effective way of mitigating emissions, fuel companies will pick them up to avoid paying for carbon permits. National says it would scrap any mandate - good!
• Jem Traylen at BusinessDesk points to a path through on Three Waters; includes a bit from me on revenue bonds. 
• Canada playing silly buggers with tariff-rate quotas under CPTPP to freeze out NZ dairy. It's going to arbitration. 
• Oliver Hartwich on collapsing education results. 
• Michael Reddell on RBNZ Governor appointments. Bottom line: better to find a Governor that has respect from all the main parties rather than either a short-term extension or reappointing the one who hasn't got it. 
• Geoff Mortlock on Orr's reappointment.
• Immigration NZ's computer systems remain a mess so the backlog in visa approvals gets worse. If that can't be fixed in a hurry, why not just ditch the rule banning non-residents from buying houses so that living here as a non-resident is less bad?