Trade barriers

American free-traders like using the reductio of some state, Alabama, let's say, erecting trade barriers against Mississippi. The Commerce Clause prevents such shenanigans, but the obvious ridiculousness of having trade walls within a country helps illustrate the case against having them at the international level.

Unless you're in Canada where interprovincial trade barriers are the norm. Here's a nice bit of provincialism:

He’s [Tim Hudak, Ontario’s Progressive Conservative would-be premier]  promising to kill a $122-million contract to refurbish Greater Toronto Area transit agency GO Transit’s buses because it went to a Quebec firm. That company offered the low bid, but alas, it would cost jobs in North Bay. “Losing 109 jobs in North Bay is like losing 1,000 jobs in Ottawa,” local PC candidate Vic Fedeli somewhat obliquely told the Toronto Star.

New Zealand has no trade barriers between its islands; the main trade barrier with the rest of the world is distance.

The stupidity...it burns....

Via @LewStoddart, we find this gem:

From January, vehicles that do not comply with what is known as the Japan 05 standard will not be allowed into the country.

A Ministry of Transport report from July outlines the possible effects that will have on vehicle prices.

They include consumers potentially needing to spend $2000 - $5000 more to buy a newer imported vehicle that meets the standard. Imported Motor Vehicle Industry Association chief executive David Vinsen says cheaper vehicles will not be able to come in and vehicles which do come in will be newer and therefore more expensive.

Greater demand for those newer vehicles will force up the price, he says, and as a consequence the price of vehicles already in the country will go up.

The Ministry says people will not be priced out of the market if they buy privately or at auction, or from a dealer who stocks up with imports prior to January. [emphasis added]

 A few helpful reminders for the Ministry:

• The price of all used cars on the market is affected by the supply of used cars coming in from Japan. This is true so long as, at least for some people, imported used vehicles are a substitute for domestically sourced used vehicles.
• This is true both for vehicles bought privately and at auction.
• This may, but is not necessarily, already being priced into current used car prices. If dealers can import cars more quickly in advance of the ban than used car buyers can deplete current supply, competition among dealers will keep current prices down to the cost of importing used vehicles from Japan; it's unlikely that NZ demand substantially affects the overall market for used Japanese vehicles. But if there are capacity constraints in shipping, prices could be running up. 
• After the ban, even a dealer who has stocked up is likely to increase prices - the replacement cost of each vehicle on the lot has gone up, and we expect dealers to sell at a price that covers the replacement cost of the vehicles on the lot. Just like we don't expect gas stations to wait 'till their underground tanks run empty before changing prices in response to wholesale price movements.
• I have no sense of whether Vinsen's estimate of the price effects are correct. He is undoubtedly correct about the direction of the change. I'm agnostic about magnitude.
• It is "beat you over the head with a stick" stupid to try to reduce net fleet emissions by restricting imports of cars that are, on average, cleaner and newer than the existing fleet. Please consider this post as beating you over the head with a stick. 
• If you care about net fleet emissions, put in emissions testing at the Warrant of Fitness check.

I'm Shocked! Shocked!

The Greens' @GarethMP tweets:

Average age of Kiwi cars now 12.8 years. Means our fleet is less safe, less efficient and more polluting than many other countries

I can't help but wonder whether the aging of the NZ car fleet has anything to do with the clean green regulations put in place by Labour that came into force in 2008 mandating that imported used Japanese cars meet more stringent emissions regulations. Some folks then would have substituted into newer, cleaner used imports, but many many others would have substituted into older already-in-NZ used vehicles. Making imported used cars, on average newer than the NZ fleet, more expensive works to increase the average age of the NZ fleet.

But National wouldn't be daft enough to do anything to make this worse, would they? Oops.

From January 1, Japanese imports will have to conform to the Japan 05 emissions test, which is tougher than the Japan 02 standard. This means most cars manufactured before 2005 will be non-compliant. Richard Bateman, of Richard Bateman Motors, said it would be too costly for many to upgrade their older cars to newer, emissions-compliant vehicles in one go. Most of his customers were buying cars from the early 2000s and in the $10,000 price range, but none would be compliant under the new standards. It was good to get the older cars off the road, but it needed to be more affordable for people. A more gradual upgrade to compliant cars would make it easier for drivers, he said. Vehicles he was purchasing were already 10 to 15 per cent more expensive in the lead-up to the change, but he did not know how much prices would increase next year. "Until we start buying things in the new market, then we'll know [how much prices will increase]. As cars start to run out we're going to see those prices increase." Importers, who say the changes will hurt consumers, have published figures from a submission to Transport Minister Steven Joyce appealing for a delay.

It is just a bit odd to apply emission standards to imported vehicles where no such standards are applied to existing domestic vehicles. People will substitute from relatively cleaner used Japanese imports to the relatively dirtier older used cars that are already here. Sure, some will flip to buying newer used vehicles. But if we're effectively banning cars that are newer than the average car already on our roads, it seems pretty unlikely that the regulation will achieve its desired end.

I love how politicians support woolly feel-good policies and subsequently are shocked and outraged when outcomes don't match their good intentions.

If we care about dirty cars on the roads - which we should - then the appropriate policy is emission testing to accompany the warrant of fitness checks already held every six months. The visible smoke check seems more than a bit lax, at least judging by the number of smelly cars I observe driving around town. Applying stricter standards to imports just keeps the old smelly already-here ones on the road longer.

Building codes

Anybody wishing to sensibly comment on the Christchurch draft rebuilding plan really ought to have a look at Ed Glaeser's piece on skyscrapers, building codes, density, and making cities work. A few highlights:

The relationship between housing supply and affordability isn’t just a matter of economic theory. A great deal of evidence links the supply of space with the cost of real estate. Simply put, the places that are expensive don’t build a lot, and the places that build a lot aren’t expensive. Perhaps a new 40-story building won’t itself house any quirky, less profitable firms, but by providing new space, the building will ease pressure on the rest of the city. Price increases in gentrifying older areas will be muted because of new construction. Growth, not height restrictions and a fixed building stock, keeps space affordable and ensures that poorer people and less profitable firms can stay and help a thriving city remain successful and diverse. Height restrictions do increase light, and preservation does protect history, but we shouldn’t pretend that these benefits come without a cost.

...

The cost of restricting development is that protected areas have become more expensive and more exclusive. In 2000, people who lived in historic districts in Manhattan were on average almost 74 percent wealthier than people who lived outside such areas. Almost three-quarters of the adults living in historic districts had college degrees, as opposed to 54 percent outside them. People living in historic districts were 20 percent more likely to be white. The well-heeled historic-district denizens who persuade the landmarks commission to prohibit taller structures have become the urban equivalent of those restrictive suburbanites who want to mandate five-acre lot sizes to keep out the riffraff. It’s not that poorer people could ever afford 980 Madison Avenue, but restricting new supply anywhere makes it more difficult for the city to accommodate demand, and that pushes up prices everywhere.

...

Most people who fight to stop a new development think of themselves as heroes, not villains. After all, a plan to put up a new building on Madison Avenue clearly bugs a lot of people, and preventing one building isn’t going to make much difference to the city as a whole. The problem is that all those independent decisions to prohibit construction add up. Zoning rules, air rights, height restrictions, and landmarks boards together form a web of regulation that has made building more and more difficult. The increasing wave of regulations was, until the Bloomberg administration, making New York shorter. In a sample of condominium buildings, I found that more than 80 percent of Manhattan’s residential buildings built in the 1970s had more than 20 stories. But less than 40 percent of the buildings put up in the 1990s were that tall. The elevator and the steel-framed skyscraper made it possible to get vast amounts of living space onto tiny amounts of land, but New York’s building rules were limiting that potential.

What do I take from this? Density is a great thing - agglomeration effects are real. But when you force it by artificially restricting land supply, you push up land prices everywhere else. Height restrictions in the CBD push up land prices elsewhere in town. Further, while agglomeration effects are real, the only potential market failure justifying coercion is coordination. Otherwise, the agglomeration effects are largely internalized  by the firms in the dense area. Nobody has to force Wall Street firms to be located on Wall Street; that the choose to be there instead of other places shows that they value those density-related amenities.

But coordination doesn't require coercion! The folks putting together the EPIC technology park got together and themselves decided that they all wanted to share a venue before sorting out with Council where it could be located. At most, Council could put up a few public amenities that would act as Schelling points for a few types of development.

As for transport strategies relying on rail to ease congestion, why not go for the low-hanging fruit first? Congestion charging!

The most cost-effective means of opening up overcrowded city streets would be to follow Singapore and charge more for their use. If you give something away free, people will use too much of it. Mumbai’s roads are just too valuable to be clogged up by ox carts at rush hour, and the easiest way to get flexible drivers off the road is to charge them for their use of public space. Congestion charges aren’t just for rich cities; they are appropriate anywhere traffic comes to a standstill. After all, Singapore was not wealthy in 1975, when it started charging drivers for using downtown streets. Like Singapore, Mumbai could just require people to buy paper day licenses to drive downtown, and require them to show those licenses in their windows. Politics, however, and not technology, would make this strategy difficult.

The draft city plan has a $400 million rail line connecting downtown to the University campus. It's unclear that there's sufficient demand to justify such investment, but there might be on the City's creation of a proposed  new international precinct downtown where international students would be invited to live. Those students currently live within walking distance of campus in a vibrant international hub at Church Corner and Riccarton where I can find great Chinese, Vietnamese and Korean food; Korean butchers and grocers; a Japanese bakery; and, all kinds of other diverse amenities (Korean and Chinese churches, etc). To the extent that the city is successful in moving all the students downtown (from where they'd need public transport to get to University, and so would need the $400 million dollar (more than $3k per household) rail line (or a far far cheaper designated busway), it would be by destroying an existing international hub.

Let's work through some numbers on rail. Suppose that the $400 million is financed through a 25 year bond issue paying 8%. For an annuity paying 8% to have a present value of $400 million over 25 years (in other words, for folks to be willing to give the City $400 million today in exchange for bonds), the annual payment has to be $37.47 million. The building costs alone for the rail line are then $103k per day for the next 25 years. And, suppose further that we're willing to subsidize each rail rider by $10 per ride. We'd then need 10,000 people riding the train every day just to cover the capital cost where we're willing to pay $10 per person per ride. By way of comparison, RedBus, which services most of Christchurch, carries 5.8 million passengers per year - an average then of just under 16,000 passengers per day. If a single rail line from downtown to the University carried as much traffic as the entire RedBus network, the effective per-passenger capital cost subsidy would be $6.50. If the train were running on a cost recovery basis, it would need to charge $6.50 per trip plus running and maintenance costs. If it covered only running and maintenance costs, the government would be kicking in $6.50 per trip. If it carried as much traffic as the entire RedBus network.

But I almost certainly have those numbers wrong. There's no way anybody would be advocating the rail line if those numbers were correct. So please don't quote me on them as I'm certainly wrong. Please run them yourself - there are any number of online calculators for the present value of an annuity. Plug $37.47 in as the annual payment with an interest rate of 8% and a 25 year term. 8% is Treasury's recommended discount rate on infrastructure projects. If you can convince people to buy the bonds for a 4% return, the annual payment is instead $25.6 million, the daily costs $70,100 and we would need only 7000 daily riders to have a $10 per passenger subsidy. At the end of 25 years, the City would hold an asset free and clear, but we'd also need to account for maintenance and upkeep over the period. Please draw your own conclusions about likely ridership, what would be an appropriate per-passenger subsidy, and whether rail then would be a good idea. I'm just putting up some of the parameters. I'm sure I have something wrong here and that rail is the best possible thing in this the best of all possible worlds.

The draft Christchurch City plan would increase the density of a smaller downtown, but only to a maximum building height of six or seven stories. The process for going from six to seven or more stories requires proving your building meets a tougher building code. Fair enough, you might think: tall buildings impose earthquake externalities on neighbours and so ought to have stronger foundations. But that's not what's in the plan; instead, you get to go taller if you have enough gardens on your roof and solar panels. Glaeser writes:

First, cities should replace the lengthy and uncertain permitting processes now in place with a simple system of fees. If tall buildings create costs by blocking out light or views, then form a reasonable estimate of those costs and charge the builder appropriately. The money from those fees could then be given to the people who are suffering, such as the neighbors who lose light from a new construction project.

I don’t mean to suggest that such a system would be easy to design. There is plenty of room for debate about the costs associated with buildings of different heights. People would certainly disagree about the size of the neighboring areas that should receive compensation. But reasonable rules could be developed that would then be universally applied; for instance, every new building in New York would pay some amount per square foot in compensation costs, in exchange for a speedy permit. Some share of the money could go to the city treasury, and the rest would go to people within a block of the new edifice. 

A simple tax system would be far more transparent and targeted than the current regulatory maze. Today, many builders negotiate our system by hiring expensive lawyers and lobbyists and buying political influence. It would be far better for them to just write a check to the rest of us. Allowing more building doesn’t have to be a windfall for developers; sensible, straightforward regulations can make new development good for the neighborhood and the city.

Glaeser also writes sensibly on heritage preservation, arguing that heritage committees should face a capped maximum number of buildings that could be deemed to be of protected status. Otherwise, such committees will always over-reach, over-designate, and spread resources too thinly. We saw more than a bit of this in pre-quake Christchurch: too many designated buildings so too few had substantial earthquake protection; in some cases, heritage designation prevented or hindered adequate earthquake-strengthening instead of drawing public funds to assist in preservation. In an alternative world where only the best couple dozen buildings were designated of historic importance, public funds could have been devoted to ensuring their earthquake-readiness.

The Christchurch plan simultaneously demands medium-intensity downtown development while stifling any substantial development outside of downtown (to encourage downtown redevelopment). Worse, businesses that have cobbled together alternative arrangements in the suburbs may face zoning scrutiny in the next couple years intended to force them back downtown. Glaeser writes "If cities can't build up, then they will build out. If building in a city is frozen, then growth will happen somewhere else." Developers will be prevented from substantially building up downtown while being prevented from building out within city limits. I worry growth may well then just leave Christchurch. Yeah, some folks claim they'd never be willing to work or live in a tall building again, but aren't developers are the ones best placed for assessing public demand? Did people abandon skyscrapers in San Francisco?

A couple final notes:

• The businesses that worked damned hard to re-establish themselves outside of downtown will be punished for having done so under rules effectively forcing them to move back downtown.
• It would be mighty nice if Council could see fit to allow smaller subdivided lots and ease up the green belt restrictions around town so that the thousands of folks whose land has been deemed unremediable can afford to build on sections in Christchurch rather than leave town. Yeah, this will reduce demand for the downtown urban apartments where the planners want people to live eventually. But the folks in Kaipoi (and elsewhere) need houses within the next year and there's no chance of downtown housing options being available anytime soon.

* This post was written entirely on my own time on a Sunday. While I have never represented that anything on this blog reflects any views of the University, I particularly specify here that nothing in this post reflects anything that I would write in my capacity as an employee of the University of Canterbury. For purposes of this post, I am only an interested resident of Christchurch. Every one of the numbers presented is almost certainly incorrect and readers are encouraged to form their own assessments.

Riding with the King

A Tweet from a few days ago reminded me of a nice piece of rent-seeking by some of my Public Choice students a few years ago.

They gave me this after semester was over, but they know that everything's a repeated game....

The song titles are pretty cleverly done, as you can see if you zoom in....

This Hour costs 22 minutes

Another result I don't believe:

The amount of TV viewed in Australia in 2008 reduced life expectancy at birth by 1.8 years (95% uncertainty interval (UI): 8.4 days to 3.7 years) for men and 1.5 years (95% UI: 6.8 days to 3.1 years) for women. Compared with persons who watch no TV, those who spend a lifetime average of 6 h/day watching TV can expect to live 4.8 years (95% UI: 11 days to 10.4 years) less. On average, every single hour of TV viewed after the age of 25 reduces the viewer's life expectancy by 21.8 (95% UI: 0.3–44.7) min. This study is limited by the low precision with which the relationship between TV viewing time and mortality is currently known.

If people who watch six hours of daily television differ from other folks on margins other than TV-viewing, results here just might be overstated.

The paper just extrapolates to some actuarial tables the results of a prior article in Circulation. A couple things there to note:

• There are no significant reported effects, after correcting for some health-related behaviours, for those watching less than four hours of television per day. And, saying that an hour costs 22 minutes is a bit nuts when the reference category is folks watching 2 hours of TV per day or less. Maybe there are effects for the "more than 6 hours per day" group. But that's hardly the same as saying that an hour of TV costs the moderate viewer 22 minutes.
• The all-cause mortality relative risk even for folks in the >4 hour per day group has a confidence interval running from 1.04-2.05 after adjusting for those health behaviours that could be observed. That's almost touching the 1.0 mark; when the CI spans 1.0, results are insignificant. I wonder what would happen to those CIs on adjusting for more health behaviours.

HT: Alex Robson, who points to this journalistic account...

Youth unemployment and beating up on migrants

Colin James wonders whether more migrant workers on temporary work visas may have worsened outcomes for youths:

That ignored that thousands of foreigners are brought in to do low-skill jobs beneficiaries cannot or will not do, because they lack the skill even to turn up for work and stick at it. Labour itself recognised this by starting the temporary work visa system when in government.
...
Sir Roger quoted Canterbury University economist Eric Crampton's estimate that "up to 13,100 young people are out of work as consequence of the youth wage being abolished; in 2008. Sir Roger, too, seemed oblivious to the temporary visa phenomenon.

First, it's likely the case that workers on temporary visas are complements to domestic labour rather than substitutes for it. See the work of Giovanni Peri for starters. Then read this: massive unskilled migration from the Chinese hinterland to the cities has, if anything, positive employment effects for urban workers. Cowen talks here about how immigration creates more jobs. Here's Dustmann, Hatton and Preston in the EJ, summarizing articles in a feature issue:

His [David Card] conclusions on employment and wage impact are in line with much of the previous literature: although immigration has strong effects on relative supplies of different skill groups, local labour market outcomes for low skilled natives are not much affected by these relative supply shocks.

Then also see this nice NBER survey:

The large majority of studies suggest that immigration does not exert significant effects on native labor market outcomes. Even large, sudden inflows of immigrants were not found to reduce native wages or employment significantly. Effects that do exist tend to be relatively small and concentrated among natives or past immigrants that are close substitutes (e.g., Okkerse 2008). Overall, the limited substitutability of immigrants for natives in many European economies would suggest that displacement effects are likely to be small.
...
For example, Angrist and Kugler (2003) found that European labor market rigidities exacerbated the negative impact of immigration on native employment. These labor market rigidities include, for example, centralized wage setting that does not allow for downward wage adjustment and restrictive employment protection laws.

So where we get employment displacement effects, small though they may be, it's through interaction with labour market rigidities that prevent downwards wage adjustment. What's a high youth minimum wage? A labour market rigidity that prevents downwards wage adjustment. So even if James is right that temporary workers are a factor, it's likely that they're only a factor because of the crazy high $13/hr youth minimum wage.


Ok. Now let's assume that all that empirical lit is wrong and that immigrants have strong negative effects on native employment outcomes. Now, correct me if I'm wrong here, but I'm pretty sure that New Zealand admits more temporary migrant workers when the economy's booming and tightens up when we're in recession. In that case, youths are now facing less competition from unskilled migrant workers than they were facing in the mid 2000s. I'd expect that this attenuates my results rather than leading to their being overstated, but I'd need the time series to check things properly. You could imagine things going the other way if the flow of migrants dries up but there's a big stock. But these temporary visas are only good for two years. So if they started being clawed back when the recession really hit end-2008, that stock would be pretty low by end-2010. And youth unemployment outcomes are worse now relative to adult unemployment than they were end-2008.

It's not particularly plausible that temporary migrant workers are the cause of any substantial portion of current youth unemployment outcomes.

Colin James has one interesting quote from the PM though:

Key discounts (though does not dismiss) the youth wage factor and notes his offsetting policy that employers can hire young workers for 90 days without risking an unfair dismissal claim.

Again, that attenuates the effects. In the absence of the 90-day bill, outcomes for risky workers (like youths) would have been even worse.

I'm more than open to that there are plenty of other things that could have caused the massive ramp-up in youth unemployment relative to adult unemployment. Something really weird happened starting end 2008. I've suggested the abolition of the differential lower youth minimum wage as being the most likely culprit. Labour's been pushing changes in apprenticeship and training funding as alternative explanation, but there's no way the effects there are big enough to explain things and the time pattern doesn't fit well. I don't think James's blame-the-migrants explanation works either.