Afternoon roundup

The worthies on the closing of the browser tabs:

• Australian water rats have figured out that the hearts and livers of poisonous cane toads are fine to eat. I would love to know how rats figured this out, and how the practice spread. 


• Australia's poisonous legislators have passed a piece of anti-terrorism legislation every 6.7 weeks since September 11, 2001. The water rats may not help in getting rid of this nuisance.


• A perhaps-unintended consequence of anti-Uber activism in California making it harder for people to work as contractors: dancers at strip clubs become employees when many didn't want to.


• Merivale NIMBYs.


• Another for the "I guess we just can't have nice things" file. The Police Minister wants to allow pill testing at events; it's an excellent harm-reduction strategy. New Zealand First has blocked it, reckoning it would increase drug use. And while I'd be pretty confident that Labour and the Greens could find enough supporters for pill-testing in the National/ACT caucuses than would be needed to get it over the line, the usual politics stuff means we can't have nice things. 

Policy bets

I'm a big fan of betting, but rules that stop players and coaches from betting make sense. You don't want somebody to throw the game to make sure that their bet goes the way they'd hoped.

Bernard Hickey's morning roundup includes the following bit of news:

Prepare for policy shock - The UN-supported Principles for Responsible Investment group, which has nearly 500 fund managers looking after nearly US$90 trillion in assets, warned last week that financial markets had not priced-in the likely near-term policy response to climate change. It issued a report on a new project called ‘The Inevitable Policy Response,’ which sees a political and financial tipping point by 2025 that forces dramatic political action. That would include “bans on coal, and on internal combustion engines; an increase in nuclear capacity and bioenergy crops; greater effort on energy efficiency and re/afforestation; wider use of carbon pricing and increasing the supply of low-cost capital to green economy projects.”

“Government action to tackle climate change has so far been highly insufficient to achieve the commitments made under the Paris Agreement, and the market’s default assumption appears to be that no further climate-related policies are coming in the near-term. Yet as the realities of climate change become increasingly apparent, it is inevitable that governments will be forced to act more decisively than they have so far,” the report’s authors PRI, Vivid Economics and Energy Transition Advisors write.

“The question for investors now is not if governments will act, but when they will do so, what policies they will use and where the impact will be felt. The IPR project forecasts a response by 2025 that will be forceful, abrupt, and disorderly because of the delay.”

And this is all fair enough. Lots of investment decisions depend on assessments of policy risk. The big funds will have all kinds of folks watching over those policy risks to try to make sure they're appropriately positioned.

I'd bet substantially against bans on internal combustion engines, but I'd bet in favour of wider use of carbon pricing - if the government hadn't banned iPredict. I'd count the increase in nuclear capacity as wishful thinking - I wish it would happen, but there are a lot of layers of stupid to cut through to get there. And I expect that private-sector funds who've signed up to the Principles will take the report's predictions with a bit of scepticism.

But here's the part that worries me:

The NZ Super Fund is a founding signatory and the project is due to start publishing detailed modeling from late September on the effects of this shift on the macro-economy and asset values.

If the sovereign wealth funds start making plays predicated on their assessment that governments will ban internal combustion engines by 2025 (etc), and if governments do not want their sovereign wealth funds to realise substantial losses, does that start affecting policy. 

Do we want rugby referees betting on the game they're officiating?

Previously: State-owned investment vehicles.

...so long as they can write the hymnbooks

I took Wednesday afternoon off to attend a do at my daughter's primary school. They had their own World of Wearable Arts show.

For those outside of NZ, the WoW Festival happens annually in Wellington (it used to be in Nelson) and shows of just incredible design skills. I've attended a few times, and it's awesome.

There's sometimes an underlying message in the costumes, but often they're just fun.

The school went for themes for their costumes, but things varied by classroom.

The first classroom had students working in pairs or trios; one or two would read off a description of the work while the other modelled it.

The first classroom had:

1. An orange, telling us to make healthy food cheaper;
2. A carrot, telling us to make healthy food cheaper;
3. A broken television, telling us that we have too much screen time;
4. A medley of items telling us how special the sea is and that plastic straws are bad;
5. A medley of items telling us that electric cars are important;
6. An ambulance telling us about allergies, and that there should be more free ambulances;
7. A medley of items telling us that fast food is bad;
8. A medley of items telling us that littering is bad and recycling is good and that we should stop having more roads so we can save the environment;
9. A medley of items reminding us of the need to stop ocean pollution, perhaps by having more rubbish bins near the beach;
10. A medley of items reminding us of the problems of plastic pollution in the ocean, and that we need more recycling.

The second classroom had a very different theme and take. Students again were in trios, with the first student costumed as a material, and the next two costumed as things that come from those materials. The students had some rhyming verse about what they each were - it was nicely done. 

These were:

1. A tree, followed by wooden items, and by money because money makes people happy (though I'm pretty sure NZ money is made from plastic);
2. A tree, followed by an eraser, and wooden items;
3. A grapevine, followed by some grapes, and by some wine!
4. A gold mine, followed by a gold nugget and a gold weight;
5. A sheep, followed by some wool and by a jumper;
6. A bird, followed by a feather and then by a feather rug;
7. A gold nugget, followed by a gold bar, and then by some jewellery; 
8. A chicken, followed by an egg, and then by a cupcake.

The third classroom - a combined large classroom - had costumes themed around the topic of global warming. 

And here's what they had (often items attached to shirts, hats and masks representing these things), with this being as verbatim a summary as I can provide from the descriptions read by the students

1. A costume celebrating walking to school to reduce emissions;
2. An electric car;
3. An electric car and icebergs;
4. A lightning bolt hero for electric cars;
5. Melting ice and polar bears
6. Solar panels and wind;
7. Thunder and lightning because thunder and lightning cause hurricanes and you should buy an electric car;
8. A fridge (very well constructed) representing the problems facing the ozone layer and you should stop burning fossil fuels to save the ozone layer;
9. Don't use CFCs to save the ozone layer;
10. Deforestation: a superhero reminding us that deforestation hurts the ozone layer;
11. Deforestation: animals harmed by it;
12. A tree reminding us that deforestation is bad;
13. A bird encouraging us to use Forest Stewardship Council endorsed products
14. Replant trees!
15. Landfills are bad: garbage trucks
16. Landfills are bad: reuse plastics or don't use them at all
17. Plastic pollution is bad: reuse plastics and use fabric bags;
18. Plastic is bad; bamboo is good;
19. Reuse plastic or use less plastic;
20. Reuse plastic or use less plastic;
21. A bird reminding us that fabric bags are better than plastic bags;
22. Rising sea levels and melting ice caps;
23. Rising sea levels are bad, turn down your thermostat to use less energy;
24. A monster representing rising sea levels (very well acted).

My daughter had the Forest Stewardship Council costume - at least that recommendation is pretty sensible, and she hadn't asked my advice on it.

I do wish someone had had a dollar-sign costume in praise of carbon pricing.

On the merits of perspective

Me, over in Stuff, with a few helpful numbers that can provide perspective. Perspective is important. If you know a few basic figures about the size of the country, the economy, and government spending, you'll have a better nose for detecting and dismissing nonsense claims. 

I lead off with the silly claims about the volume of litter:

That extrapolation generated big big numbers – 10 billion littered cigarette butts around the country, almost 395 million litres of littered disposable nappies, and the like.

Anyone with a sense of perspective would have known those numbers were fishy.

The government collects just under $2 billion in tobacco excise per year, and excise on a cigarette is just under a dollar per stick, so it's likely around 2 billion cigarettes are smoked in the country per year. Is it likely that a country that smokes about 2 billion cigarettes per year has 10 billion littered cigarette butts strewn about?

Similarly, is it likely that a country where about 60,000 kids are born annually can generate that volume of littered nappies? Suppose a littered nappy is about a litre, and that a baby uses eight nappies per day in its first year. That gives us just over 175 million nappies used by the country's newborns every year. How then is the volume of littered nappies more than double that figure?

Nobody reporting on these figures seems to have a sense of perspective. Fortunately, Keep New Zealand Beautiful has, after no small amount of prodding from me, pulled the dodgy stats from its website and from its report – but has issued no formal correction or retraction. The numbers will live forever in uncorrected newspaper accounts and be cited in uncountable school essays and newspaper articles to come. 

Uncorrected accounts, as of 21 September, include:

• Jamie Morton at the Herald
• Amber-Leigh Woolf at Stuff 
• Anan Zaki at RNZ (and here) (and here at NZ Geographic)
• Emily van Velthooven at One News
• Virginia Larson at North & South

I have prodded Morton more than a few times on Twitter on this one, because I expected better of a science reporter. It seems hopeless.

Here are a few more numbers worth memorising. They help in providing a sense of perspective. You can use them when benchmarking claims to see whether they make a lick of sense.

New Zealand has about 5 million people. When you see a big number for the country as a whole, dividing it by the population can help check whether the number seems plausible.

New Zealand's Gross Domestic Product (GDP), by the expenditure measure, was just under $300 billion for the year to March 2019. A 5 million population gives us a per capita GDP of about $60,000.

The government's budget for 2019/2020 was just under $111b – the government spends about $22,000 per person. Just over $24 billion is spent on benefits through the Ministry of Social Development, with $15.5b of that going to NZ Super. The total health budget is about $18b. Police get just under $2b. Pharmac is about $1b.

So when you hear claims that alcohol costs $7.8b per year, it becomes immediately obvious the figure isn't a measure of costs to the public health system or police – unless you're happy to believe that alcohol can be blamed for 40 per cent of total government spending in those areas. Rather, the number includes a lot of private costs like spending on alcohol – and as I've previously shown, counts some of those things twice.

New Zealand is a big place: just under 27 million hectares. As of 2012, urban land comprised about 228,000 hectares: only about 0.85 per cent of the country is urban land. So we are in no danger of urban sprawl, or landfills, taking over the whole country.

A moderate, healthy sense of perspective is far from dangerous.

It is vital? Yes, especially when journalists seem to err on the side of having none whatsoever.

Perhaps our newspapers, news magazines, and news broadcasts should come with a health warning label.

Does Market Economics understand either Markets or Economics?

Over in our Insights newsletter, I go through a bit more of the background materials on the government's National Policy Statement on sensitive soils. 

I OIAed the supporting cabinet paper, which MPI released after the Ombudsman's office gave them a very helpful hurry-up. Thanks Ombudsman's office!

The rest of MPI's materials are here.

And last week, Treasury passed along their advice on this stuff (another OIA request). I expect it'll be up on their proactive release site in due course; I'll copy some of it below and will get it up at our website if Treasury doesn't have it up soon [okay, here you go].

Here's the column:

LOOKING-GLASS ECONOMICS AND HIGHLY PRODUCTIVE SOILS

When Alice tried to recite one of her lessons while down the rabbit-hole in Wonderland, she thought only a few words had come out wrong. The Caterpillar corrected her bluntly: “It is wrong from beginning to end.”

By contrast, the Cabinet Paper on the National Policy Statement protecting sensitive soils is not wrong from beginning to end.

Paragraphs 90, 91 and 92 contain sound advice from Treasury.

Otherwise, the paper has a few problems.

About a month ago, the government issued a proposed National Policy Statement allowing councils to designate areas of agricultural land where residential development would be banned.

I warned in Insights it risked undermining the urban growth agenda. Urban land makes up less than 1% of the country by area. It is utterly implausible that urban growth will take over the country’s agricultural land.

The normal operation of markets provides additional protection. The price of agricultural land incorporates buyers’ and sellers’ expectations of the future value that can come from agricultural uses of that land. If turning a paddock or a horticultural block into a subdivision is profitable, that means the services provided by that land in housing are more valuable than the crops that otherwise might have grown there.

So I requested the Cabinet Paper and Treasury’s advice.

Corwin Wallace’s advice from Treasury’s side in the Cabinet Paper is correct and trenchant. The difference in land value on either side of urban-rural boundaries means the land in an 80-hectare farm at that boundary would be worth between $120 million and $182 million more if it were allowed to help solve the housing crisis. Banning that conversion destroys value and risks exacerbating the housing shortage.

Treasury recommended deferring the NPS until a more rigorous cost-benefit assessment had been undertaken, and that the Ministry for Primary Industries be directed to provide options to reduce the risk of the NPS restricting housing supply.

The indicative CBA provided to the Ministry by Market Economics was astonishingly poor. Treasury provided instructive critique. And Market Economics’ response to Treasury revealed such a confused understanding of the concept of market failure that it would have earned a failing grade in the intermediate microeconomics course I once taught.

The NPS on sensitive soils is based on distorted, looking-glass-world economics. Without substantial improvement, it risks pushing us all further down the housing crisis rabbit-hole.

Here's the really depressing part from the Treasury OIA. Treasury challenged Market Economics, the team of mostly geographers who put together the indicative CBA for MPI, on problem definition. Treasury's Chris Parker notes that the CBA includes no problem definition that includes a market failure to be addressed.

Market Economics replies:

"The "market failure" is quite clear. Highly productive soils which have long term productive and sustainability benefits for the NZ economy and community are being lost as land is taken up for urban uses, and rural residential properties. The nature and structure of the land market means there is no mechanism through which those benefits can be protected and preserved for current and future generations. ... Commercial markets do not have a mechanism where the aggregate loss of soils is taken into account...."

This is hogwash. I expect that MPI wanted hogwash and contracted for hogwash, and was delivered the wanted hogwash - but we shouldn't pretend that this kind of thing passes any kind of bar for counting as economic analysis or a CBA. Whoever contracted it will get a pat on the head from MPI's CE and the Minister for having backfilled the necessary hogwash in support of the Minister's preferred policy rather than being fired for having wasted a pile of money on hogwash.

Let's try to make the best case out of this. There will be sensitive lands that provide ecosystem benefits that are not currently priced. Wetlands come to mind. Agricultural land will sequester some carbon, so that's good.

But there's just absolutely no way that ecosystem services provided by land in intensive horticultural use growing potatoes provides ecosystem services of $1-$2 million per hectare - the ballpark land price differential when land can be turned into housing.

And it's also wrong to say that there's no way for these benefits to be otherwise protected. Here's an alternative policy: pay the owners of land providing valuable ecosystem services an annual subsidy that is no higher than the value of those services. If they're still willing to sell to developers, then the land's more valuable in housing.

And it's also wrong to say that commercial land markets have no way of valuing things when there are lots of small decisions and purchases being made at the margin. That's exactly how markets work: equilibrium prices are the result of all those small decisions and purchases. Lots of small purchases of agricultural land results in the bidding up of the price agricultural land, and especially of larger contiguous blocks of agricultural land if those larger contiguous blocks are differentially more productive. When developers are no longer able to outbid agricultural uses, then the value of the land for agriculture is higher than the value of the land for residences.

Everywhere through this darned stuff you see the assertion that because developers can always outbid agricultural uses, there's inadequate protection of agricultural uses. But that has the whole world backwards. Housing can only outbid where the value of land in housing is higher than the value of land in agriculture. And that can't be an equilibrium phenomenon unless there is already overly strong protection of agricultural land! Otherwise, we would expect people to keep buying land to turn into housing, and that that would happen until the value of land for housing use dropped down to the bare paddock cost.

The fact of the differential instead points to that there is already too much protection of land against being used in housing.

Look, I get mad about BERL's silly work on the cost of alcohol. That nonsense can lead to bad policy around alcohol that imposes needless cost on moderate drinkers. But there are bounds to the losses there. Looking-glass economics applied to land use planning is orders of magnitude more destructive.

This is just so darned depressing. The government seems determined to push this policy through. The most we might be able to hope for is limiting the damage it causes. For example, maybe councils where the median house price is more than 8 times median income could be barred from putting protected designation over more than a very small proportion of their land area.

Minister Twyford used to talk a lot about the importance of letting cities grow up and out, and of abolishing urban growth boundaries. The soils NPS risks entrenching urban growth boundaries in worse form.

Previously: Precious Agricultural Land

Scarcity makes climate change interesting

A couple weeks ago, Paul Gorman asked me what New Zealand could do about climate change in a world where there were infinite resources. 

There is no problem with climate change in a world of infinite resources. You could build kit that pulls CO2 from the atmosphere (current cost of pulling carbon out that way is about $100/tonne) and solve it that way - or we could all costlessly flip over to electric cars with enough new costless non-carbon electricity generation to make it all work.

Scarcity makes it interesting because you have to think about trade-offs and getting the most value out of limited resources.

I sent Paul a pretty lengthy answer; he was only able to use part of it in the story for obvious reasons. I gave it more for background, and to help me lay out my own thinking. So I'll copy it here so I can find it later if I need it - and so you can tell me what I've messed up if I've messed anything up.

You’ve specified an uninteresting question. If we had infinite, unlimited resources, then there’s no problem at all. There is existing technology that can scrub CO2 from the atmosphere for about $100/tonne. So if we had infinite money, we could build a pile of those plants and just suck the CO2 out of the atmosphere. Problem solved; next question.

The problem is only interesting because we have limited resources. And that’s what makes it an economic problem – economics is the science of figuring out how to deal with scarcity.

Here are my starting premises, which I don’t think are at all controversial.

1. Neither the government nor anyone else really knows any individual company or industry’s cost of mitigating GHG emissions. For some companies in some industries, there will be low-hanging fruit where it’s cheap to mitigate, but that is not true for all firms or industries.


2. Opportunities for mitigation vary by country. In some places, it’s relatively cheap to reduce GHGs. In others, not so much.


3. What makes most sense will depend a lot on what other countries are doing too. When countries do not coordinate, it is easy to wind up in scenarios where GHG mitigation in one country results in greater global emissions because production shifts to places where there production involves more GHG emissions.


4. Getting poorer countries to come to the table either requires making low-GHG tech really cheap for them, or carbon-equivalent tariffs to make it as though countries without a price on carbon have one in their export markets, or both.


5. Mitigating inequities resulting from any first-best carbon-charging regime is important not just for equity, but also for the durability of any institutions that are built to mitigate GHGs so they aren’t just abolished on the next flip of the electoral cycle.

Those are my premises. From those premises, we can derive some conclusions. Some of those conclusions will be controversial. I think they flow directly from the premises and from first-principles in economics.

1. Premise 1 tells us that we need to have a price on GHG that allows people to adapt in the ways that makes most sense given their own particular circumstances of time and place. It’s an argument for using either carbon taxes, or a strengthened version of the ETS, rather than command-and-control regulations running sector-by-sector. The government might have guesses about whether it makes the most sense to reduce emissions in transport, or in agriculture, or in industrial heating – but it just can’t really know. Getting a common price for CO2 equivalents across all sectors, comprehensively, is the only way to be sure that we’re doing the most good we can do. Under a carbon price, we encourage abatement activity that costs up to the current carbon price. With regulatory approaches, we risk paying much much more. Like a hundred or a thousand times more – that’s the kind of range of costs experienced in international studies of this stuff. That means that those approaches do 1/100th or 1/1000th as much good as could have been done if the effort had been coordinated through a carbon price instead.
   • So: strengthen the ETS. Get agriculture into it, completely, with methane charged as its carbon-equivalent. But be VERY CAREFUL to incorporate the equity considerations in 5, below, and the international considerations in 3, below.


2. Premise two tells us that we absolutely have to either have an internationally linked ETS allowing trading in carbon units across countries, or a ‘dirty float’ ETS that sets the ETS cap to target prices in stringent European countries (basically, making sure that carbon prices here are not higher than in Europe). Why? For the same reason as that expressed in (1), above. If we have a carbon price of $25/tonne in New Zealand, and it’s possible to mitigate GHGs in other places for a carbon price of $2.50/tonne, we do only 1/10th as much good by focusing all of our efforts domestically. I’m not kidding here – there’s work suggesting that protecting Amazon rainforest costs less than $1.70USD/tonne for CO2 equivalent GHG effects. That’s about a tenth of the price in New Zealand. Even if that estimate is wrong and the real cost is double, it’s still a fifth of the price in New Zealand. If we care about doing the most good possible on limited resources, we have to be looking for the options that do the most good per dollar spent. Looking only within New Zealand is then a mistake.


3. Premise three reminds us that, even if we aren’t considering abatement options that come from efforts abroad, we have to be considering how the rest of the world works when setting up optimal policy here. Agriculture is the most concrete example. In a first-best world, you’d want a common price on CO2 equivalents across everything, and agriculture would be in the ETS. But if agriculture doesn’t face a carbon charge in places where producing milk or meat comes with more GHG, then you wind up reducing emissions in New Zealand while increasing production in worse places overseas. How do you deal with that? Potentially with a regime that has agriculture in the ETS, but with rebates on the ETS charge for exports into markets that either don’t face a carbon charge or where other countries’ goods are sold that don’t themselves face a carbon charge. That will be tricky to set up. But we risk doing harm if we don’t think about it.


4. New Zealand is not in a position to force the technology curve in any real ways in transport or electricity – we just don’t have the economies of scale to do it. In other places like the US, there can be productive debates about whether massive government funding into tech around solar panels can make them cheap enough that poorer countries will find them the best option for new electricity generation because they’re cheaper than anything else. Those debates are contentious. But irrelevant for a country like New Zealand except in one area: ag tech. New Zealand research has been working, for some time, on improved pastoral systems for reducing agricultural GHG emissions. That research is hindered by the de facto ban on doing that kind of research in New Zealand. But if anything comes of it, it would be very much worth releasing all of the research, for free, to anyone in the world who wants to use the newly developed ryegrasses. New Zealand’s research funding would then help reduce emissions globally rather than just here. On carbon-equivalent tariffs, those are best considered as part of the OECD rather than something NZ should go it alone on as it’s just too easy for other countries to use those things for protectionist purposes rather than to try to re-create the effects of a carbon price for the products of places that don’t have one.


5. Finally, equity. If we are serious about this, and about the durability of ETS institutions over time, our starting point should be an allocation of ETS credits to every existing emitter to cover their status quo emissions over an extended period, then Crown buy-backs of permits through the ETS to get us to the cap. That builds in a just transition so those who flip out of carbon-intensive forms of production to other activities are compensated for the change immediately. Currently, agriculture’s accession into the ETS is a hack-job. Everyone expects that exposing the agricultural sector to a $25/tonne carbon price would bankrupt the sector, so we use fudges that require purchasing credits for only a fraction of emissions. The big problem we have is that the price of agricultural land, often purchased under high leverage, incorporates expectations around whether farms will need to pay for CO2 emissions, for water, or for nutrient emissions. Start imposing carbon charges, water charges, or emissions charges, and all the numbers on which the mortgages are based will fall apart and you’ll have a massive problem. Big numbers of bankrupted farms – farms that played straight by every rule that they ever faced – would be obviously inequitable and would immediately have National promising to tear up the charging regime. If you instead allow a just transition by providing allocation of credits to existing emitters, but having agriculture fully within the regime (subject to 3, above), there wouldn’t be bankruptcies. There’d instead be marginal farms that realise they can make more by shifting to other forms of production and selling their credits back into the system. And that’s a far easier situation to be in – one that’s consistent with ETS institutions that can be binding and real and durable over time.

On the 'can pull CO2 out of the atmosphere for around $100/tonne' bit, see here on direct air capture.

Implication: it is vastly stupid to enact policy that costs more than $100/tonne to pull CO2 from the atmosphere because we could just build those kinds of plants instead.

Keeping up with the state of play on vaping

I was looking around the other day for something like this. The Competitive Enterprise Institute has started tallying up all the reported cases of 'vaping-related' illness in the US.

THC-vaping, and especially illicit vape cartridges, feature prominently, but there are other cases where that's not yet pinned down.

As Dr. Konstantinos Farsalinos, a cardiologist, recently wrote, a sudden outbreak in a short period of time and in a specific geographic region (so far this appears restricted to the U.S.) when e-cigarettes have been available and widely used around the world for more than 12 years, is not indicative of disease, but rather of poisoning. That is, it is unlikely that the cause stems from well-established products, but rather from a new product, ingredient, or manufacturing practice affecting products in the illegal market, legal market, or both. It does not, as some argue, prove that e-cigarettes or vaping causes long-term harms.

Recall that THC-based vaping is legal in some states, but not others. There are dodgy suppliers of vaping cartridges, often for THC-based product; that THC-based vaping is illegal in some places means there will be dodgy suppliers. Here's a New York Times report on illegal vape cartridges in Wisconsin, where THC is not legal.

On Wednesday the Trump administration said it planned to ban most flavored e-cigarettes and nicotine pods — including mint and menthol, in an effort to reduce the allure of vaping for teenagers. But the move may expand underground demand for flavored pods. And it does nothing to address the robust trade in illicit cannabis vaping products.

The Wisconsin operation is wholly characteristic of a “very advanced and mature illicit market for THC vape carts,” said David Downs, an expert in the marijuana trade and the California bureau chief for Leafly, a website that offers news, information and reviews of cannabis products. (‘Carts’ is the common shorthand for cartridges.)

“These types of operations are integral to the distribution of contaminated THC-based vape carts in the United States,” Mr. Downs said.

They are known as “pen factories,” playing a crucial middleman role: The operations buy empty vape cartridges and counterfeit packaging from Chinese factories, then fill them with THC liquid that they purchase from the United States market. Empty cartridges and packaging are also available on eBay, Alibaba and other e-commerce sites.

The filled cartridges are not by definition a health risk. However, Mr. Downs, along with executives from legal THC companies and health officials, say that the illicit operations are using a tactic common to other illegal drug operations: cutting their product with other substances, including some that can be dangerous.

The motive is profit; an operation makes more money by using less of the core ingredient, THC — which is expensive — and diluting it with oils that cost considerably less.

Public health authorities said some cutting agents might be the cause of the lung illnesses and had homed in on a particular one, vitamin E acetate, an oil that could cause breathing problems and lung inflammation if it does not heat up fully during the vaping aerosolization process.

Medium-grade THC can cost $4,000 a kilo and higher-grade THC costs double that, but additives may cost pennies on the dollar, said Chip Paul, a longtime vaping entrepreneur in Oklahoma who led the state’s drive to legalize medical marijuana there.

“That’s what they’re doing, they’re cutting this oil,” he said of illegal operations. “If I can cut it in half,” he described the thinking, “I can double my money.”

In normal markets, brand reputation is incredibly important. In illegal markets, having a very popular brand means that you're likely soon to be found and arrested. That makes for very different incentives. In normal markets, you build up brand reputation to be able to run over the long term. In illegal markets, if your brand starts getting popular, you probably need to start thinking about end-game strategies for cashing out as fast as you can.

That said, it's still ridiculously stupid to draw massive attention to your own product by killing your customers. More likely, the Dank Vapes people didn't think the thickeners would do harm (it's a vitamin; vitamins are healthy!) and figured it was time to cash out. 

Vaping has been well established in the US for some time. The big recent surge in cases can then be consistent with a few potential hypotheses:

• Long-term risks are always unknown, and now some folks have been vaping long enough for those to eventuate
• But that would predict a slowly rising number of cases broadly matching the uptake pattern. Instead there's a surge, and a surge that's particular to America and not seen in the UK where vaping is also well-established;
• When millions of people are vaping, random-draw low-probability stuff becomes more likely
• That could be part of the base rate, but also doesn't explain the surge;
• Dodgy suppliers, mostly in the THC market but potentially also in the nicotine market, figured out they could cut product with weird oils and double their money; supply chains of empty cartridges and counterfeit packaging established themselves around the THC market. 

I'm still betting on that dodgy suppliers explains most of this mess. 

Megan McArdle nails it:

At this point, the best information suggests that a recent spate of deaths from a vaping-related lung disease — six at last report — had little or nothing to do with legal e-cigarettes. Rather, the deaths, and more than 300 confirmed cases of the disease in dozens of states, seem to be linked to illegal cartridges, mostly using marijuana derivatives that had been emulsified with vitamin E acetate, according to Food and Drug Administration investigators. The FDA has warned against using it for inhalation, and it isn’t used in legally manufactured e-cigarettes.

Naturally, the government wants to ban legally manufactured e-cigarettes.

Meanwhile, Radio New Zealand is running every scare story it can find on vaping, and providing none of the necessary context about the illicit THC market. I absolutely do not envy the folks over at MoH having to deal with the political pressure caused by RNZ's driving of a moral panic.