Afternoon roundup

Closing the tabs so I can find the ones I really do need...

• Using hoards of ancient coins to trace out historic trade networks
• Left-wing populism is also risky
• ACT won't be supporting National's proposed social media age limits
• Meanwhile, Meta and Google battle over who's going to be stuck trying to verify user ages. I really don't like options that require OS-level ID verification.
• NZ needs more investable propositions
• "It will come back to bite you", but if partisans have very high discount rates....
• BBC's More or Less on the relative risks of vaping and smoking
• Happy 50th Birthday to the Layfield Report. I'm still unconvinced of the merits relative to a combination of user/beneficiary charges, uniform general rates, and land-value apportionment of council rates. I'll have to properly go through the thing though. 
• I'll be helping out on the Advisory Group for Te Kura Taka Pini. 

A bit less shit

Hayden over at The Spinoff asked me what the government can do to make the economy 'a bit less shit'.

I sent an overlong reply; he excerpted some choice bits along with contributions from others.

But this is what I'd sent through. 

I don’t think there are any quick fixes from where we are. 

Imagine you’re 50. You haven’t been taking care of yourself properly for a while now. You’re recovering from a hangover from a ridiculous bender that you should not have gone on. Yes, you had to have a couple of drinks given the event, but nobody forced you to finish the bottle. And you’re starting to realise that the burrito you had last night was probably very dodgy. 

How can you feel a bit less shit? In the short-term, you can take some Gaviscon and hope for the best. But it’s still not looking good. A lot of the pain is locked-in. The bits that have largely just passed were definitely your own fault. The bit that’s about to come isn’t your fault but would have been easier to weather if you’d taken better care of yourself. And the long-term stuff still needs to be dealt to. 

We have been in the hangover brought on by the fiscal and monetary binge we had in 2021-2023. And that was starting to come right - though the fiscal binge is still ongoing. 

There were good signs. Despite the downturn, Auckland building consenting was still higher than pre-AUP. Unemployment still is far below GFC-peaks. There’s reasonable, but not solid, cross-party consensus on reforms to how housing is regulated so that a lot more building can happen and so housing costs can come down. 

But we're now in an ongoing severe energy shock where high prices are combined with supply risk. On the plus side, economies overall aren't as tightly tied to oil prices as they were in the 1970s. But it's still not good. 

At the same time, the government's accounts are in poor shape - and the real fiscal consequences of population aging haven't hit yet. The rating outlook downgrades mean that goodwill and reputation from NZ’s prior commitments to fiscal responsibility (balanced budgets on average) are eroding. Debt servicing costs will go up with credit downgrades unless it's sorted. Folks on the right would prefer it be sorted by getting core government spending down to pre-Covid levels. Those on the left would prefer tax increases. Either one will be painful. A Parliamentary Budget Office running routine value-for-money scrutiny of spending would make it less painful. 

Unfortunately, it's hard to point to shorter-term options that would provide substantial improvement - and really easy to point to options that would make things a whole lot worse. 

We still have fuel *because* prices are high. Otherwise, tankers would go elsewhere. High fuel costs worsen all kinds of things for everyone. People have less money to spend; business costs are higher. And there’s still risk it could get worse. 

Policy cannot do much to help, beyond what it already has done with targeted household support and attempts to bolster international supply arrangements. 

Making it easier and faster to put up new power generation would help bring down electricity costs and provide more alternatives. But that's not really a short-term fix. 

I do not believe that there are any policy moves that can provide substantial benefits in a hurry. There are lots of small, incremental things that could be addressed in the short-term, but they wouldn’t have large effects quickly. 

It would be better to stop looking for short-term fixes, and to start addressing the more foundational problems. 

Longer-term stuff requires finally updating NZ Super, getting a workable version of resource management through that can maintain cross-party consensus and make it easier to build houses and businesses, local government reform to make it easier for them to accommodate and even welcome growth, and civil service reform to help central government work better regardless of whether Labour or National is calling the shots. If proper competitive urban land markets form the cross-party core of resource management reform, that will be highly beneficial over the longer term. 

It would also help if NZ started being more realistic about what is possible on small scale. We too often try to replicate regulatory functions of larger countries when we could instead lean more heavily on determinations from overseas. If you would have no qualms about taking the medicine a British doctor would prescribe, and a French doctor would prescribe the same thing, why require Medsafe to duplicate those regulators’ work? And why wait for foreign pharmaceutical companies to get around to applying here, when our small market isn’t a priority? It only creates delay. 

Shifting toward unilateral recognition of overseas standards would make it faster and easier for households and businesses to access products and services from overseas. It’s worth considering beyond medicines. Not as important as RM reform, but lots of small bits could add up. 

Legalise energy

If someone owns some land with minor brush on it and wants to clear that brush, and clearing isn't going to create erosion into streams that bother neighbours or anything like that, they should be able to do it. It's their land. If someone else wants them to preserve the brush, the someone else should purchase an easement. 

If someone owns some land and wants to put solar panels on it, they should be able to do it. It's their land. If someone else wants them to not put in solar panels, that someone else should purchase an easement.

Read this, and remember the Golgafrinchans.

The potential size of a proposed solar farm in North Canterbury has been reduced due to compliance issues on the land.

Far North Solar Farm Ltd has confirmed it has removed a section of land from its resource consent application to build a 181ha solar farm near Waipara, north of Amberley, after the landowner removed native vegetation from the site.

The large solar farm project has drawn criticism from some locals who say it would have adverse impacts on the environment and to property values, pose risk to passing motorists from glare from the panels and question how the solar panels would stand up to strong winds.

FWIW, the group trying to stop the solar farm puts the start-date on the project as April 2023. 

More than three years ago. 

Good doormen and good bouncers

I'm not convinced that there's a real problem to be addressed by ACT's immigration policy. 

I also don't see it doing much real harm. And I can see how it could do a lot of good for public perceptions around immigration. And those perceptions, held only by a very small minority as of the 2023 survey data (2025's will be released later this year) could turn into a real problem. 

ACT wants to make it easier to deport residents. The government is already shifting policy so that someone who has been resident here could be deported for crimes committed within 20 years of being granted residence. I miss that window by a couple years. ACT suggests removing the time limit entirely. 

So if I don't bother going for citizenship in the interim, and I get convicted (innocent people do get convicted from time to time) when I'm 70 years old, and have basically no remaining connection to Canada, and wouldn't be eligible for pension there either for lack of residence over the prior half-century, I could be sent off to the arctic. Very nice. 

They've also proposed a stand-down period for access to benefits - fair enough. Even Clinton had that in his 1996 welfare reforms. ACT ought to consider other parts of that policy, including the term limit on lifetime access to the equivalent of Job-Seeker Work-Ready benefits. 

And they've suggested greater enforcement against overstayers. People who overstay their visas but don't cause any other trouble aren't a priority for Immigration New Zealand - for pretty obvious reasons. Increasing enforcement would mean diverting resource from other activities, or staffing up. They're going to require platforms like Uber to do more checking that driver-partners have valid visas; hopefully the regulatory burden won't be substantial. I don't think there's any real problem here - overstayers will have particular incentive to not do crimes because drawing attention would mean quick deportation. But also fair enough where perceptions of system integrity matter. 

I worry more about what ACT's policy is responding to. A pile of people on the right have been encouraged to believe that the immigration problems evident in Europe and the UK will soon manifest in NZ - or that they already have. ACT hasn't encouraged this false belief. Some others have. 

Viewed as a suite of measures designed to help everyone have confidence that bad people would be kicked out quickly, so that NZ can maintain the kinds of high levels of support for migration seen in MBIE's surveys over the past decade, it's good. 

But a bit depressing that it may be necessary.

My column in Monday's post (ungated here) covered it. The online version of the article has links to the surveys etc that I used as source. 

I used a bar analogy. A bar ought to have at least one of a good doorman or a good bouncer. Unwillingness to have either could be risky. NZ has a decent doorman and a pretty good bouncer. Strengthening both won't do much harm, and could let the bar accommodate more patrons.

Judicial discretion under MMP: Smith v Fonterra

Robert Cooter's The Strategic Constitution is excellent. I used to teach from it in public choice. 

He provides a game-theoretic description of judicial discretion.

Imagine a unicameral Parliamentary system with no particular transaction costs in producing legislation. The executive and the Parliamentary majority have a unified ideal point. 

If the composition of Parliament and the Executive have changed since legislation was passed, and a case comes up revealing potential ambiguity in interpretation, the Judiciary can choose to interpret consistently with the bargain that was struck when the legislation was passed, the outcome that might obtain if the legislature and executive were to reconsider it, or the Judiciary's own view of what the public interest requires. 

The judiciary has zero discretion in that case. If it returns a decision inconsistent with Parliament's intention or views, Parliament immediately legislates to correct. 

In a bicameral system, legislating to correct a judicial decision requires agreement between the two houses. The executive will sit in the House; it needs the agreement of the Senate. If views between the two houses differ, the judiciary has discretion within the Pareto set: the set of all points between the ideal point of the House and the ideal point of the Senate. If the judiciary sets a decision outside of that Pareto set, the legislature reverts to some point within the Pareto set. 

He illustrates as follows.

In a unicameral Parliamentary system in a zero transaction-cost world, there is no opportunity to diverge. 

In a unicameral Parliamentary system that has a coalition, there is opportunity to diverge if the governing coalition does not understand the game or refuses to play consistently with it. 

If the bargain within the coalition is weak, the judiciary's discretion is constrained to the Pareto set of the members of the coalition. If it produces a decision outside of that range, the coalition can negotiate to overturn, returning legislation to the Pareto set. But it will not be able to find agreement to legislate to overturn a decision within the Pareto set: by definition, at least one member will prefer the Judiciary's stated position to the status quo.

A more clever coalition will realise that this game gives the judiciary room to unwind the bargain struck during coalition negotiations, and will pre-commit to overturn any decision that starts down that path - even if one party prefers the judiciary's decision in that particular case. 

That's the zero transaction cost world. A not-stupid coalition precommits to not letting the judiciary play shenanigans. And so the judiciary does not engage in adventures. 

Now let's move to the more realistic positive transactions cost world.

Parliaments have a habit of producing bad legislation whether through haste, incompetence, or unwillingness to resolve political conflicts within a governing coalition. In that latter case, explicitly political decisions may have been avoided through use of ambiguous language that will require the judiciary to take interpretive decisions of political consequence. You could imagine the legislation as not providing a point on the line, but rather a fuzzy shaded area spanning potential interpretations. And you'd hope that the legislature at least would have set legislation ruling out interpretations outside of the Pareto set.

Legislating around a decision is not costless. A governing coalition has its own legislative priorities. Time, effort, and drafting resource spent bringing an errant decision back in line means time, effort, and drafting resource not spent on other pieces of legislation. And some MPs' understandings of comity give the judiciary much room for shenanigans before the legislature would be allowed to act.

These transactions costs widen the range of judicial discretion. Even a governing coalition with tight agreement will not act unless the judiciary strays beyond a tolerable range. Beyond that range, the legislature will correct aberrant decisions. Within the range, the judiciary has discretion. 

And that turns things into an expectations game. If the judiciary expects that Parliament faces high transactions costs for reversion, then it will play as though it has a very wide range for discretion. Repeated refusals by the legislature to correct aberrant decisions affect those expectations. They reinforce the judiciary's view of its own discretion, and solidify legal academics' views that the court actually has that discretion. 

Smith v Fonterra looked like judicial shenanigans. Emissions have cumulative effects on global warming. No individual emission is the problem. It's their cumulative effect. Regulation makes far more sense than approaching it as tort. And we have a regulatory system around emissions. In the case of energy sector defendants, their emissions are fully covered by the ETS.

It took far too long to do it, but Parliament has finally moved to correct. 

I doubt it will be enough to convince the Supreme Court that the legislature is generally willing to incur costs to correct adventures by the judiciary. But it is a very good start. 

Australian defence

It's weird that NATO and others benchmark defence adequacy by spending as a fraction of GDP.

Surely treating inputs as targets rather than outcomes has been known to be a mistake for at least forty years.

Lifting defence spending, as fraction of GDP, to very high levels - but spending it on kit that can be easily destroyed by low-cost drones - seems like a bad idea. "It sounds like you're feeding multimillion-dollar tanks to thousand-dollar drones" kind of bad. 

Casey Handmer works through some obvious implications for Australia. 

The core technical fact that Australian defence planning has not absorbed is what Packy McCormick and Sam D’Amico call the Electric Slide: the five foundational technologies of the electric stack — motors, batteries, power electronics, sensors, and edge compute — have each decosted by roughly 100× over the past 30 years. The guidance electronics that in 1990 required a government munitions program now ship as the cheapest component in a disposable toy.

The practical result, demonstrated across Ukraine, Nagorno-Karabakh, the Red Sea, the cartel conflicts in northern Mexico, and now the Persian Gulf, is a cost-exchange regime in which a $500–$5,000 drone can plausibly destroy a $1M–$100M asset. Ukraine produced more than 2 million drones in 2024, and doubled that in 2025. Russia’s Black Sea Fleet, which in 2021 was significantly larger than the Royal Australian Navy, has been reduced by approximately 45% by an adversary with no navy at all. The dominant ships were destroyed by autonomous surface vessels and anti-ship missiles at a cost-exchange ratio on the order of 1:1000. Houthi operations have forced US carrier strike groups into standoff. Cartel drones routinely contest Mexican state control in Michoacán and Sinaloa.

...

Australia’s capability posture is built around high-unit-cost, low-count, foreign-sourced exquisite platforms — a force structure appropriate to a world where precision strike was a US/USSR duopoly and tactical mass was a minor consideration. That world is gone. In the world NDS 26 claims to operate in — the post-Ukraine, post-Red Sea, post-Nagorno-Karabakh world — tactical mass is everything, and the cost-exchange regime rewards the side that can produce cheap guided munitions in volume.

I'm less convinced of some of Handmer's arguments for a fully independent stack. Some insurance is too costly to be worth it. 

But the piece is interesting. 

As ANZAC Day approaches, imagine Australia and NZ taking these lessons seriously and taking a joint approach. Rocket Lab can launch small satellites. New Zealand has drone manufacturing. And maintaining ability to ship across the Tasman would seem a core objective for both. 

This may come as no surprise

RNZ reports:

An RNZ investigation into the tobacco blackmarket found packs of cigarettes and loose tobacco being sold brazenly over the counter at heavily discounted prices.

By law, cigarettes have to include pictures and health warnings covering at least 75-percent of the front of the packs. But the cigarettes being sold on the blackmarket are a throw back to the 1990s of glossy, embossed packaging and no ugly health warnings.

They continue:

Illicit cigarettes are being sold in Auckland without the warnings, with some going for as cheap as $13 a pack, less than a third of the price of a packet that includes excise tax.

An East Auckland shop visited by RNZ is selling 15 different packs of cigarettes. Only one carried the mandated health warnings.

Great that RNZ is starting to understand what's going on. 

Here's RNZ in 2024, quoting academics suggesting that claims about the illicit market were all down to industry influence. 

Smokescreen: Expert rubbishes govt claim of black market over smokefree legislation
...

But University of Auckland professor Chris Bullen said since the Smokefree Aotearoa goal came in in 2011, there had been no increase in the proportion of illicit tobacco products, and the absolute size of the illicit market had declined.

"We haven't seen that in New Zealand over more than a decade of increasing the price of tobacco. In fact, all of the evidence points to a decline. That may be in part due to a reduction in demand for cigarettes, because much fewer people are smoking, and they're smoking fewer cigarettes."

Tobacco companies have to declare to the Ministry of Health what was being released into New Zealand.

"By looking at the last 10 years of those records, the volumes of tobacco, reflecting demand for it, have been dropping quite dramatically. Smokers also report smoking less. The gap between what the tobacco companies release into the market and what people say they're smoking is also declining, suggesting that while there is illegal tobacco in the country, it's not increasing," Bullen said.

Bullen said the government should implement the legislation, and support Customs to continue to keep illicit products out of the country.

The claim of a rising black market was also used by the tobacco industry.

Bullen said the argument was a "zombie argument" that refused to die, and that politicians needed to think hard about repeating arguments used by the industry.

"The tobacco industry, it's in its interests to claim that things are bad so that the government takes its foot off the tobacco control accelerator pedal.

"They want to keep selling more product, they don't want the volumes of tobacco to be going down, because that would mean losing business. It's in their interest to have political support, whether it's conscious or unconscious, intentional or unintentional, for slowing the game down."

He has urged the government to keep the smokefree legislation.

"I just think unfortunately this government has been scared off, or persuaded by voices directly or indirectly from industry, that meant we're not going to see the best outcome here. And that will play out in the ongoing misery and premature death for thousands of people who shouldn't have experienced that if the existing act was allowed to play out over the next few years."

Australia's black market problem has been obvious for years.

Australia has been deporting gang members across the Pacific. It's dispersion of the tacit knowledge of how to run an illicit cigarette industry.

Fronting the fixed cost of establishing illicit supply channels to Australia meant the only thing to sort out at the NZ end was how to get it into the country, not where to get it from. 

It was always going to be a worsening problem here.

Labour's proposed policy package, endorsed by Bullen, included Very Low Nicotine Content rules. 

Those rules would have made the illicit market the only place to find tobacco with any appreciable nicotine content. Recall that the allowed nicotine levels in VLNC cigs are equivalent to a 0.2% alcohol maximum for beer. It's the equivalent of prohibition, for those who remember that US prohibition allowed near-beers with very low alcohol content. 

Consider how much worse the illicit market problem would have been if the current government had maintained Labour's tobacco policy package.