Some basics on incidence of student loan relief

Labour proposes wiping 10% off of outstanding student loan balances for domestic borrowers that are not in arrears and who have not benefitted from fees-free study. That write-down will happen on 1 April.

It proposes doing it again in 2031, and each year afterwards, for borrowers in good standing who have been NZ-based over the prior three years. Those whose balances are at or under $2000 will have the debt written off completely. 

Some of the effects of this are straightforward.

If you are a current student and you have not borrowed as much as possible at zero percent, then you have stronger incentive to max out your loan. Borrowing at zero percent is free money. The amount you will have to pay back, eventually, is worth less than the amount you're given today barring deflation. So if you had otherwise been paying for living costs from savings from a summer job, rather than taking on debt, keep your savings in a term deposit. Whatever that term deposit pays will be higher than zero percent. And in 2031, ten percent of your loan balance will be wiped out. 

I don't think Labour's figures have accounted for this stronger incentive to borrow to the maximum. 

Graduates with large balances and with strong earnings get the largest benefit from the policy. Remember that the loan balance, at zero percent interest, only really determines when you have to stop paying $0.12 on every dollar earned above the threshold to pay down your debt. The present value of that obligation is higher for those who are actually paying down their loan. If you have a large balance but no earnings, you have no repayment obligations. Taking 10% off of that balance does not affect when you'll pay it off. The balance will eventually be wiped out because it does not transfer to your estate on death. 

As we approach 2031, which I'm pretty sure is the first year in which the 'small balances are wiped' happens, those with balances of up to maybe $15k and ability to shift funds around to drive that balance down to $2k should really consider doing so. Getting the $2k wiped off can be a decent return. But obviously if your balance is above $20k, it's better to have 10% wiped off. 

I go through it in this week's column for Newsroom, now ungated. 

So we should expect that borrowing will increase if students expect loan balances to be partially written off three years after graduation. How many students will decide to stay here rather than move abroad after graduation is anyone’s guess. But moving abroad already means facing actual interest payments on student loan debt.

New Zealand’s Student Loan Scheme is already heavily subsidised. Every year, the government writes down the value of its lending, largely because that debt attracts no interest. In the most recent annual report, the subsidy provided through new student loan lending amounted to $585m – the cost of the initial write-down.

That ongoing subsidy would increase under Labour’s proposed policy, in addition to the up-front cost of about $460m, with some odd distributional and incentive effects.

I suspect there are better uses of hundreds of millions of dollars. But it is an election year.

I still think it would make more sense to reinstate interest on loans while setting means-tested scholarships instead, along with better prep for tertiary study at high school. 

Supermarkets and due process

I hate election years. 

The Commerce Act sets out penalties and remedies for various types of anticompetitive conduct. Do the anticompetitive thing, get caught, be shown to have undertaken the unlawful conduct, face a penalty and possibly a remedy. 

National wants to break up one of the large grocery chains, splitting its banners and requiring duplication of a pile of infrastructure. 

Divestment is a remedy under the Commerce Act for unlawful acquisition. And it can be required as part of a merger authorisation. There have been no such cases. 

ComCom has brought cases against one of the grocers, with things still in process. But you just can't reasonably go from "ComCom is investigating an allegation of anticompetitive conduct" to "we will impose a remedy that isn't in the Commerce Act regardless of how those cases go, based largely on whether a cost-benefit assessment figures it's a good idea."

It's my column in this week's Post (and Press and Times etc). I also had a quick first-cut assessment of the CBA that they want to hang this on. 

The Post column was mainly a thought experiment: what would have to have happened for it to be non-crazy for ComCom to ask for a breakup power in retail grocery? I think it would be something like the following, under competition process as I understand it. 

Unlawful conduct aimed at thwarting competition would not be enough. Not on its own. The Commerce Act has meaningful penalties for that, as well as remedies. The courts can apply injunctions against continuing the unlawful behaviour too.

That would normally be the end of things. Injunctions and penalties work. Break-ups are not a potential remedy in this kind of thing because it is entirely disproportionate.

Something else would have to happen.

Imagine that, after the injunctions, rather than really abide by the decisions, a firm that has engaged in unlawful conduct kept finding new ways of achieving the same anticompetitive outcome.

Monitoring and interim relief provisions could normally prevent this. So there still would be no case for adding a break-up power.

But suppose that unlawful conduct could happen faster than the commission could ever act, and potential entrants would lose financing before the commission could act to stop behaviours aimed at killing off a new entrant.

In that kind of scenario, it is possible to imagine the commission asking Parliament to provide a break-up option. It is still a stretch: Commerce Act penalties can extend to three times the commercial gain.

But even if that option were made available, invoking it would only be possible after court determinations of unlawful behaviour that could not be remedied more normally.

And I would hope that it would also require cost-benefit assessment demonstrating that separation is more effective than the full range of less intrusive remedies, and provides benefits that exceed the costs – along with a chance to test and challenge the workings.

I hate election years. 

But there is one bright spot: ACT's supermarket policy is good, and so was Seymour's speech on it. 

Australia and vaping

Action on Smoking and Health NZ's Prof Beaglehole went on tour in Australia. Other NZ public health academics who want to copy Australia might consider a similar trip.

He writes:

What I found was revealing. Legal cigarettes were widely available, although expensive, costing A$40 to A$60 (about $50-$74) for a pack of 20. Yet illicit cigarettes were easy to obtain, starting at A$9 a pack. One shopkeeper even offered some unsolicited business advice: “If you want to get rich, open a tobacco shop and sell cheap cigarettes.”

Then I went looking for vapes. The contrast was striking. Illegal vapes were easy to find. Regulated legal vapes were not. They are available only through pharmacies, which are not required to stock them and most do not.

Smoking and vaping are not the same thing. It is the burning of tobacco and inhalation of smoke, not nicotine, that causes almost all the disease and death caused by smoking. Vaping is not harmless, but the evidence strongly supports it being substantially less harmful than smoking.

 ...

Of course we should continue to protect young people. Age restrictions should be enforced. Marketing should be tightly controlled. Products should be properly regulated.

But we should be just as determined to help people who smoke quit.

Some New Zealand experts have argued that vaping products should be supplied only through pharmacies, as they are in Australia, to reduce youth vaping. But any proposal to make vaping less accessible should confront a simple question: what will people who smoke do instead?

My Australian road trip offered a reminder that public health policies should be judged not only by their intentions but also by their consequences.

For those concerned about youth vaping, there is a very obvious and easy policy move. Selling vapes to those underaged is illegal and draws penalties. Social supply by older friends is unregulated.

The Sale and Supply of Alcohol Act, at s241, makes it an offence to supply alcohol to a minor without the parent or guardian's permission.

It is exactly the right framework to use here, where you'd want to maintain parent ability to supply vapes if the kid has started smoking. 

You could take the first three parts of s241, go through with a crayon, cross out the word alcohol, write in the word vape, stick it into the Smokefree Environments Act, and call it done. 

I do not know why public health people concerned about youth vaping aren't arguing for this move. 

Against laissez-faire democracy

Jason Brennan and Christopher Freiman have fun applying standard market failure arguments to democratic politics. 

A snippet:

Each of the major market failures which supposedly justify government intervention appear in democratic voting and elections. Indeed, some of these failures are anomalies in markets but are baked into democratic elections. Accordingly, there is a prima facie case for regulating democratic voting with the same mechanisms used in market regulation.

Converting this prima facie case into an all-things-considered case requires a few more steps. First, we need to discuss how regulation might work, considering the possibility that regulation will fail, be too expensive, or make things worse. Note that the burden here, as with market regulation, is not to show that regulation will decisively solve all problems, but rather than it will perform adequately, with the benefits exceeding the costs. (We doubt most readers think that market regulation must be perfect and problem-free to be justified. They should apply this same standard here.) Second, we need to consider disanalogies and objections, including arguments which hold that people have a special right to engage in democratic failures free of regulation.

The article is open-access for those keen on reading the whole thing.  

American questions about Australian online safety

The US Embassy in Canberra has raised a few concerns about Australia's Online Safety Amendment (Duty of Care) Bill. 

The same concerns will apply to any NZ equivalent. 

A few choice bits:

Speech & Platform Design Concerns – The United States has serious concerns about the Australian government’s stated goal of mandating broad duty of care requirements that dictate how platforms manage content and users’ feeds.  Concerns include:

1. how the Australian government, or the Communications Minister, would designate what constitutes “foreseeable harm”; 
2. any resulting requirement that platforms alter their algorithmic systems to suppress expression that should be protected in order to avoid liability, or, if not an explicit requirement, any approach that would likely result in platforms defaulting to pre-emptive censorship to avoid the risk of liability.

• We are particularly concerned by potential mandates that would allow regulators to impose rigid, one-size-fits-all platform design requirements – such as forced chronological feeds or opt-in recommendation systems.
• A framework that empowers governments to enforce vague definitions of “harm” risks becoming a mechanism for viewpoint-based censorship, as platforms will be incentivized to over-moderate speech that should be protected to avoid regulatory penalties.
• Such a framework also risks reducing the reach of independent journalists or other voices whose content touches on sensitive or controversial topics that platforms may preemptively demote to comply with overbroad safety mandates.
• We ask that Australia clarify how exactly “harm” and “risks” shall be determined, if there are any standard definitions that will be utilized, and by whom in the context of the proposed plans, ensuring these definitions do not encroach on protected speech.
• If Australia compels platforms to aggressively filter content in algorithmic feeds to satisfy a government mandate, and such filtering draws in protected speech, the effect on a disfavored speaker or media source’s reach would not be meaningfully different than outright removal.  The U.S. government would likely consider such a measure as facilitating censorship.

The Embassy also notes the extraterritorial reach of Australia's policy, and the American government's clear "opposition to foreign measures that result in extraterritorial censorship of protected speech by Americans online."

The case for unilateral recognition

Bilateral, plurilateral, and multilateral are words that New Zealand's civil service love. There is nothing that can't be improved by doing it in concert with others. 

Sometimes there's good reason for just doing stuff. 

New Zealand made the right decision when it unilaterally slashed all of its tariffs. It also progressed all the other trade agreements that helped make trade easier. But it didn't wait for those lengthy processes. Just cutting tariffs earlier was just fine. 

A couple of weeks ago in Newsroom, I made the case for doing the same thing with standards recognition. We already do it with automobiles. We don't need bilateral or any other agreements between New Zealand and other places to make sure that the cars we import are safe. Instead, there's a long list of standards that New Zealand considers to be good enough, whether the standard-setting countries like it or not. Pretty unlikely that they'd object though. 

New Zealand is part of FSANZ - a bilateral standards-setting body for food-labelling. NZ and the Australian States jointly set the product labelling rules. But it also means that imported foods that aren't labelled for the NZ-Oz market have to carry the stupid little stickers that add cost but no real value. 

Like it did with cars, New Zealand could unilaterally say that products labelled for the American, Canadian, Singaporean, UK, Irish, or EU markets (so long as the labelling includes English) is good enough for here too. We don't need bilateral, multilateral, plurilateral, or any other kind of -lateral agreements to do it. We could just do it. 

Sure, it would be even better if those countries all said that FSANZ labelling is good enough for their markets. But getting that agreement seems impossible for Canada, and probably hard for the rest. And much of the market-access benefit can be achieved through unilateral recognition. If NZ unilaterally said that products labelled to Canadian standards were good enough for NZ, then a NZ producer targeting the Canadian market could just label everything to the Canadian standard and sell that version here and there. 

First best would be everyone just agreeing that everyone has been stupidly precious about all of this, and that the labelling for any of these markets is good enough. Then nobody would have to set country-specific labelling runs. And if it were likely that NZ could have agreements with piles of countries to accept each others' labelling, then an NZ producer wouldn't have to decide which of those markets it was targeting. NZ labelling would be good enough for all of them. 

But bilingual labelling in Canada is best viewed as a religious commitment. 

MinReg this week put up an excellent report on the costs of this kind of labelling nonsense. It makes the case for, among other things, mutual recognition of international labelling standards with trusted jurisdictions. 

I don't disagree, conditional on those agreements being feasible to achieve in finite time and not precluding NZ acceptance of other country standards as well. 

But unilateral recognition should also be on the table. Having UK-labelled stuff on the shelves here would be just fine. And it'd make it easier for a UK-based supermarket to open stores here, if it wanted to.

Migration or Stagnation

Michael Clemens shows that a rise in noncitizen worker prevalence in Korea from 3% to about 14% over four decades would offset the effect of Korea's demographic shift. 

The Republic of Korea (ROK) faces an economic crisis driven by rapid population aging, approaching negative economic growth. I quantitatively examine the full range of policy responses and find that enhanced temporary labor migration is necessary, sufficient, and feasible to offset demographic drag. It is necessary because no other policy channel (including capital accumulation, artificial intelligence adoption, elderwork, education, or pronatalism) has the clear quantitative potential to meaningfully offset aging in the best available forecasts. It is sufficient because a rise in noncitizen worker prevalence from 3% to about 14% over 4 decades would offset most of the demographic drag on economic growth in the ROK. And it is feasible because this trajectory resembles that already experienced by Malaysia and Australia. Many advanced economies will follow in the ROK’s demographic footsteps and have much to learn from its decisions.

I'd run some rough figures earlier in the year. If NZ maintained net migration of around 1.8 young net migrants for every person turning 65, you could maintain the current under-65 to over-65 ratio. The absolute number of migrants would have to go up as resident migrants age. If other ways of changing NZ Superannuation are ruled out, this would be an alternative.