Friday 30 October 2009

Time to re-run the algorithm

I'd previously noted the optimal algorithm for naming names.

Looks like we'll need to run it again come April/May.

I should have the excel file from last time round; the updating just requires culling names that made the top 100 in the last two years. Much easier job.

Afternoon roundup

Posting has been light as I've finished one set of grading and polished off a submission with Matt Burgess to the Law Commission on their alcohol issues paper. More grading for the weekend. In the meantime, enjoy these:
  • The University of Akron demands a DNA sample from staff. I don't worry much about my DNA being out there, but is the kind of place that would want this the kind of place that you'd want to work? Sheesh.

  • George Soros throws $50 million at funding anti-economics economists. Will the academic outcries be as loud as when BB&T gave $1 million to fund a course in Ayn Rand studies? Similar bequests on the right have led to endless handwringing about subversion of the independence of academia: just remember the establishment of the Friedman Center. Why the silence now? Hmm.

  • I'd warned that ACC might have cause to worry about annoying John Small. Seems I was right.

  • Lindsay Mitchell points to a new Treasury document showing that
    Households (with children) in the bottom half of the income distribution effectively pay no income tax or receive tax credits, because of the interaction with the income support system.

    The top 10% of income earners (those earning more than $70,000) pay more than 40% of all income tax revenues and about 20% of GST revenue.
    The bottom half pay zero net tax; the top 10% pay 40% of the tax. Yikes.

Wednesday 28 October 2009


Robin Hanson notes that Labour's argument on ACC privatization generalizes:
Years ago as a health policy postdoc at UC Berkeley, I was stunned to hear a famous health economist explain it was good that the government did not disclose the med outcome data it made hospitals collect – the public might “misinterpret” outcomes, you see, not correcting right for differing patient mixes. He didn’t think it relevant that the same argument suggests Consumer Reports not publish car reliability stats, since they do not correct for driver differences.

Eric Crampton notices a similar mistake:
I’ve about a half dozen times heard … spokespersons … arguing that allowing private competitors into …. the New Zealand Accident Compensation Commission, is bad because private firms have to earn profits and so they’ll have to have higher cost structures than the public insurer. But no National Radio interviewer provided the obvious retort: If the argument were true, we’d want the government to be running everything!
The core problem seems to be that folks who intuitively feel that area A deserves special treatment T look for a justification, and then stop when they find a feature F of area A that suggests treatment T might be a good idea. But by stopping there, they do not consider why this argument does not also justify the same special treatment T of areas B, C, D, etc. that also have feature F. This is an extremely common error, even among folks very skilled at analyzing math models of feature F.

To justify their intuitions that medicine should be treated specially, people often refer to features like sometime large decision consequences, sometimes large prices, suppliers knowing more than customers about product quality, customer behavior influencing customer outcomes, etc. But such folks usually do not favor giving other areas that share these same features the same special treatments.
I wonder if the "even among" may be more "especially among". Gotta occasionally look up from the blackboard and peer out the window....

What crisis?

Lindsay Mitchell points to the newly released 2009 Social Report for New Zealand. On "potentially hazardous drinking", the Social Report notes that potentially hazardous drinking among 15-24 year olds in 1996/1997 was 40.8%; in 2006/2007, it's 41.1%.

Clearly this is such a horrible rising trend that we have to increase the drinking age to 20, where it was in 1996 before all our teens starting heading out on alcohol-fueled rampages. A recent survey showed three quarters of Kiwis believe lowering the drinking age has had a negative effect, which is clearly revealed in this shocking new data of 0.74% increase in the rate of harmful drinking.

Even worse, this massive and unprecedented increase in the rate of harmful drinking was concentrated among the most socially marginalized and disadvantaged group, European/Other, which saw an increase of 6.9%; by contrast, the Maori and Pacific Peoples groups saw decreases of 2% and 1%, respectively.

Geoff Palmer is right. It's time to increase the drinking age to 25 and brand drinkers with the sign of the A for Alcohol. Statistics don't lie, and these ones more than justify anything the Law Commission might wish to recommend.

Having to fund your opposition

Isn't it wonderful that drinkers like me have to pay a surcharge on our drinks to help fund ALAC, whose blog touts the discredited BERL report on the social costs of alcohol, promotes Doug Sellman's anti-alcohol campaigning, and argues:
The tobacco industry and the liquor industry have a lot in common. They’re both legally entitled to sell a product which frequently kills the user – and sometimes kills innocent victims as well. Both industries are well aware of the damage done by their industries and both have fought vigorously to avoid taking any responsibility for the death and destruction their products cause.

...researchers recently gained access to confidential alcohol industry documents (9). These documents identify the top 10 concerns of the liquor industry, not one of which is about the harm caused to consumers by alcohol. Instead, these documents highlight the industry’s fear of being targeted by health reformers and controlled by government in the same way that the tobacco industry has been.

The liquor industry’s contempt for its customers which is displayed in these documents shows how much liquor and tobacco have common. There is no doubt – Big Booze needs to be treated like Big Tobacco. Hopefully, the publicity that Doug Sellman’s speaking tour and the Law Commission’s review will generate will be enough to turn the tide of public opinion.
Article submitted by Roger Brooking, Alcohol and Drug Counsellor.

The views expressed in this article are the opinions of the person who submitted the article and may not be the opinions or views held by ALAC.[Yeah, right]
The industry is right to worry that alcohol's now having the same treatment applied to it was was previously applied to tobacco, egged on by the folks eeking out a parasitic existence on levies extracted from alcohol consumers.

It annoys me that I'm paying $0.017803 per litre of beer I purchase to help fund ALAC. I compensate for it by buying only expensive beer so that the percentage price I'm paying to ALAC is smaller. Last night's tipple: Pink Elephant's Golden Tusk. Tasty bitter.

Poking economists can be risky

When I got annoyed about BERL's work on the "social costs" of alcohol and wasn't impressed with their response to critiques, things got interesting.

Now it seems that John Small is a motorcycle rider. And he's started digging into ACC's justification for massive increases in insurance levies on motorcycle registrations. And he doesn't like what he's finding. I hope for ACC's sake that they're able to quickly show him what they were up to, or that Small doesn't get a lot of consumption value out of annihilating shonky analyses that justify imposing costs on him. 'Cause as mildly irritating as I was for BERL, I'm sure Small would be far more irritating for ACC.

It makes sense that bikes would have to pay a bigger fixed cost than cars even if risks per mile driven were identical across the two vehicle classes: bikes use less petrol per kilometer, and ACC charges a petrol levy of 9.9 cents per litre to reflect the added risk per additional amount driven. They can't charge differential petrol taxes per vehicle, so it has to get loaded into the fixed charge. Given that, though, it would take remarkable differences in accident risk/damage by type of motorcycle to generate the fixed charge difference between small and large bikes that ACC proposes: $257 for a <125cc bike and $745 for >600cc. The larger bikes use more petrol per kilometer than the smaller bikes.

Small is definitely right that there's a bias against motorcyclists built into the system, but the optimal tariff structure given an untaxed segment is pretty difficult. First best, we eliminate the untaxed segment: we can and should put an ACC levy on cyclists. It would be fairly easy to require a rego for cyclists and to charge an appropriate ACC premium for them (risk rated for type of bicycle, whether there's a kid's seat, etc). Doing it for pedestrians would be pretty tough. The only way of doing it, best I can reckon, would be through a poll tax added onto your regular income tax, perhaps risk rated by number of pedestrian accidents in your neighbourhood. In that state of the world, premiums could reasonably reflect the two-sided nature of accident costs (a car-bicycle accident needs both the car and bicycle present).

Outside of that state of the world, whenever a bicyclist gets on the road, the ACC premium for any vehicle that can injure a cyclist, even if it's one of those horrible cyclists that plug up Riccarton Road going through Hagley Park despite the existence of perfectly good cycle paths going through the park paralleling the road (hates them I do), goes up. So the bias is really on any segment that is taxed compared to the untaxed segment. We'd then expect, though, that trucks and buses would have a heavier charge attached to them -- they do more damage to the untaxed segment in any encounter between the two. Small says trucks are getting a pretty sweet deal. Given that diesel trucks don't pay a petrol levy, he's almost certainly right; would need more details on accident rates to be sure though.
That's enough for now - I'm off for a ride.
If I were ACC, I'd be rather nervous about the "for now" part. Sounds like there's a fair bit he could take a sledgehammer to, were he so inclined.

Monday 26 October 2009


John Small wonders what the deal is with anti-paternalism. First, in his view, it seems an ad hominem attack on any kind of disliked policies. Second, many "nanny state paternalistic" policies are supported by lots of folks; objection to those policies then seems anti-democratic.

Taking those in turn, while there are some policies where John rightly notes fuzzy boundaries between paternalistic and non-paternalistic policies, for most it's pretty clear-cut. A policy is paternalistic if its main objective is to protect you from yourself. So, yeah, it would just be ad hominem (and absurd) to label, say, laws against murder as paternalistic. We don't have laws against murder solely for the purpose of saving the murder from ex post regret. But it's hardly ad hominem to note that a policy's main goal is to stop you from doing things that might (or might not) hurt yourself.

The main problem is that all sorts of laws that are based mainly on paternalism are framed as being based on externality grounds. Because their proponents know not only what's best for you but also that you'll oppose those laws if they're presented honestly. It's hardly ad hominem to slash through the shonky veneer that gets pasted over such policies.

Small then finds it incongruous that Buchanan would advocate that a popular vote (on a constitutional amendment) could be used to prohibit the use of popular votes on issues like paternalistic restrictions. Buchanan noted the case where weak majorities might be found preferring each of several paternalistic policies (while strong minorities oppose each) but where broad support could be found for restrictions on democratic choice on the set of policies (because different folks are in the minority on different issues).

The whole point of Buchanan's constitutional enterprise is that it is wholly legitimate and even necessary for democracies to bind themselves against certain types of decisions. At the constitutional level, we set restrictions on certain types of choices, requiring that they pass only by means of supermajorities. This doesn't "deny the legitimacy of democratic decision making"; rather, it makes it possible for democratic choice to be legitimate!

Buchanan and Tullock lay it all out in their 1962 Calculus of Consent. If we consent to the constitution, then the rules that follow afterwards also are legitimate. What sorts of constitutions could be supported behind the veil of uncertainty? Well, we want to make sure that we're not going to be on the losing side too often, especially on decisions where fundamental rights are at stake. But it's often better to be on the losing side on some issues if the value of playing the game at all is high enough: all having a veto on everything probably wouldn't work too well. So, what sorts of decisions should pass by supermajorities? Ones where external costs are high relative to decision-making costs. Recall that decision-making costs are increasing in the size of the required majority (it's more costly to get 75% to agree than to get 51% to agree) while external costs -- the costs falling on those who disagree with the decision -- are decreasing in the size of the required majority. So, where are external costs relatively high? Decisions relating to fundamental rights, for starters. Would we want 51% to be able to expropriate the other 49% by popular vote? Does saying no deny the legitimacy of democratic decision making?

Where else might we expect external costs to be relatively high? On decisions that affect personal autonomy where no other issues are at stake. Yes, my autonomy is restricted by having to drive on one side of the road rather than the other, but others' autonomy to hurt me is restricted at the same time. The class of rules that would restrict my autonomy for the sake of preventing my imposing harms on myself (as others deem harms and benefits) seems pretty likely to have pretty high external costs behind the veil. And so it isn't crazy to think that constitutional rules could well be warranted protecting against this kind of legislation.

Friday 23 October 2009

Proves too much

I've about a half dozen times heard various Labour Party spokespersons on National Radio arguing that allowing private competitors into things covered by ACC, the New Zealand Accident Compensation Commission, is bad because private firms have to earn profits and so they'll have to have higher cost structures than the public insurer.

But no National Radio interviewer provided the obvious retort:

If the argument were true, we'd want the government to be running everything! Why do we allow private provision of supermarkets? Woolworths just sucks out profits to send back to Australia when a government-provided supermarket wouldn't face that constraint. Heck, why do we allow private competition in property or life insurance? If the argument were true. But it isn't. And the reductio makes it obvious. And the reductio is obvious. And I didn't hear anybody suggesting it. Maybe I just wasn't listening closely enough.

Andrei Shleifer nicely lays out the conditions under which state ownership is preferable to private ownership. In short, if you're worried a lot about post contract chiseling on quality on non-contractable dimensions due to cost pressures and if you're not worried about keeping costs down and if product innovation doesn't matter much, then you might want to stick with public ownership. Shleifer figures AirForce One might fit the criteria. Workplace accident insurance? Not so much.

Morning roundup

  • Germany's push for renewable energies comes at a cost: carbon abatement costs from home based photovoltaics is $1000/ton, heavily subsidised

  • Bootleggers, Baptists and climate

  • South African land reforms driving productive farmers to the Congo as a hedge.

  • The healthists advance (pt 1): Doug Sellman claims he doesn't want to return to prohibition but wants a "middle ground" between extremes; of course, alcohol is already heavily regulated. If every year we move to the midpoint between the "extreme" of the status quo and the "extreme" of prohibition, in how many years do we reach prohibition? Ok, it asymptotes, but you get the picture.

  • The healthists advance (pt 2): Christchurch City Council advocates:
    • minimum drinking age of 16 (not unreasonable)
    • split purchase age limit of 18/20 for on and off license purchase (will make the hospitality industry very happy; they've been lobbying for it to knock out the "drink at home" competition)
    • A national closing time for bars of 2 am that councils can adjust (ugh)
    • Health warning labels on alcohol (ugh, and serves as a non tariff barrier against imported drinks just as the "standard drink" labeling requirement did.)
    • "Powers to force bars to offer standard measures of wine, beer and spirits" -- a standard drink has 10 grams alcohol. Will bars have to have different sized glasses for different strengths of beer? Double ugh.
    • Higher taxes on alcohol -- but the McLeod Tax Review, Barker's Treasury analysis, and my work all show no case for increasing the excise tax
    • Restricting discounting by supermarkets (cartel price fixing)
    • Controls on liquor advertising, zero blood alcohol limit for under-20s.
    The article goes on to quote a Christchurch bar owner upset at the 2 am limit while most alcohol sales remain off-license. My impression is that the hospitality industry association has been pushing hard for a split age limit that would mean 18-19 year olds could only drink in bars; a cynic might think they're doing this to restrict competition for that age group. And a cynic might have a lot less sympathy for bar owners who lobby for restrictions that hurt their competitors and then complain when restrictions also are imposed on them.

Thursday 22 October 2009

Lifeboat situations: Ephemerisle Edition

The one event closest to an “incident” was a perfect fable of libertarian communalism (trying to run an improvised society without lots of rules) versus libertarian propertarianism. A swing-set boat was drifting in the waterway and had to be dragged in. The boat that volunteered to do so was sinking; the people stuck on the swing set were shouting for help, the last thing any of us wanted to hear.

So the nearest boat, a rented speed boat, was taken out by a Samaritan, against the wishes of the people who had rented it. I witnessed a tense, repetitive, and ultimately inconclusive debate between the boat owners and Rinaldi, as they took the stance of paying customers wondering why the event didn’t have a better plan for such eventualities than just grabbing the nearest boat. Rinaldi argued that they did have a designated rescue boat, it was just blocked by the complainers' boat. So this ruleless community had to improvise the best solution to the emergency that arose. In Rinaldi's view, the boat renters were really demanding that Ephemerisle have a government to take care of them. But if they were unwilling to pitch in and help, maybe they’d be better off not participating in a ruleless community. No one budged; the conversation wound down with Rinaldi assuring them that, even as they complained to him, if he heard someone shouting “help” and their boat was still the quickest means at hand, he’d temporarily commandeer it again.

Brian Doherty, Building Ephemerisle, Reason

Lifeboat situations at Ephemerisle....

At next year's Ephemerisle, I expect they'll construct a situation in which a sinking ship with ten people on it can be saved by someone throwing a lever that causes a ship with two people on it to sink instead, and another where they can only save the ten people by pulling the lifejackets off of two non-swimmers in the water to aid the ship's buoyancy. What will they do? Stay tuned....

Update: yes, I am just jealous...

State-level political polarisation

Andrew Gelman points to some really neat data work by a colleague of his, Boris Shor (jointly with Nolan McCarty) on ideological positions of US State legislators. How does he put them on a common scale? By exploiting that many members of State assemblies go on to Congress where they then get an ADA score. So long as the state legislator's ideology doesn't change in the move from state legislature to Congress (or, more importantly, doesn't exhibit any changes that are specific to any legislators coming from that state), we then have some fixed reference points in each state legislature.

Gelman provides this picture from Shor:

Some things aren't that interesting to me. Of course New York, Connecticut and Maine have both Democrats and Republicans far to the left of the Congressional averages. What's more interesting is the gaps between the parties. In Utah, Indiana, Wisconsin and California (and a couple others), there is no overlap between the Democratic range and the Republican range. In Rhode Island, there's no overlap but only a tiny difference in means. In lots of other states, there's substantial overlap between the two parties' positions. I wonder what drives that kind of state by state variation. Open versus closed primaries? Something else?

Oddities in the economics of academia

Andrew Leigh reports on work by Andrew Norton suggesting that university funding regimes will have some universities in Australia aiming for fewer domestic students despite the current downturn meaning that the opportunity costs of attending university, for students, are at a low.

Why would universities want fewer students? Well, if the government funding regime sets a quota on student numbers beyond which additional students generate only tuition income for the University, and if tuition income does not cover the marginal costs of educating a student, and if tuition levels are capped so that they cannot be increased to cover the student's marginal costs, that's about what you expect to have happen.

The NZ system is pretty similar.

I've heard numbers thrown around here than an additional domestic student in the College of Business and Economics next year costs the College more money than the student brings in. The tuition income we get from a domestic student is less than the per student overhead tax that we have to pay to the central university administration and we're at our maximum quota overall for the government's subsidy for students. So every additional domestic student costs the College about $300.

Going Galt

Reprising my earlier skepticism, here's the current Google Search Insights trends on objectivist libertarianism versus communism, with searches on "recession" given as a benchmark. Embedding these charts still not working right (why can't Blogger integrate with Google Insights for Search in Chrome? Where is John Galt?)

Blue gives total searches on any of ("Das Kapital", "Das Capital", "Communist Manifesto", Marxism, Communism, "Karl Marx", "Carl Marx").

Red gives total searches on any of ("Atlas Shrugged", Objectivism, "Ayn Rand", "Ann Rand", "The Fountainhead", "Virtue of Selfishness", "John Galt", "Going Galt"). The last term added just for Alex.

Yellow gives searches on "recession" as a scaling term. Note that I didn't put in "depression" because then I have to figure out all of the keywords to exclude to knock out searches on psychiatric disorders.

A slight up-blip around February of this year. Top ten countries for the Objectivist searches? USA, India, Canada, Phillipines, Norway, Singapore, South Africa, New Zealand, Sweden, Australia. In none of those ten countries are the Objectivist search terms more popular than the Communist ones, though this surely is affected by the number of schools requiring reports on communism (huge seasonality in the Communist searches that corresponds to Northern Hemisphere school year, no such seasonality in Objectivist searches.)

Of course, we wouldn't expect a true "Going Galt" moment to be evidenced by lots of Google Searches on objectivism. Rather, we'd see lots of Google searches on things like "Where did Sergey Brin disappear to?" "Going Galt" was always meant to be something for the top 0.1% anyway: Eddie Willers isn't invited. But continued evidence against a mass surge of interest in Objectivism.

Canberra Times

The Australian version of my piece that appeared in the New Zealand Herald is out in the Canberra Times.

Life’s joys get a little lost down holes of health-cost analyses
Reports on harmful human habits should be taken with a grain of salt – or a stiff drink, ERIC CRAMPTON writes

Soon, we’ll see a report showing that the social costs of skiing are in the hundreds of millions of dollars. It wouldn’t be hard to produce a number that large. First, show that frequent skiers are more likely to have accidents than recreational skiers. Then, make the critical assumption that nobody could ever rationally decide to take risks – health is all that matters. Frequent skiers then are by definition irrational, and irrational people enjoy no benefits from their ski outings, no matter how happy they appear.

With this ‘‘zero benefits’’ assumption, every dollar spent on skiing by these harmful skiers is a social cost, as is the time these people spend skiing. Add the realised costs from those who do have skiing accidents and you’d quickly have a number in the hundreds of millions of dollars, if not billions.

We’ve seen a lot of cost measures of this sort. Tobacco, fatty foods, gambling – just about anything fun seems to cost ‘‘society’’ more than a billion dollars. Most recently in New Zealand, Business and Economic Research Ltd told us in a $135,000 report funded by the Ministry of Health and Accident Compensation Corporation that the cost of ‘‘harmful’’ alcohol use is about $5 billion a year. BERL largely followed the method proposed by Australian academics David Collins and Helen Lapsley, who recently argued the costs of tobacco, alcohol, and illicit drug abuse in Australia totalled $55 billion. But, like my hypothetical report on the costs of skiing, these reports rely heavily on what I’ll call a ‘‘healthist’’ assumption about how we should live our lives: any time we make a decision that lets us enjoy a bit of fun but with some risk to our health, that decision is considered irrational and cannot generate any real enjoyment.

Consequently, benefits are either assumed equal to zero or set to an arbitrarily low level. But is it really irrational to trade off health against other goals? I have a hard time imagining somebody for whom health isn’t good. But similarly I cannot imagine anybody for whom health is the only good. We all trade off risks to our health against other goals we seek, all the time.

If you saved a few dollars by not buying the most expensive baby car seat on the market, you decided that the very small extra increase in safety for your child isn’t worth the money. If health and safety were our only goal, the world would look very different. We would all buy cars made of padded foam rubber and drive very slowly. That we don’t is strong evidence that we have pluralistic sets of values: we are not monomaniacal healthists in our daily lives.

We accept some health risks because of the benefits we can enjoy from things like getting across town more quickly, racing down a ski field, or even enjoying more than 1.8 pints of beer a day – BERL’s cut-off point for ‘‘irrational’’ consumption. It is wrong to imagine that all risks are bad.

Of course, when we take on health risks, some people will draw the losing lotto ticket. If we tally up the social costs of driving with a mobile phone, we ought to recognise that accident costs need to be weighed up against all of the benefits that drivers enjoy from being able to take the occasional call while on the road – we shouldn’t have our thumb on the scales by assuming the benefits away.

For every skier who dies in an avalanche, tens of thousands took no fewer risks but enjoyed a great time out on the slopes; their enjoyment should count for something. And, for every drinker who dies in an accident that could have been avoided were he sober, there are countless others who simply enjoyed a good night out. Where a healthist report tallies the social costs for the unlucky few, rational policy requires putting weight on the benefits as well.

By using the language of economics without its rigour, healthist reports give the impression that their figures reflect the costs that careless fun-seekers impose on everyone else when the vast majority of their tallied costs are borne by the
individual taking on the risk. By conflating the costs that risktakers impose on themselves with the costs they impose on others, these reports help to build public support for heavily paternalistic policies. After all, who wouldn’t support crackdowns on alcohol if drinkers were really imposing roughly $5 billion in harm on society while paying only about $700 million in taxes, as suggested by the New Zealand Law Commission’s Sir Geoffrey Palmer, now overhauling New Zealand’s alcohol regulatory regime, on reading BERL’s cost report.

In reality, only a tiny fraction of healthist social costs fall on everyone else: in the alcohol case, at least in New Zealand, these net external costs roughly match the total tax take. In other words, drinkers are already roughly covering their costs, although you’d never know it from headlines screaming billions of dollars in ‘‘social costs’’. Similarly, even cost reports funded by the antitobacco lobby agree that smokers pay far more in excise taxes than they cost the public health system: it’s only when these reports add in costs borne privately by smokers that ‘‘social costs’’ begin to loom large.

The hidden cost of healthist cost reports is the slow erosion of liberty that ensues when we take them at face value. When the headlines finally tell us that the social costs of skiing are $20 billion and skiing should be banned, take the report with a grain of salt. Or a stiff drink. And enjoy yourself on the slopes.

■ Dr Eric Crampton is senior lecturer in economics at New Zealand’s University of Canterbury. His full article Public Health Paternalists is published in the spring edition of Policy magazine, the quarterly journal of the Centre for Independent Studies,

Wednesday 21 October 2009

Afternoon roundup

Offsetting behaviour and KPI measures

The first 5 minutes of this BBC video give wonderful examples of the perils of target based assessment in the public sector.

Set the target as being time on the hospital waiting list and they'll prioritize the easiest surgeries. Set the target as time to being seen in the Emergency Department and they'll assign a "Hello Nurse" (and not the good kind from Animaniacs either). Patients don't hurt targets about numbers left on gurneys if you take the wheels off the gurneys and call them beds. And so on.

Reminds me of the old stories of socialist planning bureaus. If the target were tons of widgets, you make one MASSIVE widget; if the target is number of widgets, you make all kinds of itty bitty ones. If it's number of shoes, why bother making both left and right?

The video goes on later about how this is all the fault of the market and of governments moving too much towards a market model, but I've never had my grocery store mess me about in this way. It only happens in the state sector where there is no performance measure OTHER than whatever the target is. In the competitive sector, profit and loss provide discipline. So if you hurt productivity trying to skew performance along one measure, the customers will make sure you pay for it. The video talks about problems in the UK's league tabling of schools where rich folks would move into good schools' zones, keeping poor kids from getting into good schools. But isn't the problem then less the league table and more the restrictions on zoning? If they'd have combined league tables with vouchers and zero zoning, wouldn't outcomes have been just a little different?

The lesson the BBC should have drawn was that giving customers vouchers and letting them choose their own providers, whenever possible (hospitals, schools yes; police, maybe not) makes an awful lot more sense than assessing bureaucratic performance against KPI measures when principal agent problems are rather severe.

Canada's Economic Action Plan and the Pork Barrel

The National Post reports that Conservative districts received 57% of allocated projects but hold only 46% of the seats.

That by itself isn't evidence of distortion.

If, for example, infrastructure money is best spent on fixing the atrocious Trans-Canada highway, and if that highway passes mostly through rural areas, and the Conservatives hold most rural districts, then we'd expect Conservative districts to receive more money. What we really need is a measure showing the predicted level of spending in each district given its underlying characteristics (other than partisanship), then look to see how partisanship distorts those funding decisions.

What would be some first cut measures? Unemployment for starters. We might expect that higher unemployment districts would be first in line for spending. Second, municipal government fiscal capacity. If these are mostly projects where the province and the municipality has to pick up part shares of the cost, then if the province or the municipality is less likely to be able to pick up their part shares, and if those districts tend to be NDP or Liberal, then again we'd see the current correlation between party and spending. You could easily then say that there's partisan bias in the project design: that the criteria were established to benefit Conservative districts; but, that's somewhat different from subverting the funding rules to benefit Conservative districts.

Finally, I'm curious about the patterns of spending within Tory districts. Did it mostly go to safe seats or marginal seats? Cabinet or backbenches? If it's like Liberal spending under HRDC's job creation grants program, I'd expect distortion to favour Cabinet members in marginal districts especially.

The numbers don't look good, but we need a bit more work.

Illiberal Anarchy

Brad Taylor and I (mostly Brad) have been working on a paper arguing that a market-based anarchy could well be rather illiberal. Assume that we're in Caplan's "sweet spot" for a feasible and desirable system of market chosen law: the network coordinating the protection agencies and allowing for dispute resolution amongst them is strong enough to keep out rogue agents but not strong enough to form a cartel. Further, specify that most people have weakly liberal preferences: they're happy for folks to do their own thing so long as there's no cost imposed on others, but it's only a weak preference. Next, specify that there exists a group with strong meddlesome preferences with a real willingness to pay to have those preferences imposed on others. Finally, the group with preferences deplored by the meddlesome minority have a smaller aggregate effective willingness to pay to enjoy their preferred lifestyle than the meddlesome group has to stop them (though their willingness to be paid to stop exceeds the meddlesome group's willingness to pay).

What happens? The meddlesome folks offer to subsidize the purchase of protection agreements that include their preferred meddlesome clauses banning the sanctioned behaviour and, if the meddlesome willingness to pay is high enough and the sanctioned group small enough, banning those protected by non-compliant agencies from entering their properties. The weakly liberal majority take the contracts if the discount is sufficiently large and if the loss in utility from not being able to transact with the sanctioned group is sufficiently low. Nothing in the process violates rights, but the outcome is hardly libertarian.

In states of the world where most folks have weakly liberal preferences but a few folks have strongly meddlesome preferences, majoritarian democracy produces more liberal policies than does market-based anarchy. Markets are better at satisfying dollar-weighted preferences than is politics. Where most folks have weakly meddlesome preferences but a few have strongly libertine preferences, market-based anarchy produces more liberal outcomes than democracy. We then worry that democracy has a tendency to produce broad-based weakly meddlesome preferences (which I think typically runs through fiscal externalities) while a market-based anarchy would promote the creation of public or club groups through churches or sects able equally well to coordinate for the production of public bads like meddlesome activity.

John Humphries Humphreys (sorry!!) has had a go at our paper - excellent!

His first critique: we're using a teleological rather than a deontological norm for judging how free a society is. Guilty! But imagine, as a libertarian with some libertine preferences, weighing up where to move. If you move to Country A, all the laws are perfectly libertarian, but if you engage in some activity you like but they don't, you lose all opportunities for transacting with others. In Country B, there are a lot of stupid laws but there's still more space for you to live your life as you like. Country A is the libertarian monastery where you can do what you want, but if you're not up for vespers at 5 you're shunned; B is the world we're in.

Note that we didn't say that the meddlesome folks would pay the drug users to stop using drugs -- that would be the trivial solution and, in that case, he'd certainly be right: utility rules. Rather, if you're willing to pay $10,000 to defend your right to use drugs but if you'd only be willing to accept $100,000 in exchange for giving up your right to use drugs (ie income effects can matter), then somebody willing to spend $50,000 to make sure your neighbours will have nothing to do with you if you do use drugs makes you worse off and your neighbours better off. Yes, we're invoking a somewhat thicker description of liberty than a pure deontological standard. But would you really move to the libertarian monastery?

Brad notes as well that we need not invoke thicker concepts of liberty in cases where the network's members have sufficient consumer-driven willingness to pay for meddling, in which case libertine agencies simply are declared rogue and their members are treated as criminals. This is a case that Cowen worries about in his initial article, and it is not a case of the network simply becoming the state, though this latter argument may be somewhat semantic. In the Caplan-Cowen debate framework, the network becomes the state when it is strong enough to become a cartel: strong enough to declare any protection agency rogue and strong enough to punish any member that transacts with the rogue agent. In this case, it's still a coordination equilibrium as no member agent wants to deal with the rogue agency because of side payments from the meddlesome group.

Humphries Humphreys is right that folks can conjure up all kinds of scare stories, including the rich jerk buying up all the land around your house and forbidding your exit. That seems a pretty implausible fear. But in the real world, there are lots of folks who seem perfectly willing to expend real resources to make sure that you don't do things in your own house that have no effect on them. I don't think it's crazy to worry that these folks might get more influence under market chosen law. We're not conjuring up completely imaginary boogey-men here. Just hit the "paternalism" keyword on the right hand side of the blog...

Second, Humphries Humphreys worries about realism and how likely this 'worst case' might be. He's certainly right that there's no cause for concern if the minority affected is relatively large. The costs of losing transactions opportunities with a large group are very large indeed. But not so for a relatively small group. In terms of our Figure 3, Humphries Humphreys would be arguing that the region in which democracy dominates anarchy must be smaller. But the logic of the argument is such that there must be a region where democracy dominates. In the part of world-space where we currently live, with lots of folks having low intensity meddlesome preferences, anarchy produces more liberal outcomes. But there are other parts of the space.

Finally, Humphries Humphreys notes Taylor's argument that voluntarism encourages tolerance. Of course, this is true among the majority who currently have weakly meddlesome preferences. In the current paper, we're worried about the high preference intensity illiberal folks and the disproportionate influence they can have under anarchy.

Now, would all this have me refrain from pushing the button that would cause government to disappear after a 5-year delay? Well, I was only about 45% likely to push the button to start with; the worries here push that down to about 40%. [All stated probabilities are purely notional as no such button exists and, if one did, I surely would not be allowed access to it.] My biggest worry is that Caplan's sweet spot seems a pretty narrow space and the historical record isn't exactly replete with stable desirable anarchies. Heck, even outfits that ought to have been able to protect themselves outside the state fared rather poorly absent state protection.

Evidence-based medicine

Norbert Gleicher warns in the Wall Street Journal against relying too heavily on academic metastudies in health:
The idea of creating expert panels has a certain logic to it. After all, who is better qualified to determine best medical practices than medical experts? The medical field itself has been edging toward a similar approach in recent years with "evidence based medicine," an approach that assumes it is possible to determine what works and what doesn't by reviewing published medical literature.

Evidence-based medicine has some value, but it can provide misleading information. Determining which studies to review, for example, can introduce biases. Whether investigators accept published data at face value or repeat primary data analyses also matters. If the data in a published study were poorly analyzed or, for argument's sake, completely invented, relying on it can lead to faulty conclusions. It's an unfortunate reality, but our medical literature is significantly contaminated by poorly conducted studies, inappropriate statistical methodologies, and sometimes scientific fraud.

Studies published in the medical literature are mostly produced by academics who face an imperative to publish or watch their careers perish. These academics aren't basing their careers on their clinical skills and experiences. Paradoxically, if we allow the academic literature to set guidelines for accepted practices, we are allowing those who are often academics first and clinicians second to determine what clinical care is appropriate.

Consciously or not, those who provide the peer review for medical journals are influenced by whether the work they are reviewing will impact their standing in the medical community. This is a dilemma. The experts who serve as reviewers compete with the work they are reviewing. Leaders in every community, therefore, exert disproportional influence on what gets published. We expect reviewers to be objective and free of conflicts, but in truth, only rarely is that the case.
If the medical literature is as bad as he says it is, shouldn't the first cut prescription be to fix the publishing process in medicine? On the whole, I'm skeptical. But I do like Hanson's betting markets on scientific ideas.

On the other hand, today I also read this about Stephen Glantz's metastudies on smoking and heart attacks.
Sure enough, the Institute of Medicine's study did not include the hospital data from the UK, nor did it include a study of the entire US which showed no association between the introduction of smoking bans and declines in heart attack rates.

The absence of this data from the IoM's report is troubling, since Dr Siegel had made the committee aware of this contradictory evidence
The fact that this data was omitted, and that Stanton Glantz was given another starring role in the creation of the IoM's report, should be of concern to anyone who expects impartial research from such organisations.
You can get any result you like out of a metastudy if you're careful about which studies to include (among a host of other decisions about weighting data from various studies); that's why you really have to trust the guy who wrote the study, or, better, have several metastudies that all point in the same direction.

HT on WSJ piece: Book of Joe

Tuesday 20 October 2009

Andrew Gelman on the Econ Blogosphere

Andrew Gelman provides a rather nice summary of the leading Econ bloggers, profiling each as a potential model for Steve Levitt to follow. Two of the better profiles, but all worth reading:
Paul Krugman: Used to be an equal-opportunity offender, wrote an earlier book slamming industrial-policy-style Democrats and took gratuitous swipes at liberal icons such as John Kennneth Galbraith. In recent years has shifted to a partisan line and pretty much only criticizes Democrats for not being partisan or Keynesian enough. But he's kept his credibility by tying his opinions to his acknowledged expertise on macroeconomics. Being a micro-econ, incentive-empahsizing version of Krugman seems like a real possibility for Levitt. Maybe he could start at Slate magazine and work his way up from there. Levitt's location at the University of Chicago could help him to this end--if he's short of op-ed-worthy topics, he could talk with his colleagues in the economics and sociology departments to get ideas. But first he's gotta decide whether he has policy objectives he'd like to push, or if he'd rather just focus on telling interesting stories.

Tyler Cowen: Freakonomics without the statistics. Interesting and fun speculation. Lack of data analysis paradoxically makes him less vulnerable to attack: he's only claiming to be interesting, not to be necessarily correct. Has an ideological stance but mixes things up a bit; you don't always know what's coming next. Cowen's distinguishing feature: he doesn't just have an opinion on everything, he has thoughts on everything. If Levitt wants to go in this direction, he'll have to take blogging a lot more seriously. Posting every day isn't enough; he also needs to be willing to seriously engage with others in open debate.
Both seem about right.

Something in the Bush presidency broke Krugman [and I'm sure he could give you an itemized list]. I was really hoping that the shift to a Democratic Presidency would bring back the Krugman of the mid to late 1990s whose work I loved.

Cowen explicitly says bloggers have to be willing to be wrong: blogging is more like a brown bag talk or something even less planned out. The point is to hash the ideas out early and to make sure that the folks who could tell you you're wrong and why are reading you to tell you you're wrong and why. Cowen does have thoughts on everything. And what he doesn't have thoughts on, Tyrone has thoughts on.

Gelman also covers Gladwell, Mankiw, Landsburg, Harford, E O Wilson, and Heckman.

HT: Chris Masse

Afternoon roundup

  • Midas Oracle hosts excellent videos explaining why you should never ever talk to the police. Never. Must watch for American readers.

  • Tim Hazledine thinks ACC is just fine. I disagree. Yes, insurance schemes can run short run deficits if there's a bunch of negative shocks. But that isn't what's going on here. Rather, they're not charging anything like actuarily fair rates; heck, some classes of payouts don't even have any premia charged at all! Yes, a case can be made that ACC is preferable to transactions-costs-heavy tort litigation; that's not a case for an insurance scheme paying out for things where folks don't pay a premium. If there are classes of things for which the government wants to provide compensation but doesn't want to charge an insurance premium, or where charging a premium is too difficult, it's best not handled through the insurance system but rather through the welfare system. The more ACC is social insurance rather than risk-adjusted premium-based accident insurance, the better the case for not having ACC at all and just having generalized welfare programmes. I still prefer privatisation and actuarily-fair premia.

  • Bruce Schneier applies the Lucas Critique to internet security. If you penalize companies for leaving comment spam, they'll leave comment spam for their competitors...

Oh the many ways I pay for rugby [updated]

I tried watching a rugby game once. On a friend's TV. A Christchurch night game between the All Blacks and some other team. It was so foggy none of us could make out anything so we gave up.

I'm not much of a rugby fan. But I'm paying a lot for rugby.

The Rugby World Cup is coming to New Zealand in 2011. As is usual when countries have to bid for events, we promised all kinds of inefficient investments in stadiums from Dunedin to Auckland. These investments never ever ever pay off. They're always a massive waste. The economic literature is overwhelming. Folks here will say "Oh, but here it'll be different". They're wrong. The stadium investments will not pay off. Most of this funding comes from local councils (we're expanding the stadium here in Christchurch), but the national government is kicking in some money for some of the stadiums as well. So I'm paying for Rugby through income tax contributions to stadium development.

But it doesn't end there. Read on and weep.

Two weeks ago, it emerged that the government-owned and heavily subsidized Maori Television station had put forward the largest bid for Rugby World Cup broadcasting rights. Somewhere around three million dollars. So I was to be paying for rugby at stadiums where I wouldn't attend games and for television broadcasts I wouldn't be watching. But at least it was going to be on a station I don't currently get, so it wouldn't be displacing any shows that I do watch.

Then last week the government encouraged a bidding war for broadcasting rights between the different state owned broadcasters where they'd each get a big government subsidy to bid against each other. This is fifty different kinds of stupid.

Since then, the government has knocked it back to twelve different kinds of stupid by encouraging a consolidated bid by Maori TV and TV One (both state owned) and TV Three (Private) rather than having different arms of the government bidding against each other. But of course, all the different bidders had revealed private valuations early on so the International Rugby Board can extract more. And so the bid is large, though as yet secret. From today's Herald
It is understood the bid is for about $5 million, with TVNZ and TV3 putting up $1 million each. The rest will be met by Maori TV and the Government.

Maori TV's share will still include some money from the Ministry of Maori Development, Te Puni Kokiri, but Mr Key said this would be substantially less than the $3 million it offered when the bid was for exclusive rights.

TV3 is the big winner in the bid, getting to screen the crucial All Blacks v France pool game and the finals. Asked why the private broadcaster was able to piggy-back on a Government-funded bid, Mr Key said it was putting in its own money and wasn't "getting a free ride".

He noted the promotion both TVNZ and TV3 could offer the tournament, an important factor given it is forecast to make a $39.3 million loss that could balloon further if ticket sales flop. The bid will go to the IRB immediately, with a response hoped for this week or next.

The bid will see blanket coverage, with some games screened on up to six channels at once: TVNZ, TV3, Maori TV, Te Reo, on free-to-air, and Sky and the Rugby channel on pay TV.

Mr Key said $300 million of Government money was being invested in the Rugby World Cup, and taxpayers deserved free-to-air coverage. "You can never get too much rugby," he said.
You can never get too much rugby. I try to avoid cursing on the blog, but it's getting pretty tough. Here are some of the remaining twelve kinds of stupid (listing too many of them makes me too angry, so I truncate the list):
  • Most American sports have figured out that if you put games free to air on TV, you kill attendance at the venue. That's why they have local blackouts. By massively subsidising free to air broadcasts, they're helping to ensure even greater losses on the stadium events - losses which the government is going to have to pay because they're residual claimant on all the losses.

  • Some games screening on six channels at once?!?!?! It's as though Key reckons rugby a merit good: left to our own devices, we won't watch enough of it, so we need to have it crammed down our throats by getting rid of all possible alternatives. I ain't playing: I haven't watched The Wire yet and can hold off 'till the RWC hits. I've always figured buying DVD sets gives far more utils per dollar than Sky subscriptions where half the channels are rugby and the remaining ones are cricket. But rugby taking out two of the four channels I currently get (yes, it is that depressing)...perhaps I'll finally have to get Freeview.

  • Why the heck does the Prime Minister get to insist that we all get to see ANYTHING on television? What, is he Broadcasting Minister as well?
    Prime Minister John Key had originally demanded that all New Zealanders be able to see the games free-to-air, but yesterday said there was a choice and it decided to give these minor games to Maori TV and keep the more interesting clashes for the big broadcasters.
    How on earth does this become the government's remit over and above the existence of state-owned broadcasters? Now, I could understand if Key had said "Hey, International Rugby Board, we're already throwing stupid amounts of money at your damned game, so you'd better let us broadcast it for free on one of our several television channels (in colour, mind you)." But that wasn't what he was arguing. Rather it was "Our demand curve is perfectly vertical at the maximum amount of rugby! Now let's work out a price!" Skillful negotiation tactic, that.
I would have been happy with my share of the tax bill to ensure that the Rugby World Cup aired only on Maori Television: a small price to pay to ensure that none of the shows I do watch would be crowded out. Instead, it's the worst of all possible worlds.

Update: Key now says the total broadcast bid is less than $5 million, but he won't say what the bid is.

Monday 19 October 2009

New uses of Google Search data: stock performance

Stocks of companies subject to heavy Google search traffic during IPO show large first-day returns and longer term underperformance. At least until the Lucas critique kicks in.
Turnover, extreme returns, news and advertising expense are indirect proxies of investor attention. In contrast, we propose a direct measure of investor demand for attention -- active attention -- using search frequency in Google (SVI). In a sample of Russell 3000 stocks from 2004 to 2008, we find SVI to be correlated with but different from existing proxies of investor attention. In addition, SVI captures investor attention on a more timely basis. SVI allows us to shed new light on how retail investor attention affects the returns to IPO stocks and price momentum strategies. Using retail order execution in SEC Rule 11Ac1-5 reports, we establish a strong and direct link between SVI changes and trading by less sophisticated individual investors. Increased retail attention as measured by SVI during the IPO contributes to the large first-day return and long-run underperformance of IPO stocks. We also document stronger price momentum among stocks with higher levels of SVI, consistent with the explanation of momentum proposed by Daniel, Hirshleifer and Subrahmanyam (1998).

Da, Engelberg and Gao, 2009, "In search of attention".
HT: Wayne Marr

Hoisted from the comments: Ramsey pricing and alcohol

Seamus reminds us that Ramsey pricing does not necessarily recommend taxing inelastic goods; rather, it recommends, because of the existence of untaxed leisure, that optimal taxes will vary with goods' cross-price elasticity with leisure. Goods complementary to leisure draw a higher optimal tax than goods complementary to labour. Seamus's interpretation of Ramsey follows, I belive, Corlett and Hague's classic rendition.

The Tax Working Group's paper on "Other Base Broadening Ideas" takes an alternative interpretation of Ramsey
Ramsey taxation

The Ramsey theory of taxation recommends higher tax rates on goods with the most inelastic demand as a means of raising revenue in the most efficient way possible. This is based on the assumption that taxes on goods with inelastic consumer demand would have small distortions relative to goods with more elastic consumer demand, and therefore lower dead weight costs.

The McLeod review found that in the New Zealand context, where tobacco and beer are thought to have the most inelastic tax bases, while the demand for wine and spirits are more elastic, it was not possible to justify the then levels of excises and duties on Ramsey taxation grounds.
Note that "not possible to justify" means "the excise tax should be cut substantially or eliminated", not "too low".

The Tax Working Group uses the standard undergrad textbook formulation of the Ramsey Rule (see Hindriks and Myles, for example). The result holds under assumptions of infinite supply elasticity (because otherwise deadweight losses to consumers are only part of the welfare effects); if there are cross-price effects between taxed goods, things also get much more complicated - Ramsey then doesn't reduce to the inverse-elasticity rule. And if there are cross-price effects between taxed goods and leisure, then we get the Corlett and Hague result.

So, is alcohol a greater complement to leisure than are other goods, and in particular is it a greater complement to leisure than to labour? Tough call. Lots of business lunches are facilitated by alcohol, and there is decent evidence that drinkers earn more than never-drinkers, partially due to complementarity between drinking and business activity. But neither forms of the Ramsey rule particularly suggest increasing the alcohol excise tax, and the McLeod review firmly opposed it.

Morning roundup

  • Placebos have side effects. Side effects depend on the kind of drug test being undertaken. So if you think you're in a migraine drug trial, you'll report different placebo side effects than if you think you're trialling anti-depressants.

  • Copyright has costs. HT: BoingBoing.

  • I have a hard time believing this is net energy augmenting: shooting bunnies, freezing them, transporting them to a power generation plant, processing the frozen bunnies then using them as fuel source. If it actually works, Central Otago could serve all of New Zealand's electricity generation needs for rather some time. I could buy it as a solution to a problem of animal waste disposal; I can't buy it as an efficient energy generation source. HT: Warren Ellis

  • Efficiencies of scale in procurement? Turns out not. All else equal, larger public bodies pay no less for goods than smaller ones, but higher levels of government (ie regional governments as compared to towns) pay significantly more. So don't expect big economies of scale in an amalgamated Auckland's procurement processes but rather expect efficiency losses as more purchasing is done by the regional government rather than the former local towns. HT: Robin Hanson

Markets in Everything: most offensive SUV ever

It weighs four tonnes, is "rocket grenade-proof", has jewel-encrusted gauges, and gold-plated windows. And it costs a million euros. But check out the trim on the seats: whale penis leather.

Oh dear.

Why am I reminded of the Gilbert Gottfried routine where he proposed clubbing a baby seal to death, covering it in CFC hairspray, and launching it into the ozone layer?

Apparently, Aristotle Onassis had his yacht's barstools also covered in it.

Couldn't they have just gone for whaleskin to get the desired level of offensiveness without the added yuck factor? If you want fewer whales' skins to be used overall, should you prefer that whale penises be used, increasing the yuck factor and thereby reducing demand but also requiring more whales be killed per square metre used, or general whaleskin which has the opposite characteristics? Hmm.

HT: Bernard Hickey.

Sunday 18 October 2009

Patri Friedman on National Radio

Patri Friedman featured on Afternoons with Jim Mora on National Radio on Tuesday last week. The audio is available here, but I'm not sure for how many more days the link will work. I'd held off on blogging this one because Patri's interview aired about an hour before I sent out the take-home final exam for my public choice undergraduate class. The last question on that exam asked students to evaluate the prospects for Friedman's Seasteading as compared to Paul Romer's Charter Cities.

Unfortunately, Patri's audio feed isn't as good as it could have been. But still well worth a listen. Mora's done his background research and gives a friendly, albeit somewhat bemused, interview.

Rational stereotyping, grading, and separating equilibria

Scott Beaulier notes the correlation between legible scripts and quality of written answer and puzzles as to the reason for it.

There is, of course, a simple explanation. If you are pretty sure you have the right answer, you have a strong incentive to make sure the guy grading it knows what you're saying. If you're pretty sure that you have no clue, you have a strong incentive to make sure the guy grading it has no clue what you're saying so you can pray for part marks from grader exasperation with trying to puzzle out the content.

Same in papers you might be refereeing. Obscurantism for the sake of obscurantism, or hiding the lack of a plausible mechanism in a mess of math, serves the same function.

A bright point in tax

Last week's Treasury figures were very bad indeed. I still haven't wrapped my head around how forecasts of a decade of deficits are consistent with the Fiscal Responsibility Act, but neither did I ever wrap my head around how the RBNZ's interest rate policies back in 2005-2006 were consistent with the Policy Targets Agreement.

Just how terrible are the numbers? The deficit's at $2500 per capita or, somewhat terrifyingly, about $4500 per member of the work force. $2500 per capita doesn't mean much as lots of those capitas aren't ever planning on joining the workforce to pay the bill. Recall that average income from all sources for someone in paid employment is $930 per week. So the government, this year, has taken on debt equivalent to a little more than a month's earnings for each and every member of the labour force. Let's hope the upcoming budget has some serious rolling back of new entitlement spending brought in under the prior government.

The only bright points in the government's books, where tax revenues from almost all sources dropped considerably, came from reasonably large increases in alcohol and tobacco excise tax revenues. Total alcohol excise taxes increased from $795 million to $829 million while tobacco increased from $963 million to $1,063 million. ACC's earnings also went up, but of course their main problem is on the spending side. Congrats Treasury (Sam Direen!) on listing excise equivalent duties split out by category in the main figures rather than burying them with all other duties as was prior practice.

So Kiwis owe a debt to the drinkers and the smokers for keeping the deficit from being even worse than it is. Recall of course that tobacco tax revenues far exceed health care costs while alcohol tax revenues are greater than fiscal costs to the government (health) and roughly match overall "social costs."

In related news, Luke Nicholas of Epic Beer reports on a survey for the Brewers' Guild showing craft bottled beer sales up ten percent (with Epic being up 200%), despite indications that one of the mass market brands, DB, is seeing shrinking sales.

Saturday 17 October 2009

50 Years of Cape Dorset prints

If it weren't for a pack of Player's Light cigarettes, we might not this year be celebrating fifty years of Cape Dorset Inuit printmaking.
According to Houston, the carver Osuitok Ipeelee had been studying the identical printed images of a sailor's head on two cigarette packages, marvelling at the skill and patience it must have required to produce the same likeness repeatedly. Houston's Inuktitut vocabulary was too limited to explain the printing process, so he rubbed ink on a tusk newly incised by Osuitok and pulled an impression of the image on a piece of toilet tissue. Osuitok declared: "We could do that"

James Houston, 1971, pp. 9-11, quoted in Hessel's "Inuit Art: An Introduction".
One of the now most culturally authentic forms of Inuit art came from the synthesis of traditional Inuit carving and observations of southern cigarette packages. When cultures meet, great art ensues.

The Fiftieth Anniversary collection of Cape Dorset prints can be viewed here (hit the link for "exhibits"). Susan's favourite is Ohotaq Mikkigak's Face to Face.

I'd pick Ningeokuluk Teevee's Seasonal Migration, below, though her Imposing Walrus and Kananginak Pootoogook's Owls' Silhouette also rate highly. I'd previously posted here on Teevee's work.
And it wouldn't exist but for the blending of northern and southern influences, mediated through a tobacco package.
Here's Tyler Cowen slapping Benjamin Barber around on related topics.


Dave Prychitko wonders whether marijuana legalisation would really prove all that stimulating. Yes, measured GDP would increase, but that would largely reflect currently unmeasured activity becoming formally measured: consequently, much of the increase would be spurious.

I disagree. Right now, firms in the illegal sector have to undertake very costly activities to avoid detection and enforce contracts. Moving to the legal sector would transform these deadweight costs into a mix of surplus and tax revenue. In short, legalisation would provide a technology shock to the industry, allowing it to operate far more efficiently. If government can do better than completely wasting the tax revenues collected, then the transformation is efficiency-enhancing. And let's not forget the efficiency gains from reallocating police time and energy to preventing crimes that have actual victims (or simply shrinking police budgets).

Prychitko is right that simply counting things that are already going on doesn't count as stimulus. I'd look instead to the gains from the productivity increase and from the reallocation of police resources to more productive activities.

Ban the cheques

Colby Cosh says ban the cheques. Putting party logos on federal government cheques for community projects ... very distasteful.
The fact is that our system of government allows MPs on the side that has the confidence of the House to engage in feudalism. This is the only appropriate term for a structure whereby communities and organizations are encouraged to display fealty to a person, and subsequently receive reciprocal benefits directly from his hand. It has been a feature of every Canadian government, whether Liberal or Conservative, and I suppose there might even be some things to say in its favour. It is certainly what the vassals expect; it is, at root, the feudal instinct that makes voters ask what their MP has done for them lately, or why the government isn't "doing something" to help a particular region or industrial sector.
I'd previously commented on the story here.

Friday 16 October 2009

Christchurch Bloggers' Bash - Reminder

See y'all tonight at 9 at the Thirsty Weta!

Dutton on Conceptual Art

Canterbury's Denis Dutton contributes an op-ed in today's New York Times asking whether conceptual art has jumped the shark tank.
Since the endearingly witty Marcel Duchamp invented conceptual art 90 years ago by offering his “ready-mades” — a urinal or a snow shovel, for instance — for gallery shows, the genre has degenerated. Duchamp, an authentic artistic genius, was in 1917 making sport of the art establishment and its stuffy values. By the time we get to 2009, Mr. Hirst and Mr. Koons are the establishment.

Does this mean that conceptual art is here to stay? That is not at all certain, and it is not just auction results that are relevant to the issue. To see why works of conceptual art have an inherent investment risk, we must look back at the whole history of art, including art’s most ancient prehistory.
He suggests that works that embody obvious displays of skilled craftsmanship will better hold value over time as we've evolved a preference for appreciating displays of this kind of skill.
The appreciation of contemporary conceptual art, on the other hand, depends not on immediately recognizable skill, but on how the work is situated in today’s intellectual zeitgeist. That’s why looking through the history of conceptual art after Duchamp reminds me of paging through old New Yorker cartoons. Jokes about Cadillac tailfins and early fax machines were once amusing, and the same can be said of conceptual works like Piero Manzoni’s 1962 declaration that Earth was his art work, Joseph Kosuth’s 1965 “One and Three Chairs” (a chair, a photo of the chair and a definition of “chair”) or Mr. Hirst’s medicine cabinets. Future generations, no longer engaged by our art “concepts” and unable to divine any special skill or emotional expression in the work, may lose interest in it as a medium for financial speculation and relegate it to the realm of historical curiosity.

In this respect, I can’t help regarding medicine cabinets, vacuum cleaners and dead sharks as reckless investments. Somewhere out there in collectorland is the unlucky guy who will be the last one holding the vacuum cleaner, and wondering why.
Is there data sufficient for testing of the hypothesis? Are there works created in 1700 that evidenced great skill in fine-tuning the zeitgeist but little in terms of craftsmanship, that were valued (at the time) comparably to works that showed little zeitgeist-skill but decent craftsmanship? We then could look at current auction prices for the two types of works from long ago as one way of testing the Dutton zeitgeist-bubble hypothesis. I am sufficiently culturally illiterate to have no clue where even to start looking.

Alternatively, we could of course set up markets that pay out in a hundred years' time based on the valuation of different works at that point; price differences across different types of art would be informative. I suspect those markets would be rather thin though. Lousy lack of Arrow-Debreu....

WHO's war on alcohol

Cresswell points to this from the New Scientist.
Sally Casswell of Massey University in Auckland, New Zealand, who helped produce the WHO document, says a focus on passive drinking is key to winning public acceptance for more stringent alcohol legislation. "It challenges the neoliberal ideology which promotes the drinker's freedom to choose his or her own behaviour," she says.

Persuading governments and citizens of the problem is just the first step, though. What, if anything, can be done to stop people drinking to excess?
Anderson is still optimistic, though. "I don't think alcohol will ever become as socially unacceptable as tobacco use, but societies may adopt a more cautious approach to its supply and marketing, resulting in less harm."
Folks advocating using WHO methods on alcohol ought to know that the WHO is far from a neutral impartial agency. The Casswell quote is telling. They need to challenge the ideology that individuals can choose their own behaviours. If you click through to the WHO's draft document, you find
  • At page 6 they list raising global awareness of the magnitude of public health problems as the first objective in their 5 point plan -- that's the Single, Easton, Collins, Lapsley et al cost only method for producing an inflated estimate of the social costs of alcohol: highly productive as agitprop, totally useless for rational policy

  • Their guiding principles include (p.7)
    • Public policies and interventions to prevent and reduce alcohol-related harm should be based on clear public health goals, and be formulated by public health entities [ie based on healthism with no consideration of benefits of drinking for moderate drinkers]
    • A precautionary approach that gives priority to public health should be applied in the face of uncertainty or competing interests. [more healthism]
  • Recommendation for "public health-oriented government monopoly of retail sales"
  • Regulating days and hours of retail sales [days?!]
  • regulating modes of retail sales of alcohol (e.g. on credit) [They don't want you to be able to use your credit card at the bar]
  • partial or full ban on sales and consumption, according to cultural norms [ie if you can get away with it, implement prohibition. In the meantime, produce enough shonky cost-only reports to sway public opinion towards prohibition]
  • addressing informal or illicit production, sale and distribution of alcohol [so no more home brewing to get around their regs]
  • Advice for member states on getting around world trade treaties in order to facilitate prohibition at home (or at least that's the most plausible reading of this one
    WHO can contribute support to Member States by: facilitating regional and global efforts to examine and, if needed, mitigate the impact that provisions for free movement of goods and services as well as increased travel might have on harmful use of alcohol and which can support and strengthen governments’ ability to regulate the availability of alcohol at the national level; developing and sharing expertise in constructing and operating effective national systems of controlling the alcohol
  • restricting or banning direct or indirect marketing of alcohol in certain or all media, same for sponsorship activities
  • regulating new forms of marketing [can a brewery have a website?]
And that's just the first 16 pages of a 27 page document.

The WHO is pushing a neoprohibitionist agenda. When the healthists in your country say that they're only following the sound recommendations of the impartial WHO, watch out.

Update: Velvet Glove comments, as does Dick Puddlecote

Nobels that aren't, but someday could be

Willem Buiter in the Financial Times reports on Kornai's soft budget constraint as it applies to bailouts and the financial crisis
In a post a few days ago, (After subverting bank insolvency, our leaders are now about to make a mess of liquidity) , I argued that hard budget constraints were the defining characteristic of a well-functioning market economy. Many/most of the advanced industrial countries were weakening or even undermining the capacity of their financial sectors to intermediate efficiently by permitting a softening of the budget constraints of banks and other financial institutions that were deemed systemically important and/or were too politically connected to fail. I noted that the concept of the soft budget constraint (SBC) came from professor János Kornai, a great economist and a Nobel prize winner (the overlap is by no means perfect - there are type I and type II errors).
I'm rather sure that Kornai has not received a Nobel. I love his work on the soft budget constraint and I would love a world in which his kind of work (like Ostrom's), rather than the latest refinements of statistical techniques, gets Nobels in Economics. Hopefully we're moving to such a world. But we're not there yet.

Kornai gives some rather nice cautionary notes about bailouts.
One strong concern expressed more than once in discussions on the present financial crisis has been this: the interventions by the state are smuggling a bit of socialism into the capitalist economy. This is the side of the debate to which I would like to contribute, as a research economist who has spent several decades examining the socialist system from inside. My subject here is not the post-socialist region, but the rest of the world-though I look upon it with the eyes of one who has himself experienced socialism at first hand.

Back in 1968, when attempts began in my native Hungary to implant “market socialism” into the socialist economic system, the heads of state-owned enterprises were urged to increase their profits. Managers were to do well if their enterprises made money, as they would receive a share of the profits. But there was little cause for concern if the enterprise made a loss and fell into debt: in almost every such case, some kind of rescue operation was mounted. For instance, there might be a bailout funded out of the state budget, or the state-owned bank might extend extra credit, without much hope of the loan being repaid. Losses and debts were unpleasant, of course, but they were not a life-or-death matter for an enterprise.

Managers, based on their experience of repeated rescue operations, could more or less bank on their enterprise surviving. Despite all the stress on the profit motive, the incentive remained fairly weak in reality. Why bother too much about cost-cutting or innovating if there was no threat of insolvency? The financial situation of the enterprise did not place a real constraint on its spending, its borrowing or its expansion. This was the state of affairs that I called at that time a “soft budget constraint” (SBC).
Capitalism developed gradually out of the pre-capitalist social environment, by an organic process of growth. As capitalist forms came to dominate the economy, so the influence of business on politics increased. Socialism, on the other hand, did not seep gradually into the fabric of society in Tsarist Russia or post-World War Two China. The communist party became capable under specific historical conditions of seizing political power, taking control of the machinery of state, and then imposing the socialist economic system on society by state force. Every means was used, including merciless repression. The developmental process of the socialist system, unlike that of capitalism, began in the political quarter, not the economic.

However many bailouts there may be, however much the budget constraint may soften, there is no danger of socialism returning in that sense - which is the most important point. It is meaningless to raise that spectre in the United States, Western Europe or other developed countries, where democracy has sent down deep roots. There may be times when public discontent is stronger and more widespread than in other calmer and more prosperous periods. But only incorrigible revolutionists given to hoodwinking themselves believe such discontent can overthrow the foundations of the system. That prediction indicates a failure to understand the history of the communist system.
In other words, Hayek's mechanism in Road to Serfdom is wrong. Read the whole thing...

Hammer and Sickle Humour

The National Business Review's email update points me to Spiegel's collection of East German jokes. The West German intelligence service kept an ear out for political jokes as a measure of public mood in the East; they've now released their joke files. Spiegel reports on some of the best.
Did East Germans originate from apes? Impossible. Apes could never have survived on just two bananas a year.

What would happen if the desert became communist? Nothing for a while, and then there would be a sand shortage.

Why does West Germany have a higher standard of living than we do? Because communists can't get work permits there.

A new Trabi has been launched with two exhaust pipes -- so you can use it as a wheelbarrow.

There are people who tell jokes. There are people who collect jokes and tell jokes. And there are people who collect people who tell jokes.
Whole article worth reading, especially on the role of humour in totalitarian states.

End of semester

On my drive in to work this morning, around 8:30, I saw:
  • Students 3 miles from campus dressed as bumblebees standing in the traffic median waving a placard saying "You honk we drink" (yes I honked)
  • The Queen of Hearts and a Knave each with a bottle of what looked like Lindauer Brut wandering away from campus
  • Many more students in various costumes with various drinks wandering towards the Student Union building, where the tents were already set up and where the music was starting
It must be end of semester. I admire their enthusiasm for early morning starts, but I do wish it were also shown for early morning lectures.

But, by definition, any of them who consume more than 1.8 pints will not have enjoyed any of the day's festivities. The smiles on their faces are illusions.

Healthists spoiling our fun

The New Zealand Herald today runs an op-ed from yours truly summarizing the argument I made in the CIS Policy piece. I like the headline they picked: " 'Healthist' doomsayers are spoiling all our fun".
Sometime soon, we'll see a report showing that the social costs of skiing are in the hundreds of millions of dollars. It wouldn't be hard to produce a number that large. First, show frequent skiers are more likely to have accidents than recreational skiers.

Then, make the critical assumption that nobody could ever rationally decide to take risks - health is all that matters. Frequent skiers then are by definition irrational, and irrational people enjoy no benefits from their ski outings, no matter how happy they appear.

With this "zero benefits" assumption, every dollar spent on skiing by these harmful skiers is a social cost, as is the time these folks spend skiing. Add the realised costs from those folks who do have skiing accidents and you'd quickly have a number in the hundreds of millions of dollars, if not billions.
Odds that somebody from Otago at Wellington's Public Health Department sends in a rebuttal op-ed giving their standard retort about how suffering the downside outcome can't be fun, totally ignoring the benefits to the multitudes who take the same risks but have a good time?

Thursday 15 October 2009

Darnton on ACC

When will one of the major dailies start running Darnton's commentaries? They're wonderful fun: far better than 75% of the dreck that shows up on opinion pages. Today he hits on ACC
Of course, ACC isn’t an insurance company; it’s yet another welfare agency. If it was an insurance company it would offer me a lower premium if I took on a larger excess. I might get a no claims discount. It could offer me exclusions for things I didn’t want to insure – for example, “self-harm.” I’m pretty sure I don’t need to insure against deliberately slicing myself with a razor. First, I’m not an idiot teenager. Second, if I’m desperate for attention I just knock together a scantly researched and inflammatory blog post.

Over the last few years, ACC has morphed into the Accident, Bad Luck, Stupidity, and Feeling Sad Compensation Corporation.
The last line is particularly nice.