Wednesday 31 March 2010

The cost of cameras

The real cost of the soon-to-be-mandatory taxicab cameras won't be the 30-odd cents it adds to the cost of the typical cab ride.  Rather, it's the loss of surplus that will come when the World Cup hits in 2011 and jitney cabs will fail to come into the market because of the increased fixed cost of shifting your private car into taxi service.  Right now, best I'm aware, so long as you have a driver's license that permits it, nothing much stops you from slapping a sign onto your car saying "Cab" and charging to run folks around town.  We'd expect that to happen during odd spikes in demand.

We're going to have such a spike when the World Cup hits.  It's unlikely many new permanent cabs will come on-stream with the demand shock, and the temporary folks will be knocked out of the market with the camera regulations.  With lower supply elasticity, current cabs will earn rents either through fare increases, much higher turnover and shorter downtime, or increased ability to be choosy about customers.  Absent the regulation, I'd expect jitneys at airports if airport regulations allowed it and near the venue after the event.

I'd previously noted the raising rivals' costs argument here; TVHE here grasps for an alternate efficiency explanation but can't really find one.  Neither can I.  At least not a plausible one.

As the incidence of the regulation will largely fall on foreign visitors and rugby fans, I'm not too worked up about it.  So long as I don't need a cab for any reason during a demand spike.  The cameras are fairly cheap and won't do much to the baseline stock of taxicabs: that'll still move with longer term demand.  We'll just see reduced supply elasticity during odd peaks.  Fortunately my cabbing needs tend to be a- or countercyclical with respect to these events.

Dating Data

I'd pointed previously to some of the excellent data analysis work going on over at OkTrends: the data blog of internet dating site OK Cupid.

They're now taking on ideology. They seem to have a version of the World's Smallest Political Quiz running: they have ideology data on 172,853 people. THEY HAVE IDEOLOGY DATA ON 172,854 PEOPLE. The heart races!

They use the data to plot out the age-path of average position in two-dimensional ideological space (libertarian from 18-22, leftie from 23-31, rightie from 32-53, then authoritarian thereafter), match it with relative importance of economic and social issues by age to get correlates of partisanship, then show some effects on dating. On the latter, economic (or social) conservatives [note: US terminology] tend to have high agreement with other economic conservatives on non-political issues; economic (or social) liberals, not so much. So it's easy for them to make matches among conservatives, but harder to get good matches for liberals. I'd expect this to be due to a stronger religious dimension to social conservative views that yields common answers on other questions; if economic and social conservatism are correlated, then we'd see (and do see) similar but slightly weaker results for economic conservatives.

I'll leach one of their graphs: go to their post for the full set.

I'd love to see a variant on their age-slider graph that would show densities across the space rather than just average position.

I also wonder how badly sample selection issues come in for the 30 and up bracket. Presumably folks drop from OK Cupid when they marry and only re-enter if they divorce (or are high risk to divorce); the sample of those in their 50s who are dating is going to be different from the full sample.

Massive props to OK Cupid for sharing some of this summary data. Awesome work guys!

Moderate drinking and health

My best read of the evidence is that moderate drinking reduces mortality risk. Most work finds a J-curve relationship: the relative mortality risk of drinking decreases for light to moderate drinking, becomes comparable to teetotalling somewhere around 30-40 grams of alcohol per day, then continues increasing. The curve looks a bit like the letter J, though it never gets quite as vertical as the letter.

There are, of course, lots of studies out there, of varying quality, and they don't always agree.

And, worse, there are some nasty potential confounds out there. One obvious one, which folks dismissive of the J-curve relationship tend to promote, is that many studies confound never-drinkers with ex-drinkers. If someone quits drinking because he's destroyed his liver, it would be a mistake to class him as a non-drinker to evaluate the health effects of moderate drinking. Other potential confounds include omitted variable bias: if moderate drinkers also tend to have better health behaviours than heavy drinkers or non-drinkers, then the relationship could be due to the other health behaviours rather than due to the alcohol.

The best way forward is a decent meta-study that pools results from various studies and assigns them weight according to how well the study was conducted, or takes averages across different sets of studies that control differently for various effects.

The best one of these I've seen is Castelnuovo and Donati's 2006 paper from Archives of Internal Medicine. They strongly endorse the J-curve relationship. They pool 34 studies of a total of more than a million individuals. Some of these studies include former drinkers with abstainers; others carefully separate them out. But both types of studies find a J-curve. Including former drinkers as never drinkers biases things, but not enough to overturn the result: the studies that are more careful still show a strong J-curve relationship, just with the curve cutting the x-axis around 30 grams per day rather than around 60 grams per day.

Castelnuovo and Donati note the problem of omitted variable bias, but suggest it's likely to be pretty limited. They note that the health behaviour covariates included in those studies adjusting for those covariates only have small effect on the overall curve: the unadjusted figures show a maximum risk reduction of 19% while the adjusted figures knock that back to 16%. There will of course be other health behaviours correlated both with drinking and with mortality outcomes, but they would have to have more than five times the effect of the observable health covariates to flatten the J-curve to a hockey stick. That's rather implausible. Note of course I mean a proper hockey stick held with the shaft horizontal - not one of those silly Kiwi lawn game sticks.

In the economics of discrimination literature, we can pretty readily believe that the 5% or so remaining difference between blacks and whites in wage regressions is largely due to unobserved variables that correlate both with wages and with race. If observable characteristics correlated with race and wages knock back the wage gap from 20% to 5%, then it's pretty plausible that unobservables might have a quarter the effect of the observables. But having five times the effect of the observables? Nah.

And so I was pretty surprised to find that the New Zealand Drug Foundation considers the J-curve a "myth". Why do they think it's a myth? Non-randomised trials suffer from omitted variable bias and often conflate never-drinkers with former drinkers (egads, asked and answered!). What do they cite?
  • Chikritzhs et al 2009, the upshot of which seems to be "oh, empirical work based on surveys is hard, so we really can't say anything that might encourage people to drink". For what it's worth, Chikritzhs also spends a fair bit of time investigating the evils of the alcohol industry and pushing for new and higher alcohol taxes;
  • Connor et al in the NZMJ. This is a fun one. They say alcohol's responsible for 1037 deaths but helps prevent 981 deaths, for a net loss of 56 lives in 2000. They also specifically tally more than 4000 life years gained due to reductions in ischaemic heart disease associated with alcohol consumption. Hardly a great source if you want to claim that there's no benefits of moderate alcohol consumption! I wish they'd listed which claims they wished to back up with Connor et al's piece. Connor specifically says that there are health benefits from regular moderate drinking for those middle-aged and older;
  • Mukami et al on beliefs about moderate drinking
  • Rimm and Mukami 2008, the upshot of which is that since moderate alcohol consumption increases some disease risks while decreasing others, we might want to be careful in recommending moderate consumption to folks with a very strong susceptibility to the disorders that alcohol exacerbates (we'd presumably then also want to more strongly recommend it to folks with susceptibility to disorders attenuated by moderate alcohol use);
  • Doug Sellman (et al)'s 2009 "Viewpoint" piece in the NZMJ that alcohol cardioprotection has been talked up (never mind that Corrao 2000 definitely finds a J-curve in cardioprotection for both high and low quality studies, and that Rimm and Moats 2007 are trenchant about recent efforts to downplay the existence of the J-curve)
So they're relying on some op-eds and nebulous worries about the quality of existing studies rather than the best consensus estimate of the literature.

Of course, they're not the only ones. The WHO also spends a bit of time trying to talk down the cardioprotective effects of alcohol. I've noted before the WHO's ongoing war against alcohol, so it's little surprise they play a bit loose with the literature.

WHO briefly notes Corrao et al, blustering on about confounding where non-drinkers are lumped in with former drinkers, but Corrao specifically checks for that and finds that the J-curve on coronary heart disease doesn’t go away when you have studies that split out former and never drinkers. And, they get Corrao simply wrong on another dimension: they cite it as a meta-study of 28 cohort studies: Corrao based its main findings on 28 high quality studies but also presented findings from the 51 overall studies they’d selected: the selected studies showed a smaller J-curve effect than the 51, so they weren’t picking the 28 to get a larger J-curve.

It instead looks like WHO was trying to downplay Corrao relative to Fillmore, making it seem as though the gap in number of studies covered was much larger than in actuality. Corrao is listed as a meta-analysis of 28 while Fillmore is "a recent meta-analysis of 54". Fillmore disagrees with Corrao but Fillmore’s results seem to hinge on the two studies they view as being error-free; Corrao’s results just seem more robust. And, Rimm and Moats (2007, linked above) nicely show Fillmore’s results to be outside of the norm.

While WHO doesn’t bother noting Castelnuovo’s extensive meta-study on overall mortality it cites Jackson’s op-ed in the Lancet, almost every objection in which is answered in Castelnuovo. And, the WHO doesn't even note that their footnote here points to a two-page Lancet op-ed (it's in the "Comment" section) rather than to an empirical study. The WHO paper just isn’t good science. It's motivated reasoning.

The Drug Foundation thus far stands by its Mythbusting article. That's disappointing. If the goal is healthism, the best evidence suggests that a bit less a drink a day has the greatest mortality risk reduction, that there are still health benefits (relative to teetotalling) up to about three or four drinks per day, and that folks ought to be cautious about adverse health effects beyond that. They might also note that folks with family history of cancer drink a bit less while those with family history of heart disease drink a bit more. The economist would then say to weigh the health costs of drinking more than the health-maximizing amount against the consumption benefits.

I'm a bit puzzled why the anti-alcohol folks would want to bury the evidence of a J-curve - I have a very hard time seeing how a truth-seeker could find other than that there's a J-curve on the balance of the evidence. Is it the noble lie: that folks who've heard of the J-curve would use it to rationalize far greater drinking, so it's best to pretend it doesn't exist?

Tuesday 30 March 2010

Hangovers impair perceived performance but not performance

Take a couple hundred students. Make them sit through a lecture. Then, give half of them non-alcoholic beer, the other half, full strength. Measure blood alcohol of both groups. Put them to bed. Next morning, make them all do two tests: part of the GRE, and a quiz on the prior day's lecture.

Then, do it again, but flip the groups so you can get within-subject measures.

You might expect that the hung-over students would perform worse on the tests. In surveys after the tests, those in the alcohol treatment certainly thought they'd done worse. But, there was no difference between the two groups' performance. The students thought that alcohol had impaired their performance, but there was no difference between the two.
While our findings are discordant with results of survey studies that find associations between alcohol use and academic problems, these studies are potentially confounded in that a third factor (e.g. personality) may cause both excessive drinking and academic difficulties and causal order is unknown (i.e. academic difficulties could lead to excessive drinking). Our findings are consistent, however, with a study on the effects of intoxication on next-day occupational performance [33]. In that study, merchant marine cadets’ performance on a diesel engine simulator was not affected significantly, relative to placebo, on the morning after intoxication (mean BrAC.115 g%), but self-rated performance was significantly worse. Similarly, another laboratory study found measures of combined attention and reaction-time to be the only neurocognitive measures affected on the morning after 0.11 g% BrAC [74]. [emphasis added]
The Boston University story on the study is here; the full paper is here.

Now, what does this mean for WHO-approved survey measures of problem drinking that ask respondents how often their drinking kept them from doing what was normally expected of them? Might mean a bit of upward bias in responses there, mightn't it?

Monday 29 March 2010

Organ markets

The Sunday Star Times (unfortunately, not online) notes that Israel now gives organ donors priority in receiving transplants. There were apparently a few ultra-orthodox folks who figured 'twas better to receive than to give, so the legislation puts folks on a more equal footing. This is of course now a bit old news, but nice to see it being reported here.

The piece nicely notes Andy Tookey's tireless work trying to improve New Zealand's policy framework. Andy heads up the local branch of LifeSharers: a club for potential organ donors and recipients who wish that their organs, should they become available, be offered in the first instance to other members of the club. If no club members are suitable matches, then the organs are released to the general pool. A few ethicists hand-wring endlessly about some more medically desperate folks perhaps being passed over, but absolutely nothing stops those folks from joining the club as well, and I'm enough of a hard case not to be overly worked up if folks who wouldn't be willing to give me an organ if they died and I needed one are passed over for first call on mine.

An economist's first best is a free market in live and cadaveric organs, appropriately regulated to ensure that all parties involved weren't coerced into the transaction. There are lots of options between here and there that would improve outcomes:
  • allowing compensation for cadaveric donors to encourage donation;
  • allowing compensation for live donors;
  • restricting transplants to folks who sign their organ donor cards (and banning any familial veto post-death);
  • restricting the set of people who are allowed to veto your expressed choices (right now, in NZ, pretty much anybody can veto your choice about being an organ donor);
  • presumed consent for cadaveric donation.
The Maori Party seems likely to veto any potential changes to New Zealand's organ donation regime: while Maori have higher diabetes rates than others, and consequently are more likely to need a transplant, some Maori view the harvesting of organs after death as being tapu and consequently forbidden. If the Maori Party views beliefs about tapu as wholly price insensitive and broadly held across the community, then they'll reckon that changes prioritizing donors over non-donors would disproportionately adversely affect Maori.

I'd tend to expect instead that a change in regime would induce folks to lay aside more costly beliefs; I'd further expect that the increase in donation rates that could be achieved by giving preferential treatment to donors could be sufficient to ensure that even registered non-donors could be made better off by the change. Is it better to be at the bottom of a very short queue or in the middle of a very long one?

Sunday 28 March 2010

Drawing the Line

New Zealand's broadcast standards authority stops stations from using naughty words before 8:30 at night or so. But how can you tell what's acceptable? 'Bugger' used to be terribly naughty; now, not so much.

Turns out they run a survey.

And, before last year, the survey was run face to face. Now it's online.

David Farrar feels sorry for the poor folks who had to go door to door with their list of swear words, asking the folks answering the door how offensive they found each one.

Maybe there's too much of the Eric Cartman in me, but get me on the right day, I might even pay money to do the polling work. Avoiding cracking up half-way down the list, and avoiding adding new ones to the list, would be the hardest part.

Now imagining Cartman actually being hired to do the survey and interviewing Mrs. Broflovsky...

Go read David Farrar's post, linked above, for the full list. There are also write-ins suggested by survey respondents as unacceptable. I keep thinking of Kyle taunting Cartman when Cartman had the v-chip....

David, thanks for this. You've made my weekend.

Even the abstract from the BSA's paper cracks me up. Read that too, also linked above.

Update: Was it a South Park episode already? It's incredibly easy to imagine Cartman figuring that he could pretend to be a surveyor hired by the FCC to poll people about offensive words and just spending the rest of the episode going door to door swearing at people while looking very sincere, and just ramping up the level of offensiveness if they're finding things too tame. If it isn't an episode, it should be.

Friday 26 March 2010

Misuse of Drugs Act Panel Discussion

Yesterday's panel discussion with Law Commissioner Warren Young and Professors Newbold and Young was fun. The 40-odd audience seemed broadly supportive of ending the war on drugs.

I was left with the impression of a Law Commission tightly hemmed in by what it views as our international obligations and the political constraints of a socially conservative and status-quo biased current administration.

I'd take an alternative view in the Law Commission's place. Given that National is completely unlikely to do anything that might possibly be viewed as relaxing any of our current laws, the final Law Commission report should stop worrying about the political constraint. Instead, it should issue a two-part report.

The first part would deal with housekeeping matters surrounding the current legislation: anomalies in the rank-order scheduling of different substances that have Ecstasy treated far too harshly relative to other substances; allowing doctors to prescribe marijuana for medical purposes and implementing a regulatory structure to prevent leakage from the medical market to the recreational market. As we currently allow doctors to prescribe otherwise proscribed opioids, there's no particular reason marijuana couldn't be brought under the same kind of regulation.

The second part wouldn't be written for the current National government but rather for longer term change: it should be addressed to the intelligent public and serve as the basis for the next decade's arguments over the effectiveness of prohibition relative to other regimes. It should deal seriously with the costs of prohibition, the extent to which the harms associated with drugs are due to prohibition, and alternative structures that would do more to minimize overall harms. It might even move beyond harm minimization to consider welfare maximization, which would weigh the benefits of consumption for those who do enjoy such consumption.

It could even go further to discuss some ways that legalization might be effected despite our international obligations. While we may be constrained to keeping certain substances illegal, nothing in the international agreements specifies the level of resources that must be devoted to the war on drugs (or, at least that was Professor Young's understanding).

So a future, more sensible, government could, for example, have a conversation with the New Zealand Police encouraging different districts to try innovative policing measures to reduce property and violent crime rates; drug interdiction efforts would not be a key performance indicator. If drug interdiction is helpful in reducing violent and property crime, then leave the districts to try it, but if other districts are able better to reduce property and violent crime rates by redirecting resources from drug busts to other policing, or even by trying something like Hamsterdam, well, that would be something that might well wind up being recommended as best practice sometime down the line. They could even go so far as to promise to help districts wanting to go that route by providing public health and treatment services in those areas for those who need it. Drug use would remain illegal, but not an enforcement priority. No more pats on the head for Staff Sergeants announcing their latest marijuana busts; instead, they'd be asked to show how the bust has affected the crime rates the government cares about.

There is no point in trying to convince the current government of anything on this front. John Key wouldn't change his tie if he thought it might hurt him in the polls, nevermind liberalize our drug laws. The argument instead has to be addressed to the voters and to the chattering classes that help to shape public opinion. Lay out the evidence - there's lots of it - then put it in the kinds of stories folks can easily understand.

If we only get reviews like this every 35 years or so, it would be an utter waste to have the review spend all its time addressing an audience with its fingers plugged firmly in its ears. If there were a chance of compromise with an unfriendly but reasonable government, then there'd be good argument for a document that pulled its punches in hopes of achieving some change now. But the current government isn't reasonable. The Law Commission should instead be addressing the government we might have in ten years time, and the voters who might help to take us there.

Small delights [updated2]

Wandering downtown Christchurch last weekend, we found a wooden shipping container on the pedestrian mall just outside of Alice in Videoland. Two men were prying the front open with crowbars. We of course stopped to see what was going on. When the front of the container opened, a three-man alt-country band inside started playing. After a couple of tunes, they slowly moved outside of the box, using the box-front as an impromptu stage (the acoustics were, unfortunately, better when they were playing from inside of the box). After a half-hour or so, they retreated inside the box, played one more song, and the same men again nailed shut the front of the box.

Ira danced enthusiastically through much of the performance.

They never announced themselves, explained anything, or even spoke a word to the audience. Just music.

I love Christchurch....

Update: Apparently it was an art project. Sue sends me the link. Ira sits appreciating the show on the right hand side of this picture.

Update2: The band is "The Unfaithful Ways". Their debut video is here. Their MySpace page is here. I rather like "I Can't Get Your Cruel Love Off My Mind".

Frum moves on

On Tuesday, I posted David Frum's very nice op-ed warning the GOP about being taken over by the loonier parts of its base.

Thursday's Washington Post brings Anne Applebaum to second Frum's warnings.
And now, my fellow disappointed conservatives, former conservatives and disgusted conservatives, it is time for all good Republicans to come to the defense of David Frum, and to endorse his critique of radical right-wing talk-show rhetoric. If you've left the party in disgust, then call up your friends who are still members and get them to do it for you.

I am not writing this because David Frum is my friend, although he is. I am writing this because I was recently in London, where I got a close-up look at the state of the British Conservative Party, once the intellectual motor of free-market economics in Europe and the rest of the world. After almost two decades in power, the British conservatives lost, in 1997, to Tony Blair's slicker, smoother, Labor Party -- a party that had accepted the basic premises of Thatcherism and then moved on.

At the time, the Tories reckoned they would be in opposition for a couple of years at most: All they had to do was return to their basic principles and declare them with greater fervor and more self-righteous anger than ever before. They knew what the British people really wanted, they told one another, and ran two angry campaigns that reeked of xenophobia. The result: The Tories have been out of power since 1997. Thirteen years.
And now Frum's been fired from AEI. AEI always seemed the DC conservative think tank most worried about keeping its folks on-message, so it shouldn't come as particular surprise.

Update: Tunku Varadarajan weighs in, arguing there was no possible compromise so staying pure had no downside. I'd buy this if the GOP ever had been pure on health care, but when Krugman called them out asking the GOP to say where they'd make cuts to make Medicare sustainable, I didn't hear much.
In fact, conservatives have backed away from spending cuts they themselves proposed in the past. In the 1990s, for example, Republicans in Congress tried to force through sharp cuts in Medicare. But now they have made opposition to any effort to spend Medicare funds more wisely the core of their campaign against health care reform (death panels!). And presidential hopefuls say things like this, from Gov. Tim Pawlenty of Minnesota: “I don’t think anybody’s gonna go back now and say, Let’s abolish, or reduce, Medicare and Medicaid.”
So the status quo level of state intervention in health care was somehow a morally pure position that needed defending against Obama's increased level of state intervention in health care? Hmm.

Thursday 25 March 2010

Misuse of Drugs Act

For those interested, I'll be participating in a panel discussion on the Misuse of Drugs Act this afternoon. Hope to see some of you there!
Panel Discussion on review of the Misuse of Drugs Act. Law Commissioner Dr Warren Young with Professor Neil Boister (Law), Professor Greg Newbold (Soci) and Dr Eric Crampton (Econ) discuss the recently released Law Commission discussion document on the Act. Chaired by David Round (Law).

Date: Thursday 25 March
Time: 3:00pm
Location: C3 Central Lecture Block, University of Canterbury

All Welcome


In February this year, the Law Commission released a 400 page discussion document reviewing the 1975 Misuse of Drugs Act. The Commission is inviting submissions on this document (until the end of April).

Law Commissioner Warren Young will present a brief summary of the review, to be followed by a panel discussion. The panellists from disciplines of Law, Sociology and Economics have all made scholarly contributions in the area of drug policy.
All welcome:

Those interested can download the
36 page summary of the Issues paper from

or the full 408 page Issues Paper from

Ninny state? [updated]

Last year, the healthists tried coining a new phrase: "ninny state". Noticing that folks were starting to push back against their various interventions into folks' personal lives, and that the term "nanny state" was on the rise, they figured the problem was in branding rather than in their meddling. And so they started saying those opposed to "nanny state" interventions were supporters of a "ninny state" and argued that their fellow travelers ought also make extensive use of the same term. Apparently they came up with this bold new strategy at a public health conference in Australia. Said healthist-extraordinaire George Thomson,
"There's a need to reframe public health activity as stewardship that protects people. We need to emphasise the advantages of the strong state, the state that protects," he told the conference. But the public health community, delving into alien territory, acknowledges it needs some help from the country's top advertising brains in coming up with catchy counter-phrases.
Yup, some clever ad-men to help them come up with ways of marketing the term ninny-state, that's just the ticket.

And so I found it pretty damned funny when Doug Sellman opened his latest salvo against Roger Kerr in today's Christchurch Press by calling Kerr a proponent of the ninny state, then went on to whine about alcohol industry advertising campaigns. So it's ok for Sellman's bunch to look for ad-men to help them with their propaganda, in addition to the millions spent already by governments on public health campaigns demonizing alcohol, but it's not ok for the alcohol industry to advertise their products? Interesting.

They really do need some better branding though. The term "ninny state" does not Google very well at all. The first hits I get on it suggest the term is far more used to describe the implementation of nanny state policies by ninnies, or when the objects of nanny state attention so internalize the preaching that they start advocating it themselves (ninnies then being the micro to the nannies' macro); articles going back to 2005 have it as an alternative description of paternalistic government policies.

It's doubly funny when Sellman implies civilization itself is at stake when "ninnies" advocate rolling back his preferred regulations:
These democratically agreed restrictions and controls are what many of us refer to as "civilisation", the result of 200 years of social development in Western democracies.
Recall, of course, that very good argument can be made that the brewing of alcohol helped give rise to "civilization" thousands of years ago. Personally, I'd put modern civilization as going back a bit farther than two hundred years in the West and I'd note the rather decent contributions made in the mid-East a thousand years ago (and also a couple thousand years prior to that) and in China going even farther back, but that's a bit beside the point; Eurocentrism is the least of Sellman's problems.

Sellman says that Kerr's argument consists of naught but cobbled-together assertions about alcohol that ignore his preferred "facts" about alcohol. Of course, Sellman isn't exactly above ignoring facts he finds inconvenient. He says Kerr ignores that there are 700,000 "heavy drinkers" in New Zealand. Well, there's good reason to ignore that number: it's pure nonsense. Utter rubbish. The only way to get that number is by counting up any woman whose consumption totals more than 20 grams of alcohol per day on average and any man whose consumption exceeds 40 grams. That's less than 2 pints of standard 5% beer for a bloke, and less than a pint for a lady. Complete nonsense. The only measure on which it can start making sense is if health is the only thing that anyone anywhere values. The very best existing evidence suggests that mortality risk is minimized for men somewhere around one standard drink per day and for women somewhere around half that, but moderate drinkers start facing increased health risk, relative to teetotalers, at around 25 grams per day for women and just over 40 grams per day for men. So Sellman's "heavy drinkers" are folks who have just barely started drinking at levels where they see increased risk relative to non-drinkers.

But let's stick with Sellman here and have health as the only permissible goal. The very best evidence suggests that overall mortality risk is minimized at consumption of a bit over half a standard drink per day (average for men and women), and yes these numbers have never-drinkers separated from former drinkers as reference group. Relative to these very moderate drinkers, teetotalers have about a 16% increased risk of death. Should we be forcing non-drinkers to take their daily dose and whinge endlessly about the risks of under-drinking? If not, then the 16% increased risk isn't worth worrying about, right? If it's only risks over 16% that are worth worrying about, mortality risk (relative to teetotalers) is only 16% higher for folks drinking just under 60 grams per day (eyeballing from the graph): the cutoff for "high risk" drinking for men. So why count men drinking more than 40 grams, Doug? Is it so you can get a bigger number? You should be careful: when the numbers get too big, folks start being a bit skeptical. And 700,000 heavy drinkers in a country of just over 4 million people is obviously nonsense. Most folks will run a mental tally of their friends, counting up the ones that would fit a common-sense notion of heavy drinking, and find 700,000 utterly implausible.

Further howlers:

Contra-Sellman, New Zealand society is hardly "organized in such a way as to maximise heavy drinking and therefore alcohol profit." We have fairly high alcohol taxes in place already - taxes high enough to counterbalance any plausible external costs imposed by alcohol abusers; anti-alcohol public service announcements aren't exactly scarce; the police can lock folks up for being drunk and disorderly; you can't buy spirits at the supermarket; bartenders can be in legal trouble if they continue to serve obviously heavily drunk patrons.... We may not have your preferred set of heavy regulations, but things are hardly set up to maximize heavy drinking. It's hard to imagine the mindset that reckons the current slate of fairly restrictive alcohol regulations is the result of the government being entirely in the pocket of the alcohol lobby.

But the most irritating bit is Sellman's concluding comment:
Which state - "ninny" or "nanny" - is likely to encourage individual responsibility? The answer is neither. Highly restrictive "nanny state" families are prone to producing emotionally stunted children with no initiative, but laissez-fair "ninny state" families with no clear rules or regulations often produce out-of-control children. The answer, of course, lies in the middle ground.
For Sellman, the state is parent, trying to bring up its citizen-children with just the right amount of freedom, with himself providing sage advice about where that sweet spot lies. What a ninny.

Update: Doug Sellman responds in comments, below.

Constitutional spirit

I wrote earlier this week:
Quasi-constitutional constraints are great, but they have a hard time being effective in a Parliamentary system if the majority party doesn't particularly wish to be constrained and if voters aren't particularly constitutionally minded.
The Attorney General argues Paula Bennett's proposed welfare reforms are incompatible with the Bill of Rights because of unwarranted discrimination: recipients of the Domestic Purposes Benefit will be subject to work requirements while women receiving the Widow's Benefit or the Women Alone benefit will not.

And so I'm worried when Paula Bennett's response to the Attorney General's concerns about compatibility of her proposed welfare reforms with the Bill of Rights isn't that they'll seek out further advice, possibly asking the Supreme Court for an opinion, or that they'll move to apply equal treatment across the three types of beneficiary groups putting in some general rule that anyone under the retirement age will be subject to work requirements; rather, here's what she has to say:
Social Development Minister Paula Bennett admits that part of her welfare reforms breach the Bill of Rights Act but says it would not bother most people.

"I think that is a discrimination that most New Zealanders will see as being fair and reasonable."
She's right. Most folks will see it as being fair and reasonable. Heck, it seems fair and reasonable to me too. But that isn't the point: if it runs counter to the Bill of Rights, we ought to amend it to make it compatible. There are all kinds of things that will seem fair and reasonable to most New Zealanders, but the point of constitutional constraints is to stop us from doing things that the majority feels are fair and reasonable but impose large costs on minorities. But there's little constitutional spirit in New Zealand.

HT: Big News.

Free speech in Canada [updated]

I'm no particular fan of Ann Coulter's. But it's not a great look when Canadian universities consistently cancel talks by conservatives or pro-Israeli speakers because of security threats from the left.
Rita Valeriano was one of several protesters inside the hall who, with chants of “Coulter go home!” shouted down the International Free Press Society of Canada organizer who was addressing the crowd.

Ms. Valeriano, a 19-year-old sociology and women’s studies student, said later that she was happy Ms. Coulter was unable to speak the “hatred” she had planned to.

“On campus, we promise our students a safe and positive space,” she said. “And that’s not what (Coulter) brings.”
Egads. Nothing of the hatred outside the hall then?

Colby Cosh weighs in nicely:
A crowd of columnists, tweeters, talking heads, and bloggers is already preparing to bore you with cynical proclamations that the Ann Coulter fiasco at the University of Ottawa was a “victory” for Coulter, that it was precisely the “martyrdom” she was looking for, and that it was “exactly what she wanted.” I would ask them to consider one question that is usually overlooked even by defenders of freedom of speech: what about the students’ right to hear Ann Coulter, or any other obnoxious political performance artist whose views they might like to entertain? Did they win too? Did they get exactly what they wanted? If we rebranded freedom to speech as the freedom to hear, as Robin Hanson has proposed, would the real nature of the harm be clearer?

When conservative students connect the dots and figure out that they too can assemble mobs and pull fire alarms—heaven forbid that there should ever be two sides to such undignified situationist power contests; the worst people are guaranteed to win no matter what—will we all greet that development with a dismissive sigh? (Would the Nazi metaphors stay locked in the drawer for very long?) One is tempted to compile a list of upcoming Canadian campus events featuring leftist speakers who have ever expressed a view objectionable to somebody or other. There must surely be about fifty of these a week, even if you don’t count ordinary scheduled classes. Ann Coulter’s safety is yours and mine. To which I feel I can only add: “Duh”.
I totally would have expected this at Concordia University, where a certificate of insanity from your local psychiatrist seems necessary for enrollment; I'm a bit surprised that it was the University of Ottawa this time.

Update: At least one UoO student is sensibly embarrassed about this.

Let's put the economists in charge

Freakonomics hosts a very nice podcast on just how much better the world would be if only the economists ran things. Interviewees include Russ Roberts, Patri Friedman, and the former Prime Minister of Estonia. A brief write-up on it here. Enjoy!

I love this Levitt bit:
Politicians have to say and do things that they think other people will like, whereas economists don't have enough social skills usually to actually realize that the things that they say and do offend others.

I cannot remember going to a party with my wife where after we left she didn't chide me for the fact that I had insulted or berated or challenged someone in a way that was completely and utterly beyond the social norm. And I had no idea. And every single time we go (we don't go to that many parties), I am amazed when she tells me that at this party, just like the last one, I did something wrong.
Glad I'm not the only one! Susan and I squirm when watching Curb Your Enthusiasm for rather different reasons...I keep thinking of the cases where I've been within cooee of whatever Larry David's up to, and Susan of course sympathizes then with Larry's long-suffering wife....

Wednesday 24 March 2010

The economics of optimal taxation applied to sport

It is now confirmed that Carl Hayman has signed with a French Club, and so will not be available to play for the All Blacks in next year’s world cup. This is obviously a big blow to the All Blacks. It is also unfortunate for rugby that international rugby, the showpiece of the sport, will continue to be without one of its genuine superstars.

Three common reactions to this are all wrong:

  1. Hayman should have put national pride ahead of financial return.
  2. The NZRFU should have matched the offer from Toulon.
  3. The NZRFU should abandon its rule about not selecting foreign-based players.

The first of these is ridiculous: Who among the rest of us base our personal employment decisions on considerations of the national good? The second would create an incentive for more players to leave in order to be enticed back. The third would have a similar effect on incentives, at a huge long-term cost to the base of the game in New Zealand. But a variant on it is worth considering.

This is where optimal tax theory comes in. The basic idea of this literature, see here, here, and here, is that there is no benefit from levying tax on income-generating activity if that tax will lead people to not undertake that activity, so taxes should ideally only be levied on activity that will take place even with the tax. The trouble is to find observable things that are correlated with tax-insensitive behaviour and not with tax-sensitive behaviour that still leave a progressive tax system. One example from the literature is that an optimal tax system has lower tax rates at higher incomes that at lower ones. (The vast majority of people will choose to continue to earn the first $10,000 of income; they may not choose to continue to earn the millionth dollar.)

The rugby analogy is that the NZRFU would be happy to select players from overseas who would be overseas whether they were allowed to be selected or not but also want to commit to not selecting players for whom that rule would be decisive in keeping them playing in New Zealand. So what they need is a rule that allows some players thought likely to be infra-marginal to be selected for the All Blacks if playing overseas while not others.

Fortunately, such a rule is possible. The vast majority of players who have gone overseas have not done so until they have played around 8 seasons of Super rugby (Hayman, himself played 8 seasons for the Highlanders), and typically, I would guess, the majority of high-profile players who can leave do so after that time. So the NZRFU should institute a policy that to be eligible for selection in the All Blacks, you must either be based in New Zealand or have played at least 8 seasons of super rugby. Indeed, once this rule were in place it might keep some players who now would leave before completing 8 seasons, as they would have the incentive to earn perpetual eligibility.

DPB and work requirements

I haven't had the time to look in any depth at National's proposed changes to the welfare system. In general I favour work requirements and I favour low abatement rates to keep effective marginal tax rates low.

But I do wonder if anybody's keeping stats on birth spacing. If mothers on the Domestic Purposes Benefit are going to be subject to work requirements when their youngest child turns 6, that provides a reasonable incentive to have another child when your youngest is 5. It would be interesting to see whether there are any suspicious spikes in likelihood of having another child at that interval conditional on being a DPB recipient. We do know that folks are suspiciously likely to find work in the week in which their unemployment benefit would otherwise run out.

Lindsay Mitchell keeps far better track of these things than I do; she's also worried about the elasticity of childbirth to benefit timing.

Oh, for a world of lump sum transfers....

Given that Susan returned to work 3 months after Ira's arrival, and will return to work 3 months after our forthcoming daughter's arrival, at least partially because of excessive taxes on my income to provide transfers to mothers who wish not to return to work and are happy to live with their children in relative penury, I'm somewhat unsympathetic to DPB recipient concerns about having to put their children in childcare. I'd even sometimes be inclined to call it an abomination that we find ourselves required to be a two income household in order to fund the lifestyle choices of those who prefer to be a no income household. But that would be stepping from dispassionate economic analysis into areas where I've little comparative advantage.

Professional juries?

Today's Dominion Post helps build the argument for professional jurors over our current conscription system:
The Court of Appeal has talked of jurors consulting a ouija board during a trial and leaving deliberations to have sex.

Another juror who left the jury room screaming that they would not go back was grabbed and drawn back into the room, according to three judges.

The unusual legal discussion came up yesterday after the court was told that a juror had complained of being bullied while deciding the verdict against Auckland prostitute Dionne Liza Neale, who stabbed her some-time partner to death.
And we'd expect otherwise when jury duty pays next to nothing, is compulsory unless you have a good excuse, and ability to come up with a good excuse is g-loaded?

Kiwiblog pithily notes:
The sex breaks for jurors is quite novel. Does the Ministry of Justice supply the sex also, or do jurors have to find their own?

The use of the ouija board was the fault of the Judge with his instructions. He told the jury not to discuss the case with any living person. So obviously they concluded seeking guidance from dead people was fine.

And physically restraining a screaming juror who wants to leave is obviously just modelled on the Catholic method of selecting a Pope.

So there’s really nothing to worry about at all.

Malpass on MMP

Luke Malpass and Oliver Hartwich argue for a rather substantial change in New Zealand's Parliamentary structure: a lower house elected by FPP and an upper house elected proportionately by region. They rightly argue that the aim should be for a "least worst" system rather than a best one.

There are some big problems in squaring bicameralism with Westminsterian parliaments. First and foremost, from whom must the executive seek confidence? If an important bill fails in a Parliamentary system, there must typically be a confidence vote. Would a Kiwi senate striking down a piece of legislation trigger a no-confidence vote? If so, then all of MMP's problems with coalition formation return. If not, and the Senate can strike down money bills, what happens in case of deadlock? I've no particular problem with deadlocks, but they don't sit well with the notion of Parliamentary supremacy.

Malpass and Hartwich suggest adopting the Australian system where the Prime Minister can dissolve both houses and hold a full re-election should a government bill be twice rejected by the Senate. This solves one problem, but eliminates a potential benefit of bicameralism: namely, having an upper house elected on a much longer term than the lower house to insulate policy from the transient whims of the electorate.

Brook-Cowen, Cowen and Tabarrok's 1992 primer on constitutional change in New Zealand suggests that, relative to the unicameral first past the post system then operant, bicameralism offered little.
In New Zealand, the introduction of a strong second chamber would fundamentally alter the nature of accountability in government, and in a manner which would in our view be unsustainable. Westminster systems of government revolve around the accountability of the executive to parliament. With two equally powerful but differently composed chambers, the executive will face continuing conflicts in defining the interests to which it is accountable. As a result of these conflicts, we might expect a general weakening of accountability to the electorate. In particular, we would expect:
  • a reduced incentive on the part of politicians to mirror the preferences of the median voter;
  • an increased incentive to serve the interest of strong special interest groups;
  • an increased incentive to maximise revenue and redistribute resources from citizens to the government;
  • an increased incentive to favour particular regions and districts at the expense of other regions and districts; [fn: This outcome will hold where the second chamber is elected under a federal system or by means of regionally-based proportional representation.]
  • an increased incentive for politicians to indulge their own policy preferences or ideology;
  • a reduced incentive to respond favourably to international constraints.
Accountability conflicts of the kind described here are not necessary features of bicameral systems. Rather, they are a product of the particular combination of strong bicameralism and a Westminster parliamentary system. Strong bicameralism and accountable government could, by contrast, be combined if New Zealand were to adopt a more consensual system of government (for example, with the first chamber being elected on a proportional representation rule), or a presidential system of government (with executive power distanced from the legislature).
The status quo has of course changed since then. MMP means that Parliamentary parties must form coalitions to govern; forming coalitions across houses ought not be particularly more difficult than forming them within houses. So the costs of adding a second chamber are now much lower than they were from the 1992 status quo. But it's not clear to me that the main problems of the current system - too short an electoral time horizon, difficulty in ascribing responsibility in coalitions, generally excessive power for minor players - would much be solved by adding a second chamber.

The best argument I've seen for a second chamber is that it slows the implementation of reform such that it's more likely to be embedded: Australia having taken the slower route to economic reform but having brought more voters along. But would a bicameral system as here proposed really slow things down that much?

Every three years we'd vote for a lower house by FPP and for an upper house by regionally-based PR. It's the rare case in which the party with the smaller fraction of the vote gets a Parliamentary majority under FPP. It happens, but not all that often. So the dominant lower house party would also be the dominant upper house party. In the lower house, it would likely have a majority; in the upper house, it would have to form coalitions with minor parties. I'm not sure I see much difference between a large centrist party having to form coalitions in a unicameral parliament and that same large centrist party having to form coalitions in one house of a bicameral system. Moreover, as the party lists developed for Senate elections would be controlled by the party apparatus, the odds of there being substantial within-party differences across the two houses are slight.

I'd modify Malpass's proposal as follows:
  • House elections (FPP) every four years; Senate terms of eight years with staggered terms - half elected each time there's an election in the House
  • Senate elected by a national PR vote rather than regional PR to reduce geographical coalitions across houses: enough incentives for geographical redistribution in the lower house; demographically-based coalitions in the upper house should check the worst geographic pork-barreling (though massively attenuated as upper house parties are clients of lower house via party list structure)
  • The Australian double-dissolution trigger seems a good one. The Executive is beholden to the House for confidence, but a bill twice rejected by the Senate lets the Prime Minister dissolve both houses for election; in that case, some Senatorial seats would be up for three-year and others up for six-year terms.
I'm still rather unsure of the benefits of a bicameral system with an upper proportional house over a unicameral first past the post system in a small country. Increasingly, the main criteria for me is whether voters can adequately apportion blame for bad outcomes. Westminsterian FPP fares best on that metric.

Other reactions:

Yakuza and extra-legal contract enforcement

BoingBoing's interview with Jake Adelstein suggests that one of the Japanese Yakuza's main lines of work is in provision of extra-legal contract enforcement and dispute resolution:
In fact, lots of normal people go to the yakuza to solve problems. In Japan, civil lawsuits take forever to get resolved, and even if you win the lawsuit nobody will enforce it — if a guy owes you money but won't pay up, police officers aren't going to go out there to seize his assets. If someone owes you money or you're in a civil dispute, the yakuza will take half of whatever they can get out of the person who wronged you. But at last you get half, and it's fast.


Here's the thing: Japanese people kind of like the yakuza. They admire them. There are movies about them, comic books about them, there are fan magazines... they're part of the culture. They promote traditional values.

One of the reasons Japan has low street crime rates is because these guys are very good enforcers. In the neighborhoods where they're running businesses or collecting protection money, you won't see people getting mugged because the yakuza don't want people to be afraid to come there and spend money. They are a second police force and in that sense, and perform a valuable role in Japanese society.
Inefficiency in state provision of contract enforcement and security promotes competition?

Tuesday 23 March 2010

NZ-US free trade: roundup

New Zealand's in negotiations with the US for a "Trans-Pacific Partnership" free trade area.

The US Dairy lobby has thirty senators complaining of New Zealand's "anti-competitive practices". Never mind that New Zealand has close to the freest market in the world for dairy products. Rather, it's Fonterra's largish size that has them worried.

Fonterra reminds the Americans that while Fonterra is big in traded milk, it's relatively small in total milk production:
American lobbyists complaining about the potential for a Trans-Pacific Partnership (TPP) trade treaty to give New Zealand greater access to the United States domestic dairy market have been urged by Fonterra to look at the issue in context.

"The US dairy industry is by far the largest among the TPP countries, producing approximately 70 percent of the milk in the TPP region, while New Zealand produces a little over 13 percent," Kelvin Wickham, Fonterra's managing director of global trade, told NZPA.

Lance Wiggs laments the strong language used by some on the NZ side complaining of anti-trade American practices; Bernard Hickey reckons NZ has been too meek.

Hickey goes further today, reiterating prior warnings that any trade deal with the US is likely to exclude dairy but include a pile of copyright nonsense.

For most countries, a free trade deal gives them a chance to kill a bunch of their own protectionist policies that are popular with voters: "We had to stop bashing ourselves in the head with the hammer if we wanted the other guy to do the same; it isn't so much that we don't like bashing ourselves in the head, but it's more important to stop the other guy from doing it because his mess occasionally splatters on us." But New Zealand stopped bashing itself in the head rather some time ago.

I'd be surprised if whatever deal went through actually wound up much constraining the Americans against continuing with dairy protectionism: dispute resolution under these agreements is long, arduous and expensive. Was the new bit of dairy protectionist legislation really the kind of thing prohibited under the TPP? Let's spend 20 years in the courts sorting it out (whaddya gonna do about it, put a tariff on US imports? You and I both know it won't hurt us 'cause we're big and you're tiny). But the copyright provisions would be enforced pretty vigilantly with retaliatory trade action: the MPAA doesn't think your ISPs are spending quite enough monitoring their subscribers; get them in line or we'll stop taking your dairy.

Says Hickey:
These FTAs are never about free trade from an American point of view. They are about creating another opportunity to strong-arm smaller countries into granting trade concessions to large American businesses. A much fairer, cleaner and freer option is proper reform of trade rules and tariffs through the World Trade Organisation. America and Europe have blocked reforms there because they would upset their apple carts of huge subsidies for farmers paid for by taxpayers and consumers through higher taxes and higher prices.

John Key is right to say a TPP without agriculture (and dairy in particular) is unacceptable. He should be prepared to walk away if the Americans try too hard to monster us in these talks.

Not so sweet

You only have to ask the Australian sugar farmers about the Australian FTA with America to find out how good that was. American sugar interests blocked sugar from the deal. American drug companies tried to shut down Australia’s version of Pharmac.

Australia’s exporters have hardly benefited from the deal.
I'm also skeptical. Worth giving it a try, but also worth remembering that no deal is better than many deals that could emerge when enforceability is factored in.

The dangers of demagoguery

David Frum writes thoughtfully on Obama's health care bill:
At the beginning of this process we made a strategic decision: unlike, say, Democrats in 2001 when President Bush proposed his first tax cut, we would make no deal with the administration. No negotiations, no compromise, nothing. We were going for all the marbles. This would be Obama’s Waterloo – just as healthcare was Clinton’s in 1994.

Only, the hardliners overlooked a few key facts: Obama was elected with 53% of the vote, not Clinton’s 42%. The liberal block within the Democratic congressional caucus is bigger and stronger than it was in 1993-94. And of course the Democrats also remember their history, and also remember the consequences of their 1994 failure.

This time, when we went for all the marbles, we ended with none.

Could a deal have been reached? Who knows? But we do know that the gap between this plan and traditional Republican ideas is not very big. The Obama plan has a broad family resemblance to Mitt Romney’s Massachusetts plan. It builds on ideas developed at the Heritage Foundation in the early 1990s that formed the basis for Republican counter-proposals to Clintoncare in 1993-1994.


We followed the most radical voices in the party and the movement, and they led us to abject and irreversible defeat.

There were leaders who knew better, who would have liked to deal. But they were trapped. Conservative talkers on Fox and talk radio had whipped the Republican voting base into such a frenzy that deal-making was rendered impossible. How do you negotiate with somebody who wants to murder your grandmother? Or – more exactly – with somebody whom your voters have been persuaded to believe wants to murder their grandmother?

I’ve been on a soapbox for months now about the harm that our overheated talk is doing to us. Yes it mobilizes supporters – but by mobilizing them with hysterical accusations and pseudo-information, overheated talk has made it impossible for representatives to represent and elected leaders to lead. The real leaders are on TV and radio, and they have very different imperatives from people in government. Talk radio thrives on confrontation and recrimination. When Rush Limbaugh said that he wanted President Obama to fail, he was intelligently explaining his own interests. What he omitted to say – but what is equally true – is that he also wants Republicans to fail. If Republicans succeed – if they govern successfully in office and negotiate attractive compromises out of office – Rush’s listeners get less angry. And if they are less angry, they listen to the radio less, and hear fewer ads for Sleepnumber beds.

So today’s defeat for free-market economics and Republican values is a huge win for the conservative entertainment industry. Their listeners and viewers will now be even more enraged, even more frustrated, even more disappointed in everybody except the responsibility-free talkers on television and radio. For them, it’s mission accomplished. For the cause they purport to represent, it’s Waterloo all right: ours.
(emphasis added)

If the analysis I've seen on the bill is right, it's a bit depressing. The best coverage combination - pay for things yourself by negotiating prices while carrying coverage for catastrophic care - is now illegal in the United States. Although, of course, we could just have achieved that via a sneakier route: the $2000/year fine for having no insurance coverage effectively being the premium for catastrophic coverage. Then, buy the insurance once you've discovered that you need something costly.

It's also interesting that the Stupak Amendment, which I'd thought might well kill the deal, was artfully negotiated around by Obama promising that money from the bill wouldn't be used for abortions.

It's a lot easier to stay calm about the Americans doing harm to their health care system when you're a thirteen hour flight away.

The government health care system here provides quality of service probably only slightly worse than Medicaid in the States (my estimate: better than Medicaid on the small stuff, worse on cancer treatment); high deductible catastrophic care insurance is cheap ($100/month for the three of us); paying privately for regularly scheduled maintenance is relatively cheap and simple.

The real downside in New Zealand is that we benefit greatly by free-riding on American medical innovations. As costs balloon under the new US system and eventual cost-control mechanisms knock innovation back a few pegs, we'll have a harder time doing that.

But Frum's right. It's a shame that the monster-shouters formed the negotiating bottom line rather than the opening position.

Monday 22 March 2010

Results I don't believe [updated]

Kiwis almost never look for pornography on the web, a survey partly conducted by AUT University has found.

The survey of 1250 people in 30 countries showed that fewer than 5 per cent of Kiwis admit using the internet for pornography daily. More than 80 per cent said they never looked for sexual content on the web.
1250 people in 30 countries? 42 respondents per country if it's not population weighted; maybe a dozen Kiwis answered the survey if it was? Or do they mean 1250 people in each of 30 countries. [DPF, comments, confirms 1250 per country, phew!]

Alexa is a bit more forthcoming: 6 of the top 100 sites visited by New Zealanders are porn. #s 46, 64, 65, 66, 73, and 81, at least judging by titles or tags that are obvious in the Alexa headings. If folks are more likely to block tracking toolbars like Alexa when surfing that kind of content, then these results understate things. The one ranked #46 here is ranked #54 globally.

Or maybe the 5% in the survey really downloads a whole lot of content. But I doubt it.

Who runs surveys of 1250 people across 30 countries? The margins of error have to be huge!

Externalising the Internality

Back in August, I commented on a recommendation in the report of the Electricity Technical Advisory Group (ETAG) to force an asset swap between the two large SOE electricity generators, Meridian and Genesis. At the time, I thought that this swap was largely pointless (correcting a problem of market power that I don’t believe exists), but also would do little harm.

When the government announced plans for such a swap in December, it transpired that the particular asset swap would split up ownership of stations along a single waterway. The flow that is allowed through an upstream station can affect the production possibilities for downstream station. This is the classic kind of upstream/downstream issue that we use in undergraduate economics to illustrate production externalities. And the classic Coase-theorem-inspired solution to internalise the externality that we suggest in such cases is company mergers. To forcibly bring about the opposite would seem to be externalising the internality.

Recently, I discovered this paper, suggesting a number of reasons that asset swaps would actually worsen competition, even without any production externalities.

And now it transpires that Meridian have flipped and are now supporting the proposal. Does this mean that rather than increasing competition, Meridian and Genesis have found some way of using the new arrangement to extract some monopoly rents from the market? Or maybe the proposal has some general benefits that are not clear on the surface. I do wonder, however, if anyone has done any theoretical or empirical work to show a social benefit from an asset swap. If so, can anyone point me to it?

The depressing state of New Zealand politics

I really shouldn't be disappointed when politicians act in accordance with theory.

Public choice says that politicians are self interested and want to be re-elected. In an MMP system, that means that the big centre-right or centre-left party has to cobble together a coalition supported by 50%+1. We usually expect the minimum connected winning coalition - the smallest grouping of parties adjacent to each other in left-right space - to emerge. In 2008, Key put together a larger coalition than that, mostly, it seems, to give himself flexibility to ignore ACT, who might sometimes recommend that policies enacted by Helen Clark be rescinded. Even absent that kind of larger coalition, ACT is largely toothless: they know they won't go into coalition with anyone but National, National knows it, ACT knows National knows it and so on. So they have no bargaining power in coalition formation: they're promised productivity task forces that are promptly ignored and so on. ACT can't even get National to support a bill reversing a Labour-Green policy that National opposed when Labour enacted it and that National might reasonably have been expected to reverse in office.

If Key wants to maximize his chances of being Prime Minister after the next election, and ACT would neither bring down a National government nor go into coalition with Labour, then it's hard to fault his strategy. The polling wouldn't be good on changes to minimum wages as most folks don't understand economics; if the policy were enacted, more youth would blame National for small wage decreases than would credit National for getting jobs. So there's little political gain in dropping the youth minimum wage regardless of the economic case for it: no votes to be gained, and ACT doesn't much need appeasing.

I don't know how long ACT can survive as this kind of rump. Not many folks can point to any particular ACT achievements in government other than getting to take the blame for Auckland's amalgamation. Yeah, they're getting a productivity commission (after a productivity task force report was sent to the shredder, unread); yeah, they might eventually get a regulatory responsibility bill (which I'm now having a much harder time imagining both having the teeth to do anything useful AND being supported by Key: looks more like pick one or the other). And maybe they've behind the scenes stopped some really stupid policies; I'd believe it, but that's not the kind of thing they can campaign on. There seems little chance of ACT pulling above the 5% threshold for Parliamentary representation; Hide's seat in Epsom serves as lifeboat.

And, I don't think that just coming up with nifty new economic policies will push ACT over 5%; the problem more is in making credible that their policies ever would be enacted by a coalition. If ACT can't even get National to agree to go back to the status quo as of January 2008 on the youth minimum wage, why should we ever expect them to extract anything substantial from National? They're the dependable rump on the right, easily ignored, who'd never vote with Labour so why worry? It's the centrist parties that profit from bidding wars between the centre-right and centre-left. ACT has been up a bit lately in the polls, pulling from National's right tail. But those right wing voters have more influence staying in National and moving National's policy position than they have by increasing ACT's vote share. The policy position chosen by National at convention will be the median of its members, mediated a bit by a pull to centre. The more voters shift from National to ACT, the further left is the median National voter; as ACT won't credibly go anywhere else, it doesn't much move coalition policy. This of course will limit the number of voters ACT can draw from National's tail.

But ACT could have more serious influence on policy. Folks forget that a truly liberal party, in the European sense of the word, and which ACT has claimed to be, isn't a right wing party: it's to the right on economics and to the left on social issues. But ACT's forgotten the other side. It's time they remembered it.

Key can afford to ignore ACT because there's no chance of ACT going elsewhere after the 2011 election, if it returns in 2011. This has to change. And perhaps the best way of making that happen is for ACT to stop talking about economics and start talking about the parts of a liberal platform where they could make common cause with the Greens and the socially liberal side of Labour.

The Law Commission released a report arguing that New Zealand's laws on marijuana needed revision; Simon Power immediately ruled out any changes in drug policy. When a liberal party could have been jumping up and down with the Greens trying for a liberalization of our drug laws, I didn't hear anything from ACT, probably because caucus isn't as liberal as ACT's banner. Where has ACT been on the internet filter? On the use of asset forfeiture legislation? On copyright reform? They may well have policies on all of these (and, on asset forfeiture, the wrong one), but they've not been priorities. Instead, I only see them on economic issues that increasingly seem doomed and on Tiebout-competition-destroying and subsidiarity-ignoring city amalgamations.

Imagine that after the 2011 elections neither Labour nor National has enough votes to go it alone. Labour plus the Greens plus Maori plus ACT could form government; National could do it with ACT or Maori. That's not implausible. ACT puts out a slate of economic policies for National; a slate of civil liberties policies for Labour/Green, choosing the ones that the Greens would find most enticing. A liberal agenda is advanced in either case. It's not like Labour is hopeless on civil liberties either: I am far more a fan of Labour's civil unions bill and prostitution law reform than I am of anything National's done or, increasingly, than I am of anything I expect National to be likely to do. For all that Labour screwed up on the economics side, a not unreasonable case could be made that a liberal agenda made more progress under nine years of Helen Clark than has been made with a liberal party in a National government.

After an election giving National the choice, would National really choose not to bring ACT into the government if its slate of economic policies were roughly in keeping with the kinds of things that National voters tend to like? Just make former National Party leader Don Brash's productivity commission report the basis for ACT's proposals. But by being willing to go into coalition with Labour on a civil liberties platform where they'd make common cause with the Greens: drug reform, internet filter, civil asset forfeiture, perhaps even copyright reform, ACT could have a decent chance of holding National to some reasonable economic reforms: size of government (giving room for changes in taxation), welfare, regulatory burden, RMA.

ACT needs to be able to make credible threats. Focusing on civil liberties would help.

I could easily be wrong: maybe the Regulatory Responsibility Bill has a really great chance of being implemented in a form that would do a lot of good. I can believe that National would be more friendly towards legislation that constrains future action than legislation that annoys voters today; it's probably ACT's best chance of achieving anything on the economics side. If they can quietly make useful structural changes in a National government, then there's less need for the kind of positioning I'm advocating. But everything I've seen thus far from Key makes me pessimistic; I'd expect National to write in enough escape hatches that it, and Labour, would not be terribly constrained. OIRA in the United States hasn't been particularly effective in constraining bad legislation and budget caps there similarly have proven ineffective when every year can be deemed an emergency year requiring the cap be increased or ignored. Quasi-constitutional constraints are great, but they have a hard time being effective in a Parliamentary system if the majority party doesn't particularly wish to be constrained and if voters aren't particularly constitutionally minded.

The biggest risk in liberal positioning would be in alienating the hard conservatives in ACT's base. But how many of those would be willing to trade a much better chance of advancing the economic issues they care about in exchange for some moves on social policy? And, for those who haven't the stomach for the deal and leave, how many younger folks would ACT bring in on a civil liberties ticket? I hope ACT's doing some polling.

Friday 19 March 2010

Versalko's Millions

Lots of folks chattering about the Kiwi banker who embezzled millions from a few bank clients and spent over $3 million on a couple of prostitutes in a combination of fee for service and extortion payments. Most folks seem puzzled by how he could spend, if you knock out the extortion money, $2 million over 9 years on such services.

I'm more puzzled about why this strategy didn't occur to Monty Brewster. Recall the terms:
Brewster suddenly finds that his recently deceased long-lost great-uncle was an eccentric multi-millionaire who was also his only living relative, and includes him in his will. Under the terms of the will, Brewster is challenged to spend $30 million within 30 days in order to inherit $300 million. There are some important conditions attached: at the end of the 30 days, he may not own any assets that are not already his, and he must get value for the services of anyone he hires. Furthermore, he may donate only 5% to charity and lose another 5% by gambling, and he may not waste the money by buying expensive goods and then destroying them or giving them away. Finally, he is not allowed to tell anyone about the nature of this challenge.
Not own any assets at the end of the spending? Check.
Must get value for service? Who's to say he didn't! Check.
Not charity and not gambling? Check.
Not buying and destroying expensive goods? Check.

Just claim to have very bizarre, hard to satisfy, and consequently expensive, tastes. If the terms of the will said you can't do anything illegal, hire the Concord to take you someplace it's legal.

On the other hand, getting the "None of the Above" election result was probably pretty satisfying too....

Minimum wage disappointments

David Farrar rightly takes the National government to task for its failure to support Roger Douglas's minimum wage legislation.
It will be remarkable to see National MPs argue against a bill, which just 18 months ago they were in favour of. As their MPs get up to explain, why they are voting against, I doubt any of them would really believe what they are saying.

The Government gets criticised, often unfairly, for refusing to break pre-election promises that are a handbrake on greater economic growth. I think it is commendable that the Government places a premium on honouring its major commitments.

But when there was no pre-election promise, when in fact their stance was 100% in favour of a lower minimum wage for teenagers, the u-turn by the National Party is legitimate fuel for those who say the Government’s record is not matching its rhetoric.
Now, I could understand it if English had asked Treasury to run a quick extension of the Hyslop and Stillman paper to check for effects post the 2008 minimum wage changes and they'd found my preliminary analysis was missing something. It very plausibly could be missing something, but there's a prima facie case there to answer.

Instead, the scuttlebutt I've heard is that National did some polling and it looked bad.

Of course the polling would look bad. The median voter is, not to put too fine a point on it, utterly incompetent to make on the spot decisions about appropriate economic policy. Last year I noted some results from the 2005 New Zealand Election Survey:
While economists will disagree vehemently about the magnitude of the effects, most economists would agree that minimum wages reduce the creation of new jobs. In [the New Zealand Election Survey of voters], 983 respondents either strongly agreed or agreed that minimum wages reduce the creation of new jobs, 698 were neutral, and 1461 disagreed or strongly disagreed. ... Whaples' 1996 survey of economists found that 87% of labour economists agreed that minimum wages increase unemployment among the young and unskilled.
Voters reckoning that minimum wages have no effect greatly outnumber those thinking that minimum wages hurt job creation.

I could have forgiven Key if he'd let it go to first reading, let the evidence for the effects of minimum wages be debated in committee, encouraged some popular discussion, then decided to back down because he wasn't able to bring the public onside. It would have been courageous to go beyond first reading if opinion were against it, and Key is hardly courageous. But to kill it before committee? When they opposed Labour's move back in '08 and didn't promise anything on the subject?

I'd happily trade the government for a futures market. But not for a polling firm.

Thursday 18 March 2010


Best line in the new Gelman article on zombies:
We originally wrote this article in Word, but then we converted it to Latex to make it look more like science.
As I aim for science rather than sciency, I stick to Word.

Satel on Addiction

Wow. It's not just us crackpot rational choice economists who take choice seriously.
Now comes an important and provocative book called Addiction: A Disorder of Choice by the psychologist Gene Heyman, a research psychologist at McLean Hospital and a lecturer at Harvard. Heyman mounts a devastating assault on the brain-based model of addiction. Not that he views addiction as independent of the brain—no serious person could even entertain such a claim. What he rejects, however, is the notion that excessive drug or alcohol consumption is an irresistible act wholly beyond the user’s control, as the term “addiction,” commonly understood, implies. If anything, Heyman writes, “[a]ddiction … helps us understand voluntary behavior.” How so? “[B]ecause,” he explains, “it is not possible to understand addiction without understanding how we make choices.”


Good intentions aside, is the “brain disease” of addiction really beyond the control of the addict in the same that way that the symptoms of Alzheimer’s disease or multiple sclerosis are beyond the control of the afflicted? Showing how the two differ is an important theme of the book. If, as Heyman says, “drug-induced brain change is not sufficient evidence that addiction is an involuntary disease state,” then how are we to distinguish between voluntary and involuntary behavior?

Heyman’s answer is that "voluntary activities vary systematically as a function of their consequences, where the consequences include benefits, costs, and values.” Take, for example, the case of addicted physicians and pilots. When they are reported to their oversight boards they are monitored closely for several long years; if they don’t fly right, they have a lot to lose (jobs, income, status). It is no coincidence that their recovery rates are high. Via entities called drug courts, the criminal justice system applies swift and certain sanctions to drug offenders who fail drug tests—the threat of jail time if tests are repeatedly failed is the stick—while the carrot is that charges are expunged if the program is completed. Participants in drug courts tend to fare significantly better than their counterparts who have been adjudicated as usual. In so-called contingency management experiments, subjects addicted to cocaine or heroin are rewarded with vouchers redeemable for cash, household goods, or clothes. Those randomized to the voucher arm routinely enjoy better results than those receiving treatment as usual.

Contingencies are the key to voluntariness. No amount of reinforcement or punishment can alter the course of an entirely autonomous biological condition. Imagine bribing an Alzheimer’s patient to keep her dementia from worsening, or threatening to impose a penalty on her if it did. This is where choice comes in: choosing an alternative to drug use. Heyman realizes how odd this might seem. How can otherwise rational people choose self-destruction unless they are diseased? This question was raised in colonial America. Dr. Benjamin Rush, also known as the father of American psychiatry, was among the first to promote the notion that alcoholism was a disease. And he did so not on the basis of medical evidence, Heyman reminds us, “but rather [upon] the assumption that voluntary behavior is not self-destructive.”
Sounds like a mix of Becker-Murphy on rational addiction and Szasz-Caplan on disorder as extreme preference; will have to add the book to the pile....

HT: Arts & Letters Daily.

Wednesday 17 March 2010

Markets and information aggregation [updated2]

I have just lost about $114. But, I lost it in a particularly interesting way.

The graph above shows the price of a contract paying $1 if Sir Roger Douglas's Private Member's Bill allowing the youth minimum wage to diverge from the adult minimum wage were to pass first reading. This wouldn't drop the youth minimum wage but would allow future reviews of the minimum wage to set a different rate between adults and youths. I figured this likely would lead to erosion of the real value of the youth rate over time rather than any sudden cuts.

I thought there was at least a 25% chance of the bill passing first reading: it seemed likely to me that Key would let it get through first reading, see what evidence would be presented, then stick his finger up in the wind to see what public opinion said about the evidence presented at committee. And so I bought fairly heavily, but at prices below the $0.33 or so where it stabilized for the last couple weeks.

National's weekly caucus meeting was Tuesday morning. At 11:03 Tuesday morning, somebody went in and put in a sell order for $60, running the order book down to $0.0001. As the market maker had a slight glitch, it didn't re-seed the book with sell orders all the way down; instead, the low ask stayed at $0.2315. At 11:54, somebody bought at that ask price; the price bid up again to $0.256. Tuesday evening saw more determined selling, with a few big sell orders against the order book: the first for 140 units at 18:33, another for 160 units at 19:09, 40 units at 19:45, 100 units at 19:46, 210 units at 19:47. There were a couple of small price rallies, but it came down to the $0.01 mark again this afternoon at 14:35.

A very plausible interpretation is that somebody came out of the National Caucus meeting and started selling like hell. [UPDATE: Caucus closed at 11:40. So somebody started trading DURING THE MEETING.] An alternative interpretation is that a noise trader came in at a time that made it look like a very well informed trader, and everybody subsequently herded. I find the former more likely because of the succession of hard runs down the book.

So a best guess is that National's decided not to support the bill. I wonder at what time they'd have informed their coalition partner, because they seem to have decided to tell the market almost immediately. I wonder whether information travels through Parliament more quickly via iPredict than through normal channels.

If the story above is true, then National are utter cowards. John Key seemingly hasn't even the balls to let this bill through first reading as a trial balloon, getting some of the evidence out there. I'm disgusted with the National Party and annoyed that I've lost $100.[Updated below, maybe that's too harsh.]

But I'm heartened that the market seems to aggregate information so quickly. A victory for iPredict, even if a loss for Crampton.

Aha: last minute check of the forum confirms that National won't be supporting. Cowards. What a waste of a government. At least they're not saddling us with a Commonwealth Games.

Update: Maybe Key's just saving up his political capital for the budget. He's been saving it all up since 2008, so he should have room for a lot of good stuff in there: serious welfare reform, serious tax reform (top rate below 33 percent), serious spending cuts even if they're only scheduled for implementation later on. Getting harder to remain optimistic though.