Sunday 31 October 2010

Malpass on New Zealand

Luke Malpass writes in The American that New Zealand's reforms of the 1980s were an aberration from Kiwi pragmatism and conservatism (of the "don't change things" sort). The speed of reforms fueled the push for proportional representation which has made it harder to enact any radical changes but made creeping growth of government more likely. Labour ramped spending up post 2005; National's done little to claw things back.
Government in New Zealand is ticking along in very much the same way it always has—as a managerial government. The only substantive difference between this government and previous ones is who manages government better, rather than what ideology it holds. Across the political spectrum, it is accepted that government should provide health, education, welfare, risk insurance, and economic development agencies. It should also own airlines, railways, banks, and telecommunications.

Despite all of this, there are positive signs in the May 2010 budget in the form of tax cuts and a freeze on most government spending, which point to an overall reduction in core government spending (not counting trading entities, or state-owned enterprises, which are supposed to be run like private, profit-making businesses and return dividends to the taxpayer) from around 35 percent to 29 percent of GDP over the next decade. A reduction such as this would be a massive boost for New Zealand’s moribund economy, and have a real effect of unshackling New Zealand from the creeping socialism of the last decade. A reduction would not only see much more of the economy returned to the discretion of those who created the wealth and who can spend it best, but also would signal a substantial reduction in the relative resources government can use to design frivolous and harmful new interventions in the economy. Whether this happens, we shall wait and see.

In the meantime, New Zealand continues in its holding pattern — happily drifting toward genteel poverty and a lifestyle that the rest of the world envies — even if it only exists in tourist brochures.
I'd quibble that Malpass is no longer right about there only being managerial differences between National and Labour. National hasn't changed, but Labour has been pushing harder to the populist left. But I'd expect that the last Labour Party conference happened subsequent to Luke's filing deadline for this piece.

HT: Roger Kerr.

Saturday 30 October 2010

Private Prisons

I'm a fan of privatisation. But prisons would be low on my "Things to privatize tomorrow" list.

Andrei Shleifer's brilliant "State versus Private Ownership" argues that we want state ownership in the following kind of case (quoting from the paper):
  1. opportunities for cost reductions that lead to non-contractible deterioration of quality are significant;
  2. innovation is relatively unimportant;
  3. competition is weak and consumer choice is ineffective; and,
  4. reputational mechanisms are also weak.
What about prisons? A lot of the current worries in New Zealand about private-public partnerships on prisons focus on that the private prison might pay low wages and achieve poorer results, but that's not really a problem in the Shleifer world. Why? Quality of guards, or at least their pay, is contractible. If the government wants to make sure a private prison hires high quality guards, they can write that into the terms of the PPP contract. More importantly, the government can contract for outcomes as well as outputs: write into the contract that the prison is paid a bonus for every prisoner who does not reoffend for some period after release. Make the bonus large enough, and prisons will have a strong incentive to innovate in prisoner rehabilitation. It's damned hard to think of any of the standard critiques about private prisons that can't be solved through reasonable contracting, and it's easy to imagine lots of innovative upsides through creative contracting.

But they can't solve this one. The League of Ordinary Gentlemen (HT Wilkinson) points to NPR reporting on the corrupt interaction of the private prison lobby with legislators to throw more people into prison. It turns out that private prison lobbying was behind Arizona's rather nasty policy towards illegal immigrants.
Last year, two men showed up in Benson, Ariz., a small desert town 60 miles from the Mexico border, offering a deal.

Glenn Nichols, the Benson city manager, remembers the pitch.

"The gentleman that's the main thrust of this thing has a huge turquoise ring on his finger," Nichols said. "He's a great big huge guy and I equated him to a car salesman."

What he was selling was a prison for women and children who were illegal immigrants.

"They talk [about] how positive this was going to be for the community," Nichols said, "the amount of money that we would realize from each prisoner on a daily rate."

But Nichols wasn't buying. He asked them how would they possibly keep a prison full for years — decades even — with illegal immigrants?

"They talked like they didn't have any doubt they could fill it," Nichols said.

That's because prison companies like this one had a plan — a new business model to lock up illegal immigrants. And the plan became Arizona's immigration law.
Public prisons have slacker incentives on this margin: the prison manager can consume perquisites proportionate to discretionary budget, but can't easily translate that into income.

I don't expect PPP arrangements for prisons in New Zealand to lead to prison lobbying for draconian legislation. It's too easy to monitor that kind of thing in a small country. And the upsides if the contracting is innovative are really large. But it's still enough to put prisons close to last on my "to privatize" list. At the margin, it helps push for putting more people in prison and against liberalizing laws against victimless crimes.

Friday 29 October 2010

Government, lobby thyself

Simon Clark finds that more than two-thirds of submissions on anti-tobacco measures in Britain were form letters from government-funded anti-tobacco lobby groups.
But was there really huge public support for further tobacco controls, as the DH suggested? Of the 96,515 responses the overwhelming majority were pre-written postcards or e-mail campaigns. A total of 49,507 were generated by Smokefree Northwest, 8,128 by Smokefree North East, and a further 10,757 from something called D-MYST.

A simple investigation revealed that all three are publicly-funded. Smokefree Northwest is led by the DH’s regional tobacco policy manager in Manchester; Smoke Free North East is funded by the region's primary care trusts and is linked to an alliance of health, public sector and community organisations; and D-MYST is SmokeFree Liverpool’s youth organisation.

In short, this wasn’t a public consultation at all. It was a public sector consultation.

Factor in the £191,000 that the DH gave the anti-smoking charity ASH for its ‘Beyond Smoking Kills’ report (which also, surprise, surprise, found a “high level of public support” for a range of tobacco control measures) and you don't have to be a genius to realise that the result of the “public consultation” was effectively manipulated to favour the Labour Government’s tobacco control policy.
Clark then points to a report showing some of the government money that goes to fund anti-tobacco lobbying in the UK.
Some public sector funding is far less obvious than the direct employment of external consultants. The UK tobacco control industry receives the vast majority of its funding from the public purse, but through a variety of methods:
  • A range of local and regional organisations (Smokefree partnerships) are entirely funded with public money through local government grants or NHS/Primary Care Trust funding;
  • Some university departments dedicated to tobacco control (eg. the UK Centre for Tobacco Control Studies), receive funding from central government (Department of Health) and the NHS/Primary Care Trusts;
  • Several charities entirely dedicated to tobacco control lobbying of central government are almost entirely funded by central government.
Mark Littlewood at the IEA:
In so far as the Big Society agenda is comprehensible at all, it applauds and encourages private initiatives as opposed to state-run or state-sponsored programmes. Surely this must apply to the field of public discourse and debate, not just to public spirited behaviour such as keeping the local park tidy and repainting the church hall.

The problem with taxpayer support of groups such as ASH is not just that it forces people to fund campaign groups they may disagree with, but that there is a danger that the public believe that such groups really are private and completely independent. There may be a debate to be had about what sort of role the Department of Health should play in encouraging or facilitating smoking cessation, but at least when you hear from a health minister you can be reasonably clear where they are coming from.

The government needs to be clear about limiting the scope of the public sector, not merely its size. Removing taxpayer-funded grants to groups such as ASH will not make a substantial impact on the deficit, but it would indicate that the government is opposed to using public funds to “load the dice” in areas of campaigning. The coalition should ensure that anti-tobacco groups are obliged to stand on their own two feet.

It's pretty much certain that a New Zealand replication of the study would find rather similar results.

HT: Puddlecote and Snowdon.

Tapu and organ donation

Te Ahi Kaa, Radio New Zealand's Maori affairs program, recently took on organ donation.

Maori organ donation rates are, at least anecdotally, very low. The usual story is that the body is seen as sacred and inviolable. Consequently, donating organs is not particularly popular. Maori often receive donor organs, thanks in part to higher diabetes rates. Someone weighing up whether to violate tapu to receive a donation will put fairly high weight on the risks of dying if they forgo the donation; someone deciding whether to donate faces a lower opportunity cost for acting in accordance with preferred beliefs.

Te Ahi Kaa's report is rather nice, highlighting divergent expert Maori beliefs about how tapu relates to organ donation and the experiences of Maori organ recipients.
When it comes to life or death Pou Temara (nō Ngai Tūhoe) believes customary Māori beliefs and practices should be set aside. He uses stories of Maui, the bonding of Māori and Ngarara, and his experience talking with other experts on tikanga Māori to explain his position.

In her role as Cultural Advisor to the Auckland District Health Board Naida Glavish (nō Ngāti Hine, Ngāti Whatua) finds herself challenging what she sees as myths which surround the issue of organ donation. She often finds that she has to convince the Māori she’s dealing with that the unauthorised removal of organs from bodies which occurred twenty years ago, no longer takes place. She talks with Justine Murray about how traditional Māori concepts collide with present day Māori health realities.

When Barry Williams (nō Taranaki whanui) learned he was sick and required a new liver he experienced a range of emotions as he remembered his Nanny’s warnings about the sacredness of the body. It was the same for Eva Haenga (nō Ngāti Pōrou) who acknowledges it was smoking cigarettes that attributed to her bilateral lung transplant. She reflects on the journey from illness to post-surgery twelve years after her original diagnosis.

In the past year Māori television presenter Te Hamua Nikora (nō Ngāti Pōrou) has faced a range of health problems that has made him re-evaluate his stance on organ donation.
Hopefully the reporting will help to encourage greater donation rates.

HT: Darian, who reckons a clear system of presumed consent could be put in place without offending cultural sensitivities if it were highly advertised with easy opt-out. LifeSharers remains my preferred policy option as it makes donation (or failing to opt-out) dominant strategy. But I'll take any move in the right direction.

Thursday 28 October 2010

Foreign ownership

Stephen Hickson wrote intelligently in Christchurch Press against restrictions on foreign land ownership in New Zealand.
Why do we have foreign investment in New Zealand?

New Zealand is a great place to do business and there are lots of good opportunities to grow businesses and create jobs. To grow requires funds and so businesses either borrow money or issue shares in order to finance that growth. This requires someone who is a saver to lend the money or buy the shares.

However, the pool of savings in New Zealand is too small to fund this expansion and so we use the savings of people overseas who are willing to invest in a great place with great prospects.


That bigger world has a lot to offer us and every time we restrict foreign ownership we also reduce our access to the best knowhow that the world has to offer.

For every foreign buyer looking to buy there is a New Zealander looking to sell. By restricting or preventing foreign ownership we are preventing a fellow New Zealander from selling what they themselves own for the best that they can get.

New Zealand is a nation that values freedom and choice.

One of the cornerstones of our society is that we are all free to buy, sell and own land and businesses.

When we impose restrictions on some people in society we tread dangerously on that freedom.

When it comes to private businesses, assets and land it is odd to think that "we" own them. On the day before a New Zealand farm is sold to a foreign owner, I didn't own it and I had no right to say how that farm should be used.

The day after it is sold I still don't own it and I still don't have any rights to say how it is used.

The new foreign owner is also subject to the laws of the land just as much as the previous owner. If a piece of land is important for, say, access to a river or beach then that should be written explicitly into the title of the land. Who owns it is then irrelevant.

Those opposed to foreign investment and ownership need to think carefully about why they are so. Such opposition comes at a cost to all New Zealanders.
Labour has since adopted bans on foreign ownership as policy, and so it hit a recent episode of Radio New Zealand's "The Panel". The segment starts at 3:30; Stephen comes in around the 7:30 mark.

Labour has basically no chance in the 2011 election - less than 20% according to iPredict. Hopefully they don't get locked into leftie populism before their next serious shot at government. A Labour Party supporting civil liberties, redistribution through a negative income tax and free markets otherwise could be really respectable. Depending on how far they'd push the negative income tax, I could even imagine supporting it. Doesn't seem they're going that direction though.

Wednesday 27 October 2010

UberCab update: Transitional Gains Trap sets in

Remember UberCab? Well, the taxi cartel has pushed back, predictably, to protect their rents.
Did Ubercab just crash and burn? Taxi and limo industry insiders in California today informed TechCrunch that the San Francisco Metro Transit Authority & the Public Utilities Commission of California have ordered the startup to cease and desist.

UPDATE: Since the orders arrived on October 20th, Ubercab has remained in service under threat of penalties including up to $5,000 fee per instance of Ubercab’s operation, and potentially 90 days in jail per each day the company remains in operation past the orders.
The Cartel's complaints?
Ubercab operates much like a cab company but does not have a taxi license.
Its cars don’t have insurance equivalent to taxis’ insurance.
Ubercab may threaten taxi dispatchers’ way of earning a living.
Limos in U.S. cities usually have to prebook an hour in advance, by law, while only licensed taxis can pick someone up right away but Ubercab picks people up right away (again without a taxi license).
I'd put 70% odds on this kind of thing in my prior post.

My final lecture in Intermediate Micro was on monopoly. I suggested that if we really care about getting rid of monopoly problems, one of the first things that government should be doing is to stop supporting monopolies and cartels that they've created through regulation. But that's unlikely to happen.

HT: Reason.

Tuesday 26 October 2010

Welcoming our Googly overlords

Folks in New Zealand have been beating up on Google a bit lately. And it makes me sad. Google gives so very very much and asks so little. Can't we just enjoy our surplus and stop the whinging?

First, there was the Google Street View cars that sniffed out wireless modems as it went. Know what? Anybody can do that. They've been able to do that since wireless routers first came around. If you don't have minimal wireless security on your router, which you ought to have given how terribly low the Kiwi data caps are (I'm on a 20GB traffic plan, and that's pretty high as far as NZ goes), then you're basically inviting anybody walking by with a decent cell phone to listen in on all of your internet traffic and maybe to start downloading movies on your bandwidth. You might want to fix that instead of whining about Google.

Second, the tax thing. Bernard Hickey in particular has been rabid on this one. Google earns advertising revenue in New Zealand but pays little tax here. A quotable Hickey quote:
Google is a tapeworm in the Internet that is destroying local media and widening our trade deficit.
He later suggested that Google's underpayment of tax relative to its NZ advertising revenues could drive future generations offshore. I confess confusion here: it sounds like "Step 1: Punish Google. Step 2: ???? Step 3: Your kids don't migrate overseas to higher paying jobs."

New Zealand's biggest problem isn't a Google-related tax shortfall: it's fixed costs and the absence of agglomeration effects. Even if we set tax and every other policy perfectly, I'd call even odds that we'd still be falling behind other countries because we're tiny and separated from even our closest neighbour by a 3 hour flight. Our biggest city has about a million people. If agglomeration matters as much as we're starting to think it matters, then our best policy move may well be a large and sustained increase in immigration. Given that current policy kicks people out of the country whenever there's a recession, it seems unlikely that we'll get any substantial increase in immigration in the medium term.

Fixed costs kill us. And guess what? Google works to kill fixed costs. Kiwis can share their videos with the world, for free, on Google's YouTube, can blog for free on Google's Blogger platform, can chat with the world on Google Voice (ok, this one's mostly inframarginal given Skype). I'm running some collaborative projects using Google Docs. I find New Zealand suppliers of goods and services using Google. How many international tourists come here because Google has made it so much simpler to plan an international vacation? Before, you'd have had to have gone to a travel agent. Now, a combination of Google Maps and Google searches lets you do it yourself at lower cost and greater confidence in the quality of your results. Google brings New Zealand closer to the rest of the world. And folks want to complain about that they're paying less in tax than they could be? We ought to be giving Google a medal for giving us all so many free services. Would any reasonable estimate of the aggregate consumer surplus created by Google in New Zealand come up with a figure less than hundreds of dollars per capita?

If anything's going to be driving future New Zealanders overseas, it's the opportunity to benefit from the reduction of fixed costs in larger markets. And I think Google's working to lessen that, although the general equilibrium results could be tough to parse out: while it's making New Zealand better, it's also making New York better. If it's making New York better faster than it's making New Zealand better, then the net effect works against us. But that certainly doesn't make the case for policies punishing Google for being active in New Zealand.

I, for one, continue to welcome our Google overlords. And I thank them for hosting this blog, without charge and without advertising, for the last year and a half.

Friday 22 October 2010

Hobbit odds

Hobbits are known for their earthy pragmatism. Never interested in grand schemes or lofty ideals so much as in good beer and a good breakfast (and second breakfast, and elevenses, and lunch...). And so New Zealand seemed the right place for filming of The Hobbit.

But if you recall your Tolkien, you'll remember also that Saruman came to Hobbiton, in disguise and calling himself Sharkey. Sharkey sold the hobbits on a grand scheme - a scheme to share the wealth and make everyone better off. Except the only ones that did well out of it were Sharkey and his gang.

The Australian actor's union plays now the role of Sharkey, who convinced NZ Actors' Equity to pursue the sharing scheme. For more on current developments, see here and here.

Will Frodo, Sam, Merry and Pippin return, battle-hardened from Gondor in shining mithril, in time to drive off Sharkey's men? Will they convince enough of the hobbits to rise up against Sharkey? We'll have the odds soon enough when iPredict launches its contract. The draft stock definition is below. I do not envy Matt the job of drafting these things.

Short: Filming for The Hobbit to be moved off shore

Long: This contract pays $1 if, by 31 December 2010, an announcement is made or there is an authoritative media report announcing (not speculating) that a substantial proportion of the scenes for the movies “The Hobbit” which were to have been filmed in New Zealand are to be filmed in another country. Otherwise this contract pays $0.

Judging Criteria

1. This contract pays out based on the timing of the announcement, not when any filming was to have been or will be carried out.

2. It refers only to the filming (or recording by other means) of scenes involving human actors and not pre- or post-production work or scenes involving only scenery and/or computer graphics.

3. The contract will close immediately if a formal written statement is issued by Warner Bros, or if a recognised company spokesman makes a formal verbal statement, with the intention of announcing a formal and final decision by the company to the effect that all or a substantial proportion of the scenes for the movies “The Hobbit” which were to have been filmed in New Zealand are to be filmed in another country

4. “Substantial proportion” means at least 25%.

5. In the event a formal statement is not made by Warner Bros on this topic, the contract will close immediately if a formal statement is made by an authoritative figure (such as Sir Peter Jackson or John Key) to the effect that Warner Bros has nevertheless made a formal and final decision that all or a substantial proportion of the scenes for the movies “The Hobbit” which were to have been filmed in New Zealand are to be filmed in another country.

6. Evidence of the event described in paragraph 5 above would be a report in the New Zealand Herald and/or Dominion-Post quoting the authoritative figure as saying that Warner Bros has nevertheless made a formal and final decision that all or a substantial proportion of the scenes for the movies “The Hobbit” which were to have been filmed in New Zealand are to be filmed in another country.

7. If following a report such as that described in paragraph 6 above there remains doubt as to whether or not Warner Bros has made a formal and final decision that all or a substantial proportion of the scenes for the movies “The Hobbit” which were to have been filmed in New Zealand are to be filmed in another country, iPredict reserves the right to make approaches to an authoritative figure, such as the Corporate Communications Department of Warner Bros. and/or the Office of the Prime Minister or of the Minister of Economic Development of New Zealand to seek clarification.

8. If none of the events described above occur on or before 31 December 2010, the contract will close at $0.
I wonder what his seed price will be.

Update: The National Business Review covers things nicely. Thanks guys!

Thursday 21 October 2010

Nasty cuts

The closing session at Mont Pelerin included Ayaan Hirsi Ali. She's a neoconservative, so I do disagree with her on a good number of things, but I also have great admiration for her achievements.

In the same session, another presenter asked how much we ought to tolerate intolerance, suggesting female circumcision as an absolute line for that which ought not be tolerated.

I would, of course, agree. But recall that a more modern variant of the procedure is far more symbolic than damaging:
The committee settled on calling the procedure “female genital cutting,” or FGC, and in the process of revising, rewording and rethinking its policy, it considered an approach for minimizing harm first proposed by doctors at Harborview Medical Center in Seattle. In the mid-1990s, some of them were attending pregnant women from Seattle’s Somali community. “If your baby is a boy, do you want him circumcised?” they would ask. Some of Somali mothers-to-be would reply, “Yes, and also if it’s a girl.”

The Harborview doctors proposed that the hospital offer these mothers a “clitoral nick” for their daugthers — a needle prick, really — in the small hood of tissue that covers the clitoris.
Again, it's superstitious nonsense and a violation of the child's autonomy. But the modern procedure is harm minimizing: the gains from folks substituting away from far worse things well outweigh the costs to those whose parents would otherwise have chosen to avoid the procedure.

Nobody applauding the speaker's comment on intolerance asked why we oughtn't apply the principle without gender distinction. The modern form of the procedure for girls is less invasive than the modern form for males.
“We’re talking about something far less extensive than the removal of foreskin in a male,” a common procedure in the United States, said Dr. Diekema. Such a compromise, the doctors argued, would discourage parents from sending their girls back to their native countries for unregulated and unsanitary procedures.

“They weren’t trying to propagate FGC,” said Dr. Diekema, who had heard the stories of female circumcision requests from his colleagues at Harborview. “If this nick could prevent harm for a few girls, they wanted to have it in their back pocket as an option.” But when news of the proposal broke, anti-circumcision groups and stunned citizens swiftly put an end to the discussion.

When the AAP resurfaced the idea last month, the public reacted with similar outrage.
I wonder what the reaction would have been at MPS had I asked about extending intolerance in gender neutral fashion. But I didn't because I couldn't think of a way of phrasing it that wouldn't have come off as outrageously insensitive given the panel's composition.

Chesnokova & Vaithianathan discuss the economics of female genital cutting here. Their model has multiple equilibria with threshold effects - if sufficient women have had the procedure, then if men put a premium on brides who have had the procedure, the procedure will take place unless female opportunities outside of marriage are sufficiently attractive. Below that threshold, it will die out. The data (Burkina Faso) suggest those having undergone the procedure marry younger and live in wealthier households, so it seems correlated with marital success.

But they're silent about why migrants to the west might seek that the procedure be undertaken. We're well below any tipping threshold and external opportunities are pretty decent. My best guess would be a mix of two motives: tradition and seeking to ensure that the daughter takes a husband from within the ethnic community. Access to the modern form of the procedure may placate the former; I can't see how it would worsen outcomes for the latter.

And so I'm pretty weak on the "don't tolerate intolerance" question. I'm a pluralist - rights matter, but so does utility. It's hard to make a utilitarian case against the modern symbolic forms of the procedure if they can induce substitution away from the far worse versions. If we were in a world where male infant circumcision were banned, I could understand the outrage at allowing even the symbolic version for girls. But in this world, I wonder about the folks who shout a lot about banning even the mild form of the female procedure while saying nothing about the worse treatment accorded a (thankfully decreasing) number of male infants.

Tuesday 19 October 2010

Competitive law

I'm a fan of competitive legal systems - having competition in provision of law.

Of course, such competition is already happening. Arbitration has taken away sufficient business from the NZ civil courts that some are now wondering whether the government courts can maintain competence in the area. Writes the National Business Review:
Anthony Grant, of Radcliffe Chambers, was on the ball the other day when he spoke about the flight of potential litigants away from the courts.

Mr Grant reckoned more and more folk were being driven to arbitration, mediation and other initiatives to resolve disputes rather than go to court.

He is quite right. The swing towards “private courts” has been in full swing for some years.

With membership of the Arbitrators and Mediators Institute (AMINZ) now standing at 700, more disputes are being settled through this route because it is cheaper, quicker and binding.

If you don’t want your dispute picked over in a public courtroom or exposed by creepy little newsmen this is the way to go.

While AMINZ president Ann Edge couldn’t give figures on how many disputes went AMINZ’s way, Mrs Edge told Judge Jock a significant increase in membership in the last year indicated a greater use of arbitration, mediation and adjudication.

Leading lights in the “private court” system include Auckland law professor Bill Hodge and former High Court judges Sir Ian Barker, Bob Fisher and Barry Paterson and former Master Tomas Kennedy-Grant.

Anthony Grant was on the button when he noted there was hardly any High Court civil litigation outside Auckland. Some High Courts go for weeks without any civil cases.

At a recent Bar Association conference one judge was heard to wonder if the system was in a “death spiral.”

Lawyers also want judges to deal with cases within their designated specialist area. Some judges want a broader range of work.

But as Judge Jock has long campaigned, the courts do not exist for the convenience of judges – nor, for that matter, do they exist for the convenience and purses of lawyers.

Courts are for the maintenance of a credible system of civil justice, as Mr Grant rightly agreed.

But wait there’s more.

In his latest utterance, Mr Grant said he was aware of at least one enterprise that was so mistrustful of the senior courts it would not do business in New Zealand, unless the parties it contracted with agreed that all disputes would be litigated offshore.

He also reckoned other enterprises were not willing to do any business in New Zealand because of their lack of confidence in the courts.
And as a result of competition:
Chief High Court judge Justice Helen Winkelmann is so concerned she’s got together with Justices Geoff Venning and Forrie Miller to figure out how the High Court can be made a more satisfactory forum for dispute resolution.
Now, if only we could do it with the criminal law too....

Friday 15 October 2010

Mont Pelerin

I yesterday spoke to the Mont Pelerin Society about paternalism as a threat to liberty. The presentation is embedded below; it looks best in full screen. Hit the "more" button at the bottom to get the full screen version. The link is here should the embedded version fail.

I argued that dodgy cost studies have pushed out the demand curve for paternalistic policies by making them seem more necessary; at the same time, 'nudge' policies have served as a supply shock reducing the perceived cost to liberty of paternalistic policies. The policies are far less beneficial and are more costly than voters expect.

Being at Mont Pelerin has been awesome; I'm very grateful for having been invited.

I'll put up the conference paper sometime down the track after I've incorporated the excellent comments I there received.

Thursday 14 October 2010

Drinking and pregnancy

Light drinking during pregnancy - not more than a drink or two per occassion - has no adverse effects according to the latest at the Journal of Epidemiological and Community Health. Discover and How Stuff Works give decent summaries. From Discover:
The study, which found no evidence of harm from having a couple drinks a week during pregnancy, was so well done and its findings so conclusive that it ought to become the final word in the field, said Fred Bookstein, an applied statistician who studies fetal alcohol spectrum disorders at both the University of Washington, Seattle, and the University of Vienna.

"This is such a good study that it should shut down this line of research," said Boostein, who plans to refer people to the paper when they ask him about drinking during pregnancy, and hopes that research dollars can now go towards finding the effects of other, more troublesome chemicals.

"It is no longer valid to argue that we don't know enough about low-dose drinking during pregnancy or that the known effects of binge drinking may penetrate to low-dose drinkers somehow," he added. "There is no detectable risk associated with light or moderate drinking during pregnancy."
The study design here is better than I've seen in most epidemiological work. They've a panel design where more than eighteen thousand households were interviewed in home visits, with the first visit at child age 9 months and subsequent visits at ages 3 and 5. In the first visit, they asked questions about mothers' drinking during pregnancy as well as about other health-related covariates. At the last visit, the child's cognitive ability and behaviour was assessed. Never-drinking mothers - those who reported no drinking either during pregnancy or in the subsequent periods - were separated from those who only abstained during pregnancy. And they controlled for a reasonably lengthy list of potential confounds beyond the usual sociodemographics: whether the mother smoked during pregnancy, parental disciplining strategies, and so on.

First, some summary data. About eight percent of their sample - just over 900 mothers - reported moderate or heavy drinking during pregnancy. Incidence was slightly skewed towards lower education cohorts, with just over three percent of low education mothers reporting heavy or binge drinking as compared to just over two percent of mothers in the top educational category. Highly educated mothers were the ones most likely to report light drinking during pregnancy, though the modal highly educated mother reported absention during pregnancy. Among the lowest educational cohorts, absention during pregnancy was by far the most likely reported behaviour. So if you're a highly educated mother who sneaks a drink occasionally, you're certainly not alone.

They ran regressions on child outcomes controlling for maternal drinking and for the confounds. The unadjusted data showed massive benefits to being born to a light-drinking mother, but that was mostly due to the confounds; results attenuated in the full models, as you'd expect if it's the higher education parents who are more likely to have a little but not a lot. Controlling for the parental factors didn't reverse the effects, but it really knocked back the magnitude and statistical significance. Typical coefficients on cognitive benefits to the child of the mother's light drinking were knocked back to a third of their baseline magnitude with the full set of controls; it's consequently more than plausible that remaining uncontrolled things that differ between "not during pregnancy" mothers and light-drinking mothers could be responsible for at least some of the remaining gap. An IV strategy would be needed to estimate things more precisely.

But the bottom line seems to be no bad effect, and some (small) chance of a positive effect, of a pregnant woman's drinking up to a drink or two "per week or per occasion" instead of abstaining during pregnancy. I wouldn't bank on the positive effects holding up to an IV model, but I'd also be very surprised if those techniques drove things to a negative effect.

The public healthists' arguments about there not being a safe level really have a feel of the noble lie to them; they seem to fear that admitting a drink or two has no effect would risk opening the door for the binge drinkers to consume up to the point where they could do serious harm.

Dave Guerin also comments, calling the healthists' response "faith based science".

I just wish that Science Media Center would start linking to ungated versions of the articles they're critiquing.

Borders matter

Often, the differences between Canada and the US are overstated: US border states look more like Canada, in terms of whatever social trend folks are interested in, than the US average. Canada is more like Minnesota, on the whole, so comparing Canadian data to average American data, dominated by New York and California, sometimes masks that Canada is a fair bit like the states just to the south of the border.

But sometimes the border matters.

OKCupid is the source on this one. Write down your guesses before hitting the link. It's a colour scale of course ranging from red to blue.  I munged the links to stop your peeking.

I learned something new about Manitoba today.

As always with OKCupid, hit the link for all the fun crunchy data goodness that goes well beyond what I'm posting here.

Blogging has been light of late; apologies. It's the busy time of year.

Saturday 9 October 2010

Conscientious non-voting

Though I'm obviously rather interested in politics, I have not voted in any election since 1997.

I won't say that my reasons are particularly good ones, or all that consistent and defensible. But I'm not sure they're worse than most folks' reasons for voting either.

First, on a straight utilitarian calculus, voting is nonsense. The probability of decisiveness in any reasonably sized electorate makes voting less rational than buying lotto tickets if the point of voting is to get a better bundle of policies than you'd otherwise get. And I don't buy lotto tickets. Yes, we're all part of the equilibrium, and if I abstain, then the median shifts ever so slightly away from my ideal point. But it can't be by enough to induce me to vote at current turnout rates. The great strength of the median voter theorem is that it's robust to weirdo extreme preferences. But if I have weirdo extreme preferences, my abstention makes little difference to outcomes.

But even if turnout numbers were low enough that my vote were expectationally beneficial, on a straight utilitarian calculus, I'd still be really uncomfortable with it. Why? I'm too much of a contractarian at heart, and I don't like that politics has essentially unrestricted domain. There are large sections of my life, and of your life, that I don't believe should be subject to democratic decision-making. Regardless of what a majority wants, I think you should have the right to marry whomever you wish, to ingest what you like, to engage in whatever voluntary exchanges you like that don't infringe on others' property - in short, to pursue what you view as the good life so long as your enjoyment does not unduly infringe on the equal rights of others. And far too much of politics seeks to impose the majority's view of the good life on others.

I've a reasonable contractarian foundation. If I agree to a process, then I'm bound to accept the outcome of that process. And voting outside of a context where baseline rights are protected against majoritarianism means I give assent to the process that strips others of their rights, even if I voted against that outcome. It's not Sophie's choice, but it's not a good one.

I often hear arguments of the form "Well, if you don't vote, you can't complain." A contractarian of my stripe would reverse things: if you agreed to the rules of a poker game, you can't whine afterwards that you lost your shirt. If you don't like the game, you shouldn't play it at all: abstention is not unreasonable. If I vote, I give my assent to the idea that it's right that a majority should be empowered to deny a gay couple the right to full marriage, a cancer sufferer the right to pain relief through marijuana, a landlord to the right to his house should it be seized subsequent to a tenant's use of it for drug trafficking. It isn't just that I object to that those policies are the existing status quo but even more that they're inside the domain of politics at all - that it's considered right and proper that majorities should be able to decide these things.

Where do I think voting is right and proper? Let's start with easy cases. You join a club, which has limited purposes, with easy exit, and the club has to decide on something within the club's remit. I've voted in the various clubs to which I've belonged at one time or another.

I joined the economics department here at Canterbury 7 years ago. I vote on stuff in departmental meetings and at Faculty when it doesn't just pass by assent. The decisions are on matters that are within the proper remit of the club - I agreed as much when I joined the club - and I can always find another employer should the club's rules move too far away from what I'd signed on for.

Consider then the next step up: voting in a body corporate (condo association) in an apartment building. Their range of powers is typically limited, and you choose a body corporate based on the kinds of decisions it's empowered to make. That's pretty reasonable. If I were in a condo, I'd not be opposed to voting. I'd choose one where the body corporate's domain weren't too broad, and I'd vote.

Local body politics are the next step up. Non-voting in these elections is far more a function of expected low decisiveness than of philosophical objection. There's lots of stuff that city councils do that I don't like - the officiousness of swimming pool inspectors being high on the list - but they're typically restricted in domain not just by legislation but also by Tiebout competition. If I don't like Christchurch's policies, I can move to Rolleston or Kaipoi or Oxford. The restrictions that Councils tend to impose just can't infringe too much on heterogeneous visions of the good life. The majority of the decisions that City Councils make are properly the kind of things that ought to be decided democratically.

But I would get strong disutility of voting where the representative body has powers over domains that ought never be in the democratic realm. My voting then gives legitimacy to that those domains are subject to political rather than personal choice.

I'm sure that there's at least something, for each of you, that you'd consider absolutely to be in the realm of the personal rather than the political. Suppose you woke up tomorrow and found that elected representatives now decided who you would be required to marry. Some bureau would run matching algorithms and allocate partners. Would you be anti-democratic for thinking it abhorrent that we use democratic processes to allocate spouses? Suppose the two main candidates offered competing variants of the matching algorithm, and you knew one would yield a marginally better match for you. If you voted, you might be able to get a change in policy to improve the matching algorithm. If you got really really lucky, some third party candidate might get the policy liberalized to allow individual choice. But you'd have conceded that the dimension ought to be in the domain of democratic choice.

Suppose Kodos offers a bundle of policies that is very slightly more appealing on economic grounds than Kang and Kang offers a bundle of policies that is very slightly more appealing on civil liberties. Both promise to eat no more than a hundred tasty humans: Kodos will eat no more than a hundred drug users; Kang will eat no more than a hundred landlords. Voting for either, or for some no-hope third party candidate, kinda says you're OK with a system that winds up letting Kodos or Kang eat people so long as enough people vote for them. I don't think whether Kodos or Kang ought to be able to eat people should depend on how many people vote for them; I think rather it ought to depend on the preferences of those who would be eaten. Don't blame me: I didn't vote.

Bottom line: for national elections where I'm unlikely to affect the outcome but certain to experience strong disutility from voting at all, I abstain. If I expected that my vote had a really good chance of changing the outcome substantially - not just flipping things from National to Labour (or vice versa) but rather say in a binding referendum on a sharp civil liberties issue (neither Kodos nor Kang to eat more than 50 people instead of 100) where iPredict said it was a 50/50 proposition - I'd probably get out and vote. But I'd still need to have a shower afterwards.

This all was prompted by @LewStoddart pestering me about why I don't vote. I don't claim these reasons to be particularly convincing for anybody whose preferences are around the median - they couldn't be, because the median voter is by definition comfortable with that the kinds of things that are decided by politics are decided by politics. But they're convincing enough for me.

Friday 8 October 2010

Nobel pricing

iPredict is running markets on the Economic Nobel prize announcement coming up on Monday.

Two things worth noting:
  1. The contract on each contender pays $1 whether the candidate gets a sole or a joint prize
  2. The set of contracts obviously does not span the space: it's entirely possible that none of the listed contenders wins the prize and it's instead awarded to something like Kitoyaki & Moore or three random econometricians not including Deaton.
What does rational pricing in this kind of market look like? If a set of contracts spans the space and has only one winner, then the prices have to sum to one. If the set of contracts doesn't span the space and has only one winner, then the prices ought to sum to one minus the probability of "something else". Let's say the probability of "something else" here is 10%. I don't think it crazy to think there's be a prize awarded that includes none of the contenders listed. I don't think the probability would be much higher than 10%, but neither do I think it would be much lower.

So the sum of prices ought be around $0.9. Except that we can have multiple winners. If Thaler wins with Shiller, then the sum of payouts is $2. A Thaler/Shiller/Fehr prize would have it at $3. A Hart & Moore prize would have it at $1 as Moore isn't listed, but a Hart & Tirole prize would have it at $2.

How can we think about rational prices in this world, in terms of looking for arbitrage opportunities if the sum of prices is out of whack?

The sum of prices ought to be equal to:
  • The sum of the probability of each as a single winner times $1, plus
  • The sum of the probability of each as a joint winner with someone else on the list times another dollar for each in such a set.

The sum of current market prices is $1.92. Is that too high or too low if you think the probability of "none of the above" is 10%? I think it's rather too high: it's basically priced in that there is very likely to be a joint prize to two of the people on the list.

Now, I don't know the probabilities of joint versus single prizes. But here's another way of looking at it. Suppose you think that Shiller might get the prize, but that he's really unlikely to get it without Thaler. There's a decent chance of a Thaler prize without Shiller, but it's hard to imagine a Shiller prize without Thaler. We can then figure that the probability of Shiller winning is some fraction of the probability of Thaler winning. Drop Shiller out of the set of prices entirely and think only about a Thaler-only prize. Same for Nordhaus: we can imagine a Weitzman prize without Nordhaus, but not Nordhaus without Weitzman, though a joint prize is there most likely. The Nordhaus price ought then be lower than Weitzman and ought be ignored.

Get the set of all "most likely" guys for single prizes, or the part of pairs that is most likely. The prices of those singles ought to sum to one, or one minus "something else".

The sum of Thaler (drop Shiller and Fehr), Weitzman (drop Nordhaus), Hart (drop Tirole), Deaton, Posner (drop Peltzman, Tullock), Grossman, Dixit, Barro and Fama should then not be greater than one unless you can imagine a joint Thaler/Weitzman prize, or a Hart/Deaton prize, or a Thaler/Dixit prize. The odds of those odd combos is sufficiently low to be ignored.

If we take the sum above, we get $1.16 where it ought to be around $0.9 if we think that none of the guys whose prices we've kept are going to win in combination with other guys whose names we've kept. Of course, this biases things in favour of the sum of prices being low - Peltzman and Tullock are low probability chances, but I'm certainly not convinced that they couldn't get it without Posner. And there's a really good shot of Tirole getting a solo prize rather than joint with Hart. But I want to make it hard to show that the sum of prices is too high because I don't want to make a mistake in shorting a set of contracts that seems overpriced.

The best shot at an oddball combo? Fama/Shiller for finance. It would give Fama his due but take the sting off of "efficient markets" stuff by throwing Shiller in. Like the Hayek prize that was joint with Myrdal, except that Shiller is more deserving than Myrdal was. If that's a serious risk, then the sum of prices on the contracts still oughtn't be much affected as Fama is in there and Shiller's already dropped; I'd just previously been wrong in thinking Fama had zero chance. He has a chance, with Shiller.

If the sum of prices is $1.16 and ought to be around 0.9, then I ought to short the set of (Thaler, Weitzman, hart, Deaton, Posner, Grossman, Dixit, Barro, Fama) considerably, then short Shiller to keep his price relative to Thaler in line with the prices ex ante, Tirole relative to Hart, Nordhaus relative to Weitzman, and so on. The whole thing resolves Monday night, so capital isn't tied up all that long. Hmm.

Trendy economics

Bernard Hickey, one of New Zealand's top business journalists, has flipped to the trendy side - how orthodox economics is all wrong, we need capital controls, and so on. Matt Nolan provides a rather thorough critique here.

I'd add one overarching point to Matt's, which isn't original to me but does apply. The case for markets never lay in their perfection but rather in the relative imperfection of alternatives. I'm teaching intermediate micro this semester. We go through the welfare theorems, and they're beautiful. We know that they don't apply generally. However, it's really hard to improve on the imperfection of markets. Both markets and policies are imperfect instruments. Markets fail relative to blackboards, but regulatory solutions often fail relative to the real world market alternative.

Hickey's patchwork of proposals gives a small chance of improving short term outcomes but with longer term risks for the overall economy. Nolan, linked above, highlights most of the risks. Here's one I find worrying:
The NZ Super Fund [the government's "lock-box", invested in broad markets] is already making great strides to lift its proportion of New Zealand investments from its current 20 per cent to the 40 per cent recently mandated by the Finance Minister Bill English.

What's wrong with making it more than 60 per cent? Do we really believe all the modern portfolio theories about global capital markets and investment returns over the long run? I've certainly lost the faith and would much rather the money was invested here than in some US dollar denominated asset that's about to be devalued sharply.

KiwiSaver [a tax preferred individual retirements savings vehicle] funds should also be subject to a government mandate to invest locally. Just over 40 per cent of the NZ$5.5 billion invested in KiwiSaver has been invested overseas.

It should also be closer to 60 per cent. It may not be easy or cheap for fund managers to find investments here. But that's what they're being paid for isn't it? The real danger with KiwiSaver is we force more savings to fix a local capital shortage and the majority is simply shipped offshore because it seems easier and cheaper to do it.

If there is ever going to be a move to compulsion then there has to be a quid pro quo for that effective public subsidy to the funds management industry: keep it local.
Because he personally has lost faith in modern portfolio theory, he wants to force all of us to invest locally. Yeah, things have been rough for the last few years. But the proposal here seems pretty worrying.

Again: The NZ SuperFund basically exists to help government top up its superannuation payments when the pay-as-you-go part from taxes comes up short relative to obligations. We have nowhere near a fully funded government pension system. When are tax revenues likely to be in significant shortfall relative to pension obligations? During domestic recession. When are domestic portfolio returns likely to be at their worst? During domestic recessions. So we'd have to liquidate assets at the bottom of the market. Now, maybe we'd be able to get by with divesting only the foreign part of the portfolio during a domestic recession and save the domestic part for a more solid ongoing stream of payments. But given how heavily exposed the NZ government is to domestic risk, I'd have thought having next to no domestic assets in the NZ SuperFund would be optimal.

If KiwiSaver were compelled to invest locally, I'd exit KiwiSaver: my domestic exposure through housing is far too great a part of my overall portfolio. The tax advantage of KiwiSaver isn't worth taking on additional domestic risk for lower overall returns. But Hickey wouldn't allow that. He sees a domestic investment mandate as being compensation for compulsion. I suppose it depends whether you weigh at all the interests of the folks whose money's being taken.

Thursday 7 October 2010

OK, now I regret not having voted

Michael Hansen's small campaign advert in today's Christchurch Press:
The Mayor's Nest
What can I say in 22 words?
"I have got the most brains for the job. I am the best, vote for me!"
Quake Cake
Make up a scone mixture, add coconut, add madeira, brandy, wine, beer or vanilla to taste; bake in a warm oven; allow to cool; spread chow chow or icing or other on top - enjoy.

I am going to form a band called "Quake" [in a weird shaky font]. It will be a Rock 'n Roll Band.

Authorised by M. Hansen, 25 Cheviot Street, Spreydon, Chch 8024 - burglar alarm and infra-green night surveillance; prowellers shot.

No taxpayer money in this advert.
It's not too late, right? I just need to drop the ballot off at a library?

I love especially how the ad appeared after the deadline for mail-in ballots.

Nobel pools

I've been accumulating Departmental guesses about this year's Econ Nobel. My guesses, registered Monday, were:
  • Weitzman / Nordhaus for Environmental / carbon pricing
  • Fehr / Thaler for behavioural
  • Tirole for Industrial Organization.
I reckoned the Committee would pick something orthogonal to the financial crisis (IO), orthogonal but with mildly trendy connotations (environmental), or something to poke the mainstream in the eye (behavioural).

Folks in the department were invited to submit their most three most likely picks. Names revealed where permission's been granted:
  • Gene Grossman (Trade);
    Weitzman/Nordhaus (Environmental) - says Andrea
  • Tirole (IO);
    Nordhaus / Weitzman (Environmental);
    Kiyotaki and Moore (Macro/Finance).
  • Weitzman (environmental, prices and quantities in particular);
    Deaton (panel econometrics / development);
    Would have gone Tirole but then too much overlap with Crampton, so Tullock
    [EC curses Stockholm for its neglect of Tullock, but thinks health issues will keep them from awarding it to him now].
  • Thaler/Shiller (empirical behavioral finance) [EC: Can I switch to this one too? Much better fit for my guess at how Stockholm decides.];
    Posner/Tullock (rent seeking, law & economics);
    Phillies over Yankees in 6 games[???].
  • Baumol;
    Krueger [EC: If they give it to Krueger for rent-seeking, and Tullock's left off, Stockholm's off my Festivus card list permanently].
  • Fama;
    Fama (with wild emphatic claims from this predictor about the consequences if Stockholm continues to neglect Fama).
  • Shiller;
  • Weitzman/Nordhaus;
  • Posner (law & econ);
    Hart/Moore (contract theory);
    "Richard Thaler behavioral claptrap" [you won't need three guesses to figure who sent this one].
  • Paul Romer [EC: would be awesome];
    Avinash Dixit;
    Robert Barro.
  • Thaler & Shiller;
    Nordhaus & Weitzman.
That's all of the nominations received as of close of business Wednesday. Lots of folks seem to have a background model that Stockholm's planning on sticking a thumb in the eye of conventional macro / efficient markets finance.

Tyler posts on who he sees as prime candidates, with lots of overlap with our Departmental pool - this year's must be particularly obvious:
  1. Thaler joint with Shiller
  2. Weitzman/Nordhaus
  3. "Three prominent econometricians of your choice, bundled"
  4. Tirole, possibly bundled with Hart
Tyler's list continues on, but he reckons the first two most likely.

A brave Stockholm would go with Fama to give it the opportunity to explain exactly what is meant by the efficient markets hypothesis: not that crashes won't happen but rather that we can't know when they will happen, or with Krueger/Tullock for rent-seeking, along with a likely Tullock address on rent seeking in stimulus packages. That's not going to happen.

Matt has opened markets on some of the most likely candidates at iPredict.

Wednesday 6 October 2010

No shameful joy here, just a shame.

The IHC, who run sheltered workshops for the disabled, lobbied hard for strong workers' rights protections for the disabled. They helped to ensure that workers in those kinds of workshops received the minimum wage, unless a whole lot of paperwork were filled out. Unfortunately, the minimum wage was higher than the marginal revenue product of many mentally disabled people's work, and many employers couldn't be bothered with the paperwork, and so the intellectually disabled were pushed out of work and into community recreational programmes.

And now Radio New Zealand reports that IHC has had two subsidiaries placed under statutory management while they appeal a court ruling that would, if not overturned, increase their costs so substantially as to put them out of business. What does IHC want? To be able to avoid paying the minimum wage to folks on overnight shifts.
The argument is over what 3000 staff working for Idea Services and Timata Hou should be paid for what is known as sleep-over nights in order to look after about people with intellectual and other disabilities.
In rulings last year, the Employment Court agreed with workers that they should receive an hourly rate rather than an allowance of $34 for being on the premises between 10pm and 7am.
But IHC chief executive Ralph Jones says it cannot afford the costs resulting from the rulings, saying it would leave IHC with a liability of $176 million in back pay and $33 million each year in additional wage costs.
Idea Services is the operational arm of IHC that helped those disabled who were able to continue working after IHC-supported changes to labour laws. And now they're in turn being knocked out by labour laws. There's no schadenfreude in this. Sad irony only.

Tuesday 5 October 2010

Hobbit wars

International readers wondering just what the heck is going on with a crazy New Zealand union seeming set on running Peter Jackson's The Hobbit out of the country would do well to read the series of posts at Public Address. So too would Kiwi readers, but I trust that they already have.

See here and here.

Russell Brown notes one of the odder demands of the union rep:
On the some day Actors' Equity organiser Frances Walsh spoke to the Herald:
Many of the issues the union were seeking to negotiate related to basic conditions such as accommodation, smoking, nudity, credits and not just pay

"We can only say, hey, what we'd like on this production is a fair suck of the sav. We would like to negotiate with you fair terms and conditions for the engagement of New Zealand performers on the Hobbit."
It would have been very surprising indeed had nudity shown up in The Hobbit. They were able to avoid it entirely in the main Lord of the Rings films; the graphic love scenes between Frodo and Sam detailed in the as yet unreleased (and probably apocryphal...ok, I just made it up) unedited versions of Tolkien's story being left instead for the viewer to infer from Hayes-code era metaphors.

Brown helpfully clears things up:
It seems highly unlikely that there will be nudity in The Hobbit. In fact, there won't. What Equity is trying to do is to negotiate an industry-wide agreement via Peter Jackson. As things stand, the actor contracts being drawn up for The Hobbit will be the best New Zealand screen actors have ever received for work in New Zealand; they even include the first provision for residual payments. They blow anything a local producer could offer out of the water.

It would be unethical and crazy for Jackson to participate in talks on such a basis.
Fortunately it's now sounding like things will wind up being settled. But what an idiotic look for a country with a rather young film industry whose main advantages are decent scenery (albeit not exactly non-replicable), lowish wages, and having Peter Jackson nearby.

Monday 4 October 2010

Mayoral politics and nondiscretionary earthquakes

At least a few folks were puzzled by iPredict's fairly quick incorporation of earthquake effects into the Christchurch mayoral race, with a massive shift from challenger Anderton to incumbent Parker. Some folks on the forums, probably trying to talk up the value of their defunct Anderton shares, and some media commentators, wondered why sentiment could possibly have shifted so quickly to Parker when nothing about the world, or at least nothing that ought to be politically relevant, seemed to have changed. Sure, there was an earthquake, and sure, Parker was getting lots of press coverage. But why would voters so radically change their assessment of the candidates' relative merits when neither of them had really changed?

One of my favourite political business cycle stories is Hess and Orphanides' 1995 AER piece "War Politics"; I use it whenever I'm teaching public choice.

Stripped down, the model works as follows. An incumbent President can demonstrate competence on two dimensions: economic performance or war leadership. Demonstrating competence in either increases chances of re-election. A first-term President (who can be re-elected) presiding over a poor economy will have stronger incentive to engage in discretionary war than either a lame duck or one who has presided over a strong economy. They test this back over a lengthy time horizon and find evidence supporting the model.

So what's happened here in Christchurch? The second dimension has opened up, albeit without it having been a choice variable for the incumbent (though some think it was a discretionary earthquake). Folks who'd previously assessed Parker as being incompetent were given evidence of his seeming competence in handling a major crisis. New information was revealed even if neither Parker nor Anderton had changed. And so voters were expected to change allegiance, and so the markets moved, and so too then did subsequent polls. The market moved well in advance of any polling and to about the right level given the subsequent poll numbers.

My only hope for my legacy Anderton shares (recall that internet was down for me for rather a while and I was locked out of my office, and that after the price change, there's little point in backing out of the position if the going price seems about right) is that Parker announces that his wife will be in charge of ensuring a unified architectural vision for the city's rebuilding. Maybe that chance is why Anderton is still around 10 cents.

Cage Match: Caldwell versus Farrant [updated]

Update: text below updated in a couple of spots for accuracy and clarity.

Bruce Caldwell replies to Farrant and McPhail on Hayek's Road to Serfdom; I'm told the reply is coming out in a later issue of Challenge.

For Farrant and McPhail, the resurgent popularity of RTS hinged on a reading of Hayek that, while unpopular among RTS fans, was in fact the right reading of Hayek: any moves towards socialism would lead to serfdom. Consequently, Glenn Beck's using of Road to Serfdom as a rallying call against Obama's policies does no disservice to Hayek. Hayek, however, does disservice to those British socialists who rated liberalism above totalitarianism and who would have stepped back from planning rather than allow the rule of the demagogue.

Caldwell argues that Farrant and McPhail miss essential context. The argument in RTS was addressed only to "hot" socialism: full nationalisation of industries and central command planning. When restricted to that set, Hayek was right: full planning cannot be undertaken without totalitarianism. Caldwell notes that no socialist state achieved totalitarianism through Hayek's mechanism: democratic election leading to failings of planning leading to the rise of the demagogue; he argues that consequently no test of Hayek's mechanism has been undertaken. While the argument in RTS was restricted to "hot socialism", Hayek's later writings provided other warnings of the dangers of the welfare state. The mechanisms and arguments in those later writings were different and oughtn't be conflated with the dangers noted in RTS.

Farrant and McPhail respond to Caldwell [Note: they're there responding to earlier Caldwell arguments, not this particular piece], and others, in the latest issue of Challenge, unfortunately gated. I'll leave to one side F&M's noting that the current talking heads promoting Hayek's argument on Beck's show happily identify Obama's policies as the starting point on the road to serfdom; the more interesting question is whether Hayek meant the argument there to apply.
Intriguingly, Bruce Caldwell — commenting on the Beck-inspired surge in Hayek’s sales—notes that Hayek wrote his “full-fledged attack on socialism and totalitarianism” largely in “response to the British Labour Party platform of the time” (Caldwell, as quoted in Zaitchik 2010, 3). Caldwell’s reference to the policy program of the British Labour Party is particularly noteworthy. Hayek often invoked postwar British experience to illustrate the supposed veracity of The Road to Serfdom. As Hayek explained in 1948, British experience supposedly clearly demonstrates that “the unforeseen but inevitable consequences of socialist planning create a state of affairs in which sooner or later totalitarian forces get the upper hand” (Hayek 1948, as quoted in Farrant and McPhail 2010b). Unsurprisingly, the tenor of Hayek’s remarks is markedly congruent with the logic he laid out in chapter 5 of The Road to Serfdom: Planning and intervention (it is highly revealing that Hayek invokes the interventionist and welfare state policies adopted by Labour as full-blown “socialist planning”) generate pervasive economic inefficiencies and dislocations.8 This pervasive inefficiency supposedly leads to the wholesale replacement of democracy.
They then cite the foreword to the 1976 edition of RTS:
In the preface, Hayek notes that if any reader asked whether he would still “defend all the main conclusions of ... [the] book ... the answer ... is on the whole affirmative” (xxiii). Importantly, Hayek notes that “terminology has changed” between 1944 and 1976, and
for this reason what I say in the book may be misunderstood.... At the time I wrote, socialism meant ... nationalization ... [and] central economic planning.... [Hence] Sweden ... is today very much less socialistically organized than ... Britain or Austria, though Sweden is commonly regarded as much more socialistic. This is due to the fact that socialism has come to mean chiefly the extensive redistribution of incomes through taxation and the institutions of the welfare state. In [this] ... latter kind of socialism the [totalitarian] effects I discuss in this book [Road to Serfdom] are brought about more slowly, indirectly, and imperfectly ... the ultimate outcome tends to be very much the same, although the process by which it is brought about is not quite the same as that described in this book. (Hayek 1976/1994, xxiii–xxiv, emphasis added)
Hayek intended the argument to apply to the British Labour Party. British socialists would then had to have preferred totalitarianism to liberalism for the RTS mechanism to run its course; otherwise, they'd have retreated from planning before going too far down that path. It's of course possible that their retreat came only because Hayek showed them the inevitable outcome of pushing through with planning. But that we can't point to an example of a democratic country turning totalitarian using the RTS mechanism suggests that the RTS mechanism isn't a particularly important one in explaining any real world totalitarianism; totalitarianism tends to come in with planning rather than as later consequence of it.

So, I'll disagree with Caldwell that Hayek's mechanism hasn't been tested. Caldwell writes:
Next, there are no examples of democratically elected governments that tried to put such a system into place.10 So we cannot directly test to see if he was right or wrong. We do, however, have examples of such systems that were not democratically elected. And Hayek’s description of life under such regimes is spot on.
Planning cannot be done without totalitarianism. But the RTS argument isn't just that; it's that steps toward planning push us to totalitarianism. And that many western European democracies turned back from planning rather than continuing on the road to serfdom suggests Hayek's mechanism was wrong, even if he was right that planning cannot be done without totalitarianism.

But I will have to re-read Constitution of Liberty and Law, Legislation and Liberty to contrast the mechanisms there with those in Road to Serfdom.

Note also that John Quiggin reviews Farrant and McPhail's argument at Crooked Timber:
Until the right went completely crazy, the most common claim in support of Hayek was that his predictions had somehow been vindicated by Thatcher’s reaction against the welfare state. Leaving aside the fact that Thatcher’s remodelling of the British economy in the image of the City of London looks a lot less appealing today than it did only a few years ago, this totally misses the point of Hayek’s book. If he had wanted to argue that social democratic policies would reduce the rate of economic growth, and to throw in a bit of hyperbole, he could have called it “The Road to Destitution” or something similar. Hayek wanted to make the much stronger claim that the attempt to implement Labor’s policies would necessarily lead to a loss of personal and political freedom.

Saturday 2 October 2010

STV isn't subject to manipulation? Ahem.

Kiwiblog points to Graeme Edgeler, below, and advises sincere voting in the STV local body elections.
But is it a good idea to rank everyone?


But if I give someone I don't like a rank, couldn't this hurt the chances of candidates I like more?


Your lower preferences cannot ever harm the election prospects of anyone you rank higher than them.

But some of my vote could still go to someone I'm not a fan of?

Yes. But only if all the people you ranked higher than them have already been elected, or cannot possibly win.

By ranking a candidate lowly, you're not helping them beat people you like more than them, you're only helping them against people you hate more.

In the 2002 French Presidential election, there was a vote-off between the top two candidates, the right wing incumbent Jacques Chirac, and far right National Front leader Jean-Marie Le Pen. Many left-wing voters did something they never thought they would do, and voted for Chirac. They weren't using STV, but the principle is identical. In Australian Senate Elections, and some state elections – which do use STV – the Labor Party has advised its supporters to rank the right-wing Liberal Party above Pauline Hanson's One Nation Party. Voting this way doesn't hurt the Labor Party, but it makes it as unlikely as possible that One Nation gets anyone in.

Like the French voters who "voted for the crook, not the fascist", ranking all the candidates helps ensure that what you might consider "the greater of two evils" won't be elected.
Let's consider a contest for a single member district: one candidate will be elected.

There are five types of voters.

Group 1, 10 people, prefer candidate A over C over B over D: A>C>B>D
Group 2, 7 voters, prefer: B>C>A>D
Group 3, 5 voters, prefer: D>C>B>A
Group 4, 3 voters, prefer: C>B>D>A
Group 5, 4 voters, prefer: D>C>A>B

Everyone votes sincerely. In the first round, nobody meets the quota of 15 first choices. So the candidate who is the least preferred is dropped. Candidate C is the first choice of only 3 voters and so is dropped. Again, nobody meets the quota of 15 first choices: B and A now tie at 10 first choices, D has 9 and is dropped. In the third round, B reaches the quota of 15 first choices and is elected.

Suppose, though, that Group 5 votes strategically. B is that group's last choice and was the outcome of the STV election. If they had instead reported their preference ordering as having been C>D>A>B, the selection would have run as follows: D would have been dropped in the first round as the first choice of only 5 voters. In the second round, C would be the first choice of 12, A of 10 and B of 7 so B would have been dropped. In the third round, C makes quota with 19 votes; C is the winner.

So can your placing a candidate lower down the ordering ever hurt the chances of someone you've ranked higher? That's been proven above. Now, it may be very very difficult in the real world because nobody has access to the kind of information we've used in this example. But in a single-candidate district, a non-crazy rule of thumb might be that if your first choice is a candidate who is hated by lots of other folks (like D, above, who was the first choice of 9 but the last choice of 17), you may do better by listing as your first choice somebody a bit further down your preference ordering who's more likely to win (like C, above, who was the second choice of lots of folks) if your last choice otherwise has reasonable support.

I don't think that kind of a rule is computationally hard.

Let's look now to Graeme's precise scenario: he argues you can never hurt the chances of someone higher up by ranking lower order candidates rather than leaving them blank. I think he's right about that: your lower preferences are never checked unless your higher preferences have been eliminated. But you can sometimes do better by lying about your preference ordering than by reporting things sincerely. So Farrar's line at Kiwiblog is, I think, incorrect:
Don’t try and be strategic and working out who is most popular and hence I will rank them lower as they don’t need my vote etc. Just rank candidates in order of your true actual preference.
Farrar is right that you won't waste your vote in a multimember election by keeping a popular guy as your first choice if he is your first choice; any votes in excess of quota are allocated to your lower order preferences. But that doesn't mean you can't do better by being strategic if your first choice is a bit of an odd one.

Friday 1 October 2010

Measures guaranteed to reduce supply

“If you don’t want to be identified, don’t be a donor,” Ms. Pratten said. “It’s that simple.”
So says the Canadian woman suing the Ontario government and College of Physicians and Surgeons to get the identity of her biological father.
A ruling in favour of Ms. Pratten would bring B.C. in line with other jurisdictions, such as Britain, Sweden and Australia where anonymous donation is banned and registries have been created.

Canada’s own Assisted Human Reproductive Act of 2004 already makes it illegal to pay for gamete donors, a measure that some contend has resulted in a dearth of sperm and egg donations across the country. Others worry that removing a donor’s anonymity will translate into a further lack of donors.

“In Canada, we don’t yet have clear legislation that sets out what a donor’s rights and responsibilities might be,” said Kelly Jordan, a Toronto-based lawyer who specializes in family law and assisted reproductive technologies. “These donors might have potential obligations should they be identified.”

Margaret Somerville, director of the McGill Centre for Medicine, Ethics and Law, says the gamete donor system as it exists now deprives donor offspring of their human rights.

“The problem is, donors don’t have rights,” she said. “You don’t have a right to donate your sperm. You can’t go around saying someone else has a duty to receive it. What we’ve done is given priority to adults’ wishes, coverted those wishes into rights, and completely ignored the impact on the children.”
What about the wishes of children who will fail to come into existence because of Somerville's lobbying and Pratten's litigation? Don't they count too?

And, further, it's hard to imagine any potential people who, ex ante, wouldn't be willing to make the deal "higher probability of existing plus no chance of knowing who the donor was" over "much lower probability of existing plus high chance of knowing who the donor was". Behind the veil, it's hard not to imagine really high majority consent. This kind of ex post chiseling by the potential people who became people, at the expense of those who have yet to become people, ought not be condoned.

Or can Stephen Colbert single-handedly solve the world's shortage?

More seriously, we'd expect a shift in supply towards men who don't expect claims to be able to be enforced against them. That probably isn't a good thing.