Thursday 31 October 2013

Skoora, the gentle state

In the classic Kids in the Hall sketch, a traveler, Kevin, walks into a seaside inn and sees a room filled with horribly mutilated people. Each and every one of them has been bitten, gouged or chomped by Skoora, the Gentle Shark. They all tell Kevin how they were attacked.
Dave [Innkeeper]: No, Captain. Your Skoora story.

Mark [The sea captain]: Oh . . . I used to be the captain of my own cruise ship. It was the kind of boat folks rent for weddings, parties, you know, that kind of thing. But on the night in question it had been rented for a prom. Oh, the girls looked so lovely in their dresses, the boys such fine little gentlemen in their tuxedos. They were all drinking and dancing and spiking the punch. I was dizzy with delight when suddenly - my ship sank. We all went into the water. Then came Skoora, picking us off one by one by one by one. Till only I was left. And as he bore down on me, he paused as if to say, "What can I do? I'm a shark. I eat." And then he cut me in half, cut me right in half - my wife measured me, I'm exactly half my former length. But as he swam away with my lower extremeties dangling from his jaw, I swear to god he was crying.

Kevin: Crying?

Mark: Yes, crying. Oh to be sure, he's a brutal killing machine. But he shows more remorse than I've ever seen in a human.
When Kevin suggests that maybe, just maybe, they should have thought about killing the shark, they're aghast. AGHAST. Why? Because Skoora didn't want to eat them. It's just in his nature. He's a gentle shark:
Kevin: That's incredible. Tell me, have you people ever thought of hiring someone to kill the shark? A shark killer?

[Everyone becomes hostile immediately]

Dave: Have you missed the point, man?!

Mark: Have you missed the point?

Bruce: He can't help it, it's his nature.

Scott: He's a *shark*.

Dave: Yes, would you kill the birds for singing? Would you poison the fish for swimming? Would you shoot the children for laughing?

Everyone: [ad lib] Would you kill the children?

Kevin: No! I guess not. I wasn't thinking.

Everyone: [ad lib] You just weren't thinking!

Dave: Well, I'll show you to your room, then. [A fin appears from behind the front desk] Skoora! [Dave is sucked down. Water and blood fly up and hit the ceiling. Kevin runs over to the desk]

Kevin: My god, my god! Skoora is eating the innkeeper!

Mark: How is Skoora taking it?

Kevin: Not very well.

[Everyone bemoans this news]

Mark: [singing] Skoora, Skoora . . .[yells "SING!" to the inn while handing a lyric sheet to Kevin. Skoora swims in time to the song behind the desk while everyone joins in]

Everyone: . . .Skoora, the gentle shark.
Skoora, Skoora. He's a killer with a broken heart.
Don't blame him! He blames himself.
Don't hate him! He hates himself.
Skoora, Skoora. Skoora the gentle shark.
And so we come to the chorus reminding us that we shouldn't blame the NSA for its spying. It's in its nature. It's what spy agencies do. It's what States do. We should neither be surprised at the ongoing revelations nor blame either the spy agencies or the States that enable them. Would you kill the children for laughing?

Skoora, the Gentle State. The NSA and GSCB don't want to spy on us. Indeed, their agents weep when they have to. Besides, it's for Angela Merkel's own good that they bugged her phone. Why would you think they'd want to do that? Really, we should feel bad for all the spies. Think about how they feel, with everybody hating on them for just doing their jobs.

Me, I'm with Kevin. Some sharks should be killed. And States hardly have to do this. It's in spy agencies' natures to have a go at it, but it's in a government's nature to want to be re-elected. If enough people get angry enough about it, political markets will eventually deliver a government that will constrain its spy agencies. If 2014 gives us a Labour/Green government that gives the Greens civil liberties, police and surveillance rather than budget, I'd be pretty happy with that outcome. If they get Finance and electricity, it'd be terrible. Even better were National / ACT to start worrying about Skoora.

For the Skoora-supporters who read the blog, what further NSA revelation would be enough to have you think that maybe it would be worth reconsidering the Five-Eyes arrangement? The latest ones had NSA re-routing a pile of traffic from Google and Yahoo abroad to facilitate "legal" surveillance on it before routing it back to Google and Yahoo Tech fix: they tapped the intra-Google (intra-Yahoo) connections running between internationally distributed datacentres. NSA denies it, but they have lied to Congress repeatedly and their denials have zero information content; meanwhile, every Snowdon/Greenwald revelation has turned out to be true. If GCSB were helping them out with the re-route-and-process, would that be the line? Is there a line? Draw your line now, before more revelations come out that you might want to ex-post rationalise.

It gets worse

Last weekend, I noted Nick Wilson's suggestion that we ban the import of cars that can't block cellphone use inside the car.

His letter to the NZ Med Journal, on which his blog post was based, has a few other interesting bits. He has a few other policy suggestions for reducing cell phone use by drivers. Here they are:
  • All new mobile phones permitted on the New Zealand market from 2018, could be required to automatically disable themselves from working when their internal GPS sensor identifies movement (albeit with an exemption for phoning the national emergency number). This option could work alongside the “smart car” option above, or may obviate its need. It could potentially help prevent injuries among people who use electronic devices while cycling (for whom injury risks appear elevated10).
  • Introduce new regulations that increase fines and/or other penalties for infringements of the existing law. International evidence has shown this to have a strong deterrent effect and is key to maintaining the effectiveness of laws prohibiting drivers’ use of mobile phones. One option includes mobile phone confiscation from those using them while driving.
  • Address the residual need to prohibit hands-free phones in cars given the incontrovertible evidence, collected internationally7 and in New Zealand,11 that these are also highly distracting for drivers. ... Exemptions for commercial drivers and emergency workers could still be permitted, once drivers' [sic] demonstrate appropriate knowledge around hazard mitigation (e.g. how to keep to short sentences when conversing).
So commercial drivers who can pass some kind of test showing they can speak in short sentences could use cell phones.

I agree with Wilson that there's little difference between hands-free and regular cell phone use; some of us argued when this first came out that it was a slippery slope towards banning all in-car phone use.

But the worst part is this:
Nevertheless, given that passing a law is not particularly expensive in New Zealand (e.g. typically at NZ$3.5 million12,13; 95%CI: 2.0–6.2 million), it would not take long for such a new law to be cheaper than one or two mass media campaigns. But the new law would probably also be much more cost-effective than media campaigns if its effects lasted many decades into the future.
Cost-effectiveness cannot be measured solely against costs borne by the government. The mass-media campaign would cost money for the ad in addition to the "costs of passing a law" figure Wilson cites. But a law banning the import of non-compliant cars or non-compliant phones would impose very large costs on everyone who uses phones in cars. And a technology that blocked passengers in cars or buses from using their phones would impose very large costs on those passengers. Those costs matter too.

Rather a lot of public health advocacy can only be understood if we start from the perspective that the costs of regulation consist only of costs on the government and that regulation does not impose any cost on the regulated.

In comments over at SciBlogs, Wilson notes that there were, in 2012, 59 deaths and injuries associated with mobile phone use in New Zealand cars. Let's use that number to see what possible benefit Wilson could here be pursuing.

While the 2012 crash stats aren't yet out, there's no reason to expect that proportions changed since 2011. In 2011, there were 284 deaths, 2060 serious injuries, and 10514 minor injuries resulting from car accidents. If we apportion those proportions to Nick Wilson's 59 deaths and injuries, and round up in Wilson's favour, we get 2 deaths, 11 serious injuries, and 45 minor injuries. NZTA estimates the social costs of fatalities at $3.8 million, serious injuries at $650k, and minor injuries at $64k.

Let's further assume that each and every one of these was an innocent bystander outside of the driver's car. I'd be happy to argue that we shouldn't count costs drivers impose on themselves and that passengers are in a Coasean bargain with the driver, but then Nick would accuse me of leaning too heavily on rationality and we'd get into a fight about that rather than a fight about his rather silly policy proposals. So let's say every one of these is an external cost: there was never a phone-using driver who was harmed through his own silliness and all costs were instead imposed on others.

The total social costs are then $17.6 million. Let's round that up to $20 million to allow for any incidental costs. Let's further assume that every one of us bears some of that $20 million in total risk because we don't know which innocent will be killed or injured by a phone-using driver. Over 4.4 million people, let's say that rounds to $5 per capita.*

I consequently expect that the absolute largest possible benefit from any of Nick's proposals around phone use in cars is $5 per capita per year. I'm assuming that every crash he identifies was 100% caused by the phone and wouldn't have happened anyway. I'm assuming that his policies would be 100% effective and that every one of those crashes disappeared. I cannot make a better case in his favour. And it's $5 per capita per year. I'd not be surprised if the true benefit were less than half of that figure. But let's stick with $5 per capita per year.

Wilson noted one cost of his proposal: legislation costs about $3.5 million to pass. I'd argue that this confuses average with marginal and that the correct opportunity cost of legislation is rather the legislation displaced by any piece of legislation. But in any case, we'll take it as a one-off that won't continue.

The bigger cost is the cost his policy would impose on each and every commuting passenger who would prefer to be using a cell phone. ANZA notes that there are 2.5 million cell phones subscribed to data plans in New Zealand. So 2.5 million people are potentially affected. Let's round that down and say half the population. Suppose further that only half of them would ever use a mobile device in a car or on a bus. If each of them gets at least $20 in value from using the phone while in a car, Wilson's proposal destroys value even before we start factoring in any costs of policy implementation, enforcement, costs imposed on people buying new compliant cars, costs imposed on people buying new compliant phones, or costs imposed on people who have to go out and get a dedicated GPS because their Google Maps no longer work because Nick Wilson thought he had a good idea.

All of that in pursuit of a $5 per capita benefit.

Wilson, in comments, writes:
Nevertheless, other non-technological solutions might ultimately prove to be more cost-effective in reducing mobile phone use while driving (eg, better enforcement and higher fines). What’s probably needed is a thoughtful societal discussion about the options and the pros and cons of each option. We should not be too quick to rule out any particular option – given the complexities and trade-offs that need to be made between convenience, cost and preventable deaths.
No. No no no no no. Policies that seem likely to fail cost-benefit analysis by orders of magnitude should not be considered. They should be ruled out immediately. At best, public discussion wastes everyone's time and energy. At worst, something destructive gets implemented. Should Pharmac give serious consideration to homeopathy?

* Anticipating another potential critique of the use of these cost-of-life measures, I will simply note that all of these figures are Ministry of Transport standard. They use them in deciding whether straightening a curve or adding a passing lane is worth the cost, balancing reduced crash costs against road construction costs. If we abandon them for one aspect of road safety, we throw the whole darned system out of whack. I'd not be surprised if Nick's proposals imposed costs of at least $50 per capita once we accounted for what it does to cell phone or car markets. If we spend $200 million to save 2 lives when we could instead have used the $200 million in total cost to fix a traffic black spot that kills 5 people, then we've really really screwed things up even if you hate the idea of putting dollar values on lives.

Wednesday 30 October 2013

Travel Arbitrage

Alex asks if you can fund international travel by moving goods to places where they cost a lot.

Here's how you get to New Zealand.

Buy a Dell M6800 Workstation in the US for $2000 US. That's $2400 NZD.

That same computer sells for $5000 NZD in New Zealand, including GST. So $4350 without GST.

There aren't any of these up on TradeMe (our version of EBay). And I have no clue what discount "hard to warranty but otherwise brand new" computers sell at here. So there's some risk involved. But a $2000 NZD price difference on a single computer would cover an airfare from LAX to AKL. Bring a couple just to be safe. If customs thinks you're going to sell them here, they might stick you with 15% GST on the US price. Parallel importation is fully legal here though - whatever exclusive dealing arrangements Dell has with its NZ branch, the NZ government doesn't care about. If Dell NZ wants to punish Dell US for selling to somebody planning on on-shipping to NZ, that's up to Dell NZ and Dell US to sort out.

I need to replace my aging work Dell Latitude E6500. I drool over the M6800. It would be in-budget at US prices, but no way on NZ pricing. Instead I'm looking at the E6530. It also costs about twice as much as it would in the States.

I don't know why Dell charges double for a laptop in New Zealand. But they do. If I were buying one for personal use, I'd just buy the American one and get it here via YouShop; I'd be very happy to pay Customs the 15% at the border. If the University were doing it, it wouldn't even attract GST at the border as it's for business purposes and then is a non-taxed input. 20:1 that trying that for work would break at least 3 University rules, even if it did save a lot of money.

Apple usually takes a lot of stick for international pricing shenanigans, but their base model MacBook Pro has only a USD$100 markup in NZ (8%); the highest-end one has a $300 markup (11%).

If you're planning on financing your trip by bringing computer kit to New Zealand, compare prices at PriceSpy with prices at NewEgg. I should probably try it next time we head Stateside, just to see whether the arbitrage works. At worst I'm stuck with a new computer at home. I expect that much of the potential gains would be eaten up figuring out NZ/US model equivalencies.

Paternalistic Income Taxes

Eric's link to this article about taxes on unhealthy food, has started me thinking again about how to do welfare economics when using a paternalistic value judgement. As I noted in my original Offsetting post, it is perfectly legitimate to invoke paternalism, but you have to then be careful to apply that value judgement consistently and not just carelessly carry over analysis that implicitly rests on welfare analysis that eschews paternalism.

In the case of taxes on unhealthy food, if we don't make a paternalistic value judgement, data on how responsive consumers are to changes in the price of unhealthy food is largely irrelevant, but if we do want to intervene to save some people from the consequences of their eating habits, responsiveness is to price matters hugely for whether fat taxes and the like will be effective.

The study cited in the article linked to above found that low-income people are more sensitive to price changes for unhealthy food than are those with higher incomes. Now there are two reasons why an increase in the price of a good might lead to a reduction in the amount someone consumes of that good. It could be that the price increase induces them to substitute away from that good to a-now-relatively-cheaper-alternative (the "substitution effect" in economic jargon), or it could be that the price increase represents a loss of real spending power, forcing the consumer to reduce consumption in general due to the loss of real income (the "income effect").

Now let's say that we found that the responsiveness of demand for unhealthy food to price increases was mostly due to the income effect, not the substitution effect. This is certainly consistent with the observation that the responsiveness of higher-income consumers is less than that of lower-income consumers, although it is not the only explanation of that observation. If this were true, we would be able to achieve our paternalistic objectives by increasing income taxes on the poor and reducing them on the rich. So my question then is: What would your paternalistic welfare judgment have to be to justify excise taxes on unhealthy food but not a rejigging of the income-tax system to make it less progressive if the only reason the excise tax would have the desired effect is by reducing income? And if your welfare judgement can't separate those two policies in that case, doesn't any empirical work showing responsiveness of demand to price have to address the question of whether that responsiveness is primarily due to the substitution or the income effect?

Costs to the Economy, and the counterfactual

When it comes to mental illness, the incremental loss “to the economy” of diminished human productivity is only relevant to policy to the degree that it could be corrected at no compensating expense. Otherwise, cost claims amount to the difference in earnings between ourselves and hypothetical, perfectly rational gods. The irony of mental health advocates waving the $50 billion figure around is that they explicitly want to increase it by pouring more money into public mental-health programs. Give them $100 billion more and they would quickly be using that in their argument for the next $100 billion.
Colby Cosh on measures of the social cost of mental illness. He's entirely right. While productivity costs seem plausible, they're only really relevant where there's something that can cost-effectively be done about it. The counterfactual isn't a magic wand that makes everybody happy and productive; rather, it's a costly ongoing process with uncertain likelihood of success. As Cosh then puts it, "We treat the mentally ill in the name of hope, not GDP."

The problem of the counterfactual is bigger than that though. In most of these kinds of studies, we take as counterfactual somebody with average characteristics and outcomes. But if all that matters is GDP, that's hardly the correct counterfactual. What's the social cost of not getting exactly the right amount of education? The counterfactual there would be people who chose the income-maximising level of education given their underlying characteristics. What's the social cost of taking more than the amount of annual leave necessary for GDP maximization? Define things with a workaholic as counterfactual. I'd bet you could get a horrible and horribly large social cost figure by measuring the "social cost of those elderly who fail to commit suicide immediately upon retiring". The counterfactual savings in health care costs and pension benefits are enormous.

And Cosh gets it:
The real problem is what we mean by “lost productivity.” What is being postulated here is a sad, spiritually afflicted populace whose “economy” could be bigger if absolutely everyone were well enough to work to their full capacity. We all sacrifice some part of “the economy” to personal happiness or to the well-being of our families and loved ones. Probably we all sacrifice some to personal pathologies, whether or not they could be characterized as mental illnesses. Is being somewhat lazy a mental illness? How about having an IQ of 88? “Costs to the economy” are, in this sense, hard to take seriously: human imperfections defy accounting.
Exactly. If we go down this line, why aren't we looking at the social costs of "being somewhat lazy"?

Previously (a few of the many many prior posts here...):

Tuesday 29 October 2013

You need a common base to measure changes

Suppose I developed some new measure of how terrible journalistic reporting on health is. And by my new measure, fully 10% of newspaper articles on Stuff demonstrate a combination of complete innumeracy and absolute credulity. Suppose I then compared it to some prior, entirely different, measure of press innumeracy which listed only 6% of articles as being really bad in 2006.

Suppose I then sent the Sunday Star Times a press release about it and claimed that my new measure showed just how much worse things had gotten in the last few years. Think they'd print it?

Via, Seamus, and Thomas Lumley, here's a Fairfax piece* the shocking rise in alcoholism:
One in 10 New Zealanders could now be considered "alcoholic" according to new diagnostic criteria - but the majority of those with a drinking problem are unlikely to recognise it because the issue is so common.

The new estimate of 400,000 "alcoholics" in New Zealand - around 10 per cent of our 4.4 million population - was tallied up by Professor Doug Sellman from the National Addiction Centre at the University of Otago.

It is significantly higher than the Ministry of Health's 2006 estimate which says 3 to 6 per cent of the population has an alcohol issue.

Sellman's figures are based on the new diagnostic criteria for "alcohol use disorder" recently published in the fifth edition of the Diagnostic and Statistical Manual (DSM) of the American Psychiatric Association.
First off, alcohol use disorder isn't alcoholism. Lumley hit this one over the weekend, pointing to the statement from the President of the American Society for Addiction Medicine on the DSM-V:
DSM-5 has “Alcohol Use Disorder,” which comes in mild, moderate and severe flavors, suggesting the inadequate pyramid approach. There are 11 possible symptoms of the “use disorder,” of which two are necessary to achieve a mild specifier, four for moderate and six for severe. “Alcohol use disorder is defined by a cluster of behavioral and physical symptoms,” the authors of DSM-5 state. I have no problem with that except that some may confuse “alcohol use disorder” with addictive disease or with alcoholism
The article can serve as example.

But the bigger problem is that you just cannot cannot cannot identify changes in a measure if the base measurement has changed unless you do a lot of work to put the two measures on common footing. Suppose we changed how we measured inflation. We do that from time to time. When that happens, economists and statisticians have to do a lot of work building a linked index where you recalculate the old inflation observations on the new measurement so that you can have meaningful comparisons over time.

Suppose that the government put out a press release saying "Hey, by our new measure, wait times for surgery at hospital are half as long as they were under the old Labour government!". Surely surely the reporter would think to ask whether the change were due to the redefinition of the measure or whether it were due to anything real.

Anyway, by the new measure, as reported in the SST article, I count as having mild alcohol use disorder. I answered two of their 11 questions in the affirmative. Because I can spend a lot of time browsing at The Beer Cellar or over at Whisky Galore, I say yes to #3: "Spending a lot of time getting, using, or recovering from alcohol." It's all because of the "getting" part, but I'm being honest. It's an "or" question. I also say yes to #4, "Cravings and urges for alcohol". Reading articles like this give me strong cravings for strong drink. I answer "no" to all of the others, but that doesn't matter.

So, how did Sellman reckon 400,000? Surely it was something more than the guesstimate here presented.
"We know there are about 800,000 heavy drinkers in NZ [based on Ministry of Health figures] and it could very well be higher," Sellman said.
"A majority of heavy drinkers already are likely to meet one of them [the 11 disagnostic criteria], the acquired tolerance criterion, so that means they only need one more criterion to get there.
"So I'm suggesting that perhaps about a half of heavy drinkers are likely to have at least one more of the diagnostic criteria such as a recurrent problem associated with heavy drinking, which accounts for the 400,000 figure."
I hope it was the journalist inferring a trend based on this stuff rather than Sellman suggesting one. Yikes.

* I think this was initially in the Sunday Star Times, but it was also in The Press.

What best predicts success in test cricket?

A commenter by the names of Peter (initially Tyrion) at an English cricket blog, Declaration Game, asks an interesting question: are averages in first-class cricket better correlated with how a batsman does in test cricket than are his averages in ODI cricket? I started to reply there, but the comment got too long, so I thought I'd do a separate post.

It is an interesting question. First-class cricket has the same general format as test cricket (no limitation on overs, so the emphasis on bowlers is to get batsmen out rather than simply restrict runs, and the emphasis on batters is to bat for long periods). On the other hand, we can all think of players who have been successful playing for their province, state or county, who were unable to make the step up to international level. So performance in first-class cricket is perhaps the better measure of a player's skill set while performance in ODI's the better measure of his temperament, and also of whether there are technical flaws in a player's game that will be found out at the highest level. 

I don't know what the correct answer to this is. My guess would be that the stronger is the competition at sub-national level, the better would be first-class cricket as a predictor. So, for instance, I would expect that first-class cricket is a better predictor of Australian players' success at test level than it is for New Zealand players. And I suspect that, overall, even in country's with weak domestic competitions, first-class cricket would be the better correlate, but it is just a guess. 

But this rasies a different question: What measure of performance in ODI cricket would be the best measure of success to use in a correlation with test averages? This rises again because of the different format. Batting and bowling averages are a very good measure of performance in test or first-class cricket. Yes, we need to adjust for the conditions in which different players have played, and the quality of the opposition, but in general maximising your batting average and minimising your bowling average is the way to maximise the chance of your team winning. In ODI cricket, this is not the case. The relative importance of runs and wickets changes depending on the game context, so that averages are not a good measure of a player's contribution to his team. Naturally, I would prefer a measure like the player's contribution to the WASP, as maximising that is what a player should be doing to help his team win.* But let's say you had two players, one with a better average and one with a better WASP-based performance. Does the difference arise because the latter is a better player in general, or does it indicate that the former has a skill set more suited to test cricket. I really don't know. Maybe that is a future Honours project. 

* Actually, WASP-based measures would only be useful for comparing players at a similar point in the batting order. My student, Marcus Downs, has been writing an Honours dissertation this year developing an adjusted WASP-based measure that enables better comparisons across players with different positions in the order, but this is secondary to the main point. 

More than 15%

GST underexplains the price difference between New Zealand online retailers and foreign competitors. A notable current example.

Eleanor Catton is the NZ author who just won the Booker Prize. The Luminaries was published by Victoria University Press. They're selling the paperback online for $35. It's out of stock and they promise to have more in two weeks. They don't say anything about shipping charges; I'm not sure if you can buy directly from them. They link to meBooks, a new Zealand e-books supplier. They're selling the electronic version for NZD $19.95.

NZ online retailer Fishpond has it for $33.72, including delivery, but shipped from a UK supplier rated as low reliability (by Fishpond) and subject to delays. MightyApe has it for $29.99, but also on backorder, and with shipping that brings it up to $33.89.

Without GST, Fishpond would be selling the book, including delivery, for $29.32. meBooks would have the electronic edition for $17.35 if GST didn't exist.

Book Depository has it, delivered to NZ, for NZD$22.65. Their website doesn't suck, it's easy to find what you want, and they're reliable. Amazon has it for USD$14 (NZD$16.87), but I never shop there as figuring out the international shipping charges is always a hassle. Amazon has a Kindle edition for USD$10.65, or NZD$12.83.

So a New Zealand book from a New Zealand publisher, in a world where GST didn't exist, would still be $6.67 cheaper sent to me from Book Depository: the Book Depository price is 77% of the ex-GST Fishpond price. GST makes up 40% of the total price difference. The rest is the standard "bought it in NZ penalty". And the e-book is $4.52 cheaper from Amazon than the ex-GST meBook price: GST is 37% of the total price difference. The rest is not GST.

For the marginal customer, the extra bit of price discount drives the decision to shop online from abroad. But I'd be awfully surprised if any substantial portion of online buyers are marginal. And especially not when it's typically easier to source things from international retailers than to find a Kiwi one online.*

Lance Wiggs suggested in comments at NBR levying the tax but placing the onus on taxpayers to comply. This is less bad than other options, but it still imposes a large hassle cost on online customers who want to be honest.

Owen Matthews noted that imposing the burden on foreign retailers risks their refusing to ship to New Zealand at all. This shouldn't be discounted. When I lived in Canada, a lot of American retailers simply refused to ship to me because hassles at the border for customers turned into headaches for them. If you wanted to bring stuff across and found a retailer who'd sell to Canada, couriers would impose something like a $30 brokerage fee at the border to get it across. This is likely what NZ retailers want to have happen here as well.

NZ retailers are pushing hard because they know that a lot of them just shouldn't exist. If you can have stuff shipped here, from abroad, including shipping, for much less than the NZ retail cost, then that part of the retail industry should shut down and have its inputs flow to higher valued uses. A small retail section would remain for those products for those who really need things in a hurry. Otherwise, warehousing and distribution costs in small markets mean that some local retail should simply cease to be. Expect much lobbying for protection in the interim.

* Exception: beer and wine. The Beer Cellar is great. So is Regional Wines.

Dilbert understands academia

When the university union negotiated an increase to five weeks' official leave from four weeks a couple of years ago, we all laughed. By which I mean the faculty laughed. Why? See below.

The Official Dilbert Website featuring Scott Adams Dilbert strips, animations and more

University unions that represent both faculty and administrators pretty quickly get owned by the administrators, who outnumber us substantially. Administrators can take annual leave. I'm not sure that annual leave ever really exists for academics. It's pretty much impossible not to be turning over problems in your head, constantly, whether you're at the desk or whether you're sitting pool-side. Unless you're in the bench sciences where you're tied to a lab bench, you can work from anywhere that has a reasonable internet connection - and even that can be optional for some kinds of work.

Tenure and promotion are tournament games. If you take your allowed annual leave seriously and somebody else doesn't, you're down a rung for tenure or promotion. If there's downsizing pressure, taking leave puts you a rung closer to the chopping block and a step farther away from being able to get hired elsewhere.

The bargain seems to be that annual leave doesn't really exist* but nobody really takes attendance either. So if you need to stay home with a sick kid or whatever, it's pretty easy (so long as you're not on deck to lecture that day). A couple weeks on the beach as proper leave? Well, you can do it. As much as you want. It's totally up to you.

* ...although we all have to fill in forms claiming that we took 5 weeks' leave and indicating the days nominally taken so that untaken leave can't accrue on the books as a liability. The strong hint is that anybody making a fuss about it will cause the whole place to start putting in time clocks.

Monday 28 October 2013

Let's make everything like the Rugby Sevens?

The NZ Health Promotion Agency released a pretty interesting study earlier this month. They surveyed attendees at a variety of sporting events about their attitudes towards alcohol and the link between alcohol and those specific events; they were interested in whether alcohol sponsorship and promotion affected things.

Here are some of their findings. Now they didn't quite put it this way, but it's all there in the data. I'm giving you the bullet points. But you can go back to source and check it for yourself. All of this is well within the realms of the obvious (to readers here familiar with the Sevens), but perhaps needs spelling out explicitly.

  • Attendees at the Rugby Sevens really love drinking at the Sevens
    • 82% agree or strongly agree that drinking alcohol makes the event more entertaining. 3% disagreed or strongly disagreed.
    • 93% agreed or strongly agreed that they attend the Sevens because of the atmosphere.
    • Alcohol is an important part of the atmosphere of the Sevens. 77% agreed or strongly agreed that "drinking alcohol at this event is 'just what you do.'" 
    • 90% agreed or strongly agreed that the atmosphere at the Sevens makes them feel more like having an alcoholic beverage. 61% agreed or strongly agreed that the atmosphere made them feel like drinking more than they normally drink despite that 62% agreed or strongly agreed that they had heard messages at the event encouraging moderation in drinking. 
    • 72% agreed or strongly agreed that they were aware of alcohol promotions at the event; 50% agreed or strongly agreed that sponsor signage and promotion contribute to the atmosphere of the event (23% disagreed or disagreed strongly). 
    • Bottom line: drinking and alcohol sponsorship are an important part of the atmosphere at the Sevens, and people go there specifically for that. Banning drinking at the Sevens or banning alcoholic sponsorship at the Sevens would make these attendees worse off.
  • Despite all that pro-drinking stuff for the Sevens, alcoholic sponsor messaging was less prominent there than at the other surveyed events, at least as measured by the TV broadcasts. The electronic revolving billboard around the pitch had Speights up 64 times per hour for a total of 5.43 minutes per hour on the TV broadcasts - not all that often. Of 20 hours of broadcast coverage, they found 5% of the content included shots of the crowd drinking (0.4% of the RWC, 9% at the Heineken Open, 29% at the International T20, 23% at ODI); alcoholic billboards were in-frame for 9% of the broadcast (30% of RWC, 53% of Heineken Open, 26% of T20, 24% of ODI). And alcoholic commercials were also less prominent. I don't see data on the visibility of signs at the events for the fans, but it would be surprising were they more prominent at the place where they're so less likely to show up on-camera.
Alcoholic promotion at the Sevens, as measured by the TV broadcasts, seems far less prominent than at other events. Suppose we were to run a simple cross-sectional analysis and we were to blame any drinking on alcoholic sponsorship and promotions. 71% of attendees at the Heineken Open were aware of sponsorship. 72% at the Sevens. And 56% were aware at the T20 and ODI. But only 14% at the Heineken Open agreed that drinking is 'just what you do' there. 77% said drinking is 'just what you do' at the Sevens. And 38% agreed that drinking is 'just what you do' at the T20 and ODI. Does sponsorship cause high levels of drinking at the Sevens, or low levels of drinking at the Heineken Open? If you increased alcohol sponsorship visibility at the cricket to match that at the Sevens or at the Tennis, which one's drinking culture would follow? If you plotted only the Sevens and the Cricket, you could conclude that banning alcohol sponsorship would make the Cricket more like the Sevens!

Fun one: despite a ridiculously loaded question, "I am very concerned with the exposure to alcohol messages for youth at this event", just over 50% disagreed or strongly disagreed. 

Bottom line: the event most seen as a piss-up has sponsorship-awareness no different from that at the Heinekein Open and has far less visible drinking and alcoholic sponsorship on TV coverage than do the other sporting events surveyed. The relatively sedate tennis and cricket matches have more obvious sponsorship, but less drinking culture. 

It is very hard to see any evidence from this HPA survey suggestive of that you do any good by banning alcohol sponsorship at sporting events. It looks instead like you'd worsen the environment at the Sevens as judged by those who attend it. The Heinekein Open provides a more family-friendly environment despite high measures of alcohol sponsorship because it's that kind of event; the Sevens are rather less family-friendly not because of alcohol sponsorship (which was pretty low for TV-viewers) but because it's that kind of event. 

Sunday 27 October 2013

Cars, phones, and dirigiste policy

Here's public health specialist Nick Wilson on a potential measure to stop drivers from using their phones.
But it is possible that there are other options to be explored, including ones that we canvas in the NZ Medical Journal piece. One of these options could be a requirement that all new cars imported into NZ (eg, from the year 2018) could be required to have technology that automatically stops mobile phones in the vehicle from ringing when the vehicle is in motion. That is “smartcars” could automatically turn off “smartphones”.
A non-exhaustive short list of reasons why this seems a bad idea:

  • Unless you're relying on a Bluetooth connection with the car, you'd need some kind of compliant phone that automatically interfaces with the car. International phone manufacturers and car companies don't exactly jump when NZ says so.
  • Bluetooth is sufficiently finicky that it wouldn't work automatically.
  • If you are connected with your car via Bluetooth, it's typically to run a hands-free calling system with your radio. Phone rings, you hear it through the radio, you say "Answer", it routes the call through the radio's speakers. The system that would let you shut down call answering is the one that enables hands-free answering. 
  • The first thing I would do if Nick got his way on this would be to download an app blocking it. 
  • How could the car tell which phone belongs to a driver and which belongs to a passenger? Do you want to ban passengers from talking on the phone too?
  • If NZ is the only country adopting this idea, you're going to have a hard time convincing any car manufacturer to support the tech. Best you could then hope for is something that gets added onto the car at point of import. Something that could be ripped out of the car by me when that happens - sheer bloodymindedness can be a powerful motivation for learning which bit of electronics needs to be circumvented.
  • It'll hike the cost of new cars compared to used ones, encouraging people to keep older cars on the road for longer, worsening our fleet average age and our emissions profile.
  • Talking is hardly the most distracting thing you can do with a cellphone while driving. Reading Twitter is another. Will the system have to decide which apps are allowed and which ones aren't? How, when there are a billion potential apps out there?
  • Get off my lawn and get out of my car. That can be a reason. One that isn't given enough weight these days.
I'm sure you can come up with other reasons. 

Saturday 26 October 2013

Treasury on Capital Gains Taxes

I haven’t been following the debate about loan-to-value-ratio (LVR) regulations as closely as Matt and Eric, but this article in the Herald yesterday (HT: Matt) caught my eye because of the following quote:
Treasury suggested introducing a capital gains tax and restrictions on foreign buyers as part of a long term prescription to curb house prices increases, documents released today show.
So, as always whenever someone recommends a CGT, I rushed to the Treasury document to see what the justification was and whether it can convince me that the benefits would outweigh the costs.

First a clarification. In the document, Treasury list a capital gains tax as one of a set of longer term measures that “might be feasible” and that “could have an impact on housing demand but would require more detailed design and lead time to implement” [emphasis added], which certainly fall short of being a recommendation.

But even with that caveat, I am struggling to see a coherent view in the Treasury’s document. The document’s focus is on rapid house price inflation, but it is not clear just what they see as the policy relevant issue there. They note a concern with financial stability, macro stability, and housing affordability; they acknowledge that the main factor determining house prices in New Zealand are supply constraints and that recent policy changes are addressing that; and so they then focus on policies to restrict demand.

One of the first things we teach our students in economics is that economic analysis should never start with price. Resources can be consumed, prices cannot; prices change in response to other changes in the economy, but whether the outcome is good or bad depends on what caused the change and what determines good and bad. So a statement like 
additionally, high prices may also affect broader economic performance over time by diverting resources into sectors of the economy that tend to exhibit lower productivity
immediately raises the question: How will a particular policy designed to reduce prices (or restrict price growth), succeed in diverting resources into high productivity sectors (or make housing more affordable, or promote macro and financial stability)? What is needed is a view of what is causing demand for houses to increase, what aspect of that demand increase is a bad thing, how a particular policy would act on that bad aspect, and what would be other possible effects of the policy that would need to be considered.

For the suggestion of a capital gains tax, all that is given in the Treasury document is the statement quoted above that it is something that “might be feasible”. Sadly, I am none the wiser (nor better informed). 

Roundup: fat taxes, Japan stats and more.

These tabs may not be closed without minor comment.

First: Ni Mhurchu's study doesn't show that food taxes and subsidies are more likely to benefit Maori and low income families, it shows instead that low-income groups are more responsive to changes in prices. If health is the only thing that matters, and if you set up taxes on tasty foods that are bad for health and subsidise bad-tasting ones that are good for health, those groups will respond more to the price measures. But that hardly means "benefit". It means "effect." To move from "are affected more" to "get more benefit" requires an assumption either that poor groups put a lot of value on health relative to other things in the utility function or that we are happy to force preferences upon them. For the various problems with fat taxes and the like, see here. But do expect that an incoming Labour/Green government will hang policy on this work. You'd need to be very careful in the offsetting benefit increases / tax cuts for low-income earners if you wanted to avoid the more typical incidence effects of sin taxes.

Second: I'd posted the other day on declining marriage in Japan. Another stat in the same survey showed surprisingly high fractions of young Japanese people who claim to abhor sexual contact. WashPost today points to seemingly contrary evidence: the proportion of Japanese never-married youths aged 18-34 who claim to be virgins has held steadyish for men and declined for women since the 1980s. But the rate of marriage has dropped precipitously. So a decent proportion of those who engage in sexual activities and who once got married now don't get married. It's then entirely possible for the graph here presented to be true, and for aggregate sexlessness also to have risen. Slate has some contrary arguments.

Third: You can now invest in professional athletes early in their careers. It would be interesting if professors could similarly invest in the future earnings of their students. I've a couple who I'd consider backing, if I weren't putting everything into the Uni Superfund and into paying off the mortgage.

Friday 25 October 2013

A modest proposal for internet tax parity

New Zealand currently runs a de minimus rule exempting low-value imports from GST. The IRD has reckoned that collection costs outweigh the taxes collected and so it's pointless charging our 15% GST on items valued at less than $400 NZD.

NZ book retailers, among others, think that this exemption is the main thing driving people to Book Depository and other online international online retailers. There is much outrage about unfair tax treatment. Toby Daglish made the typical case for distortions that can arise when imports aren't subject to GST while domestic goods are. And he's right, as far as he went with it. But he didn't go far enough.

And so we come to my modest proposal.

If you import goods from abroad subject to GST, the goods get held up by customs on arrival into New Zealand pending payment of GST. You then need to arrange separate payment of the GST. This can involve a drive across town to the postal outlet holding the item pending payment. If we subject foreign goods to GST, we solve one distortion while inducing another one - potentially a larger one.

And so here is my proposal:

BE IT RESOLVED THAT, henceforth, all goods imported from abroad will be subject to GST. In order to remove all possible distortions, however, we must introduce a new regime for the domestic purchase of any good that could have been purchased from an international retailer. Henceforth, shoppers will pay the ex-GST price of those goods at the retail outlet, but must travel across town to a licensed depot to pay the GST component and pick up the good. The customer will be notified on the good's arrival at the depot, but a minimum of a four-day waiting period applies.

Doing so will ensure a level playing field between New Zealand retailers and their foreign competitors. Everyone is subject to GST, and everyone is subject to the hassles of dealing with customs for payment of GST. Anything else would be distortionary. And distortions are bad.

Or we could stick with the status quo. I'm cool with either one.

Spencer on LVR policy

Last week, Deputy Governor Grant Spencer gave what I consider the best explanation of the RBNZ's policy restricting the proportion of high loan-to-value ratio loans in a bank's new loan portfolio.

A lot of the Bank's prior talk on the issue has seemed incoherent. For instance, RBNZ has no mandate to implement policy to protect people against the possibility that their investments decrease in value, so talk of helping people by preventing them from buying assets that might reduce in value is a bit of a non-starter. Further, such arguments would require an assumption not only that the RBNZ knows more about the future housing price path than do property investors but also that they're unable credibly to communicate such information to prospective buyers.

But Spencer's address here makes what's likely the best case for LVR policy. Here's my interpretation of it. Again, this is not what Spencer says. Towards the end, it is nothing like what he says. I can even imagine him disagreeing with it. But it is the lens through which I interpret his statement.
We have a near-vertical supply curve in housing, mostly due to regulatory failures. That's looking to ease (he's optimistic) but it'll take time. Meanwhile, net migration numbers suggest there will continue to be substantial increases in housing demand. A demand curve that's shifting out coming up a near-vertical supply curve in the short run means continued substantial price increases. Where that feeds into rental prices, we get CPI inflation. And RBNZ has to keep CPI below 3. Further, at least some current demand is fuelled by that mortgages are currently really cheap. As soon as international interest rates start going up, anybody who took out a high LVR loan expecting low interest rates to continue forever is going to be in real trouble; resulting defaults could strain the broader system.
Everything's pretty second-best. First-best would involve getting rid of the supply bottlenecks, but that's just not going to happen. Even if you somehow got local government to stop the stupid, we'd face some very very real constraints in workers and kit available to build houses - it would take time (and price increases) to import more capacity to build houses. So LVR can mop up some of the effects of global loose credit conditions and avoid asset bubbles in housing so there's less down on the downside.
In short, we something like an Austrian-style malinvestment problem, though I'm never going to use either of those words in an RBNZ paper, and it's a hack version of Austrian stuff anyway - how the heck is a consumer good like housing a "lower order of production"? Anyway, loose credit globally makes NZ interest rates look pretty attractive, so lots of folks are willing to back NZ mortgages. And Kiwis are jumping into housing with that cheap money, expecting that even if interest rates go up, housing prices never go down, so things will work out. But when we do sort out the supply problem, housing prices could go down. And a sufficiently large disruption to international credit markets could also have them go down rather more sharply. Those have macroeconomic consequences. Inflation targeting isn't enough where we can get blow-ups in asset prices as well. Weren't any of you watching Greenspan? Sure, inflation rates looked fine in the States in the 2000s, but that's because it was all going into asset bubbles. The Austrians talked ad nauseum about this in the 2000s and nobody listened. Well, we're just not going to let that happen with NZ housing prices this go-round.
CPI targeting is great and we're going to stick with it. But we'd be pretty dumb not to be watching for asset price inflation at the same time. Sure, it'll feed into CPI via rents eventually, but why not nip it before it does that? Especially where there's some resulting bank balance sheet risk, and some risk that wealth effects after a housing crash would kill consumption and induce a recession. Our target isn't just CPI - we also have to watch for unnecessary instability in output. And asset prices are *in* the inflation part of the target! Go read the darned thing. 
LVR isn't much - it shaves a bit off the amount by which we'll need to haul up interest rates next year. But it could set back house price inflation for enough quarters that the supply response gets going. It could never have really long term effects. But it doesn't have to where the government seems to be getting serious about getting supply moving.
On this view, the systemic risk angle was only ever part of the rationale. If it were only systemic risk, something like enforced capital/equity buffers would make more sense as they'd be more neutral across risk categories. But where they're specifically worried about housing asset bubbles, and where they think they can identify those bubbles, we get LVR.

I still think it's a bit presumptuous to think that we can really tell that we're in a housing bubble. It's at least as plausible to me that the gap between rents and housing prices in Auckland is fueled not by any kind of bubble but rather by rational investor expectations of continued demand growth: they've capitalised the expected future increased in rental prices.

Look at the graph Donal put up on Tuesday:

The hand-drawn X is the updated net migration figure. Auckland rents are gonna go up. 

But I'm far less perplexed and angered by LVR under the interpretation above than I had been.

Update: on a related note, whether Treasury or the Government were right on the merits of Kiwisaver deposit subsidies and Welcome Home loans depends on the actual reason for LVR. If LVR were only about systemic risk, then the government's policy would have helped poorer cohorts meet the equity threshold (reducing risk), albeit at the cost of fuelling greater house price inflation. If LVR were meant also to be targeting asset price inflation, then the government was definitely wrong in putting in these measures. This suggests Treasury thought LVR wasn't just hitting systemic risk but was rather also aimed at housing costs generally. I think it's a bad idea to provide subsidies to homebuyers full stop, and doubly so when we're faced with a near-vertical supply curve. It just pushes up housing prices. But the ties to LVR noted in the article suggest something about the purpose of LVR.

Detecting crank economics

It's sometimes hard for the intelligent layperson to tell the difference between economics and crank economics. Chris Auld provides some helpful hints.
Every mainstream science which touches on political or religious ideology attracts more than its fair share of deniers: the anti-vaccine crowd v mainstream medicine, GMO fearmongers v geneticists, creationists v biologists, global warming deniers v climatologists. Economics is no different, but economics cranks differ in that they typically make false claims about the content of economics itself, as opposed, or as a prelude, to false claims about the way the world works. That target sometimes making it hard for non-economists to differentiate crankery from solid criticism.
He provides a list of symptoms of bad critiques of economics. Here are a few that may be particularly helpful, but do read his whole list:
2. Frames critique in terms of politics, most commonly the claim that economists are market fundamentalists.
3. Uses "neoclassical" as if it refers to a political philosophy, set of policy prescriptions, or actual economies. Bonus: spells it "neo-classical" or "Neo-classical."
6. Uses the word "neoliberal" for any reason.
8. Claims economists think people are always rational.
16. Claims economists ignore the environment. Variant: claims economics falters on point that "infinite growth on a finite planet is impossible."
18. Cites Debunking Economics.
But do read the whole list.

It is schizophrenic to complain about climate-deniers, or anti-vaccine weirdos, or anti-fluoride nutters, while readily accepting crank critiques of economics.

Note: Today's post is cross-posted from the Dismal Science feed over at SciBlogs. I usually there pull selected content from Offsetting, TVHE, Anti-Dismal, Groping Towards Bethlehem, and Fair Play and Forward Passes. This one, I posted there directly before copying it here. 

I'd also add a 19th to Chris's list: cites David Suzuki. Implicit in #16, but worth noting directly. 

Thursday 24 October 2013

NZIER on Fiscal Sustainability and Capital Gains Taxes

Bill at Groping Towards Bethlehem posted today on the NZIER report on New Zealand's fiscal sustainability. This is mostly about short-run and long-run projections for debt and whether we have room to raise additional revenue by increasing tax rates without hitting Laffer curve effects. Bill takes issue with a comment in the press release by one of the report's co-authors, Kirdan Lees, saying that we need to take action now to avoid reaching a U.S. like situation. I agree with Bill that major differences in political systems between the U.S. and New Zealand mean that the U.S. is not a good comparison. But that is because our system (probably) leaves us better positioned to respond to unpleasant projections before the situation becomes dire, and therefore doesn't negate the value of making those projections.

But what really caught my eye, via David Farrar's comment on the same report (here and here) is that it called for taxes on land or capital gains as a way to broaden the tax base. Now capital gains taxes (or at least gaps in the arguments in favour of them) are a bit of a hobby horse of mine (various posts archived here), so I went to the report to see what the justification was. After reading it through (and then searching for "capital gains" to see if I'd missed anything), the best I can see for the justification is as follows:

  1. if we continue with the current path, growth in government expenditure as a result of an ageing population will exceed growth in tax revenue pushing out the debt to GDP ratio;
  2. this will necessitate either tax increases or expenditure reductions;
  3. we have room to increase tax revenue by increasing tax rates (that is, we are on the right side of the Laffer curve);
  4. taxes, however, do have disincentive effects;
  5. ????;
  6. a tax on capital gains or land would be a good option to explore. 

Now Kirdan is a very good economist, so I am sure he has something in mind for step 5. I wish it had been included in the report, however. Based on the rest of the report, it seems that the argument is not about reducing tax distortions between capital gains and other sources of income, but rather about a general broadening of the tax base. This only makes sense if a capital gains tax is expected to raise positive revenue, in which case it would represent an increase in the effective tax rate on capital which is already triple taxed relative to labour income (by being taxed once when the original money saved was earned, again as it accrues interest, and a third time when the portion of the nominal return that just represents adjustment for inflation is also taxed). Maybe this effect is outweighed by other benefits of a capital-gains tax, but I would really like to see what these benefits are believed to be.

Postscript: While writing this post, I have come across a news story saying that Treasury are now recommending a capital gains tax and or land tax as an alternative to or supplement to (I'm not sure, I need to check the source documents) the Reserve Bank's loan-value-ratio policy. I will be interested to see what Treasury's justification for a CGT is.

Again, Canterbury beats Otago

The University of Otago this week burdened itself with Fair Trade recognition.
The accreditation granted by the Fair Trade Association of Australia and New Zealand means Otago University has signed up to offer Fair Trade designated products alongside other products throughout its campuses.
The university will also serve Fair Trade tea and coffee products as standard, and run a steering committee to encourage their take up by staff and students.
Otago University's Vice-Chancellor Harlene Hayne says the accreditation is proof the university acts in an ethically, socially and environmentally responsible manner.
The University of Canterbury, very wisely, has not done so. My colleague Stephen Hickson pointed out the reasons against pursuing Fair Trade certification a while back.
The problem with Fair Trade is that most of the money you pay for a Fair Trade product does not get to those that we really want to help. When the world coffee price is above the Fair Trade minimum, then about $0.05 of your purchase of a bag of coffee gets to the farmer. For bananas it is about $0.07 per kg. Considering that Fair Trade bananas sell for about $5.00 a kg that's not especially impressive. For chocolate, the Fair Trade premium above the world price adds somewhere around $0.01 per 250g block.
What that means is that if you pay any extra money at all for a fair trade branded product compared to any other then pretty much all of the money you pay isn't going anywhere near the person you think you are helping. If you find someone who is happy with that then that tells you that the most important thing for that person is the good feeling they get by buying fair trade products. I would certainly not be happy that almost all of the money I think I'm giving to a good cause is going nowhere near those I want to help.
If the university seeks fair trade certification then there will be costs. Most obviously will be the costs of more expensive products but that may well be least of it. There will be compliance costs as UC seeks to obtain and maintain certification including most likely a "Fair Trade Compliance Officer" of some sort. There will be awareness campaigns to ensure staff and others comply and time in extra meetings (I'd be willing to bet there would be some sort of committee). All of this is simply money wasted. Hardly any of any extra money paid for Fair Trade products is going to poor farmers and absolutely none of the money paid for internal costs is.
Doing some good and producing a poster showcasing a smiling farmer is just not good enough. Would you be happy donating money to a charity where only $1 out of every $100 made it to the intended recipients? I doubt you would and nor would I. And it would not cut the mustard to try and argue "well at least that $1 is doing some good". We should look for a better, more effective alternative pretty quickly. If the university wants to make a difference by committing resources to a philanthropic cause then it should find one that is effective. I am willing to suggest several should they care to ask. Perhaps instead of paying more for products and employing someone to manage Fair Trade certification, we may well be better to offer scholarships for students from developing countries (for example).
If the university decides to pursue fair trade certification then it seems to me that the largest benefit is to the university itself as they get to acquire a "badge of honour" for the website. But good intentions and looking good are not the same as actually doing some effective good.
Here are Sinclair Davidson and Tim Wilson on problems with Fair Trade certification.

Here is Colleen Berndt's study of the workings of fair trade coffee in Costa Rica and Guatemala.

I am very very happy that the University of Canterbury has not pursued costly feel-good policies like this that do far more to produce clouds of smug than they do to help developing countries. Indeed, I am proud.

Any University that is serious about helping people in poor countries instead of just mouthing off about it would increase the number of targeted scholarships for students from developing countries. For the cost of one $80k bureaucrat dedicated to a dumb campus fair trade initiative, you cover the living expenses of four international students from developing countries, or maybe three if you want to cover airfares too. Want to increase costs on domestic students at the on-campus shoppes to help developing countries? Put a 5% levy on everything and put the money into a fund to bring more smart, poor students here from developing countries. It's cheaper than a fair trade mandate and does more good.

Odd Japanese labour markets

Am I the only one who read the various stories on impending social collapse in Japan and reckoned there to be a potentially large opportunity for a firm that would be happy to hire women on flex-time arrangements?

Tyler pointed to one story yesterday; another hit the Washington Post today. Short version of both: Japanese labour markets are a disaster. Employers expect that a woman getting married has shifted to the mommy track and so pull her from opportunities for advancement, because she's likely to leave work after childbirth. And they're not wrong: the Guardian story says 70% of women leave work after having had a kid. Women wanting to have a career then don't get married.

Suppose that were all that were going on. We'd then expect some clever firm would figure out that there are tons of qualified women itching to get back into the labour market on flex-time arrangements and would hire them on a compensation bundle including less salary, on-site daycare*, and flex-time. Further, the peculiarities of the Japanese labour market could really work to such a firm's advantage. If you expect that a firm will dump you post-kid, then you don't make relationship-specific investments with that firm pre-kid. If you expect that you can flip to a decent flex-time arrangement post-kid, you work much harder for the firm pre-kid. And while the "job for life" norm seems to be abating in Japan, I'd be surprised if it were less true there than elsewhere.

So, why isn't this happening? First explanation: work norms. Where everyone's expected to put in really long hours, and where a firm has a mix of 16-hr workers and 7.5-hr workers, there's really no choice but to sideline the 7.5-hr workers onto the slow-track. But surely that's somewhat question-begging: it seems pretty improbable that you get that more output from one worker on 16-hour days than from two workers each on 8-hour days (who are on the same hourly but different annual total pay). And even if the 16-hour worker is more productive than two 8-hour workers, you could then just pay the 8-hour worker proportionately less.

Next explanation: The Guardian says kids are unaffordable unless you're on two incomes, but it's impossible to be on two incomes. Tokyo's expensive, but it's not the world's least affordable place. Beijing, Rome, Mumbai, London and Paris all come out worse on this index. But, where that index is conditioned on disposable incomes, and where salaries are based on crazy-long hours, then affordability could be a serious issue for those wanting to move to sane work hours. Maybe this part starts sorting itself out as homeowners die off faster than houses depreciate. Housing prices then fall rapidly as supply starts exceeding the number of people.

I can imagine a story where tight space constraints in Tokyo combined with pretty strong work norms have folks bidding up housing prices until it's pretty tough to afford a spot big enough for a family without two incomes with long work hours. But that story then conflicts with survey data that has money and housing as trivial reasons for not marrying; the Post story reports instead that "Do not feel the necessity" and "Do not want to lose freedom or comfort" were the main reasons given by both sexes for not marrying. And wanting to enjoy hobbies or entertainment was a slightly more commonly given reason for not marrying than wanting to concentrate on work or studies.

Maybe we need a Japanese translation of Bryan Caplan's book on low-effort parenting. The integral under the kid marginal-benefit curve is a lot bigger if you figure out ways of continuing to enjoy freedom and comfort.

Update: Brennan MacDonald points out that visas for domestic guest workers are much more difficult in Japan than in Singapore; if it's much harder to get a nanny, then that too helps explain female labour supply differences.

* Daycare availability seems a serious problem.

Wednesday 23 October 2013


Finance Minister Bill English has noted that, since the top marginal tax rate on high income earners dropped to 33 percent, the proportion of total income taxes paid by top-earners has increased. Kiwiblog and The NBR have pointed to this as evidence of increased progressivity by those socialist National Party folks; some on Twitter have argued that English was disingenuous because he ignored the rise in the GST that accompanied the drop in income tax.

Recall that when National proposed reducing all income tax rates and increasing the GST, they were attacked on two fronts. They weren't just critiqued for increasing reliance on the GST, which hits the poor more than a progressive income tax.* They were specifically critiqued for the drop in the top marginal tax rate. "Tax cuts for the rich." Let's look back to the history.

Here's NZ Herald's Audrey Young:
Prime Minister John Key yesterday defended bigger tax cuts for the wealthy, arguing that they already paid a big portion of tax.
Here's a Labour press release:
“The tax cuts are unfair; a third goes to the top five percent and fifteen percent goes to the top one percent. People in the middle and bottom will go backwards after inflation.
 “The upper income tax cuts are unaffordable.
 Here's Gordon Campbell:
As No Right Turn has calculated, the top 2% of earners will get 11.5% of the total income tax bounty, and that happens to be roughly the same amount as the government has had to borrow to finance the entire package. Literally, New Zealand is borrowing to provide tax cuts for its most wealthy citizens
I could go find more, but what's the point? Anybody who was paying attention knows that English and Key were critiqued not only for switching from income to consumption taxation but also for the substantial cut in the top marginal tax rate for folks on higher incomes. They saw it as a big giveaway to National's rich mates and reckoned it meant that the rich were paying much less income tax.

So it is hardly a swindle or disingenuous or dishonest for Bill English to point out that the richest tier of taxpayers are now, because of changes in the income tax system, paying a larger portion of aggregate income taxes.** While it is definitely true that the total tax burden matters far more than the income tax burden, where National previously was attacked specifically on the income tax part, it is eminently fair for them to point out that the fraction of net income taxes paid by rich households has gone up rather than down.

If I wanted to attack English's press release, here's where I'd instead be going.

  1. We should be looking at a longer time series on proportion of income tax paid by top-earning individuals and top-earning households rather than just the comparison of pre-change and current figures. Top earners in the US took a much larger income hit from the financial crisis than did lower-income folks because a much larger part of their compensation bundle is tied to firm performance. They also then rebounded much more strongly post-crisis. You could easily get a big increase in the proportion of income tax paid by the wealthy in the current period as compared to the immediate post-crisis period simply via this effect. The base year then should have been set somewhere pre-crisis.
  2. English, throughout, talks about the proportion of income taxes paid by high-earners. He doesn't say how much total income tax was paid by high-earners. It's possible that total income taxes dropped as part of the tax switch by enough that it's simultaneously true that high income earners pay more of it proportionately but pay less in income tax in an absolute sense. I do not know if this is true. It seems pretty unlikely, but it's possible. However, recall that progressivity isn't defined by how much a tax system hurts the rich, it's defined by the proportion of total taxes paid across different income cohorts. 
  3. It would be better to accompany all of this with both the total tax paid by income decile across all forms of taxation, and with income-linked benefits including WFF. Gross and net tax both matter. A bar chart, by decile, with income, tax paid (all sources), and transfers received, would likely be best.
    1. Further, it isn't immediately obvious why cash benefits like WFF count while in-kind benefits don't. Like tertiary education subsidies. 
  4. The real scandal, to my mind, is the very high effective marginal tax rates faced even by those on zero net tax. The combination of abatement rates across some plausible combinations of benefits wind up resulting in effective marginal tax rates that utterly disincentivise work while resulting in no net tax paid - the worst of both worlds. Having a lot of households paying no tax at all can be fine if it's because you have a reasonable minimum earnings threshold or because you're running a clean negative income tax. But achieving it by taxing any earned income at close to 100% while handing over a benefit cheque isn't exactly something to be proud of.

Bottom line: I'm not sure that English has entirely proved his case against the critics of the 2010 tax cut, but I don't think he's wrong to put up evidence against that critique either.

* THIS DOES NOT MEAN THAT GST IS REGRESSIVE. GST is a flat tax; income tax is progressive. Net effects remain ambiguous.

** I haven't checked his numbers, but can't imagine that Treasury would have this wrong.

Are wickets more likely on hat-trick balls?

A student of mine has emailed me asking if I know anything about whether in cricket a wicket is more or less likely on a hat-trick ball then on any other ball. (Note for Eric and others similarly challenged in the finer nuances of cricket, a hat-trick occurs when a bowler takes a wicket with each of three consecutive deliveries. Note for followers of other sports: this is the original use of the term "hat-trick" in sport.)  The student and his flatmate have surmised that taking a wicket on a hat-trick ball is more likely than on any other randomly chosen ball. I don’t know what the data say on this, but I think the students are almost certainly right, mostly for statistical reasons. It is fun to think about how to formalise the hypothesis, and then how to test the effect of different forces. Maybe it could be a future Honours project to take this theory to the data.

Take a set of games in a particular format (say test cricket), and find the total number of deliveries and the fraction of those that resulted in the bowler being credited with a wicket. Then find the total number of deliveries in all those matches where, if the bowler had taken a wicket he would have achieved a hat-trick, and find the fraction of those deliveries where a wicket was in fact taken. Our guess is that this latter fraction will be higher than the general fraction of deliveries with wickets, and that that difference would be statistically significant. I am fairly confident about this purely because of sample selection:
  • Pitches vary considerably across matches; if a bowler has already taken two wickets in two balls, it is likely that the pitch for that game (and that point in the game) is an easier one for taking wickets than the average.
  • Bowlers (and their supporting fielders) vary in ability; if a bowler has already taken two wickets in two balls it is likely that he is a better bowler (with better supporting fielders) than the average.
  • Batsmen vary in ability and batter ability is both correlated within the batting order and correlated within teams; if a bowler has taken two wickets in two balls it is likely that the batting team has below average quality batsmen and that it is one of the weaker batsmen in the team who is facing the hat-trick ball.
  • Statistically (I can confirm this from test-cricket data), batsmen are more at risk at being dismissed early in their innings than later on; there is a high likelihood that the batsmen facing the hat-trick ball is facing his first ball of the innings.

So let’s control for these sample selection issues and consider instead a conditional probability question: Given the ability of the bowler and fielders, the batsman, how early it is in the batsman’s innings and the state of the pitch, does being on a hat-trick change the probability of a wicket? The question here becomes whether the unusual situation leads players to change their behaviour in some way. On the bowling side, the captain might set more aggressive wicket-taking fields on a hat-trick ball, but the bowler might try too hard and lose his rhythm. Similarly, the batsmen might be more conscious about not giving his wicket away, but at the same time the pressure of the situation might lead to his having leaden feet.

I would expect that the psychological effect would be greater on a batsman new to the crease than a bowler who has had a chance to find his rhythm. And in test cricket, I think that batsmen are always concentrating only on wicket preservation on the first ball they face. So If I had to guess, I would say that in test cricket the net result would still be that wickets are more likely on balls where the bowler is on a hat-trick, but the effect would be very small (and probably not discernible with statistical significance in the data). In limited overs cricket, I would expect the effect to be much smaller or even zero.

Now, if only I had ball-by-ball data for the entire history of test cricket! 

Construction costs

The government's been worried about construction costs in New Zealand. The Productivity Commission suggested that our bespoke housing markets, caused largely by zoning regulations that restrict larger-scale new developments, help to inflate costs. But building materials also remain strangely expensive.

The NBR reports that the Government intends on coordinating its building material purchasing to reduce costs:
The government, which traditionally accounts for about 27 percent of the construction market, wants to expand the procurement programme to cover building materials as its spending ramps up.

"Since 2007, there has been an upward price trend on a variety of building materials despite reduced demand associated with the global financial crisis," the ministry said. "Our current forecasts indicate that increases in prices arising from renewed international demand, exchange rate movement, a reduction in raw material availability and rising transport costs will maintain or increase this trend.

"Given both the scale and potential increases in agency spend, government is keen to ensure that it takes a more collaborative, coordinated and strategic approach as to how it procures and pays for building materials," the ministry said.
Donal Curtin pointed to some less-than-helpful government action that helps increase construction costs. New Zealand initiated anti-dumping action against Chinese wire nails, Malaysian galvanised wire, and Thai plasterboard, among other things. And so we have a specific tariff helping to keep prices up for plasterboard. While we're trying to rebuild after an earthquake.

So one part of central government is all mad about excessive construction costs. Another part of central government penalises foreigners for selling us construction materials cheaply. Meanwhile, local government does its best to restrict the supply of land to keep property values up.