Friday 12 September 2014

Strategic voting on the right

So the latest chatter on the NZ right is that strategic voting for the Conservatives is a great idea. I'm going to disagree.

Under New Zealand's MMP system, a party enters Parliament on earning one electorate seat, or 5% of the Party Vote. In the former case, the MP enters Parliament with however many additional MPs the Party would be entitled to if there were no threshold in the Party vote: 2% of the vote gets 2% of the seats, if you have an electorate. If you don't have an electorate seat, and you get 4% of the vote, those votes are wasted: the composition of Parliament is determined by the Party Votes of those voters supporting parties that enter Parliament.

And so what do you do if you're on the right, if you want a National-led government, and if you're worried that National will lose if the 4% (or thereabouts) gained by the Conservatives is wasted? You could be tempted to vote Conservative to help push them over the line so they go into coalition with National. National then isn't forced to look to Winston Peters and New Zealand First for support.

I think this reflects short-term thinking. Winston Peters is near retirement. After he has retired, it seems pretty unlikely that New Zealand First will continue. The Peters personality cult will end. And, for a single retirement term, Peters' price may more likely be in approbation than in real policy.

If the Conservatives enter Parliament this term on a strategic vote, we might expect them to be around for a couple decades. They're socially conservative and, thus far, fiscally incoherent. Maybe they'll increase alcohol excise four times over, maybe they won't. They propose tax cuts but no spending cuts; Christine Rankin said they'd square the circle by turning a billion in alcohol excise revenue into four billion.

I wonder whether alcohol taxes could really go up by enough to make that happen: we start getting into tax territory where I'd be real nervous about applying current point estimates of the price elasticity of alcohol demand. The usual point estimate is -0.44: a 100% increase in the price of alcohol would result in a 44% decrease in consumption. A 133% increase in excise means about a 40% increase in the cost of low-priced beer and a 103% increase in the price of low-cost spirits in New Zealand. A 133% excise hike reduces consumption of low-priced beer by about 17%, so you get a 110% increase in revenue for the 133% increase in tax on beer, assuming no substitution over to home brewing and distillation. I'd expect things get more price elastic as you keep hiking things further (the income effect has to start biting sometime). I doubt you're into backward-bending territory with a 400% revenue increase, but taxes are going to do far more than quadruple to get quadruple the revenue. I really don't like where that's heading.

It's that kind of populist socially-conservative nanny-state knee-jerk economic incoherence that I expect a lot more of if the Conservatives get embedded into the system. Hey, let's propose a fiscally incoherent platform and then wave a referendum wand to find out how to plug the hole!

Is getting a third National term without NZ First really worth getting the Conservatives into Parliament? I suppose it depends on your discount rate. I don't like the long game on this one. I'm sure National could work with the Conservatives and make something decent out of it, but it doesn't seem a particularly good strategic vote for social moderates or liberals on the economic right who care about policy rather than just about keeping John Key in office.

Maybe Paris is worth a mass, but is Key really worth a Craig? I'd really really really prefer that National go into coalition with either NZ First or the Greens, or even a grand coalition with Labour.

Conflicts disclosure: I'm modestly short on the Conservatives' crossing the 5% threshold at iPredict, but long on National winning.

Update: Conservative leader Colin Craig has clarified the party's position: they want to hike alcohol taxes, but not to $4 billion. He also notes that our excise system "is nowhere near consistent with Australia's." He should note that the Australian system is nuts. The anti-alcohol campaigners rightly point out that the WET is distortionary and messes up relative alcohol prices. He also notes that alcohol is cheaper than water. When the kitchen faucet at my house starts supplying Emerson's at no charge, we can have a talk about that.


  1. Interesting in light of Fukuyama's recent claim that you can't have democracy without an effective state first. Thsi sort of bypasses the need for an effective state. Notice the politicians worrying about missing out on taxes. Other thoughts: 1. special economic zones don't seem to have disadvantaged the Dubliners or Shenzeners. 2. some polluting industries pay really well 3. it won't address the mining issue, which is not portable but does pay well 4. it's good to have polluting but profitable industries concentrated in a small space and indeed Taiwan and Japan are examples of how some separation is needed to balance prosperity with nature 5. there may be industrial linkage or cluster benefits to having some RMA-free industries in-country near main centres; there are lots of practical problems with outsourcing manufacturing to China.

  2. I won't be voting for either. But NZ First isn't "socially conservative"?

  3. I prefer NZ First to Conservatives not because they're better on policy but rather because I don't expect them to be around after 2017.

  4. Firstly, I love these too. For heaps of reasons. But isn't the rationale generally the same as for federalism? Devolve powers to semi autonomous regions to permit competition by comparison and policy experimentation within a broad political federation? I think the long term equilibrium is to return from federalism to centralised decision making. These charter cities and seasteads seem like a sensible policy response to that centralisation.

    My second thought is that states effectively act as a cartel in many ways (why bother competing with a neighbour when you can sign a treaty where both states agree to higher taxes?). These can provide a competitive alternative, provided that they get the right powers and choose to compete rather than collude.

  5. A Key Govt reliant on Colin Craig could rekindle a lot of the culture war issues as seen in America.

    NZ First and the CCCP (as I like to call them) are both socially conservative, but for different reasons. Bryce Edwards sums it up best: NZF has a populist red-blooded bloke image, whereas CCCP is more the spiritual successor to the Christian Heritage Party.

  6. Hey Eric,

    I think you've got it wrong on the Colin Craig analysis. Assuming your preferred result is a stable, free market, socially liberal government, I still the the smartest vote is for the Conservatives.

    I agree with your assumption that Colin Craig is going to be around much longer than NZ First ever would. If Craig gets elected he could easily be around for twenty or thirty years. IMO, he has come a long way as a politician and has benefited from pretty heavy media training, in his recent interviews he comes across and very composed and reasonable. He's also toned down his hardline rhetoric.

    The advantage of Craig being elected as it provides the right with a long term base of socially conservative voters and a way to appeal to a sector of society that National has struggled with. (Think Pacific Islanders, Evangelic Christians) These people don't traditionally vote National, often they vote for parties that don't even cross the threshold.

    I don't accept having the Conservatives supporting a National government will lead to a wave of socially conservative reform or fiscal madness. Firstly, social issues (abortion, gay marriage and drinking age) are conducted as conscience votes. The Parliament as a whole is pretty socially liberal, and increasingly more so. Secondly, as a minor (coalition) partner they'll never get anywhere near the purse strings. They could easily pass some watered down binding referendum legislation and as a minor party they're not expected to keep their promises anyway.

    I also think Key will be savvy when it comes to forming a new government. Like in the past, he won't form any firm coalitions. He'll rely on a number of flexible arrangements with Act, Peter Dunne, Maori Party, and NZ 1st. He could essentially use different parties to pass different legislation, whilst relying on the Maori Party, Act, Peter Dunne and the Conservative for confidence and supply. He would probably only need to appoint Dunne and Te Ururoa as ministers, the others would support Key regardless.

    So despite being a died in the wool classical liberal, I'm voting for Colin Craig this election, it's the surest way to ensure stable center-right government and keep David Cunliffe away from the 9th floor!

  7. So the social liberals are voting theocrat this time round rather than ACT so that the theocratic vote won't be wasted.

    And ACT could again consequently be stuck in the worst of all possible worlds: too much support to die and rebuild, too little support to have more than a single Epsom MP.

  8. Basically. I've given up on hoping for a free market nirvana.

    Act is dead a parrot. They may rebuild when National eventually goes back into opposition.

  9. social moderates or liberals on the economic right

    But Craig isn't trying to appeal to social moderates or liberals on the economic right. The party is called "The Conservatives" - Craigs's trying to appeal to economic centrists* or leftists* who are on the right for social policy.

    ACT is trying to appeal to social liberals on the economic right*. The interesting question for the next election is, if the Conservatives make it into Parliament, how much ACT keeps its right-wing social policies (three strikes, etc) rather than focusing onto its core value of laissez-faire economic and social policies.

    *why the asterisks? Because even ACT is now apparently pledged to retain every cent of National's spending on welfare, health and education, which is the most generous in the country's history. So if you're any kind of economically right-wing voter, let alone a Ruthansasia enthusiast or even a Rogernome or Thatcherite (and remember, unlike Ruth, neither Douglas nor Thatcher actually cut welfare) then there is no party to vote for at this election.

  10. They could rebuild from either zero MPs or many MPs. Hard to rebuild from 1 in Epsom methinks.

  11. They would struggle to rebuild from zero. They would lose a large amount of funding and staff without Parliamentary representation.