Friday, 31 October 2014


The NBR last week featured New Zealand's economic research outfits. We're a pretty diverse group. The New Zealand Initiative conforms most closely to the classic think-tank model, albeit one funded by member subscriptions, while others, both for-profit and not-for-profit, do a mix of commissioned work and a bit of public interest work. The NBR's Jaime Ball writes:
If the idiom is true that “he who pays the piper calls the tune,” could it be that most economic research institutes in New Zealand are leading the rest of us on a merry dance?
The lion’s share of research stems from work commissioned, or paid for, by such persuasive pipers: the public and private sector client.
His description of the different players seemed about right, though he mostly lets the different organisations tell their own stories.

Oliver punted Jaime over to me on the question of whether there are problems in commissioned numbers in New Zealand public policy debate. I pointed him to the examples of the old PWC report on adult and continuing education, where they got a big number on the social benefits of adult and continuing education by assuming that taking a night course in cooking halves your risk of committing any crime. I also pointed to BERL's work on the social cost of alcohol.

Ball's article today hit that topic.
“I’ve seen a few really shonky kind of studies,” New Zealand Institute Initiative’s head of research Dr Eric Crampton says of his 11 years in New Zealand. [EC's edit]
“I think the main problem that we have is in defining who the ultimate consumer of these numbers is.
“So the commissioning agency in some case might not want to know the real number. They might just want to have a number that can show up on the headlines for a few days and put it into the public debate around the time some policy is being decided upon.”
Dr Crampton says this country has got a problem in that it has fairly thin markets.
“There isn’t that many people who will go in and take a look at how these things are constructed and offer a critique of them. We also have a problem where in small markets people can be a little bit reluctant to critique other people’s numbers, because there would be turnabout.”
The article's headline, "When Research Goes Wrong: Handbags Fly Five Years Later" doesn't give quite the right impression. I was asked about whether there are problems with commissioned figures; I pointed to some, and not just BERL's. All fun though.

Nana rehashed his standard defense of the report.

Thursday, 30 October 2014

Ladies and Gentlemen, the Party of evidence-based science.

The Greens like to claim the mantle of evidence-based science, and especially around climate change.

I knew that they veered away from science on GMOs and instead into the fearmongering realms, and tried to square things with handwaving about the science not being settled and that mandatory consumer labelling was all about consumer choice, but it was always a bit nonsensical. I think some of the anti-fluoridation movement came from there too.

Green MP Steffan Browning's endorsement of homeopathy for Ebola in Africa was more than a bit over the top though. I'd last night seen a webpage advocating homeopathy for Ebola - pretty terrible. The last thing that anybody should want are idiots going around pandemic zones, claiming to be doctors and looking like doctors, but advocating absolute nonsense. There are massive potential reputational externality problems here in which people stop listening to real doctors because they can't tell the difference. Well, that plus the people they'd kill directly.

Matt Nolan keeps wishing for a sane version of the Green Party. One that ditched this kind of garbage and focused on market-based or market-friendly solutions to environmental problems, like carbon pricing, water allocation markets for irrigation, effluent pricing or permitting, congestion charging and the like, without the other baggage.

How insane do the crazy parts of the Green Party have to be before it finally splits or before rational environmentalists start their own party? It's basically the old Alliance Party currently: the amalgam of environmentalists, including a few rational folks, and social justice / conspiracy theory / anti-corporate naturopathic oddballs.

Maybe we need to start with a public information campaign on homeopathic voting. The smaller the mark you put on the ballot, the more powerful it really is. In fact, if you can't even see the mark with the naked eye, it counts for like 50 votes. The vote counting machine knows the strength of your vote by its dilution. Very very lightly bring the marker close to the voting paper, but don't touch it. The memory of the marker ink will be in the circle.

Update: I note that others in the Greens have now clarified that they do not support homeopathy as it is not evidence-based. Good news.

Tuesday, 28 October 2014

Afternoon roundup

Stories hitting today's mark:
  • Can't it be both? NZTA shut down a website offering $20 sober driver services via Facebook. Apparently it's cool to catch a ride with anybody you meet at the bar, but if you want to charge $20 for it, it's illegal because safety. Anyway, taxi driver David Buckingham comments "People thought [closing the page] was anti-competition. The reality is that actually it's pro-safety.". Sounds like the great "More taste" vs "less filling" debates of the 1980s. It's definitely anti-competitive. And maybe it's pro-safety, if people catch a ride in a cab as alternative. If they drive home drunk or catch a ride with a random stranger they met at the pub, perhaps less so. The "More taste" part of the older debate was always pretty dubious too.

  • James Moore points to one part of Christchurch's continued insanity: the SimCity precincts
    Last month's revelation that the Government - which appears to have taken over the project from the Christchurch City Council for reasons unexplained - is lobbying cinema operators for an on-site art- house cinema appeared to reveal a mood of increasing desperation and unreality.
    Not only would such a development place pressure on what is a confined site, it fails to recognise that when the neighbouring Isaac Theatre Royal reopens next month, it will contain state of the art cinema facilities.
    Two film theatres within yards of each other? Oh please.
    With no firm indications about The Court Theatre's possible return to the precinct and criticisms about the proposed rentals in the music building, the performing arts precinct in its existing form is flopping around the stage like an ageing ballerina attempting a final performance of The Dying Swan.
    Indeed. If investors want to run a second cinema near an existing one, I'd be the last person to complain. But where the government's lobbying them to do it... I'm glad I left. Too much of Christchurch is still the Inside of the Asylum. 

  • The University of Canterbury continues to be gifted wonderful headlines about on-campus racism. There really isn't anything new in the story but for this excellent photo of James Graham from 2007, which I'm sure somebody somewhere will somehow find offensive.

Finding my religion

I've just had a religious epiphany. It happened over the weekend, after reading Rodney Hide's excellent NBR column.* I spent the weekend thinking about it. I've come to realise the following:

  • Neckties are religiously offensive, or at least are offensive for me to wear. They represent the time my people were in bondage and had to wear neck chains. I'm sure I have ancestry somewhere who were at some point enslaved; it harms the spirit of those ancestors that I wear a tie.
  • The Power of Evolutionary Biology Compels Us. Things are enjoyable, or comfortable, because they are fundamentally in keeping with that which nature and evolution have prepared us for. Foods are tasty because 30,000 generations on the Pleistocene savannah can't be wrong. That which is unenjoyable, or uncomfortable, violates the spirit of the evolutionary process that made us human. Consequently, I cannot wear a suit jacket, long-sleeved shirt, or long pants, in the summertime. They are perfectly comfortable in the winter. But when it is warmer than 20 degrees, it is religiously offensive to wear clothing more constraining than shorts and a loose-fitting short-sleeved shirt. They can be business-appropriate shorts and shirt, but they must be shorts and a short-sleeved shirt.
  • Art and music are an important part of what make us human; read Denis Dutton. Sufficient at-work bandwidth to allow streaming of Spotify, and accommodation of my religiously required Edifier speakers, is also important.
  • I am still pondering to what extent my religious beliefs require accommodation of flexible work hours. They took naps in the Pleistocene, right?
I'm sure that Oliver will have no problem in accommodating my newly discovered, but earnestly held, religious beliefs. 

Update: Simpsons Did It. (I actually cited the Feast of Maximum Occupancy in this morning's meeting as one of the days off I'll now be requiring.)

* The article is gated. Hide details the case of a satellite TV installation company where an employee, who signed a contract to work on Saturdays installing satellite dishes, joined the Seventh Day Adventists and declined to work on Saturdays. The court awarded him lost wages and sent the managers who fired him to human rights training. I'd normally say this kind of thing jeopardises our "Outside of the Asylum" status, but if it lets me wear shorts in summertime....

Monday, 27 October 2014

Tax on Tax

I'm not a fan of taxes, but GST should be levied on top of other taxes where those taxes are levied to cover service costs. Maybe it's a tax on a tax, but that's not self-evidently bad.

Suppose that there are some goods that could be provided by City Council, but aren't necessarily best provided by Council. For instance, mowing the lawn on the verge in front of your house. Pretty simple for you to do it yourself while you're mowing everything else, but there are also some efficiencies in just having the Council mower go over it. Some places provide verge-mowing; others leave it to homeowners. If you're a homeowner paying somebody to mow your verge, you pay GST on the service. If the Council mows the verges, you pay for it in your rates; there's GST levied on top of your rates. There's then no tax advantage to Council-provided services over privately provided services.

If instead there were no GST levied on rates, there would be a set of services currently best provided by the private sector that would flip into being Council-provided because of Council's tax advantage.

Petrol levies cover road maintenance and construction, at least in part; the service should be taxed. Excise levies are meant to defray some kind of external cost associated with consumption of excised goods; those costs should also be subject to GST. Sure, we're then heavily over-paying on tobacco, where tobacco excise is multiples of tobacco's cost to the Ministry of Health, but that's a problem with the excise rate, not with the GST. You also don't get the GST back on the amount by which you overpay for something at auction.

Friday, 24 October 2014

Things that make me want to get citizenship here...

I haven't yet gotten around to upgrading from Permanent Residence to Citizenship in New Zealand.

This kind of thing does make it tempting.

New Zealand still does not have an armed constabulary. The police, some of them, have a gun in the trunk of the car that they can get if they really need it. But otherwise they're unarmed.

That doesn't stop their agitating to be armed. The head of the police union, Greg O'Connor, keeps demanding it. The attack on the Canadian Parliament helped spark his union's latest demand that the police regularly be armed.

Here's the New Zealand Police Commissioner's response:
The Police Commissioner said calls from the Police Association to arm all officers are not backed up by evidence which shows assaults on staff are falling, along with crime.
Commissioner Mike Bush said arming the police would change the police's relationship with the public beyond repair.
He said it was incorrect to say that the Police Association was talking on behalf of all police staff.
Darned proud of that folks stand up to the likes of Greg O'Connor here, in the Outside of the Asylum.

Update: here's more complete comments from Police Commissioner Mike Bush.
But Mr Bush says officers already have firearms readily available to them if they need to use them, and arming the force would be "quite a different style" of policing.
"I'm sure the majority of New Zealanders don't want to change the relationship they have with the New Zealand police," he told Radio NZ.
"We're a very prevention-focused organisation. Yes, we need to respond when people need it and we believe we've given [officers] the tools, the equipment and the training to do absolutely that."
Mr Bush says assaults on police had declined in the past few years and the use of available firearms – the bushmaster, glock and Taser – accounted for about 5 percent of total use of "tactical options".

Thursday, 23 October 2014

The Status of the Status Quo, NIMBY edition

Can we ever change the status quo and know that we've not done harm?

I had an interesting Twitter exchange with David Seymour and Jim Rose the other night. I'd characterised Epsom as a millstone for any aspiring liberal party in New Zealand. Epsom voters, or at least enough of them, strongly oppose that any of their neighbours be allowed to build anything anywhere: no subdivision, no townhouses, no apartments. Seymour's maiden speech, which I otherwise generally liked, included this bit:
Our communities are leafy and our schools prestigious. If people want more Epsom the answer should be to create more Epsom. More good schools, more good suburbs.
But the opposition would cram more people into smaller denser dwellings, changing the character of our communities and putting intolerable pressure on burgeoning school zones.
I totally support building more suburbs. But you cannot build more Epsom where an essential part of it is location: close to amenities and downtown. The only way of having more Epsom is building more in Epsom.

Maybe some parts of Labour or the Greens would support approaches that would force densification by banning development on the outskirts of town, but simply allowing property owners to decide how to use their land isn't cramming more people in, or at least not beyond that which those residents would voluntarily choose. A neighbour down the road putting up a townhouse does not force you to cram more people into your house. And neither does an apartment two blocks over. And while there can be pressure then on local schools, the better response is to expand the schools. It's not like Epsom voters own or pay for the schools: schools are covered out of everybody's income taxes and GST, not just current Zone residents' taxes.

In the later Twitter chats, David re-emphasised that neighbours do have a property right in each other's land use, and that Coase could solve.
I agree with David that, because our consenting processes give many many people veto rights over others' developments, or at least the right to impose hassle and cost on anybody wishing to develop, there are de facto property rights in others' land use. That's one reason that it's important to find ways of paying off the losers to encourage that change can happen. But I'm very pessimistic that Coasean solutions can obtain where the starting point is that just about anyone can deem themselves to be an affected party and object to a change in land use.

Coase makes the important point that externalities are two-sided and that the efficient solution can obtain where parties can negotiate: whether I have the right to subdivide, or my neighbour has the right to block me, we'll get to the efficient solution either way so long as property rights are clear and we can bargain reasonably. If my subdivision annoys my neighbour more than it benefits me, then either he'll block my subdivision attempt if he has the right to do so, or he'll pay me to not subdivide if he doesn't.

These Coasean solutions are limited by the extent of transaction costs. When transactions costs are high, the allocation of default rights matters. Suppose that my subdivision is worth $1000 to me and annoys each of 10 neighbours by $150. If my neighbours cannot easily get together to pay me to not subdivide, then I subdivide if I have the right to subdivide, and I don't if they have the right to block me. Default rights then matter. Conversely, if my subdivision is worth $2000 to me and annoys each of my 10 neighbours by $150, they will block me, if they have the right to, unless I find some way of transferring at least $150 to each of them.

In the higher transaction cost case, we aim to set the property rights such that the nuisance is avoided at lowest cost. Is it simpler for affected neighbours to get together and negotiate a package to pay someone not to develop, or for the would-be developer to find all of the potentially affected neighbours and negotiate a package deal with them to let him develop?

If the number of affected neighbours is fixed rather than variable, then the solution on either side very likely involves option contracts or dominant assurance contracts. Consider the case listed above, where the development is worth $1000 to the developer and aggregate nuisance is $1500. In that case, if the developer has the right to develop, one affected neighbour could write the following contract:
I agree to pay $130 into a common pool to pay the guy down the road to put a covenant on his house against further subdivision, but only if each of the 10 affected neighbours, including me, signs onto the deal. If we don't all sign on, then the deal doesn't go ahead.
That's called an assurance contract. And if we worry about free-riding, we can use a dominant assurance contract: the most aggrieved neighbour (say a guy who experiences costs of $200 instead of $150) agrees to pay each of the others $5 to sign the assurance contract.  Everybody signs, then they buy the covenant restriction on the neighbour, and the inefficient development is stopped.

Flip is around now to have an efficient development but veto rights being held by the 10 neighbours. I would use an option contract in that case: go around to each of the 10 neighbours and offer them the following contract:
I will pay you $5, right now, if you promise not veto my subdivision. If I do subdivide, I will pay you an additional $160. If I do not wind up subdividing, you get to keep the $5 for having signed on.
Each neighbour is paid more than the cost of the development to him and gets a $5 signing bonus. Hooray! We get the efficient solution. There are transaction-cost reducing contractual forms.

Unfortunately, the mess is more intractable than that. We do not have a fixed pool of potential veto players. Any number of heritage advocacy groups could emerge to object, for instance, and they don't even have to be based in the local community. The emergence of veto players is then endogenous to the expected returns from objecting. In other words, if you expect that somebody might pay you off for not blocking, then you might just get people getting into the blocking business. We can also imagine endogenous entry into the subdividing business: if I just saw my neighbours pool together a pile of money to block the guy down the road from subdividing, I might start making noises about wanting to subdivide in order to extract similar payments, even if I had no interest in subdividing.

In that case, and if we follow a Coasean logic, we set the rights to minimise this kind of entry. Part of the solution is limiting the number of persons with legal standing to object, but that begs the question when the matter at hand is who should have the property rights. It is cheap and easy to object to things: entry into the objecting business is simple. Making credible threats of subdividing or putting up an apartment building are harder. You need to get a whole pile of planning documents together, get architectural plans for the new buildings, start the building consent process. It's far more expensive to get into the building-as-rent-extraction business than to get into the blocking-as-rent-extraction business. And so the default rights should lie with the property owner.

We also have the very serious problem, where entry is endogenous, of potential over-extraction. The assurance contract set-up, and especially the dominant assurance contract set-up, avoided that by getting ex ante agreement among the affected parties on the scale of the request. If you shift to individual one-by-one negotiated payments to each of the veto players, because more veto players can emerge endogenously, you risk that the sum of the extraction requests exceeds the value of the development project, even if the real costs of the project are less than the benefits: each party over-plays his hand and sinks the bargain.

I consequently argue that the Coasean logic points pretty strongly towards a right to develop rather than a right to block. I however agree with David that the status quo is otherwise. And so we then come to the status of the status quo.

When I argue against Canadian dairy subsidies, I suggest that we need to pay off the losers to make it happen. This isn't because I have inordinate sympathy for Canadian dairy farmers who have effectively stolen from Canadian children for decades: the value of their dairy permits is really the capitalised value of annual theft. It is because I recognise that you can't manage it unless you pay off the losers.

James Buchanan made a similar point in his classic The Status of the Status Quo.

Buchanan says the only norm is agreement; we can't use an efficiency norm. And the only way of getting agreement is to compensate the losers, turning Kaldor-Hicks moves into Pareto moves. In Buchanan's framework, the positive economist begins by identifying things that look inefficient, then moves into thinking about compensation frameworks that allow change to happen.

While economists may well look to compensation regimes for buying out Canadian dairy farmers, or owners of taxicab medallions, it would be rather perverse for economists, or classical liberal non-economists, to spend a lot of time decrying any attempt to liberalise agriculture, or taxicabs, or housing, because of the implicit assault on de facto property rights. If the justice system failed to prosecute theft under $1000 because of the transactions costs, then a technology change made it efficient to prosecute theft in the $500-$1000 range, we would not spend a lot of time bemoaning the de facto right that thieves held in theft under $1000. If thieves were sufficiently politically powerful that we had to pay them off to make the change, we could recommend that, but we'd hardly spend all the lead-up time working to strengthen the thieves' bargaining position in the later political negotiations.

Buchanan takes a principled epistemic position here:
The Pareto construction may, of course, be translated directly into the Wicksellian approach (Wicksell, 1896) already outlined by making agreement the only test for determining whether or not any proposed change is Pareto superior. There may be normative properties of the set of compensations that might be required to secure agreement on proposed efficiency-enhancing shifts in constraints – normative properties that the observing political economist might, in some personalized way, abhor.
Straightforward "taking," as opposed to compensation aimed to secure agreement, may seem preferred, and especially if the positions in the status quo seem to be "ill-gotten." Nonetheless, a too-early or too-eager intrusion of external and independent value norms into the discussion will serve only to reduce the usefulness of the whole Wicksell–Pareto construction, which, as noted, remains value free save for the minimal normative weight assigned to the individualistic presupposition.
In this kind of case, we'd have no change to anything in Epsom unless we have the agreement of everybody in Epsom and every other potential veto player. But I caution that there would be zero case for any other change in this kind of world either: there will always be parties so intractable that you cannot compensate them for allowing the existence of partnership schools, mining on land they don't own but care about, or subdivision on land they wrongly believe to be critical for agriculture. There are no Pareto improving moves where we allow psychic costs to count; heck, some would object just for lulz. We need Buchanan and Stubblebine's framework instead, where we count actual willingness to pay rather than imagined harm.

But while that seems that it would allow for no change to anything anywhere, he de-privileges the status quo where the status quo policy emerged not from unanimous consent but rather from the operation of a majority coalition: the majority giveth the regulatory rent, the majority taketh away.
Return again to the rent-control example. If the initial legislation establishing rent control is considered to have been an unwarranted ‘‘taking’’ of potential value from acknowledged owners of property, the maximal compensation that might be offered to beneficiaries may be much below that required to secure agreement.
For any of several reasons, there seems to be a strong likelihood that the parties on the separate sides of any potential agreement will differ, and perhaps substantially, in their relative evaluations of the control claim. The current recipient of the housing subsidy may treat the claim as if protected by an operative property rule, whereas the prospective beneficiaries of abolition may reckon optimistically on electoral success, in part because they do not accept the claims to be legitimate. Both sides of the prospective debate about legislative action to remove existing controls may find it advantageous to invest resources in rent seeking – the occupant, to protect the value of her claim, and the prospective beneficiary of removal, to secure the promised return. The political economy of conflict replaces the political economy of consensus.
And what of the case in which abolition of height and density restrictions in Epsom would increase the value of land in Epsom, but reduce the cost of dwellings (each on a smaller footprint), and so enrich the current owners and benefit new residents? While it's frustrating, I still think we have to pay them off at the margin: they perceive themselves as aggrieved, and they're powerful enough to block things.

David is doing exactly what he needs to be doing as Epsom MP: enhancing the bargaining position of his voters in the later negotiations, so that when their illegitimate restrictions on others' land use are removed, a bunch of very wealthy people will be compensated with even more money for a policy move that will very likely make them wealthier even absent the compensation. But it's voters like these, in Epsom, that make me despair for the existence of a liberal party based there. Hard to say where would be better though; if it were based in the Coromandel, maybe it would care most of all about Coromandel people's right to block mining on other people's land even if there are zero real effects on them, because of the character of the Coromandel, and because they have a starting right that allows them to block.

The lefties have one part very right when they suggest that RMA reform should start in Epsom: why should the status quo be especially privileged in privileged places? I can't see how anybody can credibly stand on a platform of "Development for thee, but not for me". The better starting point is individual property rights, default presumptions of a right to build or to develop, and restrictions placed where there is evidence of real and substantial negative externalities. It's liberal, and it's right, and it's what moves the country forward: not just on housing, but on development more broadly.

Can't please 'em all

Treasury took a bit of flack for its very sensible advice to the government on school breakfast programmes.

Treasury rightly noted that evidence for effects of these kinds of programmes on educational outcomes is very weak, that it's hard to even show that they increase the proportion of kids who report having had breakfast, and that money could be better spent.

The main NZ study on the topic concluded that school breakfast programmes had no effects on any outcome other than the child's self-reported satiety: how hungry they reported being when surveyed. The study also found substantial shifts from eating breakfast at home to eating breakfast at school. If you shift breakfast to an hour or so later in the morning when kids eat at school instead of earlier at home, you're going to affect how hungry the kid reports being when questioned before lunch. Treasury didn't note this part of the study's result in its briefing to the government, likely because you can't tell whether there was even really any effect there other than a timing effect. And so we got this:
No Right Turn said Treasury was cherry-picking by failing to report that schools with breakfast programmes reported reduced hunger among children surveyed later on. I suppose that could have been cherry picking if any of the debate around it at the time had been on "what policies reduce reported hunger when kids are asked sometime before lunch". Alternative policies could then have been encouraging kids to bring snacks to eat at 10:30. Most of the argument had been around that breakfast programmes would lift student achievement in low-decile schools. The Ni Mhurchu et al study suggested no great shakes on that front, and neither did a reasonable look at the remaining literature.

The overall review of the literature and options seemed pretty reasonable; organisations like Treasury will take flack whenever they make assessments where the evidence doesn't stack up for whatever policy option feels good. I suppose people don't go for jobs at Treasury to be loved, although the "living standards" policy framework does suggest that some there are aiming at a friendlier packaging.

Monday, 20 October 2014

What's wrong with caveat emptor?

This was the kind of thing I was worried about when the new food safety bill came in:
Tourists flock to her [Biddie Fraser-Davies] 4.4-hectare farm 20 minutes north of Masterton to enjoy a unique, gate-to-plate culinary and farming experience. Each of her cheeses bears the name of the jersey cow whose milk was used to make it.
But earlier this month a letter from a ministry food safety official told her she had until November 1 to get a $3680 risk management audit, or be forced to close.
That sum amounts to about a ninth of her annual turnover from a business that produces less than a tonne of cheese a year and earns her about $33,000.
Her problems began with an appearance on TV's Country Calendar in 2009, after which government food safety inspectors visited. She said they found her hygiene and equipment were faultless, but still told her she would be closed down unless she developed an approved risk management plan and swallowed a big rise in her compliance costs.
The regime, as I understand it, scales rigour to risk so that lower risk products have fairly small compliance costs. But high fixed costs on things like cheese risks killing off small producers.

Recall that, in 2012, then-Minister Kate Wilkinson said:
The cheese that's produced from three cows or three thousand cows is still expected to be safe. ... We want the Biddies [cheese-maker Biddy Fraser-Davies] of this world to keep producing fantastic cheeses, but we also want that cheese to be safe.
Why shouldn't Biddie Fraser-Davies be able to put a big sign up outside her shop saying that her cheese is produced without an approved risk management plan and that caveat emptor applies? Who's the we in Wilkinson's statement? If it's the people buying the cheese, they should be able to judge for themselves. If it's people who don't buy the cheese, why do they get a say?

I can understand worries about industry-reputation effects if there's botulism or something in one small producer's batch. But are those effects likely to be substantial where things are sold with an explicit caveat emptor sticker?

UPDATE: I had wrongly assumed that Biddie was being chased under the new Food Act. The Food Act, passed in the last Parliament, was meant to stop some of this nonsense for small-scale operators. But Donald, in comments, usefully notes that she's being chased under the old Food Act as the new 2014 Food Act doesn't come into force for some time yet. And so there is no particular inconsistency between the former Minister's having said she wanted Biddie to be able to continue making cheese under the new Act, and that she's currently being chased. It's a bit odd that none of the officials quoted pointed to the forthcoming changes that might ease things up for those in her situation.

Friday, 17 October 2014

Wellington bleg: good high schools for music

The staggered move of Offsetting Behaviour to Wellington will soon be completed. I will be following Eric to the capital having taken a position at the School of Government at Victoria University, starting in the new year.

When Eric was about to make his move, he blegged on real estate in Wellington. I shall free load off the intelligence that he gathered then, but now I have a different request: What are the good high schools for children with a strong interest in classical (orchestral) music? Considerations here are whether they have music options as a classroom subject that group together people who already know how to read music and have the rudiments of theory, and whether they have school ensembles (not necessarily an orchestra) of a reasonable standard. We have a preference for co-ed over single-sex and state over private, but are looking at all options. All suggestions welcome.

Thursday, 16 October 2014

Inequality narrative-buster

It's been pretty clear that income inequality in New Zealand has been stagnant for at least the last decade or two. It rose in the late 80s and early 90s, but nothing much has happened since then.

And whenever I point it out on Twitter, against assertions from others that income inequality is worsening, I get replies that the problem isn't income inequality but wealth inequality. I hadn't seen great data on wealth inequality, so I couldn't much comment. But we have some data on wealth growth and median wealth growth now from Credit Suisse. Everyone should read the report. Here are the important bits for the New Zealand debates.

First, New Zealand is far wealthier now than it was in 2000. Per-adult wealth is up by over 300% (a 100% increase is a doubling, a 200% increase is a tripling, a 300% increase is a quadrupling) over the period, when we evaluate wealth at current exchange rates: a high dollar means we are wealthier, no matter how much some groups want to make us poorer by devaluing the dollar. When we use constant exchange rates instead, wealth has more than doubled (the yellowish line).

Per-adult measures, which I interpret as meaning an average, can be a problem though: what if all of that is because of massive gains at the top? We need medians. Medians are below.

This is the one using current exchange rates rather than constant ones, so growth is overstated relative to constant exchange rates. Note that here the base year is 100, so our being nearly at 500 means a near quintupling of median wealth. Now it would be lower were we using constant dollars, but we can compare the current dollar mean rise with the current dollar median rise. If gains were accruing at the top, we'd see larger increases in means than in medians. If they were accruing at the bottom, we'd see bigger gains in medians than in means. And it looks rather like larger gains in medians. 

This is then confirmed when we get out to Table 1, which lists New Zealand as a "Medium wealth inequality" country, along with Australia, Canada, Finland, France, Greece, Ireland, Italy, the Netherlands, Portugal, Singapore, Spain and the UK. I note that Denmark, Norway and Sweden rank as having higher wealth inequality than New Zealand.

The report then discusses trends in wealth shares of the top decile, by country, from 2000 through 2014. Their data doesn't go back to the 80s and 90s, unfortunately. But over this period, New Zealand ranks as one of the countries experiencing a significant reduction in wealth inequality over the period. Their measure is the share of national wealth held by the top 10%. In 2000, the top 10% owned 62.3% of the wealth in New Zealand. This placed New Zealand as 19th out of 46: the top 10% had a smaller share of national wealth than was seen in the median country in the survey (19th lowest). 

In 2007, the top decile owned 61.2% of the wealth; wealth inequality dropped slightly from 2000 to 2007. In that year, New Zealand had the 22nd lowest wealth inequality - about the median. In 2014, the top 10% owned only 57% of the wealth in New Zealand: a substantial fall. In 2014, we had the 12th lowest wealth inequality. 

So, according to the Credit Suisse report:
  • Wealth inequality in New Zealand is lower than in most other countries in their survey;
  • Wealth inequality in New Zealand has been falling from 2000 through 2014, with the biggest drop concentrated in the period from 2007 to 2014;
  • Low wealth inequality isn't necessarily a great thing: while Australia, Belgium, and the Netherlands had less wealth inequality than did New Zealand in 2014, so too did Spain, Greece and Italy. 
Please update your narratives accordingly. 

Wednesday, 15 October 2014


Last year, Gosplan* wouldn't let the Copthorne Hotel rebuild because they couldn't decide whether or not the Arts precinct designation they imposed on the area was consistent with the existence of hotels.

And now, somehow, there's a problem in hotel room availability.

Delays in getting hotels re-opened could leave Christchurch facing a bed shortage when the Cricket World Cup opens in the city in February.

... New Zealand Hotel Council regional chairman Bruce Garrett said February was the busiest month of the year for hotels, with occupancy typically running at around 90 per cent, so there was little capacity to absorb the additional demand for beds created by the Cricket World Cup.

The number of hotels operating in the city was fewer than expected by this point in the city's recovery and accommodation was going to be at a premium.

"There's a number of projects on the go that will add another few hundred rooms but they are not going to be ready on time," Garrett said.

Visitors coming to Christchurch in February would probably have to stay in backpackers or motels rather than hotels if they had not yet booked a bed for the night, or fly in just for the day.
The number of hotels operating in the city is fewer than expected by this point in the recovery. There could be a few reasons for that. Dithering over the site for a convention centre and blocking hotels from rebuilding because of grand precinct visions might be near the top of the list.

* Central Christchurch Development Agency.

Monday, 13 October 2014

On offence

Philip Matthews at the Christchurch Press asked me for comment on the offence caused by some of the decorated cars at Canterbury's ENSOC RoUndie 500, and by Otago students uploading intimate photos of other students; the comments appeared in Saturday's Press. I don't believe that article is yet online, but here's what I told him.

It's important to draw distinctions between things that are in poor taste and cause offence, and actions that cause more substantial harm. There is a world of difference between uploading intimate photographs of people without their consent, which I understand to have happened on an Otago Facebook page, and dressing up like the old World Wrestling Federation's Iron Sheik, carrying a cardboard guitar, and calling yourself the Tali-Band. The former case can create really long term damage for the person whose pictures were uploaded. But it's a bit of a long bow to say that the latter one was castigating Muslims in general: there's a terrorist organisation called the Taliban, and the idea of a "Tali-Band" is at least somewhat funny.
I haven't seen all of the cars, so maybe I'm missing something important, but one of the ways that people deal with scary and dreadful things like terrorist organisations or Ebola is through humour. The MH-370 car was almost certainly in the "too soon" category, but I worry that we are a bit too quick to take offence to things, and that too broad of measures to stop anything that might cause offence increases the range of things that are considered offensive. It's a shame more people have not watched The Aristocrats, or even South Park. Maybe next year ENSOC should encourage that their teams mock Canadians instead. With our beady little eyes and flapping heads, we don't take much offense at such things and are usually just happy to be noticed. It even didn't bother me when student evaluations complained of my Canadian accent; you can't please everybody."
Sometimes, Caplan's hypersensitivity training can be appropriate.

The recommendation that ENSOC mock the Canadians was less motivated by South Park and more by this:

The YouTube embed will inevitably deprecate; just Google "Sick of the Swiss".

Friday, 10 October 2014

For sale in Christchurch: one excellent house near the beach

Our house in Christchurch is now for sale. While it's up for auction 1 November, sufficiently interesting offers prior to that would be entertained.

Here's the story of our house. And it could be your house.

When we moved to Christchurch in 2003, we wanted an apartment in town or by the beach. Not being able to find either, we rented a house in Bryndwyr. We wanted to buy a house in 2004 when the one-year lease was coming due; we hoped to go month-to-month while searching. Alas, the owners moved back from Dubai and so had only a month to search. So we rented again, this time in St. Albans. We hit the property market in earnest in the spring of 2005 (August), hoping to find a great place by the beach. And we did, so we bought it.

Before buying, we asked a friend in the Geology department at Canterbury where we should be buying if we were worried about earthquakes and tsunamis and if we wanted to be near the beach. She drew a little horseshoe on the map for us encompassing the spot where our house in South Brighton is. Because it's on about a 2 meter rise from street-level, it's that much higher above the water table, protecting against liquifaction and making it that much safer in any kind of tsunami event. It's also across the street from South Brighton elementary, and consequently that much farther from the water in the Estuary: this also reduces the risk from any tsunami.

While we were focusing our search on that location, we'd have bought this house just about anywhere, had it been elsewhere. The wood panelling and old wooden floors, well, we fell in love.

From 2005 through 2014, we loved the place. We still love it. One of the upstairs bedrooms became a nursery for Ira in 2008. Then the second upstairs bedroom stopped being my office and became Eleanor's room in 2010. The downstairs bedroom then served jointly as home office in the winter, and guest bedroom when my parents visited in the summers. Dad and I put the extra insulation into the attic; Dad put the boards down over the joists in the attic making an excellent huge storage space. He also put the coils up on the roof of the garage to help heat the pool. He built the self-contained sandbox in the back yard too, with lid that keeps the cats out before folding up into benches for use.

The house is great for entertaining. The kids can run off into the living room while the adults stay back in the kitchen and dining room. We've hosted huge dinner parties there, and especially around U.S. Thanksgiving, Guy Fawkes' Day, and Christmas, for our friends in the Economics Department, visitors, and transplanted North Americans.

In the summers, we'd get home from work around 5:30, then run off to the beach with the kids - a five minute walk from the door - with one of us staying back to cook dinner. Post-dinner romps through the dunes were also great.

We were paranoid when we bought; I doubt anybody else in town in 2005 consulted a geologist before buying. We also had a thorough building inspection. The place is great. And, the work paid off when the 2010 and 2011 earthquakes hit. Our property saw no liquifaction and no real land damage. The piles shifted a bit, the decorative brick chimney needed to come down, and there was cracking to the paint, but the house was entirely liveable while we waited until May 2014 for our opt-out repairs to begin.

The house has great indoor-outdoor flow for entertaining. We had a dozen people scheduled to come over for a pre-Christmas event on 23 December, 2011, when the large aftershocks hit. We swept up the broken glass, moved the dining table outside along with the chairs, and turned it into an outdoor dinner, serving from inside, with the double french doors wide open on a perfect, but shaky, summer's afternoon.

The quake taught us a lot too about our local community. In short, it's superb. You won't find better. Our neighbours are all excellent. We miss them; you'll appreciate them.

All of our repair work was done by our opt-out contractor, Character Homes. You are not getting some shoddy "Who knows which contractor Fletcher's picked" job here. We chose a contractor who specialises in old wooden character homes because we love our house and couldn't bear to see it fixed poorly. We booked in with them shortly after the February 2011 earthquakes, back when we all had such optimistic dreams of speedy EQC assessment and repairs. Repair work started May 2014 and finished in September. And so it's fresh and new for you, but with repairs set before we knew we were going to move to Wellington: we've done it as though we were doing it for ourselves.

And rather than use the AMI/Southern Response payout for the minor cracking to the driveway to replace the driveway, we put it all into making sure that every weatherboard was sound and every wall and windowframe was painted. The prior owner built that driveway to double the existing specs, or at least that's what he told us when we bought, with double the re-bar and far thicker cement pads. I couldn't imagine that any replacement, on insurance, would be as good as what's there, so we made the house as close to perfect as we could instead.

There's one remaining insurance claim - the lining on the pool twisted in the quakes; we've yet to see a Southern Response assessor on it. The claim will transfer, but the pool is perfectly fine to use. The twisting means that the lining will deteriorate more quickly than it otherwise would, but we've had two great summers of swimming since the quakes. Our four year old swims like a fish because of it, as does our six year old.

Real estate sites are always a bit dry. It's hard to get a sense of how a house *works* from a set of pictures. When we were buying in Wellington, where we've moved because I've taken a new job, I had no end of frustration in trying to understand what a house was *like* from a set of pictures. How does one room flow into the next? So I took this video as walk-through. It's far longer than is reasonable for somebody who just wants a quick feel for the place, but if you're weighing up whether the open home is worth your time and the auction worth your bidding, you should watch it. Eleanor, our four year old, provides the tour. The repair work wasn't quite done when I took the video back in August: there's a pile of curtains on the kitchen island that are now back up on the windows, and there's blue tape marking the spots that Character Homes still needed to tidy up. But you'll get a feel for the place.

I wish we could have brought the house with us to Wellington. Our loss is your gain; I hope you'll love the house as much as we have.

Here's Eleanor to take you through. Enjoy.

Thursday, 9 October 2014

Morning roundup

Short notes on the worthies from the open tabs, each of which would merit a full post in an unconstrained world.
  • If this high court ruling holds, expect no new policies to cover full replacement. Justice Whata ruled that Vero must cover the full costs associated with reinstating a Christchurch building, even where some of those costs are due to things like requiring deeper piles than were necessary when the policy was set. I think the insurer is right that it should not be liable for costs that are consequent to changes in Council rules; alternatively, Councils could give free money to each and every person in town by requiring that, post-quake, every house be made of gold and have platinum spouting. I also do not think that Councils should be changing the building requirements for a reasonable interval between an insured event and the completion of earthquake repairs. If the building code isn't good enough, fix it ahead of the event so that insurance pricing can incorporate a better measure of expected repair costs or so owners can insure to a higher value to allow for the higher costs.
  • Remember "Shoot, shovel and shut up"? Property owners have incentive to take defensive action before a costly regulation is put in place, even if that means destroying valuable habitat. I wonder if that's what's happening in this story. A church is bulldozing two houses to put up a parking lot; the street is about to be designated as a "special character area" in the Unitary Plan. Could be that they'd have held onto the houses if they'd reckoned they'd face much much higher costs if they wanted to demolish sometime down the line. I wonder whether other areas about to come under such protections are seeing similar precautionary demolitions.
  • There'd be a billion screaming anti-tobacco activists if tobacco sponsorship of an arts festival resulted in the cancellation of some anti-smoking play. Government anti-tobacco health funding of the West Australian Opera has resulted in the cancellation of Carmen because there would have been on-stage smoking; I've seen outcry from Catallaxy and Crikey. Nothing much otherwise. 
  • Addiction is something most addicts grow out of. I love this quote: 
    So why do so many people still see addiction as hopeless? One reason is a phenomenon known as “the clinician’s error,” which could also be known as the “journalist’s error” because it is so frequently replicated in reporting on drugs. That is, journalists and rehabs tend to see the extremes: Given the expensive and often harsh nature of treatment, if you can quit on your own you probably will. And it will be hard for journalists or treatment providers to find you.
    Similarly, if your only knowledge of alcohol came from working in an ER on Saturday nights, you might start thinking that prohibition is a good idea. All you would see are overdoses, DTs, or car crash, rape or assault victims. You wouldn’t be aware of the patients whose alcohol use wasn’t causing problems. And so, although the overwhelming majority of alcohol users drink responsibly, your “clinical” picture of what the drug does would be distorted by the source of your sample of drinkers.

    Bryan Caplan has similar thoughts

  • Political ignorance remains a major source of political failure. How can we get things right where voters fundamentally fail to understand the basics on the composition of federal spending?

No Safe Level

Loyal readers here know the data on drinking and pregnancy. Binge drinking in early pregnancy increases the risk of miscarriage. Light drinking during pregnancy carries basically no risk, but moderate to heavy drinking in pregnancy, and especially heavy drinking, can result in foetal alcohol syndrome. That's bad and should be avoided.

Pregnant women, for way too long, have been told that there's no safe level of drinking in pregnancy. For some, that's just increased anxiety and made pregnancy a worse experience than it's needed to be.

Others took the message to heart and, fearing that they'd done something horrible by having had too much to drink before knowing they were pregnant, have sought abortions.

The main risk of drinking too heavily in the very very early stages of pregnancy is miscarriage: spontaneous abortion. Because the anti-alcohol establishment has convinced women that any amount of drinking is going to result in foetal alcohol syndrome, some women are seeking abortions in order to avoid the risk of miscarriage.

Via James Nicholls, I find this piece at The Guardian:
The day before I discovered I was pregnant with my son, I’d shared nearly two bottles of red wine with a good friend. It was more than three glasses or six units; I’d thus been binge drinking.
As the faint blue line of the white stick deepened in intensity, my mind raced back. Visions of midweek drinks followed by longer weekend sessions filtered through, and I was mortified. Weeks had gone by where I was ignorant of my pregnancy. Had I caused the foetus irrevocable harm? Luckily for me, I had friends who’d been in exactly my position. My worries were assuaged. I was told it would be fine; rather than fretting, I should enjoy this new reality.
Such guilt and anxiety is increasingly causing some women to abandon pregnancy altogether, in an unintended consequence of the amplified policing of pregnant women’s bodies. Britain’s largest provider of abortion services, the British Pregnancy Advisory Service (BPAS), warns that binge-drinking scare stories, hyped up by the media, are causing heightened levels of fear. The organisation reports that it is “regularly seeing women so concerned they have harmed their baby before they knew they were pregnant, they consider ending what would otherwise be a wanted pregnancy”.

I'd characterised doctors' advice on drinking and pregnancy as being the noble lie: that they know it's a lie, but they're scared of encouraging risky heavy drinking in later pregnancy by saying light drinking's ok. The lie isn't noble. It is doing harm. Please stop.

Wednesday, 8 October 2014

Public health and market failures

I'm not particularly worried about any large-scale Ebola outbreaks in the developed world. It's easier in the developed world to run effective quarantine and to track down those who might have been exposed to an infected and contagious person.

That certainly doesn't mean Ebola isn't worth worrying about. The burden of Ebola in Africa looks likely to be huge. Even where the total number of deaths remains very low relative to other African diseases like malaria, Ebola has an incomparable potential to disrupt economic activity. I'd put even odds that economic disruption caused by completely understandable fear around Ebola will kill as many people as the disease itself. When taxicabs become ways of catching disease and hospitals terrifying, and when a worker with flu symptoms could well be somebody who'll kill all your staff if he comes in to work and touches people - it's really not good.

Pandemic protection is a strong public good. Any dollar's investment in pandemic protection protects everybody who could be at risk: it's non-rivalrous. Every dollar spend improving hospitals in Africa, training doctors, providing medical equipment, and developing emergency response protocols is a dollar that protects each and every person in Africa, and by extension the rest of the world where there's risk of pandemics' spreading (think Bangladesh, Pakistan and India, not Europe and America). We all benefit from it. There is then a strong case for government funding of pandemic prevention efforts. There's also a really good case for things like Kickstarter, or PledgeMe, running campaigns on it to also help out.

The World Health Organisation is the outfit that's supposed to have an eye on the ball on this stuff. Unfortunately, in my view, the WHO has gone astray. Or at astray from what it should have been.

In the public health world, the social welfare function is either minimising the number of deaths, minimising incidence of morbidity, or maximising the number of disability-adjusted life-years or quality-adjusted life years. In economics, it's maximising some weighted utility function. The two yield very different outcomes and are what drive my dissatisfaction with the WHO's prioritisation.

Suppose we have several kinds of initiatives that would increase DALYs and reduce the overall burden of sickness and disease. Some of these, like polio eradication, provide health benefits without any particularly large cost as viewed by the person receiving the polio vaccine.* Nobody enjoys having polio. Nobody would voluntarily seek to have polio. If polio ceased to exist, the world would be a better place. Others of these, like regulations on soda, tobacco, alcohol, fatty foods, and salt, can increase DALYs and reduce the overall burden of sickness and disease too, but they come at a cost in terms of private experienced consumption benefits: many people like soda, smoking, drinking, and eating tasty things.

In the public health world, if a dollar's worth of effort yields greater expected DALY benefits in dietary and lifestyle regulation than it does in pandemic avoidance, that dollar should go to dietary and lifestyle regulation. In the economics world, we start by looking for market failures and target funding where markets won't do well on their own. And when it comes to lifestyle regulation, we need a rather harder look at things than just DALYs where choosing agents might well prefer to consume unhealthy things, at DALY cost, in exchange for current consumption benefits.

If we had to rank-order things by a very rough guess as to where the market failures are worst, I'd rank them as follows:
  1. Pandemic readiness and response, especially in developing countries;
  2. Antibiotic resistance and superbug mutation;
  3. Development of new antibiotics;
  4. Contagious diseases affecting developing countries where there's no particular profit in pharmaceutical investment: malaria and a big pile of others;
  5. Other contagious disease investigation and response;
  6. Vaccination promotion;
  7. Poor information about risks of smoking, diet and alcohol in the third world
The first one is at the top of my list not on expected value terms but as insurance. Like global warming, bad pandemic outcomes have the potential - low probability but potential - to destroy civilisation. It's then worth making investments in those kinds of areas not just on expected value calculations but also on an insurance argument - like Weitzman's argument on global warming. I also think governments should be investing more in asteroid detection and response, on exactly the same kind of argument.  

Pandemic readiness provides a strong nonrivalrous benefit to everyone. Third world countries generally do not have anyone with a sufficient encompassing interest in their prevention to ensure that the job gets done, so other mechanisms are needed, whether multigovernmental investment through the WHO or philanthropic investment by individuals. Note that there are exceptions, when you have enough Foreign Direct Investment. 

Antibiotic resistance flows directly from the negative externality imposed when someone over-uses antibiotics or uses them improperly. Development of new antibiotics has little profit potential where they're sensibly restricted to very hard cases and where governments and insurers would refuse to pay the per-dose amount that would then be needed to cover development costs. Similarly, there is little expected profit in developing cures for diseases that mostly affect very poor people and where patent protection is unlikely to be enforced. In all of these cases, prizes seem the most obvious solution for new drug development, where the funds would be provided both by governments and by philanthropists. 

Other contagious diseases and vaccination are lower on the list. Every one of us has an interest in protecting our own health. But because others bear direct contagion costs of our personal underinvestment in efforts against contagious disease, we will have less vaccination than would be optimal and less control against contagious disease. Subsidising the development and deployment of vaccines is then worthwhile. I can even see reasonable arguments for making vaccination mandatory.

Down at the bottom of the list is information-provision on lifestyle issues. There are plausible market failures around people being poorly informed about the health and addiction risks of tobacco and alcohol, and about the health risks of unbalanced diets. But a lot of observed behaviour would simply drop out of expected low life expectancies in developing countries and lower incomes, both of which increase the expected willingness to bear risk in exchange either for income or for pleasure. People doing unhealthy things isn't itself necessarily evidence of irrationality, or bad information. 

So that's how at least this economist would rank things. But if we ranked them by "where does a $1 do the most to improve DALYs", we could get an entirely different outcome. It would be like an electrical engineer ranking metals by conductivity and then proposing that we use silver for our main electrical transmission lines. Sure, it's more conductive, but it also costs more. Conductivity isn't the best outcome measure. Neither are DALYs where some of the potential policies impose costs on consumers that are not measured or weighted or considered by the public health side. 

In the public health world, tobacco is one of the very most important things to be worried about because it ranks very highly in the DALY-reduction rankings. Tobacco is not contagious, does not have existential risk to civilisation, and in some but not all cases results from informed decisions to enjoy nicotine at the expense of health and life-expectancy. The external costs imposed by a smoker are very low relative to the external costs imposed by somebody with contagious disease. Similarly, eating a diet with too much salt mainly hurts the person choosing to eat the diet with too much salt. There could be some case for providing information to remedy any market failure based on people not knowing the full health costs of eating too much salt, but that's about it. 

There are very real and substantial market failures in public health that are underweighted where public health advocates take a DALY-based approach rather than starting with market failures. If we look at priorities by budgetary allocations, it's great to see the focus on polio eradication, and the other work on tuberculosis, malaria, and AIDS; the first two have strong market failure arguments justifying them. AIDS receives a lot of private funding in the developed world, but there are reasonable arguments for providing funding there in the developing world. But increasing funding allocations to lifestyle issues and to tobacco control? It's harder to find a market failure case there.

I'm not building a straw-man here. They take "minimise burden of disease" as objective function, where every potential health cost matters equally, with no weighing of offsetting consumption benefits that come from alcohol or salty foods as compared to Ebola.

It worries me that journalists cannot find an after-hours WHO spokesperson on Ebola when a Spanish nurse contracts it in a Spanish hospital, that WHO officials cite being overstretched as reason for their not being able to respond as effectively to a pandemic, and that the WHO is at the very same time putting resources into e-cigarette regulation. There are opportunity costs to spending $122 million on the line item including alcohol, tobacco, drugs, and unhealthy diets.

This isn't just a "get off my lawn and leave me alone" thing. It's "why are you spending a hundred million bucks protecting people against themselves when you're under-resourced for pandemics?!?" thing.

Shouldn't we first target the health priorities that stem from market failures and impose existential risk?

Update: I've had request for clarification of what market failure means. My encyclopaedia entry is here. Further discussion here.

* Or at least there wouldn't be costs to getting the polio vaccine if the CIA hadn't managed to convince everybody that vaccinations are spy mission.

Tuesday, 7 October 2014

Heathcote Heresthetics

Bill Riker defined heresthetics as political entrepreneurship. Alasdair Cassels is a Heathcote heresthetician.
Christchurch developer Alasdair Cassels will invest $400,000 to revitalise part of the Heathcote River.
The project would link his $20 million Tannery complex with the river, the existing Towpath walkway out to Ferrymead and would be an attraction for locals and tourists.
Cassels said plans would be lodged with the Christchurch City Council by the end of the month and the build would be complete within a year.
The development area was adjacent to the Cumnor Tce side of The Tannery. It would include an ornate Victorian footbridge, a wharf on The Tannery riverbank and a sculpture installation in the river.
"We're going to do this with our own money and resources," he said.
"All we need is council support with planning and input from key groups."
Cassels said the idea was to link the early settler and Maori history of the area by juxtaposing sculpture, approved by Ngai Tahu, and period architecture.

Recall that Cassels is the hero who rebuilt an old brick woolstore into an excellent craft brewpub and retail venue in the midst of the Canterbury earthquakes. But he also, in doing so, set up a coming-to-the-nuisance problem. The gelatine plant pre-dated his retail conversion. The stink of a damaged gelatine plant then flipped from being an annoyance when driving by Garlands road into something bothering a lot of his customers. And so he encouraged his customers to complain to ECan whenever the gelatine plant smelled bad. Since the plant was in regular breach of its consents because of smell, and because that was in part to earthquake damage, and because much of this involves coming-to-the-nuisance, it's a nice messy law and economics problem.

Cassels is not investing in cleaning up the Heathcote River that runs alongside both the gelatine plant and his development. More people walking on nice trails means more people who will complain to ECan, more pressure to enforce the consenting rules, and quite possibly the closure or relocation of the plant.

Were I teaching Public Choice this year, one of the take-home exam questions would have had the students read the few news articles on this and apply our standard theory to it. Tons of great stuff in there: private environmental amenity provision by someone with an encompassing interest in the area's enhancement, but also some really fun heresthetics around changing the balance in favour of greater regulatory pressure against the gelatine plant.

I'd be shorting the gelatine plant.

Bjornskov on fat taxes

Hoisted from yesterday's comments, here's Christian Bjørnskov on fat taxes in Denmark:
Denmark introduced a fat tax at the beginning of 2012 and abandoned it again a year later. Besides the problems that Eric outline, the fat tax turned out to be a bureaucratic nightmare. Firms had to somehow assessed the fat contents in whatever they produced, which turned out to be both cumbersome and very expensive. A producer of high-quality sausages in Southern Denmark had to reduce their product line because about half of their products were unprofitable with the transaction costs associated with documenting their fat contents.
The introduction of the fat tax came to be an example of a problem that is almost always ignored by politicians: that any public authority with little accountability to voters is likely to shift as many transaction costs unto the private sector and voters as possible. Furthermore, the media wrote about the decision of how to reach the 'correct' tax rate. It turned out to be calculated as what was needed to yield 4 billion kroner (about .9 billion NZD).
The compliance costs of a sugar tax would not be trivial.

Monday, 6 October 2014

Sugar tax

I was on the CBC's The 180 on Sunday, discussing sugar taxes, fat taxes and paternalism. The audio's at the CBC site.

While lots of people can point to expanding waistlines as something they find undesirable, just not liking how other people look isn't a sound basis for public policy.

To the extent that costs are borne by the public health system, it's not even obvious whether sugar-linked obesity increases or decreases overall health care costs: there's higher cost at every age, but earlier death. Which effect dominates really isn't clear.

Further, much of the effect is what economists call a transfer. Sure, there will be some effect on total consumption when the cost of the medical bill is externalised, but that's different from the costs of being unhealthy. Most of the costs of being unhealthy are borne by the person who's sick. Maybe you'll consume a bit less exercise and a bit more unhealthy stuff, at the margin, when your health insurance bill doesn't vary with your decisions, but you still have to live with the consequences. People would take less care when driving if their insurance premiums weren't affected by the number of speeding tickets they get, but they'd hardly start rolling their cars on purpose.

For the part of the effect that is due to changes in behaviour under a public health system, implementing a full tax-and-subsidy mechanism to make people behave as they would if they were under an insurance system winds up undoing much of the benefit of a public health system: it replicates insurance premiums, but at a higher administrative cost.

Finally, there's just something wrong with telling people not only that they have to be signed up for a compulsory insurance system that they might not want, but also that because they're signed up for it, they're going to be subject to a pile of taxes and subsidies and regulations to make sure that the overall system isn't too expensive.

And even if all of that could be swept aside, there isn't particularly good evidence that soda taxes even work. Instead, there's just substitution over to calories from non-soda drinks. A comprehensive, and very high, sugar tax would change behaviour. Tobacco taxes have reduced smoking considerably. But recall that, at least in New Zealand, you're paying $0.55 in tax per cigarette. If the average price of a pack of 20 cigarettes is about $17.20, then tax is 63% of the cost of a pack. A comprehensive tax on all sugars that resulted in a $0.50 increase in the cost of a can of Coke might also reduce sugar consumption. There's no particularly good reason for doing such a thing, or at least not one motivated in things other than your aesthetic preferences over how other people should behave, but that high a tax could have effects.

Paternalistic regulations on consumption are insulting. They're classist in application. When they're based on "costs through the public health system", they are unlimited in potential range. And when they're packaged up as "let's tax soda and subsidise healthy foods", you empower an army of rent-seekers to argue over the edge cases.

Opportunity costs: public health edition

The whole of the Washington Post feature on Ebola is worth reading. This part in particular caught my notice though.
In late July, with the epidemic roaring, Liu, the head of Doctors Without Borders (known internationally by its French name, Médecins Sans Frontières), requested a meeting with WHO Director-General Margaret Chan at the WHO's Geneva headquarters.
Chan, an expert on the SARS virus and avian influenza, has led the WHO since November 2006. Her organization has experienced budget cuts and shifting priorities in recent years. The WHO is responsible for coordinating global health emergencies, but the legislative body that oversees it has repeatedly voted to emphasize noncommunicable diseases such as heart disease and cancer rather than infectious diseases.
Liu, a French Canadian, is a pediatric emergency room doctor by training, and for much of the past two decades has worked for Doctors Without Borders in the most war-ravaged, disaster-stricken places on Earth.
On July 30, she implored Chan to declare an international health emergency. Chan responded that she was being very pessimistic, Liu said.
Liu replied: "Dr. Chan, I'm not being pessimistic. I'm being realistic."
Chan soon flew to West Africa to meet with the presidents of Guinea, Liberia and Sierra Leone, and announced a $100 million push to stop the outbreak.
The WHO's 2012-2013 Annual Report had $446m proposed base programme expenditures on communicable diseases, a 9% increase over 2008-2009. This was augmented by $679m on special programmes and collaborative arrangements, and $153m on outbreak and crisis response, for a total of $1.278b. AIDS, tuberculosis, and malaria, which counts as a separate objective, saw a 16% increase in base funding for a total allocation of $540m. Noncommunicable diseases saw a 27% increase in expenditure, and total funding of $114m, with an additional $122m (25% increase) on alcohol, tobacco, drugs, and unhealthy diets.

WHO expenditures on non-communicable diseases and on alcohol, tobacco, and unhealthy diets were a small part of the overall proposed 2012-2013 budget, but they were the fastest growing parts of the base programmes budget.

Download the Proposed Programme Budget 2014-2015, dated 19 April 2013. Do a word search. Ebola gets zero hits. Alcohol gets 17 mentions. Tobacco gets 10. Salt gets 2. Obesity gets 3. Pandemic at least gets 22, so that's encouraging.

If we look within Africa, they proposed spending $48 million on non-communicable diseases. The key KPIs included reductions in harmful alcohol use, reductions in current tobacco use, reduction in prevalence of insufficient physical activity, and so on.

They also proposed spending, in Africa, $8.4m on alert and response capacities, $4.8m on epidemic- and pandemic-prone diseases, $37.7m on emergency risk and crisis management, $39.3m on outbreak and crisis response, and $4.6m on food safety. Laudable polio eradication efforts took up another $408.2m.

Leaving polio aside, we had just under $95m on traditional public health areas like pandemic preparation, avoidance, and response, and $48m on non-communicable diseases.

As the burden of communicable diseases, the traditional public health focus, has lessened in first world countries, public health agencies have been shifting over to non-communicable diseases. Some of this is perfectly laudable: who wouldn't want a cure for cancer, even if you can't catch cancer like you can catch a cold? But if the opportunity cost of public health expenditures that focus on lifestyle issues like unhealthy diets, drinking and smoking is less attention to vaccination in first-world countries and epidemic preparation in the developing world, I wonder about priority-setting.

Saturday, 4 October 2014

Solutions that only occur to economists?

Every now and then I see tweets like this one.
It's inevitable that keypads will wear, dramatically reducing the number of options over which an intruder need search in a brute-force attack.

So why not design for it at the outset? Make and sell pads that have four or five of the keys pre-worn. If other keys wear down over time, it would be much harder to tell which are newly worn, and which were always like that. And an intruder could never really be sure whether the pad had pre-worn keys unless he'd been watching the door since it was installed.

Seems pretty obvious as solution. So why don't we have it?
  1. Systematic underestimation of keypad tendency to do this?
    • But then wouldn't some clever firm take the market by pointing things out to consumers?
  2. The solution not having occurred to anyone else?
    • This seems exceedingly unlikely; it is too obvious
  3. Most purchasers caring less about security than about having been seen to have done something about security?
    • Maybe, but that can't hold in general
  4. Buying this kind of keypad binds security-conscious places to rotating their codes every few months lest the code become common knowledge, with some firms then failing to follow up?
    • Seems unlikely: the ones that care about security to start with don't need the binding.
Here at the New Zealand Initiative, we rotate our door code every few months through the different digits.