Wednesday, 23 December 2015

A public health failure

The NZ Drug Foundation points to an excellent write-up on e-cigs at Rolling Stone. A snippet:
While the e-cig industry was jumpstarted by entrepreneurs like Walsh, big tobacco companies have since waded into the fray — which might be part of the problem. They don't want to be shut out of a growing business that some predict may eventually overtake their own, but given that cigarette sales still generate a staggering $35 billion in annual profits for the world's six largest tobacco companies, they remain incentivized to keep smokers drawn to their bedrock product. With electronic offerings like MarkTen — made by Altria, manufacturers of Marlboro — now among the most visible brands, it's understandable that some view e-cigs as the latest ploy of an industry with a well-documented history of manipulation and subterfuge. Whereas 84 percent of smokers believed e-cigs to be safer than ordinary cigarettes in 2010, by 2013 that figure had dropped to 63 percent. A study last year found that a third of people who had abandoned e-cigs and resumed smoking tobacco did so out of concern for the health effects of vaping.
The crux of the British report is that such misconceptions represent a public health failure, one that could be reversed by highlighting the comparative safety of e-cigs for current smokers, while making it clear that nonsmokers should steer clear of vaping. But the biggest hurdle for e-cigs in the U.S. is the very thing that makes them so appealing: by mimicking the hand-to-mouth ritual of smoking and delivering the same drug — nicotine — found in tobacco, they look and feel a whole lot like smoking. As a result, concerns about e-cigs center on whether encouraging people with a deadly habit to switch will rollback a decades-long trend of historically low smoking rates. Are e-cigs used by smokers to augment their habit rather than abstain? Could they prove to be a gateway toward "re-normalizing" tobacco smoking, especially among impressionable teens? Legitimate as such questions are, at this point they may be eclipsing the most pressing one of all: Is the United States, in applying the same tactics used to demonize smoking on a safer substitute, missing out on a chance to save the lives of millions of its citizens?
New Zealand's public health community might ask itself the same question.

The piece also shows how FDA regulations could wind up killing the industry in the US: if they deem each new flavour cartridge as a new product needing approval, and each approval costing about $5 million....

Tuesday, 22 December 2015

AML Costs

New Zealand's Anti Money Laundering regulations sure do increase the fixed costs of being in business. Here's Josh Daniell in the NBR:
I’m one of the founders of Snowball Effect, a marketplace for curated private equity investment opportunities. We’re subject to AML regulations, and were recently spot reviewed by FMA (our AML “sector supervisor”) regarding our compliance with the rules. The review was thorough and competent. But it reminded us of how familiar the processes have become, yet how disconnected they are from any genuine risk.  We cannot think of a single genuine risk that has been averted from thousands of hours of process.
I'm pretty sure that the kinds of early-stage investments that Snowball Effect facilitates wind up being really rather illiquid. If you wanted to launder funds there, it would take rather a while to offload any sizeable investment. The absence of any sizeable risk didn't stop the Vogons from killing iPredict though.

Lance Wiggs shows up in the NBR's comments:
This is an excellent piece from Josh, and mirrors what we have also experienced with Punakaiki Fund and what I see across the early stage ecosystem. The chilling effect of the AML requirements lowers the appetite for investors to place funds with early stage companies (and investment funds), which is terrible for New Zealand.Meanwhile the compliance requirements for buying a house are ridiculously easy in comparison.
The big players will figure out how to navigate the AML mess. But it's going to kill potential new entry. Here's Mercatus on the effects of regulation more generally:
Regulation may be particularly detrimental to economic prosperity to the extent that it deters entrepreneurship. If larger existing firms can overcome the costs of complying with regulations more easily than new, small firms, such smaller entrants may never start their businesses in the first place. In a new empirical study for the Mercatus Center at George Mason University, economists James Bailey and Diana Thomas show that more regulated industries experienced fewer new firm births and slower employment growth between 1998 and 2011, and that regulations inhibited employment growth primarily in small firms rather than large firms. These results call into question the value of new federal regulations, because increased regulation seems to contribute to the declining number of new businesses and to slowing job growth. 

Monday, 21 December 2015


Ben Moore's received a response to his OIA request asking the government why they killed iPredict. Reading it is a bit surreal
  • In September 2013, Chapman Tripp applied for exemption from the AML regulations. At page 12 of their submission, paragraphs 52-53, they rightly note that iPredict is tiny and that compliance burdens for the tiny accounts set up at iPredict would dissuade trader entry. 
  • In October 2013, the Financial Markets Authority worried that because iPredict doesn't verify trader identities, there is risk that a single person could avoid the deposit limits by establishing multiple accounts. 
    • FMA is there correct: it would be possible for somebody to set up multiple accounts if they were sneaky about it. But the current combined portfolio value of the top 100 traders at iPredict is just under $200,000. Fifty-four accounts have value in excess of $1000. I don't see any hovering under the $10k limit. And while there would have been substantial withdrawals since Simon Bridges's decision, the net worth rankings have been around this kind of order for a while. You need to add up the portfolios of 100 traders to get to about a quarter of the median Auckland house price. 
  • In December 2014, an anonymous Policy Advisor in the Criminal Law Team at MoJ made a big deal of that the trader earning the highest ROI at iPredict had very very high returns, and that that analyst believed that this raised specific money laundering / terrorism financing risk. 
    • It's worth noting too, though, that that high ROI trader doesn't show up in the top 100 ranking by net worth. Maybe the trader's just really great and keeps withdrawing, but the trader's account is worth less than $430 currently. Scary.
    • MoJ also asks FMA whether iPredict should have to report whenever it becomes aware of any insider trading or "other forms of market manipulation", with requirements to submit STRs. 
  • In June 2015, FMA said iPredict should be pretty much compliant were they to identify traders so traders couldn't open multiple accounts, and that they should do that rather than be granted an exemption. 
  • 15 June 2015 MoJ asks iPredict a few clarifying questions, but provides zero signal to iPredict that they might need to identify traders. 
    • 26 June, iPredict notes that there have been 3 instances of traders having more than one user accounts. Two of these were errors, and the third was deliberate. In the latter case, the account was shut down and the person was prohibited from iPredict.
    • iPredict also notes that their systems only do automated withdrawals into NZ bank accounts, and that they have had one instance in the prior 6 months of an account's closure requiring an international bank transfer. 
  • 12 August 2015 MoJ and FMA note that iPredict "has been designated to the DIA as the FMA has reached a view that it should not be within our supervision". This rather confuses me as iPredict's trading status is an exempt futures exchange. That they came under those regs rather than DIA's gambling purview was of some consternation to DIA when iPredict was set up as I understand things. 
  • 1 September 2015: they decline the exemption
  • Bridges then sends a letter to English's office, among others, notifying them that Predictions Clearing Limited had been denied an exemption. It is interesting that he did not let his Cabinet colleagues know that PCL is the clearinghouse for deposits to iPredict. I wonder whether his Cabinet colleagues were surprised that he wound up killing iPredict. He also sends a letter to iPredict's lawyers, denying the exemption, and suggesting they talk with the FMA about what they need to come into AML/CFT compliance.
  • On 26 November, an anonymous boffin notes surprise that iPredict decided to shut down "without discussing this with anyone", noting that "the normal process after a declined application is for the applicant to contact the supervisor (FMA) to confirm what the obligations are under the Act." Perhaps true of for-profit entities. But that this surprised them suggests they never had any real clue about iPredict in the first place.
If iPredict could open new contracts, an interesting one would be:
"Pays $1 if the total value of bureaucracy staff time spent assessing iPredict's AML compliance exceeded the total combined value of all iPredict accounts."
I'd be buying at $0.65.

CYA and drug testing

Suppose that, as a company director, you were potentially personally liable if you did not exercise due diligence in ensuring that the company was meeting its health and safety obligations.

Suppose further that one of the ways you could demonstrate that you have exercised due diligence is by making sure that you get processes in place and that they're followed.

If there's any risk from worker impairment, then putting in place drug testing policies could be one way of demonstrating your due diligence. Heck, the Department of Labour even recommends putting in drug testing clauses where there is risk.

So we shouldn't be surprised if more companies are now requiring drug testing. It's a relatively cheap way for directors to show that they're being all diligent.
I don't like the equilibrium either. But if you want different outcomes, you do better in changing the underlying incentives. I don't see those changing any time soon.

The ODT quotes Kirk Hardy, Chief Exec of a company running drug tests for firms:
Mr Hardy knows full well drug testing for cannabis cannot establish whether a person was high at the time of testing.

And companies know that too, he says.

‘‘Most companies are using it for risk mitigation; not many companies are looking for impairment,'' he says.

‘‘Personal time doesn't really come into it.''

Mr Hardy says employees who work in safety-sensitive industries have no excuse for using drugs.
"Companies are using it for risk mitigation" - entirely in line with my CYA expectations.

I wonder how many of those who lobbied for getting tough on companies for health & safety issues really thought through the likely effects. This was entirely predictable.

For a bigger Khandallah

My submission from earlier this month on the proposed Khandallah medium-density zoning.

1.     Please accept this email as my personal submission on the proposed Khandallah medium-density zoning proposal.

2.     I am an economist who has read extensively on the economics of land-use planning. I received my doctorate in economics in 2003 and lectured at the University of Canterbury from 2003 through 2014, when I moved to Khandallah to take up a position in Wellington. I submit today in my personal capacity.

3.     I support allowing medium-density housing not only in Khandallah but also more broadly throughout the Wellington region. Zoning rules preventing densification within town and preventing expansion in the suburbs have driven New Zealand’s housing unaffordability problems. While that has primarily been an Auckland phenomenon, Wellington remains fairly unaffordable, with median house prices more than five times median income, according to the latest Demographia survey.

4.     It is rather unlikely that medium density housing in Khandallah, on its own, would substantially alleviate New Zealand’s housing affordability problem. But if existing residents in places like Khandallah continue to be able to block new development, housing affordability will continue to worsen – with the worst costs felt by the poor.

5.     I attended the November town hall meeting in Khandallah. Some residents there in attendance raised legitimate concerns about developments that had adversely affected them as neighbours. But the preponderance of criticisms focused on the character of the neighbourhood, the design characteristics of denser developments, and the consultation process.

6.     It would be rather unlikely that a developer would find Khandallah well-suited to low-end units as land prices are too high. Many in attendance at the meeting seemed to fear that very substandard units would be placed next door to them. And the fliers handed out by the anti-development residents’ group emphasised that developers would be likely to use cheap materials and cheap design. But a developer buying land here to subdivide, and who expects to earn a return on investment, would tie up too much capital in the underlying land for that to really make sense – higher-end smaller units are rather more likely.

7.     The residents’ association also worries that more people will worsen road congestion. While it seems unlikely that development would put any substantial burden on Onslow Road or the Ngaio Gorge Road, one can imagine localised issues with on-street parking were a developer to provide only limited off-street parking.

8.    However, the solution to parking congestion is not to block development, nor is it to require developers to put expensive parking in place for future residents who might not want it. Rather, we could learn from other parts of town that have limited parking to those with residents’ passes.

9.     If a new development would be likely to park up a street that is already heavily used for on-street parking, a better solution would restrict parking on that street to those with residents’ passes. Existing resident households could be issued with resident’s parking passes, and the incoming developer could buy some of those passes from the existing residents for use by future residents of the new development. The prospect of selling surplus parking passes to developers might also encourage a friendlier attitude towards neighbouring developments.

10.  Were traffic to increase substantially on Jubilee Road and Izard Road when children are going to or leaving school, Council may wish to provide a footpath on the southern side of Jubilee Road that children would not need to cross a busy road to find a footpath.

11.  The residents’ association also notes their belief that older people do not wish to live in the townhouse-style developments that could be allowed under the new zoning. I am curious why a developer would build such units if there were no demand for them. The developers have their money on the line; I have more confidence in developers’ ability to gauge market demand than I have in the residents’ association’s ability to forecast who might wish to live in which kinds of places.

12.  The residents’ association points to potential crowding at the local school. Cashmere Avenue School has a lovely and large school ground; an extra building or two on the site should not prove a massive hindrance. Many other schools have less ability to expand.

13.  Council asks where medium-density housing development should happen in our suburb. I believe it should happen wherever the owner of a property is able to undertake it without substantial adverse effect on their neighbours’ views or sunlight.

14.  Council asks what standards should be used to manage site design. It would be difficult to specify that without knowing things specific to the location of any proposed development. A four or five-story development built into a steep hillside could be entirely appropriate in some places as it would not impose shade on others nor would it block others’ views. But, in other locations, even a three-story development would block views or restrict sun. Maximum height should be determined by effects on existing neighbours. And, any maxima established to protect neighbours’ sun or views should be waivable by the affected neighbour to allow for bargaining between existing residents and new developments.

15.  Council asks for our views on the town centre. I note that a few of the shops there seem to be languishing for want of foot traffic. Increased density and more people would make shops more viable and make for a more vibrant village environment. Another few hundred people would hardly be to the community's detriment. It is a bit of a shame that these kinds of consultations only are ever able to draw the ire of existing residents who hate change; the views of residents yet to have the chance to be my neighbours are hard to canvass.

Saturday, 19 December 2015

Boardroom benefits

Renee Adams summarises the empirics on boardroom diversity.

I'd worried when the Secretary of the Treasury was citing work that relied on studies by Catalyst and McKinsey on the benefits of boardroom diversity. Adams walks slowly through just why those kinds of studies really are not up to the task. Even better, she reproduces Catalyst's results before showing how they disappear when you account for endogeneity. In other words, the kinds of firms with more diverse boards are different from the kinds of firms with less diverse boards, and those non-board differences explain the performance differences.

Adams warns that business-case approaches to diversity mandates, in which firms expect strong improvements in performance with a change in the board's gender composition, risk creating unrealistic expectations for newly appointed female directors. 

If you care about the evidence on the topic, it's worth reading the Adams summary. The literature survey is comprehensive. I've no dog in this fight. But I get worried when folks seem convinced of things that ain't so - and especially when the things that ain't so get endorsed by the Secretary of the Treasury. 

Here's the final table from the Adams piece, showing what happens to the Catalyst study when you add in very standard controls. Column I shows firms with a greater fraction of female directors have stronger ROE. But column II shows that's mostly because larger firms have greater fractions of female directors. Column III shows that industry controls roughly halve the statistically insignificant effect found in Column II, and Column IV shows that putting in firm-level fixed effects reverses the sign of the effect in Column I. 

When the upper echelons of government become convinced that things that are nice are also profitable for firms, we risk poor policy.

When everybody thinks they know that some particular measure is profitable, and not all firms seem to be doing it, you start seeing Regulatory Impact Statements or Cabinet Papers claiming that forcing firms to do something would be in those firms' best interest and would increase profits. Treasury used to bat that kind of thing back.

HT: Glenn Boyle

Friday, 18 December 2015

Chinese data

Everybody knows there are problems in Chinese official statistics. But John Gibson and Chao Li have found what I think is a new one. Anything that's using regional per capita figures is a bit suspect.

Here's their abstract:
Hundreds of studies in economics misinterpret China’s sub-national population and per capita data. The most widely used population counts are of hukou registrations from each province, prefecture, county, or city rather than of the people living in each place and generating local GDP. Over 220 million people have left their place of registration, while almost none had when reforms began, creating time-varying errors in estimates of per capita income of sub-national units. We survey empirical articles in blue ribbon journals, in development journals, and in regional and urban economics journals that use China’s sub-national data. Over 80 percent of articles use these data erroneously; most commonly the wrong population or employment counts are used to measure the size of sub-national units, and per capita data are calculated with the wrong denominator for the interpretation placed on variables. We provide examples of errors from each group of journals, and a critical test of one highly-cited study. Specifically, we show that if hukou registrations are erroneously used to measure the local population, following existing practice, conclusions about driving forces for urban area expansion are reversed. We give recommendations for more careful use of China’s sub-national population and per capita data.
Time varying errors are... not good. They don't wash out in fixed effects.

Careful out there...

Surveying heavy drinkers

The latest NZMJ has a couple of pieces on alcohol minimum pricing.

The editorial from BC's Tim Stockwell lauds minimum pricing's successes in BC, though I think he there overstates the case - especially where some of his own work in British Columbia makes a hash of things by using regional CPI within B.C. to get differences in the real value of the province-wide minimum alcohol price. I'm pretty sure that you can't induce panel variation in your main regressor of interest by just dividing that constant by the varying regional CPI. That's probably one of those things that ,robust won't fix.

The new New Zealand evidence comes from a survey of just over a hundred heavy drinkers. The Science Media Centre asked me for comment on that part; my comments are copied below.
“Minimum alcohol pricing has the potential to mitigate harms from heavy drinking at lower cost than across-the-board excise increases. However, we need to be cautious about the potential effects.
“The Falkner et al study surveys heavy drinkers to ask them what they might do were they faced with higher alcohol prices. Thirty percent of those drinkers who have previously faced situations in which they could not afford alcohol reported having turned to illicit or prescription drugs when they could not afford alcohol; the authors note this may be an underestimate since their survey excluded drinkers who had reported co-morbid drug use. Pricing heavy alcohol users out of alcohol, for some users, will result in shifting to other substances. Net effects on harms are then less clear.
Byrnes et al (2013), in Australian data, reported that heavy drinkers did respond to price hikes by curbing consumption, but that they did so by cutting back consumption on their lower drinking days. Heavy drinking was not affected. This will have health benefits, but smaller benefits than you might expect if you had expected that drinking on heavy drinking days would be as strongly affected. In this case, the health benefits of minimum alcohol prices may be overestimated if heavy drinkers respond to price increases by saving up to maintain binge days.
“Minimum alcohol pricing at $1 per unit would require that, for example, no standard bottle of wine be priced at less than $8 to $9 dollars. While this would affect heavier drinkers who may otherwise downshift in quality in response to excise changes, it would also affect lower income moderate drinkers. Benefits in reducing harmful drinking among harmful drinkers need be weighed against the costs imposed on moderate lower income drinkers – and especially where moderate drinkers are far more responsive to price hikes than are heavier drinkers (Wagenaar et al, 2009). We also need to note that while the survey asked heavy drinkers, who were predominantly lower income, how much they paid on average per standard drink, the survey did not ask moderate or light drinkers of lower income what they pay for their preferred product.
“While survey respondents indicated that they had not turned to informal alcohol supply, or home brewing, in response to previous instances of not being able to afford alcohol, sustained alcohol unaffordability might induce different behavioural responses. For example, one person setting up a distillation unit could easily informally supply neighbours at far less cost than either minimum prices or current alcohol cost. When alcohol prices are high enough, the investment in distillation kit, or even simpler fermentation, can become worthwhile. Were minimum pricing implemented, the government might wish to undertake better tracking of informal alcohol supply.”
“Policy in this area needs to weigh carefully the potential benefits of some drinking reduction among heavy drinkers against the harms imposed on poorer lighter drinkers.”
Declared conflicts of interest: The Initiative is a member-funded think tank. Its members include many of New Zealand’s leading corporations, including one in the alcohol industry and a retail grocery chain. While in the Department of Economics and Finance at the University of Canterbury, Dr Crampton's work was partially funded by the Brewers Association of Australia and New Zealand. He maintains his academic independence. He also is a moderate consumer of alcohol.
I might also note that if there's a case for minimum alcohol pricing, it's also a case for reducing the existing excise levy.


Wednesday, 16 December 2015

Uber Uber

Well, the Ministry of Transport proposals around Uber could have been worse.

This week's white paper produced two preferred options. The first would place requirements on drivers; the second, on transport operators. The National Business Review asked me for comment on the proposals; here's what I told them.
“The government’s approach to taxicab regulation intends to avoid risks where new services, like ridesharing or carpooling apps, work outside of existing regulations, and to modernize the existing regulations so services like Uber are a better fit. But are those risks really large enough to compel regulation?” “The Transport discussion document advances two options it views as preferable to the status quo. The first of these would place the burden of compliance on approved drivers; the second, on approved operators. But both options would require that drivers have a P endorsement, that drivers work within limited time periods, that vehicles have a certificate of fitness, that drivers pass health tests, and that vehicles have mandatory security cameras – albeit subject to potential exemption by application.” “While the proposed regimes would be more open than the status quo, they could be substantially more liberal. If Uber were ever to decide, for example, that some other test were more effective in determining driver suitability than the P endorsement, as a passenger, I’d trust Uber’s judgement. It’s their reputation on the line if drivers prove unfit, and they have an international reputation to maintain. Regulations requiring that drivers undertake extra training, or that cars used in new services carry more than the standard Warrant of Fitness, make it just that much harder for new drivers to come into the market and pick up a few shifts. It makes things like Uber work less well. There are potentially many people who would be willing to take the family car out during a period of surge demand, but who would never find it worth the bother of getting a P endorsement (which requires taking a course and waiting 6-8 weeks for processing), and keeping the car under a Certificate of Fitness rather than just the WoF, and getting a doctor’s certificate, and putting in a camera. These regulatory rigidities make it harder for surge pricing to bring more drivers into the market at times when people really need rides. And, really, what’s the point?” “I would have liked to have seen a sixth, less regulated option. In a world in which I can immediately complain about the vehicle’s quality through an app-based feedback mechanism, and where we already have warrants of fitness for cars, it is hard to see the case for certificates of fitness. Where drivers can be chosen based on their reputation and where customers can leave immediate feedback, it is hard to see the case for P endorsements over regular driver’s licences. If I can pick up a hitchhiker without a P-endorsement and without a certificate of fitness, or a doctor’s exam, why should that be illegal just because the hitchhiker finds me with an app and pays me?”

 The story's here. Campbell Gibson does a great job of excerpting from my excess verbiage. 

Tuesday, 15 December 2015

No parking

While central government works to wreck Christchurch's downtown through endless uncertainty about whether anchor projects will proceed, Christchurch Council is doing a number on its suburbs.

Council's having at a neighbourhood cafe and bar in Cashmere. Why? They want it to have 62 more car parks than it currently has. It seems one neighbour's been complaining - perhaps there's parking overflow on side streets.

Mike Yardley's been checking into things:
Hospitality New Zealand's regional manager, Amy McLellan-Minty, tells me "a council employee who lives nearby" triggered the storm. She considers the council's treatment of the Vaughans as the worst she's seen.
Since the council's Kaizuka swoop last August, Hospitality New Zealand notes the district licensing committee pointedly requires licence applicants to produce a far more prescriptive floor plan, to avoid any confusion. So is this heavy-handed treatment of Kaizuka by the power-trippers primarily a butt-covering exercise?
Local councillor, Tim Scandrett, has previously failed to make any headway. Crs Phil Clearwater and Scandrett notified me they'd be meeting council staff, in a bid to resolve the fiasco.
Living in Huntsbury, I know how cherished this venue is. The social media response from the local residents' groups has been emphatically supportive of Kaizuka.
The ludicrous council dictum for 62 more car parks has been roundly pilloried, particularly given the overwhelming number of patrons walk or bike there for a meal or drink. The Vaughans have clearly had a gutsful trying to strike a pragmatic resolution.
With 18 jobs on the line, a Christmas miracle is needed.
Flow-on effects to side streets are real potential adverse consequences for some local residents, but you could equally ask why those households didn't bother with sufficient onsite parking.

In either case, isn't the better solution to put one side of the affected street to residents' passes, so the locals know they'll have a place to park? It isn't that hard. And it makes more sense than killing a business.

Monday, 14 December 2015


It's possible, in theory, that a preference ballot like that used in the NZ flag referendum could fail to select a Condorcet winner. In that case, a flag that's the strong second choice of many but the first choice of few is killed in the early rounds and so is not able to pick up the second-choice transfers as other options are eliminated.

But I doubt that's happened this time around. Here's the final tally, graphic courtesy of the NBR.

For a non-Lockwood (the top two) designs to have won, you'd need... well, there's no path from here to there. There is no way that you can get to anything but a showdown between those two options since the total for each of them exceeds the total first-preferences of all of the three other options.

I've put in my OIA request for all the ballot preference data anyway, expecting it to be shot down, because I'm interested in whether the Electoral Commission actually has the law right on this one. They think it's illegal to provide the number of ballots that conform to the different potential preference orderings; I'm interested in whether the Ombudsman will agree.

It's also interesting that spoiled ballots beat Red Peak.

Update: Note too that iPredict has the current flag as 75% likely to win in the next referendum. How long those prices remain accurate will be interesting: they're not accepting new deposits, so trading is limited to those currently with liquid accounts.

Friday, 11 December 2015

Regulatory report cards

Ah, the things that bigger think tanks can do. The Mercatus Centre at George Mason University runs long-term projects on regulatory quality. Here's Mercatus Senior Research Fellow Jerry Ellig's testimony at the Senate Committee on the Budget:
The Mercatus Center at George Mason University has undertaken two long-term research projects that directly assess the quality of federal agencies’ information about the prospective and actual results of government programs and regulations. One is the Performance Report Scorecard, which evaluated the quality of federal agencies’ annual performance reports required under the Government Performance and Results Act (GPRA). The other is the Regulatory Report Card, which evaluated the quality of economic analysis produced by executive branch agencies for prescriptive, economically significant regulations proposed from 2008 through 2013. 
From both of these projects, I have learned that telling agencies to conduct prospective analysis before they act (or retrospective analysis of the results of their actions) is no more than a useful first step. Regulations don’t enforce themselves, nor do analytical requirements. Stronger incentives are necessary to: 1) focus regulatory agencies on results rather than outputs; 2) produce high-quality analysis that assesses results; and 3) explain how agencies used their analysis in decisions. To ensure that legislative and budget decisions focus on regulatory results, Congress also needs to commit itself to obtaining and using high-quality analysis when it authorizes regulation by statute and funds agencies to promulgate and enforce regulations. 
Mercatus has, since 2008, produced an online report card scoring the quality of regulatory analyses and whether they meet the requirements set out by the Office of Management and Budget and the Executive Order. Performance has been terrible, but regulations reviewed by OIRA have fared better.

I wonder how NZ's Regulatory Impact Statements would score.

Thursday, 10 December 2015

Which side of the asylum wall...?

In Country A, a company launches a "delivers beer in one hour" service in a major city. There are lots of other delivery services around, but this one has one-hour service (which some other delivery companies have) and it's from a large company. It attracts some notice but noticeable objection.

In Country B, a company tries to launch a "delivers beer in one hour" service in a major city. There are other delivery services around, but this one has one-hour service. The medical profession, who seems to reckon that you shouldn't be able to do anything without their say-so, scream about increased availability of alcohol. You start to suspect that, had pizza delivery not been invented yet, they'd try to ban it if it were a new thing: faster access to fatty foods, and who really needs pizza in a hurry anyway? Outcome: the service gets pulled.

I'm starting to think I'm on the wrong side of the asylum wall.

Meanwhile, while New Zealand's rules for commercial drone operators seem to make more sense than those in the US, it's basically impossible to mess around with a drone anywhere near a city unless you file a flight path with air traffic control or unless you stay below the nearest tallest thing that is less than 100 meters away from where you are. Here's AirShare's excellent user resource.
I'd previously posted on drones, worrying that it wouldn't be allowed in any parks. AirShare helpfully lists where it is allowed, and Wellington Council is fine with your using a drone in a park, so long as you aren't bothering anyone else. But if there isn't something tall within 100 meters of your drone, then you need to get Air Traffic Control permission. Possibly days in advance. In a city where the winds are unpredictable. [Update: you need days to get pre-approval. But it looks like you can phone in for an up/down before going out to fly.]

Simon Bridges likely reckons that he's developed top-notch regulations around commercial drone use. But the rules around personal use have put drones off my Christmas list this year. We'd have to drive about an hour to muck around properly with a toy that has maybe a 15 minute battery life - that's close enough to a ban to make little difference. If I'm out with the kids and playing drones with them, how can I guarantee they don't go a bit higher than whatever handy tree happens to be nearby, or stray more than 100 meters away from it?

One wonders where the commercial drone operators enabled by the regime will ever find pilots if The Rules have killed off the hobbyists.

Apologies for the light posting. Two days out-of-office on work stuff combined with having to do the rest of the work stuff in the remaining three days have been constraining.

Monday, 7 December 2015

Things we know that ain't so

Today's Herald highlights public ignorance of basic policy facts.

Before you read any farther, go and take the Herald's quiz to see how well you do.

Here are the main errors (but don't read this part 'till you've gone and done the quiz yourself) where those choosing the wrong answer were in the majority.

  • Overestimating Kiwis' average age (66% chose the answer that was 7 years too old).
  • Underestimating the percentage of MPs who are female (70% chose the answer that was 7 percentage points too low).
  • Underestimating female labour force participation rates (55% chose the answer that was 12 percentage points too low).
But there were other interesting failures. 41% of respondents believed that New Zealand's wealthiest 1% own 50% of the country's wealth - that's a figure that's roughly right for the top 10%, but not the top 1%. And it also ignores that those with a lot of student debt (and consequently negative wealth) have huge human capital that offsets things.

Update: Ipsos summarises this one nicely:
Looking across the 33 countries included, many are even more wrong ...
  1. The top 1%: most developed countries greatly overestimate the proportion of adult wealth the wealthiest 1% in their country own. Britain is the most inaccurate (estimating it to be 59%, over twice the real figure of 23%), but France, Australia, Belgium, New Zealand and Canada are all at least 30 percentage points out of line. A few countries, though, underestimate how much of their country’s wealth is concentrated in the hands of the top 1% - Peru, India, Israel, Brazil and Russia (where the top 1% actually own an incredible 70% of all wealth). There is a lot of variation between the countries on what they think the figure should be, though most of them think it should be lower than it really is – with Russia again standing out as having the highest gap between the amount of wealth they think the top 1% should acceptably own (23%) and the true figure (70%).
Wow. You'd almost think there were some kind of coordinated international effort in OECD countries to fuel overestimation of the amount of wealth held by the richest.  

Wednesday, 2 December 2015

NGDP Targeting and NGDP Futures

NZIER's Kirdan Lees has called for the RBNZ to shift to NGDP (nominal GDP) targeting.

Recall that, currently, the RBNZ is supposed to target CPI inflation, over the medium term. The last part is important as it lets RBNZ look through temporary shocks. So if there's some silly blip from oil prices or commodity prices, they can just keep look at what things will be like over some undefined future period. While that lets them get away with persistent outcomes well in excess of target (Bollard) or well under target (Wheeler), it also means that targeting isn't as inflexible as it might otherwise be. And inflation expectations have remained reasonably anchored, though they're now drifting down.

Currently, RBNZ can target future inflation rates in a few ways. There are plenty of surveys of future inflation expectations. There's also the price difference between inflation-indexed and standard bonds. For a while, RBNZ used iPredict inflation forecasts, or at least cited them in a Monetary Policy Statement, but those forecasts largely mirrored ones you could get out of the rather more thickly traded bond markets.

How would you target NGDP? You'd need some mechanism for forecasting future NGDP. Sure, RBNZ has the big DSGE models for it, the latest version of which has an acronym nowhere near as memorable as the Kiwi Inflation Targeting Technology (KITT). But there aren't market prices out there on NGDP.

This was the problem Scott Sumner was trying to solve when I chatted with him at a conference in Hong Kong last year. He needed a way of getting NGDP forecasts to prove that NGDP targeting could be done. If you can get accurate forecasts, then you can use that in your targeting. I told him about how great NZ's regulatory structures are and that he should get in touch with the good people at iPredict. And so he did, and so there's now a US-facing version of iPredict that has a US no-action letter letting Americans trade on NGDP futures contracts.

But Simon Bridges just killed the New Zealand version of iPredict. So we can't have NGDP futures. So if we want NGDP targeting, it's going to be a lot harder. Thanks, Simon.

Well, unless we can convince the Americans to let foreign New Zealanders trade on the US-facing side of the NZ-based prediction market.

What a stupid stupid state of affairs.

The New Zealand National Party. Underestimating the compliance costs their regulations impose on small firms since at least Muldoon, and still going strong.

Update: I've been having issues in which Disqus is not synching comments made via the mobile version of the site and I have not had a chance to figure out how to fix it. And I cannot easily answer comments left that way. Belisarius asks what I make of the NZIER proposal. I'd hit that question in 2011 when NZPA asked RBNZ for comment on NGDP targeting. Basically, NGDP targeting beats inflation targeting when there are supply shocks, but RBNZ's inflation targeting lets them look through a lot of supply shocks already. And Sumner's noted that it works best in large diversified economies as well. Does New Zealand count?