Tuesday 31 October 2017

Keep the Investment Approach

From my column in last week's print NBR($), in which I hope that Labour makes the Investment Approach its own rather than ditching it.
National focused on how the investment approach could reduce the government’s long-term fiscal burden. Mr English rightly understood, and often pointed out, that the reason people wind up costing the state a lot in benefits is because they are living miserable lives.

If targeted effective interventions can improve people’s lives so they need not rely on state support, then the fiscal savings are just a proxy measure for what is really being targeted: the improvements in quality of life among the most vulnerable.

But where the focus is on the savings rather than the saved, the message is lost. And too much of the discussion was framed around minimising future costs.

It is too easy to imagine evil ways of minimising future fiscal liabilities – and doubly so for those who were not inclined to give National the benefit of the doubt.

Normal politics would rule out evil ways of reducing the government’s long-term fiscal burden. But relying on politics can be risky, and it is unnecessary. Instead, we can use better metrics. Measuring a programme’s likely effects on the long-term fiscal burden is important but so too is broader monitoring to make sure that programmes are not doing harm along the way.

That provides Labour with an opportunity to put its own stamp onto the investment approach. Continuing to measure the long-term fiscal burden facing government, and the contribution of new programmes to reducing that burden are important. But so too is adding the right additional measures for any programme to check and to demonstrate that the programmes really do good.

Friday 27 October 2017

Regional development is hard

The coalition deal between Labour and New Zealand First includes a regional development push, along with a billion-dollar fund for spending to help things along.

But regional development is hard. The Economist provides a decent survey of the issues:

  • Agglomeration has become more powerful, so regional convergence within the US has reversed. Productive places become more productive. 
  • Infrastructure and redevelopment projects don't have a great track record in improving things.
  • Dumb urban planning rules make it too hard for people to move to productive places, but fixing those rules could hasten decline in declining places. 
  • Tax incentives and enterprise zones that provide hiring subsidies don't work. They don't raise employment, and if they do, it's by beggaring the neighbouring places that don't get the incentives.
  • Local spending pushes have temporary effects, but don't last.
The piece is more optimistic about efforts to spark new industrial clusters, like South Carolina's tax incentives and subsidies for a new BMW plant that later led to Volvo setting up a plant nearby drawing on some of the same suppliers that showed up to supply the BMW plant. But that too is risky. Subsidy races between towns are great for the firms getting the subsidies, but not so hot for the towns that have to bribe firms to show up.

The Economist also is optimistic about setting up regional colleges that focus on training local firms and workers in new technologies in hopes of encouraging technological diffusion to the longer tail of less productive firms away from the bleeding edge cities. I wonder whether anybody's ever evaluated whether SIT led to greater productivity for firms in Invercargill as compared to other regional centres. 

I'm still optimistic, for New Zealand, about the prospect of special economic zones that might let local communities opt out of national-level policies or regulations that aren't fit for local purpose. Winston Peters' proposed SEZ around a new port in Northland doesn't fit the bill as it just looks to provide tax concessions around the port area rather than build a broader policy structure to suit local conditions. But special economic zones as policy trial areas are a promising way of allowing more devolution and localism for the councils that are ready to take up the challenge. 

And I hope that at least some of the billion-dollar fund is used to improve tourist-facing amenities in regional centres that bear a greater part of the costs of tourism than they receive in benefits.

Thursday 26 October 2017

Migrants and housing

Labour's proposed new housing policy is going to break something I really loved about the migrant experience in New Zealand.

I moved to New Zealand in 2003 with Susan. I'd accepted an appointment as Lecturer in the Department of Economics at Canterbury and arrived on a skilled migrant visa.* Susan's work visa was tied to mine - at the time, the new points system was slowly ramping up and the points threshold was very high.

We rented a brick house on Hudson Street for our first year, while we got a feel for the place and whether we'd like to stay. We wanted to go month-to-month at the end of that year's lease while house shopping, but the owners were coming back from Dubai so we had to be out at the end of the lease. That was a bit too quick for house shopping, so we rented an old damp art deco place on Knowles in Mairehau (the real estate agents would say St Albans) on a one-year lease and started properly house shopping.

We bought our place in South Brighton and took possession as the second lease was running out. We received permanent residence around that time, but we were shopping while on our work visas.

And at no point did it ever really matter that we weren't residents or citizens. We were people who lived in New Zealand, and as good as anybody else living here.

It was really different from living in the States. As a Canadian in the US on an F-1 student visa, it was always very very clear that you were second-class relative to real Americans. You had to have your passport on you, all the time. Every interaction with the state made clear that you were lesser. And that didn't change on getting permanent residence there. Move house? Better let the state know promptly, lest Immigration chase you down.

Under Labour's proposed policy, only citizens and permanent residents will be allowed to purchase existing houses here. Others can hire builders to build new ones, or maybe buy ones in new developments as they get going - it hasn't been that well laid out yet.

But either way, a young skilled migrant on a work visa aiming towards residence will have a very different experience than I did. We sure wouldn't have been able to afford a new build if that's all we'd been allowed to buy in 2005, and we sure wouldn't have been able to live out by the Brighton beach where we wanted to live. It was paradise.

And I wonder whether we would have stayed here if the 2005 Labour government had been as keen on pointing out how much we weren't wanted around.

I really hope Labour re-thinks this one. Put a stamp duty on foreign buyers if you want. I don't much like that either, but it's not nearly as important.

If someone is building a life here, it shouldn't matter what visa they're on.

* Update: Just so it's real clear, there are work visas that are called Work to Residence visas. The expectation on those visas is that, unless you screw something up, you're on the path to residence. I came in on one of those. That visa category is still there. And I really really hope that people on it get counted as resident for Labour's ban-foreigners policy.

Work to Residence visas

There are two main types of Work to Residence visa which enable you to work in New Zealand and then, after working in the job for at least 24 months, apply for a resident visa.

Work to Residence: Long Term Skill Shortage

If you have a permanent or long-term job offer in an occupation on the Long Term Skill Shortage List and your qualifications and experience match, you could apply for a Work to Residence Visa. You’ll need to meet the age, health and character requirements.

Work to Residence: Accredited Employer

If you have a long-term or permanent job offer from an Immigration New Zealand accredited employer you could apply for a work to residence visa. You’ll need to meet the age, health and character requirements, and your job offer will need to meet certain requirements.

Wednesday 25 October 2017

Immigration changes

I had a chat on Morning Report today about Labour's coming changes to immigration.

On the plus side, Labour's proposed changes are not nearly as dramatic as those proposed by New Zealand First. Labour's proposals are detailed here. Mike Reddell's critique of my take is here.

Labour proposes a generalised tightening of eligibility for various visas that they expect would result in 20,000 to 30,000 fewer migrants per year. Treasury continues to forecast that net migration will drop substantially, and within the context of the drop that is likely to come Labour's changes are not huge. But they would increase the size of any drop that is to come.

Labour wants to reduce the number of foreign students coming to New Zealand for study, and particularly wants to focus on students coming to study at sub-University and sub-Polytechnic institutions.

One of the changes is likely also to hurt the universities though. Currently, students completing degrees at New Zealand universities earn points towards a later work visa application. That means that getting a degree here also provides an option to stay on a work visa - or at least a stronger option than you might have otherwise had.

It makes sense from an immigration perspective if you think that people who have spent a few years studying here will be better acclimated to the place and will be more likely to have successful outcomes as migrants. And it makes sense within the context of a university system that explicitly cross-subsidises course delivery to domestic students from fees paid by international students.

As Labour has also promised a shift to fee-free study for domestic students, this could matter more. Fee-free study will inevitably have government try to find new ways of containing the costs of tertiary study on the government, and being able to rely on fees paid by foreign students has been important for the tertiary sector. We started seeing this pretty strongly in the aftermath of zero-percent loans, and it will get stronger. Making New Zealand less attractive for international students may be poorly timed.

I expect that changes restricting students at sub-Bachelor's programmes from working while in study would fairly quickly have those programmes designing work-in-study options to accommodate. The usual drill from critics on this one is that people come here because they want to work in a fish and chip shop and are able to do it by taking a couple courses in a shonky programme. But it's also very plausible that getting work experience while in any programme of study is really important in any potential future attempt to get work here. New Zealand's a small place, and having a local willing to vouch for you seems far more important than it should be. So I'd expect that most of those programmes will find a way of partnering with local employers to provide work-in-study training options that tick the boxes.

More worrying is the loss of the one-year study-to-work visa option for sub-Bachelor's courses. Suppose you graduate with a polytech degree in a skill that's in short supply in New Zealand. You've been studying on a student visa that will be expiring. If you want to stay, you need to flip to a work visa. But you can't get a work visa without a job offer in hand, because of how the points system works. The points from the job offer get you the work visa. And nobody's going to give you a job offer without your visa in hand if they think things will get held up at Immigration while all the police background checks from your home country are underway. Having the one-year study-to-work visa means the potential employer knows that that you've plenty of time to sort out any visa issues. Doing away with it would make it harder for foreign grads to get into work here.

Moving away from the student visa categories, I like that Labour's suggesting regionalised visas as a way of letting regions have access to more migrants; I would have liked this as an "in addition to" existing central government quotas, but I suppose it might have let Labour cut less than it otherwise might have.

I worry that the KiwiBuild visa programme is not nearly large enough to accommodate the scale of construction that is needed to remedy Auckland's housing shortage, that Labour's requirement that employers make a "genuine effort to find New Zealand workers" will set the stage for sham hiring rounds where an employer has already identified someone who would be perfect for the role and happens to be a migrant, and that there is no focus on finding better ways to ensure that foreign qualifications in fields like teaching are adequately recognised here.

Finally, where Labour sees a stronger labour inspectorate as the solution to problems of employers exploiting migrant workers, a more robust solution might ensure that migrants' visas are not unduly tied to particular employers. If you know that being fired (or quitting) will mean that your visa won't be renewed because you might not get another job quickly enough to have points on your application for having a job in hand, then your employer will have far more power over you than that employer should. Finding better ways of using the applicant's employment history rather than current employment status would provide a structural solution where employers couldn't abuse migrants because they would know those workers could easily shift to a better employer.

On the whole, I was steeling myself against worse.

PS: I hope that the Greens will champion the trial of the sponsored refugee system that the National government started. Sponsorship is a great way to let Kiwis willing to help do so without having to lobby the government to increase the quota whenever there's an international emergency. Treat it as an and rather than an or for the existing commitment to increase the government's quota.

Tuesday 24 October 2017

The big minimum wage hike

Labour's proposed increasing the minimum wage to $20 by 2021.

This isn't an end of the world bad idea, but it isn't a good idea.

The government has been targeting a minimum wage of about 66.7% of the median wage. That's already very high by international standards. If we assume median hourly wage growth continues at 3.4%, then the median wage in 2021 would be $27.43. A $20 minimum wage in 2021 would be 72.9% of the median wage.

Here's how Treasury illustrated that kind of wage in its review of the living wage in 2009.

So imagine a new arrow at the 73% mark of uncharted territory instead of the 85% mark. 

Or put it another way. If the minimum wage today were 72.9% of the median wage, it would be at $17.50 instead of $15.75. What did MBIE's last minimum wage review say about a $17.50 minimum wage? Well, they didn't have that one on the table. They plotted out the effects of a $0.25, $0.5, $0.75, $1.25, and $4.55 increase, but not a $2.25 increase. Why the big gap? Because the $4.55 one was the living wage proposal that was floating around.

Anyway, if we do some simplistic extrapolation between the $16.50 and $19.80 minimum wages to see what the effect of a $17.50 wage might have been, it looks like about 15,000 fewer jobs, and net costs to the government of about $125 million. Those costs are net because while minimum wage hikes increase what the government has to pay in wages to some workers, it reduces the government's outlays under Working for Families because much of the income gets clawed back - especially for workers on less than 30 hours per week. They don't get to keep much at all. 
All of my analysis on this stuff from last year hasn't changed. If you want to yell at me about this post, go read that one first. Working for Families is a better way of supporting the incomes of the working poor than are minimum wages. Why?

First, it's better targeted. Pacheco and Maloney found that only about 40% of minimum wage workers are in households in the bottom three deciles. I go through that in the link above.

Second, it's better supported. The burden of minimum wage increases is shared among disemployed workers, purchasers of the goods and services produced by minimum wage workers, and owners of firms employing minimum wage workers. The burden of WFF falls heavily on households in the 8th, 9th and 10th deciles. Both versions will have negative effects on the overall economy, but spreading it through the tax system at least tries to minimise the overall deadweight costs of raising that next dollar of wage subsidy. 

Caveat on all this: if the pending review of the Reserve Bank Act winds up deciding on much higher inflation, then a $20 minimum wage might wind up being 67% of the new higher nominal median wage.

I'll be chatting through some of this with Mike Hosking tomorrow morning on the radio at the ridiculously early hour of 6.30 am or thereabouts. 

The cell phones hypothesis

Are cell phones to blame for the uptick in New Zealand's crash rates? I don't know, but I have a potential way of checking - an exercise I'll leave to the committed reader, or whoever MoT hires as their new data analyst.

Get maps of cell phone coverage going back as far as the data goes. Not all uses of cell phones while driving require signal, but phone use should be increasing in signal availability. Here's a map of towers, but you'll need a time series and you'll need dead zones.

Get maps of accidents.

See whether expansions of cell phone coverage predict increases in the number of accidents in the places getting more cell coverage.

Confound: endogeneity where cell companies will put up towers in response to demand. But that demand should lead the accident rate rather than lag it, unless the cell companies are real good at predicting where people are going to start wanting to drive more. If the towers are more likely to come after the increase in traffic, then it should be fine.

Friday 20 October 2017

Policy costings

Another potential benefit of the incoming coalition: a policy costings unit for elections. The Greens have long favoured one. Brian Fallow hits the case here
Voters would be better informed, and Government-forming negotiations made easier, if we had an agency charged with providing impartial, independent costings of the policies parties put before us at election time.

It is too easy, as things stand, for politicians to go around promising the earth, and throwing in the moon for good measure, with barely a dollar sign to be found in their manifestos.

The OECD, in its latest country report on New Zealand, noted that the Treasury does not cost or assess opposition parties' policy proposals.

"Consideration should be given to strengthening New Zealand's institutional framework in this regard, possibly by allocating that responsibility to an existing agency such as the Treasury. Another option, which might enhance the perception of independence of the evaluations, would be for a new fiscal council to provide such estimates," it said, adding that most OECD countries have some form of independent fiscal institution.
He highlights some of the caveats I'd raised in a column last year about the proposal: politicians could time the release of bad policies to make costing difficult. I still think it's worth doing though - and especially if bundled into an independent Office of Parliament that, between elections, runs a cost-effectiveness ruler over existing line-item spending.

We get at least cursory evaluation of new spending programmes, but long-standing policies just roll over from budget to budget with little review. The costings office would keep its wits sharp between elections doing something valuable, and would be ready come the election to run the costings. 

Enjoy the Interregnum

If you haven't signed up for the Initiative's weekly newsletter, you should. I need to be better at blogging the bits I write there. Here's this week's column, written on Wednesday.
If no person’s life, liberty or property are safe while Parliament is in session, what’s the rush to have a new government?

As I write this column, no coalition has been struck. Journalists stake out Parliament’s parking garage trying to divine the will of Winston from cryptic hints he might there provide. And if you took the newspaper headlines too seriously, you might think that New Zealand would sink under the ocean if coalitions weren’t formed by whatever date Winston teased about.

But everyone else simply got on with life.

The morning after the election was beautiful. Smiling people strolled along Wellington’s sunny waterfront, almost as though having a Prime Minister were not that important for anything that matters.

And while nobody has yet figured out the causal mechanism behind it, even the weather has been better since we stopped having a Prime Minister. I count about four good days for every terrible one since the election. We know you can’t beat Wellington on a good day, but it’s rare to have those good days in September and October. Since we stopped having a Prime Minister, they’ve been the norm.

Even political tragics could have been happier with the lack of result: the sorrow of losing outweighs the joy of political victory, and neither of the main parties had to reckon with defeat.

And those sceptical about government full-stop have been able to pretend we have none. Sure, the administrative state continues churning away in the background. But it is on auto-pilot. And auto-pilot can be a nice option when the broad policy settings are already basically right.

Outside of that locked and empty cockpit, people argue about daft things like whether it might be a good idea to break the aileron controls by requiring the Reserve Bank to target exchange rates rather than just inflation. The longer that door stays shut, the safer we all are.

The interregnum cannot last forever; the auto-pilot cannot land the plane. Broken policies around housing must be fixed, and Ministries and Councils cannot do that on their own.

But we should enjoy the reprieve from government while it lasts – and hope for more sunny days ahead.
And if Edgeler wants to insist that we do have a Prime Minister, just a caretaker one, my fingers are in my ears. Let me pretend.

Newsletter subscription link's at the bottom of the page here.

Risks and opportunities

The Outside of the Asylum is getting a new Prime Minister, leading a coalition of Labour, the Greens, and New Zealand First. As always, new governments bring risks and opportunities. Here are some of them.

On the upside, we can hope for more serious addressing of the Auckland housing crisis. It took a long time, but National had finally come around to hitting the infrastructure financing problems at the root of Auckland's housing shortage. Labour can be expected to build on this. Labour's Phil Twyford understands the supply and financing constraints. His solutions, around designated infrastructure corridors and value-uplift charging, differ from National's - but will also work. And remember that it's Labour that's supported abolishing the Auckland rural-urban boundary that has jacked up the price of zoned land.

In the longer term, the government will need to address the incentives issue in which councils bear the bulk of the costs of accommodating growth and central government enjoys the bulk of the upside. But Labour should be able to make some progress on getting the necessary trunk infrastructure through.

I worry that the Labour/Green push for a substantial expansion in building state housing will quickly hit against sector capacity constraints, though, even if they're able to get infrastructure lined up. Last quarter's inflation figures suggest those constraints are starting to bind. The only way of easing those constraints in the short term are through immigration, through more relaxed rules around material supply that would recognize building materials from places like Tokyo, Seattle or Vancouver as being sufficient for New Zealand purposes without re-certification here, and potentially through eased rules around the Overseas Investment Act that would allow foreign construction companies able to build to scale to come in and build thousand-home subdivisions and in-town up-zoned developments.

But that gets us to one of the risks: the intersection of Labour, Green and New Zealand First's core beliefs is distrustful of markets and of foreigners. I can't see how we get anywhere close to the proposed 100,000 houses built in any reasonable time without allowing foreign workers, materials, capital and expertise to help.

New Zealand's Overseas Investment Regime already makes us the most restrictive in the OECD. Any land adjacent to a reserve must go through the screening regime, and it will be tough to ease that back under the current coalition. Heck, even New Zealand's Fletcher Construction has to jump through Overseas Investment Act hurdles because it has foreign shareholders. New Zealand First has proposed cutting immigration numbers substantially, and Labour and the Greens have been very sympathetic to that view. The incoming government has also signaled an intention to re-negotiate trade agreements to allow banning non-residents from buying houses. If supply issues are appropriately addressed, the ban does no good and could backfire if it prevents foreign investors from building houses here to rent out.

And there’s some risk the incoming coalition will end what National has been calling the “Investment Approach” to welfare policy. That one’s been promising, but has remained at the promising stage for a while – they've only started to get it seriously moving.

Under the Investment Approach, the government uses back-end administrative data to figure out which interventions reduce the government's long term fiscal burden. It's taken a long time to get there, but the Social Investment Agency's now set up to do that work, they have good statisticians there doing the analysis, and multicategory appropriations are set to fund things that don't fit departmental siloed budgets.

Prime Minister Bill English's vision behind it has been admirable. He's seen that too little spending is accompanied by any assessment of whether it improves the lives of those receiving it. The Investment Approach would start fixing that. It would also break down the informational advantage that Ministries hold over their Ministers. If the Social Investment Agency can show that NGOs  provide some beneficial outcome at half the cost of the line departments, Ministers can use that to better hold their Ministries to account.

It has been long and hard work for the government. But there are NGOs that really want to be able to assess whether their work does good and have been starting to work with the Social Investment Agency to combine their data and figure things out.

There's been some debate about whether minimizing the state's fiscal liabilities is the right goal, but that goal has always had political side constraints. Nobody would have proposed dumping beneficiaries from the benefit system as a way of minimizing liabilities. And it would always be possible - and desirable - to run some ancillary outcome monitoring alongside the fiscal liability measures. In English's view, which I think is the right one, people wind up costing the state a lot of money when they're living miserable lives, and things that bring them out of misery reduce the government's longer term outlays. He's viewed it as a proxy for reducing misery.

I really hope that the Labour coalition maintains the Investment Approach, and strengthens it by specifying the ancillary outcome monitoring to make sure that the policies that reduce the longer term fiscal burden are also the ones that improve lives.

But they will be under pressure from a public sector that might prefer to maintain information advantages over their Ministers. NZ First has had Big Brother concerns around that use of data - which also make me worry about whether the current push toward open data will be able to continue. And the Greens have wanted to undo much of the welfare policy emphasis that began under Helen Clark's Labour government to encourage beneficiaries to shift into work. Partially due to that shift, New Zealand now has an employment rate that is at least as high as it has ever been since the 1980s. I worry that the trade-offs haven't been appropriately appreciated.

Could be worse though! I expect New Zealand to remain the Outside of the Asylum. I expect that any changes to the Policy Targets Agreement to satisfy New Zealand First might ask the Bank to avoid undue variability in the exchange rate while maintaining inflation in the 1-3% range rather than asking the bank to pursue a dual mandate - the latter would not be a good idea at all. Any large changes to the tax system would only come after assessment by a new Tax Working Group - here are some of the questions I hoped such a group might answer.

And, for a bit of fun, here is the Spotify playlist that The Spinoff put together of tunes from incoming Prime Minister Ardern’s time as DJ. I love the Shatner version of Common People and hadn’t heard it before hearing this playlist. The Tom Jones version of Lust for Life is also great fun.

Update: other opportunities:
  • The coalition will be addressing water quality issues; I hope we're able to do it through cap and trade regimes rather than ones that would do less good at higher cost.
  • New Zealand First's regional development interests and local government experience could allow greater devolution through things like the Manchester City Accord. Wellington asked the government for that kind of an option; New Zealand First might be particularly sympathetic to greater devolution to Councils, depending on what powers Councils might want.
  • The Greens will get a referendum on personal cannabis use by 2020. 

Friday 13 October 2017

A Wellington City Deal?

Newsroom's Shane Cowlishaw reported yesterday that Wellington City has been talking with central government about either a variant on the Manchester city accord, or a Special Economic Zone.

What would be in the deal isn't known - the OIA did not provide many details. It noted that Wellington would like a city deal following the UK examples, or a Special Economic Zone to allow different regulatory settings for Wellington, and a revenue-sharing mechanism for the upside gains of any such arrangement. As for the other details, it only noted the potential for a beefed up Urban Development Authority. I'm a skeptic on those as UDAs with expansive powers of compulsory acquisition are dangerous things.

But the rest is interesting; we at the Initiative were happy to see Councils taking this up. Khyaati and I suggested SEZs as a way of achieving devolution and policy trials within the context of a unitary state with Councils of vastly differing capabilities and competence. Our report on localism noted the Manchester model as another way of achieving the same thing.

I talked a bit on the radio yesterday about the proposal. I hope the incoming government is able to progress things with Wellington Council.

Thursday 12 October 2017

Junk science

It is difficult to see what good purpose was served by this study.

The Otago people (in conjunction with Auckland's public health group) put cameras on kids that would take snapshots every six seconds. Then they poured through the footage to see how often the cameras, and presumably the kids, saw things that Otago people have long wanted to have restricted, like ads for food they don't like or alcohol. They counted the number of times things were seen. And then published the numbers in (at least) two separate studies expressing horror at the number and calling for bans on the things that they counted.

Is there any number that would have been low enough? Almost certainly not.

Is there any context for the number that might assist in anyone telling whether a number is low or high? Heck no. The news story on it talks about kids being bombarded with 27 junk food ads per day. Would there be fewer than 27 ads for candy in any 80s kid's daily bundle of comic books? I'm not the only one who remembers being bombarded with ads for Life Savers, am I?

The news story also says they got $800,000 to do the study.

They also counted the number of times the cameras saw alcohol related stuff and used the number, I kid you not, to call for a ban on alcohol sales at supermarkets.

The abstract of their paper is almost parody. Here it is.
Background and aim

Exposure to alcohol marketing within alcohol retailers has been associated with higher rates of childhood drinking, brand recognition, and marketing recall. This study aimed to objectively measure children's everyday exposure to alcohol marketing within supermarkets.


Children aged 11–13 (n = 167) each wore a wearable camera and GPS device for four consecutive days. Micro-spatial analyses were used to examine exposures within supermarkets.


In alcohol retailing supermarkets (n = 30), children encountered alcohol marketing on 85% of their visits (n = 78). Alcohol marketing was frequently near everyday goods (bread and milk) or entrance/exit.


Alcohol sales in supermarkets should be banned in order to protect children from alcohol marketing.
I wonder what number would have had them saying "Ok, maybe we don't need to call for a ban." Would it be more than zero? Was there any point to the study? I don't think the 1989 legislation that allowed sales in supermarkets said anything like "Oh, and we totally expect that parents will cover their kids' eyes as they go past the wine aisle, so it's ok, but if anybody ever shows that kids might actually see what's down the aisle, then we totally need to re-think this."

Some context that didn't make it into any of the press reporting:

  • The proportion of kids aged 15-17 who consumed alcohol in the past year dropped from 74.5% to 57.1% from 2006/7 to 2014/15.
  • Binge drinking more than halved over the same period, dropping from 25% to 10.7% of kids aged 15-17.
  • The number of hazardous drinkers among those aged 15-17 dropped from 19.5% to 10.8% from 2006/7 to 2014/15.

I don't know if this is the stupidest study in the world. Otago also had that one where they recruited 13 people, mostly from Facebook, interviewed them about their smoking, then called for a ban on smoking outside of bars on the basis of those conversations.

What would be sufficient basis for a call to ban alcohol sales at supermarkets? Strong evidence that the substantial inconvenience cost imposed on shoppers would be outweighed by reductions in external harm imposed by drinkers as result of the ban.

Being able to pick up a bottle of wine or beer with your normal shopping trip is a good thing that should count for more than nothing. It's a nice part of the Outside of the Asylum.

Wednesday 11 October 2017

Restrictions on foreign investment - some context

Winston Peters is pushing for more controls on inbound foreign direct investment as part of his coalition negotiations with Labour and with National. Fran O'Sullivan's piece in the Herald suggested that New Zealand's regime is pretty laissez-faire.


Here's the latest OECD figures. They tally the restrictiveness of rules around foreign direct investment. New Zealand is the most restrictive country in the entire OECD. It is the seventh most restrictive country of the 62 countries they surveyed.

Here's what you get if you plot countries from most restrictive on the left to least restrictive on the right.

The Philippines is the world's most restrictive country, closely followed by Saudi Arabia and Myanmar. Then come China and Indonesia. Jordan is a bit more restrictive than New Zealand, but only barely. Then come India, Malaysia, Tunisia and Mexico, followed by Laos. 

If New Zealand is laissez faire on FDI, I guess Japan's a bunch of anarcho-capitalists and Luxembourg... we don't have a word for whatever that is. 

Tuesday 10 October 2017

The Natural

Twitter is wonderful for pointing you to things you should have known, but had missed. 

I'd missed (then) Don McCloskey (now Deirdre)'s 1992 piece in the Eastern: The Natural.
Richard Bower is an economist right down to his wing tip shoes. He knows Sophocles and Shakespeare all right, but (there it is again) he believes in economics. not all economists do, of course. Bower does, as I do, and as perhaps fifteen percent of the profession does. Give the Bowers or the McCloskeys any social situation, from insider trading to an obstreperous teenage child, and they look to economics for an answer, or at least for a good running start.

People who "believe in economics" tend to agree on who the best economists are. They admire economists like Armen Alchian, Ronald Coase, Gary Becker, Gordon Tullock, Leland Yeager, economists often as not unknown to the unbelieving mainstream of the profession.


So Bower and I agree on economics. Our agreement makes our one disagreement about teaching it puzzling. Bower thinks that we can teach economics to undergraduates. I disagree. I have concluded reluctantly, after ruminating on it for a long time, that we can't.
Read the whole thing if you, like me, had missed it. McCloskey concludes that Bower overestimates the ability to teach economics to undergrads because he is a natural economist, who comes by the way of thinking easily, while McCloskey took a long time to learn it - and good teaching materials are hard to come by.

But teaching materials for thinking like an economist have gotten better since '92. Harold Winter's texts are excellent. So are Tim Harford's. And all of Marginal Revolution University. And blogs.

Monday 9 October 2017

Poverty policy's terrible tradeoffs.

Susan Edmonds canvasses the state of play around poverty, along with a few bits from me on the subject. It's a good piece.

Basically, policy is a pile of terrible trade-offs.

Cash assistance makes recipients better off. But providing it requires choosing among a few poisons.

Focusing assistance on those in most need through tight eligibility requirements makes sure that aid goes to those in most need - but at the cost of demeaning questions and testing and constantly justifying yourself to WINZ.

Targeting cash assistance to those in most need means clawing back cash benefits as someone is able to earn income, and that provides disincentives to work. And it provides incentive to feign eligibility. Worry less about the lying aspect and more about how it can split up families. And targeting also requires clawing back benefits as earned income increases, which provides disincentive to work.

Shifting instead to a guaranteed annual income gets rid of the demeaning questions, if you provide it at a level high enough to avoid having to layer on a welfare system on top. But providing that much assistance blows out the budget very quickly. Treasury's 2010 analysis reckoned that a GAI paying about the average amount received by someone on benefit would require a flat income tax of about 50% to cover the costs - and remember that that will be less than what's received by those currently worst off. So you'd still need to layer a welfare system on top of that.

Kevin Milligan's impossibility still holds. You can't pay a universal benefit high enough to not leave the worst off worse off without either having a very high phase-out rate (and consequent very high EMTRs), or blowing out the budget. And layering a welfare system on top of a GAI brings back all the problems above, albeit hopefully among a smaller cohort.

And you can't pretend that trade-off doesn't exist by appealing to other taxes that aren't currently in place. Why? Because if those taxes made sense, then they make sense regardless of whether you want to run a UBI. You'd then want to put them in on a revenue-neutral basis, replacing other taxes, first. If the new tax is really more efficient, then the deadweight costs of tax are a bit lower than before so the overall size of government can go up a bit in equilibrium. But whether that next extra lump of spending should go to a UBI or to other spending - you're back in the trade-offs world. You can't just magic up a new tax and pretend the best use for it is your pet project - some other proposal might be a better use of the funds. 

Shifting from cash transfers to in-kind benefits for some kinds of in-kind benefits solves part of one of those problems. If there are benefits that are valuable to someone in need, but useless to others, then you don't have to worry about people lying to get access to that benefit. Cash benefits require monitoring systems and intrusive questions to avoid diffusing the benefits beyond where they're most needed. Some in-kind benefits are self-targeting. So things like literacy programmes for example - people who are literate won't try to get access to them, and you might have reason to expect that improving literacy might help reduce need.

Cash should always be the baseline against which other things are measured. If an in-kind benefit is less valuable to the recipient than cash is, that's a pretty big strike against it. But say that every dollar's worth of spending on an in-kind benefit is valued at $0.95 by the recipient, but providing a $1 cash transfer would require paying out and extra $0.10 in monitoring costs and in leakage to those who weren't really eligible - then some in-kind benefits can wind up being better overall.

So everything above is terrible trade-offs. The most promising option remains what they government's been trying under the investment approach - better evaluation of what programmes can cost-effectively move people from benefit and poverty into self-sufficiency, where possible, and otherwise seeing what's most cost-effective in reducing misery. But there are still piles of problems there too - like difficulty in writing outcome-based contracts for NGOs delivering services; defining outcomes; and, need for monitoring to ensure that reductions in the government's long-term fiscal liability is a good proxy for what the government is trying to achieve. But it still looks the most promising.

Saturday 7 October 2017

The Battle of Athens

I hadn't heard of this one before. After the Second World War, a bunch of returning veterans used force of arms in Athens, Tennessee, to break a corrupt party machine that was controlling the elections and local government.

The local police were using predatory ticketing to fund the local party machine; it reads a lot like current U.S. asset forfeiture practice.
A state law enacted in 1941 reduced local political opposition to Crump's officials by reducing the number of voting precincts from 23 to 12 and reducing the number of justices of the peace from fourteen to seven (including four "Cantrell men").[5] The sheriff and his deputies worked under a fee system whereby they received money for every person they booked, incarcerated, and released; the more arrests, the more money they made.[5]Because of this fee system, there was extensive "fee grabbing" from tourists and travelers.[7] Buses passing through the county were often pulled over and the passengers were randomly ticketed for drunkenness, whether guilty or not.[5] Between 1936 and 1946, these fees amounted to almost $300,000.[7]


During the war, two service men on leave were shot and killed by Cantrell thugs.[7] The servicemen of McMinn County heard of what was going on and were anxious to get home and do something about it. One veteran said he "thought a lot more about McMinn County than he did about the Japs. If democracy was good enough to put on the Germans and the Japs, it was good enough for McMinn County, too!"[7] The scene was ripe for a confrontation when McMinn County's GIs were demobilized. When they arrived home the deputies targeted the returning GIs, one reported "A lot of boys getting discharged [were] getting the mustering out pay. Well, deputies running around four or five at a time grapping up every GI they could find and trying to get that money off of them, they were fee grabbers, they wasn't on a salary back then."[10]
The Battle centers around the jail where the Sheriff has retreated, with the ballot boxes, and a pile of hired-in armed men, to rig the vote counting.

Polls Closing

As the polls closed, and counting began (sans the three boxes taken to the jail), the GI-backed candidates had a 3 to 1 lead.[5][13][20] When the GIs heard the deputies had taken the ballot boxes to the jail, Bill White exclaimed, "Boy, they doing something. I'm glad they done that. Now all we got to do is whip on the jail."[19]
The GIs recognized that they had broken the law, and that Cantrell would likely receive reinforcements in the morning, so the GIs felt the need to resolve the situation quickly.[21] The deputies knew little of military tactics, but the GIs knew them well. By taking up the second floor of a bank across the street from the jail, the GIs were able to reciprocate any shots from the jail with a barrage from above.[21]
By 9:00 PM, Paul Cantrell, Pat Mansfield, George Woods (Speaker of the State House of Representatives and Secretary of the McMinn County Election Commission), and about 50 deputies were in the jail, allegedly rummaging through the ballot boxes. Wood and Mansfield constituted a majority of the election commission and could therefore certify and validate the count from within the jail.[21]

The Battle Begins

Estimates of the number of veterans besieging the jail vary from several hundred[20] to as high as 2,000.[15] Bill White had at least 60 under his command. White split his group with Buck Landers taking up position at the bank overlooking the jail while White took the rest by the Post Office.[19]
Just as the estimates of people involved vary widely, accounts of how the Battle of Athens began and its actual course disagree.
Edgerton and Williams recall that when the men reached the jail, it was barricaded and manned by 55 deputies. The veterans demanded the ballot boxes but were refused. They then opened fire on the jail, initiating a battle that lasted several hours by some accounts,[15][20] considerably less by others.[22]
As Lones Selber, author of the 1985 American Heritage magazine article wrote: "Opinion differs on exactly how the challenge was issued." White says he was the one to call it out: "Would you damn bastards bring those damn ballot boxes out here or we are going to set siege against the jail and blow it down!" Moments later the night exploded in automatic weapons fire punctuated by shotgun blasts. "I fired the first shot," White claimed, "then everybody started shooting from our side." A deputy ran for the jail. "I shot him; he wheeled and fell inside of the jail."[5]
Read the whole thing, including the aftermath.

Friday 6 October 2017

Business school structure and performance

Please answer this short survey if you are familiar with academic economics departments. I had a previous version of this up earlier, but have fixed a couple of errors in it - apologies to the three people who answered the prior version. This one more accurately reflects what I need to know about. More context to come.

Create your survey with SurveyMonkey

Thursday 5 October 2017

Age of Freaking Wonders

There is no great stagnation.
  • Google's new earbuds, paired with their Pixl phone, are the Babelfish: realtime translation on demand for conversation. Alas, no NZ release date yet scheduled. But still.

  • The new graphics engine for simulated faces. Just look at what they can do now.

    It advertises itself as compatible with all game engines and animation packages. Dunno how long it'll take for this kind of rendering to show up in real games and what you'll need to run it but... wow. 

Wednesday 4 October 2017

Flying blind

I guess unconscious bias is only a bad thing if it operates in the expected direction. This one's a couple months old now, but I'd missed it at the time
A measure aimed at boosting female employment in the workforce may actually be making it worse, a major study has found.

Leaders of the Australian public service will today be told to "hit pause" on blind recruitment trials, which many believed would increase the number of women in senior positions.
Professor Michael Hiscox, a Harvard academic who oversaw the trial, said he was shocked by the results and has urged caution.

"We anticipated this would have a positive impact on diversity — making it more likely that female candidates and those from ethnic minorities are selected for the shortlist," he said.

"We found the opposite, that de-identifying candidates reduced the likelihood of women being selected for the shortlist."

The trial found assigning a male name to a candidate made them 3.2 per cent less likely to get a job interview.

Adding a woman's name to a CV made the candidate 2.9 per cent more likely to get a foot in the door.

"We should hit pause and be very cautious about introducing this as a way of improving diversity, as it can have the opposite effect," Professor Hiscox said.
I suppose unconscious bias is one-way bad if the goal is diversity rather than just hiring the best applicant. The full report from Australia is here.

Meanwhile, over at the New Zealand Treasury, blinding the applications gave Treasury something that they thought worth celebrating. They're even getting an award for it.
To increase the diversity of its workforce, Treasury reformed its graduate recruitment process to reduce unconscious bias and expand the skills, experiences and qualifications it valued. Opening Our Eyes Through Blind Recruitment won the Improving Diversity and Inclusiveness in the Public Sector award.

Through the introduction of blind applications, which redacts personal information such as name, gender, location and school attended, Treasury's graduate intake now has a majority from mixed ethnic backgrounds, a 50/50 gender representation and none have solely economics qualifications.

This seminar will provide further details about this important public sector recruitment initiative.
I expect that blinding on schools means the secondary school attended rather than the university attended. If it were blinding the attended university, that would not be good.

Emphasis added on the part that worries me.

If serious economics graduates stop seeing Treasury as a place they might want to work, that could be a difficult problem to undo - and it would have substantial longer term implications.

I'd heard last year that Canterbury's economics grads had given up on Treasury as being any kind of place for serious economists to go for work. A student there had emailed me asking about options at Treasury, and I'd advised that the best route was to talk with students at Canty in Honours who'd done the Treasury internship over the prior summer - to get a feel for the place.

Turned out that the Canterbury students had stopped applying for that internship and none had gone the prior summer. It seemed like Treasury's recruitment team that went out to the universities overshot ... a lot... in emphasizing how open they were to non-econ grads; the econ students took the signal and went where they thought they were wanted.

I'd hoped that Treasury was working to change that impression.

I understand that RBNZ is seen is the place for serious economics students to go, where previously RBNZ and Treasury were always in a race for our best students. The ranking used to be RBNZ and Treasury had pick of the litter, putting out job offers even before students started their Honours or MCom year. Other departments waited until RBNZ/Treasury finished their recruitment, since nobody would accept an offer if either of those were still outstanding.

Double-degree students can be fantastic. Law & Economics is a great combination. There are seriously good math & economics double-degree students. And Economics has always paired well with Philosophy, either as a double or as a PPE degree. Heck, my undergrad was double-honours Economics & Political Studies.

But if Treasury were starting to have trouble in convincing serious econ grads that they were really interested in hiring economists, celebrating not hiring any single-major economists in the latest recruitment round isn't the most obvious play.

And I wonder whether this hiring outcome is because of their new blinded recruitment system, or because they've successfully convinced the serious econ majors that Treasury analysts get to play with the Hexagon of Happiness while RBNZ analysts get to do real economics.

Tuesday 3 October 2017

Big data beats

This is amazing. Big data identification of all the musical genres and where they sit relative to each other. Here's the project description:
This is an ongoing attempt at an algorithmically-generated, readability-adjusted scatter-plot of the musical genre-space, based on data tracked and analyzed for 1536 genres by Spotify. The calibration is fuzzy, but in general down is more organic, up is more mechanical and electric; left is denser and more atmospheric, right is spikier and bouncier.

Click anything to hear an example of what it sounds like.

Click the » on a genre to see a map of its artists.

Be calmly aware that this may periodically expand, contract or combust.
Just hit the link to see what it means. It also has an associated Spotify playlist. Just look at how amazing this thing is, and how it's all free, and how you can listen to all of the music with a (ad-ridden) free Spotify account or for a cheap-as-chips monthly subscription.

We live in an age of freaking wonders. Discover new realms of music you never knew you'd like, get a ton of surplus, and not a dime of the increased value of the Spotify subscription shows up in the GDP stats except if it gets more subscribers as consequence.

Monday 2 October 2017

Foreign Investment - the random number generator strikes again

Every month, the Overseas Investment Office puts out its figures on foreign investment in New Zealand. This month, people seem to want to talk about those numbers - likely because Winston Peters is in coalition negotiations.

Anyway, here are the notes I put together for a couple of radio chats on it. They're not extensive notes, as I hadn't much time on this one.

  1. Most of the world competes for foreign investment. Some of that competition is silly, like the subsidy war that Amazon might get among cities for its new hub. NZ mostly doesn’t play that game, sensibly, although its film tax credit regime isn’t far. But the OIA regime is the opposite: it drives foreign investment away.
  2. In 2012, 80 of 198 countries had attracted a higher stock of inbound FDI as %GDP than had New Zealand. Per capita, Australia had attracted 45% more inwards FDI than NZ by 2012.
  3. Year on year changes in FDI flows will depend a lot on what’s going on in global markets and in the current exchange rate. January to August this year is a bit under a billion dollars more than last year. But it’s about a hundred million lower than January-August 2015. But Jan-August 2014 was much lower than last year. These things bounce around; it can be a bit silly to read too much into any particular year’s numbers. If we look back farther, the gross value of investment consideration Jan-August 2007 was 14 billion; it hasn’t been reported for 2017, but for 2016 it was just under 7 billion. You need more detailed work on what’s been going on in policy as well as exchange rates. And because NZ sees so little foreign investment as compared to other countries, it’s easy for a few big deals to push the numbers around disproportionately. The prior years' data is here.
  4. This year’s figures include Vero’s takeover of Tower Insurance. One of the big land transactions was 3600 hectares sold by Solid Energy to BT Mining. Mining’s about the only land sale where the buyer is digging up the ground and potentially sending it abroad – but solid energy would be doing that anyway. As for the rest, it isn't like foreign investors are digging up New Zealand farmland and sending it overseas. Foreign owners here are subject to all the same rules as domestic owners. 
  5. NZ tops a lot of world rankings for ease of doing business. But we’re 32nd in the world, behind even Rwanda, on severity of restrictions on foreign ownership. Everybody talks about how protectionist Japan is; Japan’s less restrictive on foreign ownership than New Zealand on the rankings. Sweden is 7th least restrictive. Why are we celebrating scaring investment away when New Zealand firms can have trouble in access to capital? Foreign owners also can bring connections and expertise to the table that can be difficult to access domestically as well.
XKCD may be relevant here.