Thursday 21 December 2017

Fix the Official Information Act

My colleague Sam Warburton is clever. When the Ministry of Transport stonewalled on an Official Information Act request, he made another Official Information Act request for all of the documentation around the prior Official Information Act request. 

Forty-two Ministry staff were involved in processing the request. Here's Sam.
At no point in all of this did any staff member refer to the Ombudsman’s guidelines, or even the Ministry’s own internal guidelines. (De Montalk can be perhaps excused because of how obvious it was that all the information should have been released.)

Similarly, there’s zero discussion of the public interest in releasing the information. If not for the release of the information, the ministry might still be saying the road toll’s trending down.

At least 50 people were involved in this request, 42 of those ministry staff.

Despite my request for details of any verbal conversations or thoughts staff had particularly about the treatment of the OIA request, and despite there being “lots of drama on this OIA”, not a single staff member raised a concern about the redactions or misuse of the OIA. Not a single discussion or thought.

Either this is true and at least a third of the Ministry of Transport are grossly unaware of the law, or information about concerns has been accidentally unreleased or purposefully hidden.

There’s a lot that’s rotten here, and sadly it’s not much different from what other researchers and journalists experience daily. The New Zealand Initiative looks forward to joining with other researchers and journalists in the Coalition to lift OIA performance by our agencies.

Wednesday 20 December 2017

Not the Outside of the Asylum

Tokoroa Hospital has been freezing surplus patient meals for distribution through Meals on Wheels. Sounds great, right? But the health & safety brigade have shut it down: it would have to be frozen in a blast freezer instead of the hospital's standard freezer.
"Sometimes I have been picking up 10 meals a week. I take them out to Mangakino to some of my clients because there is no Meals on Wheels out there," she said.

"Often they may be living on their own, have dementia or disabilities so they are unable to cook their own meals and for those who can't get Meals on Wheels this is their lifesaver.

"They have everything in there a person needs. They are healthy, nutritional, tasty, and home cooked.

"I am very very saddened by the fact that this is going to stop as a lot of people rely on them."

She said the frozen meals were ideal for her clients as they could heat them up when she wasn't there.

"It is no good me taking a fresh meal from Meals on Wheels in Tokoroa because I would have to do it every day and at a specific time," she said.

"I have looked into the frozen meals at the local supermarkets but the cost is too great and the meals are not nutritionally satisfactory anyway.

"I also have clients with special nutritional needs and some of the supermarket meals don't cater for those either but these meals are made for hospital patients so they are perfect for my clients."
Better they go hungry I guess. 

Tuesday 19 December 2017

Paying for the infrastructure

A great map made the rounds on Twitter a couple of weeks ago showing all the places in New Zealand where there are no people living within a square kilometer.
Somebody asked who'd pay for the infrastructure for all the new people. Stephen Selwood in the Herald has one good answer: let the new residents pay for their own infrastructure via municipal utility districts.

I gave a short talk on MUDs a couple of weeks ago and put together this note on them for the attendees. It might be useful background for others too.

Infrastructure financing has proved to be a binding constraint on development in growing communities where Councils are approaching their debt limits. In those cases, issuing bonds to finance new infrastructure for development can pass cost-benefit assessment, but would breach debt covenants and trigger higher interest rates.

As consequence, New Zealand’s housing affordability has suffered. Councils zone what seems to be sufficient land for development and growth, but market prices reveal substantial value uplift when land is zoned for development, suggesting that zoned land is actually scarce. Regulatory scarcity of land on which development is allowed also enables land-banking.

Better infrastructure financing mechanisms can be transformational. Credible measures for rolling out more infrastructure for development and for routing around or leapfrogging current landbanks would completely change the dynamics of land markets in constrained areas. If owners of banked land expect that development will leapfrog them and that future housing costs will consequently be lower, they will wish to bring their development plans forward – and quickly to beat the rush. Market prices can then adjust to restore housing affordability where urban housing costs would be limited by the cost of building houses and infrastructure on paddocks outside of town.

Potential solutions

National proposed new infrastructure financing vehicles to allow new infrastructure roll-out without hitting Council books. That will help. Phil Twyford has suggested a suite of other measures that also are credible, including value uplift charging.

Municipal Utility Districts (MUDs) are an excellent complement to the changes currently under discussion.

Current within-subdivision infrastructure is typically funded by the developer, and interconnection costs or trunk infrastructure upgrade costs are handled through developer contributions. Both of these load costs onto the developer very early in the development cycle and then are reflected in higher section prices and higher house prices. In the end, the infrastructure winds up being financed at the new homeowner’s mortgage borrowing costs when the new owner borrows to purchase the serviced section or house.

The MUD alternative sees a developer establish a special ratings area over the new development. The MUD is able to issue bonds to fund infrastructure development, and the bonds are paid off through a special rating on owners in the development. Where the MUDs borrowing costs are lower than the homeowner’s mortgage interest rate, this reduces costs to homeowners over the longer term. It also reduces costs to homeowners by shifting the timing of costs and the underlying riskiness of the related debt. A developer is a more risky proposition than a stream of tax payments from a new development, so bond financing costs backed by taxes on a new development can be lower than the capital costs for a developer.

MUDs are most prominent as part of Houston’s overall story of housing affordability. Typical MUDs range from 200 to 400 acres (81-162 hectares), with the District covering water, sewer and drainage facilities. Some MUDs also cover major roading thoroughfares, and also parks and recreational facilities. They result in masterplanned communities where the community’s residents bear the costs of their infrastructure and take over the management of their infrastructure.

They must purchase access to wastewater treatment services, or provide their own local or regional treatment facilities. They also share in central city water infrastructure costs.

MUDs can also be used for in-city development on brownfield sites where Council cannot handle the resulting infrastructure costs - though they may be most suitable on larger brownfield sites.

The New Zealand Initiative has explored the potential for Municipal Utility Districts to unlock infrastructure in two reports. Different Places, Different Means: Why some countries build more than others described Municipal Utility Districts in Houston and Austin, Texas. Free to Build:Restoring New Zealand’s housing affordability applied the lessons to a New Zealand context.

The Initiative argued that where a group of landowners or developers wished to establish a Community Development District (CDD), they might submit an application to the regional or unitary council outlining the geographic scope of the development, its environmental impact, its water source, and the financing arrangements. A developer board would be established and building would begin. The developer would be reimbursed for initial infrastructure costs on the CDD issuing its infrastructure bond. The debt would be paid off through a tax on homeowners, businesses and commercial enterprises in the new CDD. And as later stages of development proceeded, more bonds would be issued. And control of the CDD would pass to a residents’ board as sections were developed and sold.

Council Long-Term plans would need to specify any areas they viewed as unsuitable for CDD development on grounds of environmental or cultural sensitivity, or notified practical considerations but the total area excluded could not exceed a set proportion of the jurisdiction’s area. Regional water and electricity lines companies would check that compatibility with broader networks were maintained when approving infrastructure plans. And, once approved, the CDD would be exempt from RMA constraints on any decisions regarding their internal operations except for issues like storm water overflow that might impose costs on neighbours.

We suggest further that where debt issued by CDDs would be subordinate to any Council tax claims on properties, this debt should not affect Councils’ balance sheets.

The key benefit to CDDs, or MUDs, is that they enable new development to occur wherever there is demand for it by uncoupling infrastructure provision from Council debt constraints. They can leapfrog existing landbanks or existing planned trunk infrastructure rollout and, in so doing, can make all urban land more affordable. And the new Auckland Unitary Plan allows for new development outside of traditional urban boundaries.

CDDs then provide a nice complement to other measures currently under consideration.
MUDs aren't just a way of unblocking an infrastructure financing constraint. They're a way of making the supply of local government services like infrastructure contestable - and making housing far more affordable in the process.

Tuesday 21 November 2017

The refugee revolution

Nevil Gibson at the NBR notes the importance of migrants to New Zealand's arts scene. The Second World War brought refugees from central and eastern Europe. Their contributions are noted in a new book from Leonard Ball at Auckland University Press. Nevil writes:
Historically, despite being a 19th-century settler economy, immigration was minimal in the 1930s and popular attitudes were hostile to “strangers.” Even the arrival of some 1100 refugees allowed in up to 1940 was resisted in some quarters.

The author of a new book on these mostly central European refugees from Nazism says, “The doors to New Zealand were almost closed.”

Leonard Bell’s Strangers Arrive: EmigrĂ©s and the arts in New Zealand, 1930-80* describes the impact of those immigrants both before and after World War II. Supplemented later by Dutch migrants and those fleeing communism, they had a profound influence on architecture, the arts, education, industry, science, medicine, fashion, cuisine and much else.

A Czech refugee, Ernst Mandl (Mr Bell's father-in-law), was told by the New Zealand High Commission in London in mid-1939 that 16,000 applications from others seeking to leave Europe had been rejected.

A junior staff member of the commission, George Fraser, later recalled in his memoir, Both Eyes Open, that, ”We could have recruited some of Europe’s finest … but balked at it.”

Opposition came from groups as varied as the British Medical Association (which demanded “retraining” of doctors), the Returned Services Association and sports clubs.

Xenophobia and, let’s face it, anti-Semitism was commonly expressed in the media and in attitudes to hiring “aliens” from European countries – Germany and the former Austro-Hungarian Empire – that New Zealand had fought in World War I.

Those attitudes were also directed at European allies, such as the French, but were countered by local Jews, Quakers and academics, who were supportive of the refugees. (For another perspective, see Jewish Lives in New Zealand History (2012), co-edited by Mr Bell.)
Nevil goes through substantial contributions to the arts, culture and architecture from New Zealand's small group of admitted WW2 refugees - he calls it a cultural revolution.

I wonder what contributions the thousands who were turned away could have made here, and how many of them were murdered in Europe after finding doors closed.

Ball discusses his book here.

Monday 20 November 2017

Afternoon roundup

The closing of many days' worth of browser tabs finds some gems.
And a couple bits from me:

More drinking stats

The Press reports that the new NZ Health Survey data is up. Smoking rates are down; obesity's up. Here's how they describe the drinking stats:
Meanwhile, 748,000 people, or 19.5 per cent of the adult population are considered "hazardous drinkers", according to a World Health Organisation definition, which takes into account a combination of factors including binge drinking, dependency, and the impact alcohol has on people's lives.

Another indicator headed in the wrong direction is one which measures mental health. This survey found that 7.6 per cent of people suffered from "psychological distress", and a high or very high probability of anxiety or a depressive disorder.
You could be forgiven for thinking that meant the drinking stats were worsening. Here's what the data says instead for adults aged 15+:

  • There are more abstainers. Past-year drinking has dropped by just under a percentage point, with drops for both men and women, and across almost all age groups. None of the single-year changes are significant, but the drop since 2006/7 is significant overall, for both genders, and for almost all age cohorts. 
  • Hazardous drinking is down from last year, from 20.8% to 19.5% overall, with a percentage point drop for women and a point and a half drop for men. The drops are across just about every age cohort. Youth hazardous drinking (15-17 year olds) is down from 7.9% to 7.6%. Hazardous drinking among 18-24 year olds is down from 37.1% to 32.9%. Note on this measure though that we only have data from last year and this year because they changed the definition. 

Wednesday 8 November 2017

Unemployment targets

Grant Robertson wants the Reserve Bank to follow a dual mandate, targeting both inflation and unemployment.

RBNZ already weighs unemployment, both because inflation targeting requires having a sense of the slack available in the economy, and because policy targets agreements have required that the bank minimise unnecessary variability in the unemployment rate while targeting inflation.

I expect a formal dual mandate is riskier than Rob Hosking at the NBR suggests. A sound governor backed by a good board will recognise that the long-run Philips curve is vertical and seek to minimise longer run unemployment by providing stable inflation rates around the middle of the inflation band. But if a governor and board are chosen explicitly by the Minister to focus on unemployment, that could be decidedly worse. Policy targeting lower unemployment while taking an eye off of inflation will succeed in delivering permanently higher inflation while doing nothing to reduce long-run unemployment.

And where Robertson says he wants unemployment down below 4%, where it was in 2005-2008, we should remember that there are a few ways of doing that. The labour force participation rate in 2005-2008 never reached 78% in the June quarter annual figures (for those aged 15-64, so isolating from changes in retirement behaviour). It has been above 78% since 2014 and sat at 80.4% in the 2017 June annual figure. The employment rate, 2005-2008, was 74.8 in those annual June figures; in 2017's figures, it was 76.2%.

As I read the figures, we've had strong population growth and strong employment growth. Together those mean that a new tranche of workers enter the market, start looking for work, find jobs, and a new tranche of incoming job-seekers follow on behind. At the same time we've had a strong push to get people from benefits into work. All of those have boosted the participation rate and the employment rate - and the churn from new entrants coming in has pushed up the unemployment rate a bit.

Getting the unemployment rate down by a point would be pretty easy: stop work-testing things at MSD, and slow the arrival of new migrants who bring partners who spend a couple quarters looking for work before landing a job. The labour force participation rate would drop, as would the employment rate. But if all you care about's the unemployment rate, that'd do it.


Joe Bennett makes the case for butter, as only he can.
Miss Turner, who was as old as it was possible to be and had a throat like a turkey, made us fish out our blobs and put them together. Whereupon she added salt, patted the whole into shape with a pair of wooden bats, and then made us sandwiches. It was the last time I enjoyed a science lesson and the only time I ate one.

But butter is even older than Miss Turner was. It's been discovered by every human society that's had the wit to steal milk from other mammals. Great cuisines are founded on butter. You can't make a croissant with low-fat spread. Every Indian dish starts with ghee. Deprive Tibetans of yak butter and they see no point in going on.

Butter is such an obvious good. To taste it is to know so. It enriches any sauce, any anything. I once compiled a list of foodstuffs that butter did not improve. Ice-cream was one, and I wondered whether cucumber was perhaps another. End of list.

Yet those of us who love butter have been out of step with the zeitgeist. By zeitgeist I mean the usual culprits in the dietary field, the harpies of health and wellbeing, the five-a-day fanatics, the officials of single-issue pseudo-medical lobby groups with names like the Society for the Healthy Heart, or Guardians of the Arteries. Who funds these people I don't know, but I do know that for decades they were as one in vilifying butter.

Butter kills, they said. It lodges in our workings and it stills our fluttering hearts. It blocks the blood, the brain, the organism. Shun butter or die, they said, and they went on to preach more virtuous diets. They praised the Italian diet of olive oil, pasta and organised crime, the Japanese diet of seaweed, rice and slavish devotion to authority, the diet of anywhere but where we were.

And people paid attention. They always do. It's vanity and fear of death. At the sight of a pat of butter the longevity freaks and Lycra narcissists leapt aboard their exercycles and pedalled away from it as fast as they could go.
He continues, noting that the end of the demonisation of butter has led to an unwelcome increase in its price. You should read the whole thing - it's fun.

And for more on the price of butter, and other grocery items, here's Aaron Schiff!

Monday 6 November 2017

Cluster scepticism

No government official ever got fired for promoting clusters—those concentrations of interconnected companies, specialized suppliers, service providers, training institutions, and support organizations formed around a technology or end product within one area or region. Popularized by Harvard Business School’s Michael Porter, cluster strategies have been promoted by governments throughout the world, which tout clusters’ key role in fostering entrepreneurship and economic competitiveness. Though entrepreneurial clusters do exist naturally and can be important elements of an ecosystem, there is only questionable anecdotal evidence that governments can play a major role in breeding them. In a rare critique of the cluster mantra, the Economist reported:

“Typically governments pick a promising part of their country, ideally one that has a big university nearby, and provide a pot of money that is meant to kick-start entrepreneurship under the guiding hand of benevolent bureaucrats….It has been an abysmal failure….Experts at Insead looked at efforts by the German government to create biotechnology clusters on a par with those found in California and concluded that ‘Germany has essentially wasted $20 billion—and now Singapore is well on its way to doing the same.’ An assessment by the World Bank of Singapore’s multibillion dollar efforts to create a ‘biopolis’ reckoned that it had only a 50-50 chance of success. Some would put it less than that.”

The problem is that over the years people have mistaken Porter’s description of the benefits of clusters for a prescription to go out and build them from scratch. In fact, in a 1998 article in this magazine (“Clusters and the New Economics of Competition”) Porter himself anticipated that the dynamics of clusters would be misunderstood by governments:

“Government…should reinforce and build on existing and emerging clusters rather than attempt to create entirely new ones….In fact, most clusters form independently of government action—and sometimes in spite of it. They form where a foundation of locational advantages exists. To justify cluster development efforts, some seeds of a cluster should have already passed a market test….”
The piece points too to the importance of sound legal and regulatory systems, and the risks in government sponsored venture capital funds that retard innovation by flooding the market with "overvalued, poor-quality deals".

Friday 3 November 2017

Teacher effectiveness

Massachusetts has been doing some interesting work on teacher effectiveness. Findings so far:

  • There are large differences in teacher effectiveness. A teacher at the 75th percentile, relative to the median, improves student achievement by the equivalent of 13 to 15 weeks of learning;
  • The cumulative effects of more effective teachers are large. Getting a teacher even only at the 60th percentile rather than the median over fourth through eighth grades provides the equivalent of an extra two months' learning over those five years. Gaps between exemplary teachers and unsatisfactory ones are even larger;
  • Low income students are much more likely to get teachers rated as unsatisfactory or as needing improvement;
  • Inequities in access to effective teachers increase gaps in achievement between poorer and richer kids.
Wouldn't it be nice if it were possible to do the same work here? There are substantial achievement gaps between low-decile and high-decile schools. Some of it would come down to family effects, whether genetic or environmental. But some of it would also come down to differential effectiveness of schools: recall that there is high variance in outcomes even among low decile schools. 

What would it take?
  • It is possible to build contextualised achievement measures for high schools. Grades on externally invigilated NCEA standards can be used to build an outcome measure [or whatever other outcomes you like], and IDI background data can be used as conditioning variables to see which schools over- or under-perform relative to student background characteristics.
    • It is currently impossible to link that back to teachers to get a measure of teacher effectiveness. Nothing links students to teachers in the background administrative data, so you don't know which students map to which teachers. And nothing links teachers to schools - or at least if there's a way of linking it, we've not seen it. 
  • It is possible to build a contextualised achievement measure for primary schools, but only at one step removed: you infer primary school achievement by outcomes for those schools' students once they get to secondary school. You could try building it out of National Standards data, but it would likely be a bad idea. Students' progress towards National Standards is evaluated by their teachers and you don't want them gaming that. And it looks like Labour's going to scrap National Standards anyway. 
I doubt we get better measures of teacher effectiveness or school performance without strong parent demand for it. I'd be pretty surprised if there weren't similar problems here in getting great teachers into our more challenging schools (on average).

Thursday 2 November 2017

Conditioning on partisanship

Glad to see somebody's worked out the numbers on this one.

It's bugged me how American papers have been quoting Trump's continued high approval ratings among Republicans without doing much to correct for that the people most disgusted by Trump will have stopped identifying as Republicans.

John Holbein points to this piece, which tries to put some bounds on the effects. Just conditioning on stated past voting record won't do it where recall bias matters and where folks might not want to remember having supported something that's now kinda ugly. So they try to adjust for 'missing' partisans of the President's party relative to a baseline measure. The key figure is below, followed by the authors' discussion.

In the lower panel of Figure 2 [pictured above], we plot observed partisan approval rates, the bounds on the compositionally-corrected partisan approval rate, and 95 percent confidence intervals for the upper and lower bound during the first 163 days of each presidential term.23 The marker is the observed partisan approval rate, the first capped line extending out from the marker are the bounds, and the second set of capped lines are the 95 percent confidence intervals on the lower and upper bounds.

Trump’s observed partisan approval rates are very low compared to the same period during Obama’s first term, but are roughly comparable to Obama’s second term. More relevant for our analysis is how the bounds evolve over time. The lower bound on the compositionally-corrected partisan approval rate is quite low during Trump’s presidency. In 14 of the 23 weeks, the lower bound is below 0.8. With only one exception, the lower bound on Trump’s compositionally-corrected partisan approval rate is lower than the lower bound from the analogous poll during Obama’s second term. The observed partisan approval rate is partially an artifact of missing respondents who would have previously reported Republican partisanship. While President Trump’s observed partisan approval rate has received much attention, the data are also consistent with the possibility that his partisan approval rate is quite low relative to recent presidential history.
I'm surprised the lower bound of the adjusted interval is as high as it is. 

Wednesday 1 November 2017

Valuable upzoning

Allowing greater density can bring down housing costs while increasing the value of existing property. It isn't magic. A piece of land that can be turned into townhouses is more valuable than one that cannot be. Each of the townhouses would be more affordable than the prior house, but the property becomes more valuable even before the townhouses are built.

Auckland Council's economist has run some of the numbers since the unitary plan. 
Our results show that in the most densely upzoned areas of the Auckland isthmus (Glen Innes, Mt. Wellington, Onehunga, Mt. Roskill, and Pt. Chevalier – areas B, C, D, and E on the map), upzoned properties sold on average for a premium of more than $90,000 when compared to neighbouring properties that were not upzoned, controlling for all of the observable attributes of the property as well as the strong overall price changes Auckland experienced over this period.
Across the city as a whole, upzoning added $34,000 on average to the value of a property. 

Council economist Shane Martin makes the case for taxing those windfall gains to help fund the infrastructure needed to enable development, and notes one difficulty: since markets are pricing in the value of upzoning very quickly, Council might want to hasten any announcements of how it would fund the infrastructure so that that could also be priced in. 
The timing of the land value increases also has policy implications. We now have evidence that markets in Auckland react to announcements of policy changes rather than waiting until policies are enacted. That is, when council signals that a policy change is being considered, and the market believes that signal to be credible, prices react. This means that council must consider how it plans to fund new policies (through various mechanisms, including targeted rates), not only before the policies are enacted, but before they are announced. 
It would be difficult for Council to use that kind of infrastructure financing policy if the property turned over between the upzoning announcement and the infrastructure financing announcement. It is easier to announce a policy bundle that provides a net small windfall for current owners than to do it in two parts, the first part of which provides a windfall gain and the second part of which imposes costs on potentially different owners. 

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.