Friday, 21 September 2018

Good stuff from Treasury

Two kudos for great work at Treasury - I've given out enough brickbats lately. 

First up, this week Treasury released its advice on the government's proposed Fair Pay Agreements. I don't know who requested it by OIA, but it's on their OIA release website, and available here. They get this one dead right. My summary:
  1. The Cabinet paper provides no evidence that industry- or occupation-wide bargain could address the purported problems of employer monopsony power;
  2. Neither does it provide any evidence that any imbalances in bargaining power have anything to do with wage and productivity concerns noted in the Cabinet paper;
  3. There is no evidence base suggesting this could help improve wages and productivity in any occupation or industry;
  4. Having a working group set this kind of policy is dangerous when they have only a high-level sense of that there's a problem and no clue what they're really doing - and the effects could be substantial structural changes to the labour market;
  5. International experience shows it's easy to mess these things up, to screw over outsider firms, and to build in fragility in case of economic shocks;
  6. And, regional heterogeneity will be a big problem that the working group would need to sort through too. 
Treasury consequently recommends extending the policy process to allow for further analysis.  

Appendix 1 provides Treasury's comment in the Cabinet paper:
The Treasury considers more departmental policy work is required ahead of Cabinet’s consideration of, and agreement to, the recommendations in this paper. The policy proposal is significant: Fair Pay Agreements could make substantial structural changes to the labour market and – as referenced in this paper – misapplication of the policy could have large negative effects on productivity, worker terms and conditions, and employment. The policy is also in the early stages of development: Cabinet’s in-principle agreement is being sought to an outline of the policy direction; initial work by officials has not identified an occupation or industry in which the proposed system would address wage or productivity issues; and the working group is being tasked with answering foundational policy design questions.

Given the significance of the proposal, we recommend extending the departmental policy development process to enable further analysis of the causes of the wage and productivity concerns identified in the paper, options to address those concerns, and the conditions for the success of industry-level bargaining. This would enable Cabinet to make decisions with a clearer view of the purpose, scope, and impacts of the proposal, and ensure the working group’s terms of reference are tied to this purpose and Government priorities.  
This is exactly the kind of unwelcome but important advice that Treasury has to be willing to give. Excellent. We put out a press release on it this afternoon.

Next up, and belatedly, Treasury's advice around Labour's proposed minimum wage hikes. See in particular the 14 December part. The team make the same points I make:

  • Risk of higher youth unemployment - but starting-out rates could mitigate
  • Minimum wage is a poor way of supporting low-income families because it's poorly targeted - most are workers starting out who then move on to higher wages, and abatement of other income-linked benefits eats most of it anyway
  • It is likely to bite in tougher labour markets, and especially where our minimum wage is already very high relative to median wages - and this is most likely to hurt the most vulnerable.
Again, this is good sound advice on a Labour election policy plank. Kudos to Treasury for providing it. 

Treasury Board

This week's column at Newsroom takes another look in at the problems at Treasury. A snippet:
'We're doing something about it'

Treasury’s response notes that Treasury has now put in place a work programme focused on economic capability, including training and developing existing staff and recruitment for economists.

But in the 2019 recruitment round for graduate analysts, while ten of fifteen had at least some background in economics, only four had at least Honours-level training in economics or finance. The recruitment process did little to distinguish candidates with an undergraduate minor in economics as part of another degree from those candidates with a Masters or Honours degree in economics.

And Treasury does not have any comprehensive way of tracking staff capabilities. It simply does not know if it is losing more trained economists than it is hiring. One wonders how Treasury would ever be able to tell whether it had succeeded in lifting its economics capabilities.

'Focus on the core business'

This matters. While a wide range of skills are required in policy analysis, Treasury’s unique role as lead economics advisor to the Government requires having substantial depth of economics capability. Treasury has to be able to apply a rigorous economic ruler across proposals coming from the other Ministries and to provide sound economic advice to its Minister and Cabinet.

That advice need not always be decisive, but it should always be reliable. And while that advice could often annoy Treasury’s stakeholders in other Ministries, they should not have reason to question Treasury’s competence in producing it.

Keeping all the stakeholders happy would be impossible. But doing a good job in Treasury’s core business is not. Treasury should focus on it.
I've been able to get a few things clarified by Treasury, with a few more yet to come under OIA. The blinded recruitment process for graduate analysts, at least for the most recent year, worked as follows.

Team managers told HR that they needed economists. So HR took all the applications and put them into two piles. Into the first pile went any application from someone with a minor in economics, a major in economics, an Honours degree in economics, a Masters in economics, and so on. Into the second pile went anybody without at least a minor in economics.

Then they ran a points sieve over the two piles. If you had a Masters in economics, you got 20 points. If you had Honours, you got 15 points. But there were points for a pile of other things as well. Strong Maori competence provided points. A pile of other things provided points, like their statement of interest in working at Treasury. Strong volunteer work gave 10 points. "Accolades" could give up to 10 points.

And then the highest ranked candidates would be able to get an interview.

See the problem? It's potentially a very flat payoff curve for training in economics, above a minor in economics, depending on how many points were available in all the other categories.

Getting a minor in economics is easy. There are thin routes through to a minor with next to no math and little theory. At Canterbury currently, that means Principles of Micro, Principles of Macro, a semester of intermediate microeconomics, one other 200-level paper, and one 300-level paper.

Honours and Masters is different. You have to take the more rigorous papers all the way up (or at least if you want to make it through with any decent grades), then do the more serious graduate coursework.

So I now have another OIA in checking on the points and categories. But it basically looks like HR there thinks economics can be picked up on-the-job by anybody with a minor in economics, so there's not much point in hiring folks with proper training.

Some teams, like the macro forecasting team, could put in more rigorous requirements for their group. But anybody not specifying that might be surprised by what HR considers to be an economist.

I again remember Frank Tay's piece in the inaugural issue of New Zealand Economic Papers explaining the minimum training prerequisites for professional economists in New Zealand:
Thirdly, I would stress a four-year full-time honours programme as the minimal "professional preparation for economists". I have in mind one which, in terms of depth of specialization in technical economics, falls between the level of the M.A. and Ph.D. courses recommended by H. R. Bowen, especially in the degree of theory, mathematics, statistics and economic history required.19 Obviously, this would violate the "depth and breadth" criterion of some teachers.20 But, unlike Professor Holmes, I believe this pedagogic conflict is real rather than potential and that a more effective solution than the "B-B variant" might be realised through the "Knight's Move". This consists in allowing students who have a first degree in the sciences and technology to sit, after a year's preparation, for a preliminary examination in economics equivalent to the Stage III level, say, in Macro and Micro economics, International Economics, Econometrics and Economic History, and then march straight into the Honours or Master's programme. True, such a scheme favours the Beta-plus and the more mature students, especially those with a substantial core of "Q" work behind them. However, a four-year Honours programme or the "Knight's Move" should give students a reasonably firm intellectual foundation for their own post-graduate professional development.
Emphasis added.

I hope that the OIA comes back showing I'm wrong. But Treasury's HR department being blind to the difference between a minor and Masters could explain at least some of the rot there. It cannot explain why the Chief Executive has allowed it to happen, but it can explain the hiring outcomes in the graduate cohorts, and it can explain why Treasury sees no need to track the outflow of trained economists relative to hiring.

I've also wondered how Treasury's Board has allowed this to happen. Any corporate board seeing these kinds of results would not be happy with the CE.

Yesterday, by complete coincidence, the Treasury and the New Zealand Initiative each announced a new addition to their respective Boards.

Treasury:
Livia Esterhazy has been Chief Executive Officer of WWF-New Zealand since May 2017. She has a strong professional background in marketing, brand and communications, including senior leadership roles with Clemenger BBDO (Managing Director 2015-2017), Assignment Group (Managing Partner 2012-2014) and Saatchi & Saatchi (General Manager 2009-2012). Her career has also included management positions with Kiwibank and the Commonwealth Bank of Australia. Livia Esterhazy is on the Board of Wellington Trails Trust and is a previous member of the Advertising Standards Board.
Us:
The New Zealand Initiative welcomes entrepreneur Stephen Jennings, CEO and Founder of Africa’s largest urban development company, Rendeavour, onto its Board of Directors.

“It is an honour to have Stephen join our Board,” said Roger Partridge, Chairman of The New Zealand Initiative. “Our mission is to create a more prosperous New Zealand for all New Zealanders. Jennings is a visionary international business leader and will bring valuable insights to the Initiative’s work.”

“I am delighted to be joining The New Zealand Initiative Board. The Initiative’s methodological, fact-based approach to policy is ideally placed to improve public understanding on many of the key challenges and opportunities facing New Zealand,” said Jennings.

Jennings is one of New Zealand’s most successful entrepreneurs. For more than 20 years, the Taranaki-born economist and investor has been living and working in emerging markets. A pioneer of capital markets in Central and Eastern Europe and Africa, he is responsible for more than $200 billion worth of investment into these regions.

As the leader of Africa’s largest urban development company, Rendeavour, Jennings now helps build city-scale developments in some of the fastest growing cities in Kenya, Ghana, Nigeria, Zambia, and the Democratic Republic of Congo. The developments include homes, offices, industrial areas, schools and hospitals and allow residents to live and work within their community without the burden of commuting across already congested cities.

Despite his long international career, Jennings has always maintained great interest in New Zealand. He shared his views on the future of New Zealand’s economy at a dinner lecture hosted by the Initiative in 2016.
It's awesome that Stephen's on board with us. 

Stephen Jennings' dinner address is embedded below.

Wednesday, 19 September 2018

Confidence in the Vice Chancellor

In a prior life, I was on Academic Board at the University of Canterbury as Economics Department representative.

The meetings were usually tedious. Much of the point seemed to be to provide a forum for people to air their grievances so they could feel they were listened to, but without consequence. There'd usually be somebody who'd make a five-minute speech about how neoliberal managerialism was ruining everything, and then would be happy enough until making the same speech again a few months later. It all helped me realise that the point of meetings often is not to achieve any outcome at all, but to make people feel listened to. But it was also an important way of finding out what was all going on in the rest of the University and initiatives being pushed that we needed to pay attention to.

Universities run under a dual governance system. The academics run curricular affairs through one governance structure culminating in Academic Board; the administrators run financial management through a parallel and overlapping one. It's confusing as all heck for anybody outside of the system, and for many within it. The Dean of Sciences is the one responsible for academic matters within all of the degrees awarded under the Sciences. The Pro-Vice Chancellor for Sciences is responsible for financial management of the College of Sciences, HR and the like. Sometimes the Dean and Pro-Vice Chancellor are the same person. And any curricular changes would have to run through both systems because they had both academic and financial implications.

Academic Board would be the one that would be watching for things like policy around academic freedom.

The meetings generally included a report from the Vice-Chancellor on what was all going on at the University.

I'm trying to imagine going to a meeting of Academic Board after finding out that the Vice-Chancellor had apparently lied to the head of Academic Board.

The Chair of Massey's Academic Board met with their Vice-Chancellor Jan Thomas about free speech issues at Massey. David Farrar got a pile of documents by OIA from Massey, showing that the Vice-Chancellor had been working to keep Brash from visiting Massey well before any security concerns were raised. That presumably prompted somebody at Massey to send David the email that the Chair of Academic Board sent around at the University subsequent to her meeting with the Vice-Chancellor. Farrar quotes this bit.
I asked the Vice-Chancellor how long she had been aware of Dr Brash’s proposed lecture before she took the decision to cancel the lease of the room to the students. She told me that she had been aware of the event for many weeks and had been invited to attend. The students had also informed her that their planned programme of talks would include politicians from all New Zealand’s major political parties.

My understanding from what Professor Thomas told me, is that she had not considered cancelling the event at any point during that period, because she had no pressing reason to do so. She did not deny that she does not agree with Dr Brash’s views, but she pointed out that she had not at any stage banned him from campus nor insisted that the students disinvite him.
Maybe the Chair of Academic Board hadn't gotten things right. But if the Chair did, then the OIA documents show that the Vice-Chancellor was scrambling to find ways of blocking Brash's visit - and that suggests she was lying to the Chair of Academic Board.

I don't know how things will play out at Massey.

Vice-Chancellors do not report to Academic Board; they provide updates to Academic Board. The Vice-Chancellor reports to University Council, chaired by the Chancellor. Sometimes the VC sends the Deputy Vice-Chancellor to report instead if there's a scheduling conflict, but during my time on Academic Board, the VC did seem to make a point about being available to front to Board.

But I'd expect that a Chair of Academic Board who had been led to mislead colleagues because the Vice-Chancellor had lied to her would be in an impossible situation if the Vice-Chancellor continued; resignation as Chair of Academic Board would seem most appropriate. Academic Board is made up of academics on permanent appointments; it isn't like the Chair would be quitting her day-job. I can't imagine wanting to continue in that position, which requires having a decent working relationship with the VC, if the VC had lied to me and caused me to mislead my colleagues.

And I would hope that somebody on Academic Board would ask the Vice Chancellor, at her next report to Board, why they should believe a word she says when she seems to have lied to the Chair of Academic Board.

I would hope that the Chancellor would step in to resolve things before it ever came to that.

Thursday, 13 September 2018

Not-so-sweet advice

Imagine that you were the Chief Science Adviser for a Ministry.

You need to produce a short briefing note to the new government for some issue in your Ministry's remit.

Your Ministry had, just a couple weeks earlier, released a comprehensive report on the topic that your Ministry had commissioned from a top economics consultancy. Your Ministry had had the report since August, but had only just released it.

What the hell must be going through your head if your briefing note to the Prime Minister via the office of the government's Chief Science Adviser presents the opposite conclusion to the commissioned study and doesn't even mention that the commissioned study exists?!

So Peter Gluckman was on Radio New Zealand a while back. He talked about mounting evidence for sugar taxes. I'd heard him on the radio and wondered what the heck he was on about, but he's always had a soft spot for sugar taxes and never seemed to understand the economics around it.

But Nick Jones at the Herald followed up with an OIA request asking what he was basing things on.

And his office provided a two-page document produced by the Ministry of Health's Chief Science Adviser, Dr John Potter, summarising his views on sugar taxes. It was a very cursory document - tons of bullet points saying things like "Recent studies from Berkeley", so it's hard to tell which ones he's talking about.

But his note to the Prime Minister is dated 16 February. [updated on double-checking the date]

The NZIER report on sugar taxes, which said that most of the studies in the area are terrible but the ones that are sound find that the effects of sugar taxes on consumption are too small to have any plausible health effects, came out in January. It came out after I'd OIAed it from the Ministry - the Ministry had been sitting on it since August. [Update: I received the OIA on 31 January; NZIER released its report on its website on the same day]

And Potter didn't even see fit to tell the Prime Minister, in his memo on sugar taxes, that a comprehensive report commissioned by his Ministry reached the opposite conclusion to his two-page list of bullet points.

Just amazing. I can't imagine that Potter wouldn't have known about the NZIER study.

Anyway, Nick Jones got in touch with me yesterday asking for comment on Potter's two pages of bullet points; I had a chat with Hosking about it it his morning as well. [update: link here]

Our prior OIAed stuff is here; the NZIER report is here.

In the prior OIA stuff, Potter's a big fan of sugar taxes - and completely fails to understand John Gibson's work. But all that to one side: if you've got a report your Ministry commissioned and you disagree with it, better practice would be to note its existence and why you disagree with it rather than pretend it doesn't exist. Yeesh.

Wednesday, 12 September 2018

The sins of the Canadian father will be visited upon the Kiwi children

Visiting Canada with my kids would be a lot simpler if I weren't Canadian.

The kids are Kiwis. If we were all Kiwis and I didn't have Canadian citizenship, we'd just get an easy tourist visa. Done.

Canada's changed the rules for entry at the border. If they think you might be Canadian, you must travel on a Canadian passport. If Dad's Canadian, born in Canada, then the kids are likely sufficiently Canadian to need a passport.

But getting them Canadian passports requires proving that they're sufficiently Canadian. The process for proving somebody is Canadian is designed to weed out people faking being Canadian and who want to be Canadian and live in Canada.

It isn't designed for people forced to be Canadian by accident of their father's birth and who just want to go visit people.

And so there's a pile of stupid paperwork requirements that might make sense in the context of immigration control and making sure that non-Canadians can't fake being Canadian,* but that just stink when you're forced to do it if you want to be able to just go visit people.

If only there were some certificate of not-currently-deemed-Canadian that were easy to get and that would let them just use their Kiwi passports for travel. But oh no. Can't do that. Have to satisfy the High Commission that they're really Canadian enough.

The kids are currently sufficiently Canadian to be turned away at the Canadian border [or not allowed onto a plane] if they don't have a Canadian passport, but not sufficiently Canadian to have any easy way of getting a Canadian passport.

There's a big long form, and I have to send in my birth certificate, their birth certificates, a fee, wait five months for processing, then they'll have some "Yes you're a Canadian and you can now apply for a passport" certificate. And then we can apply for their passports.

You can check out of the Canadian Asylum any time you like, but you can never really leave.....



Anyway, I'm double checking with the High Commission on this one. It seems absurd, but it's a Canadian kind of absurd....

Update: the reply from the High Commission advised me to check the "Am I Canadian" quiz they have to see if the kids need to get their certificate of citizenship (less fun than it sounds). They also helpfully provided a list of some of the benefits of citizenship, none of which warmed my heart.

* We still need Canadian inspectors checking American backpacks for fraudulent Canadian sew-on flags in Europe....

Monday, 10 September 2018

Private-Public health partnerships

If I ever get homesick for Canada, a five-minute conversation with a Canadian government official's usually an excellent cure. It always reminds me why I left.

On Friday, I met with a few visiting Canadians to give a bit of a state of play on policy. One of them asked about the Pharmac system. I noted it seems the best part of the overall health system, but that I can't imagine that a larger country could get away with it - and especially not a country right next door to the US.

But as part of the background, I'd noted that we have a fairly standard mixed private-public health system: a public health system combined with a private system that seems to work rather well. The public health system can contract in expertise and capacity when it needs it; having that available makes the public system better.

And I got to hear the ever-so-Canadian phrase two-tier. It's the phrase that Canadians use to give themselves an excuse for not thinking. Somehow, Canada got its national identity wrapped up in being not-American, and the public health system is a big part of that. Canada's version of a public health system is not like New Zealand's - there isn't a complementary private system in the same way. Anybody suggesting one gets accused basically of treason. Because any private provision would be two-tier, and result in outrage on the CBC and claims that the system was becoming Americanised, rather than just being like most other public health systems.

So stories like these would never happen in Canada. Instead, the queues would just get longer.
Capacity constraints see Canterbury DHB spend $143m on private surgeries

Thousands of hip, knee and other elective procedures have been outsourced to private providers in Canterbury over the past five years at a cost of about $143 million.

Canterbury District Health Board (CDHB) members say increased outsourcing has been necessary to meet demand, especially given post-earthquake capacity constraints.

"There's no point having a philosophical objection to using the private sector, because if we weren't able to access it thousands of people would have missed out on publicly-funded elective surgery," Andy Dickerson said.
...
CDHB member Aaron Keown said the health board had been closely monitoring the volume and cost of outsourcing. The CDHB could be penalised for not meeting Ministry elective surgery targets, he said, and people needed to realise bringing operations back in-house did not necessarily result in large savings.
...

The CDHB spent the most on outsourcing procedures to private providers including Canterbury Orthopaedic Services, which trades as Leinster Orthopaedic Centre, Southern Cross Hospitals and St George's Hospital.

NZ Private Surgical Hospitals Association president Richard Whitney said the private sector was already the dominant provider of elective surgeries in New Zealand,.

It could perform many procedures "for the same price that the public sector would be credited with" and would play an increasingly important role as demand for surgeries increased, driven by an ageing and growing population.
Private health insurance here remains cheap. We have a high-deductible plan basically as catastrophic coverage. I cannot be bothered saving receipts for reimbursement for any of the routine stuff - and why bother? We don't have car insurance to protect against the costs of an oil change.

The mixed system just works.

But boy did hearing the term two-tier in that Canadian accent bring back terrible memories of how stupid public policy debates are back in the Asylum. So glad to be out.

Saturday, 8 September 2018

Zombie alcohol stats

We thought we'd killed it with fire a decade ago. But BERL's social cost of alcohol has shambled out of the grave. I hit it anew over at Newsroom:

Zombies are hard to kill. Since the classical zombie only really occurs in fiction, accounts vary. But it never seems easy. Things that would kill or at least stop any normal living creature barely seem to faze the undead.

Zombie statistics are at least as hard to kill. These statistics, despite being horribly unsound, insinuate themselves into public debate and stay there. Tim Harford’s excellent BBC series More or Less makes a running feature of the statistics that, no matter how often you think you’ve cut them down, pick themselves up and lumber on.

I was very surprised to see one of New Zealand’s worst zombie statistics come back to life a couple of weeks ago. Put to the grave almost a decade ago, it returned at Alcohol Action New Zealand’s conference in August. BERL’s Ganesh Nana was reported to have claimed that alcohol-related harm costs every New Zealander $1,635 per year, for an annual total of $7.8 billion.

The figure seems to be an inflation and population-growth update of BERL’s 2009 estimate of the social costs of harmful alcohol use. The figure was nonsense at the time; an inflation adjustment to nonsense is hardly an improvement.

Let’s go through just what went wrong in that prior study, and why I was surprised to see its resurrection.

Friday, 7 September 2018

Satisfaction (Treasury stakeholders can't get no)

So Treasury sat on its 2017 external stakeholder survey for a year. In February, it told itself that it would release the results of the survey when it had achieved sufficient progress in improving things. It provided me the survey this week in response to an OIA request, but who knows when they would have otherwise gotten it up on their website.* 

The 2015 version of the survey was up within a couple of months.

The survey results aren't all bad. But on the key area I've been worried about around Treasury's economic capabilities, they aren't good. We can apply our usual bit of skepticism where a lot of the respondents to these surveys would be other Wellington types who might have their own unreasonable reasons for being mad at Treasury, but that should be in the fixed effect.

I go through it in this week's Insights newsletter.
Among those people interacting with Treasury about its core business of economics, macroeconomics, and fiscal projection, satisfaction dropped from 70% in 2015 to 47% in 2017. The proportion of stakeholders viewing Treasury staff as well-informed dropped significantly, as did overall confidence that staff do a good job, that Treasury challenges thinking on critical issues, and that Treasury can offer insights.

One highlighted survey response noted that “Treasury staff are personally a pleasure to work with, but they don’t have a strong background in economic analysis.” It is no particular surprise that lifting the quality of staff was near the top of the list of things stakeholders wanted Treasury to focus on.

The August survey results were reported to the Executive Leadership Team in November 2017 and discussed in February 2018. This week’s letter from Treasury says they are working on building economic capabilities through measures like training existing staff and through recruitment.

When Treasury would have released the Stakeholder survey, barring being prodded, is anyone’s guess. Only four of fifteen hired by Treasury in the 2019 graduate recruitment round had at least Honours-level training in economics and finance; I doubt that counts as addressing the concerns raised in the survey.

The consequences of Treasury’s failed experiment in de-emphasising economics will be felt for a long time. Treasury needs again to be the place where top economics graduates want to work.
The OIA materials are all available at the link above as well.

I have another couple of requests now in; the OIA due date will be 4 October.

Treasury said that they're working on building economic capabilities through training and recruitment.

So I have asked for details on their in-house training programme, including any syllabus and curriculum, and any assessment or review that Treasury might have undertaken benchmarking knowledge provided through that programme against university training in economics.

On building capabilities through recruitment, I have asked for detail on the qualifications and fields of analysts, senior analysts, principal advisors and senior managers hired for each of the past several years, as well as the same detail on people leaving Treasury for the past several years. I know of a couple of great senior people who have joined Treasury recently, but I also know of other great people who have left. It would be nice to have a sense of that flow.

Finally, I've asked for more detail on Treasury's award-winning blinded recruitment programme.


I understand that the process also blinded the applicant's field of study, or at least that it did so for some recent years. I want to know more about that. 

I'd like to know:
  • at what levels of recruitment it applied;
  • over which years' recruitment it ran;
  • what evaluation framework was set up when they implemented the thing and any evaluation that was subsequently undertaken;
  • whether it really did scrub out the applicant's field of study
    • and, if so, over what period;
    • and, if so, what analysis formed the basis for deciding to do that, and what analysis was undertaken in assessing the effects of doing that;
  • on what basis Treasury was able to choose among applicants if they knew nothing about the applicant's grades, degree level, or university; 
  • what the applicant pool looked like in each of the last few years, what the pool of applicants extended interview invitations looked like, and what the pool of extended offers looked like (degree and majoring field). Basically, I want to know if economists stopped applying to work at Treasury or whether the blinding knocked econ applicants out, and what the time path there looks like. 
Stay tuned. Maybe they'll tell me.

* Update: the thing's on their website, but only listed as 2017. They don't say when it was undertaken in 2017. Colmar Brunton ran the survey in early August; responses were received by respondents from about 31 July, with a four-week response window. So all responses would have been in by late August. This was in the email I'd received from Treasury as a respondent, so you can see the timeline here:
What happens to the results?Colmar Brunton will analyse the results and provide a report to the Treasury in September.  The report will be published later on the Treasury’s website. Previous research has provided valuable information on what the Treasury needs to do to better engage our stakeholders.
Maybe they've only sat on it for 11 months if they received it late September. It's well out from 2015's 2-month turnaround.  

Sentence first, verdict after

It isn't crazy to think that maybe information problems have people are consuming a less healthy diet than they'd otherwise eat. If people had an underlying desire to eat healthier foods, you'd expect that providing more information might change their choices. 

But if provision of information didn't change their choices, that tells us something too. I'd interpret it as saying that people had basically been making the choices that were right for them all along and that information problems hadn't been affecting decisions.

Public health people conclude differently:
University of Auckland researchers looked at the way in which shoppers used Traffic Light Labels and Health Star Ratings on various food products and were surprised to find the labels made little difference to which foods were purchased.

The study's lead author, Professor Cliona Ni Mhurchu, said people who were interested in healthier choices used the labels more than the majority of survey participants, but overall none of the labels significantly changed what people bought.

There were other ways people could be encouraged to eat more healthily, including making healthier food available in different settings such as schools, workplaces and hospitals, she said.

"But what we also know is unhealthy food is readily available and heavily marketed so we really also need to be looking at marketing regulations."

Professor Ni Mhurchu said the government needed to become more involved in setting standards around how food was marketed, rather than leaving that to the Advertising Standards Authority.

"[Advertising is] not being monitored, [it's] not being evaluated, it's not the government setting the standard."
If you have really strong priors that nobody would choose to eat potato chips if they had full information, then showing that people don't stop buying potato chips when there's a health star rating on them only shows that people are too dumb to interpret the ratings. In that view, maybe we need plain packaging and big graphic health warnings. 

The same data always has multiple possible interpretations I guess. But the health people never seem to weigh the chances that a lot of people have different preferences and goals than the health people would like them to have, and that those preferences are also worthy of respect.

Thursday, 6 September 2018

Easterlin?

I'm glad that Thomas Coughlan and Richard Harman went to the Wellbeing Revival this week so I didn't have to.

Coughlin highlights the Easterlin paradox:
The case for assessing the welfare implications of Budget bids rests on what is known as the Easterlin paradox.

Developed by economist Richard Easterlin in the mid-1970s, the Easterlin paradox describes the point at which rising GDP ceases to translate into greater happiness.

Examples can be found at both ends of the scale. Countries riven by war and poverty would be markedly happier if they could add to their wealth, but the world’s wealthiest country, the United States, faces an epidemic of suicide and opioid addiction — clear symptoms of rising unhappiness.

The obvious question, then, is how will a Wellbeing Budget fix these problems? 
If that formed much of the basis for what was going on at the meetings, that's a bit of a worry. The Easterlin paradox was resolved a decade ago. 

Stevenson and Wolfers show that there is a link between economic development and happiness and between economic growth and happiness - at least across Europe and Japan. When they take another indicator, net affect (positive experience less negative experiences), they find strong correlation with log household income and log GDP per capita. 

They conclude:
The time-series part of our analysis is necessarily only suggestive: repeated (and comparable) surveys of subjective well-being data are both noisy and scarce, and hence they speak less clearly. In many cases we find happiness within a country rising during periods of economic growth and rising most rapidly when economic growth is more rapid. The United States stands out as a notable exception: Americans have experienced no discernable increase in happiness over the past thirty-five years (and indeed, happiness among U.S. women has declined). In contrast, Japan stands out as a remarkable success story, recording rising happiness during its period of rapid economic growth. So, too, life satisfaction has trended upward in Europe, and this trend has been most evident in those countries in which economic growth has been most robust. All told, our time-series comparisons, as well as evidence from repeated international cross-sections, appear to point to an important relationship between economic growth and growth in subjective well-being. Quantitatively, the time-series well-being–GDP gradient yields a role for income similar to that seen in our within- and between-country
contrasts. Taken as a whole, the time-series evidence is difficult to reconcile with earlier claims that economic growth yields no boost to happiness. 
It would be stupid to say that income is the only thing in a utility function. There are lots of things in a utility function. But it's also odd to be hanging much on the Easterlin Paradox. 

Tuesday, 4 September 2018

The Equalizer

My column in last week's National Business Review ($) went through a new StatsNZ series on government spending on health and education by income quintile. 

A snippet:
Statistics New Zealand’s latest figures show that while households in the highest income quintile spend about $150 (or about 38%) more on education services than households in the poorest quintile, government spending on education services is about $1100 higher for households in the poorest quintile. Central government education spending in 2015-16 averaged just under $1500 for households in the highest income quintile and just over $2600 for households in the poorest quintile – despite tertiary education spending that skews toward richer households.

A more thorough analysis would and should adjust for age differences across households in different income quintiles; that work is impossible from the data released.

Government service effects

We can look, though, at the effect of government spending on in-kind transfers like health and education on one measure of inequality: the ratio between the highest and lowest quartile, or the Q5:Q1 Ratio. That ratio has a lot of problems as well, not least of which being that it takes annual snapshots of household incomes and misses how household income moves over an individual’s life cycle. But it does let us get a handle on the effects of government services.

Gross disposable income, which includes taxes and cash transfers, is about six times higher in the top 20% of households than in the bottom 20% of households. Adjusted disposable income adds in government spending on in-kind transfers like health and education. Once we adjust for those in-kind services, the ratio drops by a third.
Richest quintile as multiple of poorest quintile.

Monday, 3 September 2018

Vacancy rates

Sitting at my desk in Wellington, it's easier for me to tell you the housing rental market vacancy rate for any city in Canada than it is for me to tell you the rental market vacancy rate anywhere in New Zealand, Wellington included.

The Canada Mortgage and Housing Corporation (CMHC - a government outfit) has stats on the vacancy rate in every metropolitan region from 1992 through 2016. I don't know if they've stopped producing the series - the last update was March 2017.

In New Zealand, the best I'm aware of is disjointed stats from the different real estate companies about vacancy rates for the properties they handle.

Why does it matter to know? In Canada's stats, we can see that the 2016 vacancy rate in Saskatoon, Saskatchewan was 10.3% while it was less than 1% in every part of British Columbia. My old home town of Winnipeg had a vacancy rate of 2.8%.

In last week's Insights newsletter, I argued that one plausible explanation of poor tenant experiences is lack of competition among landlords in markets where vacancy rates are low. That's a testable hypothesis. If tenancy outcomes are no better in places in New Zealand with high vacancy rates, then that's a different problem. We'd also hope that, were land use rules fixed, low vacancy rates would be a leading indicator for new construction. But it isn't easy to find anything reliable for New Zealand. When I'd checked, I could find news stories written on the back of one property company or another's release on vacancy rates on the properties they handle, but nothing systematic.

It doesn't seem like the kind of figure that would be hard for the new Ministry of Housing to put together out of tenancy bond data and the number of properties for rent by town or city on TradeMe.

Friday, 31 August 2018

The market's a harsh mistress

I have a bit of fun in this week's Insights newsletter. Our first column tends to hit the big issue of the week; our second one generally hits a bit of our research work; the third one's where we play.
It was the year 2019 and Kiwis had had enough. It was time for legislation to finally protect the interests of those of us stuck in the car leasing market.

It wasn’t always this bad. The market used to be able to keep up with demand for cars. Mostly. Sure, the cars available overseas were better and cheaper. Some overseas families even had more than one of them! Normal people couldn’t really get those cars here because of import controls.

The 1980s reforms hadn’t touched the car market. Petone still made lots of cars.

But the reforms had touched it indirectly. People saw the cars available overseas, either while travelling or on television, and wondered why the new ones here were of such poor quality and high cost by comparison – and why so many people were stuck driving old and run-down ones. Higher incomes built greater expectations.

The government tightened car regulations to try to close the gap, but that always wound up either making cars worse in other ways, or increasing prices for those who could least afford it, or both.

It was annoying, but we put up with it.

Fat-cat families with more than one car had started leasing their second cars to those who couldn’t afford one in the late 80s. Car ownership rates started their long decline. And we started seeing stories on how cars in Houston didn’t cost multiples of the median income.

The leasing market was never that nice. If the owner’s kid came back from OE a bit early, you might have to scramble to find another car in a hurry. You were usually stuck doing far more of your own maintenance than expected. And the lease price could jump at the owner’s discretion – take it or leave it.

The immigration boom made everything worse. Some brought their cars with them – lording their well-built Honda Civics over everyone else. But the rest simply added to the pressures on the car market. The local production plants just couldn’t keep up. People even wanted to ban immigration to restore automotive affordability.

Finally, in 2019, the government decided to really fix things and protect renters.

It opened the market to imports.

Scarcity is power. Fixing the rules that artificially constrain supply enables the best regulator of all: the competitor down the road.

Renting a house as easily as leasing a car doesn’t have to be science fiction.
The government's looking at strengthened tenant protection. But the best protection for tenants is a high apartment and rental home vacancy rate. If you don't let people build to keep up with demand, landlords have power. You can try to fix that with stronger tenancy tribunals and changes to mandatory provisions in tenancy agreements, but ever notice how we don't need car leasing tribunals?

I get that there are problems in the rental market. If the underlying problem is a low vacancy rate, and low vacancy rates give landlords power, regulation is like squeezing on a balloon - the constraint pops out in other places. And worry too that if the incidence of some of these measures now is on landlords in constrained markets, that incidence will flip once housing supply issues are eased.

It'll be worth revisiting whatever Labour puts in on tenancy protection if Twyford's housing supply measures prove successful.

Thursday, 30 August 2018

Police effects

Geoff Simmons makes some good points about overreliance on prisons, but I think he's got this part wrong:
The Labour/NZ First answer of more police is also no real solution either. More police means more people in prison and we know more people in prison just leads to more crime.
Empirical work on police numbers and crime is hard because of obvious endogeneity issues: police hiring is also a response to crime rates.

But the best approach I've seen to the problem finds an elasticity of crime with respect to police numbers of -0.3. A ten percent increase in the number of police reduces the crime rate by 3 percent in US work. If we figure that police have diminishing marginal effects at the relevant margins, and that our policing intensity is lower than America's, then effects here would be stronger. I'd done some back-of-the-envelope reckons on this a while back suggesting that police hiring could be rather cost effective. Increasing the probability of being caught can be pretty strong deterrent.

Wednesday, 29 August 2018

Non-serious students, one serious problem

John Gerritsen at RNZ picks up last week's NBER study on how the PISA rankings would change were students to take the test more seriously and rounds up some local reaction:
Michael Johnston, senior lecturer in education at Victoria University, said the study's assumption that New Zealand students were not trying hard enough if they left questions unanswered might not be correct.

Dr Johnston said it might be a by-product of the NCEA assessment system.

"In NCEA students can opt out of certain standards and certain aspects of assessment and still get credits for what they do, whereas in most other countries that's not true," he said.

"So if our students are used to that way of thinking about assessment then perhaps that's why they show up as being more likely to be what the researchers call non-serious."

Dr Johnston said NCEA could be improved, but it should not be changed merely in order to improve the country's PISA scores.

"That would be a perverse thing to do," he said.
A bit of context is likely necessary: New Zealand's rise in the rankings, were everyone to take the test seriously in all countries, is second only to Portugal's. So the problem affects New Zealand's ranking far more than it does most countries' ranking.

I agree with Michael that it would be odd to re-jig NCEA just to goose the PISA numbers.

But I wonder whether the habits some of these kids get at NCEA carry over to university - to their detriment.

Once you hit university, you don't have standards, you have proper courses. You have to learn all of the material in the course if you want to do well, and you can't opt out of the parts of it that you don't like. The exams at mid-year and at year-end are comprehensive, across the whole of the material covered in the paper, rather than just little unit tests after each chunk of learning. And deciding at the end of the year not to do the exam doesn't mean that you just get no score and no record of having attempted, it means you get a fail. 

I agree with Richard Dykes' suggestion later in the RNZ article that teaching to the PISA test would be a poor idea. Reminding kids that those kinds of tests require filling in all the answers, and handing out an old one for the kids to practice with at home if they've never seen that kind of test before, does seem a good idea.

Friday, 24 August 2018

Low stakes PISA

New Zealand's low PISA rank seems, in part, due to Kiwi students not taking the test very seriously.

Akyol, Krishna and Wang develop a measure checking whether a student is taking the PISA test seriously (leaving questions blank while having time left, for example), and see whether it affects country rankings compared to simulations where children take the test seriously. [HT: Marginal Revolution].

New Zealand's PISA rank is 17th for the year they're checking. In a simulated world in which students in every country took PISA seriously, New Zealand's ranking would rise to 13th. If New Zealand students stayed as they are but all other countries moved to take PISA seriously, we'd fall to 26th in the simulations. And if only New Zealand moved to have all students take PISA seriously, we'd rise to 10th.

The change for New Zealand is substantial. Portugal would see the largest PISA rise in a simulated world where all students took PISA seriously - an increase of five places, from 31st to 26th. New Zealand's four-place rise from 17th to 13th ties with Russia's rise from 39th to 35th as second highest. Germany, Switzerland and Sweden would all rise three places, Japan would rise by two places, and seven countries would rise by one place.

Singapore's top position would be unaffected in any state of the world.

Unfortunately, this is only a single-year snapshot so we can't say whether it explains any of the decline in NZ's PISA rankings. We'd need a similar simulation for earlier PISA years.

This could be a fixed-effect that has always obtained for slacker Kiwi students. In that case, the PISA decline is real and unaffected.

It could be an effect that's not as bad now as it used to be. The paper suggests that, in countries with a lot of high-stakes testing, test fatigue may have students treating PISA less seriously. Kiwi kids up to that age wouldn't have seen a lot of high-stakes testing, but would have in earlier waves of PISA.* If there's been a decline over the period in the frequency of high-stakes testing, that would suggest more test fatigue in the earlier era. According to the paper, that would mean even more unseriousness in the prior era, so our earlier scores higher scores would be adjusted upward even more than our current scores.

Or you could imagine that the lack of high-stakes testing would have kids just not even thinking that it might matter to put in the best quick guesses on the last questions if they're short on time - in which case the decline could be due in part to kids now generally not knowing how to write tests. That would be consistent with observations of cohorts of incoming university students that seemed to get worse at test-writing.

Whatever the case, it does suggest that New Zealand could improve its ranking by rewarding kids for doing well on their PISA tests.


* The authors don't provide their coding of whether countries are counted as high-stakes or low-stakes.

Thursday, 23 August 2018

MMP Horse Trading

Occasionally Canadian politicians and pundits get excited about electoral reform and some will point to MMP. 

Here's what MMP coalition politics currently looks like. New Zealand First got just over 7% of the vote and 9 seats.
New Zealand First's loyalty to the racing industry has galloped beyond tax breaks for good-looking race horses to include several all-weather race tracks for the industry.

Racing Minister Winston Peters secured a tax change in the Budget this year to allow new investors to claim deductions for the cost of horses based on the "virtue of its bloodlines, looks and racing potential''.

It's now been revealed $30 million of contingency funding in the Provincial Growth Fund has been earmarked for the coalition government pet projects and the racing industry is set to benefit.

Regional Economic Development Minister Shane Jones said the money set aside is at the upper limit of what he expects will be needed.

The projects, which include a Dunedin centre of digital excellence, the Te Hiku Sports Hub in Kaitaia and several all-weather tracks for the horse racing industry, all came out of coalition talks between Labour and NZ First.

Cabinet has effectively already approved them and while final costings are yet to be done, the provincial growth fund will stump up the cash.

"These projects can be seen as a coalition dividend, the origins go back to the formation of the government. And now that they're moving through the machinery of government I can assure everyone that they'll be treated in a robust and thorough manner by the officials.''
Politics always involves horsetrading...

Jumping off bridges just because everyone else is

I thought we were above this kind of stupidity.
There has been no increase in New Zealand's terror threat level. But documents released by the Aviation Security Service (Avsec) under the Official Information Act note the scanners "are becoming the norm" in international airports.
We're getting the stupid porno-scanners, with some modesty-shielding on the pictures. Expect your airport experience to come with worse delays for no benefit.

We had a good run. I loved how this place avoided following along with everybody else's stupid overreactions to everything. I just have to keep remembering that everywhere else is still worse.

Wednesday, 22 August 2018

Overestimating soda tax effects

Waikato University's Professor John Gibson's letter in the Economist (18 August 2018):


Tuesday, 21 August 2018

A simple landfill calculation

That this one comes up so often speaks poorly of our basic numeracy and sense of scale. There's basically no chance that landfills expand to take up any substantial part of the country.



This is the kind of back-of-the-envelope thing that everybody should be able to do in their head.

Kate Valley services Christchurch. It has 1000 hectares total, only a tiny part (37 hectares) of which is actual landfill - the rest is forest buffer and the like. But let's call it 1000 hectares. It has a 35 year life expectancy. The Christchurch area is about half a million people. Let's keep all the numbers round to make life easier - we're looking for order of magnitude stuff here really.

If Kate Valley can handle 500,000 people's trash in a 1000 hectares for 35 years, then it could handle a million people's rubbish for 17.5 years. A thousand hectares divided by 17.5 is about 57 hectares per year per million population.

Let's be conservative and round that on up to a hundred hectares per million population per year. It makes the numbers easier. I'm pretty sure that Kate Valley covers the whole Canterbury region of about 600,000 people, so I should be rounding down instead. But it really isn't going to matter, and I can't be bothered to check fiddly details.

New Zealand's land area is about 26 million hectares. Let's restrict ourselves to agricultural, non-arable land. Basically land that isn't in crop but can be accessed. There's about 10 million hectares of agricultural, non-arable land. I ruled out arable land because it's more expensive and y'all have some kind of potato fetish that if anybody proposes doing anything on ground that could be growing potatoes, your heads explode because importing potatoes is somehow worse than importing anything else. So we won't include that land in the calculations. Pukekohe is safe. But I'd expect there's a pile of other land that could be used that I'm not including too. 10 million hectares is a nice round number for easy order-of-magnitude calculations.

Let's suppose that New Zealand's population doubled to 10 million people. Those ten million people would be using a thousand hectares per year. That's another easy round number.

There are a thousand thousands in a million, and ten million hectares to play with, so it would take about ten thousand years to use up all of the non-arable agricultural land for landfill. Those are numbers big enough that it's impossible for errors in my rough figures above to much matter. If the use rate is double what I'd put up, then it's 5,000 years instead of 10,000 years.

"But we'll run out of land!" arguments never have an appropriate sense of scale. Nor do they ever have any appreciation of basic economics. If scarcity did start biting, land prices would bid up. In the landfill case, that would mean tip fees would go up - and markets would do their usual thing. So don't come away from this with the dumb-take that Crampton figures that all the paddocks should turn into landfills. I'm pointing out rather that land is far from scarce and putting some ballpark numbers on it for a sense of scale. And if land ever started becoming scarce, the price system already deals with scarcity.

Addendum: I've switched to screencaps from Twitter's embed code because too many folks have started nuking their accounts and making my old posts that embed them look like bomb sites.

Treasury needs more than more economists

Suppose that the Minister of Finance asked Treasury for advice about a Ministry of Health budget bid. In our hypothetical case, one of the District Health Boards had mishandled hiring over several years. The Medical Officer of Health’s office had staffed up with armies of lawyers able to object to every single alcohol licence renewal, but the DHB had not hired nearly enough doctors and nurses. The budget bid showed that, without additional doctors, a lot of people were likely to suffer badly for want of service.

It would be hard for government not to bail out this hypothetical DHB. But we might hope that Treasury would advise some governance changes at the DHB to prevent the problem from recurring there or elsewhere. Treasury must balance different Ministries’ competing claims for scarce funding; economists at Treasury would understand the incentive problems created by rewarding poor practice with greater funding.

In last week's National Business Review (print edition), I went through more of the problems with Treasury's having de-emphasised economics. Just hiring more economists there isn't enough.

I noted the worrying bits I'd been told about from Treasury's internal staff survey.

I've copied a few snippets from the print piece below; I'll link it once it's online (we have an ungated version here now).
I have requested the [2017 external stakeholder] survey as well as Treasury’s reasons for failing to follow prior years’ practice in putting it up on Treasury’s website. But I have also informally seen parts of it, as these things have a way of floating around town.

And I think I know why Treasury has not released it.

The summary table shows every single measure of stakeholder satisfaction has declined since 2015.

Results in prior years were worse on some measures than in 2015, so it would be a mistake to call this an across-the-board longer-term downward trend. But for the key issues related to economic capabilities, decline is evident – and especially from 2015 onward. Perceptions that Treasury staff are well-informed ranged from 74% to 76% from 2011 through 2015 before dropping to 66%.

Confidence that staff do a good job ranged from 74% to 77% from 2011 through 2015 before dropping to 68%. And the only measure on which 2017’s result was not the lowest was agreement that “I can offer the Treasury insights” – a measure of ambiguous interpretation.

I also understand the sharpest drop in satisfaction with Treasury was among those who generally interact with Treasury about economics. The 2015 survey showed that 70% of stakeholders interacting with Treasury about economics, macroeconomics, or fiscal projections were satisfied with that interaction. I understand that the current survey has that figure below 50%.
I also put up the declining internal quality scores assigned to Treasury policy advice papers (from the annual reports).

The measure of the quality of advice suggests there's a problem. The internal staff survey says there's a problem. The external stakeholder survey says there's a problem. But Treasury still goes and celebrates getting an award for not hiring economists. Treasury needs more economists. But it also needs to be the place where good economists want to work. Celebrating not hiring economists doesn't help with that.

During my time at Canterbury, Treasury and the RBNZ competed for our best honours students - and nobody bothered trying to hire until those two had had their picks of the litter. In the prior era, nobody moved before Treasury and RBNZ because they expected that the best students preferred to wait to see whether they'd get an offer from Treasury or the Bank.

I've been told since then that some are hiring before Treasury and that that's making it harder for Treasury to hire, but that has to be endogenous to how graduates rank an offer from Treasury relative to other places. If folks are moving ahead of Treasury, it might be because folks aren't expecting to be left hanging while an applicant offered a job waits to see if an offer from Treasury's coming.

Perhaps Treasury should be having chats with the graduate studies coordinators in the different departments to see what's going on.

If a private company showed declining product quality, staff saying they were losing expertise and that expertise in the core business isn't valued, and external stakeholders saying things were going down, and it were all consequent to a push by the Chief Executive to diversify away from the company's core business...

Monday, 20 August 2018

#NotAllCanadians

Those keen on hearing a different kind of Canadian take on immigration and diversity from that which would have been provided a few weeks back in Auckland might hit this coming talk by Canada's Immigration Minister at Victoria University:
Managing Migration - The Canadian experience

27th Aug 2018 11:45am to 27th Aug 2018 1:00pm
Rutherford House Lecture Theater 2 (RHLT2)

The Honourable Ahmed Hussen, Canada’s Minister of Immigration, Refugees and Citizenship, is visiting at the invitation of the Government of New Zealand. In this public presentation, co-hosted by Victoria University of Wellington and the High Commission of Canada in New Zealand, Hussen will discuss Canada’s “managed immigration model”.

Canada’s approach to immigration is based on a multi-year plan for permanent immigrant admission levels and economic, family and humanitarian programs to grow Canada’s economy and contribute to an inclusive society. Through settlement services and partnership with community actors and all levels of government, Canada supports newcomers to fully participate in the economic, social, cultural and political life of Canada.

There will be an opportunity for a questions and answer session, followed by light refreshments once the talk concludes.

Register

Saturday, 18 August 2018

Zombies live

Nine years ago, BERL put out its study on the costs of alcohol use.

They're now pushing an inflation-adjusted version of the figure. The figure isn't good, and that they're pushing it now is worse.

The study was riddled with problems and became a laughingstock among economists. Among the methods BERL used to get a gigantic figure on the costs of harmful alcohol use:
  • Including every dollar spent by drinkers on alcohol if they consumed more than a medically-set threshold. You can't do this unless you're assuming that there are zero benefits associated with those drinkers' consumption. The threshold was equivalent to about two pints of strong beer per day. That's more than I drink, but it's odd to assume that folks consuming at that level get zero benefit from it.
    • Oh - that spending included excise tax. They included the excise tax paid as a social cost. So whenever you increase alcohol excise tax, you increase the measured social cost of alcohol unless consumption drops by at least enough to offset the increased expenditure per-unit. They eventually fixed that part when I mocked them for it; dunno if the updated figure includes excise paid by heavier drinkers as a social cost or not. 
  • Double-counting by including lost output among those who die early because of excessive alcohol use, and the value-of-statistical-life measure used by MoT which is inclusive of all costs of death including lost output.
  • In tallying health costs, they took Collins & Lapsley's aetiological tables that give the proportion of the burden of each disorder associated with alcohol use, then zeroed out all the disorders where alcohol reduces health costs. 
  • In tallying crime costs, they used a survey of prisoners who were asked how much alcohol contributed to their offending. Possible answers were "not at all", "a little", "some", "a lot", or "all". If the offender said at least "some", BERL attributed 100% of the costs of that crime to alcohol. 
    • Oh - they also counted the lost output costs of incarceration by assuming that those in jail would have been on the average wage otherwise. That doesn't make any sense unless you're trying to inflate figures. 
I could go on. The full tally is summarised here; the full report is here. Remember Marge listing Homer's failings at Catfish Lake? Anyway, maybe about a fifth of BERL's tallied figure could plausibly count as policy-relevant costs under more normal ways of handling things. 

BERL did not come out well from that study. Nana had to defend it on Jim Mora's show. That did not go well. It was called "Shonky" by a Treasury Deputy Secretary in the National Business Review - but I understand they had to pull back from that because the reporter had characterised it to the Dep Sec as a cost-benefit assessment that had forgotten to run the benefits side rather than as a cost-of-illness study that included a pile of private costs as net social costs by assuming the associated benefits to be zero. 

They presented it at the NZAE meetings; I was discussant. It was standing-room only because Matt Burgess and I had released our review of the report ahead of the meetings.

Geoff Palmer defended the study, and hired Marsden Jacob Associates to back him up on it since he was using it in his Law Commission review. They presented it as an independent review, but note that it's Marsden who was presenting at the anti-alcohol conference this past week. I'd summarised the Marsden-Jacob review here

This past week, BERL provided an updated measure at an anti-alcohol conference. The reporter who called me about it said it was an inflation-adjustment of the old figure rather than new workings; I haven't seen the new figure's workings to check. It's a higher figure than you'd get by inflation alone, so I expect they took the per-capita equivalent of the old figure, inflation adjusted it, then inflated by population increase over the period - but I don't know for sure.  
Eric Crampton, from think tank NZ Initiative, said many of Nana's figures were based on the 2009 study which had been mocked in economic circles for things such as double-counting and counting factors that shouldn't be counted.
Using total cost figures to inform policy was useless in cases such as this. For example, raising excise on alcohol may penalise moderate drinkers but studies showed would only slightly deduce what heavy drinkers drank.
That's not quite right. I'd said that my remarks were based on the 2009 study and would apply to the current one to the extent it relied on the old one. I haven't seen the new one.

But there are two big annoying things.

First, we're again back in the "let's make a big stupid number" world rather than thinking about cost-effectiveness. 

More worryingly, it appears BERL no longer worries about reputation cost associated with that prior work, which was plausibly by now well behind it. Why would you tie your name back to that mess now? None of the plausible answers are good. 

Tuesday, 14 August 2018

SST on vaping


While overall it's pretty favorable to that folks should be able to switch from smoking to vaping, there's still an overlay of unease about the companies that might be providing vaping kit. Regulatory uncertainty here has kept larger companies out, like the larger tobacco companies' vaping products; smaller NZ and international players have supplied vapers here instead.
With Big Tobacco-owned brands dominant in many markets, former smokers increasingly buy vapes from the same companies that sell the cigarettes they have given up.

Although Big Tobacco describes this pivot as about providing healthier options for smokers, others are cynical.

"What is the evidence that the tobacco industry is moving to a non-tobacco business model?" asks George Thomson, an Associate Professor at University of Otago's Department of Public Health.
Some tobacco companies are pushing hard on vaping, others haven't moved as far into that space. But I don't much get why any of that would be relevant to an appropriate regulatory framework here for vaping. Requiring plain-packaging warnings designed for smoking on reduced harm products doesn't make sense, regardless of whether the product was made by a tobacco company or someone else.
"The lesson that both New Zealand and the world has learnt is that you have to keep the tobacco industry out of the policy process," says Thomson.

"I think that equally applies to the vaping industry. Their business is to sell an addictive product to people and to make money from it."
It would be bad to let large incumbents set the rules in any industry - it would be hard to avoid bias against smaller competitors. But it's silly not to listen to those who have to run their businesses under those regulations.
"The worst thing New Zealand can do is introduce an overly restrictive regulatory framework," says [The New Zealand Initiative's Jenesa] Jeram.

"That's the kind of framework that favours the big companies that can afford to put in large applications and to meet all of the regulatory hurdles, and would come at the expense of the smaller players."

In contrast, Thomson — a self-acknowledged hard-liner on vaping — favours stringent regulation as a step toward New Zealand eventually becoming nicotine free.
It's good that Thomson's made clear that his goal is a nicotine-free New Zealand rather than just reducing the harms from smoking. Regulation intended to stamp out all use of nicotine will differ from that intended to reduce harms. If you want to minimise use, then setting up costly regulations to create a quasi-cartel among the largest companies will reduce consumption.

Jenesa's report on vaping is here.

Monday, 13 August 2018

Bag Ban

The Ministry for the Environment's consultation document on banning plastic bags is out.

The key table is in the appendix. Or at least the most interesting table. It shows, from a Danish study, the number of times a reusable shopping bag would have to be reused to have less environmental impact than current disposable bags.

The consultation document provides no cost-benefit assessment, but Question 8 asks those making submissions to assess whether the benefits might outweigh the costs.

I can only speak for our own household, but I doubt we're that we're that atypical.

We have a few reusable bags at home. The ones we have get reused a lot, because we use them on planned trips to the store. But most of our trips aren't like that. Most of them are grabbing a few things on the way home after getting off the bus. Maybe other people are happy to carry around reusable grocery bags every day on the off chance that they might need to grab milk, bread, eggs and butter on the way home. I'm not. On those trips, we use the disposable plastic bags. Because what else are you going to do? Walk home, get a bag, walk back to the shop? It's absurd.

The more likely outcome: buying the reusable bags on those trips, accumulating a stack of them at home, then finding some way of disposing of them down the line. The number of times these things get reused will be endogenous to whether disposable plastic bags exist. I'm expecting that the reuse rates will be dropping.

I also have a few hundred of the disposable bags now on order from Ali Baba because they're too useful around the house to do without. It may also be fun to bring those to the market for use as shopping bags after the ban.

Oh - another depressing part. MoE includes this line.
Retailers will profit from not having to provide free bags and by selling alternative carriers, and are in a good position to help their customers to transition.
Not a lot of economic intuition on display here. If it's true, it means that customers will choose stores based on whether bags are available. If that's true, the value destroyed by banning them is substantial. 

Saturday, 11 August 2018

A beclowning to come

Remember how Parliament beclowned itself in the Committee hearings about Uber? They fundamentally didn't understand the technology or how it worked.

If this makes it as far as select committee, we can at least console ourselves that the hearings will be entertaining.
New Zealand could follow the United Kingdom in bringing in age restrictions for online pornography and blocking websites which refuse to comply.

Department of Internal Affairs Minister Tracey Martin, who also holds the children's portfolio, says young people are being "bombarded" by internet pornography and she wants censorship laws to be strengthened.

"This is a really, really big issue to New Zealand and we are going to have a serious conversation about it," she told the Herald.

"And I hope to make sure we have this conversation in this term of Government."

Martin supports the approach of the United Kingdom, which has ambitious - and controversial - plans to introduce mandatory age verification for pornographic websites later this year.
Interesting questions could include:

  • How will government develop a list for a Great Filter? Does it know about the problems in the UK's list and age verification setup
  • How does this mesh with New Zealand's privacy regime? If a foreign website is compelled to collect personally identifiable details on Kiwis that they would never otherwise wish to collect, what obligations do they face under our privacy regime? How can we tell whether those obligations are being met? What recourse might a Kiwi have in case of breach? Could a Kiwi sue the government if information produced under state compulsion were leaked and used inappropriately? 
  • Does the government know what the letters V, P, and N might together mean in this context?
  • What will be the appeal provisions for sites wrongly listed as being pornographic in nature, and age-blocked? Would they impose undue burden on millions of website owners, and on every Kiwi who wants to find information on topics where bots do a hard time in knowing it when they see it, from sexual health to breast cancer?
  • If they follow the Brits in having "porn viewing codes" issued to those over the age of 18, what do they do when somebody leaks the code number and tracked viewing habits of Cabinet Ministers? Like, if Winston Peters is worried somebody leaded his Superannuation details...
  • Will our porn-watching habits be included in IDI? 
  • Why does the government think there is any market failure here when parents can already make use of parental controls if they wish?

Wednesday, 8 August 2018

A picture of a conflict of laws

I'd noted there were likely to be fun conflict of laws issues when reduced harm tobacco products were simultaneously required to comply with tobacco plain-packaging warnings about the dangers of smoking, and forbidden from making misleading claims on the labeling under standard consumer law.

Here's what it now looks like. Philip Morris's Iqos device heats tobacco without combustion. And this is how they are required to package the 'heets' tobacco sticks used by the device.



I wonder how the Commerce Commission will treat it if someone complains that the packaging is misleading. They could not provide any prior advice about how they would treat it

Friday, 3 August 2018

A weak Treasury response

A friend sends me Secretary Makhlouf's response to my NBR column in last week's Treasury's internal newsletter:

Economics and the Treasury There is an opinion piece in today’s NBR critiquing the representation of economists at the Treasury, with a strong focus on our hiring of non-economists.  I hope that nobody takes this opinion piece personally.  Economics expertise is absolutely valued by the Treasury – we need it and want to build our capability in it – and we are always delighted to get job applicants with tertiary qualifications in economics.   But we also know that considering only people with economics degrees would mean shutting ourselves off from a very big pool of talented applicants.  Doing our job well requires knowledge, analytical skills, an understanding of context, and the ability to explain clearly.  It depends on the minds, insights, and life experiences of the people that make up our organisation.  Broader thinking strengthens rather than dilutes our capabilities as the Government’s lead economic and financial adviser, and our high performance in areas like forecasting, tax advice, analytics, long-term funding advice and many other fields demonstrates this.  I want everyone to know that we value the contribution you make to the Treasury irrespective of what your particular academic discipline is.
 Moreover, and more fundamentally, I think that this critique represents a strain of thinking which narrows the role of the Treasury and what good economics is actually about. I’ve spoken about this publically many times in the last few years.  And you can expect me to continue to stress this point in the public domain.
Good economics is broad. It encompasses any area where choosing agents face opportunity costs. I am not arguing for a narrowing of the domain but of a deepening of the economic talent pool at Treasury to make sure they're able to produce reliable economic analysis across it.

It would be absurd to claim that Treasury should only hire economists. A fresh economics graduate would make a hash of things if set to do Vote analysis work unless under the guidance of someone who really knew the accounts. I've got a PhD but I haven't any accounting background - I wouldn't be suited to a lot of that work either. Treasury needs accountants. It needs tax specialists. It needs lawyers.

But it doesn't need recruitment rounds where only one of nine recruits has a graduate qualification in economics when it's also been losing more senior economic talent.

And it doesn't need to be setting a recruitment framework that tells good economics graduates that Treasury is a place where they are not wanted. New Zealand is a small town. When Treasury goes around the country making recruitment pitches emphasising that you don't need economics to work at Treasury, and celebrate having not hired any single-major economists, decent graduates who want to do economics can easily conclude that that work is no longer welcome in Treasury.

And I know that I am far from the only one noticing the problem.

Working for Families as employer subsidy - again

Susan St John takes issue with what I'd written on Working for Families.

I'd tried posting a reply to her over at the Daily Blog, but my comment disappeared into the ether immediately, and when I tried logging in with Twitter, it told me I wasn't allowed. Maybe they don't like me there.

I'll hit it here instead, but wish I didn't have to type it again. And here's my original blog post.

Prof St John's primary argument is that subsidy incidence does not apply because of the lump-sum nature of Working for Families. It isn't a wage subsidy on top of earnings. Rather, the In Work Tax Credit provides you with $72 per week so long as you're working at least 20 hours per week, then abates if your family income gets high enough.

But I think about WFF around the extensive margin, with the in-work tax credit helping to front the fixed costs of being in work in the first place. Reservation wages can wind up being high if you have to deal with the hassle of sorting out being a working parent, but once that's fronted, things can be different.

Consider a worker with a high reservation wage, because of those fixed costs, and where the reservation wage is then higher than any employer's willingness to pay. For some people, the IWTC would be at least sufficient to flip things at that extensive margin by covering those fixed costs. You then get, from the employer's perspective, a normal looking labour supply curve from that worker that begins at the 20-hour mark, and unwillingness to supply less than that amount of labour. I don't see why you wouldn't get some division of the IWTC between employer and employee. But it hardly seems the most important thing going on with IWTC.

As I understood things in the mid-2000s, the point of WFF with the IWTC was to encourage people off of benefits and into work. Employment among single parents has increased - although at a cost to hours worked by married women and (to a lesser extent) by married men because of the higher EMTRs in the clawback ranges. Abolishing the work requirements for the IWTC, as St John recommends, turns the programme into a family-income-linked child benefit that doesn't do the same job in encouraging labour force participation. I suppose folks can argue the merits of that; I prefer the work linkage.

I still expect it would make more sense to boost the incomes of working families with dependents by increasing the in-work tax credit than by increasing minimum wages.

And I'm a bit perplexed by Prof St John's suggestion that I want to turn WFF into EITC (America's wage subsidy), and her consequent demand that I defend EITC. The in-work tax credit is broadly similar to EITC, except without a phase-in period.* I'd have to look a lot more closely at both to make any suggestions about changing WFF here to be EITC. 



* And FFS don't make a big list of all the other differences and damn me for not listing them all.

Thursday, 2 August 2018

More on that 'new' study on alcohol and pregnancy

I'd posted yesterday on some new work being reported by Radio New Zealand on drinking during pregnancy.

I didn't know where that work had been published because it's the rare New Zealand media outlet that will ever link to a journal. So I went to the older Superu work with which I was familiar. The numbers in the reporting looked very similar to the old study, so I figured it was safe to look to the old study's numbers on the more detailed breakdowns of heavier and lighter drinking. There's a sharp difference between heavy drinking during pregnancy and having a drink or two per week, and the media stuff I'd seen was all on the prevalence of any drinking rather than getting into that detail.

I'd figured that the new work must have been using an updated version of the Growing Up In New Zealand data - maybe a new wave of mothers had entered the dataset.

And then the Science Media Centre pointed me to the new study, out last Friday at the New Zealand Medical Journal. The nine-author piece uses the same dataset as the Superu study. The main analysis is very similar to the Superu study. It does not cite the Superu study but rather presents itself as new work.

Both studies present the raw stats and the proportion of women falling into the different consumption buckets at the different stages of pregnancy.

Both studies run some multivariate analysis using logistic regressions to get characteristics associated with different levels of drinking at different stages of pregnancy.

Superu includes some neat transition probability matrices that the new NZMJ piece didn't.

I have some difficulty in seeing the contribution provided by the new 9-author NZMJ piece given the existence of the 3-author Superu piece of three years ago.

And the NZMJ piece by Fiona Rossen, David Newcombe, Varsha Parag, Lisa Underwood, Samantha Marsh, Sarah Berry, Cameron Grant, Susan Morton, and Chris Bullen did not cite the prior work by Superu's Jit Cheung, Jason Timmins and Craig Wright.

Some questions we might then wonder about:
  • How does it take nine authors at Auckland University to replicate part of the work undertaken by three authors at Superu three years ago?
  • Did none of the nine authors know about the prior Superu work? Are any of those authors part of the Growing Up In New Zealand team? It may matter - I'm pretty sure that access to that study's data is by application, so somebody had to have authorised Superu's access three years ago. It isn't a public dataset where it's plausible that work could be undertaken that the data provider wouldn't know about. This one's locked up
  • If none of the authors and none of the referees at the NZMJ knew that this work had already been done by Superu, what does that say about standards of that journal?
I have let the journal editor know about the problem, and to their credit they're following it up (I apparently wasn't the first to note it to them either).

I wonder what the outcome will be.

I find it remarkable that the referees chosen by a local field journal in one of their areas of specialisation (go and count the number of alcohol articles that the NZMJ publishes by the public health crowd) did not catch the prior Superu work.