Tuesday, 17 September 2019

Keeping up with the state of play on vaping

I was looking around the other day for something like this. The Competitive Enterprise Institute has started tallying up all the reported cases of 'vaping-related' illness in the US.

THC-vaping, and especially illicit vape cartridges, feature prominently, but there are other cases where that's not yet pinned down.
As Dr. Konstantinos Farsalinos, a cardiologist, recently wrote, a sudden outbreak in a short period of time and in a specific geographic region (so far this appears restricted to the U.S.) when e-cigarettes have been available and widely used around the world for more than 12 years, is not indicative of disease, but rather of poisoning. That is, it is unlikely that the cause stems from well-established products, but rather from a new product, ingredient, or manufacturing practice affecting products in the illegal market, legal market, or both. It does not, as some argue, prove that e-cigarettes or vaping causes long-term harms.
Recall that THC-based vaping is legal in some states, but not others. There are dodgy suppliers of vaping cartridges, often for THC-based product; that THC-based vaping is illegal in some places means there will be dodgy suppliers. Here's a New York Times report on illegal vape cartridges in Wisconsin, where THC is not legal.
On Wednesday the Trump administration said it planned to ban most flavored e-cigarettes and nicotine pods — including mint and menthol, in an effort to reduce the allure of vaping for teenagers. But the move may expand underground demand for flavored pods. And it does nothing to address the robust trade in illicit cannabis vaping products.

The Wisconsin operation is wholly characteristic of a “very advanced and mature illicit market for THC vape carts,” said David Downs, an expert in the marijuana trade and the California bureau chief for Leafly, a website that offers news, information and reviews of cannabis products. (‘Carts’ is the common shorthand for cartridges.)

“These types of operations are integral to the distribution of contaminated THC-based vape carts in the United States,” Mr. Downs said.

They are known as “pen factories,” playing a crucial middleman role: The operations buy empty vape cartridges and counterfeit packaging from Chinese factories, then fill them with THC liquid that they purchase from the United States market. Empty cartridges and packaging are also available on eBay, Alibaba and other e-commerce sites.

The filled cartridges are not by definition a health risk. However, Mr. Downs, along with executives from legal THC companies and health officials, say that the illicit operations are using a tactic common to other illegal drug operations: cutting their product with other substances, including some that can be dangerous.

The motive is profit; an operation makes more money by using less of the core ingredient, THC — which is expensive — and diluting it with oils that cost considerably less.

Public health authorities said some cutting agents might be the cause of the lung illnesses and had homed in on a particular one, vitamin E acetate, an oil that could cause breathing problems and lung inflammation if it does not heat up fully during the vaping aerosolization process.

Medium-grade THC can cost $4,000 a kilo and higher-grade THC costs double that, but additives may cost pennies on the dollar, said Chip Paul, a longtime vaping entrepreneur in Oklahoma who led the state’s drive to legalize medical marijuana there.

“That’s what they’re doing, they’re cutting this oil,” he said of illegal operations. “If I can cut it in half,” he described the thinking, “I can double my money.”
In normal markets, brand reputation is incredibly important. In illegal markets, having a very popular brand means that you're likely soon to be found and arrested. That makes for very different incentives. In normal markets, you build up brand reputation to be able to run over the long term. In illegal markets, if your brand starts getting popular, you probably need to start thinking about end-game strategies for cashing out as fast as you can.

That said, it's still ridiculously stupid to draw massive attention to your own product by killing your customers. More likely, the Dank Vapes people didn't think the thickeners would do harm (it's a vitamin; vitamins are healthy!) and figured it was time to cash out. 

Vaping has been well established in the US for some time. The big recent surge in cases can then be consistent with a few potential hypotheses:
  • Long-term risks are always unknown, and now some folks have been vaping long enough for those to eventuate
    • But that would predict a slowly rising number of cases broadly matching the uptake pattern. Instead there's a surge, and a surge that's particular to America and not seen in the UK where vaping is also well-established;
  • When millions of people are vaping, random-draw low-probability stuff becomes more likely
    • That could be part of the base rate, but also doesn't explain the surge;
  • Dodgy suppliers, mostly in the THC market but potentially also in the nicotine market, figured out they could cut product with weird oils and double their money; supply chains of empty cartridges and counterfeit packaging established themselves around the THC market. 
I'm still betting on that dodgy suppliers explains most of this mess. 

Megan McArdle nails it:
At this point, the best information suggests that a recent spate of deaths from a vaping-related lung disease — six at last report — had little or nothing to do with legal e-cigarettes. Rather, the deaths, and more than 300 confirmed cases of the disease in dozens of states, seem to be linked to illegal cartridges, mostly using marijuana derivatives that had been emulsified with vitamin E acetate, according to Food and Drug Administration investigators. The FDA has warned against using it for inhalation, and it isn’t used in legally manufactured e-cigarettes.

Naturally, the government wants to ban legally manufactured e-cigarettes.
Meanwhile, Radio New Zealand is running every scare story it can find on vaping, and providing none of the necessary context about the illicit THC market. I absolutely do not envy the folks over at MoH having to deal with the political pressure caused by RNZ's driving of a moral panic. 

Monday, 16 September 2019

Explaining the Outside of the Asylum

I had a chat about NZ as the Outside of the Asylum with the Heritage Foundation's Timothy Doescher when he was in town recently.

The podcast is available here. You can also catch it at Heritage's website, where it has the links to Spotify and other versions of it.

My Outside of the Asylum piece, on which the conversation was based, is here.

Friday, 13 September 2019

Job Openings for Economists - Spotify edition

This would be a heck of a lot of fun for somebody.

We are looking for an outstanding Head of Economics to join Spotify’s Content team. Our mission is to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their work and billions of fans the opportunity to enjoy and be inspired by it. Are you a creative thinker who can combine a strong economic toolbox with a desire to learn from others, and who knows how to execute and deliver on big ideas. You would be working across the content teams and with many other related departments, providing economics, statistical and policy support that enable evidence-based decision making to help Spotify achieve its stated goal.

What you’ll do

  • You will be working horizontally across the company, from markets to marketplace and licensing to policy. 
  • You will be working closely with cross-functional teams across the company on complex and unprecedented problem-solving challenges that require fast turn-around solutions.
  • You will be able to learn quickly and apply all relevant excel, coding and query skills available within the company, and to be able to build user-friendly tools on top of those data platforms
  • You need to be able to present economic analysis clearly and concisely to both internal and external audiences who are not trained in the subject, including media.
  • Work from our New York or London office, with occasional travel.

Who you are

  • You have 7-10 years experience with a strong understanding of economics within the broader media and tech industries.
  • You have 3+ years experience managing a team.
  • You have excellent statistical training and a proven track record in constructing excel models (such as long tail analysis) for solving problems that are without precedent.
  • An MSc (or above) economics training at a reputable university with a research background in applied macro and microeconomics, and proven modelling skills.
  • Applicants with considerably more experience are encouraged to apply.
  • You have a proven ability to commission and project manage large research projects. 

It is a plus if you

  • Have experience in the music industry.
  • Can demonstrate how you retain objectivity in your analysis and communication.
  • Love working a dynamic and fast-moving environment
  • Possess effective verbal and written communication skills.
  • Have the technical competence to perform more advanced analytics:
    • Analytics tools experience (such as Tableau)
    • Experience performing analysis with large datasets
    • Knowledge of conjoint software (i.e. Sawtooth) and other pricing tools
Econ lecturers: be sure to note this as one of the interesting places that a solid economics degree can take you. 

A rubbish clean-up

That rubbish set of stats over at the Keep New Zealand Beautiful website, noted earlier this week, is now corrected.

The National Litter Audit website has been purged of the bogus numbers, and the report updated.

This is good.

Unfortunately, in the absence of any more formal retraction or notice from them to the journalists that reported so credulously on the figures, we're unlikely to see either any correction or any updated stories noting the figures are wrong.

Minimum wages and piece-rate work

Piece-rate payment for work can make a lot of sense when it's easy to observe output, hard to observe effort, and effort can yield substantial differences in worker output. It's been common in some agricultural work, especially fruit-picking.

This tweet from last year somehow crossed my stream this week. Jennifer Doleac last year tweeted the job-market papers of female economists out on the job market. And this paper struck my eye:

Dr Hill is now Assistant Prof in Ag Econ at Colorado State - excellent.

The paper shows what happens when a minimum wage sets a lower bound on wages payable under piece-rate work.

Suppose you think that you'd have to exert a lot of effort to make more than the minimum wage under piece-rate, and that you could get away with a lot less effort while not being fired. In that case you may prefer to exert less of that costly effort and get your backstop wage - the minimum wage.

If the minimum wage increases, or at least increases by more than any inflation adjustment to the piece-rate paid, more workers will be discouraged from putting in that effort. Hill shows that a three percent increase in the minimum wage reduces the average worker's productivity by seven percent.

But the paper goes beyond that with some nice theoretical testable results. Like that there'll be a range of income from piece-rates just above the minimum wage that will never be observed, because people will always prefer putting in minimum effort and getting the minimum wage to putting in more effort to get a small amount above the minimum.
In this paper, I use a theoretical model to show how, under this compensation policy, increases in the minimum wage can affect productivity. In particular, I show that for some workers the wage floor removes the incentives provided by the piece rate and creates the opportunity to shirk, i.e. to reduce effort a lot in exchange for a little decrease in pay. In the empirical application, I find evidence that supports the theory. My analysis follows the productivity of workers over two separate harvest seasons during which the employer raises the minimum wage and the piece rate. I show that in both seasons, minimum wage increases cause workers to slow down and piece rate increases cause workers to speed up. Both changes in the minimum wage are roughly three percent increases and cause the average worker to decrease productivity by seven percent. The piece rate is increased several times in both seasons, allowing for estimation of a piece rate-productivity elasticity. I estimate elasticities that range from 1.2 to 1.6. These suggest that a four to six percent increase in the piece rate would offset the productivity losses from the observed minimum wage increases. I replicate this analysis over a season with no changes in the minimum wage and find precise estimates of no effect from placebo increases and similar estimates of the piece rate-productivity elasticity (1.5 to 1.6).
...

I find evidence that employers can offset these losses by raising the piece rate. Estimates indicate that a four to six percent increase in the piece rate would offset the productivity losses from the examined increases in the wage floor. Though outside the scope of this paper, there are other strategies for mitigating these productivity losses. For example, employers may consider alternative contract structures or adopting new technologies that enhance productivity. Piece rate pay has well documented productivity gains compared with hourly pay, but alternative contract structures, such as hourly wages with daily, weekly, or seasonal bonuses, provide comparable incentives. Another potential strategy comes from technological innovation. The productivity decreases I find are an effect of piece rates and productivities that are low enough so that the minimum wage is desirable for some workers. Employer practices that increase productivity by lowering worker disutility from exerting effort are clear options for mitigating these effects. Technological innovations, such as picking assist for strawberry harvesters, are one way employers can do this. Future research can build on this by examining the economic viability of alternative compensation policies and mechanization for reducing the productivity effects from minimum wage increases.

In the next few years, the California minimum wage is scheduled to increase incrementally until reaching $15 per hour, a 40 percent increase from current levels. My results suggest that the farmer I study will need to increase the piece rate by 50 to 80 percent to prevent productivity losses from these minimum wage increases. Though my results are unlikely to translate linearly to large, statewide policy changes, these predictions are not unreasonable. Based on the productivity and piece rate in the 2015 season, the piece rate would need to increase by 20 percent for the average worker to earn $15 per hour. These piece rate increases can prevent productivity losses, but will substantially raise the marginal cost of producing strawberries. This farmer, and many other employers in low-wage industries who pay by the piece, face substantial increases in payroll costs from rising state minimum wages.
So, in short, a minimum wage has some weird interactions with piece-rate work. Piecework provides incentives to supply effort. A minimum wage increase removes that incentive not only for anyone whose piecework effort would result in piecerate wages no higher than the minimum wage, but for a lot of people above that margin: the extra earnings in the interval above the minimum wage aren't worth the extra effort that needs to be expended all the way though. So the piece-rate paid also has to increase.

The point of a minimum wage in piece-work is to ensure that employers aren't exploiting vulnerable workers. If the most a worker could hope to earn under a piece-rate is less than the minimum wage, and the worker is stuck there after having shifted out to the region because Work and Income insisted they take a job, that's not so hot.

So what to do? A few years ago, we did some work suggesting allowing regional variation in policy, in accordance with local needs. One idea I'd had at the time was allowing a modified version of the minimum wage for piece-rate employers in regions with a lot of fruit-picking.

The modified version would work as follows.

Any employer providing piece-rate pay would be deemed compliant with the minimum wage if at least 80% (say) of its workers on piece-rate were earning at least 125% (say) of the minimum wage. If the vast majority of workers earn a margin over the minimum wage on piece-rate, then it's hardly some sham piece-rate. If you're failing to earn at least the minimum wage while 4/5 of your coworkers are, on piece-rate, the remaining problem is likely you rather than your employer.

So even if some workers didn't wind up earning the minimum wage, that would be their problem rather than the employer's so long as most other workers were earning a margin over the minimum wage.

That kind of scheme could also hit some of the concerns MBIE tends to have about allowing seasonal workers to come in. It's less plausible that seasonal workers are driving down wages if the employer's complement of workers is still earning that margin over the minimum wage.

Thursday, 12 September 2019

Radio NZ on vaping, again

The Washington Post notes the growing consensus around just what the heck is going on with 'vaping-related' illness and death. Like I'd said last week, dodgy additives in THC vapes look to be the issue. You don't have to be paying massive attention to this file to know this.
Oregon health officials said last week that a middle-aged adult who died of a severe respiratory illness in late July had used an electronic cigarette containing marijuana oil from a legal dispensary. It was the first death tied to a vaping product bought at a pot shop. Illinois and Indiana reported deaths in adults but officials have not provided information about their ages or what type of products were used.

State and federal health authorities are focusing on the role of contaminants or counterfeit substances as a likely cause of vaping-related lung illnesses — now up to at least 450 possible cases in 33 states.

Officials are narrowing the possible culprits to adulterants in vaping products purported to have THC.

The sudden onset of these mysterious illnesses and the patients’ severe and distinctive symptoms have led investigators to focus on contaminants, rather than standard vaping products that have been in wide use for many years.

One potential lead is the oil derived from vitamin E, known as vitamin E acetate. Investigators at the U.S. Food and Drug Administration found the oil in cannabis products in samples collected from patients who fell ill across the United States. That same chemical was also found in nearly all cannabis samples from patients who fell ill in New York in recent weeks, a state health department spokeswoman said.

On Monday, New York state officials said they are issuing subpoenas to three companies the department has identified as selling “thickening agents” containing high levels of vitamin E that can be used in black market vaping products that contain THC. Dealers have been using thickening agents to dilute THC oil in street and illicit products, industry experts said.
I like that the Post uses the basic plausibility check. If this really were about nicotine vaping, which has been around for a long time, why would there suddenly be a pile of hospitalisations? This is new over the past year. They might yet find cases that look certain to be nicotine-only, but it's a tough one to prove: they've certainly found dodgy stuff in the THC cartridges that sick folks have brought with them to hospital, but not everyone who has used a THC cartridge will want to admit to it.

The best advice remains to buy your vaping product from a source you can trust. And to follow Michael Siegel (Twitter) and Clive Bates to keep up with the state of play. I like Action on Smoking and Health NZ, but they haven't really been putting up updates on the US state of play.

Meanwhile, here's how Radio NZ has continued to play the story.
US President Donald Trump has announced that his administration will ban flavoured e-cigarettes, after a spate of vaping-related deaths.

Mr Trump told reporters vaping was a "new problem", especially for children.

US Health Secretary Alex Azar said the Food and Drug Administration (FDA) would finalise a plan to take all non-tobacco flavours off the market.

There have been six deaths across 33 states and 450 reported cases of lung illness tied to vaping.

Many of the 450 reported cases are young people, with an average age of 19.

Michigan this month became the first US state to ban flavoured e-cigarettes.

Joining Mr Trump at the White House on Wednesday, Mr Azar said it would take the FDA several weeks to distribute the new guidance on e-cigarettes.
Everything in the RNZ reporting makes it seem that the illness is around e-cigarettes rather than vaped dodgy THC.

I expect this is deliberate. It is lying through omission. So I've put in another complaint, this time around accuracy.

RNZ has been on a campaign against vaping for some time. RNZ demonised Marewa Glover's harm reduction efforts. They gave ample airtime to attacks on her. Their reporting on vaping is consistently conflating illness in the US due to dodgy and counterfeit THC product with the kind of vaping people in NZ are familiar with. And they are doing it when the regulatory framework is soon to be announced, helping to fuel a moral panic that will lead to worse regulatory outcomes.

I don't know why RNZ is like this. But RNZ is like this. I wish that I weren't compelled to pay, through my taxes, for their dishonest reporting.

Wednesday, 11 September 2019

The Joyful Contrarian

Reason Magazine has a wonderful tribute to Gordon Tullock by Michael Munger. The steering wheel with the spike on this blog's masthead? That's the Tullock Spike. 
What kind of crank wants to put bayonets in steering wheels, praises political corruption as "working out rather well," and thinks that competition can be harmful and should be discouraged? Gordon Tullock, the late George Mason University professor of law and economics, made all those arguments with a (more or less) straight face, while also helping invent the then-new discipline of sociobiology. His insights have proven to be more durable, and more sensible, than his many critics expected.

To be fair, economists tend to value counterintuitive arguments, where surprising conclusions emerge from innocuous assumptions. In 2019, we will pass the 70th anniversary of the Communist takeover of China, an event that Tullock witnessed in person from the vantage point of his diplomatic post in Tientsin. That experience launched his thinking about the problem of governance, anarchy, and the importance of rules. Looking back, many of the insights that powered his work from that time—once dismissed not just as counterintuitive but as outlandish—have now become conventional wisdom.

There are lots of contributions worth examining, including his work on voting, bureaucracy, and constitutional theory. But those fit reasonably well into the "public choice" tradition, which Tullock helped found, and are easily accessible to those interested in that approach. I will consider three of Tullock's less well-known, but probably even more important, insights—regarding safety regulation, corruption, and the rationality of evolved behaviors—and see how this work has stood the test of time. The three are very different, but they are unified by one feature that is the hallmark of the economic approach: In every case, Tullock reached a conclusion but pressed further to ask, "And then what?"
A superb must-read, filled with insights. Go read!

Tuesday, 10 September 2019

Rubbish statistics - Updated

UPDATE: it looks like KNZB has quietly retracted the dodgy stuff. Original post follows below, then update and comment.

I caught this rubbish floating around last week - new figures purporting to represent the amount of littering that goes on in New Zealand.

Here's the infographic that Keep New Zealand Beautiful put up to go with their report.


The numbers didn't make any damned sense on the face of it. 

Headlines talked about there being ten billion littered cigarette butts around the country. But anyone with a passing familiarity with any of the relevant numbers should have been sceptical. To a first order approximation, the government collects about $2 billion per year in cigarette excise taxes, and the tax on each cigarette is about a dollar. So that's about two billion cigarettes sold per year in total - as a rough estimate. Every one of those cigarettes would have to have been littered, for five years, for that number to make sense. Or half of them littered over a decade, and all of them persisting through to today. Does that seem plausible? I'm happy to buy that a pile of cigarette butts wind up littered, but these numbers sound implausible. 

And 395 million litres of littered disposable nappies? Suppose that each diaper is a litre. And suppose that every baby in the country goes through five per day in their first year, four per day in their second year, two per day in their third year, and none per day after that until they start voting for New Zealand First. That would be about 4000 diapers per kid over those three years. Let's round it up to 5000 to make for round numbers. Round numbers are easier. 

395 million litres of diapers, at one litre per diaper, would be the output of 79,000 children from birth through toilet training. 

There are about 60,000 children born per year. 

So every diaper ever used by every kid born over a 16 month period would have to be littered for that statistic to be true. Or half of all diapers used for every kid born over a 32 month period, or a quarter of all diapers used for every kid born over a 64 month period - and with all of the diapers persisting. 

Does that make any kind of sense? Does it seem plausible? How innumerate do you have to be to think that this is possibly true?

All results were quoted against a 1000 m2 site area and extrapolated across the area of New Zealand.

If you sample a few sites from the less than 1% of New Zealand that's urban, and then the busier parts of the rest of the country (roadsides, industrial sites, car parks, retail sites, public recreation areas and the like) and then extrapolate to the 99% of New Zealand that isn't urban (including the 78% where nobody lives), you're going to overestimate things. 


There aren't obvious problems in their site stocktakes, it's the extrapolation to the rest of the country that's a huge and obvious problem. Anybody who is half-way numerate should have been able to tell that the Really Big Numbers presented for the whole country couldn't be right. But the numbers look authoritative. And Keep New Zealand Beautiful advertises that Stats NZ helped in developing the audit (presumably the sampling, and not the aggregation - there's no way that Stats would have recommended doing this). 

And so we got reporting like this:

The project, conducted by not-for-profit organisation Keep New Zealand Beautiful, took five months to complete.

With the help of the Department of Conservation, Statistics NZ and the Ministry of Environment, two leading researchers pegged out areas across the country and calculated their litter content.

Keep New Zealand Beautiful's chief executive, Heather Saunderson, says the results are frustrating.

"The research estimates 10 billion cigarettes are littered across the country. That equates to 2142 cigarette butts per New Zealander."
Enough takeaway containers - 258,043,800 litres worth – were found to fill 25 rugby fields one metre high, while the 364,965,000 litres of disposable nappies was enough to take up 154 Olympic swimming pools.

Despite drops in smoking rates, discarded cigarette butts remained a big headache: some 10,269,090,000 were picked up, or 2,142 for every person in the country.

KNZB chief executive Heather Sanderson said, at railway sites around New Zealand, nearly 12 litres of litres of litter was being found every 1000 square metres.

"Extrapolated, that means 265,324,848 litres of illegal dumping – enough to fill 2,123 rail carriages, which if you stack them on top of each other, would be as high as 151 Sky Towers."
Bad policy comes from bad public perceptions of the true state of the world. Bad public perceptions of the true state of the world are fostered by innumerate journalists who haven't the time to think critically at all about any number presented.*

KNZB needs to withdraw its Very Big Numbers, and, if they want to have a number that might represent the country as a whole, work with Stats to find a better way of doing that. In the absence of KNZB doing that, Stats really should withdraw its imprimatur from the report.


* Unless that number comes from anyone associated with Big Industry (tobacco, sugar, alcohol - whatever). Then even accurate numbers are dismissed out of hand, because innumeracy means leaning on trusting the source because you have absolutely no clue how to judge whether a number is right or not.

Update: Thomas Lumley makes similar points.

Update 2: I was in touch with KNZB about this prior to having posted, as well as with Stats NZ. KNZB showed no interest in correcting things, so I posted on the issues.

It looks like they've now quietly retracted the bogus stats.

The National Litter Audit page no longer contains the infographic (though it's still around, unlinked, on the back-end, here). The original link to the report no longer works; this new version doesn't contain the rubbish stats.

It's good that they've fixed it, but there's been no official retraction of the dodgy parts that I can see. So it's pretty low odds that the prior news stories will put up updates correcting anything. Alas.

Don't hate the council, hate the game

Labour's talked a good game around solving the housing crisis. But unless they manage to have councils see growth as being in councils' interest, it's all a bit hopeless. There are always margins on which councils can stymie growth, if they want to. 

I'd covered the problem in my fortnightly column over at Newsroom.
Fundamentally, the housing crisis emerged because not enough houses were being built. Not enough houses were being built because council zoning rules prevented sufficient building. This had systematic effects across the whole building industry. Because building vast new subdivisions, or substantial new dense and intensive brownfield developments, was effectively impossible, the construction sector geared up for the task it was allowed to undertake: bespoke small-scale construction and renovation.

Why do many councils facing growth pressures set rules that make it tough to build? Because growth is costly for councils. Councillors face persistent NIMBY opposition to new development. Density advocates work to block surburban expansion while downtown residents opposed to development next door blocked density. The outcome in too many cities was that no one was allowed to build anything anywhere.

But it is worse than that. When an urban council at its debt limit has to accommodate growth, the costs simply outweigh the benefits. Central government gets more income tax revenue when a city’s population expands; local government gets an infrastructure bill. Central government gets more GST and company tax revenue when it allows more commercial and industrial development; local government gets the complaints about tall buildings blocking views and faces the bill for trunk infrastructure upgrades downtown. More rates revenue simply is not enough for councils to make growth viable for them.

It gets even worse. Construction costs are higher than they need to be because of a nest of regulations, liability rules, and incentives. There are, in theory, ways of importing a containerload of gib board from places whose standards we trust and whose challenges are comparable – like Vancouver, Seattle and Tokyo – places that face earthquake risk and wet weather issues.

But council has to sign off on the final building certificate. If council signs off on a building certificate and something goes wrong a decade from now, when every one of the construction companies has flipped from Bill’s Construction (2019) Ltd to Bill’s Construction (2025) Ltd, council is the one left holding the bag under joint-and-several liability. So councils try to limit risk by being highly risk averse about allowable building methods. Standard ways of fixing walls to frames are defined in terms of standard materials. And good luck getting your new build signed off if you haven’t used those standard methods.

Once you recognise the incentives at play, you start recognising the difficulty of the problem – and start seeing the ways of unwinding the mess.

Fundamentally, growth has to be in councils’ interest. If it is not, everything else is futile.
Today, the Dom reports on one of the standard ways that councils can block growth: go-slows on consenting. I don't know how many times I've heard pious central government officials at MBIE assure me that because councils have to issue consents within a deadline, there can't be any problem. They utterly fail to think about incentives.

The Dom's Bonnie Flaws is sharper, going through the ways councils can extend deadlines, and why they do it.
However, Ministry of Business, Innovation and Employment (MBIE) building system assurance manager, Simon Thomas said that it did not currently collect information on RFIs [Requests for Information: the way of dragging out a consenting process by asking the builder or architect for more information on the deadline day - kinda like dragging out an OIA at the ministries, but no Ombudsman] as a matter of course, and nor did International Accreditation New Zealand, the body appointed by MBIE to carry out accreditation assessments of Building Consent Authorities.

Hunter said that the "poor plans" excuse was unfair.

"I've done thousands of houses, you know. You'd think that after a while with all the RFIs we'd start getting them right. Why are we still getting different RFIs back? It doesn't make any sense," he said.

Institute of Architects Auckland branch chair, Ken Crosson said that councils had become the "last man standing" after the leaky house crisis.

"What we've got now are very gun-shy councils and a building sector beset with problems largely because of poor legislation," he said.

Joint and several liability was a real problem for councils who had picked up costs disproportionate to their liability in the leaky homes saga, resulting in an environment of "super-caution".

Crosson said the cost of consent was exorbitant, and added that any delay resulted in further costs.

"The holding cost on land is enormous, just enormous,'" he said.

Monday, 9 September 2019

Don't get your vaping news from Radio New Zealand

There have been a lot of news reports out of the United States over the past month on people coming down suddenly with severe lung problems, with those news reports often linking the problems to vaping.

Sometimes the story would note that the vaped substance wasn't the typical nicotine e-liquid, but rather a THC-based one. And even more rarely the story would note that the THC cartridge had been purchased from a strange street dealer, or was counterfeit.

More stories started coming out noting that the problem-causing e-liquids were dodgy-as. They were often finding vitamin E in them as a thickening agent. I was seeing a lot of those stories come out last week.

The media reports in the States were fodder for a lot of scaremongering. Most stories didn't note just what was vaped. Where it was a younger person who fell ill, there was little checking of claims of that the vaped substance was nicotine rather than a dodgy back-alley THC cartridge.

And all of that fuels demand for tighter regulation of normal nicotine e-liquids.

The Washington Post finally caught up with the play last week:
State and federal health officials investigating mysterious lung illnesses linked to vaping have found the same chemical in samples of marijuana products used by people sickened in different parts of the country and who used different brands of products in recent weeks.

The chemical is an oil derived from vitamin E. Investigators at the U.S. Food and Drug Administration found the oil in cannabis products in samples collected from patients who fell ill across the United States. FDA officials shared that information with state health officials during a telephone briefing this week, according to several officials who took part in the call.

That same chemical was also found in nearly all cannabis samples from patients who fell ill in New York in recent weeks, a state health department spokeswoman said.
Now there's still work to do in checking that that's what's causing the problems, but Prof Siegel seems to have a smoking gun here:
There has been a major breakthrough in the investigation of the outbreak of more than 300 cases of a "mysterious" lung disease that the CDC and many other health agencies have told the public is due to the vaping of electronic cigarettes. And now, everything is starting to make some sense.

Illicit THC vape carts that were obtained from a number of case patients that were tested in federal and state laboratories have tested positive for vitamin E acetate, an oil that just started to be used late last year as a thickening agent in bootleg THC vape carts. Apparently, for every single case in New York State for which testing is complete, vitamin E acetate was found in at least one of the THC vape carts that were used by the patient. Almost simultaneously, testing of recovered THC vape carts by the FDA revealed vitamin E acetate in 10 of 18 tested samples. Importantly, the FDA reported that it found no contamination in any of the nicotine e-liquids tested.

The Rest of the Story

While there are still a lot of unknowns, the pieces of the puzzle are just beginning to fit together. One the great mysteries about this outbreak is "Why now?" Nicotine e-liquids have been on the market for many years and are being used by millions of vapers but there has never been a problem. Something must have changed to result in the outbreak occurring at this time. But what?

Now there is a possible explanation: it turns out that there was a major change made in the bootleg THC vape cart drug dealing industry late last year. It appears that a new thickening agent started to be used in bootleg THC vape carts. Very possibly, that new agent was vitamin E acetate. Tocopherol acetate (the fancy name for vitamin E acetate) is a thickening agent that is typically used in cosmetics like skin cleansers. But late last year, it apparently began to be used for thickening the THC oil (presumably to hide the fact that it had been highly diluted, which is a clue to some buyers that they are not getting much product). Here is what leafly.com has to say:
"Peter Hackett of Air Vapor Systems and Disinger and Heldreth of True Terpenes both mentioned the recent introduction of a novel diluent thickener called Honey Cut. The product swept through LA’s pen factories late last year. Honey Cut maintains a website, but the identity of the product manufacturer remains unknown, as does the chemical makeup of the substance. Leafly has made many attempts to reach officials at Honey Cut, but they have chosen not to respond.
Honey Cut’s introduction last year proved so popular that competing products by other diluent makers soon began appearing."

What was the new diluent thickener in Honey Cut?

You guessed it ... tocopherol acetate.
Siegel started warning about this mess in late August.
This emerging story shows the dangers of bias in public health. The long-standing bias of the CDC against vaping has resulted in the agency failing to warn the public in clear and specific terms about the risks associated with the use of bootleg THC vape carts and instead, issuing warnings against "vaping" and "e-cigarettes" generally and making meaningless statements like "e-cigarette aerosol is not harmless water vapor."

On my blog, I first issued a warning about the use of black market THC oils on August 25, and then on August 28 I blogged and tweeted an unequivocal warning, since the CDC had failed to do so. It is now 11 days later, and we are still waiting for the CDC, HHS, and other health groups to issue a clear and specific warning against the use of bootleg THC vape carts. We are still waiting for these groups to stop blaming the outbreak on vaping or on e-cigarettes. Although we cannot completely rule out any role of e-cigarettes, it now appears very unlikely that they have anything to do with the outbreak, which appears to be due to e-cannabis, not e-cigarettes.

The truly unfortunate rest of the story is that in their zeal to demonize e-cigarettes, the CDC and other health agencies have put the lives of our nation's youth at risk. They should have issued a warning 11 days ago. During the past 11 days, how many youth continued to vape THC oils because of the failure of health agencies to accurately convey the known information about the potential causes of the outbreak? The CDC and other health agencies and some anti-tobacco groups have gone to great lengths to protect the illicit cannabis industry. But they have no problem with attacking the e-cigarette companies and telling ex-smokers to return to smoking rather than continuing to vape. Why?
This stuff is or ought to be common knowledge among anyone half-way paying attention to the vaping file.

Meanwhile, here's how Radio New Zealand headlines and leads a story on a death in the US subsequent to another THC vaping issue - although this time bought from a dispensary rather than a roadside stand.
I put in a press council complaint about a misleading headline, as the story does acknowledge that in this case the death was linked to a THC cartridge rather than to nicotine containing e-liquids.

RNZ is really failing on this. It is very important that people who vape know the importance of buying products that they can trust from manufacturers who wouldn't add oil-based ingredients. Instead, RNZ gives them scaremongering about vaping in general, and none of the detail needed to help consumers make informed decisions.

I've not heard of any of the dodgy products making their way here, but it's impossible to guarantee that it won't happen - again, though, the US cases are primarily around dodgy THC-based products. A responsible version of Radio New Zealand would have warned vapers to make sure they're buying their product from trustworthy sources.

An argument for mandatory retirement for academics of a certain age

Geoff Bertram didn't like my column on cap and trade regimes for water. Here's his letter in today's Dom Post. 
At last a New Zealand Government takes a couple of meaningful steps towards water regulation.

Right on cue, the New Zealand Initiative’s Dr Eric Crampton rushes into print (Sept 6) attacking the new policy because (i) he has a better idea – cap and trade, and (ii) some dairy farmers who have irresponsibly over-expanded might go broke (and so should be bailed out by the rest of us).
Right on cue. Hmm.

Our work on cap-and-trade was added to our 2017-2020 research agenda in 2016. The first report, on cap-and-trade in water abstraction, came out in May. My article extending it to nutrient trading came out in Policy Quarterly last month. All of that was well in advance of the government's announcement; the column was well-timed, but Bertram may not have noticed that I have a fortnightly column there. Seemed to make sense to hit that topic last week.
Take first cap and trade. Yes, it might have been a good idea over the past two decades, when Federated Farmers has had ample opportunity to implement it as a self-regulation device, and the NZ Initiative has had ample time to help it design and implement such a scheme.
The Initiative was formed in 2012. I joined in 2014, and added cap-and-trade to our research agenda in 2016 for the 2017-2020 programme. Not quite sure where Bertram's finding decades.
But no, it’s wheeled out only when it can be used as a roadblock to Labour-led Government policy. If you’re serious about the environment, beware Right-wing lobbyists touting alternative policies.
We planned this work when we thought National would be in government - they were odds-on to win the 2017 election at the point we started thinking about this project.
Second, that issue of compensation. Crampton would be on firmer ground had he previously been an advocate for compensating the workers and benefit receivers who were stripped of their life savings, their children’s prospects and health, and their hope of ever getting decently housed without crippling debt, by the unionbreaking and benefit-slashing of the 1990s – policies enthusiastically promoted and applauded by his organisation and its predecessor, the Business Roundtable.

Farmers, their leaders, and their bankers have had plenty of warning to get their house in order. Innocent victims they are not.
Geoff Bertram, Institute for Governance and Policy Studies, Victoria University of Wellington
Depends what you want, Geoff. If you want a system that will be hated by farmers and reversed with the next change in government, you just keep pushing that old barrow. If you want environmental improvement that can stand over the longer term, well, have a look at my report and article.

Thursday, 5 September 2019

Dining out as cultural trade

Joel Waldfogel combines TripAdvisor data with gravity models of trade to figure out which cuisines reign supreme.
Perceptions of Anglo-American dominance in movie and music trade motivate restrictions on cultural trade. Yet, the market for another cultural good, food at restaurants, is roughly ten times larger than the markets for music and film. Using TripAdvisor data on restaurant cuisines, along with Euromonitor data on overall and fast-food expenditure, this paper calculates implicit trade patterns in global cuisines for 52 destination countries. We obtain four results. First, the pattern of cuisine trade resembles the “gravity” patterns in physically traded products. Second, after accounting gravity factors, the most popular cuisines are Italian, Japanese, Chinese, Indian, and American. Third, excluding fast food, the largest net exporters of their cuisines are the Italians and the Japanese, while the largest net importers are the USA—with a 2015 deficit of over $140 billion—followed by Brazil, China, and the UK. With fast food included, the US deficit shrinks to $55 billion but remains the largest net importer along with China and, to a lesser extent, the UK and Brazil. Fourth, cuisine trade patterns more closely resemble migration patterns than patterns of food trade or patterns arising from the extent of arable land in origin countries. Cuisine trade patterns run starkly counter to the audiovisual patterns that have motivated concern about Anglo-American cultural dominance.
The Economist does a prettier version of Waldfogel's tables:


The paper finds that migration matters, reinforcing my view that New Zealand needs to provide immigration preference to migrants from countries whose cuisines are underrepresented in New Zealand. 

Wednesday, 4 September 2019

GDP isn't just adding up all the nice things

People keep wanting GDP to be something it isn't.

The only thing that GDP is is a measure of the final value of goods and services that trade in markets. That's it.

There are all kinds of good things that are not in GDP.

High among those good things is the value of household production that does not trade in markets.

This is standard fodder in principles and intermediate-level coursework. If you have a two-parent household, with one working outside the home for wages and the other working inside the home, then the value of in-home production does not count toward GDP. If the one parent starts paying the other one, then GDP goes up - even though absolutely nothing has changed.

If I make a sandwich at home, the value that I add to the ingredients by my labour is not counted toward GDP. If I sell the sandwich to myself, like if I were owner-operator of sandwich shop, it would be - again, despite there still being no change in the real economy.

If I babysit the neighbour's kids at our place for free in exchange for their babysitting ours, it doesn't contribute to GDP. If I paid them, and they paid me, it would be.

This is all standard stuff.

And there are some real problems caused by this, but they have nothing to do with GDP. They have to do with tax. But we'll come back to that.

ANU's Julie Smith was on RNZ today arguing the case for including the value of breastmilk in GDP. She argues that the value of unpaid household services should be in GDP. She's right that there is a problem if we're setting GDP growth rates as a target and we're ignoring that increases in female labour force participation has been at a cost to unmeasured but valued household production. Patricia Apps made similar points in her keynote at the NZAE meetings this year.

But there's good reason for keeping GDP as it is, and just being careful about how it's used.

Let's start thinking about all of the unpriced non-market activities that go on and that could, alternatively, be provided within markets.

Parents provide a lot of services for their kids, from chauffeuring to tutoring, and from homecare to mentoring. People can hire Ubers, and tutors, and home-care workers, and life coaches. Valuing all of those services would be tricky. And it would be pointless if GDP numbers were being used in ways that they should be used.

Except, that is, when it comes to tax.

I'd raised this as question during Patricia Apps' keynote at the NZAEs. People thought I was joking as reductio, but it's a serious point - and I expect a very real distortion. Just one that's probably not worth worrying about because trying to fix it would be even worse.

The distortion is as follows.

If you have a two-income household, both earners pay income tax on their earnings. And they pay GST for the services that they have to buy-in to help around the house, if they're buying in services to help with the lost time for home production. And the workers providing those in-home services pay tax on that income.

In-home services are paid for out of after-tax income, are subject to GST, and the worker takes home an after-tax income.

That builds a substantial tax wedge encouraging the in-sourcing of a lot of services, and distorting activity and formal labour force participation. There is a substantial tax advantage to having one partner stay home and provide untaxed services rather than be out in the formal paid workforce.

I recall stories about, when top marginal tax rates here were a lot higher, econ faculty doing a lot more of their own home renovation work. The tax wedge mattered. It's the same kind of problem.

Effectively, single-earner families are tax dodgers. No GST is paid on the in-home services provided by the stay-at-home parent. No income tax is paid on the monetary transfers to the stay-at-home parent from the in-work parent.

So I'd asked Apps whether, if we wanted to be really serious about addressing the value of household production, we shouldn't be taxing single-earner families based on the value of the household services implicitly provided. I don't think she'd thought about the problem that way before.

Of course, down this path lies madness. There are plenty of services provided between couples that do also trade, one way or another, in markets - legally in New Zealand, illegally in other places. But we'd all recognise it as insane to wish to impose GST on the imputed value of those activities - or to start having Stats NZ ask couples how often they had sex, put a dollar value on it, and start adding it into the GDP statistics. It sounds nuts and all, but as sex work is now legal, every visit to a brothel counts toward GDP (and attracts GST and income tax), while tax-dodging black market activities in the bedrooms of the nation do not.

Better I think to just keep GDP as it is, and recognise its limitations for policy purposes.

NZIER Economics Award - and an implicit critique? [Updated]

Last night, Motu's John McDermott was named as this year's recipient of the NZIER Economics Award. 

My former colleague Les Oxley read out the citation, which I copy below:
Dr John McDermott has been the foremost macro-economist in New Zealand policy circles for at least the past decade. He was Chief Economist and Assistant Governor at the Reserve Bank of New Zealand from 2007 to 2019. Over this period, John has been a beacon in ensuring that economic rigour is brought to bear on policy formulation. He showed similar qualities in his prior roles in the private sector (the National Bank of New Zealand) and at the IMF.

John began his senior role at the Reserve Bank of New Zealand just prior to the onset of the Global Financial Crisis. It is difficult at times such as this to draw on experience of prior crises because, by nature, crises are rare and each differs from the one before. It is at times such as this when a combination of a deep understanding of economic forces plus common sense is required. The team at the Reserve Bank, led by Dr Alan Bollard and supported by the macroeconomic expertise of John McDermott and his colleagues, ensured that the GFC impinged only marginally on New Zealand (relative to most other countries).

John’s contributions have shone through not just in his direct contributions to policy-making (such as during the GFC) but also through his championing of economic rigour amongst his colleagues within the department that he led at the Bank. Policy-relevant research from experienced colleagues such as Ozer Karagedikli and Christie Smith are relevant examples. So too is the work that John undertook with Michelle Lewis. With Michelle, and subsequently with Ozer, John showed the importance of the specification of the official inflation target for inflation expectations and thence for inflation outcomes. These papers are important examples of the need to design appropriate institutional constructs when making public policy.

John has also contributed in a very major way – together with Prof Viv Hall – in documenting and understanding New Zealand’s business cycles. Macroeconomics has always had a major focus on the control of business cycles. However, prior to control is the need for understanding. The important work that John and Viv have done has been to identify when and why certain business cycles occurred in New Zealand – both at the macroeconomic and regional levels.

John’s academic credentials are undisputed. What sets him apart from many of his highly trained academic colleagues is his ability to bring those academic credentials to play in shedding light on real world problems facing central bankers and other macroeconomic policy-makers. His expertise in this regard has been recognised across the Tasman through his role since 2016 on the Australian Treasury Expert Panel on Forecasting Methodologies.

Since leaving the Reserve Bank of New Zealand in early 2019, John has maintained his connection both to policy and to research through his two key roles: as Executive Director of Motu Economic and Public Policy Research, and as Senior Consultant, Wigram Capital Advisors Limited. The latter role involves significant interaction with developments in the Chinese economy.

John has set an example to colleagues and institutions alike: top class economists can make very important contributions to real world policy-making, while good economic policy requires the input of rigorous thinking from excellent economists. John has set a very high standard over an extended period showing how this match can work for all concerned.
Ozer Karagedikli is now with the South East Asian Central Banks (SEACEN) Research and Training Centrre.

Christie Smith left RBNZ in May 2019 and is now with the Electricity Authority.

Michelle Lewis is now with the Reserve Bank of Australia.

John has a PhD from Yale.

The RBNZ's current Chief Economist, Yuong Ha, has a Bachelor of Commerce (Honours) from Auckland.

The citation's noting of the importance of rigorous thinking from excellent economists for good economic policy, and the noting of those who have left the RBNZ since Orr came in, seems a bit pointed.

Update: A correspondent emails me to note that the serious researchers at RBNZ were on the way out prior to John's departure, and that the research culture there was in decline over a longer period. The problem, according to the correspondent, goes back over a couple of Governors and is not new to Orr. I have every confidence that my correspondent knows far more about it than I do, and so I have updated my views.

Part of the implicit pay packet for serious macro/money people at reserve banks is getting to do research that interests them, but that might not have obvious or immediate application in local policy.

Keeping around the folks who are able to quickly understand the point of leading edge technical papers in macro/money means giving them scope to play. But that always makes for a tension in smaller central banks in getting that balance right.

It seems the RBNZ over the past few years has set the balance such that a lot of the serious macro researchers have left. That might not matter over the short to medium term, but having folks around and on call when heavy lifting needs to happen in a hurry can matter, and it can matter suddenly, and you can't know in advance when it will matter.

And it especially matters in a small country where it is hard to point to academic macroeconomists who pay much attention at all to anything relating to macro/money policy in New Zealand. Hard to name more than a handful. There isn't a big reserve army of those researchers sitting in the universities on-call if needed.

Refreshing water and valuing the priceless

The latest issue of Policy Quarterly covers freshwater management. My article in there makes the case for cap-and-trade systems for both freshwater abstraction and for nutrient/effluent management.

Here's the abstract:
The most promising way of reducing water use and nutrient load in overburdened catchments builds on the same kind of policy New Zealand is developing to reduce greenhouse gas emissions: cap-and-trade systems that operate at the water catchment level. Because cap-and-trade approaches are more cost-effective than other regulatory approaches, they allow us to do more good at less cost than other alternatives. Developments in smart-market technology and geospatial mapping allow for smart-market solutions that overcome barriers to success in existing trading arrangements. And, if initial rights allocations respect both the existing use rights of current users and incipient iwi water claims, they build a powerful constituency in favour of environmental management institutions that can withstand changes in government.
I'll be talking on similar issues at the coming WaterNZ conference in Hamilton.

I argue that:

  • Cap-and-trade systems that provide allocations to existing users help ensure a just transition; if the government just abolished existing use rights in favour of either a water tax or nutrient charge, a pile of current users would be bankrupted. Current land prices are predicated on an existing rights and regulatory structure. If you want a system that can withstand a change in government, or its first experience with reality, you need one that can have buy-in from current users. 
  • Current cap-and-trade setups for water abstraction (Canterbury) and for nutrients (Taupo) are stymied by high transaction costs. Council has to sign off on trades. It's all just too hard. Council has to be involved to be sure that the trade results in comparable environmental effects, but that process isn't easy. So we have rather illiquid markets. That can be overcome through a smart-market interface that runs the environmental constraints in the background. 
  • But the whole thing has to start with a reckoning of iwi water claims. If there are claims that weren't extinguished by sale, contract or Treaty, those have to be dealt with; avoiding the issue with the fiction that water is either unowned or Crown owned is the main reason we don't have functioning cap-and-trade systems as yet. 
  • Where the allocation to iwi and to existing users creates an overallocation, deal with it by attenuating existing users' rights over time, building up iwi rights over time, and using Crown buybacks through the system to get the rest of the distance - the burden cannot fall exclusively on current users. It has to be shared because the benefits of a cleaner environment are not solely enjoyed within the affected catchments, and to effect the kind of just transition that builds buy-in to the system.

Tuesday, 3 September 2019

Doughnuts


I remember a review of some other book, ages back, that went along the lines of "what's true in it isn't new, and what's new in it isn't true."

Michael Cameron over at Waikato Uni reaches a similar conclusion.
This book is partly a critique of current economic thinking, and partly some of Raworth's ideas on a new model for economics. Any critique of economics hits the zeitgeist right between the eyes, and so this book got a lot of press when it was released in 2017 (e.g. see here), and again in New Zealand earlier this year when Kate Raworth visited the Treasury.

However, I found the book to be quite unbalanced and full of lazy writing. Raworth is a great fan of metaphors and stories, but to my taste they were overdone. Moreover, large chunks of the book were unnecessary in order to make the central argument. The first couple of chapters essentially create a strawman of economics, which Raworth can then set alight. The economics she describes, with GDP growth as its core and only goal, is not an economics I recognise. Her argument is valid in many places, but she doesn't contribute anything new in pointing out that decision-makers are not purely rational. In her desperation to make us believe that economics and economic teaching is not fit for purpose, she far over-sells her argument.
It depresses me when Wellington bureaucrats, with minimal training in economics, see imprimatur from Raworth having given a talk at Treasury, and take the book as some kind of overturning of economics.

Listen to Arthur on it. Economists are fans of economic growth because economic growth tends to correlate with all of the things we really do care about. And we favour making sure that external costs are appropriately incorporated: carbon taxes or an ETS; appropriate water charging frameworks and the like. The worry for me is that when folks take Raworth too seriously, the become complaisant about the merits of economic growth, and what we give up if we don't fret our current low productivity growth rates or the growth costs of other policies.

A few weeks ago, James Shaw tweeted:
It's good to worry about this.

But it's also worth understanding what 7% of global GDP is, at the end of the century. If annual economic growth rates were just 0.09 percentage points lower every year over the next eighty years, that's a 7% difference in GDP at the end of the line. So if economic growth were 1.91% instead of 2% over that period, GDP would be 7% lower at the end of eighty years. Growth compounds; small differences in any year add up to big differences down the track.

How often do we throw away fractions of a point of GDP growth, reasoning them to be small, and taking Raworth's kind of rhetoric too seriously - and not considering the long term consequences?

Monday, 2 September 2019

Afternoon Roundup

The afternoon's closing of the browser tabs brings:

Road to tolling

Well, this one's disappointing. 

I'm used to hearing that we can't have road tolling on important routes because there aren't alternatives for commuters. I think that's nuts, but the argument goes that there has to be alternative transport paths to address equity issues for those who cannot afford the tolls. It's nuts because we allow pricing everywhere else, and try to solve equity issues through income redistribution. The toll can shift driving by time of day even if there aren't alternative routes.

But let's take it as given.

Here's the argument against having tolling on the coming Transmission Gully alternative to State Highway 1:
Transport Agency Director Emma Speight said an assessment showed a toll would likely see more drivers avoid the road in favour of the current coastal State Highway 1.

"That would compromise the safety, environmental and access benefits which the new road will deliver to drivers as well as for communities along the coastal route."
So we can't have a toll on a road if there aren't alternatives to the toll road, but we also cannot have tolls when there is an alternative to the toll road.

Friday, 30 August 2019

Tracy Martin's Porn Filter

My column over at Newsroom this week ($) (ungated) went through some of the likely problems if the government goes ahead with Tracy Martin's mad scheme for a national pornography filter.

A couple of years ago, I wrote a short report making the case that New Zealand is the world’s last sane place. Or, at least, if it’s going mad, it’s going mad more slowly than the rest of the world. Perhaps I was too hasty. Internal Affairs Minister Tracy Martin this week told Newshub about the government’s plans for protecting children from online pornography. Newshub reported that the government is looking to the United Kingdom as example, and that nothing is yet ruled out. Some things should be ruled out. Let’s have a look at what has been going on in the United Kingdom, and why it is a bad idea to follow their example.
The Great Firewall of Britain

The UK has a long history of internet filtering. In the 2000s, the government encouraged ISPs to block access to websites blacklisted by the Internet Watch Foundation as potentially including child pornography – not unlike New Zealand’s Digital Child Exploitation Filtering System.

The implementation of the filter did come with a few problems. In one famous 2008 case, clients of ISPs using the filter were barred from editing any page on Wikipedia because the Wikipedia page for a Scorpions album included an image of that album’s cover; the decision was reversed a few days later. New Zealand’s Child Exploitation Filtering System has not had similar problems.

From 2013, the Great Firewall of Britain became rather more stringent. David Cameron’s government sought to protect people from pornography by changing the defaults. Previously, those who wished to prevent anyone in their home from accessing pornography would need to turn on filtering, whether by subscribing to an ISP providing a filtered experience, or by purchasing a service like NetNanny.

Under Cameron’s changes, the default switched. Everyone’s internet access would be filtered to prevent access to pornography. Those who wished an unfiltered experience would need to inform their Internet Service Provider that they wished to have access to pornography.

But, perfectly predictably, the filter went a bit wider than pornography, and included websites relating to alcohol, smoking, suicide, anorexia and more. One reader of my blog, Offsetting Behaviour, reported that about half of the blogs linked by fellow Kiwi blogger Lindsay Mitchell were classified as adult content and were blocked – none of those sites could reasonably be considered objectionable. He could not opt-out as opting out required having a UK credit card with a UK postcode as proof of age.

In 2014, the UK Council for Child Internet Safety began implementing a whitelist to deal with overblocking. Overblocking occurs when the web filters erroneously identify a website as pornographic. Overblocked sites included suicide prevention websites, drug advice, sexual education and sexual health sites and more.

The UK is looking to tighten things further, with a requirement that pornography websites verify the ages of those visiting their sites; noncompliant sites would be blocked by the Great Firewall. How would sites check visitor ages? Wired reports that credit cards, passports, or drivers’ licence details could suffice. But there are a lot of dodgy websites out there providing access to free but copyright-infringing pornography, coupled with a risk of a malware infection for your computer. It seems a bad idea to force people using those sites to provide material that could easily be used in identity theft.

If New Zealand government wishes to follow the UK down this rabbit hole, the government will have more than a few problems it will need to solve.

It will need to develop a comprehensive list of sites deemed pornographic and consequently requiring age checks, as well as processes for whitelisting sites mistakenly listed as pornographic. What would the appeal provisions be for sites wrongly listed? Many foreign-based sites simply won’t care if Kiwis no longer have access to their pages and will not undertake any kind of costly whitelisting process.

It will need to develop a trustworthy mechanism for age verification. This is not a simple problem. If the government requires foreign websites to collect personally identifiable details on Kiwis, what obligations would those sites face under New Zealand’s privacy regime? How could we tell whether those obligations are being met? What recourse might a Kiwi have in case of breach? And, if the foreign site was compromised and Kiwis’ passports or drivers’ licence details used in age verification were then used in identity theft, where would liability lie? The latest messes over at the Ministry of Culture, where passport details of hundreds of kids applying for a programme were compromised in a data breach, might give the government pause.

And if the government wishes to leverage its existing RealMe online identity system for age verification, might we worry about whether the government is keeping track of everyone’s viewing habits? If Winston Peters was unhappy about his superannuation details being leaked, we can imagine what Shane Jones might think about the dangers inherent in this proposal.

During 2016’s Parliamentary Select Committee hearings on Uber, Parliament proved itself to be completely ignorant of the basic details of the technology at play. Any Select Committee hearings on the proposed pornography filter promise to be at least as entertaining. I look forward to hearing whether the Select Committee knows whether the letters V, P, and N might have any relevance to their proceedings.

But all of it risks New Zealand’s coveted status as the world’s last sane place.
For some reason, Newsroom pulled the line about Jones's internet browsing history. I've here provided the unfiltered version.

Drinking Freedom

I plug Ben Powell and Bob Lawson's latest book in my column in this week's Insights newsletter:
Drinking freedom
The very best part of grad school was the drinking. Well, not so much the drinking. Too often, the beer was stuff that would make an Export Gold taste like Export Gold had taste. It was the arguing about economics, over beer, until close to sunrise, with other people who cared deeply about ideas. That was heaven – despite the bad beer.

Professor Ben Powell was a year behind me in grad school at George Mason University, and a fantastic drinking companion. But Ben was, and is, a lot smarter than I am. He persuaded people to cover the costs of an interesting book project with the creator of the Economic Freedom of the World indices, Professor Robert Lawson.

The project’s genius is obvious in the book’s title: Socialism Sucks: Two Economists Drink Their Way Through the Unfree World (2019).

Ben and Bob went on a tour of some of the world’s less-free places in search of a decent beer. As they put it, “We wrote this book because too many people seem to be dangerously ignorant of what socialism is, how it functions, and its historical track record. We also wanted to get drunk in Cuba, and this was a great way to write off our expenses.”

The tour starts in Sweden, mostly to explain the country is definitely not socialist. It has a lot of redistribution, but the government mostly leaves the rest of the economy alone. From there, they head over to Venezuela – or at least a few feet over the border. Then on to Cuba’s subsistence socialism, China’s fake socialism, a peek across the Chinese border into North Korea’s dark socialism, the hungover socialism of Russia and Ukraine, Georgia’s new capitalism, and back to the USA for drinks at the Democratic Socialists of America’s annual convention.

Just like those late-night sessions in grad school, the drinking mostly isn’t the point – despite the title. It’s the ideas. The book takes us to parts of the world you might not otherwise visit to teach us history lessons that are quite relevant today. We’re right to lament how many Kiwis haven’t the faintest clue about the Holocaust, but how many Kiwis know that Mao’s Great Leap Forward starved 45 million people to death?

If you like reading P.J. O’Rourke, you’ll want to pick up a copy. It’s ridiculously fun, especially when paired with a bad beer for authenticity.

Socialism Sucks: Two Economists Drink Their Way Through the Unfree World is available at Amazon
Book's a strong recommend. Great fun.

Tuesday, 27 August 2019

I can't believe we're still talking about the dumb BERL number

The Ministry of Health says harm from alcohol is now costing New Zealand more than $7 billion every year. In fact, every Kiwi pays $1635 a year fixing up the problems from alcohol.

Investigations Reporter Michael Morrah visited the frontlines with Auckland Police in the first part of his 'Because it Matters' series.
The Ministry of Health might have been one of the co-commissioners of the BERL report, but it's not a Ministry of Health figure.

Last year, BERL updated their 2009 figure on the social costs of alcohol. I critiqued it over at Newsroom (ungated); while BERL then did not reply to my requests for the workings underlying the figure, it looked like an inflation and population update of their 2009 figure.

The number got a lot of press again a couple of weeks ago; Alcohol Action NZ was running their annual temperance meetings, and so everyone was lining up to cite the big number. This time, BERL confirmed for me that the figure is an update of the 2009 one - but rather than an inflation/population update, it's an update taking the social cost of alcohol as a constant fraction of GDP. So it's inflated by nominal GDP growth over the period.

I went through it all again in the Dom Post.
The past fortnight brought a lot of headline stories about the social cost of alcohol. Felix Desmarais' article for The Dominion Post warned that alcohol costs $5 billion. The New Zealand Herald's headline warned of a "$70b social cost", citing Alcohol Action New Zealand's rolling up 10 years' worth of alleged costs.

If you thought those numbers referred primarily to the costs of alcohol-related crime, or to alcohol-related health care costs, you shall be forgiven. Social cost figures should refer to some cost borne by people other than drinkers themselves – external costs, as economists tend to put it. But Berl's number really is not that.
The Dom switched BERL to Berl; I'm pretty sure it's an acronym requiring capitalisation. Oh well.

I was pretty surprised to see the BERL number resurrected last year. The number didn't go well for them in '09.

And since memories seem short these days:


Monday, 26 August 2019

Skegg

A rather one-sided piece over at the ODT points me to a new short book from the Otago Public Health shop. 

Let's take these in turn.

The ODT piece has Bruce Munro gush over Otago public health's David Skegg and Skegg's latest book, published by Bridget Williams (of course). The basic thrust of the piece is that noble public health academics have been trying for policies that they know will reduce all the harms from alcohol, and smoking, and sugar, and that only the nefarious actions of shadowy interests group stand in the way. Munro hits all the usual tropes - the purported $7.8b social costs of alcohol, the power of the liquor companies, Katherine Rich, Dirty Politics, and me.
Yet, despite health researchers calling for a tax on sugary drinks to slow the epidemic, New Zealand governments, left and right, have been reluctant to go there.

"In Britain, even the Tory Government has introduced a sugar tax. But, again, our Minister of Health has repeatedly said there are no plans to do that in New Zealand," Sir David says with exasperation.

Lobbying against a sugar tax has been the Food and Grocery Council, and the New Zealand Initiative.

The New Zealand Initiative is a think tank that boasts of its reach and influence.

"It was a year in which the Initiative once again left its mark on New Zealand's political debates and public policy," the Initiative's latest annual report states.

Its chief economist, Dr Eric Crampton, is a former academic known for his attacks on public health initiatives, Sir David says.

According to the Initiative website, Dr Crampton wrote or spoke about a sugar tax half a dozen times during 2018.

But, says Sir David, "when Dr Crampton writes an opinion piece arguing that sugar taxes would be `offensive' and ineffective, he does not mention that his organisation is partly funded by Coca-Cola Amatil and the supermarket chains".
I wish that I could take the credit here for killing a bad policy, but I really can't. The main work actually has come from, well, those I cite as the very next paragraphs down in the piece Skegg's mentioning.

Here's the bit he didn't mention:
But don't just take my word for it.

The Ministry of Health commissioned the NZIER (New Zealand Institute of Economic Research) to review the literature on sugar taxes around the world.

NZIER found little effect of sugar taxes on consumption, and no evidence of health benefits.

And documents released to the New Zealand Initiative by the Ministry of Health showed that the ministry had reached a very similar conclusion about sugar taxes, advising the minister that there is "insufficient evidence that a sugar tax would be effective in reducing obesity".

The ministry also warned that the quality of evidence presented in favour of sugar taxes "is a major concern".

All of that means that, even if sugar taxes were easy to implement (and they are far from easy to implement), there would still be no good reason to do it.

It is time that public health activists simply admitted that they got this one wrong and left us alone.
See, it isn't just shadowy interests that don't like sugar taxes. It's also the OIAed documents from MoH and the NZIER's report commissioned by MoH. And both of those supported by Marsden-funded work by Waikato University's Professor John Gibson showing that estimates of the effects of sugar taxes on consumption are grossly overstated.

The piece ran in the ODT's weekend magazine. I sent my reply to the ODT just after lunch on Monday. They finally ran my reply today - one week after receiving it. I expect I'd have been making a Press Council complaint if they hadn't.

Unfortunately, the ODT stripped out all of the links to the underlying work in their online version. And they, of course, will not put a link to my rebuttal at the bottom of Munro's piece. Because Otago will Otago.

Here's the full text, with the links.

The dangers of superhero thinking
Superhero movies have had something of a comeback over the past decade, seeming to be one of the surest ways of generating a decent box-office take. But tropes of noble heroes and venal villains are not the best way of understanding the world. And they do us a specific disservice when they cross over into newspaper reporting.

This weekend, Bruce Munro wrote a fantastic story of sugar tax heroes and villains in the Otago Daily Times’ magazine. The heroes are the crusading public health research activists, who have only noble intentions and know that sugar taxes will do all manner of good. The shadowy villains on the other side – paid lobbyists – thwart the crusaders’ vision of a healthier country.

If only things were that simple.

My opposition to sugar taxes had me cast among the villains in Munro’s article. Otago University’s David Skegg noted that I have been rather vocal about sugar taxes recently, and implied that my opposition has pecuniary motivation: I am Chief Economist with The New Zealand Initiative, a think tank whose member-funders consist of many of the country’s top companies, including Coca-Cola and the supermarkets. Our members are listed on our website and are hardly secret.

But neither Munro nor Skegg bother to mention any of the substantial concerns raised across the columns and interviews they cite as damning me. If they had bothered to read those columns, they might have noticed that the tallying of heroes and villains is more complicated than they like to pretend.

In January 2018, the Ministry of Health released to me, after an Official Information Act request, a report it had commissioned from the New Zealand Institute for Economic Research (NZIER). The Ministry had asked NZIER to review the past five years of published literature on sugar taxes and to gauge their effectiveness. Having received the report in August 2017, the Ministry then sat on it – an election was underway, and the Ministry needed a Minister to receive the report before releasing it publicly.

The NZIER report – which was, again, funded and commissioned by the Ministry of Health – reached the same conclusion as previous work by the Initiative. NZIER concluded that methodologically rigorous studies on sugar taxes “report reductions in intake that are likely too small to generate health benefits”, and that any benefit of those reductions could easily be swamped by consumers shifting to other sources of sugar or calories.

NZIER also weighed heavily research underway at Waikato University by Professor John Gibson, my former Canterbury University colleague. His work on sugar taxes, supported by the Royal Society’s Marsden Fund, shows that many estimates of consumer responsiveness to sugar taxes are simply incorrect. Gibson gave a superb presentation on this work when he was awarded a well-deserved Distinguished Fellowship with the New Zealand Association of Economists in 2017.

Further Ministry of Health documents provided under the OIA included a presentation by the Ministry of Health titled “Sugar Tax: Why we still don’t have one. There, the Ministry noted: “There is no evidence that sugar taxes reduce obesity or obesity-related illness.” While the presentation did not note any industry pressure influencing the Ministry’s position, it did point to “[p]ressure in NZ from health academics” and the media.

Overall, the NZIER report and the set of papers released under OIA showed a different picture to Munro’s tallying of heroes and villains. Where Skegg suggests only shadowy interest groups oppose Otago public health’s crusade for sugar taxes, we find instead a Ministry of Health sceptical of the merits of sugar taxes, and a Ministry-commissioned report that lends substantial weight to that scepticism.

I have summarised the NZIER report and the Ministry documents in columns and interviews over the past year. When the Ministry of Health’s then-Chief Science Advisor, Dr John Potter, provided the Prime Minister with two pages of bullet points in support of sugar taxes, and forgot to mention that the Ministry had only two weeks earlier released the NZIER report reaching the opposite conclusion, I noted that as well. It seemed a rather underhand attempt to mislead the Prime Minister.

Universities are meant to be places where ideas can be contested in the pursuit of truth. When public health academics convince themselves that only the shadowy workings of lobbyists can explain why their ideas have not been implemented, and ignore any piece of evidence that does not fit their worldview, it becomes difficult for them to pursue truth.

Superhero tropes where valiant public health crusaders battle evil vested interests may sell movie tickets and newspapers. But they do not help us to understand, let alone fix, real world problems.

Dr Eric Crampton is Chief Economist with the New Zealand Initiative. The Initiative is funded by the subscriptions of its members, who are listed on the Initiative’s website. The breadth of its membership protects its independence.
Okay. And now over to the BWB book.

Here's Skegg:



So it looks like the Munro piece is mostly just pulling from the BWB book. He's citing the same piece over at the Dom that he mentions in the Munro piece, and again ignores the very next paragraph citing NZIER's work and the Ministry of Health, keeping his heroes and villains framing. 

Otago is an embarrassment. And Bridget Williams Books needs to improve its refereeing. I refereed Julie Fry and Peter Wilson's book on immigration for them, and went through things in rather some depth. I guess that they handed this one to an Otago Person for refereeing instead, but who knows.