Thursday, 18 July 2019

Stats and IDI funding

Stats don't come for free. Who should pay? 

Newsroom covers budget problems over at Statistics NZ.
An appendix document to Shaw’s February briefing raises the prospect that, without extra money, some Government priorities – surveys on social statistics, child poverty, and the household labour force survey – might have to stop.

Stats NZ, which employs more than 900 people, seems keen to cut surveys rather than staff. It says budget constraints “would limit our ability to ensure remuneration kept pace with the market, and Stats NZ would lose capability”.

(For the year ended June 30, 2018, Stats NZ’s personnel costs were $115 million, up from $83 million the year before. The census accounted for 81 percent of the increase. This year’s estimate, contained in the last annual report, is for an $89 million personnel bill.)

One way to raise more money, Stats NZ suggests, is to start charging a “value-add service” for use of its so-called integrated data infrastructure, or IDI. That’s data used by government agencies, researchers and academics to better understand societal issues. A quick search reveals research topics using IDI such as “causes and consequences of criminal activities”, “child obesity prevalence”, and “predicting suicide and self-harm risk”.

Substantial increases in the use of IDI would require “more aggressive charging”, Stats NZ tells Shaw. In fact, the appendix says forecasts of increased Stats NZ revenues rely on charging more for IDI.

After its clash with MBIE over the accommodation survey, you’ve got to wonder how much success Stats NZ will have in demanding other agencies and universities pay for the data.
In a pure model, you'd run all of these services on cost-recovery where Ministries using data series would pay the costs of running them. The value of the data is in the using; figuring out what data should be prioritised should be worked out by looking backward from usefulness; if the value of a data series to a Ministry in running its operations is less than the cost to Stats of running that survey, then the Ministry should be finding other ways of doing things. Now that all requires some tight prior assumptions about that funding to each of the Ministries for each is appropriate and that Ministries are getting things right in their own prioritisations, but it isn't a crazy first cut.

Now let's tweak things.

Suppose we expect that Ministries have weak-as-heck incentives to run post-implementation reviews and are looking for excuses not to run the things. First best is Cabinet demanding the things and budget bids for programme continuation depending on them. If something blocks that, then subsidising the inputs into PIRs and CBAs might not be nuts. It might not be particularly cost-effective if the incentives to undertake them are sufficiently weak and if the cost of the stats is small relative to staff time in running the analysis of the stats, but you can then at least get rid of lines for excuses. It's harder to plead reasons for not running the PIR if the data for doing it is sitting right there.

When we start looking at external uses of IDI, things get more complicated. And, full disclosure, our organisation does work in the IDI.

Every project in the IDI has to pass a public interest test:
2. Safe projects – to gain access to integrated data, researchers must have a project they can demonstrate is in the public interest.

Research projects must focus on finding insights and solutions to issues that are likely to have a wide public benefit. The IDI and LBD cannot be used for individual case management, such as making decisions about a specific person or family.
These are not for-profit consultancy reports helping to drive business decisions. If they were, then it would make complete sense for Stats to at least charge full cost recovery. They're instead public interest projects judged likely to have wide public benefit.

If those projects are undertaken by the public sector, then you'd hope that the funding line for the project would incorporate the data costs and the whole thing weighed on whether the overall benefit outweighs the overall cost.

Where those projects are undertaken by NGOs on limited budgets, putting their own resources into the provision of those public goods, you might generally expect that public goods are underprovided relative to a first best. So things then depend on the actual measure of public benefit relative to the cost of providing the IDI infrastructure and staffing - and that's anybody's guess. I'd like to think that the kind of data lab work we're doing on getting better measures of school performance could lead to policy changes that improve school outcomes overall, but I could be wrong.

I don't know what we're currently being charged for IDI access, but do know that there are prices we couldn't pay. The main project cost is researcher time; charges will be small relative to that.

Maybe Stats could spread the fixed costs of the IDI by making it easier for foreign academics to use, so per-project costs could be lower than otherwise.

I generally see government investment in this kind of data as being potentially highly leveraged. For an upfront investment in good and accessible data, you let a lot of not-NZ-government-funded people do a lot of work that can help the government in setting better policy. That's especially true where you let foreign researchers help out. In that kind of context, the cost of increased access fees could be outweighed by the reduction in the value of produced research. And I'm reminded of the story of the CURF that took an analyst months to make but was hardly ever used by anybody because Stats just makes it too hard to access the things.

Tuesday, 9 July 2019

Demotion, or second chance?

My Newsroom column from last week looks at the Twyfortunity in the cabinet shuffle - belatedly posted here as I was off at the NZAE meetings last week. 
Cabinet shuffles provide great journalistic set-pieces.

For the politics-as-sport contingent, it provides all the narrative arc of changes to the Black Caps line-up for the World Cup: winners and losers, who’s in and who’s out, and whether the changes will do more to help the team score political runs or to defend against the Opposition’s bowling attack.

As expected, the Government’s changed the housing line-up. Megan Woods became Minister of Housing; Kris Faafoi took over public housing; Nanaia Mahuta took responsibility for Māori housing; and Phil Twyford took up Urban Development and Economic Development. Sporting commenters framed it as a loss for Twyford. But is it a loss for housing?

In last week’s column, I urged the Government to give Minister Twyford the chance to see through his housing supply agenda. I have argued that no one in Parliament better understands the underlying failures in local council incentives, regulatory settings, zoning, and infrastructure financing. And solving that complicated mess is what is required if New Zealand is to build its way back to affordable housing.

When it comes to housing, it isn’t just the batting line-up that’s out of order, it’s the selection process, the training system, and the club system generating the talent that might be picked. It needs fixing from top to bottom.

An optimistic read of the cabinet changes is that this is not a demotion for Minister Twyford, who maintains his ranking within Cabinet, but rather an unshackling. The Government’s housing supply agenda has not made necessary progress, at least in part because the Minister and the Government have been distracted by impossible-to-achieve Kiwibuild targets. Twyford will be able to focus on the areas where he can make the most difference.

But let’s step back to the mess of problems that yet needs solving and consider the way forward.
...
Minister Twyford’s supply agenda, on the surface, begins with a change to infrastructure finance. Rather than falling onto Council balance sheets, or onto homebuyer mortgages, the cost of new infrastructure will be covered by levies on the housing benefiting from the new infrastructure over the life of that infrastructure. Targeted rates on new developments will pay off the bonds issued to finance new infrastructure.

Separating infrastructure financing decisions from political processes helps set a longer-term platform for urban development. Even if a substantial Crown infrastructure push over the next few years was able to get around the very real capacity constraints in a sector already under strain, it would not set the foundation necessary for long term growth. It would instead help to perpetuate the boom-and-bust cycle that has bedevilled the construction sector for ages.

Infrastructure bonds whose financing depends less on political interest than on the commercial viability of the underlying development can set the stage for greater longer-term urban growth that is responsive to changes in demand. When demand for more housing makes it profitable to build more housing, the developer can issue infrastructure bonds and start building without having to convince the Crown to take on new infrastructure debt. It is a way of sustaining infrastructure investment beyond the current crisis.

But it also requires the buy-in of those who will be paying the levies. And here, I think, Minister Twyford may need to do a bit more work.

This kind of infrastructure finance, in the United States, typically has the assent of those who will be footing the bill. Property owners setting a new development establish infrastructure boards that will own the infrastructure, that will be responsible for paying off the debt through a tax on the properties within the development, and that will be governed by those who buy properties in the new development. Taxation is coupled with representation.

Here, so far, proposals for new infrastructure bonds do not require the assent of the levied. In greenfield sites, where the land’s owner or development partner might set the bond, that kind of assent process will matter less. But it will matter in brownfield sites where an Urban Development Authority might seek an infrastructure bond to allow for upzoning. Homeowners who do not redevelop in response to the zoning change would still be on the hook for contributions toward the new infrastructure.

And while that may be fair enough where the infrastructure increases the value of those properties, it can also be a problem. If an Urban Development Agency seeks a new infrastructure bond without some credible demonstration that the bond issue is supported by most of those who will be paying the levy, political opposition to the process can stymie development.

New Zealand’s business improvement districts may provide a useful model. Business improvement districts allow businesses in a village centre, for example, to levy themselves for the provision of amenities that are to their mutual benefit. But that requires the assent of the affected owners through a ballot. A double-majority requirement is there in place. A majority of business owners is required, as well as the assent of owners whose combined holdings represent a majority of the capital value of the businesses in the proposed district. That double majority requirement prevents a large number of smaller owners from preying upon a small number of wealthier businesses, and also prevents a small number of large owners from imposing too high of costs on smaller owners.

A similar double-majority threshold could provide democratic legitimacy to new infrastructure districts, while leaning on an established body of New Zealand practice.

It is all rather complicated, and hits only onto the infrastructure financing part of the work ahead for Minister Twyford. Unwinding the mess is not a small job.

Focusing on the ballsports [EC: I wrote sportsball; I don't know who changed it to ballsports] parts of politics suggests the cabinet changes were a loss for Twyford. But if it allows him to focus on the parts of the portfolio that play to his strengths, it may instead be a win both for Twyford and for housing. Carving out the parts of the job that can be well handled by others, like social housing, makes a lot of sense. Letting Minister Woods take over Kiwibuild should let Minister Twyford make progress in the parts of the housing agenda that will matter the most over the longer term.

But we will need to see progress now that the barriers and potential excuses are out of the way.
 Ungated version here.

It is not hard to come up with scenarios where brownfield sites for the new bond-and-levy-funded projects get blocked because a small number of owners who'd be subject to the levy are very rightly aggrieved - they'd be paying for something for which they have no use. The levy has no particular democratic legitimacy. There are potential ways around it - like maybe you could accrue those levies against the property until sale or transfer. But things will get messy more easily, and the whole thing potentially binned as having proved too hard, if they get too many cases where the project's been blocked because they've tried imposing the levies on folks who don't agree to them.

Monday, 8 July 2019

Is this subsidiarity?

Subsidiarity is the principle that different levels of government should handle the tasks for which they are best suited. 

If you think about it with a bit of public economics in mind, you can see it as siting policy and regulation at the level that best internalises whatever externalities are at play. It makes little sense for central government to decide on whether a stop sign, traffic light, or roundabout is the best traffic management option in some local neighbourhood; local governments shouldn't run their own monetary policy. 

The Initiative has been pushing for greater subsidiarity and better frameworks for aligning local council incentives. Councils frequently, and rightly, complain about unfunded regulatory mandates from central government that do not suit local conditions. And councils also operate under often tight capabilities constraints. 

So a few bits at this week's Local Government New Zealand conference puzzle me.

Delegates at the conference voted to support a central government ban on the sale of fireworks. This could make sense if the cost of enforcing council-level bans on the use of fireworks were preventing councils from enacting their own bans in the places and times where the costs of fireworks are particularly high, but it doesn't immediately seem consistent with greater local control and subsidiarity.


The bigger and odder one though is Councils wishing remit over climate change policy.
Wellington City Council asks that LGNZ members collectively adopt the position that government should revise the Resource Management Act 1991 to adequately consider the impact of greenhouse gases when making decisions under that law and to ensure that the Resource Management Act 1991 is consistent with the Zero Carbon Bill.

The remit was passed with 64 per cent support of the sector.
If prices are working properly in the ETS, there is no more need for councils to consider GHG reductions in consenting than there is need for councils to worry about whether the world is running out of lithium or helium or anything else. Anyone doing anything will have worked expected carbon prices into their own planning. Councils will need to think about it for stuff like whether to renew old coal boilers or upgrade to electric kit on their own properties, and they could think about it in forecasting demand for public transport once carbon prices become more binding, but they needn't check off any particular activity against a zero-carbon priority. It's already worked into the price - if central government is getting things right in strengthening the ETS.

Where councils regularly worry about unfunded mandates and where council capabilities can be binding constraints, adding carbon planning to their remit seems inconsistent with subsidiarity (the carbon price is better handled through national level trading where international trading isn't there yet) and with council complaints of needing more resource to be able to handle their necessary functions.

Hopefully central government does not accede to local government pressure here and rightly views it as inconsistent with government achieving its objectives around affordable housing. If new subdivisions get bogged down into arguments about whether they're consistent with zero-carbon mandates, when petrol is already in the ETS and so the carbon costs of transport are already in the system - madness that way lies.

Update: a slide on what that could involve.

Tuesday, 2 July 2019

Taxing tobacco in a world of vaping


Here's the blurb; register at the link above.
Tobacco taxes are both an important source of revenue and an attempt to deter behaviour that can lead to social costs (e.g. healthcare costs from both active and passive smoking). Even in a world with just traditional tobacco products such taxes may not be as effective as their advocates would wish, leading to higher-quality products (e.g. filtered cigarettes) being substituted with lower-quality ones (e.g. unfiltered roll-you-owns). They can also be regressive, harming vulnerable communities like Māori, and in a “well-being” world, how do we balance pleasure and harm?

Like many other sectors, the tobacco industry is under “disruption”, with the advent of a range of alternatives to conventional tobacco products, such as vaping. Should these alternatives be taxed the same or less as conventional products, or possibly even encouraged? Will they result in less harms (and pleasure) then conventional products, or introduce whole new segments to the pleasures (and harms) of “smoking lite”?

LEANZ is delighted to bring together a panel of prominent experts to traverse these questions, from medical, economic and fiscal perspectives.

Panel Details

Professor Marewa Glover is a New Zealand public health academic specialising in smoking cessation. Her research includes comparisons of electronic and traditional nicotine delivery, as well as of different types of conventional tobacco products. She has also researched the impacts of smoking cession programmes and tobacco taxes on Māori. Professor Glover was a Finalist in the 2019 New Zealander of the Year Awards.

Dr Eric Crampton is the Chief Economist at The New Zealand Initiative, and has published on the challenges of regulation in a world of disruption. He served as Lecturer and Senior Lecturer in Economics at the Department of Economics & Finance at the University of Canterbury from November 2003 until July 2014. He is also the creator and author of the well-known blog “Offsetting Behaviour”, in which he has discussed the pros and cons of tobacco taxation.

Peter Wilson is Principal Economist and Head of Auckland Business at NZIER, which he joined in 2015. He has over 30 years’ experience in the public and private sectors, including time as a senior policy manager and economic adviser on tax policy at the Treasury. His professional interests range over regulatory economics, local government and planning to climate change and social policy.

Burton on the OIA

Tony Burton, ex-Treasury Deputy Chief Economist, lays out some of the problems in the OIA over at The Spinoff.

He describes an incident in which a minor letter from him to DoL in preparation of the annual minimum wage review became, after an OIA request, well, this:
As a Treasury adviser on labour market and welfare issues I was asked to see if DoL could be encouraged to improve the report. I thought, naively as it turned out, that if I discussed evidence in bite-sized chunks some of it might sneak into the report. This was the content of my email. Labour market economists would regard what I wrote as anodyne. They would not all agree with it – academics never all agree on any matter – but it would be unexceptionable. The DoL officials ignored my email and the subsequent meeting when writing their report.

Described this way I imagine the eyes of most readers glazing over. “Conversation on academic evidence between unimportant people makes no difference” is not an attention grabber. But when released through the OIA, in the midst of an election campaign, the issue turned into “Mr Key ‘sat on’ the advice for 18 months and ‘tried to fool people’ by using only a later Labour Department review to back his argument”.

This version became one of the issues in a television debate between the party leaders.

A cursory glance at the emails would have made clear they were not sent to ministers. They did not include any reference to a Treasury report to ministers because there was no report.
Tony links through to some reporting by Andrea Vance on it, but that's perhaps because linkrot has set in on TV3's coverage. It was a TV3 OIA.

Here's how Gower reported it at the time, which I'd then blogged. This is the blockquote from Gower:
Everyone knows it’s got bloody hard to live on the minimum wage - even John Key admits that. His defence is that a rise from $13 to $15 an hour will cost jobs.

Key has used this defence in a televised debate, and he's used it to workers on the shop floor at McDonald's as seen in my story last night. But what Key doesn't want to admit, is that this claim is not the full picture and may just be fear-mongering - a rise may not cost jobs at all.

That's what Treasury says in this advice from March 2010 obtained by 3 News under the Official Information Act.

SEE THE TREASURY EMAIL THAT SAYS A MINIMUM WAGE RISE WON'T COST JOBS

Yes, that's right - the Treasury.

The Treasury are the big guns - Government's quasi-independent economic advisers.

And the Treasury says the "claim" (yes Treasury calls it a "claim") a minimum wage rise may cost jobs - "has not been true in the past".
I'd then written:
Gower tries to frame this as a scrap between Treasury and the Ministry of Labour over estimates of the disemployment effects of minimum wages.
So the Department of Labour report actually mentions about 6000 forecast new jobs that might not happen under a theory that the Treasury doesn't believe.
But absolutely nothing in the OIAed email from a single Treasury analyst speaks to the Ministry of Labour's estimates. Nothing.
Gower wanted a gotcha, and he framed what he had as a gotcha.

When I asked about that a couple years later when the issue popped up again, I got this answer (which I still don't really understand).
The term 'fake news' hadn't yet been invented, but Gower's reporting here surely would have made the cut. An email between analysts hardly constitutes an agency's position.

What are the consequences of this kind of use of the OIA? Burton describes a culture akin to prey animals approaching a watering hole in the savannah, constantly scanning the horizon for predators.
Public servants experience the OIA the way savannah animals experience crocodiles lurking under the surface of a river. The animals have to go to the river but do so aware that random attacks are a moment of inattention away. If this metaphor seems over the top, I invite the reader to look over the last few weeks of everything they wrote, typed or texted. Imagine someone had a legal right to publish any three consecutive words, without context or explanation, and with the potential that you might lose your job. Would that make you a little more guarded about what you wrote? Within the public service, versions of this thought experiment are called the “Dom Post test”.

Unsurprisingly public servants take steps to avoid the crocodile. The OIA is meant to include verbal exchanges, but in practice that is hard to enforce. The result is the habit of minimising the written record if there is a risk of failing the Dom Post test. This habit is so endemic it is applied semi-consciously and only noticeable when someone, usually a junior official who has not been fully acculturated, needs to be reminded to “take the discussion off-line”.

Of course there are many occasions when it is common sense to have a quick chat rather than to draft documents and set up meetings. (And anyone who has wasted time in pointless bureaucratic meetings will wish for more of this common sense.) However, extending this to replacing written comments is not in the spirit of the OIA.

In truth, any criticism of OIA avoidance of this sort needs to recognise it is a pragmatic response by people who want our government institutions to function. Public servants are meant to both serve the minister and have some level of independence. In practice this means some of what they do is not what the minister would want them to do were they simply serving the minister. Strict adherence to the spirit of the OIA would see these differences continuously used to attack the minister. It is hard to see how ministers could use their ministries effectively when the process of generating advice would be so damaging to what they were elected to achieve.

In as much as the OIA puts pressure on public servants to only write what they are personally prepared to defend in the full glare of the public they serve, it’s a good thing. The problem is that’s not the reality of how it is experienced, which means people do not just respond by improving what they write but by trying to avoid the lurking crocodile.
The OIA is broken, but so are the underlying incentives. Trying to fix the OIA without addressing the underlying incentives won't work well. 

Monday, 1 July 2019

Meth and availability cascades

Over at Stuff, Susan Edmunds goes through the meth testing mess in which ridiculously tight standards were taken as a requirement. 

I provided a minor bit of comment on it:
Eric Crampton, chief economist at the New Zealand Institute, said it was probably a snowballing moral panic that went something like this.

"Nobody wants meth users as tenants. They're too high risk.

"Some at Housing New Zealand started applying far too stringent a test. It's easier to make those kinds of mistakes when it's on the public's account rather than coming out of a landlord's own back pocket.

"That then started triggering news stories about meth contamination, making the issue salient for others. Some tenants started demanding them, and some landlords started running them, taking the Housing New Zealand example as what good landlords should be doing.

"And every meth contamination and clean-up provided another news story that fed demand for more.

"It's an example then, of what Timur Kuran calls an 'availability cascade' – a few news stories on a weird scary thing has journalists watching out for more of them, so they all become more likely to be published but at the same time, in this case, also increase the number of real events because it fuels demand for more testing."
We still need better mechanisms to insulate regulation against this kind of nonsense. You know how we keep pushing for cost-benefit testing?

Timur Kuran's piece with Cass Sunstein on availability cascades is great, and is here.

An availability cascade is a self-reinforcing process of collective belief formation by which an expressed perception triggers a chain reaction that gives the perception of increasing plausibility through its rising availability in public discourse. The driving mechanism involves a combination of informational and reputational motives: Individuals endorse the perception partly by learning from the apparent beliefs of others and partly by distorting their public responses in the interest of maintaining social acceptance. Availability entrepreneurs - activists who manipulate the content of public discourse - strive to trigger availability cascades likely to advance their agendas. Their availability campaigns may yield social benefits, but sometimes they bring harm, which suggests a need for safeguards. Focusing on the role of mass pressures in the regulation of risks associated with production, consumption, and the environment, Professor Timur Kuran and Cass R. Sunstein analyze availability cascades and suggest reforms to alleviate their potential hazards. Their proposals include new governmental structures designed to give civil servants better insulation against mass demands for regulatory change and an easily accessible scientific database to reduce people's dependence on popular (mis)perceptions.

Regulatory icebreakers

Not too long ago, Canada’s Northwest Passage was effectively unnavigable. The ice was simply too thick for sailing ships to make it through during the too-short summers.

And while Netflix’ excellent miniseries The Terror brings an additional supernatural element to the horrors of being icebound on the Royal Navy’s Arctic expeditions of the mid-1800s, the reality was awful enough.

It took more modern icebreakers, and global warming, to make the route more viable.

And for one part of the global regulatory pack-ice, it took Uber.

Imagine, if you will, a heavily armoured icebreaking cargo ship designed to plough through the Northwest Passage. Once the path through the ice is cut, other ships can follow more easily. The icebreaker will get its cargo through first but at a much higher cost per container than the ships that follow in its wake. The armour and the fuel to push through the ice do not come for free.

Over the past decade, Uber has been breaking a lot of regulatory ice.

Most here will remember Uber’s 2016 Parliamentary hearings. Uber’s Richard Menzies had to explain to a Parliamentary committee, some members of whom may have gotten just a little too accustomed to chauffeured services, that there was no risk of someone trying to flag down an Uber as though it were a taxicab. The cars could only be hired using an app on a phone.

Perhaps because our MPs so badly embarrassed themselves in those hearings, New Zealand wound up with workable regulations. It would have been hard for Parliament to recover from a second demonstration of technological incompetence.

But New Zealand is only one country in a big world. And most other countries start with far worse policy than New Zealand. Their pack-ice is thicker than ours.
I go through some of the regulatory ice-breaking that Uber has undertaken, and note the work yet necessary in sorting out reclassification risk.

I conclude:
Principles-based regulation establishing safe harbours against reclassification risk for those providing greater benefits to contractors seems a useful path forward but the path to get there is not free and clear. It takes an icebreaker.

In other areas we talk of first-mover advantages. That is not the case when we think about icebreakers. Breaking the ice is something of a public good. It is a difficult job, and I expect the terrors of trying to make Uber’s model work in France were only slightly less terrifying than being icebound in the Northwest Passage.

But once the ice is broken, anyone can follow. In those cases, there is some merit in being a fast-follower – unless someone is willing to pay an awful lot to have their container be first through the passage. Those of us along for the ride might raise a glass from time to time to the icebreakers.
An ungated version will be up on the Initiative's site in due course and will be linked at that point [Update: it's here].

Friday, 28 June 2019

MBIE and the signalling model of education

What's the point of education anyway?

The usual story is that you pick up skills that improve your human capital, and that you then go on to apply those skills in ways that provide value. So training improves wages because you're more productive due to the training.

Bryan Caplan's been an advocate of an alternative story around education. In that version, education isn't really about skills, or at least mostly isn't about skills. Instead it's about signalling. If employers really cared about specific skills, there are way more efficient ways of getting those than a 3 or 4 year university degree. Instead, education is more like an arms race. The point is to demonstrate through costly effort that you're smart and diligent enough to make it through. If it were just smarts, an IQ test would suffice. But it isn't. It's also being the kind of person able to slog through an undergrad degree and consequently likely able to put up with the drudgery parts of normal jobs.

So, let's have a look at MBIE's policy graduate programme. It gives 16 months of policy training to fresh university grads with at least a B average in their Bachelors. That training part seems like actual skills-conveying.

Now if university provided skills rather than a screen and signal, you'd think there'd be some amount of matching between the grads' training and the policy areas they're working in.

Here's what we've got. Note - this is absolutely not meant as criticism of the fresh grads doing this work. I'm just curious about how they line up training and tasks.

  1. An Honours History grad, with an undergrad in History and Sociology, who notes working on the KiwiSaver Default Provider Review. You'd think this would be a task suited to a grad with training in behavioural economics, economics, or finance. 
  2. An Honours History grad, undergrad History and Spanish, working on consumer policy issues ranging from ticket reselling and access to safer credit, to country of origin labelling for food. This is microeconomics work. 
  3. BA in Public Policy, Political Science, and IR, with a minor in Development Studies, reviewing the Crown Minerals Act to ensure it remains fit for purpose, with specific work looking at iwi engagement and opportunities to better involve Māori in decision making processes. This seems a decent fit. 
  4. BA Pols and IR, and Anthropology, working on regulations for dams and dam safety, and has been lead author on a Cabinet Paper. I'd have thought that would either be an engineering role, or econ looking at CBA, or laws. 
  5. Bachelor of Law and BA majoring in Pols and Psych, looking at corporate governance. Laws can fit with that. 
  6. BA majoring in Pols and Film & Media Studies, looking at temporary migrant worker exploitation and engaging with the ILO in Geneva. Labour economics could have helped, or laws. 
  7. Honours Pols, looking at housing policy and housing affordability. Again - microeconomics, urban economics, laws with focus on RMA / district plans. 
  8. BCom Accounting and Management, and BA Pacific Studies, Pols and IR, working in prep for the APEC meetings. Seems a good fit. 
Maybe I'm way out in this, but it feels like maybe three of the eight are hitting areas where the undergrad or honours training would have provided particular help in the policy areas.

These aren't jobs for life - it's the grad training programme. Could be that grads progress from there to policy work more aligned with the things for which they'd trained. MBIE is big enough that you'd think they'd be able to find a policy area that's a decent match for most incoming grads if it mattered. 

Overall it seems more consistent with the signalling model of education than the human capital model. 

Thursday, 27 June 2019

Treasury Episode IV: A New Hope

Episode 3 comes to a somewhat dark end. The State Services Commission that selected, appointed, and re-appointed Secretary Makhlouf damns his conduct in the budget hack during the press conference, but issues a more restrained report that finds the Secretary acted in good faith at all times, that his conduct was non-partisan, but that it was unreasonable in some statements made.
In summary, I find that, in relation to Mr Makhlouf's written and oral media statements:

a. Mr Makhlouf acted in good faith at all relevant times;
b. Mr Makhlouf acted in a politically neutral manner at all relevant times; and
c. Mr Makhlouf did not act reasonably in relation to:
i. his use of the phrase "deliberately and systematically hacked" in his Tuesday evening media statement;
ii. his use of the bolt analogy in his media interviews on Wednesday morning; and
iii. in his media statement on Thursday morning, continuing to focus on the conduct of those searching the Treasury website rather than the Treasury failure to keep Budget material confidential.
A better analogy to the bolt one might have been someone jumping on a trampoline outside of a second story window, taking snapshots of giant posterboards taped to the window with every bounce.

I doubt that anything in the report then reaches a level that would have the Irish Bank reconsider its offer of appointment - they'd signalled it would take findings of very very grave misconduct. I'm not great at interpretations of bureaucratic legalese, but "did not act reasonably" in a limited set of cases seems unlikely to hit that standard.

Bit of a downer of an end to Episode 3.

Anyway, on to Episode 4. The next Secretary will be Dr Caralee McLiesh, coming over from New South Wales. We'll call this one A New Hope. It could all yet end badly, but there's a lot of promise here.

I'd said that the next Secretary needs to bring the academic credibility needed to signal a change in emphasis, and the managerial ability to effect the necessary changes.

It's hard for us here in New Zealand to say much on the latter front - we just don't know. But on the former - Dr McLiesh is not only well trained, she also has a string of superb publications from her time at the World Bank. Absolutely superb. Imagine having this portfolio going into a PBRF round.

Oh - and the data series on regulation produced by the World Bank in it's Doing Business in 2004 report? That's hers too - co-managed development and production of it; Djankov was team lead. 

What things do we know from that set of papers?
  • Creditor rights matter in ensuring access to credit;
  • Across a broad set of countries, government ownership of the media undermines economic and political freedom rather than working to remedy market failures;
  • Making it hard for creditors to proceed against a defaulting debtor hinders the development of debt markets;
  • Across a cross-section of countries, higher corporate tax rates adversely affect investment, FDI, and entrepreneurial activity;
  • Better business regulations improve economic growth.
I'm optimistic about this appointment. A New Hope. 







Tuesday, 25 June 2019

Bailout risk and deposit insurance

It looks like New Zealand may wind up getting deposit insurance at the banks. 

Let's review the case for these.

If you think that the government is very likely to bail out a failing bank, then that bank and its depositors are currently enjoying an unpriced insurance product that allows the bank to take more risks than it otherwise would, with depositors and shareholders enjoying the upside benefits, and shareholders and the Crown bearing the downside costs. Recall that under New Zealand's OBR regime, shareholders are fully burned before any depositor funds are touched - I've not heard that there's bailout risk for shareholders. 

I expect that there would be substantial bailout risk in any bank failure where haircuts under OBR would be substantial, but haven't thought that risk material. It would take a very large bad event to make a bank go down at all, so maybe you could figure that conditional on a bank's failing, the losses are likely to be more substantial than OBR could safely handle - it's not a crazy view at all. I've tended to think that there's trivial bailout risk for haircuts on the order of 10%; other economists whose views on this stuff I respect think that even a 10% haircut would trigger a bailout. They may not be wrong given precedents in Christchurch insurance. 

So it's really one where you want to be all in or not at all. The Bank and government could push hard to maintain the position described by Rod Carr when he was Deputy Governor about that bailouts simply wouldn't ever happen, and maintain expectations around that equilibrium to make it self-enforcing. But piles of economists speculating about the likelihood of bailouts and saying that they'd be likely to happen can unwind that too. 

Mandating deposit insurance and pricing it appropriately will reduce depositor returns, but if insurance makes sense, that's only because depositors will have to start paying for something they were already getting for free from the government. 

But what seems a bit nuts given all that is National's line critiquing the government. Again, from the background above, there are tenable arguments against the government's position. You could argue that we need hard lines against bailouts. You could argue that prudential regulation and results of existing stress tests mean bailout risk is low because the probability of failure is low, so any resulting insurance costs should also be reasonably low - and that all of this should be considered simultaneously with the coming changes to bank capitalisation requirements rather than on their own. 

Those aren't the arguments National's running. Instead, they're angry that the deposit insurance doesn't protect people who have a pile of money sitting in bank deposits. The government's proposal would cap protection at between $30,000 and $50,000. National thinks it should have a much higher threshold, and worries about people who have their entire retirement savings in bank deposits.

The model of deposit insurance and bailout risk in my head is that bailout risk is sharply increasing in the number of small and relatively poor depositors who lose their shirts in a bank failure. They could credibly say that they trusted in the government's prudential supervision and would be in a very poor position because of the failure. Someone with a couple hundred thousand dollars sitting in a deposit account would likely hit the 'informed investor' triggers in other areas - in other words, people who should really really know better than to leave lots of money sitting in deposit accounts for substantial periods of time.

What model of bailout risk must be in your head to think that the government is especially likely to bail out a pile of rich people who really should have known better? Is National really here saying "Yeah, we'd totally do an SCF bailout again, you've got to price that kind of thing in because we can't help ourselves from bailing out rich people who should have known better"? All explanations are depressing. 

Thursday, 20 June 2019

Do flat taxes make sense? Depends on your goal.

Stuff's Susan Edmunds got in touch asking whether flat taxes work. I was pretty long-winded, so only some of my comments could possibly be used. Here's what I'd sent through. Enjoy!
People’s views on flat taxes will depend on their views of the desirable overall size and scope of government. It is difficult to finance a large redistributive state on a 17.5% flat tax – the Crown gets a very large proportion of its revenue from income tax payments from high income earners. The flat tax is consistent with ACT’s desire for a more constrained and smaller government, and can be efficient within that setup. Lower effective marginal tax rates can increase labour supply, but we should be cautious not to overstate effects here. Most studies conclude that primary earners are not that responsive to tax rates, or at least not in the shorter term in deciding how many hours to work. The overall tax burden can be important for bigger on/off kinds of decisions though, like whether to migrate to New Zealand in the first place, or whether to shift abroad if you currently live here.

So a flat tax can be consistent with a shift toward a smaller overall government.

ACT proposes funding the reduction in the overall tax take by abolishing the Provincial Growth Fund, raising the age of NZ Super, removing fees-free study, cancelling winter energy payments, capping Working for Families, and ending government contributions to Kiwisaver.

Abolishing the Provincial Growth Fund seems sensible enough, but we should note that that fund will end at the end of the current government. A tax system change is long lasting. So future governments would be constrained against putting in big expensive regional spending programmes to buy the support of whichever party might make that a condition of coalition support.

Raising the age of Super entitlement, so long as it’s done with enough lead-time for people to prepare properly for retirement, is also a generally good idea – whether you want to use the savings then to give more money to younger poorer people, or to fund a reduced overall tax bill. It would be difficult to do this in the short term.

Removing fees-free study makes the overall package less regressive than it might otherwise seem as the benefits of the programme disproportionately accrue to higher-earning families. While many poorer families also benefit from fees-free study, the bulk of the benefit goes to higher earning families who would have gone to further study anyway. That’s one reason that we had opposed fees-free in the first place, and had suggested reinstating interest on student loans while using the savings to boost scholarships for low-income students and to improve preparation for tertiary study at high school.

Winter energy payments are incredibly badly targeted and an ineffective way of supporting those on lower incomes. But the combination of reducing this payment while also increasing income tax paid at the bottom might argue for an offsetting boost to benefits. Similarly, capping Working for Families to two children will be attractive to those on higher incomes who have had fewer children and who might wonder about very large family sizes among those on lower incomes, it would likely have negative effects on material deprivation among those poorer larger families.

Finally, abolishing Crown contributions to Kiwisaver also seems rather sensible. Series of papers produced by Grant Scobie and various co-authors showed that Kiwisaver has had no effect on overall savings rates. The policy then mostly rewards people for savings that they would have undertaken anyway.

Caveat on all of this: I have not double-checked the numbers and am taking them all as given on ACT’s website.

Aligning the flat tax rate with the company tax rate will mostly have effect on companies’ ability to attract foreign capital, and a bit of a reduction in taxes paid by nonresidents. Under the imputation regime, the company tax rate is a bit irrelevant if the company is solely held by Kiwis: the owners of the firm get an imputation tax credit along with any dividend payment, so if the company tax rate were higher than the top marginal tax rate, then IRD would just be writing that off against their income tax due anyway. Where it would have effect is on dividend distributions to foreign owners who aren’t eligible for imputation credits and who would consequently see a tax reduction – and also consequently be more willing to invest in New Zealand. Since New Zealand is generally shallow when it comes to capital and could use a lot more investment, on balance that part seems rather desirable.

I think some of the reporting around the proposed flat tax has been a bit lazy, but some of the problem is that we just don’t have data here that’s available in other places. For example, there’s been a lot of reporting that many earners would see an increase in total taxes paid under a 17.5% flat tax because the higher tax on earnings under $14,000 would outweigh the reduced taxes paid on earnings over $48,000. But many earners that are in that group will be secondary earners in households where a primary earner will enjoy a more substantial tax cut. So if we then consider a household where one person is on >$100k and the second person is on $40k, there would be an increase in the tax paid by the second person but it would be dominated by the tax cut enjoyed by the first person. And, the tax increase on the second person would be ‘inframarginal’ – in other words, the marginal tax rate doesn’t change for that person, but the tax collected on earlier earnings does. So it should not have any effect on the second person’s hours worked (conditional on that person still finding it worthwhile to be in work), but will have some likely minor effect on the higher-earning partner’s labour supply. And if we think about migration decisions as being about how the household as a whole fares, it could have effects on decisions by families with a higher skilled worker to move to New Zealand.

So, I suppose, a few bottom lines:
If your ideal government includes a lot of redistribution, including programmes like fees-free study that are very poorly targeted if you think redistribution should mostly help poor people, then you shouldn’t be a fan of flat taxes. They simply cannot raise the amount of money necessary for a large redistributive state.

If you think that government should on the whole be smaller, then financing it via a flat tax can work well. Don’t be overoptimistic about huge consequent growth effects coming out of increased labour supply from the highly skilled who are already here, as the literature suggests primary earners’ wages are not all that responsive to tax rates. But you could see a bump via greater labour supply from high skilled secondary earners, and through changes in migration.

You can’t really say whether a flat tax works without specifying what the goal is. It doesn’t work if you want to have a large and redistributive state as you cannot finance that kind of government on a flat tax. But it does work if you don’t want that kind of government. 
The quoted bits have me more firmly on the pro side. I'd be happy enough with a smaller overall size of government, but figure it's worth laying out the tradeoffs.

Wednesday, 19 June 2019

A world without opportunity costs?

From Question Time yesterday comes a useful question for anyone setting Principles-level exams. Discuss this exchange with reference to theory as discussed in class. 
Hon Amy Adams: How can he say that he's used "evidence and expert advice to tell us where we could make the greatest difference to the well-being of New Zealanders", when the Government has chosen to pour hundreds of millions of dollars into fees-free tertiary at the expense of giving Pharmac enough money to keep pace with inflation?

Hon GRANT ROBERTSON: The premise of that member's question is incorrect. Money that supports education, money that supports health, and money that supports housing are all part of the Budget; one is not at the expense of the other. What we're doing is actually making up for the enormous under-investment of the previous Government.



Hon Amy Adams: Why was spending $7 million on Artists in Schools a higher well-being priority than the mere $6.5 million needed to reinstate cochlear implant funding that his Government cut in last year's Budget?

Hon GRANT ROBERTSON: Again, the member is not reflecting the Budget process that she knows well. These things are not trade-offs against one another. We are creating an environment in which we're investing in well-being across all sectors of the economy. In the health sector, this Government has a record that is far superior to that Government.
Robertson could be right if they just set a total amount that will go to health, then weigh bids within health against other bids within health - but that would also make a bit of a nonsense that the wellbeing budget ensures every dollar provides the greatest possible increment in wellbeing. 

Google keeps making our lives better

Navigating post-earthquake Christchurch was tough. Every day brought a new set of road closures to route around. And they weren't always easy to predict in advance. If enough roads were closed on the south side of town, I'd want to take the longer northern loop to get from New Brighton to the University - but I wouldn't know that until I hit the closures.

So I'd then asked some friends at Google whether this couldn't be automated (and posted on the basic idea here). Traffic flow data already held could be used to infer road closures. If everyone who'd been recommended to follow Dyer's Road down to Ferry Road took a turn on Linwood instead, and nobody was on that small stretch of Dyer's Road, it would be a safe guess that it was closed. Why not flag it as likely closed, route around it, then update when it noticed traffic flowing again?

It wound up being more complicated than I'd have thought, and SCIRT was doing its best anyway to try to get road closure data up in real time in format that could be read automatically. But it still wasn't great.

CityLab reports that it's coming: Google is adding a disaster-navigation tool to Google Maps. Crowdsourced user responses will provide suspected closures in addition to the confirmed road closures.

I hope Wellington does not get its expected earthquake any time soon. If it does, this will make life a little bit more manageable. There will be so many unpredictable road closures due to slips. If you're home and have little gas in the tank, it will be hard to tell whether you can even get to the petrol station. This will help.

If the New Zealand government had put out an RFP for this kind of functionality, it doubt anyone would be offering to provide it for cheap. Instead, Google's giving it to us for free.

I hope that, come the quake, Bernard Hickey remains true to his principles and boycotts this excellent free service.

It's so nuts that New Zealand's looking to move out of step with the OECD on international tax and impose punitive rates on Google. Imagine if Google ever shrugged.

Tuesday, 18 June 2019

For want of a CURF

Some things are just hard to know without decent public use microdata.

There's been a lot of furore about ACT's flat tax proposal, with many on the left outraged that a libertarian party would support lower taxes.

Many have also pointed out that a 17.5% flat tax would represent a tax hike - not just for those currently on the 10.5% lowest tax rate, but also for those who are at a low enough point in the 30% tax band that the inframarginal increase in taxes on the first $14,000 of earnings would outweigh the reduction in taxes on earnings above $48,000.

No quibbles on that part - it's just maths.

But I am a bit more curious about household distributions. How many of those who would see that inframarginal increase in taxes are in households where the other earner would see a real tax cut accompanied by a drop in their tax rate? I remember Pacheco and Maloney's work showing that many minimum wage earners are in higher earning households, so the minimum wage is poorly targeted. I expect there could be similar effects here.

To know that we'd need a two-way earnings table. The columns would show the earnings of the primary household earner, split into different bands. The rows would show the earnings of the secondary household earner, split also into different bands. Each cell would provide the count of households where the primary earner earned the column amount, and the secondary earner earned the row amount.

For households with two earners on lower wages, the flat tax would be a tax increase. For some of those, it would only be an inframarginal tax increase. For others, it could represent a tax increase at the margin (anyone earning less than $14,000 per year).

For households with one higher earner and one lower earner, I'd expect most would see a tax reduction with effects at the margin, but I don't know the numbers.

And households with two higher-earners would definitely see a tax cut.

I guess the substantive point is that a lot of the folks being currently touted as seeing a tax hike under ACT's proposal would be in households where the net effect would be the opposite, and where the tax hike part would be inframarginal while the tax reduction part would have effects at the margin. We don't expect big labour supply effects on primary earners from tax cuts, and we do expect more supply responsiveness from second earners - but if the effect on second earners is more likely to be inframarginal, then that's a bit different.

And the more substantive point is that it's just dumb that it's hard to know what the numbers actually are. In the US, I'd just download the ACS PUMS and tally it. Here, because Stats' back-end systems are archaic, the only tables we have are the ones somebody thought to code in ages ago. You can't dynamically generate them.

Stats does have Confidentialised Unit Record Files, but you have to go through an application procedure to get them. And, once you have them, you can only use them for that one specific thing that you asked to use them for, then delete them. If you want to check something out just out of idle curiosity - like this tax question - well, you can't. Even if you have the CURF from a prior request that you're still working on, you have to get permission to use it to ask this specific question.

And the most recent CURF that might answer the question would be the one from the 2013 Census; they don't CURF the HES.

I have a query in with Stats in case this table already exists somewhere on a disused server in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying 'Beware of the Leopard', as that's always a possibility. But this kind of stuff shouldn't take hassling Stats staff (they are exceptionally helpful, and it wouldn't surprise me at all if somebody there is already building the table) or doing a whip-round of other economists to see whether they know whether this kind of data exists. You should just be able to download the darned Census CURF and check it - or have back-end systems that can support the kind of data access that IPUMS provides.

UPDATE: Stats' helpful advisor informs that that cross-tab does not exist and would take either a custom data request, or a research project through the IDI.

UPDATE2: Customised data requests charge out at $155/hour. If Stats' back-end systems weren't rubbish, or if they decided to free the Census CURF, any of us could just do it on our own.

Haidt!

Jonathan Haidt will be speaking in Auckland on 1 August. I've seen him present before; he's excellent. 
In 2012, US psychologist Jonathan Haidt rose to fame with the publication of his book The Righteous Mind: Why Good People are Divided on Politics and Religion. In its review, The New York Times called Haidt’s book “a landmark contribution to humanity’s understanding of itself.” It has since gained widespread praise from commentators left, right and centre (see here).

Both Foreign Policy and Prospect Magazine have listed Haidt on their respective rankings of the world’s Top 100 public intellectuals.

Haidt has since published extensively on threats to academic freedom and the polarisation of political debate on campus. His latest book (with Greg Lukianoff) is titled, The Coddling of the American Mind: How Good Intentions and Bad Ideas Are Setting Up a Generation for Failure.

The New Zealand Initiative is proud to support Jonathan Haidt’s first visit to New Zealand.

This will be a rare opportunity to meet one of the world’s most original thinkers in New Zealand. Haidt’s work in moral psychology has deep implications for many of our global and domestic political debates.
Tickets are available here. There will also be a much smaller Wellington event with Initiative members.

Monday, 17 June 2019

A sugar intervention that actually looks promising

Usually I'm pointing to daft stuff on the sugar file. 

But my jaw dropped when I read this one. An intervention that sounded sensible, that's been piloted, that looks effective, and is quite possibly cost-effective too.

Here's RNZ:
But dental decay in even the most deprived communities could be prevented by the simple method of brushing teeth once a day at school, and a Northland study had proved it, and the government should take heed, Dr Stallworthy said.

In 2015, DHB dentist Ellen Clark set up a highly controlled tooth-brushing trial in Northland schools for her Master's thesis in Public Health, through the University of Otago.

A teacher aide was paid to supervise tooth-brushing sessions, once a day for 170 children at Kaitaia Intermediate School.

Several other schools were selected as controls, all of them in areas of high deprivation, where children were given a toothbrush and fluoride toothpaste, but had no supervised brushing sessions at school.

More than two-thirds of the children were Māori.

Ms Clark said she had hoped to improve the children's oral health - but the results were far better than she dared to hope.

"The children who were brushing (at school) had a mean number of 11.7 tooth surfaces that improved - that is, they remineralised or (the decay) reversed. In comparison, the kids who were not brushing had 8.6 tooth surfaces that deteriorated over the year which was quite profound, I wasn't expecting that - I thought you'd have to follow these kids over several years before you saw such significant results."

Tooth-brushing programmes in schools in Denmark and the UK had been showing similar results, Ms Clark said.

One of the better known ones, the Scottish Child Smile project had saved the government an estimated $NZ9.1 million in just two years.

The low-tech intervention could do the same for New Zealand, at a relatively low cost, Ms Clark said.

Supervision was critical, but the cost of a teacher aide, for an hour a day per school, was tiny compared to the potential savings in teeth and dollars.

No equipment was needed apart from brushes and toothpaste - the children in the Kaitaia study spat into paper towels, and rinsed their brushes at the water fountain.

The beauty of the study was that it removed the usual inequalities in oral health, caused by poverty, and the results had prompted interest from overseas, and from other DHB's around New Zealand, Ms Clark said.

She was now working on a detailed cost-benefit analysis, in the hope the government might consider rolling the programme out through Northland.

And though the study is over, Kaitaia Intermediate has kept up the toothbrushing - and continued to report good results, Ms Clark said.
And here's the Masters Thesis.

It's a shame that it seems needed, but here we are.

In related news, a friend emails me a public health anecdote from the mid-2000s. According to the anecdote, an academic did some joint research with MoH into rheumatic fever and found that shared toothbrushes were part of the problem, as were shared beds - the recommendation then was to hand toothbrushes out at GP offices to prevent that transmission vector. Toothbrushes are cheap.

According to the anecdote, MoH buried that part of the research in case it reflected badly on ethnic groups more likely to share toothbrushes. The collaborator never worked with MoH again due to frustration over the barring of the findings' being used.

If anyone knows more about this one, drop me a line.

Friday, 14 June 2019

Afternoon roundup

The afternoon's worthies on the closing of a week's worth of browser tabs:

What else could he say?

Well, turns out I was at Makhlouf's farewell party, in a way.

I'd been initially invited to the thing via a Treasury 'Save the Date', then uninvited for obvious reasons after I pointed out, again, the depth of deterioration at Treasury under Makhlouf's watch. The quality of policy advice has dropped substantially, as reported in Treasury's annual reports; the stakeholder surveys show declining confidence, and I think it's due to Secretary Makhlouf's administration having focused on faddishness over rigour and the deterioration of economic competence in the organisation.

When RNZ's Madison Reidy ran a whip-round of economists, she couldn't find anyone who disagreed with me on the deterioration at Treasury.

Here's Finance Minister Robertson, reported in Politik at last night's farewell event. 
Robertson also praised Makhlouf for making Treasury a more diverse place and addressed recent criticism from the NZ Initiative economist, Eric Crampton, that Treasury was putting too much emphasis on diversity and was not hiring enough highly qualified economists.

“ My message to Eric Crampton, the NZ Initiative and the Taxpayers' Union Is that the Treasury should have economists.but it should also have people from other walks of life who aspire to be part of an organisation that delivers to New Zealanders better-living standards," he said.
Peter Hughes was also reported to be fulsome in praise of Makhlouf. Of course he would be. The State Services Commission completely screwed up in having Gabs reappointed in 2016.

If Robertson and Hughes want to ignore the failures at Treasury, well, it's their administration that will suffer - and the rest of us. A Finance Minister needs quality advice, and he will not get it.

I hope that this is just a "well, what else could he say at the man's funeral" thing. But he didn't need to endorse Treasury's awful hiring practices.

Update: I'm more annoyed about this the more I dwell on it. The next CE has to know he has the Minister's backing in fixing the problems at Treasury. I thought Robertson understood the task ahead. At every point, I've been critical of Treasury but optimistic about Robertson's having some desire to fix things. I am updating substantially on this. Will he even be able to get the kind of candidate he needs if he's signalling that he thinks Treasury's composition is a-ok?

Thursday, 13 June 2019

What counts as 'Moderate' reliability for Cochrane?

Glenn Boyle prompted me to hit the Cochrane Review's findings around SSB price interventions a bit more closely.

If this counts as moderately reliable evidence, well, draw your own conclusions about the weight to put on the stuff they count as low or very low reliability.

Here are the three studies they evaluated.

  1. Cornelsen 2017. They looked at a 10 pence price hike on SSBs across a chain of UK restaurants. 9% reduction in SSB items sold per customer. While there was a 22% increase in per-customer sales of fruit juice on the main menu, there was a 10% drop in fruit juice sales on the kids' menu, a 7% drop in sales of diet cola, and a 6% drop in sales of bottled water. They did not run it as a diff-in-diff, just looked at pre/post. Tap water isn't measured; could have been generalised shift towards tap water. And there's weird stuff - the change in consumption in levied SSBs is reported as significant with a p-value of 0.004, but the 95% CI runs from a -15.21 drop to a 3.15 increase. Typo? Who knows. It's public health. No discussion of whether there just might have been a coincidental generalised shift to tap-water given the drops in sales of diet colas that didn't get the price hike. Nothing on whether there was substitution into desserts. And it's all at Jaime Oliver restaurants; their shifting towards bankruptcy over time plus his generalised increasing awfulness may have affected customer cohort too. If his big menu reorganisation and self-imposed sugar tax was accompanied by a giant "I'm so great look what I did" publicity campaign, as it almost certainly was because it's Jamie Oliver we're talking about here, well, you might think that the clientele might have shifted away from the people who like soda to the kind of people who like folks that yell at people who like soda. No accounting for any of that. 
  2. Blake 2018. A price intervention in a single convenience store reduced sales at that single convenience store. It was the convenience store in a hospital, so maybe it was a bit harder for folks to pick other stores. But come on. 
  3. Breeze 2018. Leisure centres in Sheffield increased SSB prices by 20 pence and saw a 31% reduction in sales per customer, with some increase in sales of diet soda. No clue how many people brought in their own soda in their gym bags. Oh, but the intervention also included staff training and publicity and stuff that might have had additional effect on their own around salience of health and price.

But when sugary drinks are made more expensive, or sugar-free alternatives made cheaper, sales fall, the researchers found.

"The evidence is unequivocal... you put up the price, consumption goes down," NZ Dental Association spokesperson Rob Beaglehole told The AM Show on Thursday.

"You get rid of junk food from schools, consumption goes down. Better sugar labelling is again another way of reducing sugary drink consumption. There's lots of different ways that we can act."
I'll never disagree that demand curves slope down. But the elasticity matters. And this latest Cochrane Review ... well, if that's the basis for recommending generalised hikes in SSB prices via soda taxes...

Sweet restrictions

The Science Media Centre asked me for comment on the latest Cochrane Review on interventions around sugar.

Reading through the thing, I was struck by the weakness of evidence around a lot of the kinds of things folks here like to demand that the government do.

Cochrane rates the certainty of evidence on a scale that runs: very low, low, moderate, high.

The interventions with the strongest evidence base around environmental interventions aimed at reducing consumption of sugar-sweetened beverages were rated "moderate". Nothing rated high. Interventions rated as having "moderate" evidence included:
  • Improved access to low-calorie beverages in the home environment
    • studies in this group would provide free home delivery of bottled water or diet drinks to people often in places with unreliable access to clean drinking water, and found reductions in soda consumption as consequence. 
  • Multi-component community campaigns focused on SSBs
    • Results here drew from one study. 
  • Government food benefit programs with incentives for buying fruit and vegetables and restrictions on the purchase of SSB
    • Here, studies looked at interventions restrictions on purchasing SSBs using the equivalent of New Zealand's WINZ payment card. The studies found reduced sugar consumption. New Zealand already bans a lot of classes of purchase on the payment card, including alcohol and tobacco. It wouldn't be infeasible to do it here, but there would be a lot more SKUs that would have to be loaded up properly into the card - it could prove difficult in practice. Checkout clerks are already well trained around identifying alcohol and tobacco purchases; knowing which beverages would be banned and which would not would require the back-end systems being programmed correctly. I expect it wouldn't be a simple thing.
  • In-store promotion of low-calorie beverages in supermarkets
    • Evidence here all drew from Foster 2014. That was a randomised trial looking at in-store promotion of healthier items: lower-fat milk, ready-to-eat cereal, frozen meals, in-aisle beverages (Diet Pepsi and Aquafina water), and checkout cooler beverages (zero calorie beverages and water). Effects were often statistically significant, but I'm not sure that a store selling 24 more gallons of skim milk and 53 more gallons of 1% per week are really all that big a deal. 
  • Price increases on SSB
    • Three studies found that places chosen for soda price interventions, like a leisure centre or a particular corner store, saw reduced sales of those price-boosted items. But it seems kinda likely that folks would just be purchasing their soda at shops next door that weren't part of an experiment involving higher soda prices. You oughtn't generalise from it. No surprise that Beaglehole does generalise from it though
  • Small prizes for the selection of healthier beverages in school cafeterias
    • Evidence ranged in strength from moderate to low. In the Hendy 2011 study (rated moderate; the others were low), there was a three-meal-per-week reduction in the number of meals with unhealthy beverages selected in an intervention in primary schools where kids' meals were monitored and they got token rewards from parent volunteers chosen as monitors. If your school has that many available parent volunteers, I guess it's not that high cost to implement - though you might imagine other things parent volunteers in schools might more usefully help with. 
  • Traffic light labelling
    • Evidence here was rated moderate in reducing consumption of red-labelled beverages. 
Everything else had evidence rated as low or very low confidence. 

Here's what I told the Science Media Centre about it; Newshub picked up a bit of this commentary but didn't contrast the price bit I'd noted with how Beaglehole approached it.
The Cochrane Review provides an important synthesis of the evidence regarding non-tax interventions aimed at reducing consumption of sugar-sweetened beverages [SSBs].

The review found that many often-recommended measures have little evidentiary base, with certainty of evidence rated as very low. Interventions in this category included measures like healthier vending machines in workplaces and schools, restrictions on the number of stores selling SSBs, urban planning restrictions on new fast-food outlets, and menu-board calorie labelling. No studies were found that might provide basis for restrictions on advertising.

Some measures showed promise, with a moderate certainty of evidence established across numerous studies.

Improved access to low-calorie beverages in the home environment reduced SSB consumption, but many included studies focused on places without reliable access to clean drinking water. Regular home delivery of free non-SSB drinks across broad swathes of the population seems unlikely to pass any reasonable cost-benefit assessment, and especially in places where piped water is of reasonable quality.

Restrictions placed on purchases funded through food benefit programmes reduced SSB consumption, and could be implemented in New Zealand by adding SSBs to the list of prohibited purchases on Work and Income Payment Cards. But the administrative costs may not be trivial, and the imposition on low-income households who enjoy soda occasionally should not be ignored.

Small prizes for selecting healthier beverages in primary school cafeterias showed some promise.

While price increases in individual targeted stores showed reduced sales of SSBs in those particular venues, the surveyed studies in that area do not look at overall consumption; people could easily have shifted to purchasing from outlets where prices had not been hiked.

And while the review authors tentatively suggested a somewhat broader set of interventions may prove effective, they also warned that their confidence in the likely effects is low to moderate. Rather than providing evidence for policy change, we should view the report as suggesting measures potentially worth trialling within an appropriate experimental framework designed to improve the evidence base.

Where the evidence base presented for any substantial effect of interventions is moderate at best, even without being evaluated as part of a broader cost-benefit assessment that weighs implementation costs and costs to consumers, we should be highly sceptical of any calls for strong intervention based on this report. It should rather temper our enthusiasm for large-scale measures likely to impose substantial cost for rather less certain benefit. Pilot studies and trials of some of the more promising interventions may be warranted.

Barbershop thoughts

I'd be surprised if something like this didn't already exist, but if it doesn't, it'd be a great feature for Spotify (or another of the streaming services).

I was sitting in the barber's chair yesterday when something that sounded a lot like Spotify's 80s New Wave collection came on. It was rather good. It was almost what Spotify's Daily Mixes might recommend for me some days. I was mildly proud of myself for finally remembering, two songs later, that the one that had been bugging me was by Echo and the Bunnymen.

Imagine a barbershop with some staff with musical preferences and customers who also have musical preferences. If clients with scheduled appointments have their Spotify handles loaded into the shoppe's roster, there'd have to be a way for Spotify to run an adaptive playlist that takes some least-distance measure across all the liked songs by the people currently in the room, filtered through some basic parameters the shoppe might set. The shoppe might wish to rule out songs with explicit lyrics, for example - or it might not. Or it might have an upbeat or relaxed or whatever vibe that it tries to go for - and the algorithm could then pull appropriate tunes from the customers' playlists.

It should have applications beyond barbershops though. House parties without a DJ could just let Spotify configure things after the host says who's there. Heading out on a road trip with friends? It would pull from the favourite tunes of those in the car without anybody having to muck about.

And having the feature would increase the value of network effects in the player with the feature - if your friends are using it and you want your tunes to start showing up when you're at your friend's house, you'll want to be on the same player.

I'd be surprised if one of the streaming services weren't already doing something like this though.

Wednesday, 12 June 2019

Due diligence and the Irish Central Bank

Barriers to exit are barriers to entry. If you're going to hire someone to a permanent position, you have to do a lot of due diligence. When I was on faculty at Canterbury, recruitment processes were very thorough as we appointed faculty to permanent positions - the norm in America is appointment to a limited-term position after which a faculty member may progress to tenure. So we tried to be careful. Mistakes could last for a very long time.

This morning, Radio New Zealand reported that the Irish Central Bank would not withdraw its offer of appointment to Secretary Makhlouf unless there were findings of "very very grave misconduct" in the current investigation.

That is a substantial barrier to exit. Firing governors of central banks should be hard if central banks are to be independent.

But where there are heavy barriers to exit, you need a lot of due diligence at the front end.

When Radio New Zealand's Madison Reidy asked economists around town whether I'm out on a limb in what I've been saying about Treasury, she couldn't find anyone who disagreed with me.

So I wonder just what kind of due diligence Ireland's version of SSC has undertaken. Did they ask any economists in New Zealand about how Treasury's fared over the past few years?

Monday, 10 June 2019

Hide the Decline

Back in April, Madison Reidy interviewed Treasury Secretary Gabriel Makhlouf about the 2017 Treasury Stakeholder survey. That interview didn't air until this morning; it's here

I'll do my best to transcribe the relevant bit here.
Makhlouf: Sometimes we haven't done a good enough job at engaging with stakeholders so they understand what we're doing and why we're doing it. I'd like to think that if we did that survey today, we'd get a better set of results.

Reidy: Shouldn't you be doing these measures again this year? You do it every two years.

Makhlouf: Oh we've done, umm, I don't know if we are going to do it again this year.

Reidy: Is that because you had such a poor performance last time that you're not going to measure it this time around?

Makhlouf: No it's because we're actually implementing a whole bunch of changes which we want once we've got to a particular point in our change program that we'll then want to assess how that's impacting so it's just a question of timing as to when we do it.

Reidy: It's all good and well to say to me that you know you think you've changed and that the perception of what the Treasury does and is is now better but wouldn't you want that in hard numbers?

Makhlouf: No no no I will do, I just said, I think it's just a question of time of when we do that.
I wonder whether that survey is yet underway. I was a respondent in prior years' iterations, and that would have been about this time of year. I expect RNZ will be following up to see whether the 2019 survey has yet been started.

The worries aren't Just Eric. I'm just the only one willing to have my name on it. Reidy followed up, as is eminently sensible.
Other top economists RNZ Business spoke to - who did not want to be named - shared the concern and frustration over Treasury's apparent weakened performance.
Independent think tanks are important.

Update: Reidy clarifies a bit further on Twitter, in response to criticism that she shouldn't have been talking to me because neoliberals, and that everyone else required anonymity.
The *all* seems significant.

Saturday, 8 June 2019

The long term rot

Over at The Spinoff, I go through the problems at Treasury I've been chronicling here for some time. Most of this will be familiar to loyal readers, but I do put a couple of new bits in.

The Spinoff truncated a couple of bits for length ... I did go on for a while. The shorter form version is here; we have the full one over at our site.  
If the Canterbury earthquakes taught us anything, it’s that the immediate response to a disaster is a very different thing from the rebuilding that has to follow.

Disaster response is about triage, the good-enough, and avoiding substantial further harm. The rebuild is different. It takes a fair bit of thought about what the place should look like, and a long-term strategy to get there. In the best case, the long-term vision has always been in place and all that needs to be done is working out how to get there from the current mess. But it can be a lot harder if there were a lot of longer-standing issues prior to the disaster that also need to be resolved.

The State Services Commission’s investigation of Treasury Secretary Gabriel Makhlouf’s conduct and statements during last week’s unauthorised access to budget documents is disaster response. But this disaster was not the Christchurch earthquake, and the IT department is the least of Treasury’s issues. Last week’s mess is the culmination of years of mismanagement at Treasury that saw the substantial erosion of Treasury’s competence. Treasury’s core role as the government’s lead economic advisor has been put at risk.

Treasury needs a recovery, and a rebuild. The job facing any incoming Chief Executive will be exceptionally challenging.
I expect Minister Robertson will be watching the appointment closely; it's just too expensive for a Finance Minister to have an unreliable Treasury. 

Read the whole thing at the link above. It's good to see that the piece is making the rounds as it should.