Monday 23 December 2019

Rea and Burton on the Heckman Curve

Now available in early edition at the Journal of Economic Surveys, Rea & Burton's article testing the Heckman curve against the ROI in projects compiled by the Washington State Institute for Public Policy.


The Heckman Curve characterizes the rate of return to public investments in human capital as rapidly diminishing with age. For the disadvantaged, it describes investments early in the life course as having significantly higher rates of return compared to later in life. This paper assesses the Heckman Curve using estimates of program benefit cost ratios from the Washington State Institute for Public Policy. We find no support for the claim that social policy programs targeted early in the life course have the largest benefit cost ratios, or that on average the benefits of adult programs are less than the cost of the intervention.
You may have caught the working paper version over at Andrew Gelman's place, or here. The key graph remains this one.

I wonder whether Heckman might provide any comment in the eventual issue of the journal - this is just the 'early view'.

Saturday 21 December 2019

Reader mailbag: Weird urban planning edition

Hoisted from the inbox:
Weird urban planning stories: Melbourne's Eastern Freeway is being considered for heritage listing.
Heritage Victoria has backed the Andrews government’s application to heritage list Melbourne’s Eastern Freeway, finding that the road’s “naturalistic landscape setting” and “series of distinctive concrete road overpasses” make it worthy...

In his recommendation to the Heritage Council, Heritage Victoria Executive Director Steven Avery has supported the Andrews government’s heritage application in a report describing the road as “a fine, intact, influential and pivotal example of a freeway”.

“The Eastern Freeway – Stage One is also historically significant for the prolonged and at times violent community protests that met its announcement, construction and opening,” Mr Avery found.
This is the second-worst urban planning story I've read this week. However, it turns out that the heritage listing is intended to block construction of a connecting freeway with a BCR of 0.8, so perhaps this is actually good from a broader economic efficiency perspective?

This is the worst urban planning story I've seen this week, and possibly ever.
I suspect that the second-best case fails to hold - there will surely sometime be a project that would have a better BCR that will get blocked by this. I don't know if the same nonsense applies to roads as to houses, but even a resurfacing could wind up being tricky, or repainting the lines.

That last link is pretty bad.

Friday 20 December 2019

Things our civil service needs to be told

The Government has produced a "Guide for Maintaining Health and Wellbeing". It contains a lot of valuable advice. I understand it has been distributed broadly in hard copy, but it is available online for the rest of us.

Here is some of the advice provided. It is comprehensive.

At page 118, it provides helpful tips for waking up.

After you wake up, you might want to tend to your emotional and physical health.
I'd thought that the absolute safest might have involved only one person, but I understand that the Chief Censor's been taking a dim view of such things. 

After all that, why not some breakfast? 
And what do we do after we eat our breakfast?

It goes on, but I'm sure I can trust you to read for yourself. It has plenty of helpful tips on optimising your spiritual health and spending quiet time in nature, in case your score on the resilience self-assessment tool comes in at less than 70. 

If you get too annoyed by their giving advice about using power poses (debunked in a succession of studies), or about their advice to use margarine instead of butter (yech), you can just take their advice about other ways of combating stress. Like a breathing exercise, or counting to 10.

And you can rest easy, knowing that the kind of people who need to be reminded to brush their teeth are busy drafting the rules telling the rest of us how to live our lives. That's why everything works out so well!

The hard copy is a beautiful thing though. 134 pages, ring bound, shiny glossy paper, with those notched pages helping you find the section you're looking for. There's no way these things are less than $20 each even on a big print run. I wonder how big that print run was. 

Strengthening the ETS

The main proposal is a change to the ETS so that there is an overall limit on the amount of emissions credits in the system, and a price cap of $50 instead of $25, along with a $20 price floor.
The current price of European emission allowances is 25 euros per tonne, or NZD$42. A price cap at $50 then isn't nuts. I still think that best policy remains a dirty cap, where we set a path for the cap that tracks to the government's commitments, but where the cap stops tightening or even relaxes a bit whenever prices get out of step with prices in Europe.

Setting that as policy commits New Zealand to achieving the government's climate goals, but only to the extent that the rest of the world plays along. Letting prices here get ahead of prices in Europe could prove pretty expensive. Carbon-abating tech will be developed in line with prices in the big markets; if we run ahead of prices in Europe, we'll be frontloading abatement efforts in particularly costly ways.

And before everybody freaks out about what this means for fuel prices, remember that the ETS charge in a litre of petrol is around 7 cents. If ETS prices doubled, then the price of petrol would go up by about 7 cents. That's not the end of the world; that's less than the discount you might get with one of the good supermarket vouchers.

I don't know why the government wants to bundle this in though. This is exactly the kind of thing that you don't need to do if you've published a credible price path for carbon.
One of the main prongs of the proposal is something of a war on the use of coal for heat.

All new coal boilers for low and medium temperature heating would be banned under the proposal.

Medium temperature heating includes drying milk powder and wood products, while low temperature heating is used to heat spaces and water.

Existing coal boilers used for low-temperature activities would be phased out by 2030.

Coal boilers would still be allowed for high temperatures of above 300C - used for things like making steel.

The Government is keen to do this quickly as new boilers have a long life and lock in emissions once installed.
If a coal boiler makes the most sense over the lifespan of the kit, despite a carbon charge set to rise to $40 in the medium term and to rise from there, then folks should be able to put in a coal boiler. Every bit of carbon dioxide emitted by the thing has to be paid for through the ETS, and with a binding cap that can't mean a net increase in CO2. It just means that the coal boiler outbids other potential uses of CO2, so other emission sources cut back their emissions.

That's the magic of the ETS - it makes sure that the tonnes of CO2 emitted are the ones that are most important to be allowed to be emitted, while making sure that total emissions are capped, without anyone having to make big central calls about which emissions are most important. That information simply cannot be known by carbon planners; the ETS harnesses dispersed information about which emissions can most easily be abated, without need for that central planning.

How can the government know that coal boilers are sufficiently low value that they can be banned? If the government is right, folks with money on the line will see that too and will avoid investing in coal. If the government is wrong, then firms will be forced into up-front investments that have a higher cost-per-tonne of CO2 abatement than the ETS price.

Tourism and the ETS

But in reality: “value-led tourism growth may actually worsen those pressures that are linked with consumption. Higher-value visitors, by definition, consume more goods and services, all of which have an associated greenhouse gas and solid waste footprint. To the extent that these goods and services are relatively energy intensive (e.g. car rather than bus travel, hotel rather than campground accommodation, helicopter rides rather than hiking), high-value visitors will again have a relatively large greenhouse gas footprint.”

While the report concludes it is possible for smaller number of wealthier tourists to put less pressure on wastewater and waste disposal services, that only works if the total number of visitors falls.  “Any such improvement relies crucially on any growth in higher-spending tourists being accompanied by
 a reduction in their lower-spending peers. It is far from clear that this is the intention. The New Zealand-Aotearoa Government Tourism Strategy states that “we want the value of tourism to continue to grow faster than volume”, but provides no mention of limiting volume itself.”

Time to limit cruise ship visits?

Responding to Upton's office's report, Michael Lueck, a professor of tourism at AUT's School of Hospitality & Tourism, said the government should consider outright caps. "It appears that the main problem is the sheer number of tourists, and we need to look at slowing this growth. The often cited 'high-value tourism', or 'quality over quantity' does not always work, but it would be fairly easy to, for example, limit the number of cruise ships coming into the country. These put a disproportional burden on New Zealand’s infrastructure, environment, and culture, while the economic benefits are comparatively small," he said.
When we think about domestic issues [emissions from international travel are their own mess needing international agreement], and remember that we have an ETS that's moving to a binding cap, the implications change.

It isn't that tourists would then increase NZ's net emissions; it's rather that they bid up the price of carbon and you could then imagine potential equity concerns in the same way that there could be equity concerns if international tourists had disproportionate effect on other rivalrous goods that are in absolutely fixed or declining supply.

But the solution to none of that is capping tourist numbers. You don't solve equity issues by mucking about on that side; you do it instead by finding ways of providing transfers to those on the short end of that equity stick, which they can then use however they like. If richer foreign tourists can outbid kiwis for things kiwis enjoy and are in fixed supply (like carbon credits), then you need to find ways of providing side-payments - transfers from the winners to the losers.

If tourists bid up the price of carbon, and emitting industries like agriculture were provided initial allocation units, then the increased price can increase the cost of farming but that's offset by an increase in the value of the allocated units - so that has the compensation built right in.

Crown sales of NZU into the system ultimately for purchase by foreign tourists at the fuel pumps could provide cash that could be used to provide other side-payments.

There's a strong case for getting more tourist-facing facilities onto a proper user-pays basis, with potential for price differentiation between foreign and domestic visitors - like charges for access to national parks that apply to foreign visitors. Some of the things that seem to be in fixed supply around national parks seem more like a policy decision neither to properly charge for access nor to fund the facilities to meet demand at the going price. Letting prices work would allow effective supply to increase and would provide basis for some of those side-payments.

Thursday 19 December 2019


It isn't like they weren't warned that this kind of thing could happen. 

Here's John Gerritsen:
Less than a third of the tertiary students in the zero-fee scheme last year came from decile 1 to 5 schools, Tertiary Education Commission figures show.

Of the 42,227 students in the scheme in 2018, just 12,191 students - or 29 percent - came from schools in deciles 1-5.

Most of the low-decile group, 5052, were enrolled in a university and 4161 went to an institute of technology or polytechnic.

Schools in deciles 9 and 10 accounted for 26 percent of the students in the zero-fee scheme last year.
Fees were never the big barrier to tertiary participation. Not when the government backs heavily subsidised student loans and collects repayments through an income-contingent scheme. The barrier instead is preparation for tertiary study. Instead of wasting billions on further transfers to those likely to wind up among the well-off through no-fee study, Labour could have decided to boost funding at secondary and primary school - figure out what helps in smoothing the path through to tertiary completion. They could have coupled that with means-tested funding in those cases where fees might have been a barrier.

This is, again, one of those very frustrating spots where a lovely well-being rhetoric wraps itself around a vote-buying effort, with zero consideration given to policy assessment, either ex ante or ex post. If the government's action matched its rhetoric, it would have started out by looking for the barriers to tertiary participation and figuring out the most cost-effective ways of getting those out of the way. Failing that, it would have sunsetted the fees-free policy with any re-up depending on its passing evaluation.

Wednesday 18 December 2019

Danyl on social media and the attention economy

The journalist Auberon Waugh often wrote dismissively of “the chattering class”: the upper middle-class cliques of journalists, academics, artists, intellectuals and activists (Thomas Piketty refers to it as “The Brahmin Left”, reflecting its 21st century transformation into a priestly caste primarily concerned with moral transgressions). They form the leadership and core constituency of leftwing political parties, and they still attempt to play a gatekeeper role around political debate. But instead of policing the window of debate – pretending to impartial objectivity while excluding what it feels should or cannot be said – it amplifies messages it believes lie outside the bounds of acceptability. The ruthless logic of the Attention Economy rules progressive online and media spaces; everyone competes for attention by demonstrating their moral and intellectual superiority, so any and every public statement that breaches progressive taboos or activates this class’s (very acute) sense of threat can easily earn massive media coverage.

The incentive structure here is terrible. The worst ideas and most deceitful statements are often the most amplified and therefore the most successful. The sustained moral panic about “fake news” (but only on the right), incentivises the manufacture of fake news. We can see this mechanism at work in almost everything the National Party has done this year: their policy work on criminal justice was a rather dry discussion document on how the party’s “social investment” model can apply to this sector, but it was launched with the announcement that “Strike Force Raptor”, would crack down on gangs, which are currently expanding due to Australia’s criminal deportation policy. This prompted the expected response from progressive commentators: that gangs aren’t a criminal problem, but rather a deeply fascinating and complicated epiphenomenon of colonialism and capitalism, a suite of arguments that sound deranged to most of the population who aren’t fortunate enough to reside in the leafy university-proximate suburbs that enjoy the lowest crime rates in the country.

This week’s National Party transport policy announcement is also pretty dry stuff: integrated ticketing; fuel efficiency; urban transport authorities. But the headline announcement was a plan to fine cyclists – cycling being a sacred activity among progressive elites – and this provoked the absolutely predictable response and led the web pages of all the media outlets. National has also taken to producing highly dubious graphs with deliberate errors like disproportionate bar widths, that it releases on Twitter – the heartland of progressive moral panic and intellectual contempt – that its opponents then compete against each other to amplify. Naturally these graphs don’t feature in its policy documents or press releases.
I was expecting a lot of bicycle-twitter outrage about the piece, but there's no evidence of it as yet. Wonder if they've not noticed it, or have properly appreciated it.

Friday 13 December 2019

Afternoon roundup

The worthies on a very much belated closing of the tabs:
  • Nice roundup in Nature on psychology's problems in social priming
    A promising field of research on social behaviour struggled after investigators couldn’t repeat key findings. Now researchers are trying to establish what’s worth saving.
  • Somebody is gluing miniature cowboy hats to pigeons in Los Vegas.
    “They look like happy pigeons to me. It is hard to know, of course, because they will not talk to us.”
  • This one's more depressing. The Dean of the University of Virginia's School of Education writes a column for the Washington Post on education and education funding. You'd expect the column would be decent, right? The Washington Post is one of the newspapers that seems to be doing well on subscriptions; heck, I pay for a subscription there. And he's the Dean of the School of Education at one of the top universities in the US. But he claims that real per-student education expenditures have been dropping. Corey DeAngelis points to the actual data showing a 36% real increase over the period. This was a couple days ago, and there's as yet no correction at the Post.

  • Average is over: geographic segregation edition. An ultra-Catholic community in Kansas. Excellent long-read; the kind of thing I'd have pointed to Denis for Arts & Letters Daily, back in the day.

  • Randy Holcombe on Gordon Tullock on inequality and redistribution. Self-recommending. We might note, though, that New Zealand's overall system has been one of the more targeted ones - I wonder how that ranking's been affected by sillier policies like extra free years of tertiary study.
    People can afford to be charitable with their votes when they know their one vote will have no effect on the outcome of an election. This may be Tullock’s most important contribution to the literature on redistribution and inequality—the observation that because of incentives inherent in the political process, people are likely to vote for redistribution programs they would not choose if the choice were theirs alone.

    Tullock (1971) anticipates the arguments made by Brennan and Lomasky (1993) and Caplan (2007), explaining how people can vote expressively and even irrationally for outcomes that redistribute more than they privately prefer. This adds a wrinkle to Tullock’s analysis of motives and justifications for redistribution. Tullock (1997) dismisses justifications for redistribution and looks at motives—the desire to receive transfers, the wish to help the poor, and envy—to conclude that government redistribution will not be very effective at helping the poor. But he suggests government redistribution is larger than the median voter would prefer because of the incentives in the democratic political process that cause people to be more charitable in their voting behavior than when considering private charitable giving done individually (Tullock 1971). Perhaps this unintended consequence of democratic decision making renders democratic government a better mechanism for helping the poor than Tullock (1997) recognized.
  • When New Zealand's declining PISA scores were released, we heard a lot about how PISA scores don't matter. I rather prefer Australia Labor MP Andrew Leigh's take on Oz's declining scores.
    Forget how we’ve slid relative to other countries -- it’s enough to compare our own students with their predecessors. Year 9 students today score worse than year 8 students would have done at the turn of the century. If this was a sporting contest, we’d be running slower, dropping the ball more often, and missing more goals.

    The PISA tests matter because they are designed to capture the skills that young people will need in the workplace. These tests don’t measure memorisation and rote learning -- they aim to capture the essential talents that will be needed in the labour market.
  • Kudos Doc Nolan!

  • Phil Twyford continues to provide speeches showing he gets housing better than anyone in Parliament. I don't agree with everything in here, but it's good. And we finally now have the infrastructure financing legislation coming through - the Bill has been introduced, and they're expecting to have it done mid 2020. About three years after they came into office. New Zealand's electoral cycles are too darned short given the length of time it takes to get substantial legislation ready.
    I now want to look in a little more depth at housing and land markets, and transport.

    I started by saying urban planning has lacked an economic underpinning. An example of this is the use of the urban growth boundary which is a common planning tool ostensibly to stop cities growing outwards, often described pejoratively as sprawl.

    Sprawl is often meant as development on the fringes of a city, far from the centre. But I want to make the point that the better way to think of it is in relation to the time value of travel.

    If you are building homes let us say in Pukekohe in the south of Auckland, where people who work in the city centre might face a drive of 90 minutes on a bad day, that might be characterised as sprawl. But when we electrify the rail line to Pukekohe, and build an additional line on the main north-south corridor, as we are about to do, those people will have a 30 min express commuter ride into the city, is it sprawl then? I don’t think so.

    The most harmful effect of the urban growth boundary where there is rising demand is to create an artificial scarcity of land driving section prices up.

    The boundary is much loved by land bankers whose business model is to buy up rural land and sit on it until the local council shifts the boundary in response to growth pressures, changing the zoning from rural to urban, and then sell it sometimes at ten times its former value.

    My intention is not to vilify land bankers. Their behaviour is a rational response to bad policy.

    If the urban growth boundary wasn’t bad enough, restrictions on height and density, often justified as protecting the amenity of the low-rise garden suburb, ration floor space, stopping the city growing up and restricting the supply of apartments, and of course driving up prices across the market.

    Urban planning has too often failed to grasp that whenever rules stop people building or living in places they want to (typically close to amenity, jobs or transport interchanges) they deny people housing choices, restrict supply and drive prices up.

    As Ed Glaeser says, every time you place a restriction on intensification you deny a family access to the city.
  • More evidence against Sachs's Millennium Villages. Small or null results on core indicators, no spillover benefits.

Revisionist RBNZ history

A couple years ago, the Initiative surveyed its members [update: and, Roger reminds me, a pile of other businesses - about 200 in all!] about their experiences with their regulators. It was less about whether they were happy with the outcomes that obtain, but whether the officials they deal with know the landscape, can make decisions - that sort of thing. It was a broad survey of our members about the regulators they deal with. 

The result was a report released early last year. I was a bit surprised that the RBNZ showed up poorly in its role as prudential regulator. Overall, it looked like proper governance boards mattered in regulator performance; Roger Partridge, the report author and our Chair, recommended that the RBNZ look to its governance structure.
Accordingly, we recommend that:
  1. The board governance model should be adopted for all independent regulatory agencies in New Zealand, including the Commerce Commission and the RBNZ.
  2. For the Commerce Commission, this should be achieved by:
    • reshaping the commissioner role so it is largely a governance (or board member) role, with substantial decision-making power delegated by the commissioners/board members to the commission’s CEO; and
    • broadening the skills set of the commissioner/board members of the commission to include members with industry expertise.
  3. For the RBNZ, this should be achieved by:
    • legislative reforms that make the RBNZ governor accountable to the RBNZ board for the exercise of prudential regulatory policymaking and decision-making power; and
    • broadening the skills set of the RBNZ board to include more banking and insurance expertise.
The report was released just as Governor Orr was coming in; the results couldn't possibly reflect on his Governorship.

He welcomed the report at the time. Here's Hamish Rutherford from April 2018:
Adrian Orr, the new governor of the Reserve Bank, has written to the chief executives and chairs of New Zealand's banks alerting them to a damning report fed by their anonymised comments.

An improbable star of New Zealand finance, Orr, 55, started in the role on March 27, arriving at a central bank which he acknowledges is under fire.

"This place is a diamond, but it needs significant polishing in places," Orr said in an interview in the Reserve Bank headquarters.

"We need to think much harder about how we behave, how we roll, how we explain, how we do things. That's a cultural challenge for the bank."

A survey by think tank the New Zealand Initiative, released on April 13, drawing responses from "some of New Zealand's largest financial institutions" had most respondents claiming the bank's consultation and engagement was poor.

Respondents did not believe management was well-respected, did not find staff constructive and most said the bank did not learn from its mistakes. Verbatim comments from the survey would make for difficult reading for Reserve Bank staff.

"RBNZ [staff are] completely divorced from the reality of how things are done," one told the survey. Another described the bank as "archaic", adding that entrenched officials "don't get challenged".

Written by NZ Initiative chairman Roger Partridge, a former executive chairman of leading law firm Bell Gully, the report gained limited attention in the days after its release.

But Orr has decided to amplify the message, acknowledging the bank's reputation is below what he believes it could be.

As well as posting the comments of the report on the Reserve Bank's internal intranet, Orr had written to bank bosses with the message that: "Hey, this doesn't print well. We hear you. We need to do something about it."

He expected that writing the letter and making public statements would elicit "free, unsolicited advice about how this place can do better".

His letter to the chairs of New Zealand's banks will mean he has written to former prime minister Sir John Key, who is now chair of ANZ New Zealand, alerting him to criticisms that Key probably be familiar with.

The approach of the bank to contact with both the media and the organisations it regulated had been "highly transactional," Orr said.

"It needs to be more strategic, about building that reputation, targeting the things we want to be world best at, letting other things go."
We were really happy with that response; it seemed exactly right. It was encouraging.

And so I was a bit surprised to have these comments of Orr in interview with the NBR's Tim Hunter passed along to me. Subscribers might find it here; I'm on the wrong side of the paywall.
“When I turned up as governor [in March last year] and I walked into this vacuum, the first thing I received was a NZ Initiative report on how we don’t ring, we don’t write, we don’t come to see you, we don’t explain ... this damning report where they’d interviewed eight people.”

The report was the NZ Initiative’s Who guards the guards report from April last year, which found fault with the RBNZ’s governance.

“I felt the bank had almost become a free hit and it was fine just to criticise or throw things at the bank,” Orr. said

“So I deliberately removed the ‘free’ component of that to say ‘well hang on, if you say that, expect to be questioned’.

“We are humans behind this concept called the central bank. You can’t just abuse us. It’s hashtag not ok.

“That we wanted to be open, accessible, and not put up with abuse, came as the biggest shock to the usual customers or the usual behaviour.”
Orr's historical revisionism was a bit surprising, since he was in print last year saying the exact opposite of what he's now saying. He had seemed sincere last year in his welcoming of the report.

The survey overall (lots of members over lots of regulators) was rather broader than "8 people". The number of people who Roger surveyed who deal with the Reserve Bank on prudential regulation won't be huge, sure, but the population of people in the banks who deal with prudential regulation and interface with the Reserve Bank is not vast; our survey went to those on point. A survey of 2000 random-draw members of the public would have been bigger, but utterly useless.

Orr has been far less a fan of our criticisms of the process around the changes in the bank capital requirements, where we have strongly urged that there be a consultation round allowing for testing of the Bank's cost-benefit assessment - which was only published along with the final regulations with no opportunity for such testing.

I've also been critical of the Bank's taking on too many objectives as part of its prudential regulation.

I don't know whether any of that's caused any change in views of our report released last year.

It feels like a revisionist history though, and it's a bit disappointing that the NBR didn't notice the change.

Tuesday 10 December 2019

Reader mailbag - competition for the sporting market edition

A learned reader writes in response to the post on competition among sporting leagues:
You are generally right about the lack of competition for the market in sport but I suggest you have a look at FINA, the world body and Olympic entity for most aquatic sports: swimming; diving; water polo; artistic swimming (formerly synchronised swimming); high diving; and open water swimming, along with masters for all these events. It faces competition for the sport in high diving, open water swimming, swimming and provision of competitions for masters (ie the geriatric). In swimming there are three competitors to FINA: international life saving that has a lot of swimming events, including many held in pools with international competitions; NCAA, about which you will know more than me; and now the International Swimming League (ISL). The latter runs a series of international teams events with some different formats for competition e.g. skins.

After some argie bargie and arm wrestling FINA and ISL have worked out how to co-exist in competition. You can now set FINA world records at an ISL event i.e. they have decided it is pointless to have two sets of world records.

Guess what? Among the world bodies controlling sport I think you will find that FINA is right up there in terms of innovation and trying to satisfy participants and the audience. Way ahead of IAAF, FIFA and most of the other Olympic bodies. The only organisation that comes close, that I am aware of, is UCI, the controlling body of road cycling, track cycling, bmx, cyclocross and mountain biking. UCI effectively contracts out its major road cycling events around the world to commercial entities. The events these companies run largely fund UCI and the companies have a big say in driving it. Swimming at the Olympics draws the largest female/male audience. Gymnastics the largest female audience and Athletics the largest male audience. You don’t see much swimming in NZ on TV as they are very much into rugby, soccer and other team sports and tennis i.e. New Zealanders like watching on TV sports where they can get very annoyed by the referees interfering in the outcome.

... Two of the [FINA] innovations were the introduction of mixed relays (2 men and 2 women) and use of wet suits in cold water temperatures in Open Water swimming. Why NZ would favour these innovations is pretty obvious. Both these have been adopted and have been great successes among participants and audiences.

Why has FINA “tolerated” competition but many other international sporting organisations do not or have not faced it? Am I right about the results of competition for the sport in swimming?
I'm also reminded of an excellent student essay in my graduate public choice class from... over a dozen years ago now... looking at the political economy of Formula One racing and how the threat of teams exiting to form their own league forced some innovation and changes in revenue sharing. In car racing, there's innovation within codes, and competition across codes (F1, Indy, NASCAR, probably more that I don't know about). 

We're heavily into territory where I haven't enough grasp about the stylised facts to be able to do much. It feels like the lack of credible threat of exit will matter in the North American leagues. 

Monday 9 December 2019

The year of delivery

The Government will move to ban non-compostible fruit stickers today in response to a huge new report about single-use plastic, Stuff understands.

It's understood the Government will also move to ban plastic cotton buds and single-use plastic cutlery, items which both have biodegradable alternatives made out of bamboo.

Compostible apple stickers do exist but are not in wide-use.

The announcement will be made on Sunday morning as part of a response to report from the Prime Minister's chief scientist, alongside a host of other measures.
Have seen a lot of support on twitter for this from people annoyed at having to peel stickers off of apples; I suspect shops will switch to the biodegradable ones unless there's some other better and cheaper tech out there to let shop clerks quickly tell whether they're ringing up a $3.99/kg apple or a $5.99/kg fancy apple.

On the plus side, the bit about plastic cotton buds had me quickly checking their availability at Ali Express - and they're easily available there, along with the wooden stick ones, and at much lower prices than I'm used to seeing here.

I wonder whether the government will yet be making any announcements of the kinds of infrastructure bonds that Phil Twyford talked about in opposition and during the election, and that I know that Treasury has been working on.

One policy instrument for each target, and every agency in its place

My column in today's Fairfax papers argues that central banks really don't have any business playing in climate change policy. It isn't that climate change isn't important; it's rather that central banks have one big job - two if they're also responsible for prudential regulation. 

A snip:
In October, the Reserve Bank's general manager for governance, strategy and corporate relations highlighted the bank's growing focus on climate change. As part of the same press release, governor Adrian Orr noted the bank's role in "greening the financial system" and managing environment and climate-related risks.

Some of this makes sense as part of the Reserve Bank's role in prudential regulation. If a bank's capital stock includes a lot of farm mortgages that would be underwater with a change in emissions policy, then those risks should be considered when weighing that bank's overall position.

Of course, there are policy risks across many different sectors - just think about how Trump's tweets can affect different portfolios.

But the Reserve Bank seems to wish to go further than that, noting the importance of integrating sustainability factors into portfolio management, and recently purchasing US$100 million of green bonds. The current remit of the Monetary Policy Committee includes a preamble noting the government's economic objective of moving towards a low-carbon economy.

And there we start worrying about whether the instruments are suited to the targets, and whether the bank may be over-reaching.

Getting policy around climate change right is incredibly important. But it is not a job to which a central bank is well suited. We would not ask the Reserve Bank to help ensure that vaccination rates are high enough to prevent outbreaks of contagious disease, and we should raise an eyebrow if it started volunteering to do the job. It is a job better suited to others. And climate change policy is better left with the Climate Change Commission. The Emissions Trading Scheme is the best instrument for mitigating New Zealand's emissions.

If prudential regulation reaches beyond considering climate change risk as one of many factors affecting the soundness of a portfolio, to instead start nudging companies into changing their practices around climate risk, we start getting into Tinbergen's problem. Making prudential regulation more about climate change makes it less about the soundness and efficiency of the financial system. We then risk doing poorly for both.

This weakening of focus on core central banking business is hardly unique to New Zealand. Traditionally, central banks have sought to be sectorally neutral in their market operations: if a reserve bank must purchase bonds as part of monetary policy, it tries to do so without skewing the pitch in favour of one sector or issuer or another.

If pitch-skewing is appropriate, that is for democratically accountable parliaments to decide rather than central banks. But Christine Lagarde, the recently appointed president of the European Central Bank, is reviewing whether its bond portfolio should shift from market neutrality to preferring green investments.

These kinds of policies do not just violate Tinbergen's warnings. They also risk the independence of monetary policy if parliaments object to reserve banks taking actions going beyond monetary policy and normal prudential regulation.

And there are dangers too if markets come to expect that central banks might not pursue purely monetary goals in any crisis requiring quantitative easing.
This stuff shouldn't be hard, and it shouldn't be part of the RBNZ's remit.

Make sure that the ETS is working properly. Have a binding cap. Share the burden of getting the cap down to where it needs to be through a declining allocation to grandparented emitters and crown buyback and retirement of emission permits. Keep an eye on the ETS prices to make sure that they don't run ahead of prices in places that also take this stuff seriously. And set a regime, in concert with the OECD, for running carbon-equivalent tariffs for imports from places without a carbon price, and for exemptions of carbon charges on exports to places where the product would compete with products without a carbon charge.

None of that needs a greening or re-jigging of the financial system. It all works better if the financial system is working well, but that's about it.

Reserve Bank independence depends on strong cross-party consensus that the matters over which the Bank is independent are matters that require that independence, and that the Bank isn't straying from its wheelhouse.

Meanwhile, Rod Oram argues that ACC and other government investment funds should divest themselves of anything relating to oil, but with broader implications of course.
ACC’s role, though, goes far beyond a fiduciary responsibility. By being less than world class in its investment policies and practices on carbon, it is exacerbating climate change. That in turn only adds to our health burdens which ACC is meant to help alleviate.
I suppose that sort of thing sends a moral signal and stuff, but it just doesn't make much sense. If you want folks to use less stuff that generates GHG emissions, put a price on GHG emissions.

Imagine that there are two companies on the stock market, a dirty one and a clean one. There's no carbon tax. Ex ante, expected returns to investment in both stocks must be equivalent or funds would shift from one to the other until they were equivalent.

Then, the great awokening happens and a large investor decides it doesn't want to invest in the dirty one anymore. So it sells off its shares and uses the funds to buy shares in the clean company. If the large investor is large, then that action starts pushing down the share price in dirty and increasing the share price in clean. But there's no carbon tax - remember. The expected return on dirty starts going up - nothing in the fundamentals has changed. Investors who just care about return on investment will sell their shares in clean at over-the-mark prices to buy the bargain dirty stocks.

If the large investor is not large enough to buy up all the shares in clean, then we just wind up with the large investor owning nothing but clean, and other investors holding more dirty in their portfolios.

If it is large enough to buy up all those shares and still have cash left over, then things start getting more interesting. It can signal a desire to put more capital into clean, so clean can fund its next project which it otherwise couldn't have funded because the return on that project was (expectationally) lower than the going rate. So the large investor can start reducing the cost of capital for clean, but only at the expense of lower returns for its investors. So it cannot simultaneously be true that the clean investor both affects the real world, and earns expectationally higher returns on its investment.

So the ethical investing push does nothing unless it winds up having those investors forgo returns.

But putting a price on carbon would reduce the return to investing in dirty and increase the return to investing in clean.

And if we wind up in a spot where the government's various funds are pursuing investments based on the ethical views of those funds' directors rather than based on what makes most sense given their risk appetite and time horizons, then again we get into messes. There is risk of these things turning into government slush funds. Bright lines on this stuff are valuable - the funds should be pursuing the strongest possible returns rather than seeking to achieve other objectives.

Tuesday 3 December 2019

Data preservation, IRD, and the OIA - the saga continues

About a month ago, I made an OIA request for IRD's documentation around data sentencing for the Colmar Brunton poll data.

As you'll recall, IRD had initially refused my request for the Colmar Brunton poll data citing tax secrecy, but updated that in November. They said that they should have refused the request on grounds that the data requested did not exist, because they'd requested that Colmar Brunton delete the data before I'd requested it.

I received a response yesterday.

I've replied noting that I have made a new request - I'd like the records around the sentencing decision. If IRD wishes to withhold that information on same tax secrecy grounds as it refused my prior request for the data, I think they'd need to say so.

I'm interested in how IRD viewed its requirements under the Public Records Act. IRD has authority to sentence its own records to destruction, but there are processes required around that. And I'd like to see whether those were considered.

It sounds like they wish to withhold that information under the tax secrecy provisions in Section 81 of the Tax Administration Act; I've followed up with IRD to check (and expect it to take another 20 working days for them to tell me). Pretty broad power, that one, if so. Is there anything that IRD would reckon isn't a tax secret?

If the government had wanted to exempt IRD from the OIA full stop, wouldn't they have written that into the OIA legislation in the first place?

Of IRD were not in compliance with its requirements under its disposal authority, it sounds like it would be impossible for anyone to know that because anything establishing it would be deemed a tax secret and withheld.

Update: IRD has advised that they are still considering my additional request, and that they have extended the deadline on that request to 17 January. So, see you next year on that one.

Chicago and Academic Freedom

Vic Uni Associate Dean Michael Johnston, and colleagues, want New Zealand's universities to adopt the Chicago Statement on academic freedom and free speech. 

I cover the case for it over at Newsroom today ($). A snippet:
The Foundation for Individual Rights in Academia chronicles violations of academic freedom and student speech rights in America, regularly tallying abuses like Northwestern University’s censorship of a department’s academic journal and its chilling investigations of other scholars; Texas State University’s threats to the funding of a student newspaper over content the administration did not like; and, DePaul University’s requiring a socialist student organisation not only to have security officers monitor their discussion with the author of a book on Karl Marx, but also to cover the security cost.

New Zealand seems far removed from these kinds of problems. But we are hardly immune.

Massey University’s blocking of an invited lecture by Dr Don Brash seemed to be rather more about the Vice Chancellor’s political differences with the former Reserve Bank Governor than about any purported security concerns. But it would be a problem in either case: neither the heckler’s veto, nor the ideologue’s, should have standing.

And when universities are caught between student groups protesting China’s repression of Hong Kong, and students from China potentially pressured by the Chinese Communist Party into launching counterprotests, appropriate responses are more difficult without a strong commitment to academic freedom for both faculty and students.

Universities can come to different decisions about how to handle difficult cases. When universities have a strong commitment to academic freedom and explain their decisions within that framework, differences in views about how any particular case should be treated can be fodder for the usual debates within a university.

But without that commitment, contentious decisions can look a lot more like a weakening of support for academic freedom. And that has implications for academia more broadly.
I expect an ungated version will be up at the Initiative's site tomorrow for those without a subscription.

I hope that Michael's initiative enjoys a lot of support.

Update: Ungated link