Friday, 22 May 2020

Real Business Covid

There are lots of different models of business cycles because there are lots of different kinds of business cycles.

If a downturn stems from something in the real economy, rather than something messed up on the monetary side or in finance, we need to think about Real Business Cycle models. 

What are the stylised facts of the current mess, at least for NZ?
  • Massive negative technological shock across a broad range of sectors meaning that existing combinations of labour and capital are far less productive than they once were. Restaurants need more space to accommodate the same number of clients, or fewer clients in the same space. Factories, meatpacking plants, and offices need more spacing between workers. Some of this shock will be temporary - we will eventually get to Alert Level 1. But even then some of the shock will be longer-lasting: the international arrivals lounge will be very different when folks coming in from Covid-places have to shunt over to a quarantine facility and have to be kept separate from those coming in from Australia. 
  • A collapse in tourism that feels a lot more like a huge negative price shock to an export commodity than it does like any domestic aggregate demand problem. If world milk prices dropped by 95%, we wouldn't dream of trying to solve it with domestic "drink more milk!" campaigns.
  • Supply chain issues that also feel like a negative tech shock.
  • A shock to work arrangements for office types now more able to work from home; many of us will take advantage of it for as long as possible, with consequent effects on demand for lunches in town. This isn't a normal kind of AD shock - just giving people more money wouldn't increase demand for lunches in town when people prefer to work from home and are now allowed to do so. Some of this could persist for a long time if firms have discovered that a lot of workers are no less productive when working from home and prefer working from home.  
  • Jump in unemployment consequent to all of that.
  • Oh, and a massive drought in some dairying parts of the country - the exemplar RBC shock. 
  • Shifts in consumer demand to online. 
Am I missing anything there? None of that would argue for accidentally contractionary monetary policy - RBNZ needs to keep us within the inflation bounds. 

But this is way different from the GFC. We could yet get GFC messes out of Europe, but I don't think we're there yet. Fingers crossed. The underlying problem is a massive terrible tech shock. And that puts us into RBC land.

What do you do in RBC-land to get out of the mess? You don't tell firms to run four-day work weeks! Rather the opposite: you should be looking for ways of removing labour market rigidities to make it easier to adjust! Fortunately, things already are pretty flexible here. Vodafone retrained and redeployed retail centre staff to be chat assistants for online customers for example. That would be impossible in some places due to rigid work role definitions. Remember that episode of Community where they couldn't get a bulletin board replaced because of union job definitions?

Sure, there's a quasi-Keynesian role that would be played by income support measures. And I still like the idea of letting non-students access the student loan system. But the underlying problem is supply, so we need to figure out how to let supply adjust to the temporary new normal, and to the longer term changes.

A short potential list:
  • Sorting quarantine at the border to start letting visitors back in. It wouldn’t fix all of the problem, but international students would come back real strongly – us and Oz would be the only places going able to offer a normal university experience. It just blows my mind that they haven't sorted this out. It isn't just international education that's an opportunity here. Anything else that could relocate and that depends on not being disrupted by Covid - is it that hard to imagine international sporting codes shifting to here and Oz to keep up the TV revenues? Film and tv - they're looking at no filming for a while over there. What else? I don't know, and that's the point: set the quarantine rules and facilities on a user-pays basis and then let folks come in subject to quarantine and testing. Entrepreneurs will be the ones to figure it out, rather than boffins designating new classes of allowed entry. Instead of the America's Cup people lobbying to get in, they'd just need to have sorted out quarantine for their arrival. 
  • Lengthening school days and shortening school holidays so the kids make up for lost time and so the parents have an easier time working longer if they want to. Everybody hates this idea when it's pitched this way - imagine it instead as a proposal for free after-school care with enhanced learning outcomes and educational holiday programmes. Does that make it sound better? I really enjoyed the couple months home with the kids and expect they learned more than if they'd been at school. That won't have been the case universally. Lots of kids will have fallen badly behind. 
  • Reducing rather than increasing holiday entitlements or stat holidays. I know that won't fly, but we at least shouldn't be increasing things. Egads. I still think it would be a good idea to deal to the Easter problem though
  • Checking what bits of labour market reg could be abated, even temporarily, to make it easier for everyone to adjust
  • Easing consenting regs to make it easier to do things. The Auckland Unitary Plan is like six thousand pages. Germany’s planning guide for the whole country is 500 pages, with 100 pages being the actual rules and the rest being references and explanatory notes. We know that rigidities in land use planning are making a mess of things. Peter Nunns put figures on it a couple years ago. Ease them! If someone wants to make a bet that demand for downtown office space will be permanently lower and wants to convert an office tower into apartments, zoning shouldn't get in the way of that right?
  • Ease access to capital to make it easier for firms to finance their response – the Overseas Investment Act changes look to make it harder instead.
Anything else I'm missing? 

Thursday, 21 May 2020

Tax attitude data - the IRD OIA slowly progresses

It's been a long saga, and it isn't over yet. But the end is in sight. 

On 12 February, 2019, I put in an OIA request for the data from the polling that IRD had commissioned from Colmar Brunton on tax attitudes. 

On 12 March, 2019, IRD declined the request on grounds that it would be considered sensitive tax data. I brought the matter to the Ombudsman the next day. But it later turned out that they had ordered the data destroyed. 

On 1 November, 2019, IRD gave me revised grounds for having refused the request: that the data had been destroyed. 

I had a chat with the Archivist's Office about what's required for that kind of destruction of public records, then went back to the Ombudsman.

On 12 March, 2020, the Chief Ombudsman provided a substantial slap to IRD and directed them to get the data. 

Some particularly nice bits from that report:
You have acknowledged that IR’s original decision to refuse the request on this basis was incorrect. I agree. It is difficult, in circumstances where IR has not reviewed the information at issue, to be satisfied that its disclosure would be contrary to the Tax Administration Act.
This is particularly nice because IR claimed its original decision was wrong on the basis that the data had been destroyed and consequently couldn't be supplied. They didn't say that their original justification for withholding the data, had it existed, was incorrect. The Ombudsman here is telling them that their withholding as tax secret was wrong full stop.
IR has contended that, in retrospect, Clause 4.3.2 of its Disposal Authority, DA418, authorises the disposal of this kind of information. It is possible this is correct.8 However, as IR did not document its decision of 9 February 2019, I am unable to satisfy myself that IR properly turned its mind to its Disposal Authority when it decided to instruct Colmar Brunton to delete the political leanings data. It is, in short, not clear that its disposal was properly authorised.

I therefore consider that IR was obliged, in the circumstances set out above, to contact Colmar Brunton to seek access to any backups of the political leanings data held by it or Dimensions while considering Dr Crampton’s request. In the absence of such efforts, I am not persuaded, subject to your further comment, that IR was entitled to refuse the request under section 18(e) of the OIA.
The Chief Ombudsman also referred the matter to the Chief Archivist to check whether IRD was also in breach of its obligations under the Public Records Act. 

The Ombudsman asked that, by 9 April 2020, IRD provide him with the steps they would take to give effect to his recommendation.

On Tuesday, 19 May 2020, IRD provided me this update:

Dear Dr Crampton

I am writing to advise you of our next steps with regards to your complaint to the Ombudsman.

As advised by the Ombudsman in his final letter, we requested the data for the Trust in IR research survey from Colmar Brunton. We are currently working through the data and will let you know the result of your request for the data in due course.

Kind regards

Government & Executive Services 

So, fifteen months after my original request, IRD says that they're working through the data to see what they can give me. Stay tuned. I'll have to set a calendar flag to follow this up in 20 working days if I've not heard anything. 

Tuesday, 19 May 2020

Gemmell on the budget

Norm Gemmell's piece over at Newsroom is harsh but fair. 
Before the Budget, I called for a stimulating, but prudent, Budget. That meant:

- moving away from universal, to more targeted, wage subsidies

- setting up flexible spending programmes now that respond to needs as they arise

- reprioritising spending away from short- and longer-term ‘nice to haves’ to essential recovery support

- presenting a credible future debt track beyond the immediate recovery.
Pretty reasonable. 
What did the Budget deliver? Arguably none of the four.

Firstly, another two months of universal wage subsidies with slightly stricter conditions (a bigger fall in business revenue) doesn’t make them ‘targeted’. This is despite projections that the economy is already getting back to 80 percent or more of normal working, with a few sectors likely to continue suffering. And when we’re two months closer to that election, the $20+ billions of ‘unallocated’ Recovery Fund can be strategically dropped into the election battle as further subsidy extensions and other vote-targeting sweeteners.
There's good reason to have unallocated funding when you can't guarantee that there won't be renewed outbreaks. But where a lot of the current budget and post-budget spending announcements really sound like election campaign spending - like the increases in Early Learning Centre funding for places with 100% qualified teachers - we may fear that contingency funds will be put to similar purpose rather than held against worsened Covid conditions.  
Thirdly, what of ‘reprioritising’ spending? There is negligible evidence of the Minster’s pre-Budget promise that some spending would be ‘put on ice’. On the contrary, almost every spending ‘vote’ (or should that be ‘special interest group’?) gets a boost over 2020-24, including making sure future inflationary costs are covered. Sweeteners everywhere, from arts and culture to conservation to $75 million for the Ministry of Social Development’s office refit programme. No fiscal constraints here, no public sector pay restraint or postponing ‘nice to have’ project for a year of two.

Do we really need those new Inter-Islander ferries right now when we have massive, more urgent spending needs? And an extra $1.6 billion for ‘retraining’ and apprenticeships. How many Air New Zealand flight attendants or Queenstown tour guides does he think are up for retraining to move on to farms?
Why are we paying $3 billion (up from $0.4 billion ‘prescribed by formula’) to the New Zealand Super Fund in 2021-22 to pre-fund future pension spending, while we also borrow massively to fund today’s crisis? Answer: Labour in opposition criticised the National government for precisely this after the global financial crisis. It dare not be seen now to be doing the same, even though suspending payment makes more financial sense.
I wonder instead why the government isn't going even further: spending down the Super Fund while cutting entitlements from a decade or more from now to balance the thing out. 
From a healthy Crown net worth of 43 percent of GDP at the time of last year’s Budget, this FSR forecasts net worth at 34 percent in 2020. Fair enough – we are coping with extra crisis spending and lower revenues. But, following the Budget, Crown net worth is projected to drop to just 9 percent of GDP by 2024 and only get back to 12 percent by 2030. In other words, a decade from now, during which time another serious crisis could easily have hit us, the Government’s plans for net worth are so diminished that we would be woefully unprepared financially for another fiscal bail-out of the economy.

Let’s be clear. New Zealand economists are not calling for future ‘austerity’ to get the Government’s books back into balance within a few years. Instead, there is widespread support for suitable, not profligate, spending to assist faster growth of the economy to reduce the debt burden to previous levels over, say, a decade or more.

But the Crown’s projected financial vulnerability a decade on reflects Robertson’s failure to offer any credible plan to raise net worth through fiscal prudence down the line. This is despite official forecasts of quick economic improvement: real GDP growth is forecast to be massively positive at 8.6 percent in 2022, and 4.6 percent in 2023.
And Robertson wouldn't say whether he views 42% debt-to-GDP ratios in 2034 as the new normal for fiscal prudence. 

Missing the boat

Grant Robertson thinks New Zealand could reopen to international education next year
Robertson said tourism and international education, two of the largest parts of the country’s services sector, were under “real strain”, but potential opportunities regarding international education could arise next year.
I hope we're not missing the boat. 

North American semesters have August (US) or September (Canada) start dates. Semesters run then until May or June. Students will typically have sorted out their next-year study options well before now, but with Covid on, everything's up in the air. 

But waiting until January means missing the cohort of students that lock in to North American options that are harder to exit mid-year. 

And waiting also misses those students that start looking around to see whether any international options are available for quality English-language instruction in the North American fall semester and see Australia gearing up. Being able to pick some of them up, before they lock into Australia, could matter - Australian universities generally outrank options here. 

I guess I'm just not understanding what the government is taking as the constraint against an earlier opening subject to very strict and rigorous quarantine and testing provisions for inbound students from places that are not Taiwan. 

Yet, if jobs are so important, why did Finance Minister Grant Robertson emphatically squash Education Minister Chris "Chippy" Hipkins' enthusiasm for reopening the country to international students a little over a week ago?

On the Wednesday of the week before last, Hipkins responded to some kite-flying on the issue by university representatives at the pandemic select committee by saying he would look at it "within 24 hours".

The news swept through the tertiary education sector like wildfire, producing a burst of optimism, not only from universities, but also polytechs and private training providers.

The latter two can accept intakes of students more regularly through the year than the universities.

Mark Rushworth, the chief executive at the country's largest private training establishment, UP Education, began talking to media immediately about the potential to bring students in as early as July or August.

Within hours, however, Robertson had hosed down such expectations, citing "next year" as the earliest the sector might see students return.
Smellie's sounding as frustrated as I am: 
And with a quarantine system now working well for returning New Zealanders, there is no logical reason not to treat fee-paying foreign students exactly the same way.

By all means, make them take more tests for Covid-19 before they leave their home country.

And hell! UP Education would happily pay the $3000 to $5000 the quarantine process would cost. That's also cashflow for local accommodation providers and caterers who are currently bleeding out for lack of custom.
He puts it up to four barriers: 
At play now in the policy discussion are four inter-related elements:

• Sequencing: It is completely unrealistic to imagine that international students from third countries will be allowed to start arriving here before the transtasman travel bubble is up and running. The earliest that can start, let alone be subject to a high level of confidence, is July.
But why? There's no logical necessity that trans-Tasman travel, without quarantine, be reopened before quarantined travel from other places. That makes us hostage to Australia's getting their case numbers down. 
• Progress against the virus: A revival of international education will only become viable if the current progress in New Zealand is maintained and there is no resurgence of Covid-19, either globally or in key countries of origin for international students — mainly in Asia.
There'd be no demand for study-abroad in New Zealand from overseas students if we lost the covid-free advantage. Agree. But Covid breaking out in other places makes study here more attractive. And if it's done with quarantine and testing, then it's kept safe. 
• Quality of educational offering: It seems the opportunity will be taken to rethink what kinds of international education providers are desired. Low-rent English language "academies", particularly in Auckland, have been hotbeds of unethical practice, shadow permanent migration scams, and exploitation by New Zealand-based employers of migrant students. There is no desire to facilitate the resurgence of that part of the international education sector.
That's an argument for Immigration NZ to start processing student visas for the universities first along with secondary schools, then for polytechs with degree options where there are either no associated work rights for incoming students or where those work rights are tied to a credible part of the programme of study or are part of homestay arrangements where students billet with families, providing childcare around study for room and board. Why hold everything up? 

UPDATE: to be *real* clear, I'm not here agreeing with the view around 'low-rent English language "academies"'. I haven't seen decent evidence on it. I'm saying that if that's your concern as government, then you could *at least* free things up for the sectors you're less worried about more quickly. All of the thinking in this space currently is going to be entirely messed up by lump-of-labour fallacies. 
• Labour market dynamics: A very large number of New Zealanders who had jobs pre-Covid are going to be looking for new ones very soon. Many of those unemployed will have worked in tourism and hospitality. The last thing the Government wants is for international students to return in numbers to become competitors for those jobs.
As above.
So, international education is more firmly on the Government's agenda than it may have appeared.

But it's complicated.
Meanwhile, the Universities are looking at job cuts. Here's AUT

I went through related issues in this week's column at the Stuff papers
Lifeboats are tricky things. If they are overburdened, they can tip and spill everyone out.

Even with lots of room for other passengers, hauling someone out of the water is precarious and may mean everyone drowns.

When you’re in a lifeboat, you have to be careful.

But is there any image more emblematic of the kind of thing New Zealand isn’t than a guy (and it’s almost always a guy), alone in a lifeboat, rowing furiously away from a sinking ship and ignoring everyone bobbing in the water around him?

It certainly isn’t a very nice picture.

Bigger lifeboats are much easier to row to safety when more people can help. Leaving them to drown, when they could be helping with the rowing, isn’t just nasty, it’s self-defeating – so long as there’s a way of safely pulling others onboard.

New Zealand is an awfully big lifeboat in some rather treacherous waters. Watching the coming tsunami of a terrible recession, this country could use all the help it can get. If a way was found to safely let others on board, shouldn’t it be followed?

It can be done. And it matters.

The first issue is safe entry. If there is no way of safely letting people on board, it matters less how much they could help.

And the first place to look is to neighbours that are as safe as New Zealand – other lifeboats. Boats that raft up together are more stable.

Compared with New Zealand, Taiwan has fewer active Covid-19 cases, a lower average daily case count, tight border controls and a stronger pandemic response system. Auckland has had more recent cases than Taipei. Sitting here in Wellington, an incoming flight from Auckland poses greater personal risk than an inbound flight from Taipei.

New Zealand could, unilaterally, decide to allow visitors from Taiwan – while maintaining the option of closing the border again should its conditions worsen.

But unless Taiwan is sufficiently comfortable with New Zealand’s pandemic response, returning visitors would face quarantine.

Hopefully, negotiations between New Zealand, Australia and Taiwan are underway to let these lifeboats raft up together. If that means some Taiwanese oversight of New Zealand’s tracking, tracing and testing systems, so much the better for New Zealand: it would be like inviting a lifeboat expert onboard to ensure everything’s in order as we raft up together.

It’s hard to argue against rafting up for stability; it’s entry into that set of rafted boats that’s more contentious. But it can be made safe.

Last week, Laurel Chor tweeted her experience of flying to Hong Kong from Paris via Heathrow. Arriving passengers filled in quarantine orders, health declarations, were issued tracking bracelets, and sat, with appropriate spacing, in a wide hall.

They underwent Covid-19 testing and waited for eight hours for the results before heading to two-weeks’ mandatory and monitored quarantine.

Safe entry is certainly possible. It is a hassle, and it would not be cheap. But inbound travellers from riskier places could bear that cost through a biosecurity levy. Mandatory quarantine would put off most casual tourists but others would join New Zealand’s lifeboat for a while to help with the rowing task ahead.

Two weeks ago, I argued for this kind of entry regime for international students. Last week’s Reserve Bank Analytical Note showed international students contribute 1.1 per cent towards New Zealand’s Gross Domestic Product. This takes into account their expenditures in the broader community. Rather than facing the prospect of bailing out the universities, the Government could allow overseas students to safely join this lifeboat and help row the boat faster.

This would not just help the universities, it would help the country. Substantial employment depends on those students’ contributions while staying here. And with a bit of marketing, New Zealand could attract top tier students who would rather not attend online classes at US universities.

The California State University system announced last week it would only have online instruction during this autumn semester. New Zealand can provide a far better university experience by letting them onto its lifeboat. But this requires speedy action to attract students who are already looking at August semester start dates in the US.

Many others could help with the rowing if a quarantine system was in place – from international film productions to international sporting leagues and more. Making the recession less bad helps this country while helping them. And it can be done safely.

It would be silly to be in a lifeboat, trying to outpace a coming tsunami, and leaving others to the waters when they could safely be brought onboard to help. The rowing job ahead is not a small one. 

Monday, 18 May 2020

Crisis budgets and returns to prudence

The Spinoff asked me for comment ahead of last week's budget.

Here's some of what I'd told them, hit the link for the rest:
The government should have two priorities in this budget. First, and most importantly, the health system needs to be ready for the medium-to-long term changes that the pandemic has forced on the country. Second, the government needs to ensure the temporary measures necessary are in place for all of us to deal with the current mess.

Those two priorities lead to one unavoidable consequence. Permanent spending increases – increased spending on matters unrelated to the pandemic that are locked in and hard to reverse – means less room for dealing with the pandemic.

Why is that the case? The government will need to take on debt to deal with the current crisis. Tax revenues will be down and spending will have to be higher. But while the Public Finance Act allows this kind of response to emergencies, it also requires the government to think about the path back to prudent debt levels. This requirement makes a lot of sense: we just cannot know when the next crisis will hit; the Alpine Fault is overdue. We will need room to deal with the next crisis too.

Returning to prudent debt levels after this is all over will be much harder if the government locks in increases to baseline expenditures; that would limit how much debt the government could afford to take on now. An adequate response to the current crisis requires fiscal discipline about matters unrelated to the pandemic response.
After lockup ended, I wondered why the government didn't seem interested in the tiny investments it would take to be able to start reopening the border to safe travels: travel from safe places, or under strict quarantine and testing requirements.

I had a bit of a chat with Duncan Grieve about it at Spinoff

Then I filed this with Stuff:
The Budget headlines will focus on the extent of the Government’s additional support for households and businesses through extensions of the wage subsidy programme, worker retraining initiatives and job creation schemes in areas like environmental improvement and house-building.

The Government avoided locking in too many increases to entitlement spending. But it will still take until 2034 for its net debt levels to fall to levels twice what they were prior to this crisis.

What seemed more absent was a vision for economic recovery grounded in some of the advantages New Zealand now enjoys. The Budget presents a vision of a Government-led recovery with a comforting message: the Government is there to provide support, jobs or retraining — a sealed lifeboat bobbing on rough seas until the storm clears.

But small investments in setting rigorous quarantine facilities so others can safely join our lifeboat would pay off rapidly — and many times over — while enabling different visions.
One bit that did worry me during lock-up: the budget documents project net debt rising to well over 50% of GDP, but only dropping to 42% of GDP by 2034. I asked Minister Robertson whether he viewed 42% Debt-to-GDP ratios as being the new long-term fiscal prudence, or how much longer it would take to get back to normal levels. Rather than answer the question (which I thought was a fairly simple one), he said he viewed himself as acting prudently and in line with his obligations under the Public Finance Act. But I hadn't said that taking on debt was imprudent. I had wondered about whether the end point in the forecasts was just because they couldn't see getting back to prudent debt levels within the forecast window, or if they'd revised their view on what counted as prudent. 

However, Government borrowing is considerably greater at $140b over the next five years. New operating spending, excluding welfare and health, peaks in 2022, long after the economy is expected to have turned the corner.

It is also hard to find evidence of the reprioritisation referred to by Grant Robertson. Nearly every part of the public service sees new spending.

Wednesday, 13 May 2020

Documenting what led to lockdown

Marc Daalder goes through last week's document dump and plots out the path to lockdown.

You need to read the whole thing and subscribe to Newsroom. 
When Ardern announced the alert level system on March 21, it was met with an immediate outcry by epidemiologists and other health professionals for a move to Level 4.

Baker, who had been calling for lockdown for the better part of a week, reiterated his view on RNZ shortly after the announcement. He was convinced New Zealand's testing wasn't ready to find the cases out there and also raised a handful of concerns about contact tracing.

In the end, it was the contact tracing that would prove the slowest to scale up. A report on contact tracing commissioned by the Ministry of Health from University of Otago infectious diseases expert Ayesha Verrall found Public Health Units (PHUs) were overwhelmed by the case numbers they faced in late March.

"When New Zealand moved to Alert Level 4 on 25 March, many PHUs were at or beyond their capacity to manage cases and contacts, even with increasing support from the newly established [National Close Contact Service]. During that week, nationwide daily case numbers ranged from 70-86," Verrall wrote.

Even two weeks into lockdown, only 60 percent of contacts could be easily reached by phone and PHUs had no insight into what happened to cases they referred to the centralised NCCS. Verrall wanted to see the PHUs and NCCS able to trace all the contacts of 1000 new cases every day, up from just 70 on March 25.

In fact, the documents released by the Government show that by March 18, PHUs could trace fewer than 50 cases a day. On the same day, 39 Covid-19 cases entered the country. The situation was quickly spiralling out of control.

Exactly why the country was so unprepared for Covid-19 remains unclear. Newsroom has previously reported on international assessments in which New Zealand scored just 54 out of 100 points for pandemic preparedness. Domestic epidemiologists, including Baker and fellow University of Otago expert Nick Wilson, had long raised these concerns.

Nonetheless, the country's poor preparedness meant there was no viable alternative to lockdown. While countries like Taiwan and South Korea have managed to chart a suppression or elimination path without resorting to lockdowns, they also have far more robust public health systems than New Zealand.
In February and March, I just wasn't expecting failure to scale up contact-tracing to be the problem. I'd thought that part was simple - just hire more people. Not doing it proved expensive.

Newsroom also provides this helpful timeline.


Tuesday, 12 May 2020

Evening roundup

The evening closing of the browser tabs brings the following worthies:

Cable-ready infrastructure

My column in Newsroom this week ($) suggests that the government might look to some of its own necessary infrastructure upgrades, particularly around back end servers. We could be getting so much better and more timely data on what's all going on. 

A snippet:
More timely data is possible. But it would require unclogging the pipe running from Inland Revenue to Statistics New Zealand.

Income tax in New Zealand is delightfully simple. The Pay As You Earn (PAYE) system has firms submit income tax to IRD on workers’ behalf, rather than the workers themselves.

It has an additional advantage. Inland Revenue is receiving daily updates on the state of the economy. Every day, IRD receives PAYE from companies on behalf of workers across the country. It knows which companies are sending in payments on behalf of which workers. If a worker’s PAYE stub comes in a bit light this week, as compared to last fortnight’s pay, it either means the worker put in fewer hours or took a pay cut.

From that data, it would be simple – at least in principle – to produce daily updates on the state of the economy. How did today’s PAYE earnings compare to the same day in the pay cycle last year? How much worse is it today than it was a month ago? Or a fortnight ago? Daily data would be noisy – Covid-related pressure can make for late filing. But rolling weekly averages could smooth out some of that noise. GST data could be similarly useful.

Jobseeker benefits data is a lagging indicator of the real state of the economy. It’s like sitting out at the Basin Reserve, watching the cricket, and listening to an audio feed that’s two balls behind the play. Payroll data would be more up-to-date. Hopefully the IRD is already providing some of those updates to Cabinet. If it is, it would be very nice if the results were released more broadly.

But it could be even better. Statistics New Zealand (SNZ) maintains the Linked Employer-Employee Dataset (LEED) tying together tax data provided by IRD with company data from SNZ’s “Business Frame.” It uses that data to provide updates on average and median earnings in different industries. Unfortunately, the most recent update to LEED is from December 2018. In a few years, it might show what’s been going on at the industry level during the current pandemic – interesting for academic researchers who are not in a hurry, but useless for current policy purposes.

It surely is not beyond the wit of the boffins, with a bit of encouragement and funding, to fix the pipes so that daily data could make its way from IRD to SNZ for rapid economic updates detailing just what is going on with payroll at the industry level, and possibly even the occupational level, in each city and region.
The amount of resource that Stats NZ poured into the useless IANZ project is especially galling when you consider what they could have been doing instead.  

Lockdown porn

Just imagine being the kind of person who frets about porn consumption during lockdown.

The Herald has this fun bit from Friday's document dump:
Massive spike in porn and online harm

The day New Zealand went into lockdown, there was a massive spike in PornHub's traffic.

In a briefing on online harms from the Minister for Internal Affairs Tracey Martin, a graph from Pornhub showed a 20.6 per cent increase in their New Zealand traffic when the country moved to alert level 4 on March 25.

It dropped back to 4.8 per cent increase by March 29 but then crept back up to 15.8 per cent on April 2.

Monday, 11 May 2020

When not even the shovels are shovel-ready

My column from last week's Insights newsletter. 
There’s an old short-handled shovel hanging in our garden shed. The plastic handle has split, but the blade and shaft are fine. With a bit of work, that shovel could again be shovel-ready. But it isn’t just yet.

This past week brought news stories that really should have been tied together. The Government is readying changes to the Resource Management Act to fast-track shovel-ready megaprojects in the Government’s preferred priority areas. Meanwhile, contractors have been digging up and re-building the same bits of Transmission Gully for some time. Nobody knows when it will end.

Together, the stories remind me of that old shovel in the back shed. If even a half-built road isn’t really shovel-ready, what hope is there for the rest of the giant projects? Even a shovel isn’t always shovel-ready.

Megaprojects are risky and pinning recovery hopes on them may be a mistake. If employment is the only criteria for success, Transmission Gully has been remarkable. Workers could dig up and re-lay the same section of road forever. But as bad as unemployment is likely to get this year, there are surely more productive uses of everyone’s time.

The whole approach is taking the shovel by the wrong end. Anyone who lived through the Christchurch Earthquakes ought to remember just how bad an idea it can be to pin one’s hopes on a few anchor projects that can take years to get going.

Myriad smaller projects could be progressed if the consenting were just a bit easier.

We were rather lucky that the bulk of our home renovation work was done before lockdown. But the consenting was a hassle and isn’t done yet. Our balcony collects the rainwater that once fell directly onto the cement driveway. But, as far as Council is concerned, that rainwater can neither be returned to the driveway where it would have fallen, nor can it go to a garden sump.

If I could take the bit of bureaucratic red tape and use it to repair the handle on that old shovel, my garden sump project would be shovel-ready.

Thousands of other shovels could surely be ready to go. Easing the rules so we can all get on with our own shovel-ready projects may make a bit more sense.
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Friday, 8 May 2020

A rather costly failure

Lockdown wasn't a failure; it was a symptom of a failure.

From where we were at when the government shut the country down, they had to do it.

But we didn't have to be in that position at all.

The Herald's been going through the Friday afternoon document dump and caught this one.
Contact-tracing capacity has repeatedly been referred to as a weak point in New Zealand's Covid-19 response and has been ramped up in recent weeks to a point where director general of health Ashley Bloomfield now refers to it as a "gold standard" system.

But on March 17, a document proactively released by the Health Ministry put the capacity at the time as "estimated at 10 active cases".

That morning the Covid-19 case count was 11 confirmed cases and two probable cases.
The paper said that the capacity needed to be improved within a month so the contacts of 50 cases a day could be traced.
On 17 March, we had 3 new cases. On 20 March, we had 11 new cases, then 13, then 14 on the 22nd. On the 23rd we went into partial lockdown with 36 new cases; full lockdown on the 25th.

Source: Newsroom

Contact tracing for 10 active cases - there's no way it could have kept up. Even 50 cases a day wasn't going to be enough.

Had the government scaled up contact tracing capabilities from January, would we have needed lockdown? Border closures along with contact tracing and quarantine of both cases and contacts of cases could have done the job.

This wasn't the failure mode I was expecting in January or March; I just hadn't considered that the system would fail to scale up contact tracing.

Pretty pricey mistake.

Real quarantine

When we lived in Christchurch, we'd tour occasionally out to Quail Island. Quail Island had been home to New Zealand's leper colony, and also served more generally for quarantine. Here's a bit of that history.
Although most migrants arrived fit and well, the authorities implemented disease prevention measures at the major ports. Before anyone disembarked, officials checked the health of the government migrants and the condition of the ship, and heard complaints. Ships with sick people aboard had to raise the yellow flag and go into quarantine, a dismal introduction to the New World for people who had already been cooped up for three to five uncomfortable months at sea.

Construction started before the island’s sale could be completed, so the government built cheaply and simply. In February 1875 the Rakaia (which had lost 11 passengers and still had 100 mumps cases aboard) became the first ship to use Quail Island. It would not be the last, but with migration tapering off in the late 1870s and steam taking over from the mid-1880s, the need to quarantine people declined sharply. From 1881 livestock were also detained here, most famously the dogs and ponies used by Antarctic explorers. Between 1901 and 1929 the Shackleton, Scott and Byrd expeditions all used Quail Island.

But sickness still drove people here. In 1918 victims of the influenza epidemic were sent here as Canterbury struggled to meet the crisis. Between 1906 and 1925 there was also a small leper colony. Just a few minutes’ walk from the barracks you will find the walls, concrete foundations and drain channels from the leper colony that sat on its own isolated terraces. Another few minutes’ walk away a solitary grave lies behind a neatly painted white picket fence. It belongs to the only leper to die here, 20-year-old Ivan Skelton, who was visiting relatives at Westport in 1918 when he was diagnosed with the ancient curse. Shipped off to Quail Island, he died five years later, far from his family.
I was increasingly aghast with the lack of quarantine or health checks as folks came in ahead of the border closure, then again with the rather informal nature of quarantine for residents returning from places where Covid was rife. The country had ample empty hotels.

I wonder how much of the total lockdown could have been avoided had we collectively not forgotten how to run proper case tracking, followed up by quarantine.

It does have a long history. Here's Lyman Stone's excellent summary. Read the whole thing. A few snips:
Before we get into what centralized quarantine might look like today, it’s worth walking through the history of this strategy. In Leviticus 13 and 14, Moses gave the people of Israel instructions on how to deal with outbreaks of infectious diseases (in this case, a skin condition; widely translated as leprosy, it is actually very unlikely that the disease described was true “leprosy.”). The instructions are a Bronze Age version of “test and quarantine.” Detailed diagnostic criteria are listed for experts to use to provide a diagnosis. Any cases that meet a very low standard for a “possible positive” were then isolated from the rest of the community in a secure location until they completed a certain window of time without symptoms.

This is textbook “centralized quarantine.” Infected people didn’t shelter in place, and isolation was not limited to highly infectious people. The instruction of God Almighty through His prophets to the people of God when they confronted a contagious disease was very simple: Isolate large numbers of people who might be infectious at a safe distance from the community.


Detailed study of medieval cemeteries in Scandinavia has yielded an answer. Leprosy was driven to extinction in many Danish cities before 1400. It persisted longer in rural areas. The cities where leprosy declined share a common trait: lazar houses. They established “leprosaria” where infected people were isolated. This resulted in a dramatic decline of infection in the wider population.


It is also, as it turns out, extremely beatable. There are numerous cases of bubonic plague being successfully controlled without modern pharmaceuticals, but the best-documented case is the city of Ferrara from 1629 to1631. Strikingly, the scientific paper about Ferrara’s successful management of bubonic plague was accepted for publication in December 2019, and just officially published last month.

From 1629 to 1631, a terrible wave of plague killed tens of thousands in every city in northern Italy. Except for Ferrara, where there were fewer than a dozen plague deaths. This was not due to luck: Several towns around the region’s official borders were hit hard, suffering thousands of deaths. But Ferrara, alone in the center of northern Italy, stood resilient and relatively plague-free.

Among the city’s strategies: Strict travel restrictions limited who could come to the city; trade goods were repackaged before being locally sold. Movement was limited, and most city gates were sealed. Mostly, these strategies worked. But not entirely. In August 1630, several cases broke out in the city. This should have been the end for Ferrara: Once you’ve got a few bubonic plague cases, it tends to spread. But the city’s officials deployed all options they had on hand: All those who were sick were put in centralized quarantine in the now-empty leper colonies. So were their close contacts, business partners, families, and others. Their houses were sealed up while they were away, and after a safe period of time scrubbed with a kind of medieval bleach.

There were a few other scares, which demonstrate how extreme the measures were. A postal worker got sick: He and everyone on his route were put into quarantine. A school child showed some symptoms: School was canceled for two months. If this all sounds surprisingly modern for 400 years ago, don’t be surprised: “Plague protocols” were written for many cities around the world. Unfortunately, they were often ignored. Ferrara is unique, not for having written rules, but for actually following those rules. Politicians in Ferrara shelled out a huge amount of money from their budget to pay for food for quarantined people, have doctors check on the poor, and generally keep their city safe. They succeeded.
As we come down into level 2, and desperately would like to stay there, it's worth considering proper quarantine for cases as they come up.
The question is why Americans didn’t leap to this response. Why did we, rather than using existing legal authorities and time-tested procedures, instead choose to lock down all of society, despite no precedent for such a response, and little evidence it would work? Why did we, instead of deploying a simple, easy-to-understand, low-tech solution that any local government could have implemented, focus on a futuristic testing-and-trace regime that is never going to be fully deployable? The legal authority for quarantine is very clearly codified in law, the historic basis for its effectiveness is obvious, and it was even used as a strategy against the 1918 influenza pandemic, polio, and against recent novel influenzas.
It's a good question here too. I disagree that there's anything futuristic about testing and tracing - but there is something silly about seeing it as a way of avoiding quarantine. I'd thought that testing was just a more accurate version of the older medical diagnosis, allowing for a narrower set of people to be quarantined. And contact tracing is needed for any kind of quarantine anyway. Wouldn't it rather be a strong complement to everything else, and a substitute for the broader and far more costly lockdowns?

Thursday, 7 May 2020

Ownership and control

The line between state-owned and 'private' firms starts getting messy in bailout-worlds. 

AUT's excellent Akshaya Kamalnath provides an interesting example with the bailout conditions on Air France - KLM.
There’s much to say on the topic of airline bailouts unfortunately. Today’s post is about Air France-KLM and the strings its bailout comes with. (My previous posts on this are here and here.)

Apparently the French government will make a loan of £6.15bn to the airline on the condition that it scraps domestic air routes. The stated motivation for this is environmental do-goodery. Bruno Le Maire, the economy minister, provided the following reasoning: “When you can travel by train in less than two and a half hours, there is no justification for taking a plane.”

We talk about conflicts of interest in corporate law all the time. Usually, this is in the context of board decisions. Let’s use the same lens to examine this bailout condition and ask, who owns the French Railways (SNCF). No prizes for guessing that it is fully state-owned. Incidentally the SNCF has also been running under losses since before COVID-19 and the situation has only worsened after COVID-19.

(Thanks to Leonid Sirota for inspiring this post.)
And Leonid is also at AUT in laws. Huh. I'd known they had an interesting econ department doing lots of administrative data work; hadn't twigged that both Leonid and Akshaya were at the law school there.

Foreign students fleeing to New Zealand could consider putting together an interesting joint degree between the two departments.

Wednesday, 6 May 2020

Almost anything beats prohibition, including the draft cannabis legislation

The draft cannabis legislation, as written, is better than prohibition. Even without amendment, those inclined to vote should vote for it.

There's still a lot in it that I don't like though.

The prohibition on growers also running retail operations, presumably intended to prevent large commercial grow operations with vertically integrated retailers, will also prevent anyone from running the kinds of cellar-door operations that have been very important in wine tourism.

Sure, cannabis is nothing like wine. But is it that hard to imagine folks spending a morning at a grower's in Northland, seeing he fields, meeting the growers and workers, touring the facilities, sampling some of the product , having a bit of lunch maybe with a nice wine, ordering some for delivery back home, then bicycling over to tour a different one in the afternoon?

A whole lot of that would be illegal under the legislation as drafted.

The grower is not allowed to run a licensed consumption facility. Licensed consumption facilities are not allowed also to have alcohol. And prohibitions on advertising would likely make it hard even to put up a normal product list with descriptions and prices within the shop. The names of products and prices are fine; any additional notes wouldn't be.

Russell Brown, who's more a fan of the legislation than I am, also worries about this part
The bottom line of the section quoted above also embodies a more recent approach: a ban on vertical integration, which has been an element of reform in Mexico. No business will be able to both produce cannabis and sell it to the consumer, which restricts market dominance.

The economist Eric Crampton has already noted that the vertical integration ban would preclude “cellar door” type operations, where a producer could show and sell farm-grown cannabis to visitors (which would undoubtedly be popular with tourists). But I think there are larger impediments to that, most notably in the banket ban on advertising – including advertising inside R20 stores. You won’t be able to smell or see your weed – or even a picture of it – just a price list.

It’s not clear to me the extent to which even attributes of of the products will be able to be described, to tight is the advertising ban. But the particular effects of any given cannabis strain strain are governed as much by which terpenes are present as by THC level – weed that smells like cheese will have a very different effect to weed that smells like piney or citrusy, believe or or not – and anyone buying it needs some way of knowing that.

I do think there’s a level where this gets infantilising. If we’ve decided, as a nation, that adults can use this drug, then not letting them see it or get information about it, even on licensed premises, until they’ve bought it – when they will be free to look at it, smell it and consume it, even right there on the spot – just seems a bit silly.
And the cap on the quantity of cannabis that can be sold in the commercial market will make it very hard for the market to respond to changes in demand that can come with, for example, the return of tourism. Quantity restrictions will push prices up whenever demand is higher than normal, and that will encourage shifts back into the illegal or informal market. If the government had any intention of setting excise to try to maintain retail prices to consumers around where they are now, it'll be harder to do that under the quantity restriction.

The cap is likely to turn into a sinking lid where the cap is supposed to be set with a view to the purposes of the Act and the Harm Reduction Strategy, all of which focus on minimising the harms of use.

The Authority has to decide among potential growers vying for a share of the annual production cap. They're meant to take into account factors listed in Section 85, including representation of communities traditionally harmed by cannabis, generation of social benefits and employment.

Those applications come in for the share of the annual cap, so every year there will be costly application processes trying to prove the social worthiness of one grower relative to another.

There's no mention of potential tradeability of permits; it's presumably prohibited where the point of the permitting process is to make sure that the portions of the cap are divvied up according to the preferences of the Authority as guided by the Act. But that also could cause problems if a grower experiences crop failure in one year, for example. With wine, if one part of the country has a great year and another part is a bit average, it all washes out. If there's drought hitting apples in Hawkes' Bay but Central Otago's fine, then we get apples from Central instead. Nobody has to reallocate permits in accordance with social worthiness.

This whole thing looks rather ripe for rent-seeking.

And while the regime at least doesn't punish those under the age limit for being in possession of cannabis - or at least avoids criminalising them - it would criminalise social supply to 19 year olds in cases where, for example, a parent may prefer to provide a bit from their own home-grown supply than have the kid rely on informal supply from less savoury folks. Sure, in theory, illicit supply's supposed to be wiped out. But suppose you have an 18 year old at home that you know is getting weed elsewhere and that it's dodgy-as. Unless you're able to find and dob in the kid's supplier, you can't really block that access route. And you can't supply small amounts of better product for supervised consumption.

And if you regularly have guests over who consume cannabis, be careful about Section 177: you could be considered to be running an unlicensed premise for the purpose of cannabis consumption even if no money changes hands.

On the good side though:

  • Excise would be based on weight and potency rather than ad valorem;
  • Edibles will be allowed - though I don't see any mention of the standard-dose kinds of packaging that have been useful elsewhere;
  • There's a review 5 years into the regime to see how it's working;
  • It isn't as bad as prohibition. 

Tuesday, 5 May 2020

Media funding, prizes and public goods

The government's paid $50m to help shore up newsmedia companies' finances during Covid.

But the overall media funding problem is bigger than the current Covid mess.

I went through things in a bit more detail in Newsroom last week (ungated here). Too many news types want to find ways to have the government strongarm tech companies into rebuilding the old advertising-based funding model that worked until the 2000s - it's basically nostalgia for an era that just won't come back.

But where we wouldn't see any need to support buggywhip manufacturers against the rise of the car, there are reasons to expect the optimal amount of journalism is higher than we might wind up with where the personal benefits of being informed aren't all that high. 

But you can get the nut of it from this snip from the piece at Newsroom.
That would not be a problem on its own. But there are reasonable ‘public good’ aspects to a thriving news sector. If an investigative journalist exposes a city councillor’s corruption, the benefits extend far beyond that newspaper’s subscribers being better informed. Worse, the benefits of being better informed have always been just a little ephemeral.

Sure, there is prestige in being able to hold one’s own in conversations about current events, but most of us really could ignore almost everything that’s going on in politics, and in policy, and in sport, without really noticing the loss.

It is then no surprise that the most typical findings of the academic literature on voter knowledge are that voters know very little.

This is hardly a new phenomenon. Even in the heyday of journalism, in 1964, well before the great decoupling of newspapers from classifieds and other advertising, only 38 percent of surveyed Americans knew that the Soviet Union was not a member of NATO – despite that the Cuban Missile Crisis had almost brought the powers to nuclear war only two years earlier.

And so we get to the nub of the problem. For most people, there is little personal benefit in getting the kind of information provided by serious journalists. So there is less effective demand for news than would be ideal, both because serious journalism directly provides benefits in democratic accountability, and because a better-informed voter base is likely to yield better outcomes at the ballot box.

There are two basic ways of trying to solve the problem. News producers could be directly subsidised, whether by philanthropists or by taxpayers. Or the rewards for being better informed could be strengthened. Let’s take each in turn.

Last year, the Stigler Center for the Study of the Economy and the State’s Final Report on Digital Platforms suggested taxpayer-funded vouchers could help fund news. Under this scheme, each adult would receive a $50 voucher to be used as a donation to their favourite news outlet. The proposal has a lot of advantages over other forms of state-funding. Rather than the Government or a panel of anointed experts doling out the money, individuals would reward outlets they most wish to support.

The proposal is interesting. The authors have thought through most of the obvious objections. But while the scheme would help reward the investigative journalism so important for democratic accountability, it would not do as much to encourage people to read the stories.

There is another way of encouraging people to pay a bit more attention to the world around them.

Growing up in Canada, radio stations often ran contests where they would phone someone at random and give them a prize if they could name the song the station had just played. It encouraged people to pay a bit more attention.

Imagine if the Government allocated $36.5 million to a prize pool. Every day, the editors of the various news outlets overseen by the Media Council would submit skill-testing questions drawn from the more important stories they had recently produced. Every day, some lucky Kiwi would get the phone call promising a $100,000 prize for successfully answering one of the questions of the day – with calls continuing until someone got the prize.

Suddenly, knowing what’s going on would matter for more than just water cooler kudos. Even if the odds of getting the call were low, the pain of getting the call and not knowing the answer would encourage paying attention to current events. That would help to drive subscriptions to the news outlets providing the news and build a better-informed electorate.

That seems more promising than letting the Government adopt mafia-style standover tactics to force tech companies to fund journalism.

Tobacco excise and living costs at the bottom

Māori and beneficiary households feel the greatest impact from higher cigarette prices
30 April 2020, 10:45am

Higher cigarette and tobacco prices hit Māori and beneficiary households the most in the March 2020 quarter, Stats NZ said today.

Each quarter, the household living-costs price indexes calculate how inflation affects different groups in society, while the consumers price index (CPI) measures price changes for New Zealanders as one group.

Prices for cigarettes and tobacco rose 11 percent in the CPI this quarter as the annual tobacco tax rise took effect on 1 January (see Higher inflation in March quarter).

“The cost of cigarettes and tobacco was one key contributor to inflation for all household groups,” consumer prices manager Sarah Johnson said.

“Māori and beneficiary households felt the effect of this rise more than the other household groups we measured, partly because cigarettes and tobacco made up a greater proportion of their expenses.”

Cigarettes and tobacco made up more than 4 percent of all expenses for beneficiary and Māori households, compared with less than 3 percent for all households as a group.
Broader inflation of course is not looking all that strong currently - for those of us who don't smoke anyway. 

Working from home

It certainly can't work for everyone, but I wonder how many companies will be finding that they didn't really need nearly as much office space after all. 
Software firm OpenText is permanently closing about half of its offices and shedding up to five per cent of its workforce as it responds to the COVID-19 pandemic.

"We believe it is better to be decisive and clear, not slow and incremental," chief executive officer Mark J. Barrenechea said during an earnings call on Thursday afternoon.

A shift to remote work by more than 95 per cent of OpenText employees as the pandemic spread has been "amazingly productive" and as a result, approximately half of its physical offices around the world will not reopen, Barrenechea said.

Those offices are smaller and house about 15 per cent of OpenText's total workforce, which was approaching 15,000 employees in 35 countries earlier this year. Specific locations weren't identified in a release announcing the move, but a spokesperson confirmed that its offices in Waterloo — the company's headquarters — and Toronto are remaining and will reopen to employees when a return to work is possible.

"Our corporate offices, our centers of excellence, innovation centers and country head offices will reopen when we are able to do so," the company said.

About 2,000 employees at the affected offices will move permanently to remote work. Separately, a restructuring program will see the total workforce cut by up to five per cent, or roughly 750 people. Cost savings once restructuring is complete are expected to be in the US$65 million to $75 million range.
Remember those little experiments that Tim Harford talked about, where sometimes a road closure would lead people to discover an even better commuting route than they'd had before?

A lot of companies would have been rather reluctant to trial work-from-home options, whether because they didn't think the managers could properly keep an eye on things, or because they expected too great a loss in communication among workers and consequent discoordination issues. But they've all now had to try it.

I'm sure some people cannot wait to get back to their offices. I guess we're all wired a bit differently. It'll be interesting to see how many more folks are allowed to work from home once this passes though.

Monday, 4 May 2020

Open to minds - reopening to international students

New Zealand's today hit zero new cases of Covid-19.

With appropriate upscaling of contact tracing and rigorous quarantining of newly found cases, it's very possible to see New Zealand largely reopening, at least internally.

The rest of the world remains a problem.

And, sadly, a bit of an opportunity.

New Zealand could wind up being the only place in the world where you can undertake normal university study with lectures and student life.

That presents an enormous opportunity to expand international education. Incoming students would need testing and quarantine, and the system for doing that would have to be rigourous - no stupidity like jumping onto regional flights with other passengers from an inbound international flight. Doing it properly matters.

Reopening to foreign students doesn't just let the universities avoid cutbacks and bailouts, it also helps reboot tourism. We are not going to get substantial amounts of tourism if those coming in have to undergo a fortnight's quarantine. But we could see international students touring the country during their semester breaks rather than going home and having to quarantine again on the way back.

I wrote a short policy note on it last week.

Susan Edmunds covered it in the Fairfax papers:
Chris Whelan, chief executive of Universities New Zealand, said foreign students provided a level of funding that helped make it possible for young New Zealanders to attend universities at discounted rates.

“They also bring broader perspectives, a taste of different cultures and a wider world view to our campuses. International education has massive benefits for everyone.

“As well as reducing the cost of running universities for taxpayers, international students also bring nearly $700m a year of additional spending in sectors such as accommodation, food, entertainment and travel. When international students graduate, most continue to have a relationship with New Zealand personally and promoting it to others for tourism, further education, trade, research collaborations, and in diplomacy,” he said.

“Their presence here is also a key reason why every New Zealand university is world-ranked and can provide every domestic student with a world-class education.

“Welcoming international students back to New Zealand—when the time is right and all risks can be properly managed—would be an opportunity for New Zealand to grow our share of the international student marketplace.”
John Gerritsen also covered it at RNZ:
The chief economist from the New Zealand Initiative, Eric Crampton, said New Zealand's success in containing the Covid-19 outbreak gave it a strong competitive advantage other countries.

"A lot of the rest of the world is looking terrible for students. The universities are providing nothing like the kind of experience they've normally been able to provide, their lectures are shut down ... the night life is going to be shut down, the whole student experience is going to be severely diminished," he said.

"New Zealand will be looking remarkably attractive in that kind of a world. Students who previously might have looked to some of the more prestigious universities in America or in the United Kingdom as places to study will be able to look to New Zealand instead. It's a real proposition."

Crampton said northern hemisphere universities generally enrolled students in August, so New Zealand universities needed to set up a quarantine system so it could take new students in the middle of the year.

"We have to be able to open for the July semester start," he said.

Crampton said it appeared that New Zealand would be able to contain any fresh outbreaks of the disease better than most other countries, and that would be encouraging for many prospective students and their families.

He said there was also the opportunity to attract top staff because many foreign universities had introduced hiring freezes which would leave new PhD graduates with nowhere to go.

"If we prove sufficiently attractive to foreign students that we could start looking to expand our capabilities here, we would have access to a pool of talent that we would probably otherwise not be able to get to come to New Zealand.

"So we've got a real opportunity here but it all requires that the government be ready to start really rapidly processing international student visas and making sure those quarantine facilities are ready."
My column in this morning's Fairfax papers made the case as well.
And that presents some opportunities that should not be missed.

Most obviously, New Zealand should be able to join with others who have largely beaten Covid to re-open borders to quarantine-free travel. Once Kiwis can travel again from Auckland to Invercargill, there seems little reason not to also be able to travel to places like Taiwan – which has been more successful than either Australia or New Zealand in keeping Covid in check. South Korea should also be on the list, along with Singapore when its recent outbreak is back under control.

Doing it right would likely require mutual monitoring of each other’s pandemic testing, monitoring, and containment regimes. That kind of quality assurance would strengthen our systems and help ensure that the larger Pacific bubble could hold. Doing it seems well worthwhile; the OECD has suggested that poor international connectivity underlies part of New Zealand’s weak productivity statistics. Reopening the borders to places no more risky than other parts of New Zealand would help in rebuilding business links and in restarting tourism.

But there is more substantial opportunity, in some areas, for growing beyond what New Zealand had before the pandemic. New Zealand’s “lifeboat” status, when North America, the UK, and much of Europe are in turmoil, could particularly benefit our tertiary education sector. 
And I talked about it a bit in my panel chat with Kathryn Ryan on Nine to Noon this morning as well; that one ranged rather more broadly.

Doing it would require the universities putting up quarantine facilities that pass muster with the local Medical Officer of Health - that should be very feasible. It would also require those students to be able to get here - I expect the universities would need to have a few chats with Air New Zealand about getting a few international flights up in time for it to happen.

But it really really should be done.

Monday, 27 April 2020

Media funding

The third column in our Insights newsletter is usually a little tongue-in-cheek.

I'm not entirely kidding about this proposal for supporting the media though. But first, a bit of back-story. 

The basic problem, as I see it, is that there is very little real demand for actual news. That by itself wouldn't be a problem, but there are reasonable social benefits from a better informed public. For one thing, a better informed public will do a better job in voting. And when an investigative journalist finds things like, say, a town councillor used a tip-off about a zoning decision to make some land investments - well, that stuff getting found out and published encourages better behaviour.

For a long period, we were in the happy spot where people were very happy to pay for classified advertising, and newspapers and news magazines could provide a profitable bundle. Subscribers would receive a paper for less than the overall production cost; those willing to pay for access to readers covered the rest of the cost. The papers were the most effective way of getting ads in front of people. 

That's all unwound where there are far more effective ways of running classified ads and of getting other advertising in front of people. Newsmedia have spent much of their lobbying effort on taxing the new and better alternatives for ad delivery - mostly focused on Google and Facebook rather than on Ebay and TradeMe. 

But the case for taxing them to cover the costs of media is, bluntly, ludicrous. The snippets that Google will serve up as teaser do not violate copyright and drive traffic to the news outlets' sites, where people could see ads hosted by the newspaper. If that weren't the case, every news outlet has a simple solution: block the search robots from accessing their sites. It is easy to not have your content linked by Google. 

Newspapers just aren't the best way for advertisers to find people any more. The bundling of advertising with news worked for decades and made sense in that period, but that world is gone.  

I worry that bailouts or, worse, taxes on tech companies to directly fund media will prevent entrepreneurial discovery of better models for funding the news. 

If the underlying problem is private demand for news on current events being less than the socially optimal amount, then interventions should be aimed at boosting that demand rather than directly subsidising existing providers. There is no policy interest in that any particular provider continue to exist; there is a policy interest in that there is a well-informed public. 

The Stigler Centre's recent report on digital media suggested a form of voucher funding. Everyone would get a small amount of money as a voucher that they could use toward news subscriptions; unused vouchers would see their funds distributed across outlets proportionately to how used vouchers were allocated. 

That still has a problem in deciding which kinds of outlets are eligible for vouchers (the report suggests a fairly broad range should be eligible). 

It seems less bad than some other options for government funding of media. It at least doesn't have political appointees deciding which news outlets are worthy of support; it isn't hard to imagine how a Trump appointee would handle that. 

Anyway, all that said, I proposed something a little different, somewhat tongue-in-cheek, in our Insights newsletter. 

Some commercial radio stations encouraged people to listen by running regular lotteries. They’d dial up a random phone number and if the person answering could name the last song played by the station, the lucky listener would get a hundred dollars.

Perhaps the government could set up a $36.5 million budget line for prizes. Every day, one lucky Kiwi gets the call. If they answer that day’s question about the key events of the week – with the different news editors supplying the questions – they win that day’s $100,000 prize.

It’s a lot cheaper than other kinds of bailouts. And it could encourage people to start paying attention.
It wouldn't be all that expensive in the grand scheme of things. If you wanted to splurge, you could just keep calling until somebody won that day's prize. Then the budget line would be the full $36.5m rather than 'up to $36.5m in prizes'. Folks would have stronger incentive to become informed, and would figure out what news option was best for them in doing that. 

Sure, it isn't perfect. But it seems less obviously bad than trying to force Google to fund the newspapers. 

Friday, 24 April 2020

Media shakedown

Newsroom's co-editor wants the government to shake down Facebook for a hundred million dollars to give to newsmedia, under threat that the government would impose worse regulations on Facebook if it didn't pony up the dough.

I'm not exaggerating.

Here's what Mark Jennings wrote:
The best thing the Government could do to help New Zealand media right now is to get the Prime Minister on a Zoom call with Facebook boss Mark Zuckerberg and ask him for $100 million.

In return for saving the New Zealand media, she agrees to let Zuckerberg off the hook that the Australian, French and other governments are planning to put him on by making Facebook pay for news content.
I know that things are pretty tough in the newsrooms, but asking the government to run a shakedown operation to fund you is not all that hot.

Public Health Priorities

New Zealand's public health system has pivoted admirably to focus on the current pandemic. But the neglect of communicable disease for rather a long time ahead of this has had costs.

The public health system's focus on noncommunicable disease may make sense if you only look at the current burden of disease, prior to this year. But contagious and noncommunicable disease are very different things. If I decide to live an unhealthy lifestyle and have worse health as consequence, the costs of that to others are not particularly high. There is a fiscal transfer through the public health system, but that is mostly pecuniary - unless you think that people are living substantially less healthy lives because they know that the system will cover the health costs down the track. But any real, Pareto-relevant, technological externality is small. Concerns about noncommunicable disease are largely paternalistic.

Communicable disease is different. There are real and substantial external costs from it, and real public good benefits from its suppression. If I am currently risky, my staying home provides benefits to everyone with whom I'd otherwise come into contact, whether on the bus, in a restaurant, or anywhere else.

And as much as public health people hate seeing anyone enjoying a soda, a soda has never resulted in a month-long nation-wide lockdown and economic collapse.

Every time I've complained about this, the well-thinking people have told me that government can walk and chew gum at the same time. It can both focus on banning people from doing the things they enjoy doing while also keeping on top of communicable disease.

Yeah. About that.

Here's Georgina Campbell over at The Herald.
Thousands more face masks have been found with crumbling elastic and deemed unfit for purpose in the fight against Covid-19.

Earlier this month it was revealed there were 90,000 masks with corrupted elastic at Capital and Coast DHB and a further 10,000 at Hutt Valley DHB.

South Canterbury DHB has since reported there were 58,000 N95 masks in its pandemic stock, but due to their age, guidance has been sought from the Ministry of Health on whether they could be used during the Covid-19 pandemic, DHB chief executive Nigel Trainor said.
The public health system, broadly speaking (which I take to include the Ministry of Health, the DHBs, the HRC granting system, and the universities doing the research, and the cluster of government-funded NGOs), has managed to do a lot of things recently.

It has managed to ban sodas in hospital cafeterias.

It has managed to put cameras on a pile of kids to take pictures every five minutes, and to scour those pictures for evidence of evil brands that are hurting children by their presence.

It has put huge effort into blocking new bottleshops in places like Khandallah, with months-long hearings processes.

It has prioritised working out the regulations around vaping even in the middle of a pandemic, with MoH resources being put to supporting that committee.

But it has not managed to check that the DHBs are doing stock rotation on its PPE supplies for a pandemic. A public health system that protected its workers from soda did not bother to make sure its workers would have reliable access to PPE. 

This isn't a Labour government failure. It's a failure of the administrative state over the past decade in chasing after noncommunicable disease at the expense of preparedness for communicable disease.

Places like Taiwan have been able to avoid lockdowns because they've had a public health system ready for pandemics.

It is interesting to imagine a counterfactual in which public health had maintained a focus on communicable disease. Where grant money went into ensuring best-practices for scale-up of contact-tracing rather than having people watch sports matches to count alcohol brand exposure. Where central government was telling DHBs to check their PPE stocks rather demanding that they ban soda in the hospitals.

Let's hope that the system can maintain a focus on communicable disease coming out of this.

Thursday, 23 April 2020

Climate and recovery

Eloise Gibson over in the Dom Post rounds up comment on climate priorities as we come through the Covid-19 mess.

I suggested pushing harder and faster on getting the ETS into proper order; Eloise briefly covers my comments there. I'll expand on them here.

So much in this space seems to get things backwards. Let's work it forwards first, then show the problems we get in thinking backwards.

A properly working ETS will set a binding path to hitting NZ's commitments, but with one fudge that I'll add in here. The fudge is that prices in New Zealand should never lead prices in other countries that are taking climate seriously.

There are two ways of getting that.

One way is making sure the ETS can handle international tradeability in real and credible carbon permits. If you have that, then NZ emissions can exceed the NZ cap so long as they're offset by emissions elsewhere. Where that tradeability is restricted to credible credits, you maintain the same path to global emission reduction at lower overall cost - which means the world can have more ambitious goals than otherwise.

Alternatively, until international tradeability is in place, the government can set a price cap equal to prices on the European market. Basically the government would be willing to sell an infinite number of emission credits for any year's emissions at the European price. Whenever European prices go up, NZ prices would too if we were at that cap. This would commit us to moving in lockstep with the most stringent regimes, but no faster. That kind of move makes a ton of sense where the climate benefits of moving ahead of the pack are trivial while the economic costs can be substantial. Basically, you want mechanisms where countries all agree to do as much as the one doing the most - at least until you get to carbon prices matching the social cost of emissions. I doubt prices ever need to wind up rising to the current social cost of carbon because tech would come in to help, but the market could discover that.

That would then let the Climate Commission put up an expected price path for carbon. An expected price path for carbon would allow modelling of expected changes in demand for all kinds of stuff, from electric car charging stations through to power generation. Those expected changes in demand could inform infrastructure planning.

The other way of doing it is backward. You'll hear calls for a green-investment stimulus package. The optimal investment path will depend on what demand is going to look like as prices change, but you work that out by working out what demand is going to look like under that revised price path, not by just deciding that some investments are green and some are not-green.

If you do it backward, you risk sinking huge amounts of money in places where it will not do the most good. When we're thinking about big infrastructure projects getting into the hundreds of millions or billions of dollars, those should be based on business cases that take expected demand seriously, with some decent thinking about how that demand will be affected by changes in carbon prices.

Looking through the rest of Gibson's article, we see stuff like:

  • EDS wanting revised building standards for energy savings
    • ...but if everyone knows that carbon prices are going up, then people will invest appropriately as the marginal cost of heating increases with rising power prices. Why pay commercial building owners to retrofit when tenants expecting higher heating costs would be willing to pay higher rent to avoid those heating costs? Get the price path up and folks will adjust.
  • A renewed push for the feebate scheme
    • This was always stupid. The article frames it as NZ First having blocked it, which it likely did, but Treasury's report on the scheme was absolutely and correctly scathing. Petrol is in the ETS. You don't need to put extra charges on less efficient vehicles. You might as well put an import charge on Jaguars because they have higher maintenance costs, ignoring that the Jag's owner already knows that and is already going to be paying that cost. It's just dumb. Petrol is in the ETS, the ETS price is increasing, and folks will be thinking about that when they buy a car - they make the choice that's right for them. The feebate scheme was one of the stupidest ideas going. You don't need to incentivise buying climate friendly cars. The higher running costs of petrol vehicles is already appropriate and sufficient disincentive. The only plausible rationale for it was around lower emissions in cities and health effects of that, but really just knocking out the smokiest vehicles at WoF time would be rather more effective. 
  • EDS and Greenpeace wanting more solar power in homes and offices and replacing existing fossil fuel plants with renewables.
    • But power is in the ETS. Any carbon used in power generation is already priced in. Again - you publish the price path and you'll get the efficient decisions around long term energy investments. Sure, ease up the RMA processes to allow new hydroelectric generation. But coming in to direct what kind of generation should take place is colossally stupid and expensive. Just look at the mess Germany got itself into. We had a report on this last year. Forcing power generation to be 100% renewable would be outrageously expensive, with costs per tonne of carbon abated many multiples of the going price in the ETS. Just absolutely nuts. 
  • EDS, Forest & Bird, and others wanting electrification of the rail network
    • I am absolutely agnostic about whether the trains should be electric or diesel. But transport is in the ETS. Any carbon cost of diesel in the trains is already paid. If there's then a business case showing that investment in electrification pays off, given expected increases in ETS costs, great. But that's the only basis on which it should be done.
Running things backwards will lead to abatement costs far in excess of that which is necessary. Running it forwards, starting from ETS prices and looking at the business cases from there, makes sure that climate efforts are well focused.