Friday 13 March 2020

IRD and the OIA

This one has been dragging on for a while, but it's coming to a rather nice resolution.

Recall that, rather some time ago, I'd made an OIA request of Inland Revenue for the data that they had collected on tax attitudes. IRD was under fire for what was considered to be partisan polling. I'd never considered it to have been partisan; tax attitudes and how they align with political party affiliation is interesting for both the tax department and more generally.

So I figured that IRD's best move would have been simply to release the data broadly, so they couldn't be accused of having gathered it for Labour.

IRD didn't do that, so I put in an OIA request for the data.

And waited.

That whole saga and appeals to the Ombudsman are summarised here.

And now I've a very nice letter back from the Ombudsman, copied below. There are a few very nice slaps in there about IRD's needing to remember its duties.

I will be interested to see how IRD replies to this.

Tuesday 10 March 2020

Quarantine leave

I'm more of a sceptic about generalised bailouts during the coming downturn.

But there is a good case for support for quarantined workers.

In short, staying home when you're at risk of infecting others is a public good. If you're on unpaid leave because sick leave doesn't cover when you're not actually sick and you're out of annual leave, you'll have incentive to show up at work regardless of a stay-home notice. If your employer bears costs if you're out for a couple of weeks when you're probably fine, your employer will also have some incentive to ignore quarantine.

Singapore pays employers $100 per day per worker stuck home on quarantine, on proof that they're still paying their workers.

We could consider a variant of that here if we wanted to encourage stronger compliance with quarantine.

I go through some of that in this week's column at the Dom - published today but submitted last Thursday, so it doesn't include anything on the government's proposed support packages.
Singapore has maintained a tight lid on its outbreak. There, quarantine carries both a carrot and stick. Contacts of people with Covid-19 are placed under Quarantine Orders; workers returning from places with the virus are placed under precautionary Leaves of Absence; those recently returning from risky places with symptoms face a Stay-Home Notice.

Breach of these orders can result in hefty penalties, including firms' being barred from hiring foreign workers in future. Equally, businesses and self-employed persons are eligible for support: $100 per day per affected worker.

The combination of carrots and sticks has some nice effects.

Staying home when you pose a risk to others during a pandemic is a substantial public good. The benefits of an infected person staying home are shared by everyone else but the costs are borne by the worker and the employer.

Singapore's scheme providing compensation for this public good, combined with penalties, changes the calculus.

By helping firms continue to pay furloughed workers, it can mitigate some of the flow-on effects that otherwise result when reduced earnings lead to reductions in demand, leading to layoffs elsewhere.

The Government could consider similar programmes in New Zealand. We could follow Singapore, whose government has already worked through an awful lot of the policy fishhooks. Or, it could consider a government-funded annual leave programme only available during a declared pandemic for those under quarantine orders where work-from-home options are not possible.

Kiwisaver divestments

I really wish there were some way to leave Kiwisaver. The government's proposed changes to it introduce political risk I find to be entirely too great.

And, it's for something basically futile: trying to reduce greenhouse gas emissions by divestment.

I go through it in last week's print NBR; an ungated version should be on our website tomorrow is here.

Some snippets:
The government has crossed a bright-line rule in its proposed changes to Kiwisaver.

Its proposal to require default funds to divest of any fossil fuel stocks is incredibly unlikely to have any direct effect on greenhouse gas emissions.

To the extent it does, it will only be by reducing returns for investors who stuck with the default funds. Even in that case, it is doubtful to be cost-effective. The government could do more by working through the Emissions Trading Scheme.

And it sets bad precedents for political interference in Kiwisaver investment.

If that were not bad enough, it also means writing climate policy could be done on-the-hoof in response to political demands rather than after careful assessment to ensure our collective efforts to reduce greenhouse gas emissions do the most possible good.

Climate change is too important to address with half-baked initiatives, and retirement savings are too important to become political footballs.

Let’s take each of these in turn.

The government is laudably working to strengthen the emissions trading scheme (ETS). Under the strengthened scheme with a binding cap, there will be a comprehensive and rising price on carbon which will incentivise innovation.

As American economist Alex Tabarrok puts it, a price is a signal wrapped in an incentive. Anyone able to reduce greenhouse gas emissions at a lower cost than the current price in the trading scheme can profit by reducing their emissions and selling the resulting credits – or avoid purchasing costly credits. That ensures the lowest-hanging fruit are the fruit first picked, rather than reaching first for the apples higher up the tree.

Divestment mandates, by contrast, are unlikely to have any direct effect on global carbon emissions. The only direct way they might is by raising the cost of capital for fossil fuel industries, increasing the hurdle rate for new investment projects. That cannot happen unless the mandates push down returns for the funds making those divestments. But as those funds divest, other investors will be attracted to invest by slightly higher returns.

In other words, the mandates push against price signals whereas a carbon price works with price signals. 
I then go through the silliness of basing council consenting decisions on greenhouse gas implications of the project, where those gases are already accounted in the ETS.
We need to be establishing precedents that carbon mitigation measures are properly costed.

Government needs to know the cost per tonne of emissions avoided by different measures so that we can focus on the areas where the most good can be done. Instead, we have a politically driven initiative unlikely to do anything to reduce emissions.

The precedent for Kiwisaver is also destructive. It ignores the entire economic rationale for the investment scheme and invites future depredations.

The behavioural economics underpinning Kiwisaver holds that default options can matter. They are ‘sticky’ – people can be slow to switch to the option they really want. Setting default options to line up with most people’s preferences reduces those switching costs. If most people wind up opting into a retirement scheme eventually, at fairly high cost, why not switch the default?

A wide variety of ethical investment funds are already out there, each catering to different preferences. Mindful Money provides a helpful tool for people choosing a fund which best matches their ethical preferences. But how many people really want to opt into them? Switching the default will only increase switching costs rather than reduce them.

And where the precedent is established for forcing default Kiwisavers into funds matching the ethical preferences of the government of the day, it is easier to justify further changes with changes in government. Mandates requiring that funds prioritise domestic investment are far too easy to imagine.

Monday 9 March 2020

The coming Covid-crisis

Oliver Hartwich, at Newsroom ($), on the consequences of Covid-19 for the Eurozone. This stuff really is Oliver's beat. 
To start with a disclaimer, I am not a medical expert. I have no degree in epidemiology, nor can I claim any expertise in public health management.

In these difficult times, it is perhaps useful to lay one’s qualifications on the table. There is too much misinformation about the medical aspects of the virus out there. Worse than that, when even the experts contradict each other, what chance would laypeople have to understand what is happening?

That said, there is one aspect of the crisis which relates to my expertise as a commentator on Europe. And that aspect, frankly, scares the hell out of me: It is what the virus does to Italy – and by proxy to the eurozone.


When the euro crisis struck in the wake of the Global Financial Crisis, Italy was one of the hardest hit countries in Europe. Indeed, it never properly recovered from that crisis. Per capita (and in constant prices), GDP is still lower than it was in 2011. Industrial output collapsed at that time and never returned to its previous levels.

On top of the problems in Italy’s real economy, there has long been a banking crisis. It is a banking crisis that has been simmering under the surface, mainly because the European Central Bank kept it there.

For the past decade, the ECB introduced a range of programmes with the more-or-less explicit aim of stabilising the Italian banking system. Banks were enabled to access cheap, fresh money from the ECB so they could purchase Italian government bonds and pocket the interest rate difference. That way, the ECB kept both the Italian banks and the Italian government afloat. Only every now and then were these policies not enough and Italian banks had to be bailed out like Banca Monte dei Paschi or Banca Popolare di Bari.

The Italian government certainly benefited from the implicit ECB support. It is one of the most indebted governments in the world. Thanks to the ECB’s help, 10-year government bonds currently trade around 1 percent and thus much lower than a decade ago when they peaked at more than 7 percent. Even so, Italy’s debt-to-GDP ratio kept going up and has hovered around 135 percent since 2015.

Politically, it has been a turbulent time for Italy as well. After the wasted Berlusconi years, the EU interfered directly with Italian politics during the GFC and even installed a new Prime Minister by exercising pressure. Ever since, the Italian political system has been characterised by the rise of populism, both from the left and the right. Only very recently, after the exit of the Lega party from government, did the country see a return to a more moderate and conventional form of government.

So, Italy has long been a troubled place on many fronts. Even that is an understatement. We haven’t even mentioned Italy’s demography. Or migration. Or corruption.

But all that was before the coronavirus hit. And the situation now is worse. Much worse.

Despite Italy’s many, many problems, the country could always rely on its inherent appeal. There is only one David – and he stands in the Galleria dell’Accademia in Florence. There is only one Venice in the world. There is no equivalent of Rome anywhere else.

No wonder that tourism had become one of Italy’s most important industries. It was practically the only industry still growing and accounted for about one seventh of Italian GDP. Just for comparison, agriculture accounts for not even half that in New Zealand.
Tourism collapses; Italy's public finances collapse; its debt ratio jumps; the zombie firms fall over along with the banks to whom they owe money.
To say it clearly, Italy is too big to fail – in ordinary times. But it is definitely too big to be bailed out – in extraordinary times.

If Italy fails – and there is a temptation to write ‘When’ instead of ‘If’ – it will be a catastrophe not just for Italy. It will be the end of the Euro as Europe’s currency. It will be the return of the euro crisis on steroids.

I have been covering the euro crisis for a decade now for various publications. But I have never seen a situation as dramatic as Italy’s today. The only reason why you may not have read about the new coronavirus-induced Italian euro crisis just yet is that there are so many other coronavirus-induced crises around.

As for my Italian friends, I am afraid I have to finish with a quote from your national poet, Dante Alighieri: Lasciate ogni speranza voi ch′entrate. (Abandon hope, all ye who enter). This will not end well.

Friday 6 March 2020

An Air Travel Lemons Problem

I wonder whether allowing airports and gate agents to deny entry and travel to those ticket-holders who are coughing and sneezing all over the place could prevent a pretty nasty lemons problem.

Specify that risk aversion about contagious disease correlates with riskiness: the risk averse are more likely to take actions that prevent their being infectious. They'll wash their hands more regularly. They'll be careful about coughs and the like. And they'll be a bit quicker than others to avoid places that look risky.

Prior to any pandemic, only Howard Hughes refuses to fly. It takes extreme risk aversion to not get on the plane. So the airplane's population mirrors the general population.

When the pandemic hits, the most risk averse and consequently least risky take a look out the window and decide not to fly. Being stuck on a plane for an hour next to someone who is coughing - the risks of that are just too high for them, even though the absolute risk of being in that situation aren't really all that high.

When they leave, the remaining passengers on the plane are a bit riskier than the general population.

That makes flying a bit riskier than it otherwise was.

That makes the next tranche of risk-averse people avoid travelling.

And the whole thing unravels quickly from there until the plane only contains people who are coughing, or the risk-preferring. And air travel collapses.

The unravelling is less likely to happen if people expect that the gate agent would deny entry to someone who is coughing, and that the airport would actively be kicking out sick people.

It only works if people are more worried about being seated next to a cougher than about being mistakenly kicked off a flight. But I'd be pretty happy to be denied boarding for several flights to avoid the risk of being seated next to a sneezing person for one flight; perhaps I'm just among the more risk averse.

Is there any law or regulation that would prevent airlines from actively denying entry? Can they change their conditions of carriage to allow this discretion? Is it possible to block the unravelling?

Update: Note that this also applies to public transport. But at least you can get off of a bus if someone is sneezing.

RNZ and the damage done

Last spring, Radio New Zealand engaged in a lot of scaremongering about vaping. 

Whether it was deliberate, or whether it was due to hurried journalists relying on bad reporting by the CDC, who knows. Probably the latter, but that they refused to consider contrary evidence may suggest the former.

But RNZ's reporting would have left Kiwis with the distinct impression that regular nicotine vaping in the United States was causing fatalities. Those fatalities were really due to use of contaminated illicit THC cartridges. And it was obvious really early on that this wasn't a vaping thing. Vaping had been around for a decade prior to this fast outbreak in the United States. Why did it show up all of a sudden? Why in the US and not the UK? It very quickly looked far more like poisoning from a contaminant rather than some long-term consequence of vaping finally showing up.

Public Health England's now released a report on the damage done by media scaremongering about the US outbreak. The Otago Daily Times covers it well. I haven't seen anything on it from Radio New Zealand. Alas.

Some relevant findings:
The spate of lung injuries and deaths in the US is not attributable to the regulated nicotine vaping products currently sold in England. But all suspected adverse reactions or suspected deaths need to be assessed.

The conclusions of our previous reports are still important messages for preventing harm. These can be broadly summarised as:
  1. Vaping regulated nicotine products has a small fraction of the risks of smoking, but this does not mean it is safe.
  2. Smokers should be encouraged to try regulated nicotine vaping products along with smoking cessation medications and behavioural support. This will greatly increase their chances of successfully stopping smoking.
  3. People who have never smoked should be encouraged not to smoke and not to vape.
  4. Vapers should be encouraged to use regulated nicotine products only and stop smoking completely.
The data presented here suggest that vaping has not undermined the declines in adult smoking.

Increasingly incorrect perceptions among the public about the harms of vaping could prevent some smokers using vaping products to quit smoking.

A ban on flavoured liquids could have adverse effects and unintended consequences for smokers using vaping products to quit. It should only be considered with caution. 
The study also suggests youth vaping is rare; fewer than 1% of young people who have never smoked are current vapers. And there has been substantial decline in youth smoking. But:
Current smoking prevalence (weekly or less than weekly) among 11- to 15-year-olds halved between 2009 (11%) and 2018 (5%) but has remained relatively steady since 2014.

Young people’s perceptions of the relative harms of vaping compared with smoking are increasingly out of line with the evidence. The proportion of 11- to 18-year-olds who thought that vaping was less harmful than cigarettes declined from 68% in 2014 to 52% in 2019.
Increasingly incorrect perceptions among the public about the harms of vaping. Whatever could be causing that?

I wish there were similar data here.


Thursday 5 March 2020

Rights to Housing

The United Nations' special rapporteur told us that there exists a right to housing, and that New Zealand is violating it. 

She went on to recommend the kinds of things that are utterly useless in increasing housing supply: more rules on landlords, capital gains taxes and the like.

The whole concept is ludicrous. A right to housing, taken as a positive right, implies an obligation on someone to provide it. And why would you even start there when government so regularly violates basic property rights through processes that make it effectively impossible to build? How can we go around damning landlords, while being utterly inured to the regularised processes that block new housing from being built?

In last week's Fairfax papers, I decided to see what happens if we take this kind of rights-talk more seriously than it deserves. If a landlord evicting a tenant is violating human right, according to the United Nations, what should we think about council bureaucrats who forbid building?
[UN Special Rapporteur] Farha urges us to take the housing crisis seriously as a human rights issue.

What should we think about Hutt City Council taking extreme efforts to prevent Jono Voss from building a tiny home on a trailer, and the Environment Court backing this rights violation?

Laura Wiltshire reported on the case just this past week. Should we not consider both Hutt City Council's acting general manager of city transformation Helen Oram, and Environment Court judge Brian Dwyer, as human rights violators?

I rather think we should. If Voss has a right to a home, council and the Environment Court are the ones preventing him from having one, no matter how you might wish to couch it.

Their joint insistence on rules that would make it too expensive for him to build his tiny home are denying him a fundamental human right. And we should remember that their following the rules of the system is little defence when it comes to fundamental rights violations.

The Nuremberg Defence did not work for those who tried to invoke it in the 1940s.

What should we think about cases where prominent and politically powerful people lodge objections against new construction near them, and especially new construction for poorer people, and the councils that heed those complaints?

A columnist last week reminded us of the former prime minister Helen Clark's 2000 submission in opposition to a dwelling house in her neighbourhood.

The homeowners in her neighbourhood, according to her submission, "have no desire to see their neighbourhood downgraded by the unwelcome and unwarranted intrusion of a very large number of unsupervised, yet needy, transient tenants".

But those needy and transient people have human rights too.

Isn't blocking the place where they might have lived a violation of their human rights?

Should this kind of human rights violation lead to charges in New Zealand courts, or a United Nations Human Rights Tribunal?

Don't those who want to build housing for transients and the poor have rights too?

By contrast, when an upzoning was proposed for my neighbourhood of Khandallah, I submitted strongly in favour of allowing greater density. I did not want to suffer the fate that should rightly befall human rights violators. 
My YIMBY submission for Khandallah is here.

I expanded on things for the Dom this week:
It's now a commonplace for people to view see a positive right to housing, and a commensurate obligation on government to provide it. Even our chief human rights commissioner Paul Hunt said, in response to the report, that the housing crisis is a human rights crisis, and that present conditions violate our right to housing.

But Farha's recommendations start with a positive right. And that is not where we should begin.

New Zealand's housing system is entirely out of order and has been for some time. Every incentive in the system seems designed to stymie councils accommodating growth. The costs of growth are borne by councils while increases in tax revenue go to central government. When councils and ratepayers see growth as a cost, they set rules and make decisions to minimise those costs.

If accommodating more housing requires taking on infrastructure costs that the council cannot bear, councils will find ways of preventing urban expansion and densification.

If liability rules mean councils are left with the total cost if a build goes wrong, they will be extremely risk averse in just what it allows to be built – with the resulting costs falling sharply on people who can no longer afford housing.

This all accumulates to give us a horrible, horrible mess. Every mundane decision to not approve an extra floor on an apartment building here, or to prevent a row of townhouses from replacing a couple of houses there, or to block someone from building a tiny house on a trailer frame in his friend's back yard – they all add up.

It creates a situation that nobody wants and that cannot have been anyone's intention, but is the inexorable outcome when everyone works within the system as they face it in response to the incentives that they are given. Dozens and dozens of decisions made every day within that system really do amount to a substantial rights violation. They prevent people from exercising their right to housing by making construction far too difficult.
I don't really think there's a right to housing. But Councils and central government really are jointly responsible for egregious rights violations. Central government sets a system that makes it much to hard for councils to accommodate growth. Councils respond by having bureaucrats set and enforce rules that work to make housing far too expensive. The consequences are severe, even though every one of the council bureaucrats is only following orders.

And if the United Nations really wants to get serious about rights to housing, well, things could get interesting.

Wednesday 4 March 2020

The flu normal?

Over at Newsroom (drafted before the first case here was confirmed), I worry about what happens if Covid-19 isn't a one-off but a new normal with a regular season, like the flu season, that comes each year.

Policy designed around a one-off might be different than policy designed around something that will recur annually and that will require annual preventative measures.

In both cases, measures to reduce the peak load will save a lot of lives: New Zealand's health system is too easily swamped if the peak is high.

But if travel restrictions, and likely school closures, and likely regional quarantines, and likely work stoppages - if all of that has to happen every year, rather than just as a one-off, you're pretty quickly reducing the benefit side of the calculus.
Imagine that Covid-19 is a one-off. Those who’d catch it would be immune forever, the vaccine under development will be deployed broadly by the middle of next year, and if we just hunker down for a while we could all take a really big economic hit – but eventually it would be over.

In that situation, strict quarantines, school closures and even internal travel restrictions might make sense. The costs would be borne once, but the benefits of protecting people from the virus would extend over a long period. Temporary quarantine clinics for those with milder cases could be established. Elective surgery could be delayed until the crisis had passed as the hospitals in affected areas would be overwhelmed and staff may need to rotate in from other regions to help share the load.

If about 5 percent of cases wind up in the Intensive Care Unit, Wellington Hospital’s 29 ICU beds would serve only Covid-19 cases if 600 people in the region caught it. And remember, Italy went from 16 confirmed cases in Lombardy on February 21, to 60 cases the next day, to 400 cases on the 26th.

The costs in the short term would be severe. In addition to the obvious difficulties facing the health system and the human tragedy of deaths and severe illness, tourism would collapse, regions dependent on tourism would falter, businesses would struggle with loss of staff when schools are closed along with loss of access to critical materials and affected universities would likely demand hefty bailouts.

But the threat would pass. The country could wear the short-term costs because the benefits would be substantial. If 2 percent of those catching the disease die and if every adult is susceptible, preventing it from spreading everywhere has enormous value.

For every million people protected against catching Covid-19, 20,000 lives would be saved. And if you will forgive an economist for being gauche enough to put a dollar value on that, that’s about $87 billion, using standard New Zealand figures. A proper accounting would reduce the figure somewhat because of the age profile of those most affected by Covid-19, but even very costly measures can be justified on that kind of accounting.

This would change if Covid-19 instead is the flu normal. This week, James Hamblin warned in The Atlantic that epidemiologists are starting to see it as a fifth “endemic” coronavirus. Just as we have cold and flu seasons now, we could have a Covid-19 season.

Future waves would likely be less fatal, as those most susceptible would tragically have died in earlier waves. But it would mean that measures taken this year would need to be repeated again, and again, and again.
Measures that would make a lot of sense if they are seen as saving 20,000 lives full-stop would perhaps make less sense if they save 20,000 lives for a year, and then need to be repeated. If Hamblin is right about the flu normal, the response might need to be different.
I am really rather amazed that we have not yet had a real outbreak here. I had expected that at least one case would have made it in ahead of, or despite, the travel ban. If that case was a mild one, as most are, it would be chalked up as just a normal cold. It would spread and not be noticed until a more serious case showed up at hospital.

The ban has been in place almost a month. Symptoms normally come up within a week; 21 days at an outside edge (with rare cases beyond that). There could be cases of NZ citizens or residents coming home with it and that kind of scenario still playing out from it. But either nobody came in ahead of the ban that was infected, or they've not passed it on, or any cases that have passed on have been mild.

Tuesday 3 March 2020

Testing scarcity

There could be a good explanation for this; it would be nice if the government would explain precisely what that explanation is. 
People with coronavirus-type symptoms are reportedly being turned away from testing at Wellington Hospital because they don't fit strict criteria.

As the Government awaits the results of two more people "highly suspicious" of having the virus, a senior Wellington Hospital doctor has told Stuff, under the condition of anonymity, that tests for Covid-19 were being refused for patients, even if they were showing symptoms of the virus.

These are people who had been to countries including the United States, parts of Europe, Vietnam, and Australia.

"Each of these regions has instances of apparent community coronavirus spread," the doctor said. 
My current null is that the government has just hunkered down with a pandemic plan not suited to a virus that can transmit for a week or two before showing up with symptoms.

But it could be that the tests are actually really scarce and so they're rationing them very heavily.

It would be very nice if the government would consider fronting on a story that's on the front page of the Dom Post.

Update: this afternoon's press conference said there's been no rationing of tests, it's just that cases presented aren't meeting the criteria. Dr Balm noted that the tests aren't useful when there aren't symptoms. But the headline story on the front page of the Dom said tests were being refused even if the person was showing symptoms. Maybe they need a bigger combination of symptoms?