Friday 24 December 2021

A year in columns

I'm back in Christchurch for the summer. When I lectured at Canterbury, I often helped coordinate and host Erskine visiting fellows. With international borders closed, Canterbury's had to scrape the bottom of some barrels. So, I'm back as an Erskine. 

I'll be talking with the students in the Masters "Advanced Applications in Finance and Economics" on writing in economics. 

I figured I should look back over the columns I'd written this year. There are more of them than I'd thought. I've bolded some of the better ones. I'm sure I forgot to blog some of these; apologies.

Thursday 23 December 2021

How can Immigration NZ keep being this bad?

RNZ reports:

Immigration New Zealand has received more than 10,000 applications for the one-off 2021 Resident Visa since it opened on 1 December.

It was set up to streamline the residency process for critical workers already onshore but has left some ICU nurses, already in priority queues, in limbo.

An ICU nurse - RNZ is calling Anna - moved to New Zealand with her partner two years ago with a plan to settle permanently.

She applied for a working residency visa last month and got put on a priority list as an essential worker, but this process has now stalled.

Anna said INZ had emailed to say her application was on hold so immigration officials can work through applications for the 2021 Resident Visa.

She has been told to apply for this newly-introduced visa, but while waiting on her residency application she missed the cut-off for its first phase.

"We don't qualify for that just yet. We will do next year but it's just another application with another set of paperwork and another fee we have to pay them.

"And it's just another wait when we were already on the pathway to residency which I find a bit frustrating," she said.


Anna said, although she would like to stay in New Zealand, her experience with the residency process doesn't make her feel like part of the team of 5 million.

"It's just incredibly frustrating to feel that you're just undervalued. You're needed somewhere else, you know. I could go somewhere else.

"I will try not to because we really love New Zealand but loving New Zealand if New Zealand doesn't love you back doesn't work."

RNZ understands there are 10-15 ICU nurses in Wellington alone in similar situations, and the problem is not isolated to the capital.

College of Critical Care Nurses chair Tania Mitchell said New Zealand was competing with other countries and must cut through bureaucracy and financially incentivise ICU nurses to stay.

The borders have been effectively closed since March 2020. The government failed to find adequate ways for critical medical staff to get through the system and enter. I hate that entry winds up being by government largesse. But priority entry for health workers ultimately helps the system accept more visitors: health system capacity is one of the many binding constraints floating around. 

But these cases don't even require finding an MIQ space. They only need someone at Immigration NZ to pull out the file, blow the dust off it, and stamp it. 

And they aren't managing it.

Tuesday 21 December 2021

Medsafe Delenda Est?

Medsafe finally signed off on the Pfizer vaccine for 5-11 year olds.

Approval really was a forgone conclusion. It had been approved by the US, Canada, Israel, and others weeks or months ago. The odds that Medsafe was going to find something that bigger and better-resourced agencies hadn't found were close to nil. The only thing Medsafe provided was further delay in getting kids vaccinated, and Omicron is banging at the door. 

Over in the Dom (and the other Stuff papers), I wondered whether we need Medsafe at all. We could replace their approval process with a simple rule: if at least two trusted regulators abroad have approved something, we approve it automatically. 

I don't know what Medsafe adds after it's been approved in two places. 

Alternatively, rather than replace Medsafe entirely, you could augment it. Keep Medsafe on the off chance that somebody wants to work an approval through our system before others. But set a rule that, if a drug has been approved by two trusted regulators, Medsafe must follow suit immediately or provide exceptional justification as to why delay is warranted in this particular case.

I wrote:
Now imagine that Medsafe had never existed. New Zealand could rely on approvals provided by trusted regulators elsewhere.

If at least two of Australia, Canada, the United States, the UK, Singapore, the European Union, Israel, Switzerland or Japan approved a drug, it would automatically be approved here too. There are a lot of approval agencies out there. New Zealand would never be slower than the second-slowest trusted agency.

Why replicate the efforts of better resourced agencies elsewhere who are already on the task?

There could be a good reason.

If international regulators err on the side of being too slow, a New Zealand agency could be faster and nimbler than others. Where other agencies harm their public by taking too long to approve drugs, ours could avoid such errors.

That does not seem to be the role Medsafe plays.

Instead, Medsafe adds further delay on top of delays seen abroad.

Delayed approvals put us at the back of procurement queues for effective Covid treatments that will be in high demand. Those treatments keep patients out of scarce intensive care beds. Delays will matter.

Former head of the Salaried Medical Professionals Ian Powell gives the standard establishment line in response with a piece in BusinessDesk.  

My column began by noting that agencies optimally balance two risks. If they just approved everything, some bad drugs would get through despite pharmaceutical companies' reputational incentives to avoid that. I wrote:

Pharmaceutical companies have strong reputational reasons to avoid releasing unsafe drugs – not to mention liability concerns in some jurisdictions.

But an approval agency that simply rubber-stamped every application it received would risk approving a lot of unsafe drugs. And some people would be hurt or die as consequence.

That was the one polar extreme. The other is the agency that takes half a century to approve anything. No bad drugs get through, but a lot of people are harmed through treatment denied. 

I wrote:

But you could also imagine an agency that took half a century to approve any application. No drug would be approved unless the agency could determine, with certainty, that no adverse effects were encountered for decades after taking a drug.

So of course Powell chooses to pretend that my first polar case is actually me arguing for complete deregulation. Here's Powell:

I don’t know whether Crampton is familiar with Victorian satire but, if he is, he may have had the Charles Dickens novel ‘Bleak House’ in mind. In particular, the fictional Jarndyce and Jarndyce probate case progressing in the English Court of Chancery. The case has become a byword for seemingly interminable legal proceedings. The closest Crampton gets to satire is his metaphoric use of “half a century” to describe Medsafe’s approval process.

In the context of extending Pfizer coverage to children over five years, Crampton argued the pharmaceutical companies had sufficient motivation to give confidence over safety. He is right to the extent that it is not in the interest of pharmaceutical companies to intentionally or otherwise produce ineffective or dangerous vaccines. At the very least the reputational damage would be bad for business. Similarly, it is counter-intuitive for them not to employ competent scientists.

But these companies are driven by profit-maximisation. Not just profitability. They are a risky fit for the provision of a universal public good such as vaccines. Until the current coronavirus pandemic this meant their vaccine research and development was a lower investment priority. However, the pandemic generated a new lucrative market opportunity. Unfortunately profit-maximisation creates opportunities for standards and carefulness to slide.

I guess I must be worse at writing clearly than I'd thought because Powell completely failed to understand what I was getting at, or pretends not to. 

I was saying that agencies' processes can lie on a continuum from "approve everything" to "take half a century to approve anything". In the former case you get harms from drugs being released that shouldn't have been approved but no harms from delays; in the latter case you get zero harms from bad drugs being released but lots of harms from delayed access. The trick is finding processes that minimise the sum of those harms. 

Powell goes on to provide some examples of one agency or another getting things wrong. Fortunately, I did not suggest "Approve anything the FDA approves." I suggested automatically approving if two other agencies had approved. 

But he gives a great example of how medical types think about this stuff. Harms from delay seem not to factor into his thinking.

Crampton could not be more wrong. Medsafe should take as long as is needed before approving a vaccine application because the risk of harm to the innocent is too great. Efficacy is important. However, relying on what the results of clinical trials reveal or what other regulatory authorities in a small number of ‘approved’ countries decide is insufficient when there is an opportunity to drill down further.

I view a death or harm caused by releasing a drug that shouldn't have been released (in some perfect-omniscience world) as being just as bad as a death or harm caused by delaying a drug or treatment. But for people like Powell, only one kind of harm exists. Unfortunately, they're the exact kind of people who set the system and processes here, resulting in futile harmful delay. They're the reason we need a rule requiring approval of drugs approved elsewhere, and they're also the reason we won't get that kind of rule. 

"As long as it takes" is the wrong standard. "Investigate until another day's worth of process results in as many expected reduced harms from the drug as expected increased harms from delayed access" is the better standard. 

What would have been a first-best with kid-vax, where popular acceptance is a factor and where people here put some value on Medsafe that I don't? Simple. Allow the vanguard of the willing to be vaccinated early, while holding the broad rollout until Medsafe had done it's useless-but-for-building-public-confidence thing. There was a non-crazy case for saving the big rollout until a couple weeks of US and Canadian data showed that kids weren't having a pile of adverse reactions. That would have had rollout of first doses at school before the end of the school year. But we're having to wait for freaking January now. 

And I note, not for the first time, that neither Covid Classic, nor Delta, nor Omicron, had to pass any MedSafe approval process to be allowed to infect children. They could just go ahead and do it, without any clinical trial or assessment of potential long-term harm. 

Monday 13 December 2021

Offers that should be refused

This week's column over at Stuff looks at the media companies' request of ComCom for Aussie-style regulation

A snippet:

The real problem is not tech platforms’ bargaining power.

The problem rather is media companies wishing for government to use force of law to restore market conditions that slipped away with technological change.


Taxing a sector you do not like to fund a sector you do like is not a good basis for tax policy. One might as well impose a tax on hipsters’ beard oil to fund tÄ«eke (saddleback) recovery programmes.

If you think that tech companies do not pay enough in local tax, you should want Inland Revenue to make sure the tax code is rigorous.

If you think good journalism deserves better funding, you should contribute to it yourself and encourage others to do likewise.

There may be a public interest case in tax-funding public interest journalism. But no principle of public finance in existence says that funding should be compelled from Google or Facebook through compulsory arbitration rather than being provided from the public purse more generally.

Breaking basic principles of public finance, and the basic principles on which the web was founded, to compel tech companies to fund journalism – that belongs only in bad modern-day gangster movies. Not in New Zealand public policy.

Thursday 9 December 2021

Chronic confusion and disappointment

Looks like Canada is facing similar pressures around central banking and mission creep. Here's Steven Ambler, Jeremy Kronick and William Robson in Canada's Financial Times:

A more overtly inflationary recommendation is to add something else – usually a labour-market indicator, such as the unemployment rate, to the Bank’s framework. Proponents often argue that inflation control hurts jobs and, more specifically, that central banks have been too quick to tighten before the economy reaches full employment. But unemployment in Canada has been lower and less volatile since the two-per cent target came into force. And the blow-out jobs report last week just underlines the problem of determining what full employment actually is, especially after a major disruption like the pandemic.

As for other goals, such as reducing inequality and or slowing global warming, we need to keep people’s expectations about monetary policy in line with what it can actually do. Monetary policy is about short-term interest rates, the growth of money and credit, the pace of spending, and the results of all this for inflation. While the Bank must assess how inequality and global warming impact its ability to hit the inflation target, asking it to target the price of assets held mainly by the wealthy or favour credit for some industries at the expense of others will lead to chronic confusion and disappointment.

The two-per cent inflation target has been a signal success in Canadian economic policy for a quarter century. We know it is achievable, and with inflation currently running close to five per cent, we are getting a timely reminder that alternatives can easily be worse. It is time to reassure Canadians that their government and central bank are committed to low and stable inflation in the future.

Emphasis added.

Nick Rowe quips:


Wednesday 8 December 2021

Stupid government tricks

Last night's chat with Bryan Crump on RNZ Nights covered the ComCom supermarket inquiry.

Remember the old Johnny Carson Stupid Pet Tricks bit?

This stuff should be classed as stupid government tricks.

Here's the trick.

First, set a pile of rules that make it neigh-on impossible for new competitors to really set up. If you want to open up a new supermarket chain in New Zealand, just think through how impossible it would be. Not many sites have the right zoning. Of those that are zoned, many will be tied up in covenants preventing them from being supermarkets.

If you find a network of sites that might work, you face impossible-to-gauge months to years of consenting processes before you find out whether you'd be allowed to put a supermarket on the spot. So you can't plan out a distribution network. And remember that consenting processes treat competition as a harm to be mitigated rather than a benefit to be sought. 

And who knows whether the Overseas Investment Office would decide that, because your proposed site is adjacent to a reserve, everything gets additional holdups. 

Small countries with difficult logistics can't set up these kinds of regulatory barriers to entry if they want people to consider opening here.

The whole thing is set up to make it effectively impossible to enter. Maybe that wasn't the intention of anyone along the way, but it's the effect.

So government sets a pile of rules that act in restraint of competition. 

Then it observes that grocery prices are higher than government would like.

So it sics the Commerce Commission onto the supermarkets to run a two-week beat-up of supermarket chief executives about the apparent lack of competition. They didn't haul a single Council Planner over the coals for making it impossible to build a new supermarket. Funny that. 

Government gets to play the hero coming to the rescue, and nobody much notices that there'd have been no monster there to fight in the first place if government hadn't put it there. None of the proposed remedies will help either, except ones that free up entry. That's the underlying problem. Some government-backed KiwiGrocer would fail for exactly the same reason KiwiBuild failed - it didn't address the underlying problem. 

So that's the stupid government trick. Cause a problem in a way that nobody will blame you for, then come charging out with a bunch of nonsense populist purported solutions that draw plaudits from those who neither understand the underlying problem nor care that the proposed solutions won't work. All they care about is the perceived monster-fighting. 

Bit depressing. 

But makes for a fun chat with Crump. You can listen here.  

Tuesday 7 December 2021

Solutions in search of problems

Proper policy starts with problem definition. Define the problem that needs to be solved, establish that it really is a problem, assess alternatives including the option of just leaving things be, and go from there.

If you start instead with a solution, you then have to go looking for problems. 

And so we come to New Zealand Post's new fleet of electric vehicles. 

Stuff reports that NZ Post is shifting to electric vans. And that could be a great move - they're currently not paying road user charges, and could work out to be a bargain for the state-owned delivery company. I certainly wouldn't second-guess that commercial decision. 

NZ Post isn't a small shop. They've recently invested $170m in processing infrastructure. 

But to get the vans, they're going through another state-owned outfit. NZ Green Investment Finance. Here's how they describe themselves.

New Zealand Green Investment Finance is a green investment bank established by the New Zealand Government to accelerate investment that can help to reduce greenhouse gas emissions in New Zealand.

NZ Post is working with NZ Green Investment Finance to fund the fleet vehicle purchase though a complicated lease plan. 

The state-owned postal service and the state-owned green finance investor will each put up $10 million through Sustainable Fleet Finance to provide attractive and competitive finance for electric vans or low-emission vehicles. Sustainable Fleet Finance is majority owned by NZ Green Investment Finance.

The investment will initially be used to finance an order for 60 Mercedes eVito panel vans for the NZ Post fleet which will arrive in the second half of 2022. Under a four-year tiered lease plan, the vehicles will first be leased by NZ Post and then offered by Sustainable Fleet Finance to NZ Post’s delivery contractors at more affordable rates as second and third owners.

Ok. So one SOE with the implicit backing of the Crown against losses, and with a balance sheet big enough to handle fleet renewal, is running financing for fleet renewal through a finance company part-owned by another government outfit, all aimed at preventing 7.8 tonnes of emissions per diesel van per year.

Every tonne of which is already covered by the ETS, which has a binding cap.

And the annual value of the emission reduction, per vehicle, is about $500. 

So if NZ Post, backed by NZ Green Investment Finance, fails to purchase 8 carbon credits per vehicle per year, somebody else will buy the credits instead. 

I've occasionally heard arguments around credit market barriers that might be some kind of market failure. They seem ridiculous when there are plenty of non-government outfits that will finance your car for you, whether privately or for a company fleet. There's a whole industry association of the outfits that finance peoples' cars for them. And EVs being expensive isn't a market failure. They're just expensive. 

Using a government-backed investment fund to finance vehicle purchases by an SOE that doesn't have obvious barriers against just buying its own vans - that's the kind of mess you get when you set up a policy without really thinking through the problem you're trying to solve. 

This place is rapidly losing its "Outside of the Asylum" status. At least they haven't yet gone for anything as absolutely stupid as cash for clunkers. 

Monday 6 December 2021

Afternoon roundup

High time the computer gets a reboot. And so, the closing of (some of) the browser tabs:

A politicised central bank

Politik this morning reports that the Reserve Bank Governor has lost the support of the National and ACT Parties. Or, at least, they would not be keen on his being reappointed.

Now that Simon Bridges is National’s finance spokesperson, the future of Reserve Bank Governor Adrian Orr will be an issue.

Orr’s contract as Governor expires in March 2023, outside the three months prior to an election when Governments normally defer significant appointments.

But with the election expected in September that year, a move in March to reappoint him would be bound to be an election-year issue.

If the decision were to be left to ACT and National, Orr would go. Both ACT Leader David Seymour and Bridges confirmed that on a podcast last week, and Bridges has confirmed again to POLITIK that was his position.

But at the same time, Bridges has to be careful.

The Bank is supposed to be independent, and one of National’s criticisms of Orr is that he has allowed it to become a little less so under Labour and Finance Minister Grant Robertson.
And this is why Reserve Bank Governors ought to stick to monetary policy and why prudential regulation colonising other policy areas far outside of their proper domain without any evidential basis is risky.

Last week, we hosted John Cochrane to talk about central bank independence and the problems they can get themselves into. 

The video is here:


My column in our Insights newsletter summed it up:

Central bank independence matters.

The grand bargain struck between governments and their central banks, coming out of the turmoil of the 1970s, and led by New Zealand in the late 1980s, was simple.

Governments stopped meddling in monetary policy. Central banks were given operational independence to pursue low and stable inflation. It was a difficult bargain for governments who preferred to avoid interest rate hikes as elections loomed.

That independence required Banks stay within limited bounds.

Monetary policy and prudential bank regulation are powerful tools with economy-wide consequences. They need to be used only toward the core ends of central banking: low and stable inflation, and the stability of the financial system.

Straying to pursue other objectives, regardless of whether they match the goals of the government of the day, is dangerous.

On Thursday, the Initiative hosted a webinar with John Cochrane – one of the world’s leading experts working at the intersection of macroeconomics and monetary policy and financial regulation. That he has a stronger record of published work in this area than the entirety of the Reserve Bank of New Zealand is a safe bet. Whether he has three times the work in the area might depend on how you weigh pages in different journals.

John has been increasingly critical of worldwide moves by reserve banks to consider climate change as a risk to financial stability. While it is very clear that temperatures are rising and that sea levels will rise with them, with obvious consequences for storms and beachfront properties, evidence of risks to the financial system is wanting.

Not everything that is a globally consequential risk is also a risk to the financial system. Systemic financial risk requires a particular kind of fragility. And the financial system, here and abroad, simply appears to be robust to the kinds of shocks that climate change will bring.

Indeed, earlier this month, the Federal Reserve Bank of New York published work showing that storms increase, rather than reduce, bank profits. People take out loans for rebuilding. Storms are bad, but they are not a risk to the financial system.

Using prudential regulation to address political concerns takes the regulator’s eye off the ball. More substantial risks can be missed. But, more importantly, doing so politicises their operations, putting their independence at risk.

And that may yet be the biggest systematic risk of them all.

Shortly after the webinar, one of the RBNZ's board members decided to weigh in. Draw your own conclusions about the adequacy and rigor of governance at the Bank. 

Wednesday 1 December 2021

Cochrane on Reserve Banks

John Cochrane will be joining us at the Initiative for a webinar tomorrow. The topic: What central banks should and shouldn't do. 

We've been increasingly concerned by the Reserve Bank of New Zealand focusing on a rather wide range of policy areas far from their remits in monetary policy and prudential bank regulation. 

The case for incorporating climate change into prudential regulation looks particularly weak; the Bank simply hasn't any evidence of systematic risk to the banking system from either rising sea levels or carbon price risk that might justify its expeditions into climate regulation. There's plenty of evidence that sea levels will rise and that carbon prices will as well. But that doesn't in itself make a case for the Bank's getting involved. 

Central bank independence in the matters properly in its jurisdiction matters. But the deal has been that Banks get necessary independence, with a quid pro quo that they don't abuse that independence to stray into areas that are really Parliament's concern. 

John Cochrane has been looking at similar issues in Europe, and at the Federal Reserve. 

And I'll be very keen to hear what he has to say about it. 

The blurb for the event, along with Zoom links and Slido links for questions, is below. Note that times are New Zealand time. Not Pacific Time. 

Webinar tomorrow with John H. Cochrane: What central banks should and shouldn't do

Central bank independence in monetary policy was hard fought and desperately needed. The deal was simple. Central government would stay out of a Reserve Bank’s way as it dealt with monetary policy, and the Bank would not abuse its independence in pursuing other agendas.

That deal is fraying badly, if it has not fundamentally broken. If central bank independence in monetary policy is lost as consequence, rebuilding the institutions will be costly.

Join us for an insightful webinar with John H. Cochrane, Senior Fellow at Stanford University's Hoover Institution.

Event details:
Time: 11.00am – 12.00pm
Date: Thursday, 2 December
Registration: Please register for this event via Zoom.

We encourage you to ask questions you have through Slido.
The access code for our event is: #024262

About the speaker:
John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution. He is also a research associate of the National Bureau of Economic Research and an adjunct scholar of the CATO Institute.

Before joining Hoover, Cochrane was a Professor of Finance at the University of Chicago’s Booth School of Business, and earlier at its Economics Department. Cochrane earned a bachelor’s degree in physics at MIT and his PhD in economics at the University of California at Berkeley. He was a junior staff economist on the Council of Economic Advisers (1982–83).

Cochrane’s recent publications include the book Asset Pricing and articles on dynamics in stock and bond markets, the volatility of exchange rates, the term structure of interest rates, the returns to venture capital, liquidity premiums in stock prices, the relation between stock prices and business cycles, and option pricing when investors can’t perfectly hedge. His monetary economics publications include articles on the relationship between deficits and inflation, the effects of monetary policy, and the fiscal theory of the price level.

Cochrane frequently contributes editorial opinion essays to the Wall Street Journal,, and other publications. He maintains the Grumpy Economist blog.

If you wanted to hear John range more broadly, his conversation with Tyler is here. We'll be keeping to a narrower remit.