Friday 29 July 2022

Making work

The wage subsidy scheme in 2020 made a lot of sense. It kept workers attached to firms through lockdown, so everything could restart quickly in May. 

When we'd talked with officials about it around that time, we'd noted that while it seemed great as temporary response to lockdown, it shouldn't be extended to prop up tourism/hospitality over the longer term. The sector would have to adjust, and propping-up would otherwise create zombies.

RNZ reported this week on the Jobs for Nature programme still being used to prop up tourism firms in South Westland. 
South Westland businesses involved in a Jobs for Nature programme where the government pays their staff to work on conservation projects, are determined to find a way to keep it going after the funding runs out. As well as helping to keep the businesses afloat during the Covid disruptions, more than 70,000 hours have been spent trapping, weeding, maintaining tracks - and even finding an endangered bat species. The government has committed $3.78 million to the scheme and that'll end in June next year. At a recent hui at Fox Glacier many of the more than forty business who've signed up for the progamme agreed that it's done much more than simply keeping them afloat until tourism in the region rallies.  Kathryn speaks with Rob Stewart from Skydive Skydive Franz Josef and Fox Glacier, Dale Burrows from Franz Josef Wilderness Tours and Wayne Costello from DoC.

You can listen to the whole interview to hear Kathryn Ryan very impressed by the government's helping to keep these companies afloat. I'm sure Nine-to-Noon has run interviews with employers unable to find staff. I find it weird that nobody connects these things. 

If unemployment were really high, maybe the case would be different.

But the effect of the programme currently is to prop up firms that are no longer viable and that cannot attract capital or credit to tide them through until tourism numbers might increase again while putting scarce workers onto Jobs for Nature projects. 

Those projects may well deliver environmental benefits. But if any cost-benefit assessment was ever done on those, and I'm not sure any were, it would have been in the context of labour being in surplus, rather than desperately scarce. Nobody thought this was a good idea before the pandemic brought expectations of high unemployment, right?

Running job creation schemes, at current unemployment rates, and at current measures of the output gap, is a mistake. 

I was curious what the output gap from the latest Monetary Policy Statement looked like in historical context so I threw this together to get a longer time series. Each line is the output gap provided by a different MPS. In some cases, the MPS provides a forecast, so neat to see how the measure panned out relative to the forecast. In other cases, revisions to GDP or to the output gap forecasting measure makes for differences between the lines.

Current levels of the output gap aren't unprecedented. And gaps on the lower side are worth avoiding. But it certainly doesn't look like a time for running make-work schemes. 

"Our economic response"

This morning's Politik newsletter covers some of the increasing disquiet over whether the Reserve Bank has been doing its job.

This bit of a Parliamentary exchange could be a worry, depending on how inclusively one should read the "our". 
Parker rejected the assumption in the question, but he did so with what appeared to be a concession that the Bank may have been preoccupied with employment. 

“This was a time of considerable uncertainty, with unemployment forecast to reach significant levels,” he said. 

“I consider our economic response has been instrumental in the record low levels of unemployment we now have. 

“If we did not provide that support, the economic consequences for New Zealanders were dire.”
If 'our' is read as meaning the Labour government and the fiscal response, then all's fine. The Bank used monetary policy in response to end-times economic forecasts. The Government used fiscal policy to get things to record low levels of unemployment.

Now it's still bad in an important sense - the last Monetary Policy Statement had a 2.5% output gap, meaning an overheated economy. Government should not be providing continued fiscal stimulus into a positive output gap. 

But it's not bad-bad.

If 'our economic response' means the combination of the monetary and fiscal response, he's then lauding the Reserve Bank for delivering a positive output gap. And that would be bad-bad. 

Lauding the Bank for avoiding 10% unemployment would be defensible. People can argue about whether those forecasts were way out in the first place, but it isn't prima facie crazy. Lauding it for overshooting so far that we've wound up with very high inflation and a substantial positive output gap - that's dangerous for the credibility of the Remit. 

So I really hope 'our' is a narrow 'our' here.

Thursday 28 July 2022

A distracted Reserve Bank

Been a busy week here, and presumably also over at RBNZ.

Former RBNZ Governor Graeme Wheeler coauthored a report with our Bryce Wilkinson on global monetary responses to the pandemic, arguing that most of them took their eye off the ball. It took too long for them to flip from a GFC playbook to recognising that they were dealing with a real shock. They noted distractions from other political objectives, like climate change.

Their piece drew a fair bit of attention, including internationally. The piece wasn't about the RBNZ in particular, but they were subject to the same kinds of errors as others. 

Governor Orr put out a release claiming the Bank hasn't been distracted and that climate change, Te Ao Māori, and financial inclusion, "remain highly relevant to the Reserve Bank in achieving our legislative purpose of increasing economic prosperity and well-being for all New Zealanders."

Susan Edmunds over at Stuff asked me for comment.

But NZ Initiative chief economist Eric Crampton said the critics were driven by deeper concerns.

He said, if the Reserve Bank was not focused on its core jobs of monetary policy and prudential regulation, there was no one else who could pick it up.

He said the Reserve Bank had shed expertise in core economics in recent years.

“Friends in economics departments emailed me the Reserve Bank’s latest advertisement for summer interns, where the Reserve Bank seemed to want every diverse skill other than macroeconomics. The bank seemed to have stopped caring about core economic research, and had started pursuing other highly politicised agendas instead,” he said.

“Under governor Orr, the bank strayed considerably from its core mandate. While inflation was hitting the highest levels since inflation targeting began, the governor of the Reserve Bank was making international speeches on how the inclusion of a te ao Māori view encourages the bank to think holistically.

“It seemed, at best, tokenistic. At worst, it signalled to the international central banking community that the bank was no longer serious about its main job: that it had become too distracted from core business.”

Crampton said a bank that was seriously focused on targeting inflation should think about the implications of high inflation, or high unemployment, for Māori.

“Maintaining stable inflation rates is the best long-term way of ensuring maximum sustainable employment. But if their modelling showed that moves necessary for maintaining price stability would hurt lower income groups, or Māori in particular, knowing that would be important. It could then inform Parliament, so that Parliament could use its fiscal authority to ensure that maintaining price stability did not have unwanted distributional consequences.

“But that has not been the bank’s approach under this governor.”

Orr and the Bank have liked to paint critics as racists. It seemed to work - back when the Bank had clearly forgotten its One Big Job That No One Else Can Do, but inflation hadn't yet broken out. 

I don't think that play's going to keep working, now that failure's more obvious.

Orr's term comes due early next year. 

If they reappoint Orr, and National wins the election, things could get uncomfortable. 

I'd hope that there would just be a resignation. 

Reserve Bank appointments should be apolitical. Monetary policy should be apolitical. But Orr politicised the Bank. 

I'd hope that there can be cross-party agreement on a suitable appointment so someone is ready to take up the position when Orr's term comes due.

Arthur Grimes is also worth listening to.

Monday 25 July 2022

Tobacco end games

The latest round of proposed tobacco rules amount to prohibition. 

If not in two years, when low-nic rules come in that might be low enough to be de-facto prohibition, depending on where the Government sets the levels, then a few years later when the effects of a 1 January 2009 cut-off birth date for cigarette purchases works its way through. 

By the late 2030s, you'll have the absurdity of store clerks checking whether a purchaser is 28 or 29 - one will be allowed, and the other prohibited. 

And at that point there seem reasonable odds that the absurdity either has the whole regime thrown out (the better case), or full prohibition extended to all ages. 

If the low-nic rules do not amount to full prohibition, then the sinking lid on tobacco outlets will wind up mattering. The government proposes licensing tobacco retailers with a view to reducing the number of licensed outlets. 

If only very low nicotine cigarettes are allowed, then the sinking lid won't matter. Few people would want to buy very low nicotine cigarettes. But if the cap on nicotine content only prohibits the highest-strength cigarettes, then the right to sell cigarettes will be a valuable commodity. 

Basically the structure would provide local monopoly rents to local retailers, constrained by whatever mail order options remain allowed. If licenses transfer on sale of outlet, they'll capitalise into the price of licensed venues - like alcohol licenses in parts of Australia. If they expire on the sale or transfer of an outlet, they'll discourage some otherwise-efficient changes in ownership - similar to a stamp duty. 

None of it seems a particularly good idea as compared to giving more support for flips to vaping, legalising alternatives like snus, and sharpening the distinction between vaping and smoking in the regulations. Vaping is generally prohibited in places where smoking is prohibited; it should be allowed in more places where smoking is not. 

The current set of proposals risks strengthening the already growing illicit market, at a bad time. If people flip now from high-tax real cigarettes to illicit cheap real cigarettes, to avoid very low nicotine cigarettes, it will be less likely that they flip from there over to vaping. Illicit cigarettes don't carry over a thousand dollars in excise per kilo. 

I still like one additional option for reform. 

It's currently illegal to smoke in places like bars and restaurants - and to vape there. I think, in both cases, it should be up to the owner's discretion. But government isn't keen on that.

It's currently legal, but expensive, to provide ventilation and air filtration in bars and restaurants to reduce Covid risk. Few venues compete on that margin: Wellington's Hashigo Zake is one. Government is reluctant to regulate for better air quality, presumably because they do not want to be seen to be loading regulatory costs onto hospitality outlets - many of which will be on the verge of teetering anyway. A wave of bankruptcies following regulation would not be a great look, if that were the result.

But if a venue is able to clean the air to a standard that keeps Covid risks to trivial levels, the marginal cost of also cleaning smoke and vape plumes out of the air will not be high. If regulation allowed a venue the option of catering to smokers and vapers, if they met an air quality standard that also kept out Covid, that could be interesting right? Instead of loading a new cost onto businesses, it would be offering them an option they currently don't have. 

What argument could people have against that latter option? If the air is clean, the air is clean. The only risk is the risk of 'renormalisation', which seems a bit silly relative to the benefits of Covid-free indoor air. 

Friday 22 July 2022

Swiss tunnels

Construction on the Swiss underground cargo tunnel is about to start.

The first 70-km section is expected to cost about $3 billion (presumably USD). And it's all being covered by the private sector. 

Would the all-up consenting costs on something like that in NZ be less than $3 billion, before they broke ground?

Freight honestly seems like a much better use of small-scale underground transportation systems than passenger services, which have been the focus of a lot of recent speculation. Freight tunnels can be smaller and can operate at slower speeds than would be demanded by passengers, and since the entire system is autonomous, comfort (and to some extent safety) can be less of a focus.

The cost (to be covered entirely by the private sector) has increased from the initial 2016 estimate of $3.5 billion—CST is now estimated to cost between $30 and $35 billion for the full 500-kilometer network, although about $3 billion should be sufficient for the first phase, a 70-km section with 10 hubs that connects Zurich with a logistics center in Härkingen-Niederbipp to the west. The Swiss seem mostly unfazed by the scale of the project, and still consider it to be a good long-term investment. CST has partnered with a bunch of large Swiss logistics companies and retailers who see this solution as a complement to existing road and rail infrastructure. The entire project will run on renewable energy, and CST expects the amount of heavy trucks on roads to be reduced by up to 40 percent as its underground vehicles take over transport.

Thursday 21 July 2022

Petrol excise holidays and inflation

The extended petrol excise holiday is bad for a lot of reasons. But we shouldn't pretend it fights inflation. 

It results in a CPI level that is a bit below where it would have been, for the period that it is in place. Year-on-year changes in CPI are our going target measure for inflation. 

So think about things a bit harder.

Suppose the holiday is made permanent and land transport funding is permanently shifted from a user-fee basis to a general-tax-revenue basis. When the one-year anniversary of the petrol excise holiday comes around, we will again be comparing CPI figures that are set on like-for-like basis. The effect of the holiday in muting the underlying trend will be gone. 

Or suppose instead that the holiday ends in December. Come the March quarter, we'll be comparing a no-subsidy petrol cost CPI quarter 2023 with a no-subsidy petrol cost CPI quarter 2022, so we get a one-off jump from the prior quarter's artificial depression of the inflation figures, then we'll get an artificial jump in measured inflation when we start comparing a no-subsidy petrol cost CPI June 2023 quarter with the with-subsidy 2022 June quarter.

In either case, the Reserve Bank has the same job in fighting underlying inflation. It should look through the road use charge changes in either case, except to the extent that it flows through into other prices - and even that will be transitory. 

My column in Newsroom this week, reminding that RBNZ in 2010 helped keep inflation expectations anchored by posting inflation projections with and without the effects of the 2010 GST increase. 

While the petrol excise holiday does affect headline Consumer Price Index results, it does not really affect the inflation that the Reserve Bank should care about in setting monetary policy. The Consumer Price Index will be somewhat lower than it would have been for a bit longer. But inflation remains largely unaffected.

Consequently, we should look through the effects of the policy when looking at headline inflation. And if we do, then you need to look back 34 years, to March quarter 1988, to find a higher inflation figure.

When considering the petrol excise changes, it's helpful to reflect on the GST increase in 2010. In 2010, John Key’s National government increased GST from 12.5 percent to 15 percent. Overnight, on 1 October, the price of everything went up. Something that had cost $112.50 on 30 September would cost $115.00 the next day.

But was the move inflationary?

The Consumer Price Index would certainly be higher than it otherwise would have been. For one year.

Annual inflation is the percentage change in the CPI compared to the same quarter in the previous year. So long as each quarter’s CPI was compared to a CPI figure before the GST increase, annual inflation would look higher than otherwise. But by December 2011, inflation would be measured against a baseline with a higher GST rate.

So unless something else changed, the GST increase would not affect ongoing inflation.

The Reserve Bank worried about whether that ‘something else’ might matter.

Monetary Policy Statements in 2010 talked about the potential for the CPI increases to pass through into wage increases, which could affect ongoing inflation figures. At the same time, energy began facing a carbon price in the Emissions Trading Scheme, which would also affect headline CPI. And a sequence of hefty tobacco excise increases began.

So the Reserve Bank checked with industry to see whether those CPI increases were feeding into wage settlements, and they checked against surveys of inflation expectations. They also looked at what happened in the last GST increase.

They saw little cause for concern, noting that “monetary policy would act to offset any pick-up in medium-term inflation expectations.”

But the Bank also provided important assistance in keeping inflation expectations anchored.

The December 2010 Monetary Policy Statement provided measures of both CPI and projected future CPI. One forecast included the effects of policy changes that affected CPI; a second stripped out those effects.

Cullen vs Cook

Former Government Statistician Len Cook's been worried about coming changes to the Stats Act.

I had not heard this story before. It's a shocker.

Former chief statistician Len Cook has made submissions to select committee and written media commentary condemning the new bill, and said people in power knew the influence stats had.

The idea the powers could be "transferred in full to other people, with no controls, with no limits" was "unusual in the world" and posed risks, Cook said.

In the late 1980s, when inflation was running at around the rate it is now, the government wanted to raise the tax on tobacco - and approached him about it, Cook said.

"Michael Cullen as Associate Minister of Finance requested the government statistician to remove tobacco out of the CPI and the government statistician said, 'I'm not going to do it'.

"I personally did tell him to get lost in somewhat trade union language."

He knew then he had the legal backup to guard his independence, Cook said - and believes the new Data and Statistics Bill risks that.

"The moment you transfer the authority and all the powers of the government statistician to someone who is more directly connected to a minister, and themselves has a role in keeping ministers content, is a very different thing."

These days, when government wants to juke the CPI numbers, it can just run a petrol excise holiday to artificially reduce fuel costs in the CPI... 

Knowing what works

Every bit of this piece by Steven Hamilton makes me ache for what we lost when Bill English's investment approach was thrown out with the change in government

But I do have one idea I think could raise our productivity, economic growth, and living standards – all within the confines of this incremental system. And that is, simply, to figure out which policies actually work.

This may come as a shock but, in many areas, we have no idea. 

Read the whole thing. Tons of good stuff that goes beyond data and analytics. A lot of it applies here too:

So, in the first instance, we need more academics to work on Australian policy questions. Which is tough because the incentives are currently geared towards the US, which at least in economics is the centre of the academic world. (An attendee at a US talk I once gave asked: “Who gives a f$%# about Australia?” )

If we want academics to work on Australian policy questions, we need to adjust the incentives. There are many ways to do so, but we could start with root-and-branch reform of the way the Australian Research Council functions. And specific government departments could directly incentivise creation of the evidence of interest to them.

Wednesday 20 July 2022

Taking climate seriously

You can take climate change seriously, or you can behave like the New Zealand government.

Item the first: the government is not keen on authorising some EVs that are popular overseas. 

Minister Wood gave some cautions about their safety ratings, which could be fair enough. 

But then there's this:

The two-seater Citroen Ami has a top speed of 45km/h, can be driven by unlicensed 14-year-olds, and retails for under NZ$10,000.

Paradoxically, [Transport Minister Michael] Wood says the potential popularity of micro-EVs could be in conflict with the government’s commitment to reducing the total number of kilometres travelled by privately owned automobiles.

“There are questions there about whether you help that by bringing in additional modes of car and do you potentially sometimes unhelpfully transfer potentially active modes into that mode.”


Climate change is the most important thing and warrants government taking dirigiste control over every decision made everywhere in the economy. 

But it's also so unimportant that it can be ignored if one option might encourage people to use a small EV if they might otherwise have used a bicycle. Because what really matters, more than climate change, is government transforming people's lives to fit this government's unique vision of the only permissible good life. 

Item the second: Remember the government throwing money at DB to put in some lower carbon solutions? And my warning that this was either subsidising them to do something they'd have done anyway, or paying for something that wasn't worth it? 

Here's Jeremy Rose:

Heineken – the owners of DB – has committed globally to reaching 100% renewable energy by 2030. And DB has pledged to do the same here.

As reported in an earlier article in the Beer Diaries, Heineken’s Gos Brewery in Austria achieved carbon neutrality as long ago as 2016.

So, at best the government’s $500,000 contribution – about 12% of the cost – towards the new industrial high-temperature hot water heat pump will have only brought forward the purchases by a few years.

If you're taking climate change seriously, you're not paying companies to do stuff they'd already have done on their own. The job is too big to be able to afford doing that. 

Rose's piece also has an extended bit from me on carbon offsetting in brewing. 

Evening roundup

I was out on leave last week, touring around Lake Taupo with the family, hoping desperately for snow that didn't come. 

We had fun anyway. 

But the browser tabs... a week's worth of emails, and stuff saved up... egads. 

Some worthies as I try to clear six different Chrome instances...

Subsidies beget subsidies

The video game industry wants subsidies so they can compete for CGI workers with the subsidised film industry, and to keep up with the subsidised Australian video game industry. 

If they get subsidised, what industries are going to need to be subsidised so they can compete with the subsidised video game industry in hiring programmers? The whole software sector, but also anyone else who needs programmers, right?

If Xero then gets a subsidy so it can compete for programmers with the subsidised video game sector, that will give it an advantage in hiring accountants too. And then the accountancy firms are going to need a subsidy so they can operate on a level playing field with Xero in hiring accountants. 

Subsidies for everyone! And we will all be rich. Just like we were in 1981.

I'm quoted a bit in the Newsroom piece linked up-front, along with some rent-seekers. 

Dr Eric Crampton, the chief economist at the New Zealand Initiative, rejected the idea the New Zealand Government should try and match overseas subsidies by using the example of film subsidies, which he called a “bad deal”.

“Film companies play countries off against each other, seeking the largest subsidies and tax breaks. While consultancy reports tout large benefits for the countries bidding the most, academic work struggles to find any real benefit at all,” he said.

He said subsidies like this have unintended side effects, like companies being able to outbid for workers whose skills may be needed in other industries.

“New Zealand learned in the 1980s that heavy subsidies are an unsustainable response to foreign subsidies,” he said. “Better to abolish our own subsidies, and encourage others to do likewise.”

Crampton argued making sure Immigration New Zealand is equipped to quickly process visas would be a more approach, making sure sectors like video games have access to overseas staff they may need.

Tuesday 19 July 2022

Grimes on the Reserve Bank

Former Reserve Bank Chairman Arthur Grimes is blunt about the Reserve Bank:

But Professor Arthur Grimes, a former Reserve Bank chairman, said there was “not much” Robertson could do as it was the Reserve Bank’s job to control inflation.

“They're completely to blame for allowing this to happen … They’ve been incompetent, they’ve been really incompetent,” he said of the bank.

Grimes, who invented the innovative practice of “inflation targetting” as chief economist at the Reserve Bank in the late ’80s, said there were global factors driving inflation, such as the cost of energy and food. But the problem was now also domestic.

He pointed to the increased inflation of domestic goods and services, which stood at 6.3% for the year to June. This was the highest such rate since it was first recorded in 2000.

“If we’re getting 7% domestic inflation now, and rents going up, and if wages start going up a lot, then it could become quite entrenched above 3%. And that’s when the Reserve Bank really has to cause more pain to bring it down,” Grimes said.

...“This is going to be a real problem. It really is a choice now between wage earners suffering by not getting 7% wage increases, or, if they do get 7% wage increases, it’s just gonna keep on pushing up future inflation. So it's just going to be a mess, whichever way it goes.”

Grimes said with better management, New Zealand could’ve had inflation akin to Switzerland, at 2.9%, or Japan, at 2.1%.

He said the Reserve Bank had “misread the conditions” of the Covid-19 pandemic and in the past three years, it had loosened monetary policy too much, causing a massive increase in asset prices, and cut the official cash rate “more than they should have".

There had been a system in place to control inflation at between 1% and 3%, he said, but the Government “completely mucked that up” by expanding the Reserve Bank’s mandate to not only target inflation, but maximum stable employment, in 2018.

It had seemed obvious, at least by May 2020, that we were dealing with an RBC shock with potential flow-on consequences for demand. That we weren't heading for double-digit inflation was obvious later that year. 

It took a long time for monetary policy to reverse. And now inflation is 7.3% if we ignore the government juking CPI with a petrol excise holiday. It's more like 7.8% if we look through that. 

Thursday 7 July 2022

Afternoon roundup

The morning's worthies:

Tuesday 5 July 2022

Inframarginal canaries

The canary in the coalmine gives a warning to the miners about gas levels that are too high for safety.

Kate Hawkesby writes over at Newstalk on trying to get a pool built for her backyard. Consenting and permits are at $7k before a shovel touches the ground. Plus whatever billable hours will be spent processing things. 

If we didn't already know that consenting on large projects is a disaster, this would be a canary in the coalmine kind of thing. If Council can't even figure out stuff like backyard swimming pools, what hope is there of getting reasonable process around larger and more complex projects?

The piece sparked the usual Twitter pearl-clutching about rich people daring to complain about costs on this kind of thing. 

It's just stupid. 

If even rich people can't sort out the stupid Auckland council bureaucracy to get a pool in the backyard, what hope does anyone else have? Are they trying to make it so that only the richest and best-connected are able to get a pool in the backyard? Shouldn't this be something that anyone should be able to aspire to if they've got a bit of room on their section? 

We had a pool when we lived in Christchurch. House in South New Brighton, bought in 2005 for around $435k, with pool. The kids loved it. 

This kind of thing shouldn't be made impossible. 

Should these guys have been forced to pay $7k+ in resource and building consenting costs before this bit of awesomeness?

Population policy?

Ganesh Nana writes in BusinessDesk on immigration and population policy

The Productivity Commission’s “Immigration – Fit for the future report” highlighted that the key driver of population changes, and the only component of the population growth the government can meaningfully influence, is immigration. Instead of a population policy or plan, the commission called on the government to regularly issue a coherent and transparent immigration GPS. We see this recommendation as entirely consistent with the Infrastructure Commission’s call for a national population plan to establish clearer and more transparent expectations of population growth. 

Further, an immigration GPS would be a strategic plan specifying objectives and priorities, linking immigration policy to the labour market, education and training policies, and promoting a longer-term outlook. 

It increases certainty for the businesses, communities and service and facility designers and providers by presenting a likely long-term population pathway. 

In reality, past immigration policy has been a de facto, in-disguise population policy for New Zealand. The proposed immigration GPS would remove that disguise. 

If a population policy is too contentious, an immigration GPS would – at the very least – improve transparency and certainty, enable public engagement on where we are heading, and explicitly and more effectively guide community and business investment decisions.

It's worth thinking through what this would cash out into.

Kiwis resident abroad can come and go as they please - barring pandemics.

Whenever NZ is looking pretty good relative to the rest of the world, they'll be more likely to come back or to fail to head abroad in the first place. Whenever NZ is doing poorly relative to the rest of the world, they'll be more likely to leave or to fail to return.

If you're trying to use immigration in some kind of countercyclical move around those flows, it means being real tight on immigration when the economy here is booming relative to overseas, and being a lot looser when the economy here is tanking relative to overseas. 

That doesn't seem to make any obvious sense if you think that the pool of potential migrants to NZ is broader and more interesting when NZ is faring well compared to other places, and the opposite otherwise. 

Monday 4 July 2022

Afternoon roundup

Let's get these browser tabs back under control

Friday 1 July 2022

Test to Exit

My column in this week's Insights newsletter notes the deficiencies in the Ministry of Health's recommendations around RAT results and ending self-isolation. 


Dr Eric Crampton insights Newsletter 1 July, 2022

Suppose your middle-schooler came home with a math assignment.

She was told to measure everyone in the house and report on heights. But checking over the assignment, something seemed odd. Your 190cm partner wasn’t included.

“Oh, our teacher explained that most people are between 150 cm and 180cm. If we got a measurement outside that range, there was no guarantee that they were really that tall, so we should just ignore it.”

You’d worry about the state of numeracy among teachers, right?

Sure, the average person will be within that range. Some random person isn’t likely to be 190 cm tall. If the assignment had asked, “Is it likely that the next person you meet is 190 cm tall?”, the answer should be no – unless you happen to live with a very tall person.

But conditional on having been measured at 190cm, it’s more likely that you’re a tall person than that it’s just measurement error. If the ruler said three metres, you’d probably want to triple-check the figures. But 190cm isn’t that uncommon.

Why do I bring this up?

Back in May, I asked the Ministry of Health why they’ve been telling people to ignore positive RAT results after seven days of isolation. The Ministry replied this week. They told me that because seven days is beyond the average period of infectiousness, the current health guidelines do not require a negative test to leave isolation.

It wasn’t a cost-benefit assessment. It was a failure in basic numeracy similar to our imaginary teacher’s error – but far more consequential.

Work published in JAMA Internal Medicine in April suggested at least 60% of people with a positive RAT result six days in are still infectious.

The Ministry doesn’t seem to have checked any of that. They instead looked at the average period of infectiousness and decided positive results after that period could be ignored.

So people will be heading out, after isolation, on official advice, and sharing their Covid gift with others.

Yale Covid testing expert Dr Anne Wyllie had described the Ministry’s advice as ‘dangerous misinformation’.

I don’t know whether the Ministry’s answer reflects general incompetence, declining numeracy more broadly, or a dangerous mutant strain combining the two.

Let’s hope the revised NCEA numeracy guidelines filter their way up into the Ministry of Health before more dangerous variants arrive.

I had been in touch with the Ministry prior to this seeking, by OIA, what evidence they might have had in support of their view that a positive RAT after 7 days could be ignored if you had been asymptomatic for a day. 

Their reply came through last week:

It sounded like they'd just decided that, because the average period of infectiousness is less than 7 days, positive results after that interval could be ignored. So I followed up with a query. 

From: Eric Crampton 
Sent: Monday, 27 June 2022 4:41 pm
To: OIA Requests <>
Subject: RE: Response to your request for official information ref: H202206643

Thank you for this.

I would like to check my interpretation of one part here.

You note that “Current research indicates that it is possible for individuals to test positive from RAT tests beyond the average infectious period. Therefore, the current health guidelines do not require a negative test… to leave isolation.”

There are of course two potential reasons why someone might test positive after the average period of infectiousness has passed.

It could be that their infectiousness has passed, and the RAT is providing a positive result despite a lack of infectiousness. This seems to be the scenario your advice considers the more likely. 

But it could also be that the person with a positive RAT is one of those whose period of infectiousness is longer than average. An average will include some people whose periods of infectiousness is very short, some with middling duration, and some very long. Relatively small proportions of people would clear infection far faster than average, and relatively small proportions of people would take far longer than average. 

I do not know how you established the window for average infectiousness. Let us suppose that it reflects the period after which 95% of people are no longer infectious – for sake of illustration. If a person returns a positive result after that window has passed, the conditional probability of that person being among the 5% with a longer infectiousness period has to be relatively high unless false positive rates are very high. I had understood RATs to have relatively low sensitivity but fairly high specificity – false positives are less likely than false negatives. 

Work published recently in JAMA found, six days after illness onset, 61% of participants returned a positive antigen test while 36% produced samples that could produce viable cultures – a not unreasonable measure of continued infectiousness. If the 36% with viable cultures were all within the 61% producing a positive RAT result, then the odds of being infectious, conditional on having a positive RAT six days after illness onset, seem to be on the order of 60% - better than even. And the likelihood of not being infectious, conditional on having a positive test, would be about 40%. 

It sounds like your current advice around testing to leave isolation is based only on an assessment of the average period of infectiousness, not on the probability of being infectious conditional on a positive RAT at the end of the isolation period. 

Could you please tell me if I am wrong, and point me to the specific studies you’d rely on if so? You’ve provided a bundle of links to lengthy MoH documents spanning a wide variety of issues around the state of play in the pandemic. I cannot tell which studies you’re relying on in determining that a positive result can be ignored at the end of an isolation period, or that a negative result is not required.

I note that I am very likely to write a column on this specific issue if I do not get clearer guidance putting my mind at ease about the current guidelines by the end of the week.
I didn't hear back quickly, so I followed up:
Hi MoH,

I have drafted the following as column to be published on Friday, but I really would like confirmation that this is indeed what you have done here. If there was some more detailed risk assessment floating around in the background on the “No need for a test to leave isolation” recommendation, I would really want to know about it so I can correct or bin the column.

The draft text is appended below.

Eric Crampton

A numeracy quiz for the Ministry of Health

Suppose your middle-schooler came home with a math assignment. 

She was told to measure everyone in the house and report on heights. But checking over the assignment, something seemed odd. Your 190cm partner wasn’t included.

“Oh, our teacher explained that most people are between 150 cm and 180cm. So if we got a measurement outside that range, there was no guarantee that they were really that tall, so we should just ignore it.”

You’d worry about the state of numeracy among teachers, right? 

Sure, the average person will be within that range. Some random person isn’t likely to be 190 cm tall. If the assignment had asked, “Is it likely that the next person you meet is 190 cm tall?”, the answer should be no – unless you happen to live with a very tall person. 

But conditional on having been measured at 190cm, it’s more likely that you’re a tall person than that it’s just measurement error. If the ruler said three metres, you’d probably want to triple-check the figures. But 190cm isn’t that uncommon. 

Why do I bring this up?

Back in May, I asked the Ministry of Health why they’ve been telling people to ignore positive RAT results after seven days of isolation. The Ministry replied this week. They told me that because seven days is beyond the average period of infectiousness, the current health guidelines do not require a negative test to leave isolation.

It wasn’t a cost-benefit assessment. It was a failure in basic numeracy similar to the error that the imaginary teacher might have made – but far more consequential. 

Work published in JAMA Internal Medicine in April suggested at least 60% of people with a positive RAT result six days in are still infectious. 

The Ministry doesn’t seem to have checked any of that. It instead seems like they looked at the average period of infectiousness and decided positive results after that period could be ignored.

So people will be heading out, after isolation, on official advice, and sharing their Covid gift with others. 

Yale Covid testing expert Dr Anne Wyllie had described the Ministry’s advice as ‘dangerous misinformation’. 

I don’t know whether the Ministry’s answer reflects general incompetence, declining numeracy more broadly, or a dangerous mutant strain combining the two. 

Let’s hope the revised NCEA numeracy guidelines filter their way up into the Ministry of Health before more dangerous variants arrive. 
The Ministry provided a statement that could be attributed to a spokesperson - I couldn't include it in the Insights column, but I let them know I'd include it here. They write:

Since the start of the COVID-19 pandemic, New Zealand has been in the fortunate position of being able to monitor developments overseas and this has informed our pandemic response. The Ministry’s assessment is that other countries make decisions on isolation periods depending on the stage of the pandemic and the level of infection in their communities. In New Zealand, at our stage in the pandemic and to support our approach to limit the impact of the spread of COVID on the health sector, the seven days isolation for cases of COVID helps appropriately manage that risk.

We know that isolation for cases is critically important to limit spread and seven days is supported by evidence and experience of other countries. In the United States, for instance, the Centers for Disease Control and Prevention, recommended in December shortening the isolation period to five days. The change was motivated by science demonstrating that the majority of SARS-CoV-2 transmission occurs early in the course of illness, generally in the 1-2 days prior to onset of symptoms and the 2-3 days after. You can read the CDC media statement: CDC Updates and Shortens Recommended Isolation and Quarantine Period for General Population | CDC Online Newsroom | CDC

Rapid antigen tests (RATs) are useful tools by which individuals can test to see if they are COVID-19 positive. But in terms of accuracy, RATs are not without their limitations and we have been aware of this from the beginning. Our guidance to people who have had COVID-19 and who continue to have symptoms and feel unwell upon completion of their seven days of isolation is to remain at home for 24 hours after their symptoms resolve.

Our advice to the Government on the current seven day isolation period was based on evidence that there is a decline in infectiousness of the Omicron variant over time, and that in most cases, transmission occurs within seven days. The Ministry also recognises the need to achieve a balance between effectively managing the pandemic and the flow-on effect that an extended period of isolation would have on the wider economy and the health workforce.

I entirely sympathise with the notion that there has to be a balancing: you wouldn't stick someone in isolation forever. That would be crazy. And, in the absence of a full-blown CBA, a rule-of-thumb could well suffice. If someone poses risk that's comparable to the level of risk of a random-draw member of the public, continued isolation can't be warranted. 

But that requires having a gauge of what that risk is. And a person who tests positive will not have the cohort average level of risk. That person will have the average level of riskiness of people who test positive. Which will be higher. 

There are lots more studies coming out showing increased duration of shedding of culturable virus. Like this one showing that somewhere between a fifth and a quarter of people are still shedding culturable virus at 10 days. If you send someone who's infectious back to work at 7 days, rather than keeping that person home until a negative RAT, those extra couple days' work have a decent likelihood of sending someone else into isolation for 7 days. 


Now you're not going to find a study that perfectly matches what NZ has in place. The rules here say "Isolate for seven days (but vague about whether that starts on noticing symptoms or on a positive RAT), then, if symptom-free for at least a day, you're out". 

So what you really need is the infectiousness of people who have provided a positive RAT after having been 1-day symptom free 7 days from the start of symptoms (and 7 days from the first positive RAT). 

And it wouldn't be all that hard to find out either. We have thousands of people who turn up positive every day. Get a thousand of them to agree to take a RAT every day and to have a sample taken every day. Among the set of people providing a positive RAT at day seven, and who'd been symptom free, what proportion of samples can be used to culture the virus? It feels like the kind of thing where you should be able to have results in three weeks, and could have been started back in May.

And it really feels like the Ministry just doesn't grok conditional probabilities.