Tuesday 28 February 2023

Tilting at bank profits

RBNZ Chief Economist Paul Conway wants a ComCom market study into banking. He's worried about 'profiteering'.

But this is the first time the Reserve Bank, which is statutorily tasked with regulating banks, has stepped in so explicitly. It's been warning of "profiteering" in some sectors during the cost of living crisis and in the aftermath of Cyclone Gabrielle, and singled out the widening gap between mortgage and term deposit rates.

"It's a very legitimate thing for the central bank to be concerned about and to be keeping an eye on," Conway says. "It's a general warning across the New Zealand economy that now is not the time for profiteering. Now is actually the time to start paying the price, for climate change and, in this instance, for the cyclone."

Commerce Minister Dr Duncan Webb says no decisions have yet been made about the focus of the next market study. "However, I am focused on using the tool to ensure markets operate fairly for consumers," he tells Newsroom. "I am particularly interested in improving markets where the greatest long term gains can be made for ordinary New Zealanders."

I've also thought a market study into banking, and insurance, could be well warranted - but with a very different focus.

I've worried that barriers to entry look awfully high and that we may be missing out on innovations happening overseas as consequence. 

Last year I'd urged that ComCom change how it does market studies. Rather than a giant draft study that tries, and inevitably fails, to estimate weighted cost of capital and potential excess returns, start with a desk-based analysis of barriers to entry. 

Because whatever you wind up doing will depend on barriers to entry anyway.

Suppose that you really strongly believe that there are high excess profits in whatever sector. If you're right, what's stopping anyone from coming in and eating away at those profits? Remember that profits are a signal that tells other to enter. If they aren't entering, is it because you're wrong about your guess on excess profits? Or is it because there are regulatory, legislative, or other barriers preventing entry? 

When ComCom thought there were excess profits in supermarkets, and I was yelling about barriers to entry, some folks argued for KiwiGrocer as cartel-busting parallel to KiwiBank. But now we're talking about banks, and KiwiBank's already there as KiwiBank. And for whatever reason, it seems far less profitable than other banks. Surely that should give some pause.

Now banks wouldn't be the first place I'd be aiming a market study: medical services really should be first in line. But barriers to entry in banking and insurance are obvious things to look at. 

But man it's a worry if the RBNZ is wanting the thing aimed at 'profiteering'. If that's the kind of advice the Minister's getting, then expect a request for a very different market study. Instead of looking at barriers to entry, it'll be more like the Supermarkets draft study - where they raked the CEs over the coals for weeks and tied up supermarket exec teams for months in inquiries. 

If that's the request that ComCom winds up getting, then it's a test of ComCom. 

Do they indulge the Minister's preference for a highly politicised and populist bash on the banks in an election year? Or do they do the work that actually needs doing: checking whether barriers to entry, including the nonsense that RBNZ layers on top of the industry, and CCCFA regs, make for less competition than would be desirable?

Heck, RBNZ is undertaking an investigation into whether it should make it even harder for foreign banks to operate here. And Paul Conway's pointing fingers at banks for profiteering.

Jonathan has a few bits from me in his piece. It'll ungate tomorrow if you pull the /pro from the URL. But the bit including my quotes is here:

Dr Eric Crampton, chief economist at the NZ Initiative think tank, says the appropriate use of a market study would be to ascertain what barriers there are to new entrants to this country's banking market. 

New Zealand has been a slow follower on structural changes like open banking, and such easy wins as account number portability. When phone number portability was introduced in this country's cellphone market, it played a critical role in breaking apart the Telecom-Clear duopoly.

It's expected bank account portability would make it easier for bank customers to move their money (or their debt) to more a competitive bank.

What all this means is it can be difficult for a new player to get a toehold in banking here, Crampton says. "In groceries, the Commerce Commission found zoning and consenting proved substantial barriers preventing entry. In building materials, the commission’s draft study pointed to substantial barriers to using foreign-sourced building materials. In both cases, easing barriers to entry would improve competition," Crampton says.

"If the Commerce Minister told the commission to look at barriers to entry in banking, or in insurance, that could be worthwhile. The combination of barriers to entry and regulatory measures like the Credit Contracts and Consumer Finance Act may have had substantial detrimental effects on competition.

"If so, it would be great to document the barriers, their effects, and how those barriers could be eased. Is New Zealand seeing the same innovations in FinTech and InsuranceTech as are being seen overseas? Could a foreign online financial service provider easily enter the New Zealand market, or would it be impossibly hard given our scale? What are the effects on consumers?

"But I would greatly worry that, in an election year, a minister could be tempted to send the commission off on more populist tilts against the banks," he says. "Sending the commission off to interrogate the banks about interest rates and mortgage rates would be politically tempting and help divert attention from the prior government failures that led to rising rates. I would also hope that the commission would push back against proposed studies that would shed a lot more political heat than provide actual light."

It would be exceptionally disappointing if ComCom got put to populist electoral purpose this year.  

Morning roundup

The morning's worthies, as I try to trim the tabs...

Monday 27 February 2023

Daft idea of the day

Without anyone planning it, Paris gets fed. And so does Auckland.

Not good enough for some people. 

There's demand for a national food strategy. 

It seems completely unnecessary. And ludicrous. 

If you think that poor people cannot afford nice things, there are a couple useful things you can do. Most substantially, finally fixing housing would bring down living costs. But if that didn't solve things entirely, giving poor people money lets them decide what to do with it - without screwing up the rest of the food system. 

Just look at this mess. 

This has been the state of the country's food system since the Covid-19 pandemic began, and experts are calling for a national food plan to help increase food security.

So what is a national food plan?

A national food plan is a policy that would guide food-related decisions and actions in the country.

It is an approach to understanding and addressing issues within food systems and a plan for making decisions around food.

Who would make the national food plan?

Iain Lees-Galloway of Aotearoa Food Rescue Alliance (AFRA) said ideally a food plan would be developed by all stakeholders including producers, manufacturers, retailers, food rescue and relief organisations, welfare organisations, environmental organisations, and others.

“They can bring all the various interests together and have the power to see it implemented,” he said.

It would then be led by the Government.

"Increasing food security and reducing food waste should be just as important as growing the value of our food industry. A food plan could set out that vision and present a roadmap for how we could get there,” he said.

Chief executive of Eat New Zealand, Angela Clifford, said ideally the plan would embrace treaty obligations and reflect te ao Māori.

“It should be co-designed by all participants in the food system including farmers, fishers and eaters. It should be run by a collaboration between government, industry and community.”

Go back and count the buzzwords. Then go back and tell me if you can figure out what precisely they're proposing. The buzzword-to-actual-content ratio is infinite. Not a good sign. 

I'm just glad it's being proposed now rather than last year.

A year ago, Ardern would have appointed Rob Campbell to Chair the thing before anyone had worked out details.

Now, the Hipkins-led government's trying to get rid of some of the costly unworkable stuff Ardern loaded them with and won't be keen to take on new nonsense. 

But how much would setting this up cost taxpayers?

This really depended on the final design of the plan, Clifford said.

“The real question is the cost of not implementing a plan. The current situation leaves us hungry, unwell and ecologically diminished. That’s its true cost.

“All it takes is government will and re-alignment towards our domestic food system. Given it’s an election year I would fully expect political parties to have a food security plan as part of their offering to voters. Hungry people do not make happy citizens.”

All it takes is government will, people. And clicking its heels together three times while wishing really really hard.  

A case for Film Commission funding

Film subsidies aimed at boosting economic activity are a mistake. That stuff just doesn't work.

But if you're trying to subsidise more stories and content about a small country at the far end of the world, well, they can be effective for that.

And I have a proposal for one. 

A decade ago, Henderson's fight with IRD, which eventually saw him win and buy the building that IRD leased, was turned into a movie. With some help from the Film Commission. If you haven't seen it, it's great fun.

A digger driver owed $6 million by his local council after an epic 18-year fight for justice has asked the High Court to sell the local authority’s offices after it missed a critical deadline for paying the court-ordered sum.

Read the whole thing. It's great! Or, rather, horrible. 

Daisley explained: “The deal was, I take the charging order off if they pay the money. They paid a portion of what’s owed. They reneged on the payment, so the charging order stayed.”

Daisley - who has previously described the council as “absolute low-life mongrel bastards” - said his lawyers had now asked the High Court to act on the charging order and to sell the council headquarters.

Where did it all start? Council lied to Daisley repeatedly about the consent on his site for quarrying. He wound up having to sell the site.  

Daisley and the council’s dispute goes back to 2004, when he bought a property in rural Northland on which there was a working quarry that had been mined for decades.

Early the next year, Daisley was hit with an order from the council to stop quarrying without a resource consent - an order that was followed by other abatement notices, rejection of his application for a resource consent and then, in 2009, enforcement proceedings in the Environment Court.

His inability to work the quarry and deal with enforcement action led to financial difficulties, forcing him to sell the land.

Then, in 2009, a lawyer hired to defend the enforcement action visited the council offices and carried out an archive search of the property record, revealing a consent from the 1980s that was still valid and did not limit what could be taken from the quarry.

Justice Kit Toogood KC, who heard the case, found that every time Daisley asked the council about “the existence of a resource consent, the council denied that a resource consent existed and insisted that Mr Daisley’s quarrying was unlawful”.

Daisley told the Herald the discovery didn’t end his problems - in May 2011, the new owner was granted permission to mine the quarry, even though the council persisted with its enforcement action against him until July 2011.

Toogood found in Daisley’s favour and ruled that the council was “guilty of misfeasance in public office through recklessly misinforming Mr Daisley and others about the existence of the consent and in failing to take steps to make amends after the consent was found”.

It sounds like small town nonsense where Council just hated Daisley and wanted someone else running the site. I hope that Damien Grant gets appointed liquidator of Council assets so that Daisley can get his due. It would make a wonderful movie.  

Friday 24 February 2023

Entrance tests for MPs?

Over at Newsroom, Marc Daalder suggests that some kinds of stupid are disqualifying for potential MPs. 

I just think he doesn't go nearly far enough.

Daalder takes aim at a bunch of weird beliefs that Maureen Pugh has expressed. Doesn't get climate change despite clear scientific consensus. Weird on pharmaceuticals and alternative medicines. 

Both of those are well out of line with scientific consensus.

But if we abandon the idea that crazy and ignorant people also need to be represented in Parliament and start setting entry tests on this stuff, well, I have a few proposals. 

First up, any MP that can't pass intermediate micro isn't qualified. Give a basic tax incidence question, see if they follow the consensus of economists. If they don't, kick them out. Same if they think rent control is a good idea - there's a very clear expert consensus on this one. 

Next, rules on genetic modification. Clear scientific consensus that GM crops are safe. The rules against them do a lot of harm. We'd kick out most of the Green Party on this one, if any were left after the rent control question. And that could be fine. They'd be replaced by pro-science greens. Don't you like science? It would be better, right?

How about any MP who thinks that stadium and film subsidies provide net benefits? Both are in clear violation of the scientific consensus. We can retrospectively kick John Key out of Parliament. He loved stadium subsidies. 

Kick out of Parliament, and out of the bureaus, anyone who demonstrates through their policy advocacy that they really really do not understand how an ETS with a binding cap works. 

I really love this, so long as I get to be the one setting the science tests. Could be great fun. Might be risky if I'm not the one setting the tests though. 

Breaking the internet

Google News is getting pared back in Canada in response to Canadian legislation that would force platforms to pay news platforms for links.

Remember that one of the founding principles of the web, right at the start, is that linking is free. People can put up paywalls if they want. They can set robots.txt to block indexing. But you can't charge somebody just for linking to you.

Canadian media platforms, like failing New Zealand media platforms, want to put a link tax on platforms.

So they're getting fewer links to Canadian news. At least as a test, so the platform's ready if Canada passes the legislation. 
The company said Wednesday that it is temporarily limiting access to news content for under four per cent of its Canadian users as it assesses possible responses to the bill. The change applies to its ubiquitous search engine as well as the Discover feature on Android devices, which carries news and sports stories.

I still think this is extortion. And the right response to an extortionist is not to pay. 

Me on this stuff from 2021... 

Thursday 23 February 2023

Afternoon roundup

Oh the tabs. 

Chatting immigration

I'd yesterday talked immigration with the Herald's Damien Venuto for their Front Page podcast series.

I mentioned or alluded to a few papers. You can find them here. 

Paying for cyclones

Step back in time with me. Six months ago or thereabouts, there was a lot of discussion about the size of the tax cut in the coming budget. Or, rather, the long-overdue inflation adjustment to the tax brackets. Tax bracket creep has been enormous since the brackets were last adjusted over a decade ago. It would be a cut in taxes relative to the large inflation tax increases that otherwise would continue to bake in.

What seemed most likely, at least to me, was that Labour would undo some of the bracket creep in the lower bands, perhaps taking things back to where they were in 2020 before the Big Inflation. But they would hold the 39% rate at $180k. And I expected that National would criticise them for not taking it all the way back to 2017 (ignoring the more minor bracket creep that they allowed to happen after 2011). And I hoped very much that National would pressure for indexing the bands going forward so that this sort of thing wouldn't keep happening. And in some best of all possible worlds, there'd be agreement to index the tax thresholds so the adjustments happen automatically (5% chance?).

Remember that the forecast path for tax revenues was based on no adjustment. It always has to take current policy as being the forward policy. That path continued to have a lot of inflation-driven tax increases built into it. Remember that this isn't just "well, everyone pays 7% more in tax but everything costs the government more". It's that people get pushed into higher marginal tax brackets, resulting in tax increases that outpace inflation - and considerably if you let them accumulate.

This substantial tax increase since 2011 was not voted for by anyone. It was not legislated. It had no democratic deliberation. It just happened, and especially from 2020 when RBNZ went off the hook.

And it will keep happening in the absence of changes.

Flip to the spending side.

As of six months ago, government was only slowly retrenching from continued ludicrous levels of 'Covid' spend. Government issued tons of debt to deal with Covid, and spent it very liberally on non-Covid things. It added to inflationary pressures that the Reserve Bank has to lean against. 

So where did that leave us? A Labour-led government seemed most likely to want to entrench a higher ongoing government-spend proportion of GDP. They'd package a minor inflation adjustment to the indices as a tax cut but maintain things at a level well beyond 2017. They'd cut some of the more ridiculous Covid spend and present a reasonable path back to surpluses but at a higher level of government spend and tax relative to the overall economy. And that's fair enough so long as there's long-term balanced budgets. 

Now what does this have to do with cyclones?

Let's remember standard drill. Here's what I said after the Christchurch earthquakes. And it's the same thing that Paul Krugman said about other similar spend. This is mainline econ stuff. I'll pull-quote Krugman again:
Now suppose a disaster strikes. What this does is raise the marginal benefit of spending on disaster relief. The appropriate response is to move all the marginals to get them in line: spend less on everything else, and also raise more in taxes. So even there it shouldn’t be all offsetting spending cuts.

But wait: even more important, the government can borrow (or, in principle, lend, if it pays off all its debt). So it should balance its budget in present discounted value terms, not year by year. This means that the tradeoffs should include future spending and taxes as well as this year’s spending and taxes. And a natural disaster, like a war, is a temporary event; it should be met largely through higher taxes and lower spending in the future rather than right away, which is another way of saying that it should be paid for in large part by a temporary increase in the deficit.

This isn’t some novel idea, by the way — it’s the standard theory of public finance during war, going all the way back to Ricardo. And the logic of wartime finance applies equally to natural disasters. [emphasis added]
This is the case against temporary levies and surcharges. Unless a government is debt constrained, you want to spread the cost over time. And you want to cover that cost through a combination of higher taxes than you otherwise would have had and lower spending on other stuff than you otherwise would have had

So if it had been the case that Labour was going to inflation-adjust brackets back to 2020, indexing them only going forward would be a tax increase relative to the path we would have had. If it had been the case that Labour was going to have locked in a permanent increase in the relative size of government on non-cyclone stuff, then a reallocation from whatever that stuff would have been toward cyclone is a spending cut. 

The case for an actual tax increase looks awfully weak given the massive increase in real government takings in the leadup to the cyclone. Thomas Coughlan pointed to the numbers yesterday. Core Crown revenues increased from 27.5% of GDP in 2017 to 30.2% of GDP in 2022. 

Core Crown revenues will have to be above the levels we'd had in the mid-2010s for a while - there's Covid debt to pay off. 

But the forecast expenditure track in HYFU had core crown expenses rising from $126 billion in 2022 to $150 billion in 2027. Surely there's room for greater reprioritisation in there, combined with slightly smaller inflation adjustments to tax bands than we otherwise might have had. 

We're still using borrowed money to fund over a billion dollars in discounted road user charges - when there are piles of roads to fix. It's nuts to consider a deadweight-cost-ridden income tax increase when government is using general tax revenue (in the end - it's what pays off debt) to avoid charging road-users for the use of the roads. That subsidy induces a deadweight loss! You're putting thorns in the heart of Baby Pareto! Can't you hear him crying?

Anyway - bottom line:
  1. You spread the cost of this kind of thing over time with higher taxes than you otherwise would have had and less spending on other stuff than you would have had. You don't try to do it with a large temporary tax increase. Unless you're debt constrained. Maintaining low steady-state debt levels matters so that there's room to use debt for these kinds of shocks. 
  2. Views on counterfactual taxation and spending paths will really matter in deciding what's here appropriate. If you think that it is right and proper that government take 30% of GDP as Core Crown revenue forever for regular spend or some amount higher than that, then you'd want a higher tax path to accommodate this spend. But everyone was expecting that government was going to be reversing at least some of the inflation bracket creep. Have views on appropriate size of government changed, or is this opportunistic? Or we all just crazy to expect that there'd have been an inflation adjustment to the tax brackets in May?
  3. A smaller inflation adjustment to the tax thresholds really ought to be able to get the job done. Core crown revenue is about 2.5 percentage points higher, as fraction of GDP, than it was in 2017. If they can't use that increase to get this job done, you've gotta wonder how much work they're actually putting into reprioritising spend. 

Monday 20 February 2023

Managed retreat - some basic principles

EDS has put up a lengthy paper on managed retreat.

I have an alternative, shorter proposal. Or at least a starter.
  1. People should be able to build where they want.

  2. Insurers should be able to set premiums to reflect risk. EQC could make that safer for private insurers by leading the way. They have decades of claims history. 

  3. Councils should reserve the right to discontinue services in places that are too expensive or difficult to maintain. In such cases they could offer existing residents a choice:

    1. Special ratings district that imposes a differential higher levy reflecting higher costs of providing council services in those areas, and a promise that there will be no cross-subsidies from safer places, reminding that that means that if their road washes out and they want it reinstated, the levy will have to go up;

    2. Setting of a special purpose local board that becomes the owner of local infrastructure, governed by its residents, and able to set its own levy on properties for service. Councils would need to sharply reduce rates for those properties to reflect that council is no longer providing those services.

  4. Ability to set those special purpose local boards should be extended more broadly, such that a group of farmers could set one to take on the debt that funds flood protection works and finances that debt through a levy on protected properties, on approval of those properties’ owners.

  5. EQC to recognise mitigation works when setting premiums. Private insurers would do similarly so long as that market is sufficiently competitive.

  6. Make damned sure that there aren’t regulatory barriers unduly hindering insurance entry, including provision of parametric insurance products.

  7. Land values in high-risk places no longer cross-subsidised by low-risk places would drop. If government worries about the equity implications of that, it could provide a one-off payment in compensation. Ideally it would set a cap on such compensation because it will disproportionately go to rich people living in unsafe places who have been cross-subsidised by poorer people living in safer places for ages. 
We find that the northern regions of both islands are the source of most claims, that only a handful of weather events caused a large proportion of EQC’s weather-related pay-outs, that the average property lodging a weather-related claim is located twice as close to the coast as the national average, and that properties with claims usually are cited on much steeper land than the typical property in New Zealand.

We also explore their relation between claims and socio-economic characteristics, finding that higher income neighbourhoods appear to be those most benefiting from the EQC coverage for weather events. 

The usual complaint about abolishing implicit subsidies is around equity issues. But normal equity considerations here run opposite to what you might have thought. It wouldn't stop those concerns from being raised as reason not to do this, but do look behind the curtain. 

Seems simple enough. No need for government or council to decide who's allowed to live where. If you want to live in a risky place at your own expense, that should be up to you. 

Wednesday 15 February 2023

Large gatherings and Covid

I do love a good natural experiment. And this is a neat one
Social distancing is important to slow the community spread of infectious disease, but it creates enormous economic and social cost. Thus, it is important to quantify the benefits of different measures. We study the ban of mass gatherings, an intervention with comparably low cost. We exploit exogenous variation in the number of National Basketball Association and National Hockey League games, which arises due to the leagues' predetermined schedules, and the sudden suspension of the 2019–2020 seasons. We find that, among clusters of counties that are adjacent to sports venues, each additional mass gathering increased the cumulative number of COVID-19 deaths by 10.3%.

Some places had games scheduled between 1 March and 11 March, other places didn't. Play was suspended 12 March. So they compare places that happened to have scheduled games in early March with places that didn't. 

Tuesday 14 February 2023

Tobacco maps

A little while back, the Ministry of Health put up some indicative maps of where licensed tobacco retailers might be allowed to operate.

The government has decided that rather than being available at some 6000 outlets, cigarettes will only be allowed at 600 outlets across the country.

Lots of things will enter into Ministry considerations of which outlets might be allowed to continue functioning, and which dairies might go bankrupt if they rely heavily on tobacco sales. 

They write:
If there are too many applicants in one area, the following criteria could be useful to distinguish between retail applications (Appendix 3 provides further detail). These criteria may be defined in Regulations.
  • Business related criteria: criteria like security, sales systems and training, could be used to rank applicants. For example, in terms of sales systems, the business needs to have considered factors such as their supply chain – ensuring that they will have the right amount of stock to service demand. We propose that detailed proposals would be acceptable within an application, to avoid retailers’ incurring costs prior to approval of an application.
  • Proximity and location: certain criteria may relate to the location of the retail premise or specific community needs. For example, distance from schools or sports grounds may be relevant.  Communities may feel that there are areas where it is less appropriate for smoked tobacco retail premises to operate (such as near schools or marae). Additionally, ensuring that the premises are spread across each area may be important.
  • A history of compliance with the Smokefree Environments and Regulated Products Act, by the applicant (the entity or individual) and any responsible people over the previous 5 years may be relevant.
  • The nature of the business may be relevant – for example, retail premises selling alcohol, convenience goods and/or groceries might rank lower on this criterion while stores only selling smoked tobacco products may score higher, because we are of the view that selling tobacco products alongside everyday grocery items normalises these products.
  • A ‘specialist outlet’ category could allow for a certain number of retail premises specialising in smoked tobacco products that are not cigarettes (eg, cigars) to score higher.
The Director-General may weight the criteria or give them an equal consideration. We are interested in feedback about what criteria is of most importance, or least importance

Proximity to schools is a fun one. It reminds me of a map that City Beautiful had put up last year. They were looking at the proximity rules for vape shops, when the Asthma Foundation was trying to ban them within a kilometre of schools. 

On this map of Auckland, every green dot is a school. Every circle draws a one-kilometre radius around a school. And the orange bits? Those are the only places that are outside of the circles and that are zoned for shops. 

So if the government took a hard line on proximity to schools, well, there aren't many places in Auckland where one could run a shop. And in small towns, it'll be tough to find somewhere that's farther than a kilometre from the school. 

Monday 13 February 2023

Afternoon roundup

The worthies from the tabs:

Revisionist Uber histories

Uber drivers have initiated collective bargaining in NZ.

BusinessDesk reports on it, along with a bit of revisionist history from the union:

"Uber muscled into our country in 2014 without a second thought about employment law or the rights of the people working for them, and drivers are long overdue some agency in their lives."

Recall that Uber 'muscled in' on NZ's archaic taxicab regulations, not on our labour laws. Before Uber, drivers had had to sign up with one of the small number of companies providing 24-hour dispatch. Not exactly a scenario that's friendly to drivers. 

Remember too that Uber has to compete for driver-partners with other ride-share companies, and with existing cab companies. 

Bill Rama, an Uber driver and First Union delegate, said drivers were paid on average less than the minimum wage, and only for about 50% of the hours they work. He said the company also took no responsibility for the safety of its drivers or its passengers.

We've had an incredibly overheated labour market. Does it seem likely that Uber's forcing people into sub-minimum-wage work? 

Here's MBIE's job vacancy index for unskilled work.

If Uber was able to keep driver-partners through the 2021-22 period when the thing was hotter than it had ever been, doesn't that kinda suggest that those drivers weren't being exploited?

Thursday 9 February 2023

Insufficient biofuels

This is closer to right than most pronouncements on it but it's still deeply wrong.
Climate Change Minister James Shaw said he supported the move, and he and Woods had now been tasked with quickly finding a way to fill the big hole in the budget.
“This is why we have a carbon budget right, is to say, when we make these choices, actually, we've got to plug the gap somewhere else,” he said.
"The most straightforward thing that we could do is to tighten up the ETS [emissions trading scheme] unit supply, so you simply take it out that way. But there may be other policy interventions that we could make as well.”
A biofuel mandate is neither necessary nor sufficient for a reduction in net national emissions. 

If you ran the mandate without cutting the cap, you'd just shift where emissions happen. If you ran the mandate while cutting the cap, you would reduce net emissions while also shifting where emissions happen. But it's the cutting of the cap that's both necessary and sufficient, all on its own. A biofuels mandate just shifts the location of emissions, regardless of whether you cut the cap.

So yeah, Shaw's right that you could cut the cap to reduce emissions. But there's no 'hole' created in anything by cutting a biofuels mandate. Compared to a counterfactual in which we'd have had a mandate, we get a few more emissions in transport, a few fewer emissions everywhere else, and a lower overall cost of getting down to net zero. 

Any 'hole' from not having a biofuels mandate is like the hole you make in a T-1000 if you shoot it. The thing fills itself in all on its own. More emissions in transport? There'll have to be fewer emissions somewhere else. That's how the ETS works. 

Want to stop T-1000? You don't do it by shooting at transport, or shooting at power generation. You do it by cutting the cap steadily over time to hit net zero. 

Wednesday 1 February 2023

Cost of living absurdities

Peaches come from a can.

They were put there by a man.

In some factory in Greece.

When they made their little way

out to brighten a Kiwi’s day,

they got hit with a 34% punitive anti-dumping duty.

Prime Minister Hipkins made the cost of living the government’s number one priority. So I checked which anti-dumping duties are still in place.

Anti-dumping duties rarely make sense. The theory is that a foreign company will sell here, below cost, for long enough to drive Kiwi competitors out of business, and then jack up prices. 

It’s more than a bit bonkers. Consider coated steel from Korea – a kind of steel used in roofing. From 1 January this year, imports from one Korean company were hit with a renewed 12.6% punitive tariff, and two other Korean companies are subject to smaller tariffs. 

Under anti-dumping theory, they were selling steel here below cost to drive the Kiwis out of the market, so they could profit when those Kiwi competitors went under. But a quick Google search finds 998 suppliers of the stuff across 55 countries. The 997 other suppliers would be the ones to benefit. 

And, of course, if it really were being sold here below cost, anyone, including Kiwi steel producers, could put up a shed and store tonnes of it for later resale. 

Inflation is high and the government says we’re in a cost-of-living crisis, with groceries and building materials front and centre. But those Korean companies’ roofing steel, along with galvanised wire from Malaysia and China, are hit with anti-dumping duties. So you’re protected from affordable building products. Doesn’t it warm your heart? Tariffs are love. 

And consider the peaches. Everyone loves canned peaches. The '90s band The Presidents of the United States of America even wrote a song about them. I ripped it off to lead this post. 

In May last year, the Government reimposed antidumping duties on preserved peaches from Spain. In December, they started investigating Chinese peaches. And the peaches from Greece? 34% duty

Meanwhile, the Commerce Commission’s been investigating why groceries and building materials are so expensive. And the government is subsidising petrol while taxing peaches. 

So I’ll end with another bit of theft from the Presidents. 

Government lingered last in line for brains

And the one that it got was sorta rotten and insane.