Monday 30 October 2023

Just make it easy to delist buildings

My column in the weekend papers:

There is one other alternative. It is an alternative Wellington officials downplayed. But it is one that the council should take or that central government could progress instead.

Why not make it easy to remove buildings from the district plan?

A council needing legislation to address a local issue can propose a local bill. The Parliamentary Counsel Office can assist in drafting. An MP, who need not necessarily support the bill, puts their name to it. The bill is introduced and has its first reading on the third sitting day after introduction.

Wellington City Council could propose a local bill enabling the council to remove buildings from the district plan, or to pre-empt their listing, by a simple majority vote. The bill would make delisting nonjusticiable, with no opportunity for appeals or challenge. It would deem the delisted building to have no special value for any other consenting process.

Officials worried this option could take years, but local bills can be very fast. If an incoming government is a bit frustrated by a council that seems able to find hundreds of millions of dollars for everything other than its water network and is not too annoyed by shenanigans around Let’s Get Wellington Moving, it could well shepherd this bill quickly through committee.

The Michael Fowler Centre and the Opera House were listed as earthquake-prone in August. The Opera House is listed on the district plan. The Fowler Centre is covered by the Civic Centre Heritage Area. Heritage New Zealand has also received a nomination for Fowler’s inclusion on the New Zealand Heritage List.

Wellington’s officials are still exploring local bill options, championed by councillor Ben McNulty and a 9-7 vote in favour, with councillors John Apanowicz, Tim Brown, Ray Chung, Sarah Free, Iona Pannett, Tamatha Paul and Nicola Young opposed.

If the council proposes this kind of local bill, a newly formed government should let Wellington get on with the job.

Or it could find time to add a government bill to the agenda. How many towns and cities face similar problems, where cost-effective approaches to mandatory strengthening are just too hard?

A National-led government might also support increased accountability the option would bring. If a council chose not to delist a building, it could not blame others for the cost.

Easy delisting doesn't solve the underlying problem. The underlying problem is a heritage preservation system that foists incredible cost onto the owners of heritage buildings, particularly if they are in need of earthquake remediation, while providing little support. A comprehensive fix would flip the system - abolishing the regulatory restrictions and instead providing annual payments for provision of the public good. 

But easier delisting would ease some of the worst pressures in the interim. 

Real ESG

If you care about corporate social impact, start measuring consumer surplus. 

From the NBER:

An Economic View of Corporate Social Impact

Hunt Allcott, Giovanni Montanari, Bora Ozaltun & Brandon Tan


ISSUE DATE October 2023

The growing discussions of impact investing and stakeholder capitalism have increased interest in measuring companies' social impact. We conceptualize corporate social impact as the welfare loss that would be caused by a firm's exit. To illustrate, we quantify the social impacts of 74 firms in 12 industries using a new survey measuring consumer and worker substitution patterns combined with models of product and labor markets. We find that consumer surplus is the primary component of social impact (dwarfing profits, worker surplus, and externalities), suggesting that consumer impacts deserve more attention from impact investors. Existing ESG and social impact ratings are essentially unrelated to our economically grounded measures.

Meanwhile, the Financial Times provides an excellent synopsis of the other version of corporate ESG.

Born in sanctimony, nurtured with hypocrisy and sold with sophistry, ESG grew unchallenged for a decade, but it is now facing a mountain of troubles, almost all of them of its own making.

The problems of investing with an environmental, social and governance framework start with assessing what it measures, which has changed over time and reflects its revisionist history.

ESG started as a measure of goodness, built around a UN document enunciating the principles for responsible investing, with significant establishment buy-in. As the selling of ESG to investors ramped up, its salespeople recognised that goodness had limited selling power. So they switched gears, arguing that ESG was an instrument for delivering higher returns without concurrent risk.

That case worked well through much of the last decade, mostly because of ESG investors’ abhorrence of fossil fuels and embrace of technology firms, but the Russian invasion of Ukraine changed the calculus. As sector funds underperformed, advocates moved on to claim that higher ESG scores lead to less risk and lower costs of capital. Perhaps because both risk claims are questionable, they now contend that ESG’s primary purpose is disclosure about material issues.

It serves ESG advocates to keep the definition amorphous, since, like the socialists of the 20th century whose response to every socialist failure was that their ideas had never been properly implemented, the defence against every ESG critique is that it is incorrectly defined or implemented. The truth is that ESG scores today measure everything — consequently, they measure nothing.

Consumer surplus is more reliable. 

Friday 27 October 2023

Charting a course

My column in Newsroom this week makes a few guesses about where NZ local water policy may be headed

Labour forced the amalgamation of water services into new entities that National promised to throttle before they can get going. What happens next?

No election platform survives contact with post-election coalition negotiations.

But one outcome seems rather obvious – the Labour government’s Three Waters reforms will be repealed. In its place will be a model based on the Castalia model commissioned by the set of councils that objected to Labour’s reforms – Communities 4 Local Democracy.

The change could come reasonably quickly. The parties likely to be in coalition agree, at least at a high level, on a reform agenda. And an incoming government will have a head start on the necessary policy work and legal drafting.


Normally, this kind of policy reform work can take years. The set of officials who were strong advocates for Labour’s policy reforms may not be likely to deliver workable replacement legislation in any kind of hurry.

For the better part of this year, the New Zealand Taxpayers’ Union has been coordinating policy work to flesh out the Communities 4 Local Democracy/Castalia model – including drafting instructions and drafting for a replacement Local Water Infrastructure Bill.

Malcolm Alexander, former Chief Executive of Local Government New Zealand and with a background in electricity reform, chairs the Technical Advisory Group for the bill. I have assisted on the group, along with David Hawkins, formerly of Watercare and former Mayor of Papakura; Christchurch Councillor Sam McDonald, and NZ Taxpayers' Union economist Ray Deacon – who formerly served on the Major Electricity Users Group..

The proposed reforms would shift drinking water and wastewater assets into Council-Controlled Organisations (CCOs) – for councils where water is not set as a CCO. Stormwater is fundamentally different – with assets plausibly including parks, recreation areas, ditches and roads – and is left out of the proposed structure.

A CCO can be owned by a single council, or by a set of councils. If councils find it more effective to deliver water services through a shared service model, they retain ownership of the shared entity.

But unlike Wellington Water, council water CCOs in the proposed structure would own the water assets and earn revenue through water charges, rather than be stuck like Wellington Water in attempting to manage the underlying councils’ water assets on whatever funding the underlying councils might wish to provide.

It’s a far sounder model. And, at the outset, they could be required to satisfy the minister that they are appropriately capitalised and that councils have not loaded them with non-water debt.

Water CCOs would prepare and publish their own asset management plans and be accountable for outcomes.

They would also be subject to commercial regulation by the Commerce Commission ensuring that the Council-owned monopoly water providers were setting appropriate water rates..

Councils like Wellington have slowly stripped their water infrastructure assets by failing to maintain and renew the network, allowing Wellington Council to fund all manner of showy above-ground projects while not increasing rates proportionately.

The proposed CCO structure would mean water would stop cross-subsidising other council activities. Water utilities would be able to charge what is needed to bring their networks up to standard and to keep it at standard.

It would also mean that other councils, or taxpayers more generally, would not be on the hook for some councils’ long-term negligence.

An incoming coalition government that broadly supports the Communities 4 Local Democracy proposal can then have a running start. Much of the legal drafting for a potential replacement bill has already been completed, along with drafting instructions for sections requiring technical detail held within government.

That running start will be needed. National has committed to repeal Labour’s Three Waters legislation in its first 100 days, but legislation for a replacement regime will be needed quickly. Councils will need to know the regime within which their water services will operate if Labour’s Water Service Entities are abolished.

Post-election coalition negotiations usually make it hard to predict just what will come of parties’ campaign promises. But, in this area, the waters are reasonably charted.

Afternoon Wellington roundup

It's gorgeous days like today (well, the walk in this morning was grand) that help explain how Wellington can be so abysmally governed. If it weren't for days like this, who'd stay?

A closing of some tabs.

Councillor McNulty at least tried his best on some of this. I've been imagining him in lieu of the other McNulty, recreating that scene from The Wire, walking around the Town Hall site, pointing at things, and just repeating one word. 

Oh: rain's now shown up. 

How do you unbreak an egg?

I absolutely do not envy whoever in an incoming government gets stuck trying to fix the mess Chris Hipkins caused in the polytechs. 

The polytechs had issues before the merger. Some might well have fallen over. That isn't the end of the world. There are other polytechs. The stronger ones would have picked up more students. 

Now they're all mushed together in a dysfunctional centralised structure that possibly can't be unpicked without immediately causing some to implode, making all of it politically fun.  

Consequences of course go beyond the polytechs. The country's going to need trained tradespeople. 

I have no solutions here. But I wish the best of luck to the incoming Minister receiving this hospital pass. 

Thursday 26 October 2023

Morning roundup

The morning's worthies.

Friday 20 October 2023

There Is No Alternative - Wellington Council edition

It looks like Wellington Council officials are providing councilors with an offer they're not supposed to refuse.

Earlier this week, Council heard a presentation from officials on options around the Town Hall. 

As presented, there seemed no reasonable alternative to spending another $70 million to $147 million to finish strengthening works. 

Stopping works and closing the building off would only save $60 million relative to finishing. Demolishing it would cost $20m less than finishing it. And delaying would just escalate costs. 

If you look at it that way, why wouldn't you finish the thing? Sunk costs are sunk, and the choice before Council is whether to spend a small bit more to finish the project rather than aim for demolition. 

And especially when officials put a lot of time pressure on the thing, wanting a decision by next Wednesday.

But there are a few oddities in there. 

Closing up the building would have a year's worth of work finishing the basement to prevent flooding, completing critical structural works, reinstating heritage fabric and the like. Safety and other works like that are $33.42 million. 

Demolition would add $39.35m on top of close-up costs: Environment Court applications, demolition planning and works, professional fees and contingencies. 

But why would you complete critical structural works or finish the basement if you were going to bowl the thing? If they netted those costs out somewhere, it sure isn't mentioned. The only reason to finish the basement rather than fill it is if you were planning to sell the site for someone else to build on, and you'd only do that if the value added by finishing were more than the cost right?

Delisting the building from the District Plan (heritage buildings are protected because they're there listed) would open up a lot of options. 

But officials caution that if a delisting process started now, it could be in the courts until December 2027. And Council could easily lose. There is insanity in the rules around this stuff, but the rules are the rules. 

Officials noted that a Local Bill might allow faster delisting - but wind up warning against that too. 

It's pretty easy to imagine what an enabling Local Bill would look like. 

It would enable council to delist buildings by simple majority vote, without right of appeal. A delisted building would be deemed to have no special value, heritage, cultural or otherwise, when considering building or demolition consents.

With an enabling local bill in place, council could weigh up different options. 

A local bill enabling delisting could do a lot of derisking. If it turns out that preserving one bit that nobody would ever notice would add $20 million to the cost, they could just save the $20 million. They could weigh things up on a case by case basis without worrying about being sued. 

The council document notes that council carries the majority of the geotech and heritage risks. The geotech side is largely now understood, but paragraph 24 still has "heritage restoration costs and requirements" as one of the remaining risks council faces. At para 26 they note that heritage risk replaces ground risk when restoration work starts. 

But officials also suggest the local bill path is impracticable:
Pathway 3: Local Bill

95. Aside from a successful plan change, the only other path to demolition is to seek to
pass a Local Bill specifically for this purpose. This would then override the District Plan
and general RMA provisions.

96. A Council decision to demolish the building under an enabling Act could still be subject to judicial review challenging the lawfulness of demolition. Any Bill would need to be drafted in such a way as to leave no room for ambiguity in interpretation on this point.
As with the other pathways discussed, the Council would need to consider the significant precedent effects in pursuing this option, including that, in practice, a Local Bill is an option available to the Council but, unlike a resource consent, not necessarily one that could be pursued by other building owners.

97. Pursuing a Local Bill would be subject to similarly high levels of uncertainty as a resource consent and/or plan change process. The local MP would be required to manage the Bill through Parliament and Council would be required to draft the Bill and meet all associated legal costs. The Bill would need support from a majority of MPs to be passed and it may take several years from introduction of the Bill before it is passed into law. It would also be subject to public debate through that process. As an example, the Girl Guides Association (New Zealand Branch) Incorporation Bill is a private bill that was introduced in February 2021, and has still not had its second reading two-and-a-half years later.

This still feels like There Is No Alternative framing. 

Local Bills are fast. Rotorua's local bill was at Select Committee within two weeks of being introduced; it was there shot down. The Girl Guides bill is a private bill.

If an incoming government has had a gutsful of Wellington spending piles of money on things that aren't the water pipes, it may well be inclined to ensure speedy treatment of the Bill, so it gets through the Committee stages reasonably quickly. 

Worst for an incoming government would be Wellington Council being able to credibly say, 

"Look, we tried our best not to have to spend another hundred million dollars on this damned building, and likely another half billion yet to come on Opera House and Fowler Centre. And who knows what down the track. 

But we are entirely tied up by central government legislation. 

Priority buildings in Wellington have to have works or demolition completed within 7.5 years of being notified. 

Our officials tell us that if we started today to try to delist the Town Hall, we might have a decision out of Environment Court by December 2026 and up to another year for High Court appeal. That's four years of legal process. 

And the clock is already ticking on Fowler and Town Hall. If we started normal legal processes this year to delist the buildings and untie our hands, we'd have less than four years* to actually do the works on them afterwards.

We asked a red-tape-hating government to let us make the choices that were right for our community, and they forced us to waste hundreds of millions of dollars instead."

* If those are priority buildings as well; it's 15 years all-up if they are not. I have no clue which buildings get a priority label. If it's based on risk to others, Opera House seems riskier than Fowler. 

It would seem more surprising if central government knocked this back rather than supporting it, really. 

A few bottom lines then:
  • Wellington Council likes to pretend that it has no choice but to spend an extra hundred million or so on this building, and who knows how much more on buildings yet to come. But there is a potential choice. Wellington Council could support a Local Bill that would enable council to delist buildings and proceed on more rational basis. 
  • Regardless of whether they think an incoming government would support a local bill, Wellington Council should put one up. If central government says no, Wellington Council could more plausibly ask for help in dealing with the cost consequences of loopy central government regulations. 
  • Central government is in a caretaker mode now, but when it starts up again, it should say yes to a local bill while starting to think about entirely redoing how heritage amenities are supported. The current regulatory framework is utterly unfit for purpose. It imposes massive cost on owners of buildings but little financial support. It just doesn't work. Flipping the system to ditch the regulatory restrictions while providing payments to the owners of buildings for continued provision of heritage amenities would allow greater real support for a smaller number of valuable buildings worth supporting.

NZ Alcohol excise, in context

The Tax Foundation provides some helpful context for NZ alcohol excise.

Well not directly; NZ isn't on this map. But we can add it pretty easily.

So let's add New Zealand.

Excise on beer is $35.451 per litre of pure alcohol.

A 330mL bottle of 5% beer then has $0.58 NZD = €0.32 in excise at current exchange rates.

If NZ were a European country, our excise on beer would be three times the median - at least of the set of countries here listed. There are 28 countries listed. The fourteenth and fifteenth highest have excise of  €0.10 and €0.09. 

We'd be tied for fourth-highest with Sweden. 

Perhaps helpful context. NZ's prohibitionists sometimes like to complain that excise here is less than Finland. Finland is the highest in Europe, at six times the European median. 

FWIW I still like the idea of replacing NZ's messy excise tables. 

Beverages with less than 2.5% alcohol get taxed at 53.170 cents per litre of beverage. Beer and other stuff that's between 2.5 and 6% alcohol gets taxed at $35.45 per litre of alcohol contained in the beverage. Then there are goofy rates for wine, assessed per litre beverage at $2.84 for wine that's 6-9% and $3.55 per litre of beverage for wine between 9% and 14%. And stuff over 14% gets charged $64.57 per litre of alcohol.

It's a convoluted way of assessing a higher excise rate on spirits and higher concentration alcohol, but with a distortion favouring wine over beer - and charging a lower per-unit-alcohol charge on 14% wine than on 9% wine. 

If you put the whole thing on same basis per litre of alcohol in the beverage, evaluating at the top of the range of alcohol concentration, very low-alcohol stuff gets taxed at $21.27 per litre of alcohol; beer is $35.45, wine just at 9% is $31.51, wine at 14% is $25.32, and spirits are $64.57. 

There's a simpler and less distorted way of getting an increasing average excise rate while having a single marginal rate per litre alcohol, regardless of what it's in.

Just exempt the first 1.27% of alcohol from any taxation. 

Why 1.27%? If you drink bathtubs of water that had no more than 1.27% alcohol in it, you'd die of water poisoning before you died of alcohol poisoning. So it makes for a nice cutoff. Ken Henry pointed it out ages ago in a tax review. 

A $45 per litre alcohol excise, across the board, with the first 1.27% exempted, would have the same excise on low alcohol and on 6% beer. It would have a higher excise on wine than is currently the case - the excise in a litre of 14% wine would increase from $3.55 to $5.73. And excise on spirits would come down. $45 would have the thing pivot around current excise on 6% beer. 

Or you could calibrate the thing to pivot at current excise rates on wine. That'd be fine with me too. 

At $37/litre of pure alcohol, the excise on a bottle of 8.9% wine would be about where it is now, excise on a bottle of 14% wine would increase from $3.55 to $4.71, but excise on everything else would drop. 

The current setup is basically war on people who prefer cocktails to wine. I don't know why policy should pick a side in that. I like both.

In other Tax Foundation news, the 2023 International Tax Competitiveness Index is out. NZ dodged a bullet. Labour would have wrecked GST. But we will maintain our Number 1 status. 

Friday 13 October 2023

Afternoon roundup

Eight browser windows each full of tabs. Something's gotta give.

Fattening a lamb?

New Zealand has a lot of job search websites. 

MSD thinks it needs to build its own job search website for beneficiaries. 

I don't know whether they're serious about this or are fattening up a lamb to sacrifice when an incoming MoF asks for budget cuts. 

Kate MacNamara has some details

The Government has pushed ahead with a $36 million job search platform for beneficiaries, despite Treasury warning of the plan’s dubious value for money.

A March report to Finance Minister Grant Robertson repeatedly noted that officials did not support funding the employment platform: “The Treasury has a different view on the scope of Horizon One. We do not support funding to develop a digital employment platform within Horizon One, whereas MSD [the Ministry of Social Development] considers this a critical part of Te Pae Tawhiti,” the document, released under the Official Information Act, said.

A Treasury spokesperson said the agency had not changed its view since the report was written.

The employment platform – a key purpose of which will be to match prospective employees and jobs – was funded through Budget 2023, and is part of the first phase of the MSD’s multi-billion dollar Te Pae Tawhiti programme of change. It is aimed at improving the digital provision of the agency’s services.

I'd put in an OIA on this one back in August, but in keeping with the Hughesean Spirit of Public Service, MSD punted the request until after the election, nominally for consultations, but almost certainly because they didn't want the stuff out before the election. 

I expect MSD wants the fattened lamb to be ready for sacrifice after the election, not for a political talking point before the election when the Minister of Finance likes to pretend there is no fat out there. 

This was my August OIA request:

Dear MSD,

I understand that MSD has proposed a platform that would match potential employers with beneficiaries seeking work. 

I’d like to know more about the proposal. I’m particularly interested in knowing what problem the platform might solve that isn’t already solved by, Student Job Search (, or other alternatives. 

Please provide:

1) Any documentation prepared in support of a funding bid for a job search platform for beneficiaries. I am particularly keen on anything addressing problem definition, where other platforms already exist to match workers and employers;

2) Costings for the development and deployment of such a platform, including relevant risks and timelines;

3) Any advice received from Treasury or DIA on the proposal, including minutes from relevant meetings;

4) Any information regarding whether the proposal was reassessed subsequent to signalled cutbacks in overall expenditure. Was the proposed project’s value-for-money reconsidered as the fiscal outlook changed after BEFU?

I've put in a request to the Ombudsman about what counts as proper consultations that could delay an OIA – particularly one that could prove politically sensitive and helpful for voters in an election campaign where agencies are claiming there’s no fat to trim. 

Monday 9 October 2023

The NIMBY Problem

Standard drill in a lot of the urban econ lit is that governments need to pull planning up to higher levels to get around local NIMBYs. The small number of loud people with infinite time to stall local planning just don't get the same hearing if planning's decided at a regional or state-level rather than at town council. 

And there's some decent evidence for that. Auckland's Unitary Plan is more enabling than the prior underlying plans were. A pile of apartments were built because of it. 

David Foster and Joseph Warren go through a countervailing force in the Journal of Theoretical Politics.

Nimbyism is widely thought to arise from an inherent tradeoff between localism and efficiency in government: because many development projects have spatially concentrated costs and diffuse benefits, local residents naturally oppose proposed projects. But why cannot project developers (with large potential profits) compensate local residents? We argue that local regulatory institutions effectively require developers to expend resources that cannot be used to compensate residents. Not being compensated for local costs, residents therefore oppose development. Using a formal model, we show that when these transaction costs are high, voters consistently oppose development regardless of compensation from developers. But when transaction costs are low, developers provide compensation to residents and local support for development increases. We conclude that nimbyism arises from a bargaining problem between developers and local residents, not the relationship between local decision-making and the spatial structure of costs and benefits. We suggest policy reforms implied by this theory.

Ben Southwood goes through it here, arguing that when NIMBYs can't be paid off at the margin, they instead aim to wreck everything: throw so much sand into every set of gears that nobody can ever build anything anywhere because building is just too hard. 

I've liked the idea of giving councils a share of the upside that central government enjoys when councils facilitate growth, so that councils can both find ways of dealing with costs they have to face in facilitating growth, and so they have the resources to provide whatever local amenity improvements are needed to overcome local opposition. 

Friday 6 October 2023

The only thing you'll be nursing is your whisky

Either New Zealand has no shortage of nurses, or New Zealand is a fundamentally silly country. 

Look on, ye voters, and despair. 

A new nurses' training school is ready to train, but has to sit empty. Why?

Here's the bit in BusinessDesk: 

Instead, bureaucracy and an absence of pragmatism is coming before both the pressing workforce crisis and urgent patient needs.  

The delays all come down to an historic technicality requiring education providers to offer a Bachelor of Nursing programme before they can offer an Enrolled Nursing programme.  Yet enrolled nurses trained by UP Education in Australia are able to live and work in NZ using this exact diploma. 

They’re high-quality nurses who make essential contributions in hospitals, private practices and aged-care facilities. 

Let’s repeat that. This qualification is a cornerstone of the Australian healthcare system. Those who hold it can work immediately in the NZ healthcare system. Yet it is not allowed to be taught as a standalone qualification in this country.  

This outdated standard is likely why the NCNZ, the nurse training regulator, originally agreed to consult with its members on the removal of this standard.  

However, the NCNZ has since decided to bundle this specific review of a single technical clause into a much wider review of sector-wide nursing competencies across the country’s entire nurse training sector – for enrolled and registered nurses. A technical standard that could have been reviewed and removed in a matter of weeks has snowballed into a review requiring consultation across the whole health sector beginning late this year or early 2024, potentially delaying our nursing programme a further 12 to 18 months. 

Newsroom covers it too:

Rivera said she had been told the registered and enrolled nursing scopes would be wrapped together from early 2024.

“Then there’s the consultation on what the actual education standards might look like, so I said to [Nursing Council chief executive Catherine Byrne] that this sounds to me like a 12-18-month delay.

“I didn’t get a reply, but that is my assumption given how consultation processes work with the Nursing Council.”

At the extreme end, Rivera’s estimated timeline could push the opening schedule to early 2025.

The facility, which got $370,000 in taxpayer funding through the Tertiary Education Committee, will sit empty until the consultation comes to an end.

“I have staff hired and ready to go, but luckily we're quite nimble and I've got them working on other health qualifications, so they are doing other things.

“The broader issue is we thought we could be part of a solution to a problem, and the bureaucracy around it is astonishing. There's just no movement.”

Rivera accepted the scope of practice needed to be looked at. “But it shouldn't mean that when there's a crisis, everything grinds to a halt and no new player is allowed in the market.”


...and make the platforms pay for it

I still hope that NZ looks over in horror at Canada and pulls back from making it risky for platforms to link to news.

Facebook's clearly decided that being in news just isn't worth the aggro. Look at this. Facebook referrals to top global news sites dropped from 120 million per month to about 20 million per month. 

News turns into outclicks rather than more scrolling for updates from family (and ads on Facebook's platform). 

Another reason that Canada has just been incredibly stupid in guessing that Facebook was just bluffing. 

Traffic referrals to the top global news sites from Meta's Facebook and X, formerly Twitter, has collapsed over the past year, according to data from Similarweb.

Why it matters: Website business models that depended on clicks from social media are now broken.

What's happening: Regulatory pressure and free speech concerns have pushed tech giants to abandon efforts to elevate quality information, leaving the public more susceptible to misinformation ahead of the 2024 election.

  • Meanwhile, news companies are scrambling to find business solutions while simultaneously fighting to protect their work in the AI era.

Morning roundup

The morning's clearing of the tabs...

  • Price theory is the core of everything that's good in economics. Albrecht and Hendrickson explain the basics. Price theory emphasises exchange and emergent outcomes. Public choice studies politics as exchange. It's fun to think about what would happen if an incoming government required Ministry Chief Economists to pass a test based on workouts in the old Alchian & Allen textbook.  
  • Like the idea of government paying a bonus to people for having kids? Robin Hanson has a neat way of doing that. But I doubt that proponents of baby bonuses will like it. 
  • This came out a while back but I'd missed it. Surprisingly enough, hydrogen deposits seem to form underground in spots where olivine is prevalent in the presence of heat and water. NZ has a lot of olivine, and heat, and wet. I wonder if anyone's gone looking for hydrogen - geological deposits hadn't previously been thought possible. If we have some, stick a pipe in it to power a boiler and generator above the deposit, and you'd have electricity that generates water rather than CO2. Seems a longshot, but would be pretty sweet.
  • Chris Trotter is nostalgic for a joyous left. Excellent piece. 
  • This kind of thing pushes electricity toward a global law-of-one-price, doesn't it?
  • Henry Thompson on the Industrial Organisation of the Mafia, forthcoming in the JLE.  
    This paper uses economic reasoning to analyze the organization of one of the most successful criminal groups in modern U.S. history: La Cosa Nostra (LCN). Drawing on recently declassified FBI reports and a hand-collected dataset, I argue that the costs of violent disputes are key for an economic understanding of LCN’s core institutions. Violent disputes were costly for LCN as they consumed resources to produce and were destructive. However, violent disputes were especially costly to LCN because of its need to keep a low profile. As a member did not bear the full costs of a profile-raising police investigation, each had a perverse incentive to resolve a dispute with violence. Hierarchical firms and a sophisticated court system were LCN’s solution. They gave bosses the authority and incentive to limit violent disputes and to use violence judiciously. LCN’s longevity and success are, in part, a testament to the institutions’ efficacy.


Thursday 5 October 2023

The problems of a tax-free threshold

Jim Rose details the problems with a tax-free threshold for the NZ Taxpayers Union. 

Running one that's revenue-neutral means you have to increase marginal rates further up. Increasing marginal rates to fund inframarginal transfers mightn't make the most sense. And there are better ways of targeting support, if that's what you want to do. 

He writes:

  • The introduction of a tax-free threshold is poorly targeted with many of the intended beneficiaries of the policy already receiving other Government support such as benefits, superannuation and tax credits, which could be increased without spillovers to other higher income groups.
  • The more important tax threshold that needs to be adjusted is the $48,000 income tax threshold that when crossed sees individuals paying a 30% marginal tax rate. Given that a full-time minimum wage worker earns $47,216 annually, they only need to work one additional hour a week or get a 40 cent per hour pay rise in order to be pushed into the higher tax rate. This, combined with the 27% abatement of Working for Families tax credits, can create punishing effective tax rates well above 50%, which has significant impacts on incentives to work.
  • Most of those in incomes low enough to substantially benefit from a tax-free threshold are either in groups where more targeted support can be provided (such as those listed above), are students working part time, or are second earners, again working part-time.
  • The tax-free thresholds proposed by the Greens and Te Pāti Māori, along with the one considered earlier in the year by Labour, would cost more than what is currently spent on Working for Families but spills over to many taxpayers who do not need it, rather than just those the policy intends to help.

Wednesday 4 October 2023


If a drug or medical device has already gone through the regulatory gauntlet at the FDA and Australia, or in the UK and Canada, or the EU and Taiwan, or Switzerland and Singapore, does it seem all that likely that Medsafe's going to find anything that everyone else missed?

Sure, Medsafe has 'expedited' processes for drugs already approved elsewhere. But those processes still impose cost - particularly time cost on pharmaceutical companies' regulatory affairs teams. 

And five million middling-income people at the far end of the world just don't hit the priority queue.

Alex Tabarrok talks about the FDA's invisible graveyard: all the people it has killed by being too slow to approve safe and effective drugs. How should we think about New Zealand's, when New Zealand insists on running a separate process for drugs already approved elsewhere?

In August, Pharmac dropped a pile of drugs from funding evaluation. Why? In twenty-four cases, Pharmac said, "We understand there is currently no Medsafe approved product available in New Zealand. We are not aware of any supplier willing to pursue Medsafe registration."

The government here likes to say the problem is the pharmaceutical companies, and that Medsafe would be happy to process their applications if only they'd apply. The real problem is that we have this process at all for drugs already approved elsewhere.

ACT yesterday announced that it would require Medsafe to automatically approve any drug or device already approved by at least two other trustworthy regulators, unless Medsafe had extraordinary reason not to approve it. 

ACT says if a drug or medical device has been approved by any two reputable foreign regulatory bodies (such as Australia, United States, United Kingdom), it should be automatically approved in NZ as well within one week unless Medsafe can show extraordinary reason why it shouldn’t be. 

This simple change would significantly improve access to medicines that have already been subject to rigorous testing and analysis through other regulatory regimes.

The Strategy would include a working list of international regulatory regimes that have comparable or more robust systems compared with New Zealand. It will also include an analysis of areas where international analysis might not be directly relevant to the New Zealand population: for example, if there are significant differences in population makeup that would distort medical efficacy.

National's policy isn't far from that.

4.2 Faster approvals for new medicine

New Zealand’s slow approval process for medicines means Kiwis wait much longer than people in other countries to access potentially life-saving treatments. While it is essential that medicines and other treatments are subject to stringent scrutiny to ensure they are safe, there is no reason why New Zealanders should have to wait for our domestic medicines regulatory body, Medsafe, to conduct its own cumbersome process from scratch, when countries with health systems we trust have already gone through this exercise.

National will

  • Legislate to require Medsafe to make decisions on approval for registration for all medicines within a maximum 255 days, to align with Australia,
  • Require Medsafe to implement even faster approvals processes for any medicines for use in New Zealand that have already been approved by at least two regulatory bodies that we currently recognise, including Australia, the EU, Singapore, the UK, Switzerland and the US.

I've long wanted this kind of policy. And there's some hope that the general congruence of the two parties' policies could mean it gets done in the event of a National-ACT coalition.


Tuesday 3 October 2023

Afternoon roundup

The tabs...

A late pitch for supermarket competition

Labour says they want more competition in grocery retail. I worry about the cursed monkey paw version of it.

“We know that it’s tough right now for many people, and the high cost of food isn’t helping,” Commerce and Consumer Affairs spokesperson Duncan Webb said.

“The inquiry we ordered into competition in the grocery business showed the two big companies who control the grocery industry in New Zealand were making excess profits of around $1 million a day.

“We need to go further than we have to date to force the type of competition shoppers overseas experience.

“If we’re returned to Government, Labour will back credible companies wanting to get into or expand into the New Zealand grocery business.

“This could include finance, making sure land is available, regulatory changes, incubating innovation and accelerating competition.

First, backing companies is a mistake. The government shouldn't be picking who the next grocery retailer might be. 

Next, subsidising entrants would also be a mistake. If you have everything else set right, the potential entrant's decision about whether to enter tells you something really important about viability. But if a subsidy's needed to get them over the line, it's a lot harder to tell whether that entry really made sense in the first place. And you're setting the stage for future subsidy-seeking. 

I don't know what incubating innovation means and I'm not sure they do either. It feels like something that Rhonda from Australian TV series Utopia might have thrown into the mix because it sounded good. 

But making sure land is available and that regulation isn't in the way strikes at the root of the current problem. 

When we'd looked at it during the Commerce Commission market studies process, it seemed that it was de facto illegal for a new entrant to come into the market at scale. Too few sites zoned for large footprint retail; long and variable lags in consenting that introduce huge risk; uncertainty about whether police and medical officers of health would block liquor permits late in the game; hurdles through the Overseas Investment Office for any sensitive sites. 

And Labour added an additional problem when it set the new grocery regulation regime. Five years after Aldi, or anyone else, started up as a grocery business in New Zealand, the Minister could designate them if the Minister figured it was a good idea. A designated grocer is compelled to supply its competitors at government-regulated prices. 

So if Aldi, or Lidl, or Tesco, or anyone else came here, they might worry that:

  1. Councils often seem owned by corrupt cartels of downtown landowners who block new competitors entry. Look at what Ashburton did
  2. Even a council acting properly could take years to decide on consents. Your capital is tied up during that process and your logistics turn into a mess. The Natural and Built Environment Act prohibits consideration of competition, even the benefits of competition, in deciding this stuff. It's insane. We pointed out the problem at Select Committee and it wasn't fixed. And you might be stuck opening with chains across your liquor section if the police and medicos decide to cause problems, and they're likely to object. They like objecting. 
  3. After an entrant has sunk massive amounts of money into establishing a presence here, that entrant could be forced to provide existing NZ supermarkets with everything from their hard-built global supply chains at prices set by the government. 
Fixing that mess would make sure land is available, would progress needed regulatory changes, and would accelerate competition. It would be super. 

But decent odds they're instead just thinking about subsidising Supie

We put up a release on it yesterday; I had an early morning chat with Newstalk ZB, TV3's AM Show, and Sean Plunkett at The Platform about it.