Where are the food carts?

I still don't get why there aren't more food carts on Wellington's waterfront. On a good sunny day, you might find, along a stretch of gorgeous waterfront more than two kilometres long, all of it close to downtown, 2-3 food carts. 

Meanwhile, downtown Christchurch restaurants are worried about the Arts Centre's plan to host around 30 carts not just on weekends: every day. They point to the rates bills they pay and consenting hassles they deal with that food carts avoid; they want Council to cut its subsidy to the Arts Centre if it doesn't abandon its food trucks plan. 

My column for this week's Post, Christchurch Press, Waikato Times etc:

Assessing council rates on land value alone, while abolishing the punitive ratings differential assessed on businesses, would be a better way of levelling that part of the playing field. The piece of land would pay the same amount in rates regardless of whether a restaurant, a shop, or some carts sat on it.

Similarly, radically easing consenting burdens would level the playing field while improving outcomes more generally. This week, results from the UK Growth Survey were released. Forty-four top UK economists were asked what their government should do to pursue growth. They overwhelmingly pointed to planning reform. We have the same problem.

Building a restaurant should be a simple by-right activity.

And letting food carts serve beer would remove a distortion that currently works in restaurants’ favour.

Christchurch council should only reduce the subsidy it provides to the Arts Centre to the extent that having food carts reduces the value of the public amenity that the centre provides. And really, food carts seem more likely to improve that amenity than impede it.

Christchurch’s problem then brings us back to Wellington’s puzzle. Food carts do not have to deal with resource and building consents, though they do need a food registration certificate. They enjoy a ratings advantage, and Wellington’s business ratings differential is even worse than Christchurch’s. And everywhere in Wellington’s downtown is a short walk from the waterfront. Christchurch is more dispersed.

So, on a good day, to steal a line from an old Australian tourism commercial, where the hell are the waterfront food carts?

Better to level playing fields by removing shackles rather than by adding them. But if food carts do have such an advantage, why are there so few on Wellington's waterfront? 

An ungated version of the column will eventually turn up here.

Generation screwed?

I gave a short talk for a new student group last week, Generation Screwed. The event was joint with Students for Liberty, who seem to be setting up in NZ!

They'd asked about debt, tax burden, and intergenerational issues. I put together a few starter-notes to let them know where I was coming from; I've copied those below. 

1. The cleanest measure of the tax burden is government spending. Governments will try to hide the burden by shuffling it off to future through debt. Always watch spending rather than just taxes. The only real tax cut is a spending cut. The Public Finance Act tries to constrain govt use of debt, but it doesn’t enforce itself.
2. As a rule of thumb, governments should not spend more than they earn in tax revenue. Fine to take on debt in a crisis or downturn and pay it back on the upswing. But funding normal expenditure through debt is a terrible idea. It only works until it doesn’t. And when it doesn’t, things can get very bad indeed.
3. Debt for long-term infrastructure, funded by payments from the use of that infrastructure, is of a different category entirely – so long as the accounting is sound. What’s a good way to make sure the accounting is sound? Ban bailouts of that debt from government’s main balance sheet. Interest rates on it will be higher because they reflect real commercial risk. If a project is then not viable, it was a bad project to begin with.
4. Getting that kind of ring-fenced debt in order is vitally important in bringing housing costs down. Why? It lets the beneficiaries of the infrastructure needed to support new housing pay for that infrastructure over a long period of time, rather than spreading its cost across the entire community over a shorter period of time. The current setup means every other ratepayer has incentive to restrict new infrastructure because they’re stuck paying for it. Going back to basic principles of beneficiary-pays means we’d get to have more nice things. The housing shortage is fundamentally a zoning issue, and it’s a zoning issue because councils experience housing growth as a cost to their balance sheet to be managed through zoning rather than a benefit to be sought through infrastructure provision. Fix that and most of the problem is solved.

Seems like a fun group. I had fun anyway! 

Rebuilding one bit of state capacity

New Zealand's immigration bureaucracy isn't in the best of shape. 

So it's interesting to read this piece from the Niskanen Center on Biden's refugee resettlement programme, and how it provides an example of rebuilding state capacity. 

President Biden set ambitious refugee resettlement goals—62,500 for 2021 and 125,000 for 2022. However, the U.S. lacked the capacity to meet these targets. The resettlement system, significantly weakened by previous cuts, struggled to reach even 10% of the target. While the policy was clear, the necessary infrastructure was woefully inadequate. There was little state capacity. 

The challenge was clear: How could the U.S. government, along with its global partners and local resettlement agencies, restore a refugee system that had once been a global leader but had since deteriorated? The task required swift action to rebuild the infrastructure, resources, and capacity needed to meet the ambitious resettlement targets set by the administration. It was a race against time to revive a program that, only a few years earlier, had been a cornerstone of U.S. humanitarian efforts.

To understand how the U.S. refugee program rebounded, it’s essential to first look at how it was dismantled. Donald Trump campaigned on the notion that the program posed a security threat, particularly emphasizing risks from refugees from Muslim-majority countries due to what he claimed were inadequate vetting procedures. Shortly after taking office, he implemented a travel ban, paused refugee admissions for 120 days, and reduced the annual refugee admissions target. Each subsequent year, the admissions cap was lowered further, causing over 100 resettlement offices across the country to close.

When COVID-19 hit, the already weakened refugee system collapsed, reaching its lowest point in history. Refugees who had completed the rigorous security and medical checks saw their approvals expire as the program came to a standstill. By the time Joe Biden took office, the resettlement pipeline had been hollowed out. It wasn’t just a matter of restarting the program — it was about rebuilding U.S. state capacity for refugee protection from the ground up. This was far from a simple flip-the-switch scenario; restoring functionality required a comprehensive overhaul. 

Niskanen’s Jen Pahlka identifies three essential strategies for increasing state capacity: 1) recruiting the right people, 2) focusing them on the right things, and 3) reducing unnecessary burdens on their work. This straightforward framework delivers dramatic results and offers a clear lens to understand how the U.S. refugee program was successfully rebuilt.

Probably worth writing up as a proper column sometime.  

What planet are they on?

New Zealand's newspaper chiefs' views on how the Fair Digital News Bargaining Bill works is somewhat at odds with the text of the Bill. 

Google today, admirably, said they'll stop linking to New Zealand news outlets in search if the Bill goes ahead. 

News Publishers' Association's Andrew Holden and Stuff's Sinead Boucher aren't happy about that. But contrast what they say with what the legislation says. 

News Publishers' Association spokesperson Andrew Holden said Google had deliberately misrepresented the legislation in its blog and demonstrated “the kind of pressure that it has been applying to the Government and news media companies”.

The bill would create the environment for media companies to “sit down and have a proper commercial negotiation with ‘big tech’ companies about their use of our journalism”, he said.

The Bill creates an environment for a proper commercial negotiation? Let's look at the Bill.  

Clause 21 lets news media companies apply to the Authority to have a platform registered as an operator. A designated operator must comply with the bargaining code (26), under a duty to bargain in good faith (27), and a duty to participate (31). If the negotiation period ends without agreement it moves into mediation (34, 35). It moves then to final offer arbitration if they fail to reach agreement (39), they submit final offers (45), and the arbitration panel selects its preferred final offer (49). There are matters to which the Panel must have regard (50) but there's no way of forming reasonable expectations about what that Panel might decide. 

Does any of that really sound like 'proper commercial negotiation'? 

If I would like to buy your house, and you do not want to sell me your house at the price I've offered, would proper commercial negotiation mean that it ends there, or that I get to drag you into arbitration where you might be forced to sell me your house at the price I've set as my final offer if the Panel thinks that that number seems fair?

Has Andrew Holden read Section 49 of the Bill or is he deliberately misrepresenting the Bill?

Let's move on. 

“To make it clear, no one is asking Google, or anyone else, to pay for linking to news,” Boucher said.

Oh really?

Here's the preamble to the Bill - the explanatory notes. 

The Authority may only register an operator in respect of a news media entity if, in the Authority’s opinion,—

the operator’s digital platform makes the news media entity’s news content available; and

there is a bargaining power imbalance between the operator and the news media entity that favours the operator and is more than minor or insignificant.

Let's check Clause 22: 

22 Grounds for registering an operator

(1) The Authority may register an operator in respect of a registered news media entity only if, in the Authority’s opinion,—

(a) the operator’s digital platform makes news content produced by the news media entity available to people in New Zealand; and

(b) there is likely to be a bargaining power imbalance between the operator and the news media entity in respect of the terms on which the news media entity’s news content may be made available by the operator’s digital platform; and

(c) the imbalance is—

(i) more than minor or insignificant; and

(ii) in favour of the operator.

(2) When deciding whether to register an operator, the Authority may take into account the following matters:

(a) the size of, and resources available to, the operator and the news media entity:

(b) the extent to which the news media entity is reliant on the operator’s digital platform to carry on its business:

(c) the extent to which the operator is reliant on the news content produced by the news media entity to carry on its business (including the extent to which the operator can substitute content produced by the news media entity for content produced by another news media entity):

(d) an estimate of the benefits and detriments (monetary or otherwise) for the operator and the news media entity of the news media entity’s news content being made available by the operator’s digital platform:

(e) the extent to which the news media entity has been able to negotiate the terms on which its news content is made available by the operator’s digital platform, including—

(i) whether the operator has subjected the news media entity to unfair pressure or tactics or otherwise unfairly influenced the news media entity in respect of news content made available by the operator’s digital platform and, if so, the nature and extent of that conduct; and

(ii) whether, taking into account the particular characteristics of the news media entity, the news media entity is able to protect its interests in respect of the news content it produces:

(f) any other matters that the Authority considers relevant.

If the Authority views a link to a news site with a short fair-dealing snippet of what the story is about as "making news content produced by the news media entity available to people in New Zealand", the platform can be designated.

If there is no intention to capture a platform that simply provides links, it would have been easy to specify that in the legislation. Simply put in a 22(1)(a)(i) that reads something like:

(i) for clarity, linking to a news site by a search engine, or by users of a platform, with or without a short snippet describing the linked story, cannot on its own be sufficient basis for designation as an Operator.  

Without that kind of restriction, I can't see how linking to a news story on its own is guaranteed to be insufficient basis for designation. It doesn't matter whether Boucher says she doesn't want to force Google to pay for links. What matters is whether the legislation precludes that as being sufficient, on its own, for designation. 

Shayne Currie, over at the Herald, also doesn't seem to like Google's offer to stop stealing from them by linking to their news stories. 

But his summary of the state of play in Canada is a bit jarring for those of us who've been following the state of play in Canada. 

Here's Currie. 

What happens in other countries?

Google has been ruled exempt from the Online News Act in Canada, after agreeing to pay an annual sum of money – $C100 million ($119m) – to be shared amongst news media companies.

The Google money will be allocated on a formula based on the journalist headcount at each company.

The money will be administered and distributed by the Canadian Journalism Collective, an organisation set up of independent publishers and broadcasters.

The collective was committed to distributing the funding in a “fair, transparent, and inclusive manner”, said CJC independent board director Sadia Zaman.

“We look forward to working with the full diversity of the Canadian news ecosystem, including traditional print and broadcast organisations, and independent local news publishers, including those who serve indigenous, black and racialised communities and francophone communities.”

It is understood Google would want a similar arrangement here, but for the minister to administer the pool of money.

Any pool of money is likely to be well short of what the media industry believes it should be paid, and even what it receives now.

Media industry representatives have previously stated Google should not be exempt.

You might have noticed a few things missing. 

First, Facebook's withdrawal from news hit small news outlets kinda hard. There's no mention of that at all, but he could argue that this is just about Google's side.

But on Google's side, a lot of what they're paying to avoid designation is recycling of funds they'd already been putting into journalism development. 

If you want to know what is happening in Canada on this stuff, you just have to read Michael Geist. He's the expert in it. He's the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa and has been on this file from the beginning.  

Here was his summary as of 25 September. 

The disaster that is Bill C-18 is by now well known. Blocked news links on Meta platforms have had no discernible impact on Facebook traffic, but it has sharply reduced referral traffic to Canadian news sites and led to the cancellation of millions of dollars in previous agreements with publishers. Meanwhile, the Google money remains in limbo as the sector awaits CRTC approval over the governance of its distribution. With prior Google agreements folded into the new $100 million contribution, some organizations will garner less than they did prior to the legislation. Moreover, as demonstrated by the recent response to a controversial tweet from Heritage Parliamentary Secretary Taleeb Noormohamed or the backlash against a CTV report that stitched together comments from Conservative leader Pierre Poilievre to create a fake clip, the government’s policies have only exacerbated public mistrust of the media with every error viewed through the lens of government funding for the media. Far from preserving an independent press, the policies have actually placed them at greater risk.

 

Loss aversion or mistakes?

Super-neat paper coming out in the AER by Ryan Oprea: Decisions under risk are decisions under complexity. 

The abstract:

We provide evidence that classic lottery anomalies like probability weighting and loss aversion are not special phenomena of risk. They also arise (and often with equal strength) when subjects evaluate deterministic, positive monetary payments that have been disaggregated to resemble lotteries. Thus, we find, e.g., apparent probability weighting in settings without probabilities and loss aversion in settings without scope for loss. Across subjects, anomalies in these deterministic tasks strongly predicts the same anomalies in lotteries. These findings suggest that much of the behavior motivating our most important behavioral theories of risk derive from complexity-driven mistakes rather than true risk preferences.

There are piles of experiments showing what seem to be anomalies from rational choice; behavioural economists lump these into categories like loss aversion. 

But experiments testing for these things require participants to make complicated choices. That complexity can matter.

Oprea sets experiments where people are faced with risky choices, and equally complicated variants of the choices where there is no risk. People have to compute expected value in both cases, and not everybody is good at that on the fly in the lab. In the deterministic treatment, people get the expected value of the choice with certainty. In the risky treatment, they only get it probabilistically. But the computational complexity is the same across treatments.

While the literature interprets the resulting valuations of lotteries as certainty equivalents –

the certain dollar payments subjects value equivalently to risky lotteries – the same interpretation cannot be applied to mirrors which contain no uncertainty. Instead values for mirrors are simplicity equivalents: the simply-described payment amount subjects value equivalently to the more complexly described (but no less certain) mirror. Our question throughout the paper is whether simplicity equivalents have the same properties and suffer the same anomalies as certainty equivalents.

To the degree the classical pattern is indeed driven by risk preferences (i.e. tastes for risk

that cause valuations to deviate from expected value), it should disappear when we remove risk from lotteries in our Mirror treatment. Because mirrors pay expected value with certainty, they effectively induce risk neutral EUT preferences in subjects, making any valuations that depart from expected value dominated mistakes under any rational theory of subjects’ own native preferences. Thus, to the degree this distinctive pattern continues to arise in the absence of risk, we have evidence for an alternative interpretation of the classical pattern: that it is a pattern of systematic mistakes, arising not because lotteries are risky, per se, but rather because they are complex (costly or difficult to properly value).5

Oprea then finds that situations without risk generate the same kinds of patterns that people have interpreted as loss aversion in risky contexts. 

What predicts errors that look like loss aversion etc?

Finally, we collected a number of additional pieces of data in our main experiment that we correlate with the severity of the classical pattern in lotteries and mirrors (see Supplemental Appendix A.5 for details), giving us some insight into the behaviors that drive the classical pattern. For instance, we find that (i) fast decision-making, (ii) noisy, inconsistent choices in repeated instances of the same task and (iii) poor performance on cognitive reflection tasks administered post-experiment are all positively correlated with the severity of the classical pattern. We also asked subjects after the experiment (iv) how likely they believed it was that they made suboptimal choices (measuring “cognitive uncertainty,” a’la Enke & Graeber (2023)), (v) how imprecise they thought their decision-making process was (on a 100-point Likert scale) and (vi) how little attention subjects believe they themselves paid to payoffs and proportions in the descriptions of mirrors (again, using a 100-point Likert scale), and found that all of these were significantly correlated with the pattern too. These results therefore link the classical pattern in both lotteries and mirrors to hasty, noisy, imprecise and inattentive decision-making and suggest that subjects were largely aware that they were making imperfect decisions in these valuations (i.e. in important respects they know they are heuristically valuing these objects). Importantly, this is virtually identically true in lotteries and mirrors: we find highly consistent correlations between the classical pattern and all of these measures in the two settings, reinforcing our conclusion that the pattern is driven by the same behavioral mechanism in lotteries and mirrors.

Putting these strands of evidence together, the twin appearance of the classical pattern in lotteries and mirrors suggests that it represents a response not to risk but rather to the complexity of valuation. Perhaps surprisingly, this complexity does not seem to be primarily rooted in the arithmetic required in valuation, but in other cognitively taxing aspects of the task. For instance simply thinking through how one’s preferences connect to the primitives of lotteries and mirrors and articulating the implications for behavior plausibly requires significant mental effort, even if one has little diffculty with the math once the problem is “set up.” We speculate that subjects make a kind of “extensive margin” choice when deciding how to approach valuation tasks like these, deciding first whether to (i) do a precise, careful job of evaluation, or instead to (ii) casually or informally approximate value using heuristic methods. Following approach (i) requires more mental effort, strain and time than approach (ii), leading many subjects to pursue approach (ii) instead. Auxiliary evidence from Supplemental Appendix A.5 seems consistent with this account, since this evidence shows that features of behavior that we would expect to accompany casual or informal valuation procedures (e.g., hasty, inconsistent, imprecise inattentive and error-prone choices) are highly predictive of the severity of the classical pattern.

Just a super important result. And the kind of test that when it's pointed out, you have to wonder why nobody had tried it before. Great stuff. 

Monkeypox and Medsafe

In a sane world, medicines and vaccines already approved by trustworthy overseas regulators would automatically be able to be used in New Zealand as well.

New Zealand is not sane. But neither is anywhere else really on that standard. Other places are just faster than NZ in getting things approved, with more practicable pathways for expedited review. 

If a medicine is unapproved, it can still be accessed under restrictive provisions of the Medicines Act. Medsafe summarises it here. 

Those restrictions include bans on advertising and marketing. 

Monkeypox has been an obvious risk for some time. Jynneos was approved by the EMA in 2013 for smallpox and was recommended for monkeypox in 2022. It was approved by the FDA in 2019, and given emergency use authorisation for monkeypox in 2022. The "Emergency" in the EUA was the monkeypox outbreak. 

Nobody applied for Medsafe authorisation until 2023.

Medsafe took over a year to approve it, despite its already having been approved in Canada, the US and Europe at the point at which application was made.

It was available in New Zealand through Section 29. However, you can't advertise unapproved medicines. 

The Post noted the difficulties in letting at-risk communities know about the vaccine, because of s29 restrictions. 

 

Radio New Zealand notes that greatest transmission risk is concentrated among men who have sex with men, and those who have sex with men who have sex with men. 

The outbreak from the Queenstown Pride Festival now counts five in total. 

It sure would have been great if it hadn't been illegal to advertise the vaccine earlier and to make it real easy for folks to get the vaccine.   

Or if Medsafe had been required to automatically approve medicines already approved by two others - which would have had it authorised in New Zealand in 2022.

We are ruled by Vogons.

Levine on arbitrage

I should have signed up for Matt Levine's newsletter ages ago; finally did so. 

His bit on the Spotify arbitrage play was magnificent. 

I don’t know, man. We have talked a few times about Avi Eisenberg, the Mango Markets guy, who found a manipulatable cryptocurrency market, manipulated the heck out of it, made tens of millions of dollars, was arrested, defended himself by saying he was an “applied game theorist” who spotted a good trade that was allowed by the market, and got convicted because nobody ever wants to hear a defense like that.6

Please legalise new supermarkets

Jaw-dropping bit from the Grocery Regulator, in interview at Interest.co.nz:

“What we've been told by these players is when they come and they want to open up a large store in New Zealand, the cost to get a spade in the ground is double that of Australia,” he says in a new episode of the Of Interest podcast. 

“Now that is significant. And when they look at 'do we open up a store in Wagga Wagga or Tamworth or wherever in Australia' versus coming to open up in Auckland where there is massive demand or any of the other centres, really, the cost is double that of Australia. And the timeframe often is more than double as well. So when they do their business cases, they look at that and say, 'well, we're going to be better off by going elsewhere rather than here.' Now the government is saying that they're going to change things to make New Zealand more competitive for international players. And that's really what we're looking at.”

The Commerce Commission released its first annual grocery report on Wednesday which revealed ComCom’s efforts to boost grocery competition over the past year hasn’t had much impact. 

Later in the podcast, he says that Costco would already have expanded to more places in NZ if expanding in NZ weren't so freaking hard. 

It shouldn't be surprising that the grocery regulator hasn't chalked any wins as yet. The real problem is largely out of the regulator's hands: RMA, Overseas Investment Act, Council processes. 

On council processes, just look at this clusterfxxk. This is what an incumbent who has been here forever has to deal with: a company that knows the system. If even they can't get through it, what hope for someone who's new to NZ?

Woolworths has backed out of its fight to install a new entrance and signage to its FreshChoice store in Greytown.

It’s left heritage campaigners and business owners, who have spent almost a decade fighting the plans, breathing a collective sigh of relief.

The supermarket giant appealed to the Environment Court after an independent commissioner for South Wairarapa District Council declined it’s proposal to create a new access to the store from Main St in December last year.

The plan included the demolition of the existing house at 134 Main St, the installation of a 8.3 metre-wide new vehicle crossing and an internally illuminated 3.6m high, freestanding sign.

Matthew Grainger, Woolworth’s director of property in New Zealand, said it hadn’t been able to find “a solution that would work for everyone”.

“We simply haven’t been able to reach an outcome that would be satisfactory for the community and viable for Woolworths which is why we’re withdrawing our appeal."

It marked the end of a “diabolical” process that had dragged on for nearly a decade, Gina Jones from the Greytown Heritage Trust said.

Minister Bishop's move to set mixed use by default in places subject to intensification under the National Policy Statement on Urban Development is a great start in opening things up.

But I'd love it if retail grocery had access to the fast-track consenting regime. If an entrant could put dozens of sites up and down the country up for simultaneous approval through that regime, rather than waiting for consents to dribble through over the next decade...

 

Let's ban Mazda Demios and put an end to ram-raids

The post title is obviously stupid, right?

Mazda Demios are pretty common in ram-raids but:

1. Ram raids have started coming down off their peak;
2. People can use all kinds of cars for ram-raids;
3. Most Mazda Demios are not used in ram-raids. Other people drive them too.

Now consider the National Party's proposed "Let's ban disposable vapes and vapes that use non-refillable pods or tanks to put an end to youth vaping" policy.

Disposable vapes are pretty commonly used by youths who vape - more than tanks or pods. But:

1. Youth vaping has stopped increasing (and came down a bit in the most recent Year 10 survey);
2. Youths can use all kinds of devices, not just disposables and non-refillable pods and tanks;
3. Adults use these too. Adults who used them to quit smoking, and who were attracted by the convenience and cost of non-refillable systems. 

The proposed ban is so stupid. 

In late August, I had a column over in the Post on it [ungated here]. I noted the very obvious problems with the proposed ban. The vape systems that are hardest to use would be the only ones left on the market, which will screw things up for adult vapers who can't handle those systems while making it easier for screw-ups to happen. 

The Government will ban vaping products that are more affordable and that are easier to use – for everyone, adults included. The measures seem to be aimed at reducing youth vaping by increasing the cost of vapes. But if the Government wanted to increase the cost of vaping, excise would make more sense than banning specific types of vapes.

Vaping is a lot less risky than smoking, but there are ways for vaping to go wrong. If someone who doesn’t know what they’re doing mixes their own vape fluid in a tank-based system, they could get a higher dose than intended. Or they could experiment with adding things into the mix that should not be there. Or they could let the tank run dry, resulting in overheated coils and potentially noxious fumes.

Self-contained disposable vaping products and pod-based devices avoid those risks. They are designed to avoid hot dry heating coils. The vaping fluid is pre-mixed and cannot be adjusted. But those are the vaping devices that the Government is going to ban.

Let’s say that again. The Government is proposing to ban the safest devices while leaving the potentially riskier ones on the market, and says it is doing this because it wants to protect kids.

The Ministry hadn't yet put up the RIS on the ban. It was fun to read through it - they'd written it before my column, but hadn't released it yet. And they said much the same that I'd said: if you want to target cost, excise or minimum pricing make more sense but there are tradeoffs with that. Banning pods and single-use tanks goes beyond what's needed and will have adverse consequences for adult vapers. 

What did the Ministry say? 

1. Daily vaping has been stable for three years but is high in international perspective;
2. Youths who vape most frequently choose disposables: twice as common as pods, three times as common as tanks)
3. "There is risk that reducing youth access to vapes will lead to higher youth smoking rates"
4. "Actions to reduce youth vaping need to be targeted towards young people and minimise any barriers on adults wanting to access vapes to quit smoking"
5. "While banning disposables may prevent further young people taking up vaping, it may not stop vaping in those cohorts who are already doing it regularly."
6. Existing rules that came into effect end-December ban disposables without removable batteries; this removes most traditional disposables from the market already.
7. Broadening the ban on disposables won't be a material barrier to adults; three quarters of adults use pods and tanks.
8. Cabinet's preferred broad ban brings safety concerns because you're forcing everyone to refill tanks. 
9. "There is also the potential risk that a more comprehensive ban incentivises an illicit market. Whilst not directly comparable, tighter regulation in Australia has seen the rise of a significant illicit market with 87% of Australians who vape reporting sourcing vapes illegally."
10. "accessibility of use for adults who smoke and wish to vape to quit smoking would also be impacted."
11. If the government wants to increase the cost of vapes, excise and/or minimum prices make more sense but have trade-offs when thinking about encouraging adults to shift away from smoked tobacco.

The Ministry preferred the much narrower ban. 

And it's great that they pointed to the risk of illicit market access under a broader ban. Otago's public health people like to pretend that those worries are invented by industry. 

I went through the Ministry's RIS over at Newsroom this week. This will wind up biting National unless they fix it at Select Committee:

And here is where we shift from the measures just being poor policy to also being a political mistake.

Under the previous Labour government, then-health minister Ayesha Verrall had legislated a ban on cigarettes that contain any appreciable amount of nicotine, an annual increase in the age limit for smoking, and reductions in the number of retail outlets allowed to sell cigarettes.

Measures from that legislation had not come into effect by the time of last year’s election. And, to some surprise, the incoming Government’s coalition agreements reversed that legislation while committing the Government to considering a broader range of reduced-harm alternatives to smoking.

Labour strongly opposed the Government’s reversal of its legislation, claiming its legislation was needed to continue the path to Smokefree 2025.

Many ex-smokers use the vaping systems that National is due to ban. Smoking rates could well be increasing again in the lead-up to the 2026 election. If smoking rates are on the rise, Labour will have its choice of rod with which to beat National. It could point to the vaping rules, or to the coalition’s reversal of Verrall’s legislation, or both.

The legislation may provide the Government with a temporary reprieve from parents and teachers worried about youth vaping. But the Ministry of Health’s Regulatory Impact Statement suggests the ban is far broader than is really necessary. If the government does not reconsider its options through the select committee process, it may yet find that bad policy becomes bad politics.

Labour's been curiously silent on this one. 

In other instances in which National set tobacco/nicotine policy that MoH disagreed with, Labour and Radio NZ have been sure it's because National/NZ First are corrupt. Haven't heard from them yet on this one - probably because they're following Napolean's warnings against interfering when an enemy is making a mistake. 

Uber messy

Caught a fun phone call from an accountant after this week's column over at the Dom Post (and Christchurch Press, etc) on the court's decision in the Uber case.

If Uber drivers are employees, rather than contractors, as the Court sees things, how will depreciation on their cars be handled? Contractors can count all those expenses against their earnings. Employers will pay you mileage if you use your own car for work purposes, but that seems like a nightmare in this case. Uber would have to start caring about what kind of car you use, where it can otherwise leave it to the driver-partner. 

I'd not thought about that one.

A snippet of what I had thought about:

If the court is right about the law, and it’s more likely to be right about it than I am, then the law is wrong. It makes it impossible to operate models that make both drivers and riders better off. Drivers who prefer an employment arrangement rather than contracting already have an obvious option: send a CV to a traditional taxicab company.

The Government will have to legislate around this mess.

The Government could set a new category into employment law for platform workers so companies could offer benefits without fear of workers being deemed employees, and so workers could maintain valuable flexibility. However, any new set of boundaries between categories will bring its own future challenges.

Alternatively, it could liberalise employment law more broadly. If Uber and its drivers agree that they are in a contracting relationship and nobody is forcing drivers to work with Uber, the courts could be required to recognise voluntary agreements among consenting adults. That approach would be flexible against changes in real-world circumstances, but more at risk of changes in government.

Perhaps the safest option would be a combination of the two. A broadly workable category for platform workers combined with the ability to contract voluntarily could preserve the former against future governments opposed to the latter.

 An ungated version should show up on the Initiative's website in due course. 

Basic income, again

This week's column for the Stuff papers covered the excellent new US work testing the effects of a UBI. 

From November 2020, 3000 low-income people were randomly assigned into two groups for three years. One thousand people each received $1000 per month in unconditional funds for three years. Two thousand people each received $50 per month.

Both groups filled in detailed surveys on how they spent their time, on their purchases, their health experience and more. Participants had blood tests to check health outcomes. Government administrative records were combined with the survey data to provide more detail.

The UBI amounted to about a 40% increase in recipients’ income – large enough to matter.

The researchers pre-registered their study design to guard against, well, fiddling. If you have dozens of potential outcomes that might be affected by the cash transfers, there are many ways for studies to accidentally find effects that are not there, and even more ways to put a thumb on the scales. Trial pre-registration says in advance how statistical testing will be run.

...

What did the experiment find?

Households receiving the UBI were able to enjoy more leisure than other households. Leisure is good and should not be underrated. But that was the largest actual effect. Their overall earnings, including the transfer, were higher – but labour force participation and hours worked fell. Households receiving the UBI earned about $5000 less per year than the control group, not counting the transfer, or about $6000 more than the control group when counting the transfer.

People receiving the transfer spent more time unemployed if they became unemployed, but more time for job search did not help. There was no effect on job quality – and a good study design meant they could rule out even small effects.

Remember that the funding for the study came from donors. Any real-world UBI would need to be funded by taxation that would have its own pernicious effects on work incentives. And a permanent UBI would have larger effects on work choices than a three-year programme.

What about health? In the short term, people receiving the transfer enjoyed reduced stress and greater food security. But those effects quickly faded. There was increased uptake of health services and some healthy behaviours. We can be more confident that a UBI benefit would not be blown on drugs and alcohol. But the study found not even minimal effects on physical health. And initial improvements in mental health disappeared after the first year.

While poverty is certainly associated with worse health outcomes, very large and sustained cash transfers did not improve health. Worth remembering when reading the next public health study asserting that more income redistribution would improve health outcomes.

They put a heck of a lot of work into this trial and its evaluation. To the extent that they got a law change so that the payments wouldn't be considered taxable or affect eligibility for other benefits - so they knew it was the same $1000/month increase for everybody. 

The disemployment effects were a bit larger than I'd expected, so I've updated my expectations on that. My priors on health effects were reinforced; in richer countries, the income-health gradient is going to be an artefact of an underlying correlate of both.

I was a bit more surprised by zero effects on job quality. I'd put some weight on that less time-pressure to match with a new job when unemployed could yield better job matches. But the 1.1 extra months' duration of unemployment spells relative to the control group cashed out into precisely estimated nil effects on a whole big range of job quality items. 

You can catch a twitter thread by Eva Vivalt, of the researchers on it, here.

But UBI-stans seems to be some of the stranger beasts out there. I mean, look at this. 

Eric Crampton must have been reading another study from the report he describes in his hostile critique of basic income (‘Putting a UBI to the test’, July 29). The US cash transfer project he eulogised was not a test of basic income.

There have been over 100 experiments which show positive results. The one he cites is not one of them. By definition, a basic income is a modest amount paid regularly to all usual residents, individually, without means-tests or behavioural conditions, regardless of income, gender, marital status or work status.

The study Crampton cites does not pretend to respect that definition. Several limitations make the results irrelevant for assessing basic income.

It was a means-tested benefit paid to 1000 individuals spread across 19 counties in Texas and Illinois, about 50 per county. That is hardly universal. The individuals self-selected. They only received the cash if they could prove they were poor. It was only paid to individuals aged 20-40. It was only paid to one individual per household, if nobody in the household was receiving disability benefits and they were not in publicly-subsidised housing. It deliberately over-sampled those from minority groups. Those features invalidate any claim to randomness, unconditionality or universality.

Ok. Where to start. If you want to run a UBI trial, you can try saturation where you enroll an entire town. In that case you get the second-round effects from the spending of UBI income and the like and interactions among people who all get the UBI, but you really need to set the thing so it's funded by the community receiving the benefits so you get the effects of imposing the taxes necessary to pay for the thing. That would get you more of a total effect. 

Or, you can do what this group did and test just the effects of the transfer on outcomes for those receiving it, leaving out both potential community-wide benefits from everyone getting it (whether social stuff or spending effects) but also the incentive effects of the taxes necessary to pay for it. 

They targeted the group whose responses are of most interest for this policy agenda: lower-income people of prime working age. Randomisation was achieved by randomly putting people from that group either into the treatment or control groups. Payment when assigned to the treatment group was unconditional. You didn't have to do anything to get the money. If you filled in the time use surveys you got extra payments for that - as did people in the control group. And payment was universal within the treatment group. 

I suppose you could take the position that the only real trial of a UBI is to actually implement it across an entire community, but we quickly get into No True Scotsman issues. Did the trial encourage inward or outbound migration? Well, gonna have to apply it to the whole country aren't we for it to be a real trial. 

I think we can pretty confidently say that a UBI providing an after-tax transfer on the order of 40% of non-UBI income for low income people will have effects like the ones found in this experiment, but very likely with larger labour market effects both because of the permanent income hypothesis (a permanent transfer will have larger effects than a known-to-be-time-limited trial), and because of the effects of tax rates required to fund the transfer. And that there won't be the hoped-for improvements in health or job quality. But that there won't be increases in problem drinking because of it, and that people choosing more leisure probably consider themselves better off. Anyway, here's one of the authors on this:

Since this study captures the pure income effect of giving cash, without any of the substitution effects that might occur with a means-tested program, it tells us how much people prefer more leisure on the margin, even without disincentives to work. 37/

— Eva Vivalt (@evavivalt) July 22, 2024

Leisure is a normal good, people. 

The experiment began at the height of Covid, so it is surely a marvel that a cash transfer only resulted in a drop of just over an hour a week in paid labour.

Covid affected both treatment and control groups. The control group wasn't in some no-Covid place.  Maybe the argument is that the transfers gave people the ability to better hide from Covid if they wanted? Remember too though that there were all kinds of work-from-home and other changes that will have hit both groups, as well as Covid payments. And that the trial ran for three years, finishing in the second half of 2023. 

Moving towards a basic income for every resident citizen is a matter of common justice, freedom and basic security. Economists have shown it is affordable without raising income taxes.

Guy Standing, Co-president, Basic Income Earth Network; Professorial Research Fellow, SOAS University of London

The first sentence here is a values assertion. 

The second one, well, Treasury in NZ showed that we'd need a flat income tax of more than 50% to fund it and it still wouldn't be enough to replace all other benefits. A small one could be done without raising taxes - say if you abolished NZ super and split that money equally regardless of age. The transfer would be pretty small though. Or maybe he's expecting it to be funded out of some other tax he's not mentioning.  

The basic tradeoffs in a UBI are the same as I'd pointed out in the Spinoff ages back. We now have some better numbers on the likely effects. 

Read the NBER papers for yourself though. They're here. 

Also fun to compare the study's results, with what people had hoped would be the results. I guess those whose expectations were most dashed and who were most committed to specific beliefs about outcomes are most upset about it? 

I asked GPT4-o to complete the UBI experiment abstract based on the first part: pic.twitter.com/shLDQDYMeG

— John Horton (@johnjhorton) July 22, 2024

But you can also check Table 16 of the paper comparing expert predictions of what the effects would be and the eventual effects - which is just so neat as method.

I was on with RNZ's The Panel last night on this one. Would have been far better for them to have had on one of the study's authors, but I'd written a column on it and I'm local. 

So I went through what I'd gotten from it. 

And as I got up to leave, the host (subbing in for Wallace Chapman) read out a text that came through. 

"We need to be reminded that the New Zealand Initiative is part of the Business Roundtable. It supports its own conservative right-wing ideology." 

Classy as always RNZ. 

RNZ remains on-form

There are a few basic bits of reality that I'd hope we could agree on.

Minister Costello has set a lower excise rate for heated tobacco products as a bit of a trial to see whether it proves successful in encouraging remaining smokers to flip to something less harmful.

Even without any change in tobacco excise, a smoker shifting to an HTP will result in a drop in tobacco excise. Or at least I'm pretty sure. I'm pretty sure that a heated tobacco stick contains less tobacco than a cigarette does. And I'm pretty sure that heated tobacco draws the lower excise rate that applies to cigarillos and the like. The combination of the two means less excise in a heated tobacco stick than in a cigarette.

If the trial proves successful and a lot of smokers shift from cigarettes to heated tobacco, tobacco excise revenue will drop. The more successful the trial is in encouraging shifts from smoked tobacco to heated tobacco, the bigger the drop in excise revenue. If a lot of current vapers or non-smokers take up heated tobacco, excise revenue will increase on that margin.

While Philip Morris is a dominant supplier of heated tobacco products, heated tobacco competes with smoked tobacco and with vaping. So PMI does not face a vertical demand curve for its product. And even if you model them as a monopolist in the market for heated tobacco, a monopolist will pass through at least some of an excise reduction. 

This is basic Econ 1 stuff. The monopolist sets marginal revenue equal to marginal cost looking across the quantity axis, then traces up to the demand curve to find price. That's the price that maximizes profit. If costs drop, the profit-maximizing price drops too. It's just math. 

I hope that all of this is completely uncontroversial. 

Some mornings I am more annoyed than usual about being forced to pay for Radio New Zealand. This morning was one of those mornings.

Guyon Espiner had his latest update on Minister Costello's reduction in heated tobacco excise.

Let's have a look here.

Govt set aside $216m to pay for heated tobacco product tax cuts

Ok, so RNZ's main focus is going to be on the potential excise losses. 

Now we know, from basic facts of the world, that there can only be substantial reductions in tobacco excise if the policy is incredibly successful in reducing smoking rates.

Let's continue.

The government has agreed to set aside $216 million it may need to pay for tax cuts for heated tobacco products (HTPs).

RNZ reported earlier this month that Associate Health Minister Casey Costello - who is also Customs Minister - had implemented a 50 percent cut to the excise tax on HTPs, where the tobacco is heated to a vapour rather than burned.

Costello's office had not publicly disclosed how much that would cost the government but a Cabinet paper, released without fanfare on the Health Ministry's website, shows Cabinet agreed in May to set aside $216 million as a contingency fund to cover the estimated lost revenue.

The excise tax cut is something tobacco giant Philip Morris has lobbied for in the past. Its IQOS product is a dominant player in the New Zealand HTP market.

The Cabinet paper, signed off by New Zealand First MP Costello, showed it was not even clear whether the tax break would be passed on to consumers.

"Because this product currently has a monopoly market in New Zealand, the extent to which a reduction in excise duty on HTPs would be passed on to consumers via lower retail prices is unclear," the paper noted.

I've highlighted a relevant bit here. Let's look at this section of the Cabinet Paper.

The Cabinet Paper isn't saying that there might be no pass-through. It's saying that they don't know whether there will be one-third pass-through or 100% pass-through. 

Officials could perhaps have been clearer that even a complete monopolist facing a downward-sloping demand curve is going to pass through at least some of a tax reduction, but they could be forgiven for thinking that it was awfully clear in context. They note one study finding a 31% pass-through rate, and that officials have advised to assume 100% pass-through. So the extent of pass-through is likely going to be somewhere between those. 

But RNZ put this as a question of whether there would be pass-through. Not the extent of it. 

If there is zero pass-through, and again this is just math, and it won't happen because even a monopolist will respond to a cost decrease by reducing price, there cannot be more than negligible effect on excise revenue. Why? The price of heated tobacco will not have dropped relative to smoked tobacco. It will not have driven any flipping from smoked tobacco to heated tobacco. Philip Morris would get a transfer equivalent to half of what they currently pay in excise. Excise from heated tobacco was just under $6 million in 2023, so the policy would transfer $3m to Philip Morris. $216 million is right out. 

But RNZ sets the framing to have people expect a $216 million tax cut benefitting PMI that might have no pass-through to consumers. 

Let's continue, again.

Costello declined an interview with RNZ and her office did not address questions about whether that monopoly position referred to Philip Morris.

In a statement the minister did say that she expected the industry to reduce the cost of its products.

"That means I'm expecting the excise reduction to pass to consumers, this is what we were advised would happen by officials and it is something we will also be monitoring," she said.

She also said she did not expect the cost to the government to be "anywhere close to what was modelled", as the tax collected on HTPs was only $3.62 million in 2022 and $5.97 million in 2023.

"Officials noted there is a lot of uncertainty around the modelling and fiscal impact because it was based on the very rapid increase in HTP use that happened in Japan, where vapes were unavailable."

Philip Morris did not respond to RNZ's questions.

Good context from the Minister here, and good that RNZ reported it. 

Unfortunate that they didn't think through what those numbers mean. If current excise from heated tobacco is only on the order of $6m, what would have to happen in the real world for a drop in excise on heated tobacco to result in a $216m excise loss? It would have to mean that there was substantial pass-through of the excise reduction and consequently substantial switching to heated tobacco, which means substantial reductions in exposure to the bad things that come out of combusted cigarettes. 

Another fun bit from the Cabinet paper. Guess which line of this paragraph RNZ chooses to emphasize? Hint: it's not the one saying that even the FDA recognizes that heated tobacco means less exposure to harmful chemicals. 

As always, RNZ's reporting on tobacco needs health warnings. 

Another pitch by the pharmacy guild

Recall that Chemist Warehouse found a structure that let them operate in New Zealand despite pharmacy guild regulations that had seemed aimed to block such entry. 

The pharmacists are having another tilt at it.

In Australia, a pharmacy that wanted to fill prescriptions could not set up within 200m, 1.5km or 10km of an existing pharmacy depending on whether it was in a shopping centre, suburb, or town.

Community pharmacists were calling for similar regulations here, warning if nothing changes, the community bond that came from knowing every customer by name could be a thing of the past.

Right.

"Hello, I am the owner of the local pub, where everybody knows your name. I worry about the potential entry of a new pub in a 10km radius, not because of its effect on my profitability!, but because it would erode the community bond that comes of having a single pub where everyone goes and where everyone knows your name. Please ban any such entry. Thank you."

And repeat for the local dentist. Or the local greengrocer. Heck, even the local bank. Could roll this one out for all kinds of things.  

Interchange fees

A few years ago, MBIE ran an inquiry into credit card interchange fees.

Most of the analysis seemed predicated on an assumption that retailers could neither impose surcharges for card transactions nor avoid accepting cards.

So I started taking pictures of EFTPOS terminals with tape over the credit card button or with obvious signs noting credit card surcharges to accompany my submission on it. The MBIE paper seemed to take "Well, anything's possible in two-sided markets so we should regulate" approach. 

Now it's ComCom that's proposing to regulate credit card interchange fees. 

But they did commission a couple papers. 

And this seems a key bit:

Moreover, it is theoretically argued that if the no-surcharge rule is lifted, interchange fee regulation is harmful for total welfare. Regulatory attention should in this case shift to merchants, rather than focusing on card networks. If surcharging is to be allowed, the optimal cap is equal to the merchant fee minus the merchant’s convenience benefit from card payments. In other words, the merchant should not surcharge more than his own incurred “transaction” cost of a card payment. This result is perfectly in line with the proposed “merchant indifference test” or “tourist test” to optimally cap merchants fees keeping the merchant indifferent between a cash payment vis-à-vis a card payment. Yet, recent cost-based surcharge regulations seem too lenient, as they allow surcharges up to the merchant fee – or even higher (Gomes and Tirole, 2018).

And remember that NZ retailers can set surcharges if they want. All of us see them all the time. Maybe John Small doesn't. 

It then goes on to note evidence from other countries about smallish proportions of transactions attracting surcharges.

But think about it for a minute. 

High volume retailers have some power in those relationships. You might expect that surcharges imposed on transactions at the grocery stores would be lower than the surcharges in other places. And it wouldn't just be about the supermarkets being big enough to have some heft. It would also be about the cost of providing the ancillary services that credit cards provide. You're going to be a lot less likely to see chargebacks for undelivered or unsatisfactory goods on a weekly grocery shop than you might for a mail order shipment that's gone wrong or, say, payment for your kid's trip out to space camp. Credit cards provide insurance; EFTPOS doesn't. That insurance is valuable, but more valuable in some cases than others. Those differences matter and I'd expect affect the charging structure that the card companies set. Nobody's doing a credit card chargeback if there's a broken egg in the darned carton when you get home. 

Another key bit, if you remember that NZ retailers very regularly set surcharges for credit cards.

Moreover, many payment networks have frequently imposed restrictive – and potentially “regressive” rules – on the merchant side, such as no-surcharge rules or honor-all-cards rules.31 Effectively, this implies that payment cards that are more expensive for merchants to accept, such as credit cards, will be cross-subsidized by cheaper means of payments such as debit and cash. As high-income consumers are the ones most likely to hold and use cards with higher reward schemes that are more expensive for merchants to accept, the cross-subsidies between the payment methods are regressive transfers from low-income consumers to high-income consumers (Felt et al., 2021; Wang, 2023).

I remember MBIE relying on this kind of argument in making its case, seemingly unaware that NZ retailers can and do set those surcharges. Hence my photography while out grabbing lunch. 

If ComCom tightly restricts credit card fees, expect a whole pile of services currently bundled with card transactions to disappear.  

It's annoying when there's a world of real problems that need to be dealt with and agencies like ComCom go off on these kinds of tilts. 

Fun antitrust application

David Harvey reports that AI scraping could wind up being part of the revised NZ Fair Digital News Bargaining Bill. 

Having defined what an AI system and an AI service is the Bill goes on goes on to link an AI system to news content for the purpose of training the AI system.

The focus is upon the way in which news content may be used to train a digital platform or AI system.

The first element is that an AI system must be trained using news content. This links to the definition of news content in the Bill. The training must generate outputs which happens if the AI system enables or facilitates the generation of outputs.

He continues through with technical elements on whether the definitions work and whatnot.

The better underlying question seemed to be why anyone thinks there's a problem here to be solved.

It's simple for a website to restrict against scraping. It would similarly be simple for a news site to licence its content for AI training, if anyone wanted to pay them enough to allow it. There is no obvious reason government needs to be involved in any of this. 

But there's a fun potential antitrust angle, and then conflicting priorities. It looks like Google has licensed Reddit content for AI training, and that part of the deal might mean that Google is now the only search engine that works on Reddit.

Reddit wouldn't have set an exclusivity deal unless the exclusivity deal gave it more money than licensing its content to multiple agents. 

Government-types have claimed to be deeply worried about news sites not being able to adequately monetise content, with consequences then for the public good aspects of journalism. And they've tried to punt the bill over to tech platforms rather than just fund a public good out of public funds.

Here we have a news content site that has made a voluntary deal with a platform for content access for AI scraping - the very thing that NZ's Parliament seems to want to legislate to force - and folks are worried that the exclusivity arrangements that mean more money for the news sites also give the platform too much power. 

Today in Antitrust: when we force (or even allow!) AI companies to sign deals w/ content producers for old content or API access, there is obvious way to "raise rivals' costs" and lock in market power, dynamically making things worse for content producers. https://t.co/5wvRIoE0mU

— Kevin A. Bryan (@Afinetheorem) July 24, 2024

I'm not saying there aren't potential competition issues here. But there are trade-offs. Ban exclusivity arrangements and you'll reduce the amount of money going to news content providers, and then you'll have other parts of government looking for convoluted ways to force additional payments. 

Afternoon roundup

The closing of the browser tabs:

• The Commerce Commission blocks NZ DJ software company Serato from selling out to Japanese DJ product company AlphaTheta. One lesson: don't do tech startups in NZ if your exist strategy is selling out to a larger company.


• New Zealand's bureaucrats have apparently been considering a harmonised set of plain packaging rules on infant formula with Australia, which would force an important part of dairy processing overseas. Hopefully the government stops this one while issuing a pretty hard "please explain" to the officials involved. 


• Aaron Smale's reporting on the Inquiry into Abuse in Care has been superb throughout, and is great again this morning at Newsroom. He asks the right questions about state accountability. I expect that those who helped cover up the state's abuses are more likely to earn knighthoods than to face charges. 


• Gas shortages have Huntly importing more coal. 


• The Department of Conservation has more opportunity than any other part of govt I can think of to realistically improve its own finances through user charges and concession auction. Newsroom reports this morning that they're facing "huge financial pressure". There is an obvious solution here.