Morning roundup

The morning's browser tabs:

• Newsroom picks up on BusinessDesk's prior reporting on MIQ ghost rooms. Much credit goes to Cameron Conradie's constant reporting on the numbers. BusinessDesk pointed out that the MIQ system is constantly overwriting its own data so that it is impossible to get, from them, the prior track. I wonder what the Archivist would make of this because it sounds like deliberate destruction of Official Information which may have to have been backed up by a Disposal Authority. Anyway we're losing skilled migrants who rightly view there as being no chance that the government will fix the system, because the government starts by hating migrants and viewing allowing any of their families in as actually being a bad thing. While it is still good to live in NZ as a permanent resident, I could not recommend that anyone try moving here, unless their utility enters negatively into my utility function - and I don't have that kind of utility function. 
• The government is going to run into real problems in maintaining nursing staffing. If I've understood the state of play correctly, nursing salaries in NZ are similar to salaries in the UK but Australia has some of the highest pay rates going for nurses. Training nurses here in a common labour market with Australia can result in outflow. NZ has made up the gap by importing nurses - some from the Philippines, some from the UK. But while there's provision for entry through MIQ for nursing staff, it's still a big constraint. Australia is far richer than NZ and can afford to pay more. It's entirely plausible that the government here is behaving as monopsonist in keeping nursing wages down, but even if that weren't the case there would still be a problem. 
• NZ is importing and burning a lot of coal currently. In one sense, this is not a problem at all: the Emissions Trading Scheme sets a binding cap, the current ETS price roughly doubles the cost of using coal, so any coal that's used is very likely in spots where it would be real expensive to substitute away from. But there are still two more substantial problems. First, some of the coal burning is because Megan Woods banned gas exploration in Taranaki, reducing capacity in those fields. So we're being forced to use a worse alternative because the government set very bad policy. Second, optics. While all that coal is accounted in the ETS, nobody understands the ETS, and seeing coal imports makes people think the ETS isn't working. And that builds pressure for even worse interventions. I wish that National would aim for less political point scoring here and instead be looking to underlying causes. 
• The government is going to be having an inquiry into crypto. I kinda knew what was going on in crypto 3 years ago; that tech is moving crazy fast and keeping up with it would be a full time job. I hope Auckland's Alex Sims helps them out a bit, and I also hope they seek some of the expertise over RMIT. Parliament's Select Committee couldn't figure out how the Uber app works a few years ago. This won't end well unless they get some serious help. 
• NovaVax also looks pretty good. Seems futile to hope it will get evaluated and considered for roll-out here, where dose availability is a binding constraint. We are sitting ducks here if Delta gets out. 
• Environment Minister Parker is holding off on nitrate limits on waterways - for now. I still think cap and trade solutions can get that job done. Report on that will be out soon. 
• The government's reluctance to have effective vaccine mandates for border workers - it's just incomprehensible. There can be practical difficulties that need to be overcome; sending nurses out to worksites over a few shifts could make a lot more sense than trying to get all those workers separately to make long commutes out to places where they can be vaccinated. If compulsion is warranted anywhere in public health, it's in vaccination. There are very real and substantial negative externalities from not being vaccinated - and especially among workers who are at risk of contact. We wind up with a health system happy to ban soda in the hospital cafeteria but that can't manage to get workers vaccinated. It's nuts. 
• Another for the "is government actually evil?" file: The Ministry of Ed refuses to fund a teacher's aide for a special needs student (limited budgets; understandable) but also refuses to allow the parents to privately fund the aide. 
• Industrial policy as casino economics. Do you feel lucky?
• Cuba's health policy successes are wildly exaggerated and based on bad data. Here's hoping that the new revolution brings down the communist dictatorship. 
• Remote work won't work for everything. Face-to-face still matters. Planet Money interviews Enrico Moretti. 
• Not crazy to worry about inflation. But if you have strong opinions about it and you think you're right, well, here's the data series on nominal bonds and here's the series for inflation-protected bonds. If you think inflation is going to go through the roof, make the appropriate play. If you think that everyone else is just way too worried about inflation, take the opposite appropriate play. 

Local regs, macro effects

What's the cost of bad urban planning policies? About 9.5% of GDP as a first cut, according to new work by Chang-Tai Hsieh and Enrico Moretti at NBER.

What's the mechanism? When productive cities make it hard to accommodate new workers, whether because of restrictive zoning downtown preventing densification or restrictions on the urban fringe, workers who could otherwise be more productive in moving to the more productive place instead can't; they're priced out and have to stay in less productive centres.

When we quantify the output and welfare cost of this increase in dispersion of the marginal product of labor, we find that aggregate output in 2009 would have been significantly higher if the dispersion of nominal wages had not increased. Holding the distribution of local TFP fixed at 2009 levels, we hypothetically reallocate labor from high wage to low wage cities such that the hypothetical wage in each city (relative to the average wage) is equal to the relative wage in 1964. Intuitively, this scenario involves setting amenities and housing supply at their 1964 level, while keeping labor demand constant at its 2009 level, and allowing workers to reallocate across cities in response. Under this scenario, aggregate yearly GDP growth from 1964 to 2009 would have been 0.3 percentage points higher. In levels, U.S. GDP in 2009 would be 13.5% or $1.95 trillion higher. This amounts to an annual wage increase of $8775 for the average worker.

The effect is driven by housing supply constraints rather than by compensating differentials due to disamenity effects from larger populations.

We estimate that holding constant land but lowering land use regulations in New York, San Francisco and San Jose to the level of the median city would increase U.S. output by 9.7%. In essence, more housing supply would allow more American workers to access the high productivity of these high TFP cities. We also estimate that increasing regulations in the South would be costly for aggregate output. In particular, we estimate that increasing land use regulations in the South to the level of New York, San Francisco and San Jose would lower U.S. output by 3%. 

And if central government is looking for justification for heavy-handed approaches to dealing with cities with restrictive zoning:

We conclude that the aggregate gains in output and in welfare from spatial reallocation of labor are likely to be substantial in the U.S., and that a major impediment to a more efficient spatial allocation of labor is the growing constraints to housing supply in high wage cities. These constraints limit the number of US workers who can work in the most productive of American cities. In general equilibrium, this lowers income and welfare of all US workers and amount to a large negative externality imposed by a minority of cities on the entire country.  

What sorts of policies?

In principle, one possible way to minimize the negative externality created by housing supply constraints in high TFP cities would be for the federal government to constrain U.S. municipalities’ ability to set land use regulations. Currently, municipalities set land use regulations in almost complete autonomy since the effect of such regulations have long been thought as only local. But if such policies have meaningful nationwide effects, then the adoption of federal standard intended to limit negative externalities may be in the aggregate interest. 

An alternative is the development of public transportation that link local labor markets characterized by high productivity and high nominal wages to local labor markets characterized by low nominal wages. For example, a possible benefit of high speed train currently under construction in California is to connect low-wage cities in California’s Central Valley -- Sacramento, Stockton, Modesto, Fresno -- to high productivity jobs in the San Francisco Bay Area. This could allow the labor supply to the San Francisco economy to increase overnight without changing San Francisco housing supply constraints.

So fix Auckland land supply, or put in a 200kph bullet train from Hamilton to Auckland CBD.

Update: to make very clear, whenever I say "land supply", I mean both allowing increased density in town and allowing expansion at the fringes. Land supply means land where you're not banned from doing what's economically appropriate. Height regulations block economically appropriate uses as can metropolitan urban limits.