Afternoon roundup

A closing of some of the browser tabs:

• Eli Dourado on NEPA - America's equivalent to the RMA. Superb seeming primer on how it all works, though I would not be one to notice any holes in it. 
• Road-building is going to get harder, thanks to a court interpretation around water consenting. Minor bits of drainage are going to hit large hurdles. 
• Chris Snowdon in conversation with Marewa Glover on New Zealand's tobacco and vaping regime. 
• Possibly the best approach for "glue ourselves to things" protestors: leave them there.
• Lindsay Mitchell picks up another aspect of the Perry child poverty report: substantial differences across regions in foodbank uptake, sorted by material deprivation. 
• "Rather than address the workforce crisis it inherited, Labour instead resorted to restructuring the health system to put it under greater central government control and make it more vertical. This was a fatal error." 
• NPR's Darian Woods and Wailin Wong on America's blocking Chinese access to higher-tech chips.
• Government may be preferring government-built housing in easing RM constraints. That, as a pattern, will make it harder to get necessary RM reform - if govt can exempt itself from the worst effects of bad RM rules...
• Older piece now, but I want to be able to find it again. Cato's critique of the US Jones Act, which prohibits foreign shippers from transporting goods between US ports. NZ shippers often want this kind of rule here too. It's been doing particular harm in Puerto Rico lately. 
• Sex work legalisation in NZ included measured aimed at protecting temporary migrants from exploitation; those rules may be doing more harm than good.
• Youth justice facilities overwhelmed by numbers.
• Emergency rooms overwhelmed by numbers and want of staff.
• Mental health system overwhelmed by numbers and want of staff.
• One reason the new Rings of Power series may not be as faithful to The Silmarillion's account as it could be: copyright. 
• Wellington: for, by, and of connected insiders. 
• MBIE is running a review of space policy. Wish there were a one-click submission option "Just leave it alone and don't break things." There are just so many submission processes on...
• Yet another area in which NZ could do well by simply recognising standards in use in other places. This time, car safety. 
• It looks like the prescription guidelines for medicines for ADHD have been designed around avoiding Ritalin flowing out into other uses rather than helping patients. And the one doctor who prescribed in accordance to patient needs rather than guidelines is in trouble for it. 

Afternoon roundup

The afternoon's worthies:

• Why do so many policy interventions help women, but not men? All kinds of intervention programmes, not gender-targeted, seem to have far larger benefits for women than for men. 
• Bryan Perry's latest compilation is out! It's the topic of this week's column at Newsroom, ungates tomorrow by pulling the /pro from the URL. 
• Europe is heading for a dark winter. 
• If we didn't now have a grocery producer price index, David Clark would wind up pointing to the next increase in grocery CPI as reason to break up the supermarkets. He'll probably do it anyway. But at least we can point to the underlying cost pressures now. 9.2%!
• The Future for Local Government Forum's report is due at the end of October. They've a big job to do. Central government has been strangling local government for decades. 
• Noah Smith on the 2022 Econ Nobel to Bernanke, Diamond and Dybvig. And Tyler Cowen , and Cowen on the Diamond Dybvig model.
  
• An Aztec counterargument to vertical supply curves in unimproved land. 
• Forest and Bird questioning the merits of Lake Onslow, and of 100% renewable electricity targets. 

Afternoon roundup

This afternoon's worthies:

• Vic Uni's James Kierstead and Michael Johnston in defence of free speech. 

  Liberalism and democracy, as Karl Popper recognised, rest on substantive values, values that have to be defended if liberal democracy is to survive and flourish. And it’s up to all of us to do the work of defending these values. If we say nothing while governments, corporations and ideologues threaten and quash the free expression of ideas, we are, at least tacitly, voting democracy out of existence.

• What a beautiful validity check. Do better teachers really make students taller?


• Business regulations and poverty

  Using panel data for 189 economies from 2005 to 2013, this paper shows that business-friendly regulations are correlated with the poverty headcount at the country level. This association is significant using the World Bank's Doing Business indicators on getting credit and contract enforcement. The findings suggest that the conduit for poverty reduction is business creation, as a source of new jobs and a manifestation of thriving entrepreneurship.

• Mark Zuckerberg, Patrick Collison and Tyler Cowen talk progress.

Poverty policy's terrible tradeoffs.

Susan Edmonds canvasses the state of play around poverty, along with a few bits from me on the subject. It's a good piece.

Basically, policy is a pile of terrible trade-offs.

Cash assistance makes recipients better off. But providing it requires choosing among a few poisons.

Focusing assistance on those in most need through tight eligibility requirements makes sure that aid goes to those in most need - but at the cost of demeaning questions and testing and constantly justifying yourself to WINZ.

Targeting cash assistance to those in most need means clawing back cash benefits as someone is able to earn income, and that provides disincentives to work. And it provides incentive to feign eligibility. Worry less about the lying aspect and more about how it can split up families. And targeting also requires clawing back benefits as earned income increases, which provides disincentive to work.

Shifting instead to a guaranteed annual income gets rid of the demeaning questions, if you provide it at a level high enough to avoid having to layer on a welfare system on top. But providing that much assistance blows out the budget very quickly. Treasury's 2010 analysis reckoned that a GAI paying about the average amount received by someone on benefit would require a flat income tax of about 50% to cover the costs - and remember that that will be less than what's received by those currently worst off. So you'd still need to layer a welfare system on top of that.

Kevin Milligan's impossibility still holds. You can't pay a universal benefit high enough to not leave the worst off worse off without either having a very high phase-out rate (and consequent very high EMTRs), or blowing out the budget. And layering a welfare system on top of a GAI brings back all the problems above, albeit hopefully among a smaller cohort.

And you can't pretend that trade-off doesn't exist by appealing to other taxes that aren't currently in place. Why? Because if those taxes made sense, then they make sense regardless of whether you want to run a UBI. You'd then want to put them in on a revenue-neutral basis, replacing other taxes, first. If the new tax is really more efficient, then the deadweight costs of tax are a bit lower than before so the overall size of government can go up a bit in equilibrium. But whether that next extra lump of spending should go to a UBI or to other spending - you're back in the trade-offs world. You can't just magic up a new tax and pretend the best use for it is your pet project - some other proposal might be a better use of the funds. 

Shifting from cash transfers to in-kind benefits for some kinds of in-kind benefits solves part of one of those problems. If there are benefits that are valuable to someone in need, but useless to others, then you don't have to worry about people lying to get access to that benefit. Cash benefits require monitoring systems and intrusive questions to avoid diffusing the benefits beyond where they're most needed. Some in-kind benefits are self-targeting. So things like literacy programmes for example - people who are literate won't try to get access to them, and you might have reason to expect that improving literacy might help reduce need.

Cash should always be the baseline against which other things are measured. If an in-kind benefit is less valuable to the recipient than cash is, that's a pretty big strike against it. But say that every dollar's worth of spending on an in-kind benefit is valued at $0.95 by the recipient, but providing a $1 cash transfer would require paying out and extra $0.10 in monitoring costs and in leakage to those who weren't really eligible - then some in-kind benefits can wind up being better overall.

So everything above is terrible trade-offs. The most promising option remains what they government's been trying under the investment approach - better evaluation of what programmes can cost-effectively move people from benefit and poverty into self-sufficiency, where possible, and otherwise seeing what's most cost-effective in reducing misery. But there are still piles of problems there too - like difficulty in writing outcome-based contracts for NGOs delivering services; defining outcomes; and, need for monitoring to ensure that reductions in the government's long-term fiscal liability is a good proxy for what the government is trying to achieve. But it still looks the most promising.

Kiwi kid outcomes

UNICEF's new report has made for some damning headlines about child outcomes in New Zealand. In a few cases the critique is deserved; in a few others, it needs a bit of context.

UNICEF finds that fewer New Zealand live in relative income poverty than is the OECD average, in 2014 data. It is worth remembering that there is a sharp gap between those figures as measured before- and after- housing costs. If relative income poverty is measured after taking into account the costs of housing, the proportion of children in relative income poverty rises by about a third according to Ministry of Social Development 2015 figures. Since housing costs are a more substantial problem in New Zealand than in most other countries surveyed, UNICEF may be understating the seriousness of the problem in New Zealand as they appear to be using before housing cost figures. But it is a bit difficult to tell, since none of their numbers match up with the MSD figures.

In many cases, New Zealand is not included in international comparison because New Zealand’s figures are not reported in ways that make international comparisons easy. But we can usefully look to the closest available New Zealand measures.

UNICEF leaves New Zealand out of its measure of multidimensional hardship. MSD’s 2015 figures had material hardship, by the EU-13 standard, below the EU or OECD median when measured for the population as a whole, but slightly above it when measured for those aged below 17. This is due in part to New Zealand’s decision to provide more substantial income transfers to the elderly, through superannuation, than to children. Unfortunately, New Zealand’s figures on material deprivation only go back to 2007. The proportion of children both income poor and materially deprived rose during the GFC and has since returned to roughly pre-GFC levels. Figure G.6 in Perry is copied below.

Similarly, while there is no recent official data on youth (aged 11-15 years) alcohol abuse, recent trends for those aged 15-18 have shown substantial declines in youth drinking. In the 2006/7 survey, 74.5% of youths aged 15-17 reported having consumed alcohol in the prior year; by 2014/15, that had dropped to 57.1%. New Zealand’s overall progress towards UNICEF’S Goal 3 around healthy lives may then be understated – though New Zealand’s very high youth suicide rates rightly are highlighted as well.

UNICEF’s figures also understate the dramatic reduction in teenage birth rates in New Zealand. Statistics New Zealand reports that, in 2016, there were approximately 16 births for every woman aged 15-19 in New Zealand; UNICEF’s figures put it at 23. New Zealand’s teenage birth rate has roughly halved since 2008.

The report worryingly points to that 16% of New Zealand children live in households in which no adult reports being in work. This is especially poor performance where employment rates in New Zealand are much higher than in most OECD countries, and are at or near all-time highs in the available New Zealand data.

New Zealand fares relatively poorly on an aggregate measure of inequality that UNICEF constructs from two measures of income inequality, and one measure of the role of socioeconomic differences in school performance. All of New Zealand’s poor showing is due to poor outcomes for children in lower decile schools; New Zealand is at or around mean of reported countries on the other two measures. Lifting performance in poorly performing schools should be a priority.

If the government’s investment approach to improving social outcomes is successful, New Zealand’s standing in UNICEF’s ranking should show improvement within the next few years.

I had initially prepared these comments for Newsroom's Shane Cowlishaw. His story on it's here; I hadn't known he was on a 5pm deadline and got this through a bit too late to make it in.

Risk Factors

Treasury has put a lot of work into identifying risk factors for future offending and other bad outcomes. Outcomes for kids with two or more from the following list wind up worse than for those without them:

• Having a CYF finding of abuse or neglect
• Being mostly supported by benefits since birth
• Having a parent with a prison or community sentence
• Having a mother with no formal qualifications.

They say 7842 kids have all four risk factors. Poor outcome measures include contact with youth justice services, leaving school without qualifications, receiving benefits for more than two years before age 21, winding up in jail before age 21, and being on benefit over the age of 25.

Here's the data visualisation tool. And here's the paper showing all the workings.

This is good and important stuff. Knowing where risks are concentrated can make it easier to target programmes. 

What I'm really looking forward to seeing is comprehensive work looking at the effectiveness of the different interventions MSD is trying. 

The Poverty of Inequality Reports

My column in last week's NBR went through the latest Oxfam report on global inequality.

Among the problems:

• Any chart showing the time series wealth of the n richest people today has a strong bias towards showing an increasing trend. Anyone who was on last year's top-n list but had a poor run drops off the list, with his decline not measured; anyone who didn't make last year's cut but did this year is pretty likely to have had good returns recently. A chart showing the time-series wealth of the 62 people who were the richest people in 2002 would have a different pattern than a chart showing the wealth in prior periods of this year's 62-richest.


• Failing to account for net debt held by people in rich countries with good prospects means that Oxfam was able to report a "number of billionaires" figure about half of what they'd otherwise have had to have reported. In their appendix, they note the problem isn't big because it doesn't take many of the richest billionaires to cover the total debt in the developed world, but the top richest billionaires are much richer than the ones that are 60th through 120th. 


• Most of the movement in the wealth of the bottom 50% shown on their big headline chart is just fluctuations of the US dollar relative to others. I doubt that a very poor person in Sub-Saharan Africa notices or cares much about the US dollar exchange rate. The world's wealthiest, by contrast, will have globally diversified portfolios and far less subject to US dollar currency risk. Tell me the green line below isn't just tracking the US TWI. And note that the Credit Suisse report warns that the changes in wealth are strongly influenced by exchange rates.

It's also worth noting that the Credit Suisse report has 453,000 Kiwis in the world's top 1% by wealth. Just owning your own home in Auckland will get you pretty close to the line. And about half of all kiwis are in the world's top 10% by wealth. If you want to hate on the top 10%, or the top 1%, you might want to look in the mirror.

An ungated version of the column is now up here. You should subscribe to the NBR.

After Housing Costs...

I suggest, in this week's NZ Initiative column at interest.co.nz, that addressing housing affordability could be part of John Key's recently announced policy focus on child poverty. When housing costs take up over forty or fifty percent of many poor households' incomes, what's left for other needs?

A teaser:

When land supply, both expansion at the city fringes and land zoned for increased density, is constrained by regulation, the price of zoned land rises. When sections cost hundreds of thousands of dollars, developers earn margin by building houses for the top end of the market. A developer would be throwing money away by putting lower cost houses on expensive land when plenty of high income households are willing to pay a higher premium. Regulatory constraints disproportionally reduce the supply of affordable housing.

RMA reform, then, is an important part of addressing our real problems with child poverty. It is hardly a silver-bullet, but unless housing is fixed, other solutions simply do not work as well. If there are fewer houses than there are households, enhancing income transfers or accommodation supplements results in households competing more strenuously for existing rental properties, bidding prices up. Landlords may like it, but it doesn’t do as much to help the poor as we might like.

All data cited comes from this MSD report.

Guaranteed Income and Living Wages

Chris Dillow lays out the basic problem with living wages mandates. While having more money makes people happier, being unemployed is pretty awful. So whether mandating living wages can make sense will depend on how many people are forced out of work and how unhappy they are relative to the comparably small gains among the greater number of winners.

We can roughly quantify this. A paper by Nattavudh Powdthavee suggests that, in terms of wellbeing, we need a 30% rise in income to offset being unemployed. This means that if the average winner from a living wage gains 3%, we need at least 10 winners for every unemployed*.

You might think this condition is fulfilled. It is, if we consider only the wellbeing of those earning less than the living wage. But their higher wages come at the expense of profits. How much you're troubled by this depends on how you regard those employers. Are they exploitative tax-fiddling mega corporations, or are they small businesses struggling to get by?

And then there's the standard question about utilitarianism: is it legitimate to impose (largeish) costs upon a minority so that the majority enjoy other benefits?

He suggests that a guaranteed annual income - a variant on negative income taxes - may be the better option. When workers' non-work option improves, their bargaining position changes and wages have to go up.

This is true to a point, but it does require that voluntary unemployment (I don't want to work at going wages) makes you a lot less unhappy than involuntary unemployment (I want to work at the mandated minimum living wage, but nobody wants to hire me). And while that's almost certainly the case, if you put any weight on behavioural economics stories around myopia, hyperbolic discounting, or habituation, then you might be worried about schemes that make people indifferent to working.

Dillow writes:

Which raises the question: why is the campaign for a living wage so much more popular than that for a basic income? I suspect the answer has less to do with technocratic or high-brow ethical considerations than an appeal to reciprocity: the living wage demands that hard workers get a "fair" deal. But I wonder whether such appeals - powerful as they are - are a sufficient basis for policy.

I don't expect that Dillow is wrong about this - reciprocity norms are strong, and intuitions about the deserving and undeserving poor go back an awfully long way. But we can give a technocratic objection to guaranteed basic income schemes: if the guaranteed wage is high enough to make it an attractive alternative to working, which it has to do to give workers the kind of bargaining power that Dillow is looking for, then it also risks enticing those who should be entering the job market at low wages and working their way up to instead lock themselves into a permanently lower path.

I'm not opposed to moves to shift from the current welfare framework to a GAI via a negative income tax, combined with lump-sum transfers for specific hardships like severe disability. But I worry about the kinds of things that Senior and Mill worried about rather a while ago.

Here's Andrew Farrant on those debates:

Poor relief and slavery: Senior's conjecture?

As noted earlier, Nassau Senior argued that slavery and socialism had much in common. Similarly, Senior, in an 1841 article appearing in the Edinburgh Review, had scathingly argued that the perverse incentives allegedly inherent to the English Poor Laws (e.g., the provision of outdoor relief to ostensibly indigent but able-bodied laborers) had done much to reduce "able-bodied paupers" to de facto slavery (Senior 1865 [1841]: 45-115); as Senior puts it, the poor laws had supposedly attempted to provide the able-bodied laborer with:

[A] security incompatible with his freedom; to oprovide for him and his family a comfortable subsistence at his own home [outdoor relief], whatever were his conduct, and whatever were the value of his labour ... [This] attempt succeeded in what have been called the pauperized districts, and placed the labourer in the condition, physically and morally, of a slave; - confined to his parish, maintained according to his wants, not to the value of his services, restrained from misconduct by no fear of loss, and therefore stimulated to action and industry by no hope of reward.
(Senior 1865 [1841]: 115, emphasis added)²⁸

Accordingly, outdoor relief had supposedly occasioned various incentive-incompatibilities - supposedly "fatally relaxing the springs of industry and the restraints of prudence" (Mill 1965: 360) - prior to 1834.²⁸ Accordingly, while the desirability of poor law reform was supposedly apparent to all and sundry, the "Commissioners of Inquiry had reported that it was not expedient, or even practicable ... [to [exclude from relief the able-bodied labourer who professed to be unable to earn wages adequate to the support of his family" (Senior 1865 [1841]:91; emphasis added).³⁰ Consequently, an incentive-compatible poor law would supposedly guarantee that only the truly indigent received able-bodied relief. As Senior notes, incentive-compatible poor relief would automatically "test .. the truth of ... [the able-bodied applicant's] representations" (ibid.; emphasis added). The test favored by Senior was relatively simple: make the receipt of poor relief markedly "less eligible than independent labour" per se (ibid.); as Senior explains, this was easily done by conjoining the receipt of poor relief to a "condition which no man not in real want would accept, or would submit to when that want had ceased" (ibid.: 91; emphasis added). Consequently, the 1834 New Poor Law stipulated that any applicant for able-bodied relief

enter a workhouse ... supported there by a diet ample indeed in quantity, but from which the stimulants which habit had endeared to him were excluded - should be subjected to habits of cleanliness and order - should be separated from his former associates, and should be debarred from his former amusements.
(ibid.: 93)³¹

Accordingly, indoor relief - the workhouse test per se - was allegedly incentive-compatible: only the truly indigent would voluntarily accept workhouse discipline. As Senior explained, whenever any able-bodied, and self-professedly, indigent laborer readily "accepted these terms, that acceptance [automatically] tested the reality of his wants (ibid.: 91; emphasis added).

As Mill, readily subscribing to Senior's logic, later explained, the wholly "pauperized districts ... have been dispauperized by adopting strict rules of poor law administration" (Mill 1965: 961; emphasis added.)

Read Farrant's whole treatment of the debates around incentives and the old British poor laws.

I don't think we can or should return to the poor laws mandating indoor relief. But the incentive problems laid out by Senior and Mill sure have not changed in the last couple of centuries. At the margin, consideration of these issues should move more welfare transfers from cash for poor people to subsidies for early childhood care, and suggests that any GAI that approaches a living wage would not achieve the appropriate separating equilibrium.

Previously:

• Welfare Reform
• Coercion everywhere: welfare edition

Externalising the Internality

In my standard classroom account, a smelly person on the bus next to you isn't imposing an externality, or at least not one that can be relevant for policy. You're both in a contract with the bus company through purchase of the ticket. If the bus company reckoned it would earn more money by restricting bus access to those suitably groomed, they could do so. That they don't means that the losses from doing so exceed the gains - the costs in hassles for the bus drivers and increased time at the stop exceed the costs of lost custom among those who don't like that particular negative lottery ticket. The bus company has an encompassing interest in getting that decision right; they're residual claimant on the surplus.*

But that account is wrong when the bus company can be sued for discrimination. The law can externalise internalities by mucking about with exclusion rights.

L.A. Weekly tells the story of a homeless man who sued MTA for violating his civil rights; they wouldn't let him on the bus because of his appearance. And, from the context of the rest of the story, likely because of his odour. MTA settled for $200,000 in January 2011. In a Coasean world, the bus company could just start paying him not to take the bus. But free entry into the "being unpleasant and not taking the bus" industry would probably make that rather cost-prohibitive.

The rest of the story is well worth reading. Nowell, the man excluded from the bus, used a good chunk of his settlement to take a one-year lease in an apartment building. But because his neighbours were pretty insistent that he take a bath, he consequently refused to take one. So after several months of legal fights, he was evicted. Nobody comes out of the story smelling minty fresh.  The story concludes:

"When I moved in, they made such a huge issue right from the start," he [Nowell] says.

If he cleaned up, they would think he did it because of them.

"It might be a childish way to react, but it also has to do with self-respect. Call it pride, or whatever you want. If they'd just left me alone, let me catch my breath. By them making an issue out of it, none of it happened. Everything went wrong."

Nowell admits there are patterns he's become locked into. "Enough people tell you you're a certain way, a bum, you think, 'I must be that.'  When you're at the bottom of the barrel, everyone feels like they have the right to tell you what to do, where to do it and when. It becomes a reflex action to dig your feet in and say no," he says. 

SB Properties kept his six months' prepaid rent plus double deposit. Now it is going after him for attorney's fees. Nowell estimates he paid his attorney $30,000. He isn't sure. He hasn't been counting the money too closely, except to note that he has less than a quarter of the original settlement left. He is spending much of the rest to appeal the jury verdict.

"Why did they allow me to sign the lease and immediately turn around and spend the next eight months trying to remove me?" he asks, unable to move on.

By the time SB got him out, it was August. The irony — and in this case there are many — is that his lease had only four months left.

Asked if he believes Nowell would have cleaned up on his own, had he just been left alone, SB Properties general manager Yaniv Abiner pauses for a long time, then finally says, "What do you think?"

Nowell, meanwhile, is on the hunt for a new place to live, noting wryly, "A roommate situation isn't going to work for me."

Yesterday, he explains over the phone, he went to see a unit in a downtown artists loft building, hoping that artists would be more understanding. The woman who owned it was waiting out front. She said no the minute she laid eyes on him, adding that he ought to try a halfway house for people on welfare. "I'm not the stereotype you think I am," he admonished her.

He did not wear the new pants. "I'm looking at them right now, in fact," he says.

It has been some time since he last took a bath.

Fixing homelessness seems a bit harder than giving somebody enough money for rent.



* Similarly, Christchurch's Red Bus must reckon that the costs of letting professionals onto the bus with a takeaway cup of coffee exceed the cost of lost custom among my cohort.

Why I still can't take the Greens seriously

I love the Greens on civil liberties, or at least relative to most other parties and with a big caveat on their nannying proclivities with respect to tobacco and fatty foods. And they're good on copyright.

But their economic policy prescriptions...egads.

Here's their proposal for ending child poverty.

First, take a program that's meant to provide a wage subsidy to poor workers with children - Working for Families - and extend it to folks who aren't in work. Working for Families is defensible in theory, even if its current application has winds up having rather too high effective marginal tax rates, especially on second earners. But why wreck it by extending it to beneficiaries rather than simply increasing payments under existing social welfare programmes for those not in work? I can see the political reason for it: entrenching it as part of the now untouchable middle-class welfare. Extending WFF to those out of work would make it infeasible to run what I'd view as a much better policy move: strengthening the wage subsidy and eliminating the minimum wage.

Second, better study support for sole parents and beneficiaries. I'm not particularly opposed, but I'd thought that current student loan programmes that provided for living costs already filled much of the hole here.

Third, raising the minimum wage to $15/hr from $13. They say this is worth $60 per week for those working full time on the minimum wage; they're effectively assuming no or negligible disemployment effects of the minimum wage. Labour demand curves are presumably vertical from $13 to $15 per hour. Why not more than $15 per hour? Maybe the curve slopes beyond that point. If you want to help the working poor who have children, do it by making Working for Families more generous. The burden is then borne progressively through the overall tax system rather than falling on disemployed low wage workers and on those consuming the products and services of minimum wage workers; the benefits are also better targeted as they'd hit those workers with children.

Finally, minimum performance standards for rental properties. So landlords would be forced to insulate and heat their homes to standards North Americans would find liveable. It would be surprising if landlords didn't pass along at least some of the cost increase to their tenants: unless the supply of rental housing is perfectly inelastic, some of the cost increase will be passed along. And if demand for rental housing is less elastic than supply, the renters bear the bigger part of the burden. In the alternative, benefit levels could be increased such that tenants could choose to spend the extra money on a slightly better house or on warmer clothes for the kids. Unless we think poor people make worse choices than we could make for them, and the Greens I'd thought eschewed that kind of paternalism, forcing the poor to receive benefits in housing quality rather than in cash isn't likely to be efficient.

Rauparaha at TVHE says pretty much the same thing.

Choice among points on an equity-efficiency frontier; we can argue about that over beer. Policies that keep us inside the frontier just seem silly.

Poverty in poverty measures

Should we measure absolute or relative poverty in developed countries? The former captures real poverty but misses relative deprivation; the latter lead to absurdities as the measures would prefer equal but poor societies to unequal but rich ones.

Kristian Niemietz in The Journal of Public Policy notes a further problem with relative poverty measures: what's the relevant comparison group? If relative poverty draws on the notion that folks feel disempowered relative to a comparison group, we kinda need to know against whom folks compare themselves. And relative measures anchor things to the median.

The concept of relative poverty suggests that in case of doubt, the poor would be better off foregoing a rise in living standards, as long as the median income households forego an even bigger rise. Since this is a very stark assumption, we should expect the evidence supporting it to be especially strong. If it is not, there would be a strong case for finding a poverty measure which avoids this.

Niemietz proposes a mixed absolute and relative standard for determining poverty: construction of minimally acceptable bundles of goods to define the poverty line, as measured by actual spending by low income groups. This ties relative measures to spending by other relatively poor people rather than to the median.

The poverty line would be equal to the cost of all items on a list of essential goods and services. The items would be obtained through a large-scale survey (the CMS-element) similar to the Poverty and Social Exclusion survey, to ensure a degree of social relevance. The survey would yield a number of broad product categories. In identifying specific products for each product category, the list would then be streamlined (the BSA-element). In this way, the inability to purchase a particular item could be separated from unwillingness to do so, and structural changes in the relevant product markets could be incorporated.

And so we'd solve the problem of benchmarking things to the median.

I'm probably missing something here, but doesn't the method then require an ex ante decision about what income level constitutes poverty? If you're going to take the common items in bundle of goods purchased by poor people as constituting the minimal bundle, then that bundle will be bigger if it's bought by folks making $15,000 and less than it will be if restricted to those making $8,000 and less. So what then makes for the appropriate reference group?

Sorting out poverty measures is an important problem; Niemietz does a great job of outlining the absurdities of existing approaches. I'm not sure that it doesn't still beg the question. But I've probably not read closely enough.

Minimum wage - poorly targeted

Minimum wage increases do very little to help the poor, even before correcting for disemployment effects. In short: they're poorly targeted. Minimum wage workers often are the second earners in higher earning families. When we allow for employment effects, things get worse. Sabia and Burkhauser simulate the effects of a federal (American) minimum wage increase from $7.25 to $9.50. They estimate 1.3 million job losses, including 168,000 jobs held by the working poor. If the demand for minimum wage labour is more elastic than -0.86, there are net monthly earnings losses to low skilled workers.

Our results show that recent minimum wage increases between 2003 and 2007 have had no effect on state poverty rates. Moreover, the proposal to raise the federal minimum wage to $9.50 per hour is unlikely to be any better at reducing poverty because (i) most workers (89%) who are affected are not poor, (ii) many poor workers (48.9%) already earn hourly wages greater than $9.50 per hour, and (iii) the minimum wage increase is likely to cause adverse employment effects for the working poor.

They instead recommend expansions of the EITC program.

Note that $7.25/hr, US money, is about $10.25 NZ. Our minimum wage, $12.75/hr, is about $9 US.

Stressing out about poverty

An article in the most recent PNAS by Gary Evans and Michelle Schamberg, "Childhood poverty, chronic stress, and adult working memory", argues that intergenerational transmission of poverty might be due to debilitating effects of childhood stress. The Economist provides a decent summary for those without PNAS subscriptions. The article finds that kids from low socioeconomic status backgrounds have shorter working memories than do their more affluent counterparts, and that childhood stress levels seem to do more in explaining working memory at age 17 than does duration of childhood poverty. Children with a higher allostatic loading have worse working memory when older than do others. Once allostatic load is taken into account, income no longer has explanatory power.

Nowhere does the study seem to correct for parental IQ. We have reasonable evidence that IQ and working memory correlate, though there is some debate. We also have reasonable evidence that IQ is highly heritable. Finally, we have good evidence that IQ correlates with health outcomes. Let's put that all together then. Low parental IQ transmits directly to children. At the same time, low parental IQ generates lower income households and poorer health outcomes. These health outcomes get measured as allostatic loading. Blood pressure and BMI are half of the allostatic loading measure, with the other half being stress-related hormone levels. The Gottfredson paper linked above shows that IQ correlates with physical fitness, preference for low-fat low-sugar diets, and (negatively with) obesity; it also predicts psychological resilience in high stress environments. So everything in the allostatic loading measure is dependent on g.

The current study finds kids with high childhood allostatic loadings have poorer working memories as adults, but both could be driven primarily by differences in parental IQ. If parental IQ has a stronger effect on kids' allostatic loadings than does parental income, but both are correlated with IQ, then we'd expect allostatic loadings to explain more than income. That's how omitted variable bias works: whatever's most closely related to the omitted variable picks up the variance that ought to be attributed to the missing variable.

I'm sure the actual causal mechanism is pretty complicated. Low parental IQ will simultaneously provide kids with genes predisposing them to low IQ and with environments to which they're least likely to show resilience. Leaving parental IQ out of the mix doesn't seem a great start to an answer though. Without it, there's no way of disentangling the separate and (likely) augmentative effects of genetically-transmitted IQ and low status/higher stress childhood environments.