Yahoo Poll on the Minimum Wage

Every fibre of rationalism in my body tells me that I shouldn't ever look at the results of on-line polls on popular media sites, but sometimes I can't help myself. So I checked out today's poll at Yahoo New Zealand, concerning yesterday's announced increase in the minimum wage.

Of course, the results of these polls tell us nothing at all about either appropriate policy or public opinion. But in this case, the way the question is phrased tells is revealing. The question is

What do you think of the minimum wage raise?

And the possible answers that one can choose are

• It's a good move forward
• It's not enough for the people who depend on it
• Baby steps...
• I don't know.

What! No opportunity to express the view that the social costs of youth unemployment outweigh any redistributive benefits? No opportunity to state that the burden for helping the poor should be on all of society, not just employers? What hope is there for a sane debate about costs and benefits of policies if one prominent viewpoint amongst policy wonks is not even considered to be a possible answer?  I guess the good folks at the Yahoo news site don't read Offsetting, which makes me sad.

The market for dodgy

If a consulting firm is asked to produce a dodgy report, and delivers what the client wants, where's the harm? Bill Kaye-Blake asked that last week.

Monday's New Zealand Herald reports:

Crucial figures for the $68.5 million Claudelands Events Centre were influenced by city council staff who increased the number of events and inflated the revenue expected in the first three years of operation.

A $30,000 peer review of the original "overly optimistic" 2009 Claudelands business case has revealed Hamilton City Council staff told the original author of the business case, Campbell Consulting, to increase the already optimistic number of events in the business plan by up to 50 per cent. [Emphasis added]

Staff also used higher revenue projections than those provided in the business case in the council's 10-year budget - inflating the figures in the first three years by between 6 and 11 per cent. But at the same time they lowered the operating costs by 6 to 9 per cent, which made the budgets look more attractive.

Hamilton mayor Julie Hardaker said she was waiting for chief executive Barry Harris to complete his investigation into what happened and refused to speculate on whether the council had been deliberately deceived. Council staff had been unable to explain the variation.

So instead of turning a $1.1 million surplus, Claudelands returned a $1.5 million deficit.

You can argue that Campbell Consulting is entirely blameless. They were asked by Council to provide revenue forecasts under a few different scenarios and did so to the best of their ability. Or, you can argue that they were party to a fraud on predictably gullible Hamilton voters undertaken by the Claudelands's backers within Council; they either knew or ought to have known that the revised figures requested by the funders were hopelessly unrealistic and only really had evil applications.

Voters seem to love Councils putting up big stadiums and events centres - they want to believe the lie that the venue will either turn a profit directly or will stimulate sufficient indirect economic activity to cover its costs in the grand scheme of things. If Campbell hadn't provided the case, somebody else likely would have. There's a demand for dodgy ultimately because voters like it, at least in the short run. I still think we ought heap scorn on those supplying that demand to increase the reservation price for producing dodgy reports. But in a world in which voters have no individual incentive to sort out which firms specialize in dodgy and which ones turn down RFPs where the funders make pretty clear what kind of result they want, it probably doesn't do much to solve things.

HT: Fair Play and Forward Passes, where Sam Richardson writes:

It is a sorry state of affairs, but by no means an isolated event. Hamilton ratepayers don't have to look too far to see a similar story with the V8 supercar race a prominent example. Unfortunately the same story has been repeated all around the world - overstated measures of benefit, understated measures of cost and a projected bottom line that is much more palatable than what actually eventuates.

V8 Supercar Races, Events Centres, Stadiums, Monorails, Escalators to Nowhere...

Patronage

Everyone remembers Waldstein because he chose to patronize a great composer, Beethoven, who then named a rather nice Sonata for his patron. I doubt Count Waldstein would have made Wikipedia a hundred and eighty years after his death if he hadn't chosen to sponsor Beethoven.

Where copyright is the business model, illicit copies get stomped on because some small fraction of those copies might represent displaced sales. Under a patronage model, the greater the distribution of the work, the greater the fame and approbation accruing to the sponsor.

And so we find General Motors providing free MP3 downloads of their sponsored work: OK Go's genius new song, Needing/Getting. But for some insane reason (maybe because the car isn't yet here on sale?), they're not allowing downloads in New Zealand. But that's ok. The YouTube video has to be better. Here it is.



And here's the best analysis I've yet seen on both the video and OK Go's shift from copyright to patronage: from Car & Driver Magazine.

Some rock artistes would recoil at being known as “the treadmill band,” but it doesn’t seem to bother Kulash. “Every band has songs. Not every band has videos like this,” or, indeed, a music-industry backstory like this. It involves OK Go divorcing its big transnational record label—EMI—in 2010, starting its own label, and joining the great media democratization movement on the internet.

Since the separation, OK Go has pretty much done as it pleases artistically, distributing it all free at sites such as YouTube, one of the Tahrir Squares of the music-industry revolution, while relentlessly touring and partnering with corporate sponsors to pay the bills.

Proving that Brown University doesn’t hand out degrees to just anybody, the lanky, Mick Jagger–like Kulash is a manic thinker. His speech is so flushed with philosophical abstractions and conceptual idealism that it all keeps collapsing on itself as he works to convey everything at once. To wit: “The good side from a creativity and productivity standpoint is that we don’t have to abide by any of the—not only the rules but the definition of what last century or last decade, you know, what a musician does doesn’t have to only be to make recordings, it isn’t to make a seven-inch, 45-rpm piece of plastic, you know?”

The essential point is that OK Go peddles not singles or albums but audiovisual art intended to create “joy and wonder and surprise,” as he puts it. Corporations want to be involved, and that doesn’t bother Kulash, either. “If you want to spend your day making stuff, somebody is going to have to help you pay for it.” So far, Land Rover, Samsung, and State Farm Insurance have all paid to play along. “The crazier our ideas, the more likely we are to have interest” from sponsors, says Kulash.

Ideas such as figuring out how to make music with a car.

The original concept for “Needing/Getting” grew out of a 2010 video for the song, “This Too Shall Pass.” In it, the so-called Rube Goldberg video, the band sings off a soundtrack while dominoes topple, balls and tires roll, umbrellas fly, TVs smash, and paint splatters in one continuous 3-minute 54-second take, all of which was underwritten by State Farm (look closely for the logos).

Some of the most innovative music is currently being made well outside of the traditional copyright funding model. Industry sponsorship is making content more creative.

Watch the video and hit the link above to see how they did it. Ridiculously fun.

Who Speaks?

Chris Barton in the NZ Herald wonders why so few academics join public debate in New Zealand.

The faint voice of academics seemed odd, especially in light of the Education Act 1989, which requires universities to "accept a role as critic and conscience of society". Bridgman found some reasons why: universities, made over by the market reforms of the 80s and 90s, did little to encourage the critic and conscience role; academics believed making regular public contributions would harm their careers; taking a public role was time-consuming, meaning less time for publishing research in academic journals, which are vital to career advancement.

There were also concerns about being misquoted; fears that comments would be seen as a "dumbing-down" of academic knowledge; plus not having the skills to communicate with a wider audience. A common theme, says Bridgman, was the influence of the PBRF system and its bias against research on the New Zealand context, which is harder to get published in the higher rating international journals. In other words academics were, by and large, frightened, self interested and confined by oppressive research demands to their rarefied sphere of influence.

Then there is the long Kiwi tradition of regarding the word "intellectual" as a term of abuse. In his essay The Public Intellectual is a Dog, Auckland University English Department lecturer Stephen Turner sums up the problem: "Just talking about public intellectuals make you, or rather me in this case, a wanker rather than a well rounded bloke." The British have also been bagging intellectuals for a couple of centuries, as Auckland University associate professor Laurence Simmons points out in his introduction to Speaking Truth to Power. It's a stereotype which says experience rather than abstract ideas, the supposed currency of intellectuals, offers the better guide to social and political practice.

I'd add to that some pretty serious thin market problems: we just don't have the think tank environment in New Zealand that is found elsewhere to help encourage academics to take on a more public role.

In any case, of the 24 academics listed as providing expert public analysis on New Zealand's business climate, I'm the only one listed from the University of Canterbury. I'm a bit worried that the other hundred-odd academics in the College of Business and Economics know more about Canterbury's system of incentives, rewards, and (in the current environment of redundancies) punishments than I do.

I would have added Canterbury's Glen Boyle to the list of academics who speak on business. I'm also surprised that they missed Matt Nolan at TVHE in their list of occupational economists; he's done rather more than I have on topics around the financial crisis.

Overheard anecdote of dubious provenance

While the three year old clambered over an old privately owned tank at a classic car event a while back, I overheard the tank's owner telling another attendee about the minor paperwork hassles he faced in importing the tank.* The Defence folks had some objection to his importing the tank because, were he to go on a rampage with it, they had nothing that could stop it. The armour was too thick for .50 cal rounds to get through, and all the .50 cal rounds are stored up on the North Island anyway. So he had to sign a waiver saying he wouldn't go on a rampage or try to start a revolution.

I don't know whether the story was true;** I don't even know that it was really the tank's owner. But I love that I live in a place where it could be true. Instead of a place where the local sheriffs have tanks.

I also like that the privately-owned aircraft on display biannually at Warbirds over Wanaka could probably take out the government's Air Force if they decided that they needed to.***

Americans who claim pacifism but who live in a state that extracts large quantities of money from them to blow up people overseas or to send police tanks and bad actors after the suspected kingpin of a cockfighting ring (see link above) perhaps ought to reconsider the strength of their convictions or emigrate.

* Please don't ask me what kind of tank it was. It was green, had a big gun, had tracks, and definitely wasn't a personnel carrier. A door opened at the back where the kids climbed in to go play. I think there was a hatch on the top too.

** It can't be completely true as the army does have some anti-tank weapons. It just doesn't have any tanks.  We do have some armoured tractors. And this is as it should be. If you want to see a tank in New Zealand, go to a museum. Or, go and hire a private one and go for a drive.

*** I am definitely not denigrating the important work done by the Air Force in maritime safety and in Search & Rescue. New Zealand can't afford an Air Force that could protect us against any plausible external threat, so doesn't bother to try. We have equipment necessary for the jobs that need here to be done: search & rescue and maritime patrol. Important jobs both. But neither of which require ridiculously expensive modern fighter aircraft. The best response to a tournament game that you can't win is not to play.

No slippery slopes

The case for taxing sugar builds explicitly on the work done in the anti-tobacco and anti-alcohol public health movements. Here's the latest from Nature.

HOW TO INTERVENE

How can we reduce sugar consumption? After all, sugar is natural. Sugar is a nutrient. Sugar is pleasure. So too is alcohol, but in both cases, too much of a good thing is toxic. It may be helpful to look to the many generations of international experience with alcohol and tobacco to find models that work ^8,9. So far, evidence shows that individually focused approaches, such as school-based interventions that teach children about diet and exercise, demonstrate little efficacy. Conversely, for both alcohol and tobacco, there is robust evidence that gentle ‘supply side’ control strategies which stop far short of all-out prohibition — taxation, distribution controls, age limits — lower both consumption of the product and the accompanying health harms. Successful interventions share a common end-point: curbing availability ^2,8,9.

Taxing alcohol and tobacco products — in the form of special excise duties, value-added taxes and sales taxes — are the most popular and effective ways to reduce smoking and drinking, and in turn, substance abuse and related harms ². Consequently, we propose adding taxes to processed foods that contain any form of added sugars. ...

Other successful tobacco- and alcohol-control strategies limit availability, such as reducing the hours that retailers are open, controlling the location and density of retail markets and limiting who can legally purchase the products ^2,9. A reasonable parallel for sugar would tighten licensing requirements on vending machines and snack bars that sell sugary products in schools and workplaces. Many schools have removed unhealthy fizzy drinks and candy from vending machines, but often replaced them with juice and sports drinks, which also contain added sugar. States could apply zoning ordinances to control the number of fast-food outlets and convenience stores in low-income communities, and especially around schools, while providing incentives for the establishment of grocery stores and farmer’s markets. ...

Government-imposed regulations on the marketing of alcohol to young people have been quite effective, but there is no such approach to sugar-laden products...

With enough clamour for change, tectonic shifts in policy become possible. Take, for instance, bans on smoking in public places and the use of designated drivers, not to mention airbags in cars and condom dispensers in public bathrooms. These simple measures — which have all been on the battleground of American politics — are now taken for granted as essential tools for our public health and well-being. It’s time to turn our attention to sugar.

And who's next in line after sugar? Remember that the anti-tobacco folks disarmed opposition in the 90s by insisting that there was no next in line.

"They use the 'slippery slope' argument. 'My God, if they can do this to smokers today they can do this to people who eat Haagen-Dazs ice cream or whatever."

I think it's safer to assume that there's no logical end to the line. Every behaviour has health consequences, and if there's a public health system, somebody will say regulation's warranted.

There's a good case to be made for abolishing the combination of American agricultural subsidies and sugar tariffs that together result in substitution from sugar to fructose, but the case for that would be independent of nutritional qualities of fructose and sucrose. There may be a case for changes to USDA nutritional recommendations. But let's not forget that it was the USDA's war on fat that helped prompt the shift to high-carb and higher fructose diets in the first place.

Encouraging Arrow-Debreu worlds

Chris Dillow warns that economics only results in real-world changes when it serves the interests of the powerful.

This poses the question. How come economics is performative in some regards (option pricing, bosses’ pay) but not in others, such as contingent markets?

It’s certainly not because Arrow-Debreu theory is new or marginal. It is much older, and far more widely taught in universities than the work of Jensen and Murphy cited by Aditya.

Nor is it because state-contingent markets would be an obviously bad idea. Yes, we know from the theory of the second best that it is not necessarily efficient to remove a single market distortion, so it’s theoretically possible that the introduction of a few such markets would be sub-optimal. But whether this would be the case in practice takes some proving. And anyway, plenty worse ideas than these have been turned into economic reality.

There is, of course, a simple answer to this question. Economics is performative when it serves private interests, but not (necessarily) when it serves public ones. Traders immediately saw the usefulness of the Black-Scholes option pricing formula, and bosses quickly saw the use of Jensen and Murphy’s work. But the benefits of better state-contingent markets accrue to millions and cannot so easily be captured privately. They are an example of a Nordhausian innovation - one with high social benefits and low private benefits and which do not therefore exist. Paradoxically, markets are incomplete because of a market failure - that there’s a positive externality to creating complete markets.

I could, of course, put this more crudely. Economics is performative when it serves the interest of the powerful, and not performative when it doesn’t. In this sense, the problem is not with economics, but with a class structure that causes the “real world” to be a corrupted and perverted form of a market economy.

As powerful counterexample, here's Justin Wolfers working to push us closer to Arrow Debreu worlds in helping to get prediction markets legalized in the United States. Prediction markets are exactly the kind of Nordhausian innovation that shouldn't exist. The Case-Shiller markets also help move us to Arrow-Debreu.

It's fun to think about the market failure of there not being enough markets. One obvious solution is that governments support rather than oppress prediction markets. Three cheers for New Zealand's iPredict, and for the policy environment that allows it to exist.