Deterrent?

As tobacco excise rises, so too do incentives to grow illicit tobacco for excise-free sale.

I'm a bit surprised that the fine for rather serious excise evasion was this low:

A 60-year-old Motueka man has been convicted and fined $6000 for illegally growing tobacco leaf.

Lawrence Reginald Jury apppeared in the Auckland District Court on Monday charged with being a party to the unlawful manufacturing of tobacco.

In 2010, Customs officers searched Jury's address and found 4,790 kilograms of tobacco leaf.

Customs says that would represent almost $2 million in revenue if the tobacco leaf had been manufactured at the time.

Spokesperson Shane Panettiere says Jury was providing flue-cured leaf to a person who he knew was unlawfully manufacturing tobacco.

Ross Ferguson, 64, of Wellsford was convicted and fined $1500 for unlawfully manufacturing tobacco with Jury.

This level of penalty can be efficient if there are large nonpecuniary costs associated with any conviction and if the probability of being caught conditional on growing illicit tobacco is very high. I don't know how obvious illicit tobacco production is, nor do I know whether it's more expensive to hide than illicit marijuana production should enforcement ramp up with excise increases. But I am a bit surprised that Radio NZ gave this one the headline "Illegal tobacco crop ends in hefty fine". I'd have expected fines more proportionate to excise avoided - perhaps even multiples of the avoided excise if the probability of detection isn't that high. But maybe there were extenuating circumstances about which I'm unaware; there's suggestion that the growers intended the grown tobacco for other uses. @MarkHubbard reminds me that IRD will likely be pursuing separate action; I'll be interested to see what the final penalties are.

I still think it would be fun to try to benchmark the elasticity of illicit tobacco supply by comparing sales of loose tobacco with sales of filters or tobacco papers as excise changes, correcting for time trends in reported marijuana use. Alas, I don't think there's available data on consumer purchases of 'roll your own' supplies.

So we won't all be fired then

Whenever I read stories about the growth of MITx or other equivalents, I get a bit nervous about the long run for academics. I've consoled myself with that academia is really a rather more complicated product than just book-learning: there's all kinds of consumption and complex human capital formation bundled in with it; MITx can't easily replicate that bundle.

Noah Smith helps ease my mind.

Economists (including at least one in my PhD graduating class) have dedicated untold numbers of papers to showing that college doesn't produce useful skills. But I think that this is missing the point; useful skills, which you mostly learn on the job, are not the only valuable form of human capital. There are three extremely important forms of human capital that you can't acquire on the job:
1) Motivation,
2) Perspective, and
3) Human networks.
These, I believe, are the types of capital that college is designed to build, both in Japan and in the United States.

Motivation, in Noah's setup, isn't about showing that you can complete arbitrary tasks on a deadline (like assignments); rather, it's about building a network of people who will smack you around if you slack off.

Perspective is what you get when you're immersed in a rich environment different from the one you came from - you learn from others just what it is that you want to do. I knew going into university what I didn't want to do: farming and working outdoors where temperatures can hit -40. I didn't know that I wanted to be an economics prof until a few years into study.

And the human networks are self-explanatory.

MITx can replicate the book learning. If it's awfully careful in how it sets up local tutorial groups, it might be able to replicate some of the motivation aspect, but not unless you can get a substantial number of high quality students to flip from traditional universities to the MITx model. I have a harder time seeing how it replicates the "figuring out what I want to do with my life" aspect of university; human network formation too requires some push from the university equilibrium to the MITx equilibrium.

College is useless as a mechanism for signaling intelligence. It's probably somewhat useful for signaling the ability to work hard and resist temptation, at least in the U.S. where many colleges require hard work (but not in Japan). It is about consumption, but it's too concentrated in time to be mostly about consumption. College is really about human capital, of the kind not conveyed in classes - motivation, perspective, and networking. Rather than a hideously, inefficiently expensive signaling mechanism, college is an ingenious technology for building the kinds of human capital that are scarce among smart people in rich countries.

The biggest risk isn't from students wanting to switch from universities to online options like MITx, it's from governments deciding that massive subsidies to help high human capital types better network with each other isn't worth the public investment. The best counterargument is that publicly funded tertiary education with a strong bias towards subsidizing lower income students directly rather than having broad-based tuition subsidies or interest-free loans is probably the best way of facilitating upwards mobility among kids born in lower deciles but with higher innate ability. Noah's 'Perspective' argument here seems pretty critical. If you go to trade school to become a mechanic, you learn to be a mechanic, but you don't get exposure to the wider range of potential life options.

Oh, Christchurch

As of November last year, more than 6,500 residential properties in Christchurch were in the red zone, indicating the land is not suitable for rebuilding. Residents have to move elsewhere. More sections in Southshore were red-zoned last month. Other properties have been red-stickered, indicating that the building itself is dangerous and not suitable for current habitation; some of those will be in the red zone, but others can be repaired or rebuilt on-site. Some of the red-stickered properties will be multioccupancy units, like the downtown apartment buildings now coming down.

We need a lot of new houses in Christchurch.

But, we're still exporting houses:

This red-zoned Burwood house will be the first of 50 an Auckland businessman will roll out of Christchurch on a truck from this weekend.

Quake Proof Solutions director Gary Muir is recycling and relocating red-zoned homes to minimise demolition waste and fill housing shortages in the South Island. 

He is moving his first two to Gore, but anywhere is possible. In the next year, he plans to move at least 50 houses. 

''Wherever someone wants a house, that's where we'll put it, " he said. "We're looking to move as many as we can."

Insurers and the Earthquake Commission have deemed at least 6000 homes too costly to repair.

Insurance companies needed the land cleared for rebuilding but instead of demolishing, sold them to Mr Muir to take away.

"This is mutually beneficial, " Mr Muir said. "We can recycle about 90 per cent of a house, for half the cost of rebuilding.

"It's either this, or we put a bulldozer through the middle of it." 

Cheap land, resource consents and stable sections were easier to find outside Christchurch. But Mr Muir would try and make any site work, even in the city.

..."We've had a lot of paperwork stoppages, " he said. "Every day they're changing the documents."

...He was one of the lucky few to gain accreditation for red-zone house removals. It took him 13 months to get the tick of approval for his first project. [emphasis added]

And, we've hardly started building replacements:

The first three months of this year saw local councils issue consents for just 60 new homes in the region, double the 30 issued in the last quarter of 2011, according to Statistics New Zealand.

Between the first quakes in September 2010 and the end of April this year, consents for 152 quake-related rebuilds were issued in Canterbury, as well as 149 consents for portable homes in temporary villages.

...The total number of homes needing to be rebuilt in Canterbury will depend on how many insurers deem uneconomic to repair, and these will join red- zoned homes and dangerous dwellings already brought down on the rebuild list.

Breaking down the consent data for permanent earthquake rebuilds month by month does show a shaky but upward trend:

2011 May 5 June 8 July 8 August 5 September 4 October 13 November 10 December 6 2012 January 17 February 24 March 16 April 17

We have to be careful to distinguish between the Stats NZ series on earthquake-related new building, cited above, with the total number of new dwelling units approved: Christchurch City had 1271 new dwelling units approved in total from April 2011 through April 2012, the most recent available stats. But it can take a while for approvals to turn into houses.

It really isn't hard to connect the dots from Council taking way too long to allow more subdivisions to current housing shortages.

Meanwhile, Environment Canterbury is barring people from installing logburners in rebuilt homes. ECan has been moving for a while to reduce the number of logburners in town in order to reduce the smoky smog that can sit over town in winter; you're not allowed to put logburners in new houses, but houses with existing logburners can keep and update them. Newer low-emission burners are supposed to be only a few years away; ECan might let people start putting those in when they're available. But, until then, you're barred.

I can understand ECan worrying that manufacturers might not be in a hurry to release worse-performing but lower emission logburners if they can still sell the old ones. But I would have thought the better way to keep the incentives straight would be to mandate the stricter standard only when some manufacturer brought a new compliant burner to market. That manufacturer, or importer, would then have a temporary monopoly. It would take a little while longer for older burners to cycle out of use and for emission levels to drop off, but we need also to put some value on the security of supply a logburner provides when earthquakes or heavy snow can knock the power out.

The Press's editorial nails this one:

The earthquakes have provided an opportunity to hasten the phasing out of inefficient woodburners which ECan has taken by sticking to the policy it has had since 2002 of not permitting woodburners in new homes.

This means that ECan is refusing to allow homeowners who had a woodburner and whose homes have been destroyed by the quakes to install another one in any new home they build. For many with access to a supply of cheap woodfuel the policy risks adding additional financial hardship to the many others they are already facing.

ECan said last week that its policy could change in future but this would not be until ultra-low emission woodburners were developed. That is not likely to happen for several years. As a practical concession to present problems it is useless.

Even the Parliamentary Commissioner for the Environment, Dr Jan Wright, recognises the inadequacy of ECan's response.

...Something other than continuing the ban adopted before the earthquakes would show that ECan truly understands that circumstances have changed.

Why not just deem on-site earthquake rebuilds to be a continuation of the existing consent for ECan purposes?

People with destroyed houses are caught by pre-quake regs that sought to slow any urban expansion; those able to rebuild are caught between pre-quake regs designed to slowly phase out logburners and power prices that keep ramping up as building new hydroelectric power dams for lower cost power supply seems effectively banned. It'll be interesting to see what power prices look like in a dry winter after everyone's switched to heat pumps if we've not increased supply.

It's hard to tell what's satire

Joe Bennett wonderfully sends up Turia's army. New Zealand's Associate Health Minister in charge of tobacco eradication recently suggested that Kiwis violate the traffic code by honking their horns at people seen smoking in cars carrying kids.

[S]he proposed other drivers put social pressure on those smokers.

"Maybe one of the ways we could do better is to encourage people who see people smoking in cars, tooting to them and doing the 'you shouldn't be doing that, mate' [gesture]."

She wagged her index finger in a scolding gesture to demonstrate how this could be done.

In the accompanying NZ Herald web poll, 22% agreed they'd honk to shame a smoker; a further 12% said they might; 39% worried about being opening themselves up to road rage. A spokesman for ASH downplayed road rage fears while endorsing Turia's suggested honking and finger waggling. I would love to have a high-res version of Turia waggling her finger disapprovingly. I could put it in every tobacco post henceforth.

Here's NZTA advice about using your horn:

The horn should only be used as a reasonable traffic warning. It should not make an unnecessary or unreasonably loud, harsh or shrill noise.

Joe Bennett goes the step further:

Sometimes, and you'll find this hard to believe, the smoking murderers kick back, blasting their own horns and giving me the fingers. Well they don't scare me. I follow them, stick right on their bumper, giving them a blast every few seconds to let them know I'm not giving up. I follow them all the way home.

"That's where they live, kids," I say when they pull up. "Remember that address, eh. " I don't have to say any more.

An evening or two later the kids don their little brown shirts and announce that they and their classmates are just going out to play for a bit. "Good on you, kids," I say, "and here's a snack for the road," and I hand them a tray of rotten eggs that I've been saving specially.

"Oh and no throwing stones," I say. "They can do terrible damage to windows."

Off they go, my little darlings, and my heart just swells with pride and with love.

Do read the whole thing.

When I first read it, I didn't know that Turia had actually recommended finger-waggling and tootling; I thought the whole thing was satire of a possible plausible next ridiculous thing Turia might recommend.  And so I was amused that commenters were taking it seriously. But the only satire was Bennett's purported endorsement of the suggestion.

Meanwhile, a Twitter feed purporting to be the Twitter arm of a new anti-tobacco "wiki"* site started providing some rather absurd offerings. I wasn't sure if the Twitter feed and the wiki were set up to make the anti-tobacco movement seem a bit silly. It looks now like the wiki is real while the Twitter feed is a parody. Again, it's hard to tell anymore. The Wiki warns about libertarians:

The tobacco industry has increasingly aligned itself over the last few years with a growing number of libertarian bloggers, think tanks and activists, who in turn argue that individual liberty and freedom to choose where to smoke should be more important than further restrictions on smoking.

Suspicious, that. Aligning themselves with those who are philosophically predisposed to valuing individual rights instead of, well, people who would prefer to waggle fingers and tootle horns.

*Is it still a wiki when you have to apply for editor rights and sign a bunch of disclaimers? It's hard to imagine that the same folks who set up the fake Twitter feed wouldn't have had an awful lot of fun with a wiki that didn't have that restriction, so it's not nuts that they have that restriction. But is it still a wiki?

Kreskin, again

Back in 2010, I made a few predictions about where the pornography industry was heading with the effective death of copyright.

One of these came true last year. I'd predicted that somebody would figure out a copyright litigation extortion scheme where the threat of being publicly named in lawsuits for having illegally downloaded pornography with embarrassing titles would induce people to settle up rather than face public humiliation. I wrote:

An alternative litigation strategy that could work would be use of copyright infringing honeypot sites whose viewers would then be threatened with copyright lawsuits for downloading pirated content, with threat of public disclosure of everything the viewer had been watching. I suspect a lot of viewers would pay up rather than have notice served to them at work and the whole list of viewed videos read aloud, for example.

And that basically came true with the litigation around "Nude Nuns with Big Guns"; Patri Friedman was hit with one of their letters.

I also predicted that the industry would shift away from content that easily fed Tube sites and towards higher end product and bundling with ancillary services:

Longer term, I'd then make the following prediction, albeit with relatively low confidence: a low end market dominated by freely supplied amateur clips that has commodity status, with hosting sites trying to drive click-throughs to higher valued ancillary services; and, a higher-end market where a much smaller number of performers are able to generate fan loyalty for purchase of higher-priced bundles and attendance at touring events.

I refined that:

I still expect that we wind up with a segmented market where the clips sites mostly host amateur or very cheaply produced content, but where a few star performers are able to capitalize on acquired fame by selling props from the set, touring, or providing higher end experiential goods

So, how's that looking? Louis Theroux surveys the porn industry. What's left is going upmarket:

Those movie companies that remain are focusing increasingly on high-end product, trying to beat the illegal sites by providing something like a cinematic experience. There is a flight into "quality". In an uncanny echo of a recent BBC slogan, they are embracing the idea of "Fewer, Bigger, Better". For some, this means more female-orientated scenes with less angry sex. Hence A Love Story. For others, it means parodies – of popular TV shows and recent blockbusters.

And what about ancillary services?

Women supplement their income by stripping and doing live shows over the internet, shot from home on their webcams. One evening I visit one of LA Direct's top performers, Kagney Linn Karter – star of Racktastic and Pound Round – at her house as she prepares for her bi-monthly live show. Her boyfriend and full-time assistant Monte is hanging up her dresses while Kagney bathes and puts on her makeup. Monte and I then retreat to the kitchen where he tidies and wipes down surfaces while Kagney strips on her bed and masturbates in front of the strangers viewing her through her laptop. Forty-five minutes later, she emerges. "Well, I made a hundred dollars," she says brightly.

It's an open secret in the porn world that many female performers are supplementing their income by "hooking on the side". It's also called "doing privates", as in private bookings.

Theroux is pessimistic that the industry will be able to sustain itself over time.

Think about the category of product that Theroux says seems to be doing well: female-oriented product and parodies. The kind of product that you can imagine couples buying together. Theroux wonders:

And there is also the wider question: do those who use porn not, perhaps, owe it a little something? Should those who download it not be ready to pass on a little cash incentive to the business? And if not, why not? Does the stigma attached to porn make it OK to steal it? These questions underpin a much bigger dilemma being faced by all media: how do you sustain an industry that provides a certain standard of product – be it journalism, music, or mainstream movies, or X-rated movies – when more and more consumers are in the habit of downloading content for free? In the world of porn, the answer is: you can't.

I'd think of it rather as that the stigma increases the full cost of paying for product for those with joint credit cards where one partner may disapprove of the good's consumption. That fixed cost pushes towards piracy. And it also helps explain which sectors of the industry are doing less poorly: those where individuals are purchasing a good more likely to be consumed jointly.

Hit the "pornography" tag for prior posts on this interesting industry. Self-regulation regimes around condom use and partner reporting is particularly interesting.

Small steps towards a better world

It looks like New Zealand will implement a local version of MatchingDonors The Kidney Exchange as part of a push to improve organ donation and transplant figures. They'll also invest in training specialised ICU nurses to talk with families about donation options.

All of this is for the good. Live kidney transplants are pretty safe; living donors sharing a liver lobe also have pretty good outcomes [discussed here]. But few people would be willing to give a kidney or a liver lobe even to a friend given the reasonably large time commitment involved: frequent flights to Auckland for consultations, recovery time post-op. Compensation to living donors is pretty limited. So Matching Donors, which helps route around donor compatibility issues and increase the potential for altruistic donations, can make a big difference.

Israel experienced a big increase in transplant rates when they paired a Matching Donors system with compensation to living donors - expenses plus up to 40 days' lost wages. New Zealand could improve outcomes further here by making it less costly for donors to give organs.

We could do even better by considering things like Israel's priority law, which complements a binding organ donor registry with priority access to organs for those willing to be organ donors. Or, by requiring that transplant surgeons respect the wishes of members of LifeSharers: organ donors who prefer that first call on their organs goes to other organ donors.

We don't have to go all the way to complete markets in organs to improve outcomes. I'm glad New Zealand's taking a step in the right direction. Other useful steps:

• Compensate cadaveric organ donors with free funerals. It's odd that Otago can cover a cremation subsidy for those leaving their bodies to science, but we can't compensate organ donors for similar donations.
• Encourage LifeSharers as a way of boosting donation rates rather than try to stomp on it [see also here]. 
• Consider the other steps taken by Israel: priority access to donated organs for those signing on as organ donors. See here and here.
• Switching from opt-in to opt-out.

My prior posts on organ donation are on the "Organ markets" tag; some of them are linked above.

GDP isn't everything...

...but it sure does correlate with a whole big bucket of good stuff. Here's Will Wilkinson from a couple of years ago. And, a few relevant GapMinder links:

• Life Expectancy
• Child Mortality
• Age at first marriage

My former colleague Les Oxley presented at the Transit of Venus Conference:

Measuring the success of our nation by Gross Domestic Product is a dated and senseless exercise according to speakers, Oxley said.

He said it was time to do away with GDP as it was "not fit for purpose".

"It is not a good single measure of success. GDP is only good for what it was built for: financing World War Two," he said.

Of course GDP isn't a good single measure of success. Things like earthquakes can bump GDP up during reconstruction, but at horrible cost to wealth and life. Broad voluntary shifts from labour to leisure would show up as drops in GDP even if people were happier. A good single measure of success would be some GDP+, incorporating a bunch of other good stuff along with GDP; it would be pretty hard to get agreement on the relative item weightings.

But surely abandoning GDP goes a bit too far.

Update: Les advises by email:

The context was a discussion of sustainability and wellbeing where I had said that if these were the things you were interested in then using GDP alone was not fit for purpose.  I then explained that the original purpose of GDP was to measure a country's output and that this was used in WW2 in part to make a case for the need to  finance the war efforts.  I did say that the original purpose for which GDP was created remains valid, but not as the single and only measure if the debate is broader (i.e.,measures of wellbeing).  I (and Gareth Morgan) then said that GDP might best be considered a constraint not a goal in its own right and setting the goal of catching up to Australian GDP was basically futile unless the NZers were prepared to consider other options to increase GDP, like mining, etc.

I'd go farther and say that, even with mining, I'd be pessimistic about catching Australian per capita GDP. Agglomeration seems likely to work against it. I agree with Les that GDP by itself is a poor measure of wellbeing. It's hard for me to think of a better single one though.