Watching the slide down the slippery slope

For now, it's just a proposal from the New Zealand healthists.

Health officials worried about an obesity epidemic want fast-food advertising dropped from public property, including bus shelters, and are questioning fast-food and soft-drink sponsorship of public events.

They have also raised concerns over the lack of political power to stop fast-food restaurants being built near schools and in poor areas.

What about McDonald's sponsorship of things like Ronald McDonald House? Says Auckland Health Board Clinical Director Robyn Toomath:

"We've reached that purist approach with tobacco, completely hardline. There's no way in the world we would have a Rothman's Centre for Kids in Hospital. You start off saying we won't promote the sale of goods, then the next step is [not allowing] sponsorship of these companies."

McDonald's, Rothman's, no logical difference. No slippery slopes, 'till you're close to the bottom.

For a more reasonable take on McDonald's and the miracles wrought by careful supply chain management, consult Blunt Object [language warning].

Christchurch Costs

The NBR's NZ Property Investor magazine has what may be a leak on estimated costs of some of the big ticket items in the proposed Christchurch plan. It's not online; I thank Hugh Pavletich for the tip. [Update: Hugh's been keeping track of all this kind of stuff at Cantabrians Unite].

But NBR NZPI has been supplied with figures by a reliable source who cannot be identified due to possible repercussions. The covered rugby stadium is tipped to cost  $506 million, the convention centre $460 million and the metro sports arena $227 million. Other elements of the plan make up the balance of the $1.6 billion.

By contrast the recent parallel city plan based on the "Share An Idea" programme with residents allocated about $200 million for a rugby centre, $150 million for a convention centre and $120 million for a metro arena.

According to NBR NZPI informant, the government has indicated it would come up with roughly half the money for the Rolls Royce plan. But subsequently there have been calls for the city sell assets to pay a greater share.

A community leader Reverend Mike Coleman described the scale of the plan as "bizarre."

"It's emporer's clothes stuff. To even talk seriously about a rugby stadium or convention centre at these prices is absurd. We are not a big city in the scheme of things, we are a large town of about 300,000 people. We don't want to end up stuck with millstones like the Dunedin stadium."

Pick up a copy at your local newsagent.

A city of a few more than 300,000 people is planning on building a stadium with capacity to seat about 10% of the city's population.

The Christchurch Star called last week asking for comment on how the cost for these sorts of things might be borne, and whether amalgamating the local councils might be a way of spreading the costs [yikes!]. I'd sent them this, but only got their voicemail requesting a shorter version after they'd hit the press deadline. So I'll put it here instead.

“It makes sense that Christchurch ratepayers, one way or another, contribute to the cost of enhancing facilities over what we had before the earthquake. Those costs should be met by a mix of longer term rates increases, debt issuance, and sales of existing assets that would have more value in the private sector than in the public sector. Trying to meet it all through current rate increases would unnecessarily penalize households, many of which are under reasonable fiscal distress where insurance is not enough to cover damages suffered. There are about 133,000 households in Christchurch; if Council is to be on the hook for $787 million [number the Star cited to me], the per-household cost is then just under $6,000; average rate increases on individual households would be less than that as rates paid by businesses would also increase substantially, but we should note that many of those businesses are also owned by local households.” 

“What is less clear is whether Council should really be spending large amounts of money on things like the planned Convention Centre or Stadium. The economic literature does not provide any strong support for that either kind of investment really provides any great benefit to a city, though you could make the case that that literature doesn’t typically look at cases where cities are trying to rebuild from earthquakes. I would hope that Council and the government might scale back their ambitions on both fronts. The plans for the Stadium depend on forced acquisition of property from people like the owners of Ng Gallery, who have been working very hard in their own way towards the Christchurch rebuild. When I take off my economist hat, I worry about the foundations of a city whose rebuild is based on something that’s awfully close to theft. And, when not hosting conventions, Convention Centres tend to be dead spaces. Wouldn’t it make more sense for Council to fund some overhead walkways connecting hotels that would want to be able to collaboratively host larger conferences than for Council to spend rather a large sum of money on a dedicated facility likely to be too large to meet typical future needs?” 

“I would also be very nervous about planned amalgamations of the local councils. Differences in regulations across the Councils seemed to help a lot in getting new residential construction going  after the earthquakes. Where Christchurch Council was too busy with other things to move particularly quickly to release more land for housing, Rolleston and Kaipoi were able to start expanding. Smothering that kind of ability for different areas to respond differently in the face of disasters removes some of our institutional robustness. Further, it only makes sense to spread any burden to Waimakariri and Selwyn to the extent that residents of both of those districts disproportionately make use of Christchurch-funded facilities; otherwise, any burden-spreading should come from the national government’s contribution to the rebuild. I would expect that simply having a higher fee-for-service in some of the new facilities for those not normally resident in Christchurch would make more sense than amalgamating the Councils.”

Australia's fun police

New South Wales (Australia) Police Chief Andrew Scipione wants restrictions on violent video games because he thinks they cause crime.

There exists a literature on whether violent games affect crime rates. The best evidence I've seen says that while violent games get violent people excited about violence, they also reduce crime. How? By keeping violent people in their houses playing violent video games where they'd otherwise be going out to do violent things. They call it "voluntary incapacitation"; prison is "involuntary incapacitation". Or see this one.

At least the technology section of News.com.au is a bit less credulous of Scipione's claims.

It's worth remembering that Scipione also reckoned that the Collins and Lapsley measure of the social costs of alcohol use, a $15 billion figure largely based on costs heavy drinkers impose upon themselves via lower life expectancy, lower wages, and spending on alcohol, was actually a measure of the costs of alcohol-caused crime. I don't know whether he still thinks that the Collins and Lapsley number represents crime costs, but he's still pushing for some fairly serious restrictions on alcohol availability.

The Chief of the Fun Police?

I hate economic impact numbers

What the heck is "economic impact" even supposed to mean? Seamus keeps wondering if it wouldn't be fun to set an honours project asking "To what relevant economic question is "economic impact" a useful answer, if any?"

My main reason for hating them is that they're so awfully abused by the press. It's hardly the press's fault though - if we as a profession keep producing these figures without adequately explaining (or understanding, in some cases) what they are, they'll keep abusing them.

Today's example, highlighted by Matt at TVHE: a $200m estimated "economic impact" of health disparities between Maori and Pakeha New Zealanders gets turned by the journalist into a cost to taxpayers.

The University press release:

Avoidable deaths of Māori children in New Zealand are costing the country at least 67 lives and around $200 million per year in economic impact, but greater Government spending on primary care and other key interventions could help to resolve the problem, health researchers say.

The journalist version:

The public health physician said 67 Maori children died avoidable deaths every year, costing taxpayers $200 million annually.

Ummm, no. Unfortunately, the Auckland University press release is about as unhelpful as possible in letting any journalist sort this out. Why? Not only do they fail to link the article, they also fail to name the journal: the study was "published in an international public health journal".

If you search through PubMed on the two authors' last names, you can find the article. It's here. But little chance a journalist will have time to do that.

What do you get if you read the article? Here's the results brief at the start:

Preliminary estimates suggest child health inequities between Māori and non-Māori in New Zealand are cost-saving to the health sector. However the societal costs are significant. A conservative “base case” scenario estimate is over $NZ62 million per year, while alternative costing methods yield larger costs of nearly $NZ200 million per annum. The total cost estimate is highly sensitive to the costing method used and Value of Statistical Life applied, as the cost of potentially avoidable deaths of Māori children is the major contributor to this estimate.

So both the press release and the journalist's piece ignore that Vaithianathan and Reid produced a range of estimates with a $200m upper bound rather than a point estimate around $200m. And, the larger number relies on VSL measures. What's a VSL measure? The intangible costs of a premature death. That's only a cost to the taxpayer in the rather indirect sense that the people who are sad when someone dies prematurely may also be taxpayers, and that some of the VSL measure could be viewed (given how NZ's VSL measure is constructed) as partially being due to that premature deaths are tragic for the family. And, worse, the University press release cites the deaths as though they were something not included in the $200m.

There's other weird stuff in there. There's a measure of time out of work for grieving parents that's based around the median wage rate, but if the whole darned story is about the costs of poverty among Maori in terms of premature mortality, it's just a bit odd to use the median wage rate. But I'd hardly expect a journalist to pick that up.

Why oh why can't university press offices pumping published work done at their schools link to the darned paper and write things that won't be misinterpreted by journalists? Are they trying to confuse people? I could understand it if the article were behind a ton of subscription gates, but this one's free access.

Can we just ban economic impact studies? It's almost inevitable that the things get misinterpreted like this. And they then do far more to confuse than to illuminate.

Costs to the taxpayer of $200 million.... How long 'till somebody cites this in Parliament as a cost to the tax system? Any bets?

Inducing failure

Is cybersecurity a market failure? Every individual counts the cost to him of a virus attack but ignores the cost to others if his system becomes a zombie spam machine; consequently, people underinvest in computer security.

Eli Dourado does a great job in taking on this kind of argument in his Mercatus working paper - on the syllabus in my Economics of Current Policy Issues course. 

First, the externality is, in most cases, inframarginal: most individuals have sufficient personal interest in ensuring security that the external benefit accrues inframarginally rather than at the margin. In other words, while it's true that people benefit others when they install proper security software, they're doing enough to benefit themselves at the same time that they're likely getting things right.

Second, there are plenty of other parties that have an encompassing interest in ensuring that the Internet works well. Google has a harder time selling ads if a lot of clicked links install malware and the like; consequently, Google works hard to make sure that, if you're using their Chrome browser, you get lots of warnings if you try to visit a dodgy site.

We'd think that Microsoft would have a similarly encompassing interest. Why isn't a decent security system built into Windows? I recently built a computer and put Windows 7 on it. After a bit of searching around, I found that Microsoft produces a very decent, and free, Internet security package. So I downloaded it, for free, and installed it. And I wondered why it wasn't built into the OS. Surely it would be in Microsoft's interest that people using their machines be protected against virus attacks, and it's precisely the kinds of people who don't know they need to go searching for an antivirus package who'd be the kinds of people who'd impose costs on others by letting their machines turn into a zombie.

Then I remembered... Microsoft gets slapped around by the Department of Justice and the European antitrust guys whenever they try to make Windows better by adding features. Bundling antivirus into Windows, where it should be, could be deemed a measure that the Europeans would figure would hurt competitors; hurting competitors seems to matter more than helping consumers in European law. And Eli pointed me to this article from 2008 offering antitrust as reason why antivirus hadn't been built into Windows.

Fortunately, it looks like Microsoft's found a workaround for Windows 8. Antivirus will be built in, but will be automatically switched off if any other vendor's product is installed; it only turns back on if the user fails to renew the subscription to the alternative product. Note that Windows 8 is already under antitrust investigation in Europe, but for browser default issues rather than antivirus (so far).

More thoughts on the Christchurch plan

Eric has covered this off well, but here are a few additional thoughts:

1. There is a multiple equilibrium story under which it makes sense to spend money on civic projects that would otherwise not pass a cost-benefit test. The idea here is that there are two potential futures for Christchurch, one in which there is confidence in its future as a strong vibrant city, and the other in which it is much reduced in size and importance. Moving to the second equilibrium rather than the first would potentially imply as large a reduction in the value of the Christchurch's fixed capital as has already occurred from the earthquake, and so there might be some value in putting in a large injection of public capital as a way of signalling the liklihood of the better equilibrium. That story works for a national injection of public funds. I'm not sure it works as a policy if associated with the new bright shining white elephants is a legacy of high rates to pay for them.

2. The stadium: The economics of this are not quite as bad as a comparison with Dunedin would suggest. First, if it is accepted that there will be a stadium, the decision on whether to put on a roof has to compare the cost of the roof versus the additional ticket revenue that a roof would bring. A roof probably fails that test, and as Sam Richardson points out, you have to also look at the spillover cost on the competing CBS arena, but the economics are not as bad as comparing the full cost of a roofed stadium to none at all. In Dunedin, the full cost was marginal. In Christchurch, we are starting from a point of Lancaster Park having been replaced by insurance money. Again, this is predicated on the idea that there will be a stadium of some sort. My problem with the stadium idea is more with their choosing to start afresh rather than look to extend the current temporary facility which is still close to the city centre in a way that preserves, but doesn't commit to, the option of a roof.

3. The convention centre: Eric has written on this, but I can't resist adding my voice. This is why the stadium doesn't upset me so much. The stupidity pales into insignificance compared to the silliness of building a purpose built facility from scracth that is able to host up to three conferences simultaneously. (Aside: from my limited experience with organising conferences, if you have choice over location and date, you choose somewhere where you will be the only conference operating at the time.) The conference centre should be small close to hotels and the performing arts centre so that larger affairs could spill out to those areas.

4. The choice of sites: Great cities evolve as a series of second-best decisions on where to locate things based on where suitable sites are available. There is a limited role for governemnt intervention through eminent domain, but mostly cities evolve through private investment, with investors required to take into account the existing value on the sites they develop via the price required to purchase those sites. The impression one gets from reading the city plan is that locations have been chosen as if were were starting from a blank slate, rather than asking how best to use the existing value.

5. The library: Why change the site from the current location, which was close to the centre anyway. And shouldn't we be waiting a few years before investing in a library to see how the move to electronic delivery of reading material affects the nature of a public library?

6. Future planning: No-one is going to agree on every aspect of any plan, and the main thing is to get some certainty around the environment and allow investment to proceed. So this statement from the plan (as reported on Stuff) particularly frightened me:

To ensure the city has high aesthetic appeal, a new design panel made up of representatives from the Christchurch City Council, the Canterbury Earthquake Recovery Authority and Ngai Tahu will consider every building consent application.

Yes, there needs to be a consent process, but it should be based on as objective as possible interpretation of well-defined requirements specified in advance, not an open-ended subjective judgement. This is not the way to encourage investors to sink costs into designs.

7. Asset Sales: What is it about asset sales that brings out nonsense from all parties? As Eric has repeatedly pointed out, it makes sense to constantly ask whether assets would be better held privately or publicly, and a time of massive change suggests that the optimal mix might change. It is silly for the city council to take an emotional view of its holdings of the Lyttleton Port Company or the Christchurch Airport, but it is even sillier of Gerry Brownlie to suggest that asset sales will enable the financing of the planned white elephants.

Poison pill

Imagine that you're in NZ Central Government. And imagine that you believe that local government in Christchurch is kinda hopeless. You know local government has had an odd fascination with expensive legacy projects. The mayor wants a light rail system with his name on it. And Council, rather than being satisfied with a perfectly functional temporary stadium, wants to hike rates or go into debt to throw money at a bigger one.

You know the literature showing that light rail in a city like Christchurch isn't particularly viable. You know the literature showing that stadiums provide no real economic benefit and that Dunedin's has almost bankrupted the town. Moreover, you know that most people in Christchurch strongly resent that big spending on stadiums be put ahead of other priorities (at least if whatever polling National's doing roughly matches what shows up in the Press's polling).

So, what do you do? Put the stadium into the big central plan. Not just any stadium: the most expensive option of those under discussion - a huge covered venue able to seat just under 10% of the total city population. Say Council has to come up with the funding. Then lean on Christchurch that it cover its share of the overall rebuild costs (stadium and convention centre, among other things) by selling other assets rather than by just issuing debt or raising taxes. You know there isn't much that Christchurch Council hates more than the suggestion that it sell Council-held assets. Finally, put the stadium in a spot where you're guaranteed to get substantial local opposition because it'll mean tearing down a heritage building that a local couple have just re-opened after investing substantial amounts of time, effort and money: a couple that are clearly willing to fight hard to keep it because they love it. And not just any heritage building: an art gallery venue that only just finished hosting a pretty popular exhibit. Arts aficionados will overlap substantially with heritage buffs. We all found out in the last month that the city's main art gallery will be out of commission 'till the end of 2013 because they're entirely redoing the foundations to add in earthquake shock absorbers; the proposal would have one of the few galleries left torn down before the main one is back online. The kinds of art folks whose approbation the Mayor, and the Mayor's wife, might seek may not be entirely pleased with him for tearing down a heritage building art gallery in favour of a covered stadium.

Am I crazy for putting maybe a chance in 5 that this isn't National trying to force a stadium on Christchurch but is rather the dad coming across the 8 year old with a cigarette and forcing him to finish the pack to see how well he likes it?

So you think the stadium at Addington that you can't fill isn't good enough, eh? You want a bigger more expensive one? Sure. Have a really big and really expensive one. But you're going to pay for it. Not the easy way with debt that could add to the country's systemic risk. But by selling the things you seem to hold most dear and by earning the shame of those whose approbation you value. Go ahead. Have it. Go on. 

It's likely entirely too subtle a potential play.

As for compulsory acquisition of the Ng Gallery: you can make a decent argument in favour of compulsory acquisition in the face of strategic hold-out problems where individual owners might try to extract the value of the project by refusing to sell except at a high premium. It's not a great argument because buying options can do the same job without coercion, but it's defensible.

Maybe I'm easily duped, or maybe the owners are some of country's better actors, but I can't watch the Campbell Live interview and believe that they're doing any of this to try to force the government into paying them some exorbitant premium for the place. They seem rather to put very real and very high value on it. It's hard to imagine anybody putting that kind of work into an old building in Christchurch just for expected financial returns; it's a labour of love. Compulsory acquisition to get around owners who place real high personal value on a property isn't a fix to a strategic hold-out problem - it's more like theft. And a city that's rebuilt on theft hasn't very sound foundations.

Update: And see Sam Richardson on the stadium and convention centre.

Update 1.5: The Stadium also would knock out one of the new Casels & Sons bars.

Update2: NotPC's linking to a clip from The Castle is apposite. I'm going to steal his work in finding the clip and embed here, but do click back to Peter there.