Kiwis trading on American futures

There will soon be NGDP futures markets in which traders can buy and sell contracts paying out based on American quarterly nominal GDP. Scott Sumner's long advocated these kinds of markets for macroeconomic forecasting and as target for the Federal Reserve: the Fed should be targeting something like a 5% growth rate.

But the markets won't be based in America. They'll be here in New Zealand, run by iPredict, with backing from fans of Sumner's work.

Why here and not America? Mostly because New Zealand is way cooler than America.

Prediction markets got their start in the US with Iowa's Electronic Market, which exists by virtue of a CFTC no-action letter that, while allowing the IEM's existence, also massively constrains what it can do.

New Zealand's iPredict operates under a saner regulatory structure here, in the Outside of the Asylum.

iPredict exists thanks to the foresight of the University of Victoria at Wellington. It was set up when Canterbury's Professor of Finance, Glenn Boyle, was at Vic, before he came to Canterbury. I'd put in a couple of failed Marsden grant proposals to start up something like it at Canterbury before Glenn came over. I didn't know he was pursuing the same goal. Glenn beat me to it because he didn't waste time asking Marsden for money for it, and because he knew other ways of getting it funded. Asking Marsden for money for anything risky and cool is a waste. He knew not to bother; I'd not been here long enough to know that. iPredict operates as an authorised futures dealer under the Financial Markets Authority.

So we'll have quarterly forecasts of American nominal GDP going forward for a few years.

Americans cannot trade on these markets. Why? iPredict, a small University outfit, would then be stuck dealing with American regulations that make it impossible for small foreign outfits to deal with Americans. As Scott puts it,

We have to exclude Americans because . . . well because America is no longer a free country.  More specifically there are two problems.  First, iPredict does much more than the Iowa Electronics Market, and hence doesn’t have their waver from the Feds.  And second, there are now incredibly burdensome “know thy customer” rules that America imposes on foreign financial firms dealing with US citizens.  A small entity like iPredict (run by the Victoria University of Wellington) obviously doesn’t have the funds to meet all these burdensome regulations.  Now when I travel around the world almost everyone I talk to in the financial area regards US citizens in roughly the same way they view the Ebola virus.  They see our government has being a sort of madhouse.

We're the outside of the asylum, so we can do cool things here. Inmates of the Asylum can visit, but we have to be careful in dealing with them.

I'm very happy to have been able to help out a bit in hooking Scott Sumner up with the good people at iPredict.

When you're in a think-tank, fun stuff like this, that would never hit your PBRF portfolio, is totally worth spending time on.

Gareth's strawman

Fun week.

I posted over at Interest.co.nz about how reducing regulatory barriers to densification and to expansion in the suburbs could reduce housing costs and consequently improve child poverty outcomes, at least some of which are due to high housing costs.

Gareth Morgan posts over at Gareth's World about how I'm kinda evil for being so pro-sprawl and wanting sprawl everywhere and not wanting densification and how free-marketers are hypocrites for only wanting new development not next to them and how the infrastructure costs of sprawl should be borne by developers, and so on.

I posted comment there as follows.

Hi Gareth,

It's a shame you didn't get in touch to ask me about some of this stuff. I'm not sure why you began by assuming some strawman version of my argument, but I'll hit on it here.

First off, I'm more than happy for things to include Epsom. David Seymour and I have had a few disagreements about this. You might even read the parable I had up at Offsetting today as being directly relevant. This one. Is this the kind of thing that an out-only guy would write?

Secondly, why would you think I wouldn't support that new developments bear the infrastructure cost? I've long been a fan of Municipal Utility Districts for such purpose: these load all of the infrastructure costs onto the folks moving into new developments, using a fairly efficient financing structure.

Third, I'm totally a fan of congestion charging. Do that at the same time so that any sprawl congestion costs are internalised.

Finally, I've over and over again posted at Offsetting on how we need to get rid of regulatory impediments to densification. Heck, I've even come up with some political economy solutions to try to buy out the NIMBYs to stop the blocking of densification. Why are you assuming that I only want growth on the fringes? Auckland's done a fair bit already to open up on the fringes, though they could do a lot more. But the big gains would be overturning the avenues for NIMBY blocking of intensification. I even said it in the piece you seem to hate: we need UP AND OUT. Lemmie check...ah yes. There it is. "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." I specifically put that in in case people might misread me as making some argument for sprawl-only. I'm not making that argument. I don't know why you think I'm making that argument.

I agree with you that there are tons of right-wingers who want only development away from them, and that they'd come out of the woodwork were substantial proper reform suggested. I'm not one of those people. I'm one of the ones trying to figure out how we make housing more affordable given the set of political constraints.

I kinda think we're on the same side here. I don't know why you're painting this caricature.

Dunno what Gareth's deal is.

Meanwhile, David Seymour isn't a fan of my post wondering about how we get to consider neighbourhood character to be a property right.

@bernardchickey @EricCrampton reductio as absurdum
— David Seymour (@dbseymour) October 2, 2014

I agree with David on a lot of stuff. Not so much on this one.

Property rights and neighbourhood character

A real estate parable.

Suppose that, when we bought our house in Khandallah, the realtor told us about a particularly nice feature of our house. A few doors down lived a lovely grandmotherly type who adored young children. She was in her early 50s, independently wealthy with few time commitments, and loved nothing more than helping out with young children. We went to meet her before deciding on buying the house, and she was just as good as the realtor advertised. We bought the house entirely because she would be our neighbour. In fact, we paid a premium for our house because of it.

Over the next couple of years, we became great friends with her. Our kids referred to her as Nana. She picked them up from school every day and, 'cause she loved us just so much, she'd have dinner on the table for us when we'd get home. We'd all eat together before she'd head back to her place after the kids were to bed. Every bit was exactly as the realtor promised: an essential part of the neighbourhood's character, for us, was that she lived a few doors down. We wouldn't have bought the place if she weren't, and we came to rely on her.

Sadly, she was hit by a bus downtown one weekend and her house was then on the market.

An essential part of the neighbourhood character was that this house was occupied by a woman with these characteristics. Since we bought the house with the expectation that that character would be maintained for at least another 20 years, we consequently have a property right in who lives in that house. Only a grandmotherly type who will help us take care of our kids is allowed to buy that house; anything else would fundamentally change the character of the neighbourhood and violate the expectations we had when we bought our house in that neighbourhood.

Seems a pretty ridiculous basis for a property right, doesn't it?

So why might anybody think they have a property right in whether the neighbour a few doors down turn his property into a set of townhouses?

The asylum creeping in

What possible reasonable justification could there be for Auckland Transport's implementing a surveillance grid? Here's the reporting:

Surveillance technology that uses high definition cameras and software that can put names to faces and owners to cars is coming to Auckland.

The surveillance has the capability to also scan social media and news websites.

Auckland Transport, the regional transport provider, announced the multi-million dollar deal in June, and California's Hewlett-Packard Development Company said today it has the contract.

No dollar sum is given.

They call it a "visionary Big Data" project and in a statement said Auckland has selected HP "to drive groundbreaking future cities initiative".

All the data gathered by the cameras will be processed by HP cloud servers based in Palo Alto, California.
Auckland Transport's Chief Information Officer Roger Jones is quoted by HP as saying: "The safety and well-being of our citizens is always our top priority and the Future Cities initiative is a big step in the right direction".
...
The system "should not be used for surveillance or monitoring of specific individuals (whether or not identifiable by name, and whether not facilitated by supporting technology) except in respect of specific criminal acts or organised crime or other reasonably suspected criminal behaviour (including terrorism) on the basis of such evidence or reasonable suspicion of criminal offending," the principles state.

Police are also told they should not provide access to the data to any other agencies in New Zealand or abroad except where that complies in all respects with the terms of these surveillance principles and New Zealand law.

There's good case for traffic monitoring cameras for adjusting traffic light timing. There's possible case for surveillance cameras in bus and train stations so that security people can check back on the footage if there was an assault or theft. But face and licence plate recognition? Why?

This is the dumbest kind of dumb. Economists, left and right, love road user charging. Implementing road user charging properly, with time-of-day charging, would require a bit of monitoring of which cars are where and when. The biggest obstacle to that kind of system is worries about the government's using that collected data to track everybody. I've not worried about it, 'cause I couldn't imagine that the New Zealand government wanted to track everybody. And now Auckland Transport wants to put in face recognition systems for tracking everybody. Well, screw congestion charging then and build me more roads instead.

At least we're not as bad as Australia.

Despite concerns raised by dozens of academics, lawyers, rights groups, the dumped national security legislation monitor Bret Walker, SC, and human rights commissioner Tim Wilson, new national security legislation that will jail journalists and whistleblowers if they reveal information about covert "special" operations passed the House of Representatives on Wednesday.

The legislation, which also enables the entire Australian internet to be monitored with just a single computer warrant, is a disgrace. Our Parliament, especially the Labor opposition, has failed us.

When I'd started reading about the Oz news, I reckoned NZ could do well by highlighting how Oz had fallen into the asylum and that Australians who care about freedom should move here. Then Auckland went and wrecked that plan. Thanks, Auckland.

Update: TransportBlog has a statement from Auckland Transport.

Update: AT have provided this statement

Auckland Transport publicly announced the agreement with HP at its June board meeting. The information was picked up by the NZ Herald which ran a story in July.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11297578

Auckland Transport currently has five video systems which it inherited, this will bring it down to one processing system.

We are not installing new cameras, this is a “back end” system for the approximately 1800 cameras we have access to covering intersections, railway and busway stations. Initially we will be doing a trial using 100 cameras.

The system will be used to monitor traffic flows, vandalism and safety. We will not be using any capability which identifies faces or number plates, our cameras do not have the ability to do that.

Let’s be very clear NO information is being sent to the United States. Information can be stored on our system in Auckland for a maximum of 7 days.

We are working through draft policies with the Privacy Commissioner and will make the policies public before any changes are made.

This is a $2million upgrade of a system we have had for 10 years, there is nothing new here other than that we are going to one processing system and we are introducing some automation.

I'm not sure this entirely makes sense. Surely facial recognition is a software rather than a hardware issue, so long as the cameras' resolution is good enough. If the cameras have very poor resolution, then it could be a hardware issue. But it's at least encouraging.

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.

Density happens, if you let it.

For as long as I've been following the politics of urban regulation in New Zealand, I've been hearing Hugh Paveltich lauding the successes of Houston in successfully delivering affordable housing on the city's outskirts through the use of innovative infrastructure funding models, and Kiwi urbanists excoriating the Houston model for sprawl.

And now Houston's showing that up can go well with out.

More Houstonians are choosing to live in high-rise and mid-rise buildings and the trend is about to spread to an unlikely place — outer suburbia.

Consider this: A developer is considering a mid-rise apartment in Pearland, the Brazoria County ‘burb, south of Houston. And a high-rise condo is being talked about for The Woodlands.

Amazingly, a significant number of home buyers have been requesting high-rise living units in the suburbs, realty experts say.

Amazing. Suburban areas where people are free to put up apartment buildings, without NIMBYs blocking them everywhere with complaints about denigration of local amenities or planners insisting that density can only happen in specified areas where they think it ought to happen.

Downtown also has a number of mid-rise apartment buildings underway, typically seven, six or five-story projects.

Two-story apartments just aren’t being built any more. Land is so expensive that developers are forced to build taller buildings to cover their costs and make the project financially viable.

Many of the new Inner Loop apartment projects have at least four floors of living units stacked atop two-level parking garages.  So even though it may not be high-rise, the residences on the sixth level often get a very decent view of the skyline. The Inner Loop of Houston has a significant number of mid-rise multifamily projects under development — the most in decades. 

The trend is even spreading to the suburbs.

Pearland is about get a four-story mid-rise residential building, just west of Highway 288, says realty broker Brad LyBrand of NewQuest Properties.

“It’s a first for Pearland,” LyBrand says.

The dense urban-like development plan for the Pearland site makes sense because two hospitals (read: job base) are under construction within walking distance, says Houston developer Allen Crosswell, who has owned the acreage for several years.

Bottom line: Houston is changing. Houston led the nation in population growth last year. The city is more urban and residential development is more vertical.

I wonder how they've managed to get suburban apartments without NIMBY action.

That there not be competing views

I poked Canterbury's Arin Basu on Google Plus, asking what's going on with the Health Sciences' group's attempts to block anybody else from doing funded research where the funding comes from sources they don't like. He there replies:

Hi Eric ( +Eric Crampton) , thanks for bringing attention to this news item. I am not sure Health Sciences has anything to do with the University's decision not to accept funds from dairy industry (I do not know but I can ask or check with my colleagues if they know of any influence from Health Sciences).

On that note, you make some very interesting points in your blog. However, I'd encourage you to consider the larger public health perspective as well. As you may appreciate, there is substantial evidence of the harm that tobacco, and alcohol cause to public health (see for instance,http://www.who.int/substance_abuse/facts/global_burden/en/). Therefore as public health professionals we consider that it is unethical for UC to receive funds/sponsorship from alcohol industry -- irrespective of the funder-fundee relationships between HRC/Ministry of Health and public health researchers (your points there are well taken). Hopefully, you will see the contradiction for a publicly accountable institution such as UC to accept money from an industry that is known to cause harm to health of the public while at the same time engaging in research to characterise that harm.  It's for similar reasons why I wouldn't want my doctor to invest in tobacco industry. 

 An interesting position. Here's an econ re-framing.

"Hopefully, you will see the contradiction for a publicly accountable institution such as UC to accept money from government granting agencies pursuing policies that are known to cause harm to the economy while at the same time engaging in research to characterise that harm. It's for similar reasons that I don't want my doctor to have opinions on economic policy."

I wouldn't say such a thing, because I have some minimal appreciation for that it can be useful to let competing ideas bash against each other rather than try to squelch dissenting ones. Arin, and his group, doesn't.