Rea and Burton on the Heckman Curve

Now available in early edition at the Journal of Economic Surveys, Rea & Burton's article testing the Heckman curve against the ROI in projects compiled by the Washington State Institute for Public Policy.

Abstract

The Heckman Curve characterizes the rate of return to public investments in human capital as rapidly diminishing with age. For the disadvantaged, it describes investments early in the life course as having significantly higher rates of return compared to later in life. This paper assesses the Heckman Curve using estimates of program benefit cost ratios from the Washington State Institute for Public Policy. We find no support for the claim that social policy programs targeted early in the life course have the largest benefit cost ratios, or that on average the benefits of adult programs are less than the cost of the intervention.

You may have caught the working paper version over at Andrew Gelman's place, or here. The key graph remains this one.

I wonder whether Heckman might provide any comment in the eventual issue of the journal - this is just the 'early view'.

Reader mailbag: Weird urban planning edition

Hoisted from the inbox:

Weird urban planning stories: Melbourne's Eastern Freeway is being considered for heritage listing.

Heritage Victoria has backed the Andrews government’s application to heritage list Melbourne’s Eastern Freeway, finding that the road’s “naturalistic landscape setting” and “series of distinctive concrete road overpasses” make it worthy...

In his recommendation to the Heritage Council, Heritage Victoria Executive Director Steven Avery has supported the Andrews government’s heritage application in a report describing the road as “a fine, intact, influential and pivotal example of a freeway”.

“The Eastern Freeway – Stage One is also historically significant for the prolonged and at times violent community protests that met its announcement, construction and opening,” Mr Avery found.

This is the second-worst urban planning story I've read this week. However, it turns out that the heritage listing is intended to block construction of a connecting freeway with a BCR of 0.8, so perhaps this is actually good from a broader economic efficiency perspective?

This is the worst urban planning story I've seen this week, and possibly ever.

I suspect that the second-best case fails to hold - there will surely sometime be a project that would have a better BCR that will get blocked by this. I don't know if the same nonsense applies to roads as to houses, but even a resurfacing could wind up being tricky, or repainting the lines.

That last link is pretty bad.

Things our civil service needs to be told

The Government has produced a "Guide for Maintaining Health and Wellbeing". It contains a lot of valuable advice. I understand it has been distributed broadly in hard copy, but it is available online for the rest of us.

Here is some of the advice provided. It is comprehensive.

At page 118, it provides helpful tips for waking up.

After you wake up, you might want to tend to your emotional and physical health.

I'd thought that the absolute safest might have involved only one person, but I understand that the Chief Censor's been taking a dim view of such things. 

After all that, why not some breakfast? 

And what do we do after we eat our breakfast?

It goes on, but I'm sure I can trust you to read for yourself. It has plenty of helpful tips on optimising your spiritual health and spending quiet time in nature, in case your score on the resilience self-assessment tool comes in at less than 70. 

If you get too annoyed by their giving advice about using power poses (debunked in a succession of studies), or about their advice to use margarine instead of butter (yech), you can just take their advice about other ways of combating stress. Like a breathing exercise, or counting to 10.

And you can rest easy, knowing that the kind of people who need to be reminded to brush their teeth are busy drafting the rules telling the rest of us how to live our lives. That's why everything works out so well!

The hard copy is a beautiful thing though. 134 pages, ring bound, shiny glossy paper, with those notched pages helping you find the section you're looking for. There's no way these things are less than $20 each even on a big print run. I wonder how big that print run was. 

Strengthening the ETS

Looks like climate policy is coming together:

The main proposal is a change to the ETS so that there is an overall limit on the amount of emissions credits in the system, and a price cap of $50 instead of $25, along with a $20 price floor.

The current price of European emission allowances is 25 euros per tonne, or NZD$42. A price cap at $50 then isn't nuts. I still think that best policy remains a dirty cap, where we set a path for the cap that tracks to the government's commitments, but where the cap stops tightening or even relaxes a bit whenever prices get out of step with prices in Europe.

Setting that as policy commits New Zealand to achieving the government's climate goals, but only to the extent that the rest of the world plays along. Letting prices here get ahead of prices in Europe could prove pretty expensive. Carbon-abating tech will be developed in line with prices in the big markets; if we run ahead of prices in Europe, we'll be frontloading abatement efforts in particularly costly ways.

And before everybody freaks out about what this means for fuel prices, remember that the ETS charge in a litre of petrol is around 7 cents. If ETS prices doubled, then the price of petrol would go up by about 7 cents. That's not the end of the world; that's less than the discount you might get with one of the good supermarket vouchers.

I don't know why the government wants to bundle this in though. This is exactly the kind of thing that you don't need to do if you've published a credible price path for carbon.

One of the main prongs of the proposal is something of a war on the use of coal for heat.

All new coal boilers for low and medium temperature heating would be banned under the proposal.

Medium temperature heating includes drying milk powder and wood products, while low temperature heating is used to heat spaces and water.

Existing coal boilers used for low-temperature activities would be phased out by 2030.

Coal boilers would still be allowed for high temperatures of above 300C - used for things like making steel.

The Government is keen to do this quickly as new boilers have a long life and lock in emissions once installed.

If a coal boiler makes the most sense over the lifespan of the kit, despite a carbon charge set to rise to $40 in the medium term and to rise from there, then folks should be able to put in a coal boiler. Every bit of carbon dioxide emitted by the thing has to be paid for through the ETS, and with a binding cap that can't mean a net increase in CO2. It just means that the coal boiler outbids other potential uses of CO2, so other emission sources cut back their emissions.

That's the magic of the ETS - it makes sure that the tonnes of CO2 emitted are the ones that are most important to be allowed to be emitted, while making sure that total emissions are capped, without anyone having to make big central calls about which emissions are most important. That information simply cannot be known by carbon planners; the ETS harnesses dispersed information about which emissions can most easily be abated, without need for that central planning.

How can the government know that coal boilers are sufficiently low value that they can be banned? If the government is right, folks with money on the line will see that too and will avoid investing in coal. If the government is wrong, then firms will be forced into up-front investments that have a higher cost-per-tonne of CO2 abatement than the ETS price.

Tourism and the ETS

Eloise Gibson covers the carbon costs of tourism over at Newsroom:

But in reality: “value-led tourism growth may actually worsen those pressures that are linked with consumption. Higher-value visitors, by definition, consume more goods and services, all of which have an associated greenhouse gas and solid waste footprint. To the extent that these goods and services are relatively energy intensive (e.g. car rather than bus travel, hotel rather than campground accommodation, helicopter rides rather than hiking), high-value visitors will again have a relatively large greenhouse gas footprint.”

While the report concludes it is possible for smaller number of wealthier tourists to put less pressure on wastewater and waste disposal services, that only works if the total number of visitors falls.  “Any such improvement relies crucially on any growth in higher-spending tourists being accompanied by
 a reduction in their lower-spending peers. It is far from clear that this is the intention. The New Zealand-Aotearoa Government Tourism Strategy states that “we want the value of tourism to continue to grow faster than volume”, but provides no mention of limiting volume itself.”

Time to limit cruise ship visits?

Responding to Upton's office's report, Michael Lueck, a professor of tourism at AUT's School of Hospitality & Tourism, said the government should consider outright caps. "It appears that the main problem is the sheer number of tourists, and we need to look at slowing this growth. The often cited 'high-value tourism', or 'quality over quantity' does not always work, but it would be fairly easy to, for example, limit the number of cruise ships coming into the country. These put a disproportional burden on New Zealand’s infrastructure, environment, and culture, while the economic benefits are comparatively small," he said.

When we think about domestic issues [emissions from international travel are their own mess needing international agreement], and remember that we have an ETS that's moving to a binding cap, the implications change.

It isn't that tourists would then increase NZ's net emissions; it's rather that they bid up the price of carbon and you could then imagine potential equity concerns in the same way that there could be equity concerns if international tourists had disproportionate effect on other rivalrous goods that are in absolutely fixed or declining supply.

But the solution to none of that is capping tourist numbers. You don't solve equity issues by mucking about on that side; you do it instead by finding ways of providing transfers to those on the short end of that equity stick, which they can then use however they like. If richer foreign tourists can outbid kiwis for things kiwis enjoy and are in fixed supply (like carbon credits), then you need to find ways of providing side-payments - transfers from the winners to the losers.

If tourists bid up the price of carbon, and emitting industries like agriculture were provided initial allocation units, then the increased price can increase the cost of farming but that's offset by an increase in the value of the allocated units - so that has the compensation built right in.

Crown sales of NZU into the system ultimately for purchase by foreign tourists at the fuel pumps could provide cash that could be used to provide other side-payments.

There's a strong case for getting more tourist-facing facilities onto a proper user-pays basis, with potential for price differentiation between foreign and domestic visitors - like charges for access to national parks that apply to foreign visitors. Some of the things that seem to be in fixed supply around national parks seem more like a policy decision neither to properly charge for access nor to fund the facilities to meet demand at the going price. Letting prices work would allow effective supply to increase and would provide basis for some of those side-payments.

Fees-free

It isn't like they weren't warned that this kind of thing could happen. 

Here's John Gerritsen:

Less than a third of the tertiary students in the zero-fee scheme last year came from decile 1 to 5 schools, Tertiary Education Commission figures show.

Of the 42,227 students in the scheme in 2018, just 12,191 students - or 29 percent - came from schools in deciles 1-5.

Most of the low-decile group, 5052, were enrolled in a university and 4161 went to an institute of technology or polytechnic.

Schools in deciles 9 and 10 accounted for 26 percent of the students in the zero-fee scheme last year.

Fees were never the big barrier to tertiary participation. Not when the government backs heavily subsidised student loans and collects repayments through an income-contingent scheme. The barrier instead is preparation for tertiary study. Instead of wasting billions on further transfers to those likely to wind up among the well-off through no-fee study, Labour could have decided to boost funding at secondary and primary school - figure out what helps in smoothing the path through to tertiary completion. They could have coupled that with means-tested funding in those cases where fees might have been a barrier.

This is, again, one of those very frustrating spots where a lovely well-being rhetoric wraps itself around a vote-buying effort, with zero consideration given to policy assessment, either ex ante or ex post. If the government's action matched its rhetoric, it would have started out by looking for the barriers to tertiary participation and figuring out the most cost-effective ways of getting those out of the way. Failing that, it would have sunsetted the fees-free policy with any re-up depending on its passing evaluation.

Danyl on social media and the attention economy

Great piece from Danyl Maclauchlan over at The Spinoff.

The journalist Auberon Waugh often wrote dismissively of “the chattering class”: the upper middle-class cliques of journalists, academics, artists, intellectuals and activists (Thomas Piketty refers to it as “The Brahmin Left”, reflecting its 21st century transformation into a priestly caste primarily concerned with moral transgressions). They form the leadership and core constituency of leftwing political parties, and they still attempt to play a gatekeeper role around political debate. But instead of policing the window of debate – pretending to impartial objectivity while excluding what it feels should or cannot be said – it amplifies messages it believes lie outside the bounds of acceptability. The ruthless logic of the Attention Economy rules progressive online and media spaces; everyone competes for attention by demonstrating their moral and intellectual superiority, so any and every public statement that breaches progressive taboos or activates this class’s (very acute) sense of threat can easily earn massive media coverage.

The incentive structure here is terrible. The worst ideas and most deceitful statements are often the most amplified and therefore the most successful. The sustained moral panic about “fake news” (but only on the right), incentivises the manufacture of fake news. We can see this mechanism at work in almost everything the National Party has done this year: their policy work on criminal justice was a rather dry discussion document on how the party’s “social investment” model can apply to this sector, but it was launched with the announcement that “Strike Force Raptor”, would crack down on gangs, which are currently expanding due to Australia’s criminal deportation policy. This prompted the expected response from progressive commentators: that gangs aren’t a criminal problem, but rather a deeply fascinating and complicated epiphenomenon of colonialism and capitalism, a suite of arguments that sound deranged to most of the population who aren’t fortunate enough to reside in the leafy university-proximate suburbs that enjoy the lowest crime rates in the country.

This week’s National Party transport policy announcement is also pretty dry stuff: integrated ticketing; fuel efficiency; urban transport authorities. But the headline announcement was a plan to fine cyclists – cycling being a sacred activity among progressive elites – and this provoked the absolutely predictable response and led the web pages of all the media outlets. National has also taken to producing highly dubious graphs with deliberate errors like disproportionate bar widths, that it releases on Twitter – the heartland of progressive moral panic and intellectual contempt – that its opponents then compete against each other to amplify. Naturally these graphs don’t feature in its policy documents or press releases.

I was expecting a lot of bicycle-twitter outrage about the piece, but there's no evidence of it as yet. Wonder if they've not noticed it, or have properly appreciated it.