Peter Pinter and central banking

Neil Gaiman had an excellent short story, published back in 1989, imagining some of the dangers of a determined bargain-seeker. Peter Pinter just couldn't refuse a good deal. And when he found that the assassin he'd hired offered bulk rates that didn't just reduce the per-person cost for a large contract but also the total cost, well, who could say no?

The story was made into a short film.

"We only had to be asked, Mr Pinter. We always have to be asked."

In our Friday Insights newsletter, I used our third column to think about the dystopias that can emerge where an ambitious central bank and SuperFund find that money is free. That last line from Gaiman was in my head when I was writing it. 

THE NEW ZEALAND WORLD ORDER

It all finally started coming together in the 2021 Budget. The pieces existed before it, but nobody had put them together. When they did, Pax Zealandia followed.

Borrowing to invest in the New Zealand SuperFund was nothing new. But while money was cheap, the Government hadn’t seriously leveraged up to make stock market plays. Bernard Hickey screamed from the sidelines that the Government should borrow far more. But even his thinking was blinkered by prevailing orthodoxies.

And SuperFund investments were previously used, in limited ways, to advance Government objectives. During the Christchurch Call, the fund had coordinated with other investment vehicles. But ambitions remained too limited.

Once the Government realised that borrowing was effectively free, that debt-to-GDP ratios were passé and that it could exercise ownership rights through the SuperFund to advance state aims – well, things started getting interesting. The Government could print and borrow near-infinite money, put it into the SuperFund and buy all the things.

The world’s airlines were dirt cheap. A controlling interest in every publicly-traded international carrier was chump-change. It cost less than $40 billion, or about 12% of GDP. The Government’s high-value tourism policy was the end of economy-class tourist fares to New Zealand.

The US dairy compacts always lobbied against free trade deals. Buying them out simplified an agreement with President Biden. But the second American Civil War made the trade deal futile.

Gross debt-to-GDP really blew out on buying Google, but net debt-to-GDP was fine. A substantial asset offset the debt. Legions of Kiwi censors suppressed unkind search results, and the world was a happier place.

That led to a series of leveraged state takeovers ushering in the new and better global order we all now enjoy. The SuperFund bought whole countries. After installing Kiwi administrators and fixing the worst of those countries’ problems, it sold them back to the residents at a profit. Turkey was the first after its regime imploded. But others were snapped up, including the salvageable bits of the former United States.

The exact moment it started is a small ironic footnote in the history books. Some columnist teased the Government that if it was such a great idea to borrow more than half a percent of GDP in a pandemic to make leveraged plays on the stock markets, then borrowing 50% could be even better. And, for once, the Government listened.



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Doesn't take long for folks to take bad ideas too seriously these days though.  Here's Brian Gaynor in BusinessDesk on Saturday, in an article titled "Spending huge to save us all", with one idea that's apparently been making the rounds:

The Reserve Bank could merge with the NZ Superannuation Fund, which was run by Adrian Orr before he moved to the central bank. This would be an innovative move in unprecedented times with a Reserve Bank/NZ Super Fund merger having much more going for it than the Orr connection. The two organisations are Crown-owned; NZ Super has no debt while the Reserve Bank is highly leveraged. With the current Reserve Bank Governor in the driving seat, the merged group could be incredibly innovative.

We only had to be asked, Mr Robertson. We always have to be asked.  

Managing the commons: DoC photography edition

It isn't hard to imagine that the Department of Conservation might have good reason to want to know whether a big film crew, for example, might be spending a few weeks trampling part of the Estate. There are places that might have endangered plants that need to be protected. Or nesting sites. 

But this seems a bit nuts. 

DOC requires photographers for news organisations to get permits to take pictures on public land, but other photographers are okay.

Nope, it doesn’t make sense to me either. And I’m worried about media freedom. https://t.co/rG1eK4nivU

— RebekahWh (@RebekahWh) October 29, 2020

From the article:

A third of the country might be off-limits to camera-wielding media who don’t have an official escort or permission, if a Department of Conservation policy is rigorously enforced.

DoC introduced a mainstream media permit in November 2018, requiring media to get permission for filming, including taking photographs, on public conservation land. It’s been applied haphazardly since, and is only now being enforced.

(The department told New Zealand Geographic magazine a few weeks ago that journalists would need a permit, too, but it subsequently reversed that position.)

Media outlets have expressed surprise and disappointment at the requirement. In a letter to the department, the Media Freedom Committee called it “an unnecessary impediment to legitimate news-gathering activities on the conservation estate”.

...

Such a draconian requirement throws up weighty issues about the role of the media, and the ability of a Government department to restrict its access to public land when the public interest is at stake. It’s also worth considering how the policy might be wielded by over-zealous managers.

(An example might be DoC’s pursuit of a Japanese photographer last year for using his hobby photos in a self-published book.)

Two magazine editors express their desire to work with DoC, but have been left scratching their heads, wondering, in exasperation, what problem will be solved by the permits.

Mike Dickison weighs in:

Wikipedia consultant Mike Dickison wants to be constructive, and to have a good working relationship with the department. He’s just spent six weeks on the South Island’s West Coast, in the employ of the regional development agency, taking photos – including in national parks – and uploading them to Wikimedia Commons under an open licence, for any use.

(“Have I done a bad thing,” he asks, “by taking photos that the media can now use without anyone asking for a concession or permission?”)

Dickison says DoC’s concessions were created to stop people profiting off conservation land – “to stop businesses setting up, you know, hot dog stands in national parks”.

“And now we’re extending it to the activities of the media, who are doing no harm to the national parks. It puzzles me as to how this is justified.”

Why the hate for hotdog stands? I don't think I have ever been anywhere and thought "Man, I'm really glad that there isn't a hotdog stand here", but I have frequently wished that there were a hotdog stand.

The policy, as practiced, makes little sense. 

Problems in credible commitment

If you can credibly commit to punishing, you won't have to do it. If you can't, then you'll have to, but you won't be able to, and that'll be a problem. 

A couple of weeks ago, Newsroom reported on problems in state housing. The state housing provider, Kainga Ora, has had to spend about $300k on security guards during Auckland's lockdown. Why? Because they don't know how to deal with part of the cross-section that shows up in state housing.

For the real reason, on top of a violent home invasion linked to the complex shortly after tenants moved in, an email trail in a follow-up official information request is more compelling: a dispute stretching months between neighbours and the agency over general behaviour - in particular, one tenant and her visitors.

And not just neighbours either. Other state tenants, looking for peace and quiet in pleasant new homes, were as upset as anyone by late night noise, rowdy visitors, partying, drunkenness, abusive behaviour, lockdown breaches and suspicions of criminal behaviour.

With the gate excuse quietly shoved aside, the corporation was more candid in its second attempt to explain the security presence at Asquith Ave: “Security guards have been deployed at this site to mitigate anti-social behaviour. The primary focus is to provide for the safety and security of vulnerable tenants.”

The email trail identified one “risk related” tenant among “many vulnerable” others and indicated problems had been drifting on for months.

Which begged the question asked by neighbours: why not move her, and any other irresponsible and anti-social tenants, and let the problems go with them?

It took until mid-September before Kainga Ora apparently decided enough was enough and the problem tenant was shifted – presumably to cause friction elsewhere. One suburb’s solution becomes another’s headache.

You'd think good behaviour would be part of the quid pro quo in being given a home by the state. 

If the state could credibly commit to excluding antisocial jerks from state housing, behaviour among some of those tenants would change. But the state cannot do so. The person who made the neighbours' lives miserable would have a made-to-be-compelling sob story to provide to newsmedia on being evicted with nowhere else to go. There would be demands that a house be found, especially if there were a child in the house. And so the state doesn't exclude.

I wonder whether an alternative mechanism might be helpful. You could imagine Kainga Ora setting the equivalent of a body corporate for residents in the development, and that governance body having the ability to evict a resident on secret ballot of neighbours. If someone were then so evicted, reporting on it would be different. Instead of getting sad stories from the person evicted, and a bureaucrat who can't say much because of privacy considerations, there'd have been some majority of neighbours who triggered the eviction. 

I'm not sure whether that could work either - there can presumably be all kinds of reprisal mechanisms and consequent difficulties in coordinating collective action. But the status quo holds a lot of vulnerable people hostage to the biggest jerks in the area. And it also helps ensure that state housing gets opposed by potential neighbours fearing that the state does a poor job in dealing with its problem tenants. 

The cannabis referendum

I hope that the cannabis referendum passes. It isn't the legislation I'd have written, but it is preferable to prohibition. 

Last week, The Helen Clark Foundation and the Initiative co-hosted a webinar with The Brookings Institution's John Hudak, author of Marijuana: A Short History, about America's experience with legalisation. 

You can catch it below. 

Public Address's Russell Brown covered the webinar here.

There's been a lot of misinformation about what would be allowed under the proposed legislation. I covered some of that in this week's column for the Stuff newspapers. 

A snippet:

The main scare stories really do not hold up. The legalisation experience abroad counters many of them; the restrictiveness of New Zealand’s proposed framework puts paid to much of the rest.

If you are not certain about any aspect of the bill, it is all easily checked. But a fairly simple heuristic can also work. Just imagine the bill was drafted by people who deeply mistrust business and commerce, who hate advertising, who are not all that keen on cannabis consumption in any case, and whose ideal cannabis operation would be a small non-profit community-based cooperative that employs people from underprivileged communities. Any provisions you might imagine would be drafted by that kind of group will not be far from how the bill really looks.

I worry that this makes for a bit of a problem. Social conservatives have very good ways of overcoming collective action problems. Where the Bill makes it rather difficult for any kind of larger businesses to get involved, you'll be less likely to draw any substantial industry funding in support of legalisation. 

I also worry a bit that the bill doesn't do much to make it easier for employers needing to deal with a worker who shows up impaired. It's less a problem in the US, because it's rather easier to fire workers there. Here, it could be an issue:

That also leads to a bit of a problem, even if your ideal cannabis operation looks like the kind of business likely to be authorised and licensed under this draft legislation. How can employers whose workplaces involve risky activities like heavy machine operation ensure that they can maintain appropriate health and safety regimes, while not running into trouble with employment law?

It is a difficult circle to square.

Employees should have the right, in a legalised environment, to consume cannabis on the weekend. But employers should be able to discipline workers who show up to work while impaired. The bill does little to enable the latter.

Proving that an employee is impaired can be difficult. Workplace drug testing is a poor indicator of on-the-job impairment; cannabis use over the prior weekend can too easily be caught in those tests if the threshold is set at a low level. Further, if an employee’s terms of initial employment did not include provision for drug testing, it can be difficult to add those provisions later.

Prohibition makes it risky for workers to show up to work while impaired, the consequences could be worse than an angry boss. Removing that constraint, while not providing better ways for employers to ensure on-the-job safety, can make for a problem.

I hope the cannabis referendum passes, and that the bill is brought to Parliament. When Parliament considers the bill at committee, it should also think on how to balance workplace health and safety requirements. Making it easier for employers to add testing requirements to employment contracts may help.

Border testing

RNZ's Nine-to-Noon had a decent discussion of rapid antigen testing and its potential in helping to open things up. Paul Simmonds suggests a rapid antigen test at the airport before flying (negative test required for boarding), and another rapid antigen test on landing. Those testing negative both times would be considered cleared.

I really like rapid antigen testing. But I'd see it, in first instance, as a complement to managed isolation. We'd learn how effective it is, and whether other cases still get through.

How could you do this? Run the rapid testing as Simmonds describes. Maintain existing Day 3 and Day 12 PCR tests, but add daily rapid antigen testing in MIQ. They're not invasive so it's pretty easy. And add in a requirement that those leaving MIQ show up for a PCR test a few days after leaving isolation, just to be even safer. However many days Michael Baker or Nick Wilson says are the right number of days. 

This lets you testbed things. You'd learn how good the rapid antigen tests are. You'd learn what compliance is like with post-isolation testing requirements and how to do that properly. 

If it turns out that the system still catches a lot of cases in isolation at the Day 12 test, or after Day 7 on the rapid tests, then you can't use this as a way of shortening managed isolation. It instead reduces the burden on the system by keeping infectious people off planes and reducing the risk of people transmitting to each other or staff while in isolation. 

If it turns out instead that you don't see any cases turning up after Day 7 any more, and if folks are good about turning up for their required post-isolation test, then cut isolation to 7 days from 14 and maintain the requirement to turn up for post-isolation testing. One simple move and you have *doubled* the effective capacity of the whole darned MIQ system. Halving the time in isolation doubles the number of people it can handle. 

And it's all done through a series of steps ensuring that the system works. 

It's bloody obvious. It's feasible. They could do it right now. It wouldn't reduce safety at all - it would be requirements on top of existing requirements, not instead of them, and would only lead to a shortening of time in MIQ if that proved safe. 

And there are plenty of other things that can and should be being done to increase effective capacity. 

Some MIQ facilities get ruled out because they're too far from hospitals. That's a bit silly. Use those potential facilities for people coming in from places with low risk of Covid, where there'd be way fewer people needing transport to hospital. 

Not enough staff for those places? Well, has the government even considered starting to train up staff for MIQ? There are hundreds of airline cabin crew who have been laid off. They're all trained in how to get the broad-cross section of people who arrive on planes to comply with regulatory requirements. Give them some hygiene protocol training and let them help scale up MIQ. Again - obvious. Again - not being done. 

It still makes zero sense that visitors from Taiwan or places with no Covid have to go through isolation. Departure/arrival testing surely would be plenty - again with the obvious caveat that this would only apply for people who hadn't been to risky places recently and who arrive on direct flights from the safe place. 

The usual retort on Twitter is that those direct flights aren't in place so it wouldn't help, but that's endogenous. Suppose the government said "If anyone runs direct flights from Taiwan to New Zealand, anyone arriving on those flights who hasn't been outside of Taiwan in the past month doesn't have to go through MIQ - tests before flying and on arrival are enough. We'll change this if there's any outbreak and community transmission in Taiwan, obviously." I'd expect somebody to start running flights, wouldn't you? And if they didn't, it isn't like the government would have had to spend piles of money prepping for something that didn't eventuate. There aren't a lot of prep costs in not requiring arrivals from Taiwan to go through MIQ. Or they could say that any airline wanting to put on the flight has to give the government a heads-up to provide enough leadtime for whatever prep is needed. 

So many things that could usefully be done to safely increase the number of folks able to travel, so little that will get touched this side of the election. Bit frustrating. 

Afternoon roundup

The tabs... there are so many of them.

A few notes on the closing of the tabs.

• Tyler Cowen is excellent on herd immunity. Those who urge us not to worry about the virus used to claim that herd immunity would kick in and the virus would burn itself out. Now they tell us not to worry because the death rate has dropped. But herd immunity was supposed to stop case numbers from rising. And even places with lotsa Covid aren't there yet - other than perhaps at San Quenton. 
• Sam Bowman has a neoliberal agenda for the 2020s: YIMBYism, support for immigration, and carbon pricing (he says carbon taxes, but if you've already got an ETS, that'll do the job). Neoliberalism is a bit of a political swear word. Oliver Hartwich goes through the history of the term - the actual neoliberals were more 'third way' types. Whether the term should be buried or reclaimed is a bit of an open question. 
• Steve Ambler and Nick Rowe on NGDPLT.
• Freedom of speech doesn't encourage terrorism. It reduces it. Here's Eskildsen and Bjørnskov in Political Studies. Why? They suggest "(1) more freedom of expression makes it easier for the police and intelligence agencies to gather information on potential terrorists and targets, and (2) freedom of expression works as an outlet for displeased citizens through which they can openly express their discontent instead of resorting to terror."
• Chris Bishop and Phil Twyford had an excellent panel discussion, hosted by Warren and Mahoney, in which they went through urban and transport policy. This kind of thing makes you really appreciate what we've got in NZ. 
• Get yourself a city councillor with a digger. It helps.
• Support for immigration improves, albeit on a bit of a tough to interpret question. If folks recently said that the amount of immigration should increase, are they thinking about policy as it was before Covid, or are they thinking about current border restrictions?
• Helen Clark comes out in support of the euthanasia bill. I agree with her. 
• Superb piece from Colby Cosh on tax and legal cannabis in Canada. It isn't enough just to look at the tax take on cannabis. Is it a complement or a substitute to alcohol or tobacco? What are the general equilibrium effects? 
• Every supporter of circular economies and zero waste should support this initiative.
• Can you build a new tech hub? It's harder than it sounds.
• Razib Khan on Brahmin Privilege
• Keas are awesome
• Arthur Grimes on getting targets back into government.

70%

The 2020 Household Income Statistics are out! Well, I'm not sure when they were released, but they're there in NZ.Stat now. Hit the Incomes tables, then hit "Earnings from Main Wage and Salary Job by Occupation" tab. 

Median hourly earnings in 2020 are $27.

The minimum wage in New Zealand is currently $18.90 per hour.

Diving the latter by the former tells me that the minimum wage is now 70% of the median wage. 

Labour has promised to increase it to $20.

We are going into a rather substantial recession.

Inflation is low, which means that nominal wage rigidities are also real wage rigidities, amplifying any disemployment effects. 

Hospitality will have a fair few workers on minimum wage, and we have to expect that collapse in demand for bars and restaurants with the borders being closed will mean a pile of those places are teetering on whether they'll shut down or not. The size of the industry has to shrink if it's at least another year before there's any kind of return to normal, even if rising binding real wages weren't an issue. 

The OECD tables for 2019 had New Zealand's minimum wage as fifth highest in the world, behind Colombia, Turkey, Costa Rica, and Chile. 

I've never been able to reconcile the OECD tables with the NZ statistics, but I assume they've made things somehow commensuable across countries. By the 2019 table, the NZ minimum wage was 66% of the median. In France, it was 61%. In Canada, it was 51%. In Germany, it was 48%. In the Netherlands, it was 47%. And the US Federal minimum wage (states can have much higher minimum wages) was 32% of the median. We were already well into territory that should be of concern. 

The current path is reckless. If the government wishes to strengthen support for workers on low wages, doing it through Working For Families or other wage support schemes makes more sense than doing it through minimum wage hikes in a recession. The government also needs to make faster progress on getting housing costs down by enabling more building. Way too many poor families are spending far too much of their income on housing. But getting that done in a hurry wouldn't be easy. Strengthen support in the short term through transfer payments, not through minimum wage hikes. 

Back in 2017, when Labour started pitching a $20 minimum wage by 2021, I worried that would likely take us to around 73% of the median. It would be 74% of the current median; I'm not going to make guesses about median wage changes to next year.  

Everything I'd said back then still applies, but more heavily because this stuff matters a lot more in downturns.

All of my analysis on this stuff from last year hasn't changed. If you want to yell at me about this post, go read that one first. Working for Families is a better way of supporting the incomes of the working poor than are minimum wages. Why?

First, it's better targeted. Pacheco and Maloney found that only about 40% of minimum wage workers are in households in the bottom three deciles. I go through that in the link above.

Second, it's better supported. The burden of minimum wage increases is shared among disemployed workers, purchasers of the goods and services produced by minimum wage workers, and owners of firms employing minimum wage workers. The burden of WFF falls heavily on households in the 8th, 9th and 10th deciles. Both versions will have negative effects on the overall economy, but spreading it through the tax system at least tries to minimise the overall deadweight costs of raising that next dollar of wage subsidy.