The market's a harsh mistress

I have a bit of fun in this week's Insights newsletter. Our first column tends to hit the big issue of the week; our second one generally hits a bit of our research work; the third one's where we play.

It was the year 2019 and Kiwis had had enough. It was time for legislation to finally protect the interests of those of us stuck in the car leasing market.

It wasn’t always this bad. The market used to be able to keep up with demand for cars. Mostly. Sure, the cars available overseas were better and cheaper. Some overseas families even had more than one of them! Normal people couldn’t really get those cars here because of import controls.

The 1980s reforms hadn’t touched the car market. Petone still made lots of cars.

But the reforms had touched it indirectly. People saw the cars available overseas, either while travelling or on television, and wondered why the new ones here were of such poor quality and high cost by comparison – and why so many people were stuck driving old and run-down ones. Higher incomes built greater expectations.

The government tightened car regulations to try to close the gap, but that always wound up either making cars worse in other ways, or increasing prices for those who could least afford it, or both.

It was annoying, but we put up with it.

Fat-cat families with more than one car had started leasing their second cars to those who couldn’t afford one in the late 80s. Car ownership rates started their long decline. And we started seeing stories on how cars in Houston didn’t cost multiples of the median income.

The leasing market was never that nice. If the owner’s kid came back from OE a bit early, you might have to scramble to find another car in a hurry. You were usually stuck doing far more of your own maintenance than expected. And the lease price could jump at the owner’s discretion – take it or leave it.

The immigration boom made everything worse. Some brought their cars with them – lording their well-built Honda Civics over everyone else. But the rest simply added to the pressures on the car market. The local production plants just couldn’t keep up. People even wanted to ban immigration to restore automotive affordability.

Finally, in 2019, the government decided to really fix things and protect renters.

It opened the market to imports.

Scarcity is power. Fixing the rules that artificially constrain supply enables the best regulator of all: the competitor down the road.

Renting a house as easily as leasing a car doesn’t have to be science fiction.

The government's looking at strengthened tenant protection. But the best protection for tenants is a high apartment and rental home vacancy rate. If you don't let people build to keep up with demand, landlords have power. You can try to fix that with stronger tenancy tribunals and changes to mandatory provisions in tenancy agreements, but ever notice how we don't need car leasing tribunals?

I get that there are problems in the rental market. If the underlying problem is a low vacancy rate, and low vacancy rates give landlords power, regulation is like squeezing on a balloon - the constraint pops out in other places. And worry too that if the incidence of some of these measures now is on landlords in constrained markets, that incidence will flip once housing supply issues are eased.

It'll be worth revisiting whatever Labour puts in on tenancy protection if Twyford's housing supply measures prove successful.

Police effects

Geoff Simmons makes some good points about overreliance on prisons, but I think he's got this part wrong:

The Labour/NZ First answer of more police is also no real solution either. More police means more people in prison and we know more people in prison just leads to more crime.

Empirical work on police numbers and crime is hard because of obvious endogeneity issues: police hiring is also a response to crime rates.

But the best approach I've seen to the problem finds an elasticity of crime with respect to police numbers of -0.3. A ten percent increase in the number of police reduces the crime rate by 3 percent in US work. If we figure that police have diminishing marginal effects at the relevant margins, and that our policing intensity is lower than America's, then effects here would be stronger. I'd done some back-of-the-envelope reckons on this a while back suggesting that police hiring could be rather cost effective. Increasing the probability of being caught can be pretty strong deterrent.

Non-serious students, one serious problem

John Gerritsen at RNZ picks up last week's NBER study on how the PISA rankings would change were students to take the test more seriously and rounds up some local reaction:

Michael Johnston, senior lecturer in education at Victoria University, said the study's assumption that New Zealand students were not trying hard enough if they left questions unanswered might not be correct.

Dr Johnston said it might be a by-product of the NCEA assessment system.

"In NCEA students can opt out of certain standards and certain aspects of assessment and still get credits for what they do, whereas in most other countries that's not true," he said.

"So if our students are used to that way of thinking about assessment then perhaps that's why they show up as being more likely to be what the researchers call non-serious."

Dr Johnston said NCEA could be improved, but it should not be changed merely in order to improve the country's PISA scores.

"That would be a perverse thing to do," he said.

A bit of context is likely necessary: New Zealand's rise in the rankings, were everyone to take the test seriously in all countries, is second only to Portugal's. So the problem affects New Zealand's ranking far more than it does most countries' ranking.

I agree with Michael that it would be odd to re-jig NCEA just to goose the PISA numbers.

But I wonder whether the habits some of these kids get at NCEA carry over to university - to their detriment.

Once you hit university, you don't have standards, you have proper courses. You have to learn all of the material in the course if you want to do well, and you can't opt out of the parts of it that you don't like. The exams at mid-year and at year-end are comprehensive, across the whole of the material covered in the paper, rather than just little unit tests after each chunk of learning. And deciding at the end of the year not to do the exam doesn't mean that you just get no score and no record of having attempted, it means you get a fail. 

I agree with Richard Dykes' suggestion later in the RNZ article that teaching to the PISA test would be a poor idea. Reminding kids that those kinds of tests require filling in all the answers, and handing out an old one for the kids to practice with at home if they've never seen that kind of test before, does seem a good idea.

Low stakes PISA

New Zealand's low PISA rank seems, in part, due to Kiwi students not taking the test very seriously.

Akyol, Krishna and Wang develop a measure checking whether a student is taking the PISA test seriously (leaving questions blank while having time left, for example), and see whether it affects country rankings compared to simulations where children take the test seriously. [HT: Marginal Revolution].

New Zealand's PISA rank is 17th for the year they're checking. In a simulated world in which students in every country took PISA seriously, New Zealand's ranking would rise to 13th. If New Zealand students stayed as they are but all other countries moved to take PISA seriously, we'd fall to 26th in the simulations. And if only New Zealand moved to have all students take PISA seriously, we'd rise to 10th.

The change for New Zealand is substantial. Portugal would see the largest PISA rise in a simulated world where all students took PISA seriously - an increase of five places, from 31st to 26th. New Zealand's four-place rise from 17th to 13th ties with Russia's rise from 39th to 35th as second highest. Germany, Switzerland and Sweden would all rise three places, Japan would rise by two places, and seven countries would rise by one place.

Singapore's top position would be unaffected in any state of the world.

Unfortunately, this is only a single-year snapshot so we can't say whether it explains any of the decline in NZ's PISA rankings. We'd need a similar simulation for earlier PISA years.

This could be a fixed-effect that has always obtained for slacker Kiwi students. In that case, the PISA decline is real and unaffected.

It could be an effect that's not as bad now as it used to be. The paper suggests that, in countries with a lot of high-stakes testing, test fatigue may have students treating PISA less seriously. Kiwi kids up to that age wouldn't have seen a lot of high-stakes testing, but would have in earlier waves of PISA.* If there's been a decline over the period in the frequency of high-stakes testing, that would suggest more test fatigue in the earlier era. According to the paper, that would mean even more unseriousness in the prior era, so our earlier scores higher scores would be adjusted upward even more than our current scores.

Or you could imagine that the lack of high-stakes testing would have kids just not even thinking that it might matter to put in the best quick guesses on the last questions if they're short on time - in which case the decline could be due in part to kids now generally not knowing how to write tests. That would be consistent with observations of cohorts of incoming university students that seemed to get worse at test-writing.

Whatever the case, it does suggest that New Zealand could improve its ranking by rewarding kids for doing well on their PISA tests.


* The authors don't provide their coding of whether countries are counted as high-stakes or low-stakes.

MMP Horse Trading

Occasionally Canadian politicians and pundits get excited about electoral reform and some will point to MMP. 

Here's what MMP coalition politics currently looks like. New Zealand First got just over 7% of the vote and 9 seats.

New Zealand First's loyalty to the racing industry has galloped beyond tax breaks for good-looking race horses to include several all-weather race tracks for the industry.

Racing Minister Winston Peters secured a tax change in the Budget this year to allow new investors to claim deductions for the cost of horses based on the "virtue of its bloodlines, looks and racing potential''.

It's now been revealed $30 million of contingency funding in the Provincial Growth Fund has been earmarked for the coalition government pet projects and the racing industry is set to benefit.

Regional Economic Development Minister Shane Jones said the money set aside is at the upper limit of what he expects will be needed.

The projects, which include a Dunedin centre of digital excellence, the Te Hiku Sports Hub in Kaitaia and several all-weather tracks for the horse racing industry, all came out of coalition talks between Labour and NZ First.

Cabinet has effectively already approved them and while final costings are yet to be done, the provincial growth fund will stump up the cash.

"These projects can be seen as a coalition dividend, the origins go back to the formation of the government. And now that they're moving through the machinery of government I can assure everyone that they'll be treated in a robust and thorough manner by the officials.''

Politics always involves horsetrading...

Jumping off bridges just because everyone else is

I thought we were above this kind of stupidity.

There has been no increase in New Zealand's terror threat level. But documents released by the Aviation Security Service (Avsec) under the Official Information Act note the scanners "are becoming the norm" in international airports.

We're getting the stupid porno-scanners, with some modesty-shielding on the pictures. Expect your airport experience to come with worse delays for no benefit.

We had a good run. I loved how this place avoided following along with everybody else's stupid overreactions to everything. I just have to keep remembering that everywhere else is still worse.

Overestimating soda tax effects

Waikato University's Professor John Gibson's letter in the Economist (18 August 2018):