Offsetting Behaviour

If it saves only one life... oops.

2013-05-22T07:00:00.000+12:00

New Zealand's been pretty gung-ho about banning smoking. Tobacco taxes have been rising pretty sharply; tobacco can't be displayed by retailers and instead has to be kept concealed; the Government's ~~unattainable~~ aspirational goal is a SmokeFree New Zealand by 2025.

As part of this push, New Zealand banned smoking in prisons. And some hospitals have been a bit aggressive in banning smoking not only within the premises but also on the grounds outside of the hospitals. It's pretty easy to argue that folks going to hospital to get well shouldn't be smoking. Hey, maybe that gives them the extra shove they need to quit. Right? Oops.

A mental health patient who killed himself was put off seeking hospital treatment because he was not allowed to smoke onsite, a lawyer leading a judicial review application on smoking in hospitals says.

A smoking ban on hospital grounds including outside psychiatric wards by the Waitemata District Health Board is a breach of human rights, barrister Richard Francois argued at the High Court at Auckland today.

He is calling the proposal "torture" on the hospitals' most vulnerable patients.

"Psychiatric patients are segregated," Francois said in his opening statement.

"They're locked in a room and told they can't smoke cigarettes in a time they're under extreme stress, have been hauled away from family, friends and employment."

He argues that research does not back up the need for psychiatric patients to give up smoking on hospital grounds for their health or the health of others, and is simply a breach of rights which will create a barrier for patients wanting to seek help.

This kind of response shouldn't have been all that surprising.

There is a rather extensive literature on comorbidity of smoking and serious mental illness. Some argue that nicotine can serve as self-medication for those with specific mental illnesses; others say instead that it's a way for those with serious mental illness to impose some structure on their days and is a changeable part of the culture of mental illness. Either way, it's pretty hard to avoid that smoking rates among the mentally ill are much higher than those among the general public. That can provide a pretty decent argument for finding ways of helping those with mental illness to quit smoking. Or, from the other side, you could argue that those with lower life expectancies and who have a harder time enjoying life to start with oughtn't be deprived of those things that they do enjoy.

Either way, banning those placed in psychiatric hospitals from smoking outdoors on hospital grounds seems remarkably punitive. It seems pretty unlikely that enforced cold-turkey treatment while being hospitalised for mental illness is best for anybody.

He [Francois] raised an example of a Hillmorton Hospital patient in Christchurch who used to self-refer himself to the psychiatric ward after attempting suicide.

His mother had said he "quite liked" being there but this changed after a smoking ban came in, Francois said, reading from a Coroner's report.

"He killed himself this time. Smoking was everything to him, it was like the be all and end all of it really."

Wouldn't it have made more sense to have specialised smoking-cessation help for those with mental illness? Pretty sad when smoking is someone's alpha and omega. Even sadder when we get this instead.

Convention Centre Business Cases

2013-05-21T10:29:00.002+12:00

Does the SkyCity convention centre deal have any particular implications for whether Christchurch should have a big convention centre too? I think it's a bit tough to argue that it increases the optimal convention centre size here, but opinions vary. Here's what I told Marc Greenhill from the Christchurch Press when he asked.

"It's possible that Hon. Gerry Brownlee is right that a Christchurch Convention Centre could get a lot of overflow traffic from Auckland. Perhaps the new Auckland centre will generate a ton of international excitement about New Zealand as a convention destination, and conference organisers finding out that Auckland is fully booked will decide to stick with New Zealand and come to Christchurch instead. I'm not sure that I'd bet a lot of money on that happening, but it isn't impossible."

"And, Minister Brownlee is also right that some parts of Convention Centre business do not cannibalise across different centres. Armageddon Expo visits each of the main centres, for example. And national organisations will often shift their annual conventions across different centres in rotation; again, a nicer Auckland centre doesn't cannibalise that kind of traffic. But whether expansive convention centres in both Auckland and Christchurch would tend to do more to build international demand for New Zealand in total or to split the "let's have our conference in New Zealand this year" market, well, it would be interesting to see the business case backing that call."

As best I'm aware, we as yet have no business case for the proposed Christchurch convention centre. I'd be interested in perusing the document when it comes into existence.

Budget 2013

2013-05-21T06:51:00.000+12:00

Last week's budget announcement wasn't all that exciting; I declined to put my hand up with the University's press guy asked who'd be keen to comment.

I strongly approve of that the country's housing supply problems were noted even in the budget. I'm glad that Bill English has been able to get this on the agenda; it's probably the most important thing that National can plausibly fix this term. I hope they're able to open things up both to increased density and to new development.

Having spent the weekend thinking about it, here's what I'd have done differently within the existing set of political constraints.*

I like the budget's focus on getting back to surpluses, but I would have handled this differently. I would have focused less on current debt reduction and more on medium-to-long term restructuring around superannuation. I think we buy more flexibility by fixing looming superannuation problems, implementing what the Productivity Commission already recommended, than by taking a pretty hard line on debt in the current period. I think this is politically feasible, but John Key's the one facing the re-election constraint and seems to disagree.

Fixing superannuation now would give us a bit of breathing room on current debt.

Debt is the best way to pay for earthquake rebuilds; I'd also expect it could be somewhat useful in recapitalising EQC as part of a rather needed complete overhaul. The EQC model is broken - it simply doesn't work for large-scale disasters like Christchurch. It always feels like they're screwing down on costs because they just don't have enough money to cover the actual costs of fixing everything. There's reasonable risk that we wind up with substantial costs down the line when it turns out that many of the repairs didn't do the job.

I also hear rumours that SCIRT's having to define down what's acceptable on engineering standards in order to meet tightened budget constraints; I now try to avoid the Moorhouse overbridge, or at least when there's a traffic queue that would mean sitting on the thing for any substantial period. The infrastructure costs of the quake seem more likely to increase than decrease; Mayor Parker says that central government is leaning on Christchurch Council to put more money into a bigger convention centre than Christchurch needs [ht: NoRightTurn]. It makes sense for Council to sell some of its assets to pay for the infrastructure rebuild; blowing money on stadiums and convention centres is something else entirely. Debt and asset sales to make sure we have quality roads and sewerage may be boring, but it's important.

Lastly, and discount this one for obvious self-interest as much as you like, but the government has got to make up its mind about whether it wants there to be a University of Canterbury that's worth having.

It's not unreasonable to argue that a country of 4.4 million people does not need all of the University of Auckland, the Auckland University of Technology, the University of Waikato, Massey University, Victoria University at Wellington, the University of Canterbury, Lincoln University, and the University of Otago [have I missed anybody?], and that we could use to consolidate things by abolishing a couple of them. It's also not unreasonable to argue that the University of Canterbury is an excellent institution, with a fine history, a superb engineering school, and a top-notch international reputation that deserves to continue to exist. I really love this place and think we have the best programme in the country for teaching students how to think like economists.

Christchurch is currently a less attractive place for students. Housing costs here are high, nightlife is rather worse than it was, and who could fault local high school students for wanting to get away from it all for a little while? The earthquakes are over, sure. But whenever you travel from here to somewhere else, just being in a place that isn't undergoing massive reconstruction is ridiculously uplifting (though, when in Wellington, tinged with the terror of looking up at unreinforced masonry, seeing the "earthquake prone" warning on the building, and hearing the Alpine Fault countdown timer ticking in your head).

This is a temporary thing. The west side of town, where the University is located, is so close to over the quakes that you could mistake anything still going on for normal scheduled road maintenance. The downtown demolition job is months from done, downtown will be back in a couple years, and a whole pile of nightlife is coming back in other parts of town. Incoming academic visitors, who travel from the airport on the extreme West side of town to our Ilam campus, express surprise that there's so little evidence of there having been an earthquake - until they tour downtown. The biggest impediments to student life are housing costs**, which could be high for a while, and difficulty in accessing normal nightlife.

But the effects on the University could easily be permanent. We went from about 15,000 students pre-quake to about 13,000 last year; this year, we're down to 11,000***. At the same time, the University is incurring exceptional infrastructure costs and the same insurance problems as everyone else in the city. The government has helped the University through this over the last two years by maintaining its contribution to the University as though we still had the same number of students that we had in 2010, though our income from student fees remains rather lower than it had been.

The government, not entirely unreasonably, wants some evidence of that the University is trying to reduce costs before it will commit to further support. It feels like Stephen Joyce is squeezing the University to see what it can come up with; that squeeze has pushed down to the Colleges. The process is yielding a fair bit of uncertainty about which programmes will be cut.

Students and their parents hate that kind of uncertainty. If you have choice among a number of rather good universities in New Zealand, do you choose the one where you think your major might have its honours programme cut (or, worse, the whole major), with consequent turbulence in staff numbers and course offerings, or one somewhere else? Declining first year numbers sparked by worries about programme stability can easily turn into self-fulfilling prophecies. Colleagues attend orientation events at the local high schools. One colleague reports that a local high school career counselor is advising students to go anywhere but Canterbury for Arts because of programme risk. Other colleagues report that the first question high school students ask is which programmes will be cut and why they should come here given programme risk; from those reports, even students considering majors in the bench sciences are pretty worried. It's hard to blame them for those kinds of worries when the modal story about the University in the Christchurch Press focuses on its financial situation.

It is very easy to imagine unravellings such that the University is not able to recover once the city's amenities are back up to scratch. If covering the earthquake-related downturn requires cutting half the honours programmes in Arts and substantial reductions elsewhere, it's hard to build back from it. I know everyone has the impression that all universities have a lot of academic deadwood that can usefully be abolished. But, as best I can tell, and given how performance assessment here has been handled over the last several years, the only way of doing that while remaining compliant with New Zealand labour law is by deeming whole programmes surplus to requirements or by inviting all staff in a department to reapply for a smaller number of positions. The former case throws often the baby out with the bathwater; the latter has staff simultaneously applying for positions elsewhere and Canterbury being left with those who didn't find greener pastures. The deadwood, if there is any, can be the hardest to cull. And while it's easy (and often right) to point to excessive administrative overheads, the quakes rather drastically increased the place's fixed costs while reducing the number of students over which those costs can be spread.

So my alternative budget would either have scheduled a path for the closure of the University of Canterbury, including arrangements for less-than-proportionate expansions to Vic, Otago and Auckland, or provided firm indications of support such that students could be confident in choosing Canterbury. This middle ground has too high a risk of yielding rather poor outcomes.

* My unconstrained recommendation would be rather different, but why waste time wishing for ponies?

** Again, I'm very glad that the government has been talking about the kinds of restrictions that are keeping housing prices rather higher than they need to be.

*** The same Press piece says that last year's final numbers were 12,000 rather than the 13,000 noted in the annual report; it could be that the 2012 annual report figures were based on projections.

The Price of Wool and Economic Growth

2013-05-17T14:31:00.000+12:00

You know how most comments sections are, well, terrible?* Not this one. Gerald Silverberg blogs on the New Zealand 1951 GDP data point and the Reinhart-Rogoff mess. I'm going to leave refereeing on Reinhart-Rogoff to Justin Wolfers. But just look at the depth of wonkery that goes into a single cell in an Excel spreadsheet. Careful data collection and distribution is ridiculously undervalued.

Gerald tries working out New Zealand growth rates for 1946-1952, contrasting Maddison's data with others. The Reinhart-Rogoff data doesn't look like Maddison's. Then commenters, likely including at least one data maven from the bowels of the NZ bureaus, start helping out.

Commenter Oscar first points to an FT piece showing that Maddison uses calendar years while the Stats NZ series uses March years. Then Silverberg starts wondering whether 1951 was due to the waterside lockout or to the wool price boom, quipping:

Who would have thought that you would have to become an expert on NZ wool exports and labor relations in 1951 to decide if public debt affects economic growth.

It gets much much wonkier from there. Mark Sadowski provides a short history of the waterfront dispute and the wool boom:

I was convinced from the start of the HAP/R&R controversy that the New Zealand part of this story was explained by the 1950-1951 New Zealand Wool Boom and not the 1951 New Zealand Waterfront Dispute.

The 1952-53 New Zealand Yearbook shows that wool sales were 47.1 million NZ pounds in 1949-50, 107.5 million NZ pounds in 1950-51 and 52.7 million NZ pounds in 1951-52.

Most of this was caused by a change in price, not a change in output. The average price of wool rose from about 38 NZ pennies a pound in 1949-50 to 88 NZ pennies a pound in 1950-51 and fell back to 40 NZ pennies a pound in 1951-52. (There were 240 pennies to a New Zealand pound.) Production was about 298 million pounds in 1949-50, 294 million pounds in 1950-51 and 315 million pounds in 1951-52.

According to the HAP/R&R dataset New Zealand's nominal GDP (NGDP) was 1.101 billion NZ pounds in 1949, 1.396 billion NZ pounds in 1950 and 1.446 billion NZ pounds in 1951, so that was a substantial proportion of New Zealand's economy.

A good paper about the New Zealand Wool Boom is here.

I can't locate a free copy, nor can I save a PDF file I can cut and paste but I would summarize the episode as follows.

Demand for wool had been strong since WW II ended but supply had been unresponsive to elevated prices. When the Korean War started in June 25, 1950 there was an immediate elevation in the price of wool. Between that date and March of 1951 the price of wool went up two to three fold depending on grade (lower grades went up more, mainly because that was the kind of wool the military was buying). Demand wasn't simply driven by US military stockpiling as retailers actually used rising prices to induce even higher sales.

In January 26, 1951 the United States Office of Price Stabilization (OPS) imposed a general price ceiling measure designed to freeze the pre-war price-wage structure. The price ceiling on wool brought trading in Boston (the central US wool market) to a standstill and caused US participation in New Zealand wool auctions to more or less cease. This led to falling New Zealand prices until February 7 when an emergency exemption was granted to the US military through April 1. This caused prices to recover but once the exemption expired prices fell sharply. By June 1951 they had fallen by 50% and by March 1952 they had fallen a total of 70%.

Now, my sense from reading the history of the Waterfront Dispute is that it was less a strike than a lockout. The government brought in 3000 troops an unknown number of scabs to keep the dockyards running, and thereby crush the union.

The 1954 New Zealand Official Yearbook shows the Cargo Manifest Tonnage "cleared" (exports) fell from 1,163,934 tons in 1950 to 1,129,629 tons in 1951. It rose up to 1,173,577 tons in 1952.

In other words the mass of cargo moved fell by only 2.9% and rose by 3.9% the following year.

What about the actual value of exports? Exports *rose* from 183,752,000 NZ pounds in 1950 to 248,127,000 NZ pounds in 1951, and fell back to 240,561,000 NZ pounds in 1952

Wool exports rose from 74,653,000 NZ pounds in 1950 to 128,176,000 NZ pounds in 1951 and fell to 81,998,000 NZ pounds in 1952. Note that wool exports increased by over 70% in 1951 and amounted to nearly 52% of all exports that year.

So it would appear that the 1951 Dockyard Dispute had little effect on actual exports. [note: links tidied from source]

And all of this over one cell in a rather large Excel table. Raise a toast tonight to the wonks whose work provides every cell of every spreadsheet on which we rely.

* Except at Worthwhile Canadian Initiative, somehow.

Can tax and subsidy incidence really be negative?

2013-05-16T13:23:00.003+12:00

Imagine a country where shoes cannot be imported and furthermore the elasticity of supply of shoes is very low. Imagine that the government in this country subsidises shoes. The person on the street who doesn't understand tax incidence might think that this policy lowers the price of shoes by the amount of the subsidy. An economist, however, would be likely to point out that, because supply is fairly unresponsive to price, the subsidy mostly results in an increase in the before-subsidy price to the seller. In our jargon, he would be saying that most of the incidence of the subsidy would be on sellers and only a bit on buyers.

So far so good, but what if that economist now explained that removing the subsidy would make shoes cheaper to consumers, by stopping buyers from bidding up the price. This would seem to now be claiming that the incidence of the subsidy on buyers would be negative. Sure removing the subsidy would reduce the price to sellers but it would be a very strange model that would have the price falling by more than the reduced subsidy. In fact, it would seem to require that the supply curve be downward-sloping.

And now, imagine that the economist further claimed that removing the subsidy would be good, as it would result in investors switching from investing in shoe production to investing in productive assets. This would go beyond strange. Sure the subsidy might have been diverting assets to having too much shoe production and not enough other stuff, but in what sense would we say that producing shoes is unproductive? And, how is it consistent to argue at the same time that removing the subsidy would lead to less investment in shoe production at the same time as arguing that it would result in lower shoe prices for consumers?

O.K. this country, this policy, and this economist are fictitious. But if we change "country" to "New Zealand", "shoes" to "housing", "subsidy" to "tax exemption", and "economist" to "Gareth Morgan", you pretty much get this blog piece from Gareth on Tuesday.

Gareth argues, correctly, that owner-occupied housing receives a favourable tax treatment relative to other investment since we are not charged income tax on the implicit rental payments we receive from ourselves. But he then goes on to argue that removing this exemption would "bring affordability within reach of many more families". This is an argument I have commented on before; it really looks like arguing that tax incidence can be negative: If housing is effectively subsidised by the tax system, we can't expect removing the subsidy to make it more affordable.

And he then says that our tax treatment of housing has "discriminated against productive investment in favour of property speculation". Now if he means that we have invested too much in building houses and other kinds of investment, then we have to ask: In what sense is it unproductive to build houses that provide housing services to people that they value enough to pay for? And, how is it possible that curtailing such investment would "bring affordability within reach of many more families"? If, in contrast, he means diverting investment resources from building new equipment to buying existing houses as speculation, I have my perennial concern that this line or argument fails to note that buying existing houses for speculation or other reasons is not "investment" at all, and the assumptions you have to make to conclude that such behaviour diverts resources away from productive investment are a stretch to say the least.

One final curious seeming contradiction in Gareth's post. At the start, he notes "When, not if, interest rates increase, this illusion that housing is `affordable' will burst....house prices will adjust". But later he suggests that if we don't remove the tax-favoured treatement of housing, he should "go out and buy another three houses now and just wait for the rest of you to bid the prices up". Why would that be good personal investment advice if, as he says, house prices are sure to fall? What am I missing?

Breakfast

2013-05-15T13:55:00.001+12:00

A few months ago, Social Service Providers Aotearoa asked me to review the literature on school breakfast programmes and provide an assessment of whether public funding of school breakfast programmes offered value for money. I spoke on the issue in Wellington and in Christchurch in February. As the government seems to be looking at the Mana Party's proposals around food in schools, it seems worth posting things here as summary.

I was only looking at school breakfast programmes, and so I can't here comment on school lunch programmes. I'm not sure why we'd expect results to vary greatly, but it's worth having the caveat.

Anyway, on my best read of the literature, it's hard to make a case for that we'd get any great benefit from the programmes. Rather, we often find that they don't even increase the odds that kids eat breakfast at all. Many shift breakfast from at-home to at-school, but among those who hadn't bothered with breakfast before the programme, not many wind up starting when schools provide it. You can then get kids reporting that they're less hungry as consequence of the programmes, but it's awfully hard to reject that the main thing going on is that kids are eating at 9 at school instead of at 7 at home and are consequently less hungry when asked at 11.

You can get some substantial results from school breakfast programmes in third world countries. But even there we need to watch for displacement effects: the benefit of the programmes is often the implicit income subsidy provided. In those cases, we can see evidence of families cutting back on food expenditures for the kid getting breakfast at school in favour of spending on the other kids; in the link provided, there's reasonable crowding out in a UK lunch programme. And if that's the benefit, cutting a cheque to the families instead just might be better.

In all the studies, I wish that there were a control group where the parents were just given cash equivalent to the per-student cost of putting on the programme. All of these kinds of programmes should be assessed against that kind of counterfactual to establish whether we're getting benefits from the programme, or from the implicit income transfer.

Here are a few typical pieces.

Devaney and Fraker, 1989, found that school breakfast programmes did not increase the likelihood of kids' eating breakfast at all. It did increase calcium intake and reduce consumption of cholesterol and iron - breakfasts provided at school differed from those they'd be getting at home.

Gleason, 1995, similarly found that school breakfast programmes did not influence the likelihood of students' eating breakfast.

Alderman and Bundy, 2011, concluded that food in schools isn't a great investment but could complement other investments - they focused on developing countries.

Bhattacharya, Currie and Haider, 2006, seems to be the touchstone for those advocating school breakfast programmes. They found improved nutritional outcomes in blood serum tests of kids participating in school breakfast programmes compared to the same kids during school holidays when they weren't getting the school breakfasts. But they also found no effect on the likelihood of eating breakfast. And I worry a bit about their identification strategy: because it's poorer schools who got school breakfast programmes, we might expect that there could be relevant differences in how parents respond to school holidays that might affect the difference between school/not school outcomes for reasons other than the programme.

Waehrer, 2008, in an unpublished study funded by the USDA's RIDGE programme, found that school breakfast participation reduced the likelihood of eating breakfast. We could imagine this happening where the kids don't really want breakfast anyway, the parents stop making them eat it at home because there's the programme at school, and then they skip it when they get to school. The study could have similar identification issues to the Bhattacharya piece noted above; they identify on weekday-weekend differences, but cohorts might respond differently to weekends.

Shemilt, Harvey, Shepstone et al, 2004, found pretty mixed outcomes in a messy randomised control trial. They wound up abandoning the RCT part of the analysis and just going for regressions. They found some evidence of worsened outcomes of having attended school breakfast programmes on a few behavioural measures, but I'm again not convinced that they've pinned down causality. What they seemed most sure of was that school breakfast programmes had kids eating more fruit, so I guess there's that.

There were a couple of pieces claiming reasonable benefits from school breakfast programmes too.

Powell, Walker, et al, 1998, ran a really nice randomised control trial in Jamaica. Kids in the programme got breakfast, those not in the programme were given a small piece of orange. So they're able to isolate socialisation effects from breakfast effects. They found that the treatment group saw small increases in nutritional status, achievement, and attendance; they suggested that "greater improvements may occur in more undernourished populations." I'm not convinced that we're in that category.

Murphy, Pagano et al (1998) found that moving from selective to universal school breakfast programmes had some benefits, but also had some odd results. Before intervention, "hungry and at-risk children were slightly, but not significantly, more likely to participate in the school breakfast program than nonhungry children", and that more than half of the hungry and at-risk kids rarely or never participated in voluntary school breakfast programmes. So stigma associated with voluntary programmes can substantially affect uptake. But, when the programmes were made universal, hungry and at-risk kids were only "somewhat more likely to increase their school breakfast participation than non-hungry children... although this difference was not statistically significant." So what do we then make of results showing some improved average outcomes at school but no particular increase in breakfast-eating among those who are hungry? I wonder if all the effects here point to that eating later in the morning rather than earlier is better. I'll talk more about this below.

Dotter, 2012, finds that universal in-class school breakfasts increase the number of children eating breakfast at school compared to voluntary programmes that could have stigma effects, but I couldn't see that the paper measured whether there was an effect on total breakfast consumption. And while Dotter finds increased school performance in schools with universal school breakfast programmes, I can't see how the paper distinguishes between an "eating at all" and an "eating later" effect. Why does this matter? Imagine an alternative policy where schools allow a designated morning tea break at 10:30 where kids bring in their own snacks. This would be cheaper than full school breakfast programmes and just as effective, if the main channel of effectiveness is having a fuller tummy at the time of instruction because breakfast was later.

Frisvold, 2012, found that state mandates requiring schools to provide school breakfast programmes increase availability of those programmes and consequently increase test scores: the paper reports math score increases of nine percent of a standard deviation and reading score increases of five percent of a standard deviation. Again, there is no significant effect on the total days per week that a student eats breakfast, suggesting substantial displacement of breakfasts that would otherwise have been eaten at home. The paper claims that the effect is through a nutrition channel, with kids eating healthier breakfasts. But I can't see how they're distinguishing the nutrition channel from my suggested "they're eating later in the morning and so are less hungry at 11" channel.

So, some bottom lines:

School breakfast programmes really don't seem to increase the likelihood of that kids eat breakfast at all;
To the extent that they improve outcomes in some studies, we really can't tell:

whether the effect is from changing the timing of breakfast, in which case we should instead have a morning tea break;
whether the effect is any better than just giving those families an equivalent cash transfer.

I spent an hour in Wellington and Christchurch walking through these findings. I hope we don't throw a pile of money at school breakfast programmes; the money could well be better spent. That also seemed to be the conclusion of a New Zealand study: Mhurchu et al, 2012, who found that the only effect of a randomised control trial of school free breakfast programmes here was that kids self-reported being less hungry.

Update: Lindsay Mitchell points to a presentation on the New Zealand trial. She also points to data showing child poverty rates have been dropping.

Staying outside the Asylum

2013-05-15T11:14:00.000+12:00

Dairy's great. But long term, New Zealand's ticket, I've reckoned, is being islands of sanity as the rest of the world entrenches the Asylum. The physical limits on dairy increase can't be that far off: we eventually run out of water for irrigation or hit a wall where we need a step-change in effluent dispersal technology before increased dairy density is tolerated.

We found New Zealand really attractive because it didn't seem to be doing all of the dumb things that the US and Canada were doing. Airport security was reasonable; flying is actually enjoyable. If you want to be a hairdresser, you hang out your shingle rather than have to submit to nutty occupational licensing regimes. The police remain, by default, unarmed; Armed Offenders Squad call-outs are rare enough that they'll make national news. Asset forfeiture has only recently been introduced; hopefully, we avoid its worst effects. Tariffs are low and on their way to zero. The GST makes sense. Though the government was tempted to implement software patents, the techies made a good case and the government changed course.

New Zealand keeps ranking at or near the top of the various indices of economic and social freedoms. We could do well by encouraging greater immigration of American techies fed up with that the American government seems to be archiving and storing just about everything for later searches. Just show them Novopay as example of how we couldn't, even if we wanted to.

Alas, we're not immune to the shenanigans going on elsewhere. Our NSA, the GCSB, is getting a legislative redraft. Thomas Beagle of TechLiberty summarises; NoRightTurn has a few additional comments. I'm not a lawyer - maybe things aren't as bad as they seem. David Farrar is considerably less concerned.

Where the GCSB acts under judicial warrant, I can't see that there's much difference between a wiretap being done by GCSB and one being done by the SIS; on that, I'm with David. But Thomas warns that the GCSB's powers will go a little beyond that. On his read of the legislation, we'll have to have back doors built into everything.

I don't understand why there's any particular rush to change the GCSB legislation other than that they beclowned themselves in the Kim DotCom prosecution. Wouldn't it have been rather better to have spent a bit of time with the tech community after the Kitteridge Report came out and sorted things out while drafting the legislation? The government's initial hamfistedness on software patents, and subsequent revision after consultation, might have suggested that some ex ante consultation was the better approach.

When the US seems to be doing everything it can to convince its tech guys that the government really does want to be spying on everybody, and that the IRS wants to know everything you talk about at political meetings if you have small-government leanings, the last thing we need are headlines suggesting we're heading down similar paths if the legislation doesn't actually do that. And if it does, it does need changing.

SkyCity revisited

2013-05-13T16:50:00.004+12:00

Auckland is to get a large new convention centre, to be built and run by Sky City, Auckland's casino.

I chatted with Radio New Zealand's panel about the plan this afternoon.

Really, not a lot has changed from when this was first proposed a while back.

We should think of this as two separate deals.

First, the government is auctioning off some gambling concessions. SkyCity has bought the right to have an additional 230 pokie machines, 40 gaming tables, assorted other gambling concessions, and, possibly most importantly, a guarantee that if some future government reneges on the deal by banning gambling or otherwise eroding the benefits provided to SkyCity under the deal, they'll be compensated. Now suppose that we opened that whole thing up to a general auction. People would then bid for those rights; the highest bid would approximate the expected flow of profits from having the concession.

Second, the government took bids for the right to build and operate a big convention centre. The high bidder, or rather the company willing to do it at the lowest subsidy, gets to build and run the convention centre.

In this case, SkyCity has to reckon that losses (if any) from building and running a convention centre are less than the gains from the gambling concession [NBR subscription, sorry]. And it isn't crazy to think that the bundle provides added value: convention centres near casinos tend to lose less money than those not so-situated; there are reasonable complementarities between the kind of facilities attractive to conventioneers and those that are in place in casinos.

Conditional on the government wishing that there be a big fancy convention centre in Auckland, this is likely the least bad way of doing it. I haven't gone through the accounting on it in any depth, but the bottom line has to be that SkyCity reckons it can make a go of it, since they're bearing the risk if they can't operate it profitably. And it isn't crazy to think that there could be some economic benefits from increased tourist traffic if we host more conventions. But whether those benefits are larger than the amount SkyCity might otherwise have bid in an open auction for the gambling concessions, where the revenues went into the general fund rather than into a big convention centre, that's rather less clear. It's possible, but it's far from certain.

Commenters at The Panel worried about social costs of gambling associated with the expansion. A lot there depends on how Auckland proceeds with gambling regulation. The cities that existed prior to amalgamation had a mix of gambling policies, with some imposing a "sinking lid" on the total number of pokie machines allowed. If Auckland as a whole continues with that policy, then much of the concession offered to SkyCity comes at the expense of the corner pubs who will see their licences killed more quickly than they otherwise would. That's really rather bad for those pubs. Whether that increases or decreases social costs depends on your view about which is better positioned to identify and exclude problem gamblers; I'm agnostic. But I'm not agnostic about that most of the measures of gambling social cost assume away the enjoyment that gamblers get from gambling. If we're happy to assume that every dollar spent on gambling by heavy gamblers is a total loss except where it results in a win, it's pretty easy to generate large estimates of gambling's social costs.

You could even make the case that the whole deal could, on the whole, be strongly anti-gambling. Here's the case. Given the SkyCity concession AND that SkyCity has bought itself immunity from other gambling regulations, what happens to political pressure against anti-gambling regs? The immunity clause means that it's in SkyCity's interest that we have much tighter regulations against gambling in other parts of Auckland; it strengthens their position. If you think that gambling is a bad, which I don't, then this deal makes SkyCity closer to a monopoly than it was previously, and makes every future regulation on gambling a pro-SkyCity regulation. If you hate gambling, you want it provided by a monopolist so that there's less of it.

The anti-gambling folks should give their heads a shake and think about the opportunities now available to them if SkyCity can be exempted from their wildest anti-gambling fantasies. I'm glad they haven't, as I don't like monopolies and I think it's ok for people to go and enjoy a flutter at the machines or at the tables. They should consider pushing hard on sinking lids such that SkyCity winds up being the only place left with them. SkyCity will be on their side in that fight. I don't like that outcome, but that's just me.

Stadium plans

2013-05-11T07:00:00.000+12:00

Sam Richardson points out some problems with the proposed stadium-plus-office-towers combo for Christchurch:

It is not clear yet where exactly the funding for Christchurch's stadium plans is coming from, but it is fair to say that it will be largely funded by taxpayers - locally, regionally and nationally to some degree. As such, if my taxpayers money is going into funding a stadium, I would like to see some evidence that this amenity is going to be at least self-sustaining, and should not be detrimental to the local area. The idea that office buildings will make the stadium profitable is missing the point. If the office blocks are the profit-making parts of the venture, why not just build the office blocks? If they must be built as part of a stadium plan, we have to acknowledge that the rents earned by stadium offices will simply be transferred from other office spaces elsewhere within the city. It may well be the case that office space is at a premium in Christchurch, in which case the stadium offices may be beneficial to the city of Christchurch in that clients who were previously unable to obtain office space may now be able to do so. If, however, the offices are simply populated by clients who relocated from the suburbs, then this isn't making money (nor necessarily welfare enhancing either) at all - it is merely redistributing the rents on office space from the suburbs back into the CBD.

It is exactly the same argument as the claim that stadiums generate conference revenues too - which is only beneficial if the conferences wouldn't have been held in the city in the first place without the stadium conference spaces.

If people are willing to pay more for office space overlooking a rugby field than for office space elsewhere, then that can make a case for the stadium/office combination. And I can believe that there are plenty of tenants who would be willing to pay more for stadium office space than for regular office space - it isn't implausible that the project is feasible. But if that complementarity comes from tenants expecting to watch games from their offices for which they'd otherwise have to pay, then it's a trade-off against ticket revenues for the stadium's tenants - sports clubs would then be willing to pay less for use of the facility.

Lunchtime discussion in the economics staff room wondered whether we mightn't instead have hotel towers and a stadium including conference facilities. But that does start getting awfully close to Danyl's proposal from last year:

Christchurch Mayor Bob Parker and Earthquake Recovery Minister Gerry Brownlee provided more details of the rebuild blueprints for the earthquake-devastated city today, including plans to build a second sports stadium inside the new convention center to be constructed on Cathedral square.

‘The sports stadium will be a core attraction for visitors to the convention center,’ said Brownlee. It will be fully covered, provide seating for up to 2000 spectators, and will also contain a state-of the art convention center.

The sports stadium inside the convention center will complement the services provided by the main convention center. It will include business hotels, retail outlets and a covered sports stadium with natural fixed turf, which will also contain a convention center to attract business tourists who want to attend sports events during their stay.

‘We have one or two exciting ideas for what to include in that last convention center, but I don’t want to give too much away,’ Brownlee told reporters. ‘Let’s just say Crusaders fans will be very excited.’ City Council insiders suggest the convention center’s sports stadium’s convention center might house a sports stadium.

I still wonder whether it might be best to let the Crusaders own the stadium and to gift them the insurance payout for the AMI stadium. Tell them to make the best go of it that they can while writing legislation that the Mayor, Council, City Manager, and both the General Manager and Coach of the Crusaders will ~~be shot in the face~~ have something very bad happen to them if Council ever provides any other subsidy ever to the stadium or its tenants.

The Jedi Gap

2013-05-10T07:00:00.000+12:00

Is there a growing Jedi gap? Or is the Canadian National Household Survey letting us down?

The CBC reports:

Once numbering in the vicinity of 20,000, the ranks of those in this country who claim to be Jedi Knights inspired by Star Wars movies have dwindled to fewer than half that figure, according to Statistics Canada's first release of data from the 2011 National Household Survey.

"A lot less this time. I think there's about 9,000 reporting Jedi," said Jane Badets, a senior analyst at Statistics Canada.

"And that was true elsewhere in other countries. A lot less than in other countries, too, doing censuses. Very low reporting of things like Jedi."

What started as a gag among friends on a British Columbia ski hill ballooned into something of a phenomenon on the 2001 census when thousands of Canadians told Statistics Canada they followed the Jedi religion of Star Wars lore.

But Frances Woolley shows some very large problems with the NHS. Either Canada's ethnic make-up changed radically since 2006, or ethnicity affects one's likelihood of answering voluntary surveys; the latter seems more likely.

Recall that New Zealand had 20,000 Jedi in 2006; we have yet to see figures from the 2013 Census. Our Census remains mandatory. While we know that while Jedi will not lie, they may refrain from identifying themselves as Jedi if it's voluntary.

This has important national defence implications. While New Zealand has been able to cut defence spending down to trivial levels, trusting in its strong cohort of Jedi in case of any emergency, Canada cannot really tell whether they really need the Joint Strike Fighter because of dwindling Jedi numbers, or whether the Jedi just failed to complete the voluntary forms.

It also has implications for ongoing negotiations in the Trans-Pacific Trade talks. If Canada can no longer rely on Jedi mind tricks to defend supply management in dairy, perhaps New Zealand's Jedi will be able to push us towards free trade.

Our daughter, born on Star Wars Day three years ago, is one of the Jedi in the 2013 New Zealand Census.

What If Lecture on You Tube

2013-05-09T08:00:00.000+12:00

My What If lecture on using Economics to analyse ODI cricket is now up on YouTube. In it I give an "Economics in 4 lessons" overview, and then used the same graphs to talk about cricket. Watching the playback, I wish I had sped through the intro to Econ a bit faster, and I rather wish the cameraman had kept the camera on the screen rather than panning back to my fidgeting, but overall I'm reasonably happy with how it came out.

That supply not enter the market

2013-05-09T07:00:00.000+12:00

In response to a few attacks on taxi owners, New Zealand three years ago started requiring that all cabs have cameras and be on 24-hour monitored dispatch.

I expected that this was a move towards cartelization that would have bad effects on consumers. I'd written:

The real cost of the soon-to-be-mandatory taxicab cameras won't be the 30-odd cents it adds to the cost of the typical cab ride. Rather, it's the loss of surplus that will come when the World Cup hits in 2011 and jitney cabs will fail to come into the market because of the increased fixed cost of shifting your private car into taxi service. Right now, best I'm aware, so long as you have a driver's license that permits it, nothing much stops you from slapping a sign onto your car saying "Cab" and charging to run folks around town. We'd expect that to happen during odd spikes in demand.

I figured that this would have most effect around the time of the Rugby World Cup, or other big events that would otherwise bring jitneys into the market. Looks like it's been worse than I expected.

The Herald reprints a piece from The Star:

A lack of taxis in some parts of Christchurch is causing major problems for evening revellers trying to get home safely.

The drop off in taxi numbers is leaving agitated people outside pubs, leading to fights and tempting people to drive home after drinking.

Some taxi drivers are refusing to go to the eastern suburbs because of concern about damaging their vehicles on quake-damaged roads, which is compounding the problem.

New Brighton's Pierside Cafe owner Tony Brooks said since the earthquakes they could not get taxis to take their patrons home.

Security staff, bar managers and DJs were driving patrons home.

"This has been an issue from the moment the earthquake hit - this is not just a little problem, this is a big problem," he said.

"We had Midge Marsden here on Saturday and it was an amazing gig - but it was all soured at the end of the night by the lack of taxis," he said.

Mr Brooks said he had been pre-booking taxis for when the bar closed at 1am but they never turned up.

People were driving home drunk as a result.

Taxi companies say tougher regulations and costly maintenance on vehicles because of damaged roads meant six operators had stopped since the earthquakes.

Blue Star Taxi's general manager Bob Wilkinson said: "Part of the issue is the way the bar scene has split, now the hotspots are in Riccarton, Lincoln Rd and Merivale and The Palms and it is pretty hard to cover all of those areas instead of just the central city before the earthquakes.

"Six taxi companies folded because new regulations mean they had to have 24-7 rosters, cameras in cars, a phone room and this added to the cost of running them."

First Direct's owner Pam Jackman said: "Our drivers don't want to go out to Brighton because of the roads." Ms Jackman said their taxi could do between 1000 and 3000 kilometres a week.

Ferrymead's Speight's Ale House restaurant manager Joseph Poulter said the most frustrating thing was waiting for the taxi companies to answer the phone on a Friday and Saturday.

"We just give up and try another number," he said.

Mr Wilkinson said there were only three major taxi companies left in Christchurch which were covering a city once serviced by more than nine.

You'd normally expect that shortages like this would bring new supply into the market: people who'd charge a fair bit to run cabs from the Brighton bars late in the evening. Pull the kid seats out of the back of the van, slap a sign on the side, and offer fixed-price fares to different parts of town. But not if you also have to run under dispatch and cover the costs of a camera setup.

I wonder whether private-hire vehicles are still exempt from the regulations.

Internet sales taxes revisited

2013-05-08T09:56:00.000+12:00

Mitchell Hall at PC Mag canvasses opinion on the proposed US internet sales tax.

The Marketplace Fairness Act isn't actually a new tax. It's not even compulsory. It simply allows—but does not require—states to collect sales tax on out-of-state purchases over the Internet. The bill is designed to address a loophole created by a 1992 (pre-ecommerce) court case called Quill Corp v. North Dakota. In it, the Supreme Court ruled that "Congress is now free to decide whether, when, and to what extent the states may burden interstate mail order concerns with a duty to collect use taxes." The upshot was that out-of-state retailers didn't have to collect state sales taxes unless they had a physical presence in the customer's state.
...

Current Heritage Foundation President, former South Carolina Republican Senator, and Tea Party leader Jim DeMint is predictably against the bill, but frames his argument in political terms. He declares in the Wall Street Journal opinion pages that America "was born from the idea of 'no taxation without representation'—that citizens should not be taxed by governments in which they have no political voice. Yet now lawmakers in Washington want to overturn that bedrock principle in order to extract more revenues from American consumers."

"The proposal before Congress would give a federal blessing for states to chase revenues far outside their borders," says DeMint. He cites the example of a customer buying a product in a store: does the cashier ask for the customer's home address? "Of course not," he answers. "The store simply charges the state and local sales taxes applicable for its physical location, no questions asked."

DeMint writes that the proposed law would hold online sellers to an entirely different standard than physical retailers. Websites would have to add taxes to a sale based on the shipping destination of the product, possibly a state in which neither the seller nor the buyer resides. "We would never ask mom-and-pop store owners to do such a thing," he argues.

I tend to figure that consumption taxes should be levied at the place the product is consumed. While DeMint is right that the proposal will fail to address distortions caused when people drive across state lines for shopping deals, the volumes there involved have to be smaller.

Libertarian-minded economist Eric Crampton from the University of Canterbury is also against the bill, albeit for different reasons. He conceded to PCMag that from a best-case standpoint, states with sales taxes that do not charge a tax on Internet purchases from out of state will distort consumers' decisions. Consequently, you'd want shoppers in a state to face the same sales tax regardless of where they're purchasing it from.

"But," Crampton argues, "we're not in a first-best world. Most importantly, it's not easy to collect these taxes. The transactions costs of collecting the tax arguably dwarf the revenue that would be collected or the inefficiency induced by having smaller purchases effectively tax-exempt."

I'll add in the caveats that I'd sent Mitchel for which there wasn't space in the final piece:

Were this implemented in the US, every internet vendor would effectively have to be remitting tax receipts to each of 50 states. That's fine for big guys like Amazon, but it would be murder for smaller online retailers.

Finally, inefficiencies caused by failure to administer an internet sales tax are clearly third or fourth order relative to the massive inefficiencies built into the American tax system. Comprehensive tax reform lowering rates but abolishing the home mortgage interest deduction and applying a fringe-benefits tax so that employer-provided health insurance would not be tax-preferred would be far more effective in fixing whatever ails the American tax system than chasing after internet sales taxes. Were the US to apply a federal VAT while reducing income taxes, that federal VAT should apply equally to online and offline transactions. But I'm really unconvinced that current internet sales tax proposals are worth the effort.

Josh Barro pointed to one way out of the mess: states willing to run a single less-crazy sales state tax code could implement internet sales taxes across that set of states. But allowing states to require retailers from other states to conform to their particular mess of tax codes...disaster. As Barro there wrote:

And one state’s picayune rules don’t necessarily conform to other states’ equally picayune rules. Both New York and New Jersey apply sales tax to candy but not to most other food, yet they have different definitions of what “candy” is. A Twix bar is taxable candy in New York, but in New Jersey it’s a non-taxable baked good. An online retailer has to keep up with this morass not in just one state, but in all of them.

More dauntingly, there are over 8,000 local sales taxing jurisdictions in the country, again with their own rates. New tax jurisdictions are created frequently and their boundaries do not necessarily conform to Zip or even Zip +4 boundaries. A few states, such as New York, even allow local jurisdictions to determine their own tax bases. One particularly relevant example for online retailers is that New York State does not charge sales tax on clothing and footwear under $110, but most counties in New York do – and sometimes a city has different sales tax rules than the county it is in.

I'd taken this as excellent reason for America's adopting New Zealand's tax code.

Back to Hall's piece:

Surprisingly, Kevin Hassett disagrees with Crampton and DeMint, telling PCMag that "the conservative tax people I know think the Senate bill is a pretty good idea." ...
Hassett explains that the current status of Internet sales taxes is crazy from an economic point of view because it disadvantages local businesses relative to non-resident vendors in a way that is highly distortionary.
Hassett also addresses the criticism that this tax will be a nightmare for small businesses to comply with, given the potentially thousands of different tax rates, laws, and jurisdictions to navigate. "All those jurisdictions are imponderable to a human brain but are pretty easy for even the simplest computer programmer," he points out. "If small retailers have to do that, there's probably an app for that that you can buy for a quarter…Put it this way, these are people who are savvy enough to set up an Internet business, but the argument is that we can't ask them to withhold sales tax because they can't figure out the computing end of that? That seems like a stretch to me."

I think Kevin Hassett somewhat understates the complexity induced by 8000+ potential ever-changing local sales tax jurisdictions that disagree on whether a Twix bar is candy, and of parsing 1,437-word memos on whether an ice-cream sandwich is or is not taxable in Wisconsin.

The problem isn't just knowing what tax rates are in place in which jurisdictions; it's figuring out which of your products wind up being subject to which taxes in which places. Easy enough for Twix bars: set up the spreadsheet that says where it's taxable. Suppose you stock some local producer's ice cream sandwich as one of your thousands of products and find out that whether it's taxable in some jurisdictions depends on how it conforms to memos like Wisconsin's. I just can't see a 25-cent app being able to tell whether that ice cream sandwich is taxable.

Hassett is right that it would be dead simple in a world where the different jurisdictions only varied in the rates they charged over categories that were identically defined. But that sure isn't America.

Update: Imagine that you're a state legislator and some big local producer comes in wanting protection from out-of-state products. Now it's illegal to prohibit the import of out-of-state products: Commerce Clause. But you could set up a special set of state tax codes around that product that are just such a darned mess to figure out (tax the 1,437-word memo as example) that nobody from out of state can figure out what tax to charge. And then sue the pants off anybody who fails to comply. Pretty soon, nobody ships that stuff to your state. Ta-dah.

Update 2: The Bill does go some way towards reducing complexity. Participating states must have their local tax authorities on a common base, even if rates can differ. But I can't see anything prohibiting things like Wisconsin's ice-cream sandwich tax complexity. They'll have to provide a database listing the rates and exemptions for things, but somebody from out of state still has to figure out just where his ice-cream sandwich sits. Caveat: I'm not a lawyer.

Reason to love NZ #58: A functioning health care system

2013-05-07T10:34:00.001+12:00

New Zealand's public health system makes up about 18% of aggregate government expenditures. Add in $1.1 billion for ACC, the government-run accident insurance company, and you get about $15.3 billion all up, or about $3475 per capita. This is complemented by private insurance for those who wish to have private insurance; about 30% of the country subscribes.

Health insurance for our family of four costs $140 per month. It comes out of after-tax income and is not tied to any employer; if an employer provided health insurance, the fringe-benefit tax would apply to avoid the distortions that Americans crave. So losing your job only means losing your health insurance if you can't pay your premiums. We have a relatively high deductible, here called an "excess", of $2000. GP visits and prescription drugs are subsidised through the public health system but not entirely; we don't have a government services card provided to lower income Kiwis for greater subsidy. A GP visit costs about $40; it's cost us between $2 and $20 to fill a prescription script. We never bother saving the receipts because it's exceptionally unlikely that we'd ever reach $2000 unless some large event happened. We specifically wanted only a high-deductible emergency policy; such policies here are easily obtained because there aren't a bunch of crazy US-style mandates requiring coverage for a bunch of stuff we don't want.

Maternity is not included as part of private health insurance. With each of our two kids, the public health system covered the cost of the midwife of our choice; we supplemented that in both cases with a private obstetrician. The fixed-cost price for the first pregnancy was $2000; the second was $3000. In both cases we ended up with an emergency Cesarean provided by our hired obstetrician that involved no additional out-of-pocket expense or insurance claim. I expect that the public health system defrayed the costs of the emergency Cesarean.

A month ago, we had our first call on our private health insurer. On a Thursday, Susan fell rather ill. An evening visit to the 24-Hour Clinic was followed by a Friday ultrasound confirming gallstones. On Sunday, a physician from the 24-Hour Clinic called after having reviewed Susan's files and recommended antibiotics for inflammation that they'd missed on the Friday visit; I picked them up that afternoon. A Monday visit to the GP's office gave a Tuesday visit to the specialist surgeon. We called Sovereign, our health insurer, from the doctor's office at 12:30 PM, then faxed off some easily acquired paperwork at 1:00. Two hours later we had insurer sign-off for a Wednesday surgery at Southern Cross Hospital. Southern Cross is the biggest private insurer; our insurance is with Sovereign, but that wasn't a problem. The public health system also sometimes contracts for services at Southern Cross when there isn't enough capacity at Christchurch General.

The laproscopic surgery went well. Susan spent a night at Southern Cross Hospital and was home the next day; I ducked out of a Scholarships Advisory Committee meeting to run shuttle. We also have very nice scope pictures from the surgery. I wish I had asked about it earlier as the surgeon said that, with enough notice, we could have had a video. That would have been awesome; they just hadn't had the time to set it up since I'd waited too long to ask.

Our surgeon is contracted in by the public health system to perform surgeries for them; the public system would have had a couple months' wait. Because high-demanders like us are willing to pay extra to get things done quickly, the system as a whole gets more specialists who also can provide services to the public system. Similarly, our private obstetrician was also sometimes the duty senior obstetrician at Christchurch Women's Hospital. The public and private systems complement each other very nicely; such arrangements are entirely illegal in Canada.

Things I have never ever here had to do:

Worry about whether our preferred GP, obstetrician, or specialist takes the insurance that we have;
Have to take the insurance recommended by our employers;
Have insurance tied to employment;
Save receipts for reimbursement later on [we just mailed the bills to the insurer];
Add up total health expenditures for a tax form to get a deduction;
Wait in really long queues (Canada);
Pay tons for private health insurance.

The Oregon Medicaid Study, as I read it (or see Cowen here), shows that the expansion of Medicaid mostly helped by reducing catastrophic costs that can otherwise face families with big health surprises. I can believe that finding. America has decided to make it difficult to get inexpensive high-deductible insurance coverage. If we take anything from Oregon, it should be that cheap catastrophic insurance should not be barred by regulatory mandates that effectively turn it into a full-cost full-coverage policy. [Update: see also Ross Douhat; Josh Barro disagrees]

There are many medical conditions where the expected quality of service in America far exceeds what is here available; big places can afford the expensive machines with the high fixed costs. But, on average, boy do we prefer things here.

If you're weighing up a move to New Zealand and considering the drop in after-tax salary, look instead to the rather smaller drop in after-tax, after-health-insurance salary here. We pay $1680 NZD per year for catastrophic coverage for a family of four. So this year, including the $2000 deductible from an unexpected event, we paid about $3700 for health care out of after-tax earnings.

Increasing consumer surplus through price increases

2013-05-07T08:30:00.000+12:00

As I noted last year, the University of Canterbury administration has this year increased the price of an annual parking permit threefold from (roughly) $100 to $300. This raises the price from what was a subsidised rate to something they calculate as being approximately marginal cost. Needless to say, this is something that the Economics department had been advising for a long time, given our propensity to value efficiency even at the expense of our own direct wellbeing. After a few months of experience with the new policy, it has become clear, though, that it is not only efficiency enhancing, but it has also increased consumer surplus even without consideration of what use the university makes of the increased revenue.

How can that be? It is an application of how the deadweight loss triangle in a standard S&D diagram understates the cost of a price floor or ceiling. Previously a parking permit at Canterbury did not confer a right to park; it conferred the right to hunt for a park. Many of us wasted a lot of time searching for a park before giving up and parking on the street several blocks away. The problem was particularly acute on wet days. Some of those who successfully found parks had a low willingness to pay, others who missed out valued the parks much more highly. How do we know this? Well this year, as a result of a trivial price change from next-to-nothing to three times next-to-nothing, the carparks are never full.* Even on the wettest days, one can come in late and always be guaranteed a park. Those cluttering up the parks last year but not this clearly didn’t value the parks highly; this year, it is only those put a high value on parking who get the parks. And how high can that value be. Well we don’t know for sure, but I am sure this story could be replicated here.

So there we have it. The price went up, and so did consumer surplus. Could the same happen in reverse. Well imagine if you were to impose average cost pricing in the retail electricity market despite it being an industry with sharply increasing marginal cost. Everyone would get a lower price for power, but with no guarantee that the lights would come on on demand. Consumer surplus might well go down. And that is without even considering the lost government revenue from publicly owned power companies….

* I find it difficult to comprehend the size of the demand response; think of the Slutzky equation: there is a huge shortage of on-street parking around the university, so there are no close substitutes for on-campus parking; $300/annum is hardly a large fraction of anyone’s expenditure, student or lecturer. Can the income elasticity really be that high?

The morality of corporate takings

2013-05-06T14:56:00.000+12:00

In the comments on my post containing the open-letter to the Labour Party’s two Davids a couple of weeks ago, John Small and I got into a discussion about the morality of a government policy that would wipe value from a private company (in this case, suggested changes to the electricity market that would reduce the profits of privately owned electricity companies). John wasn’t sure why I raised the issue of morality; this is worth post on its own.

It is inevitable that changes in government policy will result in both winners and losers, just as changes in the non-governmental actions will. One of the starting points I argue in my Honours class in welfare economics is that, in terms of practical policy (as distinct from the conceptual benchmark of a mythical social planner) the world is, always has been, and always will be Pareto efficient, and so a rule that policy changes cannot impose costs on anyone is tantamount to a rule that policy changes can never occur. But I think we can suggest some guidelines for when government-imposed costs are justified. The key issues are whether the policy is imposing costs on individuals or corporate bodies, whether the policy is a direct appropriation of property or one the imposed costs are indirect, and whether the policy is designed to improve efficiency or serve some social objective. Let’s take each in turn.

Is the cost imposed directly on individuals or on corporations? Takings from individuals require a higher threshold of benefit than takings from corporations. I don’t here mean to that corporations are somehow separate from the individuals who own them, or that their owners have lesser rights than other citizens; this is simply recognising the fact that company owners have the opportunity to diversify risk in their shareholdings, and hence to diversify the implications of government policy changes. A policy that forced lower electricity prices might wipe value from electricity companies, but add value to electricity buying companies as well as final consumers. If such a policy were efficiency increasing, there is no reason for it to impose significant costs on any diversified shareholder.

Is the policy one that appropriates resources directly or one that changes the value of current assets? A direct takings, such as when the government uses compulsory purchase to acquire land for a highway, is a more serious use of government power than one that imposes costs indirectly through revaluations of assets, simply because a direct takings has the potential to impose far greater costs to an individual if their personal valuation of the asset is greatly in excess of its market value.

Based on these two criteria, I have no problem on morality grounds with, say, the government’s forcing Telecom to give other companies access to its copper wire network, with the anti-trust actions against Microsoft, or with changes to patent law that would stop Apple from suing Samsung. In each case, the question for me would be simply whether such policies would promote long-run efficiency or not. (In the case of these three examples, I suspect the answer would be No, No, and Yes, but that is an empirical question.) The issue becomes more when the policy is put in place to achieve social objectives.

Is the policy one that is designed to improve efficiency or to bring about social redistribution? In my view, the hurdle has to set very high before one can justify a direct or indirect takings to fund redistribution. This is not to say that social redistribution is not warranted, but rather the moral case for redistribution should be grounded in a transparent and honest policy that seeks to share the burden broadly rather than hiding the costs. Financing redistribution through indirect takings smacks too much of offering the other kid’s bat for my taste.

This is the key question in the case of Labour’s proposed electricity reforms. If their proposal were based on a view that market power was keeping price above marginal cost so that reducing price would be efficiency enhancing, then the issue would be the technical one of whether there is market power and whether eliminating that market power through a single payer would cause more problems than it would solve. But the proposed policy is explicitly to set price below marginal cost in order to equate price to average cost. John argued from a utilitarian perspective that the redistributive benefit would likely exceed the efficiency cost. We can debate about how large the efficiency cost would be, and whether, if you had revenue available for redistribution, subsidising electricity prices would be the best way of using it. But if we want to have more redistribution, either with an electricity subsidy or with direct transfers, then we should finance that directly with broad-based tax increases. Let’s not get into the game of arguing for a policy to transfer resources from corporate owners to electricity consumers on the basis of “they must have known that regulation is very very common in this industry” and hence that the costs are ethically inconsequential.

Dairy stooges

2013-05-06T12:55:00.002+12:00

Back at GMU, Peter Boettke liked to compare tweaks to regulatory regimes to the Three Stooges doing plumbing. Every time Larry turns the monkey wrench to fix one pipe, he's bashing two other pipes that start new leaks. And then it all descends into slapping and nose-pulling as the basement floods.

Today's example: Canada's wonderful dairy supply management system. Some people hate the system for inflating the costs of dairy products for Canadian consumers. But I'm coming to love it for its comedy value. Consider mozzarella cheese.

Fifteen years ago, frozen pizza makers convinced Ottawa to exempt cheese for frozen pizzas from the high tariffs that otherwise protect the supply management system. Restaurants hated the move as frozen pizzas compete with Dominos and the like. This sparked some cheese smuggling. And, according to the Free Press, it also caused this:

A number of restaurant chains recently began circumventing hefty cheese tariffs by importing their mozzarella by way of pizza topping kits.

The Canada Border Services Agency last year designated the boxed cheese-and-pepperoni combinations as a food preparation, rather than simply cheese, meaning they could be imported duty-free.

So we had this big plumbing mess. Fixing one leak causes others.

That sent dairy farmers into panic mode, with the Dairy Farmers of Ontario telling delegates at a regional meeting last fall that the designation was having a "negative impact on domestic mozzarella sales and could have an even greater impact going forward."

The case is currently before the Canadian International Trade Tribunal, and is seen as a serious threat to Canada's farm supply management system.

The CBSA decision allowed importers to bring boxes of the pizza topping, consisting of about 20 per cent pepperoni and 80 per cent cheese, into the country duty-free rather than being hit with the 245.5 per cent tariff that is charged on cheese from outside Canada.

And now the Canadian government has created a new mozzarella milk class so restaurant and frozen pizza makers will be on the same footing. If you like blue cheese on your pizza, you're SOL.

Agriculture Minister Gerry Ritz blames Canadian high prices on economies of scale:

But there will likely always be a price gap between Canadian products and those coming in from bigger markets, particularly the United States, says Agriculture Minister Gerry Ritz.

"At the end of the day I can get a hotel room in the same chain cheaper in the U.S., I can get a steak dinner (for less), it just goes on an on and on," said Ritz.

"It comes down to economies of scale."

Economies of scale matter, but they're hardly a first order explanation for high Canadian dairy prices. New Zealand's supermarket duopoly, despite providing rather high prices for most other things, somehow manages to deliver us a kilo of good cheddar for $9 NZ. Canadians: have a browse down the Countdown (our version of Safeway) aisles. $1 NZD = $0.85 CAD; our 15% GST is included in all listed prices.

But please keep dairy supply management, Canada. Whenever somebody here wants to do something dumb, I love having Canada as "look what happens if you try that" exemplar.

Update: it looks like Canadian prices won't actually drop much.

Who's to blame?

2013-05-06T10:00:00.000+12:00

National list M.P. Aaron Gilmore didn't exactly cover himself in glory at Hamner Springs, allegedly calling a waiter a 'dickhead' for refusing to serve him additional wine, saying "Do you know who I am?!",* and reportedly threatening to have the Prime Minister get after the waiter, though Gilmore denies the latter accusation.

The Press on Saturday provided a couple of contrasting explanations. First, Joelle Dally provides a bit of Gilmore's history:

The Press can reveal Gilmore's colourful conduct started long before the Hanmer outburst.

In July 2012 Gilmore ruffled the feathers of Rongotai electorate bosses over his status at a regional party conference.

In 2011, when Gilmore went to speak to University of Canterbury students at a political speed-dating event, a student wrote to The Press about his conduct: "He showed up late, with no apologies to organisers or the candidate he shooed away to speak over. He spoke well past the time limit, and even described himself as ‘the most marginal MP in Parliament' . . . [He] talked over us and got aggressive to the point where I had to ask him if he would mind not yelling at me," she wrote.

Two years ago, the CV posted on Gilmore's Parliament web page was found to have incorrectly accredited him with being a member of Chartered Financial Analyst (CFA) Institute - a membership he had never had - as well as having a high-level finance-sector qualification he did not. He blamed the latter on the Parliamentary Service.

I don't know how much weight to put on any of those. I wasn't at the UC event, and it's always possible that another party's youth activist tried to put the knife in after the event [I have absolutely no clue]. I also don't know who's at fault for the errors on his Vita. The Herald also has tenants claiming Gilmore to be less than the world's greatest landlord.

You could read the list of problems and conclude that Gilmore has some personality problems, or it could be that once a pile-on starts, it becomes self-perpetuating. Imagine that anybody you'd ever annoyed got to contribute to a compilation list for the newspaper; I'm not sure that any of us would come out looking great. I don't know whether it's the former or the latter here, though the Hanmer display was hardly a great showing.

But Doug Sellman knows what's really to blame.

Don't blame Aaron Gilmore, blame the alcohol. Brainwashing alcohol displays in supermarkets made him (allegedly) surreptitiously record phone conversations with his tenants and mess up his vita, among other things. And trying to fit in with his mates is what had them dobbing him in to the press and apologising to waiters for him.

I suspect that Big Alcohol is also behind the Novopay debacle, if you just squint your eyes enough.

* Whenever I hear of some minor celeb pulling the "Do you know who I am" trick, I can't help but imagine the dancing man from the Black Lodge in Twin Peaks, "Fire, Walk with me". He reveals his identity thus:

"Do you know who I am? I am The Arm, and I sound like this ... [Indian war whoop]".

The Arm was the one part of Bob that wasn't evil, so he cut it off; it then manifested as the dancing Man From Another Place. The dancing man wasn't evil, just a bit silly and sad. Like the people who shout "Do you know who I am?"

Boffin fun

2013-05-04T07:00:00.000+12:00

Suppose you're the boffin in the Minister of Culture's office who's handed the letter from some European heavy metal website asking about how heavy metal is supported in your country.* You could send back a boring form letter saying nothing. Or you could include this in your reply:

There is no official government support for young people to learn instruments for use in metal music. The government does fund an initiative called Sistema Aotearoa, which enables primary-aged children from disadvantaged communities to learn classical music under the instruction of the Auckland Philharmonia Orchestra. It is not inconceivable that these young players may one day end up accompanying power metal groups such as Nightwish as part of a full orchestra, or providing ominous strings and horns on a black metal record by the likes of Cradle of Filth or Dimmu Borgir".

A chocolate fish for the person in the office of NZ Minister of Arts, Culture and Heritage, Chris Finlayson, who cited Dimmu Borgir and Nightwish.

HT: Kiwiblog, who got it from DimPost

* That seemed to be the gist of the request, but the site didn't include the original request letter, so it's hard to tell just what was asked.

Can I chip in?

2013-05-03T12:22:00.003+12:00

City Councils face a few problems in assessing effective demand for Council services. Sure, lots of people will say how much they want that various amenities be provided, but everyone has incentive to overstate their true preferences. And while we have complicated Lindahl pricing mechanisms that might work in theory, I've never heard of their actually being used.

And so I was really pleased to have Citizen Investor pointed out to me.

As I drove down Brougham Street last night, I wished for an Android App where I could, at every stupid traffic snarl caused by the absence of a right-turn light and a consequently overflowing turn lane, contribute to a Kickstarter campaign where I could chip in to help fund the provision of right-turn lights.* Citizen Investor takes those projects that lag behind in the Council's approved-but-not-yet-funded queue, and lets contributors bump them up the queue. Neighbor.ly works similarly.

If Christchurch Council would let me chip in, here are the things for which I'd be willing to stump up some cash in addition to what I'm already paying in rates:

Turn lights at Clyde & Creyke
Turn lights on Blenheim
Turn lights on Brougham south of downtown
Probably a half dozen other turn lights
Rebuilding the kid's play structure in the South New Brighton Park

Wouldn't it be great if there were an App that used GPS data to let you know about Kickstarter campaigns for proposed civic projects in the locale? Take the kids to a park that's a bit tired; the phone prompts you that somebody's proposed a nice new set of facilities; you pledge $20. Enough people do it and more cool stuff gets built. Have all the potential GapFiller projects in there too. Please make it so.

* When Council invested in traffic lights, the road rules said that the person turning across traffic had right of way against the person turning with traffic. So, in American terms, the guy turning left across traffic has the right of way over you if you're going the opposite direction and turning right. That means that the turning lanes for the difficult turns have a chance to clear without a turning light. It also meant a few accidents with confusion about the give way rule. We changed the give-way rule but didn't put in the now-required turning lights to let people make the difficult across-traffic turn.

Measuring the influence of golf caddies

2013-05-02T14:56:00.000+12:00

Over at the Dismal Science, a correspondent, Ross, commented on my post about the wage contracts for golf caddies, syndicated from here on Offsetting.

Ross suggests a neat natural experiment that could potentially identify an exogenous effect of caddy on a golfer's performance. The imposed exogeneity comes from the fact that for years all players in the Masters were required to use an Augusta National Club caddy, whereas in the other three major tournaments, golfers could use their own caddy. So one way of looking at the effect of caddying is to see how much predictive power player rankings at the other tournaments have for performance at the Matser's relative to how much predictive power they have for each other. If there had been no change of rule, such an exercise might be suggestive but hardly conclusive, as there might be something about the Master's that encourages a different kind of player. (My little bit of golf knowledge suggests that this might not be a huge deal--the major tournament that is the most different from the other three is the British Open.)

But the rule did change in 1982, after which golfers could use their own caddy at the Master's. So here is my suggested test. Take the 5 years prior to the rule change and the 5 years after. For each major tournament in those 5 years, find the subset of players who played in that tournament and each of the previous three (i.e. all 4 majors over a 12-month period), and note the ranking out of that subset of players in each tournament. Then for every pair of players the player with the highest average ranking in the three previous tournaments also had a higher ranking in the 4th. If caddying is important, we would expect to see that the fraction of pairs where the pairwise ranking stayed the same was lower for the pre-1982 Master's than for the other three tournaments (due to the effect of randomly assigned caddies), but that that difference disappeared after 1982.

I don't have time to do this, so I put it out there if someone wants to jump in as a co-author and do the legwork. My guess is that golf is such a high-variance game that there simply won't be enough data to tease out any statistically significant result, but it might be interesting. Or maybe it could be an Honours project.

STEM shortages

2013-05-02T14:45:00.003+12:00

The American econo-blogosphere has been wondering whether there really is any shortage of workers in Science, Technology, Engineering and Maths. Dan Kuehn and coauthors at the Economic Policy Institute suggest that the absence of particular wage inflation for graduates in STEM disciplines means there are no particular shortages of STEM workers relative to other workers; Tyler Cowen notes that this may be evidence of a shortage of complementary inputs for those workers. Kuehn agrees, but notes that policy then should be targeting those complementary inputs rather than boosting STEM numbers.

The American policy debate differs from the Kiwi one. There, they're talking about increased immigration for STEM workers via H1-B visas; EPI doesn't think they're needed. Here, we're wondering how much emphasis the tertiary education system should put on STEM disciplines relative to the others.

I've done a bit of digging around in NZ Stat; unfortunately, the publicly available data doesn't seem sufficiently disaggregated to say much about relative shortages. Median weekly income for all occupations went up by 6.7% from 2009 to 2012. Professionals' incomes increased by 9.4%; technicians and trade workers' income went up 4.9%; community and personal service workers' median weekly income went up 12.7%; managers' median weekly income went up 14.4%. By broad category, there doesn't seem to be much evidence of the kinds of salary ramp-ups that would be consistent with strong shortages in STEM disciplines. If anything, skilled managers seem to be in shorter relative supply. It could be that the technicians category is too broad and is missing out on very large increases in science technician salaries; maybe the 'scientist' category is a high-wage-growth lump within the broader professional category. The ANZSIC classifications are sufficiently finely grained, but I'd have to make the data request.

But suppose that we found STEM shortages here evidenced by large salary discrepancies. While salary ramp-ups can be evidence that we need to make it easier to import skilled workers, they're not really sufficient basis for increased government spending on STEM training. We'd rather expect that higher salaries would draw capable students into STEM subjects and away from disciplines with worse employment prospects. If there were binding constraints built into the funding system, like caps on the maximum number of students who could be funded to pursue those disciplines, then those caps could be revisited. But instead it seems the government wants to pour more money per student into STEM training. Where the gains from STEM training are internalised in higher wages, I'm not sure that's such a great play.

The best case for encouraging STEM workers over others is if those disciplines generate greater social benefits relative to the worker's wages;* maybe you could make some productivity spillover case for it. But even in that case, we ought to be intervening where the intervention can have best effect. If tech workers require a lot of complementary inputs and are mobile, does it make more sense to highly subsidise STEM disciplines in our universities and hope that the New Zealand labour market finds use for them, or to subsidise the wages of qualified STEM workers, or to subsidise the outputs that the government thinks actually generate whatever positive externalities they think come from technological innovation? If our workers are mobile and if there are agglomeration effects in play, then other countries will always be able to outbid us for STEM workers graduating here; I'm less than convinced that large funding boosts for STEM disciplines are the best way of achieving whatever the government's trying to achieve. If it wants more scientific research, funding lab outputs directly or establishing prizes for great new innovations bids up the wages of STEM workers most likely to produce those innovations and also brings in the complementary investments.

If the story is asymmetric information about job prospects and salaries post-University leading to inefficient student choices among disciplines, that seems already adequately addressed by government initiatives to highlight employment prospects for various degrees.

* The alternative case would work as follows. Government wants to maximise its total net tax take. If it thinks that young peoples' time preferences are too high relative to the government's time preferences, or even just if it discounts non-wage elements in students' utility functions, it might want to push people onto lower-welfare-but-higher-lifetime-earnings paths. That's more an Olson despot, NZ Inc. model. If government were maximising a broader social welfare function, it would put more weight on the externality case and look for areas where social benefits are high, wages are low, out-migration is unlikely, and where increased provision can be more efficiently ensured with training rather than wage/output subsidies. Another alternative case: it's a second-best solution when they're constrained to provide student loans at zero percent no matter what discipline the student chooses while repayments are keyed to income.

Safety preferences

2013-05-01T07:00:00.000+12:00

Economists know a few things. Among the things I think we know:

People generally require compensation to take on a known risk of death or injury: safety is a good for most people;
As people get richer, they require more compensation to take on a risk of given size: safety is a superior good;
Risk-tolerance is heterogeneous across individuals, and not simply because of differences in income: some people are better able to manage risks or incur fewer psychic costs in thinking about downside costs of risk.
Observations that some individuals engage in a risky activity for little compensation could be evidence that they are poorly informed, or it could be evidence that they have a high tolerance for risk.

Matt Yglesias argues that we should avoid policy overreactions to the recent and tragic factory collapse in Bangladesh. We expect more on-the-job deaths in poorer countries even in cases where there is perfect knowledge among workers about risks; poorer workers prefer total compensation bundles with higher monetary income and fewer on-the-job amenities like safety.

Bill Kaye-Blake takes issue with Yglesias's analysis. He writes:

It may look on the surface like Yglesias is being all ‘realist’ and ‘sensible’, but in fact he gets the economics wrong. He forgets three things:

preferences are only half the story. The other half is the choice space in which preference can be expressed. It is the combination of preferences and available options that lead to the choices made. Ascribing the choices to preferences alone gets the theory wrong; one can just as legitimately point to the limited options

While that's true, surely the options available are endogenous to local effective preferences. If effective demand among local workers were for a total compensation bundle that included more safety and lower wages, and if it were no more expensive for the firm to provide that kind of bundle than to provide the less-safety-higher-wages bundle, they'd wind up providing it. It could take a while - if safety is largely contingent on prior fixed plant investments and if plants have a relatively long life, it would be hard for workers to change things at existing factories. But it would also be hard for anybody else to effect that change.

the market theory that Yglesias uses to underpin his ideas — that there are market transactions deciding the prices of garments and safety — assumes freely available and perfect information. A large economic literature then explores the impact of relaxing that assumption. But that’s the post-grad course, and Yglesias is stuck in 101. Here’s the thing: we could make it perfectly obvious to Western consumers how their garments were made, what the working conditions were. Then we could talk about a market solution. Let me put it another way: is Burger King going to launch a horse-burger because people were buying them before they found out what was in them?

Let's take the case of imperfect information among workers first as I think it's the more serious one. Suppose that workers trust in that the existing government regulations around safety form a binding floor on the level of safety that a firm can provide, but that the owners chisel by bribing officials in ways not noticed by workers. Then, the workers are effectively accepting a lower total compensation bundle than they thought that they were being provided. Bill links to plenty of evidence that the factory owners in this case were up to all kinds of shenanigans.

What do we expect might work in this state of the world?

Asking Bangladesh to increase its building standards is unlikely to have much effect where the quality of governance is too poor to enforce the current standards; asking Bangladesh to improve its generalised quality of governance may not be far from asking for unicorns. Improved governance would be great, but we have no good general handle on how to achieve that.
Local workers will discount existing building codes and government regulations and perhaps demand more direct and credible signs that the expected level of safety is being provided. I'm not here suggesting that a local worker can go up to the company owner and demand things; rather, a factory opening up next door showing with credible evidence of stronger standards will hire away workers where workers have effective demand for safety.

This could yield a market in external certification, but it could be tough to establish. You need somebody that the workers trust to provide the certification, who is competent to do it, and whose officials are less corruptible than state workers. It's far from impossible, but I'm not sure it's easy.

If local certification options don't pan out, this is actually a spot where Western retailers could help out. Western retailers can enforce standards among manufacturers through spot-checks and the like, and they're credible. But what should they enforce?

If you think that the main problem is that owners lie to workers about existing safety standards but that workers are otherwise competent to choose safety-salary bundles, you want the retailers not to be enforcing minimum safety floors but rather to be providing accurate information to workers about real safety risks and about safety conditions in other potential places of employment. Putting in minimum safety standards risks worsening the lot of workers who legitimately would choose less safety and higher salaries.
If you think that the main problem is that poor foreign workers cannot adequately judge safety risks, you want the retailers to put in a minimum safety standard using their best estimate of what well-informed poor workers would choose. I worry that these kinds of standards wind up instead embedding a lot of Western wishful thinking; I also worry that rich country lobbyists have strong incentive to push for standards that work to raise their rivals' costs rather than to improve the lot of workers.

I'm not sure that there's any particular net market failure caused by imperfect information among Western consumers. My basic model has two offsetting effects: consumers don't really know what goes into the sausage, but they're also prone to believe that banning sweatshops leads to kids in schools rather than kids in malaria-ridden fields or in garbage dumps. It is way way easier to get Western consumers outraged about working conditions in third world countries than it is to get them to think hard about policies that might do more good than harm. And first-world manufacturers and unions are quick to jump in with entrepreneurial policy proposals that look nice while raising rivals' costs.

And so I worry about the risk of making workers in third world factories worse off as they see things. I'm sure Bill worries about that too; we may just be disagreeing on how far above the ideal floor any minimum-standards campaign would wind up pushing things.

A small bit of sanity

2013-04-30T10:09:00.001+12:00

Imagine that at some random American university, a student sent an over-the-top ridiculous letter to the student magazine culminating in a threat to shoot up the library. Would you expect:

Nobody to much notice
The police to have a chat with the letter writer
The University to expel the letter writer
The campus to go into lock-down with heightened security. Quadrocopters with cameras watching everybody.

Here's what happened at Canterbury.

A police plea for the name of the writer of a letter threatening to unload an automatic assault rifle in Canterbury University's library has been turned down by the institution's students association.

The letter, written anonymously and published in the students association's magazine Canta on March 20, lists a series of gripes the author has about university life, including people who ride bikes on the footpath and students who wear camouflage.

It then reads: "The above things are slowly transforming me from a Gandhi-like character to the kind of guy who is going to walk into James Hight [the library] one day with a fully loaded automatic assault rifle and unload my anger into you."

The letter has also featured on the magazine's website since March 20, but only came to the university's attention when a student's mother complained about it on Friday.

It's not exactly easy to get an automatic assault rifle in New Zealand. Semi-automatic hunting rifles, sure. That plus the basis of complaint being students riding bikes on footpaths... seems pretty unlikely that there's any serious threat.

University Vice-Chancellor Rod Carr said he only became aware of it yesterday and referred the matter to police. "This is a person who needs help," he said. Police university liaison officer Senior Constable Ken Carter said it did not appear any criminal offence had been committed and there was no indication of an immediate or direct threat. But he said such comments were a concern and he could understand how people were anxious about the letter, especially since incidents like the Boston bombings.

The Vice-Chancelleor would have to refer it to the police; it's the police's job to sort out if there's any there there.

Despite police asking for the individual's name, Carter said, the University of Canterbury Students Association (UCSA) had declined to release it on privacy grounds. Since no offence had been committed, police were unable to seek a warrant to force the release of the name.

"We are looking at other options for getting in touch with this person," Carter said. "We would like to speak with them, and hopefully satisfy ourselves that there is no need for concern. If they would like to come forward and contact us, we would welcome the opportunity to discuss the letter and the concerns it raises."

I love that freedom of the press extends to student magazines. And that the Police can't compel production of the writer's name absent there having been an offence.

[UCSA president Erin] Jackson did not respond to questions about why UCSA would not release the name to police. But she did say the last paragraph contained content that "could be interpreted to look like a non-specific threat", but the "tone of the letter was largely hyperbolic".

She said given the tenor of the letter, and UCSA's previous dealings with and knowledge of the author, it was assessed there was no serious threat.

"We are a student magazine that presents the views of all students. Sometimes these views are unpalatable or even offensive to the majority."

...

Carr said Canta was an independent campus publication and was not censored by the university.

He did not intend to increase security across the campus.

All of this seems sane to me. If you prefer living in a place where the default response would instead be a campus lock-down with SWAT teams all over the darned place, feel free to not emigrate to New Zealand.

Update: The UCSA asked the student to tell the police he's no threat; the student told the police; the UCSA reminded everybody that it was just a silly student letter written 5 weeks ago and that the fooferah is from ONE students' mother who complained to the media. And that's about it.

Coming to the nuisance

2013-04-30T09:23:00.000+12:00

John Walley has a point. He worries that commercial encroachment on industrial zones is not being treated as a coming to the nuisance but rather could push out the prior industrial firms.

The mobile Nimbys are motivated to perceive these residual problems as significant, using every opportunity to whip up opinion against any previously acceptable use as unacceptable.

In normal times this creates problems, in a disaster recovery situation it becomes a more serious issue. Industry and manufacturing has been a lifeline for our city through our disaster, the sector kept going and, through the efforts of many, maintained activity.

Our disaster has forced our city to become more diverse, more mixed. Different sensitivities have been pushed together and sadly, we have not seen an expansion in the tolerance of established use.

Minor problems become significant when more sensitive people are present to witness them. We all know that dealing with problems becomes all the more challenging when earthquake damage insurance difficulties and weather extremes are in the mix.

The reverse sensitivities in Woolston are not new; noise and smell have always been potential issues, however these existing uses need to be tolerated as many jobs are threatened, being replaced by a handful of hospitality and retail jobs. Does that make any sense? How would you feel if your job was threatened in this way?

The Woolston gelatine plant has generated a gawdawful stench for at least the decade I've lived here.* Rolling up the windows while driving past is pretty standard drill. And it's been worse since the earthquakes.

A few short months after the earthquakes, Cassels & Sons opened their excellent brewpub close to the Woolston plant. It is a glorious place to spend the afternoon when the sun is out and the wind is coming from the right direction; we were there on Sunday. But when the wind isn't right... well, they have a phone number displayed prominently for patrons to call Environment Canterbury with complaints. Cassels are expanding with a large section of retail shops soon to open beside the brewpub.

The gelatine plant clearly pre-dated the retail development. It's also very likely that the gelatine stench predated most of the current owners of the houses just up the road from the plant; they would have bought their properties at a substantial discount reflecting the disamenity. Anyone who bought a house there after the plant was established came to the nuisance as much as did Cassels.

So, it's almost a classic coming-to-the-nuisance case. And, it's also one where there's a strong residual claimant on most of the abatement benefits: the Cassels family. Their brewpub and assorted retail holdings will do rather better when the foul winds cease to blow. In this kind of case, we expect bargaining to efficiency: if it's cheaper for the gelatine plant to change their operations or to move than it is for Cassels to bear the stench, then they can pay the plant to do it. It might have been too hard for the dispersed homeowners to pay the gelatine plant for abatement, but Cassels could pretty easily coordinate things if they wanted a Coasean solution.

But it's a bit more complicated. The gelatin plant may have been breaching some of its emissions consents:

As one of the three air monitoring stations set up in Christchurch by Environment Canterbury (ECan) is directly across the river from Cassels, ECan is well aware of the problem too. As ECan monitoring officer Chris Elsmore explains, there is the odour from gelatine production and there have also been breaches from sulphuric acid production - that would account for the sulphur smell.

"It's at a difficult stage at the moment," Elsmore says.

"Gelita certainly comprehend the problem and are taking significant steps."

But Gelita is working at a different speed to Cassels and others in Woolston, Elsmore says.

But if Cassels aims to have his Tannery complex open in six months, which is his ambition, will the smell have been minimised by then?

"Most likely," Elsmore says. "We're pushing them all the time."

That said, Woolston has long been an industrial area and is where such businesses have traditionally been. Besides Gelita, there is Independent Fisheries, a tannery and, until recently, rubber curing.

"If it was smelling, it was in that area," Elsmore says. "Alasdair's right in that things needed to improve."

So if Gelita is emitting more noxious fumes than they have the right to emit, and if it is more expensive for them to abate down to Code than for Cassels to bear the stench, they could pay Cassels to stop complaining. Cassels is pushing their customers to notify ECan whenever things are too smelly; some of this will be a push for enforcement of existing code while some of it would be to build pressure for reducing the permissible amount of emission.

John Walley has a point where changed neighbouring uses lead to lobbying for changed rules in cases where it would be really simple for the aggrieved neighbours to buy abatement if abatement could efficiently be provided. But where they're instead lobbying for the enforcement of existing standards, and where you can make a pretty reasonable case that any de facto easement existed only because of strong coordination problems among the residential neighbours, perhaps Gelita should be the ones purchasing abatement from Cassels.

* If you're from Winnipeg, think about the Saint Boniface yards from two decades ago.