Offsetting Behaviour

Picking zones and picking winners

2017-02-21T12:02:00.003+13:00

The push for more localist approaches to policy problems in New Zealand continues to gather steam.

Earlier this month, the McGuinness Institute argued for what they're calling Demarcation Zones for policy trials. Their formulation differs a bit from what we at the Initiative proposed in 2015, but the core idea is similar: let local communities take on additional devolved powers and see what policy variants seem to work better in which places.

I go through some of the differences in last week's print-edition NBR column. Here's a snippet of the piece:

Trialling policy at a local level can make a lot of sense. Not only does it let policy be more sensitive to local conditions, it also helps central government figure out what kinds of policies might work in a broader rollout. But it will always be tempting for central government to use local zones as a way of funnelling benefits to electorally sensitive areas instead. Just imagine what could have been in a Northland special economic zone proposal at the time of 2015’s by-election.

We worried about this problem in developing the Initiative’s Special Economic Zones proposal in 2015. The worst thing that can happen with a policy proposal is not that it is ignored but that it turns into a nightmarish hall-of-mirrors distortion of the original vision.

Dangerous temptations

Even leaving aside crass electorally driven measures, being able to regionally target policies could provide other dangerous temptations to a micromanaging central government. Imagine a tax concession zone for a three-block area in downtown Wellington to boost the IT industry. Or a zone with special depreciation rules to help ensure an irrigation project makes it over the line. Good policy provides a general framework that lets winners emerge, rather than picking them at the outset.

But there is a way of telling whether a proposed zone is a policy trial or something less laudable. Policy trials, if they are successful, should be able to be rolled more broadly. But projects that channel benefits to electorally sensitive areas or that try to pick winners cannot be.

And so we argued that policy measures shown to be successful in any area should be available to any other region wanting the same treatment. An inefficient tax concession zone to boost employment in one region would not put that big a dent in the government’s purse. Requiring that the same concession be available to all regions would make the policy too expensive to contemplate – unless it really were potentially to the broader good.

Localist approaches hold a lot of promise. Central government should welcome proposals that have the demonstrated support of local communities, which have taken programme evaluation seriously, and that could be taken up by other towns. Baking this kind of accountability into proposals helps give central government, and the rest of us, confidence that local government is ready to take up the challenge.

You should subscribe to the NBR. But we do have an ungated version here.

PredictIt

2017-02-17T10:21:00.001+13:00

PredictIt runs a pile of markets on the American Presidency, among other things. Here are some good ones for America-watchers:

The full set of US Politics predictions is here. PredictIt is the US-facing prediction market built by the iPredict team at Victoria University, here in Wellington, to serve American traders. Kiwis cannot trade there. We would have been able to trade on it at iPredict, but we no longer have iPredict.

More sweet silliness

2017-02-16T11:40:00.001+13:00

A new paper suggests strong public health benefits from junk food taxes in Australia. Blogging has been light as I've too much on deck in the day-job currently, but since a few people have emailed me asking about this one, I might as well put here what I've told them.

The effects found in the paper depend on how consumers respond to price increases. Those elasticities are drawn from a 2013 paper estimating elasticities in New Zealand using an Almost Ideal Demand System setup across a couple dozen food categories in household expenditure survey data. But responsiveness of spending to changes in average prices doesn't tell us about consumption if people can shift to cheaper brands within the same category, as John Gibson's Marsden-funded work shows.

And I expect the problem will be worse due to the apparent coarseness of the categories where they’ve aggregated up to 24 total categories: unobserved shifts within broader categories have more potential for problems than within very fine categories. That isn't their fault as likely due to the level of aggregation at which they have average price data, but it would make a mess of things.

If you’re looking at salt intake and the like, and there’s huge variability within the broad categories, that’s going to be a mess. I remember once when Jennie Connor claimed there’d be huge health benefits from alcohol minimum pricing based on some within-alcohol-category elasticity estimates out of BC (own-price elasticity of wine, beer, and spirits, ignoring cross-price elasticities), but increases in wine prices have people shift to beer or spirits; you need to look at aggregate alcohol consumption in response to things like excise changes to get a handle on it (where excise is a de facto minimum price barring implausible loss-leader stuff). So while the paper accounts for cross price elasticities across broad categories, we don't know what's going on to composition mixes within categories.

So they start from overestimated effects of price on quantity consumed. They then go from quantities to dietary intake, although across the broad categories in some cases I’m not sure how they do that (milk, yogurt and eggs is a single category in the 2013 paper; sauces, sugar and condiments is a category; “restaurant food” is a category; “ready to eat” food is a category, though fruit is a single category). Not sure how they estimate change in salt consumption across the categories where the categories are broad and there’s potential for compositional shift within categories.

I also wonder whether the better approach to this stuff might be to look to direct effects rather than chains of dubious link quality? Look at Gelbach, Klick & Stratmann for example. They went directly from prices to obesity and ignored the consumption chains. Andrew Leigh (Top Australian economist, now also Labor MP) blogged on it when he was at ANU.

Finally, I'm not sure that the paper's cost-of-implementation estimate is anywhere close to right. It comes out of estimates on the costs of changes to alcohol excise. But there's an established regime for alcohol excise and the incremental administrative costs of changes within that won't be large. Plus that’s just administrative cost – zero consideration I can see of forgone consumer surplus. Like, even if you’re balancing it out with healthy food subsidies, there’s a reason people are choosing to eat the tastier things currently.

Caveat: this is just a quick take on the paper. If others have caught problems that I've missed, or if I've misread them, please let me know in comments.

Dumb corporate welfare

2017-02-10T17:28:00.001+13:00

Citizenship for Peter Thiel made a lot of sense. I laid out the case over at the Spinoff.

Corporate welfare is different.

Matt Nippert asked me last week for comment on the government's venture capital fund, which wound up partnering with Thiel in some of his New Zealand investment. The government's fund effectively lets government share in downside risk but not upside.

Eric Crampton, economist and head of research for pro-market think-tank NZI, had previously defended the government's granting of citizenship to Thiel who gained approval after appealing to then-Internal Affairs Minister Nathan Guy to waive requirements he live or intend to live here due to "exceptional circumstances".
Crampton said that decision was a "bet worth making at the time, and one that should not be regretted in retrospect".

However, following revelations Thiel exercised a buyout option in his partnership with the publicly-funded New Zealand Venture Investment Fund - a move that netted the Paypal founder $24m in profits while leaving NZVIF barely breaking even despite both parties bearing equal risk of loss - Crampton said going into business with Thiel was a gamble the Government should not have taken.

"The Government should not be involved in investment pump-priming activities," he said.

"Government economic diversification schemes, in which the government shares in the downside risk if the investment turns sour but only benefits on the upside through increased tax revenues from a successful business, are adventures best avoided," Crampton said.

The government just shouldn't be in this kind of business.

Finance Minister Steven Joyce, whose previous tenure as Minister of Economic development covered the NZVIF during the entire period of the funds' operation and buyout, yesterday continued to blame Labour for Thiel's multi-million dollar payday.
The partnership between NZVIF and Valar was announced by Joyce in 2012 and bought out by Thiel last October. But Joyce said the buyout option had been a feature of the NZVIF's formation in 2002 by the fifth Labour Government until he had requested it cease being used in 2015.
"We've subsequently changed it, but it was done by the government at the time and it worked exactly as they intended it to," Joyce said.
Labour Party's immigration spokesman Iain Lees Galloway has previously labelled the arrangement a "sweetheart deal" for Thiel overseen by Joyce.
Crampton called on the political finger-pointing to end.
"It would be nice if National and Labour stopped trying to blame each other for this particular deal and instead came to common agreement on ending corporate welfare," he said.

It's also been written up at the Straits Times. I talked with Radio NZ's Panel about it.

Meanwhile, Canada throws money at airplanes....

We can detain them for you, wholesale.

2017-02-10T13:29:00.002+13:00

Recent adventures in America remind me of Neil Gaiman's excellent "We can get them for you, wholesale."

I'm going to give a big spoiler here. Go away and read the whole thing, then come back. Or read the spoiler and then go away and read the whole thing anyway. Or watch this film version.

Spoiler ahead.

Here it comes...

Ok, you've been warned.

The protagonist in that story is in search of a contract killer. He finds one under Pest Control in the Yellow Pages. And he finds that they're more than happy to do the job, in bulk, at a discount. The bigger the numbers the lower the total price. A bargain is a bargain. And then he starts wondering about even bigger bulk deals:

"How much would it cost to kill everybody? Everybody in the world?"

"Everybody? All the people?

"Yes. How much? I mean, for an order like that, you'd have to have some kind of a big discount. How much would it be? For everyone?"

"Nothing at all, Mr Pinter."

"You mean you wouldn't do it?"

"I mean we'd do it for nothing Mr Pinter. We only have to be asked you see. We always have to be asked."

Peter was puzzled. "But - when would you start?"

"Start? Right away. Now. We've been ready for a long time. But we had to be asked, Mr Pinter. Good night. It has been a pleasure doing business with you."

I feel kind the same way about how US customs agents have been treating people under the cover of the President's executive order. They've always wanted to do that. They've been ready for a long time. They only had to be asked.

@ATabarrok Except Milgrom had random draw subjects and border security selects for those who yearn to exercise authority over others.
— Eric Crampton (@EricCrampton) February 9, 2017

I've been saying it for rather a while here, but emigration to New Zealand can be an option.

And thanks to Lyndon Hood for reminding me that the story was Gaiman's.

Doing the right thing, and doing well as consequence.

2017-02-02T10:13:00.003+13:00

My piece in Monday's Dom Post:

In the immediate term, there are uncounted thousands of legal American residents who are not able to return home if they are currently outside America, or who risk not being able to return if they leave America. They passed through some of the world's most rigorous scrutiny before being granted refugee status, work visas, or permanent residence. And they are now disadvantaged because of the country of their birth.

America has long been a magnet for the world's most talented people. And America's most advanced industries rely heavily on foreigners allowed to work in the United States on H1-B visas. America's universities are the best in the world because they attract top scholars from everywhere. Foreigners on H1-B visas or with permanent residence teach foreign students on F visas, making education a massively successful American export industry.

New Zealand should announce a new visa category for people who were legally entitled to live and work in America until the Executive Order broke things. If the New Zealand government has wanted to attract more highly skilled migrants, there would be few better bets than trying to help those who have been hurt by American policy.

Expand the trial of the Canadian-style refugee sponsorship regime to accommodate those with whom America has broken faith - in as large of quantities as Kiwis are prepared to support through their private sponsorship efforts. I don't know what the right number is, but I do know that if Kiwis get together to cover the refugee's transitional costs, the government should not be in their darned way.

And opening up a new skilled migrant category that would simply give a visa to anybody in the States on an H1-B would be pretty simple. You can't even get an H1-B in the States if you're not earning at least $60k - this wouldn't be an influx of low-skilled people that agitates everybody. If the only way to make it work politically is to put in an entry levy to defray perceived infrastructure costs, so be it. They'd all be eligible for our current skilled migrant visas anyway, or just about all of them. There are hassles there where you need the points from a job-in-hand to get the visa, and some Kiwi employers haven't quite wrapped their heads around that making the job offer means the visa is pretty simple afterwards.

Meanwhile, Silicon Valley looks to move its foreign-born workers to Canada. Canada was always going to be at an advantage due to time zones and proximity. But it helped that the Canadian Prime Minister took a very welcoming approach to those hurt by Trump. New Zealand didn't, and we are missing an opportunity to help people while also improving the country's skilled migrant base.

I concluded:

Those who New Zealand might help would likely return to America when it returns to its senses. But some of those temporarily displaced could become excellent new New Zealanders.

This week, the New Zealand Initiative released The New New Zealanders: Why migrants make good Kiwis. It provides a stocktake on immigration to New Zealand, finding that migrants make a substantial contribution, and that many of the fears around immigration are not supported by the data.

Any migrants New Zealand did attract from America would be especially likely to contribute to New Zealand's skill base. But doing well in this way should be seen as a side-effect of doing good rather than the reason for doing it. New Zealand should help because we can, because it is the right thing to do, and because it shows our support for our friends in America during a difficult time.

Our report notes that migrants to New Zealand already more than pay their way in net taxes. But if concerns over infrastructure costs are critical, we could do better by using a levy on new migrants than by cutting their numbers: it could sustain a political equilibrium allowing more migration than otherwise. I really don't like the idea of the levy, because migrants are already paying their way on average.

But if your reason for opposing immigration and cutting numbers is infrastructure costs, you should support a levy instead of supporting cutting the numbers. If you argue for cutting the numbers instead of a levy, and you claim it's because of infrastructure costs or other costs that could be easily mitigated with a levy, I kinda don't believe your stated reasons for opposing immigration. And there are sometimes darker, unstated reasons for opposing immigration.

Update: Vox on Trump on visa holders.

Difficult scenarios

2017-01-31T10:11:00.001+13:00

Suppose that you were a Republican Congressman who were faithful to the Constitution and believed that President Trump should be impeached for violation of the emoluments clause, for ordering executive agencies to ignore judicial orders, for the travel ban full stop, for musings about the problems caused by the Geneva Convention, and for what he's yet likely to do.

You know that if you signal your willingness to vote for impeachment, and if there are not the numbers to vote for impeachment, you are finished. Your career with the GOP is over. And if you are particularly pessimistic, you might think that any firm hiring you afterwards would face reprisals from the President. You have a mortgage to pay. Effectively, your life will be ruined. Even if the impeachment were successful, the GOP would likely take a hit in the mid-terms and you might not survive it.

You know that the Democrats have 194 seats in the House and 46 in the Senate. Even assuming all Democrats voted to impeach, which itself is less than certain, you need 218 votes in the House and 67 in the Senate. So you need 24 like-minded Republicans in the House and 21 in the Senate.

You also need to know that their support is secure. Each alone would face ruin by opposing the President.

Unsurprisingly, Gordon Tullock wrote about this kind of scenario. In the Paradox of Revolution, Tullock reminded us that if a revolution has public good characteristics, it will be undersupplied, and that revolutions are consequently undertaken by someone who has something to gain.

It is difficult to see who among the potential revolutionaries - those backing impeachment - would stand to gain. Pence would take Trump's place after any impeachment and seems unlikely to reverse course after having committed to supporting Trump in the indefensible; ~~he even deleted the tweet in which he expressed opposition to banning Muslims from entering the United States~~. [UPDATE: looks like the tweet wasn't deleted, it was a glitch somewhere. In my defence, one source.] And after Pence comes Paul Ryan as Speaker of the House.

In Tullock's calculus, nobody wants to participate in revolution unless they have low personal cost of being involved, get a lot of entertainment value out of being a revolutionary, or have something to gain: the private benefits are washed out because of the low likelihood that any one revolutionary turns the tide. That calculus changes in considering impeachment: each of the impeaching representatives would have a reasonable likelihood of decisiveness, but they all need to have reasonable expectation that the others will move.

What you need then is a Schelling Point. You need a coordination apparatus such that everyone knows there's sufficient support when the time is ripe, and that everyone knows that it's time when it's time without anyone having had to talk about it. If you talk about it, your plans could be revealed and you could be made an example to discourage others.

And it isn't looking good. McCain and Graham came out against the Executive Order. People like McCain and Graham coming out provides a coordination point for other dissenters. It looks like there are 15 in total who oppose the Executive Order, although that list is a bit out of date now. Opposing a dumb Executive Order may be a lower hurdle than supporting impeachment.

On the other side, the Kochs have come out strongly in opposition to the Executive Order. They're principled libertarians. And they are taking a bit of risk because a lot of what they do is subject to regulatory whims out of the White House. Their signalling potential opposition to Trump is risky for them, but potentially emboldening for congressional opposition.

I fear that if would-be impeachers expect to fail and expect to be destroyed if they fail, they never get going. One potential solution would be if there were reasonable expectation that Republicans who destroyed their careers in a failed impeachment attempt would find quiet sinecures elsewhere - the equivalent of funded chaired positions in American policy think tanks or activist groups, for example. In that case, the reduction in the downside cost could mean the downside cost never eventuates. But only if there were enough Republicans who cared enough about the constitution that 45 of them would vote to impeach if they didn't have to worry about it destroying their careers.

And if it turned out that there were only 40 who cared, and tried, and failed, that could be even worse. The median voter in Congress would change.

Difficult scenarios. And I'm nowhere near close enough to American politics to know whether the numbers are there.

Brexitunity

2017-01-29T10:30:00.000+13:00

If the UK is set to kick out a pile of highly skilled academics working there on EU passports, maybe New Zealand should look to the Brexitunity.

I don't know how many of them would move to New Zealand, and I don't know which Departments have holes that need filling. But I'd expect that invitations to apply coming from New Zealand university departments, accompanied by a friendly welcome letter from Immigration New Zealand about our Skilled Migrant Visa system and how they'd all qualify, could be welcomed.

It at least seems worth a shot.

Here's the LSE's blog on the situation over there.

I arrived at a meeting a couple of weeks ago and noticed one of my academic colleagues was visibly distressed.

When I asked what was wrong, they said they’d just had a very alarming letter from the Home Office. Having lived and worked here for more than two decades (they’re a national of another EU country) they decided to play it safe after the Brexit vote and apply for leave to remain. Big mistake.

They received a threatening letter from the Home Office saying they had no right to be here and they should “now make arrangements to leave”. The letter was obviously wrong – they had every right to be here under existing UK law – but that didn’t lessen the emotional impact for my colleague, whose whole future was suddenly thrown into uncertainty.

I had read similar stories in the press, and wondered how many other academics might be affected, so I turned to Twitter to ask for any similar experiences. The tweet I posted asking for examples was retweeted – mostly by concerned academics – over 1,000 times. People started writing to me with cases and I began digging into the issue.

There aren't many places where the Immigration Service are actually accommodating and friendly rather than focused on trying to keep people out. We have nothing but praise for our experience with New Zealand Immigration in first getting our work visas, then permanent residence. In the US, it's like a branch of the police. Here, it's customer service.

Oh - and to be perfectly clear, don't go and assume that I only want rich professor-types and Peter Thiel here. I favour reasonably broad increases in immigration including increasing the refugee quota and including adopting Canada's sponsorship regime for accommodating even more refugees. Heck, we organised this event on it. Migrants make a valuable contribution, that migration is good for the migrants, and that both New Zealand and migrants could do well by having more migrants come here.

The Economist highlighted some of John Gibson's work with David McKenzie on how New Zealand's seasonal employment visas were fantastic development aid for Tonga and Vanuatu; I think that's awesome too and that it could be expanded. The Economist notes a similar scheme in America didn't work out so well because they made it just too bureaucratic and hard for Haitians to take up the scheme: again, US Immigration is a police service; here it's customer service.

I'd like to think that not being dicks to immigrants is one of New Zealand's comparative advantages; that has been eroding a bit with a lot of the political talk bashing migrants. Our report on immigration comes out on Monday; watch for that as confronts some of the populist migrant-bashing with the data.

Previously: Nobel Visas?

Another NZ advantage

2017-01-28T09:00:00.000+13:00

Connecticut goes a little crazier, and New Zealand looks a little better by contrast:

Attempting to pay for sex could become a felony offense in Connecticut. Last week, newly sworn-in Democratic state Rep. Liz Linehan introduced a bill that would take the crime of "patronizing a prostitute" from a class A misdemeanor, punishable by a maximum one year in prison, to a Class C felony, which comes with a mandatory minimum prison sentence of one year and a possible 10 years in prison, plus a fine of up to $10,000. Linehan's measure would also require anyone convicted of the offense more than once to register as a sex offender.
"That we continue to punish sex workers—many of whom have been coerced into this work or do it out of economic desperation—without looking at the other side of the equation just doesn't make sense," Linehan said.
...
Connecticut is currently in the midst of rolling out another prostitution-related measure, passed in 2016. Under the new law, all hotel and motel employees are required to undergo training on how to spot human trafficking and "activities related to human trafficking." But like so many "human trafficking awareness" shams, the hotel-employee training really only encourages people to report any and all suspected prostitution—a move that not only harms sex workers but also those in groups most likely to be stereotyped as sex workers. (Already, we've seen flight-attendant "trafficking" training result in the detention of random Asian women.)
The new law also requires all hotels, motels, and inns to keep records and receipts for all guests for at least six months.

New Zealand legalised sex work in 2003. There've been minor local nuisance concerns since then around street solicitation in some neighbourhoods, and zoning fights about where suburban owner-occupied house-brothels might be located. Otherwise, life continues as normal.

Citizen Thiel

2017-01-27T12:48:00.000+13:00

A new year brings a new New Zealand media and Twitter zeitgeist.

Tired:

Low-skilled immigrants from China and the Pacific are ruining our economy. They’re hurting New Zealand’s productivity stats, they’re making New Zealand a low-wage economy, and they’re stealing all the houses. We need to focus on getting higher skilled migrants, and especially ones from places with not-scary last names that sound more familiar. We wouldn’t need to think about maybe having some terraced housing close to downtown in a city of a million people if the low-skilled migrants went away.

Wired:

Rich, highly skilled and highly connected American tech immigrant investors who buy properties none of us could afford anyway are totally the problem. Why would anybody give citizenship to a rich entrepreneur who’s invested millions in Xero and who can help build connections between the NZ tech sector and Silicon Valley? That’s totally corrupt.

Here’s another one.

Boring 2016:

Democracy totally sucks because it managed to elect Trump. How can we build a system that protects rubes from their own voting behaviour?

2017’s new hotness:

Peter Thiel is an awful dangerous extremist because he said that democracy often doesn’t yield the policy outcomes he likes. Doesn’t he believe in democracy?

Last year’s take on immigration really was pretty tired. Next week, the New Zealand Initiative will be releasing a report showing just how tired it was – and how out of line it was with the evidence. But 2017’s isn’t an improvement.

Here’s a better alternative on the Thiel question: the government was right to grant New Zealand citizenship to Peter Thiel in 2011.

I make the case for it over at The Spinoff. Enjoy!

I don't like Thiel's support of Trump, but that's all well after 2011. And his support for seasteading was great.

If we take a potted intellectual history of Seasteading, it would look like this. Chicago University economist Milton Friedman said that people were too optimistic about the government’s benevolence and competence, and so government needed to be kept to fairly limited roles. His son, David Friedman, a law and economics scholar at Santa Clara University, said his father was too optimistic about the potential for constraining government to doing only good things: anarchism was the more sensible approach. And Patri Friedman, David’s son, then said his father was too optimistic about the chances of government ever relinquishing control: we need to take to the seas.

Patri helped set up the Seasteading alternative, in which people could set up a wide variety of different ways of organising society could be attempted on the high seas. Think of a Seastead as being like a body corporate, but with complete freedom to set whatever rules it wanted – about everything. And its residents, if they didn’t like how things were panning out, could simply unmoor their boat from the Seastead and float on over to an alternative. Each of us gets to choose which store to shop at or which neighbourhood to live in; Patri wants us to have the same ability to choose which kind of governance arrangement to live under. It could be a socialist commune or it could be far more laissez-faire. But it would be the government you chose because it was right for you.

I’m sure you can quickly come up with a half-dozen different obvious problems, but the Seasteading Institute has done a fair bit of thinking about them. And, ultimately, you really don’t have to believe it will work. The only people who will try it are those who do – you don’t have to agree with them, and that’s the beauty of it. And Peter Thiel provided some of the funding to help things along. It’s a long-shot, but it’s interesting. Imagine what we could learn about the merits of different policy arrangements if this kind of experiment really got going.

I supervised Brad Taylor's Masters thesis at Canterbury; he went on to do some work with the Seasteading Institute to flesh out the details. He's now a lecturer over at South Queensland. Here's his piece with Patri on seasteading.

Update: Here's the government's response on Thiel's citizenship.

No place for young children

2017-01-27T09:27:00.003+13:00

The New York Times hits on one of the underappreciated potential costs of stupid zoning rules: expensive housing means fewer kids. People either don't have them, have fewer, or move away to have them.

A few generations ago, before the technology boom transformed San Francisco and sent housing costs soaring, the city was alive with children and families. Today it has the lowest percentage of children of any of the largest 100 cities in America, according to census data, causing some here to raise an alarm.

Prohibitive housing costs are not the only reason there are relatively few children. A public school system of uneven quality, the attractiveness of the less-foggy suburbs to families, and the large number of gay men and women, many of them childless, have all played roles in the decline in the number of children, which began with white flight from the city in the 1970s. The tech boom now reinforces the notion that San Francisco is a place for the young, single and rich.

The death spiral mechanics aren't hard to imagine. Families move out as the place gets too expensive, and the first to go will be single income families who shoulder most of the social capital burden in keeping the schools going. School quality slips, making others go. The place is too expensive for teachers to live, so the good ones ship out too.

Auckland could risk heading that way too. It's already hard for the schools to hire teachers because of housing costs.

I will note though that I've not seen any studies looking rigorously at housing costs and natality. Not that existing studies aren't rigourous; I just don't know that literature.

Immigrant assimilation

2017-01-26T07:00:00.000+13:00

The best argument I'd ever encountered in the US against more open immigration was the democratic critique. If migrants come in and vote for the political institutions that they left behind, then migrants harm both their host country and themselves through their voting behaviour.

The argument always seemed a bit strained. If you just went to tremendous effort to leave a place you didn't like to move to a place you did like, why would you ever vote to make the new place like the old place? But you could have it work through a few different channels. Migration of people who have less understanding of economics would yield worse economic policy as the median voter shifts; migration of people used to strongmen and censorship might soften median voter support for the First Amendment.

In the end it's an empirical question. And now it's an answered one. Here's Cato's Alex Nowrasteh and Sam Wilson.

Immigrants could shift public policy if their opinions differ from those of other Americans.1 Our earlier research found that immigrants and native-born Americans have ideological, political, and public policy opinions that differ to a statistically insignificant extent.2 In this report we further separate immigrant political and policy opinions by citizenship status. Noncitizen immigrants cannot vote but their political opinions are mostly similar to those of natives. However, naturalized citizen-immigrants who can vote have political opinions even closer to those of natives and are near-fully assimilated into the political mainstream.

One difference they do find is that first generation migrants are more likely than natives to identify as independents rather than to identify with either political party. I expect that's a good thing.

Meanwhile, over at the Niskanen Centre, Matthew La Corte argues that it's more important than ever to defend immigrants and refugees, given the Trump Presidency.

The same holds true in New Zealand, where immigrants keep getting blamed for everything. Rising house prices? Blame migrants and ignore the great work by Jacques Poot showing that most effects are due to choices of native-born Kiwis. And simultaneously yell about how bad it is that low skilled people move here (lump of labour fallacy) while also getting mad if wealthy people move here (just look at the reactions to the New Yorker piece about wealthy Americans wanting to have a New Zealand place to live).

The Initiative's report on immigration and New Zealand comes out next week. Watch for it...

Housing affordability

2017-01-25T12:00:00.000+13:00

Demographia's annual survey came out on Monday. They compare the price of the median house to the median household income in each city. On that measure, Auckland housing is less affordable than housing in San Francisco.

Nowhere in New Zealand should be as unaffordable as San Francisco. It takes effort to screw up your housing supply so badly that you're more unaffordable than San Francisco. A big congratulations to everyone involved in this disaster.

Sally Lindsay over in the National Business Review covers some of the Initiative's take on it; I also have a chat there with NBR's Andrew Patterson you can listen to.

Over the past four years, the Initiative has produced a series of reports and opinion pieces on New Zealand’s housing crisis. Initiative research head Eric Crampton says the latest Demographia report is even more sobering reading.

“San Francisco is an American poster-child for housing unaffordability. It is haemorrhaging people and jobs to cities with sensible land use planning and affordable housing and now Auckland is even more unaffordable than San Francisco."

New Zealand policymakers have been grappling with the rapid appreciation in house prices over recent years, blaming councils for limiting land use and poor infrastructure planning. More recently, the Reserve Bank's prolonged period of extraordinarily low interest rates has stoked credit expansion, prompting governor Graeme Wheeler to impose lending restrictions to curb mortgage lending.

Dr Crampton told NBR Radio's Andrew Patterson fixing infrastructure financing and letting councils better share in the benefits of urban growth along with planning reform and liberalisation, with a financial framework that encourages development have to be at the top of the policy agenda if New Zealand wants affordable housing.

He says it is imperative the government and Auckland Council make housing affordable again, as well as developing a strategy to ensure supply can keep up with growing demand.

Meanwhile, over at Interest.co.nz, I go through more of the problems in Oxfam's report on wealth inequality. One perverse effect of Auckland's housing mess: if you own the average house in Auckland free and clear, you're likely in the world's top 1% of wealthiest people.

The Kiwi Option

2017-01-25T07:00:00.000+13:00

Evan Osnos at the New Yorker writes on some rich Americans' plans to make New Zealand their bolthole, should everything there go wrong.

If a silo in Kansas is not remote or private enough, there is another option. In the first seven days after Donald Trump’s election, 13,401 Americans registered with New Zealand’s immigration authorities, the first official step toward seeking residency—more than seventeen times the usual rate. The New Zealand Herald reported the surge beneath the headline “trump apocalypse.”

In fact, the influx had begun well before Trump’s victory. In the first ten months of 2016, foreigners bought nearly fourteen hundred square miles of land in New Zealand, more than quadruple what they bought in the same period the previous year, according to the government. American buyers were second only to Australians. The U.S. government does not keep a tally of Americans who own second or third homes overseas. Much as Switzerland once drew Americans with the promise of secrecy, and Uruguay tempted them with private banks, New Zealand offers security and distance. In the past six years, nearly a thousand foreigners have acquired residency there under programs that mandate certain types of investment of at least a million dollars.

Jack Matthews, an American who is the chairman of MediaWorks, a large New Zealand broadcaster, told me, “I think, in the back of people’s minds, frankly, is that, if the world really goes to shit, New Zealand is a First World country, completely self-sufficient, if necessary—energy, water, food. Life would deteriorate, but it would not collapse.” As someone who views American politics from a distance, he said, “The difference between New Zealand and the U.S., to a large extent, is that people who disagree with each other can still talk to each other about it here. It’s a tiny little place, and there’s no anonymity. People have to actually have a degree of civility.”

New Zealand could be an important part of any billionaire's apocalypse insurance portfolio, but they shouldn't put too many eggs in one basket.

If there were a zombie apocalypse that started anywhere other than New Zealand, it's hard to imagine a safer place to hide out than New Zealand. Zombies wouldn't be able to cross the oceans to get here. We'd probably need to have the coast guard watching out for derelict zombie ships running aground here, but that would be about it. Under most standard zombie scenarios anyway.

If they're worried about nuclear war, New Zealand won't be on anybody's 'let's bomb these jerks first' list, although it could be a useful demonstration project that might not draw retaliation in the same way that bombing other places might. North Korea could demonstrate their ability to hit the US by hitting us, and it's plausible that nobody would hit them back for it. Pretty low likelihood though. But if there were anything big, we'd be doomed by the ice age that followed. Maybe some folks in Rotorua would make it through, with greenhouses powered by pipes going down into the volcano.

For other apocalypses, your best defence is to be in a really wealthy place. Not just 'per capita' wealthy: New Zealand does well on 'per capita' wealthy. But rather substantial masses of resources ready to be thrown at bad things. A California earthquake, when it comes, will be terrible - but it's a rich state in a rich country. It'll sort. If an Auckland volcano blew, that would be distinctly not good. And while small places on the fringe of the world are great bolt-holes against terrorism, they're not so hot if the entire international trade apparatus falls over in a new round of nationalist protectionism. Bigger places can do near-autarky better than smaller places.

But it will be great for New Zealand to have some of these folks make the place home. Peter Thiel now has a New Zealand bolt-hole (he's been a fan for a while); I wonder what it'll do for New Zealand tech startups access to venture capital. Most of NZ Twitter (and Toby Manhire) doesn't seem impressed that Thiel's been granted citizenship; I think it's awesome. He's one of the world's most interesting people. You don't have to agree with somebody on every issue to think that it's excellent that he's moved here. And his early backing of Seasteading is particularly awesome.

Here's Tyler Cowen's talk with Thiel from a couple years ago.

HT on the New Yorker piece: Tricia Wood

Previously:

I smell burnt toast!

2017-01-24T20:17:00.002+13:00

One way to help shore up public support for Brexit when there's been a bit of post-referendum second-thoughts: vigilant enforcement of the stupidest possible Eurocrat regulations. Remind Britons why they want to leave.

And the Eurocrats have come up with a doozey. Chris Snowdon points to the coming EU campaign against baked potatoes.

Pubs and restaurants could soon be fined for serving well-done items such as triple-cooked chips or thin and crispy pizza under a second phase of the Government's crackdown on burnt food.

Following the launch of a major public awareness campaign yesterday to help people reduce "cancer-causing" acrylamide in food, the Daily Telegraph can reveal that food safety watchdogs are planning to extend the warning to every food-serving business in Britain.

Under a new European Union food hygiene directive, due to be adopted in the UK by the the end of 2017, pubs and restaurants will be told to take reasonable steps to reduce acrylamide in food or face enforcement measures.

Everything that's tasty or good in life may cause cancer. Everything then is a question of relative risk. What's the relative risk of burnt toast? Here's David Spiegelhalter at Cambridge's Winton Centre for Risk and Evidence Communication:

So, for example, adults with the highest consumption of acrylamide could consume 160 times as much and still only be at a level that toxicologists think unlikely to cause increased tumours in mice (that’s essentially what the ‘margin of exposure’ means).

This all seems rather reassuring, and may explain why it’s been so difficult to observe any effect of acrylamide in diet. But, for cancer, toxicology committees demand a rather arbitrary margin of exposure of 10,000 before considering the chemical essentially acceptable. That’s 33 times higher than the current margin for average adults in the UK — making acrylamide fall short of this very stringent safety standard, and this is the basis for the FSA’s campaign.

So the EU wants to impose fines on pubs serving tasty chips because of something that would be unlikely to cause tumours in animals at 160 times the current highest human consumption of the stuff.

Brussels is full of Vogons. I'm not sure that Briton's home-grown Vogons will be much better post-Brexit, but at least they'll be rid of the ones from Brussels.

* Fortunately, just smelling burnt toast doesn't cause cancer yet, but it may be a sign of other things. Here's your Canadian Heritage minute.

Pre-school investments

2017-01-24T13:00:00.000+13:00

James Heckman publishes new papers faster than I can read papers. And so I can't pretend to be on top of all of the work he's been doing on early childhood education. But there has been a lot of it over the past several years.

I was pretty excited about the whole line of work when he started it. Investments in early childhood education looked to yield huge benefits, especially for children from disadvantaged backgrounds. NPR provides a decent summary of that work in an interview with Heckman in December:

If you got 13 percent back on your investments every year, you'd be pretty happy, right? Remember, the S&P 500, historically, has averaged about 7 percent when adjusted for inflation.

What if the investment is in children, and the return on investment not only makes economic sense but results in richer, fuller, healthier lives for the entire family?

That's the crux of a new paper out Monday, The Life-Cycle Benefits of an Influential Early Childhood Program, co-authored by Nobel laureate James Heckman, a professor of economics at the University of Chicago and the director of the Center for the Economics of Human Development.

The new paper looks again at the Abecedarian Project, and finds returns that last through to the long-term. It sounds like the kind of thing that would make sense under the New Zealand government's investment approach. But I have a couple of worries.

Every time we see great results like the ones Heckman demonstrates, they're from really small-scale, really resource intensive programmes like Abecedarian or Perry.

And the couple of studies I've seen looking at what happens with larger roll-outs don't suggest that these things scale well.

Michael Baker, Jonathan Gruber and Kevin Milligan found that a universal childcare programme in Quebec yielded a huge increase in use of childcare, but worsening of outcomes for kids. NBER provides a summary here.

And an evaluation of Tennessee's pre-K programme, rolled out to 18,000 lower income kids across the state, showed temporary gains followed by worse outcomes than those for kids who didn't participate. This one was focused on providing high quality care to a large group of deprived kids, rather than being a universal roll-out like Quebec's. The programme only included 4 year olds, and so could be critiqued as not having the very early intervention that the Heckman-style interventions recommend, but it should give pause that the effect wound up being negative.

I don't know if these things don't scale well because you quickly run out of teachers that match the quality of those involved in Abecedarian and Perry, or if larger scale programmes in general disappoint. But it does suggest we need to be careful in monitoring roll-outs of things that looked good in smaller scale trials.

And I worry too about what happens if it turns out that the thing really can only work in really small and focused interventions. You then wind up setting eligibility criteria to focus on the groups in most need, and really pissing off the people who are just outside the eligibility threshold. Like, "You mean if I'd had more CYFs notifications my kids would be eligible for this fantastic pre-school programme but because I was a better parent than my crazy neighbour she gets the programme and I don't?!" The usual answer on the left to that kind of concern is to demand that it be universal, but look again at the results in Quebec.

I don't pretend to have any good answers here, just worries. I wonder if anybody's used IDI data to see what happened after New Zealand shifted to 20-hours free daycare.

FWIW, both our kids were in pre-school from about 3 months old, when Susan returned to work. So our revealed preference was to rely on professional childcare.

Kiwisaver and net wealth - again

2017-01-23T07:00:00.000+13:00

David Law and Grant Scobie continue to look at Kiwisaver's effects on net wealth. In line with prior work by Scobie and coauthors, they find that it didn't do anything to increase net wealth. Instead, it just diverts other savings.

The objective of this paper is to analyse the extent to which membership of KiwiSaver has been associated with greater accumulations of net wealth. The paper utilises two linked sources of data which cover the period 2002–2010: Statistics New Zealand’s Survey of Family, Income and Employment and Inland Revenue Department administrative data on KiwiSaver membership. Two approaches are employed: difference-indifferences (where the outcomes of interest are changes in net wealth) and various panel regression techniques. Results appear consistent with earlier evaluations of KiwiSaver. Neither approach suggests KiwiSaver membership has been associated with any positive effect on net wealth accumulation.

I'd commented here on the 2014 Treasury working paper version of the paper, now published in NZ Economic Papers. Whatever problem Kiwisaver is meant to be solving, it doesn't seem to be doing much.

Previously:

Risky Teens and the maternal gaze

2017-01-20T17:00:00.000+13:00

Christian Jarrett at the British Psychological Society's Research Digest blog reports that kids take fewer risk when mum's watching:

João Moreira and his colleagues scanned the brains of 23 15-year-olds (9 girls) while they played a risk-based game that involved going through a set of 26 traffic lights as quickly as possible and deciding at each set whether to accelerate or brake as the lights turned amber. Accelerating saved time usually, but also carried the risk of a crash which would lead to a greater delay than braking. The teens played the game twice: once in the presence of their mother who was located in the scan control room, and the other time in the presence of an unfamiliar female professor who was described as an expert in adolescent driving behaviour (some played the game with mum present first, others with the stranger present first).

There was a tendency for the teens to take fewer risks when their mum was present, as compared with the professor, but this difference didn’t reach statistical significance. However, at a neural level there were statistically significant differences between the conditions: when mum was present, the teens’ brains showed more reward-related brain activity after making safe decisions and less reward-related brain activity after making risky decisions. Mum’s supervision seemed to make caution a more pleasurable approach, at least at a neural level.

Why?

The researchers interpreted their findings as suggesting there is something unique about the influence of a parent (or a mother, at least) on the way a teenager’s brain processes risk, which could have practical implications. For example risk-prevention educational programmes for teenagers, which often struggle to make a difference, might be more likely to be effective if parents are directly involved.

I have a simpler explanation. If Mum sees that the kids are driving like hoons in a simulation even when she's watching, she won't give them the car keys next time they ask. Because the kids know that whatever happens in the game affects Mum's behaviour out-of-game, fun risk-taking is less rewarding. It isn't that Mum being there makes them different people or that they're better learning how to behave, it's just fear of out-of-game sanction.

Or at least that'd be my prior on it, if I were inclined to draw any conclusion whatsoever from a study scanning the brains of 9 teenage girls.

De-risking: another cost of AML

2017-01-19T07:00:00.000+13:00

Steve Liddle points to an underappreciated cost of New Zealand's Anti-Money Laundering regime: difficulties in international remittances.

For the past nine months I’ve been working with a group supporting Somali-New Zealanders as they attempt to re-establish a low-cost channel for remittances into the Horn of Africa and South Sudan.

Despite hiring an anti-money laundering advisor, satisfying all security requirements for registering a financial service company and meeting all government and Companies Office regulations, no New Zealand bank is willing to send refugees’ money offshore.

The security requirements the banks impose on us include “getting to know your customer” vetting systems, maximum money limits, regular transaction checking and oversight. Despite this, all six banks approached refused to handle remittances, simply citing a US-instigated sanctions list or so-called “de-risking” policies.

Get your AML compliance wrong, and you could be up for fines or losing your banking license. The stakes are high, and that means the small earnings they'd get by facilitating international remittances isn't worth it.

Despite the New Zealand Reserve Bank’s declaration two years ago that trading banks here “were not justified in blanket de-risking”, they continue to do so. Acknowledging “varying degrees of risk for banks” and the call in our legislation for “measured risk management”, the Reserve Bank made it clear that money remitters should be judged on their merits. It urged banks to do due diligence on remitters to enable money transfers to continue.

Yet it seems that New Zealand banks are unwilling to risk the steep fines imposed by anti-money laundering and terrorist financing legislation and fall back on a blanket policy of refusing to handle any remittances to countries deemed high risk.

While in the past Pacific Island remittances were subject to the highest number of blocks, the situation is now eased and for the last three years New Zealand refugees from the Sub-Sahara, Horn of Africa and the Middle East are most affected.

Case by case checking is expensive relative to either what banks can earn on these small transactions, or relative to the penalties for getting things wrong.

Neither governments nor banks seem prepared to acknowledge the unintended consequences. Of course no responsible country wants to aid the financing of terrorism. But measures designed to prevent money laundering and starve terrorists of funding have also encouraged illegal money trafficking now beyond any accounting – of either amounts or the identities of recipients.

It looks like Liddle's group jumped through a pile of hoops trying to prove that their remittances were neither money laundering nor terrorism, but it wasn't enough. That shouldn't be surprising to anybody who followed the saga leading to AML regs killing iPredict.

As I understand things, banks stopped providing platforms for companies doing international remittance work as the AML regs came in. Kiwibank was about the last to move, as it took them longer to come into AML compliance than the other banks. For a while the remittance companies banked through them, but that lifeline ended when Kiwibank got its regulatory affairs in order.

There's be a reasonable business for someone using Bitcoin to facilitate all this stuff, but I'd be surprised if anyone getting big enough in it didn't quickly find themselves subject to AML for the "turning dollars into bitcoin" part of the transaction.

Manitoba poultry predicaments

2017-01-18T07:00:00.000+13:00

Supply management in Canada continues to be a reason Manitobans can't have nice things. This time, specialty free-range chicken. From the Winnipeg Free Press:

With the introduction of the new ASQP [Annual Specialty Quota Program] — meant to increase the availability of speciality products such as organic chicken, pasture raised, Silkie, and kosher — exemption permits traditionally held by chicken farmers have been cancelled by the supply management board.
Farmers who had been producing 60,000 kilograms of chicken a year, for example, will have to scale back by half or pay fees, Veldhuis explained.
"Some of those people are participants in the St. Norbert Farmers’ Market and they’re either having to pay more to produce the same amount and the tariff is about 25 per cent that they’re being asked to pay," Veldhuis said. "So I think most of them just won’t produce it.

Here in New Zealand, if you want to grow and sell a chicken, you grow and sell a chicken. In Manitoba, you need to have quota. Small-scale producers who previously operated under exemption permits can't any more.

Erin Crampton, owner of Crampton’s Market (1765 Waverley St.), believes the new quota program will increase the cost of Manitoban chicken her store carries by about 20 per cent, if it’s available.
The seasonal market in Waverley West carries fresh, sustainable, antibiotic-free chicken raised in Manitoba and organic chicken from Ontario. Crampton said if the quota program is implemented as is, there is a good chance the market would no longer receive fresh roasting chicken on a weekly basis or carry frozen chicken pieces from producers in Manitoba.
"We would probably have to bring in products from Ontario if we were wanting to sell sustainably raised chicken," Crampton said. "The cornerstone of our business is local food first so it would be absolutely heartbreaking."
Crampton is hoping the MCP will review the ASQP and hold further consultation with existing producers in an effort to maintain mid-level production.
"Unfortunately, (Manitoba Chicken Producers) didn’t collaborate with those existing producers to ask them what they needed to have the industry grow," Crampton said.
"There’s a huge trickle down effect and it’s so important for people to let the government and the Manitoba Chicken Producers know that they didn’t get it quite right, and maybe go back to the table and have a chat with the people who are affected."
According to Crampton, who is a former member of the Manitoba Farm Products Marketing Council, there is room in the market for specialty, small-scale, and large-scale producers alike.
"We think there’s enough space for everyone and (large scale producers) need to share a little more," she said.

Read the whole thing, and be thankful you live in a sane place like New Zealand rather than over in the inside of the asylum.

Some kind press

2017-01-17T07:00:00.000+13:00

Philip Matthews provides a kind write-up about me in the weekend's Dominion Post and Christchurch Press. An excerpt:

As one of the New Zealand Initiative's ancestors was the Business Roundtable, it is sometimes called a Right-wing think tank. Crampton would rather say they "like market-oriented solutions". He cites a report on interest-free student loan policies that recommended shifting money spent on subsidies for mostly rich kids into better tertiary preparation for poor kids.

"I thought that was a very Left-wing recommendation to stop giving money to privileged people and put it where it's going to do good for people who don't have as much. I prefer to think of it as just looking for policy solutions that work."

Politics can become bogged down in short-term thinking based on voter appeal and what is expected from party affiliations. It tends to be binary and reactive. People in think tanks like this one are public intellectuals who can step past those political boundaries, and it is telling that one of Crampton's key influences and close mentors when he taught at Canterbury University was the late Denis Dutton, another North American contrarian and original thinker.

Dutton was more famous for what he did outside the university than what he did within it. In other words, he was acting as a critic and conscience of society, which is harder than ever in the current tertiary environment. Putting ideas out there and appearing in the media to discuss or defend them is "not in the normal nature of an academic department," Crampton says. He has found he can have more direct impact on government in his current role than he ever did as an academic staffer.

Canterbury was his first academic job after graduate school at George Mason University in Washington DC. Before that, he studied at the University of Manitoba in Winnipeg, Canada. New Zealand's relaxed regulatory environment appealed to a classical liberal who stands for political and civil liberties and limited government.

The piece ran as a full-page B.3 spread in the Dom; advantages of a slow summer news season.

You may be in the global 1%

2017-01-16T16:57:00.001+13:00

The Oxfam report on global inequality continues to make news in New Zealand. A few tidbits from the Credit Suisse report on which Oxfam's figures are based:

If you have net assets of $2,200 USD ($3,098 NZD), you're in the world's top half.
If you have net assets of $71,560 USD ($100,760 NZD), you're in the world's Top 10%. You fat-cats! There are about two million Kiwis in this category.
If you have net assets of $744,400 USD ($1.05m NZD), you're in the world's Top 1%. Auckland's average house price cracked the million mark last September. So if you own the average house in Auckland, debt-free, that likely puts you into the world's Top 1%. About 272,000 Kiwis are in the world's Top 1%.

It's also fun to think about how New Zealand's Superannuation system affects these figures. New Zealand has an indexed public pension system. If you're 65 and expecting to live to 95, the value of the future Superannuation payments is about half a million dollars. That does not count as wealth in any of these wealth inequality figures. If the government tomorrow abolished NZ Super and deposited the present value of your superannuation entitlement into your Kiwisaver account, it would count as wealth in the wealth inequality figures. The real extent of wealth inequality is then overstated in measures that ignore transfers that everybody gets.

The same Credit Suisse report provides gini coefficients on wealth inequality across countries. New Zealand sits at 69.1. A few other countries, for comparison purposes:

Australia: 68.2
Belgium: 64.1
Canada: 73.2
China: 81.9
Denmark: 89.3
Finland: 76.6
Germany: 78.9
Italy: 68.7
Sweden: 83.2
UK: 73.2
USA: 86.2

It's not at all obvious to me that any of these numbers are right or wrong; New Zealand's seems to stand at the lower end of the range, but isn't particularly remarkable. It's a lot lower than egalitarian Sweden's, for example. What isn't shown in the numbers is the process by which wealth is accumulated. I think that matters far more than what any particular number is. If you get rich by crony deals in corrupt countries, your wealth has been at the expense of the poor and of the country's long-term prosperity. If you get rich by providing goods and services that others value more than the money they had in their pockets, then that's hardly hurting anybody.

Oxfam and inequality again

2017-01-16T09:28:00.001+13:00

Oxfam's on another tear about inequality. I liked them when they focused on projects alleviating severe poverty. With global severe poverty lower than it's ever been, I guess they need something else to worry about.

Here's some stats background before we look at Oxfam.

Below is Max Roser's chart on global poverty. The decline over the past two decades has been staggering.

Meanwhile, here in New Zealand, income inequality has been stagnant over the past two decades; consumption inequality is lower than it was in 1984; and, wealth inequality is on par with OECD averages. Here's the table on wealth inequality from our recent report on inequality.

The top 1%'s share there is a bit under 20%. Work on SOPHIE data has it hovering over or under the 20% line depending on the HES year. This is pretty well known, or should be, to anybody who's played with this data.

Anyway, over to Oxfam:

According to the Oxfam research, the richest 1 per cent of Kiwis have 20 per cent of the wealth in New Zealand, with 90 per cent of the population owning less than half of the country's wealth.

Rachael Le Mesurier, executive director of Oxfam NZ, said the organisation was shocked to discover such a level of wealth inequality.
"The gap between the extremely wealthy and the rest of us is greater than we thought, both in New Zealand and around the world. It is trapping huge numbers of people in poverty and fracturing our societies - as seen in New Zealand in the changing profile of home ownership."

The numbers they're reporting as shocking aren't really much different from the last couple sets of numbers on wealth inequality that Statistics New Zealand has put out. You shouldn't be shocked by these figures unless you really haven't looked at them before.

But, Oxfam is right that there are serious problems in New Zealand's housing markets.

The Herald's Nick Jones asked me for comment; he quotes me well in his article. I've copied below the full bit I emailed him; there was never going to be room for all of it in the published piece.

The share of the world population living in absolute poverty Is lower than it has ever been. Work by Max Roser at Oxford shows just how dramatic the drop in poverty has been. More than half of everyone in the world lived in extreme poverty in 1960, defined as living with less than $1 per day, inflation-adjusted. It was worse before then. By 2015, less than 10% of the world lived on less than $1.90 per day. Roser's figures similarly show substantial decline in global income inequality over the same period; it's projected to drop even further through 2035. Longer term data series on wealth shares are harder to come by, but work by Tony Atkinson and coauthors earlier this year showed that the top 1% in the UK held 70% of UK wealth in the late 1800s and early 1900s; that declined to about 15% of UK wealth by the early 1990s and even today is around 20%. The big story of the past century is the global diffusion of wealth and income, and a massive decline in poverty.

And so Oxfam's focus on wealth inequality is strange. It is entirely appropriate to look closely at wealth inequality in countries where tinpot rulers immiserate their citizens for the benefit of themselves and their ruling cliques. In those places, political regimes focused on extracting the country's wealth for the ruling elite simultaneously cause high inequality and very poor conditions for everyone else, and low rates of economic growth. But elsewhere, people become wealthy by producing goods and services that others value. Bill Gates becoming a dollar richer immiserates no one.
While I have not seen this year's Oxfam report, just over 450,000 Kiwis counted as being in the world's wealthiest one percent in last year's figures. Owning a house in Auckland mortgage-free was just about enough to guarantee membership in the global top 1%. Oxfam tells us nothing new in 'revealing' that NZ's top 1% own about 20% of all wealth; similar figures were released by Statistics New Zealand last year - and also showed that New Zealand's wealth concentration is pretty middling in OECD rankings. The New Zealand Initiative's report on inequality last year also covered these statistics. One should also be cautious about figures assessing the wealth share held by the bottom fraction of the population in countries like New Zealand, where a lot of graduates' student debt will count against them while their degrees do not count in their favour. If we took these kinds of statistics too seriously, a new doctor graduating with a $100,000 student loan would count as poorer than families experiencing real hardship but who have less net debt.

Inequality's real bite in New Zealand, as our recent report shows, comes through effects in broken housing markets. Inequality in access to affordable, quality housing, because zoning rules prevent its being built, is an incredibly serious issue.

Me in the NBR on last year's iteration of this thing...

Alcohol advertising, again

2017-01-13T09:39:00.000+13:00

The usual lot want to ban alcohol advertising in sport, to protect kids.

I'll excerpt from my submission to the Ministerial Forum on Alcohol Advertising and Sponsorship of a couple of years ago; the whole thing is here. They were focused on evidence since 2010 because they took the Law Commission's prior report as starting point, so that explains the 'since 2010' bits quoted below.

Nelson (2010) examines whether alcohol advertising bans affected alcohol consumption in a panel of 17 OECD countries over the years 1975-2000. His modelling is careful: he begins by controlling for the underlying factors giving rise to country-level restrictions on alcohol advertising before estimating the effects of those restrictions controlling for the underlying factors that cause advertising restrictions and controlling for the overall stringency of alcohol regulation. He finds that bans on alcohol advertising have no effect on total alcohol consumption. It is rather important to correct, as he does, for the underlying factors that predict countries’ adoption of advertising restrictions: Gallet and Andres (2011) demonstrate that countries with a greater proportion of youths, with greater life expectancy, with higher income, and with greater Muslim populations are more likely to adopt advertising restrictions. If countries that are generally healthier, as demonstrated by life expectancy, are more likely to adopt restrictions on alcohol advertising, correlations between health outcomes and advertising bans could easily be spurious. Nelson also notes that while, from the 1980s onward, most countries liberalised their restrictions on alcohol advertising the period since the 1980s has also seen reasonable declines in total alcohol consumption. Similarly, the period of liberalisation in New Zealand, from 1989 onwards, also corresponds with a period of substantial decline in per capita consumption.

Some evidence since 2010 has suggested that increased exposure to alcohol advertising is associated with increased risk of youth drinking.

Morgenstern et al (2011) finds that German students who were better able to recall the names of alcohol brands from popular advertisements had a higher risk of drinking and of binge drinking. However, they are unable to demonstrate a temporal effect: that is to say, they cannot demonstrate whether advertising recognition preceded drinking, or came subsequent to drinking. Consequently, they cannot tell us whether students most able to recall alcohol brands are 2.3 times as likely to engage in binge drinking as those least able to recall alcohol brands, or whether students who binge drink are 2.3 times as likely to remember alcohol brands. As they also measure exposure to non-alcohol advertising, it would have been interesting to see if, for example, students who take on more duties at home were better able to recall the detergent brand, whether students with mobile phones were better able to remember the T-Mobile brand, and whether students who go hiking were more able to recall the trekking-clothing ads.

Jones et al (2011) argue that youths who indicated having seen alcohol advertisements were more likely to initiate drinking and to have consumed alcohol in the past four weeks. However, their adjusted odds ratios frequently fail to achieve statistical significance. One significant effect was that having seen TV advertisements for alcohol halved the risk of having consumed alcohol in the past 12 months. But none of the odds ratios there reported should be taken particularly seriously: the substantial reduction in odds ratios after correcting for a very small number of covariates, coupled with the substantial decline in statistical significance after such correction, suggests that uncontrolled confounding could easily explain the remaining variation. Table 3 presents correlations between advertising and alcohol initiation across 32 different advertising / gender / age cohorts. They find three associations are significant at the 5% level: barely more than we would expect by sheer chance with so many separate regressions. Results in Tables 4 and 5 are rather similar: where adjusted odds ratios are significant, three show that alcohol advertising reduces the likelihood of regular or recent alcohol consumption, seven show an increased risk, and 42 show no significant relationship whatsoever. If anything, we should take this study as providing reasonably strong evidence of the absence of a relationship between having seen alcohol advertising and the initiation of alcohol consumption. Further, while some of the aggregates presented in Table 2 provide statistically significant associations between some alcohol advertising exposure and drinking, they are unable to rule out reverse causality where those who are more interested in alcohol to begin with are more likely to pay attention to and to remember alcohol advertisements. Look past their discussion of their results to what they’ve actually shown: there is scant evidence on which to hang their conclusions.

Bryden et al (2012) conduct a meta-analysis on effects of alcohol advertising. They find little evidence of harmful effects of alcohol advertising. Importantly, those studies categorised as methodologically weak were more likely to find harmful effects of alcohol advertising. See discussion at 3.2.2, p. 355.

The recent literature here surveyed suggests that even the most stringent of alcohol advertising regulation, full bans, has no effect on consumption. Individual level exposure to advertising may have small effects on consumption, but those studies showing effects do not successfully disentangle brand recognition among drinkers from effects on drinking intentions among those exposed to branded advertising.

Bryden, A., B. Roberts et al. 2012. “A systematic review of the influence on alcohol use of community level availability and marketing of alcohol.” Health & Place 18: 349-57.

Gallet, C. and A. Andres. 2011. “International evidence on the determinants of alcohol advertising restrictions.” Applied Economics Letters. 18:14, 1359-1362.

Jones, S. and C. Magee. 2011. “Exposure to alcohol advertising and alcohol consumption among Australian adolescents.” Alcohol and Alcoholism 46:5, 630-7.

Morgenstern, M. et al. 2011. “Exposure to alcohol advertising and teen drinking.” Preventative Medicine 52: 146-151. Nelson, Jon P. 2010. “Alcohol advertising bans, consumption and control policies in seventeen OECD countries, 1975-2000.” Applied Economics 42:7, 803-23.

I couldn't see much reason to expect that advertising bans in sport would do much to reduce risky drinking. I also didn't like suggestions of bans on sponsored events, teams and venues.

Bans on alcohol industry sponsorship of sporting or other events need be based on strong evidence of net harms resulting from such sponsorship. If youths or other at-risk groups were substantially more likely to engage in harmful binge drinking instances because their favourite team or concert were sponsored by particular brands, and if those harms greatly outweighed the demonstrable benefits of sponsorship to the sponsored organisations and events, then we could have a reasonable case for restrictions or bans. That evidence, however, does not exist. While there is ample evidence of alcohol sponsorship of events and sports teams, evidence of consequent harms is lacking.

Further, it is plainly evident that attendees at sponsored events often greatly benefit from that sponsorship. The Rugby Sevens are typically taken as evidence of the awful consequences of alcohol sponsorship of sporting events. And while it’s true that the Sevens are typically associated with alcohol consumption, that hardly makes the case for a ban. Survey data from the HPA (2013) demonstrates not only broad awareness of alcohol sponsorship of the Sevens, but that alcohol’s presence at the Sevens is a critical part of the fan experience. 82% of attendees surveyed at the Sevens agreed or strongly agreed that drinking alcohol made the event more entertaining; 93% agreed or strongly agreed that they attend the Sevens because of the atmosphere; 77% agreed or strongly agreed that “drinking alcohol at this event is ‘just what you do’”. Fans attending the Sevens really seem strongly to enjoy the particular atmosphere present at the Sevens. It’s also worth noting that that same survey demonstrated that alcoholic sponsor messaging was less prominent there than at other surveyed events, like the Heineken Open or the International T20, where alcohol sponsor messaging was more prominent but where the event’s culture was rather more sober.

It is particularly worrying that the Law Commission’s report called ultimately for a ban on alcohol sponsorship (19.182), but provided only one piece of evidence suggestive of potential harms from sponsorship: that survey respondents who received free or discounted alcohol as part of their team’s sponsorship arrangement felt they should drink their sponsor’s product (19.27). On the basis of that evidence, they wished to ban all alcohol industry sponsorship of events and sports teams. Presumably they found the harms self-evident.

Meanwhile, over at the Sandpit, I have a look at another paper showing some of the social benefits of social drinking. Check it out.

UPDATE: I'd forgotten to link the Cochrane Review, that said there's not enough evidence to show anything on effects of advertising bans as yet. Curiously, none of the Science Media Centre's chosen experts seemed to have heard of that one, 'cause they didn't cite it.

Tax Spikes

2017-01-13T07:00:00.000+13:00

I lost this past weekend to a crazy fever. Fortunately, the reader mailbag brings me up to speed. Here's Canterbury golden-era Honours grad (now NYU econ PhD student) James Graham:

Anyway, just a quick note to ask whether you'd seen this?

(There's a better figure of the data here)

I can't believe James Shaw is trying to make out high income earners as the bad guys when tax avoidance at every level is right there, staring you in the face: at $14000 the second marginal tax rate kicks in, $23,000 is the maximum amount for a Family Tax Credit top-up via WFF, $48,000 is where the third marginal income tax rate kicks in, and at $70,000 the top marginal tax rate kicks in.

I can't figure out the spike around $18,000, though. Any ideas? (It's not student allowance, that abates at around $10000 a year, and it's not minimum wage earners, who should be on around $30,000 with full time work).

Anyway, thought you might enjoy fisking this one, talking about incentives, etc - you know, the stuff you do so well :-)

Well, he didn't really leave me much room for adding more fisking, since it seems already done. Bunching at all the boundaries, not just at the top one.

The spike around $18k is almost certainly the $16,698 that each of a married couple both on NZ Super would receive, Bryce Wilkinson kindly tells me.

Some folks getting up to the $70k threshold, particularly second earners, won't bother putting in extra hours because the return to work is lower. More of the action would probably be owner-operators paying themselves a salary just up to the threshold, and building equity in the firm past that. It isn't immediately obvious to me that the proportion of taxable income in the spike is bigger now than in the prior two years either.

I'd be more worried by the bunching at the $23k threshold than at the $70k threshold as it's more likely showing something real rather than something accounting.

If you retain earnings in a company and then buy yourself a car for the company, there's FBT hassles and having to prove that you need it for company use and paperwork for what part of it is privately used and then paying FBT on the private part. But maybe you've found it worth that hassle. You consequently have a slight distortion in consumption choices shifting towards things that are plausibly business expenses and away from things that are not 'dual use'.

If you decide to stop working more hours because WFF abatement rates are too high for part of the range and effective marginal tax rates are consequently really high, that seems a bigger distortion.

James also points to this Saez piece that failed to find much kink-point bunching in US tax data.