Thursday, 8 October 2015

What's your model?

Labour is mad that the TPP might preclude them from one of their preferred policies: banning foreigners from buying existing houses. They expect that forcing foreign buyers to build new houses rather than buy existing ones means more houses get built.

There is an issue here: because regulatory constraints make new building incredibly difficult, foreign money wanting to be in NZ housing generally winds up in existing housing.

But I am curious about the underlying model. The number of houses built will depend on demand for housing, not demand for houses per se. Suppose that total demand for buying houses is split between foreigners and domestic residents. If total demand is enough to bring more new housing on-stream, I have a hard time seeing how it matters, for the total stock of housing, whether foreigners are required to build the new housing or whether they can buy existing.

The only way I can make sense of things is if we assume that foreigners don't care about the returns in housing and only want to park money here to hide it from their home country. If your view of the world is that a Chinese billionnaire is happy to lose some of his money by investing in too much Auckland housing because he'd lose more by keeping the money in China, then forcing him to invest in new dwellings could change the total amount built. But didn't the IRD changes make that kind of story implausible?

I'd like to know what Labour's implicit model is here.

Terry Anderson: Condliffe 2015

Terry Anderson will provide the University of Canterbury's Department of Economics and Finance's 2015 Condliffe Memorial Lecture.

If you're in Christchurch, do attend. Anderson is excellent. He's particularly good in environmental economics and indigenous economics.

Here's the blurb [Update: it runs 6-7 pm]:

2015 Lecture:
Environmental Markets: Lessons from and for Fisheries Management

Terry Anderson

Terry Anderson
Property and Environment Research Center (PERC) and Hoover Institution, Stanford University

When: Tuesday 17 November,
Where: LAWS 108 Lecture Theatre, Business and Law Building (Google map link)

In this lecture, Dr Anderson will discuss Free Market Environmentalism and the approach of using property rights and markets to address environmental problems, focusing on lessons from and for fisheries management in New Zealand.
Refreshments will follow the lecture. RSVP to:


Increased demand for environmental amenities and competition for scarce natural resources require rethinking how we manage our natural environment. The dominant management institutions have focused on top-down command-and-control regulations. Though some of these regulations have been successful in picking low hanging environmentalfruit – especially in reducing air and water emissions – they have not harnessed private initiative by using property rights and markets. This approach under the banner of “free market environmentalism” shows remarkable promise for dealing with a variety of environmental problems. Fisheries management in New Zealand illustrates the potential for this approach if the necessary market institutions can be buttressed and improved. In short, environmental markets offer a promising alternative for the next generation of environmentalism.

About the speaker

Terry Anderson is the William A. Dunn Distinguished Senior Fellow and former President and Executive Director of PERC as well as the John and Jean De Nault Senior Fellow at the Hoover Institution, Stanford University. He believes that market approaches can be both economically sound and environmentally sensitive. His research helped launch the idea of free market environmentalism and has prompted public debate over the proper role of government in managing natural resources. He is the co-chair of Hoover's Property Rights, Freedom, and Prosperity Task Force.
Anderson is the author or editor of thirty-seven books. Among these, Free Market Environmentalism, co-authored with Donald Leal, received the 1992 Sir Antony Fisher International Memorial Award. A revised edition was published in 2001.
Terry and Donald Leal’s forthcoming book, Free Market Environmentalism for the Next Generation, will be published in 2015. His most recent publications are Environmental Markets a Property Rights Approach (Cambridge University Press, 2014) and  Tapping Water Markets(RFF Press, 2012). Other books include Greener Than Thou: Are You Really an Environmentalist? (Hoover Institution Press, 2008) andProperty Rights: A Practical Guide to Freedom and Prosperity (Hoover Institution Press, 2003), both co-authored with Laura Huggins. His book, with Peter J. Hill, The Not So Wild, Wild West: Property Rights on the Frontier (Stanford University Press), was awarded the 2005 Sir Antony Fisher International Memorial Award.
Anderson’s research, which has also focused on Native American economies, recently resulted in a co-edited volume, Self-Determination: The Other Path for Native Americans (Stanford University Press, 2006). He has published widely in the popular press and professional journals, including the Wall Street Journalthe Christian Science Monitor, Fly FishermanJournal of Law and Economics, and Economic Inquiry. During his career at Montana State University, Anderson received several outstanding teaching awards and is now professor emeritus of economics. He received his B.S. from the University of Montana and earned a Ph.D. in economics from the University of Washington. In March 2011, Anderson received the Liberalni Institute Annual Award in Prague, Czech Republic, for his "Contribution to the Proliferation of Liberal Thinking, and Making Ideas of Liberty, Private Property, Competition, and the Rule of Law Come True.” Previous recipients include Nobel laureates Milton Friedman, Gary Becker, and Vernon Smith.
Anderson is an avid outdoorsman accomplished at big game hunting, bird shooting, fishing, skiing, and hiking.

Wednesday, 7 October 2015

Flag Cycles

I guess we'll never know whether the flag referendum has chosen the right flag. Why? Elections NZ cannot tell us.

Let's step back. Recall that the preferential ballot that will be used would provide us all the data we need to choose a Condorcet winner, if there is one. The Condorcet winner is the flag that would beat all other flags in a head-to-head match-up. So if my preferred flag, monkey-butt, would beat each of the fern designs and the red peak design in a head-to-head match, monkey-butt would be the Condorcet winner.

It's dead simple to check for a Condorcet winner in the preferential ballot. For each of the pairings, you pretend that all the other options don't exist and see how many voters say A beats B and how many say B beats A. If a majority of voters rank A higher than B in their preference ordering, regardless of how they rank them relative to all the other options, then A beats B. You do that across all the potential options. If some flag would beat each other option, that's the right flag.

Unfortunately, a preferential ballot with sequential elimination of options that receive the fewest first choices can sometimes choose the wrong option. Suppose some flag is everybody's strong second choice but the first choice of few voters. It could be quickly eliminated from the preferential ballot. It isn't necessary that a Condorcet winner exists, or that a preferential elimination would fail to choose an existing Condorcet winner, but it is definitely possible and it is definitely easily avoided. How? Before running the preference ballot, check to see if any option beats all the others and declare it the winner if so.

Even more unfortunately, we'll never know whether we've chosen the wrong flag. The Electoral Commission replied to my request as follows:
Dear Mr Crampton, Thank you for your e-mail of 24 September 2015 regarding the results of the first flag referendum and a request to provide the number of votes that conform to each of the potential preference orderings and publish the aggregates.

Section 38(1)(a) of the New Zealand Flag Referendums Act 2015 (‘the Act’), provides that in the case of the first flag referendum, once all the voting papers have been processed, the Returning Officer must:
(i)     calculate the number of first preference votes received for each option; and(ii)    count the votes in the manner described in Schedule 4; and
(iii)   declare the result of the referendum by giving public notice of the following:(A)     the absolute majority of votes determined at the first iteration; and(B)     the number of first preference votes received for each option; and(C)     the absolute majority of votes determined at each iteration at which an option was successful or excluded; and(D)     the number of votes recorded for each option and the number of transferable votes at each iteration at which an option was excluded; and(E)     the iteration number at which each option was excluded, where applicable; and(F)     the number of informal voting papers; and(G)     the outcome of the referendum; and 

The results will be published on the Electoral Commission's website: in accordance with these requirements.  The preliminary results will be released after 7pm on 11 December 2015 and the final result after midday on 15 December 2015.

Unfortunately, the Electoral Commission is unable to provide the additional result information that you would like because it is not permitted under the legislation.
 Yours sincerely
I wonder if it's too late to get an emergency change to the referendum legislation.

Update: A follow-up email confirms that the Electoral Commission would decline any OIA requests for those more detailed vote tally breakdowns as they view it as illegal for them to provide it.

Tuesday, 6 October 2015

Markets for rules

Oliver and I had a minor disagreement in last week's Insights newsletter.

He argued that the Volkswagen case was terrible and that everybody should follow the rules.*

I said that regulators and car companies have been playing cat and mouse with each other on this stuff for ages, that customers would put in workarounds if the emissions controls denigrated performance too much anyway, and that civilisation would collapse if everybody followed all the government rules all the time.

That's especially true when government sets rules to be seen to be doing something rather than because they think the rules are a good idea. You occasionally hear stories around the traps of governments doing things that they hope get overturned by the courts on appeal, so that they can have their cake and eat it too: politicians get kudos from voters for having done something feel-good and dumb, but suffer none of the economic consequences of bad regulation because some grown-up elsewhere in the system bats it back.

Are there alternatives?

The latest Cato Unbound has an excellent contribution from my old classmate Ed Stringham. He points out that government is neither the only nor the best source for rules. In fact, for a couple of centuries, governments tried to ban stock markets as being sinful gambling. So traders set up and enforced their own rules despite government trying to ban their doing so and despite government refusing to enforce contracts. And it's hardly an isolated case.

Here's Ed:
In all of the world’s first major stock markets, government officials considered much of the trading as a form of gambling or speculation used to manipulate prices. In the first stock market in seventeenth century Amsterdam, government refused to enforce all but the simplest securities contracts. After the founding of the Dutch East India Company in 1602 a secondary market for shares emerged among brokers who began specializing in trading stocks. Officials soon passed edicts outlawing their nascent market, but stockbrokers continued trading and developed many sophisticated transactions including forward contracts, short sales, and options. How is that possible? Instead of formal rules, stockbrokers relied on reciprocity and reputation mechanisms to encourage contractual compliance. In contrast to the one shot prisoners’ dilemma story, most business is repeated and brokers had to be reliable if they wanted others to do business with them. Not only would a defaulter sour his relationship with his trading partner, but he would be boycotted by everyone else who found out. Reputation thus served as a substitute to formal rules. The market was wildly successful and helped finance the Dutch Golden Age. Some estimates put the market capitalization of the Dutch East India Company in current dollars at $7 trillion. Modern New Yorkers can thank the Dutch East India Company for financing Henry Hudson’s first voyage to New York’s North River (the Hudson River) and the Dutch West India Company for founding New Amsterdam (New York).[4]

...Other financial intermediaries also assume and manage risks on behalf of customers. When doing business with PayPal or with most credit cards, if fraudsters make bogus transactions or attempt to takes money out of an account PayPal is on the hook. By 2001 fraudsters were stealing more $10 million from PayPal per month at a time when its gross annual revenue per year was only $14 million. At first PayPal contacted the FBI and found that it was of little help. After seeing the evidence, the FBI asked questions such as “What’s a banner ad?” These government officials were not at the forefront of technology, but even if they were, they still would have been powerless against anonymous fraudsters on the other side of the globe. Rather than sitting around and hoping that government would solve the problems, PayPal came up with private solutions to deal with fraud before it occurred. They developed human-assisted artificial intelligence to monitor accounts, search for suspicious activity, and temporarily or permanently suspend accounts. By assuming and managing risks on behalf of customers, PayPal transformed what many people assume must be legal questions into risk management questions. When parties can deal with problems ex ante, ex post contract enforcement is not the “necessity” that theorists like Kirzner or Olson assume.

* Hic-A-Doo-La means obeying all the rules!

Wage gaps and part-time work

I had a look at the latest numbers over at The Initiative's blog:
Last week’s New Zealand Income Survey sure led to a lot of headlines. Here are some of them:
One simple change could almost halve measured pay inequality. What is it? Have women replicate men’s split between full-time and part-time work. Ok, maybe that’s not so simple. But while there are 7.05 full time male workers for every part-time male worker, there are 1.96 full time female workers for every part-time female workers. And part-timers always earn less than full-timers. Interestingly enough, part-time female workers earn more than part-time male workers – for the obvious reason given those numbers.
If you re-weighted the pay gap using women’s median earnings for full-time and part-time work, but men’s split between full-time and part-time work, the pay gap would drop from 11.9% to 6.6%. And that’s without controlling for a pile of other important stuff, like time spent outside of the workforce or differences in education background and the like.
How is this different from last year? Last year’s wage gap was 9.8%. In the 2014 NZIS, there were 6.65 full time male workers for every part-timer and 2.02 full-time female workers for every part-timer. So the proportion of male workers in full time positions increased while the proportion of women in full-time positions decreased. The absolute number of part-time male workers dropped; the number of part-time female workers increased.
How big is the effect? It looks like the change in the relative proportions of part time and full time workers accounts for about a fifth of the increase in the wage gap from 2014 to 2015. The rest looks due to a much stronger increase in male full-time earnings than in female full-time earnings – though part-time male earnings have stagnated while part-time female earnings grew.
Meanwhile, the Herald is blaming "bro culture" for that women take longer to pay off student loans than men.
The latest Education Ministry report on the student loan scheme says male students who graduated in 2011 will pay off their loans in an average of 6.7 years, but women will take a further six months.

The gap is far smaller than 2005, before student loans were made interest-free.

In 2005, men would take an average of 14 years and women 28 years to pay off their debts.
Hmm. Any guesses about something that might happen for at least some women in the first 5-10 years after college graduation that would mean an income-contingent loan repayment scheme might take longer for women than for men? Any?

And recall that student loans here don't accrue interest if the debtor stays in New Zealand. If the numbers above are right, then inflation eats far more of female graduates' debt burden than it does for males. Think about it this way. If you owe a big pile of money on which zero interest is accruing, would you prefer to be able to pay it off really quickly or have it deducted from your estate on your deathbed? The longer the term of a zero-interest loan, the better for the borrower!

Update: Brennan McDonald points out that student loan balances are written off when the government sees your death certificate.

Monday, 5 October 2015

Obesity and Income

If we're tallying the social costs of obesity, what should we make of this one?
Obese men make more money than their slimmer counterparts, according to new research from the University of Otago's Christchurch Health and Development Study (CHDS).

The opposite can be said for women, with obese or overweight women earning less than women of average weight.

They were also more likely to be depressed and dissatisfied with their lives, while an obese man's mental health was generally unaffected by his girth.

The study analysed the relationship between a person's size, using their Body Mass Index (BMI), and financial aspects of their lives such as net weekly income, savings, household income. They also examined depression levels and life satisfaction.

On average, men with a BMI of more than 30 – the classification for obesity – earn $140 a week more than men with a normal BMI. Obese women earn $60 less than a woman with a "normal" BMI rating.

...The study has followed the lives of more than 1200 Canterbury children in intimate detail for 38 years. ... They decided to examine the CHDS cohort at age 30 and 35 to try and identify a link in New Zealanders.

The study found being overweight or obese was associated with poorer outcomes, but only in women, Horwood said.

"There was a clear relationship between larger men and larger weekly pay packets. But for men, being classified as overweight or obese according to the BMI Index did not negatively affect other outcomes measured in the study such as self-esteem or mental health," he said.
I've been unable to find the study referred to. The reporter says it is available in the Social Psychiatry journal, but I've been unable to find it on either the International Journal of Social Psychiatry's website, or on the "Social Psychiatry and Psychiatric Epidemiology" site. And I've not been able to find any journal that's just called Social Psychiatry. Not for the first time, I wish online news articles included links to cited studies.

Bigger picture, wage effects of consumption behaviour shouldn't count as any kind of external cost. They're effects born by the person undertaking the consumption and, potentially, others with whom that person is linked through a contractual nexus. If someone is less productive and he's paid less, does it matter whether it's due to drinking, obesity, or wanting to flip to part time to spend more time playing video games, or wanting to flip to part time to spend more time with the kids?

Life of Brian

The NZ Film Classification Office today pointed to its amusing 1980 correspondence around Monty Python's Life of Brian - an excellent film that I saw when I was maybe 14 years old.

Here's the Office:
Monty Python's Life of Brian (1979, R16)

The classification of the 1979 film Life of Brian was hotly debated both in New Zealand and overseas. Christian groups in New Zealand called for the film to be banned before the it had arrived in New Zealand. Chief Censor of Films Bernard Tunnicliffe received more letters about Life of Brian than any other film submitted for classification at that time. Life of Brian was classified according to criteria set out in the Cinematograph Films Act 1976 and on 18 February 1980 was classified as restricted to those aged 16 years and over (R16). Many correspondents who had requested a ban on the film were upset with the R16 classification.

A petition was launched in July 1980 requesting that the Minister of Internal Affairs withdraw the film from public release. While the petition gathered 12,352 signatures it was unsuccessful in convincing the Minister to stop the exhibition of the film. There were also members of the public who supported the R16 classification of Life of Brian. One parent wrote to the Chief Censor telling him that they initially thought that the film should be classified lower than R16 because they thought that their 12 year old daughter would have enjoyed most of it, however they "commend(ed) (his) refusal to ban it and the rating (he) awarded it". Another letter to a newspaper editor from Monty Python fans in Lower Hutt pointed out that they were "…distressed by the number of Christians that object to the film and believe that…if the film upsets them, they shouldn't go and see it…Life of Brian is purely meant for enjoyment and the only one restriction should be made only — those with a sense of humour need go".
Archives New Zealand pointed to some of the correspondence around it too. Silly religious people wanting to ban the film.

Film Censor's Office Correspondence - Monty Python's Flying Circus What's less funny is that that 1980's ruling still stands. Because Christians were powerful enough, in 1980, to ensure that the film received an R16, and because it hasn't been re-classified, the ruling still stands. And now that you know that it is R16, the maximum fine is $10,000 and you could go to jail for up to three months. Section 126.

Regardless of the censor, I'll likely show the film to the kids when they're in their early teens.

The Classification Office notes that anybody can submit a film for reconsideration. I'm not going to. Monty Python specialised in sending up the absurd; the film's current rating is an absurdity highlighting the rather substantial deficiencies of the system.