Monday, 27 February 2017

A stupid Newshub beat-up

Newshub today helped make Kiwis just a little bit stupider. But Ministers not knowing the underlying stats didn't help.

To recap. The government was put on the spot about whether they're rorting tourism numbers. MSD will sometimes put people in hotels or motels as temporary emergency accommodation. Whether that happens too often relative to an ideal is a different question we'll leave to the side for now. Question at hand is whether that's inflating the tourism numbers. 

Tourism Minister Paula Bennett was asked whether the tourism numbers were wrong because of this. 

The correct answer is "MSD clients are a tiny fraction of overall hotel nights, so it really cannot affect the figures either way." 

Minister Bennett clearly didn't know what's going on in the underlying stats because she said that they aren't included because they're not tourists. Hotels don't know why guests are spending the night. They just report up to Stats how many nights they've provided. Other non-tourists included in the figures:
  • A couple getting a room for a discreet encounter, who aren't tourists;
  • Someone who realises he is in no shape to drive home and would rather spend the night in the hotel rather than go home drunk in a cab;
  • Someone taking a night at a hotel after a row at home;
  • Someone renting a room as a meeting space;
  • Someone staying in a hotel room during some renovations, or before taking possession of a place they've just bought.
None of it matters. Why? There are almost 22 million domestic guest-nights per year in New Zealand hotels, and over 15 million international guest-nights. How do we know this? The tourism satellite accounts. Here's Table 8.

Neither the international guest nights nor the growth in international guest nights is likely to have been affected at all by MSD clients; they wouldn't have been reported as domestic visitors. It is unlikely that MSD clients have any material effect on the overall domestic guest nights either - it would be like thinking the water volume of Lake Taupo is overstated because nobody netted out the mass of fish in the lake. Yeah, there's fish, but it won't make much difference to the overall figures.

How much effect could it have had? The Newshub story reports 8,860 emergency housing grants in the last quarter of last year at a cost of $7.7 million. Let's say that those are all hotel room nights. Since they're emergency nights, they're not going to be getting "book ahead and save" rates. And they're also potentially riskier for the motellier. Let's say that the room rate is $100 per night but I'd think I'm erring on the low side there. That's (top end) then about 77,000 nights in that quarter. If the room rate is $200/night, then it's 38,500 nights. 

If that had persisted for the whole year, the total number of guest nights would still have rounded to 22 million - but the measured growth rate would have been a bit lower. But, again, would it matter? The government crows about international tourist numbers and guest-nights. Domestic doesn't get noticed as much. 

Prime Minister English noted "if they're counting them as tourists, they shouldn't be." It maybe wouldn't be that hard for MSD to tell Stats how many nights they've purchased and then have those netted from the tourism satellite accounts, but it's stupid hassle for no particularly good reason. And unless they do it all the years back, they're going to break the continuous data definition. 

So, some bottom lines:
  • There is a housing crisis;
  • The government is not fudging the tourism stats by including MSD clients in the tourism satellite accounts, and neither is Stats NZ;
  • It is stupid, and damaging, and unethical, to undermine trust in official statistics in this kind of Gotcha! attack on Ministers who cannot reasonably be expected to know what's in the definition of particular stats - and especially where it is inconceivable that whether or not it is included it would make a whit of difference to the measured tourist night numbers. 
  • I hope that the Statistics Minister, on advice from Stats NZ, would also have told Newshub that the 22 million nights context means that this would just be rounding-error stuff anyway. If he did, and Newshub didn't report that part, that would be worse for them. 
  • If we ever get to the point where MSD emergency grants could materially affect the domestic accommodation guest-night figures, we're going to need a bigger word than crisis to describe what's going on in New Zealand's housing situation.

Wednesday, 22 February 2017

Diversification as insurance: bolthole edition

Idealog asked me last week whether it made sense for billionaires to see New Zealand as a bolt-hole against apocalypse. I had a lot of fun taking a punt at an answer.

New Zealand would do better than other places in some doomsday scenarios, but hardly in all of them.
But Dr Eric Crampton, an economist and the head of research at the New Zealand Initiative, says the billionaires prepping for doomsday may have it wrong.

“For many end-of-the-world scenarios, the best bolthole isn’t the most isolated place in the world, but the wealthiest place in the world,” Crampton says.

“Scenarios leading to collapse in international trade are worse for small countries that are trade dependent than for very large countries that have large internal free-trading areas.”

But he can understand why US citizens would prefer to seek refuge on the other side of the world, particularly in the current political climate.

Crampton is a Canadian that moved to New Zealand from the States in 2003 to take a job at Canterbury University, and he’s stuck around ever since.

“Arriving here, it felt like the outside of the asylum. America was growing increasingly mad. Airports were armed camps. The police seemed to have a very hostile relationship with the public and were heavily armed,” he says.
There's a lot more at the link, including zombies. Enjoy! Bottom line, best billionaire strategy likely has a portfolio of boltholes against a range of potential disasters, and New Zealand could be a nice part of that bundle.

The costs of golf

Auckland Council owned thirteen golf courses as of last year. The NBR talks with Julie Anne Genter and Jacinda Ardern, the two candidates for the Mount Albert by-election, about whether Council should turn the Mount Albert golf course into housing.

I don't know, but strongly suspect, that that land would be of much higher value in housing. Julie Genter is almost certainly correct that the place should be in housing.

But here's how you'd find out.

  1. Zone the land for the highest density of housing that's possible given the infrastructure around the place (or higher, if development could fund upgrading the infrastructure).
  2. Put in an SHA allowing fast development for any future owner. 
  3. Sell the land to the highest bidder, letting the owner keep it as a golf course or develop it.
  4. Tax the land on its market value, whether it's used as a golf course or as housing.
If the golf course can turn a bigger profit from greens fees from paying customers than a developer could earn by turning it into housing, then it should be a golf course. Otherwise, it shouldn't. 

The NBR quotes the golf club's treasurer on that the club currently turns a profit. I wonder what Council charges itself as rent on land that would be worth a fair bit in alternative uses. 

Tuesday, 21 February 2017

Picking zones and picking winners

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.

Friday, 17 February 2017


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.

Thursday, 16 February 2017

More sweet silliness

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.

Friday, 10 February 2017

Dumb corporate welfare

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....