Tuesday, 17 January 2017

Some kind press

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.

Monday, 16 January 2017

You may be in the global 1%

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

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...

Friday, 13 January 2017

Alcohol advertising, again

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

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)
image tax stats taxable income declared 01 15 small


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.

Wednesday, 11 January 2017

It's the little differences

America has no-fly lists to stop folks they think might be terrorists.

Meanwhile, here in New Zealand, the woman who tried hijacking an Air NZ flight a few years ago is set to be released from prison into compulsory psychiatric treatment. Radio NZ reports that she's threatened to hijack another plane and set herself on fire.

New Zealand's response?
The Aviation Security Service said: "It's up to the airport companies to make decisions about who they trespass and up to airlines to decide whether someone can't fly."
Wellington Airport has a trespass notice in case she's released. Totally fair call too.

Letting property owners decide some customers aren't worth the hassle: rather nice approach.

Happy New Year

New Year's resolutions had always seemed a little silly to me: If something is worth doing, why would you need to make a resolution about it? But publicly proclaiming your intentions to do better can constrain you against doing worse. Others can observe your actions and judge your failures.

New Year's resolutions make it a little bit harder to give into temptation. And those wanting even stronger constraints can always choose them: promising a big donation to the charity of choice for anyone catching you breaking your resolutions can do the trick.

These kinds of resolutions work because there are always friends or family who want to help you to help yourself. Finding ways of breaking the spirit of the resolution while keeping to its letter doesn’t work when someone who knows you well is monitoring things.

As much as the government likes to tut-tut individuals’ private choices about whether to eat, drink and be merry, the government has a harder time than we do in tying its own hands.
From my column in 23 December's NBR (ungated here). I suggest a couple of resolutions the government might consider, and ways of making them stick:
Most importantly, it should resolve to restore Auckland’s housing affordability. Although this is a matter of zoning decisions and infrastructure provision, Auckland Council operates within rules and incentives created by central government – as Mr Key recognised in 2007.

Resolving that the price of the median house in Auckland would not be more than, say, nine times median household income next year, with a declining ratio from there, would be a start. Setting up the infrastructure and zoning policies that would automatically be triggered if housing affordability were not restored would make the resolution credible.

Prime Minister Bill English should commit his government to two further resolutions, both drawing on his experience as minister of finance. His was only one voice of many in the cabinet. If another minister put forward a proposal with a weak regulatory impact statement or poor cost-benefit assessment, Mr English had to pick his battles.

But as prime minister, he could resolve that the cabinet will no longer consider proposals with inadequate support. Ultimately, ministries’ rigour in preparing documentation in support of policies depends on whether the cabinet has any demand for rigour. Providing that demand should be a New Year's resolution against ministerial excesses.

Finally, the government should resolve to embed the changes Mr English started as finance minister: testing the effects of welfare policies to see which work and measuring outcomes against long-term fiscal liabilities.

The Treasury recently put up an excellent Outcomes Catalogue Tool showing the government’s initiatives, the outcomes those initiatives target and how those outcomes are measured. Resolving to make that an annual release, along with the figures showing whether things are on track, would be an excellent way of making these changes last.

We all face temptations. Individuals have lots of ways of overcoming these, even if the government is often a bit too dismissive of our ability to do so. It’s time the government took its own self-control issues seriously and made a few resolutions for a better 2017.
Apologies for the break in posting. I took a Christmas holiday with the family up to Tauranga and then to New Plymouth and didn't bring a computer along. Pokemon Level 32: Achieved. I think one of my Pokemon is still on a gym up there.

I was to have been back on deck this Monday, but came down with some kind of plague Friday night from which I'm recovering. High fever in the middle of the night brings interesting dreams though:
Unfortunately, I woke up before I could tell whether there were really a shinigami involved or just a standard cursed typewriter.