Friday, 20 October 2017

Policy costings

Another potential benefit of the incoming coalition: a policy costings unit for elections. The Greens have long favoured one. Brian Fallow hits the case here
Voters would be better informed, and Government-forming negotiations made easier, if we had an agency charged with providing impartial, independent costings of the policies parties put before us at election time.

It is too easy, as things stand, for politicians to go around promising the earth, and throwing in the moon for good measure, with barely a dollar sign to be found in their manifestos.

The OECD, in its latest country report on New Zealand, noted that the Treasury does not cost or assess opposition parties' policy proposals.

"Consideration should be given to strengthening New Zealand's institutional framework in this regard, possibly by allocating that responsibility to an existing agency such as the Treasury. Another option, which might enhance the perception of independence of the evaluations, would be for a new fiscal council to provide such estimates," it said, adding that most OECD countries have some form of independent fiscal institution.
He highlights some of the caveats I'd raised in a column last year about the proposal: politicians could time the release of bad policies to make costing difficult. I still think it's worth doing though - and especially if bundled into an independent Office of Parliament that, between elections, runs a cost-effectiveness ruler over existing line-item spending.

We get at least cursory evaluation of new spending programmes, but long-standing policies just roll over from budget to budget with little review. The costings office would keep its wits sharp between elections doing something valuable, and would be ready come the election to run the costings. 

Enjoy the Interregnum

If you haven't signed up for the Initiative's weekly newsletter, you should. I need to be better at blogging the bits I write there. Here's this week's column, written on Wednesday.
If no person’s life, liberty or property are safe while Parliament is in session, what’s the rush to have a new government?

As I write this column, no coalition has been struck. Journalists stake out Parliament’s parking garage trying to divine the will of Winston from cryptic hints he might there provide. And if you took the newspaper headlines too seriously, you might think that New Zealand would sink under the ocean if coalitions weren’t formed by whatever date Winston teased about.

But everyone else simply got on with life.

The morning after the election was beautiful. Smiling people strolled along Wellington’s sunny waterfront, almost as though having a Prime Minister were not that important for anything that matters.

And while nobody has yet figured out the causal mechanism behind it, even the weather has been better since we stopped having a Prime Minister. I count about four good days for every terrible one since the election. We know you can’t beat Wellington on a good day, but it’s rare to have those good days in September and October. Since we stopped having a Prime Minister, they’ve been the norm.

Even political tragics could have been happier with the lack of result: the sorrow of losing outweighs the joy of political victory, and neither of the main parties had to reckon with defeat.

And those sceptical about government full-stop have been able to pretend we have none. Sure, the administrative state continues churning away in the background. But it is on auto-pilot. And auto-pilot can be a nice option when the broad policy settings are already basically right.

Outside of that locked and empty cockpit, people argue about daft things like whether it might be a good idea to break the aileron controls by requiring the Reserve Bank to target exchange rates rather than just inflation. The longer that door stays shut, the safer we all are.

The interregnum cannot last forever; the auto-pilot cannot land the plane. Broken policies around housing must be fixed, and Ministries and Councils cannot do that on their own.

But we should enjoy the reprieve from government while it lasts – and hope for more sunny days ahead.
And if Edgeler wants to insist that we do have a Prime Minister, just a caretaker one, my fingers are in my ears. Let me pretend.

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Risks and opportunities

The Outside of the Asylum is getting a new Prime Minister, leading a coalition of Labour, the Greens, and New Zealand First. As always, new governments bring risks and opportunities. Here are some of them.

On the upside, we can hope for more serious addressing of the Auckland housing crisis. It took a long time, but National had finally come around to hitting the infrastructure financing problems at the root of Auckland's housing shortage. Labour can be expected to build on this. Labour's Phil Twyford understands the supply and financing constraints. His solutions, around designated infrastructure corridors and value-uplift charging, differ from National's - but will also work. And remember that it's Labour that's supported abolishing the Auckland rural-urban boundary that has jacked up the price of zoned land.

In the longer term, the government will need to address the incentives issue in which councils bear the bulk of the costs of accommodating growth and central government enjoys the bulk of the upside. But Labour should be able to make some progress on getting the necessary trunk infrastructure through.

I worry that the Labour/Green push for a substantial expansion in building state housing will quickly hit against sector capacity constraints, though, even if they're able to get infrastructure lined up. Last quarter's inflation figures suggest those constraints are starting to bind. The only way of easing those constraints in the short term are through immigration, through more relaxed rules around material supply that would recognize building materials from places like Tokyo, Seattle or Vancouver as being sufficient for New Zealand purposes without re-certification here, and potentially through eased rules around the Overseas Investment Act that would allow foreign construction companies able to build to scale to come in and build thousand-home subdivisions and in-town up-zoned developments.

But that gets us to one of the risks: the intersection of Labour, Green and New Zealand First's core beliefs is distrustful of markets and of foreigners. I can't see how we get anywhere close to the proposed 100,000 houses built in any reasonable time without allowing foreign workers, materials, capital and expertise to help.

New Zealand's Overseas Investment Regime already makes us the most restrictive in the OECD. Any land adjacent to a reserve must go through the screening regime, and it will be tough to ease that back under the current coalition. Heck, even New Zealand's Fletcher Construction has to jump through Overseas Investment Act hurdles because it has foreign shareholders. New Zealand First has proposed cutting immigration numbers substantially, and Labour and the Greens have been very sympathetic to that view. The incoming government has also signaled an intention to re-negotiate trade agreements to allow banning non-residents from buying houses. If supply issues are appropriately addressed, the ban does no good and could backfire if it prevents foreign investors from building houses here to rent out.

And there’s some risk the incoming coalition will end what National has been calling the “Investment Approach” to welfare policy. That one’s been promising, but has remained at the promising stage for a while – they've only started to get it seriously moving.

Under the Investment Approach, the government uses back-end administrative data to figure out which interventions reduce the government's long term fiscal burden. It's taken a long time to get there, but the Social Investment Agency's now set up to do that work, they have good statisticians there doing the analysis, and multicategory appropriations are set to fund things that don't fit departmental siloed budgets.

Prime Minister Bill English's vision behind it has been admirable. He's seen that too little spending is accompanied by any assessment of whether it improves the lives of those receiving it. The Investment Approach would start fixing that. It would also break down the informational advantage that Ministries hold over their Ministers. If the Social Investment Agency can show that NGOs  provide some beneficial outcome at half the cost of the line departments, Ministers can use that to better hold their Ministries to account.

It has been long and hard work for the government. But there are NGOs that really want to be able to assess whether their work does good and have been starting to work with the Social Investment Agency to combine their data and figure things out.

There's been some debate about whether minimizing the state's fiscal liabilities is the right goal, but that goal has always had political side constraints. Nobody would have proposed dumping beneficiaries from the benefit system as a way of minimizing liabilities. And it would always be possible - and desirable - to run some ancillary outcome monitoring alongside the fiscal liability measures. In English's view, which I think is the right one, people wind up costing the state a lot of money when they're living miserable lives, and things that bring them out of misery reduce the government's longer term outlays. He's viewed it as a proxy for reducing misery.

I really hope that the Labour coalition maintains the Investment Approach, and strengthens it by specifying the ancillary outcome monitoring to make sure that the policies that reduce the longer term fiscal burden are also the ones that improve lives.

But they will be under pressure from a public sector that might prefer to maintain information advantages over their Ministers. NZ First has had Big Brother concerns around that use of data - which also make me worry about whether the current push toward open data will be able to continue. And the Greens have wanted to undo much of the welfare policy emphasis that began under Helen Clark's Labour government to encourage beneficiaries to shift into work. Partially due to that shift, New Zealand now has an employment rate that is at least as high as it has ever been since the 1980s. I worry that the trade-offs haven't been appropriately appreciated.

Could be worse though! I expect New Zealand to remain the Outside of the Asylum. I expect that any changes to the Policy Targets Agreement to satisfy New Zealand First might ask the Bank to avoid undue variability in the exchange rate while maintaining inflation in the 1-3% range rather than asking the bank to pursue a dual mandate - the latter would not be a good idea at all. Any large changes to the tax system would only come after assessment by a new Tax Working Group - here are some of the questions I hoped such a group might answer.

And, for a bit of fun, here is the Spotify playlist that The Spinoff put together of tunes from incoming Prime Minister Ardern’s time as DJ. I love the Shatner version of Common People and hadn’t heard it before hearing this playlist. The Tom Jones version of Lust for Life is also great fun.

Update: other opportunities:
  • The coalition will be addressing water quality issues; I hope we're able to do it through cap and trade regimes rather than ones that would do less good at higher cost.
  • New Zealand First's regional development interests and local government experience could allow greater devolution through things like the Manchester City Accord. Wellington asked the government for that kind of an option; New Zealand First might be particularly sympathetic to greater devolution to Councils, depending on what powers Councils might want.
  • The Greens will get a referendum on personal cannabis use by 2020. 

Friday, 13 October 2017

A Wellington City Deal?

Newsroom's Shane Cowlishaw reported yesterday that Wellington City has been talking with central government about either a variant on the Manchester city accord, or a Special Economic Zone.

What would be in the deal isn't known - the OIA did not provide many details. It noted that Wellington would like a city deal following the UK examples, or a Special Economic Zone to allow different regulatory settings for Wellington, and a revenue-sharing mechanism for the upside gains of any such arrangement. As for the other details, it only noted the potential for a beefed up Urban Development Authority. I'm a skeptic on those as UDAs with expansive powers of compulsory acquisition are dangerous things.

But the rest is interesting; we at the Initiative were happy to see Councils taking this up. Khyaati and I suggested SEZs as a way of achieving devolution and policy trials within the context of a unitary state with Councils of vastly differing capabilities and competence. Our report on localism noted the Manchester model as another way of achieving the same thing.

I talked a bit on the radio yesterday about the proposal. I hope the incoming government is able to progress things with Wellington Council.

Thursday, 12 October 2017

Junk science

It is difficult to see what good purpose was served by this study.

The Otago people (in conjunction with Auckland's public health group) put cameras on kids that would take snapshots every six seconds. Then they poured through the footage to see how often the cameras, and presumably the kids, saw things that Otago people have long wanted to have restricted, like ads for food they don't like or alcohol. They counted the number of times things were seen. And then published the numbers in (at least) two separate studies expressing horror at the number and calling for bans on the things that they counted.

Is there any number that would have been low enough? Almost certainly not.

Is there any context for the number that might assist in anyone telling whether a number is low or high? Heck no. The news story on it talks about kids being bombarded with 27 junk food ads per day. Would there be fewer than 27 ads for candy in any 80s kid's daily bundle of comic books? I'm not the only one who remembers being bombarded with ads for Life Savers, am I?

The news story also says they got $800,000 to do the study.

They also counted the number of times the cameras saw alcohol related stuff and used the number, I kid you not, to call for a ban on alcohol sales at supermarkets.

The abstract of their paper is almost parody. Here it is.
Background and aim

Exposure to alcohol marketing within alcohol retailers has been associated with higher rates of childhood drinking, brand recognition, and marketing recall. This study aimed to objectively measure children's everyday exposure to alcohol marketing within supermarkets.

Method

Children aged 11–13 (n = 167) each wore a wearable camera and GPS device for four consecutive days. Micro-spatial analyses were used to examine exposures within supermarkets.

Results

In alcohol retailing supermarkets (n = 30), children encountered alcohol marketing on 85% of their visits (n = 78). Alcohol marketing was frequently near everyday goods (bread and milk) or entrance/exit.

Conclusion

Alcohol sales in supermarkets should be banned in order to protect children from alcohol marketing.
I wonder what number would have had them saying "Ok, maybe we don't need to call for a ban." Would it be more than zero? Was there any point to the study? I don't think the 1989 legislation that allowed sales in supermarkets said anything like "Oh, and we totally expect that parents will cover their kids' eyes as they go past the wine aisle, so it's ok, but if anybody ever shows that kids might actually see what's down the aisle, then we totally need to re-think this."

Some context that didn't make it into any of the press reporting:

  • The proportion of kids aged 15-17 who consumed alcohol in the past year dropped from 74.5% to 57.1% from 2006/7 to 2014/15.
  • Binge drinking more than halved over the same period, dropping from 25% to 10.7% of kids aged 15-17.
  • The number of hazardous drinkers among those aged 15-17 dropped from 19.5% to 10.8% from 2006/7 to 2014/15.

I don't know if this is the stupidest study in the world. Otago also had that one where they recruited 13 people, mostly from Facebook, interviewed them about their smoking, then called for a ban on smoking outside of bars on the basis of those conversations.

What would be sufficient basis for a call to ban alcohol sales at supermarkets? Strong evidence that the substantial inconvenience cost imposed on shoppers would be outweighed by reductions in external harm imposed by drinkers as result of the ban.

Being able to pick up a bottle of wine or beer with your normal shopping trip is a good thing that should count for more than nothing. It's a nice part of the Outside of the Asylum.

Wednesday, 11 October 2017

Restrictions on foreign investment - some context

Winston Peters is pushing for more controls on inbound foreign direct investment as part of his coalition negotiations with Labour and with National. Fran O'Sullivan's piece in the Herald suggested that New Zealand's regime is pretty laissez-faire.

Really?

Here's the latest OECD figures. They tally the restrictiveness of rules around foreign direct investment. New Zealand is the most restrictive country in the entire OECD. It is the seventh most restrictive country of the 62 countries they surveyed.

Here's what you get if you plot countries from most restrictive on the left to least restrictive on the right.


The Philippines is the world's most restrictive country, closely followed by Saudi Arabia and Myanmar. Then come China and Indonesia. Jordan is a bit more restrictive than New Zealand, but only barely. Then come India, Malaysia, Tunisia and Mexico, followed by Laos. 

If New Zealand is laissez faire on FDI, I guess Japan's a bunch of anarcho-capitalists and Luxembourg... we don't have a word for whatever that is. 

Tuesday, 10 October 2017

The Natural

Twitter is wonderful for pointing you to things you should have known, but had missed. 

I'd missed (then) Don McCloskey (now Deirdre)'s 1992 piece in the Eastern: The Natural.
Richard Bower is an economist right down to his wing tip shoes. He knows Sophocles and Shakespeare all right, but (there it is again) he believes in economics. not all economists do, of course. Bower does, as I do, and as perhaps fifteen percent of the profession does. Give the Bowers or the McCloskeys any social situation, from insider trading to an obstreperous teenage child, and they look to economics for an answer, or at least for a good running start.

People who "believe in economics" tend to agree on who the best economists are. They admire economists like Armen Alchian, Ronald Coase, Gary Becker, Gordon Tullock, Leland Yeager, economists often as not unknown to the unbelieving mainstream of the profession.

...

So Bower and I agree on economics. Our agreement makes our one disagreement about teaching it puzzling. Bower thinks that we can teach economics to undergraduates. I disagree. I have concluded reluctantly, after ruminating on it for a long time, that we can't.
Read the whole thing if you, like me, had missed it. McCloskey concludes that Bower overestimates the ability to teach economics to undergrads because he is a natural economist, who comes by the way of thinking easily, while McCloskey took a long time to learn it - and good teaching materials are hard to come by.

But teaching materials for thinking like an economist have gotten better since '92. Harold Winter's texts are excellent. So are Tim Harford's. And all of Marginal Revolution University. And blogs.