Monday, 22 December 2014

Three years too late

The Supreme Court got this one right. But, big picture, it is absolutely nuts that this was decided in December 2014 rather than back in 2011.

Recall that after the quakes, Christchurch Council hiked the building code requirements. Repairing earthquake damage then often meant bettering the condition of the building over its pre-quake condition. Insurers had not provided insurance against Councils mandating costly things and so did not want to be on the hook for it. And so off to court.

Finally, the Supreme Court has ruled, rightly, that insurers aren't liable for Council's changing the building code. But it's taken until now. The real problem here is that we've had over three years of legal uncertainty slowing the rebuild.

Why oh Why didn't the government fund a few test cases on this in 2011 to get declaratory judgements that would allow works to proceed more quickly? This is the kind of thing that CERA should have been jumping to do.

Convention Centre follies

The Sky City convention centre deal, as I'd understood it last year and the year before, was about the least bad way of getting a convention centre if you're determined that the government should be in the "facilitating convention centres" business.

Sky's offer was to provide a new convention centre attached to a casino. I wrote last year:
We should think of this as two separate deals.

First, the government is auctioning off some gambling concessions. SkyCity has bought the right to have an additional 230 pokie machines, 40 gaming tables, assorted other gambling concessions, and, possibly most importantly, a guarantee that if some future government reneges on the deal by banning gambling or otherwise eroding the benefits provided to SkyCity under the deal, they'll be compensated. Now suppose that we opened that whole thing up to a general auction. People would then bid for those rights; the highest bid would approximate the expected flow of profits from having the concession.

Second, the government took bids for the right to build and operate a big convention centre. The high bidder, or rather the company willing to do it at the lowest subsidy, gets to build and run the convention centre.

In this case, SkyCity has to reckon that losses (if any) from building and running a convention centre are less than the gains from the gambling concession [NBR subscription, sorry]. And it isn't crazy to think that the bundle provides added value: convention centres near casinos tend to lose less money than those not so-situated; there are reasonable complementarities between the kind of facilities attractive to conventioneers and those that are in place in casinos.

Conditional on the government wishing that there be a big fancy convention centre in Auckland, this is likely the least bad way of doing it. I haven't gone through the accounting on it in any depth, but the bottom line has to be that SkyCity reckons it can make a go of it, since they're bearing the risk if they can't operate it profitably. And it isn't crazy to think that there could be some economic benefits from increased tourist traffic if we host more conventions. But whether those benefits are larger than the amount SkyCity might otherwise have bid in an open auction for the gambling concessions, where the revenues went into the general fund rather than into a big convention centre, that's rather less clear. It's possible, but it's far from certain.
As I'd understood things, Sky was to be on the hook for cost increases:
On the plus side, it's unlikely this arrangement yields another Claudelands. SkyCity's on the hook for costs. They've reasonable incentive to keep things running properly: the Centre would complement their existing operations. The more conventioneers, the more potential customers at the nearby casino.

...Bottom line: I do not believe the "broader benefits" case for building convention centres. Nothing stops hotels near a proposed centre from getting into sponsorship arrangements where they pay for listings in standard convention centre marketing materials to help fund the centre; I find it more likely that the benefits are too small to make it worthwhile than that public goods problems, easily resolved by assurance contract, stop things. But if we're going to have a new convention centre, this might be the least bad way of limiting fiscal risks. That's not a strong endorsement, because I don't particularly like the potential regulatory takings from the local pubs currently hosting pokies if the new machines are part of the sinking lid policy, and because there's a whiff of cronyism to the whole thing. But honestly, who else would be able to pull off the casino-convention centre combination in Auckland?
If it turns out that the government is on the hook for cost inflation, then much of the point of the whole deal is lost. Matthew Hooton's been livid about this on Twitter. He's not wrong.

A government committed to using PPP arrangements also has to be ready to play hardball with contractors who lowball initial cost estimates lest they encourage stupidity in each and every future contract.

Every nice thing I said about this deal is retracted if government is on the hook for cost-overruns or operating expenditures.

Saturday, 20 December 2014

In praise of inflation targeting

The New York Times celebrates 25 years of the Kiwi Inflation Targeting Technology.
Sometimes, decisions that shape the world's economic future are made with great pomp and gain widespread attention. other times, they are made through a quick, unanimous vote by members of the New Zealand Parliament who were eager to get home for Christmas.
That is what happened 25 years ago this Sunday, when New Zealand became the first country to set a formal target for how much prices should rise each year - zero to 2 percent in its initial action. The practice was so successful in making the high inflation of the 1970s and '80s a thing of the past that all of the world's most advanced nations have emulated it in one form or another. A 2 percent inflation target is now the norm across much of the world, having become virtually an economic religion. 
The piece misses that New Zealand's since flipped to a 1-3% rule, on average over the medium term, and that the RBNZ let things run hot in the leadup to the '08 recession - interest rate hikes in early '08 would have been a mistake regardless of that they were above 3%. But it's a great read.

Thanks to Don Brash, David Caygill, and Roger Douglas, who made it happen.

I'd not seen this picture of David Caygill before. But the general theme is not unfamiliar.

Update: Here's the version from the 2025 Taskforce report.

Update 2: The Kiwi Inflation Targeting Technology: KITT.

HT: Ben Atkinson

Friday, 19 December 2014

An incoherent argument for spying

The Timaru Herald gets this one pretty wrong.

Peter O'Neill's editorial there makes the following case:

  • Yahoo!, a private company, saw that one of its service's users was trafficking in child pornography.
  • Yahoo! alerted the American authorities, who got in touch with Internal Affairs in New Zealand, as the user was in New Zealand.
  • The Americans then asked Yahoo for a few more details to allow the Kiwis to find the guy.
  • The police here arrested him in Timaru.
That's all fine. Then the punchline:
  • Therefore opposition to TICS, the NZ legislation making it easier for the GCSB to spy on internet users, is great and all the civil libertarians were wrong.
I just don't see how the last part follows from the first. All of the first chunk could have happened with or without TICS.

Thursday, 18 December 2014

Cost-benefit analysis and impartial umpires

In contrast to his fiscal rules, Osborne has had enormous success with his greatest fiscal innovation: the Office for Budget Responsibility (OBR). It was created in 2010 and has been successful in curbing the problems of over-optimistic forecasts that plagued the Treasury through the 2000s. Its ruthless transparency has lent credibility to the government’s plans and, in only a few years, it has grown in stature to the point that it can openly rebuke the Prime Minister and force changes in the Budget with its forecasts.

Expanding the role of the OBR, commensurate with its growing stature, would help overcome the fits and starts of UK fiscal policy. Where rules are fragile and inflexible, institutions grow and evolve in response to circumstances. As the OBR continues to perform effectively and its credibility rises, it can sustain a greater burden of responsibility for holding the government to account. Already, it has cross-party respect and support: last year, the shadow chancellor Ed Balls asked it to inspect the budgetary pledges of each major party ahead of the election. That is surely a good idea.

Assessment of opposition and government policies is a role already performed by similar bodies overseas, such as the Dutch CPB. The CPB is nearly 70 years old and has gradually taken on a central role in analysing the implications of election manifestos and Budget promises. In America, the Congressional Budget Office has also expanded its purview over time. Both provide indispensable analysis of the implications of the government’s policies and proposals, describing the trade-offs and estimating the costs.
Bryce Wilkinson and Khyaati Acharya here at the Initiative made the case for a New Zealand version.

I'd love such a body to act as clearinghouse for cost-benefit analyses. Regulatory Impact Statements vary in the quality of cost-benefit analysis; there are always ways of getting the number over the line if the Ministry's particularly keen - just consider the Australian East-West rail road link. You need an impartial arbiter to make sure that the cost-benefit analyses are being undertaken to a common standard across Ministries.

Further, since few Ministries have in-house capability to conduct these analyses, they often have to outsource it to private consultancies. At least one of these consultancies has a reputation for providing the number that the client wants rather than one that's sound. But Ministries can't pay the piper unless they know the tune, or unless somebody who can read sheet-music has a look over things afterwards.

Here's a simple rule that could work. Submitted Regulatory Impact Statements would be required to include a cost-benefit analysis for any rules with substantial effect. That cost-benefit analysis must be vetted by Treasury, or by a new Fiscal Council, with enough of the workings provided by the Ministry or the consultants to allow for replication and sensitivity tests. Treasury is working up new guidelines for cost-benefit assessment; that would be the benchmark. If the cost-benefit analysis fails to pass muster, it's sent back to the Ministry. And consultancies that produce cost-benefit assessments that fail to meet the standard more than, say, one time for every ten reports produced, are put on a naughty sheet barring Ministries, government agencies, SOEs, local governments, regional governments, or any other part of the government I've missed here, from engaging their services for a few years.

Further, for a cost-recovery fee, that same agency should be able to vet analyses produced for private sector clients. A failed report there could get the tagline "Had this been produced for the public sector, the consultancy producing it would be barred from producing further analyses for any government agency for two years." And that tagline could follow it in all public discussion of that report.

I think the naughty sheet would do a lot to improve the standard of cost-benefit analyses in New Zealand.

Wednesday, 17 December 2014

The gender wage gap and hours worked

From my piece with Bryce Wilkinson in last week's National Business Review:
Suppose a management consultant pulled you aside and said, “Hey, have I got a deal for you. With this one simple trick, I can lower your labour costs by 14% and it won’t cost you a dime in productivity. Trust me, I know what I’m doing.” You’d probably be a little sceptical about the claim, or at least I would.

Statistics released in the last week by the State Services Commission reportedly found that the pay gap between men and women in public sector management roles averaged 14%.

Sadly, there are few one-simple-trick paths to success. More rigorous analysis of gender pay gaps that accounts for differences in work experience, training, time outside of the workforce, choice of industry, and hours worked generally wipes out the bulk of the headline pay differences.

The recently released New Zealand Income Survey data also makes things very clear. Hourly earnings for full time male employees, at $23.97/hour, is only about 6% higher than women’s $22.54; women in part-time work, averaging $17.26/hour, beat men’s $16/hour. Much of the headline pay gap comes from that more men are in full-time work rather than part-time work.

Treasury released analysis a fortnight ago showing that Working for Families (WFF) has reduced the number of hours worked by married women. Prior to WFF, among married men in employment, about 10% worked part-time, 59% worked a 40-hour week, and 32% worked a 50-hour week. For women, 55% were in part-time work, 30% worked a 40-hour week, and 15% worked a 50-hour week. None of those figures changed greatly with WFF, but women in part-time work shifted to working fewer hours, and about 9000 married women dropped out of the workforce entirely.

In a lot of professions, wages start climbing substantially for employees willing to put in the longer work-weeks, as economist Claudia Goldin pointed out in her 2014 Presidential Address to the American Economic Association. Much of the measured pay gap comes down not to discrimination, but to choices.
Update: NBR subscribers can catch it here.

A few relevant links:

Tuesday, 16 December 2014

Kreskin Cosh

Well, Colby Cosh called this one before it happened, didn't he?

Cosh from last week:
The point is not that Bismarck [subject of many assassination attempts] was particularly hated, although he was. The point is that this period of European (and American) history was crawling with young, often solitary male terrorists, most of whom showed signs of mental disorder when caught and tried, and most of whom were attached to some prevailing utopian cause. They tended to be anarchists, nationalists or socialists, but the distinctions are not always clear, and were not thought particularly important. The 19th-century mind identified these young men as congenital conspirators. It emphasized what they had in common: social maladjustment, mania, an overwhelming sense of mission and, usually, a prior record of minor crimes.
From the Sydney Morning Herald on yesterday's hostage incident:
Manny Conditsis, a Sydney lawyer who represented Monis last year when he was charged with being accessory to the murder of ex-wife Noleen Hayson Pal, told ABC News that Monis was an isolated figure and "damaged goods".

"His ideology is just so strong and so powerful that it clouds his vision for common sense and objectiveness," Mr Conditsis said.

"Knowing he was on bail for very serious offences, knowing that while he was in custody some terrible things happened to him, I thought he may consider that he's got nothing to lose," he said.

"Hence participating in something as desperate and outrageous as this."

Monis had an extensive criminal history, which included being charged with 50 allegations of indecent and sexual assault. He had also been engaged in a protracted battle to overturn his conviction for sending offensive letters to the families of dead Australian soldiers between 2007 and 2009. 
BK Drinkwater also claims, ex post, to have gotten it right:
One potential lesson from the whole thing?
I could support shifting funds from spying over to mental health support. I doubt it would have helped in this case, as Monis looks to be somebody who really should have stayed in prison for a very long time. But it does seem a better general-purpose technology. This image sticks with me: