Saturday, 22 April 2017

Canadian Milkroad Trilogy

Three great reads on the insanity of Canada's dairy supply management system:

Trevor Tombe explains the consequences of supply management:
According to recent estimates from the OECD, the artificially high agricultural prices in Canada transfer $3.5 billion from consumers to producers annually — nearly $3 billion from milk alone. Spread over the 8 billion litres of annual production, it’s effectively a hidden milk tax of 37 cents per litre.

For producers, this is a big deal. At the end of 2015, there were just under 11,500 dairy farms in Canada. The $3 billion that supply management allows them to extract each year is equivalent to $260,000 per farm. Much of this is capitalized into the value of the quotas they are required to hold. A single one in BC and Alberta, for example, is currently worth roughly $40,000; in Ontario and Quebec, they go for $24,000. With nearly one million dairy cows in Canada, quotas are collectively worth tens of billions of dollars, an important cause of our country’s higher production costs.

This kind of system is highly regressive. The average dairy farmer had a net worth of more than $3.7 million in 2015, according to data from Statistics Canada, and poultry and eggs farmers were typically worth nearly $6 million. Meanwhile, low-income consumers face a heavy burden.

In recently published research, University of Manitoba economists Ryan Cardwell, Chad Lawley, and Di Xiang show that supply management costs the typical household the equivalent of $450 per year—and nearly $600 per year among households with children. For the poorest 20 per cent among us, that’s roughly 2.4 per cent of income; for the richest 20 per cent, it’s barely 0.5 per cent. Let that sink in. Those concerned about poverty, inequality, or living standards of the middle class (every politician’s favourite group) should oppose Canada’s milk tax.
Tombe sees an opportunity in Trump's push to level the playing field for American dairy farmers. So does Andrew Coyne:
That governments have been so unwilling to set aside a policy that is responsible for Canadian families paying two and three times the world price for basic food items, all to benefit a dwindling number of wealthy and aging, farmers (young farmers face a formidable barrier to entry, in the form of the cost of quota: more than $25,000 per cow) is one of the great dilemmas of public policy. If we have to enlist Trump to save us from ourselves, so be it.

We should not be too eager, however, given Trump’s view of trade: not as win-win but I win-you lose. To satisfy his need for conquest — and to show the domestic industry how doggedly it had fought for its interests — the government should protest in the most extravagant terms how much it would pain it to give it up. I envisage Canada’s negotiating stance here as resembling that of the submissive partner in an S&M role-playing game: “Oh, NOT supply management, Mr. Trump! You brute! Anything but THAT! No, DON’T ask that of us again, we BEG you…”

If we are very clever, we might pair this with a proposal for an offsetting “concession” on the American side. For example, the Montreal Economic Institute has suggested a deal (I see Maxime Bernier has lately taken up the same idea) in which, in return for Canada giving up supply management, the U.S. would cease its endless campaign of harassment of our softwood lumber exporters, including the threatened 25-per-cent tariff.
Finally, Colby Cosh finds some use for Canada's anachronistic 1970s system: reminding the kids about the horrors of socialism.
I hasten to add that I am not seriously playing the “Won’t someone think of the children” card so beloved of politicians, newspaper columnists, and other shameless scum. The four-year-old will get over it [not getting better yogurt to which she'd grown accustomed while abroad]. She’ll grow up in a free-trade Canada in which she does not have to accept a world of consumer second-bests, simulacra, and make-dos, except possibly in the dairy section. She can have no personal memory of Seventies Canada — never know what it is like to switch from Eaton’s to The Bay just to buy slightly different versions of the same low-quality, unfashionable crap. The question I grew up with was “Why does Canada have seemingly permanent poorer living standards than the U.S.?”; now it is just “Why are the cheese sections in our grocery stores so pathetic?”

It is almost enough to make one wonder: is there a political utility to keeping the ’70s dairy supply management system in place? Does it serve as a useful reminder — a subconscious warning — of what awaits us if we turn back to quotas and protectionism in our other industries? The cheese section may induce despair, but imagine, young folk, if the whole grocery was like that, and every other store too.
Cosh may be onto something. There's far too little appreciation in New Zealand of the 1980s reforms - all the benefits are taken for granted.

A gratuitous piece of non-dairy Canadiana as chaser:

Friday, 21 April 2017

Trumpitunity - skilled migration edition

My piece in today's Herald argues that people working in the US on an H-1B visa should have an easier time getting New Zealand work visas.
There are no practical routes allowing a skilled migrant to move to New Zealand without a job offer in hand. Counting the salary that comes with a job offer means the system will better recognise skills, but still requires that the migrant have a job offer before getting here.

And that can be difficult.

Put yourself in the position of an employer considering an applicant based abroad. You need to hire soon.

A candidate who was born in India but who has lived and worked in America on an H-1B visa for a decade has applied.

The candidate beats anybody available domestically, and will have enough points to be granted the visa on being given the job offer.

But the candidate will not be eligible to work until the visa comes through. And getting the visa requires getting a police background check from the candidate's country of citizenship, even if the applicant has not lived there in decades.
There aren't really many NZ visa options that don't require the migrant to have a job offer in hand. But you won't get the job offer in the first place if the employer thinks it'll take months for you to clear police background checks in whatever country you left to get the U.S. H-1B.

There are a few ways to solve it, but they'd all either involve a limited duration work visa without home country police background checks for those working in the US on an H-1B (if they'd been in the US for more than a trivial amount of time), or exempting those who've made it through America's system from having to get police background checks in their home countries as well.

A country that admits millions of tourists per year without police background checks can afford to be a bit less precious about police background checks for those wanting work visas.

Meanwhile, Andrew Little wants maximum net migration numbers that are far lower than the number of Kiwis and Australians who moved to New Zealand last year and can move here by right. I wonder if he's set to start deporting people in Auckland who have Chinese-sounding names.

And while the government's shift to include salary as a way of demonstrating skill for skilled migrant visas could be a great complement to the existing system for catching those whose skills are underrecognised by MBIE's lists, it would be rather less hot if they also knocked out skilled entry for those on the current lists but on lower salaries. And the stand-down periods that would basically end consecutive work visas are inhumane. Someone comes here and starts building a life, and you kick them out for a few months every time they want a new visa? Gets harder to convince people to move to the far end of the world if you're going to treat them like that. And, worse, it gets harder for migrants to start thinking of themselves as Kiwis. That's been one of the really great things here - that immigrants aren't treated like garbage. In the middle of the biggest opportunity to attract skilled migrants to New Zealand, we've got an election campaign that seems set to have the parties compete on who can be most horrible to migrants. On the one hand, it makes me want to get my citizenship sorted out as a way of buying immunity; on the other hand, it makes it a bit yuckier.

Mandatory labelling - again

Twitter suggests there's a pretty common fallacy out there that needs a bit more thorough treatment. Here's how it looks:

  1. Free markets require informed choices
  2. Therefore the government should compel companies to label their products about things that I happen to care about. Otherwise how can people make informed choices?
Why is this an error? There's an infinite array of things that could show up in (2) as basis for labelling because different people care about different aspects of products. 

In the absence of mandatory labelling, consumer demand combined with labelling costs ultimately drive what gets put on a label. Consider country of origin labelling. Some suppliers specialise in a pure NZ product - and proudly say so on the label. Others will shift supply depending on what's going on in different markets: some disease outbreak might hit pork from Thailand but not from the Philippines and so processors will shift from one place to another if their customers don't care so much about the product's country of origin. And others will proudly label their product as Danish butter or Swiss chocolate. 

In that set-up, companies will provide information about whatever they think will help them make sales. Some will make a big point about their country of origin, targeting customers who care about that. Others will make a big point about animal welfare. Others will highlight that the product doesn't have gluten. And, importantly, customers aren't idiots. If one package of bacon has a pile of credible labelling about that the bacon was grown cage-free in New Zealand and processed here, another says it's cage-free and from Denmark, and the other one says nothing about either cage status or about country of origin, then it's pretty likely that the last one comes from caged pigs in places that are either too complicated to tell you about (constantly shifting supply chain), or from places that they think you'll not like it to come from. Equilibrium in those kinds of games is that everyone discloses except for the ones with the least desirable characteristics - but it can also be the case that, for that brand, customers just don't value the information as much as it would cost to provide it. 

What do I mean? It is really easy for casual observers to say "Oh, it wouldn't cost them much to label products about X." Take again country of origin labelling. It sounds cheap, right? But what if your supply chain includes suppliers from dozens of countries and you shift among them depending on time of year and local market conditions? You then have two options: more expensive products where the company has to add in a constantly varying label or sticker, or a rather less useful label saying "Our product may contain wheat grown in Canada, the United States, New Zealand, Australia, India, the Ukraine, Pakistan, Egypt, Argentina, Serbia, Morocco, Turkey, France, Germany, Uzbekistan and Kazakhstan, and may contain strawberries sourced from New Zealand, Australia, the United States, (or dozen other countries) depending on the time of year." And then you have to change the label again if trade embargoes on Russia change. 

Like, it's not technically impossible: HAACP batch labelling would link back to where that batch's component parts came from, and you could imagine setting up more expensive labelling kit that would generate stickers from the batch label - but it is more expensive, and suppliers could already be doing it if customers valued it. If your basic model of the world is that suppliers are all colluding to keep valuable information from customers, then you should quit your job and start up a company that fills the gap. The profit opportunity must be huge. Be the firm that has the more expensive labels and profits by telling everybody! 

Meanwhile, a speciality producer whose customers care about New Zealand sourced product can easily self-identify with a big "Made in New Zealand with New Zealand grown ingredients" label to attract those customers that care about it. And people who want that can and do pay extra for it.

Some underappreciated points about markets:
  1. What consumers want drive what firms provide;
  2. What consumers say they want can differ from what they're willing to pay for;
  3. Companies are best placed to know their own cost structures;
  4. Markets are really pretty good at providing what people are willing to pay for. Entrepreneurs in free markets are constantly looking for opportunities to provide things that people value and that can be supplied profitably. 
Some underappreciated points about politics:
  1. Regulators are really good at mandating things that voters say they want but that voters, as consumers, are unwilling to pay for. Whenever they do this, they destroy value;
  2. Mandatory labelling guidelines depend on political demand, not economic demand;
  3. Voters are far more protectionist and anti-foreign when they're voting than when they're buying things. 
I can see cases for compulsory labelling about allergens. If a small set of consumers would experience huge costs from inadvertently eating peanuts, for example, then the niche of "Guaranteed Peanut Free" products would be pretty small, and the downside costs are very large. Beyond that, though, it's real hard to see the case for expanding the set of compulsory labels. 


Thursday, 13 April 2017

Hypothesis testing: open data edition

The graph looked plausible. It didn't really fit my experience, but it didn't seem implausible either.

So I took a 5 minute jaunt over to Berkeley's SDA engine, which draws on US GSS data. First I ran a basic regression of happiness on age, age squared, with a high score in wordsum (a vocabulary test) as my nerd interaction term.

Berkeley lets you run the regression right in the website. I'm not sure I've got this one right - can't guarantee that I properly excluded where they used a code for missing data.

Then I downloaded the data to plot things a bit more nicely in Excel, because you can generate custom data extracts on the fly. I'd not done that before; learning how to do it took 5 minutes (mostly because I forgot to include the happiness variable the first time through). Deleted all the missing data lines. Then a quick pivot table let me plot average happiness for the top wordsum scorers against the average of all wordsum scores on happiness, by age:

The orange line is noisier - as you'd expect as there are fewer observations over which it averages at each age group.

What do we take from this? Happiness is not quadratic in age. Maybe wellbeing is, but I don't think that's in this dataset. And I can't made diddly out of any difference between top scores and the average. I'm sure there are plenty of refinements that people could make: there's great educational attainment data and other stuff in there that could better identify nerds, and maybe there is something in there that's closer than happiness is to well-being. But I didn't have more than 10 minutes to play with it.

Quick and simple real data test of a plausible-looking hypothesis. And there are plenty of reasons why splitting happiness data up by education, or vocabulary, and by age would be of more serious research interest.

Here in New Zealand, getting access to the Confidentialised Unit Record File from Statistics New Zealand would take a 3-week application process and signing a pile of forms and promising to delete the data when done with it and making sure the data is stored securely and checking with them before publishing and results from it.....

Tuesday, 4 April 2017

Data Envy

America often gives me data-envy. This is an older New York Times piece, but just look at the data visualisation that's there possible. Because every child in the country writes the same maths and reading tests, there's data on how far each school is ahead or behind others. And it can be mapped against parents' socioeconomic status, and sorted by race.

I can't do it justice here. Click over and hover over the graphs. They're all interactive.

Here's educational attainment mapped against parents' SES. Cullman City, highlighted, is achieving outcomes that would be about what would be expected among schools where the family income is $103,000, not Cullman's $43,000. Why are they able to achieve those outcomes? Americans can start asking those questions and figuring out what lessons Cullman City can teach other schools, because they have that data.

They've other graphs showing the differences across races within the same school, again mapped onto parents' SES. Unfortunately, those charts only compare White, Hispanic and Black students; it would be very interesting to add Asian students in as well. 

Being able to identify well-performing and poorly performing schools, with proper adjusting for the kids' background characteristics, seems rather important in identifying well-performing and poorly performing schools.


Monday, 3 April 2017

In Praise of Bryce Wilkinson

How to overcome this petty uniformed busy-bodyism plague? One answer is never to put a short man in a uniform. That’s an old maxim, borne out by the oft observed fact of so many of history’s notorious dictators being short.

Some years back as guest-speaker at the Police school passing out dinner I remarked to the Commissioner about some conspicuously short graduates, this leading to an angry outburst about bloody equal rights nonsense. He was right of course as any run-in I’ve ever had with the police has invariably featured a very short copper. Think of American police TV comedies over the past 50 years. Without exception, they featured a comical very short, swaggering policeman acting the tough guy.

When in uniform ...

I know lots of talented and excellent company short blokes but have no doubt what would happen if you banged them in a uniform. Take respected, popular economist and occasional NBR contributor Bryce Wilkinson, who’s very short and seemingly perpetually happy. Subject him to a flogging and he’d laugh throughout and thank you afterwards, such is his benevolent outlook on humankind. But put him in a uniform and it’s odds on he, Jekyll and Hyde like, would transform into a raging, trouble-seeking wild beast.
Sir Bob's right about the factual Bryce Wilkinson. I'm not sure he's right about the counterfactual Bryce Wilkinson. Those who seek a uniform because they're compensating for something differ from those who have the uniform thrust upon them.

Friday, 31 March 2017

Not everything has to be mandatory

Back in the days of dial-up, my mother-in-law had a really cheap ISP service. She didn't pay very much, and the ISP put ads on top of everything. There was some kind of ad bar at the bottom of the browser no matter what site she was on. But the ads didn't bother her and she wanted a cheap service. They bothered me whenever I used internet when visiting at her place, but I wasn't the one paying for it.

It was totally legal to have that. Did every ISP do it? No. Just that one. Everybody else signed up with other ISPs and didn't have that - just the normal ads. But imagine if it had been banned, then somebody proposed removing the ban. It's easy to imagine horror stories about every ISP doing that, until you think through the logic of it.

And so I don't get the fooferah around the American legal changes around ISPs and client privacy. Some people who don't care about their browser trails will be able to get cheaper internet service in exchange for their ISPs being able to sell on their histories to advertisers for better targeted ads. Others won't. I didn't sign up for my mother-in-law's ISP but I'm glad she was able to; I wouldn't sign up for a less privacy-friendly ISP but am happy enough for others to, if that's their preference.

I talked with NBR Radio about it Thursday; I expect it'll go up sometime soon if it isn't already. There are some details about the American proposal that I don't know about and that do matter. If the ISP can sell your prior browser history without your knowing about it or consenting, that would be bad. But so long as it only applies on a forward-looking basis, then the market will segment between those who care about browser privacy and those who don't. And even if it doesn't, consumer backlash against selling prior history surely will also matter if people actually care about it that much.

I'd expect this even in the case of cities where broadband competition is limited. Even a monopolist does better by segmenting the market - although in that case, the ISP could extract more than it ought to be able to from privacy conscious consumers. In competitive broadband markets, it shouldn't matter.

A policy letting ISP clients choose lower cost packages in exchange for less privacy worries me a lot less than policies mandating that ISPs keep years of client data on file for the government to snoop through without the browser's consent.