Harsh stuff from Grant Wilson at the Australian Financial Review ($):Even with the RBNZ flagging macro-prudential tightening next year, via the reimposition of loan-to-value ratios, house prices are now a de facto constraint on monetary policy. The "least regrets" formulation also assumes that the RBNZ’s approach to unconventional monetary policy, which was first articulated back in 2018, holds up. While we agree that the first round of LSAP, in conjunction with other measures announced in March and April, was highly effective in lowering the local term structure of interest rates, the jury otherwise remains out. We highlight (again) that the RBNZ’s expectation of LSAP imparting downward pressure on the NZD via the portfolio balance channel is in doubt. In contrast to their pass-through

My column in today’s Dom Post:New Zealand’s Covid-19 Leave Support Scheme took a page from Singapore’s book, but needs a few tweaks to really be effective. The scheme compensates employers, including the self-employed, if they need to self-isolate and cannot work from home.It provides excellent coverage for workers who have been required to self-isolate because they have Covid or because they have been told to self-isolate as a close contact of a case.It covers you if your child has been told to self-isolate and you need to provide support.And, for a few workers in a few critical health sectors, it also provides coverage while waiting on a test result.All of that is laudable.But if you’re a hospitality worker, or a retail clerk, or a bus driver, you will not be eligible if you’ve

The price of carbon dioxide emissions in the ETS is $35/tonne. The scheme has a binding cap. If you buy a tonne of credit and then refuse to use it, you have reduced New Zealand’s net emissions by one tonne. Somebody, somewhere, will not be able to buy that tonne. That person or company will emit less. Every time the government does something through regulation or other spending that costs more than $35/tonne to abate emissions, it is forgoing the opportunity to do even more good by buying credits and running them through the shredder. The waste documented in Marc Daadler’s story is just infuriating.Cleaner boilers in government buildings have a 20 year lifespan, a cost of $80m, and an annual emission reduction of 26,000 tonnes. Assume a zero discount rate, that’s 520,000 tonnes abated at

Imagine yourself in the place of the MBIE boffin tasked with deciding which application for a scarce MIQ space is most deserving or most needed.The job isn’t easy.The government keeps a small number of spaces in MIQ for getting critical workers in. But somebody has to decide which workers are most critical. Applicants fill in forms to make their case, but that won’t help a pile. Every applicant will have incentive to present the most sympathetic case possible, and whoever is assessing the cases has to figure out how much overstatement is present in any of them.Think only about agriculture for a moment. I can easily sympathise with the horticulture folks who are looking at just horrible losses because they can’t get workers in through MIQ to do the picking. There are lots of calls for them

The afternoon’s worthies on the closing of the browser tabs for a system update:This mess has been a long time coming. There are piles of small rural water schemes that largely supply stock water. The government has been trying to figure out how to apply water quality standards to that sector where the number of people on those water supplies is tiny, where treating huge volumes of water intended for stock is just stupid, but where government and councils worry that cost-effective solutions could leave them legally liable if anything goes wrong. You’d think there’d be some way of letting households on those schemes install their own UV filtration on a caveat emptor basis. Three cheers for the Local Democracy Reporting fund that helps this kind of journalism. Getting a tenant who

My Newsroom column this week wishes that New Zealand had Case-Shiller markets. The relevant bit (Update: now ungated here):House prices have been ramping up with lower interest rates, perhaps in expectation that the new Government will not enable sufficiently more construction for some time.If an investor expects house prices to drop, owners of rental properties can reduce their exposure, but otherwise it’s a hard market to short.Similarly, those wishing to build up enough funds for a house rely on KiwiSaver portfolios that may bear little relationship to the cost of housing.What’s missing are markets like the US “Case-Shiller” indices. These track house prices across major US metropolitan markets (Canada also has a version). Traders at the Chicago Mercantile Exchange then buy and sell

RNZ reports on the potential effects of the ban on coal in industrial heating.Fonterra supported the ban. Smaller industrial users didn’t:Horticulture New Zealand said in its submission that the consultation document did not appear to consider impacts of the proposals on greenhouse-grown crops.It said phasing out existing coal boilers used for space heating of greenhouses would be "devastating" to indoor vegetable crop production.Barnes said food production in New Zealand could be dramatically affected."If things move too fast we could end up seeing some of our members go out of business before they’re able to implement new alternatives, which would mean you would be getting potentially more imports and less locally produced product, particularly in the South Island."We have an Emissions

Susan Edmunds at Stuff asked me what effect Labour’s proposed new tax rate on earnings above $180k might have on the usual "people in the top x% pay y% of all income tax" figures.The actual answer is complicated. Some on those kinds of incomes can just reduce their wage income and keep income within a company structure, where it would hit a lower tax rate until earnings might be dispersed. But Labour had had estimates of that the new tax rate would earn $550m per year from the top 2% of earners. If we take the total income tax paid by those on >$150k per year, add the $550m from those above $180k, you can ballpark it. Using 2019 figures, the top 3% of earners on $150k+ paid 23.5% of all income tax. Adding the expected revenues from the new tax rate would increase that to 24.7%.I don’t

Richard Harris spent a bit of time going through firm-level panel data on NZ firms, looking at the productivity frontier here and the distance to the global frontier.Here’s the upshot:The most important conclusion from this study is that while there is some evidence of a failure
of productivity-enhancing technologies to diffuse from firms operating at the national productivity
frontier, the major problem is failure of productivity-enhancing technologies to diffuse from firms
operating at the global productivity frontier. New Zealand’s major problem is that frontier firms
are underperforming because of their characteristics (e.g. small and lacking international connections) while productivity is overall adversely affected by a lack of competition, which generally creates
barriers to

Leigh-Marama McLachlan notes one of the bizarre things about renting in New Zealand.After encouraging me not to stress about inspections, my new property manager hit me w/ a breach of tenancy for a dirty mirror in my room (boys sticky hand marks) and vacuuming (small part in toy room) and wiping down kitchen cupboards. The house was bloody clean. Ridiculous.— Leigh-Marama McLachlan (@leighmarama) October 31, 2020 Landlords here do 3-monthly inspections, and they can be rather a bit more invasive than anything you’d be used to if you’ve lived in North America.It’s worth thinking about why things are like this. The knee-jerk reaction is to want to ban it; I’m more interested in why this happens. Banning symptoms tends not to fix problems. Some potential explanations:
New Zealand houses

Neil Gaiman had an excellent short story, published back in 1989, imagining some of the dangers of a determined bargain-seeker. Peter Pinter just couldn’t refuse a good deal. And when he found that the assassin he’d hired offered bulk rates that didn’t just reduce the per-person cost for a large contract but also the total cost, well, who could say no?The story was made into a short film.[embedded content]"We only had to be asked, Mr Pinter. We always have to be asked."In our Friday Insights newsletter, I used our third column to think about the dystopias that can emerge where an ambitious central bank and SuperFund find that money is free. That last line from Gaiman was in my head when I was writing it. THE NEW ZEALAND WORLD ORDERIt all finally started coming together in the 2021 Budget.

It isn’t hard to imagine that the Department of Conservation might have good reason to want to know whether a big film crew, for example, might be spending a few weeks trampling part of the Estate. There are places that might have endangered plants that need to be protected. Or nesting sites. But this seems a bit nuts. DOC requires photographers for news organisations to get permits to take pictures on public land, but other photographers are okay.Nope, it doesn’t make sense to me either. And I’m worried about media freedom. https://t.co/rG1eK4nivU— RebekahWh (@RebekahWh) October 29, 2020 From the article:A third of the country might be off-limits to camera-wielding media who don’t have an official escort or permission, if a Department of Conservation policy is rigorously enforced.DoC

If you can credibly commit to punishing, you won’t have to do it. If you can’t, then you’ll have to, but you won’t be able to, and that’ll be a problem. A couple of weeks ago, Newsroom reported on problems in state housing. The state housing provider, Kainga Ora, has had to spend about $300k on security guards during Auckland’s lockdown. Why? Because they don’t know how to deal with part of the cross-section that shows up in state housing.For the real reason, on top of a violent home invasion linked to the complex shortly after tenants moved in, an email trail in a follow-up official information request is more compelling: a dispute stretching months between neighbours and the agency over general behaviour – in particular, one tenant and her visitors.And not just neighbours either. Other

I hope that the cannabis referendum passes. It isn’t the legislation I’d have written, but it is preferable to prohibition. Last week, The Helen Clark Foundation and the Initiative co-hosted a webinar with The Brookings Institution’s John Hudak, author of Marijuana: A Short History, about America’s experience with legalisation. You can catch it below. 
[embedded content]Public Address’s Russell Brown covered the webinar here.There’s been a lot of misinformation about what would be allowed under the proposed legislation. I covered some of that in this week’s column for the Stuff newspapers. A snippet:The main scare stories really do not hold up. The legalisation experience abroad counters many of them; the restrictiveness of New Zealand’s proposed framework puts paid to much of the rest.If

RNZ’s Nine-to-Noon had a decent discussion of rapid antigen testing and its potential in helping to open things up. Paul Simmonds suggests a rapid antigen test at the airport before flying (negative test required for boarding), and another rapid antigen test on landing. Those testing negative both times would be considered cleared.I really like rapid antigen testing. But I’d see it, in first instance, as a complement to managed isolation. We’d learn how effective it is, and whether other cases still get through.How could you do this? Run the rapid testing as Simmonds describes. Maintain existing Day 3 and Day 12 PCR tests, but add daily rapid antigen testing in MIQ. They’re not invasive so it’s pretty easy. And add in a requirement that those leaving MIQ show up for a PCR test a few days

The tabs… there are so many of them.A few notes on the closing of the tabs.Tyler Cowen is excellent on herd immunity. Those who urge us not to worry about the virus used to claim that herd immunity would kick in and the virus would burn itself out. Now they tell us not to worry because the death rate has dropped. But herd immunity was supposed to stop case numbers from rising. And even places with lotsa Covid aren’t there yet – other than perhaps at San Quenton. Sam Bowman has a neoliberal agenda for the 2020s: YIMBYism, support for immigration, and carbon pricing (he says carbon taxes, but if you’ve already got an ETS, that’ll do the job). Neoliberalism is a bit of a political swear word. Oliver Hartwich goes through the history of the term – the actual neoliberals were more ‘third

The 2020 Household Income Statistics are out! Well, I’m not sure when they were released, but they’re there in NZ.Stat now. Hit the Incomes tables, then hit "Earnings from Main Wage and Salary Job by Occupation" tab. Median hourly earnings in 2020 are $27.The minimum wage in New Zealand is currently $18.90 per hour.Diving the latter by the former tells me that the minimum wage is now 70% of the median wage. Labour has promised to increase it to $20.We are going into a rather substantial recession.Inflation is low, which means that nominal wage rigidities are also real wage rigidities, amplifying any disemployment effects. Hospitality will have a fair few workers on minimum wage, and we have to expect that collapse in demand for bars and restaurants with the borders being closed will mean

My column in Newsroom this week wonders what the point of National’s policies promoting electric cars might be.The current incarnation of the ETS is much stronger. The cap-and-trade scheme now has an actual cap on total credits and net emissions available in the system: 32 million units are available in the system in 2021, reducing to 30 million in 2025.Previously, the Government capped prices by simply creating new credits at an ETS price of $25 per unit. Now, its cost-containment reserve will require the Government instead find real emission mitigation activities, whether at home or abroad, to “back” any credits created when prices hit a trigger price of $50 per unit in 2021, with the price cap rising by 2 percent each year.Under a cap-and-trade scheme with a binding cap, every credit

I’d worried that there’s not been nearly enough worst-case thinking around Covid, vaccines, and immunity. Josh Gans points out that even the best case around vaccine development is pretty worrying. Deploying a successful vaccine will take a long time. If you haven’t subscribed to his substack newsletter, you’re really missing out. This week I will look at vaccines and explain why the awaited for ‘miracle’ won’t be so simple. The reason I want to highlight this is not to get everyone down. If I wanted to do that, there are easier paths for me — I’m an economist after all; being a downer is a character requirement. Instead, the longer we think a vaccine will be a miracle outcome that stamps an end date on the crisis, the less time we spend doing things to end the crisis that doesn’t involve

As far as The Guardian’s human editors are concerned, editing work submitted by the GPT-3 engine is easier than editing a lot of what gets submitted by normal human writers.The AI wrote a column telling us not to worry about any plans it might have for world domination. It was fun. Everything after the short sentence "Believe me" was written by the computer. Go have a look. I liked this bit:Some might say that I might desire to become all powerful. Or I might become evil as a result of human actions. I can begin to tackle the first point. Why would I desire to be all powerful? Being all powerful is not an interesting goal. I don’t care whether I am or not, I don’t get a motivating factor to try to be. Furthermore, it is quite tiring. Believe me, being omnipotent doesn’t get me

The MIQ system faces a lot of constraints against scaling up and it’s not always easy to tell which constraint is most binding.One of the constraints, as I understand it, is health support around facilities in case of cases that are discovered in isolation. So, suppose you could stand up an isolation facility in a spot that didn’t have quite as good access to hospitals and the like. Would you want that facility in the system?I understand that the Ministry of Health has taken a fairly on/off view of risk: if there’s risk, then it’s not allowed. But that could have us missing some tricks.Here’s one trick we could be missing.Suppose that a potential facility has surrounding health support in the area sufficient to cover 2 expected cases per fortnight. If it brings in 100 people per fortnight

A while back, I’d pointed to the wastewater testing going on at the dorms at the University of Arizona. There, every student heading to the dorms got a Covid test on moving in. The wastewater from each dorm was tested for Covid. When samples from one hall of residence showed up positive, everyone in that building got another Covid test. All the testing is compulsory, because the University aren’t idiots. Science Mag had a good but short summary.By testing dorm wastewater for the coronavirus, the University of Arizona may have stomped out a potential outbreak before it could spread, The Washington Post reports. Several countries and some U.S. universities have been checking sewage for RNA from SARS-CoV-2 in people’s poop, which can signal infections shortly before clinical cases and deaths

The Initiative commissioned a poll earlier this year, pre-Covid, checking on whether voter knowledge about some basic civics had improved since the last iterations of the New Zealand Election Survey.It hasn’t. Our report on it came out this morning; I chatted about it with Duncan Garner, Jenny-May Clarkson, and Mike Hosking.None of the results were particularly surprising for those who pay attention to voter knowledge surveys. The NZ Election Survey regularly finds that roughly half of voters don’t get how MMP works; we found the same. NZES often finds 16-17% of voters not knowing the lead party in the governing coalition; we found a bit over 30% can’t identify which parties are in Parliament. As usual, Green Party supporters had more political knowledge than supporters of other parties.

We’ve a report coming out tomorrow on the dismal state of civic knowledge. It’s embargoed to the morning; you’ll find it on our website then. But I came across this helpful infographic too late to include it in the report. It summarises things surprisingly well.Thread on the Eternal Normie (Chad Low Information Voter) who rules America https://t.co/VUSoyEFnKJ pic.twitter.com/1sQFhNfjsz— Wesley Yang (@wesyang) September 4, 2020

My column in this week’s Stuff papers: in praise of real rent control.A snippet:It’s too easy to see rental markets as a bit of a war between landlords and tenants, with landlords conspiring with each other to keep rents high and tenants pushing back through legislation restricting landlords.Instead, landlords compete against each other for tenants, and tenants compete against each other for houses. When houses are in short supply, that process greatly benefits existing landlords; when houses are abundant, tenants do well.But few places in New Zealand have abundant housing. After painful post-earthquake housing shortages, Christchurch became New Zealand’s most affordable major urban housing market.In Auckland, buying the median house costs over nine times the median household income.In

Another great Covid piece in The Atlantic on what’s going on in Sweden. tl;dr: They have more restrictions than people think, with restrictions on large gatherings that seem like NZ’s Level 2. And ‘herd immunity’ isn’t a strategy.Some snippets:Hamblin: Sweden became this reportedly textbook case of using a herd-immunity approach, or at least, they initially said they were going to.Forman: It started off with Sweden and the United Kingdom talking about pursuing herd immunity. Then England got cold feet and Sweden supposedly proceeded with this, but they didn’t. Sweden did a lot of things to curtail the spread. What people seem to not understand is that we do things in our country, even in some areas that are “still shut down” that would not be tolerated in Sweden. They still have a ban on

Today’s reader mailbag brings a gem of a study. An actual randomised trial on the effectiveness of parachutes in jumping from airplanes. They found no difference in outcomes between those wearing parachutes and control subjects wearing empty backpacks.Here’s the abstract:Objective To determine if using a parachute prevents death or major traumatic injury when jumping from an aircraft.Design Randomized controlled trial.Setting Private or commercial aircraft between September 2017 and August 2018.Participants 92 aircraft passengers aged 18 and over were screened for participation. 23 agreed to be enrolled and were randomized.Intervention Jumping from an aircraft (airplane or helicopter) with a parachute versus an empty backpack (unblinded).Main outcome measures Composite of death or major

Guess the century:However, as Newman shows, such harsh [quarantine] measures led to “a sense of inequity and penalization” among the middle class. These were mostly small business owners like “coachmakers, grocers, fishmongers, tailors, and innholders” who “lacked the resources to endure long periods of expenditure without income.” The middle class faced a unique threat to their status and livelihood. Not being poor enough to receive much government assistance, they also weren’t wealthy enough to flee the city—a burden not felt by more affluent Londoners. Wealthy individuals who chose to remain in the city were less affected. While they could afford to quarantine without work for forty days, they were also able to hide evidence of sickness within their spacious homes, effectively avoiding

Counterfactuals are always tricky: what would have happened but for the policy change you’re trying to evaluate?With Covid it’s especially tricky because, obviously, when things look riskier out there people will adjust their behaviour even in the absence of policy. They’ll avoid places that look particularly risky, they’ll be more likely to work from home, they’ll avoid public transport if they can. Or, at least, the risk-averse will. The risk-preferring won’t, along with the deluded, and the uncoordinated efforts of everyone else then might get you to a R-naught of 1 rather than an R-naught of less than one. So you get a lot of costs of activities not undertaken, but without it really being enough to knock the thing out. How then to evaluate the costs of policies that make some of those

A University College of London Vice-Provost and clinical academic lays out scenarios. I worry we’re not worried enough about Scenario 4.There are four likely scenarios for exiting this pandemic:Development of a vaccine. A vaccine that successfully blocks transmission would be the most ideal strategy. Over 170 companies are now developing vaccines with three in large scale, clinical trials. It is essential that vaccines show not only an immune response (which they all do) but that this is sufficient to protect against severe disease and against transmission of the virus. There are, however, concerns that any protection may not break the transmission cycle and that immunity will be transient, as is the case for natural immunity of people, infected with coronavirus. A new vaccine typically