SciBlogs

Never mind the deficit Donal Curtin Dec 17

I’ve just spent the morning, with the rest of the usual journo and economist suspects, in Treasury’s lock-up for the Half Yearly Economic and Fiscal Update. Though sometimes I wonder why I bother: Bill English’s press handout essentially said that the …

Kreskin Cosh Eric Crampton Dec 17

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:

I don’t like tweeting about crises as they’re happening, so here’s what I held back yesterday: “This sounds all Attica Attica to me”.
— BK Drinkwater (@BKDrinkwater) December 15, 2014

One potential lesson from the whole thing?

Our mental health services r chronically under funded & offer more value for money than the GCSB or SIS, as well as helping ppl b free
— Paul McMahon (@McMahon4SH) December 15, 2014

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:

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Bah humbug Eric Crampton Dec 16

I led the affirmative charge at the GEN debate on the following proposition: “This house believes that the Christmas Extravaganza is a waste of time and money.” We didn’t get to pick our sides, but I didn’t mind partnering up with Patrick Nolan from the Productivity Commission.

As Bronwyn Croxson from Ministry of Health was leading the charge for the opposition, I attempted a pre-emption of her most likely argument. Even though her side wound up taking more votes at the end, I’m pretty happy with my mind-reading. But I did not expect that she would give gifts of chocolate almonds to the audience to sway the votes. Well played, Bronwyn. Anne-Marie Brook from Treasury was second for the opposition.

Had I had a chance to provide a closing statement before the vote, it would have been this:

I agree entirely with the opposing team on the value that can come from gifts. If you believe, as I do, that people can manage to do good things for each other without the quasi-coercive Christmas to force the issue, then you should vote for the motion. If you’re a pessimist about human nature and think the only way that these will be provided is by forcing it through Christmas, and that the gains from that outweigh all the losses I’ve talked about, you should vote for the opposition. 

Had I been more confident in my mind-reading, I’d have had it at the end of my opening statement. I should have been more confident. Bronwyn made exactly the move I’d have made in her place, as I expected.

Here’s the notes I’d made for myself for the debate. I varied from them as always, but here they are anyway.

The Christmas Extravaganza is a waste of time and money.

 

What a waste of a season.

 

Christmas has a lot of faults. Economists have known for at least two decades that the most prominent part of Christmas – the gift exchange – has some serious problems. But that’s just the start of it. Aside from the wastefulness of the gift-exchange, which I’ll touch on in a bit more depth and which Patrick will go through a bit more thoroughly, we also have substantial problems arising from bunching and clustering of holidays, to the detriment of both work and vacations.

 

Because the wastefulness of the Christmas gift exchange is so very well established, I thought I might try to make the best case I can against it. Again, Patrick will hit it in a bit more depth with more recent data, but the standard argument runs as follows. The person best placed to decide how to spend his money is the person himself. Consequently, it would be remarkable if any gift-giver could provide a gift that the recipient would value more than cash. Cash can be transformed into anything the recipient really wanted. Bad gifts, not so much. And surveys show that gift recipients put less value on the gift than its cost.

 

If I had been given the other side of this argument, what would I have said? I’ve always been a bit of a Christmas-sceptic; this has given me a chance to check my intuitions.

 

So here’s the best argument I can give in favour of Christmas gift-giving. I’m not trying to set up a strawman here; I’m sure the other side will have come up with better arguments for Christmas. But here’s the only argument I currently think stands against the “Inefficient gifts” critique.

 


Even if survey measures show that recipients put less value on the gift than the gift cost the giver, the fact that millions of people around the world choose to come together to give each other gifts at Christmas is prima facie evidence of that the whole process provides some kind of value to givers and receivers. Otherwise, why would they be doing it? The big point that the gift-inefficiency argument misses is that the giver gets enjoyment from giving the gift. The receiver’s enjoyment is only part of it: there’s a selfish aspect to giving too. It doesn’t have to be asselfish as the time that Homer Simpson gave Marge a bowling ball that he expected her to let him use, but there can be selfish joy in seeing somebody else enjoy something you’ve given them. The twentieth century’s greatest economist, Gordon Tullock, noted the super-efficiency of charity. If you give a dollar to charity, you must get at least a dollar’s worth of enjoyment out of the gift – or you wouldn’t have given it. The receiver also gets a dollar’s value out of it because it’s a dollar. So the anti-Christmas economists say that the recipient might only get 70 cents out of it rather than a dollar: you still likely have well over a dollar’s value, all up. So what’s the problem? 

There are a couple of rather substantial problems with that argument though, and they both stem from the fact that Christmas isn’t really entirely voluntary. Sure, there’s no law forcing you to participate, but not all coercive social arrangements are enforced by law. We can show this pretty easily by counterexample. Imagine going home, after this debate, and telling your partner,

“You know what? Those economists, they convinced me of something really important today. We shouldn’t give each other presents this year. You and I both know that we’d do a better job spending the money on ourselves, so instead of sending oblique hints to each other about what sorts of gifts might be appreciated, let’s just call the whole thing off.” 

If you think that’ll work, you might want to get the number for a marriage counsellor before you try it. Unless your partner’s also an economist, it’s not likely to go over really well. Even harder could be suggesting doing away with expansive gift-giving with the extended family. If two-person bargaining can be difficult, adding in more people doesn’t do a lot to make it easier. Whether or not you believe the case against Christmas, even broaching the subject with your family is dangerous. It could be taken as a signal of disloyalty, or even that you might not love them as much as they’d thought.

 

And, the stakes are high. Divorce filings are most common right after Christmas. The owner of one website for divorcees says “I see a huge increase in pageviews and searches the day after Christmas. People start looking for information before the New Year starts, but they can’t do much until the attorneys are back in the office.”

 

Ultimately, I think the whole gift-exchange process is best thought of as a costly signalling exercise where failure to signal is very costly. In a better world, we could show our loved ones how well we understand them and how much we love them by providing thoughtful gifts and gestures whenever we encounter a good potential one. Christmas forces the issue not only for those who haven’t provided such a signal, and perhaps should, but also for everyone else. And if you blew your one great thoughtful-gift idea earlier in the year, well, Christmas could be painful. In that kind of world, for a lot of gift-givers, we shouldn’t be worrying about having missed their joy of giving in the Calculus of Christmas, we should instead be worried about having forgotten to add in the brain-wracking expense of trying to come up with a gift that will meet the threshold – and cash sure isn’t allowed.

 

And if you find the right gift at the wrong time, do you buy and hope you don’t lose it before Christmas? Even if you can find it again at Christmastime for wrapping, the recipient still could have enjoyed it for months before Christmas if you could have just given a thoughtful gift at the time that you found it. But you couldn’t, because you’d then still have to figure out something for Christmas, and serendipity might not strike twice.

 

But wait, there’s more!

 

Even a giftless Christmas is destructive because of the whole “silly season” effect. The month before Christmas is a mad office rush of getting all the projects done before all the critical people disappear – AT THE SAME TIME – and holiday parties that bite into the time needed for the project-finishing rush. Loud brass bands on Lambton Quay make you wish for the agnostic’s missile from the Monty Python sketch. Outside the office, when you’ve little option but to take holidays between Christmas and New Year’s, everybody else is taking theirs at the same time – even if the weather is terrible and they’d have preferred holidaying in February. And so we have wrecked the economics of a lot of holiday destinations: huge peak load issues where smoothing over a broader season could work better. The roads are a nightmare. Everywhere’s booked up, inducing ever-earlier pre-booking of venues in an arms race. And nobody’s holiday is as enjoyable as it could be. Are the coordination gains from having a day or two off for extended family things really substantial enough to merit all this?

 

The superior alternative? A Festivus for the Rest Of Us. One day. One pole. No tinsel.

My slides ended with Frank Costanza’s words of wisdom:

I really should have given our Festivus stories as example of that you can really do all this without the Christmas part.

Previously:

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EconTalk for many, many weeks Paul Walker Dec 13

Thomas Piketty of the Paris School of Economics and author of Capital in the Twenty-First Century talks to Econtalk host Russ Roberts about the book. The conversation covers some of the key empirical findings of the book along with a discussion of thei…

Growth, inflation, and spongey brakes Donal Curtin Dec 12

Today’s Monetary Policy Statement from the Reserve Bank didn’t have any headline surprises – the official cash rate was kept at 3.5%, as everyone had expected, and any eventual increase is now pushed out to late 2015 or early 2016, again much in line w…

Alcohol marketing and evidence Eric Crampton Dec 12

Two contrasting stories in the weekly mailbag.

Item the first: Sally Casswell takes one look at the evidence in a viewpoint article in the NZMJ and concludes:

Stepping back and looking at the harm alcohol does in our society, the evidence on marketing’s effect on young people’s consumption and the popular support evinced for change, the only reasons to maintain alcohol marketing in its current largely unrestricted state are to: first, protect the profits of the transnational corporate producers by allowing them to appeal to new cohorts of young people with marketing which recruits them as consumers as early as possible and encourages drinking of larger amounts and second, to protect the financial interests of the advertising and media industries.

It is hard to avoid drawing a conclusion that government’s failure to act was based on a decision to protect the interests of these large corporations at the expense of protecting the health and wellbeing of future generations of New Zealanders.

A restriction on alcohol marketing similar to that adopted more than 20 years ago in relation to tobacco (Smoke-free Environments Act, 1990) or specific to alcohol similar to that in France (LoiEvin, 1991) will not impact in any meaningful way on adult consumers’ knowledge of the availability of alcohol.

Significant restrictions on alcohol marketing will, however, likely effect the normalisation of alcohol. Normalisation, the acceptance of ubiquitous and perception of unproblematic use, makes it more difficult for health promotion and social marketing to affect consumption among heavy drinking social networks or for family and whanau to place limitations on access to alcohol by vulnerable young people.


The ideal is a complete ban on alcohol marketing. This is feasible and a useful model is available in the Smoke-free Environments Act 1990. It has the advantage of thorough coverage of all marketing and sponsorship and includes internet marketing. 

Casswell’s piece argues that the evidence on the harms of alcohol marketing to youths is so obvious, lack of government action means the government must have been subverted by evil evil industry.

Item the Second: Cochrane has been running systematic reviews of all kinds of things. Here’s Cochrane on alcohol advertising.

OBJECTIVES:To evaluate the benefits, harms and costs of restricting or banning the advertising of alcohol, via any format, compared with no restrictions or counter-advertising, on alcohol consumption in adults and adolescents.

AUTHORS’ CONCLUSIONS: There is a lack of robust evidence for or against recommending the implementation of alcohol advertising restrictions. Advertising restrictions should be implemented within a high-quality, well-monitored research programme to ensure the evaluation over time of all relevant outcomes in order to build the evidence base.

And here’s what I’d said at the Ministerial Forum on Alcohol Advertising and Sponsorship back in the fall.

Bans on advertising, in a free society, are only justifiable on solid evidence of substantial net harm reduction. The existing evidence shows only weak associations between exposure to advertising and consumption behaviours.

No further restrictions to alcohol advertising are justifiable on current evidence. However, if the government is determined to impose such restrictions, it could at least design them in such a way as to allow for programme evaluation. If you decide to ban billboards, set up a rolling phase-in design across a set of towns to assess whether the ban has had any effect; if it has not, then remove the ban. If you decide to ban alcohol advertising in print, use a similar rolling phase-in design to allow for evaluation.

So Cochrane concluded there was no evidence sufficient for restricting alcohol advertising and said any measures should be done within a research design allowing for evaluation. I said that there was no evidence sufficient for further restricting alcohol advertising in New Zealand and that any measures undertaken should be set up to allow for evaluation.

But Casswell’s piece argues that the evidence is so strong that only industry subversion can explain lack of action.

It remains astonishing that a government so deeply in Big Alcohol’s pockets somehow keeps giving grants to Casswell’s research outfit.

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OECD on inequality Eric Crampton Dec 11

Whenever a small country gets mentioned specifically in an international report, that report there gets noticed. A new OECD working paper claims that income inequality hurts economic growth, and particularly hurt New Zealand growth. Note that this is …

Cost-benefit analysis and the new drink-driving limit Eric Crampton Dec 05

NewstalkZB asked me Monday morning to comment on the new .05 drink driving limit.I noted that it is likely to prevent some crashes, but that I did worry about whether it was worth the cost. The cost-benefit analysis that formed the background to the RI…

Air Gini Eric Crampton Dec 04

In today’s glass-half-empty news, inequality in airline space has increased.While it used to be the case that the top 7% of passengers got about 15% of the room, transatlantic configurations give proportionately more space to first-class passengers: th…

KISS Donal Curtin Dec 04

This morning the Commerce Commission released the wholesale price Chorus is allowed to charge to Internet service providers (ISPs), and which therefore is the core component of the retail prices those ISPs charge you for your fixed line broadband.
It’s made up of two parts, the first being the bit for the cost of the copper line from your place to a Chorus switch (the ‘local loop’ or UCLL) and the second (‘UBA’) being the cost of the fancy electronics that Chorus can (optionally) provide to ISPs to save them having to use their own. The local loop bit will be $28.22 a month and the UBA bit will be $10.17 a month, making a total of $38.39. This compared with the previous price allowed, of $44.98.
These prices are based on explicit, detailed and complex modelling of the costs involved, and are intended to replace the interim hold-the-fort prices that the Commission had previously set, based on the cost of the same services overseas in countries who do things much the same way as we do. This ‘benchmarking’ exercise had set a local loop price of $23.52 and a UBA price of $10.92, making a total of $34.44.
There are all sorts of issues involved here, big and small, affecting everything from the profitability of  Chorus through to uptake of the country’s shiny new ultra fast fibre network. And they directly affect you, too: already some ISPs are saying that the drop in the wholesale price (from $44.98 to $38.39) had already been passed on to you, so you won’t be getting any further joy out of it.
In any event, I’d like to pick on one small aspect of the process, even though it’s largely moot now, and it’s about those interim ‘benchmarked’ prices.
I think they did a good job of providing a quick, cheap and reasonably accurate initial estimate of the eventual wholesale price. They were pretty much spot-on when it came to the UBA part ($10.92 versus $10.17), which is remarkable given that everyone was agreed that the benchmarking process had only a couple of countries overseas to use as sighting shots. And they weren’t far off when it came to the local loop component, either ($23.52 versus $28.22) – especially when you consider that the fully modelled cost estimate involves a whole swathe of judgement calls made by the Commission and its modellers, and is not a glimpse into some eternal truth held in the mind of an omniscient Being.
So I’d take two lessons away from this, both involving the KISS principle.
The first is that over the next couple of years we’re going to be taking a close look at the shape of our telco regulatory regime, and I’d like to suggest that we keep the cheap and cheerful benchmarking process. It’s relatively fast – a particularly important consideration in fast moving markets like ICT – it’s relatively transparent, it’s understandable, it’s relatively cheap, and it’s accurate within some rough-and-ready-justice tolerance. I’d go further, and make it harder for parties to invoke the full cost modelling approach, which introduces layers of cost, delay and complexity, and all for a gain in ‘accuracy’ that (because of multiple modelling options) may be more illusory than real. And in general I’d like to see the ‘good enough’ option chosen over the one that keeps consultancies on three continents in business.
The second is that we need to think harder about the increasing complexity and cost of regulation across all sectors, and not just the telco business. I agree with Eric Crampton of the NZ Initiative, when he said on Interest.co.nz that “Too much of New Zealand’s regulatory apparatus would suit a country of forty million rather than the one we have”. He’s got his own examples: one I came across recently was the Commerce Commission’s needing to sign off a $3 million increase in capex spending on a little Transpower project in South Canterbury. The process will take five months from start to finish, and has already spawned a 54 page initial draft decision.
That’s a bit of an extreme example, and I should make it clear that it’s not the Commerce Commission’s fault: it’s been lumbered with this ludicrously over-engineered regulatory regime. And I should add that from next April the Commission won’t have to get out of bed for anything under $20 million – which is, of course, where the threshold for its involvement should have been in the first place (if not higher again). And I’d have to note that bloodymindedness on the part of Transpower and its customers drew this intrusive regime on their own heads, and a bit of enlightened give and take could have avoided the whole mess.
But it’s there now, and it’s holding up the sector, and its cousins in other sectors are also increasingly clunky and costly. It’s time for more people in the policy analyst community to do what the MD of one company I know used to do: hold up the sign that says, “Does it make the boat go faster?”

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