Feeling Chuffed Seamus Hogan Sep 20

It was a great day for the ECON department at Canterbury on Wednesday. Our very own Rachel Webb, successfully defended her doctoral thesis, The Health Economics of Macrosomia. Rachel has been a part of the Department for many years, having previou…

EconTalk this week Paul Walker Sep 18

Elizabeth Green, author of the new book Building a Better Teacher: How Teaching Works (and How to Teach it to Anyone), talks with EconTalk host Russ Roberts about the art of teaching and the history of various reforms, mostly failed, trying to improve …

Capital Gains Tax Bleg Seamus Hogan Sep 18

When I first started writing posts on capital gains taxes three years ago, starting with this post and this one, they were sort of a bleg. I have never understood the rationale for CGT, as the arguments that are usually put seem to involve sh…

Oh Christchurch, revisited Eric Crampton Sep 17

My chapter on the failures in the Christchurch rebuild is up at Public Address.

I’ll be speaking on it at a lunchtime panel tomorrow in Wellington. Perhaps I’ll see you there.

From my chapter:

If we learn anything from the intersection of the work of Jane Jacobs and of Ed Glaeser, it’s that cities are organic. The best parts of cities emerge from the distributed decisions of thousands of property owners, building near each other to take advantage of complementarities in location that they could foresee and that the planners couldn’t envision. SimCity takes no account of the wishes and dreams of the Sims. All of the small actions of distributed individuals can add up to something wonderful, if only Council and the bureaucrats would get out of the way and let it happen. Instead, we had the worst of all possible worlds: the insistence that a perfect central plan supercede these decentralised decisions, but absolutely no bureaucratic capacity to set or follow through with a plan.


Train sets Eric Crampton Sep 17

There’s one good thing we can say about Labour’s $100m light rail plan for Christchurch: at least it isn’t a $1b light rail plan. Otherwise, it’s not so hot. I’m blogging from Hong Kong, where I’m attending the Mont Pelerin Society’s meetings and …

Jobs for Everyone Seamus Hogan Sep 15

It has been more than a week since Internet-Mana had their official launch promising nationwide full employment. Their policy platform got overshadowed a bit by the strange comments of Kim Dotcom and the outburst by Pam Corkery, but it is still surpris…

Implausible counterfactuals Eric Crampton Sep 15

Imagine that Winston Peters had a more clever web team and came up with a nifty infographic. The infographic asked you to input your race. Then it showed how many more jobs each race got in New Zealand in the period 1980 to present. If you’d selected “Asian” at the start, the infographic would tell you that your group got tens of thousands more jobs over the period than your group would have gotten if job growth had been distributed “evenly” instead. If you’d selected “White” or “Maori”, you’d see how many fewer jobs your group had gotten, with calls of They Took His Job to follow. A parallel one would show Kiwis how many more houses they’d have if growth in the number of houses owned, by race, had been evened out.

It would be pretty obvious that the infographic was nonsense. Immigration from Asia over the period meant that we had more growth in the number of employed Asians. If those migrants hadn’t come, it’s not like we’d have had more jobs left for everybody else: that’s the lump of labour fallacy. The counterfactual is implausible. 
Well, the NZ Herald’s nifty new infographic asks you to input your household income and some basics on your household composition. It then tells you which decile you’re in. That’s all fine. But when you then hit “Next”, you get this. I’d inputted $5000 per week as an arbitrarily large income to get a top-decile household. 

Over the last 30 years, all incomes have grown, but not at the same rate. A household like yours is now 29% – or $23621 a year –better off than it would be if all incomes had grown evenly.

If you choose a lower-income household, it tells you how much worse off you are than you would have been if growth had been equal across deciles. So the counterfactual is a New Zealand that had the same overall growth over the period, but where all deciles experienced even growth. The problem here is that there is no way of evening out those growth rates without affecting growth rates. Higher income taxes for more redistribution can even things out, but they also reduce total growth. People can take whatever values-based position they want on how much the state should redistribute. But we ought to at least start by recognizing that it’s not a free policy. 
The recommended approach is to consider whether or not to include deadweight losses on a case-by-case basis. As a general rule, deadweight losses should be included if they are of sufficient size relative to the overall costs and benefits of the proposal that they are capable of altering the decision as to whether or not to proceed with the proposal.  

Having said this, deadweight losses are notoriously difficult to quantify. Estimates vary from 14%31 up to 50%32 of the revenue collected. Treasury suggests a rate of 20% as a default deadweight loss value in the absence of an alternative evidence based value. Thus public expenditures should be multiplied by a factor of 1.2 prior to discounting to incorporate the effects of deadweight loss. 

If you want to get one dollar from a high decile person to a lower decile person, you should reckon on its costing $1.20. If you want to even out growth entirely, well, those costs are going to be much higher. I’d believe the 1.2 for top income tax ranges from 30% to 40%. It would be an interesting exercise to work out just how much higher the top marginal tax rate would have needed to be to even out growth entirely over the last three decades. I expect that the rate would be really rather high, and that the associated deadweight losses would be rather large as well.

The Herald infographic invites the reader to assume that those deadweight costs don’t exist. Dey Turk Er Income, except for that most of that income wouldn’t have existed for anybody in the counterfactual.

There are a few policies around that can improve outcomes in lower income cohorts at relatively low cost. Improving education and training is one. But there are no policies that would equalise income growth across deciles without simultaneously substantially affecting total growth.


Some notes about yesterday’s Food post Matt Nolan Sep 14

There were a bunch of excellent comments on yesterday’s food post.  I thought I could answer them by adding a bit of clarity here. First off to answer this tweet: @TVHE I love it when you call me names. Particularly ones I don’t understand. — Geoff Simmons (@geoffsimmonz) September 2, 2014 My comments were certainly […]

Food: Getting lost in social constructivism Matt Nolan Sep 14

After reading both the Stuff article and the initial article on Gareth Morgan’s blog and the follow up, I am convinced both Gareth and Geoff Simmons (GG) have inadvertently become extreme social constructivists – but may not realise it yet. Now I hate it when people just whip out rhetoric like “social constructivist” and don’t explain […]

Independent is an interesting word Eric Crampton Sep 14

I presented to the Ministerial Forum on Alcohol Advertising and Sponsorship a few months back with a brief submission on recent evidence on the effects of alcohol advertising on consumption behaviour.

One pretty compelling recent piece of evidence is Jon Nelson’s recent meta-analysis, published in 2011. The abstract:

This paper presents a meta-analysis of prospective cohort (longitudinal) studies of alcohol marketing and adolescent drinking, which accounts for publication bias. The paper provides a summary of 12 primary studies of the marketing–drinking relationship. Each primary study surveyed a sample of youth to determine baseline drinking status and marketing exposure, and re-surveyed the youth to determine subsequent drinking outcomes. Logistic analyses provide estimates of the odds ratio for effects of baseline marketing variables on adolescent drinking at follow-up. Using meta-regression analysis, two samples are examined in this paper: 23 effect-size estimates for drinking onset (initiation); and 40 estimates for other drinking behaviours (frequency, amount, bingeing). Marketing variables include ads in mass media, promotion portrayals, brand recognition and subjective evaluations by survey respondents. Publication bias is assessed using funnel plots that account for ‘missing’ studies, bivariate regressions and multivariate meta-regressions that account for primary study heterogeneity, heteroskedasticity, data dependencies, publication bias and truncated samples. The empirical results are consistent with publication bias, omitted variable bias in some studies, and lack of a genuine effect, especially for mass media. The paper also discusses ‘dissemination bias’ in the use of research results by primary investigators and health policy interest groups.

So he picked the papers that use a baseline and exposure design and concluded that there’s really nothing much there except for publication bias.

The panellists didn’t seem particularly friendly or unfriendly. Tuari Potiki asked why economists’ conclusions on this stuff vary so much from the public health folks who’d presented earlier in the day, and the general tone of the Forum members seemed to be “what additional restrictions should we place” rather than “do any potential restrictions do more good than harm”, but maybe I misread them.

Well, the anti-alcohol advocates didn’t think the Forum was independent enough so they’ve made their own forum.* They’re calling it the Independent Expert Committee on Alcohol Advertising and Sponsorship.

Independent’s an interesting word, since the IECAAS is being hosted by Alcohol Action NZ, Doug Sellman and Jennie Connor’s anti-alcohol lobby group, and consists of Sellman, Connor, Janet Hoek, Mike Daube and others. They reckon the Ministerial Forum, including NZ Drug Foundation’s Tuari Potiki, wasn’t independent enough because the CEO of the Advertising Standards Authority is also on the Forum. Sellman et al are correct that the Forum members aren’t experts in alcohol marketing, but I’m really unconvinced that that makes them less independent.

IECAAS writes:

To date IECAAS members have found no significant new research that would invalidate the recommendations made by the Law Commission in 2010. In fact the evidence supporting major reform appears to be strengthening. The recommendation to phase out alcohol advertising and sponsorship apart from objective written product information over five years is therefore as important today as it was when first reported to the government in 2010. The only difference is that New Zealand could have made several years of progress had the government responded.

I wonder how hard they’ve been looking. There’s a reasonably important piece in the Journal of Economic Surveys that they’ve missed. And a few others.

* I can’t stop imagining Bender setting up his own theme park. Except this one would be way less fun than Bender’s.


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