SciBlogs

Tax on Tax Eric Crampton Oct 28

I’m not a fan of taxes, but GST should be levied on top of other taxes where those taxes are levied to cover service costs. Maybe it’s a tax on a tax, but that’s not self-evidently bad.Suppose that there are some goods that could be provided by City Co…

Good news from charter schools Donal Curtin Oct 26

Radio New Zealand told me this morning that, according to copies of Education Review Office reports RNZ had been shown, two of the early group of charter schools have been found to be doing well (‘Big ticks for charter schools’).I’m delighted to hear i…

The way we live now Donal Curtin Oct 26

Today’s release of the September quarter Consumer Price Index incorporated the latest three-year review (pdf) of spending patterns, and some other changes, notably using technology to capture the prices of many consumer electronic goods. Instead o…

Do we need some JOLTS? Donal Curtin Oct 22

…JOLTS being the Job Openings and Labor Turnover Summary that the American Bureau of Labor Statistics (BLS) publishes every month. You can find the text of the latest one here and it’s on FRED (the St Louis Fed’s economic database) if you’d like to d…

Wellington bleg: good high schools for music Seamus Hogan Oct 21

The staggered move of Offsetting Behaviour to Wellington will soon be completed. I will be following Eric to the capital having taken a position at the School of Government at Victoria University, starting in the new year.When Eric was about to ma…

Inequality narrative-buster Eric Crampton Oct 18

It’s been pretty clear that income inequality in New Zealand has been stagnant for at least the last decade or two. It rose in the late 80s and early 90s, but nothing much has happened since then.And whenever I point it out on Twitter, against assertio…

Three decades later, still bonkers Donal Curtin Oct 17

Last week the Australian Productivity Commission came out with a couple of reports, on the Aussie dairy trade (pdf) and on Aussie retailing (pdf). I wrote up the dairy one because it had various angles relevant to us, notably some discussion of our Fonterra-centred industry structure, a good smackdown of the ‘national champions’ idea, and some useful analysis of the economics of the global dairy trade.
I’ve only just got round to taking a squizz at the retail report, and it’s equally good. It points out, for example, that a lot of planning/zoning regulation can be both inefficient and anti-competitive, and that there’s a reasonably straightforward path to fixing both problems:

Two reforms have been identified as being of particular importance: first, the need to
reduce the number of business zones and increase the permissible uses of land (to reduce
prescriptiveness) within these zones; and second, to remove consideration of the effects on existing individual businesses from the approval process for development applications (to avoid anticompetitive outcomes) (p11)

The Commission is strongly of the view that state, territory and local governments can
assist consumers and the retail sector by developing and applying zoning policies that
ensure the areas where retailers locate are both sufficiently large (in terms of total retail
floor space) and sufficiently broad (in terms of allowable uses, particularly those relating to business definitions and/or processes). This would allow new and innovative firms to enter local markets and existing firms to expand (p11)

As an example of how those reforms would work, the Commission had heard submissions about high rents being charged to retail outlet tenants by shopping centre owners, and while it noted that following best practice in leasing wouldn’t be a bad idea, it also found that “the root cause of most retail tenancy lease problems are unduly restrictive planning and zoning controls that limit competition and restrict retail space, particularly in relation to shopping centres. Addressing the latter would also resolve many of the problems in the retail tenancy market” (p12).
More generally, the report got me thinking about how far Australia, and New Zealand, have got with pro-growth, pro-efficiency, pro-competition deregulation. Because, as this report found, despite years and years of economic reform, there are still thickets of regulation that are absolutely bonkers.
Three examples. I’ll let them speak for themselves, other than to note the Aussie Commission comment (p113) that “In many cases, these [trading] rules are anachronistic and have no apparent rationale”.
Here’s a map of trading hours regulation in Western Australia (p7, repeated on p113).

And here’s a decision tree on whether you’re allowed to open for business in Australia on Easter Monday (p114).

And here’s what Woolworths discovered about trading rules in Western Australia for its Masters Home Improvement Stores (which are like Mitre 10 or Bunnings Warehouse megastores):

in Western Australia, regulations prevent Masters Home Improvement stores from trading in line with the hours enjoyed by other hardware stores. To be eligible to trade as a ‘domestic development shop’ Masters must only sell those goods that are prescribed by the Retail Trading Hours Regulations 1988. The regulations prescribe a list of what a ‘domestic development shop’ can sell, which gives rise to all sorts of inconsistencies and anomalies. The regulations allow the sale of:
• light bulbs but not light fittings
• outdoor lighting but not indoor lighting
• kitchen sinks but not dishwashers
• wood-fire heaters but not gas heaters
• indoor television antennae but not outdoor television aerials (p10)

I suppose the good news is that both Australia and New Zealand now have Productivity Commissions that are able to turn over the flat stones and tell us what they’re finding underneath, and there’s the occasional one-off inquiry like Australia’s recent Competition Policy Review that has been doing the same thing (have a read here in particular). It’s good to know that there’s still some kind of following wind to keep the momentum of reform going.
But isn’t it strange, and a bit dispiriting, that after the best part of 30 years of progress in both countries, we’re still lumbered with this kind of malarkey. And while I suspect we may not be as bad as the Aussies on most shop regulation (though I could be wrong about the  Easter trading, where our regime is probably as chaotic as theirs), I wonder what we’d find if, for example, we turned over some flat stones of our own. I wonder what’s underneath the occupational qualifications one?

Three strikes, and you’re – still going…. Donal Curtin Oct 17

In a previous post I mentioned that Australia’s Competition Policy Review had put a torpedo into the side of ‘national champions’ – requiring or allowing mass consolidation of an industry to produce what will supposedly be a more internationally competitive player.
And last week, I’m pleased to say, the drifting hulk took another blow as Australia’s Productivity Commission got it amidships with another one.
The occasion was the Commission’s report on dairy manufacturing (pdf) – the latest in an industry series on ‘Relative Costs of Doing Business in Australia’. There’s lot of interesting stuff in the report, including the short but informative Appendix B down the back on ‘Economics of dairy markets’,  but for me the highlights were the bits where the Commission responded to submitters arguing that Australia should go the Fonterra route (these are all on p3):

the Australian dairy industry is a price taker on global markets and has no capacity to alter this, irrespective of the structure of the industry. A belief that any single Australian dairy company could exert market power is not consistent with market realities

the emergence of a dominant manufacturer is not a prerequisite for developing distinctive Australian branding for dairy products

there are potential risks associated with highly concentrated industry structures if the overall performance of the industry is linked with one company

Fonterra-like arrangements are not necessary to ensure that scale benefits at the plant level are realised — indeed, there is considerable evidence that Australian dairy manufacturers are taking advantage of scale benefits where it is profitable

And the Commission wrapped it up on p8 with this:

…industry participants are best placed to balance the various tradeoffs and commercial considerations they face (such as between scale and transport costs). Other than where legitimate competition concerns are relevant…the most beneficial dairy industry structure for Australia will be determined by the market place. Attempts by governments to ‘second guess’ market outcomes to achieve a particular industry structure are fraught with difficulty, and likely to impose net costs on the industry and the community more generally. It does not require much imagination — or experience with price setting by government — to envisage highly problematic judgements in setting an Australian price (or prices) for guaranteed domestic milk supply, as occurs today in New Zealand.

The Commission also quoted (pp115-6) from a recent speech by Rod Sims, the head of the ACCC, where he said:

We are seeing a return to calls for ‘national champions’ in Australia. It is, of course, terrific when companies out compete their rivals and take on the world. The concern is when they call for restrictions on competition at home so they can better compete on the world stage. The argument is a contradiction: if you cannot beat your rivals at home how can you hope to do so overseas? Firms involved in cosy oligopolies or oligopolies in Australia are unlikely to succeed on the world stage.

So it looks as if the old rustbucket SS National Champion has now taken three hits in a row. Unfortunately, if past experience is any guide, it will manage to struggle back to port, get patched up, and in due course set out again on another hopeful journey.

Morning roundup Eric Crampton Oct 16

Short notes on the worthies from the open tabs, each of which would merit a full post in an unconstrained world.

  • If this high court ruling holds, expect no new policies to cover full replacement. Justice Whata ruled that Vero must cover the full costs associated with reinstating a Christchurch building, even where some of those costs are due to things like requiring deeper piles than were necessary when the policy was set. I think the insurer is right that it should not be liable for costs that are consequent to changes in Council rules; alternatively, Councils could give free money to each and every person in town by requiring that, post-quake, every house be made of gold and have platinum spouting. I also do not think that Councils should be changing the building requirements for a reasonable interval between an insured event and the completion of earthquake repairs. If the building code isn’t good enough, fix it ahead of the event so that insurance pricing can incorporate a better measure of expected repair costs or so owners can insure to a higher value to allow for the higher costs.
  • Remember “Shoot, shovel and shut up“? Property owners have incentive to take defensive action before a costly regulation is put in place, even if that means destroying valuable habitat. I wonder if that’s what’s happening in this story. A church is bulldozing two houses to put up a parking lot; the street is about to be designated as a “special character area” in the Unitary Plan. Could be that they’d have held onto the houses if they’d reckoned they’d face much much higher costs if they wanted to demolish sometime down the line. I wonder whether other areas about to come under such protections are seeing similar precautionary demolitions.
  • There’d be a billion screaming anti-tobacco activists if tobacco sponsorship of an arts festival resulted in the cancellation of some anti-smoking play. Government anti-tobacco health funding of the West Australian Opera has resulted in the cancellation of Carmen because there would have been on-stage smoking; I’ve seen outcry from Catallaxy and Crikey. Nothing much otherwise. 
  • Addiction is something most addicts grow out of. I love this quote: 
    So why do so many people still see addiction as hopeless? One reason is a phenomenon known as “the clinician’s error,” which could also be known as the “journalist’s error” because it is so frequently replicated in reporting on drugs. That is, journalists and rehabs tend to see the extremes: Given the expensive and often harsh nature of treatment, if you can quit on your own you probably will. And it will be hard for journalists or treatment providers to find you.

    Similarly, if your only knowledge of alcohol came from working in an ER on Saturday nights, you might start thinking that prohibition is a good idea. All you would see are overdoses, DTs, or car crash, rape or assault victims. You wouldn’t be aware of the patients whose alcohol use wasn’t causing problems. And so, although the overwhelming majority of alcohol users drink responsibly, your “clinical” picture of what the drug does would be distorted by the source of your sample of drinkers.

    Bryan Caplan has similar thoughts

  • Political ignorance remains a major source of political failure. How can we get things right where voters fundamentally fail to understand the basics on the composition of federal spending?
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Did we lose the fiscal plot? Donal Curtin Oct 14

I’ve been engaged in a bit of tweeting to and fro about the rise in New Zealand’s government debt in recent years, and what’s behind it.The background is that there’s been a fair bit of political point-making going on about the large rise in debt on Na…

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