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Archive 2012

Best not to leave a live dragon out of your calculations Eric Crampton Dec 31

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Frances Woolley wonders whether Smaug's adverse effects on the surrounding region might have been primarily monetary rather than fiscal. Smaug did sit on a rather large pile of gold, taking it out of circulation. And as people can rebuild, perhaps the long-term decline of Dale, Lake Town, and the surrounding region can be modelled as partially being fiscal in origin.

I'm going to disagree rather strongly here.

The primary effect was a strong supply shock - thousands of very skilled Dwarven craftsmen were eaten. Dwarvish replacement rates are very low - they're more fertile than elves, but hardly reach human or hobbit ability to repopulate a land.

Next, the entire region around the Lonely Mountain - Dale and Lake Town - served to service the Dwarvish industry. Dale produced agricultural goods in trade for the Dwarves; Lake Town ferried on Dwarvish goods to the rest of Middle Earth. Absent the Dwarves, there was no reason to rebuild Dale. And LakeTown remained a commercial town linking the Wood Elves and surrounding region with the rest of Middle Earth, but at a necessarily diminished scale.

Further, even one-off events can have long-term adverse consequence. Du Pont and Noy find that the Kobe earthquake permanently reduced that town's per capita GDP.

Finally, Bilbo's warning is important. It is foolhardy to leave a live dragon out of one's reckonings. We cannot model Smaug's attack on the Lonely Mountain as a one-off not-to-be-repeated event. The worst was done in that first attack, destroying the Dwarves and Dale. But Smaug continues to predate the land - none may dare pasture or raise crops near the Mountain for fear of the dragon. That's why it's called "The Desolation Of Smaug" - the area around the mountain where Smaug will see you with sufficiently high probability that it's just not worth heading in there. You can't rebuild Dale while Smaug is there. Imagine considering rebuilding New Orleans after Katrina, if you knew that your rebuilding would likely cause another hurricane every bit as destructive as the last.

For Middle Earth's macroeconomy as a whole, the production once undertaken at the Lonely Mountain would have moved to the Iron Hills and, perhaps, to Moria; I've not read enough of the secondary materials to know if Tolkien ever gave this as a reason for the dwarves there having delved too deeply, but a sharp temporary increase in production for inventory-building followed by steady-state increased production would have been their optimal response to Smaug. It would be too speculative to blame Smaug for the Balrog, but Smaug could perhaps be interpreted as having brought forward the Balrog event.
[Update: The Balrog long preceded Smaug. I was thrown by remembering that Thror's people had there sought refuge after the dragon but forgetting that they were seeking to reclaim it rather than moving to an existing settlement.]
On the monetary side, even though Smaug is sitting on a big pile of treasure, he also destroyed a massive amount of industrial and consumer goods. Had that gold remained in circulation after the large supply shock, too much money would have been chasing too few goods and we could have expected some inflationary consequence. I have no sense of the magnitude of the stock of liquid treasure relative to the flow of goods that otherwise would have been coming from the Lonely Mountain and so I do not know which way the net monetary effect will wind up running. It wouldn't surprise me if it were net deflationary, but it could be less deflationary than Frances is reckoning.

Blogging will continue to be light over this, my summer holiday.

Performance evaluation of teachers jamesz Dec 28

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From the AER:

…observable teacher characteristics like graduate education and experience are not typically correlated with increased productivity [among teachers]. Many researchers and policymakers have suggested that, under these conditions, the only way to adjust the teacher distribution for the better is to gather information on individual productivity through evaluation and then dismiss low performers. This paper offers evidence that evaluation can shift the teacher effectiveness distribution through a different mechanism: by improving teacher skill, effort, or both in ways that persist long-run.

We find that teachers are more productive during the school year when they are being evaluated, but even more productive in the years after evaluation. A student taught by a teacher after that teacher has been through the Cincinnati evaluation will score about 10 percent of a standard deviation higher in math than a similar student taught by the same teacher before the teacher was evaluated.

our estimates indicate that postevaluation improvements in performance were largest for teachers whose performance was weakest prior to evaluation, suggesting that teacher evaluation may be an effective professional development tool.

Not a surprising result but it’s always nice to have the empirics to back up your assertions.

Crash responsibility, and some back of the envelope reckoning Eric Crampton Dec 27

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At the same time that I was trying to get stats on the number of drivers in the .05 to .08 range who had not been involved in accidents, Canterbury's Professor of Finance Glenn Boyle was getting annoyed with the New Zealand Herald's campaigning for a 0.05 limit.

The Herald published an article noting the number of accidents involving drivers just under the legal limit, along with the usual stuff from Alcohol Healthwatch:
Statistics obtained by the Herald on Sunday under the Official Information Act show in the last four years 20 people have been killed in road accidents involving drinking drivers just below the legal limit.
Another 281 people have been seriously injured in crashes where a drink-driver was also tested and found to be just under the limit.
Alcohol Healthwatch director Rebecca Williams said the statistics clearly showed 20 people would still be alive if the Government had responded to calls for a lower alcohol limit.
Glenn was a bit miffed at the Herald's credulity here. First, banning driving above 0.08 hasn't abolished accidents involving drivers who are over the legal limit - we still do arrest lots of people for driving after having had too much to drink. So it's a bit nuts to say that 20 people would be alive if the drink driving limit were at 0.05 over those four years. Some accidents would have happened even if the driver were sober, and some of them would have happened with the driver having continued to drink. It's pretty likely that the number of accidents would be lower, but it's pretty unlikely that each and every one of those accidents would have gone away. Maybe you could make the case for it if there were substantial decreases in driving in the >0.08 range with a drop in the limit to 0.05, but I've not seen evidence on that as yet.

Glenn got in touch with the reporter and noted that I was planning on heading out with the Christchurch police over the weekend; she called and asked me about it. She'd said that she'd call back on Monday to see how things went, so I was a bit surprised to see there'd been a piece on it this past Sunday.

I'll have to clarify a couple of points.

First, I do not doubt that there is increased risk of having an accident if you are between 0.05 and 0.08 relative to a baseline of zero. I would be pretty surprised if drivers in that range were not over-represented among those having accidents. But I do not know by how much they are over-represented. You are also at increased risk of dying in an accident if you are going 100 kph than if you are going 30 kph. But we do not set the speed limit to 30 kph: the reduction in accident risk isn't worth it relative to the delays we impose. So, for example, Forester et al 1984 concluded that the 55 MPH speed limit failed cost-benefit analysis unless we put next to no value on people's time. We also do not drive cars made of nerf to protect pedestrians.

Even if we only considered increased enforcement cost as the only cost, there would still be some cut-point below which the increased risk of accident among those in the .05 to .08 range wasn't worth lowering the legal limit.

If we think that those who choose to drive in the 0.05 to 0.08 range and who do not have accidents wind up having less fun than if they were required to be below 0.05, then that reduction in fun counts for something too - it's reduced consumer surplus. That doesn't mean that it's impossible to have a fun night out while you're the designated stone-sober driver. It just means that these drivers must wind up being worse off as they see it; otherwise, they would already have voluntarily chosen to have had less to drink. That moves the cut-point for increased accident risk upwards in just the same way that increases in the opportunity cost of time increase the optimal highway speed limit.

Unless we know how many drivers who do not cause harm would be inconvenienced by a reduction in the limit to 0.05 from 0.08, we have a hard time assessing the costs of that policy move.

Here's the Herald:
National Addiction Centre director Professor Doug Sellman is convinced there is a link. He said every time someone died in an alcohol-fuelled car crash, it was a chance to point out that former Transport Minister Stephen Joyce was partly responsible.
The Government has refused to move on a lower blood-alcohol limit for drivers until it receives the results of data from the Ministry of Transport and a driver-simulation study from Waikato University.
Sellman said Government "delay tactics" were costing lives. All the information was already available to make a decision, he said. "Joyce didn't act on the international research that was there already. None of the research says we need more research. Only Stephen Joyce believed that."
Sellman said the point of a lower limit was that it would reduce the number of drivers with higher alcohol levels, too.
The Herald on Sunday has been campaigning for a lower breath-alcohol limit, and statistics last weekend showed 20 people had been killed in the past four years in road accidents involving drinking drivers who were just under the current legal limit. But even that wasn't enough to force any response from the Government.
If all that we cared about was knowing that we reduced the risk of car accidents, you could push the button tomorrow for a zero drink-driving limit. You could also push the button for a 30 kph speed limit on the highway and nerf-cars. And you could blame the Transport Minister for every death involving drivers going faster than 30 kph. But reducing accident risk isn't the only thing that matters.

If we were stuck having to do it from existing data, I'd start here. Keall et al, 2004 provide some pretty decent NZ data.

At Table 5, the report estimates of the death rate per million trips for a few BAC intervals. Among those with no alcohol, the death rate per million trips is 0.2 for both males and females. For those in the .005-.055 range, they found no accidents for women and 0.4 deaths per million trips for men. For the .055 to .105 range, which spans the legal limit of 0.08, the death rate per million trips was 1.4 for women and 1.2 for men. At Table 2, the overall excess death rate per million trips is about 1 - Table 2 controls for time of night.

Now the value of a statistical life for policy purposes in New Zealand is $3.77 million.

The excess death rate per million car trips among those in the 0.055 to .105 range is 1.2 for women and 1 for men. So we'll average that at 1.1 and stick with Table 5 results. Every million car trips taken by drivers in the 0.055 to .105 range costs $4.147 million dollars in expected VSL losses. To the extent that this includes fatalities incurred by the driver, it massively overestimates social cost. But it also doesn't count any of the costs of non-fatal accidents. Because this study only looks at fatal crashes.

So if we only count fatality costs and count all of the fatality costs falling on the driver him or herself, then it would make sense to reduce the drink driving limit from .105 to .055 if drinkers would be no more than $4.15 worse off per trip as consequence. You may see a problem here: the current drink driving limit is 0.08, not 0.105, the risk of accident is strongly increasing in BAC, and this earlier data includes the very high drink driving accident rates among 15-19 year olds, who are now subject to a zero percent limit.

I do not know whether the raw data underlying the study has actual BAC or only the bucketed BAC categories. If the former, getting access to the raw data would let me back out the portion of increased risk in the 0.05 to 0.08 category and restrict things to the over-20 cohort. But it might just be worthwhile to have a look at what MoT is currently collecting, as they're looking also at non-fatal crashes.

So here's a question then. Let's suppose that the costs of non-fatal accidents are on par with the self-imposed fatality costs incurred by drinking drivers so the $4 is ballpark ok (but note the overestimate problems as it includes people in the 0.08 to 0.105 range). Do you expect that most people enjoying a night out would be willing to accept $4 to be subject to a 0.05 rather than a 0.08 limit? Don't tell me "Oh, I would, because I never have that much anyway." This question isn't for you. This question is for those who go out for the night and either worry that they've exceeded 0.05 or know that they're in the 0.05 to 0.08 range. As you walk into the bar someone offers you $4 and says "You can have this $4 if you can guarantee that you'll stay under 0.05 tonight." If most drinkers subject to the risk take the $4, and if the $4 is ballpark correct, then moving to 0.05 makes sense. If you'd have to offer them more than $4, then it's a value-destroying proposition.

Fun fact: you can back out how much net enjoyment people get from their last few drinks - the ones that push them into the 0.05 range - from what they spend on a drink combined with their price responsiveness. When drinks at the bar range from $5 upwards, it's going to be surprising if consumer surplus from last couple of drinks is less than $4 given demand is pretty price-inelastic. In other words, it seems pretty likely that people would turn down the $4 offer. And they'd be even more likely to turn down a lower offer - and I'd be pretty surprised if the non-fatal crash costs were higher than the proportion of fatality costs falling on the drink driver.
SciBlogs Disclaimer: my disclosures around alcohol are here; none of my mucking about on drink driving is funded.

Long-term financing Eric Crampton Dec 20

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The Christchurch Press tells us that the Canterbury Crusaders have paid half of their last year's profits to the Christchurch Stadium Trust.

It's great to see a sporting franchise willing to help fund its stadium.

The temporary AMI Stadium at Addington cost $30 million.

The Government has proposed building a much larger and more expensive permanent stadium as part of the Christchurch rebuild; nobody quite knows what that will cost. $400 million is the number currently cited. Here's John McCrone:
Time to sober up? With the proposed new convention centre and covered rugby stadium, the mutterings are that Christchurch has got rather carried away with its central-city rebuild plans.
"Why are we talking about a $300 million convention centre and $400m stadium at a time when we're broke? It's a nonsense," remarks one insider with a prominent role in the city's events industry.
"I can understand that we are trying to seize the opportunity of a blank canvas here," he continues, "but we're a very small city, only 350,000 people - in many ways just a large farming village. So with these kinds of facilities, it's hard to see how we can afford them, how they will be viable."
Another informed source - again speaking off the record, as now is not a time to be sticking your head above the parapet, he says - points out that the Government is only just now hiring someone to write the business case for the convention centre, even though it has already begun compiling a shortlist of the developers and contractors to build and run it.
"That tells you nobody's done a proper feasibility study yet," he says. It is all seat-of-the-pants, back-of-an-envelope thinking so far.
Now the Crusaders put $87,147 towards the Christchurch Stadium Trust this year in addition to the amount they paid in rent. I'm not sure what the Crusaders pay in rent or whether the figure is publicly available. But I'm pretty sure that the government fronted all of the capital costs for the temporary stadium and that the Trust is only covering operating expenses. A larger stadium would generate greater ticket revenues but would also have larger operating expenses.

Let's suppose that the Crusaders could earn a million dollars per year in profit that could be used towards a stadium above rental charges that cover operating expenditures but not depreciation. And suppose that they promised to give somebody that million dollars per year for the next 30 years if that somebody would give them cash today for building a stadium - a bond issue. If they marketed the bonds to Crusaders fans and thereby got away with paying only 5%, they'd get a bit over $15 million for the flow of future profits. We could maybe imagine, since we're only playing very rough ballpark figures anyway, that that plus other events at the stadium could hit a $30 million replacement cost target.*

The proposed stadium is on the order of $400,000,000. You're not going to get anywhere near that on a $1,000,000 stream but you could do it on a $26 million stream, if you could get people to accept a 5% interest rate.

But I am encouraged to see the $87,147 contribution. Perhaps we could have a few bake sales to help.

* I'm using this as a ballpark measure of whether the government's investment could be construed as having made sense. If the Crusaders were saving now to replace the $30m stadium in 30-year's time, and if the real costs of construction didn't change over the period, and if the Crusaders could get a 5% real return on investment, then it would take them about 19 years of putting $1 million aside to earn the $30m. It would take over 60 years to get to $400 million.

Finding the denominator Eric Crampton Dec 19

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We simply cannot tell whether changing the drink driving limit to 0.05 from 0.08 is a good idea unless we have some idea what proportion of drivers on the road at different times of day are in that range. We can talk a lot about the numerator - how many people involved in accidents have had something to drink. But without the denominator, we cannot make sense of the numerator. 20 accidents could be a huge or a tiny proportion of drivers on the road who have similar blood alcohol readings.

Most likely, drivers in the 0.05 to 0.08 range would be over-represented in the accident stats after correcting for time-of-day and day-of-week effects. But that doesn't tell us whether reducing the drink driving limit would be a good idea. Rather, we have to weigh up the likely reduction in consumption in that range given a change in the law, and the likely consequent reductions in accidents in that range, against forgone consumer surplus among those who would have otherwise been driving in the 0.05-0.08 range without adverse incident. I don't know which way this would turn out, which always makes things more fun.

The New Zealand Police told me that it's impossible to have any automated gathering of that data - their machines are not set up to keep those running tallies. And it didn't look like anybody else was collecting the data. So I tagged along with an alcohol checkstop unit on Saturday night to scope out what would be needed for a survey - how many research assistants would need to tag along to have a decent chance of getting accurate data while still staying out of the way. Over about an hour on Victoria Street, 173 drivers returned no alcohol; 13 were in the 0-250 mcg range (under 0.05); 2 were in the 250-400 range (0.05-0.08); 2 were sent on for evidential readings as they seemed to be above 400 mcg. The officers noted it seemed to be a pretty quiet night - traffic was light and few drivers were in the 250-400 range as compared to other nights. And, surprisingly, one of the officers reported that she was sure that someone else had been collecting data of this sort.

I subsequently heard back from the right person at the Ministry of Transport that they have run a short survey assessing the proportion of drivers on the road in the various BAC ranges, or at least tallying the numbers registering 0, 0-250, and 250-400. And, even better, they've promised me the raw data mid-January. It's limited in that they were only looking at Friday and Saturday nights, but so long as I can sort out the proportion of accidents that happen at the same times, I can deal with it.

I'm very glad I'm not going to have to re-create the wheel on this one. The data collection looked like it wasn't going to be the easiest thing, and I was starting to have nightmares about just what the University administration paperwork was going to be needed to get permission to send RAs out with the Police, even were I to have found external funding.

Many thanks to the Officers who let me tag along for the night, the Canterbury Road Policing Manager, and Mike McCosker for getting me in touch with the right people to get things going. I think it's going to be pretty useful knowing how this data gets generated when I go to play with it in the early new year.

Rugby Boosterism Eric Crampton Dec 19

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Breathtaking. The Ministry of Business, Innovation & Employment produced a report, "The Stadium of Four Million", on the 2011 Rugby World Cup.

The first sections of the report are pretty unabashed boosterism, lauding the successes of the event. It's a bit surprising that they talk about the benefits of enhanced stadium infrastructure in Dunedin with nary a mention of, well, this:
The stadium was pushed as a multi-purpose venue. An appendix to the "CST Feasibility Masterplan Report" of 2007 said it was important it was "perceived at a community level to be multi-purpose and cater for more than rugby". Since it opened last August, only two major non-rugby events have been held: a gig by Elton John, and the 150th birthday celebrations for Otago Daily Times publishers Allied Press. Neither paid a stadium hire fee. In June 2008, two major concert promoters had told the D-Scene newspaper what should have been self-evident: Dunedin was too small, remote and student-oriented to provide the sales base to attract big-name acts. In February this year, council-owned stadium management company Dunedin Venues Management Limited's (DVML) chief executive David Davies said concert bookings for the stadium would be "thin" in 2012. "What's thinner than one?" asks Garbutt. Cull says the council has to leverage the advantage of having a roof, guaranteeing events won't be rained off. Farry, who wanted to run the stadium for its first two years, is disappointed the council hasn't attracted more concerts.
The council envisaged DVML would return a substantial annual dividend to help defray loan repayments. Incredibly, DVML were told to borrow money, if they had to, to ensure a return. "There is no way a company could be milked like this without blowing apart at the seams," says University of Otago academic Rob Hamlin. DVML duly baulked, the board was sacked and replaced by new directors, Denham Shale and Bill Baylis, both former South Canterbury Finance board members. "A 100 per cent commonality of board membership with a company described as the biggest corporate fraud ever in this country takes real genius," laughs Hamlin. DVML predicts a $2.4m loss this year, saying it cannot cover the cost of debt-servicing on the stadium loans, and Davies cried at a press conference to announce his resignation. Cull says it was "completely unrealistic" to expect the stadium to service its own debt (it was originally predicted to make an annual profit of around $100,000); instead he's instigated a review to find the best operating model and how it can run at the lowest possible cost. Farry, meanwhile, reckons the trust would have run the stadium at a modest surplus. Pro-stadium councillor Syd Brown also says the stadium can be profitable: "It will work, it is an asset."
Hamlin argues it may never be viable: if it cost $200m in loans, that means raising $500,000 a week to cover the interest. "Every person from the child born yesterday to the octogenarian blowing bubbles down the old folks' home would have to go to that stadium once a week, without fail," he says. Garbutt believes it would be most sensible to mothball the stadium.
Some benefit. This matters more because the report does not provide any kind of Cost-Benefit Analysis. Rather, it's all economic impact and effects on GDP. They assume that all of the stadium upgrades happened because of the RWC (not that implausible); increased construction expenditure in the CGE model will turn into larger GDP. Except Dunedin could yet go bankrupt over it.

Roger Procter, MED Chief Economist, notes at pages 94-95 of the report some of the report's rather strong limitations. He writes that while CGE modelling can be an important input to a cost-benefit assessment, we still need that cost-benefit assessment to assess any net economic benefit. And as best I can tell, there's no cost-benefit analysis in this report. Maybe it'll be in a subsequent report.

Further, a lot of the benefits tallied depend on the counterfactual that's used. At page 15, they talk about overseas visitor spending being 16.2% higher in September and December 2011 compared with September and December 2010, and retail trade being up 5.7% over the same interval. But the world economy strengthened considerably from 2009 to 2010 and continued strengthening through 2011. The CGE modelling should account for that, but they are taking the increase in visitor numbers as an input. And the graph presented at p. 43 makes it look as though they're estimating excess visitor numbers in 2011 based only on actual numbers from 2010: the "But for the RWC" 2011 figures coincide with realised 2010 visitors for the period of the RWC. If we would have expected numbers to have gone up with continued American and Australian economic recovery, then this may overestimate the RWC's effect. And, again, the estimated RWC-visitor-bump is an input into the CGE model.

A final bit of fun. The boosterish early part of the report talks about the potential gains from increased international business contacts as foreigners travel to New Zealand to see rugby. And that is indeed a plausible but hard-to-quantify benefit. But the notes for the CGE modelling say that much domestic NZ RWC attendance was not displacement from other domestic tourism activities but rather displacement from international travel. That lets that domesticly diverted attendance count as a gain in the CGE modelling. But it also attenuates the benefits of "international connectedness". That bit doesn't get noted in the early boosterism.

For a future honours project, it would be rather fun to have a student check whether countries represented in the RWC, as compared to comparable matched non-RWC countries, had enhanced longer term tourist flows. The report makes a lot of surveys of visitors happily reporting that they'd recommend New Zealand to friends. If that's true and substantial, it should show up in aggregate tourist flows by country sometime over the next few years. It would also be neat to compare these effects with per capita LOTR and Hobbit box office revenues by country.

I chatted with Radio New Zealand's Eric Frykberg about some of these issues late this morning.

Paying for roads Eric Crampton Dec 18

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National has announced that petrol excise will increase for the coming three years. Some of my Twitter stream has been suggesting they're doing this to patch up the budget rather than to cover roading expenses. Can't it do both?

The most recent year-end financial statements, those for the year to June 2012, had the government receiving:
  • Road user charges of $1,045 million
  • Petrol fuels excise of $1,478 million ($847 million on domestic production; $631 million on excise-equivalent duties on imports)
  • Motor vehicle fees of $175 million.
So about $2.7 billion in revenues for roads.

Vote.Transport in Budget 2012 had just under $3.4 billion for the National Land Transport Programme, of which a substantial portion was a loan from the Crown for cashflow management. A quick adding-up of the real expenditures on road related stuff looks like $2.6 billion in road spending - about what they collected in revenue. I expect that the loan that's on the books is for expenditures perhaps having been front-loaded during the year with excise dribbling in throughout the year, but perhaps somebody with more familiarity with the Crown Accounts can correct me if I have that one wrong. 

Simple cost inflation would require that petrol excise and road user charges increase if next year's roading expenditures are the same in real terms as they were this year. If the government has any plans on spending more on roads next year than it did this year, then excise has to go up by more than that. I note also that Note e of the Financial Statements, page 129, includes the following:
"Other earthquake costs do not include costs associated with the future repair of local roadways. This exclusion reflects that the first call for funding these future expenses will be from dedicated ring-fenced revenue in the form of road user charges, fuel excise duties, and registration fees paid to the New Zealand Land Transport Fund. Should the Government's share of the costs associated with the future repair of local roadways exceed the amount available from that ring-fenced revenue, the Government has a number of options to allocate future to this expense. The Crown's share of the costs for local roadways remains uncertain, as is the range of funding options available to the Government."
If the Crown's share of roading rebuild costs has increased, then petrol excise rising to cover it isn't crazy either.

A reasonable argument against the excise increases would be an alternative of issuing roading bonds to be paid off over a longer period of excise revenues, so the burden of current road construction is spread across future road users. And that would be reasonable for one-off shocks like the Christchurch earthquakes. But if every year we have to spend some amount to maintain the stock of existing roads, and some amount to build new roads to match population growth, and if the annual increases in the roading stock are roughly the same from year to year, then the annual burden should work out to being roughly the same under either regime.

I don't think there's sufficient evidence to conclude that National's ramping up petrol taxes as a deficit-fighting measure, except inasmuch as it allows the government to continue building roads without drawing on revenues coming from outside the National Land Transport Fund. But I suppose that next year's budget will reveal whether that's right. It would be rather disappointing if the government were using petrol charges to raise funds for other purposes, but I expect that will not turn out to be the case.

As for whether the Government will produce a surplus ... iPredict says there's a 15% chance for 2014/15.

Update: Liberty Scott posts something useful in the comments; I'm hoisting it up here. If the new roading expenditures are a one-off rather than part of an ongoing set of construction projects, then it really makes far more sense to use debt to finance them.  Here's Liberty Scott:
The fundamental problem is that the current capital expenditure on major roads is a one-off, as it really is a bunch of projects that have at best marginal economic benefit. There wont be equivalent major projects ever built again, so there is a major problem with the PAYGO funding system paying for capital the year it is built, even though that capital has a depreciated life (particularly if you consider earthworks and tunnels which largely never deteriorate) of 90 years +.
What should have been done is that the state should have borrowed for those projects and paid for them over many years, but MoT has been almost wilfully blind to this issue. What ought to happen in future is that there should be less long term spending on roads, because the network will largely be built out by the time all of the RoNS are finished.

Pluralism and health Eric Crampton Dec 17

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I've critiqued the public health crowd for being too willing to set health as the only value, or at least one that is accorded the presumptive right to trump any other element of someone else's more pluralistic vision of the good.

Australia recently implemented tobacco plain packaging legislation. The new packages are not particularly pleasant, with pretty prominent pictures of diseased lungs and the like. Box Wrap offers a sleeve that wraps around the uglified tobacco packs with more pleasant images. In short, it's a sticker. It's a sticker that happens to be the right size to wrap around a cigarette carton. And so:
The Australian Medical Association has urged the federal government to ban stickers being sold to wrap around cigarette packets to sidestep tobacco plain packaging laws.
...
A Department of Health and Ageing spokeswoman said they would be "immediately investigating this product to evaluate its status" but refused to speculate on what actions could be taken.
The AMA wants the government to ban a sticker. DoHA wants to see whether they're able to ban a sticker.

Any bets on whether they'd be trying to ban it if the exact same product were sold without the anti-nanny-state rhetoric? I mean, look at all of the similar products that exist and have not yet roused DoHA and AMA ire. Here's an Australian Ebay list of cigarette cases. Here's another set. And some more. Does the AMA and DoHA hate the sticker because it's perhaps an easier way to route around their packaging law than buying a cigarette case? Or because it's bundled with a freedom of choice message and a deliberate thumb-in-the-eye to the anti-tobacco movement?



The Australian Medical Association wants to ban a sticker. What a world.

Update: Chris Snowdon caught this one before I had. He also points to other Australian wackiness. The Director of the Centre for Research & Action in Public Health at the University of Canberra, Rachel Davey, lauds Britain's wartime and post-war food rationing as an example for reducing obesity.
Wartime food shortages and government directives forced people to adopt different eating patterns. They ate considerably less meat, eggs, and sugar than they do today.

Rationing was enforced in Britain for 14 years, and continued after the war had ended. Meat was finally derationed in June 1954. Petrol was also rationed, so people stopped buying and using cars, and public transport was limited. There was no “obesity epidemic” as food supply and travel was limited, meaning people ate less and did more physical exercise (walking).

Interestingly, during the years when rationing was enforced, the prevalence of obesity was negligible in the United Kingdom. And waste was minimised as both individuals and government agencies were busy finding new ways of reducing the waste of food resources to a minimum (sustainable consumption).

Is it conceivable that some form of food rationing and portion control may help address the dramatic rise in obesity and the sustainability of our foods supply? If we continue to over-consume foods in unsustainable ways for both our health and our planet, we may be left with no other choice.
Wow.

EconTalk this week Paul Walker Dec 17

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Don Boudreaux of George Mason University talks with EconTalk host Russ Roberts about the work of F. A. Hayek, particularly his writings on philosophy and political economy. Boudreaux provides an audio annotated bibliography of Hayek's most important books and essays and gives suggestions on where to start and how to proceed through Hayek's works if you are a beginner.

Again with the middle class … Matt Nolan Dec 17

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Good article in the Sunday Star Times on the middle class in NZ – the author seemed to share some of the sentiments I’ve had in the past (*, *, *, *,*), where he feels that concerns should be for the worst off in NZ not the “doing alright”.

I love this quote:

Of course, this is about statistics – the average. This isn’t you, living from pay cheque to pay cheque, scraping together the school donation, the football subs, the car repayment, the Sky bill, the rent for the bach this Christmas.

Although as a nerd I’d point out we are discussing the median not the average ;) .  I wonder how many people just nodded and completely missed the sarcasm here …

I found this strange

She argues we have a tax system “very generous” to the rich, with a low maximum tax rate. And she points to Working for Families cutbacks, our unusual lack of an initial tax-free chunk of income, and an increased amount of compulsory student loan repayments – now at 12 per cent – being taken from wage packets, which particularly disadvantages women returning to work.

I realise Susan St John is a good economist, and I’ve heard many good things about here.  But the top tax rate is just over 43% (33% on income, then 15% of 67% for GST), and we definitely have a progressive tax system – I mean, does 43% of each additional dollar sound low to people?  It may be lower than we believe is optimal, but I wouldn’t put it in the low camp.

Also, we don’t have an initial tax free rate because it is not a good idea. I’d point out that non-targeted cuts of this sort will lead to higher effective marginal tax rates for the same level of final revenue – reducing efficiency for no gain.  Essentially a tax free band forces us to increase EMTR’s for the same average tax rate … this is very undesirable.

And I could then say that instead we should target benefits and not get rid of tax on the first $X of everyones income.  In layman’s terms getting rid of tax on the first $X of income means that tax rates have to be higher on other income levels to achieve the same level of spending, it would be better to directly give the very poorest money but keep tax on the very low level of income – this would achieve the same equity outcomes at a lower cost.

When it comes to tax we should also think of tax incidence here – if the very poorest only get paid the minimum wage and would otherwise have no bargaining power, then the minimum wage ensures that the entire cut in taxes goes into their pocket!  Without a minimum wage, and with no bargaining power, it would go into the employers pocket.  This is ok, however it both ignores the impact on hours worked and employment, and insofar as those stay the same the same welfare gain could be provided by simply giving low income people a flat stack of income … targeting the benefit rather than creating another tax band.

And finally, student loan repayments and the payment on investment – people have a choice to invest in higher education.  This is only an equity issue if access to education is being restricted due to it, which is not the point being made here.

Final note, I enjoyed saying this:

“It seems strange,” concludes Nolan, “to demand transfers [of wealth] to the middle-class at the same time we’re demonising those unemployed during a recession and making it harder for them to get benefits.”

:D [Note:  My intention when I said this was to convey the idea that people were saying we should be harder on beneficiaries - the actual change in policy has been more mild, with at most an increase in work testing requirements.  While I think the push to get people to take the "first job available" is unfortunate, and bad policy, what I said to the author here in literal terms exaggerates the actual policy changes that have taken place IMO.  This is of course my fault - so I thought I should clarify here]

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