Around the traps

A few bits I've neglected to blog.

• My chat with Adam Jarvis on datacentres. 
• A follow-up chat with RCR on the same thing, as well as a couple of bits on the India Free Trade Agreement. 
• The RBNZ's Keeping Cash Local consultation was just atrocious. The Bank threatened commercial banks via a consultation document. OIAs showed that the Bank knew it did not have the power to  just go ahead and do what it threatened to do. There ought to be an inquiry on how that consultation document got out the door. My submission on the debacle. And my piece at Newsroom.
• Bit at The Post on some very fun AI textual analysis quantifying cultures of innovation going back over a thousand years. 
• The UK's Andy Burnham promises more localism, and the policy document looks decent! My piece at The Herald.
• Treasury knows the ethnicity of 97.5% of its staff; the remaining 1.5% didn't answer the question. By contrast, Treasury does not know what proportion of its staff have qualifications in economics. And it earned a big red "weak" grade on the quality of its economic analysis in the latest PIR. My piece in The Post. I also chatted with Sean Plunket about it. 
• And, over at Newsroom, a bit on the coming FSANZ rules that add more new NZ-Australia labelling requirements for alcohol. I thought that National had promised that we were going to stop doing this and shift instead to QR codes on store shelves to make it easier to enable imports and new grocer entry. 

SEZs as policy trial areas

A decade ago, I coauthored a report looking at how greater localism and subsidiarity could be achieved in a very centralised country where local councils have variable capabilities. 

We settled on policy trial areas. 

The basic gist was as follows. 

First, a community would pitch a policy trial area - a special economic zone - with different policy or regulatory settings more suitable for local conditions. The idea would come from the local community. Some national-level policies are really unsuitable to some local conditions. 

That community would work with Treasury to come up with indicators ahead of time. How could we tell if the trial were working? What side-effects might we need to watch as well? 

Successful trials would often mean higher tax revenue for central government, lower dependence, or both. share the gains with the originating community as a 'policy discovery' payment. Then let it extend to other communities asking to take it up. Failed trials would fail at small-scale. 

Central government would rule out any proposals that could not, in principle, be extended to other similar communities if the trial were successful. So tax concession areas would be right out. Different consenting processes could be fine; a successful trial could extend to similar consents in other places. 

I have not read the proposal for Marsden Point. 

But I do not recognise our proposal in Bryce Edwards' critique of what's been proposed at Marden Point. 

Edwards writes:

A lobbyist’s paradise

The economist Michael Reddell saw the obvious problem the moment Jones first floated the idea. If there were any substance to the SEZ concept, Reddell wrote, the policy seemed “likely to be a lobbyist’s paradise, and perhaps that of political party donors & recipients”. He recalled that the New Zealand Initiative had pitched something very similar a decade ago.

Reddell’s lobbyist point is the one that NZ First does not want to engage with. The moment you start designating discretionary zones with bespoke tax treatment and accelerated consenting, you create exactly the kind of high-value, low-transparency politics in which the lines between commercial interest and political access become blurred.

Who decides which company qualifies as being inside the zone? Who decides what activities “achieve the aims of the zone”? Who appoints the panel? On what criteria? Under what review process? These are not pedantic questions. They are the central governance questions, and they are conspicuously absent from anything Peters or Jones have said in public. NZ First, of all parties, used to have something to say about that sort of arrangement.

To answer Edwards' questions within the framework that my shop proposed:

1. Nobody decides which companies qualify as being inside the zone. The zone applies to activities within the zone's boundaries. If the company's activities are inside the zone, then those activities would qualify. 

2. Nobody would be deciding on activities, except when the zone is struck. A proposal to, for example, trial a different version of the minimum wage for piece-rate employers in the zone would apply to all piece-rate employers in the zone. There'd be no assessment of aims.

3. We didn't have panels, so appointments and criteria weren't questions. 

4. We did have review - against the indicators that the community had set with Treasury. Central govt doing the assessment. 

Maybe Edwards' column is better in the half that's on the other side of the paywall.

Afternoon roundup

Closing the tabs so I can find the ones I really do need...

• Using hoards of ancient coins to trace out historic trade networks
• Left-wing populism is also risky
• ACT won't be supporting National's proposed social media age limits
• Meanwhile, Meta and Google battle over who's going to be stuck trying to verify user ages. I really don't like options that require OS-level ID verification.
• NZ needs more investable propositions
• "It will come back to bite you", but if partisans have very high discount rates....
• BBC's More or Less on the relative risks of vaping and smoking
• Happy 50th Birthday to the Layfield Report. I'm still unconvinced of the merits relative to a combination of user/beneficiary charges, uniform general rates, and land-value apportionment of council rates. I'll have to properly go through the thing though. 
• I'll be helping out on the Advisory Group for Te Kura Taka Pini. 

Afternoon roundup

A closing of the browser tabs:

• New Zealand's space industry keeps growing. Here's BusinessDesk on Dawn Aerospace. So neat. 
• America's economists are very sceptical about the latest round of tariffs on imports from China.
• Ancient bugs hiding in NZ amber.
• Statistics New Zealand is shifting out of central Auckland because of increasing levels of 'intimidating behaviour' in the neighbourhood. Police victimisation stats had a surge in crime in Auckland Central West in 2023 that's since abated, but the number of victimisations there remains far higher than in the Lambton area around the SNZ Wellington office. 
• Easy to find claims that public ownership is better than private because private operators are too short-term oriented. Meanwhile, half the board of Christchurch City holdings has resigned. Why? "...the decisions council has subsequently taken over 2024 to maximise short-term dividends at the expense of paying down group debts and investing in the future of its companies has caused us to lose confidence in council's ability to responsibly own core strategic infrastructure."
• Satya Marar at Mercatus on America's populist turn in antitrust policy. 
• Modern desalination is pretty cheap. The energy required for desalinating a household's water is roughly on par with the power needed for its refrigerator.
• Whenever you're depressed by NZ problems like deteriorating council infrastructure, messes in government IT systems, and crises in public media funding, always worth checking over at Canada's seemingly worse problems in the same areas.
• Concrete is neat.
• There is no good version of a central bank digital currency.
• Eli Dourado wants floating cities.
• Worried about the de-banked - people who can't reasonably access normal banking serives? Fix AML.
• If I were still teaching Public Choice, this would be added to the syllabus. If you want the implicit models behind critiques of the left's shift into identity politics from folks like Chris Trotter, it's a good read.
• Cass Sunstein's 'Economic Constitution of the United States' would also hit the syllabus. I've viewed the Public Finance Act and Reserve Bank Act as being part of New Zealand's economic constitution. Sunstein here makes the case around the rules around regulation and regulatory impact assessment.

GST back to councils?

If a localist agenda involves punting more responsibility down to councils, then central government assistance in funding some of those responsibilities could make sense. 

If councils were only responsible for core infrastructure, that can and should be covered by rates revenue and user charges on use of the infrastructure. If the resulting rates charges are unaffordable because of low income in the district, that's generally a problem for central government redistribution policy. Central government takes a lot of money from higher earning households and redistributes it to lower earning households, particularly lower income households with children. 

And if central government wants the council to provide infrastructure services to a higher standard than the council's residents would choose for themselves, because of central government priorities, it's appropriate for central government to assist with the cost difference. 

But if a more localist approach would have councils taking on more responsibilities over social services, that should not be funded through rates. Social services are inherently part of the state's vast redistribution mechanism. If local councils funded education, or health, or other such services out of local revenues, then central government would need to look to mechanisms like those used in Canada for topping up the accounts of poorer councils so that comparable bundles of those services could be provided in different places. The education system is already fairly redistributive, with a lot more central government funding for schools serving poorer communities' needs than those serving richer communities - whether it's done through decile measures or the more recent index measure. 

Anyway, that's just background and what I've thought is fairly settled standard local public finance in NZ. 

A couple years before I joined the Initiative, Jason Krupp at the Initiative had been arguing for giving the GST on new housing builds back to councils. I argued against it because it's impossible to track GST that way. But they were simply using GST as shorthand. What they were, and have continued, to suggest is taking the value of new housing construction in a district, multiplying it by the current GST rate, and sending it to council as a grant to help encourage them to build more housing. They could put it toward defraying the cost of necessary infrastructure; they could build a golden statue of the mayor with it. So long as it made councils more likely to say yes to housing. And I think that all makes sense - there are substantial spillover costs on the rest of the country and on central government when councils don't enable enough housing in places where people want to live - up and out.

Yesterday, Politik newsletter reported on some work by Infometrics on returning the GST charged on local council rates back to councils.

This seems a tremendously bad idea. 

Brad Olson was quoted:

"Rates should still be charged GST, as councils are providing goods and services for local residents, ratepayers, and others. But given the constant discussion about the need to fund local Government differently, perhaps GST on rates should be collected and then returned to local councils," says Mr Olsen.

I completely agree with the first line. There's a populist line about GST on rates being a tax on a tax, but if it weren't there, it would cause no end of distortions. There are all kinds of margins on which ratepayers might prefer to shift service delivery from the private sector or from households over to council provision if council-provided services had a preferential tax treatment, and from user-charges set by council to general rates funding for things already provided by council. 

As simple example, Wellington currently charges a per-bag collection fee for trash and people can choose to contract with private waste collection services if they prefer that instead. It's all fine. User charging like this recovers the cost of landfill services while providing incentive to avoid generating more trash than would otherwise be optimal. I don't know whether council is charging the right amount relative to a full cost recovery model, but the bones of the thing are right.

And suppose that an average household spent $100 per year plus GST on trashbags from council for collection services. 

If council shifted that service to just being rates funded - put out as much trash as you like, and it's covered in your standard rates bill! - and if households did not change the amount of trash they put out, then council could charge the $100 extra on rates and get $15 back from central government. Or charge a bit less and get a bit less back such that they were back to cost-recovery. 

If households put out more trash because they faced no marginal cost, council would still be better off - so long as they didn't increase trash generation by more than 15%. But more likely, households would generate more trash than that, and then either rates would have to increase by a greater amount, or councils would start rationing trash bags by non-price mechanisms, or some combination of the two. It would be a mess. 

Don't do this.

Basic drill on local public finance, or as best I've understood it, is:

1. Set appropriate user charges on everything that can reasonably be user charged.
2. Use rates to cover the cost of services that cannot reasonably be user-charged. 

Rebating GST on rates to council pushes councils away from user charging on stuff that can reasonably be user-charged. It also distorts toward council over private service delivery - at the margin, some things best provided privately get shifted into council's wheelhouse because council provision is tax-preferred. 

And if you set it instead such that councils get a GST rebate on both rates and user charges, you still have the distortion toward council over private provision. 

Tino Rangatiratanga and localism

My piece for the Saturday papers weekend before last, and now ungated here, went back to a theme that Richard Harman had noticed in the Waitangi speeches. 

Minister Shane Jones argued fuller debate on the meaning of Tino Rangatiratanga is inevitable, saying, “There is a deep, committed view from Pita Tipene and others that article two is a charter for iwi sovereignty. And at some point in time, that debate is going to be flushed out. It’s not a conception that I share. I conceive it to be more localised.”

Prime Minister Luxon said, “We are a party and particularly a government that is actually about making sure there is localism and devolution and that those closest to the problem should solve the problems. …Our fundamental belief is localism and devolution. We do not believe in centralization and control through Wellington.”

It is certainly not for a Canadian economist to weigh in on Treaty interpretation. I have neither the standing nor the understanding.

But one bit of the Canadian experience might be interesting.

Canada’s overall policies regarding its First Nations have been abysmal. But Canada’s First Nations nevertheless have some rights comparable to Canadian municipalities.

Basically, Canada's First Nations Band Councils have powers on reserves comparable to municipalities, except under federal rather than provincial jurisdiction. 

Decades ago, Manny Jules did the work to get band councils the authority to levy property taxes on reserve to fund band council activities. 

And look at this section of the Indian Act - I've bolded the interesting bits.

81 (1) The council of a band may make by-laws not inconsistent with this Act or with any regulation made by the Governor in Council or the Minister, for any or all of the following purposes, namely,

(a) to provide for the health of residents on the reserve and to prevent the spreading of contagious and infectious diseases;

(b) the regulation of traffic;

(c) the observance of law and order;

(d) the prevention of disorderly conduct and nuisances;

(e) the protection against and prevention of trespass by cattle and other domestic animals, the establishment of pounds, the appointment of pound-keepers, the regulation of their duties and the provision for fees and charges for their services;

(f) the construction and maintenance of watercourses, roads, bridges, ditches, fences and other local works;

(g) the dividing of the reserve or a portion thereof into zones and the prohibition of the construction or maintenance of any class of buildings or the carrying on of any class of business, trade or calling in any zone;

(h) the regulation of the construction, repair and use of buildings, whether owned by the band or by individual members of the band;

(i) the survey and allotment of reserve lands among the members of the band and the establishment of a register of Certificates of Possession and Certificates of Occupation relating to allotments and the setting apart of reserve lands for common use, if authority therefor has been granted under section 60;

(j) the destruction and control of noxious weeds;

(k) the regulation of bee-keeping and poultry raising;

(l) the construction and regulation of the use of public wells, cisterns, reservoirs and other water supplies;

(m) the control or prohibition of public games, sports, races, athletic contests and other amusements;

(n) the regulation of the conduct and activities of hawkers, peddlers or others who enter the reserve to buy, sell or otherwise deal in wares or merchandise;

(o) the preservation, protection and management of fur-bearing animals, fish and other game on the reserve;

(p) the removal and punishment of persons trespassing on the reserve or frequenting the reserve for prohibited purposes;

(p.1) the residence of band members and other persons on the reserve;

(p.2) to provide for the rights of spouses or common-law partners and children who reside with members of the band on the reserve with respect to any matter in relation to which the council may make by-laws in respect of members of the band;

(p.3) to authorize the Minister to make payments out of capital or revenue moneys to persons whose names were deleted from the Band List of the band;

(p.4) to bring subsection 10(3) or 64.1(2) into effect in respect of the band;

(q) with respect to any matter arising out of or ancillary to the exercise of powers under this section; and

(r) the imposition on summary conviction of a fine not exceeding one thousand dollars or imprisonment for a term not exceeding thirty days, or both, for violation of a by-law made under this section.

It is fun to think about what could happen here if iwi had similar authority over building and development on iwi-held land, or Māori land more generally. 

For further fun, look at the 250 page services agreement between Vancouver City and the Squamish First Nation for the Sen̓áḵw development. That development is on Reserve land right next door to downtown Vancouver. 

It's very typical for Kiwi bureaucrats, or bureaucrat-adjacent types, to find the first hurdle that might cause an issue and just give up. Well, here's 250 pages of legal text working through difficulties and finding solutions. 

Back to the column.

A First Nations Band has autonomy over the Band’s land.

It isn’t mere parchment. The listed rights have consequences.

When Sḵwx̱wú7mesh Úxwumixw, the Squamish Nation, finally had five hectares of their land returned to them near downtown Vancouver, the Band had authority over that land. Not the city.

Vancouver has a housing shortage. And Sḵwx̱wú7mesh Úxwumixw wanted to build.

In Auckland, Section H27 of Auckland’s Unitary Plan sets out the Special Purpose - Māori Purpose Zone. A Marae is prescribed by H27.6.2 to be no more than 10 metres in height; height of buildings in relation to boundaries is prescribed by H27.6.3, and even the location of rainwater tanks is prescribed by H27.6.9.

Even if every one of those sections enjoyed the full agreement of every hapū when the rules were written, if a hapū’s needs changed over time, council would have to agree to any change. And City Council issues the consents.

Meanwhile, the Squamish Nation’s website describing the Sen̓áḵw development explains that “Sen̓áḵw is not part of the City of Vancouver, and is not subject to the City's typical development approval process.”

It appears that, in practice, collaboration with Vancouver City has been required in order to effect interconnection to water networks. But bargaining over such things is a bit different when the Band has real autonomy over its own lands.

The service agreement goes well beyond water of course. The Band Council levies a property tax on Sen̓áḵw to pay Vancouver for other services that Sen̓áḵw residents will enjoy. This stuff can be worked out. 

Localist approaches can be more responsive to local needs.

In 2015, the New Zealand Initiative put up a report on devolution. We argued that, if a local community saw central government’s regulations or policies as being unfit for local purposes, they should be able to negotiate their own carve-out. If the policy experiment proved successful, others could take it up. If it failed, the experiment would have been relatively small. Bespoke devolution options can make more sense where councils vary widely in capacity.

But nothing in that report needed to imply that local or regional councils are the only voices of local community. Devolution to iwi or hapū could also fit within the framework.

New Zealand has a housing shortage. Council zoning and consenting rules have obviously been part of the problem.

Devolving zoning, consenting, and rating authority over iwi-held land to iwi wishing that authority may be a longshot. And it would take a lot of work.

But it seems worth thinking about.

I have no expertise or experience in arguments around Treaty interpretation.

I just find it very hard to believe that iwi leaders signing onto the Treaty believed their descendants would wind up needing to beg a bureaucrat’s permission to build houses on their own land.

Afternoon roundup

Eight browser windows each full of tabs. Something's gotta give.

• Excellent quips from our Treasury Secretary in response to RBNZ pleading for even more money.
• All the BS speech restrictions that apply on election day. 
• I don't get how Brian Albrecht doesn't yet have a syndicated national column in the US. Gold!
• Bits from me and a few others on whether National or Labour is 'better for business'
• My column at Newsroom this week expanded on last week's post on the NIMBY problem. 
• British Columbia's Supreme Court backs the Squamish Nation's push to build a pile of needed apartment towers on Squamish land in Vancouver, batting back NIMBYs. 
• A Commerce Commission that were on its game would be checking into just how the existing cartels have managed to block a new nurses' training school from training new nurses. 
• Excellent piece by Bill Watson on competition policy versus actual competition.
• Interesting ideas from Andrew Body and Simon Jensen on improving prudential bank regulation in NZ. But there's still the bigger question of whether we ought to split monetary from prudential.
• Noah Smith thinks a three-state solution is needed. I can't see how that works while Hamas runs Gaza, but maybe somebody will figure it out.
• "The region's pipes are ageing at a faster rate than they can be fixed." Wellington is such a mess. But I simply don't buy the claim that "Our councils are pushing their ratepayers to the limit in order to fund [Wellington Water]." Our council is set to spend $350m earthquake strengthening a building that could be bulldozed and just built a convention centre and is spending $100m more than necessary on a central library.  
• Queenstown has the country's worst housing shortage. The Infrastructure Commission points out that Queenstown's new plan will enable about 31-149 houses over ten years. Neither National nor Labour are really serious about housing.
• The final chapter in BusinessDesk's excellent series on the state of the NZ public service and the legacy of Peter Hughes. I still think an incoming government should fire Hughes pretty much on day 1 rather than let him see things through to February. 
• Years back we'd been arguing for a variant on city deals. They're in fashion now, with some risk of monkey-paw problems. 

Morning roundup

The morning's worthies:

• iPredict's PredictIt gets another stay of execution
• Kainga Ora has been making great progress in streamlining builds. So long as they don't get burned down. Perhaps it would help if nearby owners could reasonably expect Kainga Ora's tenants to be better neighbours. It's the rare prominent cases that create reputations.
• Jason Sorens says that bad zoning leads to dysfunctional housing markets and high prices, leading to bad ideas about how to fix the problem. A variant on Caplan's Idea Trap.
• Problems that wouldn't exist under proper road pricing and if debt for new roads could be backed by road-user revenues.
• I wish for a world in which Andrew Leigh were a Labour MP rather than a Labor MP. 
• Resale price maintenance. It is still fun to think through the conditions under which it's efficiency-enhancing substitute for vertical integration or otherwise efficient rather than potential indication of cartel-type mechanisms. The typical presumption is the latter, but it isn't necessarily the case. 
• ComCom price regulation of the proposed 3-waters entities will follow standard drill utility regulation. EnergyNews rightly points out that prohibitions on water suppliers earning a profit (remember that standard state-owned enterprises and council-owned enterprises can!) will "limit the extent to which profit can reward and incentivise efficiency and innovation". 
• NZ mayors pushing for city deals. Seems antithetical to Labour's current centralising DNA. Maybe some future better government will dust off the report we'd written back in 2015.

A depressing NZAE keynote

Auckland University of Technology’s Professor Rhema Vaithianathan's keynote at the NZAE meetings was depressing. 

Her work is great: better data tools to help child protection workers better triage cases. One result: a one-third reduction in child hospitalisation. 

What's depressing is that it could have been happening here, but the New Zealand government chased the work away. 

I covered it in my column over in the Post; unfortunately, some snafu on their side resulted in a short version in print. The online version has all of it; ungated here. 

I also summarised it in our Insights newsletter:

The New Zealand Economics Association annual meetings are a great way of keeping abreast of what the country’s economists are working on. 

And sometimes they’re downright depressing. 

At last week’s meetings, Auckland University of Technology’s Professor Rhema Vaithianathan’s keynote explained what she’s been up to over the past decade. 

Her team has been helping American child protection services to do a better job protecting kids.  

Child protection work is grim. Officials balance two terrible kinds of errors.  

Over-zealousness means a lot of families will be put through a painful wringer unnecessarily. But under-intervention means some kids who could have been helped will wind up abused, hospitalised, or killed.  

Unless you can find a way of reducing both types of errors. 

And Prof Vaithianathan’s team found a good one. 

Child protection workers have a mountain of administrative data for making decisions on whether to intervene in response to a call, but only about ten minutes to make each decision – then on to the next case.  

It is impossible to regularly make good decisions faced with that much complexity and that little time. 

Prof Vaithianathan’s team reduced complexity by turning data into a predictive score laying out the risk each case posed, to help child protection workers make the right call.  

They started the U.S. work in Allegheny County, Pennsylvania, because Allegheny wanted to use data to make better decisions. The programme’s success inspired others to try it out.  

And a later randomised control trial showed that the system reduced child hospitalisation by a third.  

It also reduced the bias that case workers otherwise bring with them in making assessments. The risk scored meant more high-risk white families received help and fewer low-risk black families had to deal with child protection services. 

It’s a great story.  

The depressing part?  

The work started here in New Zealand. It was killed by Anne Tolley as Minister, who described it as experimenting on kids. And the subsequent Labour government showed even less interest in data-based approaches.  

One third fewer hospitalisations for children in risky families.  

But not here.  

In America instead.  

Thanks to Kiwi researchers, who were chased away from doing the work here.  

An innovative American county can try something new and let others follow. New Zealand’s centralisation means a single bad Ministerial decision can cause a lot of harm for a very long time. 

Far better policy, and outcomes, are possible. Even here. But voters have to demand it. 

I also had a two-part podcast with Prof Vaithianathan about it (Part 1, Part 2).

I take all of it as exemplar of why centralised systems fail relative to decentralised ones.

In New Zealand, MSD botched its handling of the system, leading a risk-averse Minister to kill it.

That kills it for the whole country. 

In the US, all you have to do is find one county that isn't full of freaking idiots. When you find that one county, demonstrate that your idea works. Second-movers pick it up, showing that it can work in other places. And then others follow along. 

And every trend in NZ has been toward greater centralisation. 

Afternoon roundup

It's been a while since last posting. The tabs...

• Gita Gopinath on Covid's lessons for inflation and central banking


• Long-Covid and labour markets. There is still far too little data on this. 


• Expect it to get weirder


• Be careful about audit studies that use racially-loaded names to signal race. They can signal other stuff at the same time. And they aren't perfect signals on race either. 


• Matt Levine on Silicon Valley Bank


• Very strong NZ public support for incentive payments to local councils. Good.


• Ian Powell on some of the messes in health system reforms. There will not be the back-end efficiencies the government may be looking for. Ian McCrae suggests these reforms for the next policy bonfire.


• Pattrick Smellie on lame government industry transformation plans


• I expect a NZ version of this would find similar results: the decline in marriage and the rise in social problems. 


• Doesn't it make more sense to finally deal with the messy problem of setting FBT on employer-provided parking than to try to FBT-exempt every single possible substitute for driving? Should sneakers be FBT-exempt for those who walk to work?


• Electricity generators warning that proposed Resource Management reforms are going to completely screw up building new power generation. 


• Rebecca Macfie argues that a pile of contractors wind up working for less than minimum wage and so contractor law reform was needed. I have difficulty squaring the assertion about low low contractor wages with the fact of very tight labour markets where hospitality and retail are having to pay margins above the minimum wage even at entry level. Is it illegal for these workers to just go and find a different job?


• 72% of Kiwis think that farmers should be allowed to use genetically modified grasses that reduce methane and nitrate emissions.


• It really looks like the guy running NZ's newly merged polytechs hasn't got a clue about academic freedom.

Afternoon roundup

The afternoon's worthies:

• Why do so many policy interventions help women, but not men? All kinds of intervention programmes, not gender-targeted, seem to have far larger benefits for women than for men. 
• Bryan Perry's latest compilation is out! It's the topic of this week's column at Newsroom, ungates tomorrow by pulling the /pro from the URL. 
• Europe is heading for a dark winter. 
• If we didn't now have a grocery producer price index, David Clark would wind up pointing to the next increase in grocery CPI as reason to break up the supermarkets. He'll probably do it anyway. But at least we can point to the underlying cost pressures now. 9.2%!
• The Future for Local Government Forum's report is due at the end of October. They've a big job to do. Central government has been strangling local government for decades. 
• Noah Smith on the 2022 Econ Nobel to Bernanke, Diamond and Dybvig. And Tyler Cowen , and Cowen on the Diamond Dybvig model.
  
• An Aztec counterargument to vertical supply curves in unimproved land. 
• Forest and Bird questioning the merits of Lake Onslow, and of 100% renewable electricity targets. 

Morning roundup

The morning's worthies, on the closing of the tabs:

• Simon Bridges on an odd proposal to stop counting travel time savings when running CBAs on new roading projects. There's a good case that congestion charging is the first-best way of dealing with congestion, but travel time matters. 
• In praise of the Auditor General
• I really hope the final version of the Future for Local Government's reform paper is stronger than is here signalled. 
• Richard Harmon on the GST change that didn't happen. It's such a strange one. You'd have thought they'd have lined up the 'like clean tax' people on the right to have a supporting case ready. 
• If I've read this right, it's setting up some horrible incentives around Tranche 2 "Better off" funding. Projects with local benefits unrelated to water get loaded into the debt taken on by the new amalgamated water services entities?

Local government games

Councils find accommodating urban growth to be costly, so they use what tools they can to restrict it. Until that underlying problem is solved, they'll keep finding new ways to obstruct growth in places where people want to live, but where accommodating growth is just too hard.

Thomas Coughlan picks up on Auckland's move to designate too many houses as being under 'special character areas.'

It is understood the Government thinks what Auckland Council notified in August is unlawful, breaching the spirit and the letter of both laws, mainly because of the way the council has applied "special character area" protections liberally in Auckland's villa belt.

Government can keep setting new rules on top of councils, but it's balloon-squeezing. Until and unless they sort out the underlying mess that makes councils behave like this, they'll just keep reaching for other tools. We've already seen Greater Wellington Regional Council pull in greenhouse gas emissions as reason to block new subdivisions. 

How to fix it? 

• Recognise that it's a deep structural problem in councils caused by decades of misaligned incentives, which have encouraged strongly anti-growth cultures to develop within councils.
• Change the underlying incentives to make growth a benefit, rather than a cost, for councils. Do so by:
• Providing grants to councils for every new dwelling built, so they share in the benefits of growth;
• Enabling councils to issue long-duration revenue bonds to fund infrastructure, financed by revenues from that infrastructure's beneficiaries, separate from council main balance sheets.
• Recognise that, until those incentives have time to work their way through, councils are going to need constraints. 

One simple set of constraints, until the cultures have time to update, which may require a lot of staff turnover, would set UDAs on top of councils as competitive issuers of resource consents and building consents. 

For councils where the median home sells for more than 8x median household income, UDAs could be instructed to disregard viewshafts, frontage setbacks, height limits, balcony requirements, floor-to-ceiling limits, and whatever it is that design panels normally do when issuing consents. For councils where the median home is between 5-8x median household income, there could be a smaller set of "without regard to" things. 

These are just indicative. Don't ask me; I'm not a property developer. Ask someone like Matty Prasad. Or Arthur Grimes, who'd done the work showing the shadow cost of all the darned restrictions. Void the most costly ones when and where housing is unaffordable. Where housing is less than 5x median household income, the UDA wouldn't be put into operation.

Basically treat it as training wheels. When Council's demonstrated it can't drive the bike without crashing and making a mess of everything, put training wheels on that constrain against the most costly things they get up to. The training wheels come off when housing's affordable. 

Disinformation stuff

The Stuff papers have been checking into which candidates for local government are actually antivax conspiracy theorists.

So why are we doing this? It’s certainly not fun, or enlightening work. Mostly, it’s depressing, tedious and disturbing. In the last fortnight, I’ve swung from despair, to irritation, puzzlement, and occasionally amusement.

But facts and transparency are cornerstones of democracy. Stuff is drawing attention to these candidates because they cannot distinguish fairytales from reality. They are anti-science. They lack critical thinking and sound judgment.

And while they claim the opposite, many seek to disrupt democratic institutions. Many share a common disdain for the rules, procedures, and norms of representative governance. (In the case of VFF, they have made explicit their aims to make the country ungovernable.)

If voters elevate them to decision-making roles, they should do with this knowledge.

There are two separate things going on here.

I agree with Vance that it is dangerous to elect people who cannot distinguish fairytales from reality, and who are anti-science. But local government hasn't got a ton of remit over Covid- or vaccine-relevant stuff. An antivax local government could refuse to set vaccine/mask requirements in council-owned places where those requirements might make sense, but what else could it really do?

On this aspect, I am way more worried about councilors who believe anti-science fairytales about rent-control, zoning, and about the possibility of reducing national net emissions through council measures targeting emissions already covered by the ETS. A lot of them think that stadiums and convention centres are great for economic development. They're all wrong. Anti-science councils can really screw things up when relying on fairytales in those areas. But none of those get picked up in anti-disinformation campaigns.

The second part of Vance's argument is stronger. If those candidates' hidden aims are to throw sand into local government gears, that's a bigger problem to the extent that councils pursue objectives that are worth pursuing. 

Morning roundup

The morning's worthies:

• Treasury are the heroes in this story, where Daalder paints them as villains. Treasury tried to stop the dumbest of the climate spend. GIDI, which either pays companies to invest in tech they were already going to buy, or subsidises them to invest in cost-ineffective ways of mitigating emissions, is such a rort. 


• Justin Giovannetti left New Zealand because of our housing policy disaster. He tells Canadians about the problems.


• Dileepa Fonseca suggests council rates should be apportioned only over land value, rather than land plus capital. I agree - at least for urban councils. For rural ones that don't use user-fees for services provided in towns, there will always be temptation for the townies to screw over the farmers by loading them with costs for services they rarely use. 


• Auckland Council bans people from building infill housing in places where people want to live through special character designations. Allowing infill housing where people want to live is the single most cost-effective thing that councils can do to reduce demand for carbon emissions. Meanwhile, Auckland Transport puts up aspirational plans of how many people they'll force out of cars. If you run a comprehensive price on carbon, you don't need this micromanaging BS. But those who know they are your betters want to dictate how you live. Just letting prices work within an ETS with a binding cap isn't good enough for them. Instead, NZTA is advertising for a Principal Advisor on reducing vehicle kilometres travelled. That just shouldn't be a goal. NZTA should be making sure that road users pay the costs of their road use rather than try to stop it. Maybe the advisor will suggest even worse maintenance on the roads, so the threat of broken axles will discourage driving. 


• Meanwhile, Minister Wood thinks breaking the public transport contracting model is needed to push up wages for bus drivers, among other worthy-sounding outcomes. It's all nonsense. Greater Wellington set a contracting model with trivial penalties for cancelled services and then was shocked! and aghast! that the bus companies ran lean staffing models, eating the fees for cancelled services rather than paying enough for staff to ensure reliable services. Council could have contracted for different outcomes, if it had been willing to pay for them. It'll be interesting to see what they do when they no longer have a scapegoat I suppose. 


• The Auditor General warns about some implications of the proposed 3 Waters Reforms.

Afternoon roundup

Let's get these browser tabs back under control

• Shutting down a late-night food-truck because it's too popular and reducing options for celebrants isn't going to improve nightlife. Hi Auckland. 


• About one in four mild COVID cases wind up with brain damage. 


• Things true in a self-selected cross-section may not hold up in an RCT. Doubt you could get funding to run this as an RCT though. Well, maybe Loewenstein could.


• Businessdesk reports that investments tied to investor visa applications worth at least $3 billion are just sitting around at Immigration NZ, unprocessed. 


• I'd be less uncomfortable about this if there'd been smaller promising pilot studies with rigorous evaluation frameworks first. 


• Emma Vitz maps out how far a woman might need to travel in NZ to access abortion services.


• I've occasionally complained about Medsafe approval delays for vaccines. Wanna know how the booster for over-50s got authorised? It took an Act of Parliament. And they worried that "treating a fourth dose as other than "new medicine" undermines the scheme and purpose of the Medicines Act and the consent process under the Act." We're just not going to get vax for under-5s, or the updated formulations, in any reasonable amount of time with Medsafe as it is. 
  
  

Afternoon roundup

The tab-closing worthies:

• ACT supports a carbon dividend. Good!
• I had to point a lot of people at this last week on Twitter. The 2018 TWG's advice about GST. Says the same thing as the prior National Government's TWG. Good backgrounder for those needing background.
• Peter Martin worrying that Australia picks up NZ's stupid excise holiday.
• Matt Nolan also doesn't like the excise holiday.
• A helpful reminder that at least some of lockdown's costs were inframarginal.
• The borders are opening. Hope there's more hospital capacity by then, or that visitors are provided with appropriate warnings.
• Rotorua asks to be counted as a Tier 1 City, so it can more easily build houses. It's a fun one to think about. Nothing in the Medium Density Residential Standards rule applied to Tier 1 centres is outside of Councils' ability to do on their own. They could upzone on their own. Perhaps best to think about it as a way of binding to broad upzoning, and avoiding the salami-slices that councillors might otherwise be pushed into?
• Larry Summers worries we're heading for stagflation. I wish I had confidence that RBNZ has the competence to navigate the waters ahead.
• Running urban development through environmental planning processes gives NIMBYs lots of room to veto things. Here's Will Rinehart on how it plays out in California under the California Environmental Quality Act. Sounds a lot like New Zealand's Resource Management Act and its problems. PRI has reform suggestions for California.
• Nobody expects the Royal Society's inquisition. Fortunately, it has now been dropped. 

Afternoon roundup

The afternoon's closing of the browser tabs:

• Markets in everything: pretending to be other people so they can have a vax pass and you can have eight shots. Some people are willing to pay $200 to have a 60x increase in their odds of real bad stuff when they catch Covid. FFS. 
• The TVA is getting back into nuclear power. One of these units, the BWRX-300, looks to have a generation cost around NZD $75/MWh. That's getting into viable-in-NZ territory. 
• With zero notice, Statistics New Zealand killed NZ.Stat: the interface for access HES and a few other datasets. Infoshare is thankfully still available. I'm talking with other folks about setting up an external mirror of Infoshare, in case SNZ does this kind of thing again. Crazy. Will be writing my Newsroom column next week on it. Statistics New Zealand found however many millions of dollars it took to run a roadshow across the country on whether and how they should be measuring spiritual wellbeing, but wound up five versions behind on core systems. Priorities man. 
• RBNZ running inflation at 5.9% lets Labour claim generosity with a 6% minimum wage hike.
• Councils that like to plead poverty oughtn't put resource into this kind of thing. 
• Superb piece by James Graham summarising the lit on rent control. I expect to point to it a lot in future. 
• Shutting down immigration did not kickstart the Oz economy: Grattan institute.
• More evidence that moderate alcohol consumption is associated with higher wellbeing later in life. 
• UK rules mean Reddit and Twitter will either have to block adult content in the UK entirely, or come up with an age verification setup. Couldn't they just answer some simple questions that only adults can answer instead?

Morning roundup

 The morning's worthies:

• Dileepa Fonseca still on target on Covid testing. 
• Supply shortages in construction as far as the eye can see (Newsroom, $). All of the Covid messes are running up against a sector that geared up for the amount of construction that had been allowed (not much) and that has to expand as Auckland allows more growth and as the NPS-UD starts kicking in (though there is much yet to do in enabling growth - see the last bullet). 
• Employer vaccine mandates remain a legal mess that needs to be sorted out (Newsroom, $). Can an employer mandate vaccination? "It depends" isn't good enough.
• Me, in the Stuff papers, on the interim report of the latest local government review. This one's a slow burn: it's got well over a year to go. But they're asking some good questions. I'll be in a webinar at lunchtime with the Property Council going over related issues. 
• Duncan Greive on the need to involve the private sector in the Covid response.
• Once housing is properly considered a human right, can we round up Mission Bay objectors and send them off to The Hague?

Assorted updates

Blogging has been light. These are the bits I've missed telling you about.

• Matt Burgess, Oliver Hartwich, Bryce Wilkinson and I had a short podcast on the government's proposed feebate scheme. It's an incoherent mess given that it's running up against an ETS with a binding cap. 
• I had a chat with RNZ's The Panel on congestion charging on Friday. I'd had a column in the Dom Post on it a bit earlier. 
• My column at Newsroom last week went through the changes coming for local councils when water utilities get stripped from them and amalgamated into new entities. 
• My column in our Insights newsletter looked at the government's sclerotic approach to border management. Better, safer, and even cheaper testing options for border workers are available, and they aren't being used. 
• I had a chat with Newshub about America's Cup funding, and how the government should politely wish Team New Zealand all the best in its coming race, wherever in the world that might well wind up being. 
• And I had a chat with Josh Gans about the Covid response and some of the worrying numbers on risks with border openings. 
• Motu had a panel session on some minimum wage work by Dean Hyslop and Dave Maré; Bill Rosenberg and I were discussants. Their paper is here. I expect I'll be referring to it often. 

Self-recommending. Meaning, I'm in them, and I'm recommending them. Likely not in the better way that Tyler Cowen uses the term.