In defence of simplistic models

This post on methodology is related to recent discussions about the role of maths in economics (Matt has a good summary with the relevant links here), but is actually response to a comment by Chris B over at SciBlogs to my initialpost on Labour’s proposed ban on non-resident ownership of houses. (Yes, this post is long overdue. Events have conspired to keep me away from blogging for a couple of weeks.) 

Chris says: 

You know, the more I think on it, the more dissatisfied I am with this thought exercise. If only because Seamus has seen fit to call it a “very simple model of the New Zealand housing market”. It realy isn’t . It’s simply a fictional market with certain highly abstract asserted properties. No more realistic or useful than the various maths exercises from my own university level economics classes.

Fair enough. I should have said a simple model to help think about the New Zealand housing market. The point of this post is to ask whether simplistic models can be useful. Note that such models are unrealistic by design. If I were writing an academic paper, I would have used a much more complicated model, and if writing a problem set for an undergraduate class, something only a bit more complicated. But this was a blog post, so the model was designed to be easily solveable in your head. (I hope that the maths exercises from Chris’ university-level economics classes were more involved than this one; if not he was severely short-changed by his university.)

In general, a simplistic model is designed to make one or two points by stripping away every piece of reality except a specific thing that you want to highlight. Some of the assumptions one makes in doing this are simply removing irrelevant reality in order to focus attention on the key aspect of the question at hand. Others are more like dogs that don’t bark in the night; seeing what happens when you assume away some aspect of reality highlights how important that aspect is. Chris lists a whole bunch of assumptions in my model. I won’t go into these in detail, but I would argue that they all fit into one of these two categories. Some, like the assumptions about homogeneous preferences and housing quality are just assuming away irrelevant reality. Others, like the assumption of inelastic supply are non-barking-dog assumptions. As I noted in my original post, when you relax this assumption, you make the case against bans on foreign ownership stronger. 

The realism or lack thereof of a model is therefore not a criterion for judging a model’s success. A simplistic model can be criticised for one of three reasons: 

a) the intuitive point that is laid bare when all other reality is stripped away is so obvious that the point doesn’t need to be made;

b) the model doesn’t actually illustrate the point being made; or

c) the point is actually wrong, and the model fails because it stripped away some highly relevant aspect of reality.

The third is not necessarily a criticism. If a model’s intuition can be changed by adding in some relevant piece of reality, the process of starting with a simple model and then relaxing the assumptions lays bare what the crucial step is for generating a particular conclusion and informs where one needs to look for empirical evidence supporting it.

Now, in my post, I was looking to make two points: The first was that the price of houses depends on the current and future expected stock of houses and the current and future expected demand for housing (i.e. the willingness of people to pay to live in houses); changing the rules on who is allowed to be non-occupier owners of houses should not change the price of housing absent a mechanism for the policy to affect demand for occupancy or the stock. The second point was that if speculation is pushing up the price of houses, it is only because house prices are expected to increase in the future; attempts to restrict speculation without dealing with the underlying drivers only delay the issue.

Now I don’t think you can say that my model fails on the ground of being too obvious, as so much public commentary on housing policy simply routinely ignores these two points. Whether the model is successful in illustrating the point is very much in the eye of the beholder. For the third criticism, I certainly can imagine relaxing assumptions to generate different conclusions and inform a debate about what is the more likely state of the world. Chris, however, would prefer to eschew the simplistic model altogether. In his words:

Plainly the exercise does not remotely resemble the New Zealand Housing market. Why, then, should we have any particular faith in our ability to extrapolate from the though exercise to what will happen in the real-world economy.

In what sense does the model not resemble the New Zealand housing market? The model has both renters and owner occupiers. It has owners of rental properties who earn investment income from the ownership. It has a future expected increase in the demand for housing, and in that world has landlords earning a below-market rate of return. All describe exactly, say, the Auckland housing market. Yes, the real-world economy has other things as well, but it is important to understand the simple models before adding complications. What is the alternative?  Chris’ conclusion is as follows:

Perhaps a better approach to arguing against the policy on economic grounds would be to identify other places where it has been implemented and talk about the impacts which have resulted. Potentially tricky to isolate the impacts of the policy from other confounding factors, but if it can be done, there’s the advantage of being able to present some empirical evidence against it. 

 Alternatively, perhaps we might drop the thought exercise entirely as extraneous and talk specifically about how we expect foreign buyers will react to future restrictions on their activities, consequences for investment decisions and the like.

Not so fast. How do social scientists isolate impacts from confounding factors? They use theory. That is, they have a model or competing models in mind that would be consistent with some observed correlations but not with others. And how can you learn anything about how foreign buyers will react to restrictions on their activities and what impact that reaction will have for the housing market, if you don’t have a view about how their behaviour relates to conditions in the housing market, how other people will respond to that reaction, etc.? 

In other words, careful empirical and behavioural analysis rests on models, and complicated models rest on simplistic ones. Non-careful analysis, in contrast, rests on unstated models, models that are potentially self-contradictory or rest on assumptions that have assumed away relevant reality but have never been made explicit. 

Parking Market Failures

Does any market failure argument justify parking minima? Many cities require that residential developments include some minimum number of off-street carparks. Can these be justified?

Well, I'm glad you asked, Agnito.

The best argument I've heard for these regulations is that on-street parking is rivalrous and non-excludable. If you have an apartment building with too few carparks, residents will park on the street or might keep flitting between a few different no-parking zones, staying one step ahead of the enforcement officers. A lot of people see paying for parking a bit like hiring other kinds of personal services: why pay for it when you can apply yourself and perhaps get it for free? And if you find the perfect parking spot, there's then a huge opportunity cost of leaving the space: people with really good parking spaces never give them up. Finding the perfect space can be a joy to be shared with others. Further, where excess congestion from everyone's free-riding on on-street parking gives incentive for the able-bodied to park in handicapped spaces (or in front of fire hydrants), disastrous consequences can ensue.

Having mandatory parking minima then avoids the free-riding on the on-street parking that could best be left for higher-turnover use. And where long-term on-street parking is discouraged only by time limits, it also encourages other socially wasteful forms of entrepreneurship.

The best response to this kind of argument is that it's massively second-best relative to the more efficient solution: price on-street parking. Do that properly and everything else sorts itself out.

Of course, in that world, Seinfeld wouldn't have been nearly as good. And where Gerry Brownlee wants to ban Auckland from using congestion charging, we might not be able to get first-best parking charges anyway.

For the record though: there is no real-world market failure sufficiently large to justify mandatory parking minimums. At least not in Auckland, best I can tell.

Coase and dorm-room noises

The University of Auckland's halls of residence warn that they might ban students from copulatory activites from 10 pm to 6 am, because of the costs their noise imposes on students in neighbouring rooms.

Ronald Coase reminds us of the reciprocal nature of externalities. Without the ban, active students impose costs on their neighbours. But by implementing the ban, the neighbours impose costs on those who would wish to undertake such activities. Which is best?

And so we have a situation identical to that which obtained in the Economics Department here at Canterbury when we moved to open-plan offices post-quake. No, we don't do that in the offices, despite the apparent productivity benefits. Rather, some of us type loudly and like talking with colleagues while others of us cannot abide noise while working. The Department is split over two buildings. In my building, we fence out the noise by adopting a "wear headphones" norm. This is fortunate both because I do take a few media calls from time to time, and because the Department's administrator is located in our building, and because I have the world's best keyboard. In the other building, they've adopted a shushing norm. I strongly prefer the norm in our building, but nothing stops people from choosing one building or the other as suits their fancy.

When I was an undergraduate in the University of Manitoba's University College dorms, I sadly was not the source of, well, any external noise cost. But rather than wish to shush others or seek to ban their fun out of envy or resentment, I played Bach's Brandenberg Concertos on infinite repeat, loudly, all night, every night. The Concertos still put me to sleep. But I was a Coasean, even though Manitoba's Economics Department didn't much emphasize Coasean approaches: I recognized that the costs to me of averting the costs of the noise were much lower than the costs I could possibly impose on everyone else from banning noisemaking.

Further, Bach was a general-purpose solution: it worked against sex noises, but also against the noise of drunken revelers coming home late from the campus bar. Ban all specific noises as much as you like, but there'll still be noise that happens. It's simply more efficient to encourage people who don't like distracting noises to fence it out with Bach.

I guess the point of all of this is that Auckland students should come to Canterbury instead.

Reserve prices, marginal utility, and management degrees

Sellers on trade-me set a reserve price: the minimum price at which they're willing to sell whatever they're auctioning off. In the absence of strategic play, a seller should set the reserve price at the lowest amount at which they're willing to sell the product: they should be trivially better off for having sold it than for not having sold it at that price. While they gain income that brings utility when they sell it, they forgo the flow of utility provided by continued ownership of the good.

Some things you might value at zero dollars, or negatively. That clunky thing that's taking up needed space: set a reserve price of $0 and hope somebody takes it away for free.

Let's then parse this TradeMe listing:

Replete with intermediate level Economics knowledge, this degree will help you realise that the reserve price and the marginal utility gained by the seller are worth exactly the same!

The seller is auctioning off his Bachelor of Commerce in Management, earned at the University of Canterbury.

I hope the seller means that he or she values the degree certificate at the $1 reserve price: owning the degree certificate provides its current owner with utility worth $1, and losing the certificate would make its owner $1 worse off. And so the reserve price is equal to the utility the degree certificate provides.

If the seller meant instead that he or she would gain marginal utility worth $1 by achieving the reserve bid, that can only be true if the value of owning the certificate were $0. That's plausible from the rest of the text, but hardly clear.

I've copied the whole ad below. I'm considering bidding. Then at Faculty meetings, we can truly state that at least one member of the Economics department owns a Management degree. If it ever comes up.

Original unused Bachelor of Commerce - $1 reserve! 

Major: Broken Dreams

• Current bid: $37.50
•  Reserve met 
• Closes: Thu 5 Sep, 8:59 pm
• Listing #: 632646059

Min next bid:  $Auto-bid

View full size photo

Limited edition print, this 2007 Bachelor of Commerce is barely used and in "like new" condition! Originally priced at nearly $30,000, this is now available at a fraction of the price, with only $1 dollar reserve!

Avoid the gruelling 3+ year sacrifice necessary to pull good grades and skip the rampant physical and mental diseases by buying your degree direct from Trademe. Replete with intermediate level Economics knowledge, this degree will help you realise that the reserve price and the marginal utility gained by the seller are worth exactly the same!

Revel in the accolades of your family as you become the first among them to attain advanced education, only to later avoid their sincere enquiries as to your job opportunities and general wellbeing. Marvel as employers overlook you time and time again, and let your youthful eagerness get beaten out of you with a sack of potatoes (the only food you could afford this week).

Eke out a living in the illustrious field of data entry or pick up a day job putting PostIts one-by-one on a wall - all without the guilt and shame that would exist if you actually made the mistake of getting the degree yourself. Finally, watch your fragile sense of self-worth crash like the Hindenburg; casting hopes and ambitions to the breeze, leaving you twisted, hollow and bitter.

The winning bid will receive ALL THIS and more in the original issued degree pictured above, with the one lucky individual having their name lovingly embossed in crayon over the previous owners. Don't delay, get your degree today!

Please read the questions and answers for this auction.

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Thursday updates

Blogging has been light; I spent the last two days catching up with folks in Wellington and attending the National Drug Policy Summit run by the New Zealand Drug Foundation, about which I'll blog properly later. A few bits of interest in the meantime:

• Westpac notes that LVR limits can have short term effects on house price inflation, but only short-term effects.
  • Duh
  • There are sensible justifications for this kind of policy based on prudential regulation and avoiding any situations where banks take on too risky a loan portfolio and downside risk winds up being borne by the government. Justifications based on curbing house price increases don't make any sense to me, whether or not it's the RBNZ comms team or the Governor making them. In that sense, it's no damning of the policy that it only has transitory effects on house prices. But it still reinforces the NZ econ blogosphere's "it's just dumb trying to justify LVR on the basis of house prices being too high." consensus position.


• Scott Sumner praises Finance Minister Bill English. Agreed. Some credit could go to Minister English's truly excellent economics adviser as well. 


• The New Zealand Police have decided that despite GCSB's having acted illegally in the DotCom surveillance, they will not press charges because there was no intent to act illegally. But:

  Intent to break the law is not an element of the charge of illegally intercepting private communications.
  — Graeme Edgeler (@GraemeEdgeler) August 29, 2013

  The government, through the new GCSB and TICS legislation, is giving us an expansion of GCSB's scope with increased nominal oversight, but no expectation that GCSB would ever be prosecuted for doing anything that was in fact illegal. Lovely. Big slow clap here for everyone involved. Meanwhile, here's Ars Technica on some of this mess.


• The insurers here argue for something sensible, and something for which I've argued before: have EQC effectively cover a large excess in case of natural disasters, and otherwise stay out of the darned way.

So endeth the closing of the browser tabs, so closeth the day.

Update: note that Edgeler also argues that lack of intent to break the law could be a decent reason not to go ahead with prosecution in this kind of case and reminds us that criminal penalties are not the only form of accountability. That's all true; I hope that everyone who has illegally been spied upon knows that it has happened so that they can launch civil suits.

National drug policy summit

A few assorted observations from today's National Drug Policy Summit in Wellington:

1. Ross Bell and his team pulled together a reasonably diverse group. So it's fun.
2. As with many NZ conferences, and especially those with a policy focus or those addressing issues of interest to Maori, we broke unexpectedly (to me) into song. There were lyrics up on the projector, but I sure didn't know the tune.
3. I suspect that it is impossible for policy conferences addressing issues of ethnic or economic decile correlates to avoid spending 30-60 minutes finding a balance between noting how bad the current state of the world is for a disadvantaged group and how we don't want to problematise a disadvantaged group by pointing them out, presenting them as homogeneous, and so on. There should be a single-paragraph boilerplate that covers this for most policy issues. I wish it would be universally adopted.
4. Doug Sellman sought to clarify at the outset whether drugs like sugar were to be ruled out of the discussions.

Follow the hashtag #drugpol13 for further updates. I've been tweeting there a bit. The objective to is hash out some consensus document that might improve policy. I want to know whether their vision of harm reduction includes harm imposed on substance users from restrictions on their access. We'll see.

Honi Soit... revisited

The shame lies in the mind of the viewer.

The University of Sydney's student magazine, Honi Soit, this week had to gather up copies of the current issue. The front cover featured a set of pictures of, well...:

The front page of the University of Sydney rag, Honi Soit, featured a montage of graphic, unretouched vulvae - pubic hair et al - belonging to 18 students who stalk its hallowed halls.

There were black bars covering the middle of each picture, but apparently it was too translucent so the determined reader could peer through the censor's bar.

I saw a couple stories on this yesterday, mostly via @BexStevenson. And not a single one noted the delicious irony here. Recall what Honi Soit means. It comes from the Latin Norse French* phrase uttered by King Edward so long ago, or at least the story goes. Here's Hume's rendition:

A vulgar story prevails, but is not supported by any ancient authority, that at a court ball, Edward's mistress, commonly supposed to be the countess of Salisbury, dropped her garter; and the king, taking it up, observed some of the courtiers to smile, as if they thought that he had not obtained this favor merely by accident: upon which he called out, "Honi soit qui mal y pense,"—Evil to him that evil thinks; and as every incident of gallantry among those ancient warriors was magnified into a matter of great importance,[*] he instituted the order of the garter in memorial of this event, and gave these words as the motto of the order.

In this case as well, the shame lies in the eyes and mind of those taking offence at the magazine cover.

Previously: Seamus on Kapiti's logo...

Update: A few weeks ago, a reader at SciBlogs complained that Matt Nolan hadn't explained the acronym LVR in discussing Loan-to-Value Ratio regulation. Another commenter pointed out some disturbing alternative meanings of LVR, related to this post's topic.

* Je ne sais quoi est arrive ce matin quand j'ai ecrit ceci. Toute la phrase est francais; je ne suis pas familier avec le mot 'Honi', mais le restant est francais. Pardonnez moi!

Reader mailbag: LVR edition

A loyal reader writes, and I anonymise:

My [partner] is a [high ranking title] at [large professional services firm] and over drinks last night the young [professionals in this industry] (under 28, mostly single, still have student loans, gross income btw 60k and 90k, most 2/3 years’ experience max) were crapping themselves re the RB’s loan restrictions…really pissed about it. Most had planned to buy modest apartments this year using KS… centrally imposed adverse selection bars have costs! I said to go to Mum/Dad and/or finance houses, get a mortgage and then fold the other debt into after a year … impossible to police?

Yes, it is impossible to police. And that's a feature rather than a bug, if the point of the Loan-to-Value Ratio regulations is to increase the amount of collateral standing behind each home loan and thereby reduce systematic risk that could come from a housing downturn. If every one of these young professionals gets their parents to take on some of their mortgage risk by backing it with their own homes, which is effectively what they'd be doing if the parents take out a mortgage to front a 20% deposit, then the kids are less likely to default on the loan to the bank in case of downturn, though they may default on Mom and Dad, and the parents may be on the hook for some unexpected mortgage costs. But that has lower systemic risk. RBNZ noted it in their initial paper too: these workarounds are hardly unanticipated, and I don't think they're unwelcome. They work around the regulations in ways consistent with what the regulation should be trying to achieve.

My correspondent wonders further about effects where some young professionals have recourse to Mom and Dad and others only to the finance companies. I expect here that it has strong equity effects, but the efficiency effects still work in the right direction. Borrowers on the secondary loan market will be paying higher interest rates and so we still see a reduction in demand for highly leveraged loans at the margin. The ones most hurt by the regulations are indeed the ones with least access to family or other capital. But equity isn't RBNZ's job, and those would be the riskiest borrowers in any case - the ones that RBNZ is deliberately trying to knock out of the market.

The bigger problem is the one Matt Nolan points to: RBNZ is grasping at all kinds of justifications for its regulations, and some of them either are way outside of anything RBNZ should be doing, or just don't make any darned sense. I can see some kind of case for it on systemic risk, but I would bet against the regs being justifiable on that basis. Default and bailout risk under OBR is lower than it was prior to OBR. And RBNZ simply should never ever be in the business of trying to protect investors from the risk that their investment might decrease in value. They don't have that kind of crystal ball.

And if the regs don't make sense on a reasonable rationale, we might start worrying rather more about the equity considerations.

Survey Says

More interesting than the "which economist am I most like" part of this rather nifty survey, based on responses to the IGM Economic Experts Panel, is their highlighting of where you differ substantially from the consensus of their expert panel.

My outlier views:

1. I disagreed that conventional economic reasoning suggests it would be good policy to let undergrads borrow at very low interest rates. Standard economic reasoning can give you good reason for wanting government-backing of student loans, but nothing in standard economic reasoning says that these loans should be provided at discounted interest rates. In my view anyway. I really cannot see any case for very low interest loans. Backed at market rates, fine. Subsidies for tuition in programmes with expected very high positive external effects? Can live with it. But at current tertiary enrollment rates, it's very implausible that any existing market failure requires low interest student loans. So I gave a "Strongly Disagree" on question (1).
2. I agreed with the panel that raising the minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment (Q11). Where the panel thought that the distortionary effects of this policy would be small enough to make the policy desirable, I disagreed (Q12). In particular, I thought indexing the minimum wage to the inflation rate was a particularly bad idea. Building in nominal wage rigidities is bad enough. Building in real wage rigidities is even worse. I note that prior and broader surveys of economists on the topic have favoured my position over the panel's. I also strongly expect that many answering "agree" here were running a political economy model expecting it to be impossible to use EITC as a more efficient way of improving outcomes. 
3. On Question 41, I expected it would have been better to have had Greece default early.
4. I was neutral on 47 & 48, regarding regulation of money-market mutual funds; I don't know the existing regs well enough to agree or disagree.
5. On Question 55, I expected that Germany would do better by failing to bail out Southern Europe than by giving them unconditional cash grants. 
6. On Question 72, I did not see it as a big drawback of a school voucher system that some students would fail to make an active choice. This could just be semantics: it could still be the main drawback, just not a very substantial one.
7. On Question 82, I disagreed that the long term full accounting on ARRA would have benefits in excess of costs.
8. On 85, I disagreed that it was a good idea to require US publicly listed corporations to allow shareholders a non-binding vote on executive compensation. But I haven't strong preferences on that one. 

Out of 105 questions, I'm not nearly as far away from the mainstream as I might have thought. I'm more skeptical about the merits of bailouts, whether national or corporate or banks, than many of the panel members. But I'm comfortable with that.

If it matters, the survey said I'm closest to Alan Auerbach.

Update: Donal ran the survey too.

Wednesday roundup

A few worthy items in the tabs:

• Matt Nolan over at TVHE rightly points out the rather large problems with the Reserve Bank of New Zealand's justification for its restriction on highly leveraged home loans - the Loan-to-Value Ratio regulation. It's fine to argue that the LVR regulations could reduce systemic risk: that's the RBNZ's job. But it isn't the RBNZ's job to protect potential homebuyers from price fluctuations; it's awfully strange for RBNZ to suggest that they could be providing such a benefit to first-home buyers by making it too hard for them to buy houses. I could as plausibly claim that I'm making everyone better off by banning them from listening to Coldplay because they're not likely to be "cool" for much longer.*

• Fairfax polling shows that Kiwis are pretty happy with the extension of powers to be granted to our spy agency this afternoon. National's likelihood of winning the next election hasn't dropped with any of the fooferah over the last couple of months; if anything, it's slightly up. ACT's chances of winning an electorate seat are down a bit; John Banks's likelihood of being ACT leader on nomination day is down a bit; ACT's predicted vote share is unchanged. ACT might be reading the tea leaves correctly on this one: few GCSB opponents would flip to ACT were ACT to switch its vote. Without a simultaneous change in leadership, it probably wouldn't be enough to bring enough civil libertarians over to get over the 5% threshold. Their main risk is that their support of the GCSB legislation leads to the creation of a liberal party. But, even then, the downside risk for ACT is small: Key is more likely to proffer an electorate seat to ACT than to a liberal party and there's little chance a liberal party would take 5% in 2014 given organisation costs and time.

• Now an older one, but my tabs stay open for a while. The Australian Christian Democrats have highlighted the inequality in incomes between same-sex and opposite-sex couples and promise to stop the oppression of "Mum and Dad taxpayers". Fitzroyalty points out the shoddiness of their numbers (language NSFW), but it's not implausible that same-sex couples would earn more on average than opposite-sex couples: they'd be likely to have both partners working if homosexual couples are less likely to have a child. I'm not sure quite how the Christian Democrats would equalise household incomes on this margin ... maybe banning gay couples from having children, giving more tax benefits to couples with children, then waving their hands about childless heterosexual couples? Another for the "which inequalities matter?" file.

* I don't know when Coldplay peaked. I make it a rule not to listen to any bands whose name are just two random words stuck together. Cold + play, Nickle + back, Silver + chair. Maybe I'm missing some good stuff, but it's a heuristic that's served me well on average. My Spotify starred items are here. No Coldplay, Nickleback, or Silverchair.

Philly in Twelve Hours

Last Saturday, my friends and I took a 12-hour trip to Philadelphia, why? Just because... Yes, that sounds about right. Just because.

As soon as we drove away from New York City and entered the suburbia - that is New Jersey, we became very giddy.

"Look at all the empty spaces!" 

"Look at all the cheap gas and cigarettes!" 

"We can get fat now!"

At one point, I saw IKEA and got too excited I almost spilled my coffee in the rental car (no Andrew, it didn't spill. Thank god)

And so our 12-hour adventure began. First stop, Reading Terminal Market because of food. Cheap. Delicious. Food. Everything in this market is incredibly cheap. A plate of raw clams for $4! A huge bowl of mussels for $8!! I was in pescetarian heaven. Andy, who lives in Philly, told us that the market is actually expensive. Are you serious?! I mean, how much cheaper can it be! That's it. I'm moving to this city.

View from the famous Rocky stairs. Apparently it's a thing for locals to exercise here, 'Rocky' style.

The Irish Memorial.

After lunch, we walked a lot. My feet were screaming in pain. It was incredibly silly of me to wear heels for a roadtrip - in my defense, I thought we were going to drive around the city! We were all grumpy and exhausted but then we found this breathtaking view.

What I found very interesting about Philly is the street arts! They are everywhere, literally at every corner of the street. My phone was out of battery as usual (damn it, iPhone!) so I wasn't able to take any pictures. But hey, I found this blog - feast your eye, you're welcome. 

This beautiful gate led to the Magic Garden which was apparently closed for a wedding party! We thought of crashing the wedding, but we were too sober to do it.

We concluded our journey by visiting an asian karaoke bar. Yes, you heard right. We came all the way to Philly and ended up in an asian karaoke bar, of all places. I had to emphasize on the 'asian' part because there's a huge difference between a normal karaoke bar and an asian karaoke bar. For some, it was their first time and I guess they found a new hobby now (I'm looking at you, Nelson).

I think this is an appropriate quote to end this post. The photo above also captured my most favorite moment in Philly. If you look closely, there's a pair of shoes hanging on the electrical line. I absolutely love finding small random things that people hardly notice. When I saw this, I yelled out "Shoes!!!" so loud while pointing to the sky. My friends thought I went nuts - I was extremely sleep deprived and exhausted at that time of the day.

The shoes on electrical line reminds me of a movie that I watched about a year ago, Big Fish. I highly recommend everyone to watch this movie. Tim Burton directed it. Ewan McGregor played the leading role. Enough said.

PS: Thank you Alice, Andrew and Nelson for being super awesome! We need a group picture!

Cheers,

JH

Policy synergies

Last week, I suggested that any government worried about productivity and health costs of things might wish to encourage that there be more sex. It seems to be good for earnings. 

Today, Tim Wilson at The IPA points me to an Australian public health advocate's wish that sitting for more than two hours consecutively be banned. Professor Jonathan Shaw there is worried about diabetes risk. Sitting for extended periods may increase diabetes risk:

"We need changes to occupational health and safety regulations so it is not allowed for people to sit for two hours at a time without a break," he said.

"I think everything should be on the table - taxation levers, town planning, even the layout of office spaces needs to be reconsidered to tackle the growing personal and community impact of chronic disease," he says.

Perhaps we could combine both findings. Instead of banning sitting or taking these kinds of hard paternalistic lines, we could perhaps imagine encouragement of discreet workplace venues that might...

Ok, I'm just going to end with the </reductio> tag and leave it at that. But if someone successfully combines the two in an interesting defense in employment court, I'd love a pointer to the judicial decision in the comments.

Ratings warning

I've done a fair bit of NZ cheerleading. Sadly, I have to warn of a potential downgrade of New Zealand immigration from a "buy" to a "hold".

Jason Sorens has moved, at reasonable personal cost, to New Hampshire, in pursuit of the free life and in support of the Free State project.

I also understand why libertarians who are promoting the cause in their own careers would see a career change and a move to New Hampshire as a step back. But most of what I have done as an academic does not promote liberty directly, and I have come to question seriously the “trickle-down” model of social change widely adopted by libertarian organizations. The idea, following Hayek’s essay, “Socialism and the Intellectuals,” is that creating new academic research showing the benefits of liberty will filter down through journalists and other “secondhand dealers in ideas” to the general public, eventually resulting in a freer society. But academic economics has long leaned free-market, and journalists don’t seem to understand the key insights of that discipline. If anything, the general public’s views are worsening in key respects. People under 30 are more likely to favor socialism than capitalism. The enterprise of educating the public via secondhand dealers in ideas seems doomed on a national scale, but it could work on a small scale.

Eric Crampton says libertarians should move to New Zealand. If only we were all lucky enough to have employers willing to sponsor our emigration there! They won’t just let you move without a job, after all. In my view, New Zealand and Switzerland are the only places in the world with a long-term better prospect for liberty than the United States, and I understand why some libertarians might move to those places. But they aren’t realistic options for most of us.

I fully agree with Eric that libertarians need to put their money (and bodies) where their mouths are. If they view liberty as important, either as a means to the ends that one enjoys personally or as a moral imperative for society, then it should be valuable enough to move for. Is enjoying significantly greater liberty worth a smaller car, a smaller house, a less fancy phone, slightly slower Internet, no cable TV, Chinese rather than Swedish or American furniture, making dinners at home rather than going out, or all of the above? If you think that gross injustice exists, don’t you have a duty to do something that plausibly could stop it? American society falls far short in protecting the rights and dignity of all its members. We have a real opportunity to change that situation in one place, and we are changing it.

Alas, things here have gone downhill a bit since 2011. I haven't started appending #Emigrate hashtags to NZ news tweets because it sure isn't obvious where one could go. But the reasons for coming here aren't as strong as they were.

On lots of margins, New Zealand remains excellent. Most of what I'd written on the merits of moving to New Zealand continues to apply. On a fair few margins, we remain the Outside of the Asylum. Other great stuff: New Zealand has moved from a prohibition regime for new party drugs towards a regulatory regime allowing the sale to adults of products that pass a safety check. Alas, we've not followed Washington State and Colorado.

Factors affecting today's ratings warning? Most substantially, the GCSB / TICS legislation. At the same time as pressure is growing within the United States to make their internet spy agency, the NSA, a little less spooky, New Zealand's giving new powers to its spy agency, the GCSB.

Where we'd had a market opportunity to be the "Outside the Asylum" destination for American tech entrepreneurs looking to establish cloud services in which customers could have some expectation of privacy, we instead seem to be determined to be every bit as bad as America. I'd worried about this back in May; Ian Apperley's since tried putting some numbers on the cost. Susan Chalmers from InternetNZ has similar worries. I haven't fisked Apperly's figures, which seem predicated on a reasonably optimistic view of the New Zealand counterfactual. I'm not even sure we really can quantify things: there was some possibility that we could have drawn in substantial American tech investment, but I couldn't possibly tell you what that probability was. But imagine you had a lotto ticket that only paid out if you got all 7 numbers right. Five of the numbers have just come up in your favour. Do you tear up the ticket before finding out what the last two numbers are? Entries on Slashdot and Boing Boing about how we're turning GCSB into a low-rent client of the NSA are a great way of ripping up that lotto ticket.

And think that New Zealand would be above the petty thuggery that the UK today imposed on Glenn Greenwald's partner? We can hope so, but there were a couple of worrying stories last year about hassles for people thought to be Kim DotCom's friends.

There are also a few longer standing issues that have contributed to today's ratings warning.

• New Zealand's version of civil asset forfeiture kicks back seized funds to drug enforcement. We're certainly not as bad as the US on this one, and there's strong likelihood that the policy gets fixed before really bad stuff happens. But downside risks are substantial. 
• Our revised censorship legislation is fully "Inside the Asylum" stuff. See here and here. Justice Minister Judith Collins says it's all about the kiddie porn, but the definition of "objectionable materials" includes marijuana growing guides and a bunch of pornographic materials involving homosexuality that were deemed objectionable in the 70s and continue to be banned. A pile of comic books are banned. An online vendor, Fishpond, copped $4,200 in fines for distributing a couple of movies that are widely available in the United States. Our whole film classification regime is nuts. You have to pay $1000 to get a ruling from the film classification office on whether a movie meets the NZ guidelines. This kills legal distribution of long-tail films here. At the same time, failing to get a film classified can risk your getting years in jail if the Censor's Office then deems it objectionable. 
• The Christchurch earthquake was February 2011. Since then, the rebuild has been substantially hindered by regime and regulatory uncertainty caused by the government - both local and national, and the various acronyms now running the place. More worrying, very substantial problems both in the earthquake insurance scheme and in the regulatory regime around unsafe buildings have yet to be resolved for future earthquakes. This contributes to a ratings downgrade because, if you move to a part of New Zealand likely to be hit by substantial quakes while you're here, there are pretty substantial, foreseeable, preventable things that are going to happen despite their being substantial, foreseeable, and preventable:
• Buildings with unreinforced masonry will fall down and kill people. Deaths from earthquakes are pretty much unavoidable. But the combination in New Zealand of a zero-faulty liability regime for unsafe buildings combined with a regulatory regime giving building owners decades to get them up to scratch mean that, in the event of a quake, many people will die whose deaths could have been avoided at relatively low cost. And even if you've brought your property up to spec, you can still have problems if the absence of either liability or regulation encourages your neighbour to fail to take due caution. 
• You will have been compelled to pay for Earthquake Commission insurance with your private property insurance. The ability of EQC and private insurers to fob responsibility off on one another, combined with EQC's demonstrated incompetence in dealing with the volume of claims inherent in any large event, combined with the reinsurers' and government's need to constrain the total cost of claims regardless of whatever they promised to provide you in the insurance contracts you signed, mean you can't avoid having things drawn out for years and still wind up with less than your due. If you think that a government-run insurance company will not have every incentive to pretend that new damage is really a pre-existing condition, well, you haven't been paying attention to Christchurch.
• With no change to underlying riskiness, the government may decide after an earthquake event that the risk of rockfall facing your house in the event of additional earthquakes is too great for you to bear, even if you think the risk is eminently bearable and even if it would be cheaper to put in place earthworks or fencing to mitigate that risk. Or they could just faff about for two and a half years without telling you whether you're allowed to live in your house.

If the GCSB and TICS legislation pass without substantial amendment, I'm moving New Zealand from a "buy" to a "hold". If worries about surveillance state issues weigh heavily in your utility function, and you're considering emigration from America because of it, parts of Europe are in much better shape than we are. Most importantly for those who consider the NSA mess to be a reason for leaving the US, it now looks like, whatever America does on surveillance, New Zealand will basically follow along. Maybe with fewer resources, maybe a bit less enthusiastically. But if you think that surveillance in America will get worse before it gets better, you should expect New Zealand to follow in lock-step.

But on plenty of margins we remain much more free than the United States. Our airports remain exceptionally sane: I can show up at the airport 20 minute before a domestic flight and, so long as I'm not checking luggage, just walk on up to the gate and board. Home brewing and distillation are legal. Prostitution is legal. Same-sex civil unions have been legal for years and the first full same-sex marriages were celebrated today.

And, even with the new GCSB legislation, I doubt we'll be worse on surveillance than America. We'll just all have to be far more diligent about secure computing.

The Last Few Days of Summer

"Summer, after all, is a time when wonderful things can happen to people. For those few months you’re not required to be who everyone thinks you are. The fresh cut grass smell in the air & the chance to dive into the deep end of a pool, gives you courage you didn’t think you had. Summer just opens the door and lets you free."

It's been a while since my last post - and guess what, Summer's almost over. This makes me sad, awfully sad. I love Summer. It's that time of the year when people actually go out and gather at public places; street artists showcase their talents; and amazing things happen. 

But something that I notice lately: people tend to live in their own world. You see... we plug our ears with earphones to avoid noises but we listen to 'noises' from the iPod. We spend most of our time looking down to our phone - checking emails/Facebook or maybe playing Candy Crush Saga, instead of looking what's ahead. There's absolutely nothing wrong with this. I love listening to my playlists on Spotify. I love checking what my friends are up to on Facebook. I even love playing that addictive game, Candy Crush Saga (I'm stuck at level 197 now. Damn it!)

New York, some say, is the art capital of the world. This, I think, is true. Especially in the Summer, the city comes alive. So I'm just saying, there's only a couple of weeks left until Summer's officially over. Unplug. Look up. Be free. There are so many wonders to be seen and heard on the busy streets to abandoned playgrounds.

I'm so, so in love with this guy. He's always at Highline Park - maybe almost everyday. I know this because I always go to Highline after work. Found out that his name is Erik Robert Jacobson. Hear him play.

 

“The problem with the last few days of summer is that you can’t hold on to them. They zoom by way too fast. You live through them in a dream until they’re over. And then everything slows down to a glacial pace again.”

— Susane Colasanti

Cheers,

JH