Why not a teal coalition?

After the Green's described themselves as more pro-market than National last week, I tweeted:

Norman is over-stating a bit, but a Green-National coalition does have some appeal if it merged the best of both. http://t.co/uFEc1kyNkK
— Seamus Hogan (@seamus_hogan) August 27, 2014

Will Taylor replied that he and Matt feel that NZ needs a real blue-green party.

@seamus_hogan as @TVHE and I often discuss,NZ needs a real blue-green party.
— Will Taylor (@WillTaylorNZ) August 27, 2014

I think they were thinking of a new party. But I don't see why it would not be feasible for the current Green party to enter into a governing coalition with National after the election this year. If National get enough seats to govern alone, the minor parties will have no bargaining power (although, I still think the Greens should try to form a coalition, for the reasons below). But if National falls short of that mark, they would likely be very open to a partnership with a single, stable, reasonably-non-crazy minor party. The Greens would just need to decide what are the one or two key issues that are really important to them and that are not unthinkable for a pragmatic centre-right party--e.g. 1. clean waterways and a serious policy on carbon emissions, and 2 funding for child-poverty initiatives--and then agree to throw away some of the minor stuff like their positions on monetary policy. The long-term advantages to the Greens would be enormous:

• The alternative is likely to be not being in government at all, or being in government with a coalition with Mana, Internet, NZ First, and Labour, which is probably a brush a principled party would not want to get tarred with.
• It would make credible for a long-time that the Greens are prepared to work with either major party to further environmental issues, and so give them much more bargaining power with Labour after future elections.
• Any move on environmental policy achieved in a coalition with National, even if not as strong as could be agreed to by Labour, would be sustainable beyond the next election and could be strengthened then. In contrast, a strong ETS negotiated with Labour might not survive beyond the 2017 election. 
• Where there policies are more market oriented than National's (pricing water appropriately for dairy farmers, not discouraging high-density living in Auckland), having the push come from the Greens would enable National to implement those policies without fear of a backlash from the left. 

I am deadly serious about this. Why not? 

Jobs for Everyone

It has been more than a week since Internet-Mana had their official launch promising nationwide full employment. Their policy platform got overshadowed a bit by the strange comments of Kim Dotcom and the outburst by Pam Corkery, but it is still surprising to me that the policy itself has been met with almost complete silence. This I take to be a comment on the seriousness with which Internet-Mana is being taken, but there is one aspect of their jobs policy that deserves a further look.

First, here are the highlights as reported in the Stuff story linked to above:

• a plan to create 50,000 permanent jobs and 50,000 shorter-term jobs a year over the next five years at a cost of $1.3b; and 
• funding to come from redirecting a fifth of ACC current reserves and future employer and earner ACC levies.

There are some obvious questions to ask about the first bullet:

• What is the process by which a flow of spending each year generates an on going stock of jobs?
• How exactly is the spending going to create the jobs?
• What is the model of labour-market interactions, wage determination, etc. that currently has the economy generating jobs for a bit more than 94% of those working or actively seeking work, that will not continue to have a 94% success rate after the new policies are put in place? 

But it is the second bullet that struck me. Steven Landsburg would have loved this one. (See his posts on the man who can't be taxed, here, and Scrooge as a great philanthropist, here.) The joint leaders of Internet-Mana, Hone Harawira and Laila Harre  are quoted as saying that "it was widely accepted that ACC reserves and levies were excessive and redirecting some of these would allow them to pay for their policies without increasing taxes". This may be true, but that doesn't mean that this is a free lunch. If ACC are investing their reserves in New Zealand, then redirecting those reserves to the employment policy will pull money out of New Zealand capital markets, making less available to investors or inducing more capital inflow with the resulting pressure on the exchange rate and export earnings. If they are investing the reserves in overseas markets, then redirecting them to the employment policy will put pressure on the New Zealand exchange rate and exporters directly. 

Now one might want to take the view that our savings rate in New Zealand is too high, and consequently that the exchange rate is too low and exporters having too easy a time. If so, redirecting ACC reserves would be consistent with that view. But the fact that the reserves might be excessive in terms of future ACC payouts does not imply the policy comes with no opportunity cost. Further, the leaders need to explain why they think that aggregate savings rates are excessive in New Zealand. 

Are ODI Scores Increasing? UPDATED

I had a conversation with a sports blogger, John Rogers, on Twitter last week. John Rogers had tweeted a link to a blog post he had written on why the WASP projection being used in BSkyB's coverage of limited overs cricket this English summer is necessarily inaccurate. His point is that ODI cricket is evolving quickly, both in the equipment and the style of batting, so that historical data is a poor guide to how many runs you can expect a team to score.

There is always a tradeoff in statistical work between using only the most recent data to capture trends, and using a longer time period to get more statistical significance. Now, in principle, since WASP is calibrated to a par score set by the broadcast commentators, any trend in scoring that has occurred within the period of the data used to estimate the model could be adjusted for in the par score. The setting of a par score is both a strength and weakness of WASP. The strength is that it allows game-specific information to be factored into the projections such as using local knowledge to assess how the pitch is likely to play. The weakness, however, is that the commentators might suffer from the common human biases of seeing patterns in essentially random data, and I wonder if the view that batting power is increasing is an example of that.

So I was interested to see if John's perception of a recent increase in scoring rates due to teams having more "lower-order hitters", better bats, etc. is borne out in the data. There is no doubt that there has been an increase in scoring over time. For example, all of the 16 ODI matches (all involving top-8 countries) where the team batting second has scored 330 or more have occurred this century. Only 5 of those 16, however, occurred this decade, suggesting that maybe the changes are not so recent.

Extreme scores like these are not necessarily indicative of a general trend, so some regression analysis is called for. John's hypothesis seems to be mainly based on increased rates of scoring by lower-order power hitters near the end of the innings. I don't have the full ball-by-ball database to hand, just a record of scores and results, but if the theory is correct, it should show up in total scores. Now WASP is currently based on ODI data from 2006 involving the top-8 teams, so I had a look at all non-rain-shortened games involving those teams from May 1 2006, using a dummy variable for each year starting May 1. First, I looked at the evolution of first innings scores over that time. To control for different abilities across countries, I ran an OLS regression of first-innings score on dummy variables for the team batting first and for the team bowling first, as well as a dummy variable for each of the 8 years in the database. To further control for differences across grounds, I restricted the data set to games played at grounds where there were at least 10 matches played in this period, and included a dummy variable for each ground. This left me with 245 games. The results are shown in by the blue line in the graph below, with the line showing (left axis) the average first innings score for the average team against the average team at the average ground. There clearly has been very little change over these 8 years.



John's blog post, however, seemed to refer specifically to the ability of teams to chase down large scores, so I separately looked at whether there has been a change in the the probability of the team batting second winning using a probit regression. Because differences in grounds largely affect ease of scoring in both innings, and because probabilistic models require more data to get precise estimates, I used the full dataset without dummy variables for the ground, but again controlled for team ability and included dummy variables for each year. The results are shown in red on the same graph (right axis). Probabilistic models typically require a lot more data, and so I wouldn't put too much faith in the estimates for any one year. But there doesn't seem to be a clear recent trend to it being easier to chase down scores than in previous years, although there was a strange dip in the period 2007-2009 that has since been reversed.

I suspect what is happening is a perception bias. There probably has been a recent increase in power hitting as a result of batsmen taking more risks, but that has been balanced by an increase in the rate of dismissals. And this leads to the reality being different from common perceptions. 20-20 has conditioned us to thinking that it is easy to score 8-9 runs an over on small grounds with flattish pitches. And it is. But it requires aerial shots, unlike 5-6 an over, which can be achieved entirely along the ground with 1s and 2s and the occasional bad ball cut or driven for 4 along the ground too fast for the cover sweeper to collect. With modern bats and batting, it is not difficult to sustain 8-9 an over through regular sixes and lofted 4s, but it is hard to do so without losing regular wickets. But wickets arrive randomly. Now think of the commentators bias. If a batsman hits a clean six, he is lauded for his good shot. If he mistimes it and is caught, as often as not he will be criticised for "taking unnecessary risk" or "not waiting for the right ball". (Have you ever heard a commentator criticise a batsman for taking unnecessary risk after making a clean hit for 6?) This creates an impression that the good shots are normal, and the wickets are just an avoidable failure rather than both being natural consequences of a particular level of aggression. Combine that with our recollections of past matches. Sometimes a team chasing 120 off 72 balls will have a randomly good passage scoring at that rate without any lofted shots going to hand, and it will make it look like such fast scoring is easy. At other times, we will see a procession of wickets and we will be thinking how the batsmen threw the game away. It is the first case that sticks in our mind when we make our own assessment of probabilities, and so we inflate in our own minds what the probabilities of winning are when a team is chasing a large total.

Data (even historical data that may become out of date) is a good antitdote to these perception biases.

UPDATE: Chris Smith, of the wonderful cricket blog, Declaration Game, asks by tweet if the results would have been very different had I not restricted to top-8 countries, and controlled for team ability and ground. That is, would we observe a general increase in scoring, but one attributable to having more games with weak teams, and more smaller grounds. Rerunning the numbers on the first-innings scores, if we include Bangladesh, Zimbabwe, Ireland and Afghanistan in the data (I don't have other countries in my database), and don't control for team ability, and don't control for grounds, we see a 10-run increase between the periods 2002-2007 to 2008-2013. Removing the four weaker teams and controlling for team ability only reduces that change by 2 runs. The big change comes when we restrict the data to grounds with at least 10 games in the dataset  (still 540 games) and control for the ground. This reduces the change down to 2 runs.

Implausible counterfactuals

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

It would be pretty obvious that the infographic was nonsense. Immigration from Asia over the period meant that we had more growth in the number of employed Asians. If those migrants hadn't come, it's not like we'd have had more jobs left for everybody else: that's the lump of labour fallacy. The counterfactual is implausible. 

Well, the NZ Herald's nifty new infographic asks you to input your household income and some basics on your household composition. It then tells you which decile you're in. That's all fine. But when you then hit "Next", you get this. I'd inputted $5000 per week as an arbitrarily large income to get a top-decile household. 

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

If you choose a lower-income household, it tells you how much worse off you are than you would have been if growth had been equal across deciles. So the counterfactual is a New Zealand that had the same overall growth over the period, but where all deciles experienced even growth. The problem here is that there is no way of evening out those growth rates without affecting growth rates. Higher income taxes for more redistribution can even things out, but they also reduce total growth. People can take whatever values-based position they want on how much the state should redistribute. But we ought to at least start by recognizing that it's not a free policy. 

Here's Treasury on deadweight costs:

The recommended approach is to consider whether or not to include deadweight losses on a case-by-case basis. As a general rule, deadweight losses should be included if they are of sufficient size relative to the overall costs and benefits of the proposal that they are capable of altering the decision as to whether or not to proceed with the proposal.  

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

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

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

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

Train sets

There's one good thing we can say about Labour's $100m light rail plan for Christchurch: at least it isn't a $1b light rail plan. Otherwise, it's not so hot. 

I'm blogging from Hong Kong, where I'm attending the Mont Pelerin Society's meetings and greatly enjoying their fantastic rail service. Commuter rail and an extensive and efficient bus network are pretty critical to this place's working: there's no way this many people could move around without it. The city is dense and compact. Christchurch is, well, the opposite of that.

Liberty Scott provides a few bullet points on Labour's current plan:

• Christchurch last had the remnant of a local rail service in 1976 when a once daily, yes once daily, service between Rangiora and Christchurch was scrapped because of lack of patronage.  The last regular service (as in all day service like in Wellington) was between Lyttelton and Christchurch, which ended when the road tunnel was opened in 1972 (the rail service only had an advantage over driving over the Port Hills).  Before that, other services were discontinued during the 1960s as bus services proved more cost effective and car ownership rose.  Christchurch's population grew by over 50% in the period between the end of these services and the earthquake.

• It won't unclog Christchurch's roads.  The Press report says Labour intends the system to accommodate 10% of commuters from the north to central Christchurch.  Phil Twyford says there are 5000 - yes 5000 commuters making this trip (10,000 trips), so it is $100 million for 500 commuters.  That comes to $200,000 per commuter, before any operating subsidies are considered.  In other words, the price of a Porsche 911 for each commuter.  Taking about 400 cars off of Christchurch's roads every morning isn't going to "unclog" them,  it hardly makes a difference.

• However, what it might do is encourage more people to live further away from the surrounding suburbs closer to the city, because it subsidises living well outside Christchurch.  That's hardly conducive to reducing congestion, nor environmentally sustainable.  It would be far more preferable to focus on finishing renewing the local road network including marking out cycle lanes, than to incentivise living well out of the city.

• A commuter rail service to central Christchurch can't even go there, as the station is 4km from Cathedral Square, in Addington.

• The $100 million is to double track the line to Rangiora, and rebuild some railways stations, but not a new central station (which can't be anymore "central" than the old one on Moorhouse Avenue), nor new trains, although the ex. Auckland ones could be relocated, if a depot could be built, and sidings to put them on.

• The rail service would replace commercially viable and some subsidised bus services, but politicians don't find buses sexy.

• The service would lose money, a 1000 trip a day railway service is a joke.  Proper commuter trains in major cities carry that number on one train.  

• If there really is demand for more public transport from the northern suburbs, it could come from commercial bus service.  Clearways could be used for bus lanes and the hard shoulder of the existing and future extended Northern Motorway could be used for peak bus lanes too, if needed.  Trains only make sense if buses are incapable of handling the volumes of demand, and that clearly isn't the case.

• Christchurch was the first major city in NZ to scrap trams, because the grid pattern street network and low density of the city meant there were few major transport corridors to support high density public transport systems, like trams (and commuter rail).  It was also the first of the big four cities to scrap commuter rail altogether (even Dunedin had commuter rail services until 1982 to Mosgiel).   In short, the geography of Christchurch is as poorly suited to commuter rail as it is well suited to cycling.

Liberty goes on further - read the whole post.

I disagree with him a bit though. He should have used a Tesla S as alternative, not a Porsche. The numbers work out about the same, and the Tesla is electric.

Back when Mayor Parker was proposing train sets, the cost was higher. I'd then written:

The draft city plan has a $400 million rail line connecting downtown to the University campus. It's unclear that there's sufficient demand to justify such investment, but there might be on the City's creation of a proposed new international precinct downtown where international students would be invited to live. Those students currently live within walking distance of campus in a vibrant international hub at Church Corner and Riccarton where I can find great Chinese, Vietnamese and Korean food; Korean butchers and grocers; a Japanese bakery; and, all kinds of other diverse amenities (Korean and Chinese churches, etc). To the extent that the city is successful in moving all the students downtown, from where they'd need public transport to get to University, and so would need the $400 million dollar (more than $3k per household) rail line (or a far far cheaper designated busway), it would be by destroying an existing international hub.

Let's work through some numbers on rail. Suppose that the $400 million is financed through a 25 year bond issue paying 8%. For an annuity paying 8% to have a present value of $400 million over 25 years (in other words, for folks to be willing to give the City $400 million today in exchange for bonds), the annual payment has to be $37.47 million. The building costs alone for the rail line are then $103k per day for the next 25 years. And, suppose further that we're willing to subsidize each rail rider by $10 per ride. We'd then need 10,000 people riding the train every day just to cover the capital cost where we're willing to pay $10 per person per ride. By way of comparison, RedBus, which services most of Christchurch, carries 5.8 million passengers per year - an average then of just under 16,000 passengers per day. If a single rail line from downtown to the University carried as much traffic as the entire RedBus network, the effective per-passenger capital cost subsidy would be $6.50. If the train were running on a cost recovery basis, it would need to charge $6.50 per trip plus running and maintenance costs. If it covered only running and maintenance costs, the government would be kicking in $6.50 per trip. If it carried as much traffic as the entire RedBus network.

I was pulling punches there a little as I had the distinct impression that the University really kinda wanted that rail line and wouldn't appreciate staff saying otherwise; I was likely just paranoid.

When February's quakes hit, the bus routes changed quickly: the main depot was knocked out, so they ran temporary bus exchanges on Bealey Street and elsewhere. Road closures for repairs meant frequent re-routings. You can't do that with trains.

I also note that Labour's plan suggests some cost-sharing with Christchurch Council. Christchurch Council has no money for cost-sharing arrangements.

Previously:

• Light rail cautionary tales.
• Light rail disease