Calling Inspector Jones of the Yard...

It's a bit sad that half the staff at the Hornby Police Station reportedly look to paranormal explanations for odd noises there at night. But if they didn't, we'd not have had the story. And without the story, we'd not have had this letter to the Christchurch Press on Friday.

It would be interesting if any older police officers who had used Hornby police station had passed away. A ghost is usually a holographic energy signature still hanging around, not the actual spirit itself.

The easiest way to clear up old energy residue is to send two lovers into the space and let them do their thing. Essentially it’s like rewriting a CD. Old energy is cleared while a new loving energy takes its place.

We are energy in resonance with a particular frequency – it’s science. Photons spiral around DNA. Remove the DNA and the photons are still there. How? The only rational scientific explanation is that there has to be an energy field that is paired up with the DNA molecule.

LOUIS COYLE
Hastings

The Truth is Out There. It's Science!*

But at least the prescription is harmless.

And if I'm caught running a light in Hornby, I'm totally going to blame the ghost that was chasing the car.

* Why do I feel like I need 24 point font of various colours for this post?

Insurance follies

A few Christchurch stories that ought be read together.

Item the first: Insurance companies seem to be deliberately dragging their feet so that policy holders will give up and take indemnity payments.

We were insured with AMI. Its Christchurch Earthquake claims are now being handled by government-owned Southern Response, carved out of AMI before the rest of the business was sold to IAG. They have told us that out-of-scope claims like ours - the parts of the claim that are solely covered by private insurance and have nothing to do with the government's Earthquake Commission coverage - will be assessed "within 3 to 5 years". They haven't answered emails about the out-of-scope claims where the damage is getting worse because it's not been repaired. I think that they hope that I'll give up and fix everything myself out of pocket so they can then refuse to pay for the repairs. The "insurance is a scam" feeling gets stronger.

Item the second: If you want to have the terms of your insurance contract enforced, you need to sue them.

Item the third: The government has made it a bit hard to route around its preferred project managers, Fletchers. We have opted out because we wanted to specify our own builder, and we hope that will turn out well. Going with Fletchers seems a lotto ticket with a lot of downside variance. Read the comments section for different homeowners' experiences. The best advice I've there seen: videotape your whole house before the builders start and video it again afterwards.

Item the fourth:

An insurance advocacy service for quake-hit Cantabrians will be smaller than originally planned, Earthquake Recovery Minister Gerry Brownlee says.

In July the Christchurch City Council voted unanimously to ask the minister to establish an insurance tribunal and advocacy service in the city.

The service was being managed by the Canterbury Earthquake Recovery Authority and would help residents battling for information about when, or if, their homes would be repaired.

A spokesman for Brownlee said the need for such a service was "no longer as great".

"The need is lesser than it was and the [service Cera is] designing will reflect that."

I'm sure that this is because Brownlee figures everything's going well so the programme isn't needed rather than because successful advocacy would increase the government's liabilities via Southern Response. I'm rather glad that the University of Canterbury's Law School is here helping out.

Flynn effects

Professor Flynn is trying to help you improve your mind. My review of his latest book should be in today's Christchurch Press. They gave me 450 words; I took 480. Here they are.

Professor Jim Flynn sets a clever trap in his latest book, “How To Improve Your Mind”. Promising that all readers will “be far more able to defend their position after reading it than before”, Flynn instead provides the critical tools necessary instead for reassessing the irrational beliefs each of us hold and, in so-confronting, end them. For your own good, you should let yourself be trapped. Jim Flynn is arguably New Zealand’s best social scientist. I disagree with him on some aspects of economic policy, but Professor Flynn is a truth-seeker. And, even better, he’s very often a truth finder. Here, he helps the rest of us be better truth-seekers. This is no mean task. Thinking rationally is hard and, often, unpleasant. Worse, there is no payoff to rational thinking in many areas of life; you will hardly be less successful in most occupations if it gives you pleasure to believe that the earth is only a few thousand years old. But I’ll return to this.

Flynn ably demonstrates the methods of rationality through a series of case studies of beliefs that contravene the methods. He also warns against the tricks used by policy advocates against those not appropriately armored against them.

I disagree with a few of the finer points in Flynn’s chapters on economics. For example, even if the reservation wages of second earners are lower than those of primary family earners, this will not drive down female wage rates unless we add assumptions around segmented labour markets. Further, decent labour standards seem to owe more to higher incomes and increased productivity than they do to Twentieth Century regulatory interventions. In developing countries, child labour is very sensitive to family income; when parents can afford to do so, they send their kids to school. And he is perhaps a bit too optimistic about the feasibility of ameliorative regulatory reform in financial markets. But Flynn has a sharp nose for the failures of rational thinking about economics among those whose values he shares – he correctly sees negative income taxes as better than a minimum wage for helping those he would wish to assist, though he misses that cleverer forms of the negative income tax solve some of the problems he highlights.

The bigger question, and the one harder to answer, is why to choose rationality in the first place. Flynn writes, “If you learn how to use logic and evidence to examine your own principles, and the principles other people urge upon you, you can enlist in the ranks of mature moral agents rather than in the army of stones.” But it’s an expensive endeavour – not unlike taking the Red Pill offered Neo in The Matrix. I’d be surprised if more than a quarter of the population even tries to choose rationality over comforting illusions. But if you’d like to try to try, Flynn’s book is a good start.

I should be reviewing Eliezer Yudkowski's "Harry Potter and the Methods of Rationality" for next weekend's Press.

One bit that wasn't relevant for the Christchurch Press but I found awfully interesting was this observation:

"Academic competition for grades in a particular course selects out an elite that gets an A+. But within some areas, the correlation between courses is far more perfect than within others. Within mathematics, the best student in differential equations is likely to be the best student in algebraic geometry and in number theory, and so forth. Within political studies, the best student in political behaviour is less likely also to be the best student in areas as diverse as international relations, political philosophy, and quantitative methods. So, talented math students will come to scholarship committees with a string of A+s, and talented political studies students with  a mix of A+s and As. Rather than putting all the math students at the top, the obvious thing would be to alternate science/math students with arts/social science students. Observe how quickly math professors forget what they know about regression to the mean when such a proposal is put."

I'm on the Scholarships Advisory Committee as the Commerce rep; we help advise on policy around scholarships. I wonder how much this affects our University-wide awards. Economics probably doesn't do horribly out of this kind of overall effect: more than any of the other arts or social sciences, there's likely an underlying e-factor - thinking like an economist - that explains variance across students. At least in microeconomics. But arts and social sciences in general will do worse than the bench sciences and maths.

I wonder if anybody has run the test. If Flynn is right, then we expect lower variance in course grades for maths and science majors than for arts and commerce majors. We can use incoming high school grades as a measure of baseline ability. We could observe higher variance among the best students in arts courses than among the best students in maths courses simply because of grade truncation issues if the very best of all students pick maths over arts. I think I'll add the "future honours project proposals" tag; this seems testable.

Update: Oops...didn't see it in today's paper. Likely in next week's then.

Exchange rates

Michael Berry looks at New Zealand's exchange rate in this weekend's Christchurch Press. I provided a few comments; he's quoted me accurately. I'm copying below what I'd sent Michael, not because he's gotten anything wrong, but rather because it seems a waste to lose the bits Michael didn't use. The paragraphs answer questions about which he'd asked me to comment.

“The exchange rate reflects a complicated mix of foreign demand for New Zealand assets and exports, domestic demand for foreign goods and assets, domestic savings rates, and trader expectations about what will be happening with real asset returns in New Zealand relative to other countries. Trying to push it around without thinking hard about the reasons that it’s currently high isn’t without risk. If there are structural problems in the economy that, if fixed, would reduce the exchange rate, that would be a good thing – but mostly because those problems are worth addressing regardless of the exchange rate. For example, we rely on capital imported from abroad because a reasonable proportion of domestic savings are invested in housing. Fixing land use policy to reduce the cost of housing would free up some capital for domestic investment, reduce demand for foreign capital, and help push down the dollar.”

“A lower dollar could help some exporters in the short to medium term, but we have to remember the mechanism by which this works. A low dollar helps exporters by reducing the real wage they pay to their employees. At the same time, it increases the cost of machines and equipment that manufacturers import – our manufacturers losing access to those goods hurts us. In the medium to longer term, wages, in New Zealand Dollar terms, are bid up. And then exporters suffer again the next time that the exchange rate rises and they’re stuck with a wage bill that’s high compared to their export earnings.”

“There is absolutely no good reason for New Zealand to be considering quantitative easing. Quantitative easing is a policy that you try when you’ve reduced nominal interest rates to zero, have indicated that long term rates will remain at zero until inflation expectations come back up, and still have inflation outcomes that are at or below the bottom of the Reserve Bank’s target band. We are not in that world. If we tried it now, with so many other options still available to RBNZ if needed, our central bank’s international credibility would be completely shot. It would be like cutting off your hand because you had a hangnail.”

“A pegged currency also is a last-resort kind of policy. If different countries are affected by different economic shocks, independent currencies give economies ways of easing those shocks. A pegged exchange rate effectively means that you’ve given up having an independent monetary policy. That’s not a bad idea if you have a terrible central bank and you’ve not otherwise been able to establish central bank credibility, but it’s a particularly bad idea for a small open economy subject to idiosyncratic resource-price shocks and with a decent central bank.”

“The Tobin Tax is another of those ideas that sound good on paper – stick it to the speculators! – but risk being pretty awful in practice. The transactions tax is meant to reduce currency volatility by requiring that the expected returns from any trade be higher before anyone make the trade. But, there is reasonable argument that this kind of tax instead can work to increase volatility – it opens up the bid-ask spread on a currency and thins out trading markets. Further, New Zealand Dollar exchange rate movements seem to be on longer cycles than we might expect would be smoothed by a transactions tax. Even if this kind of tax reduced volatility, it would seem likely to do more to reduce intraday volatility than the longer term increases and decreases in the dollar that New Zealand experiences. Those persistent swings seem more likely to reflect fundamentals.”

“Fundamentally, New Zealand has a high exchange rate because we’re an attractive place for foreign investors to put their money. Our relative lack of domestic savings in things other than housing means that the returns on other kinds of investment here are relatively high. Because we have decided to impose very tight limits on urban growth, preventing our cities from either increasing in density or expanding at the fringes, property prices have been something of a one-way bet. So it isn’t surprising that Kiwis choose to put a lot of their savings into housing. Changing land use policy so that households could choose to put a bigger portion of their savings into the real economy would reduce our need for foreign capital and would help reduce pressure on the dollar. It’s a policy worth doing for its own sake, and if you want a lower dollar, it would help to work to that end.”

“The most important thing that the government can do in the next year is start fixing land use policy. Current policy hurts young people trying to get into their first homes and consequently helps encourage them to move overseas; it also embeds a lot of fragility into our cities in case of disaster. Imagine what Christchurch would be like today if, after the earthquake, developers had quickly been able to get a pile of new subdivisions up on the edges of town. Instead, we’re only now seeing consents issued for developers to start building. Christchurch home owners are not even allowed to build a secondary flat with a kitchen into existing homes except under regulations that make it uneconomical to do so; letting them do that would have been one of the quickest ways of getting new housing supply into the market after the earthquakes. Instead, it was forbidden.”

Alcohol stats

I wrote this for the op-ed section of Friday's Christchurch Press. I'm currently in Oz where I'll be talking about alcohol policy for the hospitality industry association liquor retailers conference and with a few journalists. So I'm posting this Wednesday and hoping that the piece did come out in Christchurch on Friday. Anyway, enjoy. [Update: here it is!]

---

It would be pretty easy for diligent Christchurch Press readers to conclude that alcohol is the worst scourge of humanity. Doug Sellman featured several times over the last fortnight warning us all of alcohol’s dangers; health reporter Georgina Stylianou wrote two articles on a new estimate of alcohol’s cost to the Canterbury health budget. And the University of Otago’s Professor Jennie Connor told us that minimum prices are remarkably effective in reducing alcohol consumption, pointing to a Canadian study “that showed a 10 per cent increase in the minimum price of alcohol reduced consumption by 16 per cent relative to other drinks.” Connor was quoted in a Mainlander feature on Doug Sellman explaining how Professor Sellman is not in fact a wowser; presumably it’s only free-spirited libertines who write op-eds in the New Zealand Herald worrying about how Woodstock commercials encourage boys “to have sex with their best mates’ mothers” and that advertisements “encouraging middle-aged women to get their teenage clothes back on and flirt with their son’s best mates” do not contribute to a healthy society.  (30 October 2009)

I do not particularly care what the jury decides on who is or is not a wowser. But I work with and care about the numbers around alcohol policy. And the impression most readers would get from the latest reporting in the Press is a bit at odds with, well, reality.

Let us begin perhaps with Jennie Connor’s citing of “a Canadian study” on the effects of minimum pricing. Can a ten percent increase in the minimum price of alcohol really reduce total alcohol consumption by sixteen percent? No. The number is so far out of line with the vast consensusof the literature that I got in touch with Chris Auld, one of the authors of what had to have been the study Connor had read, a piece in the May 2012 issue of Addiction. And my read of his study was right. If you increase the price of beer by ten percent, you could get a reduction in beer consumption of sixteen percent, but that’s because beer drinkers move over to other alcoholic drinks. Across-the-board increases in the minimum price of alcohol have far smaller effects: a ten percent price increase reduces aggregate consumption by only about 3.4 percent, as is made reasonably clear in Auld’s paper.

That the sixteen percent figure is screamingly wrong should have been obvious to anybody who is familiar with the literature. The largest estimate of the responsiveness of alcohol consumption to price measures in Wagenaar’s 2009 survey of 112 different studies suggested that a 10% price hike reduced consumption by 8.4%; Wagenaar concluded that 4.4% is the best consensus estimate. And for heavy drinkers, it was 2.8%. Auld’s 3.4% is then right where a reasonable person would have expected an estimate on the effects of minimum prices might fall. Sixteen percent – that’s right out.

The Auld study does come out in favour of minimum prices, but in conjunction with a decrease in alcohol excise taxes: it’s then a way of increasing the cost facing heavier drinkers while doing less harm to moderate drinkers if heavier drinkers drink cheaper alcohol. I worry more that the policy does disproportionate harm to moderate-drinking poorer people.

I was a bit more surprised to read of the new commissioned BERL report on the health costs of alcohol in Canterbury. Their prior work in the field, a 2009 study that included a measure of costs to the health system among other costs of alcohol, seemed to put a pretty heavy thumb on the scales in estimating the costs borne by the health system. My article in today’s issue of the New Zealand Medical Journal lists a few of those problems [note: link may only be active after lunchtime Friday, sorry]. While alcohol greatly increases the burden of disorders like liver cirrhosis, it also reduces the costs of cardiovascular disease. BERL here replicated work done in Australia by Collins and Lapsley (2008). But where Collins and Lapsley added up all the costs imposed by those disorders where alcohol makes things worse and subtracted from that total all the cost savings from those disorders where alcohol reduces costs, BERL simply erased any beneficial effects of alcohol for disorders including ischaemic heart disease, cholelithiasis, heart failure, stroke and hypertension.

As I had warned BERL against this kind of method when I served as discussant on their paper at the 2009 New Zealand Economic Association Meetings, I was curious whether they’d revised things. But, the new BERL paper wasn’t available. Two separate stories in the Christchurch Press, with lots of reaction quotes from doctors, were based on a paper that the reporter did not have and was not yet available for public critique. I received the paper Wednesday courtesy of the CDHB. And BERL, at footnote 14, reports they’ve done the same thing again: “The Collins and Lapsley fractions indicate some alcohol use may be beneficial for some conditions. We concentrate on harmful drug use, and assume zero fractions for such conditions.” So their measure of the costs of alcohol to the Canterbury health system relies on an assumption that there can be no health benefits from alcohol – an assumption that runs contrary to the weight of international evidence. Assuming one’s conclusions is hardly proper method.

Unfortunately, alcohol policy is one of those areas where a lot of people’s convictions about the right answer put a pretty strong lens on how they assess the literature. How often do you read that problem drinking among 15-24 year olds was no different in 2006/2007 than in 1996/1997 before the change in the alcohol purchase age? Or that per capita alcohol consumption is down substantially since 1991? Or that light drinkers have about a 14% reduction in their chance of dying from any cause than people who never drink,correcting for the host of other health-related behaviours that are usually given as reasons for ignoring the health benefits of moderate drinking?

Be skeptical of the moral crisis around alcohol.

More on asset sales

I'm quoted in the Press's story on potential asset sales. Spot the minor transcription error from the email I'd sent! First comment to catch it wins the chocolate fish. Two letters are missing... somewhere.

There is a strong case for selling some Christchurch City Council assets, a Canterbury University economist says.

Dr Eric Crampton, a senior lecturer in finance and economics, said that if the council was not prepared to cut its expenditure on large capital projects such as the planned sports stadium and convention centre, it should look at selling assets that were more valuable when owned by the private sector.

''Lyttelton Port and Red Bus very plausibly fall into that kind of category,'' he  said.

''We oughtn't forget that only a few years ago the council thought that a private management company would be best placed to run Lyttelton Port.

''Bus routes in Christchurch are allocated between council-owned Red Bus and other operators, like Leopard, by competitive tender. It's pretty clear that we really need to have the council owning one of the companies.''

For other assets where the council might not want to give up control, like Orion, partial private ownership could help bring in external expertise while bringing in revenue.

''For other assets where efficiency gains from privatisation are limited, there's no strong case to be made between debt and asset sales. Both reduce the city's net asset base and constrain future ability to raise debt in case of seriously damaging future aftershocks,'' Crampton said.

Ultimately, whether the council or the private sector should control an asset depended on which was best placed to operate it.

Finding the two missing letters above is left as an exercise for the reader. [Update: Philip catches it. I'd said "unclear" rather than "clear" in the sentence: "It's pretty [un]clear that we really need to have the council owning one of the companies."] I'd also sent this paragraph, which didn't make the cut:

“It’s a bit of a shame that so much of the discourse around asset sales has focused on differences between dividend rates and the interest rate on Council borrowing. First, it’s harder to put a fair value on assets held by government because they’re not traded on the open market; the recent rather large reduction in the book value of KiwiRail points to some of these difficulties. Where we are less certain of the asset’s value, we have less confidence around the actual dividend rates. Further, where reported dividend payments include a lot of booked capital gain rather than actual cash payments, it’s not entirely a fair comparison with bond payments. But more fundamentally, ownership of assets comes both with risk and with ongoing maintenance liabilities; gaps between dividends paid by Council enterprises and interest on Council debt is largely explained by that the former is riskier.”

There is little point in keeping the "family silver" as a hedge against bad times if you're not willing to sell it when bad times hit. Still, cutting back on planned expenditures on a new stadium in excess of the insurance payout makes an awful lot more sense than either debt or asset sales.

A sense of priorities

The Press surveys Christchurch residents about post-quake rebuilding priorities. I'm nosing about for the survey raw data, but here's the ranking from Paul Gorman's article. For each, I'm reporting what I think is the proportion reporting the item is at least "important" on a scale running from "Extremely unimportant" through "Extremely important", but I can't really be sure without seeing the survey report.

• Redeveloping the hospital: 97%
• Rebuilding public sports facilities: 91% 
• Tourism facilities: 88%
• New central-city police station: 88%
• Town Hall (mostly a venue for the Symphony): 87%
• Central Library: 86%
• Avon River redevelopment: 81%
• Christchurch Art Gallery: 80% said reopening is "urgent" [no clue how this fits onto the scale]
• Cycle lanes: 78%
• Car parks: 77%
• Rebuilding the rugby stadium: 67%
• Downtown sports centre: 63%
• Commuter rail: 50%

The relative rankings are awfully interesting. Culture and the arts beat Big Sport; local community sports grounds matter more than the New Zealand Rugby Union. And commuter rail is rightly recognized as being way too expensive.

I don't know where the Arts Centre fits on the scale or if it wasn't on the survey. 

It's awfully encouraging to see that most folks have their priorities in a pretty reasonable ordering.

Here, I think, are some of the survey respondents' comments about stadiums.