Ban the bottle

I'm a fan of Charles Tibout's arguments about local government competition: lots of small local governments competing with each other for residents and cooperating with each other for provision of services that are more efficiently provided on a wider scale.

I was surprised when Rodney Hide led the charge for Auckland's amalgamation. The best case I could make for amalgamation would be that the small scale of local government means it has a very hard time attracting talented people to make reasonable decisions; Council policies can be stuck on the stupid setting for rather a while. A merged Auckland encompassing a million or so people ought to be big enough to attract more talented bureaucrats able to make more sensible decisions.

Neil Miller points to one less-than-sensible decision coming out of amalgamated Auckland Council [HT: Nolan @ TVHE]. They're pushing bottle shops to ban single-bottle sales. Neil writes:

Craft beer plays little or no part in the problems around heavy drinking, particularly among younger people.  The streets on a Saturday morning are not awash with bottles of Emerson’s Pilsner ($6.10) nor the car park studded with empty magnums of Liberty C!tra IIPA ($22.10).  The Council has simply made a series of assumptions and come up with a one-size-fits-all “solution” so it can say it is “doing something.”  I doubt any thought was given to the sales of craft beer or the people who want to purchase them responsibly in central Auckland. 

"Something must be done" is a rather persistent problem. And, with a merged Council, craft-beer lovers will have a harder time driving to an outlet that can help them out. I hope that the bottle shops are able to get around it by requiring that people buy at least two bottles and sticking a rubber band around them to make a package when the customer comes to the till.* At least there are mail order options.

Neil again:

However, at this stage the Government is looking to avoid the single container issue saying people with problems should contact the Council as it is their policy.  It seems yet another drift net policy with unintended consequences, something we will probably see a lot more of as Parliament considers the key provisions of the new Alcohol Reform legislation. 

This kind of local nonsense is one of my bigger worries in the proposed Alcohol Reform Bill, which will provide a fair bit more scope to local Councils for alcohol regulation. Compliance costs are higher when retailers face a patchwork of regulations across the country; I would expect local activists with time on their hands have more influence over policy at the local level. I consequently expect the equilibrium to turn rather more meddlesome in most places.

* My local dairy, for a while, sold cans of Coke labelled "Not for individual resale." Above the cans he had a small sign saying "Buy two!". I liked that.

Why ban lightbulbs?

You could make a case for mandating energy efficiency requirements for lightbulbs and banning less-efficient incandescent bulbs in a country without an effective carbon tax or emissions trading regime.

But can you make the same case where we already have emission trading? It's a bit more difficult.

Bryan Walker hopes the government is ashamed of having failed to ban incandescent bulbs. He writes:

It’s hard to make any sense of the reversal of former Government policy on incandescents other than in the most cynical of political terms. It is in direct contradiction to any concern they express to tackle climate change. Lighting has been estimated to use nearly 20% of the world’s electricity and six years ago the International Energy Agency produced a report which concluded that a global switch to efficient lighting systems would trim the world’s electricity bill by nearly one-tenth. It is a low-hanging fruit in the reduction of carbon emissions. Even the US is to phase out incandescents.
Many people are making the switch to efficient bulbs without Government direction. It makes economic sense to do so after all, in addition to the clear environmental benefits involved. But Government also has a responsibility to advance energy efficiency by appropriate regulation, as other free market economies have recognised.

Let's go back to first principles.

A lightbulb has three sets of associated cost. The first is a fixed cost for the bulb; the second is the ongoing cost of electricity to run it. A third and today largely ignored cost is disposal at end-of-life: some of the fancier lightbulbs come with greater risk of leaching nasty stuff into landfills and so either impose that cost or impose the cost of more careful disposal.

Power generation has some associated external cost to the world through carbon emission. While most electricity generated in New Zealand comes from renewable sources, the marginal unit often comes from coal-fired generation. And so emission abatement has some external benefit. Absent the full costs of power generation being internalised into the price of electricity, you can make a second-best case for regulatory interventions to push people to the choices that they would have been making in a full-carbon-costing world. Now, there's a problem in that electricity is also used in the production of lightbulbs, and if the non-priced carbon embodied in the production and distribution of more efficient bulbs sufficiently outweighs the non-priced carbon embodied in incandescent bulbs, the result could reverse. I have no clue about either, but it would be awfully surprising if fluorescent and LED bulbs did not have more carbon emissions associated with their production than comparable incandescent bulbs - I would expect that differences in embodied non-priced carbon would be proportionate to differences in the cost of the bulbs. But let's stipulate for now that the ongoing flow of carbon is lower for the more modern bulbs, especially as they have a longer replacement cycle. Always keep in mind that it's not easy being green: when prices don't fully incorporate costs, alternative methods of calculation have non-trivial associated problems.

But this doesn't hold when we already have a reasonably comprehensive emissions trading scheme. Electricity is in the system, even if farming isn't quite there. If the permit system is working well, there is absolutely no case for banning incandescent bulbs. Even if incandescents are less efficient at producing light, they're not all that bad at producing heat. And for two thirds of the year, at least here in the South Island, that isn't all waste. 

If power prices incorporate carbon charges via the ETS, then there's no real economic case for pushing consumers to choose bulbs they don't want. If the ETS isn't working well, then all kinds of consumer and producer decisions will be out of kilter and we do far better by trying to make the ETS as clean across the board as possible rather than mucking about in individual markets. You're then forced into a political second-best argument that it's impossible to fix the ETS but perhaps possible to get political support for pushing on a few important markets. But, again, it's awfully hard to tell in any of those individual cases whether we're doing net good in doing so. The UK thought it was doing good in adding food miles; they'd missed that our pastoral systems have lower overall greenhouse gas emissions. 

In very important ways, the problem facing somebody wanting to intervene in particular individual markets to try and fix the problems caused by not having a good ETS are similar to the problems facing somebody trying to run the old Soviet economy. I'm not trying to make a dumb ideological point about Greenies here: rather, it's about information and its dissemination through a system. The Soviet planners had to figure out how rationally to allocate scarce investment resources in a world where they couldn't really tell how much consumers valued anything; that's a hard-to-impossible problem to solve. An environmental planner working in a world without either a comprehensive carbon tax or an equivalent ETS has a parallel problem in trying to figure out all of the environmental upstream and downstream costs of any product, its substitutes and its complements, and of all the processes used to produce it and its substitutes and its complements. Art Carden explains it in more depth. Product-by-product intervention is awfully likely to produce environmental absurdities. You don't have to be a climate change denier to oppose piecemeal interventions of this sort.

The Dismal Science: Stadiums edition

The rather strong consensus of the academic literature shows that government subsidies to sports stadiums fail to deliver promised economic benefits. 

Massey's Sam Richardson, and co-blogger at The Dismal Science, has done the academic heavy lifting in New Zealand; most of the other bloggers syndicated at The Dismal Science have chimed in from time to time with our takes on things.

Close-Up highlighted some of Sam's work on stadiums; I popped up a bit but the serious work on this issue is Sam's. When Mark Sainsbury asked what Earthquake Recovery Minister Gerry Brownlee thought about the economic case for stadium subsidies, Gerry replied: 

"They say that economics is the Dismal Science. And you've found some really good exponents of that."

Indeed, Gerry. Indeed. 

I will be hitting some of the highlights of our collective prior efforts on stadium subsidies at The Dismal Science feed at SciBlogs. Enjoy the mini symposium! 

More letters....

This time to the DomPost consequent to Olivia Wannan's article on alcohol minimum prices. Olivia's piece is one of the better summaries I've seen out there. But I did want to make a couple of points. Here they are.

Thank you for Olivia Wannan's reasonably balanced piece on alcohol policy.
 I would make one note of correction. In 2009, Matt Burgess and I released a report critical of BERL's $4.8 billion estimate of the social cost of alcohol in New Zealand. That report was entirely uncommissioned; we simply did not like that what we viewed as a bad statistic was influencing policy. We concluded there that social costs were instead on the order of $760 million. Late in 2010, Matt and I were commissioned by an Australian alcohol consortium, NABIC, to produce a similar report examining the Australian study that formed the basis for BERL's report. In doing so, we discovered a substantial error in our prior work on BERL: one not noted by BERL in its response to our critique, by Brian Easton in his paid report for the New Zealand Law Commission evaluating our work, or by Australian consultants Marsden Jacob and Associates, who were paid $60,000 by the New Zealand Law Commission for their report critiquing our unfunded paper. We consequently updated our estimate of the social costs for New Zealand to roughly $967 million. NABIC did not request this addition to the paper we produced, but we did not want the error in our prior work to stand once we discovered it. The net effect of our doing funded work on alcohol was to increase our estimate of the social costs of alcohol in New Zealand.
 Aggregate social costs are a poor basis for policy. We can easily imagine worlds in which alcohol's harms are tiny, but where particular measures could reduce those harms without offsetting costs to others; we can similarly imagine worlds in which alcohol's harms are enormous but where no measure could reduce harms without doing even more harm to moderate consumers' enjoyment of alcoholic products. A more relevant assessment would consider the benefits of any particular policy along with the harms imposed on moderate drinkers and others by the policy and simply recommend those policies doing more good than harm. 

Check your sources

Doug Sellman in the opinion section of today's Christchurch Press claims to have had his numbers right [not yet online]. Let's check the history here.

Here's Sellman and Connor's original press release:

Who is advising the Prime Minister on alcohol reform?

Mr Key announced today that he doesn’t believe that minimum pricing for alcohol will change the amount people drink.

“This is contrary to the scientific evidence base about alcohol pricing in general and minimum pricing in particular” said Prof Jennie Connor, medical spokeperson for Alcohol Action NZ.

“Mr Key states that what typically happens is people move down ‘the quality curve’ and still get access to alcohol. Where does this information come from? On the contrary, minimum pricing specifically targets the very cheapest alcohol options and is predicted to reduce average consumption by removing high-alcohol low-cost products from the market.”

“A recent Canadian study has shown that a 10% increase in the minimum price of alcohol reduces its consumption by 16% relative to other drinks”. [emphasis added]

“And these latest data are consistent with the scientific literature which indicates that increasing the price of alcohol has a positive impact on reducing heavy drinking”.

This is very clearly saying that there are very large price effects of increasing the cost of the lowest-priced alcohol. I had initially found the Newstalk ZB report and wondered whether she'd been misquoted, before finding the press release.

I wrote:

Connor has to have been misquoted here or the journalists left out a couple of subsequent clarifying sentences. The error is in the press release. Oh dear.

The link there is now deprecated, but the Scoop link still works.

In today's press, Sellman says that they had it right all along:

On July 3, 2012 we issued a press release recommending the government enacts a minimum price per standard drink of alcohol – to eliminate ultra-cheap drinks favoured by binge drinkers, young drinkers and heavy drinkers – and pointed to a Canadian study that showed ‘‘a 10 per cent increase in the minimum price of alcohol reduces its consumption by 16 per cent relative to other drinks’’. Our wording was based closely on the paper’s wording: “Longitudinal estimates suggest that a 10 per cent increase in the minimum price of an alcoholic beverage reduced its consumption relative to other beverages by 16.1 per cent (p0.001).”

Two days later Crampton wrote a damning critique of the press release on his personal blog, using the same arguments he later used in this Press article. However, it appears Crampton based his critique on a short Newstalk ZB news report of the press release, which quoted Jennie Connor saying, ‘‘studies show a 10 per cent increase in the minimum price of alcohol reduces consumption 16 per cent’’. Note: the reporter had cut off the words ‘‘relative to other drinks’’, which would indeed be wrong if she had said it.

Crampton’s blog piece, and his later Perspectives article, ridiculed the presumed mistake: ‘‘Can a 10 per cent increase in the minimum price of alcohol really reduce total alcohol consumption by 16 per cent?’’ he wrote. ‘‘No’’. But if he had taken the basic precaution of checking the primary source, our press release, he would have seen the words ‘‘relative to other drinks’’ and realised that we had not misquoted the Canadian study at all.

Thus Crampton’s main argument in the Press article was based on his own simple and avoidable mistake, which seems careless for a senior lecturer.

The problem isn't that the Newstalk piece left off the words "relative to other drinks" but that Sellman and Connor used that estimate as though it were relevant to average consumption and where "other drinks" would be interpreted as something other than other categories of alcoholic beverages.

Further, they might have noted that my post of 10 July quoted the press release accurately; my post of 5 July had cited the NewsTalk reporting.

If we look a bit further down the Auld paper, we see pretty clearly what Sellman and Connor had missed:

"The estimates indicate that a 10% increase in the minimum price of a given type of beverage reduced consumption of that type by about 16.1% relative to all other beverages, and a simultaneous 10% increase in the minimum prices of all types reduced total consumption by 3.4% (p<0.01 in both cases)."

Sellman and Connor were building a case in their press release that the Prime Minister was way off base in claiming that raising the minimum price would not have large effects on drinking. Whether "relative to other drinks" is included or not is irrelevant where the context suggests that "other drinks" means drinks other than alcohol.

And so I sent the letter below to the Press this morning:

Doug Sellman in Monday's Press claims to have had his numbers right all along. In his press release of 3 July, he and Jennie Connor wrote:

“Mr Key states that what typically happens is people move down ‘the quality curve’ and still get access to alcohol. Where does this information come from? On the contrary, minimum pricing specifically targets the very cheapest alcohol options and is predicted to reduce average consumption by removing high-alcohol low-cost products from the market.”

“A recent Canadian study has shown that a 10% increase in the minimum price of alcohol reduces its consumption by 16% relative to other drinks”.

The rather obvious interpretation of their release, which was highly critical of the Prime Minister's claim that minimum prices would not greatly affect consumption, was that we should expect a sixteen percent reduction in consumption of alcohol relative to other drinks were the minimum price of alcohol to rise by ten percent.

The paper on which their analysis was based does indeed have a quote that reads a lot like Sellman and Connor's. But, it refers to the effects you get if the price of one category of alcohol - like beer, wine, or spirits - rises relative to other categories of alcoholic drinks. It isn't talking about the consumption of alcohol as compared to fruit juice. This is obvious if we read the second clause of the sentence, where Auld and his coauthors write:

"The estimates indicate that a 10% increase in the minimum price of a given type of beverage reduced consumption of that type by about 16.1% relative to all other beverages, and a simultaneous 10% increase in the minimum prices of all types reduced total consumption by 3.4% (p<0.01 in both cases)."

In Monday's Press, Sellman claims not to have misquoted the Canadian study and that they had, all along, meant "relative to other drinks" to refer to other categories of alcohol. If so, it seems odd to have chosen that figure as being relevant to the argument they were building. It could be relevant if we were estimating the likely reduction in consumption of premixed "alco-pops" relative to other alcoholic beverages, but surely the total amount of alcohol consumed matters more than whether it is consumed in one type of alcoholic beverage rather than another. And, for total consumption, the 3.4% figure is the rather more relevant one.

I strongly encourage readers to read the paper on which Sellman's claims are based and to judge for themselves, rather than trusting either of us. An ungated version of it is available here: http://www.vsnews.fr/etudes/Does-Minimum-Pricing-Reduce-Alcohol-Consumption.pdf . Or, go to scholar.google.com and type "Does minimum pricing reduce alcohol consumption?" You will find that the authors there, like Sellman, favour minimum prices. I worry more about harms imposed on lower income moderate consumers of lower cost alcohol. How we weigh the tradeoff between reducing harms from heavy drinkers and reducing consumption benefits from poorer moderate drinkers is a fairly important discussion. But the case for a minimum price for alcohol ought not be based on an estimate of its effects that is roughly five times larger than that which can be supported by the evidence.

More tobacco incidence

Last week, I pointed to Callison and Kaestner's recent piece suggesting aggregate tobacco price elasticity might be lower than we'd otherwise thought: among adults, smoking wasn't particularly price sensitive.

Youths seem more price sensitive. Gabriel Rossman points to work by Huang and Chaloupka finding a participation elasticity ranging from -0.44 to -0.6 by exploiting a neat quirk in some youth survey data. The Monitoring the Future survey of youth annually surveyed kids, but didn't survey all schools at the same time. And a very large federal tax increase came mid-2009 that resulted in average price increases on the order of 22% for cigarettes. Because the tax increase hadn't hit when some schools had been surveyed, but had when other schools had been surveyed, Huang and Chaloupka are able to get a 2008 baseline over all schools and a 2009 year effect separate from the tax effect by comparing those schools surveyed post-tax with those surveyed pre-tax. So they can compare the 2008-2009 within-school changes for those schools whose students were surveyed before the tax change with those surveyed after the tax change while also adjusting for any differences across the two sets of schools that might have existed in 2008.

It'll be interesting to see what happens with New Zealand's fairly large recent and projected tax increases.

Disclosures

I guess I'm really bad at keeping secrets. Two years ago, I blogged that I was doing funded work on alcohol.

Because I worry a lot about problems of one-sided skepticism, I wanted to ensure not only that any work I did would be entirely independent but also that it could be seen to be so. Consequently, this work is being undertaken as part of a consulting contract administered by the University of Canterbury, approved of by the powers that be here at the University. I drafted all of the provisions regarding academic freedom in the contract; they were happy with it. The contract guarantees our full academic independence, maintains our ownership of the intellectual property produced, guarantees our ability to publish the work as we like, and reserves to us the right to comment publicly on the work without restriction. I can't imagine what else we could have added to the contract to guarantee academic freedom. An honest application of standard economic method is what's most valuable to all parties concerned.

I presented the work first at the New Zealand Economics Association annual meetings in Wellington in 2011. The first footnote in that paper read:

This project was supported in part by the National Alcohol Beverage Industry Council (NABIC) through a grant administered by the Research & Innovation Office and the College of Business and Economics at the University of Canterbury.

I improved the paper subsequent to feedback at the NZAEs [errors in the older version corrected, though you can get the older version from the conference website to check I'm not lying; I don't want to link it and increase the pagerank of the deprecated version]. I was invited to present at the Australian Conference of Economists Policy Day later in 2011 on problems in economic analysis in health. We released the formal working paper (the improved version) while in town; my presentation at the ACE Policy Day noted that work along with other stuff like the MoH costings on tobacco. From the University of Canterbury's press release of September 2011:

His research, called “The Cost of Cost Studies”, found that at least 75 per cent of this figure would be dismissed if the 2008 researchers had used mainstream economic method.

Dr Crampton worked on the report with Matt Burgess from the New Zealand Institute for the Study of Competition and Regulation in Wellington, and Brad Taylor from the Australian National University. It was commissioned by the Australian National Alcohol Beverage Industries Council (NABIC) through a grant administered by UC’s Research & Innovation Office and the College of Business and Economics.
...
NABIC approached Dr Crampton to undertake the work after the organisation saw a similar analysis he and Mr Burgess did of the 2009 BERL (Business and Economics Research Limited) report, which was commissioned by New Zealand’s Ministry of Health and ACC to look into the social costs of drugs and alcohol in New Zealand.

And the first footnote in that proper working paper reads:

This project was supported in part by the National Alcohol Beverage Industry Council (NABIC) through a grant administered by the Research & Innovation Office and the College of Business and Economics at the University of Canterbury. We thank Nick Sander and Rachel Webb for excellent research assistance and participants at the 2011 New Zealand Economics Association meetings for comment. We also thank Seamus Hogan for careful review and comment; the standard disclaimer applies.  

We sent a summary of the working paper's findings, highlighting the difference in method between the Collins & Lapsley and BERL method and that found in more standard economics, to the NZ Med Journal. It came out last week. We there have two disclosures. First, in "competing interests":

Competing interests: The underlying study was funded by NABIC (National Alcohol Beverage
Industries Council) through a grant administered by the Research & Innovation Office and the College of Business and Economics at the University of Canterbury. This funding source is also disclosed in the first footnote of the paper. Very strict controls were employed to ensure academic freedom in the conduct of the study, and the only pressure we've been under has been to complete the paper subsequent to earthquake-induced delays.

 Then again in the first footnote when we point to the working paper:

Crampton E, Burgess M, Taylor, B. The Cost of Cost Studies. University of Canterbury
Department of Economics and Finance Working Paper. 2011. Available at http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1129.pdf (This study was commissioned
and funded by the National Alcohol Beverage Industries Council through a grant administered by the Research & Innovation Office and the College of Business and Economics at the
University of Canterbury.)

I this past week have been busy in Australia. The Australian Liquor Stores Association, one of the constituent members of NABIC, asked if I could come out to their conference as keynote to present my findings to their members; NABIC asked if I could spend a day in Canberra telling media and some Treasury / MoH / ANPHA folks about the work. I mentioned on the blog that I was in Oz for the conference, but I hadn't made a big deal about it; I talk at a few events that I don't wind up blogging about.*

In short, I'm horribly bad at keeping secret that my work on the Collins & Lapsley report (and only that work) has been commissioned and funded by industry via an arrangement that's as iron-clad in guaranteeing academic freedom as I can imagine is possible. When the Sydney Morning Herald's Mark Metherell asked me about independence, I told him what we'd set up to guarantee independence; he still seemed suspicious, so I asked him what else I could possibly have done that would have satisfied him. He couldn't think of anything else, or at least he didn't reveal that he could.

And so it's a bit amusing when the New Zealand Herald's Kurt Bayer writes things like this:

A university researcher who today claimed youth binge drinking has remained unchanged since the legal age was lowered to 18 has had his impartiality challenged after it was revealed his research was financed by the liquor industry.

University of Canterbury economics lecturer Eric Crampton has been slammed by academics [EC: note the plural] today after suggesting there was no strong evidence of increased problem drinking among young people since lowering the alcohol purchase age to 18 in 1999.

There are two very seriously misleading suggestions here, plus a quibble.

First, there is no secret to be revealed. You don't put out press releases about things you want to keep secret. Or at least it wouldn't be the most obvious strategy.

Second, absolutely no part of my having looked at the stats on youth drinking and concluded there to be little obvious basis for cracking down on kids was commissioned, funded, or requested by anybody. Actually, scratch that. The College's media person asked me if I could offer comment on the alcohol purchase age since I work in the area. Because I knew the stats and I knew the holes in the Law Commission's evidence on the topic, I pointed to some of them. And I pointed to more subsequently here on the blog.

And here's the quibble. Bayer uses the plural to claim I've been slammed by "academics". The only person he quotes is Doug Sellman. Doug Sellman is the basis for a headline saying academics are slamming me? Come on.

*  I haven't blogged yet about my talk for the ag industry group Strategic Link a couple months ago, partially because I'm not sure if Chatham House Rules allow me to say what I said. I'm not sure whether I blogged on my talk for the National Business Review's annual strategic retreat up at Waiheke back in the fall.