@EricCrampton from 10 years agohttps://t.co/uUxGlW1enl
— Jim Rose (@JimRosenz) December 22, 2015
Roland Fryer on Education, Inequality, & Incentives
19 Dec 2015 1 Comment
in applied price theory, discrimination, economics of education, gender, human capital, labour economics, labour supply, politics - New Zealand, politics - USA, poverty and inequality Tags: charter schools, racial discrimination, Roland Fryer
How big is Medsafe’s invisible graveyard? @PeterDunneMP @annetterongotai
17 Dec 2015 1 Comment
in economics of bureaucracy, economics of regulation, health economics, politics - New Zealand Tags: drug lags, Drug safety
Medsafe replicates in part or in whole the drug approval processes of its overseas counterparts. There is expedited processing for drugs already approved overseas.
Every day in which a drug approval application is sitting on the desk of a bureaucratic at Medsafe is a day in which another New Zealander may die but for that drug.
That delay in access to drugs because of the duplication in approval processes is the invisible graveyard of Medsafe. My Official Information Act requests so far have been unable to access a cost benefit analysis at the Ministry of Health that quantifies the size of that invisible graveyard.
If economists have a bitter drinking song it would be “how many people has the FDA killed today”. Many drugs became available years after they were on the market outside the USA because of drug approval lags at the FDA. The dead are many. To quote David Friedman:
In 1981… the FDA published a press release confessing to mass murder. That was not, of course, the way in which the release was worded; it was simply an announcement that the FDA had approved the use of timolol, a ß-blocker, to prevent recurrences of heart attacks. At the time timolol was approved, ß-blockers had been widely used outside the U.S. for over ten years.
It was estimated that the use of timolol would save from seven thousand to ten thousand lives a year in the U.S. So the FDA, by forbidding the use of ß-blockers before 1981, was responsible for something close to a hundred thousand unnecessary deaths.
The only rational basis for duplicating overseas drug safety approval processes is the honest belief that a New Zealand process can pick up errors. These errors must be so large that they justify the delay. If there are no such errors to pick up in a cost justified manner, the drug approval branch of Medsafe just adds to the invisible graveyard.
The Ministry of Health did advise its Minister of the unilateral recognition model in Singapore. If a drug is registered in two trusted jurisdictions, it is fast tracked. If it is registered in one other trusted jurisdiction, it goes through an expedited process. This process appears to only cut the registration process for a drug from 270 days to 240 days.
The truncated approaches when there is approval of the drug in a trusted jurisdiction usually call for access to evaluation reports and other red tape. What can drug trials in New Zealand
find out that is not already known? Medsafe targets processing applications for the approval of new drugs in New Zealand to be done within 200 days. That’s 200 days too many.
My preferred unilateral recognition process consists of authenticating the drug registration certificate from a trusted overseas jurisdiction. It would be a post-box process. The G7 countries plus Australia should be this list of trusted overseas jurisdiction. There should be automatic recognition in New Zealand of any drug registration in those jurisdictions.
There is no reason to believe that Medsafe will pick up errors of trusted jurisdictions overseas. Medsafe denied New Zealanders access to four drugs approved in comparable regulatory jurisdictions in the last three years. Medsafe rejected two other drugs in the last three years but these drugs were not approved in comparable jurisdictions. Medsafe is not involved in the funding of medicines; this is the responsibility of PHARMAC.
Source: data released 29 October 2015 pursuant to an Official Information Act request to the Ministry of Health.
Medsafe is turning down not even a handful of drugs were approved overseas jurisdictions in the past three years. Was that worth the wait? Was that worth a larger invisible graveyard?
The net benefits of the entire drug approval framework over the past three years in New Zealand is riding out on rejecting for approval half a dozen drugs, four of which are approved as safe in other comparable jurisdictions.
The size of the invisible graveyard has been quantified in the USA. The Prescription Drug User Fee Acts (PDUFA) reduced the drug approval time lag by 10 months:
Converting these economic gains into equivalent health benefits, we find that the more rapid access of drugs on the market enabled by PDUFA saved the equivalent of 140,000 to 310,000 life years.
A few drugs were approved that were later withdrawn. Their unfortunate consequences must always be weighed against the drugs that got to the market faster, saving lives, relieving pain and curing illnesses. That trade-off must be faced up to openly rather than as it is now left in the invisible graveyard.
Old age poverty rates in the G7, Australia, New Zealand and Korea
17 Dec 2015 Leave a comment
in labour economics, politics - Australia, politics - New Zealand, politics - USA, poverty and inequality, public economics Tags: old age poverty, old-age pension, social insurance, welfare state
In Wellington CBD, average value of commercial building is almost halved with a red or yellow sticker
17 Dec 2015 Leave a comment
in economics of natural disasters, economics of regulation, politics - New Zealand, urban economics Tags: earthquakes, efficient markets hypothesis, entrepreneurial alertness
Within the Wellington CBD, the average value of a commercial building is almost halved if it receives a legally binding earthquake-prone declaration. Discounts on specific buildings will vary around this average level, reflecting a number of factors such as costs of remediation and the nature of existing rental agreements.
Labour productivity growth in the New Zealand retail services confounds Baumol’s cost disease
17 Dec 2015 Leave a comment
in applied price theory, economic history, industrial organisation, managerial economics, market efficiency, organisational economics, personnel economics, politics - New Zealand, survivor principle Tags: Baumol's disease, labour productivity
@jacindaardern the role of drug addiction in poverty and unemployment
16 Dec 2015 Leave a comment
in applied price theory, labour economics, labour supply, politics - New Zealand, poverty and inequality, unemployment
Jacinda Adern does have a point that the Prime Minister overplayed the role of drug dependency in child poverty, but he is not completely off the mark. A whole bunch of self-destructive behaviours play a role in family poverty.
Source: Minister of Social Development Cabinet Paper on Pre-employment Drug Testing Requirements.
Too many children have irresponsible parents. Caplan along with Charles Murray point out that a number of pathologies are particularly prevalent among poor:
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alcoholism: Alcohol costs money, interferes with your ability to work, and leads to expensive reckless behaviour.
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drug addiction: Like alcohol, but more expensive, and likely to eventually lead to legal troubles you’re too poor to buy your way out of.
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single parenthood: Raising a child takes a lot of effort and a lot of money. One poor person rarely has enough resources to comfortably provide this combination of effort and money.
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unprotected sex: Unprotected sex quickly leads to single parenthood. See above.
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dropping out of high school: High school drop-outs earn much lower wages than graduates. Kids from rich families may be able to afford this sacrifice, but kids from poor families can’t.
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being single: Getting married lets couples avoid a lot of wasteful duplication of household expenses. These savings may not mean much to the rich, but they make a huge difference for the poor.
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non-remunerative crime: Drunk driving and bar fights don’t pay. In fact, they have high expected medical and legal expenses. The rich might be able to afford these costs. The poor can’t.
Caplan is disputing that healthy adults who are poor are victims. That is central to the poverty is not a choice movement: the poor are victims.
The New Zealand experience with work testing of beneficiaries for drugs is most of them quickly stopped using dope. Many jobs have tests for drug-taking.
Why do @fightfor15 @LivingWageNZ @LivingWageUK aim so low?
16 Dec 2015 1 Comment
in applied price theory, labour economics, Marxist economics, minimum wage, politics - New Zealand, politics - USA, poverty and inequality Tags: expressive voting, Leftover Left, living wage
Why @JohnKeyPM is tourism minister – tourism as a % of GDP across the OECD
16 Dec 2015 1 Comment
in industrial organisation, politics - New Zealand
John Key is both Prime Minister and Minister for Tourism. Previously the portfolio was held by a junior minister. I am not sure if that was a good idea. Government departments tend to be gravestones of industries.
The New Zealand tourism industry grew on its own to be the 4th largest relatively speaking in the world without the guiding hand of a Minister of Tourism. Maybe it should have stayed that way.
The rapidly approaching demographic crisis in New Zealand
16 Dec 2015 Leave a comment
in labour economics, labour supply, politics - New Zealand Tags: ageing society, demographic crisis, old age pensions
Choices that lead to poverty @GarethMorgannz @povertymonitor
15 Dec 2015 2 Comments
in applied welfare economics, labour economics, labour supply, politics - New Zealand, politics - USA, poverty and inequality, welfare reforms
The best evidence that poverty can be a choice is the success of the 1996 US welfare reforms and other carrot and stick approaches to poverty reduction. Poverty in the USA dropped dramatically in the mid-1990s after being stable for decades.
The stick is the most important part of poverty reduction programs that have succeeded. The poverty is not a choice movement deny to themselves the most successful child poverty reduction tool of modern times.
The success of the 1996 US federal welfare reforms were not discussed in an experts report on solutions to child poverty published a few years ago by the Children’s Commissioner. It should have been.
After decades of no progress against child poverty, five-year time limits on federal welfare assistance along with mandatory work requirements encouraged a large number of single mothers to find work. Many of these single mothers who joined the workforce in the USA were high school dropouts with small children.
Proposal to make child-care tax credit refundable would boost employment of working mothers bit.ly/1i1Xzcq https://t.co/2xlQQtPRJs—
The Hamilton Project (@hamiltonproj) October 29, 2015
Child poverty fell dramatically among minorities after the 1996 US federal welfare reforms. Everybody was surprised by the massive increases in the employment of single mothers and the reductions in child poverty. Nobody expected young mothers with small children to have so much control over their destiny.
That ability of single mothers to find a job as a condition of welfare benefits after the 1996 US federal welfare reform contradicts the belief that poverty is not a choice.
Child poverty is concentrated among single mothers and in particular single mothers on a welfare benefit. The subsequent declines in welfare participation rates and gains in employment were largest among the single mothers previously thought to be most disadvantaged: young (ages 18-29), mothers with children aged under seven, high school drop-outs, and black and Hispanic mothers.
When welfare benefits are linked to work requirements, the 1996 US federal welfare reforms showed that a surprisingly large number of single mothers can find and keep a job. Employment are never married mothers increased by 50% after these US reforms; employment of single mothers with less than a high school education increased by two-thirds; employment of single mothers aged of 18 to 24 approximately doubled.
Brian Caplan has been among those to link self-destructive behaviours to many of those in poverty. He argues there are a number of reasonable steps that healthy adults can take to avoid poverty for them and their children:
- Work full-time, even if the best job you can get isn’t fun.
- Spend your money on food and shelter before getting cigarettes and cable TV.
- Use contraception if you can’t afford a child.
Caplan specifically includes among the undeserving poor the children of poor or irresponsible parents.
Caplan along with Charles Murray point out that a number of pathologies are particularly prevalent among poor:
- alcoholism: Alcohol costs money, interferes with your ability to work, and leads to expensive reckless behaviour.
- drug addiction: Like alcohol, but more expensive, and likely to eventually lead to legal troubles you’re too poor to buy your way out of.
- single parenthood: Raising a child takes a lot of effort and a lot of money. One poor person rarely has enough resources to comfortably provide this combination of effort and money.
- unprotected sex: Unprotected sex quickly leads to single parenthood. See above.
- dropping out of high school: High school drop-outs earn much lower wages than graduates. Kids from rich families may be able to afford this sacrifice, but kids from poor families can’t.
- being single: Getting married lets couples avoid a lot of wasteful duplication of household expenses. These savings may not mean much to the rich, but they make a huge difference for the poor.
- non-remunerative crime: Drunk driving and bar fights don’t pay. In fact, they have high expected medical and legal expenses. The rich might be able to afford these costs. The poor can’t.
Caplan is disputing that healthy adults who are poor are victims. That is central to the poverty is not a choice movement: the poor are victims. Many are not, especially the healthy adults.
Policy debates about how to reduce poverty must break out of poverty is not a choice mentality because as Caplan says:
Being poor is a reason to save money, work hard, and control your impulses.
The choices people can make to avoid poverty are finish high school, seek a full-time job, delay children until you marry, and avoid crime. Working against this is as women’s labour market opportunities improved, their interest in low-status men has declined. As Charles Murray explains, working class males have become less industrious:
In 2003-5, men who were not employed spent less time on job search, education, and training, and doing useful things around the house than they had in 1985. They spent less time on civic and religious activities. They didn’t even spend their leisure time on active pastimes such as exercise, sports, hobbies, or reading…
How did they spend that extra leisure time? Sleeping and watching television. The increase in television viewing was especially large – from 27.7 hours per week in 1985 to 36.7 hours in 2003-5…
The demand to date and marry such men has declined because raising children as a solo mission has become more viable for mothers.
Saying poverty is not a choice undermines important messages about help but hassle that must be woven into the heart of the incentive structures of social insurance and the welfare state.
@donal_curtin @smalltorquer Does competition law in high-tech markets help consumers?
14 Dec 2015 2 Comments
in applied price theory, economics of regulation, Gary Becker, industrial organisation, politics - New Zealand, politics - USA, Sam Peltzman Tags: Aaron Director, anti-trust law, cartels, competition law, creative destruction, entrepreneurial alertness, merger law enforcement, offsetting the, The fatal conceit, unintended consequences
New Zealand has decriminalised cartels. Price fixers cannot be sent to prison but can still be fined. Some agree, some disagree with the wisdom of this move.
Those that agreed with the wisdom of this move were christened cartel apologists by one of those that disagree with the removal of criminal penalties for cartels.
There is an infallible rule in competition law enforcement. It arises mostly crisply in merger law enforcement. If competitors oppose a merger, the merger must be pro-consumer. If the merger is anti-competitive, that merger will increase prices. The competing firms can follow those prices up and profit from the weakening of competition.
Under the collusion hypothesis, rivals of the merging firm benefit since there is a higher probability of successful collusion limits output and raises product prices. The share prices of these rival firms should increase in anticipation of enhanced cartel profits. As Eckbo explains:
Using Stigler (1964) theory of oligopoly, a horizontal merger can reduce the monitoring costs by reducing the number of independent producers in the industry. The fewer the members of the industry the more “visible” are each producers actions, and the higher is the probability of detecting members who try to cheat on the cartel by increasing output.
When was the last time an entrepreneur complained about his rivals putting their prices up? The entrepreneur can either match that price increase or undercut it to win more business. The real reason competitors oppose a merger is the merged firm will have lower costs, making it a fiercer competitor.
If the share prices of competitors fall on news of the merger, they are worse off as a result because they face a fiercer competitor. If their share prices rise, that suggests either that others in the industry are to benefit from higher prices or rival firms will soon replicate the cost savings discovered in the course of the merger. The latter is the information effect of mergers:
…since the production technologies of close competitors are (by definition) closely related, the news of a proposed efficient merger can also signal opportunities for the rivals to increase their productivity
Mergers are a high-risk way of securing higher prices unless there are offsetting cost saving of combining the two firms. Mergers disturb previously efficient firm sizes and risk diseconomies of scale and a burgeoning corporate hierarchy. A cartel is a safer way to raise prices by jointly agreeing to restrict output.
Cartels have few redeeming features. Cartels are inherently unstable because the history of cartels is the history of double-crossing. The best place in a cartel is to be on the outside undercutting it slightly to sell as you can at inflated cartel price.
The complication with cartels is competitors must sometimes coordinate their activities with their rivals in various ways such as agreeing product standards, undertaking joint ventures or licensing technologies to them.
Criminalisation of cartels may deter these business practices that promote consumer welfare. The process of innovation in new industries in particular often involves successful firms taking over the unsuccessful firms.
Serial competition is common in rapidly innovating industries with one dominant firm making hay for a while then quickly swept away. Merger law enforcement agencies do not handle the wake of creative destruction well.
There is no more cutthroat market than Hollywood. Yet the movie industry is riddled with collusion and joint ventures. Actors and producers can be collaborating on one film and also be making another film that will be its rival in the box office when released.
The movie industry would not work without this incestuous mix of competition and collaboration. Joint ventures are aplenty between otherwise direct competitors in the film industry. When do these joint ventures become cartels threatened with criminal penalties?
What should be another working rule in competition law enforcement is when there is reasons to stay your hand, that is usually a good idea even if you do not have the reasons worked out yet. When in doubt, stay your hand.
It goes back to that extremely famous 1984 essay by Frank Easterbrook on the limits of anti-trust law. The essay was about errors in competition policy and law enforcement:
- When a competition law enforcer makes a mistake and closes off an efficiency enhancing practice or stops a pro-consumer merger, there are few mechanisms to correct this mistake; and
- If a competition law enforcer inadvertently does not stop a anti-competitive merger or lets a collusive or inefficient practice get through, at least there is market processes that will slowly chip away at his mistake.
Easterbrook argued that courts and enforcers should craft liability and procedural rules to minimise the sum of competition law’s error and decision costs:
The legal system should be designed to minimize the total costs of (1) anticompetitive practices that escape condemnation; (2) competitive practices that are condemned or deterred; and (3) the system itself
Competition law enforcers and policymakers made plenty of errors in the past. Chastened by their follies aplenty in the past, competition law policymakers should not approach any issue with overconfidence. They have had a dismal track record in aligning competition law with applied price theory and the basics of the economics of industrial organisation.
That is at best only a good start for the competition law enforcement agencies. This is because the economics of industrial organisation spent a lot of time condemning practices that neither restricted output or increased prices.
It took many decades for consumer welfare to be the exclusive goal of competition. Time and again protecting competitors from competition was the priority of competition law enforcement agencies.
The ICT revolution coincided with a revolution in competition law economics and policy. That revolution consisted of basing competition law on applied price theory and not condemning every novel or as yet unexplained practice.
In the high-tech industries, competition law runs a high risk of chilling innovation. As Joshua Wright said:
Innovation is critical to economic growth. Incentives to innovate are at the heart of the antitrust enterprise in dynamically competitive industries, and, thus, getting antitrust policy right in high-tech markets is an increasingly important component of regulatory policy in the modern economy. While antitrust enforcement activity in high-tech markets in the United States and the rest of the world is ever-increasing, there remain significant disputes as to how to assess intervention in dynamically competitive markets.
The relentless pursuit of Microsoft by the US Department of Justice at the behest of its competitors such as Netscape is notorious example of the chilling of innovation.
You are showing your age if you even remember who Netscape was. Its complaint was that Microsoft by giving away its browser was engaging in predatory competition.
Netscape want to protect consumers from the scourge of lower prices – from not having to pay $49 for the Netscape browser. You are showing your age if you have ever paid to install a browser.
Netscape had the advantage of a senior US senator representing the state where it was based. He happened to sit on the committee overseeing the budget of the US Anti-trust enforcement agencies.
We are still waiting for the day when Microsoft finishes giving away its browser, excludes competition from the market for browsers, jacks up its price to make up for a good 20 years of giving away its browser and is not immediately threatened by new entry.
Facebook is now worth more than Walmart
buff.ly/1fuvV7V h/t @DKThomp
$FB $WMT buff.ly/1fuvSZB http://t.co/FtIIJP3EGN—
Ninja Economics (@NinjaEconomics) June 22, 2015
The intrepid competition law enforcers of the 1990s did not anticipate a business model where competitors profitably give their product away.
Thankfully, Facebook did not face competitors who charged for their social media. If Facebook had faced such competition, what would the US Department of Justice thought of this anti-competitive practice of giving social media away. The scourge of lower prices again. That great bugbear of competition law enforcement agencies.
10 years ago today Facebook was founded by Mark Zuckerberg and his college friends http://t.co/IVFDFvu2VM—
History Pics (@HistoryPixs) February 04, 2014
Facebook is doing the exact same thing that Microsoft did when it gave away the Internet Explorer browser. To this day, competition law enforcement agencies including the New Zealand Commerce Commission do not accept lower prices to be lawful in all cases without exception.
A test of how imbibed you are with the fatal conceit about competition law is to cast your mind back as to what your attitude was to the Department of Justice anti-trust lawsuit against Microsoft.
If you thought the anti-trust lawsuit against Microsoft was well-founded, you are an optimist about the efficient scope of competition law. To quote McKenzie and Shughart:
Microsoft’s critics come far closer to the mark when they complain that Microsoft has been “brutally competitive” than when they claim Microsoft is a “monopoly.” From our perspective, it appears that once again the Justice Department is using the antitrust laws to thwart competition by a highly successful American firm. To protect unsuccessful competitors, it is squelching competition.
A long time has passed since that suit. People can reflect upon the extent to which Microsoft have successfully monopolised browsing the Internet. It hasn’t. As Gary Becker said:
Anti trust policy should recognize that dynamic competition is often a powerful force when static competition is weak. The big policy question then is whether it is worthwhile to bring expensive and time consuming anti trust cases against still innovating firms that have considerable profits and monopoly power, given the significant probability that new competitors will before long greatly erode this power through different products? I believe the answer to that is no, and that policy should often rely on dynamic competition, even when that allows dominant firms only temporarily to enjoy economic power.
The law and economics of competition has been a bit of a glass house for the last 50 years. People should be careful about criticising new idea and attempts to be more modest about the positive contribution the competition law makes to society.
Competition law can subvert competition by stymieing the introduction of new goods and the temporary monopoly often necessary to recoup their invention costs and induce innovation. Sam Peltzman, when reflecting on the contributions of Aaron Director to the law and economics of competition said:
There are the myriad of ways in which real world business practices behave differently from the caricaturing in textbooks. Those differences sometimes arouses suspicious responses from economists. Visions of market power and deadweight loss triangles dance their heads, and some of the suspect practices have been constrained by anti-trust policy. Director rejected this kind of intellectual laziness, and he sought, sometimes successfully, to inoculate those around him against it.
Director approached all business practices with the methodology that entailed asking very basic questions and answering them in a rigorous logic that it appealed ultimately to facts. The style was verbal – some combination of Socratic dialogue and Adam Smith. This style had the disadvantage of producing few closed-form solutions. But it had the advantage of permitting analysis of the kind of problems that eluded simple solutions.
Indeed I believe that one reason for Director’s lasting influence he was able to show that simple judgements about business practices often cannot withstand rigorous scrutiny.
Economic theory and empirical evidence are full of examples of business conduct that reduce choice but increase consumer welfare through lower prices, more innovation, or higher quality products and services. Manne and Wright noted in the paper, Innovation and the Limits of Antitrust that:
Both product and business innovations involve novel practices, and such practices generally result in monopoly explanations from the economics profession followed by hostility from the courts (though sometimes in reverse order) and then a subsequent, more nuanced economic understanding of the business practice usually recognizing its pro-competitive virtues.
Competition law enforcement agencies are suing Google because it is anti-competitive. The dead hands of the competitors to Google are buried somewhere in those suits. Is there no learning. There is certainly no modesty about past mistakes about the proper scope of competition law.
Were @jamespeshaw & @DrJamesHansen at the same #COP21
13 Dec 2015 Leave a comment
in economics of regulation, energy economics, environmental economics, global warming, politics - New Zealand Tags: climate aid, climate alarmism, green rent seeking, international climate treaties, New Zealand Greens
Paris was a tremendous defeat for the climate alarmists. Now that they have their treaty – a non-binding treaty – their ability to stir up political momentum to do more is undermined. If the environmental movement already has their agreement to save the world, why is anything more necessary. Especially anything that is costly to the hip-pocket such as a carbon tax.
The Greens, rarely for them, have settled for half measures. That was unwise considering these half measures are nothing at all apart from climate aid. Few like to remember that the Republicans still control the U.S. Congress. Centre-right parties control most governments in Europe.
#itsnotchoice @povertymonitor @PlunketNZ % Australian, NZ and US sole parents who do not work
13 Dec 2015 Leave a comment
in gender, labour economics, labour supply, politics - Australia, politics - New Zealand, politics - USA, welfare reform Tags: 1996 U.S. welfare reforms, child poverty, single parents, sole parents
The only major success in reducing sole parent beneficiary numbers anywhere has been time limits introduced as part of the 1996 US federal welfare reforms. Time limits on welfare for single parents reduced caseloads by two thirds, 90% in some states.
Source and Notes: OECD Family Database; Australian data are available only from 2005.
The subsequent declines in welfare participation rates and gains in employment were largest among the single mothers previously thought to be most disadvantaged: young (ages 18-29), mothers with children aged under seven, high school drop-outs, and black and Hispanic mothers. These low-skilled single mothers were thought to face the greatest barriers to employment. Blank (2002) found that
nobody of any political persuasion predicted or would have believed possible the magnitude of change that occurred in the behaviour of low-income single-parent families.
With the enactment of welfare reform in 1996, black child poverty fell by more than a quarter to 30% in 2001. Over a six-year period after welfare reform, 1.2 million black children were lifted out of poverty. In 2001, despite a recession, the poverty rate for black children was at the lowest point in national history. Employment are never married mothers increased by 50% after the US reforms; employment a single mothers with less than a high school education increased by two thirds; employment of single mothers aged of 18 in 24 approximately doubled.
This great success of US welfare reforms was that after decades of no progress in their war on poverty, poverty among both single mothers and black children declined dramatically.
Utopia, you are standing in it! 
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