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Insights 11: 31 March 2017
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Water torture
Dr Eric Crampton | Head of Research | eric.crampton@nzinitiative.org.nz
Economist Alex Tabarrok says prices are a signal wrapped in an incentive. Prices tell us about relative scarcity and provide an incentive to conserve on scarce things.

But when we face abundance rather than scarcity, prices may be less useful. And so some of the controversy around the Okuru water export project seems a little odd.

Last year, South Island entrepreneurs started bottling fresh air from the Southern Alps to sell in China. Clean air is abundant here, but scarce in parts of China; nobody worried that the company was not paying for air bottling rights.

Okuru proposes bulk water exports from the West Coast. The project has been on the drawing board since 1990, with initial resource consent achieved in 1992. Okuru is still trying to line up investors and customers to make the project viable, but they need to maintain their resource consents.

The current round of renewals have been controversial because of ongoing debates about water pricing. Critics worry Okuru may profit by getting a valuable water resource for free.

Overall, freshwater management in New Zealand is in dire need of review. A trading regime for water drawing consents seems the most obvious solution. In the meantime, water’s value is bundled into the selling price of land that has water drawing rights.

In places where the aquifers and rivers are under pressure, water bottling plants draw attention far out of proportion to their actual water usage. But at least the sentiment is understandable: in places where water is scarce, it is odd that new drawing does not have an explicit price tag.

But that is manifestly out of place on the West Coast near Haast. Having spent a wet Christmas at a Book a Bach in Haast a few years ago, I’m happy to confirm that water on the West Coast is the opposite of scarce. Okuru’s potential draw is reported at less than a half a percent of the Arawhata River’s typical flow.

And the lack of customers for the project so far suggests that it would not expand quickly.

Freshwater allocation systems need reviewing. And, as Tabarrok would say, tradeable drawing rights let prices emerge to signal the value of water and provide incentives for conservation.

But in places where water is far from scarce, nobody is likely to earn much selling water drawing rights.


Fiscal virtues
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
Last week a joint Labour/Green statement proposed a fiscal agency to keep a Labour/Green coalition government honest. Now where would they get a crazy idea like that?

Err, three years ago, The New Zealand Initiative recommended the creation of a Fiscal Council in New Zealand. It would report directly to Parliament on the sustainability of the government’s fiscal strategy given the ageing population. We had Australia’s Parliamentary Budget Office in mind.

The Labour/Green agency would also be independent of ministers. It would blow the whistle publicly if a Labour/Green fiscal policy differed from pre-pledged fiscal principles.

In a nutshell, both councils would be monitoring and transparency agencies. As such they should make it easier, politically, for governments to address future fiscal challenges and make a 'head-in-the-sand’ approach harder to get away with.

What could be wrong with that? Well, for a start the current National government has not adopted our recommendation.

Why not? Probably, it sees little need given its proven commitment to restoring fiscal surpluses. True virtue is its own witness. Establishing a superfluous agency to attest to its virtue would undermine it. To which our churlish response is that fiscal virtue is as ephemeral as the political winds and John Key’s promise to steer clear of New Zealand Superannuation was less than fiscally virtuous.

So why are Labour and the Greens on the virtuous side of this issue? After all, the last Labour government left National facing fiscal deficits for as far as the average geriatric eye could see.

That observation likely answers the question. Newly found virtue lacks credibility. Governments that can’t make credible commitments are weak governments. However, we hasten to add that this does not make it less of a virtue. A commitment to fiscal virtue is a fine thing.

So three cheers to Labour and the Greens for this initiative. May they stick to it.


Deferred reality
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
A few years ago, British schools got worried about their bad students. Not so much about the fact they were not learning enough. Rather how their failure would make them feel.

That is why they stopped calling failure what it is and instead started talking about “deferred success”.

Well, as it turns out, some New Zealand universities are going a step further. They are now actively helping their worst students to pass exams regardless.

As the Herald revealed this week, a majority of university lecturers surveyed by their union said that they would “change assessments, ignore cheating and pass incompetent students”.

This, of course, had little to do with helping the students feel better about themselves, let alone actually making them learn more. It was all about ensuring that universities meet their pass rate targets and continue to receive public funding.

Of course, there was outrage that such practices might ever happen, and some vice chancellors were quick to dismiss the survey.

But the findings do not only sound plausible to any employer who has ever interviewed recent university graduates. The practice could also set a model for dealing with other public policy challenges.

In a similar fashion, waiting lists for hospitals could be gently massaged. There must be a way in which we could delay the start of waiting times in A&E departments. How about requiring admissions to fill in some lengthy forms first and only start the clock when they are done with it?

Traffic congestion data can be quickly massaged. We will just remove all the times vehicles spent in traffic jams or at red lights from the calculation of average speeds and voilà, traffic will appear to be moving much faster.

When measuring any kind of economic or social indicators, we would only accept favourable data while declaring all others measurement errors. I always suspected that this is how natural scientists conduct their experiments too.

In this way, we will soon find ourselves in a country in which all our students are mini-Einsteins, no traffic jams exist, economic growth is high, inflation low, and all our public services are work super-efficient.

It will not have much to do with reality, of course. But it will look and feel so much better.

No-one would have to worry about deferred success anymore. But that would then be the least of our worries.
 
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