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Insights 31: 24 August 2018
Read: Eric Crampton argues on Newsroom the Government must change councils' incentives to improve housing affordability
Blog: What actually is Philosophy? Our intern Jack Goldingham Newsom makes the case
Read: Jenesa Jeram on period poverty in the NZ Herald

Dr Eric Crampton | Chief Economist |
The Productivity Commission’s report on state sector productivity makes for dismal reading.

We all could be enjoying either more of the benefits that government programmes can provide, or lower taxes, or a combination of the two if the state sector had a greater focus on productivity.

Our Executive Director’s column in this week’s National Business Review walks through the grim details.

But it gets even worse.

Not included in the Commission’s remit was the government’s role in regulation.

Good regulation can improve wellbeing and productivity. It helps coordinate standards and expectations. It can help improve environmental quality where tort law and property rights are insufficient. And it can help to protect the vulnerable in cases where government expects that business reputational incentives are not enough.

Regulation too often does not work well. Regulation impact statements detailing costs and benefits are meant to accompany every regulatory proposal. But they are too often drafted in haste, seeking to justify a Minister’s preferred policy rather than solve any real problem. And too little work goes into post-implementation reviews.

This week’s case-in-point: the 2010 amendments to the Misuse of Drugs Act that blocked Kiwis from accessing the only cold medication that seems to work: pseudoephedrine. The government sought to reduce the supply of methamphetamine, or ‘P’, by making it harder for people in New Zealand to cook meth using cold medicine.

Did it work?

For a couple of years, the reported availability of methamphetamine decreased. But drug users now report that it is easier to get methamphetamine than it was prior to the ban. The price of methamphetamine dropped to pre-ban levels by 2012, and by 2016 was lower than it had been at any time since 2006 – even without accounting for inflation.

By any reasonable standard, the ban on pseudoephedrine has failed to achieve its objective. But it has made life worse for every single person who has caught a cold. And that too has productivity costs. Instead of being able to work productively from home while munching on Contac NT, I’m about to head home today with a head full of cotton and a hand full of phenylephrine placebos.

It would be great if Labour could reverse National’s failed ban on pseudoephedrine-based cold medicines. It would be even better if we could fix the regulatory system to stop giving us these kinds of productivity-wrecking rules in the first place.

Teach the children cost-benefit analysis
Jenesa Jeram | Research Fellow |
Whoever added Whitney Houston to this government’s Spotify playlist has a lot to answer for.

“I believe the children are our future, teach them well and let them lead the way.” These are perfectly fine song lyrics. They are not meant to guide government policy.

Yet it seems to be the overriding logic behind the government’s recent announcement of a plastic bag ban.

When announcing the policy, Prime Minister Ardern spoke of the multitude of letters she has received from school children advocating for a plastic bag ban. The scourge of plastic bags was purportedly the most talked about issue on the campaign trail last year. Many of those concerns came from – you guessed it – kids.

Now, there is nothing wrong with encouraging children to think about the social and environmental issues of the day. It might even be encouraged.

The problem is when the government then implements policy based on concern rather than proper evidence and analysis. And worse, when those policies greatly affect and diminish the lives of the people the policy is aimed at.

The Ministry for the Environment’s consultative document acknowledges that plastic bags only account for 0.01 percent of total waste in levied landfills.

‘Unclassified packaging’ – including but not limited to plastic bags – makes up 10.8 percent of ‘visible litter’, while takeaway food and drink packaging makes up an estimated 40.2 percent, and non-packaging litter makes up 42.4 per cent. Where is the assessment that banning plastic bags will entail more benefits than costs, compared to the options of banning other products?

The plastic bag flag must be flown. But advocacy for poorly evidenced lifestyle regulations does not stop there.

Sugar taxes are another idea that has captured the imaginations of many, despite little real-world evidence to suggest they will be effective.

A government minister wants New Zealanders’ access to online adult entertainment to be regulated.

And there are renewed calls for raising alcohol excise, despite the lack of evidence that taxes will deter heavy drinkers.

You are as likely to hear the term ‘cost-benefit analysis’ from these advocates as you are to hear ‘market-based solution’.

Unfortunately, there are already too many adults advocating for intrusive policies based on feelings rather than facts.

I do believe the children are our future. So let’s start by teaching them the importance of evidence-based policy, and not needlessly interfering in the lives of others.

The burger economy
Joel Hernandez | Policy Analyst |
Gluttony. The two weeks since Wellington on a Plate (WOAP) began have been glorious gluttony.

As Chief Burger Officer (CBO) of The New Zealand Initiative I was tasked with tasting and reviewing a sample of the multitude of burgers for Burger Wellington as well as investigate the burger economy.

Across all my years of WOAP and Burger Wellington, this year has been the best, not because of the overall quality of burgers I ate, but because of my experience and participation within the burger community and burger market.

Don’t get me wrong, the burgers this year have been sublime, it’s the first year I’ve given a burger a perfect 10/10. But what really got me this year was the power of the burger market, and how it can lead to optimal burger consumption when you have more information.

The greatest contributing factor to this emerging market has been the ‘Burger Wellington – WOAP’ Facebook page. Here, fellow burger lovers and connoisseurs can share reviews of their best and worst burgers during WOAP.

The result is a market moving towards perfect information and an excellent example of an economic market that knows more than the individuals that make it up.

Without this shared knowledge you would have a difficult task of navigating your way around the 180 options available to you.

Unfortunately, where there is a market there can also be market inefficiencies, especially when there’s a burger price ceiling.  

Both surprisingly and unsurprisingly, I experienced a burger shortage, or if you err on the side of the dramatic, a burger crisis. At the end of the first week I found myself waiting in line for the ‘Brewed to the Bone’ burger from Wilson Barbecue @ The Third Eye.

While in line, me and fellow burger connoisseurs gushed over our favourite burgers, as well as discouraged others from our worse ones.

We also pondered why, with a line this long, there wasn’t a black market for burgers appearing.

What was stopping some enterprising salesman at the front of the que from selling his burger to hungry individuals at the back of the line for a higher price?

Was the threat of punishment from fellow burger lovers too high, or was the burger so good that it wasn’t worth selling for any amount of money?

I just missed out, so I can’t tell you if the burger was worth it, all I could taste was the deadweight loss from missing out.

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