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Insights 30: 20 August 2021
Newsroom: Political pull is critical for scarce MIQ rooms says Eric Crampton
NZ Herald: Oliver Hartwich on the "green paradox" in the govt's Centreport investment
Research Note: What happened on Black Monday? Carl Hansen, fmr Electricity Authority CEO

Get it done
Dr Eric Crampton | Chief Economist |
The best option in a bad state of the world is not going to be great. But taking it up is still the best response – while working to reduce the risk of it happening again.  

This week’s lockdown is necessary. And it is likely to be extended later this afternoon. Reported cases in Wellington make clear why the whole country was put under Level 4 for one case in Auckland.  

New Zealand does not have the vaccination rates allowing other options. Vaccination rates are even worse when we remember youths ineligible for the vaccine are still eligible to be infected and to infect others.  

The government’s announced mask mandate is also necessary. It reduces the risk. And the baseline risk from delta is substantial.  

All of it is frustrating.  

It appears the initial case likely came as a leak from MIQ but other sources took a bit of time to rule out. For far too long, the government failed to enforce testing requirements for arrivals from Australia, which could have easily resulted in an outbreak. 

Director General of Health Ashley Bloomfield said on Wednesday that the Ministry was starting talks with private saliva-testing providers for surge capacity. That is promising. Rapid, non-invasive, low-cost testing is critical, especially when testing a large number of contacts. Rapid test results narrow down contact chains far more quickly.  

But it should have been ready in February. Rako Science has been testing privately since January. The Covid case in Wellington, involving Te Papa, should have been a wake-up call. Our government's pettiness about dealing with a private provider put us all in jeopardy. 

With the number of reported locations of interest, contact tracing will be stretched to the breaking point. Despite repeated warnings, last week's Skegg report confirmed that capacity was still insufficient. 

Hospital capacity still needs to scale up but seems not to have been a priority. The Taxpayers Union noted that Covid funding went to things like jobs for nature ($1.2b), school lunch programmes ($516m), and arts grants ($374m).  

Our vaccination programme is one of the slowest in the developed world. We will need boosters next year, but the government refuses to order any, even though orders are handled on a first-come, first-served basis. 

The worst-case scenario in a bad world would be for frustration to boil over into a refusal to comply with harsh, but necessary, measures. 

Stay home. If you must go out, wear your mask.  

Do not put yourself and others at risk.  

But demand better.  

Electricity’s iron law
Matt Burgess | Senior Economist |
Events have rather overtaken last week’s blackout. The outage on the evening of 9 August left 35,000 households in the dark for up to two hours on the coldest night of the year. 

This week we published a paper on the blackout by Carl Hansen, the former Chief Executive of the Electricity Authority from 2010 to 2018. 

Hansen’s paper is full of insights. He steps through the blackout to identify the crucial moment which led to the outage. He explains how the electricity system deals with shortages. And he shows who is responsible for what, when outages occur. 

Hansen’s main message is that officials at the Electricity Authority must be allowed to do their job and investigate the outage. The facts must be established before any response from the government. 

The blackout was a stern reminder of electricity’s iron law: the lights must stay on. 

This law is one reason why most government interventions in electricity end up doing the opposite of what was intended. 

Take the offshore oil and gas exploration ban, for example. That might seem like a good way to reduce emissions, including from electricity generation. Until the next dry year, that is, when we find ourselves importing coal with twice the emissions per kilowatt of gas to keep the lights on. 

Last week’s blackout was probably not the direct result of any government policy. But policies like 100% renewable electricity and the gas exploration ban will eventually lead to more blackouts. 

In 2019, the government’s Interim Climate Change Committee estimated 100% renewables could produce 100 times more blackouts than business as usual. The policy will also raise power prices and effectively increase emissions. 

The government responded to this devastating critique from its own experts the only way it could. It brought forward the start date for 100% renewables from 2035 to 2030. 

Despite the blackout, New Zealand has a world-class electricity system. It is more green and more affordable than most other systems, and about as reliable. 

Blackouts are shocking because they have become so rare, a remarkable feat for a system which requires supply and demand to balance every second of every day. In an isolated country which cannot import electricity from across the border to secure supply. In a system which is more than 80% renewable. 

Our electricity system almost defies gravity, it is so good. Which makes last week’s blackout a momentary wobble on a magic carpet. Tread carefully, Minister. 

Read "What happened on Black Monday ? by Carl Hansen here.

Coke’s Ronaldo Problem?
Steen Videbeck | Research Fellow |

The Euro 2020 football tournament will be remembered for the trophy not coming home.

But before England fell agonisingly at the last hurdle, the headlines were focused on the actions of Portuguese football superstar, Cristiano Ronaldo.

The seemingly innocuous event happened far from the pitch. As Ronaldo sat down at a post-match press conference, he grabbed the two glass bottles of Coca-Cola on his right and carefully placed them out of shot. He then picked up a bottle of water and said “drink water” in Portuguese. The video of the ‘stunt’ quickly went viral.

Adding even more intrigue, reports started to emerge that $5.6 billion NZD had been wiped off Coke’s share price. News outlets saw a clear link between the two events. Headlines declaring ‘Cristiano Ronaldo snub wipes billions off Coca-Cola’s market value’ echoed around the world.

It was a dream story. The power of a pure idol versus a villainous sugar-water manufacturer. The media will have us believe savvy investors heard the words of the footballing god and quickly sold off Coke stocks fearing millions of fans bypassing the ice-cold beverage in the fridge for the lukewarm tap water in the hope of six pack abs and eternal youth. Yes, the 36-year-old world-famous sports star did what no sugar-tax could. But did he really?

On the face of it the story appears plausible - Ronaldo has a combined 500 million social media followers. But the answer is probably no. Unfortunately, it looks like the Guardian, Washington Post, and Stuff had all fallen for the old ‘correlation versus causation’ trap. The truth is we don’t know what would have happened to the share price if Ronaldo hadn’t removed the bottles. Finance researchers try to do this, with a technique called an event study, but they are notoriously difficult as share prices incorporate a lot of information.

The Guardian has since removed the syndicated article and issued a correction, admitting that “In fact, there had already been a fall accounting for a majority of the share price reduction before the press conference, and other factors may also have contributed to the drop.” However, their tweet with all its retweets is still up. A perfect example of incorrect headlines spreading like wildfire, while corrections dissipate in the wake of the fast-moving news cycle.

It would be fun if Ronaldo tried again. But this time he could take a fraction of his $500m USD fortune and short sell Coca-Cola - betting on the share price going down. Or perhaps he could branch out. Maybe throw a Hershey chocolate bar at a reporter and pick up an apple - short-selling Hershey stock before he did. I think he will find beating the market is a little bit more difficult than winning a game of football. Even for Ronaldo.

On The Record

Initiative Activities:
  • Research note: What happened on Black Monday? by Carl Hansen, former CEO of the NZ Electricity Authority
  • Podcast: What will rising inflation mean for first home buyers? by Dr David Law
All Things Considered
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