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Insights 37: 8 October 2021
Dominion Post: Eric Crampton on a vision of potential ways out of NZ's housing shortage
Podcast: Matt Burgess discusses feebate – the government’s reverse Robin Hood scheme
Research Note: Safer arrivals and the path to 2022 by Eric Crampton

And then, we hope, we all win
Dr Eric Crampton | Chief Economist |
There’s an old saying that makes the rounds now and again, with various attributions. “First they ignore you, then they laugh at you, then they fight you, then you win.”

I wonder how this one is going to end for Rako Science. I desperately hope it ends well. If it does not, it will be an utter travesty of justice.

The Initiative has long been keen on better Covid testing methods. They featured again in my report, released this week.

The University of Illinois’s SHIELD protocol saliva-based PCR testing rolled out very successfully in August 2020.

By late 2020, Rako Science had brought it here, under licence. By January, Rako was providing accurate and rapid PCR testing for private clients under contract, with a test validated to ISO15189 standard.

Rako had offered its testing services to the Ministry of Health in December 2020.

First they ignored Rako.

When Rako’s deployment spread through early 2021, the Director General of Health made erroneous statements, perhaps through simple mistake, at 1pm briefings about the accuracy of saliva-based PCR testing.

Then they laughed at Rako.

When it became increasingly obvious that it was impossible to scale up nasal swab-based testing in any practicable way, the Ministry of Health set a procurement process for saliva-based PCR testing. That process is the subject of a complaint by Winston Peters to the Auditor General.

And, for months, according to Rako, the Ministry ignored or denied requests from Rako to link Rako’s test results into the nationally integrated reporting system.

Then they fought Rako.

Last week, on 29 September, the Government introduced the COVID-19 Public Health Response Amendment Bill (No 2) into Parliament.

Rako found out about it on 5 October. Submissions close Monday 11 October.

Section 11 of the Bill provides the Government with the ability to requisition Rako’s materials and services, compensating the company at a deemed “market price”. Existing contracts with private hospitals for testing might need to be voided, come the requisition order.

On a charitable and optimistic interpretation, the Government has finally realised that it needs to contract for a massive amount of testing and does not want to have to negotiate with the provider of the only test validated to the appropriate ISO standard.

On a more frightening one, the Government is preparing to quasi-nationalise the provider they fought for so long.

Let’s hope Rako wins this one. If they don’t, we all lose.

Unemployment Insurance creates unemployment
Dr David Law | Senior Fellow |
Work is underway to design an unemployment insurance (UI) scheme for New Zealand. Such schemes are compulsory and require contributions from individuals.

We can expect more details later this year, but some things are safe to assume.

UI will provide much higher benefits than our current welfare system, without many of the same income or asset tests. Initial indications are that UI benefits might replace up to 80% of an individual’s past income if they lose their job.  

You may be wondering what impact UI might have on unemployment. Economists have put a lot of thought and effort into this question over many decades.

There are all kinds of different models to predict how people’s employment decisions are affected by either the introduction of or changes to unemployment insurance. The interesting thing is that they make very similar predictions.

UI can enhance the likelihood of unemployment through influencing the actions and decisions of both workers and employers. For example, a worker at a struggling firm may put less effort into looking for a new job, knowing that if the company fails, they will be eligible for unemployment benefits.

Furthermore, once people start claiming unemployment insurance, receiving benefits might lengthen the period they are unemployed. They might only start looking for a new job when their benefits are close to expire.

Empirical economists test the predictions of models and theories in the real world. Many studies have been undertaken.

A recent survey finds that time spent in unemployment increases with both the level of UI benefits and the maximum length of time they are available.

In France for example, a 2016 study looked at the impact of a significant increase in the maximum length of time that unemployment insurance could be received from 7 to 15 months. Unemployment increased by 2.5 months as a result of this.

The size of the unemployment insurance benefit has an even greater effect on unemployment. Across thirteen studies spanning 5 countries, a 10% increase in UI benefits resulted in a 5% increase in lost work.

While unemployment insurance sounds like a great idea on the face of it, and will undoubtedly benefit some, we need to be aware of its potential costs. Not just in dollars terms but also how it may affect our already well-functioning labour markets.

Some unexpected Covid insights
Roger Partridge | Chair |
As my hometown enters its 19th week of lockdown with no end in sight, it’s easy to feel a bit hard done by. But every pandemic has its silver lining. And in Covid’s case, I’ve gained knowledge and insights I never knew I needed. 

I can pronounce and spell nasopharyngeal. Hell, I can even use it in a sentence.

I’ve learned that the University of Otago breeds epidemiologists. I even know their names. And the colour of Michael Baker’s favourite shirt.

On the day the Prime Minister permitted me to have a BBQ with my son, I realised I felt grateful to her. (Stockholm syndrome, anyone?)

I’m now well versed in Alert Levels. First, there were Levels 1 to 4. Then Level 2.5. And just this week, I’ve learned that Alert Level 3 comes with infinite variations.

I’ve discovered that Immigration NZ doesn’t use computers. (Should that have been a surprise?)

And while I previously thought The Coromandel was only two hours from Auckland, I now understand it’s at least three months away. Conversely, I’ve discovered that Auckland’s road transport network was designed for traffic volumes at Alert Level 3.

I’ve learned that some people love dobbing in their neighbours (you know who you are), how much I hate wearing a suit, and how many different ways there are to walk through Cornwall Park.

I’ve discovered that New Zealand is now only a year behind the rest of the world. When I was growing up, it was lagging by two decades.

Last week I found out that gang members attending funerals are essential workers. (Who knew?) And this week I discovered that a public petition could break the hypnotic spell Brian Tamaki had cast over the police.

From strangely robotic TV ads, I’ve learned that vaccination is “one of the best ways to protect yourself from Covid-19”. I had thought vaccination was the only way. Silly me.

I’ve discovered that the Ministry of Health thinks “as soon as possible” means “sometime in the next 12 months” – and that we’re lucky the Ministry is not in charge of the pharmaceutical industry. Vaccinations would still be decades away.

While we’re on the Ministry of Health, I’ve worked out that the Director General speaking a few words of Te Reo each day is no substitute for developing a strategy to help Māori get vaccinated.

Finally, I’ve learned that winning the battle against Covid requires a good sense of direction. And that a roadmap without exit signs or travelling times is almost no use at all.

On The Record

Initiative Activities:
  • Research Note: Safer arrivals and the path to 2022 by Dr Eric Crampton
  • Podcast: Feebate – the government’s reverse Robin Hood scheme with Matt Burgess
  • Podcast: Dr Eric Crampton discusses his latest research note on Covid policy
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