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Insights 23: 28 June 2019
Dr Bryce Wilkinson explains on Newsroom why there is too much tosh about GDP versus wellbeing
Matt Burgess discusses on Newstalk ZB the ICCC report which suggests the 100% renewable target will be very expensive
Auckland event (supported by the Initiative): Jonathan Haidt - Moral Psychology in an Age of Outrage (tickets for purchase)

Changing minds
Dr Eric Crampton | Chief Economist |
Politicians have a lot of privileges, but one privilege that regular folks have over them is the freedom to change our minds.

In an interview with Meet the Press in 1970, economist Paul Samuelson explained his changing views on inflation to a journalist by saying, “Well when events change, I change my mind. What do you do?”

It is a hard problem for politicians because of a particularly strong ‘market failure’ in political markets: information asymmetries between voters and politicians.

If a politician changes her mind about a policy on which they campaigned, voters can have a hard time understanding why. Sometimes, it will be because the politicians received credible advice from officials that the policy was unworkable, ineffective or counterproductive. But sometimes it might be because the politicians have faced substantial interest group pressure blocking a beneficial policy.

In that case, how can the party’s supporters tell whether the position change was desirable or a sell-out? The task is even harder if, in opposition, the party had claimed that special interest influence prevented the government from adopting the opposition’s then-preferred policy.

It can be too easy for government to support bad policy against good advice, knowing the policy is rather less than ideal, because the cost of changing gears is too high – and a lot of work. Party supporters who have taken policy promises as emblems of their party’s approach have to be convinced why the change in policy provides better outcomes.

If it is hard to get out of a situation, then it is generally good advice to avoid getting into that position in the first place. Better resourcing of political parties’ policy units could help, and so too could an independent fiscal agency to cost out party promises before parties committed to them.

July may see two substantial and desirable policy changes.

A Kiwibuild refocus is in the offing, and is likely to shift the emphasis towards better regulatory and funding models to allow a more responsive construction sector.

And, if reports on the as-yet-unreleased draft report of the Interim Climate Change Committee are accurate, the government will have the opportunity to reconsider whether a 100% renewable electricity target is the most cost-effective way of reducing New Zealand’s greenhouse gas emissions.

Changing your mind is rarely easy, and is especially hard in politics. Politicians who follow Samuelson’s advice should rightly be lauded.

Test before you leap
Matt Burgess | Research Fellow |
If politics makes it hard to change a policy after it is announced, then testing policies before they are announced has potentially huge benefits.

Testing is particularly important in climate change policy as policies vary enormously in performance, and governments have a particularly hard time in backing away from environmental policies that do not work.

Simply avoiding counterproductive policies like 100% renewable electricity, for example, could double the performance of New Zealand’s emissions efforts.

If we are to get anywhere near our emissions targets, policies must be effective, fixed or killed. That includes the Emissions Trading Scheme.

I presented on these issues to the Electricity Retailers’ Association last week and was asked a very fair question: what is the evidence for the cost-effectiveness of carbon pricing through cap-and-trade systems?

The evidence to date is encouraging, though not yet overwhelming.

A 2015 journal article reviewed seven cap-and-trade systems covering various pollutants, including carbon dioxide, beginning with a 1982 scheme to reduce lead in gasoline.

Where the data allowed schemes to be assessed, cap-and-trade was found to achieve 15% to 90% cost savings compared with other regulation.

A 2018 article in Climate Policy cited studies suggesting the European ETS reduced emissions by between 2.5% and 13.8% across its three phases relative to estimates of a no-ETS baseline. Of course, tighter and more comprehensive caps could do more.

Other evidence, including summaries from the Intergovernmental Panel on Climate Change, are broadly favourable.

But the real world can make things hard to test. After the Global Financial Crisis in 2008, emissions in many countries fell, and carbon prices collapsed. Where emissions fell below regulated caps, cap-and-trade systems were no longer constraining emissions so their effectiveness could not be tested.

Global carbon prices have since recovered. New Zealand’s effective carbon price has trebled since 2016. New evidence will soon follow.

The bigger test for cap-and-trade is to discover how high the political ceiling for carbon pricing goes, and how to shift its long run position. That’s where permanent institutions like a Climate Change Commission can play a useful role.

A more immediate question is how the government will respond to a report by its Interim Climate Change Committee, which has spent the last year testing the government’s 100% renewables policy.

If media reports on that report are true, we may reap an environmental and economic windfall just by having that policy take a leap.

Finders, mostly not keepers
Natanael Rother | Research Fellow |
Coffee comes with a paradox. Night owls like me cannot simply begin to function before our restorative java, but getting the first cup takes some organising.

If you’re more prone to losing your wallet before that first coffee, then getting one in the first place can be a problem.

How best then to prepare? Carrying cash can make the order quicker, but might make it less likely that a lost wallet would be returned if the cash proves too tempting.

Or would it?

Recent research tracked whether lost wallets were more likely to be returned if they contained cash. Thirteen research assistants dropped 17,303 wallets in 355 cities across 40 countries. That’s around 1,331 wallets and 27 cities per tester, from July 2013 in Poland to December 2016 in Chile. If you like international travel, this could have been the right gig for you.

Or maybe not. One of the assistants was arrested in Kenya by military police for suspicious activity. Unfortunately, that meant not just wallets were dropped but also parts of Kenya as a research venue.

In New Zealand, 400 wallets were ‘lost’ over three weeks. The wallets all contained the same items. Three business cards with the wallet-holder’s name – here, the pseudonyms were Jack Taylor, Josua Brown and Liam Williams. The wallets also contained a key and a grocery list reminding the owner to pick up milk, bread, noodles, and bananas. Those with cash contained $20. All the wallets were transparent so the finders could inspect them without opening them.

Guess what?

Adding money increased the chances of getting the wallet back – globally. Here, cashless wallets made their way back to Jack, Josua or Liam around 60% of the time while cashed-up wallets returned 80% of the time. Only finders in Denmark and Sweden were more likely than Kiwis to return cashed-up wallets.

I will leave you to ponder the reasons for this paradox.

At least for me, the conclusion is simple. I will now always keep some clearly visible paper money in my wallet…

… and attached to my phone

… my keys

… my headphones

… the laptop charger

… my laptop

… and maybe even on the shoes I was looking for yesterday before realising I was already wearing them.

Do they still make pennyloafers? The spare change could come in handy for buying a coffee if I lose my wallet again.  

On The Record
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  • These are the countries that trust scientists the most—and the least.
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