Tuesday, 29 December 2015

Tobacco Monopolist Auction

Competition is usually a good thing. It plays out in different ways depending on lots of factors but the general effects are that prices are suppressed and markets are expanded. Normally this is great, but there are exceptions. Sometimes societies prefer the opposite outcomes: higher prices and contracting markets.

That's one reason why tobacco is taxed heavily and why some advocate taxing sugary drinks. In the case of tobacco further effort is devoted to designing and enforcing other constraints, such as cabinets to hide the tobacco products in-store and plain packaging rules.

Here's another possibility: pass a law to create a statutory monopoly for tobacco products and then auction off the right to be the monopolist for a defined period of time (eg 5 - 10 years). I see it playing out like this.
  • Since only one firm is allowed to sell tobacco it will set monopoly prices which will burn off some demand by themselves.
  • Taxes can still be imposed on top of the monopoly prices, ideally Pigouvian taxes aimed at roughly pricing the externalities associated with smoking.
  • A large chunk of the monopoly profit will be captured by the state as tobacco companies compete to win the monopoly rights.
Comments welcome of course. I'm not aware of precedents for this approach. The most obvious objection is perhaps that it might breach international trading rules, but against this I'd note that all firms have the opportunity to be the monopolist. We'd still have competition, but it'd be competition for the market rather than in the market.






Saturday, 26 December 2015

The poor

The following view is quite popular over at the skeptics closed facebook group.
"...there is a massive human and financial cost to opposing GE technology. The privileged western white people who think no one should have the choice of GE food products is literally having a detrimental effect on people in developing nations. This anti-GE attitude is depriving at risk people of technology that can make a real difference. In my eyes you are part of the problem."
It's a very strong claim ("massive human and financial cost") that incorrectly suggests I oppose GE technology, that by doing so I'm having a detriment effect on people in developing nations, and that I'm therefore part of some undefined problem.

Despite a fair bit of prodding from me, no-one in the group has been so far willing to even outline a counterargument that they've considered and rejected before reaching this strong conclusion - pretty skeptical eh?

A good place to start is food security, on which topic the WHO defines three aspects 

  • Food availability: sufficient quantities of food available on a consistent basis.
  • Food access: having sufficient resources to obtain appropriate foods for a nutritious diet. 
  • Food use: appropriate use based on knowledge of basic nutrition and care, as well as adequate water and sanitation.
The WHO also tells us that "food security is a complex sustainable development issue, linked to health through malnutrition, but also to sustainable economic development, environment, and trade." So the WHO thinks that food security is not just about science, much less any particular scientific technology. I agree. The WHO goes on to say that "there is a great deal of debate around food security" and helpfully outlines some of the faultlines in this debate.

Another useful question is: what causes famine? The US trade-centric Borgen Project cites three causes: conflict, climate change and donor country politics. Oxfam points its finger at a "triple failure" of production, access and response. The role of politics also features in many analyses of particular famines such as those in Somalia, Ireland and China. If my pals in the skeptics even know of such analyses, they've found a way to set them aside and focus instead on people who (they think) oppose GE technology.

Even if we just look at food production the whole agricultural system is important, including the role of biodiversity and self sufficiency. Stringent intellectual property regimes for GE technologies have been criticised, as have restrictions on seed saving. Meanwhile, in first generation GE crops the over-use of glyphosate is creating resistant weeds and some farmers are turning away from them for economic reasons.

None of this is to suggest that developing countries should be denied "the choice of GM food products". My point is simply that it is very wrong indeed to accuse someone of harming people in developing countries simply because they're not cheering for GM loudly enough.

Sunday, 20 December 2015

Cynics and Skeptics

I've been chatting with the NZ skeptics lately on their closed facebook group because Jessika invited me.
She was referring to my musings on why skeptics would invite a GMO pimp to speak at their conference, but this post is about a different question Jess has raised, namely whether I am actually a skeptic or a cynic. It's a good question and I love good questions so I've had a wee think about the difference.

Cynicism
A couple of readily available definitions of cynicism beg more questions than they answer. For example, cynical beliefs are "beliefs that people are generally selfish and dishonest" and "cynicism is an attitude or state of mind characterized by a general distrust of others' motives".

These definitions are quite troubling for a somewhat orthodox economist like myself who starts by assuming people are selfish, mainly pursuing their own wants/needs, but doesn't automatically pair "selfish" with "dishonest". One can be very selfish without being even slightly dishonest. Similarly with distrust of motives: if I assume (for the purpose of initial analysis) that everyone is basically selfish then how does distrust even arise as an issue?

To which non-economists presumably say "Duh, get yourself up the PPE foodchain, to the philosophers. They're the ones who know the difference between skeptics and cynics."

Indeed they do. Philosophers know for example that the Cynics originated in ancient Greece and claim a Socratic lineage (that's the original cynic over there on the left: Diogenes). Their primary interests are ethical, but cynics conceive of ethics as a way of living rather than a doctrine. The cynics reckoned they had the short cut to virtue and believed that
"...virtue is a life lived in accord with nature. Nature offers the clearest indication of how to live the good life, which is characterized by reason, self-sufficiency, and freedom."
Freedom comes in three forms for cynics, one of which, parrhÄ“sia, is a protest oriented form of free speech that actively challenges some social norms. That bit does actually sound like me, as does the nature-focus, so maybe Jess is right and I am a cynic after all.

Skeptics
This group is waaay more complicated. Philosophers recognise four types of skepticism. One holds that God exists but we can't divine her thinking. I'd call them credulous skeptics since they believe in an imaginary friend. I doubt there are many pastafarians in this group.

A second group is incredibly doubtful that we can ever know anything at all. The brain-in-vat (BIV) hypothesis is relevant here: how can you be sure you're not just a brain in a vat, being fed ideas that make you think you've had actual real world experiences? This branch of skepticism would be pretty handy for a merchant of doubt.

Third are the academics skeptics who basically assume the role of judging the extent of our knowledge. This form of skepticism admits there may be merit in weighing up the evidence and would probably admit that public opinion is relevant to the weights for social choices.

The last category is contemporary skepticism which is said to rely on
an entirely intuitive and pre-theoretical understanding of our epistemic concepts. In this sense it has the form of a paradox - a series of wholly plausible and intuitive claims that, collectively, lead to an intellectually devastating conclusion. ...
Recent discussion of skepticism also treats the problem as having this paradoxical form, though the epistemic focus of the discussion is now not so much the lack of grounds for belief which counter the skeptic's grounds against belief, or the lack of certainty, but rather the lack of knowledge. Contemporary discussions of skepticism have thus tended to make the radical epistemological claim that we fail to know (hardly) anything.
So basically, skeptics argue that we don't know much at all because of the limits of knowledge. Some of the stuff we think we know is unsubstantiated, so we're wrong to think we know it.

Cynics on the other hand reckon they understand and/or have sufficient grounds to suspect that certain features of existing power structures and/or the ideas that support them are bullshit. So a classic conversation between cynic and skeptic might go something like this.

Cynic: this looks/sounds like bullshit
Skeptic: don't be so hasty, it might not be bullshit for all we really know

Based on my interactions so far with skeptics I think these classical roles swap and change according to the topic to the point where it's not clear whether a single person is actually a cynic or a skeptic.

For example, when it comes to alternative medicine the NZ skeptics are very cynical. Their starting position is that "this is bullshit" unless it has been scientifically been proven to be not bullshit. My own experience with using olive leaf extract to relieve the symptoms of shingles and my brother's use of celery seed to break down kidney stones (to take just two examples) leads me to a much more skeptical position: don't be so hasty, it might not be bullshit.

On GMOs and the perpetual warfare approach to agriculture however, the roles are reversed. I am not anti-GMO and consider it likely that genetic engineering will turn up some really useful stuff. I nevertheless recognise the huge risks in open release of GMOs and therefore call bullshit on people who argue for weaker safety regulations and on people who pimp GMO technology with emotional appeals.

In doing so I'm being pretty skeptical, arguing we don't know much and recognising that open release of living breeding GMOs has very uncertain effects. Oddly enough, this particular skepticism seems quite rare in the NZ skeptics group.

Sunday, 13 December 2015

Criminalising cartels

Last week the NZ government decided not to criminalise hard core cartels, against the international trend.

The responsible minister struggled to explain himself on the radio but fortunately for the cartels plenty of written commentary supported him. It came mainly from the big law firms, as Donal Curtin observed in a great post, but Oliver Hartwich and Paul Walker applauded from the sidelines. 

The cheer squad are all arguing the same thing: that criminalisation would deter pro-competitive conduct because business people would be uncertain about the rules, so they wouldn't compete hard for fear of breaching the rules, so the whole idea is self-defeating. Lew Evans relied entirely on the same line when I debated cartel criminalisation with him at a LEANZ event a few years ago. It is an exceptionally weak argument as explained below.

First though, since appeals to (dead economist) authority appear to carry some weight for these folk, now is a good time to hear from our old mate Adam Smith, also known as Mr Invisible Hand:
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
That was 1776 and I challenge anyone who currently hangs around with business people to deny they've ever heard such talk. Smart guy that Adam Smith.

Back to the main point though: the alleged uncertainty about the rules and the resulting chilling effect on competition itself.

Uncertainty and risk are different. Managing risk is usually fairly easy because markets sell insurance against risk. Sellers of insurance use statistical models to estimate the probability of events and set prices for insurance products using those probabilities.

Uncertainty is more like Rumsfeld's unknown unknowns. Continuing the insurance example, suppose you paid for property insurance in Christchurch for years and years before the earthquakes. You had a contract with an insurer and naturally assumed that it would be respected, but you got a nasty surprise because the world changed unexpectedly. That's uncertainty: pretty hard to deal with in advance.

Now let's stand in the shoes of our would-be cartelists for a minute so we can feel their uncertainty and their fear: jail time. Here's a potential boardroom conversation.

Alice: lets do this thing.
Brooke: isn't that a cartel? we could go to jail.
Cheryl: jail?! we don't want that. let's pull the plug now
Donna: but, but, but,... it could be very profitable, do we really want to just blow that off?
Elsie: hey, why don't we just apply for authorisation
All: whaaat?

Elsie is right. There is already a safety valve in New Zealand's competition law covering exactly this situation. Part 5 of the Commerce Act 1986 is all about how firms can get certainty about whether they're breaching competition law. In particular, section 58 establishes a regime whereby firms considering conduct that might breach laws against collusion between firms (s27) can proactively seek an authorisation or clearance on well understood grounds.

In my view the uncertainty argument is seriously wounded by the existence of a well-trodden path by which would-be cartelists can resolve their uncertainty, in advance.

Friday, 11 December 2015

The Greasy Cut Worm Mystery

We're growing maize for the first time this season, and have stumbled across a wee puzzle.

You may recall that biologically active soil is critical to us, and that we're pretty skeptical about the profitable industry that sells stuff to farmers and directs agriculture. So in buying maize seed we declined to spend $2600 to kill everything that could possibly threaten the maize crop. Instead we spent $520 on clover seed and hoped that nature would help us out.

To understand the greasy cutworm mystery though, we need to start at the beginning, which is buying the maize seed. First off, you don't just buy seed: you buy a whole package of inputs from the seed company and your local contractor. They work seamlessly together and help you see all the inputs.

Our vendors were surprised we'd consider direct drilling maize rather than full scale cultivation. Aversion to slicing up your soil structure and critters wasn't something they'd come across before.

Then we got to the poisons. Apparently there are three ways nature can screw over your maize crop: weeds, insects and microbiology. Most farmers buy add-on products that attack all three of these forms of life because that's all part of the perpetual war on nature being pimped by arms traders in the war.

Glyphosate is first up, to kill all the plants. Yeeaah, no chance we'll be using that, thanks. We've been getting great results here for five years renewing pastures without using any glyphosate. Plus there's all of that research on its terrible effects.

Next came the seed coating options with Poncho being the main focus. Uuum, no thanks, in fact we don't want any treatment at all please: just bare seed, ok?

That was back in May when we placed our order for 8ha of seed. Later, we decided that direct drilling wasn't a goer. Some of the paddocks we were using had been badly pugged and our fences weren't good enough to graze the others low enough. So we did cultivate, but without the glyphosate of course.

Then, as soon as we had a seedbed, we hit the paddocks with a slurry of lime, fish, humates, 10kg urea and 5kg of persian clover seed (pic left). The idea was to stimulate the biology, feed the soil directly, and sow a companion crop. We hope that the clover will dominate between the maize rows, grow high with the maize (adding volume to the silage) and pump nitrogen to it.

Sadly though, planting day was the hangover from the buzz of the clover slurry operation. Due to delays, the whole schedule was 2 weeks later than hoped and we were desperate to get it planted before imminent rain. We'd confirmed with the contractor to travel here, collected the seed from the local story and laid in enough of the critical fungal innoculants (trichoderma and mycorrhizae). I'd only innoculated a few bags of seed before I started wondering why it was pink, read the label and found that we'd been sent seed with the "standard fungicide". Rather than delay another week I carried on rolling the seed in fungi and wondering whether the "standard fungicide" would be a match for it. Pretty pissed off.

We complained vigorously of course. Turns out it's a systemic problem at Pioneer: when we say "bare seed" they hear "oh, just the standard fungicide please". That's why 'standard fungicide' is the last and greyest item on their website menu.

Anyway, the maize duly popped up and last week the local store manager called to say that she'd been touring the maize crops of the region and ours was unusual in not having (greasy) cutworm. The contractor said the same thing on Wednesday. Oh, and he's now also backing the clover to beat the weeds :)

So that's the mystery: how come we haven't got it and most others have?  Here are a few possible explanations that we've come up with (please suggest more in the comments):

  • luck;
  • cutworm avoiding high brix (healthy) plants; and 
  • Poncho killing off all the insects that are eating our greasy cutworm

We may be able to empirically test the first hypothesis (see below)

For option 2, we will test the brix later on. At this point the plants are too small to go ripping bits off them for testing brix. We'll also need brix from other crops for this test.

Regarding hypothesis three, imagine you are the farmer who has bought the Poncho and successfully annihilated all of the predators to the greasy cutworm, which then feasts on your maize. Do you feel lucky that the vendors can sell you something extra special to kill those little bastards or cheated that the Poncho didn't work?

By the way, Poncho is the brand name of a neonicotinoid and is therefore implicated in decimating the bee population.

That's all we know so far. Things I want to find out include

  • how many other crops in this region didn't use Poncho?
  • detailed breakdown of cutworm by use of Poncho in this region.

Fortunately the Pioneer rep is visiting next week. I'm sure she'll share this information with me.