Saturday, 14 October 2017

HSNO Regulation Economics

Rod Oram has highlighted two facts about New Zealand's EPA
  1. It is using a new method called "net benefit" to evaluating hazardous substances and new organisms; and
  2. There is no written description of the new method.
Gleaned from an interview with EPA Chief Scientist Jacqueline Rowarth, Oram tells us that the net benefit method entails...
weighing up the financial, health and environmental costs of a substance against its economic benefits. For example, Rowarth says, Roundup, and other forms are glyphosate, are highly beneficial to farmers because they reduce weeds and significantly increase crop yields.“It’s a very difficult calculation,” she says. However much economics goes into the analysis, “ultimately there is a final point that becomes subjective” about wider societal values.
Exactly how does that work? I asked her. “We’re trying to formalise that because more people are challenging decisions. 
Does the EPA have a guide to this methodology? “I’ve been exploring this in press articles…and a document is being prepared internally on this.”
So basically they're making it up as they go along. Instead of sticking with the precautionary principle, the EPA seems to weighing up things without measuring them first.

Worse, there appears to be no international guidance on how to do this. On the contrary, according to Rowarth...
The EPA is a world leader for its work on “net benefit” analysis.... “Our scientists are being invited abroad” to give presentations on the methodology,
To me, this sounds like another round of the "light-handed regulation" New Zealand used for privatised monopolies in the 1990s. Pushed by extremist economists, this ill-fated idea was also hailed as world leading. Not one country followed though, so we weren't so much leading the world as heading off down a blind alley. Eventually, New Zealand endured a very painful re-calibration of regulatory expectations, though not before the privateers locked-in $2-3bn of un-earned capital gains in the electricity distribution sector alone.

As part of the re-calibration, the Commerce Commission as regulator was instructed by Parliament to develop "input methodologies" setting out in detail how regulation was going to be applied, to consult on these methods and for its decisions to be subject to a specially-enabled High Court review. All of this effort was designed to avoid regulating "on the fly" as the EPA now apparently does.

So the omens are not good. But what are the economic arguments against the EPA's novel method? There are two: it is conceptually wrong; and it is fraught with severe practical challenges.

The Concept
Back in the late 90s I visited a colleague who was an economics professor at Stanford and learned that a common description of a hopeless student there was "not clear on the concept".  In this EPA matter, the concept is the precautionary principle which goes like this:
if an action or policy has a suspected risk of causing severe harm to the public domain (affecting general health or the environment globally), the action should not be taken in the absence of scientific near-certainty about its safety
Notice that the level of risk is not specified and could have a low, even a very low probability. What matters is that "severe harm" might ensue. Examples of potential severe harm in the HSNO context include widespread disruption of human endocrine systems, depression and other forms of mental illness, and unintended consequences from the outdoor release of GMOs. These all count as "severe harm". Under the precautionary principle the onus would be on those seeking approval to prove "scientific near certainty".

One economic rationale for this approach is that disasters are best avoided if possible. Disaster insurance might possibly help, but ask the good people of Christchurch if they feel properly compensated. Or try to buy insurance against the expected mega-quake from the Hikurangi Subduction Zone

In the HSNO context though, the potential disasters are not natural in the sense of being beyond human influence. Far from it, any disasters will be the result of decisions made by humans at the EPA to approve the release of hazardous substances and/or new organisms. We can't insure against these disasters, so the EPA should not expose us to them.

The effect of the precautionary approach is to place an onus of proof on those wanting approval for a HSNO and to set a high bar (near certainty) for that proof. This is fully consistent with the real options literature, which requires that the timing of irreversible decisions made under uncertain conditions be delayed until the upside benefits are well in excess of the potential costs.

By contrast, the net benefit approach is based on expected values. If the EPA's probability-weighted assessment is that benefits exceed costs, then it will release the HSNO.

Here's a way to think of the difference between these approaches. Imagine you were in charge of Christchurch back in the day, and you had to decide whether to allow houses to be built on liquifaction-prone land. The precautionary principle would direct you to avoid exposing people to disaster, so you'd decline the request, markets would adjust and houses would be built somewhere else.

The property developers who bought swampy land cheap and now want to build houses will be advocating the net benefit approach. They'll have plausible-sounding economists and power-points for Africa, and they'll be regaling you with all the massive benefits of seeing things their way. If you ask about the risk of disaster, they'll assign it a tiny probability so that an expected (probability-weighted) value analysis aligns with their request, while gently suggesting that perhaps you shouldn't be such an old worry wart. 

So, yes, there is a huge difference and no, the net benefit approach does not properly accommodate disaster risk. That's why we use the precautionary approach.

Incidentally, the precautionary principle is baked into the HSNO Act. The purpose of the Act (s4) is to
protect the environment, and the health and safety of people and communities, by preventing or managing the adverse effects of hazardous substances and new organisms
To me, if you 'protect' a thing or person you would ensure they were not exposed to even a small risk of disaster. Parents of young children are usually clear on this concept. 

Section 7 of the HSNO Act is titled "precautionary approach" and requires that
All persons exercising functions, powers, and duties under this Act ... shall take into account the need for caution in managing adverse effects where there is scientific and technical uncertainty about those effects.
Finally, Schedule 1AA of the Act is the Stockholm Convention on Persistent Organic Pollutants which is explicitly based on the precautionary principle.

Practicalities of Net Benefit Approach
You'll have gleaned by now that I think the EPA is barking up a blind alley, probably the one where Jacqueline Rowarth buries all the strawmen she keeps murdering in the popular press. For the record though, I should just finish with a few questions for the EPA in the event that it proceeds down this track. I'll focus on glyphosate for now....

1. How do you measure annual and cumulative exposure to glyphosate for New Zealanders?
2. What probability do you assign to a New Zealander contracting cancer from exposure to glyphosate?
3. How did you estimate that probability?
4. In your model, what is the cost of a New Zealander contracting cancer?


Saturday, 7 October 2017

Strike Three: Rowarth has to walk

We all make mistakes and some people are psychologically incapable of admitting or apologising for them. This personality trait is probably detrimental to a scientist's career, but need not be fatal if the mistakes are few, minor and uncorrelated.

None of these defenses is available to Jacqueline Rowarth, who is still the Chief Scientist at NZ's Environmental Protection Agency despite committing three significant and correlated errors in less than a year, in the opinion of other scientists.

Strike One
Rowarth's appointment was reported on 10 August 2016 and she took up her role at the end of October 2016. Even before getting her feet under the desk, on 3 October 2016, she claimed that the Waikato River was one of the five cleanest rivers in the world. The Freshwater Scientists' Society schooled her publicly, noting her reliance on poor quality data that was also out-of-date. The Society's president Marc Schallenberg also commented on a later statement from Rowarth:
Ms Rowarth's later comments in an letter to NZ Farmer that E Coli in the river would pass the European Union's swimability test were also wrong, he said. He said she used median values and not maximum values to assess the data.
To my knowledge, these embarrassing errors have never been acknowledged or corrected by Rowarth. For it's part, the EPA chose to focus on timing details, saying:
"it would be inappropriate...to comment on statements she made while employed in a previous role".
Strike Two
On 20 April 2017, Rowarth and Doug Edmeades participated in a radio discussion about whether freshwater scientist Mike Joy is an extremist. Edmeades had previously supported Rowarth's false statements about the quality of the Waikato River. This discussion prompted the NZ Association of Scientists to write to its members with a "reminder of the rules" concerning public debates between scientists. Association President Craig Stevens was quoted as follows:
"In this particular area we're talking about freshwater and land use. "It's an issue that's incredibly important for New Zealand from a number of perspectives. "We were concerned that some of this was proceeding in the media in a way that was not helpful for getting the facts across."
Again, Rowarth declined to comment.

Strike Three
One of the roles of the EPA is to regulate pesticides. It is well known that the International Agency for Research on Cancer (IARC) has decided that glyphosate is probably carcinogenic. Note that this is raw glyphosate, not the stronger formulations sold to farmers in New Zealand.

The EPA recognises IARC as “one of the two respected sources for information on carcinogenicity” but decided to not to accept its determination on glyphosate, commissioning an alternative review of the same evidence from a single NZ scientist, Wayne Temple, who as luck would have it came to the opposite view, that "glyphosate is unlikely to be genotoxic or carcinogenic to humans".

Rowarth has been working hard to support the EPA's position but running into serious scientific criticism including this strong piece from sciblogs, which itself leans on background work by former Green MP Steffan Browning and independent researcher Jodie Bruning. Now the issue has finally hit the mainstream media with this Rod Oram report, noting among other howlers that the Ministry for the Environment is reviewing the whole EPA, quoting Sir Peter Gluckman as saying "We don’t fully understand what they [the EPA] do" , and that Rowarth is not aware her employing agency is under review.*

I will have more to say soon about the EPA's "net benefit" approach to pesticide regulation, on which Rowarth is relying in the glyphosate matter.

Meantime, these three episodes make it painfully clear that Rowath is a national embarrassment to a country that markets itself as 100% Pure, where most citizens genuinely care about our environment and many are actively striving to live up to the slogan. She has to go.

*Update 8/10/17: It seems that Peter Gluckman's comments about a review were mis-interpreted: MfE is constantly responsible for monitoring the EPA but no special review is underway.

Thursday, 5 October 2017

DairyNZ Director Elections

DairyNZ is a statutory monopoly, empowered by Parliament to levy all dairy farmers and spend the cash on "industry good" work, including research. The directors of DairyNZ are responsible to levy-payers. We trust them to direct the management of DairyNZ in spending the funds we provide. So the election of new directors, closing at noon on 24 October 2017, really matters if you care about the scientific direction of this industry.

In 2015, DairyNZ offered an online Q&A facility where we could post questions for director candidates to answer, out in the open where everyone could see. For frankly flaky reasons, that facility is no longer enabled, though it still sits there behind the DairyNZ website.

I used the online facility in 2015 to ask candidates about their views on funding research into biological farming, written up here. Responses ranged from supportive (2 candidates) through demanding proof the research would have a positive outcome (3) and buck-passing to other agencies (4), all the way to the bottom where 1 guy flatly denied there is anything new to learn.

That last guy, the denialist, was not just elected but made chairman of the board of DairyNZ. Michael Spaans was also a Fonterra director, but in January 2017 he "stepped down from the boards of Fonterra and DairyNZ, citing ill-health". He seems to have got better though, enough to be back in the driving seat at DairyNZ anyway.

Against that background I emailed the six director candidates for this election, pointing them to this post about some very cool nitrogen-fixing bacteria and posing the same questions used in 2015:
Despite the critical role of soil in pasture-based dairying, DairyNZ has no research efforts looking at how to harness/farm the biological life in soils. If elected, would you advocate for such research? Why or why not?
Four of the six candidates responded, the omissions were Cole Groves and Jim van der Poel.

Ian Brown went for the "prove it" camp, saying that he would
need to see a case put forward to understand the benefits that may accrue to dairy farmers and the industry as a whole
What Ian is really saying here is "bring me a company that expects to make cash out of this idea". As if that's the only test of potentially valuable industry good research. It doesn't occur to Ian that there could be different ways of doing things that are (a) much better for farmers but (b) won't increase profits for any existing suppliers to dairy farmers.

Colin Glass didn't address the questions but he did send me a long email that sounded like his stump speech.

Grant Coombes did much better. He'd read the background material, endorsed a couple of the key points and committed to advocating for "a larger % spend on all R&D including soil science". That's not what I was hoping for as an outcome to be honest. I have no opinion on whether budgets should be shifted from outreach etc to R&D: what I'm asking for some investment into the biological aspects of soil science.

The stand-out winner was Mark Slee, who I later discovered already has a record of achievement in sustainable dairying. Despite this background Mark said "Biological farming is not an area I have explored but I’m keeping an open [mind] on all possibilities moving forward". Nor was this just lip service: Mark also said he is attending the field day at Brian Clearwater's farm near Peel Forest on 12th October to get "better informed about biological farming practices". Then he did some more digging and emailed the next day with some slide packs about the Backtrack farm where there is a matched trial underway, supported by DairyNZ, that apparently has a biological focus.

Mark gets my vote and I hope he'll get one of yours too. He's not an advocate for biological farming, far from it. But he's open-minded enough to seriously consider it, which is all you can ask for in a research director.

I'll admit that as a practitioner I'm nervous about how Mark will react to the field day at Brian's place. A lot of what we do is a direct challenge to standard agronomy, which is why the vast bulk of scientific agronomy doesn't even consider these methods. That makes them under-investigated, not inferior or fatally flawed, as you might gather from reading certain pundits in the rural press. 

Science works on falsification. Unless and until DairyNZ can prove there is no value in trying to foster soil biological life, it should be actively investigating the potential benefits.

Wednesday, 27 September 2017

On the selling of markets

Markets in everything is a recurring theme on the popular economics blog Marginal Revolution (sample). The underlying idea is that markets arise naturally to co-ordinate voluntary exchange and it's often best for governments to just keep out of the way so this can happen.

Sometimes government is already "in the way" though, and markets won't arise without help. The NZ wholesale electricity market is a good example. With government assistance, this market opened in 1996. It was entirely unregulated until 2003 when a regulator was installed after persistent failure by the industry to agree on its own self-governing rules.

The more interesting cases are where governments want to coerce private agents for broader economic reasons. Greenhouse gas emissions are a good example. New Zealand has made commitments internationally and the government is on the hook financially for those commitments. There is a strong economic case for obliging emitters within New Zealand to pay their own way, rather than have the taxpayer pick up the tab, which is effectively a subsidy. Pricing doesn't just force polluters to pay though, it also underpins the business case for investing in mitigation.

It's well known that there are two basic ways of pricing emissions: a tax, which regulates the price; or a cap which regulates the quantity and promotes trading. Suzi Kerr has recently outlined the relative merits of these options, focusing (rightly in my view) on the promotion of certainty and concluding that "if you want more certainty, work for stronger political consensus and stable policy". Suzi notes that the price of carbon has been undermined by politicans in Australia and New Zealand, despite there being a tax in Australia and a trading scheme (ETS) in New Zealand. 

These are terrible outcomes for both countries because they strand mitigation investments and make future investors fear the same treatment. In what follows, I'm going to assume we've solved the political problem somehow, for example by using legislation that seeks to bind future governments such as Reserve Bank Act. Now, should we prefer a trading scheme or a tax? Well, if price certainty is what we're after the answer is clearly a tax.

That's the wrong answer though if you have an ideological aversion to taxes. This is why, when other forms of pollution become public issues, the NZ Initiative needs to push a different line. Thus, the water tax proposed by Labour is characterised as "guessing at prices" as a preface to discussing trading schemes. Eric Crampton recently outlined such a scheme...
Set a catchment-level cap on water extraction so that the aquifer is sustainable, set a minimum river flow so that the river is a river, then run the kind of trading regime that Raffensperger and Milke designed.
This is not an alternative to anything relevant, including the status quo. As I outlined previously, we already have catchment level caps in place along with an obligation on the relevant councils to eliminate over-allocations. Moreover, there is already a secondary market for irrigation water in Canterbury (the current price is around 80c/cubic metre) and the next round of plans at other councils is already enabling such markets elsewhere. Feel free to deride the Canterbury market as lacking depth and liquidity though: these are definitely over-the-counter trades rather than the stuff of an economist's wet dream, but that's because of limited demand for trades. Until recently, exactly the same criticism would have applied to the wholesale market for natural gas in New Zealand, and it can still be levelled at wholesale hedge contract trading of electricity in New Zealand. Yes there can be markets in everything, but only if/when/where enough people want to trade.

Neither is Eric's plan an alternative to a water tax of the type promoted by Labour because it yields no revenue for cleaning up waterways. Which is probably the point. If your aim is less government, you'll instinctively resist things that would give them more money.

Now let's get below the proposed water tax to the underlying environmental quality issues. Take nitrate pollution as an example, though the concepts apply equally well to pesticides and other things that pollute the physical commons. We have two problems here: one is ongoing pollution and the other is cleaning up past pollution, lots of which is yet to become obvious.

The more market approach is to cap the quantity of something, thereby creating the scarcity needed for a market to function. Obvious problems include: whether to cap inputs (eg urea) or outputs (eg N leaching as estimated by the model urea sellers developed and own); how exactly to decide the number of free units to gift to existing farmers (a lobbyist's paradise, right there); and how to pay for the clean up. Eric will be along shortly to talk you through these details.

The tax approach is to estimate the environmental cost of nitrate pollution and set this as a tax. I'd favour taxing the input because it's less costly and because I don't trust the model used to predict leaching. The tax revenue can then be used for clean-up.

If you've been following along, you'll have noticed that trading schemes have one political advantage over taxes: you can pay off polluters with free credits. Not fully, because you do need some scarcity to force people into your market, but the squeaky wheels can be greased. Taxes will have a greater impact on behaviour and therefore meet stronger resistance. This is why it makes sense to use a glide-path with low initial rates increasing over time to allow people to adjust, much as suggested by Lance Wiggs.

Friday, 22 September 2017

Helping Plants Fix Nitrogen

There's an interesting story in the latest Modern Farmer about work by Bayer that seeks to persuade ordinary plants to fix nitrogen from the atmosphere, the same trick legumes do in a joint-venture with Rhizobia. It's well worth a read if you're into sustainable farming.

For me, this story underlines two sad facts. If you'll bear with me while I describe them, I'll reward you at the end with a positive suggestion.

The first sad fact is that agricultural science has been fully corrupted by private money. When DairyNZ spends our levy money on research it frequently partners with the private sector. This biases the research away from general purpose technologies in favour of things that can be more narrowly commercialised. For example, instead of seeking to understand below-ground farming by examining options for fostering various bacteria, fungi and protozoans, we get "precision agriculture" research aimed at getting the most value out of bagged urea. This is partly because the urea vendors want to paint themselves as good guys (while still selling lots of urea) and partly because other folks are keen on selling the sensors and other equipment you'll need for precision agriculture.

Mainly though, its because DairyNZ can't imagine that biological farming as practiced in New Zealand could be worth investigating. The notion that promoting symbiosis between plant roots and living organisms in the soil could reduce the need for bagged fertiliser seems offensive on some visceral level. Have a read of what happened when I asked DairyNZ folks about this a couple of years ago.

Second, and equally sad, we're going to have to either figure this out for ourselves or wait until our kind input suppliers have figured out how to turn a dollar out of it. We've known for some time that the big agchem companies are quietly working away on biological methods, knowing of course that today's input-intensive agriculture is looking less and less sustainable as time goes on. The Bayer project reported on by Modern Farmer is further evidence of this plan.

It's plausible to argue that it doesn't really matter too much if this new frontier of farming ends up being sold to us by Bayer and their mates. I'm less sanguine, partly because this approach will probably take much longer than a collective research effort aimed at creating a general purpose technology. The reason is that Bayer don't just need to make it work: they also need to make it work in a way that delivers revenue to Bayer. By contrast, if we were doing the actual public good research DairyNZ is supposed to be doing, the revenue consequences would be irrelevant. A larger set of methods would be available for consideration so it'd be easier & quicker to find one that worked.

OK. So much for the misery. Here's the bright spot: you can try exactly this same trick at home. Bayer understandably didn't disclose the bacteria it is working with, but there's a strong possibility it'll be Azotobacter chroococcum, first discovered in 1901. Read about this wonderful bacteria here. We've been buying it in bags, mixing it in with our foliar sprays, and using it to inoculate seeds before sowing. It seems intuitively plausible that sustainable populations of this bacteria could become established under suitable soil conditions, at which point there would be no need for further spreading.

Thursday, 21 September 2017

Bullshitters Paradise

It was always on the cards that deceit would play a big role in New Zealand's election, having been so successful in the 2016 Brexit referendum and US elections. Britain's experience showed us that egregious bullshit can be very effective, using this bus to pretend that the public health system would be massively better off under Brexit.



Around the same time, in the US, highly-targeted deceit services were being sold to the Russians by Facebook, and the establishment candidate was making a ridiculous claim that his administration would build a southern border wall paid for by Mexico.

Both of these claims blur the Frankfurt boundary between bullshit and lies. Even if they start out as bullshit, once the questions start being asked the lies emerge.

I once worked with an economist who built an expert witness business this way. He took it as a challenge to support outrageous ideas for well-heeled clients. These reports would usually feature a bold claim, backed by plausible rhetoric, lots of literature citations and plenty of tables and charts: weighty. Questioned, he'd first stick to his guns until things got too intense, at which point a different second order claim would be advanced as if it were support for the first. Nail him on that one and you'll get a third order claim, and so on. This strategy often works, so he got lots of work. Eventually he got caught out under a cross-examiner's blowtorch and called out in the judge's decision as an advocate rather than an independent expert: end of career.

Political process are much less intense. Bullshit can morph into lies without being exposed because there is no judge solely charged with determining the truth. The news media does its best, but is ill-equipped to cope with the flood of bullshit and indeed relies for its content on access to the bullshitters.

This is why we are still seeing big lies put about, long after they've been thoroughly debunked, such as:

  • Britain's 350m pounds/week for the NHS;
  • Trump's stupid border wall & its funding by Mexico; and closer to home
  • Steven Joyce's mythical $11.7bn.

Let's give the Minister of Finance the benefit of the doubt and assume that he made an honest mistake when claiming Labour had an $11.7bn hole in its fiscal plan. It was a bold claim and he got it wrong according to every independent economist willing to comment publicly. He got confused about what was in the different budget lines. Mistakes happen: we've all made them. No big deal.

Except if you're unwilling or unable to admit it, like the economist described above. Then you head off down the rabbit holes looking for salvation in second- and third- order arguments. Which is where we are now, on Mr Joyce's account.

Last night, the PM repeated the $11.7bn lie on national television and this morning, the blogging wing of the ruling party posted this report based on work by some un-named economist, who reckons there is still $10.7bn missing.

Having looked at the figures, I can see why this economist is so shy. They've somehow forgotten that the three big line items in government spending (welfare, health + education), which account for 60% of all government spending, are already inflation indexed in Labour's fiscal plan. The allowance required to cover "additional line item spending" is therefore $4.2bn, not $23.5bn. Instead of having a shortfall of 10.7bn, Labour has headroom of $8.6bn.

Are you mesmerised yet? Because that's the aim: you're supposed to get so sick + tired of all the detailed argument that you declare a pox on the whole issue while retaining a suspicion that maybe Labour can't actually do basic arithmetic.

Welcome to the bullshitters paradise.

Thursday, 7 September 2017

Meet our cows

Due to the popular request of one dude on Twitter, this post is about our cows.

We inherited a mixed herd when we bought this place: quite a few Jerseys (the brown ones), a smaller number of black & white Friesan, with the bulk of the herd being cross-bred. We're not too keen on the Fresians because our farm is 25% hills and we milk once-a-day. Fresians are generally larger, less agile on hills and while they produce more milk it contains a smaller percentage of milk solids, which is what we get paid for. Strong udders are essential for once-a-day and our thinking is that it's better if cows are carrying around milk with a higher solids percentage.

The life cycle of a dairy cow begins in the springer paddock, which is where all of the soon-to-calve cows live. Here's a newborn calf taking its first drink from its mother.


They are alone because all the other cows are eating the fresh grass behind the camera that I'd just opened up. Mum was more concerned to complete the birthing process than get a feed of the new grass, so she stayed there for a while, eating the afterbirth and licking her calf clean.

Sometimes it's difficult to match up calves with their mothers. A version of the aunty problem is shown below: they're all interested in the calf but only one is the mother.



Once we've decided on the mother calf pairings, we give the calf a numbered necklace and record the cow & calf numbers together.

Then we leave them alone for at least 24hrs and often 2 or 3 days, contrary to the advice of DairyNZ who say calves should be collected twice a day and fed colostrum to ensure they get those vital mother-child antibodies. We prefer to trust nature. We do monitor things and ointervene if we see this is not happening. Some cows are shocking mothers, and some calves go wandering.

There is no good time to separate a calf from its mother. Beef farmers leave the calves on for several months, and both animals suffer when the resulting strong bond is broken. A couple of seasons ago we left all the calves on their mothers for a month or more and the pain of separation after that was just awful to behold. Now we take the calf when it is 1-3 days old. The high-bred girls stay with us here, and everything else either goes to slaughter or to other people who grow them on for later slaughter.

Either way, all calves come into the shed where we give them dry bedding and milk twice a day. They generally take to the milk feeder pretty well, like these little ones...


Roll forward one year, and those little tykes will look like this.


These are some of our replacement heifers, born last spring and rapidly turning into full sized cows. We'll put some young bulls in with them in mid-October. All going well, by this time next year they'll have calved and be supplying milk. For now though, we're trying to keep these girls growing strongly despite the inevitable feed pinch in late winter / early spring. We make a lot of good hay in the summer and are feeding it to these girls right now: that steel contraption in the foreground is a bale feeder attached to the back of a tractor.

After cows have calved they go into the colostrum mob. Their milk can't be put into the vat for collection/sale so we use it to feed calves. These colostrum mob cows have eaten all their grass for the day and are now scoffing grass silage.

We keep a close eye on the colostrum mob. Eight days after they've calved we start testing their milk for any evidence of mastitis. As soon as a cow's milk is clear, she gets drafted out and put in with the main milking mob. This mob (below) gets the best of everything: plenty of grass, silage top-ups as required, mineral licks, ad-lib salt.


I was hoping to post some pics of my favourites, but that'll have to wait for another day.




Monday, 28 August 2017

The parentage of scandals

While we wait to learn whether the mother of all scandals will in fact break soon, or be tied up with legal threats forever, here's a genuine scandal with clearly identified parents.

Its a familiar old game: private interests 'work with' the government and end up being subsidised. I once heard David Caygill describe his first meeting with Fletchers after he became Minister of Energy following the 1984 election. Fletchers came in talking about the potential for exploiting iron sands. Caygill said something like, "sounds great, but why are you telling me?". The answer was they wanted the government to underwrite the project. That's how it used to happen under Muldoon, and if the "let us help you buy Xero shares" scandal is any guide, we're right back in that same place now. Except with new opportunities.

Like controlling the flow of research and information, as New Zealand's fertiliser duopolists, Ballance and Ravensdown, appear to be doing through Overseer.

Overseer is a critical tool for environmental regulation tool in NZ, relied on by all and sundry to predict nitrate leaching based on farm level inputs, among other things. Check out the "about us" section and note the following claim at the top of the page:
The nutrient budgeting tool OVERSEER is the result of a long history of collaboration between the government, the fertiliser industry and agricultural scientists. 
OVERSEER is jointly owned in equal shares by the Ministry for Primary Industries (MPI)AgResearch Limited and the Fertiliser Association of New Zealand (FANZ).

Lots of public money has gone into developing this software as admitted in the first sentence. The second sentence is false. I know this because I scrolled down below the nice photo to read:
OVERSEER Limited was established in April 2016, to create a sustainable business that will ensure the long-term viability of OVERSEER to meet growing user needs. 
As a company, we work towards providing a scientifically robust tool that enables nutrient flows within the farm to be better understood. We recognise the important role we play in New Zealand primary industries and are focused on ensuring the tool meets users needs.
A quick visit to the Companies Office shows that Overseer Ltd is 99.93% owned by New Zealand Phosphate Company Limited, which is owned 50:50 by Ballance and Ravensdown.

AgResearch owns the remaining .07% of Overseer, MPI owns nothing. So the primary tool for environmental regulation of agriculture is fully controlled by a fertliser duopoly.

Which is why, under this structure, Overseer will not properly evaluate biological or regenerative farming systems: these systems threaten the earnings of the fertiliser companies, who control the research agenda.

Tuesday, 15 August 2017

Labour's water policy

Previously on this blog, I used the Greens policy proposal of a 10c/litre royalty on water bottlers as an excuse to witter on about how water is currently managed and describe some of the relevant economics.

Labour has now released its water policy, headlined "clean rivers for future generations". It talks about the need for "more sophisticated farming methods that rely less on ever higher stocking levels and are more focused on value-add". I strongly support these objectives.

The bit attracting most attention though is that "a royalty on commercial consumption of water will assist with the cost of keeping our water clean". Farmers are grumpy, as you can imagine. One Canterbury dairy farmer estimated that at 1c/cubic metre, his water royalty for the year would be $26,000. To put that in perspective, he is currently paying $90,000 per annum for the electricity to pump his irrigation water.

Anyway, as a farmer and an economist, I'm also a bit grumpy. Not because I object to water royalties as such, but because I think the proposed policy, as it affects agriculture, misses the mark in an important way.

A future Labour-led government would want to spend public money cleaning up waterways, and there is a logic in raising the funds for that clean-up from polluters. However cleaning-up is not a long-term solution if the polluters continue their current behaviour, and the policy is clear that it seeks different (more sophisticated) farming methods.

If we want to change farmer behaviour, new environmental taxes on farming should be designed to be (more or less) equal to the cost farmers impose on society as a whole. This is known as a Pigouvian tax. It'd be extremely difficult to argue against taxes set on this basis, because they are simply telling farmers: pay your own bills. Notice that Labour is already almost selling its policy on this basis ("assist with the cost of keeping water clean").

My concern is that water royalties are a poor proxy for the environmental cost of intensive farming (including horticulture, cropping, orchards etc). Dairying is a huge water user but that doesn't really matter in places where there is plenty of water. Nitrates are the main problem with intensive dairying, so that is what should be taxed.

Some examples might help understand this point.

  • In our area, we are blessed with pretty decent rainfall (too much right now!) so irrigation is used far less than in Canterbury. Many of our neighbours are serious urea addicts though, because that's how high stocking rates & production are maintained in the standard dairying model. 
  • Wine growers in Marlborough have very modest water needs compared with dairying. Pesticides and fertilisers used by wine growers are having a serious impact on the health of local waterways.


Tuesday, 25 July 2017

Irony overload at the NBR

Please have read of this piece, posted on the NBR website yesterday (I believe it's ungated, but if not NBR has a free 30day trial).

The article starts & finishes with quotes from Peter Gluckman and unobjectionable statements about the role of science in a post-truth world. You'd think this would be fertile ground for the author, who is EPA's chief scientist.

But between those bookends, what do we have?
  • an argument that neonicotinoids do not harm bees, supported by information supplied by
    • USA beekeeper, blogger and information analyst Randy Oliver.
That's it. No reference to any of the recent scientific or regulatory information about neonicotinoids which you might think would be relevant. [several irrelevant straw-persons are brutally murdered though]

This might be excusable if it were from a junior reporter who stumbled across a single source, though even then I'd have expected an editor to notice. No such excuses for the actual author though, who is the EPA's chief scientist. Jacqueline Rowarth must be aware of the science that weighs against Mr Randy Oliver's opinion but chose to not disclose any of that, much less to discuss the evidence herself, or even point us to someone that had.

Worse, Rowarth assumes the cloak of an honest-broker scientist while promoting an obviously partial theory and strongly implying that there is no contrary evidence. I tried to comment but failed. The NBR later explained why on twitter.
So it's not just me. Readers at the "meeting place of intelligent business" have spoken. I don't condone personal abuse, but can understand how anger at this article might either spill-over into personal abuse, or be interpreted as such. Especially since Rowarth has a history of getting science wrong and attacking people without due cause.

Sunday, 23 July 2017

Water allocation & pricing in NZ

The Greens water policy proposes a 10c/litre royalty on the "sale and export of water, including bottled water", and cracks open the debate over water allocation & pricing policies by signalling that further measures are under consideration.

This post outlines the main economic issues arising from water-using industries in NZ: bottling, hydro-power, and farming particularly dairy. I'm going to start by assuming that most people would support policies that:

  • don't cause undue depletion of the water resource;
  • don't strand capital investments; and
  • ensure that water polluters pay fair prices. 
After discussing these points, I'll return briefly to the water bottling issue.

Depletion
Depletion is generally managed by setting minimum flows for rivers and maximum off-takes for groundwater (from aquifers). In a river setting, rights to pump water are typically shut-off when the river level falls to some trigger point. Minimum flow levels are set by Councils in consultation with freshwater scientists, anglers and other interested parties. This works best when the flow is measured downstream from the off-takes: otherwise you need to predict how a low flow at an upstream point will affect the river below the off-takes. Ground water (in aquifers) is much more difficult to measure. The raw data comes from water levels in monitored wells but its not easy to map the aquifers or their connections with rivers and other aquifers.

This issue is not completely sorted out, but the 2014 National Policy Statement obliged Councils to get cracking to ensure that water resources are not over-allocated, and to claw back over-allocations where they exist. My impression is that it has been effective in getting Councils to focus on these issues.

In some cases over-allocations have been notional rather than real: e.g. Marlborough wine growers have collectively been allocated more water than the aquifers can stand, but they're not using their full allocations. The proposed solution is to regulate allocations so that wine growers have enough water in almost all years, which frees up water for allocation to other people at the times of year that wine growers don't need it.

Asset Stranding
The basic point is that if we want revenue from water users then any pricing will need to be at a level that allows them to remain in business. Otherwise we get no revenue. My guess is that a royalty of 10c/litre on the "sale and export of water, including bottled water" would not kill off the bottled water exporting business. If so, people who've sunk capital into wells, pumps, filters, and bottling plants will continue to earn profits that help recoup the capital invested, just at a slower rate. This particular goose would then remain healthy enough for ongoing plucking.

However the same royalty rate would probably stop all hydro-power generation, and agricultural/horticultural irrigation over-night. Any firms owning un-depreciated assets used for this stuff would have to just write them off: those assets would be "stranded", unable to earn because of the water price. End result: dead goose = no revenue & much less productive capacity.

So if you're after revenue, don't set tax/royalty rates so high that they strand assets. More generally, remember these wise words from Jean-Baptiste Colbert 
The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing

Polluters Pay
The Greens are targeting the export of bottled water and seeking a contribution to the public purse from these firms. A different motive for tax is to send a price signal to polluters. Ideally, these Pigouvian taxes would be set at a level that recouped just enough cash to compensate for the damage costs that polluters impose on the broader community. Farming is where this issue bites, because the way we farm pollutes our water, imposing a cost on everyone else.

Basic welfare economics suggests we should investigate taxes on bagged nitrogen (urea). If dairy farmers used much less urea, our rivers would be much cleaner and we'd also stand a much better chance of sequestering carbon in our soils rather than emitting it.

Like tobacco, the urea business is highly profitable, so urea suppliers will probably absorb a fairly high percentage of any tax. This means that a relatively small % of any tax will be passed-through into retail prices. And since farmers are addicted, they won't be very price sensitive. So, ironically, even if our aim in imposing a urea tax was to send socially efficient price signals, it would end up raising a fair bit of revenue.

Conclusion
All of the above is very mainstream economics, meaning it is based on the pursuit of (social) efficiency. The water bottling royalty/tax is clearly not aimed at efficiency objectives. I expect it will get some support as a political move, but it's not ideal as a leading measure to address our broader issues around water allocation and quality.

Wednesday, 12 July 2017

GMO Hypocrites

Previously on this blog, I argued that David Runciman failed to convert his excellent analysis of the role of scientific consensus in the climate change debate into a useful tactical recommendation: you can't credibly accuse anyone of hypocrisy if your only evidence is stuff that you think they think.

Before that post, my old friend Grant Jacobs had already taken to the electric twitter machine to:

endorse exactly this tactical error in Runciman's piece
and lodge a very strong claim
Note the sudden shift of topic from climate change to GMOs.

Before the NZ skeptics expelled me for heresy, they emphasised their maxim that strong claims require evidential support. The onus of proof is on the alligitor.

As a leading skeptic, Grant subscribes to this maxim. Having made a strong claim in public he is now obliged to back it up.

Monday, 10 July 2017

Science, skepticism and humility

David Runciman's recent Guardian piece carefully examines how and why a political constituency emerged for skepticism about human-induced climate change, and then drops the ball right at the end with the try-line in reach.

The main thrust is that the oil majors and other large firms have commercial incentives to cast doubt on human-induced climate change, so funds are available to influence public opinion, which demand is met by various scientists, lobbyists and politicians.
 ExxonMobil alone has spent more than $240m on public relations in this area in the past two decades. Many of the leading Republican candidates for president in 2016 (though not Trump) took campaign funding from the Koch brothers, who have been at the forefront of the fight against the scientific consensus on climate change.
Runciman does a good job of exploring the way commercial incentives affect the supply of perception-management services. Absent a commercial motive, there would be less doubt conveyed to the voting public and the apparently quality of the doubt would be lower. So on the supply side of the doubt market, climate change looks a lot like tobacco: in both cases, substantial and well-established commercial interests purchased scepticism from scientists.

Motives matter, but so do methods. Runciman argues that it can be easier and more effective to label your opponent as a hypocrite than a liar. Some tobacco science shills smoked their own product but you can almost always accuse a climate change activist of not doing enough...
Hypocrisy is hard to avoid when it comes to the politics of climate change, since it is a collective-action problem. It’s far from clear what difference any individual action will make. What matters is what we do together. This makes it practically impossible for any one individual to match words to deeds. Yet the failure to do so provides the perfect stick for the climate cynics to beat their opponents with.
We're all familiar with these cheap cynical jibes: oh you have a plastic bag / flew here / own a flat-screen TV, so you don't personally really care about climate change. Runciman reckons this kind of bullshit is effective at shifting public opinion against climate change scientists, and that climate-change-deniers have converted skepticism for their own commercial ends.
Twitter is a vast hypocrisy-generating machine that is corroding democratic politics. Scepticism, which is a democratic virtue, is giving way to cynicism, which is a democratic vice, across the board.
I think many people would broadly accept most of the above and, notwithstanding the odd complaint, be broadly on board with Runciman right up to his last couple of paragraphs, reproduced below.
We live in an age when mistrust of politics has spilled over into mistrust of expertise, and vice versa. To respond with ever-greater certainty in the name of science is a big mistake. Expertise doesn’t just need humility. It also needs to reclaim the idea of scepticism from the people who have abused it. Experts need to find a way of expressing uncertainty without feeling it undermines their expertise. Voicing doubt has been allowed to become a synonym for admitting you were wrong. The way out is to stop insisting that you were right in the first place. 
Lots to agree with here. We definitely need humble scientists rather than arrogant ones, so uncertainty needs to be honestly appraised and clearly communicated. I'm also keen on reclaiming skepticism from those who have abused it, but the skeptics and I have very different opinions about the scope of this problem and the culprits, so lets just set that aside for now so we can focus on the ball-dropping final paragraph.
The scientific consensus on climate change is real. But by insisting on its merits for the purposes of politics, its champions have exposed it to ridicule. Political arguments for climate science – indeed, for any science – in the age of Trump should not keep saying that the populists are lying about the consensus. They should say that they are hypocrites about the doubt: they do not practise what they preach because they think they know the answers already. Climate change deniers argue they are only trying to discover the truth. We should all be sceptical about that.
Where did that come from?  Even though the other side is lying about the consensus on climate change, and has strong commercial incentives and the ability to generate doubt, Runciman wants us to ignore all that and instead argue that they are hypocrites. Which they can easily deny by simply claiming to be open-minded.

It's a bad idea tactically because nothing can be proven, which makes it a very bad idea strategically for the non-shills.

Friday, 7 July 2017

NZ Initiative on Competition Law

Previously on this blog, views were expressed about the NZ government's recent announcements regarding competition law. Two decisions have been made:

  • to give proactive "market studies" investigation powers to the Commerce Commission, and 
  • to punt debate over s36 as far into the future as possible. 
Today, Roger Partridge published the NZ Initiative's view in the NBR. It is the exact opposite of my position: Roger supports the punting of s36 issues and opposes the new "market studies" power. I know, like and respect Roger, so I'm explaining below why I disagree with these views.

Preamble
While I agee with Roger that "New Zealand's small size means that many markets have only two or three participants", these market structures have only occurred because the Commerce Commission has waved through many mergers on the basis that they will reduce costs. We've operated a permissive merger-screening regime for many years now. Our highly concentrated markets are a consequence of this approach.

This is not necessarily a bad thing. Rock solid economics has exposed the concept of a sustainable industry structure, crudely summarised as the number of firms that can be supported by the size of the market, assuming each is operating at cost-minimising scale. We have smaller markets (demand) than more densely populated countries, so fewer firms can achieve the scale/size needed to minimise costs.

But if we only cared about minimising production cost, why would we ever have regulated natural monopolies such as power line companies? Why didn't we just let them enjoy the quiet life, the best of all monopoly profits? After all, this is the cost-minimising sustainable industry structure for power lines: a monopoly. What was our rationale, as a society, for imposing upon these firms the compulsory burden of complying with costly demands for information, and then, after about three years of careful deliberation actually properly regulating them?

I have no real insight into the provenance of the balls grown by the government that pulled this trigger. It definitely was the Clark/Cullen crew though, aided by Paula Rebstock as Commerce Commission chair, that finally put a stop to further extensions of the shameful revaluation rort that is embedded in consumer power bills, now and forever.

So this is our history on monopoly regulation: only in the last decade have we even started to regulate natural monopolies, and even then we respected the property rights of the earlier bandits by baking-in all the billions of dollars of super-profits banked by Eric Watson and his mates.

Against this background, lets now shift the focus a bit further up the scale, to the natural oligopolies that are so prevalent in NZ. In some cases (mobile phones) these market structures have emerged from entry. In others (grocery retailing, general insurance) the Commission has allowed oligopolies to form, at the eager behest of Roger's firm and its rivals up there on Shortland St.

The policy questions are about how to constrain this market power, having allowed it to be formed. Or indeed whether to constrain it at all. So we're talking about firms that have substantial market power (SMP) either individually (s36) or jointly (market studies).

Section 36
As noted previously, before it became defunct, s36 was the only legal constraint on the use of substatial market power (SMP). The only reason we're talking about s36 is that it is defunct. So the question is whether to ignore this "problem" or to fix it somehow.

The debate seems to be boiling down to "purpose vs effect". The current defunct test is based on "purpose": a firm with substantial market power (SMP) is not allowed to use that SMP for the purpose of restricting competition. However, rather than inquiring directly into whether this was a purpose of the conduct, our courts have been persuaded to focus on a contentious and unrealistic "counterfactual" test, the weaknesses of which approach have been known for 4 years at least.

This is why ComCom has basically given up trying to prosecute under s36. No one fancies the prospect of arguing that firm X did this thing for the purpose of lessening competition.

The situation has seemed unsustainable to me for several years. If the police are on strike because the law doesn't work: sack the police or change the law.

Roger's view is that we shouldn't change the law, because it would cost the big guys, the ones with SMP. Read his statement carefully and tell me if you see any discussion of the "long-term benefit of consumers" which underpin the purpose of the Commerce Act. It's not there.

I'm not certain that an effects test is best for NZ, but I am certain that Roger is dodging the core question, as is the government.

Market Studies
New Zealand has a productivity problem and insufficient domestic competition is a major driver of our weak productivity outcomes.

We've allowed firms to merge to concentration levels that are internationally unusual, partly because the merging firms expect enough cost savings, and partly because its easier to predict cost savings than to quantify the value of foregone competition.

This is where we are. In many industries, trade is dominated by just a few firms at best. Consumer interests appear to be compromised as revealed by the petrol margin study for example. Roger says that these oligopolists, who occupy a privileged position in our society, should not be compelled to "hand over their records, and to answer questions under oath", but

  • he has no supporting argument as to why this would be unreasonable, much less any thought of the potential benefits consumers might get from a bit more focus on such a privileged sector; and
  • refusals to supply information, as hampered the petrol margin study, is kinda dodgy in itself isn't it? 


Thursday, 6 July 2017

Dictatorial Libertarians

Previously on this blog, we encountered the proposition that a "transitional dictatorship" might be a good thing. Today's argument is that
  • all economists who appeased the Pinochet regime, or support those who did, should explain themselves; 
  • exceptions for school boards in NZ show how tightly constrained any justifiable "transitional dictatorship" should be; and
  • regional government dictatorship in NZ shows how easy it is for the "transitional dictatorship" idea to break out from its natural habitat.
It is disturbingly easy to find right-libertarians bagging democracy. Most obviously, the late sainted Hayek said that "a dictatorship may be a necessary system for a transitional period".  So, yeah, if Hayek reckons its a good idea, but you plebs will never vote for it, then he'd be up for just forcing it on you. Not to mention Hayek's fellow traveller, the recently-minted but shy of being kiwi kiwi Peter Thiel, who after much consideration decided that freedom and democracy are incompatible.  

Hayek was the founder of the Mont Pelerin Society, an invitation-only club of economists (& others) formed in 1947 to oppose government involvement in the economy. I've long conjectured that Wellington has the greatest concentration of MPS members on the planet, but its a secret society so we'll never know.

What we do know is that the MPS gave intellectual and moral support to Pinochet, the CIA-backed military dictator who in 1973 deposed the overwhelming choice of voters: Salvador Allende of Chile.

Political prisoner, National Stadium in Santiago, Chile, 1973. Koen Wessing

Some say Allende was too moderate, and he might well have made economic mistakes, but that is no reason to engineer a military coup against a popularly-elected government. Fascists are pretty brutal once they get power: the 1973 coup in Chile resulted in terrible atrocities, including the extra-judicial killing of at least 3000 people. Even transitional dictatorship fans must agree that seventeen years of Pinochet was a very leisurely transition indeed.  

Pinochet's transitional dictatorship in Chile operated from 1973 - 1990. The Mont Pelerin Society met in Chile in 1981, well after Pinochet's human rights abuses were obvious. As one who fought the Springbok tour that same year, I say that every participant at that meeting gave succour to a vile and tyrannical dictator and they should all be very ashamed of themselves.

The late sainted James Buchanan was at those meetings (that's the economist, not his namesake who was one of the worst ever USA presidents). Apparently Buchanan's paper was titled "Limited or Unlimited Democracy" and explored the idea of limiting democracy to depoliticize the state so that unconstrained market forces could guide human interaction. Anyone got a link to the full paper? Key point: Buchanan was there, succouring up to Pinochet, at a time when freedom-loving economists should have been boycotting Chile.

Local Applications
There are times when transitional dictatorship is necessary & appropriate.  In NZ, schools are governed by a locally-sourced board of trustees, and sometimes people take to squabbling and the boards get so dysfunctional that the minister appoints a transitional dictator to sort things out. Fine, IMHO, and I've been happy to serve as an appointee in such cases.

Much less defensibly, transitional dictatorships are sometimes imposed with the apparent aim of delivering outcomes for a political constituency. Back in 2010, the current government effected a coup over regional government in Canterbury, citing water issues that, funnily enough, many people in Canterbury are still pretty pissed off about.

Takeaway Points
1. Libertarian apologists for dictatorships should explain themselves
2. If dead, their apologists should do it for them

Monday, 3 July 2017

Competition update: no, we still don't care

If you occasionally tire of reading those media stories about just how stretched NZ household budgets are, and end up wondering why is it like this, then the recent OECD report is a good to place to look for clues.

The OECD's three main points are perfectly crafted into a work of shit sandwich art. Someone needs their chain pulled a bit, but we want to be nice enough to retain their goodwill, so they get two nice compliments with the actual message in between. In a better world, this might cause his sponsors to say: "We all love your enthusiasm Donald. This misogyny has to stop, so we can continue to support your meteoric rise".

Anyway, here's the OECD's shit sandwich for NZ.
  • New Zealand continues to enjoy a strong, broad-based economic expansion
  • Productivity remains well below that of leading OECD countries
  • Employment has been shifting towards high-skilled occupations
Two compliments with a nasty little fact in the middle, right?. So we need to examine that nasty little fact. Here's the summary discussion of it.
Labour productivity is well below leading OECD countries, restraining living standards and well-being. Productivity is held back by a lack of international connections, agglomeration economies and scale; weak competitive pressures; low rates of capital investment; and meagre research and development activity. Opportunities to address these factors include reducing barriers to foreign direct investment, lowering the corporate tax rate, expanding infrastructure funding options to increase housing supply (preferably through densification), reviewing the insolvency regime and the current provisions for misuse of market power, and increasing support for business innovation. (emphasis added)
So we have five productivity problems. Delve deeper and you'll find that there is not much we can do about the first two: we're not going to suddenly shift from being a small open economy in a remote corner of the planet.

So now the shit in this delicious sandwich is down to just three things we might be able to deal with:  "weak competitive pressures; low rates of capital investment; and meagre research and development activity".

Now here's a funny coincidence: firms that lack competitive pressure have less market pressure to undertake "capital investment" including in the form of "research and development activity". Injecting more competition into our economy could therefore help tackle all of the solvable problems identified by the OECD. In case it's not obvious, I am agreeing with all of this diagnosis. Now let's look at the prescription, which has two components.
Allowing the Commerce Commission to undertake market studies is currently under consideration and could help markets work better, especially when obstacles and distortions to competition are not caused by competition law violations. In addition, the legislative prohibition against misuse of market power should be reviewed to consider whether the current requirement to prove the intent or purpose of behaviour is working and examine whether a test focused instead on the effects of business conduct, as in most other OECD countries, would be more beneficial.
The first of these is a no brainer. The power to inquire through market studies should have been vested in the Commerce Commission from the start. Instead, at the instigation of Telecom, the Commission was spanked by the High Court in 1994 (pdf, see f.n.3), for daring to inquire into telecommunications competition.

The second idea concerns s36 of the Commerce Act which is our only constraint on the unilateral exercise of substantial market power. (SMP). Setting aside regulated industries, if a monopolist or a small number of oligopolists have SMP s36 is the only legal constraint on that power being used to choke off (or otherwise tame) their potential rivals.

Five years ago, it was clear that the Commerce Commission chair considered s36 broken and that the Commission would no longer be wasting its litigation budget in prosecuting such cases (example).

Think about the incentives this creates. Suppose you're an executive in a firm with SMP, or perhaps an entrepreneur with a great idea for stiffing entrants. Why wouldn't you just run riot? The police are on strike because the law is broken.

And now, five years after we gave free rein to the big guys, the government is touting market investigation powers as a bold new initiative while throwing s36 reform down a big dark hole:

The Government has also been considering changes to Section 36 of the Commerce Act, around misuse of market power.
“While the consultation process has demonstrated that Section 36 does not work perfectly for some types of conduct, it is not yet clear whether an alternative test would benefit competition or consumers.
“Officials will continue to look into this and will report back in mid-2018 before decisions are made regarding section 36,” Ms Dean says.

So there is a clear and enduring message here. Yeah, nah, go for it mate. Fill your boots.

Monday, 26 June 2017

Character, Trust and Politics

Have you ever been asked for a character reference? I've written a few, once for a firearms licence, several for tenancy agreements, and many in professional references. Verbal references are now more common in these areas, but written character references have a second life through the reputation systems baked into all those websites we use.

It can be annoying right? Please tell us about your experience at XYZ hotel. How was your meal at ABC? How does LMNOP rate against all other filums of this genre?

Constant pestering to give feedback is the markets' response to a low-trust environment. Partly this is to guard against the risk of being conned by a scam artist, but character is also seen as vital to upside potential value, as shown by the commercial success of the "attitude is everything" concept.

Our view of someone's character develops over time through repeated interaction. Many of us are pre-disposed toward trusting others, especially if the other seems like "one of us" and therefore trustworthy. Unless there are tell-tale warning signs, we generally take people at their word, giving them a chance, an opportunity. This is my general approach anyway.

But if my trust is abused then it's all on, or all off, depending on the circumstances. Abuse of trust is a trigger that deserves a response, such as outright war (I'm going to actively punish you), or maybe just a freeze-out (I'm not playing/interacting with you any more).

This strategy is known in game theory as tit-for-tat. It's simple and effective and I strongly recommend it. You might also want to describe this strategy to people who have abused your trust, to help them understand that they need to offer something constructive if the previous equilibrium is to be restored.

Recent political and economic news highlights the role of character and trust. Here are a few examples.

Monsanto is being sued for misleading consumers about the effect of its flagship product: Roundup. Apparently, it says on the label that Roundup 
kills plants by targeting an enzyme that is not found in people or pets. The lawsuit claims that assertion is false, however, and argues that research shows glyphosate can target an enzyme found in gut bacteria in people and animals, disrupting the immune system, digestion, and “even brain function.”
This is a crucial point. If true, it would show that Monsanto has successfully used the "big lie" strategy for many years.

While we await the court's judgement on Monsanto, let's take a moment to consider another big lie strategy, this one being promulgated by the US government. I refer of course to the massive tax cut disguised as health-care reform, which for some reason needs to be done very quickly and in secret, but will be terrific, believe him. Trump is the sideshow in this one, since it is now abundantly clear that he has no fucking clue whatsoever, but while his mad antics distract large sections of the media the real business is being ruthlessly pushed through by the republicans. So he's a useful tool for the people who are actually in control of this stuff.

Speaking of useful tools, have you heard the latest claims about James Buchanan? No, not the USA's worst president, the nobel-winning economist of the same name, now under a cloud, though GMU economics graduates such as Eric Crampton are still defending him. There definitely were quite strong connections between the Mont Pelerin society and the fascist Pinochet regime in Chile so it'll be interesting to see what's in the new book. Meantime, my homework is to dig further into the concept of transitional dictatorship.

Closer to home, as the Todd Barclay scandal continues to afflict the PM and his team, thanks to the superb journalism by the new-entrant newsroom. Character is becoming an issue for the news media now, as the PM keeps changing his story and the absence of his predecessor's superb lying & bullshitting skills is really being exposed. I'm hoping that this whole thing might result in fewer future stories about "consummate politicians" whose primary skill is deception, but I'm not holding my breath.

Neither are the British. On the contrary, in the wake of woeful mismanagement and incompetence by the Tories, there are now regular eruptions of full-throated chants in support of Jeremy Corbyn. Compare this with the "lock her up" chants during trump's campaign: Hate vs Love and orchestrated vs spontaneous.

All of which reinforces a very basic point. If you need to bullshit the masses to win political power, that's probably because you're working against their interests.