The value of outreach

I enjoyed the CBC's radio show, The Invisible Hand. Rather than take a Freakonomics-style "wow, isn't this counterintuitive" take, they instead simply presented standard economic theory as it is understood by professional academic economists.

• Episode 1 covered price gouging, with a nice contribution from Mike Munger. (audio)
• Episode 2 takes on value theory. In the event of a zombie apocalypse, chickens rise in value relative to gold (as the Lannisters may yet discover when winter comes). (audio)
• Episode 3 explains why profit isn't a bad word and shows that rather a few capitalists - people who make their living from investments - look rather more like our parents and grandparents than like Mr Scrooge. (audio)
• Episode 4 covers love, marriage and economics. (audio)
• Episode 5 explains moral hazard and insurance. (audio)
• Episode 6, on sweatshops, includes Ben Powell along with a former sweatshop worker. (audio)
• Episode 7 demonstrates that David Suzuki knows absolutely nothing about economics: we have ways of dealing with externalities. (audio)
• Episode 8 explains a bit of macroeconomics: the old Paradox of Thrift. (audio)
• Episode 9 walks through one of my favourite topics: perverse incentives (see the masthead). Frances Woolley helps out. (audio)
• And Episode 10 explores some of the behavioural economics literature. (audio)
• [Update: the audio at the CBC link isn't working, but the (audio) link should take you to the podcast version. Thanks to Wobbly in the comments!]

Worthwhile Canadian Initiative's Stephen Gordon provided academic assistance for the project.

The CBC more typically airs standard economic fallacies as fact, or at least it did back when I was in the country, so this was really rather nice.

What reaction did they get? Here's the show's producer Matthew Lazin-Ryder. Start listening at the 14 minute mark. At 15:55 he talks about his "honest to goodness depression" about the show's being criticized for being "brazen right-wing propaganda". He says [transcription errors mine]:

We wanted to make a show that had a completely different perspective from the things most people hear. And our probably naive anticipation was that people would take it in that way. We didn't honestly expect the angry backlash that we got. ... Our agenda was to present how mainstream economists think about things. 

He also tweeted: 

"Lightning Rod For Hatemail" was the working title for the series. RT @danieloong: A show like that'd be a lightning rod for hate mail.
— The Invisible Hand (@CBCTheHand) April 12, 2013

There is a body of things that economists know about the economy. Sure there's stuff we argue about, but especially in microeconomics, we kinda know what's going on. And the basic set of things about which economists agree diverges wildly from how the public thinks the economy works. The profession attaches perhaps too high of reward for deriving the results of some model when you change a plus to a comma in a utility function when the first order welfare gains are in just getting the voting public to appreciate principles-level economics.

I get irritated when bog-standard economics is cast as having a "right wing" agenda. Mainstream economics helps you figure out what works and what doesn't work for achieving any particular end and the trade-offs that are involved. If you want a fair bit of redistribution, that's entirely consistent with mainstream economics so long as you set up the transfers appropriately; heck, it drops out of most models where you assume diminishing marginal utility of income.* But bog-standard mainstream economics in Canada says a lot of unpalatable things: ditch supply management to reduce milk prices; get rid of barriers to both interprovincial trade and labour mobility; get rid of all the zany exemptions in the GST and adopt New Zealand's version instead.

Imagine a genie gave you a button. If you push the button, every voter in the country thoroughly and intuitively understands principles-level economics. At the same time, the most recent n issues of every academic journal in economics disappear along with all knowledge of their results: we would need to re-invent or rediscover every one of them, with some chance of never finding them at all. Up to what value of n do you leap to push the button? 5 years' worth? More?

Imagine a world where the physicists and engineers spent most of their time figuring out how to get internal combustion engines from 20 to 22 percent efficiency but where, outside of the lab, everyone else is riding horses because they think engines are evil and witchcraft and tools of capitalist oppression. Maybe it's not quite that bad in economics, but it isn't far from it.**



* But be careful! Cowen points out that utilitarian theories may be less egalitarian than you'd like. I asked a couple years ago about appropriate egalitarian policy when we start opening up the margins:

Pity the borderline Asperger's investment banker who, despite his financial success, seems at a bit of a disadvantage in dating. Reddit posted the 1600 word email that the would-be suitor sent to the woman who dumped him after the first date; it's since shown up all kinds of places. But folks snickering at it seem an awful lot like a rich one-percenter laughing at a pleading email from a starving man.

If I can play armchair psychiatrist, the same Asperger tendencies that helped this poor guy in investment banking have killed him in dating.

If you're an egalitarian, what is appropriate policy? Is this guy better or worse off than the poor musician who dates easily? With whom would you rather trade places, taking both their positions and their characteristics? If we redistribute income because the investment banker's last dollar is worth less to him than it would be to the poor musician, think too about the marginal utility of the musician's last date relative to the banker's.

 And should we compensate the beauty-challenged?

** See, for example:

• Caplan on systematically biased beliefs
• Me on economic thinking in NZ

Is it May already? Asset sales edition

It must be May. The Christchurch Press is reporting that Council is considering selling some assets to pay for the quake.

May 2, 2011: The Press wondered the same thing. I put up the general conditions under which Council should sell assets.

May 21, 2012: Another round of speculation about Council asset sales. Labour was outraged by that the City might contemplate selling dividend-paying assets. I pointed out that, unless there are really serious problems in asset markets, dividend flows get capitalised into asset prices. I'd written:

Cosgrove can only be right where the asset is more efficiently owned by local council, or where there are serious problems in IPO markets, or where the Council has a particular kind of stupidity.

If the asset is best owned by government, then the selling price will be less than the discounted value of the dividend flow. Otherwise, local Councils can do better by selling off the asset and taking the cash.

If there are serious problems in IPO markets, then things sell for less than fundamental value at IPO. But there's no particular evidence of this.

The last one might be more of a worry. Imagine a guy who has a trust fund that pays him a modest annual income. He generally is foolish in how he spends it, but he's always able to pay his bills. If he is given the investment as a lump sum, he blows it all on pop rocks and bungee jumping and has no income flow for the next year. That guy is probably better off not being able to sell off the dividend-paying asset. Is Christchurch Council that guy? Hopefully not. But post-quake, unless they're dumb enough to blow it all on stadiums, there are tons of productive ways they could be spending the money - roads, sewers, turning Red Zone into useful parks.

And, if Council is dumb enough to blow any divestiture returns on pop rocks and stadiums, are they smart enough to handle the asset properly if they own it in the first place? Note that an asset like the Lyttelton Port of Christchurch isn't like a hands-off trust fund; it requires annual decisions about asset maintenance versus dividends. Cosgrove talks about how the revenue stream from assets helped kept rate rises in check; what reports I'd heard on maintenance standards at the Port as of a few years ago suggested that Council was putting a fair bit more weight on current dividend flow than on maintaining the assets. Divestiture may be a bad idea if Council is prudent enough to manage the asset properly while they own it, but profligate if they're handed a lump sum of cash; under the current circumstances, with plenty of really pressing financial needs, I'm less worried about this one.

And here we are, May 2013. In today's Press:

A Christchurch city councillor says the city could offload non-core assets, including its own offices, to help pay its share of big-ticket rebuild projects.

Cr Tim Carter said last night that less important assets were expendable if it helped ease the council's debt burden in funding anchor projects such as the new convention centre and roofed sports stadium.

...He was against selling strategic, money-earning assets such as Christchurch International Airport, Lyttelton Port, Orion, and Enable, which is installing ultra-fast broadband in Christchurch.

His comments come as Prime Minister John Key yesterday weighed into the council asset sales debate.

Key told Firstline it was up to the council to ask whether the people of Christchurch wanted "the nice-to-haves".

"Then they'll ask how are you going to pay? That could be through rates or asset sales," he said.

The case against selling the airport isn't that it's a money-earner. A money-earning airport will sell for a LOT of money at IPO. Rather, the case is that the local monopoly airport would be tempted to set fees to maximise its own profits without considering that reduced traffic into town might have some broader costs. It might even do things like charge really high fees to taxicab companies for the right to operate from the airport, increasing the costs of Christchurch as a travel or conference destination.

I still think that Council should fully divest assets that are managed at least as well by the private sector and don't have the kind of problem that the airport could have, partially divest other assets, and use the money for roads, sewerage, overbridges, and for topping up the costs of rebuilding and repairing Council facilities. But if John Key wants Council to sell off the Port to fund a big covered stadium or a huge convention centre, well, I discussed that case last year.

If it saves only one life... oops.

New Zealand's been pretty gung-ho about banning smoking. Tobacco taxes have been rising pretty sharply; tobacco can't be displayed by retailers and instead has to be kept concealed; the Government's unattainable aspirational goal is a SmokeFree New Zealand by 2025.

As part of this push, New Zealand banned smoking in prisons. And some hospitals have been a bit aggressive in banning smoking not only within the premises but also on the grounds outside of the hospitals. It's pretty easy to argue that folks going to hospital to get well shouldn't be smoking. Hey, maybe that gives them the extra shove they need to quit. Right? Oops.

A mental health patient who killed himself was put off seeking hospital treatment because he was not allowed to smoke onsite, a lawyer leading a judicial review application on smoking in hospitals says.

A smoking ban on hospital grounds including outside psychiatric wards by the Waitemata District Health Board is a breach of human rights, barrister Richard Francois argued at the High Court at Auckland today.

He is calling the proposal "torture" on the hospitals' most vulnerable patients.

"Psychiatric patients are segregated," Francois said in his opening statement.

"They're locked in a room and told they can't smoke cigarettes in a time they're under extreme stress, have been hauled away from family, friends and employment."

He argues that research does not back up the need for psychiatric patients to give up smoking on hospital grounds for their health or the health of others, and is simply a breach of rights which will create a barrier for patients wanting to seek help.

This kind of response shouldn't have been all that surprising.

There is a rather extensive literature on comorbidity of smoking and serious mental illness. Some argue that nicotine can serve as self-medication for those with specific mental illnesses; others say instead that it's a way for those with serious mental illness to impose some structure on their days and is a changeable part of the culture of mental illness. Either way, it's pretty hard to avoid that smoking rates among the mentally ill are much higher than those among the general public. That can provide a pretty decent argument for finding ways of helping those with mental illness to quit smoking. Or, from the other side, you could argue that those with lower life expectancies and who have a harder time enjoying life to start with oughtn't be deprived of those things that they do enjoy.

Either way, banning those placed in psychiatric hospitals from smoking outdoors on hospital grounds seems remarkably punitive. It seems pretty unlikely that enforced cold-turkey treatment while being hospitalised for mental illness is best for anybody.

He [Francois] raised an example of a Hillmorton Hospital patient in Christchurch who used to self-refer himself to the psychiatric ward after attempting suicide.

His mother had said he "quite liked" being there but this changed after a smoking ban came in, Francois said, reading from a Coroner's report.

"He killed himself this time. Smoking was everything to him, it was like the be all and end all of it really."

Wouldn't it have made more sense to have specialised smoking-cessation help for those with mental illness? Pretty sad when smoking is someone's alpha and omega. Even sadder when we get this instead.

Update: just so we're clear, I disagree with the synopsis that I reckon the policy killed the patient. Causality is way to hard to establish to say anything like that. Barriers to entering treatment seem a bad idea; the policy made this kind of incident more likely. And it seems an awfully hard policy to restrict access to pleasurable things to those people who have a harder time experiencing pleasure.

Convention Centre Business Cases

Does the SkyCity convention centre deal have any particular implications for whether Christchurch should have a big convention centre too? I think it's a bit tough to argue that it increases the optimal convention centre size here, but opinions vary. Here's what I told Marc Greenhill from the Christchurch Press when he asked.

"It's possible that Hon. Gerry Brownlee is right that a Christchurch Convention Centre could get a lot of overflow traffic from Auckland. Perhaps the new Auckland centre will generate a ton of international excitement about New Zealand as a convention destination, and conference organisers finding out that Auckland is fully booked will decide to stick with New Zealand and come to Christchurch instead. I'm not sure that I'd bet a lot of money on that happening, but it isn't impossible." 

"And, Minister Brownlee is also right that some parts of Convention Centre business do not cannibalise across different centres. Armageddon Expo visits each of the main centres, for example. And national organisations will often shift their annual conventions across different centres in rotation; again, a nicer Auckland centre doesn't cannibalise that kind of traffic. But whether expansive convention centres in both Auckland and Christchurch would tend to do more to build international demand for New Zealand in total or to split the "let's have our conference in New Zealand this year" market, well, it would be interesting to see the business case backing that call."

As best I'm aware, we as yet have no business case for the proposed Christchurch convention centre. I'd be interested in perusing the document when it comes into existence.

Budget 2013

Last week's budget announcement wasn't all that exciting; I declined to put my hand up with the University's press guy asked who'd be keen to comment.

I strongly approve of that the country's housing supply problems were noted even in the budget. I'm glad that Bill English has been able to get this on the agenda; it's probably the most important thing that National can plausibly fix this term. I hope they're able to open things up both to increased density and to new development.

Having spent the weekend thinking about it, here's what I'd have done differently within the existing set of political constraints.*

I like the budget's focus on getting back to surpluses, but I would have handled this differently. I would have focused less on current debt reduction and more on medium-to-long term restructuring around superannuation. I think we buy more flexibility by fixing looming superannuation problems, implementing what the Productivity Commission already recommended, than by taking a pretty hard line on debt in the current period. I think this is politically feasible, but John Key's the one facing the re-election constraint and seems to disagree.

Fixing superannuation now would give us a bit of breathing room on current debt. 

Debt is the best way to pay for earthquake rebuilds; I'd also expect it could be somewhat useful in recapitalising EQC as part of a rather needed complete overhaul. The EQC model is broken - it simply doesn't work for large-scale disasters like Christchurch. It always feels like they're screwing down on costs because they just don't have enough money to cover the actual costs of fixing everything. There's reasonable risk that we wind up with substantial costs down the line when it turns out that many of the repairs didn't do the job. 

I also hear rumours that SCIRT's having to define down what's acceptable on engineering standards in order to meet tightened budget constraints; I now try to avoid the Moorhouse overbridge, or at least when there's a traffic queue that would mean sitting on the thing for any substantial period. The infrastructure costs of the quake seem more likely to increase than decrease; Mayor Parker says that central government is leaning on Christchurch Council to put more money into a bigger convention centre than Christchurch needs [ht: NoRightTurn]. It makes sense for Council to sell some of its assets to pay for the infrastructure rebuild; blowing money on stadiums and convention centres is something else entirely. Debt and asset sales to make sure we have quality roads and sewerage may be boring, but it's important. 

Lastly, and discount this one for obvious self-interest as much as you like, but the government has got to make up its mind about whether it wants there to be a University of Canterbury that's worth having. 

It's not unreasonable to argue that a country of 4.4 million people does not need all of the University of Auckland, the Auckland University of Technology, the University of Waikato, Massey University, Victoria University at Wellington, the University of Canterbury, Lincoln University, and the University of Otago [have I missed anybody?], and that we could use to consolidate things by abolishing a couple of them. It's also not unreasonable to argue that the University of Canterbury is an excellent institution, with a fine history, a superb engineering school, and a top-notch international reputation that deserves to continue to exist. I really love this place and think we have the best programme in the country for teaching students how to think like economists. 

Christchurch is currently a less attractive place for students. Housing costs here are high, nightlife is rather worse than it was, and who could fault local high school students for wanting to get away from it all for a little while? The earthquakes are over, sure. But whenever you travel from here to somewhere else, just being in a place that isn't undergoing massive reconstruction is ridiculously uplifting (though, when in Wellington, tinged with the terror of looking up at unreinforced masonry,  seeing the "earthquake prone" warning on the building, and hearing the Alpine Fault countdown timer ticking in your head). 

This is a temporary thing. The west side of town, where the University is located, is so close to over the quakes that you could mistake anything still going on for normal scheduled road maintenance. The downtown demolition job is months from done, downtown will be back in a couple years, and a whole pile of nightlife is coming back in other parts of town. Incoming academic visitors, who travel from the airport on the extreme West side of town to our Ilam campus, express surprise that there's so little evidence of there having been an earthquake - until they tour downtown. The biggest impediments to student life are housing costs**, which could be high for a while, and difficulty in accessing normal nightlife. 

But the effects on the University could easily be permanent. We went from about 15,000 students pre-quake to about 13,000 last year; this year, we're down to 11,000***. At the same time, the University is incurring exceptional infrastructure costs and the same insurance problems as everyone else in the city. The government has helped the University through this over the last two years by maintaining its contribution to the University as though we still had the same number of students that we had in 2010, though our income from student fees remains rather lower than it had been.

The government, not entirely unreasonably, wants some evidence of that the University is trying to reduce costs before it will commit to further support. It feels like Stephen Joyce is squeezing the University to see what it can come up with; that squeeze has pushed down to the Colleges. The process is yielding a fair bit of uncertainty about which programmes will be cut. 

Students and their parents hate that kind of uncertainty. If you have choice among a number of rather good universities in New Zealand, do you choose the one where you think your major might have its honours programme cut (or, worse, the whole major), with consequent turbulence in staff numbers and course offerings, or one somewhere else? Declining first year numbers sparked by worries about programme stability can easily turn into self-fulfilling prophecies. Colleagues attend orientation events at the local high schools. One colleague reports that a local high school career counselor is advising students to go anywhere but Canterbury for Arts because of programme risk. Other colleagues report that the first question high school students ask is which programmes will be cut and why they should come here given programme risk; from those reports, even students considering majors in the bench sciences are pretty worried. It's hard to blame them for those kinds of worries when the modal story about the University in the Christchurch Press focuses on its financial situation.

It is very easy to imagine unravellings such that the University is not able to recover once the city's amenities are back up to scratch. If covering the earthquake-related downturn requires cutting half the honours programmes in Arts and substantial reductions elsewhere, it's hard to build back from it. I know everyone has the impression that all universities have a lot of academic deadwood that can usefully be abolished. But, as best I can tell, and given how performance assessment here has been handled over the last several years, the only way of doing that while remaining compliant with New Zealand labour law is by deeming whole programmes surplus to requirements or by inviting all staff in a department to reapply for a smaller number of positions. The former case throws often the baby out with the bathwater; the latter has staff simultaneously applying for positions elsewhere and Canterbury being left with those who didn't find greener pastures. The deadwood, if there is any, can be the hardest to cull. And while it's easy (and often right) to point to excessive administrative overheads, the quakes rather drastically increased the place's fixed costs while reducing the number of students over which those costs can be spread.

So my alternative budget would either have scheduled a path for the closure of the University of Canterbury, including arrangements for less-than-proportionate expansions to Vic, Otago and Auckland, or provided firm indications of support such that students could be confident in choosing Canterbury. This middle ground has too high a risk of yielding rather poor outcomes.

* My unconstrained recommendation would be rather different, but why waste time wishing for ponies? 

** Again, I'm very glad that the government has been talking about the kinds of restrictions that are keeping housing prices rather higher than they need to be.

*** The same Press piece says that last year's final numbers were 12,000 rather than the 13,000 noted in the annual report; it could be that the 2012 annual report figures were based on projections. 

The Price of Wool and Economic Growth

You know how most comments sections are, well, terrible?* Not this one. Gerald Silverberg blogs on the New Zealand 1951 GDP data point and the Reinhart-Rogoff mess. I'm going to leave refereeing on Reinhart-Rogoff to Justin Wolfers. But just look at the depth of wonkery that goes into a single cell in an Excel spreadsheet. Careful data collection and distribution is ridiculously undervalued.

Gerald tries working out New Zealand growth rates for 1946-1952, contrasting Maddison's data with others. The Reinhart-Rogoff data doesn't look like Maddison's. Then commenters, likely including at least one data maven from the bowels of the NZ bureaus, start helping out.

Commenter Oscar first points to an FT piece showing that Maddison uses calendar years while the Stats NZ series uses March years. Then Silverberg starts wondering whether 1951 was due to the waterside lockout or to the wool price boom, quipping:

Who would have thought that you would have to become an expert on NZ wool exports and labor relations in 1951 to decide if public debt affects economic growth.

It gets much much wonkier from there. Mark Sadowski provides a short history of the waterfront dispute and the wool boom:

I was convinced from the start of the HAP/R&R controversy that the New Zealand part of this story was explained by the 1950-1951 New Zealand Wool Boom and not the 1951 New Zealand Waterfront Dispute.

The 1952-53 New Zealand Yearbook shows that wool sales were 47.1 million NZ pounds in 1949-50, 107.5 million NZ pounds in 1950-51 and 52.7 million NZ pounds in 1951-52.

Most of this was caused by a change in price, not a change in output. The average price of wool rose from about 38 NZ pennies a pound in 1949-50 to 88 NZ pennies a pound in 1950-51 and fell back to 40 NZ pennies a pound in 1951-52. (There were 240 pennies to a New Zealand pound.) Production was about 298 million pounds in 1949-50, 294 million pounds in 1950-51 and 315 million pounds in 1951-52.

According to the HAP/R&R dataset New Zealand's nominal GDP (NGDP) was 1.101 billion NZ pounds in 1949, 1.396 billion NZ pounds in 1950 and 1.446 billion NZ pounds in 1951, so that was a substantial proportion of New Zealand's economy.

A good paper about the New Zealand Wool Boom is here.

I can't locate a free copy, nor can I save a PDF file I can cut and paste but I would summarize the episode as follows.

Demand for wool had been strong since WW II ended but supply had been unresponsive to elevated prices. When the Korean War started in June 25, 1950 there was an immediate elevation in the price of wool. Between that date and March of 1951 the price of wool went up two to three fold depending on grade (lower grades went up more, mainly because that was the kind of wool the military was buying). Demand wasn't simply driven by US military stockpiling as retailers actually used rising prices to induce even higher sales.

In January 26, 1951 the United States Office of Price Stabilization (OPS) imposed a general price ceiling measure designed to freeze the pre-war price-wage structure. The price ceiling on wool brought trading in Boston (the central US wool market) to a standstill and caused US participation in New Zealand wool auctions to more or less cease. This led to falling New Zealand prices until February 7 when an emergency exemption was granted to the US military through April 1. This caused prices to recover but once the exemption expired prices fell sharply. By June 1951 they had fallen by 50% and by March 1952 they had fallen a total of 70%.

Now, my sense from reading the history of the Waterfront Dispute is that it was less a strike than a lockout. The government brought in 3000 troops an unknown number of scabs to keep the dockyards running, and thereby crush the union.

The 1954 New Zealand Official Yearbook shows the Cargo Manifest Tonnage "cleared" (exports) fell from 1,163,934 tons in 1950 to 1,129,629 tons in 1951. It rose up to 1,173,577 tons in 1952.

In other words the mass of cargo moved fell by only 2.9% and rose by 3.9% the following year.

What about the actual value of exports? Exports *rose* from 183,752,000 NZ pounds in 1950 to 248,127,000 NZ pounds in 1951, and fell back to 240,561,000 NZ pounds in 1952

Wool exports rose from 74,653,000 NZ pounds in 1950 to 128,176,000 NZ pounds in 1951 and fell to 81,998,000 NZ pounds in 1952. Note that wool exports increased by over 70% in 1951 and amounted to nearly 52% of all exports that year.

So it would appear that the 1951 Dockyard Dispute had little effect on actual exports. [note: links tidied from source]

And all of this over one cell in a rather large Excel table. Raise a toast tonight to the wonks whose work provides every cell of every spreadsheet on which we rely.

* Except at Worthwhile Canadian Initiative, somehow.

Can tax and subsidy incidence really be negative?

Imagine a country where shoes cannot be imported and furthermore the elasticity of supply of shoes is very low. Imagine that the government in this country subsidises shoes. The person on the street who doesn't understand tax incidence might think that this policy lowers the price of shoes by the amount of the subsidy. An economist, however, would be likely to point out that, because supply is fairly unresponsive to price, the subsidy mostly results in an increase in the before-subsidy price to the seller.    In our jargon, he would be saying that most of the incidence of the subsidy would be on sellers and only a bit on buyers.

So far so good, but what if that economist now explained that removing the subsidy would make shoes cheaper to consumers, by stopping buyers from bidding up the price. This would seem to now be claiming that the incidence of the subsidy on buyers would be negative. Sure removing the subsidy would reduce the price to sellers but it would be a very strange model that would have the price falling by more than the reduced subsidy. In fact, it would seem to require that the supply curve be downward-sloping. 

And now, imagine that the economist further claimed that removing the subsidy would be good, as it would result in investors switching from investing in shoe production to investing in productive assets. This would go beyond strange. Sure the subsidy might have been diverting assets to having too much shoe production and not enough other stuff, but in what sense would we say that producing shoes is unproductive? And, how is it consistent to argue at the same time that removing the subsidy would lead to less investment in shoe production at the same time as arguing that it would result in lower shoe prices for consumers? 

O.K. this country, this policy, and this economist are fictitious. But if we change "country" to "New Zealand", "shoes" to "housing", "subsidy" to "tax exemption", and "economist" to "Gareth Morgan", you pretty much get this blog piece from Gareth on Tuesday. 

Gareth argues, correctly, that owner-occupied housing receives a favourable tax treatment relative to other investment since we are not charged income tax on the implicit rental payments we receive from ourselves. But he then goes on to argue that removing this exemption would "bring affordability within reach of many more families". This is an argument I have commented on before; it really looks like arguing that tax incidence can be negative: If housing is effectively subsidised by the tax system, we can't expect removing the subsidy to make it more affordable. 

And he then says that our tax treatment of housing has "discriminated against productive investment in favour of property speculation". Now if he means that we have invested too much in building houses and other kinds of investment, then we have to ask: In what sense is it unproductive to build houses that provide housing services to people that they value enough to pay for? And, how is it possible that curtailing such investment would "bring affordability within reach of many more families"? If, in contrast, he means diverting investment resources from building new equipment to buying existing houses as speculation, I have my perennial concern that this line or argument fails to note that buying existing houses for speculation or other reasons is not "investment" at all, and the assumptions you have to make to conclude that such behaviour diverts resources away from productive investment are a stretch to say the least.  

One final curious seeming contradiction in Gareth's post. At the start, he notes "When, not if, interest rates increase, this illusion that housing is `affordable' will burst....house prices will adjust". But later he suggests that if we don't remove the tax-favoured treatement of housing, he should "go out and buy another three houses now and just wait for the rest of you to bid the prices up". Why would that be good personal investment advice if, as he says, house prices are sure to fall? What am I missing?