Tuesday, September 30, 2014

Canadian content

Suppose that you're a government agency charged with ensuring that the greatest number of Canadians get to hear Canadians' own stories.

And suppose some new technology came in allowing Canadians, for a low monthly fee, to stream and watch whatever they might want.

Would you:
  1. Try to make it really really easy for that company to licence Canadian content, so that Canadians and everybody else might get a chance to see it?
  2. Hassle the company and demand that they subsidise the production of Canadian content?
If you're the CRTC, well, they've picked option 2
During CRTC hearings on the future of Canadian television regulation, both companies argued they shouldn't be subject to CRTC regulation, which would force them to be licensed, host a quota of Canadian content and subsidize Canadian television production.

Google and Netflix argued they stream and produce plenty of Canadian content without the CRTC looking over their shoulders.

Both refused to hand over their Canadian content and subscriber information to the CTRC to back up those claims.

"The Commission cannot carry out its duties based on mere anecdotal evidence," the CRTC wrote. "As a result, the hearing panel will reach its conclusions based on the remaining evidence on the record."
I note that Netflix recently lost streaming access to The Kids in the Hall. But Trailer Park Boys still features prominently.

Wouldn't it make more sense for the Canadian government to hit the back catalogues of everything the Canadian government has helped to fund, from The Beachcombers through Degrassi and KITH and everything in between, and help Netflix to get the bundle of rights to allow for streaming? They could also make it a condition of every future funded TV show that the streaming licence is available to all-comers at a reasonable price? If the objective is to ensure maximum dissemination of Canadian content, shouldn't that be the approach?

Netflix doesn't have to run a Canadian outlet. They could kill the official Canadian version, then simply fail to notice that a pile of Canadians sign up using geounblocking services and a 90210 zip code.

One-sided scepticism: research funding edition

It seems the University of Canterbury has been discussing some pretty comprehensive restrictions on research funding.

The Herald reports:
Research funding from the dairying and soft drink industries could be declined on ethical grounds under proposals being worked through by the University of Canterbury.
The university is in the midst of a wide-ranging debate about ethical research funding - who academics should and shouldn't accept money from, and for what research purpose.
Currently, research funding from the tobacco and armaments industries could be declined.
Some academics have argued that should extend to certain industry-funded alcohol, gambling, dairying, mining and soft drink research.
Others believed there should be no prohibition and that the acceptance of funding should be left to individual moral judgements.
Suppose that you're a researcher whose work could draw industry support. You could either solicit that funding quietly, outside of the University's auspices, and draw the money as income for work you do in your spare time, or you could route that funding through the University's Research and Consultancy office.

In the former case, you do not have access to University resources for the work, but nobody really monitors whether you're using your computer, library access, or office time for consulting work. If there's overlap between your research work and your consulting work, it would be impossible to separate anyway. You can charge higher fees because you have no overhead loadings, you have no hassles from ridiculous University rules around how you can spend your earned funds, and nobody pays any attention because you haven't stuck your head up to be shot at.

In the latter case, you do have official access to the University stuff. That access comes with strings. Some of those strings are desirable. It is always better to be upfront and honest about one's funding arrangements. Where there is substantial overlap between funded work and your research work, it seems fair that the University be able to recoup some of that in overheads, even if that halves the amount you might get out of any funded work because of the overhead burden. And, that your work is run through the University means that it is subject to investigation by the University should you engage in dodgy research. That threat of sanction both makes your work more credible and reduces potential reputational risk to the University if roguish academics do naughty things in their spare time. On the downside, you lose a pile of the money in overheads and the University makes it almost impossible to spend any of the money coming in; it's perhaps purely coincidental that unspent money gets swept into the consolidated account at year-end.

When the Department of Economics was facing horrible financial times last year, I sought industry funding for some of my position. I had been doing work on alcohol policy as part of what I considered to be "critic and conscience" duties at the University; I no longer believed that I could spend much time on that work at the University without its being funded.

Other than a pretty small research budget, I got nothing out of it but administrative headaches from the University. The University got a fair bit of money out of it, between salary recovery and a very large administrative overhead charge. We built a ton of academic freedom into the contract, with everything disclosed on the blog. Well, I didn't put dollar figures on it because those would be commercially sensitive. But they covered a fifth of my time plus very substantial overheads with the money going to the University; you figure it out.

Where funding routes through the University, we have the greatest possible ethical safeguards on any undertaken research. Dodginess on a minor consultancy project could put your whole tenured position at risk. So who'd try it? Research misconduct is really really serious.

And so it's just bizarre that parts of the University would wish to block some categories of industry funding rather than simply insist on that all consulting work route through the University, that all work is subject to University guidelines on research and misconduct, and that all funding sources are disclosed.

The Herald called me for comment on the discussions at Canterbury. I have not been part of those discussions, but I know a bit of the background. I was briefly quoted.
Professor Sally Casswell, a Massey University public health researcher with a particular focus on alcohol, said she strongly believed research funding should not be accepted from the alcohol industry.
Such funding was an attempt by the industry to position itself as a partner in policy research, Professor Casswell said, but only industry-friendly policies were supported.
"When universities take money, they are being co-opted into this scenario ... it gives [the alcohol industry] an aura of respectability."
However, Dr Eric Crampton, head of research at the NZ Initiative think-tank, said industry-funded research could be extremely valuable, so long as funding arrangements were disclosed and unethical behaviour could be censured.
Dr Crampton previously worked at the University of Canterbury's economics department and was frequently critical of research on the societal harm from alcohol.
He maintains an adjunct senior fellow position with the department.
One-fifth of his university position was funded through a grant from the Brewers Association of Australia and New Zealand, he said, "and everything that I did was totally up for anybody to look at or comment on, or censure me if I was behaving badly".
"It is distortionary to automatically believe that industry funding is bad and evil and that government money comes with no strings and no agenda."
I'll be a bit more thorough here.

The University's job is to ensure its researchers always behave with the utmost of integrity, both in research conduct and in disclosure of funding. Disclosure is also important.

All funding comes with risk of strings. Had I stayed with the University, and had I produced three years of research saying that alcohol was just terrible, maybe the Brewers' Association wouldn't have wanted to renew the contract with the University even if that research were sound. But that would have been between them and the University. The best way to ensure independence is through longer term contracts and by running the contracts through the University such that the researcher's income or job tenure doesn't depend on keeping the grant provider happy with the findings. Again, I was on a three-year contract with a fair bit of freedom in what projects I thought worth pursuing. People in public health areas reliant on funding from the Ministry, from Health Research Council grants, or from other NGO granting agencies, must keep their funders happy on a project-by-project basis lest the next one not be granted. Consider the incentives under both types of set-up.

One potential concern, though of course I could not know for certain, among those in the Health Sciences group at Canterbury, might have been that the relationship between the Economics Department and the alcohol industry, through me, might undermine the relationship between the University of Canterbury and the health sector. I expect that such a concern, were there such a concern, speaks worse of both the funders and the fundees in that sector. So long as the funding relationship is disclosed, and so long as the University maintains robust processes for disciplining research misconduct, nobody in any other part of the University should worry about how other parts are funded.

If one group in the University fears that their relationship with their funders will be damaged because of the funding arrangements elsewhere in the University, that constitutes a violation of academic freedom in and of itself. If a funding group is sufficiently powerful that its fundees fear for the relationship because of things going on elsewhere in the University, the University might well wish to examine what on earth is going on between that group and its funders. Personally, if the Brewers had ever suggested that they'd have boosted its grant to the University if the University put a thumb on anything going on elsewhere, or that they'd have cut it were the Health researchers to keep getting MoH grants, I'd have told them to get stuffed and immediately disclosed to the Associate Vice Chancellor for Research.

Finally, the kind of attitude that says that it's a-ok to accept government health grants but always evil to accept industry funding is fundamentally antithetical to academic freedom. It's one-sided scepticism again. Governments, and its particular bureaus and funding agencies, have their own agendas.

Those who would bar all but politically correct funding sources doom academic inquiry. Universities with no connections outside of the University are ivory towers. Those only with research and funding connections to politically correct government sources are worse than that: they're ivory leaning  towers.

It simply may be getting to be too difficult for industry to bother trying for engagements with academia when substantial parts of the Universities will work to undermine those arrangements simply because of the funding source.

I continue to be amazed that a University that has had need to seek so much bailout money from the government would countenance blocking legitimate research funding sources.

Monday, September 29, 2014

Defending the asylum wall

I penned last week's NZ Initiative column in the NBR print edition. Do pick up a copy. Here's an excerpt.
The overarching policy priority then, for me, is that New Zealand maintain and enhance its “Outside of the Asylum” status.

Parts of the RMA are clearly daft and need to be reformed. The RMA’s role in contributing to housing unaffordability through its restrictions on land supply, both for building out and for building up, are reasonably well documented.

It is also mad that a building in Wellington is simultaneously required to be demolished, under the Building Act, because it is at serious risk of catastrophic collapse in any earthquake, and prohibited from being demolished, under the Resource Management Act, because of the priority placed on heritage preservation regardless of life-risk. This kind of Khafkaesque situation risks our Outside-of-the-Asylum status. It is right and good that the government consider RMA reform a priority.

Other risks have crept in as well. Individually, none of them are nearly as important as RMA reform. But collectively, they chisel away at the wall keeping the Asylum out.

During the last term of government, National and Peter Dunne implemented an eminently sane regime around psychoactive substances. Demand for mind-altering drugs will exist regardless of legal regime; the system that was put in place allowed safer drugs to be sold. Those of us watching Colorado’s legalisation of marijuana hoped that the New Zealand regime could be expanded to allow sales of other currently illegal drugs on their being shown to be no more harmful than those currently legally available.

Because the implementation of the regime had too few licenced retailers, politically objectionable queues developed outside of those shoppes. Substances that had been allowed for sale during the interim period during safety testing were consequently banned pending testing, killing the legal market. Whether any substance can now satisfactorily be shown to be safe, with John Banks’s ban on animal testing, is not entirely clear. The Herald reported on Tuesday that the grey market has consequently re-emerged, this time with a purportedly psychoactive incense. The populist election-year response to a few Campbell Live stories on legal highs was not consistent with our Outside-of-the-Asylum status.
I also have a column queued for Interest.co.nz for tomorrow.

Electoral lotteries

The Timaru Herald asked me for comment a few weeks' back on my non-voting stance. They used about one line from the email below; I'll share the rest with you here.
“I have not voted in any election since the 1997 Canadian Federal election. I also do not buy lotto tickets. In any large-scale election, the odds of making or breaking a tie, which are the only ways that you can change the election result, are so vanishingly small that you might as well buy a lotto ticket and promise to give any winnings to your favourite charity. And buying lottery tickets is a poor way of supporting charities. Work by Casey Mulligan and Charles Hunter in the United States shows that only one out of every 89,000 votes cast in Congressional elections changed the outcome. They went back and checked every election going back over a hundred years. You would have had to have voted 89,000 times to expect to change one outcome. You could vote diligently over thousands of lifetimes and still not expect to change an election. New Zealand results would not be much different: your vote would have to be the one making or breaking a tie in a critical electorate like Epsom, or the one pushing your preferred party to or over the St-Lague quotient threshold. Neither are particularly likely. So why bother?
Most explanations of why people vote fail. If it’s civic duty that drives voting, there are many better ways of doing one’s civic duty. Voting is not a particularly effective use of one’s time in achieving any reasonable civic objective because of the infinitesimal chance that your vote changes the outcome. The best explanation I have seen is that many people just seem to enjoy voting as a means of self-expression. But it is a bit of a rigged game. If you don’t vote, you’re told you can’t complain about the outcome because you didn’t take part. But if you do vote, and your side loses, or if your side wins but does things you don’t like, you’re also told you can’t complain about the outcome: “We won, you lost, eat that,” as one Minister was reported to have said. I prefer not to play. 
It seems reasonable to object by asking what would happen if everybody else stopped voting because of such calculations. But if turnout were sufficiently low, I would probably go and vote. The odds of changing an election outcome where there is low turnout are much higher than when turnout is well above 70%; when turnout is low enough, voting makes sense even if you do not enjoy voting for its own sake. While it is fun to imagine what would happen if they held an election and nobody came, it is an exceptionally unlikely outcome. The calculus here discussed does mean that, all else equal, those prone to being very bad at assessing the statistical likelihood of things, pivotal votes included, are disproportionately likely to vote and so parties have less incentive to cater to the policy wishes of the numerate. While this is unfortunate, my one vote would not change it.
 As a concluding comment, I would urge those people who insist on voting to vote well. Philosopher Jason Brennan argues that we have no specific duty to vote, but that if we do vote, we have a duty to vote well. Voting well does not mean supporting any particular party or set of policy positions, but it does mean that a voter must look carefully at each party’s proposed policies and assess whether the policies would actually achieve the goals that the voter wishes to further. This is hard work, but the costs imposed on the public if you vote without such careful assessment seem to outweigh whatever civic benefits obtain from higher turnout.”
I tweeted Brennan's line on voting well on election day. I hope that doing so wasn't illegal under New Zealand's bizarre election-day legislation.

Saturday, September 27, 2014

Peltzman me this, Batman

Peltzman's 1989 retrospective on the economic theory of regulation after a decade of deregulation showed that his model held up reasonably well. The kinds of cost and industry structure factors he expected would affect the viability of cartel-enforcing regulation did affect changes in regulation over the period, on the whole.

I have no explanation for this. Story at National Post mildly NSFW.

It can be hard to explain the pattern of regulation.

Friday, September 26, 2014

It takes two to take offence

...the one who's doing something, and the one who takes offence.

This is a classic Coasean-style problem. Should we blame the person who does something that offends somebody else, or should we blame the hypersensitive?

The usual approach is to condemn somebody who's offended people and to push for sensitivity training. This week's example, the Engineering Association at Canterbury does what it does every year: run a road trip where folks decorate their cars and dress up in costume, usually ones that provoke reaction.

Back circa 2006, I remember heading out to the Arts parking lot to see the costumes and the cars before they all headed out to Dunedin for their road trip. A guy dressed as a giant penis walked around the parking lot shooting white ribbons out of the top of his costume.

This year's Roundie 500 drew critique. Maybe it was really worse than prior years' iterations, but I've seen no evidence of it. A group calling themselves the "Taliband" dressed in bathrobes with turbans and had cardboard electric guitars. And the University issued a press release noting that it "strongly disapproves". The association of professional engineers didn't like it either.

I recommend instead Bryan Caplan's excellent proposed hypersensitivity training course. He has 7 recommended exercises. Here are the first few:
Hypersensitivity is a grave social ill.  It leads to needless conflict, lingering fear,suppression of important truths, and even, as the Astor Place Riot shows, violence and death.  Learning from the success of sensitivity training, I suggest we combat hypersensitivity with Hypersensitivity Training Workshops.  Small groups of students or co-workers, under the guidance of a certified Hypersensitivity Coordinator, must come together to explore the dangers of hypersensitivity.  This evil will always be with us, but by raising awareness we can hopefully make the problem more manageable.

Hypersensitivity Training is still in its infancy.  At the moment, I'm the world's only certified Hypersensitivity Training Coordinator, and even my experience is limited.  But I here propose the following exercises to start a dialog about proper program design.

Exercise #1: The Wall of Hypersensitivity.  Find a partner.  You start talking.  His job is to take visceral offense at everything you say.  After five minutes, reverse roles.  Then we have a class discussion about how your partner's hypersensitivity made you feel.

Exercise #2: In General.  Write down five groups that you identify with, then find a partner and swap lists.  Take turns going down the list telling each other, "In general, group X is Y."  Y can be anything you sincerely believe.

Exercise #3: An Awkward Moment.  Stand before the group and tells a story about a time you inadvertently gave offense.  After each story, the group chants, "It was no big deal!"
Completion of the course should be mandatory for signing up for a Twitter account.

Exercise #3 sounds really great. I bet there isn't an economist alive who doesn't have at least a dozen. If you don't think you do, ask your spouse.

Thursday, September 25, 2014

The high cost of free tuition

A potted history.

In the beginning, New Zealand had tuition-free tertiary education restricted to an educational elite able to pass the difficult exams necessary for entry. They were well supported during their education, and they were few, and they were later hit with high top marginal tax rates as a way of ex post recouping some of the tuition costs.

Then, New Zealand shifted to greater access to tertiary education coupled with a reliance on tuition rather than high top marginal tax rates. Students were less well supported, but they did have access to student loans, and they could earn a return on their investment if they wound up choosing well, or at least a better one than their parents would have earned.

Then came a great wailing from the students. Why, WHY?! were they compelled to pay for their education when their parents' generation had not needed to pay? Nobody much pointed out that, under the prior system, entry was highly restricted. Instead, everyone viewed it as a great injustice that we did not provide open-ended public funding for anybody to achieve self-realisation by pursuing endless graduate studies in poetry. And so the 2005 election brought us interest-free student loans and Helen Clark earned a third term.

Soon after, the government realised that students respond to incentives. I recall having pointed out to the intermediate microeconomics students I was then teaching that, if they hadn't already borrowed the maximum at 0%, nothing in particular stopped them from doing so and opening up term deposits at RaboBank (or elsewhere) with a maturity coinciding with when their student loans were to come due. Unsurprisingly, most of the students had already figured that out: they were in the calculus stream of microeconomics and destined for great things.

Because of this kind of incentive, every new tertiary student imposed a huge potential liability on the government. Not only were they on the hook for the government's per-student tertiary subsidy, they were also now on the hook for all of the private portion of tuition costs, less that portion that might be repaid four or more years later without interest. Any increase in a university's private tuition charge then also cost the government directly via increased loan liability. I may be misremembering, but I believe it to be the case that we needed permission from the Tertiary Education Commission for tuition increases. The increase in demand from 0% loans could not be readily accommodated in disciplines with high salary costs and without capacity to increase tuition levies by more than the permitted cap.

Soon after that, the university funding models changed: instead of straight "bums on seats" funding, the universities instead found themselves having to submit business plans to the Tertiary Education Commission specifying how many graduates they intended on producing. Once its multiyear plan was approved, the university ceased receiving any government subsidy for any domestic students enrolled beyond 103% of that university's enrolment target.

Additionally, universities were penalised for students who failed to complete the degree for which they were enrolled. Student degree completion rates then mattered a lot. Auckland University quickly introduced entry bars as they suffered excess demand at going (and government-capped) tuition costs. This let them sort for the highest-achieving students. Other universities found other ways of ensuring that there were degree pathways for all potential customers.

And so we come to the demands in the recent election campaign for free tuition at New Zealand universities, but without a return to the exclusivity of days gone by. My fairly confident predictions of the outcomes of such a policy:
  • Government would be forced to constrain the resulting cost blow-out, either by restricting entry explicitly, or implicitly with more binding student number targets for universities;
  • There would be excess demand for tertiary entry at the regulated price of zero. A fairly severe pecking-order would quickly be established: the university seen as best would have first pick of students up to its capped allotment, and so on down the line. Where prices cannot ration quantity, excess demand has to be mopped up somehow. I'd expect really high effective entrance requirements at the institution with the highest excess demand.
  • Commerce disciplines would be killed. Absolutely murdered. The government has near infinite willingness to subsidise the bench sciences or anything that has cool kit allowing nifty photo opportunities for government Ministers. But I cannot imagine its countenancing sufficient funding differentials based on salary requirements. Any discipline whose costs are based on human capital rather than machines that go bing would be destroyed. Note that Glenn Boyle had already pointed to this problem in his great paper, "Pay peanuts to get monkeys". Because good recent PhDs in most bench sciences in the US are relatively cheap, and any recent PhD in economics or finance or accounting is really expensive because of out-of-academia opportunities, we have a hard time getting good business academics in New Zealand. This would be far worse under a zero tuition regime that would block universities from implementing higher tuition charges in disciplines like finance to fund salary differentials across disciplines. If you think that competent management is a potential stumbling point in raising New Zealand productivity, imagine how much worse it would get if we ruined the business schools. 
  • Universities would be increasingly creative in coming up with ways of charging student levies that somehow weren't really tuition charges. 
  • TEC would need to be more vigilant in guarding against the fake-student problem. If I recall correctly, one of the polytechs rorted the prior system by distributing CD-Roms to people on the street. If they ran the CD-Rom, they counted as a student. I can't remember what they had to do to get some kind of certificate for CD-Rom completion, but the polytech got a fair bit of government money out of the scheme. When the student doesn't have to pay an enrolment charge, these kinds of scams get easier.
  • While the policy would be lauded for being all great for poor people, it really wouldn't turn out that way in practice. Perhaps a few students who still couldn't afford to attend university despite student allowances and zero percent loans and existing government subsidisation of tertiary education and existing scholarship schemes would be able to get in. But the principal effect would be a big transfer to the kinds of middle-class kids who'd be going to university anyway. Highly income-targeted scholarship schemes can be progressive. Free tuition, not so much. 
  • We'd further mess up incentives at the margin to choose between trade schools and lower-value bachelors' degrees. 
  • Somehow, the whole thing would mean that the universities would have to lay off academics and hire more administrators. Just about everything yields this outcome, and free tuition is part of everything. Not having free tuition would likely do it too. Doubling university income would be about the only thing that wouldn't yield that outcome, but only because they could hire more administrators without having to cut academic staffing costs to achieve it.
Statistics New Zealand is starting to get better individually linked data tracking people from primary school through tertiary and employment. I would absolutely love to see some work taking not the average return to university over trade school, but the marginal return as established perhaps by a propensity score matching approach pairing students that seemed, on basis of characteristics and grades, similarly likely to choose university or trade school from high school but who took different paths. It would take a pile of permissions from StatsNZ, and sitting in their datacentre for a while, but boy would it be useful. 

At the end of it, you'd be able to compare outcomes, on average, for students who seemed similar at high school but who diverged in choice of trade school and university. And that might be useful in saying something about the merits, or otherwise, of free mass university tuition schemes.

Matt Nolan has a few comments on it here, but focuses more on general principles than on the abominations that would follow a zero-tuition policy in the real world.