Morning roundup

The closing of the tabs....

• Free speech used to be a US left-wing value. On American campuses, only conservative students would support allowing a controversial speaker they disagreed with to speak on campus. This is very bad. 
• There's some support for free-speech on the NZ left, mostly Chris Trotter and Josie Pagani and Bryce Edwards. The rest pretends that free speech is some American neoliberal imposition and that we need nuanced approaches in which enlightened Wellingtoneans (themselves) would get to tell everyone else what speech is allowed. I wish we had better data on broader preferences.  
• The growth of the public sector over the past six years.
• The US National Institute of Justice rated the South Dakota 24/7 sobriety project as promising. Their whole database is likely useful for those keen on approaches that have some evaluation. 
• A $1 increase in US minimum wages is associated with a 0.92 percentage point reduction in percentage of employers offering health insurance and a 1.93 p.p. increase in prevalence of plans with deductibles. Always remember that total compensation bundles are more than just wages, and that squeezing one element of that bundle may affect the others. 
• The Paul Ramsay Foundation thinks Evidence Institutes, which trawl the lit [like the US National Institute of Justice, above] are a good idea. 
• Oh, I'm going to have to come back to this one as a dedicated post or column. Luming Chen's job market paper at UW-Madison. Policy uncertainty around wind energy destroys $5.9 billion in value in the US. 

NZ is getting riskier

This week's column on regime uncertainty at Newsroom is now ungated. A couple snippets:

Last week, Finance Minister Grant Robertson provided a letter to Air New Zealand outlining the Government’s expectations as the majority shareholder. These expectations include maintaining a comprehensive domestic route network; engaging with the development of new aviation fuels and enhancing its role as a leader for best-practice workplace relations.

Robertson noted that because the Government expects meeting the objectives is “aligned to the creation of long-term value for Air New Zealand”, there is no conflict between meeting the Government’s objectives and fulfilling duties to act in the company’s best interest.

Each of the objectives might individually sound innocuous. But each brings a distinct possibility of conflict between acting in the company’s best interest and achieving the Government’s objectives if they ever diverge.

If a regional route becomes unprofitable and the airline can see no way of making the route profitable, will the Government’s objective of a comprehensive domestic route network prevail?

In 2018, Regional Development Minister Shane Jones criticised Air New Zealand’s cutting of regional routes. In response, Air New Zealand Chair Tony Carter wrote to the Minister of Finance, reminding everyone the airline is independent of the Crown. Would that be possible in 2022?

If new synthetic fuels reduce emissions at a cost-per-tonne well above either current prices in the Emissions Trading Scheme or forestry planting, would the airline pursue the more costly option? Or would it be able to shift to alternative fuels only when they become cost-effective?

What might be packed into enhancing best-practice workplace relations when the Government is also working through a new industrial awards system? An industrial award might not be what is best for the airline and its workers.

Robertson also signalled the Government would be involved in a board renewal process to help achieve the Government’s expectations and objectives. If achieving the Government’s objectives should come at a cost to the firm's best interests, can minority shareholders be sure that their interests will be protected?

...

Tax changes normally follow a rather careful process. Changes to the tax treatment of mortgage interest for residential rental properties did not. They bring substantial uncertainty about just what might come next. That uncertainty makes investment in rental property development riskier.

If the Government exempts new builds from the announced tax changes, how could investors find that promise to be credible? What would prevent a future Finance Minister from saying those exemptions were too definitive?

If rents go up because of the tax changes, will the Government impose rent controls? Robertson refused to rule them out; they seem held in reserve as a threat. But the threat can too quickly become a self-fulfilling prophecy. Landlords worrying about coming controls may want to lock in increases ahead of the ban.

Rent controls are poor policy: they reduce rental housing supply and make it much harder for renters to move house. For every surveyed economist who agreed rent controls were beneficial, 40 disagreed. But when policy changes in housing are announced without any reasonable input from officials, can we rule anything out?

If further tax changes and rent controls could be on the table, how many will be willing to take on debt to finance new rent-to-build properties?

The Government was happy to announce substantial ad hoc changes to the tax treatment of the largest expense facing businesses in one sector, with casual asides that providing rental housing should never really have been considered a ‘business’ in the first place. What other sectors should worry that they might be next?

The costs of policy uncertainty

From the latest issue of the American Economic Review (gated):

We examine the impact of policy uncertainty on trade, prices, and real income through firm entry investments in general equilibrium. We estimate and quantify the impact of trade policy on China’s export boom to the United States following its 2001 WTO accession. We find the accession reduced the US threat of a trade war, which can account for over one-third of that export growth in the period 2000 – 2005. Reduced policy uncertainty lowered US prices and increased its consumers’ income by the equivalent of a 13-percentage-point permanent tariff decrease. These findings provide evidence of large effects of policy uncertainty on economic activity and the importance of agreements for reducing it.

Accession of China to the WTO gave China the same Most Favoured Nation status as other WTO members. That meant that the US could not impose trade punishments on China whenever it got mad about Chinese policy. The paper notes that the risk of this was high prior to WTO-accession as the House kept voting to remove China's MFN status post-Tienanmen.

They generate a variable on trade policy uncertainty to put into the gravity equations for trade. Trade policy uncertainty winds up mattering - folks don't want to sink investments into trade relationships if policy can wipe them out quickly.

Now think about the effects of government-induced policy uncertainty in the downtown Christchurch rebuild. Wellington focused on trying to provide certainty around demand in the Christchurch downtown and paid no attention to the uncertainty it was generating around supply and investment through its fiddling with precincts, what was allowed where, whether there would be a new convention centre (and when and where)...