Archive for the ‘Uncategorized’ Category

Tax and the Unemployment Benefit are not Unemployment Insurance

April 16, 2010

A few people of vastly different world views have been getting annoyed that the Welfare Reform group is going to be examining the option of unemployment insurance – and some think they should choose a better model to examine. I want to examine the reason why it is frustrating those on the left. No Right Turn claims, endorsing Jackson Wood’s analysis on Twitter, that:

We already have compulsory unemployment insurance. It’s called tax.

What we currently have is not an insurance scheme for at least four reasons:

1) Taxing and promising to pay fixed level of benefits is not an insurance scheme because premiums are not risk-related. If someone was in a particularly stable job (say, they worked for the Government), then their risk of needing to collect the unemployment benefit is lower. If it was an insurance scheme, they would pay lower premiums. Since they do not, they are in fact cross-subsidising those who are riskier.

2) Taxing and promising to pay fixed level of benefits is not an insurance scheme because insurance payouts are not related to contributions. If premiums were legally set as a fixed percentage of income, then payouts would adjust to increase for those who had a higher income. However, that is not the case.

3) Insurance schemes build a capital base from which to meet payouts, while the Government collects money in a year and pays it out in the same year. In other words, the sustainability of the insurance scheme is based on the Government’s ongoing right to tax its people. When schemes rely on future payments to meet obligations, they are typically called Ponzi schemes. Economists from the left and the right agree that benefits like Social Security are Ponzi schemes – they just disagree as to whether it is a good or bad Ponzi scheme.

4) If the unemployment benefit were an insurance scheme, then all Government benefit schemes could be classified as such. However, I’d like to see an insurance scheme with this degree of moral hazard survive in the marketplace. I haven’t seen NZ figures for the unemployment benefit, but there’s certainly evidence of the effect of unemployment insurance from overseas.


If you’re happy and you know it, clap your hands

March 21, 2010

Under the heading “Too much wealth can make us worse off: study”, the New Zealand Herald reported on Monday about an article published by two Canadian academics:

Using mathematical modelling, the economists advance the theory that once a country reaches a reasonable standard of living there is little further benefit to be had from increasing the wealth of its population. Indeed, it could make people feel worse off. They believe their work shows that as a nation becomes wealthier, consumption shifts increasingly to buying status symbols with no intrinsic value – such as lavish jewellery, designer clothes and luxury cars.

This month’s New Yorker magazine reviews three books on the same subject, asking “What can policymakers learn from happiness research?”

I’m a little sceptical of the research and very sceptical of some of the authors’ policy prescriptions. Given the scope of the topic, I plan to break my comments into at least a couple of posts.  (I also acknowledge that I have not read the books, though I’ve looked at a couple of the publicly available working papers discussed below).

Here’s the New Yorker’s description of Professor Bok’s book, The Politics of Happiness: What Government Can Learn from the New Research on Well-Being:

Bok, who served two stints as president of Harvard, begins with a discussion of prosperity and its discontents. Over the past three and a half decades, real per-capita income in the United States has risen from just over seventeen thousand dollars to almost twenty-seven thousand dollars. During that same period, the average new home in the U.S. grew in size by almost fifty per cent; the number of cars in the country increased by more than a hundred and twenty million; the proportion of families owning personal computers rose from zero to seventy per cent; and so on.

The New Yorker continues:

Yet, since the early seventies, the percentage of Americans who describe themselves as either “very happy” or “pretty happy” has remained virtually unchanged. Indeed, the average level of self-reported happiness, or “subjective well-being,” appears to have been flat going all the way back to the nineteen-fifties, when real per-capita income was less than half what it is today.

The New Yorker reports that, for Bok, this consistency in the level of self-reported happiness raises a profound critique of economic growth:

To suggest that the U.S. abandon economic growth as a policy goal is a fairly far-reaching proposal. Bok concedes as much—“The implications of this critique are profound”—but he insists that all he’s doing is attending to the data.

The two economists whose work is reported by the New Zealand Herald share a similar consternation about economic growth:

Nevertheless, Professor Eaton and Professor Eswaran […] do not believe the developed world’s obsession with wealth shows any signs of abating. They predict that “it is likely that conspicuous consumption will become worse as time progresses”.

I find the basic approach of Professors Bok, Eaton, and Eswaran misguided for at least four reasons.

First, subjectively reported happiness seems to me a thin basis on which to make recommendations about public policy settings.  Bok apparently regards the fact that the percentage of people who say that they are “pretty happy” is largely unchanged over the decades as a rationale for radically reshaping public policy.  I would tend to regard it as a feature of asking people to categorise their levels of “happiness”.  (Try this at home: are you “pretty happy” at the moment and were you “pretty happy” three years ago?)

Second, as John Stuart Mill wrote in Utilitarianism, it is “better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied.”  Mill’s point was not to dismiss the pursuit of happiness.  Quite to the contrary, he was explaining that happiness and the pursuit of the good life is a broader concept than mere contentment; it extends to a sense of dignity and accomplishment.  I wonder if some of the recent “happiness research” — which focuses on the avoidance of rivalry or dissatisfaction — fails to appreciate Mill’s insight.  For example, Oliver James’ book Affluenza makes the goofy suggestion of “a total ban … on the use of exceptionally attractive models in all forms of advertisement, closely policed by the Advertising Standards Authority” and Professor Lord Richard Layard of LSE has suggested that work should be taxed as a form of “pollution” on the basis that the increase in one employee’s income causes other people to be jealous and therefore unhappy.  It is not clear what to make of the type of contentment that requires an adult to be coddled from the sight of an attractive person.  However, as Mill explained in On Liberty, such a narrow, illiberal approach to life (i.e., alleviating people from the need for firmness, maturity, and toleration of other people’s choices) would be prejudicial to their development as individuals, rendering their character “inert and torpid”.

Third, there is good reason to doubt theories about what people should want that differ markedly from what people actually do.  Most people work hard to improve their lives and the lives of people they care about.  People respond to financial incentives because they want to use the money to pursue their own goals (which may mean a better car, a larger house, a more secure retirement, the opportunity to travel, or providing for their children, collecting art, and so on).  It seems dubious to second guess those revealed preferences on the basis of limited survey data about whether people say they are “happier.”

Fourth, the anti-growth policy conclusions drawn by the authors seem deeply misguided.  A prosperous and free society creates opportunities for people to follow their own idea of the good life.  However, Bok says that, ““People do not always know what will give them lasting satisfaction.”  The New Yorker continues:

Bok, for his part, argues that lawmakers should act on the findings of happiness research, even when doing so goes against the wishes of their constituents. “Most voters would probably prefer to be happy rather than have their representative mechanically accept their mistaken impressions of how to reach this goal,” he writes.

OK, so: economic growth makes people more prosperous and allows them to enjoy better living standards and buy things they want (larger houses, better cars) but Bok thinks this doesn’t make them happier.  Accordingly, he thinks policymakers should prefer his recommendations over those of the people concerned.  The New York Times’ review explains how he thinks this might be accomplished:

Government has the potential to produce happiness, but Americans dislike government.  Ever logical, Bok concludes that the state should therefore do more to encourage trust in it. Believing that the public’s attitude toward government is too “extreme” and its judgments of politicians too “harsh,” he also calls for the news media to balance their frequent stories of corruption and inefficiency “with accounts of success and accomplishment in order to give an accurate picture of the government’s performance.”

By this stage, the lessons that we’re told we need to learn from Bok’s happiness research seem not only illberal but downright weird.  I think happiness research may have some interesting things to say, but I’ll address that in a separate post.

Dances with Smurfs

March 5, 2010

I finally saw Avatar this week. I went mainly to see what it would be like to see a feature-length film in 3-D. I didn’t have particularly high hopes for the film having heard a basic summary of the plot.

Sadly, even my low expectations were too high. Sure the film has some impressive graphics and the 3-D effects are OK.  But overall, I am astounded that the film has been nominated for the Best Picture and Best Director Oscars. And I’m surprised that it has received generally positive reviews. With the Oscar ceremony next week, I want to make the case against Avatar.  Why I think it was a pretty bad movie and why it shouldn’t win Best Picture or Best Director.

My first criticism of the movie is it treats the audience as though it collectively has half a brain. Nothing is subtle about the movie. The worst examples of this are the names that Cameron has chosen for things in his sci-fi world. The movie is set in the year 2154 on the planet Pandora. Humans are mining for a mineral cryptically called unobtanium.

Add to a lack of subtly, one-dimensional characters who don’t change much during the course of the movie. The good guys are the humanoid native Pandorans, the Na’vi. They are wholesome, sensitive and highly attuned to their environment. The chief antagonist is Colonel Miles Quaritch. Quaritch is old school military. He shouts a lot. He likes blowing things up. He doesn’t care about the Na’vi or the environment.

Even Jack Sully, the chief protagonist, is fairly one-dimensional. He is an avatar pilot. Avatars are Na’vi human hybrid bodies designed to facilitate relations with the Na’vi. Mainly their job is to convince the Na’vi to move away from areas the humans want to mine. Sully is initially instructed to gather intelligence to find a way to get the Na’vi to co-operate. Over time he essentially becomes one of the Na’vi and ends up fighting with them against the humans. (If this all sounds very Dances with Wolves, it is. Sully is in a wheelchair in real life but linked up to his avatar body he is able to run, hunt and have sex with the Na’vi tribal leaders’ daughter, Neytiri.)

Despite making the rather monumentous decision to fight against his own people on the side of a ten-foot blue skinned species, Cameron never shows Sully undergoing any internal struggle. He never really seems particularly interested in the human activity on Pandora. Why does he switch sides? It happens after he sleeps with Neytiri – perhaps Na’vi sex is just better?

I think what I found most frustrating about the movie is despite having a fairly pedestrian plot, it runs for 2 hours and 42 minutes. I’m baffled as to why the film was nominated for the Best Film Editing Oscar. As far as I could tell the movie wasn’t edited. Large parts of the it simply need to be cut. The sequence where Sully learns to become one of the Na’vi felt like it lasted for at least an hour. Cameron really needs to take some advice about movie making from Trey Parker and Matt Stone:

If the movie was shorter, I probably wouldn’t have spent large parts of it wondering why so much of Cameron’s sci-fi world made so little sense. In 144 years humans developed the technology to travel six years across the galaxy, put themselves in a state of hibernation for the journey, and develop biological avatar bodies. So why did mining technology appear to go backwards, such that strip mining was the order of the day? Also, why did avatars even need pilots? If you can design and grow biological organisms like avatars, why design them so that you need humans to “drive them” at all times? Why were the Na’vi’s bows and arrows powerless against the human ships in one scene and then deadly in the next?

Finally, Avatar suffers from an increasingly common sense of pessimism about the future and technological advance. One of the central themes of the movie is that life would be better if only humans were more like the Na’vi, living in trees and marvelling at falling dandelions. This just seems false. As this article points out, abundance is great. Presumably the Na’vi spend most of their days hunting for food and eking out their meagre existence. They certainly spend a lot of it avoiding the many predators that inhabit their world.

If Cameron is really committed to returning to a simpler time, when humans lived in trees, he is welcome to leave his home and do just that. I think a documentary of that would be excellent.

What happens if the judges of the Supreme Court are evenly split?

February 24, 2010

A rather inane point for a Thursday afternoon perhaps but the issue arises because the Supreme Court judges apparently decided to hear the Gwaze appeal with only four judges this morning after one judge was called away because of a family emergency.  The Press reports that:

If the Supreme Court appeal is evenly split between the four judges, the decision would automatically support the Crown appeal.

I think the journalist has made a mistake here.  Section 31(2) of the Supreme Court Act 2003 is clear about this point:

If the Judges are equally divided in opinion, the decision appealed from or under review is taken to be affirmed.

In other words, where the judges are evenly split the judgment below is affirmed, so the appeal is dismissed.

Incidentally, where a judge is absent the Supreme Court has a discretion whether to adjourn the hearing or to continue with the sitting (see section 30).

Welcome to Today’s Dissent

February 16, 2010

Welcome to Today’s Dissent.

The blog is a collaborative project between Jesse Wilson, Stephen Whittington and Jonathan Orpin.  Jesse and I (Jonathan) are lawyers and Stephen is a law student who works for a New Zealand politician.  Together we plan to use the blog to cover a range of issues relating to law, law reform, economics and politics.  There’s not too much more to say about the blog’s content at this stage as it is something of an experiment.  The subject matter may change over time and updates may be sporadic.

Why have we chosen the name Today’s Dissent?  For a couple of reasons.  We realise that our views may not always be popular ones or put us in the majority.  However, we hope that in such cases there may be some truth in the legal saying that “today’s dissent is tomorrow’s majority”.  Also, as we plan to post a fair bit about legal issues, in particular issues relating to free speech, we thought the reference to “dissent” was appropriate.

Finally by way of disclaimer, although the blog is collaborative, each post will reflect the Dissenter’s own personal views.  The material and views posted here are not posted on behalf of anyone else (including other Dissenters) and do not represent the views of our employers or clients.

That’s about it.  Welcome to the blog.  We hope you like it and we welcome your comments.