Thursday, 31 March 2016

Strangling the UBI at birth

Labour's proposal for a UBI debate was swiftly scorned by Eric Crampton whose pithy summary runs like this:
There's a lot to like about a guaranteed annual income. Or, at least, there would be if it were feasible and affordable. I don't think it can be both.
This sounds both reasonable and devastating, right?  The claim is based on an "impossible trinity", which is that you can only pick two of:
* low phaseout rate
* Big basic benefit
* same cost as current system
From which, just as the man said: a UBI can't be both feasible and affordable. Don't bother yourself with defining these terms: just focus on the fact they sound like clear & reasonable hurdles: you either pass or fail. Much the same story is told by Jim Rose in his Taxpayers Union report, the Herald and Liam Hehir who deserves special mention for arguing we shouldn't even talk about it: the whole thing is impossible madness.

These are brave attempts to shut down the debate: strangle the whole idea at birth while demonising those with the temerity to suggest it. If that was your goal, you'd make your strawperson as extreme and narrow as possible.

So let's review the approach of Eric and his mates. At present, some people are net taxpayers and some are net recipients of welfare. Line up all these people in order from the person with the biggest net tax bill on the left of the following diagram, through to the largest net recipient of welfare at the right end.
To keep it simple, lets just focus on tax & welfare and pretend the red line shows the net position for each resident. In this case, the government's books are in balance for a year if the area A is the same size as the area B: all of the tax revenue is paid out in welfare. Because of mumble mumble, we need to make sure none of these residents is worse off, so the UBI has to be set at the net amount received by the biggest recipient, so under a UBI the total payout is equal to the combined area of B and C. Any twit can see that B + C > A, so there you go: utter lunacy that could only have been dreamed up by deluded fools who can't count.

Here are a few things they're missing.

  1. A more modest UBI might in fact take a lot of people out of the poverty trap created by targeting multiple welfare payments all of which abate as you earn extra income. Not the people at the far right of the diagram, but some.
  2. The government would save money by not paying people to monitor, grill, and generally hassle these citizens.
  3. Contrary to Eric's view, NZ's tax code does in fact have "have free lunches baked into it" and removing these would add to government revenue. The two most obvious opportunities are clawing back some of the Apple/Google/Facebook/... avoidance and taxing capital tied up in residential property.
My point is that there is actually a debate to be had, and it is very poor form indeed to deny that using strawpeople that do not withstand even casual scrutiny.

Sunday, 20 March 2016

How do you calculate organic milk value?

Grass-fed organic milk - NYC, 2016
That was the headline for page 26 of NZ's Rural News this week and it's a perfectly good question.

Consumer willingness to pay is the obvious starting point. If consumers didn't value organic as a separate form of milk, there would be no difference in the wholesale price of organic and non-organic milk powder. The recent 520% premium shows there is extra value and tracking this differential over time would be the basis for a pretty reasonable method of calculating organic milk value. There you go: 64 words. 

Jacqueline Rowarth's piece in the Rural News is nothing like that. It starts off admitting industry projections of 12% cumulative annual growth rates over the next five years, while omitting the "cumulative annual" bit and so leaving readers free to think of 12% growth in total over five years. Then we quickly settle into the main task: sledging Fonterra's organic business. 

Recognising the two-sided nature of this business, Jacqueline has two black hats: one for farmers and the other for Fonterra. 

For farmers, well, it seems that the science of "comparing farm management systems" is really difficult, but these clever people at Massey reckon organic is less profitable per hectare and exposed to greater climate risk. Not only that, but your livestock values will fall because homeopathics don't work. Plus all your soil will deteriorate in fertility which will cost heaps to replenish later once you come to your senses. So, y'know, don't even think of it. Oh and don't forget that Fonterra cancelled organic contracts abruptly back in 2009. Its all super risky, everywhere you look.

And as for you Fonterra, what on earth do you think you're doing, getting back into the organic market?  Obviously it's because you haven't given due consideration to my brilliant plan, which is that "rather than taking a punt on organic [it] might be more valuable and less risky for everybody" if we instead tell everyone that NZ dairy does "not involve excessive use of pesticides, fertilisers, ionising radiation and sewer sludge, nor animal hormones and antibiotics". 

That's my summary of Jacqueline's column. She has a strong aversion to organic dairy and thinks Fonterra should market our more open air systems. Which it does already of course, including by recently giving guidance on PKE usage and announcing a testing procedure. 

More fundamentally: why is this a choice between two alternatives? Why shouldn't Fonterra pursue an organics business alongside its main strategy? Don't they reinforce one another?  

I don't usually read Jacqueline Rowarth's material. Now I remember why.