Morning roundup

The tabs did accumulate. A couple of worthies. 

• There will be no bailouts of local councils that neglected their pipes. Good. 
• Me, over in Newsroom, reminding everyone of the mess Canada made by trying to turn Facebook into a media funding entity. It's now sounding like National, who had been very sceptical about the proposal during the election campaign, are warming to the darned thing. Pretty disappointing if so.
• Like I told y'all last year, it was always pretty obvious what National's plan for council water reform would be. It would be based on Castalia's work with Communities for Local Democracy. Like they said it would be.  
• Canada's Conservative Party pandering to loonies on the right. 
• Alison Andrew's talk at the Waikato Economics Forum was excellent. She's CE of Transpower. Transpower just works in ways that council water just doesn't. Consider the incentives both face. Transpower is self-funding through charges on users of its transmission lines, under standard utilities regulation that allows them a return on their capital. Council water, well, no. But that doesn't meant there aren't problems for Transpower. I hope that the proposed fast-track consenting solves some of this mess.

Canadian cautionary tales

My column in the weekend Dom went through Canada's messes in trying to make Google and Facebook subsidise Canadian newspapers. 

The Canadian Government passed Bill C-18, the Online News Act. And now, Canadians wanting to link to a news story on Facebook see this notice instead.

Earlier this week, I interviewed the University of Ottawa’s Professor Michael Geist about the problem. He’s the Canada Research Chair in Internet and E-Commerce Law and has been following C-18 more closely than anyone.

The New Zealand Initiative · Podcast: Media funding and regulation

Bill C-18 requires Facebook to pay whenever a user puts up a link to a news site. It is not a cost that Facebook can easily control or predict. It brings potentially unbounded liability.

News links are not particularly valuable to Facebook. If anything, links to news stories encourage users to click away from Facebook rather than stay on the site scrolling through pictures of relatives’ pets and children, and seeing ads delivered through Facebook while they’re there.

Facebook provided plenty of warning that they'd sooner stop allowing user links to news on their platform than be subject to unpredictable and potentially very large payments for allowing such links. 

Willie Jackson says the NZ government will have legislation in the background in case Google and Facebook don't fork over enough money to NZ media companies. It would go to arbitration. 

Listen to his interview, above-linked, and tell me this isn't a tin-pot shake-down. There can be defensible public-goods arguments for subsidising news production, but I just can't see why that ought to be funded by some tax or shake-down of tech companies.  

It sounded like he figures that Google fronting up $50 million might cover it. Who knows. 

But threat of going to arbitration with unknowable potential liability is what's had Meta pull news links in Canada. Listen to my chat with Michael Geist on it, or read his substacks. 

From my column again:

Finally, on August 1, Facebook began pulling the plug. Canadian Facebook users will no longer see news links and content. It affects not just Canadian news sites but also international news for Canadian readers, because the Online News Act can also be read as requiring payment for links to international sites too.

The big newspapers are getting exactly what they asked for. They thought that Facebook was stealing from them by linking. It’s always been nonsense – even the report commissioned by New Zealand’s Ministry of Culture and Heritage found that “digital platforms provide considerable commercial benefits to news firms”.

But, like Trump, they’d convinced themselves that they could have something for nothing. They could have media funding and make Big Tech pay for it. And it’s worked out about as well as Trumps’s wall.

Professor Geist explained that some of the biggest losers from Bill C-18 have been small independent news sites that have relied on links from Facebook for traffic.

I hope that our Minister for Broadcasting and Media, Willie Jackson, is paying attention to Canada’s cautionary tale.

Extorting payments from platforms to meet the Government’s news funding objectives isn’t just thuggish. It also doesn’t work.

 Will look forward to seeing the eventual legislation...

Afternoon roundup

The worthies, on a long-overdue closing of the browser tabs:

• Colby Cosh explains to Canadians something Kiwis have known for some time: the Party commanding the confidence of the house gets the Prime Ministership. And that might not be the largest party in Parliament. 


• New Zealand's judges keep bringing the administration of justice into disrepute. 


• Attempts to stop people from renting their houses to tourists on AirBnB. If cities just let people build more housing, none of this would be any kind of issue. 


• Agriculture emission pricing gets punted to post-election. It would have been heroic for Hipkins to hit this while milk prices are tanking.  


• ACT proposes weakening the medical licensing cartel. 


• The government adds a pile of cost-increasing conditions for receipt of film subsidies. It may have the laudable effect of reducing demand for film subsidies. Or, perhaps down the track, lead to higher subsidies to offset the cost imposed by stuff like carbon footprint audits. 

Around the traps...

A few spots you may have caught me recently...

• Olivia Wannan asked me about some of the carbon spend in the most recent budget. It's just nuts. The biggest constraint in getting to Net Zero is maintaining public support for rising carbon prices. So the government decides to throw ETS revenues at a pile of low-value business subsidies instead of rebating it back to households as a carbon dividend. 
• I had a chat with RNZ's The Detail about subsidies for major sporting events - this time, soccer.
• My column in this week's Newsroom ($, ungates tomorrow by pulling the /pro from the URL) is on National's pulling away from support of Medium Density Residential rules. National wants to maintain ability for cities to go up, but without MDRS, while making it easier for them to also go out. Labour, at least in 2017, wanted cities to be able to go out as well as up. I have a go at trying to find what might be an intersection of the two. 

Afternoon roundup

I cannot count the tabs. A pruning:

• Danyl Mclauchlan on the depressing kludgeocratic budget.
• I still don't like that they're subsidising videogames.
• Peter Dunne expects capital gains taxes and wealth taxes to feature in Labour's platform
• V as classic and excellent antifascism
• Officials are looking at a carbon dividend. I sure hope it's in place before the government stops auctioning NZU. 
• A few bits from me on the budget, over at Interest.co.nz
• Hooked on Phonics worked for the UK. An older piece in AEJ: Ec Policy.
• The San Francisco Doom Loop
• New report out, covered at Newsroom, on failings in freshwater management. There still are better options...
• Don Brash is appropriately scathing about housing policy.
• For a new Great Exhibition.
• One advantage of being at a think tank: I can say what I believe to be true. 
• The government still doesn't fully understand that Covid is airborne. No mention of ventilation in the winter health plan. 
• My column in last week's Insights newsletter, on government public health forgetting there's still a pandemic on and turning back to telling us what to eat and drink...

Morning roundup

We have too many tabs open here at the Crampton Discount Browser Tab Warehouse, and we have to liquidate stock immediately. All the links you can handle at rock-bottom prices.

• Turns out that, entirely predicably, subsidising electric cars gives a pile of money to rich households while doing bugger all to reduce emissions. Just as we told them two years ago. Stupid. 


• I'm not a Ben Sheeran fan, but I'm cheering for him in this lawsuit. Another stupidity long foretold. If you haven't read Spider Robinson on Melancholy Elephants and Infinite Copyright, do attend to that. That's the stakes on the Sheeran lawsuit. 


• Meanwhile, Chris Luxon wants to follow Australia in banning vaping, if National should form government. I'm cheering for the smugglers in this one. I don't know why Luxon's pro-smuggling. On the plus side, I love having something I can cheer about no matter who wins the election!


• The government says it wants a no-frills budget. NZ's videogame sector's pretty convinced that subsidies to the videogame sector aren't a frill. I think NZ should go further than simply not playing the subsidy game. Instead, NZ should seek the equivalent of international arms control agreements banning film and videogame subsidies. The dangerous nature of these subsidies is obvious if we're even talking about having them in a year that's going to require a lot of budget restraint. 


• Looks like there's a treatment option for lakes with too much phosphorus. Of course, New Zealand doesn't seem interested. Presumably it isn't sufficiently circular. Too much like waste-to-energy plants that solve the obvious problem, but that don't solve the underlying problem of regulators wanting to tell people what to do. If the thing works, farmers ought to be able to fund remediation if that's more cost-effective than other options. 

Level playing fields

It is possibly possible to grow bananas in New Zealand. In greenhouses. At great expense. 

Suppose that New Zealand had no way of importing bananas. For purposes of the thought experiment, the things just rot in transit.

So we have a banana industry here growing bananas at high cost. 

Then, an innovation! Bananas become tradeable and imports are possible - and no biosecurity issues. The boats start landing, laden with the tasty luxury.

Local industry complains. Production costs here are very high compared to islands where there is no need for greenhouses. Surely that kind of competition is unfair to local producers. The playing field should be leveled. The New Zealand government should provide subsidies to offset the unfairness of foreign climates.

We'd be nuts to do that, right? The ability to import low-cost bananas means that banana-producers here can shift to doing other, more valuable work. And we all get to eat more tasty bananas. Or not, depending on our preferences. 

Complaining about foreign subsidy regimes makes as much sense as complaining about foreign climate for growing bananas. With one difference. If it were possible to get an international treaty banning climates good for growing bananas, that would be terrible. It would hurt others to no overall benefit. 

But if we could get an international subsidy-control regime, like an arms control treaty, banning subsidies on films, or on video game production, that would be to the good. 

Dileepa Fonseca goes through some of the pleading for video game subsidies over at BusinessDesk ($). The Australian subsidies are claimed to be on the order of 40-45%. Just ridiculous. 

The climate for growing bananas abroad is a lot better than in NZ for reasons entirely outside the control of the NZ govt or NZ producers; we oughtn't subsidise banana-growing here to match it. 

The climate for growing video-games is better in Oz because the Australian government has the equivalent of a giant subsidised greenhouse. They're showing no signs of wanting to tear the thing down. It would make a ton of sense for NZ to try to lead international agreements against these kinds of subsidies - in videogames, and in film, that just induce industries to flip jurisdiction in pursuit of subsidies. 

But it doesn't make sense to subsidise our own greenhouses. If Oz wants to throw ridiculous amounts of money at videogame making, it just doesn't make sense to try to keep up. The industry here will shrink; resources will be released to work in other sectors. Stupidly, one of those sectors will be the subsidised NZ film industry. 

Dileepa quotes industry giving the standard line that taxes paid by workers in the subsidised industry could wind up being higher than the amount of the subsidy. But that's completely irrelevant. Absent the subsidy, people would work in other industries where they'd pay taxes. If we extended that argument generally, it would mean giving every damned company a subsidy of up to a dollar less than the amount of tax paid by its workers. It's nuts.

He also has a bit from me:

However, there are many who are deeply sceptical, critical, or both, of the benefits of such rebates and offsets. 

NZ Initiative chief economist Eric Crampton acknowledged the Australian scheme could see gaming jobs shift across the Tasman, but he said this was an argument for NZ to advocate that Australia remove theirs not that NZ taxpayers match their contribution. 

“Getting into subsidy races would be a terrible mistake. If an industry can only thrive here if it is heavily subsidised, should it really be based here? “Or should the workers and capital that it would be using instead shift over to industries that can do well even without subsidies?” 

Crampton also said it would be a mistake to participate in a subsidy war with countries that had deeper pockets. 

He said film industry subsidies enabled more highly skilled domestic film production and this was the major benefit he accepted came from such subsidies rather than other oft-touted aims like employment. 

But Crampton also said film subsidies were expensive and NZ's experience of using them showed such measures had no real endpoint. 

“And we then wind up in the bizarre situation in which we have subsidised training programmes to encourage kids to pursue careers in the film sector rather than other industries – careers that can only be viable here if large subsidies to the industry sector continue. 

“Every year we subsidise the training of the next set of hostages to be held to ransom against any threat of ending film subsidies.”

I should have said "held AS ransom". Doh. 

Anyway: don't get stuck in more subsidy traps, like we're stuck in with film.  

Pure waste

Richard Harmon over at Politik (via his daily newsletter) reports that the government put $30 million into Auckland Film Studio upgrades via the Infrastructure Reference Group, and that Auckland Council also threw in some money. 

Make you weep. They'd have done better by burning the money. Zero joke.

Every dollar spent on that, given the state of the labour market, has pulled a construction worker away from more valuable tasks. How do we know the other tasks are more valuable? They didn't need to be subsidised. 

It's not just a waste of money, it's a destruction of real resources relative to what could have been done instead.

Worse, the infrastructure goes to support an industry that only exists at current scale by virtue of gigantic government subsidies to international film production. 

Had the government burned the money instead, it might have at least reduced inflation by a tiny amount. 

Making work

The wage subsidy scheme in 2020 made a lot of sense. It kept workers attached to firms through lockdown, so everything could restart quickly in May. 

When we'd talked with officials about it around that time, we'd noted that while it seemed great as temporary response to lockdown, it shouldn't be extended to prop up tourism/hospitality over the longer term. The sector would have to adjust, and propping-up would otherwise create zombies.

RNZ reported this week on the Jobs for Nature programme still being used to prop up tourism firms in South Westland. 

South Westland businesses involved in a Jobs for Nature programme where the government pays their staff to work on conservation projects, are determined to find a way to keep it going after the funding runs out. As well as helping to keep the businesses afloat during the Covid disruptions, more than 70,000 hours have been spent trapping, weeding, maintaining tracks - and even finding an endangered bat species. The government has committed $3.78 million to the scheme and that'll end in June next year. At a recent hui at Fox Glacier many of the more than forty business who've signed up for the progamme agreed that it's done much more than simply keeping them afloat until tourism in the region rallies.  Kathryn speaks with Rob Stewart from Skydive Skydive Franz Josef and Fox Glacier, Dale Burrows from Franz Josef Wilderness Tours and Wayne Costello from DoC.

You can listen to the whole interview to hear Kathryn Ryan very impressed by the government's helping to keep these companies afloat. I'm sure Nine-to-Noon has run interviews with employers unable to find staff. I find it weird that nobody connects these things. 

If unemployment were really high, maybe the case would be different.

But the effect of the programme currently is to prop up firms that are no longer viable and that cannot attract capital or credit to tide them through until tourism numbers might increase again while putting scarce workers onto Jobs for Nature projects. 

Those projects may well deliver environmental benefits. But if any cost-benefit assessment was ever done on those, and I'm not sure any were, it would have been in the context of labour being in surplus, rather than desperately scarce. Nobody thought this was a good idea before the pandemic brought expectations of high unemployment, right?

Running job creation schemes, at current unemployment rates, and at current measures of the output gap, is a mistake. 

I was curious what the output gap from the latest Monetary Policy Statement looked like in historical context so I threw this together to get a longer time series. Each line is the output gap provided by a different MPS. In some cases, the MPS provides a forecast, so neat to see how the measure panned out relative to the forecast. In other cases, revisions to GDP or to the output gap forecasting measure makes for differences between the lines.

Current levels of the output gap aren't unprecedented. And gaps on the lower side are worth avoiding. But it certainly doesn't look like a time for running make-work schemes. 

Subsidies beget subsidies

The video game industry wants subsidies so they can compete for CGI workers with the subsidised film industry, and to keep up with the subsidised Australian video game industry. 

If they get subsidised, what industries are going to need to be subsidised so they can compete with the subsidised video game industry in hiring programmers? The whole software sector, but also anyone else who needs programmers, right?

If Xero then gets a subsidy so it can compete for programmers with the subsidised video game sector, that will give it an advantage in hiring accountants too. And then the accountancy firms are going to need a subsidy so they can operate on a level playing field with Xero in hiring accountants. 

Subsidies for everyone! And we will all be rich. Just like we were in 1981.

I'm quoted a bit in the Newsroom piece linked up-front, along with some rent-seekers. 

Dr Eric Crampton, the chief economist at the New Zealand Initiative, rejected the idea the New Zealand Government should try and match overseas subsidies by using the example of film subsidies, which he called a “bad deal”.

“Film companies play countries off against each other, seeking the largest subsidies and tax breaks. While consultancy reports tout large benefits for the countries bidding the most, academic work struggles to find any real benefit at all,” he said.

He said subsidies like this have unintended side effects, like companies being able to outbid for workers whose skills may be needed in other industries.

“New Zealand learned in the 1980s that heavy subsidies are an unsustainable response to foreign subsidies,” he said. “Better to abolish our own subsidies, and encourage others to do likewise.”

Crampton argued making sure Immigration New Zealand is equipped to quickly process visas would be a more approach, making sure sectors like video games have access to overseas staff they may need.

Afternoon roundup

The worthies on the closing of the browser tabs:

• A database of global film subsidies. Remember that the only winning move is not to play. 


• "Somewhat perversely, some local councils and contractors are putting workers back on the shovel, because that way they can get Ministry of Social Development funding to train up six workers – whereas using a diesel excavator would train only one person."


• The latest Neumark metastudy on minimum wages.


• Can't kill a zombie stat. RNZ repeats the dodgy BERL alcohol cost number. So does Stuff. Remember: the $7.8b number is just the old dodgy number from over a decade ago, multiplied by GDP growth over the period. That's it. It starts with a dodgy number, then inflates it using a dodgy method that requires that alcohol cost be a constant fraction of GDP. Me on this in the Dom, a couple years ago. 


• Looks like there are going to be delays to any NZ sanctions regime on Russian-held assets. I really don't know why we have an Overseas Investment Office if they can't even figure out how to do this. 


• Lots of NZ kids don't really know how to write or do math.
• Government is subsidising new boilers for some greenhouses and food processors. There is absolutely no need to do this. Process heat is in the ETS. 

Cost-disease socialism

I love this way of framing things.

When you set a pile of regulations that make supply highly inelastic, and then deal with resulting voter complaints about it through demand side subsidies, you get cost-disease socialism. 

Good piece in Discourse drawing on work by Sam Hammond and the Niskanen Centre. 

Yet notice that the expenses that are relentlessly rising are in areas that have been the object of decades of government efforts to make them more affordable. How did that happen? I call this the “paradox of subsidies,” in which the very same government subsidies that are supposed to make a good or service more affordable just drive prices higher and make it less affordable.

Easy to see it in NZ as well.  

Covid costs and quarantine costs

I don't like New Zealand's film subsidy regime and generally view it to be a good thing when an international film company chooses someone else's subsidy regime instead.

But it looks like Amazon's shifting Lord of the Rings production to the UK isn't just about the subsidy war. 

However, a crew member, who asked to remain anonymous, told Stuff they understood New Zealand’s Covid-19 border restrictions and the requirement that international cast and crew spend 14 days in managed isolation upon arrival was part of the problem.

...The crew member told Stuff that while there was “a general feeling of surprise” over the decision, some saw the Amazon project leaving New Zealand as an opportunity, because Amazon was holding up some of Auckland’s prime studio space for a year before season two was even planned to go into production.

But those opportunities would only eventuate if international productions decided to film here, and MIQ restrictions might turn them off, the crew member said.

“Unless we change MIQ, there’s no other productions,” they said.

Other production staff told Stuff they were disappointed, but not surprised, to be among the last to hear that production was moving to the UK. They said they heard about the move from media, and received confirmation via an email on Friday morning.

A year ago, I wondered whether NZ might be particularly attractive for international film production even without subsidy because the costs of set disruption with a Covid case can be substantial. Shutting down filming for a while because someone's turned up infected is costly. 

This crew member could just have been wrong on stuff reported here. Maybe the UK just offered a pile more money, and NZ really shouldn't be in those bidding wars anyway. 

But whatever advantage NZ has had in offering a Covid-free filming experience now seems outweighed by the combination of MIQ time costs and whatever the difference in subsidies might be. 

MIQ costs will not have changed substantially over the period, although expectations of ongoing MIQ costs may have - I do not know how much easier it is for film types to access rooms at their preferred times of travel, but I expect that it's easier for them than for the rest of us. They should be expecting that MIQ restrictions would be easing considerably next year for fully vaccinated and tested cast and crew, though there would always be risk of restrictions resuming. 

But the risks and costs of Covid cases among a vaccinated crew will be much different from the risks and costs of Covid cases in crews before vaccination was available. Running a tight ship - mandating 100% vaccination among crew and maintaining regular testing - may be sufficiently close to the experience of working in a Covid-free place that the certainty of two-weeks' delay in getting cast and specialist crew in just isn't worth it. 

All else equal, is the combination of MIQ restrictions plus low risk of Covid cases better or worse for international film productions than the combination of no MIQ restrictions plus higher risks of cases and outbreaks, now that vaccination is becoming the norm? We can't disentangle it from whatever's going on in relative subsidies. I would *love* to know more about this assessment on Amazon's side. It would be impossible to get a straight answer because it would get into subsidy detail that's probably confidential. But I still would love to know more about it. 

You can find the UK's arrival restrictions, along with everyone else's, at the IATA site. It looks like vaccinated travelers to the UK from the US only need to complete two Covid tests after arriving, on days 2 and 8, and fill in forms with location details - presumably so they can be found if someone on their flight turned up positive, or if they fail to show for their required tests. 

Subsidy incidence: EV edition

It's pretty standard drill in intermediate micro to work through some tax incidence questions. 

The general point is to remind students that it doesn't matter whether the government says some tax has to be paid by the business or by the customer, or whether it has to be paid by the employer or the employee. The burden of the tax depends on relative elasticities of supply and demand; the statutory incidence really doesn't much matter in determining the economic incidence.

The extension to subsidies is obvious - the same drill applies. 

And I guess that supply of used electric vehicles in Japan is relatively inelastic. NZ's announced EV subsidy scheme, yet to come into effect, is bidding up prices there. 

Turners' subscription fleet was made possible with a grant from the Government's green transport fund. But used EVs were becoming more difficult to source from Japan, Hunter said. "In terms of pricing, the vehicles in Japan have all gone up for the amount of the subsidy – $3450."

Robert Young, director of New Zealand's biggest used car importer Nichibo Japan, agreed prices had gone up, though not by quite as much. He said the market had been "perverted" by the subsidy, and New Zealanders would see that as the new EV and hybrid stock was shipped over from the Japan used car auction houses.

He estimated about half the $3450 subsidy would end up off-shore, benefiting the auction vendors in Japan and the UK as well as new car manufacturers. More would go to GST – meaning Kiwi EV buyers would pocket only about one-third of the subsidy.

"This policy is more about political run-scoring than achieving its objective," Young said. "It will drive up new and used car prices for New Zealanders and increase the age of the national fleet which reduces road safety. 

The funniest part is Minister Wood thinking he can do much of anything about a bidding up of auction prices of used cars in Japan.

But Transport Minister Michael Wood said the Government was keeping a close eye out for any attempts to take advantage of the subsidy.

“The new and imported used vehicle market is very competitive and I’m sure anyone attempting to distort market pricing will be called out," he said.

"I have asked my officials to keep a close eye on the market as the Clean Car Discount gains momentum. Over the lifetime of the policy, it will help make cleaner cars more accessible to Kiwis.”

Suppose that you were the official tasked with 'doing something' about higher used car auction prices in Japan. Where would you even start?  

Assorted updates

Blogging has been light. These are the bits I've missed telling you about.

• Matt Burgess, Oliver Hartwich, Bryce Wilkinson and I had a short podcast on the government's proposed feebate scheme. It's an incoherent mess given that it's running up against an ETS with a binding cap. 
• I had a chat with RNZ's The Panel on congestion charging on Friday. I'd had a column in the Dom Post on it a bit earlier. 
• My column at Newsroom last week went through the changes coming for local councils when water utilities get stripped from them and amalgamated into new entities. 
• My column in our Insights newsletter looked at the government's sclerotic approach to border management. Better, safer, and even cheaper testing options for border workers are available, and they aren't being used. 
• I had a chat with Newshub about America's Cup funding, and how the government should politely wish Team New Zealand all the best in its coming race, wherever in the world that might well wind up being. 
• And I had a chat with Josh Gans about the Covid response and some of the worrying numbers on risks with border openings. 
• Motu had a panel session on some minimum wage work by Dean Hyslop and Dave Maré; Bill Rosenberg and I were discussants. Their paper is here. I expect I'll be referring to it often. 

Self-recommending. Meaning, I'm in them, and I'm recommending them. Likely not in the better way that Tyler Cowen uses the term. 

Film subsidies and election campaigns

I'm a bit skeptical about campaign finance restrictions in general. Money probably does less to buy votes than is generally expected, especially when we consider that candidates with a better shot of winning probably draw more money in the first place. And restrictions in one place can often just make things bulge out in another place. 

But we have a fairly extensive set of rules, as well as prohibitions on a lot of speech activities that might influence people during election campaigns. Third parties need to be registered and their spending is tracked. Billboards and hoardings have to come down on election day, and you aren't supposed to even tweet about your preferred party on election day. Both rules seem increasingly anachronistic where more people vote at advance polls, but the rules are still there.

So things could get really really weird if the proposed film about the Prime Minister's response to the terrorist Christchurch mosque attacks goes ahead. 

The Electoral Commission doesn't consider books about candidates to be election ads or otherwise subject to regulation, so long as the books are sold at commercial rates. And they've suggested applying similar logic to a film about a candidate. 

You could then wind up in a spot where, prohibited from seeing tweets about candidates, all hoardings pulled down, you could nevertheless hear ads for a movie about the Prime Minister while driving past billboards for the movie about the Prime Minister on your way to a movie about the Prime Minister before heading out to the polling booth, where everyone would be banned from wearing political party regalia that might unduly influence you.

Movies, best I'm aware, tend to have rather more substantial marketing budgets than books. Pretty common to see billboards and ads for movies. A lot less common to see them for books. 

And then we start thinking about the film subsidy regime.

If the movie about the Prime Minister were considered an international film production, it would get 20% of its cost back as a rebate from taxpayers - with an option for an extra 5%. If it were considered domestic, it would get 40% up to $6 million, and an option for additional grants beyond that.

Total campaign donations and loans to campaigns, in 2020, were about $7.5 million. A party's election spending limit was just under $1.2 million.

So you could easily wind up in a spot where taxpayer subsidies for a film about the Prime Minister, released during an election campaign, advertised heavily during the campaign, and shown on election day exceeded the total combined campaign expenditure of all political parties. That seems, well, really big relative to the scale of NZ election campaigning. 

I don't know if there's a fix to the campaign spending rules to deal with this kind of mess, were it ever to eventuate. But there's a simple fix to the film subsidy rules. Some projects are already ruled out. There's a line excluding film grants for pornography, for example. 

Add in a line excluding grants for films about current MPs or those standing for office. 

I covered this in this week's Dom Post column.

I'd tweeted suggesting this back on Friday morning when the film was announced. The usual film-subsidy fans and Labour supporters got mad at me, until the emerging consensus was that the film was bad because they hadn't actually gone and talked with the survivors about centering the Prime Minister in a film about the attacks. 

But to be perfectly clear:

• I'm not saying Labour or the PM had anything to do with the film, or knew about it, or encouraged it, or anything like that.
• I'd have said the same thing about a hagiography of John Key a decade ago, or about an attack film on Ardern today, or about some "Air New Zealand: The Chris Luxon Story" film today, or about a movie about a Green MP's refugee childhood in New Zealand, or about a Green MP's human rights work serving as lawyer for an accused war criminal. Too easy to imagine too many MPs being able to be cast as heroes or as villains depending on the slant of the team making the film. Taxpayers shouldn't be funding that.
• I'm not saying that they'd definitely get the grant or that they even applied for it yet, but the standing rules make the project look eligible and that would be part of any sensible marketing campaign for investors in the film at Cannes.
• I'm not saying that the film will definitely go ahead; lots of films will get pitched at Cannes and not find backing. All the more reason to get the rules changed before folks start signing contracts based on expectations of coming subsidies. 

Media funding, prizes and public goods

The government's paid $50m to help shore up newsmedia companies' finances during Covid.

But the overall media funding problem is bigger than the current Covid mess.

I went through things in a bit more detail in Newsroom last week (ungated here). Too many news types want to find ways to have the government strongarm tech companies into rebuilding the old advertising-based funding model that worked until the 2000s - it's basically nostalgia for an era that just won't come back.

But where we wouldn't see any need to support buggywhip manufacturers against the rise of the car, there are reasons to expect the optimal amount of journalism is higher than we might wind up with where the personal benefits of being informed aren't all that high. 

I talked about it all with Jesse Mulligan yesterday afternoon on RNZ.

But you can get the nut of it from this snip from the piece at Newsroom.

That would not be a problem on its own. But there are reasonable ‘public good’ aspects to a thriving news sector. If an investigative journalist exposes a city councillor’s corruption, the benefits extend far beyond that newspaper’s subscribers being better informed. Worse, the benefits of being better informed have always been just a little ephemeral.

Sure, there is prestige in being able to hold one’s own in conversations about current events, but most of us really could ignore almost everything that’s going on in politics, and in policy, and in sport, without really noticing the loss.

It is then no surprise that the most typical findings of the academic literature on voter knowledge are that voters know very little.

This is hardly a new phenomenon. Even in the heyday of journalism, in 1964, well before the great decoupling of newspapers from classifieds and other advertising, only 38 percent of surveyed Americans knew that the Soviet Union was not a member of NATO – despite that the Cuban Missile Crisis had almost brought the powers to nuclear war only two years earlier.

And so we get to the nub of the problem. For most people, there is little personal benefit in getting the kind of information provided by serious journalists. So there is less effective demand for news than would be ideal, both because serious journalism directly provides benefits in democratic accountability, and because a better-informed voter base is likely to yield better outcomes at the ballot box.

There are two basic ways of trying to solve the problem. News producers could be directly subsidised, whether by philanthropists or by taxpayers. Or the rewards for being better informed could be strengthened. Let’s take each in turn.

Last year, the Stigler Center for the Study of the Economy and the State’s Final Report on Digital Platforms suggested taxpayer-funded vouchers could help fund news. Under this scheme, each adult would receive a $50 voucher to be used as a donation to their favourite news outlet. The proposal has a lot of advantages over other forms of state-funding. Rather than the Government or a panel of anointed experts doling out the money, individuals would reward outlets they most wish to support.

The proposal is interesting. The authors have thought through most of the obvious objections. But while the scheme would help reward the investigative journalism so important for democratic accountability, it would not do as much to encourage people to read the stories.

There is another way of encouraging people to pay a bit more attention to the world around them.

Growing up in Canada, radio stations often ran contests where they would phone someone at random and give them a prize if they could name the song the station had just played. It encouraged people to pay a bit more attention.

Imagine if the Government allocated $36.5 million to a prize pool. Every day, the editors of the various news outlets overseen by the Media Council would submit skill-testing questions drawn from the more important stories they had recently produced. Every day, some lucky Kiwi would get the phone call promising a $100,000 prize for successfully answering one of the questions of the day – with calls continuing until someone got the prize.

Suddenly, knowing what’s going on would matter for more than just water cooler kudos. Even if the odds of getting the call were low, the pain of getting the call and not knowing the answer would encourage paying attention to current events. That would help to drive subscriptions to the news outlets providing the news and build a better-informed electorate.

That seems more promising than letting the Government adopt mafia-style standover tactics to force tech companies to fund journalism.

Jacinda says I'm wrong

TVNZ sought comment from the PM on critiques of the film subsidy regime. 

I'd had a chat with Breakfast TV on Monday morning on the back of Matt Nippert's absolutely excellent continued sleuthing into those subsidies.  

Currently, Mr Crampton says there is around $170 million spent in subsidies to international films. He says other industries are also affected by not getting a slice of that money, because they aren’t getting the people they need in the right jobs.

“The video game industry at the end of last year was complaining that they can’t get workers because they’re all being sucked in to video animation in the subsidised film industry,” he says.

“Where does it end? We shouldn’t be on this kind of rollercoaster. Every country in the world competes on these kinds of subsidies and it’s a mistake to be in that game.”

Jacinda Ardern disagrees. She says she believes the flow on affect of the film sector is worth it for New Zealand.

"You ask anyone who works in the industry whether or not it makes a difference... the flow on affect is huge," the Prime Minister said today.

"The film industry is completely unique."

The big problem that I had with the government's "wellbeing" budget is that it made absolutely no attempt to gauge whether anything in it was particularly useful in improving wellbeing. Funding went into areas where there were demonstrated problems, but with no particular way of telling whether those were also the areas where more spending could do the most good.

I guess I was hopelessly optimistic in expecting that a government that professed to care about wellbeing actually were serious about it.

If the Prime Minister's method for evaluating whether giant film subsidies are the best possible use of tax money is to go and ask the recipients of the subsidies whether they make a difference, well, I suppose we should all ratchet down our expectations for Budget 2020.

You might have thought that putting a couple hundred million dollars a year into Pharmac might do more good than film subsidies - it would be a 20% boost to that budget. Or any of a pile of different areas, including an education system that has trouble teaching graduates the difference between effect and affect. But no. Film subsidies.

It makes for fun syllogisms though. If tax is love and Avatar sequels are tax, are we required to love the Avatar sequels? I hope not.

Previously: Film subsidies are stupid

Film subsidies are stupid, a continuing series

So. 

The New Zealand government, committed to wellbeing, believing that tax is love, wanting to ensure that every loving tax dollar spent provides the greatest possible increase in wellbeing, and fronting the Christchurch Call to stop harmful speech, has put $243,000 towards a Chinese propaganda film with the tagline "Anyone who offends China, no matter how remote, must be exterminated."

Thomas Coughlin has the story over at Stuff:

The film was not made directly by the Chinese Government, but by a slew of Chinese state-owned enterprises, including the China Film Group Corporation, China's largest film producer, and Bona Films.

Bona Films is a subsidiary of China Poly Group, another state-owned enterprise. China Poly Group is an unusual conglomerate housing the world's third largest art auction house and a real estate business, and has "longstanding ties to the military and the family of the former Chinese leader Deng Xiaoping," according to The New York Times.

The strong allegations made against the Chinese film industry's activities in New Zealand are made in forthcoming research from China expert Professor Anne-Marie Brady.

In it, she says growing cooperation between the Chinese and New Zealand film industries, combined with New Zealand's screen production grant means "taxpayers are now subsidising China's propaganda films".

Her concerns aren't just confined to Chinese films — she said the growing ties could have a chilling effect on New Zealand's own cinematic output. 

I don't know quite how you get around this if you're going to have an international film subsidy regime.

Like, maybe you could imagine some vetting to make sure we're not subsidising the production of propaganda films (dammit, I always misspell this and have to go back and correct, and I blame these guys) for authoritarian governments. But can you imagine the diplomatic mess where an arm of the NZ government tells film companies linked to the Chinese military and linked to the high echelons of the Chinese Communist Party folks that the NZ government considers their film to be authoritarian propaganda?

Not having international film subsidies would be a pretty clean way of not having to make those kinds of calls.

And, as reminder, the arguments for the subsidies are largely bunk.

You'll most frequently hear the argument that the subsidy is just a rebate on taxes paid here on activity that otherwise wouldn't have occurred here, so it's costless.

But that's wrong in general equilibrium. In the absence of film subsidies there would be fewer films made here, but people would work in other industries instead. Industries that do not get a tax subsidy. Those other industries are smaller than they otherwise would be because resources have been competed away by the subsidised industry. The subsidy won't increase total employment, it'll rather shift the kinds of tasks that are undertaken here as compared to abroad.

The more sophisticated argument is that the artificially-large film sector makes it cheaper and more feasible to produce NZ content here. International film subsidies have brought production that's built facilities and expanded capabilities, so it's then easier for NZ On Screen to get actual New Zealand work produced.

And that's certainly true. But we have to ask about value for money. International film subsidies cost on the order of $100 per household per year - or at least that's what it worked out to when I'd looked at the budgeted spend for 2020 earlier this year. Add in additional cost for training subsidies to work in that industry to keep it at that scale. And think about what other valuable services all the smart folks working in that industry, because of subsidies, could have been providing elsewhere if they hadn't been pulled into film work because of the subsidy regime.

Is it really plausible that the typical household, if offered the chance to decide, would really want $100 from their annual tax bill going to pay for international film production here rather than being shifted to health, to education, to Pharmac, or to themselves in lower taxes?

2020's budgeted international film subsidies are $171.6 million. Pharmac's budget is around a billion per year. You could then increase Pharmac's budget by around 17% if you stopped paying international film companies to make movies here instead of elsewhere, and put the money instead into Pharmac.

Is it plausible that whatever benefits are generated by international film subsidies, including that it makes it easier to produce great stuff like Wellington Paranormal and Hunt for the Wilderpeople, are higher than what we'd get by giving the money instead to Pharmac?

As for the argument that we have to keep subsidising the film industry because so many people now work in that industry... my column in our Insights newsletter earlier this year:

We all know that best policy is not paying off the kidnappers. Countries that get in the habit of paying the kidnappers encourage the taking of more of their nationals as hostages. It’s a dangerous game to get into because it’s so hard to stop.

But would any country be so daft as to not only pay the kidnappers, but also deliver to them the next round of hostages as part of the bargain?

If you think no country would be so mad, think again. It’s how the film subsidy regime in New Zealand works – as it does in every other place that chooses to play the game.

Last September, The Herald’s Matt Nippert reported that the Labour-led government had decided to continue the previous National government’s film subsidy scheme. Minister Parker ruled out changes where thousands of jobs could be at risk because business viability was threatened by ending subsidies, and where commitments by the National government risked lawsuits if the subsidies ended.

So there are your hostages: thousands of workers in the film industry who would have to shift to other employment, or shift offshore, if the subsidies ended. And here’s the payment to the kidnappers: the budget estimated that New Zealand will spend $113.6 million on screen production grants targeting international productions this year, with $171.6 million budgeted for 2020 – or about $100 per household.

Meanwhile, a host of New Zealand government-funded polytechs and universities train students towards diplomas and bachelors in screen production, diplomas in on-screen acting, bachelors of design (stage and screen), certificates in applied filmmaking and television, and more.

The government is subsidising specialised training students for jobs in an industry that would shrink dramatically in the absence of further subsidies to that industry, and further subsidies to that industry are justified on the basis of the jobs that would be put at risk if the subsidies ever ended.

To put it plainly, the government is teeing up the next round of hostages.

Had governments been this smart in the early 1900s, subsidies for training in the fine art of making buggy-whips would have been accompanied with bans on cars to protect the jobs of the whip-makers.

To crib a line from an excellent ’80s Cold War film, the only winning move in the international film subsidy game is not to play.

Around the traps

Blogging has been light as other commitments have pressed, but you may have caught me around the traps:

• I pointed to Stats NZ's disaggregated CPI figures in this piece by Susan Edmunds over at Stuff. 

  "Statistics New Zealand recently began releasing cost-of-living statistics for different groups to take account of differences in spending patterns. Since they started doing that, they have found that increases in the cost of living have been most sharply felt by the poorest because tobacco excise increases, petrol price increases and housing costs there have the worst effects. And these are areas directly under the government's control. Ceasing punitive tobacco excise increases and fixing the regulatory settings to allow new housing be built would substantially affect living costs for the poorest."

  You can check out Stats' shiny Living Cost Explorer right here.


• I also pointed to the consequences of failing to adjust NZ Superannuation in recognition of rising life expectancy in another article over at Stuff:

  Crampton said, if things were left as they were, it would not mean fiscal collapse.
  
  But it would mean government budgets were increasingly skewed to helping those who are older rather than those in greater need.
  
  "And, the longer we wait to make changes, the harder it will be to make changes because of changes in voter demographics. I view that as inequitable, but others can reach different conclusions."

• At the Herald, I suggested that reductions in the projected number of superyachts attending the America's Cup would worsen the already dubious case for government funding big sporting events. Tom Dillane there was only able to use a smaller part of my more verbose commentary, so here's the full text:

  “The case for government funding of the America’s Cup was always rather weak. After correction to some errors in the initial estimates, MBIE reported an estimated benefit-to-cost ratio only slightly higher than 1:1, with a range from 0.997 to 1.14. So every dollar of estimated benefit was matched, nearly one-to-one, for a dollar of cost. We can worry that these kinds of estimates are often optimistic about the benefits of these kinds of events. But the estimates would have been based on an expected number of visitors. If fewer superyachts are coming in for the event, then the benefits of the event will be a bit lower than expected. If we think that events like the America’s Cup do more to change the timing of just when tourists and superyachts come to New Zealand than to affect whether they ever come to New Zealand, then we should perhaps be less worried about things – except that that would also mean that the initial benefit estimates were always overstated.”
  
  “We should be sceptical that the path to national riches lies through public subsidy of large sporting events. If New Zealand taxpayers are happy for the government to spend a lot of money on what is effectively a big party in Auckland, then the event should be funded on that basis. But we should not delude ourselves that big parties attended by some foreign tourists are really investments.”




• Finally, I had a chat with Heather du Plessis-Allan about New Zealand's mess of regulations around heritage-listed buildings, that too often make it just too hard to own the things.