Thursday, March 30, 2017

Failure of health care bill proof American Republic is alive and well

Many have seen the failure of the American Health Care Act, which has just been withdrawn because of lack of support in the US House of Representatives, as the first major test of Donald Trump's presidency. The reality is that even though Trump promised in his election campaign to repeal and replace President Obama's Affordable Care Act, the new bill was Speaker Paul Ryan's baby much more than Trump's, so its defeat probably won't cause Trump any significant political harm.

I think the bill's defeat is a victory for America for a couple of reasons. Firstly, the bill itself was universally considered to be unworkable and it certainly did not meet Trump's promise of "affordable coverage for everyone, lower deductibles and health care costs [and] better care." More importantly, it demonstrated to all those who have been painting Trump's victory as the end of the American Republic, that nothing could be further from the truth. The separation of powers is alive and well and Congress just exercised its power to cast out a proposed new law that the president supported. 

One of the great characteristics of the American system of government is that its participants do not slavishly act according to their party affiliations. Republicans may control the House of Representatives, the Senate and the Presidency, but that doesn't mean a Republican bill has an easy ride to become law. Here in New Zealand, our MPs tend to toe the party line, as dictated by the prime minister and his cabinet, far more than they do in America.

The recent decisions by the federal courts to stay Trump's immigration orders is further evidence that reports of the death of the Republic are premature. America may have its problems, but a lack of democracy and checks on power are not among them.

Tuesday, March 28, 2017

Wellington Mayor continues tradition of blaming markets for government failure

Wellington's mayor, Justin Lester, has blamed 'land bankers' for not building new houses on the undeveloped land they own. The two developers whom Lester has blamed must feel like Dreyfus because there are few clearer cases of blaming the victim. 

New Zealand has some of the most unaffordable housing in the world and Lester is right to identify this as a supply problem. However, the reason for it is primarily our regulatory environment and local government practices. Our Resource Management Act gives local government draconian powers to delay, stop and impose excessive costs on housing development and, in my experience, councils exercise these powers with great zeal, even to the point of deliberately ignoring the law where it favours developers.

No sane businessman would sit on assets that do not generate income when those assets could be put to productive use. Developers do not buy undeveloped land to admire it and every day they do not develop it costs them money in interest charges, rates, etc. They make money only when they sell the developed sections.

Blaming the market for government failure has become a tradition for politicians. The most grievous example was the Global Financial Crisis where bankers were blamed for creating the subprime mortgage market, which was actually mandated by US Government policy. The response from politicians is invariably more regulation, which then creates even worse market distortion and greater failure in a continuing vicious circle. Witness the fact that the US financial sector is even more exposed to high-risk financial instruments today (post Dodd-Frank) than it was at the time of the crash in 2007.

Lester's desire to penalise developers with 'targeted rates and levies' will undoubtedly have the exact opposite effect to that which he desires. It makes one wonder whether he has any knowledge of economics at all because a basic understanding of high school-level economics would tell him that increasing taxes on the supply side just pushes the price curve upwards, thereby increasing prices but decreasing supply. 


I suspect Lester is smart enough to understand this but like most politicians of his ilk, he is wilfully ignorant because he needs a scapegoat to divert attention from the failings of his council in causing the supply-side issues in new housing development.

Wednesday, March 22, 2017

The Death of Martin McGuinness

I have a strange affinity for Irish Republicans. Perhaps it is because my grandfather fought with them during the Irish War of Independence between 1919 and 1921, or perhaps it is because I have an in-depth knowledge of the terrible history of British and English rule of Ireland. But most likely it is because I spent some time in Ireland during the 1980s when the Provisional IRA had effective control of significant parts of Northern Ireland and I met people who were almost certainly IRA members. They didn't seem like the evil people one imagines terrorists to be, although I was as appalled as anyone by the bombings at Hyde Park, Harrods and the Brighton Hotel that happened while I was living in England. I did not accept the IRA's justification for the murder of innocent people but I gained an understanding of what might drive people to commit such acts.

It was common knowledge in the Irish community that Martin McGuinness was the commander of the Provisional IRA in Derry and that he personally ordered, and perhaps participated in, many of the attacks in that city and further afield. I heard rumours that the British government, in spite of Margaret Thatcher's public statements to the contrary, was negotiating with the IRA, even back then. McGuinness was involved in those negotiations that led ultimately, under Tony Blair's government, to the Good Friday Agreement. McGuinness did some terrible things and I think it does him no credit that he never publicly owned up to his role in many terrorist incidents, but his willingness to negotiate the peace and power-sharing agreement showed he had a rational mind at least.

Someone once said that one man's terrorist is another man's freedom fighter, and with the passage of time many who would have been thought of as terrorists in their day are now considered to be heroes. The American revolutionaries were terrorists in the eyes of the British, as were those who fought in the Indian Mutiny, but no one considers them terrorists today. Events that are closer to the present time, like the attacks by Jewish groups Irgun and the Stern Gang that led to the establishment of the state of Israel, still tend to be more contentious. I think it will be a long time before McGuinness is universally considered to have been a freedom fighter, but if Western leaders like Justin Trudeau can mourn the death of a mass murderer like Fidel Castro, then anything is possible.

Monday, March 20, 2017

Apple shouldn't pay NZ taxes

A great deal of fuss has been made in the past few days about the fact that Apple Computer pays no tax in New Zealand. Green Party "co-leader" James Shaw says Apple is not paying its "fair share" on sales of $4.2 billion over 10 years in New Zealand.

I beg to differ. Leaving aside my libertarian beliefs that no one should be compelled to pay any taxes, there is a very good reason Apple pays no tax in New Zealand. Apple designs its products in California and runs its worldwide operations from there. It manufactures most of its products in China, and it runs its sales and support operations for New Zealand out of Australia (and for some services out of Ireland). There is no direct presence in this country and New Zealand doesn't add any value to its products and services. Under international taxation rules, the country where the value is added is the country in which where the revenue should be accounted for taxation purposes.

Now let's look at what value Apple provides to New Zealanders. Even James Shaw admits "I really like Apple products - they're incredibly innovative", so obviously he gets a lot of value from them. I know I do - they enable me to run my business with no administrative staff and provide me with an incredibly efficient set of tools that are worth far more to me in time saved and professional image than I pay for them. I am grateful for Apple for the innovation and reliability of its products and services and I don't think Apple owes me anything more than that.

In any event, it is not true to say that Apple pays no taxes - it paid Goods and Services Tax on those $4.2 billion worth of sales. So New Zealand is already getting something for nothing.

Wednesday, March 15, 2017

The possibility of a populist leader in New Zealand

This is an election year in New Zealand. We vote for our parliamentary representatives and indirectly for our prime minister and government. Under our Westminster system the executive comprises MPs from the party (or parties) with the largest number of seats in parliament. We have a particularly silly form of proportional representation where about half the MPs represent electorates but these numbers are disregarded when considering the overall makeup of parliament, which is determined by the total of the party vote. To demonstrate how this would have worked with the US presidential election, Donald Trump may have won 30 of the 50 states and 80% of the counties in America, but Hillary Clinton would have become president under our system.

The proportional representation system gives minor parties power far in excess of their support and means the major parties often cannot really implement any of the policies on which they campaigned. As a result we have had successive governments that have pursued pretty much the same middle-of-the-road policies and have seen a gradual increase in the role of the state in our lives. There is little possibility that a party with radically different policies could ever get enough support to change this gradual progressivism. This is similar to the state of affairs in most Western democracies where the slightly left-of-centre party and the slightly right-of-centre party take turns ruling with essentially the same policies. Donald Trump's election, like Brexit, was the exception, where people said to hell with the same-same and took a punt on something different.

The lack of real choice in policies between the major New Zealand parties, National and Labour, could cause New Zealanders to look for alternatives in this year's election. One of the alternatives is the New Zealand First party led by Winston Peters, a perennial politician whose fortunes have risen and fallen several times over the past four decades since he was first elected as a National Party member of parliament. Peters' political career to date reached its zenith when he was deputy prime minister in National Party Prime Minister Jim Bolger's coalition government between 1996 and 1998. He again reached the top table of New Zealand's government when he served as Labour Prime Minister Helen Clark's foreign minister between 2005 and 2008. Peters has much in common with Donald Trump with his populist appeal to disaffected voters (in Peters' case mainly the elderly) and his nationalist and anti-immigration policies are reflected in New Zealand First's name, which sounds like a ready-made cap logo. His party is rising in the polls and is currently level-pegging with the third-placed Green Party on 11% of the national vote.

We approach the forthcoming election with extra uncertainty because of the resignation of popular prime minister John Key at the end of last year. Bill English, who was Key's deputy, has less personal appeal amongst voters than Key (although I like English because he has at least the semblance of principles whereas John Key clearly had none). English has been leader of the ruling National Party before, having led it to its worst electoral defeat in 2002, gaining barely 20% of the vote against the popular Helen Clark. So while National still leads the polling with nearly half the prospective vote, the gap to Labour is narrowing and if New Zealand First continues to eat into the vote share of the major parties, Winston Peters could well end up at least holding the balance of power again. My guess is that this time around, Peters will demand even more than in previous coalitions and could end up dictating many of the new government's policies.

It is hard to see the New Zealand political landscape changing much in the short term but Trump and Brexit have taught us that things can move very quickly. New Zealand doesn't have the same groundswell of political division and frustration that existed in Britain and the United States prior to their plebiscites last year, but I think New Zealanders are complacent and significant change could catch us unawares.

To paraphrase the Chinese curse, we live in interesting times.

Friday, March 10, 2017

Hawking wants to put the fox in charge of the henhouse

Stephen Hawking is someone I most admire. He has been confined to a wheel chair since his twenties with ALS but that hasn't stopped his mind soaring to the farthest reaches of the universe to solve some of the great mysteries of science - how did it all begin, what are black holes and how do they work, and what is the nature of time and why does it run in only one direction? He is probably the most influential physicist since Albert Einstein and Niels Bohr and certainly the best known of our contemporary scientists.

Recently he has been turning his attention to scientific issues that cross over into the political arena, including the potential risk of technologies such as robotics to wipe out humanity. On the positive side, he has been urging greater exploration and eventually colonisation of Mars and other planets, but he has also been pushing the hoary old idea of global government. He sees the latter as the solution to the problem of humanity's aggressive nature but he acknowledges the risk of such a governing body becoming tyrannical. Indeed.

I think we should consider Hawking's concerns in light of the revelations of another Steven. I am reading the book, Better Angels of Our Nature, by Steven Pinker, which is probably the most comprehensive treatise on the trends in human violence that has ever been written. Pinker shows that contrary to the impressions of many people today, human violence of every type has been decreasing sharply since the the Middle Ages - including war, religious and judicial violence, criminal assault and even domestic violence. It gives a very positive picture of humanity in the 21st Century and when combined with other studies that look at the very positive trends in the quality of life, prosperity and equity for humanity, it is grounds for a great deal of optimism rather than Hawking's pessimism.

One of the conclusions we can draw from Pinker's and other data is that the greatest threat to humanity does not come from the inherent violence in our nature, which for whatever reasons is decreasing, but from the propensity of human beings to look for solutions to their problems from strong leaders. It is powerful governments who represent the existential risk to humanity, not individuals. Hawking's solution is to trust a global government to keep us safe, which is simply putting all our eggs in one basket. I am not a famous physicist but I am something of a risk management expert and I can tell you that Hawking's proposal is a very foolhardy risk management strategy.

The answer to an existential risk, as any corporate investment strategist will tell you, is to diversify. In government terms that means localisation and federation, not centralisation and unification. Fortunately, this seems to be exactly what is now happening in global politics with Brexit and other bids to break down the European 'superstate', a resurgence of federalism and even calls for secession ('Calexit') in the United States, and the formation of new bilateral and multi-lateral political and trade alliances to replace the traditional transnational blocs.

Hawking is right to be concerned about the future of humanity. I, too, think we should colonise (and terraform) Mars and even Venus. This is part of a prudent risk management strategy for mankind. But I don't think we should trust strong, centralised government. This is, to use another analogy, putting the fox in charge of the henhouse.

Thursday, March 9, 2017

Black Lives Matter leads to Donald Trump and Marine Le Pen

Identity politics is a big thing these days and no flavour of identity is bigger than race. The victimhood-mongers focus on other identities such as gender, sexuality, disability and religion, but race trumps them all. When the other victim identities are discussed, they are often combined with race (or confused with it - witness the labelling of anti-Muslim sentiment as racism) to greater effect. Nowhere is this more true than in America, where, a century and a half after 750,000 Americans died to abolish slavery, race relations remain a festering sore. The polarised political discourse there has got to the point where people of European descent are not even allowed to have opinions because those opinions are deemed to be the product of 'white privilege'. Unfortunately this form of intolerance is creeping into the conversation here in New Zealand, where any criticism of successive governments' preferential treatment of Maori is considered racism.

We are meant to accept that race is the most important determinant in someone's success or lack of it but, somewhat perversely, that the sole reason for differences in social or economic outcomes for different racial groups is discrimination. Except, of course, when those differences are in favour of the victim groups - for example, it is acceptable to say that African-Americans are better at sports such as basketball because of common physical traits but not to contend that people of Jewish descent are better at mathematics and finance because of inherited characteristics they might have.

Scientists such as Charles Murray of 'The Bell Curve' and Nicholas Wade* of 'A Troublesome Inheritance' fame have become persona non grata for publishing research suggesting that human performance in a range of areas is in part linked to genetic factors. Neither claims that race is a significant determinant in any area of human performance at an individual level and Murray's bell curves show that the performance of all races largely overlap - that there are many African-Americans who are poor at sports and Jewish people who are inept at maths. But those who criticize their books don't concern themselves with reading them.

Individual human performance in every sphere is overwhelmingly due to individual traits, most particularly the propensity to think and act rationally, rather than to any common genetic attributes. Even those individuals blessed with outstanding physical and mental abilities must work hard and focus their efforts on personal goals to reach the pinnacle of achievement in their fields. It is ridiculous to say Usain Bolt is the fastest runner or that Einstein was the greatest scientist primarily because of their race.

Racism and its close cousin tribalism are the scourge of our world, but not in the way that the victimhood-mongers would have us believe. Pre-judging people on the basis of race is foolish not only because it disadvantages the individuals that are pre-judged but also because it deprives the person making the judgement of the value that may be derived from interaction with those individuals. It is equally as foolish (and as insulting to the individuals concerned) if that discrimination is positive because it denies individual potential just as surely as if the discrimination is negative.

The Western world seems hellbent on returning to a time when people were primarily judged on their race. Whether this is well-intentioned or not, it is an anathema to classical liberal values of individual freedom and rights and is a very slippery slope that inevitably leads to greater racial conflict. Black Lives Matter leads to Donald Trump and Marine Le Pen as assuredly as night follows day.

*I reviewed Wade's book here.