The logic of 3-strikes critics

Our 3-Strikes for Burglary policy has been greeted with enthusiasm by many. But some commentators, including the editor of the Herald, are against the proposal. They take issue with the idea that increasing the penalty for repeat offenders will reduce the number of burglaries. They think we will incur the cost of imprisoning more burglars without achieving an equal or greater benefit by way of reduced burglary.
I am confident they are wrong about this. But suppose they were right. Why do they not follow the logic of their position and recommend a reduction in the penalties for burglary? If the cost of increasing penalties will exceed the benefit, as they say it will, then surely the benefit of reducing penalties would exceed the costs. These critics must think that by reducing penalties we would save more on prisons than increased burglary would cost us.
Yet none suggests reducing the penalties for burglary. Curious.

Letter to the NZ Herald re three strikes for burglary

Your editorial about ACT’s three strikes for burglary policy included several errors, mainly of reasoning rather than fact. You are right that there were fewer burglaries committed in 2013 than in 2012. But what is the relevance of this fact? There were still about 120,000 burglaries in 2013. Why should we not want the burglary rate to decline yet further and faster?

Your claim that last year’s decline in burglary is due to improved police detection of burglary does not stand up to the facts. The “clear up rate” for burglary – that is, the percentage of cases where the police discover the culprit – has been falling and now stands at less than 14%. When detection rates are falling, penalties must increase even to maintain deterrence at its present level.

ACT’s policy of 3 strikes for violent crime has been in force for 4 years. You claim that we will not know if it is deterring violent crime until 2020 or 2025 “given the typical sentences for violent crime”. You seem to over-estimate the sentences handed out for violent crime in New Zealand. A third of those who have gained 2 strikes for violent crime in the last 4 years are already out of prison.

You claim that in the UK the “outcome of such policies was the spending of billions of pounds on new jails”. This billions figure is misleading in the context or our burglary policy. The UK took a tougher stance on sentencing for most crimes, not only burglary, and the UK’s population is 13 times ours.

More importantly, you consider only the cost of the policy and ignore its benefit. The UK prison population began rising in the mid-1990s and the crime rate simultaneously began falling, dramatically. The benefit to the British population has massively exceeded the cost of keeping people in prison. When the government saves money by not imprisoning criminals, it imposes a far greater cost to the hundreds of thousands of citizens who are then victimised. This amounts to a dereliction of the government’s first duty.

Finally, your claim that ACT's policy removes judicial discretion is wrong. The policy allows judges to set a lower sentence when three years would be “manifestly unjust” and it allows judges to impose sentences above 3 years when warranted. The policy restricts judicial discretion only insofar as it requires a minimum 3 years for a third burglary conviction (exceptional circumstances aside). Imposing this limitation on judicial discretion is precisely the purpose of the policy.

Burglary is not like inclement weather. We need not simply accept it. Good policy can reduce the amount of burglary we suffer. I was pleased to note that nowhere in your editorial did you dispute our claim that ACT’s 3-strikes policy will have this effect.

Who is ACT’s New Leader?

Jamie Whyte is ACT’s new leader. More than that, he’s a Kiwi and represents what we are all aspiring to – an open, progressive and dynamic New Zealand. A nation led by a stable, disciplined Government that gives people the freedom to achieve their full potential and build successful families, businesses and lives.

Jamie has worked as a management consultant, foreign currency trader and philosophy lecturer. The 48-year-old is also an award-winning writer and has contributed regular opinion columns to the Wall Street Journal.

Three minutes with Jamie Whyte

Why did you enter politics? 

I have been thinking, talking and writing about political issues most of my life. Over the last 10 years, alongside my “day job” in consulting, I have been a pundit in the UK, writing opinion columns for The Times, The Financial Times and the Wall Street Journal. Now that I have returned to live in New Zealand and raise my daughters here, I thought I should step up and do something more than talking and writing about improving public policy.

Why did you choose ACT?

ACT has always been committed to individual responsibility and small government. So am I. There is no question about which is the right party for me.

If you could make one policy change tomorrow what would it be?

I would allow the boards of all state schools to opt out of Ministry of Education control and become partnership (or charter) schools.

What do you think about when you are alone in your car?

I often have imaginary arguments with my political opponents, which I always win!

What song best describes your typical day?

“Don’t worry, be happy” by Bobbie McFerrin

If you’d like to discuss your aspirations or concerns for the future of New Zealand, don’t hesitate to get in touch with Jamie:

Speech: Three strikes for burglary, three years jail

Last year there were more than 52,000 reported burglaries. According to the Treasury, for every 10 reported burglaries, there are another 12 that go unreported. This means there were more than 120,000 burglaries last year – or over 2000 a week.

The public suspect the police give burglary a low priority. That is why so many uninsured victims do not report the crime. With less than15 percent of reported burglaries are “cleared up”, they know they have little prospect of getting their possessions back.

The courts also give burglary low priority.

The maximum sentence for burglary is ten years. But even professional burglars who head professional gangs never get anything like this maximum sentence. In 2012 a man with 388 prior convictions for burglary got a mere 2 years and 9 month sentence when convicted for burglaries number 389 and 390.

With a 15% apprehension rate and such absurdly soft sentencing, burglary is a low risk, high reward enterprise. It is no wonder that many find it an attractive career.

Both major parties also give burglary low priority.

National is claiming credit for falling crime rates, saying it is because they are “tackling the causes of crime”. Yet they cannot name a single “cause of crime” they have tackled.

Violent crime is falling because ACT’s “three strikes and the maximum prison sentence” is working.

Labour and The Greens’ prediction that three strikes would result in our prisons being filled with innocent people who had merely touched someone have proven false.

Instead, we have 4,000 people on one strike, 32 on two strikes and not a single person convicted of a third strike offence since the ACT policy was made law in 2010. That looks like pretty effective deterrence.

The Greens and Labour support the system of infringement points leading to lost licenses because it deters bad driving. But, for no apparent reason, they believe that a system of strikes leading to years of imprisonment doesn’t work. Well, there is plenty of evidence from New Zealand and abroad that it does.

Yet burglary is the most serious crime that people are likely to experience and public concern about the crime is widespread.

Over two thousand families will come home after this Easter Weekend to discover that burglars have robbed their homes.

If they are lucky they will just have lost their TVs, computers, cell phones, jewelry and cash. If they are unlucky the burglars will have trashed the home.

If they have insurance then the victims can claim. But they will discover the insurance company requires new locks, security screens, burglar alarms and, for commercial clients, possibly even the hiring of security guards.

Because successive governments have failed to do their primary job of providing for the secure use of our property, we must pay private firms to protect us against thieves. First we pay with our taxes and then we pay again because our taxes have been poorly spent.

Half of those who are robbed this Easter Weekend have no insurance. There will be students, beneficiaries, pensioners and other families who will lose everything they own. It happens every day.

Many will be traumatized. I know of people who, having been burgled, never feel safe again. No dead locks, sensor lights or alarms let them sleep well. The emotional cost of burglary is incalculable, but it is real.

When I was elected Leader of the ACT Party I said at our conference that we were considering a three-strikes policy for burglary, similar to our three-strikes policy for violent crime. I was attacked by commentators who said the idea was half-baked.

ACT has carefully researched the policy.

Three strikes for burglary was introduced to England and Wales in 1999. As in New Zealand, burglary was out of control and given a low priority by the police and the courts. A Labour government passed a three strikes law whereby a third conviction for burglaries earned a mandatory three years in prison.

Burglary in England has fallen by 35 percent.

There are reasons to believe the law will work even better here. In England there are professional criminals who come across from Europe to conduct crimes and their previous convictions are often unknown to authorities. And the English law allows parole for third strike offences.

ACT has consulted with experts on the likely cost to the taxpayer. Our view is that any increase in prison population will be moderate. Indeed, if it has the deterrent effect we expect, it may ultimately decrease the prison population. Four years after becoming law, that seems to be the effect of our policy of three strikes for violent crime.

Unlike violent crimes, which are sometimes spontaneous, burglary is a calculated crime.

Burglaries happen when burglars figure the rewards outweigh the risk of detection or likely punishment. Three strikes for burglary will change the calculation.

In a 2006 report, the Treasury estimated the average cost of a burglary to be $9,000, making the total cost to New Zealanders more than

$1 billion a year. If our policy reduces burglary by 30%, it will save New Zealanders over $300 million a year.

As a party that believes in the rule of law and the importance of property rights, it is wholly appropriate that this is my first major policy release as ACT’s new leader.

But this three strikes policy is also a matter of compassion. Burglary is a serious crime that causes misery to tens of thousands of New Zealanders every year. Those who want to treat burglars with leniency display a callous disregard for the victims of burglary, whose number is vastly increased by this supposed kind-heartedness.

Burglary is a problem that requires strong leadership. ACT is the only party with a policy that can significantly reduce this blight on our society.






Roger Douglas: How to judge the 2014 budget

First publshed on the National Business Review

Budget day is coming up. Finance Minister Bill English has promised that this will be yet another "responsible budget".

But what does it mean for a budget to be responsible? How can we tell if a budget is responsible or reckless?

Unless we understand some fundament economic truths, then we will not be able to determine whether Mr English delivers on his promise. Set out below are a number of principles that we must keep in mind when assessing this year's budget.

Principle 1 - There should be no free lunch

A government should only take an extra dollar from the private sector if it can show the money will return more to New Zealand than it would have returned had it been left in the private sector. Every dollar of government spending is a dollar that is not being spent by an individual in the private sector. When a government borrows to spend, it is only deferring tax increases.

Principle 2 - All spending has an opportunity cost

Whenever the government spends money, it is necessarily not spending it elsewhere. When the government spends money, the question is not "does this spending have benefit?" but is instead "does this spending have more benefits than any alternative way of spending this money?" For example, when it comes to tertiary education, is it right for the government to not only forgo $500 million plus in revenue (interest free loans) but also make the poor pay for the tertiary education of the children of the wealthy?

Principle 3 - Incentives matter

The determining factor that explains how people behave is the incentives they face. When work pays, people are likely to work. If you punish hard work and subsidise idleness, you should not be surprised when you see more people out of work. A good example of the power of incentives can be seen by the consequences of Labour introducing free physiotherapy as part of ACC in 2004. It was meant to cost $9 million; by 2009 it was already costing $139 million. An increase of 1400%.

Principle 4 - Demographics matter

The costs attributable to one generation should be paid by that generation and not loaded on to the next in an unsustainable way. Most people know the makeup of the nation is changing. The effect of rising health costs when combined with an older society will be massive. Changes must be announced to entitlement programmes such as superannuation and health to ensure they are affordable in the future. To continue to run them as de facto pyramid schemes is the height of irresponsibility.

Principle 5 - Focus on the dollars

Focus on what's important. That means seriously looking at the big spending items and considering all the options. Ask the hard questions - is what we are doing actually working and is it returning value for money? Should this department exist, what programmes if any should we open up to a competitive bid process? The reality is close to 70% of government spending takes place in health, education and welfare. Refusing to change the funding or delivery these services is giving up on fiscal prudence; government spending will continue to increase.

Principle 6 - Productivity matters

The link between output and income is important if we want to understand the source of economic growth. Without an increase in real output, there can be no increase in income or living standards. One of the biggest areas where we can address output is in the public sector where productivity growth has at times been negative. Sorting out this problem will enable all of us to be better off. Cutting waste has real benefits to the ordinary person - be it in higher wages, better jobs or better goods and services.

Principle 7 - Transaction costs

Reducing transaction costs would enable New Zealand to achieve higher levels of economic growth. Greater investment in key infrastructure will allow us to expand our productive capacity and stripping away manmade barriers to growth such as tariffs would enable us to achieve gains from trade.

Principle 8 - Tax reductions

When Mr English says tax cuts may be unaffordable, he has it the wrong way round. Only high levels of government spending are unaffordable. If we continue to indulge the whim of every special interest group with tax money, then taxes will be higher; for example, superannuation at 65, interest-free student loans, Working for Families for high income earners and subsidies for industry. When taxes are cut, it is often pointed out the wealthy benefit most. In reality, progressive tax rates discourage work and innovation from the most economically productive. High taxes on the wealthy do not just mean less money for them; they mean fewer goods and services for all to consume.

Conclusion - The choices

This year's budget can continue down the redistribution path as they have for the past 20 years. But long-term that is a path to low growth and poverty.

Alternatively, we could aim to increase our productivity and stimulate economic growth. That will require a change of direction and a change of culture, change I do not believe Prime Minister John Key and Mr English are capable of.

This year's budget should celebrate free enterprise and entrepreneurship. It should adopt policies that encourage innovation and competition. New Zealand should move away from tired, old state monopolies (education, health, welfare, etc) and introduce new ways to deliver our social services. We can be wealthy again but only if we are prepared to change.

Sir Roger Douglas is a former minister of finance


Allowing Kiwis to sell their homes to foreigners benefits Kiwis

Winston Peters has apparently convinced David Cunliffe that when foreigners buy New Zealand property they make New Zealanders worse off. Mr Cunliffe has announced his intention to adopt Winston Peters’ policy of banning foreigners from buying homes. Even John Key is now saying he will look into the matter.

There is no need to. Mr Peters and Mr Cunliffe are wrong: allowing New Zealanders to sell their homes to foreigners benefits New Zealanders.

To see why, start with the benefit to New Zealanders that occurs when one Kiwi buys a house from another Kiwi. To make the matter simple, suppose Kiwi John buys a house from Kiwi Jane for $500,000.

John must value the house more than the $500,000 he paid for it, otherwise he would have been unwilling to swap this amount for the house. Suppose the maximum he would have paid is $510,000. Then he benefits $10,000 from the purchase, this being the difference between the $500,000 he lost and the value (to him) of the house he gained.

Similarly, Jane must have valued her house at less than $500,000, otherwise she would not have been willing to swap it for this amount. Suppose she would have sold it for no less than $490,000. Then she benefits $10,000 from the sale, this being the difference between the $500,000 she gained and the value (to her) of the house she sold.

So the total benefit of the transaction to Kiwis is $20,000, split evenly between the buyer and the seller.

Now suppose instead that a Foreigner Fred had out-bid Kiwi John. To do this, he must have paid at least $510,001 since, by hypothesis, John was willing to spend up to $510,000. What is the benefit to New Zealanders in this case?

Well, John is where he started, still with his $500,000 and no house. He gets 0 benefit from the sale of Jane’s house to Fred. But Jane’s benefit has risen from $10,000 to $20,001. In other words, the total benefit to New Zealanders has increased by at least $1. (In reality, the net gain will usually be in the thousands.)

Some will be tempted to say that when Foreigner Fred buys the house Kiwi John is $10,000 worse off because he has lost the $10,000 benefit he would have got if Fred had not bid. Fine. But then you must say that, in the initial case, where Fred does not bid, Jane is $10,001 worse off because she has lost the extra $10,001 she would have got if Fred had bid. So the net result ends up the same, with New Zealanders being better off when Fred bids.

And let’s not forget the benefit to Fred, who must have valued the house at something more than $510,001 to have paid this for it. Fred is not a New Zealander, of course, but he is still a human being and his welfare should still be a matter of concern to civilized people.

As this example should make clear, Mr Peters’ policy simply creates a transfer of wealth from Kiwi house sellers and foreigners to Kiwi house buyers, and one that makes New Zealanders worse off as a group. The cost of this transfer is not worth incurring, if only because, over the long run, house sellers and house buyers are the same people.

Indeed, the policy is so economically ludicrous that I suspect its real motivations lie elsewhere. To mangle Samuel Johnson’s famous saying, xenophobia is the last refuge of the political scoundrel.

My challenge to David Cunliffe

The Labour Party has announced a return to “industrial policy”. If elected, they will decide which businesses and sectors of the economy will deliver the highest returns and promote them in various ways – most obviously, by subsidising them with taxpayers’ money. 

This policy effectively replaces the decisions of private investors with the decisions of Labour Party politicians. It would be a foolish policy if Labour Party politicians were not better investors than the private investors they will replace.

So, before asking people to vote for the policy, shouldn’t David Cunliffe prove that he and his colleagues really are better investors than those who do it professionally?

He could do this easily. Mr Cunliffe could set up a small investment fund – $5,000 would suffice to get started – and trade it in the months before the election. Since he claims to know better than private investors which businesses will give the best returns, his fund should massively outperform the NZX 50 and other stock market indices.

Mr Cunliffe will surely leap at the opportunity to establish his credentials as an economic planner. If he won’t take the opportunity, then we must conclude that he is only pretending to know which investments are best.

Mr Cunliffe talks a good game when it comes to investing. And he plans to put your money where his mouth is. But before anyone goes along with him, they should insist that he puts his own money where his mouth is.

So I challenge Mr Cunliffe. Trade the stock market in the months before the election. Publish your trades as you make them and explain how you arrived at your supposed knowledge of which investments are best. By the election we will be able to see if you really do know what you claim to.  

If you won’t accept the challenge, then withdraw your proposal to use taxpayers’ money to invest in the businesses that take your fancy.

The Left trying to solve problems created by their own policies

The Greens today claimed that the appreciation in Auckland property prices shows that a capital gains tax is needed. They claim that that the profits earned from investing in rental properties “draws more and more money into the market, pushing up prices at an unsustainable rate”. Taxing the capital gains on rental properties would supposedly discourage this investment and bring house prices down.
This ought to strike The Greens as strange. Investment should push prices down, not up. If the returns on rental properties are very high, profit seekers will build new rental properties in an attempt to capture a share of them. This will increase the supply of housing and bring prices down. That is how markets normally work.
The Auckland housing market doesn’t work this way because restrictions on land use, of the kind favoured by The Greens, make it hard to build new homes. As so often, the Left recommends meddling in markets to solve problems created by their prior meddling.

New Zealand's manufactured education scarcity

The Herald reports that Auckland's growing population is putting pressure on its schools. Low decile schools are losing students to high decile schools. Parents shift their children because there is not enough of the education that parents want.
A growing population also increases demand for shoes, for flat-whites, for hairdressers and for just about everything else. Yet there is no shortage of these things. Why not? What is the difference between the supply of education and the supply of hairdressing?

The answer is that education supply is controlled by the government. In a normal market, increased demand first pushes up prices. This increases profits and encourages additional supply of whatever consumers want but has been in shortage.
In New Zealand’s state controlled education system, however, supply does not respond to demand in this way. Instead, students and parents clamber over one another to get into schools that they see as desirable.
Astonishingly, the officialdom simply dismisses parental concerns. They huff that the schools that parents are pulling their children from are perfectly good. The problem, they believe, is that parents are overly preoccupied with decile rankings.
The system is simply not responsive enough to the desires of parents and children. The preferences of bureaucrats and teachers unions are given too much weight. It is a cumbersome and unreliable process, as the current shortage of education in Auckland testifies.
Partnership Schools show the alternative. Take the example of South Auckland Middle School. The proprietors of Mt Hobson Middle School innovated and created education that parents wanted. Parents paid to send their children to this independent school. Then ACT’s Partnership School policy allowed its supply to expand.
South Auckland Middle School is taking an education innovation from Remuera to Manurewa. It is the flexibility of the Partnership School model that’s allowed this to happen.

The government should do what it can to draw the private sector into the business of supplying education in Auckland through initiatives like Partnership Schools. The creativity of social entrepreneurs is what we need to address New Zealand’s social challenges.