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The Case For Cannabis: Legalisation Will Not Lead to A Black Market

One of the fears of those who are against cannabis law reform is that a legal system would lead to the growth of the black market in cannabis production. Therefore, it would be better to keep cannabis illegal. As this article will examine, this reasoning is based on at least two major errors.

The logic goes like this: it costs X amount of dollars to buy an ounce of cannabis – let’s say 300. Cannabis is likely to be taxed in a manner similar to alcohol, and alcohol taxes are reasonably hefty, so let’s assume at least a 20% sin tax on cannabis, plus 15% GST – this is already over $400 an ounce.

This could mean that legal cannabis will cause so much tax to be added to the cost of an ounce that black market operators will be able to undercut it. Since cannabis growing will not be cracked down on because of its new legal status, large numbers of people will be able to grow and to enter the black market at no risk.

This reasoning is false in two major ways.

The first is that is doesn’t account for economies of scale. On the black market – which is currently where all cannabis is sold – producing cannabis isn’t cheap. As mentioned elsewhere, home cannabis grows suck up as much as 1% of the electricity production of nations such as America and New Zealand. These are incredibly inefficient compared to warehouse grows.

Moreover, cannabis sold in a legal market, from dispensaries, would not carry the risk premium associated with a product sold on the black market. The risk premium is very high in the case of cannabis, because a lot of product gets intercepted by Police action before it ever gets sold, and the losses from this have to be balanced against finalised sales.

Taking both of these things into account, we can see that the production cost of legal cannabis, manufactured by the ton and distributed to pharmacies without interruption, is going to be a fraction of what it is currently. This means that it will be possible to put GST on it and a sin tax on top of that, and still sell cannabis for $200 an ounce, or less.

No black market producer could compete with this and still make enough of a profit for it to be worthwhile. So, if anything, legal cannabis would sooner wipe the black market out completely by undercutting it. This was a principle understood in Uruguay when they made cannabis legal in 2013 – they set the price of cannabis at $1 a gram.

The second major reason why we need not be concerned about a black market is because we have the capacity ourselves to more-or-less set the final cannabis price through taxation.

There are really two kinds of prohibition: hard prohibition and soft prohibition. What we have right now is hard prohibition, where the Police will physically smash anyone in possession of cannabis, or cultivating it. This is hard because it uses the full power of the state, and will go as far as killing you to enforce it, or putting you in a cage for several years. We are simply not allowed it and no correspondence will be entered into.

But making something legal, and then taxing it to the point where it’s almost impossible to afford, is a kind of prohibition. The New Zealand Government is currently employing soft prohibition of tobacco, in that it has been raising the tobacco taxes every year, with the stated intent of forcing tobacco cessation through making it unaffordable. This it believes is in the greater good.

Soft prohibition shares many of the drawbacks of hard prohibition. In the case of cannabis in New Zealand, we can see that black market tobacco has made a comeback, to the point where trade in it is believed to cost the New Zealand Government tens of millions is lost taxes every year. So we can see that high taxes on legal cannabis is a bad idea, if the black market is to be discouraged.

If cannabis legalisation was done intelligently – which is to say that it was done with an entirely different mindset to how prohibition has been done so far – we would set the level of taxation such that the transition to a legal cannabis market was a soft transition. In other words, we could calculate what the expected average production cost of an ounce of cannabis should be, account for profits, account for GST, and tax that total at a rate that would still allow it to beat the black market. This would achieve all major objectives at once.

Not only would cannabis law reform not lead to more cannabis being sold on the black market, but it would be the best thing to fight the black market. Cannabis law reform would allow legal sellers to undercut the black market through economies of scale and the removal of the risk premium, driving criminal gangs out of business.

This article is an excerpt from The Case For Cannabis Law Reform, compiled by Vince McLeod and due for release by VJM Publishing in the summer of 2018/19.

VJMP Reads: Edward Bernays’s Propaganda V

This reading carries on from here.

The fifth chapter of Edward Bernays’s Propaganda is called ‘Business and the Public’.

Businesses have realised that their interactions with the public are not limited to selling their product. They also have to keep on side with that public, otherwise the latter will pass laws restricting the operational freedom of that business. This need to stay onside with the moral fashions of the public has created the public relations industry.

Incredibly for 1928, Bernays is already talking about the fact that it is no longer demand that causes goods to be supplied to the market. He is aware even then that demand is something that is created, and that this is economically necessary in an age of mass production owing to the size of the capital investment necessary to get started. This is entirely different to even a century beforehand.

It has meant that psychology is now necessary in order to conduct business. The minds of the market, both as individuals and as collectives, must be understood. The vast reach of mass media only makes this more important. “Business must express itself and its entire corporate existence so that the public will understand and accept it.”

A company must think hard about the impression that it creates on other people. This means that businesses have to think about things like the dress of their staff. Much of this sounds routine for 2019, so it must be remembered this book was written in 1928.

The propagandist’s work can be divided into two major groups: “continuous interpretation” and “dramatisation by highspotting”. The former is a kind of micromanagement of the public mind in all minor matters, whereas the latter attempts to create a striking and lasting impression. The appropriate method to use can only be determined after a thorough study of the needs of the client.

Bernays writes of his conviction that “as big business becomes bigger the need for expert manipulation of its innumerable contacts with the public will become greater.” Critical to this is finding common interests between the good or service to be sold and the public interest. This search can have an almost infinite number of dimensions. He emphasises against that the goodwill of the public is necessary for any success, in particular stock floats.

Competition is now so intense that almost every decision made by the consumer is someone’s interest. Even the choice of what to eat for breakfast impacts a large number of corporate interests, all of who want to sell their product. Bernays jokes that this might lead to people becoming fat out of a fear that manufacturers will go bankrupt if people don’t eat enough – bizarrely ironic considering our obesity struggles 90 years later.

Bernays finishes this chapter writing about the amusement industry, which has its roots in carnivals and “medicine shows”. They were the ones who taught business and industry about propaganda. Ultimately, propaganda is a dynamic industry that responds to changing trends, and therefore “Modern business must have its finger continuously on the public pulse”.

If you enjoyed reading this essay, you can get a compilation of the Best VJMP Essays and Articles of 2018 from Amazon for Kindle or Amazon for CreateSpace (for international readers), or TradeMe (for Kiwis). A compilation of the Best VJMP Essays and Articles of 2017 is also available.

Government Action on Housing Crisis Missing-In-Action

by MARTIN GRONBACH

I stare wide eyed at my phone and let loose a snort of equal parts disgust and derision.

The listing on TradeMe for my neighbour’s house has revealed their asking price.

$540,000.

This probably won’t be terribly offensive to those of you battling to buy your own home considering the average house price in New Zealand reached an eye watering $645,250 as of last year, but let me put my outrage in context.

This is the asking price for a reasonable 3-bedroom house in Carterton, Wairarapa.

Over half a million for a house in Cartervegas, with me as a neighbour? Get the fuck outta here.

If this what politicians put forward as the “affordable provinces” then any young person aspiring to one day own their own home is pretty damn screwed. Trust fund babies need not consider themselves applicable.

Last year I decided to ask the three local councils as to what actions they were taking to address the housing crisis and housing affordability.

The responses ranged from “We can’t do anything”, “It’s not our problem to solve”, “Define affordable” to “We are waiting on direction and leadership on the issue from central government”.

Local governments are not interested in taking a leading role in solving the housing crisis. Maybe this is due to the nearly non-existent representation of young people in local body politics, but that’s a topic for another time.

If not local government, surely our transformative coalition government could surely be trusted to be kicking arse for the long-suffering Kiwi first home buyer?

Brace yourself for crushing disappointment as the salvation of Generation Rent won’t be found with this current government – at least not this term.

Kiwibuild has been flogged by Labour as the band-aid to fix the housing crisis booboo as far back as 2012. However once in a position to actually implement the policy in 2017, it was quickly revealed just how little thought had gone into it.

The reality was that Labour’s fix for the housing crisis was over-hyped and under-cooked, inaccessible for anyone earning the average wage, that had school age children, or any number of the realities New Zealanders face. With the additional restrictions on selling the property within three years, designed to stop property speculation, people considering Kiwibuild are better off not using the scheme if possible, as buying on the open market doesn’t have any such restrictions and, in the end, any difference in the final price paid was negligible.

It’s a sad state of affairs that even with the supposed singleness of purpose and financial backing of the tax payer, Kiwibuild has completely failed to deliver for the majority of people that voted for it.

With numerous New Zealand based kit-set home manufacturers, even houses built by robots in Wellington, building houses isn’t the bottleneck. Land supply, and the price of ticking the boxes before building, however, is.

Reforming the Resource Management Act to allow for faster development of land should be one of the more obvious issues to deal with if the Government was actually serious about tackling the housing crisis. Likewise, opening up the building materials market to some international competition by way of reforming the New Zealand Building Code could potentially topple the monopoly enjoyed by a select few manufacturers price gouging the currently captive New Zealand market and further decrease building costs.

Another touted solution in the build up to the election was the so-called foreign ownership ban. Put forward by both Labour and New Zealand First, this would stop overseas investment in our domestic housing market. However, this did not mean ALL foreign ownership as Australians, who make up a third of all foreign owners of New Zealand property alone, as well as Singaporean nationals in the pursuit of a YET ANOTHER free-trade agreement, are still able to buy New Zealand property.

Again, this was found to be a relative non-issue as measly three percent of all property sold was to foreign buyers and that three percent was mostly made up of large-scale farms and stations, life-style blocks and shares in new-build apartment blocks. While I don’t agree with any foreign ownership of New Zealand land, in the context of the housing crisis, this is, and continues to be, an outlying issue, if not entirely separate from the housing crisis.

Generation Rent isn’t, and never was, in the market for a thousand acres of pristine South Island sheep country, so the foreign ownership ban had little real impact in this regard.

The main influencers of the housing crisis are two issues. The first was, and continues to be, New Zealand’s high levels of immigration. That contentious issue both Labour AND New Zealand First made a huge deal about during the opposition years and during the 2017 election, which our coalition government now seems reluctant to firmly act on, apart from putting the boot into low hanging fruit like the dodgy export education industry.

Ironically the fallout following the banning of Huawei from supplying equipment for the upcoming 5G rollout, the responsive drop in tourists and wealthy international students from China may end up having more of a tangible impact on addressing housing affordability that anything the Government has intentionally done to date.

The second genuine influencer is the rife accumulation, hoarding and speculation of housing by fellow, and now extremely wealthy, New Zealanders. The final word on cause of the housing crisis is that it is a mess of our own making. Kiwis ripping off Kiwis. Ever heard of a cap or outright ban on the number of investment properties? Me neither, and so long as we keep voting for the same four political parties, you never will.

With Generation Rent’s patience starting to wear thin and half their term over already, the coalition government can’t afford to continue to wear the kiddie gloves for fear of threatening the entitlement culture of wealthy New Zealand nor the construction sector lobbyists whilst avoiding the real causes of our housing crisis. 2019 will either make or break this government and younger people’s trust in it.

At the end of the day I don’t want or need 20 rental properties. No reasonable New Zealander does.

I just want the safety and security of providing a home for my wife and children that won’t be put up for sale as soon as the market conditions are favourable.

But not for over half a million in bloody Carterton, thanks.

Martin Gronbach is an unashamed nationalist, self-aware 30-year-old boomer, active political shitposter, father, husband, engineering student and full member of Generation Rent who lives in the Wairarapa.

What Would the Average Hourly Wage Be in New Zealand If Wages Had Kept Up With House Prices?

New Zealand is torn by inter-generational tension right now. The young have no hope of finding houses they can afford and the old simply blame them for being too lazy to work hard enough to afford one. However, the numbers show that workers today get a much worse deal than they did 30 years ago. This article looks at what the average wage in New Zealand would be if it had kept pace with the price of houses since the late 1980s.

This graph from the Trading Economics website tracks the increase in the New Zealand Average Hourly Wage over the past 30 years. We can see that the average hourly wage in New Zealand, as of the beginning of 2018, is $31.03. The Reserve Bank of New Zealand website contains many interesting statistics and graphs, many of which can be downloaded from this link. This article will combine both sources.

In March of 2001, the House Price Index (from the RBNZ link above) stood at 700.2. At this time, the average hourly wage was $17.70. So if a person wished to purchase a $300,000 house, suitable for a growing family, they would have to have capital equal to 16,949 hours of work at the average wage.

According to this article by Human Resources Director, Kiwis work an average of 1,762 hours a year (this figure was for 2014, but for cultural reasons this figure does not change much over time). This means that, in March of 2001, buying a house suitable for raising a family in required capital equal to 9.62 years of full-time work at the average wage.

How does that compare to today?

After seventeen years of red-hot growth, the House Price Index now stands at 2480.8. This represents an increase of 254% over those seventeen years, and it means that a $300,000 house in March 2001 now costs $1,062,000 (all growth factors assumed equal). As mentioned above, the average hourly wage in New Zealand has increased from $17.70 in that time to $31.03, which represents an increase of 75%.

In other words, in January of 2018, buying a $1,062,000 house, suitable for raising a family in, requires capital equal to 34,224 hours of working at the average hourly wage. This is equivalent to 19.42 years of work at the average hourly wage.

We can see, then, that when measured in terms of a person’s ability to purchase a house suitable for raising a family in, the average New Zealander is less than half as wealthy as they were only 17 years ago. To have the same house buying power that it had in 2001, an average wage in New Zealand would now have to be $62.65 per hour.

People working in 1989 – when the majority of Baby Boomers would have been in the workforce – had it even better still. In December of 1989 the House Price Index stood at 453.5; the average hourly wage stood at $13.07 in the first quarter of that year.

So our standard family home that cost $300,000 in 2001 cost a mere 64.8% of that price in 1989, whereas the average wage in 1989 was 73.8% of what it was in 2001. Put another way, the average house suitable for raising a family in cost $194,400 in 1989, which represented capital equal to 14,873 hours of labour at the average wage. This was equivalent to a mere 8.44 years of saved labour.

The average house price has gone up 447% over the past 30 years in New Zealand; the average hourly wage has gone up 137% in that time. So to have the same house-buying power as the average New Zealand worker in 1989, a Kiwi in 2018 would have to get paid $71.50 an hour. This would allow them to buy a decent house after saving around 14,000 hours of the average wage, which is the standard of living that the average worker had in 1989.

In summary, the average New Zealand worker has lost almost 60% of the house-buying power of their wage over the past 30 years.

Buying a decent house in 2018 costs savings equal to 19.42 years of work at the average wage; 30 years ago buying an equivalent quality of housing cost savings equal to 8.44 years of work. So if a Kiwi left home at age 18 in 1970 and saved half of their income on the average wage they could own a house by age 35; a Kiwi who left home at age 18 in the year 2000 and saved half of their income on the average wage can’t expect to own one before they turn 57.

Despite tiny relative savings on consumer electronics, it’s obvious that the standard of living for young people is much lower nowadays than it was 30 years ago. The fact that wages haven’t come close to keeping up with housing costs is the main culprit.

Dan McGlashan is the man with his finger on the statistical pulse of New Zealand. His magnum opus, Understanding New Zealand, is the complete demographic analysis of the Kiwi people. Available on TradeMe for $35.60.