Current Affairs

Due to popular demand, we are releasing a transcript of the Conversation with Lindsey and Teles.

We talk about liberaltarianism, how bad is crony capitalism really, whether government affects the distribution of wealth much, universities as part of the problem, whether IP law is too lax or too tough, why Steve didn’t do better in high school, the British system of government, Charles Murray, the Federalist Society, Karl Marx, Thailand, the Coase Theorem, and Star Trek, among other topics.  Here is one bit:

COWEN: What’s the most important idea in the book that you understand better than he [Brink Lindsey] does?

TELES: Well, so there is a division of labor here. Brink did a lot more work on the cases than I did, although we talked about them all and I did a lot more work on the political analysis. We draw a lot on great, really seminal article by Rick Hall at University of Michigan called “Lobbying as Legislative Subsidy.” And I think that idea is dramatically under appreciated. The idea that what lobbyists are essentially doing is providing information, that information is scarce, it is a source of power. And one thing that we add is, if the state isn’t providing information itself, it essentially has to get it from outside. And when they get it from outside, it imports the overall inequality and information gathering and processing that’s in civil society. And that can be a very strong source of inequality in policy outcomes. I think Brink understands that, but this is my wheelhouse so I think probably if you were gonna push me, I’d say I understood it better that he did.

And this:

LINDSEY: One can see the whole sort of second wave feminist movement since the 60s as an anti rent-seeking movement, that white men were accumulating a lot of rents because of the way society was structured, that they were the breadwinner and there was a sexual division of labor, and they received higher pay than they would have otherwise because they were assumed to be the breadwinner, and women were just sort of kept out of the workforce in direct competition with men in many roles. The last half century has been an ongoing anti rent-seeking campaign and the dissipation of those rents especially by less skilled white men has been a cause of a great deal of angst and frustration and political acting out in recent years.

Here is a link to the podcast version of the chat, plus further explanation of my interview method for the two.  Better yet, you can order their new book The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality.

Muhammad Ali Jinnah was nothing if not complicated. Jinnah, an alcohol-drinking, pork-eating, English-loving barrister, was the founder of  the Islamic Republic of Pakistan. Yesterday, his only child Dina Wadia died and that too is complicated.

Dina Wadia was the daughter of Jinnah and his Parsi wife Rattanbai Petit whom he proposed to at 16 and married at 18 when he was 42. Rattanbai was the daughter of one of Jinnah’s friends, who never forgave him. Jinnah and Petit’s daughter, Dina, was born in 1919 shortly after their marriage. Rattanbai died only ten years later.

Dina herself married young, to the Parsi Neville Wadia whose successful family-business went back to the days of the East India Company. But Jinnah was furious that she had married outside the faith telling her “There are millions of Muslim boys in India,” and she could marry any one of them she chose. Dina promptly replied, “Father, there were millions of Muslim girls in India. Why did you not marry one of them?” Jinnah did not attend the wedding.

When India’s partition came, Jinnah’s family was partitioned as well. Jinnah went to Pakistan and his daughter stayed in India, never to see him again. Her son, Nusli Wadia, became one of India’s richest men. Thus the descendants of the founder of the Islamic Republic of Pakistan are successful Indian Parsis. The last twist perhaps in Jinnah’s complicated tale.

In her later years, Dina Wadia moved to New York where she died yesterday.

As I’m on the road, I’ve only read summaries.  Kevin Drum has an excellent post on how the distributional implications harm the blue states, follow-up here.  Scott Sumner says better than expected.  Kevin writes:

The Republican tax bill eliminates deductions for a bunch of odd things: tuition debt, mortgage interest, alimony, medical expenses, state and local taxes, gambling losses, tax prep expenses, moving expenses, and a few others.

Bravo!  I’m actually impressed, noting that many of these deductions are limited rather than eliminated as I understand matters.  Furthermore, in various embedded ways the plan discourages the itemizing of deductions, which in turn limits the value of remaining deductions for many taxpayers, but in a politically subtle way.  The bill even nips at the endowment income for well-off universities, though I don’t favor that change, as it may harm innovation.

The plan as a whole is a reckless expansion of the deficit, but if that is going to happen anyway this is one of the better ways to do it.  In fact, we should tax companies less and homes/land more.  Why?  First, for behavioral reasons homeowners are insufficiently diversified; the tax code should not encourage that.  Second, this bill will (modestly) lower land, home, and rental values in the fancy cities on the coasts, a net gain at least for non-itemizers perhaps (caveat: I don’t know everything that is in the bill).  Third, big, fancy homes on big plots of land are not that “green,” and furthermore residence size seems to bring a lot of hedonic adaptation.  Fourth, there are more likely increasing returns across companies than across expensive homes.  Fifth, American equities seem to bring a long-run return of 5-7% and real estate zero percent.  More of the former please!  Companies > homes.

I believe that with further examination I could find many ugly and stupid aspects of this bill, and many politically craven decisions.  And again, I don’t favor increasing the debt.  But holding the size of the debt constant, let’s face it — this is a step in the right direction.

Arlington County is considering whether to relax regulations that allow homeowners to legally rent to long-term tenants on a portion of their property, after only 20 homeowners out of 28,000 eligible successfully obtained licenses over the past eight years.

At a time when people increasingly are sharing cars, bicycles and workspaces, and are renting out rooms by the night on Airbnb, the idea of providing a legal way for residents to safely lease their garage or basement room to a young adult — or anyone else — seemed like a no-brainer.

But the detailed regulations, written in part to mollify wary neighbors, apparently stopped the practice from taking off, county officials said.

That is from Patricia Sullivan at the Washington Post.  As a frontier for further deregulation, this does not seem to be a hopeless cause:

California’s legislature passed bills in 2016 that made it easier for local communities to create ADUs, prompting cities throughout the state to adopt ordinances that are designed to be more user-friendly.

Even California.

In the debate over corporate taxation it’s often assumed that corporate taxes are equivalent to taxes on capital. But corporations are only a minority of firms. Most of the firms in the pass-through sector are small partnerships but by no means are all pass-through firms small. Indeed, corporate profits are less than half of all business profits as shown by the following graph from the Tax Foundation.

What this means is that a cut in the income tax is also a cut in the capital tax. Indeed, a cut in the top marginal income tax rate is a bigger cut in capital taxation than a cut in the top corporate tax rate. (Unfortunately, it now looks like the top marginal rate on income won’t be cut.)

Since pass through businesses can be large, some people have suggested that these businesses should be taxed like corporations. That would be a mistake. An ideal tax system should be neutral as to organizational form. So, if anything, corporate taxation should be moved more in the direction of pass-through taxation.

Hat tip: Lunch with Steve Pearlstein, Bryan Caplan and Tyler.

That is the theme of my latest column for Bloomberg, here is one excerpt:

Critics may argue that Facebook isn’t so much like a phone company because it uses complex algorithms to decide what to place before our eyes. That’s true, but would the critics be much happier if ads and posts on Facebook simply appeared in linear, chronological order? And on the question of algorithms, consider an analogy with a traditional publisher: Plenty of mainstream companies have published and promoted the works of Marx, Stalin, Hitler and Mao. The “algorithm” behind these decisions was whether these works would find an audience and bring in profit. The ideologies behind those works, of course, led to revolutions and the massacres of many millions, plus the infiltration of Western governments by communist sympathizers and delusional beliefs for several generations of Western intellectuals. Few of us are happy about those outcomes, yet for the most part we don’t blame printing presses, publishers’ quest for profit or their “algorithms.” We instead focus on the bad ideas themselves, and how we might persuade individuals otherwise.

You could think of Facebook as akin to a delivery truck, noting that such trucks often carry guns, abused medications, junk food and bad books, among other evils. If Russian conspirators order you flowers for Valentine’s Day, perhaps in appreciation of your pro-Putin tweets, the delivery truck will bring those too.

Here is good analysis by Jacob Sullum.  Here you can view some of the offending ads, weak tea says I. Vyacheslav Mikhailovich Molotov would have been ashamed.

Overall, one reason Facebook is such a scapegoat is because so many individuals don’t want to admit that Trump simply won the election.  To the extent you can pin his victory on some kind of conspiracy or wrongdoing, that gives you something to rail against, something to blame, and also a way to feel better about parts of your country.

This is an out-of-synch bonus episode, rushed out because I think their new, just-out book — The Captured Economy: How the Powerful Slow Down Growth, Enrich Themselves, and Increase Inequality — is so important.  You will find the podcast here, lots of rapid fire back and forth.

Everyone wanted me to interview them together, but I said no, I would instead interview them separately and ask about 2/3 the same questions to see how their answers might hang together, or not.  That is how co-authors should be treated!  I also asked each what the other has for breakfast, and by the end each had confessed to several crimes, to avoid a longer sentence of course.

Here is the smallest of bits:

COWEN: Are higher levels of executive compensation part of the problem?

TELES: There you probably would get a different answer between me and Lindsey.

COWEN: That’s why I asked

Recommended, again here is the podcast (no transcript, we wanted to get this out right away).

Fed and Circuses

by on October 30, 2017 at 12:31 pm in Current Affairs, Political Science | Permalink

That is my latest Bloomberg column, here is one paragraph:

Enter Trump, master impresario and provocateur. By thinking out loud about the post and the candidates so much, polling both a group of assembled senators and TV anchor Lou Dobbs, and by teasing the audience with the final pick, Trump is removing that elevated air from the Fed. I am reminded not only of today’s reality TV, but also the older show “The Dating Game” and the 1987 Arnold Schwarzenegger movie “The Running Man.” Whether we are consciously aware of the shift in our perspective or not, we are likely to think of the future Fed with less of that mysterious aura surrounding it. It will instead seem like the result of an undignified competition for victory and status.

…he’ll let social media and the public debate do his dirty work of politicization for him, with perhaps a jab of his own thrown in from Twitter. Because the Fed will no longer be above the fray.

Do read the whole thing, and by the way here is Arnie’s 1973 appearance on The Dating Game.

This is the week of hearings on Facebook ads, as well as Twitter and Google promotion of pro-Putin or sometimes pro-Trump or disruptive ideas.  So far we know that Russia-linked ads on Facebook cost about $100,000, a laughably low number.  Maybe there is much more hidden, but so far I don’t see it.

$100,000 is exactly the amount the Comintern gave in the 1920s to organize a campaign against John L. Lewis leading the mine union.  No, I am not adjusting for inflation, so in real terms the sum in the 20s was much higher.  The Comintern also gave at least $35,000 to start the Daily Worker, again that is a nominal figure from the 1920s.  The American Communist Party received subsidies too.  Many other communist subsidies, media and otherwise, remain hidden or at least uncertain.

Furthermore, those earlier expenditures helped convert a large number of Americans and American intellectuals to actual belief in communism, or at least fellow traveler sympathies.  And consider this (NYT):

The C.P.U.S.A.’s vulnerability had a great deal to do with its dependence on Moscow. For much of its existence, the party could not have functioned without Moscow gold. One of its first leaders, the journalist John Reed, was given more than a million rubles’ worth of czarist jewels and diamonds to smuggle into America to support the fledgling American movement. In the 1920s, Armand Hammer, the future head of Occidental Petroleum, used money derived from Soviet concessions to underwrite The Daily Worker and fund communist operations in Europe. Without Soviet money, the C.P.U.S.A. would not have been able to hire the hundreds of full-time organizers and support an array of front groups and publications that enabled it to outspend and out-organize its left-wing rivals.

So I’m just not that “impressed” by the Facebook revelations to date.  If you want to worry about Facebook, the much bigger problems are abroad (NYT).

How foxes guard

by on October 28, 2017 at 11:32 am in Current Affairs, Law, Political Science | Permalink

If Whitehouse had chosen to pursue a complaint against the senator, she would have discovered a process unlike other parts of the federal government or much of the private sector. Her complaint likely would have been thrown out because interns have limited harassment protections under the unique employment law that Congress applies to itself.

Congress makes its own rules about the handling of sexual complaints against members and staff, passing laws exempting it from practices that apply to other employers.

The result is a culture in which some lawmakers suspect harassment is rampant. Yet victims are unlikely to come forward, according to attorneys who represent them.

Under a law in place since 1995, accusers may file lawsuits only if they first agree to go through months of counseling and mediation. A special congressional office is charged with trying to resolve the cases out of court.

When settlements do occur, members do not pay them from their own office funds, a requirement in other federal agencies. Instead, the confidential payments come out of a special U.S. Treasury fund.

That is from Michelle Ye Hee Lee and Elise Viebeck at The Washington Post.

I very much enjoyed this Molly Ball piece.

…three days into their safari in flyover country, the researchers were hearing some things that disturbed them greatly—sentiments that threatened their beliefs to the very core…

“You’ve got all these parasites making a living off the bureaucracy,” the farmer declared, “like leeches pulling you down, bleeding you dry.” We had been in the state for just a few hours, and already the researchers’ quest for mutual understanding seemed to be hitting a snag.

Others in the group, a bunch of proudly curmudgeonly older white men, identified other culprits. There were plenty of jobs, a local elected official and business owner said. But today’s young people were too lazy or drug-addled to do them.

As we proceeded to meetings with diverse groups of community representatives, this sort of blame-casting was a common refrain. Disdain for the young, in particular, was a constant, across demographic, socio-economic, and generational lines: Even young people complained about young people. “They don’t want to do the work, and they always feel like they’re being picked on,” a recent graduate of a technical school in Chippewa Falls said of his fellow Millennials.

Some of the people we met expressed the conservative-leaning view that changes in society and the family were to blame. One, a technical-skills instructor at the Chippewa Falls school, questioned whether women belonged in the workplace at all. “That idea of both family members working, it’s a social experiment that I don’t know if it quite works,” he said. “If everyone’s working, who is making sure the children are raised right?”

There is much more at the link, but no final meeting of the minds.

Foreigners are set to be banned from buying houses in New Zealand as part of a phase of new policies outlined by Prime Minister-elect Jacinda Ardern.

The 37-year-old, who was elected as part of a coalition government on 23 September, said the new plan was designed to stop rising house prices and will apply to non-residents.

‘We have agreed on banning the purchase of existing homes by foreign buyers,” said Ms Ardern, according to AFP.

Here is the full story.  Will the Kiwis be returning to their mercantilism of the 1970s?  She also wants to renegotiate TPP.  And here is the immigration update.

That is the title of my latest Bloomberg column, here is one pithy excerpt:

Among emerging economies, the Philippines moved from being an Asian growth laggard into some years of 8 percent growth. Voters responded by electing as president Rodrigo Duterte, one of the most aggressive and authoritarian populists around. In eastern Europe, Poland has been seeing average 4 percent growth for more than 25 years, yet the country has moved in a strongly nationalist direction, flirting with sanctions from the EU for limiting judicial independence. Hungary, Slovakia, Slovenia and now the Czech Republic all are much wealthier than 20 years ago and mostly have been booming as of late. Yet to varying degrees they too have moved in nationalist, populist and possibly even anti-democratic directions.

And the closer:

So the next time you hear material discontent cited as driving electoral results, just remember that economic data are usually interpreted through a cultural lens.

And yes, I cover New Zealand and the Czech elections too.

Eric Crampton makes many good points, here is one of them:

But that gets us to one of the risks: the intersection of Labour, Green and New Zealand First’s core beliefs is distrustful of markets and of foreigners. I can’t see how we get anywhere close to the proposed 100,000 houses built in any reasonable time without allowing foreign workers, materials, capital and expertise to help.

New Zealand’s Overseas Investment Regime already makes us the most restrictive in the OECD. Any land adjacent to a reserve must go through the screening regime, and it will be tough to ease that back under the current coalition. Heck, even New Zealand’s Fletcher Construction has to jump through Overseas Investment Act hurdles because it has foreign shareholders. New Zealand First has proposed cutting immigration numbers substantially, and Labour and the Greens have been very sympathetic to that view. The incoming government has also signaled an intention to re-negotiate trade agreements to allow banning non-residents from buying houses. If supply issues are appropriately addressed, the ban does no good and could backfire if it prevents foreign investors from building houses here to rent out.

Vernon Small offers a more pessimistic take.