White defendants in Winnebago County, Wisconsin were nearly twice as likely as non-whites to enter diversion programs instead of going to jail. A straightforward example of judicial racism? Surprisingly, no. The study, which was looking at people with no previous records who had committed non-violent misdemeanors, found that

… judges were offering white and non-white defendants the option to enter diversion programs such as drug rehabilitation at equal rates. But non-white defendants opted for jail time more often. And choosing jail means opting for a criminal record, which can mean opting for a life in which everything from jobs to loans become much tougher to get.

Does the rehabilitation program cost the defendants more? Do non-whites feel they are guiltier? Is there a lack of trust? Are there deeper structural issues that can account for these different choices? And why are we “privileging” the white decision? Could it be that whites are making the wrong decision? WIRED doesn’t offer a solution but discusses the new Zuckerberg financed dataset, Measures for Justice, which led to the discovery of the discrepancy.

If pharmaceutical reciprocity is a good idea for the United States, it’s a great idea for smaller countries. Indeed, this is mostly what happens in practice, even if not by law, since smaller countries can’t afford or justify the expensive US process. Fred Roeder of the Montreal Economic Institute makes the case for reciprocity in Canada:

…reciprocal recognition of drug approval authorities on both sides of the Atlantic would incentivize Canadian, European and American authorities to spend less time and money conducting parallel reviews. If the HPFB, the FDA or the EMA approved a drug, patients in Canada, Europe and America would have immediate access to it — increasing consumers’ choice as new drugs are offered to patients faster and more affordably, with less red tape driving up costs.

A reduction in approval time can be a win-win for patients and firms because a decrease in approval time is an increase in effective patent length without an actual increase in patent length. The numbers below are optimistic, but the idea that streamlining approval can increase profits and stimulate investment is correct:

These market-oriented reforms would not benefit not only consumers, but the pharmaceutical companies as well, expanding the timespan of the patents. On average, new drugs have a mere 10 to 14 years of patent protection remaining by the time they are sold to consumers after they have successfully jumped over all the government hurdles. Streamlining the drug approval process would increase the timespan of patented drugs on the market by 50 to 70 per cent.

Roeder also mentions Bart Madden’s important book Free to Choose Medicine. (For those who don’t know, I am proud to be the Bartley J. Madden chair in economics at Mercatus at GMU.)

We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.

Here is the pdf, via the excellent LondonYIMBY.  Here is a related estimate from two days ago.

I will be doing a Conversations with Tyler with him, June 14, Arlington, 6:30 p.m., register here.

Here is Wikipedia on Ben Sasse.  In addition to being a Senator from Nebraska, he has extensive experience in government, was an assistant professor, president of Midland University, and he has a Ph.d. in history from Yale University, with a prize-winning dissertation on religious liberty and the origins of the conservative movement as it relates to the battle over school prayer.  He also now has the #1 best-selling book, on raising kids.

Just to be clear, I will not be making what you might call “very current events” the focus of this discussion.  So what should I ask him?

Update: rsvp link corrected.

I calibrate the [spatial] model to the U.S. economy and find that the rise in regulation accounts for 23% of the increase in wage dispersion and 85% of the increase in house price dispersion across metro areas from 1980 to 2007. I find that if regulation had not increased, more workers would live in productive areas and output would be 2% higher. I also show that policy interventions that weaken incentives of local governments to restrict supply could reduce wage and house price dispersion, and boost productivity.

That is from Andrii Parkhomenko (pdf), a recent job candidate, there are 62 pp. at the link, and for the pointer I thank Tyler Ransom.

Here is a related column by Noah Smith.

BMJ: In a national sample of elderly Medicare beneficiaries admitted to hospital with medical conditions, we found that patients treated by older physicians had higher 30 day mortality than those cared for by younger physicians, despite similar patient characteristics. These associations were found among physicians with low and medium volumes of patients but not among those with high volumes.

…Our findings suggest that within the same hospital, patients treated by physicians aged <40 have 0.85 times the odds of dying (1.00/1.17) or an 11% lower probability of dying (10.8/12.1), compared with patients cared for by physicians aged ≥60 (table 2⇑). This difference in mortality is comparable with the impact of statins for the primary prevention of cardiovascular mortality on all cause mortality (odds ratio of 0.86)39 or the impact of β blockers on mortality among patients with myocardial infarction (incidence rate ratio of 0.86),40 indicating that our observed difference in mortality is not only statistically significant but arguably clinically significant. In addition, if our results are causal, an adjusted risk difference of 1.3 percentage points suggests that for every 77 patients treated by doctors aged ≥60, one fewer patient would die within 30 days of admission if those patients were cared for by physicians aged <40.

The paper has data on over 700,000 Medicare admissions and over 18 thousand hospitalist physicians. Physicians are assigned to patients more or less randomly depending on admission time so there are no significant differences between patients assigned to younger and older physicians. Older physicians are more likely to be male and, of course, to be trained during a different time period so the paper can’t fully distinguish age effects from cohort effects. The authors do find that older physicians who work a lot perform well–perhaps these physicians update their training or perhaps they are a self-selected vigorous sample. Continuing medical education and assessment requirements are probably very valuable.

Hat tip: Eric Topol.

Here’s an excellent story about Chris Carr who played in the NFL for 10 years and is now about to graduate from law school. That’s unusual but not so unusual, the late U.S. Supreme Court Justice Byron R. White also played in the NFL. What makes this story special is that Carr will specialize in immigration law. Why?

Carr grew interested in immigration law a few years ago, after reading Thomas Sowell’s “Ethnic America.” (“A really cool book,” he said.) That made him reflect on the country and “just how unique the American experiment was.” He read blog posts by Bryan Caplan, an economist at George Mason University, and the writing of Michael Huemer, a philosophy professor at the University of Colorado.

Hat tip: Fabio Rojas.

That is the query motivating my latest Bloomberg column, here is one bit:

Second, the higher health-care spending for women is partly because of services related to childbearing. Society may have an obligation to help out babies (and mothers), plus they will someday finance our retirement, so let’s make childbearing easy. That said, governments have numerous means of subsidizing childbearing — direct payments, tax credits, free clinical services and public education — and it’s not obvious that regulating insurance pricing is this best way to achieve this end.


Uniform pricing also gives insurance companies less incentive to attract female policyholders. To be sure, as a matter of law the companies cannot turn women away. But if writing policies for women is less profitable, or perhaps unprofitable altogether, the insurance companies will allow or encourage their provider networks to evolve in a way that is more attractive to men than to women. Services for women, including for childbearing, might end up underprovided or stagnate in quality. That also would be a kind of differential treatment, with potentially dire consequences.

There is much more at the link, controversial throughout.  You’ll find plenty of overwrought reactions on Twitter, simply because I am saying there is a trade-off, and we do not yet know what is the right margin to seek.

A British prison has become the world’s first to use a new system designed to stop drones flying over perimeter walls to drop contraband into jails.

The device creates a 2,000ft (600m) shield around and above a prison that will detect and deflect the remote-controlled devices.

It uses a series of “disruptors”, which are sensors to jam the drone’s computer, and block its frequency and control protocols. The operator’s screen will go black and the drone will be bounced back to where it came from.

Drones have become a major security problem in Britain’s prisons and are increasingly used to smuggle in drugs, weapons, phones and other valuables.

The new system, called Sky Fence, is being introduced at Les Nicolles prison on Guernsey, where around 20 “disruptors” will be installed on the perimeter and inside.

The Channel Island jail was initially going to install a drone detection system, but went a step further to put in the technology that stops drones in-flight.

Here is the article, via Tyro.  By the way, the newly available BBC TV show, Planet Earth II, is an amazing illustration of the use of drones to track and film nature (that includes us!).

In The Failure of Solanezumab –How the FDA Saved Taxpayers Billions, an article in the NEJM, Sacks, Avorn and Kesselheim (SAK) defend the FDA by arguing that its high standards prevented the Alzheimer’s drug, Solanezumab, from being approved and thus saved the taxpayers billions in Medicare payments.

It is, of course, not the job of the FDA to approve or fail to approve a drug based on its effect on taxpayers. The FDA has historically stood independent of this kind of politics and that has been all to the good. But the SAK article is a reminder that under socialized medicine every FDA decision moves money from one patient group to another and between patients and taxpayers thus FDA decisions become a tempting leverage point to control allocation through collective choice.

I do not favor collective, which is to say politicized, choice and find much else objectionable in the SAK article–it attempts, for example, to evaluate a rule by examining a single decision when a system-wide, long-run analysis is called for. Rather than go into detail, however, let’s instead point to a much better article by Vradenburg, Fillit, Morgan, Sabbagh, Aisen, and Mohs, a group of leading physicians and scientists who treat Alzheimer patients and research the disease.

Rather than support or criticize an isolated FDA decision, Vradenburg et al. call for a change to the rule/norm currently used to evaluate Alzheimer’s drugs:

The analysis…recommends that the FDA approve new medicines that demonstrate a proven benefit on at least one therapeutic endpoint – either cognition or function. The current FDA standards require a new drug to show benefits on both proven endpoints, an unnecessarily challenging hurdle the authors say may be inhibiting investment in new Alzheimer’s treatments.

The authors make three excellent points about such a change. First:

…the success rate of drugs tested for Alzheimer’s disease has been extraordinarily low when compared with drugs in other therapeutic areas. Of the 244 compounds that were tested in 413 clinical trials between 2002 and 2012, only one resulted in approval of a new chemical entity, in 2003. No others have been approved since that time; the failure rate in clinical trials conducted over the last decade exceeds 99.6%. This staggeringly high failure rate has adversely impacted investment in Alzheimer’s disease research at precisely the time when new advances are most needed.

The failure rate reflects how difficult the problem is but also policy. Either way, when firms look at the billions of dollars in research and development that haven’t led to a single approved drug they are naturally wary about spending more. Breakthroughs don’t happen randomly, however, they happen after lots of trial and error. To stimulate such trial and error firms need revenues and thus to stimulate more swings at the bat it may be justified to approve drugs with relatively small benefits.

Second, as I have noted previously, the FDA needs to be careful not to commit an error of composition. Three ineffective drugs need not add up to an ineffective treatment.

Many drugs in development for Alzheimer’s disease have complementary mechanisms of action. Even if each of these might, individually, deliver a modest clinical benefit, when used in combination or adjunctively, the benefit could become more substantial. If the FDA were to reject, individually, several safe and well-tolerated therapies with complementary mechanisms of action that each demonstrate a modest clinical benefit, it would unwittingly deprive patients of potentially substantial advances in the quality of treatment over the long run with a combination of therapies.

Third, it is ultimately the patient that matters, especially with regard to Alzheimer’s where so much depends on the patient’s internal experiences, and thus we ought to be careful before rejecting their perspective:

The ultimate perspective on clinical meaningfulness, of course, comes from the patient….Efforts to identify what matters, what matters most and how much change matters to patients should become a priority for the field, focused on all stages of the disease. The requirements of the recently-passed 21st Century Cures Act are instructive in this regard.

Hat tip: Abhay Moghekar

My latest paper (with the excellent Brandon Pizzola) is on occupational licensing in the funeral services industry. Almost all of the previous work on occupational licensing has used cross-sectional data, comparing outcomes in states that license an occupation with outcomes in states that do not. Since many factors vary between states it’s difficult to be sure whether those studies are identifying causal effects. Pizzola and I take advantage of a unusual change, Colorado delicensed its funeral service industry in 1983. The time-series variation combined with the cross-sectional variation lets us examine and test the data in many ways.

In 1983, Colorado delicensed funeral services….the results from difference-in-differences, difference-in-difference-in-differences, and synthetic control specifications suggest occupational licensing causes a wage premium of 11-12 percent.

Importantly, we also do a cross-sectional test similar to those that have been done before in other industries and that test is also consistent with a wage premium of 11-12 percent. In other words, our paper makes all the previous papers on occupational licensing that use cross-sectional data more credible.

We find similar results from a standard cross-sectional wage regression using data on individuals in 1990. Thus, this suggests that cross-sectional regressions of wages on occupational licensing in other industries are a good baseline estimate of a causal effect.

Finally, consistent with an earlier paper by David Harrington and Kathy Krynski that used cross-sectional data, we find some evidence that licensing, which requires training in embalming, increases prices even more than the wage premium alone would suggest because under licensing consumers appear to be pushed away from cremation and towards more expensive burial.

Consistent with Colorado’s decision to delicense in 1983, we find no evidence that delicensing reduced quality in the funeral services industry.

That was then, this is now

by on May 14, 2017 at 2:58 am in Economics, Law, Web/Tech | Permalink

Several of London’s largest banks are looking to stockpile bitcoins in order to pay off cyber criminals who threaten to bring down their critical IT systems.

The virtual currency, which is highly prized by criminal networks because it is difficult to trace, is being acquired by blue chip companies in order to pay ransoms, according to a leading IT expert.

That is from October of last year, via Brian S.  I wonder how much such “precautionary demand” has pushed up the price of Bitcoin?

There are two striking facts about China.  First, the country is quite large.  Second, the country was remarkably large early in its history, compared to most other political units.  For instance, here is China in 200 AD:

How did this happen?

Or consider a modern version of the puzzle: currently there are over one billion Chinese in one political unit, and a bit of scattering.  And there are over one billion Europeans, spread in fairly significant numbers across about fifty political units.  How did such a fundamental difference come to pass?

I can think of many instructive explanations for China’s early size and unity that are nonetheless derivative.  For instance perhaps a common language for writing played a key role, or perhaps the civil service and the exam system bound the country together.  I don’t mean to gainsay those claims, but they are not fundamental.  In part they are simply alternative descriptions of China’s relatively early unity.  And there still ought to be reasons why those factors were the case, and some of them seem to postdate unity.  On top of that, ideally we would like the explanation to account for China’s periodic descents into fragmentation and sometimes warring chaos.

I can think of a few factors that might count as fundamental, and often they involve economies of scale:

1. There may be greater economies of scale in Chinese agriculture.  One specific hypothesis is that China’s “hydraulic” system of rice irrigation favored a centralized despotic authority (Karl Wittfogel, though I’ve never found this particular view convincing, see also earlier takes on “Oriental Despotism”).

2. There may be economies of scale for fighting land battles with horses.  Alternatively, when it comes to naval warfare — more common for Europe — small countries have a chance to punch above their weight, witness  England and Portugal.

3. China had lower climate volatility than did Europe, and that made it easier for a more stable equilibrium to emerge.  (Or the kinds of climate volatility China had mattered less for its agriculture.)  Big changes in climate, in contrast, periodically overturn political equilibria, most of all when agriculture was a huge chunk of gdp.

4. China has two main, navigable rivers running east to west, the Yellow and Yangtze rivers.  It also has a large space of relatively flat plains.

5. China was formed when the prevailing technologies favored size and scale, and thus size and scale were imprinted onto early Chinese political DNA.  This is a bit like the “inflation” theory of the universe.  (NB: This part of the explanation is arguably “accidental” rather than “fundamental.”)

6. China and Rome are with regard to size and early unity not so different, but China did a better job absorbing the “barbarians” and thus persisted as a larger political unit.

What else?  With some mix of those (and other) factors in place, the more traditional detailed explanations then kick in to promote China’s size as China.

Ideally, an explanation for China’s early size and unity, and why that size and unity bounced back from so many periodic bouts of warring states, should address the following:

a. Why the mountainous Tibet also ended up as a more or less coherent nation-state, and why that too happened fairly early.  That seems to militate against purely rice-based explanations.

b. Why Yunnan was absorbed into China at a relatively late date — the 17th century — but once attached did become a stable part of the country in a manner that other parts of southeast Asia did not mimic.

c. Why Korea remained separate.

d. Why the Khmer empire proved unstable and perished, despite a high level of sophistication and state capacity.

e. Why the Aztec Triple Alliance grew to a much larger size than any political unit in North America at the same time.

What else?

I am grateful to a presentation by Debin Ma, and to comments from the Washington Area Economic History Seminar (recommended!), from a seminar last night.  None of them are implicated in what I have written.  I look forward to Debin’s paper on this topic (here is his earlier 2012 work), and Kenneth Pomeranz is writing an entire book on the question.

Addendum: Here is the Ko, Koyama, and Sng piece (pdf).

MacWorld: Developers of the Apple Watch app Cardiogram worked with researchers leading the University of California San Francisco’s Health eHeart study to develop a ResearchKit-based study of their own called mRhythm. On Thursday, Cardiogram and UCSF’s cardiology division are presenting the results of that 14-month study, which collected more than 100 million heart rate data points from more than 6,000 Apple Watch users. Cardiogram developed a machine learning-powered algorithm that can detect atrial fibrillation, which is often asymptomatic.

Cardiogram’s algorithm was tested against an in-hospital test called cardioversion. Patients experiencing atrial fibrillation, which affects one in four people in their lifetime and causes 25 percent of all strokes, wore an Apple Watch while undergoing cardioversion to compare outcomes. Both segments, the cardioversion test and the Apple Watch’s heart rate data, were blinded against whether the patients’ heart rates were normal or abnormal, then sent to Cardiogram’s algorithm. The results: the Apple Watch data detected atrial fibrillation 97 percent of the time.

Apple has been communicating privately with the FDA for years about medical devices and so far the FDA has taken a light touch to Apple but these issues are coming to a head. As with the regulation of DNA tests, the regulation of these devices is going to raise important free speech issues. It’s one thing to ensure that the devices do what they say they do at reasonable accuracy (measure heart rate, identify genes etc.) but regulating what advice may be given on the basis of such readings is problematic. Can the FDA regulate a website that says go see your doctor if your heart rate monitor exhibits these particular readings? Why is an app that tells you the same thing any different?

Hat tip: Samir Varma.

That is the topic of my latest Bloomberg column.  It does not focus on single payer, but that is the part I will pass along to you:

Another way to manage health-care subsidies would be a single-payer system, and some commentators suggest that is where the Democratic Party is headed. I wouldn’t be so sure. Obama made his (partially incorrect) “if you like your health care plan, you can keep it” promise for a reason. The Americans who get health insurance through their jobs often enjoy privileged access to doctors and benefit from superior reimbursement rates.

If the price of covering the sick is for millions of wealthier and more influential people to give up those advantages, I don’t see that happening. The health-insurance industry and other medical lobbies will be opposed, too, with doctors fearing that a single-payer system would bargain down their reimbursement rates. Even a relatively progressive state such as Vermont could not make a single-payer system happen.

You can think of current debates over health policy as a game of hot potato in which “who loses?” and “who pays?” are questions nobody finds easy to answer but also questions that no party can ultimately avoid. Obamacare didn’t come up with a sustainable answer; neither, so far, have the Republicans.

Do read the whole thing.