That is the topic of my latest Bloomberg column, here are parts of my analysis:

The upshot is that the possibility of conflict of interest will impose the biggest problems for those areas where a president’s legitimacy and credibility are most important, and also where the president has the most unilateral power. Those factors point to foreign policy as the most significant trouble area.

Domestic corruption is wrong, but I find it less worrying in practical terms, for instance:

Or consider the value of domestic property as a potential source of conflict of interest. If Trump really put the value of his hotel properties before the national interest, that might encourage a lot of policies to foster urban growth, travel, and tourism. Those policies might not spread their benefits efficiently, but they are hardly the worst outcome imaginable. A lot of the most scathing critiques of Trump refer to his proposed climate-change policies, but those seemed common to most of the other Republican candidates, and they are not a result of Trump’s particular asset holdings.

On the other hand:

But when it comes to foreign policy, all of these factors change for the worse, in part because the president has so much unilateral power. It’s hard for a president with perceived conflicts of interest to make credible commitments to allies because the allies can’t be confident that a president will stick to a proposed agreement or course of action. The result is an unraveling of alliances, a decline in international trust and possibly dangerous rearmament and nuclear proliferation. It’s hard for a subsequent president to reverse those losses.

Hostile powers or lukewarm neutrals also will be confused if foreign policy is not run in the usual predictable, bureaucratized fashion. That raises the risk of conflict or it makes an amelioration of tensions less likely.

Furthermore, imagine what would happen if members of the executive branch invited direct or indirect bribe payments from foreign powers. Large, corrupt, and partially hostile countries such as Russia and China – not Denmark – would probably make the biggest offerings.

Overall I find I am seeing too many “theory free” criticisms of Trump on the corruption issue.  Do read the whole thing.

The mayor-elect of Rio de Janeiro is promoting a new idea to bolster tourism in his crime-plagued city: levying a new tax on tourists, then using the proceeds to reimburse visitors who are mugged.

The mayor-elect, Marcelo Crivella, a right-wing evangelical Christian gospel singer who was elected in October, floated his call for action this week at a luncheon with business leaders. Mr. Crivella, who will take office on Jan. 1, said his “bold proposal” could be funded by assessing a new tax on airplane tickets bought by tourists.

“Rio de Janeiro cannot continue treating its tourists as if they were an afterthought,” Mr. Crivella, 59, told the audience, emphasizing the need to “shatter” Rio’s “negative image.”

Here is the full NYT story.  The muggers, it seems, do not treat Rio’s tourists as an “afterthought.”

Land speculation was a natural and common preoccupation among the Founders. For some it became an economic affliction. “Hardly a prominent man of the period failed to secure large tracts of real estate, which could be had at absurdly low prices, and to hold the lands for the natural advance which increased population would bring,” wrote Albert J. Beveridge.27 For many, such speculation would prove a hazardous preoccupation. Virginia’s Henry Lee and Pennsylvania’s Robert Morris and James Wilson ended up in jail because of their debts from speculation. Washington biographer James Thomas Flexner noted that land speculation was “a fundamental aspect of American economic life, but it had become in the last few years an extremely tricky one. General [Henry] Knox was above the knees in financial trouble because of the new settlements he had started in Maine.”28 Speculation in land became particularly rampant in the early 1790s when the stability of the new republic seemed assured. Describing the process of speculation, historian Forrest McDonald wrote: “One worked or connived to obtain a stake, then worked or connived to obtain legal title to a tract of wilderness, then sold the wilderness by the acre to the hordes of immigrants, and thereby lived and died a wealthy man. Appropriately, the most successful practitioner of this craft was George Washington, who had acquired several hundred thousand acres and was reckoned by many as the wealthiest man in America.”


Washington’s land holdings clearly affected his political outlook – first regarding England, and later regarding the United States. Washington thought big and thought about the implications of thinking big. Glenn A. Phelps wrote that Washington’s “extensive land-holdings in the West, as well as his frequent surveying expeditions to the frontier, had placed him within a circle of Virginia politicians with somewhat more enterprising, expansionist, westward-looking interests than their tidewater brethren.”59 Increasingly after the Revolutionary War, Washington’s land-holdings affected his preoccupation with the development of the Potomac River and a canal through the area where it was not navigable. Washington wrote a friend in 1785 that “unless we can connect the new States which are rising to our view in those regions, with those on the Atlantic by interest (the only binding cement, and not otherwise to be effected by opening such communications as will make it easier and cheaper for them to bring the product of their labour our markets, instead of going to the Spaniards southerly, or the British northerly), they will be quite a distinct people; and ultimately may be very troublesome neighbors to us.”


Washington foresaw America’s great westward migration and he foresaw potential wealth for himself. Historian Edmund S. Morgan wrote: “Washington believed that as a private citizen pursuing his own interests he could still be working for the good of the nation. He engaged without a qualm in a scheme that would benefit him financially, while it bolstered American independence in a way that he thought was crucial…

Washington also supported infrastructure projects that would increase the value of his landholdings.  Here is the source, with the tip via MR commentator g. ruqt.

Here is my earlier post on Inconvenient Questions.

I was pleased to see their title for the column: “Go Wet, Young Man.”  Here is one of the claims:

Counterintuitively, I see the greatest promise for seasteading as a path toward more rather than less human companionship.

…some of the elderly have started living on cruise ships full-time. A good assisted-living facility might cost $80,000 a year in the U.S., more than many year-long cruises. (Cruising could also be cheaper than living in an expensive neighborhood.) Furthermore, the cruise offers regular contact with other passengers and also the crew, and the lower average age means that fewer of one’s friends and acquaintances are passing away. The weather may be better, and there is the option of going onshore to visit relatives and go shopping.

The cruise ship removes the elderly from full-service hospitals, but on the plus side, regular social contact is good for health, passengers are watched much of the time and there is a doctor minutes away. Better health and human companionship could be major motives for this form of seasteading. I could imagine many more of the elderly going this route in the future, and some cruise lines already are offering regular residences on board.

The goal of this seasteading enterprise is to pack people more tightly together rather than to open up broad new vistas for a Wild West kind of settlement. The proprietors make physical space more scarce, not less, to induce better clustering. So seasteading does have a future, but it is to join and build a new and crowded communitarian project, not to get away from one.

Do read the whole thing.

The gambling market is somewhat saturated, so how can new customers be found?

One idea: skills-based games.

In Atlantic City, the Borgata added a basketball free-throw shooting contest. Other casinos are adding skill-based games to electronic slot machines — shooting, puzzles, less slot machine ding ding ding and more Angry Birds-style competition.

Maryland does not allow such games yet, but the state’s gaming agency says it is working on the issue.

That is from Michael Rosenwald, with most of the article covering D.C.’s foray into the casino genre.

Yes, I absolutely favor enforcing clear commercial conflict of interest regulations on any president, if only for reasons of perception and legitimacy.  But may I quote Alex T. from way back when (2010, the rest of the passage is him note I am not double indenting)?

Bloomberg: Your senator learns that a much- maligned weapons system now has enough votes for funding. Before the news gets to a reporter, he buys shares in the arms manufacturer for a quick, handsome profit.

What’s wrong with this picture? Nothing, according to the law…

U.S. senators, representatives and congressional staffers routinely attend high level, closed briefings or engage in conversations where secrets are disclosed that might send shares climbing or slumping if widely known.

That access lets them buy low and sell high based on material, non-public information, and they can do it without concern that their remarkable prescience will alert federal investigators of possible wrong doing.

Insider trading in Congress is not new.  In 2004, I wrote about a study showing that the portfolios of US Senators “outperformed the market by an average of 12 per cent a year in the five years to 1998.” [TC: this result of superior returns doesn’t seem to have held up.]

Hat tip: The Browser.

TC again: From me, here is a 2013 update:

The Senate has severely scaled back the Stock Act, the law to stop members of Congress and their staff from trading on insider information, in an under-the-radar vote that has been sharply criticised by advocates of political transparency.

The changes, if they become law, will exclude Congressional and White House staff members from having to post details of their shareholdings online. They will also make online filing optional for the president, vice-president, members of Congress and congressional candidates.

The House was expected to pass a similar bill on Friday.

Here is the FT article, here are other sources.  Some officials suggested that transparency “could threaten national security,” more detail on that here.  Here are some further interesting details.

Current TC again: And here is Alex’s update from 2011.  And here is a 2015 update: “Congress tells court that Congress can’t be investigated for insider trading.”  I am not sure where such cases stand as of December 2016, please tell us if you know.

On this whole matter, please don’t accuse me of asserting “false equivalence,” (one of the weakest charges you hear in current debates and usually a sign of sloppy thinking), I am not saying all these practices are equivalent.  But neither a comparison nor an analogy requires equivalence.  I find it striking how many people are discussing this issue, and treating the administration-to-come as the end of democracy and the onset of rampant corruption, without noticing…etc.

File under: Conflicts of interest for me, but not for thee…

Probably not:

But here’s the problem: There would be huge real-world impact of a repeal vote, regardless of when it actually takes effect. A repeal vote would tell the insurers that sell on Obamacare’s marketplaces to get out of the marketplace as soon as possible.

“Insurers have got to put their products together this spring, and we’re right in the middle of killing Obamacare,” says Robert Laszewski, a longtime health insurance consultant. “Are they going to submit proposals to sell in 2018? Why would they stay in the pool?”

The experts I’ve talked to over the past few days argue that a repeal vote would give health insurers good reason to quit the marketplaces — and that could leave 10.4 million Obamacare marketplace enrollees in the lurch.

That is from Sarah Kliff at Vox.

I can’t say I followed this debate very closely, still this paper may settle some of the outstanding questions about public sector unions and wages and bargaining power.

The Effects of Public Unions on Compensation: Evidence from Wisconsin (Job Market Paper)

This paper seeks identify the effect that public sector unions have on compensation. Specifically, I look at the compensation premium associated with teachers’ unions in Wisconsin. In 2011, Wisconsin passed a landmark law (Act 10) which significantly lowered the bargaining power of all public sector unions in the state. Using an event study framework, I exploit plausibly exogenous timing differences based on contract renewal dates, which caused districts to be first exposed to the new regulations in different years. I find that the reduction in union power associated with Act 10 reduced total teacher compensation by 8%, or $6,500. Roughly two-thirds of this decline is driven through reduced fringe benefits. The analysis shows that the most experienced and highest paid teachers benefit most from unionization. I supplement the event study approach with synthetic control and regression discontinuity methods to find that regulatory limits on contract terms, rather than other mechanisms such as state financial aid cuts or union decertification, are driving the results.

That is from Andrew Littten, job market candidate at the University of Michigan (p.s.: Michigan, your job market candidate web site is the very hardest to use and browse, please improve it!)

New Zealand will now compensate live organ donors for all lost income:

Today’s unanimous cross-party support for the Compensation for Live Organ Donors Bill represents a critical step in reducing the burgeoning waiting list for kidney donations, according to Kidney Health New Zealand chief executive Max Reid.

“The Bill effectively removes what is known to be one of the single greatest barriers to live organ donation in NZ,” Mr Reid says. “Until now the level of financial assistance (based on the sickness benefit) has been insufficient to cover even an average mortgage repayment, and the process required to access that support both cumbersome and demeaning. The two major changes that this legislation introduces – increasing compensation to 100% of lost income, and transferring responsibility for the management of that financial assistance being moved from WINZ to the Ministry of Health – will unquestionably remove two major disincentives that exist within the current regime.”

Eric Crampton (former GMU student, now NZ economist who supported the bill) notes that a key move in generating political support was that New Zealand MP Chris Bishop framed the bill as compensating donors for lost wages rather than paying them. A decrease in the disincentive to donate–an increase in the incentive to donate. To an economist, potato, potato. But for people whose kidneys fail in New Zealand, the right framing may have been the difference between life and death.

This is also a good time to remind readers of Held, McCormick, Ojo and Roberts, A Cost-Benefit Analysis of Government Compensation of Kidney Donors published in the American Journal of Transplantation.

From 5000 to 10 000 kidney patients die prematurely in the United States each year, and about 100 000 more suffer the debilitating effects of dialysis, because of a shortage of transplant kidneys. To reduce this shortage, many advocate having the government compensate kidney donors. This paper presents a comprehensive cost-benefit analysis of such a change. It considers not only the substantial savings to society because kidney recipients would no longer need expensive dialysis treatments—$1.45 million per kidney recipient—but also estimates the monetary value of the longer and healthier lives that kidney recipients enjoy—about $1.3 million per recipient. These numbers dwarf the proposed $45 000-per-kidney compensation that might be needed to end the kidney shortage and eliminate the kidney transplant waiting list. From the viewpoint of society, the net benefit from saving thousands of lives each year and reducing the suffering of 100 000 more receiving dialysis would be about $46 billion per year, with the benefits exceeding the costs by a factor of 3. In addition, it would save taxpayers about $12 billion each year.

That is the paper’s subtitle, the title is “Midpregnancy marriage and divorce,” and the authors are Christina M. Gibson-Davis, Elizabeth O. Ananat, and Anna Gassman-Pines.  Here is the abstract:

Conventional wisdom holds that births following the colloquially termed “shotgun marriage”—that is, births to parents who married between conception and the birth—are nearing obsolescence. To investigate trends in shotgun marriage, we matched North Carolina administrative data on nearly 800,000 first births among white and black mothers to marriage and divorce records. We found that among married births, midpregnancy-married births (our preferred term for shotgun-married births) have been relatively stable at about 10 % over the past quarter-century while increasing substantially for vulnerable population subgroups. In 2012, among black and white less-educated and younger women, midpregnancy-married births accounted for approximately 20 % to 25 % of married first births. The increasing representation of midpregnancy-married births among married births raises concerns about well-being among at-risk families because midpregnancy marriages may be quite fragile. Our analysis revealed, however, that midpregnancy marriages were more likely to dissolve only among more advantaged groups. Of those groups considered to be most at risk of divorce—namely, black women with lower levels of education and who were younger—midpregnancy marriages had the same or lower likelihood of divorce as preconception marriages. Our results suggest an overlooked resiliency in a type of marriage that has only increased in salience.

That is via Kevin Lewis and Anecdotal.

I think this is one of the best videos that we have ever done at MRUniversity–it combines history, technology and economics with a great story that links it all together. It’s the final video in the section of our Principles of Macroeconomics class covering unemployment and labor force participation. As always, the videos are free to use and they pair exquisitely well with the best principles textbook, Modern Principles.

Addendum: The video is based on some great papers, here are links: The Power of the Pill by Claudia Goldin and Lawrence Katz and Martha Bailey’s papers “Momma’s Got the Pill”: How Anthony Comstock and Griswold v. Connecticut Shaped US Childbearing and More Power to the Pill.

That is the topic of my latest Bloomberg column, here is just one bit from it:

In other words, the Trump program for protectionism could go far beyond interference in international trade. It also could bring the kind of crony capitalist nightmare scenarios described by Ayn Rand in her novel “Atlas Shrugged,” a book many Republican legislators would be well advised to now read or reread.


The biggest irony of this whole Trump initiative is that it likely would lead to higher U.S. trade deficits. Economists stress the offsetting nature of trade flows and capital flows. As the accounting identities are constructed, a higher trade deficit corresponds to higher capital inflows, and a lower trade deficit corresponds to higher capital outflows. (To see the nature of these balanced transactions, imagine China selling goods and accumulating Treasury bills in return, a form of investment in this country.) So a Trumpian plan to limit capital outflows, through whatever means, is also — if only indirectly and without such intent — a plan to boost the trade deficit.

Do read the whole thing.

Asians in America faced heavy discrimination and animus in the early twentieth century. Yet, after institutional restrictions were lifted in the late 1940s, Asian incomes quickly converged to white incomes. Why? In the politically incorrect paper of the year (ungated) Nathaniel Hilger argues that convergence was due to market forces subverting discrimination. First, a reminder about the history and strength of discrimination against Asians:

Foreign-born Asians were barred from naturalization by the Naturalization Act of 1790. This Act excluded Asians from citizenship and voting except by birth, and created the important new legal category of “aliens ineligible for citizenship”…Asians experienced mob violence including lynchings and over 200 “roundups” from 1849-1906 (Pfaelzer, 2008), and hostility from anti-Asian clubs much like the Ku Klux Klan (e.g., the Asiatic Exclusion League, Chinese Exclusion League, Workingmen’s Party of CA), to an extent that does not appear to have any counterpart for blacks in CA history. Both Asians and blacks in CA could not testify against a white witness in court from 1853-73 (People v. Hall, 1853, see McClain, 1984), limiting Asians’ legal defense against white aggression. The Chinese Exclusion Act of 1882 and the “Gentlemen’s Agreement” in 1907 barred further immigration of all “laborers” from China and Japan.

…Asians have also faced intense economic discrimination. Many cities and states levied discriminatory taxes and fees on Asians (1852 Foreign Miner’s Tax, 1852 Commutation Tax, 1860 Fishing License, 1862 Police Tax, 1870 “queue” ordinance, 1870 sidewalk ordinance, and many others). Many professional schools and associations in CA excluded Asians (e.g., State Bar of CA), as did most labor unions (e.g., Knights of Labor, American Federation of Labor), and many employers declined to hire Asians well into the 20th century (e.g., Mears, 1928, p. 194-204). From 1913-23, virtually all western states passed increasingly strict Alien Land Acts that prohibited foreign-born Asians from owning land or leasing land for extended periods. Asians also faced laws against marriage to whites (1905 amendment to Section 60 of the CA Civil Code) and U.S. citizens (Expatriation Act 1907, Cable Act 1922). From 1942-46, the US forcibly relocated over 100,000 mainland Japanese Americans (unlike other Axis nationalities, e.g. German or Italian Americans) to military detention camps, in practice destroying a large share of Japanese American wealth. In contrast, blacks in CA were eligible for citizenship and suffrage, were officially (though often not de facto) included in CA professional associations and labor unions that excluded Asians, were not covered by the Alien Land Acts, and were not confined or expropriated during WWII.

Despite this intense discrimination, Asian (primarily Japanese and Chinese) incomes converged to white incomes as early as 1960 and certainly by 1980. One argument is that Asians invested so heavily in education that convergence has been overstated but Hilger shows that convergence occurred conditional on education. Similarly, convergence was not a matter of immigration or changing demographics. Instead, Hilger argues that once institutional discrimination was eased in the 1940s, market forces enforced convergence. As I wrote earlier, profit maximization subverts discrimination by employers:

If the wages of X-type workers are 25% lower than those of Y-type workers, for example, then a greedy capitalist can increase profits by hiring more X workers. If Y workers cost $15 per hour and X workers cost $11.25 per hour then a firm with 100 workers could make an extra $750,000 a year. In fact, a greedy capitalist could earn more than this by pricing just below the discriminating firms, taking over the market, and driving the discriminating firms under.

If that theory is true, however, then why haven’t black incomes converged? And here is where the paper gets into the politically incorrect:

Modern empirical work has indicated that cognitive test scores—interpreted as measures of productivity not captured by educational attainment—can account for a large share of black-white wage and earnings gaps (Neal and Johnson, 1996; Johnson and Neal, 1998; Fryer, 2010; Carruthers and Wanamaker, 2016). This literature documents large black-white test score gaps that emerge early in childhood (Fryer and Levitt, 2013), persist into adulthood, and appear to reflect genuine skills related to labor market productivity rather than racial bias in the testing instrument (Neal and Johnson, 1996). While these modern score gaps test-scoreshave not been fully accounted for by measured background characteristics (Neal, 2006; Fryer and Levitt, 2006; Fryer, 2010), they likely relate to suppressed black skill acquisition during slavery and subsequent educational discrimination against blacks spanning multiple generations (Margo, 2016).

…A basic requirement of this hypothesis is that Asians in 1940 possessed greater skills than blacks, conditional on education. In fact, previous research on Japanese Americans in CA support this theory. Evidence from a variety of cognitive tests given to students in CA in the early 20th century suggest test score parity of Japanese Americans with local whites after accounting for linguistic and cultural discrepancies, and superiority of Japanese Americans in academic performance in grades 7-12 (Ichihashi, 1932; Bell, 1935).

Hilger supplements these earlier findings with a small dataset from the Army General Classification Test:

…these groups’ cognitive test performance can be studied using AGCT scores in WWII enlistment records from 1943. Remarkably, these data are large enough to compare Chinese, blacks and whites living in CA for these earlier cohorts. In addition, this sample contains enough young men past their early 20s to compare test scores conditional on final educational attainment, which can help to shed light on mechanisms underlying the conditional earnings gap documented above.

Figure XII plots the distribution of normalized test score residuals by race from an OLS regression of test z-scores on dummies for education and age. Chinese Americans and whites have strikingly similar conditional skill distributions, while the black skill distribution lags behind by nearly a full standard deviation. Table VIII shows that this pattern holds separately within broad educational categories. These high test scores of Chinese Americans provide strong evidence that the AGCT was not hopelessly biased against non-whites, as Neal and Johnson (1996) also find for the AFQT (the successor to the AGCT) in more recent cohorts.

From Hilger’s conclusion:

Using a large and broadly representative sample of WWII enlistee test scores from 1943 both on their own and matched to the 1940 census, I document the striking fact that these test scores can account for a large share of the black, but not Asian, conditional earnings gap in 1940. This result suggests that Asians earnings gaps in 1940 stemmed primarily from taste-based or some other non-statistical discrimination, in sharp contrast with the black earnings gap which largely reflected statistical discrimination based on skill gaps inherited from centuries of slavery and educational exclusion. The rapid divergence of conditional earnings between CA-born Asians and blacks after 1940—once CA abandoned its most severe discriminatory laws and practices—provides the first direct empirical evidence in support of the hypothesis of Arrow (1972) and others that competitive labor markets tend to eliminate earnings gaps based purely on taste-based but not statistical discrimination.

Hilger’s other research is here.

I find that a free trade zone in a province delays the age of first marriage by 1.6 years.  Moreover, the probability of early marriage is reduced by 30 percentage points.  The results are primarily driven by women that were in school at the time of the opening.  The free trade zones increase women’s years of education, especially during secondary school.

That is from a paper by Maria Micaela Sviatschi (pdf), who is on the job market from Columbia University.  Hers is one of the most interesting portfolios I have seen this year.

Another paper of hers shows that indoor prostitution lowers sex crime (pdf).  Her job market paper (pdf) is on how childhood exposure to illegal activities can breed criminal behavior later in life, here is the abstract:

This paper shows that exposing children to illegal labor markets makes them more likely to be criminals as adults. I exploit the timing of a large anti-drug policy in Colombia that shifted cocaine production to locations in Peru that were well-suited to growing coca. In these areas, children harvest coca leaves and transport processed cocaine. Using variation across locations, years, and cohorts, combined with administrative data on the universe of individuals in prison in Peru, affected children are 30% more likely to be incarcerated for violent and drug-related crimes as adults. The biggest impacts on adult criminality are seen among children who experienced high coca prices in their early teens, the age when child labor responds the most. No effect is found for individuals that grow up working in places where the coca produced goes primarily to the legal sector, implying that it is the accumulation of human capital specific to the illegal industry that fosters criminal careers. As children involved in the illegal industry learn how to navigate outside the rule of law, they also lose trust in government institutions. However, consistent with a model of parental incentives for human capital investments in children, the rollout of a conditional cash transfer program that encourages schooling mitigates the effects of exposure to illegal industries. Finally, I show how the program can be targeted by taking into account the geographic distribution of coca suitability and spatial spillovers. This paper takes a first step towards understanding how criminals are formed by unpacking the way in which crime-specific human capital is developed at the expense of formal human capital in bad locations.

She has numerous papers and virtually all of them look quite interesting.  Other topics include whether domestic violence lowers human capital investment and the economic effects of the (former) gang truce in El Salvador.  Here is her basic research portfolio.

That’s banks doing proprietary trading for their own accounts, which was limited by Dodd-Frank.  But have those limitations been effective?  Maybe not, at least that is what Jussi Keppo and Josef Korte suggest in their newly published paper:

We analyze the Volcker Rule’s announcement effects on U.S. bank holding companies. In line with the rule and the banks’ public compliance announcements, we find that those banks that are affected by the Volcker Rule already reduced their trading books relative to their total assets 2.34% more than other banks. However, the announcement of the rule did not reduce the banks’ overall risk taking. To keep their risk targets, the affected banks raised the riskiness of their asset returns. We also find some evidence that the affected banks raised their trading risk and decreased the hedging of their banking business.

I would not consider this the final word, but those results are hardly a surprise.  Trying to control bank risk-taking on a limited number of margins is likely to misfire, given the possibilities for other portfolio adjustments.

Most of all I find it striking how many people have strong opinions on the Volcker rule, one way or another, simply because they feel they ought to be on one “side” of the issue.