Law

In Ferguson and the Modern Debtor’s Prison I wrote:

You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate. You get numbers like this from bullshit arrests for jaywalking and constant “low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay.”

The DOJ report on the Ferguson Police Department verifies this in stunning detail:

Ferguson has allowed its focus on revenue generation to fundamentally compromise the role of Ferguson’s municipal court. The municipal court does not act as a neutral arbiter of the law or a check on unlawful police conduct.

… Our investigation has found overwhelming evidence of minor municipal code violations resulting in multiple arrests, jail time, and payments that exceed the cost of the original ticket many times over. One woman, discussed above, received two parking tickets for a single violation in 2007 that then totaled $151 plus fees. Over seven years later, she still owed Ferguson $541—after already paying $550 in fines and fees, having multiple arrest warrants issued against her, and being arrested and jailed on several occasions.

Predatory fining was incentivized:

FPD has communicated to officers not only that they must focus on bringing in revenue, but that the department has little concern with how officers do this. FPD’s weak systems of supervision, review, and accountability…have sent a potent message to officers that their violations of law and policy will be tolerated, provided that officers continue to be “productive” in making arrests and writing citations. Where officers fail to meet productivity goals, supervisors have been instructed to alter officer assignments or impose discipline.

Excessive, illegal and sometimes criminal force was used routinely:

This culture within FPD influences officer activities in all areas of policing, beyond just ticketing. Officers expect and demand compliance even when they lack legal authority. They are inclined to interpret the exercise of free-speech rights as unlawful disobedience, innocent movements as physical threats, indications of mental or physical illness as belligerence. Police supervisors and leadership do too little to ensure that officers act in accordance with law and policy, and rarely respond meaningfully to civilian complaints of officer misconduct. The result is a pattern of stops without reasonable suspicion and arrests without probable cause in violation of the Fourth Amendment; infringement on free expression, as well as retaliation for protected expression, in violation of the First Amendment; and excessive force in violation of the Fourth Amendment.

Here is one example:

In January 2013, a patrol sergeant stopped an African-American man after he saw the man talk to an individual in a truck and then walk away. The sergeant detained the man, although he did not articulate any reasonable suspicion that criminal activity was afoot. When the man declined to answer questions or submit to a frisk—which the sergeant sought to execute despite articulating no reason to believe the man was armed—the sergeant grabbed the man by the belt, drew his ECW [i.e. taser, AT], and ordered the man to comply. The man crossed his arms and objected that he had not done anything wrong. Video captured by the ECW’s built-in camera shows that the man made no aggressive movement toward the officer. The sergeant fired the ECW, applying a five-second cycle of electricity and causing the man to fall to the ground. The sergeant almost immediately applied the ECW again, which he later justified in his report by claiming that the man tried to stand up. The video makes clear, however, that the man never tried to stand—he only writhed in pain on the ground. The video also shows that the sergeant applied the ECW nearly continuously for 20 seconds, longer than represented in his report. The man was charged with Failure to Comply and Resisting Arrest, but no independent criminal violation.

Here is another, especially interesting, example:

While the record demonstrates a pattern of stops that are improper from the beginning, it also exposes encounters that start as constitutionally defensible but quickly cross the line. For example, in the summer of 2012, an officer detained a 32-year-old African-American man who was sitting in his car cooling off after playing basketball. The officer arguably had grounds to stop and question the man, since his windows appeared more deeply tinted than permitted under Ferguson’s code. Without cause, the officer went on to accuse the man of being a pedophile, prohibit the man from using his cell phone, order the man out of his car for a pat-down despite having no reason to believe he was armed, and ask to search his car. When the man refused, citing his constitutional rights, the officer reportedly pointed a gun at his head, and arrested him. The officer charged the man with eight different counts, including making a false declaration for initially providing the short form of his first name (e.g., “Mike” instead of “Michael”) and an address that, although legitimate, differed from the one on his license. The officer also charged the man both with having an expired operator’s license, and with having no operator’s license in possession. The man told us he lost his job as a contractor with the federal government as a result of the charges.

Although the report says the initial stop was constitutionally defensible, the initial stop was also clearly bullshit. “The officer arguably had grounds to stop and question the man, since his windows appeared more deeply tinted than permitted under Ferguson’s code.” Deep tinting!!!

Missouri, like most states, has a window tint law which essentially requires that tinting not be so dark as to impede the ability of the driver to see out of the car. Ok. But why does Ferguson have a window tint law! What this means is that you can be fined for driving through Ferguson for window tinting which is legal in the rest of Missouri. Absurd. The purpose of the law was simply to extract more blood:

NYTimes: Last year Ferguson drivers paid $12,400 in fines for driving cars with tinted windows. They paid another $4,905 for loud music coming out of their cars.

The abuse in Ferguson shouldn’t really surprise us–this is how most governments behave most of the time. Democracy constrains what governments do but it’s a thin constraint easily capable of being pierced when stressed.

The worst abuses of government happen when an invading gang conquer people of a different race, religion and culture. What happened in Ferguson was similar only the rulers stayed the same and the population of the ruled changed. In 1990 Ferguson was 74% white and 25% black. Just 20 years later the percentages had nearly inverted, 29% white and 67% black. The population of rulers, however, changed more slowly so white rulers found themselves overlording a population that was foreign to them. As a result, democracy broke down and government as usual, banditry and abuse, broke out.

Open English Borders

by on March 3, 2015 at 7:30 am in Economics, Law, Political Science | Permalink

I am in favor of open borders for economic and moral reasons. It’s not crazy, however, to be concerned about some of the potential consequences of immediately opening borders between countries with very different income levels, culture or history. It is crazy, however, to fear opening borders between countries with similar income levels, culture and history. Thus, I fully support the petition of the Commonwealth Freedom of Movement Organisation:

Because of the unique relationship and socio-economic bonds that the U.K, Canada, Australia and New Zealand share, we believe that each country can benefit from a free movement agreement with each other, similar to the policies of the European Union and the Trans-Tasman Travel Arrangement (T.T.T.A) between Australia and New Zealand.

We propose that the governments of the aforementioned countries finalise agreements (and inevitably, legislation) which make it possible for citizens to move freely with no restrictions regarding work permits or visa controls.

Amen to that.

The only problem with agreements like this is that the very big gains come from opening up borders between countries that are different. Still, I am for lowering transportation and transaction costs. I do hope, however, that more people will come to appreciate that the right to move is a human right and not just a right of the British and their colonial cousins.

Addendum: Open Borders Day is coming on March 16. Write about open borders–pro or con–on that day. Let’s peacefully debate.

American military commanders rarely seek out deserters and even more rarely punish them.  At the height of the Iraq War, fewer than 5 percent of deserters received a court-martial, and fewer than one percent served prison time.

And:

…the only deserters who have consistently been punished by the American military are those who went to Canada.

The full article, by Wil S. Hylton, is interesting throughout.

More than 100% of the self-reported income of Greece’s professional classes is going toward paying off consumer debts.

From Mike Bird, there is more here, via MacroDigest.

Smile! The Dentists Lose a Monopoly

by on February 26, 2015 at 7:20 am in Economics, Law, Medicine | Permalink

Yesterday, the Supreme Court ruled (6:3) in North Carolina State Board of Dental Examiners v. FTC that the attempt of the state board of dental examiners to exclude nondentists from the practice of teeth whitening violated the Sherman antitrust act.

mouth1The opinion, written by Justice Kennedy, is especially lucid. Here, from Kennedy, are the key facts:

Starting in 2006, the Board issued at least 47 cease-and desist letters on its official letterhead to nondentist teeth whitening service providers and product manufacturers. Many of those letters directed the recipient to cease “all activity constituting the practice of dentistry”; warned that the unlicensed practice of dentistry is a crime; and strongly implied (or expressly stated) that teeth whitening constitutes “the practice of dentistry.” App. 13, 15. In early 2007, the Board persuaded the North Carolina Board of Cosmetic Art Examiners to warn cosmetologists against providing teeth whitening services. Later that year, the Board sent letters to mall operators, stating that kiosk teeth whiteners were violating the Dental Practice Act and advising that the malls consider expelling violators from their premises.

These actions had the intended result. Nondentists ceased offering teeth whitening services in North Carolina.

The FTC then brought suit, arguing that the action was anti-competitive. The case raises constitutional issues because the states are allowed to violate the federal antitrust acts, as will inevitably happen in the ordinary use of their powers. The question then became whether the NC State Dental Board was invested with enough state authority to overcome the antitrust provisions. On the one hand, the principles of federalism say leave the states alone. On the other (Kennedy quoting Justice Stevens in Hoover v. Ronwin):

“The risk that private regulation of market entry, prices, or output may be designed to confer monopoly profits on members of an industry at the expense of the consuming public has been the central concern of . . . our antitrust jurisprudence.”

In my view, the majority deftly navigated the tradeoff. The court said that North Carolina can, without question, decide that teeth whitening is the practice of dentistry but they have to do so more or less explicitly–they can’t simply put the fox in charge of the hen-house by deferring the decision to the dentists.

In other words, the court raised the cost of rent-seeking. If the dentists want to monopolize the practice of teeth whitening they will have to make that case to the legislature and not rely on the unilateral actions of a board composed almost entirely of dentists and created for entirely different purposes.

As Kennedy put it in language reminiscent of bootleggers and baptists:

Limits on state-action immunity are most essential when the State seeks to delegate its regulatory power to active market participants, for established ethical standards may blend with private anticompetitive motives in a way difficult even for market participants to discern. Dual allegiances are not always apparent to an actor. In consequence, active market participants cannot be allowed to regulate their own markets free from antitrust accountability.

Addendum: I, along with a number of other GMU scholars, was part of an Institute for Justice BRIEF OF AMICI CURIAE SCHOLARS OF PUBLIC CHOICE ECONOMICS IN SUPPORT OF RESPONDENT. Congratulations are due to the excellent team at IJ, as the brief seems to have been influential.

By the way, the dissenting opinion (Alito, Scalia, Thomas) appears to accept the logic of our brief to an even greater extent, so much so that they shrug their shoulders at the rent seeking as business as usual (I especially enjoyed the dig at the FTC as also being subject to regulatory capture). Thus, the dissenters focused entirely on the federalism question. I respect that approach but I think that as federalism stands today, the majority’s balancing approach is likely to lead to better policy.

Ezekiel J. Emanuel writes:

The big problem is profitability. Unlike drugs for cholesterol or high blood pressure, or insulin for diabetes, which are taken every day for life, antibiotics tend to be given for a short time, a week or at most a few months. So profits have to be made on brief usage. Furthermore, any new antibiotics that might be developed to fight these drug-resistant bacteria are likely to be used very sparingly under highly controlled circumstances, to slow the development of resistant bacteria and extend their usefulness. This also limits the amount that can be sold.

Here is evidence for the Roberts Higgs thesis and, if I recall correctly, some recent remarks by Thomas Piketty on revolution and tax progressivity (does anyone know the link?).  Juliana Londoño Vélez writes:

Abstract    I argue that progressive income taxation in the twentieth century is a product of the exigency of war and not of democracy. I obtain long-run series of the top marginal personal income tax rate for a large sample of OECD countries, and use data on wars of mass mobilization and democracy from the Correlates of War data set and Scheve & Stasavage (2012) to test this hypothesis. My results suggest that wars of mass mobilization (i.e. wars in which more than 2% of the population served in the military) cause substantial increases in tax progressivity. These effects are persistent and do not vanish upon the conclusion of war.

The full paper is here (pdf), taken from the generally interesting Berkeley Economic History Lab list, as cited by Barry Eichengreen.  As Barry notes, see also the revised and much improved version of Lemin Wu’s paper on the Malthusian trap (pdf).

Also, unlike Silicon Valley, the Stasi was regulated.

That is from Bryan Appleyard.

The US economy has been one of the most dynamic economies in the world but recent research suggests that US dynamism is in decline. The startup, job creation, and job destruction rates have all declined over the past three decades with a possible increase in the rate of decline in the past decade. The dynamism decline is robust, appearing in a variety of data. Moreover because startups and the movement of resources from low to high productivity firms are closely associated with improvements in productivity, the decline of dynamism may reduce real wages and the standard of living.

Could regulation be increasing barriers to entry, raising the costs of reallocation, and slowing the diffusion of productivity innovations? To test the hypothesis that regulation is reducing dynamism Nathan Goldschlag and I combined data on dynamism with an industry level measure of regulation. Our measure of regulation is produced by an innovative technique that combs the Code of Federal Regulations (CFR) for restrictive terms or phrases such as “shall,” “must,” “may not,” “prohibited,” and “required”. The count of restrictive words in each section is then associated to industries via a machine learning algorithm that recognizes similarities between the language in that CFR section and industry language (e.g. a section of the text with words such as “pipeline” would be associated with the oil and gas industry). In this way, we can associate each industry with an index of regulation derived from the entire CFR.

The following figure shows the startup rate against the regulatory stringency index (both averaged by industry over the period 1999-2011). Contrary to expectation, there is a slight positive relationship; industries with greater regulatory stringency have higher startup rates. We find a similar relationship with job creation rates.

Startup Rate Against Regulation Stringency by Industry (1)

Of course, it could be the case that more dynamic industries attract greater regulation so the apparent positive relationship in our graph would not reflect a causal connection and could even be masking a negative causal connection. Thus, to further test the relationship, we statistically test whether increased regulatory stringency is associated with reduced dynamism within an industry over time (we give each industry a “fixed effect”). After subjecting the data to a number of different tests we find no statistically significant relationships between dynamism and regulatory stringency (see the paper for details).

One simple test divides manufacturing industries into those that experienced a large increase in regulation (+50% or more) during our time period and those where regulation hardly changed at all (+10%-to -10%). If regulation were the cause of changes in dynamism we would expect to see big differences between these groups. The figure below, however, shows that startup rates, for example, track similarly across the two types of groups suggesting that regulation is not a primary cause of declining startup rates (the same is true for job creation and destruction rates).

Manufacturing Startup Rates

It’s important to note that regulation could have large negative (or positive) effects without having a big effect on dynamism. A tax, for example, could reduce the size of the industry without have a big effect on the startup rate or how well the industry responds to shocks by reallocating labor from low to high productivity firms. In short, regulation can have significant effects on levels without necessarily having large effects on growth rates.

If regulation is not responsible for the decline in dynamism then what is? We offer some suggestive hypotheses in another paper. First, it could be the case that we are mis-measuring entrepreneurship. If entrepreneurship is measured as new firm creation, for example, we miss the entrepreneurship inherent in rebuilding and revitalizing larger and older firms. Since most workers work for larger and older firms, revitalizing these firms may be a more important use of entrepreneurship than starting new firms. In an increasingly global economy we may also miss some of the outsourcing of dynamism that has occurred in recent decades. Apple, for example, is measured in US data as a relatively stable firm but the Apple ecosystem from which Apple sources its product is a maelstrom of entry and exit as Apple hires and fires new firms with each new iteration of the iPhone.

Even if dynamism has declined is this necessarily a bad thing? We should not let word associations influence our evaluations of underlying realities. Dynamism as measured by, for example, job reallocation rates might equally well be called churn. Declining churn doesn’t sound as bad as declining dynamism. Moreover, combining the last two points, perhaps the reason for some of the declining dynamism as measured in the US statistics is that we have outsourced some of our churn. A very different way of describing the same data.

More generally, information technology may allow us to reduce churn while still allowing adaption and innovation. Creative destruction is necessary for a growing economy but if we can boost the ratio of creation to destruction that counts as an improvement in welfare.

Reallocation of labor and capital is an important force driving the American economy forward. We don’t fully understand, however, what the causes of declining dynamism are or exactly how our measures of dynamism relate to entrepreneurship, growth and improvements in the standard of living.

Addendum: Cross-posted at the Columbia Law School Blue Sky Blog.

The causes of the Bengal famine

by on February 17, 2015 at 11:31 am in Books, Economics, History, Law | Permalink

The 1943 Bengal famine has been cited by Amartya Sen and others as a classic example of market failure.  But in his new (and excellent) book Eating Dead People is Wrong, and Other Essays on Famine, Its Past, and Its Future, Cormac Ó Gráda devotes an entire chapter to that episode and comes away with a different impression.  Here is a summary sentence:

The 1943-44 famine has become paradigmatic as an “entitlements famine,” whereby speculation born of greed and panic produced an “artificial” shortage of rice, the staple food.  Here I have argued that the lack of political will to divert foodstuffs from the war effort rather than speculation in the sense outlined was mainly responsible for the famine.

I will add to that price controls were imposed once the famine was underway, and campaigns were conducted against hoarders.

In the book I also very much enjoyed the discussion of the 1946-47 famine in Moldova, which apparently involved a good deal of cannibalism.

Kevin Drum reports an anomaly:

…here’s the rate of anti-Semitic incidents in the U.S., as tallied by the Anti-Defamation League. What you see is a peak in the early 90s and a decline ever since. This is exactly the same thing that you see in rates of violent crime in general. In other words, as violent crime fell, violent crime directed at Jews also fell. This makes sense.

But the global picture is quite different. Partly this is probably due to the fact that the worldwide numbers come from a different source (the Kantor Center in Tel Aviv) and are tallied up using a different methodology. But I doubt that accounts for the stark contrast: worldwide, anti-Semitic attacks have been on a straight upward path ever since the late 90s. This is despite the fact that violent crime in Europe, which accounts for most of the incidents, has followed a trajectory pretty similar to the U.S.

Kevin also reports that the Canadian pattern is closer to Europe than to the United States.  You also can find some charts at the link.

Are there any reasonable explanations which involve economic factors?

During the president’s two terms in office, the Washingtons relocated first to New York and then to Philadelphia. Although slavery had steadily declined in the North, the Washingtons decided that they could not live without it. Once settled in Philadelphia, Washington encountered his first roadblock to slave ownership in the region — Pennsylvania’s Gradual Abolition Act of 1780.

The act began dismantling slavery, eventually releasing people from bondage after their 28th birthdays. Under the law, any slave who entered Pennsylvania with an owner and lived in the state for longer than six months would be set free automatically. This presented a problem for the new president.

Washington developed a canny strategy that would protect his property and allow him to avoid public scrutiny. Every six months, the president’s slaves would travel back to Mount Vernon or would journey with Mrs. Washington outside the boundaries of the state. In essence, the Washingtons reset the clock. The president was secretive when writing to his personal secretary Tobias Lear in 1791: “I request that these Sentiments and this advise may be known to none but yourself & Mrs. Washington.”

There is more here, depressing throughout, and for the pointer I thank Michael Clemens.

Dave asked me if there was some way to bypass a bum sensor while waiting for the repairman to show up. But fixing Dave’s sensor problem required fiddling around in the tractor’s highly proprietary computer system—the tractor’s engine control unit (tECU): the brains behind the agricultural beast.

One hour later, I hopped back out of the cab of the tractor. Defeated. I was unable to breach the wall of proprietary defenses that protected the tECU like a fortress. I couldn’t even connect to the computer. Because John Deere says I can’t.

There is more here, interesting throughout, mostly about how farmers are no longer able to fix their own tractors, which by the way may cost $100,000 or more. This part is interesting too (“model this“):

There’s a thriving grey-market for diagnostic equipment and proprietary connectors. Some farmers have even managed to get their hands on the software they need to re-calibrate and repair equipment on their own—a laptop purchased from some nameless friend-of-a-friend with the software already loaded on it. There are even ways to get around the factory passwords that block access to the tECU to effect repairs.

But under modern copyright laws, that kind of “repairing” is legally questionable.

Manufacturers have every legal right to put a password or an encryption over the tECU. Owners, on the other hand, don’t have the legal right to break the digital lock over their own equipment. The Digital Millennium Copyright Act—a 1998 copyright law designed to prevent digital piracy—classifies breaking a technological protection measure over a device’s programming as a breach of copyright. So, it’s entirely possible that changing the engine timing on his own tractor makes a farmer a criminal.

In response, there is now a community of farmers looking to encourage “open source tractors.”

If this doesn’t concern you, I can assure you that in South Korea things are even worse.

For the pointer I thank the excellent Mark Thorson.

Optimal life cycle unemployment insurance

by on February 4, 2015 at 2:24 am in Economics, Law | Permalink

It seems we should index unemployment benefits to a person’s age.  For the liquidity-constrained, human capital-investing young, we don’t want to rush them into unsuitable jobs.  The older workers — that’s another matter.   Michelacci and Ruffo report:

We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.

The AER version is here.  Ungated versions are here.  Elsewhere Ben Casselman considers some ways that unemployment has changed, and what that may mean for benefits.

The most recent issue of the Fletcher Security Review features a paper by Alex Nowrasteh and myself on Privateers! Their History and Future. One of the interesting side notes is that Americans supported privateering not just because it was effective but also because America’s greatest patriots, the founding generation, were deeply skeptical about standing armies and navies. Today, the right-wing, uber-patriotic brand of Americanism is pro-military and pro-empire. In contrast, the founders would regard the empire as deeply un-American. Quoting from the paper:

The founders feared standing armies as a threat to liberty. At the constitutional convention, for example, James Madison argued that “A standing military force, with an overgrown Executive will not long be safe companions to liberty. The means of defence against foreign danger have been always the instruments of tyranny at home.” For the founders, the defense of the country was best left to citizens who would take up arms in times of national peril, form militias, overcome the peril, and then to return to their lives.

As a result, the ideal military for the founders was small and circumspect (remember also that the second amendment was in part about the fear of standing armies, hence the support of the militia). The 1856 Treaty of Paris banned privateering but the United States refused to sign. Secretary of State William Marcy explained why in a great statement of patriotic American anti-militarism:

The United States consider powerful navies and large standing armies as permanent establishments to be detrimental to national prosperity and dangerous to civil liberty. The expense of keeping them up is burdensome to the people; they are in some degree a menace to peace among nations. A large force ever ready to be devoted to the purposes of war is a temptation to rush into it. The policy of the United States has ever been, and never more than now, adverse to such establishments, and they can never be brought to acquiesce in any change in International Law which may render it necessary for them to maintain a powerful navy or large standing army in time of peace.

Today the patriotic brand of anti-militarism, the brand that sees skepticism about the military and the promotion of peace and commerce as specifically American, is largely forgotten. President Eisenhower’s farewell address to the nation was perhaps the last remnant in modern memory. It’s a tradition, however, that true patriots must remember.