A variety of points are made, here is one of mine:

Finally, on immigration you might be right about the points system but I’m not yet convinced. I say take in more high-skilled immigrants, but I wouldn’t move to a Canada-like points system. It seems the current American criteria already attract entrepreneurs. Do we really want to focus admission on more degree-holding service-sector professionals who work in industries with low rates of productivity growth? I’m not so sure.

And Noah’s response:

As for skilled immigrants, both they and Americans can switch between jobs. For example, if we import more foreign doctors, pushing down U.S. doctor salaries, more bright young Americans might choose engineering over the medical profession. So I’m not at all worried about bringing in the “wrong kind” of skilled immigrants.

Do read the whole thing.

The liberal Brexiters have been a bit quiet in the last few weeks.

That is from Duncan Robinson.  Of course that is a response to Theresa May’s announcement that formal Brexit talks will start this spring (NYT).  If true, that is likely to mean “hard Brexit” with no free trade treaty with the EU, no Norwegian or Swiss status, no nothing, Brexit and nothing but Brexit is Brexit is Brexit is Brexit.  I’m still hoping that a raising of the stakes leads to a different outcome, but at this point I’m not counting on it.

In the meantime, those who suggested Brexit would give the UK the best of both worlds don’t seem to have called this one very well.

Tax-loss carryforwards

by on October 1, 2016 at 10:34 pm in Economics, Law | Permalink

This old 1987 Auerbach and Poterba paper (pdf) came immediately to mind:

The most important finding is that tax-loss carryforwards are highly persistent and significantly affect investment incentives for some firms. Nearly 15% of the firms in our sample had tax-loss carryforwards in 1984, and the fraction is much higher in some industries.
And this:
The stock of tax-loss carryforwards in the United Kingdom was nearly three times as large as the annual revenue yield of the corporation tax.
Offhand, I couldn’t say exactly how closely this result relates to recent revelations about the taxes of you-know-who.  For one thing, tax law has been changed a few times since that paper was written.

Not that much, or so it seems from the latest study of California, just published by Arik Levinson in the AER.  This seems to be the bottom line:

1. In 1978 California started to enact some of the world’s most ambitious residential building energy codes.  These building codes have been updated 13 times since.

2. The promise was for 80% savings for new buildings constructed after 1990.  These assumptions assumed everything would go according to plan and there would be no behavioral adjustments.

3. The actual results?: “For electricity, post-1978 houses in California may be using up to 15 percent less than pre-1978 houses, but do not use less per degree-day when the weather gets hot, and do not use relatively less than similar post-1978 houses in other states with less strict building codes.”  For natural gas there is a 25% savings, noting that this trend and the electricity trend both predate the 1978 legislation.

4. Levinson conjectures that most of the savings are coming from natural turnover in the housing stock disfavoring the least energy efficient units.

Here are earlier versions of the paper.   Of course most regulations never receive a study anything near this thorough.

Against solitary confinement

by on September 30, 2016 at 1:47 pm in Current Affairs, Law | Permalink

Sens. Richard Durbin (D-Ill.) and Chris Coons (D-Del.) introduced the Solitary Confinement Reform Act, which would require federal prisons to ensure that any period in solitary is as brief as possible and under the least restrictive conditions possible. It would also mandate that prisoners in solitary spend at least four hours per day outside their cells, have access to rehabilitative and educational programs, and be permitted to interact with other people in addition to other reforms. The legislation would protect youth, people with mental and physical disabilities, LGBT people, pregnant women, and other vulnerable populations from the harms of solitary confinement.

Here is more from the ACLU.  Who are the main writers and thinkers on this topic?

Our findings provide empirical evidence that ride-sharing services such as Uber significantly decrease the traffic congestion after entering an urban area.

Here is the paper, by Li, Hong, and Zhang, via the excellent Kevin Lewis.  Kevin also directs our attention to this paper by Arye Hillman & Niklas Potrafke:

Simple correlations show that Protestantism is associated with economic freedom, Islam is not, with Catholicism in between. The Protestant ethic requires economic freedom. Our empirical estimates, which include religiosity, political institutions, and other explanatory variables, confirm that Protestantism is most conducive to economic freedom.

By the way, here is my earlier column on the benefits of Uber, one product of economic freedom.  By the way, do not try this driverless car trick at home.

You can argue it either way.  On one hand, the forward march of the UK economy, and the inability to develop a coherent negotiating position, militate in favor of a relatively quick and condition-less Brexit.  The European Union is not offering any very flexible intermediate deals, perhaps to punish future would-be leavers.  On the other hand, the consequences would be sobering (FT):

Research by the FT shows the scale of the UK-based banks using passporting to sell into the EU. The group of 96 banks has assets of £7.5tn, directly employ more than 590,000 people and make annual profits of around £50bn.

Bank executives say EU passporting makes up 20-25 per cent of the London business of international investment banks, including the five big US players, who have assets of £1.5tn and staff of 21,000 in their UK-based banks, and the two big Swiss, which have assets of £415bn and staff of more than 6,000.


…John Holland-Kaye, chief executive of Heathrow, warned that leaving the EU customs union would “add massive overhead” for businesses and port operators. “Can you imagine operating something like the Euro[tunnel] if you had to suddenly build in all these checks in place? It would be completely unmanageable,” he told the FT.

This explainer of the “gravity model of trade” shows the UK could not make up lost EU business elsewhere in the world.  Oil and a few other commodities aside, you trade with the countries that are next to you.

Overall, the Brexit stakes are higher than a few months ago, and that is making the final outcome harder not easier to predict.

Stephen J. Entin on raising estate taxes

by on September 24, 2016 at 2:59 am in Economics, Law | Permalink

The transfer [estate] taxes are highly distortive of economic activity. In fact, they probably do the most damage to output and income per dollar of revenue raised of all the taxes in the U.S. tax system. There are two reasons. First, they are an additional layer of tax on saving and investment, activities that are highly sensitive to taxation and very likely to shrink in response to the tax. Second, the transfer taxes are levied at very high, steeply graduated marginal tax rates on a very narrow tax base. The high rates discourage saving and investment at the margin, while the average tax rate and tax revenues are held down by the credit. A tax that has a large differential between its average and marginal tax rates does far more damage per dollar of revenue raised than a flatter rate tax on a broader base.

Here is the full study and pdf.  The pointer is from Alex T.

Londonderry Derry

by on September 22, 2016 at 1:42 pm in History, Law, Political Science, Religion | Permalink

The city’s name is a point of political dispute, with unionists advocating the longer name, and nationalists advocating the shorter. A common attempt at compromise is to refer to the county as “Londonderry” and the city as “Derry”, but this is by no means universally accepted. Because of this, a peculiar situation arises as there is no common consensus either in politics or elsewhere as to which name is preferred; the city council is officially known as “Derry”, but the city is officially recognised as “Londonderry” by the Northern Ireland Executive and the UK government. Whilst road signs in the Republic of Ireland use “Derry”, alongside the Irish language translation “Doire”, road signs in Northern Ireland will always read (unless vandalised) “Londonderry”.

Here is the link.  I hope someday to go.

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

Looking at a broad swath of history, I see three major forces that can make financial systems safer: people being scared by recent events, solid economic growth and reduced debt in comparison to the value of equity. The financial crisis gave us the first on that list as perhaps its main “gift” (for now), but Dodd-Frank may have worsened economic growth problems.

On the plus side, we might like to think that Dodd-Frank improved the debt-equity balance by pushing banks to raise more capital. But that, too, now stands in doubt.

Last week Natasha Sarin and Lawrence H. Summers of Harvard University released a paper questioning whether Dodd-Frank has made big U.S. banks safer at all. The authors look at a variety of measures, including options prices, the ratio of market prices to book values, bank share volatility relative to overall market volatility, credit-default swap spreads and the value of preferred equity shares for banks. In every metric, it seems that the big banks are at least as risky as they were before the crisis, in part because they have lower capital values.

And this:

It’s a common economic prescription that regulation should insist that banks carry high levels of capital to withstand losses in bad times. But although Dodd-Frank raised statutory capital requirements, it may have drained banks of some of their true economic capital by regulating and sometimes prohibiting valuable banking activities. The ratio of market price to book value has declined for the biggest banks, and that is one sign of falling values for true economic capital, even though banks have met the letter of law by increasing capital as the regulations specified. Sarin and Summers note that measures of bank capital, as defined by regulators rather than the market, have little predictive power for bank failures.

Do read the whole thing.

Paul Krugman is upset that many Millennials are toying with the idea of voting for Gary Johnson rather than Hillary Clinton.  He offers a number of arguments, here is one of them:

What really struck me, however, was what the [Libertarian Party] platform says about the environment. It opposes any kind of regulation; instead, it argues that we can rely on the courts. Is a giant corporation poisoning the air you breathe or the water you drink? Just sue: “Where damages can be proven and quantified in a court of law, restitution to the injured parties must be required.” Ordinary citizens against teams of high-priced corporate lawyers — what could go wrong?

That is the opposite of the correct criticism.  The main problem with classical libertarianism is that it doesn’t allow enough pollution.  Under libertarian theory, pollution is a form of violent aggression that should be banned, as Murray Rothbard insisted numerous times.  OK, but what about actual practice, once all those special interest groups start having their say?  Historically, under the more limited government of the 19th century, it was big business that wanted to move away from unpredictable local and litigation-driven methods of control, and toward a more systematic regulatory approach at the national level.  There is a significant literature on this development, starting with Morton Horwitz’s The Transformation of American Common Law.

If you think about it, this accords with standard industrial organization intuitions.  Established incumbents prefer regulations that take the form of predictable, upfront high fixed costs, if only to limit entry.  And to some extent they can pass those costs along to consumers and workers.  The “maybe you can sue me, maybe you can’t” regime is more the favorite of thinly capitalized upstarts that have little to lose.

So under the pure libertarian regime, big business would come running to the federal government asking for systematic regulation in return for protection against the uncertain depredations of the lower-level courts.  It is fine to argue the court-heavy libertarian regime would be unworkable for this reason, or perhaps it would collapse into a version of the status quo.

That would be a much more fun column: “Libertarian view untenable, implies too high a burden on polluters.”  I’m not sure that would sway the Bernie Brothers however.

Some of the criticisms of libertarianism strike me as under-argued:

And if parents don’t want their children educated, or want them indoctrinated in a cult…Not our problem.

Rates of high school completion were below 70% for decades, until recently, in spite of compulsory education.  Parents rescuing children from the neglect of the state seems at least as common to me as vice versa.

And what is the status quo policy on taking children away from parents who belong to “cults”?  Unusual religions can be a factor in contested child custody cases (pdf), but in the absence of evidence of concrete harm, such as beatings or sexual abuse, the American government does not generally take children away from their parents, cult or not.  Germany and Norway differ on this a bit, for the most part this is, for better or worse, the American way.  That’s without electing Gary Johnson.

By the way, Gary Johnson slightly helps Hillary Clinton.  Although probably not with New York Times readers.

That is my latest Bloomberg column, hardly anyone has a consistent and evidence-based view on this deal.  Here is one bit:

Critics who dislike Monsanto for its leading role in developing genetically modified organisms and agricultural chemicals shouldn’t also be citing monopoly concerns as a reason to oppose the merger — that combination of views doesn’t make sense. Let’s say for instance that the deal raised the price of GMOs due to monopoly power. Farmers would respond by using those seeds less, and presumably that should be welcome news to GMO opponents.

Yet on the other side:

What does Bayer hope to get for its $66 billion, $128-a-share offer? The company has argued that it will be able to eliminate some duplicated jobs and expenses, negotiate better deals with suppliers and invest more funds in research and development. Maybe, but the broader reality is less cheery. There is a well-known academic literature, dating to the early 1990s, showing that acquiring firms usually decline in value after tender offers, especially after the biggest deals. Mergers do not seem to make companies more valuable or efficient.

And this:

The whole Bayer-Monsanto case is a classic example of how a vociferous public debate can disguise or even reverse the true issues at stake. If Bayer fails to close the deal for Monsanto, Bayer shareholders may be the biggest winners. The biggest losers from a failed deal may be its opponents, who will spend the rest of their lives in a world where misguided judgments of corporate popularity have increasing sway over laws and regulations.

Do read the whole thing.

In two separate cases, thieves snatching bags from city streets and train stations inadvertently helped law enforcement get the upper hand in an ongoing bomb spree that’s hurt dozens of people and spans both sides of the Hudson River, sources said.

The day Ahmad Khan Rahami allegedly planted two bombs in Chelsea  — one of which detonated on West 23rd Street — two thieves accidentally helped to disable his second pressure cooker bomb left inside a rolling suitcase on West 27th Street, sources said.

The young men, who sources described as being well-dressed, opened the bag and took the bomb out, sources said, before placing the explosive into a garbage bag and walking away with the rolling suitcase.

In doing so, investigators believe they inadvertently disabled the explosive, sources said. That allowed investigators to examine the cellphone attached to the bomb intact and discover that it was connected to the family of Rahami.

From there, they were able to identify pictures on social media of Rahami’s family and of him, and they matched one of his photos to surveillance footage captured in Manhattan.

Here is the full story, via David Montgomery.  This somehow relates to Hume’s Dialogues on Natural Religion and the watchmaker analogy, but I’m still pondering that one…

Senior figures in the EU believe that Britain will give up on Brexit if they make negotiations as tough as possible, the Telegraph understands.

British officials are fighting to stop Europe adopting a no-compromise position in talks in the hope that the UK will change its mind about leaving the bloc.

This belief is fuelling the hardline message on issues like freedom of movement that have emerged from Berlin, Paris and Brussels in recent weeks.

More than five senior EU figures interviewed by the Telegraph this week expressed doubts that Britain would go through with Brexit when confronted by the “reality of the bureaucratic nightmare” and the “insane act of economic self-harm”, as they referred to Brexit.

One senior British official involved in the set up for the coming negotiations said the EU elite “seem to think the game is to make us change our minds”.

This stance has left officials fighting to explain to European leaders how “dangerous” a game they were playing, and how “unlikely” it was to succeed.

Here is the full story.  Speculative of course, but don’t forget this bit:

“Perhaps there was a time when this could not have got nasty,” said one source close to Mr Verhofstadt, “but when the Brexit minister calls the chief negotiator ‘Satan’ what response, really, does Britain expect?”

Do they really spell “fuelling” with two l’s?

Somehow — I can’t imagine why — this financial matter has fallen down the memory hole as of late.  Here are a few paragraphs from Wikipedia:

In 1978 and 1979, lawyer and First Lady of Arkansas Hillary Rodham engaged in a series of trades of cattle futures contracts. Her initial $1,000 investment had generated nearly $100,000 when she stopped trading after ten months…

Various publications sought to analyze the likelihood of Rodham’s successful results. The editor of the Journal of Futures Markets said in April 1994, “This is like buying ice skates one day and entering the Olympics a day later. She took some extraordinary risks.”[3] USA Today concluded in April 1994 after a four-week study that “Hillary Rodham Clinton had some special treatment while winning a small fortune in commodities.”[9] According to The Washington Post‘s May 1994 analysis, “while Clinton’s account was wildly successful to an outsider, it was small compared to what others were making in the cattle futures market in the 1978–79 period.” However, the Post’s comparison was of absolute profits, not the percentage rate of return.[14] In a Fall 1994 paper for the Journal of Economics and Finance, economists from the University of North Florida and Auburn University investigated the odds of gaining a hundred-fold return in the cattle futures market during the period in question. Using a model that was stated to give the hypothetical investor the benefit of the doubt, they concluded that the odds of such a return happening were at best 1 in 31 trillion.[15]

Financial writer Edward Chancellor noted in 1999 that Clinton made her money by betting “on the short side at a time when cattle prices doubled.”[16] Bloomberg News columnist Caroline Baum and hedge fund manager Victor Niederhoffer published a detailed 1995 analysis in National Review that found typical patterns and behaviors in commodities trading not met and concluded that her explanations for her results were highly implausible.[17] Possibilities were raised that broker actions such as front running of trades, or a long straddle with the winning positions thereof assigned to a favored client, had taken place.[14][17]

That said, I fully grant such matters are not closely correlated with ultimate political performance.  But I am seeing so, so much apologia, selective event citation, and wishful thinking these days…

What is also interesting is that this is another case where — relative to actual legal priorities — one can correctly suggest that an actual prosecution was not warranted.

Please do note I regard it as my first priority to try to understand and also explain the (rather dire) situation we are in, rather than to put maximum thumb weight on the outcome I would most like to see happen.