So long, good Samaritans.

In the first study of its kind, Cornell sociologists have found that people who have a medical emergency in a public place can’t necessarily rely on the kindness of strangers. Only 2.5 percent of people, or 1 in 39, got help from strangers before emergency medical personnel arrived, in research published April 14 in the American Journal of Public Health.

For African-Americans, these dismal findings only get worse. African-Americans were less than half as likely as Caucasians to get help from a bystander, regardless of the type of symptoms or illness they were suffering – only 1.8 percent, or fewer than 1 in 55 African-Americans, received assistance. For Caucasians, the corresponding number was 4.2 percent, or 1 in 24.

People in lower-income and densely populated counties were also less likely to get help, the researchers said. Conversely, those in less-densely populated counties with average socioeconomic levels were most likely to get assistance.

Here is more, via Charles Klingman.

His new book is titled Legislating Instability: Adam Smith, Free Banking, and the Financial Crisis of 1772.  From Harvard University Press, here is one summary bit:

The central argument of my thesis is thus that the salient financial crisis of the Scottish free banking period, the obtrusive exception to the hypothesis of greater financial stability under free banking in Scotland,was, pace Adam Smith, made more rather than less likely by precisely those regulated or “unfree” elements of Scottish banking which the author of The Wealth of Nations promoted.  Further, I argue that this conclusion should hardly be cause for surprise once we realize that it was none other than the oldest, largest, and most established banks in Scotland that had lobbied for Smith’s legal restrictions on banking; regulations that had the effects of raising barriers to entry, lowering competition in the provision of short-term credit, increasing the efficient scale of banking, and therefore, ultimately, amplifying the level of systematic risk in Scottish credit markets.

Finally, in support of Selgin and White, among others, I find that the relative competitiveness of the Scottish financial system — certainly in contrast to the highly bifurcated English banking sector of the time — along with the unlimited legal liability of shareholders in Scottish private banks, were sources of considerable financial stability, both in 1772 and previously.

Here is the book’s home page.

China law of the day

by on April 13, 2016 at 2:08 pm in Economics, Law, Web/Tech | Permalink

The government of Shanghai says that under new rules residents who fail to visit their elderly parents will get black marks on their credit records.

A new set of regulations released recently by the government of the eastern city says that adult children living apart from their parents should “visit or send greetings often.” Parents who think their children are not fulfilling this responsibility can file lawsuits against them for neglect.

If the offspring still refuse to follow through with their obligations after a court tells them to, they will have their credit standing negatively impacted, Luo Peixin, deputy director of the city government’s law office, said on a news conference on April 6.

The policy, which takes effect on May 1, is part of the central government’s efforts to promote filial piety, an important aspect of Confucianism, as the country’s population rapidly ages.

Beijing enacted a law in July 2013 aimed at compelling the children of parents older than 60 to visit their parents “frequently” and make sure their financial and emotional needs are met.

Here is the story, and for the pointer I thank Jesse Reynolds, as well as a source on Twitter.

Don’t forget market size!  Via the excellent Kevin Lewis, there is a new paper on this topic, by Amandine Aubry, Michal Burzynski, and Frédéric Docquier.  Here is the abstract:

This paper quantifies the effect of global migration on the welfare of non-migrant OECD citizens. We develop an integrated, multi-country model that accounts for the interactions between the labor market, fiscal, and market size effects of migration, as well as for trade relations between countries. The model is calibrated to match the economic and demographic characteristics of the 34 OECD countries and the rest of the world, as well as trade flows between them in the year 2010. We show that recent migration flows have been beneficial for 69 percent of the non-migrant OECD population, and for 83 percent of non-migrant citizens of the 22 richest OECD countries. Winners are mainly residing in traditional immigration countries; their gains are substantial and are essentially due to the entry of immigrants from non OECD countries. Although labor market and fiscal effects are non-negligible in some countries, the greatest source of gain comes from the market size effect, i.e. the change in the variety of goods available to consumers.

New Zealand, are you listening?

…the World Bank said Nigeria’s economic growth slid to 2.8% in 2015 from 6.3% the year before, and the International Monetary Fund says this year’s growth will slip to 2.3%, slower than the population, which adds 13,000 people daily.

Factories are closing because they can’t find dollars to import parts. Supermarkets are struggling to keep shelves stocked. Power plants have virtually stopped producing electricity because they can’t pay for maintenance. New shopping malls are empty and ordinary citizens are going to lengths to find some basic goods.

…on the streets, daily frustrations are mounting. Electricity is so scarce that the country’s national power plants didn’t produce a single watt for several days last week—they couldn’t import parts and services, said two senior members of Mr. Buhari’s administration. Internet providers face similar woes.

Nigerians abroad are stuck with ATM cards they can’t use because the central bank has limited withdrawals outside the country. Bitcoin trades are up as Nigerian professionals scrounge for ways to move money—and increasingly, themselves—out of the country.

Here is the Drew Hinshaw and Joe Parkinson WSJ story.

That is a new paper by Jon Danielsson, Kevin R. James, Marcela Valenzuela, and Ilknur Zer, forthcoming in the JMCB, here is the abstract:

Since increasing a bank’s capital requirement to improve the stability of the financial system imposes costs upon the bank, a regulator should ideally be able to prove beyond a reasonable doubt that banks classified as systemically risky really do create systemic risk before subjecting them to this capital punishment. Evaluating the performance of two leading systemic risk models, we show that estimation error alone prevents the reliable identification of the most systemically risky banks. We conclude that it will be a considerable challenge to develop a riskometer that is both sound and reliable enough to provide an adequate foundation for macroprudential policy.

Here is their broader piece on models of systemic risk.  Paul Krugman had a good argument today in his column on this topic:

What determines whether a firm is systemically important? There aren’t any cut-and-dried rules — there can’t be, because if there were, corporate lawyers would find ways to evade them. Instead, it’s a judgment call. But financial giants that don’t like being regulated are trying to use litigation to question those judgments.

Maybe, but I’m reluctant to define “following the law” as necessarily an attempt to game the system.  Would we use that same argument to show restrictions on leverage are counterproductive?  Quantifiable laws can indeed limit financial risk and of course Dodd-Frank, and many other financial regulations, is replete with such quantifiable laws.  Why is quantification suddenly so ineffective or even counterproductive?  We don’t from Dodd-Frank advocates hear much about this possibility in other contexts.  Furthermore, cannot the discretionary judgments of the regulators be gamed, and gamed all the more so?  Especially in generations two, three, and four of this process.  Especially in a world with a revolving regulatory door.  Especially in a world where regulators are looking for cover and, in subsequent iterations, may simply fall back on numerical standards in any case?  I say when in doubt, go with the rule of law, not the rule of men.

So I’m sticking with my previous view that the MetLife decision is more good news than bad.

Yet Britain looks unlikely to exit Europe even if its citizens voted to do so. Instead, the government would probably do just what EU members — Denmark, France, Ireland and the Netherlands — have always done after such votes. It would negotiate a new agreement, nearly identical to the old one, disguise it in opaque language and ratify it. The public, essentially ignorant about Europe, always goes along.

In contemplating this possibility, leading Eurosceptics have shown themselves to be the craftiest political illusionists of all. Now that Brexit appears within their grasp, they are backing away from it. What they really seek is domestic political power. If Britain votes to leave, the government will fall or, at the very least, the cabinet will be reshuffled. For Eurosceptic backbenchers, this is a once-in-a-lifetime opportunity. Yet they lack parliamentary and popular majorities to govern alone. They would have to strike a deal, which means moderating anti-European demands — all amid post-referendum economic chaos. Renegotiation inside the EU would be almost inevitable.

That is from Andrew Moravcsik at the FT.  I sometimes refer to Brexit as “the Donald Trump of England.”  The problem is that while Trump has been falling in prediction markets — down to below fifty percent for the nomination as of latethe chances for Brexit are rising and furthermore Vladimir Putin stands at the other end of the bet.

Here is one summary of the latest:

The nation’s biggest life insurance company isn’t “too big to fail” after all — at least in the eyes of a federal judge, said Renae Merle in The Washington Post. In a “significant setback” for the Obama administration’s financial reform efforts, MetLife last week won a landmark lawsuit over its designation as a “systemically important financial institution.” Prior to the 2008 crash, large, non-bank financial firms were subject to little oversight, but after the near collapse of insurance giant AIG, federal regulators decided tougher rules were necessary. So the government labeled MetLife, which has 100 million customers worldwide, and three other non-banks — AIG, Prudential, and General Electric’s financing arm — as too big to fail, requiring them to set aside bigger financial cushions to ward off collapse. But MetLife challenged the label in court, and to the surprise of many, it won.

That’s four non-banks, identified in discretionary fashion by the regulators without a cost-benefit analysis or fully objective standards for such a designation.  Not three, not five, rather four.  And with exactly what standards of regulatory appeal?  A thirty day appeal process?  Once you are on that list, I believe it is politically very difficult for the Financial Stability Oversight Council to take you off.  The regulators are not required to spell out any clear “exit strategy” for leaving the list.

Is this such a good idea?  You don’t have to favor “doing nothing” to think this idea of a “tag, you’re it” game might be counterproductive.  I am reminded of the wise words of Paul Krugman that a lot of crises can come from surprise corners and bring higher contagion costs than you might have expected.  And the whole point of systemic risk and mispriced asset classes is that such problems can affect the entire market, or an entire sector of the market, all at once.  Big firms or not.  (It is weird for regulators to simultaneously believe that breaking up big institutions would increase market risk, and then focus their monitoring on…the biggest institutions.)  What about money market funds, while we are on the topic?  It’s not about the size of the biggest one.

That all suggests it is better to build safeguards into the system at a general level, rather than playing the tag game.  Those safeguards can include corporate governance reform, better Fed monitoring of credit markets, better stress tests, better overall money market infrastructure and crisis procedures, and better monetary policy in downturns, among other ideas.

If you impose higher capital requirements on four relatively well-observed firms, you might just be pushing risk into other and less well-observed corners of the financial system.

On Twitter, Austan Goolsbee is very upset about this ruling.  Jack Lew has been described as “furious.”

I say it’s a blessing in disguise.  Any regulatory system whose success relies on singling out four firms is a system bound to fail.


Addendum: Here is a relevant article by Cass Sunstein.

Let’s say a group of criminal defense lawyers kept a database of their confidential conversations with their clients.  That would include clients charged with murder, robbery, DUI, drug abuse, and so on.  In turn, a hacker would break into that database and post the information from those conversations on Wikileaks.  Of course a lot of those conversations would appear to be incriminating because — let’s face it — most of the people who require defense attorneys on criminal charges are in fact guilty.  When asked why the hack was committed, the hacker would say “Most of those people are guilty.  I want to make sure they do not escape punishment.”

How many of us would approve of that behavior?  Keep in mind the hacker is spreading the information not only to prosecutors but to the entire world, and outside of any process sanctioned by the rule of law.  The hacker is not backed by the serving of any criminal charges or judge-served warrants.

Yet somehow many of us approve when the victims are wealthy and higher status, as is the case with the Panama Papers.  Furthermore most of those individuals probably did nothing illegal, but rather they were trying to minimize their tax burden through (mostly) legal shell corporations.  Admittedly, very often the underlying tax laws should be changed, just as we should repeal the deduction for mortgage interest too.  But in the meantime we are not justified in stealing information about those people, even if some of them are evil and powerful, as is indeed the case for homeowners too.

Once again, politics isn’t about policy, it is about which groups should rise and fall in relative status.  And many people believe the wealthy should fall in status, and so they will entertain the morality of all crimes and threats against them.  These revelations will of course lead to some subsequent cases of blackmail, against Chinese officials for one group.

I had tweeted “Are your views on privacy and consistent? Just asking…” and my goodness what a response, positive and negative.  Most interesting of all, many people had never pondered the question before.  Somehow “good things” such as “privacy” and “transparency” cannot stand in such conflict because all good things, like all bad things, must come together.

Here is a good Kaddim Shubber discussion on FT Alphaville.

Here is Veronique de Rugy on the Panama Papers.

Here is Ray Lopez on the same:

1.  There’s a tension between US and foreign law firms and FATCA (United States Foreign Account Tax Compliance Act (FATCA) has the objective of reducing tax evasion by American taxpayers with foreign accounts).  This is because law firms are exempt from reporting on clients past crimes, not future crimes, however, money laundering is considered a future crime.  When a known criminal is setting up an offshore account with the help of a law firm, is the law firm an accessory to money laundering or not?  The better view is they are not:  it’s up to the client to report any offshore account to the government, and not the law firm’s responsibility.  That’s the better view, but see point #2, which rebuts this.

2.  There’s a tension between client confidentiality and tax treaties.  Check this out:   In New Zealand, which is probably representative of others, a passive non-financial foreign entity–which almost always will be a law firm trust account holding money from a client–has a duty under FATCA to report on the client to the US government (“know your customer” is the buzz phrase banks use, which as you know already are required to ‘spy’ on their customers).

Both points 1, 2 are relevant for the conduct of the law firm of Mossack Fonseca.  Except for the alleged destruction of evidence by them, I don’t see them doing anything that bad (by law firm standards; remember, any law firm of decent size has former crooks as clients, and for a firm in Panama I would say that’s not the exception but the rule!)
Did you know the Guardian media firm is closely connected to shell companies?  According to the FT: “…even the World Bank and other development finance institutions used offshore investment hubs, in a sign they have come to play “a systemic role in international investment flows”.”  Speaking of the FT, Tim Harford suggests some useful tax reforms.

From the comments
, here is Kai:

I practice law in cross-border banking and finance in China. I am puzzled by how non-professionals in this field view offshore jurisdictions as categorically related to criminal activity, embezzlement and corruption, etc.

Almost all cross-border transactions involve offshore jurisdictions at some level. For instance most companies listed on the HK stock exchange are incorporated in the Cayman Islands. Anything to do with Bermuda, Cayman, BVI, etc. in cross border transactions is very, very mundane.

According to the papers, Xi Jinping has relatives who are owners of offshore companies. How is that any sort of evidence of wrongdoing by them (much less of Xi Jinping)? I doubt anyone can provide an intelligent answer.

Maybe yes, maybe no, but I don’t see that the people rendering judgment know more about it than he does.

In 2013, after all 25,000 high school students sitting state university entrance exams failed, Liberian President Ellen Johnson Sirleaf admitted that the education system was “a mess” and called for a complete overhaul.

Now it seems Sirleaf’s government has decided that rather than overhauling the education system themselves, they’re going to pay someone else to do it for them. Under a pilot program called “Partnership Schools for Liberia,” the Liberian government will outsource some of its primary and early childhood educational system to private companies over the next five years.

One huge contract has gone to a private company called Bridge International Academies — reportedly to the tune of $65 million. And it’s causing some real controversy.

The United Nations’ Special Rapporteur for the right to education, Kishore Singh, has denounced the plan as “completely unacceptable” and “a blatant violation of Liberia’s international obligations under the right to education.” A coalition of teachers unions and civil society groups in Liberia issued an open letter announcing their opposition. Education International, an international federation of unions, has warned that “privatisation vultures” involved in the plan “pose [a] serious threat to Liberia’s public education system.”

…Bridge’s “academy in a box” model has attracted investment from Facebook’s Mark Zuckerberg and the World Bank Group’s International Finance Corporation, which invested $10 million each. Bill Gates and the UK government’s Department for International Development are also investors.

Here is the Vox story.   As they say, big steps toward a much better world…

Here is coverage from prior efforts in Kenya, hat tips go to Dani Rodrik and Alex T.

After Easter was sedated, the surgeon recounted their dispute to the other doctors. “She’s a handful,” he said in the recording. “She had some choice words for us in the clinic when we didn’t book her case in two weeks.”

“She said, ‘I’m going to call a lawyer and file a complaint,’” he recalled with a laugh. (Easter said she never mentioned a lawyer.)

“That doesn’t seem like the thing to say to the person who’s going to do your surgery,” another male voice retorted.

The comments afterward became personal. The surgeon and the anesthesiologist repeatedly referred to her belly button in jest. “Did you see her belly button?” one doctor said, followed by peals of laughter.

At another point in the procedure, the anesthesiologist appeared to refer to Easter as “always the queen,” to which the surgeon responded, “I feel sorry for her husband.”

The surgeon also used the name “Precious” several times in a manner that Easter interpreted as racial.

…After the doctors concurred that there had been many “teaching moments” that day, the anesthesiologist asked, “Do you want me to touch her?”

“I can touch her,” the surgeon is heard saying.

“That’s a Bill Cosby suggestion,” someone interjected. “Everybody’s got things on phones these days. Everybody’s got a camera.”

Here is the full story.

Buttonwood presents a trilemma:

The issue may be another example of that common political problem; the trilemma, under which three options are available, but only two at most can be selected. In this case, it is a simple tax system; independent national tax policies; and the existence of multinational companies and investors.

Here is Megan McArdle:

What we’ve seen from the papers so far is not so much an indictment of global capitalism as an indictment of countries that have weak institutions and a lot of corruption. And for all the outrage in the United States, so far the message for us is pretty reassuring: We aren’t one of those countries.

Consider the big names that have shown up so far on the list. With the notable exception of Iceland, these are not countries I would describe as “capitalist”: Russia, Pakistan, Iraq, Ukraine, Egypt.  They’re countries where kleptocratic government officials amass money not through commerce, but through quasi-legal extortion, or siphoning off the till. This is an activity that has gone on long before capitalism, and probably before there was money.

From a Ray Lopez email:

5.  Panama Papers fallout will be: (1) a drive to reduce large denomination bills, (2) a drive to make a ‘paperless’ payment system, (3) a drive to eliminate tax loopholes, (4) a drive towards negative interest rates once paper is abolished

6.  Xi of China is the biggest loser.  He ran on an ‘anti-corruption’ ticket and his Politburo members will be pissed if they see he is corrupt, unless he winks and tells them they are immune from his anti-corruption offensive.  In which case, to pay them off, Xi, needs to appropriate the assets of his enemies to give to his friends.  So possibly it’s a “double down bet” for Xi:  he either folds or has to double down, redoubling his anti-corruption campaign, so he can seize assets to pay off his cronies keeping him in power.  We live in interesting times.

7. The net effect of Panama Papers, along with the FATCA issues above, is that criminals no longer will use law firms, and decent people hiding money as well, which means these services will be offered by more informal channels like from a single proprietor “fixer”.  “Nick the Greek money launderer” will profit, big law firm will suffer.

Here is China in the Panama Papers.

Can Currency Competition Work?

by on April 7, 2016 at 12:53 am in Economics, Law | Permalink

There is a new model and NBER paper to come from Jesus Fernandez-Villaverde and Daniel Sanches (pdf, ungated), here is the abstract:

Can competition among privately issued fiat currencies such as Bitcoin or Ethereum work? Only sometimes. To show this, we build a model of competition among privately issued at currencies. We modify the current workhorse of monetary economics, the Lagos-Wright environment, by including entrepreneurs who can issue their own fiat currencies in order to maximize their utility. Otherwise, the model is standard. We show that there exists an equilibrium in which price stability is consistent with competing private monies, but also that there exists a continuum of equilibrium trajectories with the property that the value of private currencies monotonically converges to zero. These latter equilibria disappear, however, when we introduce productive capital. We also investigate the properties of hybrid monetary arrangements with private and government monies, of automata issuing money, and the role of network effects.

I would stress a few points.  First, the world is going to have some form of currency competition whether one likes it or not.  That is already the case today, so these are very real questions, not just thought games for libertarians.

Second, the Bitcoin and broader cryptocurrency experience indicate that the marginal cost of issuing a new private currency is well above zero, contra some of the literature from the 1970s, which viewed the enterprise in terms of printing money and paying only for the additional paper.  Bitcoin can be interpreted as a commodity currency of sorts, where the relevant expenditures are on codebreaking and electricity, rather than digging up gold from the ground.  Once it is focal enough, it might be able to provide some version of rough price stability in terms of its unit.

Third, if your government is halfway legitimate and not broke, its currency is likely to be a dominant winner in these forms of currency competition, especially to the extent that currency is supported by the fiscal authority.  In this sense it is almost impossible to get away from a legitimate or even semi-legitimate government-issued currency.

I am finding it difficult to get hard information on this plan, surprise, surprise.  They won’t say which lines will be shuttered and there is talk of “six months” for the shutdown, which I translate as “quite possibly more than a year.”  They are not even saying it will happen for sure, but I find bureaucracies don’t announce such “bad news possibilities” unless they think they are extremely likely.

It is likely that the previous closing of the Metro for a day for “inspections” was in part a theatrical play to justify this decision.  They already knew they would find what they were looking for, as no day-long investigation can reveal enough safety about a suspicious system to avoid a shutdown already thought to be necessary.

Given that Metro lines interconnect (“Only the Red Line runs independently of other lines“), and have hub-spoke relations, is it more efficient to close them all (or mostly) at once?  Can you imagine a 14-month period where the core of D.C. did not have much working metro service?  Or would it be a four- or five-year period with individual lines shuttered sequentially?  If the lines are truly so dangerous, it seems a bunch of them will close at once, and soon.

There is no longer much resilience in area traffic patterns, or so many possibilities for rerouting, so downtown might be at a gridlocked standstill much of the time; it’s already hard enough to cross past the White House since the closing of Pennsylvania Avenue.

Discretionary visitors would avoid the city altogether.  How many downtown coffee shops and lunch places will go out of business?  How many restaurants?  How would the Fourth of July fireworks be held?  Smithsonian events?  There is precious little parking near the Mall.  How about getting the workers from D.C. to the Pentagon and to Reagan National Airport?

For many of the government agencies, the IT infrastructure cannot handle a significant percentage of the employees trying to telecommute at the same time.  This is not commonly understood.

Many suburbanites will have their first experiences with local buses.  But they still have to get from the bus stops to their places of work, and/or park near the bus stops.  So often parking is the ultimate constraint.

What other economic implications should I be thinking about?

Will the authorities use this opportunity to upgrade anti-terrorist protections in the Metro?

Might we actually learn that travel is less important than we had thought, and that much of that to and fro was just an input into costly signaling?  One wag even suggested to me that the D.C. area could in fact improve, national gdp might go up too.

If you are looking to make Tysons Corner a viable city, this is a good way to start!

I find this story to be under-covered so far.  Here is background information on the metro crisis — I was so impressed when I first saw and rode it in 1979, it felt as if I had stepped into the future.  Today, here is the Twitter feed UnsuckDCMetro.

A sex worker in Oklahoma who was filmed using a quadcopter by a self-described “video vigilante” has pleaded guilty to a lewdness charge. According to a report from BBC News, the woman was sentenced to a year in state prison for the misdemeanor, although the case is still pending against her alleged client.

The encounter between the two was filmed by drone pilot Brian Bates, a known figure in Oklahoma City who describes himself as a “video vigilante.” Bates has long used video cameras to capture footage of alleged sex workers, which he uploads to his YouTube channel and his website,, earning money through ad revenue in the process.


Here is the full story, the photo is of Bates, who because of a famous musical does not live in the most obscure state.

I thank a loyal MR reader for the pointer.  And here is the Roam-E-Selfie drone.

Addendum: It is worse than you think.  In the comments Jason Bayz alerts us to this story:

FEBRUARY 9–An Oklahoma man who has gained national exposure for his “video vigilante” campaign to expose street prostitution in his hometown was arrested yesterday for allegedly paying hookers to ensure that they serviced customers in an area where he could easily film the illicit trysts.

According to the below Oklahoma City Police Department report, Brian Bates, 34, orchestrated the public encounters so he could peddle the resulting videotape to media outlets (some of Bates’s surveillance tapes are offered for sale on his web site).

In his dealings with prostitutes, Bates was choosy, investigators contend.

For example, if a john was a “regular,” Bates asked prostitutes to give “specific signals” so he would know not to bother rolling tape. Investigators also noted that, like any good auteur, Bates “gave direction to the prostitutes on how to complete the act with a high probability of success,” as well as tips on how to spot an undercover cop.

Bates was hit with a felony pandering charge and a misdemeanor count of aiding in prostitution. The pandering rap, which is usually reserved for pimps, carries a minimum two-year jail term, and a maximum of 20 years in the stir.

Jason wins the internet today!