Category: Law
The California tax burden is driving people out
That is the topic of my latest Bloomberg column, here is one bit:
California’s highest income tax rate is 13.3%. That is in addition to a top federal tax rate of 37%. California also has a state sales tax rate of 7.25%, and many localities impose a smaller sales tax. So if a wealthy person earns and spends labor income in the state of California, the tax rate at the margin could approach 60%. Then there is the corporate state income tax rate of 8.84%, some of which is passed along to consumers through higher prices. That increases the tax burden further yet.
And this:
Researchers Joshua Rauh and Ryan Shyu, currently and formerly at Stanford business school, have studied the behavioral response to Proposition 30, which boosted California’s marginal tax rates by up to 3% for high earners for seven years, from 2012 to 2018. They found that in 2013, an additional 0.8% of the top bracket of the residential tax base left the state. That is several times higher than the tax responses usually seen in the data.
These high-earning California residents seem to have reached a tipping point: Maybe many of them could afford the extra tax burden, but at some point they got fed up, read the signals and decided the broader system wasn’t working in their interest.
Overall, Proposition 30 increased total tax revenue for California — but not nearly as much as intended. Due to departures, the state lost more than 45% of its windfall tax revenues from the policy change, and within two years the state lost more than 60% of those same revenues.
What should I ask Coleman Hughes?
I will be doing a Conversation with him, based in part around his new book The End of Race Politics: Arguments for a Colorblind America. On Coleman more generally, here is Wikipedia:
Coleman Cruz Hughes (born February 25, 1996) is an American writer and podcast host. He was a fellow at the Manhattan Institute for Policy Research and a fellow and contributing editor at their City Journal, and he is the host of the podcast Conversations with Coleman.
Also from Wikipedia:
Hughes began studying violin at age three. He is a hobbyist rapper—in 2021 and 2022, he released several rap singles on YouTube and Spotify, using the moniker COLDXMAN, including a music video for a track titled “Blasphemy”, which appeared in January 2022. Hughes also plays jazz trombone with a Charles Mingus tribute band that plays regularly at the Jazz Standard in New York City.
I saw Coleman perform quite recently, and I can vouch for his musical excellence, including as a singer. So what should I ask Coleman?
Is El Salvador special?
But Bukele copycats and those who believe his model can be replicated far and wide overlook a key point: The conditions that allowed him to wipe out El Salvador’s gangs are unlikely to jointly appear elsewhere in Latin America.
El Salvador’s gangs were unique, and far from the most formidable criminal organizations in the entire region. For decades, a handful of gangs fought one another for control of territory and became socially and politically powerful. But, unlike cartels in Mexico, Colombia and Brazil, El Salvador’s gangs weren’t big players in the global drug trade and focused more on extortion. Compared to these other groups, they were poorly financed and not as heavily armed.
Mr. Bukele started to deactivate the gangs by negotiating with their leaders, according to Salvadoran investigative journalists and a criminal investigation led by a former attorney general. (The government denies this.) When Mr. Bukele then arrested their foot soldiers in large sweeps that landed many innocent people in prison, the gangs collapsed.
It would not be such a simple story elsewhere in Latin America, where criminal organizations are wealthier, more internationally connected and much better armed than El Salvador’s gangs once were. When other governments in the region have tried to take down gang and cartel leaders, these groups haven’t simply crumbled. They have fought back, or new criminal groups have quickly filled the void, drawn by the drug trade’s huge profits. Pablo Escobar’s war on the state in 1980s-90s Colombia, the backlash by cartels to Mexican law enforcement activity since the mid-2000s, and the violent response to Ecuador’s government’s recent moves against gangs are just a few examples.
El Salvador also had more formidable and professional security forces, committed to crushing the gangs when Mr. Bukele called on them, than some of its neighbors. Take Honduras, where gang-sponsored corruption among security forces apparently runs deep. That helped doom Ms. Castro’s attempts to emulate Mr. Bukele from the start. In other countries, like Mexico, criminal groups have also reportedly managed to co-opt high-ranking members of the military and police. In Venezuela, it has been reported that military officials have run their own drug trafficking operation. Even if presidents send soldiers and police to do Bukele-style mass roundups, security forces may not be prepared, or may have incentives to undermine the task at hand.
Here is more from Will Freeman and (NYT), interesting throughout.
How much does status competition lower Korean fertility?
Using a quantitative heterogeneous-agent model calibrated to Korea, we find that fertility would be 28% higher in the absence of the status externality and that childlessness in the poorest quintile would fall from five to less than one percent. We then explore the effects of various government policies. A pro-natal transfer or an education tax can increase fertility and reduce education spending, with heterogeneous effects across the income distribution. The policy mix that maximizes the current generation’s welfare consists of an education tax of 22% and moderate pro-natal transfers. This would raise average fertility by about 11% and decrease education spending by 39%.
Here is the full paper by Seongeun Kim, Michèle Tertilt, and Minchul Yum. Here is the version forthcoming in the AER.
Might a Georgist land tax help revive Detroit?
That is the topic of my Bloomberg column. Maybe they should try it for federalism/discovery purposes, but overall I am skeptical. Here is one excerpt:
The history of “enterprise zones,” which are specially designated areas (usually urban) with lower taxes and fewer regulations, offers a cautionary tale. Enterprise zones have at best mixed results in revitalizing declining areas. Could fiddling with the marginal incentives embedded in the property tax code really make that much more of a difference? Most economic decisions are made on the basis of broad criteria such as labor force quality, nearby markets and the ease of doing business.
By itself, the uneven record of enterprise zones is no reason not to experiment with land value taxation. But it does limit the upside from any change.
A possible downside from land value taxation is that it discourages land speculation. Land speculators do not, I concede, have the best reputation — but speculation can be either a positive or negative, depending on whether entrepreneurs have good foresight. On the plus side, speculation can keep land from being developed prematurely, or from being locked into uses that later turn out to be too low in value.
If dormant land in Detroit is taxed at a higher rate, that might encourage property owners to develop low-quality housing or retail to lower their tax burden. A landowner might build a small house, for example, rather than holding out for a large, higher-quality apartment complex. The city might get modest growth, but lose out on the chance for a bigger economic redevelopment. Detroit has in recent times shown signs of a revival, so perhaps waiting for the right opportunity is sometimes best.
Of course, speculators can also make mistakes, for example by failing to develop their property more quickly. Still, whether the tax authorities have the foresight and flexibility to do better than property speculators is an open question. In the meantime, some speculators may abandon their holdings to avoid the tax, putting more property in the hands of the municipal government — hardly an ideal outcome.
Note also that the proposal is revenue neutral by design (taxes on developments are supposed to go down), but over time it might simply evolve into a flat-out tax increase.
Comparing Large Language Models Against Lawyers
This paper presents a groundbreaking comparison between Large Language Models and traditional legal contract reviewers, Junior Lawyers and Legal Process Outsourcers. We dissect whether LLMs can outperform humans in accuracy, speed, and cost efficiency during contract review. Our empirical analysis benchmarks LLMs against a ground truth set by Senior Lawyers, uncovering that advanced models match or exceed human accuracy in determining legal issues. In speed, LLMs complete reviews in mere seconds, eclipsing the hours required by their human counterparts. Cost wise, LLMs operate at a fraction of the price, offering a staggering 99.97 percent reduction in cost over traditional methods. These results are not just statistics, they signal a seismic shift in legal practice. LLMs stand poised to disrupt the legal industry, enhancing accessibility and efficiency of legal services. Our research asserts that the era of LLM dominance in legal contract review is upon us, challenging the status quo and calling for a reimagined future of legal workflows.
That is from a new paper by Lauren Martin, Nick Whitehouse, Stephanie Yiu, Lizzie Catterson, and Rivindu Perera. Via Malinga.
Nominal wages are sticky in prison
“The only problem I have with my job is the pay hasn’t increased in over two decades,” wrote Nelson. At the time, she worked in a prison factory where she was forced to save two weeks’ pay “to buy one 18-pack of feminine hygiene pads,” a basic necessity.
Here is the full story, via The Browser.
My TLS essay on the Clinton administration
Here is the link, I am reviewing a bad book on the Clinton administration (A Fabulous Failure, by Lichtenstein and Stern). Here is one excerpt:
Clinton-era welfare reform is another area where many commentators go astray, and Lichtenstein and Stein are no exception. The Clinton pronouncement “I have a plan to end welfare as we know it” has stuck in people’s minds. The reality is that, after Clinton-era welfare reforms, America spent more money on helping the poor. Welfare payments were attached to work requirements, but the states could redeploy federal money to programmes other than simple welfare payments, so funds for childcare, college scholarships, food stamps and tax credits for the poor all went up. The rate at which children fall into poverty has declined steadily. A significant Medicaid expansion followed under President Obama.
Yet the authors state that “The Era of Big Government is Over” in the section on welfare reform. If you squint you can see periodic references to the fact that Clinton-era welfare reform was not entirely radical, but nonetheless they write that this was “a drastic reform of the welfare system … that did in fact repudiate its New Deal heritage”. Calling the policy “an utterly misogynist step backward”, they note that Clinton’s “reputation as a heartless neoliberal was hereby well advanced within the ranks of progressive America”. Again, argument by adjective displaces the numbers.
And here is my summary judgment:
Too often the authors’ substantive arguments are presented in an “argument by adjective” form, relabelling events, institutions and individuals with negative adjectives or connotations, but without providing enough firm evidence. They write as if describing a policy reform as not having done enough for labour unions is per se a damning critique…
I can’t help but feel this work is largely directed at an internal Democratic Party dialogue. The basic premisses, or even the interpretations of the facts, don’t need to be argued for much. But good Democrats need to be told how to think about their own history. If strong labour unions are a sine qua non for social and economic progress, and if all good (and bad) things come together, how would the rest of history, including that of the Clinton administration, have to read? The notion that such stifling readings have become part of the problem, rather than the solution, does not appear in Nelson Lichtenstein’s and Judith Stein’s book.
I had turned down the previous invitation to review, because I didn’t think the book in question was good enough.
The economics of illicit sand markets
Very few people are looking closely at the illegal sand system or calling for changes, however, because sand is a mundane resource. Yet sand mining is the world’s largest extraction industry because sand is a main ingredient in concrete, and the global construction industry has been soaring for decades. Every year the world uses up to 50 billion metric tons of sand, according to a United Nations Environment Program report. The only natural resource more widely consumed is water. A 2022 study by researchers at the University of Amsterdam concluded that we are dredging river sand at rates that far outstrip nature’s ability to replace it, so much so that the world could run out of construction-grade sand by 2050. The U.N. report confirms that sand mining at current rates is unsustainable.
And:
Most sand gets used in the country where it is mined, but with some national supplies dwindling, imports reached $1.9 billion in 2018, according to Harvard’s Atlas of Economic Complexity.
Companies large and small dredge up sand from waterways and the ocean floor and transport it to wholesalers, construction firms and retailers. Even the legal sand trade is hard to track. Two experts estimate the global market at about $100 billion a year, yet the U.S. Geological Survey Mineral Commodity Summaries indicates the value could be as high as $785 billion. Sand in riverbeds, lake beds and shorelines is the best for construction, but scarcity opens the market to less suitable sand from beaches and dunes, much of it scraped illegally and cheaply. With a shortage looming and prices rising, sand from Moroccan beaches and dunes is sold inside the country and is also shipped abroad, using organized crime’s extensive transport networks, Abderrahmane has found. More than half of Morocco’s sand is illegally mined, he says.
Of course these are usually unowned, unpriced resources:
Luis Fernando Ramadon, a federal police specialist in Brazil who studies extractive industries, estimates that the global illegal sand trade ranges from $200 billion to $350 billion a year—more than illegal logging, gold mining and fishing combined. Buyers rarely check the provenance of sand; legal and black market sand look identical. Illegal mining rarely draws heat from law enforcement because it looks like legitimate mining—trucks, backhoes and shovels—there’s no property owner lodging complaints, and officials may be profiting. For crime syndicates, it’s easy money.
Here is the full Scientific American piece by David A. Taylor.
Milei update, a further report will be pending
🇦🇷Milei's has hit the limits of his reform agenda w/ the govt being forced to rescind all of the articles in the omnibus reform bill related to fiscal matters. A sticking point: provinces oppose the increase & expansion of the scope of export taxeshttps://t.co/9o4uOU0CBN
— Nicolás Saldías (@NicSaldias) January 28, 2024
Surgery is Not FDA Regulated
What would happen if the FDA regulated pharmaceuticals much less than currently? I have pointed to one useful comparison, new uses of old drugs do not have to go through FDA required efficacy trials in the new use. In other words, new uses of old drugs are regulated for safety-only. Thus,
“off-label prescribing” provides a window on to what a world of safety-only FDA regulation would look like. Off-label prescribing surely results in errors and problems but overall physicians tell us that off-label prescribing is highly beneficial and critical to good medical care.
Maxwell Tabarrok points to another useful comparison, surgery. Surgery is not FDA regulated, despite having many of the same asymmetric information problems as pharmaceuticals. Some surgical procedures are surely ineffective and unsafe. Yet, once again, the FDA-absent surgery market appears beneficial overall and like other markets it improves over time with greater safety and more efficacy. For example,
In the US, the death rate from medical and surgical care complications declined by 39% from 1999 to 2009.
Would we be better off if every new surgical procedure had to go through FDA-required efficacy trials before it could be offered to consumers?
Neither of these comparison proves that a world with less FDA regulation would be a better world but both refute the stories of a world run amuck in the absence of the FDA. In essence, the reason is that the world contains many sources of approval, recommendation, certification and review beyond the FDA and these would grow in scope and stature absent the FDA.
See Maximum Progress for more.
Addendum: More excellent Tabarrok material: The Spice Must Flow: The Dutch-Portuguese War-Part 1.
How and why do legal codes differ across red and blue states?
Polarization in the traditional sense is not very important:
…this study examined the criminal codes of the six largest deep red states and the six largest deep blue states – states in which a single political party has held the governorship and control of both legislative bodies for at least the past three elections. It then identified 93 legal issues on which there appeared to be meaningful difference among the 12 states’ criminal law rules. An analysis of the patterns of agreement and disagreement among the 12 states was striking. Of the many thousands of issues that must be settled in drafting a criminal code, only a handful – that sliver of criminal law issues that became matters of public political debate, such as those noted above – show a clear red-blue pattern of difference.
If not red-blue, then, what does explain the patterns of disagreement among the 12 states on the 93 criminal law issue? What factors have greater influence on the formulation of criminal law rules than the red-blue divide?
The Article examines a range of possible influences, giving specific examples that illustrate the operation of each: state characteristics, such as population; state criminal justice characteristics, such as crime rates; model codes, such as the ALI’s Model Penal Code; national headline events, such as the attempted assassination of President Reagan; local headline cases that over time grow into national movements, such as Tracy Thurman and domestic violence; local headline cases that produced only a local state effect; the effect of legislation passed by a neighboring state; and legislation as a response to judicial interpretation or invalidation.
In other words, not only is the red-blue divide of little effect for the vast bulk of criminal law, but the factors that do have effect are numerous and varied.
That is from a new paper by Paul H. Robinson, Hugh Rennie, and Clever Earth. Via the excellent Kevin Lewis.
The Contractual Origins of High-Rent Urban Blight
Have you ever wondered why empty storefronts in major cities stay empty for so long? There is a new and still in the works paper by Daniel Stackman and Erica Moszkowski, and it provides valuable information about one piece of the puzzle. Here is the abstract:
We document the rise of storefront vacancies in prime retail locations, a phenomenon we refer to as high-rent blight, in America’s largest and most expensive urban retail market: Manhattan. We identify a little-known contracting feature between retail landlord and their bankers that generates vacancies in the downstream market for retail space. Specifically, widespread covenants in commercial mortgage agreements impose rent floors for any new leases landlords may sign with tenants, short-circuiting the price mechanism in times of low demand for retail space. Quasi-experimental estimates suggest that binding rent floors imposed by mortgage covenants substantially reduce the probability of occupancy, and we show in counterfactual exercises that covenants may have increased vacancy rates by as much as 14% over the 2016 to 2020 period.
There are some earlier MR posts on this question, though I am not sure of the appropriate key words to find them…
Two Updates on the Value of Vaccines
1) From the recent annual meeting of the American Society of Tropical Medicine & Hygiene (abstract 6949) we learn that the R21/Matrix-M malaria vaccine maintained it’s efficacy over 4 seasons.
…Importantly, maintained high efficacy over four malaria seasons with only four doses is demonstrated, with no concerns to date of rebound in those who have not received repeated booster doses of the malaria vaccine. These data show that the R21/MM vaccine could significantly reducing malaria cases and deaths in children living in malaria endemic areas by inducing well maintained protective immunity.
This is excellent news and further supports my call for rapid, emergency distribution of malaria vaccines.
2) Glennerster, Kelly, McMahon, and Snyder estimate the value of a universal coronavirus vaccine. The COVID vaccines have been very valuable (see our Science paper) but each new variant of concern causes a spike in death rates. As new variants emerge, we modify the vaccines but that takes time and happens only after the death rate spikes. In addition, no one is thrilled with boosters. A universal coronavirus vaccine, and there are dozens in the works, could preclude the need to adjust vaccines on the fly and avoid or greatly ameliorate the death spikes. Based on reduced US mortality alone, Glennerster et al. estimate that a universal vaccine would be very valuable–so much so that an Advance Market Commitment on the order of $6-$10 billion would easily pass a cost-benefit test even if it had just say a 40% chance of accelerating a universal vaccine.
As I said repeatedly during COVID, billions<<Trillions.
Dose Optimization Trials Enable Fractional Dosing of Scarce Drugs
During the pandemic, when vaccines doses were scarce, I argued for fractional dosing to speed vaccination and maximize social benefits. But what dose? In my latest paper, just published in PNAS, with Phillip Boonstra and Garth Strohbehn, I look at optimal trial design when you want to quickly discover a fractional dose with good properties while not endangering patients in the trial.
[D]ose fractionation, rations the amount of a divisible scarce resource that is allocated to each individual recipient [3–6]. Fractionation is a utilitarian attempt to produce “the greatest good for the greatest number” by increasing the number of recipients who can gain access to a scarce resource by reducing the amount that each person receives, acknowledging that individuals who receive lower doses may be worse off than they would be had they received the “full” dose. If, for example, an effective intervention is so scarce that the vast majority of the population lacks access, then halving the dose in order to double the number of treated individuals can be socially valuable, provided the effectiveness of the treatment falls by less than half. For variable motivations, vaccine dose fractionation has previously been explored in diverse contexts, including Yellow Fever, tuberculosis, influenza, and, most recently, monkeypox [7–12]. Modeling studies strongly suggest that vaccine dose fractionation strategies, had they been implemented, would have meaningfully reduced COVID-19 infections and deaths [13], and perhaps limited the emergence of downstream SARS-CoV-2 variants [6].
…Confident employment of fractionation requires knowledge of a drug’s dose-response relationship [6, 13], but direct observation of both that relationship and MDSE, rather than pharmacokinetic modeling, appears necessary for regulatory and public health authorities to adopt fractionation [15, 16]. Oftentimes, however, early-phase trials of a drug develop only coarse and limited dose-response information, either intentionally or unintentionally. A speed-focused approach to drug development, which is common for at least two reasons, tends to preclude dose-response studies. The first reason is a strong financial incentive to be “first to market.” The majority of marketed cancer drugs, for example, have never been subjected to randomized, dose-ranging studies [17, 18]. The absence of dose optimization may raise patients’ risk. Further, in an industry sponsored study, there is a clear incentive to test the maximum tolerated dose (MTD) in order to observe a treatment effect, if one exists. The second reason, observed during the COVID-19 pandemic, is a focus on speed for public health. Due to ethical and logistical challenges, previously developed methods to estimate dose-response and MDSE have not routinely been pursued during COVID-19 [19]. The primary motivation of COVID-19 clinical trial infrastructure has been to identify any drug with any efficacy rather than maximize the benefits that can be generated from each individual drug [3, 18, 20, 21]. Conditional upon a therapy already having demonstrated efficacy, there is limited desire on the part of firms, funders, or participants to possibly be exposed to suboptimal dosages of an efficacious drug, even if the lower dose meaningfully reduced risk or extended benefits [16]. Taken together, then, post-marketing dose optimization is a commonly encountered, high-stakes problem–the best approach for which is unknown.
…With that motivation, we present in this manuscript the development an efficient trial design and treatment arm allocation strategy that quickly de-escalates the dose of a drug that is known to be efficacious to a dose that more efficiently expands societal benefits.
The basic idea is to begin near the known efficacious dose level and then deescalate dose levels but what is the best de-escalation strategy given that we want to quickly find an optimal dosage level but also don’t want to go so low that we endanger patients? Based on Bayesian trials under a variety of plausible conditions we conclude that the best strategy is Targeted Randomization (TR). At each stage, TR identifies the dose-level most likely to be optimal but randomizes the next subject(s) to either it or one of the two dose-levels immediately below it. The probability of randomization across three dose-levels explored in TR is proportional to the posterior probability that each is optimal. This strategy balances speed of optimization while reducing danger to patients.
Read the whole thing.