Month: July 2014

Arrived in my (classical liberal) pile

1. Jason Brennan, Why Not Capitalism?

2. Steffan Hentrich und Sascha Tamm, editors, Regeln für eine freie Gesellschaft: Ein James-Buchanan Brevier.

3. Jason Brennan and Lisa Hill, Compulsory Voting: For and Against.  I like Jason’s chapter entitled “Should We Force the Drunk to Drive?”

4. Jason L. Riley, Please Stop Helping Us: How Liberals Make It Harder for Blacks to Succeed.

Decriminalizing indoor prostitution

There is a new NBER paper by Scott Cunningham and Manisha Shah:

Most governments in the world including the United States prohibit prostitution. Given these types of laws rarely change and are fairly uniform across regions, our knowledge about the impact of decriminalizing sex work is largely conjectural. We exploit the fact that a Rhode Island District Court judge unexpectedly decriminalized indoor prostitution in 2003 to provide the first causal estimates of the impact of decriminalization on the composition of the sex market, rape offenses, and sexually transmitted infection outcomes. Not surprisingly, we find that decriminalization increased the size of the indoor market. However, we also find that decriminalization caused both forcible rape offenses and gonorrhea incidence to decline for the overall population. Our synthetic control model finds 824 fewer reported rape offenses (31 percent decrease) and 1,035 fewer cases of female gonorrhea (39 percent decrease) from 2004 to 2009.

Alas, I do not see ungated versions on Google, or maybe try this one (pdf).

How will we know if the ACA is working?

I have read a good deal on this topic and I am not very satisfied with most of it, from either side.  Too often citing and then refuting weaker claims from the other side is conflated with showing that one’s own view is right.  Here are a few issues we ought to consider and indeed focus on:

1. Five to ten years from now, how much do we think employment will have gone down as a result of ACA?  (That is from the employer mandate, high implicit marginal tax rates because of the subsidies, and also from a lesser need to stay employed to have health insurance.)  By the way, you can’t in other contexts believe strongly in rigidities and then confidently point to a small employment response within a one year time frame and claim to know these labor market effects are small ones.

1b. How will the effort to introduce greater equality of health care consumption fare if wage and income inequality continue to rise?  Will this attempt at consumption near-equalization require massively distorting incentives?

2. Given your answer to #1, and given how much employment itself boosts health, will ACA even have improved overall health in America?  What outcome indicators might show this?

3. Given that prices in the individual insurance market already seem to have gone up 14-28 percent, and may go up more once political scrutiny of insurance companies lessens, what is the overall individual welfare calculation from this policy change?  I mean using actual economic policy analysis, of the CBA sort, not just noting that more people have health insurance.

4. Given supply side constraints, how much did ACA increase the consumption of health services in the United States?  (I take the near-universal bafflement over the first quarter gdp revision a sign of how poorly we understand what is going on.)  And how good or bad a thing is the ongoing but accelerated shift to narrow provider networks?

5. How much of the apparent slowdown of health care cost inflation is a) permanent, b) not just due to the slow economy, and c) due to ACA?  Or how about d) the result of trends which have been operating slowly for the last 10-20 years?

Is there one of these questions we know the answer to?  Know the answer to much better now than before?

Why the Taylor Rule isn’t a rules-based approach to monetary policy

From Gavyn Davies:

…these three different interpretations of the Rule were expected by Ms Yellen to differ by as much as 2 per cent in the appropriate level for the Fed Funds rate from 2012-15. Given these wide discrepancies, any of which could presumably be chosen by the Fed under the proposed legislation, it seems pointless to try to force a rule-based system on the FOMC just for the sake of it.

Furthermore, the Rule does not really help with several key problems faced by the FOMC today. The first is how and when to reduce the size of the Fed’s balance sheet, and how that decision should relate to the appropriate level of short rates. Next is how to determine the right relationship between economic objectives and financial stability when setting short rates. Based on their views on these two issues, the FOMC might decide that short rates should be either much higher, or much lower, than suggested by the Rule.

The Rule is also largely silent on another of the Fed’s main headaches right now, which is whether to treat the official unemployment rate as a good indicator of the amount of slack in the labour market. Many members of the FOMC, including the Chair, have argued that the amount of slack is greater than implied by the unemployment rate, because the labour participation rate has been temporarily depressed by the recession. The use of the Taylor Rule does not solve this debate, it simply treats it as if it does not exist.

From the FT there is more here.  You don’t have to regard any of those points as arguments against a “Taylor Rule.”  But it is disingenuous to think that peddling the Taylor Rule as a monetary option counts as a rule for those who have general reasons for believing in monetary rules over discretion.  The Taylor Rule is lucky enough to be called a “rule,” and besides, any reaction function can be described as a rule of sorts.  In those two senses it is indeed a rule.  But the Republicans who are behind this are fooling themselves if they think this will yield the (supposed) traditional benefits of monetary rules, namely stability, predictability, non-ambiguity, transparency, and so on.

Addendum: Nick Rowe has some comments.

Will Helsinki make automobiles obsolete?

The Finnish capital has announced plans to transform its existing public transport network into a comprehensive, point-to-point “mobility on demand” system by 2025 – one that, in theory, would be so good nobody would have any reason to own a car.

Helsinki aims to transcend conventional public transport by allowing people to purchase mobility in real time, straight from their smartphones. The hope is to furnish riders with an array of options so cheap, flexible and well-coordinated that it becomes competitive with private car ownership not merely on cost, but on convenience and ease of use.

Subscribers would specify an origin and a destination, and perhaps a few preferences. The app would then function as both journey planner and universal payment platform, knitting everything from driverless cars and nimble little buses to shared bikes and ferries into a single, supple mesh of mobility. Imagine the popular transit planner Citymapper fused to a cycle hire service and a taxi app such as Uber, with only one payment required, and the whole thing run as a public utility, and you begin to understand the scale of ambition here.

The story is here, via s.  Here is a further and very different installment in The Culture that is Finland, nice visual on the igloos.  Or try this Finland Bitcoin link, blockchain-by-air.

LeBron James and the theory of price controls

NBA salaries are subject to price controls at some margins, so neither Miami nor Cleveland could pay LeBron more.  Therefore a theory of profit maximization predicts LeBron will choose the deal that extends his career the most, so as to maximize lifetime income and perhaps also fun.  Another year playing also probably means higher endorsement income than a year in retirement.

In Cleveland he is not actually expected to win, at least not right away.  They can play the young guys a lot and rest his legs and extend his career, while developing the quality of the overall team.  And if the mix of players somehow comes through in a year or two, he looks like a basketball genius.  The East seems weak enough that Cleveland will at least make the Eastern Finals for the next few years, thus avoiding embarrassment.

Given their demographic structure and Bosh’s accruing softness, Miami is a contender only if it pushes LeBron very hard and thus shortens his career.  I speculate that he was very upset that he was pushed and played so hard all year long, to rest Wade, only to develop those disabling leg cramps at the end of game one against San Antonio in the Finals, which caused him to lose face.

I haven’t seen other analyses take career length into account.  LeBron is entering his thirties and watching the physical implosion of Kobe Bryant, one of his role models.  He knows Michael Jordan took two years off and ended up as a geezer on the Washington Wizards.  He sees Wade — one of his best buddies — a broken player at age 32.  Why not choose the outcome that might give him a few extra years of both salary and fun?

Addendum: Apparently LBJ is taking only a two-year contract with Cleveland.

James could have taken a four-year contract worth more than $88 million from the Cavs. But he now will be able to negotiate a better contract in two years and also has the choice to opt out after one season to renegotiate next summer. Player options only can come before the final season of a contract, another reason for the two-year deal.

That is emphasis added, the pointer here came from Angus.  I would mention that the theory of profit maximization is often underrated and that this Cleveland deal really is a good one for LBJ.

Washington state marijuana fact of the day

For now, prices are high: around $20 a gram, which is twice the black-market (or medical) cost. That partly reflects eye-watering excise taxes: 25% at each stage of distribution, plus normal sales taxes. But wholesale prices are high too, suggesting supply shortages are the main culprit.

There is more here, from The Economist, much of it deals with how far the United States is from having truly legalized marijuana.  [Note: an earlier version of this post mistakenly referred to Colorado.]

Roman communication costs in time and expense

The Stanford Geospatial Network Model of the Roman World

“For the first time, ORBIS allows us to express Roman communication costs in terms of both time and expense. By simulating movement along the principal routes of the Roman road network, the main navigable rivers, and hundreds of sea routes in the Mediterranean, Black Sea and coastal Atlantic, this interactive model reconstructs the duration and financial cost of travel in antiquity.”

http://orbis.stanford.edu/

For the pointer I thank Michael Gibson.

Assorted links

How has the restaurant experience changed in the last ten years?

This is from a New York Craigslist post, from a restaurant owner who apparently viewed tapes of customers from 2004 and 2014, here is part of his account of the more recent behavior:

2014

Customers walk in.

Customers get seated and is given menus, out of 45 customers 18 requested to be seated elsewhere.

Before even opening the menu they take their phones out, some are taking photos while others are simply doing something else on their phone (sorry we have no clue what they are doing and do not monitor customer WIFI activity).

7 out of the 45 customers had waiters come over right away, they showed them something on their phone and spent an average of 5 minutes of the waiter’s time. Given this is recent footage, we asked the waiters about this and they explained those customers had a problem connecting to the WIFI and demanded the waiters try to help them.

Finally the waiters are walking over to the table to see what the customers would like to order. The majority have not even opened the menu and ask the waiter to wait a bit.

Customer opens the menu, places their hands holding their phones on top of it and continue doing whatever on their phone.

There is more here, interesting throughout, and for the pointer I thank Jacqueline Mason.

Does America need further strategic trade policy for Boeing?

One of the arguments for reauthorizing the Ex-Im Bank is that the EU subsidizes Airbus in an increasing returns to scale industry, and so therefore we need to do the same for Boeing.  Boeing is by far the largest beneficiary from the Bank.

Yet the Pentagon spends a lot of money on Boeing already, basically ensuring the company will operate at quite a large scale.  I cannot find formal figures on how much the European Union spends on military contracts with the Airbus Group, but it is highly likely to be much less than what the Pentagon spends on Boeing, given the differences in defense spending across the two regions.

In other words, through military spending we are already doing what strategic trade policy (ostensibly) dictates.  General Electric, which is number two on that list of Ex-Im beneficiaries, is also a significant Pentagon contractor, as is number three Bechtel of course.

By the way, did you know that the standard models dictate an export tax rather than an export subsidy if the duopolistic firms operate as Bertrand rather than Nash competitors?  See Eaton and Grossman (1986), or this Flam and Helpman piece (pdf) or Cheng (1988).  I am not suggesting that Bertrand competition is exactly the right assumption here, rather the point is that strategic trade models are not very robust in their policy implications.

The downsizing of some American homes

Doug Immel recently completed his custom-built dream home, sparing no expense on details like cherry-wood floors, cathedral ceilings and stained-glass windows — in just 164 square feet of living space including a loft.

The 57-year-old schoolteacher’s tiny house near Providence, Rhode Island, cost $28,000 — a seventh of the median price of single-family residences in his state.

“I wanted to have an edge against career vagaries,” said Immel, a former real estate appraiser. A dwelling with minimal financial burden “gives you a little attitude.” He invests the money he would have spent on a mortgage and related costs in a mutual fund, halving his retirement horizon to 10 years and maybe even as soon as three. “I am infinitely happier.”

There is more here, and for the pointer I thank Peter Marber.