Year: 2019
East Germany fact of the day
Evidence of a widening gulf has become too copious to ignore. Last month, for example, a poll by the Allensbach Institute asked eastern Germans whether they saw democracy as practised in Germany as the best form of government. Only 31 per cent agreed. Two years ago, the figure was 53 per cent.
In western Germany, meanwhile, 72 per cent described democracy as the best form of government, broadly unchanged from two decades ago.
The same divergence shows up when Germans in both parts of the country are asked about their identity: 47 per cent of eastern Germans say they identify above all as eastern Germans, compared with only 44 per cent who feel simply German. This, too, is a sharp reversal from only a few years ago.
Also striking is the sheer persistence of specifically eastern German views and stereotypes: even 30 years after the fall of the wall (and with an east German chancellor, Angela Merkel, holding office since 2005), more than a third of eastern Germans describe themselves as “second-class citizens”.
That is from Tobias Buck in the FT.
America’s depressing new culture war
What do we learn from reading through a list of top Patreon winners? That is the topic of my latest Bloomberg column, here is one excerpt:
Feel free to peruse the list yourself. My own browsing and clicking led me to a new conclusion: America’s culture war is not just left-wing vs. right-wing, or privileged vs. unfortunate, or even Trump vs. his critics. It is between those who believe in aspiring to something greater and those who do not.
You will note that your main criticisms already are covered in my text.
The new Greek-language edition of Modern Principles of Economics
Alex and I are very happy to see this edition has come out:
We thank Theodore Pelagidis for a superb translation.
Sunday assorted links
Do Inheritance Customs Affect Political and Social Inequality?
That is a new paper from Anselm Hager and Hanno Hilbig, here is the abstract:
Why are some societies more unequal than others? The French revolutionaries believed unequal inheritances among siblings to be responsible for the strict hierarchies of the ancien régime. To achieve equality, the revolutionaries therefore enforced equal inheritance rights. Their goal was to empower women and to disenfranchise the noble class. But do equal inheritances succeed in leveling the societal playing field? We study Germany—a country with pronounced local‐level variation in inheritance customs—and find that municipalities that historically equally apportioned wealth, to this day, elect more women into political councils and have fewer aristocrats in the social elite. Using historic data, we point to two mechanisms: wealth equality and pro‐egalitarian preferences. In a final step, we also show that, counterintuitively, equitable inheritance customs positively predict income inequality. We interpret this finding to mean that equitable inheritances level the playing field by rewarding talent, not status.
The potentially surprising bit in there is “equitable inheritance customs positively predict income inequality,” emphasis added by this blogger.
For the pointer I thank the excellent Kevin Lewis.
*Do Markets Corrupt Our Morals?*
That is the new book by my colleague Virgil Storr and co-author Ginny Seung Choi. Here is a summary take on it, excerpt:
This book explores whether or not engaging in market activities is morally corrupting. Storr and Choi demonstrate that people in market societies are wealthier, healthier, happier and better connected than those in societies where markets are more restricted. More provocatively, they explain that successful markets require and produce virtuous participants. Markets serve as moral spaces that both rely on and reward their participants for being virtuous. Rather than harming individuals morally, the market is an arena where individuals are encouraged to be their best moral selves. Do Markets Corrupt Our Morals? invites us to reassess the claim that markets corrupt our morals.
Here is a Deirdre McCloskey blurb:
“Storr and Choi have brought economics and politics back to ethics, which should never have been left. Of course values matter. Of course markets smooth off the rough sides of humans. Of course ‘sweet commerce’ reigns, and should. Of course. But it took a brilliant book like this one to show it.”
You can order the book here.
Estimating US Consumer Gains from Chinese Imports
>We estimate the size of US consumer gains from Chinese imports during 2004–2015. Using barcode-level price and expenditure data, we construct inflation rates under CES preferences, and use Chinese exports to Europe as an instrument. We find significant negative effects of Chinese imports on US prices. This effect is driven by both changes in the prices of existing goods and the entry of new goods, and it is similar across consumer groups by income or region. A simple benchmarking exercise suggests that Chinese imports led to a 0.19 percentage point annual reduction in the price index for consumer tradables.
That is from AER Insights by Liang Bai and Sebastian Stumpner. I would have expected a somewhat higher magnitude, and perhaps this in part explains why the trade war has been proceeding.
No man can be judge in his own case
Cash bail and bounty hunters can be an important and useful part of the criminal justice system. The practice in New Orleans, however, of funding court and judicial benefits with a tax on bail is obnoxious. In recent years, the tax on bail has funded 20-25% of the Judicial Expense Fund which is used to pay staff and office supplies, travel and other costs. The 5th U.S. Circuit Court of Appeal was right to affirm that this tax violates a defendant’s due process rights because it gives judges an incentive to require bail for their own benefit rather than to incentivize the defendant’s court appearance.
“No man can be judge in his own case.” Edward Coke, INSTITUTES OF THE LAWS OF ENGLAND, § 212, 141 (1628). That centuries-old maxim comes from Lord Coke’s ruling that a judge could not be paid with the fines he imposed. Dr. Bonham’s Case, 8 Co. Rep. 107a, 118a, 77 Eng. Rep. 638, 652 (C.P. 1610). Almost a century ago, the Supreme Court recognized that principle as part of the due process requirement of an impartial tribunal. Tumey v. Ohio, 273 U.S. 510, 523 (1927).
This case does not involve a judge who receives money based on the decisions he makes. But the magistrate in the Orleans Parish Criminal United States Court of Appeals District Court receives something almost as important: funding for various judicial expenses, most notably money to help pay for court reporters, judicial secretaries, and law clerks. What does this court funding depend on? The bail decisions the magistrate makes that determine whether a defendant obtains pretrial release. When a defendant has to buy a commercial surety bond, a portion of the bond’s value goes to a fund for judges’ expenses. So the more often the magistrate requires a secured money bond as a condition of release, the more money the court has to cover expenses. And the magistrate is a member of the committee that allocates those funds. Arrestees argue that the magistrate’s dual role—generator and administrator of court fees—creates a conflict of interest when the judge sets their bail. We [agree with the district court] that this dual role violates due process.
The plaintiffs also argued that judges must take into account a defendant’s ability to pay when setting bail. The appeals court didn’t rule on that issue but ironically judges who get a percent of the proceeds from bail do have an incentive to take into account ability to pay because only paid bail generates revenues. Eliminating the judge’s cut eliminates the incentive to think about ability to pay. Still, I support the decision. We should try for first best. The theory of second best leads only to madness and ruin.
*10% Less Democracy*
The author is Garett Jones and the subtitle is Why You Should Trust Elites a Little More and the Masses A Little Less, coming soon to a theater near you, early 2020.
If you believe in judicial independence, you do not believe in complete democracy.
If you do not think we should elect judges, sheriffs, and dog catchers, you do not believe in complete democracy.
If you believe in those European proportional representation systems, with post-election bargaining, you do not believe in complete democracy.
If you are a fan of the EU…etc.
Here is an excerpt from Garett’s excellent book:
Some cities in California appoint their treasurers and others elect their treasurers. Cities can have elections to decide whether the city treasurer should be appointed by the city government; the default is that they’re elected. Whalley checks to see which kinds of cities have lower borrowing costs: ones with appointed treasurers or elected ones. The interest rate paid on a city’s debt is a useful index of how well the city is running its finances…So Whalley’s overall question is this: Do cities with appointed treasurers pay lower interest rates on their debt?
…Over the period Whalley examined, 1992 to 2008, forty-three cities held referenda to ask whether they should switch to appointed treasurers. He’s therefore able to look at the before-and-after differences of these elections…
[there is] an even bigger benefit of appointed treasurers: seven-tenths of a percent lower interest rates every year. The average city has $30 million in debt, so that comes out to a savings of $210,000 per year.
Do I hear eleven percent anybody? Though twenty percent I do not wish to hazard, not at all.
You can pre-order the book here.
*The Enchantments of Mammon*
The author is Eugene McCarraher, and the subtitle of this Belknap Press book is How Capitalism Became the Religion of Modernity. Here is one excerpt:
The world does not need to be re-enchanted, because it was never disenchanted in the first place. Attending primarily to the history of the United States, I hope to demonstrate that capitalism has been, as Benjamin perceived, a religion of modernity, one that addresses the same hopes and anxieties formerly entrusted to traditional religion. But this does not mean only that capitalism has been and continues to be “beguiling” or “fetishized,” and that rigorous analysis will expose the phantoms as the projections they really are. These enchantments draw their power, not simply from our capacity for delusion., but from our deepest and truest desires — desires that are consonant and tragically out of touch with the dearest freshness of the universe. The world can never be disenchanted, not because our emotional or political or cultural needs compel us to find enchantments — though they do — but because the world itself, as Hopkins realized, is charged with the grandeur of God…
However significant theology is for this book, I have relied on a sizable body of historical literature on the symbolic universe of capitalism. Much of this work suggests that capitalist cultural authority cannot be fully understood without regard to the psychic, moral, and spiritual longings inscribed in the imagery of business culture.
I remain wedded to the traditional Weberian view that capitalism represents a discrete break away from such modes of thought, and I believe this perspective supported by the work of Joe Henrich and co-authors on WEIRD. Nonetheless, this is a book of note, and it has a clearly stated thesis on matters of direct relevance to what is explored on Marginal Revolution. Due out in November, pre-order at the link above.
Rent control doesn’t always lower rents
Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.
That is from a new AER piece by Rebecca Diamond, Tim McQuade and Franklin Qian.
Friday assorted links
How hard is it to limit airline carbon emissions?
As a result, many environmentalists are dismissive of biofuels as a long-term solution, particularly because a growing world population will need more food. To limit global warming to a 1.5C increase in temperature would require so much biofuel that it would take up to 7m square kilometres of arable land — roughly the size of Australia — to produce that much feedstock, according to a recent report from the UN Intergovernmental Panel on Climate Change.
“If you were to replace all today’s aviation fuel with biofuel, with first-generation biofuel, it would be at the expense of 2,100 calories per person per day for everyone on the planet,” says Prof Berners-Lee. “It would take almost all of humankind’s calorific requirements . . . So that is absolutely not a solution.”
How deregulatory is the Trump administration?
Here is an email from a loyal, anonymous MR reader:
Critics of the administration’s much-ballyhooed deregulatory efforts argue that there’s not really that much there; they contend the White House and agencies have been tinkering around the margins (and helping out special interest groups), but not really addressing regulation’s economic cost. They argue there’s been virtually nothing done to address the bloated corpus of 100 years of accumulated federal regulation, and there’s been no legislative action to change regulatory processes.
The administration’s defenders and their fiercest critics alike argue that Trump has taken a machete to the regulatory state. But aside from naming a few rule changes here or there, they don’t offer much concrete support for their claim.
What’s the steel man case that Trump has broken the back of the administrative state? Some hypothes
1. They haven’t made things worse. After eight years of an administration that was seen (fairly or not) as hostile to business, just taking the boot off the throat of entrepreneurs is a major step forward. Small-business optimism is at pre-crisis levels. The last two years have seen the fewest economically significant final rules promulgated since 1990. Beyond formal rules, the administration has ended the abuse of “dear colleague” letters, guidance documents, and sue-and-settle.
2. Related to #1, there’s been no new legislation along the lines of Sarbanes-Oxley or Dodd-Frank that will take as long as a decade to get regulations worked out. That takes a lot of the uncertainty out of the system.
3. Enforcement has been curtailed. The administrative state is a threat because its enforcement is so capricious and subject to questionable extralegal adjudication. The Trump administration has responded by simply not enforcing many regulations. EPA inspections are down by half; CFPB is asleep at the switch. Enforcement heads are basically emulating Ron Swanson, for the better.
4. The 14 uses of the Congressional Review Act in early 2017 should in fact count as highly deregulatory; it was of course more than had ever been done with this tool in the past. Okay, so the regs in question weren’t yet final or hadn’t been in effect for very long. That’s just playing a baselines game; the bottom line is tens of billions of dollars of costs were cut over what would have been.
5. The record-breaking number of appellate judges appointed by the president and confirmed by the Senate will shift the judiciary to be more skeptical of regulators’ self-aggrandized power. Justice Gorsuch is champing at the bit to eliminate Auer and Chevron deference; overruling these precedents would be game-changing.
6. There’s been more taking place than you think. No, there hasn’t been a huge shakeup of federal departments, but those kinds of things are mostly for show anyway; federal power remains more or less constant, responsibilities just get shifted around. Benefit-cost analyses and regulatory impact analyses done by most agencies are sloppy at best and mostly just a Soviet-style effort to justify what’s already been decided, so they don’t capture the magnitude of what’s happening.
What has happened? The president has appointed people who take regulatory analysis seriously and understand opportunity cost. Some of the deregulation has been in areas most sensitive to the costs of regulation, like labor and energy. ACA individual mandate? Gone. HUD is taking steps to push housing deregulation at the local level; this has gotten almost no attention.
7. There’s more that would have been done but for the “deep state.” It’s a matter of public choice economics, not AM radio conspiracies, that regulators may not be enthusiastic about deregulating. For instance, Trump’s much-trumpeted two-out-one-in executive order for federal regulations was largely kneecapped by OMB so that over 90% of new regulations are deemed exempt from the order. Given inherent resistance to change (again, for perfectly understandable reasons, this is not a conspiracy), it’s amazing that anything has been done at all!
Thursday assorted links
3. Kang Nara, defector from North Korea (YouTube, English subtitles). And WSJ coverage. I found both very interesting.
3. Richard Serra update (NYT).
4. 100 books to read on China.
5. Which California localities have the worst housing regulation? The worst is Atherton.
6. Harvard risk and environmental economist Marty Weitzman has passed away.