Testing Freedom

I did a podcast with Brink Lindsey of the Niskanen Center. Here’s one bit on the FDA’s long-history of banning home tests:

Brink Lindsey: …it’s on the rapid testing that we had inexplicable delays. Rapid tests, home tests were ubiquitous in Europe and Asia months before they were in the United States. What was going on?

Alex Tabarrok: So I think it’s not actually inexplicable because the FDA has a long, long history of just hating people testing themselves. So the FDA was against pregnancy tests, they didn’t like that, they said women they need to consult with a doctor, only the physician can do the test because literally women could become hysterical if they were pregnant or if they weren’t pregnant, this was a safety issue. There was no question that the test itself was safe or worked. Instead what the FDA said, “We can regulate this because the user using it, this could create safety issues because they could commit suicide or they could do something crazy.” So they totally expanded the meaning of safety from is the test safe to can somebody be trusted to use a pregnancy test?

Then we had exactly the same thing with AIDS testing. So we delayed personal at-home tests for AIDS for literally 25 years. 25 years these tests were unavailable because the FDA again said, “Well, they’re dangerous.” And why are they dangerous? “Well, we don’t know what people will do with this knowledge about their own bodies.” Now, of course, you can get an HIV test from Amazon and the world hasn’t collapsed. They did the same thing with genetic tests from companies like 23andMe. So I said, “Our bodies ourselves, our DNA ourselves.” That people have a right to know about the functioning of their own bodies. This to me is a very clear violation of the Constitutions on multiple respects. It just stuns me, it just stuns me that anybody could think that you don’t have a right to know, we’re going to prevent you from learning something about the operation of your own body.

Again, the issue here was never does the test work. In fact, the labs which produce these tests, those labs are regulated outside of the FDA. So whether the test actually works, whether yes, it identifies this gene, all issues of that nature, what is the sensitivity and the specificity, are the tests produced in a proper laboratory, I don’t have a lot of problem with that because that’s all something which the consumers themselves would want. What I do have a problem with is then the FDA saying, “No, you can’t have access to this test because we don’t know what you’re going to do about it, what you’re going to think about it.” And that to me is outrageous.

Here’s the full transcript and video.

Interland: A New Type of Government

Max Tabarrok has an interesting new idea for governance, Interland:

The Interland Flag

Interland takes the intersection of the law codes of a large group of nations. This will produce a minimal reasonable set of laws which is highly resistant to lobbying and growth.

Anyone who wants to add a new agricultural subsidy, building height limit, or immigration restriction has to convince everyone in this group to add it before it passes in Interland. This makes the institutions of the country consistent and durable.

Durability is only good if the thing that’s lasting is also good. We have several reasons to expect this to be the case for Interland’s institutions. First, Interland will have a shorter list of statutes and regulations than any other country in its group. This isn’t unconditionally good, but since the mechanisms of democracy are likely to overproduce rules it’s the directionally correct adjustment. Even better is that all of the laws that Interland does have will be more universally supported than most of the laws in other nations, since they are by definition the set of laws that many nations agree on. As more countries are added to the intersection, Interland’s law code would be further distilled into human universals. Finally, Interland will be the freest nation on earth. Anything which is allowed by any member of the intersection will also be allowed in Interland.

Importantly, Interland’s constitution will be positively constructed. This means it will be a list of all of the things the government can do, and anything not listed is not within the government’s authority. This is in contrast to parts of the American constitution and Bill of Rights which define government authority by tracing the negative space that its authority cannot cross, but there was significant debate over which method was best during the drafting of the American constitution.

So what sorts of laws would Interland have? All nations share a lot of their basic criminal code. Murder, theft, and rape are all illegal in every country so they’d be illegal in Interland. Abortion, homosexuality, multi-family, and multi-use construction would not be illegal although many countries outlaw them. Nuclear power construction would be much easier thanks to the laws of France and South Korea, and almost all drugs would be legal or at least decriminalized.

…Interland’s taxation and spending would be minimal, mirroring nations like Hong KongSingapore, and Luxemburg. But by all accounts these nations have effective and comprehensive public services. Unfortunately in the eyes of some and thankfully for others, Interland would have a state police force, a public road network (although toll roads would be allowed), public parks, and libraries.

Read the whole thing for some discussion of other issues and limitations.

I think this is a compelling idea. Establishing a new country is difficult, of course, but the ideas of interland can be applied to already existing countries or sub-countries. A US state, for example, could declare itself an interland–Interland: New Mexico–and pledge to adopt only those laws that every other state has adopted. A country in the OECD or EU could declare itself an interland and so forth.

The code of Interland could also be useful in and of itself as a reference point. If we had an Interland database one could compare how close or far countries are to Intereland and in what respects they differ. Interland could be a virtual country and a model code–a country and code to which other countries can aspire to much like the Uniform Law Code.

Viva Interland!

The Demand and Supply of Misinformation

Bryan Caplan reminds us that misinformation wouldn’t work well if people weren’t so irrational.

The [standard misinformation] story focuses exclusively on the flaws of speakers, without acknowledging the flaws of the listeners. Misinformation won’t work unless the listeners are themselves naive, dogmatic, emotional, or otherwise intellectually defective. In economic jargon, the problem is that the story mistakes an information problem for a rationality problem.

The motivation for this crucial omission is fairly obvious. Blaming listeners for their epistemic vices sounds bad. It makes the accuser sound elitist, if not arrogant. Blaming a few high-status liars for the world’s problems is a lot more compatible with Social Desirability Bias than blaming billions of low-status fools who fail to choose to exercise their common sense.

I agree but it’s an equilibrium process. The demand and supply of misinformation both matter. Moreover, it’s not implausible that social media has increased the supply of misinformation, essentially because it has greatly accelerated the evolution of memes. As Dawkins taught us, memes evolve like genes but in the past memes evolved like rabbits, more rapidly than human beings but not so rapid that we couldn’t keep up. Now memes evolve like viruses, mind viruses. Even worse we have made improving memes profitable so we have capitalist energy added to faster random mutation.

I am somewhat hopeful that social media hit us hard because it was novel. A generation raised on social media may have more natural immunity–assuming we survive the infection. I also encourage (as does Bryan) institutions like betting markets to raise the price of misinformation (a bet is a tax on bullshit). Betting markets and expert aggregation markets like Metacuulus can help. We should invest more in the support and prestige of tools for developing rational consensus. More generally, if we can’t raise the cost of misinformation, better tools to aid our limited rationality could reduce the demand.

Cryptoeconomics!

The crypto market is up! The crypto market is down! The roller coaster can be fearfully thrilling but as thoughtful academics and people interested in ideas let’s look away from the daily ups and downs and focus on the big picture. What is crypto? What is cryptoeconomics?

Tyler and I have written a new chapter for our textbook, Modern Principles. In Cryptoeconomics we explain just enough cryptography–namely cryptographic hash functions and public-private keys–to understand what new forms of communication and organization have been made possible by these breakthroughs. We then use these fundamentals to explain NFTs, blockchains, Bitcoin, smart contracts and decentralized finance–all in a crisp, compact format accessible to everyone.

Not everyone wants to teach crypteconomics, of course, or has the time (scarcity!) so this chapter will be available as an option to anyone using our book and the Achieve online course management system (in fact, it’s available now). Tyler and I have found, however, that our students, colleagues, even people at dinner parties ask us about crypto. Probably your students and friends will ask you as well. Plus our textbook is called Modern Principles so we thought we were obligated to teach these new ideas!

Cryptoeconomics is a good guide to some fundamentally new ways of trading, communicating, and cooperating.

Addendum: If you want to learn more about DeFi, my talk goes into greater depth.

The State of Public Transit in the Nation’s Capital

The mismanagement of the metro system in the nation’s capitol is astounding.

WashPost: Metro’s train delays are projected to worsen as the agency abruptly yanks from service more than 70 operators who have been working without undergoing a mandatory retraining process for at least a year, officials announced Sunday.

The agency pledged corrective action in a release acknowledging that nearly half of the agency’s 500 train operators lack required recertification testing and training, while warning that staffing issues would lengthen wait times on the Green and Yellow lines from 15 to 20 minutes until the end of the month.

…Metro’s latest predicament coincides with a train shortage that has forced the agency to operate at reduced service with longer-than-normal wait times since mid-October. The safety commission ordered about 60 percent of its fleet out of service after a federal investigation into a Blue Line derailment found a defect affecting the wheels of the 7000 series, Metro’s latest and most advanced model of trains and rail cars.

Without the series’ 748 cars, Metro has been forced to rely on older models, some 40 years old and nearing retirement. The smaller, older cars, coupled with lower frequencies, have driven many passengers away because of crowding and social distancing concerns as coronavirus case numbers continue to fluctuate. Those concerns will only grow with longer wait times and fewer trains in service.

You may recall that in 2015 there was a deadly fire on the Metro which I wrote about in 2016.  (post repeated below).

WTOP: A Metro worker blamed for falsifying records about the tunnel fans that failed during last year’s deadly smoke incident near L’Enfant Plaza has been granted his job back by an arbitration panel — and Metro’s largest union has just filed a lawsuit against Metro because the worker hasn’t been reinstated yet.

The union’s defense is that everyone was doing it so no one is to blame. The Union is probably right that the WMTA suffers from a culture of poor safety and responsibility but you can’t fix that culture without clear signals that the incentives have changed.

I had to take the Metro to DC earlier this week and due to track closings for safety improvements it was miserable, at least 45 minutes of delays for the roundtrip. Some 700,000 people ride the metro every day and if each is delayed by just 15 minutes total (7.5 minutes each way) then at $15 an hour that’s 2.6 million dollars worth of delay every day.

Before traveling on the DC Metro I recommend checking the twitter account @IsMetroOnFire.

Addendum: At least this time heads are rolling.

Infant Formula, Price Controls, and the Misallocation of Resources

For the week of April 3, at least 12 states faced out of stock rates higher than 40 percent, including Connecticut, Delaware, Montana, New Jersey, Rhode IslandI’ve been reluctant to write about the shortage of infant formula simply because it’s so tiring to say the same thing over and over again. Obviously, this is a classic case where the FDA should allow imports of any food or baby formula approved by a stringent authority. (Here’s the US Customs and Border Patrol bragging about how they nabbed 588 cases of infant formula from Germany and the Netherlands as if it were cocaine.) Scott Lincicome has an excellent run down which covers not just the FDA but the problems caused by trade regulation and the WIC program as well.

What I want to do is focus on something less discussed: Why does the shortage vary across the country and even city by city?

I believe one reason is implicit price controls, either due to fear of regulatory backlash, regulatory constraints through other programs, or a misplaced desire not to upset consumers.

Price controls create shortages–that much is well known–but they also create a misallocation of goods. No doubt you have seen pictures from the 1970s of long lines of cars waiting to get gasoline. But there weren’t lineups everywhere at all times–rather we had the strange situation where there were shortage of gasoline in some places while, just a hundred miles away, there was plenty. Or shortages one day and surpluses the next.

Prices rationally allocate goods across space and time in response to shifts in demand and supply. If demand increases in one place, for example, prices rise, creating an incentive to bring in supplies from elsewhere. A rising price signals where supplies are needed and creates an incentive to deliver. Or, as Tyler and I put it, A price is a signal wrapped up in an incentive. A price controlled below the market price creates a shortage and it also kills the signaling and incentive function of prices. The result is allocational chaos: Shortages in some places and times and excess supply in other places and times.

In fact, price controls in a capitalist economy give you a window onto a planned economy. If you think of communism as a system of universal price controls this allocation chaos is the essence of why a communist state cannot rationally allocate resources.

Tyler and I discuss allocational chaos in our chapter on price controls in Modern Principles of Economics. See also this excellent video.

ESG Versus Innovation

Some wise words on ESG and innovation from the excellent Bart Madden:

Excessive focus on looking good in the short term via ESG metrics can be at cross-purposes with a long-term planning horizon keyed to innovation. A sizable portion of a firm’s major innovations may not move the needle much as to ESG metrics but may score high in the eyes of customers as to value creation (and quite possibly improve their customers’ ESG performance). Recent research reveals a tendency during quarterly earnings conference calls for those managements who have reported weaker-than-expected profits to talk less about financial results and more about their ESG progress.31 Keep in mind that innovation is the key to sustainable progress that jointly delivers on financial performance and taking care of future generations through environmental improvements.

Addendum: Bart has a history of smart investing.

Slovakian Asks Good Questions About American Suburbs

My questions are:

  • What do you actually do? Are you always stuck inside? What did you do when you were a child and couldn’t drive?

  • Why do you have these sorts of strange regulations? Are your officials so incompetent? Is this due to lobbying from car or oil companies? I don’t get it.

  • Why is there no public transport? It seems like the only thing is the yellow school bus, idk.

  • He says there can be only one family houses. Why? Why can’t you have idk a commie block in the middle of such a suburb? Or row houses or whatever.

  • Why are there no businesses inside these? I mean, he says it’s illegal, just why? If I lived in such a place, I’d just buy a house next to mine and turn it into a tavern or a convenience store or whatever. Is that simply not possible and illegal?

  • These places have front and backyards. But they’re mostly empty. Some backyards have a pool maybe, but it’s mostly just green grass. Why don’t you grow plants in your yards? Like potatoes, cucumbers, tomatoes or whatever. Why do you own this land, if you never use it?

Originally from Reddit.

Systemic Bias versus Concentrated Bias

Discrimination exists but rather than being systemic Campbell and Brauer argue it’s due to a small number of prejudiced individuals.

Discrimination has persisted in our society despite steady improvements in explicit attitudes toward marginalized social groups. The most common explanation for this apparent paradox is that due to implicit biases, most individuals behave in slightly discriminatory ways outside of their own awareness (the dispersed discrimination account). Another explanation holds that a numerical minority of individuals who are moderately or highly biased are responsible for most observed discriminatory behaviors (the concentrated discrimination account). We tested these 2 accounts against each other in a series of studies at a large, public university (total N = 16,600). In 4 large-scale surveys, students from marginalized groups reported that they generally felt welcome and respected on campus (albeit less so than nonmarginalized students) and that a numerical minority of their peers (around 20%) engage in subtle or explicit forms of discrimination. In 5 field experiments with 8 different samples, we manipulated the social group membership of trained confederates and measured the behaviors of naïve bystanders. The results showed that between 5% and 20% of the participants treated the confederates belonging to marginalized groups more negatively than nonmarginalized confederates. Our findings are inconsistent with the dispersed discrimination account but support the concentrated discrimination account. The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes. Our results suggest that the Pareto principle also applies to discrimination, at least at the large, public university where the studies were conducted. We discuss implications for prodiversity initiatives.

The cause of discrimination matters because as Hambrick notes writing about this paper in Scientific American:

 In recent years, the view that most people engage in discriminatory acts because of implicit biases has gained widespread public acceptance. In a 2016 presidential debate, Hillary Clinton commented that “implicit bias is a problem for everyone.” Campbell and Brauer’s findings suggest it’s still not clear the extent to which implicit biases explain discriminatory conduct. (Other work has called into question the validity of implicit bias measures for predicting real-world discrimination.) Research aimed at answering this fundamental question will inform the design of interventions that may one day meaningfully reduce levels of discrimination.

….If, for example, a small number of explicitly prejudiced people are responsible for most or all of the discrimination occurring in a company, an intervention that requires all employees to undergo implicit bias training will probably fail to address the problem. Research suggests that interventions that convey the message that nearly everyone engages in discriminatory behavior may even make the workplace atmosphere worse for marginalized employees, because after the training, nonmarginalized employees may avoid interacting with them out of fear of unwittingly discriminating.

China’s Bizarre Authoritarian-Libertarian COVID Strategy

It’s difficult to understand China’s COVID strategy. On the one hand, China has confined millions of people to their homes, even to the extent of outlawing walking outside or having food delivered. Many thousands of other people have been taken from their homes and put into quarantine centers. On the other hand, vaccination is not mandatory! I can understand authoritarianism. I can understand libertarianism. I have difficulty understanding how jailing people, potentially without food, is ok but requiring vaccinations is not. (Here’s a legal analysis of China’s vaccine policy.) Moreover, put aside making vaccines mandatory because as far as I can tell, China has only recently started to get serious about non-coercive measures to vaccinate the elderly. The Washington Post notes:

The vaccination drive has been mild compared to some of the other pandemic-control measures and did not prioritize the elderly. Some younger people have been required to get vaccinated for their jobs, but vaccination of retirees remains optional. Incentives like eggs, grains and other foodstuffs — a staple of China’s vaccination drive since last year — are now being bolstered by home checkups, mobile clinics and the widespread mobilization of public servantsto ensure the elderly get shots.

China is shutting down factories costing its economy trillions of dollars and the best they come up with to get elderly people vaccinated is egg incentives???!

It’s difficult to understand what the Chinese leadership is thinking. It’s conceivable that the Chinese vaccines are much less effective than we have been led to believe but that seems unlikely. As far as we can tell the Chinese vaccines are not quite as good as the mRNA vaccines but good enough to prevent severe disease and pass FDA approval in the United States. My best guess is that President Xi Jinping is so powerful and insulated from reality and alternative viewpoints that he is just soldiering on either oblivious to the pain and foolishness of his policies or indifferent, much like Mao before him during the great famine.

The Essential Women of Liberty

Here’s another excellent book in the Essential Scholars series. You can download the book for free, find additional resources, introductory videos and more at the Women of Liberty web page.

This series of essays, written by leading scholars in the United States, Canada and Europe, explores the lives and ideas of some of the most influential women over the past few centuries whose work contributed enormously to the democratic, prosperous and free societies that many people enjoy today. They are a remarkably diverse group of women. Their lives span the eighteenth to twenty-first centuries and their contributions are significant despite the barriers each faced. Some were educated at prestigious universities while others only had informal schooling. Some were academics, others writers and journalists, and still others activists. What they had in common was an understanding of the power of freedom and liberty, and their influential advocacy of such during their lives. These essays are a celebration and recognition of their lives and contributions.

I Hate Paper Straws!

I am interviewed by James Pethokoukis at his substack Faster, Please! Here’s one Q&A:

JP: American political debates are generally more interested in redistribution than long-term investment for future innovation. What are the incentives creating that problem and can they be fixed?

A big part of the incentive problem is that future people don’t have the vote. Future residents don’t have the vote, so we prevent building which placates the fears of current homeowners but prevents future residents from moving in. Future patients don’t have the vote, so we regulate drug prices at the expense of future new drug innovations and so forth. This has always been true, of course, but culture can be a solution to otherwise tough-to-solve incentive problems. America’s forward looking, pro-innovation, pro-science culture meant that in the past we were more likely to protect the future.

We could solve many more of our problem if both sides stowed some of their cultural agendas to focus on areas of agreement. I think, for example, that we could solve the climate change problem with a combination of a revenue neutral carbon tax and American ingenuity. Nuclear, geo-thermal, hydrogen–these aren’t just clean fuels they are better fuels! Unfortunately, instead of focusing on innovation we get a lot of nonsense about paper straws and low-flow showers. I hate paper straws and low-flow showers! There is a wing of the environmental movement that wants to punish consumerism, individualism, and America more than they want to solve environmental problems so they see an innovation agenda as a kind of cheating. Retribution is the goal of their practice.

In contrast, what I want is for all of us to use more water, more energy and yes more plastic straws and also have a better environment. That’s the American way.

Subscribe to Faster, Please! for more.

Learn Public Choice!

The Public Choice Outreach Conference is a compact lecture series designed as a “crash course” in Public Choice for students planning careers in academia, journalism, law, or public policy. The Outreach Conference will be online Monday July 25 to Saturday July 30, noon to 1:15 est daily. Sign up here!

Everyone welcome. Teachers please do let your students know about this opportunity!

Monday, July 25
An Introduction to Public Choice—Alex Tabarrok
Tuesday, July 26
Arrow’s Theorem and All That—Alex Tabarrok
Wednesday, July 27
Public Choice and Development Economics—Shruti Rajagopalan
Thursday, July 28
Public Choice and The Military Industrial Complex—Abby Hall Blanco
Friday, July 29
Government by Insurance or Who vouches for You?—Robin Hanson
Saturday, July 30
Hayek and Buchanan—Peter Boettke

Sign up here!

Automatic Tax Filing?

Pro-publica regularly reports that H&R Block and Quicken lobby against allowing the IRS to pre-fill tax forms. Sure, of course they do and that’s bad. It doesn’t quite follow, however, that “Filing Taxes Could Be Free and Simple” if only for such lobbying. In fact, Lucas Goodman, Katherine Lim, Bruce Sacerdote & Andrew Whitten estimate that less than half of tax forms could be filled out correctly by the IRS and those are the simpler types where the costs of private tax preparation services are lower:

Each year Americans spend over two billion hours and $30 billion preparing individual tax returns, and these filing costs are regressive. To lower and redistribute the filing burden, some commentators have proposed having the IRS pre-populate tax returns for individuals. We evaluate this hypothetical policy using a large, nationally representative sample of returns filed for the tax year 2019. Our baseline results indicate that between 62 and 73 million returns (41 to 48 percent of all returns) could be accurately pre-populated using only current-year information returns and the prior-year return. Accuracy rates decline with income and are higher for taxpayers who have fewer dependents or are unmarried. We also examine 2019 non-filers, finding that pre-populated returns tentatively indicate $9.0 billion in refunds due to 12 million (22 percent) of them.

Jeremy Horpedahl has an excellent post explaining why:

…there is one major thing missing from your income tax withholding estimate: your spouse’s income. You see, the United States is one of the few remaining OECD countries that primarily taxes income based on the family unit (you can use “married filing separately” as a status, but generally there is no benefit and you might lose some deductions). Most countries tax based on your individual income, even if you are married. This is important for two reasons. First, it means there is a “secondary-earner penalty,” where one spouse faces a much higher marginal tax rate (this is different from the “marriage penalty,” but that’s a topic for another day. For purposes of a pre-filled tax return, the second and larger issue is that your employer has no idea how much tax to withhold because it is dependent on how much your spouse makes (and whether you are married).

Moving the US to a system of individual taxation…would simplify the calculation of your taxes.

The other major factor that Jeremy mentions is that the US simply tries to do a lot through the tax code so we have lots of itemized deductions or special tax structures–veterans, widows, widows of veterans–which make it difficult to pre-fill taxes without either simplification or a major overhaul of the administrative data system.

Jeremy also worries that pre-filling will further disconnect the payment of taxes from services rendered thus making costs more opaque. Probably true, although I think that ship has sailed.