Spam is No Free Lunch
Hissssssss
Lots of evidence that the housing market is slowing; prices are not rising as quickly as in the past, inventory is building and perhaps most tellingly insiders are selling shares of home building firms at record pace.
Some analysts say that the share sales by home builders are reminiscent
of the heavy dumping of stock by technology company executives just
before the technology bubble burst in 2000. For that reason, the
staggering level of insider sales has analysts and investors wondering
if home builders see something menacing on the horizon, like a cooling
of the real estate market.
The FDA Tragedy
Writing in the WSJ (Oct. 3), whose editors ought to know better, Cynthia Crossen says:
Only 70 years ago, American companies could legally sell poison in a
medicine bottle.Obviously, no drug maker would knowingly kill its customers — the
free market would punish that kind of bad business. But a company
that inadvertently sold a drug resulting in multiple deaths faced no
legal penalties.In 1937, however, the consequences of Americans’ unfettered right to
buy and sell medicine became disastrously clear. An antibacterial
syrup called Elixir Sulfanilamide killed at least 75 people, some of
them young children who had been suffering from nothing more serious
than a sore throat.
What a load of rot. Here is a letter I sent to the WSJ:
Where did
Crossen get the bizarre idea that poisoining was not illegal 70 years ago? It’s true that there was no federal law
against drug fraud but there was no federal law against rape either –
this did not mean that only 70 years ago rape was legal. In fact,
Massengil, the company that sold Elixir Sulfanilamide, was successfully
sued and punished under the common law of tort.Dramatic, easy to see, tragedies like those caused by Elixir
Sulfanilamide and Thalidomide encouraged the naive to demand an
expansion of the FDA’s powers. The less easily seen tragedy has been drug delay, fewer new drugs, and higher prices. Careful observers
– see FDAReview.org for some evidence – estimate that the costs of the latter tragedy
far exceed the former. The FDA has put the nail in the coffin of more
than just the "pain and beauty boys."
Biloxi Boom!?
Land prices in Biloxi are up. The reason? Mississippi is a poor state and so historically even homes with water views were modest. When the coast boomed, due to gambling and tourism, the land became a lot more valuable in alternative uses like hotels, casinos, and vacation homes for the rich. But it’s costly and takes a long time for developers to buy up small lots and bundle them into bigger packages. The hurricane, however, acted like nature’s form of eminent domain. With the small houses destroyed there are many sellers, bundling is becoming easier, and everyone expects that zoning will be changed to favor the developers.
Absurdly, CNN paints the speculators as almost as bad as the hurricane itself:
But what Katrina spared, the real estate rush now imperils. The arrival of speculators threatens what’s left of bungalow
neighborhoods that are among the Gulf’s oldest communities, close-knit
places of modest means where casino workers, fishermen and their
families could still afford to live near the water.
But while there is a certain sadness in seeing an old way of life decline no one is being forced to sell and those who do sell must be very pleased that there are eager buyers.
Thanks to Edward Johnson for the pointer.
What are Private Governments Worth?
"Private governments,” such as homeowners associations and condominium cooperatives, provide all manner of collective consumption goods, from road maintenance, trash collection, and snow removal to transportation, policing, and medical care. These organizations were practically unheard of in 1960, but today some 54.6 million people in the United States live in various neighborhood associations.
That’s from my latest paper, What are Private Governments Worth? written with Amanda Agan. Despite the explosion of private governments, very little research has been done on measuring their value. Thus, Agan and I compare the value of homes within HOAs (home owner associations) with the value of homes outside of HOAs. After controlling for a wide variety of housing characteristics including age, size, style and so forth we find that homes within HOAs sell for a whopping 5.4 percent or $14,000 more than similar homes outside of HOAs. Put differently a 3 bedroom home within an HOA is worth about as much as a 4 bedroom home outside of an HOA. This result is robust and continues to hold even when we look at similar homes inside and outside of HOAs but within the same subdivision.
For more on HOAs see The Voluntary City (which I edited) and especially Robert Nelson’s excellent new book from the Urban Institute, Private Neighborhoods And the Transformation of Local Government.
More on Contingent Fees
The ABA Journal Report has an article on my study of contingent fees (with E. Helland). I liked this:
"I’m actually a proponent of tort reform," Tabarrok says. "But I also believe in freedom of contract. What some reformers propose interferes with how plaintiffs reward their attorneys, and when I see interference with contract, I want there to be a high bar before it’s allowed.
The funniest line, however, was this:
Critics dispute the authors’ fundamental assumption that restrictions on contingent fees increase the incentive of lawyers to charge hourly fees. Despite Tabarrok’s assertion that the assumption is "trivial economics" and that "no economist would disagree with it," economists and legal scholars do.
Imagine that tips for waiters were banned. What would happen to wages? They would increase. No big surprise but apply the same idea to lawyer contingent fees and we get lots of objections.
I’m not fixated on the critics, however, because the main results of the paper are empirical. When contingent fees are restricted the number of dropped cases increases as does the time to settlement. The theory that this occurs because lawyers are shifting toward hourly fees is consistent with the empirical findings but there could be other explanations as well.
Late breaking news on housing vouchers
From the WSJ Storm News Tracker:
2:32
p.m.: U.S. Homeland Security Secretary Michael Chertoff and Housing
Secretary Alphonso Jackson announced a program to pay for three-month
rental costs anywhere in the country for homeowners or renters whose
residences were destroyed by Katrina.
I agree with John Palmer, who sent me the clip, "This Is So Sensible, I Can Hardly Believe It!"
Congratulations to Ed Olsen!
Trailers Trashed
FEMA’s plan to house hurricane evacuees in trailers is already looking like a disaster:
Federal Emergency Management Agency officials complain of a drastic
shortage of sites suitable to state and local officials for the huge
trailer parks that FEMA hopes to establish for evacuees. Local and
parish leaders say FEMA’s plans to supply the trailer parks with water,
sewer, electricity and other services are haphazard or nonexistent, and
the encampments — some of which could include 15,000 units — are
bigger than any the agency has ever established.
Fortunately, Ed Olsen’s plan to expand the already existing housing voucher program is receiving a lot of support. The Senate has already passed a plan, a House plan is pending, only the administration lags. See also my previous post on Rotting in FEMA City.
Give the Lawyer his Cut
The latest issue of Forbes (Oct. 3) has an article by myself on contingent fees. (It’s based on a short AEI book, Two Cheers for Contingent Fees with Eric Helland).
Contrary to popular argument, contingent fees serve a social purpose. A lawyer paid by contingent fee will only take those cases that have a decent probability of winning – thus contingent-fee lawyers act as screeners, saving the court system and everyone else the trouble of examining frivolous cases. That’s right, contingent-fee lawyers reduce the number of frivolous cases! When contingent fees are restricted, lawyers naturally turn to alternatives such as charging by the hour. But a lawyer paid by the hour has little incentive to screen. Helland and I find evidence consistent with the screening function of contingent fees.
In states that restrict contingent fees,
plaintiffs dropped 18% of cases before trial without getting a
settlement. In states where lawyers were free to take their usual 33%
cut, they dropped only 5% of cases. This tells us that lawyers had
already screened out the junk suits and were pursuing those with merit.Our study also shows that the time to
settlement in medical malpractice cases is 22% longer in states that
restrict contingent fees. In Florida, in the 300 days after contingent
fees were restricted in 1985, settlement time increased by 13%. Why?
When lawyers are paid by the hour, they have little incentive to settle
quickly.
By the way, one of the fun things about doing an article for Forbes is that they always send out a professional photographer – which for an academic like me can be quite a thrill as they really do primp and preen over you.
Turn to the right, oh yes, that’s it, hold it, hold it, Great! The camera loves you! Now lean back a little, good, good, good. Be like a Cheetah, a Cheetah. No a Lion, yes, a Lion. Hold it, Hold it. Yes. Wonderful! Wonderful!
I exaggerate, but it was fun. Unfortunately, the photo is not online so you will have to go to the newsstand to see the result. It’s arty, but I’d say they captured the lion. Yeah, baby.
The Vioxx Hex
It’s a real thrill when the editorial page of the Washington Post starts to sound like, well, me (e.g. here and here).
Politicians and regulators should be asking themselves whether a system of
massive cash awards to people who may or may not have been adversely affected by
Vioxx is a logical, fair or efficient way to run a drug regulatory system. They
should also be asking whether juries that scorn medical evidence are the right
judges of what information should or should not have been on a prescription
label. After all, Vioxx was produced and sold legally. The drug was approved by
the Food and Drug Administration, and its label did warn of coronary side
effects. It is possible, even probable, that Merck was negligent in its decision
to ignore early warnings of the cardiovascular risks of Vioxx. But the company
has already paid a price for that negligence, in the losses it has suffered
after abruptly taking Vioxx off the market. Fair compensation for the injured
needn’t entail disproportionate financial punishment as well.In the long term, using the courts to "send a message" to Merck isn’t going
to help consumers. If the result is an even more cautious FDA approval system
and a more cautious pharmaceutical industry, that will keep innovative drugs off
the market for much longer. More people will die waiting for new treatments. The
cost of producing new drugs will rise dramatically. Already, there are whole
areas of medicine — women’s health during pregnancy, for example — that are
made so risky by liability issues that companies may stop doing research in
them.The first principle of reforming this system should be that a company that
follows the FDA’s rather extensive guidelines should be protected from punitive,
if not compensatory, damages.
The Soul of a New Machine Shoe
The costs of a shock tend to fall when people have time to adjust and markets have a chance to do
their work.
I saw a nice illustration of this while shopping for shoes recently – manufacturers are producing and advertising a new feature: Airport Safe.
Rotting in FEMA City
The Bush administration and FEMA are planning to house Hurricane Katrina evacuees in some 300,000 trailers and "mobile" homes. What an awful idea. Mobile home cities are nothing but public housing built on the cheap – why must we revisit that disaster?
In Florida some 1,500 people left homeless by Hurricane Charley are still living in "FEMA City," a desolate subdivision of trailers and mobile homes built on 64 acres between a county jail and Interstate 75. Located far from jobs, real schools and ordinary amenities like restaurants and grocery stores, FEMA City has become another public housing failure.
There are no trees, no shrubs, and only two small playgrounds for several hundred children.
Teenagers have been especially hard-hit – drug use, vandalism,
break-ins and fights are widespread. Young people regularly call FEMA
City a prison.The troubles got so bad in the spring that the entire camp was
fenced in, a county police substation was set up, and armed security
guards were stationed at the one point where residents were allowed to
enter and exit. Even with that, the number of calls to the county
sheriff’s office was at an all-time high last month – 257 calls that
resulted in 78 police reports, many of them involving domestic
violence, fights, juvenile delinquency and vandalism. In January, there
were just 154 calls and 40 official actions.
FEMA City has only 1,500 residents. Can you imagine how bad things will get if "vast towns of 25,000 or more mobile homes" are built, as is being planned?
Why are we interring people in government camps? Housing vouchers are a much better policy. Let evacuees use their vouchers in any city in the United States. Let them begin to rebuild their lives with decent housing in places where they can find jobs, schools and community.
Sexual Healing
The Danish government pays for the disabled and elderly to watch porn and have sex with prostitutes.
Caregivers in Copenhagen have found that pornography and prostitutes
have a greater calming effect on their elderly patients than
traditional medical treatment such as drug therapy.Staff at the Thorupgaarden nursing home in the Danish capital have
been broadcasting pornography on the building’s internal videochannel
every Saturday night for several years. And if videos and dirty
magazines don’t relieve the tension, residents can ask the staff to
order a prostitute for them.The caregivers have told Danish media that pornography is healthier,
cheaper and easier to use than medicine, Lars Elmsted Petersen, a
spokesman for the Danish seniors’ lobby group Aeldresagen, said.Earlier this year, the Danish government released a report stating
that sexuality is an integral part of life for the elderly and the
disabled. It recommended that caregivers help elderly residents satisfy
their sexual needs.
All this sounds very reasonable to me. My only objection? Government intervention could lead to shortages.
To Serve and Protect Whom?
Last week I wrote:
According to this stunning account
local law enforcement officials prevented refugees, at gun point, from
leaving New Orleans and then stole their food and water to boot.
The story seemed so incredible that I cautioned readers but the Washington Post is now verifying the main account:
A suburban police chief is defending himself against
accusations of racism for ordering the blockade of a bridge and turning
back desperate hurricane victims… Police Chief Arthur Lawson Jr. ordered officers to block a bridge
leading into the community [of Gretna], which is almost two-thirds white. New
Orleans is two-thirds black.
Thanks to Robin Hanson for the pointer.
Fear of Floating
The Washington Post has a good article on an interesting email scam.
Typically, here’s what happens: You advertise a car for sale
online. A fraudster posing as a buyer responds via e-mail agreeing to
purchase the car for the asking price…Next, the scammer persuades the buyer to
accept a cashier’s check or personal check for significantly more than
the agreed-upon price. The excess is allegedly to cover the cost of
shipping the car abroad. Or the check’s too big, he claims, because it
had already been cut for a car deal that fell through. Or the buyer
simply apologizes for the mistake.The key to the
scam is duping the seller to deposit the check and, once it clears in
the seller’s account, return the excess money via an irreversible wire
transfer, such as Western Union.
Now what always confused me about this scam is that it seems very easy to avoid. Just wait for the check from the scammer to clear, right? Wrong.
The scam turns on most people’s misunderstanding of the
check-clearing process. Bank clerks and managers usually aren’t experts
at identifying counterfeit checks. So they deposit the check and tell
the seller it requires 48 hours to "clear." Then the money appears on
the seller’s account statement and can be withdrawn.Most
people assume that means the check is valid. But the real
check-clearing process can take weeks. Phony checks generally aren’t
nabbed until after the seller has wired the overpayment to the scammer.
And after the wire transfer is picked up, it’s gone.