The Ethics of Resistance to State Injustice
The excellent Jason Brennan with a short introduction to his new book, When All Else Fails: The Ethics of Resistance to State Injustice:
Imagine a situation in which a civilian commits an injustice, the kind against which you believe it is permissible to use deception, subterfuge or violence to defend yourself or others. For instance, imagine your friend makes an improper stop at a red light, and his dad, in anger, yanks him out of the car, beats the hell out of him, and continues to strike the back of his skull even after your friend lies subdued and prostrate. May you use violence, if it’s necessary to stop the father? Now imagine the same scene, except this time the attacker is a police officer in Ohio, and the victim is Richard Hubbard III, who in 2017 experienced just such an attack as described. Does that change things? Must you let the police officer possibly kill Hubbard rather than intervene?
Most people answer yes, believing that we are forbidden from stopping government agents who violate our rights. I find this puzzling. On this view, my neighbours can eliminate our right of self-defence and our rights to defend others by granting someone an office or passing a bad law. On this view, our rights to life, liberty, due process and security of person can disappear by political fiat – or even when a cop has a bad day. In When All Else Fails: The Ethics of Resistance to State Injustice (2019), I argue instead that we may act defensively against government agents under the same conditions in which we may act defensively against civilians. In my view, civilian and government agents are on a par, and we have identical rights of self-defence (and defence of others) against both. We should presume, by default, that government agents have no special immunity against self-defence, unless we can discover good reason to think otherwise.
I think it helps in answering this question to think of other countries say South Africa under Apartheid or China today among the Uighur in Xinjiang province…then be consistent. Note that resistance to state injustice may be unwise even when it is ethical.
What I’ve Been Watching
Bohemian Rhapsody—you already know the plot and it’s a tad long but the music is great and Rami Malek is fabulous as Freddie Mercury. The movie culminates with a virtually shot-by-shot recreation of the legendary Queen performance at Live Aid, considered by many to the greatest live performance in all of rock and roll. A little puzzling why they didn’t use the original. Worth seeing in the theater, if you don’t have a home theater.
Crazy Rich Asians – the all Asian cast made it notable and the shots of Singapore are great but it’s only average as a romantic comedy. The leads lack chemistry.
The Last Kingdom (Netflix)—I’ve watched all three Seasons and enjoyed them. Season 3, however, is beginning to lose its legs. The on-again, off-again love affair between King Alfred and Uhtred has worn its course and I swear I’ve seen the jump in the boats and row away under falling arrow scene more than once before. Still, it’s not boring.
Bodyguard (Netflix) —taut British thriller. I enjoyed it and at 6 episodes it’s less of an investment than some series.
Homecoming (Amazon Prime)—sold as a Julia Roberts endeavor. She’s fine but the real star is the mysterious atmospherics and unusual shots and edits. I didn’t realize till the end of the first episode that this was a Sam Esmail show. Ah, now it all makes sense. If you liked Mr. Robot, give it a shot. I haven’t finished the first season and I may not, so I can’t say for certain whether the investment is worthwhile.
Daredevil (Netflix) I have already mentioned. Now cancelled, despite a great third season.
The Man Who Would be King (Amazon Prime) – a John Huston classic featuring Sean Connery and Michael Caine. One of my favorites. Based on a story of Rudyard Kipling which was based on the true story of Josiah Harlan, Prince of Ghor.
At Eternity’s Gate: A stirring and powerful performance by Willem Dafoe as Van Gogh. Directed by Julian Schnabel, himself a noted artist. The camera work–meant to convey a “you are there” point of view and also the sometime madness of Van Gogh–was disconcertingly jumpy at times. Schnabel would have done better stepping back and placing more trust on Dafoe’s performance and also the cinematography of Benoît Delhomme. Oddly, Schnabel insists Van Gogh was murdered when suicide is the accepted account and one that rings true, even to the film itself.
Machines (Amazon Prime)–an excellent documentary illustrating a day in the life of a textile factory in Gujurat, India. The pictures do the work, very little commentary. Dickensian. Especially striking to an economist , how inefficiently the factory is being run. Quality control, inventory management and maintenance are clearly atrocious. I am reluctant to claim something is inefficient but we have strong experimental evidence that management quality in these firms is very low and that better management could more than pay for itself.
Cam Girl Economics
Former Cam Girl Aella offers a detailed, analytical, and interesting guide to the economics of the industry.
My credentials: I was a camgirl for five years. My highest earning month was $50,000, and my highest rank (on MFC) was #7, meaning I earned the 7th most money that month. I was, at one point, one of the most (if not the most) widely known working camgirls thanks to some viral content. My average income per hour was $200. Getting there was not easy and took a ton of mistakes and work, so I hope this helps you.
I was initially surprised that a cam girl can make more money than a prostitute. But the reason is simple, a cam girl is selling a non-rival good and can thus have more customers at a point in time than a prostitute. (In other words, the same economics as online education!) I suspect women would prefer to be cam girls than prostitutes so we should expect the supply of cam girls to increase and the supply of prostitutes to decrease thus raising the price of hiring a prostitute.
Male psychology plays an important role for the clever cam girl:
Men want a few things, and probably one of the biggest is winning a competition.
You see, you’re not just trying to get a guy to pay you – you’re trying to get a guy to pay you in front of a bunch of other guys. This is a super key. A man wants to feel attention from an attractive women on him, and this is made even more satisfying when it’s to the exclusion of those around him. He is showing off his power by buying your happiness.
So, when tipped, make sure you say his name (or username). A lot of girls use subtly masculine-competition language when referring to high tippers, such as “hero,” “champion,” or “winner”. I often would ask questions like “who is going to save my night?” or “who is going to be the one to make me feel x”?
The ‘control show’ I mentioned above plays into this. Give men a way to fight against each other, with tokens. A common tactic is to have guys buy into “teams”, and whichever team tips the most, wins (with the prize being a video or literally anything – you’d be surprised at how many competition prizes are just the guy’s name being listed on the girl’s profile). Have guys fight to put on or off your clothes, or force you/rescue you from doing something gross.
The most profitable thing I ever did was have a ‘war’ with another camgirl, and it became my tipping members vs. hers. Competition is bread and butter. Competition is love. Competition is life. Competition is your key to a life full of luxury handbags and butlers.
Just don’t be too obvious about it. All of this stuff I’m saying can be done with too heavy a hand, and then guys feel gross and leave.
Intrinsic and extrinsic incentives:
Divorce what you’re doing from money as much as you can. Never refer to tokens as money!! Refer to tokens as little as you can while still being clear. One of my camgirl friends would use the technique where she’d say, “This is like – I’m sitting at a bar, all alone over here. Is someone gonna be a gentleman and get me a drink?” And then someone would tip and she’d drink.
Classic marketing advice:
How do you get whales? A lot of it is high variance – a tiny fraction of the camwatching population is made out of very rich men, and so you might get one passing through your cam room once a week without you ever knowing, and you have no idea when or if you’ll be doing something interesting at that point.
But one technique to help is to give them something to do. If you have listed tip options as “40 tokens spank! 20 tokens kiss the mirror!” and your whale has 40,000 tokens he wants to drop today, then the best he’s going to get from you is some crying and screaming.
Thus, always have the absurd “nobody would ever buy that that would be insane” option.
Hat tip: Emil O W Kirkegaard.
Legalize Pay Toilets!
Pay toilets are common in Europe but uncommon in the United States. Sophie House writing at City Lab explains why. Pay toilets were made illegal in much of the United States in the 1970s:
In 1969, California Assemblywoman March Fong Eu smashed a porcelain toilet with an axe in front of the California state capitol, protesting the misogyny of restrooms that charged entrance fees for stalls but not urinals. She was not alone in her frustration. The grassroots organization CEPTIA—the Committee to End Pay Toilets in America—mobilized against pay toilets, putting out a quarterly newsletter (the Free Toilet Paper) and exchanging warring pamphlets with Nik-O-Lok, the leading pay-toilet manufacturer. The group won a citywide ordinance banning pay toilets in Chicago in 1973, followed by bans in Alaska, California, Florida, Illinois, Iowa, Michigan, Ohio, New Jersey, New York, Tennessee, and Wyoming.
The logic seems to be if we cannot sit for free then you cannot stand for free. House calls the pay toilet ban a triumph over sexism. Is it so hard to understand why urinals are cheaper to operate and more difficult to lock than stalls?
In any case, CEPTIA was remarkably effective. In 1970 there were some 50,000 pay toilets in America and by 1980 there were almost none. The attentive reader, however, will not be surprised to learn that smashing the pay toilet conspiracy did not result in an abundance of free toilets.
In the decades since CEPTIA disbanded, however, pay-toilet bans have proven to be a Pyrrhic victory. The committee’s vision of free toilets for all never came to pass. Cities have persistently refused to construct public restrooms, and existing facilities have fallen into disrepair. Citing the difficulty of keeping bathrooms safe and clean, municipalities are often unwilling or unable to pay. Even assuming that funds are available for initial construction of public toilets, the maintenance and operating costs are a deterrent.
By contrast, in cities from Europe to India to Latin America, small entrance fees help to cover the costs of keeping facilities in good condition. Creating a similar revenue stream to defray operating costs would likely make pay toilets more attractive to U.S. municipalities. For example, fees could offset the costs of hiring restroom attendants—an excellent, but expensive, way to keep bathrooms safe. Pay toilets also redistribute the operating costs of restrooms. Free toilets are, of course, taxpayer-funded, while under pay-toilet schemes, tourists who use urban infrastructure also contribute to its functioning.
Thanks a Thousand
For Thanksgiving I read a book about giving thanks, A. J. Jacobs’s, Thanks a Thousand. It begins like I, Pencil (which Jacobs discovers half-way through his book) and I, Rose:
It’s a Tuesday morning, and I’m in the presence of one of the most mind-boggling accomplishments in human history. This thing is so astounding in its complexity and scope, it makes the Panama canal look like a third grader’s craft project.
This marvel I see before me is the result of thousands of human beings collaborating across dozens of countries.
It took the combined labor of artists, chemists, politicians, mechanics, biologists, miners, packagers, smugglers and goatherds.
It required airplanes, boats trucks, motorcycles, vans, pallets and shoulders.
It needed hundreds of materials–steel, wood, nitrogen, rubber, silicon, ultraviolet light, explosives, and bat guano.
It has caused great joy but also great poverty and oppression.
It relied upon ancient wisdom and space-age technology, freezing temperature and scorching heat, high mountains and deep water.
It is my morning coffee.
Jacobs then sets out to thank everyone–which he soon finds is impossible, so he limits to a thousand people–who contributed to getting him his morning miracle. From the obvious, the barista and the coffee growers to the less obvious, the manufacturers and designers of the coffee lid and the NY water department, Jacobs sets out to offer thanks, giving the reader some interesting background along the way (“New York water is tested 2.2 million times a year.” “According to one estimate, pallets account for more than 46 percent of US hardwood lumber production.”).
Jacobs is also good on the importance of gratitude. Being mindful of and thankful for the things we ordinarily take for granted can make for a better life. He asks philosopher Will MacAskill what he is grateful for. “Sometimes I’m just thankful I have arms.” Yes.
Jacobs sometimes forgets, however, that the value of gratitude is more in the giving than in the receiving. He thus confuses gratitude with charity. But gratitude is neither payment nor alms. It’s nice to be recognized and thanked but thanks don’t make the world go round.
I ask Andy whether it feels good that the coffee in his warehouse brings joy to millions of people. Andy looks at me, his eyebrows knit. It’s as if I just asked him if he enjoys being a Buddhist monk who mediates ten hours a day.
“Well let me ask you this,” I say, “What are you thankful for?”
“My paycheck,” he says, laughing.
I like Andy. Andy understands that working solely for the sake of others can be demeaning and degrading. Andy is working for himself and his loved ones and more power to him. Beyond a few special relationships, to make doing for others one’s primary motive is undignified and subservient. Humans are not worker ants eager to die for love of their Queen. Each person’s life is their own.
The true marvel is that despite the fact that most people are not living for others we can still all live together harmoniously. As I like to put it:
It is not from the benevolence of the butcher, the coffee brewer, or the baker that we expect our dinner, but from their regard to their own interest.
Daredevil and the Doctrine of Double Effect
Daredevil on Netflix: Season 3 is excellent. A fight scene (in the prison) is as good as the famous hallway scene in Season 1. Another stellar performance by Vincent D’Onofrio. A good plot and a satisfying filling in of Karen’s backstory. Sophisticated visuals and use of sound.
That was my tweet. One thing that did annoy me was the prominent reliance of the writers on the Thou Shall Not Kill trope. Foggy even says “once you cross that line, there’s no return”. Ugh, give me a break. The trope is tired and it also annoys me as an economist. Daredevil has been in a lot of fights and with probability approaching 1 he has already killed. Did none of those prison guards or cops have thin skulls? And why should there be a line? Is killing two people with expected probability of 1/2 really so much better than killing one person with expected probability 1?
As I thought about this more, however, the Thou Shall Not Kill trope is least objectionable in Daredevil. Daredevil is a serious Catholic and can thus call upon Thomas Aquinas’s Doctrine of Double Effect. Aquinas argues that:
moral acts take their species according to what is intended, and not according to what is beside the intention…
Thus, Foggy, the ever-precise lawyer, is correct. Catholic doctrine draws a line between intending to kill and expecting to kill. Expecting to kill is ok, intending to kill is not. I am not a fan of the doctrine of double effect as among other flaws it too easily allows people to shrug off war crimes and the killing of innocents (heh, we only intended to kill the groom, the fact that we also killed the soon-to-be wife and guests, well that was beside the intention). Nevertheless, I will allow that the doctrine of double effects gets the Daredevil writers off the hook for inappropriate use of cliche. Batman, however, has no excuse.
Addendum: For an excellent review of Daredevil Seasons 1-3 from the point of view of Christianity, see this post at Christ and Pop Culture.
A Time to Fast
Over one hundred years ago researchers demonstrated that calorie restriction in rats increased lifespan, sometimes by as much as 50%. Since that time, the finding has been replicated and extended to primates. A few humans have taken up the diet but for most of us easy access to delicious food trumps willpower. A new paper in Science reviews the literature on calorie restriction and also offers some evidence that less restrictive regimes such as intermittent fasting may have similar effects.
First on calorie restriction. As noted, we have data on mice and primates showing increased lifespan and we also have data on humans showing the same physiological improvements as seen in other species:
In humans, short-term trials such as the multicenter CALERIE (Comprehensive Assessment of Long-Term Effects of Reducing Intake of Energy) study (26–29), the observational studies of centenarians residing in Okinawa who have been exposed to CR for most of their lives (30), and observations of the members of the Calorie Restriction Society (CRONies) who self-impose CR (31) have shown the occurrence of many of the same physiological, metabolic, and molecular benefits typically associated with long-lived animals on CR. These studies support the observation that long-term CR preserves a more youthful functionality by improving several markers of health, including decreases in body weight, metabolic rate, and oxidative damage (14); lower incidence of cardiovascular disease (31) and cancer; and decreased activity of the insulin-Akt-FOXO signaling pathway (32, 33).
Although these findings clearly indicate that a reduction of caloric intake could be an effective intervention to improve health and prevent disease during aging in humans, there are several obstacles [including safety concerns and lack of data in older popualtions] and…The current “obesogenic” social environment makes it difficult for individuals to adhere to strict dietary regimens and lifestyle modifications for long periods of time. Thus, there is interest in alternative feeding regimens that may recapitulate at least some of the beneficial effects of CR by controlling feeding-fasting patterns with little or no reduction in caloric intake.
So what else works? Three regimes have shown promise. 1) Time Restricted Feeding (TRF), i.e. limiting eating time to a 4-12 period during the day and preferably earlier in the day, 2) Intermittent Fasting (IF)–say a 24-hour period of 1/4 calorie consumption once or twice a week and 3) a Fasting Mimicking Diet (FMD) in which calories are restricted to 30% of normal with a higher proportion coming from fat and doing this for five days periodically, i.e. once a month to once very couple of months. The diagram presents the main results and evidence.
Milton’s Own Maple Sugar
More here.
Artificial Intelligence is Alien Intelligence
Imagine if an alien came to earth and told us some new scientific fact that no human had ever known. Artificial intelligence is starting to do just that. Computers and AI have long given us solutions to problems that humans could not have worked out for themselves but AI is going beyond optimization to tell us facts about the world that no one suspected. Eric Topol on twitter points us to a paper in Nature that used deep learning to analyze retinal images to predict heart disease–it’s long been known that this can be done which is one reason why ophthalmologists take a close look at your retinas when fitting lenses but not surprisingly the AI can see more than can ophthalmologists. What was surprising, however, was that the AI could also tell gender from retinal images, a fact no one had ever previously considered! As a summary notes:
…that information in a retinal image can be used for the prediction of a person’s gender is surprising and puzzling. This underscores the potential of artificial intelligence to revolutionize the way medicine is practiced and to help discover hidden associations.
Why We Can’t Have Nice Things–Elon Musk and the Subways
In New York it costs billions of dollar per mile to build new subways, a price far higher than anywhere else in the world. That’s one reason why Elon Musk’s The Boring Company has been anything but. Even if hyperloop technology doesn’t pan out, Musk’s goal of reducing tunneling costs by a factor of ten is laudable. The Boring Company purchased a tunnel boring machine in April of 2017 and incredibly has already completed a two-mile test-tunnel underneath Hawthorne, LA! Awesome, right? Well, some people just can’t be happy.
“[I]nvaders are coming from underground” proclaims Alana Semuels in a big story in The Atlantic. The title and splash page indicate the theme:
When Elon Musk Tunnels Under Your Home
The billionaire is drilling for futuristic transit under Los Angeles. He didn’t have to ask the neighbors first.
Billionaires are undermining your home. And democracy! Grab your pitchforks! Yet dig a little deeper underneath the lurid headline and the actual complaints are–dare I say it–boring.
I talked to a dozen people who live along the tunnel’s route, and most said they hadn’t witnessed any extra noise or traffic. But none had been informed ahead of time that a private company would be digging a tunnel beneath the street.
But what about all the displaced people?
As the tunnel neared completion, disruptions to the community increased. The company bought another building, this one on the corner of 120th Street and Prairie Avenue, for $2 million, according to public records, to allow for the extraction of tunneling equipment. Adrian Vega had run a cabinet business in that building for 18 years. When his landlord sold the building, the Boring Company came in and offered Vega’s company, Los Vegas Kitchen Cabinets and Doors, extra cash to get out in three months. Vega took the money, and asked for even more time from the Boring Company, which he was granted. But he couldn’t find another space; since moving in August, his business has been closed and his customers don’t know that he’s moved, he told me.
…Shunyaa Turner lives in a small house on 119th Place with his wife and two kids. He said that in the past year, they’ve had to battle more pests, such as raccoons, mice, skunks, and opossums, which they’ve never seen before. He isn’t sure if this is related to the digging; the Hawthorne airport has also been doing more construction as it gets busier, so the animals could have fled from there. He and his wife said they’ve also noticed more cracks in their impeccably maintained walkway.
…The initial document also claimed that the test tunnel would not involve digging under private property, but that, too, has changed—though the company has now bought all the private property it is tunneling underneath. The company has also closed a lane of Jack Northrop Avenue, a street on the other side of SpaceX headquarters
In the author’s own words:
Meanwhile, in Hawthorne, the company that promised its transit test projects would be completely unnoticeable by the community has since uprooted a small business, purchased a house, and closed a lane of traffic indefinitely.
The horror.
The whole framing of the piece is ass-backwards. Semuels is correct that:
[this] would have been unimaginable in a higher-income neighborhood. Indeed, when Musk tried to build another underground tunnel in a wealthier neighborhood in West L.A., residents quickly sued. The project got tied up in court, and [died].
In comparision:
The CEQA allows residents 35 days to push back against granted exemptions…in Hawthorne, the 35-day window passed with little fanfare.
But unfortunately Semuels takes the posh, lawsuit-loving, NIMBY crowd as the appropriate normative standard and any deviations from that as suspect and indicative of the power of billionaires to run roughshod over other people’s rights. Instead, the Boring Company, the Hawthorne city government, and the people of Hawthorne should be applauded for their sensible, forward-thinking, and optimistic approach to new ideas. Bravo to Hawthorne! Hawthorne: Where the future is being made!
I do give Semuels credit, however. She writes honestly so that one can see the real story behind the false frame and she even tips the audience to the correct (Straussian?) reading in her final clever paragraph.
Vega [the owner of the cabinet business who was paid to vacate] has nothing negative to say about the Boring Company—he just blames himself for agreeing to be out so quickly. Nothing like this had ever happened to him before, so he didn’t know what was fair. Nor did he know how hard it would be to set up a new store—the process of getting new city permits, he said, is a lengthy one, and he can’t find a way to cut through the red tape.
All Hail Chris Blattman
The very excellent Chris Blattman discusses his work in Medellin Colombia bringing criminal gangs into civil society.
All Hail Dalton Conley
Conley describes his early academic work as “lefty sociology.” His Ph.D. thesis was on the black-white wealth gap and he dedicated his early career to studying the transmission of health and wealth between parents and children.
At N.Y.U., Conley kept getting into disagreements with geneticists, arguing that their methods were dangerously naïve. It seemed to him implausible that studying only twins — the gold standard of genetics research — was enough to teach us the difference between nature and nurture. But over time, he decided that it wasn’t enough to just argue. Conley is an academic, and even within that tortured group he is something of a masochist. At that time he was a tenured professor, the kind of gig most people see as the endgame of an academic career, and yet he decided to go back and grind out another Ph.D., this time in genetics. He went into his program believing that our social environment is largely the cause of our outcomes, and that biology is usually the dependent variable. By the end of his time, he says, the causal arrow in his mind had pretty much flipped the other way: “I tried to show for a range of outcomes that the genetic models were overstating the impact of genetics because of their crazy assumptions.” He sighs. “But I ended up showing that they’re right.”
From the New York Times piece on Geno-Economics (Tyler linked to it yesterday also).
Coasean Skies
Air taxis and delivery drones may soon make the airspace between 200 and 5000 feet above ground level much more valuable. How is this airspace to be regulated? In a very good new paper Brent Skorup draws on Coase, Demsetz, and Ostrom and the law, economics and history of regulated commons to suggest new approaches.
[T]he technological shock—the commercialization of air taxis—will create novel urban airspace scarcity and collective action conflicts. When intended uses conflict, how should airspace be allocated? This is an old problem: the transformation of a common-pool resource in the face of intensive new uses for that resource.
…For traditional aviation, air traffic management is centralized and relies on complex collaboration between airlines, the general aviation industry, air traffic controllers, and regulators. Aircraft routes, payload, slot fees, airport locations, billing, and safe separation between aircraft are all highly regulated components of this interconnected system. Massive economic distortions result from the regulated rationing of airspace and terminal access. Low-altitude airspace (i.e.,200 feet to 5000 feet above ground level) offers a relatively blank slate to explore new models for air transport and to avoid command-and-control mistakes made in the past in aviation.
…Section IV introduces a different idea: that the FAA instead delimit geographic tracts of low-altitude airspace and assign exclusive use licenses to those tracts via auction for a term of years. Flight path, speed, terminal locations, aircraft size, UTM technologies, and pricing choices would largely be delegated to the tract licensees. Finally, Section V explains why this approach, which draws on real-world examples from spectrum auctions and other federal asset markets, may offer more competitive UTMs and dynamic efficiencies for low-altitude air transit. This auction approach also allows aviation regulators to focus less on scientific management of airspace and UTM interoperability and more on aircraft safety, dangerous weather, and inspections.
Blockchains in Space! Revisited
Last week I titled a post, Blockchains in Space!, as a satirical comment on blockchain mania. Obviously, I forgot the new rule that satire is no longer possible.
SpaceChain’s blockchain node has been launched into space on Oct 25, 2018. In the map below, you can track its movements to see exactly where it is in orbit.
The SpaceChain FAQ also provides a good example of a kind of doublethink that is very common in the blockchain world:
What is the difference between having a blockchain on Earth as opposed to in space?
Blockchain technology is hosted on centralized servers on Earth and are vulnerable to hacking. One way to prevent this issue is to get these platforms on a decentralized network such as SpaceChain’s blockchain-based network of satellites. Blockchain technology in space will be safer from other vulnerabilities such as internet kill switches or governments that are against the technology. In addition, blockchain technology in space will prove as a great use case for supply chains especially since there are certain places on Earth that are outside of coverage zones such as oceans, deserts and forests. These satellites will be able to track, monitor and scan these dead zones.How do you ensure legal compliance with regulatory bodies in various countries?
We have a legal team to ensure full compliance. We also have team members and partners in China, Israel, Singapore and the US who work with local governing bodies to ensure that we are fully compliant with local regulations.
Ironically, I’m bullish on blockchain (I advise several firms in the space) but it would be nice to see real products with real customers before we start putting blockchains in space.
Spain Debates Whether Left Hand or Right Hand Should Pay Tax
Spain is currently embroiled in tremendous debate over who should pay the AJD tax, a tax on the creation of a mortgage. Should the buyers (consumers) or the sellers of the mortgage (the banks) pay the tax? The Supreme Court, the President, and the legislature have all stepped in.
At the beginning of this year, the civil division of Supreme Court clearly ruled that the tax on mortgages should be paid by consumers and not banks. However, on the 18th of October the Contentious-Administrative division pronounced the other way, that banks should pay. So two divisions of different jurisdictions of the Supreme Court (civil and administrative) have issued conflicting sentences producing a legal mess…
that was the situation as of October 24. But then on Tuesday:
The Spanish Supreme Court has done a U-turn again: it is the clients who must pay for a controversial mortgage tax, and not the banks
…The decision was reached on Tuesday evening in the Administrative Division of the Supreme Court after two days of intense debate, and with just two votes of difference: 15 justices were in favor of making the client pay the levy, and 13 voted to confirm a groundbreaking decision reached by this same court in mid-October that it should be the banks who pick up the tab.
Leaders are up in arms and street protests are threatened:
Leaders of the anti-austerity Podemos party have already announced protests over a decision that “calls into question” the court’s independence and undermines democracy, in the words of party leader Pablo Iglesias. …Alberto Garzón, head of the United Left coalition, went even further: “Private banks are thieves, they are the main enemy of democracy and they are responsible for gutting our economies. A majority of the Supreme Court sides with them, ratifying that justice has a price and that the system is rotten and spent,” he tweeted.
Under pressure, the socialist Prime Minister announced “a Royal Decree would be approved ‘so that Spaniards will never pay this tax again’,” and the Prime Minister pledged that the new law would be in place by Friday!
What’s amazing is that the Spanish uproar is over a decision that Econ 101 says does not make a whit’s worth of difference to anything of importance. Whether the buyers send the check to the government or the sellers does not change the true incidence of the tax. As Tyler and I say in Modern Principles, “Who pays the tax does not depend on the laws of Congress but on the laws of supply and demand.” The tax simply drives a wedge between what the buyers pay and what the seller receives. Since sellers typically post prices, when the sellers must send the check the posted price will include the tax but the price the sellers receive will be the posted price minus the tax. If buyers must send the check to the government the posted price will not include the tax but the buyers will have to pay the posted price plus the tax. Either way, the seller, buyer, and government all end up net the same amount. It’s little different than debating whether the right or left hand must pay the tax. See Tyler in the video below for the diagram and further details.
Thus, the whole Spanish imbroglio has been caused by a failure to understand Econ 101.
Addendum: Bank shares fluctuated as the tax jumped back and forth which might suggest non-neutrality but that is because an earlier proposal would have had the banks pay consumers “back” for taxes the consumers paid years ago. A retroactive tax would indeed be bad for banks because while the tax would be retroactive the price would not. Going forward, however, the price adjusts with the placement of the tax so there is little beyond convenience and transaction cost to prefer one system to the other. In fact, once it was established that the tax would not be retroactive, bank share prices recovered.
Hat tip: Mauricio Drelichman.