Category: Current Affairs

Maciej Cegłowski on gdpr

The plain language of the GDPR is so plainly at odds with the business model of surveillance advertising that contorting the real-time ad brokerages into something resembling compliance has required acrobatics that have left essentially everybody unhappy.

The leading ad networks in the European Union have chosen to respond to the GDPR by stitching together a sort of Frankenstein’s monster of consent,a mechanism whereby a user wishing to visit, say, a weather forecast page 4 is first prompted to agree to share data with a consortium of 119 entities, including the aptly named “A Million Ads”network. The user can scroll through this list of intermediaries one by one, or give or withhold consent en bloc, but either way she must wait a further two minutes for the consent collection process to terminate before she is allowed to find out whether or it is going to rain.

This majestically baroque consent mechanism also hinders Europeans from using the privacy preserving features built into their web browsers, or from turning off invasive tracking technologies like third-party cookies,since the mechanism depends on their being present.

For the average EU citizen,therefore, the immediate effect of the GDPR has been to add friction to their internet browsing experience along the lines of the infamous 2011 EU Privacy Directive (“EU cookie law”) that added consent dialogs to nearly every site on the internet.

The GDPR roll out has also demonstrated to what extent the European ad market depends on Google, who has assumed the role of de facto technical regulatory authority due to its overwhelming market share. Google waited until the night before the regulation went into effect to announce its intentions, leaving ad networks scrambling.

It is significant that Google and Facebook also took advantage of the US-EU privacy shield to move 1.5billion non-EU user records out of EU jurisdiction to servers in the United States. Overall, the GDPR has significantly strengthened Facebook and Google at the expense of smaller players in the surveillance economy.

The data protection provisions of the GDPR, particularly the right to erase, imposed significant compliance costs on internet companies. In some cases,these compliance costs just show the legislation working as intended. Companies who were not keeping adequate track of personal data were forced to retrofit costly controls, and that date is now safer for it.

But in other cases, companies with a strong commitment to privacy also found themselves expending significant resources on retooling. Personally identifying information has a way of seeping into odd corners of computer systems (for example, users will sometimes accidentally paste their password into a search box), and tracking down all of these special cases can be challenging in a complex system.The requirements around erasure, particularly as they interact with backups, also impose a special burden, as most computer systems are designed with a bias to never losing data,rather than making it easy to expunge.

Here is the full Senate testimony, there are many interesting points in the piece.  I thank an MR reader for the pointer.

Shipping the good economists out?

How many of you even get that reference these days?  Here is the latest from DOA, from Liz Crampton at Politico:

The Agriculture Department is moving nearly all its researchers into the economic effects of climate change, trade policy and food stamps – subjects of controversial Trump administration initiatives – outside of Washington, part of what employees claim is a political crackdown on economists whose assessments have raised questions about the president’s policies.

Since last year, employees in the department’s Economic Research Service have awaited news of which members of their agency would be forced to relocate, after Agriculture Secretary Sonny Perdue stunned them by declaring he was moving most of the agency to a location outside the capital. The announcement sparked claims that Perdue was trying to pressure economists into leaving the agency rather than move their families.

On March 5, the department began notifying people who were allowed to stay in Washington, but didn’t provide a comprehensive list, only telling employees in person if they made the cut.

But current and former employees compiled one anyway, covering all 279 people on staff, 76 of whom are being allowed to stay in Washington…

A USDA spokesman declined to directly address the employees’ allegation of political bias, but provided a written statement from Perdue saying that the moves were not prompted by the work being done by ERS.

In general I am reluctant to post this kind of report, because I find it difficult to know what is truly going on here, so do read this with an open mind.  Still, it seemed newsworthy.

I thank John Chamberlin for the pointer.

State and local policy is the real immigration policy

That is the central claim of my latest Bloomberg column, here is one excerpt:

State and local governments are making immigration policy all the time, mostly for the worse, and often Democrats are more restrictionist than Republicans.

Obviously the law can deter potential illegal migrants from entering the U.S. But so can the high cost of living. Even though there are much higher wages in the U.S. than in its neighbors to the South, a lot of those higher wages are eaten up by much higher rents — especially if the immigrant moves to a major city, as is often the case. I once wrote a book based on fieldwork in rural Mexico, and I found that, for those who had migrated temporarily to the U.S., high rent was typically their biggest complaint. It therefore follows that policies which raise rents tend to discourage immigrants, particularly poorer immigrants.

And:

The minimum wage is another tool of anti-immigration policy, at least for less skilled immigrants. Say a city sets a minimum wage of $15 an hour. That means a potential migrant whose work is worth only $12 an hour won’t be able to get a legal job in that city. That will deter migration, both legal and illegal. Furthermore, a worker in, say, Honduras may not find it possible to improve his or her skills to be worth $15 an hour, at least not without arriving in the U.S.

Incentives matter, installment #1437

A US jury has found that a former Uber driver living in Virginia committed acts of torture during Somalia’s civil war in the late 1980s.

Somali citizen Farhan Tani Warfaa testified last week in the Washington DC suburbs that ex-Somali colonel Yusuf Abdi Ali shot and tortured him.

Ali was a commander in the national army and supporter of dictator Mohamed Siad Barre, say court documents.

Until this month, Ali drove for Uber, with a high 4.89 rating.

Here is the full story by Holly Honderich, via Ian Bremmer.

My Conversation with Ezekiel Emanuel

Very much a fun one, here is the audio and transcript, here is part of the opening summary:

Do we overrate the importance of doctors? What’s the importance of IQ versus EQ in the practice of medicine? What are the prospect for venture capital in biotech? How should medical training be changed? Why does he think the conventional wisdom about a problem tends to be wrong? Would immortality be boring? What would happen if we let parents genetically engineer their kids?

Tyler questions Emanuel on these topics and more, including the smartest thing his parents did while raising him, whether we have right to medical self-defense, healthcare in low- versus high-trust institutions, and much more.

Here is one excerpt:

COWEN: How can we improve medical education?

EMANUEL: Cut it down. Make it shorter.

COWEN: Cut it down? Why does that make it better? Or does it just make it cheaper?

EMANUEL: No, I think it will make it better. So, we have a lot of memorization, a lot of . . . So, let’s go back to the start. The four years of medical school: two years of preclinical in the classroom learning about biochemistry, genetics, anatomy, microbiology; and the two years of clinical time in the hospital, on the wards.

That dates from 1910. We haven’t really updated it much, except in this one way: we’ve cut down the preclinical time because — less of it — and it changes so fast, by the time you learn it in medical school, get out as a doctor, it’s out of date, A; and B, it’s more or less irrelevant to managing most patients…

And then, by the way, in med school, spending your time in a hospital is not the future. The future of American medicine is out of the hospital. So we need more rotations, more experiences for students out of the hospital.

No med school has made that big shift, and those are the shifts that are going to have to happen over the next 15 or so years.

And:

COWEN: Is there a right to medical self-defense that should override FDA bans on drugs and medical devices? I want to try something that’s not approved —

EMANUEL: No. I don’t like that.

COWEN: I’m saying it’s my body. But why don’t you like it?

EMANUEL: No, no, no, no, no, no, no, no, no, Tyler.

Finally:

COWEN: Now, you’ve written a much-misunderstood article about how hard you would try yourself to live past the age of 75. Would not the suspense of world and national history always keep you wanting a bit more extra time?

So, say I’m 75. I’ve decided I agree with you, but the NBA Finals aren’t over yet. I want to see game seven. I want the Mueller report to come out. Isn’t there always something?

And then, it’s kind of intransitivity of indifference. Every day there’s something, and you just keep on hanging on, even if one accepts your arguments in the abstract. Can you talk me out of that?

EMANUEL: No, no, Tyler, I think you’re exactly right. That’s why people do hang on. It’s because . . . you know, so I talked to my father, who — he says, “Zeke, you’re absolutely right. I’ve become slower, physically slower, mentally slower. My life” . . . what ends up happening is your life cones down, and you begin to overvalue certain small things. Like the NBA Finals. Like what’s in the Mueller report.

We all know, from any cosmic standpoint — even not a cosmic standpoint, just a 2,000-foot standpoint — most of those things are not irrelevant. It’s really cool to know.

You often ask — and this happens to me all the time. I teach undergraduates. Pretty smart undergraduates. Very smart undergraduates. MBA students, nurses, doctors, right? They have no understanding of history. So, whoever finishes in the NBA Finals, in five years, people have forgotten.

Recommended, interesting throughout.

The recent political revolution is a major shift toward the right

And when I say recent, I mean in the last few weeks.  That is the topic of my recent Bloomberg column, here is one bit:

The populist “New Right” isn’t going away anytime soon, and the rise of the “New Left” is exaggerated.

Start with Australia, where Prime Minister Scott Morrison won a surprising victory last week. Before the election, polls had almost uniformly indicated that his Liberal-National Coalition would have to step down, but voters were of another mind. With their support of Morrison, an evangelical Christian who has expressed support for President Donald Trump, Australians also showed a relative lack of interest in doing more about climate change. And this result is no fluke of low turnout: Due to compulsory voting, most Australians do turn out for elections.

Hard Brexit is alive and well, the European Parliament elections later this week could be a disaster, and Modi seems to be on the upswing in the Indian election.  But perhaps most importantly there is this:

One scarcely noticed factor in all of this has been the rising perception of China as a threat to Western interests. The American public is very aware that the U.S. is now in a trade war with China, a conflict that is likely to provoke an increase in nationalism. That is a sentiment that has not historically been very helpful to left-wing movements. China has been one of Trump’s signature causes for years, and he seems to be delighting in having it on center stage.

The Democratic Party is not well-positioned to make China a core issue. Democrats have been criticizing Trump’s tariffs for a while now, and it may be hard for them to adjust their message from “Tariffs Are Bad” to “Tariffs Are Bad But China Tariffs Are OK.” Their lukewarm support for free trade agreements — especially the Trans Pacific Partnership, which could have served as a kind of alternative China trade policy — also complicates matters. The net result is that Republicans will probably be able to use the China issue to their advantage for years to come.

Nor did Obama stand up to China on the militarization of the South China Sea.  Do read the whole thing.

Anarchy is Worse than Socialism

Socialism is bad. I need no convincing. But the collapse of Venezuela is much worse than anyone would have predicted from socialism alone:

NYTimes: ….the drop in Venezuela’s economic output under Mr. Maduro has undergone the steepest decline by any country not at war since at least 1975.

By year’s end, Venezuela’s gross domestic product will have shrunk by 62 percent since the beginning of the recession in 2013.

Venezuela has lost a tenth of its population in the past two years as people fled, even trekking across mountains, setting off Latin America’s biggest ever refugee crisis.

Venezuela’s hyperinflation, expected to reach 10 million percent this year according to the I.M.F., is on track to become the longest period of runaway price rises since that in the Democratic Republic of Congo in the 1990s.

“This is essentially a total collapse in consumption,” said Sergi Lanau, deputy chief economist at the Institute of International Finance…

So what is causing the tremendous drop in economic activity? Ironically, it’s not too much government but too little. Outside of the capital, the government has practically abandoned its most basic responsibility of providing law and order. The result has been widespread looting. Ordinary theft is about stealing money or valuable “final” goods like diamonds or art works. In theory, the thief receives more or less what the owner loses. Looting, however, is a special kind of theft. Looting is theft plus destruction. The person who steals a candy bar is a thief. The person who breaks a store front window and steals a candy bar is a looter. Looters destroy intermediate goods and infrastructure and gain far less than owners lose. Looting is the worst kind of theft.

He said he lost his job at a hotel when looters ransacked it in March, ripping out even window frames and cable wiring. He now collects wild plums to sell for a few cents in the city’s parks. Most of his community’s diet now consists of wild fruits, fried corn pastries and bone broth, residents said.

Farther from the state capital, conditions are worse.

…The four stone quarries that are the island’s only industry have been idle since robbers stole all power cables connecting them to the grid last year. Local opposition activists estimate up to a third of the residents have emigrated from the island in the past two years.

“It used to be a paradise,” said Arturo Flores, the local municipality’s security coordinator, who sells a fermented corn drink from a bucket to local fishermen to round up his salary, which is equivalent to $4 a month. “Now, everyone is fleeing.”

On the other side of Zulia state, in the ranching town of Machiques, the economic collapse has decimated the meat and dairy industries that had supplied the country.

Power cuts have idled the local slaughterhouse, once one of the largest in Latin America. Armed gangs extort and rustle cattle from the surviving ranchers.

“You can’t produce if there’s no law,” said Rómulo Romero, a local rancher.

…“There’s no local, regional or national government here,” said José Espina, a motorbike taxi driver there. “We’re on our own.”

To say that socialism is better than anarchy is not to defend the rotten Chavez-Maduro regime. Instead I am pointing to the relevance of Mancur’s Olson’s model of the roving and stationary bandit. Olson explained why roving bandits evolve into stationary bandits:

Under anarchy, uncoordinated competitive theft by “roving bandits” destroys the incentive to invest and produce, leaving little for either the population or the bandits. Both can be better off if a bandit sets himself up as a dictator-a “stationary bandit” who monopolizes and rationalizes theft in the form of taxes. A secure autocrat has an encompassing interest in his domain that leads him to provide a peaceful order and other public goods that increase productivity.

The process is working in reverse in Venezuela. In Venezuela, the stationary bandit regime is collapsing and it is being replaced by a regime of roving bandits.

The incentives Olson identifies will eventually result in a new stationary bandit or, if Venezuela is lucky, maybe even less banditry and better institutions. The process is already underway. Consider this:

Local shopkeepers have pulled together to repair power lines and keep telecom towers running, to feed public workers, and to procure diesel for backup generators.

“We have practically taken on the functions of the state,” said Juan Carlos Perrota, a butcher who runs Machiques’ chamber of commerce.

Local shopkeepers are repairing power lines, feeding public workers and taking over the power of the state. Awesome! ¡Viva la maquinaria de la libertad!

The process of rebuilding governance, however, is slow and the destruction of wealth and human life costly. Indeed, it’s a surprise that Venezuela has gone so far down this path. Stationary bandits are usually replaced by other stationary bandits. Juan Guaidó seems far superior to Maduro on every score but the real puzzle is how Maduro has held off the generals even as anarchy looms. Don’t the generals see that that the goose is dying?

Harvard and Ronald Sullivan, why Harvard was basically right

I hope your head doesn’t explode, but it seems to me that Harvard and Matt Yglesias are right about the dismissal of Sullivan from his Winthrop House post at Harvard.  Matt explains:

Sullivan isn’t a public defender who’s simply taking the clients assigned to him. He’s not even a full-time criminal defense lawyer who just takes whichever clients happen to come through his door. He’s a busy guy who has classes to teach, a dorm to administer, and various other demands on his time. While it’s obviously true that all criminal defendants have a right to an attorney, it’s equally obvious that criminal defendants don’t have a particular right to Ronald Sullivan’s services.

Now, I don’t doubt that Harvard may have acted for what in part are the wrong reasons, namely asymmetric treatment of left-and right wing causes and cases.  Still, it seems reasonable to me that Harvard insists that its faculty dorm administrators face a minimum of outside distractions, especially controversial distractions, without having to judge whose fault is the controversy (Sullivan’s fault? Harvard’s fault? the fault of the possibly “snowflaky” students?).  Maybe Harvard would have been unfair and inconsistent had another, non-Weinstein defendant been involved, still that does not make Sullivan’s dismissal the wrong decision.

On top of that, having “snowflake” students in the dorm is still a reason to make Sullivan choose either the dorm or the legal case — complainers don’t always have to be correct for their wishes to have some validity.  It really is about helping students focus on their studies, and sometimes that might mean removing distractions which distract for maybe not entirely rational reasons.  Furthermore, in this case maybe the distraction was rational to some extent (I genuinely do not know on that one as I do not have direct information, Matt thinks yes but in my view leaps to quickly to that conclusion).

Let’s say I hired a TA for my Econ 101 class, and then I learned that TA would be defending Edward Snowden in his or her spare time.  Probably I would ask for another TA!  And that has nothing to do with my view of Snowden, one way or the other, or whether my students have rational views of Snowden or not (I genuinely do not know if they do).

With the Sullivan/Weinstein episode, it is not difficult to imagine the media becoming “too interested” in Winthrop House and Sullivan’s role, for media-prurient reasons, and to the detriment of student focus.  It is not crazy for Harvard to choke this off before it gets started, with no animus required toward Sullivan or any particular defendant.

Note also this from Matt:

At least some of the heat around this topic stems from a measure of confusion among the general public as to what the job of faculty dean amounts to. It sounds like a lofty academic post but actually is closer to being a kind of glorified RA — though even this is arguably an overstatement of the role.

Overall, I don’t think this is the right cause for free speech advocates, opponents of PC in universities, etc.  It seems to me like a private institution making an entirely defensible governance decision, on a matter which does quite genuinely fall under its governance purview.

Don’t relax about nuclear war

That is the theme of my latest Bloomberg column, here is one bit:

Each generation has its own form of recency bias, as it is called in behavioral economics. Just after Sept. 11, for example, there was great concern about follow-up attacks. (Thankfully, nothing comparable followed.) Now we worry a lot — maybe too much — about insolvent banks, insufficiently high inflation, and the Chinese shock to U.S. manufacturing.

So what about nuclear war? Looking forward, the reality is that the risks of such a war are quite small in any particular year. But let the clock run and enough years pass, and a nuclear exchange of some kind becomes pretty likely.

I have found that people with a background in financial market trading are best equipped to understand the risks of nuclear war. An analogy might be helpful: Say you write a deeply out-of-the-money put, without an offsetting hedge. This is in fact a very risky action, though almost all of the time you will get away with it. When you don’t, however — when market prices move against you — you can lose all of your wealth quite suddenly.

In other words: Sooner or later the unexpected will come to pass.

And:

Meanwhile, a generation of hypersonic delivery systems, being developed by China, Russia and the U.S., will shorten the response time available to political and military leaders to minutes. That raises the risk of a false signal turning into a decision to retaliate, or it may induce a nation to think that a successful first strike is possible. Remember, it’s not enough for the principle of mutual assured destruction to be generally true; it has to be always true.

Do read the whole thing, which includes a discussion of Steven Pinker as well.

Who loses most from the U.S.-China trade war?

You are hearing claims, hints, implications, or outright statements that the full burden of the trade war is falling on American consumers.  (Maybe some of the commentators are too wrapped up in the “Trump’s action have no merits whatsoever” game?)  I strongly believe that is wrong, as outlined in my latest Bloomberg column.  Here is one bit:

…there are well-done studies showing that the recent tariffs have translated into higher prices for U.S. consumers. I am not contesting that research. The question is whether those studies give sufficient weight to all relevant variables for the longer run.

To see why the full picture is more complicated, let’s say the U.S. slaps tariffs on the industrial inputs (whether materials or labor) it is buying from China. It is easy to see the immediate chain of higher costs for the U.S. businesses translating into higher prices for U.S. consumers, and that is what the afore-mentioned studies are picking up. But keep in mind China won’t be supplying those inputs forever, especially if the tariffs remain. Within a few years, a country such as Vietnam will provide the same products, perhaps at cheaper prices, because Vietnam has lower wages. So the costs to U.S. consumers are temporary, but the lost business in China will be permanent. Furthermore, the medium-term adjustment will have the effect of making China’s main competitors better exporters.

And:

China has an industrial policy whose goal is to be competitive in these [branded goods] and other areas. Tariffs will limit profits for these companies and prevent Chinese products from achieving full economies of scale. So this preemptive tariff strike will hurt the Chinese economy in the future, even if it doesn’t yet show up in the numbers.

Most generally:

In my numerous visits to China, I’ve found that the Chinese think of themselves as much more vulnerable than Americans to a trade war. I think they are basically correct, mostly because China is a much poorer country with more fragile political institutions.

I should note that I am not trying to defend Trump in this column, rather we need to get the economics right if we are to understand what is going on and why America can exert any pressure at all.  On Twitter, Christopher Balding is one who is getting these matters right.

Returning to the bigger picture, to the extent you wish to criticize Trump’s policies, focus on what China may do as a result of its vulnerability, not America’s supposed lack of bargaining power in the struggle.

Britain’s regional divide is smaller than you might think

In London, the median household has a disposable income before housing costs that is only 21 per cent higher than the weakest area, which is in the north-east England. After paying a lot for very small homes, Londoners have no higher incomes than the UK average. Most inequality occurs within regions not among them — the Institute for Fiscal Studies says that if average regional income differences were eradicated, 95 per cent of UK income inequality would still exist.

That is from Chris Giles at the FT.

Bhutan’s prime minister spends his weekends as a surgeon

Take that Adam Smith!:

Dr Lotay Tshering was one of Bhutan’s most highly regarded doctors before he entered politics last year, and while his prime ministerial duties occupy him during the week, on weekends he returns to the hospital as a way to let off steam.

“Some people play golf, some do archery, and I like to operate,” Tshering told AFP as he tended to patients one Saturday morning at Jigme Dorji Wangchuck national referral hospital, describing his moonlighting medical work as a “de-stresser”.

“I will continue doing this until I die and I miss not being able to be here every day,” he added. “Whenever I drive to work on weekdays, I wish I could turn left towards the hospital.”

Far from finding the two roles hard to juggle, Tshering said he had found that there was unexpected crossover between prime minister and surgeon. “At the hospital I scan and treat patients. In the government, I scan the health of policies and try to make them better,” he said. He has also put healthcare reform at the heart of his political agenda.

Here is the full story, via Anecdotal.

Price Regulation in Credit Markets

From Cuesta and Sepulveda’s Price Regulation in Credit Markets: A Trade-off between Consumer Protection and Credit Access.

Interest rate caps are widespread in consumer credit markets, yet there is limited evidence on its effects on market outcomes and welfare. Conceptually, the effects of
interest rate caps are ambiguous and depend on a trade-off between consumer protection from banks’ market power and reductions in credit access. We exploit a policy in Chile that lowered interest rate caps by 20 percentage points to understand its impacts. Using comprehensive individual-level administrative data, we document that the policy decreased transacted interest rates by 9%, but also reduced the number of loans by 19%. To estimate the welfare effects of this policy, we develop and estimate a model of loan applications, pricing, and repayment of loans. Consumer surplus decreases by an equivalent of 3.5% of average income, with larger losses for risky borrowers. Survey evidence suggests these welfare effects may be driven by decreased consumption smoothing and increased financial distress. Interest rate caps provide greater consumer protection in more concentrated markets, but welfare effects are negative even under a monopoly. Risk-based regulation reduces the adverse effects of interest rate caps, but does not eliminate them.

Hat tip: Matt Notowidigdo.