Category: Economics

A Win for Justice

Congratulations to the Institute for Justice for an important victory against the abuse of civil asset forfeiture:

Today, the Institute for Justice dismantled one of the nation’s largest and most egregious civil forfeiture programs.  For decades, Philadelphia’s forfeiture machine terrorized its citizens:  throwing them out of their homes without notice, seizing their cars and other property, and forcing victims to navigate a rigged kangaroo court system to have any chance of getting their property back.  And the property and money forfeited was then given to the very officials who were supposed to be fairly enforcing the law.
After four long years of litigation, IJ cemented a victory for all Philadelphians this morning with two binding consent decrees in which city officials agreed to reforms that:
    1.  Sharply limit when Philadelphia law enforcement can forfeit property;
    2.  Prevent law enforcement from keeping what they seize;
    3.  Establish robust protections for the due process rights of citizens; and
    4.  Create a $3 million fund to compensate innocent people who were ensnared by the city’s abusive system.
My paper, To Serve and Collect (with Makowsky and Stratmann) suggests that this victory will not only reduce civil asset forfeiture it will also change police behavior and decision-making, altering the number, type, and racial composition of arrests.

The rant against Amazon and the rant for Amazon

Wow! It’s unbelievable how hard you are working to deny that monopsony and monopoly type market concentration is causing all all these issues. Do you think it’s easy to compete with Amazon? Think about all the industries amazon just thought about entering and what that did to the share price of incumbents. Do you think Amazon doesn’t use its market clout and brand name to pay people less? Don’t the use the same to extract incentives from politicians? Corporate profits are at record highs as a percent of the economy, how is that maintained? What is your motivation for closing your eyes and denying consolidation? It doesn’t seem that you are being logical.

That is from a Steven Wolf, from the comments.  You might levy some justified complaints about Amazon, but this passage packs a remarkable number of fallacies into a very small space.

First, monopsony and monopoly tend to have contrasting or opposite effects.  To the extent Amazon is a monopsony, that leads to higher output and lower prices.

Second, if Amazon is knocking out incumbents that may very well be good for consumers.  Consumers want to see companies that are hard for others to compete with.  Otherwise, they are just getting more of the same.

Third, if you consider markets product line by product line, there are very few sectors where Amazon would appear to have much market power, or a very large share of the overall market for that good or service.

Fourth, Amazon is relatively strong in the book market.  Yet if a book is $28 in a regular store, you probably can buy it for $17 on Amazon, or for cheaper yet used, through Amazon.

Fifth, Amazon takes market share from many incumbents (nationwide) but it does not in general “knock out” the labor market infrastructure in most regions.  That means Amazon hire labor by paying it more or otherwise offering better working conditions, however much you might wish to complain about them.

Sixth, if you adjust for the nature of intangible capital, and the difference between economic and accounting profit, it is not clear corporate profits have been so remarkably high as of late.

Seventh, if Amazon “extracts” lower taxes and an improved Metro system from the DC area, in return for coming here, that is a net Pareto improvement or in any case at least not obviously objectionable.

Eighth, I did not see the word “ecosystem” in that comment, but Amazon has done a good deal to improve logistics and also cloud computing, to the benefit of many other producers and ultimately consumers.  Book authors will just have to live with the new world Amazon has created for them.

And then there is Rana Foroohar:

“If Amazon can see your bank data and assets, [what is to stop them from] selling you a loan at the maximum price they know you are able to pay?” Professor Omarova asks.

How about the fact that you are able to borrow the money somewhere else?

Addendum: A more interesting criticism of Amazon, which you hardly ever hear, is the notion that they are sufficiently dominant in cloud computing that a collapse/sabotage of their presence in that market could be a national security issue.  Still, it is not clear what other arrangement could be safer.

Tax salience and the new Trump tariffs

That is the topic of my latest Bloomberg column.  Here is one excerpt:

…tariffs distort consumer decisions more than sales taxes do. It may well be true that consumers don’t notice tariffs as such. But they respond by buying less, lowering their well-being and also possibly lowering GDP and employment.

It gets worse yet. President Donald Trump’s tariffs typically are applied to intermediate goods coming from China, such as circuit boards and LCD screens. The end result is more expensive computers at the retail level. But most consumers see only the higher price for computers. They probably don’t know which intermediate goods Trump put the tariffs on, and for that matter many U.S. consumers probably don’t even know what circuit boards are, much less where they come from.

The end result is that the tariffs are somewhat invisible, or at least they are invisible as tariffs. It’s highly unlikely there will be mass protests against a 10 percent tariff on circuit boards. No one will get “circuit board tariff charge” bill in the mail, as they might with their property taxes, and unlike gasoline, people don’t buy computers very often.

Most generally, it can be said that the new Trump policy makes the high prices salient, but the underlying tariffs not very salient at all. This is the worst possible scenario. The higher prices will reduce consumption and output, yet the invisibility of the tariffs will limit voter pushback.

Do read the whole thing.

Ain’t no $20 bills on this Cambridge sidewalk…not any more…

An art installation made up of £1,000 worth of penny coins left in a disused fountain disappeared in just over one day.

The 100,000 pennies were placed in the fountain at Quayside in Cambridge at 08:00 BST on Saturday and were due to be left for 48 hours.

All of the coins were gone by 09:00 BST on Sunday, but the In Your Way project is not treating it as theft.

Artistic director Daniel Pitt said it was “a provocative outcome”.

The work, which used money from an Arts Council England lottery grant, was one of five pieces staged across the city over the weekend.

Cambridge-based artist Anna Brownsted said her fountain piece “was an invitation to respond, a provocation”.

Here is the full story, via Adam, S. Kazan.

Do Boys Have a Comparative Advantage in Math and Science?

Even with a question mark my title, Do Boys Have a Comparative Advantage in Math and Science, is likely to appear sexist. Am I suggesting the boys are better at math and science than girls? No, I am suggesting they might be worse.

Consider first the so-called gender-equality paradox, namely the finding that countries with the highest levels of gender equality tend to have the lowest ratios of women to men in STEM education. Stoet and Geary put it well:

Finland excels in gender equality (World Economic Forum, 2015), its adolescent girls outperform boys in science literacy, and it ranks second in European educational performance (OECD, 2016b). With these high levels of educational performance and overall gender equality, Finland is poised to close the STEM gender gap. Yet, paradoxically, Finland has one of the world’s largest gender gaps in college degrees in STEM fields, and Norway and Sweden, also leading in gender-equality rankings, are not far behind (fewer than 25% of STEM graduates are women). We will show that this pattern extends throughout the world…

(Recent papers have found the paradox holds in other measures of education such as MOOCs and in other measures of behavior and personality. Hat tip on these: Rolf Degen.)

Two explanations for this apparent paradox have been offered. First, countries with greater gender equality tend to be richer and have larger welfare states than countries with less gender equality. As a result, less is riding on choice of career in the richer, gender-equal countries. Even if STEM fields pay more, we would expect small differences in personality that vary with gender would become more apparent as income increases. Paraphrasing John Adams, only in a rich country are people feel free to pursue their interests more than their needs. If women are somewhat less interested in STEM fields than men, then we would expect this difference to become more apparent as income increases.

A second explanation focuses on ability. Some people argue that more men than women have extraordinary ability levels in math and science because of greater male variability in most characteristics. Let’s put that hypothesis to the side. Instead, lets think about individuals and their relative abilities in reading, science and math–this what Stoet and Geary call an intra-individual score. Now consider the figure below which is based on PISA test data from approximately half a million students across many countries. On the left are raw scores (normalized). Focus on the colors, red is for reading, blue is science and green is mathematics. Negative scores (scores to the left of the vertical line) indicate that females scores higher than males, positive scores that males score higher on average than females. Females score higher than males in reading in every country surveyed. Females also score higher than males in science and math in some countries.

Now consider the data on the right. In this case, Stoet and Geary ask for each student what subject are they relatively best at and then they average by country. The differences by sex are now even even more prominent. Not only are females better at reading but even in countries where they are better at math and science than boys on average they are relatively better at reading.

Thus, even when girls outperformed boys in science, as was the case in Finland, girls generally performed even better in reading, which means that their individual strength was, unlike boys’ strength, reading.

Now consider what happens when students are told. Do what you are good at! Loosely speaking the situation will be something like this: females will say I got As in history and English and B’s in Science and Math, therefore, I should follow my strengthens and specialize in drawing on the same skills as history and English. Boys will say I got B’s in Science and Math and C’s in history and English, therefore, I should follow my strengths and do something involving Science and Math.

Note that this is consistent with the Card and Payne study of Canadian high school students that I disscused in my post, The Gender Gap in STEM is NOT What You Think. Quoting Card and Payne:

On average, females have about the same average grades in UP (“University Preparation”, AT) math and sciences courses as males, but higher grades in English/French and other qualifying courses that count toward the top 6 scores that determine their university rankings. This comparative advantage explains a substantial share of the gender difference in the probability of pursing a STEM major, conditional on being STEM ready at the end of high school.

and myself:

Put (too) simply the only men who are good enough to get into university are men who are good at STEM. Women are good enough to get into non-STEM and STEM fields. Thus, among university students, women dominate in the non-STEM fields and men survive in the STEM fields.

Finally Stoet and Geary show that the above considerations also explain the gender-equality paradox because the intra-individual differences are largest in the most gender equal countries. In the figure below on the left are the intra individual differences in science by gender which increase with gender equality. A higher score means that boys are more likely to have science as a relative strength (i.e. women may get absolutely better at everything with gender equality but the figure suggests that they get relatively better at reading) and on the right the share of women going into STEM fields which decreases with gender equality.

The male dominance in STEM fields is usually seen as due to a male advantage and a female disadvantage (whether genetic, cultural or otherwise). Stoet and Geary show that the result could instead be due to differences in relative advantage. Indeed, the theory of comparative advantage tells us that we could push this even further than Stoet and Geary. It could be the case, for example, that males are worse on average than females in all fields but they specialize in the field in which they are the least worst, namely science and math. In other words, boys could have an absolute disadvantage in all fields but a comparative advantage in math and science. I don’t claim that theory is true but it’s worth thinking about a pure case to understand how the same pattern can be interpreted in diametrically different ways.

Markets in everything

I am surprised issues of this kind have taken so long to surface:

Amazon is investigating claims that employees accepted bribes to disclose confidential data that would give sellers that use its marketplace a competitive advantage. The company confirmed the investigation following a report in the Wall Street Journal that Amazon employees, working through brokers, have sold internal sales data, the email addresses of product reviewers, and the ability to delete negative reviews and restore banned accounts. “We are conducting a thorough investigation of these claims,” an Amazon spokeswoman said.

These practices seem to be a particular problem in China, though not only.  Here is more from Shannon Bond at the FT.  Here is further coverage at Verge: “The WSJ also reports that it costs roughly $300 to take down a bad review, with brokers “[demanding] a five-review minimum” per transaction.”

The future of football, revisited

On one hand:

Ratings for regular-season games fell 17 percent over the past two years, according to Nielsen, and after one week of play in the new season, viewership has been flat. February marked the third-straight year of audience decline for the Super Bowl and the smallest audience since 2009. Youth participation in tackle football, meanwhile, has declined by nearly 22 percent since 2012 in the face of an emerging scientific consensus that the game destroys the brains of its players.

On the other hand, how many other focal experiences are left:

Yet even a middling franchise, the Carolina Panthers, sold in May for a league record  $2.3 billion. Advertisers spent a record $4.6 billion for spots during NFL games last season, as well as an all-time high $5.24 million per 30 seconds of Super Bowl time. The reason is clear: In 2017, 37 of the top 50 broadcasts on U.S. television were NFL games, including four of the top five.

The Green Bay Packers, the only NFL team that shares financial statements with the public, has posted revenue increases for 15 straight seasons. Leaguewide revenue has grown more than 47 percent since 2012. Commissioner Roger Goodell’s official target is $25 billion in revenue by 2027, or roughly 6 percent annual growth.

“The business of the NFL is very strong and continues to get stronger,” says Marc Ganis, president of the consulting firm Sportscorp Ltd., and an unofficial surrogate for league owners.

But what will happen if the number of brain damage cases continues to rise?  Here is more from Ira Boudway and Eben Novy-Williams at Bloomberg.

For the pointer I thank Ray Lopez.

The seventeenth century was a special time in Britain

The apprentice dataset, which is richest and most reliable from 1580 to 1680, tells much the same story for the seventeenth century. As we expected, the underlying shares of apprentices’ parents in industry and services are higher than in the probate dataset, but the trends move in parallel. Agriculture declines consistently over this period. Industry and services both grow substantially, with services outstripping industry. Compared to the probate data, the share of the workforce in agriculture declines more quickly, while the rate of expansion in industry is somewhat slower in the first half of the seventeenth century, although it reaches a similar level by 1660–1679. The growth in services is similar to the probate dataset. This coherence between the results from two independent sources offers a first test of the validity of our findings.

That is from a newly published and important paper by Patrick Wallis, Justin Colson, and David Chilosi, “Structural Change and Economic Growth in the British Economy before the Industrial Revolution, 1500–1800.”

For the pointer I thank the excellent Kevin Lewis.

The crack culture that is Long Island, vending machine markets in everything

Suffolk County locals in New York’s Long Island are on alert in the wake of the appearance of three potential crack pipe vending machines, with authorities trying to find out who planted them.

The town of Brookhaven received complaints about the machines last weekend and two have been removed. One of the machines that was removed was partially destroyed by the community, according to WABC-TV.

The station reported that the machines featured the words “Sketch Pens” and were mounted in cement into the ground. It would dispense a small glass tube and a filter for $2 in the form of eight quarters.

The dispensers were initially reported to officials as merely pen dispensers as it was the first week of school in the community.

Here is the full story, via David C. and John C., more information here.

The incidence of tariffs on Chinese goods

…start-ups are likely to be hit hardest, whether their products are made in China or they import components and do the final assembly work in the US.

“Your resistor or diode is already costing you 10 times what you’d pay if you were Apple,” said Mr Kelly. Slapping a tariff on these higher prices will add to the pain, he said. Companies such as Brilliant face the extra challenge of trying to price their products in a way that will generate demand in new markets that have yet to establish themselves.

…breaking into the mass market usually involves cutting the price, something that is now much harder.

Furthermore:

In the technology industry, hardware start-ups face some of the longest odds for success. Until they reach high enough volumes to strike better deals with suppliers and support the costs of brand marketing it is hard to make the economics work, and profit margins are notoriously low. “When you’re in hardware, a 25 per cent tariff can be a death knell to your business,” says Nate Kelly, a supply chain expert who now heads TrackR, a company that makes Bluetooth devices. The lack of a financial cushion or a diversified set of products means many companies will not be able to “ride this out for six months or a year”, he said.

And Mexico will gain, China will lose.  That is from Richard Waters at the FT.

To Serve and Collect

My latest paper (co-authored with Michael Makowsky and Thomas Stratmann) is To Serve and Collect: The Fiscal and Racial Determinants of Law Enforcement (forthcoming in the Journal of Legal Studies):

We exploit local deficits and state-level differences in police revenue retention from civil asset forfeitures to estimate how incentives to raise revenue influence policing. In a national sample, we find that local fine and forfeiture revenue increases at a faster rate with drug arrests than arrests for violent crimes. Revenues also increase at a faster rate with black and Hispanic drug arrests than white drug arrests. Concomitant with higher rates of revenue generation, we find that black and Hispanic drug, DUI, and prostitution arrests, and associated property seizures, increase with local deficits when institutions allow officials to more easily retain revenues from forfeited property. White arrests are broadly insensitive to these institutions, save for smaller increases in prostitution arrests and property seizures. Our results show how revenue-driven law enforcement can distort police behavior.

We find that drug arrests, especially of blacks and Hispanics, generate revenues so police have the motive and opportunity to engage in revenue driven policing. What about the means? Arrests for murders or robbery are limited by the number of murders and robberies. Drug arrests, however, are more of a police choice variable, able to be ramped up or down almost at will. Thus, in addition to motive and opportunity, police also have the means for revenue driven law enforcement.

How can we test for this effect? In some states, police get to keep the revenues they collect from forfeitures but these states are not randomly assigned. Thus, we use deficits which are plausibly randomly assigned (relative to our variables of concern) and we identify off of the interaction of the two i.e. the marginal impact of additional budget deficits in states where seizure revenue is retained.

We find that black and Hispanic arrests for drugs, DUI, and prostitution arrests are all increasing with deficits in states where seizure revenues are legally retained while white arrests are broadly insensitive to deficits.

Our identification strategy is somewhat coarse so we are by no means the final word on this issue but surely it is time to forbid police departments from keeping the revenues they collect.

We conclude:

The prospects for justice are dimmed when the probability an individual is arrested varies not only by the character of their transgression but also by the potential windfall they present to the public coffer.

Mike Makowsky has an excellent tweetstorm going into further details.

Update on Yonas and *Stubborn Attachments*

I thank you all for your pre-orders of my forthcoming book from Stripe Press, Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (did you notice how the title draws from Liberty Fund?), due out October 16.  It is my most philosophic book, most heartfelt book, and least current affairsy book, at least in the last twenty years.

As I explained in an earlier post, all of my receipts from the book are going to Yonas (not his real name), a tour guide in Ethiopia, near Lalibela, who wishes to start a travel business.  I met Yonas during my Ethiopia trip last May.

Yonas already has received one installment of the money, due to the great efficiency of Stripe Press and Stripe proper (it is, after all, a payments company).  He has bought a plot of land and a house on that land with the money from the pre-orders to date, a modest house by your standards I can assure you but nonetheless a big step up for him.  Of course I (and he) hope to sell more copies.  Now that he has an effective means of storing and saving wealth, the next step is for him to expand the scope of his travel guide operations, and you can help him in that endeavor, while you at the same time foment enlightenment more generally.


Here is the Amazon link.

So I hope — for several reasons — that you buy and also gift copies of the book.  You might have noticed in the post below that Chris Blattman is somewhat skeptical of cash transfers as a means of bettering the lot of the poor, at least relative to his earlier views.  But this experiment differs in at least one critical way: Yonas is not randomly selected, rather he is the one person whom I thought would make the best use of the money.

Buchanan and Wagner were right, fiscal policy is fairly pro-cyclical

Our study reveals a mixed fiscal scenery, where more than half of the countries are recently characterized by limited fiscal space, and fiscal policy is either acyclical or procyclical (though not as high the level of 1980s), notably post-GFC becoming even more procyclical in government spending when accounting for net acquisition of nonfinancial assets and capital expenditure (spending components do matter).

That is from a new paper by Joshua Aizenman, Yothin Jinjarak, Hien Thi Kim Nguyen, and Donghyun Park.

Chris Blattman is becoming more skeptical of cash transfers

His new paper is with Nathan Fiala and Sebastian Martinez:

In 2008, Uganda granted hundreds of small groups $400/person to help members start individual skilled trades. Four years on, an experimental evaluation found grants raised earnings by 38% (Blattman, Fiala, Martinez 2014). We return after 9 years to find these start-up grants acted more as a kick-start than a lift out of poverty. Grantees’ investment leveled off; controls eventually increased their incomes through business and casual labor; and so both groups converged in employment, earnings, and consumption. Grants had lasting impacts on assets, skilled work, and possibly child health, but had little effect on mortality, fertility, health or education.

And here is my earlier Conversation with Chris Blattman, in which a similar result is discussed.