Category: Law

Solve for the (tri-state) equilibrium

New York recently approved congestion pricing, a plan to make it more expensive to drive into the heart of Manhattan. Officials in New Jersey are enraged and have griped, half-jokingly, that it will cost less to travel to California than to cross the Hudson River.

And they are vowing revenge.

The mayor of Jersey City suggested that New Jerseyans should toll New Yorkers entering their state.

Here is more from Emma G. Fitzsimmons at the NYT.

Tax returns should not be made public information

That is the topic of my latest Bloomberg column, here is an excerpt:

This idea has been suggested recently by Binyamin Appelbaum of The New York Times and also Matt Yglesias of Vox. In Norway it has been policy since 1814 and Finland does something similar.

I’m afraid, though, that universal tax transparency would boost U.S. economic inequality, take away second chances and devastate privacy.

And:

Or think about the dating market. Tax transparency would give high-earning men and women a bigger advantage and hurt their lower-earning competitors. Do we really wish to do that in an age of growing income inequality and diminished upward mobility?

Is it better if your parents and all your friends can see how well your new job is going or how much in royalties your last book earned? As it stands, we exist in a slightly more comfortable social equilibrium where your close associates assume the best or at least give you the benefit of the doubt. Transparency of earnings would increase stress and make failure and disappointment all too publicly evident. Or entrepreneurs with long-term projects which are going to make it — but not right away — might face too many social or family pressures to quit.

Snooping through the tax system would definitely happen. Evidence from Norway indicates that in 2007, 40 percent of Norwegian adults checked somebody’s tax information online, higher than the penetration of Facebook in Norway. Anonymity of the snooper was removed in 2014, and visits fell dramatically (88 percent by one measure), but still you can imagine paying others to snoop for you or the information eventually getting out over time.

The result of tax-record publication was that “this game of income comparisons negatively affected the well-being of poorer Norwegians while at the same time boosting the self-esteem of the rich,” according to Ricardo Perez-Truglia, a UCLA economics professor writing last week in VoxEU. There’s even a smartphone app that creates income leaderboards from the data on your Facebook friends.

Just as personal freedom and economic freedom are not so easily separable, the same is true for personal privacy and financial privacy.  Are there actually people out there worried about Facebook privacy violations who wish to make all tax returns public and on-line?

Should we break up the big tech companies?

That is my piece in the Globe and Mail, excerpted with edits from my new Big Business: A Love Letter to an American Anti-Hero, here is one excerpt:

Furthermore, it is striking just how effective the major tech companies have been as innovators. Other than providing the best free search in the world, Alphabet – the umbrella corporation under which Google is a subsidiary – gave us Gmail, one of the best and biggest e-mail services in the world, for free. Google Maps, which is also free, is pretty neat, too.

Then, despite the risks identified by critics of the deal – that YouTube appeared to be a bottomless pit for copyright-violation suits and nasty comments – Google bought the streaming-video service for US$1.65 billion, and dramatically upgraded it. Google cleaned up the legal issues, using its advanced software capabilities to spot copyright violations while enforcing takedown requests, improving search and heavily investing in the technology that has helped make video so widely used on the internet today.

In 2005, Google purchased Android and elevated the company’s open-source system to the most commonly used cellphone software in the entire world. Because of the Google-Android combination, hundreds of millions of people have enjoyed better and cheaper smartphones. More generally, Google has made most of its software open-source, enabling others to build upon it with additional advances, with entire companies now devoted to helping other companies build upon that infrastructure – meaning Google has not likely been the major beneficiary of its own actions.

Google, by way of Alphabet, has taken a lead role in developing self-driving vehicles and the underlying artificial intelligence, now being developed through Waymo; by throwing its weight behind this, Alphabet made the concept more publicly acceptable, and it could potentially save many lives on the road. After Hurricane Maria devastated Puerto Rico, Alphabet also stepped in to do good, deploying its work-in-progress Project Loon to restore internet access, which may eventually be integral for remote areas in Africa. It’s a bold attempt to create a better and more connected living situation for some of the world’s more vulnerable people.

All that from a company that is just a little more than 20 years old. Is this really the kind of company we should be punishing?

There are other points of interest at the link.

Terrorism at GMU and the Very Long Arm of the Law

I found this email from the GMU Police about GMU and terrorism surprising and somewhat disturbing:

On Wednesday, March 20, 2019, Mason Police informed the Mason community about an individual who had threatened harm to the University in a video posted on social media. At the time of the threats, the suspect was located in Morocco and was not an immediate or credible threat to the Mason community. However, because the suspect’s actions violated Virginia criminal law, Mason Police secured five felony warrants of arrest related to bomb threats against the University. Additionally, Mason Police worked with Interpol and several federal law enforcement agencies to track the suspect through several countries in the Middle East before he was ultimately arrested on the Virginia warrants while trying to enter Israel.

The suspect, Nassim Darwich, was extradited back to the US through JFK International Airport in New York City. Yesterday, Mason Police were in New York to take custody of Mr. Darwich and return him to Virginia. He is currently in the Fairfax County Adult Detention Center where he is being held on $100,000.00 secured bond.

Mason Police would like to thank Interpol, the US Customs Service, Homeland Security Investigations, and the FBI/NY for assisting Mason Police with monitoring and arresting the suspect. We also appreciate the Mason community members who saw Darwich’s internet-based threats and acted to alert Mason Police. If anyone has any additional information about this case, please give the Mason Police Department a call at (703) 993-2810.

The email was from April 5 so a university police department was able to reach out to the Middle East, arrest and extradite an individual to the United States in about two weeks. Impressive. As a potential target, I guess I am pleased. But it’s somewhat frightening to see how long the arm of the law has become, at least for terrorism related crimes.

Better Police, Less Crime in Camden, NJ

Camden NJ has thrice been named the most dangerous city in America. Camden suffered not only from high crime but from poor policing under a rigid union contract. Jim Epstein described the situation in 2014:

Camden’s old city-run police force abused its power and abrogated its duties. It took Camden cops one hour on average to respond to 911 calls, or more than six times the national average. They didn’t show up for work 30 percent of the time, and an inordinate number of Camden police were working desk jobs. A union contract required the city to entice officers with extra pay to get them to accept crime-fighting shifts outside regular business hours. Last year, the city paid $3.5 million in damages to 88 citizens who saw their convictions overturned because of planted evidence, fabricated reports, and other forms of police misconduct.

In 2012, the murder rate in Camden was about five times that of neighboring Philadelphia—and about 18 times the murder rate in New York City.

In May of 2013, however, the entire police department was disbanded nullifying the union contract and an entirely new county police department was put into place.

The old city-run force was rife with cops working desk jobs, which Cordero saw as a waste of money and manpower. He and Thomson hired civilians to replace them and put all uniformed officers on crime fighting duty. Boogaard says she didn’t see a single cop during the first year she lived in the city. “Now I see them all the time and they make friendly conversation.” Pastor Merrill says the old city-run force gave off a “disgruntled” air, and the morale of Metro police is noticeably better. “I want my police to be happy,” he says.

Without the expensive union contracts the new force added officers and also introduced more technology such as Shotspotter. So what has been the result? Violent crime is down and clearances are up (charts from Daniel Bier, who also notes that the fall in violent crime and increase in convictions far exceed that in comparison to New Jersey more generally or Philadelphia.)

As I have long argued, we need more police and better policing in America.

No photo description available.

Bryan Caplan *Open Borders* launch day

From Bryan:

Dear friends: Monday, April 8 isn’t just my birthday.  It’s also the official launch date for *Open Borders*!

URL for ordering the book: https://www.amazon.com/gp/product/1250316960/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1250316960&linkCode=as2&tag=bryacaplwebp-20&linkId=1ed2cdfe4a1c0cd2a62e942a39f87b9d

URL for an introductory post on the book: https://www.econlib.org/pre-order-open-borders-the-science-and-ethics-of-immigration/

U.S.A. fact of the day

As President Trump threatened to shut down the U.S.-Mexico border in recent days, his Department of Homeland Security nearly doubled the number of temporary guest worker visas available this summer.

The Homeland Security and Labor departments plan to grant an additional 30,000 H-2B visas this summer on top of the 33,000 they had already planned to give out, the agencies confirmed.

The H-2B visa allows foreign workers to come to the United States legally and work for several months at companies such as landscapers, amusement parks or hotels. About 80 percent of these visas went to people from Mexico and Central America last year, government data shows…

With the additional visas, the Trump administration is on track to grant 96,000 H-2B visas this fiscal year, the most since 2007, when George W. Bush was president.

Here is more by Heather Long at WaPo, via Anecdotal.

Why is insulin so expensive?

Why aren’t we seeing more companies making insulin? There are many reasons for this, but patent evergreening is a big one. Patents give a person or organization a monopoly on a particular invention for a specific period of time. In the USA, it is generally 20 years. Humalog, Lantus and other previous generation insulins are now off patent, as are even older animal based insulins. So what’s going on? Pharmaceutical companies take advantage of loopholes in the U.S. patent system to build thickets of patents around their drugs which will make them last much longer (evergreening). This prevents competition and can keep prices high for decades. Our friends at I-MAK recently showed that Sanofi, the maker of Lantus, is no exception. Sanofi has filed 74 patent applications on Lantus alone, that means Sanofi has created the potential for a competition-free monopoly for 37 years.

More here, and yes there are a multiple of reasons, not just that one.  Such as this:

… it is actually legal for one insulin producer to pay another one not to enter the market. A few years ago the company Merck announced plans to sell a biosimilar version of Sanofi’s Lantus. Sanofi sued, and eventually Merck announced that it was no longer pursuing it’s biosimilar, presumably due to payments from Sanofi to stay away.

Here is another relevant source.  And this:

…Sanofi has filed lawsuits against both Merck and Mylan to prevent them from going to market with a generic lantus insulin (the Sanofi blockbuster drug).

Here is Vox coverage.  Furthermore, fewer restrictions on foreign importation could solve much of the problem:

According to the Food and Drug Administration, “in most circumstances, it is illegal for individuals to import drugs into the United States for personal use.”

New bills by Peter Welch, Elijah Cummings, and Bernie Sanders would ease those restraints.  It seems easy enough to address this problem without having systematic government purchases of pharmaceuticals.  Insulin prices have risen as much as threefold over the last ten years, but that doesn’t have to be the case.

How much would a wealth tax raise?

From Larry Summers and Natasha Sarin:

We reasoned as follows: The existing estate tax is a wealth tax levied at the time of death. If 2 percent of wealthy families experience a death and intergenerational transfer (rather than a spousal transfer) each year, then the current 40 percent estate tax should roughly be the equivalent of a wealth tax of 40 percent multiplied by 2 percent — or a 0.8 percent wealth tax — assuming equivalent definitions of wealth and the same threshold for taxation. Since most wealth is held by fairly elderly people, and the mortality rate of 70-year-olds is above 2 percent, we suspect that 2 percent mortality is a conservative estimate. So the actual wealth-tax equivalent of the estate tax is likely greater than 0.8 percent.

The IRS reports that for 2017, the most recent year for which data is available, the estate tax raised around $10 billion from estates over $50 million — and this included tax collected on the first $50 million of estate tax value, so it overestimates the conceptually appropriate figure. Therefore, if this is what the revenue yield would be from a 0.8 percent wealth tax, the implication is that a 2 percent wealth tax would raise a total of $25 billion. That’s around one-eighth of the Saez and Zucman estimate.

There is much more of interest at the link.

The case for regional-based, heartland visas

• U.S. population growth has fallen to 80-year lows. The country now adds approximately 900,000 fewer people each year than it did in the early 2000s.

• The last decade marks the first time in the past century that the United States has experienced low population growth and low prime working age growth on a sustained basis at the same time.

• Uneven population growth is leaving more places behind. 86% of counties now grow more slowly than the nation as a whole, up from 64% in the 1990s.

• In total, 61 million Americans live in counties with stagnant or shrinking populations and 38 million live in the 41% of U.S. counties experiencing rates of demographic decline similar to Japan’s.

• 80% of U.S. counties, home to 149 million Americans, lost prime working age adults from 2007 to 2017, and 65% will again over the next decade.

• By 2037, two-thirds of U.S. counties will contain fewer prime working age adults than they did in 1997, even though the country will add 24.1 million prime working age adults and 98.8 million people in total over that same period.

• Population decline affects communities in every state. Half of U.S. states lost prime working age adults from 2007-2017. 43% of counties in the average state lost population in that same time period, and 76% lost prime working age adults.

• Shrinking places are also aging the most rapidly. By 2027, 26% of the population in the fastest shrinking counties will be 65 and older compared to 20% nationwide.

• Population loss is hitting many places with already weak socioeconomic foundations. The share of the adult population with at least a bachelor’s degree in the bottom decile of population loss is half that in the top decile of population growth. Educational attainment in the fastest shrinking counties is on average equivalent to that of Mexico today or the United States in 1978.

• Population loss itself perpetuates economic decline. Its deleterious effects on housing markets, local government finances, productivity, and dynamism make it harder for communities to bounce back. For example, this analysis found that a 1 percentage point decline in a county’s population growth rate is associated with a 2-3 percentage point decline in its startup rate over the past decade.

That is the opening of a new study by Adam Ozimek of Moody’s Analytics with Kenan Fikri and John Lettieri of Economic Innovation Group.

Preemptive Overfishing

The Endangered Species Act endangered some species and announcing that a fishing area will be protected in the future increases fishing now.

PNAS: Most large-scale conservation policies are anticipated or announced in advance. This risks the possibility of preemptive resource extraction before the conservation intervention goes into force. We use a high-resolution dataset of satellite-based fishing activity to show that anticipation of an impending no-take marine reserve undermines the policy by triggering an unintended race-to-fish. We study one of the world’s largest marine reserves, the Phoenix Islands Protected Area (PIPA), and find that fishers more than doubled their fishing effort once this area was earmarked for eventual protected status. The additional fishing effort resulted in an impoverished starting point for PIPA equivalent to 1.5 y of banned fishing. Extrapolating this behavior globally, we estimate that if other marine reserve announcements were to trigger similar preemptive fishing, this could temporarily increase the share of overextracted fisheries from 65% to 72%. Our findings have implications for general conservation efforts as well as the methods that scientists use to monitor and evaluate policy efficacy.

One puzzle is why there should be an increase in over-fishing? Shouldn’t a commons already be overfished to the point of zero return? One possibility is that previous steps to limit overfishing were working.

The possibility of preemptive overfishing suggests the utility of surprise protections, but that’s not always possible and the authors don’t suggest that preemptive overfishing makes protection unwise only that it has a short term cost.

Hat tip: Paul Kedrosky.

The evolution of political views

This paper examines the effect of party affiliation on an individual’s political views. To do this, we exploit the party realignment that occurred in the U.S. due to abortion becoming a more prominent and highly partisan issue over time. We show that abortion was not a highly partisan issue in 1982, but a person’s abortion views in 1982 led many to switch parties over time as the two main parties diverged in their stances on this issue. We find that voting for a given political party in 1996, due to the individual’s initial views on abortion in 1982, has a substantial effect on a person’s political, social, and economic attitudes in 1997. These findings are stronger for highly partisan political issues, and are robust to controlling for a host of personal views and characteristics in 1982 and 1997. As individuals realigned their party affiliation in accordance with their initial abortion views, their other political views followed suit.

That is a new paper by Eric D. Gould, and Estaban F. Klor, via the excellent Kevin Lewis.

p.s. don’t call it “tribalism,” that is something else.

Price Discrimination Versus Medical Tourism

In our principles textbook, Tyler and I open our chapter on price discrimination with the following:

After months of investigation, police from Interpol swooped down on an international drug syndicate operating out of Antwerp, Belgium.  The syndicate had been smuggling drugs from Kenya, Uganda and Tanzania into the port of Antwerp for distribution throughout Europe.  Smuggling had netted the syndicate millions of dollars in profit.  The drug being smuggled?  Heroin?  Cocaine?  No, something more valuable, Combivir.  Why was Combivir, an anti-AIDS drug, being illegally smuggled from Africa to Europe when Combivir was manufactured in Europe and could be bought there legally?

The answer is that Combivir was priced at $12.50 per pill in Europe and, much closer to cost, about 50 cents per pill in Africa.  Smugglers who bought Combivir in Africa and sold it in Europe could make approximately $12 per pill, and they were smuggling millions of pills.

Instead of smuggling the drugs to Europe, it’s also possible to send the European and American patients abroad. Gilead’s Solvadi, for example, is a very effective drug used to treat hepatitis C. In the United States a course of treatment costs about about $85,000 but due to an agreement between Gilead and generic manufactures in developing countries, in Egypt, India and much of the developed world it can be had for less than $1000. In an excellent piece, Four Reasons Drugs are Expensive, of Which Two are False, Jack Scannell illustrates the battle between arbitrageurs and pharmaceutical companies:

[The price difference] raises dreams of pharmaceutical tourism: “Enjoy a 12 week Grand Tour, where you can gaze at the awesome pyramids and the inscrutable Sphinx of Giza, explore the treasures of Tutankhamen, gasp at the wonders of Luxor, while basking in the sustained virologic response you can only dream of buying in the US.” Some may dream, but Gilead got there already and put its corporate towels on the sun loungers. Egyptians must prove residency to get Sovaldi. Tourists need not apply.

To prevent resale Gilead requires ID and it labels and tracks every bottle sold abroad:

[Patient IDs] will be used to put an identifying barcode on the bottles they receive with their name and other info. Not only can the code be used to guarantee only residents of the country get the drugs…the provisions require that patients then return a bottle to get a new bottle and allows them to get only one bottle of their prescription at a time, even though allowing them to get multiple bottles could “ease the burden on patients and health providers,” MSF says.

Médecins Sans Frontières are outraged by these restrictions but, as Tyler and I explain, the alternative is no sales in developing countries or one world-price and you can be sure that if there’s one world-price that price will be the US price and not the Egyptian price.