Category: Law
Does economic freedom lower happiness inequality?
There should be a whole category of “results that aren’t true as stated but are interesting nonetheless.” Here is a new paper by Daniel L. Bennett and Boris Nikolaev:
This article examines the relationship between economic freedom and happiness inequality for a large sample of countries. We find that economic freedom is negatively associated with happiness inequality and robust to several alternative measures of happiness inequality, including the standard deviation, mean absolute difference, coefficient of variation, and Gini coefficient. Among the economic freedom areas, legal system and sound money are negatively correlated with happiness inequality. Drawing on the Engerman-Sokoloff hypothesis, we use a measure of factor endowments as an instrument for economic freedom to provide a further robustness test, finding a negative association between economic freedom and happiness inequality.
Two points. First, the influence of economic freedom often diminishes once you control for the quality of government in a particular locale. This is perhaps more of an “all good things go together” result than any particular causal story. Second, many of these results are mediated by the “hard money” component of economic freedom. But hard money is not economic freedom per se, but rather it may be proxying for some successful cultural attitudes.
For the pointer I thank the excellent Kevin Lewis. Also via Kevin, here is another published result you shouldn’t quite believe as stated: “…the combination of feeling tired and happy may enhance acceptance of atypical or unusual ideas, which could potentially help creative thought.”
Internet comments, before the internet
In the four years that Ayanna Chisholm has worked collecting tolls out of tiny glass booths at the Holland Tunnel and elsewhere in New Jersey, there have been several constants. There are familiar commuters, malfunctioning toll arms, occasional scofflaws — and an incessant barrage of come-ons, sexual comments, lecherous stares and crude gestures from male motorists.
Some of Ms. Chisholm’s colleagues say they have been subjected to drivers exposing themselves. The fusillade is especially menacing because it is inescapable, the workers confined to small hutches on the highway.
Like other women in her profession, Ms. Chisholm, who works for the Port Authority of New York and New Jersey, has learned to wear little makeup, crack her booth’s window open as little as possible, and drop change into waiting hands to avoid drivers who try to stroke her palm.
That is from the NYT, and of course the same was true decades ago. No one from New Jersey should be surprised at how most internet comments have turned out.
Haitian-American fact of the day
Despite all of their adversities, Haitians had rather low crime rates. Martinez and Lee’s 1985-95 study reported a homicide victimization rate of 16.7 for Haitians, which was lower than those for non-Hispanic whites and Latinos and far lower than the rate for American blacks. In fact, the Haitian crime figures may be inflated, since over 54 percent of the suspected killers of murdered Haitians were African American. In other words, the Haitian victimization rate is not an especially good indicator of Haitian offending, because, contrary to the usual situation, Haitians were the victims of an inordinate number of out-group killings. They were believed to have been only 3.5 percent of the murder suspects at a time when they were 14 percent of Miami’s general population.
That is from Barry Latzer’s new and interesting The Rise and Fall of Violent Crime in America.
Drug Reciprocity with Europe Gains Support
As loyal readers know, I’ve long been in favor of a system where a drug approved in another major, developed country is also approved here. For a long time it seemed as if I was shouting in the wilderness but in the last few years support for the idea has grown, as the Cruz-Lee Reciprocity bill indicates. In A Cure for Swelling Drug Prices: Competition, Greg Ip at the WSJ notes another new development:
Mr. Tabarrok says the FDA should also offer reciprocal approval of drugs that regulators in other advanced countries have already cleared. Imports of generics from countries with government-negotiated prices ought not to be as controversial as patent-protected drugs because they involve far less expensive and risky research. Indeed, the Generic Pharmaceutical Association and its European equivalent, Medicines for Europe, have proposed a “single development pathway” under which approval in one jurisdiction would automatically confer approval in the other.
The proposed plan is for generics only where the issues are simpler but Greg is right to conclude more generally:
The FDA has long insisted, for safety reasons, that it approve all drugs regardless of whether they have been approved overseas. But if the FDA was once a better regulator than its overseas peers, it isn’t now. Ken Kaitin, a professor of medicine at Tufts University who has studied drug regulation around the world, says there is “absolutely no evidence” the U.S. drug supply is safer than in Britain, Canada or Europe.
Thus, the FDA wouldn’t be compromising safety by harmonizing its approvals with foreign regulators. Indeed, by making more drugs available at lower cost, it could ultimately make Americans healthier.
How democratic was Southern secession?
Perhaps less than you might think. There is a new paper by Mario L. Chacon and Jeff I. Jensen:
We use the Southern secession movement of 1860-1861 to study how elites in democracy enact their preferred policies. Most states used specially convened conventions to determine whether or not to secede from the Union. We argue that although the delegates of these conventions were popularly elected, the electoral rules favored slaveholders. Using an original dataset of representation in each convention, we first demonstrate that slave-intensive districts were systematically overrepresented. Slaveholders were also spatially concentrated and could thereby obtain local pluralities in favor of secession more easily. As a result of these electoral biases, less than 10% of the electorate was sufficient to elect a majority of delegates in four of the six original Confederate states. We also show how delegates representing slave-intensive counties were more likely to support secession. These factors explain the disproportionate influence of slaveholders during the crisis and why secessionists strategically chose conventions over statewide referenda.
Not entirely unlike the first American secession!
For the pointer I thank the excellent Kevin Lewis.
Ecstatic over bad news sentences to ponder
Conatus Pharmaceuticals Inc. has several patents for emricasan. Some don’t expire until 2028. A third party wanting to sell the molecule would need to license it from Conatus, according to Joseph O’Malley, global chair for intellectual property at Paul Hastings LLP.
“Assuming that drug were to be found to treat Zika,” Mr. O’Malley said, “it would be bad news for the company. It would be under tremendous pressure to license it for little or no money.”
Alfred Spada, Conatus’s chief scientific officer, said if emricasan “were effective in the treatment of such a devastating disease, I think we would be ecstatic.”
Here is the full WSJ story, via the excellent Kevin Lewis.
My dialogue with Bob Zoellick on Trump and trade
What if Donald Trump actually won the election? What would happen with trade and the economy?
Here is part one, all nice and pretty with photos, part two will come tomorrow. Zoellick suggests that if Trump abrogated various trade deals, the legal default would be a return to…Smoot-Hawley! As former USTR, he should know. Anyway, here is one part of the dialogue:
Cowen: I expect a somewhat slightly more optimistic scenario. I think a President Trump would give us a reality-TV version of a tariff hike. I don’t necessarily think he wants to experience the pain of tariffs going up, markets crashing and all the political fallout early in his time in office.
Yet he’s promised he would do something and he loves to spar with people and claim he’s being done wrong and rail against elites rather than own problems and solve them. So I think what he would probably do is announce that he had abrogated these treaties, not actually do it. There would be a very high level of uncertainty but I don’t think the laws on the books would necessarily change.
The biggest thing at stake here is uncertainty. Under all of these scenarios, the real impact would be on services, which often rely more on the regulatory system. Uncertainty would result in a higher implicit tax on exports of services to the U.S. than on exports of goods.
Zoellick: I think that’s an extremely optimistic interpretation. Remember, he has the authority to act. He can raise tariffs and create havoc.
I agree on your uncertainty point, but I think you may be a little blithe about the risk to markets. Other countries aren’t just going to stand for the U.S.’s blustering.
This is serious stuff. I worked on German unification. I’ve done a bunch of trade deals. I’ve had some experience internationally. If you act the way Trump talks you’re going to pull down a 70-year-old system that got us out of the Great Depression and helped the U.S. become the strongest economy in the world. This isn’t for fooling around with.
Here is the full, raw text with no formatting. Eleven full pages, that is for me the best version! There are many, many points of interest, I really liked this exchange.
“Clinton economist trusts government too much”
Being a reticent fellow myself, I enjoyed that Bloomberg-given headline. That is for my latest column, on the recent book and ideas of Heather Boushey. She wishes government to take a much larger hand in sick paid leave, parental leave, and care for the elderly, among other issues. Here is one excerpt:
Most likely, there is a big difference between short-run and long-run effects. For instance, employers value the workers they have, and are reluctant to fire them when labor costs go up. A lot of “pro-worker” policies thus seem to be a kind of magical free lunch. Over time, however, as a generation of workers turns over and is replaced, mandatory benefits represent a real added cost, evaluated anew, and employers will respond accordingly. They will cut the paid dollar wage, cut other job benefits, require more hard work, automate more, or cut back on plans for growing the business. The downward-sloping demand curve is the best established empirical regularity in all of economics, and in this context that means some laborers — maybe most laborers — will pay a price for their new benefits, one way or another.
Note that if firms have better bargaining power than do workers, workers can in the short run claw some of that back through the law. Yet that superior bargaining power simply will be reestablished one generation of workers later, albeit with jobs at a new higher-mandated-benefit, lower-something-else equilibrium. Hardly anyone gets that. And:
Boushey doesn’t estimate or indicate the expense of her proposed mandatory benefits, although she does suggest on page 1 that the cost would be “very small.” She is developing a new kind of supply-side economics, this time on the left, but like her right-wing counterparts she is running the risk of excess optimism about how much her suggested improvements will boost productivity in the system.
Give them cash I say, do read the whole thing.
Here is Heather Boushey’s new book from Harvard University Press, Finding Time: The Economics of Work-Life Conflict. I disagree with it fundamentally, but still many of you will find it of considerable value. She is also the chief economist for Hillary Clinton’s transition team, and I would trust her with nuclear weapons.
Tyler Cowen’s guide to Enlightenment
No, that is not enlightenment about life, that is enlightenment about Enlightenment, as in the eighteenth century phenomenon. P., a loyal MR reader, wrote to me with such a request, noting correctly that “I usually find that broad, ambitious survey books are not the answer.”
That survey would be Peter Gay, recently a bestseller in China by the way, and then Ernst Cassirer, Jonathan Israel, and Roy Porter, but let me outline an alternative program of study. The goal here is to be practical, engaging, and vivid, not comprehensive or scholarly per se:
Books:
Geoffrey Clive’s short book The Romantic Enlightenment.
James Boswell, Journals, selected excerpts, he was an early blogger by the way, and David Hume, An Enquiry Concerning Human Understanding. I find that to be one of the wittiest of books. Plus Hume’s Essays.
Diderot, Rameau’s Nephew, and Rousseau’s Second Discourse. Condorcet, Essay on the Progress of the Human Mind. Voltaire I consider overrated.
Swift, Gulliver’s Travels, yes I know it is arguably “anti-Enlightenment,” better yet. If you insist on another Irishman, Bishop Berkeley is an entertaining writer as well.
Founding documents of the United States, and Ben Franklin, Autobiography.
Kant, Perpetual Peace, “What is Enlightenment?”, and Lessing, Nathan the Wise.
Beccaria, Of Crimes and Punishments.
If you have the time to tackle longer books, start with Smith’s Wealth of Nations and Boswell’s Life of Johnson and then Casanova and Tristram Shandy (there is by the way a splendid book on the postmodern in the Enlightenment but I can no longer remember the cite). Leave Montesquieu to the Straussians, although the returns are high if you are so inclined.
For history, read up on eighteenth century scientific societies, Robert Darnton on the rise of publishing and the book trade, Habermas on the coffeehouse debate culture and the public sphere, and Brewer and McKendrick on the rise of consumer society in England. Try Wikipedia for Catherine the Great, Frederick the Great, and other rulers of the time. There is also Margaret C. Jacob, The Radical Enlightenment, and books on 18th century Freemasonry. The French Revolution seems to require its own blog post, as does the Industrial Revolution, slavery too, in a pinch resort to the MR search function box on this blog. Foucault will give you a sense of the dark side of the Enlightenment, his history is unreliable but read him on Discipline and Punishment and on ideology try the rather dense The Order of Things.
That all said, I would start with music and the arts first.
Music:
Haydn, the London symphonies and late piano sonatas and string quartets Op.76.
Mozart, the major operas, including reading through the libretti while listening. If you can only do one thing on this list…
Gluck, assorted operas, noting he is not nearly the equal of Haydn or Mozart as a composer but he did capture the spirit of Enlightenment.
C.P.E. Bach, the Prussian Sonatas.
Painting:
Study French painting from Chardin through David, picture books will do if you can’t visit the original works. Focus on Watteau, Boucher, Fragonard, Vigée-Le Brun, Boilly, Hubert Robert, and others, how their works tie into the history of the period and how the styles transformed over time. Visit Paris, Huntington Gardens, and Tiepolo’s work in the Residenz in Würzburg. Do a tour of Georgian architecture in England, in a pinch visit the derivative works at Harvard, Yale, and Alexandria, Virginia. Study Tiepolo more generally, Goya, and also Antonio Canova.
Movies:
Why not? I’ll toss up Dangerous Liaisons (Vadim and Malkovich versions), Barry Lyndon, Casanova, Amadeus, A Royal Affair (can’t forget Denmark!), Marie Antoinette, Ridicule, and The Madness of King George.
What did I leave out that is of utmost importance?
*American Heiress*
What an excellent title, the subtitle is The Wild Saga of the Kidnapping, Crimes and Trial of Patty Hearst, and the author is Jeffrey Toobin. Our age is actually not that crazy by historical standards. Yet here are the last four sentences:
In the end, notwithstanding a surreal detour in the 1970s, Patricia led the life for which she was destined back in Hillsborough. The story of Patty Hearst, as extraordinary as it once was, had a familiar, even predictable ending. She did not turn into a revolutionary. She turned into her mother.
Recommended.
Two “The Rest of the Story” Stories
“The rest of the story” stories have a punch line that twists everything that came before into an entirely new and deeper perspective. My favorite such story is about John Nestor.
Nestor became a minor if hated celebrity in the mid-1980s in Washington, DC for his policy of driving on the beltway in the left hand lane at 55 mph, not a mile faster, the rest of the traffic be damned. Nestor believed that the 55 mph speed limit saved lives and he was going to help other people by slowing them down regardless of the exasperation, raised fingers, or honking. He knew better than other people.
The truth, of course, is that it’s actually variance in speed that kills so by driving more slowly than everyone else Nestor was increasing risk not lowering it. But that’s not the punch line. The punch line? John Nestor was an FDA bureaucrat so obstinate that even the overly cautious FDA thought he was a menace and they pulled him from his job in the renal section for not approving a single new drug in more than four years. On the roads or at the FDA, John Nestor illustrated why I say caution can be deadly.
My second favorite story like this comes from a recent article on land use policy by Mark Gimein at the New Yorker:
In 1948, a federal housing bureaucrat named Paul Oppermann, trying to come to terms with the perils of the nuclear age, proposed a solution to the problem of protecting America’s cities from the bomb: empty them out preëmptively by encouraging the population to move to suburbs and small towns of fifty thousand or fewer. “No power in the world could afford to drop an atomic bomb on a city of 50,000 or less” is how the San Francisco Chronicle summarized the talk that Oppermann gave to a local planning organization. Plus, Oppermann explained, you get slum clearance into the bargain.
The punch line? “The next year, Oppermann assumed office as San Francisco’s planning director.” As Gimein notes Oppermann wasn’t able to move people out of San Francisco but he was able to “[cripple] growth with arcane lot-size rules and off-street-parking-space minimums.”
So now you know the rest of the stories.
Paper Pushers
Excellent piece by Tim Carney:
Five years ago, a new quirky-sounding consumer-rights group set up shop in a sleepy corner of Capitol Hill. “Consumers for Paper Options is a group of individuals and organizations who believe paper-based communications are critically important for millions of Americans,” the group explained in a press release, “especially those who are not yet part of the online community.”
This week, Consumers for Paper Options scored a big win, according to the Wall Street Journal. Securities and Exchange Commission chairman Mary Jo White has abandoned her plan to loosen rules about the need to mail paper documents to investors in mutual funds.
Mutual funds were lobbying for more freedom when it came to mailing prospectuses — those exhaustive, bulky, trash-can-bound explanations of the contents of your fund. In short, the funds wanted to be free to make electronic delivery the default, while allowing investors to insist on paper delivery. This is an obvious common-sense reform which would save whole forests of trees.
You won’t be surprised to lean that Consumers for Paper Options is funded by paper mills, timber firms and the Envelope Manufacturers Association.
What bothers me about these stories is not the rent-seeking–that is to be expected. What bothers me is that there is a law that prescribes how mutual funds must inform their customers. Why must every aspect of commercial life be governed by a gun? And this is where I expect pushback–the mutual funds will rip us off if we don’t have these laws, blah, blah, blah. Fine, believe that if you must, but then you have no cause to complain about rent seeking. You created the conditions for its existence.
Why are bug bounties failing for Apple?
At the prices they are offering, a lot of bugs in their software are going undetected. Yet the company has the funds to pay more, and you might think for Coasean reasons the value to Apple of maintaining the franchise is pretty high. So why don’t they pay more? From Russell Brandom, this may be the reason:
If Apple really did put its enormous cash reserves behind catching every bug, the result might have unintended consequences for its own security workforce. Building and deploying patches is hard work, every bit as delicate and creative as finding vulnerabilities. Companies need dedicated teams to do that work — but with skyrocketing prices for iOS vulnerabilities, why not put in a few months to find an exploit, turn it in for the bounty, and then spend the rest of the year working on your tan? “If Apple or other defense bounties tried to outbid or even match offense bug prices, they may lose the employees they need most to fix the issues,” Moussouris says.
The article is of interest more generally.
Should everyone crowd into New York and San Francisco?
A recent piece from the excellent Conor Sen has attracted some disputation. The main claim is that building restrictions aren’t as bad as they might at first seem. If you keep people out of Manhattan they move to Atlanta, and that produces synergies too:
Here in Atlanta, as in the rest of the Sun Belt, job migration is the driving force of the economy. Corporate relocations and expansions are celebrated here the way billion-dollar tech startups are celebrated in Silicon Valley. The “New South” would not have developed were it not for people looking to flee the crowded and expensive cities of the Northeast.
…Housing constraints in some cities accelerate economic development in emerging parts of the country. They decrease economic inequality between metro areas and lead to economic interdependence that drives civil rights. And they offer some promise to ease the pain of waning communities in the Rust Belt, Appalachia and beyond. A country where the vast majority of talented people move to one or two cities might be an economist’s idea of utopia, but a nightmare to those of us concerned about equality of economic opportunity.
Analytically, the first question is whether the biggest cities would attract too many people in the absence of building restrictions. To answer that, you have to balance crowding costs vs. synergy benefits. It can be said that average social returns to living in cities will equalize, even if marginal social returns do not. Cross-city migration equates the average returns, even in the presence of externalities, just as in the classic “two roads” problem. If one road is going faster than the other, people will switch, although the “final driver” still is not taking his entire social impact into account.
Note that if urban synergies are constant across scale, equality of the average across two cities will in turn imply equality of the marginal, and an efficient allocation of population across the larger and smaller cities will result. Building restrictions won’t change that, although they do shift where the equalization margin will be at.
(Building restrictions also may mean NYC space is used inefficiently, even if the distribution of population across cities is more or less optimal. Building restrictions are not identical to urban entry fees, but rather they shift space allocations at various margins of construction, though to potential movers their “entry fee” aspect may seem most important. These marginal distortions may interact with the “entry fee” aspects of building restrictions in various ways, muddying the analysis. Complicated!)
Now maybe synergies aren’t constant across urban scale, but suddenly the costs of building restrictions in Manhattan look lower. They are defined by the differences in synergies across scale, which may not be such a huge number. Furthermore synergies might be more important for the Atlantas than for the Manhattan, in which case the building restrictions in Manhattan could be welfare-improving.
(Note that if a city or region has really big firms, the chances that interpersonal synergies will be internalized into initial wage offers will be higher. And there is a time horizon issue. Circa the 1920s, Los Angeles synergies may have appeared much lower than those for NYC, but it probably ended up better for the nation as a whole that the racist “entry fee” for movie-making in NYC led to the creation of Hollywood on the West Coast. Similarly, was it not also a good thing that NYC blew its chances of being the center of the American venture capital market? If Peter Thiel were here, and communing with Kenneth Arrow, he might see too many risk-averse, conformist entrants into New York and look for a remedy, just as New York was itself once a respite from an overcrowded, restrictionist, religiously conforming Europe.)
OK, that’s scale but what about congestion costs? They do seem to go up in a non-linear manner with scale, and that lowers the costs of building restrictions in Manhattan. Manhattan is more likely to be too crowded than is Atlanta, as a first-order approximation. Of course differential endowments across regions can complicate this, for instance NYC has better mass transit.
Now, to push this all one step further, is Peoria just a smaller Atlanta? Does it too have synergy benefits? (Or can we say that too many people stay in Peoria and too few go to NYC + Atlanta?) Don’t we observe the very largest synergy benefits at small scales, namely going from households of one to two, two to three, etc.? Might Peoria have the highest synergy gains of them all? At least in utility terms if not in dollar terms? Or do we need an ongoing risk of “Peoria brain drain” to induce Peoria residents to acquire the skills that they may or may not end up taking out of Peoria?
In any case, worth a ponder.
Nations can be start-ups, too
That is my latest Bloomberg column, here is one excerpt:
The virtues of business startups have led to many a success story. These enterprises start with clean slates. They embody the focused and often idiosyncratic visions of their founders. The successful ones grow faster than their competitors. Even after they become larger and more bureaucratic, these companies often retain some of the creative spirit of their startup origins.
It is less commonly recognized that some nations, including many of the post-World War II economic miracles, had features of startups. For instance, Singapore started as an independent country in 1965, after it was essentially kicked out of Malaysia and suddenly had to fend for itself. Lee Kuan Yew was the country’s first leader, and he embodied many features of the founder-chief executive: setting the vision and ethos, assuming responsibility for other personnel, influencing the early product lines in manufacturing and serving as a chairman-of-the-board figure in his later years.
Other start-ups nations have been UAE, Israel, Taiwan, Hong Kong, Cayman Islands, Estonia, South Korea, and of course way back when the United States. You will note that many of these examples are imperfectly democratic in their early years, and they do not in every case grow out of it. And this:
The world today seems to have lower potential for startup nations. This is in part because international relations are more peaceful and also because most colonial relationships have receded into the more distant past. Those are both positive developments, but the corresponding downside is not always recognized, namely fewer chances for reshuffling the pieces.
This is the close:
To paraphrase John Cleese from Monty Python, the startup nation concept isn’t dead, it’s just resting. Whether in business or in politics, the compelling logic of the startup just isn’t going away.
The best chances for future start-ups may be in Africa, around the borders of Russia, and perhaps someday (not now) Kurdistan. Do read the whole thing.