Category: Law
The collapse of Schengen
This is between Austria and Germany, two of the “closest” EU economies in terms of trade and similarity:
FREILASSING, Germany — Traffic along one of Europe’s busiest highways, which used to flow unimpeded, now often backs up for miles at a newly installed checkpoint, where a phalanx of German police officers screens trucks and cars for hidden migrants.
At this border crossing, as a result, Austrians who work in Germany have trouble getting to their jobs. Many companies in Germany must wait days longer for deliveries of food, machine parts and other goods. Shoppers who made quick weekend jaunts to Freilassing’s stores now mostly stay away.
“It’s really bad,” said Karl Pichler, the owner of a large gardening center here in Freilassing, whose sales of tulips, rose bushes and other plants has slumped as longtime customers from Austria have stopped coming.
…With 57 million vehicles a year and 1.7 million workers a day crossing Europe’s frontiers, the European Union could face up to 18 billion euros, or $19.6 billion, each year in lost business, steeper freight and commuter costs, interruptions to supply chains, and government outlays for augmented border policing, according to a recent report by the European Commission, the bloc’s administrative arm.
Should the European Union revert to permanent border checks to slow Syrian, Afghan and Iraqi migrants traveling through Greece and the west Balkans toward Northern Europe, the long-term cost could exceed €100 billion, the French government calculated in a separate study.
Here is the full story (NYT), and do note that long-run elasticities are much greater than short-run elasticities. So if this continues, the longer-run effects on cross-border trade, not to mention EU governance, could be quite dire indeed. And right now that is the default scenario.
The regulatory state and the importance of a non-vindictive President
I hope we always will have non-vindictive Presidents in this country. One reason is because the regulatory branch reports to the Executive. And if you own a large company, it is virtually impossible to be in accordance with all of the regulations all of the time. If there were a President who wished to pursue vendettas, the regulatory state would be the most direct and simplest way for him or her to do so. The usual presumption of “innocent until proven guilty” does not hold in many regulatory matters, nor are there always the usual protections of due process.
I do know that Philip Hamburger’s book Is Administrative Law Unlawful? occasioned some critical reviews. I certainly don’t think the title frames the argument properly and by no means do I agree with everything he said. But these days, the notion that the regulatory state could prove dangerous to individual liberties, and not just to economic growth, needs to be taken more seriously, and he has written the “go to” book on that topic.
I wonder if this is one reason why some of the leaders in the Republican Party have been somewhat reluctant to challenge Donald Trump. Perhaps they fear regulatory reprisal.
I also believe that many of Trump’s strongest critics — often Democrats — are ill-suited to understand or admit this side of the problem. They have plenty of good arguments against Trump, but I haven’t heard this one yet.
Here is an excerpt from the Vermeule review of Hamburger:
One reaction to Hamburger’s book might be that it is interestingly wrong, in an unbalanced sort of way. On that view, the book could be seen as offering a kind of constitutional fiction, an oddly skewed but engagingly dystopian vision of the administrative state — one that illuminates through its very errors and distortions, like a caricature, or the works of Philip K. Dick. The book might then be located in the stream of legalist-libertarian critique of the administrative state, the line running from Dicey, through Hewart and Pound and Hayek, to Richard Epstein. That work is nothing if not interesting, if only because it is so hagridden by anxiety about administrative law.
On further inspection, though, this book is merely disheartening. No, the Federal Trade Commission isn’t much like the Star Chamber, after all. It’s irresponsible to go about making or necessarily implying such lurid comparisons, which tend to feed the tyrannophobia that bubbles unhealthily around the margins of popular culture, and that surfaces in disturbing forms on extremist blogs, in the darker corners of the internet.
Whether you agree with Vermeule or Hamburger or stand somewhere in between, the disturbing reality is that Hamburger’s perspective could become more relevant rather more quickly than many of us had expected.
Read Ben Sasse:
Statements from Trump:
***“We’re going to open up libel laws and we’re going to have people sue you like you’ve never got sued before.”
***“When the students poured into Tiananmen Square, the Chinese government almost blew it. They were vicious, they were horrible, but they put it down with strength. That shows you the power of strength. Our country is right now perceived as weak…”
***Putin, who has killed journalists and is pillaging Ukraine, is a great leader.
***The editor of National Review “should not be allowed on TV and the FCC should fine him.”
***On whether he will use executive orders to end-run Congress, as President Obama has illegally done: “I won’t refuse it. I’m going to do a lot of things.” “I mean, he’s led the way, to be honest with you.”
***“Sixty-eight percent would not leave under any circumstance. I think that means murder. It think it means anything.”
***On the internet: “I would certainly be open to closing areas” of it.
***His lawyers to people selling anti-Trump t-shirts: “Mr. Trump considers this to be a very serious matter and has authorized our legal team to take all necessary and appropriate actions to bring an immediate halt…”
***Similar threatening legal letters to competing campaigns running ads about his record.And on it goes…
Is fear of regulatory reprisal from a Trump administration so unrealistic? I don’t think so.
The Logic of Closed Borders
Bloomberg: At least 100 workers at the construction site for Tesla Motors Inc.’s battery factory near Reno, Nevada, walked off the job Monday to protest use of workers from other states, a union official said.
Local labor leaders are upset that Tesla contractor Brycon Corp. is bringing in workers from Arizona and New Mexico, said Todd Koch, president of the Building and Construction Trades Council of Northern Nevada.
“It’s a slap in the face to Nevada workers to walk through the parking lot at the job site and see all these license plates from Arizona and New Mexico,” Koch said in an interview. Those who walked out were among the hundreds on the site, he said.
Erik Brynjolfsson tweeted “Build a wall! And make New Mexico pay for it.” Or perhaps require that Nevada carpenters be licensed.
Occupational Licensing Reduces Mobility
Brookings has a good memo on four ways occupational licensing reduces both income and geographic mobility. Here is point 1:
Since state licensing laws vary widely, a license earned in one state may not be honored in another. In South Carolina, only 12 percent of the workforce is licensed, versus 33 percent in Iowa. In Iowa, it takes 16 months of education to become a cosmetologist, but just half that long in New York. This licensing patchwork might explain why those working in licensed professions are much less likely to move, especially across state lines:
The graph, is from the excellent White House report on occupational licensing. The first blue column says that workers in heavily licensed occupations are nearly 15% less likely to move between states than those in less licensed occupations–this is true even after controlling for a number of other variables that might differ across occupations and also influence mobility such as citizenship, sex, number of children, and education.
The orange column provides another test. An occupational license makes it difficult to move across states but not within a state. If workers in licensed occupations had lower rates of mobility for some other reason than the license then we would expect that workers in heavily licensed occupations would also have lower rates of within state mobility. The orange bars show that workers in heavily licensed occupations do have slightly lower rates of within state mobility but not by nearly enough to explain the dramatically lower rates of between state mobility.
Lower rates of worker mobility mean that workers are misallocated across the states in a similar way that price controls or discrimination misallocate resources and reduce total wealth. Lower rates of workforce mobility also increase the persistence of unemployment.
To its credit, the Federal government is investing in efforts to make licenses more portable including encouraging “cross-State licensing reciprocity agreements to accept each other’s licenses.” Cross-state reciprocity agreements sound like an excellent idea.
Should we ban the $100 bill?
Ashok Rao has an excellent post on this question, and it is not obvious that a ban is in order. Here are a few parts of his multi-faceted argument:
- There is an information tradeoff. Imagine if criminals transacted only in $10,000 notes. It would be reasonably easy for intelligence agencies to sneak a traceable note to probe criminal networks. This would be close to impossible with a $20 note (not the least because this is a high velocity note used by normal people).
- Citing the high use of $100 among criminals doesn’t mean much. Of course criminals use the lightest / most compact / highest denomination currency at their disposal. Therefore suggestions along the lines of “n% of criminal activity is transacted in $100 bills” mean little because if we got rid of the $100 and managed to avoid the problems noted in point (1) it would be the case that “n% of criminal activity is transacted in $20 bills”.
I found this information on premia interesting, note the premia serve as an implicit tax for trading in $100 bills, though I wonder who exactly reaps that surplus?:
Finally, Ashok tells us this:
Would we not be hurting innocent people in oppressive regimes? Aren’t there autocracies in Africa and Eastern Europe that use HDN [high denomination] dollars as a means of trade in otherwise embargoed necessities?
Recommended.
Apple-Samsung Patent War Grinds On
The latest court decision in the Apple-Samsung patent war was a resounding defeat for Apple. Whatever you think about the merits of the case, however, Tim Worstall points out that the system isn’t working:
It’s easy enough to forget that the smartphone patent wars are still rumbling along. The actual competitive issues were all settled some years ago, the market has entirely moved on from the issues that were being discussed. However, the court cases over those patents carry on: and that’s exactly what is wrong with the system that we’ve got at present.
..taking 5 years to decide (assuming that there won’t be yet more appeals) in a market with a new generation of devices at least every year simply isn’t timely. Those competitive issues over who gets to sell what based upon copying or innovation have receded way back into the mists of time. None of the products under discussion are still on sale and haven’t been for a couple of years now. Whatever market opportunity either party had, either Apple or Samsung, is dead and gone now. But we’re still trying to decide over who should have that market opportunity? It’s just not working.
Why did the Whig Party collapse?
The Whigs were also badly hurt by the short-lived Native American or Know-Nothing party, which was primarily anti-immigrant and anti-Catholic.
That is just part of the answer of course. Here is another account, again too simplistic:
- For a brief time, many Americans supported the nativist Know-Nothing Party, concerned that the Know-Nothings might represent the only truly national party possible, largely united by a general fear of Catholic immigrants.
- But in the end, the issue over slavery proved stronger than fears over non-protestant immigrants, and southerners lined up behind the Democratic party and northerners behind the Republican party.
- Sectional party systems replaced a national party.
This seems to be the definitive detailed account. Try this book too. Most of the time, however, parties do not collapse but rather party members fall in line, fearing the costs of the alternatives, including the costs to their careers.
Here is my previous post Why did the Federalist Party collapse?
Why did the Federalist Party collapse?
I am not sure what prompted me to read up on this topic, but here is part of one of the dizzying answers I found:
When the votes were counted, Jefferson and his running mate Aaron Burr had both received seventy-three electoral votes; John Adams had obtained sixty-five, while Pinckney, his running mate, had sixty-four. The one remaining vote had gone to John Jay. The Federalists had denied one vote to Pinckney to insure that he would not obtain the presidency instead of Adams. The Republicans, however, had blundered in this respect. The Constitution provided merely that the candidate with the largest number of electoral votes should become President. As it was, Jefferson and Burr were tied. The election went into the House of Representatives where the Constitution provided that a state’s vote would be cast by a majority decision of its representatives. Since the Federalists controlled six states and had divided control in two states, they could prevent the election of either Republican – and over the bitter opposition of Hamilton they contemplated throwing their support behind Burr. They hoped to break the Republican ranks and secure themselves from “the fangs of Jefferson.” Hamilton pressed for the election of Jefferson, his old rival, insisting that Burr had the inclinations of a Caesar whereas Jefferson, despite his democratic fanaticism, would conserve the established order. But the Federalists, ignoring the urgent protests of Hamilton, persisted in a course that threatened to complete the Federalist debacle. Hamilton saw himself in “the awkward situation of a man who continues sober after the company are drunk.” Burr did nothing to simplify their task, to cooperate by private word or deed.
And that is only part of the story. Here is a simpler and indeed too simplistic account:
The Federalist party had the perception of favoring the upper class, and as a result they began to lose support of the general population. The Democratic and Republican parties started focusing on issues that appealed more to the “common man”, and as a result began to sway voters away from the Federalist party until it finally ceased to exist.
I’ll let you know what else I learn about this topic.
The (refugee) problem with the Coase theorem
The EU’s agreed a €3bn deal with Turkey in order to help keep more migrants in the country, and reduce the influx of migrants. There’s been a lot of squabbling over how much each EU member state would pay, and the commitments have finally been agreed. The cash has not yet been delivered with concrete details yet to be ironed out. This has not been helped with the Turkish President Recep Tayyip Erdoğan threatening to send buses of migrants over the borders. The deal is sweetened for Turkey with a renewed commitment to talk about possible EU accession, and visa-liberalisation for Turkish citizens into the Schengen Area.
Perhaps the last part of that deal would not prove so popular with many EU citizens. Elsewhere:
…Tsipras has upped the ante again: warning parliament in Athens that he will not allow Greece to become, “a warehouse of souls,” and announcing that if Greece is left alone to deal with the crisis, he would block EU decisions at the next leaders’ summit in Brussels.
The Open Europe post is a good look at how Europe is failing to solve its refugee problems, or even come close.
I have high hopes for Stripe Atlas
Stripe Atlas [is] a new product the company unveiled this week at Mobile World Congress in Barcelona. It aims to make it easier for entrepreneurs to set up small businesses in the United States. If all goes according to Stripe’s plan, Atlas could let start-up founders sidestep some of the bureaucratic hurdles that often hamper building a new business.
Determining eligibility requires little more than filling out a form. After that, Stripe will incorporate an entrepreneur’s company as a business entity in Delaware, and provide the entrepreneur with a United States bank account and Stripe merchant account to accept payments globally.
The target audience is all of the entrepreneurs outside the United States who want access to the country’s well-developed banking infrastructure and business services. Stripe is particularly interested in attracting entrepreneurs from Africa, Latin America, the Middle East and parts of Asia, among other regions.
…Eligible entrepreneurs will also be offered access to basic tax and legal consulting and business services from partners like PricewaterhouseCoopers, and will receive free credit to run their online business on the Amazon Web Services hosting platform.
Atlas is to begin on Wednesday in an invitation-only beta test; entrepreneurs can apply for the program through Stripe or one of the 50-plus start-up accelerator programs that the company has teamed up with globally. The beta program’s cost is $500.
Here is the Mike Isaac NYT article.
What is the dollar value of U.S. citizenship?
Neil Munro writes to me with a question:
…[what is] the dollar value of U.S. citizenship, because of its financial, security, status and other benefits for an immigrant form China or India?
Do you know of people who have tried to calculate the value? Net-present value, I’d guess.
There is the famous paper by Michael Clemens, but I don’t think it calculates such a number straight up. How about the lead Sumption link here? Do any of you know the best answer?
My conversation with Nate Silver
The video, podcast, and transcript are here. Nate of course was excellent, here are just a few bits:
COWEN: What are the differences between forecasting and futurism, and do you have any predictions for the year 2050? They don’t have to be great. They just have to be better than the market. We’ll take a 52 percent prediction and go home and celebrate.
SILVER: I’m mildly pessimistic in some ways.
COWEN: What’s the biggest source of your pessimism?
SILVER: [laughs] There’s probably some survivorship bias in the United States, and thinking about how our way will persevere forever and ever and ever. We were talking backstage about how you go to Asia and I go to Asia — not as often as you. If you want to feel optimistic about civilization, then go there.
And:
COWEN: You’re a fan of baseball, and I’d like to ask you, of all the different baseball records, which is the one that is most impressive to you, or the most a statistical aberration, and try to stay a bit modern. We both know in 1889, Hoss Radbourn won 59 games.
Start with [Owen] Wilson’s — was it 36 triples in 1912? That, and up through the modern age. What’s the most statistically impressive baseball record, and why?
SILVER: I think the biggest outlier is the number of intentional walks that Barry Bonds drew. I forget what year it was, 2001, where he had like 161 intentional walks, and the next closest player is 50?
And:
COWEN: Singapore. Overrated or underrated?
SILVER: Underrated except by you.
There is of course much, much more, including remarks on the candidates and the elections, as well as My Bloody Valentine and more on sports too, prediction markets as well, the weather, and why so few professional athletes have come out as gay. Recommended.
The Good News on the FDA and ANDAs
Yesterday, I pointed out that generic drug prices are falling. So what accounts for the small number of large price increases in the generic drug market? It’s a combination of market shenanigans, supply shocks, and FDA delay.
The markets where price increases have been large tend to be relatively small. Daraprim, for example, is only prescribed some 8-12 thousand times per year in the United States. The small size of these markets is no accident. Keep in mind that whatever one may think of Shkreli, he did show a kind of entrepreneurial genius in scouring the universe of drugs in the United States to select one where monopoly power could be so effectively exploited. Shkreli found a market where 1) the total size of the market was low so there wasn’t much competition but 2) the drug treated a serious illness and 3) there wasn’t a good substitute so the value of the drug to the small number of patients was very high.
In addition, Shkreli knew that he had at least a 3-4 year window of opportunity to exploit monopoly power. To compete with Daraprim a competitor would have to submit an Abbreviated New Drug Applications (ANDA) to the FDA. Despite the name, Abbreviated, it costs at least five million dollars to go through the process and right now there is a backlog of nearly 3,000 ANDAs at the FDA’s Office of Generic Drugs. In recent years, it has taken 3- 4 years to get a generic drug approved. The cost is too high and the delay too long.
(I am focusing on the standard route to market entry and ignoring the possibility of importation or compounding which I discussed earlier. I’m also ignoring that Daraprim is unusual in that it was approved in 1953 before the current FDA system of safety and efficacy trials, and the FDA is being absurdly cagey about whether they would allow a simple ANDA for Daraprim. I may write about that in a future post– see here for a related case.)
So what’s the good news? In 2012 Congress passed the Generic Drug User Fee Act (GDUFA). Modeled after the very succesful PDUFA, the act earmarks fees paid by generic drug manufacturers to the FDA’s Office of Generic Drugs. As a result of those fees, the FDA has hired more reviewers and they are rapidly reducing the backlog. That’s the first piece of good news.
A second piece of good news is that FDA delay isn’t the only cause of the backlog. Another cause of the ANDA backlog was an unexpected increase in the number of ANDAs. I would have been much more worried if the number of ANDAs had decreased. Despite new user fees and some increase in regulation the increase in submissions is evidence that the US generic market is competitive, vibrant, and profitable.
The generic drug market in the United States has been very successful. We are constantly told, for example, that US pharmaceutical prices are the highest in the world and that is true for patented drugs but generic drug prices in the US are among the lowest in the developed world and most prescriptions are of generics.
We can address the price hiccups in the generic market by opening up to more world suppliers, speeding up the ANDA process and keeping costs of entry low. Overall, however, we shouldn’t let the price hiccups detract attention from the fact that the generic drug market is competitive, vibrant and thriving and we want to keep it that way.
Does paying cash now cut your health care bill?
This one is new to me, and I cannot vouch for it. Nonetheless I wondered if this report from Melinda Beck at the WSJ might be a positive sign:
Not long ago, hospitals routinely charged uninsured patients their highest rates, far more than insured patients paid for the same services. Now, in the Alice-in-Wonderland world of health-care prices, the opposite is often true: Patients who pay up front in cash often get better deals than their insurance plans have negotiated for them.
That is partly due to new state and federal rules aimed at protecting uninsured patients from price gouging. (Under the Affordable Care Act, for example, tax-exempt hospitals can’t charge financially strapped patients much more than Medicare pays.) Many hospitals also offer discounts if patients pay in cash on the day of service, because it saves administrative work and collection hassles. Cash prices are officially aimed at the uninsured, but people with coverage aren’t legally required to use it.
Here is the full story.
The biases in Chinese SOEs
Chinese state-owned acquirers often seem motivated by non-commercial impulses, which complicates matters. By carrying out directives to “go out and buy” businesses that fit with Beijing’s industrial policy, state-owned companies and even a few of their private counterparts win kudos in the Communist party hierarchy. That helps them tap into official largesse, such as approval for expansion plans and backing from state banks and capital markets.
“State-owned enterprises have high incentives to increase their size, and they use plans outlined by [government agencies] as weapons to expand both domestically and internationally,” says Victor Shih, professor at University of California San Diego. “The bigger they are, the more political weight and more room for rent-seeking can be enjoyed by senior management.”
That is from a longer and excellent FT feature story on Chinese SOEs.