Category: Law
Local loop unbundling for cable
Felix Salmon endorses local loop unbundling for cable, so does Kevin Drum.
My earlier analysis simply was assuming that we will not make this policy shift and then asking how worried we should be about the resulting semi-monopoly power in that market. If you would like to see the pro-case, here is a UK study (pdf) showing unbundling improves quality. Here is French evidence for higher penetration, often through quality rather than just price effects. Here is Tom Hazlett on related issues (pdf) and Vernon Smith is a long-time proponent of related ideas.
I don’t, however, agree with Felix’s presumption that all we need do is refine the current infrastructure, or his claim that there are no other effective forms of competition at current margins. Penetration rates could be a few percentage points higher, and that is an economic cost from the status quo, but in Felix and some of the other commentators I am seeing a black and white version of a monopoly story that simply does not correspond to the facts. Furthermore the current monopoly power of cable means that infrastructure will be laid down more quickly next time around, and moving to local loop unbundling would weaken this incentive by confiscating some of the rents from the infrastructure investments of the cable companies. I probably would make this trade-off, but that further blunts any estimate of the net costs from the U.S. status quo.
Note also that Netflix has turned out to be worth a lot of money as a company, a reality which those who pushed the “cable as extreme monopoly” view denied could happen, out of a belief the cable companies would simply confiscate any Netflix rents.
And here is Peter Huber on how deregulation — yes the dreaded “D word” — can improve cable competitiveness.
New trend of people naming their kids after guns
Via Kottke, here is Abby Haglage:
In 2002, only 194 babies were named Colt, while in 2012 there were 955. Just 185 babies were given the name Remington in 2002, but by 2012 the number had jumped to 666. Perhaps the most surprising of all, however, is a jump in the name Ruger’s (America’s leading firearm manufacturer) from just 23 in 2002 to 118 in 2012. “This name [Ruger] is more evidence of parents’ increasing interest in naming children after firearms,” Wattenberg writes. “Colt, Remington, and Gauge have all soared, and Gunner is much more common than the traditional name Gunnar.”
The tax treatment of sperm and egg sales
But what kind of income is it?:
Also, Perez could pay lower tax rates on the income if it were treated as long-term capital gains. Eggs could be considered property she had possessed since birth, in which case the sale could be seen as a long-term capital gain.
If they’re not considered property until removed from her body, the eggs could be seen as generating short-term gains.
Richard Carpenter, Perez’s San Diego-based attorney, said the judge said after the trial that the capital gains questions wouldn’t apply in this case.
I like the phrase “future sperm tax certainty” from the title of the piece. There is more here, from Richard Rubin. For the pointer I thank Vic Sarjoo.
The life of a Western economist in China
For most academics not in China, it is difficult for them to understand the level of scrutiny and monitoring we face on regular basis. Most professors have students assigned to monitor them and security officials approaching many people to report on our behavior. Our email is widely acknowledged, even by students, as being read. While there are some overt obvious forms of intimidation as I have detailed, much of it is also the “deal you can’t refuse” variety. There are no overt threats but the message is clear.
There is much more here, from Christopher Balding (pdf of his vita), worth the read.
The biggest problem with Swiss immigration restrictions
Switzerland really does produce global tfp, Tim Berners-Lee being the most obvious example, not to mention CERN, particle colliders, and pharmaceuticals:
The outcome of an ill-conceived referendum on 9 February against ‘mass immigration’ threatens to spoil Switzerland’s beautiful science landscape (see page 277).
The full story is here. For the pointer I thank Michelle Dawson.
Michael Strain’s new jobs agenda and mobility payments
I have been meaning to cover this topic, here is an overview from Reihan. There is one brief version from Strain here. He has many valuable ideas, and the one which has caught my attention is this:
Offering relocation vouchers to the long-term unemployed in high-unemployment areas…
There are some pretty good jobs around, including in parts of Texas and North Dakota. The point is not that these jobs/regions could absorb all of the current unemployed, but rather that we can learn something about the current unemployed (at the margin of course) but noting that these jobs remain unfilled.
First, I would like to know what the unemployment (participation?) rate would be today if American labor had a mobility rate closer to that of the early to mid 1980s.
Second, here is a study (pdf) of a 1976 federal jobs relocation subsidy program. The conclusion is vaguely positive, but not firm. Here is a study (pdf) of relocation assistance in Germany, mostly positive. Here is a good discussion of U.S. trade adjustment relocation assistance with lots of numbers (pdf), it tries to be positive but my reading of the content suggests lukewarm results. Here is a Brookings proposal (pdf).
Some states offer relocation assistance, for Wisconsin you need to have a job elsewhere already lined up. Perhaps that restriction should be eased, but in any case I do not hear of massive success stories from current relocation programs, even if they are net positives. Here is a CRS overview of federal programs for unemployed workers, some of which boost mobility. Here are some FAQs on trade adjustment relocation assistance.
Third, I wonder if a subsidy is the right response here. After all, there is already a potential benefit from moving, assuming the subsidy idea makes sense in the first place. Yet, if we are to accept many of the more pessimistic behavioral accounts of unemployment, a lassitude and feeling of hopelessness sets in. Positive incentives may not suffice, at least not in the absence of a behavioral spur to change the process of decision-making and induce some more pro-active choices.
By the way, there are some bureaucratic complications — not daunting ones but costs nonetheless — if you switch states while looking for a job and collecting UI. Perhaps these paperwork requirements could be eased and turned into a simple one-click process.
What if it turned out that a tax or penalty for unemployed non-movers was overall more effective? Would or should we be willing to support such an idea? Of course it would inevitably fall on some innocent victims as well, people who should not move or people who cannot move, perhaps for reasons of family ties. How about a tax for staying combined with a benefit for leaving?
How about if the tax is based on a Big Data model to limit the number of unjust losers? That would mean more frequent taxes for Appalachian stayers, and less frequent taxes for individuals with elderly dependents on their tax returns.
If the tax were a big net plus for the current unemployed, but hit some innocent losers, and sent the wrong mood affiliation, would we still support it? Should we still support it? What if the tax took the form of poor public services? Does it need to be more aggressive than that?
Should we even be asking these questions?
Will raising the minimum wage boost crime?
There is a recent 2013 paper on this topic by Andrew Beauchamp and Stacey Chan, the abstract is here:
Does crime respond to changes in the minimum wage? A growing body of empirical evidence indicates that increases in the minimum wage have a displacement effect on low-skilled workers. Economic reasoning provides the possibility that disemployment may cause youth to substitute from legal work to crime. However, there is also the countervailing effect of a higher wage raising the opportunity cost of crime for those who remain employed. We use the National Longitudinal Survey of Youth 1997 cohort to measure the effect of increases in the minimum wage on self-reported criminal activity and examine employment–crime substitution. Exploiting changes in state and federal minimum wage laws from 1997 to 2010, we find that workers who are affected by a change in the minimum wage are more likely to commit crime, become idle, and lose employment. Individuals experiencing a binding minimum wage change were more likely to commit crime and work only part time. Analyzing heterogeneity shows those with past criminal connections are especially likely to see decreased employment and increased crime following a policy change, suggesting that reduced employment effects dominate any wage effects. The findings have implications for policy regarding both the low-wage labor market and efforts to deter criminal activity.
For the pointer I thank Kevin Lewis. And there is an ungated version here (pdf). And via Gordon, here is a profile behind one of the forces behind the campaign to raise the minimum wage. Here is a good recent article on minimum wages and cross-state mobility.
The CBO report on the minimum wage
Spin it as you wish, we should not have a major party promoting, as a centerpiece initiative and for perceived electoral gain, a law that might put half a million vulnerable people out of work, and that during a slow labor market.
And the American people will never understand the ins and outs of the monopsony debate and the like. Overall, what kind of useful lesson is being taught here about the determinants of wages and prosperity?
I’m sorry people, but those are the bottom lines on this one.
Headlines to warm an economist’s heart
Abba admit outrageous outfits were worn to avoid tax
Here is some explanation:
According to Abba: The Official Photo Book, published to mark 40 years since they won Eurovision with Waterloo, the band’s style was influenced in part by laws that allowed the cost of outfits to be deducted against tax – so long as the costumes were so outrageous they could not possibly be worn on the street.
In 2007 Ulvaeus was wrongly accused of failing to pay 85m kronor (£7.9m) in Swedish taxes between 1999 and 2005, and went on to successfully appeal against the decision.
“I am of course very happy that I have been informed in writing that I have always done the right thing concerning my taxes,” he said after the court victory.
The article is here, via Ted Gioia.
Freer trade in European and Spanish health care services
Spanish patients, like all Europeans, will now be able now choose which EU country to seek treatment in. The Cabinet last week approved a decree that implements an EU directive on cross-border healthcare. Under the system, patients will advance the money for their treatment abroad, but can request a reimbursement from their own country.
The directive aims to go one step beyond the emergency treatment already covered by the European Health Card and let patients choose another member state for specific, non-emergency treatment.
Spain however has concerns:
The State Council, the government’s key advisory body, has this week warned the government that the measure may put a major strain on Spain’s resources. “Given that our country is a recipient country for tourists, it seems likely that this could lead to an increase in demand for healthcare,” the State Council report on the law change says, which could result in “longer waiting lists.”
Additionally, reimbursement will not necessarily cover the total amount charged by the foreign hospital; instead Spanish authorities will use the official rates of each regional health service. Spain does not have a common set of rates; rather, each regional government sets its own public tariffs.
It might over time lead to higher prices. Here are some other possible implications:
Spain’s private health system could be the main beneficiary of this new system…This is because “prestigious and renowned” private health centers could get added clients now that member states have to reimburse their citizens. Of course foreigners could choose the public health system, but it would mean long waiting lists under the same conditions as Spanish patients.
Medical fees at both public and private hospitals in Spain are lower than in many other European countries. “It could well be that for Scandinavia it is cheaper to send patients to Spain,” notes Rivero.
There is more here. There is plenty of further information here, but only very recently has this cross-border directive been moving to a scale where it might make a real difference. Spain for instance seems to be a country which is cheap enough, sunny enough, and reliable enough to draw significant business.
“If Obamacare reduces labor supply, will it raise wages?”
That is Greg Mankiw’s post title, Greg writes:
In a couple of recent articles written by smart economists, I have read the following claim: CBO says the incentives in the Affordable Care Act will reduce labor supply. If it does, then real wages will increase.
That sounds like reasonable, textbook economics. But I don’t think it is true. The problem is that the logic is entirely partial equilibrium. It is holding everything else constant. But that is surely not right in the long run. Lower wages mean lower income, which means lower saving, which means lower investment, which means a lower capital stock, which means lower productivity, which means lower labor demand.
Perhaps the easiest way to think about this issue is in the context of a Solow growth model. In the Solow model, the steady-state real wage is a function of technology, the saving rate, and the population growth rate. If labor supply per person suddenly falls by, say, 2 percent and stays there, the real wage will rise initially, but it will eventually return to its former level. Steady-state income per person falls by the full 2 percent.
One effect that might occur is a change in the composition of labor income. If the Act reduces labor supply primarily among the low-skilled, while not having that effect among the highly-skilled, then we might get a change in the relative wages of skilled and unskilled. But an overall increase in real wages seems unlikely.
In an increasing returns to scale model, of course, this problem becomes worse.
Swiss immigration controls are directed against those who are like the Swiss
There is in Switzerland the issue of low-skilled immigration. But arguably more problematic — from a Swiss point of view — is precisely the immigration which feels most Swiss, such as the professionals who come from Germany. Note that since the late 1990s Germans are the single largest group of immigrants coming to CH (pdf). The Swiss, of course, fear the European Union juggernaut as a mechanism for taking away their sovereignty. Having more Kosovars or more Sri Lankans in the country doesn’t strengthen the hand of the EU much. Those are not EU groups anyway, non-EU migration into Switzerland has been falling for a long time, and besides those groups can be excluded from mainstream Swiss society with relative ease, if need be. But German arrivals? Many would gladly see Switzerland join the EU and at the very least it feels like the decision is no longer under the control of the Swiss themselves. Furthermore they are not so different from German-speaking Swiss and they (sometimes) eat similar kinds of cheese. And because they are so often highly skilled, and can fit in so well, they cannot easily be excluded (pdf) from positions of influence in Swiss society.
In other words, sometimes it is the skilled arrivals the domestic citizenry wishes to limit in numbers. And you can see that the share of skilled immigrants has been increasing in Switzerland for years. Here are some recent percentages.
This study by Sandro Favre (pdf) shows that a major wage impact of EU migration into Switzerland has been to cut down high wages at the top of the Swiss wage distribution. So there is an economic motive too, and it is not the same story that is sometimes told about say southern California and Mexican competition with low-skilled American workers.
I, too, am a small country of sorts and I am glad I do not have thirty identical twins running around out there, competing against me or speaking on my behalf at meetings. I would wish to exile them to other planets.
Who or what can check or limit the ECB?
A loyal MR reader, with expertise in this area, writes to me:
But this suggests an interesting thought experiment (regardless of the legality of OMT): suppose an ECB central banker were to overstep her/his legal authority and in doing so created all sorts of cross-border obligations. Would we have to `undo’ this policy? How is this individual to be policed?
In the US, the Fed is accountable to Congress. If ever the Fed overstepped its mandate, in theory, Congress could pass laws, subpoena officials, etc. to reign them in. In the Eurozone, the ECB was created without political overseers. Neither the Commission nor the European Parliament can change the ECB’s mandate; only a treaty change can do that. So if the ECB oversteps its mandate, this is a much more serious issue than if the Fed misbehaves.
If treaty law, the ultimate form of legal pre-commitment in the EU, governing the ECB can simply be cast aside whenever it is time-inconsistent, how should EU nations approach future treaty negotiations? Ignoring the treaty law could be very detrimental for the long-run institutional evolution of the EU. Few economists are willing to publicly entertain this prospect.
The Swiss vote for immigration curbs: how much immigration is possible without a backlash?
Here is the news:
A narrow majority of voters in Switzerland on Sunday approved proposals that would reintroduce restrictions on the number of foreigners who are allowed to live and work in the country, a move that could have far-reaching implications for Switzerland’s relations with the European Union.
You will note:
Switzerland, which is not part of the European Union, has one of the highest proportions of foreigners in Europe, accounting for about 27 percent of the country’s population of about eight million.
In my view immigration has gone well for Switzerland, both economically and culturally, and I am sorry to see this happen, even apart from the fact that it may cause a crisis in their relations with the European Union. That said, you can take 27% as a kind of benchmark for the limits of immigration in most or all of today’s wealthy countries. I believe that as you approach a number in that range, you get a backlash.
That number will be higher when there is a frontier or a shortage of labor. Those conditions do not generally hold in today’s wealthy countries. Adam Ozimek reproduces data on immigration as a flow and stock relative to citizens, and as a stock Switzerland was third highest in the world with Luxembourg at over 32% and Israel over 27%. I would say Israel does not count as their flows are largely a religious/ethnic unification from the former Soviet Union, in part with the purpose of protecting them against other potential population flows, to put it diplomatically.
The United States is 12th on the list with 12.1% foreign-born. Referring to the flow of immigrants, Adam notes:
Instead of 1 million immigrants a year, these numbers suggest we could be letting in as many as 3 million a year and we would still not rank in the top 5.
And there I think you have the relevant range for what a more liberal immigration policy would look like or could look like. I wonder by the way if for some reason small countries have an easier time swallowing high levels of migration, politically or culturally speaking, than do big countries. That’s counterintuitive, but it’s what Adam’s tables seem to be suggesting. (Is it because the small country is more culturally unified and thus somehow more secure?) If you look at the top twelve countries in terms of receiving a flow of immigrants, only Spain is significantly above the 20 million population mark, with countries such as Iceland, Ireland, and New Zealand prominent (and I suspect a more recent measurement would boot Spain off this list altogether). That would narrow the range of potential immigration increases even further for the United States.
One of my objections to the open borders idea is that I think it would be negative for sustainable, actually realized flows of immigration.
Addendum: Here is the distribution of voting across Switzerland, the Italian section was most anti-immigrant. Here is Rachman on why the Swiss should not be punished. Here is an excellent detailed analysis by Dennis MacShane. Overall I see this as a broader political earthquake which will spread throughout Europe.
Wolfgang Münchau worries about OMT
The German court left no doubt that the Bundesbank and other German institutions were bound by the constitution. They also made clear they were not letting go of this case. The ruling gives the distinct impression that the judges are referring the case not up to a higher court but down to a lower court…
So what would happen if the ECB wanted to trigger the scheme? Following this ruling, I am not sure the Bundesbank could participate. That would be an inconvenience, no more. I would also expect, though with less certainty, that the German government would torpedo OMT through a technical lever. The scheme requires potential beneficiaries first to apply for a conditional credit line from the European Stability Mechanism. This is where the governments come in: they have to approve any ESM programme by unanimity.
What if the government and parliament voted in favour of a credit line? You could count on an immediate legal challenge at the constitutional court. This is the point when the ruling will matter. The court would then either eat its words or trigger a crisis. It will not refer another case to the ECJ.
The FT piece is here. Developing…
Addendum: Here is commentary from Hans-Werner Sinn.