Category: Law

Don’t Check Asian

USA Today: Lanya Olmstead was born in Florida to a mother who immigrated from Taiwan and an American father of Norwegian ancestry. Ethnically, she considers herself half Taiwanese and half Norwegian. But when applying to Harvard, Olmstead checked only one box for her race: white.

“I didn’t want to put ‘Asian’ down,” Olmstead says, “because my mom told me there’s discrimination against Asians in the application process.”

Her Mom is correct:

Asian students have higher average SAT scores than any other group, including whites. A study by Princeton sociologist Thomas Espenshade examined applicants to top colleges from 1997, when the maximum SAT score was 1600 (today it’s 2400). Espenshade found that Asian-Americans needed a 1550 SAT to have an equal chance of getting into an elite college as white students with a 1410 or black students with an 1100.

Note that this is true even though there is a history of discrimination against Asians in the U.S., Asian children also do well on extra-curricular activities and many have poor, immigrant backgrounds.

Comparing schools which can and cannot legally discriminate suggests a lot of discrimination. At Yale the class of 2013 is 15.5 percent Asian-American, at Dartmouth 16.1 percent, at Harvard 19.1 percent, and at Princeton 17.6 percent. These figures are above the Asian share of the population but compare:

The California Institute of Technology, a private school that chooses not to consider race, is about one-third Asian. (Thirteen percent of California residents have Asian heritage.) The University of California-Berkeley, which is forbidden by state law to consider race in admissions, is more than 40 percent Asian — up from about 20 percent before the law was passed.

Interestingly, the Obama administration has recently reversed Bush era rules and interpretations in order to promote race-based admissions:

Bush guidelines: “Before using race, there must be a serious good faith consideration of workable race-neutral alternatives.”

Obama guidelines: “Institutions are not required to implement race-neutral approaches if, in their judgment, the approaches would be unworkable.”

Governor Jerry Brown would also like to repeal or limit CA’s ban on race-based admissions.

Compensation Now Legal for Bone Marrow Donation

Excellent news; yesterday the Ninth U.S. Circuit Court of Appeals issued a unanimous opinion stating that compensation for bone marrow donation, specifically peripheral blood stem cell apheresis, is legal because such donation does not fall under the National Organ Transplant Act (NOTA).

The case was simple and it’s outrageous that the government fought. In brief, a bone marrow donation used to require inserting a very big needle into the donor’s hip bone, a painful hospital-procedure often requiring general anesthesia. Today, however, donors typically do not donate marrow but hematopoietic stem cells which can be harvested directly from blood in a procedure that takes a little longer but is essentially similar to a standard blood donation. Compensation for blood is legal (blood is excluded as an organ under NOTA). The plaintiffs, led by the Institute for Justice, argued and the court agreed that there is no rational basis for outlawing one type of blood donation when a similar donation is legal.

I was shocked by the utter boneheadedness of one of the government’s arguments:

…the government argues that because it is much harder to find a match for patients who need bone marrow transplants than for patients who need blood transfusions, exploitative market forces could be triggered if bone marrow could be bought.

In other words, markets are forbidden just when they are most useful. It was in fact the patients with rare matches who brought this case. As the court noted:

…a physician and medical school professor…says that at least one out of five of his patients dies because no matching bone marrow donor can be found, and many others have complications when scarcity of matching donors compels him to use imperfectly matched donors. One plaintiff is a parent of mixed race children, for whom sufficiently matched donors are especially scarce, because mixed race persons typically have the rarest marrow cell types.

The patients with the most common cell types can afford to rely on the kindness of strangers. You don’t need a lot of kindness when there are a lot of strangers. The patients who are most difficult to match need to leverage altruism with incentive. It’s a lesson with many applications.

Launching the Innovation Renaissance

Launching the Innovation Renaissance (Amzn link, B&N for Nook, also iTunes) my new e-book from TED books is now available!  How can we increase innovation? I look at patents, prizes, education, immigration, regulation, trade and other levers of innovation policy. Here’s a brief description:

Unemployment, fear, and fitful growth tell us that the economy is stagnating. The recession, however, is just the tip of iceberg. We have deeper problems. Most importantly, the rate of innovation is down. Patents, which were designed to promote the progress of science and the useful arts, have instead become weapons in a war for competitive advantage with innovation as collateral damage. College, once a foundation for innovation, has been oversold. We have more students in college than ever before, for example, but fewer science majors. Regulations, passed with the best of intentions, have spread like kudzu and now impede progress to everyone’s detriment. Launching the Innovation Renaissance is a fast-paced look at the levers of innovation policy that explains why innovation has slowed and how we can accelerate innovation and build a 21st century economy.

Here is a blurb from Paul Romer (NYU):

Progress comes from improvements in both our technologies and our rules. Alex Tabarrok makes a compelling case that in the United States, our rules on patents, education, and immigration are holding us back. If you want to think clearly about policies that matter for growth, turn off the TV, stop surfing the web, and read this book!

I discuss prizes and education in Launching and so was especially pleased to get this endorsement from Tom Vander Ark, formerly the president of the X PRIZE Foundation and the Executive Director of Education for the Bill & Melinda Gates Foundation and now CEO of Open Education Solutions.

If you’re a fan of MarginalRevolution like I am, you’ll want to read Tabarrok’s latest book. If you’re interested in innovation like I am, you need to read Launching the Innovation Renaissance. Alex poses thought experiments from patents to prizes, from health to education to immigration. He skewers Soviet-style employment bargains and offers insightful alternatives to improve our educational system. Alex is occasionally snarky, often witty, always incisive. Read this on your next flight.

FYI, I began this book before I read a draft of Tyler’s book The Great Stagnation and was interested to see that although we share a few common themes that perhaps due to differences in personality Tyler focuses on describing problems while I am more excited to promote solutions!

Melissa Dell on trafficking networks and the Mexican drug war

This is the abstract, from a very smart and brave woman:

Drug trade-related violence has escalated dramatically in Mexico during the past five years, claiming 40,000 lives and raising concerns about the capacity of the Mexican state to monopolize violence. This study examines how drug traffickers’ economic objectives influence the direct and spillover effects of Mexican policy towards the drug trade. By exploiting variation from close mayoral elections and a network model of drug trafficking, the study develops three sets of results. First, regression discontinuity estimates show that drug trade-related violence in a municipality increases substantially after the close election of a mayor from the conservative National Action Party (PAN), which has spearheaded the war on drug trafficking. This violence consists primarily of individuals involved in the drug trade killing each other. The empirical evidence suggests that the violence reflects rival traffickers’ attempts to wrest control of territories after crackdowns initiated by PAN mayors have challenged the incumbent criminals. Second, the study accurately predicts diversion of drug traffic following close PAN victories. It does this by estimating a model of optimal routes for trafficking drugs across the Mexican road network to the U.S. When drug traffic is diverted to other municipalities, drug trade-related violence in these municipalities increases. Moreover, female labor force participation and informal sector wages fall, corroborating qualitative evidence that traffickers extort informal sector producers. Finally, the study uses the trafficking model and estimated spillover effects to examine the allocation of law enforcement resources. Overall, the results demonstrate how traffickers’ economic objectives and constraints imposed by the routes network affect the policy outcomes of the Mexican Drug War.

The link to her papers — all of which look interesting — is here.  She is currently on the job market from MIT, and I will be serving up some further posts on a few of the more interesting job market papers this year.  The original pointer is from Chris Blattman.

Here is a good summary and discussion from Ray Fisman:

Dell conjectures—based on anecdotal evidence about the drug war—that police efforts tend to weaken a cartel’s grip on a town just enough that competing traffickers see an opening to come in and fight for control of the town. Indeed, when a rival cartel controls a neighboring town, the effect of a PAN win on the drug-related homicide rate is several times higher.

And:

Drug confiscations in the communities where Dell predicts traffickers will relocate to following a crackdown increase by about 20 percent in the months following close PAN victories. It’s a reminder that crime fighting is a bit like Whac-A-Mole—smothering traffickers’ activities in one locale merely causes them to shift their operations elsewhere. Dell finds that drug-related homicides also go up in places that her model predicts will lie on traffickers’ new paths from Mexican drug labs to the U.S. border.

The culture that is Germany, kein eurobond für den Papst

A GERMAN citizen has filed a complaint against Pope Benedict XVI for not using a seat belt in the Popemobile during his September visit to his homeland.

Lawyer Johannes Christian Sundermann has filed papers in Dortmund on behalf of his unnamed client, charging the Pope with “repeated breaches” of Germany’s seat belt law.

“Herr Joseph Ratzinger, born 16 April 1927 in Marktl/Altötting” travelled on September 24th and 25th “for the duration of more than an hour” without a seat belt, the lawyer states in documents.

Mr Sundermann and his client say they can prove the repeated misdemeanour during his visit to Freiburg – using videos from YouTube.

Here is more.

The 57,000 Page Tax Return

The NYTimes reported earlier this year that through an extraordinary use of tax breaks and clever accounting:

[General Electric] reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

The Times highlighted the skill of GE’s dream team:

G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

More recently from The Weekly Standard we find what kind of effort it takes to pay no taxes on $14 billion in profits:

General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked.

(FYI, the length of GE’s tax return has doubled since 2006 when it (first?) filed electronically at an equivalent of 24,000 pages.)

GE’s tax bill illustrates both why our corporate tax rate is too high and too low. The nominal rate is too high which encourages a real rate which is too low.

Consider the resources that GE spends to lowers its tax bill, not just the many millions spent on clever accounting and accountants and the many millions spent on lobbying but also the many inefficient ways that GE structures its businesses just to avoid paying taxes and the many millions it invests in socially wasteful projects just in order to produce privately valuable tax credits. Now add to that the allocational inefficiencies of taxing some firms at different rates than others and you have a corporate tax system which wastes a lot of resources and raises relatively little revenue. Indeed, a corporate tax system with a tax rate of zero could well be preferable as it would waste fewer resources and raise not much less revenue.

Hat tip: TaxProf blog.

I understand this…and yet I don’t

New curbs for US banks that restrict their ability to trade with their own capital will hit liquidity and demand for eurozone government bond markets at a time when both are in short supply, bankers have warned as they prepare to lobby regulators to water down the rules.

The FT story is here.  How about a simpler rule?:  “The Volcker Rule shall be applied, in the interests of bank safety, except we shall exempt all troubled and risky asset classes.”

Markets in everything separating equilibrium edition

Consider the innovative employment policy of the Internet shoe seller Zappos. At the end of a four-week training course, Zappos offers new employees a one-time offer of $3,000 to quit. In part, the company uses the offer as a screening device. If you’re the type who prefers a quick three grand to the opportunity to work at a great company, then Zappos isn’t the place for you.

Here is a proposal to apply the same idea to law school.

Switzerland fact of the day

Nearly half the marriages in Switzerland are international ones, up from a third in 1990.

Yet language still matters:

…the Swiss “marry out” in particular ways. The German-speaking Swiss marry largely neighbouring Germans; the Francophone Swiss marry the French; Italian-speakers marry Italians.

Story here, and here are some more numbers:

According to Gavin Jones of the National University of Singapore, 5% of marriages in Japan in 2008-09 included a foreign spouse (with four times as many foreign wives as husbands). Before 1980, the share had been below 1%. In South Korea, over 10% of marriages included a foreigner in 2010, up from 3.5% in 2000. In both countries, the share of cross-border marriages seems to have stabilised lately, perhaps as a result of the global economic slowdown.

…in France the proportion of international marriage rose from about 10% in 1996 to 16% in 2009. In Germany, the rise is a little lower, from 11.3% in 1990 to 13.7% in 2010.

…In most developing countries, the share of men married to foreign women was less than 2% in 2000 (0.7% in Ghana and Bolivia; 0.2% in Colombia and the Philippines; 3.3% in South Africa)…only 4.6% of Americans were married to a foreigner in 2010, up from 2.4% in 1970.

How to leave the Uros zone (no typo, if only it were so easy)

…the Uros have managed to retain their independence and lifestyle by living on 93 floating islands, which they build and maintain from totora reeds, some five kilometres off the coast and accessible only by a 20-minute boat ride from Puno.

…Should there be disputes between families living on the same island it is easy to cut a single home off and float it to another island.

The full story is here, much more information here.

Sign of the times

A major credit agency warns that Penn State University’s bond rating could be downgraded because of risks to its reputation and finances from a child sex abuse scandal.

Moody’s Investors Service said Friday it has put the university’s Aa1 bond rating under review for a possible downgrade after ex-coach Jerry Sandusky was charged with molesting eight children over a 15-year period.

Moody’s will assess the potential impact on Penn State of risks from possible lawsuits, a decline in students applying to attend the school, loss of donations from philanthropies and changes in its relationship with the state.

Here is the link, hat tip to Michael Rosenwald.

Italy fact of the day

A 2007 PwC/World Bank report tried to estimate the total net tax burden on companies in different countries, original study here (pdf).

Italy has a total net, real corporate tax rate of 68.6 percent, see p.30 for the derivation and the list of all the constituent taxes, such as stamp duties, chamber of commerce duties, real estate taxes, fuel taxes, and regional taxes, as well as the more traditional corporate taxes and taxes on the employment of labor.  (NB: not all those taxes are enforced, or borne by the corporation, still it is a grim picture.)

That’s the worst in all of Europe, see p.33.

On p.34 you’ll see the numbers for Africa, somehow Democratic Republic of the Congo gets above three hundred percent.  There is much of interest in the entire study.

For the pointer to the study I thank the excellent Economic Lessons from Scandinavia (pdf), by Graeme Leach, from the Legatum Institute.

All hail Mike Mandel!

In June, I wrote How the FDA Impedes Innovation citing Mike Mandel’s excellent paper on Melafind, an innovative device for identifying melanomas that the FDA had deemed “not approvable.” Well just last week, the FDA backed down and approved Melafind for board-certified dermatologists who undergo a specialized training course. Importantly, that decision keeps the company in business and prepares a path for evolutionary improvements.

I believe that the FDA would not have reversed its decision without Mandel’s paper and the extensive media that covered this issue. All hail Mike Mandel!

Here is another piece of good news on an item recently covered by MR.

In September, I wrote Crowd Investing versus the SEC, discussing how expensive SEC regulations made it uneconomic for small firms to solicit small investments from large groups of investors. Last week the House passed the Entrepreneur Access to Capital Act, which lets businesses use crowd investing to sell unregistered securities as long as the total amount raised is $2 million or less and no individual investment exceeds $10,000 or 10 percent of the investor’s annual income. Another bill, The Small Company Capital Formation Act lets companies seeking less than $50 million in capital (previously just $5 million), proceed without going through the lengthy and costly SEC registration process.

Neither bill has passed the Senate but both passed the House overwhelmingly and President Obama endorsed both bills, saying they would reduce “the red tape that prevents many rapidly growing startup companies from raising much-needed capital.” Keep your fingers crossed.

Hat tip: PM.

Addendum: Holman Jenkins also deserves a special shout out on the FDA issue for covering this issue early and well in the WSJ.