Category: Law
Detroit facts for today
…the city’s per capita income, averaged over its 684,799 residents, is just $15,261 per year. (That’s less than half the income of neighboring Livonia.) Auto insurance alone eats up a good $4,000 of that, for residents with a car.
And then comes the litany of municipal woes: Detroit has the highest violent crime rate of any major US city, at five times the national average; there were 344 murders in 2011, of which just 39 were solved. Right now, the average response time, if you put in an emergency call to the Detroit Police Department, is 58 minutes.
Detroit’s infrastructure is crumbling: 40% of its street lights are out of order, and it has 78,000 abandoned and blighted structures, of which 38,000 are considered dangerous buildings. Those buildings account for a large proportion of the 12,000 fires Detroit has every year. At the moment, firefighters are instructed not to use the hydraulic ladders on their firetrucks unless there is an immediate threat to life, because the ladders have not received safety inspections for years. Detroit also has just 36 ambulances, of which generally no more than 14 are in operation at any given time. And in terms of the city’s IT infrastructure — well, you can probably guess; suffice to say that a recent IRS audit characterized the city’s income tax system as “catastrophic”.
As far as Detroit’s balance sheet is concerned, there is $9 billion of debt, excluding pension liabilities, and also excluding healthcare and life insurance obligations which are calculated at roughly $6 billion. Debt service in 2013 is projected at more than $240 million, or about 22% of total revenues. Worryingly, under the section of the proposal headed “Realization of Value of Assets”, one finds the priceless collection owned by the Detroit Institute of Arts…
That is all from Felix Salmon.
The Oocyte Cartel
The Society for Assisted Reproductive Technology (SART) represents more than 85 percent of the assisted reproduction industry. SART requires that its members work only with agencies that limit compensation to egg-donors to around $5000 or a maximum of $10,000 (figures decided upon by the ethics committee of an affiliated organization, The American Society for Reproductive Medicine (ASRM)). In other words, ASRM-SART acts as a buyer’s cartel.
In 2011, Lindsay Kamakahi launched a class action suit against ASRM-SART challenging their horizontal price-fixing agreement as per se illegal under the Sherman Antitrust Act. ASRM-SART tried to have the case dismissed but a judge recently denied the dismissal in the process making it clear that the plaintiffs have a good case.
ASRM-SART argue that their maximum price is really about protecting women and that compensation “should not be so excessive as to constitute undue inducement.” Egg donation does involve extensive screening, time and some health risks. One would think, however, that the proper response for those interested in protecting women would be to ensure that the women are fully informed and that they are paid high wages not low wages.
The paternalistic policy of the ASRM-SART especially rankles because it applies only to women, sperm donations are not regulated. Of course, sperm donation isn’t risky but we also don’t see laws limiting the wages of miners to protect miners (mostly men) from “undue inducement.” The societal expectation seems to be that men are appropriately motivated by self-interest but women may be appropriately motivated only by altruism.
I am in agreement with Kimberly D. Krawiec who writes in her excellent paper Sunny Samaritans and Egomaniacs: Price-Fixing in the Gamete Market:
It is ASRM’s paternalistic and misguided attempts to control oocyte donor compensation through the same type of professional guidelines that courts have rejected when employed by engineers, lawyers, dentists, and doctors that should raise an ethical red flag.
ASRM-SART surely believe that they are doing good but I think it no accident that they also do well from a policy that reduces the price of their inputs. A price controlled below the market price generates rents. In the traditional analysis, the rents are dissipated away by long-lines, a form of rent seeking (see Modern Principles–first edition now a bargain!). It’s also possible, however, for suppliers to grab up the rents, especially suppliers of complementary goods.
For example, it’s often been pointed out that in the organ donor market the hospitals, surgeons and executives all get paid and paid well; the only person not getting paid is the person who provides the transplant organ. But we can say more–one of the reasons the hospitals, surgeons and executives get paid well is precisely that the donor is not paid. The shortage created by the price control drives the demander’s willingness to pay upward and some of the difference between the willingness to pay and the maximum legal price is captured by the suppliers of complementary inputs. How do we know? In the 1990s, entry into the transplant business grew much faster than did the supply of transplant organs. In fact, transplants were so profitable there was a rush to transplant that increased the number of centers but drove down center volume thereby reducing patient survival rates.
Similarly, by limiting egg-supply the suppliers of assisted reproductive services may be able to increase their share of the total gains from trade.
Although ASRM-SART may profit from restricting donor compensation there is another issue at large, the repugnance constraint. The repugnance and disgust centers of the brain are old and deep and often revolve around issues of body integrity, body products, hygiene, sex and death. Birth treads uneasily in many of these waters already and egg donation adds to this volatile mix issues of gender, personhood, identity and genetics all of which prime for a repugnance storm. The plaintiff’s case is sound but if the antitrust laws prevent ASRM-SART from limiting prices–or saying that they limit prices–and if egg donation were to become even more of a market in everything might there not be a backlash and an outright ban on compensated donors, as is the case in many other countries and for transplant organs in this country? I hope not but it is a real possibility.
The ban on compensated transplant organ donation has led to hundreds of thousands of excess deaths. A ban on compensated sperm and egg donation would lead to a dearth of lives.
Which market segment is being targeted by Kaiser in California?
Megan McArdle updates us:
Kaiser Permanente is one of the places that always gets cited as a model by health care reformers. It’s the biggest insurer in California, using a model that ended up being the basis for the HMO revolution. Kaiser owns its own hospitals, pays its doctors a salary, and provides the “continuum of care” that everyone says they want from our fragmented health care system–and does it at a reasonable price. So it’s a bit surprising to see the LA Times report that this model citizen submitted some of the highest bids for California’s health care exchanges.
…California is headed for two-tier service on the Exchanges. The carriage trade will head for full-service networks like Kaiser, with full access to the whole network of doctors and hospitals. The price conscious buyers–likely to be a sizeable majority–will crowd into plans with restrictive networks. And those networks will be very, very crowded. Effectively, they may end up as quasi-catastrophic insurance, simply because it will be difficult to actually access care outside of the emergency room.
Lower down the income scale, the new Medicaid patients–about half the expected additional coverage in states like California–will be similarly crowded, simply because Medicaid’s low reimbursement rates make doctors reluctant to take it.
Note that, for reasons explained in the post, this may not apply outside of California in every other state.
Where does the right to publicity lie? (hard to discern)
The Screen Actors Guild and several players’ unions have filed briefs supporting Mr. Hart, saying that athletes, actors and other celebrities must have the right to control the use of their identities and to harvest the financial fruits of their fame. The movie industry, book publishers and news organizations, including The New York Times, have lined up on the other side, saying that allowing celebrities to control speech about them runs afoul of the First Amendment.
The dueling briefs cited a grab bag of cases that are hard to wrestle into a coherent legal framework.
The courts have, on the one hand, rejected right-of-publicity suits arising from a painting of Tiger Woods, a comic book evoking the musicians Johnny and Edgar Winter, parody baseball trading cards and a fantasy baseball game that used the names, statistics and biographies of Major League players. But courts have allowed suits over the broadcast of a human cannonball’s entire act, a comic book using a hockey player’s nickname, an ad evoking Vanna White’s skill at turning letters on “The Wheel of Fortune” and a reference to Rosa Parks in a song.
If there is a legal principle that unites these rulings, it is hard to discern. What is clear, though, according to an expansive 2011 Supreme Court decision, is that video games deserve full First Amendment protection.
Here is more, by Adam Liptak. Here is a Gloria Franke paper (pdf) on some of the underlying legal (and economic) issues.
Sentences to ponder
While the ethics behind holograms of deceased celebrities might be questionable (in the words of a parody Twitter account called Aaliyah’s Ghost, “The best duets imo are the ones where both artists are alive & agreed to work together”), copyright permissions and objections from various estates, in addition to the high costs, have so far prevented “resurrections” from becoming a more widespread trend. For its closing ceremony, the London Olympics scrimped on costs, reviving Freddie Mercury for a duet with Jessie J by broadcasting his image on a flat screen rather than a hologram body. It is hard to imagine the Tupac hologram moving forward without permission from his mother Afeni Shakur. The Marilyn Monroe estate, on the other hand, contested plans for a “Virtual Marilyn” concert organised by Musion partner Digicon Media.
Here is more, from the always interesting Joanne McNeil.
No Patents on Genes
The Supreme Court ruled unanimously yesterday in Association of Molecular Pathology v. Myriad Genetics that a gene, such as BRCA1 or BRCA2, does not qualify for a patent. The fact that Myriad isolated the DNA is not enough to distinguish it from its in situ counterpart as the information it contains is the same. However, cDNA, a version of the gene that has been stripped of non-coding sequences is subject to patent.
With this ruling the price of most of Myriad’s tests will fall as competition enters the market (the BRACAnalysis tests are actually a number of different tests, as I read the technical specifications, only some of these depend on cDNA. The markets appeared to have been initially confused about this.). Even more importantly, the Myriad patents were broad and they prevented researchers from freely studying the BRCA1 and BRCA2 genes, from improving the tests or from developing additional applications. The giants demanded payment (video) from those who would stand on their shoulders. I think the restrictions retarded progress–as have similar restrictions–to an extent that made the patents difficult to justify.
Although I am broadly in agreement with the ruling, it’s also clear that the limited flexibility of patent law–you get a 20-year patent or nothing–and the fact that patent law is not based on patent theory (pdf) greatly hampers the ability to tailor patent law optimally. The ruling, for example, says that a firm can’t patent a gene that it discovers but it can patent the cDNA that it develops. It’s the discovery, however, that’s expensive. The development of cDNA is today a trivial step. Thus, you can patent the trivial step but not the giant leap.
You might think that the law draws a bright line between discoveries which cannot be patented and inventions which can but that’s not correct. Discoveries can be patented and the ruling goes out of its way to push back against the view that they can’t. The ruling correctly notes that a “considerable danger” is that patents on basic ideas and tools would “inhibit future innovation”. Yet the law makes no mention of these considerations and the court provides no guidance on implementation.
Coherent or not, the recent patent cases do indicate that the SC is no longer acceding to the United States Court of Appeals for the Federal Circuit–they are reestablishing control and pushing back in the right direction on the Tabarrok curve.
Finance and the Common Good
That is a new paper by E. Glen Weyl, and here is one excerpt:
Using relatively crude methods to translate publicly-available data into income estimates, I estimate that approximately 40% of income of authors in both fi elds comes from consulting activities, roughly consistent with self-reported income figures for the broader profession in the National Center for Education Statistics’s National Study of Postsecondary Faculty. Second, I show that consulting activity in industrial organization is primarily policy-oriented while consulting work in finance is primarily geared toward private interests. Together these two facts are weakly suggestive that material incentives are at least complementary with research focus.
But this is not Inside Job either:
…the view I put forward is not that financial economists defended the interests of the firms for which they worked in regulatory disputes; this is precisely what I believe industrial organization economists, in contrast to fi nancial economists, often did. Instead it is that financial economists were simply not interested in such disputes instead focusing on aiding private accumulation of wealth in markets rather than pushing public policy in one direction or the other.
Glen predicts that future work in finance will become more like research in industrial organization and move in a more legal and regulatory and policy-oriented direction, as the real world shifts toward greater regulation of finance.
Breakthrough with Honduran charter cities
Written reports from Central America often require Straussian skills, but at least on the surface it would appear that Honduras will go forward with some version of the free city/charter city idea. A translation passing through Google, Tom Bell, and Lotta Moberg (not holding any one of them responsible for it, but to my eye it appears acceptably close) indicates:
“The Law complements the amendments to Articles 294, 303 and 329 of the Constitution which paved the way for the creation of these special areas. [Those amendments fixed the problems that caused the Honduran S.Ct. to strike down the earlier version of the statute, which aimed to establish REDE.] The ZEDE legislation authorizes the establishment of courts with exclusive jurisdiction, which may adopt legal systems and traditions of other parts of the world, provided that they ensure equal or better protection of constitutional human rights protected under Honduran law.”
The legislation was hardly crammed down the legislature’s throat. As I mentioned, the Honduran S.Ct. struck down an earlier version of the statute. The ZEDE legislation sparked “a fierce debate because several municipalities fear losing their autonomy and tax collection.” (The answer to those objections, in floor debate: You can arrange annexation by the ZEDE, winning the same legal status.)
Interested in moving there? “The ZEDE may establish coexistence agreements with people who wish to live or reside freely within their jurisdiction.”
There is a Honduran Spanish-language link here (it doesn’t work in every browser, but experiment). It starts with this, which seems clear enough:
La ley orgánica especial que regulará las Zonas de Empleo y Desarrollo Económico (ZEDE), la nueva versión de las “ciudades modelos”, fue aprobada ayer por el Congreso Nacional en su último debate, lo que deja las puertas abiertas para que empresarios extranjeros inviertan en regiones específicas con reglas diferentes al resto del país y con autonomía propia.
Developing…
And for the pointer I thank Lotta Moberg.
Options for health care coverage reform
This topic has been reconsidered much as of late, so I thought I would do a summary post on some of the possible options. I suspect I have covered all or most of this ground in 2009 or so, but here goes:
1. Universal health insurance vouchers on exchanges, with means-tested subsidies and also a mandate. The logic of this can work just fine, but it is quite expensive as it would exist in the United States and we end up spending too much on health care. Over time it would be accompanied by say a five percent VAT.
2. Single payer systems. I don’t want to repeat the usual debates, but perhaps we can agree single payer won’t come anytime soon in the United States. I also think they work least well in the land of medical innovation, and best in small countries such as New Zealand, but that consideration doesn’t even rise to the fore here.
3. The Singapore system, involving single payer for catastrophic expenses and health savings accounts for smaller expenditures. To varying degrees you can combine this with forced savings for the HSAs and price controls on service provision, both of which you will find in Singapore. Where “catastrophic” starts can vary as well. This is my first choice, although if you wish to dismiss it as “utopian” for the United States you have a point. I’ll get back to that.
4. One particular path for how ACA could evolve into a (relatively inefficient) form of a Singapore system. Imagine that the mandate becomes fairly narrow with time, while at the catastrophic end insurance companies evolve into (inefficient) public utilities. Health savings accounts are reintroduced through new legislation, perhaps under a Republican administration, and can be supplemented with cash transfers when desired. Here is one discussion of that path.
5. The mandate and subsidized exchanges under Obamacare prove unworkable and eventually they are abandoned either partially or in full, or in some states but not others. Their place is taken by a Medicaid expansion. Coverage is not universal, though it is higher than pre-ACA, and of course coverage under the status quo is not going to be universal either.
6. The status quo of Obamacare.
7. More managed care. We should remove the legal restrictions and barriers which penalized managed care in the first place, as it is a feasible and desirable means of bending the health care cost curve. You will note that this option is not a strictly rival alternative to 1-6, but rather can be combined with them in varying degrees. Still, it seems appropriate to list it as an option.
Now, if I am allowed to be utopian, I favor #3 over the status quo. If I am asked to be less utopian, I see #4, #5, and #7 as some of the better versions of what ACA could evolve into. I would not predict that those options come to pass, nor would I say those options are better than the rather unrealistic version of ACA as envisioned by its proponents, but I think they follow from the dictates of reality as the better options on the table, #3 aside of course. And I do not feel I am being utopian in holding them as alternatives to the status quo. They are not so far away from the status quo in the policy space.
I don’t think ACA in its current form is stable. Too many moving parts, too many margins of danger, too many jerry-rigged incentives, too many “it worked OK in Massachusetts so it has to work at the national level even if it doesn’t appear to be maximizing” requirements, and too little recognition that the whole system is poorly geared for a world of stagnant median wages and rising inequality. The higher is inequality and the lower are lower-tier wages, the harder it is to guarantee near-equal consumption of health care through employment institutions. The greatest single danger to ACA is eventual massive employer-shedding of health care obligations, penalties or no, which at best evolves us into #1, which I do not favor. On top of that there is state shedding of Medicaid obligations, which again pushes us into #1. Most generally, the national health care systems which work are much more consolidated in nature than is the U.S. status quo.
It is a Denkfehler when people write “you don’t have an alternative to ACA” or “the Republicans don’t have a health care plan,” and so on. You can take such pronouncements as leading indicators that ACA is not going well. #3 aside, you can take the relevant alternatives as a mix of #4, #5, and #7. Those are not so much alternatives “given by the Republicans (or whoever else),” as much as they are given by reality. I don’t see “ACA as envisioned by its propnents” as on the table either, so in this sense it is also the Democrats who don’t have an actual health care plan.
I view the real choice before us as #1 vs. some mix of #4, #5, and #7. And in that setting I do not favor #1 and I still can dream of and advocate #3.
Addendum: Here is my earlier post on how to debate health care policy. Let’s see how many of its strictures you all violate.
Where this all is leading
I.B.M.’s Watson, the supercomputing technology that defeated human Jeopardy! champions in 2011, is a prime example of the power of data-intensive artificial intelligence.
Watson-style computing, analysts said, is precisely the technology that would make the ambitious data-collection program of the N.S.A. seem practical. Computers could instantly sift through the mass of Internet communications data, see patterns of suspicious online behavior and thus narrow the hunt for terrorists.
Both the N.S.A. and the Central Intelligence Agency have been testing Watson in the last two years, said a consultant who has advised the government and asked not to be identified because he was not authorized to speak.
There is more here, pointer is from Claudia Sahm.
Do U.S. tech companies now have legal troubles in the EU?
Laws in this area can be tricky to interpret, so digest this caution, but I found this analysis from Bloomberg BusinessWeek of interest:
The Safe Harbor scheme (not recognized by the Germans, incidentally) allows U.S. tech firms such as Google to self-certify, to say that they conform to EU-style data protection standards even if their country’s laws do not. It’s not quite that simple—these companies really do need to jump through some hoops before they claim compliance; just ask Heroku—but it does largely come down to trust.
EU data protection regulators have already called for the system to be toughened up through the introduction of third-party audits, but frankly it now looks like the whole system is in tatters. U.S. companies claiming Safe Harbor compliance include Google, Yahoo, Microsoft (MSFT), Facebook, and AOL (AOL), all of which now appear to be part (willingly or otherwise) of the NSA’s PRISM scheme.
As EU data protection rules don’t say it’s OK for foreign military units to record or monitor the communications of European citizens—heck, even local governments aren’t supposed to be doing that—the Safe Harbor program now looks questionable to say the least. A lot of people have already pointed to the U.S. Patriot Act as a threat, and now the effects of that legislation are plain to see.
The update at the beginning of the article reads:
I’ll admit I am shocked to have received this response from the European Commission’s Home Affairs department to my request for comment, with particular regard to the impact on EU citizens’ privacy: “We do not have any comments. This is an internal U.S. matter.”
I don’t see kicking U.S. tech companies out of Europe as a promising way of starting U.S./EU free trade negotiations. One possible legal “out” is discussed here. If anyone is going to drive this issue forward, it is likely the European public, who of course still can insist on tougher standards. Here is one description of Safe Harbor policies. The tech companies themselves may fear a loss of international competitiveness, or that Safe Harbor standards will be toughened, you will find a discussion of commercial worries and their potential impact here.
Restrictions on student athlete transfer
When an athlete chooses to transfer, three sets of rules can be involved: those of the NCAA.; those of the conference in which the university competes; and those that accompany the national letter of intent, a contract that athletes sign while still in high school to announce their intention to attend a university.
“It’s entirely slanted to the coach’s side,” said Don Jackson, a lawyer who runs the Sports Group in Montgomery, Ala., and who has represented dozens of athletes attempting to transfer to a university of their choice. “Once the student-athlete signs that national letter of intent, it’s essentially a contract of adhesion. They have limited rights.”
Universities have long sought to block student-athletes from transferring to a rival program. Alabama’s football team, for example, would not be expected to let a star player go to Auburn. But the impulse to limit the student-athlete’s options has been heightened to the point that coaches are now blacklisting dozens of universities.
From the NYT, here is more, none of it pretty, but of course lower-tier universities will claim they are making big investments in improving the quality of diamonds in the rough. The funny thing is — if I may sound Caplanian for a moment — no one at these schools seems to demand similar restrictions on transfers of the students.
The loss of privacy and the collapse of creative ambiguity
Remember the regime of creative ambiguity when it came to Fed bailouts? You kind of expected one, but weren’t totally sure what might come, and so the banking sector felt safe but not absolutely guaranteed on the side of the creditors. Post-Lehman, those days seem to be over and now the moral hazard problem looms larger.
Perhaps we had a regime of creative ambiguity when it came to privacy and government surveillance. You (or at least I) thought the government was spying on you, but there was some ambiguity as to how much. You could acquiesce to the previous status quo, without fearing it would get worse, because it was not commonly recognized public knowledge that so much spying was going on. Maybe you figured you could tolerate a 0.8 probability of that level of spying because there were checks on it becoming worse, more extensive, more selective, and so on.
But now that previous level of spying is common knowledge (or at least part of it is common knowledge, I suspect there are further revelations to come). At the same time, the IRS, Verizon, and other scandals are common knowledge too, all of a sudden.
The old equilibrium is perhaps no longer stable. People may even be fine with that level of spying, if they think it means fewer successful terror attacks. But if they acquiesce to the previous level of spying too openly, the level of spying on them will get worse. Which they do not want.
On top of all that, the common knowledge of the old spying also may make the old spying less effective in purely practical terms, as potential suspects adjust their behavior. That also may lead a risk-averse government to pursue additional and more intrusive means of spying.
So if the status quo of a few weeks ago is no longer an equilibrium, what happens next?
I predict we will see more spying and more intrusive spying. You should not think that recent events will simply cement a previous status quo in place, rather it moves us down a very particular path and probably makes the entire problem worse. The age of creative ambiguity in surveillance is over and probably not for the better.
Our government will end up thwarting tech innovation and balkanizing the web
…Google Glass + NSA PRISM essentially amounts to a vision in which a foreign country is suddenly going to be flooded with American spy cameras. It seems easy to imagine any number of foreign governments having a problem with that idea. More broadly, Google is already facing a variety of anti-trust issues in Europe where basic economic nationalism is mixing with competition policy concerns. Basically various European mapping and comparison and shopping firms don’t want to be crushed by Google, and European officials are naturally sympathetic to the idea of not letting local firms be crushed by California-based ones. Legitimate concern that US tech companies are essentially a giant periscope for American intelligence agencies seem like they’d be a very powerful new weapon in the hands of European companies that want to persuade EU authorities to shackle American firms. Imagine if it had come out in the 1980s that Japanese intelligence agencies were tracking the location of ever Toyota and Honda vehicle, and then the big response from the Japanese government was to reassure people that Japanese citizens weren’t being spied upon this way. There would have been—legitimately—massive political pressure to get Japanese cars out of foreign markets.
The intelligence community obviously views America’s dominance in the high-tech sector as a strategic asset that should be exploited in its own quest for universal knowledge. But American dominance in the high-tech sector is first and foremost a source of national economic advantage, one that could be undone by excessive security involvement.
That is from Matt Yglesias.
The Washington Post is on a roll
Here is one excerpt from their latest investigation:
It is possible that the conflict between the PRISM slides and the company spokesmen is the result of imprecision on the part of the NSA author. In another classified report obtained by The Post, the arrangement is described as allowing “collection managers [to send] content tasking instructions directly to equipment installed at company-controlled locations,” rather than directly to company servers.
Government officials and the document itself made clear that the NSA regarded the identities of its private partners as PRISM’s most sensitive secret, fearing that the companies would withdraw from the program if exposed. “98 percent of PRISM production is based on Yahoo, Google and Microsoft; we need to make sure we don’t harm these sources,” the briefing’s author wrote in his speaker’s notes.
An internal presentation of 41 briefing slides on PRISM, dated April 2013 and intended for senior analysts in the NSA’s Signals Intelligence Directorate, described the new tool as the most prolific contributor to the President’s Daily Brief, which cited PRISM data in 1,477 items last year. According to the slides and other supporting materials obtained by The Post, “NSA reporting increasingly relies on PRISM” as its leading source of raw material, accounting for nearly 1 in 7 intelligence reports.