Category: Law

U.S. clothing chains do not support pact on Bangladesh reforms

by  Tyler Cowen in

From Brad Plumer:

Nearly all U.S. clothing chains, citing the fear of litigation, declined to sign an international pact ahead of a Wednesday deadline, potentially weakening what had been hailed as the best hope for bringing about major reforms in low-wage factories in Bangladesh.

Companies including Wal-Mart, Gap, Target and J.C. Penney had been pressed by labor groups to sign the document in the wake of last month’s factory collapse in Bangladesh that killed at least 1,127 people. More than a dozen European retailers did so. But U.S. companies feared the agreement would give labor groups and others the basis to sue them in court.

…Wal-Mart reiterated Wednesday that it would not sign the accord at this time, because it “introduces requirements, including governance and dispute resolution mechanisms, on supply chain matters that are appropriately left to retailers, suppliers and government, and are unnecessary to achieve fire and safety goals.”

…Most U.S. companies, however, balked at the language in the accord. Some said it would would expose them to excessive legal liability — particularly in America’s litigious courts. Written by labor groups, the agreement would require retailers who source clothing from Bangladesh to commit to pay for inspections, building upgrades and training — all enforced by binding arbitration.

Here is more.  Most likely, the damage done to Bangladesh will continue.  Note that the prospect of successful litigation was not what drove FDI into the 19th century United States, or twentieth century Singapore, to the point where wages rose significantly.

Red Lights for Profit

by  Alex Tabarrok in

TAMPA BAY, Florida — A subtle, but significant tweak to Florida’s rules regarding traffic signals has allowed local cities and counties to shorten yellow light intervals, resulting in millions of dollars in additional red light camera fines.

The 10 News Investigators discovered the Florida Department of Transportation (FDOT) quietly changed the state’s policy on yellow intervals in 2011, reducing the minimum below federal recommendations. The rule change was followed by engineers, both from FDOT and local municipalities, collaborating to shorten the length of yellow lights at key intersections, specifically those with red light cameras (RLCs).

…Red light cameras generated more than $100 million in revenue last year…with 52.5 percent of the revenue going to the state. The rest is divided by cities, counties, and the camera companies….”Red light cameras are a for-profit business between cities and camera companies and the state,” said James Walker, executive director of the nonprofit National Motorists Association. “The (FDOT rule-change) was done, I believe, deliberately in order that more tickets would be given with yellows set deliberately too short.”

See Buchanan and Brennan’s The Power to Tax for an analytic approach and Benson, Rasmussen and Sollars for another example of bureaucratic revenue maximization.

Hat tip: Radley Balko.

In praise of Bernie Sanders

by  Tyler Cowen in

This is an email from his press secretary:

I wanted to write to applaud your great piece in the NYT this weekend, and make sure you were aware of Sen. Sanders’ legislation on the issue.

During the last congress Sen. Sanders introduced a bill to create a $3 billion fund tasked with giving away prizes for drug breakthroughs.  Here’s a release for the bill and here’s a video of a hearing the senator held on it where Joseph Stiglitz, Lawrence Lessig and Jamie Love all testify in support.

I thought you might be interested.

He is referring to my piece from this Sunday.

The Open Borders Movement

by  Alex Tabarrok in

I spoke on The 180, a Canadian radio show on CBC, on the open borders movement. Ironically, the streaming version appears not to be available to Americans. You can listen to the podcast, however. The interview starts at about 3:18. Jim Brown, the interviewer, was very gracious in letting me speak and I thought we covered a lot. Here are two lightly transcribed bits:

The problem with poverty is not that people don’t have skills it is that they are imprisoned in countries where their political or geographic institutions prevent them from making a living. When people move to the U.S. or Canada they are perfectly capable of making a decent living. It’s not that there is something wrong with the people in other countries. The poverty is the fault of the governments under which they live and the unfortunate fact that some people are just unlucky and they happen to be born in a barren region and because of the policies of other countries they can’t leave that barren region. I think that is wrong.

When someone with low skills comes into Canada that benefits people in Canada who have high skills as it helps them to focus on what they do best. As I like to put it, a gardener who works for a particle physicist is indirectly helping to unlock the secrets of the universe.

See OpenBorders.info for a superb resource on all aspects of this question.

Jeremy Bentham’s *Not Paul, but Jesus, vol. III*

by  Tyler Cowen in

Bentham’s famous defense (or should I say advocacy?) of homosexuality and other non-traditional sexual and romantic relationships — he describes them as the “eccentric mode” — is now available in its entirety, for the first time I believe.  Here is a blog post about the new publication.  It is a fascinating work throughout and homosexuality is central to his answer to Malthus and the dangers of excess population.

The full text is freely available here (pdf), about two hundred pages.  Here is one typical excerpt:

Yet by such a multitude of those who would start with horror at the very mention of a gratification afforded to the sexual appetite in any eccentric mode, how compleatly dissolute and unlimited is the indulgence afforded to the appetites of which the organs of taste and smell are the instruments, and how enormous is the expence at and by which this indulgence is so constantly and regularly procured.

By those by whom, to the pleasures of the table, no limits are attempted to be set other than those set, as above, by the allied considerations [of] self-regarding prudence and benevolence, why to the pleasures of the bed should any narrower limits be assigned?  With what consistency can any difference be made in the extent given to the limits in the two cases? So much as to the question between the pleasures of the table taken in the aggregate on the one part, and the pleasures of the bed on the other.

Has Andrew Sullivan read this book?  Through jstor, here is a related David M. Levy piece.

Immigration, production, and the Rybczynski theorem

by  Tyler Cowen in

Two of the assumptions of some of the pro-immigration arguments, when combined together, strike me as a bit odd.  It is commonly claimed for instance that migration to the United States does not lower American wages much if any (I agree by the way, as do most economists).  It also is claimed that migration will help us boost our production of capital-intensive goods, such as tech products.  Therein lies the tension.

Enter the Rybczynski theorem.  The sequence here is as follows.  An influx of labor does not lower wages, but it does cause both labor and capital to flow out of the capital-intensive sector and into the labor-intensive sector.  Labor-intensive production will rise but capital-intensive production will fall.  (If you are wondering about the intuition, consider that prices and wages are remaining fixed.  All of the adjustment must take place in terms of quantities, and equalizing marginal product and wage, following the influx of new labor, requires more capital in the labor-intensive sector, thus draining some production from the capital-intensive sector.)

In other words, the core model for constant or near-constant wages, following immigration, also implies that capital-intensive production should fall, following an exogenous influx of labor.

You will note that immigration remains welfare-improving in this model.  Still, it is not exactly the deal which has been promised.  You also can imagine someone taking a more dynamic perspective and fearing the long-term growth consequences of losing output in the capital-intensive sector.  You also now have liberty to wonder if a negative wage effect might mean a stronger rather than weaker case for immigration, given that the capital-intensive sector in the U.S. arguably produces global public goods.

Here is one empirical study of the matter, by Slaughter and Hanson.  It supports the predictions of the Rybczynski theorem.  Ethan Lewis (pdf) considers the famous Cuban boat lift example, when the influx of immigrants did not lower wages, but he also finds it may have hurt capital goods production in the Miami area.  Those results are hardly dispositive, but they don’t exactly throw out the Rybczynski framework either.

To be sure, the Rybczynski theorem is far from self-evidently correct.  Prices and wages need not be fixed, especially for a country as large on the global stage as the United States.  2 x 2 x 2 models do not adequately capture the heterogeneity of labor.  Even defining “labor-intensive” and “capital-intensive” is fraught with ambiguity when countries do not share all of the same technologies, as illustrated by the debates over the Heckscher-Ohlin theorem (to measure labor-intensity, are we adding up the number of bodies or instead measuring their “effectiveness”?, in which case labor and capital blur together because capital makes labor more effective).

Still, models are useful in organizing our thoughts, and this is a model which I do not see getting much attention.  I typically have applied comparative advantage to this question (if more immigrants come, high-skilled citizens are freed up to produce more capital goods), but perhaps the Rybczynski model is also relevant.

I also note that I do not view the primary purpose of this blog as hammering home specific policy conclusions, I would rather put doubts and thought processes on the table.  Anyway, maybe this model provides some structure for a better understanding of the trade-offs involved with immigration policy.

I look forward to reading your comments on this issue.

How anti-gun is Hollywood and the entertainment industry?

by  Tyler Cowen in

Here is from today’s news:

The sweeping gun control measure signed by Gov. Andrew M. Cuomo and hailed by Democratic leaders has a surprising critic: Hollywood.

Officials in the movie and television industry say the new laws could prevent them from using the lifelike assault weapons and high-capacity magazines that they have employed in shows like “Law & Order: Special Victims Unit” and films like “The Dark Knight Rises.”

Twenty-seven pilots, television and feature projects, including programs like “Blue Bloods” and “Person of Interest,” are now in production in New York State using assault weapons and high-capacity magazines, according to the Motion Picture Association of America. Industry workers say that they need to use real weapons for verisimilitude, that it would be impractical to try to manufacture fake weapons that could fire blanks, and that the entertainment industry should not be penalized accidentally by a law intended as a response to mass shootings.

One source added:

“Weapons are part of our history as a culture as humans,” said Ryder Washburn, vice president of the Specialists, a leading supplier of firearms for productions that is based in Manhattan. “To tell stories, you need them.”

Why the housing market imploded

by  Tyler Cowen in

In a recent paper, Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen report (pdf):

This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.

Scott Sumner summarizes the twelve points here:

Fact 1:  Resets of adjustable rate mortgages did not cause the foreclosure crisis.

Fact 2:  No mortgage was “designed to fail.”

Fact 3:  There was little innovation in mortgage markets in the 2000s.

Fact 4:  Government policy toward the mortgage market did not change much from 1990 to 2005.

Fact 5:  The originate-to-distribute model was not new.

Fact 6:  MBSs, CDOs, and other “complex financial products” had been widely used for decades.

Fact 7:  Mortgage investors had lots of information.

Fact 8:  Investors understood the risks.

Fact 9:  Investors were optimistic about home prices.

Fact 10:  Mortgage market insiders were the biggest losers.

Fact 11:  Mortgage market outsiders were the biggest winners.

Fact 12:  Top-rated bonds backed by mortgages did not turn out to be “toxic.” Top-rated bonds in collateralized debt obligations (CDOs) did.

Addendum: There was earlier Boston Globe coverage here.

Why so little demand for protectionism?

by  Tyler Cowen in

Paul Krugman asks a very good question, namely why the political pressures for protectionism in the midst of recessions and depressions have been so weak.  While I do not disagree with his points (which cite institutions such as the WTO and EU), I am surprised by what he leaves out.  Here is a summary of Spence and Hlatshwayo on U.S. labor markets:

Looking back on the period from 1990 to 2008, the co-authors found that 97 percent of the 27.3 million U.S. jobs created were in the non-tradable sector. (The five largest non-tradable sectors, mentioned above, contributed 65 percent of the 1990-2008 jobs growth.) “The employment creation occurred mostly in non-tradable sectors — where we don’t have international competition,” Spence said.

In other words, with more jobs in the service sector, we are practicing increased “protectionism by any other name,” often with the law and with regulation but in many cases cultural barriers and lack of trade networks will suffice.  Trade costs for many services are in any case high and thus the constituency for protectionism or further protectionism is not quite there.  The workers who might have supported tariff-based or quota-based protectionism thirty-five years ago already have lost their jobs to foreign trade and they or their descendents have moved to more heavily protected service sectors.  As we should recall from the literature on the gravity equation, explicit tariffs are only a small part of the actual barriers to trade.

A second issue is the where the actual burden of foreign competition is falling, given a much higher degree of globalization.  The Mexicans are worried about Chinese competition, but they are not mainly worried about Chinese competition pulling Mexican consumers away from Mexican products (chili peppers are one exception here).  Mostly they are worried that Chinese competition has taken away many of Mexico’s export markets elsewhere, and putting tariffs on Chinese goods coming into Mexico won’t stop that.

The politics of infrastructure in India

by  Tyler Cowen in

Tapan Kumar Chowdhury, 62, a retiree now working as an activist in the colony, said legalized status would be likely to improve sanitation and local health standards through installation of a true sewage system. But he remained skeptical about whether the election-year promises would be carried out, noting that politicians preferred to keep colonies vulnerable so that residents remained more beholden to them for even incremental improvements. “They have a vested interest in keeping us illegal and unauthorized,” he said, “so they can use us as a vote bank.”

Here is more.

Judge Trims Patent Thicket

by  Alex Tabarrok in

In Launching the Innovation Renaissance I wrote:

In the software, semiconductor and biotech sectors, for example, a new product can require the use of hundreds or even thousands of previous patents, giving each patent owner veto-power over innovation. Most of the owners don’t want to actually stop innovation of course, they want to use their veto-power to grab a share of the profits. So in theory patent owners could agree to a system of licenses from which everyone would benefit. In practice, however, licensing is costly, time-consuming and less likely to work the more parties are involved. It’s easy for a bargain to break down when five owners each want 25 percent of the profits. It’s almost impossible for a bargain to work when hundreds of owners each want 10 percent of the profits.

The just decided Microsoft v. Motorola decision illustrates the problem and what judges can do to help resolve the problem. The case concerned two standards-essential patents (SEPs) which must be licensed to other parties at a reasonable and non-discriminatory (RAND) rates. Motorola, however, was claiming that a reasonable fee required Microsoft to pay over $4 billion annually. The court decided, however, that a truly reasonable free was about $1.8 million a year. Quite the discount. The decision by US District Judge James Robart is admirably clear:

When the standard becomes widely used, the holder of SEPs obtain substantial leverage to demand more than the value of their specific patented technology. This is so even if there were equally good alternatives to that technology available when the original standard was adoped. After the standard is widely implemented, switching to those alternatives is either no longer viable or would be very costly….The ability of a holder of an SEP to demand more than the value of its patented technology and to attempt to capture the value of the standard itself is referred to as patent “hold-up.”…Hold-up can threaten the diffusion of valuable standards and undermine the standard-setting process.

…In the context of standards having many SEPs and products that comply with multiple standards, the risk of the use of post-adoption leverage to exact excessive royalties is compounded by the number of potential licensors and can result in cumulative royalty payments that can undermine the standards…The payment of excessive royalty to many different holders of SEPs is referred to as “royalty stacking.”…a proper methodology for determining a RAND royalty should address the risk of royalty stacking by considering the aggregate royalties that would apply if other SEP holders made royalty demands of the implementer.

Judges made patent law what it is today and they are beginning to remake it. The decision impacts not just Microsoft and Motorola but the value of future patents and the value of future patent litigation.