Category: Law
The Catalonian issue proceeds
The non-binding and largely symbolic resolution – which states that the people of Catalonia have a democratic right to decide on their sovereignty – was passed with 85 votes for, 41 against and two abstentions in the 135-seat legislature. Two deputies were absent and five refused to vote.
The link is here, here is more in Spanish. I still would bet against actual independence, but this remains an oddly under-reported story.
Elsewhere in the news, Spanish joblessness has risen from 25 to 26 percent.
David Henderson reviews the new Alan Blinder book
The review is here, here is one interesting paragraph:
Mr. Blinder omits a crucial fact about Lehman, one that, by itself, explains why the huge drop in value of Lehman’s mortgage-backed securities led to its collapse: the effect of changes in federal bankruptcy law. Thanks to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, when Lehman went bankrupt it could not simply, as in earlier days, pay holders of derivatives as much as possible with its assets. Instead, it had to give each derivative holder a new contract identical to the one it had signed with Lehman, but with a different counterparty. Lehman would also have to pay the transaction cost of the new contract. Such costs are typically about 0.15% of the contract’s total value. That’s small, right? No. When Lehman went bankrupt, the face value of Lehman’s derivative contracts was $35 trillion—with a “t.” The transaction costs alone were $52.5 billion. That is what sank Lehman.
The strange and indeed unjustified senior status of derivatives contracts remains an under-discussed area for financial reform. Here is a relevant Bolton and Oehmke paper (pdf). The Blinder book you can buy here.
How to protect workers against robots
Noah Smith has an excellent proposal:
First of all, it should be easier for the common people to own their own capital – their own private army of robots. That will mean making “small business owner” a much more common occupation than it is today (some would argue that with the rise of freelancing, this is already happening). Small businesses should be very easy to start, and regulation should continue to favor them. It’s a bit odd to think of small businesses as a tool of wealth redistribution, but strange times require strange measures.
Read the whole thing.
Points I made about charter cities and free cities
I do favor experimentation in these directions, but often at Liberty Fund conferences, and indeed more generally, I play the role of contrarian. I am not supposed to report the comments of others, but here are a few of the points I made in the discussions over the weekend:
1. It is striking that charter cities — a partial unpacking of nation-states — are proposed for a region, namely Central America, where Central American unification has been an ongoing proposal for hundreds of years. Could it be that Central American nation-states were not optimally carved up in the first place? Are cross-national unification and charter “unpacking” really polar opposites as proposals, or do they have more in common than it might at first appear?
2. Under what conditions would, in equilibrium, landowners capture most of the value created by a charter or free city? Well-governed land would seem to be very scarce.
3. To what extent do charter cities require the active support or at least implicit support of a major hegemon? Great Britain and then the U.S. backed Hong Kong and Singapore. The U.S. took over Puerto Rico. Yet Portuguese Goa and French Pondicherry are no longer real entities in part because no powerful government stood behind them.
4. To what extent are landlocked charter cities viable, or will their rents get swallowed up by larger and adjacent neighbors, much as India gives Nepal somewhat of a raw deal on transport? Are successful charter and free cities more likely to be on the water?
5. Are the most likely countries to approve charter cities those which plan to use them as “special purpose vehicles” to keep offshore oil and gas revenues out of the hands of the legislature or other domestic “interest groups”?
6. More generally, what kind of selection process will rule which charter cities are approved and which wither on the vine? How much will this selection process make the original idea worse (or better)?
7. When it comes to local land rights and the like, to what extent can the new legal authority of a charter or free city operate independently of the original legal system? Or must the new legal authority defer to the documents, maps, and other decisions of the previous authority? How many of the new legal decisions can in fact be disembedded from the previous legal authority?
8. Are charter and free cities likely to work better or worse with free or restricted immigration? Which are they likely to evolve?
How Japan does gun control
Call this optimistic or pessimistic, either way:
“In Japan, no civilian is allowed to have a gun,” he stated simply. “In order to prevent atrocious crimes using firearms, possession of small arms was banned in 1965, with strict penalties for violations of the law. As time has gone on the penalties have increased and every year we try to drive down the number of people owning guns.”
Japan does allow the possession of hunting rifles and air guns (for sporting use), but the restrictions and checks are extremely strict.
And there is this:
Under current laws, if a low-level yakuza is caught with a gun and bullets that match, he’ll be charged with aggravated possession of firearms and will then face an average seven-year prison term. Simply firing a gun carries a penalty of three years to life. And for the “accomplice” reasons above, a yakuza boss may decide a death sentence is more appropriate if his thug miraculously gets released on bail before going to jail.
One mid-level yakuza boss told me, “Having a gun now is like having a time bomb. Do you think any sane person wants to keep one around the house?”
The police are not given a free hand in using guns either. Internal controls make it very difficult for a gun or even a single bullet to fall into the hands of criminals.
“When we go to the firing range, we get an allotted number of bullets, Detective X said. “When we’re done firing, we collect the shells and return the gun. If one shell is missing, the police station goes into a panic.”
The full story is here, courtesy of the ever-excellent Wonkbook.
What is the critical view on the lead-crime correlation?
Here is a report from Scott Firestone. He does admit that much of the evidence carries some weight, but he is less persuaded when it comes to cohort studies:
It turns out there was in fact a prospective study done—but its implications for Drum’s argument are mixed. The study was a cohort study done by researchers at the University of Cincinnati. Between 1979 and 1984, 376 infants were recruited. Their parents consented to have lead levels in their blood tested over time; this was matched with records over subsequent decades of the individuals’ arrest records, and specifically arrest for violent crime. Ultimately, some of these individuals were dropped from the study; by the end, 250 were selected for the results.
The researchers found that for each increase of 5 micrograms of lead per deciliter of blood, there was a higher risk for being arrested for a violent crime, but a further look at the numbers shows a more mixed picture than they let on. In prenatal blood lead, this effect was not significant. If these infants were to have no additional risk over the median exposure level among all prenatal infants, the ratio would be 1.0. They found that for their cohort, the risk ratio was 1.34. However, the sample size was small enough that the confidence interval dipped as low as 0.88 (paradoxically indicating that additional 5 µg/dl during this period of development would actually be protective), and rose as high as 2.03. This is not very convincing data for the hypothesis.
For early childhood exposure, the risk is 1.30, but the sample size was higher, leading to a tighter confidence interval of 1.03-1.64. This range indicates it’s possible that the effect is as little as a 3% increase in violent crime arrests, but this is still statistically significant.
I don’t have any particular view on this matter, but if you wish can you read Drum’s response here.
Addendum: Andrew Gelman comments.
The Illusion of Central Bank Independence
In 2009 a number of prominent economists signed a petition arguing for central bank independence. I was less enthusiastic writing:
There is nothing magical about independence that makes for low-inflation.
…The primary reason that independent central banks are better at controlling inflation is that absent direct political control the default selection mechanism favors bankers, i.e. lenders, people whose interests make them more favorable towards lower inflation.
Thus, independence is a political decision that favors lenders in the decisions of monetary policy. Now, depending on the alternatives, there may be good reasons for making this choice but we should not fool ourselves into thinking that we have depoliticized money. We should not be surprised, for example, that “independent” central banks tend to make lender of last resort decisions that protect banks and bankers.
Joseph Stiglitz recently made similar remarks
“[The crisis] has shown that one of the central principles advocated by Western central bankers- the desirability of central bank independence-was questionable at best…In the crisis, countries with less independent central banks-China, India, and Brazil-did far, far better than countries with more independent central banks, Europe and the United States. There is no such thing as truly independent institutions. All public institutions are accountable, and the only question is to whom.”
From Business Insider, which adds:
[Stiglitz] believes that in the run-up to the financial crisis, the Federal Reserve was accountable only to Wall Street, and singles out New York Fed President William Dudley for some especially harsh criticism. He claims Dudley was “a model of bad governance” because of his inherent conflict of interest: he bailed out the very banks he was supposed to regulate – the very same banks that enabled him to gain his position.
Should we mint the platinum coin?
The economics of such a move would work fine, and I understand the game-theoretic rationale, but still I agree (strongly) with Kevin Drum’s “no” answer. I don’t know if the courts would uphold such a move, but I do know they would not uphold such a move instantaneously. The uncertainty would in the meantime whipsaw and shut down the markets and the shadow banking system.
And let’s say that — somehow — the whole thing miraculously worked out well from start to finish. The testier Republicans would in fact get exactly what they want. They would receive isolation from any negative consequences from brinksmanship, and a new narrative about how President Obama is a fascist incarnate. Keep in mind that since the coin would bear the sparkling image of Sayyid Qutb, there are even some members of the American electorate who would find such charges plausible.
This is a bad idea, and Obama has been wise to try to take it off the table from the get go. He knows that Congress actually needs to sign off on a solution, as indeed they have twice in the last year. It also confirms Paul Krugman’s view that he would not in fact make a good Secretary of the Treasury.
Addendum: Felix Salmon has good comments.
Retrying Socrates, in front of Judge Posner
Star litigators in Chicago are preparing to retry a controversial 2,400-year-old free speech case that famously resulted in the death of Socrates, now considered the father of Greek philosophy, when he drank a cup of poisonous hemlock.
Dan Webb of Winston and Strawn and plaintiffs lawyer Robert A. Clifford, a former chair of the ABA Section of Litigation, will represent Socrates at the Jan. 31 proceeding, which is being held as a fundraiser by the National Hellenic Museum in Chicago. The case for the City of Athens will be made by former U.S. Attorney Patrick Fitzgerald, now a partner at Skadden Arps Slate Meagher & Flom, and Patrick M. Collins of Perkins Coie.
Judge Richard A. Posner of the Chicago-based 7th U.S. Circuit Court of Appeals will head a three-judge panel that also includes his federal appeals court colleague William J. Bauer and Cook County Circuit Judge Anna Demacopoulos.
Here is a bit more, and for the pointer I thank John C.A.K. I suppose Socrates is now in exclusive company with Conrad Black.
*The Bankers’ New Clothes*
That is the new book by Anat Admati and Martin Hellwig and the subtitle is What’s Wrong with Banking and What to Do about it. Here is their bottom line:
We have argued that if banks have much more equity, the financial system will be safer, healthier, and less distorted. From society’s perspective, the benefits are large and the costs are hard to find; there are virtually no trade-offs.
I agree with the proposal, though not with the claim that this is virtually costless, as is laid out in their chapter seven (oddly they focus on the question of whether debt and equity “require” comparable rates of return, rather than the general notion of opportunity cost). In any case this is a major net work on banking and its regulation. Here is the book’s home page. Here is Admati on YouTube.
The culture that is Republican
House Republicans signaled Thursday they will not follow rules in President Obama’s healthcare law that were designed to speed Medicare cuts through Congress.
The House is set to vote Thursday afternoon on rules for the 113th Congress. The rules package says the House won’t comply with fast-track procedures for the Independent Payment Advisory Board (IPAB) — a controversial cost-cutting board Republicans have long resisted.
Here is more, via Brad DeLong.
How brutal is vegetarianism to animals?
Here is one take on the matter, from Mike Archer, controversial to be sure, and in some ways under-argued, but offering some points to ponder:
… the largest and best-researched loss of sentient life is the poisoning of mice during plagues.
Each area of grain production in Australia has a mouse plague on average every four years, with 500-1000 mice per hectare. Poisoning kills at least 80% of the mice.
At least 100 mice are killed per hectare per year (500/4 × 0.8) to grow grain. Average yields are about 1.4 tonnes of wheat/hectare; 13% of the wheat is useable protein. Therefore, at least 55 sentient animals die to produce 100kg of useable plant protein: 25 times more than for the same amount of rangelands beef.
You will note that this comparison works for grass-fed beef only.
Hat tip goes to Dalibor Rohac.
The Prison Population is Down
After more than thirty years of constant increase, prison populations have leveled off and in the last few years have begun to decline (pdf). It’s a momentous change and Keith Humphreys argues that the story has been under-reported because few people want to play up the good news
(1) Most of the state, local and federal officials who have helped reduce incarceration are scared to publicly take credit for it. In general, reducing incarceration is a good thing, but probability dictates that in particular cases it will be a horrible thing. At least a few of the roughly 100,000 fewer people under correctional supervision in 2011 versus 2010 for example will do something extremely violent and high-profile, and no politician wants to risk being in a story headlined “Convict released by thug-loving governor murders nun”.
Hat tip: Matt Yglesias.
Working Conditions in China: Supply and Demand
The NYTimes has a lengthy and self-congratulatory article on improved working conditions in Chinese factories which it suggests are due to negative publicity from earlier NYTimes articles. Indeed, as soon as the NYTimes starts to investigate, we are presented with this boardroom set piece:
“The world is watching!” [Foxconn Chairman] Mr. Gou yelled, according to multiple people. “We are going to fix this, right here!”
The Times articles, part of a larger series, are well written and informative and no doubt they have prodded some changes at certain companies. China, however, is a very big place and the real story of better working conditions is a story of supply and demand.
Wages in Chinese factories have been low because wages in China’s agricultural interior were even lower and the great migration from the country to the city, one of the largest migrations in human history, meant that there was a ready supply of workers desperate for work and the more work the better. Even today many workers want longer hours:
In March, when Foxconn announced that workers’ hours would be reduced to China’s legal limits, employees began complaining. “Absolutely I’d like to do overtime to work more than 60 hours, but now there’s a ceiling on it,” said Ma Changqiao, a 23-year-old at Foxconn’s Chongqing factory.
As the great migration leveled off, however, wages began to rise. At first, workers wanted all of the increase in wages in money but as the more basic needs of workers and their families have been met the demand for better working conditions and more leisure has increased and this has made it profitable for firms to supply better working conditions.
Thus, the real story of better working conditions is not a spate of negative publicity, a mere blip in the face of much larger forces, but rising wages with a touch of Maslow’s hierarchy.
To its credit, the NYTimes article provides evidence for the larger story although you have to dig past the self-congratulatory material. The article notes, for example, that working conditions are also improving rapidly in little known companies not subject to NYTimes oversight:
The factory, in Chongqing, makes computers for Hewlett-Packard, a company with little of Apple’s glamour. It is operated by Quanta, a little-known Taiwanese manufacturer.
Inside the plant, amid thousands of workers in bright white uniforms, are occasional flashes of pink worn by people like Zhang Xuemei, a bubbly 19-year-old with glinting earrings whose sole job is to chat with co-workers.
For eight hours a day, Ms. Zhang collects complaints about the factory’s free meals and dorms. She listens to workers who are divorcing, homesick or arguing with managers. When she finds someone suffering, she refers them to the company’s full-time doctor or professional counselors.
Quanta’s 10-story dormitories feel like a college campus. There is a free movie theater, television rooms, a large martial arts gym, two spacious karaoke bars, a huge cafeteria and an aerobics hall playing a Chinese remix of “Gangnam Style.”
and here is the key
And the amenities are partly selfish: one of the biggest problems for Chinese factories is that workers are constantly leaving. Hewlett-Packard hopes that by improving living conditions, turnover and training costs will fall.
Addendum: Tim Worstall points out that “Manufacturing wages have been improving at 14% a year (yes, after inflation) since 2000. That’s a decade before anyone started to agitate about the working conditions at these factories. Or at least it’s a decade before anyone took any notice of such agitation.”
What does OIRA do?
That is the new paper by Cass Sunstein:
Abstract:
Since its creation in 1980, the Office of Information and Regulatory Affairs (OIRA), a part of the Office of Management and Budget (OMB), has become a well-established institution within the Executive Office of the President. This essay, based on public documents and the author’s experience as OIRA Administrator from 2009-2012, attempts to correct some pervasive misunderstandings and to describe OIRA’s actual role. Perhaps above all, OIRA operates as an information-aggregator. One of OIRA’s chief functions is to collect widely dispersed information – information that is held by those within the Executive Office of the President, relevant agencies and departments, state and local governments, and the public as a whole. Costs and benefits are important, and OIRA does focus on them (as do others within the Executive Branch, particularly the National Economic Council and the Council of Economic Advisers), above all in the case of economically significant rules. But for most rules, the analysis of costs and benefits is not the dominant issue in the OIRA process. Much of OIRA’s day-to-day work is devoted to helping agencies to work through interagency concerns, promoting the receipt of public comments on a wide range of issues and options (for proposed rules), ensuring discussion and consideration of relevant alternatives, promoting consideration of public comments (for final rules), and helping to ensure resolution of questions of law, including questions of administrative procedure, by engaging relevant lawyers in the executive branch. OIRA seeks to operate as a guardian of a well-functioning administrative process, and much of what it does is closely connected to that role.