Category: Law
“Could this euro have been made out of ice?”
It is becoming increasingly clear that moves out of the euro will be done furtively, sometimes gradually, and most of all non-transparently. At some point we’ll start arguing over whether “the euro” is a “rigid designator.”
First Cyprus has capital controls and now Portugal may be making a different kind of plunge:
The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts…
Of course these “treasury bills” (is that a rigid designator?) will have a floating price with respect to the euro, with respect to the “euro trapped in a Portuguese bank” (eventually), and other Portuguese treasury securities for that matter. Which will be the real money of Portugal?
If indeed this happens (one government spokesperson has denied the report) and perhaps then continues, at what point do we conclude that the Portuguese have opted for a dual currency?
Would the new scrip currency push out the euro or vice versa or can they coexist? One central question is at what rate the government would accept the new scrip for payments and taxes or otherwise offer to redeem or convert it.
Another question is banking confidence. If the new scrip goes badly, that may lower confidence in the Portuguese banking system. If the new scrip goes well…that may also lower confidence in the Portuguese banking system. The government will issue more of it and it will come closer to a dual currency. Bank accounts denominated in euros may become less credible in terms of their underlying protection. Once a new alternative currency is up and running, Portugal can leave the euro much more easily, converting bank deposits into the new currency along the way to ease their fiscal crunch. After the Cyprus episode, they are probably counting less on help from others.
Ideally the Portuguese government would like to be in a position of promising that the new script will be retired/repurchased within a month or some other very short time frame.
That’s not usually how it ends up working.
Garett Jones offers related comment. Here are a few remarks on lecterns made of ice.
Buried treasure in clickthrough agreements
Do you know anyone who stops to read “click-through” agreements on websites in the middle of performing a task? One company, PC Pitstop, deliberately buried a clause in its end-user license agreement in 2004, offering $1,000 to the first person who emailed the company at a certain address. It took five months and 3,000 sales until someone claimed the money. The situation hadn’t improved by 2010 when Gamestation played an April Fools’ Day joke by embedding a clause in their agreement saying that users were selling them their souls.
Here is another good bit:
Ponder the fact that a dermatologist must sign his name to forms almost 30,000 times a year, according to a 2008 article in the Southern Medical Journal.
The article is here and for the pointer I thank Olaf.
The ACA’s four cliffs
…(1) the 50th employee (firms with 49 employees that don’t offer medical insurance will be hit with a $40,000 penalty if they hire just one more worker); (2) the 200 percent threshold (one households cross 200 percent of the poverty line, deductibles might sharply increase); (3) the 400 percent threshold (the dropoff is even bigger once households cross 400 percent of the poverty line); and (4) the early retirement incentive (ACA creates an incentive for many older workers below age 65 to exit the workforce) — reshapes the American labor market, the dominant narrative will be that the $85 billion in sequestration cuts are responsible for sluggish growth.
That is from Reihan, most of the post is on sequestration.
Irving Fisher on Prohibition
Here is one typical passage:
We see from the papers that Prohibition in Norway was given up. Do you know what Prohibition was in Norway? It allowed drinks containing 21 per cent alcohol! The people were so disgusted with the results that they overthrew this “Prohibition.” The heavy drinkers wanted their “personal liberty”; they did not want to stop at 21 per cent. It is easier to stop at one-half of one per cent than at 21. This is the lesson of experience. The only thing to do is what they did in Kansas – to tighten it up whenever there is an attack on Prohibition. The whole strength of the opposition consists in saying, “It can’t be done; it doesn’t work”; it is not that the object is a bad thing, but that it does not work. Now the more you tighten it the better it will work, and the more you loosen it up the worse it will work; and therefore the more you will have the very conditions that led to the overthrow of such Prohibition as they had in Norway and Ontario. In Ontario they originally allowed 2.2 per cent beer, then they “loosed up” and allowed 4.4 per cent and now they have loosened up still further. Experience shows that there is never a stable equilibrium at midway points and never any permanent solution of the liquor problem in a wide-open policy. The only stable equilibrium and permanent solution lies in the utter extermination of the liquor traffic.
William Shakespeare, grain hoarder
There seem to be some new results about the life of the Bard:
The Bard of Avon, who championed the downtrodden in plays like “Coriolanus,” was a conniving character in his personal life, British researchers claim — a tax dodger who profiteered in food commodities during a time of famine.
William Shakespeare was fined repeatedly for illegally hoarding grain, malt and barley for resale during a time of food shortages. He also was threatened with jail for avoiding taxes, according to the study of court and tax archives by researchers at Aberystwyth University in Wales.
The profits were channeled into real-estate deals, the researchers wrote, making Shakespeare one of Warwickshire’s largest landowners.
…It would seem that Shakespeare was drawing on personal knowledge when he wrote “Coriolanus,” a political tragedy that includes an early 1600s version of an Occupy protest against the 1%:
“They ne’er cared for us yet: suffer us to famish, and their storehouses crammed with grain; make edicts for usury, to support usurers; repeal daily any wholesome act established against the rich, and provide more piercing statutes daily to chain up and restrain the poor.”
Adam Smith of course argued that the grain hoarder was usually welfare-improving. Other accounts of the new Shakespeare results are here. Here is one good article with this interesting bit:
She said the playwright’s funeral monument in Stratford’s Holy Trinity Church reflected this. The original monument erected after his death in 1616 showed Shakespeare holding a sack of grain. In the 18th century, it was replaced with a more ”writerly” memorial depicting Shakespeare with a tasseled cushion and a quill pen.
So far I cannot find a draft of the original research paper itself.
Patent Thickets Reduce Innovation
In a report for the UK Intellectual Property Office, Bronwyn Hall et al., find that patent thickets exist in a number of technological fields and that thickets reduce innovation.
We find overwhelming evidence in the literature that patent thickets arise in
specific technology areas….Our main contribution in this study consists of an empirical analysis of the
effects of patent thickets at the European Patent Office on entry into patenting by
UK firms….Our results suggest a substantial and statistically significant negative association between the density
of thickets and the propensity to patent for the first time in a given technology
area.As we find thickets to affect entry negatively, there is a strong indication that
thickets represent some kind of barrier to entry in those technology areas in
which they are present. However, we must emphasize that the simple finding of a
barrier to entry created by patent thickets is not proof positive that reducing that
barrier and increasing entry would lead to welfare improvements in the
innovation/competition space. Rather it is the existence of evidence that the
presence of thickets reduces entry combined with the large literature we have
reviewed that shows that currently patent systems do not work as well as they
should. This literature documents quality issues with patents in technology areas
affected by patent thickets, a large decline in the relationship between R&D
spending and patenting in some sectors and a substantial increase in resources
devoted to patent litigation leading to the partial or complete revocation of
patents in areas identified as prone to thickets.
I like their understated conclusion:
All of this may lead one to the conclusion that the operation of the patent system could use some improvement.
In other words, see the Tabarrok Curve.
The new changes to British welfare policy
The process starts today, as listed by the FT:
1 April – Spare room subsidy ends
1 April – Council tax benefit eligibility decided by local councils
8 April – New benefit rates come into effect. Most will be increased by a below-inflation 1 per cent
8 April – Personal Independence Payment replaces Disability Living Allowance in north England
15 April – Benefit cap, limiting sums a single household can receive to about £500 [TC: that is per week], begins in four London areas before national roll-out in July
29 April – Universal Credit pilot begins in one English town
Here is a CRS-like summary of the changes (pdf). The Guardian breaks down some of the exact numbers. If I understand their categories correctly, total benefit spending in nominal terms is going up by 1.9%, less than the rate of price inflation. Supporters of reform argue that welfare benefits have been going up at a higher rate than have wages. At the first link you will see that British public opinion was about 60% in favor of higher benefits in 1991 and was about 27% in favor of higher benefits as of 2011.
There is a concomitant movement afoot to cut benefits for immigrants.
I have been reading up on the Poor Law reforms of 1834 for a forthcoming MRU course, and the number of parallels to the current situation is striking. (By the way, here is a good D.A. Baugh article (jstor) about welfare costs leading up to those reforms.) For instance as British workers themselves struggled, support for toughening up the Poor Laws increased considerably. The final 1834 changes, which restricted eligibility, limited grants, consolidated categories of aid, and emphasized “putting the poor back to work,” passed Parliament by a considerable margin. There was also at that time, and now, a variety of popular overestimates for how much the benefits were squelching work effort (see Mark Blaug on the Poor Laws for instance).
This current reform is viewed by many critics as not being very generous. It also can be said, however, that relative to current and recently lowered expectations of future wealth for the middle class, this is probably offering a higher percentage of redistribution than was the case a few years ago or for that matter during the pre-Thatcher British welfare state.
Big data for dogs?
From Ireland:
Legislation requiring all dogs to be microchipped is to be introduced by Minister for Agriculture Simon Coveney.
Mr Coveney told the Dáil it would take some time to put the necessary regulation in place and there would be a proper consultation process to ensure it was done right and was cost-effective.
He said microchipping would apply across the board, as it did already with dog-breeding establishments and the greyhound industry. “We cannot have different standards applying depending on where a puppy happens to come from,’’ he added.
Mr Coveney said he wanted a central database to know how many dogs there were in the country. “Accordingly, if there is a case of a stray dog, or one which has suffered cruelty or was abandoned, we can then establish who owned the dog and take appropriate action,’’ he added.
The link is here.
Rob Reich on philanthropy and what foundations are good for
From Boston Review, you will find his stimulating essay here. Excerpt:
I believe there is a case for foundations that renders them not merely consistent with democracy but supportive of it.
First, foundations can help to diminish government orthodoxy by decentralizing the definition and distribution of public goods. Call this the pluralism argument. Second, foundations can operate on a longer time horizon than can businesses in the marketplace and elected officials in public institutions, taking risks in social policy experimentation and innovation that we should not routinely expect to see in the commercial or state sector. Call this the discovery argument.
Do note that some parts of Reich’s essay are more critical of foundations than this. Behind the main link, the column “Forum Responses” provides numerous comments on Reich, you can find mine here.
What to look for in the Cyprus deal
1. Output on the island could easily decline by 25% or more, and I don’t think that will involve much subsequent mean-reversion. There will be a deflationary shock, an uncertainty shock, an “austerity shock,” a credit contraction shock, and a few other negative shocks as well. The Cypriot government will not be fiscally well situated to support the safety net or automatic stabilizers.
2. It’s never a good sign when a deal is structured so that no one has to vote on it. (Correction: various European legislatures may be voting on it, but no one in Cyprus.)
3. The deal itself still doesn’t cough up all the money, but rather relies on subsequent tax increases and privatizations to come up with at least another billion euros. Believe it or not, the numbers don’t add up.
4. “This was not a good weekend for Russian billionaires.”
5. I wonder if the two main banks even have the money they claim they do. Who tells the truth going into a deal like this?
6. Capital controls in Iceland are expected to remain in place at least through 2015, which would make seven years (and counting). That is a better run country with lots of fish and aluminum smelting. You can expect the same or longer from Cyprus, and that’s assuming this deal can last that long, which I doubt.
7. ELA assistance is now, all the more obviously, contingent rather than certain. Who would keep their money in the “good bank” which is being folded into Bank of Cyprus? Why would anyone do this? Given a shrinking economy, surely this bank cannot afford to pay very much to retain deposits, since rates of return on domestic assets will be negative and capital controls will limit or prevent investments in foreign assets.
8. The capital controls will have to be strict. What will the price of a Cypriot euro be, relative to a German euro? 50%? I call this Cyprus leaving the euro but keeping the word “euro” to save face. And yet they fail to reap most of the advantages of leaving the euro, such as having an independent monetary policy.
9. Given that the nation is uh…corrupt, and the account holders are very often money launderers (duh), how effectively will those capital controls be enforced? Won’t the banks end up drained, one way or another? Of course remittances will need to be sent abroad to purchase “essential services,” right? Who picks up the tab for the total collapse of all the banks? Won’t the euros that are left depart Cyprus altogether?
10. Next up may be Slovenia…
Addendum: A summary of the deal is here. And here are some very good comments. Here are more details on capital controls.
Are driverless cars illegal?
Here is a long, 99-page article (pdf) by Bryant Walker Smith suggesting the answer might be “yes.”
My argument is less subtle than those in the footnotes of the paper. Try running a driverless car in Fairfax City, or Alabama for that matter, while sleeping in the back seat with your feet up. See what happens when you drive by an alert policeman. (By the way, if you are asleep will your driverless car respond to the police siren and pull over?)
Let’s say you sit at the wheel while the software drives, you still are pulled over, and given a ticket for “reckless driving.” You show up in court and the judge asks you what regulatory inspection or safety process your equipment has been through. I am not saying you will always lose the case or indeed always will be pulled over, but your vehicle is no longer a reliable source of hassle-free transportation, no matter what statutory arguments you may make on your behalf.
There are different notions of the word “legal,” but from a practical point of view what the police will let you get away with is surely relevant. It seems to me that your protected sphere here is quite small.
For the pointer I thank Jerry Brito.
The evolution of Russian holiday mobility
Recently Ms Loftus has seen more requests like the last one – clients with, as she puts it, “jurisdictional issues”. For a small but growing number of elite Russians, travel opportunities are increasingly limited. The trend was epitomised by the US Magnitsky act, which late last year imposed a US visa blacklist and asset freezes on roughly 60 Russians suspected of human rights violations. Its open-ended wording leaves open the possibility that the list of names will lengthen. The EU looks set to eventually pass similar legislation.
Meanwhile, the uncertain fate of Cyprus, once the favourite playground of Russia’s wealthy for its unbeatable combination of sea, sand and flexible approach to financial services regulation, may yet strike another holiday destination off the list.
In Soviet times, only the elite could travel. Today, it is the reverse: almost anyone in Russia can afford a week or two in Turkey or Egypt, but in some cases the foreign holiday dreams of the rich and powerful have been clipped, leaving them with few options.
And:
Then, there was the mysterious caller who asked for “a holiday in a non-Interpol country” on behalf of his boss, who he would not name.
I wonder how good a trip that could be? (I very much enjoyed Taiwan, but have never visited Kiribati.) The full FT story is here.
Russian markets in everything
According to this story in Canada’s National Post, cops in Moscow have been ordered to inspect ambulances after learning that VIP commuters are riding around in “ambulance taxis” that cost as much as $200 per hour.
These aren’t just ordinary ambulances, either. They’ve been cleverly fitted with fancy and luxurious interiors so their passengers can eat caviar and sip champagne while they blow through traffic with lights and sirens blazing.
Open banking resolution in New Zealand
The excellent Eric Crampton sends me this by email:
NZ’s wound down the temporary deposit insurance we had in place post 2008 in favour of Open Banking Resolution: freeze a part of all deposits, keep the banks open, liquidate the shareholders and unsecured creditors, then (if necessary) haircut the depositors.
The Greens here have been comparing it to Cyprus, which is obviously rather different.
Anyway, if interested:
RBNZ: http://www.rbnz.govt.nz/research/bulletin/2007_2011/2011sep74_3HoskinWoolford.pdf
http://www.rbnz.govt.nz/finstab/banking/4933917.html
TVHE critique (on credibility): http://www.tvhe.co.nz/2013/03/21/political-equilibrium-obr-and-deposit-insurance
Me: http://www.offsettingbehaviour.blogspot.co.nz/2013/03/deposit-insurance.html
A 10-yr old piece by then RBNZ Deputy Governor, now U Canterbury Vice Chancellor, Rod Carr, on related topics: http://www.rbnz.govt.nz/speeches/0104984.html
Here, the Reserve Bank distances its policies from those of Cyprus.
U.S. government regulations for virtual currencies
Here is part of one summary:
The major boon from the document for Bitcoin is this: users get off lightly. In fact, FINCEN does not intend to touch mere users of virtual currency at all; the document states, “a user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs.” The document also offers protection from “prepaid access” laws that regulate gift cards and the like, saying that “a person’s acceptance and/or transmission of convertible virtual currency cannot be characterized as providing or selling prepaid access because prepaid access is limited to real currencies.” Finally, even exchanges are safe from “foreign exchange” regulation, the set of rules governing businesses that offer exchange between two or more national currencies.
The regulations are here, and the pointer is from Jeff Garzik. On the topic, there is a very good short essay by Eli Dourado.