Category: Law
Just how bad is corruption in China?
In a new paper, my colleague Carlos Ramirez has the scoop:
Abstract:
This paper compares corruption in China over the past 15 years with corruption in the U.S. between 1870 and 1930, periods that are roughly comparable in terms of real income per capita. Corruption indicators for both countries and both periods are constructed by tracking corruption news in prominent U.S. newspapers. Several robustness checks confirm the reliability of the constructed corruption indices for both countries. The comparison indicates that corruption in the U.S. in the early 1870s — when it’s real income per capita was about $2,800 (in 2005 dollars) — was 7 to 9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the U.S. reached $7,500 in 1928 — approximately equivalent to China’s real income per capita in 2009 — corruption was similar in both countries. The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the U.S. historical experience. The paper further argues that the corruption and development experiences of both the U.S. and China appear to be consistent with the “life-cycle” theory of corruption — rising at the early stages of development, and declining after modernization has taken place. Hence, as China continues its development process, corruption will likely decline.
Why did the Senate refuse to ratify the disabilities Convention?
Many people are criticizing the Senate for failing to ratify the UN Convention on the Rights of Persons With Disabilities, background here. The text of the Convention is here. In terms of enforceability, it is the usual “shall undertake to do” approach, with nothing in the way of actual teeth.
Erik Voeten seems upset that the United States did not ratify and seems to regard ratification as a no-brainer. Keep in mind that many of the good aspects of the Convention are already law in the United States and indeed often stem from American precedents.
If you would like one starting point for thinking about this issue, here is a simple exercise: imagine yourself a specialist in international law advising the U.S. government. Here is a Wikipedia summary of one part of the Convention:
In accordance with international law, to ensure that law protecting intellectual property rights do not constitute an unreasonable or discriminatory barrier to access by persons with disabilities to cultural materials.
What do you advise? Consider that the United States, when writing bilateral trade treaties, tries to enforce or even redefine IP law to the hilt. (NB: I don’t at all favor this, but it is a fact of life and will very likely remain so, for obvious public choice reasons.) You are the most powerful country on earth, so why should you ratify a Convention which will make this IP policy harder to see through and which will in fact create an entire series of loopholes, or at least rhetorical moves, many of which could end up involving weaker IP enforcement against the non-disabled? Imagine a nation, negotiating with the U.S., insisting that derivative works with subtitles for the hearing-impaired receive weaker IP protection, and citing the U.S. ratification of this Convention. (Personally, I probably would favor this by the way.) All of a sudden the U.S. would have to spend some political capital whacking this back down.
Very often UN Conventions are fights over the rhetoric which will be allowed and recognized in (binding) negotiations elsewhere. It is thus weaker nations which favor the increased ability to use such rhetoric, and stronger nations which wish to limit such rhetoric. Guess where that puts the United States?
I do not personally have any problem with the United States ratifying this Convention. But I recognize that a failure to ratify is simply “business as usual,” reflecting longstanding and rather deeply rooted priorities, rather than some strange Senatorial or Republican intransigence against the disabled.
More generally, the U.S. will be most interested in ratifying Conventions only if they bind other nations in a useful way to the United States. The WTO (although not legally a “Convention”) is a good example of that, but such examples are not that frequent.
This entire debate could use a closer look at the differences between being a states party to a Convention, signing, and ratifying.
I’ve read a bunch of articles on this Convention, from various media outlets, and not one of them is setting out the basic principles here with much accuracy.
Threats
If the deal is rejected [as would appear to be the case], Mr Huang said he would tell “the whole world that Iceland doesn’t welcome Chinese businessmen”.
Here is more, and here is background and here is my previous blog post on this episode.
The Palestinian Emirates?
From Barry Shaw:, this is also known as the “eight-state solution”:
Dr. Mordechai Kedar of Bar-Ilan University, a Middle East expert…calls his alternative “the Palestinian Emirates.”
He visualizes eight emirate-type city states with designated borders that will incorporate the Arabs within them. The rest of the land can be populated by the inhabitants, whether they be Jews or Arabs, living and behaving with respect and deference to the inhabitants of the various city-states. The states shall be granted sovereignty. They shall be granted surrounding land for expansion and development. Road systems in vacant lands shall be developed for transport of people and commerce, both Jewish and Arab.
If Palestinians could “vote with their feet” across these various Emirates, it would be interesting to see what kind of policies would evolve, relative to what is produced by currently existing forms of political participation.
Here is a web site devoted to the concept, with one more detailed account here. I should add that there are versions of this idea which do not add all of the “baggage” found on this web site.
In presenting this material, I am not seeking to have MR commentators reprise all of the usual debates on the broader topic of Middle East peace or lack thereof. Nonetheless I had never heard this idea before, and so I am passing it along.
Copyright Unbalanced
Virginia Postrel has a good piece on free market copyright reform:
Making the intellectual case, the Mercatus Center at George Mason University, a hub of free-market scholarship, has just released “Copyright Unbalanced: From Incentive to Excess,” a collection of libertarian and conservative critiques. The book doesn’t oppose copyright per se, but it excoriates the current system’s lengthy terms and expansive enforcement powers.
“Whatever your philosophical position, if you are skeptical of government power, you should likewise be skeptical of the copyright system that has developed over the last century,” writes Jerry Brito, the volume’s editor, in the introduction.
…Consider how the law applies to Robert Frost’s classic poem “Stopping by Woods on a Snowy Evening,” first published in 1923. Back then you only got copyright privileges for works officially registered with the copyright office, and only for a term of 28 years, which could be renewed if you filed again, as Frost did in 1951.
Requiring such simple procedures reserved copyright privileges for creators with strong commercial or sentimental interests in limiting the publication of their works. Today, by contrast, copyright automatically applies to every eligible work, including your vacation snapshots and your 4-year-old’s handmade Mother’s Day card.
Under the law when Frost wrote his poem and renewed the copyright on the volume including it, it would have presumably entered the public domain in 1979, more than a decade after its author’s death in 1963. That’s not what happened. Beginning in 1962, Congress gradually extended copyright terms, and in 1976 it passed a new copyright act that gives works already under copyright a new term of 75 years from their first publication. That meant “Stopping by Woods” wouldn’t go into the public domain until 1998.
That’s not what happened either. Just as the poem’s copyright was about to expire, Congress passed the Sonny Bono Copyright Term Extension Act, which gave existing works a new copyright term of 95 years. (The 1923 Frost volume including the poem was one of the works cited in a lawsuit unsuccessfully challenging the act’s constitutionality.) So Frost’s poem won’t enter the public domain until 2018 — assuming that Congress doesn’t pass yet another extension.
Fifty-six years of copyright was clearly enough to encourage Frost to write the poem. Anything further is just a windfall for his estate and his publisher. The Constitution, reformers are quick to note, gave Congress the right to grant copyrights “to promote the Progress of Science and useful Arts,” not to benefit producers.
You can get Copyright Unbalanced which includes excellent papers by Reihan Salam, David Post, Tom Bell and others here (amzn) and read the first chapter (pdf).
How to Win at Poker
On April 15, 2011, a day that has been dubbed “Black Friday” in the poker community, the DOJ shut down the American operations of three major sites: PokerStars, Full Tilt Poker, and Ultimate Bet.
Michael Kaplan has an update on the story:
In January of this year, Full Tilt and the DOJ worked out an arrangement in which the DOJ took ownership of Full Tilt with the intention of selling it to raise funds to pay back American players. Seven months later, on July 31, PokerStars purchased Full Tilt from the DOJ. Businessweek estimated that the transaction would make $547 million for the U.S. government. At the time, the DOJ vowed to reimburse Full Tilt’s U.S. players; Stars said that it would take responsibility for returning $184 million to non-American customers.
PokerStars followed through on its end of the deal and recently relaunched the Full Tilt site outside of the U.S.
So has the DOJ paid the U.S. players? Of course not.
According to Steven L. Kessler, an attorney based in New York City who specializes in forfeiture law…“In one of its publications [the ‘National Asset Forfeiture Strategic Plan 2008–2012’], the government talks about bringing in $2 billion in forfeitures and returning only $700 million.” Recouping Full Tilt funds will be “a long, drawn-out process to the point that you will need to be out five or six or seven figures for it to be worth pursuing. The system is set up so that you are discouraged from going after your money….Plus, look at what you’re exposing to get back what belongs to you. You have to wonder if it will turn into a tax case.”
In other words, as in other asset forfeiture cases, the government is grabbing up property and keeping as much as it can for its own coffers. Even if some of these sites were fraudulent, one wonders if the players would not have better off without government “protection.”
The full article also includes a good markets in everything item.
Hat tip: Ben Mathis-Lilley.
Marcia Angell’s Mistaken View of Pharmaceutical Innovation
At Econ Talk, Marcia Angell discusses big Pharma with Russ Roberts. I think she gets a lot wrong. Here is one exchange on innovation.
Angell: The question of innovation–you said that some people feel, economists feel, [the FDA] slows up innovation: The drug companies do almost no innovation nowadays. Since the Bayh-Dole Act was enacted in 1980 they don’t have to do any innovation….
Roberts: But let’s just get a couple of facts on the table…[The] research and development budget of the pharmaceutical industry is, in 2009, was about $70 billion. That’s a very large sum of money. Are you suggesting that they don’t do anything–that that’s mostly or all marketing? That they are not trying to discover new applications of the basic research? It seems to me basic research is an important part. Putting that research into a form that can make us healthier seems to be a nontrivial thing. You think they are–what are they doing with that money?
Angell: If you look at the budgets of the major drug companies–just go to their annual reports, their Security and Exchange Commission (SEC) filings, you see that Research and Development (R&D) is really the smallest part of their budget. If you look at the big companies you can divide their budget into 4 big categories. One is R&D, one is marketing and administration; the other is profits, and the other is just the cost of making the pills and putting them in the bottles and distributing them. The smallest of those is R&D.
Notice that Angell first claims the pharmaceutical companies do almost no innovation then, when presented with a figure of $70 billion spent on R&D, she switches to an entirely different and irrelevant claim, namely that spending on marketing is even larger. Apple spends more on marketing than on R&D but this doesn’t make Apple any less innovative. Angell’s idea of splitting up company spending into a “budget” is also deeply confused. The budget metaphor suggests firms choose among R&D, marketing, profits and manufacturing costs just like a household chooses between fine dining or cable TV. In fact, if the marketing budget were cut, revenues would fall. Marketing drives sales and (expected) sales drives R&D. Angell is like the financial expert who recommends that a family save money by selling its car forgetting that without a car it makes it much harder to get to work.
Later Angell tries a third claim namely that pharma companies do no innovation because their R&D budget is mostly spent on clinical trials and, “it’s no secret how to do a clinical trial.” I find this line of reasoning bizarre. I define an innovation as the novel creation of value, in this case the novel creation of valuable knowledge. Is Angell claiming that clinical trials do not provide novel and valuable knowledge? (FYI, I have argued that the FDA is overly safety conscious and requires too many trials but Angell breezily and nastily dismisses this argument). In point of fact, most new chemical entities die in clinical trial because what we thought would work in theory doesn’t work in practice. Moreover, the information generated in the clinical trials feeds back into basic research. Angell’s understanding of innovation is cramped and limited, she thinks it begins and ends with basic science in a university lab. Edison was right, however, when he said that genius is one percent inspiration and ninety-nine percent perspiration–both parts are required and there is no one-way line of causation, perspiration can lead to inspiration as well as vice-versa. Read Derek Lowe on the reality of the drug discovery process.
Angell infuses normative claims to the industrial organization of the pharmaceutical industry. Over the past two decades there has been an increase in the number of small biotechnology companies, often funded by venture capital. Most of the small biotechs are failures, they never produce a new molecular entity (NME). But a large number of small, diverse, entrepreneurial firms can explore a big space and individual failure has been good for the small-firm industry which collectively has increased its discovery of NMEs. The small biotechs, however, are not well placed to deal with the FDA and run large clinical trials–the same is also true of university labs. So the industry as a whole is evolving towards a network model in which the smaller firms explore a wide space of targets and those that hit gold partner with one of the larger firms to pursue development. Angell focuses in on one part of the system, the larger firms and denounces them for not being innovative. Innovation, however, should be ascribed not to any single node but to the network, to the system as a whole.
Angell makes some good points about publication bias in clinical trials and the sometimes too-close-for-comfort connections between the FDA, pharmaceutical firms, and researchers. But in making these points she misses the truly important picture. Namely that new pharmaceuticals have driven increases in life expectancy but pharmaceutical productivity is declining as the costs of discovering and bringing a new drug to market are rising rapidly (on average ~1.8 billion per each NME to reach market). In my view, the network model pursued on a global scale and a more flexible and responsive FDA, both of which Angell castigates, are among the best prospects for an increase in pharmaceutical productivity and thus for increases in future life expectancy. Nevertheless, whatever the solutions are, we need to focus on the big problem of productivity if we are to translate scientific breakthroughs into improvements in human welfare.
Just limiting deductions for the wealthy
This I am pulling from Greg Mankiw, with the actual source being the White House blog, namely Sperling and Furman:
Bottom line: If you apply a $25,000 deduction cap only to households with income above $250K, phase in the cap gradually as income rises above $250K, and exclude charitable giving from the cap, you increase revenue by only $450 billion over ten years.
Worthy of further investigation — what were tax rates in the 1960s?
The data itself tells an entirely different story from the idealized 91% tax rate. According to Internal Revenue Service data, presented below on a graph, from 1966 to 1970 the effective tax rate of an average tax payer in the top 1% was 30.85%. Throughout the time period in question, the effective tax rate of the average top 1% never exceeded 35%.
You will note that is “tax rate,” not “marginal tax rate.” There is income shifting, and also deductions, but also important is the sheer fact of greater income equality. Most income was not in the highest of tax brackets, nor was there — even for most of the relatively wealthy — a plausible way of getting very high up into those brackets. (I thank Balding for some useful discussion over email, without holding him to any particular version of this interpretation.) Here is an early MR post about how sometimes average tax rates matter more than (reported) marginal rates.
For later periods of time, here are some good tax visuals from the NYT.
New York City fact of the day
New York City passed a day without a single report of a person being shot, stabbed or subject to other sorts of violent crime for the first time in recent memory, police said today.
The rare day occurred on Monday, near the end of a year when the city’s murder rate is on target to hit its lowest point since 1960, according to New York Police Department chief spokesman Paul Browne.
Mr Browne said it was “first time in memory” the city’s police force had experienced such a peaceful day.
While crime is up 3 per cent overall, including a 9 per cent surge in grand larceny police attribute to a rash of smart phone thefts, murder is down 23 percent over last year, the NYPD said.
The story is here.
What the Swiss will do with garage-like boxes
Zurich council has approved a plan to build the boxes, which will, it hopes, provide a discreet location for prostitutes and their clients to conduct business when they open in August next year.
Located in an industrial area of the city, the row of garage-like boxes will have roofs and walls for privacy, and easy access for cars. The council estimates that around 30 prostitutes will meet clients at the site of the boxes, and use the drive-in slots on a first-come-first-served basis.
“The big difference is that until now prostitution has been in the public space,” Michael Herzig, from Zurich’s social welfare department, told Swiss Radio. “Now we are going to change this, move it from the street to a private space in an old industrial area, which belongs to the city. This gives us the possibility to define the rules of prostitution in this area.”
The opening of the sex boxes will coincide with a major reform of prostitution laws in the Swiss city. Prostitution will be outlawed in certain areas of Zurich where it has taken grip, and led to local complaints about women being harassed on the streets and the activities of pimps.
The prostitutes who use the sex boxes will also have to take out medical insurance and buy a £26 licence in order to ply their trade. On top of that they will also have to feed five Swiss francs, about £3.30, into a roadside ticket machine each night when they clock on.
The story is here, and I thank a loyal MR reader for the pointer.
Ethical software up for grabs
Does your car swerve off the bridge or plough through the nearby crowd? In case of an impending accident, which ethical standards will govern your driverless car? (Which govern you?) “And over here, at a price discount, is the Peter Singer Utilitarian Model. The Roark costs $800 more.”
Or perhaps it will be put up to a vote, or handed over to OIRA. California can run a referendum. Alex earlier called this the Google Trolley problem, after the famous philosophical conundrum.
Joshua adds in the comments: “Can’t we just give the robot cars like three general guidelines and let them figure out the details on their own?”
For the pointer I thank Gordon H.
End Software Patents!
Here’s a fun video on the problem with patents brought to you by myself and the great folks at Idea Rocket Animation! Read Launching the Innovation Renaissance (amz) for more (TED book app).
Gains from Trade: Lessons from the 2007-2010 Gaza Blockade
I haven’t read this paper, by Assaf Zimring, a job market candidate from Stanford economics, but I pass it along for its obvious current relevance. Here is the abstract:
This paper uses detailed household expenditure and firm production data to study the welfare consequences of the blockade on the Gaza Strip between 2007 and 2010. Using the West Bank as a counterfactual, I find that being removed from world markets reduced welfare by 17%-28% on average. Moreover, households with larger pre-blockade expenditure levels experienced disproportionally larger welfare losses. These effects are substantially larger than the predictions of standard trade models. I show that this discrepancy is due to a combination of resource reallocation and reduced productivity. Using firm level data I find that the blockade triggered reallocation of workers across firms and sectors, especially from manufacturing and into services, and from industries that use imported inputs intensively, or export. In addition, labor productivity fell sharply by 24%-29%. This decline was however significantly higher in manufacturing (45%) than in services (5%).
The link and the author’s home page you will find here.
Are benefit costs increasingly driving the cyclicality of employment?
Here is the job market paper of Grace Weishi Gu, from Cornell:
The Cost of Benefits and Employment Dynamics in Recent U.S. Recoveries
Abstract: I document (1) the slow rebound in U.S. aggregate employment following recent recessions, despite recoveries in output, as well as (2) a rising trend in per worker benefit costs, the cyclicality of those costs, and a positive correlation of the cyclical benefit costs with employment growth cycles. I show how these two phenomena are related. Then I develop a DSGE model that includes firms’ dynamic benefit costs, financial conditions (i.e., borrowing capacity), and the tradeoff between extensive and intensive labor margins to explore the effects of these features on post-1990 employment dynamics. I find that the benefit costs’ rising trend, cyclicality, and interactions with financial conditions have contributed significantly to the observed slow employment growth following the three most recent recessions in the U.S. This paper offers two main improvements over the standard model, which lacks such arrangements: (1) delivering 2-to-7-quarter delays relative to NBER business cycle troughs for the employment recoveries from the 1990, 2001, and 2007 recessions while generating no delay for the pre-1990 period, which is in line with the data; and (2) explaining 40-90 percent of employment volatility and harmonizing with that of output and per worker hours.
I would like to see more testing of this against alternative explanations, but still this is provocative and important work.