Category: Law

Why a U.S.-China trade deal won’t change much

That is the topic of my latest Bloomberg column, here are some bits:

The trade talks are chaotic because a trade deal would be chaotic. By which I mean, it would be difficult to interpret and enforce, not unlike the present situation…

The basic problem is easy enough to state, though it is all but impossible to solve. Many of the U.S. objections to Chinese trade practices, regardless of their merits, are fundamental objections to how the Chinese economy is organized. They are more than mere complaints about easily monitored variables such as tariff rates.

…If a trade agreement is concluded, then, it is likely to have two parts: the parts that are easy to enforce, and the parts that aren’t. To the extent that the U.S. insists on greater Chinese compliance on the easier parts, a self-interested China will respond by shifting more trade onto the difficult-to-enforce parts of the agreement.

The tug of war will never cease. Trump will continue to tweet and move markets. The Chinese will continue to organize their economy to maximize state control. And maybe, over time, we will all recognize the broader truth: In a highly legalistic world, vague and hard-to define-strategies offer a competitive advantage.

Here is a new Reuters piece on how China already had started walking back many of its earlier commitments.

How Much Did Physicians Drive the Opioid Crisis?

It’s well known that the opioid crisis started with prescription abuse but how much abuse was driven by patients who fooled their physicians and how much was driven by physicians who responded to monetary incentives with a nod and a wink? Molly Schnell provides some evidence which even a hard headed rationalist like myself found startling.

In August of 2010, Purdue Pharma replaced old OxyContin with a new, anti-abuse version of OxyContin. The new version was just as good at reducing pain as the old but it was more difficult to turn it into an injectable to produce a high. If physicians are altruists who balance treating their patient’s pain against their fear of patient addiction and downstream abuse then they should increase their prescriptions of new Oxy. From the point of view of health, the new Oxy is simply a better drug and with less abuse to worry about altruistic physicians should be more willing on the margin to prescribe Oxy to reduce pain. So what happened? Prescriptions for Oxy fell immediately and dramatically when the better version was released.

Now, to be fair to the physicians, patients who wanted to abuse Oxy stopped demanding it after the new version was released and physicians might not have realized how many of their prescriptions were being abused or sold on the secondary market. The aggregate data, which is a combination of supply and demand shifts, can mask individual physician behavior. Schnell, however, has data on the prescribing behavior of about 100,000 individual physicians who prescribed opioids.

Schnell finds that nearly a third of physicians behaved exactly as the altruism theory predicts. Namely, when new Oxy was released these altruistic physicians increased their prescriptions of Oxy and they maintained or reduced their prescriptions of other opioids. In fact, the median altruistic physician doubled their prescriptions of the new and improved Oxy. But almost 40% of physicians in Schnell’s sample behaved in a decidedly non-altruistic manner. Beginning in August of 2010, these non-altruistic physicians halved their prescriptions of new and improved Oxy and increased their prescriptions of other opioids. It’s difficult to see how attentive and altruistic physicians could decrease their demand for a better drug.

Schnell also finds that some parts of the country had fewer altruistic physicians and the consequences are evident in mortality statistics:

…. these differences in physician altruism across commuting zones translate into significant differences in mortality across locations…a one standard deviation increase in low-altruism physicians is associated with a 0.33 standard deviation increase in deaths involving drugs per capita. While this association is reduced conditional on observable commuting zone characteristics (including race, age, education, and income profiles), a significant and large association between the share of low-altruism physicians and drug-related mortality remains. Furthermore…this relationship persists even conditional on the number of opioid prescriptions, suggesting that the association is driven by the allocation of prescriptions introduced by low-altruism physicians rather than simply the quantity.

The less-altruistic physicians increased prescriptions for other opioids after new Oxy was introduced but perhaps even this was better than the non-prescription alternatives like heroin and street fentanyl. Indeed, Alpert, Powell and Pacula show that the introduction of improved Oxy led to more deaths because people switched to more dangerous, illegal alternatives. So was it a bad idea to introduce a better drug? Maybe, but if new Oxy had been introduced earlier perhaps fewer people would have been addicted, leading to less demand for illegal markets later. Thus, static and dynamic effects may differ. The economics of dual use goods is complicated.

Do minimum wage hikes get rid of bad restaurants?

We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. We find that the impact of the minimum wage depends on whether a restaurant was already close to the margin of exit. Restaurants with lower ratings are closer to the margin of exit on average, and are disproportionately driven out of business by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 10 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating on Yelp), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale). We expand the analysis to look at prices using data from delivery orders, and find that lower rated restaurants also increase prices in response to minimum wage increases. Our analysis also highlights how digital data can be used to shed new light on labor policy and the economy.

That is from a new NBER working paper by Dara Lee Luca and Michael Luca.  Obviously this will not be good for jobs, yet part of me believes that creative destruction in the restaurant sector is undersupplied…

Algiers fact of the day

There has not been a single property transaction in the Casbah in 40 years, said Mr. Ben Meriem, the head of the Paris institute. “No buyers, no sellers — for 30 percent of the buildings, we don’t even know who the owners are.”

Among the disused buildings, said Mr. Mebtouche, “eighty percent are owners who have abandoned their properties,” unable to pay for renovations.

Here is the longer NYT story by Adam Nossiter.  An excellent piece, though I would like to know more about the underlying regulations and incentives.

Money lending and the origins of anti-Semitism

We study the role of economic incentives in shaping the coexistence of Jews, Catholics, and Protestants, using novel data from Germany for 1,000+ cities. The Catholic usury ban and higher literacy rates gave Jews a specific advantage in the moneylending sector. Following the Protestant Reformation (1517), the Jews lost these advantages in regions that became Protestant. We show (i) a change in the geography of anti-Semitism with persecutions of Jews and anti-Jewish publications becoming more common in Protestant areas relative to Catholic areas; (ii) a more pronounced change in cities where Jews had already established themselves as moneylenders. These findings are consistent with the interpretation that, following the Protestant Reformation, Jews living in Protestant regions were exposed to competition with the Christian majority, especially in moneylending, leading to an increase in anti-Semitism.

That is from a new AER piece by Sascha O. Becker and Luigi Pascali.

Sludge Audits

Consumers, employees, students, and others are often subjected to “sludge”: excessive or unjustified frictions, such as paperwork burdens, that cost time or money; that may make life difficult to navigate; that may be frustrating, stigmatizing, or humiliating; and that might end up depriving people of access to important goods, opportunities, and services. Because of behavioral biases and cognitive scarcity, sludge can have much more harmful effects than private and public institutions anticipate. To protect consumers, investors, employees, and others, firms, universities, and government agencies should regularly conduct Sludge Audits to catalogue the costs of sludge, and to decide when and how to reduce it. Much of human life is unnecessarily sludgy. Sludge often has costs far in excess of benefits, and it can have hurt the most vulnerable members of society.

That is the abstract of a new paper by Cass Sunstein.

Caplan, Weinersmith, and Open Borders

Caplan and Weinersmith, in their splendid forthcoming graphic novel, present some rebuttals to the “cultural critique” of open borders.  For instance (and here I am presenting their views):

1. The average immigrant has political views which poll as pretty close to those of the average American.  They don’t even by huge margins favor more immigration.  (The author do admit that low-skilled immigrants do favor significantly less free speech, in any case on all of these points they do present actual numbers and visuals.)

2. Support for the welfare state remains strong in Western European nations, even as they have taken in many more migrants.

3. Open borders once before produced American political culture.

4. In “deep roots” terms, the United States already has a mediocre ancestry score, yet America has very high gdp and relatively strong political institutions.

5. There is an extended response to Garett Jones on IQ which I do not feel I can summarize well.  Toward the end, it is noted that babies adopted from poorer countries into richer countries typically do very well later in life.

6. The end of this chapter proclaims: “Open borders won’t destroy our freedom.  It’s going to bring freedom to all of mankind.”

I will again repeat my earlier point: the value and import of this new book does not very much depend on your actual opinion of open borders.  Still, if you would like to hear my views, I’ll repeat my earlier discussion:

And no I do not favor open borders even though I do favor a big increase in immigration into the United States, both high- and low-skilled.  The simplest argument against open borders is the political one.  Try to apply the idea to Cyprus, Taiwan, Israel, Switzerland, and Iceland and see how far you get.  Big countries will manage the flow better than the small ones but suddenly the burden of proof is shifted to a new question: can we find any countries big enough (or undesirable enough) where truly open immigration might actually work?

In my view the open borders advocates are doing the pro-immigration cause a disservice.  The notion of fully open borders scares people, it should scare people, and it rubs against their risk-averse tendencies the wrong way.  I am glad the United States had open borders when it did, but today there is too much global mobility and the institutions and infrastructure and social welfare policies of the United States are, unlike in 1910, already too geared toward higher per capita incomes than what truly free immigration would bring.  Plunking 500 million or a billion poor individuals in the United States most likely would destroy the goose laying the golden eggs.  (The clever will note that this problem is smaller if all wealthy countries move to free immigration at the same time, but of course that is unlikely.)

In any case, do buy the Caplan and Weinersmith book.  I have now begun to think there should be a book like this, or two, for every major political issue of import.

*Open Borders: The Science and Ethics of Immigration*

That is the already-bestselling graphic novel by Bryan Caplan and Zach Weinersmith, and I would just like to say it is a phenomenal achievement.  It is a landmark in economic education, how to present economic ideas, and the integration of economic analysis and graphic visuals.  I picked it up not knowing what to expect, and was blown away by the execution.

To be clear, I don’t myself favor a policy of open borders, instead preferring lots more legal immigration done wisely.  But that’s not really the central issue here, as I think Caplan and Weinersmith are revolutionizing how to present economic (and other?) ideas.  Furthermore, they do respond in detail to my main objections to the open borders idea, namely the cultural problems with so many foreigners coming to the United States (even if I am not convinced, but that is for another blog post).  Even if you disagree with open borders, this book is one of the very best explainers of the gains from trade idea ever produced, and it will teach virtually anyone a truly significant amount about the immigration issue, as well as economic analytics more generally.

There is more actual substance in this book than in many a purely written tome.

It will be out in October, you can pre-order it here.

Getting serious in the privacy wars

A three-hour drive north of the Philippine capital Manila, local leaders have drawn a line in the sand against a swelling tide of scuttlebutt and innuendo.

They outlawed gossip.

In a world awash with fake news and online rumors, more than half a dozen neighborhoods in Binalonan have introduced an anti-gossip ordinance to put an end to too much idle chitchat. Town Mayor Ramon Guico III says the worst time is during the summer, when the scorching heat pushes people to huddle beneath the broad branches of century-old acacia trees, sipping soft drinks or munching on snacks in the shade.

“That’s how it starts,” he complains.

The chin-wagging usually revolves around who might be cheating on their spouse or running up debts. Facebook and messaging apps worsened the problem, but Mr. Guico says the really damaging stuff is gossip— the sort of thing your mother might have warned you about…

The first offense starts with a fine of 500 pesos, or around $10, followed by an embarrassing afternoon spent picking up trash.

Here is the full James Hookway piece at the WSJ.

Slavery is usually worse than you think

The men were allowed to come on deck night and day if they wished, but it was the rule to whip the Negro men if they went in the hold with the women.  Aboard the Creole, sex was apparently (and, it turned out, wrong) deemed a greater threat than slave rebellion.  Gonorrhea, according to slaveholding commonplace, was a disease “generally contracted among Negroes en route who are brought for sale.”  A number of different traders had their slaves aboard the ship, and segregating them by sex was a way to keep one slaveholder’s slaves from diminishing the value of another’s by passing a disease — or starting a pregnancy.

That is from Walter Johnson, Soul By Soul: Life Inside the Antebellum Slave Market.

Not Going Postal

Dueling declined as state capacity, measured by post offices, expanded:

Abstract: Scholars have long tried to understand the conditions under which actors choose to use violent versus non-violent means to settle disputes, and many argue that violence is more likely in weakly-institutionalized settings. Yet, there is little evidence showing that increases in state capacity lowers the use of violent informal institutions to resolve disputes. Utilizing a novel dataset of violence — specifically, duels — across American states in the 19th Century, we use the spread of federal post offices as an identification strategy to investigate the importance of state capacity for the incidence of violent dispute resolution. We find that post office density is a strong, consistent, and negative predictor of dueling behavior. Our evidence contributes to a burgeoning literature on the importance of state capacity for development outcomes.

Hat tip: Kevin Lewis.

Counterfactuals about social media

Let’s assume, for purposes of argument, that basically all of the complaints about social media are correct.  Then let’s also imagine, as Matt Yglesias periodically suggests on Twitter, that Facebook is shut down altogether, toss in Twitter and the others as well.

What would happen?

One possibility is that America would move toward a Chinese-style solution, with heavy censorship of the internet.  Still, I think both public opinion and the First Amendment make that outcome unlikely.  Furthermore, while the Chinese solution has been relatively practicable (as opposed to desirable) to date, there is no guarantee that will continue to be the case.

Alternatively, without tight censorship substitutes for Facebook and Instagram and YouTube and Twitter will arise, possibly based in other countries if regulation so dictates.  They might be less ad-funded, less profitable, and less easy to use, but the basic technologies for “putting every single idea out there” are already out of the box.  Furthermore, it won’t be that hard to find and circulate those ideas, including the very bad ones, through a mix of aggregation and search and focused spread and redistribution.

The first question is whether anyone actually thinks that such a world of less heavily capitalized communications entities would lead to greater responsibility.  The first cut answer, drawing on basic economics, would seem to be no.

The broader point is the relative popularities of various ideas and sources still will be upended, just as the printing press and radio also had some fairly radical (and not entirely positive) effects in their times.  In essence, various intellectual and ideological debates will need to be re-litigated and re-fought over the internet, just as they were redone over television and radio, or earlier through papyrus and also clay tablets, of course with somewhat different results each time.

Many people hate that reality, but a reality it is.  Let’s even say you are right to hate that reality (NB: not exactly my view).

Should you:

a) Go after the companies that make the clay tablets?

b) Go after the clay tablets and try to smash them?

c) Equip yourself to try to win the new intellectual and ideological battles for hearts and minds?

And what should we infer about the spiritual vigor of a society that might so heavily promote options a) and b)?

Sentences to ponder

In fact, recognising a face is only the first step of biometric surveillance, he suggests. “It’s really like an entry-level term to much broader, deeper analysis of people’s biometrics. There’s jaw recognition — the width of your jaw can be used to infer success as CEO, for example. Companies such as Boston-based Affectiva are doing research that analyses faces in real time, to determine from a webcam or in-store camera if someone is going to buy something in your store.”

Other analyses, he adds, can be used to determine people’s tiredness, skin quality and heart rate, or even to lip-read what they are saying. “Face recognition is a very deceiving term, technically, because there’s no limit,” he concludes. “It ends ultimately only with your DNA.”

That is from Madhumita Murgia at the FT.

Tooth extraction markets in everything

Dozens of medical professionals in seven states were charged Wednesday with participating in the illegal prescribing of more than 32 million pain pills, including doctors who prosecutors said traded sex for prescriptions and a dentist who unnecessarily pulled teeth from patients to justify giving them opioids…

Another Alabama doctor allegedly prescribed opioids in high doses and charged a “concierge fee” of $600 per year to be one of his patients.

By Sari Horwitz and Scott Higham, there is more of interest at the link.  For the pointer I thank Harrison Brown.

Are volunteers better fighters?

It seems so:

A voluntary army’s quality exceeds or falls below a drafted army’s average quality depending on whether selection is advantageous or adverse. Using a collection of data sets that cover the majority of the US Army soldiers during World War II, we test for adverse selection into the army. Rather, we find advantageous selection: volunteers and drafted men showed no significant difference in fatalities, but volunteers earned distinguished awards at a higher rate than drafted men, particularly after the attack on Pearl Harbor. Analyses at the level of units concur with our findings based on enlistment records.

That is from a newly published article by Javier A. Birchenall and Thomas G. Koch, via Robin Hanson.