Category: Law

Is the bilateral approach to trade liberalization really so bad?

That is my latest Bloomberg column, here is one excerpt:

It seems we are bureaucratizing trade as much as liberating it. Perhaps that is no surprise. If you wish to induce numerous nations to sign on to a deal, you will have to offer exceptions, clauses and conditions for them. The eventual result is that a free-trade treaty morphs into a managed-trade treaty. I still believe that the various trade agreements that have been passed or drawn up are for the better, but I also can’t help being disappointed by them. Note also that progress through the World Trade Organization had ground to a halt even before the election of Trump.

We are now in a setting where the world’s No. 2 economy — China, on its way to being No. 1 — is strongly opposed to free-trade ideals and free flows of information, especially for its own home market.

Enter bilateralism. The smartest case for trade bilateralism is that trade in many goods is already fairly free, but some egregious examples of tariffs and trade barriers remain. Look at agriculture, European restrictions on beef hormones in beef, and the Chinese unwillingness to allow in foreign companies. Targeted strategic bargaining, backed by concrete threats emanating from a relatively powerful nation — in this case the U.S. — could demand removal of those restrictions. Furthermore, the negotiating process would be more directly transactional and less cartelized and bureaucratic.

My colleague John Nye, an economist at George Mason University, has argued that the free-trade revolution of the 19th century came about because of a major trade agreement between Britain and France in 1860. Other European nations were fearful of being locked out of subsequent deals, and they hurried to sign bilateral trade treaties with Britain and France. There was a competition to make deals rather than cartelization of the process.

That said, our current pursuit of this approach does not seem to have enough allies on our side, and thus I doubt if it will work.  There is much more in the rest of the column.

Will the European Union ruin the internet?

A committee of MEPs has voted to accept major changes to European copyright law, which experts say could change the nature of the internet.

They voted to approve the controversial Article 13, which critics warn could put an end to memes, remixes and other user-generated content.

Article 11, requiring online platforms to pay publishers a fee if they link to their news content, was also approved.

One organisation opposed to the changes called it a “dark day”.

The European Parliament’s Committee on Legal Affairs voted by 15 votes to 10 to adopt Article 13 and by 13 votes to 12 to adopt Article 11.

It will now go to the wider European Parliament to vote on in July.

…Article 11 has been called the “link tax” by opponents.

Here is further information.  If ever there was a case for Brexit…

For the pointer I thank Saku.

Is democracy in danger?

From the highly regarded Daniel Treisman:

Influential voices in academia and the media contend that democracy is in decline worldwide and threatened in the US. Using a variety of measures, I show that the global proportion of democracies is actually at or near an all-time high; that the current rate of backsliding is not historically unusual; and that this rate is well explained by the economic characteristics of existing democracies. I confirm that breakdowns tend to occur in countries that are poor, have had relatively little democratic experience, and are in economic crisis. Extrapolating from historical data, I show that the estimated hazard of failure in a democracy as developed and seasoned as the US is extremely low — far lower than in any democracy that has ended in the past. Some suggest that undemocratic public attitudes and erosion of elite norms threaten US institutions, but there is little evidence that these factors cause democratic breakdown. While deterioration in the quality of democracy in countries such as Hungary and Poland is itself cause for concern — as is the reversion to authoritarianism in Russia and Turkey — alarm about a global slide into autocracy is inconsistent with current evidence.

The pointer is from the excellent Kevin Lewis.

Debating Space

Should there be more publicly funded space exploration? Noa Ovadia recently argued that money should be spent on more pressing needs than space travel. An expert from IBM smacked that argument down pretty convincingly:

It is very easy to say that there are more important things to spend money on, and I do not dispute this. No one is claiming that this is the only item on our expense list. But that is beside the point. As subsidizing space exploration would clearly benefit society, I maintain that this is something the government should pursue.

Oh, did I mention the expert was Dr. Watson?

*Empire of Guns*

The author is Priya Satia, and the subtitle is The Violent Making of the Industrial Revolution.  Here is one good bit:

In fact, there were so many transitions between peace and war that it is difficult to establish what “normal” economic conditions were.  Eighteenth-century Europeans accepted war as “inevitable, an ordinary fact of human existence.”  It was an utterly unexceptional state of affairs.  For Britons in particular, war was something that happened abroad and that kept truly damaging disruption — invasion or rebellion — at bay.  Wars that were disruptive elsewhere were understood as preservationist in Britain…Adam Smith’s complaints about the costs of war, about the “ruinous expedient” of perpetual funding and high public debt in peacetime, staked out a contrarian position; The Wealth of Nations (1776) was a work of persuasion.  His and other voices in favor of pacific development grew louder from the margins.  By denormalizing war, liberal political economy raised the stakes of the century’s long final wars from 1793 to 1815, which could be stomached only as an exceptional, apocalyptic stage on the way to permanent peace.

In their wake, nineteenth-century Britain packaged their empire as a primarily civilian enterprise focused on liberty, forgetting the earlier collective investment in and profit from the wars that had produced it..

The book offers many points of interest.

Which technological advances have improved the working of autocracy?

That is the topic of my latest Bloomberg column, here is one excerpt:

“What have been the really major advances of the past 20 years?” is one of the most common debated questions in my circles. The smartphone is probably nominated most often, while Google, Facebook and fracking have their advocates too. Yet we hardly ever talk about one of the most important developments, perhaps because it raises uncomfortable political issues: the governance technologies and strategies of authoritarian regimes have become much more efficient

The big innovation in authoritarian governance has been this: subsequent autocratic leaders, most of all in China, have found ways of both liberalizing and staying in power. The good news is that people living under authoritarian governments have much, much better lives than before. The corresponding bad news is that autocracy works better than it used to and thus it is more popular and probably also more enduring. The notion that autocratic government would fade away, either in practice or as an ideological competitor to Western liberalism, simply isn’t tenable any more…

A second development was when authoritarian leaders realized that absolute prohibitions on free speech were counterproductive, and they learned how to manage an intermediate solution.  Allowing partial speech rights is useful as a safety valve, it allows major dissidents to be identified and monitored, and absolute speech prohibitions tended to wreck the economy and discourage foreign investment, leading to unpopularity of the government. At the same time, an autocratic government could come down hard on the truly threatening ideas when needed.

Scientific public opinion polling has been another advance in authoritarian states. In 1987, the Economic System Reform Institute of China conducted the first Chinese public opinion survey, a breakthrough event. Under Chairman Mao in contrast, the incentive was to report only the good news. In the 1990s, however, Chinese public opinion surveys boomed and also became much more scientific.

There is much more at the link, one of my more interesting columns as of late.

American families shouldn’t be separated, either

That is the title of my Bloomberg column, here is my basic proposal:

Let’s take one-tenth of those women and move them from prison to house arrest, combined with electronic monitoring. That would allow for proximity to their children. If the U.S. isn’t plagued by a subsequent wave of violent crime — and I don’t think it will be — let us try the same for yet another tenth. Let’s keep on doing this until it’s obviously not working.

And:

According to one 2010 study, more than 1.1 million men and 120,000 women in U.S. jails and prisons have children under the age of 17.

And:

From 1991 to 2007, the number of children with a mother in prison more than doubled, rising 131 percent. About two-thirds of the women in state prisons are there for nonviolent offenses. Sixty percent of those women have children under the age of 18, and in one survey one-quarter of the prisoners’ children were under the age of 4. Forty-one percent of the women in state prison had more than one child…One estimate suggests that 11 percent of the children of imprisoned mothers end up in foster care.

We can do this.

Spatial Competition, the Industrial Revolution and the Great Divergence

There is a new NBER working paper on those topics by Klaus Desmet, Avner Greif, and Stephen Parente:

A market-size-only theory of industrialization cannot explain why England developed nearly two centuries before China. One shortcoming of such a theory is its exclusive focus on producers. We show that once we incorporate the incentives of factor suppliers’ organizations such as craft guilds, industrialization no longer depends on market size, but on spatial competition between the guilds’ jurisdictions. We substantiate our theory (i) by providing historical and empirical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing the calibrated model correctly predicts the timings of the Industrial Revolution and the Great Divergence.

From the body of the paper, I found these two sentences especially useful:

First, using city size and location data, we quantify how spatial competition increased in England between 1600 and 1800.  Using the same metric, we show that China at the end of the nineteenth century was about 200 years behind England.

*Divided: Why We’re Living in an Age of Walls*

That is the new book by Tim Marshall, yes Trump and Israel and the like, but it goes much further than that.  Here is one excerpt:

Since 1971, Assam’s population has more than doubled, from 14.6 million to over 30 million, much of which is due to illegal immigration.  Hindu nationalists have argued that the area might have a Muslim majority by 2060.  In 2015 there were 19 million Hindus and 11 million Muslims, nine of the twenty-seven districts being Muslim majority.  Equally importantly, the 2017 census showed that people who are ethnically Assamese are now a minority in the state as a whole, and as people continue to arrive their proportions will continue to drop.

This is a depressing but thought-provoking book.  Bangladesh, by the way, is smaller than the state of Florida, but has 165 million people.  And I had not known there are about 800,000 Nigerians in South Africa.  You can order the book here.

Asian-American admissions at Harvard

Here is basic NYT coverage of the case:

University officials did concede that its 2013 internal review found that if Harvard considered only academic achievement, the Asian-American share of the class would rise to 43 percent from the actual 19 percent.

Here is the plaintiff’s brief by Peter S. Arcidiacono.  Here is David Card’s brief in defense of Harvard and Asian-American admissions.  Here is Arcidiacono’s response to Card.

Gabriel Rossman noted on Twitter: “Once you control for lacrosse, founding an NGO in high school, legacy status, alumni evaluation of personality, woke personal essays, and a 23&me test for EDAR, there’s no effect”

My take is simple.  Harvard is risk-averse with respect to the stream of future donations, as are many other schools.  Asian-American admissions don’t have the same donating track record as the white students traditionally cultivated by Harvard and other top universities.  Either Asian-Americans may seek out “diaspora philanthropy,” or they simply may have a more cynical attitude toward top institutions that they basically have never had any control over.

Furthermore, there is a common fear — repugnant to me I should add — that if a student body becomes “too Asian,” many white students will be less interested in going there.  I taught at UC Irvine for several years and found it to be a delightful experience, but this is exactly what many schools are afraid of (the UCI student body is disproportionately Asian, and the honors class I taught in my first year had only one non-Asian student in it).

And so they come up with every excuse possible — sometimes cemented in by self-deception — for maintaining a “balanced” student body.

It is incorrect to call it “racism,” but it is non-meritocratic and we should move away from those attitudes as quickly as possible.

In related news, the University of Chicago is moving away from the use of SAT scores in admissions.  The cynical might suggest this is so they are more insulated from potential lawsuits and also so they have more discretion in admissions.  If Chicago feels the need to do this, perhaps the system really is buckling under the strain of all these outside pressures.

Nonetheless, I predict ultimately the status quo will not change very much.  I just don’t see a strong enough popular or judicial constituency for righting the wrongs done to Asian-Americans.  Some kind of partial concession will be made, various terms and standards will be somewhat redefined, and we’ll be back to “rinse and repeat.”  Meritocracy: can’t live with it, can’t live without it.

I am pleased to report that none of this tomfoolery goes on at my home institution, which is highly and truly diverse.

*Blockchain and the Law*

The authors are Primavera De Filipp and Aaron Wright, and the subtitle is The Rule of Code and it is published by Harvard University Press.  I am sent many books on crypto and blockchains, but this is the one I feel is useful to an educated readership.  It’s not for specialists, but if you have a good general economics and also law background, as one would expect from MR readers, but don’t “get” crypto, this is the book-length treatment for you.  It sees merit and potential in crypto, without buying into any particular claim just for the sake of hype.

It is striking that crypto learning and debate really has not occurred through books much at all, nor in the mainstream media.  It has been through white and yellow papers, various on-line fora, Medium essays, Twitter, Reddit threads, and a variety of other venues.  I believe this is a paradigmatic example of how knowledge spreads these days and it should be studied very seriously as such, because it is the most extreme case of the new methods I know.

Towards An International Court of Smart Contract Arbitration

Firms involved in international commerce routinely contract that disputes are to be resolved by private courts of arbitration such as the International Court of Arbitration, the London Court of International Arbitration or the Singapore International Arbitration Center. These courts of arbitration compete for clients and thus have an incentive to resolve disputes fairly, quickly and inexpensively. Courts compete, for example, to provide arbiters who are experts not simply in the law but in the relevant area of commerce. The New York Convention of 1958 says that private arbitration decisions will be enforced by the national courts of any of the 159 signatories; thus private arbitration leverages national enforcement but is otherwise not tethered to national law (e.g. in US see, Mitsubishi v. Soler Chrysler, National Oil v. Libyan Sun). Over time private courts of international arbitration have developed a system of law that transcends nations, an anational law–this is the new lex mercatoria.

I propose that courts analogous to the courts of arbitration that govern international commerce be created to govern smart contracts in virtual space. Arbitration of smart contracts will develop a new private law that will evolve to meet the needs of virtual commerce, a true lex cryptographia. At first, it might seem contradictory to advocate for courts of smart contracts and the development of lex cryptographia. Isn’t the whole point of smart contracts that no courts or lawyers are needed? Similarly, lex cryptographia is usually understood to refer to the smart contracts themselves–code is law–rather than to law governing such contracts. In fact, it is neither desirable nor possible to divorce smart contracts from law.

Smart contracts execute automatically but only simple contracts such as those involving escrow are really self-enforcing. Most contracts, smart or dumb, involve touchstones with the real world. Canonical examples such as the smart contract that lets you use an automobile so long as the rent has been paid illustrate the potential for disputes. Bugs in the code? Disputes over the quality of the car? What happens when a data feed is disputed or internet service is disrupted? Smart contracts applied to the real world are a kind of digital rights management with all of DRMs problems and annoyances.

Some of these problems can be dealt with online using decentralized mechanisms. But we don’t yet know which decentralized mechanisms are robust or cost-effective. Moreover, when marveling at the wisdom of crowds we should not forget the wisdom of experts. Nick Szabo once remarked that if contract law was suddenly forgotten it would take hundreds of years to recover the embedded wisdom. Contract law, for example, is filled with concepts like mistake, misrepresentation, duress, negligence and intention that are not easily formalized in code. Contract law is a human enterprise. And the humans who write contracts want law with terms like negligence precisely because these terms fill in for gaps which cannot be filled in and formalized in contracts let alone in code.

I am enthusiastic about smart contracts on blockchains. Smart contracts will significantly reduce transaction costs and thus let people create valuable, new private orderings. But it will be more profitable to integrate law and code than to try to replace law with code. Integration will require new ways of thinking. The natural language version of a contract–what the parties intend to agree to–may not map precisely to the coded version. Arbiters will be called in to adjudicate and thus will have to be experts in code as well as in law. Smart contracts can be made by anonymous parties who may want a dispute resolved not just privately but anonymously. Smart contracts can be designed with escrow and multisignatory authority so arbiters will also become decision enforcers. All of these issues and many more will have to be understood and new procedures and understandings developed. The competitive market process will discover novel uses for smart contracts and the competitive market process among arbiters will discover novel law. Law will adjust to business practice and business practice to law.

In short, the best way to create a vital new lex cryptographia is through competitive, private arbitration built on the model that already governs international commerce.

Maybe British common law wasn’t so great for colonies after all

Legal Origins and Female HIV

Siwan Anderson

More than one-half of all people living with HIV are women, and 80 percent of all HIV-positive women in the world live in sub-Saharan Africa. This paper demonstrates that the legal origins of these formerly colonized countries significantly determine current-day female HIV rates. In particular, female HIV rates are significantly higher in common law sub-Saharan African countries compared to civil law ones. This paper explains this relationship by focusing on differences in female property rights under the two codes of law. In sub-Saharan Africa, common law is associated with weaker female marital property laws. As a result, women in these common law countries have lower bargaining power within the household and are less able to negotiate safe sex practices and are thus more vulnerable to HIV, compared to their civil law counterparts. Exploiting the fact that some ethnic groups in sub-Saharan Africa cross country borders with different legal systems, we are able to include ethnicity fixed effects into a regression discontinuity approach. This allows us to control for a large set of cultural, geographical, and environmental factors that could be confounding the estimates. The results of this paper are consistent with gender inequality (the “feminization” of AIDS), explaining much of its prevalence in sub-Saharan Africa.

That is from the latest American Economic Review.  Here is an earlier version and related material.