Category: Law

The effect of banning payday loans

n November 2008, Ohio enacted the Short-Term Loan Law which imposed a 28% APR on payday loans, effectively banning the industry. Using licensing records from 2006 to 2010, I examine if there are changes in the supply side of the pawnbroker, precious-metals, small-loan, and second-mortgage lending industries during periods when the ban is effective. Seemingly unrelated regression results show the ban increases the average county-level operating small-loan, second-mortgage, and pawnbroker licensees per million by 156, 43, and 97%, respectively.

That is from Stefanie R. Ramirez, via the excellent Kevin Lewis.

NY State Budget Director on Amazon

The open letter on Amazon from Robert Mujica, New York State’s Budget Director, is on fire. It shines an unflattering light on many people involved in the Amazon decision but its analysis of twitter mobs goes well beyond Amazon.

In my 23 years in the State Capitol, three as Budget Director, Amazon was the single greatest economic development opportunity we have had. Amazon chose New York and Virginia after a year-long national competition with 234 cities and states vying for the 25,000-40,000 jobs. For a sense of scale, the next largest economic development project the state has completed was for approximately 1,000 jobs. People have been asking me for the past week what killed the Amazon deal. There were several factors.

First, some labor unions attempted to exploit Amazon’s New York entry. The RWDSU Union was interested in organizing the Whole Foods grocery store workers, a subsidiary owned by Amazon, and they deployed several ‘community based organizations’ (which RWDSU funds) to oppose the Amazon transaction as negotiation leverage. It backfired.

…Organizing Amazon, or Whole Foods workers, or any company for that matter, is better pursued by allowing them to locate here and then making an effort to unionize the workers, rather than making unionization a bar to entrance. If New York only allows unionized companies to enter, our economy is unsustainable, and if one union becomes the enemy of other unions, the entire union movement – already in decline – is undermined and damaged.

Second, some Queens politicians catered to minor, but vocal local political forces in opposition to the Amazon government incentives as ‘corporate welfare.’ Ironically, much of the visible ‘local’ opposition, which was happy to appear at press conferences and protest at City Council hearings during work hours, were actual organizers paid by one union: RWDSU. (If you are wondering if that is even legal, probably not). Even more ironic is these same elected officials all signed a letter of support for Amazon at the Long Island City location and in support of the application. They were all for it before Twitter convinced them to be against it.

…Furthermore, opposing Amazon was not even good politics, as the politicians have learned since Amazon pulled out. They are like the dog that caught the car. They are now desperately and incredibly trying to explain their actions. They cannot.

…Third, in retrospect, the State and the City could have done more to communicate the facts of the project and more aggressively correct the distortions. We assumed the benefits to be evident: 25,000-40,000 jobs located in a part of Queens that has not seen any significant commercial development in decades and a giant step forward in the tech sector, further diversifying our economy away from Wall Street and Real Estate. The polls showing seventy percent of New Yorkers supported Amazon provided false comfort that the political process would act responsibly and on behalf of all of their constituents, not just the vocal minority. We underestimated the effect of the opposition’s distortions and overestimated the intelligence and integrity of local elected officials.

Incredibly, I have heard city and state elected officials who were opponents of the project claim that Amazon was getting $3 billion in government subsidies that could have been better spent on housing or transportation. This is either a blatant untruth or fundamental ignorance of basic math by a group of elected officials. The city and state ‘gave’ Amazon nothing. Amazon was to build their headquarters with union jobs and pay the city and state $27 billion in revenues. The city, through existing as-of-right tax credits, and the state through Excelsior Tax credits – a program approved by the same legislators railing against it – would provide up to $3 billion in tax relief, IF Amazon created the 25,000-40,000 jobs and thus generated $27 billion in revenue. You don’t need to be the State’s Budget Director to know that a nine to one return on your investment is a winner.

The seventy percent of New Yorkers who supported Amazon and now vent their anger also bear responsibility and must learn that the silent majority should not be silent because they can lose to the vocal minority and self-interested politicians.

…Make no mistake, at the end of the day we lost $27 billion, 25,000-40,000 jobs and a blow to our reputation of being ‘open for business.’ The union that opposed the project gained nothing and cost other union members 11,000 good, high-paying jobs. The local politicians that catered to the hyper-political opposition hurt their own government colleagues and the economic interest of every constituent in their district. The true local residents who actually supported the project and its benefits for their community are badly hurt. Nothing was gained and much was lost. This should never happen again.

Even if you think the end result was fine, as I do, this was a political fiasco for New York. Amazon was wise to exit when they did because the pecking of the chickens would only have intensified as they sunk investments.

Patent Trolls in Texas Take Another Hit

Plaintiffs in patent lawsuits used to flock to the Eastern District.of Texas because they could sue anywhere in the United States and the Eastern District has long been notoriously friendly to plaintiffs. In 2016, Marshall, Texas with a population of only 24,000, was home to an astonishing 25 percent of all patent filings in the U.S. In May of 2017, however, the Supreme Court ruled unanimously in TC Heartland v. Kraft Foods that plaintiffs can’t forum shop to find a friendly court. Instead patent plaintiffs must file in districts where the company  being sued is incorporated or where it has an established place of business.

Businesses are now responding to the Supreme Court’s rule by shifting their establishments. Apple, for example, looks like it will close both of its retail stores within the Eastern District of Texas and instead open a new store in Dallas, just south of the Eastern District of Texas border.

The Georgist equilibrium comes to Greece?

The 63-year-old has been been trying to buy an apartment ever since she was evicted from the home she rented for 32 years – when it was bought by Chinese investors two years ago.

“I want some security in case the same thing happens again,” says Ms Hynes, originally from Ireland. She earns a modest salary as an English teacher, while her Greek husband’s monthly pension was cut from €1,500 (£1,315; $1,690) to €500 during the country’s economic crisis, which began in 2010.

“When we were evicted there were still apartments selling nearby for €100,000. Now I can’t find anything under €250,000. These are Chinese and Russian prices. Not Greek.”

Greece’s financial crisis a decade ago shrank the country’s economy by more than 25% in the following years, but there are finally signs of improvement.

The property market, once completely dead, is on the rise – house prices in Athens rose 3.7% last year…

The boom appears to be driven by a controversial “golden visa” scheme, in which non-EU citizens receive residency and free movement in the EU’s Schengen zone, in exchange for investing in property.

The worry is that foreign investors are benefiting while ordinary Greeks miss out.

Many EU countries including the UK, Portugal and Spain, have golden visa schemes, but Greece has the lowest threshold. Investors receive five-year residency after purchasing €250,000 of property, making the country a new hotspot for foreign buyers.

Here is the full Jessica Bateman BBC story, via Ray Lopez.  Does a culture of renters bring a bohemian, non-complacent dynamic urban core?  Or a bunch of whiners who oppose economic progress?  Or both?

Are the New York subsidies to Amazon really so outrageous?

No, as I explain in my latest Bloomberg column, I do not think New York should have offered Amazon the tax break.  Still, the polemical outrage over this proposed policy seems to me out of hand.  It simply wasn’t that costly, unusual, or unfair.  Here is one bit:

Consider, by way of illustration, entitlement and discretionary spending on the federal level. A program such as Social Security or Medicare is done entirely by formula, as it should be; large companies cannot lobby for higher payments or lower taxes for their workers. Much of discretionary spending, by contrast, is research grants and procurement contracts. One company or researcher wins, and the others do not. Furthermore, the government will usually offer different prices and terms, based on how much value it thinks the winning bidder can bring to the project. All of which is to say: Discretionary spending requires … government discretion.

Viewed in the context, critics of local development subsidies are also critics of government discretion. Or, to frame the issue in a duller way: They do not believe local governments should treat economic development as a procurement problem. That’s a defensible position, but it is not obviously correct.

Another analogy is with private shopping malls, which commonly charge much lower per-unit rents to anchor tenants, maybe even subsidizing them. That is based on the view that a famous retail chain or movie theater can help other businesses in the mall by attracting customers and burnishing the overall image of the place. When a local government offers tax incentives to relocating businesses, it is in a sense acting like a shopping mall, which treats tenant recruitment as a kind of procurement problem. Offering differential rewards to prospective tenants is standard practice.

And note this point about fixed assets:

When a large company is going to make a significant investment in an urban area, it is hoping for support in terms of infrastructure maintenance or improvement, and indeed it invests on that basis. The reality is that municipalities often have difficulty fulfilling their obligations anyway. (This also holds true, unfortunately, for even basic promises to ordinary citizens. Ridden the New York City subway lately?)

In other words, Amazon cannot walk away from NYC the way a street vendor can move to South Carolina and set up a barbecue shop.  So they will be taxed harder ex post, if only in “in kind” terms, namely inferior services for the company and its employees.  The lower tax rate upfront is in large part an offset to this expected time consistency problem.

By the way, Singapore, Singapore, Singapore.  And I thank Garett Jones for the shopping malls point.

Peremptory Challenges

During the jury selection process, attorneys may request that a potential juror be stricken for cause, e.g. the juror is related to the defendant. Attorneys also have a limited number of peremptory challenges, typically between 3 and 20 depending on the state and the seriousness of the charges, which are essentially accepted without question. In Batson v. Kentucky the Supreme Court ruled that peremptory challenges may not be based solely on race but it’s widely acknowledged that Batson has no teeth because attorneys can easily come up with pretexts–which need not rise to the level of causes–to strike.

Next month the Supreme Court will revisit peremptory challenges and race. I don’t have strong opinions on the issue, although a small number of peremptory challenges seem fine to me, if only to keep the system moving and reduce the time and resources spent on jury selection. One reason I don’t have strong opinions is that I don’t think peremptory challenges are as biased as a NYTimes article seems to suggests.The NYTimes article, for example, never mentions that defendants also get peremptory challenges!  A second more subtle reason is that diversity of the jury pool constrains the jury even when there are no minorities on the jury. Here, from an earlier post, I comment on the findings of The Impact of Jury Race in Criminal Trials:

What the authors discover is that all white juries are 16% more likely to convict black defendants than white defendants but the presence of just a single black person in the jury pool equalizes conviction rates by race. The effect is large and remarkably it occurs even when the black person is not picked for the jury. The latter may not seem possible but the authors develop an elegant model of voir dire that shows how using up a veto on a black member of the pool shifts the characteristics of remaining pool members from which the lawyers must pick; that is, a diverse jury pool can make for a more “ideologically” balanced jury even when the jury is not racially balanced.

Thus, diversity of the jury pool may be as important as diversity of the jury–in a way that’s fortunate since it’s easier to make the jury pool diverse (as we have done with required randomization) than the jury. Instead of eliminating peremptory challenges, I’d raise their cost. For example, suppose that both sides get 3 “free” peremptory challenges but if they wanted one more they would have to give two to the opposing side.

Addendum: Justice Kavanaugh has written in favor of restricting peremptory challenges.

Amazon and taxes: a simple primer

The main reason Amazon as a corporate entity does not pay much in taxes is because the company so vigorously reinvests its profit.  The resulting expensing provisions lower their tax liabilities, in some cases down to zero or near-zero.  That is in fact the kind of incentive our tax system is supposed to create, and does so only imperfectly, noting that many economists have suggested moving to full expensing.

(NB: You can’t hate both share buybacks and profit reinvestment!)

Amazon pays plenty in terms of payroll taxes and also state and local taxes.  Nor should you forget the taxes paid by Amazon’s employees on their wages.  Not only is that direct revenue to various levels of government, but the incidence of those taxes falls somewhat on Amazon, which now must pay higher wages to offset the tax burden faced by their employees.  Not everyone wants to live in NYC or Queens!  (Do you agree with Paul Krugman’s charge that the Trump tax cuts are mainly a giveaway to capital?  If so, you probably also should believe that the wage taxes paid by Amazon employees fall largely on capital.)

There is no $3 billion that NYC gets to keep if Amazon does not show up.  That “money” was a pledged reduction in Amazon’s future tax burden at the state and local level.

When it comes to the discussion surrounding Amazon and taxes, I can only sigh…

Reducing Discrimination with More Information

From Cui, Li and Zhang:

We conduct four randomized field experiments among 1,801 hosts on Airbnb by creating fictitious guest accounts and sending accommodation requests to them. We find that requests from guests with African American-sounding names are 19.2 percentage points less likely to be accepted than those with white-sounding names. However, a positive review posted on a guest’s page significantly reduces discrimination: When guest accounts receive a positive review, the acceptance rates of guest accounts with white-sounding and African American-sounding names are statistically indistinguishable.

In other words, taste based discrimination is weak but statistical discrimination is common. Statistical discrimination happens when legitimate demands for trust are frustrated by too little information. Statistical discrimination is a second-best solution to a problem of trust that both owners/sellers/employers and renters/buyers/workers want to solve. Unfortunately, many people try to solve statistical discrimination problems as if they were problems of invidious prejudice.

If you think the problem is invidious prejudice, it’s natural to try to punish and prevent with penalties and bans. Information bans and penalties, however, often have negative and unintended consequences. Airbnb, for example, chose to hide guest photos until after the booking. But this doesn’t address the real demands of owners for trust. As a result, owners may start to discriminate based on other cues such as names. Instead market designers and regulators should approach issues of discrimination by looking for ways to increase mutually profitable exchanges. From this perspective, providing more information is often the better approach. As Cui, Li, and Zhang write in a HBR op-ed:

Our recommendation is for the platform companies to build a credible, easy-to-use online reputation and communication system. Bringing information to light, rather than trying to hide it from users, is more likely to be a successful approach to tackling discrimination in the sharing economy.

Addendum: See also Tyler and I in The End of Asymmetric Information. We need to work with information abundance rather than try to push against the tide.

The political culture that is China

News from the Middle Kingdom seems to be coming out systematically worse than what you might have been expecting, at least these days.  Here is an update on censorship and content control:

The platform has been designed with a built-in “Xi Study Points” system (学习积分系统) that allows users to accumulate points on the basis of habitual use of the platform, from reading and viewing of content to the posting of comments and other forms of engagement. It has been widely promoted by local governments and ministries and departments across China, and there have also been reports that some work units have ordered employees to attain specified point levels, with disciplinary measures to be imposed for those who fail to comply…

The app defines several periods of activity as “lively intervals,” or huoyue shiduan (活跃时段), during which users engaging with the platform can earn double points — 0.2 for each article or video, 2 points for a full 30 minutes of use, and so on. The intervals are Monday through Friday from 8:30 PM to 10 PM, and on Saturdays and Sundays from 9:30 AM to 10:30 AM, and 3:30 PM to 4:30 PM. The system, then, incentivises Party members, once home from the office and done with family dinner, to spend golden hours of otherwise discretionary personal time engaging with “Xi Jinping Thought.”

Interesting and frightening throughout, via Comrade Balding.

Why should blackmail be illegal?

David Henderson raises this question in a recent blog post, and here is Robin Hanson from 2011.  I would suggest a few reasons why blackmail should be against the law in traditional ways:

1. The law serves a primary purpose of publicity, and advertising for a polity, and also the law serves symbolic functions.  People still don’t give Singapore a break for making chewing gum illegal and the like, even though this restriction is not in fact a big source of tyranny there.  I don’t see it as good for the United States and its reputation to make blackmail legal, even if the “legalize blackmail” arguments are perfectly sound in a Steve Landsburg kind of way.  It’s just not worth the bad publicity.

2. As Coase pointed out long ago, blackmail typically involves an exchange setting with bilateral monopoly.  And the material in question is often emotionally fraught, such as knowledge of a crime, of an affair, photos of private body parts, and so on.  The process of the trading is painful and stressful for many people.  Limiting that process could produce welfare gains, or at the very least legalizing that process, and thus producing more of it, won’t involve huge benefits.  When the process of trade and bargaining is itself painful, some of the welfare theorems need to be rethought a bit.  Of course the unilateral release of gossip can be terrible too, but perhaps it involves less potential for drawn-out situations and painful bargaining because the transacting it not allowed in the first place.

3. As Scott Sumner points out: “In practice, I suspect that most blackmail involves issues of sex, gender and drugs. (Soon we’ll have to add race to this list.) I don’t expect to convince others of my views here, but let me just say that I believe that our society is unable to think rationally in these areas. Thus I don’t see any great value in legalizing blackmail.”

4. Sometimes the efficient blackmailers are your immediate family, not strangers.  Outlawing blackmail from outsiders gives them a semi-monopoly for an efficient, do-it-yourself at home, low transactions cost Coasean deal (“Darling, someone needs to take out the garbage…”).  Let’s do blackmail right!  And privately, out of the public eye, to avoid the problems discussed under #1.  And as a matter of justice, shouldn’t it be the aggrieved spouse getting the gains here, not the National Enquirer?

Seven lessons about blackmail

That is the title of my latest Bloomberg column, here is the opening bit:

Every now and then, a few apparently random news events come together and influence how you see the world. My most recent lesson is that blackmail and blackmail risk are a lot more common than I had thought.

And:

…the main villains in these privacy losses are not the big internet companies. While it is murky exactly how the Bezos photos leaked, it seems to have involved old-fashioned spying and the interception of text messages (and possibly a renegade brother). Silicon Valley didn’t sell his data. As for Northam, the yearbook is from the pre-digital era, dug up in a school library. This information was not on the internet, though of course it did play a role in spreading it.

Third, billionaires can be pretty useful. As Bezos asked in his open letter on Medium: “If in my position I can’t stand up to this kind of extortion, how many people can?” In this case, both the billionaire and the medium of communication are the good guys.

Fourth, fears of a new era of blackmail based on Photoshopped images and so-called deep fakes (phony but convincing video) may be overblown, or at least premature. In the cases of both Bezos and Northam, the authenticity of the source material (text messages and photos) is not really being questioned, and both stories are receiving intense scrutiny. Rather, the debate is over the provenance and significance of the information.

There is much more at the link.

My Conversation with Jordan Peterson

Here is the transcript and audio, here is the summary:

Jordan Peterson joins Tyler to discuss collecting Soviet propaganda, why he’s so drawn to Jung, what the Exodus story can teach us about current events, his marriage and fame, what the Intellectual Dark Web gets wrong, immigration in America and Canada, his tendency towards depression, Tinder’s revolutionary nature, the lessons from The Lord of the Rings and Harry Potter, fixing universities, the skills needed to become a good educator, and much more.

Here is one bit:

COWEN: Your peers in the Intellectual Dark Web — the best of them — what is it they’re wrong about?

PETERSON: Oh, they’re wrong about all sorts of things. But at least they’re wrong in all sorts of interesting ways. I think Sam Harris, for example — I don’t think that he understands. I don’t think that he’s given sufficient credence to the role that religious thinking plays in human cognition.

I think that’s a huge mistake for someone who’s an evolutionary biologist because human religious thinking is a human universal. It’s built into our biology. It’s there for a reason. Although Sam is an evolutionary biologist, at least in principle, with regards to his thinking, he’s an Enlightenment rationalist when it comes to discussing the biology of religion, and that’s not acceptable.

It’s the wrong time frame. You don’t criticize religious thinking over a time frame of 200 years. You think about religious thinking over a time frame of 50,000 years, but probably over a far greater time span than that.

COWEN: So if that’s what Sam Harris doesn’t get —

PETERSON: Yeah.

COWEN: If we turn to senior management of large American companies, as a class of people — and I know it’s hard to generalize — but what do you see them as just not getting?

PETERSON: I would caution them not to underestimate the danger of their human resources departments.

Much more than just the usual, including a long segment at the end on Jordan’s plans for higher education, here is one bit from that:

Universities give people a chance to contend with the great thought of the past — that would be the educational element. To find mentors, to become disciplined, to work towards a single goal. And almost none of that has to do with content provision. Because you might think, how do you duplicate a university online? Well, you take lectures and you put them online, and you deliver multiple-choice questions. It’s like, yeah, but that’s one-fiftieth of what a university is doing.

So we’ve just scrapped that idea, and what we’re trying to do instead is to figure out, how can you teach people to write in a manner that’s scalable? That’s a big problem because teaching people to write is very, very difficult, and it’s very labor intensive and expensive. So that’s one problem we’d really like to crack. How can you teach people to speak? And can you do that in a scalable manner as well?

Definitely recommended, even if you feel you’ve already heard or read a lot of Jordan Peterson.

The policing culture that is China

Short-video app TikTok has a reputation for being beloved by young people the world over, but it’s also surprisingly popular with Chinese police officers.

In early January, China Police Network, a news portal run by the Ministry of Public Security, announced that 175 new TikTok channels had been created by police stations, SWAT teams, traffic police, and prisons in the month of December, bringing the country’s grand total to nearly 1,200 such accounts. That month, they churned out over 13,000 videos attracting a combined 4.8 billion views.

Since June of last year, China Police Network has kept a monthly tally of the most popular law enforcement accounts and videos on TikTok — or Douyin, as it’s known in China. While police in other countries have plugged into social media and cultivated fan followings on platforms like Instagram and Facebook, their Douyin-loving counterparts in China stand out in terms of scale and the wide range in both quality and content of their videos.

The January post mentions a comedic clip made by an account called Shishou Public Security that received over 800,000 likes. The video depicts a middle-aged woman tearfully describing her myriad contributions to the economic empowerment of women as mournful music plays in the background — before the camera flips to police officers unmasking her as the madame of a brothel.

The article also congratulates Siping Police Affairs for becoming the first police account in China to eclipse 10 million followers and praises the success of police hashtag campaigns such as #SayNoToDrunkDriving.

Since its launch in China in September 2016 and its expansion to international markets as TikTok a year later, Douyin boasts around 800 million downloads worldwide. The platform’s premise is simple: Users create and share 15-second videos, some of which wind up going viral. The police presence on Douyin has yielded a manic mix of content, from humdrum notices of arrests and other official business to reposts of pandas at play to original comic sketches with didactic denouements.

Here is more from Kenrick Davis at Sixth Tone.

Strict ID Laws Don’t Stop Voters: Evidence from a U.S. Nationwide Panel

U.S. states increasingly require identification to vote – an ostensive attempt to deter fraud that prompts complaints of selective disenfranchisement. Using a difference-in-differences design on a 1.3-billion-observations panel, we find the laws have no negative effect on registration or turnout, overall or for any group defined by race, gender, age, or party affiliation. These results hold through a large number of specifications and cannot be attributed to mobilization against the laws, measured by campaign contributions and self-reported political engagement. ID requirements have no effect on fraud either – actual or perceived. Overall, our results suggest that efforts to reform voter ID laws may not have much impact on elections.

By Enrico Cantoni and Vincent Pons.  Rooftops, shout, mood affiliation, etc.