Category: Law
Will Detroit go Georgist?
The city now has a more ambitious plan to reduce the amount of vacant land. It intends to tax it. A lot. Will it work?
The idea, proposed by Mike Duggan, the city’s pugnacious mayor, is to replace Detroit’s current property tax with a split tax. In essence, assessors will distinguish between the value of its land and of the buildings on it. This done, the city’s property tax will be reduced from 2% for every $1 of assessed value (which is less than market value) to 0.6%. To make up for the revenues lost, land will be taxed at a new rate of 11.8%, whether or not it has anything built on it. In Michigan changes to property-tax rates have to be approved by voters. A law to allow that cleared its first hurdle in the state House in late September. A referendum could happen in February.
And this:
How come Detroit is able to try something so radical? One advantage, says Jay Rising, the city’s chief financial officer, is that the city now raises very little from its current system. In 1959, according to a study by the Lincoln Institute of Land Policy, a think-tank in Massachusetts, the city’s property tax raised over $1bn, adjusted for inflation. By 2019, after decades of economic decline, the figure had fallen to just $119m. “If this was 80% of our revenues, we’d be a lot more nervous,” says Mr Rising. In fact it is just 16%. Moreover, the value of residential land is very low, which makes it an easier sell to voters.
The hope is that taxing land more will in fact spur development.
Here is the full story from The Economist. Via Chris Weber, who (among other things) writes on matters related to Jacques Offenbach.
Blast from the past, SBF edition
AUSA: What did the defendant you about risk?
Ellison: He said it was OK if positive EV, expected value. He said he was willing to take large coin flips – he talked about being willing to flip a coin & destroy the world, as long as a win would make it twice as good— Inner City Press (@innercitypress) October 10, 2023
Context here.
“Why Women Won”
That is the title of a new NBER working paper, published today, by…Claudia Goldin. Here is the abstract:
How, when, and why did women in the US obtain legal rights equal to men’s regarding the workplace, marriage, family, Social Security, criminal justice, credit markets, and other parts of the economy and society, decades after they gained the right to vote? The story begins with the civil rights movement and the somewhat fortuitous nature of the early and key women’s rights legislation. The women’s movement formed and pressed for further rights. Of the 155 critical moments in women’s rights history I’ve compiled from 1905 to 2023, 45% occurred between 1963 and 1973. The greatly increased employment of women, the formation of women’s rights associations, the belief that women’s votes mattered, and the unstinting efforts of various members of Congress were behind the advances. But women soon became splintered by marital status, employment, region, and religion far more than men. A substantial group of women emerged in the 1970s to oppose various rights for women, just as they did during the suffrage movement. They remain a potent force today.
I will read it soon…
Union Busted
The International Longshore and Warehouse Union (ILWU) just filed for bankruptcy because it lost a case with a port operator in Portland. The back story is amazing.
The ILWU is one of the most powerful unions in the United States. Since bloody riots in 1934 it has controlled all 29 seaports on the west coast of the United States, giving them monopoly power. The ILWU’s 22 thousand workers are known as the “lords of the dock” and they earn an average of just over $200,000 in salary and another $100,000 in benefits, a bit more than the typical CEO. Some ILWU foremen take home half a million a year.
The ILWU has a lock on dockworkers but there are other rival unions. In Portland, for example, there were two jobs for reefers–electrical workers who handle special refrigerated containers–that since 1974 had been held by members of the International Brotherhood of Electrical Workers. The ILWU, however, wanted control of these jobs and in 2012 one of the heavies of the union, Leal Sundet, threatened the manager of the port operator that if he didn’t help him to take these jobs from the Brotherhood and give them to the Longshoremen he would create havoc. When the port operator didn’t comply–it wasn’t clear even that they could comply as the jobs were not under the port operator’s control–the ILWU followed through on its threat. Repeated shutdowns, slowdowns and discovered “safety violations” disrupted port operations so badly that the entire port closed.
The port operator, however, took the ILWU to court, arguing that the labor actions were illegal. The jury agreed giving the port operator an award of $93.6 million for its losses, later reduced to $19 million. The Union doesn’t have the $19 million, hence the bankruptcy.
Thus, the union has been bankrupted, the port closed, hundreds of millions of dollars lost and shipments slowed all because of a dispute over 2 jobs.
In related news, the just approved ILWU contract raises wages for ILWU workers and ensures that there will be no serious automation of the ports for at least another six years, again putting the United States behind the rest of the world in efficient shipping and logistics.
I am reminded of the day Ronald Reagan fired the air traffic controllers for their illegal strike.
That was then, this is now (median voter edition)
Homeland Security Secretary Alejandro Mayorkas said this week that the Biden administration planned to waive 26 environmental, public health and cultural preservation laws in order to fast-track constructing sections of the border wall in South Texas.
…The administration would use funds from a 2019 appropriation designated by Congress to construct the wall, which was spurred by a disaster declaration by the Trump administration…
“There is presently an acute and immediate need to construct physical barriers and roads in the vicinity of the border of the United States in order to prevent unlawful entries into the United States.”
Here is the full story, via Rich Dewey. And note that an actual jaguar is crossing the border.
Speeding Up Pharmaceutical Approvals by Recognizing Other Stringent Regulators
New Zealand’s ACT party has proposed that New Zealand speed up pharmaceutical approvals by recognizing the decisions of other stringent regulators, an idea I have long promoted .
The average time for Medsafe to consent an application for a high risk medicine is 630 days. For intermediate risk, it is 661 days and for lower risk it is 830 days8. The average time taken just for processing some lower risk categories is 176-210 days. This is an unacceptable length of time, given there other regulatory bodies replicating that exact same work overseas.
ACT says if a drug or medical device has been approved by any two reputable foreign regulatory bodies (such as Australia, United States, United Kingdom), it should be automatically approved in NZ as well within one week unless Medsafe can show extraordinary reason why it shouldn’t be.
This simple change would significantly improve access to medicines that have already been subject to rigorous testing and analysis through other regulatory regimes.
The ACT party is small but it has some seats and surprisingly the much larger National party is proposing a similar rule:
New Zealand’s slow approval process for medicines means Kiwis wait much longer than people in other countries to access potentially life-saving treatments. While it is essential that medicines and other treatments are subject to stringent scrutiny to ensure they are safe, there is no reason why New Zealanders should have to wait for our domestic medicines regulatory body, Medsafe, to conduct its own cumbersome process from scratch, when countries with health systems we trust have already gone through this exercise.
National will:…• Require Medsafe to implement even faster approvals processes for any medicines for use in New Zealand that have already been approved by at least two regulatory bodies that we currently recognise, including Australia, the EU, Singapore, the UK, Switzerland and the US.
New Zealand, by the way, already has a reciprocity agreement with the United States for food and it’s mutual–the FDA also recognizes New Zealand as a stringent food regulator–so the idea is not unprecedented.
Moreover, all of this comes on the tail of the UK actually adopting the idea via the “reliance procedure” which recognizes the EU as a stringent regulator and guarantees approval in the UK within 67 days for ay drug approved in the EU.
In the United States, even AOC has flirted with the idea, at least for sunscreens!
Thus, the reciprocity or recognition idea is starting to be adopted.
Hat tip: Eric Crampton who has some further comments.
The PayPal StableCoin
PayPal customers can now transact in PayPal USD, a crypto stablecoin tied to the dollar. So which type of PayPal dollar, regular or crypto, is safer to hold? Surprisingly, the crypto dollar is backed by safer assets, gives you better rights in the event of a bankruptcy and is more transparent. The reason is not so much crypto per se as because PayPal USD is regulated differently and the US’s convoluted system of money regulation regulates similar things in different ways. J.P. Koning has the details:
[First] PayPal’s crypto dollars, which are managed by a third-party called Paxos, are 100% backed by the safest sorts of short-term collateral: U.S. Treasury-bills, reverse repo (backed by U.S. government securities), and commercial bank deposits. In finance lingo, these assets are known as cash and cash equivalents. A big reason for this conservative investment approach is that Paxos is subject to a set of strict investment limits as determined by its regulator, the New York State Department of Financial Services (NYDFS). You can read about the NYDFS’s stablecoin regulatory framework here.
By contrast, PayPal’s regular dollars, which are regulated piecemeal under each U.S. states’ own peculiar version of a money transmitter license, can almost always be legally backed by riskier assets.
…The second drawback of PayPal’s regular dollars is that the assets underlying them don’t really “belong” to customers in any strong sense of the word. They belong to PayPal.
To understand what this means, let’s say that PayPal goes bankrupt. You, a long time PayPal customer, hold $1000 worth of PayPal dollars. You might think that you are guaranteed to be made whole because there exists a corresponding set of underlying customer assets that has been specially earmarked for you and other PayPal customers. But that’s not the case. Customers are what is referred to in finance as an unsecured creditor of PayPal, which means you’d be relegated to having to fight with PayPal’s other creditors (banks, bond holders, etc) to get a piece of the pie, and that’s only after PayPal’s secured creditors – those highest in the pecking order – get first dibs. That could potentially mean getting maybe $600 or $700 instead of your original $1000.
…By contrast, the regulator of PayPal’s crypto-based dollars, the NYDFS, specifies that the reserves backing any crypto-based dollar “shall be held at these depository institutions and custodians for the benefit of the holders of the stablecoin, with appropriate titling of accounts.” To translate, the assets underlying your $1000 in PayPal USD cryptodollars are not PayPal’s assets. Nor are they Paxos’s. They are yours. No need to squabble with competing vultures for what’s left.
…The last big difference between the two types of PayPal dollars is that the crypto version offers far more transparency to customers. If you want to get current information about the assets underlying your crypto PayPal dollars, all you need to do is open up one of PayPal USD’s soon-to-be published attestation reports. Published monthly, these reports must include market values of the assets backing PayPal USD’s, both in total and broken down by asset class. These values must be recorded on two separate days each month, or 24 times per year. Furthermore, these attestation reports must be prepared by an independent auditor.
By contrast, the only way to get vetted financial information about the assets backing traditional PayPal dollars is to read its audited financial statements, which come out just once a year. For the rest of the twelve months, customers are left in the dark.
Ayn Rand on the Antitrust Laws
Here is Ayn Rand on the antitrust laws:
Under the Antitrust laws, a man becomes a criminal from the moment he goes into business, no matter what he does. For instance, if he charges prices which some bureaucrats judge as too high, he can be prosecuted for monopoly or for a successful “intent to monopolize”; if he charges prices lower than those of his competitors, he can be prosecuted for “unfair competition” or “restraint of trade”; and if he charges the same prices as his competitors, he can be prosecuted for “collusion” or “conspiracy.” There is only one difference in the legal treatment accorded to a criminal or to a businessman: the criminal’s rights are protected much more securely and objectively than the businessman’s.
Exaggeration? Here is the FTC case against Amazon which has switched almost overnight from one theory to the diametrically opposite theory:
“It’s really hard to square the circle of the earlier theory of harm that Lina Khan enunciated with the current complaint,” said John Mayo, an economist who leads Georgetown University’s Center for Business and Public Policy. “The earlier complaint was that prices were going to be too low and therefore anticompetitive. And now the theory is they are too high and they are anticompetitive.”
More generally, the FTC under Khan seems to be a lost opportunity. There are abusive practices such as hidden pricing by hospitals that could be improved but the FTC is throwing it away on pursuing the greatest store the world has ever known. Why? I have liberal friends who quit the FTC because they wanted to work on real cases not political grandstanding.
Patents, Intellectual Property and the Rise of the Rent Seeking Society
During the summer I had the opportunity to spend a week at a16z’s crypto lab in New York City where I gave a fun talk on intellectual property including patents and copyrights, the great stagnation, the diffusion of ideas, American economic dynamism and even some discussion of AI and copyright in the Q&A. Check it out!
The best sentence I read today (so far)
“Robots can’t replace senior clerics, but they can be a trusted assistant that can help them issue a fatwa in five hours instead of 50 days,” said Mohammad Ghotbi, who heads a state-linked organisation in Qom that encourages the growth of technology businesses.
And this follow-up:
Ghotbi, who leads the Eshragh Creativity and Innovation House, affirmed the approach, arguing that the clergy should not oppose the desire of Iranians to share in global technological advances. “Today’s society favours acceleration and progress,” he said.
Here is the full FT story, via Jesper.
The Zero Sum Idea Trap
In an excellent column, John Burn-Murdoch in the FT draws out some of the implications of zero-sum thinking, based on the new NBER paper Zero-Sum Thinking and the Roots of U.S. Political Divides.
Among the most striking Harvard findings was the discovery that there is a strong relationship between the extent to which someone is a zero-sum thinker, and the economic environment they grow up in.
If someone’s formative years were spent against a backdrop of abundance, growth and upward mobility, they tend to have a more positive-sum mindset, believing it is possible to grow the pie rather than just redistribute portions of it. People who grew up in tougher economic conditions tend to be more zero-sum and sceptical of the idea that hard work brings success. These attitudes are perfectly rational.
…Every five to 10 years, the World Values Survey asks people in dozens of countries where they would place themselves on a scale from the zero-sum belief that “people can only get rich at the expense of others”, to the positive-sum view that “wealth can grow so there’s enough for everyone”.
The average response among those in high-income countries has become 20 per cent more zero-sum over the last century. Moreover, two distinct rises in the prevalence of zero-sum attitudes have coincided with two slowdowns in gross domestic product growth, one in the 1970s and another in the past two decades.
The same pattern holds within individual countries. Britons and Americans have become significantly more likely to believe that success is a matter of luck rather than effort precisely as income growth has slowed.
The problem, of course, is that zero-sum thinking can causally lead to lower growth because it leads to anti-growth policies such as tariffs, anti-immigration, NIMBY, low-trust, high taxes, redistribution, identity politics and so forth.
All of this is reminiscent of Bryan Caplan’s Idea trap model. See also my earlier posts on how distrust leads to more regulation, even when people distrust the government!
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Pharmaceutical Externalities
In my view, pharmaceuticals are undervalued and underinvested in because, despite high prices, pharmaceutical innovations earn only a fraction of the value that they create (Nordhaus finds that in general that innovations reap only a small share of the gains that they create). In 2014, for example, we got Harvoni a new treatment that offered a complete cure for hepatitis C (HCV) infection. In 2014, Harvoni cost over $1000 a pill and between $60,000 and $100,000 for a full treatment. In 2015 Medicaid spent more on Harvoni than on any other drug and there were calls for regulation and price controls. Studies showed, however, that even at that high price, Harvoni was value/cost-effective. Today, with more competition, there are equivalent versions of Harvoni available from Amazon for $12,869 (and 64 cents) which is still expensive but cheap for a cure for an often debilitating and sometimes life-threatening disease (and the price is less for a private insurance buyer or Medicare/Medicaid). In 2030, Harvoni will go generic and prices will fall much more.
Writing at their new substack, Random Acts of Medicine (based on their book of the same name which I reviewed at the WSJ), Chris Worsham and Bapu Jena point us to another side-benefit of Harvoni and similar hep-C drugs. By curing hep-C these drugs results in fewer liver transplants but that means more livers are available for transplant to other people on the waiting list.
One simple statistic suggests that indeed, treatment of HCV is freeing up donor livers for patients with other diseases: in 2022, patients with chronic HCV infection represented only 11% of liver transplants (1,029 of 9,528)—down from the 38% in 2013 when the new HCV drugs were approved.
Beyond this simple figure, a new working paper by economists Kevin Callison, Michael Darden, and Keith Teltser has taken a new, rigorous look at data from 2014 to 2019 to understand how these new drugs for HCV have impacted liver transplants after their first 5 years of broad use. There were a number of encouraging findings:
- Waiting lists for liver transplants were being occupied by fewer HCV-positive patients and more HCV-negative patients; this shift can be explained by an estimated 45% reduction in the addition of new HCV-positive patients to waiting lists
- Patients on the waiting list were healthier, likely because waiting times for livers have decreased with less demand from HCV-positive patients
- Compared to what would have been expected without the introduction of new HCV treatments, the researchers estimated a 39% decrease in transplants to HCV-positive patients coupled with a 36% increase in transplants to HCV-negative patients.
- Over the five year period, researchers estimated 5,682 livers were transplanted to HCV-negative patients as a result of the new HCV drugs, corresponding to an economic value of $7.5 billion.
These kinds of external benefits from pharmaceuticals are often undercounted and they are one reason why I think the pharmaceutical price controls in the Inflation Reduction Act are a very bad idea.
The British ban on bully dogs
That is the topic of my latest Bloomberg column, here is one excerpt:
The decision offers some important lessons about regulation. First, sometimes an outright ban is better than charging owners or users a fee, or what economists call Pigou taxes. Under some economic theories, bans should be exceedingly rare. Instead, the government should charge a high fee for the right to own or use something. In this case, people who really want to keep their XL bully dogs will just pay more for a license.
XL bully dogs are different. They are symbols of fear and aggression, and their muscular body and fierce countenance reflects this, as does their very name. They are especially popular with criminal gangs.
There is value in getting rid of the symbol altogether. An outright ban of XL bully dogs probably makes people feel more safe than a high tax that makes the dogs rare but not illegal. That extra feeling of security might be partly irrational, but it still matters for how people process their daily stress.
A ban is also easier to enforce than a tax. If the dogs are banned, it is difficult to take one around in public without being spotted. Tax evasion, in contrast, is quite common, and tax laws can be difficult to enforce. The British government may be unwilling to throw people in jail for their unwillingness to pay their XL bully dog tax. Nor is it easy for the government to determine which are the responsible owners of XL bully dogs and which are irresponsible.
The question, then, is how to value owner demand for XL bully dogs.
To put my own cards on the table: I am frankly suspicious of anyone who wants to own a bully dog. Limiting preferences for such dogs now would help limit the spread of the XL bully dog itself, which has been in the UK only since about 2014 or 2015. Over time the dogs could become more established with more clubs of dog owners, more specialized trainers, and in general more support services. By banning the dogs now, the government might stop a wider preference for such dogs from developing. A ban would also help limit long-term frustration if, as I suspect, the decision is reached that XL bully dogs cannot be allowed to spread without limit.
The low or black market capitalization of many bully dog owners is another reason why strict liability here may not work so well.
As a side note, I don’t think the United States should follow the same policy, as I note later in the piece. One argument (which I did not get to) is that the more guns you have (for better or worse), the less you have to worry about your dog policies.
Think about it.
I thank Sam Bowman for the initial pointer to this issue.
EU May Ban Payments for Milk, Sperm and Blood
BrusselsSignal: The European Parliament has approved a draft regulation banning payments for breast milk, sperm, blood and other “substances of human origin” (SoHO).
Billed as an attempt to increase safety across the bloc, the ban allegedly aims to ensure that those who are financially disadvantaged within the bloc are not subject to undue pressure to donate their cells and bodily fluids.
Hmmm. Why not ban the sale of labor to protect financially disadvantaged labor donors from undue pressure? Indeed, why not require that dangerous jobs like mining pay low wages so we can be sure that no one is induced to do these jobs by financial pressure?
More prosaically, the European Union falls short of producing all the blood plasma it needs to meet its demand for life-saving medicine. Consequently, the European Union depends on imports—primarily from compensated donors in the United States—to address its plasma deficit. Should the proposed EU legislation be enacted, the deficit is likely to get worse because Germany, Austria, Hungary, and the Czech Republic, currently permit financial compensation. Indeed the U.S. and these EU countries together account for 90% of the global plasma supply. A ban on paid donations within the EU will thus decrease the quantity of plasma supplied from Germany, Austria, Hungary, and the Czech Republic and force the EU to rely even more on imports from the US.
The US is also the world’s biggest exporter of human sperm because US sperm donors can be compensated and remain anonymous (depending on the state). US donors are also carefully screened for quality, in part due to US regulations and in part due to market demand for information about the donors. Denmark is also a major exporter of sperm, in part because it, too, allows financial incentives to donors. Reduced donations from Denmark will make the European Union increasingly dependent on U.S. sperm supplies. Indeed, after Canada banned paid sperm donors in 2004, the supply of Canadian donors plummeted to just 35 (!) and US sperm exports to Canada increased. Unintended consequences, eh?
Creating EU wide standards for testing of blood, sperm and breast milk to allow greater flows across borders is a good idea. Shortages of baby formula in the US, for example, led to a valuable increase in breast milk donations and sales but it would probably be better if more breast milk donations went through a qualified milk bank rather than through Facebook (and the same is also true for sperm banks and sperm donations). But there is no call for banning paid donation.
Paying donors of blood, sperm and breast milk is an ethical way to increase the quantity supplied and it can be done while ensuring that the donations are high-quality and safe.
Does an AI Pause make sense?
Should we lobby governments to impose a moratorium on AI research? Since we don’t enforce pauses on most new technologies, I hope the reader will grant that the burden of proof is on those who advocate for such a moratorium. We should only advocate for such heavy-handed government action if it’s clear that the benefits of doing so would significantly outweigh the costs.[1] In this essay, I’ll argue an AI pause would increase the risk of catastrophically bad outcomes, in at least three different ways:
- Reducing the quality of AI alignment research by forcing researchers to exclusively test ideas on models like GPT-4 or weaker.
- Increasing the chance of a “fast takeoff” in which one or a handful of AIs rapidly and discontinuously become more capable, concentrating immense power in their hands.
- Pushing capabilities research underground, and to countries with looser regulations and safety requirements.
That is from Nora Belrose, here is much more. Via N.