Category: Law
A $5 million gold card for immigrants?
That is the topic of my latest Bloomberg column, here is one excerpt:
As usual, however, the devil is in the details. There is a good chance Trump’s proposal could work out well — and a chance it could severely damage the nation.
One worry is selection effects. The $5 million fee means the program would skew toward older people, and would probably also skew somewhat male. Neither of those biases is a problem if other methods of establishing residence remain robust. But will they?
With a gold card program, the government would have a financial incentive to limit other ways of establishing residency. You can get an O-1 visa or an H-1B, for instance, if you have a strong record of accomplishment or an interested employer with a proper priority and perhaps some luck. Neither of those options cost anything close to $5 million, even with legal fees. Not everyone with a spare $5 million can get an O-1, or a proper job offer, but still: At the margin, these options would compete with each other.
These other options are well-suited for getting young, talented people into the US, which is precisely the weakness of the gold card proposal. Ideally the US would expand these other paths, but with a gold card program they might be narrowed so the government can reap more revenue from sales of gold cards.
I favor the idea in principle, but am worried it might be part of a broader package to tighten immigration more generally.
Can Enhanced Street Lighting Improve Public Safety at Scale?
Street lighting is often believed to influence street crime, but most prior studies have examined small-scale interventions in limited areas. The effect of large-scale lighting enhancements on public safety remains uncertain. This study evaluates the impact of Philadelphia’s citywide rollout of enhanced street lighting, which began in August 2023. Over 10 months, 34,374 streetlights were upgraded across 13,275 street segments, converting roughly one-third of the city’s street segments to new LED fixtures that provide clearer and more even illumination. We assess the effect of these upgrades on total crime, violent crime, property crime, and nuisance crime. Results show a 15% decline in outdoor nighttime street crimes and a 21% reduction in outdoor nighttime gun violence following the streetlight upgrades. The upgrades may account for approximately 5% of the citywide reduction in gun violence during this period, or about one sixth of the 31% citywide decline. Qualitative data further suggests that residents’ perceptions of safety and neighborhood vitality improved following the installation of new streetlights. Our study demonstrates that large-scale streetlight upgrades can lead to significant reductions in crime rates across urban areas, supporting the use of energy-efficient LED lighting as a crime reduction strategy. These findings suggest that other cities should consider similar lighting interventions as part of their crime prevention efforts. Further research is needed to explore the impact of enhanced streetlight interventions on other types of crime and to determine whether the crime-reduction benefits are sustained when these upgrades are implemented across the entire City of Philadelphia for extended periods.
That is from a new paper by John M. Macdonald, et.al. Via the excellent Kevin Lewis.
Hire Don’t Fire at the FDA
As a longtime critic of the FDA, you might expect me to support firing FDA employees—not so! My focus has always been on reducing approval time and costs to speed drugs to patients and increase the number of new drugs. Cutting staff is more likely to slow approvals and raise costs.
To be fair, we’re talking about the firing of some 200 probationary employees from a total of some 20,000. Unusual but not earth shaking. But the firings are indiscriminate, and as I explain below, the FDA is a peculiar target for cost-cutting because user fees under PDUFA cover a significant share of the FDA’s budget so its workers are among the cheapest federal employees. So what is the point? Shock and awe in advance of bigger reforms for the FDA? Perhaps. Regardless, I think we should keep in mind the big picture on staff and speed.
The Prescription Drug User Fee Act of 1992 (PDUFA) provides strong evidence that with more staff the FDA works faster to get new and better drugs to patients. Before PDUFA, drug approvals languished at the FDA simply due to a lack of staff—harming both drug companies and patients. Congress should have increased FDA funding, as the benefits would have far outweighed the costs, but Congress failed. Instead, PDUFA created a workaround: drug firms agreed to pay user fees, with the condition that the funds be used for drug reviewers and that the FDA be held to strict review standards.
PDUFA was a tremendous success. Carpenter et al., Olson, Berndt et al. and others all find that PDUFA shortened review times and it did so primarily through the mechanism of hiring more staff. Thus, Carpenter et al. report “NDA review times shortened by 3.3 months for every 100 additional FDA staff.” Moreover, the faster approval times came at little to no expense of reduced safety. Thus, Berndt et al. report:
implementation of the PDUFAs led to substantial incremental reductions in approval times beyond what would have been observed in the absence of these legislative acts. In addition, our preliminary examination of the trends in the number of new molecular entity withdrawals, frequently used as a proxy to assess the FDA’s safety record, suggests that the proportion of approvals ultimately leading to safety withdrawals prior to PDUFA and during PDUFA I and II were not statistically different.
And in a later analysis Philipson et al. find that:
more rapid access of drugs on the market enabled by PDUFA saved the equivalent of 140,000 to 310,000 life years. Additionally, we estimate an upper bound on the adverse effects of PDUFA based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons, and find that an extreme upper bound of about 56,000 life years were lost. This estimate is an extreme upper bound as it assumes all withdrawals since the inception of PDUFA were due to PDUFA and that there were no patients who benefitted from the withdrawn drugs.
If we’re going to have FDA review, it should be fast and efficient. We need to shift the focus from the FDA’s balance sheet in the Federal budget to the patients it serves—more staff means faster reviews, better access to treatments, and a healthier society.
More generally, government regulation, not staffing, is the real problem. Cut regulation, and staff cuts can follow. Cut staff without cutting regulation, and the morass only gets worse.
Income inequality in the Nordics
Our analysis suggests that income equality in the Nordics is primarily driven by a significant compression of hourly wages, reducing the returns to labor market skills and education. This appears to be achieved through a wage bargaining system characterized by strong coordination both within and across industries. This finding contrasts with other commonly cited explanations for Nordic income equality, such as redistribution through the tax-transfer system, public spending on goods that complement employment, and public policies aimed at equalizing skills and human capital distribution.
That is from a new NBER working paper by Magne Mogstad, Kjell G. Salvanes, and Gaute Torsvik.
Why it is hard for the Executive to disobey the judiciary
An excellent thread from Dilan Esper. Excerpt:
I have pointed out already that Elon Musk has massive economic interests in cases currently before the federal courts. That is reason enough he would have to obey an order or resign if Trump demanded he not do so. A federal court could default him on those suits.
But more generally federal courts can issue writs that can be levied on bank accounts and properties. These could effectively freeze the assets of ANY noncompliant government official. Yes, even the President. And no, President Trump couldn’t order then unfrozen.
There is more at the link. Retweeted by Alex T.
The danger of Trump disobeying court orders
Ilya Somin covers this question over at Volokh Conspiracy. I receive many queries about this, some of them panicky and anguished. I haven’t covered it, mostly because I don’t feel I have enough insights into the relevant matters of constitutional law, or for that matter what is going on inside the administration (for instance, how should one interpret those Vance tweets?)
I can tell you what I would find useful. If you are especially pessimistic on this front, which are the securities prices that would indicate an actual constitutional problem? Particular equities? Interest rates? The value of the dollar? Measures of volatility? Something else? Don’t restrict yourself to the absolute level of share prices, surely there are favored and disfavored companies and sectors, right?
I am allergic to the view that “fascism could come and market prices would not even budge.” In fact, I think it is extremely skeptical and subversive of democracy, or shall I better say a constitutional republic. I think fascism, or a constitutional collapse, would be a terrible outcome in a variety of very practical ways, in addition to its moral failings. At the very least it would matter for many particular enterprises.
In a variety of other contexts, such as tariffs, market prices have been super-sensitive to the actions of the Trump administration. So people, on this question, which exactly are the measurable, market price indicators? After all, you don’t want to be like those doomster AI skeptics who think no one can trade on the (supposed) truth.
In the comments section, I am not interested in your blah blah blah opinion full of adjectives. Just tell me which prices please. I do see this issue as constituting a real risk, if perhaps a sometimes exaggerated one. So I will follow those market prices with great interest. I just need to know what they are.
Addendum: In an excellent Substack today Matt Yglesias notes: “Republicans, meanwhile, are making very little forward progress on their legislative agenda.”
What should I ask Jennifer Pahlka?
Yes, I will be doing a Conversation with her. From Wikipedia:
Jennifer Pahlka (born December 27, 1969) is an American businesswoman and political advisor. She is the founder and former executive director of Code for America. She served as U.S. Deputy Chief Technology Officer from June 2013 to June 2014 and helped found the United States Digital Service. Previously she had worked at CMP Media with various roles in the computer game industry. She was the co-chair and general manager of the Web 2.0 conferences. In June 2023, she released the book Recoding America: Why Government Is Failing in the Digital Age and How We Can Do Better.
Recently she has been working on the Niskanen Institute state capacity project. So what should I ask her?
The exhaustion of rents
A computer expert who has battled for a decade to recover a £600m bitcoin fortune he believes is buried in a council dump in south Wales is considering buying the site so he can hunt for the missing fortune.
James Howells lost a high court case last month to force Newport city council to allow him to search the tip to retrieve a hard drive he says contains the bitcoins.
The council has since announced plans to close and cap the site, which would almost certainly spell the end of any lingering hopes of reaching the bitcoins. The authority has secured planning permission for a solar farm on part of the land.
Here is the full story, via Michael Rosenwald. It is of course amazing that the local authority owning the dump has no interest in recovering the money for itself.
The Afrikaner exception
The White House just issued an executive order on South Africa that includes admitting Afrikaner South Africans as refugees to the United States
Here is one of many reports. Let me first say that I am happy to have more Afrikaners in the United States. It reminds me of my “open borders for Belarus” proposal — numbers are limited and assimilation is not going to be a problem.
That said, the symbolism here can only be described as…grotesque. South Africa is a poorly governed country, so you can find many examples of bad policy decisions foisted on Afrikaners. But, if one is going to make generalizations about classes, blacks in South Africa suffer far more from that poor governance. This Executive Order, taken in context, is a deliberate attempt to invert the actual reality of the situation, and make a subset of the whites the supposed real victims. You don’t even have to get into apartheid history to see the outrageousness of this framing.
Ironically (is that the right word?), the order itself would seem to require the resurrection of the old-style racial classification system of apartheid South Africa. Who exactly is an Afrikaner? What if you are just “white”? Mixed race? Colored, with some Afrikaner blood in your background? Do we need a new version of the Population Registration Act to decide exactly who qualifies as a refugee?
This one could better be rethought, in any case I take it as an unpleasant and ominous sign of further changes.
“Can America Win the AI War with China?”
A long video chat, with Geoffrey Cain, who is more hawkish than I am. Bari Weiss moderates. One argument I make is that America may prefer if China does well with AI, because the non-status quo effects of AI may disrupt their system more than ours. I also argue that for all the AI rival with China (which to be sure is real), much of the future may consist of status quo powers America and China working together to put down smaller-scale AI troublemakers around the rest of the world. Interesting throughout.
Three Simple Principles of Trade Policy
Are we in a trade war today? Who knows? Doesn’t really matter. It’s always a good time to review important principles. A good source is Doug Irwin’s Three Simple Principles of Trade Policy published in 1996. Below I have updated occasionally with more recent data.
Principle 1: A Tax on Imports is a Tax on Exports
Exports are necessary to generate the earnings to pay for imports, or exports are the goods a country must give up in order to acquire imports….if foreign countries are blocked in their ability to sell their goods in the United States, for example, they will be unable to earn the dollars they need to purchase U.S. goods.
…The equivalence of export and import taxes is not an obvious proposition, and it is often counterintuitive to most people. Imagine taking a poll of average Americans and asking the following question: “Should the United States impose import tariffs on foreign textiles to prevent low-wage countries
from harming thousands of American textile workers?” Some fraction, perhaps even a sizeable one, of the respondents would surely answer affirmatively. If asked to explain their position, they would probably reply that import tariffs would create jobs for Americans at the expense of foreign workers and thereby reduce domestic unemployment.Suppose you then asked those same people the following question: “Should the United States tax the exportation of Boeing aircraft, wheat and corn, computers and computer software, and other domestically produced goods?” I suspect the answer would be a resounding and unanimous “No!” After all, it would be explained, export taxes would destroy jobs and harm important industries. And yet the Lerner symmetry theorem says that the two policies are equivalent in their economic effects.
Exports and imports rise and fall together. It is surely obvious that if you want more imports you must export more (barring a bit of borrowing see below). The same thing is true in other countries. As a result, it is also true that when you import more you export more.
Principle 2: Businesses are Consumers Too
Business firms are, in fact, bigger consumers of imported products than are U.S. households.
As of 2024, more than 64% of imports are intermediate products. See here for the data.
By viewing imports not as final consumer goods but as inputs to U.S. production, policy makers can more clearly recognize that the issue is not so much one of “saving” jobs but of “trading off’ jobs between sectors. This brings home forcefully the most important lesson in all of economics-there is no such thing as a free lunch. Every action involves a trade-off of some sort. Higher domestic steel prices help employment in the steel industry but harm employment in steel-using industries. Higher domestic semiconductor prices help employment in the semiconductor industry but harm employment in semiconductor using industries. As john Stuart Mill wrote in 1848 in the context of import protection, “The alternative is not between employing our own country-people and foreigners, but between employing one class or another of our own country-people.”
Principle 3: Trade Imbalances Reflect Capital Flows
There is a fundamental equation of international finance that relates this net borrowing and lending activity to the current account. The equation is:
Exports – Imports = Savings – Investment
The powerful implication of this equation is that if a country wishes to reduce its trade deficit, the gap between its domestic investment and its domestic savings must be reduced.
…A country’s trade balance is related to international capital flows–not with open or closed markets, unfair trade practices, or national competitiveness. If a country wants to solve the “problem” of its trade deficit, it must reverse the international flow of capital into its country. In many cases net foreign borrowing can be reversed by reducing the government fiscal deficit. [emphasis added, AT]
Doug concludes:
These three simple principles of trade policy…[have] stood the test of time, they come as close to truths as anything economists have to offer in any area of policy controversy. Yet they are routinely denied, explicitly or implicitly, in trade policy debates in the United States and elsewhere. I do not imagine that a greater appreciation of these principles would invariably bring about more liberal trade policies; I offer them, rather, in the more modest hope that they might lead to sounder debates in which the real consequences of government policies are confronted more seriously than at present.
Hat tip: Erica York.
What should I ask Sheilagh Ogilvie?
She is a Canadian economic historian at Oxford, here is from her home page:
I am an economic historian. I explore the lives of ordinary people in the past and try to explain how poor economies get richer and improve human well-being. I’m interested in how social institutions – the formal and informal constraints on economic activity – shaped economic development between the Middle Ages and the present day.
And:
My current research focusses on serfdom, human capital, state capacity, and epidemic disease. Past projects analysed guilds, merchants, communities, the family, gender, consumption, finance, proto-industry, historical demography, childhood, and social capital. I have a particular interest in the economic and social history of Central and Eastern Europe.
Here is her Wikipedia page. Her book on guilds is well known, and her latest is Controlling Contagion: Epidemics and Institutions from the Black Death to Covid. Here are her main research papers.
So what should I ask her?
Letting China into the WTO was not the key decision
We study China’s export growth to the United States from 1950–2008, using a structural model to disentangle the effects of past tariff changes from the effects of changes in expectations of future tariffs. We find that the effects of China’s 1980 Normal Trade Relations (NTR) grant lasted past its 2001 accession to the World Trade Organization (WTO), and the likelihood of losing NTR status decreased significantly during 1986–92 but changed little thereafter. US manufacturing employment trends support our findings: industries more exposed to the 1980 reform have shed workers steadily since then without acceleration around China’s WTO accession.
That is from a new and forthcoming JPE article by George Alessandria, Shafaat Yar KhanArmen KhederlarianKim J. RuhlJoseph B. Steinberg.
The culture that is German (Roman)
We compare present-day regions that were advanced by Roman culture with those that remained outside of Roman influence. Even when accounting for more recent historical factors, we find that regions developed by Roman civilization show more adaptive personality patterns (Big Five) and better health and psychological well-being today. Results from a spatial regression discontinuity design indicate a significant effect of the Roman border on present-day regional variation in these outcomes. Additional analyses suggest that Roman investments in economic institutions (e.g., trade infrastructure such as Roman roads, markets, and mines) were crucial in creating this long-term effect. Together, these results demonstrate how ancient cultures can imprint a macro-psychological legacy that contributes to present-day regional inequalities.
That is from a recent paper by Obschonka, et.al., via Alexander Le Roy. Also on the German front:
The German parliament will debate on Thursday, January 30th whether to ban the opposition right-wing Alternative für Deutschland (AfD) party.
A group of lawmakers, 113 MPs, have called for parliament to discuss a motion which would invite the constitutional court to decide whether the party is unconstitutional.The motion is supported by MPs from the centre-right CDU/CSU alliance, the far-left Die Linke, as well as the two governing parties, the Social Democrats (SPD) and the Greens.
The signatories claim that the AfD “opposes central basic principles of the free democratic basic order,” questions human dignity, and strives for the “ethno-nationalist strengthening” of the German identity.
Of course the strongest support for AfD is not to be found in Trier. I would not myself support AfD, for both policy and cultural reasons. But I find it strange that Europeans so often see the United States as the locale where democracy is in danger. Right now AfD polls as the second most popular party in Germany — beat them at the ballot box!
FDA Deregulation of E-Cigarettes Saved Lives and Spurred Innovation
What would happen to drug development if the FDA lost its authority to prohibit new drugs? Would research and development boom and lives be saved? Or would R&D decline and lives be lost to a flood of unsafe and ineffective drugs? Or perhaps R&D would decline as demand for new drugs faltered due to public hesitation in the absence of FDA approval? In an excellent new paper Pesko and Saenz examine one natural experiment: e-cigarettes.
The FDA banned e-cigarettes as unapproved drugs soon after their introduction in the United States. The FDA had previously banned other nicotine infused products. Thus, it was surprising when in 2010 the FDA was prohibited from regulating e-cigarettes as a drug/device when a court ruled that Congress had intended for e-cigarettes to be regulated as a tobacco product not as a drug.
As of 2010, therefore, e-cigarettes were not FDA regulated:
…e–cigarette companies were able to bypass the lengthy and costly drug approval process entirely. Additionally, without FDA drug regulation, e–cigarette companies could also freely enter the market, modify products without approval, and bypass extensive post–market reporting requirements and quality control standards.
Indeed, it wasn’t until 2016 that the FDA formally “deemed” e-cigarettes as tobacco products (deemed since they don’t actually contain tobacco) and approvals under the less stringent tobacco regulations were not required until 2020. For nearly a decade, therefore, e-cigarettes were almost entirely unregulated and then lightly regulated under the tobacco framework. So, what happened during this period?
Pesko and Saenz show that FDA deregulation led to a boom in e-cigarette research and development which improved e-cigarettes and led to many lives saved as people switched from smoking to vaping.
The boom in research and development is evidenced by a very large increase in US e-cigarette patents. We do not see a similar increase in Australia (where e-cigarettes were not deregulated) nor do we see an increase in non e-cigarette smoking cessation products (figure 1a of their paper not shown here).
Estimating the decline in smoking and smoking-attributable mortality (SAM) is more difficult but the authors assemble a large collection of data broken down by demographics and they estimate that prohibiting the FDA from regulating e-cigarettes reduced smoking attributable mortality by nearly 10% on average each year from 2011-2019 for a total savings of some 677,000 life-years.
The authors pointedly compare what happened under deregulation of e-cigarettes–innovation and lives saved–with what happened to similar smoking cessation products that remained under FDA regulation–stagnation and no reduction in smoking attributable mortality.
A key takeaway on the slowness of FDA drug regulation is that it took 9 years before nicotine gum could be sold with a higher nicotine strength, 12 years before it could be sold OTC, and 15 years before it could be sold with a flavor. Further, a recent editorial laments that there has been largely non–existent innovation in FDA–approved smoking cessation drugs since 2006 (Benowitz et al., 2023). In particular, the “world’s oldest smoking cessation aid” cyctisine, first brought to market in 1964 in Bulgaria (Prochaska et al., 2013), and with quit success rates exceeding single forms of nicotine replacement therapy (NRT) (Lindson et al., 2023), is not approved as a drug in the United States.
The authors conclude, “this situation raises concern that drugs may be over–regulated in the United States…”. Quite so.
Addendum: A quick review on the FDA literature. In addition to classic works by Peltzman on the 1962 Amendments and by myself on what we can learn about the FDA from off-label pricing we have a spate of recent new papers including Parker Rogers, which I covered earlier:
In an important and impressive new paper, Parker Rogers looks at what happens when the FDA deregulates or “down-classifies” a medical device type from a more stringent to a less stringent category. He finds that deregulated device types show increases in entry, innovation, as measured by patents and patent quality, and decreases in prices. Safety is either negligibly affected or, in the case of products that come under potential litigation, increased.
and Isakov, Lo and Montazerhodjat which finds that FDA statistical standards tend to be too conservative, especially for drugs meant to treat deadly diseases (see my comments on their paper and more links in Is the FDA Too Conservative or Too Aggressive?)
See also FDA commentary, for much more from sunscreens to lab developed tests.