Category: Law

Why the quality of the police is not higher

According to the Fairfax County Fraternal Order of Police, the average starting salary for a Fairfax County cop is $52,000. The median household income in the county was $124,831 in 2019.

And:

Fairfax County Police Department is down 188 officers, according to Sean Corcoran, president of the Fairfax County Coalition of Police. Officers eligible for retirement are leaving, others are getting out to join higher paying federal agencies like the Capitol Police.

It is thus very difficult to exercise quality control.  Here is the full story.

Let’s not raise the capital gains tax

That is the topic of my latest Bloomberg column, the vitriol of the Twitter response of course confirms my point.  Here is one excerpt:

First and foremost, any system of taxation is about values. And a much higher rate of capital taxation would undermine some of America’s core values.

A society’s values and its tax regime have to be mutually compatible or they will undermine each other. So the first question about a taxation system is which values it promotes.

The values that the U.S. should prioritize are a valorization of wealth, the encouragement of saving, and the encouragement of children. People may disagree with these priorities — in fact, they disagree quite strenuously! — but for me, it’s important to know whether a proposed tax reform supports or weakens these values. This is a more important consideration than economic calculations of “deadweight loss.”

And:

Values are all the more important for taxation because America is a nation of immigrants. Which is the better message to potential new arrivals? Should it be “America is a great country to get really rich”? Or “Americans are pretty egalitarian, so they won’t let the wealthy get too rich”?

The first message is far preferable — and this is true even if you personally hold fairness to be an important value. It is more important to encourage ambition in those newly arrived to the U.S., if only to take in creative (and yes, sometimes greedy) people who will help solve America’s social problems. Immigrants are responsible for so many of this country’s best and most successful startups.

And note this:

It may well be true that the U.S. has more efficient ways of encouraging ambition and wealth accumulation than the current approach to capital gains taxation. But to make that argument, advocates of the higher capital gains rate need to say what else they would do to boost the valorization of American wealth. Somehow, however, such explanations are never forthcoming — because this debate really is about a clash of values, not just efficiency, and one side wants to lower the status of accumulated wealth.

Like Godot, I will wait forever for an alternative proposal on this matter.  p.s.:

Only a few weeks ago, the prevailing opinion was that it was fine for the federal government to spend an additional $1.9 trillion, because at current margins, deficits don’t matter. Maybe so. But that nonchalance is now mysteriously absent. That too is a sign that, for most people, the values represented by any decision about taxation are paramount.

Of course, if you are doing the comparative statics, the wealthier and more open the rest of the world, the more American should favor its innovators to an extreme.  So the tax on innovation should be falling over time, not rising.

Has Andrew Granato solved for the capital gains tax equilibrium?

Obviously there may be caps on such deductions, as discussed in the chain of tweets, and furthermore, if I understand this correctly it is normalizing the basis at zero.  So you don’t have to take this entirely literally, but nonetheless it is an interesting comparison to consider — the return to selling shares just might not be that high, especially if you can get some non-tax benefits from the donation.

So if you compare the decision to buy equities to a real estate investment, which is probably not going to lose its more favorable capital gains treatment…

Here is the link, via Amihai Glazer.

Are Covid travel bans counterproductive for emerging economies?

Sometimes, yes:

…two opposing forces constitute the first-order determinants of total infections at any point in time.  On one hand, the longer a travel ban lasts, the less time community transmission exists in the rural sink.  Ceteris paribus, this will decrease rural infections.  On the other hand, the longer the restrictions remain, the longer migrants are contained within a hotspot where infection rates are rapidly increasing.  Consequently, the probability that migrants are infected with Covid-19  rises over time until the city achieves herd immunity, in turn increasing the rate at which they seed the rural sink with infections once the ban is lifted.  This drives up cumulative cases at any future date.

In some cases, for travel bans to work they have to be very long.  That is from a new paper by Fiona Burlig, Anant Sudarshan, Garrison Schlauch, who also provide evidence from India, and also from cross-country evidence, to support their analysis.

How well did Medicare pay-for-performance work?

For pain management, and pain management, only, it seems it worked just fine:

Medicare uses a pay-for-performance program to reimburse hospitals. One of the key input measures in the performance formula is patient satisfaction with their hospital care. Physicians and hospitals, however, have raised concerns regarding questions related to patient satisfaction with pain management during hospitalization. They report feeling pressured to prescribe opioids to alleviate pain and boost satisfaction survey scores for higher reimbursements. This overprescription of opioids has been cited as a cause of current opioid crisis in the United States. Due to these concerns, Medicare stopped using pain management questions as inputs in its payment formula. The authors collected multiyear data from six diverse data sources, employed propensity score matching to obtain comparable groups, and estimated difference-in-difference models to show that, in fact, pain management was the only measure to improve in response to the pay-for-performance system. No other input measure showed significant improvement. Thus, removing pain management from the formula may weaken the effectiveness of the Hospital Value-Based Purchasing Program at improving patient satisfaction, which is one of the key goals of the program. The authors suggest two divergent paths for Medicare to make the program more effective.

That is from a new paper by Lu Liu, Dinesh K. Gauri, and Rupinder P. Jindal.  Overall, why did incentives fail us so badly?

Via the excellent Kevin Lewis.

Newark fact of the day

Newark Police officers did not fire a single shot during the calendar year 2020, and the city didn’t pay a single dime to settle police brutality cases. That’s never happened, at least in the city’s modern history.

At the same time, crime is dropping, and police recovered almost 500 illegal guns from the street during the year.

Here is the longer story.

From the comments, Zaua on capital gains tax hikes

This is a big mistake even from a class equality perspective as it will cause rich people to invest more in things that are less liquid and accessible, and therefore harder to tax, from private businesses to real estate to crypto.

I believe that as much wealth as possible should be based on publicly traded corporations, because that is an avenue to build wealth that is accessible to all people with any amount of spare money and an avenue where regular people probably aren’t going to get screwed too badly by insiders because of the efficient markets hypothesis. However, the liquidity and accessibility of public markets also makes them easier to tax. So the higher capital gains tax rates are, the less attractive the public company form will be and the more attractive investment options will be put behind opaque structures that have tax advantages but also become too risky or even inaccessible to the general public.

If you must raise taxes on the rich, do it on their individual income rates, not their capital gains rates.

Here is the link.

Is this really better than borrowing?

Or how about a VAT?

President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6%, which, coupled with an existing surtax on investment income, means that federal tax rates for investors could be as high as 43.4%, according to people familiar with the proposal.

The plan would boost the capital gains rate to 39.6% for those earning $1 million or more, an increase from the current base rate of 20%, the people said on the condition of anonymity because the plan is not yet public. A 3.8% tax on investment income that funds Obamacare would be kept in place, pushing the tax rate on returns on financial assets higher than the top rate on wage and salary income, they said.

Here is the full story from Bloomberg.  Given state rates, that means over 50% in New York and California — is that what the science recommends?

My excellent Conversation with Shadi Bartsch

She is a Professor of Classics at the University of Chicago, and recently published a translation of Virgil’s Aeneid.  Here is the audio, visual, and transcript.  Here is part of the summary:

Shadi joined Tyler to discuss reading the classics as someone who is half-Persian, the difference between Homer and Virgil’s underworlds, the reasons so many women are redefining Virgil’s Aeneid, the best way to learn Latin, why you must be in a room with a native speaker to learn Mandarin, the question of Seneca’s hypocrisy, what it means to “wave the wand of Hermes”, why Lucan begins his epic The Civil War with “fake news”, the line from Henry Purcell’s aria that moves her to tears, her biggest takeaway from being the daughter of an accomplished UN economist, the ancient text she’s most hopeful that new technology will help us discover, the appeal of Strauss to some contemporary Chinese intellectuals, the reasons some consider the history of Athens a better allegory for America than that of Rome, the Thucydides Trap, the magical “presentness” of ancient history she’s found in Italy and Jerusalem, her forthcoming book Plato Goes to China, and more.

Here is one excerpt:

COWEN: You may not agree with this, but many readers I speak with tend to think that Homer is somehow deeper, more mystical, or just more fun to read than Virgil. What accounts for that perception and how might you challenge it?

BARTSCH: I think they think that because both of Homer’s epics are not, per se, about politics or governments. They don’t offer etiologies of a state. They don’t talk about history. They are stories in the true sense. They are about heroes in the true sense, not about some guy who’s pushed around the world by the gods, constantly getting into trouble, crying, wishing he didn’t have to go found Rome, etcetera.

Achilles — figure larger than life. His pride is everything to him. He stops fighting in the Trojan War because he’s been insulted. The drama is, what compels him to go back into battle after that insult?

Odysseus — a fairy tale of a man wandering from island to island, meeting ever stranger creatures, but eventually making it back home. It’s a great yarn. You don’t have to learn history to read these. You get involved in the psychology of the characters, their tragedies and their triumphs.

Nobody is really interested in getting involved in the psychology of the state and its triumphs. On the one hand, you’ve got a poem that’s an etiology for a particular government. On the other hand, you have two amazing stories. I can see how reading The Aeneid would be considered duller for some.

Excellent throughout, and again here is Shadi’s excellent translation of Virgil’s Aeneid.

The petition that is French

A survey of more than 2,600 industry professionals by the Union of Oenologists showed that among those who had caught COVID-19, more than a third said the disease had affected their ability to do their work. Some student wine tasters had dropped out of courses after falling ill with the virus, the union said.

Union boss Didier Fages said the body had written to President Emmanuel Macron and Prime Minister Jean Castex to ask that wine tasters be moved to the front of the queue for anti-COVID shots to safeguard livelihoods.

Here is the full story.

Vox on BLM

VOX: From 2014 to 2019, Campbell tracked more than 1,600 BLM protests across the country, largely in bigger cities, with nearly 350,000 protesters. His main finding is a 15 to 20 percent reduction in lethal use of force by police officers — roughly 300 fewer police homicides — in census places that saw BLM protests.

Campbell’s research also indicates that these protests correlate with a 10 percent increase in murders in the areas that saw BLM protests. That means from 2014 to 2019, there were somewhere between 1,000 and 6,000 more homicides than would have been expected if places with protests were on the same trend as places that did not have protests. Campbell’s research does not include the effects of last summer’s historic wave of protests because researchers do not yet have all the relevant data.

…One other possible explanation for the increased murder rate is that law enforcement officials are the ones voluntarily reducing their interactions with the community and as a result emboldening criminal activity. One way to observe whether police are reducing their efforts is to see whether the share of property crimes cleared falls over this period. In other words, are police not trying as hard — either because they are demoralized or angry at public scrutiny of their behavior — to solve low-level crimes that are reported to them? Campbell observes a 5.5 percent decline in the share of property crimes cleared, which is consistent with police reducing their efforts immediately following the protests.

Based on this paper. The explanation is consistent with what happened in Baltimore after the Freddie Gray protests and riots, namely arrests went down and murders went up.

What is the proper framework for thinking about cybersecurity?

Long-time MR reader here. I have a question: what is the appropriate framework to think about incentives (economic or otherwise) for electric power utilities to beef up their cybersecurity?

The Biden administration is reportedly putting together a plan to “rapidly shore up the security of the US power grid” [1]. As we know from the Solarwids hack, our nation’s cyber defenses (whether private industry or government) are inadequate [2], especially when targeted by nation-states [3].

The Bloomberg article says “The White House plan, which is voluntary, lays out a series of possible incentives to get power companies to sign on, a less politically precarious route than mandating their participation through regulation.”

It seems to me that the government offering money to private entities to buy some cybersecurity software products is not the optimal, and certainly not the sustainable, solution. There are needed investments in research & development, workforce training, and much more. Simply deploying today’s tech won’t solve this going forward.

So, what’s the right way to approach this from an incentives perspective? It seem to me that this is a very nuanced problem. We have no easy “target” to shoot for; there is no miles per gallon efficiency metric that can be used as a carrot.

That is an email from Matthew Backes.

Legalize Direct Sales of Electric Vehicles to Consumers!

I am a signatory to an open letter from economists, lawyers and others with expertise in market regulation advocating that states stop preventing auto manufacturers most notably manufactures of electronic vehicles such as Tesla from selling direct to the public:

…A brief review of the history of dealer franchise laws may help explain how we got to where we are today. In the mid-twentieth century, car dealers were mostly “mom and pop” sole proprietorships. By contrast, the “Big Three” auto companies were hegemonic firms that faced relatively little domestic or foreign competition. The dealers began to complain to state legislatures that the car companies were taking advantage of them in a variety of ways. This led almost all of the states to pass dealer franchise laws intended to protect the dealers. Among other things, these laws prohibited a manufacturer from opening its own showrooms or service centers and transacting directly with customers. The dealers successfully argued that if the manufacturers were allowed to distribute directly to consumers, they could unfairly undermine their own franchised dealers.

Fast-forward to 2021. The situation is very different. First, the dealership system has grown from its “mom and pop” roots to one where enormous companies operate large dealer networks. The top 10 dealership groups alone earn over $97 billion in annual revenue. Second, the car manufacturer market has become far more competitive. Today, there are at least 15-20 major manufacturer groups selling cars in the U.S. This gives dealers more choices, and hence more leverage in contractual negotiations with manufacturers. Third, and perhaps most importantly, technological and market changes have led new entrants into the market—particularly companies selling EVs—to choose to distribute directly to consumers and not to use franchised dealers at all. As the Massachusetts Supreme Court has recognized, the original concerns that animated the direct distribution prohibitions—protecting a franchisee from its own franchisor—do not apply to a company that is not using franchisees.

Here is a key reason why the dealers don’t want direct sales:

4) Different profit models: Traditional dealerships earn low profit margins on new car sales, and make it up on service. EVs have a much smaller service component since they don’t have service needs like oil changes or engine tune-ups. Traditional dealerships therefore lack much of an incentive to sell EVs.
5) Conflict of interest. EV sales cannibalize internal combustion sales, which are the dealers’ lifeblood. Dealers therefore lack the motivation to sell EVs.

…There is no credible consumer protection argument in favor of prohibiting direct distribution. Consumers should be given the choice of how they buy their cars.

See the letter for more. I wrote about this issue earlier in Tesla versus the Rent Seekers.