Category: Law
Covid sentences to ponder
Tim Vanable: I wonder about the tenability of ascribing a policy like extended school closures to a “laptop class.” Support for school reopenings did not fall neatly along educational lines. The parents most reluctant to send their kids back to school in blue cities in the spring of 2021 were black and Hispanic, research has consistently found, not white. And the most organized opposition to school reopenings, as you know, came from teachers’ unions, who can hardly be considered stormtroopers of the managerial elite.
Econ 101 is Underrated: Pharma Price Controls
Econ 101 is often dismissed as too simplistic. Yet recent events suggest that Econ 101 is underrated. Take the tariff debate: understanding that a tariff is a tax, that prices represent opportunity costs, that a bilateral trade deficit is largely meaningless, that a so-called trade “deficit” is equally a goods surplus or an investment surplus—these are Econ 101 ideas. Simple but important.
Today’s example is Trump’s Executive Order on pharmaceutical pricing. It builds on the Biden Administration’s Inflation Reduction Act, which I’ve criticized as failing the marshmallow test. Now Trump is trying to go further—threatening antitrust action and even drug delistings unless pharmaceutical firms equalize prices globally. Tyler and I explored exactly this type of policy in our Econ 101 textbook, Modern Principles of Economics.
In our chapter on price discrimination, we first show that pharmaceutical firms will want to charge different prices in different markets depending on the elasticity of demand. In order to do so, they must prevent arbitrage. Hence the opening to that chapter:
After months of investigation, police from Interpol swooped down on an international drug syndicate operating out of Antwerp, Belgium. The syndicate had been smuggling drugs from Kenya, Uganda, and Tanzania into the port of Antwerp for distribution throughout Europe. Smuggling had netted the syndicate millions of dollars in profit. The drug being smuggled? Heroin? Cocaine? No, something more valuable: Combivir. Why was Combivir, the anti-AIDS drug we introduced in Chapter 13 , being illegally smuggled from Africa to Europe when Combivir was manufactured in Europe and could be bought there legally?
The answer is that Combivir was priced at $12.50 per pill in Europe and, much closer to cost, about 50 cents per pill in Africa. Smugglers who bought Combivir in Africa and sold it in Europe could make approximately $12 per pill, and they were smuggling millions of pills. But this raises another question. Why was GlaxoSmithKline (GSK) selling Combivir at a much lower price in Africa than in Europe? Remember from Chapter 13 that GSK owned the patent on Combivir and thus has some market power over pricing. In part, GSK reduced the price of Combivir in Africa for humanitarian reasons, but lowering prices in poor countries can also increase profit. In this chapter, we explain how a firm with market power can use price discrimination—selling the same product at different prices to different customers—to increase profit.
Later in the Thinking and Problem Solving section we ask:
As we saw in this chapter, drug companies often charge much more for the same drug in the United States than in other countries. Congress often considers passing laws to make it easier to import drugs from these low-price countries (it also considers passing laws to make it illegal to import these drugs, but that’s another story).
If one of these laws passes, and it becomes effortless to buy AIDS drugs from Africa or antibiotics from Latin America—drugs that are made by the same companies and have essentially the same quality controls as the drugs here in the United States—how will drug companies change the prices they charge in Latin America and Africa? Why?
That, in essence, is the Trump policy. So what’s the likely outcome? Prices will fall in the U.S. and rise in poorer countries—but not equally. AIDS drugs, for example, save lives in Africa but generate little profit. If firms can’t prevent arbitrage, they’ll raise African prices closer to U.S. levels and lower U.S. prices only modestly.
The result is that importation will end up hurting patients in low-income countries while delivering minimal gains to Americans. Worse, by reducing pharmaceutical profits overall, it weakens incentives to develop new drugs. In fact, in the long-run U.S. consumers are better off when poorer countries pay lower prices—just as airline price discrimination makes more routes viable for both economy and first-class passengers.
The reference pricing envisaged in Trump’s EO focuses on developed countries but Dubois, Gandhi and Vasserman run the numbers in a fully-specified model and reach similar conclusions:
Using our estimates of consumer preferences, marginal costs, and bargaining parameters, we assess the impact of a counterfactual in which US pharmaceutical prices are subject to international reference pricing with respect to Canada or an average of several similar countries….Our results suggest that international reference pricing on its own is unlikely to produce dramatic savings to US consumers. Overall, reference pricing induces a substantial increase in the prices charged in reference countries but only a modest decrease in the prices charged in the US.
It’s also the case that countries that pay less for pharmaceuticals get them later than countries that pay more. Most importantly, such launch delays (and here) tend to reduce life expectancy.
Thus, Econ 101 provides a critical foundation for understanding current debates.
Beyond Econ 101, it’s worth highlighting how internally inconsistent Trump’s policies are. At the same time, as the administration is raising tariffs worldwide, it wants to greatly reduce restrictions on importing pharmaceuticals! The most charitable interpretation (steel-manning) is that the ultimate goal of the Trump approach is to boost industry profits and incentivize R&D by raising prices in other countries. But it’s hard to square that with reducing prices here. Either the investment is worth it or not. Instead of focusing on investment or efficiency, Trump frames everything as grievance and redistribution: other countries are “ripping us off,” so they must be made to pay. But the pie shrinks when you fixate on dividing it instead of growing it. Moreover, Trump’s belligerent approach is unlikely to succeed because, as with tariffs, it invites retaliation. Instead, we should be pursuing IP protections for pharmaceuticals as part of an overall free trade agreement. We did precisely this, for example, in the Australia–United States Free Trade Agreement (AUSFTA) in 2005. That type of bilateralism and negotiation is anathema to Trump, however, who sees the world in zero-sum terms. As a result, the Biden-Trump policies are likely to lead future Americans to have less access to life-saving and life-improving pharmaceuticals.
Addendum: See also many previous MR posts on pharmaceutical regulation including The US has Low Prices for Most Pharmaceuticals, Pharmaceutical Price Controls and the Marshmallow Test, Update on the supervillains and Frank Lichtenberg and the cost of saving lives through pharmaceuticals as well as many others.
Sentences to ponder
In fact, it was the Obama administration that paused funding for high-risk GoF studies in 2014. The ban was lifted by none other than Donald Trump in 2017. At the time, outlets like Scientific American and Science covered the decision, in articles that quoted scientists talking about what could go wrong. Remind yourself of this the next time you see rightists trumpeting some headline showing the media being wrong about something.
That is from Richard Hanania’s Substack.
Elasticities and incidence
President Trump’s budget proposes a significant rethink of federal rental assistance programs, consolidating a number of them — and cutting them by more than $26 billion — next fiscal year. Many experts previously told The New York Times that this could result in low-income Americans losing access to federal housing benefits.
Here is more from the NYT. If you are a YIMBY type, odds are you should favor this, since some of the subsidy gain likely would end up captured by landlords.
Avoiding pharma dependence on China
Research-intensive pharmaceutical companies have also warned that low prices paid by European health systems are driving new drug discovery efforts to the US and China.
China. Here is the FT source, with plenty of interesting additional information. It is a common charge that libertarians or classical liberals had no suggested remedy for the growing U.S. dependence on China in biomedical supply chains. But of course we did. Many of us have been saying, for many years, that Europe should be paying much higher prices for pharma contracts. That in turn would have allowed more pharma production to have remained with our European allies, to our benefit and theirs. We also have been wanting to make it much easier to build and maintain pharma factories in the United States. Here is o3 on all the legal and regulatory obstacles to building pharma plants in the United States.
As a good rule of thumb, when someone says “group X never has dealt with problem Y,” usually it is wrong. (One possible remedy here is to do an o3 search.) A corollary principle is when someone says “Tyler Cowen never has dealt with problem Y” that usually is wrong too.
My excellent Conversation with Jack Clark
This was great fun and I learned a lot, here is the audio, video, and transcript. Here is part of the episode summary:
Jack and Tyler explore which parts of the economy AGI will affect last, where AI will encounter the strongest legal obstacles, the prospect of AI teddy bears, what AI means for the economics of journalism, how competitive the LLM sector will become, why he’s relatively bearish on AI-fueled economic growth, how AI will change American cities, what we’ll do with abundant compute, how the law should handle autonomous AI agents, whether we’re entering the age of manager nerds, AI consciousness, when we’ll be able to speak directly to dolphins, AI and national sovereignty, how the UK and Singapore might position themselves as AI hubs, what Clark hopes to learn next, and much more.
An excerpt:
COWEN: Say 10 years out, what’s your best estimate of the economic growth rate in the United States?
CLARK: The economic growth rate now is on the order of 1 percent to 2 percent.
COWEN: There’s a chance at the moment, we’re entering a recession, but at average, 2.2 percent, so let’s say it’s 2.2.
CLARK: I think my bear case on all of this is 3 percent, and my bull case is something like 5 percent. I think that you probably hear higher numbers from lots of other people.
COWEN: 20 and 30, I hear all the time. To me, it’s absurd.
CLARK: The reason that my numbers are more conservative is, I think that we will enter into a world where there will be an incredibly fast-moving, high-growth part of the economy, but it is a relatively small part of the economy. It may be growing its share over time, but it’s growing from a small base. Then there are large parts of the economy, like healthcare or other things, which are naturally slow-moving, and may be slow in adoption of this.
I think that the things that would make me wrong are if AI systems could meaningfully unlock productive capacity in the physical world at a really surprisingly high compounding growth rate, automating and building factories and things like this.
Even then, I’m skeptical because every time the AI community has tried to cross the chasm from the digital world to the real world, they’ve run into 10,000 problems that they thought were paper cuts but, in sum, add up to you losing all the blood in your body. I think we’ve seen this with self-driving cars, where very, very promising growth rate, and then an incredibly grinding slow pace at getting it to scale.
I just read a paper two days ago about trying to train human-like hands on industrial robots. Using reinforcement learning doesn’t work. The best they had was a 60 percent success rate. If I have my baby, and I give her a robot butler that has a 60 percent accuracy rate at holding things, including the baby, I’m not buying the butler. Or my wife is incredibly unhappy that I bought it and makes me send it back.
As a community, we tend to underestimate that. I may be proved to be an unrealistic pessimist here. I think that’s what many of my colleagues would say, but I think we overestimate the ease with which we get into a physical world.
COWEN: As I said in print, my best estimate is, we get half a percentage point of growth a year. Five percent would be my upper bound. What’s your scenario where there’s no growth improvement? If it’s not yours, say there’s a smart person somewhere in Anthropic — you don’t agree with them, but what would they say?
Interesting throughout, definitely recommended.
That was then, this is now
In late 2022, Daisy Rodriguez, a U.S. citizen and owner of a small restaurant in the town of Sweetwater, Tennessee, said goodbye to her husband for what she thought would be a short stay in Guatemala. He had recently received approval to attend an immigration interview that would grant him a green card to live in the United States. Little did Rodriguez know her husband would not be returning to the U.S. Upon arriving at the consulate in Guatemala, her husband, Santos Maudilio Saucedo Rivas, was accused by U.S. consular officials of membership in a gang based on a tattooed set of initials on his body.
The officials denied Rivas a green card, separating him from his American wife and the restaurant they ran together, while cutting him off from the U.S., the country where he had spent nearly his entire adult life.
Rivas’s case is now the subject of a lawsuit filed today by the American Immigration Council and Consular Accountability Project, which is suing the U.S. State Department in the Eastern District of Tennessee. The lawsuit alleges that U.S. officials failed to review evidence showing that Rivas was never part of the “Barrio Azteca” gang and that the government violated the U.S. Constitution by denying him a green card after having him travel to Guatemala for the interview.
Here is the full story. Precedent matters. I had never heard of this 2022 case until I came across it randomly. One lesson is simply that U.S. treatment of migrants has been unfair for a long time.
Dept. of Why Not?
It is funny when people say AI cannot serve as a lawyer:
On Monday, the State Bar of California revealed that it used AI to develop a portion of multiple-choice questions on its February 2025 bar exam, causing outrage among law school faculty and test takers. The admission comes after weeks of complaints about technical problems and irregularities during the exam administration, reports the Los Angeles Times.
The State Bar disclosed that its psychometrician (a person or organization skilled in administrating psychological tests), ACS Ventures, created 23 of the 171 scored multiple-choice questions with AI assistance. Another 48 questions came from a first-year law student exam, while Kaplan Exam Services developed the remaining 100 questions.
Here is the full story, via the excellent Samir Varma.
What Should Classical Liberals Do?
My little contretemps with Chris Rufo raises the issue of what should classical liberals do? In a powerful essay, C. Bradley Thompson explains why the issue must be faced:
The truth of the matter is that the Conservative-Libertarian-Classical Liberal Establishment gave away and lost an entire generation of young people because they refused to defend them or to take up the issues that mattered most to them, and in doing so the Establishment lost America’s young people to the rising Reactionary or Dissident Right, by which I primarily mean groups such as the so-called TradCaths or Catholic Integralists and the followers of the Bronze Age Pervert. (See my essay on the reactionary Right, “The Pajama-Boy Nietzscheans.”)
I do not think Mr. Rufo would disagree with me on this point, but he has not quite made it himself either (at least not as far as I know), so I will make it in my own name.
The betrayal, abandonment, desertion, and loss of America’s young people by conservative and libertarian Establishmentarians can be understood with the following hypothetical.
Imagine the plight of, let us say, a 23-year-old young man in the year 2016. Imagine that he’s been told every single day from kindergarten through the end of college that he’s racist, sexist, and homophobic by virtue of being white, male, and heterosexual. Further imagine that he was falsely diagnosed by his teachers in grade school with ADD/ADHD and put on Ritalin because, well, he’s an active boy. And then his teachers tell him when he’s 12 that he might not actually be a boy, but rather that he might be a girl trapped in boy’s body. And let us also not forget that he’s also been told by his teachers and professors that the country his parents taught him to love was actually founded in sin and is therefore evil. To top it all off: he didn’t get into the college and then the law school of his choice despite having test scores well above those who did.
In other words, what this oppressed and depressed young man has experienced his whole life is a cultural Zeitgeist defined by postmodern nihilism and egalitarianism. These are the forces that are ruining his life and making him miserable.
Let’s also assume that said young man is also temperamentally some kind of conservative, libertarian, or classical liberal, and he interns at the Heritage Foundation, the Cato Institute, or the Institute for Humane Studies hoping to find solace, allies, and support to give relief to his existential maladies.
And how does Conservatism-Libertarianism Inc. respond to what are clearly the dominant cultural issues of our time?
Well, the Establishment publishes yet another white paper on free-market transportation or energy policy. The Heritage Foundation doubles down on more white papers on deficits and taxation policy. The Cato Institute churns out more white papers on legalizing pot and same-sex marriage. The Institute for Humane Studies goes all in to sit at the cool kids’ lunch table by ramping up its videos on spontaneous order featuring transgender 20-somethings.
Is it any wonder that today’s young people who have suffered the slings and arrows of outrageous fortune are stepping outside the arc of history yelling, “stop”? At a certain point, these young people let out a collective primal scream, shouting “I’m mad as hell and I’m not going to take it anymore.” And when the “youf” (as they refer to themselves online) realized that Establishment conservatives and libertarians did not hear them and lacked the vocabulary, principles, power, and courage to defend them from their Maoist persecutors, they went underground to places like 4chan, 8chan, and various other online discussion boards, where they found a Samizdat community of the oppressed.
Having effectively abandoned late-stage Millennials and Gen Z, Conservatism and Libertarianism Inc. should not be surprised, then, that today’s young people who might be otherwise sympathetic to their policies have left that world and become radicalized. News flash: Gen Z is attracted to people who are willing to defend them and attack social nihilism and egalitarianism in all their forms.
Hence the rise of what I call the “Fight Club Right,” which calls for a new kind of American politics. Gen Z rightism is done with what they call the Boomer’s “fake and ghey” attachment to the principles of the Declaration of Independence and the institutions of the Constitution. In fact, many young people who have migrated to the reactionary Right have openly and repeatedly rejected the principles of the American founding as irrelevant in the modern world.
More to the point, this younger generation is done with the philosophy of losing. They’re certainly done with the Establishment. They also seem to be done with classical liberalism and the American founding. (This is a more complicated topic.) Instead, what they want is political power to punish their enemies and to take over the “regime.” They want to use the coercive force of the State to create their new America.
…Conservatism and Libertarianism Inc. seemed utterly oblivious to the fact that the Left had pivoted and changed tactics after the fall of the Berlin Wall in November 1989. By the 1990s, the Left had abandoned economic issues and the working class and was doubling down on cultural issues. Rather than trying to take over the trade-union movement, for instance, the postmodern Left went for MTV and the Boy Scouts, while the major DC think tanks on the Right went for issues too distant from the lives of young people such as the deficit, taxation, and regulatory policy.
While socialism continues to be the end of the Left, the means to the end is postmodern nihilism. That’s where the Left planted its flag and that’s the terrain that it has occupied without opposition, whereas conservative and libertarian organizations such as the Heritage Foundation and the Cato Institute were fighting for ideological hegemony in the economic realm. Between 2000 and 2025, cultural nihilism and its many forms and manifestations is where the action is and has been for a quarter century. So powerful has postmodern nihilism become that even some left-wing “libertarian” organizations have simply become left-wing.
Markets in everything
- Authorities alleged Vong essentially rented out his U.S. identity to developers based in China who used it to get more than a dozen remote tech jobs, some of which involved contract work for sensitive government agencies.
A 40-year-old Maryland man is facing decades in prison after he allegedly worked with foreign nationals in China to get remote work IT jobs with at least 13 different U.S. companies between 2021 and 2024. The jobs paid him more than $970,000 in salary for software development tasks that were actually performed by operatives authorities allege are North Korean and working out of a post in Shenyang, China, according to the Department of Justice.
Here is the full story, via William.
The Political Economy of Protective Labor Laws for Women
From a new NBER working paper:
During the first half of the twentieth century, many US states enacted laws restricting women’s labor market opportunities, including maximum hours restrictions, minimum wage laws, and night-shift bans. The era of so-called protective labor laws came to an end in the 1960s as a result of civil rights reforms. In this paper, we investigate the political economy behind the rise and fall of these laws. We argue that the main driver behind protective labor laws was men’s desire to shield themselves from labor market competition. We spell out the mechanism through a politico-economic model in which singles and couples work in different sectors and vote on protective legislation. Restrictions are supported by single men and couples with male sole earners who compete with women for jobs. We show that the theory’s predictions for when protective legislation will be introduced are well supported by US state-level evidence.
That is by Matthias Doepke, Hanno Foerster, Anne Hannusch, and Michèle Tertilt.
AI Goes to College…for the Free Money
Last year, the state [CA] chancellor’s office estimated 25 percent of community college applicants were bots.
Everyone understands that students are using AI; sometimes to help them learn, sometimes to avoid learning. What I didn’t appreciate is that community colleges offering online courses are being flooded with AI bots who are taking the courses:
The bots’ goal is to bilk state and federal financial aid money by enrolling in classes, and remaining enrolled in them, long enough for aid disbursements to go out. They often accomplish this by submitting AI-generated work. And because community colleges accept all applicants, they’ve been almost exclusively impacted by the fraud.
The state has launched a Bladerunner-eque “Inauthentic Enrollment Mitigation Taskforce” to try to combat the problem. This strikes me, however, as more of a problem on the back-end of government sending out money without much verification. It’s odd to make the community colleges responsible for determining who is human. Stop sending the money to the bots and the bots will stop going to college.
Sam Altman, as usual, is ahead of the game.
The Library Burned Slowly
A powerful but grim essay by John McGinnis, Professor of Constitutional Law at Northwestern. For decades, the federal government—driven by the left—expanded its control over universities. The right, most notably Ronald Reagan, tried to resist, shielding civil society from state overreach. They failed. Now, a new right has turned to the left’s playbook and is imposing its own vision of the good society. Chris Rufo mocks classical liberals like myself and their naive ideas of neutrality, fairness and open institutions. Principles are for losers. Seize power! Crush your enemies. Rufo does know how to crush his enemies. But what happens when the devil turns? Bludgeoning your enemies is fun while it lasts but you can’t bludgeon your way to a civilization. Hayek’s civil society dies in the rubble.
It seems remarkable that seemingly antisemitic protests by undergraduates, such as those at my own university of Northwestern, could threaten the biomedical research funding of its medical school. But the structure of civil rights laws as applied to universities has long allowed the federal government to cut off funding to the entire university based on the wrongful actions of particular units or departments.
Ironically, the left, now alarmed by the federal government’s intrusive reach, bears direct responsibility for crafting the very legal weapons wielded against the universities it dominates. Almost four decades ago, progressive legislators demanded sweeping amendments to civil rights law, expanding federal oversight over higher education. The sequence of events reveals a cautionary tale of political hubris: progressive confidence that state power would reliably serve their ends overlooked the reality that governmental authority, once unleashed, recognizes no ideological master. Today’s circumstances starkly illustrate how expansive federal control over civil society, originally celebrated by progressives, returns to haunt its architects. The left’s outrage ought to focus not on this particular administration but on its own reckless empowerment of the state.
…Clumsy governmental dictates on contentious matters such as transgender rights do not merely settle disputes; they inflame societal divisions by transforming moral disagreements into winner-takes-all political battles. Civil society, by contrast, thrives precisely because it embraces diversity and facilitates compromise, allowing pluralistic communities to coexist peacefully without being conscripted into ideological warfare. The left, fixated upon uniform outcomes, consistently undervalues the power of voluntary cooperation and cultural persuasion. Their shortsightedness has delivered into the hands of their opponents the very instruments of coercion they forged, vividly confirming an enduring truth: the power you grant government today will inevitably be wielded tomorrow by your adversaries.
Read the whole thing.
The Prophet’s Paradox
The political problem of disaster preparedness is especially acute for the most useful form, disaster avoidance. The problem with avoiding a disaster is that success often renders itself invisible. The captain of the Titanic is blamed for hitting the iceberg, but how much credit would he have received for avoiding it?
Consider a pandemic. When early actions—such as testing and quarantine, ring vaccination, and local lockdowns—prevent a pandemic, those inconvenienced may question whether the threat was ever real. Indeed, one critic of this paper pointed to warnings about ozone depletion and skin cancer in the 1980s as an example of exaggeration and a predicted disaster that did not happen. Of course, one of the reasons the disaster didn’t happen was the creation of the Montreal Protocol to reduce ozone-depleting substances (Jovanović et al. 2019; Tabarrok and Canal 2023). The Montreal Protocol is often called the world’s most successful international agreement, but it is not surprising that we don’t credit it for skin cancers that didn’t happen. I call this the prophet’s paradox: the more the prophet is believed beforehand, the less they are credited afterward.
The prophet’s paradox can undermine public support for proactive measures. The very effectiveness of these interventions creates a perception that they were unnecessary, as the dire outcomes they prevented are never realized. Consequently, policymakers face a challenging dilemma: the better they manage a potential crisis, the more likely it is that the public will perceive their actions as overreactions. Success can paradoxically erode trust and make it more difficult to implement necessary measures in future emergencies. Hence, politicians are paid to deal with emergencies not to avoid them (Healy and Malhotra 2009).
Since politicians are incentivized to deal with rather than avoid emergencies it is perhaps not surprising to find that this attitude was built into the planning process. Thus, the UK COVID Inquiry (2024, 3.17) found that:
Planning was focused on dealing with the impact of the disease rather than preventing its spread.
Even more pointedly Matt Hancock testified (UK COVID Inquiry 2024, 4.18):
Instead of a strategy for preventing a pandemic having a disastrous effect, it [was] a strategy for dealing with the disastrous effect of a pandemic.
From my paper, Pandemic preparation without romance.
Deregulation suggestions
If you have ideas for cutting regulations, the US government wants to hear from you! This could be important. Provide details on the exact regulation in the CFR.