The War on Drugs: Methamphetamine

by  Alex Tabarrok in

Remember when you could walk into a pharmacy and buy a decongestant like Sudafed?  The key ingredient was pseudoephedrine, a precursor to methamphetamine.  A series of laws made it more and more difficult to buy or manufacture pseudoephedrine (despite it's legality).  So what did we get for our loss of liberty?  A new paper (AEA) (free here) in the March AER says not much:   

In mid-1995, a government effort to reduce the supply of methamphetamine precursors successfully disrupted the methamphetamine market and interrupted a trajectory of increasing usage. The price of methamphetamine tripled and purity declined from 90 percent to 20 percent. Simultaneously, amphetamine related hospital and treatment admissions dropped 50 percent and 35 percent, respectively. Methamphetamine use among arrestees declined 55 percent. Although felony methamphetamine arrests fell 50 percent, there is no evidence of substantial reductions in property or violent crime. The impact was largely temporary. The price returned to its original level within four months; purity, hospital admissions, treatment admissions, and arrests approached preintervention levels within eighteen months.

The authors conclude:

This is quite possibly the DEA’s greatest success in disrupting the supply of a
major illicit substance.  The focus on disrupting the supply of inputs rather than of the drug itself proved extremely successful. This success was the result of a highly
concentrated input supply market and consequently may be difficult to replicate for drugs
with less centralized sources of supply, such as cocaine and heroin. That this massive
market disruption resulted in only a temporary reduction in adverse health events and
drug arrests and did not reduce property and violent crimes, is disappointing. (italics added)

FYI, this paper makes its case almost entirely by carefully laying out the data rather than with theory or econometrics–that was nice to see in the AER.

The Dark Side?

by  Tyler Cowen in

Gretchen Rubin interviews Todd Kashdan (of GMU I might add, though I don't know him):

Is there anything you find yourself doing repeatedly that gets in the way of your happiness?
There is a dark side to my desire to become an expert in psychology,
knowledgeable about science and literature, skilled as a parent,
mountain biker, and weightlifter, and attentive as a husband. When I
think I know something, I stop paying attention. It happens far too
often and when it does, opportunities close. I constantly have to
remind myself to let go of my ego, let go of my expectations, and stay
flexible and profoundly aware of what is right in front of my senses.

Here is Todd's new blog.  Here is Todd on the Mayan afterlife.  Here is Gretchen's version of phony advertising markets in everything.

Here is Todd's home page, with Todd's lists.

Repo markets in everything, Passover edition

by  Tyler Cowen in

This is an example to inspire Jeffrey Williams:

When Jaaber Hussein signs an agreement with Israel's Chief
Rabbis tomorrow, he will be inking the only Arab-Jewish accord sure to
be meticulously observed by both sides. The deal will make him the
owner for one week of all bread, pasta and beer in Israel – well a huge
amount of it anyway. The contract, signed for the past 12 years by the
Muslim hotel food manager, is part of the traditional celebrations
ahead of the Jewish holiday of Passover.

Jews are forbidden by biblical injunction to possess leavened bread,
or chametz, during Passover and ironically an Arab is needed to
properly observe the holiday. The agreement with Mr Hussein offers a
way of complying with religious edicts without having to wastefully
destroy massive quantities of food.

If only our capital markets could run so smoothly:

Tomorrow, Mr Hussein will put down a cash deposit of $4,800
(some 20,000 shekels or £3,245) for the $150m worth of leavened
products he acquires from state companies, the prison service and the
national stock of emergency supplies. The deposit will be returned at
the end of the holiday, unless he decides to come up with the full
value of the products. In that case he could, in theory, keep them all.

At the close of the holiday, the foodstuffs purchased by Mr Hussein
revert back to their original owners, who have given the Chief Rabbis
the power of attorney over their leavened products. "It's a firm,
strong agreement done in the best way," Mr Hussein said.

I thank Michael Webster for the pointer.

Exchange with Brad DeLong over the stimulus

by  Tyler Cowen in

They call the feature "Blog War," although it is friendlier than that.  The first installment is here (alternatively Brad's first full post is here and mine here) and there is more to come, some of it already in the can.  I cannot promise we will be rational in the Hansonian sense, but I do believe we will get to the bottom of where the disagreement lies.

Addendum: Matt Yglesias comments.

Last Man Standing

by  Tyler Cowen in

Here is my Wilson Quarterly essay on the economic and geopolitical "fallout" from the crisis.  Here are the closing paragraphs:

Despite the separation of powers built into the American political system, U.S. political institutions have, by global standards, proven themselves unusually decisive and effective at critical times. The ability to react swiftly to new challenges is an underlying theme in American history, whether we consider the early missions to the moon, the breakthroughs of the ­civil ­rights movement, the pioneering of environmental regulation, or the ­pro-­market Reagan reforms of the ­1980s.

It’s a paradox that it’s the large, diverse nations such as the United States that have the greatest ability to maneuver in a crisis and turn on the proverbial dime. That’s good for us, of course, but if a new American Century is about to be born, it’s another sign that the world faces very serious challenges. And that’s not a cause for anyone to ­cheer. 

Dan Drezner comments on related issues.

He forgot about Hawtrey

by  Tyler Cowen in

Ezra reports, from his commentator Nylund:

Is it just me or do famous economists seem to live a really long time?

Friedman (94)
Mises (92)
John Kenneth Galbraith (98)
Hayek (92)
Leontief (93)

…besides Keynes (or any of the really old school guys like
Ricardo and Say), its rare to find a major economist that didn't make
it well into their 80's.

Samuelson is in his 90s and Ken Arrow is 87.  Buchanan, Tullock, Coase, and Vernon Smith are all still with us and I wonder if Gary Becker might prove immortal.  Frank Ramsey is one obvious exception, as is Miguel Sidrauski.  Fischer Black and Amos Tversky are two more recent exceptions.  Here is a paper on 16 notable economists who died prematurely.

Markets in everything

by  Tyler Cowen in

Deron Bauman reports to me:

Information Age Prayer is
a site that charges you a monthly fee to say prayers for you. A typical
charge is $4.95 per month to say three prayers specified by you each
day.

"We use state of the art text to speech synthesizers to voice each
prayer at a volume and speed equivalent to typical person praying," the
company states. "Each prayer is voiced individually, with the name of
the subscriber displayed on screen.

"Prices, however, are dictated by the length of the prayer. As noted
in the Information Age Prayer FAQ, "A discounted prayer will cost less
than other prayers of similar length."

Here is the full story.

8-minute video

by  Tyler Cowen in

Of me, at the Kaufmann Foundation, talking about blogging (and I believe some other things).  Like Scott Sumner, I don't usually watch myself on video so I haven't viewed it.  I don't remember what I said, but I am sure I meant it at the time.  The Kaufmann people seemed to like it.

I thank Tim Kane for the pointer.  From Tim's blog, here is an interesting profile of Carl Schramm, president of Kaufmann.  I did have a chance to meet Carl and he is a fascinating man.

Gaming the Geithner plan, part II

by  Tyler Cowen in

From a recent Business Week article, here are some suggested possibilities:

Banks may be able to finance the sale of their own troubled loans, lending money to the public-private partnerships that buy the assets. A bank's loan to the partnership would be buttressed by an FDIC guarantee. Administration officials confirm that the Treasury may allow such seller financing. The move essentially replaces junky mortgages on the bank's books with an FDIC-guaranteed loan.

…Say a private investor in one of the partnerships owns big stockholdings in a bank putting assets out to auction. By overbidding for the bank's sludge loans, the investor could help drive up the banks' shares and make a tidy profit.

…Perhaps the most intricate maneuvers will likely stem from "layering" the government's many programs of the last six months. Starting with some of the capital infusion received last fall from the Treasury, a bank could invest in a private partnership that buys toxic assets using a loan guaranteed by the FDIC. Those assets could then be chopped up and sold as securities to other investors–who put together the financing for the deal by availing themselves of another program of low-risk loans from the Federal Reserve. Thus the original bank's capital at risk in this web of deals would be almost nil. "[This] is going right back to the practices that got us into this problem–except using government leverage," Young says. "It might lead to an even wilder party than we saw before."

You should not assume that all of these strategies will be legally possible or that they necessarily work.  Furthermore the greater danger may be that banks are afraid to make money in a partnership with government aid, for political reasons.  Still, if you are seeking to think through possible problems in the Geithner plan, the article is a one good place to start.

Ricardo Caballero's defense of the Geithner plan is here.

Addendum: Jeff Sachs is worried.