The Merger Guidelines

by  Alex Tabarrok in

Gus Hurwitz (a former student) and Geoffrey Manne have an excellent piece in the WSJ discussing the FTCs new merger guidelines. First, what are these guidelines?

Since 1968, Justice and the FTC have issued guidelines to help companies understand when a proposed merger might raise antitrust concerns. The guidelines are a nonbinding public statement that describes how the agencies will approach the enforcement of merger laws. They have been updated from time to time to reflect changes in the law and improved economic understanding about the likely effect mergers will have on competition. They are neither a definitive statement of law nor binding on courts.

Over time the guidelines have nevertheless shaped U.S. courts’ understanding of merger law because past updates have striven to state what the law, as applied by courts, is, and have developed analytical tools faithful to that interpretation.

The new guidelines, however, are very different as they attempt not to summarize the law but to create new policy in the absence of legislation from Congress or rulings by the courts, in other words to subvert the rule of law.

…the proposal states what the agencies’ current leadership wishes the law to be and reflects a desire to change merger law by administrative fiat rather than through successful litigation or an act of Congress. Look at the antitrust agencies’ string of recent losses in major merger cases, including Microsoft’s acquisition of Activision and Meta’s acquisition of Within, to see that their views of antitrust law differ substantially from those of the courts.

Judicial acceptance of prior guidelines was a result of the agencies’ reputation as honest brokers of judicial precedent. The proposed guidelines jeopardize that reputation by selectively interpreting the law, relying on outdated precedents, and disregarding more-recent case law.

…This selective bias toward outdated judicial opinions and economic knowledge isn’t likely to impress the courts. The disconnect will lead to deep skepticism, casting a pall over all arguments (even sound ones) made by the Justice Department and FTC antitrust attorneys. The agencies might discover that it would have been better to go to court without guidelines rather than with a contentious interpretation of the law.

My Conversation with the excellent Noam Dworman

by  Tyler Cowen in

I am very pleased to have recorded a CWT with Noam Dworman, mostly about comedy but also music and NYC as well.  Noam owns and runs The Comedy Cellar, NYC’s leading comedy club, and he knows most of the major comedians.  Here is the audio, video, and transcript.  Here is the episode summary:

Tyler sat down at Comedy Cellar with owner Noam Dworman to talk about the ever-changing stand-up comedy scene, including the perfect room temperature for stand-up, whether comedy can still shock us, the effect on YouTube and TikTok, the transformation of jokes into bits, the importance of tight seating, why he doesn’t charge higher prices for his shows, the differences between the LA and NYC scenes, whether good looks are an obstacle to success, the oldest comic act he still finds funny, how comedians have changed since he started running the Comedy Cellar in 2003, and what government regulations drive him crazy. They also talk about how 9/11 got Noam into trouble, his early career in music, the most underrated guitarist, why live music is dead in NYC, and what his plans are for expansion.

Here is one excerpt:

COWEN: If you do stand-up comedy for decades at a high level — not the Louis C.K. and Chris Rock level, but you’re successful and appear in your club all the time — how does that change a person? But not so famous that everyone on the street knows who they are.

DWORMAN: How does doing stand-up comedy change a person?

COWEN: For 25 years, yes.

DWORMAN: Well, first of all, it makes it harder for them to socialize. I hear this story all the time about comedians when they go to Thanksgiving dinner with their family, and all of a sudden, the entire place gets silent. Like, “Did he just say . . .” Because you get used to being in an atmosphere where you could say whatever you want.

I think probably, because I know this in my life — and again, getting used to essentially being your own boss, you get used to that. Then it just becomes very, very hard to ever consider going back into the structured life that most people expect is going to be their lives from the time they’re in school — 9:00 to 5:00, whatever it is. At some point, I think, if you do it for too long, you would probably kill yourself rather than go back.

I’ve had that thought myself. If I had to go back to . . . I never practiced law, but if I had to take a job as a lawyer — and I’m not just saying this to be dramatic — I think I might kill myself. I can’t even imagine, at my age, having to start going to work at nine o’clock, having a boss, having to answer for mistakes that I made, having the pressure of having to get it right, otherwise somebody’s life is impacted. I just got too used to being able to do what I want when I want to do it.

Comedians have to get gigs, but essentially, they can do what they want when they want to do it. They don’t have to get up in the morning, and I think, at some point, you just become so used to that, there’s no going back.

Recommended, interesting throughout.

Sinead O’Connor, RIP

by  Alex Tabarrok in

Sinead O’Connor was a great singer–never more evident than in her collection of standards, Am I Not Your Girl? The entire album is wonderful. So sad to hear of her passing. Here on the painful decline of a marriage, Success Has Made a Failure of Our Home. Kills me every time I hear it.

From Faith and Courage, I love The Lamb’s Book of Life.

Out of history we have come
With great hatred and little room
It aims to break our hearts
Wreck us up and tear us all apart
But if we listen to the Rasta man
He can show us how it can be done
To live in peace and live as one
Get our names back in the book of life of the lamb

Here to cheer me up is Sinead in happier times, Daddy I’m fine, also from Faith and Courage.

Amazingly, her album of reggae songs Throw Down Your Arms, is very good. Who else could have pulled that off?

One more, from the Chieftain’s Long Black Veil–many great songs but none better than Sinead’s Foggy Dew, now the definitive version.

And back through the glen, I rode again
And my heart with grief was sore
For I parted then with valiant men
Whom I never shall see n’more
But to and fro in my dreams I go
And I kneel and pray for you
For slavery fled, O glorious dead
When you fell in the foggy dew

RIP Sinead. Thank you for the great music.

The Economics of Export Bans

by  Alex Tabarrok in

India recently banned the export of non-Basmati rice. What are the economics of export bans? An export ban will tend to decrease the world supply thereby raising world prices but some of the previously exported goods will flow to the domestic market reducing domestic prices, which is the typical reason for an export bans.

FT: India’s ministry of consumer affairs said on Thursday it would prohibit exports to “lower the price as well as ensure availability in the domestic market”. Rice prices in India have risen 11.5 per cent over the past year and 3 per cent over the past month, according to the ministry, reflecting a 35 per cent year-on-year surge in export volumes between April and June.

As noted, in the very short run, an export ban will reduce domestic prices as export stocks flood the domestic market (although even here we have to be a bit careful as a temporary ban could lead to distributors storing–“hoarding”–grain in the expectation of a lifting of the ban). As producers adjust to the lower price and start to produce less, however, the quantity supplied will decrease and domestic prices will rise from Psr to Pban, as shown in the diagram.

Even in the long run the domestic price (Pban) will be below the free trade price (Pft) so the export ban helps domestic rice consumers, i.e. increases their consumer surplus (the green area). India has a lot of rice consumers who vote so the goal here is obviously political. The export ban, however, hurts rice producers, i.e. producer surplus declines (the hatched area). Moreover, producer surplus declines by more than consumer surplus rises so the net effect of the export ban is to reduce domestic welfare.

Rice producers in India are often small family farmers and the government tries to help these farmers with other policies like subsidies so the export ban goes against the grain of other government policy. Moreover, the decline in rice producer incomes will hurt rural incomes more generally. Thus, the export ban protects urban consumers at the expense of typically poorer rural farmers and is likely to increase inequality.

In the long run, an export ban means a smaller farm sector. An export ban is like prohibiting a hotel from raising prices during seasons of high demand. That’s nice if you can get a room but it means fewer hotels. In other words, more hotels will enter the market if they know that they can offset low profits in periods of low demand with high profits in periods of high demand. In the same way, preventing farmers from selling at high prices reduces farmer profits which reduces long run entry and production.

The United States had an export ban on crude oil for 40 years. It’s sometimes said that the export ban was non-binding because the US was a big oil importer. I suspect, however, that the export ban reduced the speed of the fracking revolution. The US export ban also lead to a lot of bizarre mispricing. The ban didn’t apply to refined oil products, for example, so the US went more heavily into refineries and over-produced refined oil products even when (on the margin) exporting crude oil at market prices would have been more profitable.

The Indian government does hold buffer stocks of rice. Strategic reserves have their own problems but it might have been better to draw on the strategic reserve rather than ban exports. Rice and circuses for the capital city at the expense of rural farmers is not a good long run strategy for economic development.

The Amy Finkelstein and Liran Einav health care plan

by  Tyler Cowen in

I am away from my review copy, so I am pleased that Matt Yglesias has offered ($) a good “standing on one foot” summary of the plan, as outlined in the new book We’ve Got You Covered: Rebooting American Health Care, by Amy Finkelstein and Liran Einav:

They call for:

  • A universal basic insurance system, covering both catastrophic and routine care but at a bare bones/no frills level of service.
  • A global budget, set by Congress, to determine how much money the basic plan has to spend on meeting the public’s basic needs, paired with expert panels to decide which services to cover.
  • An additive system of private top-up insurance that people could (and they anticipate mostly would) buy into to secure access to shorter wait times and more creature comforts.

The book offers a “think it through using first principles” approach, so perhaps the authors will be frustrated by my invocation of a “how has politics been going lately?” kind of response.  Nonetheless I see that Obamacare cost the Democrats dearly in more than one election, it had to be defanged (the mandate) to survive, it was supposed to be the new comprehensive framework that actually could pass (it did), and the most influential Americans just love their employer-provided private health insurance.

Whether you think those facts are good or bad, I take them as my starting point for health care reform.  This book does not.

I observe also that Obamacare passed, and American life expectancy fell.  I do not blame Obamacare for that, but I do notice it.  As a result, I have grown increasingly interested in “how can we boost biomedical scientific progress?” and increasingly less interested in “how can we reform health insurance coverage again?”  All the more because we seem to be living in a biomedical progress of science golden age.

One of the Democratic Party frustrations with conservatives during the ACA debates was witnessing them tolerate or even support Romney’s Massachusetts plan, but oppose Obamacare.  That I can understand.  One of the conservative frustrations with ACA was the fear that it would just be the first step in a never-ending, upward-ratcheting series of efforts to spend ever more on health insurance coverage, which has positive but only marginal implications for health itself.  After all, where exactly do the moral arguments for spending more on health insurance coverage stop?

Is there a politically feasible version of the Finkelstein and Einav plan that can spend less or the same?  Is there a politically feasible version of the plan period?  How much trust will there be in the promise that if I give up my private health insurance coverage, it will be replaced by something better?  How much trust should there be?

But again, the authors here have a very different perspective on the sector and how to do health care policy.

David J. Deming now has a Substack

by  Tyler Cowen in

Forked Lightning, he is from the Harvard Kennedy School, and he is a co-author on the piece with Chetty and John N. Friedman featured on MR earlier today.

In his inaugural post he explains some further results from the paper in more detail:

The second part [of the paper] shows the impact of attending an Ivy-Plus college. Do these colleges actually improve student outcomes, or are they merely cream-skimming by admitting applicants who would succeed no matter where they went to college?[2]

We focus on students who are placed on the waitlist. These students are less qualified than regular admits but more qualified than regular rejects. Crucially, the waitlist admits don’t look any different in terms of admissibility than the waitlist rejects. We verify this by showing that being admitted off the waitlist at one college doesn’t predict admission at other colleges. Intuitively, getting in off the waitlist is about class-balancing and yield management, not overall merit. The college needs an oboe player, or more students from the Mountain West, or whatever. It’s not strictly random, but it’s unrelated to future outcomes (there are a lot of technical details here that I’m skipping over, including more tests of balance in the waitlist sample – see the paper for details). We also show that we get similar results with a totally different research design that others have used in past work (see footnote 2).

Almost everyone who gets admitted off an Ivy-Plus college waitlist accepts the offer. Those who are eventually rejected go to a variety of other colleges, including other Ivy-Plus institutions. We scale our estimates to the plausible alternative of attending a state flagship public institution. In other words, we want to know how an applicant’s life outcomes would differ if they attended a place like Harvard (where I work) versus Ohio State (the college I attended – I did not apply to Harvard, but if I did I surely would have been *regular* rejected!)

We find that students admitted off the waitlist are about 60 percent more likely to have earnings in the top 1 percent of their age by age 33. They are nearly twice as likely to attend a top 10 graduate school, and they are about 3 times as likely to work in a prestigious firm such as a top research hospital, a world class university, or a highly ranked finance, law or consulting firm. Interestingly, we find only small impacts on mean earnings. This is because students attending good public universities typically do very well. They earn 80th-90th percentile incomes and attend very good but not top graduate schools.

The bottom line is that going to an Ivy-Plus college really matters, especially for high-status positions in society.

In a further Substack post, Deming explains in more detail why the classic Dale and Kruger result (that, adjusting for student quality, you can go to the lesser school) no longer holds, due to limitations in their data.  Of course all this bears on the “education as signaling” debates as well.

By the way, it took the authors more than five years to write that paper.  Deming adds: “The paper is 125 pages long. It has 25 main exhibits (6 tables and 19 figures), and another 36 appendix exhibits.”

Here is Deming’s home page.  He is a highly rated economist, yet still underrated.

Tuesday assorted links

by  Tyler Cowen

1. Microgyms in Singapore.

2. Proof of personhood, by Vitalik.

3. Larry Katz is running unopposed to be the next president of AEA.  I am a big fan of Larry’s work and from hearsay (I don’t know him) he has very sound judgment.  But isn’t it time someone raised their hand and said this system of running only a single candidate is ridiculous?  That said, I do suspect true democracy (what would the primaries look like?) would bring a worse outcome, at least in the short and medium term.

4. Sri Lankan economist Amal Sanderatne has passed away.

5. Gwern on internet search tips.

6. NYT on Avi Loeb.

7. Cultural and cinematic references in the Barbie movie, shows the film was not just a random sputtering.

Is the rising youth suicide rate overstated?

by  Tyler Cowen in

Rising reports of suicidal behaviors in children and adolescents have led to the recognition of a youth mental health crisis. However, reported rates can be influenced by access to screening and changes in reporting conventions, as well as by changes in social stigma. Using data on all hospital visits in New Jersey from 2008-2019, we investigate two inflection points in adolescent suicide-related visits and show that a rise in 2012 followed changes in screening recommendations, while a sharp rise in 2016-2017 followed changes in the coding of suicidal ideation. Rates of other suicidal behaviors including self-harm, attempted suicides, and completed suicides were essentially flat over this period. These results suggest that underlying suicide-related behaviors among children, while alarmingly high, may not have risen as sharply as reported rates suggest. Hence, researchers should approach reported trends cautiously.

That is from new research by Adriana Corredor-Waldron and Janet Currie.

The Causal Effects of Admission to Highly Selective Private Colleges

by  Tyler Cowen in

This is a long abstract, but it is meaty, and note that papers by these authors have held up well:

Leadership positions in the U.S. are disproportionately held by graduates of a few highly selective private colleges. Could such colleges — which currently have many more students from high-income families than low-income families — increase the socioeconomic diversity of America’s leaders by changing their admissions policies? We use anonymized admissions data from several private and public colleges linked to income tax records and SAT and ACT test scores to study this question. Children from families in the top 1% are more than twice as likely to attend an Ivy-Plus college (Ivy League, Stanford, MIT, Duke, and Chicago) as those from middle-class families with comparable SAT/ACT scores. Two-thirds of this gap is due to higher admissions rates for students with comparable test scores from high-income families; the remaining third is due to differences in rates of application and matriculation. In contrast, children from high-income families have no admissions advantage at flagship public colleges. The high-income admissions advantage at private colleges is driven by three factors: (1) preferences for children of alumni, (2) weight placed on non-academic credentials, which tend to be stronger for students applying from private high schools that have affluent student bodies, and (3) recruitment of athletes, who tend to come from higher-income families. Using a new research design that isolates idiosyncratic variation in admissions decisions for waitlisted applicants, we show that attending an Ivy-Plus college instead of the average highly selective public flagship institution increases students’ chances of reaching the top 1% of the earnings distribution by 60%, nearly doubles their chances of attending an elite graduate school, and triples their chances of working at a prestigious firm. Ivy-Plus colleges have much smaller causal effects on average earnings, reconciling our findings with prior work that found smaller causal effects using variation in matriculation decisions conditional on admission. Adjusting for the value-added of the colleges that students attend, the three key factors that give children from high-income families an admissions advantage are uncorrelated or negatively correlated with post-college outcomes, whereas SAT/ACT scores and academic credentials are highly predictive of post-college success. We conclude that highly selective private colleges currently amplify the persistence of privilege across generations, but could diversify the socioeconomic backgrounds of America’s leaders by changing their admissions practices.

I’ll just pull out and bold a key sentence from there:

Adjusting for the value-added of the colleges that students attend, the three key factors that give children from high-income families an admissions advantage are uncorrelated or negatively correlated with post-college outcomes, whereas SAT/ACT scores and academic credentials are highly predictive of post-college success.

It would be so easy to change all this, right?  Use scores and grades more, legacy less, extracurriculars less, and athletics less for admission purposes.  Yet so many of them won’t make that switch.  Why not?  Model that!

The NBER working paper is by Raj Chetty, David J. Deming, and John N. Friedman.  Here is some NYT coverage of the piece.

Australia fact of the day

by  Tyler Cowen in

Health officials have “virtually” eliminated HIV transmission in parts of Sydney that were once the centre of the Australian Aids epidemic, raising hopes of conquering a disease that has killed more than 40mn people.

HIV diagnoses in inner Sydney plunged 88 per cent from the 2008-12 average to just 11 cases last year, a decline on a scale never before recorded in a former Aids hotspot.

The results add to evidence that existing prevention strategies, including testing and pre-exposure drugs, are highly effective when implemented correctly.

“Rapid progress towards ending Aids is possible. If trends continue, several countries in several global regions will reach the [UN] goal of a 90 per cent HIV incidence reduction by 2030,” researchers said.

Here is the full FT story.  As I have been saying people, you are living in a new age of biomedical miracles.

Monday assorted links

by  Tyler Cowen

1. Sensible talk from the Left about how little the Left is offering so many American men.

2. Where did our belief in abundance come from?  The Bible, no?

3. TC as Information Monster.

4. milky eggs on life extension.  I don’t endorse (or deny) any of that, but why not more discussion on pursuing higher social status?

5. U.S. per capita carbon emissions, over time.

6. Why did Oppenheimer end up on St. John for the last years of his life?

7. Podcast with Robert Solow at age 98.