The 1970s Crime Wave

by  Alex Tabarrok in

Tyler and I wrap up our series of podcasts on the 1970s with The 1970s Crime Wave. Here’s one bit:

TABARROK: …people think that mass incarceration is a peculiarly American phenomena, or that it came out of nowhere, or was due solely to racism. Michelle Alexander’s, The New Jim Crow, takes his view. In fact, the United States was not a mass incarceration society in the 1960s.

It became one in the 1980s and 1990s due to the crime wave of the 1970s. It was not simply due to racism. It is true Blacks do commit more crimes relative to their population than whites, but Blacks are also overrepresented as victims. The simple fact of the matter is that Black victims of crime, the majority group, demanded more incarceration of Black criminals. In 1973, the NAACP demanded that the government lengthen minimum prison terms for muggers, pushers, and first-degree murders.

The Black newspaper, the Amsterdam News, advocated mandatory life sentences for “the non-addict drug pusher of hard drugs.” The Black columnist, Carl Rowan, wrote that “locking up thugs is not vindictive.” Eric Holder, under Obama, he was the secretary of—

COWEN: Of something.

TABARROK: Yes, of something. He called for stop and frisk. Eric Holder called for stop and frisk. Back then, the criminal justice system was also called racist, but the racism that people were pointing to was that Black criminals were let back on the streets to terrorize Black victims, and that Black criminals were given sentences which were too light. That was the criticism back then. It was Black and white victims together who drove the punishment of criminals. I think this actually tells you about two falsehoods. First, the primary driver of mass imprisonment was not racism. It was violent crime.

Second, this also puts the lie, sometimes you hear from conservatives, to this idea that Black leaders don’t care about Black-on-Black crime. That’s a lie. Many Black leaders have been, and were, and are tough on crime. Now, it’s true, as crime began to fall in the 1990s, many Blacks and whites began to have misgivings about mass incarceration. Crime was a huge problem in the 1970s and 1980s, and it hit the United States like a brick. It seemed to come out of nowhere. You can’t blame people for seeking solutions, even if the solutions come with their own problems.

A lot of amazing stuff in this episode. Here’s our Marginal Revolution Podcast 1970s trilogy

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How well does bar exam performance predict subsequent success as a lawyer?

by  Tyler Cowen in

Eh:

How well does bar exam performance predict lawyering effectiveness? Is performance on some components of the bar exam more predictive? The current study, the first of its kind to measure the relationship between bar exam scores and a new lawyer’s effectiveness, evaluates these questions by combining three unique datasets—bar results from the State Bar of Nevada, a survey of recently admitted lawyers, and a survey of supervisors, peers, and judges who were asked to evaluate the effectiveness of recently-admitted lawyers. We find that performance on both the Multistate Bar Examination (MBE) and essay components of the Nevada Bar have little relationship with the assessed lawyering effectiveness of new lawyers, calling into question the usefulness of these tests.

Here is the full article by Jason M. Scott, Stephen N. Goggin, and David Faigman.  Via the excellent Kevin Lewis.

A new meta-meta analysis says things I agree with

by  Tyler Cowen in

We combine societal-level institutional measures from 51 countries between 1996 and 2017 with individual decision-making outcome data from 1,126 laboratory experiments in six meta-analyses to evaluate the effects of within-country institutional change on pro-social and Nash behavior. We find that government effectiveness and regulatory freedom positively correlate with pro-social behavior. We find that freedom from each of the following components of regulation; interest rate controls, binding minimum wages, worker dismissal protections, conscription, and administrative requirements; are correlated with prosocial behavior and are inversely correlated with Nash behavior. These results suggest the importance of considering spillover effects in pro-social behavior when designing government policy.

That is from a new NBER working paper by Jason A. Aimone, Sheryl Ball, Esha Dwibedi, Jeremy J. Jackson & James E. West.

Where are incumbents still popular?

by  Tyler Cowen in

From my email, here is your Switzerland fact of the day:

The media is awash with stories about western countries incumbent parties losing elections in the last two years:

The exception no one seems to remember: Switzerland. In the october 2023 election, 3 out of the 4 governing parties increased their vote share. And it wasn’t just parties that are formally in government but effectively act as an opposition: The right wing Swiss People’s Party won. The left wing Social Democrats one. And the moderate Centre party one. The losers: The centre right Liberal Party (in government) and two different green parties (both outside of government).

Possible cause: Low inflation (https://marginalrevolution.com/marginalrevolution/2022/10/the-polity-or-is-it-culture-that-is-swiss.html)?

From Johann C.

Who Wins and Who Loses when Firms Stay Private Longer?

by  Tyler Cowen in

Does reducing the number of firms in public equity markets harm investors? How much has the value firms can get from going public changed in the past few decades? I develop a dynamic supply and demand model of the firm entry to and exit from public markets to relate firm benefits from being public to firm characteristics. Firms face a dynamic discrete choice problem on whether to be in public markets, with the benefits of being public a function of their characteristics, demand elasticities for their characteristics, and various regulatory and cost of capital changes. My structural analysis allows me to not only break down the causes of the transformation in US public equity markets, but also to say what the consequences of them have been for firms and investors. I find that investors would have had slightly higher excess returns but no change in their portfolio Sharpe ratio if firms behaved as they did before Sarbanes-Oxley. I further find that a private firm’s implied option value of going public has fallen by over half since the pre-Sarbanes era. The reduction is mostly caused by an increase to fixed costs of being a public company in the post-Sarbanes era.

That is from the job market paper of Leo Stanek, from the University of Minnesota.

New results on tariff history do not favor protectionism

by  Tyler Cowen in

I cover these in my latest Bloomberg column, here is one excerpt:

A new paper from the National Bureau of Economic Research shows that tariffs probably did more harm than good. Using meticulously collected industry-level and state-level data, the paper traces the impact of specific tariff rates more clearly than before. The results are not pretty.

One core finding is that industries with higher tariffs did not have higher productivity — in fact, they had lower productivity. Tariffs did raise the number of US firms in a given sector, but they did so in part by protecting smaller, less productive firms. That was not the path by which the US became an industrial giant, nor is it wise to use trade policy to keep lower-productivity firms in business. Not only does it slow economic growth, it also keeps workers in jobs without much of a future.

These results contradict the traditional protectionist story — that tariffs allow the best firms to grow larger and capture the large domestic market. In reality, the tariffs kept firms smaller and probably lowered US manufacturing productivity.

The paper also finds that the tariffs of that era raised the prices for products released domestically. That lowers living standards, and should give a second Trump administration reason to pause, as he just won an election in which inflation was a major concern. The finding about inflation also counters another major protectionist argument: that tariffs eventually lower domestic prices because they allow US firms to expand and enjoy economies of scale. That is the opposite of what happened.

The paper also details how lobbying, logrolling and political horse-trading were essential features of the shift toward higher US tariffs. A lot of the tariffs of the time depended on which party controlled Congress, rather than economic rationality. Trump is fond of citing President William McKinley’s tariffs, but they are evidence of the primacy of political influence and rent-seeking, not of a well-thought out strategic trade policy.

The authors of the new research are Alexander Klein and Christopher M. Meissner.

Tariff sentences to ponder

by  Tyler Cowen in

In a September 2024 report, UBS, an investment banker, predicted both tech hardware and semiconductors to be among the top four sectors that would be hardest hit by a general tariff. Their analysis is spot on. Many of the hardware components that make AI and digital tech possible rely on imported materials not found or manufactured in the United States. Neither  arsenic nor gallium arsenide, used to manufacture a range of chip components, have  been produced in the United States since 1985. Legally, arsenic derived compounds are a hazardous material, and their manufacture is thus restricted under the Clean Air Act. Cobalt, meanwhile, is produced by only one mine in the U.S. (80 percent of all cobalt is produced in China). While general tariffs carry the well-meaning intent of catalyzing and supporting domestic manufacturing, in many critical instances involving minerals, that isn’t possible, due to existing regulations and limited supply. Many key materials for AI manufacture must be imported, and tariffs on those imports will simply act as a sustained squeeze on the tech sector’s profit margins.

That is from Matthew Mittelsteadt at Mercatus.

Info Finance

by  Alex Tabarrok in

Excellent post by Vitalik on prediction markets and the broader category of what he calls info finance:

Now, we get to the important part: predicting the election is just the first app. The broader concept is that you can use finance as a way to align incentives in order to provide viewers with valuable information.

…Similar to the concept of correct-by-construction in software engineering, info finance is a discipline where you (i) start from a fact that you want to know, and then (ii) deliberately design a market to optimally elicit that information from market participants.

Info finance as a three-sided market: bettors make predictions, readers read predictions. The market outputs predictions about the future as a public good (because that’s what it was designed to do).

One example of this is prediction markets: you want to know a specific fact that will take place in the future, and so you set up a market for people to bet on that fact. Another example is decision markets: you want to know whether decision A or decision B will produce a better outcome according to some metric M. To achieve this, you set up conditional markets: you ask people to bet on (i) which decision will be chosen, (ii) value of M if decision A is chosen, otherwise zero, (iii) value of M if decision B is chosen, otherwise zero. Given these three variables, you can figure out if the market thinks decision A or decision B is more bullish for the value of M.

Importantly, Vitalik notes that AI agents can make decision and prediction markets more liquid at much lower cost.

One technology that I expect will turbocharge info finance in the next decade is AI (whether LLMs or some future technology). This is because many of the most interesting applications of info finance are on “micro” questions: millions of mini-markets for decisions that individually have relatively low consequence. In practice, markets with low volume often do not work effectively: it does not make sense for a sophisticated participant to spend the time to make a detailed analysis just for the sake of a few hundred dollars of profit, and many have even argued that without subsidies such markets won’t work at all because on all but the most large and sensational questions, there are not enough naive traders for sophisticated traders to take profit from. AI changes that equation completely, and means that we could potentially get reasonably high-quality info elicited even on markets with $10 of volume. Even if subsidies are required, the size of the subsidy per question becomes extremely affordable.

Difficult to pronounce names

by  Tyler Cowen in

We test for labor market discrimination based on an understudied characteristic: name fluency. Analysis of recent economics PhD job candidates indicates that name difficulty is negatively related to the probability of landing an academic or tenure-track position and research productivity of initial institutional placement. Discrimination due to name fluency is also found using experimental data from prior audit studies. Within samples of African Americans (Bertrand and Mullainathan 2004) and ethnic immigrants (Oreopoulos 2011), job applicants with less fluent names experience lower callback rates, and name complexity explains roughly between 10 and 50 percent of ethnic name penalties. The results are primarily driven by candidates with weaker résumés, suggesting that cognitive biases may contribute to the penalty of having a difficult-to-pronounce name.

That is from a new AEJ piece by Qi Ge and Stephen Wu.

What do unions do?

by  Tyler Cowen

This paper shows that immigration fostered the emergence of organized labor in the United States. I digitize archival data to construct the first county-level dataset on historical U.S. union membership and use a shift-share instrument to isolate a plausibly exogenous shock to the labor supply induced by immigration, between 1900 and 1920. Counties with higher immigration experienced an increase in the probability of having labor unions, the number of union branches, the share of unionized workers, and the number of union members per branch. This increase occurred more prominently among skilled workers, particularly in counties more exposed to labor competition from immigrants, and in areas with less favorable attitudes towards immigration. Taken together, these results are consistent with existing workers forming and joining labor unions for economic as well as social motivations. The findings highlight a novel driver of unionization in the early 20th-century United States: in the absence of immigration, the average share of unionized workers during this period would have been 22% lower. The results also identify an unexplored consequence of immigration: the development of institutions aimed at protecting workers’ status in the labor market, with effects that continue into the present.

That is from a new paper by Carlo Medici of Brown University.  Via the excellent Kevin Lewis.

China’s Libertarian Medical City

by  Alex Tabarrok in

You’ve likely heard of Prospera, the private city in Honduras established under the ZEDE (Zone for Employment and Economic Development) law, which has drawn global investment for medical innovation. The current Honduran government is trying to break its contracts and evict Prospera from Honduras. The libertarian concept of an autonomous medical hub, free to attract top talent, pharmaceuticals, medical devices, ideas, and technology from around the world is, however, gaining traction elsewhere—most notably and perhaps surprisngly in the Boao Hope Lecheng Medical Tourism Pilot Zone in Hainan, China.

Boao Hope City is a special medical zone supported by the local and national governments. Treatments in Boao Hope City do not have to be approved by the Chinese medical authorities as Boao Hope City is following the peer approval model I have long argued for:

Daxue: Medical institutions within the zone can import and use pharmaceuticals and medical devices already available in other countries as clinically urgent items before obtaining approval in China. This allows domestic patients to access innovative treatments without the need to travel abroad…. The medical products to be used in the pilot zone must possess a CE mark, an FDA license, or PMDA approval, which respectively indicate that they have been approved in the European Union, the US, and Japan for their safe and effective use.

Moreover, evidence on the new drugs and devices used within the zone can be used to support approval from the Chinese FDA–this seems to work similar to Bartley Madden’s dual track procedure.

Daxue: Since 2020, the National Medical Products Administration has introduced regulations on real-world evidence (RWE), with the pilot zone being the exclusive RWE pilot in China. This means that clinical data from licensed items used within the zone can be transformed into RWE for registration and approval in China. Consequently, medical institutions in the zone possess added leverage in negotiations with international pharmaceutical and medical device manufacturers seeking to enter the Chinese market.

… This process significantly reduces the time required for approval to just a few months, saving businesses three to five years compared to traditional registration methods. As of March 2024, 30 medical devices and drugs have been through this process, among which 13 have obtained approval for being sold in China.

The zone also uses peer-approval for imports of health food, has eliminated tariffs on imported drugs and devices and waived visa requirements for many medical tourists. 

To be sure, it’s difficult to find information about Boao Hope medical zone beyond some news reports and press releases so take everything with a grain of salt. Nevertheless, the free city model is catching on. There are already 29 hospitals in the zone including international hospitals and hundreds of thousands of medical tourists a year. The medical zone is part of a larger free port project.

Prospera is ideally placed for a medical zone for North and South America. The Honduran government should look to China’s Boao Hope Medical Zone to see what Prospera could achieve for Honduras with support instead of oppositon.

Hat tip: MvH.

Human Capital Accumulation in China and India in 20th Century

by  Tyler Cowen in

By Nitin Kumar Bharti and Li Yang:

Abstract. The education system of a country is instrumental in its long-run development. This paper compares the historical evolution of the education systems in the two largest emerging economies- China and India, between 1900 and 2018. We create a novel time-series data of educational statistics related to enrolment, graduates, teachers and expenditure based on historical statistical reports. China adopted a bottom-up approach in expanding its education system, compared to India’s top-down approach in terms of enrolment. While India had a head-start in modern education, it has gradually been overtaken by China- at Primary education in the 1930’s Middle/Secondary level in the 1970s and Higher/Tertiary level in the 2010s. It resulted in the lower cohort-wise average education and higher education inequality in India since 1907. Vocational education is a central component of the Chinese education system, absorbing half of the students in higher education. In India, the majority of the students pursue traditional degree courses (Bachelors, Masters etc.), with 60% in Humanities courses. Though India is known as the “land of engineers”, China produces a higher share of engineers. We conjecture that the type of human capital in China through engineering and vocational education helped develop its manufacturing sector. Utilizing micro-survey data since the 1980s, we show that education expansion has been an inequality enhancer in India. This is due to both the unequal distribution of educational attainment and higher individual returns to education in India.

Interesting throughout, via Pseudoerasmus.