Equalization - theory and practice

Today's National Post highlights a nice piece of work by Winnipeg's Frontier Center for Public Policy showing equalization is well to the right of the relevant Laffer curve. In theory, Canada's equalization system taxes rich provinces so that poorer provinces can enjoy social services comparable to those in richer provinces. Those who appreciate Tiebout competition recoil in horror, of course: workers should move to the province offering the best bundle of taxes and services, so the system attenuates incentives for government efficiency. I've seen the argument made that equalization reduces inefficient migration, as though it's somehow better that folks stay unemployed in Newfoundland rather than move to Alberta; I don't buy it.

Frontier's work shows that donor provinces - Ontario, Alberta, and British Columbia - have lower average levels of access to public services than the provinces that they help to support. If the point of equalization is to provide equal access to these services, then it's engaging in far too much redistribution.

This is perhaps an inevitable long term consequence of basing equalization payments on provincial GDP rather than on an actual baseline measure of service provision. If we have heterogeneous preferences across provinces on the ideal size of government and if at the relevant Canadian margins more government disproportionately means lower growth (I'm looking at you, here, Quebec), then the provinces that choose smaller government / high growth are effectively forced to subsidize the preferences of other provinces' voters. That seems ridiculous. It's almost as bad as taxing the hard-working especially heavily to compensate folks who want to enjoy more leisure...oh, wait....

More Naps

Google Reader helpfully arranges my feeds by "magic": I have a long enough history of having shared and tagged items as "liked" that it knows what stories I'll like best from the dozens of feeds to which I subscribe. Today, it's trying to give me a nudge.

First item on the morning reading list: How long should you nap for?. The optimal afternoon nap is about 10 minutes.

Second item on the list: How siestas help memory.

Hmm...perhaps I ought to pay mother Google more heed.... I don't recall ever having shared or liked items on naps, but perhaps it knows that folks with my reading patterns often also like stuff about naps, which perhaps means I should take more of them. The logistics could prove difficult though.

One-sided skepticism

I'd earlier noted that worst of all is one-sided skepticism of research based on funding source: total skepticism of things industry funded and zero skepticism of government/NGO funded work being the usual case.

PLoS Medicine goes for worst of all.

This month also marks the implementation of a new policy on tobacco papers at PLoS Medicine.

While we continue to be interested in analyses of ways of reducing tobacco use, we will no longer be considering papers where support, in whole or in part, for the study or the researchers comes from a tobacco company. As a medical journal we do this for two reasons. First, tobacco is indisputably bad for health. Half of all smokers will die of tobacco use [4]. Unlike the food and pharmaceutical industries, the business of tobacco involves selling a product for which there is no possible health benefit. Tobacco interests in research cannot have a health aim—if they did, tobacco companies would be better off shutting down business—and therefore health research sponsored by tobacco companies is essentially advertising. Publication is part of tobacco company marketing, and we believe it would be irresponsible to act as part of the machinery that enhances the reputation of an industry producing health-harming products.

Second, we remain concerned about the industry's long-standing attempts to distort the science of and deflect attention away from the harmful effects of smoking. That the tobacco industry has behaved disreputably—denying the harms of its products, campaigning against smoking bans, marketing to young people, and hiring public relations firms, consultants, and front groups to enhance the public credibility of their work—is well documented. There is no reason to believe that these direct assaults on human health will not continue, and we do not wish to provide a forum for companies' attempts to manipulate the science on tobacco's harms.

Imagine the second paragraph re-written:

"Second, we remain concerned about the anti-smoking lobby's long-standing attempts to distort the science and exaggerate the harmful effects of smoking. That the anti-smoking lobby has behaved disreputably - exaggerating the harms of tobacco products, campaigning in favour of smoking bans, exploiting young people in anti-tobacco advertising campaigns, and hiring public relations firms, consultants, and front groups to enhance the public credibility of their work - is well documented. There is no reason to believe that these direct assaults on personal freedom will not continue, and we do not wish to provide a forum for these individuals' attempts to manipulate the science on tobacco's harms."

As good a case can be made against Glantz and ASH as can be made against tobacco industry funding. How many anti-tobacco public health researchers would be able to continue getting grants from Ministries of Health if their research found that smoking isn't as bad as the Ministry might have thought?

Google and antitrust

Wonderful stuff in Wired's feature on Google's constant improvement in search algorithms

And Google keeps improving. Recently, search engineer Maureen Heymans discovered a problem with “Cindy Louise Greenslade.” The algorithm figured out that it should look for a person — in this case a psychologist in Garden Grove, California — but it failed to place Greenslade’s homepage in the top 10 results. Heymans found that, in essence, Google had downgraded the relevance of her homepage because Greenslade used only her middle initial, not her full middle name as in the query. “We needed to be smarter than that,” Heymans says. So she added a signal that looks for middle initials. Now Greenslade’s homepage is the fifth result.

At any moment, dozens of these changes are going through a well-oiled testing process. Google employs hundreds of people around the world to sit at their home computer and judge results for various queries, marking whether the tweaks return better or worse results than before. But Google also has a larger army of testers — its billions of users, virtually all of whom are unwittingly participating in its constant quality experiments. Every time engineers want to test a tweak, they run the new algorithm on a tiny percentage of random users, letting the rest of the site’s searchers serve as a massive control group. There are so many changes to measure that Google has discarded the traditional scientific nostrum that only one experiment should be conducted at a time. “On most Google queries, you’re actually in multiple control or experimental groups simultaneously,” says search quality engineer Patrick Riley. Then he corrects himself. “Essentially,” he says, “all the queries are involved in some test.” In other words, just about every time you search on Google, you’re a lab rat.

The EC's view on antitrust is decades behind that in the States (check Aiginger's paper on the differences between European and American IO economists for one reason); I can't help but hope we won't see a repeat of Learned Hand in Alcoa, Euro style:

There were at least one or two abortive attempts to
enter the industry, but "Alcoa" effectively anticipated and forestalled all competition, and succeeded in holding the field alone. True, it stimulated demand and opened new uses for the metal, but not without making sure that it could supply what it had evoked. There is no dispute as to this; "Alcoa" avows it as evidence of the skill, energy and initiative with which it has always conducted its business; as a reason why, having won its way by fair means, it should be commended, and not dismembered. We need charge it with no moral derelictions after 1912; we may assume that all it claims for itself is true. The only question is whether it falls within the exception established in favor of those who do not seek, but cannot avoid,3 the control of a market. It seems to us that that question scarcely survives its statement. It was not inevitable that it should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel. Only in case we interpret "exclusion" as limited to maneuvers not honestly industrial, but actuated solely by a desire to prevent competition, can such a course, indefatigably pursued, be deemed not "exclusionary." So to limit it would in our judgment emasculate the Act; would permit just such consolidations as it was designed to prevent.

Alcoa's efficiency was reason for sanction against it, much as the efficiencies that would have been realized in GE/Honeywell were reason for EC opposition to the merger. That case is nearly ten years old now, and I've not kept up with latest developments there. Am I too pessimistic?

Fluoride

Wait a minute, some fluoride compounds are crazily explosive? Surely the TSA needs to ban toothpaste from flights. Because if somebody takes a tube into the bathroom, extracts the fluoride, heats oxygen to 700 degrees, pours in flouride, things go FOOF. It's as plausible as most of their other liquid chemical explosive scenarios.

FOOF is only stable at low temperatures; you'll never get close to RT with the stuff without it tearing itself to pieces. I've seen one reference to storing it as a solid at 90 Kelvin for later use, but that paper, a 1962 effort from A. G. Streng of Temple University, is deeply alarming in several ways. Not only did Streng prepare multiple batches of dioxygen difluoride and keep it around, he was apparently charged with finding out what it did to things. All sorts of things. One damn thing after another, actually:

"Being a high energy oxidizer, dioxygen difluoride reacted vigorously with organic compounds, even at temperatures close to its melting point. It reacted instantaneously with solid ethyl alcohol, producing a blue flame and an explosion. When a drop of liquid 02F2 was added to liquid methane, cooled at 90°K., a white flame was produced instantaneously, which turned green upon further burning. When 0.2 (mL) of liquid 02F2 was added to 0.5 (mL) of liquid CH4 at 90°K., a violent explosion occurred."

And he's just getting warmed up, if that's the right phrase to use for something that detonates things at -180C (that's -300 Fahrenheit, if you only have a kitchen thermometer). The great majority of Streng's reactions have surely never been run again. The paper goes on to react FOOF with everything else you wouldn't react it with: ammonia ("vigorous", this at 100K), water ice (explosion, natch), chlorine ("violent explosion", so he added it more slowly the second time), red phosphorus (not good), bromine fluoride, chlorine trifluoride (say what?), perchloryl fluoride (!), tetrafluorohydrazine (how on Earth. . .), and on, and on. If the paper weren't laid out in complete grammatical sentences and published in JACS, you'd swear it was the work of a violent lunatic. I ran out of vulgar expletives after the second page. A. G. Streng, folks, absolutely takes the corrosive exploding cake, and I have to tip my asbestos-lined titanium hat to him.

Chemists get to have all the fun....

HT: Blunt Object

Worst news of the day

From WSJ, HT Hickey:

Google Inc. is set to announce later Tuesday that European antitrust authorities have opened a preliminary probe into complaints made against it by three European Internet companies, according to people familiar with the matter.

The inquiry into allegations of anticompetitive behavior is at an early, fact-finding stage and may not result in any action. But it appeared to be the first time that European antitrust authorities have examined Google's conduct outside of a merger review.

It also comes at a time of heightened scrutiny of Google in Europe, where the company has an even more dominant position in search advertising than it does in the U.S.

The inquiry will look into allegations made by Ciao.de, a German subsidiary of Microsoft Corp. It will also consider complaints by Foundem.co.uk, a U.K. price comparison site, and EJustice.fr, a French site specializing in legal search inquiries.

Google had previously disclosed German's Federal Cartel Office had been looking into the complaint by Ciao, the details of which have not been made public. That complaint now appears to have been escalated to the European Commission's antitrust authority, the Directorate General for Competition.

Recall that European Antitrust law exists to protect European competitors, not to protect competition. And of course that antitrust in an internet world is of dubious benefit (source).

Of course, live by the sword....

Youth minimum wages - update

Sir Roger Douglas's bill that would again allow the youth minimum wage to diverge from the adult minimum wage has been drawn from the ballot. So Parliament will get to discuss whether it's a good idea to keep pricing inexperienced workers out of the market. I wonder whether National will support the legislation. I do hope so; it looks likely that the abolition of the differential youth minimum wage explains a big chunk of the increase in the youth unemployment rate relative to the adult unemployment rate. Sir Roger's bill would only allow that future minimum wage reviews be permitted to set differential rates - it wouldn't immediately cut the youth minimum wage. So it can't be expected to have any substantial effect on youth unemployment rates for years. But it would be a step in the right direction.

The text of the legislation is here.

It only works if you don't tell them!

Even as a farm-boy from Southern Manitoba, I'd heard that Van Halen required a bowl of M&Ms backstage with all of the brown ones removed. It seemed pretty ridiculous. But, before it was a story of rock star prima donna behaviour, it was for Van Halen an excellent signal of overall venue capacity. Writes Fast Company:

Van Halen did dozens of shows every year, and at each venue, the band would show up with nine 18-wheelers full of gear. Because of the technical complexity, the band's standard contract with venues was thick and convoluted -- Roth, in his inimitable way, said in his autobiography that it read "like a version of the Chinese Yellow Pages." A typical "article" in the contract might say, "There will be 15 amperage voltage sockets at 20-foot spaces, evenly, providing 19 amperes."

Van Halen buried a special clause in the middle of the contract. It was called Article 126. It read, "There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation." So when Roth would arrive at a new venue, he'd walk backstage and glance at the M&M bowl. If he saw a brown M&M, he'd demand a line check of the entire production. "Guaranteed you're going to arrive at a technical error," he wrote. "They didn't read the contract.... Sometimes it would threaten to just destroy the whole show."

In other words, Roth was no diva. He was an operations expert. He couldn't spend hours every night checking the amperage of each socket. He needed a way to assess quickly whether the stagehands at each venue were paying attention -- whether they had read every word of the contract and taken it seriously. In Roth's world, a brown M&M was the canary in the coal mine.

Of course, once Roth was famous for this clause, it couldn't possibly have continued to work, could it? After that, it only signals whether the venue is willing to put up with seemingly silly performer demands rather than whether they've paid attention line-by-line to the contract. It can't have been long before the clause was common knowledge among venues. Article 127 should have been "Don't talk about Article 126".

HT: Elemental Links

Economics as Psychohistory

From the New Yorker's truly excellent piece on Paul Krugman:

Krugman explained that he’d become an economist because of science fiction. When he was a boy, he’d read Isaac Asimov’s “Foundation” trilogy and become obsessed with the central character, Hari Seldon. Seldon was a “psychohistorian”—a scientist with such a precise understanding of the mechanics of society that he could predict the course of events thousands of years into the future and save mankind from centuries of barbarism. He couldn’t predict individual behavior—that was too hard—but it didn’t matter, because history was determined not by individuals but by laws and hidden forces. “If you read other genres of fiction, you can learn about the way people are and the way society is,” Krugman said to the audience, “but you don’t get very much thinking about why are things the way they are, or what might make them different. What would happen if ?”

With Hari Seldon in mind, Krugman went to Yale, in 1970, intending to study history, but he felt that history was too much about what and not enough about why, so he ended up in economics.

I wonder what would happen if you split economists by whether they prefer the Foundation Series or the Lazarus Long books.... The would-be planners versus those wary of the fatal conceit?

One day a week restaurant

There are lots of restaurants out there that close for one or two days a week - family outfits that need to have a break. There are lots of folks out there who'd like to run a restaurant, but can't handle the fixed costs of starting up. Two Wellingtonians have found the perfect solution: the one-day-a-week restaurant.

A Thai restaurant owned by a Burmese woman is going Ethiopian.

Well, at least one night a week.

Dawit Demissie, a refugee from Ethiopia, takes over the Brooklyn restaurant every Monday night, serving his traditional cuisine.

The 31-year-old arrived in New Zealand in 2002 and hopes to open his own restaurant. Mr Demissie, who works as a taxi driver and studies English, has teamed with mentor Annie Coates who runs the Golden Lotus.

"She's very special," he said. "I don't have words to describe her . . . She's like my mum."

So on Mondays, the Thai restaurant features Ethiopian cuisine and decor.

Mr Demissie designed the menu, buys the ingredients and prepares the food and has family and friends helping out waiting tables.

"I'm very happy to show my traditional food. I'm not looking for the money. It's about introducing people to my food."

...
After two weeks, it had been a hit. "People are asking me, 'Why just one night? We want more than one night.' So we will see how it goes."

Mr Demissie met Mrs Coates through ChangeMakers Refugee Forum, where she is also a cross-cultural worker.

Mrs Coates, who moved to Wellington from Burma in the early 1980s with her Kiwi husband, said she was giving Mr Demissie a chance so one day he could open his own restaurant. "I'm just paving the path for him . . . I like to help refugees establish and achieve something."

The restaurant was normally closed on Mondays so, when he told of wanting to open his own ethnic restaurant Mrs Coates thought it was a perfect opportunity for him to learn the trade.

What a perfect solution and such a great story. Steve Whittington helpfully pointed me to the place; I went there last night. Excellent. It had what I think was the best hummus I've ever eaten. They were more than happy to serve the kitfo properly raw; very nice. And of course Ethiopean food made with Kiwi lamb was bliss-inducing. Very obviously a family-run affair. I was very glad to see the place doing a brisk trade.

I will henceforth try to plan any business trip to Wellington to fall on a Monday.

I wonder why we don't see more of this kind of solution. The host restauranteur would really need to be able to trust the folks running the one-day-a-week option, and they'd have to be comfortable that some of their irregular customers might get confused. Neither of those should be insurmountable though. Does anyone know of other places where this happens?

Over dinner, I told Matt Burgess that New Zealand needs to ease its immigration restrictions, and that if it only wants to ease them somewhat rather than across the board, it should put priority on immigration from countries whose cuisines are currently underrepresented in New Zealand. Top of the list would be Ethiopia, but also high on the list would be Afghanistan, all of South America, and other parts of North Africa. And sufficient numbers of folks from each community should be welcomed in so as to provide a cultural base for the restaurant to be able to continue without blanding things down to suit the modal Kiwi palate. Matt thought this absurd. I'll admit it's not as good as a general liberalization, but it certainly beats the status quo.

Update: One commenter at Marginal Revolution suggests a potential answer: regulations that can make it very difficult for different operators to share a kitchen.

Really big numbers

There seems to be a pretty thick market in the provision of really implausibly big numbers here in New Zealand.

Last year, Matt Burgess and I took a sledgehammer to a shonky report on the costs of harmful alcohol use.

Now, Matt Nolan points to one that looks about as bad: PriceWaterhouse Cooper's measure of the benefits of Adult Community Education, commissioned by the Adult Community Education industry association. Writes Nolan:

So some part of $171m-$254m can be seen as a positive externality, a pretty indirect one but lets be generous.

Taking the “possibly policy relevant” factors, and accepting the seemingly artificially inflated numbers (they state that it HALVES the chance of these 400,000 odd people being involved in a crime over their lifetime – see page 57), then the average return per dollar invested is about $2. Furthermore, that is an average not a “marginal” amount (contrary to the claims of the report mind you – see page 5). The marginal return (the amount of social return we will get if we increase spending by a small amount) is likely to be well below $1 per dollar.

Given what I feel has been a generous interpretation of the marginal social benefit, the suggestion would be that we should cut back on public funding for adult community education.

There would be zero demand for these kinds of shonky reports if journalists used a tiny bit of critical thinking before parroting back the numbers, but journalists would only do this if the public much cared about accurate numbers. A quick flip through "Appendix A", in which they justify their shonky analysis, makes pretty clear what's going on. A sample:

This [roughly $250 million] is the PV of the savings in the average cost of crime as a result of an individual being involved in full time employment, participating in higher education, improving their self confidence, and being more involved in their community. Research shows that all these factors have an effect on reducing a person’s likelihood of participating in a crime by up to 50%. Depending on the level of improvement in the above indicated factors, this is calculated as the PV of the reduction in the average costs of a crime multiplied by individual’s likelihood of being involved in a crime (where everyone above 15 in NZ is given an equal likelihood of being involved in a crime).

So folks taking adult ed courses are assumed to have a 50% reduction in their chances of committing a crime. PWC cites a 1999 working paper as evidence; a 2004 AER piece by the same author has the crime reduction associated with high school graduation as being less than half that figure (14-26%). This latter study uses a far more cautious identification strategy: changes in minimum age of dropping out of school as instrument for completion rates. And note that the numbers cited are for HIGH SCHOOL GRADUATION, not for taking a night course in Indian cooking.

For some reason, I'm reminded of Susan Feigenbaum and David Levy's work distinguishing the difference between scientific fraud and biased research.

Fortunately, Finance Minister Bill English is no idiot:

Hon Maryan Street: How does the Minister compare the return on the investment of $35 million into private schools with the PricewaterhouseCoopers’ calculation of the return on the investment in adult and community education funding in 2008 of between $54 and $72 for each dollar of funding?

Hon BILL ENGLISH: Well, if we believed PricewaterhouseCoopers’ evaluation, we would spend $10 billion on adult and community education and would have an economy that is twice the size it currently is. That is clearly the kind of nonsense that the previous Government relied on.

Exactly.

Would "useful idiots" be too strong a term for folks who take these reports' findings uncritically?

Education Directions has further critique of the study.

Our strange new world

Adam Bertocci pens a Shakespearean rendition of The Big Lebowski and posts it to the internet on a Wednesday. By the Saturday, a New York theatre company has arranged for a March opening; by Thursday, a book deal.

Last year, some guy started posting a Twitter feed of crazy stuff his dad says. Now it's going to be a TV series starring William Shatner.

Why aren't you famous too?

I'm still waiting for a Bigfoot animated TV series based on Bigfoot's twitter feed. Come on, internet, make it happen.

Law Commission on Drugs

Will DeCleene is blogging his way through the Law Commission's report on drug policy. He's finished the Intro, Chapter 1 and Chapter 2; future chapters will likely be found at this tag. An early highlight:

But if John Key can perform backward somersaults over GST rises, he can damned well change his mind on drug reform too. Facts change, eh. And the Law Commission paper is full of facts.

F'instance, did you know that the first drug law in NZ one hundred years ago was very thinly-disguised racism? Or that although current laws allow cultivation and research licences of these restricted drugs, there are only 21 research licences in NZ at present, and no cultivation licence has ever been issued? Or that the law allows a Minister of Health to withdraw a person's prescribed medication without their doctor's agreement or even directly contradicting the doctor's advice?

On my quick skim of this and my rather more thorough read of the earlier alcohol report, it feels like LC really wants much tighter restrictions on alcohol and loosening up on marijuana such that, ex post, marijuana is no more tightly regulated than alcohol. But they pull their punches sufficiently on the drugs report that it's more likely that the gap between alcohol and marijuana is closed by increased restrictions on the former than by any easing of restrictions on the latter.

Poisonous prohibition

Radley Balko points to a jaw-dropping Slate story on one of the open secrets of prohibition: the government deliberately made industrial alcohol far more poisonous than it previously had been, killing some 30,000 at least 10,000 drinkers.

To sell the stolen industrial alcohol, the liquor syndicates employed chemists to "renature" the products, returning them to a drinkable state. The bootleggers paid their chemists a lot more than the government did, and they excelled at their job. Stolen and redistilled alcohol became the primary source of liquor in the country. So federal officials ordered manufacturers to make their products far more deadly.

By mid-1927, the new denaturing formulas included some notable poisons—kerosene and brucine (a
plant alkaloid closely related to strychnine), gasoline, benzene, cadmium, iodine, zinc, mercury salts, nicotine, ether, formaldehyde, chloroform, camphor, carbolic acid, quinine, and acetone. The Treasury Department also demanded more methyl alcohol be added—up to 10 percent of total product. It was the last that proved most deadly.

The results were immediate, starting with that horrific holiday body count in the closing days of 1926. Public health officials responded with shock. "The government knows it is not stopping drinking by putting poison in alcohol," New York City medical examiner Charles Norris said at a hastily organized press conference. "[Y]et it continues its poisoning processes, heedless of the fact that people determined to drink are daily absorbing that poison. Knowing this to be true, the United States government must be charged with the moral responsibility for the deaths that poisoned liquor causes, although it cannot be held legally responsible."

His department issued warnings to citizens, detailing the dangers in whiskey circulating in the city: "[P]ractically all the liquor that is sold in New York today is toxic," read one 1928 alert. He publicized every death by alcohol poisoning. He assigned his toxicologist, Alexander Gettler, to analyze confiscated whiskey for poisons—that long list of toxic materials I cited came in part from studies done by the New York City medical examiner's office.

Norris also condemned the federal program for its disproportionate effect on the country's poorest residents. Wealthy people, he pointed out, could afford the best whiskey available. Most of those sickened and dying were those "who cannot afford expensive protection and deal in low grade stuff."

And the numbers were not trivial. In 1926, in New York City, 1,200 were sickened by poisonous alcohol; 400 died. The following year, deaths climbed to 700. These numbers were repeated in cities around the country as public-health officials nationwide joined in the angry clamor. Furious anti-Prohibition legislators pushed for a halt in the use of lethal chemistry. "Only one possessing the instincts of a wild beast would desire to kill or make blind the man who takes a drink of liquor, even if he purchased it from one violating the Prohibition statutes," proclaimed Sen. James Reed of Missouri.

In a war, folks move pretty quickly into ends justifying means stories:

During Prohibition, however, an official sense of higher purpose kept the poisoning program in place. As the Chicago Tribune editorialized in 1927: "Normally, no American government would engage in such business. … It is only in the curious fanaticism of Prohibition that any means, however barbarous, are considered justified." Others, however, accused lawmakers opposed to the poisoning plan of being in cahoots with criminals and argued that bootleggers and their law-breaking alcoholic customers deserved no sympathy. "Must Uncle Sam guarantee safety first for souses?" asked Nebraska's Omaha Bee.

As best I'm aware, prohibition's deadly effects today come more indirectly; that doesn't make it right....

Campaign speech

Wilkinson's column in The Week is excellent:

So I was caught off-guard when MSNBC’s Keith Olbermann called the Citizens United decision "a Supreme Court–sanctioned murder of what little democracy is left in this democracy." When others followed with similar howls of wounded outrage, I became aware of a gap in my understanding of the progressive Left. I suddenly realized that free speech for big business is to the Left what due process for alleged terrorists is to the Right: an unbearable burden that threatens freedom itself.

For most progressives, democracy is more than a mere instrument for throwing the bums out. Democracy is instead the embodiment of the liberal ideal of equal freedom. This sacred ideal is threatened, progressives argue, by concentrations of wealth that enable inequalities in political voice. If victory in the public sphere is determined by the size of one’s megaphone, then wealthy interests with large megaphones will capture the system and rig it to their permanent advantage. Consequently, megaphones must be regulated to ensure an equitable democratic process.

...
But the granddaddy of all progressive errors – the one that breeds all others -- is the assumption that greater government power can rectify the problem of unequal citizen power. Government can only act as a “countervailing force” in this regard if it is not acting already to serve corporate and special interests. But it is. That is why new government powers merely augment, rather than offset, the already disproportionate power of entrenched interests.

The biggest, baddest corporations, unions, and special interests already use government to exert power on their behalf. With the heft of the state behind them, they can swing sweetheart deals (witness earmarks) and they can foil upstart competitors (through regulation) who might otherwise eat their lunch. A government unhindered by limits retains the discretion to pick winners. A government that can make or break great fortunes invites a bruising and wasteful competition for its favor. It cannot be surprising, then, that those with the most -- thus most to lose -- assiduously seek favor from the state. It should not be surprising that those with powerful Washington connections are handsomely compensated by big special interests. And it should not be surprising when the well-connected exploit their relationships with people in power in the same way they maximize any other valuable asset.

The guy can turn a phrase.

Also worth checking out: a new Kiwi blog on campaign finance. Its first posts basically cover the articles I use in my public choice class, so they're heading in the right direction!

As I suspected

A couple of years back, I had a minor stoush with the anti-tobacco lobby over in the NZ Med Journal where I criticized them for, among other things, ignoring the enjoyment smokers derive from smoking. Nick Smith in The Independent confirms the existence of these benefits:

Pleasure is obtained by smoking, I assure you. It goes perfectly with three of life's best pastimes: eating, drinking and sex. When the deed is done, even during it, there is nothing better than placing a crisp filter between one's lips and savouring the intoxication of a craving fulfilled.

I'll take Smith's word for it!

Esquire magazine's fiction editor, Rust Hills, complained that "most advice you get about smoking and drinking comes from the wrong people. Their solution is worse than your problem."

Heh.

Smith argues against an increase in the tobacco excise tax, sensibly noting Treasury's and others' findings that smokers pay a good deal more in tobacco taxes than they ever cost the public health system.

He also notes Maori Party support for much stricter tobacco regulation. This one puzzles me a bit. Maori smoking rates are higher than those for other groups and the tobacco tax is highly regressive (though somewhat less so if you note adjustments on the extensive margin). I wish that the NZES had data on whether the respondent smokes.

The NZMJ pieces are here, here and here; I also link to the anti-tobacco pieces here.

Tax rate trading

iPredict launched contracts half an hour ago on the top marginal tax rate. There's been lots of talk of drops in the top marginal rate funded by increased taxes on investment property and an increased GST. Odds on favourite now is a drop in the top marginal rate from 38% to the 33-35% range: it jumped on opening from about $0.50 to $0.88.

At these prices, I'm buying $0.35-$0.38. Wouldn't be a bad little hedge if I weren't heavily liquidity constrained.

As for the hoped for drop to 30 cents? Pretty unlikely.

Matt's launching another 25-odd contracts today....

Science gullibility

Robin Hanson notes science is accorded less critical treatment in journalism than is business or politics and wonders if it's because most folks view science as a form of prestige status than dominance status; the latter most folks find more worrying than the former.

We see politicians and businesses as threatening to dominate us and so we are eager to watch out for illicit power grabs. In contrast, we see science, arts, literature, etc. as only awarding prestige, not power, and we are less worried about illicit prestige grabs. We mainly care about prestigious stuff as ways to see who is more impressive, and a tricky “illicit” prestige grab is itself pretty impressive, so little harm done.

Also, we like some critical reporting on sports, music, and literature because we are expected to choose sides in these areas as part of our identity. We are supposed to have our favorite band, team, or author, and so we appreciate news rehearsing arguments we might offer for or against such things

But we are not supposed to have favorite position on science disputes. Science is more like our communal religion, something that distinguishes us advanced insiders from those ignorant outsiders, and we are eager to signal being part of us and not them. It is like how, aside from worrying about power-grabs by our military leaders, we are not each supposed to have a different favorite war strategy for our troops – that would be divisive and we prefer to show that we are united against them.

We'd then expect the press to become more critical where science is viewed as moving from prestige-status to dominance-status; that seems to be happening with reporting on climate change issues.

I wonder when the press will rightly start viewing public health as dominance rather than prestige. In the meantime, always check whether the reporter notes how the study addressed causality if a causal relationship is asserted. If the story doesn't ask the question, you shouldn't view the story as terribly credible.

Gollum in the DSM

NCBI ROFL usefully points to psychiatric discussion of Gollum's potential mental disorders. While the original article seems to present a solid diagnosis (schizoid personality disorder), at least to a non-psychiatrist, the range of potential disorders listed by discussants in the comments section suggests more art than science. Potential disorders there suggested include:

• Heavy metal poison from eating raw fish for decades in a cave in a goblin mine
• Vitamin B12 and iron deficiency from an all-fish diet
• Exclusion of said deficiencies because Gollum augmented his diet with occasional goblin; exclusion of said deficiencies because of lack of associated peripheral neuropathy
• Heavy metal / mercury / radiation poisoning from the One Ring
• Exclusion of heavy metal poisoning because of maintained high mobility and strength
• Addiction (to the Ring)
• Obsessive-compulsive disorder (ring related), comorbid with antisocial personality disorder
• Traditional Chinese Medicine diagnosis of Kidney Yin deficiency and liver-yang excess
• It's just symptoms of extreme old age
• Symbiotic parasite infection from the Ring
• Borderline personality disorder
• Chronic bacterial/fungal infection
• Psychopathy (murdered Deagol on sight of the Ring)

Obviously, accurate DSM assignation is difficult when simply presented with a list of fictional symptoms, but it does make me wonder about the arbitrariness of such assignations in real world cases.

Gollum himself weighs in in the comments:

Nasty psychiatrissstss! Hates them, my precious! They locks uss up in padded cell! They makes uss look at inkblotsss! Tricksy, sly inkblotsss! Nasty Elvish pills burnsss our throat!
...
Yesss We Hatesss themsss Evil oness yess my preciousss we hatess themsss

But They Helpsss us!

No they hurtsss usss, hurtsss usss sore!

Coase when transactions costs are high

The Government is looking at ways to help break the impasse between Transpower and South Island landowners seeking compensation for pylons on their land, but is disappointed threats are being made, Energy and Resources Minister Gerry Brownlee says.

The South Canterbury landowners say they are frustrated that four years of negotiations have failed to result in what they consider fair compensation for use of their land.

Major upgrade work on the Roxburgh-Islington line is almost complete, but critical maintenance work is still to be done on the foundations of about 20 pylons.

Transpower said landowners had been offered "easement" payments which were taken up by some. Negotiations with others has stalled and some farmers have closed their gates to the company for everything but emergency work until they get what they consider a satisfactory outcome.

I wish I knew more about the history of these disputes. I can imagine a scenario where the government used eminent domain to put up the pilons in the first place, but then handed off the assets to a state owned enterprise that had to negotiate ongoing access rights with the landowners who were still aggrieved about the initial expropriation. Is that what happened? None of the reporting I've seen on the disputes goes far enough back; I suppose it's part of the stock of assumed common knowledge to which foreigners like me aren't party.

Note that the stakes are relatively high - a big power outage in Auckland arguably was caused by Transpower being unable to come to agreement with a farmer about being able to get access to the lines for necessary tree trimming.

GST, home and abroad

It seems that GST increases are all the international rage these days, with remarkably similar debates.

In Canada:

[P]ersuading Canadian progressives of [the] merits [of the GST] is a never-ending variation on the theme of "but these go to eleven:"

Progressive Person: How do we raise the tax revenues we need for the social programs we want to implement without tanking the economy?
Economist: Consumption taxes. Theory says that consumption taxes such as the GST are the least-disruptive way of generating tax revenue, and available evidence appears to be consistent with the theory.
PP: But consumption taxes are regressive!
E: Yes, but we can correct for that using targeted transfers to low-income households so that they aren't worse off; that's what the GST rebate is for. And there will still be lots left over to fund those social programs.
PP: But consumption taxes are regressive!
E: I know. But they introduce fewer distortions than the alternatives, and we can recompense low-income households for their lost buying power.
PP: But consumption taxes are regressive!
E: I'm not disputing that point, but there's more to the analysis than that. Okay, let me explain the effects of the various forms of taxes...
<15 years later>
E: ...and so we see that a consumption tax accompanied by direct transfers to low-income households is the most effective way of generating the tax revenues you want.
PP: But consumption taxes are regressive!

Of course, I prefer cutting the marginal tax rates to just sending out rebate checks.

The Americans are considering a VAT (Mankiw, Cowen). Mankiw suggests implementing it conditional on big cuts to spending, top marginal rates, and the abolition of the estate tax; Cowen takes a more fatalistic line, arguing it's the least bad doom which the US might face even without spending cuts or tax cuts, and even if some of the money winds up adding to total program spending. Says Cowen:

I am by no means convinced this argument is correct but I would like to hear the strongest arguments against it. No one I talked to succeeded in defeating it, other than mentioning they don't like the idea of more revenue for the government. You will notice I structured the argument to be as neutral on the "left vs. right" question as possible.

You'll notice the use of a pivot here: the common "right-wing" views that a fiscal crisis would be awful, voters are irrational, and governments make bad decisions in panic times, are used to favor a VAT.

I'm not convinced that the US would now get a VAT that would substantially lessen the risk of fiscal crisis down the road. Absent rather large structural spending changes (increasing the retirement age and so on), the VAT is more likely to postpone than prevent the crisis. Worse, there's reasonable chance that total spending increases with increased tax revenue, in which case the postponed crisis is more severe. I'm skeptical.

Update: Arnold Kling also thinks VAT insufficient to solve anything absent big cuts to elderly entitlements.

The Onion pierces the monetary veil

The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy.

"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."

"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."

According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, "Oh my God, he's right. It's all a mirage. All of it—the money, our whole economy—it's all a lie!"

If fiction, it certainly is a convenient one:

For some Americans, the fog of disbelief surrounding the nation's epiphany has begun to lift, with many building new lives free from the illusion of money.

"It's back to basics for me," Bernard Polk of Waverly, OH said. "I'm going to till the soil for my own sustenance and get anything else I need by bartering. If I want milk, I'll pay for it in tomatoes. If need a new hoe, I'll pay for it in lettuce."

When asked, hypothetically, how he would pay for complicated life-saving surgery for a loved one, Polk seemed uncertain.

"That's a lot of vegetables, isn't it?" he said.

Shame about that double coincidence of wants problem, isn't it?

Full Onion reporting here. HT: Greg Yost.

Preference Falsification

Timur Kuran has done some nice work on preference falsification. Inside Higher Ed finds it plenty active on college campuses.

After talking about the expected topics, one student had said, “This is the first time I’ve felt comfortable saying what I really think about Israel.”

When I asked why that was, she said, “Because I always have to gauge, if I say what I think, whether that would impact a grade or a friendship.”

“Is this only about Israel that you find yourself repressing your views?” I asked. “No,” she said. Others agreed – this culture of double-checking one’s thoughts, they said, applied to many issues, and was experienced by non-Jewish students at Columbia, too, as well as by students they knew at other campuses.

How depressing that at an institution designed to shake up the thinking of smart young people, the message heard instead is the importance of self-censoring. Not because of harassment or intimidation, but because there was insufficient space created and cultivated for students to take intellectual risks. College should be the time when students receive encouragement to say things that others might find difficult or even offensive, as part of the learning process.

This is one reason I try to find topics for my Current Issues class where economists are likely to disagree with the comfortable consensus: it's a first step to breaking information cascades. But I also tell them that thoughtful essays, regardless of whether I agree with them, do better than ones that just parrot back what I've said in class - I don't want to generate a new cycle of falsification.

Blunt and effective

Reason to love New Zealand #37: accurate nature videos. Saw this at Te Papa. I can't imagine seeing a video like it at the Museum of Natural History in DC.
The kakapo is a critically endangered New Zealand parrot. The video bluntly and hilariously describes the problems in the kakapo's lovelife that hinder efforts to rebuild stocks. Imagine for a moment that Smithsonian Natural History put up a similar video on breeding problems for condors. Within the first day, would there be a few, dozens, or hundreds of outraged letters from parents?

I wonder whether the kakapo that inspired the specimen collection helmet (watch the video above) is the same one that was rather excited by Stephen Fry's visit, as seen below.

Gender and economic thinking

Lots of work finds that men do better in economics courses and in surveys of economic thinking than women. Stephen Hickson has been doing some work in our economics department on correlates of performance in our stage one courses and was curious about this gender gap. I sent him this 2000 piece by Ziegert which finds that personality type explains a good chunk of differential male-female performance in economics courses.

Myers-Briggs personality tests sort individuals along four basic dimensions (allowing for gradations within the dimensions): from Introverted to Extroverted (I/E), from iNtuiting to Sensing (N/S), from Thinking to Feeling (T/F), and from Judging to Perceiving (J/P).

As you might expect, economists lean heavily to the thinking side of the scale. And, if you sort personality type by gender, women are more likely to be F type than T type: there's about a 60/40 split in favour of T for men and 60/40 in favour of F for women. This will matter in the social sciences more than in the hard sciences because most of what economists have to say runs counter to F-type priors about the way the world works.

Ziegert finds that the male-female gap disappears once she's corrected for personality type. She concludes:

These results suggest that personality types do affect student performance in economics whether measured by course grade or by performance on the TUCE exam. Unlike previous research, I found support for the hypotheses that thinking (T) students outperform feeling (F) students on both course grades and TUCE exams. Given that men are more likely to be classified as thinkers (T) than are women, and women are more likely to be classified as feelers (F) than are men, this result has implications for the relative performance of men and women in principles of economics. After adjusting for personality preferences, the "gender gap" in economics, which historically has favored men, disappears: gender is not a statistically significant predictor of performance in economics whether measured by course grade or performance on the TUCE exam.

So we probably need to do more to appeal to our F-type students: explaining that it's because we care about the poor that we don't like minimum wages and that it's because we care about poor people overseas that we support sweatshops. It's harder to make the argument when it's counterintuitive (what do you mean that policies that say they help the poor don't help the poor!), but we've gotta do it.

Framing effects and military service

Lots of folks have been reporting the results of a survey asking folks whether they support the current "heterosexuals-only" rule for the US military. If you frame the question as asking whether homosexuals should be able to serve, 59% somewhat favour or strongly favour their being able to serve; if you frame it as "gay men & lesbians", 70% support. Most folks have been focusing on whether the word "gay" is somehow happier than the word "homosexual". I wonder if it's something else: the latter framing reminds folks that individuals of both genders can be homosexual while the former, for many, may imply only men. And if respondent preferences over military service vary across the two groups, then that could easily drive the results.

It's easy to imagine folks who'd think that allowing gay men to serve might cause difficulty in the trenches if many male soldiers are homophobic, but who'd also think that allowing lesbians to serve would have far fewer problems. If there are more than a few folks with that set of beliefs, many of whom might not immediately have thought about lesbians when asked the question, then the results aren't that surprising. We'd really need a question asking "Do you favour or oppose {male and female homosexuals, gay men & lesbians} serving in the military?" to know whether folks are turned off by the word homosexual or whether they'd just forgotten that lesbians would also be allowed to serve in the military.

Useful tool

I used to make extensive use of Furl - a utility that would searchably archive webpages for future use. Very nice, especially for pages from news sites that would otherwise suffer linkrot. Furl died a while back, with migration of stored archieves over to Diigo. But any new Diigo saves were only bookmarks, not archives. So I stopped using it - why bother, when I can save bookmarks as shared items in Google Reader and keep everything in one place? But now Diigo will archive pages. Excellent. I hope my account's still running there...

Right decision, wrong reason

Los Angeles County declines to force condom use in porn films

Health department officials say such a requirement, sought by an AIDS activist group, must come from the California Legislature. And no lawmaker has stepped up.

The rationale given is that enforcement would be too costly for the government. The better reason was given by Alexandre Padilla a while back, reported here. Mandating condom use would undercut the industry's more effective self-regulation mechanisms.

Won't somebody think of the children

Key defends his Justice Minister, saying

"No one is probably arguing necessarily that if someone uses a small amount of marijuana that that is necessarily of itself the end of the world," Mr Key said

"But, and I have to acknowledge because its factually correct that a lot of New Zealanders do, but what's the message we want to send youngsters? And the message is don't engage with drugs."

Isn't that nice. Key can feel good about the message we're sending to kids equating law and morality. I don't much like the message, but I'm more worried about the costs of sending it. Here's Nandor Tanczos, from July of last year:

I have a friend who wakes up every morning and wants to vomit. Most of the day he wants to vomit. Food often makes him actually vomit, and he sometimes vomits blood. The doctors have given him some pills for the nausea but they are hard to keep down. There is one very effective inhalant that his specialist has recommended, but he is not allowed to use it.

Another friend is tetraplegic. That's like paraplegic but with all four limbs incapacitated. He lives in constant pain. The doctors gave him morphine and other pain killers, but he won't use them because he becomes like a zombie when he does. He doesn't have much quality of life, as you can imagine, so anything that gives him some is very welcome. He found a herbal remedy that takes the edge off his pain, makes it manageable and gives him some get-up-and-go. Apparently a lot of people with spinal injuries use it, but when my friend grew some the police arrested him and a judge locked him in Mount Eden prison.

The medicine in both these cases is called cannabis. Whatever people think about the recreational use of cannabis, I find it difficult to believe that anyone thinks sick people should suffer needlessly.

I find it difficult to believe too. But you have to think about the message we're sending to the children. It's more important that a few cancer patients get to choose between agony and prison than that the kiddies get the wrong idea about marijuana.

For once, I'm a bit glad of Key's status quo bias. Because if he equates law and morality and worries about the message sent to children, it's only status quo bias keeping him from re-criminalizing prostitution.

Regulation-seeking behaviour

Anti-Dismal puzzles over why the New Zealand Taxi Federation might want regulations mandating shields between cabbies and passengers and video cameras. He can't see any reason why the regulation would be necessary: cabbies have a strong interest in their own safety and are best placed to judge whether such devices are necessary given their clients, the times they run, and so on.

Ah, grasshopper. You see but you do not see.

Recall first that we do not have taxi cab medallions in New Zealand. Entry is relatively easy. There are a few big dispatching companies, but there can be independent operators as well. The independents can jump in and out of the market depending on demand conditions: somebody who normally doesn't drive a cab but has a taxi licence (available on taking a course, passing the test, and passing police and medical checks) can throw a sign on his car and make a few extra bucks if there's a big rugby match on.

Recall second that organized professional groups have sometimes been known to lobby for regulations that impose costs on themselves so long as the relative costs imposed on their competitors are higher.

Grasshopper...will you yet snatch the pebble from my hand?

For more on the excellent history of taxi cab deregulation in New Zealand, see the CIS Policy Journal from Winter 1999.

Unemployment roundup

Roger Kerr's piece in today's Otago Daily Times is nice.

Now, thanks to former Green MP Sue Bradford, everyone 15 and over is subject to the same minimum wage.

University of Canterbury economist Eric Crampton recently posted on his blog site Offsetting Behaviour an analysis of the impact of these changes.

Using a very simple model predicting youth unemployment rates as a function of adult unemployment rates, he found a large rise in the youth unemployment rate relative to the adult rate when the youth minimum wage was raised to the adult level.

A conservative estimate based on this analysis suggests that the current youth unemployment rate of 26.5% would be seven percentage points lower if the youth minimum wage had not been abolished.

So Sue Bradford's gift to the nation is to deny a job to some 12,000 young people, a population roughly equivalent to the labour force of Horowhenua or Thames-Coromandel, and 80% of those employed in the Queenstown-Lakes district.

Following a trade union wage push in Australia, former prime minister Paul Keating said that unionists carried the albatross of 100,000 unemployed Australians around their necks.

Why isn't Sue Bradford being equally pilloried for the totally predictable consequences of her actions? All this is in line with elementary economics.

As Prof Judith Sloan, a labour economist and member of the 2025 Taskforce, once wrote, the causes of unemployment are well understood, with labour market inflexibilities and perverse welfare incentives being the main culprits. (A growing economy helps, but is a less important factor.) Sloan noted that labour and welfare policies can be changed: unemployment is essentially a political choice.

New Zealand's labour market was made freer in the early 1990s, with stunning benefits in the form of fast employment growth, rapidly falling unemployment and higher productivity.

Since then, it has atrophied.

The Global Competitiveness Report now ranks New Zealand in 103rd place for hiring and firing practices.

The Fraser Institute puts us in 96th place for the restrictiveness of minimum wages.

Our ranking in a recent Ernst and Young globalisation survey was dragged down by restrictive labour market policies.

The 2025 Taskforce recommended that the youth minimum wage should be reinstated as a matter of urgency and that other steps be taken to free up the labour market.

Further fun in Parliament yesterday:

Hon Sir Roger Douglas: Is she aware of the academic research in New Zealand that shows that Labour’s removal of youth rates is responsible for the huge increase in youth unemployment; and will she review that decision, or is she comfortable with youth unemployment of 17 percent, including Māori youth unemployment of 38 percent?

Hon KATE WILKINSON: The member may be aware that when Labour wanted to abolish the youth rate we did in fact vote against that legislation, for that very reason. We were concerned that it would price young people off the job market, and that it might also be a perverse incentive for them to leave education. I say to the member who asked the question that we are always willing to listen to good ideas.

I wish the youth unemployment rate were only 17 percent; it's 26.5% currently. It might have been about 19-20% had we not increased the youth minimum wage to the adult level.

Guess we need a new Justice Minister then

Gonzo alerts us that the Law Commission recommends a softening of the drug war in New Zealand. I haven't had the chance yet to read the 400+ page document, but apparently it doesn't much matter. Here's our justice minister:

Mr Power said that while he was prepared to listen to submissions, "there's not a single, solitary chance that as long as I'm the Minister of Justice, we'll be relaxing drug laws in New Zealand".

"The Prime Minister has made the war against P and drugs a key part of his leadership and as long as I'm the Minister of Justice, we will not be relaxing drug laws."

And so I reckon we need a new Justice Minister. Or at least somebody needs to strap him down and force him to watch the third season of The Wire.

Susan was one of Colemar Brunton Roy Morgan's polled persons for a big consumer survey a couple of weeks back. The first question on the survey, unrelated to anything else, was whether she favoured marijuana legalization. I wonder who the client was for that question, what the numbers were, and whether it had anything to do either with the LC release or Power's response. I'd love to know the overall responses.

Increasing the cost of new expression

In my Economics and Current Policy Issues lecture on copyright, I point out that strengthening the duration or application of copyright both increases the returns to created works and increases the costs of creating new works; I usually point out the list of artists who'd have to be paying royalties to Pachelbel's heirs for ripping off the chord progression from Canon in D (or, more likely, who wouldn't have created their songs at all) were copyright too strictly applied.

Club Troppo this morning points to the ridiculous Australian case where Men at Work now owe compensation (to be determined) to the copyright troll, Larrikin Music, who bought the rights to an old Australian folk song. "Down Under" includes an 11 note flute sequence from the folk song, substantially transformed (change of key and timing), as homage to Australiana. Think of it as having a tilt of the hat to "Yankee Doodle" somewhere in another piece of Americana music.

We're rapidly hitting the point where no copyright at all is preferable to the copyright we've got. There is an optimal level of copyright. If we want to maximize the number of new works created, we want to maximize the distance between the curve tracing the costs of creating new works and the curve tracing the returns from having a newly-created work: the first increases at an increasing rate with protection while the second increases at a decreasing rate with protection. If we want to maximize social returns, we choose a level of copyright at a level slightly lower than that to decrease monopoly deadweight losses on the stock of existing works.

We're well past the point where the marginal social benefit of increased copyright protection is negative. How much longer before the integral is negative too?

Very nice analysis throughout the Club Troppo piece, which also points me to this bit of awesomeness which I'll be using in subsequent iterations of my Econ 224 class in lieu of my humming the tunes...


How much of the classical canon would be banned for lilting references to the works of other composers had the 17th and 18th centuries had our asinine levels of copyright protection? As Club Troppo notes:

If Justice Johnson’s decision is used as a precedent to set standards of similarity then it will lead to every composer who writes in the key of D Minor paying a royalty to Beethoven’s family estate. Luckily though, Beethoven’s music is not copyrighted so Billy Joel was able to take the second movement of his ninth symphony Sonata Pathetique and turn it into a great song. He may not have bothered, if it had involved copyright infringement. Nor perhaps would With or Without You by U2 and about 35 other well known hits that use the standard 1-5-6-4 chord progression be commercially viable.

If the unknown slave who first played 12-bar blues had only known a lawyer his descendants would be richer than Bill Gates. Or, more likely, 12 bar would have died completely because the bar performers of New Orleans would avoid the cost and play something else. The artististic conversation between musicians which generates musical movements would become impossible.

Which brings us to the question of where the net public benefit lies with copyright for music at all. Personally I think there is none and that their is a huge cost in the free exchange of musical ideas. And I think that this case reveals the double edged sword of music as property. Many musicians have supported the music industry’s campaign to outlaw downloads of their songs. They may find themselves on the wrong side of the same property laws that they champion – when they discover the painful truth that their songs are not really so original after all.

Copyright is broken, broken, broken....

Thomas Paine in Machinima

This makes me wish I could read Chinese...

This game is no mere game. This virtuoso machinima “shot” entirely within virtual the World of Warcraft land of Azeroth is one of the most humorous, poignant and downright moving satires we’ve ever seen in China. The War of Internet Addiction (网瘾战争) is a many-layered creation that takes a good bit of unpacking. It’s a gutsy and surprisingly direct criticism of Chinese Internet censorship that touches on dozens and dozens of the major memes that created so much buzz on the Chinese Internet in 2009. At the very least, it should put to rest any assertion that Chinese lack creativity. Surprisingly, this hasn’t been written about as of this time in the mainstream western media, though Chinese media has reported on it fairly extensively. We’re frankly surprised that it hasn’t been “harmonized” yet.

Directed by someone calling himself “Corndog” (性感玉米, Xinggan Yumi, literally “Sexy Corn”) and dubbed by over 20 gamer volunteers, this home-made hour-long virtual fable-cum-political satire was produced in only three months using in-game footage from WoW’s China and Taiwan edition. The movie was first released on January 21, 2010, and quickly spread online even as Avatar was taking control of 3D screens across China. More than 10 million Chinese netizens have watched this movie on their low-resolution computer screens. More than a few Chinese netizens have hailed The War of Internet Addiction as more valuable, and more entertaining, than Avatar.

World of Warcraft helping to spread freedom. Whole post linked above worth reading; it includes selected translated excerpts from the machinima as well as the whole video.

Sweatshops revisited

Last year I took the "pro" position in favour of sweatshops in a debate hosted by EconSoc; my opening salvo posted here.

Steve Landsburg today points to a very nice old piece from the New Internationalist on the costs of US bans on importing goods produced by child labourers.

No. No photographs. Saleha is scared. Many a time she has hidden under tables, been locked up in the toilet, or been sent to the roof in the scorching sun for two or three hours. It happens whenever foreign buyers enter the factory. She knows she is under-age, and doesn’t want photographers messing things up – she needs the job. The whole industry has suddenly become sensitive. Owners want their factories open. The workers want their jobs. The special schools for former child labourers want aid money. No photographs.

Neither Saleha nor any of the other child workers I have interviewed have ever heard of Senator Tom Harkin. All they know is that pressure from the US, which buys most of Bangladesh’s garments, has resulted in thousands of them losing their jobs at a stroke.

According to a press release by the garment employers in October 1994: ‘50,000 children lost their jobs because of the Harkin Bill.’ A UNICEF worker confirms ‘the jobs went overnight’.

The controversial bill, the ‘Child Labor Deterrence Act’, had first been introduced in 1992. A senior International Labour Organization (ILO) official has no doubt that the original bill was put forward ‘primarily to protect US trade interests’ – Tom Harkin is sponsored by a key US trade union, and cheap imports from the Third World were seen as undercutting American workers’ jobs. ‘When we all objected to this aspect of the Bill,’ says the ILO official, ‘which included a lot of resistance in the US, the Bill was amended, the trading aspect was toned down, and it was given a humanitarian look.’ It was when it was reintroduced after these amendments in 1993 that the Bill had its devastating impact in Bangladesh.

The child workers themselves find it particularly hard to interpret the US approach as one of ‘humanitarian concern’. When asked why the buyers have been exerting such pressure against child labour, Moyna, a ten-year-old orphan who has just lost her job, comments: ‘They loathe us, don’t they? We are poor and not well educated, so they simply despise us. That is why they shut the factories down.’ Moyna’s job had supported her and her grandmother but now they must both depend on relatives.

Other children have had no alternative but to seek new kinds of work. When UNICEF and the ILO made a series of follow-up visits they found that the children displaced from the garment factories were working at stone-crushing and street hustling – more hazardous and exploitative activities than their factory jobs.

Would that there were a hell and that it judged politicians by their effects rather than their intentions.

Minimum wages and the second best

In the CIS Policy Journal, former Chairman of the Australian Fair Pay Commission Ian Harper raises a second best argument in favour of his having raised minimum wages occasionally. Specifically, if welfare benefits are too high, then too low a minimum wage can encourage too many people to stay out of work.

I'm having a hard time making sense of the argument. It posits a situation where the minimum wage is below the worker's reservation price, because of the welfare system, but where the value of the worker to the firm is higher than the worker's reservation price. Otherwise, raising the minimum wage just means that the worker is involuntarily unemployed rather than voluntarily unemployed. But if the value of the worker to the firm is higher than the worker's reservation price, he'll be hired regardless of the minimum wage being lower than the worker's reservation price.

Maybe you could specify a continuum of reservation prices such that there are lots of folks willing to work at a low minimum wage, so the high reservation price guy isn't brought into the market because lower cost workers are available, but that would require a monopsony assumption (otherwise workers wages are bid up to marginal value and anybody whose marginal value to employers is higher than reservation price is employed).

Having a hard time seeing the second best case here.

Further thoughts on Key's speech

I'm less annoyed by Key's speech today than I was yesterday; my expectations were too high going in.

My (limited) understanding of the distortions caused by the tax treatment of investment property largely led me to think that the problem could be solved by more diligent application of already-existing IRD rules. So, where investment property owners could write off depreciation and other losses against salary income, I'd thought that normal treatment of any tax advantage from those depreciation losses would require that they be paid back to IRD should the asset be sold showing a capital gain; moreover, folks buying houses, fixing them up, and re-selling them ought properly have the increase in value treated as taxable income rather than non-taxed capital gain. Again, though, I'm no tax expert. Will have to get Andrew Maples out for a beer at the staff club sometime.

It's sounding like they're going to disallow depreciation on property investment, which is a fix in the direction suggested above. I'm wondering whether all the talk of a land tax or of tax on imputed risk free rates of return on property wasn't there just to scare the bejeezus out of property investors so they'd see this move as less bad.

It sounds like removing this distortion would also bring in sufficient revenue to drop the top marginal rate substantially. The GST increase looks, while not pointless, of limited benefit. But the package as a whole could be decent, depending of course on the details to come in May.

Good news and bad [updated]

Updated (below)

Well, the good news from Key's speech is that we're not going to get a land tax.

The bad news, surprisingly, also is that we're not going to get a land tax. Or, rather, Key has given himself no room to make the tax system more efficient. I was hoping for a bigger GST hike to pay for some bigger cuts to marginal income tax rates [hopes for spending cuts are a hope too far]. Instead, we're getting a relatively small GST increase (2.5 percentage points) that will be coupled with increases to low income benefits to offset any (dubiously proven) harms to poor people - in other words, not enough to be able to do anything on marginal tax rates. I'd be surprised if whatever moves they make on tightening up rules around tax treatment of investment properties give them space to do much on marginal income tax rates either.

So, we've mostly ruled out anything interesting on the tax front. But we may yet see interesting moves in social policy. Key's hinted at work requirements for the Domestic Purposes Benefit, tightening up the sickness benefit, and knocking out some tertiary education rorts in non-degree programs (rather interested to see specifics!). I like this one:

Accordingly, this year the Government will appoint a working group of experts to recommend ways in which we can reduce long-term welfare dependency and thereby reduce the welfare bill future generations will face.

I wonder if he'll pay it any more attention than he's paid to either of the previously commissioned expert working groups on productivity and taxes, both of which seem consigned to the shredder. It would be foolhardy to expect any of this to amount to much given the track record. This time, I'm going to revise my expectations sufficiently downwards that I won't be disappointed again.

Oh, and there's also this:

Part of our ongoing work to address the drivers of crime will be the introduction of legislation to reform liquor licensing laws. The purpose of this legislation will be to reduce the crime and harm caused by binge drinking, by stopping the excessive proliferation of liquor outlets in many of our communities.

That seems to preempt Palmer's report. Again, I'll need to see details. If it's just not allowing new liquor outlets opening in low decile areas (because poor people apparently can't be trusted to have too much liquor available for purchase within easy walking distance), it's perhaps one of the less bad anti-alcohol initiatives. Confers rents on existing owners, imposes losses on folks who need to travel farther, but otherwise not awful. If it means that folks in those areas will have their licences cancelled - that's a rather nasty stunt to pull on legitimate businesses who'd see almost complete regulatory expropriation of their investments. We'll see.

TVHE and Bernard Hickey also aren't terribly impressed. Farrar gives Key a B, but he's an easy grader (nice to see his blog post quoted by the Opposition Leader 20 minutes later in the House though!). I'd treat it as a first draft and give the student, who you know is capable of better work, the necessary kick in the pants to make sure the final draft is up to scratch: C- (with provision for upwards revision by higher weighting on the final draft).

Update: I'm giving a rare upwards grade revision. C+/B-, with a big downwards revision on the weight put on the statement and a big upwards revision on what comes out of the budget. If he's serious on welfare reform, that could easily move up into the A ranges.

Update 2: I'm somewhat skeptical, but I'm absolutely not an accounting guy or a NZ tax expert. If this is right, then the minor changes in property tax administration could bring in sufficient funds for substantial changes to the income tax structure. In that case, the grade is further revised upwards.

Weekly Standard meets Roissy

A nice piece on game at the Weekly Standard cites Dutton on the art instinct and ultimately endorses Roissy's worldview, evil though it may be.

Pickup mentors are relying, consciously or sub, on the principles of evolutionary psychology, which uses Darwinian theory to account for human traits and practices. Robert Wright introduced the reading public to evolutionary psychology in his 1994 book, The Moral Animal: Why We Are the Way We Are. He summarized what biologists had observed in the field: that among animals—and especially among our closest relatives, the great apes—males often fight each other for females and so the most dominant, or “alpha,” male has access to the most desirable, and perhaps all, of the females. But it’s the female of the species who ultimately makes the choice as to which member of the pack she will deem the alpha male. “Females are choosy in all the great ape species,” Wright wrote. He also noted that, for example, a female gorilla will be faithful—forced into fidelity, actually—to a single dominant male, but she will willingly desert him for a rival male who impresses her with his superior dominance by fighting with her mate. That’s because, as Darwin postulated, evolution isn’t merely a matter of survival of the fittest but also of the replication of the fittest, “selfish genes,” in the words of neo-Darwinian Richard Dawkins. Driven by instinctual desire for offspring, male primates chase fertile females so they can replicate themselves, while female primates choose strong males on the basis of survival traits to be passed on to young ones.

Evolutionary psychologists like David Buss in The Evolution of Desire (1994) and Geoffrey Miller in The Mating Mind (2000) have elaborated on these theories, arguing that the human brain itself, with its capacity for consciousness, reasoning, and artistic creation, evolved as an entertainment device for male hominids competing to impress the females in the pack. Dennis Dutton’s new book, The Art Instinct, makes much the same argument. Evolutionary psychologists postulate that the same physical and psychological drives prevail among modern humans: Men, eager for replication, are naturally polygamous, while women are naturally monogamous—but only until a man they perceive as of higher status than their current mate comes along. Hypergamy—marrying up, or, in the absence of any constrained linkage between sex and marriage, mating up—is a more accurate description of women’s natural inclinations. Long-term monogamy—one spouse for one person at one time—may be the most desirable condition for ensuring personal happiness, accumulating property, and raising children, but it is an artifact of civilization, Western civilization in particular. In the view of many evolutionary psychologists, long-term monogamy is natural for neither men nor women.

All of this is obviously pure speculation, if imaginatively rendered and bolstered by anthropological observations of hunter-gatherer societies today. Furthermore, there is a troubling chicken-or-egg circularity in evolutionary psychology arguments: How did the female hominids know the males were trying to entertain them unless their own brains were sufficiently evolved to appreciate the effort? You can’t get a gorilla to recognize Mozart or a cave painting. It’s equally easy to laugh out loud at a 2007 interview Mystery gave to Salon in which he asserted that a woman’s scratching the back of her hand when a man talks to her is an “Indicator of Interest” because “[T]hat area of the hand gets itchy when a girl is attracted to a man from ape days, you know—it means, ‘Groom me.’ ” Yet evolutionary psychology offers a persuasive explanation for many things that we are supposed to pretend are culturally conditioned: that the natures of men and women are fundamentally different and that, pace Naomi Wolf and the cougar-empowerment movement, women don’t get sexier as they get older, at least not in the eyes of the man sitting on the next barstool. Youth and beauty are markers of fertility. As Mystery wrote in his book, it may be sexist to say out loud, but women are well aware “that their social value can be rated largely on their looks” or they wouldn’t devote so many hours to toning muscles and adjusting makeup.

Evolutionary psychology also provides support for a truth universally denied: Women crave dominant men. And it seems that where men are forbidden to dominate in a socially beneficial way—as husbands and fathers, for example—women will seek out assertive, self-confident men whose displays of power aren’t so socially beneficial. This game of sexual Whack-a-Mole is played regularly these days in a culture that, starting with children’s schoolbooks and moving up through films and television, targets as oppressors and mocks as bumblers the entire male sex.

Note that Patri Friedman also makes contributions to this literature.

Cost of living, value of amenities

Wayne Marr points us to a study ranking universities in the US by total compensation package (on average across departments), adjusted by cost of living. The highest paying institution, in cost of living adjusted terms, is SUNY Buffalo at $113,200. At the bottom are CUNY Purchase and CUNY NY City Tech on $18,600 and $18,700 respectively. Scott Beaulier previously lauded the cost of living adjusted salaries at Mercer.

Of course, though, the whole comparison is rot if most of the cost of living differences are because folks have bid up scarce property to reflect amenity value differences across cities. Your New York City cost-of-living adjusted salary will be less than $19K if you place zero value on the amenities available in New York as compared to those available in Buffalo. Otherwise, wouldn't the best measure of amenity values be the amount folks are willing to pay to live in a place?

Charity runs

Bob Murphy doesn't like charity walkathons.

Neither do I.

Youth rates re-revisited

Stephen Whittington (not Hickson!) usefully reminds me of prior regime shifts. Prior to 1994, no minimum wage applied to the under-20s; then, it increased to 60% of the adult rate. Next, 18-19 year olds were covered by the adult rate while the younger set were on 70 or 80% of the adult rate. And now everyone aged 15 and up is subject to the same minimum wage.

If I re-run things allowing for the four different regimes, I get the following.

Period	Coefficient	Constant	Implied Youth unemployment rate if adult rate is 4.75%
No youth minimum wage at all	1.98	4.54	14%
60% of adult rate	1	11.3	16%
18-19 year olds are adults, higher youth rate	1.05	10.6	16%
All on adult rate	4.46	2.12	23%

So when there was no youth rate at all, youth unemployment largely tracked as a small multiple of the adult rate; the youth rate pushed it to a level shift that tracked the adult unemployment rate; and, the current regime has youth unemployment at a much larger multiple of the adult rate.

Stephen also sends me data on the youth minimum wage as effective percentage of the average hourly rate; afraid I'm not going to have time to play much with that one. Down that route lies a replication and extension of Hyslop and Stillman which would make for a fine honours project, but for which I certainly don't have the time now!

Youth rates revisited

My prior post noted the big jump in youth unemployment rates since the abolition of the separate youth minimum wage. Let's go back to this briefly.

If we assume that the youth rate will always be some fixed amount above the adult rate, then the current run-up, as I noted earlier, is highly anomalous and seems very plausibly explained by the minimum wage change.

Some folks reckon the better measure is the ratio: the youth unemployment rate will always be some multiple of the adult rate. If you measure the ratio of the two over time, the current ratio is high, but there isn't an obvious break point in 2008.

The graph below has (thanks Stephen Hickson!) the unemployment rate for those aged 15-19 and the unemployment rate for everyone else (aged 19 and up). It looks to me like the proper relationship is a combination of a level shift and a multiplicative effect. When the adult rate is very low - below four percent or so - the youth rate bounces around at a point about 10 to 12 points higher than the adult rate. When the adult rate is high, the youth rate exceeds that constant by a multiple of the adult rate.

As always, I take this kind of thing over to Stata to find out what's going on. First, let's rule out that what we have going on is only a level shift or only a multiplicative effect. I run ordinary least squares with the youth unemployment rate (15-19 year olds) as dependent variable and the adult rate (20 and up) and a constant as independent variables.  If it's just a level shift, the coefficient will be significant, close to 1 in magnitude, and with a significant constant term around 10. If it's just a ratio effect, the constant will be insignificant and we'll have a coefficient somewhere around 3.

Both the constant and the adult rate come up highly significant. So, over the period 1986 to present, we can expect the youth rate to be 1.44 times the adult rate (the multiplicative effect - about 44% above the adult rate) plus a constant of 9 percentage points. So if the adult rate is 5, the youth rate should be 16.2. We've ruled out the "it's just ratios" argument - there is a constant term in there; we've also ruled out that it's just a level shift because the coefficient is significantly greater than 1.

Moreover, when we plot the residuals, we find something pretty interesting.  Recall that the residuals are the difference between the model's expected youth unemployment rate and the actual youth unemployment rate.  A positive residual means that youth unemployment was higher than the model predicted; negative means it was lower.

If we look at the top graph, we see youth unemployment rates went up a lot during the recession of the early 1990s. But over that period, youth unemployment rates were never more than a couple of points above what the very simple model predicted (residuals graph, above). In recessions, it does look like the youth rate gets hit harder than the adult rate. But look at what happens starting around fourth quarter 2008. We now have residuals that blow up the model. Something really weird starts happening to the youth unemployment rate at the end of 2008. Youth unemployment is now about 10 points higher than we'd expect using the simple model. Again, the residual here is telling us that the current youth unemployment rate is about 10 points higher than would be expected given the prior relationship between the youth and adult unemployment rates.

I tried a few different variations allowing the constant and the slope to shift for high and for low levels of adult unemployment.  But none of that made any substantial difference.  Putting in a variable allowing the slope and constant to vary with regime (youth rate or no youth rate) made a big difference, but you'd of course expect that given the residuals plot above.

This remains very much a first cut: something I may someday assign as an honours project for more thorough sorting out.  The econometrics here are very simplistic and do nothing to account for differences in labour force participation rates or the obvious problem of serial correlation in the time series data.  But the simple model is still pretty telling.  If we allow youth unemployment rates to vary both as a level shift above the adult rate and as a multiple of the adult rate, which is what we're doing when we run the simple regression with a constant term, we still have a jump in the current youth unemployment rate that is well above that seen in prior recessions.

My first cut explanation remains the abolition of the youth minimum wage.