Monday, December 12, 2016

Oil Pipelines and the Rule of Law

I saw quite a lot of cheering that Obama’s administration halted construction of the Dakota Access Pipeline. And I’ve heard some moaning that a Trump administration could resume construction. Rather than take a pro-pipeline or anti-pipeline stance, with this post I want to state clearly that I don’t want the president to be able to unilaterally halt or green-light an oil pipeline. Granting such powers to the president eviscerates the rule of law.

The "rule of law" means that our legal system is basically predictable and the rules are known ahead of time. That’s not to say it’s always fair. Something might look unjust as an individual act but still make sense as a rule. The point is we all know the rules ahead of time, the government must adhere strictly to procedures if it takes action against someone, and these procedures are well specified before any action takes place. The government cannot simply respond to populist outrage by nixing a lawful construction project. Such decisions should not depend on how sympathetic one of the parties to a conflict appears to outside observers. Native Americans are certainly a sympathetic group of victims (or “victims”, if you think their grievances aren’t well founded). We should actively guard against the temptation to side with a victim that tugs at our heartstrings, just as we should guard against all cognitive biases. The temptation to side with the most sympathetic party to a conflict must be overcome if we are to have a reasonably secure and predictable rule of law.

My best reading of the Dakota Access Pipeline construction is something like the following: There are legal procedures for building a pipeline, and Dakota Access, LLC followed these procedures. Read the Wikipedia page on the pipeline, especially the “History” section. It looks like they contacted all the right government agencies in each of the states it did construction in. It secured voluntary easements on an extremely high proportion of private properties it was building across (97% of North Dakota land, 93% of South Dakota land, 92% of Illinois land, and 82% of Iowa land). The use of eminent domain to secure easements from the hold-outs does bother me, but the notion that a few hold-outs could halt construction of a pipeline that everybody else wants bother me a bit more. “Eminent domain” used in this way doesn’t actually transfer ownership of property; it merely grants an easement so that construction can take place. Presumably farmers who had eminent domain used against them can continue to plant on the ground above the pipeline after construction is complete, for example. Anyway, there were various procedural and legal challenges to the pipeline, but the company ultimately got lawful permission to build.

If you’re reading this as a pro-pipeline polemic, you’re missing the point. I’m not arguing that the Dakota Access Pipeline *should* or *should not* be built. I’m not doing the cost-benefit analysis and rendering a pro- or anti-pipeline verdict. I’m merely arguing that, whatever process is in place for lawfully constructing a pipeline, that process should be followed. It should not be changed in an ad hoc manner by government executives because they sympathize with some victim group or because they favor the oil industry. Perhaps you think it should be easier to bring environmental grievances against a construction project. Or perhaps you think that Indian nations should get greater consideration, a “thumb-on-the-scale”, compared to the normal process. Maybe you think the use of eminent domain to acquire easements is a gross violation of property rights (I doubt anyone on the left will make a stand on the principle of property rights, but I’d be pleased to be proven wrong here). Maybe you think we should have an explicit “no new pipelines” policy. In the other direction, perhaps you think new pipelines are safer than old pipelines and shipment by rail, so perhaps you think we should actually fast-track new pipelines. Or maybe you think the environmental and administrative regulations are absurdly burdensome and should be relaxed. There are many potential arguments about what the optimal pipeline construction policy *should* be. That’s all beside the point. Whatever you imagine as your ideal system of “pipeline law”, whatever you think the process *ought to be* for building a pipeline, whether you think that process should be much more difficult or much less difficult, we aren’t living in a world where you designed those laws and procedures. I think the question is, “Given the laws and regulations and procedures as they exist today, does Dakota Access, LLC have a right to build a pipeline?” My somewhat casual reading of the facts is that they followed the existing procedure and bent over backwards to please everybody. I have not really read anything suggesting they didn’t do their due diligence, despite being deluged daily with anti-pipeline missives.

If you can't understand how anyone could possibly take the "pro-pipeline" stance, please see this reddit conversation and this court document of a legal decision against the Standing Rock Sioux Tribe. From the legal decision: “The Tribe fears that construction of the pipeline, which runs within half a mile of its reservation in North and South Dakota, will destroy sites of cultural and historical significance. It has now filed a Motion for Preliminary Injunction, asserting principally that the Corps flouted its duty to engage in tribal consultations under the National Historic Preservation Act (NHPA) and that irreparable harm will ensue. After digging through a substantial record on an expedited basis, the Court cannot concur. It concludes that the Corps has likely complied with the NHPA and that the Tribe has not shown it will suffer injury that would be prevented by any injunction the Court could issue. The Motion will thus be denied.” I’m curious what my opinion would be if I had dug “through a substantial record” as this court has done. I’m curious if all the anti-pipeline hawks on my Facebook feed would change their minds if they had substantially more information than they currently do. My fear is that many of them wouldn’t. Maybe this is uncharitable, but I get the feeling that people are instinctively choosing the more emotionally compelling side of this issue. Or maybe it's just that the noisiest idiots show up most prominently on my Facebook feed and most people are actually pretty reasonable. I really hope it's the latter.

Let me make one further clarification. By "rule of law," I'm not making the idiotic claim that we should always enforce all the laws on the books, no matter how despotic. Sometimes the rule of law actually runs counter to this notion of blindly enforcing statutes. Sometimes chest-thumping law-and-order types demand that we must zealously enforce our immigration laws (or drug laws or whatever), because "We are a nation of laws." I'm making a very different sort of argument. The rule of law means that the law is predictable and sensible. Strictly enforcing all statutes runs counter to this principle. The person using illegal drugs in the privacy of his own home, or the adult immigrant who was brought to this country as a small child, or the motorist speeding at five over the speed limit, expects some discretionary deference from the legal system. A strict enforcement of statutes would contradict this entirely reasonable expectation. 

Update on Drug Poisoning Data for 2015

The CDC just recently released the 2015 mortality data, so I thought it would be good to do an update of some previous posts that used the data through 2014. (See here and here and here for example; several other posts of mine from 2016 include this data.)

There were 52,623 drug poisoning deaths in 2015, which is up from 47,196 in 2014. But these are raw totals and aren’t very meaningful. They include accidental deaths, suicides, “undetermined intent”, and murder, and the CDC has separate codes for each of these. I don’t think it’s quite fair to add in suicides if we’re talking about “the drug problem,” because accidentally overdosing is very different from willfully ending your own life. These are different social problems, and the only reason to include suicides in the total is that you’re trying to inflate the number to make it look scarier. If we’re just looking at accidental drug poisonings, there were 44,335 in 2015 (up from 38,841 in 2014). (Accidental deaths are codes X40-X44, suicides are codes X60-X64, “undetermined intent” are codes Y10-Y14, and murder is X85, in the ICD10 coding system. Murdering someone with drugs is apparently rare; there are only 94 cases of it in 2015.)

I suspect you will see a lot of news stories starting with “There were 52,600 drug overdoses in 2015…” If you see such a story, scan it to see if it gives a breakdown by “accidental vs intentional.” If it doesn’t, that’s a big warning sign that the author didn’t do their homework. Or perhaps the author is trying to sell you a narrative using inflated and irrelevant numbers. Read such pieces carefully. If the piece starts with the 52k figure then shifts to talking about the “opioid epidemic,” the author has done a bait-and-switch. The relevant figure there is more like 15,000 to 19,000, depending on exactly how you count them.

Here are the notable things that happened between 2014 and 2015. Heroin deaths climbed from 10,754 deaths in 2014 to 13,069 deaths in 2015, taking the top spot. Other Opioids rose a little, from 12,657 to 12,927 deaths. Cocaine, which had been declining from 2006 to 2013, rose over the last two years (at 5495 deaths in 2013, 5992 deaths in 2014, and 6945 deaths in 2015). Other synthetic narcotics (which includes fentanyl and other very powerful synthetic opioids that are often a thousand times as potent as morphine) rose from 5695 deaths in 2014 to 9681 in 2015. This category shows the most dramatic increase. “Psychostimulants with abuse potential”, a category that includes methamphetamine and prescription analogs to it, has been increasing steadily over the past few years; it rose from 5114 deaths in 2014 to 6082 in 2015.

Here are the mortalities for each year for the most deadly substances, expressed as deaths per 100k population:

The chart above is from the CDC’s WONDER database, but it’s a little misleading. Don’t think you can add together the deaths from each substance to get a total, because there is significant overlap between categories. Single-substance overdoses are actually pretty rare. A typical heroin overdose actually involves two or three substances, so such a death might show up in, say, the heroin, cocaine, and benzodiazepine line. Such a death would be triple-counted if you made the mistake of summing the death totals for each substance. Also, some of these deaths aren’t even marked as “drug overdoses.” They are heart attacks or something else, but someone happened to write down “heroin” or “other opioids” on the death certificate. This is somewhat rare; usually if a drug is written down on the death certificate, the death is coded as a drug overdose. But this explains the discrepancy between the numbers in the above paragraph and the ones I will give below. Also, I’m excluding suicides, murder, and “undetermined intent” in the charts and figures below. The chart below is an update of a chart from an earlier post, illustrating the rarity of single-substance overdoses. I found some of these surprising when I first saw them (Click to enlarge, I realize the individual cells are small. Some rows are hidden, so the Total row might not match the sum of the column exactly in some instances):

To explore the details of what kinds of substances are found in combination, you need to dig into the raw data files here. There is a record for each death that happened in the United States in 2015, which lists all the contributing causes of that death. The CDC’s WONDER database is great, but it doesn’t allow you to determine what drugs *in combination* are contributing to these poisoning deaths. To see what kinds of substances are typically found in combination on a death certificate, see here:

(To read the cross table, go across by row and say, “This percent of [row label] poisonings also involves the substance [column label].” Thus you get 100% across the diagonal.)

So, for example, benzodiazepines are extremely likely to be found in conjunction with opioids. Alcohol is frequently found in conjunction with other drugs. You get the sense from looking at the cross table that many of these people would still be alive if they hadn’t been mixing drugs.

These drug interactions are a big deal, because a big increase in mortality due to heroin can cause an increase in mortality due to cocaine, even if the cocaine problem is declining. You can’t just look at the graph above and say, “The prescription painkiller problem (mostly the ‘other opioids’ curve) is getting worse, because it went up.” Looking at the cross table, for those deaths with “heroin” stamped on the death certificate, about 20% involve cocaine, ~15% benzodiazepines, and ~11% “other opioids.” So a rise of 3,000 heroin deaths per year (roughly what we saw from2014 to 2015) will result in 600 additional “cocaine” deaths, 450 “benzodiazepines” deaths, and 330 “other opioids” deaths. Likewise, the big spike in “Other synthetic narcotics” deaths is going to drive up the deaths attributed to other substances. Roughly 20% of these deaths involve other opioids, 18% involve benzodiazepines, and 17% involve cocaine.  So the roughly 4,000 additional “other synthetic narcotics” deaths will give us 800 additional “other opioids” deaths and about 700 additional benzodiazepines and cocaine deaths. This could be true even though there may be no additional users or perhaps even fewer users of these other drugs. The problem is that a heroin habit is so potentially deadly, and heroin users tend to use these other substances in combination. Anyone looking at the raw totals by substance will be misled if they aren’t thinking carefully about the poly-drug use problem.

Be cautious interpreting the big jump in “other synthetic narcotics.” I suspect that the year-to-year changes aren’t as big as the chart above implies, but rather the reporting is getting more accurate. There have been numerous media reports of multiple people overdosing at the same time in the same city (even the same neighborhood) because of a bad batch of “heroin.” Well, it’s not really heroin but actually something like fentanyl or something even stronger. The first responders don’t always know what drug is actually causing the drug overdose. The lab testing required to figure out the exact substance sometimes takes weeks (citation needed, but I’m speaking from memory based on an NPR story I heard months ago). I don’t expect that death certificates are always updated after the test results come back. I think the big jump in this "other synthetic narcotics" category shows a growing awareness that this is what’s really happening in these “heroin overdose” cases, most likely combined with a real increase in the number of overdoses. So there's a real trend with a reporting trend on top of it.

Some will surely draw the wrong lesson from this most recent year’s worth of CDC data. Some will say, ”The problem is bigger than ever, so we need to hammer it even harder!” In reality, the rising heroin and fentanyl overdoses are proving that drug prohibition isn’t working. Or in other words, prohibition is having *exactly* the effect that its critics predict. Dealers are attracted to drugs that are easiest to conceal, so they are opting for super-concentrated opioids that are sometimes thousands of times stronger than heroin. You can collapse a multi-ton shipment of heroin down to something the size of a briefcase. But when it reaches the user, it may not have been diluted properly. This problem is causing a lot of unnecessary overdoses. Ending prohibition would pretty much fix the problem, because strict quality control on the drug supply would be possible under a legalization regime. Buyers could ensure that they are getting pharmaceutical grade heroin that hasn't been spiked with a lethal dose of fentanyl, and producers would subject themselves to outside audits, the results of which they could show to their customers. Producers would subject themselves to the threat of lawsuits if they mislabeled something. Such quality controls simply aren't possible under a prohibition regime.

One final note here. The CDC's method for counting "prescription opioid overdoses" used to be to count all deaths involving methadone, other opioids, and other synthetic narcotics, which up until 2013 might have been a reasonable methodology. No longer. Unless the spike in other synthetic narcotics deaths is driven entirely by a recent dramatic spike in fentanyl prescriptions, we should suspect that the heroin and other synthetic narcotics categories are bleeding into each other. Be very careful if you're reading anything that says that 2015 saw a "new maximum" in opioid deaths. They are either using an old and now dubious methodology for counting prescription opioids or they are surreptitiously adding prescription opioids to heroin without explaining that these are two different problems. 

Saturday, December 3, 2016

Legal Status is *NOT* the Limiting Factor in Drug Use

Some people are skeptical of drug legalization. They worry that legalizing certain substances will open up the flood gates and new addicts will pour through. I'll argue below that these fears are grossly exaggerated, if not totally unfounded. The legal status of a drug is almost never the limiting factor on the decision to use it. There is almost always some other cost or consideration that looms far larger than the cost of the legal penalties imposed on its use.

If you go to, you can find testimonials on drug experiences. For example, this one:

So: I traveled through many familiar spaces. Presently I came to a space where Buddha-like Fire Gods created whole realities simply by making gestures. Their gestures, against the fabric-context-space of what seemed to be this proto-reality, caused ripples and indentations that emanated outward forever, each becoming, not a new universe, but a whole new reality. The space I was in was not reality. It struck me as 'backstage' -- the place where the props and sets and costumes out of which realities are constructed are kept.

I was seated, lotus-style, among an infinite number of these Fire Gods, arranged in stacked concentric rings that extended and radiated in all directions without end. There is no way to describe the sheer vastness of this space. It had an ancient-beyond-ancient and noble-beyond-noble feeling to it, and I felt awed and honored to be seated there. I decided to try my hand at creating realities. I followed the general pattern I'd watched others execute. Doing so was astounding. The simple movement of my hand brought forth heat like that of the core of the Sun, yet the heat did not burn me. Each movement of my hand violently shattered the space around it, and the aftershocks from my Act swayed the other seated Fire Gods, but did not disturb their somber equanimity. When at length I brought my hand to rest upon my knee, the Creative Act was finished, and I took up the noble and dignified silence of my fellows; a silence which was interrupted from time to time only by the Divine explosion of an occasional Act of Creation by one of us. I continued to meditate there for countless Ages. Eventually I rose higher than this realm, passing through a space of pure, infinite Consciousness, and then through endless Space-time itself, and finally into the limitless Nothing.

The drug that induced this trip is a dangerous street drug called DXM. Thank goodness it’s illegal, or people would be doing it all the time. A trip like the one described above is simply too enticing for anyone to resist. Just kidding! It’s not dangerous or illegal. It’s the active ingredient in cough syrup. Anyone can go down to the pharmacy and get enough to trip balls. Given that this was the premise of a South Park episode, I think it’s fairly common knowledge that you can get really high on cough syrup. But few do. It’s really not all that dangerous either. As I mentioned in this post, there were just under 300 deaths “involving” cough syrup in 2014 and almost all of them involved other drugs, too. It’s not clear that DXM killed any of these people. It’s cheap. It’s legal. It’s safe even in fairly large quantities. (See some of the testimonials on for the enormous quantities consumed by some users.) So why aren’t people just using it all the time?

Because the cost of a DXM trip is something like “a day out of my life that I won’t ever get back.” That’s fine if you’re unemployed or marginally employed and nobody will miss you for a day and a half while you’re tripping and recovering. But if you have a place to be every day, plus kids to pick up after work, plus the obligation to watch those same kids on the weekend when you’re *not* at work, it would be pretty impossible to indulge such a habit. Now, some people *do* indulge the habit anyway and screw up their lives, and this is certainly terrible. But most people foresee such terrible consequences and decide against a DXM habit. It’s not even that they “decide against” it; the thought is almost ruled out of the question before any actual thinking happens. In fact, forget about a DXM habit; doing it even once would be hard to pull off for someone with normal daily obligations. The real opportunity cost of DXM isn't just the day you spend incapacitated; it's the meaningful life and career you could have had if you weren't regularly incapacitating yourself for 24+ hours.

This concept needs to be injected into every conversation on drug prohibition. The legal status of a drug is not the limiting factor when people are deciding whether or not to use it. Making a drug illegal can raise the cost, but only relative to other costs that are (in almost all cases) much, much greater. There is usually some other cost that overwhelms the black market mark-up and the threat of legal sanctions that comes with drug prohibition.

With DXM, the bulk of the cost is the opportunity cost of losing a day of your life, which may entail losing a job or alienating family if you’re like most normal people. Most of the cost of a cigarette comes from the health consequences, not the literal dollar price tag when you purchase a pack . Similar for alcohol. Heroin users appear to face overdose death rates of 1.5 to 2.5% or so, an enormous risk that no reasonable person tolerates from any routine activity. (One economist’s reaction to this figure when I showed it to him was: “It blew me away.”) For people who are willing to pay such costs to indulge a drug habit, the legal status is no deterrent at all. 

You can be much more rigorous about this argument if you use some math and some formal theory. You can show cool results, like that it's impossible for prohibition to make the users better off if demand is inelastic. Or that a punitive tax is strictly superior to prohibition. Or a bunch of other stuff in the same vein. It's important to get the details right. But it's far more important to keep in mind this underlying intuition that prohibition does little to change the overall cost faced by a drug user. The pathetically small risk of arrest and the black market markup are trivial compared to other costs, so it's a little absurd to think these things have a major impact on drug use. 

Sunday, November 20, 2016

Bernie Sanders Is No Good Guy

The election is over, but I feel I need to say something about Bernie Sanders. I want to push back on something I kept hearing during the presidential campaign. I repeatedly heard comments along the lines of “All the candidates are wicked, except for Bernie Sanders. He’s a good guy!” I don’t agree. I saw him as fomenting class resentments that aren’t based on legitimate grievances. I saw him as supporting economic policies that would be incredibly harmful (big tax hikes on capital, high marginal tax rates on income, labor market restrictions and other regulations). I saw him as fanning the flames of mob outrage; part of his platform was a promise to imprison some people from Wall Street for the ’08 recession. Not specific people for specific crimes, just some human sacrifice so the angry mob could watch and cheer. I saw his anti-trade rhetoric as being viciously anti-China and anti-Mexico, as if it were sinister that the very poor factory workers in those countries are trying to make a living. As if Chinese and Mexican workers are less worthy of our consideration than the American factory workers he was trying to coddle (and coddle at the expense of other Americans who buy those cheap imports.) (“Workers of the world…let’s have a huge trade war! They tuk yur job!”) He’s trying to tell his base: Your problems are caused by rich people hoarding all the money. Sinister Chinese and Mexicans are taking your jobs away! Your problems are caused by people with cynical motives doing evil things to you! I find his brand of populist scapegoating to be highly dubious, and it’s not what economically suffering people need to hear. His inequality-mongering badly misses the mark. It's a mistake to look at the salary differential between a doctor and a teacher (or an executive and a mid-level employee) and say, “The problem is income inequality!” As if people are randomly assigned a career and salary at birth. Telling the lower-paid group that their problems are the fault of the higher paid group is not just wrong in a factual sense, it’s also hurtful. It’s downright mean-spirited.

 I kept hearing something like: “Clinton and Trump are cynical politicians, but Bernie really cares.” Apparently he didn’t care enough to crack an economics textbook. He didn’t care enough to do a basic intellectual vetting of his worldview. At some point I think you have to drop the “good intentions” excuse for someone who proposes really terrible policies and uses hurtful scapegoating rhetoric. He may be a true believer. He might actually believe his own rhetoric. But someone who holds that much power has no excuse for being so wrong. Perhaps he truly doesn’t know better, but he fucking well ought to.

Courting the Libertarian Vote

In the 2012 and 2016 elections, I saw a lot of noise being made about the third-party voters being “spoilers.” As in, we weirdos who voted Libertarian (or Green or Constitution) obviously owe our vote to one of the major parties. If the margin of victory is smaller than the third party vote, that automatically means we “spoiled” the election for you.

So you think we’re spoilers? Fine, we’re spoilers. I’ll entertain that notion for the sake of argument, putting aside the fact that third-party votes pull from both parties and ignoring the fact that many people who vote third-party would never vote for a major party anyway. Suppose we spoiled the election for you. Maybe that’s the point. You can’t count on our vote. You have to do something to earn it.

So move your party platform to attract us. There are ways to do this without going “full libertarian.” I’ll try to outline some second-best policies that major parties could adopt. Mostly these are common-sense reforms that anyone who wants a well-functioning government should want, libertarian or not.


The regulatory state is a huge drag on our economy. Reams and reams of new regulations are issued every year, and the cost of complying with them is enormous. Entrepreneurs need to be able to start businesses without worrying that some bureaucrat with a checklist is going to shut them down. This doesn’t necessarily mean “zero regulation,” but we should at least start cost-benefit testing new regulations, prospectively and retrospectively. No matter how sensible a proposed piece of regulation sounds, the possibility that it doesn’t actually benefit the customer should be entertained by its proponents. Some objective tests of efficacy should be set out ahead of time, and any new rule that fails to pass such tests should be dropped after some pre-determined date. All new regulations should have to be ratified by the legislature.

I get the feeling that leftists are incapable of even perceiving this as a problem. And conservatives like to chant free-market slogans but don’t do anything about the regulatory morass once they're actually in power. This needs to change. Even progressives should be against regulation that costs too much. Stop posturing and dig into the actual numbers. The efficacy of any given regulation is an empirical question and should be treated as such.

Capital Taxation

Slash taxes on capital, probably all the way to zero. They just don’t raise that much revenue, and they don’t succeed in redistributing from capitalists to workers . Once again, stop posturing yourself as “pro-worker” or “anti-corporation” and get practical. A “tax on capital” that in reality falls on the workers is bad for the workers. Tax incidence is a thing. Learn how it works and adjust your policies accordingly. Whatever amount of revenue you think we need to raise, at least try to raise it in the way that causes the least amount of economic distortions.

Simplify the Tax Code

Progressives tend to hear “simplify the tax code” as a euphemism for “make taxation more regressive” or “slash the overall rates.” But that’s a total non sequitur. A simplification can be revenue neutral, or can even increase revenue, and the final product can be as progressive or regressive as we want. There are far too many deductions and too many ways for rich people to game the tax code. This causes economic distortions as people seek such deductions, and it sucks too many of our brightest minds into the field of tax accounting. A simplified tax code would get rid of such distortions and free up those minds to do something productive for society. Ideally you could do your taxes on a single note-card.

One suggestion I've heard for tax reform is: "Let one group of people set up the overall structure of the tax code with the actual rates blank, and let another group fill in the blanks." As in, determine what is taxed (income or consumption?), where the brackets are (at $15/50/80k/year? Or how about at $20/60/100/250k/year?), what deductions to give (a charitable deduction? housing/daycare/medical deductions?), and *after* all this is done let some other group fill in the tax rates. You could end up with a simpler tax code where nobody's ox actually gets gored. Or, just as well, where everyone's ox gets equally gored. 

Drug Policy

Adopt the legalization of cannabis as your party’s platform. That’s where public opinion is going, and that is where the nation at large is going. There is no sense playing rear-guard here; just beat a full retreat and put a bad policy to rest. For the other drugs, at least decriminalize if you’re dodgy about full legalization. Or here's a "safe" option for legalization: we legalize everything, but only the government can distribute certain drugs in austere, boring state-run pharmacies staffed by disapproving scolds. People are getting their drugs anyway; at least in the world of a state-run drug trade, the drugs would be clean. And under some form of legalization or decriminalization, we could implement some form of “harm reduction.” It would be possible to have official needle exchanges, safe injection facilities, and chemical tests that ensure the drug user is taking what they think they are taking. People worry (needlessly in my opinion) that legalization would open up the flood gates and we’d see a massive surge in new drug problems. Total legalization is the first best policy, but some of these second-best policies would at least be better than what we have now, and I think they are politically palatable. Finally, put an end to the senseless, brutal police raids on the residences of suspected drug dealers. Whether you're on board with legalization or not, these obscenely violent raids shock the conscience. They quite often happen to completely innocent families. People subjected to these raids are needlessly terrified, sometimes even killed. 

Criminal Justice

See “Drug Policy” above. Also, get serious about punishing bad cops. Some police officers are wrongly smeared for legitimate acts of self-defense, but there are no doubt some problem officers. Be willing to admit that someone with a history of credible complaints against him shouldn’t be an officer, and don’t automatically jump to the defense of the police when a scandal happens. We should be holding these people to a higher standard than we do for the average citizen, not a lower one.

Do away with minimum sentencing. Yes, there are going to be some bone-headed judges who make baffling sentencing decisions. But injecting the democratic politics into sentencing has been a disaster. As voters, people tend to beat their chests and adopt a “tough-on-crime” mindset. The very same people, when seeing individual cases, tend to prefer sentences shorter than the legal minimum. Stop allowing the political process to constrain the range of options available to judges.

LGBT Issues

Support equality under the law for LGBT issues. Support the recognition of same-sex marriages and oppose official discrimination based on LGBT status. That’s all you have to do. You can privately disapprove, but don’t let your private opinion color your politics. If I don't have much to say here, it's because this one is so easy. Public opinion is on the side of the LGBT community. Where it's not there yet, it's trending fast. You're not going to see a backslide on this one, so be realistic and get on the right side of history.

Get Real About Entitlement Spending and Public Pensions

The underfunded liability for Medicare and Social Security are obscene. Laurence Kotlikoff (who officially ran for president  in the 2016 election!) suggests that the fiscal gap, the net present value of liabilities minus revenue, is over $200 trillion.  That’s about three years’ worth of the entire world’s GDP. It’s about twelve years of US GDP. There is no way to actually raise the revenue to pay for these entitlements. You’d end up on the other side of the Laffer curve if you tried. This isn’t a call to abolish the welfare state. It’s a call to be good stewards of the welfare state, and that requires acknowledging and pointing out its flaws.

See also this podcast with Joshua Rauh on public pensions. “If you aggregate up all of the systems in the country, you get to kind of $1-to-1-and-a-quarter trillion dollars of unfunded pension liabilities…We're used to thinking about a trillion dollars as being about $9000 per U.S. household.” He goes on to explain that this $1 trillion is an underestimate, because the liabilities are discounted at a ridiculous 8% interest rate.

People who like a generous welfare state need to acknowledge that a problem exists. We also need to recognized that our public employees have been promised money that doesn’t exist. Some of these promises will need to be repudiated. It can be any combination of things. Means-testing for benefits, for example. Perhaps everyone takes a hair-cut on their promised payouts. Increase the retirement age, at least for people who are a decade or so away from retirement and have time to adjust. Switch from “defined benefits” to “defined contribution” plans, where the retirement account is a buildup of savings and interest earned on those savings. Force governments to account for future liabilities properly by using the risk-free rate of interest rather than the absurd 8% they’ve been using. If you want a giant redistributive welfare state, you need to at least start being good stewards of it.

Welfare Reform

Many means-tested programs cause their recipients to face very high marginal tax rates. Obviously this discourages work. If I only get to keep 20 cents on each additional dollar I earn, I’m not going to work as hard as if I can keep 80 or 100 cents. Sometimes the benefits phase out too steeply (perhaps because the base benefit is too high), such that people see very high implicit tax rates. Acknowledge that this is a problem, and when you hear this argument, stop responding with “So you just think welfare recipients are lazy?!” No, they’re not lazy, they are rational human beings responding reasonably to the very bad incentives they’ve been given. Once again, this isn’t a call to abolish the welfare state, just to acknowledge one of its serious flaws.


Before discussing illegal immigration, we should first define what legal immigration policy ought to be. We currently have somewhere in the range of 700k to 1 million new immigrants each year. We should seriously consider doubling that. After specifying the acceptable level of *legal* immigration, we can talk about what to do about illegal immigrants. For some reason, discussion of immigration is dominated by talk about illegal immigrants. If we get *legal* immigration right, illegal immigration could well become a non-issue. Even if the notion of open borders worries you, there is a lot of space between open borders and current policy, and a lot of leeway to be choosy about who gets to become an American. There are a lot of people in the world who desperately want to become Americans, and many of them would be fine Americans by any reasonable person's standard. Let’s allow them in.

Trade Policy

Drop the fetish for manufacturing. Manufacturing employment in this country declined mainly due to automation, not because of globalization. See this great post by Scott Sumner, or read Paul Krugman’s excellent Pop Internationalism for the details on this. No amount of coddling American factory workers, no amount of “protective” tariffs or import quotas, will bring manufacturing employment back to its former level. Some of those factory jobs are gone forever. Also, stop bashing Chinese and Mexican factory workers for something that isn't even their fault. 

This is getting long. I didn't even touch education, healthcare, foreign policy, labor market regulations, or a host of other issues where the major parties are profoundly mistaken. There is quite a lot more to say, but I'm afraid that discussing education or health policy reform will step on too many toes and poison an otherwise viable coalition. Those arguments are perhaps for another post. I hope this post as written hasn’t slain any sacred cows. I hope it’s clear that I’m not trying to make anyone a libertarian with this post, just trying to find some possibilities for a consensus. Even if you don’t want to dismantle the parts of the state that libertarians object to, you should *at least* want to make those parts of government work better. In that vein, libertarian criticisms of government are pretty much accurate and there’s a lot to learn from them. I think if the Democrats or Republicans got serious about some of these reforms, they could start to attract some of the libertarian vote. Or they can just keep hectoring us and insisting that we owe them our vote no matter what they do. We can look at recent history to see how well that strategy has worked.

Wednesday, November 16, 2016

How to Cover Pre-Existing Conditions

The concept of a “pre-existing condition” misses the point. As a property and casualty actuary, every time I hear it I think, "If acquiring a 'pre-existing condition' is financially devastating, then why don't insurance policies pay out at the time of the diagnosis? Why do health insurers play this silly game of treating sick people like hot potatoes?" We should allow health insurers price for the individual risk. Below I'll explain how an insurance market can operate this way and still solve the pre-existing condition problem.

There are two senses in which a condition can be “pre-existing” and I think that they get conflated in standard discussions. The first sense is the one in which the damage has already happened. A huge expense has been incurred, and we’re just arguing about who’s going to pay for it. The second sense is the one in which no “event” has occurred, no “damage” requiring treatment has been done, but the expected future cost of all insurance claims has gone up because new information has come to light. In this second sense of a pre-existing condition, there are no existing medical bills to pay off, but you can expect some expensive bills in the future.

Insurance is supposed to pay for catastrophic personal expenses, the kind that it’s not feasible to budget for. The loss of a home or medical treatments that will cost tens of thousands of dollars, for example. For insurance to work, people have to be covered by an insurance policy at the time of the loss. It would make no sense for me to waltz into my local insurance agent the day after I crash my car and say, “I’m going to need a policy that will pay for some extensive body work.” Or, “I just maimed a guy before getting slapped with a DUI. Please give me an insurance policy so I can pay for his medical bills.” Insurance companies worry about this, so they usually make sure that they aren’t taking on such a liability. My second hypothetical, with the DUI guy maiming another motorist and getting a new insurance policy to cover it, would never actually happen. But the first one, the guy needing body work, might. In the property and casualty world, insurers look for pre-existing damage to cars and homes to make sure they aren’t taking on a liability on day one. They may tell the customer to fix the damage, or only issue coverage with some kind of deductible or coverage exclusion. Insurers also worry about the second sense of a “pre-existing condition,” the characteristics of a property or property owner that make it more likely that a claim will occur. If the insurer finds out about Mr. DUI above, not only will they not cover the damage already done, they will charge him more than the average risk because people with DUIs tend to be horrible risks. He may well pay ten times as much for his policy than an otherwise identical person with no DUIs.

So let’s get that straight first of all. “Pre-existing” can mean “I’m trying to get someone to pay for a liability that already exists” or “I have no outstanding liabilities, but my probability of a future claim is significantly higher than normal.” People should state clearly which one of these they are talking about.

Okay, but here’s the tricky part, where the two actually do bleed into each other. Suppose that a medical diagnosis makes your insurance premiums cost ten times as much as before, such that they become completely unaffordable. You’re not asking someone to assume the liability for a surgery that you’re already planning to schedule, but you are expecting some expensive medical bills in the future that you can’t really afford out-of-pocket. Such a huge hike in insurance premium might be just as devastating to your personal finances as a $100,000 bill for a surgery. There are several ways to cover this kind of pre-existing condition.

1)      The insurance payout happens when the diagnosis comes back, not when the medical bills come in. Suppose a diagnosis for diabetes for someone in your demographic has an expected cost of $100,000 over the remainder of your lifetime; in this case your insurer pays you $100,000. Honor served. The payment can be a one-shot or a structured payment, like an annuity or something.
2)      Guaranteed renewal. The insurer provides a renewal guarantee, such that they can’t simply drop a bad risk after new information comes to light. This can be an automatic provision, or it can be an endorsement the insured has to purchase. If it’s an optional provision, there are adverse selection issues, where only people who think they will become sick purchase the “guaranteed renewal” provision and healthy people save some money by skipping it. But if it’s mandatory, insurance might end up being so expensive that healthy people skip out on insurance altogether and you’re left with a bunch of sick people in the same insurance pool and no healthy people to subsidize them. It’s a tough call.
3)      Insurance covers future premium increases for new conditions and diagnoses. This solution is very much like 2), but more transferable. On getting a diagnosis of diabetes, I get either a big payout equal to my expected future insurance premiums or a promise to pay such future premiums. I can take this to another insurer, who will write me at a very high premium. But that high premium isn’t financially crippling. It’s something I was insured against! (This is economist John Cochran's idea.)
4)      Longer Coverage Periods. In this solution, neither the insured nor the insurer can cancel the policy, and the policy term is very long. As in, a decade or more. So you don't risk getting dropped every year because your health status changed. You're "locked in" for a long time. The premium is roughly fixed, perhaps with an annual adjustment for inflation and predictable changes (like your age increasing, which on average has a predictable effect on your healthcare costs). It may be difficult to enforce the non-cancellation provision on an insured who *really* doesn’t want to pay their bills. I suspect that there is no political will to enforce these provisions, and non-payers will be seen by courts and politicians as sympathetic victims. But if implemented this would solve the pre-existing condition problem. At the beginning of the policy period, the insurer simply factors in the expected cost of my getting diabetes. Most policyholders won’t get diabetes, but a few will, and there are enough premium-paying insureds to cover that expense.

All of these solutions have problems. Insurers are wary of long policy terms, premium guarantees, and renewal guarantees. Insurers like to have as many levers to pull as possible to manage their risk portfolios. If they go insolvent because they are too constrained in their risk-management strategies, that means a lot of policyholders won’t have the financial security they were initially promised.  The adverse selection problem looms large: people who suspect they are sick, even if they don’t have a diagnosis yet, will be more likely to seek insurance. They will be more likely to seek out insurance with these kinds of policy provisions. There is also a moral hazard problem: being insured against a bad outcome can make people more careless. For example, if I am insured against all future premium increases, I might not be very cost-conscious when shopping for a new policy, and just as importantly the insurer selling me the policy might *know* I’m not cost-conscious and inflate the price. Item 1) has the problem that the initial payout might not be high enough, or it might be *too* high for most insureds so as to be an unnecessary expense for the average policy holder. Needless to say, the exact policy language needs to be refined such that insured and insurers find the terms acceptable. Neither party really wants terms that are either too generous (which will inflate premiums and invite fraud) or too stingy (which will leave some insureds with uncovered medical bills). There’s a classic trade-off here.

Given all this, it’s possible for a private insurance market to cover pre-existing conditions, so long as the patient has insurance at the time of the diagnosis for such a condition. If the patient *doesn’t* have insurance at the time of the diagnosis, that’s a different kind of problem. In that case, not enough money was set aside to insure that expense. Arguing about who should pay after the fact is kind of missing the point. Assuming we’re talking about people who are planning to be insured and stay insured for their adult lives, pre-existing conditions are a solvable problem. The diagnosis itself is the insurable event, so the insurer at the time of the diagnosis should be liable for all costs related to that condition. Ensuring that everyone is insured all the time against the possibility of acquiring a “pre-existing condition” is a different problem entirely. It needs to be recognized as such and discussed in different terms, because the policy implications are very different. 

Thomas Sowell on Different Meanings of the Word "Racism"

This passage is from Race and Cultures: A World View by Thomas Sowell. Pages 154-155:

One of the most used and least defined words in the contemporary ideological vocabulary is “racism.” The most straightforward meaning of racism is a belief in the innate inferiority of some race or races. This is the sense which conjures up the image of Hitler and the Holocaust. But the word “racism” is often applied in other, very different, senses to wholly different situations. To some, every adverse judgment about any aspect of behavior or performance of any racial or ethnic group is “racism.” To others, it is only adverse judgments on the behavior or performance of a selected list of racial or ethnic groups which is “racism.” Thus, even sweeping denunciations of whites, “Anglos,” or perhaps Jews, may be exempted from the charge of racism.
More generally, those particular groups whose historic treatment is part of a general ideological indictment of Western civilization cannot be criticized in any way without risking the charge of “racism.” Conversely, verbal (or even physical) assaults originating within such groups are often exempted from condemnation as racism – sometimes by an explicit redefinition which requires power as an essential ingredient to racism, so that blacks for example cannot be called racists in American society. If this kind of reasoning were followed consistently, then Hitler could not have been considered a racist when he was an isolated street corner rabble-rouser, but only after he became chancellor of Germany. 
With varying degrees of explicitness, these tendentious ideological redefinitions of racism have become so intermingled with the straightforward meaning – a belief in innate racial inferiority or superiority – that the word may be irretrievably lost as a specific meaningful concept. The social phenomenon it originally referred to may continue to exists, in varying degrees and with varying effects, but empirical assessments of its existence or importance are unlikely to be clarified by the use of such a chameleon-like word. Indeed, the political overuse of the word may destroy its effectiveness as a warning against a very real danger. 
Many assume that racism is a prerequisite for discrimination, or is virtually synonymous with it. However, a generalized hostility or specific discrimination may be directed against a particular racial or ethnic group, without any belief that they are innately inferior. A political movement organized to ban Japanese immigration to the United States was quite clear about this at their first meeting in 1905: 
“We have been accustomed to regard the Japanese as an inferior race, but are now suddenly aroused to our danger. They are not window cleaners and house servants. The Japanese can think, can learn, can invent. We have suddenly awakened to the fact that they are gaining a foothold in every skilled industry in our country. They are our equal in intellect; their ability to labor is equal to ours. They are proud, valiant, and courageous, but they can underlive us…We are here today to prevent that very competition.” 
 Other groups have aroused resentments in other countries, without any suggestion that they were racially inferiors. Often this resentment has been based on acknowledged superior performance. In Honduras, for example, the claim was that the Germans worked too hard for others to be able to compete with them. In India’s state of Andhra Pradesh, a leader of the Telanganans admitted that the rival Andhras were “better qualified for many of the jobs than we are” but asked: “Are we not entitled to jobs just because we are not as qualified?” With varying degrees of explicitness, many people in many lands have recognized the capabilities of the Jews, the Chinese, the Lebanese, and others-as reasons to discriminate against them. If “racism” is the appropriate label for such behavior, then clearly the word is no longer being used in the sense of a belief in innate inferiority. Sometimes a superiority has been conceded of the group targeted for discrimination. In Nigeria, for example, discriminatory policies were advocated on grounds that otherwise “the less well educated people of the North will be swamped by the thrusting people of the South.” In Malaysia, it was likewise argued: “Malaysia has far too many non-Malay citizens who can swamp the Malays the moment protection is removed.” 
The fundamental problem with an ideologically defined vocabulary in discussions of racial or ethnic issues is not that those with such a vocabulary may be right or wrong in this or that issue. The more fundamental problem is that we forfeit our ability to examine such issues empirically, and allow important social questions to be obscured, or the conclusions to be preempted, by mere tendentious words. The painful history of racial and ethnic relations is a sobering reminder of the high stakes which make clarity imperative and obscurantism dangerous. 

Sowell does an excellent job of laying this out. People who fling around the word "racist" ought to be a little more careful about what they are actually saying, because it can mean very different things depending on the context. Someone who, say, criticizes elements of American black culture isn't "racist" in the sense of believing in inherent genetic inferiority. Anyone who calls such a cultural critic a racist should at least acknowledge that they are expanding the definition from its original meaning to include other things. In fact, such a culture critic might be trying to identify a transient, fixable problem and may be arguing explicitly that a social problem is *not* written into the genes. Simply dismissing such a person as racist seems bizarre if their actual intent is to argue *against* a theory of inherent genetic inferiority in lieu of a cultural explanation. Of course these different senses of the word "racism" can refer to equally harmful attitudes; the resulting discrimination can be just as damaging to a minority group whether the oppressors believe they are generically inferior, culturally handicapped, or actually superior. But if the point is to avoid some tangible harm, then it would make more sense to discuss the problem in terms of the actual harm rather than appeal to a hysterical boo-word that only serves to muddy the waters.

One option is to do away with using "racism" as a boo-word altogether and simply state in clear language why the offensive idea in question is wrong. "You're a fucking racist!" is a non-starter if you're trying to have a conversation with someone. It invites blow-back. You might manage to shut someone up, but you'll have failed to change his mind. He'll sulk away still harboring the offensive thought, because the thought was never refuted or even examined in the light of day. Sowell makes it very clear in this book that he is concerned about the very real dangers of racism and racial politics. I read him as calling for clearer language in discussing such dangers.

Tuesday, November 15, 2016

Let's Talk Policy. Not Motives. Not Virtue. Just Policy.

What passes for "political" commentary these days usually has nothing whatsoever to do with policy. If anyone is actually interested in discussing policy, I'm here and I'm listening. 

My great disappointment about this election (aside from the obvious) is that almost none of the discussion has been about policy. There has been very little discussion of the exact proposals of Mr. Trump and Mrs. Clinton and the relative costs, merits, or economics of such proposals. It’s mostly been rabid denunciations. It’s been about who is or isn’t a “bad person.” It’s been about political tribalism, signaling of cultural identities, and signaling one’s opposition to someone else’s cultural identity. Not that this is *always* uncalled for. Sometimes there is evil in plain sight and it's hard to resist calling a spade a spade. The problem is that this tactic of denunciation is a non-starter if your goal is persuasion. A sweet zinger or a harshly worded rhetorical flourish will get you a hive-five from your ideological buddies, but it’s not going to win the hearts and minds of your ideological opposites. On the other hand, it's possible to have a reasonable discussion of the relative merits of different policy proposals.

I’ll probably be talking a great deal about Mr. Trump’s policy proposals. When he is grossly mistaken, as he is with immigration and trade policy, I will explain why it’s a bad policy and why the effects will be harmful. Where he picks a *good* policy, as he might if he’s serious about cleaning up regulatory morass and ending taxation on capital, I’ll explain why it’s a good policy and say, “Well, good on Trump for this one thing.” I expect any readers to *not* interpret these one-offs as a general endorsement of Trump. When I am being critical, I will not lead with “Trump is a horrible person.” But I won’t hesitate to point out that he’s picked an awful, harmful, possibly deadly policy position. Sometimes it suffices to say, “This is what Mr. Trump wants to do to us. These are the likely consequences. Draw your own conclusions about his personal character.” I don’t necessarily care what kinds of sinister motives or misguided feelings Mr. Trump harbors in his heart. I don’t care whether Mr. Trump’s anti-trade position is motivated by enmity toward the Chinese or amity toward American factory workers. I care about the actual harm he is proposing to do, not his motive for causing that harm.

I have tried to discuss policy here on my page. I occasionally post something about policy analysis on my Facebook page with a few words or a few paragraphs of my own commentary. The response is typically underwhelming. When I post something crassly partisan (which I do rarely), I get a bunch of thumbs-ups or angry comments. This differential in response rates discourages me. I also get the occasional, “LOL, I never know what you’re talking about!” I’m talking about all the same shit that everyone else is talking about, it’s just that I’m trying to get the details right. I’ll keep it up, because I know that there are five or six people out there who are interested in this mode of discussion. I suspect there are many more who read but never comment or respond but who nevertheless mull over the new ideas presented here. If you’re in that group, keep it up! You’re awesome! We need way more of you!

Monday, November 7, 2016

The “Name a Logical Fallacy” Fallacy

Here’s another item for my “bad comments” list. This is different from the argument from fallacy (or fallacy fallacy), which involves rejecting a conclusion because an argument given for it is fallacious. (“My hair is a bird. Therefor the earth revolves around the sun.”)

In this fallacy, the fallacious reasoner names a logical fallacy, and instead of addressing the argument given or engaging in the discussion, spends all his time speaking about the logical fallacy. I’ve encountered this a few times.

In one thread a few years ago, someone pointed out that the amount spent annually to house a prisoner is more than the cost of year of college. It was in the context of arguing for spending more on college (I think). It’s an irrelevant comparison, and I said so. (Is the argument that we should send the criminal to college instead of prison? Like, even a murderer or a rapist? Is the argument that we should send everyone to college so that nobody ends up becoming a criminal? Is this a plausible strategy for reducing crime?) Someone piped up with “Nice straw-man dude!” without any elaboration. As far as I know I didn’t commit the straw-man fallacy, which is when you attack an argument different from the one that was offered. I asked for clarification. Instead of discussing the topic with me or explaining how I had made an error in reasoning, he kept repeating the words “straw-man” and posting links to internet dictionaries defining the term. There was even a "Take a course in logic, dude."  Someone arguing in good faith would have said, “No, your argument is against *this* position, which nobody has taken. Our actual position is the following…” No such clarifying dialogue happened. My interlocutor was happy to insist that I’d committed a fallacy and to describe the fallacy rather than engage in conversation.

All of this is to just give an example, which is really a composite of several different failed attempts to communicate over the past few years. I’m not picking on any one person. I think it’s good to know about logical fallacies and to worry about committing them, but I’ve seen how they can make people lazy. As in, “Ah ha! That sounds kind of like a logical fallacy, which we all know is wrong. So I win!” I have a book called An Illustrated Book of Bad Arguments. I plan on reading it to my kids when they're old enough to understand. But I'm going to have to caution them not to just name the fallacy when they spot it. That's not enough. You have to explain how a bad argument fits into a given fallacy category. In fact, if you're having an honest discussion, you should be able to explain why an argument is bad without naming a fallacy, and an honest interlocutor should understand the error without reference to a canonical list of sins. 

Sunday, November 6, 2016

How Much Should the Legal System Respond to Public Outrage?

“After all the outrage on social media over the not guilty verdict (or light sentence), we’re going to have a re-trial. Don’t worry, folks. We’ll get ‘im!”

Does anyone actually wish the system worked this way?

I’ll be fair and say that a few people (very few) are thoughtful and nuanced enough to actually ask for some kind of policy change or concrete structural reform amidst their outrage. And I’ll generously grant that this is what many others are asking for, if sometimes inarticulately or unintelligibly. But I get the strong sense that commenters are asking for a *specific verdict* to be reconsidered. Even if they are just asking for similar future cases to be decided differently, I’m very uneasy with the notion that judges and juries are considering “social media backlash” as a factor in their decision-making, and in such a way that it would result in a harsher verdict than otherwise. I don't like the idea of individual cases being decided so as to even out some societal injustice. 

If I have a tin ear here, and all the outrage is really just a call to even out the underlying injustices, then I apologize for this irrelevant post. It's just that much of what I see and hear doesn't support this more reasonable interpretation of what's being demanded.

You can say things like “But this story highlights a more general trend of blah blah blah…” But this is wrong, because no one story indicates an overall trend. It’s just one data-point. Even if we got all the policies right and made all the right institutional changes, you’d *still* have the occasional blunder, the bone-headed decision by a judge, or the head-scratching verdict by a jury, or the woeful mishandling of a motorist by a police officer. We’d still have the occasional outrage-inducing blunder-story, even in this “perfected policy” world, and we’d have run out of policy levers to address them. Perfection in the sense of eliminating all errors is not possible. Perfection in the sense of minimizing errors is possible. (Or at any rate minimizing the costs of errors within the constraints of acceptable error-prevention costs.) I would advise anyone reading to not give too much credit to any one news story, even if you think you’re noticing a “pattern.” You simply can’t paste headlines together into a coherent worldview. 

Friday, November 4, 2016

Stop Trying to Regulate the Sharing Economy

From Fortune, an article titled New York Just Cracked Down on Airbnb With a New Law:

Things aren’t going in Airbnb’s favor in New York.
On Friday, New York Gov. Andrew Cuomo signed into law a controversial bill that makes it illegal to advertise short-term rentals that violate New York City’s rules—and imposes steep fines to the violators. New York City’s regulations prohibit rentals for less than 30 days without the host being present—also known as entire-home listings.

These attempts to regulate the sharing economy are really pointless. These are regulations that probably should never have existed in the first place, and now a completely new thing is being crammed into a generations-out-of-date regulatory structure.

A left-wing version of the narrative is that the regulations are a foregone conclusion, and Airbnb and Uber are evil and cynical for trying to flout them. I don’t buy this framing. I think it gloriously misses the point and papers over the possibility that regulating business the way we do *might* be a bad idea. That’s kind of the point. When people voluntarily transact with each other, and a regulation makes that transaction impossible, that means government has imposed a cost on those parties. It would be nice to see *some* acknowledgement that regulation can be costly or wrong-headed. Technology is making it easier for people to transact with each other, and government is making it harder. That’s what’s happening here. It’s easier to hook up someone who wishes to sell his labor to someone who wishes to buy it. It’s easier to hook up someone with an empty car seat with someone who needs a ride. It’s easier to hook up someone who needs a place to stay with someone who has an empty room or basement. The buyers in this market get needed stuff more cheaply, and the sellers can earn some extra income. That’s what economic growth looks like. Every little regulation makes these transactions more costly, which ensures that at least some of them won’t happen. In some extreme cases, they force the Ubers and the Airbnbs to exit a state or a city entirely.

Some people are very worried about economic stagnation and weak economic growth for the middle class. Okay, so let’s stop hindering progress. Stop giving petty bureaucrats veto-power over consensual transactions between adults. Capitalist acts between consenting adults ought to be allowed.

Thursday, November 3, 2016

How Safe is the Dakota Access Pipeline?

Let me just start off by saying that the title of this post is a real question. I’m not being coy. I don’t have a dog in this fight. I’m not going to surprise the reader with “Completely safe, so suck it!” or “Not safe at all, so suck it!” But I’m not just asking for me. I’d like to get others to consider the question. Perhaps failing to side with the “right” team will make me the target of internet outrage, but I’m going to try anyway and I will simply ignore the unreasonable people who don’t like to think about trade-offs and relative risks. This is going to be another post where I’m not arguing for a conclusion, I’m just trying to articulate a trade-off.

I recently saw some maps of the pipeline.  It was a line extending from North Dakota to South Dakota to Iowa to Illinois, with some pink shading around it to indicate what communities might be affected by it. Someone took the pink shading to mean, “These regions are threatened by the pipeline!” but I found this to be misleading without having any estimates of 1) the risk that the pipeline would leak and 2) the harm that would be unleashed if it were to leak. You could just as easily draw a line extending from one major airport to the next implying that everyone in the path is in imminent danger of having an airplane fall on their heads, implicitly multiplying this by the millions of flights that take place each year. Of course the chance of an airplane crashing into you is so vanishingly small as to be irrelevant, but still non-zero. I don’t think anyone takes seriously the notion that we should ban air travel because it imposes such an irrelevant cost to third-parties. We all just accept that the economic benefit of air travel trumps the minor risk that an airplane will kill someone who didn’t consent to the risk (as opposed to the passengers and flight crew, who knowingly consent to the risk).

Now, certainly it’s wrong for me to pull out a fully loaded six-shooter, point it at your head and pull the trigger. It’s almost-as-surely wrong to pull out a six-shooter with one bullet in a random chamber, point it at your head and pull the trigger. (I should say 1/6th as surely, but still pretty damn surely!) Nobody tolerates this kind of risk. But what if the gun has ten thousand chambers and only one bullet? A million chambers? A trillion? And the gun-slinger derives some significant benefit from pulling the trigger? Suppose that in that one-in-ten thousand event, the results aren’t fatal but just annoying or costly. Maybe you don’t get your brains blown out, but simply take one in the shoulder. Or perhaps, in the event that the gun fires, you have the opportunity to pay some price to avoid taking the bullet at all, and in fact perhaps the gun-slinger can pre-commit to paying said cost in the event of a firing. (I am stealing the “million-chamber revolver” example from many people, but I believe I first heard of it from David Friedman. Couldn’t tell you which book it came from, though.)

Some people are arguing that total aggregate risk of oil spills will *decrease* if the pipeline gets built. Supposedly pipelines are less prone to oil spills than the alternative: moving oil tank cars by rail. This seems reasonable enough. In the past few years there have been plenty of high-profile oil spills and even explosions of oil moved by rail. If this view is correct, we’re not just arbitrarily subjecting an Indian nation to risk, we’re re-directing risk that is currently incurred elsewhere, in fact *reducing* the overall risk (according to this argument). If that’s true, the map in the link above should be compared to another map, showing all the routes by which oil will travel across the country by rail if we don’t build the pipeline. Perhaps they can be color-coded to indicate risk-per-mile at each point, and perhaps some clever person can sum up the total risk by doing a path integral along both lines. We could see which map gives us the greater overall risk. That would give us the proper comparison. I’d like to have that information before I hitch my cart to any bandwagon, but I have yet to see it. (Once again, maybe it’s out there and I just haven’t seen it. I’m raising a question here, not answering it.) In my gun-slinger example, perhaps he’s not simply pulling out a new gun, but decommissioning several existing guns so as to reduce the overall risk. Yeah, it sucks if the new gun is aimed in *your* face, but to block all such projects because “The new safer gun is pointed in *my* face!” would seem to block all progress made by mankind in the past thousand years. A “we’re all in this together” attitude would imply that we accept these kinds of changes *in general* knowing that sometimes they will hurt us but on balance they will benefit us (dramatically!).

I’m a property rights enthusiast. If someone says “No, you can’t build on my property, no matter how much you pay me,” my instinct is to say this person gets veto power, no matter how seemingly unreasonable he is being. On the other hand, I think it would be wrong to allow the property owner to say, “You can’t do anything on *your* property either, because there is a small chance that it will negatively impact *my* property.” In this second case, the unreasonable property owner is imposing costs on *his* neighbor by hindering the neighbor’s use of his own property. (Paging Ronald Coase.)  According to the map in this article, which is quite sympathetic to the Standing Rock tribe, the pipeline goes just north of their reservation. The tribe’s complaint is that an oil spill will poison their water supply, not that it crosses their property. So they don't get to play the "You're on my property" trump card. I think that whether they have a legitimate case against the pipeline depends on how risky an oil leak is, and how damaging it is if one happens. Who I should side with depends on the answers to these questions. If I find out that the pipeline is effectively pointing a six-shooter with a single bullet at the heads of some innocent people, without even compensating them for the risk, I will be vehemently opposed to the pipeline and express my total sympathy for the tribe and the protesters. But if it’s more like aiming a million-chamber revolver filled with one or two rubber bullets at a few random people, all while fully agreeing to compensate for any harm done, then my sympathies will end up lying with Dakota Access, LCC.

My frustration here isn’t that people have chosen the wrong side. There exists an intellectual framework for thinking about these kinds of pollution problems (“externalities” in economic speak); my frustration is that nobody seems to be engaging with it. Everything about this story that has crawled across my news-feed has been terribly emotional. Aim higher, folks. Engage with the intellect a little. If I hear a compelling case that this is a significant risk of enormous harm, I will become very passionately anti-Dakota Access. 

Wednesday, November 2, 2016

Is a Trump Sign in a Neighbor’s Yard a Legitimate Grievance for a Home Seller?

Interesting story at Marginal Revolution:

“A homeowner took to a message board Sunday to complain about her neighbor’s sign supporting the Republican presidential candidate, Donald Trump. The anonymous homeowner said his or her family lived in a liberal part of Northern Virginia and were putting their house up for sale. The homeowner feared that the Trump sign would scare away potential buyers, and asked on the message board whether it was appropriate to ask the neighbor to take down the sign.
…The question proved popular, and elicited 10 pages of responses. Some commenters, in more offensive terms, said the anonymous poster was being ridiculous to even think this was in issue; others suggested the homeowner wait until after the election to sell the house. Still others said they would not want to buy a house next to a Trump supporter.”

What do people think? I have some scattered thoughts. Here is the original message board.

1)      If indeed a “Trump” sign affects the owner’s ability to sell a home, it’s a legitimate concern. It’s an “externality,” or cost to third parties.

2)      Yes, free speech is very important and we should have a presumption against limiting speech *even* as a matter of private policy (as compared to public policy). But let’s not paper over the fact that someone’s behavior is causing harm to a third party. We need to at least acknowledge the harm, even if we then dismiss it with “That’s a price worth paying.”

3)      Limiting someone’s speech because it hurts a third party is simply *another* kind of externality. So compelling the homeowner to remove the Trump sign wouldn’t “resolve” the externality, it just creates a different one where B imposes costs on A rather than A onto B. This was one of Ronald Coase’s Nobel-winning insights, if I understand correctly.

4)      In the original message board and in the comments of the Marginal Revolution blog post, some people say that a Trump sign in a neighbor’s yard would deter them from buying the home. Are they serious or just blowing smoke? If they’re serious, is it okay to think this way? If it’s okay to think this way, what other kinds of discrimination are okay? All kinds of discrimination? Just certain approved kinds?

5)      Nobody anywhere suggested that it’s wrong for the homeowner to try to conceal the fact that her neighbor is a Trump supporter. Everyone who took the homeowner’s side of this said something along the lines of “It’s okay to try to get the sign taken down.” None of them said, “How dare you conceal damaging information about the value of your property?!” Which makes me think the “I wouldn’t buy such a home” people were blowing hot air and didn’t really believe what they were saying.

6)      I absolutely love how this situation was resolved – by talking! Maybe we don’t need a bunch of sin-taxes, enforcement mechanisms and courts for resolving property disputes…we just need to talk to each other! “The homeowner reported back later Monday that she or he talked to the neighbor, and the neighbor seemed understanding of the predicament and removed the sign. The neighbor was an elderly woman who apparently didn’t even like Trump much. She was, however, married to a big Trump fan who was not home at the time. It is unclear how her husband felt about her decision to remove the sign.” The homeowner even made brownies for the neighbor for being so nice about the whole thing. 

Sunday, October 30, 2016

Defending Gary Johnson Against Stupid "Gotcha!" Questions

There is something missing from all the coverage of Gary Johnson’s “Aleppo moment.” Unless you actually watched the interview you wouldn’t know that he answered the question asked of him. As soon as he realizes they are talking about the Syrian civil war, he answers the question and explains his policy position. He expresses a non-interventionist worldview (if perhaps a bit inarticulately). It was clear from his answer that he’d given some thought to the issue and had a ready answer. So I think it’s totally unfair to peg Johnson as clueless, as if he’d never even heard of the Syrian civil war. I’d call this episode mildly embarrassing and his overall answer is a bit weak (at least poorly expressed), but I’m not buying the notion that this disqualifies him from the presidency. Clearly he had a well-formed opinion on the topic in question, even if he didn’t pass the interviewer’s geography quiz. I get almost daily news updates on the Syrian civil war, and I wouldn’t have been able to tell you the significance of Aleppo, and I’ve heard/read something similar from a few other regular NPR listeners. So I certainly don’t buy the pretense that “all of us smart, informed policy wonks know the significance of Aleppo.” Especially considering this

And yet Johnson is hardly alone when it comes to Syria gaffes. Former Obama administration ambassador to Iraq, Chris Hill, followed Johnson on Morning Joe and mocked the former New Mexico governor's "blank stare." Hill predicted that "he will now be known as 'Aleppo Johnson'" and then called Aleppo "the capital of ISIS." In fact, Raqqa, not Aleppo, is widely considered the capital of the self-declared caliphate known as the Islamic State. The New York Times incorrectly referred to Aleppo as "the capital" of ISIS three times in its quick take on Johnson's screw-up before adding a correction to the bottom of the page. Even that correction required a correction, as it initially referred to Aleppo as Syria's capital, when it is in fact, Damascus.

In other words, in the rush to smear Johnson, his snide critics are fumbling on the factual details of Aleppo. So you’ll have to pardon me if I think this “everyone knows what Aleppo is” attitude is all a pretense.

I think people are applying a double-standard here. I can’t read people’s minds, and I can’t peer into the alternate universe where Hilary Clinton or Donald Trump get surprised with the same or a similar “gotcha” question. (My best guess is that Clinton would get it right, Trump wouldn’t, and on a random different day Johnson wouldn’t have brain-farted and supplied sleazy journalists with their “gotcha” moment.) But I’m pretty sure nobody would disqualify a candidate they liked over something this petty.

I’m imagining an alternative universe where Hilary Clinton is asked “What would you as president do about Abu Bakr al-Baghdadi?” and she stumbles to recall who that is or asks a clarifying question. Her critics pounce on her "ignorance" of foreign policy details, but her defenders understandably point out that it’s a stupid “gotcha” question. The interviewer did not intend for his average viewer to understand the context of the question, but was deliberately attempting to trip up the candidate and eventually succeeded. You might think that the intention of the interviewer is irrelevant. A mistake’s a mistake, and ignorance is ignorance, right? But this is wrong. If I know the interviewer was fishing for “gotcha”s, I’m going to think it’s less significant that he finds one. A gaffe is less embarrassing if we know that the politician was placed in a gaffe-generating environment; it’s more embarrassing if it happens spontaneously. What you’d like to know is a politician’s gaffe-propensity “in the wild,” their true “gaffe base-rate,” not their gaffe-propensity in an artificial gaffe-magnifying environment. 

To reiterate, none of this is to say he gave a great answer or that the incident was completely irrelevant. It's just that people are blowing it way out of proportion and not even acknowledging that he answered the goddamn question asked of him.

This is in contrast to the “name a foreign leader” incident, which many people have been dishonestly misrepresenting. The conversation that scrawled across my social media feed was: “Johnson was asked to name a foreign leader, any foreign leader, and he couldn’t name one.” Any  thoughtful person’s nonsense detector should have gone off. “Would an interviewer really ask such a pointless quiz question? Of course not! I should read more into this!” And such a thoughtful news reader might eventually discover what actually happened. In fact, he was asked to name a foreign leader he admired. That’s a question that requires some thought. It’s a legitimate stumper. Nonetheless, Johnson *had an answer*! His answer was Vincente Fox, although he did fail to recall Fox’s name on the spot. That might be mildly embarrassing if Johnson ever meets Fox face-to-face, but it’s hardly an indictment of his mental ability or his knowledge of world events.  The mischaracterization of this event is more serious than the Aleppo thing. It caused me to down-rate the credibility of some news sources and some people who I know personally. It’s a very shallow reading of the news, and I saw several people commenting on it as if the “Johnson was asked to name any foreign leader and failed” narrative was the correct one. 

Thursday, October 27, 2016

Bad Arguments For the Minimum Wage

Now, there are some really bad arguments for the minimum wage. There are people who don’t even acknowledge that it’s theoretically possible for the minimum wage to cause unemployment. It either doesn’t occur to them, or they pretend the very idea is absurd on its face when confronted with it, or they dismiss it as being numerically insignificant without evidence. My post won’t discuss these people, because they aren’t really serious.

There are some slightly better but still bad arguments for the minimum wage that actually come from people who are well-read and economically literate. These people argue that while economic theory does indeed predict that a minimum wage leads to unemployment for low-skilled workers, it doesn’t tell us how big the effect is. The effect may be big or small. It’s an empirical question. The empirical literature has many studies that show a small or even positive effect of the minimum wage on employment. Summarizing slightly, the argument here is that the costs of the minimum wage fail to materialize, so there’s nothing to worry about.

But hold on a second! Did you notice that something’s missing? Here we have advocates for a policy telling us that the costs fail to materialize. Okay, so what about the benefits? Aren’t there two sides to a ledger?  Doesn’t a “cost-benefit analysis” entail measuring the benefits, too?

It turns out there is an enormous literature on the effects of the minimum wage, and we have empirical studies on things other than the effect on unemployment. The book Minimum Wages by David Neumark and William L. Wascher is a thorough literature review on the economics of minimum wages. Attached is a summary table that appears near the end of their book.

Hopefully they wouldn’t mind me using it. (I’d be downright baffled if someone wrote a book intended to inform public policy but then suddenly got "copyright happy" when someone tried to share excerpts from it!) Notice that we fail to see the presumed benefits of the minimum wage. Under "Income distribution", it says, "For U.S. economy, clear conclusion that minimum wage effects range from no beneficial distributional effects to adverse effects, with no evidence of beneficial distributional effects." Based on the rhetoric marshaled in support of the minimum wage, you'd expect to see some sort of distributional impact. You'd hope to see a reduction in poverty or something like that. Based on the empirical literature, minimum wage proponents can claim no such benefit.

Also, notice that it isn’t at all a consensus that minimum wages don’t cause unemployment. They probably do. There are some studies that indicate otherwise, but they aren’t the majority of studies, and according to Neumark and Wascher they aren’t the majority of the best studies with the best data and methodologies. Measured elasticities are in the -0.1 to -0.3 range. A -0.1 elasticity means that a 10% increase in the minimum wage would result in a 1% drop in employment (for low skilled workers).

I have to point out a minor detail in this table. Notice under "Prices and profits" they say " appreciable impact on inflation." Just as there are bad arguments in favor of the minimum wage, there are bad arguments against it. One such goes something like: "Minimum wage will just cause inflation, which will eat away the entire benefit." This is a common lay argument, but almost no economist takes it seriously. It's important to note that Neumark and Wascher slay this fallacy. Lest you think they are just ideologues with axes to grind, witness here that they are debunking a bad argument in favor of their overall conclusion.

I’ve seen some of the back-and-forth on this issue. Proponents of the minimum wage will insist that the studies that show no unemployment effect are the best studies with the most cutting-edge statistical methods, and opponents will redo their studies with these sexy new methods and find that indeed there is an unemployment effect. This kind of back-and-forth is important, but rather than glom onto a few studies it might be more sensible to have a healthy agnosticism. Maybe, in some places at some particular times when some particular minimum wage increase happened, there was no effect on youth employment. That’s not shattering to my worldview. I’m happy to entertain the view that the effect of minimum wage on unemployment is too small to see in a lot of empirical studies. But that would hardly be the end of the debate. If we’re crafting policy in a state of radical uncertainty, that means the potential for enormous harm exists. You don’t just get to take your point estimate and assume it’s the sum total of all truth. There is uncertainty around that estimate, and if you underestimate the unemployment effects you will do enormous harm to the people least capable of absorbing it. And even if you somehow establish that there’s no unemployment effect and the error bars around your point estimate are infinitely narrow, you would still need to empirically demonstrate a benefit. The current state of the empirical literature doesn’t support any such benefit. No one can definitively say, “…and therefore the benefits of the minimum wage justify the costs.” This part of the argument is completely missing.