Cheaters Never Prosper

Adultery-facilitating website Ashley Madison has had its user data stolen. 37 million users, many of them presumably real people, are now at risk of extortion, identity theft, and that old-timey blackmail.

You can read Avid Life Media Inc's statement here.

I know what you might be thinking: the only site that deserves it more is maybe Gawker. And while I'm sure that law enforcement will be working diligently to find the culprits and bring them to justice, I might expect most citizens hearing the news will sniff and mutter, "they had it coming." Degeneracy like adultery deserves some sort of cosmic justice, and occasionally justice arrives in a chariot driven by a team of hackers (in this case, amusingly and appropriately named "The Impact Team"). 

I have my doubts that Ashley Madison has 37 million unique active users. But that is an upper bound estimate. 37 million already-shaky marriages further threatened by vigilante hackers is a heck of a lot of mischief. There are probably a heck of a lot of people waking up to a heck of a lot of fresh regret this morning. 

I sure hope if you're reading this, you're not one of them. If you are, godspeed. For you have an awkward, difficult conversation with your spouse to conduct, one that I hope I wouldn't wish on even a miserable moral wretch.

Of course, the first-order harm is the infidelity itself. Exposing it is a comparatively minor evil. Right? It seems that way. I think this might be an interesting enough question to explore in my ongoing altfic at Sweet Talk. Stay tuned.

Anti-Shoopites The Third: The Revenge of Shake Shake Booty

Is Herbalife a Ponzi scheme? Via @pmarca, Bronte Capital explores the ins and the outs in exhaustive detail. And it appears that there's a great deal to the case, as one might expect with a worldwide operation.

The skinny version: the physical Herbalife product is a nutritional supplement, sort of a meal replacement shake. You drink this once a day in lieu of a meal along with some tea and some aloe water and in a few months, you lose weight. But there's a great deal more to it than the shake mix and the tea. They seem to be in the business of selling local social clubs where like-minded folks gather for a common purpose in a comfortable setting. Participants congregate to share stories, to offer support, and to provide motivation for each other.

Naturally, law enforcement is obliged to intervene. The Federal Trade Commission has some bright-line guidelines for what counts as a Ponzi scheme, including how much of the product is sold for retail purposes and how much is consumed within the distribution network. The stereotypical cases for this are Amway and Koscot. Amway is particularly notable for complying with the letter of the regulations without obeying the spirit (nb, this is an editorial remark: I've known several folks to emerge from the other side of an Amway dalliance severely disillusioned. Still, that's anecdote, useful for filling a parenthetical, nothing more). Herbalife appears to be the converse: it's possible that they've violated the FTC guidelines, but they don't appear to be defrauding anyone. In the terms of the EE conditions, there's no ex post regret.

I think that's the important part from the perspective of the pedestrian moralist. If the shake, the tea, and the aloe water are merely the totems of the enterprise, and what Herbalife is really selling is ersatz ritual, it's silly to launch an inquisition.

Charles Ponzi was a con artist, for sure. But like with many things, so many things, the reaction to his scheming was poorly designed. Madoff was a type II error. Herbalife appears to be a type I error. It can be difficult to know whether or not an investigation is righteous without burning shoe leather. Maybe a centralized bureaucracy like the FTC isn't always the best approach to fraud prevention.

Kidnapped at Needlepoint

Medicine is not euvoluntary. If you're sick and you don't get a doctor, the consequences could be severe. Single-payer/single-provider systems like the UK's NHS avoid  the implied rent extraction by fixing prices. Third-party-payer/multiple-provider systems as in the US purportedly rely instead on market competition to keep prices reasonable. Naturally, that isn't exactly what happens. Instead of a reasonable bill for services rendered like you'd get at the dry cleaner's, you get a massive laundry list of meticulously detailed line items, from blood panels to MRI scans to a dose of Advil for your achy breaky knee.

Of course, everyone who's either been a patient long enough, or who works in the medical services industry knows quite well that the first bill you get that you send along to your insurance provider is what negotiators call a highball: an obviously grossly overstated estimate of the actual cost of care. Whatever the reasons for treating a routine hospital stay the same way you would haggle over a rug in Marrakesh, the effect on the patient is the same: "good gravy, look at this crazy medical bill. Thank God I have a good insurance plan to take care of it. Could you even imagine having to pay this out of pocket?"

Of course, no hospital would even think of making a patient pay those ridiculous rates out of pocket.

Unless...

"Against medical advice," aka AMA should be right below "we've had an ebola outbreak in med-surg" as the most terrifying thing you can hear as a patient. If you do anything your loving medical staff disapproves of (including undergoing superfluous tests, seeking a second opinion, or refusing medication you've deemed too risky to justify the alleged benefits), you will be acting against medical advice. And if you go AMA, your insurance company is no longer obliged to pick up the tab. That absurdist comedy of a bill you get at the end of a couple days' inpatient care is all yours, baby.

So here's my question for all my great friends out there: is this exploitation? Do hospitals and insurance companies effectively conspire to over-provide zero (or negative)-product care using the threat of AMA as a bludgeon in case patients do not cooperate? And if they do, are they morally justified in doing so? Why or why not?

And if they are not justified in doing so, what moral intuitions steer the median voter away from their ordinary skepticism of big business for health care provision, and instead towards beefing up the entire apparatus via Medicare, the AMA, the ACA, et al? Can the care ethic alone do all the heavy moral lifting here?

I think I'll devote the rest of the week at EE to exploring different possibilities for health care delivery in very broad strokes. Medicine is not euvoluntary, but some systems may be more not euvoluntary than others.

[Update] My old [AS] confederate Cepheus84 informs me that in his professional experience in the medical billing industry, it is (unruly) patients more often than service providers that end up rattling the AMA saber. This is consistent with the frequent tales told by Mrs. Spivonomist about some of the more desperate drug-seeking behavior she encounters at work. AMA, it seems, is a double-edged sword, as the hassle of dealing with an investigation is often more costly than just signing a prescription for some percocet. It's an information asymmetry problem, and patients who've learned how to game the system have an advantage.

Euvoluntary Extortion?

The great nation of Mungertopia offers residents fertile plains, majestic mountains, rivers brimming with fish, and golden sands ready to invite frolicking maidens to dance under a generous sun. Beautiful though Mungertopia might be, those who dwell there tend to toil modestly, an honest day's work for an honest day's pay.

But one day, in a far-flung fiefdom, a largely-ignored and mostly-forgotten clan discovered a hidden magic. No ordinary magic this, it was a magic that grew more powerful the more people used it. And so they shared it. Most Mungertopians rejoiced as their lives grew richer under the spells woven by this magic. But all was not well. In the far-flung fiefdom, the largely-ignored and mostly-forgotten clan shared land with a crew of local toughs who were well-poised to inconvenience clan members in their daily routine. And the local gendarmerie were not particularly inclined to stop them, thanks in part to the twofold propensity for the largely-ignored and mostly-forgotten clan members to be a) a bit obnoxious and b) rich. And not just rich, but callow rich, nouveau riche, possessed of wealth but not of class, dripping with earnings, but barren of taste, restraint, or noblesse oblige.

And so one fine day, the local toughs girdled their loins, sauntered up to the largely-ignored and mostly-forgotten clan, and issued an ultimatum: "hand us a portion of your wealth and we'll leave you in peace. We will use it to feed the hungry, clothe the naked, and house the indigent. Our vision of a more perfect Mungertopia is not all that different from yours, though our means be different. Trust us."

The subtext is, of course, a veiled threat. The local toughs could indeed harass, delay, inconvenience, bully, and spite the largely-ignored and mostly-forgotten clan with relative impunity. That is to say that the opportunity costs for the local toughs to indulge their taste for thuggery is considerably lower than the avoidance costs for the largely-ignored and mostly-forgotten clan members. And the clan really likes the fiefdom they've settled in: it's beautiful, the weather is clement, the food excellent, and the land aromatic. Could the toughs' attempt at extortion be considered somehow euvoluntary?

What if instead of Mungertopia, this occurred in the Bay Area? From KR, anarchists attempt to shake down Google. Thanks Kyle. Thyle.

Legally, this may not be precisely extortion, but come on. With ordinary citizens already getting all puffy about Google running buses out to the compound, it's easy to imagine an anti-gentrification groundswell leading to full-fledged riots, complete with arson and looting. Forking over $3B to buy civil rest (even if it's through more conventional channels) might well be worth the price tag. Right?

When a mugger holds a gun to my head and demands my money or my life, my BATNA is pretty darn unattractive. When a gang of anarchists holds a riot to the head of my multi-billion dollar tech enterprise, the same moral intuition may not apply so readily.

Agree? Disagree? Is this, or something like it, approaching euvoluntary? Why or why not?

I Retract My Apology

Hello occupational licensing, my old friend. From Reason TV, via the Girl Poet:

I won't rehash arguments about how licensing has morphed from a consumer protection initiative into the institutionalized banditry you see above. That road is well-trod. Instead, I want to draw your attention to the point the video makes about CA state officials posting video on YouTube.

You can imagine the steam rising from HL Mencken's ears, can't you?

Put on your libertarian shoes for a moment and think about this. Step 1) Otherwise honest people want to make a (as far as I can tell) purely euvoluntary deal about landscaping or housepainting or something. Step 2) State enforcement agents step in and turn these people into criminals. Step 3) These same state officials, under the belief that they act in the public interest, share with the public footage of their activity. Step 5) From the public, crickets. There is no step four.

You don't have to be a staunch Nozickian to find this appalling. Indeed, I suspect you'd have to be well-blinkered to fail to characterize this as anything but above-board thuggery. And they're proud of it. I... I don't even have the words, people. Didn't the radical left of the 60's rail against The Man? This is The Man, on full display, grinningly showcasing its TheMannery for the wide world to see.

I'm not even sure whom to be ashamed of.

Okay, with this story, I now have to grudgingly admit that the looking-glass threshold has been well and crossed. The snout of the state has well and truly snuffled into the trough of euvoluntary exchange and there it browses, proudly showcasing its bedswerving flanks. I was wrong to apologize. Things really are as crazy as they seem.

Here are highlights from the original video:

Remittance Payments and Directional Euvoluntarity: Buttercoin and Brito

Jerry Brito (along with our pal Andrea Castillo) is busy doing the heavy lifting when it comes to the economics (and political economy) of Bitcoin, and since his work already addresses EE points, I have ruled it prudent and polite to keep from sailing upwind of his research. If you'll forgive a note of conceit, I'd like to cross tack just this once.

Buttercoin is a nascent startup aimed at slashing the tendon of Western Union's business model using Bitcoins as the medium of exchange* in lieu of the staple currency: US dollars. Their praedicatum is that the extant firms are circumstantially coercive. Expats have little recourse but to submit to being "gouged" to the tune of 10% per transaction. These guys call shenanigans and say that they can operate for less.

I for one hope they're right. Now, I don't claim to know what the "correct" price is here by any stretch, but I do know the following:
1) Overseas postal workers are far far more likely to steal from parcels and letters than US workers.
2) Setting up an international account with a bank is a hassle the likes of which most Americans have no idea.
3) Even if you do manage to safely and securely get your cash from point A to country B, you're still not out of the woods, since as cash shifts hands, you're not entirely unlikely to end up with a wad of counterfeit Russian bills lining your palms.

Given all that, 10% is often a lot better than the alternatives. Voluntary, as it were, though not euvoluntary. Buttercoin promises to sidestep all that. Bitcoin can't be counterfeited, can't be seized by unscrupulous agents of the state, and can be quickly and painlessly converted into the local currency. If it turns out that the prices charged are thanks chiefly to these technical hurdles, then the Buttercoin folks might well be able to successfully undercut them. If, as I fear might be the case, it's a matter of regime uncertainty (grease the right palms or your business license won't get through), it could well be that the 10% is there as a normal cost of doing business.

Fingers crossed, guys. Godspeed.



*this is sort of an interesting point of semantics here. In this application, is Bitcoin more a medium of exchange or a unit of account? It's a wonky question, and I'm not sure it really matters apart from some technical legal questions across regimes. After all, what really counts as "money" is a matter to be hashed out in arbitration, yes?

Interlude: Change in my Pocket (goin' jing-a-ling-a-ling)

Before I get back to my series on the meta-euvoluntarity of the Constitutional Amendments, I want to devote  a post to something that's been buzzing around the econ and law blogs lately. You might have read about a proposal that runs something like this: the US Treasury, under its authority to utter currency strikes a coin redeemable for $1 Trillion. Tim Geithner at his George Raft-iness saunters over to The Bernank and flips the coin over to him in exchange for a thousand billion dollars' worth of interest-bearing Treasury instruments (though if it's legal tender, there's nothing really stopping them from picking up all the garbage CDOs that ended up on the Fed's balance sheet, but let's not complicate this any more than it already is) You can read two defenses of the proposals here (h/t Tyler Cowen). You can read heaps of scorn elsewhere. (more below the break)

Are Gifts Exchange?

In one of the most interesting passages in one of the most important articles in the pedagogy of economics, R. A. Radford has this to say:

Very soon after capture people realized that it was both undesirable and unnecessary, in view of the limited size and the equality of supplies, to give away or to accept gifts.... ‘Goodwill’ developed into trading as a more equitable means of maximizing individual satisfaction...

 

Now, isn't that interesting?  Using gifts, in a repeated bargaining situation is not just inefficient (though it is that).  It is also more equitable to use exchange.  If I give a gift, and expect something in return, that is an exchange.  When does this kind of relation cross a line into exchange?  And if a gift requires a reciprocal gift, is giving a gift a problem for euvoluntary exchange?  Should I refuse the gift, if I reject the implied reciprocal obligation?

An interesting study offers some insights:

You Owe Me , Ulrike Malmendier & Klaus Schmidt , NBER Working Paper, November 2012

Abstract: In many cultures and industries gifts are given in order to influence the recipient, often at the expense of a third party. Examples include business gifts of firms and lobbyists. In a series of experiments, we show that, even without incentive or informational effects, small gifts strongly influence the recipient's behavior in favor of the gift giver, in particular when a third party bears the cost. Subjects are well aware that the gift is given to influence their behavior but reciprocate nevertheless. Withholding the gift triggers a strong negative response. These findings are inconsistent with the most prominent models of social preferences. We propose an extension of existing theories to capture the observed behavior by endogenizing the "reference group" to whom social preferences are applied. We also show that disclosure and size limits are not effective in reducing the effect of gifts, consistent with our model. Financial incentives ameliorate the effect of the gift but backfire when available but not provided.

UPDATE:  Continuation on how the law handles obligations and gifts, under tax code...

I'm the NegotiatARRRRRRRRR!

Wow!  Gabriel Rossman comes up big.  Nice article on pirates and "voluntary" exchange.

Excerpt:  If we model a bilateral monopoly negotiation only two things should matter. The first is, as always in a game of chicken, the willingness to accept failure. The more willing you appear to walk away, the more bargaining power you have. In a more protracted game this can cash out as willingness to delay which we can treat as a defect-defect outcome on the installment plan. In fact in the Planet Money episode on Somali piracy, the hostage's party did balk and break off negotiations for weeks at a time until the pirates were willing to come down on price.

The other thing that should matter is the capacity to pay. If the pirate knows for an absolute fact that the hostage's people simply can't raise more than a million dollars then it would be pointless for them to demand two million dollars. Of course there is an issue of information asymmetry in that the hostage's party has much better information on its assets than do the pirates and so the pirates may be skeptical of the hostage's party pleading poverty (especially if the hostage has foolishly told them how much money they can get). We see this at work in the TAL story's point that kidnapping insurance holds the condition that you can't tell anyone you have kidnapping insurance.