Consent in Captivity

If you don't already subscribe to Simple Justice, consider adding it to your list. Greenfield is usually entertaining, always prodigious (at least 2 word-packed posts a day), and unfailingly filled to the brim with righteous indignation. It's also good to see what law looks like from the trenches if, like me, you're either a punter or an academic.

Today's AM post was of particular interest to me in my capacity as a fan of prison drama. From the old WIP exploitation films of the 70s to the mostly well-executed premium TV shows of today (Oz, OITNB), I've been a fan of the genre as far back as I can remember. And always and everywhere, one of the enduring literary tropes of the Caged Heat variety is sex in prison. Is it lewd? Is it rude? Is it always in the nude?

More importantly for EE purposes, can it ever be consensual? I don't mean just guard-and-inmate relations, which obviously contain coercion, but prisoner-prisoner relations. Excluding forcible rape, can a prisoner tryst be euvoluntary? In prison, indeed in any extended-stay, isolated community, outside options are limited. You aren't really free to choose with such limited choices, right? It would be a bit like being locked in a restaurant and then being asked what your favorite food is. Sure, you might choose something off the available menu, but are you being sincere or merely convenient?

Then again, even people with the relative liberty afforded by all our modern conveniences hardly consider anything more than the tiniest sliver of the entire world population. Even with the assistance of computers, we generally limit ourselves to the people available in our communities, our workplaces, our schools, our churches, our online forums, &c. Folks in the regular world are presumed to give free and clear consent even with all those limitations.

How good a BATNA is good enough? Can a prisoner give enthusiastic consent? Can anyone in a cloistered community give enthusiastic consent? How cloistered is cloistered?

And He Made A Fig With His Fist

I have written about the institution of dueling before. It occurs to me after reading this that had dueling survived the civilizing purges of the Progressive Era, the public would, on the margins, be robbed of the pleasure of witnessing a temporary bureaucrat speak with deliberate insolence to members of the neos aristoi. Under a dueling standard, Varoufakis would have issued what US jurisprudence refers to as "fighting words."

As is, he's just delightfully snotty.

Whether the Greek people will be better off is a matter for macroeconomists to decide.

"I shall wear the creditors’ loathing with pride."

Pixellated Peace

At Popehat, Clark takes an orbital view of the recent dust-up over ethics and morality in the video game industry. His point: the scuffle is just the latest battleground between the two factions that have been duking it out since time immemorial. Call it blue vs red, freedom vs authority, or forager vs farmer if you want, but it's just more of the same. Meet the new boss, same as the old boss.

Curiously omitted is some pretty good news; as far as deep cultural conflicts go, this tempest-in-a-teakettle is remarkable for being so peaceful. Yes, there's a lot of hot rhetoric going around, and some threats of violence serious enough to inconvenience some people, but there is a pointed lack of the taking up of arms or indeed, much of anything that could rouse partisans to do much else besides lose a little sleep as they incessantly tweet he-said/she-said vitriol at each other.

Has the great increase in public luxury shifted the battlefield of deep social conflicts to Mountain Dew and Chee-to stained keyboards? Is this explosion of peace a happy result of the great bounty brought by a massive boost to the volume of trade available to the common man? If so, is it not in the interest of global peace to trade felicitously with members of all tribes on earth so that they might beat their swords into oculus rifts?

What could be more euvoluntary than to distract rowdy, otherwise murderous crowds of angry young men with 1080p boobs at 60 fps? Drop trade barriers, spread peace through commerce. We may not be able to quash discontent, but if GamerGate has shown us anything, it's shown us that discontent can be effectively neutered. Let that put a spring in your step, and a smile on your lips.

Michelle Goldberg on Constrained Optimization

One important lesson I took away from my chat with Maggie McNeill: criminalizing prostitutes' clients can be worse than criminalizing prostitutes. Clients have more to lose from a conviction, so they'll insist on additional protections, at the expense of the safety of workers.

It's good to see the trope spreading, along with folks' willingness to recognize that if sex work looks like exploitation, it's simply because the alternative circumstances are worse, and that it's pretty awful to punish someone from hailing from lousy circumstances.

Michelle Goldberg, channeling Bastiat at his best peers through the veil of intentions to see the unseen consequences of well-meaning policy.

ATSRTWT

Salient quote:

The answer to the question of which law better protects women—full legalization or the criminalization of demand—is as much ideological as empirical. It depends on whether you see Anna as a trafficked, exploited woman mouthing sex-industry propaganda, or as a person with agency making the best choices she can given her constrained circumstances. It depends on how much regulation you’re willing to accept in the name of gender equality, and ultimately whether you think making it harder for some prostitutes to work is a worthwhile price to pay for reducing the number of women in prostitution overall.

 Driving a trade, any trade, underground makes it harder to identify actual cases of abuse. When everyone is a criminal, genuine criminals find it easier to blend in with the crowd. Prostitution may not be euvoluntary, but it's a dang sight better than violent criminals running amok among women of the evening with impunity.

h/t Ross D & Reihan S

Sumner's Switzerland

When I claim that "migration is not euvoluntary", I mean to acknowledge the BATNA disparity that tends to exist across national borders. Many countries have poor political and economic institutions, low productivity, appalling civil rights (both de jure and de facto), and high rates of poverty. Very often, migration restrictions mean that willing migrants find themselves obliged to accept the worse of the but-for-immigration-quotas options.

Scott Sumner recently addressed some of Bryan Caplan's claims about the benefits of open migration by example. ATSRTWT. A slice:

I'd rather explain this problem using Switzerland, as it will be easier to make my point. Switzerland has 8 million people living in a small mountainous country. The built up environment is very neat and tidy, and indeed often quite beautiful. It's safe. I once accidentally left a wallet with lots of cash clearly visible on a ledge in a Geneva train station. When I came back later it was still there, with the cash. That doesn't happen in lots of other countries. With open borders Switzerland might attract tens of millions of immigrants. It would no longer be a "land of the Swiss." It would be much more crowded, much poorer, less well-educated, more crime-ridden, etc. Culturally it might become more like Kyrgyzstan, another small mountainous country. The Swiss greatly value the neat and orderly characteristics of their country. I find it quite plausible that they would feel worse off.

Thankfully, Sumner does not commit the uneconomic error of claiming fixed-sum labor transfer (dey took our jerbs). But his other claims bear closer inspection. Since I don't know what it means, I'll ignore the "etc." in there after "crime-ridden." Everything else should be fair game.

On congestion. Complaints about crowding are difficult to square with the prosaic observation that net migrations tend to be toward cities rather than away from them, even within nations (see R. Lucas's famous 2004 JPE piece). Congestion is a bit like pollution: it's an unwanted by-product of a desirable process. I have no doubt that visitors to Zurich would prefer a more sparsely-populated Switzerland—charming views of the mountains and the brisk blue sky unrent by the serration of skyscrapers are part of the appeal. But I urge anyone thinking about this closely to consider Adam Smith's habit of the mind: exercise analytical sympathy. Resist the urge to apply tourists' aesthetics to residents' best interests. Would you have Lower Manhattan vacated because you preferred emptier streets on your stroll to Central Park or do you recognize that the people of New York are made better off because other people live there? For tourists, crowded is a bug. For residents, it's a feature.

On poverty. n = 3 people have w1 = $100 each. Their average wealth is Σ(w1)/n = $100. Three more people show up with w2 = $20 each. Average wealth is Σ(w1, w2)/n = $60. Average wealth has fallen by $40. But the three original people are no poorer than they were before. Simplistic? Yes, but that's basically how national income is counted. It is my sincere hope that an economist as thoughtful as Scott Sumner isn't making this sort of elementary error, conflating national income accounting statistics with actual flesh-and-blood humans. To make the claim that Switzerland would be poorer, it's wise to distinguish between incumbent citizens and immigrants, and then to show what impact immigrants would have. For the incumbent citizens to be actually poorer, you'd have to disprove the First Welfare Theorem (surely a Nobel-worthy accomplishment) or you'd have to demonstrate how the median immigrant is a net [discounted] lifetime tax consumer rather than a net [discounted] lifetime tax payer. I admit a lacuna in my own knowledge here, as I'm insufficiently familiar with existing Swiss statutes on transfer payment eligibility for immigrants. I do know from work by friends of EE Zac G. and Alex N. that immigrants to the US are emphatically in the latter category: even in spendthrifty California, immigrants are still net lifetime taxpayers.

On education. First-generation immigrants tend to be less well-educated than the native-born population. Second-generation immigrants tend to be better educated than their more established peers. At least in the US. Please contact me at spivonomist@gmail.com if you'd like to see my data and regressions.*

More crime-ridden. No. First-generation immigrants are marginally less prone to commit crime than incumbent citizens (h/t M. Clemens). I think the reason this myth persists is because the average crime rate in net emigrant countries is higher than net immigrant countries, but this confuses averages with margins. The marginal emigrant is not the average resident. The marginal immigrant tends to have lower discount rates (evidenced by household savings rates and remittance payments), higher conscientiousness (again, see high educational attainment for second-generation immigrants) and when controlling for other factors such as language acquisition and education, higher IQ (again, contact me for GSS data & regressions). The myth of the criminal immigrant is just that: a myth. The laws that "illegal" immigrants break are the ones written specifically to target them. In a nation with institutions that refrain from indulging in dominion and discrimination, the median immigrant would be more law-abiding than the median native-born citizen.

On culture. When I was a boy visiting the DC Metro area, if I wanted Chinese food, I'd have my choice of "Hunan" or "Hunan". It was wretched. Not so anymore, and that's just food, a frippery. American culture is enriched by the people that voluntarily, joyously, felicitously choose to call it home. However, this is already wordy enough, so I'll stow a more detailed critique of the cultural arguments for another day.

*[edit] Second-generation in this context is defined as people born in the US, whose parents were also born in the US, but whose four grandparents were all board abroad. n=2213

Discount Rate Arbitrage: Migration Edition

My excellent friend and mentor Bryan Caplan takes George Borjas to task for some elementary errors in economic reasoning, reminding him that the profession had what we call the "marginal revolution" in the 19th century thanks to economists like W.S. Jevons, C. Menger, and L. Walras. In doing so, he raises an interesting question. Quoting Borjas:

The "breakeven" cost of migration given in the last row of Table 7.3 is around $140,000. In short, the entire present value [emphasis added SLW] of the global gains is wiped out even if the costs of migration were only half of what is typically reported in existing studies.

"Present value" is shorthand for the uncontroversial observation that holding money instead of spending it has an opportunity cost. All else equal, it's better to have a dollar today than to have a dollar tomorrow. That's one reason you have to pay lenders when you borrow money.

However, just like value, costs are personal and subjective, and that includes the costs of deferring consumption. I don't have a copy of his book yet, so I don't know if Borjas went to the trouble of re-estimating gains using heterogeneous discount rates, but it occurs to me that this could be a useful exercise.

Consider the possibility that migration is one way people match discount rate preferences. Even inside free-migration zones like the US, citizens tend to cluster according to relative profligacy and thrift. Indeed, that's most of Charles Murray's theme, and even if the R-squared doesn't quite approach 1 in the limit, it's not outrageous to claim that people do better when they can more easily associate with others of like mind. Hard-working people with the gumption to pack up and head for greener pastures display advantageous time preferences. Similarly, bucolic spendthrifts face much higher up-front migration costs and severely curtailed discounted future cash flows. If you la-la-la-la-la-la-live for today, the incentives to move to a high-productivity region are naturally much lower, regardless of the legal regime. The bugaboo of the immigrant coming to leech off the American welfare state is theoretically suspect, and empirically unsupported.

There's another wrinkle, though, an objection if you will. Suppose that under more liberal immigration policy, the wealthy nations do attract all these scrupulous, long-time-horizon folks. Wouldn't that rob their home countries of the opportunity to transmit time preferences? Isn't there something to the story that keeping up with the Joneses could include mimicking the prosaic savings behavior of the well-to-do? If prudent folks leave, to whom shall the imprudent look for guidance? It's easy to dismiss this objection as silly. After all, we don't force prudent people in the US to live on the wrong side of the tracks, but there's still an empirical question of how well time preferences can be transmitted and to what extent this transmission is effective and durable. I can think of ways to test efficacy in the lab, but the durability question is a harsh mistress. What are the actual components of folks' discount rates? How sensitive are they to treatment? How important is local knowledge? Lots of interesting questions there.

I'll also add that the $140k figure may conflate costs and transfers. When I move, I don't burn my house down. I sell it, so part of my loss is someone else's gain. It's erroneous to count private costs as social costs. We live in a world that grasps the simple concepts of double-entry accounting. Write-offs are a problem, sure, but one man's liability tends to be another man's asset. Focus on the Harberger Triangles and the Tullock Rectangles, yo. Migration restrictions are a political rent, and competition over rents tend to dissipate their value. Waste not, want not, you guys.

At any rate, migration may not be euvoluntary, but if we take seriously the possibility that matching discount rate preferences by geography is an undervalued benefit of migration policy, some minor revisions to Borjas's analysis should strengthen, rather than weaken the case for freer international migration policy.

Kirznerian vs Schumpeterian Entrepreneurship, a Review of Knightian Uncertainty: in Which I Pick a Bone with One of My Favorite People

The always-excellent Lynne K reviews Jill Lepore's critique of Clayton Christensen's The Innovator's Dilemma. She delves quite the rabbit hole. I'll do my best to parse the arguments as I see them.

Schumpeter: the entrepreneur advances the possibility frontier of economic production by introducing novel products, new methods of production, or changes to how products are bought and sold. Entrepreneurs disrupt, in other words, existing patterns of production and exchange. [okay, I snuck in a little Arnold Kling in there. I'll cop to it] Entrepreneurs create even as they destroy. This creative destruction ultimately leads to greater abundance as firms are able to produce more output using fewer inputs. [SLW: these are paraphrases, not actual quotes]

Christensen: firms that refrain from sustained disruption, even to their own business models risk ossification and decline. Disruptive innovation is The Spice: it must flow. Try to imagine what the roadways would look like if automobile manufacturers refused to update model specifications year after year. We'd all still be driving the Model A.

It's worse than that, of course. We'd still be going blind in droves from handwashing our clothes using raw lye, frittering hours each week mending (relatively) expensive clothes, and dying early after a short, rough life of backbreaking toil.

Kirzner: saying that the role of the entrepreneur is simply 'to disrupt' misses the whole point of production. The point is mutually beneficial, peaceful, voluntary exchange. The entrepreneur busies himself with the task of discovering new opportunities for exchange. If destruction happens, that's merely a consequence, a side-effect of people finding better ways to enrich each others' lives. This important task of discovering new channels for mutual service is obfuscated by pointing to the aftermath and claiming that it, rather than the action that gave rise to it, is the purpose of entrepreneurial discovery. [SLW: again, these aren't quotes, they are merely my interpretation]

Josh Gans: Kirzner, ftw. Customers ultimately test whether or not an innovation is any good. Disruption on its own tells us nothing about if a new product or service is any good. Firms must take calculated risks under conditions of uncertainty. Ex ante, it could have seemed possible that Crystal Pepsi was a good idea. You don't know till you try. The customers have to sort it out. And even with careful study, risk management, and attentive marketing teams, your customers are almost always sure to surprise you.

Furthermore, what counts as "important" today may not be important tomorrow. Metrics are a locus of attention. Attention shifts.

Frank Knight: the difference between "risk" and "uncertainty" is crucial to understanding the nature of the problem of the firm. Risk governs a probabilistic relationship over a known domain of outcomes. When you randomly draw a single playing card from a standard poker deck, you can calculate the odds that the card will be the Queen of Spades because you know how many cards are in the deck and what each of their values are. If, contrarily, you randomly draw a card from a pile of business cards dropped in an urn by passersby, you lack the ability to calculate the odds, as you don't know what the underlying distribution is. I submit to you that the challenge of productive activity deals far more often in an environment of uncertainty than of risk.

North: when discussing large-scale upheaval, the problems of knowing the underlying distribution are worse than those offered by Professor Knight. To extend the business card-and-urn metaphor, imagine that passersby could drop anything into the urn. Not only does the forecaster lack knowledge of the probability distribution, but the entire domain itself is obscure. The system is non-ergodic. This is to say that if there are patterns in the system, they are incomprehensible thanks to small sampling problems, timing inconsistencies, and the difficulty, if not impossibility of consistently outperforming other actors. Institutional or regime change is best modeled as non-ergodic, meaning that hopes for reliable predictions are futile.

Kiesling: "My epistemic/knowledge problem take on the innovator’s dilemma is that both risk and uncertainty are at play in the dynamics of innovation, and they are hard to disentangle, both epistemologically and as a matter of strategy. Successful innovation will arise from combining awareness of profit opportunities and taking action along with the disruption (the Schumpeter-Knight-Kirzner synthesis)." [SLW: that one is actually a quote]

The economics of energy delivery are particularly salient here. Every now and again, there are big, non-ergodic disruptions to how humans convert heat and light into something useful. The rest of the time, clever folks, ever alert to the importance of mutual, (eu)voluntary production and exchange work to improve, refine, distill this conversion. Prediction is cheap talk (and perhaps impossible). Action is better.

Me: Adam Smith was right. Euvoluntary exchange expands when the entrepreneur retains dignity in an environment of peace, easy taxes, and a tolerable administration of justice. I find rhetoric concentrating on the mutually beneficial nature of entrepreneurship more natural, more accurate, more important than a narrow focus on mere disruption. Side effects are worth acknowledging, but it is the chief effect, that innovation results in mutually beneficial cooperation, that is the real story, the one worth telling loudly and often.

My Beautiful Confluence

If you'd have told me 20 years back that I'd not only be able to quickly and easily curate my own periodical (I didn't know the word "blog" in 1994), I'd have laughed offhandedly and gone back to doing my routine critical checkoff.

On off on on, Gus. On. Off. On. On.

Things are different now. Things exceed the dreams of Harun al-Rashid on his throne of gold. Not only do I curate, but I contribute. And I'm actual real-deal pals with some truly incredible people whose overflowing wisdom and sincerity I can only hope to emulate.

But even with that, there are still little effervescent moments of synchronicity that hint at a glorious unseen order to my little corner of the universe. Moments like this:

TGP and Fishy FiSH on the increasing euvoluntarity of domestic arrangements.

And

Adam The OG on the natural limits of a virtuous life.

Twin points, gorgeously complementary, when considered from an EE perspective lend credence to a Hayekian aversion of mine: ill-fitted dominion from afar over issues personal in scope. It baffles me to no end that anyone who doesn't know me personally could possibly hold a strong opinion one way or the other about the nature or condition of my family. The idea that a distant scold would pretend to such knowledge puzzles me greatly. And I'm grateful to have good friends who are far more adept than I at illustrating the deep flaws in such reasoning.

This post is for you, guys. Well done.

Blogging Is Not Euvoluntary

Will Wilkinson on blogging, the Self, and the taint of cash.

Je ne regrette rien has always been inextricably tinged by dolor.

Profits are a waste product of producing value. And we don't s*** where we eat, particularly if what we're eating is our interconnected sense of self in an overwhelmingly complex, rich community of our own making.

h/t Tyler

taint lol

Prices are Better than Words

Bart Wilson (no relation) at Econlog writes admirably on a subject that is at once important, obvious, and frequently ignored by political elites: prices are information. It's a subject we take seriously here at EE, enough so to merit its own tag. 

Wilson uses the example of labor. He contends that the final wage strike price aggregates and distills widely dispersed information, including (especially!) all the subjective relative preferences that lurk tucked away in people's minds. And he does not explicitly deny that one or more of those relative preferences could include a taste for arbitrary discrimination or the occasional bit of exploitation. Indeed, it would be silly to deny that. But because prices are quiet sentinels of Truth in a stochastic world, unmasking unwarranted avarice is seldom as simple as observing ex post transactions and evaluating them using ex ante behavioral assumptions.

Muddying the problem is that prices can be wrong quite naturally. Bubbles spontaneously form in the lab, de novo products can take time to settle on a stable retail price, exogenous shocks throw relative prices into disarray. Pushing the metaphor, for prices to be the most useful, the sentences they constitute should be clear and mature. Note however that being wrong is different than being false. Wrongness implies innocent error.

JR: Oh, did you try to sell me an off-brand CD player from 1986 for $600? You must be mistaken, Sam, for I am no rube, no dolt for you to rip off.
Me: Oops, sorry Jeff. I forgot to write the decimal point. That's six bucks.
JR: Ah, okay. I was worried there for a second I'd have to feed you a gluten-free knuckle sandwich.
Me: What?
JR: See you later, man. And look for my Thanksgiving post which should be up soon.

Falsehood implies intentional deception.

JR: What's this? $600 for an off-brand CD player from 1986?
Me: I got it in a storage locker auction.
JR: That makes it worth 600 bucks?
Me: It was part of a drug bust seizure.
JR: So?
Me: Look man, I'm not saying that the original owner hid diamonds inside the case, but when I shake it, I can definitely hear something rattling around in there.
JR: Really?
Me: I know that $600 is a steal for a piece of home electronics stuffed to the brim with diamonds, but I, uh, I need the money for cat food. What do you say?
JR: Well, I guess that's a win-win-win.
Me (looking around with shifty eyes): Yeah.

Price controls are the fiction that wrongness can be overcome with falsehood. (Possibly) well-intentioned political agents identify what they believe to be a sour note in the orchestra and haul the offending cellist out by the ear to swap in their own, complete with sheet music scribbled by committee. Egregious examples of this ooze out of Venezuela like pus from a ruptured sebaceous cyst. Lesser examples well up from time to time in the states, particularly following natural disasters and for some reason I don't quite fathom, in a self-inflicted orgy of consumerism the day after Thanksgiving.

Prices are like words? Prices are better than words. Prices don't lie. Unless someone forces them to. Let's let the world be more euvoluntary. The truth shall set you free.

Is Research Euvoluntary?

Via Fabio Rojas, a tale of lies, prostitution, and the IRB. The short version is that Sudhir Venkatesh created a bit of a susurrus when in the pages of Floating City: A Rogue Sociologist Lost and Found in New York's Underground Economy, he revealed a Big Apple secret menu item: for a (median? mean? standard?) 25% surcharge, johns can ride bareback (i.e. sans condom). Advocacy groups believe this secret should have remained secret because they seem to think that the publication of this information will put workers at increased risk of HIV.

Putting aside the validity of these claims for now (I encourage the enthusiastic reader to assign this problem to an undergraduate course in practical game theory), I'd like to consider whether or not the release of this sort of research is euvoluntary, if there's a greater duty to The Truth undergirded by moral and aesthetic principles that insulate the academic against untoward consequences. After all, one of the points I've been laboring to make here at EE is that consideration of consequences is a vital component of mature moral reasoning. And isn't what's good for the state goose be good for the private gander? Is not the constitutional duty of the IRB to impose prior restraint on work that harms subjects? And how broadly would the typical moral agent identify "harm" in this case?

Okay, so for those of you who don't already know, the IRB, or Institutional Review Board is an interdisciplinary board of faculty and staff that reviews research proposals. By "research proposals" I mean laboratory (field too, the key distinction is design) experiments with human subjects. The idea is to prevent another Stanley Milgram from embarrassing the academy. But that's for experimental designs, where the researcher controls the environment, administers the treatment, and records the results. Observational studies only have the last step. Here, it is the institutional setting and the relative prices, human action but not human design, that determines the 25% bareback premium. Venkatesh didn't program that, he observed it. Does that make a difference? If so, in whose eyes?

In the eyes of the advocacy groups, it seems to make no difference. Harm is harm (even if it's speculative and it assumes static pricing and immutable institutions).

In the eyes of the IRB? Well, recall my Second Law of Public Finance: given enough time, all spending is discretionary. IRB charters were drafted from whole cloth when it was discovered that a laboratory researcher was traumatizing subjects, so I cannot reject the possibility that an amendment covering observational studies would forever be outside the realm of consideration.

In the eyes of the judiciary? I'm not an attorney; I don't even play one on TV. But I do know that this isn't a libel case. The closest tort I can think of would be some sort of negligence, but even then it'd be a very gruesome class action case with piles of defendants and more fallout than adjusted IRB rules should the plaintiffs win. Still, a dogpile in the courts strikes me as a better way of defining harm heuristics than the alternatives.

In the eyes of legislature? This is more like the EE we adore so much. Contra the ex post analysis of the judiciary, legislative rules rely on the moral intuitions we like so very much to generate their ex ante rules. And here, I think the heuristic most folks would start with is a default position of freedom of speech. Venkatesh has a moral right to publish truthful research. And that right is dear (to Americans, anyway). But there's always the question of BATNA disparity, and this case helps expose some weird moral alliances. On the one hand, Venkatesh is a professor at an elite institution (Columbia U), which aligns him with licentious liberals (heavens forfend!). On the other hand, he has exposed vicissitudes within the most immoral of all trades: prostitution. When the legislator or the pundit appeals to the constituency, the nature of the coalition matters a great deal. Is he team NPR/Freakonomics or is he team NRA/Limbaugh? That's what will determine the moral intuitions more than anything. The rest of the narrative can be easily drafted by adroit copywriters. Is he a little guy defending traditional American values or is he a supercilious Northern elite threatening the delicate social fabric of the Union?

The truth of course, is that he's neither. Or maybe a little of both. The truth is that there's a lot more to it. But the truth is the first of the fallen in the war of words. As a researcher myself, I selfishly hope that the IRB does not become more cumbersome than it already is. As an empirical economist, I really hope that the institutions and prices among NYC prostitutes are sufficiently flexible as to prevent the calamity of an HIV outbreak. I'm just enough of a Pollyanna to imagine that we might enjoy both, and I gird my optimism with the boring observation that formal institutions like the IRB are stubbornly resistant to change.

Sometimes, the inflexibility of bureaucracy is a feature, not a bug.

Kantian Ethics and the Freedom of Exchange.

Jessica Flanigan at BHL shares some elation that Japa Pallikkathayil is blogging over at Political Philosop-her.

The topic? The moral limits of markets.

ATSRTWT

You'll probably find quite a bit of overlap about the questions Pallikkathayil poses and the sorts of topics we tackle here at EE.

And I have a new blog to put in my feed. Excellent.

PPACA, Provider Immigration, and Rigged Rent Contests

Tyler Cowen has a piece in the NY Times on the near future of the Patient Protection and Affordable Care Act. Knowing that Cowen is a finely tuned engine of economic analysis, readers should be unsurprised to find that the Grey Lady article wastes no ink decrying trifling implementation hiccups, instead pointing straight to a few of the deep structural flaws in the design of the legislation.

He follows up at Marginal Revolution (link here) with a half-buried bullet:

I did not have enough space to talk about more immigration for physicians and nurses, liability reform, and other supply-side reforms. They are very important.

Tyler is a prodigious reader. Prodigious. I can count on one hand the number of times I've seen him in person without a book in his hand. No joke, the guy reads more in one day than the median US citizen does in a year. Despite this, I strongly doubt he's read EE more than a couple of times. It is therefore quite unlikely that he ran across what I wrote on Friday. To recap, I argued that if there's persistent, legislated real wage differentials across borders, marginally liberalized immigration policy for high skill services without general immigration relief might possibly create what I would have called "scalpel drain" had I been more mentally adroit. The key difference between scalpel drain and old-fashioned brain drain is geographical scope of practice. A nurse cannot practice medicine from afar the same way an IT professional can write code halfway around the world. And under asymmetrical price controls, wages don't accurately reflect relative scarcity. This could be bad. Maybe not giant Twinkie bad, but still pretty bad.

Here's the interesting thing: the forward induction on this game is tough to nail down. Cowen's a superb chess player, and he knows as well as anyone paying half a dram of attention (much better, actually) that the ACA was never intended to be anything even close to approaching a steady-state equilibrium in the delivery of medicine in the US. He's better than you at ignoring all the political jawboning and kayfabe to peer through the smoky aperture into the likely states of the world down the cobblestone path of stochastic political waffling. And so far as I can tell, he's mum on how the rent contest over medical professionals will change as the demographic hammer prepares to strike hospitals' anvils.

I want you to think for a moment about how rent contests work, particularly with respect to very roundabout production. In this case, the prize is a relatively comfortable position as a nurse catering to wealthy American patients in a finely-appointed hospital and earning considerable wage premiums to do so (more so for nurses than for doctors, what with all the malpractice insurance and forgone wages during school and whatnot). If you're lucky enough to land in a magnet hospital, you'll recognize your surroundings more as a resort than a hospital. That's the payoff. The probability of earning the prize arises from a mixed strategy based on how many medical professionals you think the US will admit in the future and how many other people you think will also be competing for that payoff. From there, the comparative statics are a matter of a little intuitive mental math. Would you dedicate several years to your life on the chance you might someday earn higher wages? If I know my audience, I can guess that the answer is "yes". Folks with high discount rates aren't well-known for frequenting economics blogs.

But here's the snotty kicker: a very large part of the probability of earning that delicious rent is bound in foreign perceptions of American political dysfunction. If you're a 17 year old high school kid in Gdansk with stars in your eyes about  packing up your bindle and heading to the States to put that BSN to work ministering to the ill in Dayton and you see news filled with porcine, icy-eyed legislators throwing expansive public temper tantrums, you might seriously think twice about making what amounts to a very specific long-term human capital investment that has a relatively barren domestic BATNA. If and when the ports open up for more nurses to report for work, there may well be too few ready migrants to staff the wards of both America and the hospitals abroad. Without the regime uncertainty, a mild rent contest might well spur a bit of nursing professional overproduction, encouraging enough entry that the home markets will stay solvent (for lack of a better word).

Of course, the other option for foreign wage boards is to raise the statutory wages, which is marginally better for economic efficiency, but wouldn't do much to cure the third-party disease that is eating the bones of US health care delivery.

@ez_angus Single payer is "when", not "if".
— Dr.Phil of Economics (@DrPhilofEconomi) October 13, 2013

Medicine is not euvoluntary. Immigration is not euvoluntary. Labor is not euvoluntary. All three together? Yikes!

Challenge Accepted?

My good friend and mentor Bryan Caplan issues a challenge for "anti-Keynesians" in which he predicts three belief outcomes of reading "Truman Bewley's Why Wages Don't Fall During a Recession from cover to cover."

1. Nominal wage rigidity plays a large role in the modern U.S. economy.
2. A substantial fraction of this nominal wage rigidity stems from basic human psychology, not government regulation.
3. Nominal wage rigidity is sufficiently durable to create a long-run inflation-unemployment trade-off at low inflation rates.

I was a bit puzzled at this. I don't consider myself an anti-Keynesian (a Keynesian skeptic is probably closer to the mark), but labor price rigidity has nothing to do with my skittishness. Instead, I balk more at the implications of filtering what might be an analytically useful framework through the mulch of partisan politics.

But then, this is hardly unique to Keynesian macro. Any research programme that ignores the uncomfortable truths of public choice is likely to cause one and only one of my eyebrows to arch skyward. Even if I were willing to grant that politicians are economically literate, it is impossible for them to act as if they were, given the balderdash believed by their constituents. Elected officials owe precisely no fealty to the authors of brilliant theory. Even the authors themselves occasionally (perhaps often) recognize this.

In any industry, where there is reason to believe that the free play of self-interest will cause an amount of resources to be invested different from the amount that is required in the best interest of the national dividend, there is a prima facie case for public intervention. The case, however, cannot become more than a prima facie one, until we have considered the qualifications, which governmental agencies may be expected to possess for intervening advantageously. It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustment that economists in their studies can imagine. For we cannot expect that any public authority will attain, or will even whole-heartedly seek, that ideal. Such authorities are liable alike to ignorance, to sectional pressure and to personal corruption by private interest. A loud-voiced part of their constituents, if organised for votes, may easily outweigh the whole.

-Arthur Cecil Pigou. (source)

 It seems to me as if Pigou's arguments apply equally well to questions of handling labor price frictions, particularly when what's under discussion is bilateral bargaining, with possibly truculent agents on both sides of the negotiating table.

Pedestrian morality, even when sprouting from the ideas of defunct economists (both when they are right and when they are wrong) is routed through institutions to yield policy. I can't speak for why other folks might oppose the Keynesian project, but for me it's a matter of yielding common sense political economy to common moral urges. Any economic analysis that champions war as economic balm strikes me as deeply perverted.

Then again, I'm strongly inclined to think of philosophy, politics, and economics as three prongs on the same trident. Maybe that's a mistake. Maybe the proper level of analysis is simply the economics in isolation. If that's the case, Bryan's challenge is not for me.

Nothing Compares Amanda 2 Miley

There's a cultural trope of "dad" that describes me pretty well, and it's got little to do with having kids. I'm vaguely befuddled about the intricacies of pop culture, a tad alienated from what could be generously called "style", and have long abandoned what wispy shreds of the ever-elusive "coolness" I might have once laid partial claim to to bleed out in a muddy ditch with a knife stuck in its ribs and a broken jaw. So it shouldn't come as all that much of a surprise that I'd only recently heard of Miley Cyrus, the daughter of the Achy Breaky Heart guy. According to semi-credible sources, she's decided to break the orbit that's doomed many other former child stars.

Of course, we sometimes get this, so maybe it's a mixed bag.

Naturally, hijinks visible enough to pierce the stubborn drapery that shields my attention from the scary world outside will be strong enough to elicit reactions from lots of voices. Most of what I've seen has been head-wagging and tongue clucking, but two missives have struck me as both thoughtful and grounded in interests consonant with the EE project.

The first, from veteran Irish crooner Sinéad O'Connor is a plea to the young singer to maintain her dignity in the face of industry pressures to compromise artistic integrity for cheap visibility. A rebuttal from the impish Amanda Palmer encourages the Emerald Isle songstress to consider that young Miley may in fact be making a series of calculated career decisions and that she's not as exploited as she may seem at first blush.

Ah! A disagreement over "exploitation". Excellent. Identify the BATNA disparity and away we go. For child stars, you can catch a glimpse of a standard alternative in the video above (yikes!). Then again, there's Mara Wilson, who as far as I can tell (judging by an appearance with the Nostalgia Chick) is indistinguishable from a NORP like me. If you want to select into an entertainment career as a former child star, you can probably do worse than making yourself a household name that clearly breaks from your younger self. The private calculus seems to at least hint that Miley's recent performances could conform to the hard & soft coercion terms of the EE formulation.

As for the salacious nature of her artistic product? Is it analogous to pollution? As the father of a daughter, I'm best poised to answer "yes". As a create-your-own economist, I'd nevertheless have to reject externality arguments. Part of my responsibility as a parent is to educate my child, guide her towards a comfortable integration into the world of adults (which at this point seems to be watching an animated Mr. Rogers spinoff show set in the Land of Make-Believe), and if you ask me, a Mileyesque (Sarah, please don't take me to task for this particular neologism) conversation that I may have someday with my daughter is a fine opportunity to discuss the nature of broad-network euvoluntary exchange, soft coercion by conformity, and DIY cultural economics. In this light, I hope for more such future opportunities. [edit] Indeed, as JR points out, even if this counted as a negative externality, it's still a very far cry indeed to make a decent foundation for a policy response, and I find myself relatively relieved to see that much of the discussion has been on the "moral suasion" side, though I'm less than thrilled with some of the slut shaming out there. But it's my job to catalog this stuff. Positive analysis of normative beliefs and all that.

But I'm still going to raise my kid to appreciate Beaudelaire, Shakespeare, Tori Amos, and improvisational jazz. At least to the extent I am able. The uncertainty, I must confess, is part of the fun of parenting.

Caplan on Coercion

My great friend Bryan Caplan offers an excellent public choice critique of standard theories of taxation. He raises an old question: "why does the sovereign direct tax collection and regulation towards firms rather than individuals?" The standard, Coasean answer is "transaction costs." It's quite difficult to coordinate the efforts of a bureaucratic apparatus towards the great mass of humanity.

The common-sense rejoinder is obvious if you've spent any time studying East European political history: get citizens to rat on each other. It might even pay bounties (which work remarkably well for criminal scofflaws) to enforce regulatory compliance. Caplan says that this sort of Stazi/KGB/Brownshirt menace would be universally reviled among freedom-loving Americans.

Maybe that's true. My experience with nosy neighbors suggests that Bryan might be slightly off the mark, but overall I think he's got a pretty good point. Of course if you would have told me in 1911 that Lithuanian children, residents of one of the most freedom-loving nations in the history of European Civilization, would one day come to snitch on their own parents, I probably would have thought you bonkers. People can adapt to surprising conditions, even famously tolerant Balts, even famously independent Scots-Irish migrants.

At any rate, if I'm reading the literature right, there does appear to be evidence to suggest that the technology for citizen enforcers exists even without any frog-boiling. Immigration. Sniderman &al have a 2004 paper in the APSR called "Predisposing Factors and Situational Triggers: Exclusionary Reactions to Immigrant Minorities" that concludes that native residents are all too happy to invoke exclusionary measures against outgroups. There's a small flotilla of similar studies with similar results.

As a euvoluntary exchangeur, this should bother me. Undue, citizen-led state coercion dams the river of trade, shrinking the trout pond in which we angle for those voluntary arrangements that make us all a little better off each time. As a game theory dabbler, it's actually kind of a relief. Why? Because the folk theorem can also support an equilibrium with more open borders and lower overall regulatory and tax burdens. For at least marginal improvements in this direction, ask yourself if New Zealand, Hong Kong, and Singapore are all just bizarre flukes, isolated island (or peninsular) nations with no great lessons to teach the rest of the world. It might be that that's the case, and their relative freedom of association or lack of coercion or whatever you want to call it is strictly a product of historical accident, irreplicable elsewhere, but I again urge you to consider that Lithuanian schoolchild. If a 4th grader in 1971 can cheerfully yak about the anti-state sentiments of mom and dad to the KGB whereas her daughter in 2001 would find the very notion alien and probably a Paul Bunyanesque tale of fancy (not kidding here folks, these are my relatives I'm talking about), then it's not beyond belief that the US could move in the direction of a stable equilibrium of more immigration and lower regulation.

How to get there? I'm afraid I'm still, to my shame, unable to give Andrea a satisfying answer.

Haggling Norms: Euvoluntary?

Jeffrey Tucker (with special thinks to Cathy Reisenwitz) has a great piece on haggling. The question he wants to us to ask ourselves: how is a woman buying a car in Illinois like an American buying a sponge in Italy? As a former expat, I frequently found myself on the short end of the stick abroad. It upset my wife to no end when I'd get shafted by a vendor who mumbled something like, "he's an American, he's got money" in a language he thought I didn't speak.

Still, a deal's a deal. It was voluntary.

But was it euvoluntary? Does the fact that other folks get better deals make your relatively lousy terms of trade unfair? Why? Which EE condition is violated?

Labor is not Euvoluntary: LFP Edition

Kevin E. at Idiosyncratic Whisk picks up on an ongoing row folks are having over labor force participation. Tyler linked to a WaPo article that makes some curious claims about the causes of LFP malaise. He says (in the comments): "I am (mostly) not blaming cycle, rather seeing the trend, most of your points do not overturn my view." That was my reading too. The up-edging of elderly workers still in the labor force provokes consideration of what Richard Epstein was talking about in this video (please ignore the socks and unicorn flatus to the best of your ability):


Epstein's point, the one that Skidelsky adamantly rejects, is that it is labor market barriers that is keeping folks out of work. Things like uncertainty over off-balance sheet liabilities, minimum wage requirements, threats of forthcoming legislation, even mandatory health coverage provision (and I don't want to dwell too closely on that one, given some of the shady comments I've read lately) all contribute to an edifice of business uncertainty. Add to that the rank regime uncertainty we've seen since the start of the Bush II administration, and it should be no great surprise that employment is wobbly.

A brief technical digression:

For the uninitiated, LFP is another metric for analyzing employment. If you're so inclined, you can check out reports, data, statistics, whatever so you fancy at the BLS page for employment here. The typical "unemployment" figure that gets reported in the press is U-3. Here's a list of the different measures used by BLS:

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force
U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Clear as mud, huh? Well, a "discouraged worker" is someone who can't find a job and who has more or less given up. The stereotype is the 20-some-odd college grad who has moved back in with her parents and spends her days instagramming on Pinterest or whatever it is the kids are doing these days.

But as Erdmann notes, we're actually seeing two things going on. Yes, we have some noise, but there are longer, larger trends at play. And if you'll note in the WaPo piece, the pie is increasingly sliced onto grandpa's plate. The 75-79 y.o. LFP rates are up. Considerably.

What do I make of this? Well, maybe 2008 exposed some of the malaise Washington DC and the several states have been legislating into the labor markets over the course of the past few administrations. We've been seeing at least a little more executive discretion when it comes to enforcing the rule of law. We've also seen generally more pugnacious law enforcement, and we're seeing new graduates caught in a peacock-plume dilemma, so perhaps it's understandable that employers are slightly more reluctant to hire on Johnny BA with no experience in lieu of Gregory Grandpappy who may be a little long in the tooth and grey in the eye, but who still knows how to work the system and crank out the goods.

It's a hypothesis anyway. A few charts here and there won't resolve the issue. But the disaggregated LFP rates seem to at least point to the suggestion that Epstein and Roberts aren't blowing hot air across the stage (and I see no horns atop their foreheads in any case) when they talk of structural uncertainty.

Which then makes me wonder: what's worse, legislatively "correcting" what may be phantom errors in the labor market, or using tools that end up ensuring very few young people get their foot in the door? Is it more euvoluntary to have a 25% chance of landing a legislatively protected job or a 90% chance of landing a caveat operarius gig with relatively free entry and exit? How much of that question hinges on positive analysis, how much on normative judgement? Is it right to force workers to pick only one option?

As for the DI argument, I'm not convinced it's an especially important margin. If there is malingering, then it's probably low productivity workers doing it anyway, so it's no great loss, all things considered.

Coercion and External Costs: Auckland Beast With Two Backs Edition

From our old pal Eric Crampton, something I gather must be a "problem" for undergrads: noisy dorm room canoodling. The GTM had a piece here a while back on side payments for dorm rooms at Duke. The relevant take-away from that story is that room accommodations for students tend to be part of bundled contracts: they're tied to attendance, and typically, no one raises a stink when the housing department leans a little to the thuggish side.

And why should anyone, so long as the conditions aren't too gulag-ish? The kids are out of the house for the first time in their lives, so they're happy. The parents just got one of their rooms back to use for their own externality generation, so they're happy, and the community sure doesn't want roving gangs of young adults churning the local rental markets, so they're, well, they're not unhappy. Universities can get away with a whole lot more coercion with 18-22 year old kids than they might with, say, people my age.

But officials still should probably let students find their own mutually beneficial solutions to common pool problems, right? Being especially rigid with room assignments seems peculiar. Roth has all these cool matching algorithms to perhaps make initial assignments better. You, know, maybe have something like OKCupid for dorm rooms, and then why not have exchanges or something for the fine tuning?

I suppose this is what they call a bleg: at your university, how do administrators determine room assignments? What could be done to make the process better? Is this even an important problem?

Abortion is not Euvoluntary

Few topics generate as much heat and as little light as abortion. I've found it interesting that it seems to come up relatively infrequently among those libertarians whose company I frequent. Something tells me that there's not a salience problem. Indeed, I imagine that almost every liberty-minded person out there has spent time mulling this thorny issue, wrestling with its complexity, weighing implicit, stochasic agency against predictable regret, noting likely BATNA scenarios. Giving the topic its due, as it were.

So it's particularly interesting for me to see a libertarian heavyweight tangle with arguably one of the most deservedly important living economists in the world. Bryan Caplan engages Richard Thaler.

Apart from Mario Rizzo's ongoing campaign against the camel's nose in the tent, the idea of soft or "libertarian" paternalism flared up again right here on EE with a post I wrote about the British Parliament's efforts to make salacious materials on the Web available to homes on an opt-in basis. Way off down under in the Land of the Kiwi, crazy Canuck Eric Crampton had similar thoughts at Offsetting Behavio[u]r. Professor Thaler emphatically denied the Nudge link on Twitter, even though "choice architecture" and his work was directly referenced by the politicians designing the scheme.

That's the funny thing about ideas. They're a common pool resource. It'd be nice if there were a lifeguard on duty, making sure nobody's running and that the splashing and horseplay is kept to a minimum, but sure as the day is long, that old burrito is bound to catch up with Smalls and he'll crap right in that pool. That's the nature of politics: it encourages, nay, demands that someone take a dump in the ol' swimmin' hole sooner or later. Virginia Political Economy details this mechanism with sufficient clarity and detail that James Buchanan won a Nobel Memorial Prize for it. I don't think he ever used any pool-pooping metaphors though. That undignified nonsense is 100% Sam. Point is, the originator loses control of an idea once ceded to a legislative authority. Perhaps this is obvious to me only because I'm a public choice student, and expecting others to share my esoteric knowledge is excessive. I should temper my expectations.

The conversation continues with Caplan posing a pointed question to Nudge Paternalists: why not nudge expectant parents away from the decision to abort a fetus? Included in the terms is what seems like a reasonable proposal, regardless of your stance on choice architecture: end government subsidies. After all, to get more of something, subsidize it, and I don't think that even the most staunchly pro-choice left liberal actively seeks more abortions, unless perhaps they subscribe to eugenic or NPG philosophies. Which they might. I know such people. Here's how Thaler responds: "what do you think the ban on government money does? Medicaid=poor. yikes!" Bryan follows up here.

I think Thaler's making a claim underpinned by EE conditions! One of the strongest arguments for keeping abortion legal is founded in BATNA considerations: one alternative to safe, legal abortion is dangerous, black market ("back-alley") abortion, which is riskier for the mother. Of course, that's an assumption. Elsewhere, JR has proposed a new logical fallacy: "I proclaim a new rhetological fallacy: the error of assumed opportunity, e.g. pursuit of leisure costs productivity, instead of leisure." It works well here, since the Right assumes that the alternative is childbirth and the Left assumes that the alternative is the medical equivalent of Jesse Pinkman in season 1 with a surgical mask... okay, let's leave the rest of that alone. More sophisticated arguments on both sides acknowledge multiple margins or a continuum, but most of what we hear are simplified platitudes. Hence the "much heat", "little light" above.

As the novelty account based on Dr. Phil lower in the Tweet thread notes, the median price for an abortion is around $470, and I checked about the Medicaid thing. Only 15 states allow Medicaid to help with the out-of-pocket cost of abortions. I can imagine how I would set up the econometric strategy to find out where the substitution margins actually are (it's not an easy specification, in case you were wondering), but something tells me that even carefully conducted empirical studies are unlikely to cause a whole lot of people to change their minds on this particular subject. It's pretty likely that this is based on strong moral considerations, not on dispassionate utilitarian evidence.

Maybe the reason libertarians don't like talking too much about this subject is because of the problem I'm having right now. I can't write a snappy concluding paragraph. I can't even beg you to consider the issue in a new light. You've heard the arguments, you know the positions. I have nothing new to add to the conversation. All I can say from an EE point of view is that in the exchange of services between a pregnant woman and a physician, the potential future human whose life is at stake gets no say in the transaction. That's it. I can make no further positive claims than that. This observation does not imply in any way any sort of policy position one way or the other and principled people can have legitimate disagreement over what to do next. This is a clash of values, not of beliefs. Our deontology here includes consequences, but the actual moral calculus is not ours to solve on your behalf.

Best wishes everyone, and sorry about the poop jokes. I get nervous when I tackle difficult subjects and it sometimes manifests poorly.

Update: another take here from Joe Colucci. I think he makes an excellent point when he notices that the nudge camp wants to quietly alter knife-edge behavior. Abortion is anything but. The decision to abort is fraught with distress, moral panic, and deep consideration. This is another reason why disinterested third parties have a very difficult case to make for interfering.