Tag Archives: Alex Tabarrok

The FDA Can Put Virus Behind Us, Sans Vaccine

19 Wednesday Aug 2020

Posted by in Liberty, Pandemic, Vaccinations

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Most of the news about COVID vaccine development is positive, but there are still huge doubts about 1) whether an effective vaccine(s) will ever be available; 2) when it will be available; 3) in what quantities (supply chains for vaccines present issues that most lay persons would never imagine) ; 4) the best approaches to allocation across young/healthy vs. old/vulnerable; 5) how long it will provide protection (the news is good on lasting immunity as well); and 6) whether people will actually take it. Given all these uncertainties, it’s worth considering an approach to stanching the coronavirus that won’t require a vaccine while still allowing a return to normalcy: cheap, rapid tests available to consumers on a daily basis in their homes or in businesses.

The full benefits of cheap, rapid tests can take people a while to wrap their heads around. In fact, there are skeptics who’s views on any and all testing are colored by suspicions that increased testing is some sort of conspiracy to spread fear and keep the economy hobbled. It’s true that increased testing drove much of the increase in COVID cases this summer, which caused the mainstream media to delight in spinning alarmist narratives. Fair enough, but that misses the point, which I’ll try to elucidate below. I credit a John Cochrane post for bringing this to my attention.

A successful vaccine breaks the so-called “transmission chain”, but so does frequent testing to identify infectious individuals on an ongoing basis so they can self-quarantine. As Alex Tabarrok has emphasized, we should worry about identifying infectious individuals, as opposed to infected individuals. They are not the same. Cheap, rapid, and easy-to-administer tests have already proven to be fairly accurate during the infectious stage. The idea is for individuals to self-test every day and stay home if they are positive. Or, employers can test workers every day and send them home if they are positive. Frequent testing also makes it simpler to trace the source of an infection and may reduce the importance of tracing.

To those who say this represents an affront to personal liberty, and I’m very touchy on that subject myself, recall that even now people are being screened in their workplaces using thermometers, questionnaires, or on the basis of any frogginess perceived by supervisors and co-workers. Those “tests” are far less accurate in identifying COVID-19 contagiousness than the kinds of cheap tests at issue here, and they are certainly no less intrusive. Then there are the many businesses facing restrictions on their operations: how “accurate” is it to keep everyone at home by locking down places of business? How intrusive is that? Those restrictions are indefensible, and especially with the advent and diffusion of cheap, rapid tests.

Of course, people might cheat and not report positives. Tests could be administered at workplaces to avoid that possibility, or at points of admission to businesses and facilities, but a few minutes of delay would be necessary. I would not support a centralized database of daily test results. If nothing else, relying on the good faith of individuals in reporting their results would be a giant leap forward in breaking the transmission chain now, rather than counting on the possibility of a successful virus in the indefinite future. And we might then avoid the whole pro-vax/anti-vax imbroglio that already foments, which raises major questions bearing on individual liberty.

Then there is the question of positive tests within multi-person households. Should the entire family or household self-quarantine? I say no, not if the others are negative, but then the others should test twice before going out, which dramatically reduces the probability of a false negative, and they should probably test more frequently, perhaps several times a day.

There are other important details to address: Who will pay for the tests? Will workers be paid to stay home if they test positive? How long will they be required to stay home? How will repeated tests be treated? I don’t want to get into detail on all of these points, but cheap, fast tests can help overcome many of these difficulties, and I believe many of the details can and should be worked out privately.

Unfortunately, the FDA has approved only two rapid tests, and they are not very rapid and not cheap enough. Only one had been approved up until last weekend because the FDA found the accuracy to be lacking … compared to PCR tests! But the FDA finally issued an Emergency Use Authorization for a saliva-based test (SalivaDirect) developed at Yale, partly funded by the NBA and the Players Association. The test still requires processing at a lab, so it’s really not convenient enough and not fast enough. Here is Zach Lowe on the cost:

“The cost per sample could be as low as about $4, though the cost to consumers will likely be higher than that — perhaps around $15 or $20 in some cases, according to expert sources.”

Not bad, but it’s much higher than more rapid, paper tests developed by Harvard’s Wyss Institute for Biologically Inspired Engineering and a company called E25Bio. Both of those are expected to cost about $1 per sample and can be completed anywhere. That’s a price that can work. And there are other promising candidates.

The benefits of tests that are rough, ready, and cheap will be huge. Such tests will also enable retesting, which helps to overcome the dilemmas of false positives and negatives. False negatives might be of greater concern to the FDA, but again, false negatives are less likely during the contagious stage of an infection, and the tests will be accurate enough that transmission risk will be drastically reduced.

The FDA needs to move beyond its stodgy insistence on achieving laboratory levels of accuracy. It’s unlikely that a single test source will be adequate to stanch the transmission chain, so the agency should rush to approve as many cheap, rapid tests as possible, with as many advisories and patient warnings regarding test results and follow-up instructions as it deems necessary. Remember, these tests are much better than thermometers!

Zero Cost Stimulus: Risky Business

21 Sunday Jun 2020

Posted by in Uncategorized

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When the federal government intervenes to stimulate the economy, it generally means a big spending program or tax reduction and an increase in the federal deficit. This year we’ve witnessed the largest single-year fiscal policy effort in U.S. history, an effort to aid individuals whose jobs were lost and to stimulate the suddenly depressed economy. The coronavirus lockdowns in most states brought federal legislation enhancing unemployment compensation, one-time support payments to most adults, emergency business “loans” that are largely to be forgiven, and many other elements. The cost of these packages is expected to be about $2.4 trillion. And there will be more legislation this summer intended to stimulate hiring, including a probable infrastructure bill. President Trump still supports what the Administration calls a “hiring subsidy”, which is in fact a payroll tax holiday. As described, it would not explicitly target new hires, but would grant the holiday to all workers regardless of employment status. All these programs will ultimately be quite costly to taxpayers.

But what if there is a way to stimulate hiring without adding a dime to the federal deficit? (And I’m not talking about monetary policy, which inflicts costs of its own.) One inventive idea would create hiring incentives on a contingent basis, but with the beautiful feature that the program itself eliminates the contingency. Alex Tabarrok recently devoted a post to this idea, for which credit goes to Robertas Zubrickas. Here’s how it works, in Zubrickas’ words:

“… we propose a policy that offers firms wage subsidies for new hires payable only if the total number of new hires made in the economy does not exceed a prespecified threshold. An example would be a promise to cover all new labor costs contingent on that less than, say, 100,000 new jobs are created in total. From a firm’s perspective two outcomes can occur from this policy. One outcome is when the number of new jobs is less than the threshold, in which case the firm has its additional labor costs covered while keeping all the additional revenue. The second outcome is when the threshold is met and no subsidies are paid.”

If enough firms hire in order to reap the subsidies, then aggregate hiring exceeds the threshold and no wage subsidies are paid, but the additional employment boosts demand sufficiently to justify the hiring. Fiscal stimulus without any budget impact! Incredible, right?

There are problems, of course. The simple program described would carry big risks for many businesses. Just because aggregate hiring exceeds the threshold doesn’t mean demand for your firm’s offerings will increase. To take an obvious example, can a rural employer count on an increase in demand? The program could be designed to hinge on different regional hiring thresholds, or different industry hiring thresholds, but that quickly gets complicated.

Moreover, firms will have an incentive to free ride on other businesses who hire up-front. The timing of cash flows would also be critical. Are the subsidies to be paid upon proof of hiring, with repayment later if the aggregate hiring threshold is reached? If not, I suspect many employers would rather scramble to hire workers upon the realization of any increase in demand as might occur, but unwilling to risk hiring given the possibility that the subsidy will be lost and that their own sales will remain weak. That might be especially true for small firms. And if the subsidy is paid up front, good luck getting it back on behalf of taxpayers! So there are substantial fiscal risks, whether or not the aggregate hiring threshold is met. But perhaps those risks could be minimized with some limited tests of such a program.

Finally, this sort of plan would be much less likely to succeed with repetition. Then again, a one-time contingent hiring subsidy might be well suited to the so-called “low-employment equilibrium” that many believe we face today. The contingent subsidy is certainly a market distortion, but one hopes it would be a temporary distortion.

Zubrickas’ contingent wage subsidies are fascinating. The pandemic and the social distancing imperative have increased the cost of doing business, and the infection risk perceived by consumers is a potential drag on demand. Wage subsidies would reduce hiring costs, but if enough firms hire, those costs would be restored while demand would be stronger. But additional sales might not materialize for your firm! Designing a program of this type so as to minimize the risks faced by individual firms and taxpayers is tough, but it is an idea worth exploring in more detail. In concept, it’s certainly preferable to fiscal programs that carry huge costs and usually end in permanently larger government.        

 

 

Rx Drug Prices Are Falling, But You’re Aging

08 Friday Nov 2019

Posted by in Health Care, Prescription Drugs, Price Controls

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Ask anyone on the street about prescription drug prices, or ask anyone in the press, and you’ll probably hear they are out of control. That contention is false. The conventional wisdom is typified by this exaggerated BS about insulin pricing … actually, you can find a vial of the kind I used for many years for about $25 without much difficulty.

Individual experience differs, of course. Yes, there are new drugs on the market that are exorbitant; there are older drugs still under patent that are pricey too. Those represent a fairly small part of the total market, however, and one on which policymakers should tread lightly if they hope to foster the development of new, life-saving drugs. Newer insulin varieties are not in that class, and those varieties don’t always incorporate meaningful improvements for patients.

Getting Old Is Hell

In fact, prescription drug prices have been declining for a number of years. The real problem is we’re always getting older! In a report from the Progressive Policy Institute, Michael Mandel describes what he calls the prescription drug escalator. Alex Tabarrok has a good summary of the article. The chart at the top of this post, from Mandel, shows that the number of drugs prescribed rises steadily with one’s age. The total bill rises along with age, which may create the perception that you’re paying higher prices. Unsurprisingly, more of each health-care dollar spent out-of-pocket  (OOP) goes to prescribed medications as you age, and more goes to prescription drugs as health declines. As Mandell says, the increases experienced by individuals are a matter of utilization as opposed to pricing..

Generic Dominance

Tabarrok notes that generic drugs account for somewhere between 80-90% of all prescriptions, and generic costs have been falling for some time. He links to one of his earlier posts on generics and to this study by the National Bureau of Economic Research, which states:

“… direct-out-of-pocket CPI for generic prescription drugs decline[d] by about 50% between 2007 and 2016 …”

Average OOP prescription costs peaked in 2006, according to Mandel’s data. Tabarrok quotes Mandell:

“May 2019 research report from the Agency for Healthcare Research and Quality reported that average out-of-pocket spending for prescribed medications, among persons who obtained at least one prescribed medication, declined from $327 in 2009 to $238 by 2016, a decrease of 27 percent. Data from the Bureau of Labor Statistics Consumer Expenditure Survey shows that average household spending on prescription drugs fell by 11% between 2013 and 2018.

Moreover, OECD data shows that average out-of-pocket spending on prescribed medicines in the United States ($143 per capita in 2017) is actually lower than countries such as Canada ($144), Korea ($156), Norway ($178), and Switzerland ($215).”

The declines in OOP drug costs came despite a shift in health-care payment responsibilities from insurers to consumers in recent years — OOP costs would have declined much more had the shift not occurred, according to Mandel. As he says, consumers now have more “skin in the game”, and apparently they act on it.

Another basis of the misperception about escalating drug prices has to do with the way they are reported. Mandel says:

“List prices are the published prices that manufacturers charge to wholesalers. Net prices reflect the revenues that drug manufacturers receive, net of rebates and discounts to prescription benefit managers, insurance companies, and hospitals.

Studies of list prices invariably show very strong growth. For example the IQVIA Institute for Human Data Science found that the list price of the average brand rose from $364.92 to $657.08 since 2014, an 80% increase. Similarly, a widely cited recent study based on list prices found that from 2008–16, the costs of oral and injectable brand-name drugs increased annually by 9.2 percent and 15.1 percent, respectively. … By contrast, net prices and net pharma revenue have been growing much more slowly, once rebates and discounts are accounted for.” 

The Pricey Segment

There are a variety of circumstances that bear on the pricing of individual drugs. Clearly, non-generic drugs are subject to more upward price pressure and give rise to anecdotes that feed misperceptions about the overall trajectory of drug prices. These are either new drugs or older ones sold under extended patents, which are sometimes granted for even minor changes in a drug’s chemical makeup.

Some new drugs are life-saving breakthroughs targeting rare diseases. The unfortunate truth is that drug development is a very costly enterprise, often stretching well over a decade in the U.S. under the FDA’s approval process. Moreover, U.S. consumers actually subsidize the cost of drugs for European consumers, where drugs are typically subject to price ceilings or are directly negotiated by government. By the time drugs go to market, development is treated as a fixed cost; even the low prices in Europe cover the marginal cost of production, so pharmaceutical manufacturers don’t mind selling there as long as their development overhead is paid by someone. That’s the rub.

Drug development costs are heavily influenced by public policy, often to the detriment of consumers. The FDA’s drug approval process is in dire need of reform, and patent extensions should be severely curtailed. As an advocate of free trade, I also favor a lifting of restrictions on imports of drugs to the U.S.

Conclusion

You’re likely to see more physicians as you age, they’re likely to prescribe more drugs, and you’re likely to pay more for prescriptions OOP. That’s the escalator in action. You can minimize the slope of your personal prescription escalator by taking good care of yourself and using generics when possible, but the slope is often beyond a person’s control. Nevertheless, over the past 13 years in the U.S.,  most of those experiencing higher OOP costs have this escalator, i.e., aging, to thank… it’s drug utilization, not pricing.

A relatively small but important share of the market has experienced price escalation. Newer, highly specialized drugs can carry high price tags. Patents give drug manufacturers considerably more pricing power, and drug companies have sought to maintain “evergreen” patents by manipulating their formulations. U.S. import quotas and restrictive pricing abroad have left consumers in the U.S. holding the bag for a large share of drug development costs. These shortcomings can be addressed via streamlined drug approval, patent reform, and lifting import restrictions.

A critical policy prescription is to liberate market forces and foster competition in the pharmaceuticals industry. Price controls in the U.S. would eliminate all incentives for new breakthroughs, leading progress in many areas of treatment to a stand-still. Price controls merely substitute the arbitrary decisions of politicians and bureaucrats for the market’s ability to balance dynamic consumer needs, medical expertise, and the costs faced by sellers.

 

 

The Oddly Cherished Tax Refund

13 Wednesday Feb 2019

Posted by in Taxes, Uncategorized

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Lately I’ve heard people complain bitterly that their federal tax refunds will be smaller this year. It’s as if they expected the 2017 tax package to lead to a larger refund on taxes paid in 2018, rather than a lower tax liability. Yes, those are two different things. About 80% of U.S. taxpayers are expected to see a net reduction in their federal taxes for 2018, but they might or might not receive refunds. Was your withholding reduced by the new tax law? Then you might receive a smaller refund even if your taxes are lower. Likewise, if you reduced your withholding too much, you will receive a smaller refund. Did your income rise? Then maybe you’ll pay more taxes and see a smaller refund.

The withholding tables were adjusted by the IRS in early 2018 based on the changes dictated by the tax package. Lower withholding was applied to many taxpayers, but it is often possible to manage one’s withholding rate within certain limits. How many of those pining for a refund took action to preserve a higher level of withholding? Let’s hope it was zero, for their sake.

Don’t get me wrong: if you’re not sure whether you’ll owe taxes when you file, it’s always nice to hear that a refund is coming. Moreover, the withholding allowance calculation is a very imprecise guide to one’s tax liability. Clearly the tax package did not benefit every taxpayer, especially high earners and small business people. Those in high-tax states lost a chunk of their state and local tax deduction. And another thing was somewhat irritating: continuing high compliance costs. Even under this so-called tax simplification, it remains necessary for many taxpayers to collect information related to potential deductions. After all, how else would you know whether it makes more sense to itemize rather than take the larger standard deductions now available? Small business people have some other compelling reasons to complain about this “simplification”.

Jazz Shaw at Hot Air observed that this Washington Post article about reduced tax refunds was crafted as if to inflame resentment among taxpayers:

“This is certainly a clever bit of ‘coverage’ of a story based primarily on people bitching on Twitter. Notice how the WaPo manages to promote a hashtag denigrating the tax cuts in the second paragraph. [#GOPTaxScam] The premise here is clearly that the tax cuts reduced some people’s refunds, only Republicans voted for the tax cuts, therefore the tax cuts must be bad and so are the Republicans.”

I don’t have the link now, but yesterday Alex Tabarrok had this sarcastic reaction to the WaPo article:

“Voters irate because the government didn’t force them to give it an interest-free loan…”

Perhaps no explanation is required, but the government has free use of your funds whenever too much is withheld from your regular paycheck — it pays you no interest on the “loan” as part of your ultimate refund. If getting that refund is the only way you can save, you’re doing it wrong.

 

 

Relieving the U.S. Public Toilet Shortage: User Fees

12 Wednesday Dec 2018

Posted by in Price Mechanism, Social Costs

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The musical comedy Urinetown opened in 2001 and ran for 965 performances, not a bad run by Broadway standards. The show, which is still performed in theaters around the country, is a melodramatic farce: a town tries to deal with a water shortage by mandating that all townspeople use pay toilets controlled by a malevolent private utility. Despite the play’s premise, pay toilets are a solution to the very real problem of finding decent facilities, or any facility, in which to relieve oneself in public places. Anyone who has ever strolled the streets of a city has encountered this problem from time-to-time. But in the U.S., where local budgets are typically strapped, the choice is often between scarce and decrepit free toilets or no toilets at all. Otherwise, those seeking relief must rely on the kindness business owners or pass laws allowing non-patrons to commandeer businesses’ bathrooms at will. Toilets with user fees, however, are an alternative that should get more emphasis.

In part, the theme of Urinetown reflects a longstanding notion among anti-capitalists that pay toilets are a disgustingly unfair solution to these urgent needs. One can imagine the logic: everyone has a need and a right to make waste, so we should all have access to sparkling public toilets for free! There is also the presumed misogyny of charging at stalls but not urinals (which are cheaper to maintain, after all), but overcoming that problem should not present a great technical hurdle. And surely pay toilets could be made to accept EBT cards, or locally-issued pee-for-free cards for the homeless.

Yes, we all make waste. However, most of us are so modest and fastidious that we quite literally “internalize the externality” we’d otherwise impose on others were we to seek relief in the street or behind trees in the park. We hold it and sometimes incur high costs in search of a restroom. Those are costs many of us would willingly pay to avoid.

As Alex Tabarrok says in “Legalize Pay Toilets“, outrage over pay toilets, very much like the kind expressed in Urinetown, is what led to outright bans on pay toilets in America during the 1970s (also see Sophie House’s discussion of the need for pay toilets at Citylab). According to Tabarrok, “In 1970 there were some 50,000 pay toilets in America and by 1980 there were almost none.” Many travelers know, however, that pay toilets are fairly commonplace in Europe.

In the wake of pay-toilet bans in America, and without the flow of revenue, those one-time pay toilets were not well-maintained nor replaced. In that sense, hostility to the concept of pay toilets is responsible for the paucity and abysmal condition of most public restrooms today. Public restrooms are often plagued by a tragedy of the commons. And when you do see a “free” public restroom in relatively good condition (in an airport, on a turnpike, or elsewhere), it is usually because its costs are cross-subsidized by payments for other goods and services offered in those facilities. It’s not as if you don’t pay for the bathrooms.

There is no question of a willingness to pay, but legal obstacles to pay toilets remain. Pay toilets are still very uncommon. New York City actually decriminalized public urination a few years ago, an odd way to deal with the shortage of restrooms. Some cities, such as Philadelphia, have initiated efforts to bring back pay toilets, but they have made little headway. Just last year, the toilet paper producer Charmin ran a successful publicity campaign in New York City by testing a mobile toilet-sharing service (à la Uber ride-sharing) called Charmin Van-GO. The company described the test as a big success in terms of publicity, but apparently the service has not been offered on a continuing basis.

The economic problem posed by full bladders and bowels on the public square can be solved with relative efficiency using the price mechanism: pay toilets. The flow of revenue can defray the costs of restrooms and their maintenance, easing the strain on public budgets and covering the cost of keeping them clean. Pay toilets can be provided publicly or built and operated by private providers. Pricing the use of toilets, whether offered publicly or privately, helps focus resources at the point of need. Free public toilets, in contrast, are scarce and typically unsanitary. Funding public restrooms through taxation, rather than user fees, involves a loss of efficiency because taxpayers are often distinct from actual users. Forcing purveyors of food and drink (or anything of value) to offer bathroom access to “free riders” creates another obvious source of inefficiency. Allowing the use of EBT cards at pay toilets, while overcoming certain objections, would also involve inefficiencies, but at least they’d be limited to subsidies for a small proportion of the bathroom-going public. Given the alternatives under the status quo, our cities would be far more pleasant if they were flush with pay toilets.

A Voluntary Redistribution of Sex

11 Friday May 2018

Posted by in Free markets, Prohibition, Redistribution, Uncategorized

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“Incels” have received plenty of bad publicity since the horrifying van attack in Toronto two weeks ago. It was preceded in 2014 by a killing rampage in California perpetrated by an individual with a similar profile. In case you haven’t heard, an incel is an involuntary celibate, either male or female, though male incels have garnered nearly all of the recent attention. Whatever their other characteristics, incels share a loneliness and an unmet desire for intimacy with other human beings.

Lux Alptraum shares her views about the differences between male and female incels. She blames “angry, straight men” and “toxic masculinity” for both the violence that’s recently come to be associated with incels and the relative inattention paid to the plight of female incels. I value her perspective on the issue of female incels. There are obviously extreme misogynists among males in the incel “community”. Some are so enraged by their plight that they engage in on-line bullying, and a plainly deranged segment of incels, including the perpetrators of the crimes mentioned above, have advocated violent retribution against those they deem responsible for their low sexual status. That means just about anyone who can find a partner.

Alptraum paints male incels with a very broad brush, however. Similarly, various leftist writers have categorized incels as predominantly “right wing” and even racist, but involuntary celibacy and misogyny do not lie conveniently along a two-dimensional political spectrum. Incels are present in many groups, crossing racial, religious, and political lines. There are incels among the transgendered and undoubtedly in the gay community. Gay individuals can exist in relative isolation in towns across America. Physical disabilities may condemn individuals to involuntary celibacy. And not all incels are “ugly”; instead, they may suffer from severe social awkwardness. But there are bound to be incels who live quiet lives, unhappy, but adjusted to their circumstances, more or less.

The recent focus on incels has prompted some interesting questions. Ross Douthat’s opinion piece in The New York Times asks whether anyone has a “right to sex”, as some incels have asserted. Robin Hanson discusses the idea of a “redistribution of sex“, noting in a follow-up post that governments throughout history have influenced the distribution of sex through policies enforcing monogamy, for example, or banning prostitution. Voluntary agreements to exchange sex for remuneration are one way to alter the distribution. In fact, to demonstrate the lengths to which a government could go to redistribute sex and intervene against “sex inequality”, Hanson mentions policies of cash redistribution, funded by taxpayers, to compensate incels for the services of prostitutes. There are examples of such benefits for the disabled. Here is Alex Tabarrok on that subject:

“In the UK charities exist to help match sex workers with the disabled. Similar services are available in Denmark and in the Netherlands and in those countries (limited) taxpayer funds can be used to pay for sexual disability services.”

Subsidies and charity aside, it’s easy to understand why prohibition of sexual services for hire would be seen as an injustice by those unable to find partners willing to grant sexual benefits. From a libertarian perspective, trade in sex should be regarded as a natural right, like the freedom to engage in any other mutually beneficial transaction, so long as it does no harm to third parties. One’s body is one’s own property, and it should not be for government — or others — to decide how it will be used.

Laws against prostitution do great harm to society and to the individuals involved in the sex business. Forget about ending prostitution. That will never happen. According to  Abigail Hall, there are about 1 million prostitutes working in the U.S. They almost all work underground, with the exception of those operating in legal brothels in Nevada. Prohibition keeps the price up, but the workers capture a low share of those returns. Their bosses are harsh masters relative to those in legal businesses. These workers cannot report crimes against them, so they are often subject to the worst kinds of abuse. Illegality usually means they don’t have access to good health care, which places customers at greater risk. Legalizing (or decriminalizing) prostitution would reduce or eliminate these problems. From Hall:

“By legalizing the sex trade, we would allow those involved in the sex trade to come out from the shadows, use legitimate business practices and legal channels, and decrease the likelihood that women will be trafficked by violent groups of criminals. … As prostitution becomes a legitimate profession, it allows for prostitutes to be more open with their doctors about their sexual history and seek treatment for STIs and other problems.”

Many object that prostitution exploits women, legal or not, and that it exploits low-income women disproportionately. But there will be voluntary sellers as long as there is a market, again, legal or not. And there will be a market. As for a disparate impact on the poor, Hall says:

“The fact that those who select prostitution as a profession may be poor is inconsequential…. It may be true that some women who work as prostitutes would strongly prefer another profession. Even if this is the case, women who voluntarily choose prostitution as a means of income should be allowed to practice their profession in the safest environment possible.”

The ongoing development of “sex robots” offers an avenue through which incels might enjoy activity that approximates sex with a human being. These robots are becoming increasingly realistic, and their costs are likely to decline dramatically in coming years. For incels with a congenital inability to interact with other human beings, this option might be far preferable to hiring the services of a prostitute. And the introduction of both male and female sex robots into senior care facilities might reduce the likelihood that sexually aggressive residents will abuse others. It happens.

Free markets are amazing in their ability to maximize the well being of both consumers and producers of a good or service. Trades are mutually beneficial and therefore are voluntary, and price signals redirect resources to their most valued uses. The prohibition on prostitution, however, has made it a very dangerous business for practitioners and customers alike. Prohibition has led to dominance by organized crime interests and local strong-men and -women. It has also thickened the intersection of prostitution with other prohibited activities, such as the drug trade. This creates a toxic criminal environment within which women are trapped and abused. Legalizing prostitution would liberate these individuals and create safer conditions for them and their customers. Private solutions would still be available to those who wish to keep prostitution out of their buildings or neighborhoods. And legalization is one way that sex could be made safely and voluntarily accessible to incels. Perhaps, one day soon, the availability of sex robots will help incels satisfy their desires as well. Some incels will still harbor strong resentment toward those for whom sex is not out of reach. Nevertheless, it is reasonable to ask whether such a “voluntary redistribution of sex” would not produce unambiguous social benefits. To deny these benefits to groups like the disabled, or really to anyone with a physical or emotional inability to find a willing partner, and to insist that sex workers be exposed to danger and abuse, is not just priggish, but cruel.

Open Borders and Club Goods

13 Saturday Jan 2018

Posted by in Immigration, Liberty

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The question of open borders divides libertarians as much as any. The arguments for open borders made by the likes of Bryan Caplan, Alex Tabarrok, Don Boudreaux and Sheldon Richman are in many ways quite appealing. Fewer borders means greater opportunities for gainful trade among individuals. For the U.S., the economic gains from in-migration have been unquestionable. From a pure libertarian perspective, governments should never interfere with the non-violent actions of free individuals, including freedom of movement. These great economists contend, in effect, that there is no real moral distinction between government actions that confine individuals within borders and those that keep people out, though our conciences are less burdened by the latter because the world abroad seems so large.

There is a gnawing contradiction in this viewpoint, however. It relates to the appropriate scope of “ownership”. At the link above, Caplan says:

“The only principled libertarian objection to this is that the citizens of each country are its rightful owners, so they’re entitled to regulate migration as they see fit. … But if you believe this, there is no principled libertarian objection to any act of government. Fortunately, the belief that citizens are countries’ rightful owners is crazy. The social contract is an utter myth. Contracts require unanimous consent, and no country has ever had unanimous consent.“

The Character of a Good

I contest Caplan’s assertion that any one act of government is like all others. Yes, there is always a danger of a majoritarian tyranny in any democracy. But there is also the question of sovereignty, for which borders of some kind are necessary. If policies governing those borders are established legislatively, they should be subject to checks and balances: executive consent as well as judicial review of disputes.

I also contest Caplan’s statement that ownership implies unanimous consent. In fact, there are many forms of property over which decisions do not imply unanimous consent of joint owners. One such form is the subject of what follows, and I believe that form of “ownership” is applicable to one’s citizenship or residency status.

To keep things simple, I’ll frame this discussion only in terms of citizenship. I therefore abstract from issues like green cards, visiting worker programs, and the presence of resident aliens in general. For a nation, the essence of barriers to immigration can be addressed by considering the simpler case of citizens versus non-resident non-citizens. For purposes of this discussion, if you are allowed to arrive on a nation’s shores, you will be a citizen.

If a country’s citizenship can be considered a good worth acquiring, what is its real character? It is privately possessed and not tradable, but not all goods are tradable. An important taxonomy of goods in the public finance literature is based on two dimensions: exclusivity and rivalrousness. The former is the degree to which other parties can be excluded from enjoyment or use of the good or resource.

Most goods have at least some degree of exclusivity: you can be denied admission to a concert, the use of an appliance or furniture, and even parks and port facilities. Pure public goods like national defense and the air we breath are completely non-exclusive, however. Broadcast television is non-exclusive as well, as long as you have the equipment to watch it.

Rivalrousness is the degree to which the use or enjoyment of a good precludes another’s use or enjoyment. My friend can’t eat the steak if I eat the steak. That’s rivalrous. But my friend and I can both enjoy the concert. That’s non-rivalrous. A private good is both exclusionary and rivalrous. A public good is neither.

Citizenship as a Good

Citizenship can be viewed as a bundle of attributes much as any good, but it is an extremely complex bundle: it includes the individual rights enshrined in a nation’s constitution (if any), the personal and economic opportunities available by virtue of access to in-country markets and resources, the culture(s), and any personal risk reduction provided collectively, i.e., a safety net via public support. How, then, would one classify citizenship, or its component attributes, in terms of exclusivity and rivalrousness?

First, the entire citizenship bundle has a high degree of exclusivity. A nation can decide on closed borders, or partially open borders, if it chooses to do so, just as a theme park limits its gate. That is the political decision at hand. The degree of exclusivity of individual components of the bundle matters little if the bundle itself is highly exclusive.

At a high level, citizenship itself is non-rivalrous. My citizenship does not preclude citizenship for anyone else. Therefore, at the level of the bundle, citizenship is exclusive but non-rivalrous, so it has the character of what economists call a “club good“. Citizens are already part of the club; to that extent they are joint “owners”. Like many clubs, decisions about new membership need not be unanimous.

Classification of citizenship attributes as goods is trickier. The exclusivity of citizenship makes the non-rivalrous public goods available to citizens into club goods. Once admitted, for example, you are free to engage in speech, practice a religion of your choice, own a weapon, and receive due process and habeas corpus without interfering with any other citizen’s ability to exercise the same rights. You get national defense and a judicial system. You have equality of opportunity to the extent that your pursuit of economic gain does not interfere directly with anyone else’s opportunities. On the other hand, the freedom of assembly is rivalrous to at least some extent, as we learned last year from events in Charlottesville, VA. In fact, there may be congestion limits to some of the other freedoms mentioned above. 

Access to a nation’s markets permits mutually beneficial trade to take place. An individual’s participation usually does not rule out participation by others, so it is essentially non-rivalrous. (In some markets the entry of new sellers may be limited and exclusionary.) Of course, a nation’s resources are scarce; exploiting them for gain or enjoyment necessarily prevents others from using the same resources. From the point of view of existing citizens, these resources are non-exclusive and rivalrous, and are therefore classified as “common resources”, subject to congestion effects, but they are still exclusive to those citizens. The key here is not whether there are gains from trade, but that there is some rivalrousness embedded in this citizenship attribute.

In addition to the basic rights mentioned earlier, the entire legal structure, regulatory apparatus, and the political process are complex attributes of citizenship. These bear on the limits of legal conduct: Can you buy or sell liquor on Sundays? Do businesses require licensure? Is abortion legal? And on and on. In a democracy, the ability to participate in the political process is non-rivalrous: it does not prevent others from participating. However, the range of possible outcomes of the process can also be viewed as an attribute, and these outcomes, as they are promulgated, are certainly rivalrous. If the “other” side gets extra votes, then the power of my vote is diminished. So the limits of legal conduct are exposed to political rivalry. In the case of open borders, a large number of citizens may not favor existing rules, regulations, and the allocation of public spending.

So the attributes of citizenship are mixed in terms of rivalrousness: Some are rivalrous but many are not. The citizenship bundle, at a more detailed level, is therefore a mix of club goods (exclusive but non-rvalrous) and some goods that are rivalrous. This is important, because under the classical description club goods are public goods provided privately; they are therefore under-provided from the perspective of social welfare and the Pareto criterion that a new citizens can be made better off without making any existing citizen worse off. That might not be the case in the presence of congestion effects.

Should a Club Good Be Unrestricted?

Citizenship has value at the margin to both existing citizens, who should be regarded as established club members, and non-citizens. The foregoing establishes that there are some private (exclusive and rivalrous) attributes attached to citizenship. Sometimes this is due to the impact of congestion on the provision of public goods. Patrick McNutt, in his survey of literature on “Public Goods and Club Goods“, summarizes some basic conditions under which public goods are provided by clubs:

“The public good is not a pure public good, but rather there is an element of congestion as individuals consume the good up to its capacity constraint. What arises then is some exclusion mechanism in order to charge consumers a price for the provision and use of the good. Brown and Jackson (1990, p. 80) had commented that the purpose of a club ‘is to exploit economies of scale, to share the costs of providing an indivisible commodity, to satisfy a taste for association with other individuals who have similar preference orderings’. For Buchanan and Ng the main club characteristic is membership or numbers of consumers and it is this variable that has to be optimised.“

Citizenship (or residency) is generally not price rationed, though there are certainly costs to the immigrant. I make no pretense here as to the determination of an optimal membership from a club or larger social perspective. My point is that rationing membership is a rational choice by club members, or citizens in this case.

Okay, I Like My Club

Tribal affiliations, and ultimately nation states, were a natural outgrowth of early competition for resources, especially when identifying threats from outsiders was a constant preoccupation. Territorialism was a byproduct, and with the establishment of agriculture, the peoples of these early societies probably identified strongly with their homelands.

Modern nation-states have evolved from those early patterns, and nations continue to differ in terms of language, culture, and governance. Successful nations are undoubtedly more liberal (in the classical sense) and open to trade and cross-border movement. Maybe one day all nations will be united under the principles of libertarianism… don’t count on it! For now, to one degree or another, a nation’s inhabitants have an interest in minimizing economic and political risks and retaining access to resources within their borders. I don’t believe that desire is irrational or immoral. If the inhabitants of a nation have a moral obligation to share their rights, wealth, and political process with all comers, then they must accept the possibility that their rights will be compromised, and possibly even complete upheaval. They suffer a loss of sovereignty and a loss in the expected value of their citizenship.

There is obviously no limiting principle to the open borders policy, as Tyler Cowen says. Existing citizens would be obligated to accommodate all those who land upon their shores, granting them the full rights and opportunities accorded to all other residents. Perhaps there would be economic gains in the short or long run, as most libertarians would predict. But perhaps there would be some losses along the way. Perhaps there would be political stability after a large influx of new residents, but perhaps not. And ultimately, perhaps changes in the political climate would feed back to the detriment of economic performance. One simply cannot say, a priori, how things would go. There are risks to the existing citizenry, and if they are obliged to accept those risks, those might well include having to feed, clothe and house new residents. There should be no absolute obligation to accept those risks. If the debate is about individual liberty, then surely imposing those risks via open borders would  abrogate the rights of existing citizens.

Addendum: A Note on the Goods Taxonomy

Given the two dimensions of goods discussed above, exclusivity and rivalrousness, goods are classified as follows:

  • Private goods: exclusive and rivalrous;
  • Public goods: non-exclusive and non-rivalrous;
  • Club goods: exclusive but non-rivalrous: e.g., a concert;
  • Common resources: non-exclusive but rivalrous: the air we breath; an aquifer;

Another category is sometimes defined: contestable goods, which have the character of public goods or even club goods when under light use, and are common resources when under heavy use. There is a difference between an empty park and a crowded park; or an empty road and a crowded road.

See ThoughtCo. for a good exposition on the taxonomy.

Labor Shares the Burden of the Corporate Income Tax

03 Friday Nov 2017

Posted by in Taxes

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As expected, a reduction of the corporate income tax rate from 35% to 20% is included in the GOP’s tax reform bill, a summary of which was released today. That rate cut would be a welcome development for workers, consumers, and corporate shareholders. It should be no surprise that the burden of the U.S. corporate income tax is not borne exclusively by owners of capital. In fact, it might hurt workers and consumers substantially while imposing relatively little burden on shareholders.

John Cochrane’s post on the incidence of the tax on corporate income is very interesting, though by turns it rambles and may be too technical for some tastes. He notes that the incidence of the corporate tax can fall on only three different groups: shareholders, workers and customers:

“As an accounting matter, every cent [of taxes] corporations pay comes from higher prices, lower wages, or lower payments to shareholders. The only question is which one.“

Cochrane quotes Lawrence Summers and Paul Krugman, both of whom are of the belief that the incidence of the corporate tax must fall primarily on capital and not on labor. That’s consistent with their view that a reduction in corporate taxes amounts to a gift to shareholders. But Cochrane isn’t at all convinced:

“The usual principle is that he or she bears the burden who can’t get out of the way. So, how much room do companies, as a whole, have to raise prices, lower wages, lower interest payments, or lower dividends?”

In fact, owners of capital can get out of the way. Capital is very mobile relative to labor. Here’s a counterfactual exercise Cochrane steps through in order to illustrate the implications of ownership bearing the incidence of the tax: if equity markets are efficient, share prices reflect all available information about the firm. If wages and product prices are unchanged after the imposition of the tax, then shareholders would suffer an immediate loss. Once the tax is discounted into share prices, there would be no further impact on current or future shareholders. Thus, future buyers of shares would escape the tax burden entirely. As a first approximation, the share price must fall to the point at which the ongoing return on the stock is restored to its value prior to imposition of the tax.

Cochrane notes that evidence on the reaction of stock prices to corporate tax changes is mixed at best, which implies that the incidence of corporate taxation falls more weakly on shareholders than many believe. That leaves consumers or workers to bear a significant part of the burden. Workers and consumers are mostly one and the same: economy-wide, higher prices mean lower real wages; lower wages also mean lower real wages. So I’ll continue to speak as if the incidence of the tax falls on either labor or capital, and we can leave aside consumers as a separate category. Cochrane says:

“It used to be thought that it was easy to lower payments to shareholders — ‘the supply of savings is inelastic’ — so that’s where the tax would come from. The newer consensus is that companies as a whole have very little power to pay less to investors, … so the corporate tax comes from lower wages or, equivalently, higher prices. Then, indirectly, reducing the corporate tax would increase capital, which would result in higher wages.”

Cochrane’s post and another on his blog were prompted by an earlier piece by Greg Mankiw showing that real wages, in an open economy, will have a strong negative response to a corporate tax increase. Here is the reasoning: the tax reduces the return earned from invested capital in the short run. Ideally, capital is deployed only up to the point at which its return no longer exceeds the opportunity cost needed to attract it. Given time to adjust, less capital must be deployed after the imposition of the tax in order to force the return on a marginal unit of capital back up to the given opportunity cost. That means less capital deployed per worker, and that, in turn, reduces labor productivity and wages.

Another issue addressed by Cochrane has to do with assertions that monopoly power in the corporate sector is a good rationale for a high tax on corporate income. You can easily convince me that the “average” firm in the corporate sector earns a positive margin over marginal cost. However, a microeconomic analysis of monopoly behavior by the entire corporate sector would be awkward, to say the least. Despite all that, Cochrane notes that monopolists have more power than firms in competitive sectors to raise prices, and monopsonists have more power to reduce wages. Therefore, the “tax the monopolists” line of argument does not suggest that labor will avoid a significant burden of a corporate tax. A safer bet is that firms in the U.S. corporate sector are price-takers in capital markets, but to some degree may be price-makers in product and labor markets.

Cochrane also emphasizes the inefficiency of the corporate tax as a redistributional mechanism, even if shareholders bear a significant share of its burden. It is still likely to harm workers via lost productivity, as discussed above. It is also true that many workers hold corporate equities in their retirement funds, so a corporate tax harms them directly in their dual role as owners of capital.

The cut in the corporate tax rate is but one element of many in the GOP bill, but a related provision is that so-called “pass-through” income, of the type earned via many privately-owned businesses, would be taxed at a maximum rate of 25%. These businesses generate more income than C-corporations. Currently, pass-through income is taxed as ordinary income, so capping the top rate at 25% represents a very large tax cut. As Alex Tabarrok points out at the last link, tax treatment should be neutral with respect to the form of business organization, but under the GOP bill, the effective gap between the top rate for pass-throughs versus corporate income would be even larger than it is now.

Critics of a reduction in corporate taxes should bear in mind that its incidence falls at least partly on labor, perhaps mainly on labor. The U.S. has the highest corporate tax rate in the industrialized world. That undermines U.S. competitiveness, as does the complexity of corporate tax rules. Tax planning and compliance burn up massive resources while drastically reducing the tax “take”, i.e., the revenue actually collected. The corporate income tax is something of a “show” tax that exists to appease populist and leftist elements in the electorate who consistently fail to recognize the unexpectedly nasty consequences of their own advocacy.

 

Does Google Dominance Threaten Choice, Free Speech and Privacy?

29 Tuesday Aug 2017

Posted by in Censorship, Free Speech, monopoly

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I’ve long been suspicious of the objectivity of Google search results. If you’re looking for information on a particular issue or candidate for public office, it doesn’t take long to realize that Google searches lean left of center. To some extent, the bias reflects the leftward skew of the news media in general. If you sample material available online from major news organizations on any topic with a political dimension, you’ll get more left than right, and you’ll get very little libertarian. So it’s not just Google. Bing reflects a similar bias. Of course, one learns to craft searches to get the other side of a story,  but I use Bing much more than Google, partly because I bridle instinctively at Google’s dominance as a search engine. I’ve also had DuckDuckGo bookmarked for a long time. Lately, my desire to avoid tracking of personal information and searches has made DuckDuckGo more appealing.

Google is not just a large company offering internet services and an operating system: it has the power to control speech and who gets to speak. It is a provider of information services and a collector of information with the power to exert geopolitical influence, and it does. This is brought into sharp relief by Julian Assange in his account of an interview he granted in 2011 to Google’s chairman Eric Schmidt and two of Schmidt’s advisors, and by Assange’s subsequent observations about the global activities of these individuals and Google. Assange gives the strong impression that Google is an arm of the deep state, or perhaps that it engages in a form of unaccountable statecraft, one meant to transcend traditional boundaries of sovereignty. Frankly, I found Assange’s narrative somewhat disturbing.

Monopolization

These concerns are heightened by Google’s market dominance. There is no doubt that Google has the power to control speech, surveil individuals with increasing sophistication, and accumulate troves of personal data. Much the same can be said of Facebook. Certainly users are drawn to the compelling value propositions offered by these firms. The FCC calls them internet “edge providers”, not the traditional meaning of “edge”, as between interconnected internet service providers (ISPs) with different customers. But Google and Facebook are really content providers and, in significant ways, hosting services.

According to Scott Cleland, Google, Facebook, and Amazon collect the bulk of all advertising revenue on the internet. The business is highly concentrated by traditional measures and becoming more concentrated as it grows. In the second quarter of 2017, Google and Facebook controlled 96% of digital advertising growth. They have ownership interests in many of the largest firms that could conceivably offer competition, and they have acquired outright a large number of potential competitors. Cleland asserts that the Department of Justice (DOJ) and the FTC essentially turned a blind eye to the many acquisitions of nascent competitors by these firms.

The competitive environment has also been influenced by other government actions over the past few years. In particular, the FCC’s net neutrality order in 2015 essentially granted subsidies to “edge providers”, preventing broadband ISPs (so-called “common carriers” under the ruling) from charging differential rates for the high volume of traffic they generate. In addition, the agency ruled that ISPs would be subject to additional privacy restrictions:

“Specifically, broadband Internet providers were prohibited from collecting and using information about a consumer’s browsing history, app usage, or geolocation data without permission—all of which edge providers such as Google or Facebook are free to collect under FTC policies.

As Michael Horney noted in an earlier Free State Foundation Perspectives release, these restrictions create barriers for ISPs to compete in digital advertising markets. With access to consumer information, companies can provide more targeted advertising, ads that are more likely to be relevant to the consumer and therefore more valuable to the advertiser. The opt-in requirement means that ISPs will have access to less information about customers than Google, Facebook, and other edge providers that fall under the FTC’s purview—meaning ISPs cannot serve advertisers as effectively as the edge providers with whom they compete.”

Furthermore, there are allegations that Google played a role in convincing Facebook to drop Bing searches on its platform, and that Google in turn quietly deemphasized its social media presence. There is no definitive evidence that Google and Facebook have colluded, but the record is curious.

Regulation and Antitrust

Should firms like Google, Facebook, and other large internet platforms be regulated or subjected to more stringent review of past and proposed acquisitions? These companies already have great influence on the public sector. The regulatory solution is often comfortable for the regulated firm, which submits to complex rules with which compliance is difficult for smaller competitors. Thus, the regulated firm wins a more secure market position and a less risky flow of profit. The firm also gains more public sector influence through its frequent dealings with regulatory authorities.

Ryan Bourne argues that “There Is No Justification for Regulating Online Giants as If They Were Public Utilities“. He notes that these firms are not natural monopolies, despite their market positions and the existence of strong network externalities. It is true that they generally operate in contested markets, despite the dominance of a just few firms. Furthermore, it would be difficult to argue that these companies over-charge for their services in any way suggestive of monopoly behavior. Most of their online services are free or very cheap to users.

But anti-competitive behavior can be subtle. There are numerous ways it can manifest against consumers, developers, advertisers, and even political philosophies and those who espouse them. In fact, the edge providers do manage to extract something of value: data, intelligence and control. As mentioned earlier, their many acquisitions suggest an attempt to snuff out potential competition. More stringent review of proposed combinations and their competitive impact is a course of action that Cleland and others advocate.  While I generally support a free market in corporate control, many of Google’s acquisitions were firms enjoying growth rates one could hardly attribute to mismanagement or any failure to maximize value. Those combinations expanded Google’s offerings, certainly, but they also took out potential competition. However, there is no bright line to indicate when combinations of this kind are not in the public interest.

Antitrust action is no stranger to Google: In June, the European Union fined the company $2.7 billion for allegedly steering online shoppers toward its own shopping platform. Google faces continuing scrutiny of its search results by the EU, and the EU has other investigations of anticompetitive behavior underway against both Google and Facebook.

It’s also worth noting that antitrust has significant downsides: it is costly and disruptive, not only for the firms involved, but for their customers and taxpayers. Alan Reynolds has a cautionary take on the prospect of antitrust action against Amazon. Antitrust is a big business in and of itself, offering tremendous rent-seeking benefits to a host of attorneys, economists, accountants and variety of other technical specialists. As Reynolds says:

“Politics aside, the question ‘Is Amazon getting too Big?’ should have nothing to do with antitrust, which is supposedly about preventing monopolies from charging high prices. Surely no sane person would dare accuse Amazon of monopoly or high prices.“

Meanwhile, the proposed Amazon-Whole Foods combination was approved by the FTC and the deal closed Monday.

Speech, Again

Ordinarily, my views on “speech control” would be aligned with those of Scott Shackford, who defends the right of private companies to restrict speech that occurs on their platforms. But Alex Tabbarok offers a thoughtful qualification in asking whether Google and Apple should have banned Gab:

“I have no problem with Twitter or Facebook policing their sites for content they find objectionable, such as pornography or hate speech, even though these are permitted under the First Amendment. A free market in news doesn’t mean that every newspaper must cover every story. A free market in news means free entry. But free entry is exactly what is now at stake. Gab was created, in part, to combat what was seen as Facebook’s bias against conservative news and views. If Gab or services like cannot be accessed via the big platforms that is a significant barrier to entry.

When Facebook and Twitter regulate what can be said on their platforms and Google and Apple regulate who can provide a platform, we have a big problem. It’s as if the NYTimes and the Washington Post were the only major newspapers and the government regulated who could own a printing press.

In a pure libertarian world, I’d be inclined to say that Google and Apple can also police whom they allow on their platforms. But we live in a world in which Google and Apple are bound up with and in some ways beholden to the government. I worry when a lot of news travels through a handful of choke points.“

This point is amplified by Aaron M. Renn in City Journal:

“The mobile-Internet business is built on spectrum licenses granted by the federal government. Given the monopoly power that Apple and Google possess in the mobile sphere as corporate gatekeepers, First Amendment freedoms face serious challenges in the current environment. Perhaps it is time that spectrum licenses to mobile-phone companies be conditioned on their recipients providing freedoms for customers to use the apps of their choice.“

That sort of condition requires ongoing monitoring and enforcement, but the intervention is unlikely to stop there. Once the platforms are treated as common property there will be additional pressure to treat their owners as public stewards, answerable to regulators on a variety of issues in exchange for a de facto grant of monopoly.

Tyler Cowen’s reaction to the issue of private, “voluntary censorship” online is a resounding “meh”. While he makes certain qualifications, he does not believe it’s a significant issue. His perspective is worth considering:

“It remains the case that the most significant voluntary censorship issues occur every day in mainstream non-internet society, including what gets on TV, which books are promoted by major publishers, who can rent out the best physical venues, and what gets taught at Harvard or for that matter in high school.“

Cowen recognizes the potential for censorship to become a serious problem, particularly with respect to so-called “chokepoint” services like Cloudflare:

“They can in essence kick you off the entire internet through a single human decision not to offer the right services. …so far all they have done is kick off one Nazi group. Still, I think we should reexamine the overall architecture of the internet with this kind of censorship power in mind as a potential problem. And note this: the main problem with those choke points probably has more to do with national security and the ease of wrecking social coordination, not censorship. Still, this whole issue should receive much more attention and I certainly would consider serious changes to the status quo.“

There are no easy answers.

Conclusions

The so-called edge providers pose certain threats to individuals, both as internet users and as free citizens: the potential for anti-competitive behavior, eventually manifesting in higher prices and restricted choice; tightening reins on speech and free expression; and compromised privacy. All three have been a reality to one extent or another. As a firm like Google attains the status of an arm of the state, or multiple states, it could provide a mechanism whereby those authorities could manipulate behavior and coerce their citizens, making the internet into a tool of tyranny rather than liberty. “Don’t be evil” is not much of a guarantee.

What can be done? The FCC’s has already voted to reverse its net neutrality order, and that is a big step; dismantling the one-sided rules surrounding the ISPs handling of consumer data would also help, freeing some powerful firms that might be able to compete for “edge” business. I am skeptical that regulation of edge providers is an effective or wise solution, as it would not achieve competitive outcomes and it would rely on the competence and motives of government officials to protect users from the aforementioned threats to their personal sovereignty. Antitrust action may be appropriate when anti-competitive actions can be proven, but it is a rent-seeking enterprise of its own, and it is often a questionable remedy to the ills caused by market concentration. We have a more intractable problem if access cannot be obtained for particular content otherwise protected by the First Amendment. Essentially, Cowen’s suggestion is to rethink the internet, which might be the best advice for now.

Ultimately, active consumer sovereignty is the best solution to the dominance of firms like Google and Facebook. There are other search engines and there are other online communities. Users must take steps to protect their privacy online. If they value their privacy, they should seek out and utilize competitive services that protect it. Finally, perhaps consumers should consider a recalibration of their economic and social practices. They may find surprising benefits from reducing their dependence on internet services, instead availing themselves of the variety of shopping and social experiences that still exist in the physical world around us. That’s the ultimate competition to the content offered by edge providers.

The Real Minimum Wage Is Always Zero

30 Friday Jun 2017

Posted by in Living Wage, Minimum Wage

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Min Wage Denmark

A minimum wage study from Denmark reinforces the findings of the Seattle study released this week by economists at the University of Washington. Both studies conclude that increases in the minimum wage have negative effects on low-earners, at least for large increases in wage floors of the type advocated by “living wage” proponents. Alex Tabarrok provided commentary of both studies this week on the Marginal Revolution blog.

The Seattle study found that both employment and hours worked declined substantially among low-wage workers following the city’s minimum wage hikes. This became particularly clear after the most recent increase from $11 to $13 per hour. The average low-wage worker in Seattle lost $125 per month, according to the findings. The study has generally been praised for its detailed data and careful methodology.

The Danish study took advantage of the fact that the minimum wage rises by 40% on a worker’s 18th birthday. The chart above pretty much boils down the results. Employment drops by a third at age 18. Even worse, Tabarrok notes that after one year, 40% of workers who lose their jobs at age 18 are still unemployed, while 75% of those who keep their jobs at 18 are still employed. The fate of these two groups is likely driven by a gap in talent and skills, and that gap can only expand as the least-skilled are idled.

The minimum wage is a misguided policy that hurts those who can least afford it: low-wage, low-skilled workers. Firms forced to adjust to the higher mandated wage are worse off as well, not to mention their customers, who are likely to face higher prices and degraded service levels. Even those who remain employed at the minimum wage might suffer under less generous job perks and working conditions. Today, large increases in the wage floor can be expected to bring premature automation of jobs.

In the real world, workers of low skill vary tremendously in their actual ability, prior training and discipline to perform in a structured environment. Many of these individuals simply cannot add value over and above the legal wage. Some are simply incapable of understanding the demands of arriving on time and delivering effort over the course of a work day. Hiring firms cannot easily discern these differences up-front from social cues. They might try, however, which could lead to decisions that are unfair to some individuals. An even higher minimum wage makes these decisions all the more difficult and risky, and forecloses opportunities to a broader swath of low-skilled workers, consigning them to dependency on family or the state.

The minimum wage has always had appeal as an exclusionary tactic by higher-paid union workers. Cowed by its ostensible first-order effects on worker incomes, the left latched onto it as a fundamentally just policy. The negative second-order effects are predictable however. The economic evidence has been piling up, while methodological flaws in an earlier, prominent study finding the opposite in the 1990s have been exposed. As a policy, the minimum wage is unjust in its effects on the incomes of low-skilled workers and on their ability to gain valuable work experience, and on businesses attempting to deliver value to their customers.

Note: I believe Don Boudreaux should be credited with the phrase used in the title of this post, which I’m sure I’ve quoted before. For more background on minimum wage effects, see these earlier posts on Sacred Cow Chips. There are 20 posts with that tag, and some are more focused on the minimum wage than others, so keep scrolling!