EclectEcon

Principlex has posted Ayn Rand's 1944 column, The Only Path to Tomorrow, which originally appeared in The Readers' Digest in 1944 [h/t to Stephen Hicks]. It is a forceful, but not compelling, statement about the importance of individual freedom. Here is a very brief excerpt:

The history of mankind is the history of the struggle between the Active Man and the Passive, between the individual and the collective. The countries which have produced the happiest men, the highest standards of living and the greatest cultural advances have been the countries where the power of the collective — of the government, of the state — was limited and the individual was given freedom of independent action. As examples: The rise of Rome, with its conception of law based on a citizen's rights, over the collectivist barbarism of its time. The rise of England, with a system of government based on the Magna Carta, over collectivist, totalitarian Spain. The rise of the United States to a degree of achievement unequaled in history — by grace of the individual freedom and independence which our Constitution gave each citizen against the collective.

While men are still pondering upon the causes of the rise and fall of civilizations, every page of history cries to us that there is but one source of progress: Individual Man in independent action. Collectivism is the ancient principle of savagery. A savage's whole existence is ruled by the leaders of his tribe. Civilization is the process of setting man free from men.

The WSJ-Online has a good summary item on how and why Argentina devolved into a country which failed to develop its growth potential because of its abrogation of so many freedoms [subscription, but available for a few days for non-subscribers; h/t to Eva].

As the [US] presidential campaign drones on, Barack Obama and the Democrats are fleshing out the promise of "change" with some specific, big-government policy proposals. Many are familiar, perhaps because they already have been tried – in Argentina.

That country has gone from South American breadbasket to world-class basket case. ...

The [Argentine] constitution once held limited government and private property to be among the highest ideals of the land. But in the 1920s these protections, which had made the country a magnet for immigrants and the seventh-largest economy in the world, began to erode.

An early example of this assault on liberty was when Congress imposed a rent freeze to deal with a housing shortage after World War I. This only exacerbated the problem, and in 1922 a politicized Supreme Court widened state powers to allow the regulation of rents. That decision put property-rights protection on a slippery slope. A decade later the Court gave the legislature the power to regulate interest rates.

The interventions didn't end there, and as state control of the economy expanded and the nation grew poorer, the country could not recover its footing. Economic populism and labor militancy took hold; protectionism blossomed and Argentina became a welfare state. Meanwhile, the informal economy swelled under the high cost of legality.

Fiscal crises have been recurring. According to a paper recently released by researchers at the Buenos Aires business school Eseade, external debt as a percentage of GDP has now climbed to 56% compared to 54% in 2001. If you include the unpaid debt to bondholders, the number is 67%. More than a few analysts are worried that should the economy slow, the government may tap Central Bank reserves, sparking a run against the peso or, fearing that, choose default, for the second time in a decade, as its escape hatch.

Will that mean an end to ballooning entitlements, class warfare, hostility toward producers, capital and private property, protectionism and subsidized central-planning? Unlikely.

Americans reading that laundry list may note that it sounds a lot like the mindset of the left wing that will dominate the Democratic Party's convention and choose Barack Obama as its candidate in August. From nationalized health care and government-owned refineries to punishing taxes on the rich, Argentina has been there, done that. There are good reasons to find the resemblance disturbing.

Addendum: After I wrote/quoted the above, I saw that Don Boudreax quoted precisely the same passage. Be sure to see his additional comments at Cafe Hayek.

From Fox News (via Jack):

A Los Angeles woman claims she was injured by her Victoria's Secret thong, prompting her to sue the underwear manufacturer.

The plaintiff in the case, Macrida Patterson, 52, attributed the May 2007 injury to a Victoria's Secret "low-rise v-string," according to a court document posted on The Smoking Gun.

Patterson's lawyer told The Smoking Gun that a "design problem" caused a decorative metallic piece on the underwear to fly up and hit Patterson in the eye while she was putting the underwear on.

What's the more efficient standard for tort law in cases like this, strict liability or negligence? Or does it matter?

The traditional law & economics answer is to select the regime which will induce the risks to be born by the least-cost bearer of the risk.

1. Perhaps this was an efficient accident, i.e., it was an accident that it would cost more to prevent than the expected costs resulting from the accident. Of course to truly assess the efficiency of the accident, one must consider the dot product of (a) the vector of all possible probabilties of accidents and (b) the vector of costs of those accidents, should they materialize.
2. If it was not an efficient accident, Victoria's Secret was negligent. To promote economic efficiency, they should be held liable. And if they are held strictly liable (they must pay compensation, even if they were not negligent), they will tend to prevent only those accidents which are inefficient, but choose to pay compensation for those that are efficient.
3. If it was an efficient accident, who is the least-cost bearer of the risk: customers or the firm? We seem, increasingly, to assign this risk to large firms, not because they are any better insurers than consumers, but because they have more money. The result is that such cases are decided more on distributional than efficiency criteria.

It perplexed me when President Bush II enunciated a goal of increased home ownership in the US. It has always perplexed me that the US has mortgage interest deductibility in its income tax code. I can readily imagine that the vested interest group of current house owners would shriek in pain if the US were to reduce or restrict its policies which tend to increase the demand for housing. Despite myself, I cannot help but agree with Paul Krugman,

[H]ere’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?...

In fact, given the way U.S. policy favors owning over renting, you can make a good case that America already has too many homeowners....

All I’m suggesting is that we drop the obsession with ownership, and try to level the playing field that, at the moment, is hugely tilted against renting.

And while we’re at it, let’s try to open our minds to the possibility that those who choose to rent rather than buy can still share in the American dream — and still have a stake in the nation’s future.

Can you imagine the screams of pain, especially among people who own larger, more expensive homes with large mortgages, if the US were to scrap mortgage-interest deductibility? Can you imagine a politician being elected who promised to inflict such pain on this group? Me neither.

Two days ago, I posted a clip from the Associated Press about Judge Alex Kozinski, of the 9th Circuit Court in the US. In that posting, I wondered,

...why he, or any judge for that matter, would say "he didn't believe the images were obscene" about a case he was hearing.

It turns out, of course, that the images on the website had been posted by the judge's son and neither the images nor the judge's comments had anything to do with the case Kozinski was hearing.

While I do not agree with one of the analogies here, the background and details are fleshed out at this site.

Lessig on the Kozinski Kerfuffle Larry Lessig has a blog post on what he calls, The Kozinski Mess, by which he means "the total inability of the media — including we, the media, bloggers — to get the basic facts right, and keep the reality in perspective. The real story here is how easily we let such a baseless smear travel - and our need is for a better developed immunity (in the sense of immunity from a virus) from this sort of garbage."

Here is how he explains the situation:

Here are the facts as I've been able to tell: For at least a month, a disgruntled litigant, angry at Judge Kozinski (and the Ninth Circuit) has been talking to the media to try to smear Kozinski. Kozinski had sent a link to a file (unrelated to the stuff being reported about) that was stored on a file server maintained by Kozinski's son, Yale. From that link (and a mistake in how the server was configured), it was possible to determine the directory structure for the server. From that directory structure, it was possible to see likely interesting places to peer. The disgruntled sort did that, and shopped some of what he found to the news sources that are now spreading it.

For more details, see this from MSNBC, which says, in part,

Cyrus Sanai, a Beverly Hills lawyer who has had a long-running dispute with the 9th Circuit, took credit for bringing the graphic material to light.

Sanai said he discovered the sexual content in December while monitoring the judge's Web site as part of his legal rift with the court. After downloading the files, Sanai said he began contacting reporters at various publications in January to bring attention to what he called widespread ethical problems on the 9th Circuit.

He provided a copy of the files to The Associated Press on Wednesday, which appeared to mirror the Times' descriptions of videos and pictures on the Web site.

Sounds as if there was more at stake than just porn.

Alex Kozinski is a very interesting judge. But get a load of this from the Associated Press!

LOS ANGELES - A federal judge overseeing an obscenity trial exploring the extreme fringe of pornography posted explicit photos and videos on his personal Web site, a newspaper reported Wednesday.

Alex Kozinski, chief judge of the 9th U.S. Circuit Court of Appeals, said he thought the material on his Web site couldn't be seen by the public, the Los Angeles Times reported on its Web site. The images included a video of a "half-dressed man cavorting with a sexually aroused farm animal," the newspaper reported. [emphasis added]

Kozinski, who has since blocked public access to the site, said he didn't believe the images were obscene.

I have "known" Judge Kozinski for nearly two decades (never met him, just corresponded with him about various topics). I find it hard to fathom why he, or any judge for that matter, would say "he didn't believe the images were obscene" about a case he was hearing. But, then, I'm not a judge.

Conrad Black is presently serving a 6 and 1/2-year term for mail fraud and obstruction of justice for his operation of his former newspaper empire. His case is now under appeal, and Judge Richard Posner is one of two judges on the 7th circuit who is hearing the initial appeal. From the CBC (h/t to Brian Ferguson):

Fallen media baron Conrad Black had harsh words for the American judges hearing the appeal of his fraud conviction, saying they don't understand the case and sometimes acted like part of the prosecution.

Black made the comments in an e-mail sent to the Globe and Mail from the Coleman minimum-security prison where he has been serving his 6½-year sentence since March.

"As you will have noticed, [Judge Richard] Posner and [Judge Diane] Skyes had little understanding of the case and were, in a way that I am unfortunately familiar with, essentially part of the prosecution until the realization began to dawn that they didn't really understand the case," the Globe and Mail quotes Black as writing.

Whenever I hear people complain about the greed of the large oil companies and others, jacking up prices and earning big profits, I have several reactions:

1. What are you complaining about? You could have bought into those profits if you had bought stock in those companies last year or three years ago or...; why didn't you?
2. The greed of the complainants is appalling in these situations. What they are really saying is,
   • You have the oil and the profits, and I want some of what you have. I might make an appeal that says, "The oil belongs to all of us" when in fact I chose not to become an owner of some of the oil or a claimant to some of the profits.
   • Or I might make a more general statement that it is not right for the rich to get richer at our expense.
   This strikes me as being at least as greedy as charging what the market will bear.

Even if those who complain about other people's wealth are not asking for more for themselves, they ARE asking to be able to control how others use their wealth. Doing so is also a form of greed. It's like saying, "You have the wealth, but I want to tell you what to do with it." This latter approach sounds less greedy if couched in terms of making things affordable for the poor, but it is no less greedy in the sense that I want to take it from you and use it how I want it used, not how you want it used.

Yesterday, the Boston Red Sox voted unanimously not to go to Japan for their opening game against Oakland unless the coaches, trainers, assistants, etc. would be paid what MLB originally promised them. From ESPN [note: the dispute was resolved by mid-afternoon, about an hour after the Red Sox refused to take the field for an exhibition game against the Blue Jays],

"We had an agreement," Curt Schilling, one of a handful of Red Sox players who talked with Major League Baseball on ground rules for the trip, told ESPN's Claire Smith.

"Some of the promises have already been taken away, now this," Schilling said. "As far as the players are concerned, [withholding the coaches' bonuses] can't happen."

''When we voted to go to Japan, that was not a unanimous vote,'' Lowell told the Globe, "but we did what our team wanted us to do for Major League Baseball. They promised us the moon and the stars, and then when we committed, they started pulling back. It's not just the coaches, it's the staff, the trainers, a lot of people are affected by this.

From what the players were saying, it sounded as if MLB was going to be in breach of its contract with the team players and staff. But the MLB breach would have been with the staff and assistants, not with the players, and so I wonder whether the players' refusing to go would have put them in breach. More likely, the trainers and assistants would be viewed as essential complements for the players, and if they had not gone on the trip (because of the breach), then likely the players could also have refused to go.

But do you really think the refusal to go to Japan would have had "profound global ramifications"? Ordinarily, I think Jayson Stark [sidebar column here] has a lot of valuable insight, and I enjoy reading his columns, but this is a bit over the edge:

I have no doubt that these guys completely understand the profound global ramifications of this trip. Nobody needs to explain to them that this isn't just another road series on their pocket schedules. This is an event of major significance for the sport, for the franchise and for the nation they're about to visit.

It is probably obvious, but I decided to blog this after the Red Sox refused to play the Blue Jays but before the resolution, and especially after I read Stark's column, which I found amusing (though clearly prescient).

Mike, from The London Fog, makes a nice distinction:

Not being given free government money to inflict your artistic vision on the rest of us is completely different from being threatened by the police for inflicting that vision.

He then adds the following quote,

It's easy to be brave when criticizing Bush; the silence of the arts community about human rights commission censorship suggests the only thing they're really idealistic about is free money.

Minor note: I see he mispelled "gubmnt".

Courtesy of the WSJ, via Brian Ferguson:

Yesterday, the San Francisco company that runs the popular fantasy game pulled the plug on about a dozen pretend financial institutions that were funded with actual money from some of the 12 million registered users of Second Life. Linden Lab said the move was triggered by complaints that some of the virtual banks had reneged on promises to pay high returns on customer deposits.

Second Life is an elaborate online world where players create new identities for themselves -- images called avatars. These avatars can own land, run businesses and build homes. And there's a link to the real economy: To buy things, players use credit cards or eBay Inc.'s alternative payment service PayPal to convert actual U.S. currency into "Linden dollars," which can be deposited using pretend ATMs into Second Life's virtual banks.

The banks of Second Life were operated by other players, who enticed deposits by offering interest rates. While some banks paid interest as promised, others used depositors' money for unsuccessful Second Life land and gambling deals. Under its new banking rules, Second Life says only chartered banks will be allowed -- though it isn't clear any real chartered banks will operate in the virtual play world.

The company now believes that (and I am translating very loosely here) transaction costs of the players to check out the banks' reliability, etc., are greater than the benefits from having no regulations of the banks.

Don Boudreaux says it very well:

I'm in the camp whose members ... hold that hiring the state to forcibly stop people from patronizing competitors at mutually agreeable prices is no different morally than hiring a street gang or your brother-in-law to do the same.

It's not just inefficient; it's immoral.

In the early 1960s, there was a store in the town where my relatives lived [Meijer's Thrifty Acres -- it's still there] that decided to stay open for customers for 24 hours a day. They did a calculation and discovered that the extra costs of staying open in the wee hours were extremely low, since they had the lights on and had people in the store restocking the shelves. In eco-speak, the incremental or marginal revenue from staying open 24 hours outweighed the incremental or marginal costs.

That was over 40 years ago. Twenty years ago the A&P store near where I lived in London, Ont, went through the same calculations and decided to stay open 24 hours.

So it's not a new phenomenon, despite what is implied by this article in the Trono Globe & Mail. It's just new in some chains in Canada.

This Kitchener location is one of 25 Wal-Mart Canada stores that will be open 24 hours a day, seven days a week, from now on.

The company's announcement last week makes it the first major department store chain in the country to keep its doors open all night past the peak holiday season.

It's not that Canadians are all that slow in figuring out the basic marginal computations. Rather, many municipalities have had store-opening-hours regulations, prohibiting stores from opening on holidays (Sundays, too, until recently) and from remaining open for long hours. Speaking for consumers, thank goodness for the erosion of these regulations.

There have been more than 7000 foreclosures during the past two years in Cleveland. Consequently, the Mayor is suing financial institutions for "at least $100m", blaming the lenders for the financial problems of the borrowers and, as a result, the entire city [source: NYTimes].

Cleveland is suing 21 of the nation’s largest banks and financial institutions, accusing them of knowingly plunging the city into a financial crisis by flooding the local housing market with subprime mortgage loans to people who could never repay.

The city is seeking “at least” hundreds of millions of dollars in damages, Cleveland’s law director, Robert J. Triozzi, said Friday. The list of defendants includes some of the most prominent firms on Wall Street, like Citigroup, Bank of America, Wells Fargo, Merrill Lynch and Countrywide Financial.

Mayor Frank G. Jackson said in an interview on Friday that the companies would be “held accountable for what they’ve done.”

“We’re going after them to get the resources we need to rebuild our city,” Mr. Jackson said.

The financial crisis has hit Cleveland especially hard, with more than 7,000 foreclosures in each of the last two years, Mr. Jackson said. Entire city blocks have been abandoned. The city’s budget has been strained by the effort to maintain thousands of boarded-up homes, and by the cost of responding to a rise in violent crime and arson.

... The Cleveland suit, filed Thursday in Cuyahoga County Common Pleas Court under the state’s public nuisance law, asserts that the financial institutions created nuisances across broad swaths of Cleveland because their loans led to widespread abandonment of homes. “We’ve torn down 1,000 abandoned houses, and haven’t even made a dent,” Mr. Jackson said.

The drop in homeownership, and a steep decline in population — to 444,000 residents in 2007 from almost a million in 1950, according to census figures — has drained Cleveland’s budget. In December, Mr. Jackson announced that the city was unable to borrow money and would be forced to postpone or permanently shelve millions of dollars in public works projects.

“The strain on our budget is too much,” Mr. Jackson said. “These companies have knowingly created a public nuisance by exploiting the city of Cleveland.”

Before proceeding with the suit, however, the city of Cleveland might want to worry about whether they will be hit with massive legal fees for having filed a nuisance suit:

• Why are the homes being abandoned? Why are there no buyers, even at repo or distress prices? It is really hard to blame the lenders for the lack of demand for housing.
• The city of Cleveland might want to look into what proportion of the defaults was due to borrower, not lender, fraud. Arnold Kling has been suggesting this possibility for at least a month.

And Tyler Cowen summarizes this view very nicely,

There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default.

Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn’t seem to matter.

In other words, many of the people now losing their homes committed fraud. And when a mortgage goes into default in its first year, the chance is high that there was fraud in the initial application, especially because unemployment in general has been low during the last two years.

A couple in Australia went for in vitro fertilization. The doctor implanted two embryos instead of one, purportedly against the express wishes of the couple.

His reasoning? Apparently for a birth mother of this age and for embryos in this condition, he wanted to guarantee that at least one would develop into a healthy child. Here is the story from the Melbourne Age [h/t to Brian Ferguson]:

They wanted to have a child together. Instead, they got two. Some might call it a blessing. But to this couple, the unexpected addition to their family was devastating. So devastating, that the unnamed ... couple are now suing Canberra obstetrician Dr Sydney Robert Armellin for more than $400,000. Most of it is to cover the cost of raising one of their twin three-year-old girls.

The couple allege they had made it clear that they wanted only one embryo transferred during the IVF process. Instead two were transferred, leading to the twin birth. The impact on their relationship and indeed their lives, according to evidence given in court this week, has been considerable.

"She always said that she had a big heart filled with love," ... said of her partner in the ACT Supreme Court yesterday. "I find (now) that she doesn't have the same ability to love that she used to and the same capacity to, I guess, embrace differences and issues as a couple or as a team."

Unfortunately the rest of the article discusses, in very vague terms, the social mores and the standard practices of the IVF labs of Melbourne. But it appears that the standard practice is NOT for the attending obstetrician to play god and make decisions for the couple. I.e., if they specify one embryo, that is what the doctor is to transfer.

I don't know whether the doctor committed a tort or a breach of contract in this case. But it does seem pretty clear that the doctor was the least-cost bearer of the risk that the couple would have twins when they wanted only one child. The only question is what is meant by "one": should it mean "no more than one" or should it mean "at least one" or should it mean "exactly one". Given the discussion in the original article,it seems that in this case "one" means "exactly one" embryo.

btw, for this case it should be irrelevant that the couple is lesbian.

The Peltzman Effect says that if gubmnt officials impose restrictions, trying to make some activity safer, people will take more risks with it. The end result could easily end up with more injuries and greater social costs. I wrote about this effect earlier here and here.

Usually tests of the hypothesis have been one way, e.g. what happens to pedestrian deaths and injuries when drivers are required to wear seatbelts? [answer: they increase because drivers tend to take a bit less care in their driving.] But now many local councils in Scotland are planning to conduct a reverse test of the hypothesis [h/t to Brian Ferguson]:

WHITE dividing lines will be removed from roads in dozens of Scottish towns and villages, under plans to improve pedestrian safety.

Lines separating lanes of traffic have been a feature of the nation's roads for generations. But now experts believe they could be making drivers feel too safe, encouraging them to drive too fast and putting pedestrians at risk. ...

A key recommendation is the removal of centre lines to reduce the speed of traffic in towns and villages in the area.

Mr Gabriel states: "Although white centre lines can greatly assist drivers on major unlit rural roads, research in Wiltshire has shown that when white centre lines on lit roads within a 30mph speed limit were not replaced, traffic speeds and accidents were both reduced. It is, therefore, proposed that a similar experimental policy should be adopted in Aberdeenshire when roads with street lighting within 30mph speed limits are resurfaced or surface dressed.

"Short sections of line would still be reinstated for guidance at traffic islands or junctions.

Neil Greig, a spokesman for the Institute of Advanced Motorists Motoring Trust in Scotland said: "The concept is quite simple - that if you come round a corner and you are not sure exactly what the priorities are and where you should be on the road, then you will cut your speed."

But he stressed: "A number of factors will have to be taken into account. Novice drivers and older drivers, for example, quite like to know where they're supposed to be on the road and like to have a white line to tell them where to go.

"You don't know how they are going to react in these sorts of situation and, if you get too much uncertainty, you might get a lot of dithering and that could lead to road rage and all sorts of things. ..."

A spokeswoman for the Royal Society for the Prevention of Accidents also welcomed the proposals.

She said: "Schemes similar to this have been shown to have made a positive difference."

Calculating the net social benefits of removing the white lines will involve collecting a lot of data. How many more auto accidents will there be, if any, and at what cost? How many fewer pedestrians will be injured or killed, if any, and at what savings? I am not persuaded ex ante that there will be a cost savings or a net benefit to the removal of the white lines, but I applaud the experiment. And I hope the councils carrying it out will make detailed data available to various researchers.

To be really hard-nosed about it, what if the pedestrians saved are a bunch of dottering old fogies like me who have comparatively short expected remaining lifetimes and even shorter expected times during which they will be contributing to GDP; and at the same time, what if the white lines actually save more younger people with longer expected lifetimes and longer expected periods of contributing to GDP? Should these differences play a role in our cost-benefit analysis?

Addendum: When we were discussing this article, Brian reminded me of another option that might also have net social benefits: put spears (not airbags) on the steering wheels, pointed at the chests of the drivers, and don't allow drivers to wear seatbelts. Even if this policy did not have net social benefits, it would certainly induce most drivers to take more care.

In my Economic Analysis of Law class the other day, Ben said that of course there would be a social cost if I were struck by a car and killed. .... unless they didn't ruin my cuff links at the same time.

I find it absolutely intriguing that when I do an internet search for Butterfield v. Forrester, most of the websites mentioning this case (1809, King's Bench, dealing with contributory negligence) are from economists teaching economic analysis of law. Did we ALL receive TWLDs from Henry Manne?

Note: TWLD = two-week-law-degree (so named by Steve Margolis). Every summer for decades, Henry Manne ran a two-week programme designed to cram almost all of first year law into a very intensive two-week course. We all seem to remember this case from Bob Summers' introduction to tort law.

It almost brings tears to one's eyes.... the thought that a midwestern mom might be sued by the big, evil recording companies for violating their copyrights by downloading files from the internet. See the story here. Here are some skeletal facts:

A jury has handed a victory to the music recording industry, which had claimed a Minnesota woman infringed song copyrights by using online media to illegally download and distribute music, according to court documents...

The recording companies sued Thomas in April 2006 after 1,702 music files were traced to a computer tied to her, according to court documents. Investigators on February 21, 2005 located an individual with the screen name "tereastarr@KaZaA" using the Kazaa file-sharing software program, according to the documents.

"This individual was downloading copyrighted sounds [sic] recordings from other users of the Kazaa network, and was distributing copyrighted sound recordings stored on her computer to other Kazaa users," the plaintiffs said.

This was a jury verdict. Also the woman had more than 1700 music files available for others to download.

There is considerable evidence that file-sharing caused considerable harm to the firms in the recording industry. Probably the best scholar in the field on this topic is Stan Liebowitz:

The weight of current evidence strongly supports a view that file-sharing diminishes the revenues of the recording industry. There are two forms to the evidence.

The first has to do with general factors: the timing between record sales declines and file-sharing is very close; the current decline is very large compared to previous declines; there are no other explanations for the decline in record sales that hold up upon analysis; economic theory implies that record sales will fall. ... [W]hat appears to be the best estimate of the number of audio files downloaded reports that files downloaded are generally less than one tenth the amounts of previous estimates. File-sharing appears to have hit record retailers less severely than it has hit record clubs, causing possible underestimates of harm by those looking at statistics from retailers. Finally, the claims that DVD sales have been responsible for the decline in CD sales (for those articles that provide any evidence at all) have been based on a statistic that provides a misleading picture of the DVD market. ...

The second form of evidence can be found in econometric studies of the industry. All the econometric studies, except one, find some degree of harm. I have written a recent paper (forthcoming in Management Science) that examines record sales and Internet uses in 99 US cities to measure the impact of file-sharing. ... The methodology avoids many empirical difficulties found in other papers. It concludes that file-sharing is responsible for the entire decline in record sales that has occurred, and that except for file-sharing there would have been an increase in sales since 1999 instead of the strong decline. It also examines which genres had the greatest impact from file-sharing, and they are consistent with intuition (genres appealing to older individuals have the smallest sales decline, and vice-versa).

Liebowitz's piece has numerous links to research that supports his views. It also carefully dissects the article in the JPE which purports to have found no link between file-sharing and CD sales. Liebowitz is a careful scholar. Sadly, as Craig Newmark notes, he has run up against a stone wall in trying to replicate the results of the JPE study. Steve Levitt, editor of the JPE, should be ashamed of himself for not jumping on this; clearly the resistance by the original authors to making their data available violates the journal's policies. But even without access to their database, Liebowitz has a careful, item-by-item critique of their results. See here, for example.

For more on the economics of file sharing, see the April, 2006, issue of the Journal of Law and Economics. Liebowitz has the lead article there.

Jack is spending some time in British Columbia. He writes that the provincially operated auto insurance is,

... far pricier than the private Ontario system, in part because of subsidies to bad drivers who wouldn't be insurable there.

This is to be expected. If the risk pool includes people who impose high costs on the system, and if they cannot be charged premia to match those costs (probablistically), then everyone else will have to bear a share of those costs. It is inefficient because the system tends to encourage too many risky drivers to be on the roads; it also, because of the higher insurance premia, tends to discourage some very low risk drivers from driving.

Jack continues,

Privatized alcohol businesses compete with the Provincial outlets. Prices about 25% higher than Ontario though, flying in the face of the usual predictions.

This seems unlikely to me. I know from nothing about the BC retail liquor business, but here are my suspicions:

1. It is extremely unlikely that gubmnt and private retail liquor outlets compete head-to-head.
2. One way the gubmnt stores can survive is if they are subsidized, directly or indirectly.
3. More likely in this instance is that the prices are regulated and kept above the Ontario levels to guarantee the survival of the gubmnt stores. Otherwise the private outlets would compete the snot out of them.

In discussing the confusing and confused results and arguments about the deterrence effects of the death penalty, I once wrote that it did not surprise me that studies had conflicting results. In fact it would not have surprised me to learn that, in fact, the death penalty provides only minor deterrence if any.

My reasoning was this: there are many fates worse than death. The death penalty is surely not the worst thing with which we can threaten potential murderers. Prison conditions can be truly horrible, bordering on being so intolerable that prisoners would actually prefer being on death row to being in the general prison population. And some would prefer death to life in the general prison population. [see my article on The Economics of Cruel and Unusual Punishment for more].

One implication of my earlier work is that if prison does indeed provide a fate worse than death, then the suicide rate among prisoners should be higher than that in the general public. And if that is the case, it should not be surprising that the death penalty adds little in the way of marginal deterrence.

And now, thanks to Tim Worstall, I have come across some evidence consistent with this analysis:

There were around 600 deaths in custody in England and Wales last year, according to a report published today.

The figure, calculated by the Forum for Preventing Deaths in Custody, covers deaths in prisons, police cells, secure hospitals and young offender institutions and includes those from natural causes, suicides and murders.

Around 400 of the deaths were due to natural causes and 200 were self-inflicted, a spokeswoman for the Ministry of Justice said.

As Mark Wadsworth points out, this is actually a lower death rate (although a vastly higher suicide one) than the general population.

The implications of this finding are clear: instead of arguing about whether to institute or re-institute the death penalty, we should be encouraging our gubmnts to worsen prison conditions. Bad prison conditions would serve as a much greater deterrent than threats of the death penalty for many potential murderers.

Northern Rock, a smallish bank in the UK, recently faced a potential liquidity shortage when it could no longer convert some of its assets [see Tim Worstall's comment for the correct details] into ready cash because nobody would buy those assets at any price other than a substantial discount until they had a better idea of the actual risk involved. For the most part the assets will pay off over time, and no one seriously questioned the solvency of Northern Rock. The bank just needed to borrow some funds to tide them over.

And the Bank of England stepped up to provide these funds. That's the way the banking system is supposed to work.

Meanwhile if depositors' accounts are insured (up to fairly high limits), they were in no danger of losing anything (other than their own short-term liquidity) even if Northern Rock had been insolvent. And if depositors' accounts are not fully insured, there is no good argument for asking all the taxpayers to bail them out ex post. It's like telling folks they don't need to pay their insurance premia because the gubmnt will provide the insurance for them anyway; under such a policy, only chumps and patsies buy insurance as everyone comes to rely on the gubmnt.

Why depositors decided to stage runs on Northern Rock escapes me. But maybe had I been there with all my money tied up in Northern Rock, I'd have been a bit panicky, too, as I saw others queuing up for their cash. (though I'd have probably tried to open an account at a different bank and then transfer the funds electronically via the internet rather than stand in the long queues). [for an interesting historical perspective, Tim Worstall has this. Also see this by Tim Worstall.]

If it turns out the bank is, indeed, insolvent, the officers of the bank will (or should!) likely lose their jobs, depositors will still get their money (up to the insurance cap, or lose their money if they didn't make sure their deposits were insured*) and the stockholders of the bank lose their money. That's the way a good banking system should operate.

But now the British gubmnt has buggered it all up. They've told bankers (this is a very loose paraphrase)(see Stephen Pollard)

Go ahead. Take big risks with your depositors' money. If the risks pay off, you will become fabulously rich and your depositors and stockholders will be happy. If your risks don't pay off, the nanny state will be here to bail you out (in the guise of bailing out the little-guy depositors). Taking more risk is a winning proposition for you and you'll never lose a cent.

I once asked David Laidler, colleague and world-class monetary theorist, if we could afford NOT to let a bank go under if it was indeed poorly managed to the point of insolvency. He fully understood the point I was making: The risks involved with a bank's lending, buying commercial paper, etc. are complex to the point that it would be inefficient to ask depositors to bear those risks indirectly. From that perspective, deposit insurance might be a good idea (and it surely would be if it were optional). But bailing out banks merely rewards inefficient risk-taking by managers, and the cost of bearing that risk is fobbed off onto the taxpayers.

But now that the Brit gubmnt has promised to bail out the banks, no matter what risks they take, watch for much more gubmnt regulation and intervention, telling them what risks they will be allowed to take. And then watch for entry from near banks (e.g. ING) and other institutions, in an attempt to circumvent the gubmnt interventions. I give 'em ten to fifteen years.

* In response to an e-mail question about deposit insurance, Tim Worstall tells me,

There is gubmint provided. 100% up to £2,000 and then 90% up to £34,000 (or thereabouts).

The fall out from this is likely to be that there'll be something very like FDIC: £100,000 financed from a levy upon the deposit taking institutions.

But the question of whether gubmnt provided deposit insurance is a slam-dunk efficiency-enhancing policy is far from settled. See this. What puzzles me is why private insurance hasn't become more common for institutions with many large deposits.

While watching the Mets-Marlins baseball game last Thursday night, Ms. Eclectic and I were shocked and stunned to see that a Marlin fan had thrown a baseball onto the field and actually hit the Met's pitcher on the wrist [see this].

My immediate reaction was that the Marlins (the home team) should be required to forfeit the game. Actually I was surprised that the Mets stayed on the field after that happened. At least play was stopped until stadium security removed several people from the stands.

In saner moments, I realize that probably the Marlin security team did the right thing. Sometimes harsh punishment is called for; sometimes it isn't.

Addendum: and then on Friday night, a fan in the upper deck at Yankee Stadium threw a ball at Alex Rios (Trono Blue Jay) after Rios hit a home run. What do you figure the odds are that Yankee Stadium security found the culprit or did much about it?

Me neither.

Phil Miller recently linked to this story in the Mankato, Minnesota, Free Press telling of some people who visited Mankato, hoping to see pyramids and do some whale-watching. They had been duped or misled by this website, which was created by a Mankato professor, purportedly to illustrate to his students that they should not accept as truth everything they see on the internet. For me, it's just plain funny to read about the Mankato Hot Springs, the underwater world, and deep-sea fishing on the Minnesota River.

But it isn't quite so funny to people who don't know any better. From The Free Press story,

Rosaura Prada stood in tears Tuesday morning after several frustrating hours of trying to find someone to give her answers about a fake Web site that led her to Mankato.

Prada, of Edinburg, Texas, brought her mother, Maria Alcantar, of Garden City, Kan., on vacation to Mankato Monday to see the underwater city, the pyramid and maybe do some whale watching. But when they arrived at their motel, they found no one knew about these and dozens of other attractions that the Web site...

Apparently it has happened before, too. The site has existed for over a decade and has received mention in the NYtimes and the Minneapolis Star-Tribune.

There were some questions about whether the disclaimer on the site is adequate, but I have to wonder why such a site should need any disclaimers at all. At some point we have to tell people that spoofs exist and they, themselves, have the responsibility to check things out more thoroughly before spending money on vacations like these. And perhaps examples like this will help illustrate the importance of paying attention in geography and science classes in grade school.

I'm thinking of starting a similar page for Clinton, Ontario. If it weren't for all the schools located here, we'd be a dying or dead community, and we could use the injections of tourism dollars into our local economy.

The opening in Tuesday's lead financial article in the NYTimes:

Wall Street thinks the Federal Reserve is running short of time.

After another day of restless anxiety in the world’s credit markets, most lenders and investors remained fearful of all but the very safest Treasury securities, and new figures showed that the rate of foreclosures in the housing market in July was almost double that of a year ago.

Analysts now say that the central bank’s move last Friday to restore confidence by encouraging banks to borrow directly from the Fed at a lower cost has had only limited impact so far and that the Fed will need to take more drastic action by cutting its benchmark interest rate soon if it fails to see more progress.

But it is clear from the article that many within the Fed see no reason to bail out those who persisted in taking risks in the sub-prime mortgage market long after many of the rest of us were pointing to the dangers lurking beneath the surface of that market.

I, for one, will be pretty concerned if the Fed does indeed prop up these markets by infusing extra liquidity into the markets and lowering interest rates. Doing so will send a signal that risks in these types are markets are asymmetrical: the investors get to keep the upside gains, but the gubmnt or central bank will be there to protect investors from the possibility of downside losses.

This kind of signal will encourage others in the future to take more risks, creating an even more fragile financial system in the future. Ben Bernanke and The Fed must resist this type of pressure and take the longer-run view. Otherwise the economy as a whole will see people taking inefficiently large amounts of risk, diverting financial capital away from less risky projects. That's fine so long as things go well, but should things not go so well, the required bail-outs will involve massive gubmnt interventions and less future reliance on markets. People will point and say, "See? Free-market capitalism doesn't work!" when in fact the crisis will have been caused by too much gubmnt intervention in the short run.

To avoid this scenario, The Fed and all those who have counted on its bailing them out, must bite the bullet now and not pump liquidity into the economy simply to bail out the risk takers. There might be other important reasons to keep the liquidity growing, but bailing out financial risk-takers now will only cause more problems in the longer run.

Scalping tickets to sporting events has been legalized in Minnesota. As I see it, ticket scalping is a wonderful form of intermediation and risk bearing, wherein ticket scalpers bear the risk of price changes and the risk of being arrested (where scalping is illegal) and receive on average a premium for bearing this risk.

Phil Miller (here, here, and here) and King Banaian (here) have good posts on scalping.

Steve Levitt has pretty much admitted that he defamed John Lott.

Levitt had written to John McCall that Lott's special edition of the Journal of Law and Economics contained papers that were not peer-reviewed. But now, as part of a settlement, Levitt has written a letter of "clarification" to McCall. From the Chronicle of Higher Education ($):

By some measures, Mr. Lott appears to have won little from his 15 months of litigation. No money will change hands, and the settlement does not require a formal apology from Mr. Levitt.

But on certain points of reputation and pride, Mr. Lott might take some satisfaction. Mr. Levitt's letter of clarification, which was included in Friday's filing, offers a doozy of a concession. In his 2005 message, Mr. Levitt told Mr. McCall that "it was not a peer-refereed edition of the Journal." But in his letter of clarification, Mr. Levitt writes: "I acknowledge that the articles that were published in the conference issue were reviewed by referees engaged by the editors of the JLE. In fact, I was one of the peer referees."

Mr. Levitt's letter also concedes that he had been invited to present a paper at the 1999 conference. (He did not do so.) That admission undermines his e-mail message's statement that Mr. Lott had "put in only work that supported him."

In his letter of clarification to Mr. McCall, Mr. Levitt said, "At the time of my May 2005 e-mails to you, I knew that scholars with varying opinions had been invited to participate in the 1999 conference and had been informed that their papers would be considered for publication in what became the conference issue."

Some people may have wondered why I tended to support Lott in this controversy, especially since Levitt appears to be so gentle and likable. But what Levitt wrote to McCall was just plain lies. In light of these statements, it seemed downright malicious to me.

For more on Lott v. Levitt, indicating malice, see what Craig Newmark has posted.

My understanding of the literature on the deterrence effects of the death penalty had long been that the results were mixed. As I wrote earlier this year,

My own view, as I have argued before, is that there are many fates worse than death, and I can't imagine that capital punishment is much, if any, more of a deterrent than really bad prison conditions might be.

It looks as if recent research has established a much stronger case that capital punishment does indeed have a deterrent effect.

From Freedomnomics,

Between 1991 and 2000, there were 9,114 fewer murders per year, while the number of executions per year rose by seventy-one. The fresh studies [listed in the book] resurrected Ehrlich's earlier conclusions that the death penalty greatly deters murder. The vast majority of recent scholarly research confirms this deterrent effect. Generally the studies found that each execution saved the lives of roughly fifteen to eighteen potential murder victims. Overall, the rise in executions during the 1990s accounts for about 12 to 14 percent of the overall drop in murders.

Digression: I'm not keen on the title of the book, and I was a bit put off by the subtitle "A Rebuttal to Freakonomics and More". When I mentioned this to John Lott, he replied,

The publisher decided the title and the subtitle. The publisher picked everything on the cover. This is quite common practice
for popular books. As to the subtitle that mentions the other book, it was added because Harper Collins threatened to sue to prevent publication of the book if some such a statement wasn't added. I argued against it, but the publisher didn't want to risk the book being held up for publication.

When I asked John what the basis might have been for a suit, he told me they were arguing the title was too similar to "Freakonomics" and might confuse some potential buyers.

It has recently come to light that some employees of the BBC knowingly flagrantly lied about the timing of events in stories involving the Queen and phone-in scams. So what is upper management doing about it? SFA. From Melanie Phillips:

The BBC is apparently in crisis. We are told that its top brass take very, very seriously the blow to its integrity delivered by the recent series of scandals involving the reversed footage of the Queen and the phone-in scams. Yet the Chairman of the BBC Trust, Sir Michael Lyons, whose whereabouts when the furore exploded on July 19 in New Zealand were revealed when his phone-line went down in the middle of his interview on the BBC Radio Four Today Programme, appears therefore to have conducted his stern encounter the previous day with the Director-General, Mark Thompson — in which we were told Thompson was summoned to explain the BBC’s behaviour — in a long-distance telephone call. Some stern summons. Now we read today that the Commons Culture Select Committee, which was due to grill Mr Thompson yesterday, had to make do instead with his deputy, Mark Byford, since Mr Thompson had gone off on a family holiday - forcing the committee to listen incredulously as Byford declared that every BBC employee would be sent on courses teaching them about the importance of not lying to the public. Thus the BBC’s response.

Like Macavity, it seems, Mr Thompson is never there to face the music in person. What does this tell us about the seriousness with which the BBC takes this fundamental blow to its integrity?

I think they should hold the courses at Ben Miller Inn, a lovely resort/spa near here, so my friends can come to visit and go geocaching with me.

More seriously, sending EVERY employee on a course because of the sins of a few is really dumb. It would be much more effective just to fire those involved in the lies.

I have been reading Freedomnomics by John Lott. He is a good writer, and he is relentless in his pursuit of better economic models to explain the world.

Because I teach and often do research on economics and law, I have been especially interested in chapter 4, "Crime and Punishment". In this chapter, we learn that crime rates have been declining, but not because of legalized abortion, as argued by Levitt et al. In fact Lott presents a strong case that after legalized abortion, more teens had more unprotected sex, thus leading to more, not fewer, unwanted children.

This argument continues through the chapter: that when behaviour is constrained in some way on one front, people respond by altering their behaviour on another. E.g., when people are required to lock up their guns, accidental killings don't go down much, if at all, but robberies, etc., go up because criminals know that victims will not have ready access to their guns. And, as should be expected, Lott provides much more evidence that gun control laws are actually counter-productive, at least in the US. Despite his growing evidence that right-to-carry laws help reduce crime, politicians and victims still do not see the overall validity, on a probablistic basis, of Lott's analysis. For example, from a recent incident in Toronto,

The killing prompted Mayor David Miller to renew his call for a total federal handgun ban and help stemming the flow of guns from the United States.

"It's time for the Canadian government to say to the U.S. 'we are good friends, but your gun laws are exporting a problem to our country and it is not acceptable any more and you need to take action,'" he said Monday.

Audette Shephard, whose only son, Justin, was shot dead in 2001, also called for a handgun ban. "Guns are a weapon of mass destruction," said Ms. Shephard, a member of Mayor Miller's community safety panel. "You can't defend yourself against a gun."

In Lott's book, we also see evidence that as arrest (not necessarily conviction!) rates go up, crime rates go down. In general, it appears that Lott has found many instances in which if the expected value of something is changed by altering either probability of an outcome or by altering the value of that outcome, should it occur, then people often react by adjusting the other variable. And that's sort of a neat result, not unlike the Peltzman seat-belt arguments of several decades ago.

More later on this intriguing book. For a comprehensive review, see this by Craig Newmark.

Earlier this week, we had occasion to dine at The Globe Restaurant in Rosemont, Ontario, maybe an hour or so NNW of Trono. It was superb -- excellent food and excellent service -- so much so that Ms. Eclectic has now declared it to be her favourite restaurant.*

But the point of this posting comes from a brief historical statement about the Globe:

In the early days, Rosemont boasted four hotels, one of which was the Globe. One night, a fire broke out in the hostelry built where the Anglican church now stands. The wife of the owner of the Globe rose from her bed, and grabbing her husband's shotgun, ran outside in her nightgown and mounted guard over the well — the main source of water for the village, but located on her husband's land. She stood there, daring anyone to fetch water to aid her chief rival for business until the building was past saving. The pump she guarded so valiantly is still to be seen outside — a tribute to the competitive instincts of our forebearers!

Interesting that the Globe owner's wife valued a reduction in competition more than the competitor valued saving its hotel. Wouldn't one expect that otherwise the competitor would pay enough to induce her to let them use the water to save the hotel?

Not necessarily. The transaction costs may have been too high -- it may have been next to impossible to make a deal quickly that would stand up in court and not be deemed "unconscionability under duress". Also, maybe they just plain hated each other, and she received considerable utility from seeing the rival hotel go up in flames.

Can you imagine trying that today? "I have a monopoly of the water supply and you can't have any to put out a fire," would not go down well with most politicians, I'm afraid. At the same time, some municipalities do, I've been told (anyone have a reference here?), have private fire departments, and if you don't pay in advance for their protection, they will watch your house burn rather than put out the fire.

Fire protection provides a good example of anticipating risks and deciding to negotiate ways to bear the risks or to pay someone else to bear them. In this case, the competitor could, possibly, have paid the Globe owner in advance for the right to use the Globe's well in the case of a fire. Failing that, the competitor might then have decided to dig its own well or take other precautions... or self-insure, as it apparently did.

*I liked the food, and the service was great, but I have several other "favourites", including The Red Pump, The Albion, McDonald's, and Kelsey's; but remember, I'm the chair of the PLO.

I initially figured, "Yup, rich kids of privilege; athletes. They did it." Obviously, in canceling the remainder of last year's season, the president of Duke agreed with me.

Then I started reading things indicating there were holes in the prosecution's case. Big holes. But I never read much about it; and I never followed the details.

Here is a tidy summary from the NYTimes. I must say, no DNA match looks more like "innocent" than just "not guilty" to me.

I am in Madrid this weekend to attend a conference on the economic analysis of intellectual property. I am really looking forward to spending some time with my friend, Stan Liebowitz at the conference (who is doing some interesting empirical work in the field).



The conference starts on Monday, but I arrived Friday evening so I could do some sight-seeing first. I had no idea where to stay or what to do here, and the conference organizers booked me into this hotel.


As you can see from the "norte" it is in the north end of Madrid, in a newish business section of the city. Unfortunately it is miles and miles and miles from central and old Madrid, so I am quickly familiarizing myself with the Metro/subway here, having bought a tourist 5-day pass.

As you look north from the steps of the hotel, you see all the construction continuing in this section of town. Spain, like Ireland, seems to be booming in part as a result of its entry into the European Union.




The hotel is on a short street named Mauricio Ravel. I think he probably deserves more that a two-block-long street named in his honour, don't you? But maybe it's because Ravel was French, even though Bolero was a (sort of) Spanish dance piece. Or, more likely, it's named for someone else who isn't even listed in Wikipedia.

I arrived at about 6:30pm and had read that the city just wakes up then and stays up very late.

So after checking in, I started walking south toward the main part of the city (note: I never really got there). The first place I passed of interest was a shop with this in its window:



An interesting toilet paper holder, but even more interesting toilet paper! I've never seen toilet paper in those colours before, and I'm not sure I'd want to use it. I'd seen pink crepe paper masquerading as toilet paper near the Victoria Gardens in London, but never these colours.

A bit further south is the Plaza Castilla. That diamond shape sculpture in the foreground is not really all that tall (maybe 3or4 stories tall), but look at the twin buildings behind it! I sure hope (and certainly expect) that they are well-anchored because they look as if they would fall over if you let too many people visit the upper floors. You can see the construction just north of my hotel in the very centre of the photo.



After I walked south some more, I decided to stop walking (I've been doing far too much walking lately) and went into the next place I saw (after making that decision) that had outside tables where I could sit and drink some beer or wine.

Btw, the temp at 7pm was shown by several places as 32.5C, which is about 149F, I think. Or so it felt after leaving cool England. Thank goodness the forecast highs for the next few days are only in the mid 20s. I brought along a pair of shorts to wear, but I noticed last night that I saw zero men wearing shorts in this part of Madrid, and heaven knows I do not want to stand out, looking like a tourist (of course the only short-sleeve shirt I brought was my Eastbourne soccer/football shirt, which is probably a tip-off anyway....). I didn't bring any sunscreen, so I went into a pharmacy to buy some. They wanted 21 Euros for a small thing of 50block — that's about $30 Cdn or so. I decided to look elsewhere.

The first food and drink place I went into didn't serve wine, so I tried to order a beer. But the server didn't know English, and the phrase section in my travel guide didn't have the word for "beer". Another customer helped me out though.

The woman who helped me there chided me for not ordering a sandwich, too, because that place just happened to be the best place in Madrid for sandwiches, according to her. I told her I was saving room for food from some tapas bars — bars where they serve little bits of food to go with your drinks. She pointed me in the direction of several that she said were very good.

But when I got to them, I realized they were very upscale, and I really wanted more of a smaller neighbourhood type place where the waiters weren't wearing tuxes. So I wandered on south, thinking I might go past the the stadium where Real Madrid plays football/soccer, but I didn't get that far. I passed a smallish corner place that had a few tables and lots of glasses hanging over the bar and all the patrons were looking at the far wall. I figured they were watching something on tv, so I stopped to look.

Yup, a bullfight. So I went in. That bartender also spoke no English, but I had memorized how to say "a glass red wine please", figuring I'd stay watch a bit of the bull fight and try to figure it out. He poured some wine for me, and then put up a plate of tapas — a small ham and potato thingy that was sort of nice, and I hadn't even expected it. It turned out to be one of the places where tapas are complimentary.

I had that wine, watched tv and then had another. The second plate of tapas was a small piece of bread (from a baguette) and some thinly sliced dried sausage/salami type of meat.

Bullfighting. I really can't understand it. I'll have to read up on it some more before Sunday, when I think I might go to one with my friend Stan and his wife. but it looks pretty damned cruel, even to me, a devout speci-ist.

By the time I'd had a beer and two glasses of wine, I was pretty blitzed. and I had at least a mile, maybe two, to walk to get back to my hotel. It was 9:30 by then, and the city was just coming alive. That's so hard for me to get used to. People just going out to eat so late, even in delicatessens, some obviously just leaving work:



Look at all that ham!! And look at the old guy who had pulled up a chair so he could play the slot machine there.

As I continued to walk home, I saw this car, an Aixam "half-car" which is a French vehicle that is probably too underpowered to make it in North
America. Cute, eh?



And then in a bus stop, I saw a sign for my favourite soft drink, Coke Zero. I don't know Spanish, but I agreed with the ad that seems to be saying something like "It tastes just like the original Coke, not like crappy old Tab or Diet Coke"-- that's a very loose translation.



Sadly, though, it doesn't. I bought some, and the Spanish version tastes nothing like the original Coke in North America anyway. So I'll have to stick to beer and red wine.

Tom Palmer, who is with the Cato Institute, is a strong supporter of individual freedoms. He recently was quoted by the Washington Post as saying,

Let’s be honest: Although there are many fine officers in the police department, there’s a simple test. Call Domino’s Pizza or the police and time which one gets there first...

Unfortunately, he is right, and that makes the case for personal defence and prevention measures all that much stronger. If the publicly provided protection is not likely to be as good as we might like, we have more incentive to invest in locks, alarm systems, private weapons, and private security systems. We also have an incentive to buy detection systems, such as video cameras, to deter potential criminals.

At our house, we have reset our alarm system to ring at Godfather's Pizza, which is just down the street from us and can be here in no time flat.

According to the Coase Theorem (named for the economist who developed it, Professor Theorem),

• If property rights are well-defined and well-enforced, and
• If transaction costs are low (less than the expected gains from the transaction), then
• resources will move to their most highly valued use.

The passing of legislation to establish, enhance, and enforce private property rights in China suggests that as Chinese residents come to trust and expect that their property transactions will be protected by law, there will be more resource movement toward more highly valued uses in China. From the Washington Post,

Jiang Ping, former president of the China University of Political Science and Law and a scholar who advised officials drawing up the law, told the official New China News Agency that it is significant because it helps codify a property law system that has been evolving through regulation in recent years as the country moves away from socialism.

"Only when people's lawful property is well protected will they have the enthusiasm to create more wealth and will China maintain its economic development," Jiang said.

What is disappointing is that the story also quotes this idiot (who clearly qualifies to be leader of Canada's NDP):

"In the property law, state assets and private assets are put on the same level, which I think is totally wrong and even irrational," said Gong Hantian, a Beijing University law professor who has advised the government on legal matters.

"The reason China has such a fast-growing economy is that we have a very strong public sector. . . . Privatization for a socialist country like China is not a gospel, but a disaster," he said.

His facts are wrong. The reason China has such a fast-growing economy is that private entrepreneurship with the ability to earn and retain profits has gained increasing legitimacy over the past two decades. Before the mid-1980s, economic growth was slow because there was little incentive to take financial risks: if you succeeded, you didn't get to keep the rewards, and if you failed, you lost your state-determined job.

Several years ago, a colleague told me that in many developing countries, when a person gets a job, suddenly dozens of relatives show up and expect to be supported by that person. But because this reaction is expected by possible job-seekers, it amounts to a fully anticipated tax that, not surprisingly, deters people from seeking reasonably paying jobs in the legitimate market, forcing more work into the underground economy.

Here is another effect [via Judith]. A Saudi female physician is being forced to divorce her husband, in part so her family can arrange her marriage to a partner of their choosing, and in part because they are dependent on her financial support.

The case of Rania Albou-Enin, a 27-year-old Saudi physician has caused particular concern. In her last month of pregnancy, she is anxiously awaiting an appeals court decision in a case of forced divorce brought by he father.

Her husband, Saud Al-Khaledi, is being held in a police jail in Alkhobar, according to her lawyer Ibrahim Al-Behairi. Rania, who had been paying all her family's bills, has claimed she was beaten by one of her brothers and that the family brought the case to ensure they would not lose their main breadwinner.

Update: thanks to John Chilton for reminding me about this piece by Tyler Cowen, which sets out the family tax on employment. Be sure to read both the piece and all the informative examples provided in the comments!

from BenS:

Woman ticketed for having sex with passenger on highway fast lane
By Reuters

Police investigating why a car was blocking traffic in the fast lane of a major highway on Sunday found a couple inside having sex.

A police spokesman said the female driver and her male passenger gave in to their passions without pulling over to the side of the road, causing congestion and leaving other motorists having to swerve to dodge their stationary vehicle.

A patrolman gave the woman a ticket for holding up traffic.

What impresses me about this situation is the implied calculation that must have been made by the couple, assuming they are rational maximizers: the incremental benefits of pulling to the shoulder of the road were expected to be less than the incremental costs of doing so, even without considering the benefits to other drivers had the couple pulled off the road. That has to say something of significance.

During the run-up to the Christmas season, Olevia sold LCD high-definition television sets for less than their average costs and probably less than the marginal costs of producing them. From the NYTimes:

If his Olevia line of televisions was ever going to get any attention from consumers, Vincent F. Sollitto Jr. would have to do something big, splashy and, in economic terms, just plain crazy.

On the day after Thanksgiving, Mr. Sollitto, the chairman and chief executive of Syntax-Brillian, had 32-inch Olevia liquid-crystal display TV sets selling at Circuit City for $475, almost half its regular price.

Syntax almost certainly lost money on the TVs. The flat screen that makes up about half the cost of an L.C.D. TV is about $350 on its own.

This is an excellent example of promotional, not predatory, pricing.

Olevia does not have the luxury of the name recognition enjoyed by Sharp and others. “A year ago we were nobody,” Mr. Sollitto said. “We were just trying to get people to hear our story.”

That is starting to change. Viewers of ESPN’s high-definition cable channels and its other media outlets are more familiar with the brand after a spate of advertising. Consumer Reports magazine recently rated an Olevia a best buy, along with a Sony.

This cannot possibly be predatory pricing. Even if Olevia were to drive other producers out of the market, they would not be able to raise the price to monopoly levels to extract supra-normal profits because the high prices would attract entry from large, well-established firms with deep purses who could withstand a price war much more easily than Olevia.

So, as a consumer, all I can say is, "Hurt me some more."

That's what my friend Jack said when he read this.

Canada apologized to software engineer Maher Arar and his family on Friday and said it would pay him C$10.5 million ($8.9 million) in compensation after Canadian police falsely labeled him an Islamic extremist, which led to Arar being jailed in
Syria.

"On behalf of the government of Canada, I wish to apologize to you, Monia Mazigh (Arar's wife), and your family for any role Canadian officials may have played in the terrible ordeal that all of you experienced in 2002 and 2003," Prime Minister Stephen Harper stated [EE: He wasn't Prime Minister then; the Liberals controlled Parliament when this happened. I note with disgust that the MSM fail to point this out.].

Arar says he was repeatedly tortured during the year he spent in Damascus jails after he was deported to Syria by U.S. officials during a stopover in New York in 2002.

The apology and compensation were a part of settlement agreed to by Arar after he launched a suit against the Canadian government. He is also suing the United States.

Harper objected to the United States continuing to keep Arar on its security watch list. A Canadian judicial inquiry concluded last year that Arar had never been a security threat and it recommended compensation.

In addition to the C$10.5 million, the Canadian government will also pay Arar's legal bills, which a Harper aide estimated at C$1.5 million.

Jack's wife concurs: send him to Syria to be tortured!

Seriously, though, I once had a friend who taught in the law school here who had a standing offer that anyone could inflict all the pain and suffering they wanted on his right shoulder (he was right handed) for $5m. This was back in the days before E-Bay, so he didn't try to auction off the right. The point he was trying to make, I think, was that in most instances people do not think of what compensation they would accept ex ante when a tort is inflicted upon them.

There still are rumours floating around (see maybe this) that all is not as it seems with Arar, which is why the U.S. has not conceded that they made an error with him. If so, I hope he continues his suit and the U.S. clears the air. BenS wonders what if, in the end, the U.S. defends itself successfully? Should the Canadian gubmnt sue Arar to get its money back?

Back Talk has a lengthy, fascinating discussion of the deterrence effects of capital punishment. The article discusses the uses and misuses of data from the U.S. and Canada. His conclusion, which doesn't surprise me, is somewhat ambiguous:

One possibility is that you need about that many [40] executions per year to influence the murder rate in this country [the U.S.].

... I do not mean to suggest that this evidence proves that executions serve as a deterrent to murder.

... [A] potenital murderer does not think to himself "gee, the state legislature just passed a temporary moratorium on executions, so I think I'll run out and kill Joe Blow before that changes." That kind of cognitive computation is not (in my view) how executions would deter murder.

My own view, as I have argued before, is that there are many fates worse than death, and I can't imagine that capital punishment is much, if any, more of a deterrent than really bad prison conditions might be.

Thom Lambert at Truth on the Market has an excellent summary of the economics of the firm. Here is a very brief excerpt:

The bottom line for Hayek, then, is that resources are most efficiently allocated not by centralized planners but by the “man on the spot” responding to the information inherent in market prices.

Enter Professor Coase. In The Nature of the Firm, he observed that this is absolutely not what we see in business organizations: “Outside the firm, price movements direct production, which is coordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur/coordinator, who directs production.” Thus, “the distinguishing mark of the firm is the supersession of the price mechanism.” Business organizations are, in short, little islands of socialism in which Hayek’s beloved price mechanism is “superseded.”

So why do these “islands of conscious power” emerge? Because there are costs to using the market to allocate resources — most notably, transactions costs.

... If the nature of the firm is as Coase describes, then the law should treat business organizations as no more than cost-minimizing nexuses of contracts between the suppliers of capital, managerial talent, and labor. This suggests (1) that the law should provide some “off-the-rack” nexuses of contracts that would appear to reflect the needs of large classes of business entities, and (2) that these various off-the-rack collections of contracts should be freely tailorable by business planners. Transactional lawyers can add value, then, by tailoring these off-the-rack contracts to meet their clients’ specific needs.

Susette Kelo sent some pretty nasty Christmas cards to the politicians involved in the eminant domain case which forced her to give up her house for a commercial development:

Susette Kelo's holiday cards feature a snowy image of her pink house and a message that reads, in part,
"Your houses, your homes, your family, your friends.
May they live in misery that never ends.
I curse you all. May you rot in hell.
To each of you I send this spell."

She appealed the taking all the way to the U.S. Supreme Court and (incorrectly) lost her case. But surely now it is time for her to get over it, rather than send hate mail to her adversaries.

Two additional points:

1. Maybe she should have been sending hate mail to her attorneys. If she lost her case, maybe they had something to do with that loss.
2. It's easy for me to say that she should "get over it", but I know from my own experiences that there are lots of setbacks that some of us do not "get over" easily. We may well know we should get on with life and put the setbacks behind us, but that is SO much easier said than done.

I have some personal opposition to early-term abortion, though my opposition is very confused and incomplete. However, I think late-term abortion should be illegal. And those who advocate, much less practice, infanticide should suffer some consequences. Here, from the Daily Telegraph, is what I'm referring to [h/t to Tom Hanna]:

BRITAIN'S Royal College of Obstetricians and Gynaecology is reportedly calling on doctors to consider euthanasing "the sickest of newborns" which it says can disable healthy families.
The Sunday Times newspaper said today the proposal was in reaction to the number of such children who were surviving because of medical advances.

The college argued "active euthanasia" should be considered for the good of families, to spare parents the emotional burden and financial hardship of bringing up the sickest babies.

The proposal is contained in the college's submission to an inquiry into ethical issues raised by the policy of prolonging life in newborn babies.

Euthanasia of newborns is illegal in Britain.

"A very disabled child can mean a disabled family," the submission says.

"If life-shortening and deliberate interventions to kill infants were available, they might have an impact on obstetric decision-making, even preventing some late abortions, as some parents would be more confident about continuing a pregnancy and taking a risk on outcome.

"We would like the working party to think more radically about non-resuscitation, withdrawal of treatment decisions, the best interests test and active euthanasia as they are ways of widening the management options available to the sickest of newborns."

The newspaper reported that the college was not formally calling for active euthanasia to be introduced, but wanted the mercy killing of newborn babies to be debated by society.

In the interests of freedom of discussion I can accept this latter position — that the topic merits discussion. And, yes, I understand that the actual, pecuniary, medical costs of keeping people alive has sky-rocketed, in part due to medical advances but also in part due to socialized medicine). Would this really be, and has this really been, an issue in economies that do not or did not provide taxpayer-supported health insurance?

I loved the now-famous 1972 article by Calabresi and Melamed when I first read it. It helped me understand with much greater clarity, the fundementals of the economic analysis of law.

It was with some relief that I read this abstract, indicating that recent criticisms of the C-M article are off the mark.
Keith N. Hylton (2006) "Property Rules and Liability Rules, Once Again", Review of Law & Economics: Vol. 2: No. 2, Article 1.

ABSTRACT:
In recent years, new articles presenting rigorous analyses of bargaining incentives have overturned some of the fundamental claims made by Calabresi and Melamed in their seminal article on property rules and liability rules published in 1972. In particular, the proposition that property rules are socially preferable to liability rules when transaction costs are low appears to be either no longer valid or severely weakened under the new analyses. This paper reexamines the property rule versus liability rule question in light of the contributions of the recent bargaining theory literature. In contrast to this literature, I find that the fundamental propositions of Calabresi-Melamed remain valid, and I extend the framework to provide a more detailed positive economic theory of common law rules. The key contribution of this paper is pointing out the importance of subjective valuations in the analysis of property and liability rules. This allows for a synthesis of Calabresi-Melamed and the bargaining theory literature within an expanded framework.

In my economics of sports class, I put a "did you do the reading?" bonus question on the midterm:

When and under what justification did major league baseball receive its U.S. anti-trust exemption?

One student, who likely reads this blog on a regular basis, wrote,

In 1978 because Jimmy Carter was a Mets fan.

From Ted Frank's October 28th piece in the Wall Street Journal ($):

The trial lawyers have now enlisted themselves in the war against terror. One can imagine a parody — a team of wing-tipped attorneys parachuting into the wilds of Afghanistan, armed with subpoenas forcing Osama bin Laden to produce all relevant documents and secure his attendance at a 20-day videotaped deposition (damn the Geneva Conventions against torture). The legal and photocopying bills alone crush al Qaeda.

The reality is more prosaic, and less amusing. For just as Willie Sutton legendarily said he robbed banks "because that's where the money is," plaintiffs' attorneys are weaving creative legal theories to hold legitimate third parties liable for the intentional acts of terrorists. This friendly fire could end up doing almost as much financial damage as the terrorists themselves, with the lawyers getting rich in the process. [emphasis added]

... Federal laws permit parties injured by an act of terrorism to recover treble damages and attorneys' fees in civil suits against terrorists. Fair enough. But an act of terrorism may also include "knowingly providing material support or resources to a foreign terrorist organization." The vagueness and breadth of this language is the source of the mischief: Following the 9/11 attacks, the U.S. started cracking down on front organizations for Islamic terror groups that posed as charities; and some of these faux-charities had accounts at international banks. Bingo. Lawsuits are pending now that claim, in effect, that the banks should have known then what the U.S. government did not decide until years later.

... If courts are not going to apply the antiterrorism laws sensibly, Congress should amend them to make clear that civil liability is limited to those who commit criminal acts of international terrorism, and those who aid and abet with specific intent to commit terror. Otherwise, terrorists can damage the global economy simply by inducing fratricidal litigation.

That is a quote from an interview with Meatloaf, whose classic song, "Paradise by the Dashboard Lights" is a great example of the "unconscionability under duress" defence for breach of contract.

Me neither.