Monday, March 27, 2017

Free Distance Learning

Both of the courses I am teaching this year are being video recorded and webbed. It occurred to me that some of my readers might find one or both interesting.

Economic Analysis of Law
Class Page
Book: Late Draft in HTML  Page Images with Virtual Footnotes

Legal Systems Very Different From Ours
Class Page

Friday, March 17, 2017

Propaganda Masquerading as News: The Incredible Shrinking Horse

I recently came across a news story which struck me as a good example of how to mislead people, probably for political purposes, without saying anything that was not actually true. The title was "Watch out: Mammals shrink when Earth heats up, study says." The story reported evidence that, at a period when global temperatures were high, a number of ancient mammals became smaller—by fourteen percent in one case, by four percent in another.

There were two things wrong with the story. The first was the repeated use of the term "shrinking." What it was actually describing was evolutionary change, probably over a period of several million years, but the story never said that. It made it sound as though  animals were actually shrinking, and that is how I would expect a casual reader without much scientific background to read it. How else would you interpret "At least twice before in Earth's history, when carbon dioxide levels soared and temperatures spiked, mammals shriveled a bit in size."
At least twice before in Earth's history, when carbon dioxide levels soared and temperatures spiked, mammals shriveled in a bit in size

Read more at:
At least twice before in Earth's history, when carbon dioxide levels soared and temperatures spiked, mammals shriveled in a bit in size

Read more at:
At least twice before in Earth's history, when carbon dioxide levels soared and temperatures spiked, mammals shriveled in a bit in size

Read more at:

The second was the picture that accompanied the story. It shows a modern horse, a Morgan, contrasted with Sifrhippus sandrae. The visual impression is of enormous shrinkage, the modern horse being nearly a hundred times the weight of the ancestral horse. But that is totally irrelevant to the facts being reported, since all of this was happening many millions of years before there were any modern horses.

My conjecture, on which the title of this blog is based, is that the article was designed to mislead, to scare casual readers about the effects of global warming, to make them imagine that it would shrink them by a similar amount. It is possible that I am mistaken, that the author did not care about politics and was merely trying to write a story people would read. Shrinking from the size of a horse to the size of a cat is a much more dramatic story than evolutionary change from the size of a large cat to the size of a medium cat, which is what the story was actually describing.

On either interpretation, I see no plausible way of interpreting the story, in particular the picture, that does not make it a case of deliberately dishonest journalism.

Saturday, March 11, 2017

A Proposal to Triple Tax Robots

Certainly there will be taxes that relate to automation. Right now, the human worker who does, say, $50,000 worth of work in a factory, that income is taxed and you get income tax, social security tax, all those things. If a robot comes in to do the same thing, you’d think that we’d tax the robot at a similar level.
(Bill Gates, from a Quartz interview
A robot that does a job earns income for its owner. If the owner is an individual, that income gets taxed—income tax, social security tax, all those things. If the owner is a corporation, the income pays corporate income tax then is paid to the stockholders as dividends and taxed again, although at a lower rate than ordinary income.

Gates is proposing that we replace the double tax with a triple tax.

I expect one could construct arguments for special taxes on capital that replaces labor that were not absurd, although there is no particular reason to focus on robots—capital has been substituting for labor at least since the invention of the plow, probably longer. 

But this one is either stupidity, unlikely in the case of Gates, or blatant demagoguery.

Friday, March 10, 2017

A Scrap of Libertarian History

I just came across a letter I wrote to Edith Efron in 1978 on the anarchist/minarchist controversy. It occurred to me that others might find it interesting. I don't remember if she ever answered it. 

But then, I also don't remember writing it.

Thursday, March 09, 2017

Crazy Like a Fox

One possible interpretation of Trump's actions is that he is ignorant, stupid, impulsive and thin skinned. During the campaign the obvious implication, which many drew, was that he had done and would continue doing stupid things that would lose him the nomination or, if he somehow got the nomination, the election.

That did not happen. When your theory confidently predicts something that does not happen, it is worth considering that the theory may be wrong. 

Additional evidence against that theory comes from Trump's earlier history. His finances are not public knowledge and some have argued, for all I know correctly, that he would have done at least as well if he had invested his inherited wealth in a collection of low risk interest bearing assets. But he didn't. He engaged in a long and risky series of entrepreneurial projects. If he was as incompetent as many seem to believe, he would by now have lost all or most of his money. 

That suggests an alternative interpretation, that while Trump may indeed be impulsive and thin skinned he is not stupid, that the apparently stupid things he did were for the most part tactics that were intended to win and did win, that it was not Trump who did not understand what he was doing but his critics. 

Hence the title of this post.

How well does that fit what has happened since the election? 

The initial travel ban made very little sense as a way of preventing Islamic terrorism  but quite a lot as a way of giving Trump the image of doing everything he could to defend America from Islamic terrorism. Seen from that standpoint, even its poor design made sense as a way of provoking noisy and passionate opposition, making his opponents in the Democratic party and the mass media seem to be soft on terrorism. It isn't as if the average voter can be expected to pay attention to the details.

The oddest thing about the response of Trump's critics to his moves is the implicit assumption which they would surely disavow if were made explicit—that Trump's motives are benign. On the assumption that his objective was to make America better, his actions look stupid. But not if his purpose was to promote his own power and status. 

The theory I am offering also explains the accusation that Obama tapped Trump's phone. As best I can tell, there is no evidence that it is literally true. But there is evidence, reported in the New York Times more than a month ago, that federal agents acted under a FISA warrant to tap the communications of some members of Trump's team in the Trump Tower. There is probably no evidence that they did so at Obama's urging or in order to provide information to him, but there probably would be no evidence of that even if it were true.

Obama, the New York Times and the rest of the opposition could have responded to Trump's charge by denying that Obama had tapped Trump while conceding that some around him had been tapped as part of a legal investigation, a fact reported a month or more before Trump made his charge. They could even have suggested that confusing the two claims was evidence of Trump's weak hold on reality. Perhaps some did. But the overall impression of their response as I saw it and, I suspect, as most others saw it, was that it amounted to "That's absurd, Trump must be crazy, nothing of the sort happened."

At which point Trump's supporters could respond that something of the sort, even if not exactly the same thing, had not only happened, it had been reported in the New York Times. That might not convince someone paying close attention to the two claims and the differences between them, but not many voters would be. Making people less willing to trust the mass media, especially when they are criticizing Trump, is a win for Trump.

When I offered arguments along these lines in a Facebook comment thread, the response I got, at least implicitly, was that by denying Trump's incompetence I was defending Trump and that Trump defenders were not worth listening to. My response, that assuming your opponents are stupid when they are not is a very dangerous mistake, fell on deaf ears.


An earlier version of this argument.

Wednesday, March 08, 2017

Division Rules and Assortative Mating

 [Warning: This post assumes the reader understands the Principle of Comparative Advantage. Those who don't will find an explanation here.]

Assortative mating is the pattern of like partnering with like. A standard example is the tendency of men with college degrees to marry women with college degrees. It came up in a talk I recently heard in the rather different context of the tendency of elite law firms to have partners at similar levels of ability. To an economist familiar with the principle of comparative advantage that looks like the opposite of what we would expect, which started me thinking about why, in different contexts, assortative mating would or would not happen.

Consider a greatly simplified model of the marriage market in a world with the traditional division of labor between household and market production but without the traditional sexual division of labor. The world contains four people, two men and two women. One of the men and one of the women are high income earners—think of them as the college graduates. The other two command lower incomes on the market but are equally good at running a household. The two high income earners can each make $100,000/year, the two low income earners can each make $40,000/year. Any of them can produce household services, cooking, laundry, rearing children, whose cost if purchased on the market would be $60,000/year.

With assortative mating, the two high income earners marry each other. Both work, they purchase household services and are left with $140,000/year. The other pair also marry,  one works and one stays home, and they have an income of $40,000/year. The combined income for the two couples, net of the cost of buying or producing household services, is $180,000/year.

Suppose, instead, that each high income earner marries a low income earner. The high income earner works, the low income earner stays home. Combined income of the two couples, again net of cost, is $200,000/year.

The pattern is a familiar one in the context of trade. One partner has a comparative advantage in earning income, the other in household production. Dividing who does what accordingly can make both better off. The implication of that simple model is that men with college degrees should marry women without them and women with college degrees should marry men without them. That is not what actually happens. Why?

In the case of marriage, there are a number of possible explanations. Many couples meet in college. Educated men and women may get along better with educated partners. Educated men and women may prefer that their children be reared by an educated housewife or househusband.

I want to offer another explanation which is not limited to marriage, one that suggests why pairing would be assortative in some contexts, possibly including law firms, and not in others.

Add one more assumption to my model—that the income of each couple is split evenly between them. With assortative mating, the high earning couple get $70,000 each, the low income couple get $20,000 each. With mixed mating, each individual gets $50,000. As long as income has to be split evenly, the situation is stable, since neither of the high earning individuals would want to switch. Without that assumption it is unstable, since a switch to the mixed mating pattern with a 75/25 division of income in each couple makes everyone better off.

Generalizing from the simple model, we would expect to see assortative mating in contexts where differences among potential partners are large and pairs, or larger groups, are constrained to a roughly equal division, because the loss to the high value partner of having to share equally with the low value partner(s) outweighs the benefit of a more efficient division of labor. We would expect the opposite pattern where potential partners are free to vary the division between them.

Consider again the case of marriage. Husband and wife live in the same house, share the same meals and vacations. That limits, although it does not entirely prevent, an unequal division of consumption. Further, once they have been married long enough to have children they are locked into a bilateral monopoly bargaining situation in which any contract over the division of consumption is largely unenforceable.

Consider next the law firm. A law partnership is a worker run firm, although one where control is limited to a subset of workers. That fact limits the degree to which an unequal division can be maintained among the voting partners. So the prediction is that voting partners will be unwilling to recruit others who are substantially less productive than they are and unable to recruit others who are substantially more productive than they are. They will take advantage of comparative advantage by hiring non-voting members of the firm, whether non-partner attorneys or secretaries, who will receive a different, usually lower, share of the firm's income.  

Finally, consider the issue of immigration. It is in the interest of the population of a high income, high skill country such as the U.S. to admit low skill, low income immigrants due to the usual principle of gains from trade. For people who understand the relevant economics, the chief argument against doing so is that poor people will come not to work but to collect welfare. The solution offered by supporters of free immigration, the solution I offered more than forty years ago in my first book (Chapter 14), is that welfare should not be available to new immigrants. The response to that solution is that immigrants will eventually become citizens, at which point they will vote for income redistribution in their own favor. Hence, it is argued, we should admit skilled immigrants from India and China to work in Silicon Valley but not unskilled Mexicans to pick crops.

How accurate the final step in the argument is in the real world of 21st century America is not clear, but its logic is the logic I have offered for when assortative mating will or will not happen.

Monday, March 06, 2017

Anyone Want a Talk in or near Europe?

It looks as though I will be giving a talk in Moscow on May 30th. If I am going to come that far, I might as well give more than one talk. Is anyone in that part of the world interested? Looking at flights to Moscow, they seem to typically go through London, Paris, Frankfurt, or Istanbul, although I expect there are other alternatives. 

Another alternative is somewhere reasonably close to Moscow, such as Helsinki or Tbilisi. I gave a talk in Georgia once over the internet, perhaps I could give one in person.

My usual requirement is an interesting and interested audience and expenses. An honorarium is appreciated but not essential.