Asymmetrical Information

From the desk of Jane Galt:

Fun fact of the week

My brilliant friend Chuck, who is a fountain of scientific and other knowlege, last night acquainted me with the "Garcia effect". That's when you eat or drink something that makes you nauseated, and forever afterwards the smell, taste, or even thought of that substance makes you sick to your stomach.

Of course, the fact that this happens wasn't some major scientific discovery--rare is the party I've attended where someone doesn't end up ruminating on how they can't stand some liquor (usually tequila, but I've heard whiskey, gin, southern comfort, and even creme de menthe), because that was what they were drinking the first time they booted from too much alchohol. But I never knew it had a name.

Myself, I have no liquor aversions (except that I just don't care for gin), but I have another Garcia candidate: cream caramels. I ate a large package of them one sunny day while visiting my aunts at the seaside, about ten minutes before I developed horrible stomach flu. The mere act of googling the name "caramel creams" made my stomach lurch 90 degrees. Frankly, I have to stop talking about them now, or I'm going to be ill right here at my desk.

Anyway, the Garcia effect is not limited to humans; it was first demonstrated in rats. It's an interesting instance of quick learning--clearly, there's a strong evolutionary incentive to develop a quick and lasting aversion to anything that has previously poisoined you. It's very hard to overcome, although repeated exposure can do it . . . if you can get the subjects to sit still. Personally, I'm not going to try to overcome my aversion to the horrid c---- c-------s. It's not as if they provide some nutrient that's missing in my diet.

From the desk of Jane Galt:

Just what Wall Street needed . . .

A tabloid, courtesy of the inimitable Elizabeth Spiers.

From the desk of Jane Galt:

More on immigration

First, a response to readers who ask why I'm not paying attention to the fact that illegal immigrants are, well, illegal.

Several reasons. One, for the same reason that I don't pay attention to the fact that illegal drugs are illegal: I don't think they should be. I don't think that driving under the influence of marijuana, or beating your kids while high on heroin, are somehow worse than doing the same things while blind drunk. I'm not going to support stiffer sentences for drug users while simultaneously hoping that the laws are repealed; if I can't have the laws repealed, then I'd prefer them laxly enforced.

Two, because if I lived in a hut in Chiapas, and I had a choice between seeing my kids go hungry or malnourished, and breaking an immigration law, I'd cross the border by any means necessary . . . pulling myself along with my tongue if my other limbs failed. So unlike dealing drugs, the purported crime doesn't even set off the faintest whiff of distaste in my head.

Third, because given the economic incentives, and the length of our border, I think it's impossible to significantly staunch the flow of illegal aliens. Even vigorously prosecuting the employers would have a very small effect, since illegals tend to work in extremely fragmented industries. We don't have the manpower to inspect the majority of construction sites for OSHA or building code violations, much less green card fraud. Talking about policies to crack down on immigration seems like talking about policies to end the drug trade: doomed to fail, so why not have a beer and shoot some pool instead?

Onto some interesting posts about skilled immigration. Steve Clemons at TPMCafe argues that we're letting 'em get away:

How did America become great? Some would argue that it was indeed great before restless explorers, settlers seeking economic opportunity, and persecuted religious victims and others migrated here -- and I get that point.

But in the last couple of centuries, America became great because it was the single biggest "brain drain" problem for the rest of the world. The smartest and most talented people in the world came to the U.S. to pursue a higher education, escape persecution, or to chase other opportunities -- and where smart, talented people go, so goes wealth creation, social advancement, and the like.

. . . members of Congress have been engaged in a debate that seems to have no strategy to it, no sense of what the nation needs, or what signals we are sending abroad. Smart, brilliant people beyond our borders are now electing not to try to get into this country anymore because the hurdles are too high.

I wrote about this a couple of years back in a New York Times piece partnered with an article striking the same themes authored by former CIA Director and Texas A&M President Robert Gates.

But this in from a Senate Judiciary Committee session on Monday.

Apparently, Senator Dianne Feinstein has concerns that too many foreigners are keeping otherwise promising Americans out of public university slots.

Thus, Feinstein introduced an amendment to address the displacement of U.S. citizens by foreign students in public universities. . . . Senator Feinstein's amendment doubles the application fee from $1,000 to $2,000 and the additional money will be pumped into scholarships and job training for Americans; as well as to combat fraud in the student visa program.

Frankly, we should be doing the opposite of what Feinstein suggests by doubling the application cost for foreign students. America should be promoting foreign student enrollment in public and private U.S. universities to keep America on the positive side of global brain drain realities.

Let me rephrase that -- to get America back into a positive balance -- because right now we are not luring the best and brightest from abroad. They are choosing Canada, the UK, France, Germany, and elsewhere where the border/visa interrogations are less hostile.

This move by Senator Feinstein, from the vantage point I have now, looks wrong-headed, pugnacious, and disdainful of the contributions that people from abroad have made to this country.

Even if you don't want other countries giving us their tired, their poor, their huddled masses yearning to breathe free . . . surely you can get behind a programme of poaching their PhDs?

In fact, a lot of people do argue that rather than restricting immigration, we should alter the mix, to favour skilled workers, the way Australia and Canada do. It's an argument I might have favoured myself, had I not read Bryan Caplan's brilliant analysis of where eugenics goes wrong:

Suppose we have an isolated society in which everyone is a genius. Let's call them the Brains. Who takes out the garbage? A Brain, obviously. Who does the farming? Again, Brains.

Now what happens if the geniuses come into contact with a society where everyone is of average intelligence at best? Let's call them the Brawns. If the Brains allow the Brawns to join their society, the average genetic quality of the Brains' society plummets. But everyone is better off as a result! Now the Brains can specialize in jobs that require high intelligence, and the Brawns can take over the menial labor. Total production goes up.

Obviously, low-skilled workers are even better than dimwitted ones, because low-skilled workers improve their skills, and bequeath us children and grandchildren with even better ones. So even if the only immigrants we let in are first-grade dropouts, we end up better off.

From the desk of Jane Galt:

Mommy wars?

Today's LA Times contains an op-ed called "Mommy Wars: A False Battle". There's no "one right way" to raise a child; stay-at-home moms and working moms are allies, not enemies (the real enemy is mean bosses and worthless husbands).

If there's One Right Way to raise a child, I certainly don't know what it is, so I'll stay out of that battle. But I would like to point out that if you think you've found the One Right Way to raise YOUR child, then it does indeed make sense to fight hard to persuade as many other women as possible to make the same choice. If you are at home, working mothers are your enemy, at least until they chuck the rat race, and vice versa.

Why do I say this? Simple: having the majority of people live the way you do has significant positive externalities.

Let me point out that staying at home with children is not nearly as rewarding as it was in the 1960's. All right, there are more daytime television options than there used to be, and gyms now have day-care centres. But there is something huge missing, and that is all the other women in your neighbourhood. The ones that your mother had coffee with, asked to watch the children for an hour, played afternoon bridge with, formed the pillar of the PTA with, and so on . . . they're all off trading bonds or editing books or waiting tables. That's why all the women I know who stay home are desperate for adult conversation by the time their husband walks through the door. Most neighbourhoods used to be communities full of women who zipped around between houses, filling each other's days. Now they are often lonely prisons.

Perhaps even more importantly, the economic effect of women entering the labor force is to drive down the wages of male earners, who are now competing with 70% more workers for each job. (It also increases the economic pie, but since many things like homes in good school districts are relatively fixed, that benefit doesn't necessarily accrue to the family man). Part of the reason that a man with a family often can't support it on one wage is that he's competing with all those family women.¹ And two income families are using much of that income to bid up the cost of things consumed by families with children, most notably the aforementioned homes.

There are also political and cultural externalities: the more women stay home, the more political support there will be for things that benefit you. For example, the tax code: how you tax married income depends greatly on whether you assume that both spouses work, or that one spouse is splitting his income over two people. Or subsidized day care: it is not in the political interest of a housewife to see her husband's earnings taxed in order to provide day care for someone else's child. In general, working women will support the professionalization of auxiliary services, like the PTA, while housewives would probably prefer to donate time. Divorce laws used to assume that a husband should support his wife forever; now they assume that she can, and should, get a job. All sorts of ways that having a big coalition matters.

What about working mothers? Why should they care if someone else stays home?

Those political, cultural, and economic externalities. Start with the working mother as consumer of things like breast pumps, dry cleaning/laundry services, ready-to-eat meals, day care, and so forth. In general, the bigger the market segment, the more innovative and varied products we will see servicing it. And insofar as economies of scale exist (I don't think they do, much, in day care, but they should in all those other things), the more working women they are, the cheaper and more attractive her choices will be in the market for what we might term "housewife replacement services".

Then there's the working mother as worker. The more working women there are, the more pressure there will be, both informally and through the legislative/legal process, to accomodate workplaces to their needs. The more cultural pressure there will be on her husband to take charge of housework. The more the economy will presumably be transformed into one where men and women take a more equal role. The more acceptable it will be to fall asleep in a meeting because your toddler was up vomiting half the night.

There's also the fact of competition for spouses. Many men, especially high-earning men, want women who will stay at home and take the burden of childcare and housework off of them. The more that working women manage to establish working as a social equilibrium, the less competition they will have for those men.

(Why would they want those men, I hear some of my feminist readers asking distastefully. Well, that rather presumes that housewives are dull, vapid creatures, which no worthy man could possibly desire . . . a belief that would be vehemently disputed by my homebound friends. But even if you assume, arguendo, that no man should want such a think . . . well, why did I spend a year-and-a-half of my life with a man who liked mayonnaise sandwiches? Sometimes they have other charms)

And, of course, there's the politics. All sorts of political questions are affected by family formation patterns: family leave, taxes, childcare subsidies, store opening hours. If you're a working women, you want as many voters as possible on your side. And remember, every time you convert a woman to work, you also convert her husband, who wants help with the daycare bills as much as she does.

So in fact, economic analysis would suggest that there should be mommy wars. Media analysis would suggest that there actually are, though the casualties seem to be pretty light. At least, until some mommies get ahold of this post, that is.

¹ The other part of the reason is that we expect to consume much, much more than we used to, and not just in what progressives decry as useless consumer electronics. We have three or more times as many clothes, more square feet per person in our houses, spend longer getting educated (now all those women have to get college degrees! and an MBA!), better vacations, bigger yards, and so forth, but invidious comparison between our standard of living and that of our neighbours leads us to conclude that there has been some crazy economic change between now and then that means we "can't" support a family on a single wage.

From the desk of Jane Galt:

Anti-trade paranoia

Nathan Newman cites a Public Citizen report warning that the proposal currently facing the WTO to liberalise trade in services, in much the way that goods trade has been liberalised over the past half-century, will gut public service provision:

If hotel services are bound under GATS, a state or community that halts beach-front development for environmental purposes could be challenged by a foreign hotel or construction firm even though the policy applies to domestic firms also.

[S]ome governments’ requirements that elder care or childcare services be non-profit entities are forbidden. For example, in the U.S., the state of Rhode Island prohibits for-profit hospital operators. Under the GATS, a government’s maintenance of any of these policies in a service sector covered by GATS would be subject to a WTO challenge.

Are hospitals a service sector covered by GATS? Given that a number of signatories consist of governments that have socialized health care systems, colour me sceptical. And while I'm sure it's true that a state or community's beachfront development rules could be challenged under GATS, it's unlikely that they would, because such a challenge would lose. The purpose of the World Trade Organisation is not to throw the world's fragile marine ecosystems open to the rapacious demands of developers; it's to see that the rules aren't set up so that only local firms can compete.

This may have the effect of overturning some of the interlocking rules that localities use to protect local retailers against "foreign" competition from stores like Home Depot or the Gap. But that's not necessarily a bad thing; as Mr Newman is no doubt aware, local governments often serve local businessmen, or wealthy homeowners, at the expense of the average consumer.

Nonetheless, that's one of his primary complaints:

Under GATS, governments spending could not favor locally-based businesses over multi-national corporations and even regulations that indirectly benefit local firms over foreign companies could be struck down under international law. For example, a local recycling law could be struck down if it would be harder for foreign firms to comply than for domestic firms. And under proposed GATS rules, privatization of public services would become essentially a one-way decision, since governments would be barred from subsidizing public services where private firms already operate – potentially chilling a whole range of health care and public transit initiatives.

Yes, a recycling law could be struck down if it would be harder for foreign firms to comply with than domestic firms . . . but how, exactly, do we get a recycling law that is hard for foreign firms to comply with? Generally, by structuring it specially in order to shelter local interests from competition. The part about privatisation is simply silly; the government is free to pay for whatever it wants, as long as it doesn't discriminate by national origin of providers. I haven't noticed devastating results on the American economy because the US government occasionally purchases Colombian coffee or French-manufactured pencils; there's no reason to think that German schoolbus firms would be any more dangerous to the commonweal. Public Citizen argues that a locality "may" trigger a WTO dispute if it attempts to undo a failed privatisation . . . but WTO disputes have to be lodged by government trade ministries with limited resources. How likely is it that, say, the EU trade rep is going to find time to go after the city of Bristol, Connecticut over a $1 million school bus contract?

Of course, many of the WTo's opponents would argue that localities should be able to preserve local oligopolies; to them, opening up local markets to competition is a bug, not a feature. There are two responses to this. The first is to point out just how great trade has been for American consumers--no matter how sorry we feel for southern textile workers, almost no one wants to go back to the days of lumbering old American gas-guzzlers, or that 19-inch Zenith television with the knob that came off every time you wanted to change the channel. The second is to point out just how great trade has been for American companies. Oh, not all companies . . . Bethlehem Steel hasn't enjoyed it. But Microsoft, Apple, Dell, and so forth have won big. And American service providers are, generally speaking, much more efficient than those in Europe or Japan; we'd probably gain more jobs than we lost out of services competition.

The other response is, sadly, to point out that services competition is probably not going to happen. And it won't be failing thanks to activists like Mr Newman, but because of intransigent European farmers, and industrial protectionists in the developing world. Doha is probably dead, and the forward momentum of trade liberalisation stopped in its tracks. So there's no need to waste any energy worrying about the negative side effects.

From the desk of Jane Galt:

Unwanted guests?

My previous post about immigration was supposed to be about the policy idea of a guest worker program, but turned into, as sthe title indicates, a hodgpodge of random thoughts.

So now, to the current policy proposals on the table--outlined ably in this excellent article from The Economist: what's the point of a guest worker program?

The idea, I take it, is that it is supposed to put the current crop of illegal aliens on the road to legitimacy. That is no doubt a fine thing. But if what you care about is reducing the number of illegal immigrants in this country, this will only work if guest-workers are a substitute for illegal immigrants.

Yet, I suspect that they aren't, for many employers. The reason that people employ illegal immigrants is that they will work harder, for lower wages, and often off the books. People don't employ Guatamalan nannies because they enjoy the illicit thrill of living on the wrong side of the law; they do so because Guatamalan nannies, unlike many of their American counterparts, are quite willing to forgoe things like social security taxes. My mother, who actually paid social security taxes on the woman who cleaned our apartment, was driven to near-madness by the experience. The social security taxes amounted to a trivial quarterly sum, but every single quarter, the SSA bureaucracy would find something wrong with her forms, forcing her to spend hours arguing with them. A guest worker getting paid on the books would not be a good substitute for most people using casual labour.

So while creating guest workers would no doubt add some employees to the "on the books" sector, this would leave vacant jobs for which only illegal, (or other cheap, off the books) labour is desired. And there is still a very large supply of labour waiting south of our border for the opportunity to do grunt work for a pittance; if there are open jobs, they will come. The coyote network will not go away.

If the object is to open up more immigration, why not just . . . open up more immigration? The European experience doesn't speak well for guest worker programs; you end up with large clumps of temporary immigrants with little to connect them to the wider society . . . exactly what we're supposed to fear about immigration.

Is it political cover? But why would nativist Americans who resent economic competition from immigrants be any happier just because those immigrants will leave (and be replaced by a new crop) after some specified period of time?

I just don't get it. Somebody 'splain me, please? And use small words.

From the desk of Jane Galt:

When ignorance is rational

Economists are fond of pointing out that voting is an irrational act; since the odds of your vote actually affecting the outcome are practically nonexistant, you'd be better off staying home and watching a good movie. In fact, the expected utility of voting is so low, you'd be better off staying home and really cleaning the grout in the bathtub joints.

This is somewhat reminiscent of the famous joke about University of Chicago economists:

Two economists are walking along the street. One of them spies a $100 bill lying on the pavement, and leans down to retrieve it. The second one restrains him. "Don't be ridiculous, John! If that were really a $100 bill, someone would already have picked it up."

Obviously, people are getting some sort of utility out of voting that has nothing to do with casting the deciding vote. There are lots of theories about what this utility might be, but like theories about what makes men so defensively territorial about remote control devices, they tend to be speculative and heavily biased towards the theoreticians personal experiences.

What people do engage in is rational ignorance of politics: put simply, because they are so unlikely to affect the outcome, they mostly don't put much effort into deciding who to vote for. Guest-blogging over on the Volokh Conspiracy, Ilya Somin has an interesting post on how that played out in the Israeli elections:

In a proportional representation (PR) system such as that in Israel, the problem may be even worse than in the US. Voters in a PR system need to know not only what the policy differences between the parties are, but also what effect voting for a particular party will have on the resulting coalition government that emerges from an election. In some cases, increasing the vote total of a right-wing party might actually increase the chance of creating a more left-wing coalition government or vice versa.

Yesterday's Israeli election is a good example of this. In order to form a government, Israeli politicians must put together a coalition with at least 61 seats in the 120 seat parliament. Yesterday, the centrist Kadima Party got 28 seats, while right-wing parties (Likud, NU-NPR, Yisrael Beteinu) got 32, and parties to the left of Kadima got 31 (Labor 20, Meretz 4, Pensioner's Party 7). Various special interest parties, got most of the remaining seats. Kadima is unlikely to form a coalition with the right-wing parties because these parties oppose Kadima's central policy agenda: unilateral withdrawal from large parts of the West Bank. But because Kadima got only 28 seats, they will almost certainly have to form a coalition with the Labor Party (20) and perhaps other leftist parties as well. Had more right-wing voters picked Kadima rather than the parties closer to their views, Kadima might have won enough seats (say 40) to be able to form a government without Labor (which many Kadima leaders would have preferred to do), and therefore a government that would be less leftist.

Ironically, by voting for right-wing parties instead of Kadima, Israeli rightists may well have ensured a more left-wing government than would have resulted from their voting for Kadima instead! They "achieved" the opposite result from the one they probably intended. I suspect that this occurred at least in part because Israeli right-wing voters (like most other voters in PR systems) simply had insufficient incentive to put in the time necessary to think systematically about the impact of picking a particular party on the resulting coalition.

The extra knowledge burden imposed by the need to calculate coalition possibilities is an important (and generally ignored) weakness of PR electoral systems.

From the desk of Jane Galt:

Some rambling thoughts on immigration

About immigration: basically, I'm for it. Though there's (allegedly) a smidgen of native American blood in me, most of my ancestors were carpetbaggers who came here for the same reason as the Korean guy who sells you your coffee in the morning: to excape desperate poverty at home. They were greeted by pretty much the same nativist paranoia now directed at Latin American immigrants (though I haven't heard anyone suggest that Mexicans are part of a Papist conspiracy to rule America), and for the same reasons.

The three-quarters of my forebears who were Irish probably didn't speak English when they got here, and showed no particular interest in learning how to do so. Cramming themselves into tenements ten or more to a room, they were willing to work longer hours for lower pay than native-born Americans. Having brought a rich, and very foreign, culture with them, they clustered in urban areas so that they could preserve it, including a drinking culture that horrified the Protestants then flocking to temperance reform. None of them showed much propensity for assimilating; they established their own churches, schools, social organizations, and businesses, allowing their descendants to live in a little parallel Irish world that kept them out of the mainstream. More than 100 years after they landed in North America, my father's family was still living in an Irish neighbourhood in Boston (though by then they had learned how to speak English). Then, as soon as there were enough of them, they took over the political apparatus of the cities they lived in, and began running it for the benefit of the immigrant communities swelling the tenements, instead of the native-born. This separatism was so complete, so pervasive, so stubborn that America is still riven by the threat of . . . gay Irishmen marching in the St. Patrick's Day Parade.

This makes Pat Buchanan's anti-immigrant ranting look just a tiny bit thick. And frankly, if the main contributions your ancestors made to the great American melting pot are bleary renditions of "Danny Boy" and the fine old tradition of getting blind drunk and sleeping in the gutter every March 17^th, you should think thrice before complaining that "our culture" is under assault. If American culture could be assaulted, Irish-Americans would be doing 5-10 at Sing-Sing for attempted murder.¹

Most of the rest of my ancestors fled England so that they could puritanize in peace, and distinguished themselves largely by squatting on the same hunks of farmland for the next four hundred years.² Somehow this is supposed to be more illustrious than walking the thousand or so miles from Honduras to pick fruit so you can afford to feed and educate your kids.

Having ancestors who got in early, while the rules were lax, I just can't see how I could, with a straight face, agitate to close off the borders to newer arrivals.

That said, I take seriously the argument that there is a limit to how much immigration we can accept at a given time. By some estimates I've heard, as many as 60% of Mexicans say that they would immigrate here if they could. This would create a ring of poverty around our cities that Americans would find unacceptable. But that's really an aesthetic argument; it's hard to give it moral force, when you consider that all those poor people would be living there because it's even worse at home. I think the real limit to the number of immigrants we can accept is the rate at which America's institutions can assimilate them.

"Institutions" is the new buzzword in economics, and like all such buzzwords, it gets bandied around somewhat loosely. By "instititutions" I mean, in this case, all the hidden cultural practices that allow us to transact with strangers with such a high degree of trust and efficiency. If, for example, we allowed so many immigrants that one could no longer effectively be sure of transacting business in a single language, that would have heavy institutional costs. Or if most of the immigrants came from places where family networks were the primary economic unit, and nepotism was viewed as a cultural good, and there were enough of them to change the practice in large swathes of American business, I think that this would make both immigrants and the Americans worse off. Or if there were enough immigrants with anti-liberal (in the classical sense) values to undermine that cultural feature of America, that would be, I think, a bad thing for everyone.

But I don't think we're anywhere near that limit. Yes, there are a lot of Spanish-speaking immigrants in some urban areas (and let's be honest; paranoia about immigration is really paranoia about latinos. No one's worried about high rates of crime and illegitimacy among the Hmong). So what? Cities like Milwaukee and Cincinnati were so preponderantly German that many visitors complained that more German was spoken on the streets than English; until World War I, when German abruptly became politically incorrect, most telephone operators in Cincinnati had to be bilingual, and ended up speaking more German than English. Yet they neither managed to subvert America's vital beer industry for the Kaiser, nor bequeath their cultural separatism unto the umpteenth generation.

Myself, I'm particularly partial to Cubans, Haitians, Mexicans, and Central and South American immigrants, because they work so damn hard to get here. I agree with what Ed Crane, the head of the Cato Institute (as reported by PJ O'Rourke), said about Haitians coming ashore on rafts: if someone crosses dozens of miles of open ocean on a raft made out of popsicle sticks just for a chance to be in America, we should give them their green card on the beach. These are the people we want in this country. Isn't that just the kind of pioneer spirit that we think makes America great?

Frankly, I just don't understand right-wing paranoia about immigration. I mean, aside from speaking Spanish, which seems like a pretty minor pecadillo on the scale of things, latino immigrants seem like a right-winger's dream: hard-working, family-oriented, and religious as all get out.

Nor can I make much more sense of the left-wing objections. Paul Krugman sums up the basic left wing concerns in his Monday column: immigration puts downward pressure on low-skilled wages, and it undermines the welfare state by overburdening regions with high concentrations of poor immigrants.

First, the net benefits to the U.S. economy from immigration, aside from the large gains to the immigrants themselves, are small. Realistic estimates suggest that immigration since 1980 has raised the total income of native-born Americans by no more than a fraction of 1 percent.

Second, while immigration may have raised overall income slightly, many of the worst-off native-born Americans are hurt by immigration — especially immigration from Mexico. Because Mexican immigrants have much less education than the average U.S. worker, they increase the supply of less-skilled labor, driving down the wages of the worst-paid Americans. The most authoritative recent study of this effect, by George Borjas and Lawrence Katz of Harvard, estimates that U.S. high school dropouts would earn as much as 8 percent more if it weren't for Mexican immigration.

That's why it's intellectually dishonest to say, as President Bush does, that immigrants do "jobs that Americans will not do." The willingness of Americans to do a job depends on how much that job pays — and the reason some jobs pay too little to attract native-born Americans is competition from poorly paid immigrants.

Finally, modern America is a welfare state, even if our social safety net has more holes in it than it should — and low-skill immigrants threaten to unravel that safety net.

Basic decency requires that we provide immigrants, once they're here, with essential health care, education for their children, and more. As the Swiss writer Max Frisch wrote about his own country's experience with immigration, "We wanted a labor force, but human beings came." Unfortunately, low-skill immigrants don't pay enough taxes to cover the cost of the benefits they receive.

The reason that this doesn't make sense to me is that it seems to me that a good liberal should want to create the greatest reduction in poverty, wherever it may be found. It seems extremely likely to me that the welfare gains to the immigrants, many of whom come from places where average incomes are less than $900 a year, are much greater than the losses to native born citizens. I admit that there is something aesthetically revolting about the fact that low-skilled workers end up with lower wages, while upper-middle-class folks like me get better and cheaper lawn care. But as a moral matter, it seems to me that more immigration--at least up to the limits discussed above--is an unambiguous good.

Bryan Caplan puts it rather more pungently:

Suppose you could give American high school dropouts a 1000% raise by exterminating every man, woman, and child in Latin America. Would that be the right thing to do?

No? Why not? Your answer, hopefully, is that murder is wrong, even if it financially benefits low-skilled Americans. In fact, when you put it that way, it's hard not to exclaim, "What's so great about low-skilled Americans? Are they the master race, in whose service any crime is justified?"

OK, suppose you could give American high school dropouts an 8% raise by deporting every man, woman, and child from Latin America back to their home countries. Would that be the right thing to do?

I'm more sympathetic to those low-skilled Americans than Mr Caplan--indeed, if anyone has any good ideas about how to transform them into high-skilled Americans, I'm all ears. But aside from vulgar nationalism . . . in which, I confess, I often indulge myself . . . I can't see a good reason for caring about them more than millions who live in really desperate poverty to our south. Though I feel more than a smidge uncomfortable smiling gaily at the nations janitors and short-order cooks and telling them that it's just too bad, but we all have to do our bit to fight poverty.

Left-wing economist Brad de Long also concurs that the benefits to the immigrants outweigh the costs to American workers. And Mexophiliac economist extraordinaire Tyler Cowen makes a good case that immigration isn't just making the immigrants, and their well-heeled employers, better off, but also giving us a stronger, freer Mexico:

I would also stress the benefits of a relatively free and prosperous Mexico on our southern border. The path is not without further bumps, but Mexico truly has turned the corner. Without high immigration, remittances (second biggest "export," I believe), and the spread of liberal democratic ideas, Mexico probably would have been much worse off. In the long run this will prove hugely beneficial to the United States, and of course to the rest of Latin America as well.

The good effects seem to easily swamp the negatives. Count me in.

¹ Kidding, Dad.

² Kidding, Mom.

From the desk of Jane Galt:

Meet the new boss, same as the old boss

Yesterday, Ben Bernanke presided over his first rate setting meeting since he took the helm of the Federal Reserve on February 1^st. Result? So far, he looks a little like Greenspan-lite: 1/3 less opacity than regular Greenspan, but pretty much the same great taste!

From the desk of Jane Galt:

Health care round up

My health care series posts, in order:

{I}
{II}
{III}
{IV}

Happy reading . . .

From the desk of Jane Galt:

Healthcare, Part IV

So here are the things I care about, when I think about healthcare:

* I don't want poor people to die because they can't afford healthcare. Luckily, I don't think that happens very much; the poor get much better health care than most people think, and many of the barriers they face are not inherent to the health care system, but have to do with things like transportation and trouble getting time off work.

But that doesn't mean I think that the poor get adequate health care. Call me a bleeding heart liberal, but I don't want poor Americans to suffer without basic treatment. It's all very well to say that this is the operation of the free market, but I triple dog dare you to go tell some old woman who is crippled by a disease she can't afford to treat that you think she needs to lean into the strike zone and take one for the team.

* I don't want the government to kill off the incentive to invent life-saving, or life-improving, new treatments. I care about this even more than I care about the uninsured, because new treatments will save a lot more lives than covering the relatively small number of uninsured¹. The patent life of a drug once it hits the market is only about ten years, after which point it is as cheap as it would be in any other country. It's one thing to demand that the uninsured forgo treatment; it's quite another to demand that they be content with slightly outdated drugs (many of which, outraged single-payer advocates keep assuring me, are every bit as good as the newer drugs).

* I want there to be a genuine market in health care services. As I said in my previous post, I don't think that this will significantly reduce costs, but I do think that it could improve quality. The current system of cross-subsidies, third payers and so forth inevitably destroys value.

* I want people to pay for their own health care, to the extent that they can. There is no reason that healthy young mailroom clerks should subsidize hypertensive middle managers, or poor young students contribute to the health care consumption of affluent senior citizens.

* I want health care to be separated from employment. The current system stifles innovation and labour mobility, by tying people to hated jobs when they could be seeking new opportunities.

All that's very nice . . . but how do we bell the cat?

Here is my suggestion. It is simple and elegant enough to be explained in a single sentence, yet powerful enough to meet all the criteria above:

Have the government pay for all health care expenditures above 15% of adjusted gross income, and cover 100% of health care expenditures by people living under 200% of the poverty line.

This preserves the market in most health care services--happy HSA advocates! It is progressive, and provides universal coverage--happy single-payer advocates! It directs coverage to those who really need it--the very sick--without a middle class subsidy--happy Jane! And it preserves market prices for almost everything from hospital beds to surgical procedures, since a significant fraction of the market will be paying their own way. That keeps the government from having to set prices, which as Soviet Russia showed us, is generally a bad idea. Most importantly (from my perspective) it preserves the market for innovations in drugs and medical equipment.

It is certainly not perfect. For one thing, I make no promises that it will control costs; I only allege that it will improve quality.

But you know what? We're rich. We're really, really rich. We're the richest country in the entire history of the world.

We're so rich that we have stores full of nothing but beautifully sculpted plumbing. What do we want to spend our money on that's better than health care?

From the desk of Jane Galt:

Health Care, Part III

A few weeks ago, Kevin Drum slammed this Michael Kinsley piece on universal health care thusly:

. . . Kinsley acts as if single-payer healthcare is some kind of radical theoretical construct that no one understands very well. Better to take things slowly.

But various forms of single-payer have been in use in dozens of advanced countries for decades — including Medicare right here in the United States. There are few social programs we know more about than single-payer, and what we know is that in a well constructed program costs are lower, the quality of healthcare is better, the amount of healthcare is higher, private healthcare remains available to anyone who wants to pay for it, and people are generally far more satisfied than American healthcare consumers are. The problems Kinsley tries to scare us with flatly don't exist in the simplistic ways he presents them, and it's dishonest for him to pretend otherwise.

I don't think that's quite fair. We know what Medicare looks like; we know what single-payer looks like in other parts of the world. But that doesn't mean we know what it would look like here. Knowing what the federal system looks like in Germany doesn't give me all that much insight into the way it works here.

Likewise health care. We have different cultures, different national incomes, different social welfare systems, different employment laws, different environments (Europeans walk more and eat less). Perhaps most importantly, Europeans and Canadians got national health care at a time when medicine could do a lot less. It's a lot easier to deny people things they've never had, than to suddenly announce that we're eliminating private rooms in favour of open wards, and no one over the age of 70 gets hip replacements any more.

So what would a single payer system, or an HSA-based reform, look like here, rather than in the fevred imaginations of their most enthusiastic advocates?

I'm not against HSAs, but I can't say I think they'd do much other than slightly cut down on unnecessary lab tests, while providing a healthy tax subsidy for prescription sunglasses. The basic reason that American health care costs so much is that no one wants to tell anyone that they can't have any treatment that might possibly do them some good. A $5,000 deductible is not going to significantly alter that basic cost driver. It will mostly produce minor savings on clinical visits, but even those will be limited by the fact that almost no one goes to the doctor for fun. It might improve health care quality--when I was uninsured, and had to pay cash for my doctor's visits, I got outstanding service--but I just don't see them making a big difference in costs. The free market in dentistry has not made it all that affordable.

What about single payer? Let us, as Mr Drum suggests, take a look at the Medicare experience. Medicare is unable to engage in the most basic form of rationing--denying life-prolonging treatment to extremely old people who are likely to die of something in the near future. I don't say that we should deny such treatment--my basic feeling is that we're a really, really rich country, so what's wrong with spending a whole bunch of money trying to give Granny a few more precious days? But given that Medicare, which is essentially single payer for everyone over 65, is unable to engage in the least controversial form of health care rationing, I can't see how it would be able to, say, deny fertility treatments to single mothers. This is not true in other countries, for all sorts of reasons. But it is true here.

Nor do I think that single payer will be able to hold the line on wages and salaries . . . at least, not without disastrous results. The labour market for health care workers, from doctors on down, is largely a seller's market. Moreover, government programs are, if anything, even more prone to wage inflation than the private sector. That's because political institutions are extremely easily captured by their employees; they're the only organization where the employees vote for the bosses.

It is possible, even likely, that a government-run health care system would be able to batter cost savings out of suppliers of medical equipment, supplies, and pharmaceuticals. But that doesn't strike me as a good thing. The high returns on medical equipment and drugs are what encourage people to invent more such. Get rid of the return, and you get rid of the innovation. Generating cost savings on new technology in order to cover today's uninsured simply privileges one small group of unfortunates over the very much larger group of people, living now or in the future, who have diseases which we can't currently cure. The lucrative American market is currently the only incentive left for medical innovation; I am very much against destroying it.

Single payer advocates retort that pharmaceutical companies spend a lot of money on marketing, which is true, but irrelevant--forcing pharmaceutical companies to price at cost-plus will kill the research along with the marketing. Actually, if I were running a pharma company, and something torched my profits, I'd kill the highly speculative research before the lucrative marketing campaigns. If we want to stop pharmaceutical companies from advertising, or selling directly to doctors, surely outlawing those things is a much more effective way to manage it than slashing their profit margins and hoping that they cut only the things you want them to.

Others argue that the government can take over the research. Perhaps the government is necessary to fund basic research; I haven't studied the question. But looking at the defense industry, where the government is the sole purchaser and major funder of new technology, it's very, very hard to believe that applying a similar model to health care would result in greater value for money. Rather, it seems very likely to me that politically popular diseases would get an even more disproportionate share of funds than they do now. Pharmaceutical companies have to pay attention to things like the size of the market, and the strength of demand. Politicians pay attention to how loud the lobby is, which is why breast cancer and AIDS get research funding all out of proportion to the number of people they kill.

Ultimately, I think that a single-payer system would succeed in cutting costs only one way: by rationing new treatments, while providing older treatments indiscriminately. That doesn't seem to me like a desireable outcome.

But what about the uninsured, you ask. Don't you care?

Why yes, I do. My health care plan in the next post.

From the desk of Jane Galt:

Healthcare, Part II

I know . . . I know . . . I've been lax. I'm helping my parents get ready to (sob!) sell their house, which is taking up a remarkable amount of my free time.

Anyway, back to health care. I hate sentences that start "the basic problem is . . .", but in health care, the problem is pretty basic, which is that we all want top of the line health care, regardless of cost, but we don't actually want to pay for it. Of course, we do pay for it . . . through tax dollars, foregone salary, and so forth . . . but that's largely invisible. When we're presented with the whacking great sums that it costs to provide that insurance, we screech in pain. Just ask anyone who's left a corporate job and had to buy their own health insurance.

Thus, the two relatively purist sides in the healthcare debate today--the single payer advocates and those who want to put the responsibility for purchasing healthcare back in the hands of consumers--promise that they can make health care cost much, much less. The single-payer advocates say that they can do this through the magic of administrative costs and using government negotiating power to batter suppliers; the "markets want to be free" people promise equally wondrous things from forcing consumers to actually shop around for their health care.

Is this true? Well, one should always be wary of anyone promising that there are no tradeoffs to be made.

Let's think about where the money actually goes:

* 30% of all healthcare expenditures occur in the last six months of life * 31% of expenditures are on hospital care * 9% of spending is on nursing homes * 22% of spending is on physician and clinical services * 10% of spending is on prescription drugs * 10% of spending is on dental/other professional care * 10% of spending is on medical equipment, supplies, and construction * 7% of spending is on administrative expenses

So how likely are either Health Savings Accounts, which encourage consumers to shop around because they're spending their own money, or single payer, to reduce any of these categories significantly?

Well, both would probably cut down on administrative costs: HSAs, because consumers decide what they want without battling insurance companies, and single payer because the government has economies of scale--and because the government doesn't argue when it tells you that the expensive procedure you want isn't covered, and you can't sue. But we spend about 15% of GDP on healthcare; if we could cut administrative costs in half, that would slash our bill to--14.5% of GDP. If we also used our negotiating power--either as a government, or as motivated consumers--to batter down the cost of prescription drugs by 40% (about what single payer systems in most developed countries pay), we could get that down to 13.6% of GDP. That's not chicken feed--in a $12 trillion economy, 1.4% savings means $168,000,000,000 a year, or about $560 for every man, woman and child in the country. But it's not exactly what people are imagining when advocates from either side wax lyrical about the fantastic savings to be had by implementing their plans.

So where are the savings to come from? The remaining categories are (roughly) wages and salaries for medical workers, medical equipment, medical supplies, lab tests, surgical procedures and other non-pharmaceutical treatments, and nursing home care.

In theory, either HSAs or single payer could cut down on many of these expenses. In practice, colour me unconvinced.

* There is already a great shortage of health care workers, particularly skilled workers like nurses; it's hard to see how either the government or the consumer could force those down without substantially worsening care (which both sides say they do not want). We are the only country in the world which is not currently whinging about our doctor shortage; that's because they all come here for the higher salaries and superior work conditions. Slash their salaries, and watch them go home . . . and watch your bright young scientifically minded college graduates look for another career. We'd still get about as many doctors graduating from US medical schools as we do now, but quality would fall somewhat (although it could possibly be argued that the single metric upon which doctors are selected--academic ability--is not entirely the most important quality a doctor should have). But if we lost the foreign doctors, we'd have a net doctor shortage here too.

* Who wants less medical equipment? Show of hands . . . okay, who besides the Christian Scientists? Anyone? Anyone?

* Perhaps HSAs or single-payer will cut down on the amount of medical supplies used . . . but it seems to me unlikely that there are fantastic savings on surgical gloves and gauze bandages to be had. If there are savings in this area, I would expect them to have been mostly found already by the private hospitals which can improve their bottom line by economizing on supplies.

* Nursing home care certainly won't be made cheaper by single payer, since most of it is already paid for by the government. It might be improved by HSA's . . . but not for years and years, as it would take decades for anyone to accumulate enough in an HSA to fund a lengthy stay in a nursing home.

In other words, in my opinion there are few significant, positive savings to be had from improvements in these areas. The bulk of any savings realized by either a single-payer system or HSAs will come from reducing the number of tests and treatments people have. Yes, let us say the dreaded word: rationing.

Advocates from both sides say that they have a way around this. HSA afficionadoes argue that people will just get the tests and procedures they really need. Problem: the bulk of America's healthcare dollars are spent on people who are really, really sick. And when you are really, really sick, your price elasticity of demand for something that might cure you is damn close to zero. There are very few good substitutes for chemotherapy, no matter what they say on late-night television commercials. That means that any rationing is likely to be done, not by consumers carefully analyzing costs vs. benefits, but by the limits of one's checking account. And the reason we're having all these debates about healthcare in the first place is that outside of the Cato Institute, very few Americans are comfortable with the idea that someone could die because they aren't rich enough to afford treatment.

Single payer advocates, who care more than most about getting that treatment to everyone in America, say that they will avoid having to ration needed care by the magic of preventive care. There are several problems with this. The first is that most of that preventive care hinges on active participation of the patient. Diabetics have to lose weight, excercise, carefully monitor their blood sugar by pricking their fingers multiple times a day, and eat a decidedly unappetizing diet. Heart-disease/hypertension patients have to excercise, quit smoking, lose weight, cut fat and salt out of their diets, get frequent blood tests, take pill regimens, and so forth. Asthmatics (as my health care company keeps thoughtfully remind me) need to aggressively monitor their peak flows, follow a tiresome inhaler/pill regimen that can have horrible side effects, clean their houses with the fervor of Martha Stewart on uncut crystal meth, and avoid triggers that include cigarette smoke, car exhaust, spicy food, alchohol, excercise, cold air, hot air, pollen, and dust. You can imagine what a hopping social life the conscientious young asthmatic enjoys.

Poor people, who in our society tend to be both uneducated and light on coping skills, are much less likely to follow these regimens even with good healthcare. Given how poor the track record of middle-class patients is on adopting these regimes, the marginal improvement in outcomes is unlikely to save money.

Another problem is that comprehensive health insurance is no guarantee of good care, as this study from the New England Journal of Medicine points out. The variation in level of care between those who were privately insured, those who were insured by the government (Medicare and Medicaid), and those who had no health insurance at all was trivial. That's right, having health insurance didn't seem to make any difference, as long as you visited the doctor at least once every few years. And yet America is generally the leader in treating those diseases, at least according to McKinsey.

But even if we could get people better preventative care, it's unclear that this would provide cost savings. (It might produce marvelous improvements in quality of life--but we're discussing cost here.) As I understand it, diabetes management only slows the progression of the disease; it doesn't stop it. In today's lower interest rate environment, the cost savings from delaying expensive treatments are probably not worth calculating. But even more to the point, many of the things we can treat are cheap ways to die; a single massive myocardial infarction is probably a lot less expensive than thirty years of hypertension drugs. And people who tout asthma prevention and so forth as a way to avoid expensive emergency room visits are confusing price with cost. A trip to the doctor every two months to get your breathing checked and hear him harangue you about your inhalers consumes, if anything, more medical resources than an annual visit to the emergency room. But emergency room visits are priced to subsidize expensive trauma cases and indigent patients; your monthly checkups are not.

Moreover, even if you prevent an expensive course of treatment for one disease, you thereby make it more likely that the patient will die of something even more expensive. People who don't have heart attacks or strokes get cancer, Alzheimers, or congestive heart failure. This is not an argument for not providing comprehensive health coverage to all US citizens; it is an argument that doing so will not be cheap.

What if we bite the bullet and say that we're going to ration, bully our suppliers, and trim back our expenditures on medical equipment in order to eke out enough savings to cover every American? I don't think we can do it. For why, see my next post.

From the desk of Winterspeak:

The Nature of Nature

In this Slate entry, William Saletan takes issue with the notion that allowing gay marriage opens the door (or should open the door) to polygamy. He argues that there is a biological imperitive for us to prefer individuals marrying only one other individual, and that is the jealousy fueled preference of having a monogamous mate.

My friend Charles Krauthammer makes the argument succinctly in the Washington Post. "Traditional marriage is defined as the union of (1) two people of (2) opposite gender," he observes. "If, as advocates of gay marriage insist, the gender requirement is nothing but prejudice, exclusion and an arbitrary denial of one's autonomous choices," then "on what grounds do they insist upon the traditional, arbitrary and exclusionary number of two?"

Here's the answer. The number isn't two. It's one. You commit to one person, and that person commits wholly to you. Second, the number isn't arbitrary. It's based on human nature. Specifically, on jealousy.

Krauthammer finds the gay/poly divergence perplexing. "Polygamy was sanctioned, indeed common" for ages, he observes. "What is historically odd is that as gay marriage is gaining acceptance, the resistance to polygamy is much more powerful." But when you factor in jealousy, the oddity disappears. Women shared husbands because they had to. The alternative was poverty. As women gained power, they began to choose what they really wanted. And what they really wanted was the same fidelity that men expected from them.

Gays who seek to marry want the same thing. They're not looking for the right to sleep around. They already have that. It's called dating. A friend once explained to me why gay men have sex on the first date: Nobody says no. Your partner, being of the same sex, is as eager as you are to get it on. But he's also as eager as you are to get it on with somebody else. And if you really like him, you don't want that. You want him all to yourself. That's why marriage, not polygamy, is in your nature, and in our future.

I'm ambivelent on gay marriage, and agree with Saletan that polygamy (or rather, polygyny) is not workable in a society where women have a decent measure of autonomy. But given how closely divorce rates have tracked female autonomy, it's not clear that regular marriage is all that compatible either. In a day and age where 40% of all first marriages end in divorce, and a third of children are born out of wedlock, listing a bunch of polyamorous relationships that ended in break ups and dismissing the historic commonality of polygyny is weak. Both regular marriage and polygyny have clearly declined as women have increased autonomy out of marriages.

That said, I think it's laughable to argue for gay marriage on grounds of Nature. From a Natural perspective, traditional marriage and polygyny are clearly evolutionary desirable since they result in procreation, which is the very core of what drives Nature. The jealousy that people feel when their partners cheat on them is directly driven by your selfish genes not wanting to waste their carrier's resources on raising individuals they do not have a stake in. Yes these feelings exist in couples that will not procreate, but this is clearly vestigal trait, like male nipples, and while very real for the person experiencing the emotion, is not doing a thing for the survival of the species.

By contrast, homosexual unions do not result in progeny, so from a Darwinian (or Natural) perspective clearly make no sense. The fact that homosexuality exists, and that it appears to have a genetic component, must be explained by some non-obvious Darwinian selection process (the "sneaky uncle" theory) or it's a fluke -- yes it happens but it is a Natural dead end.

None of these are reasons to outlaw (or make lawful) gay marriages, nor are they reasons to make lawful (or outlaw) polygamy. I'm just saying that being for gay marriage but against polygyny on Natural grounds makes no sense. Nature is clearly on the side of polygamists, and doesn't give a hoot about what gay people do.

From the desk of Winterspeak:

What is hate?

Jane recently linked to a nice article detailing the economics of hatred. But I am not sure I would characterize the ultimatum game as a way of expressing hatred in an economic setting.

The ultimatum game basically works like this: two individuals must split a fixed sum (say $10). One party must propose a split, and the other party can either accept or decline that proposal. If the proposal is accepted, both parties walk away with their share. If the offer is rejected, both parties walk away empty handed.

Economics, particularly game theory, predicts that people should be willing to accept $9.99/$0.01 splits because people should prefer one penny over zero, and those are the only options that the ultimatum gives. In practise, however, people routinely reject such splits. In the US, the optimum split seems to be 60%/40% -- people may not be happy at taking $4 out of $10, but they are not so unhappy that they turn the offer down. (So here's a tip -- always hold out for your fair 60%.)

While this is interesting, I don't think it tells us much about hatred. You don't turn down the penny because you hate the other person, you turn it down because you want to set a precedent so that you will get more money in future transactions. I don't think it's driven by vengence, but it may be driven by pride, and feeling insulted that someone is offering you such a lousy deal. Turning down the penny shows you are serious about rejecting lousy deals, and that nobody should waste their time offering you lousy deals in the future. Now it is true that people turn down the penny in one-time tests as well, where there are no reputation considerations, but I don't think that the human brain categorizes "one-time transactions" as absolutely as economists. You never know how word might get out.

For me, true hatred is when, time and time again, you turn down benefits (or incur costs) to somehow harm, or avoid, another person. What's most remarkable to me, then, is how isolated haters seem to be from their objects of hatred, and therefore how little benefit they forgo (or cost they incur) based on their actions.

Sure, French people go on about how they hate the US, but how different would their lives really be if they loved the US? Paris already has a Disneyland, McDonalds, and Starbucks. French people are free to visit America, just as Americans are free to visit France. To me, this emotion seems utterly unmoored from actual consequences, so I do not think economics can tell us too much about it.

Similarly, the Arab world is supremely isolated from the consequences of their attitudes towards the US. We buy their oil, they buy our debt, and this would not change whether the US was loved in Arabia or hated.

Since economics is about people's actions, and the consequences that those actions have, the very lack of consequences that characterize the types of hatreds detailed in the article seem to place it outside economic tractability. To me, these actions seem to have much more to do with group identity and group dynamics. The arguments Glaeser makes about political entrepreneurs is right on, but I don't see how that ties to economics, behavioral or otherwise.

If there is a lesson which ties hatred and economics, it is that it is much more costly to hate when people are close to the object of that hatred, and transact with it regularly. In such situations the cost of hating starts being real (high), and as econ 101 says, when the cost of something increases, consumption goes down.

From the desk of Jane Galt:

Cool economic idea of the week

Supply and demand of hate:

While some try to surmount or cope with irrationality, others feed upon it. In the wake of the 9/11 attacks, Edward Glaeser began using behavioral economic approaches to research the causes of group hatred that could motivate murderous acts of that type. "An economist's definition of hatred," he says, "is the willingness to pay a price to inflict harm on others." In laboratory settings, social scientists have observed subjects playing the "ultimatum game," in which, say, with a total kitty of $10, Player A offers to split the cash with player B. If B accepts A's offer, they divide the money accordingly, but if B rejects A's offer, both players get nothing. "In thousands of trials around the world, with different stakes, people reject offers of 30 percent [$3 in our example] or less," says Glaeser. "So typically, people offer 40 or 50 percent. But a conventional economic model would say that B should accept a split of even one cent versus $9.99, since you are still better off with a penny than nothing." (If a computer, rather than a human, does the initial split, player B is much more likely to accept an unfair split—a confirmation of research conducted by professors at the Kennedy School of Government. . .)

Clearly, the B player is willing to suffer financial loss in order to take revenge on an A player who is acting unfairly. "You don't poke around in the dark recesses of human behavior and not find vengeance," Glaeser says. "It's pretty hard to find a case of murder and not find vengeance at the root of it."

The psychological literature, he found, defines hatred as an emotional response we have to threats to our survival or reproduction. "It's related to the belief that the object of hatred has been guilty of atrocities in the past and will be guilty of them in the future," he says. "Economists have nothing to tell psychologists about why individuals hate. But group-level hatred has its own logic that always involves stories about atrocities. These stories are frequently false. As [Nazi propagandist Joseph] Goebbels said, hatred requires repetition, not truth, to be effective.

"You have to investigate the supply of hatred," Glaeser continues. "Who has the incentive and the ability to induce group hatred? This pushes us toward the crux of the model: politicians or anyone else will supply hatred when hatred is a complement to their policies." Glaeser searched back issues of the Atlanta Constitution from 1875 to 1925, counting stories that contained the keywords "Negro + rape" or "Negro + murder." He found a time-series that closely matched that for lynchings described by historian C. Vann Woodward: rising from 1875 until 1890, reaching a plateau from 1890 until 1910, then declining after 1910.

In the 1880s and 1890s, Glaeser explains, the southern Populist Party favored large-scale redistribution of wealth from the rich to the poor, and got substantial support from African Americans. "Wealthier Southern conservatives struck back, using race hatred" and spreading untrue stories about atrocities perpetrated by blacks, Glaeser says. " 'Populists are friends of blacks, and blacks are dangerous and hateful,' was the message—instead of being supported, [blacks] should be sequestered and have their resources reduced. [Rich whites] sold this to poor white voters, winning votes and elections. Eventually the Populists gave in and decided they were better off switching their appeal to poor, racist whites. They felt it was better to switch policies than try to change voters' opinions. The stories--all about rape and murder--were coming from suppliers who were external to poor whites."

Glaeser applies this model to anti-American hatred, which, in degree, "is not particularly correlated with places that the United States has helped or done harm to," he says. "France hates America more than Vietnam does." Instead, he explains, it has much to do with "political entrepreneurs who spread stories about past and future American crimes. Some place may have a leader who has a working relationship with the United States. Enemies of the leader offer an alternative policy: completely break with the United States and Israel, and attack them. We saw it in the religious enemies of the shah [of Iran]. The ayatollah sought to discredit the secular modernists through the use of anti-American hatred."

For Glaeser, behavioral economics can take "something we have from psychology--hatred as a hormonal response to threats--and put this in a market setting. What are the incentives that will increase the supply of hatred in a specific setting?" Economists, he feels, can take human tendencies rooted in hormones, evolution, and the stable features of social psychology, and analyze how they will play out in large collectivities. "Much of psychology shows the enormous sensitivity of humans to social influence," Glaeser says. "The Milgram and Zimbardo experiments [on obedience to authority and adaptation to the role of prison guard] show that humans can behave brutally. But that doesn't explain why Nazism happened in Germany and not England."

Update: My co-blogger also posted on this article on his own blog.

From the desk of Jane Galt:

What absurd things do you believe?

Tyler Cowen wants to know. My most absurd belief? That "there are some things which are just plain wrong". I do believe this, even though I cannot adduce any reasonable argument for doing so without a Creator God to give us right and wrong.

From the desk of Jane Galt:

Public service announcement

Looks like I'll be giving a speech at New York's Junto on April 6th. The topic will be "Freedom to Fail" . . . I'll be arguing that our cultural and institutional embrace of failure is one of the reasons that American society continues to be the main engine of innovation for the global economy. If you want to see me talk, come on by.

From the desk of Jane Galt:

Different strokes for different folks

Julian Sanchez posts about the elasticity of drug use with respect to random testing--in other words, how much does usage decrease if you start doing random drug tests? Surprisingly, it doesn't:

Slate links an interesting 2003 study by University of Michigan researchers indicating that random testing of high school students for drug use has essentially no effect on the rate of student drug use.

I'll confess some surprise at these results. What I'd have expected is a mild net reduction in drug use, a fair amount of countermeasure deployment (Goldenseal, that sort of thing) and, most perversely, a gradual shift away from drugs like marijuana, which remains in the body for weeks, and toward drugs like cocaine, which can only be detected for a few days.

I too am surprised . . . except for the third thing he mentions. Now, unlike many libertarians, I did not spend my college years working on a PhD in street pharmacology, so I can't speak from personal experience . . . but I do watch prime-time television, from which I get the idea that the effects of cocaine are rather radically different from the effects of marijuana. I can't see my (high-school) self saying "You know, I'd really like to get all my friends into my basement and smoke some dope and get all giggly and watch The Wall . . . but with these random drug tests, I guess we'd better spend eight times as much on cocaine and go out to a club where we can talk real fast and listen to our hearts race."

In economic terms, I would have thought that marijuana and cocaine are complementary goods, rather than substitutes . . . too much cocaine increases demand for a little marijuana to mellow you the hell out. But I have no idea, so I'm turning the forum over to my users. What say you? Would you switch to cocaine if you were running low on weed? Or any other drug? Alchohol and cigarettes strike me as the closest substitutes, but then, as I've already mentioned, I have no idea what the hell I'm talking about.

From the desk of Winterspeak:

Folly

I recently wondered whether the investment boom in Dubai was folly, consumption, or investment. It seems that the money financing much of the Middle East has come from Saudis rich on oil money.

The first pillar is liquidity: OPEC members have earned around $1.3 trillion in petrodollars since 1998, according to the Bank for International Settlements. The extra liquidity injected into the gulf economies by the oil price hike since 2002 is estimated at around $300 billion by HSBC. Some of this money has been spent on building up foreign currency reserves and on the acquisition of foreign companies, such as P&O. Arab takeovers of European and U.S. firms totaled $30 billion last year. Some money has even been invested in hedge funds and gold. However, a great deal has stayed in the gulf region.

On the one hand, the kind of speculation described in the article is clearly mania. On the other hand, Saudi and the UAE, for all their flaws, are countries with fairly strong property rights where investment can expect to earn a return. Surely they should be expected to grow quickly.

However, it seems that the bubble has popped, with shares being dramatically lower than they were a few months ago. However, I doubt that this will effect real estate or investment in the region, that money is in government hands and therefore quite insulated from market fluctuations.

From the desk of Jane Galt:

Direct-to-taxpayer

Will Wilkonson makes an excellent point:

It is incredible to me how often this idea occurs to me, and how seldom it seems to occur to others: If there is a transfer from class A to class B, make it explicit. When you propose making an hidden transfer explicit, people often climb the wall with annoyance. Why? Because the whole point of many hidden transfers is that they are politically viable only because they are hidden. If you like the transfer, you’ll want to keep hiding it.

Hey! Maybe that’s my new favorite Constitutional amendment idea. The Explicit Transfer Amendment! Under the ETA, raising the minimum wage is unconstitutional. Levying extra taxes on business owners or consumers and transferring the money to low-income workers is not. The point is just that the transfer is obvious. If there is a political constituency that is hurt by it, they’ll be able to see that, and speak up for themselves in the political process. I think this falls out of Rawlsian principles of public justification, for what that’s worth.

People who want to do their best to hide the effects of their programs from the public eye have a very, very high burden of proof to persuade me that this is a good idea. Like, top secret nuclear research level burden of proof. I continue to be bewildered at people who, on the one hand, espouse democratic ideals, and on the other hand believe that those ideals are somehow well served by fooling their fellow citizens into going along with something they're against.* Let me join Mr Wilkinson in the cry: if your program is something that a majority of Americans would reject paying for out of their tax dollars, then it is not worth paying for with a tax credit, or forcing others to pay for with their hard-earned cash.

*I am not bewildered by political types who do this; their business is to get elected. I am bewildered by those who profess to be idealists, interested in the public good, rather than power. If your conception of the public good is served by, for example, hiding the economic cost of your program from the majority of American voters by making it a (lousy, inefficient) tax credit, instead of paying for it out of tax revenue, then in what way is your idea of the public good compatible with a democratic vision?

From the desk of Jane Galt:

All right, all right . . . I give in

Opposite day is flourishing everywhere. And Jane, who was one of those little girls who would just absolutely die, like, right now if she didn't have fringed suede boots like everyone else, is jumping on the bandwagon.

Suggest a topic that you'd to hear argued in my characteristically digressive, discursive, and distracted style--except from the opposite point of view. First topic to get three mentions wins (and I can see your IP addresses, so no funny stuff!) Caveat: I will not select a topic that is inherently repulsive (Resolved: a wife should be her husband's property), and since I don't want my name on the opinion, it will be my evil twin, Jennifer, who will provide your post. Jennifer looks exactly like me, except that she has long red nails, and likes to smoke expensive foriegn cigarettes--and, of course, she never got over our adolescent fixation with building a gigantic state apparatus to manage everything that bothers us about the world.

From the desk of Jane Galt:

Is free market money impossible?

Don Lloyd says yes.

The problem is that the creation of money is always a unilaterally beneficial exchange of one state for another. As soon as new money is created, it belongs to the creator, and makes all other holders of money worse off. Mises would call this an autistic exchange, where the impact of an action on anyone but the actor is of no concern.

As an example, if, under a gold money standard, I believe that I can dig up enough gold in my back yard to justify the time and effort expended, then I am likely to proceed with the excavation. If I find any gold at all and add it to my gold money balance, then the supply of gold money has been increased and all other holders of gold money have been made worse off to the extent that the increase in my gold money balance induces me to bid up the prices of any goods that I may wish to purchase. It is not relevant whether or not in retrospect the found gold was worth the trouble, as any amount found has increased the supply.

This seems to me to be the primary reason that gold has greatly increased in supply over history even though no benefit to society results from an increase in the supply of money. The benefit acrues to the producers, and no mutual benefit need exist.

Money is one of the many reasons I'm not a very good libertarian: I like the Federal Reserve, the fiat dollar, and even the FDIC (yes, I do agree it creates moral hazard). Gold bugs like the gold standard because they think of it as a tangible, real thing that no person can interfere with, unlike that stupid fiat money which has its value set by some government bureaucrat who just wants to INFLATE it!

But of course, inflation (and deflation) happen on the gold standard too; it's just that your monetary policy gets set by Anglo-American, rather than the Federal Reserve. It does not seem obvious to me that Anglo-American would be the better steward, and indeed, a quick perusal of economic history suggests that fiat money is the reason we no longer have really ugly economic recessions--the Panics of 1819, 1837, 1857, 1873, 1893, and of course the Great Depression were all much, much worse than anything we've experienced since the country went off the gold standard. Moreover, there's a direct correlation with how long into the 1930's a country stayed on the gold standard, and how long said country took to recover from the global downturn. The bureaucrats who set monetary policy have at least some incentive to restrain inflation: it erodes the value of their assets, and will cause their post-Fed speaking fees to plummet precipitously. Unless the gold supply is controlled by a monopolist (or near monopolist), it will tend to inflate the money supply to the extent of its ability; and if it is controlled by a monopolist or cartel, it may well make money too tight in order to maximise its own profits . . . and hello, recession.

From the desk of Jane Galt:

Should the FDA ban RU-486?

Jeffrey Alan Miron says no.

Obviously, if you don't think that the FDA should exist, the answer is no. But assuming, arguendo, the validity of the FDA, I might be willing to argue that the answer is "yes". Not because of some abortion thing, but because in the course of researching the question "Could RU-486 be used to undetectably induce abortion were it made illegal?" I realized, to my great surprise, that the evidence seems to indicate that RU-486 is a poor alternative to surgical abortion.

Women who have used RU-486 report much less satisfaction with the experience than women who have surgical abortions--particularly those who have had surgical abortions before. Over 10% of them have to have a surgical abortion anyway, and there's a substantial risk that the abortion won't work, at which point there is a high risk of birth defects (hence all the follow-up abortions). It's more painful, more bloody, lasts longer, and is apparently more psychologically traumatic. It takes more doctor's visits, and costs more.

There are only two potential benefits. One is that nurses can be used instead of doctors to monitor much of the proceedings (women have to sit in the doctor's office for hours waiting for the thing to take)--but the FDA is hardly supposed to be in the business of approving drugs because they're better for the prescribing physicians. And the other is the political aspect in the US. RU-486 doesn't need a special surgical clinic, meaning that individual doctors can prescribe the stuff, circumventing Operation Rescue's theatrics.

But in practice, apparently almost no one does . . . some because they don't want to be in the abortion business, some undoubtedly out of fear of reprisal, but most apparently just don't want to mess with it. It's tedious, requires somewhere to stash patients while you wait for the drugs to have their effects, and involves rather more emotional freight than most procedures performed by GPs. So while in theory, RU-486 may be a way to do an end run around the pro-life movement, in practice, it doesn't seem to be working very well.

Of course, the FDA's investigation of deaths may well be--even probably is--at least in part politically motivated. But that doesn't necessarily mean they're making the wrong decision.

From the desk of Jane Galt:

Putting the "inflation" back in "inflation"

Inflation in Zimbabwe reached 782% in January, according to government statistics. Private estimates are even higher. At levels like that, the financial system essentially ceases functioning. All financial assets will have been destroyed, and the economy will increasingly lean on barter, since prices are too hard to evaluate. Even real assets will become less liquid, since they are so hard to price. Financial collapse cannot be far off, and political collapse may well be close behind.

(via Daniel Gross)

From the desk of Jane Galt:

What's happening on health care?

A few weeks back, I noted that national health care seemed to be the only major policy programme that the left could basically agree upon. Now, I hear the stirrings of a push for national health care rippling through the liberal blogosphere like a rising storm wind.

If this movement actually takes off, I expect that we'll see a great deal of vehement argument between conservatives screaming that the liberals are going to screw up our health care system, and liberals arguing that conservative people are hardhearted bastards who want the poor to die. So before that happens, I thought I'd set down some quasi-reasonable thoughts about what we want from our health care system, what a single-payer US system would probably look like, and what the pro's and con's of such a system would be.

The first point to make is that our health care system is already screwed up. The practice of having your employer pay for your health insurance is lunatic. We should not be surprised at what we get when the person who pays for your health insurance is not the person who consumes it.

Of course, the fact that our health care system is already screwed up does not mean that it cannot be screwed up even worse. Pointing out that the current system has problems is not an adequate argument for wreaking massive changes in its structure.

So, the first question: why is providing health care so hard? Why are health care and education the only major areas of life that almost everyone expects to have provided by the state?

Well, for starters, everyone needs them, and they're expensive, and getting more so. Education and health care are both victims of something called Baumol's cost disease. Baumol's is what happens when productivity growth is slow in a given sector (usually a service sector).

In other sectors, where productivity is growing faster, some of that productivity increase (generally about 70% over the long run) feeds through into higher wages for the workers. Now, the low productivity sector has to compete with other industries for workers; that means that they need to raise wages too, even though productivity isn't increasing. The result is that the cost of the service goes up. As Mr Baumol famously pointed out, it still takes as many people to play Beethoven's Fifth as it did when he wrote it, but symphonies are now competing with Microsoft for workers, instead of medieval peasant agriculture.

Thus, doctors and nurses have to be paid the kinds of salaries that bright, scientifically literate college graduates would attract if they chose some other field. But it still takes as many nurses to bathe a patient as it did in 1850. (Some of this work is being pushed down onto Physicians Assistants and Nurse's Aids--but even those jobs are highly paid, compared to how little nurses used to subsist upon.) That means that the cost of medical care will slowly, inexorably, rise.

The situation is made much, much worse by the cartel-power of doctors and the various health care unions, who have considerable power to resist productivity-enhancing change.

The third-party payer problem is a huge issue. No one shops for the best, lowest cost alternative; consumers demand the best, while employers, who are footing the bill, demand the lowest cost. The result is predictible: insurance companies battle down doctor fees to save money, and doctors respond by running as many patients as possible through their office (I'd say that about half my doctors project a visible desire for me to leave their office as quickly as possible before I've even sat down), and doing more, more highly remunerated procedures. It's a mess.

The third-party payer system also runs up administrative costs on both the physician and the insurance side, since a phenomenal amount of time is spent wrangling over what is, and is not, covered.

Health care also has the problem that while most of it is relatively cheap, some of it is unaffordable for anyone except billionaires. Get a rare cancer or tangle with the wrong eighteen wheeler, and you can end up on the hook for a bill that runs well into the six figures.

Insurance is generally the solution for such issues, but many argue that the market for health insurance suffers from adverse selection, which I explain here (and link to an argument by Alex Tabarrok that it does not, in fact happen).

But the real problem for liberals is that where adverse selection does not happen, it is because the system has booted out people with expensive pre-existing conditions. This is not a structural problem in the market, the way the other things are--indeed, if there were a market that was willing to basically sell someone homeowner's insurance after their house had burned down, I would think of that as a glaring structural issue. But neither is it acceptable to many Americans.

Which brings me to the second question we have to ask: what, exactly, do we want out of our health care system?

My thoughts:

Quality: We want access to the latest high-tech treatments. In almost all cases, we are willing to spend any amount of (someone else's money) to produce even trivial improvements in our lifespan, or quality of life.

Choice: We want to be able to pick any doctor, drug, or treatment we want.

Security: We do not want any risk that we will not have access to standard medical care.

Innovation: Except for Leon Kass and some environmental activists, we want a system that will continue to deliver more of the medical marvels that have expanded lifespans and improved the quality of life of nearly every American in the 20th century.

Equality: At least a number of us do not want rich people to have a better chance to live, or live well, than poor people.

Low cost: We do not want to spend huge amounts, either of taxpayer money, or our own hard-earned cash, for these vital services.

Later: my thoughts on what an American single-payer system would look like. Meanwhile, I encourage you to chip in with your own ideas.

From the desk of Jane Galt:

What Paul Krugman is reading

From his New York Times web site . . .

"The Algebraist," by Iain M. Banks: Hey, it can't be all work and no play. Science fiction - specifically, Isaac Asimov's Foundation - is what got me into economics in the first place. Mr. Banks, a Scot who isn't that well known in the United States, is probably my favorite contemporary science-fiction writer. If you're interested, I'd suggest "Use of Weapons" as an introduction.

I wonder if those who read science fiction in childhood can be divided into those who liked Robert Heinlein better, with his swashbuckling individualism, and those who preferred Isaac Asimov, with his technocratic fantasies. And I wonder if those early preferences semi-reliably map onto the conservative/liberal divide . . .

From the desk of Jane Galt:

Bleg

A friend of mine is thinking about starting a weblog. I have graciously volunteered to host this weblog, but she wants her own domain name. Can someone give me simple instructions for setting up a new weblog within my movable type installation, but with a different domain name? Or is this just impossible?

From the desk of Winterspeak:

Folly, consumption or investment?

Thomas Mahon is a tailor based in the UK who makes custom (bespoke) suits for about $3000 a pop. He started a very good weblog some months ago, got great press, and now has as much business as he can handle. Instead of expanding, he's decided to limit his output to 100 suits a year, with no change in price that I can discern.

Folks familiar with economics would instantly see that Thomas is leaving money on the table -- instead of limiting output (Q), why doesn't Thomas increase his prices (P) until demand naturally reaches 100 suits per year. This new price could be $3200 or it might be $6000. In either case, Thomas will make more money through raising P than limiting Q.

But Thomas has decided not to do this. There are three ways to interpret this decision:

1) The behavioral economics approach would say that Thomas is making various logical fallacies, that are common and represent general human behavior. Humans regularly commit follies.

2) Chicago-school economists would say that Thomas is maximizing something other than profit, and that this money left on the table is actually the price he's willing to pay for whatever "good feelings" he gets from keeping the price the same. What behaviorists call "irrationality", neoclassists call "consumption".

All of this is just a long-winded way of getting around to the current investment climate in Dubai.

Dubai is booming. The city has been growing for years now, but I have never seen as many skyscrapers being constructed than in my trip there last month. There are entirely new sections of towns being built, blocks and blocks of appartments, office towers, hotels and houses.

What's most remarkable about much of this new investment is the show-offy outlandishness of it. After Palm I and Palm II (palm tree shaped artificial islands in the Arabian Gulf, with houses on them), Dubai is building "the world" -- an archipeligo of individual islands shaped in a map of the world. The major draw is that you can buy, say, France, and have your address be "France, The World, Dubai, UAE". Dubai has also built the world's largest artificial ski slope, is building the world's tallest building, is constructing the world's first underwater hotel, which will kick into high gear just as soon as the world's largest submarine making factory pumps out the world's largest fleet of submarines to ferry guests to and from the hotel.

It's all a little mad.

The thing is, I cannot figure out if this spending is folly, consumption, or investment.

The projects seem ridiculous on their face, and the growth assumptions behind them are truly heroic, so maybe they are simply making a mistake and these pleasure palaces will be idle, and real estate prices will crater.

Much of Dubaii's financing comes from a small group of very wealth families, and they enjoy competing amongst themselves for prestige, so maybe all of this gilding is just them showing off and having fun. So the return on their projects may be lower but who cares -- they have plenty of money and they are spending it.

Perhaps this investment, overall, is real and correct. If you look at a map of the Middle East you will notice that it is utterly bereft of fun, with the exception of Dubai. High oil prices and political instability means there are lots of rich people in the area looking for a safe bolthole, somewhere secure to put their money, and an enjoyable, Arabic speaking holiday destination. They may be willing to trade off some return for a high probability that their money will not be blocked or confiscated by stroppy foreign governments, and given how the West is leery of Muslim Arabs these days, Muslim Arab investors may take a haircut and send their case to Dubai anyway. Dubai, given free money, is spending it freely.

Certainly, this sort of preference structure behind financing would go some way to explain the persistance of low interest rates in the US. Certainly they are difficult to defend on pure economic grounds. This excellent article details the effect Asian currency pegs have on keeping US interest rates low, and thus making it cheap for America to carry more debt. Perhaps non-financial preferences are driving activity in Dubai.

From the desk of Jane Galt:

Affirmative action and the academic labour market

Steve Teles has a very interesting post on the academic labour market, with attention to its implications for affirmative action:

A theory of efficient academic labor markets would predict that the "best" scholars are at the "best" institutions. So, Harvard is better than the institutions below it because, when job candidates receive offers, the best ones (measured by future scholarly impact) choose Harvard because of its superior resources and reputation. The labor market, in this understanding, is a sorting mechanism, and an efficient market effectively ranks all candidates hierarchically and places them at the institution at which they belong. This model is efficient because the richer resources of the elite institutions are given to the best scholars, who are able to make the best use of them. One implication of this model is that affirmative action is inefficient, since it would allocate resources to those who would make less effective use of them than alternative candidates.

In the model above, quality is exogenous to academic institutions. An alternative model suggests that, to a significant degree, quality is endogenously produced. This model suggests that the sorting processes of the academy are characterized by substantially incomplete information. The information that hiring committees have available to them varies in predictive quality, from the dissertation (could be more a function of the good ideas of the candidate's advisor than the candidate), to the job interview (could be more a measure of slickness of presentation than underlying intelligence or productivity) to recommendations (which may simply operate as a proxy for the candidate's PhD granting institution, since their substance is often remarkably similar). Furthermore, academic hiring committees are committees--because of the need to put together majorities, committees may converge on non-offensiveness, not predicted productivity. So, while the job market for freshly minted PhDs is probably a less than perfect predictor of future academic productivity.

The initial sorting of PhDs to institutions would be self-correcting if mistakes at this first stage were corrected in the “secondary” market for job candidates. But—and this is the key to the argument—there are reasons to believe that this will not occur. First, initial allocations are sticky, because PhDs are less mobile in the secondary market than they were in the initial job market. Once they have settled in to an institution, and their spouses have made a life wherever they initially landed, there may be limits on reallocation.

Second, and most important, quality (as measured by scholarly productivity) is to a significant degree endogenously produced by initial allocation to institutions. Rick Hess has published an interesting article in PS that shows that it is almost impossible to “write your way out” of low-ranked institutions. The reasons for this are obvious to anyone who has spent time in a variety of different university settings. In lower ranked institutions, a great deal of scholarly time is taken up by grading, and opportunities to teach courses that closely track with research interests are limited. Resources for research are more limited the further down the pecking order one goes (funding and time off of teaching in particular). As one goes down the pecking order, the average quality of research assistance one can obtain from graduate and undergraduate students declines. Institutions further up the pecking order have a constant flow of visiting speakers that help stimulate ideas for research and expand scholarly networks. Funding sources are also more willing to support research at higher-ranked institutions. For all these reasons, PhDs at higher ranked institutions will find it considerably easier to produce a stream of high-quality work than their counterparts at lower-ranked institutions.

The consequence of this is that initial allocations of individuals to institutions will tend to be highly sticky—high potential PhDs who end up at the “wrong” institutions in the original sort will have a hard time producing the scholarship that shows that they “deserve” to be at the higher ranked institutions (that is, that shows that at the higher ranked institutions they would produce more quality scholarship than incumbents). At the same time, those who have the good luck to end up at the “right” institutions will produce significantly more quality work than they would if they had been sorted into the institutions that matched their inherent potential.

As a consequence of this, those at the higher-ranked institutions will, as a consequence, appear as if they really do have more intrinsic “merit” than those at lower-ranked institutions. And on average, given that the original sort is not random, they will. The point, however, is that the endogenous production of academic quality will make it look like the original sort was more efficient than it actually was.

. . . if the argument above is correct, then affirmative action in the initial hiring market for PhDs (at least in the social sciences, which I know best) may not suffer from the perverse consequences that may effect professional school admissions. While the average potential of PhDs in effected groups may be lower, presence in higher-quality institutions will, in fact, tend to substantially increase their productivity. While effected scholars may not produce as much as their competitors at higher-quality institutions, and thus be denied tenure, the endogenously produced productivity from being at higher-quality institutions will put them in a position to get positions at higher-ranked institutions than they would have originally, if the sort was not influenced by identity characteristics. While this may have consequences for the efficiency of the academy overall, affirmative action in this area would have desirable distributive effects--depending, that is, on the appropriate targeting of the effected group. This suggests that the right argument is not whether affirmative action, as a whole, is desirable, but--normative questions aside--where will it tend to have the least undesirable side effects, and the most positive impact on those for whom it is intended.

There is one side effect that he doesn't address, which is that if he's right, the costs of affirmative action to those who are displaced by it are very large. A white male academic shunted off to a lesser institution will never, ever get out of it. And given that the number of good research universities is so small, there is a substantial chance that that is where a displaced candidate will end up.

Now, perhaps we shouldn't care . . . but given that we are asking a particular candidate to lean into the strike zone and take one for the team, it seems we should at least consider how much harm we are doing him.

But I find even more interesting the thought that the academic job market, as described here, is very close to what most academics think labour markets are like outside the economy: a sharply binary process in which there are clearly delineated winners or losers, the outcomes are somewhat arbitrary, and a very slight run of bad luck can land you in a place from which there is literally no hope of escaping. This might go a long way towards explaining academic leftism, in two ways: first, going through the academic job market might make you more left-wing; and second of all, people who think that the entire world works this way might be more predisposed to pursue jobs in academia.

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