Archives: 06/2018

Should Cryptocurrencies Be Regulated like Securities?

Should cryptocurrencies be regulated like securities? Financial regulators have been pondering this question for some time. In a Briefing Paper published today by the Cato Institute’s Center for Monetary and Financial Alternatives, I suggest that securities regulation would only seem warranted in certain clearly circumscribed cases. For the most part, cryptocurrencies should be treated like commodities.

It has been nearly a decade since “Satoshi Nakamoto” laid the intellectual foundations for Bitcoin, the first cryptocurrency platform. Since then, more than 1,600 peer-to-peer networks have emerged to disrupt established intermediaries. Cryptocurrencies, even in the comparably bearish first half of 2018, have an aggregate market capitalization of nearly $300 billion.

While policymakers’ attention has gradually turned to designing an appropriate regulatory framework for this emerging technology, policy uncertainty persists. On one hand, some policymakers recognize the potential for cryptocurrencies to increase competition, reduce transaction costs and improve capital formation opportunities for firms. On the other, statements from regulators at the SEC and CFTC, the two agencies most closely monitoring the development of cryptocurrencies, have been unclear, equivocal, and sometimes outright contradictory.

The White House’s Misleading & Error Ridden Narrative on Immigrants and Crime

President Trump recently held an event with some of the relatives of people killed by illegal immigrants in the United States.  Afterward, the White House sent out a press release with some statistics to back up the President’s claims about the scale of illegal immigrant criminality.  The President’s claims are in quotes and my responses follow.

According to a 2011 government report, the arrests attached to the criminal alien population included an estimated 25,000 people for homicide.

Criminal aliens is defined as non-U.S. citizen foreigners, which includes legal immigrants who have not naturalized and illegal immigrants.  The 25,064 homicide arrests he referred to occurred from August 1955 through April 2010 – a 55-year period.  During that time, there were about 934,000 homicides in the United States.  As a side note, I had to estimate the number of homicides for 1955-1959 by working backward.  Assuming that those 25,064 arrested aliens actually were convicted of 25,064 homicides, then criminal aliens would have been responsible for 2.7 percent of all murders during that time period.  During the same time, the average non-citizen resident population of the United States was about 4.6 percent per year.  According to that simple back of the envelope calculation, non-citizen residents were underrepresented among murderers.

In Texas alone, within the last seven years, more than a quarter million criminal aliens have been arrested and charged with over 600,000 criminal offenses.  

We recently published a research brief examining the Texas data on criminal convictions and arrests by immigration status and crime.  In 2015, Texas police made 815,689 arrests of native-born Americans, 37,776 arrests of illegal immigrants, and 20,323 arrests of legal immigrants. For every 100,000 people in each subgroup, there were 3,578 arrests of natives, 2,149 arrests of illegal immigrants, and 698 arrests of legal immigrants.  The arrest rate for illegal immigrants was 40 percent below that of native-born Americans. The arrest rate for all immigrants and legal immigrants was 65 percent and 81 percent below that of native-born Americans, respectively.  The homicide arrest rate for native-born Americans was about 5.4 per 100,000 natives, about 46 percent higher than the illegal immigrant homicide arrest rate of 3.7 per 100,000.  Related to this, the United States Citizenship and Immigration Services recently released data that showed the arrest rate for DACA recipients about 46 percent below that of the resident non-DACA population.

More important than arrests are convictions.  Native-born Americans were convicted of 409,063 crimes, illegal immigrants were convicted of 13,753 crimes, and legal immigrants were convicted of 7,643 crimes in Texas in 2015. Thus, there were 1,749 criminal convictions of natives for every 100,000 natives, 782 criminal convictions of illegal immigrants for every 100,000 illegal immigrants, and 262 criminal convictions of legal immigrants for every 100,000 legal immigrants. As a percentage of their respective populations, there were 56 percent fewer criminal convictions of illegal immigrants than of native-born Americans in Texas in 2015. The criminal conviction rate for legal immigrants was about 85 percent below the native-born rate.

Criminal Conviction Rates by Immigration Status in Texas, 2015

Murder understandably garners the most attention.  There were 951 total homicide convictions in Texas in 2015. Of those, native-born Americans were convicted of 885 homicides, illegal immigrants were convicted of 51 homicides, and legal immigrants were convicted of 15 homicides. The homicide conviction rate for native-born Americans was 3.88 per 100,000, 2.9 per 100,000 for illegal immigrants, and 0.51 per 100,000 for legal immigrants.  In 2015, homicide conviction rates for illegal and legal immigrants were 25 percent and 87 percent below those of natives, respectively.

Homicide Conviction Rates by Immigration Status in Texas, 2015

Murderers should be punished severely no matter where they are from or what their immigration status is.  There are murderers and criminals in any large population, including illegal immigrants.  But we should not tolerate the peddling of misleading statistics without context.  What matters is how dangerous these subpopulations are relative to each other so the government can allocate resources to prevent the greatest number of murders possible.  Thus, enforcing immigration law more harshly is a very inefficient way to punish a population that is less likely to murder or commit crimes than native-born Americans.  Illegal immigrants, non-citizens, and legal immigrants are less likely to be incarcerated, convicted, or arrested for crimes than native-born Americans are. 

No, Babies Are NOT Born Addicted to Opioids

“A crisis is a terrible thing to waste,” is a phrase coined by Stanford economist Paul Romer. Politicians are always in search of new crises to address—new fires to put out—with rapid and decisive action. In their passion to appear heroic to their constituents they often act in haste, not taking the time to develop a deep and nuanced understanding of the issue at hand, insensitive to the notion that their actions might actually exacerbate the crisis.

An example of that lack of understanding was made apparent in a press release by the office of House Majority Whip Steve Scalise (R-LA) on June 22 supporting legislation that packages together over 70 bills (H.R.6) aimed at addressing the opioid (now mostly heroin and fentanyl) overdose crisis. The bills mostly double down on the same feckless—often deleterious—policies that government is already using to address the crisis. The release stated, “Whip Scalise highlighted a Slidell, Louisiana family whose son was born addicted to opioids, a syndrome called NAS, as a result of his mother’s battle with addiction.” 

The press release quoted Representative Scalise:

I highlight Kemper, a young boy from my district in Slidell, Louisiana. He was born addicted to opioids because his mother, while she was pregnant, was addicted to opioids herself…this example highlights something the Centers for Disease Control has noted. That is once every 25 minutes in America a baby is born addicted to opioids. Once every 25 minutes. That’s how widespread it is, just for babies that are born.

Before crowing that the “House Takes Action to Combat the Opioid Crisis,” as the press release was titled, Representative Scalise should get his science right. No baby is ever born addicted to opioids. As medical science has known for years, there is a difference between addiction and physical dependence—on a molecular level. Drs. Nora Volkow and Thomas McLellan of the National Institute on Drug Abuse pointed out in a 2016 article in the New England Journal of Medicine that addiction is a disease, and “genetic vulnerability accounts for at least 35 to 40% of the risk associated with addiction.” Addiction features compulsive drug use in spite of harmful, self-destructive consequences.

Physical dependence, on the other hand, is very different. As with many other classes of drugs, including antidepressants like Prozac or Lexapro, long-term use of opioids is associated with the development of a physical dependence on the drug. Abruptly stopping the drug can lead to severe withdrawal symptoms. A physically dependent patient needs the drug in order to function while avoiding withdrawal. Dependence is addressed by gradually reducing the dosage of the drug over a safe time frame. Once the dependence is overcome, such a patient will not have a compulsion to resume the drug.

Childcare Regulation and Quality

David Boaz blogged today on the Washington Post story about a lawsuit regarding DC childcare regulations. DC is set to require directors of child-care facilities to obtain a bachelor’s degree in early childhood development, and assistant teachers and home-care providers to have Child Development Associate (CDA) certificates in the same subject.

The WaPo write-up follows the usual boilerplate for these discussions: on the one hand, providers say complying with the regulations will be burdensome and increase costs; on the other hand, the government talks up the educational benefits of the new regulations. This all implies there is a trade-off between quality and cost.

But is there? Actually, this is a classic example of the government’s argument not considering the market for childcare as a whole.

Yes, requiring child-care workers to achieve higher qualification levels could result in more highly trained formal caregivers, who can help children to develop from an educational perspective. Such a regulation might also provide a “quality assurance” effect for some particularly conscientious parents.

But the effect on the quality of care faced by the whole population of children is ambiguous. By restraining the supply of formal care via regulation, the price of formal care will rise. If the price of formal childcare rises, then some parents will decide to substitute to more informal forms of care or even have to stay home to care for their own children. According to the government’s definitions of “quality” (which may be quite different from parents’ own perception) there will be substitution into lower quality settings as a result of childcare becoming more expensive.

Previous academic work suggests the price effects of these types of regulations are large. Diana Thomas and Devon Gorry estimated that even the more modest requirement for lead teachers to have a high school diploma increases childcare prices by between 25 and 46 percent. Hotz and Xiao likewise find that increasing the average required years of education of center directors by one year reduces the number of child care centers in the average market by between 3.2% and 3.8%. This effect manifests itself overwhelmingly in low income areas, with quality improvements (proxied here by accreditation for the center) occurring in high-income areas.

In other words, the real trade off is not quality vs. cost, but better quality for those rich enough to still be able to use formal care vs. less accessibility to care and higher prices for the poor. And that means lower quality and fewer options for the least well off – widening, rather than narrowing, supposed educational inequalities. Given average annual full time infant care in DC already costs $23,000 plus per year, one would think the government would be sensitive to these concerns about affordability.

Could Inefficiency Balance Out Overregulation?

The top left-hand story on the front page of the Metro section of today’s Washington Post:

Lawyers for the District argued Wednesday for the dismissal of a lawsuit that challenges city regulations requiring some child-care workers to obtain associate degrees or risk losing their jobs….

The requirements … stipulate that child-care center directors must earn bachelor’s degrees and assistant teachers and home-care providers must earn Child Development Associate (CDA) certificates.

Meanwhile, just across the page, in the top right-hand space:

About 1,000 teachers in D.C. Public Schools — a quarter of the educator workforce — lack certification the city requires to lead a classroom, according to District education leaders.

So how about this compromise: the child-care licensing requirement will go into effect, but it will be enforced by the crack management team at DC Public Schools?

Quick Reaction to Supreme Court Ruling on Cell Phone Location Data

The Court today reached the right result for the wrong reason. The majority extends the “reasonable expectation of privacy” to cell-site location data and thereby carves an exception to the third-party doctrine—as well as making various caveats about not reaching different technologies, security-related investigations, and other hypothetical situations. Good enough for restricting law-enforcement overreach in some cases, but just adding cautionary barnacles to a rusty and outmoded Fourth Amendment hull.

It’s Justice Neil Gorsuch who’s right that we need to go to the theory of the matter and the people’s right to be secure in their “persons, houses, papers, and effects” based not on privacy expectations but on property rights, contract law, and statutory protections (all of which can certainly be applied in the modern digital age). This very much aligns with what Cato argued in our amicus brief. Gorsuch styles his opinion as a dissent because he adjudges that Carpenter’s lawyers didn’t “preserve” such arguments, but it’s a concurrence in all but name.

If the Court doesn’t follow that philosophical line, going back to first principles rather than reinventing the Fourth Amendment with each technological revolution, its jurisprudence in this area will never escape the artificial muddle epitomized by the unsatisfying majority opinion here. 

[This may be updated and my colleagues are likely to have more analysis.]

Global Science Report: Greenland’s Resilience in the Face of Apocalyptic Hypotheses

Thirty years ago, NASA scientist James Hansen put greenhouse-effect warming on the map with his strident testimony indicating that global temperatures could then confidently be related to changes in atmospheric carbon dioxide. Two years ago, he made another prediction: several meters of sea level rise in this century. He told Scientific American:

Consequences [of climate change] include sea level rise of several meters, which we estimate would occur this century or at latest next century, if fossil fuel emissions continue at a high level. That would mean loss of all coastal cities, most of the world’s large cities and all their history.

There’s only one way to accomplish this: melt a substantial portion of Greenland’s ice. In fact, as early as 2004 he wrote Greenland could a substantial portion of its ice in 100 years with the warming of this century, causing a total sea level rise of nearly 20 feet.

Fortunately, there are ways to test the hypothesis that Greenland is about to shed like a calico cat in the summer.  It turns out Greenland has experienced multiple millennia of heat at times during the last 125,000 years.

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