Latest Cato Research on Regulatory Studies en Randal O’Toole discusses his blog post, “Time to Shut Down the DC Metro Rail,” on WRC NBC’s News 4 at 6 Thu, 17 Sep 2020 12:05:30 -0400 Randal O'Toole Michael F. Cannon discusses Trump’s executive order on prescription drug prices on The Bob Harden Show Thu, 17 Sep 2020 11:48:10 -0400 Michael F. Cannon WeChat or We Don’t Chat? A Total Ban on WeChat Goes Too Far Huan Zhu <p><span>WeChat is an internet application owned by Chinese tech company Tencent. It may not sound familiar to most Americans, but it is a&nbsp;tool widely used in China and among Chinese communities world‐​wide. It is a&nbsp;one‐​stop‐​shop that combines payment services, social media, messaging platforms, and news outlets. This app is now facing a&nbsp;ban in the United States. </span></p> <p><span lang="DE" lang="DE">Last month</span><span>, President Trump issued an </span><a href=""><span>executive order</span></a><span> related to WeChat, under which </span><span lang="AR-SA" lang="AR-SA">“</span><span>any transaction that is related to WeChat by any person, or with respect to any property, subject to the jurisdiction of the United States</span><span>” would be banned. The rationale was that WeChat </span><span lang="AR-SA" lang="AR-SA">“</span><span>continues to threaten the national security, foreign policy, and economy of the United States</span><span>.” The order itself lacks details on how exactly a&nbsp;ban would work, and the Department of Commerce is expected to issue implementing rules by September 20. The scope of the regulation could range from banning the app from smartphone app stores, to banning all U.S. firms, even ones located outside of the U.S., from dealing with WeChat. The ban would affect both individual users of the app and businesses who rely on it. </span></p> <p><span>WeChat does present some risks, but <span>banning it nationwide is overkill. As I&nbsp;explain below, a&nbsp;more targeted approach, such as banning the app on work phones of defense department employees, like the </span></span><a href=""><span>Australian government</span></a><span><span> did,</span></span><span><span> </span></span><span><span> </span>or even for <span>all government workers, is more reasonable. </span></span></p> <p><span>As noted, there is a&nbsp;lot of uncertainty surrounding the executive order. With regard to individuals in particular, it is unclear what </span><span lang="AR-SA" lang="AR-SA">“</span><span lang="FR" lang="FR">transactions</span><span>” would be covered. If the ban is intended to take the application off the various mobile marketplaces, it will seriously disrupt person‐​to‐​person communications that have been crucial for the </span><a href=",according%20to%20analytics%20firms%20Apptopia"><span>19 million</span></a><span> active WeChat users who live in the United States. For some of these users, WeChat is their main channel of keeping in touch and a&nbsp;primary source of information; for </span><a href=""><span>others</span></a><span>, the app is one of the tools they use to make money and earn a&nbsp;living. </span></p> <p><span>The inability to use WeChat in the United States could spook many potential Chinese students and visitors, resulting in a&nbsp;likely drop in school enrollment and tourism revenues. Chinese students contribute approximately </span><a href=""><span>$15 billion</span></a><span> to the U.S. economy every year, and Chinese tourists contribute </span><a href=",other%20big%2Dticket%20US%20destinations"><span>$36 billion</span></a><span>. The number of Chinese students and tourists was already declining due to </span><a href=""><span>deteriorating U.S.-China relations</span></a><span> and the </span><a href=""><span>COVID-19 pandemic</span></a><span>. The WeChat ban, which makes the United States less attractive to Chinese visitors than other countries who allow the app, can only exacerbate this trend. </span></p> <p><span>In addition, the ban could go well beyond personal access to the app and extend to associated business activities. The President of the American Chamber of Commerce in Shanghai has noted that all American companies, regardless of their location, could be barred from any transactions related to the WeChat application. Because WeChat is so deeply embedded in the Chinese people</span><span lang="AR-SA" lang="AR-SA">’</span><span>s daily life and has become a&nbsp;platform for a&nbsp;wide range of activities, a&nbsp;ban on transactions related to WeChat would include sales, promotions, payments and other business activities.<span> For instance, </span></span><a href=""><span>Starbucks and McDonald’s</span></a><span><span> </span></span><span>use the application as a&nbsp;marketing and sales platform</span>.<span><span> </span></span><a href=""><span>Filmmakers</span></a><span><span> use WeChat to promote their movies and make ticket sales. Walmart and many other venders use the app to sell products. In fact, the app accounts for as much as </span></span><a href=""><span>30%</span></a><span><span> of all Walmart sales in China. A&nbsp;WeChat ban could cost corporate users significant revenues.</span></span></p> <p><span><span>A ban could also result in a&nbsp;</span></span><a href=""><span>30%</span></a><span><span> decline of iPhone sales. Many Chinese netizens have said that if they have to choose between iPhone and WeChat, they will ditch their iPhones in a&nbsp;heartbeat. </span></span></p> <p><span><span>According to a&nbsp;survey conducted by the American Chamber of Commerce in Shanghai, </span></span><a href=""><span>nine out of ten</span></a><span><span> companies forecast that the ban would have a&nbsp;negative impact on their business</span></span><span><span lang="DE" lang="DE"> in China,</span></span><span><span> with nearly half of them predicting a&nbsp;loss of revenue because of the ban. Furthermore, a&nbsp;WeChat ban could add more fuel to the already tense relations between the United States and China, making it more difficult for businesses to operate. So far, </span></span><a href=""><span>86%</span></a><span><span> of companies have reported a&nbsp;negative impact on their business&nbsp;with China as a&nbsp;result of the growing tensions. The situation will only get worse with a&nbsp;WeChat ban.<span> </span></span></span></p> <p><span><span>Clearly, the WeChat ban comes with huge costs, but are their offsetting benefits? How big a&nbsp;security risk is WeChat, and would a&nbsp;ban mitigate this risk? With an increasingly hostile geopolitical rivalry brewing, the U.S. government needs to look carefully at the cyber practices coming out of China. The Executive Order indicates that the ban will protect user data from the Chinese government and fight against China’s “disinformation campaigns</span></span><span><span lang="FR" lang="FR">.</span></span><span>” </span><span><span lang="FR" lang="FR">Will they do so?</span></span></p> <p><span>Despite a&nbsp;lack of direct evidence on this point, there have been concerns that WeChat would share data with the Chinese government<span>. If the administration is concerned about this with average citizens (as opposed to military personnel or other government employees, where special considerations apply), instead of banning the app, it could simply warn consumers of such risks and let the them choose whether to use the application. Individuals should have the freedom to decide the level of risk they are willing to take with regard to their personal information. It’s worth noting that the issues related to consumer data are much broader than WeChat. The Chinese government has other ways, such as through web tracking and datasets available on the </span></span><a href=""><span>Dark Web</span></a><span><span>, to obtain users’ information. A&nbsp;better way to protect consumer data, from not only the Chinese government but all governments, is to establish more general domestic and international rules on data protection and hold countries and companies accountable for violating these rules. </span></span></p> <p><span>The Executive Order also highlighted that a&nbsp;ban of the WeChat application will help to mitigate “disinformation campaigns.” As with user data, if the administration is concerned about campaign meddling, it is a&nbsp;much larger problem than WeChat and is happening on other platforms such as </span><a href=""><span>Facebook and Twitter</span></a><span> and through other means such as </span><a href=""><span>hacking</span></a><span>. Focusing on only one application is insufficient and could distract from other campaigns coming from </span><a href=""><span>other countries</span></a><span>.</span></p> <p><span>When foreign government try to collect data on American citizens and non‐​citizens living in America, for the purpose of manipulating them for political or other reasons, it is a&nbsp;serious issue. The U.S. government needs to get a&nbsp;handle on this problem immediately. <span>In the case of WeChat, however, any national security benefits of a&nbsp;total ban are outweighed by the disruptions to people’s personal lives and the potential economic losses for individuals and businesses that would likely materialize in the presence of a&nbsp;ban. There are real concerns related to WeChat, but more targeted actions like the Australians have taken make more sense. A&nbsp;total ban on WeChat simply goes too far.</span></span></p> Thu, 17 Sep 2020 09:49:54 -0400 Huan Zhu Time to Shut Down the DC Metro Rail Randal O&#039;Toole <p>Highway traffic in the Washington DC metro area returned to <a href="">80 percent</a> of its pre‐​pandemic levels in July, but DC transit carried only <a href="">16 percent</a> as many riders as it did in July 2019. Metro’s own surveys have found that most of its riders <a href="">don’t plan to return</a> until and unless an effective COVID vaccine is found.</p> <p>Given this, there is no better time to simply shut down the Metro rail system, thus saving taxpayers billions of dollars. Conceived with racist assumptions and faulty financial projections, the system has proved to be a&nbsp;financial and operational disaster. The region would do better rely more on cars and, in some places, buses.</p> <p>When the system was originally designed, planners knew it would cost more than buses so they planned to build lines only into white neighborhoods because they figured blacks wouldn’t be able to afford the fares. When blacks objected, a&nbsp;line built into black neighborhoods in Anacostia was followed by a&nbsp;concerted effort by the DC government to gentrify the neighborhoods, forcing many families out.</p> <p>As of 2018, the median income of DC‐​area transit commuters was more than $60,000 a&nbsp;year, which was 8&nbsp;percent more than that of all workers in the region. More DC transit commuters earn above $75,000 a&nbsp;year than earn less than $35,000 a&nbsp;year.</p> <p>Despite the high incomes of transit riders, fares don’t come close to covering the costs of running the system. As author Zachary Schrag documents in his book, <em><a href=";title=great%20society%20subway&amp;st=sr&amp;ac=qr">The </a></em><a href=";title=great%20society%20subway&amp;st=sr&amp;ac=qr"><em>Great Society Subway</em></a>, the original planners of the 103‐​mile rail system expected that fare revenues would cover 100 percent of operating costs and 80 percent of capital costs. As of 2018, fares covered barely half the operating costs and have paid for none of the capital costs, which turned out to be four times greater than anticipated.</p> <p>The federal and local governments dealt with high costs by having the federal government pay most of the capital costs while local governments paid most of the operating subsidies. What neither took into account was that rail systems must be completely rebuilt about every 30&nbsp;years. Metro’s staff warned as early as 2002 that the system would need billions for capital replacement over the next decade, but no one came up with the money.</p> <p>Instead of rehabilitating the system, Virginia and Maryland politicians demanded that the federal government fund construction of the Silver Line in Virginia and Purple Line in Maryland, which together cost nearly $10 billion. The Silver Line actually harmed the system as a&nbsp;whole because it shares tracks under the Potomac River with the Blue and Orange lines, which were running at capacity during rush hours. Adding Silver Line trains meant cutting Blue Line trains that were carrying more riders than the Silver Line trains.</p> <p>Meanwhile, the system decayed as predicted.&nbsp;In 2009, when the computerized signaling system that kept trains from crashing into one another failed, a&nbsp;<a href="">crash killed nine people</a>. Metro’s response to was to turn off the computers and let train operators, whose previous job had mainly been to open and close doors at the stations, drive the trains, resulting in jerky service and <a href=",_2009">more crashes</a>. When smoke in the tunnels from worn‐​out insulators killed a&nbsp;passenger in 2015, Metro’s response was to shut down its lines to inspect all of the insulators. But the fundamental problem of worn‐​out equipment remains, with at least two further <a href="">smoke incidents</a> in the last year alone.</p> <p>The National Transportation Safety Board’s report on the 2009 crash criticized Metro’s “lack of a&nbsp;safety culture.” More than a&nbsp;decade later, that hasn’t changed. A&nbsp;<a href="">safety audit</a> published last week by the <a href="">Washington Metrorail Safety Commission</a> found that the agency still did not have a&nbsp;safety culture.</p> <p>Metro often had rail operations employees working longer hours than specified by its own safety guidelines. It allowed employees to work with broken equipment and sometimes attempted “to manipulate safety event investigations that create unacceptable safety risks.” Metro, added the audit, was a “toxic culture workplace” that “includes racial and sexual comments, harassment, and other unprofessional behavior.”</p> <p>When Metro’s current CEO, Paul Wiedefeld, took the job in November 2015, he promised to improve the safety culture. Instead, he has been besieged by revenue and budgetary problems that were made worse by the coronavirus. Last week, Metro released a&nbsp;<a href="">budgetary report</a> to its board projecting that–despite having received nearly a&nbsp;billion dollars from the <a href="">CARES Act</a>–it would have to cut 39 bus lines, reduce service on all the rail lines, and make numerous other cuts just to finish its current fiscal year–and the agency has no idea how it will continue operating next year unless the federal government provides another bailout.</p> <p>All of these problems show that the region can’t afford to keep running the trains and will have to shut them down sooner or later. Given the few number of riders being carried at present, the best time to do so is now when it will cause the least disruption.&nbsp;</p> Wed, 16 Sep 2020 10:32:09 -0400 Randal O'Toole Minneapolis Won’t Let Riot‐​Battered Stores Install Security Shutters Walter Olson <p>In the destructive riots that hit Minneapolis this summer — riots I’ve argued libertarians <a href="">should be in the forefront</a> of condemning — <a href="">nearly 1,500 businesses</a> were heavily damaged or destroyed.</p> <p>For many of these businesses, the Minneapolis city government adds a&nbsp;special insult: it <a href="">won’t let shop owners</a> install exterior shutters to protect against break‐​ins, a&nbsp;common practice in other cities. The <a href="">Star‐​Tribune reported</a> on the resulting frustration:</p> <blockquote><p>In a&nbsp;report justifying the rule change, Minneapolis officials argued that external shutters “cause visual blight” and create the impression that an area is “unsafe” and “troublesome.”</p> <p>After looters crashed through his floor‐​to‐​ceiling windows and stole $1 million worth of booze in May, Chicago‐​Lake Liquors owner John Wolf wanted to protect himself from a&nbsp;repeat occurrence. … The [forbidden] investment [in security shutters] would not only prevent rioters from entering his store, it would protect his windows — which cost $50,000 to replace.</p> </blockquote> <p>It reminds me of the controversy I&nbsp;<a href="">wrote about in 2017</a>, in which the Philadelphia city council moved to ban the see‐​through partitions that many corner stores install in order to deter robberies, especially of the strong‐​arm variety.</p> <p>The councilwoman who sponsored that bill said that transparent partitions caused “indignity,” only happened in some neighborhoods, and “conditioned” children’s thinking in bad ways.</p> <p>Notice, as with the Minneapolis worries about security shutters and property values, that the objection is not to a&nbsp;neighborhood’s <em>being</em> physically dangerous, as to the display of visible cues that might <em>alert</em> people to that fact. Make the visible cues go away!</p> <p>Both cities’ measures show a&nbsp;contempt for the natural human right of self‐​defense. Some expect us to pool this right with our neighbors collectively and vest it in the authorities — even though these same authorities in practice take no legal responsibility for defending us.</p> <p>Compare: gun control advocates often argue that law‐​abiding individuals must not be left with the means of self‐​defense because when guns are widely distributed, there will inevitably be some instances of misuse or accident that harm innocents.</p> <p>However strong or weak you see that argument as being, it’s absent here. Metal shutters on store fronts don’t misfire and hurt anyone by accident. Acrylic partitions in sandwich shops aren’t something criminals might steal and use in later crimes.</p> <p>Bans like the ones in Minneapolis and Philadelphia make the logic starker and clearer than usual: we, the authorities, hold your interest in self‐​defense, no matter how peaceful and passive the means, to be of so little worth that we will let even street aesthetics and concerns about neighborhood image&nbsp;<a href="">override it</a>.</p> <p>The primary task of government is that of protecting individual rights. Cities like these are failing at that task.</p> Tue, 15 Sep 2020 15:24:35 -0400 Walter Olson Balancing Tradeoffs between Liberties and Lives Jeffrey Miron, Peter Van Doren <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p><strong>Policymakers and the public should recognize that</strong></p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <ul> <li>the public health response to a&nbsp;pandemic requires tradeoffs: evaluating how much a&nbsp;society should be willing to pay to mitigate death and suffering caused by the disease;</li> <li>cost‐​benefit analysis is a&nbsp;rational framework for evaluating those tradeoffs;</li> <li>such analysis involves ascribing a&nbsp;dollar value for each statistical life saved by government policies, derived with reference to how much workers are willing to pay in labor markets to avoid mortality risks;</li> <li>policies that save lives have economic costs and that these policies reduce nonmarket liberties, an effect that is likely significant in magnitude; and</li> <li>current evidence suggests that voluntary social distancing has a&nbsp;much larger impact than policy on both disease transmission and economic outcomes.</li> </ul> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p><a href="">twitter #CatoCOVID</a></p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standard"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>In response to the COVID-19 pandemic, governments have imposed social distancing policies such as school closures, bans on public gatherings, mask requirements, and lockdowns of “nonessential” businesses. These policies plausibly save lives, but they also impose economic and noneconomic costs. Society therefore faces a&nbsp;tradeoff between greater health versus higher gross domestic product (GDP) and greater freedom in choosing how much, and what kind of, social distancing policies to impose.</p> <p>Cost‐​benefit analysis provides a&nbsp;useful framework for thinking about these tradeoffs but does not always provide definitive answers because of uncertainty about key magnitudes and the difficulty of assigning dollar values to some effects of policies. However, cost‐​benefit analysis allows integration of both economic and noneconomic effects in a&nbsp;single analysis, and it often provides suggestive bounds on what kinds of policies might be reasonable.</p> </div> , <h2 class="heading"> Cost‐​Benefit Analysis and the Value of Human Life </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>A key challenge for a&nbsp;cost‐​benefit analysis of COVID-19 policies is that the main benefit of such policies is most easily measured in the number and length of lives saved rather than in dollars. Thus, to compare benefits with costs, any analysis must assign a&nbsp;dollar value to life.</p> <p>Putting a&nbsp;dollar figure on the value of saved lives generates controversy. Major U.S. automobile companies undertook detailed economic analyses of tradeoffs between the <a href="">costs and risks</a> associated with automobile design. This came to light during the civil trial regarding the design of the Ford Pinto gas tank that was involved in a&nbsp;fatal accident in 1972. Frank assessments of the risks and costs of different design possibilities led companies that conducted such analyses to be vilified in the press and penalized by juries for undertaking such safety analyses. The Occupational Safety and Health Administration (OSHA) in the 1980s also claimed that life was too <a href="">sacred to value</a>.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Despite assertions that “one cannot put a&nbsp;price tag on life,” many decisions by individuals implicitly accept a&nbsp;tradeoff between longer life and other goals.</p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Despite assertions that “one cannot put a&nbsp;price tag on life,” many decisions by individuals implicitly accept a&nbsp;tradeoff between longer life and other goals. People routinely drive on the highway, ride in airplanes, climb mountains, or work in coal mines, each of which has a&nbsp;non‐​zero fatality risk. They do so because they consider the benefits of these activities to be greater than the costs imposed by the fatality risks.</p> <p>Policy decisions involve similar tradeoffs. The Food and Drug Administration could insist that trials of new medications last longer and enroll more subjects, thereby reducing the risk of approving a&nbsp;drug with adverse side effects. But that would increase costs and delay the use of new drugs. Safety standards for seat belts or air bags could be stricter, but the resulting automobile prices would be higher. Lower speed limits would reduce the number of fatal accidents but also result in longer travel times.</p> <p>Thus, public and private decisions accept a&nbsp;tradeoff between lives and higher incomes, increased leisure time, and liberty more broadly. The question is how to choose a&nbsp;specific dollar figure for the value of life that, combined with estimates of the costs of particular polices, can help determine which pandemic policies are valuable on net.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption responsive-embed-no-margin-wrapper"> <div class="figure__media"> <div class="bg--sand p-3 shadow-sm"> <div class="field field--name-acast-player field--type-acast-player field--label-hidden field__item"> </div> <div class="text-sans-alternate mt-2 medium"> <div class="d-flex flex-column flex-sm-row"> <a class="d-block" href="" target="_blank">Download Episode</a> <div class="acast-player__services"> <span class="d-none d-sm-inline ml-sm-1">|</span> <span class="d-block d-sm-inline">Listen on:</span> <a href="" target="_blank">Spotify</a> &bull; <a href="" target="_blank">Apple Podcasts</a> &bull; <a href="" target="_blank">Google Play</a> </div> </div> </div> </div> </div> </figure> , <h2 class="heading"> The Value of a (Statistical) Life </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>To determine how much people value reductions in the risk of death, economists use decisions observed in labor markets in which individuals accept additional mortality risk in return for higher compensation. Coal miners and construction workers, for example, are paid more than others with similar skills because they face a&nbsp;higher statistical risk of death on the job.</p> <p>When the value of a&nbsp;statistical life (VSL) is calculated from labor market data, the wage in an industry is the dependent variable in a&nbsp;statistical analysis. The explanatory variables include measures of skill, geographic location, and other causes of wage differences. The important variable for VSL calculation purposes is the fatality rate in the occupation. The coefficient on the fatality rate is an estimate of extra compensation required for the average employee for the annual increased fatality risk, controlling for the other causes of wage differentials. If the extra compensation is $1,000 and the annual fatality risk is 1&nbsp;in 10,000, then among 10,000 workers there will be one statistical life lost, and the annual extra total compensation required will be $10 million (10,000 workers x $1,000 extra for each worker). A&nbsp;recent estimate of VSL is $9 million (2016 dollars), or about $10 million in 2020, which implies that policies that reduce mortality risk are acceptable if the <a href="">cost per statistical life</a> saved is $10 million or less.</p> </div> , <div class="clearfix p-mb-last-child-0 block--standout bg--standout block spacer--standard p-half-gutter"> <h4 class="block__title heading">related content</h4> <div class="block--inner"> <h3 class="heading"><a href="/blog/value-living"> The Value of Living </a></h3> </div> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Regulatory economists use VSL to evaluate <a href="">health and safety</a> policies. Some interventions, such as rules mandating that lighters be childproof, only cost $100,000 per statistical life saved and are thus highly cost‐​effective, while OSHA regulations regarding formaldehyde exposure in the workplace cost $78 billion per statistical life saved, more than 1,000 times greater than any VSL estimate.</p> </div> , <h2 class="heading"> Modifications of the Standard VSL </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Although the VSL methodology relies on observed decisions in a&nbsp;real‐​world setting, and even though its numerical estimates are widely used in practice, should modifications occur for its use in a&nbsp;pandemic?</p> <p>One argument that they should is that the COVID-19 risk is greater than the labor market risk on which standard VSL estimates are based. The VSL, as calculated from labor market studies, is the average payment required to induce acceptance of the annual <a href="">increased fatality risk</a> observed in the labor market, which ranges from 0.06/10,000 for administrative support occupations to 2.35/10,000 for transportation and material moving occupations to 2.46/10,000 for mining.</p> <p>Notice that the upper end of that range is still only an annual fatality risk of 0.02 percent. Given that the <a href="">infection fatality rate</a> for the coronavirus is estimated to be more than 10 times (0.6<span>–</span>1 percent) the upper end of the labor market fatality rate, would the payment required to induce acceptance of such a&nbsp;risk be higher, lower, or the same as the current VSL of $10 million?</p> <p>Extrapolations of VSL to <a href="">larger risks</a> conclude that the <em>incremental</em> payment required <em>decreases</em> as incremental risk <em>increases</em>, according to a&nbsp;May 2020 paper by James Hammitt, a&nbsp;prominent developer of VSL. An individual is willing to “pay” $990 (rounded to $1,000&nbsp;in our earlier introductory example) by accepting lower wages to avoid a&nbsp;current‐​year mortality risk of 1&nbsp;in 10,000 but $9,210 to avoid a&nbsp;current‐​year mortality risk of 1&nbsp;in 1,000 (instead of the linear extrapolation of $990 multiplied by 10, which would be $9,900). Ten times the risk avoidance requires slightly less than a&nbsp;10‐​fold increase in payment. To avoid an annual mortality risk of 1&nbsp;in 100, individuals pay $48,600 (instead of the linear extrapolation of $990 multiplied by 100, which would be $99,000). Individuals would pay less than 50 times the amount that they would pay to avoid a&nbsp;100‐​fold higher risk.</p> <p>Given that the coronavirus infection fatality rate is estimated to be less than 1&nbsp;percent, or 100 times the highest fatality rate in labor market data, the simple linear extrapolation of the normal VSL is too large. A&nbsp;more appropriate VSL would be around $5 million rather than $10 million, based on the logic above (the $48,600 payment required for inducing consent for an annual fatality risk of 1&nbsp;percent multiplied by the 100 workers that would receive it). COVID-19 risk is also greater for the elderly. In 44,000 confirmed cases of COVID-19&nbsp;in China, the case fatality rate was highest among older persons: 14.8 percent for people age 80 or older; 8&nbsp;percent for ages 70–79; 3.6 percent for 60–69; 1.3 percent for 50–59; 0.4 percent for 40–49; and 0.2 percent for people under age 40. In early <a href="">U.S. epidemiologic data</a>, case fatality rates were similar.</p> <p>Estimates of how VSL changes with age are limited to those who work, and most elderly do not work. The estimates of the ratio of VSL at age 40 to age 65 range from 1&nbsp;to 2, meaning younger workers demand up to twice as much money to accept a&nbsp;given risk. Simulation models provide estimates of the VSL 40:70 ratio of anywhere from 2&nbsp;to over 10. That is, the VSL at age 70 is only one‐​half to one‐​tenth of the standard VSL. Surveys that ask people of varying ages how much they would demand to be compensated for higher risks find inconsistent results. About half of the surveys estimate that VSL decreases with age, and the other half found no change or a&nbsp;larger VSL for the elderly. Hammitt concluded that “while it is plausible that VSL is smaller at older than at middle ages, neither standard models nor empirical evidence provide convincing evidence about the magnitude of the effect.”</p> <p>Moreover, VSL increases with income. Thus, because of the lower income during the pandemic due to voluntary and government‐​imposed business declines and closures, “the appropriate VSL for evaluating responses to COVID-19 and other current hazards may be smaller than the value that was appropriate before the pandemic.” But the correct VSL is lower only if long‐​run income is expected to be lower. Transient reductions in income have little effect on the appropriate VSL.</p> <p>Finally, in traditional analyses of health and safety regulation using VSL, such as the previously mentioned lighter and formaldehyde rules, the cost estimates include only compliance costs: the extra material and labor costs involved in complying with the rule. The cost estimates do not include any other reasons that consumers might oppose the regulation, or any broader costs more generally (such as long‐​run, unintended effects of new government policies).</p> <p>In most traditional health and safety regulatory contexts, that omission is probably not empirically important: the airbag container makes the steering wheel less attractive for some, perhaps, but the effect is tiny. In other traditional regulatory contexts, the omission is more important but ignored: childproof caps on over‐​the‐​counter and prescription medicines are annoying for many people and especially difficult for the elderly, but most compliance cost analyses ignore such effects.</p> <p>In the forced reduction of social interaction during the COVID-19 pandemic, many costs, beyond lost income, are likely important: the cost of missing your last chance to see Grandad before he dies alone, the costs to mental and physical health of isolation, the cost of lost time for single people to meet a&nbsp;partner in the right window of life, the cost of missing travel opportunities, or the cost of acquiring new skills or talents that require leaving the home. In economic terms, these might be dubbed the broader costs of restrictions on our nonmarket liberties, or the decline in productivity of our leisure time. If they were monetized and added to any analysis assessing lockdowns, then the cost‐​effectiveness of restrictions would be much reduced.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>A potentially important component of the cost estimate of lockdowns should consist of the monetary value of the loss of freedom to move and interact as we normally do&nbsp;in addition to the actual lost income from reduced market activity.</p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Our key point is this: a&nbsp;potentially important component of the cost estimate of lockdowns should consist of the monetary value of the loss of freedom to move and interact as we normally do&nbsp;in addition to the actual lost income from reduced market activity. Thus, the appropriate (cost‐​effective) policy‐​induced reduction in economic activity would likely be significantly smaller than currently estimated as cost‐​effective by many economists.</p> <p>To recap, the COVID-19 fatality rate is estimated to be 100 times the highest fatality rate in labor market data, thus the normal VSL ($10 million) is too large. A&nbsp;more appropriate VSL is around $5 million. Evidence for the necessity of modification of VSL for age and income is varied and inconclusive. We believe that loss of liberty matters but have no actual dollar estimate to add to the measured losses of income from pandemic policy restrictions.</p> </div> , <h2 class="heading"> Cost‐​Benefit Analysis </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Now that we have a&nbsp;price (VSL) to value the benefits of policies that reduce social interaction (i.e., saved lives), we need estimates of the quantity (i.e., lives lost in the absence of such policies). <a href="">University of Chicago economists</a> Michael Greenstone and Vishan Nigam estimate that, relative to no private or government response, 1.76 million lives could be saved through October 1&nbsp;by the implementation of various isolation measures that are less severe than those that were used for much of the country. (The suite of less restrictive measures that they examine includes 7‐​day isolation for anyone showing coronavirus symptoms, a&nbsp;14‐​day voluntary quarantine for their entire household, and dramatically reduced social contact for those over 70&nbsp;years of age <em>but no mandatory business closures or stay‐​at‐​home orders.</em>)</p> <p>MIT economist <a href="">Robert Pindyck estimates</a> that moderate social distancing policies (similar to those considered by Greenstone and Nigam) would save about 1&nbsp;million lives and that strict social distancing would save 3&nbsp;million if the fatality rate were 1&nbsp;percent.</p> <p>Using age‐​varying estimates of a&nbsp;statistical life (VSL for those under age 9&nbsp;is $14.7 million, while VSL for those over age 79 is $1.5 million), Greenstone and Nigam estimate the benefits of moderate social distancing policies at slightly less than $8 trillion. The constant $5 million VSL that follows from our analysis implies benefits of $8.8 trillion ($5 million VSL x&nbsp;1.76 million lives saved). Pindyck’s estimates of 1&nbsp;million and 3&nbsp;million lives saved imply benefits of $5 trillion and $15 trillion, respectively, using our constant $5 million VSL estimate.</p> <p>In 2019, U.S. GDP was $21.4 trillion. The benefits from <em>moderate</em> social distancing ($5 trillion to $8.8 trillion) are thus estimated to range from 23 to 41 percent of annual national income. The estimated benefits from Pindyck’s <em>strict</em> social distancing scenario ($15 trillion) are 70 percent of GDP. For comparison, from 1929 through 1933 during the Great Depression, real U.S. GDP fell 29 percent over the four years.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption responsive-embed-no-margin-wrapper"> <div class="figure__media"> <div class="bg--sand p-3 shadow-sm"> <div class="field field--name-acast-player field--type-acast-player field--label-hidden field__item"> </div> <div class="text-sans-alternate mt-2 medium"> <div class="d-flex flex-column flex-sm-row"> <a class="d-block" href="" target="_blank">Download Episode</a> <div class="acast-player__services"> <span class="d-none d-sm-inline ml-sm-1">|</span> <span class="d-block d-sm-inline">Listen on:</span> <a href="" target="_blank">Apple Podcasts</a> </div> </div> </div> </div> </div> </figure> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>The conclusion that some draw from this analysis is that a&nbsp;policy‐​induced reduction of national income equal to or much greater than the Great Depression would be cost‐​effective if the estimate of lives saved (between 1&nbsp;million and 3&nbsp;million) relative to nonintervention were correct.</p> <p>This conclusion, however, has two major deficiencies. If the nonmarket costs of lockdowns are significant, then the market loss we should be willing to accept from lockdowns is correspondingly smaller. Valuing the nonmarket costs is difficult, but introspection suggests that these might be substantial: people routinely expend substantial time and effort to protect their leisure time or other nonmarket freedoms such as choice of religion, spouse, occupation, or country.</p> <p>A second deficiency is that prominent economists have been skeptical of existing cost‐​benefit analyses of lockdowns. Hammitt said, “While it is conceivable a&nbsp;household with wealth of $60,000 [median wealth is about $95,000 and only $30,000 excluding home equity; median income is about $60,000] might be able to spend $9,000 to reduce current mortality risk by 1/1,000, spending $48,000 to eliminate the 1/100 risk seems implausible.” Even accounting for “human wealth” (the present value of future income), this still implies a&nbsp;large payment relative to resources.</p> <p>Pindyck notes that in 2018, the total net wealth of U.S. households was $98 trillion, about $300,000 per person, quite a&nbsp;bit less than VSL. He suggests, “We could also look at what societies actually spend to save large numbers of lives. For example, the U.K. National Health Service (NHS) limits what they will pay for a&nbsp;given treatment by using a ‘Quality Adjusted Value of a&nbsp;Statistical Life Year’ of about $38,000, which translates to a&nbsp;VSL of around $1 million.” Given Pindyck’s estimate of 3&nbsp;million lives saved from strict social distancing policies, his VSL would result in $3 trillion in benefits, or only 14 percent of GDP.</p> <p>Another caveat to existing analyses is that they attribute both saved lives and economic disruption to policies. But voluntary <a href="">social distancing</a> seems to have caused much of the reduction in virus transmission and much of the economic loss. Restaurants and airlines lost customers well before lockdowns, and professional sports leagues canceled their schedules even before bans on large events. The crucial question for policy is any differential impact of policy on benefits versus the costs, which at this point is difficult to pin down.</p> </div> , <div class="clearfix p-mb-last-child-0 block--standout bg--standout block spacer--standard p-half-gutter"> <h4 class="block__title heading">related content</h4> <div class="block--inner"> <h3 class="heading"><a href="/blog/our-liberties-have-value-too"> Our Liberties Have Value Too </a></h3> </div> </div> , <h2 class="heading"> Conclusion </h2> , <div class="tombstone mb-3 spacer--nomargin--last-child text-default"> <p>The essential insight of economic analysis is that there are tradeoffs. In the context of a&nbsp;pandemic, economic analysis is an attempt to find the sweet spot: the amount of reduction in economic interaction that saves enough lives to justify the cost. The costs of reduced economic activity can be calculated through GDP data. But we argue that other costs should be added to this figure because of lost freedom and liberty.</p> <p>The benefits of lives saved from reduced economic interaction require us to ascribe a&nbsp;dollar value to lives, extrapolated as best we can from how people appear to value theirs, so that we can compare the tradeoffs. The current VSL ($10 million) is probably too high because the coronavirus fatality rate is estimated to be 100 times the highest fatality rate in labor market data used to estimate VSL. Thus, a&nbsp;more appropriate VSL is around $5 million. Evidence for the necessity of modification of VSL for age and income is more varied and inconclusive.</p> <p>Estimates of fatalities from moderate social distancing policies suggest 1–2 million lives saved in the United States, implying $5–9 trillion in benefits. The problem with such a&nbsp;cost‐​benefit calculation is that spending a&nbsp;quarter to over 40 percent of national income on coronavirus avoidance seems implausible even to researchers who have spent decades developing VSL as a&nbsp;tool to facilitate such analyses.</p> </div> Tue, 15 Sep 2020 02:00:00 -0400 Jeffrey Miron, Peter Van Doren When and How We Should “Trust the Science” Peter Van Doren <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p><strong>Public health officials should</strong></p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <ul> <li>communicate that policy decisions by their very nature cannot be made solely on the basis of scientific evidence; they will always involve normative questions and tradeoffs of values;</li> <li>communicate that the “science” is rarely so clear that the wise policy decision is self‐​recommending and that even when science is clear and decisions seem straightforward, scientific knowledge can change because of new evidence; and</li> <li>communicate that the first two points are especially true with the COVID-19 pandemic, given how little we know and how much of the evidence is in flux.</li> </ul> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p><a href="">twitter #CatoCOVID</a></p> </div> , <div class="paragraph paragraph--type-horizontal-rule paragraph--view-mode-default ds-1col clearfix"> <div class="block-horizontal-rule-blocks block-horizontal-rule-blocks-short block- block"> <div class="block--inner"> <div class="spacer--standard"> <hr class="w-50" /> </div> </div> </div> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>In medical and environmental policy, scientists play prominent roles in decisions. Agencies such as the U.S. Department of Health and Human Services and the Environmental Protection Agency have <a href="">scientific advisory councils</a> that review the relevant scientific literature and advise policy decisionmakers about pollution exposure standards and pharmaceutical and medical device safety. When the decisions of governmental officials do not follow <a href="">scientific recommendations</a>, critical news coverage follows. The implication is that “science” is sufficient for policy decisions and that “politics” should not play a&nbsp;role.</p> <p>The discussion about science and politics is occurring during the COVID-19 pandemic. A&nbsp;recent <em>New Yorker</em> article lauded <a href="">Iceland’s response</a> to the pandemic because the prime minister deferred to scientists in her decisions: “It was very clear from the beginning that this was something that should be led by experts—by scientific and medical experts.” In the United States, 57 former scientists and public health officials issued a&nbsp;statement calling for a&nbsp;<a href="">science‐​based approach</a> to the pandemic. The signatories said, “Sidelining science has already cost lives, imperiled the safety of our loved ones, compromised our ability to safely reopen our businesses, schools, and places of worship, and endangered the health of our democracy itself.”</p> </div> , <div class="clearfix p-mb-last-child-0 block--standout bg--standout block spacer--standard p-half-gutter"> <h4 class="block__title heading">related content</h4> <div class="block--inner"> <h3 class="heading"><a href="/publications/commentary/americans-have-always-politicized-public-health"> Americans Have Always Politicized Public Health </a></h3> </div> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>But scientific findings, by themselves, are rarely sufficient for individual or policy decisions. Such findings can tell us about the causes of outcomes <em>but nothing more</em>. The question of how we should evaluate those outcomes in our own decisionmaking requires other considerations, such as costs, benefits, and philosophical or religious values. And the relative importance of those considerations will vary across individuals. Finally, aggregating those individual differences into collective policy decisions involves even further nonscientific choices about the relative importance of different individual preferences about outcomes. So even under the best circumstances, policy decisions involve more than science, and in the case of COVID-19, our scientific knowledge is very limited.</p> </div> , <h2 class="heading"> Even Science Is Not Just Science </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>What is science? <a href="">Science is</a> an ongoing discussion about the testing of hypotheses of cause and effect through experiments and comparison with the possibility that random variation produced the same outcome.</p> <p>Researchers can be either too cautious or too cavalier about concluding that the results of inquiry reflect real cause and effect rather than random variation. Confidence that results reflect real cause and effect increases with replication by other experimenters and the magnitude of the result relative to the number of data points under study.</p> <p>How cavalier or cautious should scientists be about their results? Ironically and importantly there is <a href="">no scientific answer</a> to this question. Instead there are only adopted conventions. Scientists are usually reluctant to say a&nbsp;result is “real” rather than the result of normal variation around zero effect unless they are 95 percent confident that the result did not arise simply because random variation happened to produce an outcome that appears to be a “real effect.” But even if a&nbsp;scientist is 95 percent confident, 5&nbsp;percent of the time the observed result arises simply through sampling variation rather than a “real” effect. And 95 percent confidence is a&nbsp;convention.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption responsive-embed-no-margin-wrapper"> <div class="figure__media"> <div class="bg--sand p-3 shadow-sm"> <div class="field field--name-acast-player field--type-acast-player field--label-hidden field__item"> </div> <div class="text-sans-alternate mt-2 medium"> <div class="d-flex flex-column flex-sm-row"> <a class="d-block" href="" target="_blank">Download Episode</a> <div class="acast-player__services"> <span class="d-none d-sm-inline ml-sm-1">|</span> <span class="d-block d-sm-inline">Listen on:</span> <a href="" target="_blank">Spotify</a> &bull; <a href="" target="_blank">Apple Podcasts</a> &bull; <a href="" target="_blank">Google Play</a> </div> </div> </div> </div> </div> </figure> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>How confident one should be in hypothesis testing is a&nbsp;value choice and not scientifically determined. Experimental physicists, for example, take the concern for avoiding “false positive” results to the extreme. They use what is referred to as the <a href="">five‐​sigma rule</a>, which allows a&nbsp;result to be considered “real” only if the probability of a&nbsp;false positive result is less than 1-in-3.5 million, which translates to 99.99997 percent confident. If medical science adhered to such a&nbsp;rule, there would be no accepted results.</p> <p>Regardless of the false‐​positive acceptance rate a&nbsp;researcher chooses, the number of observations dictates our ability to differentiate a&nbsp;small result from no result. In the context of any medical treatment, including vaccines or antiviral medication for COVID-19, our ability to declare the treatment “safe” after clinical trial results depends on the number of subjects in the trial (as well as representativeness of the participants). Side effects that affect only small percentages of the population will manifest themselves with 95 percent confidence only after the medication is widely used because clinical trials have thousands rather than millions of participants.</p> <p>Table 1&nbsp;shows how much larger (in percentage) that the harmful effect of a&nbsp;medication or vaccine would have to be in the experimental group relative to the control group to allow us to state with 95 percent confidence that the negative effect is the result of the medication rather than random variation. If scientists or policymakers wanted to ensure that the negative side effects of a&nbsp;vaccine affected only 0.1 percent of those who received it, the trial would require 2.9 million people. While 0.1 percent might seem small, 0.1 percent of the U.S. population is 330,000 people. Thus, a&nbsp;vaccine trial with almost 3&nbsp;million people that passed a&nbsp;clinical trial test with 95 percent confidence would not preclude the possibility that universal administration of the vaccine would have negative side effects on 330,000 people. Whether that is acceptable is not a&nbsp;scientific question.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption responsive-embed-no-margin-wrapper"> <div class="figure__media"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="379e28e0-8548-4599-9805-9808393a84f4" data-type="interactive" data-title="Science/Scientism Side Effect Detection Threshold in Percent"></div>!function(e,i,n,s){var t="InfogramEmbeds",d=e.getElementsByTagName("script")[0];if(window[t]&amp;&amp;window[t].initialized)window[t].process&amp;&amp;window[t].process();else if(!e.getElementById(n)){var o=e.createElement("script");o.async=1,,o.src="",d.parentNode.insertBefore(o,d)}}(document,0,"infogram-async"); </div> </div> </figure> , <h2 class="heading"> Sometimes Science Is Much More Than Science </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Scientists occasionally interject values into their recommendations—not in the pervasive, subtle, and unavoidable manner previously described but in obviously avoidable ways that undermine their role as neutral providers of information. A&nbsp;prominent example occurred when 1,300 public health officials signed a&nbsp;May 30, 2020, letter of support for the public protests in the wake of the May 25 death of George Floyd in police custody in Minneapolis. But the same officials had earlier condemned public protests against mandatory business closures.</p> <p>Why the difference? A&nbsp;<a href=""><em>New York Times</em> article</a> asked, “Was public health advice in a&nbsp;pandemic dependent on whether people approved of the mass gathering in question?” According to the article, “To many, the answer seemed to be ‘yes.’” Mark Lurie, a&nbsp;professor of epidemiology at Brown University said, “Instinctively, many of us in public health feel a&nbsp;strong desire to act against accumulated generations of racial injustice. But we have to be honest: A&nbsp;few weeks before, we were criticizing protesters for arguing to open up the economy and saying that was dangerous behavior. I&nbsp;am still grappling with that.”</p> <p>To his credit, Lurie recognized the failure to separate his role as a&nbsp;scientist from his role as a&nbsp;citizen with views about public policy after he took his daughter to a&nbsp;protest early in June. “We felt afterward that the risk we incurred probably exceeded the entire risk in the previous two months,” he said. “We undid some very hard work, and I&nbsp;don’t see how actions like that can help in battling this epidemic, honestly.”</p> <p>Luckily, it appears little damage was done by this crossing of the boundaries between science and politics. A&nbsp;recent paper using cellphone tracking data shows that <a href="">cities with protests</a> saw increased social distancing compared to cities that did not have protests—presumably because nonprotestors changed their behavior. And net COVID-19 case growth did not differentially increase in those cities that experienced protests.</p> </div> , <h2 class="heading"> Some Scientific Results Lead Easily to Decisions </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Though by itself “science” cannot dictate our personal or policy choices, in some cases the information it provides can make those choices rather clear with few additional considerations. If the benefits or harms of a&nbsp;medical decision (such as taking a&nbsp;medicine or vaccine) are large and discontinuous (an abrupt change in outcome with respect to exposure or dose), even with the confidence‐​interval and sample‐​size qualifications previously described, then “science” leads fairly easily to decisions. If the harm from a&nbsp;medication or vaccine increases abruptly with the dose and the benefits do not decrease abruptly below that dose, then the appropriate dose is below the threshold at which side effects appear.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption responsive-embed-no-margin-wrapper"> <div class="figure__media"> <div class="bg--sand p-3 shadow-sm"> <div class="field field--name-acast-player field--type-acast-player field--label-hidden field__item"> </div> <div class="text-sans-alternate mt-2 medium"> <div class="d-flex flex-column flex-sm-row"> <a class="d-block" href="" target="_blank">Download Episode</a> <div class="acast-player__services"> <span class="d-none d-sm-inline ml-sm-1">|</span> <span class="d-block d-sm-inline">Listen on:</span> <a href="" target="_blank">Spotify</a> &bull; <a href="" target="_blank">Apple Podcasts</a> &bull; <a href="" target="_blank">Google Play</a> </div> </div> </div> </div> </div> </figure> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>In the COVID-19 pandemic, the wearing of masks seemed initially to fall into the category of decisions that follow simply and directly from the science. The problem is that new evidence led scientists to change their understanding of viral transmission. At the start of 2020, scientists thought that <a href="">coronavirus transmission</a> occurred only from people exhibiting symptoms, such as its genetic cousin Severe Acute Respiratory Syndrome (SARS) does. Thus, general mask wearing was a&nbsp;waste of resources and reduced those supplies available to those dealing with active infections. Hence, the early universal public health advice was not to wear masks.</p> <p>But evidence accumulated that asymptomatic <a href="">COVID-19 transmission</a> was real and large; 35–60 percent of infections cause no symptoms. Thus, the advice to stay home if you’re sick may have been insufficient. More aggressive measures, such as ordering healthy people to wear masks, may have been necessary.</p> <p>The transition from masks are not required and not helpful to masks are required and you are irresponsible if you do not wear one was not easy even for scientists. European public health scientists resisted the claims of asymptomatic transmission. As the <em>New York Times</em> reported:</p> </div> , <blockquote class="blockquote"> <div> <p>Sweden’s public health agency declared that [the original journal article reporting asymptomatic transmission] had contained major errors. The agency’s website said, unequivocally, that “there is no evidence that people are infectious during the incubation period”—an assertion that would remain online in some form for months. French health officials, too, left no room for debate: “A person is contagious only when symptoms appear,” a&nbsp;government flyer read. “No symptoms = no risk of being contagious.”</p> </div> </blockquote> <cite> </cite> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Science is always a&nbsp;conversation about current knowledge and new results.</p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Science is always a&nbsp;conversation about current knowledge and new results. And science is by its nature conservative in that it worries greatly about accepting new or unusual results because they may be the result of random error or mistakes. But sometimes that conservatism is wrong. And that appears to have been the case with asymptomatic coronavirus transmission and the utility of generalized mask wearing. Researchers have not conducted trials, but when <a href="">people wore masks</a> in a&nbsp;seafood plant and on a&nbsp;cruise ship, the proportion of severe cases decreased dramatically, reducing hospitalizations and deaths.</p> <p>All nonscientists have noticed, however, that the surgeon general of the United States has dramatically reversed course. In late February <a href="">he tweeted</a>, “Seriously people‐ STOP BUYING MASKS! They are NOT effective in preventing general public from catching #Coronavirus, but if healthcare providers can’t get them to care for sick patients, it puts them and our communities at risk!” By early July he told <a href="">NBC’s Today</a>, “As we talk about Fourth of July and independence, it’s important to understand that if we all wear these, we will actually have more independence and more freedom because more places will be able to stay open. We’ll have less spread of the disease.”</p> <p>This reversal, along with the contradictory advice of epidemiologists toward demonstrations, has left many people skeptical of experts and expertise.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption responsive-embed-no-margin-wrapper"> <div class="figure__media"> <div class="bg--sand p-3 shadow-sm"> <div class="field field--name-acast-player field--type-acast-player field--label-hidden field__item"> </div> <div class="text-sans-alternate mt-2 medium"> <div class="d-flex flex-column flex-sm-row"> <a class="d-block" href="" target="_blank">Download Episode</a> <div class="acast-player__services"> <span class="d-none d-sm-inline ml-sm-1">|</span> <span class="d-block d-sm-inline">Listen on:</span> <a href="" target="_blank">Spotify</a> &bull; <a href="" target="_blank">Apple Podcasts</a> &bull; <a href="" target="_blank">Google Play</a> </div> </div> </div> </div> </div> </figure> , <h2 class="heading"> Considerations Other Than Scientific Results </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Absent an abrupt change in benefits or harms, recommended behaviors do not depend on the science alone; other considerations and their importance are relevant, including economic costs and benefits as well as religious or philosophical values. Policy disagreements are largely about the differing weight that people assign to these other considerations. Science does not tell us how to weigh incrementally increased risk of COVID-19 transmission against other values, such as freedom to operate a&nbsp;business or pursue one’s livelihood. This statement doesn’t refer only to the daily fight between supporters and opponents of President Trump regarding the value of returning to a “normal” economy. John Jenkins, president of the University of Notre Dame, made an argument about the role of values in the context of deciding to <a href="">reopen the university</a> during the COVID-19 pandemic.</p> </div> , <blockquote class="blockquote"> <div> <p>If we gave the first principle [to protect the health of our students, faculty, staff and their loved ones] absolute priority, our decision about reopening would be easy. We would keep everyone away until an effective vaccine was universally available.</p> <p>However, were we to take that course, we would risk failing to provide the next generation of leaders the education they need and to do the research and scholarship so valuable to our society. How ought these competing risks be weighed? No science, simply as science, can answer that question. It is a&nbsp;moral question in which principles to which we are committed are in tension.</p> </div> </blockquote> <cite> </cite> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Even under the best of circumstances, “science” can lead easily to policy choices only if the relevant research results are large and discontinuous and if there are no other competing considerations. In all other circumstances, decisions follow from “science” only with the addition of values that allow us to assess the relative importance of outcomes. And because individuals weigh these other considerations differently, collective choices involve conflict about how to aggregate individual differences in the evaluation of those outcomes.</p> </div> , <h2 class="heading"> Knowledge about Infectious Respiratory Diseases Is Limited </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>The use of “science” as a&nbsp;guide to COVID-19 policy is even more complicated because our <a href="">scientific knowledge</a> about infectious respiratory diseases is limited. The data analytic site <a href=""><em>FiveThirtyEight</em> put it</a> more bluntly: “Why It’s So Freaking Hard to Make a&nbsp;Good COVID-19 Model.” In the 1918 influenza outbreak, why did the spring wave go away, and why did it come back in the fall? Michael Osterholm, an epidemiologist at the University of Minnesota, says, “We don’t know.” In 2003, the World Health Organization (WHO) feared that SARS would return in a&nbsp;devastating wave that fall, but instead it was extinguished. In 2009, experts worried that the H1N1 flu would be severe, but it was not. “You’ve got to have a&nbsp;lot of humility with these viruses,” Osterholm said. “I know less about viruses than I&nbsp;did 10&nbsp;years ago.”</p> <p><a href="">Dr. Peter Piot</a>, the director of the London School of Hygiene and Tropical Medicine, is a&nbsp;legend in the battles against Ebola and AIDS. But he misjudged the coronavirus, “I underestimated this one—how fast it would spread. My mistake was to think it was like SARS, which was pretty limited in scope. Or that it was like influenza. But it’s neither.” If he didn’t know how to react to the coronavirus in real time, who would?</p> <p>On February 20, when the <a href="">WHO was reporting</a> the existence of 79,748 cases of COVID-19 worldwide, <a href="">Philip Tetlock’s superforecasters</a> (people with alleged expertise) thought that the probability of more than 200,000 cases of COVID-19 being reported by the WHO only one month later on March 20 was about 3&nbsp;percent. The actual number that the <a href="">WHO reported</a> on March 20 was over 266,000.</p> <p>Not only is our scientific understanding of respiratory viruses limited, but the coronavirus has characteristics that make the use of scientific inferences about it as a&nbsp;guide to policy even more difficult. First, given the prevalence of asymptomatic transmission, stopping transmission by confining only those who are sick is not effective because so many people do not know they are infected. Second, the false negative rate for the polymerase chain reaction <a href="">active virus tests</a> is about 33 percent and maybe more among the asymptomatic. Thus, even among those who are tested, a&nbsp;third have the virus but are declared not to have it and can transmit it to others. Third, active virus tests also generate false positive results because of the presence of genetic fragments from the virus but no actual infection. Taia Wang, a&nbsp;viral immunologist at Stanford University, told the <a href=""><em>New York Times</em></a>, “We really need to know, how long does it take the body to clear the virus? How long are people contagious? We don’t know the answer to that.” This happens with viruses. Genetic material from the measles virus can show up in tests six months after the illness. And genetic fragments of Ebola and Zika viruses are known to persist even longer in the body. The implication of these three characteristics of COVID-19 is that figuring out in real time which people to isolate from whom to stop viral transmission is very difficult.</p> <p>Even if we could identify all infected individuals in real time and resources existed to follow them and their contacts (and U.S. attempts at <a href="">contact tracing</a> seem extremely ineffective), many contract tracing exercises would find <a href="">no infections</a>. During the Middle East Respiratory Syndrome (MERS) outbreak in South Korea in 2015, 89 percent of patients did not appear to transmit the disease. In the COVID-19 pandemic this year, a&nbsp;husband and wife in Illinois both became gravely ill and were hospitalized. Both recovered. State public health officials traced their contacts—372 people, including 195 health care workers. Not a&nbsp;single contact became infected. A&nbsp;new study suggests that the <a href="">coronavirus arrived</a> in places around the world more than once without starting runaway outbreaks. In these cases, there was little or no transmission, and the virus simply died out.</p> <p>So the belief that expertise in infectious viruses provides obvious and clear answers for policy is misguided. And that is why we observe so much variation worldwide in the <a href="">modeling recommendations</a> of epidemiologists. Should decisionmakers rely on the model developed at the University of Pennsylvania or the model developed at the University of Washington? The former suggested that the District of Columbia would need 1,453 ventilators; the latter suggested it would need 107. Neither England nor Sweden initially implemented lockdown orders. But on March 16, 2020, Imperial College London published a&nbsp;model that predicted over 500,000 deaths in the United Kingdom, and it embraced a&nbsp;lockdown while <a href="">Sweden did not</a>. <a href="">Japan limited</a> testing to only the most severe cases even though it has the <a href="">oldest population</a> of any country in the world (unless you count Monaco), and the government never forced businesses to close. Yet Japan’s reported COVID-19 mortality rate is low. If science is the answer, which scientists do you listen to when they disagree?</p> </div> , <h2 class="heading"> So Why Does Everyone Invoke Science as the Answer? </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Even though perfect science is rare, and even then it rarely translates directly into decisions, and even though infectious disease knowledge, in general, and coronavirus knowledge, in particular, is strikingly incomplete, why is science invoked so often as <em>the</em> answer? In the language of economics, the invocation of science is the equilibrium outcome of the interaction of public officials, scientists, and the public.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Most people don’t understand science; most people don’t understand statistics; most people don’t understand what scientists do, how they argue, or what the scientific method is.</p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>First, science serves the interests of public officials. Science legitimizes policy decisions and reduces discussion about them. Most people don’t understand science; most people don’t understand statistics; most people don’t understand what scientists do, how they argue, or what the scientific method is. In some ways, the “scientific community” is akin to a&nbsp;modern version of the priesthood. </p> <p>Scientists wear lab coats instead of vestments, but like clerics, they have the authority that comes with access to knowledge unavailable to laypersons. Insisting that we yield to their judgment can be very useful in policy debate because it elevates some policy preferences relative to others. Instead of having to say that you would like the policy outcome to reflect your preferences rather than someone else’s, you invoke science: “‘Science’ has concluded that my preferences are legitimate and that your preferences are out of bounds.” Robert Pindyck describes this in the context of <a href="">climate science</a>: “The use of a&nbsp;complex IAM [Integrated Assessment Model] or related model throws a&nbsp;curtain over our lack of knowledge, and creates a&nbsp;veneer of scientific legitimacy that suggests we know more than we do.” </p> <p>Second, for some scientists, expertise is power. For many, <a href="">science is simply</a> the investigation of how the world works and nothing else. Stanley W. Trimble, professor of geography emeritus at the University of California, Los Angeles, said, “I learned early on to avoid academic bandwagons of any sort and that true scholarship can scarcely abide political causes.” For some, scientific expertise allows you to lead and others to follow analogous to the role that priests played for rulers in pre‐​modern civilizations. In the words of Roger Pielke, who studies the role of <a href="">science in public policy</a>, “For those with scientific expertise, it consequently makes perfect sense to wage political battles through science because it necessarily confers to scientists a&nbsp;privileged position in political debate.” </p> <p>Third, for the public, following expertise is a&nbsp;rational response to the complex division of labor that exists in the modern world. Each of us knows a&nbsp;tiny slice of the world very well and very little about anything else. We all rely on others’ knowledge except for the very few things we have mastered. In addition, when decisions involve important matters such as health, relying on experts can relieve the anxiety associated with important decisions. </p> <p>Finally, in the current pandemic, favoring “science” has become shorthand for saying, “I worry about COVID-19 more than I&nbsp;do about the economy or freedom or anything else.” It has also become shorthand for saying, “I don’t like any other approach to the pandemic including President Trump’s.” But it seems no one criticized the president of Notre Dame as being anti‐​science because he decided to reopen the university even though he wouldn’t have if minimizing the risk of infection had been his only objective. </p> </div> , <h2 class="heading"> Conclusion </h2> , <div class="tombstone mb-3 spacer--nomargin--last-child text-default"> <p>At its best, science explains relationships between cause and effect: no more and no less. No normative conclusions about individual or collective decisions follow directly from science. Instead costs, benefits, and other values properly enter both individual and collective decisions.</p> <p>Sadly, science about infectious respiratory diseases, in general, and the coronavirus, in particular, is limited, creating more difficulties in the use of scientific understanding to inform decisions. Leading virologists have been very open about how little we know about the 1918 flu pandemic as well as SARS and MERS and how their initial views about coronavirus transmission were anchored in their understanding of SARS and MERS, which turned out to be incorrect for COVID-19.</p> <p>For this coronavirus, about 35–60 percent of infections cause no symptoms. The conventional wisdom at the start of 2020 was that could not possibly be true. And thus, experts advised against masks except for those in obvious infection settings. But now asymptomatic infection has quickly become the new conventional wisdom, and wearing a&nbsp;mask is a&nbsp;wise choice. To scientists this is just good updating given new information, but this abrupt change has caused many nonscientists to give up on the idea of expertise.</p> <p>In addition to asymptomatic transmission, the test for the virus has large false negative rates. And molecular evidence suggests that the virus arrived more than once in the past year with little or no transmission. The combined result of all the characteristics of COVID-19 is that in real time, identifying whom to isolate to reduce viral transmission is very difficult.</p> <p>The essential problem with the role of science in public policy is that some scientists, most politicians, and the public want science to do more than it can. Some scientists want to tell others what to do. Expertise is not only information; for some it is power. Most politicians want to hide behind the veil of science so that they do not have to openly discuss why they favor some outcomes over others. It is much easier to say, “The experts made me do it.” And finally, the public and journalists often want “answers” particularly about “safe” and “unsafe” rather than nuanced statements about likely changes in health outcomes given various behaviors or exposures. Science actually can tell us more when the pressure for it to answer all our questions is less.</p> </div> Tue, 15 Sep 2020 02:00:00 -0400 Peter Van Doren Markets Against Modernity: Ecological Irrationality, Public and Private Nicholas Anthony <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>There is a&nbsp;war happening, but it is not one between nations. It’s a&nbsp;war between millions of years of human evolution and a&nbsp;few hundred years of rapid economic growth. In <em>Markets Against Modernity</em>, Ryan Murphy, Senior Research Fellow at the O’Neil Center for Global Markets and Freedom at Southern Methodist University, describes this war as “Ecological Irrationality.” It is a&nbsp;clash between modern institutions (e.g., the rule of law, science, capitalism, globalism, and pluralistic democracy) and the influence of prehistoric habits on our minds. It is a&nbsp;clash that has spawned systemic errors across economic, social, and political relationships. It is a&nbsp;clash that can finally be analyzed and understood, now that Murphy has thrust it into the light.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>He begins <a href="">Chapter 1</a> with the relatively innocuous title “Trade is Good” and a&nbsp;discussion of the rise of DIY (“Do It Yourself”) culture. Whether one seeks to make a&nbsp;simple pencil, a&nbsp;chicken sandwich, or an electric toaster, there is an important distinction—as famously noted by <em>Jurassic Park’s</em> fictional chaos theorist Ian Malcom—between what one could do and what one should do. It is true, writes Murphy, that offshoring, outsourcing, and layoffs are less than aesthetically pleasing, but they “are a&nbsp;crucial part of the story of how we went from using monks as scribes … to giving away free pens and pads of paper to whoever shows up.” DIY “evangelists” may believe their cause benefits society, but the truth is quite the opposite.</p> <p>Murphy goes on to discuss why trade is such a&nbsp;controversial topic for the general public. He cites an inability to interact with all 8&nbsp;billion of our neighbors. In fact, he warns that we can barely keep track of more than a&nbsp;100 of them—a limitation that traces back to humanity’s tribal origins. Murphy warns that “[w]e are militantly skeptical of the idea that economic growth is a&nbsp;thing for us: we assume that what others call ‘economic growth’ will always be at the expense of us and those whom we identify with.”</p> <p>Moving beyond trade, <a href="">Chapter 2</a> delivers a&nbsp;crash course in public choice as Murphy seeks to explain why “[t]here’s no shortage of bad policies, even in countries with the world’s most effective governance.” After an introduction to the Virginia, Bloomington, Rochester, and Chicago schools of Political Economy, Murphy turns to George Mason University economist Bryan Caplan’s theory of rational irrationality—a theory which diverges from the theory of rational ignorance in order to explain why people hold systematically biased beliefs with a&nbsp;high degree of certainty, despite little supporting evidence.</p> <p>To draw on the example Murphy uses, consider the case of a&nbsp;policy choice. It would be difficult, if not impossible, for the average citizen to fully decode the potential ramifications of a&nbsp;new financial regulation, but that citizen will still vote for or against it. Per the theory of rational ignorance, we should observe random results as citizens effectively flip a&nbsp;coin for their decision. Yet, this is not what we see. Rational ignorance gets it right that understanding legislation has an extremely high cost with a&nbsp;small expected benefit for the average citizen. Thus, we can assume voters will rationally choose not to collect the necessary information to understand it perfectly. However, rational ignorance fails to explain why we observe systematic trends where it otherwise predicts randomness. Bryan Caplan explains this phenomenon in his 2007 book, <em>The Myth of the Rational Voter</em>, as “rational irrationality.” Caplan explains that we can graph the “demand for irrationality” to show that people are more likely to behave irrationally as the cost of doing so decreases. Where the cost of irrationality is zero, one reaches a “bliss point” in which beliefs can be held without fear of consequence. Despite little confirming evidence, or even evidence to the contrary, these beliefs are held and acted on with certainty. This is why one can observe systematic voting in favor of ethnocentric policies (anti‐​­foreign bias) despite the evidence that trade is good. However, when the cost of irrationality is high (e.g., waving one’s arms in an attempt to fly), these same individuals behave rationally.</p> <p>It is against this background that Murphy introduces his theory of ecological irrationality in <a href="">Chapters 3</a> and <a href="">4</a>. Although the name might be intimidating, the logic is quite intuitive. First, let’s consider what it means to be ecologically rational. The majority of human history has been challenging for individuals, and Murphy argues that the echoes of these past challenges still linger in our minds. Becoming startled by a&nbsp;stick resembling a&nbsp;snake or a&nbsp;sound on a&nbsp;dark night might result in some teasing from friends, but this reaction is rational, or efficient, given the constraints of the environment. These are cases where an abundance of caution has long preserved humanity’s survival. Because, as Murphy notes, this “way of thinking is suited for efficiently dealing with the constraints of the environment … , it is defined as ecologically rational.”</p> <p>However, when “we apply the mental tools we developed in the social environment of prehistory to modern day societies, politics, and economics,” it becomes clear that something is amiss. People reject trades with strangers as if they were from a&nbsp;waring tribe. Others resist vaccines in pursuit of a&nbsp;more natural state of life. It’s here that Murphy points out that these behaviors are no longer efficient, given the constraints of the modern environment. These behaviors are ecologically irrational.</p> <p>Murphy warns that the impulses that drive us away from modern institutions (e.g., the rule of law, science, capitalism, globalism, and pluralistic democracy) are deeply embedded in us. These impulses have been honed over the entire course of human evolution. Modern institutions have only existed for a&nbsp;small portion of that history. Although, that is not to say we are without control. To avoid falling victim to persuasive efforts appealing to our inner ancestors, Murphy identifies four signals of ecological irrationality: authenticity, naturalness, folk economics, and conspicuous consumption status signaling. Each signal offers a&nbsp;unique insight into the human mind’s perception of the surrounding world.</p> <p>In <a href="">Chapter 6</a>, Murphy follows up with four possible solutions to mitigate ecological irrationality from a&nbsp;social perspective. Unfortunately, although each offers a&nbsp;unique incentive structure that can help inform our understanding of the world, all suffer from the need for radical change in order to be implemented. Regardless if one prefers one solution over another, the required overhaul of the existing government structure makes these solutions less than feasible if one was hoping for practical applications.</p> <p>Returning to the DIY movement, <a href="">Chapter 8</a> hedges earlier claims—though only slightly. After more than 100 pages, Murphy acknowledges the existence of DIY enthusiasts who are simply enthusiasts. He is absolutely correct in his analysis of the “poverty of DIY”—namely, that it is difficult to consider the value of one’s own leisure time, capital accumulation (such as a&nbsp;work bench and set of tools in the garage), and other hidden costs. However, his distinction between pleasurable and daunting work, as well as his noting of the IKEA effect (that consumers place a&nbsp;disproportionally high value on products they create themselves), serve as more of a&nbsp;passing acknowledgement than a&nbsp;robust review of DIY benefits. To this end, I&nbsp;would point Murphy in the direction of Caplan’s lesson on both Kaldor‐​Hicks efficiency and Steven Landsburg’s analysis of drug legalization. In the lesson, Caplan demonstrates how the art of economics consists in tracing extended consequences, not just extended costs.</p> <p><a href="">Chapter 9</a> follows with a&nbsp;similar argument on “Social Luddism,” a&nbsp;term Murphy uses to describe those who seek social status in a&nbsp;manner akin to rent‐​seeking. One example he presents is wine expertise. People use their time and energy to gain knowledge and status, but Murphy argues that this results in waste from a&nbsp;social standpoint. Disregarding the motte and bailey fashion of some of the arguments, this example suffers from a&nbsp;lack of consideration in regard to possible benefits. Yes, there is a&nbsp;cost associated with this activity, but is there truly no value in the refinement of one’s individual enjoyment of wine? What of other hobbies or interests?</p> <p>Although such portions of <a href="">Chapters 8</a> and <a href="">9</a> raise an eyebrow, they do offer a&nbsp;fitting segue into the discussion of expert credibility in <a href="">Chapter 10</a>. Murphy uses Anneberg University professor Philip Tetlock’s work on experts to highlight the importance of healthy skepticism in a&nbsp;world influenced by ecological irrationalities. The optimal case is to have society trust experts only where the marginal benefit equals the marginal cost. Below this, people die from preventable diseases because they ignored doctors. However, above this, blind faith leads one down the road to serfdom. It’s a&nbsp;difficult line to walk, but the evidence for ecological irrationality highlighted across the book is proof that it’s important to maintain such skepticism.</p> <p>Markets are complicated. But markets are not abstract constructs; they are made up of millions of individuals, each of whom have their own unique preferences. If we wish to understand what influences the market, it is crucial that we understand what influences the individual. Murphy has both contributed to this understanding and shown there is much work to be done in the investigation of ecological irrationalities, or the clash between modern institutions and the influence of prehistoric habits on our minds. Students and economic professionals alike should take careful note of this book. While his political reform proposals may be out of reach, the tools and examples that Murphy presents are immensely useful in improving one’s understanding of the hidden forces that guide popular thought in the modern world.</p> </div> Mon, 14 Sep 2020 12:03:02 -0400 Nicholas Anthony Financial Transactions Taxes: Inaccessible and Expensive Diego Zuluaga <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>Financial transactions taxes (FTTs) have become increasingly popular since the 2008 financial crisis. During the 2020 Democratic presidential primary race, FTTs featured prominently on the platforms of both moderate Michael Bloomberg and socialist Bernie Sanders. The likely nominee, Joe Biden, has also expressed support for an FTT, albeit without offering any details in his election platform (<a href="#ch003-ref008">CNBC 2019</a>).</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>FTTs are taxes on the purchase or sale of financial instruments. Some countries, such as Britain and Hong Kong, have long had a&nbsp;form of FTT they call “stamp duty” on shares. Yet, while still by no means exceptional, FTTs had declined in popularity during the 1990s and 2000s, as countries abolished them in a&nbsp;bid to make their capital markets more competitive. But the 2008 crisis prompted a&nbsp;revival, as some regulators called for curbing “socially useless” financial market activity and politicians looked for retribution against the financial services industry. The need to balance government budgets after the Covid‐​19 pandemic may give these efforts new vigor in many countries.</p> <p>Some politicians advocate FTTs as a&nbsp;progressive revenue‐​raising measure to help taxpayers “get even” with financial institutions that benefited from their support in the past. But although some economists argue that well‐​designed FTTs can serve to deter socially harmful financial activity, even they tend to regard FTTs as a&nbsp;relatively inefficient way to raise revenue because of the large behavioral changes they cause. And despite their theoretical usefulness as a&nbsp;behavioral tax, actual instances in which FTTs might be desirable have been fewer than proponents claimed.</p> </div> , <h2 class="heading"> Theoretical Case for FTTs </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>In his <em>General Theory of Employment, Interest, and Money</em>, John Maynard Keynes advocated for “a substantial Government transfer tax on all [investment market] transactions …, with a&nbsp;view to mitigating the predominance of speculation over enterprise in the United States” (<a href="#ch003-ref019">Keynes [1936] 1965</a>: 160). He worried that wider access to stock and bond markets thanks to innovation and affluence, and the growing liquidity of financial instruments, would make short‐​term speculation—“the activity of forecasting the psychology of the market”—predominant over long‐​term investment, or enterprise—“the activity of forecasting the prospective yield of assets over their whole life” (ibid.: 158). In proposing such a&nbsp;tax for the United States, Keynes had the British model in mind, noting approvingly that it made the London stock market “inaccessible and very expensive” to the ordinary investor (ibid.: 159).</p> <p>Keynes’s proposal, on which he didn’t elaborate further, and the U.S. experience notwithstanding, the academic case for FTTs was first made in earnest by James Tobin in a&nbsp;1972 lecture and a&nbsp;subsequent article, “A Proposal for International Monetary Reform” (<a href="#ch003-ref032">Tobin 1978</a>). What motivated Tobin was the breakdown of the Bretton Woods regime, with a&nbsp;consequent dramatic increase in cross‐​border capital movements as investors responded to (and helped amplify) fluctuations in exchange and interest rates. That breakdown “severely restrict[ed] the ability of central banks and governments to pursue monetary and fiscal policies appropriate to their internal economies” (ibid.: 154).</p> <p>To preserve domestic policy autonomy, Tobin called for “an internationally uniform tax on all spot conversions of one currency into another,” the goal being to “particularly deter short‐​term financial round‐​trip excursions into another currency” (ibid.: 155). Because he was skeptical that such moves “by traders in the game of guessing what other traders are going to think” could guide economies toward efficiency, Tobin viewed short‐​term trading as harmful on the margin. If that was true, a “Tobin tax,” as the proposal has come to be known, could restore trading to its socially beneficial level—at least in the friction‐​free setting of theoretical welfare economics.</p> <p>As U.S. and international financial markets liberalized in the 1980s, other academic economists joined Tobin in his advocacy for an FTT. Harvard’s Lawrence Summers, who would become Secretary of the Treasury during the Clinton administration, coauthored a&nbsp;1989 article making “a cautious case” for a&nbsp;tax on securities transactions (<a href="#ch003-ref030">Summers and Summers 1989</a>). His argument, similar to Tobin’s, was that short‐​term trading causes volatility without bringing stock prices closer to their fundamental (i.e., true) values (ibid.: 170–71). He saw further evidence of a “market failure” in the legions of talented graduates then flocking into the securities business, and the vast resources devoted to investment research relative to corporate profits (ibid.: 174). Summers also noted that many countries with developed financial markets, such as Britain, Japan, the Netherlands, and Switzerland, had an FTT (ibid.: 177).</p> <p>Not all economists are enthusiastic about FTTs, though. In his review of the British tax system, James Mirrlees (<a href="#ch003-ref024">2011</a>) argued against transactions taxes, including FTTs. He contended that, while “their continued use reflects the ease with which such taxes can be levied, … they are unattractive from an economic point of view” (ibid.: 151). By discouraging mutually beneficial transactions, FTTs hinder the movement of assets into the hands of those who value them most, creating inefficiency. Nor are they obviously progressive, falling “arbitrarily heavily on those who, for whatever reason, engage in more transactions” (ibid.). Mirrlees also said those who believe FTTs punish financial intermediaries confuse legal with economic incidence. Much as proponents might hope otherwise, FTTs fall primarily on savers in the form of lower returns.</p> </div> , <h2 class="heading"> Decline and Rebirth of FTTs </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>At the time Keynes was writing, the United States already levied an excise tax on the issuance and subsequent transfer of stock (<a href="#ch003-ref017">Keightley 2010</a>: 21). This tax remained in place for more than 50&nbsp;years before Congress repealed it in 1965. The state of New York, home to America’s largest capital market, has also taxed stock transfers since 1905, but taxpayers have been able to claim a&nbsp;refund since 1981 (<a href="#ch003-ref005">Burman et al. 2015</a>: 6). Besides these two taxes, the Securities and Exchange Commission levies a&nbsp;small <em>ad valorem</em> fee on most securities transactions, revenues from which it uses to fund its operations. Currently, the rate is $22.10 per million dollars, or 0.00221 percent (SEC 2020).</p> <p>In the late 1980s, as countries throughout the world sought to make their capital markets internationally competitive, FTTs entered a&nbsp;period of decline (<a href="#ch003-ref022">Matheson 2011</a>: 4). Whereas Summers reported in 1989 that France, (West) Germany, Italy, and Japan imposed FTTs, by 2010 all of them had abolished or, in Italy’s case, substantially reduced them (ibid.: 9). Sweden’s experience with an FTT in the late 1980s offered an unusually stark illustration of its perils: In its seven‐​year existence, during which the range of securities to which the tax applied only expanded, the Swedish FTT caused share trading volume to decline by 30 percent, and bond trading volume by 85 percent (<a href="#ch003-ref036">Wiberg 2013</a>). Nor did Japan’s FTT, which only expired in 1999, prevent a&nbsp;massive stock boom‐​and‐​bust between 1985 and 1990 (<a href="#ch003-ref029">Stone and Ziemba 1993</a>).</p> <p>But FTTs’ trend of decline reversed with the 2007–2009 financial crisis. To some regulators, the extreme volatility of financial markets during the crisis and the high cost of taxpayer‐​backed financial institution bailouts were evidence that the sector had grown too large. Adair Turner, then‐​chairman of UK regulator the Financial Services Authority, said in a&nbsp;September 2009 speech that “not all financial innovation, not all trading plays a&nbsp;useful role … more trading and more financial innovation can under some circumstances create harmful volatility” (<a href="#ch003-ref033">Turner 2009</a>). In a&nbsp;2010 speech, Bank of England chief economist Andy Haldane implied that liquidity and information in financial markets might have become “too much of a&nbsp;good thing” (<a href="#ch003-ref016">Haldane 2010</a>: 7).</p> <p id="ch003-p001">Although they echoed older arguments of excess volatility as a&nbsp;market failure, Turner’s and Haldane’s remarks did not persuade the British government to raise or expand the scope of stamp duty on shares. But other European countries did move to introduce or reinstate FTTs. Having abolished its earlier FTT in 2009, France imposed a&nbsp;new one, at a&nbsp;rate of 0.2 percent, which increased to 0.3 percent in 2017, on transactions in the stock of French‐​headquartered companies with a&nbsp;market value greater than €1 billion (BYN Mellon: 6). Italy raised its FTT, as did Finland and Belgium (ibid.: 5–8). Finally, earlier this year Spain passed a&nbsp;tax on stock transactions in Spanish‐​listed firms with a&nbsp;market cap above €1 billion (<a href="#ch003-ref015">Garcia and Blanco 2020</a>). At the time, there were 64 companies whose stock would have been subject to this FTT, but the economic impact of Covid‐​19 has since caused a&nbsp;more than 25 percent drop in the value of Spanish equities and reduced the tax base to 57 firms.<sup><a href="#_endref1" id="_edn1">1</a></sup></p> <p>The most ambitious, and perhaps for that reason still unadopted, proposal came from the European Commission in 2011 (see <a href="#ch003-ref011">European Commission 2011a</a>). It would have taxed stock and bond transactions between financial institutions in which at least one party was located in the EU at a&nbsp;rate of 0.1 percent, and derivatives contracts at a&nbsp;rate of 0.01 percent of notional value (<a href="#ch003-ref012">European Commission 2011b</a>). But financial centers such as the United Kingdom and Luxembourg, besides fearing for their competitive position, had no interest in sharing their tax base with other countries. Owing to their opposition, the EC plan became one for just eleven—later ten—EU members (<a href="#ch003-ref013">European Commission 2013</a>). But even that shrunken version failed to take off, leaving member countries to set up their own individual FTTs. Recently, France and Germany have attempted to revive the EC proposal, albeit with a&nbsp;much narrower base (<a href="#ch003-ref001">Asen and Miller 2019</a>).</p> </div> , <h2 class="heading"> Tax Revenue from FTTs </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Experience from around the world presents two disappointing trends for FTT proponents as far as tax revenues are concerned. Not only do FTTs tend to raise very little revenue compared with other taxes, but they consistently raise less than forecast, mainly because trading activity inevitably moves to avoid the tax.</p> <p>Matheson (<a href="#ch003-ref022">2011</a>: 10) reports that France, Germany, Japan, and Italy never managed to raise more than 0.2 percent of GDP with their FTTs in the period between 1990 and 2010—and they usually raised much less than that. With total tax revenue in these countries equivalent to between 25 and 45 percent of GDP during that period, FTTs amounted at most to 0.44 percent of the tax take. Postcrisis FTTs have not improved on this performance: France’s post‐​2012 tax raises around 0.03 percent of GDP (European Commission n.d.), whereas the Spanish government expected its new FTT to bring in just under 0.07 percent of Spanish GDP—a figure others thought too high even before Covid‐​19 hit (<a href="#ch003-ref026">Page and Monzón 2020</a>).</p> <p>Even in less tumultuous times, FTTs have dashed their proponents’ revenue‐​raising hopes. The dramatically adverse impact of Sweden’s FTT on stock and bond trading in that country has already been mentioned (see also <a href="#ch003-ref034">Umlauf 1993</a>). But recent French and Italian FTTs also undershot official revenue projections by 50 percent and 80 percent, respectively (<a href="#ch003-ref031">Swanson 2020</a>: 6–7). Like in Sweden, the main reason for the shortfall seems to have been a&nbsp;rapid shrinking of the tax base. In countries that are only small or midsize financial centers, neither listed companies nor traders have an overwhelming incentive to stay put after the introduction of an FTT. In a&nbsp;world of open capital markets, firms can easily list in foreign untaxed venues, and traders can shift activity into jurisdictions unencumbered by transactions taxes.</p> </div> , <h2 class="heading"> FTTs and the “Socially Optimal” Amount of Trading </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Even if FTTs are not particularly useful for raising revenue, they may still be desirable in order to reduce harmful short‐​term trading. Just as Keynes worried in the 1930s that reductions in transactions costs had caused a&nbsp;predominance of speculation over enterprise, some present‐​day market observers are concerned that, by lowering the cost of trading, technology has drawn in new participants whose short‐​term orientation may have destabilizing consequences (<a href="#ch003-ref016">Haldane 2010</a>: 10–11). Often, they point the finger at high‐​­frequency traders (HFTs), who use fast computer infrastructure and algorithmic trading to get ahead of other orders, profiting from the price difference (<a href="#ch003-ref002">Bernstein 2015</a>).</p> <p>Reports that HFTs recently accounted for as much as 50 percent of equities trading volume, whereas long‐​term “fundamental” traders accounted for just 10 percent, might seem like evidence that we are past the point Keynes warned against, when speculation would overtake enterprise (<a href="#ch003-ref007">CNBC 2017</a>). But it is not obvious that even HFTs make financial markets less efficient. While some studies have found that they increase stock volatility and drive prices away from fundamentals (<a href="#ch003-ref038">Zhang 2010</a>), others have reached the opposite conclusion (<a href="#ch003-ref004">Brogaard 2010</a>). Still others argue the impact depends on the type of HFT, “passive” or “aggressive” (<a href="#ch003-ref005">Burman et al. 2015</a>: 22; see also <a href="#ch003-ref037">Wang and Yau 2012</a>: 4). Nor is it clear that FTTs serve to reduce any adverse impact from trading. They do tend to decrease market liquidity and trading volume, as their proponents intend (<a href="#ch003-ref005">Burman et al. 2015</a>: 24). But their impact on volatility is ambiguous, with many studies finding no or even a&nbsp;positive relationship between FTTs and asset price volatility (<a href="#ch003-ref028">Šramko 2015</a>: 56; <a href="#ch003-ref017">Keightley 2019</a>: 3; <a href="#ch003-ref037">Wang and Yau 2012</a>: 6–7).</p> <p id="ch003-p002">Even taxes on the most short‐​term‐​oriented of traders have ambiguous effects. For example, in addition to its main FTT, France introduced a&nbsp;0.01 percent tax on cancelled or modified orders within a&nbsp;short time period—clearly aiming at high frequency trading.<sup><a href="#_endref2" id="_edn2">2</a></sup> But the tax appears to have raised no revenue and had no impact on volatility or bid‐​ask spreads. Yet it did reduce trading volumes and made markets less efficient by causing prices to deviate from fundamentals (<a href="#ch003-ref035">Veryzhenko et al. 2017</a>). Contrary to proponents’ assertions, it is not obvious that the market participants who first exit after an FTT’s introduction are those who foment volatility (<a href="#ch003-ref010">Eichengreen 2012</a>).</p> </div> , <h2 class="heading"> What about the “Success Stories”? </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>While the recent experience of FTTs has been decidedly mixed, it is worth asking whether some prominent financial centers, such as Britain and Hong Kong, might have managed to make a&nbsp;success of this type of tax. Britain has in fact levied its FTT (stamp duty on shares) since the late 17th century, with no obvious adverse impact on its status as a&nbsp;global trading hub (<a href="#ch003-ref005">Burman et al. 2015</a>: 8).</p> <p>Still, stamp duty’s longevity on its own tells us nothing about whether a&nbsp;jurisdiction’s success occurred thanks to, regardless of, or in spite of it. As it happens, the British rate of stamp duty dropped from 2&nbsp;percent to 0.5 percent in the 1980s, just before the City of London once again became a&nbsp;global financial center after a&nbsp;period of retrenchment (<a href="#ch003-ref003">Bond, Hawkins, and Klemm 2004</a>: 4). Furthermore, since 1997 financial intermediaries have been exempt, blunting stamp duty’s impact on London’s attractiveness to traders and market‐​makers, but also weakening any moderating effect on “excessive” trading (<a href="#ch003-ref025">Oxera 2007</a>: 3). There is also some evidence of stamp duty avoidance through the use of derivatives, known in the UK as “contracts for difference” (ibid.: 23). Still, the tax is not without impact, with studies of rate‐​cut announcements finding that they increase the prices of frequently traded shares most (<a href="#ch003-ref003">Bond, Hawkins, and Klemm 2004</a>: 18).</p> <p>For its part, Hong Kong imposes stamp duty on shares at a&nbsp;rate of 0.2 percent, but it has no capital gains or dividend taxation, making share ownership in the territory more attractive than elsewhere (<a href="#ch003-ref021">KPMG 2018</a>: 3, 6). In Hong Kong’s case as well as Britain’s, it seems other public policies—such as open capital markets, a&nbsp;stable and transparent legal system, and moderate taxation and regulation—work to compensate for the adverse impact of FTTs. At any rate, their example offers little hope that FTTs will not drive financial activity away from other jurisdictions, even if their impact on volatility and asset price behavior is unclear.</p> </div> , <h2 class="heading"> Implications for the United States </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Because much of the evidence on FTTs concerns smaller financial centers, it might be thought less relevant for the United States, the world’s biggest capital market. Even with an FTT, U.S.-listed firms might find it unattractive to move if it meant losing access to this deep pool of capital. Traders could also have a&nbsp;difficult time avoiding the tax if it applied to a&nbsp;broad base, covering all transactions with at least one U.S.-based party (<a href="#ch003-ref023">Miller and Tyger 2020</a>: 3). This would imply a&nbsp;less elastic revenue, and potentially also a&nbsp;smaller decline in beneficial trading, than has been observed elsewhere.</p> <p>Some expert estimates do suggest that an FTT would raise more revenue relative to GDP in the United States than in other countries. The Congressional Budget Office, for example, expects that a&nbsp;broad FTT at a&nbsp;rate of 0.1 percent on most stocks and bonds, and on payments actually made in derivatives contracts, would collect $776.7 billion over ten years (<a href="#ch003-ref009">CBO 2018</a>). That would be equivalent to 0.35 percent of 2019 U.S. GDP, more than most other countries have managed to raise, although their FTTs typically apply to a&nbsp;narrower base than the proposal the CBO evaluated.</p> <p>These revenue estimates are uncertain, hinging not just on the U.S. economy’s long‐​term performance, but also on the elasticity of trading volume with respect to the tax rate. Matheson (<a href="#ch003-ref022">2011</a>: 16–17) reports high elasticities for stock and futures markets from a&nbsp;range of countries and assets, including S&amp;P 500 futures contracts. They suggest activity would substantially decline after the introduction of an FTT. Nor is it obvious that such a&nbsp;tax would end up applying to as broad a&nbsp;base as the CBO anticipates. On the contrary, there would be pressure to exempt assets deemed low‐​risk, such as U.S. Treasury bonds, and to reimburse lower‐​income investors, as Senator Sanders’ bill provides for (<a href="#ch003-ref023">Miller and Tyger 2020</a>: 5). Exemptions like these would not only narrow the tax base, but also increase opportunities for avoidance.</p> <p>Still, even if its revenue‐​raising prospects were brighter than elsewhere, a&nbsp;U.S. FTT would suffer from similar problems with such taxes in other jurisdictions. By making short‐​term trading more expensive, it would probably reduce trading volume and liquidity. But whether this impact would be stabilizing is unclear, as the short‐​term traders the FTT would penalize could be informed arbitrageurs and market‐​makers, or momentum‐​driven speculators. The tax could also disproportionately raise the cost of capital for smaller listed firms, at a&nbsp;time when many of them may be looking to raise investor funds to weather the ongoing recession.</p> <h2>Conclusion</h2> <p>Despite their recent comeback, the case for FTTs is no stronger today than it was in the early 2000s, when they were in a&nbsp;slow but steady decline. FTTs raise little revenue, no matter the optimistic promises of the politicians who advocate them. Nor do FTTs seem particularly apt for the task some economists envisage for them—namely, as instruments to reduce volatility in financial markets by driving out “socially useless” traders with a&nbsp;short‐​term orientation. Betting on an FTT seems particularly risky during the present, pandemic‐​induced economic crisis, as it would raise the cost of capital to businesses already struggling with uncertainty and weak demand. And if the goal is to punish financial firms or reduce that sector’s size, an FTT is a&nbsp;poor instrument for achieving it.</p> </div> , <h2 class="heading"> References </h2> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p id="ch003-ref001">Asen, E., and Miller, C. (2019) “Germany’s Plans for a&nbsp;Financial Transaction Tax.” Washington: Tax Foundation (December 16).</p> <p id="ch003-ref002">Bernstein, J. (2015) “A Financial Transaction Tax Is a&nbsp;Pigouvian Tax!” <em>On the Economy</em> (April 22).</p> <p id="ch003-ref003">Bond, S.; Hawkins, M.; and Klemm, A. (2004) “Stamp Duty on Shares and Its Effect on Share Prices.” IFS Working Paper No. 04/11 (June).</p> <p id="ch003-ref004">Brogaard, J, A, (2010) “High Frequency Trading and Its Impact on Market Quality” Northwestern University, Kellogg School of Management Working Paper (July 16). Available at <a href="">https://​secure​.fia​.org/​p​t​g​-​d​o​w​n​l​o​a​d​s​/​h​f​t​_​t​r​a​d​i​n​g.pdf</a>.</p> <p id="ch003-ref005">Burman, L. E.; Gale, W. G.; Gault, S.; Kim, B.; Nunns, J.; and Rosenthal, S. (2015) “Financial Transaction Taxes in Theory and Practice.” Urban‐​Brookings Tax Policy Center Discussion Draft. Washington: Urban Institute and Brookings Institution (June).</p> <p id="ch003-ref006">BNY Mellon (2018) “Financial Transaction Taxes: A&nbsp;Global Perspective.” Available at <a href="">–2018.pdf</a>.</p> <p id="ch003-ref007">CNBC (2017) “Just 10% of Trading Is Regular Stock Picking, JP Morgan Estimates” (June 13).</p> <p id="ch003-ref008">__________ (2019) “Biden: We Should Have a&nbsp;Financial Transaction Tax” (December 6).</p> <p id="ch003-ref009">Congressional Budget Office (2018) “Impose a&nbsp;Tax on Financial Transactions” (December 13). Available at <a href="">https://​www​.cbo​.gov/​b​u​d​g​e​t​-​o​p​t​i​o​n​s​/​2​0​1​8​/​54823</a>.</p> <p id="ch003-ref010">Eichengreen, B. (2012) “Europe’s Tobin Tax Distraction.” <em>Project Syndicate</em> (February 9).</p> <p id="ch003-ref011">European Commission (2011a) “Financial Transaction Tax: Making the Financial Sector Pay Its Fair Share.” Press Release (September 28).</p> <p id="ch003-ref012">__________ (2011b) “Proposal for a&nbsp;Council Directive on a&nbsp;Common System of Financial Transaction Tax and Amending Directive 2008/7/EC.” Brussels: European Commission (September 28).</p> <p id="ch003-ref013">__________ (2013) “Proposal for a&nbsp;Council Directive Implementing Enhanced Cooperation in the Area of Financial Transaction Tax.” Brussels: European Commission (February 14).</p> <p id="ch003-ref014">__________ (n.d.) “Did the New French Tax on Financial Transactions Influence Trading Volumes, Price Levels and/​or Volatility in the Taxed Market Segment? A&nbsp;Trend Analysis.” Brussels: European Commission. Available at <a href="">https://​ec​.europa​.eu/​t​a​x​a​t​i​o​n​_​c​u​s​t​o​m​s​/​s​i​t​e​s​/​t​a​x​a​t​i​o​n​/​f​i​l​e​s​/​d​o​c​s​/​b​o​d​y​/​e​f​f​e​c​t​_​f​r​e​n​c​h​_​f​t​t.pdf</a>.</p> <p id="ch003-ref015">García, C., and Blanco, I. (2020) “Los Cinco Puntos Clave sobre la ‘Tasa Tobin’ y&nbsp;su Repercusión en la Bolsa Española.” <em>El Economista</em> (February 18).</p> <p id="ch003-ref016">Haldane, A. (2010) “Patience and Finance.” Speech at the Oxford China Business Forum, Beijing (September 9).</p> <p id="ch003-ref017">Keightley, M. P. (2010) “A Securities Transaction Tax: Financial Markets and Revenue Effects.” CRS Report 7–5700. Washington: Congressional Research Service.</p> <p id="ch003-ref018">__________ (2019) “Financial Transactions Taxes: In Brief.” Congressional Research Service (March 27).</p> <p id="ch003-ref019">Keynes, J. M. ([1936] 1965) <em>The General Theory of Employment, Interest, and Money.</em> New York: Harcourt.</p> <p id="ch003-ref020">Klein, A. (2020) “What Is a&nbsp;Financial Transaction Tax?” Brookings Voter Vitals. Washington: Brookings Institution.</p> <p id="ch003-ref021">KPMG (2018) “Hong Kong (SAR) Tax Profile” (July).</p> <p id="ch003-ref022">Matheson, T. (2011) “Taxing Financial Transactions: Issues and Evidence.” IMF Working Paper No. 11/54. Washington: International Monetary Fund.</p> <p id="ch003-ref023">Miller, C., and Tyger, A. (2020) “The Impact of a&nbsp;Financial Transaction Tax.” Fiscal Fact No. 690. Washington: Tax Foundation.</p> <p id="ch003-ref024">Mirrlees, J. et al. (2011) <em>Tax by Design: Final Report from the Mirrlees Review.</em> London: Oxford University Press.</p> <p id="ch003-ref025">Oxera (2007) “Stamp Duty: Its Impact and the Benefits of Its Abolition.” Report Prepared for ABI, City of London Corporation, IMA and London Stock Exchange (May).</p> <p id="ch003-ref026">Page, D., and Monzón, A. (2020) “La Airef de Escrivá Desinfló los Ingresos de las Tasas Google y&nbsp;Tobin que Prevé Hacienda,” <em>El Independiente</em> (February 18).</p> <p id="ch003-ref027">SEC (Securities and Exchange Commission) (2020) “Fee Rate Advisory #2 for Fiscal Year 2020” (January 9).</p> <p id="ch003-ref028">Šramko, F. (2015) “The Impact of Securities Transaction Tax on Market Quality: Evidence from France and Italy.” <em>International Journal of Economic Sciences</em> 4 (3): 52–93.</p> <p id="ch003-ref029">Stone, D., and Ziemba, W. T. (1993) “Land and Stock Prices in Japan.” <em>Journal of Economic Perspectives</em> 7 (3): 149–65.</p> <p id="ch003-ref030">Summers, L. H., and Summers, V. P. (1989) “When Financial Markets Work Too Well: A&nbsp;Cautious Case for a&nbsp;Securities Transactions Tax.” <em>Journal of Financial Services Research</em> No. 3 (1989): 261–86.</p> <p id="ch003-ref031">Swanson, S. (2020) “Financial Transaction Tax: What Is It Good For?” Greenwich Associates (Third Quarter).</p> <p id="ch003-ref032">Tobin, J. (1978) “A Proposal for International Monetary Reform.” <em>Eastern Economic Journal</em> 4 (July‐​October): 153–59.</p> <p id="ch003-ref033">Turner, A. (2009) Mansion House Speech, London (September 22).</p> <p id="ch003-ref034">Umlauf, S. R. (1993) “Transaction Taxes and the Behavior of the Swedish Stock Market.” <em>Journal of Financial Economics</em> 33 (April): 227–40.</p> <p id="ch003-ref035">Veryzhenko, I.; Harb, E.; Louhichi, W.; and Oriol, N. (2017) “The Impact of the French Financial Transaction Tax on HFT Activities and Market Quality.” <em>Economic Modelling</em> 67 (December): 307–15.</p> <p id="ch003-ref036">Wiberg, M. (2013) “We Tried a&nbsp;Tobin Tax and It Didn’t Work.” <em>Financial Times</em> (April 15).</p> <p id="ch003-ref037">Wang, G. H. K., and Yau, J. (2012) “Would a&nbsp;Financial Transaction Tax Affect Financial Market Activity? Insights from Futures Markets.” Cato Institute Policy Analysis No. 702 (July 9).</p> <p id="ch003-ref038">Zhang, X. F. (2010) “High‐​Frequency Trading, Stock Volatility, and Price Discovery.” Yale School of Management (December).</p> </div> Mon, 14 Sep 2020 12:00:00 -0400 Diego Zuluaga Another President, Another Unfortunate Innovation in Executive Power William Yeatman <p>A couple weeks ago, I&nbsp;<a href="">blogged</a> about “an unfortunate innovation in executive power” during the Obama administration, which I&nbsp;<a href="">called</a> “leverage policymaking.” In a&nbsp;nutshell, “leverage policymaking” entails regulatory agencies using individual transactions with large corporations—such as enforcement or licensing actions—to achieve broad policy results.</p> <p>Last week, Cato <a href="">published</a> a&nbsp;<em>Legal Policy Bulletin</em> about another unfortunate innovation in executive power, but this one was pioneered by the Trump administration. I&nbsp;call it the “<em>ad hoc</em> administrative state”; below, I’ve excerpted the short paper’s executive summary:</p> <blockquote><p>A hallmark of the Trump administration has been its creation of significant administrative programs on the fly, based on ambiguous or implied textual authorities, and without any public input. This paper discusses four such initiatives involving almost $40 billion in benefits and dispensations from more than $400 billion in tariffs. The programs discussed in this paper were launched after summary notices amounting to a&nbsp;total of 28 pages in the Federal Register. Rarely, if ever, has so much administrative policy been rendered in so few words. Far from reflecting the mere execution of the law, these programs instead take on the attributes of core congressional prerogatives—namely, the power to spend public funds and regulate international commerce. To date, Congress has acquiesced to these developments. If lawmakers remain passive, future presidents will build on Trump’s template, which reflects an unfortunate innovation in executive power.</p> </blockquote> <p>Read the whole thing <a href="">here</a>.</p> Mon, 14 Sep 2020 09:06:17 -0400 William Yeatman The Evergreening Myth Mon, 14 Sep 2020 03:00:00 -0400 Erika Lietzan Instead of PPP, How About a Credit Lifeline? Mon, 14 Sep 2020 03:00:00 -0400 Veronique de Rugy Public–Private Partnerships: Some Lessons After 30 Years Mon, 14 Sep 2020 03:00:00 -0400 Eduardo Engel, Ronald Fischer, Alexander Galetovic OSHA Shaming and the Rule of Law Mon, 14 Sep 2020 03:00:00 -0400 Arthur G. Sapper Economics Wins the War on Coal Mon, 14 Sep 2020 03:00:00 -0400 Tim Rowland Too Much Information Mon, 14 Sep 2020 03:00:00 -0400 Ike Brannon, Robert Jennings Facilitating Interstate Telemedicine Mon, 14 Sep 2020 03:00:00 -0400 Shirley Svorny The Abuse‐​Deterrent Folly Jeffrey A. Singer <p><span><span><span>On September 11 a&nbsp;Food and Drug Administration Advisory Committee <a href=";eun=g1183284d0r&amp;utm_source=Sailthru&amp;utm_medium=email&amp;utm_campaign=Daily%20Headlines%20Top%20Cat%20HeC%20%202020-09-12&amp;utm_term=NL_Daily_DHE_dual-gmail-definition">concluded</a> Purdue Pharma’s abuse‐​deterrent formulation (ADF) of its drug OxyContin did not “meaningfully&nbsp;reduce”&nbsp;overall opioid abuse or have a&nbsp;substantial impact on overdose rates.</span></span></span></p> <p><span><span><span>In the early part of this century law enforcement officials <a href="">reported</a> that many non‐​medical users of the diverted prescription drug OxyContin, a&nbsp;concentrated, slow‐​release formulation of oxycodone, would crush the pills and snort them, or dissolve them in liquid and inject them. In 2010, as its patent for OxyContin was about to expire and cheaper generic competitors were waiting in the wings, Purdue Pharma received FDA approval to release its reformulated ADF OxyContin. This reformulation made the pills harder to crush and unsuitable for injection when dissolved&nbsp;in liquid. The reformulation approval meant Purdue Pharma could extend its patent—and its monopoly—over the production and sale of OxyContin. Extending drug patents by reformulating drugs in a&nbsp;meaningful way—a process known as “<a href="">evergreening</a>”—is a&nbsp;common practice in the pharmaceutical industry. </span></span></span></p> <p><span><span><span>In an <a href="">ironic twist</a>, the pharmaceutical company that was, by then, the opiophobia‐​driven <a href="">scapegoat</a> for the overdose crisis sought to profit from further stoking opiophobia. The FDA didn’t just approve the ADF of OxyContin–it <a href="">encouraged</a> drug makers to develop ADFs of all opioid pain relievers, with the ultimate goal being that all opioids available on the market would be abuse‐​deterrent formulations.</span></span></span></p> <p><span><span><span>As I&nbsp;explained in my 2018 <a href="">policy analysis</a>, non‐​medical users of OxyContin can still swallow the ADF OxyContin to get the desired effect. And if the non‐​medical users preferred the effect of snorting or injecting the drug, they can readily shift to cheaper and more available heroin (and now also fentanyl). In fact, the evidence shows that is exactly what happened. The ADF formulation had the unintended consequence of driving non‐​medical users to more dangerous opioids easily obtainable in the black market. If anything, ADFs grow the overdose rate this way. It took until September of 2020 for an FDA advisory committee to reach a&nbsp;similar&nbsp;conclusion.</span></span></span></p> <p><span><span><span>Unfortunately, policymakers are still addicted to the idea that the overdose crisis is the result of physicians “overprescribing” opioids to their patients in pain and turning them into addicts—despite the fact that government data show there is <strong><a href="">no correlation</a></strong> between prescription volume and non‐​medical use of opioids, or opioid use disorder, in persons over age 12. There is also <a href="">no clearly established understanding</a> of just what constitutes “overprescribing.”</span></span></span></p> <p><span><span><span>The overdose death rate has been on a&nbsp;steady, <a href="">exponential</a> increase since at least the late 1970s, and will continue along that path until policymakers finally conclude that <a href="">its ultimate cause</a> is drug prohibition. The continuing focus on prescription pain killers is not just a&nbsp;fool’s errand. It is killing people.</span></span></span></p> Sat, 12 Sep 2020 14:15:23 -0400 Jeffrey A. Singer To Fix Problems with Credit Reporting, We Need a Better Government Watchdog, Not Biden’s Idea of New Public Credit Bureau Dan Quan <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>The Biden‐​Sanders Unity Task Force wants to create a “<a href="" target="_blank">Public Credit Reporting Agency within the Consumer Financial Protection Bureau</a>” to cure the ailments in the credit reporting industry.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>This poorly thought‐​out proposal, which sounds more Bernie than Joe, amounts to a&nbsp;blunt and uncalled‐​for government takeover of a&nbsp;flawed but largely functioning private industry that supports the most developed and competitive consumer credit market in the world.</p> <p>Let’s face it, the credit reporting industry is not without its own share of problems.</p> <p>Consumers do not trust credit reporting firms with handling their personal data. The epic Equifax&nbsp;<a data-track-hover="QuotePeek" data-charting-symbol="STOCK/US/XNYS/EFX" href="" target="_blank">EFX,&nbsp;-0.06%</a>&nbsp;breach in 2017&nbsp;<a href="" target="_blank">exposed the personal information of 147 million people</a>.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The credit reporting industry has problems, but a&nbsp;government‐​owned credit agency won’t solve them. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>The public is also frustrated with the high incidents of errors in consumer reporting data. According to a&nbsp;<a href="" target="_blank">Federal Trade Commission study released in 2012</a>, “<a href="" target="_blank">one in five consumers had an error&nbsp;</a>on at least one of their three credit reports.”</p> <p>The existing industry practice is perceived to be unfair and discriminatory. A&nbsp;<a href="" target="_blank">2015 CFPB study</a>&nbsp;estimated that 45 million Americans either have no or unscorable credit records. The study further found that “Black consumers, Hispanic consumers, and consumers in low‐​income neighborhoods&nbsp;<a href="" target="_blank">are more likely to have no credit history or not enough current credit history</a>&nbsp;to produce a&nbsp;credit score.”</p> <p>However, creating a&nbsp;public credit reporting agency would not solve those issues it purports to address. Instead, enhanced government oversight and private‐​sector innovation are more effective in improving cybersecurity, reducing data errors and bringing about a&nbsp;more inclusive credit system.</p> <p>The public credit reporting agency would not necessarily be more secure and better at guarding consumers’ privacy. The 2015 data breach at the Office of Personnel Management, which exposed sensitive personal information of&nbsp;<a href="" target="_blank">22.1 million people</a>, or 7% of the U.S. population, is a&nbsp;sober reminder that there is no safe haven from massive cyberattacks.</p> <p>A better way to improve cybersecurity would be to subject the credit‐​reporting industry to rigorous supervision by the FTC, which has a&nbsp;wealth of experience and expertise in cybersecurity and privacy. Alternatively, prudential banking agencies such as the Federal Reserve and the Office of the Comptroller of Currency can do an adequate job. In any case, Congress will need to vest this new authority to one of those agencies.</p> <p>The public credit reporting agency would likely continue to be plagued by high incidences of data errors. Since the proposal requires private credit‐​reporting firms to provide data to the public credit reporting agency, we would have the “garbage in, garbage out” problem.</p> <p>A proper solution to improve data accuracy is for the government to diligently exercise its role as the watchdog. Unfortunately, consumers traditionally bear the responsibility of ensuring the data collected on their behalf and without their explicit consent is accurate. It is discouraging to see, for example, that the FTC recommended in the aforementioned 2012 study that consumers “should check their credit reports regularly” as the primary way to make sure their data is accurate.</p> <p>The CFPB has broad supervisory and enforcement authority over the credit reporting industry. It oversees both data providers (also known as furnishers, which are mostly lenders) and credit‐​reporting firms that receive and store credit data. If the CFPB consistently makes improving data accuracy the top priority during its examinations of the industry, the error rate will eventually go down.</p> <p>The public credit reporting agency is also ill‐​equipped to solve the fair‐​credit access problem. The proposal aspires to expand access to credit by ensuring “the algorithms used for credit scoring don’t have discriminatory impacts, including accepting non‐​traditional sources of data like rental history and utility bills to ensure credit.”</p> <p>This well‐​intentioned recommendation has merits, as it calls to attention a&nbsp;big problem and a&nbsp;great innovation to try and solve it, namely, the incorporation into credit files of new data sources to help “credit invisibles” get access to credit.</p> <p>However, the private sector is already innovating. For instance, Experian Boost allows consumers to add on‐​time payments for utility, wireless, and streaming services to their existing credit files. This additional information tends to improve people’s credit scores, especially those “credit invisibles.” The free service has boosted the average FICO score by 13 points per user,&nbsp;<a href="" target="_blank">according to the company</a>.&nbsp;<a href=";mod=MW_story_quote" target="_blank">EXPN,&nbsp;</a>&nbsp;</p> <p>Innovation is proven effective in expanding access to credit, and it is best left in the hands of the private sector. It would be a&nbsp;waste of resources for the government to reinvent the wheel.</p> <p>In addition to failing to address the issues of the credit reporting industry, the proposal raises serious privacy, efficiency, competition and operation concerns.</p> <p>First and foremost, the creation of the public credit reporting agency is a&nbsp;blatant intrusion of consumers’ privacy rights that the government professes to protect. The federal government would potentially score everyone and maintain a&nbsp;huge database that monitors every aspect of our financial lives: how much we owe, who we borrow from, and how much we pay. We would have a&nbsp;de facto social credit system and the country would be one step closer to an Orwellian state.</p> <p>The setup and operation of the public credit reporting agency will be a&nbsp;boondoggle for government contractors at the cost of taxpayers. The federal government has no experience or expertise in establishing or running a&nbsp;credit reporting agency. Many, if not most of the functions, would inevitably be contracted out. And the federal government has a&nbsp;poor track record of supervising its contractors and protecting consumers — just look at&nbsp;<a href="" target="_blank">how the Department of Education managed its student loan servicing contracts</a>.</p> <p>The requirement to use the public credit reporting agency for all federal lending programs and federal employment would be anti‐​competitive. In a&nbsp;free and functioning market, businesses should compete on quality of services and prices rather than on government mandate. Competition would be especially important if the government score differed from private scores, as this would bring to light and help address the weaknesses of both forms of credit‐​scoring.</p> <p>It is questionable if Congress can force private credit reporting firms to provide data to the public credit reporting agency when they are in fact competing with each other. And will the data be provided free of charge? If not, who decides how much taxpayers should pay for the data? This requirement could also crowd out private‐​sector investment and innovation, leaving both consumers and the public credit reporting agency hanging.</p> <p>The public credit reporting agency will likely be subject to the same regulations that protect consumers. As a&nbsp;result, the CFPB would be tasked with an unworkable position to supervise itself for compliance with the law. Also note any monetary damage the public credit reporting agency has to pay in an enforcement or class action settlement would be ultimately born by taxpayers.</p> <p>The credit reporting industry is an integral part of the most vibrant consumer credit market in the world. The industry clearly has some health issues, but the government option is the wrong medicine. What we need is a&nbsp;real reform that focuses on strong and smart supervision of the industry to protect consumers’ privacy and enhance data accuracy. We also need sound public policies that encourage innovation and competition to achieve fair and equitable access to credit.</p> </div> Fri, 11 Sep 2020 09:49:17 -0400 Dan Quan State Policy Favoritism and Corruption Chris Edwards <p>California leaders are in the news for passing a misguided law that requires most independent contractors to be treated as employees, and then realizing how harmful that is and passing another law exempting dozens of politically important industries from the mandate. <span>Lee Ohanian describes the law’s damage <a href="">here</a>.</span></p> <p><a href="">Last year</a>, “<span>Assembly Bill 5 included exemptions for many politically‐​connected occupations like real estate agents and doctors, but ensnared many others, drawing particular criticism from musicians, independent truck drivers, franchise business owners and freelance writers.</span>” Then in response to the public backlash, the California legislature passed Assembly Bill 2257, <a href="">which</a> exempts “<span>many occupations in media, music and other industries from AB 5’s requirements.</span>”</p> <p><span>Unneeded laws, such as this, that impose unequal justice generate endless lobbying, litigation, campaign contributions, and corruption as companies and labor unions jockey for special treatment from politicians. </span></p> <p><span>State tax policy is rife with similar favoritism. Politicians impose ill‐​conceived and damaging taxes that induce affected businesses to howl in protest and lobby for relief, and then the politicians pass an array of “exemptions,” “incentives,” “abatements,” and “credits” for the lucky few. Politicians also use state tax codes to flex their central‐​planning impulses, passing breaks for sexy and high‐​profile industries such as solar power, data centers, and filmmaking.</span></p> <p><span>In reviewing state budgets for Cato’s upcoming <a href="">Fiscal Report Card on America’s Governors</a>, I came across a 30‐​page summary of tax favoritism in the State of Nevada’s budget, which <a href="">starts on pdf page 18 here</a>. Starbucks received special grants from the state’s </span>Catalyst Fund, which “incentivizes the expansion or relocation of businesses that will quickly result in the creation of high‐​quality, primary jobs in Nevada.”</p> <p><span>Here is my interpretation of the various breaks:</span></p> <ul><li><span>Nevada mistakenly imposes sales tax on capital goods (rather than just on final consumption), and then it provides two‐​year abatements for chosen firms. Why two years? Perhaps to maximize campaign contributions and support from business lobbyists.</span></li> <li><span>Nevada imposes a “Modified Business Tax” and then provides breaks to companies that jump through political hoops on hiring and expansion. The MBT lands on a portion of business payroll. Why not just impose a simpler across‐​the‐​board flat tax explicitly on employee wages? Because politicians want to create the illusion that businesses are paying for the cost of government, not workers.</span></li> <li><span>Nevada’s local governments impose property tax on “business personal property,” such as machinery and equipment. That damages investment, so the state provides “abatements” to certain favored companies. But states should not impose property tax on business equipment at all, just as they do not impose it on washing machines and fridges in homes. Property tax should apply evenly to residential and business real property. Why do states impose property tax on business equipment? To hide tax burdens from the view of voters.</span></li> <li><span>Nevada politicians act as central planners in providing complex sales and property tax breaks to favored activities such as recycling, aviation, data centers, workforce innovations, renewable energy, green buildings, and film productions such as the erotic thriller “Frank and Lola.” The state also provides abatements to large companies with more than $1 billion in investments, thus favoring them over small companies.</span></li> </ul><p><span>Nevada’s complex system of tax favoritism is misguided. State policymakers should apply property tax at a single flat rate to residential, commercial, and industrial real property, but not business personal property (machinery and equipment). They should repeal special business taxes (including the “Commerce Tax” and “Modified Business Tax”), which hide government tax burdens from voters. Finally, policymakers should impose Nevada’s general sales tax at a single rate on final consumption, not on intermediate goods and capital equipment. </span></p> <p><span>Policymakers in every state should impose taxes that are simple, visible, equal, and neutral across economic activities. To grow, states do not need “economic development” bureaucracies such as Nevada’s that hand out narrow breaks, they just need lean governments and low, flat tax systems.</span></p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="2d8839c9-b3f0-45e0-99ec-30ca66d69fe9" data-langcode="en" class="embedded-entity"> <img srcset="/sites/ 1x, /sites/ 1.5x" width="700" height="502" src="/sites/" alt="s" typeof="Image" class="component-image" /></div> Thu, 10 Sep 2020 17:18:02 -0400 Chris Edwards The Evolution of Banking: The 2020 Cato Summit on Financial Regulation — Closing Fireside Chat: The Role of State Regulators Linda A. Lacewell, Diego Zuluaga <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Hundreds of innovative firms have now entered into payments, lending, and other consumer financial markets that banks used to dominate. These new entrants have raised the quality, lowered the cost, and expanded the reach of financial products to Americans who were previously excluded. But their growth has also raised questions about the fitness of existing regulation. Does it adequately address consumer protection and prudential concerns about these new entrants? What are the relative roles of state and federal regulators? And how can policy change best encourage entry into banking that will benefit consumers? Join us for an outstanding virtual program, featuring leading policymakers and experts, at Cato’s sixth annual Summit on Financial Regulation.</p> </div> Wed, 09 Sep 2020 15:14:39 -0400 Linda A. Lacewell, Diego Zuluaga The Evolution of Banking: The 2020 Cato Summit on Financial Regulation — Expert Panel: Increasing Competition in Banking Eric Goldberg, Maria B. Earley, Ron Shevlin, Dan Quan <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Hundreds of innovative firms have now entered into payments, lending, and other consumer financial markets that banks used to dominate. These new entrants have raised the quality, lowered the cost, and expanded the reach of financial products to Americans who were previously excluded. But their growth has also raised questions about the fitness of existing regulation. Does it adequately address consumer protection and prudential concerns about these new entrants? What are the relative roles of state and federal regulators? And how can policy change best encourage entry into banking that will benefit consumers? Join us for an outstanding virtual program, featuring leading policymakers and experts, at Cato’s sixth annual Summit on Financial Regulation.</p> </div> Wed, 09 Sep 2020 15:10:00 -0400 Eric Goldberg, Maria B. Earley, Ron Shevlin, Dan Quan The Evolution of Banking: The 2020 Cato Summit on Financial Regulation — Welcome and Introduction and Opening Fireside Chat: New Entrants into U.S. Banking Jennifer J. Schulp, Brian P. Brooks, Diego Zuluaga <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Hundreds of innovative firms have now entered into payments, lending, and other consumer financial markets that banks used to dominate. These new entrants have raised the quality, lowered the cost, and expanded the reach of financial products to Americans who were previously excluded. But their growth has also raised questions about the fitness of existing regulation. Does it adequately address consumer protection and prudential concerns about these new entrants? What are the relative roles of state and federal regulators? And how can policy change best encourage entry into banking that will benefit consumers? Join us for an outstanding virtual program, featuring leading policymakers and experts, at Cato’s sixth annual Summit on Financial Regulation.</p> </div> Wed, 09 Sep 2020 15:04:51 -0400 Jennifer J. Schulp, Brian P. Brooks, Diego Zuluaga A History of Crowdfunding in the Wake of Violence Will Duffield <p>In the days following a vigilante shooting in Kenosha, WI, activists and supporters launched GoFundMe pages soliciting donations for the families of the dead, the medical expenses of the injured, and the costs of the shooter’s legal defense. GoFundMe has since <a href="">removed</a> the legal defense fundraiser for Kyle Rittenhouse. For those who see the shooting as a case of self-defense, GoFundMe is <a href="">attempting</a> to deny a young man legal assistance for partisan reasons. Others, proceeding from the belief that Rittenhouse is a mass shooter, <a href="">looked askance</a> at Facebook’s initial failure to remove statements supporting him, likening #FreeKyle to genocide advocacy in Myanmar.</p> <p>It has become an all-too-familiar <a href="">script</a>. Some confusing, symbolically charged event occurs and partisans assemble disparate sets of often correct—albeit incomplete–facts. They then interpret them according to their tribe’s values. It is not simply a matter of different camera angles (though there is plenty of jockeying for those) but of the partisan frameworks used to interpret what everyone sees. This produces incompatible narratives that frustrate nuanced deliberation, lasting grievances that can be drawn upon in future conflicts, and a no-win situation for social media platforms.</p> <p>Expectations of platform policy are inevitably informed by partisans’ incompatible narratives; moderation on the basis of any one perspective will alienate users with conflicting views. Because most public commentary and media coverage proceeds from one narrative or the other, when platforms fail to reflect partisans’ preferred account, their decisions are taken as evidence of irresponsibility or bias. Platforms’ attempts to maintain neutrality are treated as a failure to face facts.</p> <p>Platforms don’t do enough to maintain consistency across high-profile divisive incidents, and their learning process is often an attempt to discover which stance will invite the least pushback. Services such as Gab and Mastodon offer alternatives to mainstream platforms that increasingly embrace popular narratives. This paradigm offers platforms of last resort to disfavored speech, but directs partisan demands toward the internet infrastructure that supports these alternatives.</p> <p>The current environment of polarized expectations of platforms has been long building. Eight years ago, George Zimmerman used a personal website with a PayPal plugin to <a href="">solicit</a> donations for his legal defense after killing Trayvon Martin. Activists created <a href="">petitions</a> were asking PayPal to remove Zimmerman’s account, though the company did not act on the request. After a few weeks, having raised $200,000 and ostensibly worried about impostors, Zimmerman took the fundraising website down.</p> <p>The role of payment processors has since become more explicitly politicized as mainstream platform moderation has become more restrictive. As disfavored speakers move to their own platforms, deplatforming efforts have shifted to the payment processors and web infrastructure providers that make it possible to create a personal website.</p> <p>In August 2014, Darren Wilson, the Ferguson police officer who shot Michael Brown, <a href="">raised</a> money for his legal defense via GoFundMe. In response to complaints about the fundraiser, GoFundMe issued the following statement:</p> <blockquote><p><span lang="EN" lang="EN">Much like Facebook and Twitter, GoFundMe is an open technology platform that allows for the exchange of ideas and opinions within the bounds of our terms of service . . . </span>The content of the campaign itself is not in violation of GoFundMe's terms of service. However, some donors' comments have contained content that is in violation of GoFundMe's terms and have been removed accordingly . . . The campaign does not appear in GoFundMe's public search directory because a valid Facebook account has not been associated with it.</p> </blockquote> <p>This is a broadly balanced, seemingly rule-based approach that is unlikely to completely satisfy anyone, justified with an appeal to neutrality. At the time, however, GoFundMe’s community standards were limited to <a href="">rules</a> against gambling, Ponzi schemes, and fundraising for the creation of illegal products. A month later, the platform <a href="">added</a> more specific content guidelines including a prohibition on “campaigns in defense of formal charges of heinous crimes, including violent, hateful, or sexual acts.” Although this language would not have prevented the fundraiser for Wilson, as he had yet to be charged with a crime, the incident prompted the platform to expand its policies.</p> <p>This episode also illustrates how one platform’s moderation can have spillover effects onto others. Although Facebook is an edge provider, engaging directly with users rather than providing services to websites, its provision of a digital identity in the form of a Facebook profile cause its decisions to ripple across the internet to other services. When Facebook, perhaps belatedly, deemed Rittenhouse a mass shooter, it <a href="">limited</a> its users’ ability to share links to fundraisers for him. The Wall Street Journal <a href="">criticized</a> Facebook’s decision, noting that unlike a court of law, “the platform may only be used to declare Mr. Rittenhouse’s guilt, but not his innocence.” This matters to Facebook as well as Rittenhouse. If a jury finds him not guilty, Facebook’s decision to apply the “mass shooter” designation will undermine the label’s legitimacy in more clear-cut cases.</p> <p>In 2015, GoFundMe <a href="">removed</a> a fundraiser for officers charged in connection with the death of Baltimore resident Freddie Gray. A platform representative explained the decision with reference to their new policy, saying “GoFundMe cannot be used to benefit those who are charged with serious violations of the law. The campaign clearly stated that the money raised would be used to assist the officers with their legal fees, which is a direct violation of GoFundMe's terms.”</p> <p>Later that year, GoFundMe was again embroiled in controversy over fundraisers for bakeries refusing to provide cakes for gay weddings. While some fundraisers attempted to raise money for the bakeries’ legal defense, a prominent campaign in support of one bakery, Sweet Cakes by Melissa, sought to crowdsource paying a fine imposed for breaching Oregon antidiscrimination law. GoFundMe removed the campaign, though only after it raised more than twice the $135,000 fine, and <a href="">appended</a> “discriminatory acts” to its policy on campaigns in defense of formal charges</p> <p>A year later, perhaps hoping to put the issue to bed entirely, GoFundMe imposed a blanket <a href="">ban</a> on fundraisers for “the defense or support of anyone alleged to be involved in criminal activity.” GoFundMe maintained the prohibition until 2018 when it began once again allowing criminal defense fundraisers while reserving the right to remove specific fundraisers at their direction. The current <a href="">terms</a> prohibit “campaigns deemed by GoFundMe, in its sole discretion, to be in support of, or for the legal defense of alleged crimes associated with hate, violence, harassment, bullying, discrimination, terrorism, or intolerance of any kind.” Although this change liberalizes platform policy relative to the 2016 ban, it gives GoFundMe’s moderators greater discretion while limiting their ability to justify their decisions with reference to clear rules.</p> <p>Parts of GoFundMe’s current policy prohibit fundraising for the Kenosha shooter. While partisans disagree about whether Rittenhouse was motivated by hate or misplaced duty and fear, he has undoubtedly been charged with a violent crime. GoFundMe has confirmed that the fundraiser was removed and directed reporters to its prohibitions on criminal defense fundraising.</p> <p>While both the violent nature of the alleged crime and the broad, “sole discretion” determinative leeway justify GoFundMe’s removal, given the high-profile nature of the case, it isn’t unreasonable to worry that the decision was made in response to public sentiment, rather than a strict interpretation of platform rules. Other self-defense fundraisers do appear on the platform, though probably escaped moderation because of their obscurity. Current fundraisers involving charges of violence don’t cut in any discernable partisan direction: a <a href="">campaign</a> for a conservative student accused of making terroristic threats sits next to a <a href="">fundraiser</a> for a black man charged after reportedly defending himself from racists.</p> <p>If GoFundMe exhibits a bias, it is against contentious, politically-charged criminal defense campaigns. This bias has developed over the past half-decade in response to repeated criticism. Explicit political bias is unlikely—the most successful campaign in the platform’s history was an effort to privately build a wall along the border between America and Mexico, although the organizers of that campaign have since been charged with fraud.</p> <p>For the most part, crowdfunding platforms would prefer to avoid making political moderation decisions. For fundraising services, the most salient content moderation concerns are fraud (because it leads to angry users demanding refunds) and fundraising for legally-prohibited organizations (because such activity invites inquiries from law enforcement). However, public pressure, whether prompted by critical media coverage or a viral tweet, has rendered some campaigns more trouble than they are worth to mainstream platforms. Given the distance between partisan understandings of the Kenosha shootings, it’s understandable that a platform seeking wide appeal would try to avoid the matter entirely. It may be valuable to maintain easily accessible fundraising platforms that eschew politics, preferring to help America’s little platoons fund their members dojo reconstructions and cross-country moves.</p> <p>Some fundraising platforms have more specific audiences, however. Under the neutral protections of Section 230 of the Communications Decency Act, entrepreneurs have established alternative crowdfunding sites to serve niche audiences. GiveSendGo, the “#1 Free Christian Fundraising Site,” <a href="">continues</a> to host a fundraiser for Rittenhouse. Like GoFundMe in 2014, the platform issued a statement that appeals to neutrality, or at least balance, to justify its decision:</p> <blockquote><p>GiveSendGo is committed to giving both sides of the political culture in our society an equal chance to let their voices be heard. We will not be removing this campaign.</p> </blockquote> <p>Unlike GoFundMe, GiveSendGo has already pigeonholed itself by appealing mainly to Christian evangelicals. It doesn’t have to worry about building a wide, cross-partisan userbase. Alternative platforms thus provide digital versions of the seedy spaces of analog life. They may be used to escape the strictures of mainstream norms at the cost of being reputationally tied to whatever subcultural focus renders the platform an alternative in the first place. Pornography and Soldier of Fortune Magazine were sold in specialty shops for a reason.</p> <p>The varying decisions of GoFundMe and GiveSendGo demonstrate the value of Section 230 as an ecosystemic speech protection: it allows platforms to set their own rules, but its universal protections hold the door open to new platforms for disfavored speech and fundraising. As politically-charged incidents proliferate and the narratives surrounding them become less compatible, mainstream platforms will be forced to make binary decisions about an ever-wider variety of issues, creating more demand for alternatives.</p> <p>Although Section 230 ensures that alternative platforms can set their own rules without fear of legal sanction, it doesn’t ensure they have everything they need to operate. Alternative platforms still rely on domain name provers and payment processors. In response to GiveSendGo’s decision to permit the Rittenhouse fundraiser, Discover Financial Services began <a href="">blocking</a> transactions to GiveSendGo. While Discover is far from the only firm in the payment processing business, its decision illustrates the seeming inescapability of political expectations and the appeal of decentralized, permissionless currencies like Bitcoin.</p> <p>Cultural balkanization spurs platform balkanization as moderation decisions are subjected to increasingly exacting partisan standards. A renewed appreciation of neutrality and transparency in edge-case decisions might allow platforms to resist the pull of public opinion, but defensible neutrality can only gather legitimacy over time as it withstands repeated and varied demands. The flexibility demonstrated by GoFundMe over the past five years may preclude this option. If platforms wish to maintain neutrality in the face of politicized expectations, they may have to structure themselves more like <a href="">protocols</a>, structurally <a href="">limiting</a> managers’ ability to make decisions in politically contentious cases.</p> <p></p> Wed, 09 Sep 2020 11:42:50 -0400 Will Duffield The Forgotten Overdose Deaths in a Pandemic Jeffrey A. Singer, Caleb O. Brown <div class="mb-3 spacer--nomargin--last-child text-default"> <p class="MsoPlainText">The pandemic may have exacerbated the problems of drug addiction and dependence. State and federal responses have not been particularly helpful. Jeff Singer comments.</p> </div> Tue, 08 Sep 2020 03:00:00 -0400 Jeffrey A. Singer, Caleb O. Brown