Tag: Microeconomics and policy analysis

Cannabis legalization: “Compared to what?”

Prohibition is perhaps the worst option for cannabis policy. Commercialization may be the second-worst.

David Brooks and Ruth Marcus both have anti-cannabis legalization essays up. Brooks doesn’t mention 650,000 arrests a year, 40,000 people behind bars at any one time, or $35 billion in annual illicit income. Brooks does mention the issue of personal liberty, but immediately bats it away: apparently the liberty to do what Brooks disapproves of isn’t really valuable. Marcus mentions that pot-possession arrests are a bad idea but doesn’t say anything about how to reduce them; she just dances gaily on, wishing that the bad consequences of legalization could be avoided. Both Brooks and Marcus seriously overstate the evidence about the damage done by cannabis by flipping back and forth between studies of heavy, chronic use and conclusions simply about “use.” But they’re right to say that cannabis use is bad for some people, and that the number of people harmed by pot is likely to go up when it’s legally sold.

At the same time Bruce Bartlett writes in favor of legalization without ever mentioning drug abuse. He invokes something he calls “economics.” I take it that he uses “economics” to mean the principle of revealed preference, which asserts that whatever a person chooses is what that person wants, and that getting what you want is, by definition, beneficial. He asserts that he is “not aware of a single economic analysis” coming down against legalization, without giving any evidence of having looked.

Well, guess what? If you ignore the benefits of legalization, it looks like a pretty bad idea. If you ignore the costs, it looks like a pretty good idea.

And of course since Brooks, Marcus, and Bartlett all are engaging in the middle- school version of policy analysis that simply ignores countervailing arguments and blows past the compared-to-what question, none of them has to wrestle with the hard questions:

* If cannabis remains illegal, how should those laws be enforced? Whether cannabis use is bad for you is uncertain; that black-market activity, arrest, and incarceration are all bad for you is unquestionable.
* Should cannabis be legal to use, but not to sell? If so, should individuals be allowed to grow for their own use, or should we leave the industry to the criminals?
* If sale is permitted, should it be restricted to not-for-profit cooperatives or to a state agency?
* If commercial sale is permitted, how high should the taxes be? What rules should apply to marketing?
* What information should be provided to consumers by sellers or by public or NGO bodies? If some forms of the drug are more dangerous than others in terms of unintentional overdose or habituation, should the more dangerous versions carry warning labels?
* Should there be a minimum legal age for cannabis purchase and use? If so, how should those laws be enforced? In particular, should underage users be subject to arrest?
* What rules should apply to driving after cannabis use, and what rules of evidence should apply?

I continue to think that continued prohibition may be the worst option under current U.S. circumstances; I’m still waiting for someone who opposes legalization to sketch a reasonable alternative to the status quo. I’m inclined to think that full commercial legalization with minimal marketing restrictions and low taxes - which is where the country is currently headed - might well be the second-worst. But for now the public debate is dominated by those two bad options.

If Brooks and Marcus, and those who share their concerns, want to do some actual good in the world, they need to get down in the trenches and think concretely about policies. Standing athwart history shouting “Stop!” is an undignified posture.

Update Of course Matt Welch is right to criticize Brooks’s equation of a state’s decision not to make some activity a criminal offense with “encouraging” that activity. But equally of course creating a for-profit cannabis industry - which will derive most of its revenue from people who smoke too much - and allowing that industry “commercial free speech” means that the encouraging will go on just the same, even though the state doesn’t do it. In a sane world, it would be possible to allow an activity but forbid its promotion by firms trying to profit from the weaknesses of their consumers; the notion that there’s no middle term between criminalization and allowing aggressive marketing is bizarre on its face.

Welch and his libertarian friends just love “commercial free speech,” a doctrine that exists, as far as I know, only in American law. Lots of places have open political discourse but don’t, for example, let Big Pharma peddle complex medicines directly to sick people. Perversely, this makes it harder to reduce the scope of the criminal law.

Coase, external costs, and lighthouses

Yes, Coase reformulated the problems of social cost and public goods. No, he did not make them go away.

Ronald Coase’s passing - at the ripe age of 102 - is an opportunity to recognize a substantial intellectual achievement. “The Problem of Social Cost” represents a major advance over Pigou in thinking about policy toward third-party effects. It does not deserve most of its “Coasean” followers (including Coase himself, in some moods) who want to act as if the problem had been eliminated rather than being reformulated as one of minimizing transactions costs and dealing with free-ridership. (Harold Demsetz makes the strong argument that the public-goods/free-ridership problem is more fundamental than transactions costs proper.

(A different critique, not often offered, is that the paper ignores the problem of extortion: it’s one thing for you to voluntarily pay to have me move my hog farm to improve the atmosphere around your mansion next door, and something else for me to buy the land next to your mansion and threaten to set up a hog farm unless you buy me out at a premium.)

“The Lighthouse in Economics,” by contrast, does not get within a million miles of proving what Coase and his followers think it proves. Yes, there were private-enterprise lighthouses in Britain. But there were never free-market lighthouses in Britain or anywhere else. Lighthouse construction and operation were supported by tolls - that is, taxes - collected at nearby ports. Of course a private enterprise can supply a public good if it has the power of the state to force someone to pay for it. So what?

In the end, the political economy of private lighthouses worked out so badly that it was decided to make them a public service after all, though still supported by shipping fees rather than out of general revenue.

How much of any given public good to provide (including the elimination of public bads such as air pollution), and how to pay for it, remain problems outside the reach of “free-market” dogmatizing. But that won’t, alas, prevent libertarians from pretending that waving their magic wands while shouting “Coase!” makes the problems go away.

P.s. Still waiting for some libertarian to notice the argument in Nozick’s Anarchy, State, and Utopia which demonstrates that Lockean principles cannot support the acquisition of private property in land, because the “enough-and-as-good” proviso unravels backwards.

Update John Cassidy expounds the differences between what Coase taught and what was taught in Coase’s name.

The “Nudge Squad”

Applying behavioral insights to choice architecture is an obviously good idea; the only question is how big the effects can be in various domains. But the obscurantism and unreasoning government-hatred on the Right blinds even libertarians to the virtues of an approach they ought to love.

Behavioral economists and the associated social and cognitive psychologists have demonstrated that choice behavior responds not only to “objective” benefits and costs but to various features of the “choice architecture” the world presents to the people making the choices. If non-enrollment is the default option with an opt-in requirement, fewer people will wind up enrolled than if enrollment is the default, with a fully disclosed and easy opt-out. Since there must be some default setting, there’s no such thing as a neutral choice architecture that elicits subjects’ “true preferences.” The same is true about organizing the food in a school cafeteria: what the kids eat depends in part on where different selections are placed.

People in the sales business spend a lot of time trying to design choice architectures that maximize profits. It seems obvious that people in the public-policy business ought to try to design choice architectures that serve public purposes.

In particular, in cases such as retirement planning and diet, where there’s a systematic difference between what experts recommend and subjects think is in their best interest on the one hand, and subjects’ actual behavior on the other, it seems natural to try to nudge people toward the behavior that’s in their own long-term interest as they see it, which generally means that it has external benefits as well. The same applies, with even more force, to energy conservation, where ordinary consumers systematically leave tons of money on the table for no benefit whatever; a better-insulated house more than pays for itself, quickly, and is also more comfortable to live in.

That’s the idea behind the Thaler and Sunstein “nudge” approach. The current right-wing coalition in the UK has been using it, and the Obama Administration is moving in the same direction.

Of course, it’s always an open question how much good this sort of thing can do. (See below the fold for some examples from the White House release; of course there’s no comparable list of failures.) But it’s really hard to see why anyone would be against strategies that (1) respect autonomy (2) economize on public expenditure and (3) have unambiguously positive results when they have any results at all, especially when the proposal is to do intensive experimental testing rather than rolling out grand schemes. At last, we have a polarization-proof policy proposal!

Oh, wait … I’d forgotten about the utterly pathological government-hatred and obscurantism on the contemporary American right. Fox News breaks the story with a “Govt Knows Best?” scare headline. Nick Gillespie at Reason Hit & Run writes:

Critics point out that a) expert advice is often proven wrong quickly after being implemented and b) government might have more essential functions that gulling citizens into acting one way or another.

In other words, according to Gillespie, since knowledge isn’t infallibility, ignorance is better than knowledge. And governments ought to ignore the the science of human behavior and not think about how to “gull” people into going to school, getting jobs or paying their taxes. By “critics” Gillespie must mean “idiots.” All of this is echoed, with some routine paranoid Obama-bashing added, at the usual collection of wingnut websites.

I don’t expect any better from Fox or PJ Media. But an outfit that calls itself Reason ought to be embarrassed when one of its writers displays such a flair for illogic. Does Gillespie really believe what he writes? I’d hate to think so, and don’t in fact believe it. This is the case Upton Sinclair described: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Come to think of it, that’s a testable proposition in behavioral economics.

Continue reading “The “Nudge Squad””

Why Russia is in trouble (and we’re all getting there)

An angry young man on a Friday night may want a bottle of whiskey. But does it maximize public happiness to give him one with maximum efficiency?

From a New York Times article today on technology to track shoppers’ movements in stores through their cell phones:

Synqera, a start-up in St. Petersburg, Russia, is selling software for checkout devices or computers that tailors marketing messages to a customer’s gender, age and mood, measured by facial recognition.

“If you are an angry man of 30, and it is Friday evening, it may offer you a bottle of whiskey,” said Ekaterina Savchenko, the company’s head of marketing.

Can someone say “negative externality”?

[As a preemptive answer to libertarian commenters: no, I don’t think the law should prevent this man from buying whiskey. But I do think there’s a moral case to be made for retailers not tripping over themselves to offer him some at maximum speed before he’s even asked for it. And I believe contemporary capitalists to be very bad at thinking about things like this.]

Rights, outcomes, and the Golden Rule in drug policy

In which Schelling, Rawls, Kant, and Jesus of Nazareth gang up on John Stuart Mill.

At yesterday’s Brookings/WOLA Congressional briefing on cannabis policy, I made my usual argument that (in rough numbers) 80% of the users of almost any drug use it moderately, take no harm from it, and do no harm to others, but that the other 20%, who use more than is good for them, account for 80% of the consumption and an even larger fraction of damage to themselves and others. My conclusion from that was the necessity of regulation, since the industry that sells the drug (or offers other potentially habit-forming services such as gambling) will always be financially dependent on dependent problem users, while the public interest is in serving the desires of non-dependent non-problem users while minimizing the number of dependent users.

Jonathan Rauch, who heads the Brookings side of the project, found that line of argument troubling. He asked me whether the interests of the responsible 80% should really have to yield to the interests of the irresponsible 20%. (Since the two groups aren’t distinguishable at a glance, there’s no way of restricting the consumption of problem users without somewhat inconveniencing non-problem users.)

That question, asked by someone whose intellect and ethical sensibility I have come to respect, led me to reflect on the difference between a moralistic or rights-based approach to a problem such as this one and a policy-analytic or outcomes-based approach. If you think of problem users and non-problem users as different people, it’s natural to ask which group’s interests ought to make way for the other’s. That seems to be a moral or constitutional question. But if you think of yourself as a potential user of a drug (or, as Jonathan suggested to me, the parent of a potential user), unable to know in advance whether your (or your child’s) use will remain controlled or will instead progress to dependency, and ask how much inconvenience in controlled use you want to sacrifice for protection against a bad habit, then you confront a practical problem rather than a moral one.

(Some readers will recognize in this Schelling’s solution to the puzzle of why it’s justified to save a larger rather than a smaller number of lives, when that’s the choice; if you imagine yourself as a member of one of the two groups, without knowing which one, it’s obvious you’d prefer a higher probability of survival to a lower one. Jonathan instead recognized this as a Rawlsian veil-of-ignorance argument, which also seems right to me.)

Of course, this same approach can be applied well beyond drug policy. Asking “How much do the non-poor owe to the poor?” is a moral question. Asking “How much protection would a reasonable person want against the risk of poverty?” sounds more like a computation. Of course, if you think of yourself as naturally immune to the risks of drug abuse or of poverty, you’ll be more inclined to let the drug abusers, and the poor, go hang. But that seems to me compatible neither with the Categorical Imperative nor with the Golden Rule. If we accept arguments from symmetry in physics, why not in ethics?

Measuring quality of life vs. measuring rent

I can’t agree with Matt Kahn’s snark at Santa Monica for its attempt to measure some indicators of quality of life.

What economists know how to measure is interesting. But it’s not exhaustive. Real estate prices can provide some sort of measure of quality-of-life as evaluated by people with money. But of course someone looking for housing wants to know where to find high quality of life relative to cost.

Even if we knew - which we don’t - what places are good places to live, we would still need to know what makes them good places to live, and in particular whether there are characteristics alterable by policy that would improve quality of life.

Measures of social capital - both as an individual asset and as a neighborhood characteristic - have a great deal to tell us, if we learn to measure them properly. And it’s not the case that all neighborhoods at the same level of housing cost have similar connectedness; in particular, high-priced suburbs and exurbs may do very poorly on that measure. Matt is right to ask whether we can find measures of social capital that in fact predict, e.g., mutual aid in disasters. But I don’t see how we can answer that question without trying. Surely measuring rents doesn’t get us anywhere at all.

This seems to me a clear case of cursing the darkness and making fun of people trying to light candles. And I suspect the RAND “fat cat consultants” Matt sneers at aren’t paid as well as either of us is.

Of course Matt is entitled to his opinion. However, as someone who often confronts distrust of economic methods as a problem, I wish he’d do less to foster it. Not all of us trained in the Dismal Science insist on knowing the price of everything and the value of nothing, or on the related fallacy of assuming that price and value are identical concepts.

Policy rhetoric, or fallacy-hunting?

When someone makes an argument or does a study that has a policy implication you dislike, it’s natural to attack the argument or the study to show either that it’s wrong on its own terms or that it doesn’t support the policy inference.

(Of course, the argument might be right and the inference valid so far as it goes, but there might be reasons to pursue some different policy due to considerations the argument doesn’t address.)

It’s also natural to make the reverse inference: that someone who criticizes an argument or a study must oppose whatever policy the argument seems to support: that the critique is simply a trope of policy rhetoric.

If the critic is a politician or an advocate, that inference-to-motive is likely correct: criticism of arguments is part of the stuff of policy debate. But if the critic is an academic or a policy analyst, the inference-to-motive might be wrong.

I teach policy analysis for a living; blogging is an adjunct to that enterprise, as well as to my political activity. I have a bunch of strongly-held political beliefs and policy opinions, but I also have a strong commitment to rational discourse about public affairs. Like GBS’s imagined democratic citizen, I actually resent a fallacy as much as I do an insult.

So when a marijuana-legalization advocate says “Cannabis kills no one” and I respond by calling bullsh*t, it’s not because I hate the idea of marijuana legalization. And when a drug warrior says, “Marijuana use reduces IQ” and I point out that the underlying study only applies to very heavy and very persistent cannabis use starting in mid-adolescence - that there’s absolutely no evidence of IQ loss from the marijuana smoking of 90% or more of all marijuana smokers - it’s not because I want to see free commerce in marijuana.

I also know, from bitter experience, that passionate advocates find this completely impossible to believe. Projecting from their own behavior, they are convinced that no one makes an argument merely because he or she thinks that argument true. On this view, if you’re not engaged in rhetorical battle - offering all arguments, true or false, on one side and rejecting all arguments on the other - then you must be engaged in some low form of personal positioning for career advantage. And the claim that there is relatively dispassionate analysis, as distinguished from advocacy, strikes true-believing advocates as the ultimate in bad faith: if not deception, then self-deception.

So there are people who sincerely believe (and others who pretend to believe) that I’m a closet drug warrior pursuing a sadistic and authoritarian agenda, and merely pretending to be a careful analyst of the consequences of alternative policies in order to deceive he unwary into taking my arguments seriously. And there are people who believe that, in my heart of hearts, I’m a full-on legalizer, making occasional prohibitionist noises just to maintain my political currency and access to funding.

And there’s not a damned thing I can do about it, except to say that it ain’t so, and to argue with particular ferocity against false arguments offered in support of the policy positions I actually hold.

[This has a slightly different twist in straight politics. No sane person thinks that when I criticize particular attacks on conservatives it’s because I’m a closet conservative, but the accusation of disloyalty and careerism is always available to those who think that the dirtiest political rhetoric is always the most effective and that those who criticize their own side’s dirt are over-fastidious.]

The President introduces the new Secretary of the Treasury

Keyword: “integrity.” But why should public service be a financial sacrifice?

Keyword: “integrity.” It’s always heartwarming when nice guys finish first.

Obama’s reflection on the sacrifices made by people like Geithner and Lew - and their families - and the fully-justified praise Geithner and Lew offered to the civil servants at Treasury and OMB, raised a question about when we’re going to start paying those civil servants - who don’t get to cash in with stints in the private sector - reasonable salaries.

When the top career lawyers for the government make less than twenty-something associates at top law firms, is it any wonder the public gets the short end of the deal? Singapore pays its top civil servants real money. Why can’t we?

Knowledge and dogmatism on pot policy: an inverse relationship

The more ignorance, the more confidence.

American policy discourse is marked by the clash between cautious knowledge and dogmatic ignorance. For example:

Gary Becker and Kevin Murphy provide a number of mostly data-free, hand-waving, Micawberish arguments for complete marijuana legalization (on the way to legalizing everything). Patrick Kennedy is equally passionate, and even less fact-based, on the other side of the question. On the other hand, The marijuana legalization research team at RAND, knowing much more, is much less confident.

Here’s the marijuana situation right now:

*A few million problem users, many of them minors. Substance abuse disorder related to cannabis isn’t, on average, nearly as bad as substance abuse disorder related to alcohol, but it’s plenty bad enough. (Of course some people get in trouble with both at once.)
*An illicit market around $15b/yr., some of it related to violent drug gangs in Mexico.
*800,000 arrests a year for simple possession.
*About 40,000 dealers behind bars.

Legalization would reduce arrests, incarceration, and the illicit markets. It would also reduce price and increase availability, thus increasing use, including problem use. Higher taxes and tighter regulations (or the equivalent via a state monopoly) would moderate the increase in problem use. But the higher the taxes and the tighter the regulations (e.g, on sales to minors) the more illegal activity, and the more need for enforcement, somewhat reducing the benefits of legalization in reduced illicit enterprise and enforcement. (There are more arrests every year for breaking alcohol laws than for breaking marijuana laws.)

Legalization would also increase consumer choice and free marijuana users from the stigma of illegality and the risk of arrest.

The effects of legal cannabis on heavy alcohol use are unknown.

You might want to add some other results to this list, but, roughly speaking, that’s the situation: the status quo has some very undesirable features; legalization would moderate some of them while aggravating others; and the details of the post-legalization regime would be important in determining the size of those changes. Even if you knew those details, the quantitative results are not easy to predict, and there’s no obvious way to assign benefit-cost weights to, e.g., increased substance abuse against increased consumers’ surplus and reduced arrest counts.

But a TV booker asked to put together a show on marijuana legalization is likely to take the easy way out: find a legalizer to assure you that legality reduces addictive risk and a drug warrior to warn you that “marijuana destroys the brain” and invite them to go at the question. There’s no room nuance, or for expertise.

Lead, crime, science, and policy

Kevin Drum responds to comments: the evidence is solid, but we need more science and a real benefit-cost analysis.

Kevin Drum, whose article in the current Mother Jones seems to have put lead back on the policy agenda, responds to comments. Short version: the evidence is solid, but yes, we need more science and a real benefit-cost analysis. (I’m pretty sure that a thorough analysis would show huge net benefits, but that analysis hasn’t been done yet.)

Kevin, having done much more work on the issue than the typical advocate, is much less dogmatic about his conclusions. Too bad cloning is illegal: with about a dozen Kevin Drums, we could move this country forward.