I’m in Houston to give a talk on “Ability to Pay” reforms for how fines and fees are assigned in the criminal justice system, so I’m taking the opportunity to economize on my scarce time i.e. be lazy.

This post received renewed interest in the last week thanks to a vastly superior stating of the hypothesis by Zach Weinersmith. I think it holds up pretty well, title aside, whose connection to the actual material is, at best, unnecessarily oblique and high-handed.

One acceptable truth or a million fantasies (12/28/20)

Humans are soft, slow, and (to the best of my knowledge) make for fairly nutritious meals. Brains for tool-making, and the opposable thumbs for using them, are significant evolutionary adaptations, but it is our capacity to act collectively that placed us at the top of the food chain.

By the end of a standard undergraduate economics curriculum, one couldn’t be blamed for coming to the conclusion that the failures of collective action are the greatest obstacle to mankind – Oh what we could have accomplished if only we had ever found a way to just cooperate. Alas, all those externalities, Prisoners’ Dilemmas, free riders, easy riders, market failures, government failures, they just stopped us at every turn…

I’m not doubting the pedagogical value of teaching any of these obstacles, I teach them myself, but I believe we spend insufficient time reminding students that humans have been solving collective action problems with great success for thousands of years. Every national government, book club, homeowners association, and sorority has managed to produce public goods. So has every military coup and angry mob (if only sometimes for fleeting moments), but collective action is collective action, regardless of how we may feel about the outcome.

More often than not the most interesting question to me isn’t can a collective action problem be solved, but rather i) how has it already been solved and ii) how is that solution going to be threatened or hijacked? When I look to the current political landscape and the only mildly-exaggerated state of political and social polarization, I see not just rival ideologies, but alternative strategies for engendering and ensuring cooperation. On the left, I observe greater recent emphasis on purity – there is a narrow band of acceptable truth and any deviation from that, be it however accidental or benign in intent, can lead to significant punishments, including purges colloquially referred to as cancellations. On the right, I see required public professing of incorrect, often seemingly absurd, beliefs. I might talk about purity tests and purges on the left another times. What I’m interested in at the moment are the public untruths of current right wing identities (broadly conceived) and how they fit into the sacrifice and stigma theory, or club theory, of religion.**

I’ve written a lot about sacrifice and stigma theory. It has become the hammer than has left me forever searching for nails. Originally put forth by Laurence Iannaccone in 1992, it is nothing short of brilliant to my mind. A tool for solving collective problems so profound that when it shows up we barely notice it, and where it shows up tends to be the most powerful clubs shaping our societies: the religious, martial, and extremist political groups that bend the arc of history.

Groups produce what we call “club goods” i.e. public goods only accessible to members of the group. What Iannaccone demonstrated was that a group could actually increase their production of club goods by burdening its members with completely unproductive costs. Why do religious groups require clothing, behavior, or language that could stigmatize their members in broader society? Why are members required to sacrifice their resources at the literal or figurative altar of the group? Because if you impair members’ private productivity, or if the fruits of that private production are skimmed away, they will invest more of their resources into the group. If all group members face these same altered incentives, guess what, you’ve solved the collective action problem!

When I see educated women and men declaring the earth is 5,000 years old, that evolution isn’t real, that climate change is a hoax, or that Donald Trump is a brilliant human being, what I see is public profession of beliefs that might limit social or even occupational opportunities and, in turn, further commit them to a specific subset of affiliations. In the constellation of beliefs that might end up as political shibboleths, of course, there stand to be some more costly than others. In fact, there might even be beliefs that impose negative externalities on others, such antipathy towards vaccines or mask-wearing during a pandemic. Excessive burden might hurt the group, of course – remember, club membership must to be a net gain to persist. In a polarized society, however, vitriol created in rival factions by the externality-generating belief could actually intensify the commitment of group members. The liberals hate real-Americans like me so much now, they’d never accept me as anything but a dumb redneck, so the rational thing to do is double down on my commitment to the only group that will have me. Beliefs that reduce private productivity, increase group productivity, and create long-run antipathy in rival groups can serve to create something incredibly valuable to the group: a captured membership. If there is one thing that is evolutionarily hard-wired into human beings it is the knowledge that isolation is death. A member so stigmatized by past public behavior that rival groups would never accept them stands to be very committed to the group going forward.

The vulnerability of sacrifice and stigma born of public adherence to false beliefs, however, is the capacity of leaders to incept preferred false beliefs into the dogma. This is one way that minority groups can become scapegoated, the carbon costs of fossil fuels denied, quack remedies pedaled, or the reliability of electoral institutions undermined. Religious texts exist (mostly) unedited for long periods of time for a very important reason: core rules of behavior, methods of tithing, and sets of beliefs must be inoculated against opportunistic actors who would hijack the club goods they produce.

Sacrifice and stigma through club-specific false beliefs is a dangerous strategy for political parties for the simple reason that without the constraints of fact or scripture, leaders will feel the pull of their own preferences. Far more dangerous however, is the megalomaniacal conman that any political party institutionally designed to demand cognitive dissonance of its members will eventually attract. Political parties need to solve collective action problems, yes, but they also need immune systems. One might point to social norms, both within and outside the group, as key means of protection. Recent years, however, would seem to suggest that norms are not sufficiently robust in the long run. The US court system has held up well, and has in many ways served as the nations constitutional immune system. Perhaps the major political parties should consider updating and reinforcing their own constitutions, and put in place mechanisms to protect themselves from the next inevitable invasion.

American political parties need to update and upgrade their immune systems.

Inspiring research:

Iannaccone, Laurence R. “Sacrifice and stigma: Reducing free-riding in cults, communes, and other collectives.” Journal of political economy 100.2 (1992): 271-291.

Aimone, Jason A., Laurence R. Iannaccone, Michael D. Makowsky, and Jared Rubin. “Endogenous group formation via unproductive costs.” Review of Economic Studies 80, no. 4 (2013): 1215-1236.

**Note: this is not to suggest that left-wing identity affiliations don’t utilize sacrifice and stigma mechanisms. There is no shortage of what I suspect are completely ineffective, but highly visible, ostensibly pro-environment behaviors that are demanded. But the “headline” mechanisms of herding left-of-center identities under the progressive banner look more like threats of exile than sacrifice and stigma.

Failure to elucidate (or the intended obscuring) of unseen policy costs and benefits is the kind of stuff that sends economists to an early retirement. The most common example is the unrealized gains from potential trade that haunt any and all forms of protectionism, but I often find more “micro” examples easier to convince an audience of because it allows them to delve into their own lived experience for supporting evidence.

I’m a big fan of this conversation with co-founder Reed Hastings about severance package generosity at Netflix. The interviewer is absolutely baffled that they offer a minimum of 4 months severance for all employees, with 100% pay and benefits, immediately after hiring, and it grows with length of tenure after that. How could a company afford such a costly line item, particularly one that yields no benefits at all? It’s exactly the kind of policy a central casting stereotype of an MBA would never consider or, perhaps more telling, would be the first on the chopping block when cutting costs to pump up quarterly earning numbers.

What Hastings lays out, besides just the warm-glow benefits of a more “compassionate” severance policy, is the subtle efficiency at the margin. The people making the decision to lay off an employee are sympathetic, pro-social, perfectly normal human beings. They don’t want to hurt someone else which means, perhaps even selfishly, they will take a series of costly intermediate steps to delay the prospective firing of a poorly matched or unproductive employee. The manager will incur costs that perhaps signal to the employee that they are inherently valued, that they, the manager and the company, want the employee to succeed, that any eventually possible firing is only an action of last resort. These actions, as anyone who’s ever had a job will know, rarely if ever succeed in reorienting the employee to a new and fruitful line of productivity. Rather, they simply delay their eventual firing, leaving them in the lurch to find new employment. The costs incurred to soften the impact of the inevitable firing are internalized as benefits by neither the employee nor the firm.

The more efficient policy, to the benefit of everyone involved, is to make the employment separation as early as possible, rolling over as much of those saved costs into a (nearly) pure cash severance that will soften their landing and subsidize their search for their next job. In anything less than the weakest job market four months is enough time to not just find a job, but to be selective in that search. Extended severance strengthens the bargaining power of the former employee in their job search because they don’t have to say yes to the first offer.

From the employer side, they can rest easy knowing that because their managers will not have to incur the emotional cost of wrecking their employees lives with cold calculating decisions to leave in employees in the lurch with 2 weeks pay and a “good luck” out the door, managers will, in turn, make employment decisions faster and more decisively. Generous severance pay is a perfect example of an excellent policy that only looks inefficient to those naive to the actual decisions being made on the ground. Conversely, a more draconian policy carries the pretense of a colder efficiency, when the reality is a flailing hodgepodge of spinning wheels and sundry transaction costs.

What other policies, micro or macro, might see their efficiency aspirations and denunciations wholly inverted if we were to consider not just their line item magnitudes on a spreadsheet, but the whole of their of interconnected costs and benefits?

All the big companies are suddenly finding themselves compelled to donate to Trump’s inauguration. That a bunch of large businesses with significant regulatory exposure would want to lobby the President isn’t terribly surprising. Such things are endemic, if not inherent, to any democracy. Perhaps heightened by the media, but I can’t help but think that the prospect of targeted tariffs, elimination of key visa programs, and the general animus projected towards seemingly anyone and everyone by the administration have changed the tone of this particular round of contributions. In short, it feels less like traditional lobbying and more like extortion.

“Nice business you have there. It’d be a shame if something undermined its market integrity. You know, for a few million dollars we could help you out. Pennies, really, when you think about the billions of dollars at stake.”

Which brings me to my absolutely genuine, I actually don’t the answer, question. Does a company have a fiduciary obligation to its shareholders to be a rent seeker? Is there a fiduciary obligation to give in to political extortion?

There is legal precedent that a company does not have an obligation to give in to ransom or criminal extortion. Common law duty of care (Meinhard v. Salmon, 164 N.E. 545 [N.Y. 1928]) does not extend to unlawful acts. 18 U.S.C. § 873 prohibits the receipt of funds in response to extortion. 18 U.S.C. § 1201 imposes criminal penalties for aiding or abetting kidnappers. 18 U.S.C. § 2339B may indirectly criminalize paying ransoms to terrorists. The Foreign Corrupt Practices Act (FCPA) dictates that paying bribes or ransoms may violate anti-corruption statutes.

But what if the extortion isn’t explicitly illegal? As some have suggested, certain activities are not in fact illegal if the President does it, a sentiment that has only gained legal standing. Which brings up the next point: could shareholders sue Amazon, Google, or Meta if they in fact chose not to donate to the inauguration? What if they released a joint statement that they had been approached by the administration but refused to donate? Could a civil case be launched against them on behalf of shareholders? I don’t think so, but we’re in a wild enough world where such a action could be profitable if only as a threat.

Maybe this is just another case where politicians are increasingly willing to “say the quiet part out loud”. Yes, it’s extortion, but it’s also always been extortion; the new administration is simply more willing to make political extortion more explicit. It’s just rent seeking as usual, only louder. Which, fine, it’s business as usual, but the volume does matter. Explicitness is a signal of voraciousness and intensity, that they are unlikely to be constrained by shame or the costs of overplaying a hand in the repeated game of lobbying and favorable policy outcomes that is replayed between industries and political parties across decades.

These things can and do come to a head eventually. These businesses are smart, they know how to discount repeated costs and figure out when it’s time to say no. A million here and milllion there, pretty soon you’re talking about real money. Everyone’s always asking when someone is going to stand up to a bully. The answer is straightforward, if easier said than done: when the benefits outweigh the costs. Eventually the administration is going to make promises that yield big donations. Either those donations will serve to stabilize policy, at least in the interest of the donors (which will hopefully extend to vast swaths of the US marketplace), or they will renege on those promises and then things get…interesting. The word will get out and then it will all cascade down in a hilarious carnival of vicious public statements and political threats. The collateral damage could be minimized as an administration finds its impact limited and hands tied. Or the collateral damage is maximized as influence is sought to be reestablished through chaotic political writhings of a cornered animal.

I guess we have to root for stability? I’m not excited about it, but maybe the best thing for the US is for politicla extortion to be significantly remunerative that the administrative decides the most profitable choice is to in fact release the hostage that is the US economy.

I guess I’m just hoping the lessons of Speed have been rightly lost to time.

Please accept this as an admission of overcommittment, rather than laziness, but I posted something on bluesky and realized immediately afterwards that this can probably be easily tested.

If someone wants to take it upon themselves to regress wins over player-games lost to injury, I’d be most gracious. If they further wanted to interact that variable with total payroll expenditures (player payroll only, please), that would go further towards really testing the hypothesis. While I don’t tend to think there is much to be intuited from correlation coefficients, I would be curious to know how much the R-squared increases when you run a regression strictly over payroll and the lagged wins and then subsequently add player-games lost to injury to the independently variables. The delta on R-squared could be charted over time. There are other metrics that could be applied to try to control for overall talent, but real question is how accurately could you predict the final standings in a sports league if all you knew was player expenditures and injury luck, and if this has changed over time.

I’ll happily sit on a masters or undergraduate thesis committee for anyone who pursues this!

(Not sure there is enough meat on the bones for a PhD thesis, but happy to be proven wrong)

For those who missed the big story last week, it turns out that Blake Lively’s director and co-star, Justin Baldoni, feared that he was going to be publicly outed as an abuser and subsequently instructed his publicity team to start a preemptive disinformation campaign against her. The story is hot because the cache of subpoenaed text messages are the seeming definitition of “overwhelming evidence” and “receipts”, the victim is a prominent woman, and the activities in question are heinous. Which is all true, but I’m interested because 1) it seems to have really, honestly worked and 2) is was relatively cheap and easy, all to an extent that even surpised the alleged perpetrators.

We all know about Russian disinformation efforts at this point, but those are are the products of a government agency. They have enormous resources at their disposal. This internet campaign to pre-emptively attack and discredit a woman who is the (alleged) victim of gratuitous harassment was carried out by a small band of publicists, agents, and their team of assistants. This isn’t a billion dollar operation. This isn’t even a million dollar operation. This is a project carried out over cronuts and text messages by middle brow entertainment business aspirants looking to climb the ladder in between improving their scores at Orange Fitness.

What I’m saying is that disinformation scales faster and easier than I would have ever guessed and I don’t think I’m alone. A couple reddit threads, instagram and tik-tok posts, and tweets, all posted by accounts run and backpocketed by the publicity agency for precisely these purposes, and within hours the world has turned on a single human in a wave of disapprobation. A woman, you’ll recall, who had done absolutely nothing that would seemingly be able to give traction to public shaming.

This is a massive technology shift. If there is a final lesson to 2024, it’s we don’t know what’s real and what’s manufactured news. Worse still, those who would proclaim to be the least trusting are generally those that are the easiest to mislead, falling down endless rabbit holes of conspiracy theory and fabrication. Those conspiracy theories are fun to laugh at (and I suspect even more fun to believe with your whole heart), but I don’t think conspiracy theory falsehoods are the only plague going forward. It’s going to be joined by a growing trend of informational nihilism, an inabiilty to trust any news or information source.

It’s not that hard for me to imagine a swirling, vicious online discourse between left and right wingers, each fully enveloped in their cozy echo chambers of conspiracy and confirmation bias, while their more moderate (and numerous) peers simply drop out of the conversation entirely, unable to see the bits and bytes flying back and forth as anything more than unverifiable noise.

What happens to a democracy when the median voter believes in nothing?

Did you really think I was going to write a post this week? Sorry, this week is for far flung family and nutritionally disastrous cookies.

If you simply must have an economic observation, here you go: if you don’t gain weight during the holidays you’re probably too debt averse. Consume now, pay later. It’s worth the vig.

The reply culture on Bluesky is starting to get nasty. I know this is either ironic or churlish coming from someone who wanted more tension on Bluesky (I swear I just wanted people arguing about research and papers in a fruitful manner). Maybe I am in fact just getting what I asked for (oops). So what exactly can we do about said reaping of cursed sowing?

I don’t have any genious suggestions in the face of a very difficult exercise in tradeoffs. On the one hand we have the status quo of an open forum where we incur the cost of jerks and interlopers poisoning the conversation. On the other hand we could set up barriers to entry around the conversation, turning Bluesky into a very large #EconSky slack channel with hundreds (thousands?) of economists, policy professionals, and journalists engaging in a conversation. This sounds great at first blush, but the idea of finding new and innovative ways to make economics an even more insular club of insiders does not appeal to me. The costs go beyond that, though, because once you decide to wall something off, mechanisms have to be put in place to admit new members (and kick out misbehavers). Those mechanisms come with their own set of problems, including the costs borne by those who must see to the administering and oversight of those mechanisms.

So what’s the answer? I don’t have a silver bullet, but I am a big fan of trivial costs of entry that will only affect those attempting to enter “at scale” i.e. troll farms. Some sort of third party registration using .edu, .gov, and other profession email addresses. Maybe a google scholar or RePec connection. Basically, anything that will take 5 minutes for professionals to accomplish. Just enough that registering 100 accounts becomes costly for troll farms and repeatedly registering banned accounts becomes too much of a hassle for independent anonymous jerks. Such a thing could work for a professionally accredited jerks as well. If getting blocked by 3 people removes you from the register, then you have to go back and do the 5 minute registration over again. A tiny cost, sure, but I suspect a lot of jerks, after being removed 3 times, will simply take the hint or decide they can’t be bothered.

Yes, I know this means that the laws of ironic comeuppance will strike me down on Bluesky at some point, but if it protects the network from turning into Twitter I’ll take the hit.

Newly published research from Finlay et al takes the deepest dive yet on how the costs of the criminal justice system impact people’s lives going forward. Leveraging the new (and phenonomenal) integrated data from CJARS, the authors look at 9 (!) separate discontinuous increases in the fines and fees associated with misdemeanor and felony convictions. The paper is exceptionally well executed, connecting criminal and earnings records to estimate a pooled seemingly unrelated regression of those 9 separate treatments. They observe null effects on future convictions, earnings, and living conditions. So does this mean we can soak those convicted for every penny in their pockets without consequence? No, I don’t think so (and I strongly doubt the authors do either). Does it mean that people, such as myself, need to soften their calls to stem the growing tide of law enforcement as local regressive taxation scheme? Maybe in some cases, but I do think additional context matters here. A couple quick comments, in no particular order:

1. Of the 9 increased fine and fee treatments, 4 are small (≤$65), 5 are large (≥$200). Four of the large increases are explicitly raising the fines and fees of traffic offenses (DUIs). It’s not unfair to summarize the legislated treatments here as mild for those more likely to be in a state of poverty since you have to have access to a car to receive the larger treatments.
2. There’s always a little bit of a Rorschach test with RD designs, even when the differences are or are not statistically significant. In this case we observe null effects, but it sure seems like something happens with convictions in the first 100 days after reform and then it returns to trend (see below in Panel A). That feels like a system updated the de facto rules to accomodate the new de jure. As for earnings, it’s always tough when slopes change sign (Panels B and C), but the differences aren’t significant.
3. In the subgroup analysis there are two significant increases in recidivism, most notably a 4.7% increase in recidivism for those in the lowest predicted income quartile. This isn’t an enormous effect, but when it comes to what I consider to be a regressive tax, then focusing on the lowest income quartile isn’t an exercise in p-hacking, it’s to some degree the point of the endeavor. Combine that with the fact that the overweighting of the high magnitude treatments on driving offense can be expected to attenuate the potential effect on treated individuals with low incomes, a 4.7% increase in recidivism doesn’t seem that small anymore.

This is good research, but like most contributions it isn’t the last word. The growing use of fines and fees as revenue sources is a complex and, in many ways, adaptive system that exists to generate revenue for local governments whose revenue apparatuses hamstrung in countless ways, frequently struggling to keep the lights on (whether those lights should necessarily be on is a whole separate question). When they’re looking for that revenue, many (but not all) will arrive at the conclusion that they can only get so much much from poor people. Sometimes, such as with traffic offenses, the poorest individuals that do get caught in this system aren’t necessarily the intended targets, but rather the collateral damage. When we’re looking for that collateral damage, it’s important to know both where that damage is occuring and where it is being mitigated by local adaptation, particularly that which exists outside of the laws as written.

There’s probably nothing more dangerous to an already successful business than giving customers what they say they want. This is not to say you can give customers something they don’t want, quite the opposite in fact. Rather, it’s to never deny the preeminence of revealed preferences.

People want things. They don’t always, however, enjoy how those preferences might be perceived by others (or by themselves). Customizing your consumption to fit the preferences that you would prefer to signal is not a luxury that we can often indulge, however. Basic instrumental needs have to come first. Once a good is already in a household’s portfolio of consumption, however, it is relatively low cost to signal alternative preferencs to peers, surveyers, or focus group organizers. If a producer were to take these signals as earnest, however, they could end up undermining the good already previously purchased and consumed, leading to a business catastrophe. “Trust people’s actions over words” is at least a cliche, if not an outright proverb. I’ll leave it to you to find its most archaic analogue.

I’ve been thinking about this a lot, and no, not in the context of political polling and the recent election, though I will grant the relevance. I’ve been thinking about it more when watching sports and consuming the news.

Soccer in the top leagues, particularly the English Premiere League (currently the best in the world) is in year 5 of a growing injury crisis. Most seasons the winner can be predicted based on total salary outlays. Not because of superior top line talent, however, but because they can afford 11 second string players of top quality to play when the starters are inevitably injured. This is largely because of a tragedy of the commons in international soccer, but it’s been massively exacerbated because the EPL responded to the perceived request from consumers that the sport become “more physical”. This amorphous physicality has been granted in the form of more lenient refereeing. The result of this has not been to increase the “fight in the game”, but to grant less talented players greater license in kicking and sliding through the legs of more talented players. I don’t know the full economics of modern sports, but I’m pretty sure fans don’t pay large ticket prices to see the best players in the world on the sidelines in high-end athleisure wear draped discreetly over a walking boot.

As for the news, I see a related, but not identical phenomena. Being a GenX-er, I spent a lot of time in heavy conversation during college bemoaning the impact of advertisers on media content. The “news as propaganda” bit is not a new concept, I assure you. What very, very few us would have guessed, however, is that Craigslist destroying the ad revenue of newspapers and the internet walking off with the customer base most interested in news as information source would lead television program producers untethered to the desires of their advertising sponsors, leaving them to create bespoke content for their new overlords: the consumer. As it turns out, what the remaining subset of customers most wants isn’t information or insight, it’s reaffirmation. We wanted advertisers out of content, but it turns out you got better news when the true customers were corporate overlords hawking sugar water and baggy clothes. People signaled that they wanted deep reporting, uncompromised integrity, and uncomfortable truths. And hey, more people than ever subscribe to The Economist. But it turns out most people just wanted confirmation bias.

Sure, by clicking on the link to this post you’ve signaled to me that you want a depth of insight you just can’t get anywhere on the internet. But I, enwisened scribe, know that what you really want is cliched aphorisms.

Be careful what you wish for.

A recent conversation with Sadhika Bagga and her research on labor reallocation got me thinking about remote work, about which there is no shortage of forecasts and opinions. Working from home has taken off. Working from home is failing. Working from home is here to stay. Working from home is already over.

Can they all be true? No, but also yes. At least, that’s where my thinking is at the moment. What all of the preceding pieces seem to do is acknowledge the benefits and costs of remote work while also emphasizing any one particular cost or benefit that generates their preferred lede.

Remote workforces bring lower labor efficiency (e.g. more distractions, less monitoring, more shirking) and greater labor flexibility (e.g. larger labor pools to select from, faster labor turnover) to a firm or industry. It gives firms the ability to pay employees in something other than money, such as schedule flexibility and locational choice, capturing some of the rents from those compensating wage differentials for themselves in the form of lower labor costs. It also means firing and hiring people with greater efficiency and lower costs when each subsequent wave of technological obsolescence hits, more effectively curating your labor force to fit the newest technological opportunities and needs.

How this story plays out will be bespoke to every firm, industry, and sector, but one broad trend I’m looking for is how industries separate by technological turnover. Industries differentiate by the historical rate of technological upheaval. Construction is different today than it was 25 years ago, but that amount of change is almost trivial compared to the televison entertainment industry. I expect that firms industries that reward “nimbleness” in the adoption of and adaption to new technologies will embrace work from home in far greater numbers. This will, in turn, shrink the “periodicity” of industry business cycles. Industires with high remote work labor forces will both more quickly collapse to a dominant set of firms when excludable technology gives them and advantage. They will also, however, more quickly reinflate to a more competitive landscape from new firm entry enter as remote work allows rivals to rapidly update their labor force to match the newest technological landscape. I expect applied micro work on remote work preferences and theoretic work on the consequences of search costs for competition to find each other atop the empire state building and yield the kind of policy recommendations that would make Nora Ephron proud.

This is just one of many broad trends to look for as remote work evolves. The complexity of interacting forces makes forecasting both a fool’s errand and palm reading. All of the forecasts will be internally logical, collectively incompatible, partially correct, and completely wrong.