Pretty much the most interesting blog on the Internet.— Prof. Steven Landsburg

Once you get past the title, and the subtitle, and the equations, and the foreign quotes, and the computer code, and the various hapax legomena, a solid 50% English content!—The Proprietor

## Sunday, May 23, 2010

### Paul Krugman May Be Biased

I realize that this will come to some of my readers as a revelation on the order of the statement that all other things being equal, on average and in the long run, evidence seems to indicate that water is wet. This post is principally for the benefit of those of my gentle, educated and clever friends and—I hope, at least occasional—readers who take the opposite view that this claim is a vile slander on the integrity of our recent and most honest recipient of the Swedish Riksbank's Alfred Nobel Memorial Prize in Economics, crying out as a lone voice of reason and sense on the campus of a clown college small community school and in one of the last bastions of unbiased reporting, albeit it a provincial circular.

The latter should read the most recent issue of Econ Journal Watch and in particular the article When the White House changes party, do economists change their tune on budget deficits?

Economists differ on the risks and benefits of budget deficits on fundamental grounds and even when there is fundamental agreement economists may reasonably change their opinion on the issue depending on economic circumstances. Given that much leeway, much of the variability in the urgency and frequency of counsel for or against deficit yields only limited evidence of political bias. The most glaring exception appears to be our dear Herr Doktor Professor Paul Krugman whose views on the issue appear to follow changes in the party currently in control of the White House with almost acrobatic alacrity. Those who still take his popular writings as a reliable source of economic intelligence may just want to bypass the middle man and just read the DNC's press releases on the subject straight.

But the principal reason for this blog post is that it gives me an opportunity to quote the article's opening epigraph:

A true party-man hates and despises candour; and, in reality, there is no vice which could so effectually disqualify him for the trade of a party-man as that single virtue. The real, revered, and impartial spectator, therefore, is, upon no occasion, at a greater distance than amidst the violence and rage of contending parties. To them, it may be said, that such a spectator scarce exists any where in the universe. Even to the great Judge of the universe, they impute all their own prejudices, and often view that Divine Being as animated by all their own vindictive and implacable passions. Of all the corruptors of moral sentiments, therefore, faction and fanaticism have always been by far the greatest.

## Friday, May 21, 2010

The other day, I suggested a method by which law enforcement could use valid statistical inferences from subjects' surface characteristics (like age, gender, race, and so on) to focus their investigative attention without victimizing those who merely shared those surface characteristics, but were individually quite innocent: offer just compensation for those subjected to additional scrutiny and delay.

If that surface characteristic is apparent racial or ethnic background, the position of two main political tendencies in the U.S. is clear: The Left considers it an intolerable intrusion on the innocent which should be banned regardless of statistical validity. Most of the Right basically says "Though cookies if you happen to be (or look like) a member of any group disproportionately involved in criminal activity."

Neither of these positions seems morally or economically tenable. While race enjoys a different status in U.S. law than other surface characteristics,1 the non-legal arguments for and against racial profiling are equally applicable to most other surface characteristics.

If your description resembles that of a recently reported bank robber, you are more likely to be questioned by the police, even though you are entirely innocent. Similar consequences await you if you drive a car resembling the getaway vehicle. And if your identical twin makes the FBI Ten Most Wanted list, you can look forward to years of police interference, even if you are the most law-abiding citizen.

The logical consequence of the Left position is that using any less-than-definite surface characteristic to focus investigative attention on specific subjects is wrong. In short, a law enforcement offer must have proof of specific law-breaking before even questioning anybody, lest an innocent be inconvenienced. Carried to this logical conclusion, the Left position would make police investigation of many or most crimes virtually impossible.

The logical consequence of the Right position is hardly better. If you happen to look like a particular criminal, or even look like you are a member of a group disproportionately involved in crime, you'll just have resign yourself to be hassled by the police more than others for the remainder of your days, even if you have never violated any laws yourself. In fact, you should not even be upset that you (and, depending on characteristic, your equally innocent family and many friends) must bear the cost of the enforcement of laws the benefit (assuming it is a sound law) of which is enjoyed by many others who have to make no similar sacrifices.

In short, the only solution which even remotely approaches fairness, efficiency, and logical consistency is something like the one proposed here.

Let me also respond to two anonymous comments criticizing the anti-tickets.

First, it was suggested that making law enforcement pay for the time they take from private citizens would lead to under-enforcement. That seems unlikely. Remember, the anti-ticket is not a social cost, but purely a transfer. The cost is created by stopping and hassling private persons. The question is whether this cost is better borne by whomever the police choose to stop or by the public. As the benefits of good law enforcement investigation accrues to the public (mostly, local) and the decisions whether and how many stops to make are made by public officials (again, mostly local) answerable to the same public, the incentives will only be properly aligned if that same public also bears the cost. If that public decides that the crime reduction caused by certain types of police stops just isn't worth the cost, they should stop. To say that they should continue, but the cost should just be sloughed off by the public onto whomever the police care to stop is perverse.

Second, and this may only be of interest to the legally inclined, it was suggested that the elimination of qualified immunity—a legal doctrine under which individual public employees are not liable for damages caused by their violation of the Constitution, unless it was or should have been extremely clear to them that their course of action was unconstitutional—would be a better solution than the anti-ticket. While elimination of qualified immunity may indeed be a good idea (the author is inclined to think so), it would hardly solve the racial profiling issue for a whole host of reasons:

1. Racial profiling, that is making law enforcement decisions in part on the basis of ethnic appearance, is—contrary to carefully stoked public perception—not unconstitutional (or even generally illegal). See, e.g., U.S. v. Vite-Espinoza, 342 F.3d 462 (6th Cir. 2003) (and cases cited therein).
2. Even if racial profiling was unconstitutional, it shouldn't be. Ethnicity is a bit of available and statistically valid evidence in many circumstances faced by law enforcement officers. To discard it would cause either more innocent people to be hassled, more genuine criminals to go unpunished, or most likely a combination of both. And anybody who argues that it is nevertheless so morally distasteful that it should never be engaged in should also offer an explanation why the same does not hold for the at least equally ubiquitous law enforcement practices of gender and age profiling.
3. Even if racial profiling was unconstitutional, enforcing that right via law suit against individual police officers is almost certainly useless. Very, very few people have time that is so valuable that it would be worth the enormous legal costs of bringing a suit for a lost quarter hour. And in that rare case that the damages would be so large as to justify the legal fees, the individual law enforcement officer (that is, the person against whom a suit would be made more winnable by the elimination of qualified immunity) would be nearly judgment proof.
4. Even if racial profiling was unconstitutional and there were no legal fees, any case would have to rest on proof that the individual law enforcement officer considered race, among other factors, in making the stop or arrest. Without a confession or other extraordinary stupidity, that is going to be nearly impossible to prove in any given case.
5. Finally, even if racial profiling was unconstitutional, there were no legal fees, and the plaintiff has bullet-proof statistical evidence of racial discrimination, any case would still likely be lost. Assume that the plaintiff could prove using a vast statistical study (financed somehow and with the data collected without cooperation of a likely hostile police department) that all else being equal members his or her ethnic group were stopped 50% more often than others behaving in an identical manner. Such a plaintiff would (and should!) still lose. Even if there is a 50% increase in stops due to racial profiling, two-thirds of those stopped would have been stopped regardless. Hence, it is more likely than not that any individual plaintiff would have been stopped anyway and hence suffered no damages due to racial profiling.

Some of the problems of statistical proof and legal financing could be solved by a class action suit. But what would be the remedy in such a case? If you believe that racial profiling is or should be per se unlawful, there could be an injunction. Even in that case, it is hard to see how that injunction could be enforced without a racial quota system for stops and arrests, a measure which even most opponents of racial profiling would blanch at. And if you believe that there should just be money damages for stops, why not skip the whole rigmarole of a law suit and achieve the same end more simply through the anti-ticket?

1 Among the surface characteristics frequently used by police, gender comes the closest to race in legal status. Under the U.S. Supreme Court's interpretation of the Constitution, gender discrimination is nearly as difficult to justify as racial discrimination (i.e., nearly impossible) and all progressive legal scholars I've ever discussed the subject with support closing whatever gap there may yet exist. That leaves the issue, alluded to before, of why racial profiling is a cause célèbre to the Left, but the at-least equally prevalent gender profiling is a non-issue.

## Wednesday, May 19, 2010

### Racial Profiling Done Right

After our most recent excursions into areas of policy where even clear thought fails to readily yield an optimal solution, let's instead wade into a current controversy for which there is a simple solution which ought to be acceptable to all concerned but which never seems to be propounded: racial profiling. That is the practice, often statistically justified, of law enforcement to make discretionary decisions (such as whom to stop, question, or search) in part on the basis of apparent ethnic origin of the subject.

Let's set aside one issue: If racial profiling is used to enforce bad laws, as will arguably be the case under the recent Arizona immigration law, the outcome will be bad. But in this case, that is because the law is bad, and any effective tactic to enforce a bad law should be deemed equally bad. Hence, the argument here is with the law, not the enforcement tactic. So instead let's focus on using racial profiling to enforce otherwise-sound laws, like those against murder, rape, theft, or terrorism.1

Attitudes towards racial profiling generally align along political lines: Conservatives, arguing rightly that racial profiling will often be a statistically valid and efficient way of focusing police resources while minimizing the total intrusion on private persons, mostly endorse it. Modern liberals, arguing rightly that most of the intrusion will be experienced by innocent members of some ethnic groups and that state action conditioned on ethnic status is contrary to this country's stated principles2, are against it.3

But here is a solution which would allow law enforcement to capture the efficiency gains of racial (and other) profiling without victimizing anybody: Just compensate anybody whose time is taken by the government, just as you would if it involved their property. In other words, every time a police officer stops and questions a person or subjects them to additional delay, at the end of the encounter the officer must write a kind of anti-ticket for $X for each minute between the stop and the time the subject is let go (or, upon the development of probable cause, arrested). The subject in turn could turn the ticket to cash at any bank. The beauty of this approach is that it properly socializes a public good, the search for, arrest, and detention of real criminals. But rather than imposing the cost of this public good disproportionately on minorities (ethic, gender, or age) the vast majority of which, including most who are stopped, are entirely innocent, the cost will also be born by the public at large. As a matter of general principle, policies will always be more successfully planned and carefully executed if their costs and benefits are borne by the same entity who controls them. In the case of public safety and police officers, the public at large is already the beneficiary and at least the best candidate for controlling law enforcement policy. As the benefits and control already lie with the public, so should the costs. A few objections against this policy do not hold much water: • The first of these is that it would cost too much. But the policy only costs anything in the most narrow government accounting sense. In the economic sense, it is no cost at all: just a transfer of money from one pocket to another. And in so far as this transfer improves incentives for efficient behavior by law enforcement, there is a general gain in social welfare. It is true that groups who ordinarily get stopped by the police less often (whites, women, the very young and the middle-aged and older) would on average end up with less money in their pockets while those who are stopped often would end up with more. But that is just a question of cost distribution. If those who now pay for police stops find the cost excessive, then it always was—it just previously came out of somebody else's pocket. In that case, police procedure should have been adjusted all along. • The second objection is that it would pay even those arrested and convicted, that is, usually real criminals. That is true, but less significant than it seems. Waiving the anti-ticket if there is an arrest (or allowing any other sort of waiver) would just create too big an incentive for an unethical cop who stopped an innocent to offer an implicit or express bargain: You waive the anti-ticket and I won't fabricate cause for arrest (e.g., break your tail light). As a practical matter, when there is a bona fide arrest and prosecution, the anti-ticket would just be offset against court fees and fines which otherwise would be waived for the typical indigent or judgment-proof defendant. So unless the detention was so long that the anti-ticket would be larger than these fees and fines, there would be no net payment to criminals. And in the rare case of an excessively long detention for a trivial fine smaller than the anti-ticket, a net payment to the "criminal" would not be wrong. • Next, some may complain that this would just be a license for racist police officers to indulge their preference by hassling innocent minorities. Maybe so, but that seems unlikely. The innocently stopped would all be compensated, so this really amounts to no more than a license for racist police officers to hand out free money to ethic minorities—one that is unlikely to be exercised once the cop realizes that is what it amounts to and, even if it did occur, would be less than tragic for its victims. Moreover, the anti-ticket creates its own audit trail. The perhaps mythical, perhaps real racist cop who just likes to inconvenience innocent members of disliked groups to gratify his or her own animus, would quickly run up a large tab of anti-tickets without any record of arrests and convictions to show for it. That should serve as at least some deterrent to such behavior. • Finally, it may be argued that while the anti-ticket could compensate for lost time, there still remains an element of uncompensated emotional or dignitary damage. I am not entirely unsympathetic to this concern. Having been stopped by the police a few times in my life, introspection suggests that given a choice between any plausible amount received for a hypothetical anti-ticket and not having been stopped in the first place, I'd still choose the latter. But then this author is reasonably well off and may be more sensitive to being subject to involuntary questioning than the average person. That said, it seems hard to see how the anti-ticket would not still be a, perhaps incomplete, improvement. There are few ways in which strangers can convey their apologies for having bothered you more convincingly than cold hard cash, going at least some way towards easing the dignitary insult. In addition, any other remedy for abusive police conduct, like unjustified physical assault, would remain in place. The anti-ticket would be on top of such other remedies and purely for the currently uncompensated injury of lost time. The most serious, but hardly insurmountable problem with the anti-ticket proposal is getting the amount right: Too small and there will be no effect; too large and you encourage an industry of people deliberately acting suspiciously while not actually committing any crime in order to profit off the over-generous anti-tickets. What's more the amount cannot be tailored carefully to the situation if it is to remain administrable and enforceable. Anything more variable than a fixed amount per minute of delay would probably be too complicated. That said, an amount on the order of$1/minute of delay seems about right. It would compensate most individuals at a rate higher than their marginal cost of time (that is, at the equivalent of a wage of $60/hour after tax), while still likely preventing most schemes to be stopped for profit from being lucrative. Perhaps, legal suits should be permitted (by either police or subject) where the plaintiff would bear the burden of proof that the compensation would either be grossly inadequate or excessive in a particular case; given the transaction costs of the legal system, these would presumably be rare. So what do my gentle readers think? 1 There is the argument abroad that racial profiling cannot work against terrorists. Even though some persons worthy of respect make it, I do not believe that it is a very strong position under real-world conditions. But that is an argument for another post. 2 It is unclear on what principle the at-least equally common and equally justified law enforcement practices of gender profiling (i.e., focusing their attention on men, rather than women, on the basis than men disproportionately commit violent and, to a lesser degree, non-violent crime) and age profiling (i.e., focusing on subjects in the prime crime ages of 15 to 35 years or so) are not equally controversial. Discarding the requirement of principle, one could speculate. 3 It is hardly original, but worth noting that this is an 180 degree reversal from the position generally taken by these two camps when it comes to the distribution of benefits, such as university admissions or hiring. Some modern liberals will quite frankly admit that they feel that the history of this country justifies a thumb on scale for certain previously disfavored, but now favored groups. Hence color-blindness is not a principle for them but merely a convenient stick to beat up policies harming the groups they favor equally conveniently discarded when it comes to policies where it points the other way. This at least has the benefit of honesty. Most conservatives fail to offer even this much of an explanation for their reversal and one cannot help but wonder if their commitment to color-blindness is confined to cases where its absence inconveniences them and theirs. ## Tuesday, May 18, 2010 ### Changes on Comment Moderation and Twitter Feed Two small changes, one hopes improvements, to the blog: 1. Comment Moderation. It has been turned off for recent posts. I thought everybody in the world had a Google Account or other OpenID, so the previous policy was a costless way to prevent blog spam. However, I'm authoritatively informed that this was a mistaken impression. Still, users identified by Google Account or other OpenID might be safer from automatic spam moderation and enjoy other benefits under Google's blog commenting software. 2. Twitter Feed. This apparently is de rigueur for all the With-It bloggers, so there is one for this blog now. Find it at @subspecie. New posts should show up on it automatically. ## Monday, May 17, 2010 ### Drunk Driving Licenses Apart from the occasional self-indulgences like gloating (prematurely) or playing gotcha, I like to write about questions which I find interesting in the hopes that so will my band of readers. A question is interesting usually because it is hard; a question is hard usually because there are non-obviously-wrong arguments for both sides. One such case is whether it should be against the law to drive drunk.1 Let's start with a few assumptions (all which are, to the best of my knowledge, undisputed facts):2 The influence of alcohol degrades driving performance. There may not be any threshold beneath which there is no effect, but even if there is a threshold, it is quite low. Even under the current state of legal prohibition against drunk driving, tens of thousands of people die in the U.S. every year because of traffic accidents which would not have happened (or been fatal) if all involved drivers had been completely sober. Many of those who die (or are otherwise injured, often severely) were not themselves under the influence, or even passengers of the affected drivers who could arguably have said to assume the risk. So, case closed; so much for that "hard" question, right? Not quite. After all, the question for debate was not whether it should be against the law to negligently or recklessly injure or kill innocent bystanders. That is the one with the easy "yes." The question was whether driving drunk per sei.e., regardless of whether anybody has been hurt—should be subject to legal punishment. Answering "yes" to that question seems straightforward, but runs headlong into one of the most basic and soundest principles of good law-making: That the state should only impose legal punishment, civil or criminal, where there is a specific, involuntary victim.3 Without such a victim, the state is just meddling: The driver after all chose to drink and presumptively for good reason: enjoyment is a good reason. Without any offsetting loss somewhere else—and in cases where there was no victim there appears to be none—legal prohibition of drunk driving seems sub-optimal: In so far as it deters the driver, it makes him or her worse off by the opportunity cost of drinking. In so far it does not, it makes him worse off by the legal punishment (and the rest of us by paying the cost of imposing that punishment). So laws against drunk driving just seem to be contrary to sound principle and economically inefficient. The obvious response to that is that while any individual act of drunk driving may be victim-less, each creates a small, but non-trivial, risk of serious harm. Therefore drunk driving should be prohibited regardless of whether any particular instance actually causes any harm. Except that is not the way we regulate risk generally and for good reason. Generally, individuals are free to do all sorts of risky things: Hang-gliding, working as a miner or lumber jack, operating an off-shore oil-rig, performing (or having) high-risk surgery, or even just plain old driving a car completely sober. The risky behavior itself is not prohibited; only if the harm occurs is there any legal sanction: the risk taker just has to bear his own damages and, depending on circumstances and legal standards, the damages suffered by others. That is a good rule, both from the standpoint of principle for a free society and, not coincidentally, from the standpoint of economic efficiency. If you internalize all the benefits and risks to one person and then allow that one person to make the decision whether to engage in that risky behavior,4 you will generally get just the right level of risk taking: Those activities which overall are beneficial will be undertaken and those which are not, will not. The problem with applying this rule to drunk driving is that the rest of our legal system is insufficient to deal with cases in which a serious accident actually does occur. Damages to the victims are easily evaded through bankruptcy (or even the threat thereof). Even if these damages were non-dischargable, it seems doubtful in many cases that the perpetrator would ever be able to offer full financial restitution. Even criminal penalties for drunk driving causing severe injury or death to innocent bystanders (while much harsher than they once were) are still extremely lenient compared to those meted out to criminals who cause the same amount of harm intentionally. So, when the risk actually occurs, we will not adequately deter the perpetrators and often cannot sufficiently compensate the victims of drunk driving. This under-deterrence will, by standard economics, lead to an overindulgence in the risky behavior. So we have a law which places additional deterrence against the very act of taking the risk, regardless of whether it actually occurred: the law against drunk driving. This is probably wise and creates more economically efficient incentives than a regime which permits drunk driving in combination with the limits on deterrence and compensation mentioned above. Still, there is something about this which rankles this author's principle explained above. And perhaps the combination over-deters drunk driving too? Certainly, given physiological fact, it seems hard to believe that it does not under-deter drivers just beneath the legal limit or over-deters drivers just above it (or both). And is it not a dangerous precedent towards all sorts of slippery slopes? So I would suggest a solution for at least a part of the problem: An optional license to drive drunk available only to those who can post sufficient bond or insurance and assume sufficient criminal indemnity that they will not be under-deterred. Note that such a license would not protect against legal liability for damage caused to others: Drivers with such a license would still face full civil and criminal sanction for that. The only difference is that the mere fact of driving under the influence would not itself be a crime for such drivers. Needless to say this is not an entirely satisfactory solution. The collateral or bond posted would have to be large enough to cover judgment even in very severe cases (like multiple deaths of innocent bystanders) and would hence likely would be in the tens of millions—in other words, anybody who could afford a drunk driving license already can afford a chauffeured limousine, a currently available alternative. As for the insurance option, it seems likely that the adverse selection problem would be so severe that the premium would also be more expensive than currently available legal options. So are we stuck in the current second best (at best) solution? 1 That I consider this to be a hard case may convince some of my readers that this author is a "case" of quite another kind. But please hear me out. 2 Should any of them not be, kindly correct me in comments, preferably with citations—but please avoid claiming that I made any unstated assumptions or jumped to conclusions. 3 Yes, this author is aware that there are other, indeed many, laws which violate this principle. But in these other cases, the author is against those other laws because they violate this principle (or at least that is a shorthand for the author's opposition). Whether and why laws against "drunk driving" should be any different to this author (and those similarly inclined) is what makes this question interesting. 4 This assumes that the risk taker is rational. And, yes, the author is aware that there is evidence that some people in some situations do not act rationally; indeed, most people most of the time do not consciously reason the way the caricature of homo economicus does. Yet, this author is willing to defend in another post the proposition that within a liberal legal system and society, most mentally competent adults make most important decisions in their lives as if they were homo economicus. In short the rationality assumption only be true by introspection for small fringes of society (including many economists and fellow travelers), but nevertheless true as a matter of positive economics. And, specifically to the subject at hand, while it may be disputable whether an inebriated individual is fully rational, the person who decided to get inebriated generally would be. ## Thursday, May 13, 2010 ### Weak Arguments Against Illegal Immigration (Part 1 of Possibly Many) Last week, I asked Prof. Landsburg (who was so kind today as to repost my Al Gore post) to respond to some of the less silly arguments against large scale immigration, rather than just making fun of some of the sillier ones, and the good professor graciously responded in comments on his blog and while I have one or two thoughts in reply, none are urgent, earth-shattering, or sufficiently well steeped in reflection that the world could not wait for them another day. Instead let me take the opportunity to seriously respond to one of the weaker yet popular arguments against the current wave of low-skill large-scale immigration bandied about today, to wit: That most of it is contrary to the laws of the United States. It usually takes the form of rhetorical questions like "What part of 'illegal' don't you understand?" and is frequently considered by its advocates an irrefutable argument ender. Yet it is hardly that as a little further thought demonstrates. But first to give its advocates their due: First, in so far as they merely stress the illegality in protest against the common media euphemism "undocumented worker"—as if any non-trivial number of these had just misplaced their legal work authorizations, rather than working and living in the United States in violation of the law, i.e., illegally—or the equally odious media practice of equating opponents of illegal immigration as "opponents of immigration"—while slyly hinting that this renders them hypocrites as immigrants or descendants of immigrants themselves—their ire at much reporting is not misdirected. But that of course is not the fault of the actual illegal immigrants and hardly settles what would be a just way of dealing with them. Second, a strong social norm in favor of legal conduct is probably a necessary (but not sufficient) condition for the continued existence of liberal, open society—that is one, in which most people most of the time are free to do as they please for their own reasons and without governmental surveillance. As a lawyer and a blogger who just denounced two scholars for completely ignoring legality in their arguments about the propriety of strategic mortgage default, I would be a hypocrite to argue otherwise. That said, the fact that many immigrants are illegal does not settle the questions (1) of whether they ought to be and, even if they ought to be, (2) how severe a punishment can or should be imposed on them consistent with either economic efficiency or our moral sentiments. First, whether a particular immigrant is illegal depends on the whim of Congress; whether he or she ought to be depends on moral and economic reasoning. The faint hope that there is some sort of relationship between the two survives, but obviously it is not perfect. Some laws—imagine a law requiring people born on odd days of the month to murder and take the property of their neighbors born on even days—are so wrong that it would be profoundly wrong to obey and absolutely require breaking. Some laws—think of import restrictions and tariffs to protect special interests like steel manufacturers—are wrong to a lesser degree, so that one may obey out of prudence or, if you will, cowardice and yet would cheer their violators—as this author would any brave steel smuggler! To derive, with mathematical certainty, that certain immigrants should be illegal because they are is to commit a specialized form of the naturalistic fallacy: deriving an ought from an is. As far as laws are concerned, the reverse is the sound policy: We ought to make illegal what is already morally wrong or economically inefficient for other reasons, rather than argue that something is morally wrong on the sole basis that it is illegal. In the case of most illegal immigrants—who commit no other crimes, work hard at less than desirable jobs, use their income to take care of their families, and aside from distributional issues on net undoubtedly improve the welfare of other residents of this country—it is very hard to argue that what they are doing is inherently morally wrong or an economic harm. One suspects that is why their opponents fall back on the illegality argument so often.1 Second, while as conceded above, a social norm for obeying all but the most odious laws (like those requiring murder or economic tariffs) is a good thing, it hardly follows that we must punish illegal immigrants as severely for their violation as most proponents of enforcement demand. Let's be clear: the punishment for an illegal immigrant who is brought to the attention of the right federal (and many state) authorities, even if it is a first offense and there are no other allegations of criminality, is draconian: deportation. That means loss of job and home, drastic reduction in standard of living, permanent separation from friends, and in many cases family. That is a pretty harsh penalty. Now many would respond, "but they broke the law, so they earned their punishment!" But again this is hardly a sufficient argument. Even setting aside the fact that the U.S. is at risk of drowning in useless laws whose violation is nearly as unavoidable as breathing, even generally good and wise laws are frequently broken without justifying such harsh penalties. Or at least, I've never known any adult who claimed to have never violated the speed limit by so much as one mile per hour or have jay walked. Even if one believes that these are violations of appropriate law, it seems indisputable that their universal and strict enforcement would bring the nation to a standstill. Punishing violators as harshly as violators of the immigration laws would depopulate it. So, even if—contrary to what my opinion as argued above—laws prohibiting many immigrants from entering and working in the U.S. were proper, the punishment would hardly fit the crime. In particular, for first time offenders, the laws are massively more lenient towards car thieves, muggers, burglars, and those guilty of simple assault, even though the offenders are indisputably far more morally culpable (and their conduct economically harmful).2 So if deportation, either juridically or self- (in order to avoid the juridical alternative), is excessively harsh punishment for illegal immigrants, what is the alternative? The only one possible seems to be legalization, perhaps combined with some level of lesser punishment such as a fine or permanently ineligibility for citizenship. That may not exactly fit the legal definition of amnesty (that is, the complete forgiveness of a legal offense), but will likely be close enough to deserve that title. 1A similar argument is often made against those who favor abolition of the current law against recreational drugs. "What part of 'illegal' don't you understand?" "If you think that will reduce crime, why not just legalize murder, that would reduce crime too, huh?" The flaw is the same: We ought to make illegal what is already wrong for extra-legal reasons. The arguments for the immorality and economic inefficiency of murder are already pretty strong without any reference to its illegality. Murder should be illegal because its wrong; it is not seriously wrong just because it is illegal. The drug prohibition and the severe restrictions on immigration in current law cannot make the same claim. 2In fact, this author might be convinced to support deportation for many of those offenders! ## Friday, May 7, 2010 ### Mortgages, Promises, Contracts, and Strategic Default In a recent article and response in the City Journal, Is Strategic Default a Menace?, Prof. Luigi Zingales (previously criticized here) of the University of Chicago's School of Business and Prof. Brent T. White of University of Arizona Law School, debate the propriety, morality, and legality of strategic mortgage default—the increasingly popular, but still surprisingly rare, practice of home owners whose mortgage balance exceeds their house's fair market value to just walk away: stop making mortgage payments and forfeiting the house to the bank holding the mortgage. What surprises at first is that a scholar, deeming himself qualified to publicly opine on a subject, would prove both capable of either sowing or displaying so much confusion about such a non-trivial, but perfectly cognizable subject and willing to propound so many statements and principles that would to a reasonable, logical observer seem outside the realm of defensible discourse. What surprises even more is that two scholars—at least one associated with one of the most distinguished universities in the world and at least one a qualified lawyer—would be willing to do so repeatedly. But let's start by clearing away some of the underbrush. First, almost all housing defaults observed in excess of what would be observed in an ordinary recession of the same length and severity in fact are strategic. If unforeseen and unforeseeable circumstances, such as a cyclical job loss or sudden illness, render an owner unable to meet its mortgage obligations default may be unavoidable, not a strategic choice. But that the fair market value of a piece of real estate may have also dropped dramatically has no impact whatsoever on the owner's ability to make its payments. Every home owner who walks away from a mortgage because real estate values dropped below expectations made a strategic choice to game the system—either today or when entering into the mortgage contract based on the assumption that payments would only be made if housing prices just kept increasingly rapidly forever. Second, a mortgage is not a promise, but a contract. As every first year law student knows, and Profs. Zingales and White ought to know, a promise does not a contract make. A promise creates a general, moral obligation; a contract creates something which is both more and less: an exact legal obligation (or to be precise, at least a pair of such obligations) enforceable through the judicial system. These are not the same and treating them as one and the same, as in particular Prof. Zingales is inclined to do, creates nothing but confusion and false conclusions. Having disposed of these preliminaries and identified the right categories, let's analyze mortgages and strategic default: The legal obligations created by a home mortgage contract are many and vary greatly from jurisdiction to jurisdiction, but there are only two big ones which, with one crucial exception, are the same everywhere: 1. The bank obligates itself to provide the necessary funds for the purchase of the home. The bank fulfills its obligation right at the beginning of the contract term and failure to do so may occur anecdotally but does not appear to be a frequent or pressing social concern; in cases where this obligation is broken legal remedies are clear and pretty uncontroversial. 2. The home owner obligates itself make agreed-upon periodic payments to the bank, until the principal amount and agreed-upon interest, is paid off or to surrender the collateral, that is the house, to the bank. It is here that the important distinction between jurisdictions enters: In some (so-called non-recourse jurisdictions), that is the entire legal obligation of the home owner. In others (unsurprisingly called recourse jurisdictions), the (former) home owner is also obligated to pay the balance between the value of the home when surrendered and its remaining legal obligation. Now it can fairly be debated whether it is wiser for a jurisdiction to be recourse or non-recourse, or whether this is something that the mortgagor and mortgagee should just agree upon on a case-by-case basis as they enter the contract (the latter is what this author would counsel—not that this policy opinion matters for anything that follows). What cannot be fairly debated is whether both parties knew or should have known what kind of mortgage contract they entered into. Whether the jurisdiction where the home is located is recourse or not is well-settled law. It rarely changes. Even more rarely does it change retroactively to affect contracts which were entered before the legal change. In fact, I am unaware of any instance of retroactive change in recent decades (that is, any which could have affected any of the mortgages involved in the current crisis). So both sides, bank and homeowner, knew or ought to have known exactly what they obligated themselves to do when they signed the contract. Moreover, the market for mortgage contracts is highly competitive from both sides: there are many competing banks and many competing home buyers. In such a competitive market, you'd expect any advantage given to one side (such as non-recourse to home owners) to be counter-balanced by a statistically equal advantage given to the other side (such as higher interest rates in otherwise identical circumstances). So, if non-recourse has a value to home owners, they paid and the banks received a corresponding premium for the option to default strategically (in financial terms, a variable strike-price put option on the collateral). Hence, Prof. Zingales has no just basis for morally or legally condemning home owners who exercise the option to default strategically in non-recourse states. They bought that option when they entered upon the mortgage. They paid for it with every mortgage payment they made. They broke no promise when they exercised that option. They did not even violate their legal obligations. By returning the house, they fully lived up to them. (Vandalism or theft of fixtures which have legally become part of the property—as has been reported to occur in some cases—is of course not excused by this. Trashing the property of belonging to somebody else is morally and legally wrong, regardless of whether it is the repossessing bank's or your neighbor's.). Now Prof. Zingales may argue that banks dramatically under-priced the put option which is part of any non-recourse mortgage contract. Perhaps he is right. Perhaps bank managers, quantitative analysts, and policy makers all made this investment error. If so, they deserve to be demoted or fired, the investors which failed to oversee them properly to take a financial bath, and their regulators to take the appropriate level of condemnation. However, bankers' failures to understand and properly price their contracts is no more excuse to let them out of their obligations than it is in any other case. If we are willing to hold all legally competent adults to the terms of the deals they freely entered, and a viable law of contract requires that we do, it seems bizarre to take outrage at applying this same principle not just to the penniless and semi-literate, but also sophisticated bankers who priced mortgages in non-recourse states. If they made a bad deal, that was a business misjudgment and they and all whom they are answerable to, including top management and investors, will have to live with. In response, Prof. Zingales (and perhaps Prof. White, if he gave the matter some thought), might argue that no sane lender will write a mortgage in a non-recourse state without a very healthy down-payment cushion and high interest rates. Hence the young and the poor, who reportedly have the largest difficulty in coming up with sufficient down payments, will be locked out of the housing markets and just have to live in rental housing until they have accumulated a sufficient down payment. So be it. Perhaps this will convince populist legislatures who enacted non-recourse laws in order to protect the poor and downtrodden against avaricious bankers to change their minds when they realize that the price for that protection is reduced homeownership by that same favored group. Or perhaps not, as legislatures find this price worth paying. But in either case, we are far more likely to get decent policy on recourse if legislatures will finally be held accountable for both side of a policy, rather than being empowered to view non-recourse as a free lunch. So much for Prof. Zingales—on to Prof. White who advocates strategic default for owners of homes worth less than their mortgages. As argued above, that is fair enough in non-recourse jurisdictions. But Prof. White makes no distinction between recourse and non-recourse jurisdictions and the different obligations homeowners incur in different states. He justifies strategic default in recourse states as follows: In [recourse] states, the lender may also opt to pursue a deficiency judgment—a court order that the borrower pay the difference between the funds received by the lender from a foreclosure sale and the balance remaining on a debt. ... Of course, lenders don’t often pursue borrowers for deficiency judgments, even in states where they can do so, because it’s usually not economically worthwhile. In other words, because the bank's legal expenses of enforcing the contractual obligation may be too high to be worthwhile, it is acceptable to ignore the obligation! One can scarcely believe that a progressive legal scholar would endorse such a principle, if indeed it is a principle, rather than a convenient good-for-one-use only verbal distraction. Does Prof. White counsel businesses to violate their contractual obligations whenever they can get away with it because the other side cannot economically obtain a judgment against them? How about a bank which takes unauthorized nuisance fees out clients' accounts? A dry cleaner who demands a couple extra dollars beyond the agreed price in return for the cleaned clothes? A landlord who groundlessly declines to return a deposit? A diner who dashes rather than pay his check? In all of these cases, there need be no criminal intent to deceive or trickery—just a strategic decision to keep the money because one can and it is not worth suing over. Does that make the practices right? To ask these questions is to answer them. Of course he would not endorse such practices (or at least my searches missed any articles he has written in their defense). Violating contracts is commendable if done by members of groups favored by Prof. White; it is an outrage if done to members of groups favored by Prof. White. Such an instrumentalist perspective on morality or law is destructive to both. Prof. White's students and readers would do well to keep that in mind when evaluating his statements. ## Thursday, May 6, 2010 ### Non-Stupid Arguments against Large-Scale Low-Skill Immigration Steve Landsburg has a great deal of fun with insulting some of the more stupid immigration restrictionists. Having long been an admirer of the good professor and read—usually with agreement, but always with pleasure and enlightenment—all of his writings online and off- that I've been able to lay my hands on, it might seem churlish of me to ask him to lay off and consider another target instead. Also, there is a certain entertainment value in watching a battle of wits between an unarmed man and a bazooka wielder. Yet, I would ask Prof. Landsburg to turn his attention to some of the less stupid and potentially more damaging, at least with respect to an intelligent audience, objections to large-scale, low-skill immigration of the type observed by the United States over recent decades. For example: 1. Under standard and generally reasonable microeconomic assumptions, added supply of low-skill immigrant labor will etceteris paribus tend to lower the price of its substitutes, in this case native low-skill labor. The standard, correct response is that competition is not an externality or legal tort: Any losses to native low-skill labor will be more than made up by the gains to employers of low-skill labor and the low-skill immigrants. But is this response likely to be acceptable the electorate (which includes many more low-skill laborers than their employers) and their political representatives? Or will they respond by other counter-productive measures such as increased income redistribution? Will those likely responses be more or less harmful, economically or ethically, than enforced immigration restrictions? 2. Relatedly but separately, many of these low-skill immigrants will eventually become low-skill citizens and voters. If their voting patterns are anything like that observed of other low-skill voters, the electoral and hence policy and hence economic consequences would be likely be what I (and perhaps Prof. Landsburg) would consider catastrophic. Again: Will those likely harms outweigh, economically or ethically, those of enforced immigration restrictions? Again—not being a sea cucumber—I agree with what I perceive to be Prof. Landsburg's support for open immigration. In an ideal world, I'd do so unreservedly. In the real world, I do so reservedly for the reasons mentioned above. Prof. Landsburg: while of course you do not owe me any response, I'd be sincerely curious to know what your responses would be. ## Saturday, May 1, 2010 ### Al Gore's Revealed Beliefs It is reported that former Vice President Al Gore just purchased a villa in Montecito, California for$8.875 million. The exact address is not revealed, but Montecito is a relatively narrow strip bordering the Pacific Ocean. So its minimum elevation above sea level is 0 feet, while its overall elevation is variously reported at 50ft and 180ft.

At the same time, Mr. Gore prominently sponsors a campaign and award-winning movie that warns that, due to Global Warming, we can expect to see nearby ocean-front locations, such as San Francisco, largely under water. The elevation of San Francisco is variously reported at 52ft up to high of 925ft.

There being very little reason to suppose that the Pacific Ocean would (or could) rise much less in Montecito than in San Francisco, it follows that Mr. Gore just paid nearly \$9 million for property, which according to his professed beliefs, will likely soon be literally under water and hence worthless both as a residence and for resale.

The possible explanations for such behavior are few. One is that Mr. Gore willingly invests millions of his own dollars in property he soon believes to be worthless. That seems very difficult to reconcile with Mr. Gore's past history as it would require a degree of either extreme stupidity, eccentricity, or clinical mental defect inconsistent with that history, even under the most cynical realistic assumptions about the relationship between worldly success and mental aptitude.

In fact, the only explanation I can think of is that Mr. Gore is a self-conscious, witting liar who does not actually believe his predictions of doom, but nevertheless cynical peddles them for pecuniary or psychic gain. In short, it appears that Mr. Gore is a fraud, not in the sense all of us like to accuse our political enemies to be, but in the most dispassionate, common-sense meaning of the term.

Please note that this is far stronger evidence of Mr. Gore's lack of sincerity than his willingness to engage in a very carbon-intensive life-style of multiple mansions, private jets, and the like. It is perfectly possible to sincerely believe in Global Warming and yet conclude that one's own personal contributions are so small compared to the size of the problem that one nonetheless indulges in the comforts one finds so dear. That is not admirable. But it is a common human failing and can be logically consistent with a sincere belief in the problem.

However, it is impossible for a rational person to both believe in imminent rise of sea levels and purchase ocean-front property with their own money, as Mr. Gore has just done.

### The Victims of the Housing Bubble and Mortgage Crisis

A week ago—I apologize for my tardiness—Arnold Kling posted on EconLog:

I know that it's axiomatic that poor people are helpless victims. But in the case of these mortgages, that is a really hard sell. The banks did not take from poor people. They gave to poor people. If you were lucky enough to get one of these exotic mortgages when house prices were still going up, then you got to reap a nice profit on your house. If you were not so lucky, you lost...close to nothing. I'm sorry, but if you borrowed up to 100 percent of the value of the house or more, then all you really lost were your moving expenses.

What about predatory lending? As I understand it, the idea of predatory lending is to saddle the borrower with an expensive mortgage so that you can foreclose on the property and sell it at a profit. How many times did that happen? Have you read of a single instance in the past three years where the bank made a profit on a foreclosure?

I am always ready to feel sorry for poor people because of their poverty. But I cannot feel sorry for somebody who was given a basically free option on a house and the option didn't happen to come into the money.

I have no value to add except to quote this obvious, important, unspeakable insight. That is a little, but only a little, more than nothing. The only reason an insight remains both obvious and important is that it is unspeakable. Repeating it renders it on iota less unspeakable.