Freakonomics

Of God and Money

Fri, 20 Nov 2009 12:29:01 +0100

A priest, a minister, and a rabbi walk into an economics lab. Which one is most likely to increase contributions to the public good? A new study found that Protestants were more likely than Jews or Catholics to contribute money to a public pool. The Protestants also worked hardest for wages in a labor market game. Consider it evidence for the Protestant work ethic. (HT: Chris Blattman)

A Few Questions for Belle de Jour, Call Girl and Scientist

Fri, 20 Nov 2009 10:30:34 +0100

In 2003, a young American woman in London studying for her PhD. ran into money trouble. To support herself while writing her thesis, she joined an escort service. Under the assumed name Belle de Jour, she started to blog her experiences. That blog led to a series of successful, jaunty memoirs beginning with 2005’s The Intimate Adventures of a London Call Girl. The books were adapted for television in the U.K. (where she is portrayed by Billie Piper) and later in the U.S. All the while, as Belle de Jour garnered more attention — and criticism, for portraying prostitution as a glamorous career choice — the woman behind Belle de Jour struggled to keep her anonymity. This month, as an ex-boyfriend threatened to blow her cover, Belle approached one of her critics, the London journalist India Knight of the Sunday Times, to reveal her identity. That resulted in an article, published Nov. 15, outing her as Dr. Brooke Magnanti, 34, a neurotoxicologist at the Bristol Initiative for Research of Child Health. This week, she agreed to answer a few questions for the Freakonomics blog, about her work as a call girl and as a scientist.

You went to extraordinary lengths to stay anonymous; I understand that even your agent didn’t know your true identity. How did you manage that feat?

It turns out he did: I forgot that I had shown him an ID when we first met. He reminded me after the Times piece came out. I really believed Patrick didn’t know and therefore would have been incapable of outing me. In the end it turns out he was simply very trustworthy rather than actually kept in the dark. But for the most part, my accountant handled all the details. He set up the shell corporation which received payment for my writing, which then passed on the money to me as dividend payouts.

On your blog recently, you considered whether men or women have it easier in life, and concluded that “if men had it easy, there wouldn’t be prostitutes.” Care to elaborate?

While there are many reasons why men go to prostitutes, I noticed a few trends that had to do with women. The inability to ask a partner for kinky sex, for instance, came up more than once. There were a couple of virgins as well, though that is less common now than it once was. And to some extent, my clients were men who were addicted to success. They knew I, as a call girl, would respond positively to their advances, whereas outside of the transaction a woman like me might not. After all, women are widely perceived as the gatekeepers to sex, so in theory they can have it as often as they like, and men do not get a say in that. It’s not universally true of course, but that is a dominant dynamic.

What’s struck you about the controversy in the press that followed your revealing your identity?

There seems to be a lot of chatter in the U.K. papers surrounding me, about how my experience was a matter of class — though of course that isn’t strictly true. It can affect the level of agency one has. I suppose it does take a certain amount of awareness of value for someone, even in dire financial straits, to be able to say “I will have sex for £200, not £30.” That confidence can sometimes be more associated with social class, but I think it’s more to do either with education or self-esteem, which are not necessarily related. In any case, the capability either to believe you deserve to be valued more, or to imagine that, is required wherever it comes to payment. In a way I see it as being similar to the question of who believes they are candidates for university education and who does not, regardless of origin or native intelligence.

How do you respond to critics who say your work sanitizes and normalizes prostitution, luring women into a career that is, in their view, inherently ruinous?

It’s a pity they think I’m the only one. If I had not written about the experience, I probably could have got away with never telling anyone, which would have been an attractive option — in fact, the one most women in the same situation make. I particularly like the word “luring.” It comes up a lot; must be the evocative, almost onomatopoetic cadence — it sounds so corrupt and oily. And it makes no sense that I would be luring people into this. Where is the advantage for me for even more people to be working as escorts? Shouldn’t I want all the quality clients to myself? They try to have it both ways: that I am an arch materialist only out for as much as I can get, and at the same time, that I am on a recruitment drive. It makes no sense really.

I have always tried to say on the blog and in interviews that prostitution is not a suitable career choice if you have doubts about your ability to handle it. Many women wrote to me asking advice and I tried to discourage most of them. You usually can tell even from an email who had their mind made up and who hasn’t.

What’s a good predictor of being able to “handle it”?

Someone who asks about the specifics of the work, rather than how it feels or how I decided to do it. Someone whose requests show they’ve done research already, i.e. “I like Agency x and Agency y, which do you think would look after their girls better?” as opposed to “do you think I can do this without telling my boyfriend?”

SuperFreakonomics profiles a woman, who goes by the name of Allie, a former computer programmer who turned to sex work and is now going back to school to study economics. Does the book’s description of her ring true to you?

Yes, very much so. At the time I was writing I was in contact with courtesans who were also blogging, such as Jet Set Lara. The difference between my earnings and theirs was great, but I was probably having more actual sex while they earned far more. It’s also covered in the TV series of my book, in fact –- Billie Piper’s Belle starts earning a lot more when she stops the by-the-hour work and goes independent, setting her rates higher and having fewer clients.

What of the question in SuperFreakonomics, then — why don’t more women take to prostitution?

Sex with strangers squicks them out? I’ve noticed a tendency in some of my female friends to rationalize sex decisions they make — a hookup or one-night stand. If they had to do that several times a week, it would be tiring, if not emotionally devastating. Being able to divide sex-for-love and all-other-sex is not something especially usual.

Is it especially strange seeing yourself portrayed on television, considering Piper’s Belle is a kind of double of a double of you?

Very. At first it was uncomfortable because the show is an adaptation of the book, so it diverges from me pretty widely — someone even started a Facebook group called “Belle de Jour knows what a palindrome is!” because the character didn’t. But because I was anonymous, I came to view it as an advantage: if people imagined Billie Piper was me, they would start looking for girls like that, rather than girls like me. It was an added measure of obfuscation I came to appreciate.

You quit the escort business in 2004. What kind of work are you doing now?

I’m working on an E.U. project that is meant to be translating research into public policy. Specifically, we look at the evidence for pesticide exposures causing neurodevelopmental disorders. There are pesticides which are banned from indoor use in the U.S. for this reason, but they’re still legal in E.U. So my job entails collating that evidence into coherent documents that policymakers would find approachable.

Has anything you learned as a call girl proven useful in your life as a scientist?

It taught me a lot about being able to talk to a variety of people with different backgrounds and relating to their points of view. Also the value of listening to them instead of rabbiting on about Fact This and Evidence That quite so much. Also, the power of being a decent-looking blond woman in the world. People may not take you seriously at first but they don’t resent your approach. Once the door is cracked open, it’s up to you to show your value as an intelligent person. Leveraging my sexuality to promote my work? You bet.

Do you expect your outing as Belle de Jour will affect your scientific work?

I imagine people will know who I am now, and I’ll have to answer the same three questions over and over. But if I then get to shoehorn in something about the work I do, that’s a price I can put up with.

You’ve written a couple of bestselling books. Which writers do you look up to?

I’d love to be a Simon Singh someday, but in terms of my current writing abilities that’s a long way off. It’s a goal though.

So you have a popular science book in the pipeline?

Well, I can rabbit on endlessly about chemoinformatics and the problems thereof. Whether anyone would enjoy reading that, outside the small group of people who do it, is another question. But starting with the proposition that if we were to make one of every possible drug-sized molecule that could exist, they would more than fill the entire universe. I think that’s a compelling image and a good place to start when talking about the challenges of drug discovery.

Why Do We Hate?

Fri, 20 Nov 2009 09:21:23 +0100

“What makes hate tick? How can we stop it?” These are the questions that Jim Mohr, director of Gonzaga University’s Institute for Action Against Hate, asks himself every day as he develops a new field of study around hate. Mohr believes that despite all the devastating examples of hate in the world, no one really understands why one person hates another. The institute hopes to change that through the interdisciplinary study of hate, incorporating insights from history, psychology, religious studies, anthropology, and political science. Mohr cautions against simple explanations of the emotion and points out that fear, greed, and even the desire to belong can drive hate. That said, he is also optimistic: “We can change. There has to be hope.”

Introducing "Applied Freakonomics"

Fri, 20 Nov 2009 07:50:40 +0100

When blog reader Kyle contacted us with his story of how thinking “freakonomically” first netted — then lost — him significant amounts of incremental income, we had what we’d call an “aha moment,” if Oprah hadn’t apparently patented that phrase.

Here’s Kyle’s story — and if you have a tale of “applied Freakonomics,” we’d love to hear it, too, and possibly feature it on the blog.

Applied Freakonomics: Working on the Night Moves

Kyle is a social worker in a small Midwestern city. His clients are people with serious and long-term psychological disorders, and his job is to help them function as smoothly — and inexpensively — as possible in the community.

One thing his clients like to do is go to the emergency rooms of hospitals at night, and the cost to the county over time is astronomical, if they end up being admitted. In order to keep unnecessary hospital admissions to a minimum, Kyle and his co-workers are assigned to a nightly on-call rotation.

Five years ago, Kyle had just finished reading Freakonomics, and it lit a fire under him. “Immediately after finishing the book,” Kyle wrote, “I wondered how I might use its principles to enhance my life.” Kyle decided to approach his co-workers to see if any of them would be interested in ceding him their overnight shifts, which at the time paid $3.50 per hour.

“The shifts were unpopular, as you often had to go out in the middle of the night (which was awful during the winter), but I, being a single guy and needing money, didn’t mind it as much,” Kyle wrote.

It turned out that the shifts were unpopular, indeed — so unpopular that as soon as Kyle broached the topic, six of his seven co-workers turned their on-calls over to him.

“One person, a rival of mine, kept his and occasionally would negotiate for some of the open shifts,” Kyle wrote, “but he did not have the passion I had for this exercise. So, overnight, I had increased my income by thousands. After three years of earning in the low $40,000 range, I finished that first year at $60,000 in earnings.”

Thinking “freakonomically” again, Kyle decided to streamline the on-call system. Kyle worked to establish strong relationships with local hospital staffs, and as they came to know and trust him, many of the dreaded middle-of-the-night call-outs to retrieve a client were avoided; doctors and nurses were willing to allow certain clients to sit quietly in a corner of the hospital, knowing that Kyle would arrive in a county car at eight in the morning to pick them up and take them home.

Kyle couldn’t believe his good fortune — he had commandeered seven out of every eight night shifts, the on-calls had become far less arduous, and his income had skyrocketed. And then something amazing happened: the administration announced it was raising the on-call rate from $3.50 per hour to $100 a night.

“At first, I thought, The biscuit wheels have fallen off the gravy train,” Kyle wrote, because he assumed the tripled pay rate would cause his co-workers to reclaim their shifts. Kyle practically tiptoed through the halls at work — and checked his emailbox with a feeling of dread — but to his amazement, there was absolutely no response to the rate increase. “My co-workers had gotten so used to having every evening free that even the wage increase would not bring them back. It was like there was an ATM machine at work just spitting out bills, and nobody wanted them.”

Confidence restored, Kyle asked himself, How can Freakonomics take me further? It occurred to him that paperwork was the bane of the social worker’s existence, and Kyle, being younger and more computer savvy than his co-workers, was actually pretty adept at this type of task. He drew up a small menu of the paperwork services he was willing to perform for very reasonable prices.

To his delight, four of his co-workers took him up on his new offer. And this is where, as Kyle puts it “the Law of Unintended Consequences got me.”

Because in order to finance Kyle’s minuscule paperwork fees, all four of those workers re-entered the on-call rotation. At first they just reclaimed a shift here or there, but “once they realized how streamlined on-call had become, and once they got their paychecks and experienced firsthand the benefit of the tripled rate, they re-entered the on-call rotation at the frequency before all this began.”

So as quickly as that, Kyle’s incremental revenue stream — which had flowed steady and strong for over five years — became a sickly trickle, which is where the situation stands today.

Kyle — who likens himself to such classic over-reachers as Icarus and Aesop’s dog-with-a-bone — has given a lot of thought to why his small paperwork fees so dramatically altered the behavior of his co-workers. In a phone interview he explained, “It didn’t cost them anything to give up a shift, but I was charging them to do the paperwork, and I think that was my error. If I took their money before they actually got it, they didn’t notice it because it never came to them. Once the cash was already in their pockets, well, now they’re noticing it was gone.”

Kyle believes he could have avoided his mistake if he’d paid closer attention to the time-tested methodology of another salary-reducing entity: income tax. “It’s very similar to what the government does with paychecks,” Kyle observes. “If you take it out before they ever see it, they never even know it was theirs.”

While he mourns the loss of tens of thousands of dollars in annual incremental income, a wiser, warier Kyle remains hopeful. “Reading the first Freakonomics book easily added a solid $100,000 to my income over the last four years. I hope I will find a nugget of wisdom in Superfreakonomics that will help me repeat the experience in a more clever way, which I will practice with much greater restraint.”

When Football Violence Turns Real

Fri, 20 Nov 2009 06:42:43 +0100

It’s well-established that domestic violence is bad for the children directly exposed to it (and possibly their classmates as well) but experts still debate the drivers of family violence. Economists have traditionally characterized violence as a signal to outside parties or as part of an incentive contract between family members. Others believe that violent episodes occur when the perpetrator loses control. A new paper by David Card and Gordon Dahl tests the latter explanation using data on domestic violence occurring on Sundays during the NFL season. Card and Dahl hypothesize that “negative emotional cues” (i.e., a loss by the home football team) make a loss of control more likely. They find that unexpected losses by the home team “lead to an 8 percent increase in police reports of at-home male-on-female intimate-partner violence.” Furthermore, unexpected losses in important or particularly frustrating games have a 50 to 100 percent larger effect on domestic violence. The authors conclude that “at least a fraction of intimate partner violence appears to represent excessive behavior that is triggered by payoff-irrelevant emotional shocks, rather than strategic instrumental violence that is used to control an intimate partner.”

Quotes Uncovered: Who First Said "If You Can't Beat Em ... "

Thu, 19 Nov 2009 12:00:19 +0100

Each week, I’ve been inviting readers to submit quotations for which they want me to try to trace the origin, using The Yale Book of Quotations and my own research. Here is the latest round:

Josh asked:

If you can’t beat them, join them.

The Yale Book of Quotations, which attempts to trace all famous quotations to their earliest findable occurrence, lists this as a proverb. The earliest citation given, in the form “If you can’t lick ‘em, jine ‘em,” is from the Atlantic Monthly, February 1932, where it is described as one of Senator James E. Watson’s “favorite sayings.”

Hayley Lauren asked:

I have been trying to find the roots of this quote, and if this is its original form:

“There have only ever been four or five stories in this world, we just tell them in different forms.”
Wow!

This thought has probably been expressed by many people. The best-known version is from Willa Cather, O Pioneers! (1913): “There are only two or three human stories, and they go on repeating themselves as fiercely as if they had never happened before.”

John asked:

I remember seeing a phrase a long time ago that went something along the lines of “If it were not for women, all the money in the world would be worthless.” Just curious if I am remembering it correctly and who said it.

The YBQ has the following:

“If women didn’t exist, all the money in the world would have no meaning.” Aristotle Onassis, quoted in Barbara Rowes, The Book of Quotes (1979).

Next week: My long-awaited response to questions about the origin of “the whole nine yards”!

Do any readers have any other quotations whose origins they would like me to attempt to trace?

Nathan Myhrvold, Mad Chef

Thu, 19 Nov 2009 11:26:50 +0100

Nathan Myhrvold is the Intellectual Ventures chieftain we wrote about in SuperFreakonomics; I.V. has plans to thwart, inter alia, hurricanes, malaria, and global warming. (He has also written for this blog occasionally.) Now he has let The N.Y. Times into his kitchen. It is not like any other kitchen you’ve ever seen; nor is the cookbook he is producing like any other that’s been published:

Originally planned as a 300-page discussion of sous vide, an increasingly popular restaurant technique of cooking food in vacuum-sealed bags in warm water baths, the book has swelled to 1,500 pages that will also cover microbiology, food safety, the physics of heat transfer on the stove and in the oven, formulas for turning fruit and vegetable juices into gels, and more.

“And they’re big pages,” Dr. Myhrvold said.

Improving Well-Being in the Classroom

Thu, 19 Nov 2009 10:00:19 +0100

Four of the 26 students in my Economics of Life class proposed delaying submitting their draft term project reports by one week. I emailed the whole class and gave them one day to let me know if they disapproved of this postponement.

The question was how heavily to weight the negatives — those who disapproved — compared to those who wanted to postpone. I couldn’t just require a Pareto improvement; why should one person’s problem with the proposal be allowed to veto an improvement for the other 25?

Instead, I decided that my little social welfare function would weigh losses more heavily than gains, so that if three people objected I would not make the change. Perhaps unsurprisingly nobody objected, and I went ahead with the change, presumably now generating a Pareto improvement for my class.

What Are the Coming Decade's Most Overblown Fears?

Thu, 19 Nov 2009 08:10:34 +0100

Newsweek is running an online retrospective of the new millennium’s first decade. My favorite section to date is the “Overblown Fears” list. Here they are, in order:

1. Y2K
2. Shoe Bombs
3. Vaccines Cause Autism
4. Immigrants
5. Bloggers
6. SARS, Mad Cow, Bird Flu
7. Web Predators
8. Teen Oral Sex Epidemic
9. Anthrax
10. Globalization

One could quibble all day long with inclusions and omissions but to be sure it is a very entertaining list. I’d be tempted to remove SARS and Bird Flu from the “most overblown” category, and I’m not sure who was ever so frightened of bloggers. Also: when a given fear doesn’t make the list, it’s hard to say whether that’s because it wasn’t so overblown or because it wasn’t so scary.

It was interesting to look back to see how many of these topics have appeared on this blog over the years — e.g., here and here and here.

And in a section of SuperFreakonomics dealing with the trickle-down costs of terrorism, we write about the would-be shoe bomber Richard Reid:

Think about the last time you went through an airport security line and were forced to remove your shoes, shuffle through the metal detector in stocking feet, and then hobble about while gathering up your belongings.

The beauty of terrorism — if you’re a terrorist — is that you can succeed even by failing. We perform this shoe routine thanks to a bumbling British national named Richard Reid, who, even though he couldn’t ignite his shoe bomb, exacted a huge price. Let’s say it takes an average of one minute to remove and replace your shoes in the airport security line. In the United States alone, this procedure happens roughly 560 million times per year. Five hundred and sixty million minutes equals more than 1,065 years — which, divided by 77.8 years (the average U.S. life expectancy at birth), yields a total of nearly 14 person-lives. So even though Richard Reid failed to kill a single person, he levied a tax that is the time equivalent of 14 lives per year.

Jason Kottke, who wrote the Y2K entry in the Newsweek list, offers this trenchant assessment:

According to Forbes, AT&T reportedly spent $500 million to fix their Y2K issues. Meanwhile, the U.S. government expressed concern about the lack of preparation undertaken by K-12 schools, small businesses, China, and Russia; none reported significant problems after Jan. 1.

I would be remiss to not ask all of you: what will turn out to be the most overblown fears of the coming decade?

The Latest in Naked Self-Promotion

Thu, 19 Nov 2009 07:35:34 +0100

If you missed Levitt and Dubner on their U.K. SuperFreakonomics tour, a podcast of their lecture at the London School of Economics is now online. So are their interviews with Reuters TV, Channel 4, and Telegraph TV, as is the BBC’s piece on how SuperFreakonomics fits into the David Cameron book club. Some U.S. tour appearances are available online as well, from the Commonwealth Club, the Motley Fool, and the Philadelphia Free Library.

SuperFreakonomics remains at or near the top of best-seller lists at the New York Times, the Wall Street Journal, and the Boston Globe. (Meanwhile, Freakonomics recently hit No. 1 on the New York Times list, the first time it has ever snagged the top spot.)

Reviews of SuperFreakonomics keep rolling in. The most favorable are from the Financial Times, Los Angeles Times, the Wall Street Journal, U.S. News and World Report, the Sunday Times (U.K.) and the Irish Examiner. If you’re looking for a reason to not like the book, you might want to check out The New Yorker or the Guardian.

Finally, grab your apple-oranges and turn on the radio: it’s Freak Week on WNYC’s The Takeaway, where Dubner has been appearing every morning this week. His first three segments, on health care, global warming, and altruism, are archived online.

SuperFreakonomics Book Club: Ask Sudhir Venkatesh About Street Prostitution

Wed, 18 Nov 2009 12:34:21 +0100

In the first installment of our virtual book club, Emily Oster answered your questions about her research (co-authored with Rob Jensen) which argues that the lives of rural women in India improved on several dimensions thanks to the widespread adoption of television.

That story appeared in our book’s introduction. Now we’re moving on to Chapter One.

We will probably feature a few Q&A’s with the subjects and researchers featured in this chapter, which is described in the Table of Contents like this:

1. How is a street prostitute like a department-store Santa?

In which we explore the various costs of being a woman.

Meet LaSheena, a part- time prostitute … One million dead “witches” … The many ways in which females are punished for being born female … Even Radcliffe women pay the price … Title IX creates jobs for women; men take them … 1 of every 50 women a prostitute … The booming sex trade in old-time Chicago … A survey like no other … The erosion of prostitute pay … Why did oral sex get so cheap? … Pimps versus Realtors … Why cops love prostitutes … Where did all the schoolteachers go? … What really accounts for the male-female wage gap? … Do men love money the way women love kids? … Can a sex change boost your salary? … Meet Allie, the happy prostitute; why aren’t there more women like her?

Today we concentrate on “a survey like no other,” and invite you to ask questions of the man behind that survey, Sudhir Venkatesh. He is a sociologist at Columbia University who did his graduate work at the University of Chicago and conducted years’ worth of valuable, fascinating field work there.

One chapter in Freakonomics was based on a series of papers Sudhir wrote with Steve Levitt about the economics of a crack-selling gang. (He did a Q&A on that topic here; and he wrote a book, Gang Leader for a Day, about that research.)

In SuperFreakonomics, we write about the field work that Sudhir conducted with street prostitutes in Chicago. There is a lot to be said about the findings of the research (mostly concerning prices and services) as well as methodology, the historical changes and context of street prostitution, and even how the prostitutes engage in what economists call price discrimination, or charging different prices for the same product.

Sudhir has agreed to field your questions about his research, so leave them in the comments section below. As always, we’ll post the answers shortly. For those of you who haven’t yet read this chapter, here are a few relevant excerpts:

Venkatesh, knowing that traditional survey methods don’t necessarily produce reliable results for a sensitive topic like prostitution, tried something different: real-time, on-the-spot data collection. He hired trackers to stand on street corners or sit in brothels with the prostitutes, directly observing some facets of their transactions and gathering more intimate details from the prostitutes as soon as the customers were gone.

Most of the trackers were former prostitutes — an important credential because such women were more likely to get honest responses. Venkatesh also paid the prostitutes for participating in the study. If they were willing to have sex for money, he reasoned, surely they’d be willing to talk about having sex for money. And they were. Over the course of nearly two years, Venkatesh accumulated data on roughly 160 prostitutes in three separate South Side neighborhoods, logging more than 2,200 sexual transactions.

And:

During Venkatesh’s study, six pimps managed the prostitution in West Pullman, and he got to know each of them. They were all men. In the old days, prostitution rings in even the poorest Chicago neighborhoods were usually run by women. But men, attracted by the high wages, eventually took over — yet another example in the long history of men stepping in to outearn women.

These six pimps ranged in age from their early 30’s to their late 40’s and ‘were doing pretty well,’ Venkatesh says, making roughly $50,000 a year. Some also held legit jobs — car mechanic or store manager — and most owned their homes. None were drug addicts.

One of their most important roles was handling the police. Venkatesh learned that the pimps had a good working relationship with the police, particularly with one officer, named Charles. When he was new on the beat, Charles harassed and arrested the pimps. But this backfired. ‘When you arrest the pimps, there’ll just be fighting to replace them,’ Venkatesh says, ‘and the violence is worse than the prostitution.’

And:

How do the Chicago street prostitutes price-discriminate? As Venkatesh learned, they use different pricing strategies for white and black customers. When dealing with blacks, the prostitutes usually name the price outright to discourage any negotiation. (Venkatesh observed that black customers are more likely than whites to haggle — perhaps, he reasoned, because they’re more familiar with the neighborhood and therefore know the market better.) When doing business with white customers, meanwhile, the prostitute makes the man name a price, hoping for a generous offer. As evidenced by the black-white price differential in the data, this strategy seems to work pretty well.

And:

Of all the tricks turned by the prostitutes he tracked, roughly 3 percent were freebies given to police officers. The data don’t lie: a Chicago street prostitute is more likely to have sex with a cop than to be arrested by one.

A New Solution to Unemployment?

Wed, 18 Nov 2009 11:40:49 +0100

We’ve blogged extensively about the serious organ-donor shortage in the U.S. and the debate over establishing a market for organs. Now it seems the recession has uncovered some unexpected potential participants in the organ market: unemployed white-collar Americans. In a new article for DailyFinance, former magazine editor Mark Cohen contemplates selling his kidney and points out, “A hundred thousand dollars would do a lot more to stabilize our finances than the other items (a Pottery Barn cabinet, a Thomas O’Brien leather club chair, a cowhide rug) currently under consideration for sale around our house.” Sally Satel, the recipient of a donor kidney and a vocal advocate for a new draft bill that would provide in-kind compensation to donors, points out that the historical arguments against coercing society’s most disadvantaged members to donate don’t apply to white-collar donors. She told Cohen, “But when you’re talking about white-collar people like you wanting to do this, educated people who’ve lost their jobs and have bills to pay but otherwise are going into it with their eyes open — why shouldn’t you be compensated?”

"Just Compensation" Can Lead to More Government Takings

Wed, 18 Nov 2009 10:11:34 +0100

We are trapped in a world with far too few IRS audits. Law-abiding tax payers hate being audited and their representatives in Congress have heard the message loud and clear — strangling the ability of the IRS to conduct field examinations. The problem with the current state of affairs is that non-law-abiding tax payers find it far too easy to avoid paying their fair share.

Barry Nalebuff and I have a new column in Forbes (Winning the Audit Lottery) that suggests a fairly simple solution to this regulatory failure. The IRS should start compensating people for the inconvenience of an audit. The idea is the brainchild of (my coauthor) Joe Bankman, who has estimated that a “payment of $3,000 per audit would overcompensate almost all taxpayers.” The idea is also discussed in this interesting article by Sarah Lawsky.

What really interests me about Bankman’s idea is that requiring the government to pay for its takings might lead to more takings. This is very different from the way we usually think about the impact of compensation:

A central idea behind the Constitution’s Takings Clause is to reduce government’s inclination to take too much. A government that is forced to compensate for the exercise of its eminent domain power is less likely to engage in value-reducing land grabs.

But requiring compensation might increase the willingness of government to take. As Barry and I wrote:

The big hope is to end the stranglehold that anti-IRS forces have on compliance efforts. . . . Absent compensation, Congress has vetoed efficient audit programs–setting the audit rates far below their optimal level. Here’s a rare case where forcing the government to pay for something is likely to increase its demand.

The government, in deciding whether to take, is in some ways on both sides of the market, acting as both a buyer and a seller. The normal intuition that the just compensation requirement will dampen government’s demand to take conceives of the government as a buyer. But in a representative government, the amount of takings will be partly determined by the willingness of representatives to sell at a particular price. When the selling price is zero — as with current tax audits, government as representatives of sellers may choose to sell very little. (This possibility was to my knowledge first seen in Bruce A. Ackerman’s classic Private Property and the Constitution.)

Could Compensation Cause Wrongful Imprisonment?

The possibility that compensation will cause more taking leads to truly perverse possibilities. For example, in 2008 a Florida statute went into effect compensating individuals who have been wrongfully incarcerated $50,000 a year. (Amazingly, our Constitutional requirement of just compensation does not apply because government has not taken the liberty of the wrongfully incarcerated as long as he or she received a sufficiently fair trial!) The audit compensation logic suggests that offering this compensation might actually lead to an increase in wrongful incarceration. In a world without compensation, citizens might require that the criminal justice system take extra care to make sure that the innocent are not imprisoned. But in a world with up to $2 million in compensation, citizen-voters may instruct their representatives that they are not as concerned about having error-free adjudication and, on the margin, they can live with a few more wrongful incarcerations.

Let me be clear: I don’t think it is likely that compensation requirement will lead to much of a change — one way or the other — on the number of wrongful convictions. Bureaucrats deciding whether or not to take might not really care whether government has to pay compensation. Indeed, the potential insensitivity of government takings to the cost of compensation has led some advocates to argue for additional judicial scrutiny and oversight. For example, because the Fifth Amendment prohibits taking of “private property … for public use, without just compensation,” some people would like to have courts only allow takings that independently satisfy a “public use.” The Supreme Court rebuffed one such effort in its 2005 Kelo v. New London decision, which upheld the exercise of eminent domain by New London, Connecticut, to condemn homes in a 90-acre blue-collar residential neighborhood:

The city planned to lease the land for $1 for 99 years to a private developer so that the developer could build a waterfront hotel, office space, and higher-end housing as well as “a number of traditional public uses, like a marina, a walkway, a proposed Coast Guard Museum, and public parking for the museum and the adjacent Fort Trumbull park.” (Just last Monday, Pfizer announced that it was closing the anchor R&D headquarters which was envisioned as the anchor of the development.)

But the audit story teaches that the Kelo plaintiffs might have been better off if the takings clause did not require just compensation. In a world without compensation, the land owners might have been better able to rouse political resistance to the ill-fated plan (just as audit victims have effectively organized to almost completely extinguish the field audit). Uncompensated takings are so unfair that you might need a really good public reason to justify imposing the concentrated burden.

Just Charges for Government Givings?

An analogous perversity arises in the analysis of government “givings.” A government giving (as coined by Avi Bell and Gideon Parchomovsky in a classic Yale Law Journal article) is a circumstance where a government action bestows a benefit on a private citizen. While the Constitution requires just compensation after a government taking, it does not require a “just charge” after a government giving. One example of a just charge is when a government levies a special assessment on property owners who benefit from new sidewalks being installed on their land.

Without “just charges” we might worry that government would not have adequate incentives to bestow benefits on its citizens; that government would undergive. But in deciding whether to impose a special assessment in conjunction with a giving, the government is acting now not only as a seller but also as representatives of buyers. A constitutional duty to impose just charges might lead to fewer givings as citizens instruct their representatives that they can do without sidewalks if they are going to be charged for them.

This is just a flip of the original audit idea. In assessing the impact on government takings (and givings) of mandating compensation (and charges), we need to not only assess the first-order bureaucratic impact of the cash flow, but the political blow-back when constituents call their representatives.

King Condom

Wed, 18 Nov 2009 08:02:38 +0100

Police in Hunan province, China, raided a workshop said to be producing counterfeit condoms. According to the (U.K.) Times:

Bare-chested employees were found using vegetable oil to lubricate the condoms to make them smooth and shiny before placing them directly in fiber bags without bothering with sterilization.

Since March, the workshop had turned out 2.16 million unsterilized condoms labeled as “Jissbon,” “Durex,” “Rough Rider,” “Six Sense,” and “Love Card.” The workshop had earned about 80,000 yuan (£7,000).

The U.N., meanwhile, is hoping to fight global warming by making free condoms easier to get, along with family-planning advice. Maria Cheng of the Associated Press quotes the agency’s Population Fund:

“Women with access to reproductive health services … have lower fertility rates that contribute to slower growth in greenhouse gas emissions.”

One should hope, of course, that the U.N. isn’t getting its condoms from fly-by-night Chinese condom factories.

The Economist, meanwhile, using U.N. Population Division data, offers a compelling argument that long-standing fears of overpopulation are somewhat less scary these days. Why? Because the fertility rate has been falling — gradually in some countries and dramatically in others. Consider:

Assuming fertility falls at current rates, says the U.N., the world’s population will rise from 6.8 billion to 9.2 billion in 2050, at which point it will stabilize.

Behind this is a staggering fertility decline. In the 1970’s only 24 countries had fertility rates of 2.1 or less, all of them rich. Now there are over 70 such countries, and in every continent, including Africa. Between 1950 and 2000 the average fertility rate in developing countries fell by half from six to three — three fewer children in each family in just 50 years. Over the same period, Europe went from the peak of the baby boom to the depth of the baby bust and its fertility also fell by almost half, from 2.65 to 1.42 — but that was a decline of only 1.23 children. The fall in developing countries now is closer to what happened in Europe during 19th- and early 20th-century industrialization. But what took place in Britain over 130 years (1800-1930) took place in South Korea over just 20 (1965-85).

Things are moving even faster today. Fertility has dropped further in every South-East Asian country (except the Philippines) than it did in Japan. The rate in Bangladesh fell by half from six to three in only 20 years (1980 to 2000). The same decline took place in Mauritius in just ten (1963-73).

It would seem a very good time indeed to be in the condom-manufacturing business. Which means the recent Hunan raid is certainly not the last of its kind that we’ll hear about.

(Hat tip: Daniel Lippman)

Birds Like You've Never Seen Them

Wed, 18 Nov 2009 06:55:03 +0100

Worker productivity is up dramatically, despite the release of photographer Andrew Zuckerman’s mind-blowing book — and totally engrossing website — Bird. The book contains more than 200 wonderfully textured photographs of nearly 75 species of birds. As it happens, Zuckerman also constructed and photographed the exploding apple-orange on the cover of SuperFreakonomics. Thankfully he didn’t blow up any of the birds.