Posted by Marc Hodak on February 29, 2008 under Unintended consequences | 
One in 100 Americans are now in prison. That’s higher than Russia or China. Higher even than Cuba or Zimbabwe. Higher than any other nation, big or small, democratic or despotic. We have over one quarter of the world’s prison population. Thanks drug warriors. Way to go, Congress! Thanks Justices Kennedy and Scalia.
When breaking the law becomes so easy that one percent of your population is in jail, it erodes respect for the law. This statistic does not suggest that we have too many lawbreakers–it suggests we have too many laws.
Posted by Marc Hodak on under Scandal |
Mrs. Kroes has emerged as arguably the world’s most-feared antitrust enforcer.
Yay. Someone looking after my interests in Europe.
Mrs. Kroes announces big fines — €329 million on a cartel of zipper makers, for example — with relish at news conferences and denounces with bombast corporations she believes are trampling consumers.
Well, I guess enthusiasm can be a good thing. I mean, she’s not bombastically announcing huge fines just because she’s a media whore, right?
While U.S. regulators are more likely to wait and see what happens after a company becomes dominant, Mrs. Kroes is predisposed to pre-emptive action. If a company is “just blocking competition, then at the end of the day, there will be a type of monopoly,” she says.
Wait, how exactly does she distinguish aggressive competition from “blocking competition?” And how does she know which aggressive competitor is likely to become a monopoly? Even seasoned investors with a huge interest in knowing these things, and in a market like the U.S. without this kind of enforcement, can’t tell that. I mean, she must be super brilliant.
Read more of this article »
Posted by Marc Hodak on February 27, 2008 under Revealed preference |
That comes from a famous quote by the recently departed William F. Buckley, Jr. The full quote was, “I’d rather be governed by the first 2000 names in the Boston phone book than by the dons of Harvard.”
Buckley was speaking to the leftist bias of Harvard’s faculty, but I have always preferred to repeat that quote, at least the first part, as a paean to randomness. In particular, I believe that a degree of randomness in who governs us would be a good thing–I would like to see legislators selected by lot, much as we select jurors.
Selecting legislators by lot would have various benefits:
– It would eliminate the rampant corruption of the legislature. I’m not taking about a congress-critter taking bribes on the sly to urge on some bill. I’m talking about the wholesale, routine purchase, or at least rental of legislators by their big money supporters. Legislators need campaign contributions. They can’t get elected without them. Therefore, they need to do what it takes to get those contributions, and what it takes is responsiveness to the concerns of the contributors.
– It would undercut the rationale for so much government spending. Most of those contributors want the government to do something for them. What kind of an ingrate would take a contributor’s money–cash they use to get elected–and then deny that contributor something they want from the government? A one-term ingrate. The economics of the market for political power is the same as other markets in that money talks, bullshit walks.
– It would end the extortion of citizens by the legislature. Most of those contributors who aren’t trying to get the government to do something for them are trying to keep the government from doing something to them. Legislators, especially powerful committee heads, are keenly aware of the power they wield, and they know how to use that power. In fact, they have little choice. Nature abhors a vacuum, worst of all a power vacuum. Whoever has the power to shake down moneyed interests stands to gain from using it. If they won’t, someone else will.
– It will eliminate the excuse to undermine our free speech and other civil rights. The reason we haven’t been able to stop money from corrupting our legislature is partly because so much is at stake, but also because campaign contributions are a protected form of speech. Limiting that speech endangers some of our bedrock liberties. Eliminate campaigns and you eliminate the need for campaign funding, and the need for any restrictions on campaign funding. Voila, more liberty.
– No more gerrymandering. Most people have a vague idea of how thoroughly corrupted the election process has become. While civic idealists trumpet the virtue of voting, most people instinctively know that they don’t choose their congressmen–their congressmen have chosen them, through the re-districting process. In my urb, there is no point having anything but a Democratic candidate. I didn’t choose her; the party bosses did that for me. Unless pictures come out in the week before election of her blowing a mule, this one has been decided. Even then, the election might still be close.
I know this modest proposal is far from perfect. The 25th guy in the Boston phone book might be a complete moron–I mean worse than the kind of people that typically get elected. Some of these people may not be rational, or even sociable. At least people who are elected are liked by some number of citizens.
There are those that might be concerned that Ma Kettle, Joe Sixpack, Don Ho, et. al might be too untrained and diverse to get much done. I think that’s a feature, not a bug. I just don’t think we are suffering from a dearth of laws, or that we just can’t live without more of them every single term.
Nevertheless, I think the random representatives would get stuff done. Having sat on a jury, I know that the average person is generally reasonable, especially in situations demanding group deliberation. If anything, too many people are willing to go along to get along. But, on the whole, I have found random juries (albeit with some judicial screening) to be conscientious, conservative, and reasonable.
I think it’s worth an experiment. Some town, or county perhaps, can try this before it gets promoted to the state or federal level. I think it would energize the citizenship of the place that adopted it. Let’s do it for Bill B., God bless him.
Posted by Marc Hodak on February 26, 2008 under Scandal |
I believe that most scandals have perverse incentives at their root. In the case of Health Net canceling the policies of ill patients, the incentives had an intended effect, but they couldn’t survive the sunshine rule:
During arbitration, Bates’ attorneys produced internal company documents that showed that Health Net was rewarding employees with bonuses based on the number of cancellations they got.
Employees were asked to meet cancellation quotas and were also rewarded based on the amount of money they saved the company. Bates’ lawyers argued that Health Net had saved more than $35 million by rescinding policyholders between 2002 and 2006.
I don’t know if I agree with those who don’t think $9 million is a sufficient penalty for Health Net. Don’t forget the enduring penalty of bad publicity. For instance, Health Net is our insurer, but probably not for long.
Posted by Marc Hodak on February 25, 2008 under Revealed preference |
Today I went to my local federal court house for jury duty. Unlike the typical professional who sees jury duty as a nuisance, I actually like the idea of jury duty. As long as it doesn’t get in the way of certain client or family needs, I think hearing a case would be pretty cool. I actually sat on a jury once, and haven’t been picked since. According to lawyer friends, I should never expect to be picked again.
Since my last jury stint, over 20 years ago, the jury selection technology has gotten pretty sophisticated. Here’s how one lawyer friend puts it:
Defense attorneys don’t want smart people on the jury. They’re looking for people with barely enough reasoning to follow a Mother Goose tale, but also with enough sense to know that they can’t quite figure it all out.
Prosecutors and plaintiffs attorneys consider such people way too intelligent for their juries. They look for complete morons, people who don’t even know that they don’t know what the frig is being said by either side. They want people who believe conspiracy theories. It goes without saying that prosecutors like people who respond to authority figures with an “Uh huh. OK,” reflex.
What this means for justice depends on what is being prosecuted. In traditional criminal cases like burglary or homicide, the accused are generally not too far from the typical cross-section of jurors in terms of class and culture. In white collar criminal cases, modern jury selection practices guarantee that the defendant won’t have anything resembling true peers on their jury. They’re more likely to have jurors saying things like “I didn’t know anything about what they talked about.” or, “For a man who knew every aspect of the business, why didn’t he know what was going on?” The joke in the white-collar world is that you don’t want to be judged by twelve people who were too stupid to avoid jury duty.
All the same, I like our judicial system. While far from perfect, at least it’s not as politicized as our other branches of government. I think a lot of that benefit has to do with the randomness of jury selection. I actually believe that our legislature would be far better if congress-critters were selected by lot rather than by elections. What we’d lose in the quality of the individuals placed into office, we would more than make up for by the lack of influence peddling, false promises, savior complexes, and other cynical political theater that mark our current system.
I think I would be fine with the first 200 people in the phone book being our legislators for brief periods of time. Amateur lawmakers would know their temporary status, would probably not be too keen in working that hard in coming up with new rules, but would be keenly aware that they would be spending far more of their lives living under those rules than enjoying whatever gains they may have had in making them.
Posted by Marc Hodak on February 20, 2008 under Irrationality |
A friend of ours who knows Alan Alda recently recounted that many years after the end of M*A*S*H, the actor continued to get requests from individuals to be their doctor. Hearing this reminded me of Congressional hearings in 1985 into the “plight of the farmer” where they invited actresses Sissy Spacek, Jessica Lange, and Jane Fonda to testify…on the strength of having played farmers wives in film.
Congress arguably invites stars to hearings for their star power. But the fact that ordinary voters seriously identify actors with the skills, insights, or backgrounds of the characters they play is a serious concern for me. We share a vote with people unable to distinguish play from reality. At least some actors, like Alda, don’t confuse their acted abilities with their actor abilities.
Posted by Marc Hodak on February 19, 2008 under Self-promotion |
President’s Day marked a minor milestone in my academic career, such as it is. I scored my 1,000th download of a paper published to SSRN.
To give you an idea of how small a milestone this is, a real academic has thousands of papers downloaded; a successful academic, tens of thousands. Alas, I’m not a real academic, so 1,000 is not bad.
Among NYU professors, who collectively rank 4th among business schools in SSRN downloads, I am in the top quarter of professors, most of whom are tenured or on a tenure track. That and a dime…
Posted by Marc Hodak on February 18, 2008 under Revealed preference |
That’s a quote from a Serbian nationalist. What it looks like to rest of the world is that NATO and the UN have provided a space where Kosovars can express their collective preference about the locus of power over them, and they decided overwhelmingly to move it out of Serbia and into their own territory.
Kosovo has been recognized by some countries and denounced by others. The line of demarcation is pretty clear: If your country has managed to keep all its cultures and regions at reasonable peace with each other, then you are happy to see Kosovo gaining its independence. If your country is held together by raw power, and has a strong, separatist movement looking to pull power away from the center, then you are against the independence of Kosovo.
Posted by Marc Hodak on February 16, 2008 under Uncategorized |
That is the question that inevitably comes up whenever a mass shooting occurs. These things occur so infrequently, however, and their perpetrators are often so indistinguishable from millions of people like them who never resort to violence that there may be no practical answer to “Why?”
Nevertheless, the need to know “Why?” is powerful. It creates a hunger for news about these incidents that springs, fundamentally, from the desire to control dangers around us. News services are only too happy to try to satisfy that hunger with saturation coverage, crowding everything else from our consciousness for a while.
The fact is, we don’t know why. All the coverage and analysis in the world won’t tell us why. One thing, however, seems likely: the coverage itself contributes to certain types of news-worthy violence, like school shootings. It may not be possible in a free society to subdue such coverage. The best we might be able to do is honestly acknowledge that we can’t help ourselves, and that our futile desire to know “Why?” prompts immense media coverage. An inherently sensationalist media will naturally try to satisfy that demand, even if it means prompting copycat violence. Politicians will always use these spectacular incidents, and the media access these events give them, to express outrage in front of the camera because, somehow, that is a necessary part of the story.
Unfortunately, we have honesty on neither level. Political entrepreneurs promise to make our world safer if we only give them more money and more power. The media continually rationalizes its over-coverage of these events as a social benefit.
But if the media didn’t alert its audiences to mass shootings, the public wouldn’t know how to look for and interpret the warning signs of a potential shooter, Newman said.
That’s a Princeton professor quoted by ABC News. I’m less concerned by patent fatuousness of the comment itself than I am by ABC News’s trying it out on what they must pray is a credulous audience.
Posted by Marc Hodak on February 14, 2008 under Executive compensation |
The Comcast board has decided to cut founder Ralph Roberts’s salary to $1 per year, make him ineligible for bonuses, annual equity grants, as well as certain death benefits that would have accrued to his wife or estate. These changes follow a loss of about a third of the value of the company’s shares in the last year. As a result of that slide, Comcast has been under severe criticism from major shareholders. Besides concern about the founder’s pay, certain large shareholders have generally been critical of management’s apparent lack of focus on value creation, and have asked for more of the cash being returned to shareholders. So, along with the cuts in pay, the company responded yesterday with 25 cent per share dividend, and a commitment to buy back $7 billion of shares by 2009.
All this is evidence that, while the happiness of shareholders is proportional to a rise in share price, the power of outside shareholders increases with a decline in value. In other words, major shareholders seem to live with a balance of happiness or power, depending on the company’s fortunes. When performance falters, just about any board can put enough pressure on a controlling family to make significant strategic changes, and even rein in their compensation. Unfortunately, when things are going well, it’s easy for a controlling family to layer on additional compensation, and the Roberts family took advantage of that. No one I know has found a way around this dynamic.
So, when the company was riding high in prior years, the Roberts family accumulated beneficial ownership of millions of additional shares, including those that were part of about $50 million in compensation for 2006. The family now owns or controls nearly 40 million shares, not counting a couple million more unvested, underwater options. What that means now, however, is that the $1.50 increase that followed yesterday’s changes were worth about $60 million to them. So, in 24 hours the Roberts were able to increase their wealth with some shareholder-friendly moves by more than their total compensation from the firm for all of last year. Now, if they can recover what they had lost from their peak last year, they could make an additional half billion dollars.
For now, this family is completely on the shareholder’s side. The time to watch them again will be when the company makes a spectacular recovery, and management again becomes untouchable.
