Posted by Marc Hodak on August 15, 2007 under Unintended consequences | 
One of Rutger’s nappy headed hos has filed a lawsuit against Imus.
“This is a lawsuit in order to restore the good name and reputation of my client, Kia Vaughn,” said her attorney, Richard Ancowitz, exclusively to the ABC News Law & Justice Unit.
“Don Imus referred to my client as an unchaste woman. That was and is a lie.”
In my book, this places Richard Ancowitz way high on the list to win the prize for biggest Damn Instigator of Community Kaka.
His suit will have some shred of credibility if he can summon one, just one, witness who heard Imus’s remarks and concluded, “Oh, the Rutgers women’s basketball team must consist primarily of prostitutes.” Of course, anyone who would testify such a thing should be easy to impeach as a witness on the grounds that some people are truly too stupid to be allowed to speak in public.
Vaughn’s lawyer said that some of the money from any damages awarded in the lawsuit “would be used to create a scholarship program to study the effects of bigoted and misogynistic speech on society.” I would like to use my winnings from this frivolous suit to study the chilling effect on speech of giving some government agent the right to determine which comments might be construed as bigoted or misogynistic, and what penalties one might suffer for actually having a sense of humor, even if in poor taste.
I would also like to study the incentives of trial lawyers who can talk an otherwise sympathetic college student-athlete into launching a suit guaranteed to bring ridicule and questions about her sanity before the public. Didn’t your lawyer tell you, Ms.Vaughn, that most people, including Imus listeners, already love you and respect you for your talent and grace, and that this suit can only reduce the public’s regard for you on every count?
Posted by Marc Hodak on July 24, 2007 under Unintended consequences |
Earning guidance is a controversial practice on Wall Street. Companies don’t like it because they’re concerned that investors place too much emphasis on one little number–current earnings–instead of focusing on the long string of future earnings that everyone knows should guide valuation. Managers are also a little concerned about the liability associated with “misleading” investors about earnings, i.e., falling short, even if for reasons beyond anyone’s control. Wall Street has the same concerns as management, plus the sense that certain managers may be pushing the accounting envelope a little far, or making short-term decisions to manage their earnings. Governance mavens don’t like the idea of one party trying to manage the other’s expectations. They would rather that companies simply became more transparent without the games.
So, if everyone is wary about earnings guidance, why is it so common? Over a third of the S&P 500 and perhaps a larger percentage of investors play this game. This game becomes more easily understood if one sees Wall Street as an animal that needs a certain amount of variety in its diet. Information from companies is a type of nutrient for the capital markets, and we are seeing the effects of nutrient deficiency in the feeding frenzy that surrounds earnings announcements. Companies try to mitigate this frenzy by offering earnings guidance, even though they don’t necessarily benefit from doing so.
Earnings guidance has been around in some form for a long time, but it really became a focal point for the investment community after the introduction of Reg FD. The intent of Reg FD was to create a “level playing field” for corporate disclosure. The main effect, however, has been to severely constrain the flow of information between companies and outsiders. Companies are justifiably afraid to disclose information in something other than the prescribed manner, and the market has suffered from the effects of reduced disclosure.
Read more of this article »
Posted by Marc Hodak on July 14, 2007 under Unintended consequences |
For most of our history, the U.S. penny was made mainly of bronze, which is 95 percent copper and 5 percent zinc and tin. As the penny’s value deflated over time, it’s constituent metals became worth more than one cent. In 1962, the tin content of pennies was removed to increase their melting point. By 1982, when the copper value of pennies became sufficiently worth more than a cent that pennies were again in danger of getting melted for their intrinsic value, the mint re-designed the penny to become a copper-coated zinc coin–97.5 percent zinc and 2.5% copper. Last year, even that mineral content was no longer cheap enough. The cost of minting a penny was about 1.23 cents, and once again an arbitrage opportunity for coins appeared.
Like all organizations involved in making things, government’s have various tools at their disposal, such as mineralogy and production efficiencies, with which to react to the arbitrage opportunities they sometimes create. But when all else fails, governments have a tool that no other organizations possess–a monopoly on violence. So, last December, the U.S. government instituted fines and jail time for anyone melting coins for their mineral value.
How effective are such government interventions? I guess it depends on how you define “effective.”
Read more of this article »
Posted by Marc Hodak on June 25, 2007 under Unintended consequences |
Today’s WSJ had this story about the effects of “mainstreaming” children with learning disabilities. The original idea was that such children learn more and socialize better if they are placed in regular classes with ‘normal’ kids. Notwithstanding the weak empirical basis for this idea, those responsible for imposing mainstreaming on our schools clearly did not consider the collateral damage it might cause to the rest of the kids’ learning, or to the morale of teachers trying to educate them all. In fact, the article points out that:
the rush to mainstream disabled students is alienating teachers and driving some of the best from the profession. It has become a little-noticed but key factor behind teacher turnover, which experts say largely accounts for a shortage of qualified teachers in the U.S.
As with many social experiments with unintended consequences, this one has its basis in a federal law with a cute name–IDEA, the Individual with Disabilities Education Act–which required schools to bring disabled kids into regular classes.
Despite this federal mandate, mainstreaming was slow to take off. That’s because many districts tried it and quickly saw the problems it would cause. In Pennsylvania, it took a lawsuit by the Public Interest Law Center of Philadelphia to get that state to finally push “inclusion” in a serious way. Public interest lawyers have little patience for the real-world results of their ideas, and little tolerance for results that get in the way of their agenda. They want equality, and they want it now.
Now that the challenges of mainstreaming have become a key reason for teachers leaving their jobs, you’d think the proponents might be having second thoughts. Instead, they blame this failure on a lack of resources to support the teachers. Most school districts have tough choices when it comes to finances. Public interest lawyers, of course, aren’t there to help make the trade-offs, and don’t believe in having to make trade-offs, besides. Apparently, $11,485 per student is not enough. They want equality, they want it now, and they want you to pay for it, regardless the cost.
After all is said and done, it’s likely that the kids who were intended to be most helped by this law, the most problematic cases, have likely derived no net, positive benefits from inclusion. I’d love to see the studies. You’d think that serious policy-makers would, too.
Posted by Marc Hodak on May 14, 2007 under Unintended consequences |
Glenn Whitman wrote a wonderful essay called Slavery, Snakes, and Switching. This essay is a compendium of unintended consequences. Here are a few:
* Subsidizing slavery: Several Western charities learned about children in central Africa taken away from their villages and sold into slavery. These charites raised a considerable amount of money to buy the freedom of many of these slaves. They also inadvertently created an incentive to capture more children for eventual sale. Many of the kids they freed may not have been captured in the first place if they had not made the funding available to pay for them.
* Making health care less affordable: Every state mandates specific levels of care that must be provided by insurance companies–cancer care, psychiatric care, acupuncture, etc. Politicians want to claim that they are providing the best coverage possible to their people. What the people end up with, however, is a crisis of uninsured. The mandates basically force “Cadillac” coverage on everyone. If you can only afford “Chevy” coverage, you may have little choice but to go without.
* Paying for snakes: An Italian town paid its people for dead snakes in an effort to provide incentives to get rid of the snakes. What they got was more snakes. People began growing the snakes in order to kill them and turn them in.
Read the whole thing! The article provides a very interesting framework around the economics of unintended consequences.
(HT: Cafe Hayek)
Posted by Marc Hodak on May 11, 2007 under Unintended consequences |
This morning, I was involved in a roundtable discussion on “Business and Society” hosted by the Aspen Institute. It was held in the boardroom of the Rockefeller Foundation, and we held our meeting beneath John D’s benevolent gaze.
The discussion was about how one measures business success. It wasn’t long before one of the participants mentioned externalities, and everyone was nodding. In our schools, kids are routinely taught about externalities before they even understand how incentives are internalized in the basic logic of supply and demand. I began to note that externalities were very difficult to quantify relative to the costs of mitigating them, and that not all externalities are bad. Sensing that “uh huh, so what” reaction one generally gets to economic theory, I searched for a concrete example. Rockefeller himself handed one to me–on a silver platter, of course.
Pointing to his portrait, I asked, “How many ‘save-the-whales’ types think of Rockefeller as a hero, or as someone who preserved the U.S. forests?” I noted that everyone had heard stories of how Rockefeller made his fortune by inventing Big Oil. He was practically Mr. Externality. People also remember him as doing a lot of good through his philanthropies, as if that kind of offset his bad business behavior. But he saved the whales and the forests not as a philanthropist, but as a consequence of building Standard Oil.
In the 19th century, whale oil was the most popular lamp fuel before kerosene came along, and wood was the most common fuel for heating homes. Most people prone to considering externalities as a significant basis for concern, including many around the table that morning, tend to also absorb the Malthusian implications of the disaster that awaited whales and forests if Rockefeller’s cheaper and better substitute hadn’t come along.
Posted by Marc Hodak on May 9, 2007 under Unintended consequences |
Today’s WSJ had a front page article on Sweden’s disability subsidies. It began with the story of Lotta Landstrom who has been collecting said subsidies because her doctor said she is allergic to electricity.
Along with hundreds of other Swedes diagnosed with the condition in recent years, she came to rely on state-funded sick pay.
Well, the Swedish government, tired of watching the number of disabled climbing to the highest in the world, 13% of their population, is tightening up on these benefits and working to get “sick” people back into the work force where they can contribute to the tax pool instead of just drawing from it. The idea of significantly retrenching their disability benefits is not on the radar of the Swedes. They don’t want to be like the U.S.
Here’s the thing: I believe Lotta. I honestly think she is allergic to electricity. The girl chooses to live by lamplight in one of the coldest places in civilization when no one is watching. I could be wrong. We’re pretty far away from each other. The basic problem is that a generous disability subsidy is no different from paying people to be sick, and there is no reliable way to distinguish the truly sick from the scammers. The more forgiving we are about someone like Lotta, the more open we are to someone like Henrik, who says
he relied on state support for four years after suffering a slipped disc. The pain didn’t stop the big, brawny invalid from moonlighting as a night club bouncer on weekends, though. “There are no controls,” he scoffs, admitting that it was easy to scam the government.
So, what’s an earnest Swedish policy maker to do?
Read more of this article »
Posted by Marc Hodak on May 3, 2007 under Unintended consequences |
Last year, the French-speaking Belgian news outlets sued Google to remove all links from Google News to their web-sites. Why? Because Google News was making ad revenues based, in part, on the availablity of content generated by the Belgian news sources, which weren’t seeing any of that money.
So, a Belgian court ordered Google to eliminate the links, and to post the court’s notice on Google.be for five days. That was enough to earn this decision some notoriety, in part because the court imposed a one million euro per day penalty for failing to comply with its order, and a 500,000 euro per day fine for failing to post the notice. Google promptly complied with the order by removing the links and, for good measure (“to avoid legal trouble”), all searchable references to the newspapers themselves; “Le Soir” or “La Libre Belgique” wouldn’t even come up on a web search.
Most people or businesses would not sue to be “disappeared.” People usually pay fees or ransoms to prevent that from happening. The French, who are paranoid about the declining use of their language, are particularly sensitive to American media ignoring their creations. If Google had a policy of linking everyone’s news except the French-speaking Belgians’…well, you don’t even want to know what that deluge would have looked like. In this instance, the Belgians imposed the threat of fines to achieve the opposite of what they would have wished in a sane, if imperfect world–fines far out proportion to the value created by those papers, let alone any losses they may have conceivably incurred as a result of Google’s links.
In fact, the economic losses were probably non-existent. In today’s world, most economists would have assumed the unpaid links created value for the publishers. In copyright law, that doesn’t matter; copyright holders are entitled to make decisions regarding their content, even if they make those decisions like ignorant yokels. The Belgians won on principle.
Then they saw what happened to the traffic to their web site.
In today’s news (AP-english version), the Belgian papers once again agreed to let Google News link to their websites, without any compensation.
Posted by Marc Hodak on May 1, 2007 under Unintended consequences |
Dr. Hurwitz was convicted on Friday for prescribing pain killers to dealers and addicts. No, the jury didn’t find any criminal intent. No, the jury didn’t think he made money from selling drugs. No, the jury didn’t think he acted from any motive but care for his patients. Apparently, the jury was able to convict Dr. Hurwitz based on the sense that he ignored certain “red flags,” as the prosecutor put it. In other words, Hurwitz was a good doctor, but a bad cop.
On reading the the series of articles by John Tierney (one of few reasons to subscribe to the NY TImes), it’s hard to blame the jury. They were buried under an avalanche of charges and information, and the prosecutor effectively used the specter of “the evil of drugs” that seems to cow so many ordinary people. They are also cowed by the judicial system’s heavy-handed warnings against jury nullification, and must have felt that acquittal on all 59 charges (they convicted him on ���just��� 16) might have been interpreted as such.
I’m sure that more than one juror must have asked during deliberations what might happen when it comes time for them to find treatment for pain if they send this guy to jail. The response from the other jurors would have been, “we aren’t allowed to consider that. The judge said we can only consider the law and the evidence in this case.” Sure enough. But some of those jurors were certainly aware of the secondary consequences of the law and its application, and it no doubt pained them to consider those consequences.
We can’t blame the jury, though. It’s not their sin or the sins of Dr. Hurwitz that we will be paying for. It’s not even the sins of the prosecutor or judge; they didn’t create the law. Is the legislature to blame? Is it the zealous, Orwellian congressmen who seek to make us all soldiers in the “war on drugs?” Or is it the people who elect them, and respond to their pious rhetoric?
Posted by Marc Hodak on April 28, 2007 under Unintended consequences |
Michael Pollan published an article outlining the peculiar incentive built into our Federal government’s farm bill for Americans to get fat. The early part of the article focuses on an economic reason for the counter-historical fact that todays poor in America are more overweight than the wealthy. He noted an experiment by a University of Washington researcher, Adam Drewnowski:
Drewnowski gave himself a hypothetical dollar to spend, using it to purchase as many calories as he possibly could. He discovered that he could buy the most calories per dollar in the middle aisles of the supermarket, among the towering canyons of processed food and soft drink. (In the typical American supermarket, the fresh foods ��� dairy, meat, fish and produce ��� line the perimeter walls, while the imperishable packaged goods dominate the center.) Drewnowski found that a dollar could buy 1,200 calories of cookies or potato chips but only 250 calories of carrots. Looking for something to wash down those chips, he discovered that his dollar bought 875 calories of soda but only 170 calories of orange juice.
As a rule, processed foods are more ���energy dense��� than fresh foods: they contain less water and fiber but more added fat and sugar, which makes them both less filling and more fattening. These particular calories also happen to be the least healthful ones in the marketplace, which is why we call the foods that contain them ���junk.��� Drewnowski concluded that the rules of the food game in America are organized in such a way that if you are eating on a budget, the most rational economic strategy is to eat badly ��� and get fat.
When he peeled away the reasons that processed food are so much less expensive, it came down to the cheapness of certain commodities like corn, which are heavily subsidized, which subsidies are supported by powerful midwestern congressmen.
The whole article is fascinating. It looks beyond the incentive to obesity to offer a glimpse of the panoply of perverse incentives built into this beefcake legislation:
The health of the American soil, the purity of its water, the biodiversity and the very look of its landscape owe in no small part to impenetrable titles, programs and formulae buried deep in the farm bill.
When he went one layer deeper to ask why this congressional delegation had such power, his answer was basically farm bill complexity and voter inertia. I would have proposed something more transparently institutional–heartland senators have a number of votes far out of proportion to the number of people they represent. In other words, our bicameral system for allocating a disproportionate amount of power to more sparsely populated states may be the ultimate explanation for America’s obesity. The Constitutional Convention’s “Great Compromise” made us fat.
