One of the most ridiculous things I’ve heard of recently

From Slate:

The Chronicle of Higher Education reports that [Minnesota] has decided to crack down on free education, notifying California-based startup Coursera that it is not allowed to offer its online courses to the state’s residents. Coursera, founded by Stanford computer science professors Daphne Koller and Andrew Ng, partners with top-tier universities around the world to offer certain classes online for free to anyone who wants to take them. You know, unless they happen to be from Minnesota.

A policy analyst for the state’s Office of Higher Education told The Chronicle that Minnesota is simply enforcing a longstanding state law requiring colleges to get the government’s permission to offer instruction within its borders. She couldn’t say whether other online education startups like edX and Udacity were also told to stay out.

A sin tax that (apparently) works

Two economists from the St. Louis Fed, Michael Owyang and Katarina Vermann, have published a paper on the effectiveness of smoking bans.  They conclude:

Nonetheless, the results of this paper imply that increasing cigarette taxes may be more effective in changing smoking behavior than implementing a ban. In the majority of the estimates, the magnitude of an increase in cigarette prices is larger and of greater statistical significance than any of the magnitudes for an individual ban or the aggregate effect of all three types of bans.  Hence, increasing taxes appears to be more effective in reducing the number of smokers.  This finding is especially true in analyses of current smokers and their attempts to quit smoking:  In all models of smoking cessation attempts, the ban variables are neither statistically nor economically significant, but the price variables are.

A New Financial Regulator

Eric Posner and Glen Wyel have proposed an FDA of sorts for financial regulation. They suggest:

The agency’s fundamental standard would be whether the welfare gains from insurance allowed by a new product exceeded the likely costs created by the speculation it facilitates

John Cochrane reacts to this, saying:

Though the FDA is not immune from criticism, the real FDA has two things going for it that the Financial FDA can only dream of: A clear and objective definition, and an objective method for testing products against that definition. Drugs either help patients to get better, with few side effects, or they don’t. And we can evaluate that ability with randomized clinical trials. The Financial FDA has neither.

Thanks to Tyler Cowen for the pointer.

A Case for Market-Based Regulations

Brad Plumer at Ezra Klein’s Wonkblog at the Washington Post makes an interesting point. He writes:

One of the strangest aspects of the EPA’s newest rules on carbon-dioxide emissions is that they only apply to future power plants. Existing facilities — the ones that are actually producing all the pollution — get to carry on as they were. That seems perverse. So why does the EPA do things this way?

He goes on to discuss a paper by Robert Stavins, saying:

In his 2005 paper, Stavins points out that the American way of environmental regulation is littered with unintended consequences. For instance, he writes, Congress’s car-emissions standards in 1981 may have actually increased overall pollution from vehicles in the five years that followed. That’s because the rules raised the price of buying a new automobile, which caused people to keep their older, carbon-monoxide-spewing cars for even longer. (Earlier studies had found that sales of new cars plunged 4 percent after the 1981 emissions rule was passed.)

So what does this establish? I would say that:

1. If we do think that climate change is occurring,
2. If we think that climate change is at least contributed to by humanity, and
3. If we think that carbon emissions are the principal way humanity contributes to climate change,

Then we ought to think about the best solutions possible to actually reduce our impact as a species on the climate while maintaining a solid standard of living for the species. Clearly the implications of Professor Stavins’ findings are that regulatory standards are not the most practical way of reducing the actual level of emissions. In fact, it seems that this regulatory approach has the opposite effect. Furthermore, this approach stifles innovation by discouraging (or at least delaying) development of new and improved methods of power generation.

Of course the alternative to straight regulation is pricing the action(s) that are to be deterred. The argument against straight carbon pricing is pretty straightforward though; taxing carbon will only increase the price paid by the consumer. However, if the earlier stipulations are accepted (not to say they are by everyone) then pricing carbon is a market mechanism for incorporating new information about expected future costs and ROIs and is a method for overcoming status quo bias within then market – the status quo bias manifests itself both in market psychology (through standard operating procedures, habits, and entrenched expectations) and existing infrastructure.

What this seems to boil down to is, if the earlier ideas are accepted, then the current regulatory method is countering the objectives of the regulations. Utilizing market forces offers an alternative that would apparently achieve the goal in a more transparent, effective, and efficient way.

So what are meta-rules?

Thanks to Tyler Cowen at Marginal Revolution for linking a paper by Paul Romer on the IMF website that considers dynamic rule-making. As the title of this post suggests, the paper deals with “meta-rules,” which are described as the rules that govern the rule-makers. To clarify what this means, Romer writes, “For example, the meta-rules that govern the tax code allow for changes through legislation passed by Congress, for regulations to be written by the IRS, and for rulings to be handed down by courts.”

The paper looks at rules systems governing everything from the internet, to airlines, to workers’ safety, to banks, among others. It is worth reading this just for an interesting take on rule-making.

Is outlawing cell phones for drivers the safest option?

Today the National Transportation Safety Board (NTSB) announced that it is recommending a nation-wide ban personal electronic device (PED) use while driving. Obviously the goal of this is to reduce accidents related to individuals losing concentration while driving.

There is little doubt that cell phones and the like reduce drivers’ concentration on the road. Less concentrations leads to an increase in the likelihood of an accident. But will an outright ban on cell phone use actually lead to safer roads?

A brief response to Ken Rogoff’s column

Earlier today I posted a link to Ken Rogoff’s recent Project-Syndicate column examining the sustainability of modern (Western) capitalism. Rogoff lists what he sees as the five major flaws of capitalism in its present, dominant incarnation, which are:

1. Failure in pricing public goods (e.g. clean air and water)
2. “[E]xtraordinary levels of inequality”
3. Market failures in medical care
4. Undervaluation of future generation needs, welfare, etc.
5. Financial crises

While Rogoff identifies five unique failures of capitalism, however I would synthesize all of his observations into one, a failure to account for the long-run. (more after the jump)

Need evidence of moral hazard in the MBS market?

Recently the Atlanta Federal Reserve took a look at the mortgage backed securities market to examine its role in causing the crisis (thanks to Tyler Cowen at Marginal Revolution for pointing to this).

While they did not settle the question completely, they did have some interesting findings.

Two Cow Question

Over at Marginal Revolution, there is an interesting debate about the decision in Farm-To-Consumer Legal Defense Fund v. Wisconsin. Technically the case is being somewhat misrepresented (it’s not about individuals but an association), but the debate is still interesting.

An Interesting Example of Bad Government

When most people think of bad government today, they consider bridges to nowhere, creation of moral hazards for private companies, or improper regulation – speed limits are not the first images conjured. Thanks to Alex Tabarrok at Marginal Revolution for pointing me to this blog post about Route 3 in Massachusetts.

If the impetus of a police force is truly to protect and serve, why would they incentivize variable speed limits through unnecessarily low speed limits?