The super-rich love South Dakota

Friday, December 6th, 2019

Money has poured out of traditional offshore jurisdictions, such as Switzerland and Jersey, and into a small number of American states, such as Delaware, Nevada, Wyoming, and, above all, South Dakota:

A South Dakotan trust changes all that: it protects assets from claims from ex-spouses, disgruntled business partners, creditors, litigious clients and pretty much anyone else. It won’t protect you from criminal prosecution, but it does prevent information on your assets from leaking out in a way that might spark interest from the police. And it shields your wealth from the government, since South Dakota has no income tax, no inheritance tax and no capital gains tax.

A decade ago, South Dakotan trust companies held $57.3bn in assets. By the end of 2020, that total will have risen to $355.2bn. Those hundreds of billions of dollars are being regulated by a state with a population smaller than Norfolk, a part-time legislature heavily lobbied by trust lawyers, and an administration committed to welcoming as much of the world’s money as it can.

[...]

At the heart of South Dakota’s business success is a crucial but overlooked fact: globalisation is incomplete. In our modern financial system, money travels where its owners like, but laws are still made at a local level. So money inevitably flows to the places where governments offer the lowest taxes and the highest security.

[...]

When Citibank based its credit card business in Sioux Falls, it could charge borrowers any interest rate it liked, and credit cards could become profitable. Thanks to Janklow, Citibank and other major companies came to South Dakota to dodge the restrictions imposed by the other 49 states. And so followed the explosion in consumer finance that has transformed the US and the world. Thanks to Janklow, South Dakota has a financial services industry, and the US has a trillion-dollar credit card debt.

Fresh from having freed wealthy corporations from onerous regulations, Janklow looked around for a way to free wealthy individuals too, and thus came to the decision that would eventually turn South Dakota into a Switzerland for the 21st century. He decided to deregulate trusts.

Trusts are ancient and complex financial instruments that are used to own assets, such as real estate or company stock. Unlike a person, a trust is immortal, which was an attractive prospect for English aristocrats of the Middle Ages who wished to make sure their property remained in their families for ever, and would be secure from any confiscation by the crown. This caused a problem, however. More and more property risked being locked up in trusts, subject to the wishes of long-dead people, which no one could alter. So, in the 17th century, judges fought back by creating the “rule against perpetuities”, which limited the duration of trusts to around a century, and prevented aristocratic families turning their local areas into mini-kingdoms.

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Then Governor Janklow came along. In 1983, he abolished the rule against perpetuities and, from that moment on, property placed in trust in South Dakota would stay there for ever.

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In most jurisdictions, trusts have to benefit someone other than the benefactor – your children, say, or your favourite charity – but in South Dakota, clients can create a trust for the benefit of themselves (indeed, Sun Hongbin is a beneficiary of his own trust). Once two years have passed, the trust is immune from any creditor claiming a share of the assets it contains, no matter the nature of their claim. A South Dakotan trust is secret, too. Court documents relating to it are kept private for ever, to prevent knowledge of its existence from leaking out. (It also has the useful side effect of making it all but impossible for journalists to find out who is using South Dakotan trusts, or what legal challenges to them have been filed.)

[...]

When a whistleblower exposed how his Swiss employer, the banking giant UBS, had hidden billions of dollars for its wealthy clients, the conclusion was explosive: banks were not just exploiting poor people, they were helping rich people dodge taxes, too.

Congress responded with the Financial Assets Tax Compliance Act (Fatca), forcing foreign financial institutions to tell the US government about any American-owned assets on their books. Department of Justice investigations were savage: UBS paid a $780m fine, and its rival Credit Suisse paid $2.6bn, while Wegelin, Switzerland’s oldest bank, collapsed altogether under the strain. The amount of US-owned money in the country plunged, with Credit Suisse losing 85% of its American customers.

The rest of the world, inspired by this example, created a global agreement called the Common Reporting Standard (CRS). Under CRS, countries agreed to exchange information on the assets of each other’s citizens kept in each other’s banks. The tax-evading appeal of places like Jersey, the Bahamas and Liechtenstein evaporated almost immediately, since you could no longer hide your wealth there.

[...]

But the US was not part of CRS, and its own system — Fatca — only gathers information from foreign countries; it does not send information back to them. This loophole was unintentional, but vast: keep your money in Switzerland, and the world knows about it; put it in the US and, if you were clever about it, no one need ever find out. The US was on its way to becoming a truly world-class tax haven.

The Tax Justice Network (TJN) still ranks Switzerland as the most pernicious tax haven in the world in its Financial Secrecy Index, but the US is now in second place and climbing fast, having overtaken the Cayman Islands, Hong Kong and Luxembourg since Fatca was introduced.

Posted in Business, Policy | 6 Comments »

Swedish conditions reach Norway

Thursday, December 5th, 2019

This year, for the first time, Norway’s statistical agency reported on the relationship between crime and country of origin:

Immigrants from certain backgrounds—particularly Palestinians, Iraqis and Afghanis—were many times more likely to commit violent crimes than other Norwegians (including other immigrant groups). In 65 out of 80 crime categories, non-Norwegians were over-represented. The largest discrepancy was in regard to domestic violence: Immigrants from non-Western countries were found to be eight times more likely to be charged for such crimes. Rape and murder were also heavily skewed toward these immigrant groups. Worryingly, the figures showed that second-generation immigrants were more likely to be criminals than their parents.

These are svenske tilstander — Swedish conditions.

Posted in Crime, Policy | 3 Comments »

But a household is just a house if it has no slaves

Monday, December 2nd, 2019

The Roman Guide to Slave Management presents itself as a treatise by Nobleman Marcus Sidonius Falx — with the help of a northern barbarian:

In order to write for a non-Roman audience I have been compelled to use the services of a certain Jerry Toner, a teacher in one of our miserable northern provinces, who knows something of our Roman ways but shares few of our virtues. Indeed a man so soft I have never encountered outside the servile class: he has not once fought in battle, can scarce drink a small amphora of watered wine, and even stoops so low that he himself will clean his baby’s backside rather than leave such foul tasks to the slaves and womenfolk. He is, however, most blessed to be married to a wife of great beauty and intellect (though she is perhaps more forward with her opinions than a woman ought to be), to whom I am most grateful for ensuring that the meaning of my text is clear for you barbarian readers.

Slavery had a competitive advantage over free labor:

And the beauty of it was that none of these slaves was liable for military service, since the army naturally cannot rely on slaves to serve in defence of the state.

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As to the threat of slaves, the worry was not so much that they would revolt, but that they would eradicate the freeborn peasant, on whom the Roman elite relied to serve in the army and keep them in power.

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So it was decreed that no citizen over twenty years of age and under forty should serve in the army outside of Italy for more than three years at a time in order to give them a chance to keep control of their smallholdings at home.

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Thankfully, the slave owner today need not trouble himself with such concerns. The army is now professional and it is many, many years since there has been a great slave revolt.

“But a household is just a house if it has no slaves,” Falx reminds us.

Posted in Policy | 6 Comments »

A concerned citizen is largely helpless

Saturday, November 30th, 2019

In Loserthink Scott Adams cites a celebrity’s global warming climate change tweet as an example of a bright person talking about something without training in economics or business:

Now let’s say you had experience in economics and business, as I do. In those domains, anyone telling you they can predict the future in ten years with their complicated multivariate models is automatically considered a fraud.

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You might be debating me in your mind right now and thinking that, unlike the field of finance, the scientific process drives out bias over time. Studies are peer reviewed, and experiments that can’t be reproduced are discarded.

Is that what is happening?

Here I draw upon my sixteen years working in corporate America. If my job involved reviewing a complicated paper from a peer, how much checking of the data and the math would I do when I am already overworked? Would I travel to the original measuring instruments all over the world and check their calibrations? Would I compare the raw data to the “adjusted” data that is used in the paper? Would I do a deep dive on the math and reasoning, or would I skim it for obvious mistakes? Unless scientists are a different kind of human being than the rest of us, they would intelligently cut corners whenever they think they could get away with it, just like everyone else. Assuming scientists are human, you would expect lots of peer-reviewed studies to be flawed. And that turns out to be the situation. As the New York Times reported in 2018, the peer review process is defective to the point of being laughable.

[...]

My point is that a concerned citizen is largely helpless in trying to understand how settled the science of climate change really is. But that doesn’t stop us from having firm opinions on the topic.

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Whenever you have a lot of money in play, combined with the ability to hide misbehavior behind complexity, you should expect widespread fraud to happen. Take, for example, the 2019 Duke University settlement in which the university agreed to pay $112.5 million for repeatedly submitting research grant requests with falsified data. Duke had a lot of grant money at stake, and lots of complexity in which to hide bad behavior. Fraud was nearly guaranteed.

If you have been on this planet for a long time, as I have, and you pay attention to science, you know that the consensus of scientists on the topic of nutrition was wrong for decades.

[...]

Over time, it became painfully obvious to me that nutrition science wasn’t science at all. It was some unholy marriage of industry influence, junk science, and government. Any one of those things is bad, but when you put those three forces together, people die. That isn’t hyperbole. Bad nutrition science has probably killed a lot of people in the past few decades.

Posted in Business, Economics, Education, Policy, Science | 9 Comments »

It was so much darker than we imagine

Wednesday, November 27th, 2019

Ric Burns’ The Pilgrims might surprise audiences used to pleasant Thanksgiving myths:

It was so much darker than we imagine. The suffering and the violence were so much greater. The likelihood that they succeeded was so small. Death played a huge role in almost every aspect of the story: they came to a place of mass death, where Native Americans had been decimated by one of the worst plagues in history, and where the Pilgrims themselves would lose half of their number in the first three months. The Pilgrims’ relationship with Native Americans was at times more violent than we like to remember. We dwell on Thanksgiving, which didn’t really happen the way we think it did, but fail to register the decapitated head of the Massachusetts leader, Wituwamut, that was placed over the meeting house at Plymouth Plantation in 1623, to be a “Terror unto the countryside,” as William Bradford reported.

I think people will be surprised by almost everything: by the radical nature of the Pilgrims’ beliefs; by their almost complete lack of preparation for what lay ahead of them; by the fact that they were the least likely of task forces to attempt to found a permanent English presence in the New World; by the fact that, though we think of them as the “first comers” — a phrase they used for themselves — they weren’t even the first permanent English settlers in America, having been beaten to the punch in 1607 — 13 years before the Mayflower sailed — by the colonists at Jamestown.

They weren’t meant to have ended up on the site of present day New York, but decided to land off the shores of Massachusetts when they were caught in dangerous shoal water, well north of the legal patent they carried from the Virginia Company, thus making the Pilgrims, in that respect at least, the first illegal aliens. The place they settled on to build their plantation — what the Wampanoags called Patuxet and what the explorer John Smith called New Plymouth — was actually ground zero for the worst virgin soil epidemic in recorded history, a horrific plague, brought over in 1616 by European fishermen, that swept a twenty mile swath down the New England seaboard, killing anywhere from 50 to 90 percent of the native populations in its path and totally annihilating the approximately 2,000 Wamanoag residents of Patuxet.

The Pilgrims’ first winter wasn’t just hard: it was nearly annihilating, and devastating and traumatic in ways we can hardly imagine. More than half of the 102 passengers of the Mayflower died in the first three months, wiping out five whole families, and leaving no family intact and not grieving. With the exception of their alliance with the Wampanoags, the Pilgrims’ relation with other Native American groups was marked by conflict, suspicion, competition and violence, culminating in a horrific spasm of bloodshed in March 1623 in the killing by Miles Standish and seven other colonists of seven Massachusetts Sachems and the decapitation of the leader, Wittawamut.

For nearly a decade, the colonists couldn’t find a way to make ends meet — they went bankrupt in 1626, only to find an eleventh hour economic salvation in 1628 in the form of beaver fur harvested from the Kennebeck River valley in Maine. Material success, in the end, was the one challenge the Pilgrims could not overcome, as William Bradford’s beloved religious experiment found itself fragmented and abandoned in the aftermath of the founding of Boston.

We would scarcely remember the Pilgrims at all, and certainly not as we do without William Bradford, an orphan boy from Yorkshire who became the most famous Pilgrim of them all, governor for more than thirty years and the chief guardian and caretaker of their memory, and without the extraordinary text he left behind: “Of Plymouth Plantation,” the first great work of American literature and history. There is literally no other account of early American settlement like it, and none that shows us what the inside of a radical Protestant conventicle was like, from the earliest days in the North Parts of England, through their escape to Holland in 1608, and then across the Atlantic in 1620 and on. The story of the book itself — why and how William Bradford wrote it, and how the text itself was almost lost forever to posterity — is a gripping, riveting tale, that sheds enormous light on how history and memory are shaped by a heart-stopping blend of accident, circumstance and the powerfully transforming lens of posterity.

The fact that we have the book at all is a more than minor miracle. It was looted from Boston in 1777 by the retreating British army, given up for lost for eighty years, and almost accidentally rediscovered just before the American Civil War, when a scholar in Boston was flabbergasted to read unmistakable quotations from the missing Bradford text in a new English history of the Anglican church in America, published in London in 1855. It took more than forty years to finally repatriate the manuscript itself, which is lovingly housed in the State House of the Commonwealth of Massachusetts in Boston. There is no more important text in American history. Seeing it, and turning its pages, and filming the actual manuscript Bradford wrote in his own hand was one of the most thrilling moments of my filmmaking career.

Posted in Policy | 9 Comments »

Eating marmot is thought to be good for health

Monday, November 18th, 2019

China has been hit with the plague:

On Tuesday, Beijing authorities announced a municipal hospital had taken in a married couple from Inner Mongolia, a sparsely populated autonomous region in northwest China, seeking treatment for pneumonic plague. One patient is stable while the other is in critical condition but not deteriorating, according to Beijing’s health commission.

The Chinese Center for Disease Control and Prevention assured the public on Weibo, a Chinese social media site that is the equivalent of Twitter, that chances of a plague outbreak are “extremely low.” The city’s health commission has quarantined the infected patients, provided preventative care for those exposed to the couple and sterilized the relevant medical facilities, the center said.

Police are also guarding the quarantined emergency room of Chaoyang hospital, where the infected patients were first received and diagnosed, according to Caixin, an independent Chinese news outlet.

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China has a checkered record in managing public health crises. In 2002, the central government initially refused to acknowledge a nationwide outbreak of severe acute respiratory syndrome, or SARS, an illness with flu- and pneumonia-like symptoms.

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Mongolia, which borders the autonomous region where the infected Chinese couple lives, reported two fatal cases of bubonic plague just this year, after the patients ate raw marmot, a species of wild rodent that often carry the offending bacterium. In Mongolia, eating marmot is thought to be good for health.

At least it’s not African rabies.

Posted in Policy, Science | 6 Comments »

The Thule Society lives on

Saturday, November 16th, 2019

A “trans-Neptunian object” located in the Kuiper belt was recently named Ultima Thule and then rapidly renamed Arrokoth:

It is a contact binary 36 km (22 mi) long, composed of two planetesimals 22 km (14 mi) and 15 km (9 mi) across, nicknamed “Ultima” and “Thule”, respectively, that are joined along their major axes. Ultima, which is flatter than Thule, appears to be an aggregate of 8 or so smaller units, each approximately 5 km (3 mi) across, that fused together before Ultima and Thule came into contact. Because there have been few to no disruptive impacts on Arrokoth since it formed, the details of its formation have been preserved. With the New Horizons space probe’s flyby at 05:33 on 1 January 2019 (UTC time), Arrokoth became the farthest and most primitive object in the Solar System visited by a spacecraft.

[...]

Before the flyby on 1 January 2019, NASA invited suggestions from the public on a nickname to be used. The campaign involved 115,000 participants from around the world, who suggested some 34,000 names. Of those, 37 reached the ballot for voting and were evaluated for popularity – this included eight names suggested by the New Horizons team and 29 suggested by the public. Ultima Thule, which was selected on 13 March 2018, was proposed by about 40 different members of the public and obtained the seventh highest number of votes among the nominees. It is named after the Latin phrase ultima Thule (literally “farthest Thule”), an expression referencing the most distant place beyond the borders of the known world. Once it was determined the body was a bilobate contact binary object, the New Horizons team nicknamed the larger lobe “Ultima” and the smaller “Thule”.

The nickname was criticized due to its use by Nazi occultists as the supposed mythical origin of the Aryan race, although it is commonly used in ancient Greek and Latin literature as well as the historical Inuit culture of the Thule people. The Thule Society was a key sponsor of what became the Nazi Party, and some modern-day neo-Nazis and members of the alt-right continue to use the term. A few members of the New Horizons team were aware of that association when they selected the nickname, and have since defended their choice. Responding to a question at a press conference, Alan Stern said, “Just because some bad guys once liked that term, we’re not going to let them hijack it.”

Oh, but we are.

Posted in Linguistics, Policy, Science | 12 Comments »

If they don’t turn up to school, it doesn’t make the slightest difference

Friday, November 15th, 2019

You often hear people lament that children should be allowed to roam free. Ed West’s radical proposal is that child labour should be reintroduced:

But it only sounds radical because we associate child labour with past times of extreme poverty and poor working conditions. For my generation it’s Rik from The Young Ones castigating an elderly woman about the “good old days” when you had “four-year-old kiddies digging coal”. And those days were indeed awful. Dan Jackson’s brilliant recent book The Northumbrians recalled the heart-breaking tragedy of the 1862 Hartley Mining Disaster where the bodies of young boys were found with their tiny arms around their brothers.

Not even an ironic reactionary like me would lament the decline of infant mortality and workplace fatalities brought about by health and safety legislation. We obviously wouldn’t allow children to do dangerous work in factories today, and many of the most horrific roles once done by kids are obsolete anyway.

[...]

But for children a bit older, the working environment allows them to interact with adults, adopt adult social norms and learn skills when their brain is rapidly absorbing information. They could also earn money at a time in life they really want it.

I suspect that a lot of teenage crime in London exists because boys reach an age when they want disposable income but there’s no way for them to legally earn it. They’re also mentally and physically under-stimulated by schoolwork they know brings them little tangible benefit. (This is arguably more acute among boys because they’re generally more goal-driven, respond when stakes are high, and easily give up when they’re not). Instead, during those crucial developmental years, they often learn negative behaviour through frustration and drift, so that by the time they’re finally allowed to enter the labour force, they’re already unsuited to it.

At the moment, almost half a million people aged 16-24 are unemployed, but many might not be, if they’d been allowed to start work a bit earlier — with a lower minimum wage. Experience would make them more attractive to employers; it would also get them in the habit of work, so they’d be more likely to adjust to working quickly and stick to it.

Prolonged education also cuts adolescents off from wider society. One of the worst aspects of British society — and where it contrasts poorly with Catholic cultures like Italy or Ireland (still, just about) — is that we have a great deal of generational separation. Young people benefit from working and socialising among those older than them, not only because they’re a calming influence but because they can subtly instruct them on how to behave.

Working young helps insulate children from one of the biggest pitfalls of modern life: extended or even permanent adolescence, which happens when people learn responsibility too late. It also helps a person form a place in a society. Not having enough money is pretty much the worst thing in the world — and reducing poverty should be the central “social justice” aim of governments — but not having a role or purpose is almost as bad.

Teenage boys like to feel needed. This really hit me a few years back when during an unexpected snowfall — there hadn’t been snow in London for well over a decade — all the cars in our area were stuck, and the drivers, many of them mothers with children, stranded. It was obvious that the boys on their way home from the nearby secondary school loved all this — for once, wider society actually needed them.

Having a job, going to an office and earning money — and with it the opportunity to work, and earn, even more — gives teenagers a role. If they don’t turn up for work, the company suffers; if they don’t turn up to school, it doesn’t make the slightest difference except for the purpose of government statistics.

Posted in Economics, Education, Policy | 6 Comments »

Liberalism according to The Economist

Tuesday, November 12th, 2019


In Liberalism at Large Alexander Zevin explores the world according to the Economist:

He shows how its editors and contributors pioneered the revolving doors that link media, politics, business, and finance—alumni have gone on to such jobs as deputy governor of the Bank of England, Prime Minister of Britain, and President of Italy—and how such people have defined, at crucial moments in history, liberalism’s ever-changing relationship with capitalism, imperialism, democracy, and war.

A capsule version of this thesis can be found in the career of James Wilson, The Economist’s founder and first editor. Wilson, who was born in Scotland and became the owner of a struggling hatmaking business, intended his journal to develop and disseminate the doctrine of laissez-faire—“nothing but pure principles,” as he put it. He was particularly vociferous in his opposition to the Corn Laws, agricultural tariffs that were unpopular with merchants. The Corn Laws were repealed in 1846, three years after the magazine first appeared, and Wilson began to proselytize more energetically for free trade and the increasingly prominent discipline of economics. He became a Member of Parliament and held several positions in the British government. He also founded a pan-Asian bank, now known as Standard Chartered, which expanded fast on the back of the opium trade with China. In 1859, Wilson became Chancellor of the Indian Exchequer. He died in India the following year, trying to reconfigure the country’s financial system.

During his short career as a journalist-cum-crusader, Wilson briskly clarified what he meant by “pure principles.” He opposed a ban on trading with slaveholding countries on the ground that it would punish slaves as well as British consumers. In the eighteen-forties, when Ireland was struck with famine, which was largely caused by free trade—the British insisted on exporting Irish food, despite catastrophic crop failure—Wilson called for a homeopathic remedy: more free trade. With Irish intransigence becoming a nuisance, he advised the British to respond with “powerful, resolute, but just repression.” Wilson was equally stern with those suffering from rising inequality at home. In his view, the government was wrong to oblige rail companies to provide better service for working-class passengers, who were hitherto forced to travel in exposed freight cars: “Where the most profit is made, the public is best served. Limit the profit, and you limit the exertion of ingenuity in a thousand ways.” A factory bill limiting women to a twelve-hour workday was deemed equally pernicious. As for public schooling, common people should be “left to provide education as they provide food for themselves.”

Posted in Economics, Policy | 16 Comments »

The Church made us WEIRD

Saturday, November 9th, 2019

A new study, The Church, intensive kinship, and global psychological variation, published in Science, makes the point that HBD Chick has been making for some time now:

A growing body of research suggests that populations around the globe vary substantially along several important psychological dimensions and that populations characterized as Western, Educated, Industrialized, Rich, and Democratic (WEIRD) are particularly unusual. People from these societies tend to be more individualistic, independent, and impersonally prosocial (e.g., trusting of strangers) while revealing less conformity and in-group loyalty. Although these patterns are now well documented, few efforts have sought to explain them. Here, we propose that the Western Church (i.e., the branch of Christianity that evolved into the Roman Catholic Church) transformed European kinship structures during the Middle Ages and that this transformation was a key factor behind a shift towards a WEIRDer psychology

Church vs. Cousin Marriage

The two Jonathan co-authors are new colleagues of Tyler Cowen‘s at GMU economics.

Posted in Policy, Science | 40 Comments »

Start with a big blatant neglected fact

Friday, November 8th, 2019

How does Bryan Caplan pick book topics?

How do I pick book topics? On reflection, I usually start with what appears to be a big blatant neglected fact. Then I try to discover whether anything in the universe is big enough to explain this alleged fact away. If a laborious search uncovers nothing sufficient, I am left with the seed of a book: One Big Fact that Overawes All Doubts.

Thus, my Myth of the Rational Voter starts with what appears to be a big blatant neglected fact: the typical voter seems highly irrational. He uses deeply flawed intellectual methods, and holds a wide range of absurd views. Twist and turn the issue as you please, and this big blatant neglected fact remains.

Selfish Reasons to Have More Kids, similarly, begins with a rather different big blatant neglected alleged fact: Modern parenting is obsessed with “investing” in kids’ long-run outcomes, yet twin and adoption researchers consistently conclude that the long-run effect of nurture is grossly overrated. Yes, the latter fact is only “blatant” after you read the research, but once you read it, you can’t unread it.

What’s the One Big Fact that Overawes All Doubts in The Case Against Education? This: education is highly lucrative even though the curriculum is highly irrelevant in the real world. Yes, it takes a book to investigate the many efforts to explain this One Big Fact away (“learning how to learn,” anyone?). But without One Big Fact, there’d be no book.

Finally, the big motivated fact behind Open Borders is that simply letting a foreigner move to the First World vastly multiplies his labor earnings overnight. A Haitian really can make twenty times as much money in Miami the week after he leaves Port-au-Prince – and the reason is clearly that the Haitian is vastly more productive in the U.S. Which really makes you wonder: Why would anyone want to stop another human being from escaping poverty by enriching the world? Giving this starting point, anti-immigration arguments are largely attempts to explain this big blatant neglected fact away. Given what restrictionist arguments are up against, it’s hardly surprising that they don’t measure up.

On reflection, my current book project, Poverty: Who To Blame doesn’t seem to fit this formula. The book will rest on three or four big blatant neglected facts rather than one. Yet perhaps as I write, One Big Fact that Overawes All Doubts will come into focus…

Posted in Economics, Education, Policy | 12 Comments »

A vortex of smart-cam clips, Nextdoor rants, and cellphone surveillance

Thursday, November 7th, 2019

I don’t think this Atlantic piece on “porch pirates” in San Francisco is meant as an ad for Ring video doorbells (and Nest cams, too), but it achieves that goal nonetheless:

It was only about nine months later, in May 2017, when one of Fairley’s neighbors plastered photos of her, “Wanted”-style, on Nextdoor, that Fairley realized things were about to get worse. Nextdoor is an online ticker tape of homeowner and tenant concerns, and the grievances can be particularly telling in a city of Dickensian extremes like San Francisco, whose influx of tech wealth is pitting suburban expectations against urban realities. The city’s property-crime rate is among the highest in the United States. Nextdoor posts about dogs slurping from a public drinking fountain and Whole Foods overcharging again (“Be on guard”) show up alongside reports of smash-and-grab car break-ins, slashed tires, and an entire crime subgenre of “porch pirates,” the Artful Dodgers of the Amazon age.

Fairley and her neighbor do not agree — will likely never agree — on what happened in the minutes prior to the photos of Fairley going up on Nextdoor. Fairley has sworn that the boxes she picked up were from down the street, where they had been laid out for the taking, and that her 6-year-old daughter was helping to haul them to their home in the public housing down the block.

Julie Margett, a nurse who lives on the street, in a purple cottage with a rainbow gay-pride flag and a black lives matter sign in the window, said she was leaving her garage and spotted Fairley coming down her neighbor’s stairs carrying boxes with various addresses on them. Surmising that they were stolen, she asked Fairley warily, in her British accent, “What are you doing?”

Fairley called her a racist (in fact, she still does) and told her she was in the middle of moving. “That was what was so disarming about her,” Margett told me. “Before you know it, she’s torn you to shreds and she’s off down the block.” Margett snapped photos of the mother-daughter haul act — in one, the young girl sticks her tongue out at the camera — and, after calling the police, uploaded them into a Nextdoor post: “Package thieves.”

So, Fairley told me two years later, sitting in an orange sweatsuit in a county-jail interview room, that was the real acceleration of the epic feud of Fairley v. Neighbors of Potrero Hill, a vortex of smart-cam clips, Nextdoor rants, and cellphone surveillance that would tug at the complexities of race and class relations in a liberal, gentrifying city. The clash would also expose a fraught debate about who is responsible, and who is to blame, for the city’s increasingly unlivable conditions. As Fairley says, “It just got bigger and bigger and bigger.”

Parts of potrero hill feel like the sort of charmed place where Amazon deliveries could sit undisturbed on your stoop. The hill’s western ridge, overlooking the city, is filled with cozy bungalows and Victorian houses that once were affordable for San Francisco’s working and artistic classes but have appreciated during the tech rush; now most of them sell for well over $1 million. The public hospital where Fairley was born is now named after Mark Zuckerberg.

Meanwhile, the hill’s eastern and southern flanks are still lined with decrepit 1940s-era bunkers of public housing between patches of scruffy grass and concrete patios. The unhoused have set up camp around the neighborhood too, the city’s homeless population having spiked 30 percent in the past two years. This sometimes has led to hostile and politically divisive clashes, like when a luxury auction house at the foot of Potrero turned its sprinklers on the tents clustered outdoors in 2016. (The auction house claimed that the sprinklers were meant to clean the building and sidewalks, and were “not intended to disrespect the homeless.”)

Posted in Crime, Policy, Technology | 4 Comments »

He never intended to become a political dissident

Monday, November 4th, 2019

He never intended to become a political dissident, but then Xu Xiaodong started beating up tai chi masters:

Since 2015, Xu has been the director, producer, and host of a lively one-man martial arts talk show called Brother Dong’s Hot Takes that he self-distributes via his various social media accounts. Each episode features Xu speaking, sometimes quite passionately, about whatever is riling him up that day. One recurring bit that initially gained Hot Takes a cult following was Xu’s profanity laced call-outs of “fakes,” or pianzi, in the Chinese martial arts world.

These callouts were inspired by what Xu calls a “bad wind” of fake tai chi masters penetrating the national consciousness. This was largely thanks to government intervention. Traditional Chinese martial arts (wushu), and tai chi in particular, are a core component of what President Hu Jintao called in 2007 the “great rejuvenation of the Chinese nation.” Since rising to power in 2013, President Xi Jinping has redoubled efforts to promote and spread “traditional Chinese culture”—which includes tai chi as well as traditional Chinese medicine (TCM)—through a battery of subsidies, policy interventions, and good old-fashioned propaganda. Last year, it became mandatory for students in southeastern China’s Fujian Province to prove mastery of 24 tai chi moves in order to graduate from high school. Only a few months ago, state mouthpiece People’s Daily announced the establishment of the “People’s Tai Chi Development Alliance,” which purports to be aimed at making tai chi “fashionable” for young people and showcasing the accomplishments of Chinese civilization to the world.

Meanwhile, grandmasters from across China’s martial arts schools were called on to hype up tai chi in the media. In a 2013 program called The Showdown Show, the famed 12th-generation Chen-style tai chi master Wang Zhanhai showed how he could harness his energy to fling off four musclebound attackers in a single movement. On another episode of the show, the 76-year-old pressure point (dianxue) master Zhang Zhenling showed up a group of skeptical, strapping young kung fu students by causing one to double over in pain with a single touch to the ribs. (Zhang then cured the humbled student by touching a pressure point in his neck.)

Xu was unimpressed by all of this. In early 2017, he started honing in on the young Yang-style tai chi grandmaster Wei Lei, who had recently come to national attention thanks to a CCTV-4 program called Real Kung Fu, in which Wei was featured performing such feats as turning the inside of a watermelon into mush without penetrating its skin and keeping a live pigeon perched on his hand from flying away through a personal force field. Xu called Wei Lei “brainwashed” and “a dumbass.” In retaliation, Wei Lei, or one of his associates, published Xu’s personal information, including his address and phone number online. Xu, enraged, flew to the southwestern city of Chengdu, where Wei is based, walked into the tai chi master’s gym, and demanded they fight right there on the spot.

Posted in Martial Arts, Policy | 2 Comments »

Corruption may or may not be illegal

Sunday, November 3rd, 2019

Michael Munger explains Gordon Tullock’s joyfully contrarianism thoughts on corruption:

Corruption may or may not be illegal, but it’s always a bad thing. Isn’t it?

Some think of corruption — the misuse of public trust in the powers of political office for private gain — as comparing (a) the honest services and choices of a public official with (b) actions “corrupted” by considerations that are not legitimate. Harvard law professor Lawrence Lessig has claimed that a decision is corrupt if the official is improperly, even if only subtly, influenced by the anticipation of some sort of economic gain or loss. Fordham University law professor Zephyr Teachout has claimed that if a public official acts in consideration of a private benefit outside of the standard compensation for his or her office, the action is automatically corrupt.

Suppose, though, you are an entrepreneur in a developing nation and you have a good idea for a new company. It normally takes six months to have a telephone or internet line set up, because the state monopoly utility company is notoriously inefficient. But if you pay lagay (“speed money” in Tagalog), or if you khilana para (“feed him” in Hindi), a happily willing, competent work crew will be there tomorrow. Who will actually cough up the cash? Whoever values the service most. Which means that the most economically productive firms and the best new ideas will get to jump the queue.

In a system with bad rules or limited state capacity, tacit endorsement of corruption improves the working of the system. The more inefficient the system, the greater the efficiency increase in the near term, as scarce resources are directed first to higher-value uses.

But as Tullock asks, “And then what?” In this case, two things happen. First, because the scarcity of the resources is artificial and discretionary, the state actors who formally and informally control those resources will adjust access strategically so as to increase the quantity of “rents” (i.e., undeserved benefits) they receive. In my example, the phone company might announce a mandatory two-year waiting period, increasing the value of access to the “informal” workaround of bribes. Second, those with control over the resources and thus access to the rents will start competing — very likely by offering bribes of their own — to maintain their lucrative positions.

Tullock noticed this phenomenon for himself at several points during his career. When he was briefly in private practice as an attorney in Chicago, his job as a junior associate involved paying bribes to minor officials in the Kelly-Nash political machine to ensure that his firm had fast access to records that might otherwise take weeks to secure through normal channels. Later, while working for the U.S. Foreign Service in Tientsin, China, he had the experience of being there on the ground during the Communist takeover of 1948–49.

Tullock was struck by a presentation from an academic who decried the corrupt practices of the Chiang Kai-shek regime in Taiwan but lauded the new Communist regime on the mainland. In particular, the academic pooh-poohed the supposedly “restrictive” travel policies of the Communists, noting that it was easy to bribe officials to obtain passes.

To Tullock, both regimes seemed corrupt. But he also realized that corruption, far from being an immediate problem, was the only thing that made the cumbersome Rube Goldberg governing mechanisms work at all. “While corruption usually meets with disapproval,” he wrote in Contemporary Economic Policy in 1996, “it may have some redeeming features. It may make possible smaller or no salary payments to officials who, if carefully supervised, will still carry out their functions on a fee-for-service basis. The purchase of government jobs usually is thought to be corrupt, but in some cases, it has worked out quite well.”

He filed this lesson away in the late 1940s and often came back to puzzle over it for the next 65 years. If corruption is actually a benefit — at least in countries with bad institutions or sharply limited state capacity — then what is the problem? All we need to do is suggest that developing nations cultivate corrupt systems and voilà! Problem solved.

Of course, that’s not right, and this realization is what led Tullock to his signature contribution to the study of public policy: the problem of “rent-seeking.” In China, he said, officials write laws with the explicit expectation of selling “permits” that would exempt the “customers” from having to obey the regulation. In addition, officials may purposely limit the total number of exemptions so they can auction them off to the highest bidder. In the short term, corruption is a workaround for bad government, but in the long run corruption locks in bad government and encourages abuses of state power.

Tullock used the example of an official in Fukien (now Fujian), a province from which many citizens illegally traveled to Indonesia to work, returning with substantial sums of cash and goods. Local officials set up elaborate programs under which going abroad to work was technically not allowed but in fact actively encouraged for those who could expect to earn good wages. Officials charged licensing fees that were high enough to substantially enrich the “sellers,” but they made sure the cost was not so high that it would deter workers from traveling abroad in the first place.

The problem is that the system became firmly entrenched, and the bribes came to be capitalized in the “prices” for getting a job as a local official in Fukien. In fact, the “salaries” of government officials could be rendered as negative numbers. The opportunity to collect bribes was so lucrative that the positions were essentially sold as franchises, with officials paying their superiors, who paid their superiors, and so on.

This system, once in place, is nearly impossible to root out. In open, noncorrupt systems, parents might save or borrow to pay for law school or some other training for their children. But in a corrupt system, people save or borrow to pay the bribes necessary to get the kinds of jobs where bribes from citizens provide a good living. If a new, reform-oriented government comes into office, the reaction from government officials is likely to be fierce, possibly violent. After all, they paid for their corrupt jobs fair and square, and they expect to be able to collect.

“Evidence suggests that officials tended to draw a large part of their personal income from bribes,” Tullock wrote in his 1996 paper. “Indeed, it is almost certain that once a government structure has been set up so various people make profits, changing the structure in such a way to shrink the profits will be extremely hard, regardless of whether the profits are legal or not. Firing civil servants may be even harder than firing college professors.”

A passage from a recent New York Times article on illegal “sand-mining” in India puts the situation in stark relief: “Construction is the business where criminals have the best opportunities to launder the most money, [one real estate agent] explained, and a cascade of bribes go ‘to the topmost levels in the government.’…You pay 6 percent in bribes up front. Then, after the first payment, you pay another 7 percent, half of which goes to the state’s top politicians. The development authority’s junior engineer gets 3 percent. The associate engineer gets 1.5 percent. The senior manager gets 3 percent, and so on — until the total reached an astonishing 30 percent.”

For Tullock, the really interesting question is not why so many governments are corrupt. Instead, the puzzle is how any government manages to solve this problem and avoid corruption. The benefits, to those in power, of creating arbitrary restrictions and then selling indulgences to exempt the wealthy and powerful seem irresistible. The U.S. Internal Revenue Code is replete with relatively high income tax rates, at least on paper. But as each industry or investment group pays its “bribe” to Congress by organizing voting support, making campaign contributions, and the like, the actual rates to which it is subject are reduced, often sharply, via esoteric subsidies, tax credits, or deductions.

In the early 16th century, Martin Luther recognized this kind of corruption in the Catholic Church. In his “Thesis 27,” Luther complained of priests “who say that as soon as the coin jingles into the money box, the soul flies out of purgatory.” He was referring to an actual jingle, dating to long before Mad Men — perhaps the first ever used in advertising. A little rhyme, attributed to a German monk named Johann Tetzel (1465–1519), translates to: “As soon as the money in the chest rings, a soul from purgatory to heaven springs.” The very idea of judgment had been hijacked by some members of the Church as a way to increase their revenue, selling “Get out of purgatory” cards.

A lot of work has been done since Tullock first wrote about this problem. Our understanding of the temptations of corruption, especially in developing nations — he called it “the transitional gains trap” in a famous article in 1975 — is now standard economics. But Tullock saw the problem clearly in the 1950s.

Posted in Economics, Policy | 9 Comments »

Somehow nationality is the final frontier

Friday, November 1st, 2019

Zach Weinersmith‘s Saturday Morning Breakfast Cereal comic doesn’t normally cover political topics, but his new Open Borders graphic novel — which is certainly graphic, but doesn’t appear to be a novel — with Bryan Caplan has just come out, and it does deal with a contentious topic.

“Thanks to the power of Zach Weinersmith, it’s fun to read for all ages.”

SMBC Open Borders Concerns

They discuss the book here:

Posted in Economics, Policy | 28 Comments »

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