Lead Exposure and Criminal Behavior

If you’re in the vicinity of the University of Rochester this Tuesday, please join us:

Title: Lead Exposure and Crime

Presenter: Kevin Schnepel on 3/19 at 5pm in Goergen 101

Description: Early-life exposure to lead (pB) is linked to higher rates of violent crime among juveniles and adults. In this lecture, I will cover key findings in the academic literature and discuss the challenges associated with (and solutions for) identifying the causal impact of lead pollution on crime rates.

Bio: Kevin Schnepel is an Associate Professor of Economics at Simon Fraser University and studies the economics of crime. Kevin’s work aims to improve our understanding of the ways in which we can lower crime and improve social welfare ranging from investments in early-life health to criminal justice diversion programs.

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How to Organize a Waiting Line

I am just back from the G4G conference in Atlanta, where I gave a six-minute talk on how to organize a waiting line. The video of the actual talk will appear on the web eventually, but in the meantime, here is video of my practice run from the night before:

Or, for higher quality video, click here.

Click here to comment or read others’ comments.

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How I Spent My Saturday — A Geeky Puzzle

I feel like I should record this, on the off-chance that it will save someone else from spending 18 hours glued to a computer screen missing the obvious. It will be of very limited interest.

Actually, let’s make it a puzzle.

So I have a php script — let’s call it A.php — which contains an html form introduced by the line < form method=POST action=”B.php” > .

There are no other calls to scripts anywhere else in A.php, and none at all in B.php.

So I enter the following in my browser’s address bar (I tried this in multiple browsers, all with the same results):

FOO/A.php?QUERYSTRING

(where of course FOO is a web address). This causes some php code to execute. That code checks to see if the query string is nonempty (which it always is at this point), and if so, it displays the form, with a submit button. Here is what happens next:

a) Roughly half the time, I hit the submit button, which calls B.php, which also executes, at which point my address bar shows FOO/B.php . This seems entirely normal.

b) The other half of the time, I hit the submit button, which causes A.php to execute a SECOND TIME (instead of calling B.php). (It now thinks the query string is empty so the form is not re-displayed.) At this point my address bar shows FOO/A.php/B.php (despite the fact that B.php was never called, or at least never executed).

There is absolutely no apparent pattern to when I get a) and when I get b). I sit at my damned screen for hours on end (this started at 6AM and ended at midnight), repeating the same input, sometimes getting a) and sometimes getting b), according to what looks to me like a series of fair coin flips.

So, because I am making **absolutely no changes** to the code, this **must** mean something is going on at the server end, right? So I move all the code to a completely different server, and get exactly the same behavior.

This is not behavior that’s easy to google for. I wasted a little time trying.

Right around midnight, the truth dawned on me.

And now I wonder: Would a programmer with the right background have been able to guess what the problem was quicker than I did? Like, maybe at least 17 hours quicker? Let’s make it a challenge.

Click here to comment or read others’ comments.

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Pandemic Policy

If you’re in the vicinity of the University of Rochester this Thursday (November 16), check this out:

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Economic Catastrophes

If you’re in the vicinity of the University of Rochester Thursday evening at 5PM (that is, November 9, which is likely to be the date on which you’re reading this), please drop by Meliora 203 for a talk on the recent history of bank failures and financial panics.

Our speaker is Professor James Kahn, now of Yeshiva University, late of the New York Federal Reserve bank and the University of Rochester, and one of the people who taught me how to think about economics. The talk will be aimed primarily at undergraduate students, but all are welcome.

Click here to comment or read others’ comments.

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Game Theory

Recognizing that I know no more about politics than most of you, and that I have no notable record as a political prognosticator, here is my prediction, as of about a half hour before the second Republican presidential debate: Doug Burgum breaks out of the pack with strong attacks on Donald Trump.

Why? First, he needs a Hail Mary. Second, he needs it tonight, or there’s almost no chance he makes it into the third debate. Third, among the various Hail Mary’s available to him, this seems the most likely to pay off.

Arguably, they all need Hail Mary’s. But those (i.e. most of them) who have refused to substantially attack Trump in the past can’t use this particular Hail Mary without being called out for flip-flopping. (Burgum doesn’t have to worry so much about this, because almost nobody has paid any attention to anything he’s said yet.) Also, Burgum is the one who most needs to get this done tonight, with little prospect of going on otherwise.

A couple of hours from now, you can tell me why I got this wrong.

Click here to comment or read others’ comments.

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A Chance to Do Some Good

I know very little about Asa Hutchinson (ex-governor or Arkansas, current candidate for president) but I’ve heard him on the radio a few times and he seems worth listening to. I’ve heard him speak sensibly about markets, about Putin, and about Trump.

I’d very much like to see him on next week’s debate stage. To qualify, he needs 40,000 donors total, of which I believe he currently has about 30,000.

(You’d think that speaking sensibly on a few topics is a pretty low bar to clear, but there will be people on that stage who haven’t cleared it.)

A $1 donation counts exactly as much as a $1,000,000 donation toward this goal. Please consider making a $1 contribution (or more) here:


https://secure.winred.com/asa-for-america-inc/donate

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Human Action

Not all podcasts are fun (for either the guests or the viewers) but in my experience all podcasts hosted by Bob Murphy are fun for all involved. You can see the latest here or on YouTube:

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The Fabric of Civilization

If you are in the vicinity of the University of Rochester this Thursday, please join us:

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Done!

I believe I am now caught up on replying to the many comments on my post about Chat-GPT4 failing my economics exam.

My responses are quite out of order, but are labeled with the numbers of the posts I am responding to. So if you search in the page for the number of your post and/or the name you posted under, you ought to be able to find my reply.

Of course if any new comments appear on the GPT4 post, the current post will become at least temporarily inoperative.

Click here to comment or read others’ comments.

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How Economics Can Make You a Better Athlete and A Better Sports Fan

If you are in the vicinity of the University of Rochester tomorrow, check it out:

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GPT-4 Fails Economics

Edit: Here is a new and improved version of the post below. I am leaving the original up for historical reasons, but I recommend following the link instead of reading this post.

*****************

Yesterday, I announced on this blog that ChatGPT had failed my economics exam. (All of the questions on this exam are taken from recent final exams in my sophomore-level course at the University of Rochester.) Multiple commenters suggested that perhaps the problem was that I was using an old version of ChatGPT.

I therefore attempted to upgrade to the state-of-the-art GPT-4, but upgrades are temporarily unavailable. Fortunately, our commenter John Faben, who has an existing subscription, offered to submit the exam for me.

The result: Whereas the older ChatGPT scored a flat zero (out of a possible 90), GPT-4 scored four points (out of the same possible 90). [I scored the 9 questions at 10 points each.] I think my students can stop worrying that their hard-won skills and knowledge will be outstripped by an AI program anytime soon.

(One minor note: On the actual exams, I tend to specify demand and supply curves by drawing pictures of them. I wasn’t sure how good the AI would be at reading those pictures, so I translated them into equations for the AI’s benefit. This seems to have had no deleterious effect. The AI had no problem reading the equations; all of its errors are due to fundamental misunderstandings of basic concepts.)

Herewith the exam questions, GPT-4’s answers (in typewriter font) and the scoring (in red):

Continue reading ‘GPT-4 Fails Economics’

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ChatGPT fails economics

I am pleased (I think) to announce that I have just submitted to ChatGPT an exam, consisting entirely of questions taken from recent final exams in my sophomore-level intermediate economics class, and it has earned a score of zero. Not only did it earn a score of zero, but several of its answers would have merited negative scores if I were allowed to give them. The answers are in every case egregiously wrong, showing absolutely zero understanding of the basics.

I am frankly a little surprised; I had expected it to get at least a few things right.

Edited to add: If you are looking for the details, look here.

Click here to comment or read others’ comments.

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How to Be Right

If you are in the vicinity of the University of Rochester this Wednesday (March 15), you have an opportunity to hear Martin Cox, the director of the John Locke Institute, talking about “How to Be Right”. See details on the poster above.

Click here to comment or read others’ comments.

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Math, the Universe, and Ethan Siegel

Ethan Siegel, writing in Forbes, concludes that No, the Universe is Not Purely Mathematical in Nature.

His argument, unless I’ve badly misunderstood him, is that many purely mathematical models of the universe have turned out to be wrong, and one needs observations to guide the building of better models.

I think he has this exactly backward.

If our Universe is uniquely woven from some special fabric, then it at least might (or might not) be possible to discern some of its properties by pure reason.

But if our Universe is a purely mathematical structure, then it is surely one of a great many purely mathematical structures (we know this, because we are familiar with a great many purely mathematical structures). This means that only observations can help us determine which of those mathematical structures we inhabit.

Siegel’s article is well written and fun to read. But I think his arguments constitute evidence for exactly the opposite of the conclusion he wants to draw.

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Adventures in the Rental Market

A few years ago, I was driving a Hertz rental car at about 25 mph in a residential neighborhood when the rear-view mirror suddenly flew off and hit me in the face. I came within inches of hitting a parked car. I mentioned this when I returned the car and they graciously discounted my bill.

Today I am driving a Hertz rental car with a big clump of wires dangling down between the accelerator and the brake, so that moving your foot from the accelerator to the brake is a great tangly adventure. This strikes me as equally unsafe. I am on my way back to the car with a roll of duct tape in my hand. I plan to mention this for the benefit of the next guy, but I do wonder if Hertz keeps records of “wildly implausible complaints that were probably manufactured for the purpose of getting a discount” and whether I am about to be flagged as a repeat offender.

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Trump and Tax Returns

I am glad I don’t live in a country where the penalty for criminal behavior includes having your tax returns released to the public.

I am doubly glad I don’t live in a country where the penalty for criminal behavior includes having your tax returns released to the public before you are convicted and indeed before you are ever charged.

I am triply glad that I don’t live in a country where the penalty for criminal behavior includes having your tax returns released to the public at the whim of your political opponents.

And I am quadruply glad that I don’t live in a country where those political opponents get to invent penalties that are not envisioned by any statute.

I wish many things for Donald Trump, and I am sure he would not want me to get most of my wishes. But it would be an outrage for the Ways and Means Committee of the House to release his returns under the current circumstances, where, it seems to me, the release is clearly intended as a punishment for some very bad acts that very clearly occurred.

On the other hand: I have long argued (see Chapter 15 of The Armchair Economist) that when voters make choices on the basis of promises that are ultimately not kept, they should have legal recourse in the form of a lawsuit against the politician who broke those promises. In 2016, Donald Trump repeatedly promised to release his tax returns as soon as they were not “under audit”. It’s not at all clear to me why this promise would have changed anyone’s vote, but presumably Trump (who has presumably thought about this harder than I have) believed it would sway at least some voters; otherwise why would he have made such a big deal about it?

In my ideal world, there would be a class-action suit against Trump by voters who relied on his 2016 promise to release these returns, and, after a trial, he might be ordered to fill the breach by releasing those returns today. One could argue that the Ways and Means Committee is simply bringing about my desired outcome by other means.

But: First, as I just said, in my ideal world, the order to release the returns would come after a trial. We have not had that trial. And second, I am actually very very glad that I do not live in a world where my personal policy preferences are implemented without first going through some sort of process whereby they become law. Like so many of my best ideas, this one is not yet a law. I’m glad I do live in a country where (by and large) non-laws are not enforced, even when I believe they ought to be laws.

Click here to comment or read others’ comments.

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Some History Lessons


A bit of history:

  • One day in the 16th century, a student at Oxford University was sitting in the woods reading a volume of Aristotle, when he was attacked by a wild boar. The student saved himself by shoving the volume down the throat of the boar and choking it to death. He brought the boar back to Oxford, where it became the centerpiece of a great feast. The anniversary has been celebrated at Oxford ever since, with an annual Boar’s Head Dinner.
  • One day in 1934, someone at the University of Rochester decided that Rochesterians should celebrate these anniversaries as well. Ever since, with a few interruptions, the University has been the site of an annual Boar’s Head Dinner, where a member of the University community is called upon to re-tell the story of the brave Oxford student, perhaps with some embellishment.
  • One day in 2005, I was the one who was called upon. The event was filmed, but the sound quality was horrendous. (So was the video quality, but that seems less important.) I’ve therefore almost never shared it.
  • One day a couple of months ago, I mentioned this to my awesome friend Rowan McVey, who volunteered to take the video, improve the sound quality, and add captions. (Note: Rowan was already entirely awesome even before she jumped on this task.)

Herewith the fruits of Rowan’s labors. The two videos linked below are identical except that the first has captions and the second doesn’t. The sound quality is still surely imperfect, but it’s a vast improvement over the original.

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Using a Brainteaser to Discover a Theorem

A Guest Post

by

Bennett Haselton

Nearly 9 years ago, Steven posted this brainteaser:

Here I have a well shuffled deck of 52 cards, half of them red and half of them black. I plan to slowly turn the cards face up, one at a time. You can raise your hand at any point — either just before I turn over the first card, or the second, or the third, et cetera. When you raise your hand, you win a prize if the next card I turn over is red.

What’s your strategy?

Read no further if you want to try and solve this brainteaser on your own first!

Continue reading ‘Using a Brainteaser to Discover a Theorem’

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From Globalization to Slowbalization

If you are in the vicinity of the University of Rochester this Wednesday (November 30), stop by Sloan Auditorium in Goergen Hall at 5PM to hear a lecture from Doug Irwin, Professor of Economics at Dartmouth College and a prominent expert in international trade. His topic is “From Globalization to Slowbalization: The Future of World Economic Integration”.

Professor Irwin’s books include Free Trade Under Fire, Peddling Protectionism, Clashing over Commerce, and Three Simple Principles of Trade Policy.

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Tom Palmer!


If you’re in the vicinity of the University of Rochester tomorrow (Sunday, November 20), do stop by Dewey Hall room 1-101 at 5PM for a talk on “Applied Political Economy and the Invasion of Ukraine” by Dr. Tom Palmer of the Atlas Network and the Cato Institute.

Dr. Palmer has written extensively on issues at the cusp of economics, politics and philosophy. As the General Director of the Atlas Network’s Global Initiative, he travels extensively to advise foreign NGOs on how to foster economic development and liberal democracy. He has recently returned from doing good work in Ukraine.

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Regulating Rudeness

If you’re in the vicinity of the University of Rochester this coming Tuesday (October 4) at 5PM, you are invited to come by Goergen Hall Room 101 to hear Jamie Whyte‘s public lecture on the topic “Regulating Rudeness: The Social Cost of Offensive Speech”.

Jamie’s talks in the past have been generally dazzling. I expect no less of this one.

Click here to comment or read others’ comments.

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I Heard the News Today, Oh Boy.

I’m getting a little tired of presidents of the United States repeating things that could only be spoken by an idiot or a liar, and then trying to intimidate people out of contradicting them.

The latest (though of course not the most egregious) offender is one Joseph R. Biden, who told the country today that he can raise corporate income taxes without imposing any additional tax burden on anyone who earns less than $400,000 a year. Because in the United States of America, nobody with an income under $400,000 owns any stocks or mutual funds. And if you disagree, he’ll stare you in the face and repeat himself. Like I said, this is getting old.

Click here to comment or read others’ comments.

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Abortion Policy

Let’s try to make the best possible case for restricting abortion and see how far we get.

To make that case as strong as possible, let’s start from the presumption that we care about the interests of the unborn in just the same way as the interests of the born.

Now caring about someone’s interests is not a sufficient reason to defer to those interests, because there are usually competing interests that have to be weighed in the balance (in this case the interest of the mother). Often, competitions between interests play out in the marketplace, so that policymakers are unnecessary — if you and I both want the same house, we settle that conflict by bidding for it.

But sometimes markets don’t work very well, and then there’s a policy problem to resolve. For example, suppose your boat happens to be in the vicinity of my dock when it springs a leak and starts to sink. The only way to save the boat is to tie it to the dock. If I happen to be out sunning myself on that dock, we can strike a bargain. But if I’m nowhere to be found, the law enforces the outcome that we presumably would have reached and allows you to tie up to my dock.

The same fundamental problem applies in the case of abortion. You might be willing to pay a substantial fraction of your lifetime income to prevent yourself from being aborted, but at the time of the abortion decision, those negotiations are quite impractical. So by analogy with the boat and the dock, one might argue that the law should enforce the outcome that we presume those negotiations would have led to, by prohibiting the abortion.

But if that argument is correct, it applies to the unconceived as well as to the unborn — that is, it seems apparent that most adults who are glad they were not aborted are equally glad that they were conceived in the first place, and would have agreed to pay just as much to bring about the conception as to prevent the abortion. This suggests that if the law should strive to prevent abortions, it should also strive to bring about a considerable number of additional pregnancies.

But even if you accept that argument, it is not an argument for involuntary impregnation; it is at best an argument for subsidized impregnation. It’s a general principle of cost-benefit analysis that taxes and subsidies are almost always better than mandates, because they allow for different individuals to make different choices that account for circumstances invisible to the policymaker. That’s why it’s better to tax carbon than to mandate gas mileage. And likewise, even if you accept the anti-abortion argument, it is not an argument for banning abortion; it’s at best an argument for taxing abortion.

How big should the tax be? Another principle of cost-benefit analysis is that everyone’s interests should count equally. So if we take all of this seriously, then one additional pregnancy compensates for one additional abortion — one potential life is lost; another potential life is gained; and that’s a wash. Therefore the policy implication is that abortion should, at most, be taxed at a rate necessary to fund the subsidization of one additional pregnancy.

In other words — if A has an abortion but simultaneously coughs up enough money to induce B to become pregnant and carry a baby to term, then even if you buy the market-failure rationale for restricting abortion, the world as a whole is no worse off than before — and in fact better off, because the pregnancy has been voluntarily transferred from A to B. If A is willing to pay that price, I can’t find any reason to disallow it.

(In fact, one could well argue that the mere fact of A’s pregnancy is no reason to impose a tax burden on A — if A has an abortion, the rest of us can perfectly well pick up the tab to enlist B as a substitute, so that A doesn’t need to be taxed at all. I’m putting that argument aside only because I’m trying to bias the outcome in favor of a large deterrent.)

That sets a maximum penalty for abortion. If you’re skeptical of the initial premise that we care about unborn people the same way we care about everyone else (or skeptical of the market-failure argument) then the penalty should be lower — maybe a lot lower. In no case would you want to impose a ban.

To avoid those conclusions, you’d need (for starters) a clear reason to favor the conceived-but-unborn over the not-yet-conceived. Unless you’re prepared to descend into deontology, I think that reason is going to be hard to come by, again because I am exactly as happy to have been conceived as I am to have been unaborted. And even if you find that reason, you might be able to use it to argue for a higher tax but still not, I think, an infinite one.

Edited to add: The more I think about this, the more it seems to me that the correct conclusion is that if we, as a society, care about preventing abortions then we, as a society, should be subsidizing births, and the cost of those subsidies should be spread widely, so that the right tax on abortion should in fact be zero.

Click here to comment or read others’ comments.

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A Message to National Review

Dear National Review:

1) Your Android app no longer works. I click on ‘magazine’, which brings up images of covers of past and present issues. If I click on any past issue, everything is fine. If I click on the current issue, all I see is a list (in red capital letters): SECTIONS, ARTICLES, FEATURES, etc. — but none of these are clickable and the content is not accessible.

2) I thought this might be because my subscription had expired, so I clicked on ‘Subscribe’ and paid for an extended subscription. I see that you still have my expiration date as September 2022, so apparently you took my money but did not extend the subscription.

3) I clicked on subscription help, got back an email telling me to try a few obvious things like “log out and log back in again”, responded by saying I’d already tried those things and none of them worked, and then never heard another word from you. I emailed again, asking what to do next. After several days I’ve heard absolutely nothing.

4) I went to your customer care website, typed in the above, and was told I could not submit the above message because it is “too long”.

5) I called your customer service number (which took some digging to find because it does not appear on your website) and spent twenty minutes talking to a representative who insisted that I re-try everything I’ve already tried, none of which worked. She finally connected me to a supervisor. The supervisor came on the line and said “I understand you’re having trouble logging into our app”. I said that I’m logged in just fine; the app just doesn’t work. The call suddenly ended.

6) I called back, explained I’d been in the middle of a call with a supervisor that got cut off, and was connected to a new supervisor. I started to explain the problem, and the call ended.

7) I am now on hold trying for a THIRD time to reach a supervisor.

8) Here is what I need from you: First, fix your app and/or tell me how to make it work. Second, extend my subscription consistent with the money I just sent you, or refund the money. Third, please be more responsive in the future.

9) Because this message is “too long” for you to accept on your website, I am posting it here and sending you a link to this blog post.
Everyone else can safely ignore this post.

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Where I’ve Been

A couple of weeks ago, I was in Las Vegas for the annual meeting of the Association for Private Enterprise Education, where I was honored to give an invited plenary address.

From there, I went directly to Atlanta, where I gave a short talk at the Gathering for Gardner, honoring the legacy of Martin Gardner. There were a lot of other really cool talks too.

I am sorry that the Las Vegas talk was not recorded and that the recording from the Atlanta talk won’t be available for a few months. Therefore I sat down in front of my webcam and repeated both talks, sticking as close to the original words as my memory would allow. Unfortunately there is no way to recreate the audience reaction or the question and answer periods.

Click below to view either or both of those re-creations.

The second talk is essentially a six-minute excerpt from the first. It surely benefited from the discussions here, here and here, and most especially from the comments of Bennett Haselton.

A few more words about escalators for those who care about this kind of thing:
Continue reading ‘Where I’ve Been’

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Mea Culpa

Economists, like everyone, should admit to their mistakes and correct them. That’s what this post is for.

The argument against taxing capital income runs like this:

1) Current and future consumption should be taxed at the same rate.

2) A tax on capital income is equivalent to a tax on current consumption coupled with a higher tax on future consumption.

Conclusion: Capital income should not be taxed.

I made this argument several years ago in a talk at the Cato Institute. I recently got a complimentary note from someone who had just watched the video of that talk, which caused me to go back and watch a few snippets to remind myself of what I’d done to earn this compliment. And I was mortified to see myself stating not point 1) above, but this far more general point:

1′) All things should be taxed at the same rate.

The status of 1′) is complicated. It is true that in an ideal world, all things including leisure would be taxed at the same rate. But in a world where you can’t tax leisure, the ideal tax system is far more complicated, with the optimal tax on each consumption good varying according to various elasticities and cross-elasticities of demand and supply. So 1′) is true in an ideal world, but surely false in our world, where leisure is very difficult to tax.

Fortunately the full generality of 1′) was not needed for my argument; all I actually used was 1). But in the video, I very clearly stated 1′) as if it were gospel, and even devoted an entire slide to it. This mistake doesn’t overturn the conclusion, but it’s still surely egregious enough that if, say, Paul Krugman had made a mistake like this, I’d have been all over him.

So: Mea culpa.

A subsidiary point: The word “should” in these statements can be interpreted in (at least) two ways — from the point of view of efficiency and from the point of view of fairness. In the few paragraphs above, and in the bulk of my Cato talk, I was using the word “should” in the first sense. But I also tried to address fairness issues in the Cato talk, and from that angle, I’m less sure that 1′) is wrong.

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A Question About Covid Policy

There’s been a lot of chatter lately, in print and on the web, about whether hospitals should refuse to treat unvaccinated Covid patients. Among other things, it’s been pointed out that there are potential logistical nightmares in trying to ascertain whether a patient is vaccinated before treating him, especially in emergency situations.

But it seems to me that the hospitals never were the right institutions to making these decisions in the first place — the insurance companies are. Why haven’t the insurance companies announced that they won’t cover the costs of Covid care unless you’re vaccinated? If you show up at the hospital unvaccinated and accept treatment, you’d be on the hook for the costs — at least up to the point where you’re left bankrupt.

Creating appropriate incentives is, after all, a large part of what we pay our insurance companies to do. Nobody wants to buy insurance from a company that approves every claim (and charges commensurate premiums). When you buy insurance, part of what you’re buying is the company’s promise to exercise due diligence and not fritter away its resources. There’s a pretty good argument that subsidizing people to remain unvaccinated counts as frittering.

It seems to me that “no coverage if you’re unvaccinated” would be both good social policy and clearly a win for the insurance companies themselves (because it’s a win for their customers). So the question is—why isn’t it happening?

And here’s where I hit the limits of my knowledge — is there some law that’s preventing this? Or some regulation? Or is it not happening for some other reason that I haven’t thought of?

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Fun Fact

John Tyler was born during George Washington’s administration. From 1841 to 1845 he served as the tenth president of the United States.

His grandson is alive!

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Nakamoto Meets Pigou

Proof-of-work crypto mining generates a lot of externalities. Yesterday’s post was about how not to measure those externalities. Today’s is about how to deal with them.

When miners use vast amounts of power, there are two broad categories of externality to worry about. One is environmental damage associated with power usage. Insofar as that’s a social problem, the way to deal with it is to tax power usage. That is the government’s job.

But the other kind of externality is more interesting from a crypto-design point of view. Miners are engaged in an arms race. Each miner makes the system a little more secure. Each miner earns an expected reward for that contribution. But there’s no reason to think that the miner’s reward is commensurate with the social value of the extra security that miner brings, and in fact there are plenty of reasons — at least plausible and possibly compelling — to believe that miners are over-rewarded. Currently, if you complete a Bitcoin block you earn a block reward of 6.25 bitcoins plus transaction fees that seem to be running somewhere around a tenth of a bitcoin, adding up to something in the vicinity of $300,000. It’s a fair guess that miners earn pretty close to zero economic profit, so their costs should be about $300,000 per block or roughly $45 million per day. Society is certainly getting something of value for that $45 million, but if it only takes, say, half as many miners to provide the same value, then we’re overpaying by $22.5 million every day (that being the value of the essentially wasted energy).

[it’s also entirely possible in principle that there is too little mining, in which case you can interchange all the implicit plus and minus signs in what follows.]

If you subsidize something and you get too much of it, the solution is to lower the subsidy. In this case that means lowering the block reward. If you don’t subsidize something and you get too much of it, the solution is to tax it. In this case that means a negative block reward. I don’t see any reason in principle why you couldn’t have a proof-of-work system with negative block rewards, and I think it’s at least plausible that such a system could be optimal. [The way this would work in practice is that the block reward would be subtracted from the transaction fees and then burned.]

A potentially nice side benefit is that you’d be taxing that environmental damage we talked about at the outset. You might believe as I do that if there’s a case for taxing that damage, it ought to be done by the government, not by the Bitcoiners. But if you believe your elected officials are falling down on the job, and if doing part of their job for them is an automatic side benefit of getting your own house in order, that’s a good thing.

I haven’t thought about any of this quantitatively — meaning that I have nothing to say about estimating the optimal tax rate, but there is, I think, a moral — namely:

It is often said that proof-of-work systems inevitably lead to a lot of social waste. The “inevitable” part can’t be true. It’s easy for the system to levy a tax that brings private rewards in line with social benefits.

Of course one possiblity is that with the optimal tax, transaction fees would not be enough to support the miners, in which case the system would collapse. But with such a small transaction demand, the system should collapse, so that’s not a problem.

I am sure that a lot has been thought, and a lot has been written, about optimal block rewards, and equally sure that I’m unfamiliar with most of it. So maybe a reader or two will contribute to my education here.

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