Monthly Archives: February 2022

Against Day Fines

Today, more than 30 European and Latin American countries levy penalties using an income-graduated, or “day fine,” model. Under this system, people who break the law pay a fine equivalent to a percentage of their income, rather than a flat fee. … “can be thus seen to be more equal and effective than a system where the amount of fine is fixed.” … American lawmakers have failed to take the idea of income-adjusted fines seriously. (More)

Yes, making crime fines proportional to income can achieve a more progressive taxation. Even so, “day fines” make us worse off compared to using more direct forms of progressive taxation. To see this, consider the case of speeding and other rushed driving offenses.

When people are driving, they trade the risk of an accident against saving time. For example, in their rush to get places, drivers can choose to not take as much time looking for pedestrians before making a right turn, or checking that a lane is empty before changing lanes. And they might drive faster; the rate of fatal accidents per mile seems to go as the cube of driving speed in the city, and rises even faster in rural areas.

Of course if they were just at risk of hurting themselves, we might not care how they made their trade-offs. But most car accidents also involve other cars. So we want a way to encourage drivers to take the harm that their accident might inflict on other drivers into account. Speeding fines, and accident liability, help us to induce such concern. (B.t.w., with vouchers and well-set accident liability, we wouldn’t need speeding fines.)

All else equal, drivers with twice the wages tend to put twice the dollar value on both saving an other minute of driving, and also on preventing another small chance of their own death. So if the dollar amounts of their speeding tickets and liability given an accident were also twice as large, then the dollar amounts on both sides of their tradeoff would all be twice as large. Thus in the same circumstances they would make the same choices to trade time versus the chance of an accident. So in the same car on the same road etc., they’d drive the same speed, and take the same time to check before turning or changing lanes.

However, having two drivers, one with twice the wage of the other, each take the same amount of time to use the same technology to prevent the same amount of harm to others is not efficient. That’s wasteful, just like having a high-wage donor work the line at a soup kitchen, instead of working at their high-wage job a bit more to pay a low-wage worker to work that soup kitchen line. In the driving case, we can keep the car accident rate the same and make both drivers better off, if we have the lower wage person drive more carefully, the higher wage person drive less carefully, and have the high wage person pay the lower some cash.

For example, the median US wage is now ~$16/hr, and workers tend to value commuting time at about half of their wage rate. So imagine that drivers A and B value each their driving time at $9/hr and $18/hr respectively, which is one and two pennies per four seconds. In this case both A and B can be better off, while the total accident rate stays the same, if B gains 1.0 pennies by putting in 2 fewer seconds, A loses 0.5 pennies by putting in 2 more seconds, and B pays A 0.75 pennies.

In general, we use traffic fines and accident liability to buy the time of drivers’ to prevent more accidents. Day-fines proportional to income buy the same amount of time from all drivers in similar circumstances. But we can be better off if we instead buy more time from drivers with lower wages, and less time from drivers with higher wages. And roughly the right amount of time is induced from each via fines and liability that do not vary with income.

You might complain that ordinary constant fines, that do not vary with income, do not include a cash transfer from high to low wage drivers. But that critique only makes sense if we currently had day-fines, and I was proposing to switch to constant fines. In fact constant fines are our status quo, which I’m proposing that we keep. I don’t see we should need transfers to reject an inefficient change and keep things the same.

Note that a similar argument also says it is inefficient to give the same jail time sentence to high and low wage convicts. Jail is the least efficient of all known forms of punishment, and equal duration sentences just makes this worse. We should instead delegate punishment choices to vouchers.

For the math-literate, here’s a simple math model. Consider a driver who drives at speed si, values their life at Vi, causes accidents at rate r(si), faces average speeding fines Ti(si), and faces liability from a fatal accident of Fi. The cost they seek to cut might be written Ci = Vi/si + Ti(si) + r(si)(Vi + Fi). (Note that fine Ti(si) has the same effect as r(si)*Fi.)

Ignoring enforcement costs, the social harm from each driver might be written Si = Vi/si + r(si)(Vi + A), where A is the average over Vi, assuming random accident victims. So we can induce drivers to set si to minimize this social harm by setting each Fi = A. (Setting Ti(si) = r(si)A also works.) This choice also (nearly) minimizes Sumi Si under the constraints that each i will pick si to min Ci, and that we must use transfers to ensure each driver expects to be no worse with our choice than in some arbitrary initial Fi setup.

Note that we could have used any function vi(si) instead of Vi/si here.

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Me on Prediction Markets

Here’s a more-polished-than-usual video by me summarizing the idea of prediction market:

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Wait To Marry A Cause

Long ago people typically married as teenagers, but today we usually tell people to date while young, but don’t get married til later. In the US in 2018 the median age of first marriage was 28 for women, 30 for men. Many religions have not allowed you to join until you were old enough to make an adult choice.

What considerations say if you should make choices early or late, assuming that you will find it hard later to change or undo your choice? If later choices force you to put off important activities, choose earlier. But the more that education and life experience will inform your choice, the more you should pick later. And if more can go wrong from a bad choice, or there are more such bad options that you might choose, then choose later.

Given all this, I am here to suggest that you wait longer to pick your causes, be they political, social, religious, justice, charity, etc. You really don’t know enough to choose well when you are young, and there isn’t that much that will go wrong if you wait to choose. Instead of spending money, time, and energy on causes when you are young, you can instead invest those in your family, career, etc., where they can offer big returns, giving you more to spend on your causes later on.

Yes, in worlds where most everyone gets married young, it was hard to wait. Even so, many were often advised to wait. Today, there are many social pressures to get young people to pick causes early. And yes, it can be hard to resist these pressures. Even so, I say: wait and date. You just don’t know enough now, so your younger years are better spent learning and building. Later you will have more time, money, energy, insight, and social connections, all of which will help you to support whatever causes you choose.

So sample and dabble with causes, but wait to marry one. Yes divorce is possible, but that doesn’t mean everyone should marry at age 14. The poor will be with you always. If you rush too fast to help today’s poor you may just mess them all, hurting both today’s and tomorrow’s poor.

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Why Inequality Fell Then Rose

Back in 2003 & 2007, Thomas Piketty & Emmanuel Saez [PS] published tax-record-based estimates of U.S. top income shares from 1917 until then. They found inequality rose until 1930, fell until WWII, stayed flat until 1980, and then rose again until today. They blamed WWII tax policy and the absence of similar taxes today.

Since then, seven studies have used these same tax records to find much lower estimates of the size of this inequality and its rise since 1980. Now my colleague Vincent Geloso and three coauthors find, again using the same tax records, much lower estimates of these parameters for before 1960. Everyone agrees roughly that inequality rose til 1930, fell to WII, and then rose after 1980, but they disagree on the magnitudes and on the mix of causes. 

Geloso et al. find that half of the fall happened during the Great Depression, and another sixth of it in the decade after WWII. Others find inequality to also fall a lot 1960-1980.

But overall, this all seems to confirm the main claim of Scheidel’s The Great Leveler,  that inequality mainly falls in bad times and rises in good times. You don’t want inequality to fall, as that mostly likely indicates bad times that you don’t want.

This post is my Christmas present to Vincent.

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Foreign Policy Is Incoherent

I am quite impressed with Richard Hanania’s new book Public Choice Theory and the Illusion of Grand Strategy. It makes a simple but important point: U.S. foreign policy is less due to some persistent grand national strategy than to inconsistent lobbying pressures of various political groups. While at times causes millions to die for no good reason.

For example econ sanctions almost never work, but they satisfy a public desire to “do something”. We support big rivals like the USSR or China with trade as we resist them militarily, because business wants trade while the military wants budget. Hanania explains: 

The whole reason that International Relations is its own subfield in political science is because of the “unitary actor model,” or the assumption that you can talk about a nation like you talk about an individual, with motivations, goals, and strategies. No one believes this in a literal sense, but it’s considered “close enough” for the sake of trying to understand the world. … [But] the more I studied the specifics of American foreign policy the more it looked irrational on a system-wide level and unconnected to any reasonable goals, which further made me skeptical of the assumptions of the field.

The book felt a bit belabored to me, as I’d have been persuaded by an article length analysis. But I get why he did it; academics demand sweat and impressive mastery of literatures.

As a U.S. citizen, I am especially appalled at such waste being done in my name, even though I expect that similar problems bedevil other nations. This feeling is especially strong as I listen to major foreign policy issues being debated this week.

Monetary policy seems to me an especially promising place for a similar analysis. People usually talk as if that were being done by a central actor according to some coherent long term strategy, but that seems a priori unlikely. Yes futarchy could solve this, if only there were some interest in doing some small scale tests to hone such mechanisms. 

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