Give Peaceful Resistance a Chance

New York Times opinion "Give Peaceful Resistance a Chance" (March 9th, 2011) offers insight into part of an economist's raison d'être. The article by Erica Chenoweth, a Professor of Government at Wesleyan University, misunderstands heterogeneity in revolutionary starting conditions. Her claim:

Unfortunately for the Libyan rebels, research shows that nonviolent resistance is much more likely to produce results, while violent resistance runs a greater risk of backfiring.

To back up this statement, she claims that:

Indeed, a study I recently conducted with Maria J. Stephan, now a strategic planner at the State Department, compared the outcomes of hundreds of violent insurgencies with those of major nonviolent resistance campaigns from 1900 to 2006; we found that over 50 percent of the nonviolent movements succeeded, compared with about 25 percent of the violent insurgencies.

Why is this bad research? Because not all revolutions have the same starting conditions. Imagine a world in which there exist dissidents who optimally choose between armed rebellion and peaceful protesting. These dissidents know the government they face and the probability of success of a given venture. Then the observed probability of failure for armed revolution may be higher than of peaceful protest even when both were always chosen optimally. To understand why Chenoweth and Stephan get the results they do, observe the following conjecture in figure form (click to enlarge).

A rational rebel will take the upper envelope of these two decisions. If this is the case, then we will see violent revolutions under oppressive regimes that generally fail, and peaceful protest under non-oppressive regimes that generally succeed. There will be no Ghandi's under Hitlers, Stalins, and Mussolini's. Ghandis can only be successful under men who are inherently peaceful when others are peaceful with them, such as Churchill. Similarly, it may often be difficult for Malcolm X's or The Weathermen to succeed in vastly less oppressive societies, where hoses and dogs rather than machine guns and concentration camps are used to control protest. They are unable to gain the sympathies of the populace. Martin Luther Kings are better suited for the United States than the Malcolm Xs or Bill Ayers of the world.

It is no coincidence that Bill Ayers changed from attempting to bring down the United States by armed rebellion to bringing it down from within--he reoptimized.

The conclusions Chenoweth attempts to draw are faulty due to sample selection.  Armed rebellion may be more likely to succeed conditional on the situation but less likely to succeed when looking at the unconditional success rate.

Media’s mendacity should be news to all

Boston Herald article "Media’s mendacity should be news to all" (April 10th, 2010) by Bill O'Reilly discusses individual American's discovery that United States newspapers are politically biased, and appears surprised. Corrections suggests that far from being surprising, this is a natural occurrence, and we should see media bias in a different way.

While many Americans believe the national press is biased toward the left, a more damning charge is now being debated: Are U.S. media outlets actually corrupt? Those who believe they are point to the cheerleading during Barack Obama’s presidential campaign and to the recent reportage on the Tea Party movement.

As you may know, the Tea Party people have been branded in some media quarters as a bunch of racist, far-right loons. TV commentators on MSNBC and CNN have actually called the Tea Party folks dirty names on the air - all in an attempt to diminish the growing influence of the movement.

But a funny thing happened on the way to the gutter. Regular Americans have apparently opted to decide for themselves about the Tea Party, and the polling is interesting.

Corrections suggests that January 2010 Econometrica article "What Drives Media Slant? Evidence from U.S. Newspapers" by Jessie Shaprio and Matt Gentzkow has a more appropriate manner of examining media bias. In order to understand its relevance, we first note that in Shapiro and Gentzkow's 2006 Journal of Political Economy paper "Media Bias and Reputation", they posit consumers who do not know the quality of a news source with certainty. Their consumers have prior beliefs about the truth, read news articles, and sometimes the truth is revealed to them at a later time (so they can update, finding that the newspaper has deceived them, or not). The article finds that newspapers will optimally slant their news to their consumer bases's biases.

Returning to the original paper Corrections referred to, the authors find that, "consumer demand responds strongly to the fit between a newspaper's slant and the ideology of potential readers, implying an economic incentive for newspapers to tailor their slant to the ideological predispositions of consumers. We document such an effect and show that variation in consumer preferences accounts for roughly one-fifth of the variation in measured slant in our sample."

Corrections suggests that the cycle O'Reilly was referring to makes quite a bit of sense, in this light. First, individuals had some signal about Barack Obama as a Presidental candidate. News sources respond to that bias (and perhaps the two feed one another, though that conjecture is by no means clearly going to happen). Individuals vote for Obama, and perhaps discover, given a relatively monotonic downward trend, that they were deceived by media slant. Corrections offers Gallup Approval Rating Polling data below (click to enlarge). They bayesian update on the slant media stations have, just as the Tea Party, borne out of individual's discovery of deception by the media, occurs.



Corrections suggests that Mr. O'Reilly's article was not necessarily off-base, but was grasping at the model suggested by Shapiro and Gentzkow without explicitly mentioning it. It is in this clarifying manner that Corrections offers a clarification.

Getting even on crack vs. powder

Boston Globe editorial "Getting even on crack vs. powder" (March 27th, 2010) discusses a possible gap between legal penalties for possession of crack cocaine and possession of powdered cocaine. It discusses the penalties between the two, and how there was a "100-to-1" penalty for holding crack. Corrections sees the matter as slightly more nuanced than the Globe allows.

The political wheels have begun to turn on correcting the imbalance in sentencing those who possess crack and powder cocaine, but more attention is necessary. Under current law, a person caught with five grams of crack gets the same five-year mandatory prison sentence as someone possessing 500 grams of powder. The 100-to-1 crack-to-powder ratio was enacted at a time that crack was thought to be far more addictive than powder and would spark unprecedented crime waves. Studies long ago disproved both notions, but the law remains on the books, and its burden falls disproportionately on black defendants. More than 80 percent of those incarcerated for possession of crack are black.

We noted in a previous post that addictive substances such as crack cocaine were a technological advancement on cocaine. It allowed for small cheap, unobtrusive, mass distribution in a way cocaine did not, a point lifted from Roland Fryer, Paul Heaton, Steven Levitt, and Kevin Murphy’s 2005 NBER working paper “Measuring the Impact of Crack Cocaine.” It is not immediately clear whether or not this phenomenally destructive drug would have been as prevalent as it was were cocaine itself not illegal. On the one hand, cocaine is an input into crack cocaine production. On the other hand, cocaine is a substitute to crack cocaine itself, one whose competitive availability is likely increased much more than crack cocaine’s, in light of crack’s popularity being in part due to cocaine’s inefficient illegal distribution system.

Crack cocaine is a technological advancement on cocaine--distribution is made easier. Therefore, it may make sense to "tax" it at a higher rate, if one catches individuals who deal in it much less often. That is, if one is caught half as often with crack cocaine, then a doubling of the sentence may "equalize" the penalties between the two crimes, an objective the Globe seems to pursue.

Corrections might further add that the law-race discrepancy may have less to do with politician racism than it might have to do with endogenous selection into drug markets. Let us imagine that individuals have three choices: to work for wages in the "above ground" economy (legal), to work selling powdered cocaine (powder), and to work selling crack cocaine (crack). Every job choice has two wages that are taken as a bundle--the average wage per hour and the expected years in prison one receives. A fortiori, assume wages are the same between the two groups.

Finally, imagine that while the wages of both whites and blacks are the same, blacks lose less from prison (as we shall see, a more reasonable assumption is that their outside wages are different). Let us say that a "conversion factor" between years in prison and wage is $2/year for whites and $1/year for blacks.

Then we display our hypothetical wages graphically below (click to enlarge):



In this case, we should see blacks specializing in crack, even though the sentence is higher, while whites split between legal work and powdered cocaine. The law itself caused blacks to enter into crack, rather than attempting to punish them unfairly. It's not clear whether or not sentencing caused racial segregation of this particular crime or discrimination by politicians caused the disparity in sentencing.

Finally and briefly, we might view this slightly differently and come up with an even more interesting result. Imagine that blacks and whites are two agents producing one of three goods--legal work, powdered cocaine, or crack cocaine. Each individual has an endowment of two inputs--money, and sentencing time. In this assumption, blacks have a larger endowment of the input "sentencing time," so they specialize in the good that is relatively more intensive in sentencing time. If we eliminate the disparity, then the rents they were accruing because they held more of a relatively rarer input go away--blacks could be made worse off if we eliminate the disparity by Stolper-Samuelson Theorem (note that eliminating the disparity essentially floods the market with an infinite amount of "sentencing time" and returns to possessing it become zero). Stolper-Samuelson gives the idea behind why an unskilled worker in a country such as the U.S. may have their standard of living harmed by international trade because they are much less rare an input.

Student1776 on "Don't Legalize Marijuana," and Response

Corrections appreciates acuminous commentary. A comment by “Student1776” was left in response to our post “Don’t Legalize Marijuana”. It was thoughtful enough to warrant its own post in response. Corrections is willing to repeat this activity for insightful commentary.

The post by Student1776 follows:

The writer of the blog makes an excellent point that the use of taxation as a means to control the extent of use. There are at least two additional pertinent elements. First, illegal status tends to constrain use differentially to areas where law is less respected or at least less effective. In the US the illegal status of marijuana or crack cocaine or other drugs tends to confine sales, distribution and to some degree consumption to ghetto areas. Making marijuana or crack cocaine legal would allow the expansion of sales and distribution to all areas - for example the suburbs - likely resulting in expanded use and an expansion of adverse social consequences both in terms of numbers of users and in terms of affecting more empowered parts of the electorate whose political pressure would doubtless be made manifest. Second, as one considers the wider principle of legalization and taxation there is a different aspect to consider. Drugs affect individuals differentially for a variety of biological and other reasons. For any given drug different people have different propensities to addiction. For example, about 6-10% of people exposed to alcohol for as little as a first exposure to several exposures will over time become addicts while 90+% of people who consume alcohol can take it or leave it. These latter people with a propensity not to be addicted are said to be able to "chip" alcohol. For opioids and tobacco the same phenomenon occurs but the number of potential addicts is larger - in a broad ballpark around 20% of people being at risk for addiction with 80% of people for example being able to use an opioid for pain for an extended period without coming to exhibit drug seeking behavior (that is to "chip" opioids or cigarettes. For amphetamine type drugs the proportion of addicts to chippers is far higher - likely on the order of 30-60% depending on the amphetamine with the number of chippers being correspondingly lower (70-40%). The point is that while marijuana has a relatively low rate of severe addictive behaviors associated with it and a high rate of chipping, other drugs are less benign. People who are addicted do continue to show some level of "rational" behavior in the sense of price responsiveness but addicts are by the nature of the disease incompletely rational. Addicts will engage in extreme and irrational activity including violence and law breaking at felony levels. The issue is that while drugs are illegal and distribution is highly restricted there are many people who are potential addicts who are simply not exposed to the addictive drug and as a consequence are able to live productive lives and not be addicted. Pricing issues might to some degree permit a similar constriction of the potential exposure of addicts but for many potential addicts not exposed at this time because of limits of distribution, their financial characteristics may allow them to surmount limitations on exposure due to pricing. It is also noted that if taxation is raised to too high a level then the taxation itself will be surmounted and we will have just created a new kind of illegality. (Not unlike the current cigarette smuggling industry). The bottom line is that the Corrections blogger is correct that taxation could be used to help control exposure, one can anticipate far wider distribution and for the highly addictive substances far higher levels of addiction and associated social damage in localities and social circles currently out of the loop of distribution.

Four points have been made that it is incumbent upon Corrections to dispute, in one form or another.

1) Illegality has differential effects on area that taxation does not have. Specifically, Student1776’s conjecture is that currently use is kept in relatively indigent areas—post legalization, it could spread to wealthier areas. This, in turn, may lead to more users, and empower “undesirable” political classes.

Concerning the first point, Corrections agrees and considered this point. However, it is important to note that there is a reason that use was constricted to indigent areas to begin with. Specifically, that these areas had low opportunity cost of both use and penalty. But it is worth noting that when the government makes something illegal, the black market has no means of writing enforceable formal contracts.

This means that in order to enforce contracts, firms use force. Firms that dominate the industry tend to be those best at wielding violence, rather than those with the most efficient methods. This, in turn, creates an industry that has a lower cost to producing violence on competing firms, consumers, and government.

Corrections posits that this helps propagate the very indigent communities that the author concerns himself with. Were these industries replaced with companies like Johnson & Johnson, Pfizer, and GlaxoSmithKline, we suspect that illegal activity such as drug-dealing, and the resultant violence, would be reduced dramatically.

This reduces transfers from wealthier communities, who will have to pay for less law enforcement, perhaps helping to empower and create more desirable political classes. Implicit in Correction’s understanding of the author’s reference to a desirable political class is one that does not depend on the Rothbardian “gang of thieves writ large,” viz., the government.

2) Drugs have differential addition rates. People who are easily addicted and were previously were not exposed to drugs will now have easy access to them. They will subsequently consume the drugs and become addicted.

Corrections does not dispute the idea that people have differential addiction rates. Indeed, it supplements the idea of differential treatment effects we expounded upon in a previous post.

We do, however, dispute the characterization that people who were previously not exposed to drugs will now have easy access to them. In the reading of Corrections, a very large proportion of the United States currently has access to crack cocaine, for instance. They may buy crack cocaine at some price. The question is in what form they pay the price. Corrections conjectures that most of the author’s potential users would pay in the form of search costs, rather than dollars. This can be translated into dollar form, of course.

Why would we assume that people who are easily addicted and have easy access to a product would become addicted? If these individuals know their propensity to become addicted, then they have the most to lose from trying before addiction. We should therefore see these very people shy away from drug use. We should expect to observe tests for whether or not someone has the propensity to become addicted. In the absence of such tests, we might expect the proper incentives to exist to develop them. In the absence of the possibility of such tests, one would expect risk-averse consumers to shy away from the product in general, as large swaths of the non-chipping population likely do for readily available drugs such as crack cocaine.

Whether or not one accepts this previous point, the first point remains: translate search costs into tax costs and it would appear the same costs from suburban individual’s point of view.

We might add that addictive substances such as crack cocaine were a technological advancement on cocaine. It allowed for small cheap, unobtrusive, mass distribution in a way cocaine did not, a point lifted from Roland Fryer, Paul Heaton, Steven Levitt, and Kevin Murphy’s 2005 NBER working paper “Measuring the Impact of Crack Cocaine.” It is not immediately clear whether or not this phenomenally destructive drug would have been as prevalent as it was were cocaine itself not illegal. On the one hand, cocaine is an input into crack cocaine production. On the other hand, cocaine is a substitute to crack cocaine itself, one whose competitive availability is likely increased much more than crack cocaine’s, in light of crack’s popularity being in part due to cocaine’s inefficient illegal distribution system.

3) Student1776 conjectures “People who are addicted do continue to show some level of "rational" behavior in the sense of price responsiveness but addicts are by the nature of the disease incompletely rational. Addicts will engage in extreme and irrational activity including violence and law breaking at felony levels.”

Corrections does not see violence and law breaking at felony levels as an irrational behavior. Take, for example, Lawrence Katz, Steven Levitt, and Ellen Shustorovich’s 2003 American Law and Economics Review article “Prison Conditions, Capital Punishment, and Deterrence”. The homicide rate within a state is negatively impacted by higher within-prison death rates (from murders, illness and AIDs, poor conditions). Indeed, the impact of one additional prison death ranged from -0.1 to -0.8 fewer homicides across the author’s specifications.

Murder, rape, robbery, aggravated assault with a firearm, and burglary of residence are not excluded from the list of crimes for which sentence enhancements significantly change behavior. Daniel Kessler and Steven Levitt found, in their 1999 Journal of Law and Economics article “Using Sentence Enhancements to Distinguish between Deterrence and Incapacitation” that those crimes declined by four percent more than California’s non-enhanced crimes, compared to the difference in decline of the same crimes in other states (without sentence enhancements) and their comparable crimes (a difference-in-difference-in-difference model).

To use the same author a third time, in the Journal of Political Economy (1998) Steven Levitt’s paper “Juvenile Crime and Punishment” shows that not only are juveniles likely deterred by differential sentences, but that an increase in the relative punitiveness of adult crimes compared to juvenile crimes causes decreases in crime when juveniles reach the age of majority. This comparison, comparable to a regression discontinuity comparison, indicates that juveniles around the age of majority appear to be making their criminal decisions based on sentences—-another rational act.

Corrections sees criminals as behaving rationally—-if not during their crimes (say, during a drug-induced state), then in the decisions leading up to the crime (the decision to become intoxicated).

4) It is also noted that if taxation is raised to too high a level then the taxation itself will be surmounted and we will have just created a new kind of illegality. (Not unlike the current cigarette smuggling industry).

Corrections concurs. We see the result as only a partial privatization. If this is the case, then at the limit legality will change nothing because the tax will be too high and the market will remain a black market. In reality, Corrections expects that a portion of the market will be legal and taxed. To take the author’s example, we posit that New York spends vastly less on enforcement and gains vastly more revenue from cigarettes by making them legal and taxing them than it would by making them illegal and paying to enforce the law (rather than be paid).

Big Food

New York Times editorial "Big Food" (January 24th, 2010) falsely claims that

Big companies are likely to become even bigger.

Citing no economics research, the article attempts to worry the public about the potential for monopoly power. Gibrat's Law, which states that firm size and firm growth are independent has not held up, empirically. Unfortunately for the Times, empirical work has consistently shown firm growth to decrease with firm size (for example Edwin Mansfield's 1962 American Economic Review paper, and or a more recent working paper by Piergiovanni, Santarelli, Klomp, and Thurik here).

Another problem with the New York Times article lies in the fact that even if we face a monopoly, on beer, for example, we should not expect all of our beer to "taste the same," as the article suggests.

Price isn’t the only concern. Whether you quaff a Baisha in China, a Diekirch in Luxembourg or a Paceña in Bolivia, you’re paying the same company that sold you that Bud. Call us pessimists, but chances are it won’t be long before they all taste the same.

Market segmentation by a monopolist is often optimal when consumers have different tastes and budgets. For example, if half the population would pay $100 for a red shirt but would never wear a blue shirt, while the other half would pay $100 for a blue shirt and nothing for a red, the monopoly will happily produce two types of shirts--one red, the other blue. For a more realistic example, it may be worth noting that Coca Cola Co. has four hundred different brands, and no one thinks that Poweraid tastes like Dasani water or Diet Coke.