AAA vs. BAA Bond Spreads

Below, Corrections takes the difference between daily AAA and BAA rated bonds (Moody's, from the FRED database) and displays recessions (click to enlarge).

When the data from Operation Twist and the subsequent days become available, we'll put those graphs up too.

F.D.A. Panel Urges Denial of Diet Drug

New York Times article "F.D.A. Panel Urges Denial of Diet Drug" (September 16th, 2010) discusses the FDA's rejection of a new diet pill and their standards without addressing the improper incentives that lead the FDA to cause the excess deaths of thousands of people a year, and cause excess pain to hundreds of thousands.

The advisers to the Food and Drug Administration voted 9 to 5 that the potential benefits of the drug, called lorcaserin and developed by Arena Pharmaceuticals, did not outweigh the risks.

Let's imagine, for simplicity, that there are two kinds of medical drugs. Drugs that save lives, and drugs that kill people.  When pharmaceutical companies test drugs, they gain a signal with error about whether or not that drug is a good drug or a bad drug. The U.S. Food and Drug Administration will then choose the cutoff. If we assume that error to be normally distributed (this is an innocuous assumption: the difference between the sample average and the true signal converges to a normal distribution by Lindeberg-Levy Central Limit Theorem).

The FDA must choose some threshold for a signal, below which they reject all drugs, and above which they accept.  They save lives by rejecting bad drugs and accepting good ones.  The FDA kills by rejecting good drugs or accepting bad bad drugs.    (Corrections is willing to discuss our precise "moral" phrasing, which we posit as accurate).

The FDA can't tell the difference between good drugs and bad drugs beyond the signal they receive. The point, therefore, is what the proper cutoff should be. Whether or not the FDA should be "very cautious" and kill by denial of more good drugs than prevention of bad, or "loose" and kill by allowing more bad drugs than good drugs. The optimal "life saving" diagram is depicted graphically below (click to enlarge).

Officials at the FDA are not in the business of saving lives, however. If a bad drug gets through their screens and kills, they lose their jobs. If a good drug never gets through, no one is ever penalized, as the consequences are not graphic. Below, we depict the FDA's scheme due to improper incentives (click to enlarge):

As we can see, because the FDA is risk-averse because of its suboptimal incentive scheme, it ends up, at the margin, killing many more individuals through its denial of live-saving drugs than it saves because of the marginal life saved by limiting a dangerous drug.

Individuals often state that among the first things the government should be doing after protection from coercion internationally through the military and internally through the justice system is setting up systems like the FDA.  What is not noted is that the FDA, because of poor incentives, kills many more individuals by withholding drugs than the private market would.  

A private system would be optimally incentivized because of the long-term, monopolistically competitive nature of its brand.  For those that think this wouldn't be a viable private enterprise, consider the 14 Californian kosher-certification services, or dozens of national certification services.  These companies have been successfully serving tiny portions of the United States population for decades.  Further, these companies have reason to avoid regulatory capture (unlike the FDA) because they are competing with other companies for consumer's trust (the FDA does not have competition).  

If anything, the FDA isn't among the first things government-loving individuals should push for--instead, an altruistic government-loving individual should abolish the FDA to save lives.  Any individual with a smidgeon of appreciation for the private market should be chomping at the bit to abolish the FDA and save lives, ease the pain of those denied efficient drugs, save the money of the poor who are denied price-reducing competition, and help improve the lives of individuals who might be benefitted by diet drugs endorsed by almost everyone but an intensely risk-averse FDA.  

3-D girl a reminder for B.C. drivers in school zone

Toronto Star article "3-D girl a reminder for B.C. drivers in school zone" (September 9th, 2010) describes the decision of Vancouver officials to put an optical illusion of a girl playing in the road to slow drivers down. Corrections thinks this is a mistake.

The visual image of the girl is believed to be the first time a child is being used to drive home the message of the dangers in excessive speeding. In 2008, the city of Philadelphia began using virtual images of fake speed humps of white, blue and orange triangles to get drivers there to slow down.

Vancouver officials are "crying wolf." The lesson to be learned from hyperinflation or the story of the boy who cried wolf is rational expectations. Individuals are not fooled over the long run. Drivers get a signal of a child playing in the road. They then make a decision on whether or not to slow down, and if so by how much. Normally, the stronger the signal the more a driver would break. By "muddying" the signal by making it unclear whether or not it is a trick or a real child, drivers are rationally less likely to slow down. This, in turn, is likely to be a mistake.

Depicted graphically below is the ordinary relationship between signals of kids playing (balls in the street, summer days, hockey nets in garage ways) and the likelihood that kids are actually playing--that they are going to rapidly dart out into the street from behind a car, or are in the street playing already (click to enlarge).

Vancouver's optical illusions change that relationship by making strong signals mean less (click to enlarge).

Consequently, drivers break less when their signal means less--when the cry of "wolf" is less likely to yield a wolf (click to enlarge). The blue line indicates the original regime, the red line indicates the new regime, and the mixed line is the two lines overlapping.


Corrections notes that this is our own application of the "Lucas Critique" to almost all "behavioralist" policy advisements. Too often policy is suggested by small-scale experiments, when macro conditions change, given the adoption of certain policies. While experimentation yields valuable results, its generalizability outside the localized field (in which the policy it is testing has not been adopted) should always be in question.

Seatbelts are the lifesavers in your car

New Orleans Times-Picayune editorial "Seatbelts are the lifesavers in your car" (September 9th, 2010) speaks positively of seat belts.  While they have undoubtedly saved lives, they have also undoubtedly cost them through the externalities their cost-shifting generates.

More Louisianians buckled up this year compared to last, according to the Louisiana Highway Safety Commission, but the New Orleans area actually saw a 1.1 percent decline in the percentage of people using seat belts.

Even with the statewide increase for drivers and front-seat passengers, which went from 74.5 percent to 75.9 percent, Louisiana still lags behind the nationwide usage rate of 83 percent.

That's discouraging, because buckling up is a simple and easy thing to do, and it's a proven life-saver.

The most interesting economic concept when it comes to seat belts and safety regulation is the "Peltzman Effect", as Sam Peltzman discusses in his 1975 Journal of Political Economy article "The Effects of Automobile Safety Regulation" (gated).  Below, we reproduce his diagram graphically (click to enlarge).  What the diagram indicates is that risky driving gives us something we enjoy--for example getting to our destination more rapidly.  Our first bit of risky driving is particularly beneficial--perhaps when we are in a hurry.  As we increase our risky driving, the marginal benefit decreases.  This is represented by the downward sloping red line. Under a regime with no seat belts, we end up at an equilibrium represented by point A on the risky driving schedule.  Under a regime with seat belts, we end up at an equilibrium represented by point B.  As driving becomes safer, we drive more riskily.

This, in turn may cause more pedestrian deaths, whose cost is presumably not fully borne by drivers.  Below, we graphically depict the relationship between risky driving and pedestrian deaths (click to enlarge).  We can see that pedestrian deaths rise as we go from point A and B.  (Point C will be discussed below).

As a thought exercise, famous among Austrian economists, is what would occur if instead of seatbelts or airbags, we installed a large spike in driving wheels, faced toward the driver a driving wheel looking similar to this:

In this case, we would have the following relationship between risky driving probability of death to driver (click to enlarge):

If this is the case, we end up at point C on the diagram above (again, click to enlarge).

This article serves to demonstrate a few concepts.  First, a common refrain on Corrections: when we reduce the cost of behavior that has benefits and costs, we increase the partaking of that behavior.  Second, when that behavior has externalities, as it does with driving, we may actually foist the cost of risky driving onto pedestrians rather than consumers.    

U.S. Farmers Wary of Gaining From Russia's Woes

New York Times article "U.S. Farmers Wary of Gaining From Russia's Woes" (August 19th, 2010) offers a series of quotes from U.S. farmers that simply do not make sense when taken at face value. Specifically, wheat prices have gone up because Russia, a large producer of wheat, appears to have banned exports in the coming year. The New York Times quotes confused farmers that appear to suggest that they don't want to plant wheat, due to uncertainty about Russia's next moves:

Mr. Schroder said he feared that wheat prices were being driven by speculators, as was the case a few years ago, just before the recession, when the price soared and then crashed.

“What is this wheat market? I don’t have a clue, and I’m a professional wheat farmer,” he said. “There’s a complete lack of transparency.”

The problem the Times is pointing out is that farmers only know the current price, while their planting decisions should be based on prices in the future. They are subject to a large variability of even autoregressive prices. Corrections depicts such a movement graphically below, along with 95% error bands (click to enlarge).

A naive Times writer might instinctually think this represented a market failure. This is incorrect. Indeed, commodities futures markets, perennially despised by market-opposing individuals, are the market solution. However, the good news for farmers is that they do not have to bear any of the turbulence or non-transparency in the market at all. All they have to do to look at futures prices to plan their planting patterns. Why might this be?

Historical knowledge that appears to have been lost, even by some ideologically-motivated economists, is the very reason commodities markets, and commodities futures markets, were created. The Chicago Board of Trade (CBOT), to Correction's knowledge the oldest still-operating futures market, was created in 1848 to help farmers cope with fluctuating wheat prices.

The problem was as follows: farmers are often poor and unwilling to bear the risk of producing wheat and holding it until it is to be sold at some unknown price. What the Chicago Board of Trade did, and still does, is homogenize a good--in this case, sort wheat into bundles of the same quality, and allow a futures contract between speculators/investors, who are willing to bear the risk farmers don't want, and farmers, who are able to lock in the current price for their wheat. In this manner, all a farmer has to do is sell a futures contract in order to take all market-based uncertainty out of his decision to plant wheat--in selling the contract, he has, in effect, paid someone to bear the his risk. This allows him to plant the most valuable crop, even if its future prices are highly variable.

Therefore, farmers now only need to look at current futures prices--they should not care about the current price or what they think might happen to the price, only what the current futures price is. If we examine CBOT's wheat futures prices for July 2011, we see that the current futures price of corn is elevated (click to enlarge).

Farmers can lock in this price now. No risk necessary. It is important to note that a very large proportion of farmers do this every year, creating the massive derivative markets we have today. The only "risk" that a farmer would take is that he might miss out on higher prices now. Indeed, this is precisely the example the Times gives:

Another brake on any irrational exuberance over wheat will be farmers’ own suspicions, despite the incentives of higher prices.

Some think they are being played, and that the big run-up is partly, or largely, just market manipulation — like the increase in 2007 and 2008 that drove wheat prices more than twice as high as they are now before a gut-wrenching crash during the global recession.

'I hate to sound negative, but I’ve been burned so many dang times on wheat that I think I’m done,' said Olea McCall, who farms about 4,000 acres near the Kansas border, mostly in corn, wheat and sorghum. Mr. McCall said his attitude was not helped by missing out on the new rise in prices.

'I sold at 4, and three weeks later went to 6,' he said, referring to the price in dollars per bushel.

The Times continues:

“It took 20 years to sort the market out after [the similar 1972-73 Soviet Union crop failure],” Mr. Stulp said of the 1972-73 price bubble.

As much as the Times might write about "irrational" "bubbles" harming farmers, it supports the ridiculousness of the concept with its own quotes. Farmers need not fear any bubbles--they need only to lock in their high prices with futures contract and allow speculators to bear any "bubble" that might be present.

Israelis don't need lectures from American leaders

Seattle Times syndicated column "Israelis don't need lectures from American leaders" (August 19th, 2010) by George Will offers a curious observation. Specifically, that under threat of school buses exploding, Israeli parents would send their children on separate buses to lessen the likelihood of losing two children.

During the onslaught, which began 10 Septembers ago, Israeli parents sending two children to a school would put them on separate buses to decrease the chance that neither would return for dinner.

Corrections finds this rather peculiar. Either sending both children on the same bus, or sending them on different buses can be justified depending on the parent's risk aversion. However, Corrections would expect state-dependent utility to cause parents to send both their children on the same school bus. (Enough to be curious about Will's claim).

The idea is as follows. Parents cannot reduce the expected number of children killed by a terrorist device or gunfire by splitting them up or putting them together. All they can do is choose the spread of their losses. Let us imagine, assuming tractable, rather than realistic, numbers, that there is a 50% chance any given bus is blown up.

In this case, then parents are deciding between two options, given they send their children to school.  If they send both together, then they have a 50% chance of losing none, and a 50% chance of losing both.  There is a 0% chance of losing just one, as both will live or die together.  However, if they send both apart, then each has an independent 50% chance of being killed.  With independent chances (assuming negatively correlated shocks, or negative covariance between attacks, would only strengthen our point), their probabilities will now be 25% chance of losing zero children, 50% chance of losing one, and 25% chance of losing both.

The two options are displayed graphically below (click to enlarge).  The red line indicates the decision to send both children apart.  The blue line indicates the decision to send both children together.  As we could calculate, the expected number of children killed is the same: one child.  What is different is the spread of the children killed.

It is up to each individual to discover which choice they prefer.  However, Corrections would have conjectured that parents would choose to keep their children together, because they have state-dependent utility.  Far from dismissing or trivializing the pain a parent would feel, Corrections is conjecturing that, if human beings have some maximum level of pain, and the loss of a child raises one to that level, then individuals are at a "censoring" point for their "gambles" with their children's lives.

Our stylized conjecture about the pain of losing a number of children is displayed graphically below (click to enlarge).  The idea is as follows:  a parent hits a "maximum pain" point as soon as a single child dies.  The loss of another cannot raise their pain past the point at which it is already.  (We note that our general point also survives any two-children-lost pain-level adjustment that does not raise the pain loss of two children to greater than double the loss of one). If we then plot the expected pain of each decision, we see that sending both children on the same bus, because it is "upward censored", gives an expected pain level of .5.  However, sending both children on different buses  gives an expected pain level of .75. The two expected levels of pain are also displayed on our graph, blue denoting the pain of sending children apart, and red denoting the pain of sending children together.

As we can see, the expected pain of sending children together would appear to be less than the expected pain of sending them apart, due to the "censoring" of pain--the pain of the loss of two is less than double the pain of the loss of one.

However, Israeli parents, according to Will's article, are not behaving in the way Corrections would suggest.  Faced with theory and reported empirics not meeting, methodologically, several options are open to our understanding:

1. Parental utility does not fall into the broad class of relative utilities we conjecture.
2. Will's facts are wrong.
3. Will's facts are right, his reasons are wrong (reasons we miss).
4. Our broader framework of expected utility maximization is incorrect.

Corrections ascribes the failure of our model as most likely to be due to either Option 2 or Option 3.  Supporting Will's claim, a cursory examination of the ~170 bus casualties in Israel in the last 10 years yields  few people with the same last name killed in the same explosion or gunfire, and fewer same-age siblings.  Suggesting Option 2 is the likelihood that the observation came purely from anecdote.

Financial reform: Who's happy, who isn't and why

Los Angeles Times article "Financial reform: Who's happy, who isn't and why" (June 26th, 2010) writes an article on one of the two major parties who will be hurt by financial reform, if it passes. The article speaks at length of how banks will be harmed. It does not, however, note that the individuals who lose the most due to financial regulation are likely to be low-income borrowers.

'This is a landmark, a true inflection point,' said Calhoun, president of the Center for Responsible Lending in North Carolina.

Since the mid-1970s, Calhoun has been pushing to get an agency that would look out for consumers' interests.

If one takes the typical narrative, shark-like banks waited in the wings for naïve, impoverished individuals, in order to get them to take out a loan they could not possibly repay to the bank. The bank would then work through months or years of foreclosure hearings to get a house worth less than the value of the loan, while individuals are living in a house they could not have otherwise afforded, and often never having to repay their loans, having declared bankruptcy.

This, of course, is a political narrative rather than a sensible one. It remains that some of the individuals who have benefitted the most from poor bank lending practices are the very people banks are accused of acting in a predatory manner towards (by giving them free housing for a period).

Financial reform seeks to end this relationship between the poor and banks that would lend them money for "unaffordable mortgages." Because Corrections does not see a paternalistic master-slave relationship between government and the poor as beneficial to the poor, we see this sort of legislation as hurting the people it claims to help, a party that shouldn't be happy, though the Los Angeles Times does not take note of these poor.

America's 'casualty gap'

Los Angeles Times opinion editorial "America's 'casualty gap'" (May 28th, 2010) reports the difference between the percentage of total wartime casualties suffered by members of poor communities relative to members of rich communities.

Nationally, in the Korean, Vietnam and Iraq wars, communities in the lowest three income deciles suffered 35%, 36% and 38% of the casualties, respectively. Yet communities in the top three income deciles sustained significantly fewer casualties — 25%, 26% and 23% of the casualties, respectively.

The United States has a volunteer army. Soldiers are compensated by regular pay, hazard pay, enlistment bonuses, government benefits, and well-earned gratitude from present and future generations. When the United States has a volunteer army, which it has since December 1972, the last month in which an individual was conscripted into the U.S. Armed Forces, it is an exercise in futility to argue any sort of discrimination. Individuals freely choose the Armed Services over their other options. They further choose their branch of service, as well as their military occupational specialty, generally speaking. If poorer people choose the military, it would appear, in a rough analysis, that they are benefitting more from its presence.

This may be especially true during wartime. Corrections cobbled together military pay for E-2 (an enlisted pay-grade corresponding to a Private in the Army, PFC in the Marine Corps, Airman in the Air Force, and Seaman Apprentice in the Navy and Coast Guard. It is a pay grade relatively rapidly achieved for enlisted men. Military pay sheets for every year were not easily available. Corrections imputed pay for those years in which it is not, denoted by a circle. Years featuring a war in which more than one-hundred Americans died (as well as the first three years of Operation Enduring Freedom, in which fewer than 100 Americans died) are denoted in red, while years without such a conflict are denoted in blue. It appears to Corrections, generally speaking, that post-draft wartime has caused more rapid increases in inflation-adjusted military pay. Therefore, it is difficult to discern without more careful calculus whether or not individuals are being compensated for the risks they are taking--with heterogeneous valuations, we might expect wartime military service to be better for poorer Americans who choose to serve, rather than worse. Our data is displayed graphically below (click to enlarge).

We note the sharp spike in pay occurred when Richard Nixon was engaged with the idea of an all-volunteer army.

Corrections should further add that including Operation Enduring Freedom, Operation Iraqi Freedom and Operation New Dawn in their analysis, without including the enrollment, average length of service, and rate of ascent figures for each income decile is egregiously misleading. In fact, both the lower class and the upper class are underrepresented in enrollment--this article's analysis would suggest that the middle class suffers disproportionately the costs of war.

In addition, a low-income recruit may not be identical to a high-income recruit, making it difficult to compare their wartime outcomes directly. For example, it is well known that income is correlated with education. If the army recruits more "high-quality" soldiers from higher income brackets, then we would expect these "high-quality" recruits to more quickly achieve higher and higher military rank, making them potentially less likely to be in the line of fire than their low quality counterparts. In this sense the article may be taking issue with the fact that more intelligent soldiers are less likely to die in battle. Similarly, if the poor serve longer than the rich, these statistics could be driven by the relative density of poor servicemen. Ultimately, the number of confounds in this analysis make it completely incredible.

Foreign interpreters hurt in battle find U.S. insurance benefits wanting

Los Angeles Times article "Foreign interpreters hurt in battle find U.S. insurance benefits wanting" (December 18th, 2009) provides an interesting observation without explanation. Specifically, Iraqi interpreters, injured in Iraq while running the same risks as American soldiers there, are not given the same benefits.

Payments intended to provide a decent standard of living in Iraq or Afghanistan leave the recipients below the poverty level in this country.

and

'When we were in Iraq, we were exactly like the soldiers,' Hadi said. 'Why are we treated differently now?'

After establishing that Iraqi interpreters are paid less, the article deepens the question. A normal, reflex response might be to say that Iraqi interpreters were paid less because they were worth less. After all, in competitive markets, people are paid at least what their second-best-offer is. The article gives evidence that interpreters were worth just as much, in terms of productivity, as U.S. soldiers on the ground.

Retired U.S. Army Col. Joel Armstrong, who served in Iraq and was a leading proponent of the 2007 troop buildup, or 'surge,' that helped reduce violence in the country, said Iraqi interpreters were crucial to the strategy's success.

'Without them, you really can't operate effectively as a force. It's just impossible,' Armstrong said.

Taking the Times at its word, the lapidary answer to Corrections is that when it comes to interpreters of Iraqi Arabic living in Iraq, the U.S. Army is all but a monopsony, a single consumer of a good for which there are many producers. In that vein, Iraqi interpreters will not be given their marginal product of labor, while U.S. soldiers, for which the U.S. Army is not the sole option, shall.

We note that even though contractors hire interpreters, we view them simply as intermediaries, and the article's concern about AIG disputing insurance payments will be reflected in higher ex ante wages rather than ex post coverage. This is true especially if private insurance can be purchased, while risk aversion makes the system less efficient.

Starved watchdog

Houston Chronicle editorial "Starved watchdog" (December 16th, 2009) offers the unsupported asseveration that, in wake of several Houston-area industrial accidents, additional resources need to be given to the U.S. Chemical Safety and Hazard Investigation Board.

If only a few workers die in an industrial accident, we won't pry.

That seems to be the philosophy of the U.S. Chemical Safety and Hazard Investigation Board (CSB), the understaffed and underfunded independent federal agency charged with investigating plant and refinery mishaps.

Explosions at two Houston-area facilities within a single week have killed one, injured several more and alarmed thousands of residents near the Valero Energy Corp.'s Texas City oil refinery and the American Acryl facility in Seabrook.

Workers at these industrial facilities are free to move to other jobs. Houston-area industrial facilities are analogously free to put in higher and better safety regulations if the higher wage they have to pay to workers for taking the risk is greater than the cost of additional safety regulations.

But what if the additional safety regulations aren't worth the wage? Then we should see an increased number of deaths, and a higher wage. Corrections states, as a credenda, that individuals are able to decide what they prefer better than an ill-incentivized gallimaufry of their peers. Given a choice across multiple alternatives (one the market has an incentive to give if utility may be gained) a government intervention only hurts the very people they are ostensibly trying to protect.

Incidentally, this argument holds without a right-to-sue for a worker or their estate. A law allowing litigation for injuries or death ex post, rather than wages compensating the chance of injury or death ex ante only furthers the argument that government should not regulate as the Chronicle wishes.

Video poker? Not here.

Chicago Tribune article "Video poker? Not here." (December 14th, 2009) submits legalized gambling to an auto-de-fé. The Illinois legislature has passed a law enabling legalized video poker machines. A portion of the revenue generated by these machines is transferred to the state. The Chicago Tribune vociferously objects:

If your county or community is on the first of these two lists, congratulations. Your local officials have "opted out" of legalized video gambling. They have declared their disgust with the Illinois legislature's decision to bankroll a $31 billion capital improvements bill in part by luring more people into neighborhood gambling. These communities have said: Go somewhere else.

If your county or community isn't on the first list, get cracking.

It is a herculean task to describe the foolishness this represents. Six powerful economic arguments for legalizing video gambling abound. First, and foremost, individuals should be free to choose. Second, even if gambling is addictive, individuals still make rational decisions. Third, when utility is concave, even taking unfair bets can be a rational decision. Fourth, if even unfair bets are in the interest of multiple individuals, they will likely provide gambles privately. Fifth, the creation of another good to tax decreases deadweight loss for all other objects, on average. Sixth, if all other districts ban gambling, and a significant number of individuals from other counties are willing to travel to gamble in mine, it is in my interest to provide gambling to other districts.

The first argument, that individuals should be free to choose, should not need explanation. As a matter of conditional probability, the chances that a government has decided to limit an individual's liberties for his own good, and is correct in its conjecture, is miniscule compared to the chance that it is doing so for the narrow, personal incentives of legislators, or that it is incompetent in execution, even if well-meaning.

The second point, that gambling may be addictive but should still be legal, is more interesting. Following the earlier argument in Corrections, there is ample evidence that individuals are rational in their decisions, even about addictive goods.

The third point, that individuals are able to accept even unfair gambles is best depicted graphically below (click to enlarge). If they find themselves at a spot where there is local convexity, expected utility from a gamble is greater than expected utility without that gamble. Our fourth point, related to this, is that if we take away efficient private means of redistributing wealth efficiently, individuals will provide them, under the conditions that they are able to match with one another properly and able to provide bets with sufficiently cheap overhead, which it seems apparent they would be able to do.

We turn to the fifth point: the "creation" of a new, taxed good decreases existing deadweight loss (the amount of possible economic gain that disappears in the face of taxation) on average. This point is a subtle one, an idea that will likely be entertained in more depth in a later article. The idea behind this is the same lessons as one gains from the Ramsey Tax problem: if one can, one wants to tax every good at an equal percentage--given that one cannot, one wishes to tax the most inelastic goods. This new good decreases deadweight loss from all other goods, which all have increasing marginal deadweight loss, while creating its own (which starts at a smaller base for its increasing marginal deadweight loss). Additionally, presuming video poker is as addictive as many detractors would claim, the deadweight loss from taxing it is minimal, and such a tax decreases the deadweight loss for other goods.

Sixth and finally, if all or most other localities have successfully banned gambling in their districts, then it is in one's own localities interest to legalize video poker, provided that a large enough number of individuals from foreign localities put a sufficient amount of their money in local businesses for a locality to recoup whatever moral deracination that occurs from allowing the travesty that is video poker to exist.

Raw Deal: Is protecting consumers from uncooked oysters a rotten plan?

Arthur Allen's Slate article "Raw Deal: Is protecting consumers from uncooked oysters a rotten plan" (November 11th, 2009) misses the economist's view on banning oysters.

Ostensibly playing devil's advocate, he argues that banning raw oysters, which may cause food-poisoning deaths, is a slam-dunk case, unless you count 1) Heterogeneous risk across population 2) Economic impact on Gulf oyster industry 3) There are bigger fish to fry for the FDA.

While waving his hands at the point, Allen never states the simplest economist's perspective on the issue: individuals will know the risks when they decide to eat, and decide it's a risk worth taking for the enjoyment. (Indeed, for a near-parallel issue like cigarettes, individuals often overestimate the risk they are taking). Individuals know what they prefer much better than others do, and they maximize their happiness.