A solution to the reclining airplane seat dilemma

Anybody who has to fly home for Christmas will know the reclining seat dilemma. It’s kind of annoying if the person in front of you reclines their seat and usually forces you to do the same. (Which puts the person behind you into a tight spot and forces them to recline too, and so on.) Josh Barro, invoking the great economist Ronald Coase, suggests paying the person in front not to recline, but Virginia Postrel disagrees:

This solution, however, is highly unrealistic. It waves away the central theme running throughout Coase’s work: the problem of transaction costs. Making and enforcing contracts, Coase emphasized, isn’t free. And when it comes to airline seats, it’s a lot more costly than Barro admits.

In theory, I could have offered the guy in front of me money to sit up, but even assuming that my fractured Italian had been up to conducting the negotiations and that he wouldn’t have gotten nasty in response to my overtures, how would I have enforced the deal? It’s not a simple problem, and certainly not a cost-free one. Suggesting that as long as property rights are well-defined, you can simply make a deal misunderstands what Coase was all about. He was obsessed with transaction costs. They explain why we have institutions (including firms), not just individual bargains.

It’s also kind of embarrassing to do this, because some eccentrics think ‘commodifying’ parts of everyday life is a bad thing. Postrel’s solution is a little more elegant. Divide the plane down the middle, with seats on the left able to recline and seats on the right fixed in position. If it turns out that people prefer one side to the other, charge more for that and less for the other. It’s so simple it might just work.

Where the US justice system is and isn’t racially biased

In a timely post Scott Alexander investigates the evidence around the US justice system to see where, if at all, it is systematically biased against African-Americans. He looks at quite a lot of empirical evidence and concludes that:

There seems to be a strong racial bias in capital punishment and a moderate racial bias in sentence length and decision to jail.

There is ambiguity over the level of racial bias, depending on whose studies you want to believe and how strictly you define “racial bias”, in police stops, police shootings in certain jurisdictions, and arrests for minor drug offenses.

There seems to be little or no racial bias in arrests for serious violent crime, police shootings in most jurisdictions, prosecutions, or convictions.

This is important given the news coverage of the killing of Michael Brown, an 18-year old African-American in Ferguson, MI, by a white police officer. Although a lengthy grand jury investigation found that the police officer did not act unlawfully, many have rejected this verdict.

They may be motivated by a belief that the justice system is predisposed to exonerate white police officers who act wrongfully to racial minorities. This is a phenomenon I have written about in the past – one has to use one’s existing beliefs to assess new information to make sense of the world at all. But Alexander’s investigation of the evidence suggests that things may not be as clearly biased as they believe (or, indeed, as I did before reading the post myself).

Alexander makes an important point, however. Although law enforcement may be less biased in the US than we think, the laws themselves may still be very biased (even if that bias is unintended, which perhaps it is). Drug laws, which seem extremely unjust, will cause more injustice to African-Americans if they use drugs more regularly than other racial groups. And then there is the fact that African-Americans may be poorer on average than than white Americans, so they cannot access the same quality of legal defence.

The lesson from this may be that, though we can never escape the ‘webs of belief’ we construct to understand the world, we can try to be aware of the fact that we use these. If instead we decide to view disagreements about politics as existing because bad guys have incentives to fight good guys, we may end up in dark places where no amount of evidence will ever convince us that we may be mistaken.

If QE avoided a Depression it doesn’t matter if it increased inequality

I’ve just come from a fascinating event with The Spectator’s Fraser Nelson, on his recent Dispatches show, How the Rich Get Richer. In general the show was very good, and it’s extremely refreshing to see someone as thoughtful as Fraser get half an hour of prime time television to discuss poverty in Britain from a broadly free market perspective.

But I did take issue with the show’s treatment of Quantitative Easing (QE). Fraser described this as ‘perhaps the biggest wealth transfer from poor to rich in history’. The evidence for this was the rise in asset prices following QE, particularly in stock markets. Since rich people own assets and poor people don’t, the rich got richer and the poor didn’t.

That’s a common view and I understand it, but I think it’s wrong. 

Consider the Great Depression. When the money supply (and hence nominal spending) collapsed in the 1930s, the US economy did too, for reasons outlined in Milton Friedman and Anna Schwartz’s Monetary History of the United States.

Basically, contracts are set in nominal terms, so if nominal spending collapses, you’re left with a musical chairs problem where you have too little money to go round. So people are laid off and firms go bankrupt that would not have done so if money had remained stable across the board. Enormous amounts of wealth were destroyed unnecessarily because the government mismanaged the money supply. (It shouldn’t be managing money at all, in my view, but if it is we can at least try to minimise the harm it does.)

Perhaps inequality fell during this period because the rich lost proportionally more than the poor – they had more to lose, basically. But who cares? Everyone became worse off. That’s what matters.

The point of QE since 2008 has been to try and avoid a repeat of the 1930s by boosting the money supply. Its supporters wanted to avoid another massive destruction of wealth that would make everyone much worse off. 

Yes, QE boosted stock markets a lot. But there is nothing about QE that meant that banks or other investors would have to invest there – it’s not an ‘injection of cash into stocks’, as some people seem to believe. Stock markets rose because investors reckoned that QE would help avert a much worse Depression, which meant that firms would be (much) more valuable compared to a QE-less world where many of them may have gone bankrupt, or at least taken severe losses, instead.

Yes, that increased inequality because rich people own stocks and poor people don’t. But if everyone would have been worse off without QE, the extra inequality is beside the point. It’s people’s absolute wellbeing that should matter, if what you’re avoiding is a big Depression. You might as well think economic growth is bad because it makes everyone richer, but rich people a little more so.

Of course, it’s an open question whether QE actually did work as intended. Perhaps it made things worse, or did nothing at all. That is a question worth asking and it’s not one I can answer. But focusing on whether it increased inequality or not is beside the point – what matters is whether it prevented a Depression.

Are immigrants dangerous criminals?

Sometimes supporters of strict migration controls criticise my focus on the economics of immigration. They more or less accept that free movement leads to productivity gains, innovation gains, entrepreneurial gains and fiscal gains for the receiving countries, ‘brain gains’ for the migrants’ home countries, and even that it leads to massive welfare gains for the immigrants themselves, but suggest that the non-economic costs of immigration are very large too, and we basically ignore them. 

They have in mind costs like increased crime, reductions in social trust, a decline in democratic support for important institutions like the rule of law and free speech, and the dilution of the native culture. To some extent I believe all of these things are costs of certain kinds of immigration, and may justify certain controls on immigration, but none are reasons to support the immigration controls that we currently have.

In this post I’ll consider how much impact immigrants have on the crime rate. I’ll come back to some of the other points in future posts.

So: crime. Crime only seems to rise in line with certain kinds of immigration, and does so for basically economic reasons. A 2013 study looked at two different waves of immigration to the UK – asylum seekers in the 1990s and early 2000s (mostly from places like Afghanistan, Iraq and Somalia); and immigration from the “A8” countries (Poland, Czech Republic and the six other Eastern European states that joined the EU in 2004). 

The paper looked at crime rates according to areas where these waves of immigrants settled. It found that neither of these waves had any statistically significant impact on the overall rate of violent crime. A8 immigration actually had a small negative impact on crime rates, driven by a reduction in property crime rates. 

On the other hand, asylum seekers did cause a statistically significant rise in property crime, but still a small one. This  equivalent to an increase of 0.7% in property crime rates per 1% percentage point share of the local adult that was asylum seekers. Note that this is a percentage increase to the existing crime rate – if crime rates were already 10% and a new wave of asylum seekers suddenly accounted for 1% of the population, crime rates would rise to 10.07%, not 10.7%.

According to the report’s authors,

“Across all England and Wales [asylum seekers] averaged 0.1% of the local adult population, so the average property crime rate might be 0.07% higher as a result – only around 2% of the average property crime rate of around 2.7%. Of course, some authorities had appreciably more asylum seekers located in the area, though shares larger than 1% of the local population were extremely rare.”

What explains this? There might be because of some inherent difference between, say, Polish and Iraqi people, but violent crime levels were not significantly different (in fact, A8 migrants were slightly worse here than asylum seekers). What may explain the difference is that A8 immigrants were free to work however they wished, whereas asylum seekers are not allowed to seek legal employment. The authors of the 2013 report suggest that this explains why only property crime was higher for asylum seekers.

This data is not broken down by nationality, so it is rather blunt. According to another 2013 paper, arrest rates (which are broken down by nationality) were significantly higher for immigrants than non-immigrants – 2.8 arrests per 1000 for UK nationals and 3.5 arrests per 1000 for non-nationals (excluding immigration-related arrests). However, controlling for age this difference disappears. Having more young people seems to lead to more arrests; in and of itself having more immigrants does not.

Finally, there is the issue of second- and third-generation immigrant groups who cause disproportionately more crime. According to the Metropolitan Police, the majority of men held by police for gun crimes (67%), robberies (59%) and street crimes (54%) in London in 2009-10 were black, even though only 10.6% of London’s population is black. There is no easy explanation for this, and it may be due to a combination of factors that we cannot control – or, indeed, easily change.

The ultimate lesson of all this may be that immigration in general does not have a big impact on crime, but certain immigrant groups might if they do not assimilate culturally. Then again, Eastern Europeans don’t seem to be a problem at all, and they seem to be the ones we’re most concerned about right now. 

My friend Ed West has a point when he says that there is no such thing as an ‘immigrant’ – only an American, a Pole, a Somali, and so on. In the course of my posts on the non-economic impacts of immigration, I will suggest that a compromise position between my libertarian preference for very free movement and Ed’s conservative preference for restrictions. We may yet be able to square the circle of immigration policy.

Would being more like Qatar be a good way of fighting poverty?

Eric Posner and Glen Weyl have a provocative essay in the New Republic this month arguing that massive guest worker schemes could help facilitate large numbers of immigrants from poor countries to come and work in the developed world. Their model is the Gulf States, which have enormous numbers of workers—85% of the population of the United Arab Emirates, for instance, are guest workers:

If the OECD countries copied the migration policies of the GCC countries, they would reduce global inequality by much more than their welfare systems do within their borders. For example, if OECD countries welcomed migrants in proportion to their GDP at the same rate and from the same poor nations as Qatar does, this would reduce global inequality by about twice the amount that eliminating all internal inequality in the OECD countries wouldand by twice the rate that taxes and transfers in these countries reduce global inequality. If they  adopted the same per-citizen rate at which the UAE takes migrants, they could accomplish much more. By taking in the 60 percent of the global population who make less than the bottom five percent in the United States and paying them $5,000 per year, the U.S. and Europe would reduce global inequality by roughly a third.

We citizens of OECD countries take pride in our political and civil rights, and our generous welfare systems. Yet we maintain our high standard of living by giving no rights and trivial money to people who live outside our arbitrary borders. While we fuss over whether we should raise or lower our marginal tax rates, we ignore the plight of the most desperate people in the world. And yet we are surprised that leaders of China and the GCC accuse us of hypocrisy when we criticize their records on human rights.

It’s a controversial idea. These schemes seem to address most of the intractable problems that people have with immigration—these guest workers cannot vote, their children do not become citizens of the states they are born into, and they have to return home after a certain period of time, so they can’t have the negative lasting impact on culture that some people say immigration will lead to.

But, as I and many other visitors to the Gulf have noted, the system feels almost like slavery. Indeed in cases where workers’ passports are confiscated it essentially is slavery. Posner and Weyl are not suggesting this, but their plan would bring the reality of global poverty right up to our doorsteps—provided they know what their lives will be like, we can assume they would be made better off by this, but many people would find actually seeing this kind of deprivation on a daily basis to be unacceptable. But whether we could tolerate this and whether we should tolerate it are two very different questions.