Elasticities, the Minimum Wage, and Immigration

October 27th, 2019 No comments

Professor Cochrane at Chicago wrote a very inspiring post  on how useful elasticities (price sensitivities) can be to organize policy thinking.  (inspired by the equally good post at https://marginalrevolution.com/marginalrevolution/2019/10/are-intuitions-about-occupational-licensing-and-minimum-wages-consistent.html), but it goes to show how useful the graphs are, even for someone as expert as Professor Cochran. What he points out is that you can’t argue both (a) the minimum wage doesn’t destroy jobs, and (b) immigration doesn’t reduce jobs for Americans.  Let’s take the supply curve to be upward-sloping, so more people want to work if wages are higher (this is for simplicity, not essential to the argument). Suppose that labor demand by employers is completely inelastic, completely price-insensitive, a vertical demand curve (see Figure 1).   Then if we impose a minimum wage, employment is constant (L=100, wage rises from 15 to 20 in the diagram).  Suppose, instead, that we start from the old wage and add immigrants. The labor supply curve shifts to the right, with more people willing to work at the old wage than employers want to hire. Employers can reduce their wages and still find enough workers, so in the end, no more people are employed than before, but the wage has dropped and fewer Americans are employed. Read more…

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Queen Margaret, Nancy Pelosi, Donald Trump, and the Good Duke Humphrey

October 15th, 2019 No comments

I was listening to Henry VI Part 2 in the car today, and realized that the enmity of Queen Margaret, Cardinal Beaufort, and Lords Suffolk and York towards Humphrey, the Good  Duke of Gloucester, is much like that of the Democrat leaders towards President Trump. He is their personal enemy, popular with the people, but an obstacle to their control of the government. They hate each other too, but they are united in their desire to eliminate Gloucester, weak King Henry’s uncle (and his heir, since Henry is childless, though still young) and Henry’s chief defense against conspiracies.  At this point in the play, they have arrested Gloucester for treason, but they are worried because they know their charges against him are bogus and he will be acquitted  when he comes up for trial in Parliament.   They reason that they must murder him while he’s still under arrest in the Cardinal’s palace, and it’s justified because even though he hasn’t done anything wrong yet, he will probably commit treason later and it’s better to kill him beforehand than when it’s too late.

After all, even if Trump hasn’t yet done anything that’s impeachable, shouldn’t we impeach him now so he won’t be able to overthrow the Constitution in 2020?  Suffolk had Gloucester smothered with a pillow. Trump should choose carefully where he sleeps.

Read the passage itself,  for insight into how liberals are thinking about Trump.


Believe me, lords, were none more wise than I–
And yet herein I judge mine own wit good–
This Gloucester should be quickly rid the world,
To rid us of the fear we have of him.

Read more…

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A Story about Stylistic Edits

September 30th, 2019 No comments


A Story about   Stylistic Edits

This summer I  downloaded an economics working paper by three people I’d never heard of because the topic was interesting to me.  I rewrote the abstract and sent it to the authors in the email below (with redactions marked by []). I wrote it thinking the three people were all junior, so my tone was rather direct.  (Perhaps even bossy?)

It turned out, though that one of the three authors was a tenured professor at a top ten university and a co-editor of a top five journal.  I felt a bit embarrassed.

Here is what I wrote:

Read more…

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Unmentioned Facts and Ideas about the Jeffrey Epstein Case

August 13th, 2019 No comments
I wrote up this blog post as:
“Questions Nobody Is Asking About Jeffrey Epstein


I would like to write on a number of ideas and questions I haven’t seen mentioned in the Jeffrey Epstein case. This is a blog post at https://rasmusen.dreamhosters.com/b/2019/08/unmentioned-facts-and-ideas-about-the-jeffrey-epstein-case/#more-1948  and I’ll tweet it out as a thread too (my first time at that).

1. Why is nobody blaming the Florida and New York state prosecutors for not prosecuting Epstein and others for statutory rape— that is, sexual behavior with someone under age 16? (or 18, or whatever it is in each state)

2. Statutory rape is not a federal crime, so it is not something the Justice Dept. is supposed to investigate or prosecute. They are going after things like interstate sex trafficking. Read more…

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What Does It Mean for a Replication To Be Successful?

January 2nd, 2019 No comments

What should be the metric for deciding whether a given replication has succeeded in replicating the original or not?  I thought about that to try to understand it and came up with these notes.

Study A (“Original”) finds an effect of 8 with a 95% confidence interval of [2, 14]. By itself, it rejects the null of no effect.

Study B (“Replicator”) finds an effect of 3, with a confidence interval of [-3, 9]. By itself, it fails to reject the null of no effect. It also fails to reject the null of an effect of 8.

Has the replication succeeded?

Read more…

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If Trump Paid a Stripper To Be Quiet, Is That a Campaign Expenditure?

December 18th, 2018 No comments

One thing I’ve wondered about is the difference it makes if the expenditure is by the candidate himself. Suppose Trump paid for it all. Or suppose Edwards had paid his woman to keep quiet. In that case, it would be very hard to call it a campaign expense. There is also little reason (no reason?) to have a law reporting even real campaign expenses– we already know the candidate supports himself. If someone with no connection to the candidate, on the other hand, except for supporting his candidacy pays for some of his expenses, then even if those are not campaign expenses, the public should know. Otherwise, we could, for example, have maxed-out donor Smith make candidate Jones’s mortgage payments for him, and Jones could use the money he saved to buy TV ads.

A law question: What is the burden of proof for the mens rea? Would it be necessary to prove beyond a reasonable doubt that President Trump knew the payments were illegal campaign contributions? Or by preponderance of the evidence? Either one would be impossible, I think, since legal experts are divided and courts have not spoken on the subject. I doubt even Cohen thought they were campaign expenditures, even though it seems he has pleaded guilty to knowing it.
Yet another law question: what is the usual penalty for evading a million dollars in taxes? It sure seems here that Cohen has pleaded guilty to X, which he didn’t do, in order to receive leniency on Y, which he did do.

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The Acting Attorney-General Problem

November 16th, 2018 No comments

“There are only two reasonable positions for someone who believes the Vacancy Act is unconstitutional.
The first is that every department has some line of succession, and whoever is at the top of it becomes acting attorney-general. The President then has to fire everyone in the line until he gets down to the level where he can appoint someone to an office without Senate consent.
The second is that the President himself becomes the acting attorney-general.”

Read more…

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November 10th, 2018 No comments

Nice analysis. People have been carelessly saying that mere Senate confirmation for some office in government is enough to avoid the constitutional problem, when it obviously isn’t, the Perry problem. What I conclude from the Dorf analysis is that either:

(1) The Vacancies Act is unconstitutional, and no acting appointment can be made, so whoever is next in the the line of succession will run the agency until a full appointment is made and confirmed (Rosenstein, and nobody else, unless Rosenstein is fired by the President). Read more…

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The Slayer Rule and Birthright Citizenship

November 6th, 2018 No comments

A comment to Prof. Peter Schuck over at Prawfsblog on birthright citizenship. He wrote the leading book on the subject, in 1985.


Do you discuss the slayer rule in your book, the case of Riggs v. Palmer where the murdered grandson doesn’t inherit? I think that’s most people’s moral intuition, and a way to do a common law interpretation of an ambiguous constitutional provision.

The idea: Someone shouldn’t be able to benefit from his crime, or that of his friends and relatives, even if we don’t punish him. Read more…

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Notes from the FTC Micro Conference, Nov. 2018

November 2nd, 2018 No comments

My notes from the November 2018 11th Annual FTC Microeconomics Conference, a very good conference indeed. I didn’t present, but it is good to keep up with what’s going on, to meet the young people, and to see older people like Kobayashi, Buckley, and Carlton who were on the fringes. Mem: use taxis in DC, and not Uber. Lyft was OK.


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The Christian and Politics—Bainbridge, Stuntz, Bayly,and Pope Paul

November 1st, 2018 No comments

Professor Bainbridge recently wrote an especially good blog post,

Gaudium et Spes on the Christian’s Vocation: With Application to the Question “What Does It Mean To Be a Christian and a Lawyer?” and my old Friend Bill Stuntz.”

https://twitter.com/ProfBainbridge/status/1057748719578308614 .

In it, he muses as to what the late Professor Stuntz, a Harvard Law professor of criminal law and a Bible-believing Christian, would have thought about the 1965 papal encyclical Gaudium et Spes (Pastoral Constitution on the Church in the Modern World). http://www.vatican.va/archive/hist_councils/ii_vatican_council/documents/vat-ii_const_19651207_gaudium-et-spes_en.html . I knew Professor Stuntz a little also. We and our families all attended Christ the King Church in Central Square, Cambridge while I was on sabbatical at the law school around 2001. I’m going to have to read Gaudium et Spes some time; it looks like good stuff and I wonder if there is any of it I would disagree with. The post is a great and touching compliment to Bill Stuntz. How many of us will have friends wondering what we’d think about an issue after we’re dead? Read more…

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The 2018 EU Holding that a Country Can Make It a Crime to Criticize Islam (E.S. v. Austria)

October 26th, 2018 No comments

Reading the decision, this is even worse than it sounds at first. Much worse. It is not about blasphemy, but, as I think the statute actually says, about disparagement of Islam; that is, it’s not about the manner in which the idea was expressed, but the idea itself. Also, it wasn’t about public offense; it was about a small private meeting (though open to the public, if the public wanted to attend) that a hostile journalist attended in order to cause trouble. Read more…

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Don’t Use Bad Language

October 24th, 2018 No comments

We should aim to make the world a better place in everything we do. We should add beauty and remove ugliness. We should clean up litter, not throw garbage out the car window. We should purify our mind, not dirty them. We shouldn’t pollute other people’s minds either. Sometimes it is necessary to get dirty to get work done, but not usually, and not deliberately, only as a byproduct. That is particularly true of intellectual work. We may have to think about filthiness and even talk about it, but we do not have to use dirtying language. In particular, we do not need to use dirty language. Obscenity is dirty. It makes the world uglier. It brings us closer to the level of animals. Read more…

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Indiana University’s Kelley School of Business Students Are Almost As Good As Harvard Students

October 18th, 2018 No comments

I was just wondering if our undergraduates at Indiana University’s Kelley School of Business were smarter on average than Harvard undergrads. They’re not, as I’ll explain later, but the comparison is not a ridiculous one—we’re really quite close. Full disclosure: I’m a Yale man with a doctorate from MIT (though I’ve also spent a couple of years as a visiting scholar at Harvard and like its current administration much better than Yale’s), so Crimson misfortunes do give me a certain small pleasure. Read more…

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The Ted Hill Male Variability Paper that the Math Journals Suppressed

October 1st, 2018 7 comments

I’ve written a long essay on the Hill affair, with lots of links and footnotes. Corrections welcomed. See


I’m linking to this blog so people can leave comments. Short link to this post: http://goo.gl/5Hqca3



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FBI’s Comey, Martha Stewart, and the Richmond African-American Minister

April 15th, 2018 No comments

Comey is such a slimeball. In his “Higher Royalties” interview tonight, he said he charged Martha Stewart for lying because:

“I remembered a case I’d been involved in against an African American minister in Richmond when I was a federal prosecutor there, who had lied to us during an investigation. And I begged this minister, “Please don’t lie to us because if you do, we’re going to have to prosecute you.” He lied. And at the end of the day, we had to prosecute him. And he went to jail for over a year. And as I stood in my office in Manhattan, I’m looking out at the Brooklyn Bridge, I remember this moment. And I’m thinking, “You know, nobody in New York knows that guy’s name except me.

“Why would I treat Martha Stewart differently than that guy?” And the reason would only be because she’s rich and famous and because I’ll be criticized for it.”

Actually, he was criticized because in the Martha Stewart case it turned out no underlying crime had been committed, so it looked like he was just out to get a famous person’s scalp for the “lying to the FBI” charge rather than just end the investigation. Read more…

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Mueller’s Indictment of the 13 Russians: Huffing and Puffing with No Substance

February 19th, 2018 No comments

I am disturbed by the Mueller indictment of the 13 Russians. Some of what disturbs me may be not knowing legal procedure well enough, in which case I hope somebody tells me. This will help focus my thoughts.

What Mueller has done is indict 13 Russians, all in Russia so they are safe from arrest and the case will never come to trial, of (1) conspiracy to defraud the U.S. government, and (2) wire fraud.  He does not indict them for violations of election law. He does spend 37 pages making allegations of behavior by the Russians, but how they relate to the crimes they’re accused of is often unclear. Read more…

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End the State and Local Tax Deduction for Businesses

February 15th, 2018 No comments

Why do we allow businesses to deduct state and local taxes from their income when they pay federal income tax? I propose that we eliminate that deduction. Nobody has suggested this, but it is really an obvious extension of the idea of eliminating them from the personal income tax. Read more…

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Reforming the FISA Court: A Second Post on the Public Defender Idea

February 13th, 2018 2 comments

On February 7, I blogged on how to reform FISA procedure, suggesting (a) public defenders, and (b) preventing the FBI from getting to pick the judge they want.  Later I came across Judge Reggie Walton’s 11-page letter  (with the FISA rules as an appendix) written  in 2013 to Congress to let them know how the court worked. It’s must reading for anybody opining on the Carter Page scandal. What I learned from it is that (a) the judges do have staff attorneys that take a hard look at the FBI applications for search warrants, (b) the court works with the FBI to narrow down warrants to where they’re appropriate (which is one reason hardly any get rejected—lots get modified before approval), and (c) it looks to me as if the FBI can indeed cherry pick judges.

(1) Here is my proposal. Read more…

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Why the interactive “Chicago-style” economics workshop is the best style

February 10th, 2018 2 comments


I have been reading various comment and posts of people who think economics research seminars are too interactive. Rather than having questions throughout, they would like to have questions all at the end, or perhaps only after 2/3 of the time has elapsed. They also complain that the questions are too critical, and claim that the questioners are just trying to make themselves look good.


I think those people are completely, absolutely, wrong. Interactive “Chicago-style” seminars are one of the best things about economics compared to other fields. Here are some considerations:

Read more…

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Is the FISA Court Worse Than Nothing?

February 7th, 2018 No comments

4th Amendment expert Professor Orin Kerr tweets:

“American Greatness blog: Every govt official involved in the Page FISA application should be jailed for their crimes (what crimes, who knows, that isn’t mentioned). Then Congress should repeal FISA so there is no judicial check on surveillance.” (Wut?)

He’s right to have that reaction. Angelo Codevilla’s article, “Jail the Guilty, Repeal FISA,” is sloppily written, and seems stupid at first reading. After some thought, though, I think Codevilla may be right.  So let’s see if we can explain his idea better.  Read more…

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What to do about the Justice Dept. Wiretappers: Disbar Them

February 2nd, 2018 No comments

The infamous House FBI memo is out. It says what everybody suspected already, given what’s been in the press, and even the New York Times will have to admit it now: The FBI knowingly used Democrat-funded fake evidence to fool a judge into letting them wiretap an advisor to the Republican candidate. They did this at least seven times. The bosses who signed the applications are James Comey, Andrew McCabe, Dana Boente, Sally Yates, and Rod Rosenstein. Read more…

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Comment on Orin Kerr on the FISA Memo’s Fraudulence

February 1st, 2018 2 comments

From Volokh Conspiracy (and Lawfare), Professor Kerr writes:

This is a scandal, the argument runs, because it means the application was fraudulent. Because Steele was funded by Democrats, his reports were just unreliable opposition research designed to make Trump and his associates look bad. And if the FISA application was based on Steele’s unreliable research, and DOJ never told that to the FISA Court, then DOJ misled the court and the court should not have issued the warrant.

As a Fourth Amendment nerd, it seems to me that the premise of #ReleaseTheMemo is pretty dubious. The apparent idea is that the failure to adequately document the funding behind Steele’s work is a huge deal and a fraud on the court. But as a matter of law, that seems pretty unlikely to me. When federal judges have faced similar claims in litigation, they have mostly rejected them out of hand. And when courts have been receptive to such claims, it has been because of specific facts that are likely outside the scope of the memo that will be released.


Prof. Kerr misses the elephant in the room, in two senses.

In the first, sense, the elephant is the omnipresent in 4th Amendment Law: the law protects only criminals, not innocent people, from illegal searches.  It does this by limiting relief to the police not being able to use what they find in court, which is unnecessary if they never intend to indict you.

In the second, more specific,  sense  the elephant is that the purpose of the warrant wasn’t to investigate a crime, it was to be able to spy on the Attorney-General’s political enemies.

This is more than a little relevant. In every case cited in the post, the police had no motive to use informants they thought were totally unreliable. Why bother to do the search if you think it’s not going to find anything? That provides a powerful reason for courts to presume (rebuttably) good faith on the part of the police, and give weight to their local knowledge and expertise. In the Steele dossier case, the FBI had a motive to get the wiretap even if it knew 100% the informant was unreliable, because their Democratic bosses could use the wiretap anyway (and quite likely the FBI civil service bosses were anti-Trump too, as we now know).

Categories: crime, judges, Justice Dept., law, law professors Tags:

End Federal Deductibility of State and Local Taxes by BUSINESSES

January 20th, 2018 No comments

New York State is thinking of moving to use payroll taxes  instead of individual income tax in order to tax labor income and also get deductibility for federal taxes. That made me think: why do we allow businesses to deduct state and local taxes on their federal tax returns? Read more…

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Political Correctness in the American Economic Association

January 16th, 2018 No comments

The American Economic Association just issued a couple of draft documents which display a kind of political correctness that economics has been pretty good at avoiding. I know and admire a couple of the authors, but the documents are dreadful. Here are some comments. I only spent an hour and a half writing this, which I mention so that (a) You can see how easy it is to find flaws, (b) You won’t think I’m spending excessive time on it, and (c) If there are mistakes, you’ll know one reason why.

American Economic Association
Ad Hoc Committee to Consider a Code of Professional Conduct
Interim Report

January 5, 2018

1.The AEA appears to be attentive to the diversity of the Executive Committee with respect to gender and race. This attention should be ongoing. Additionally, the AEA should consider the diversity of its committees and officers along dimensions including the range of academic departments, universities and colleges, and types of careers represented in nominations.

No: the Executive Committee should be composed of the best people, certainly without the discrimination by race and gender it now practices, but also with respect to types of jobs people hold. There is a perception that the leadership is cliquish and protective of bad behavior by people from elite schools. Maybe the perception is correct, maybe not—I have no opinion— but adding to the clique won’t help that kind of thing,it just changes the favored personnel. If there’s a problem, address the attitude.

2 (a). Survey members about the climate in the profession, and elicit reactions to potential initiatives such as those listed in this report.

This could be very valuable. It should include asking about examples where chairmen or deans have pressured departments to hire on the basis of race and sex. Illegal though that may be, I have heard of numerous instances of it happening; indeed, it may almost be routine these days. Men have a harder time on the rookie job market than women, and this is a real problem. A survey of this kind could have bombshell results, especially in light of the widespread claim that the opposite is true.

2(e). “Commission an observational study of seminar and conference presentations in economics as well as other disciplines, and quantify the extent to which there is unproductive aggressiveness in economics or its subfields.”

Also quantify the extent to which there is *inadequate* aggressiveness in economics. I think that’s a much bigger problem. I have rarely seen an overaggressive seminar— only the Demsetz-Klein workshop in the 1980’s comes to mind, and have been part of many other workshops including a year spent at Chicago 1989/90 where the seminars were aggressive but only appropriately so. I have often seen boring, useless workshops where the weak assumptions, boring topics, or inadequate expositions of the presenter go politely unchallenged but everybody thinks at the end, “What a rotten seminar! We’d better never invite him back again.” Economics is very fortunate in its culture, and we must protect it.

3. Best practices for addressing bias

All five suggestions are useless and wasteful. The way to address bias is to set up a committee to listen to complaints and then to hammer any editor or referee caught misbehaving, especially if they are at an elite school or are well-connected (like me, for example, MIT ’84, 59 years old). Ex ante measures like those suggested are much more costly and they are wasteful because they are applied to 100% of people rather than the 2% who misbehave.

3a. Study and encourage the use of gender-bias “detectors” for letters of

These sound like witch sniffers in Africa. I bet they’re as bogus as the implicit bias test that has by now been thoroughly as discredited in psychology as phrenology, though non-psychologists often don’t know that it has been.

3b. Adopt training for editors to avoid relying too heavily on institutional background and network connections in screening and referee decisions.

“Training”? Hah! It’s true there is a balancd between relying too much and too little on the credentials of referees, but do you really believe formal training will help?

3c. Encourage departments to implement training workshops for faculty on professional conduct and hiring.

We should actively *discourage* such workshops, and come to the aid of departments whose politically correct deans try to impose them. It sounds like code words for ideology training by identity politics warriors. In any case, it sounds like a waste of time. The hiring committees should spend the time reading some extra files instead.

3d. Encourage departments to implement training for students on professional conduct, including especially bias but also honest and transparent research practices.

Ditto. It is true that students should be taught to be moral in their research practices, but that should be part of the normal program when students learn to write papers. PhD students know not to plagiarize, and any decent person knows they should give credit where it is due. It’s true that we should emphasize keeping good records, writing clean commented code, and packaging up our data nicely at the end of a project (I confess! I am remiss here often.). Is that what this means?

3e. Post examples of good practices for training and instruction surrounding professional conduct.

I’m not sure what this means. I do suggest posting examples of bad practices, which not only illustrates what is bad, but helps deter by stigmatizing the bad practicer. Having the full stories, with all the details of cover-up and cowardice, could help a lot.

4. a. Create a gated website where job market information can be posted by departments, agencies, and firms. The recent AEA survey of department chairs suggests overwhelming support for this idea, as long as the information posted consists of updates on dates rather than specific names of candidates. Creating this website
would allow job market candidates to obtain the information they seek without accessing social media that includes irrelevant or offensive material. The website should include advice and general information about the job market process provided by established members of the economics profession.

This is the “Let’s kill Economics Job Market Rumors” item, I think. It confirms the fears of the bro’s there that the AEA is indeed elitist, biased, and politically correct, and wants to conceal the misdeeds of editors and referees.

I think it will fail, because it wants to be EJMR, but boring and with less information. The “rather than specific names of candidates” part is hilarious. The names are what everyone is interested in! Also, it looks like this is trying to shift the burden to department chairmen and such to provide the data, and they’re too busy already.

4b. Most individuals have procedures within their institutions for addressing harassment. Sometimes these arrangements fail. Hence, the AEA should consider whether it should provide arrangements for members of the profession to seek advice or assistance relating to harassment where institutional remedies are unsuccessful. The committee discussed multiple options, but did not reach a consensus:
i. The AEA could create an AEA ombuds to help resolve conflicts that may
arise between individual members of the AEA and their own institution. The ombuds would take action, i.e., contact the relevant institution.
ii. The AEA could create a network of mentors who could advise those facing harassment. A mentor would provide confidential advice, but not take action or report the claim of harassment. In the event a mentor hears the same issue from multiple individuals, the mentor could share this
information with those individuals provided they all approve.

This might be good, but it sounds weak. I am on the faculty senate at my own university, and the issue arose of whether a faculty committee should hear complaints from faculty who had been punished by the administration for sexual harassment, or whether, as one former senate president said, if they were punished by the administration they must be guilty anyway and there’s no need for review and some danger because of “imbalance of power” already favoring the punished faculty member.

There seemed to be general agreement that there was no need to hear complaints from *victims* after faculty had *not* been punished, and everyone laughed at first when I suggested that would be equally appropriate. But it would be. Universities are terrible at dealing with this kind of thing. They seem to err in both directions, much like American immigration policy and unethical research policy. If it’s a powerful professor who’s accused, he gets off; if it’s a mere student (that is, not an athlete), he gets railroaded. The AEA could help with both kinds of cases.

Having an ombudsman— that is, an official contact person or committee– is a start. This person should *not* be a liberal activist. It should be a random honorable senior economist, someone with no axe to grind. It should be someone just as fair to a wrongly accused professor as to a harassed one. Don’t call him an “ombuds”; that sounds too much like “earbuds”.

What is this person supposed to do? The suggestion is that they just be someone who can help go through university procedures. That would be useful, since there are probably departments where none of the faculty have the guts to help a victim, though I hope most departments have at least one such person— and that the identity of that person is common knowledge, just as big a problem. But it would be better for the ombudsman to take it a step further, consulting with other AEA people and publicizing misconduct if the university either falsely accuses or covers up.

Draft AEA Code of Professional Conduct
January 5, 2018

This is a bland statement that everybody should be nice. I hate such statements, as mere clutter in a world of information overload, and as reeking with hypocrisy, since their most common use is to avoid actually doing anything about evil.

The AEA seeks to create a professional environment with equal opportunity and equal treatment for all economists, regardless of age, gender, race, ethnicity, national origin, religion, sexual orientation, disability, health condition, marital status, parental status, genetic information, professional status, or personal connections.

This  statement is hilarious. It’s code for “We’re liberals”, of course, with not a lot of meaning beyond that. Nobody would take it literally, I think. If someone is old and feeble, I will not give theme equal treatment; I will give them more than usual respect and I will try to help them do things that are hard for them. if someone doesn’t have the right professional status by a couple of years into the job, commonly he’s fired— that is, if he doesn’t finish his dissertation and doesn’t get his Ph.D.  The funny part is  the items like “parental status”. Is discrimination against bastards a problem in the economics profession? Who, exactly, is keeping track of whether each job candidate’s parents were married at the time of his birth? How does “genetic information” enter into being an economist?  What does the AEA intend to do about people with “personal connections” having better opportunities? If someone hears about a job opening at a conference, does that disqualify him? Really, let’s not succumb to the absurdity of so many fields in academia these days.  We in economics should know better.


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IRS: The Mess of the “Trade or Business” Definition

January 15th, 2018 No comments

My last post proposed that libel lawsuit income be incorporated or put on Schedule C, but I was wrong in making it seem simple. The law is a real mess here. The problem is the definition of “trade or business”. The tax code, in section 162, says that expenses for a “trade or business” are deductible as what is known as an “above the line” deduction, meaning that it is part of the computation of adjusted gross income, in Schedule C, before “itemized deductions”. In section 212, the tax says that expenses for “other income” are deductible— but this is known a “below the line” deduction, part of “itemized deductions” in Schedule A. Section 67 says that these other income expenses are part of “miscellaneous itemized deductions”, formerly subject to a 2% of income floor, now after the 2017 bill denied entirely (see the bill’s section 11045 amending section 67— though this contradicts section 212, which is unamended, I think).

Thus, it was good for the taxpayer before if his income was from “trade or business”, because he wasn’t subject to the 2% floor for expenses and now it is crucial, since his expenses aren’t deductible at all.

So what is a “trade or business”? Neither statute nor regulation has ever defined this term, crucial though it is to a lot of things. It has a tax common law meaning from various court cases, and a sorry sort of common law it is. The classic case is the 1987 Groetzinger. In Groetzinger, the IRS didn’t want to let a professional gambler deduct expenses. Gambling was clearly his occupation, so the Supreme Court said the IRS was wrong, a correct result. The Court said:

We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify….

We would defer, instead, to the Code’s normal focus on what we regard as a common-sense concept of what is a trade or business

We therefore adhere to the general position of the Higgins Court, taken 46 years ago, that resolution of this issue “requires an examination of the facts in each case.” 312 U.S., at 217 …. But the difficulty rests in the Code’s wide utilization in various contexts of the term “trade or business,” in the absence of an all-purpose definition by statute or regulation, and in our concern that an attempt judicially to formulate and impose a test for all situations would be counterproductive, unhelpful, and even somewhat precarious for the overall integrity of the Code. We leave repair or revision, if any be needed, which we doubt, to the Congress where we feel, at this late date, the ultimate responsibility rests.

So this is  a lame precedent. The Court says it is trying not to create a new test and that the meaning should depend heavily on the context and there shouldn’t be any general test. Moreover, the holding is that professional gambling is a “trade or business” even though gambling for recreation would not be. The holding is not that other money-producing activities would not be a “trade or business”; that’s just extension of the court’s reasoning to completely different contexts such a lawsuit.

Nonetheless, courts talk about the Groetzinger Test as it were a rigid mandatory test, because they want something convenient to use.

The cited case Higgins, as it happens, is an old wrongly decided case. Mr. Higgins had lots of stock investments, a major business, and wanted to deduct such things as the salary of his investment manager. The court said that running a portfolio isn’t a “trade or business” so he couldn’t deduct the expenses. It continues as precedent anyway, never overruled I think.

I thought we might argue that Congress never validated this rule, but unfortunately Congress did pass a couple of statutes around 2000 making expenses deductible for certain kinds of lawsuits. Using expressio unius reasoning, this implies that you can’t deduct expenses for other kinds of lawsuits, though Congress never thought about it, I expect.

So what we have with the 2017 bill is a trial lawyer’s nightmare: a bill that discourages lawsuits by imposing a prohibitive tax rate on plaintiffs by disallowing deduction of expenses.

The question remains of whether the IRS can fix the problem by issuing new regulations. I am inclined to think it can, but since it hasn’t done it before, maybe it has some reason to want not to. I’ll have to figure this out.

Another angle is that if it is Schedule C income, then there is self-employment (Social security) tax to be paid, but if it is Other Income, there is, I think, no self-employment income.

There must be a huge amount of one-off income-generating opportunities, many much more limited in time, scope, and energy than a lawsuit. Are they all Other Income? Maybe if I buy something and resell it, I can put that as Capital Gains instead and deduct the costs somehow there on Schedule D. I think brokerage fees are there, for example.

The situation with a lawsuit is perverse. Suppose I did put the proceeds from my libel suit into an LLC and sold 50% of the shares to Joe, and had the LLC pay the legal fees as they came along.  Could Joe deduct half the legal fees, even though I can deduct none? Or is this not a trade or business for Joe, either? Actually, does this mean all passive investors in companies with pass-through taxation are unable to deduct expenses? That sounds crazy.

To be continued.

Categories: taxes, Uncategorized Tags:

Taxes and Attorney Fees: Make Lawsuit Income Schedule C Income by Regulation

January 13th, 2018 No comments

Update January 15: See the next post for essential connection with this one.  I now think I might be wrong in a lot because of not knowing the “trade or business” law well enough.  Read with caution! I’ll read some cases and revise as necessary. My conclusion that IRS regs can be revised easily, without objection, may or may  not survive.

Apparently the 2017 tax bill eliminates deductions for attorney fees by eliminating miscellaneous itemized deductions (see Professor Gregg Polsky’s Slate article). I knew a lot about this at one time, because I was thinking about taxation of my Citigroup qui tam suit if I won. I’m now intending just to donate the proceeds to charity via a transfer of the lawsuit to a foundation if I get closer to winning, though I was hoping to deduct some fees for 2017 even though no income had yet been generated.  So I discovered the unsatisfactory legal treatment of contingency fees. Personal injury lawsuit income isn’t taxed at all, so the problem doesn’t arise, but income from libel suits and tax, SEC, or government contract whistleblower suits is taxable, and contingent fees are commonly 40%. Read more…

Categories: law, lawyers, taxes Tags:

Avi-Yonah Short Summary of Tax Bill and Donaldson Long Summary

January 13th, 2018 No comments

I really like  Professor Reuven Avi-Yonah’s   HOW TERRIBLE IS THE NEW TAX LAW? REFLECTIONS ON TRA17. It is short and clear and fair. His  four points are that (a) The $150 billion deficit increase isn’t as awful as one might think, (b) The bill  did cut taxes on the rich more than on the poor, but mainly via the 20% pass-through deduction,  (c) The bill has a lot of “good government” features, such as the increased standard deduction, and (d) the big problem is the 20%pass-through deduction, which will create a bunch of problems.

Donaldson’s Understanding the New Tax Law is also good, a longer summary, rather than a commentary.  As I recall, it notes:

1. No NOL carrybacks for corporations any more.

2. 60% max cash charitable deductions instead of 50%.

3. Professors lose the incredible sabbatical unreimbursed employee expense deduction for their rent, utilities, and meals while on sabbatical that I have enjoyed a number of times.

4. NOL carryforwards continue forever rather than just 20 years, saving  recordkeeping without really changing anything else.



Categories: academia, taxes, Uncategorized Tags:

Additions for My State Tax Paper: Reciprocity, Sullivan, and Pease

January 11th, 2018 No comments

For: Getting Around the State and Local Tax Deduction Limit (January 9, 2018). Available at SSRN: https://ssrn.com/abstract=3099296.


(1)  Suppose we accept that fairness (or whatever) means that state taxes should be deducted from income for federal taxation, because they pay for public goods just like donations to private charities.  Suppose John Doe has an income of $1,000,000, West Dakota has a tax rate of 10%, and the US has a tax rate of 30%, so West Dakota tax is $100,000 and US tax is $300,000 sans deductibility.  Then if we add deductibility  of state taxes from federal income, 30% of $900,000 is just $270,000 and John Doe saves $30,000 on his federal taxes.

But suppose, instead, that we don’t do that. Instead, we add deductibility of federal taxes from state income. The result is that since 10% of $700,000 is $70,000, John Doe saves $30,000 on his state tax bill. Read more…

Categories: a.research, taxes, Uncategorized Tags:

The Steele Dossier, Flynn, 18 U.S.C. 1001 (the Martha Stewart Law) and How To Reform “Materially”

January 6th, 2018 No comments

   Byron York has a good article in the Washington Examiner on what it means for the Senate to refer the Steele dossier for criminal investigation by the FBI— basically, that Steele lied to the FBI to get it to investigate imaginary happenings, which is a crime, and the Senators want the Justice Department to file charges under 18 U.S.C. 1001 or explain why not. 

  Read more…

Tim Keller’s Dec. 19 New Yorker Article: Snobbery and Cowardice

January 4th, 2018 No comments

I wrote this for Warhorn media yesterday. I think even someone who’s never heard of Tim Keller and has no interest in religious disputes would find it informative and entertaining. I am very hard on Pastor Keller, because I think he needs the pressure to do what he knows is right, and polemic is the right vehicle for that. Comments welcomed. Warhorn doesn’t do comments, so you’ll have to come back here.


What makes Tim Keller uncomfortable…


Why the Idea of State Tax Credits and Donations Replacing Deductibility Won’t Work and How to Fix That

January 4th, 2018 No comments

The new tax bill limits the deduction for state and local taxes to $10,000.  This comes after the alternative minimum tax (AMT) already limits them if someone has enough capital gains and deductions to qualify for it, which a lot of people do.  Can states do anything to help their taxpayers? Read more…

Categories: a.research, taxes, Uncategorized Tags:

Pass-through Taxation and C-corp election; Schumpeterian motivations; politics; the financial accounting problem for earnings definition

January 2nd, 2018 No comments
​​  This is quite a technical post, but some people will be interested.

On Mon, Jan 1, 2018 at 1:02 PM, Someone wrote me about the question of whether the Passthrough tax cut isn’t a big deal ,because even without it, if we slash the rate of taxation on C-Corporations a partnership could elect to be taxed AS IF it was  a C-corporation.  It turns out there are interesting complexities involved.

Read more…

A fisking of Paul Rosenzweig’s LawFare defense of Mueller against the Trump Transition Letter.

December 19th, 2017 No comments

The pdf file HERE is  a fisking of Paul Rosenzweig’s LawFare defense of Mueller against the Trump Transition Letter.

I got interested in this and have been scanning the web for legal explanations of this kerfuffle, since I am not a lawyer.  There aren’t any good ones. As I said, I’m not a lawyer, but I know a lot of law (I’ve co-authored  numerous scholarly articles with law professors from Indiana, Illinois, UCLA, Chicago, Yale,Tokyo,  and Harvard and I’m the relator in New York ex rel. Eric Rasmusen v. Citigroup). I think I know more law than Mr. Rosenzweig, even though I feel my limitations keenly in this area of law (try me on tax whistleblower law, agency law, or the tax treatment of net operating losses and I’ll do better). So I’ll post this, to better inform the public. Maybe it will encourage real experts to come forward too. I wrote a book on game theory when I was 30 that had lots of mistakes, but it was the first in its field and I did stimulate, I fancy, older and wiser people to write books to improve on mine.

If I have mistakes, please  comment. I see an enormous amount of ignorant and arrogant commenting on these issues on the Internet, though, so please only comment  only if you aren’t just mouthing off. I’ll delete the comment otherwise.


Organizing a blog a different way

March 5th, 2014 No comments

I think it might work better if I just listed topics. I’ll collect posts in files, and usually I will put new material at the top. I’ll start with words.htm, though, which is mostly alphabetical.


Words: Interesting old and new words and phrases.

Categories: Uncategorized Tags:

Meadow Mushroom Soup

March 5th, 2014 No comments

This October a huge number of meadow mushrooms, agaricus campestris, have sprung up in the church lawn. They are delicious raw or fried in butter. After a rain they did look as if they were flecked with drops of blood— I hesitate to mention it, but they were delicious raw anyway. And the older black-gilled ones are fine to eat, raw or cooked. I made soup very successfully. They weren’t collecting worms or bugs, which made them good for soup. I combined cut-up mushrooms with milk, onion flakes, MSG, salt, and pepper (too much pepper, as it turned out). I was able to dilute it heavily with more milk and it still remained flavorful. It didn’t turn black— more a sort of oyster stew color. I think butter would have helped.

Categories: food, mushrooms Tags:

Is a Declaratory Judgement an Equitable Remedy?

November 9th, 2013 No comments

From Prof. Eugene Volokh:

There are a host of special rules that simultaneously constrain and empower equitable remedies. These rules include the irreparable injury rule, equitable ripeness, equitable defenses (e.g., unclean hands and laches), opportunities to revisit and reopen the remedy (e.g., modification and dissolution of an injunction), and enforcement mechanisms such as contempt. These special rules apply to — and ordinarily only apply to — equitable remedies. They do not apply to the declaratory judgment.

Here are four thoughts:

(a) The idea of the declaratory judgment is very old even if the name is new. Two people have a dispute over rights and they ask the court to resolve it.

(b) A declaratory judgment is not a remedy. Getting one does nothing directly to solve the plaintiff’s problem. A remedy is a command, even if just an implicit command in the sense of declaring someone owes damages.

(c) A bit separate: ordinarily the plaintiff asks for an injunction as well as a declaratory judgment. The DC Circuit Court of Appeals ruled en banc in the Cohen tax case (2011) that despite the plain language of the Declaratory Judgement Act, its scope is the same as the Anti-Injunction Act’s, so declaratory judgments which do not restrain the collection of taxes are okay. The court noted that this was perhaps of little practical importance, since it is the injunction that is the main remedy anyway.


(d) Also separate: I found this in a footnote: “Abbott Labs. v. Gardner, 387 U.S. 136, 155 (1967) (the declaratory judgment and injunctive remedies are equitable in nature” But the Supreme Court was wrong when it said this.

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The word Fecit

November 6th, 2013 No comments

Fecit: Continued here.

Categories: Uncategorized Tags:

China is as wealthy as Latin America

October 15th, 2013 No comments

Maybe I shouldn’t be surprised–Brazil is very big.

See Credit Suisse.

Categories: Countries Tags: