With all the talk about the CFPB, Elizabeth Warren has been in the news lately.  The blogs too.  Most of the discussion has been about whether or not Timothy Geithner is a friend or foe to the Democrats’ preferred option of getting Warren nominated as the first chief of the CFPB.  Today, Megan McArdle started on what is a less interesting political topic, but a more interesting one for this blog with a long and detailed post on Elizabeth Warren taking on then-Professor Warren’s use of theory and data in the Two Income Trap and her controversial work on medical bankruptcies.  McArdle later doubled-up with a be re-posting Todd Zywicki’s WSJ op-ed pointing out the odd manner in which tax data are presented in Two Income Trap.  Put directly, Zywicki provides some evidence that the presentation (made in an attempt to show the increasing burdens of mortgage, car and health obligations) presents the data percentage terms in order to obfuscate the fact that changes in tax obligations play a much larger role in the economic burden facing the middle class than convenient for the story told in the book.

Read the full piece here. 

When we leave our houses, cars, money, children and bodies in others’ hands we might worry whether they will be there when we return or wake up. We can protect ourselves, as did primitive societies, by never leaving, bolting the doors or sticking with a small circle of friends and relatives. But delegating responsibility and control frees us to do what we enjoy or do best. Expert professionals and business people find new ways of keeping us healthy and making us money. Our willingness to buy and use the unfamiliar–to expand our circle of trust–encourages innovation.

Josh has recently discussed his thoughts about the intellectual trajectory of the newly-minted CFPB and how that intellectual trajectory might influence the selection of the Bureau’s first director–presumed to be either Michale Barr or Elizabeth Warren.  His is a brief, dispassionate and intellectually-honest assessment.  But given Simon Johnson’s brief, intemperate and intellectually-devoid assessment of the issue, I’m afraid Josh may be a bit naive.

Read the full piece here. 

Abstract

The Twenty-first Amendment repealed prohibition, but granted the states broad power to regulate the distribution and sale of alcohol to consumers within their borders. Pursuant to this authority, states have established a complex web of regulations that limit the ability of beer, wine, and liquor producers to control the distribution of their product. From a consumer welfare perspective, one of the most potentially harmful state alcohol distribution regulations are “post and hold” laws (“PH laws”). PH laws require that alcohol distributors share future prices with rivals by “posting” them in advance, and then “hold” these prices for a specified period of time. Economic theory would suggest that PH laws reduce unilateral incentives for distributors to reduce prices and may facilitate tacit or explicit collusion, both to the detriment of consumers. Consistent with economic theory, we show that the PH laws reduce consumption by 2-8 percent. We also test whether PH laws provide offsetting benefits in the form of reducing a range of social harms associated with alcohol consumption. We find no evidence of such offsetting benefits. Taken together these results suggest that PH laws are socially harmful and result only in a wealth transfer from marginal alcohol consumers, who are unlikely to exert externalities on society, to wholesalers. These results also suggest a socially beneficial role for antitrust challenges to PH laws and similar anticompetitive state regulation. If states wish to reduce the social ills associated with drinking, our results suggest that increasing taxes and directly targeting social harms are superior policy instruments to PH laws.

Josh’s ongoing series on “Nudging Antitrust” and FTC Commissioner Rosch’s recent thoughts on behavioral economics has been excellent and I look forward to the next installment.  Rosch’s speech, not surprisingly, also elicited a strong response from me.  What follows are my thoughts on Rosch’s speech, focusing on some of the same issues Josh addressed in his first post.

Read the full piece here.

I’ve been, for some time, a behavioral law and economics skeptic.  Sometimes this position is confused with skepticism about behavioral economics, as in — believing that behavioral economics itself offers nothing useful to economic science or is illegitimate in some way.   That’s not true.  Now, I have some qualms about the explanatory power of some of the behavioral models as well — but the primary critique (in my view) has always been the threat that behavioral economics will be used as the intellectual cover for regulation judged by the preferences of the regulators rather than rigorous economic analysis of any sort.

Read the full piece here. 

Simon Johnson argues that the conventional antitrust tools of Sherman Act are outdated and ill-equipped to deal with the power of big banks…

Read the full piece here. 

As Congress moves toward likely passage of the colossal Dodd-Frank Wall Street Reform and Consumer Protection Act, it’s worth reflecting that many of the bill’s 2,315 pages have little to do with preventing another financial meltdown and leaves considerable collateral damage in its wake.

Read the full piece here.

Part 1 of this short blog series on “Nudging Antitrust,” focused on defining Commissioner Rosch’s recently articulated vision of behavioral economics as it relates to antitrust and competition policy and its differences with more “conventional” economic approaches that are bound by the rationality assumption.  By the way, one should note that these more conventional approaches include both Chicago and game-theoretic Post-Chicago approaches, though the Commissioner reserves most of his ire for the former.  Today, in Part 2, I’ll turn to Commissioner Rosch’s vision for antitrust policy informed by a particular version of behavioral economics focuses on the Commissioners case against the critiques of behavioral economics as he interprets them.

Read the full piece here.