Revenue Sharing and Sin City

Yglesias wrote a post on the inevitable spread of gambling throughout the country.  The logic is basically that if there is a casino near your state, you might as well legalize gambling in your state to keep the revenue.  Douthat tweeted, "This is a possibly true, profoundly depressing argument." (Douthat may also have been responding to Yglesias's observation that anti-gambling efforts are often mounted by a strange-bedfellows coalition of religious leaders and incumbent gambling interests.)

Douthat went on to argue: "Confining casino gambling to just a few states was one of those arbitrary hypocrisies that a civilized society depends on." And: "'What happens in Vegas stays in Vegas' is terrible moral theory but useful social policy." And: "Indeed, could argue that legal federalism at its best is *designed* to enable certain necessary cultural hypocrisies."

I basically agree.  I am not opposed to gambling purely in the abstract—from time to time I make small bets with my friends—but it appears to be a problem for some people, and generally there is no political equilibrium in which the state maintains the proper safeguards for its citizens.  The gambling companies have the money and the concentrated political interest to erode any protections the state might put in place, and the state itself is so hungry for revenue that it is a cheap date.

By reserving gambling for a "special occasion," and making it geographically remote from most people, you can provide a safety valve, and a space for people who can handle it responsibly, while protecting most people from the daily temptation of easily available gambling.  You can also allow a place like Las Vegas to specialize to a high degree—Las Vegas has a lot of casinos, yes, but also a lot of other entertainment, dining, etc.  It is a hedonistic kind of city that will disappear as gambling becomes more evenly distributed around the country.  (This may not be an entirely bad thing, but I think there's a good argument for concentrating hedonism into a sort of high-density agglomeration.)

But the question arises:  If the best equilibrium is for gambling to be legal in only a few locations (Las Vegas, Atlantic City, maybe a few Indian reservations), then how can this equilibrium be preserved given the dynamic identified by Yglesias?

My answer is pretty simple, if perhaps impossible in our political system.  Nevada should calculate how much of its gambling revenue comes from residents of each state and rebate a portion of that revenue to the relevant state government, but with no rebate to states that allow casino gambling.  (I suppose New Jersey would do the same thing.  And I suppose there is a question about whether only Las Vegas or all of Nevada should be on the hook.  But these are details.)

Now, you have to get the rebate right, and that might not be an easy needle to thread.  Obviously Nevada wants to keep the lion's share of revenue for itself, but the rebate would need to be substantial in order to get the attention of states that might otherwise legalize gambling.  But I think a lot of states would think twice if legalization brought all the costs of gambling and only a portion of the revenue (since legalizing gambling would entail losing the rebates from Nevada).

In any case it is too late for any of this.  States that have legalized gambling aren't going to shut down incumbent businesses, and at this point casinos have sprouted up all over the place.  But if Nevada had seen the trend coming, and had adopted my proposed policy as a preventive measure, it might have reaped large rewards.

Some People Just Don't Get Math

I think a lot of people don't really get the math of climate change.  I like this story that illustrates how seemingly small numbers can add up:

A king in India was greatly impressed by the game of chess, which had just been invented.  He offered the inventor any gift he could name, within reason.  The inventor said, "Give me one grain of wheat for the first square of the chessboard, two for the next square, and so on."  The king was delighted that he had asked for such a paltry prize.  However, the king's treasurer soon had bad news:  although the prize seemed small, if you add an additional grain of wheat for each square, by the time you get to the last square, you are adding 64 grains of wheat.  And that's on top of all the wheat for the squares that came before.  In fact, the last square has more wheat on it than the first 10 squares combined!  Outraged, the king had the inventor put to death.

And climate change is the same way.  As we add carbon to the atmosphere, the effects are cumulative.  It is quite possible that we will add more carbon to the atmosphere in 2012 than we did in the entire 10-year period from 1500 to 1510.  Like the king who was nearly bankrupted by the clever inventor of chess, we are bankrupting our planet due to our failure to think quantitatively.  So interestingly enough, the answer to climate change may not be in the laboratory but in the classroom.  Just as Waterloo was won on the playing-fields of Eton, so the battle against climate change will be won in Algebra II.

How Facts Get "Checked"

So I think Ross Douthat is one of the best conservative pundits out there, and I don't mean that as faint praise.  He's better than most liberal pundits too.  But he has odd blind spots, and one of them has been on display in his Twitter feed.  Douthat thinks this political ad is misleading:



Douthat has said that "the ad is taking Romney's quote out of context, and lying about his actual position in this campaign."  He has also called the idea that Romney wants to ban abortions in cases of rape a "noble lie" ("noble" from the perspective of the Obama campaign).

Earlier, Douthat retweeted a link to this entry from FactCheck.org (which I think discusses a different version of the ad).  The entry claims that the Obama campaign is "twisting Romney's abortion stance."  And that may be true in some sense, but it's important to realize what Romney did and didn't say.  Here is a portion of the transcript of the relevant debate (which I'm copying from the FactCheck entry):

A.J. from Millstone, New Jersey, Nov. 28, 2007: If hypothetically Roe versus Wade was overturned, and the Congress passed a federal ban on all abortion, and it came to your desk, would you sign it? Yes or no?
Romney: I agree with Senator (Fred) Thompson, which is we should overturn Roe v. Wade and return these issues to the states. I would welcome a circumstance where there was such a consensus in this country that we said, we don’t want to have abortion in this country at all, period. That would be wonderful. I’d be delighted.
CNN’s Anderson Cooper: The question is: Would you sign that bill?
Romney: Let me say it. I’d be delighted to sign that bill. But that’s not where we are. That’s not where America is today. Where America is is ready to overturn Roe v. Wade and return to the states that authority. But if the Congress got there, we had that kind of consensus in the country, terrific.

Now, it's apparently true that Romney doesn't officially support an outright ban on all abortions.  It's also true that many Democrats draw a distinction between their personal views and their political views (that is, they personally oppose abortion, want it to be rare, etc., but they won't support legal prohibitions on it).

But Romney isn't drawing that kind of distinction.  When he said, "That would be wonderful.  I'd be delighted," he wasn't referring to a world in which there are no abortions.  He was referring to a world in which it is a federal crime to perform an abortion in any circumstances whatsoever.  Romney wants women to die on the operating room table instead of getting an abortion.  In fact, the prospect that it might be a federal crime to perform an abortion in those circumstances delights him.

Douthat thinks the Obama campaign is misleading voters by failing to draw a distinction between what Romney says would be an ideal outcome and what Romney is willing to support as an official matter.  Douthat is entitled to his opinion, but that is an awfully fine distinction to draw.  Romney was pretty clear that he would ban all abortions everywhere, if only he could round up sufficient political support.  Women are entitled to draw the obvious inference, and it is ridiculous for FactCheck and Douthat to call the Obama campaign dishonest for campaigning on this issue.

Idea: Intrade Prediction Markets for Commodities

As the 2012 election approaches, I find myself frequently checking the Intrade prediction markets to get the consensus view of the current odds.  Some have criticized the Intrade markets for basically replicating the numbers from Nate Silver's model, which suggests that the markets are not providing any independent information (in fact, maybe they are not providing any information at all).  But I want to mount a brief defense of Intrade, and then to set out a more extended argument for an idea that recently occurred to me:  we should use Intrade-like prediction markets to predict the future prices of commodities like oil and corn.

To defend Intrade, let's ask what it might add to Nate Silver's model even if Intrade rarely or never diverges from that model.  The answer, I think, is robustness.  To people who follow politics, Nate Silver has a lot of credibility because of the sophistication of his model, which doesn't simply aggregate polls but gives them varying weight depending on a number of variables.  But Silver's model is not the only model out there, and one can imagine a sophisticated, well-designed model that nevertheless gets it wrong.  (Moreover, most of us don't have the quantitative skills to assess how well Silver has calibrated his model.)  So Intrade may not be telling us anything that Silver's model isn't, but it is telling us that people who are risking their own money think that Nate Silver is getting it right.  If Intrade prices tracked a different model, like the one published by RealClearPolitics, that would certainly affect my thinking about the race.

But all of this thinking about prediction markets and models led to a "Eureka!" moment for me.  As noted above, prediction markets can be valuable in predicting election outcomes even if they merely lend credibility to a model that is not market-based.  But how much more valuable would they be if they could give us information on important economic variables like the future price of oil?  The idea is startling in its simplicity but has profound implications.  If people could "bet" on the price of oil to be delivered months in the future, we would have market-based information on one of the most important variables for many businesses.  Even if the numbers simply tracked the expert view on the future path of commodity prices, it would be confirmation that the experts are getting it right.

And commodity prediction markets would provide another important service:  they would allow companies to "hedge" their exposure to commodities.  If your business uses a lot of oil, you may be interested in "locking in" a market-based price for oil that you will use months from now.  In the status quo, that isn't possible unless you can find a counterparty willing to take the opposite economic position (that is, someone willing to provide the oil months from now at a price negotiated today).  Good luck with that!

But with an Intrade prediction market for commodity prices, you wouldn't need to go out and individually negotiate a long-term oil supply contract.  Instead, you could just go to Intrade and place a bet that the price of oil will rise.  If oil does indeed go up, you will lose money in your business (when you buy the oil you need on the spot market), but you will make money on the Intrade bet.  You will be "hedged" against changes in the price of oil.  (If oil prices fall, you lose money on the bet, but your business expenses are also lower, so you are basically eliminating both upside and downside risk when you "hedge" in this manner.)  Intrade prices would reflect the "market view" of whether commodity prices are likely to rise or fall in the coming months.

Economists disagree about how important "price discovery" is in the free-market system.  Some think that market prices are an incredibly efficient way to distribute information throughout society.  The baker in Indianapolis doesn't need to know that there has been a drought in Iowa, he just needs to know that butter is more expensive than it used to be.  He will automatically start using less, turning to other fats instead, like canola oil.  He has responded exactly as society would want:  he has economized on a scarce resource, without needing to know why it is scarce.  He doesn't even need to know Iowa exists!

As I said, economists disagree on the exact role of the price system in the economy.  But I don't think anyone would argue that accurate information on future commodity prices would hurt the economy.  So at the very least, an Intrade prediction market on commodities would do no harm, and it would let people .

Now, as so often happens when I have a good idea, it turns out this one isn't entirely original to me.  Intrade does in fact have a "Commodities" section of its website.  But there are only two contracts available for trading!  I would think that there are dozens of commodities that could profitably be traded:  corn, wheat, coffee, oil, natural gas, to name a few.

So I think a big opportunity is being missed here.  If you took the logic of election prediction markets, and applied it to commodities, you could change the world.  If Intrade isn't willing to step up to the plate, then someone else should.  I am so excited by this idea that I would consider quitting my job and trying to set up something like this.  The logic is just incredibly compelling.

Wildly Offensive

After my friends and I saw Beasts of the Southern Wild, I was the only one who reacted negatively to the movie, and in fact some of my friends think it is a great movie.  I hated it more than pretty much any other movie I have seen, so I guess I will try to explain why.  I should mention, though, that I saw it a while ago and my memory is somewhat hazy.  I may misstate some elements of the movie as a result.

The movie tells the story of a girl and her father, living in what looks like a dystopian near-future Louisiana.  Civilization has withdrawn behind vast levees, but people still live on the land outside the levees, in a sort of poor rural environment.  They have abandoned much of civilization.  They are quasi-literate (if that), emotionally unstable, superstitious, prone to violence, drunkenness, and crime.  They are the kind of people who ignore evacuation orders and don't follow medical advice, and then have to be rescued from their own poverty and ignorance at significant taxpayer expense.

In short, they are walking, breathing stereotypes of poor Americans, and the two main characters are also black, to kick things up a notch.  It is pretty clear that they are the "beasts" of the title, that we are supposed to see these impoverished black people as animals.  They are like the proverbial grasshopper, getting drunk while the storm blows in, knowing that the industrious ants will have no choice but to save them from their own laziness, drunkenness, and bad decision-making.

This negative portrayal of poor people is just disgusting.  Despicable.  It reminds me of the title of an Onion video:  "Sale of BET to White Supremacist Group Results in No Changes to Programming."  I'm sure the people who made Beasts of the Southern Wild are closer to the BET end of the spectrum than the white supremacist end, but if you replaced them with white supremacists it would result in no change to the movie.

Now, you might think that it would be acceptable to depict poor black people living like animals, so long as their embrace of nature and their rejection of sterile, ugly "civilization" are portrayed sympathetically.  I'm not sure how I would feel about a movie like that, but in any case the filmmakers took a very different approach.  Far and away the most evil thing we see in the movie is the father's decision to destroy one of the levees that protect civilization from the floodwaters.  The movie doesn't actually show the resulting death and destruction, but there is no way the audience can sympathize with this monster.  I even remember the characters being cheerful as they destroy the lives of countless innocent people, but my memory is not so good and I might be wrong about that.

(It is also hard to sympathize with the father's decision to deprive his daughter of books, medicine, etc., and to expose her to the dangers of life outside the levee, but maybe he doesn't know any better.  After all, he's, you know.  One of those.)

The movie ends with a bizarre homage to a Budweiser commercial, which depicts the iconic Clydesdale horses making the trek from St. Louis to New Jersey (or possibly Staten Island?) to bow down to the victims and heroes of September 11.  The movie re-creates the scene, substituting giant primordial aurochs for the horses.  It is a highly bizarre reference—baffling, really.  In both cases, mass murder is followed by a gesture of respect from nature, but in the commercial the respect is directed to the victims, while in the movie the respect is directed to the perpetrators.  I never would have guessed that, as between a widely-hailed independent film and a beer commercial, the beer commercial would have the vastly better moral sense.