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Derek Bonett



Articles by Derek Bonett

Wherefore the Freedom Caucus?

May 22, 2019

In a column for Reason Magazine yesterday, Matt Welch asks “What’s the point of a ‘limited government’ bloc that doesn’t limit government?” Indeed, in the Trump era some of the President’s most strident defenders can be found amongst the ranks of the Freedom Caucus, and, as my colleague Chris Edwards points out, they seem every bit as comfortable with big deficits as the other fiscal-conservatives-cum-spendthrifts in the GOP.
But, to my knowledge, nobody has yet performed a systematic analysis of the Freedom Caucus’ voting behavior vis-a-vis other Republicans in the House. Do they, as a caucus, even vote cohesively? If so, are they at all differentiable from generic Republican House members? I set out to test this using the NOMINATE methodology to assign an “ideal-point” estimate for

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Statistical Ambiguity Should Never Be Glossed Over

May 2, 2019

The New York Times’ “Upshot” blog is an admirable attempt to inject the public policy debate with data-driven insights. Too often, we are treated in the Opinion pages to gauzy, impressionistic arguments left empirically adrift. 
One such article, by the NYT’s healthcare specialist Margot Sanger-Katz, has been frequently cited and tweeted about since its publication in 2016. It is titled “How Expanding Medicaid Can Lower Insurance Premiums For All.” Just today, the Upshot twitter account retweeted the following, by Democratic leader of the Wisconsin State Assembly, Gordon Hintz: 

Medicaid expansion actually lowers private insurance costs. I encourage a follow-up question to Republicans leaders: If your stated reason for not accepting Medicaid expansion is not true, isn’t this just

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The Brussels Behemoth Isn’t Just a Conservative Fever-Dream

March 12, 2019

In a 2016 interview, Daniel Hannan, an MP in the European Parliament, offered the following criticism of the UK’s continued membership in the European Union:
The economic price is not just the £19bn gross (£10bn net) that we hand to Brussels every year—enough to build and equip a state-of-the-art NHS hospital every week. It also takes the form of the regulatory burden that falls on our businesses, especially smaller firms…for we pay both a democratic price and an economic price. The democratic price is that laws are handed down by institutions that no one elects… European commissioners are immune to public opinion, invulnerable to the ballot box.
His attack against over-regulation by Brussels as both an economic drag and a violation of representative democracy neatly echoes

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Bloomberg Unwittingly Vindicates Stigler

February 26, 2019

In a recent Bloomberg Government article, Cheryl Bolen pushes back against what she perceives to be two myths of the much-touted Trump deregulatory agenda: that deregulation is in fact occurring, and that repeal of existing regulations actually helps businesses. I shall address these in reverse order, first demonstrating that most regulation is a net drag on the economy, and then mustering evidence to the effect that the Trump administration’s deregulatory push is real indeed.
Do Regulations Hurt Businesses?
Celebrating deregulatory efforts concedes the premise that the typical regulation is on net more costly than it is beneficial. Cheryl Bolen makes the argument that such celebrations are mistaken: while businesses do benefit from greater predictability, they benefit hardly at all

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Testing the Effects of Auer Deference

February 6, 2019

Libertarians are no fans of the administrative state. It consists of agencies with the power to generate rules that are binding on citizens. Congress, the branch of government that our founders anticipated would “necessarily predominate” in a republican form of government, first arrogated to itself vast powers beyond their contemplation, and then delegated these powers to the executive branch. The courts have, through a series of key cases, abided this abdication of responsibility. Moreover, the courts have derelicted their own duty to dispositively rule on the acceptable interpretations of an agency’s authorizing statute, a doctrine known as Chevron deference. So too have courts allowed agencies to interpret their own formal rules, a doctrine known as Auer deference. While this

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“Studies Show”: Or Do They?

January 25, 2019

In an article for the New York Times newsletter The Upshot, Claire Cain Miller and Jim Tankersley argue that mandatory parental leave is economically and socially beneficial. The authors review research that supposedly demonstrates that mandatory paid parental leave increases female employment, wages, and work hours without adversely affecting productivity and turnover. A closer look at the evidence, however, casts doubt upon these claims.
First, Cain Miller and Tankersley advocate a six-months paid leave policy proposed by California Governor Newsom. They reference economics literature that suggests that six months of parental leave is “ideal.” To support this claim, the authors cite an NBER working paper from 1995, “Parental Leave Policies in Europe and North America,” by

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Interventionist Assumptions in the World Bank’s “Doing Business” Index: Part 2

January 16, 2019

This is Part II of a two-part series on the World Bank’s Doing Business Report. In this entry, I discuss the extent to which the World Bank imposes a one-size-fits-all corporate governance regime and penalizes deviations from it with lower scores on the “Protecting Minority Investors” index. For Part I, see my earlier post.  
“Protecting” Minority Investors
The second major problem with the World Bank’s Doing Business Report is reflected most clearly in its “Protecting Minority Investors” category. Here, the index implicitly mistrusts the power of spontaneous private-ordering.
Countries construct their corporate law regime along a rough continuum, from a contractarian and enabling approach to a mandatory and statutory approach. The former (prevalent in common-law countries) says:

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Interventionist Assumptions in the World Bank’s “Doing Business” Index: Part 1

January 14, 2019

This is Part 1 of a two-part series on the World Bank’s Doing Business Report. In this entry, I discuss the World Bank’s implicit embrace of occupational licensing restrictions. In the next entry, I will discuss the World Bank’s dim view of private, contractarian approaches to corporate governance. 

I. Introduction
The World Bank’s annual Doing Business Report represents an invaluable resource to researchers, policymakers, entrepreneurs and investors. It comprehensively ranks how well each country in the world has managed to achieve John Adam’s elusive aphorism:  “the rule of law, not of man”. Its findings are cited thousands of times each year by academics and are directly incorporated into regression models to form the basis of a substantial empirical literature spanning

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Empirical Evidence for Stock-Market Short-Termism?

December 18, 2018

This blog post is part of a larger series on stock-market “short-termism”. See also my entries on share buybacks and progressive corporate governance reforms.
I. Introduction
To recapitulate the “myopia thesis”: managers of publicly traded firms are hostage to diversified shareholders who forego careful study of the firm’s fundamentals and instead respond to the latest, easily digestible quarterly earnings report. Rather than undertaking investments that might have a substantial return down the road, managers mimic the priorities of transient shareholders uninterested in a firm’s long-term strategy. Future-oriented firms that resist this temptation will find it more difficult to raise capital. This will then jeopardize their ability to survive long enough to reap the returns from

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Progressive Corporate Governance Reforms

December 10, 2018

This blog post is part of a larger series on “Stock-Market Short-Termism” (see also my entry on share-buybacks). I will be assessing one proposed cure, corporate governance reforms, and will argue that it is likely to be iatrogenic.

I.
On August 15, 2018, Senator Elizabeth Warren formally introduced her “Accountable Capitalism Act”, that would, inter alia, require of all firms generating $1 billion or more in revenue that “no fewer than 40% of its directors are selected by the corporation’s employees.” In mandating that corporations include employees qua stakeholders in the firm’s major decisions, government would be putting its thumb on the scale in shifting the balance of power away from the corporate governance outcome that has emerged in the free-market: shareholders today

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Share Buybacks: Mismeasured and Misunderstood

November 30, 2018

In March of this year, Forbes published an article with the following lede:
The Economist has called them “an addiction to corporate cocaine.” Reuters has called them “self-cannibalization.” The Financial Times has called them “an overwhelming conflict of interest.” In an article that won the HBR McKinsey Award for the best article of the year, Harvard Business Review has called them “stock price manipulation.” These influential journals make a powerful case that wholesale stock buybacks are a bad idea—bad economically, bad financially, bad socially, bad legally and bad morally.
There is no shortage of hand-wringing over “excessive” stock buybacks, either in the academic literature or in the popular media. Such criticisms are misguided in two crucial ways. Methodologically, they

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Index Funds: Promise or Peril? Part II

November 19, 2018

This is the second entry in a two-part series on the rise of index funds in U.S. equities markets. This post is for the intrepid reader interested in a thorough survey of the empirical and theoretical literature concerning the implications of institutional investors. In the first entry of this series, I disputed the mechanisms by which index funds are argued to exert an outsized influence on the firms within their portfolios. But in this second entry, I will instead grant this key premise of the anti-trust advocates’ argument: index funds, either individually or as a group, have a significant degree of influence over major decisions made by the firms in their portfolio. But the anti-trusters then go on to argue that index funds will deploy this power to induce these firms’ management

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Index Funds: Promise or Peril?

November 13, 2018

This is Part I in a two-part series in which I address the argument that: 1) index funds are seizing an outsized influence over publicly traded corporations, and 2) that they are wielding this influence so as to reduce intra-industry competition between firms in their portfolio. In this post, I summarize the argument and offer some criticisms as to why this influence may not be as significant as it appears. In Part II, I will proceed to argue that, to the extent that index funds have indeed acquired some influence over the firms in their portfolio, this may in fact be a salutary development.
I. “Common Ownership” and Anti-Competitiveness
Over the past two decades, “passive” funds which maximally diversify their portfolios by investing in an entire market index (e.g. the S&P 500) have

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“You Didn’t Build That”

November 9, 2018

Ronald Reagan’s legacy-defining tax cuts passed through Congress in 1981 and 1986 with broad Democratic support. The Tax Cuts and Jobs Act of 2017 on the other hand, failed to garner a single Democratic vote before President Trump signed it into law. In the latter case, the lack of concomitant spending cuts might allow one to frame this opposition as an act of fiscal prudence on the part of the Democrats. But the counterfactual – that if the legislation had also included a scaling back of Medicare benefits and a partial Social Security privatization then the Democrats would have leaped on board – strains credulity.
More likely, Democratic opposition is motivated, at least in part, by an increasingly ideological commitment to a European style social welfare state. Many Western European

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