Author Archive | Todd Zywicki

University Endowment Returns

Joe Asch has an interesting analysis of returns on university endowments over time (focusing on Dartmouth but comparing Dartmouth to over Ivy League institutions), comparing the returns of actively-managed endowments with those with a simple 60/40 equity-bond split. He notes that while actively-managed endowments beat the benchmark for the past year over the past five years it hasn’t done so well comparatively:

However, over a five-year span, despite active management by Trustees and the College’s investment staff, we underperformed a 60/40 equities/bond allocation by 1.8% annually. The only major endowment to beat the 60/40 allocation was Columbia, and its performance was only 0.6% annually above that of a plain vanilla strategy.

He also notes that Ivy League universities pay their chief investment officers annual salaries ranging from $673k at Cornell to over $5 million at Harvard.

The underlying analysis that Joe excerpts is here. [...]

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Student Prevented from Handing Out the Constitution… On Constitution Day

Greg Lukianoff and Robert Shibley of FIRE have come across a doozy of a free speech case–a Modesto Junior College student who was prevented from distributing copies of the Constitution on Constitution Day.

The student, a former Army veteran, recorded the incident.  Posted here.

One of the illuminating things about this video is the combination of cluelessness and arrogance of the petty bureaucrats that run student life on university campuses these days.  What a classic line that captures the whole incident in a nutshell (uttered by the university bureaucrat in charge of handing out the permits):  “[We have] two people on campus right now, so you’d have to wait until either the 20th, 27th, or you can go into October.”

FIRE and David Wright Tremaine are representing the student in a legal challenge.  More info here.

One of the real oddities of the entire speech code issue is the way in which these policies seem to come into being and then are implemented by university bureaucrats deep in the bowels of these massive student life bureaucracies on campus.  Although free speech obviously has important educational implications, faculty never get a chance to review and approve these policies.  They just emerge from some undifferentiated mass of student life bureaucrats.  At one point it is a “free speech zone” and some other day it arises as some vague anti-harassment policy.  It is like some sort of weed that is carried with this modern generation of professional deans from one campus to another and it just creeps up out of nowhere.  Rarely does it seem to be the case that faculty or senior administrators have approved or are even aware of the content of these policies.

I’ve actually been trying for years now to try to get George Mason’s speech [...]

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The New Pope Doesn’t Heart the Free Market

It appears that he is agin’ it (full document here).

I’m not going to go into the wrongheaded economics here. Instead, what I think is curious about this document is a longstanding peeve of mine. Ever since the Galileo incident, the Catholic Church has generally tried to be careful to get its science right before it opines on ethical matters related to science. It takes seriously questions of bioethics and has developed internal expertise on those issues. Yet when it comes to economics, the Church seems to have no qualms about opining on issues of economics without even the slightest idea of what it is talking about.

I mean, seriously?

204. We can no longer trust in the unseen forces and the invisible hand of the market. Growth in justice requires more than economic growth, while presupposing such growth: it requires decisions, programmes, mechanisms and processes specifically geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality. I am far from proposing an irresponsible populism, but the economy can no longer turn to remedies that are a new poison, such as attempting to increase profits by reducing the work force and thereby adding to the ranks of the excluded.

Well darn that John Paul II for helping to bring freedom to Poland and getting rid of all those “decisions, programmes, mechanisms and processes” that were so beneficial to the Poles under Communism. Now they just trust in the unseen forces and the invisible hand of the market. And look what that’s gotten them? Uh, never mind… [...]

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Direct Deposit Advance Products

Well, as if on cue–the OCC and FDIC have issued new guidance that places new restrictions on consumer access to Direct Deposit Advance products, which are functionally similar to payday lending but offered by banks. The main beneficiaries of new guidance, however, are not likely to be consumers, but payday lenders and bank overdraft programs, as consumers who had used these products shift to less-preferred substitutes. This is exactly the dynamic that I and my co-author Robert Clarke (former Comptroller of the Currency) describe in our new working paper describing the market competition between payday lending, direct deposit advance products, and overdraft protection. [...]

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“Payday Lending, Bank Overdraft Protection, and Fair Competition at the Consumer Financial Protection Bureau”

I just posted a new article on SSRN co-authored with Robert Clarke, former Comptroller of the Currency. It is entitled “Payday Lending, Bank Overdraft Protection, and Fair Competition at the Consumer Financial Protection Bureau” and will be forthcoming in Boston University’s Review of Banking and Financial Law. Here’s the abstract:


The Consumer Financial Protection Bureau (CFPB) is considering new regulation of payday lending and bank overdraft protection. The Dodd-Frank Act, which established the CFPB, recognizes that consumers benefit from competition among providers of consumer credit products. That law requires the CFPB to preserve fair competition by providing consistent regulatory treatment of similar products offered by both bank and nonbank lenders. We illustrate how this mandate for fair competition applies to the regulation of payday lending and bank overdraft protection, products that are offered by different entities but attract an overlapping customer base, compete with each other directly, and raise similar consumer protection concerns. Unequal regulation would provide a competitive advantage for one product over another, resulting in reduced choice and higher prices for consumers, without a corresponding increase in consumer protection. Therefore, as the CFPB considers new regulation of these products, it should be careful to regulate them similarly to preserve fair competition.

The article examines the available evidence of the ways in which consumers use both products and what that means for CFPB regulation.  Most notably, not only are they economic substitutes, but they raise similar consumer protection issues about overuse and high cost. So restricting access to one product (such as overdraft protection) while retaining access to a substitute (such as payday lending) will harm consumers economically but will also generate no benefits in terms of advancing consumer protection goals.

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Behavioral Law and Economics and Bank Overdraft Protection

In the past few months, at least two articles have come out that apply behavioral law and economics to the analysis of bank overdraft protection. One by Bubb and Pildes (forthcoming in the Harvard Law Review) and the other by Lauren Willis in The University of Chicago Law Review. Both articles make the same claim–that there are situations in which consumer behavioral biases are so pronounced and banks are so “nefarious” (a term actually used by Bubb and Pildes at one point) that it is no longer sufficient to simply have mere “nudges” or “sticky defaults,” instead it is necessary to have more aggressive interventions.

Both use the same example to purportedly demonstrate their point–federal regulation of bank overdraft protection. Here’s the story: a few years ago the Federal Reserve changed the rules governing how consumers are enrolled in bank overdraft protection programs for overdrafts of ATMs and point-of-sale debit card transactions. Previously, it was the practice of many banks to automatically enroll consumers in overdraft protection when they opened their account unless consumers opted-out. Regulation E changed it to an opt-in system, so consumers have to sign up for it. The Fed’s expressed rationale was that they were concerned about the propensity for some small percentage of consumers to use overdraft protection “excessively” (i.e., more than 10 times annually) and that moving to opt-in would protect these heavy overdrafters from themselves.

So what happened? First, while estimates vary, the percentage of people enrolled in bank overdraft programs fell (some banks simply eliminated the program because of regulatory risk). Second–and more important–the tendency of consumers to opt-in was precisely opposite of that predicted by the Fed–the tendency of consumers to opt-in was positively and linearly related to the number of overdrafts that they make. For example, the CFPB [...]

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Asheesh Agarwal Reviews Unprecedented

Asheesh Agarwal has a review of Josh Blackman’s book Unprecedented: The Constitutional Challenge to Obamacare over at the Liberty Law blog:

The story of the Affordable Care Act is as twisted and bizarre as anything ever written by Stephenson, Kafka, or Orwell. It is an Act that saw the President oppose his signature legislation, before he supported it, and that saw the President’s challenger sire the Act, before he disowned it. The Act sparked conservative outrage around the country, though it was conceived in the heart of the conservative movement. It passed only through handouts to some States, but was partially stricken as violating the financial free will of all the States. And, of course, it is an Act that raised no taxes, but that survives as a valid exercise of the taxing power.

In Unprecedented: The Constitutional Challenge to Obamacare, Josh Blackman tells the story of Obamacare with the flair of a novelist and the eye of a historian. Blackman, a law professor who helped coordinate the legal challenges to the Act, describes the Act’s full history: as a policy innovation, a political machination, a campaign football, a media spectacle, and, last but not least, a legal drama. Throughout, Blackman conveys both the historical sweep of the transformative law and a minute-by-minute, insider look into the series of events – some would say accidents – that have allowed the Act to survive numerous political and legal challenges. Despite (or perhaps because of) the book’s insights, after reading it, the reader is still left asking a very basic question: How on earth did the Affordable Care Act become the law of the land?

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Williams v. Walker-Thomas Furniture Co.

At one point someone had posted several photographs related to the case of Williams v. Walker-Thomas Furniture Co.  They were vintage picture of the owner of the store, the store itself, etc.  I had a bookmark at the following location: .  But that link doesn’t seem to be working anymore.

Does anyone know if those photographs are still available and if so where I could find them? [...]

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Commentary: CFPB Study on Overdraft Programs

I have just posted a new Mercatus Center Working paper, “Commentary: CFPB Study on Overdraft Programs” co-authored with Michael Flores. You can get it here.

Here’s the Abstract:

The Consumer Financial Protection Bureau (CFPB) released its initial analysis of bank overdraft programs in a June 2013 white paper. We review the report and provide commentary on its methodology, its preliminary conclusions, and gaps in its analysis. We provide a synopsis of findings from previous third-party analyses to lay the foundation for our response, and then we follow the paper’s organizational structure as we discuss specific points it makes. We also identify the larger policy questions of access to credit, alternative sources of credit, and the economic benefit attained by the use of overdrafts. These questions must be addressed before the bureau can make any findings of consumer harm that would justify new regulation and the resultant unintended consequences of limiting options to the consumers the CFPB is structured to protect.
The CFPB’s paper that we critique is available here.
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Cuccinelli and The Libertarian Party

By now, some readers are familiar with the peculiar news that came out close to election day that the Libertarian Party candidate Robert Sarvis in Virginia was apparently been a stalking horse for supporters Democratic Governor-elect Terry McAuliffe to try to draw votes from Ken Cuccinelli. Nevertheless, he captured about 6.5% of the vote, potentially enough to have made the difference in the race (although this exit poll says that Sarvis hurt McAuliffe more than Cuccinelli, which is plausible but certainly contrary to conventional wisdom–and presumably contrary to the objective of the Democratic bundlers funding Sarvis’s campaign).

But my point here isn’t to rehash that issue or to think about the possible implications for future elections.

I want to focus on a different question which was raised by Peter Ferrara in his analysis of that election: should the Libertarian Party begin to follow the practice of the Conservative Party in New York and consider in some elections co-nominating the candidate of one of the established parties (usually the Republicans, one would expect)? Based on the chatter I heard from my friends in Virginia, I am not as convinced as Ferrara that libertarians would have agreed with him that Cuccinelli would have been an appropriate Libertarian standard-bearer (I sensed a stronger than usual resistance to Cuccinelli’s views on social issues, even though much of it seemed somewhat overwrought–no, Ken Cuccinelli wasn’t going to ban contraceptives, seriously?). But leaving aside the specifics of Cuccinelli, Ferrara’s idea of the LP co-nominating candidates of an established party strikes me as something worth considering as a productive way of doing what I think the LP must really be wanting to accomplish, which is to “send a signal” that there is a libertarian constituency, but without engaging in the somewhat self-defeating strategy of undermining relatively smaller-government [...]

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Richard Reinsch Comments on Sunstein, Chambers, and the Tea Party

Cass Sunstein had a couple of columns on Bloomberg here and here on Whittaker Chambers and the Tea Party (sort of hard to describe, so I’ll just leave it at that). Chambers biographer Richard Reinsch comments here with some additional thoughts.

As for Rand and Chambers, I have found a lot to admire in both of them and they have both influenced me deeply in many ways although I take neither of them in full. But I will add that in my opinion Chambers’s bit about “To a gas chamber–go” may very well be the most unfair, scurrilous thing I’ve ever read. I certainly admire Chambers as a man and as a thinker, but I’ve always thought that one line was so out-of-line that it does make me think less of him. [...]

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Central Bank Intervention and the Role of Political Connections

I just finished reading a new Mercatus Center study by Benjamin M. Blau, “Central Bank Intervention and the Role of Political Connections.”

The findings are summarized:


The study uses data from a full-scale audit of the Fed conducted by the General Accounting Office to examine whether banks with political connections were more likely to receive emergency loans during the financial crisis. The Fed is politically independent, and its decision making, including its loans, should be motivated by the best interest of the credit markets and the economy in general. Nonetheless, this study finds a high degree of correlation between political connections and the likelihood of a bank receiving emergency support from the Fed during the financial crisis.

Key Findings

  • Banks receiving emergency loans spent 72 times more on lobbying expenditures in the decade before the crisis than banks that did not receive loans; 15 percent of firms receiving support from the Fed employed politically connected individuals; for banks that did not get a loan from the Fed, only 1.5 percent had a well-connected employee.
  • Banks that lobbied the Fed or employed politically connected individuals were more likely to receive emergency loans. The study still finds a relationship between political connections and the likelihood of receiving an emergency loan from the Fed even after controlling for bank size and eliminating from the sample firms listed as “too big to fail” by the Financial Stability Board.
  • When controlling for factors like size and designation as “too big to fail,” politically active firms on average received larger loans than banks without political connections.
  • Banks that employed politically connected individuals were generally in debt to the Fed for longer than those that did not have such employees


Explaining why politically connected banks were more likely to receive emergency assistance will

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Are Only “Substandard” Plans Being Canceled?

The WSJ has an article today on how President Obama could have “parsed” his words better when it came to his claim that if you like your health insurance, you can keep it.

But the WSJ article seems awfully credulous about the supposed “parsing” that the Administration’s spinmeisters are putting on it.  Apparently, what the President should have said, is that you can keep your plan if it is not substandard or “shoddy.”  The canceled policies “aren’t even insurance” some have scoffed.

Richard Kirsch, the former national campaign manager of Health Care for America Now, which pushed for the 2010 health law, said the words were reassuring—and true—for the vast majority of the people, and so his group never raised concerns about that claim. Adding an asterisk to note that people who had “shoddy insurance” might need to change plans was not practical, he said.

“The actual, accurate statement is if you have good insurance, and you like it, you can keep it,” said Mr. Kirsch, now a senior fellow at the Roosevelt Institute, a liberal policy organization.

Leave aside the claim that it was “not practical” for the President to tell the truth.  One Obama official quoted in the article gives up the game when he admits that President Obama easily could have told the truth–you can “probably” keep your insurance or “most people can keep their insurance”–but simply chose not to because telling the truth would have hurt him politically: “The former official added that in the midst of a hard-fought political debate ‘if you like your plan, you can probably keep it’ isn’t a salable point.”  Quite a confession.

Focus instead on the purported clarification that what was omitted was that only those with “shoddy insurance” might lose their plans.

But that’s not actually true [...]

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