NYC Olympic Bid: Market Inefficiencies and Governmental Action

With the approval of the building of a new stadium in the West Side of Manhattan, to the designing of an Olympic village, to the recent release of the formal 2012 Olympic Bid, its been tough to not see any coverage of the NYC Olympic bid if you ever travel to any sports related website, from espn.com to CPSsportsline.com to cnnsi.com there have been sporadic article involving one issue or another since July. A New York Times article discussing some of it can be seen here: http://www.westsidestadium.com/content/newsarchives/nyt111804.htm . What is interesting about this, is that the government of NYC is deeply involved in it, and looking at the issues gives a good understanding of two of the market inefficiencies under-provision of public goods and positive externalities, we discussed in class, and the possible appropriateness of government or collective action in such cases. Firstly we can look at the idea of the Olympics as a whole as a public good. As a whole it is non-rivalrous. The more people involved in the Olympic experience, it doesn’t mean there is less enjoyment. As far as exclusion, you can easily exclude individual events, but the Olympics as a whole aren’t really exclusionary. Especially in a place like New York. The whole city becomes part of the experience and its not all that feasible to exclude. Thus there is reason that Bloomberg might force collective action by paying for the Olympics with tax everyone’s tax dollars. If, however, you buy into the theory of clubs and the lighthouse idea, and presume that you could sufficiently exclude the Olympics, and suppose someone had enough capital to privately fund the Olympics. Why then, might the government take action, as it is doing, to try to attract the Olympics? There are a number of externalities involved with the Olympics. It attracts huge tourism, now and after the Olympics, there are many jobs involved with it, it allows for new buildings to be made, new construction, it gives a good image for the city, and many intangibles. Presuming it outweighs the negative externalities (traffic, businesses shut down, etc.) the Olympics might be underprovided. We can’t rely on the Coase theorem to solve this problem, with the huge amount of varied people in NYC, so the government steps in, to ensure the optimal amount of Olympics are provided, that’s why they spend the tax payers money to get it. Now, we can look at some of the specific parts of the Olympic bid to see the market inefficiencies, and the reason for governmental collective action. The first can be seen in the first article here: http://www.velonews.com/news/fea/7185.0.html . The City is spending 21 million dollars to turn an old landfill into a park w/over 50 miles of biking and running trails and over 2000 acres of park. Why? Well, Buchanan and Coase would say unnecessarily, since exclusion would be easy. But it is definitely, to a large degree, a public good. It benefits the whole city, yet a free rider problem (and the fact that it would be there for more than a million residents, certainly would cause problems as well) lead the city to feel it must force collective action. On top of this, it would be the mountain bike and equestrian venues for the Olympics, which we’ve already discussed as a possible public good. So the city uses this reasoning to take action. An even larger expenditure by the city, involves the partial funding of a Stadium, seen here: http://sports.yahoo.com/nfl/news?slug=citadel-2_314839_65&prov=citadel&type=story . The city would contribute some 300 million to the building of a Stadium, in Manhattan, that would be used by the Jets and the Olympics if they got it. When including the necessary building of a subway as well as some related office buildings, the city would be paying more than 1 billion dollars in the whole project. Clearly, as seen by the number of privately funded stadiums, this isn’t an issue of Public Goods. Why then, is the government getting involved. There are major externalities and the size of the city make the Coase theorem obsolete. Because it would easier for a private person to make the stadium in Queens (thus under-producing in Manhattan w/0). Because of the jobs, the new construction, the tourism attracted by the stadium’s events, and mainly the use of it to attract the Olympics, there are many benefits that all external to the people producing and consuming the stadium. Thus, whether its right or not, Mayor Bloomberg feels he must use tax payer money to make sure the market is efficiently allocated. I’m dragging on here, so I’ll wrap it up. I guess my point is that public choice is applicable to everything around us. Not just things seen on the Wall Street Journal or CNN but the sports pages, or anything else (like “Public Enemies” that he mentioned in class today).

Environmental Regulations

I chose this article because it touched on a couple of the topics that we have already discussed. http://www.cato.org/pubs/regulation/reg19n4b.html. This article, by Jonathan H. Adler, focuses on the role of environmental policies on economic actions. "One should not be surprised that economic interests lobby, litigate, and make alliances with "public interest" organizations to ensure favorable treatment for their own interests and to utilize environmental regulations to transfer wealth." - Firms use the enviroment as their transfer of wealth in order to "rent seek". However, the returns that the enviromental firms are looking for, is in the form of regulation. The article goes on to talk about how, all though regulations for the environment often seem to be in the publics interest, there are often times different motivations behind these regulations. The article explains that both the legislature and the bureaucrats are implimenting regulations that will help the public but on a side note benefit issues that are most important to them (there are plenty of specific examples in the article). "For years many academics have suggested that regulatory policies are more the result of interest-group manipulation than dispassionate consideration of the public interest. " - This articles also clearly explains the need for rents seeking and justifies it as the "only legal way to predation" and that in the envirnmental industry it is the only way to recieve the regulations that they are looking for. Adler claims that since regulations are here to stay, why shouldn't environmental firms rent seek, because often times these regulations benefit the larger plants, so the smaller ones need to find a way to keep from getting weeded out. However, when the rent seeking involves the environment, the result is different than in most cases. No matter who is doing the rent seeking, public interest or regulated firms, everyone benefits from less pollution and a regulated industry. "In fact, by their very nature, environmental regulations are conducive to rent seeking, for in the environmental context, both regulated firms and "public interest" representatives stand to gain from reductions in output and the creation of barriers to entry." So whether or not the regulation is in the interest of the public, it benefits the plant/firm regarless. The article goes on to apply the argument of using environmental policies for private interest in a number of past examples, such as the Clean Air Act of 1977 and Bush's term. Adler claims that these underlying incentives makes envirnmental politics "as polluted as the rest." This artcle touches on both Stigler and Peltzman topics. Although legislature may claim that the regulations are in the publics best interest, in environment issues, firms go looking for regulation, they want entry barriers to be created. If a coal factor offers to lower admissions in return for a form of regulation that will benefit the coal industry, then the legislature truly will never object because both the reduction in admissions and the entry barrier are going to benefit everyone. Usually there are external cost or one group gets all the benefits while everyone else reeps the costs, however when there are regulations put into place for the envirnment, the benefits are not limited to a single firm. Peltzman said that we only get regulation where we want it, and the environment is definately an area where we want regulation. However, i am not really sure who holds the power in this instence because large firms offer "transfers" that a legilature won't want to turn down in return for a regulation that is only going to give them more power. The legislature won't turn them down because we assume they are vote maximizers and since the envornment effects everyone, the 2 groups (benefit & taxed) are blurred and the legislature is paid in votes by both groups. The regulation, though not initially in the publics best interest, will benefit the public as well. However,in the situation of the environment, the rentseeking can go either way, the firms want regulations from the government and the government is willing to compromise in return for something else. Although the environment is clearly a public good, the government definately needs to step in an regulate as the envirnment has become a tool being used to impliment private interest issues. Except if the government can also benefit from some of these individual incentives, then it isn't completely regulated to fit the publics interest. As we have been talking about the principal-agent issues, it makes me wonder which part of the actual funds that have gone towards cleaning the envirnment was truly for the publics interest. The article stated that 2% of the GDP goes towads the environment, however it is difficult to determain exactly the effect of funding to the envirnment. Enjoy the aricle!!

THE CENTER FLEXES ITS MUSCLES

I had last month’s Wired laying around so I thought id pick it up and see if there was anything blog-worthy. I found THIS ARTICLE on Gov. Arnold Schwarzenegger (smirk, even laugh if you want to) particularly interesting when I began thinking about what the Governator has done in California and how it relates to the median voter theorem. The author, Jill Stewart, calls the action hero “The New American Idol,” and sees Arnold as the future of American politics, calling him “. . . socially liberal and economically conservative . . .a political hybrid who can't easily be labeled, categorized, or dismissed as a conventional hack. . . acts in ways that most politicians, beholden to moneyed interests, can only dream of . . ..” The fact that he is an outsider without any significant party affiliation is a testament to his legitimacy as a sincere individual who will pursue the interests of the people before himself. It seems as if his lack of a vested interest in the office makes him a more ideal politician, willing to listen to and respect all the people he represents. Most political analysts, democrat and republican, agree with Stewart that “. . .a funny thing happened on the way to California once again being the butt of late-night TV jokes: Schwarzenegger has turned out to be a surprisingly effective governor.” Eradicating gerrymandering, balancing the budget, letting the courts and people decide gay-marriage, stem-cell research, and a wide range of other issues for themselves, and being pro-environment, pro-choice, and laissez-fair with business are all positions that resonate well with many Americans, placing Schwarzenegger in a very comfortable and influential position. Arnold believes, and I agree, that bipartisanism proves to be more effective when someone has to represent millions of people with widely varying views and beliefs. As Farah pointed out in her blog, the concept of a party moving towards the center in order to capture the median voter should be carefully examined before it is carried out because of a resulting intersection of positions leading to voter indifference, alienation, and abstention. Politicians play a dangerous, some would say dishonest, game when they try to appeal to as much of the center as possible while retaining their extreme left or right core constituents (not to mention funders). Supposedly the candidate who captures the median voter is the victor, and one of the main concerns of a party moving towards the center is loosing those far-left or far-right votes that would cancel out those gained by the move. Now a candidate like Schwarzenegger, whose stance on a range of issues seems to place him smack in middle with a reach extending close to the centers of the left and right, appears to me to be unstoppable (insert your favorite terminator/action star joke here). Although a run at the White House isn’t in the cards unless the constitution is amended, the implications his success and support have on a national level are considerable. Will “the Schwarzenegger model” become the rubric of success for financially viable, loosely tied, political outsiders with genuine intentions, moderate views, and a desire for a seat at the table? If so, can these candidates manage to alienate the far-left and right, capture the median voter, and bring along enough moderates from both parties to get elected? Following that logic a little further, this would then mean it is possible that the left and right extremes would no longer be necessary to appeal to in an election, as their voting would be largely unpredictable and inconsequential. On the other hand, if two center-based candidates were vying for office, it would seem that whoever could capture the far-left or right vote would win. What does this mean for the no longer coveted median voter and the median voter theorem itself? There could be a tremendous impact on the balance of power as well as foreign and domestic policies. If the steam of this less corporately funded, socially liberal, fiscally conservative movement picks up, is there also the potential for a move toward a three party system composed of center-based (libertarians??), far-left-based, and far-right-based parties? This would change the way the US Government operates. The re-election of George W. Bush left a sour taste in the mouths of roughly fifty-three million people; perhaps the country is in for an identity check that will unite the center at the expense of the extremes. What do you think?

French President Accuses British PM of Violating Assumptions of Public Choice

Well… not quite, but according to this BBC report from yesterday, just before the war in Iraq, French President Jacques Chirac told British Prime Minister Tony Blair that he did not think that Blair and the U.K. had seen their support for U.S. policies and actions in the Middle East returned in-kind. Specifically, Mr. Chirac noted, "'Your position [on Middle East policy] should at least have some use,” and, “You absolutely have to obtain something in exchange for your support.” The British premier doesn’t seem to see things quite the same way: “Tony Blair's spokesman said the remarks were unsurprising but the prime minister did not see relations with the US in terms of ‘pay back’.” I think this brings some interesting challenges and questions to our assumption that politicians are rationally self-interested, with a large part of their utility found in keeping their job. That is, vote-maximizing. One position could be that Tony Blair believes that his policies will prove worthy and eventually garner the greatest number of votes. However, I think it is at least worth considering that politicians derive some form of utility from creating and enacting policies that work (in their eyes, at least). I would venture to guess that in reality this situation features a bit of both. Blair believes this supporting U.S. action is in the best interests of Britain (it’s the right thing to do – period), and also believes that he can get away with it politically, despite the strong anti-war sentiment in Britain (it’s the right thing to do – politically). I suppose it gets a bit more complicated because of the control Mr. Blair and his party have over elections in the British parliamentary system, but I’ll leave it to the Comparative Politics majors to duke it out over that one. Considering a relaxation or restatement of the assumption of vote-maximization is especially important when looking at officials who have already been elected. After all, if we keep the assumption taut, what can Public Choice models tell us about officials who no longer face elections themselves? Lame duck presidents come to mind. The point is this: Must we completely rule out altruistic or moralistic motives in government? While such subjective traits are difficult to evaluate in a formal or mathematical sense under utility optimization, it does not mean such motives do not exist.

To vote or not to vote, or to be forced to vote

Although democratic voting exists in most countries, few have made it a legal citizen duty. According to Wolfgang Hirczy de Mino, author of the article “Compulsory Voting”, “it is an option available to new democracies and worth contemplating as a means to assure high levels of voting, which is likely to enhance the legitimacy of representative institutions and of the political system generally.” Compulsory voting has been adopted by long-standing stable democracies such as Australia, Belgium and the Netherlands; it was also adopted by not so stable democracies in Latin America (Argentina, Brazil, Costa Rica and Ecuador). Mino argues that although high levels of turnout can be found under voluntary voting, compulsory voting definitely guarantees a higher rate of participation from the electorate. The highest gains from establishing mandatory voting would be in countries where voter participation is low. In addition, the law requiring voting would have to be enforced and respected by citizens in order to achieve a higher voter turnout. Lastly, Mino makes a very valuable point on how compulsory voting makes campaigning more efficient for candidates: “When the state assumes responsibility for citizens turning up at the polling stations, parties and candidate can focus on promoting their programs and on swaying voters, rather than dissipating their energies on getting the voters to come.” The argument standing against compulsory vote is more of ideological content. “The most common objection on normative grounds is that citizens ought to have the right NOT to vote as much as the right to vote. Some citizens boycott the election on principle arguing that compulsory voting impinges upon this basic freedom, while many people's failure to vote is borne out of apathy” stated Mino. “The 'right to abstain' is often asserted in the United States, and explicable with reference to its individualistic and rights-focused political culture, but the argument is aired elsewhere as well.” Furthermore, compulsory voting requires a heavy bureaucracy and administrative costs – voter information must be recorded, fines and punishments are issued to those non-voters. I don’t think being forced to vote is truly a democratic act. It actually seems silly to me being forced to go vote on certain occasions if I have no candidate I wish to vote for (the option “no candidate” is on the ballot). I also don’t see how mandatory voting would reflect the interest of the majority. A lot of completely uninformed and uninterested people in countries like Brazil or Ecuador vote every election without knowing much about their candidate. At least the voter in countries where voting is voluntary has some kind of interest or knowledge on the candidate he or she is voting for. I do agree that society would benefit from a larger and stable electorate. Spending a lot of resources on getting people to vote and not enough on the candidate’s political platform seems inefficient. Less resources are necessary when the population has already been mobilized to vote; yet, because there is a very large and fixed amount of people voting, resources get plundered anyways. Ultimately, not only I see voting as a right, but also, I believe that coercion does not necessarily bring the best interests of the majority. http://www.aceproject.org/main/english/es/esc07a.htm by: Carla Larangeira

Stigler's Theory of Regulation

Russell Roberts posted a nice blog yesterday on the licensing of taxis in Montgomery County, MD. Old gus enjoyed it very much, and I recommend that you read the entire post. Anyway, while old Gus was reading the beginning of the post, the obvious question that I kept asking myself was: "what would Stigler say?" Well, by the end of the post, Roberts reveals the answer to the question. It turns out that there is already a virtual monopolist provider of taxi service in Montgomery County (Barwood Inc.). In addition, the Washington Post article that Roberts cites reveals the following about this monopoly firm, and its relationship to Douglas Duncan, the County Executive: The company is owned by Lee Barnes, a Duncan campaign contributor and a member of the county board that regulates the industry. He holds -- directly or through affiliates -- 434 of the 580 taxi licenses in Montgomery. So here is some rent-seeking and rent-protection in action! One other thing about this fellow Russell Roberts. He is the author of the very fine romance novel entitled The Invisible Heart. A very entertaining read for all econ students. OldGus enjoyed it, even though the central character is an economist, not old prospector!

Bureaucratic Discretion or Congressional Control?

This week in class, we'll be talking about bureau behavior. A key component in the developement of a theory of bureacracy is a hypothesis regarding the independence of agencies. This blog post from my friend Alex at Marginal Revolution discusses one such agency: the Securities and Exchange Commission (SEC), and its relationship to the U.S. Senate. Please read this short post (and hyperlinks). This is a good example of something we will cover this week in class.

The Importance of Blogs

On CNN.com this morning, I found an article related to exactly what we've been asked to do for our 5% TBA - create blogs. I found that this form of publication (that I had never heard of until last week) is actually an issue of controversy and increasing popularity. In the article entitled How do bloggers impact political news? the primary concern is that readers may be influenced by blogging practices. The reason this article was in the news is because Ana Marie Cox of Wonkette! and other writers posted exit polls throughout Election Day, and this is “a practice frowned upon in the mainstream media because the data could sway the outcome.” However, as Cox states, the impact is only as strong as the readers' beliefs, and it should not be a big issue.

The advantages of blogs are discussed in this article: (1) they make it more difficult for the larger news organizations to “sit on a story,” (2) they provide stories for further exposure on these mainstream news organizations, (3) they expose flaws in news reports and thus promote their corrections. However, along with the advantages of blogs come the disadvantages. Because blogs are written by individuals like us, the credibility is not established like that of CNN or other popular news publications. At the end of the article, a University of Florida journalism professor expresses her concern that the ethics of professional journalism are at stake; she is afraid bloggers will not check the truth of their information.

Although it is considered a disadvantage in this article, I believe that blogs are actually a new source of credible information. The new bloggers who want their name out there will work hard to submit information and back it up with facts. As we all have probably noticed in these last few months, mainstream news organizations are not completely credible (Dan Rather and CBS News), and they are all certainly biased in reporting political news (the position of the camera in pictures of debates, etc.). With the addition of blogs, people will be able to read different takes on the same story and be able to form their own opinions. Therefore, I do not believe that the journalism professor has any reason to be concerned. Americans who want more insight into news and politics are smart enough to sift through the bad journalists, and therefore, those bloggers will disappear.

If you want to see some blogs from the election, click here: http://www.cnn.com/2004/ALLPOLITICS/blog/11/02/election.blog/