Thanks but no thanks!

In this article, it is quite surprising to read about how Michele Bachmann (R-Minn.), Rep. Steve King (R-Iowa), Lynn Westmoreland (R-Ga.) and Jim Jordan (R-Ohio) declined appropriations committee spots very recently. This is almost unheard of.

The appropriations committee is usually very coveted because, most usually, the focus is bringing earmarks back home. The job of the committee (especially for the conservatives) will be very different at this point, and for the foreseeable future: finding $100 billion in spending cuts. Even though the conservatives were voted into office (mainly) because of their firm stance on cutting spending, the committee members will be “accused of hating seniors, hating education, hating children, hating clean air and probably hating the military and farmers, too,” This creates interesting (and backwards) incentives. As the representatives that accept a position in the committee “will have to make some tough votes”. Taken to the extreme this could mean that the representatives that have a choice (the ones with enough seniority that is) will try as hard as they can to stay out of the appropriations committee, and that the ones that don’t have much of a choice (the freshman) might end up on that committee. And if cutting spending generates as much dislike as is claimed in the article, these representatives are almost guaranteed to be voted out of office in 2 years.

“The chairman needs to have some young stallions in there who are ready to back him or her up,” Kingston said. “And you’re going to do this in the face of Democrats and the press and the administration fighting you on it all the way.”

Bob Livingston, who chaired Appropriations from 1995 to 1999, however thinks that any representative can “make a darn good campaign out of going on the Appropriations Committee and cutting the budget. They can make a name for themselves by cutting spending.” And I wonder if the senior representatives that have been in the appropriations committee prior to the last midterm election wouldn’t be making a huge mistake by potentially loosing a lot of credibility.

How much of these spending cuts will actually happen? All the representatives, apart from the ones in the committee, will have huge incentives to vote for spending cuts, the ones in the committees have huge incentives to not cut spending. How will this work out? With so much incentives to not cut spending, what will happen?

Congressional Housing Lottery

Unlike while vying for committee placement, all new, incoming lawmakers have to enter a lottery to determine which remaining office they can occupy for the upcoming term. Yahoo Political News details the procedure of occupying newly emptied legislator offices and unlike all other aspects of election, it relies really nothing on merit, campaigning, or even fund raising - it's all decided by luck of the draw. Contrary to both Mueller and Weingast & Moran's analysis of the Congressional committee and sub-committee effectiveness, Congressional office lottery is neither truly hampered by bureaucracy, nor does it in any way work to exercise systematic control over bureaucracy. It's really funny to note that the worst office selections are considered so due to a lack of amenities in cases, and otherwise due to oddities - such as the office at 128 Cannon, which has a women's public bathroom cut into it. Unluckily for him, Republic elect Robert Hurt from Virginia drew lottery number 85/85 and was forced to occupy an office in between a bathroom and a stairwell. Regardless of the terrible location, it's interesting to note that his office is still 842 square feet - considerably larger than many studio apartments. Before you start feeling bad for the incoming lawmakers that drew late numbers, realize that illustrious employees across the world would gladly trade anything for an 842 square foot office. Additionally, Rep. Gary Peters makes everyone feel no sympathy or pity for the rookie legislators by saying, "They spend very little time actually in the office." Judging by the upcoming predicted gridlock on the floor, due to highly diversified party representation, the legislators won't spend very much time making laws either.

The TSA vs. The American Traveler Dignity Act of 2010

The link found in the title describes a proposed bill by Congressman Ron Paul. In reaction to the Transportation Security Administration's (TSA) heightened security checks using x-ray technology and enhanced pat-down screening protocols, Mr.Paul has written out H.R. 6416:The American Traveler Dignity Act. This bill proclaims that "no law...shall be construed to confer any immunity for a Federal...agency...who subjects an individual to any physical contact...x-rays...as a condition...to be in an airport or to fly in an aircraft."

In light of this development, how can Niskanen's traditional approach help us understand the TSA's actions and the response by Congressman Paul? One of the crucial implications of Niskanen's view is that the federal agency, like a monopoly supplier, will want to produce more than the sponsor wants, thereby getting more profits/funds/power. In accordance with this view, because of 9/11 and terrorist threats, the TSA has expanded and ramped up its efforts to ensure that airports remain safe. Because the demand for their services has become rather inelastic, they have the ability to extract more surplus value. Congressman Ron Paul's proposed legislation though illustrates how the Congress can in fact curve a bureau's ability to "run wild." Some would therefore claim that this provides evidence for Weingast and Moran's model that argues that to "understand regulatory policymaking we must understand legislative politics." Although legislators may not be continously or directly monitoring the federal agency, Congress possesses sufficient rewards and sanctions to creative an incentive system.

The problem with this argument in this particular case is that the legistlation proposed still has to pass through the House Judiciary committee for approval. One of the essential components of the Congressional Dominance Approach is that rewards "go to agencies that pursue policies of interest to the current committee members" while "those agencies that fail to do so are confronted with sanctions." Therefore this bill is not an example of the relevant committee demonstrating its influence over the TSA; rather, this bill seeems to be evidence that the federal agency has operated independently of Congress. Ron Paul, who oftentimes points out the inefficiency of federal agencies, is trying to explicitly limit the power of this "unaccountable government entity." (from Paul's speech) In order to know which model is more accurate, we will have to see what the House Judiciary committee and the subcomittee on the Constitution, Civil Rights and Civil Liberties in charge of overseeing the TSA deciedes. Furthermore, the Weingast and Moran model still might hold because the committee might in fact favor the actions taken by the TSA to heighten security screenings, thus explaining why Mr. Paul's legislation will not pass and the status quo persists. More importantly, if H.R. 6416 fails, it will demostrate how the isolation of some federal agencies allows them to increase their power and reach without being subject to efficiency incentives.

The Energy and Commerce Committee and the FCC

This article from Politico is a great example of Weingast and Moran’s congressional dominance model. It describes how the Republican representatives who could potentially come to lead the Energy and Commerce Committee in January are issuing a clear warning to the FCC (which it oversees) to stop pursuing net neutrality. Net neutrality is a set of regulations that would require all internet providers to treat all web traffic equally. The reaction from the representatives followed an announcement that the FCC would address net neutrality in its December meeting. A total of 19 representatives signed a letter warning the FCC that moving forward with net neutrality would be “a mistake.” Rep. Fred Upton (R-Mich), considered the frontrunner to lead the committee threatened that “the FCC will be prominently featured and Chairman Genachowski will soon be a familiar face on Capitol Hill” if the FCC moves ahead with net neutrality. As Weingast and Moran’s model predicts, the FCC was proceeding with little congressional interference, until there was a change in the policy preferences of the relevant committee. This change in interest has been made clear and congress has asserted its dominance over policy by issuing threats of hearings and investigations. Also interesting are Rep. Upton’s top campaign donors, AT&T, Comcast, the National Cable and Telecommunications Association, and Verizon all of which have an economic interest in preventing net neutrality regulation.

The Bleakness of a Bureaucratic Lifestyle

This article from The American Thinker, published in 2007, explains the failures of a system entrenched with bureaucracies, at almost every level of organization, that are doomed to fail. The author writes three examples, each with starkly different circumstances, where bureaucratic thinking led to disastrous results. The first was the failure of the British Navy in the Persian Gulf, the second was the tragic school shooting at Virginia tech, and the third is the War on Terror.

In the first event, priceless time was spent checking and rechecking with officers and superiors to determine what should be done, resulting in a "humiliation by a militia of speedboats." He tells an anecdote of legendary Horatio Nelson, who decided to ignore an order he thought must be a mistake, and went on to win a crucial naval victory. The author claims this blatant disregard of standard procedure was the obvious correct choice. At Virginia Tech, despite numerous incidents that seem like clear red-flag-raising warnings, nobody could connect the dots and declare Cho Seung-hui a threat. And in the War on Terror, the author says the problems of bureaucracy are "everywhere."

Though it seems hasty to claim that following orders in the military equates to dumbly obeying an inefficient bureaucracy, he says, "It used to be understood that there where times when you would throw out the rule book." Easier said then done, obviously, but that's entirely his point. He sees the system overrun with bureaucratic incompetence, where we believe, in government at least, that it's "The only way of doing things." He mentions the typical argument that one makes about bureaucracies: that they are self perpetuating, and that they don't work to the ends for which they were created. He also mentions a different problem: bureaucracies rely on rational rule-following for people whom, he says, are often unpredictable or irrational. And in some situations, trying to follow a by-the-book paint-by-numbers solution is the most impractical thing to do.

What is his solution? It's bleak, really, because as he points out: any chances at reform of the bureaucracy must make it through a bureaucratic system. No, he says, the only thing that can save us is individual willpower and determination, an inherent drive to be self-sufficient. Hard to do when you have to fly home this Thanksgiving break and enjoy some quality time with the TSA agents.

Homeland Security: Boom and Bust

Even though Congress doesn't devote a lot of resources in assessing the effectiveness and faithfulness of various bureaucratic departments, there are plenty of watchdog groups who are fully committed to reporting shirking in U.S. politics. The Center for Public Integrity is one such group and this year they have published an extensive report on the Department of Homeland Security (DHS). The report is extremely thorough as it demonstrates how officials have used funds in each state. My favorite is in California, where "a university campus police department purchased a $2,300 plasma TV." It is true that we cannot measure how many units of protection that the DHS has produced, but I am not sure the DHS can justify a lot of the ways that money has been used in the states. The problem is that the government has been streaming money non-stop to the DHS; after all, they are the ones responsible for domestic safety, and who are we to know better? It certainly looks as though the DHS operates independently from Congress, which continues to give it money without question.
Determining whether bureaucracy or Congress wields the power in the DHS is a worthwhile endeavor. One can easily see how the DHS' monopoly on the knowledge on how best to protect this nation elicits a very generous budget from Congress, but could it be that this budget actually stems from the Congressmen's constituents' desires for more security? It wouldn't be an exaggeration that Americans are more paranoid since 9/11. The report criticizes the fact that there is no oversight over the DHS, but maybe the department is just going in the direction that Congress wants. It could be that by pouring money into the DHS, Congress is reassuring its constituents that the US is getting the best protection it can afford. It seems like a two-way street; Congress wants the DHS to achieve more security, as per constituents wishes, while the DHS wants as much funding as it wants to do it, however it does it. If it is true that constituents have a lot of influence on Congressmen, then third-party organizations like the Center for Public Integrity are crucial. To stem this kind of reckless spending, as we have read, requires significant feedback from the vaguely informed voters. But given the rational ignorance of voters, it would be difficult to know what's actually happening in the government without the efforts of such organizations.

BP and the Minerals Management Service

This New York Times article talks about a recent report compiled by a committee of experts within the National Academy of Engineers. The report puts blame not only on BP for the gulf coast oil spill, but also on the Minerals Management Service. The Minerals Management Service was the federal agency in charge of monitoring offshore drilling. Since the spill the agency has been dismantled and replaced by the Bureau of Ocean Energy Managment. The article says that there were insufficient checks and balances for the decisions made at BP and the committee found that "the minerals agency had failed to put in place the oversight that could have helped prevent the blast, as well as procedures that could have saved lives." Our recent study of bureaucracy identifies two different camps that address the relationship between government agencies, Congress, and the resulting inefficiency in bureaucracy. First, we can consider that the bureau was acting autonomously and decisions they made were insulated from both Congress, and from American citizens. They had no incentives to put in extra monitoring effort of BP and as long as nothing terrible was happening, everyone was content with the results. Alternatively, we can consider the congressional dominance model and would then need to place blame on BP, on the Minerals Management Service, and also on Congress. This model asserts that agencies are controlled by incentives and rules put in place by Congress. In this case, this kind of analysis would assume Congress either put limits on the investigatory power of the Minerals Agency and/or did not provide incentives for the agency to provide sufficient oversight. If the congressmen essentially controlling the Minerals Agency are elected by voters who support big business and receive campaign contributions from BP and other big oil companies this view definitely makes sense and would then extend blame for the oil spill to Congress as well.

What motivates HUD Secretary Shaun Donovan?

In this article from Thehill.com Rep. Dennis Cardoza (D-Calif.) and other House Democrats angry with the HUD’s response to the housing crisis escalated their fight Thursday by stripping the U.S. Department of Housing and Urban Development (HUD) Secretary Shaun Donovan of his travel budget in response to a trip Donovan took to Rio de Janeiro, Brazil. The House approved Cardoza’s amendment by voice vote, and it was later set on the Transportation, Housing and Urban Development spending bill. In this circumstance the "Budget Maximizing Bureaucrat"as Mueller would put it, used his budget for his own self use and as a consequence congressional action was taken against him. This also questions what really drives a senior Bureaucrat. In this circumstance, we see that Congressional oversight had control of HUD's budgetary process, which Weingast and Marshall state is one of three factors that allow congress to exercise control. So, even though in the case of most bureaucracies personal utility is not affected by job utility, in this case the repercussions not only affect Secretary Donovan but also affect the budget of the whole agency in achieving its goals of better housing for U.S. citizens. In a separate article from Federal News Radio, Secretary Donovan has also led HUD in Hiring Reform, in order to meet President Obama's goal of 80 days to bring in a new federal employee. The article states that , "The Department of Housing and Urban Development went from being the poster child for the dysfunctional federal hiring process to being a model of what others are striving for." I can attest to that after working there for the past four summers, trust me it has gotten a lot better (lol). The main point here is that there is most likely some ulterior motive that just wanting to adhere to the President's goal of 80 days to bring in a new employee. If the reputation of the agency or the output of the Bureau increases for the better, that will positively reflect on the Senior Bureaucrat, Shaun Donovan. So, there are a lot of motives for this reform that might not be clear to the average person. So it would seem, based on the information contained in these two articles, that the utility function of a Senior Bureaucrat discussed in Mueller is pretty applicable to Shaun Donovan because almost all of the criteria that make up that utility function can be seen in the actions of Shaun Donovan.

The Government Really Wants You To Eat Cheese

The U.S. Department of Agriculture created “Dairy Management” in 1995 as a marketing organization to promote dairy products. Its annual budget approaches $140 million, funded mostly by a government-mandated fee on the dairy industry. According to this NY Times article, the U.S.D.A. also gives several millions of dollars to the organization, “appoints some of its board members, approves its marketing campaigns and major contracts, and periodically reports to Congress on its work.”

Lately, the organization has been adamantly pushing cheese to the American consumer. Dairy Management partnered with Domino’s pizza to create a new, “better-tasting” pizza that contains 40% more cheese. A few years back, Dairy Management also created a marketing campaign around the premise that consuming more dairy products could lead to weight loss, even though no research asserted this fact.

By law, the secretary of agriculture approves Dairy Management’s contracts and advertising campaigns. Nevertheless, the article claims that the organization has become a full-blown, relatively independent company. The government has recently warned about the dangers of a diet high in saturated fat, yet it allows Dairy Management to market increased cheese consumption. This view of the Dairy Management organization follows Niskanen’s traditional view of bureaucracies that they act independently of the wishes of their sponsors (i.e. that a government bureau pushes for increased cheese consumption despite government warnings for reduced consumption).

However, I would argue that Dairy Management exactly follows the wishes of Congress and exemplifies the model of bureaucracy presented in Weingast and Moran. Undoubtedly, Congress members on the agriculture subcommittee for dairy closely follow and are happy with the work of Dairy Management. An increase in dairy sales pleases their dairy farmer constituents, and thus gives congressmen more votes. The government’s message for a reduced-fat diet (i.e. less cheese) is half-hearted – congressmen want votes more than they want healthy constituents. Therefore, Dairy Management isn't the one to credit for increased dairy consumption. Congress is.

Florida Congressman Takes Issue With the TSA

As the wave of protest against purportedly out of control government agencies continues to influence the public conscience, one agency in particular is taking a beating in the news. The TSA has come under heavy fire recently for its use of full-body scanners that have the potential to expose and embarrass airport patrons as well as its practice of rough and invasive pat-downs for those who opt out of the scans. One Florida congressman, Rep. John Mica, who is the ranking Republican on the House Transportation and Infrastructure Committee and is likely soon to be its chairman, has stepped up to advocate for airports to drop TSA agents in favor of employing private contractors.

"I think we could use half the personnel and streamline the system," Mica said Wednesday, calling the TSA a bloated bureaucracy.

The primary argument cited by Mica and his fellow critics is that TSA agents lack the incentive to treat passengers humanely, as they see no additional compensation for their efforts and the TSA bureaucracy is slow to respond to allegations of misconduct by their employees. Throwing more private contractors into the mix could add an element of competition and accountability that critics argue the TSA lacks.

Of course, airports can’t just hire anybody they wish – the TSA still needs to screen, select, and pay the contractors. In addition, contractors would have to follow all TSA regulations, which would still include the body scan (where available), shoe removal, and pat-downs. How is this much better than just having the TSA supply its own agents? Some proponents are arguing that these private contractors would be more responsive to patrons because they “would need local support to continue…business with the airport.” Contractors would also have more freedom to bring in part-time staffers during especially high-traffic periods, helping to prevent bottlenecks at security checkpoints.

If Rep. Mica gets his way, 100 of the largest airports in the nation might soon be weighing the costs and benefits of such a switch.

If Olson was a sports fan, this would have been his perfect nightmare

A year or so ago Brian Frederick created an interest group called the Sports Fans Coalition and has been trying to find and organize a diverse group of American sport fans in order to give them a voice in Washington. His main objective is to target “television blackouts, the Bowl Championship Series, and the ballooning costs of attending games” and making sports fan’s voices heard on related public policy issues.

Frederick states that finding potential members has been the easy part (there are millions of fans out there); organizing the fans and raising money from members has been the difficult part. Currently Frederick has found a way to raise money for his interest group other than membership dues. Verizon and Time Warner Cable—“both concerned with access to sports programming on its systems”—have made generous donations to the cause. Nevertheless, Frederick wants break away from depending on corporage donations and become a member-funded organization. Had Frederick read Olson's work he would have realized what he was getting himself into. As Olson predicts, in large groups there is a huge incentive for members to free ride; assuming sports fans are economically rational what incentives would they have to share costs (especially when everyone already has to pay for cable or satellite)?

Another concern is the difference between what Frederick considers the interest of the group versus the interests of each member. Frederick is organizing a group of many different sports fans. A baseball fan may not follow football, and vice versa. Who says the baseball fan is willing to share the costs of reducing ticket prices to a football game? That’s just one conflict of many.

Spending Under Control?

This afternoon, House Republicans voted in favor of eliminating earmarks on legislation passed during the upcoming session of Congress. The incoming Majority Leader, John Boehner claims that, “’Earmarks have become a symbol of a Congress that has broken faith with the people.’” This would signal the intention of representatives to follow the wants of their constituents instead of shirking their responsibility. However, this will make a great deal more difficult to obtain subsidies and benefits for their constituents, which will negatively affect them. This does not appear to be as large a concern to Republicans, who ran on a platform of greater fiscal conservation during these elections.

“House and Senate Republicans are now united in adopting earmark bans,” said Mr. Boehner, who will be the new Speaker of the House, inn his statement. “We hope President Obama will follow through on his support for an earmark ban by pressing Democratic leaders to join House and Senate Republicans in taking this critical step to restore public trust.”

At this point, Senate Democrats haven’t agreed, and it remains to be seen whether the House would vote on bills from the Senate that included earmarks.

The End of US Postal Service

      In a recent Washington Post article, the USPS reported an $8.5 billion loss this past fiscal year, claiming that it will run out of money by 2011 unless Congress takes action, with most of the losses coming from obligations to retiree health benefits and workers’ compensation. This all happened even with cuts in costs and the removal of 105,000 jobs. The inefficiencies of a bureaucracy are clearly portrayed through this example.

      The USPS works as the agency between the citizens and the government that makes the laws and regulations. Because the USPS is such a huge organization, the relationship between the individuals and the government leadership is very distant. As a result, the bureaucrats are not urgent to make changes to the regulations and laws because they don’t have an incentive to please the individuals. They don’t really worry about it either, because they don’t have to deal with the complaining directly. It is extremely hard to get anything done.

      Chief Financial Officer of the Postal Service Joe Corbett calls for a change in legislation, regulation, and labor contracts. However, the presumptive future chairman of the postal affairs House committee Darrell Issa suggests that the USPS should cut costs even more, rather than risk changing the workings of a postal system that currently does not use taxpayer funding. In addition to the lack of incentive, representative Issa may be doing this to gain more power. Because he doesn’t gain anything if the USPS does well, he has more control and power when the USPS does poorly and comes to him asking for help.

      To circumnavigate this problem, the Postal Service proposed plans that would allow them to make changes without congressional approval. To decrease the losses, the USPS also wants lawmakers to change the law that requires $5 billion in annual payments to retiree health benefits. The fate of our mail depends on if Congress decides to make some changes!

The People are Watching

This past weekend about 100 newly-elected congressmen and women traveled to Washington to take the first step in starting their new jobs: completing freshman orientation. As this article in The Washington Post shows, at first the freshmen had mundane tasks, like getting their credentials, computer, and smartphone – apparently members of Congress can chose between an iPhone and a BlackBerry. Additionally, freshmen had a chance to meet other representative-elects, mingle with the establishment of their respective political party, and have dinner in the Capitol.

The real importance of this orientation, however, is perhaps outside the official program. The Post writes, freshmen “are supposed to learn Washington’s rules but not give in to its customs. And they are somehow supposed to fight the capital’s entrenched interests – at a time when those interests are already fighting over them.” These new members are already looking for ways to boost their reelection chances in 2012, while interests are already looking for ways to gain influence in the soon-to-be representatives.

Not only that, but there is the issue of shirking. At a time where many voters believed the Democrats weren’t listening to the problems facing ordinary Americans, the Republicans promised to base their agenda off the concerns of the American people. Nevertheless, these freshmen will quickly have to learn how to balance their constituents concerns with the concerns of the people who can provide campaign contributions. If this isn’t challenging enough, voters can constantly track the moves of their legislators thanks to the 24-hour news cycle, the internet, and social media outlets like Facebook and Twitter.

Enjoy the spoils of victory, Class of 2010. But remember, the people are watching.

The Principal-Agent Problem and Shirking in the Property Market

This 2009 article discusses the derogatory findings that the Office of Fair Trading found and published when researching the state of the property market in the United Kingdom. The report discusses how real estate agents are known to incorrectly describe the homes that they are selling by “modifying promotional photos or falsely claiming [the homes] have central heating…In one particularly audacious pretence the advert for a fisherman's cottage in Dungeness, Kent, failed to mention the two nuclear power stations just 100 yards away.” The article goes on to discuss how many consumers are looking into alternative ways of buying and selling houses because they are fed up with the dishonesty of real estate agents. The OFT market study report illustrated that “although the majority of sellers still used a high street agent…more than a third initially considered selling their home privately, using an online estate agent or selling their property at an auction. [The report] said there was a marked increase in interest in online estate agents compared with when it last carried out a survey on the issue in 2004.” However, the article closed by enunciating a huge contradiction that the research found; the research also saw consumer satisfaction with real estate agents actually increase during the past 5 years.

This article struck me as interesting in relation to our class discussion on the principal-agent problem and shirking. In class, we discussed how the agent (in this case the real estate agent)’s utility function is different from the principal (the person buying or selling the house)’s utility function, and therefore economic history has shown that the agent will always want to maximize his utility function above all else (aka above best serving the needs of the real estate consumer). The first part of this article that discusses how real estate agents are providing false information to consumers about properties in order to simply sell a house so that they can get their commission proves that there is evidence that real estate agents shirk. The consumer’s preference would be to know everything about a house before buying it, and because a real estate agent serves his own interests (aka increasing his salary) ahead of the principal’s preference, he shirks.

However, the conclusion of this article, which highlights the increasing consumer satisfaction levels with real estate agents, provides evidence that the principal-agent problem is not really a problem in the real estate market. As consumers realize the shirking of their real estate agents, they become more open to other ways of buying/selling homes (like using an online agent or service), and thus they create incentives for real estate agents to act on behalf of consumer preferences. The real estate agent knows he can be monitored by his consumer and is aware that if he shirks too much, he will lose his client to online real estate agents/other more honest real estate agents; thus the agent now has an incentive to maximize consumer preferences and decrease his own dishonest practices, which probably caused the increase in consumer satisfaction with real estate agents. Through this analysis of the article, one finds evidence that the “strict view of representative behavior” holds to a certain extent in the property market, despite some shirking by the real estate agents. The article provides evidence of some degree of shirking by real estate agents, but also claims that those agents who do shirk are in the minority. It will be interesting to see if real estate agents’ shirking completely disappears in the future because of the ease with which consumers can switch to online real estate markets due to technology advances.

How Bureaucracy Removes Efficiency

After the discussion of bureaucracy in class, I came across an article that proves lack of efficiency among state officials. Through the historic analysis of bureaucracies, such as the Australian tax office, the article shows how the mass computer and technology automation has not increased their real efficiencies.

As we noticed in class, bureaucrats have no incentive to please the customer, as their personal utility function does not depend on the satisfaction of the customers. Managers and people who have high bureaucratic positions are not interested in their subordinates’ efficiency, but, on the contrary, are happy with more people working and bigger payroll. This supports the assumptions made by the author of the article:

Any increase in the efficiency of individual workers has simply been consumed by increased bureaucratic complexity. As the primary net effect of software is to facilitate bureaucratic complexity it is therefore essential that software projects fail if society is to function effectively. In this way the heavy burden of guilt can be lifted from the shoulders of the numerous project managers that have subconsciously devoted their careers to ensuring that projects rarely, if ever, succeed.

Australian tax office described in this article is a good example of bureaucracy whose function has remained unchanged regardless the technological breakthroughs. While back in the 1955 almost all the processing had to be performed completely manually, technology has developed dramatically since that time: tax returns are entered electronically over the internet, analyzed and processed by different complex computer systems, and refunds or payments are processed via direct bank deposits. A big number of returns is never touched by a human hand! The internal management systems are also automated, from the allocation and tracking of audits to processing their payroll and benefits systems. However, it turns out that modern bureaucracy can function effectively within the same budget without the use of the automatic equipment. In 2007 the tax office's internal budget was AU$11.4 billion, or 1.23% of GDP while in 1955 it performed essentially the same task without automation for A£66.7 million which was 1.33% of the 1955 GDP. The difference is not significant. These quite surprising results prove that technological breakthroughs have no significant effect on the size or efficiency of a bureaucracy. The increase in the efficiency has simply been “consumed by increased bureaucratic complexity”.

Regulations and Subsidies = Long Term Growth?

Japan, similar to most of the industrialized world, suffered large losses following the onset of the economic crisis in late 2007. Just like the rest of the nations with suffering economies, Japan considered various forms of economic regulations, including but not limited to: increased taxes on cigarettes and even subsidies for hybrid car purchasers. According to an article in the Financial Times, the above regulations combined with Japan having it's hottest summer in over a century created massive increases in sales for large firms (Stigler would have predicted this) which in turn seems to have increased Japanese GDP significantly - but the question remains, for how long? Stigler made it quite clear in his paper regarding the "Theory of Economic Regulation" that he determined that economic regulation is both designed by industry and used primarily for their benefit. Said theory, also known as 'Capture Theory' (referring to resources/monetary rewards captured by industry once Govt. has established regulations), refers to three main reasons why a Government would choose to regulate a previously unregulated industry - for public interests sake, due to their ability to benefit from firms competing to 'capture', or last but not least due to some complex or random variables. Specifically speaking, I don't think Japanese law makers could attribute too many of their recent decisions to a desire to serve the public, as any specified tax such as a cigarette tax simply increases the cost of a frequently consumed item, thus passing this cost onto the consumer. Interestingly enough, the 1% increase in GDP witnessed in Japan this quarter (now at 2.9%) from previous quarter is mainly attributed to consumers increasing their consumption of cigarettes in anticipation of the upcoming increase in cigarette taxes as well as the increase of consumption of hybrid vehicles, due to a Japanese Government subsidy on hybrid vehicles ending shortly. Even though the outcome of these regulations appears to be positive, influential economists are stating that onlookers should not be overly positive or optimistic due to the temporary increases. They said that when the cigarette tax actually comes to fruition, as well as when the hybrid car subsidy comes to an end, a massive recoil effect is going to occur, where those who were previously purchasing cartons of cigarettes as well as those who were purchasing multiple hybrid vehicles will both slow down considerably, due to increase in taxes and loss of subsidy incentive, respectively. Thus, what caused a huge boost this quarter may actually cause a huge backlash in the time to come. One thing, however, it appears is certain - economic regulation in this case served industry more than anything, even though this point is deceptively difficult to see when you look at the stats.

Reflections on the Colorado Election

This article from the New York Times interviews different people and asks them about their reactions to the elections results. It focuses mainly on Larimer County, Colorado and the Senate race in Colorado. Despite the fact that recent nationwide trends favor the Republicans, Democratic incumbent Michael Bennet won the election by a slim margin. But many like Ms. Hamrick, one of the people interviewed, thought that the Republican resurrengy was beneficial; as she put it, "challenge is good...It’s like 'Kind Coffee' and Starbucks...competition makes you check everything that you do." (1) But the problem with this analogy is that competition for a political position is not nearly as close to perfect competition as the coffee market. But what is interesting to note is how close the elections results actually were. Mr. Bennet won by less than 16,000 votes in an election in which 1.4 million voted! That means he won by less than one percentage point. Based on these voting results, a person that favors an independent candidate or any third party candidate might feel indifferent because they feel that both parties are essentially the same; in this scenario, the political system would be far from pefectly competitive.

Based on different interviews, it seems that many people genuinely believe in the workings of democracy. Annyce Stone for example, a Republican college professor, believes that if representatives "don’t listen, I think they’ll be voted out." (1) This Downsian view proclaims that we will not see shirking. But in this Colorado Senate race, it seems that Mr. Bennet displeased his constitutency by voting with health care and other spending bills. In order to understand how this democratic incumbent was able to stay in office at a time when a majority of Republicans were winning, it is helpful to see who his top contributors were. It turns out that the Colorado race was actually the most expensive race in the country; it recieved 33.4 million dollars from outside groups! Mr. Bennet's number one contributor was ActBlue, a Democratic political committee that raises money for Democratic candidates on the internet. Although there would be a considerable incentive to free ride, thousands contribute to this large group that has become one of the largest fundraisers for democratic candidates.

In order for all these outside contributions to be meaningul and have an impact, these various groups must have expected this Senate race to be very close, otherwise, their investment would have been futile. In order to overcome the wave of conservative voting trends, a lot of money was spent on persuasive advertising. To illustrate this point, the article explains that "In a state about evenly split...the Senate battle was noisy, costly and nasty to the end, with a barrage of television and radio ads." (2) The Democratic campaign focused on highlighting the social conservative policy preferences of Republican Ken Buck had, including his opposition to abortion in all cases and his questioning of the seperation of church and state.(3) Although Bennet might have been shirking by voting with the health care bill, the persuasive advertising by the Democrats motivated socially liberal voters, such as college students, to go out and vote. In this case, the reason shirking can persist is because politicians have views on many issues and people care about certain issues more than others. Furthermore, despite being an effective strategy for Democrats, a rational voter should realize that the major bills that were voted on by the Senate dealt with issues such as health care reform, banking reform, budget resolutions and not with exclusively social issues. It seems that the campaigning by Democrats attacked certain socially conservative beliefs while remaining vague on actual policy preferences. Anthony Downs must have been correct when he said that in a two-party system, "if any party believes it can increase its changes of gaining office by discouraging voters from being rational, its own rational course is to do so."

1. http://www.nytimes.com/2010/11/14/us/politics/14larimer.html?pagewanted=2&ref=politics

2. http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110303608.html

3.http://www.huffingtonpost.com/2010/11/03/colorado-election-results-2010_n_778108.html

Pork Barrel Spending and Incumbency

This article from the Washington Times “Voters may be fed up with congressional pork: Many earmarkers now tagged for ouster.” (written before the election) argues that voters may be becoming wise to the real costs of pork barrel spending and that there may be a burgeoning public backlash against earmarking As evidence they cite several examples of long-serving incumbents in both the house and senate on the appropriations and budget committees, who have successfully funneled federal funds to their district in the past but whose reelection is still in danger, or who have failed to win their party’s primary. “Rep. Alan B. Mollohan, an appropriations committee veteran who hails from one of the most pork-barrel-friendly states - West Virginia - couldn't keep his job, losing last week in his state's Democratic primary.” They also explain the large number of retirements this year from members of the appropriations committee as a sign that they would not be able to be reelected if they ran. The article quotes Mike Connolly, a spokesman from the Club for Growth, a conservative group that argues for decreased government spending, “the American people are figuring out that, while they're getting a little bit for their state, they also know that they're paying for the stuff in the other 49 [states], too." I think the argument the article makes that backlash against earmarks can explain anti-incumbent sentiment in the upcoming election is weak. Many other factors can explain it but I don’t think there is any reason to believe that voters are becoming any more enlightened about the way in which congress operates. If representatives always vote with their districts economic interests this is because their constituent also always vote with their own economic interests, and if this means pet projects for their state or district they are unlikely to object. In the case of this election perceived potential costs of health care reform, or the stimulus, or the budget deficit may have outweighed the advantage of having an incumbent who is able to send federal dollars their way. But this does not mean there is any systematic change in the relationship between voters and their representatives, or that the incumbency advantage offered by the committee system is likely to decrease in the long-run.

Swinging in the Wind

      After two years of investigations, representative Charles B. Rangel will finally go to court tomorrow to try and defend allegations of, among other things, illegal fund-raising and tax evasion. New York Times describes Rangel as being accused of failing to pay taxes on a villa in the Dominican Republic, failing to report assets, and receiving illegal gifts from companies and businesses.

      Although it is unsure, it is possible that the businesses and companies that donate to him are trying to economically influence him so that he may vote for policies in their favor. Rangel was the chairman of the Ways and Means Committee, the chief tax-writing committee of the United States House of Representatives, until he decided to step down. Congressmen will usually aim to get onto committees that they wish to have a say in. As Rangel was chairman of the tax-writing committee, he has much sway in which tax policies may be passed, and so he is a huge target for companies wishing to maybe change taxes in a way favorable to them. Ironically, Rangel faces much criticism because he is on the W&M committee, yet fails to pay taxes on rental income from his Dominican villa.

      Tomorrow, a subcommittee of the ethics committee will hold a trial, after which the subcommittee will decide whether the charges are substantial enough to require the entire ethics committee to meet and decide a just punishment. I think this multi-layered system is inefficient because it delays the verdict too long. Although this case may only go to the committee level, policies that go all way up to the President have to go through many layers, increasing the chances of it being vetoed and making it more difficult to get anything passed.

      One last thing to note is that if he is forced to relinquish his seat on the W&M committee, we can expect to see a rush for the open seat. For now, Democrat Pete Stark has taken over as the temporary chairman.

Republican gains in the committee system

This article from Politico talks about how Republican freshmen senators are set to gain a lot of “plum,” or powerful committee positions in the next congress. According to Weingast and Marshall’s model, the seniority system and high incumbency in the Senate leads to a certain level of stability in the committee system, which is in the interests of the senators. The article states that incoming senators are “usually shunted to the end of the committee dais and the back row of the chamber” but that this year “Republican rookies are poised to play an outsized role on some of the most powerful Senate panels.” This is because of the high turnover from democrats to republicans as well as some retirements of senators who hold powerful committee seats, such as the five retirements on the appropriations committee, which politico claims is a rare opportunity for incoming senators to grab influential seats. The article claims that this outsized committee advantage will give republicans greater ability to kill democratic bills on some of the most pressing issues for our country. The size of the committee advantage depend on how well Weingast and Marshall’s model applies to the Senate, if, as we discussed in class, individual senators can bring bills to the floor without going through the committee system than the size of this advantage for the republicans may be less than Politico suggests.

Another interesting point from the article is that Senate Minority Leader Mitch McConnell must decide whether or not to grant incoming Senator Dan Coats the 10 years seniority he earned when he was an Indiana senator in the 1990’s. This goes against assumption we discussed in class, that when a representative exits congress they loose all their seniority, even if they are reelected at a later point.

A lame duck can still roll a log

A recent article in the Financial Times brings up an often overlooked phenomenon which occurs in the time immediately following a major shake-up in the membership of the House and Senate during midterm elections, such as right now. According to Kau and Rubin, Representatives are normally unable to ideologically shirk, or vote against their umbrella party lines, due to the fact that they are swiftly punished by both loyal party voters and also by decrease in funding from their respective representative party. However, during the current 'lame duck' period, when losing incumbents know that they have to vacate office in two months, it becomes extremely difficult to predict Representative voting patterns as the aforementioned Representatives no longer worry about being punished by voters for voting against their best beliefs. In other words, recently-losing Representatives could intentionally vote against their constituent's wishes and best interests and in the end, there would be no major negative consequences, other than perhaps a diminished reputation. Even though a mere six weeks remain for this current Congress, there are apparently quite a few extremely important and extremely controversial bills being brought up to the floor, such as those concerning potentially extending dying Bush-era tax cuts, deciding whether or not to extend unemployment benefits, and even dealing with the ever-so-heated 'don't ask don't tell' policy regarding gays in the US military. Even though the Democratic party has the majority in both houses for the next six weeks, some of the bills they are attempting to pass are particularly ambitious and would require strong cooperation from their Republic counterparts. To complicate issues even further, the vast majority of the incumbents now losing seats are Democrats and thus they are the 'lame ducks' with no real incentive to follow party or constituent ideology voting lines, unless they have future plans to run for House or Senate. Thus, once the constant struggle and inability to pass bills gets to an all-time high, what does one Republic aide suggest, ironically enough in support of Weingast and Marshall's conclusion, will end up being the savior of the situation? Log-rolling. Lame ducks can still roll logs. The aide, Mr. Smith suggested that both President Obama and the Republican brass would "choose a 'log roll' approach", during which the President would make a compromise and vote against his party ideology in exchange for a guarantee that the Republican representatives would do the same, thus guaranteeing that some legislation would pass, whether or not it would appease the voters is another issue. The thing about this article which boggles my mind the most is just how open everyone is regarding the whole issue of log-rolling. When voting for a Representative or even President, I feel like personally part of what I judge politicians on definitely has to do with my ability to trust them or feel that they are honorable or moral; however, this gets extremely hard to do when you see that our nation's leaders are consistently essentially trading votes, one for one.