The Principal-Agent Problem and Shirking

This article analyses the principle-agent problem that arises in the relationship between politicians and citizens. It is usually believed that politicians elected by residents of the state are supposed to generate higher returns to the citizens by increasing the value of the state assets that are both geographical and political varieties. However this is not always true. According to the paper of Kau and Rubin that we discussed in class, the congressmen who vote ideologically may or may not reflect tastes of the constituencies; this depends on whether politicians will be reflecting their own preferences. They emphasize further that even if congressmen do shirk and act in their own interest, they are punished quickly and therefore this is not of a big empirical issue. However, according to the author of this article, politicians who fail to increase the value of the state assets, are not always booted out, which in turn, manifests the principle agent problem: it is hard for person A to motivate person B not to follow B’s self-interest never mind what the incentives are, and, as a result, congressmen will never reflect tastes of their constituencies:

The same goes for politics and political science, respectively. Politicians will always rob blind the state. They will always manipulate electorates, political parties, legislatures, and the judiciary to induce them to collude in their shenanigans. They will always bribe constituents and legislators to bend the rules. In other words, they will always act in their self-interest. In their defense they can say that the damage from such actions to each citizen is minuscule while the benefits to the politician are enormous. In other words: such misbehavior is the rational, self-interested, thing to do.

Kau and Rubin define this type of behavior as self-interested economic shirking. However, if this is the case, why do citizens cooperate with the politicians and engage in election activity if the politicians follow their own interests in any case? According to the author, the answer is that citizens and politicians are both allied against the state and not set in conflict against each other. In fact, this means that both principles, constituencies, and their agents, congressmen, are concerned with the performance of their individual assets rather than with the performance of the state. While politicians enjoy inflationary perks and pay packages, citizens hire politicians as stock manipulators to generate expectations regarding the future prices of their stakes in the state.

Bill Owens and where he (ONLY) stands

In this political ad, Congressman Bill Owens, then running for Congress in New York’s 23^rd district, claims that he wants to eliminate the Bush tax cuts (whereas his two opponents want to keep them) for the wealthy and create jobs.

There are two interesting things about this video.

1) The video is titled “Where I stand”. Based on what we know on how risky informative campaigning is, and based on our assumption that politicians are vote maximizers it might be safe to assume that Bill Owens allegedly, was able to figure out what the median voter’s preferences were. Which would explain why he took such big risks by clearly enunciating where he stands.

2) The second and more important aspect is that Bill Owens claims that he is going to eliminate the Bush tax cuts , create jobs (and makes dozens of other similar claims in other campaign ads on how he is going to change different policies). The only problem with these claims is that Bill Owens ends up, partly by choice, and because of the relative comparative advantages that his district commands, in the Agricultural committee, the Committee on Armed services and the Committee on Homeland Security. The implications this has is that singlehandedly he would never be able to do anything about the Bush tax cuts for instance, not even initiate a bill for that matter because he doesn’t hold a position in the committees responsible for putting such proposals to the floor. The citizens are (rationally) ignorant about what promises a politician can actually keep and which he/she can’t. And usually, the politicians will not be able to hold them without three (almost) overwhelming conditions. He/She should be a member of the committee that deals with that particular issue, that the proposal commands a majority vote in the committee and then command a majority vote in the House, unless there’s a veto by the President and then the bill needs 2/3 of the votes.

So next time a politician claims that he IS going to change something without explaining the committee system and exposing what it entails, you could get away with calling him a “misinformer”, you might even get away with calling him a deceiver.

How can all politicians get away with claims and promises that can’t be kept? How do people buy into it so fast?

YMCA, Softball, and Shirking

Most have probably seen the Save McIntire signs throughout town, but what are they proposing to save? I've taken two courses where we have talked extensively about a project to build a YMCA on the Western edge of McIntire Park. The majority of Charlottesville residents are in favor or indifferent to the YMCA. Advocates site it as a cheap option for low-income residents who can't afford the high rates of private gyms and don't have access to other wellness programs. It will also be close to Charlottesville High School and a safe and productive afterschool option. This Daily Progress article about the project touches on two different ideas we have gone over in class. First, as Olsen would predict, the original major opponent to the YMCA was a small group of individuals - the city's softball league. These (approximately 400) members were the source of an uproar against the project that was supposedly going to destroy a couple of softball fields. They were a small group, but they were certainly organized behind their leader, a 7-year softball fanatic and 30-year resident of Charlottesville, Bob Fenwick. He started the Save McIntire campaign, which has now expanded to include efforts of other preservationists. This project has been in the works for years and it's quite impressive that these small pockets of opposition have been so effective, yet not surprising according to Olsen. Shirking is the second idea we have discussed in class that comes up in this article. Fenwick accuses city council of not being responsive to citizen demands. “It’s been my experience that politicians soon forget that they represent the people,” Fenwick said. “And that’s when they get into trouble.”Fenwick addressed this supposed principal-agent problem by starting a independent campaign to run for City Council. Despite Fenwick's accusations of shirking by the Council, I'd argue that they are actually representing the people of Charlottesville, the majority anyway. A representative can't accurately represent every person in his or her district, but they can; however, represent the majority, since that's all the support they'll need to be reelected in the next session anyway.

The Money Map

This very interesting website allows you to browse through a map of the United States and click on a state or district to see what candidates were running for office and, more interestingly, what kind of money was raised and spent on their campaign. You can search between Senate elections or House elections, and shows you who raised more money, who won, who was the incumbent, and other elucidating facts. I found it interesting that in the Oklahoma Senate race, for instance, the republican incumbent Tom Coburn raised two and a half million dollars, while his democratic challenger is listed as raising a nice, hefty, zero dollars.

While that is unusual, what is common throughout the entire map is that the incumbent collects far more money than the challenger. This makes sense, as an incumbent has clout and name recognition, which give him the means to raise funds. But it also fits our economic model. For a new challenger, the marginal return of votes for each dollar spent is increasing at an increasing rate. But an incumbent, who's name is already in the public sphere, requires more dollars to earn more votes--his marginal return for each dollar spent is less, so to earn extra votes he has to spend more.

But it seems possible in this election, that strategy might never have worked. This Wall Street Journal Article purports that 48% of Americans would rather vote someone new into Congress than someone with 10 years experience. This extreme shift in public perception to "Throw the bums out" from the typical, almost blind reelection of incumbents, did not bode well for those spending the most money this election season. And, because of the political make-up of the time, this meant it didn't bode well for the Democrats. Being an incumbent almost became a burden rather than a blessing. It also has interesting implications for our economic model. Would an incumbents spending start to have a negative marginal return? The more s/he flouted his/her name, which reminded people of his/her time in office, would that cause some to vote against them? Maybe the model for this election was a little quirkier than usual. Perhaps incumbents were doomed from the onset, which means they wasted astronomically large sums of money, or their spending didn't help (and possibly hurt) them, which has the same implications.

A Fistful of Campaign Dollars

I stumbled on this website, which compares (rather sarcastically) the total amount spent on the 2010 elections with what the money could have bought for the United States, including almost 4 million monthly mortgages, 1.3 billion school lunches, 12.2 million unemployment checks, a 248-year contract with Lebron James, and I speculate, though it's not on the list, the country of Zimbabwe.

The introduction to the list states: "Since all of them insist they’re for helping average American families, the National Journal staff was curious to know how else they might have spent all that money on our behalf. How would Americans feel if, instead of attack ads, slick mailers, and robocalls, our politicians lavished us with [the following]."

It mentions the deep recession the United States is in, and the point is clear: what else could we spend money on, instead of getting politicians elected or re-elected? Especially since over half of them lose and that money goes to naught, it seems disturbingly easy to burn cash. A lot of a candidates funding will come from rent-seeking companies, special interest groups, and individuals, and we've seen how the money raised by rent seekers can far exceed the value of the rent sought, leading to pure waste. In a struggling economy, maybe that money could have purchased iPads or aided in unemployment benefits instead of Tom Periello's offensively terrible commercials or Robert Hurt's back to back TV spots for the exact same advertisement laden with blatant hypocrisy.*

Candidates for office are vote-seekers, and they want to maximize dollars to spread their name, but it just seems an unfathomable amount of money to spend for people who claim to represent the middle-class working man.

*See comment

Ideological PACs, Free-rider problem and Education Reform

This article discusses campaign contributions made by two national education groups that challenge teacher unions and their influence in the political arena. "Stand for Children" and "Democrats for Educational Reform," well-funded ideological political-action committees (PACs), have each spent a total of a few million dollars to support candidates that favor "overhauling teacher-tenure policies" and "tougher teacher evaluations." In order to challenge these attempts at education reform, the National Education Association, the largest teach union in the US, organized a 40 million dollar campaign. Although it would seem that a free rider problem would be hard to overcome as members have distinct individual preferences and there are 3.2 million members, the common goal of preserving their job and income creates a substantial economic incentive to contribute to the group. In an attempt to limit free-riding, the union tries to make sure that every member has a "personal discussion" with another member in which they encourage each other to vote for the cause and contribute. (http://thehill.com/blogs/ballot-box/other-races/126401-teachers-union-expands-playing-field-for-mid-terms)

Overcoming the free rider problem seems to be more difficult in ideological PACs in which an economic-incentive isnt always obvious. It seems that the rational thing to do would be to free ride while hoping that policy change is achieved yet various education groups have contributed (and thus collected) thousands of dollars to campaigns. This indicates that ideology has to matter; how else was Jonah Edelman, the founder of "Stand for Children," able to persuade several buisness leaders to donate money to the cause. Perhaps they had some economic incentive but it seems that many contributors genuinely want to change policy for altruistic reasons; as Kau and Rubin put it, "these contributions show that many are willing to spend money to achieve non-economic goals." (153) George Stigler's hypothesis highlighting economic incentives and downplaying the importance of ideology has to thus be reconsidered. If individuals are willing to contribute to ideological PACSs and vote with similar goals in mind, then ideology has to be a factor explaining voter preferences.

As Kau and Rubin pointed out, legislators might be tempted to shirk because of contributions from different special interest groups and "thus shirk with respect to his constituents' desires, but in a way unrelated to ideology." A problem with understanding voter preferences though is that candidates are bundled goods. When people vote, we don't know if they are voting because of percieved candidates' positions on educational reform, health care or minimum wage. If politicians shirk in certain policy areas and not in others, how will we know what voters are thinking when they vote someone out of office? Although Toi Hutchinson, an Illinois state senator that recieved $100,000 from Stand for Children, might vote in favor of education reform, she might also vote in favor of additional stimulus. If she is not elected next term, we will not know precisely what ideologicl preference of the constituency swayed the vote!

Democrats didn't lose the battle of 2010. They won it.

I was intrigued by the article in Slate magazine last Friday because of its title, shown in the title of this post. It seems counterintuitive to all who watched the Congressional elections last week; the Republicans recaptured the majority in the House, a major obstacle to the Democrats' future plans. Despite this, the article musters a little hope for the disheartened Democrats.

It's funny, in a twisted way, to read all the post-election complaints that Democrats lost because they thought only of themselves...That's too bad, because Obama, Pelosi, and their congressional allies proved just the opposite. They risked their jobs—and in many cases lost them—to pass the health care bill. The elections were a painful defeat, and you can argue that the bill was misguided. But Democrats didn't lose the most important battle of 2010. They won it.

The health care bill was violently disputed while it worked its way through the Senate; it was obvious that no one was completely happy with the bill. A rational Congressmen interested in re-election would have avoided dealing with such a hot issue, especially with such negativity surrounding it. It's what Tom Perriello should have done; if what was said in class was true, he should have heeded his constituency and voted against the bill. Nevertheless, he and Democrats like him did vote for it and consequently lost their bids for re-election, even with strong Party support.

Is this proof that ideology is important in legislative decisions, as Kau and Rubin insist? Were the Congressmen inspired by the knowledge that they would change history, despite the risks? The article is strongly implying "yes" to both questions. Perhaps there is something more to modern politics than continually planning for the next election, continually seeking self-preservation, something that encompasses more than a few years or even a few decades.

Young Voter Turnout Drops

      In this past mid-term election, Democrats took a huge blow, facing not only a lower number of young voters but also voters who were less willing to support Democrats. A Washington Post article reports that voters between 18-29 dropped from 18 percent in 2008 to 11 percent this past election. These same voters also backed the Democrats by only 16 points, compared to the 34 points in 2008.

      These numbers raise the question of why young voter turnout reached this lowest point in two decades. One reason may be that individuals do not believe their vote would make any difference. The expected benefit from voting is lower than the cost of going to the polls and voting. It would only make sense to vote if the cost is next to nothing, if the benefits are extremely large, or if the race is expected to be extremely close. Another reason why voter turnout may be low is because the cost of becoming educated on the various issues is too high; the cost of learning all the different opinions on all the different points just doesn’t seem to pay off. Based on this reasoning, voters are rational in remaining ignorant about the issues.

      Politicians understand that most voters also think this way; that it’s okay to remain rationally ignorant. That is why we see so many advertisements that do not specifically state the politician’s standpoint on issues, but rather present values and social images that may get a voter to vote for them, for example, being a “family man” or being an advocate of the “American dream.” If candidates were to address their stand on various issues, they run the risk of pushing away the ignorant voters who know nothing about them and may otherwise vote for them if they did end up going to the polls. In 2008, Obama ran the hugely successful “Change” campaign, greatly appealing to the youth nationwide. According to Downs, parties formulate policies in order to win over votes, rather than win elections to formulate policies. It could be because of this that Democrats suffered in the mid-term elections, as it seems the youth bought into the promise of change two years ago, but have not seen enough reform to draw them out to vote in this election.