Go vote! It's easy to do.

Countless resources have been devoted into making it more convenient for people to vote. High technology companies such as Google has contributed their shares. However, contrary to the good intention, Google online voter registration may end up decreasing the turnout.

This new approach by Google is designed primarily to attract the young voters. And the somewhat unpopular reaction it received among students is not at all surprising to me. Google tries to get more young people to vote through sending negligible registration email invitations, asking for your private cell-phone numbers and then sending nagging text massages if you don’t follow through the instructions and register. So you see why this is not a popular approach.

Although the voting process has been made much easier over the years, the voting turnout continues to drop. Maybe we have grown more mathematically sophisticated to realize that despite of what politicians say, our votes don’t count after all. Or, in this particular case, college students as a special group have a more particular feature—social pressure plays a much more significant role.

Are college students politically apathetic? Of course not. Politics is still a popular topic on the dinner table; Do we not care about our own country’s future? Of course we do. But to be honest, we care more about how we look among our peers. Maybe it is like what we discussed in class: people vote in order to be seen. What matters is not the action of casting the vote online, but rather, the ability to say that I went to the poll and casted my ballot.  

The Redistribution of the 2009 Auto Bailout

This week, President Obama touted the benefits of the $25 million auto bailout in 2009. Obama said that, “We refused to let Detroit go bankrupt. We bet on American workers and American ingenuity, and three years later, that bet is paying off in a big way.” In section 5.1, Mueller writes that without unanimity, there is redistribution from those worse off to those better off. Even if policies benefit all citizens, the use of majority rule to make collective decisions (i.e. the bailout) still results in redistribution, whether efficient or not. I would like to explore the bailout in terms of three types of redistribution resulting from simply majority voting.

(1) Redistribution as Insurance: When the utility function accounts for the utilities and probabilities of a good and a bad outcome, you voluntarily agree to redistribution to ensure against the bad outcome. This type of redistribution usually occurs from behind the veil of ignorance. It applies to the bailout because in 2009 nobody knew what other industries would need help. Citizens, voting as workers, agreed to the bailout as insurance in case their own industries would need government assistance. The auto bailout created a precedent and an argument for bailouts of other industries, should they need it. 

(2) Redistribution as a Public Good: This occurs with interdependent utility functions: when you care about another person’s utility as well as your own. This means that Americans cared about the welfare of the American auto workers and workers in related industries. People were happier with redistribution, because then the workers were better off, so this result occurred under simply majority voting.

(3) Redistribution as Taking: This is when you take money from others using the tools of democracy: it is involuntary redistribution using the state. It would not occur with unanimity and typically involves lobbying. In the bailout, union members received disproportionate benefits at the expense of the shareholders of the auto companies. This policy then made the shareholders worse off (involuntarily redistribution) to make union workers better off, using the force of the state.

Fork in the Road

The production of fossil fuels causes negative externalities on society and the environment through water and air pollution, as well as global warming effects such as extreme weather. Climate scientist James Hansen believes we are at the ‘fork in the road’ where we either continue to produce fossil fuels without doing anything about its negative effects on climate, or we make a change. According to Hansen, “The cost of fossil fuels is artificially low because it does not include the price they incur on society.” He proposes a gradually rising fee on all fossil fuels at their mine or port of entry that would then be redistributed to the public.

As Hansen argues, the cost of fossil fuels is low because the externalities it produces are not taken into consideration when pricing carbon. Fossil fuels create a negative production externality where the private marginal cost curve meets the private marginal benefit curve at a point that leads to over-production of the good. In order to correct this market failure, Hansen proposes a pigovian tax on fossil fuels. The pigovian tax should be the size of the externality in order to shift the private marginal cost curve up by the amount of the tax. The private marginal cost curve then becomes the social marginal cost curve and the quantity of fossil fuel production decreases until reaching the point of allocated efficiency.

By imposing a pigovian tax, Hansen is trying to internalize the externality through the market channel as opposed to the political channel. If the tax increases were large enough, they may even cause fossil fuel producers to quit producing. They will only produce as long as the marginal benefits of producing are greater than the marginal costs which are now increasing due to the increases in taxes.

           

Make Voting Worth My While

            A recent economist article observes that political campaigns concentrate on getting their own supporters to get out and vote rather than trying to convince the undecided or opposition voters. This seems like irrational behavior if you assume that everyone will vote (why preach to the choir?), but from the perspective of self-interested voters, it makes perfect sense.  The benefit of voting, for a strong partisan with a $100,000 valuation on the outcome, is only 1 cent, even in a swing state. For undecided or ambivalent voters that benefit is thousandths of a penny, so it is not even worth trying to get them to the polls.

            Under this reasoning, the goal of a campaign worker is to make the equation of cost and benefit come out on the side of voting for these strongly opinionated voters. They lower the cost of voting by providing “student Democratic volunteers bustling about with iPads and smartphones, ready to tell them which is their polling station and to provide directions.” Campaigners can also try to add an external benefit to voting by “e-mailing (the republican club’s) members with details of where to vote, and sending them to the polls in gaggles.” It’s a voting party! It’s fun! Some politicians even try to misrepresent the statistical probability of a deciding vote with misleading phrases like “your vote mattes.”  . Politicians also try to increase the value one places on the election directly with direct subsidies to specific subsets of voters. As one campaign representative points out in his sales pitch, “politicians decide such things as tuition fees and student-loan interest rates and that thanks to Barack Obama, young graduates can stay on their parents’ health insurance.”

            This analysis would suggest that winning an election is not about convincing the majority you are right, but rather, it is about getting people to vote in the first place.

The Externalities of Diversity

On Wednesday, the United States Supreme Court began hearing arguments in Fisher v. University of Texas. The plaintiff in the case, Abigail Fisher, was rejected from the University of Texas at Austin in 2008, an outcome that she attributes to the University's affirmative action policy, which includes race as one of many factors in the admissions process. She and her attorneys argue that a public university making admissions decisions on the basis of race amounts to unconstitutional discrimination and a breach of the 14th Amendment's promise of equal protection under the law.

In defending the University's policy, President Bill Powers has pursued a line of argument that mirrors our discussions in class of externalities. Powers has not focused on the gain for individual students who otherwise would not have been admitted to the University, but rather on the university-wide gains that stem from a diverse student body. As part of a statement that can be seen here, Powers said:

"diversity- ethnic and otherwise- benefits all of the students on our campus."

Under this interpretation of the policy, the presence of minority students generates a positive externality through its positive effects on the educational experiences of all students. I found this perspective an interesting alternative to the interpretation of affirmative action policies a means of correcting for some bias or historical wrong.

It is not clear to me how to incorporate property rights- and thus the Coase Theorem- into this interpretation, but maybe someone can provide that in a comment.


This video presents an alternate interpretation of diversity:

EU Robin Hood Tax?

For several decades, the European Union has considered imposing a tax on all financial transactions (stocks, bonds, derivatives, etc.) executed amongst the participating countries. When Nobel Prize winning economist James Tobin first developed the tax, the revenue was to be used to combat environmental and humanitarian problems. Now the potential tax will be used to punish the financial sector for the crisis that Europe is currently in:

 "Taxpayers have legitimate expectations that they will be paid back for what was used in the bailouts, and the financial transactions tax can provide for this… Many citizens are angry about these problems over the causes of the financial crisis, and this small contribution of very tiny rates could help rebuild confidence in the financial sector," [Algirdas] Semeta said.

The UK is particularly against this tax because it believes that London will be the victim of a negative externality in that business will be driven away from the city. In reality, London will be the benefactor of a positive externality because transactions that occur within the UK or between the UK and a nonparticipating country will not be subject to the tax. This will bring more business into London, as well as the United States, as investors will look to avoid the taxes. This will inevitably decrease the projected 57 billion euros ($74 billion) that the tax is supposed to raise annually and not add the hopeful 0.5% to the EU’s GDP. For comparison sake, if the US instituted this tax solely on transactions within the NYSE, it would raise $20 billion monthly without taking NASDAQ, bonds, or derivatives trading into account. A quick, clean way to tax the wealthy and help balance the fiscal budget or would it also just push business away from the US? 

Sub-Optimal Situation in Syria

The conflict in Syria has devolved into a brutal civil war with no end in sight. International organizations like the Arab League and the United Nations have attempted to step in and negotiate some sort of peace, with no success. Both the Assad regime and the Rebels are so entrenched in their positions that it seems they would rather go on slaughtering eachother indefinitely in search of total victory than negotiate a compromising middle ground. This piece in the LA Times argues that international organizations and mediators would be wise to promote a "third path" somwhere between the stances of Assad and the Rebels, as it would be best for the whole of Syria and could stop the bloodshed. American University professor, Robert Pastor, lays it out plainly:

"They [Syrian Rebels] are fighting hard because they fear that defeat will mean their annihilation. Moreover, the regime fears that compromise could be construed as weakness. With the two sides balanced and resisting serious negotiations, the conflict won't be over soon."

I would argue that we are seeing something of a prisoner's dilemma--the Assad regime is set on a dominant strategy of total victory in order to regain legitimacy and total power, while the rebels believe they must fight for total victory as well because if they lose they will be executed anyway. The rational solution would be for the two to come together--preferably without the intrusion of third parties, though unlikely--and craft some middle ground that is in the best interest for all of the people of Syria. This could mean that Assad may have to step down or scale back his control,  that the Rebels may not get all the freedoms they are after, and maybe that international groups would have to step out of the issue--but in the end a long term optimal solution could be reached if both parties work together in some capacity to come to a peaceful compromise. If this prisoner's dilemma continues, the costs of victory continue to increase as more resources are needed and more people are killed on both sides, reducing the benefit of total victory.

Getting College Students to Vote: The First Step is the Hardest

In class we discussed the marginal costs and benefits of acquiring information. Oftentimes, the cost of acquiring knowledge about a certain topic outweigh the benefits that the knowledge confers. We can't learn everything, and it is certainly not efficient to attempt to do so. This concept is called rational ignorance - people choose not to learn things that will not benefit them. As a college student with a full course load and an ongoing job search to deal with, I can certainly relate to this idea. Pretty much anything that does not have to do with these two objectives goes right over my head. That is why I have chosen to be rationally ignorant about the process of voter registration. 

The process of voting while away at school includes many more hoops to jump through than simply going to your local polling place and checking some boxes: 

"Not only do they (students) need information on how and where they can register to vote, but once they do register, they need information on how to cast a ballot. For students, they may be unaware about rules for voting absentee. If they choose to vote in their new college community, they may not know where their polling location is, whether they can vote early, or what ID, if any they need."

Students who are away from home need to acquire a lot of information in order to register to vote. You may be able to argue that the actual process of registering is relatively painless and thus should really not keep a student from voting. However,  it is the sheer fact that a student has to go out and get the information that is stopping him or her from registering - the opportunity cost of getting the information is just too high. This makes perfect sense according to the concept of rational ignorance. As far as I am concerned (and I am obviously not alone because according to Robert Brandon's article less than 50% of eligible voters aged 18-24 actually vote) the cost of acquiring information about registering to vote does not outweigh the benefit of voting. 

Virgil Goode & Gary Johnson - proving the necessity to add a Run Off system in Presidential Elections

There is a possibility that the plurality win for electoral votes combined with The Goode/Johnson Duo could help an inefficient candidate win the 13 electoral votes and the overall election.

Goode and Johnson are gaining ground in a key battle ground state, VA, and David Allen believes this could cost Romney. Since the presidential election isn't a run off system, it won't be exactly like the 1991 LA Gubernatorial race, but a preferences dilemma could emerge. This time instead of intransitive preferences causing problems, it will be unknown preferences due to the plurality system within states for electoral votes.

According to recent polls, Goode and Johnson could secure over 2% of the vote in VA. With Obama currently leading Romney by 0.3-2.4%, this is pretty significant. One could argue that many voters within the 2% for Goode and Johnson rank Romney as their second choice over Obama. A 1.5% boost from Goode/Johnson to Romney could very well tip the VA electoral votes and further the overall presidential election. With a run off system, these preferences could be revealed and provide a more efficient outcome in the most important election as a US citizen.

Maybe LA has the right system with completely backwards, loony people?

The Social Cost of Not Voting

In class, we discussed the rationality of not voting. There is very low individual incentive to vote and the costs of voting decrease turnout rates. There is a basically non-existent probability that a single vote will affect the outcome of the election. However, we discussed a few reasons why people still vote. Our discussion came to mind when I heard this advertisement. The creators of this ad are attempting to increase, or to remind people of, the social cost of not voting. The ad asks,

You were just too busy? You didn't think it mattered? Is that what you're going to tell your friends who can't get married? The ones who couldn't serve openly in the military? Why not have a different conversation about how you voted for them.

These ads are trying to incentivize people to vote by presenting a situation (i.e. a conversation with a gay friend) in which it would be socially uncomfortable to admit to not voting.

Watch the ad here.

Electoral College - another layer of complexity

In class we discussed how all candidates are “vote maximizers”. However, because of the Electoral College system that we have in place, there is an added layer of strategy to winning votes. The electoral college upholds a “winner takes all” mentality, therefore the presidential candidates will focus on states with more electoral votes than less, and more on swing states such as Virginia or North Carolina. This can lead to emphasis on specific policies that would affect those states, or even the creation of policies that primarily benefit 1/50^th of the nation.

Also, the electoral college votes are decided upon by electors. As the article points out, “Americans do not vote directly for president. When voters cast a ballot for their preferred candidates, they are choosing their state's electors. As members of the Electoral College, those electors then the pick the president in December.” All of the sudden, it goes from a president that I voted for to a president that someone I voted for, voted for. I find this process to further decrease the value of my vote, which according to Johnson, the marginal benefit already deters me from voting at all.

Since the candidates seeking vote maximizing is inevitable, I think steps should be taken to ensure that those votes represent as much of the country as possible, not just simple majority in individual states. Maybe we could use the Heisman trophy system, where if a state has 5 electoral votes, every 20% of the popular vote earns him an electoral vote. As Buchanan and Tullock point out, when thinking about the group mentality, the external cost is considered inevitable. The key is to choose a leader whose external cost is the smallest for the most amount of people, and I don't believe that that is accurately portrayed by the electors.

Romney's Repositioning After the Presidential Debate

The Presidential debate last week highlighted Mitt Romney’s ability to appeal to the average voter.  According to an Op-Ed in the New York Times, it was the first time Romney spoke to the American people at large rather than  to just a subset of Republican voters.

As a result, “[Romney] didn’t have to worry about the nut balls he was running against in the G.O.P. primary and was not forced to cater just to the Tea Party base.  So he finally took out the Etch a Sketch and moved to the center.”

While Mr. Friedman shows some disdain for Romney’s swerve center, from an economics’ prospective, it is perfectly rational for Romney to adjust his policies for the United States presidential election.  After all, the very first assumption of the Median Voter Theorem is that candidates are vote maximizers, and therefore create their policies on what gives them the best chance of winning the election (rather than on what they actually believe).  When Romney was running in the primaries, the median voter for the Republican primaries was further right than the median voter is in the general election due to the large Tea Party base.  As a result, it makes sense that Romney’s policies would be more conservative, reflecting his attempt to gain the vote of the median Republican voter and therefore win the primaries.  Following the Republican National Convention, Romney is now officially the only Republican candidate.  Therefore, it is not surprising that his policies have adjusted accordingly and become centered. 

Because the electoral college is brilliant!

Boss

Hey people, over at the Business Insider, some guy named Walter Hickey is speaking the truth.  The electoral college is a common whipping boy for whatever party loses a presidential election - the Democrats hated it in 2000, the Republicans hated it in 2008 and will protest again this November.


But in class we learnt about the problems of simple majority - including the possibility of exploiting minorities.  Under straight popular vote, the big populous states would get all the attention and urban areas would have asymmetric power.  But the electoral college makes it so even small states matter.  How smart is that?

Hickey even points out that the electoral college safeguards the vote against asymmetric bad weather:

The electoral college also localizes mistakes and problems. If it rains on election day, turnout is low. ...Why should a state with precipitation have less say than a perpetually sunny locale?  With the electoral system, If Ohio is rainy, it doesn't mean it gets fewer electoral votes.

Cinnamon and gravy, that's just dadgum brilliant!

Logrolling: BP Money Spreads Out

As Marissa mentioned below, BP will pay fines to the federal government to compensate for damages from the Deep Horizon Oil Spill.  The fine money for these projects is allocated through the Resources and Ecosystems Sustainability, Tourism Opportunities and Revived Economies Act (RESTORE). In order to ensure this bill passed last summer, senators added an amendment to create the National Endowment for the Oceans. It uses revenue from the BP fines to fund projects benefiting coastlines throughout the nation, including California and the Great Lakes. 

 The Deal: The endowment attracts non-Gulf senators to support the RESTORE Act. With this wider base of support, it could be included in the Senate's version of a massive omnibus and transportation bill and could pass both chambers. Gulf senators get the 80 percent of total funds for their home states, and other senators get federal money for pet-projects in their states. 

 The endowment made it into the final transportation bill because of Sen. Barbara Boxer (D-CA). She, like other Senators, would not have cared about RESTORE without the endowment provision. She was also “a key member of the conference committee that is meeting to work out the differences between the House and Senate transportation bills” (Gaffney). The House version did not include the endowment. With Sen. Boxer’s support, the Senate version of RESTORE was included in the final transportation bill. Non-Gulf senators got the benefit for their vote. 

 By expanding the scope of a bill through amendments, representatives exchange votes for projects in a more subtle way. It is streamlined logrolling. Explicit vote trading across bills is illegal and hard to track. Including the endowment meant 1. The bill had a broad support and 2. The Senate version was the one brought to the final vote, because of Sen. Boxer’s role. 

See Also: Marco Rubio's remarks on RESTORE

Long term effects of the BP oil spill

              The 2010 BP oil spill has had long term effects on the marine organisms in the Gulf as well as on the fisherman that depend on the marine organisms for a living. Fishing in the area might never be the same and research is ongoing as to how long-lasting this oil spill will be on the marine life. The BP oil spill exerted negative externalities on the fishing industry and almost caused the shutdown of many businesses dependent on the marine life in the Gulf. BP is trying to internalize the externality by forced compensation of some $7.8 billion to tens of thousands of Gulf residents and businesses damaged by the spill. However, Ryan Lambert, one of many affected fishermen, is not satisfied with BP's offer to pay them off: “The settlement won’t do us any good if there aren’t any fish,” Lambert says.

            According to the Coase theorem, parties should be able to negotiate and reach an allocatively efficient outcome without government intervention. For this outcome to be possible, there must be a clear definition of all property rights as well as no transaction costs to bargaining. Unfortunately, neither of these are true in this case: the Gulf is a public good and thus property rights are not defined. Additionally, transaction costs are high because of the high number of people affected by the negative externality causing a holdout problem. Lambert contributes to the high transaction costs by not accepting BP's offer easily. Due to these problems, an allocatively efficient outcome is unlikely to be reached without government intervention. Further proving this point is the legal battle between BP and the Justice Department. According to the Times-Picayune: "If BP and the government can't agree on the company's gross negligence, that's a matter to be resolved at trial, not in hearings over BP's settlement with private parties. That's why the Justice Department's warning is not only appropriate, but welcome." The externality will hopefully be internalized once an agreement can be reached on the amount of liability BP must take responsibility for. In this particular case, the goods would be the marine organisms while the consumers would be the fishermen and residents of the Gulf.

Romney's Repositioning

As we approach Election Day, President Obama and Gov. Mitt Romney claim that the American electorate will have a clear choice between two competing visions for the country.  This analysis, however, argues that Gov. Romney has repositioned himself near the middle of the political spectrum, a common move for politicians, according to political experts.  They claim, 

“It's not that unusual for a candidate to…move toward the center as a general election nears. The idea is to capture undecided voters, who generally are found in the middle, political experts say.”

Public choice economists would not fault Mr. Romney for his strategic shift.

            The Median Voter Theorem holds that, under certain specific assumptions, two candidates will converge near the middle of the political spectrum, since the median voter will decide the election outcome.  One of the key assumptions in the model requires a unimodal, symmetric distribution of voters.  A cursory look at the composition of the American electorate may suggest that the electorate is not unimodal; rather, it may have two modes, one representing each political ideology.  Even with 2 modes, however, as long as the distribution is symmetric, the MVT still applies, and Gov. Romney is acting rationally by trying to capture the median voter.  While moving to the middle, however, he still tries to appeal to the extreme right, as evidenced by his “47%” comments, in an attempt to hold on to their votes.

            In conclusion, it would not be unreasonable to apply this analysis to President Obama as well.  The article claims that liberals are upset with Obama for claiming that he and Romney have similar positions on social security, but, according to the MVT, given the American electorate, it is certainly in Obama’s interest to move towards the middle to capture the crucial median voter.

Just Like the Football Player

As a quick bonus post for this week:

This morning I came across an article about a new biography of Charles Tiebout and the biographer had this comment about his name:

If I could offer but one contribution to his memory, let it be to induce economists to pronounce his name correctly: It is "TEE-bow," the unstressed syllable sounding like the bow of cellos and arrows.

 The more you know.