Persuasive Campaign

During class on Thursday and discussing the different kinds of campaigning, the first thought that popped up in my mind when it came to persuasive campaigning was the Swift Vets and POWs for Truth. It was a group of Vietnam veterans that were supporters of John Mccain that came out and countered John Kerry's arguments against Mccain and his war stories. The advertisement produced by them did not give any information on Mccain's political views or platform, but simply said Mccain was a real veteran and pow but Kerry's stories were lies and how he was not a real soldier. Because it clearly just attempted to make Mccain a better soldier than Kerry rather than discussing political issues and views, the advertisement and campaigning done by the Swift Vets and POWs for truth were persuasive rather than informative.They might not have been as funny as Will Ferrel or as cool as Kid Rock, but the advertisement served its purpose to persuade people not to vote for John Kerry.

After The Flood

            Our class discussion has addressed the provision of public goods at some length, but the aftermath of hurricane Sandy hi-lighted many of the fundamental questions associated with communal goods and services. In an efficient world with no asymmetric information public goods would be funded proportionally to the benefit enjoyed by the individual citizens. Unfortunately, such efficiencies are rarely realized in everyday life. Flood insurance and protective infrastructure are two public goods that serve a select number of citizens but are funded communally. The federal government is incentivizing the construction of properties located in vulnerable areas by offering insurance against flood damage.

            Ironically,even though levees and flood-ways are funded communally no national standard exists to ensure the quality of our protective infrastructure. There exists "no federal money for routine maintenance. And from a flood manager's perspective, fixing a broken levee is not always the way to go." As a society it is in our interest to restructure the incentive structure associated with flood insurance. One FEMA official recommends relocating individuals from high risk areas, "[g]et appraisals for their homes, write them a check, knock the homes down, and just let it go back to its natural state. . . I think that's something we really need to take a look at. Because governments have allowed people to build right onto the water, and water has a tendency to move." In the absence of a value-based-payment-system it is in the interest of society as a whole to minimize future losses and bite the bullet ahead of time. 

Women's (not Men's) Health

    Public Choice theory suggests that small groups with similar interests will be better able to lobby the government for favors than large groups that succumb to the free rider problem. Women's groups confound this notion by representing a large section of the population yet being able to gain significant rents for women. With the help of “more than 50 women’s organizations” women gained many different forms of screening, counselling and testing in the Affordable Care Act. Men do not have access to these services and their is no comparable increase in male health-care.
    One explanation is that benefits to women are a mere byproduct of the efforts of health care industries to seek regulation to limit entry and gain subsidies. Testing companies, women's counselling groups, and preventative care providers that specialize in services used more by women certainly benefit from the law. This explanation, however, doesn’t address why prostate cancer screening equipment manufacturers and other providers of men’s health services didn’t get men’s health regulation into the law.
    Using Becker’s model, the women’s lobby might be a leftover from when increasing legal protections for women was more beneficial to individual women; as they acquired the vote, property rights, and equal protection. Now these groups have much smaller gains to make from lobbying, but retain the structure that allows them to change political outcomes. The organizational structure is especially influential when compared to the men without national organizations for their benefit who would have to oppose women's groups. In Becker’s model, after some additional gains, the marginal benefit of lobbying will go down or the marginal impact of the loss from extra regulations will increase sufficiently to cause a reduction in the size and influence of the women’s lobby.

Acquiring Liquor Regulation

Last semester, in Professor Larson's Auction Theory class, we studied Washington State's auction of their liquor stores as part of our final exam, and the story had lots of public choice implications.

Washington used to have a state monopoly for liquor sales (why this would have been the case in the first place is an interesting topic for public choice study, but I won't get into that here). As has been the case in many states, there was a movement to upend the public monopoly and allow for private sales. What many people don't realize, however, is that these efforts have been largely spearheaded by big-box retailers, namely Costco and Target. Their lobbying efforts meant that when the voter referendum to disband the state monopoly was finally on the ballot, it created a new regulation: the state would no longer be involved in liquor sales, but from that point forward only stores greater than 10,000 square feet in size would be allowed to sell liquor.

When I learned about it, this blew my mind: this regulation seems so obviously detrimental to public welfare and so clearly designed only to serve the interests of the lobbyists that it was honestly surprising to me. It hides behind the veil of

public concerns that gas stations and mini-marts would be allowed to sell liquor, 

but more realistically seems directed at preventing competition from smaller entrants. Perhaps I shouldn't have been surprising - Stigler's analysis of how firms acquire regulation to keep out new competition and support themselves appears to fit this situation perfectly.



(Note: Also of interest, though not necessarily as closely related to public choice, is the auction process that went on in this case. The existing state stores were auctioned off to public buyers, and they were granted special exemptions to the 10,000 square foot rule and allowed to continue operation.)

Early Voting in the District

Earlier this semester we discussed the extremely minimal economic value of voting. However, it seems that the masses still haven't gotten the message. The Washington Post reports of voters who have not only voted, but have voted early, and have waited in massive lines to do so.

"Most said the 45- to 60-minute wait was worth it. 'I work for a Brazilian company and I have to be in New York Tuesday,' said Martha Devito as she left the polls. 'My vote counts. I can wait for an hour.'"

Well, I hate to break it to you Martha Devito, but your vote, in all probability, will not count. In fact, unless the value of your time is practically negative, you will have lost money.

As Johnson pointed out, despite voting being the cornerstone of democracy, it is in fact rational to abstain. Making Martha, and the other 430,000 voters in Maryland, and 52,000 in DC who voted early entirely irrational. 

Selective Benefits of Teaching

As discussed in class, Olson's theory of collective action predicts that small groups will be the most effective at accomplishing their goals as they are the most capable of overcoming free-rider problems.  However, we observe many large groups that are able to provide (or over-provide) their lobbying services.  One such group is a teachers union.  As outlined in this article about Chicago unions, teachers unions actually seek to protect individual teachers from being fired - even in several cases where teachers are underperforming or threatening student safety.  Why would unions, which ought to be expending resources to raise wages or improve hours, expend resources protecting bad teachers?

The answer lies with selective benefits.  In order to incentivize teachers to join the union and not merely free-ride off of legislation favorable to teachers (indiscriminate benefits), unions also provide selective benefits, such as heightened job security, to union members.  Thus, teachers contribute dues to the union in order to gain the individual benefit of a protected career, and the union is able to use the revenue to lobby for collective benefits as well.

So long economics department - I'm transferring to the Curry School!

Seek That (Economic) Rent!

The alcohol industry is one in which there is much rent seeking. Evidence of this has been brought to light yet again in the discussion of privatizing Virginia liquor sales as in this article from the Virginia-Pilot.

"For months, aides to Gov. Bob McDonnell have been meeting behind closed doors with alcohol retailers and wholesalers, public safety officials and faith-based groups to come up with a way to fulfill one of the governor's most notable campaign promises: privatizing Virginia's liquor stores."

In class we learned that firms seek rent by trying to influence how regulatory laws that affect their industry are made or revised. One such group of firms from the above quote, alcohol retailers and wholesalers, are coming to Richmond to affect McDonnell's proposal, which involves shifting liquor sales from a public monopoly to private competition. Currently, private retailers of alcohol have both the types of alcohol (primarily wine and beer) and their hours limited (6 am to midnight). This currently puts them at a distinct disadvantage to their competitors, which include the state-run liquor stores (that are able to sell the alcoholic beverages they are not) and restaurants and bars (that are able to sell the alcoholic beverages they are not, and during a wider range of hours, until 2am). Because of this, they are expending resources (time and money to lobby Richmond) in an effort to change the law so they can obtain the licenses that have been previously withheld from them (the ability to sell a wider range of alcoholic beverages), which would give them an economic rent other firms (those without the coveted licenses) would be prevented from obtaining (due the barrier of entry that is a license). It would also take economic rent away from the bars (they would no longer have a wider range of products available to sell than retailers) and of course the state (they would no longer have the monopoly they currently have).

Social Benefit of Voting

Earlier in the semester we discussed what factors make someone choose to vote.  Since a person has an extremely low chance of casting the deciding vote in an election, the marginal benefit of voting can be much less than the marginal cost.  Despite this, many voters in Ohio were willing to wait in lines that stretched for two hours in order to vote early this weekend.  Most of these voters came as part of the Obama campaign's "Souls to the Polls" initiative.

"Nearly 230 churches across the state joined the Obama campaign Sunday in using church vans and car pools to drive people to the polls. The churches also recruited local restaurants and gospel singers to provide nourishment and entertainment."

This is an example of a social benefit as well as a reduction in the marginal cost of voting.  By providing food and entertainment, the Obama campaign is trying to encourage voting to be a social event.  This also allows people to be seen voting and get utility from "pulling the lever."  These excess benefits gave crowds incentive to vote early this weekend.  Also, providing transportation to the polls on a Sunday made it easier for people to vote without missing work.  

Getting a levy in Tangipahoa Parish

When we started class, we discussed a public good in a levy example.  Turns out in Tangipahoa Parish,  we see this discussion in the real world.  The local government wants to build a wall around the northwestern corner of Lake Pontchartrain to stop erosion.

In this example we see: limitations on the equilibrium quantity of the public good, different sources of funding, and lastly a sealed bidding process trying to limit the dead weight loss in awarding the 4.5 million dollar contract.

"Parish engineer Maurice Jordan said a 10,000-linear-foot wall can be constructed from an area just west of the mouth of the Tangipahoa River toward Pass Manchac, which empties into Lake Pontchartrain. The total distance from the river to the pass was about 18,000 linear feet but the federal Coastal Impact Protection Agency grant for the breakwater could not cover it, he said."

So we see the limitations on who pays what (Fed grant vs. no local spending), the equilibrium quantity at 10,000 (vs. the 18,000), and a sealed bidding process 'awarded' to a firm in Metairie, LA.  One could argue that there is inefficiency because the marginal benefit really isn't $4.5 million, but overall it appears Tangipahoa has taken steps to maximize the utility/efficiency of their local system.  

Membership Benefits

The UVa Alumni Association uses positive selective benefits to overcome the free-rider problem that often occurs in groups. This is a close-to-home example of the by-product theory of groups we discussed in class on Thursday. This by-product theory can be simply summarized: members get hookups.

Just as someone may be persuaded to join a union in order to take a certain job, students and alumni of UVa are persuaded to be members of the UVa Alumni Association in order to enjoy the many benefits of membership.

As a side note, it is interesting to note that there are no fees for Student Life members – I am curious to see how many students end up paying the Life Membership fees in order to continue enjoying the selective benefits. The benefits may not be as applicable to an alumnus who moves away from Charlottesville. It is a question of if the selective benefits will outweigh the membership costs for the individual.

Can Hurricane Sandy Reelect Obama?

           In class, we discussed a study examining the relationship between the outcomes of football games within one week of the presidential election and the outcome of the presidential election itself. The study determined that when a football team wins, its fans/people in the surrounding area are generally happier. If this is the case, this group of people is more likely to vote for the incumbent out of feelings of satisfaction.

           In light of this study, I began to think about other events that could potentially swing the election one way or another. One of the major events that consumed the minds of people living on or near the East Cost this past week was Hurricane Sandy. This article hypothesizes about the effect of Hurricane Sandy on the outcome of the presidential election. According to the article, “political scientists have found that extreme weather affects how voters evaluate presidents and governors, and botching disaster response can dash incumbents' reelection hopes.” Thus, the way in which President Obama responds to the hurricane can affect people’s satisfaction with the current President as a leader. In fact, a study showed that voters punish leaders for failing to react adequately to natural disasters, while rewarding those who respond effectively. Thus, with all of the damage that came with Hurricane Sandy also came an opportunity for President Obama to secure some votes, assuming appropriate crisis management, before Election Day on Tuesday.

Battlefield

At this moment, the entire United States is a battlefield. And D-Day is right around the corner. President Obama and Gov. Romney are busy making every single second count to launch the final blitz. President Obama is message is clear: Join me in building a future that focuses on a strong and growing middle class." 

Set aside the election, a strong and steadily growing middle class is what guarantees a stable society. Social structures such as a pyramid are simply not sustainable. The ideal structure would look somewhat like a spindle, or a football( and yes, American football). This structure requires the middle class to stay strong and prosperous. However, in the context of this election, the promises made to the middle class are not for free, for this is where the median voters reside. 

National polls show the race locked in a virtual dead heat. A new NBC/Wall Street Journal survey shows Obama with a 1-point lead, 48%-47%, and an ABC News/Washington Post poll showing Obama and Romney tied at 48%.

Regardless of whether "tie goes to the incumbent", I have to say, "Good job on winning over the median voters, gentlemen." I'm sure they could almost see each other right across the street. 

The campaign ads are played more and more often on the internet. The first lady encourages me to vote after every two songs on my Pandora station. See how close the two candidates are? Virginians, your votes may actually count. As a foreigner who doesn't have the right to vote, I encourage every one of you to excise your sacred right to help out your candidate, although we all know it's irrational to do so. 

Campaign contributions

This article shows two great examples of why interest groups and lobbying can be wasteful to a society and potentially harmful to a democracy. The article shows that with less regulation of campaign contributions, more and more is spent by large corporations in support of their favored candidate or party. This is a great demonstration of the wasted resources that are associated with lobbying. The article points out that the Republican Party has benefited greatly through higher amounts of support from corporations. This is likely because of the expectation of policies that would be helpful to the corporations if the Republican candidate is in office. Therefore the resources to influence the election now are a type of lobbying for a favorable position through the upcoming presidential term.

Furthermore, the concerns presented in the article are similar to one presented in Olson-- that the purpose of a democracy would be that each vote would count equally. However, the article shows that influence can be wielded in an election through interest group support and fundraising in an election season. The question remains as to whether campaign contributions can be considered a form of political speech or whether interest groups represent imbalance of one opinion in a democracy against another.

Rationally Irrational?

One interesting effect of hurricane Sandy's recent devastation of the US northeast has more to do with fear and panic than physical realities.  Citizens of New York, New Jersey, and Connecticut have been lining up at gas stations, with lines spilling over into roads and bridges (and wait times that can last for hours), in order to fill up fuel tanks to power their cars and home generators.  However, lost among the panic was the fact that there is, in fact, no gas shortage.  One expert believes that the long lines at the pump have been aided by social media organizing "flash mobs" at certain gas stations, as well as group mentality. 

This is an interesting economic problem because it concerns the cost of acquiring information that allows one to make rational decisions.  We have discussed in class how it is rational to be ignorant about certain things, because the cost of educating oneself in those things is overly high in terms of opportunity cost of time.  However, one implication of this model is that if we are ignorant about things (such as the abundance or sparcity of gasoline), it can lead us to act irrationally in these circumstances.  In this case, a presumably rational decision not to research the gas situation led to irrational lining up at the pump.  As such, rational ignorance has led us to irrational actions. 

Such cases call into question whether certain decisions to forgoe knowledge on a particular issue can be completely rational in the first place, when the benefits of the foregone knowledge are uncertain.  Intuitively, I think there is an obvious case to be made that those people who decided to line up at the gas pumps were not rational in their decision not to research the gas situation in their areas.  That is to say that the cost of such research (in terms of their opportunity cost of time) would have been very low relative to the opportunity cost of waiting in line for hours.  The only way in which they could have made a rational decision about the correct amount of investment in education is by knowing the exact costs and benefits of such education--which may only become apparent after the education process taken place.  In other words, sometimes you don't know what you don't know--which is economically problematic. 

Because the only way in which we can make good decisions about what matters are best to be ignorant about is by knowing what we don't know, we hope that this is generally the case.  In practice, the way in which we practice rational ignorance in our lives is based on assumptions about what we don't know--not perfect information.  The degree to which we "know" what we "don't know," and are able to predict costs and benefits to education, determines the degree to which rational ignorance in regards to a particular issue is truly rational. 

Pulling the lever (and maybe the trigger) in Georgia

As we discussed in class, American elections perennially suffer from what is commonly viewed as low voter turnout. As described in this Denver Post article, one sporting goods store in Georgia is taking an interesting approach to combatting this electoral apathy. Adventure Outdoors has put up eight billboards around the state that "urge people to bring in their 'I voted' sticker to enter a raffle for a Glock handgun or Browning rifle."

After being notified by the secretary of state that the raffle might be a violation of state law, it has been opened to nonvoters as well, but the idea behind it fits neatly within our discussion of the costs and benefits of voting for individuals. By offering voters a chance at winning a firearm, the store's owner hopes to incentivize voting by increasing the potential returns to casting a ballot. However, using Johnson's methodology and accounting for the realistic probability of winning the raffle, the payoff is probably too low to affect most citizens' decision of whether to vote or abstain on Tuesday.

The Fox Guarding the Henhouse (leads to regulations)

The CEO of JPMorgan, Jamie Dimon, received increased scrutiny after his bank suffered major losses due to risky trading over the summer.  It soon came to light that Mr. Dimon, in addition to running JPMorgan, also serves on the Board of the New York Federal Reserve.  This revelation caused an uproar:

"The conflicts of interest are so apparent that they're laughable," Sanders told CNN's Wolf Blitzer last week. "Here you have the Fed, which is supposed to regulate Wall Street. Then you have the CEO of the largest Wall Street company on the board which [it] is supposed to be regulating. This is the fox guarding the henhouse."

In the Economic Theory of Regulation, Stigler argues that if they have the power, businesses will use the coercive power of the government to create regulations which are in their favor and will even go out of their way to get these regulations enacted (the capture theory).  As a result, Stigler would not be surprised by Mr. Dimon’s spot on the NY Federal Reserve.  This position gives Dimon the ability to influence regulation in order to help his bank.  Dimon claims his role is more of an advisory position than anything else, but that still puts him in a position of power where he can acquire, design and operate regulations that favors banks such as JPMorgan. 

Organizing Latent Groups

The start-up company Popvox brings lobbying to the masses. The website provides a platform for advocacy groups and grass-roots movements to voice concerns on issues and bring those concerns directly to the representative, without an office on K Street.

Users provide their basic information and can anonymously post their support or opposition to a bill. They can post comments, or letters they have sent to their representatives as well. The site then compiles the data and packages it, organizing it by state, by district, and analyzing any geographic trends that emerge. The company has also developed a software widget for clients such as non-profits and advocacy groups to install on their websites. This helps lobbyists too. Organizations can get basic date on how much public support they have. One founder calls it a method for more strategic lobbying. With the information broken up by district, a lobbyist can determine which congressmen may be more sympathetic. The website is now also connected to the official House Democratic members’ intranet, so congressional aides can directly check the data on the site. 

The website is an attempt to lower the costs of collective action for the individual of a large, latent group. Instead of paying to set up a lobbying firm, individuals pay the site’s registration fee. It reveals the preferences of those parties most interested in the legislation more effectively than writing letters or making phone calls to congressional offices. If a group can galvanize enough people to register opposition, their congressmen may block the bill. The article cites the example of the Mobile Information Call Act. Two sponsors halted the bill and it was withdrawn because of the volume of opposition from their constituents. It may also help increase the costs of free riding. Any member can check where participation is weakest, and increase the pressure on individuals in that area to participate.

Energy Regulations in the UK

The United Kingdom’s Primer Minister, David Cameron, announced in October that new legislation would be put in place to ensure that energy companies give consumers the lowest tariff available.  Cameron’s announcement is due to rising energy costs in the UK and concern over the cold, expensive winter months soon to come.  The energy industry in the UK is essentially made up of six big companies.  There is little competition and the industry is heavily regulated, making it almost impossible for new entrants.  Forcing energy suppliers to give the lowest tariff seems like a good idea to keep prices under control for consumers.  However, reporter Eamonn Butler has a different, long-term solution to the energy crisis in the UK.  He thinks the best way to act in the interest of consumers and to lower prices is to foster competition, not to regulate prices. 

"One of the big downsides of regulation is that it makes people feel safe and comfortable. They don’t imagine that they should be questioning the probity of their bank, or the prices charged by their energy suppliers, because they feel that the government’s regulators have already done that. But competition is a much better protector of the consumer than any number of regulators can be…”

If the government were to repeal some of its regulations of the energy industry and introduce more competition, competitors could undercut each other until the prices got as low as possible.  This would help the consumer much more than the current price regulation.  Stigler’s capture theory does a good job of explaining the current situation in the UK.  The regulations recently put in place by Cameron may seem like they are helping energy consumers, but in reality they are keeping prices regulated and limiting competition.  You can imagine that the six big energy companies are very satisfied and comfortable with the these regulations.