Is the Free Rider Problem Behind the Catalan Secessionist Movement?

We are all aware of the recent referendum in Scotland, and their decision not to secede from the United Kingdom. While the issue of Scottish independence seems to have been put to rest for the time being, the movement for an independent Catalonia, a region in northeastern Spain, shows no signs of letting up.

Catalonia is a region with its own history, culture, and language that are distinct from Spanish, so separatist sentiment among Catalan nationalists is nothing new. What is unique about this most recent wave of secessionism is the underlying economic component- According to this article from The Economist, "many Catalans believe their taxes pay for poor, lazy southerners to live off government hand-outs". Despite being the wealthiest and most economically vibrant region of Spain, it is also the most in debt, and this is largely due to the tax policies imposed on them by Madrid:  As of 2012, Catalans pay 12-16 billion euros more in federal taxes a year than they get back in federal services.

There has been mutual distrust between Catalonia and the Spanish goverment for generations, and it appears that the Catalans are finally fed up with the redistributive policies of the social planners in Madrid. We learned in class that when it comes to paying for public goods people tend to free-ride and not contribute when they can, and this appears to be the main driving force behind the separatists. According to the article from The Economist, many Catalans view themselves as not only having a different culture from other Spaniards, but a superior work ethic as well, which is why they believe that they would be more prosperous as an independent state that was not being weighed down by the less productive Spaniards from other regions. Time will tell if the free-rider problem will indeed tear the Spanish nation apart, but we can expect the Spanish government to do everything it can to prevent Catalonia from leaving, and taking with it a huge portion of Spain's tax revenue.

Germany's Government Stepping on the Toes of Industry

Current economic troubles in Germany have pro-business politicians and industry titans pointing fingers at public policy.  Although German government and business have typically lived symbiotically in recent history, stagnant growth and new public policy measures have started to sour their relationship.  More specifically, economic growth is projected to fall to 1.3% in 2015, exports are predicted to fall below typical world trade numbers, and the manufacturing, retail, and wholesale sectors are feeling the effects of low investor confidence.

To make matters worse, these issues are all being thrust upon an increasingly unhealthy political climate.  Last year's election results, where the centre-right joined forces with the less business-friendly Social-Democrats, yielded a government with an affinity for government spending, promising expanded pensions and an increased minimum wage.  Additionally, arguably extreme energy policies, hoping to replace fossil fuels and nuclear power with renewables, have sky-rocketed German energy prices.

Germany's current political-economic climate clearly demonstrates Stigler's thoughts on the costs associated with political action.  For example, the measures to eliminate nuclear and fossil fuel energy forced prices far above the social optimum as the nation sensed coercion into substitution; additionally, given the magnitude of those industries, Stigler would suggest that the energy legislation would inherently carry massive information and opportunity costs.  Ultimately, the heightened paternalism in Germany's economy is altering the behavior of its private agents.

Penalty Kick Shootout

In this clip, we see the high stress moments of a the USA vs. Brazil soccer game when the two teams participate in a penalty kick shoot out in order to determine the winner. If a match ends in a tie, and the score remains tied in over time, games will often go into penalty kicks to break the tie. In the shootout, each team chooses 5 players to take a penalty kick, designating a certain order for them to kick in. A coin toss decides which team shoots first. Once the first shooter from team 1 goes, the 1^st shooter from team 2 goes, and they continue in this alternating pattern until either (1) all five players form both teams have kicked, or (2) one team makes a certain number of shots while the other team has missed a certain amount so that the later team cannot possibly win. In the end, whichever team has the most successful PK shots wins the game. If the case occurs where all 5 players have kicked, and the teams have an equal number of “makes” and “misses”, the shootout continues (either with the same kickers or new kickers) until one team makes their shot and the other team misses (becomes a sudden death shootout).

A penalty kick shootout can be viewed as representing a version of game theory. In class we discussed game theory with a specific focus on the prisoner’s dilemma in which a dominant strategy equilibrium exists where both players play their dominant strategy even though this equilibrium may not be Pareto optimal. The penalty kick shootout is slightly different; it is a two-strategy game, which can illustrate a mixed strategy, and results in a mixed strategy Nash equilibrium. A Nash equilibrium   exists when each player is making the best decision he/she can, taking into account the other player’s decisions, and therefore has no motivation to change their strategy. In the shootout, we can still use a payoff matrix to represent the payoffs to each player for each choice:

Player A/Player B	Right	Left
Right	(1) +1, -1	(2) -1, +1
Left	(3) -1, +1	(4) +1, -1

There are two players, A and B. Player A represents the goalie from team A, while player B represents the shooter from team B. Boxes 1 and 4 represent the situation in which the shooter shoots to the same side that the goalie dives, in which case we assume the goalie saves the shot. We can say the result is team A gets a point (prevented the other team from getting a point that round) while team B loses a point (missed the chance to get the point that round). Boxes 2 and 3 represent the situation in which the shooter shoots one way and the goalie goes the other way, in which case we are assuming the shot goes in. Here we can say team B gets a point (gets the point that round), while team A loses a point (does not prevent team B from getting the point that round). These numbers can be changed so that a goal gives a team a point, a goal missed gives 0 points, and a goal saved gives 0 points. Either way, the point is that there are only 2 results, and each player prefers exactly one of them. Each player has an equal chance of choosing left or right, so if each player is basing their choice off the other player’s choice, they are essentially indifferent (it is a matter of luck).  If neither player has an incentive to switch their strategy, because they know the other player is equally as likely to pick one strategy over the other, there is no dominant strategy equilibrium, but rather the game results in an equilibrium of mixed strategies.

Problems with the Median Voter Theorem

In the Governor's race in Rhode Island the stakes have gotten high according to GoLocaProv. With just election day getting closer republican candidate Governor Allan Fung changed his position on minimum wage. Instead of viewing this in a positive light of a candidate mobilizing himself to reflect the views of the median voter, the democratic party sees it as a ploy to gain votes distrusting him to keep his word on the issue. Governor Fung was against raising the minimum wage during the republican primaries where that stance would capture the median voter, the switch cause increased distrust in the candidate instead of increase in votes. He could also run into hot water if his switch causes the far right republicans to abstain, without garnering the new moderate voters.

This seems to be why the median voter theorem does not always work in American politics. For one there is a negative connotation to changing stances. From the side they move away from, they lose votes from people abstaining, violating that assumption. Moving away from your base not only gains you votes, but can also lose you some. AS far as those votes that should be gained, they are hardly garnered because voters see it as a tactical move to gain voters with out any real change in the candidates values. They see the movement as a trick used to gain the vote without the determination to stick those stances after election day. This distrust on both sides eliminates mobility to a large degree for most candidates which is one of the main assumptions in the median voter theory. Because of this it is hard to find truly median candidates as they are often stuck with their principle of the median of their party.

Voting Laws and Rational Absenteeism

Over the weekend, the Supreme Courtgave Texas the go-ahead on a strict voter ID law. The law requires that anyone planning on going to the polls will have to show a state issued photo ID. With midterm elections just around the corner, many Democrats fear that this law will further reduce the already low voter-turnout and hit especially hard for low-income and minorities who may be less likely to have this type of identification at hand.

In terms of his discussion on voting and rational absenteeism, Johnson would clearly identify this law as one that would reduce voter turnout out by increasing the costs for those individuals who may not have a license or a passport. Given the new law, if one does not have a proper form of identification, they must spend hours in line at the DMV as well as shell out additional cash in order to receive an ID so that they may cast their vote. Thus, increasing both the monetary and opportunity costs associated with voting for these people. This law is extremely controversial because it has been estimated that close to 600,000 voting age people in Texas lack state issued ID’s, the majority of which are assumed to be minorities. The law will clearly serve as a significant obstacle and deterrent to voting for these people, and is being compared to the voting taxes of the late 1800s and early 1900 that were used to prevent blacks from voting.  By raising the costs associated with voting, Johnson would claim that this law would give those without state-issued ID’s the incentive to rationally abstain from voting in the elections. Given that minority voters are typically liberal and Texas is a traditionally conservative state, the probability of decisiveness for a minority voter in Texas is already essentially zero. So, by Johnson's reasoning when you combine these additional costs of voting targeted at minorities with the existing costs of voting and the infinitely small probability of decisiveness of a minority voter, the marginal costs will certainly exceed to marginal benefits of voting and it simply wont be rational for these voters to spend the time and money to go to the polls. 

Johnson, Libertarians, and Discrimination

Libertarians often have trouble in the fight against discrimination. This article describes the situation. Basically, it comes down to the libertarian belief in freedom of association, that is, that an individual has a right to associate (i.e. trade, interact, etc.) or refuse to associate with certain individuals.
   
This principle runs into a problem when people decide to arbitrary discriminate against others based on race, sexual orientation, religion, etc. and those discriminated against seem to suffer severe psychological harm and other less severe inconveniences.
 
Although libertarians do not support government force to end this type of discrimination, they could support other methods to bring about its end. My suggestion could be supported by Johnson's analysis of why people vote, even when not gaining a direct benefit from it.
   
Johnson would say a rational individual would only take an action if its direct expected benefit and other utility gained from it were greater than its costs (B+U > C). And I think there are (at least) two ways a libertarian could make B+U greater than C, say, for the racist. An anti-discrimination society could use market forces to increase B of those who do not discriminate (by only buying their products), and the society could increase U by putting social pressure on those who did discriminate. Through these methods, society could make discrimination too costly for rational individuals to discriminate in ways the society believed were wrong. (This only works in an anti-discrimination society)

Race And Voting

A few days ago I found myself reflecting on the significance of voting, especially in lieu of our recent class discussions. I don't want to sound pessimistic, but given recent trends I can only find more symptoms of weakness in the democratic election process.

This PEW analysis of data from the Census Bureau reveals that black voter participation rates reached record highs during the 2008 and 2012 presidential elections. However, according to the theory of rational abstention it is often rational for voters to abstain from voting because the costs of voting outweigh the benefits. So why is the black voter participation rate increasing?

During the 2008 and 2012 elections Barrack Obama ran as the first black president. While the expected marginal benefit of a single individual would not compel him to vote for Obama, another missing benefit from voting just might. I think that many black Americans voted for Obama in order to avoid the markedly higher social pressure that was imposed on them by their fellow citizens. Some may argue that this is fine and that black Americans should vote for Obama because of his race. But I think that this argument is dangerous and often coincides with another commonly espoused view: Black Americans should vote Democrat.

I am worried what this means for the democratic election process in America. I always thought that democracy was a sign of freedom--an individual's right to express their opinion unhampered by the coercion of others. But today, I see the chains of social pressure indoctrinating and manipulating many Americans, reducing their freedom to truly express their views on America's political system. Perhaps the democratic election process is not the most salient indicator of a free society.

Raising the Cost of Voting

Johnson in his article Voting, Rational Abstention, and Rational Ignorance presents a situation in which it is rational not to vote. For those who don't remember, the calculation for the benefit of voting is the absolute net value of a successful outcome (V1-V2) times the probability of one's vote being decisive (assigned as p). Johnson's argument is that p will be so small in most elections, the cost of voting for an average citizen will always outweigh the benefit of voting. Therefore it is rational to not vote. However, people still choose to vote and therefore there is some unknown in the equation that causes the marginal benefit of voting to be greater than the marginal cost. This post will highlight an interesting and often less emphasized part of Johnson's argument, the marginal cost.

In this article, the author is discussing a recent Supreme Court ruling that halts the practice of early voting in Ohio. Furthermore, Ohio has gotten rid of a Sunday of voting and evening hours as well. This is significant because according to the author, "the costs associated with voting - in lost pay, in childcare, in transit fares - are higher for minorities and the poor. Which is why they are among the largest beneficiaries of early, flexible voting." With the early voting eliminated, the cost of voting for minorities increase. Johnson would say that this would make it more rational for them not to vote because with the marginal cost of voting increasing, the likelihood of the marginal benefit outweighing that cost decreases. Many will point to this contentious issue as Republicans seeking to make the costs as high as they can for those who do not vote conservative and make the costs as low for those who do vote conservative.

Election Problems Caused by Voting Rules

During class, we discussed the 1991 Gubernatorial election in Louisiana involving Buddy Roemer, David Duke, and Edwin Edwards, and how the winner of the election could be manipulated depending on the voting rules and elimination methods that are applied. This past summer, there was another election in the Deep South that caused and is still causing considerable controversy. Almost 4 months after the ballots were counted, the U.S. Senate Republican Primary in Mississippi, dubbed "The Nastiest Election in America", remains unresolved.

At the beginning of June, Mississippi state senator Chris McDaniel was viewed as a rising star in the Republican Party and was favored by many to unseat six-time incumbent Senator Thad Cochran. Both candidates consider themselves staunch conservatives, but McDaniel received the endorsement from many in the Tea Party movement, while Cochran was favored by the Republican establishment. The Republican Primary election was held on June 3, and while McDaniel won a plurality of the votes, no candidate won a majority so McDaniel and Cochran were forced into a runoff. McDaniel was expected to win the runoff, but Cochran managed to eek out a narrow victory by 1.6 percentage points.

The election rules in Mississippi are rather interesting-Mississippi has an open primary system which technically allows Democrats to vote in the Republican Primary (and vice versa) as voters do not have to register by party, but voters are only allowed to vote in one party's primary, and by law are also supposed to vote for the same candidate in the general election. This law is, of course, very difficult to enforce. McDaniel's complaint is essentially that between the Primary on June 3 and the runoff, Cochran and his supporters spent a lot of effort trying to convince Democratic voters, who had no intention of voting Republican in the general election, as well as people who had already voted in the Democratic primary, to vote for him.

This is obviously incredibly difficult to prove, and McDaniel has had a hard time just getting the Mississippi Supreme Court to hear his case (the court is currently evaluating Cochran's counterclaim that McDaniel's appeal was filed too late and therefore should be tossed out). While the election rules as they stand may seem illogical, as crossover voting is illegal but almost undetectable, they may have ensured that the Condorcet winner ends up winning the senate seat. It's almost certain that most Mississippians would prefer Cochran to any Democrat, as we will likely see in the general election next month. At the same time, when non-Republican voters are taken into account, it would appear that the more mainstream Cochran is again the preferred candidate when paired against a Tea Party favorite like McDaniel. If democratic-leaning voters could be identified, or if Mississippi had a closed Primary system where only registered Republicans could vote in the primary, the outcome could have been different.

According to several polls leading up to the runoff, McDaniel was leading Cochran among Republican voters, with some polls putting his lead at up to 8 percent. If the primary election had been limited to Republicans, then there is a good chance that McDaniel would have won. And as his party's nominee, he too would likely have won the general election with ease, even though most Mississippians probably prefer Cochran over him. Therefore, it appears that McDaniel may have been the Condorcet winner among Mississippi Republicans, while Cochran was the overall Condorcet winner. So ironically, due to the possible illegal voting that may have occurred thanks to Mississippi's questionable voting laws, the most preferred candidate in the election will in all likelihood end up retaining his seat.

Not All Monopolies Are Created Equal

This week, we read a seminal paper by Gordon Tullock on the costs a monopoly imposes on society. The actions monopolies take to preserve their economic profit—and the actions others take to secure it for themselves—waste economic resources in pursuit of a simple transfer of wealth, Tullock argues. This economic waste exceeds the textbook "deadweight loss" that we traditionally associate with the higher prices and restricted output that typify a monopolized market.

But there are many different types of monopolies, and some may be better for society than others. So argued Peter Thiel, co-founder of PayPal, in the Wall Street Journal last month. Thiel is quick to clarify that he is not extolling "illegal bullies" or "government favorites," but rather companies that innovate their way to the top, that is, natural monopolies. What differentiates natural monopolies from their nefarious cousins is that they reach their dominant position because they do something better than anyone else—whether that's producing the same product at lower costs or creating new products that no one else has thought up. These monopolies, Thiel argues, create value; they're the Apple and Google of the world, the economic equivalent of Louis Pasteur and Alexander Fleming. They provide for us goods and services we actually want. And they can do all this because they enjoy economic profits, which frees them up to worry about things other than the bottom line: things like creation, design, invention, and innovation.

Of course, Tullock's argument still applies to natural monopolies. They enjoy profits, and therefore must expend resources protecting those profits, just as others will jealously seek the wealth for themselves. The question in my mind is whether the social benefits that these monopolies produce outweigh the wasteful costs associated with the rent-seeking that inevitably dogs monopolistic enterprises. I'm not certain anyone has a definite answer to this question. Thiel is right to point out that the government recognizes the usefulness of natural monopolies, as evidenced by the fact that it virtually creates them through the patent office (even as it prosecutes other types via anti-trust litigation). Moreover, I can't intuitively see why I should prefer cut-throat competition—where prices reign supreme and innovation and quality suffer (like the airline industry)—to a world in which monopolistic enterprises use their economic profit to innovate and create. Perhaps these natural monopolies impose similar costs on society as those outlined by Tullock in his paper; but their social benefits might just tip the scales in their favor.