Ted Cruz versus Anthony Downs

Earlier in the semester, we studied Anthony Down's theory of the median voter. This idea can be summed up in his article when he writes, "If the distribution of voters along the scale remains constant in a society, its political system tends to move towards an equilibrium" (Downs, 140). In the United States, the distribution of voters for the most part stays stable and we live in a two party system. Therefore, according to Downs, representatives will move towards the political beliefs of the median voter in order to gain the majority of vote as long as the distribution is normal.

Some politicians today would not agree with Downs' ideology. Although his model makes economic sense, there is evidence that politicians would value party ideologies over seeking of the favor of the Median Voter. In this article in the Washington Post, Ted Cruz speaks out against moderate Republicans in the Senate. As a tea party member from Texas, Cruz has sparked division and tension with high ranking Republicans such as Mitch McConnell. The relevance of this article to Downs comes at the very end when Cruz comments on his potential running for president in 2016. He says, "I think we have seen election after election that when Republicans fail to draw a clear distinction with the Democrats, when we run to the mushy middle, we lose." Here, Cruz clearly opposes the whole basis of the Median Voter Theorem, stating that political victory is achieved through clear division of political lines, not the political views of the Median Voter. 

Policy: Free Higher Education in Chile

The newly elected Chilean President Michelle Bachelet promises to make higher education in Chile for free. Higher education spending in Chilean private educational sector accounted 2% of GDP of the entire country, a percentage that is one of the largest in the world. According to this article, the government is planning to cover future college student tuition by using new taxes that aim to transfer the 2% of GDP from private to public sector.

In order to examine whether this intended solution is feasible, I am going to apply Becker’s theory. According to his theory, if a policy has a high deadweight lost, both tax payers and subsidy beneficiaries will choose to reject the policy. This is because the deadweight lost increases the payment of the taxpayers and increase the cost of increasing a subsidy. Following this logic, the policy that president Bachelet intend to force might not be feasible because it is inefficient to society. Transferring the 2% of GDP from private to public sector can generate big deadweight loss because many institutions might lose future tuitions and, therefore have fewer resources to maintain and update their systems. In a long run, this can mean a deterioration of the Chilean higher education system. As such, I believe that both the taxpayer and subsidy group in Chile should oppose this policy.

The Evil Tool of Marketing

In this comic strip, Dilbert discovers the "evil tool" of marketing.  Apparantly unaware of this concept, he comically announces it as a tool that is manipulating society and therefore has to be destroyed. He explains this tool as one that causes people to be enticed by certain products and services that they don't need, and therefore is harmful to us. He would be astounded at the thought that companies spend money on such as evil tool as this in order to persuade consumers to make unnecessary purchases.

The representation of marketing in this comic can be related to our discussion in class on rent-seeking. We defined rent-seeking as "the expenditure of resources in order to obtain rents when the source of those rents is socially wasteful." Similar to how Dilbert views marketing, rent-seeking is wasteful spending because it diverts resources away from better uses in order to "get the rent", something that is socially wasteful in itself. These resources are being used to obtain government favors and certain power rather than being spent on new products and services. Once the rent is obtained, the market power of the rent-seeker will cause its pricing and output decisions to lead to dead-weight loss. Additionally, the rent-seekers assume the risk of unsuccessful rent-seeking/lobbying in which they pay out, but do not win the government favor and do not get the rent.

Bringing the discussion back to Dilbert, his criticism of marketing (although he doesn't know that is the official term for this evil tool) can be related to arguments against rent-seeking as they both can be means of wasteful spending. While companies use marketing as a means of advertising and promoting their products, it is not a guarantee that sales will increase, just as it is not a guarantee that a rent-seeker will obtain the rent. In both cases, resources and money will be spent and wasted.

Tiebout Ties in with Assisted Suicide and Gay Marriage

One of the biggest criticisms of the paper we read in class by Charles M. Tiebout is that he makes it seem easy for individuals to move from one locality with a certain expenditure patter to another in order to maximize their utility. Although most individuals don't leave their home for a single policy, there are a few policies that make for exceptions. These policies tend to be very controversial, partly due to the large impact that they can have on citizens.

One example of this kind of policy deals with the legality of assisted suicide. The state of Oregon's Death and Dignity Act has afforded terminally ill residents the option of obtaining lethal prescriptions since 1997. Brittany Maynard, a previously-terminally ill cancer patient, and her husband moved to Oregon in order to minimize her suffering. Oregon has allowed over 1,100 lethal prescriptions, approximately 750 of which were used by patients to end life early.

Gay marriage is another controversial topic that did not used to be legal in many states until very recently. Many gay couples travel to different states in order to get married, some of whom stay there. Illegality of gay marriage and assisted suicide forces huge costs upon certain members of society. In some cases, these costs are great enough for individuals to find it worthwhile to move to a different state. Although Tiebout's assumption that citizens can easily move wherever they want with no costs is a stretch, there certainly are situations where individuals are better off moving to another locality solely for its different policies.

Regulatory Rents in Jeopardy?

In Texas, the state comptroller decided that the “energy industry should ‘stand on its own two feet,’” which means that regulatory rents that helped the industry develop may now be in jeopardy.  A report was released that cited the “massive strain on taxpayer dollars” that the regulations impose.  Some of the regulatory rents enjoyed by the energy industry include property tax reductions, a federal production tax credit, and “a nearly $7 billion power line build-out geared towards adding wind to the grid.”  One particular regulatory rent that is prominent in Texas is a tax exemption covering “high-cost natural gas drilling.”  This exemption saved drilling operators $7 billion dollars from 2008-2013.  As a result of the various regulatory rents, many producers have no “tax liabilities,” making it clear that the industries benefit greatly from regulation.  The above regulations appear to fall into Stigler’s category of subsidies, which is unusual because often, this method of regulation is unpopular due to its visible nature (subsidies are included in the budget).  While the extent of industry pursuit of regulation is unclear, it is likely that the energy industry engaged in some form of lobbying to push for favorable regulatory rents.  Stigler’s claim that pubic interest is often used as an explanation for regulation is supported by this case since some argue that society experiences public benefits from the increase in power lines.

Robbers Cave: An Exception to Olson's Typical Cases

In the 1950s, a team of psychologists studying intergroup conflict collected 24 12-year old boys together and invited them to a summer camp called Robbers Cave. During the Phase 1 of the psychologists' experiment, each group did not know that the other existed. Boys in each group bonded with their fellow group members and each group came up with its own name (the Hawks and the Rattles) and designed a group flag. During Phase 2 of the experiment, the psychologists introduced the two groups to each other and soon after introduced a sports tournament with prizes for winners and nothing for losers. As campers grew closer to their "in groups" and bonded over a common dislike of the "out groups," conditions in the camp became so hostile that the Hawks burned the Rattles' flag and the Rattles ransacked the Hawks cabin and stole some of their trophies and belongings. During Phase 3 of the experiment, the psychologists reduced the hostility between the groups by presenting them with a serious logistical problem: the pipes that supplied all of the water to the camp had been tampered with so that none of the boys could access water. As the boys worked toward a new "superordinate goal," as the experimenters called it, that was not zero-sum, but beneficial for all, they peacefully worked together. After solving a number of other superordinate problems together, the boys even requested that they be able to sit with other team members on their bus ride home from the camp.

These results initially seem inconsistent with Olson's theory of groups. The first point of potential inconsistency lies in the absence of the free rider problem in the campers at Robbers Cave. The psychologists reported that the boys, when working toward their superordinate goals, were all involved in the labor that it took to achieve them. However, this exception from from the free rider rule seems reasonable: unlike the characters of Olson's two main analogy groups (firms in a competitive industry and taxpaying citizens), the boys at Robbers Cave looked to secure extremely high gains (accessing their only water supply) in exchange for a very minimal personal investment. (The opportunity cost of the boys' labor on the pipes is fairly low- they were giving up their leisure, but this price is small compared to income or profits that is asked of firms and citizens.) The free rider problem could have also been absent because the size of the entire group was fairly small (24 boys). The second potential point of inconsistency lies in the fact that the group productivity* stayed at a high level even though the group size doubled from Phase 2 to Phase 3. This discrepancy can be solved by re-examining the first point: an absence of the free rider problem means low organization costs. Low organization costs mean fewer barriers to group productivity.

*I'm using the word productivity here to generally describe the hard work that the boys put into their tasks (eg. becoming the best sports team during Phase 2, or fixing the water problem during Phase 3).

Rent Seeking in a Minarchist State

Intuitively, one may assume rent seeking would be eliminated once government is deprived of the power to regulate. However, one may wonder if government could ever be completely stripped of such a power. Even in a minarchist state, one based on libertarian principles, there would still be opportunities for firms to seek certain beneficial government action. One case I have thought of was in cases of defense; as long as governments exist, their duty will be to defend their subjects. Such a duty involves paying for defense materials: arms, etc.. Hence, defense contractors will seek to have the government buy their weapons, the government only needing a certain amount of a certain type of weapon. There is also another case mentioned in this article. If a libertarian government is constantly engaged in nudging its subjects into certain behaviors (the extent of which is ultimately unclear), there would certainly be cases where a firm could seek for that nudge to be in its favor. The implication of such a realization? A government will almost always lead to rent seeking, which will always lead to the misallocation of resources. One could only hope to limit the amount of resources that are put into rent seeking by limiting what a government could actually do.

Much Ado about Capture: Uber, Yelp, and the Better Business Bureau

Another Uber post I know, but I thought it might be interesting to talk about the Better Business Bureau and the prospect of regulatory capture. This New York Times article tells us that said organization just gave Uber an F (specifically in the San Francisco area). But if you look through the complaints, many of them are anonymous. Why do we assume they necessarily came from consumers, and not rival taxi drivers. As the article goes on to note, in fact, Yelp ratings are contradictory for Uber. The organization seems to have a better rating in San Francisco (3.5 stars) than in New York (only 1 star), which is interesting because I did some digging and found out that New York medallions cost more than four times what they do in San Francisco. This at least would suggest that New York taxi drivers have more incentive to put negative ratings up on Yelp.

Moreover, it is interesting that "the surge pricing" criticized by the Better Business Bureau basically just means adjusting prices to current demand (in other words, via an open market). After all, Stigler observes that price controls are an example of favorable regulation sought by firms. Moreover, the article seems even to mention rent seeking, what with the accusations that the Better Business Bureau accepts bribes for better ratings.

None of this can quite be proved, of course, and there will be sampling issues when we deal with online reviews (maybe Yelp isn't the preferred rating website in New York, maybe San Francisco's Yelp attracts only men, etc.). For that matter, it should be noted that the Better Business Bureau is not a government organization, just a consumer watchdog--though the processes will be similar. At any rate, what the BBB says seems like it may need a grain of salt.

Median Voter Theorem and the Role of Income

Recent studies have shown that the trend of the last few elections is one that favors the wealthy. The study builds upon research results that show the rich are more likely to be Republican. This article discusses the median voter theorem and how this trend affects the outcome of elections. Less people are voting these days, and a pattern is also seen in the different classes of voters and non-voters: low-income voters tend not to vote and are also more likely to support Obamacare. From Downs we have learned that the median voter will still determine the final outcome even when the distribution is asymmetric, as it is in this case. This current trend leads the median voter to be more affluent as well as more conservative. So, “all of this suggests that more turnout, particularly among low-income voters, would shift our political system to the left.” Low-income voters have an incentive to vote because many states with a smaller gap between voters and non-voters have policies and laws that would be beneficial to them. While an increase in low-income voters won’t dominate the power of the wealthy, it would allow them to make politicians adhere to some of their demands.

Taxi Medallions and Uber's Effect on this Collective Good

Ownership of a taxi medallion grants one the rights to operate a taxi in a highly regulated market. Although there are benefits for the public from taxi restriction, such as less traffic, the potential profit from owning a medallion drives its regulation. These medallions are worth hundreds of thousands of dollars in large cities, and about a million dollars in NYC. Since the average taxi driver is unable to afford ownership of a medallion, very wealthy individuals own many medallions and lease them out to taxi drivers. For many years, the small group of medallion owners have been successful in restricting output in order to maximize profit.

However, a few mobile applications such as Uber and Lyft are removing almost all entry barriers from the taxi industry. Anyone with a working car and phone can work as a taxi driver with low transaction costs for using the mobile app. The supply of drivers is spiking up, and this competition will certainly take its toll on taxi drivers and their medallions' owners. I expect that the value of medallions will grow much slower in the coming years, if not even begin to decrease in value.

But....you HAVE to vote

I particularly enjoyed our conversation about rational abstention in voting because I think it echoes exactly how I feel about voting. That being said, I think most of the people belong to the class that believes voting is something they have to do (seen by the fact that the majority of the population DOES actually vote. So I was watching TV the other day and an episode of South Park came on. I know, I know, not the most academic of shows, but I think some of the episodes have some merit. Sometimes the episodes have a way of satirizing a general point of view to exaggerate certain points, which although the exaggeration isn't in any way accurate, the idea that they portray is (sometimes).

In this piece of the episode, Stan decides that he doesn't want to vote. His friends and parents both can't accept this decision and claim that they have to make him understand the importance of voting, that "people died so you can have the right to vote." They believe that even if he doesn't like or support either of the "candidates," he should just vote. I've run into this a little myself when I tell people I don't vote. Personally I think it's better or me not to vote when I have no idea what I'm actually voting on, but many people think I should vote just because I CAN vote. Either way, this episode does show some of the general arguments used to try to persuade someone to vote.

Cheerio, median-voter

America’s upcoming midterm election has raised much debate on how the spatial distribution of voters will determine the outcome. Contrary to past elections, Democrats and Republicans have forgotten about the median-voter and instead, have become more extreme in their speech to capture those consistently liberal or conservative, respectively. As a result, more and more moderates have decided to tune out and rationally abstain from voting since their votes will not be decisive. This suggests that the spatial distribution of voters for this particular election is heavy-weighted on the tails. For instance, according to this article, a survey by the Pew Research Center found that “73% of ‘consistently conservative’ Americans are likely to cast a ballot on November 4th, along with 58% of consistent liberals”. The question then remains on which party captured more extremists and will guarantee victory this upcoming Tuesday. 

Analyzing this situation under Down’s spatial location theory, we can expect the voting turnout to be determined by the abstention rates on both sides. Thus, in this case, we need to assume away the assumption of no abstentions implied in his model. If abstention were symmetrically spread across de distribution, then the median-voter would still remain as the decisive voter. However, if abstention is more likely in young people, then Republicans will have a better chance of winning, assuming that the Republican party has more elder citizens than the Democrats. The challenge remains on moving as much citizens to the ballot box this Tuesday. As parties have said their goodbyes to the median-voter, ironically, the midterm election will be determined by abstentions, not voters.

Ed Gillespie: Throwing a Median Voter Hail Mary

The latest polls in Virginia's senate race show Republican Ed Gillespie significantly trailing Democrat Mark Warner.  Hoping to capture Virginians' irrational love of the ailing Washington Redskins, Gillespie dropped all TV advertising to run one state wide ad during last week's Skins game on Monday Night Football.  The ad targets Warner's apparent silence on Harry Reid's "Anti-Redskins Bill" that seeks to remove the NFL's tax exempt status unless the Redskins change their name, which has come under serious fire from the media and various interest groups for being tasteless and racist towards Native Americans.  Although the bill has riled some Redskins zealots, it certainly hasn't been the talk of the town around D.C.

"Why won't Warner fight the anti-Redskins bill?...Why won't he answer the question?" asks the ad's dooming voice over, as if Warner has been tapping into our phones or performing some other traitorous act.  Closing the ad, Gillespie states that he would oppose the anti-Redskins bill so that Washington can refocus it's attention on the real issues.  Although the ad's a bit bizarre, Downs would argue that Gillespie is attempting to strategically locate himself on the policy spectrum where the more extreme Redskins fans and DC gridlock opponents alike would align themselves closer to Gillespie.  Called Gillespie's "Hail Mary" to capture the median voter and win the election, this ad will most likely fall incomplete, as Warner's solid lead will allow him to take a knee and run out the clock until victory.