Interpreting Keyston Pipeline From Stigler's Perspective

Last Sunday, the republican senators in office discuss that they expect the 114^th congress. Senator Shelley Moore Capito specifically mentioned that she would like the white house move on “Keystone pipeline, tax reform, a transportation bill". Among these three policies, Keystone pipe is a particular sensitive issue because it hurts farmer’s interest but benefits U.S oil industry. The biggest U.S beneficiary from carrying out Keystone pipeline project will be the giant oil company Exxon. There were many pressures in the imposed by the democrats on president Obama for him to not pass this project. However, with the victory of Republican Party over Democratic Party during the mid-term elections, president Obama now might face higher pressure from both parties than he had ever before.

This case illustrates Stigler’s argument for government intervention. In his point of view, different industry group captures government policy in order to establish barrier of entries, and therefore maximize their profit in the long run. The fact that the biggest beneficiary of building keystone pipeline is Exxon means that oil industry is seeking for the approval of this policy. They might have already incurred the cost to support campaign for a U.S senate candidate who happens to be a republican. Consequently, the republican senator Shelly Moore Capito wants this project to be approved. In other words, the republican policy makers are captured by the interest of the oil industry.

The Battle of the Broadbands

Two days ago, the FCC and broadband providers were challenged by President Obama’s petition for net-neutrality, that is, that all traffic on the Internet should be treated equally. For several years, the FCC has been increasing regulatory policies on Web traffic, benefitting Internet service providers (ISPs) by allowing them to charge for the use of “fast lanes” and discriminate against small content producers that cannot afford the pay. However, Obama believes that the Internet should be treated as a public utility, giving equal access to everyone and eliminating the power of ISPs as gatekeepers.

The battle is between two powerful industries: broadband providers on one side, such as Comcast, Time Warner, Verizon and AT&T Inc., and web giants (Google, Facebook, and Amazon) and smaller tech companies (Etsy, Tumblr, Kickstarter) on the other. Upholding Stigler’s argument, the regulation is being sought out by the latter industry. However, whether Obama’s petition will pass or not will require analyzing Olson’s pressure factor. Up until now, only broadband providers have expressed their strong opposition to net neutrality, some even have threatened to challenge it legally if passed. Because the broadband industry is composed of a selective number of providers, they are more likely to organize an exert pressure on opposition. The industry of web giants and smaller businesses, on the other hand, is composed of more actors and hence will have more trouble organizing, some will opt to free ride. For instance, Google, Facebook and Amazon have yet remained silent and showed little support for smaller companies like Etsy and Kickstarter. If they overcome organization problems and determine selective incentives, resulting in more pressure, then victory could tilt towards net-neutrality… Lean back, because the battle has just started.

Reexamining Minimax Regret

Now that Gillespie has conceded the Virginia senate election, Democrats can breathe a lot easier than they were on Election night. Given the slim margin by which he was a head, it is probably safe to say they are all glad they voted. So I think it is time to revisit minimax regret as a solution for the paradox of voting. For certain, Mueller (and Professor Coppock, for that matter) lays out the devastating criticism that people don't seem to operate on minimax-regret, but I think you could try to support the argument with the way that campaign ads frequently go negative. Under this argument, the negativity marks a candidate as someone undesirable, so as to encourage voters to support his or her rival, since they cannot stomach the possibility of his or her winning. This is obviously far from proven, but it makes for an interesting thought..

In fact there's an episode of Futurama that hits on exactly this topic. (I can't link it because one or two of the jokes are iffy.) What if Richard Nixon--via bizarre legal shenanigans--managed to subvert term limits and run for President again? Futurama being the kind of show it is, the election comes down to a single vote, only for Nixon to win because none of the main characters go to the polls. Even when the chips are down, the main characters act on expected marginal benefits instead of on potential regrets.

Which is where this comes back to the Virginia Senate race. Even this "near upset" ended up with Gillespie conceding, because less than one percent of the electorate still to comes to over 16,000 voters. Only one of them needed to vote to prevent Gillespie from winning. Remember, Warner was up in the polls most of the time. It is entirely possible that some Democrats stayed home (driving the margin of victory down), because they believed that Warner was certain to win.

When Deregulation Fails

Comcast, Time Warner, AT&T, and Verizon are the major Internet providers of our country, and this small number is alarming. In 2002, the FCC reclassified Internet access from the heavily regulated telecommunications industry to information services, which is unregulated. The hope was that providers would compete more but the opposite happened. The large corporations don’t compete, and when compared to South Korea, Hong Kong and Europe our prices are higher and our speeds are slower. The only five American cities with speeds and prices competitive to Europe’s are provided by companies outside the big four named earlier. 

Recently we discussed industries and interest groups seeking regulation through rent seeking to gain monopolistic profits as detailed by the late Gordon Tullock.  However in the Internet industry, the small number of providers and their inaction to go after each other’s markets has created a functional oligopoly. They have no need for regulatory capture because a fully competitive market doesn’t exist. Furthermore, a large reason firms seek regulations is to limit entry into the market, according to Stigler. These firms can simply rely on the lack of public fiber networks to discourage new competitors. Now, Europe has required the owners of the pipes to the Internet to lease space to their rivals to encourage competition and this idea is based on Jean Tirole’s recent Nobel-winning work on regulation.

America has a conundrum where the lack of competition is creating a need for regulation. This is one of the rare examples where it seems the real world is behaving opposite of the models.

ALEC- Corporate dating for lawmakers

        While there is a gridlock in Washington, state lawmakers have been passing bills more than ever. Behind the scenes, there exists a conservative group called ALEC, the American Legislative Exchange Council which is one of the most powerful interest groups in the country. It was founded 30 years ago by a conservative activist and public choice aficionado Paul Weyrich; he states that the Republican Party benefits from low voter turnout, something we saw in last week's election.
        Most importantly Weyrich knows the economic power of regulation, something ALEC excels in. ALEC combines some of the countries most powerful corporate donors with over 2000 state representatives, including a majority of the leaders of the Republican party. ALEC uses this relationship to pass the most influential bills in the country, like bringing Florida's Stand Your Ground law to a over a dozen other states. What makes ALEC significant is that it provides direct communication between lawmakers and their donors, instead of representatives tiptoeing around so they won't offend corporate interests. ALEC even drafts the bills for legislators, so they only have to fill in the blank for their state and push it through to a vote. Because ALEC has almost complete domination over traditional red states, it can push through and pass any kind of legislature it wants.
      ALEC is a perfect example to support Olsen's argument of why we should be scared of regulations by interest groups. State legislatures work in near anonymity but wield a tremendous amount of power when deciding our law. Corporations are preying on uninformed American and are secretly pushing through an incredible amount of legislation that hurts our society. Becker would argue that the public would push back and fight against these regulations, but how can society fight back if no one knows ALEC exists?

Fences, Trains, Angry Students, and Stigler

In this blog post, I'd like to share a relevant example of Stigler's capture theory that is happening right here on grounds.  I know I am not the only one to lament the construction of the 7 foot metal fence that now prevents UVA students from crossing the train tracks on their way to class.  Cutting across the tracks saves some up to 15 minutes of time per cross; with the fence, students will lose hours of time a week taking meandering routes to class and the corner.  The fence's construction illustrate's Stigler's point that regulation is sought out by the industry and is designed and operated for its benefit.  As NBC local news reports, the railroad that uses the track, CSX Buckingham Branch Railroad, sought out the regulation from local government, working with UVA to cite concerns over student safety.  While I do understand this concern, it is important to point out that no UVA student has ever been seriously injured or killed in years of track crossing.  Another potential reason for CSXBBR's new-found concern is the competitive advantage the fence might give them over other railroads and shipping alternatives.  A fence guarantees there will be no students around the tracks, and thus the trains passing through will be able to go faster than before, improving their shipping service.  The Virginia state government pays for the fence, the railroad incurs the benefit, and taxpayers are told their students are safer.  Of the four kinds of favors that Stigler mentions an industry might seek, the fence is most similar to a cash subsidy.  The railroad incurs the benefit of the fence that cost $350,000 in state grant money.  Perhaps CSX Buckingham Branch Railroad would have preferred the more open ended and direct form of cash subsidy that Stigler mentions, but the railroad nonetheless will benefit greatly from the fence initiative.  That is, if the UVA police can stop students from tearing it down.

**Thank you to Russell Bogue, blog post guru, for the inspiration behind this post

Loretta Lynch and the Evolution of the Median Voter

If we assume that Obama, despite not being eligible for re-election, will still implement policies that are likely to preserve the image of the democratic party with the majority of voters, then the nomination of Loretta Lynch for U.S. Attorney General is a positive sign that the median American voter is evolving.

It is hard to think that 30 or even 10 years ago a president would feel "comfortable" nominating a female African American as the Attorney General. The fact that Obama is willing to do so shows that much of the negativity that may have previously been associated with this ethnicity and genre combination is fading away (slowly). Otherwise, the choice of Loretta Lynch would be political suicide - especially when the President's approval ratings are at all-time lows. Consequently, we can infer that the American median voter is evolving towards a more accepting and open political actor.

Such evolution of the mindset of medium voters is very welcome in our political environment, as without it we would neither have true incentives towards meritocracy in government, nor would we have ease of political negotiation between different citizens, as they would not view each other as equals. Furthermore, the shift in this ethnicity/genre dimension is likely to be correlated with broader evolutions in many other important dimensions of democracy, and thus Loretta Lynch may be here to shows us much more than just a new Attorney General.

Gentrification: Why "Voting With Your Feet" Might Be an Option For Some and Not Others

   Gentrification refers to a shift in urban population from poor to wealthy. It is a contentious topic that poses a significant challenge to both urban planners and local politicians. This past spring, local political leaders acknowledged that the latest wave of gentrification has occurred at an increasingly rapid pace and to the detriment of cities' long-time residents. This article explores how cities' attempt to attract young professionals out of the suburbs and into city limits has been successful—but perhaps too successful. In order to appeal to the next generation of upper class citizens, city funds have been used to institute tax breaks for luxury condominiums and to build new bike lanes, dog parks, and sports fields. The influx of wealthy individuals has caused home prices to skyrocket in cities across America, and, as a result, working and middle-class populations are increasingly feeling the pinch.  For example, in South Philadelphia, Rene Goodwin saw the value of her home rise from $90,000 to $281,000 in just a single year. Even more startling, then, is the fact that, one-fourth of Boston's citizens are facing similar challenges.
   The pattern of gentrification in American cities relates to Tiebout's model of consumer-voters. Over the past years, it would appear that city governments have selected a revenue-expenditure pattern that appeals to the preferences of wealthy citizens. These individuals, in turn, have voted with their feet and moved into luxury developments that are being built right beside and within working class neighborhoods. The gentrification process demonstrates that the individuals who might come closest to meeting some of Tiebout's demanding assumptions—namely full mobility and a large choice set of communities—are the wealthy. Middle and working class folk, on the other hand, do not have this opportunity, and their ultimate decision to move is much less a matter of choice and much more a matter of external pressure.

The Deadweight Losses of American Food Policy

A Washington Post op-ed viciously attacked President Obama on the grounds that he does not have a comprehensive food policy in place.  Instead, the federal government is funding the Affordable Care Act while simultaneously subsidizing the agricultural components of disease-causing junk food.  For example, the federal sugar subsidies decrease the costs of soda production, a drink whose consumption is related to obesity and diabetes.  The contradictions that exist within the federal government’s approach to food policy extend further than the ACA.  Farming is one of the primary emitters of methane, a “potent greenhouse gas” but EPA rules are voluntary for agriculture.     

It appears that the author is describing the deadweight losses associated with regulatory rents that have been sought by various industries.  The author cites instances in which the Obama administration attempted to protect the public good but failed.  Such failures include trying to regulate antibiotic use in agriculture, which would reduce negative health effects but likely raise costs for farmers.  The increase cost to farmers may have prompted lobbying against such a policy.  President Obama also pursued policies to protect farmers and consumers from “agribusiness oligopolies” by using anti-trust laws, but this also failed.  It is very possible, if not likely, that farms that stood to lose from these policies lobbied against them and were able to prevent their enactment.  However, since these policies had potential public benefits, their defeat maintains the significant deadweight losses faced by citizens.   

Not So Sweet Regulations

On election day in Berkeley, California, along with electing politicians Berkeley also passed the first tax on soda and soft drinks. The premise of the tax is that soft drinks contain sugar which causes obesity, therefore by taxing soft drinks it will decrease the amount of sugar consumed and decrease obesity. Therefore, taxing soft drinks is in the public interest! I have a lot of problems with the logic behind this argument, but let's assume that it's correct. When talking about the theory of regulation in class, we said that for almost any regulation implemented we could make an argument for public interest and that most regulations are economically rational for someone. If we ignore the public interest argument, who could benefit from this regulation?

The tax is on the soft drink producers, but they will likely try to pass this cost on to the consumers. The overall effect will likely be similar to a price increase, which will decrease the amount consumed. The benefits of such a policy will likely go to the substitute goods, which are any drinks with no added sugar. Organic juices, water flavorings, and naturally sweetened soft drinks all will not be taxed, and may benefit from the soft drink tax.

Surprising from an economic standpoint is the fact that many doctors supported this tax. If soft drinks increase obesity, and obesity causes health problems, then economically doctors should be opposed to the tax. Less obesity leads to healthier people which in turn leads to fewer doctor visits resulting in less profit for the doctors. So perhaps not everyone who supports regulations looks at the regulations from an economically rational point of view.