Congressional Dominance over the Bureaucracy of the Supreme Court

In class we discussed Weingast and Moran's piece in which they argued that Congressmen possess awards and sanctions sufficient to create an effective incentive system regarding agency behavior. Weingast and Moran recognize the evidence for agency autonomy, claiming that the evidence is consistent with their theory of congressional dominance.The focus of this post is on a specific point brought up in class regarding one of the incentives used by Congress. Representatives utilize confirmations to encourage or discourage bureaucrats from pursuing or ignoring certain policies. The example mentioned in class today dealt with Supreme Court Justices. These bureaucrats are motivated to act certain ways due to the incentives of confirmations.

Professor Coppock mentioned how this might initially look to violate one of the observations stated to support agency autonomy, namely that perfunctory confirmations of agency heads remains the norm in political practice. In response, he mentioned the vetting process potential justices go through before being sent to the Congress for confirmation. I believe this clip from the West Wing, Season 5 Episode 7 illustrates accurately this idea of incentives that Congressmen have over this specific bureaucracy. The President is speaking to the current Chief Justice about potential Supreme Court nominees and the two men discuss the inability to nominate who they would like because of the unwillingness of Congress to confirm such individuals. This shows that the observation of perfunctory confirmation holds true while the Congress remains dominate over this agency through the incentive of confirmations.

Shirking on NSA Reform

Were it ever to pass, the USA FREEDOM Act would restrict the NSA’s privacy-infringing data collection to individuals reasonably suspected of associations with foreign governments or terrorist groups. As this article reports, however, the bill – needing 60 votes in the Senate to be debated on – fell short by two votes earlier this week. Of the senators whose support the sponsors had counted on, Rand Paul's no-vote was by far the most surprising. Known as an impassioned critic of the NSA, Paul justified his seemingly contradictory decision by citing one provision of the bill that would reauthorize portions of the Patriot Act set to expire in 2015. Nevertheless, many commentators saw the USA FREEDOM Act as a net gain for privacy rights.

That Paul serves as a member of the Senate Homeland Security Committee is indicative of the vast procedural power that committee members have over their respective issues. But this dramatic episode also supports Kalt & Zupan’s theory of ideological shirking. Although Kentuckians (Senator Paul’s constituents) are not necessarily more pro-privacy than voters in other states, Paul has received support from demographics that do not traditionally vote Republican because of his civil libertarian stance on privacy issues. Such voters are concerned about recent NSA depredations and want the agency to change its behavior. Paul, by comparison, is ideologically opposed to all overreaches of government power. As a consequence, he insists on foregoing incremental NSA reform at the cost of extending the Patriot Act, an older law about which his constituents are less concerned. As Kalt and Zupan argue, representatives (the agents) adopt ideologies that conflict with the interests of their constituents (the principals) because it enhances their utility at minimal costs. Those costs that Paul will face are minimal because 1) he will not face reelection for another two years, 2) his future competitors are unlikely to care about civil liberties at all, 3) rationally ignorant voters will likely not examine his voting record thoroughly, and 4) his supporters care about other issues in addition to NSA overreach. As such, Senator Paul's initially surprising no-vote on NSA reform can be explained as a classic example of ideological shirking.

Mean Bureacracies

This post is based off of an article in the Wall Street Journal, so you might not be able to read the full article, but it was just too good to pass up.  The National Transportation and Safety Board (NTSB) is upholding a $10,000 fine issued to an Austrian man for "recklessly" flying a drone around the University of Virginia back in 2011 while he was filming the school for a commercial film.  The NTSB ruled that drones used for commercial purposes must follow Federal Aviation Administration rules: “An aircraft is ‘any’ ‘device’ that is ‘used for flight’.  We acknowledge the definitions are as broad as they are clear, but they are clear nonetheless.”  The fact that the  NTSB thinks this is clear is entertaining enough to make this post worthwhile, but it also provides us with a window into the principal-agent problem associated with bureaucracies  that Niskanen hashed out.  Why would the NTSB go out of their way to punish a man for flying around an "aircraft" no bigger than a Frisbee around UVA?  Economically it makes no sense; establishing a precedent that limits the commercial opportunities associated with small drone aircraft certainly isn't beneficial to constituents (and thus their representatives), and it's still unclear just how dangerous these drones are compared to the other crazy things that fly around a college campus or elsewhere.  I think Niskanen would say the NTSB ruled the way they did because the senior bureaucrat of the NTSB was looking to expand the budget and output of his organization and thus increase his own utility.  Adding a whole new responsibility (commercial drone regulation) to his organization requires a higher budget and leads to a higher perceived output, thus increasing the senior bureaucrat's salary, perqs, power, etc.  Personal utility over welfare seems to have dictated an important bureaucracy decision.

Debate on Dispensaries

In 2012, Washington State became one of the first states to legalize marijuana for recreational use with the passing of Initiative 502. Initiative 502 permits the creation of a statewide legal market for marijuana in Washington.  The state plans to monitor the distribution and regulation of pot under similar margins as the liquor industry, and has issued the Washington Liquor Board regulatory control over the emerging cannabis market. The board plans to issue 334 licenses through a lottery system to retailers who meet specified standards that are aimed at preventing vertical integration. By implementing a market based on a limited number of licenses, policy makers are strengthening barriers to entry into the industry and furthermore promoting market power of pot retailers.  This policy is controversial among lawmakers in Washington who recognize the importance of preventing abuse of the now legalized drug while also avoiding the risks of market power that could arise in such industry.

Proponents of the licensing system argue market power is a good thing for the industry as it will increase the price and reduce the quantity of cannabis being sold in the market and therefore restrain customers from becoming habitual users. Opponents of the licensing system are concerned about the parallels of this system to the alcohol industry as well as the high potential profits the firms would gain with market power. Many fear it will not be an effective long-term structure as more and more states begin to legalize the drug in the coming years. As the industry grows and gets wealthier through monopoly profits it will gain more lobbying power within the political sphere that could ultimately result in the power to decrease taxes and change legislation to benefit their industry. If there is enough collusion within the industry, ultimately an oligopoly similar to Anheiser-Busch could arise that could act as a benefactor within the industry. If Becker’s theory is correct, however, and the policies the industry seeks are truly inefficient, it will incite enough opposition from other groups to prevent passage. Opposition in this case is likely to come largely from the preexisting medical marijuana industry, whose market has been noticeably infringed upon with the passage of the bill. How states should handle the legalization of marijuana is certainly a topic of debate, but if we take some insight from Becker’s theory, it is clear that by keeping the medicinal and recreational industries separate competition between these groups can keep the lobbying power of each industry as a whole in check. 

Stock Market Capture

The Securities and Exchange Commission's plan to increase trading volume for many U.S. small cap stocks can be seen two ways: A) something that "will encourage market makers to buy and sell shares by making each transaction potentially more profitable" and consequently incentivize more initial public offerings (IPOs); or B) "a stealth attempt to hurt brokers that run private trading systems that compete with the likes of the New York Stock Exchange." Obviously the SEC and Congress lawmakers side with option A in saying that new regulation is here for the benefit of consumers/small companies/society.

This debate is a good example of Stigler's theory of economic capture. In this case, because the New York Stock Exchange (NYSE) has a benefit in increasing the number of trades happening in its platforms, we can confidently expect that they welcome regulatory interference in their space; or "worse" that they are actively seeking to be regulated as a way of increasing their market share. Meanwhile, independent-platform owners like Citi or JPMorgan are left to argue the apparently absurd argument that the SEC has been hijacked by powerful interests of some New York industrials. Our studies this semester point towards Citi et al being right; however, they also point to the fact that if the SEC has indeed been captured, NYSE's chances of getting the regulation passed are very high - which could be foreseen in January, when the SEC overruled its advisory committee when it voted 13-3 against this piece of regulation.

Rational Ignorance, Obamacare, and Political Parties

The Affordable Care Act has never been popular among American voters; as recently as September of this year, only about 1 out of 3 voters support the law. Given that only a minority of Americans have ever held a favorable view of of the law, and assuming that our elected representatives vote in our interests, it is understandable why some would be puzzled that such an unpopular piece of legislation managed to pass both houses of congress. In class last week when we covered the issue of shirking, one of the factors that we discussed that contributes to this problem was rational ignorance of the issues at hand on the part of the voters. If the recently uncovered statements of Jonathan Gruber, a key architect of Obamacare, are indicative of the senate democrats' opinion of the average American voter, then it appears that those senators were largely relying on rational ignorance when they voted in favor of Obamacare despite the will of the majority of voters.

However, unfortunately for Gruber, the Obama administration, and essentially every politician associated with the law, "rational ignorance" is not the phrase that was used in the multiple video clips that have surfaced of Gruber insulting American voters' intelligence. Some highlights include: “Lack of transparency is a huge political advantage. And basically, call it the stupidity of the American voter, or whatever, but basically that was really, really critical for the thing to pass”. As well as the admission that “We just tax the insurance companies, they pass on higher prices that offsets the tax break we get, it ends up being the same thing. It’s a very clever, you know, basic exploitation of the lack of economic understanding of the American voter”. If the senators who voted in favor of the law shared these sentiments, then this could explain why they thought that they could vote against the wishes of most Americans and not be punished for it. Still, I think that there is another factor that contributed to the passage of the Affordable Care Act that Weingast and Marshall would presumably disagree with.

In discussing the organization of congress, Weingast and Marshall's second assumption is that political parties "place no constraints on the behavior of individual representatives". I would argue that this statement is not entirely accurate, at least as far is the current group of senators is concerned. I believe that the clearest evidence of this is the fact that Obamacare passed in the senate in a purely partisan manner: each of the 58 democrats in the senate voted in favor of the healthcare overhaul. Of the 40 republican senators, 39 voted nay with the 40th not voting at all. I find it difficult to believe that we would have seen such flagrant party-line voting on an issue as controversial as the government takeover of healthcare if political parties did not have considerable influence over how individual representatives vote, especially considering that senators from states like North Carolina and Louisiana, where Obamacare is deeply unpopular, voted in favor of the law anyway. 

Most of what I have written so far seems pessimistic: the American people are currently forced to live under a law that the majority do not want, because their elected representatives rely on them being ignorant on the bills they vote on, and as a result not monitoring them as critically as they probably should. That the current batch of senators appears willing to vote the party line instead of their constituents' preferences is similarly discouraging. But recent events may have provided us with a bright spot: Even if shirking is out of control and partisan politics are on the rise, it appears that Americans may be holding their congressmen and women more accountable than some of those senators had banked on. When the senate reconvenes in 2015, no less than 15 democrats who voted for obamacare back in 2010 will find their seat occupied by a republican. While this change is not entirely due to the gains that Republicans made earlier this month, it is still a significant shift to occur only 5 years, and will hopefully serve as a warning to congress that American voters might not be as ignorant as Mr. Gruber seems to think.

A Broader Application of Weingast and Marshall's Theory

Weingast and Marshall (W&M)'s theory seems like it could be used in a broader context to explain why congress members renege on the deals that they make with their voters. After all, the 2 driving forces that contribute to congress members reneging on their trades of votes for votes are also present in the trades they make with their constituents of electoral votes for political action. Congress members experience both non-contemporaneous benefit flows and non-simultaneous exchanges when they run for office, for the constituents uphold their end of the bargain (voting for the congress members) before their congress members have a chance to uphold theirs (taking whatever political action they promised while campaigning). The congress members' added flexibility lies in the relatively early timing of their benefit flow: they immediately receive the benefit of securing their seats in congress before their voters receive the benefits of having their congress members execute promised political action.

This House of Cards clip illustrates an example of a congressman defying W&M's assumption that congress members always act to represent the interests of their constituents: he decides to renege on his campaign promise to advocate for keeping the shipyard in his district open. W&M focus on moral hazard and opportunism as the main inspiration for reneging, but in this case, the congressman decides to renege because the cunning majority whip, Frank Underwood (played by Kevin Spacey) is blackmailing him into doing so. Although the congressman had every intention of testifying at the BRAC hearing to keep the shipyard open during his campaign, his situation changed after his constituents voted him to office. (He wasn't being blackmailed before but now he is.)

When the disgruntled congressman asks Underwood why he must stop all of his efforts to keep the shipyard open, Underwood, in an attempt to hide his own reasons for wanting to black mail the congressman, cites the "forces bigger than either of (them) at play" that he calls politics. These looming forces, which W&M would argue include non-contemporaneous benefit flows and non-simultaneous exchanges, keep congress members from being able to uphold their promises both to each other and arguably, to their constituents.

Small Businesses and Lobbying

Lobby is an act we primarily associate with the largest corporations of America. Corporations that can spend hundreds of thousands of dollars to get a tax break, but even small businesses utilize lobbying. A problem for small businesses though is that lobbying isn’t cheap. $5,000 to $20,000 a month with an expectation that the lobbying effort may last more than a year or could fail is the contract you make when you hire a lobbyist.  To afford these efforts, small businesses have set aside competitive interests and worked together. There is a very real risk of free riding which is why industries like the expediters in New York City are only a group of seven. Expediters are paid by contractors to get various building permits approved and don’t work well with together in a competitive market, but after legislation that was threatening to end their businesses appeared they were able to quickly construct a coalition to pool lobbying efforts.

Simply put, rival companies can and do work together to when the legislative agenda is contrary to their business model. This matter can be further explained using Becker’s policies on pressure groups. On a local government level, the total taxes and subsidies being debated are small enough where local owners can spend, m, a meaningful amount for significant pressure, p. The national policies are dealing with numbers of far greater magnitudes of which small businesses don’t have the resources to apply significant pressure. Secondly, the glossed-over variable, ‘x,’ got mentioned, as Legislatives are instrumentalist institutions. This factors in considerably when thinking of the cost of influence. For example, the film industry in NYC wanted a tax credit and after one year had received a 10% credit but this did little to increase business so next year they went and secured a 30% credit which was the ultimate goal. This makes the cost of influence significantly higher even in our democratic system when we look at it from the end goal perspective.

Rand Paul Maximizes GOP Voters

With the current distribution of voters, neither Republican nor Democrats seem to be gaining the upper hand due to policy choices. Nick Gillespie seems to believe the Republicans could actually become an attractive party instead of "bank[ing] on the Democrats sucking all the time." He believes Rand Paul is at the forefront of changing the reputation of the Republican Party. Rand Paul has been reaching out to black communities with issues like the drug war and holding the party closer to it's semi-libertarian rhetoric. What could occur here if the GOP takes after Rand Paul's initiative, is the Republican party could reach into the well of Democratic voters (move left amount the distribution of voters), mainly African-Americans, while also mobilizing formerly disinterested libertarians who had decided to stop voting in general (move right amount the distribution of voters). And as the Republican party, if it truly follows Paul's trend, gains these formerly unachievable votes, the Democrats, retaining their numbing policy of the status quo, would be losing some of their usual voters, due to its venture too far to the center. Such a move by the GOP would be expected by a Party that wished to maximize votes (ideology set aside).

Judges: the new target for interest groups

While we’ve been talking how interest groups can try to influence politicians to achieve their goals. Mother Jones points out that politicians aren’t the only ones making the rules or being influenced to change them. Judges are just as susceptible to being influenced by interest groups. Many laws in America are made my court cases than by actual legislation passed in congress. The article describes how interest groups have been funding money into judge’s elections who seem to rule in their favor. The hard part about funding politicians is that more people pay attention to their races, meanwhile most people in a constituency would not know much about the judges in their area if it weren’t for the ad that the interest groups pay for. With the opposition less informed there is less opposition and more of an opportunity for interest groups to get their regulations passed.

 

Becker may be right by saying that in the political sector the opposition will be big enough to work together and stop interest groups from influencing politicians unless it’s beneficial to all. However in race like judgeships where most of the opposition abstains, this means that although “n” includes the people taxed, those taxed do not also equal a vote. Whereas the number of people in the interest group more than likely equal a vote. That way the risk of investing the money in a candidate is lower, leading it to be a better alternative route for interest groups to invest their money in. If this system remains unchecked then maybe we should be worried like Olson believed.

How Green Might Save the Blue

There is no denying that the Republicans dominated in the recent midterm elections, where they took control of the Senate for the first time since January 2007 and expanded their majority in the House.  This significant defeat has Washington's democrats scrambling for any and all solutions to regain their political control.  Senate minority leader, Harry Reid may have found an answer in something not typically known for its motivating properties, marijuana.

As more and more states look to join Colorado, Washington, Oregon, Alaska, and a handful of other, smaller localities with marijuana decriminalization and legalization, ballot measures to legalize will surely make their way into the 2016 elections.  More than any other issue, marijuana legalization "is one of the biggest factors in [voter] turnout," especially among democratic voters, according to Nevada State Senator Tick Segerblom.  So, over the course of the next two years, we can expect a heightened effort by Democrats to spatially align themselves with pro-marijuana policies to "light a fire", if you will, among their constituents to get out and go vote.  By giving voters that added incentive to head to the polls, to express their pro-legalization interests, Democrats hope to reclaim the power lost this November.

"Debt"-ucation: the truth about education loans

In their paper "Industrial Organization of Congress," Weingast and Marshall sited opportunism as one of the two main costs to firms of purchasing production inputs in the marketplace. We defined opportunism as "the conscious practice of taking advantage of circumstances, often without regard to principles or morals."

Opportunistic practices can take on many forms in many different situations. One example comes up in this article discussing the illegal and immoral practices of a college chain that has left many students in serious debt (This is a very long article, but it is only necessary to read the first half or less to get the main idea and see the relevance to public choice). As the article explains, Corinthian colleges is a college chain that serves as the parent company to many colleges around the country. Its colleges, such as Everest University, act as its "agents" to the employ admissions officers as manipulative sales agents to persuade prospective students to enroll, promising a better future, job security, and better salaries. Rather, these sales tactics are "designed to capitalize on their [the students'] poverty and their trust in an accredited university" (paragraph 12). Students take out large loans with the expectation of support from the university in obtaining the means to repay these loans, but are instead ending up thousands of dollars in debt with no escape route, and are graduating without any good job prospects, often returning to low-paying jobs or unemployment. Students are even misled to believe that they are secured by certain grants and financial support, when really these grants are simply large loans, leaving them in debt they were not aware existed.

The opportunism in this situation is clear. People who have no intention of enrolling in these colleges are manipulated and persuaded through unethical sales tactics by admissions officers and university marketing teams who take advantage of the circumstances of lower-class citizens in order to meet strict enrollment quotas designated by their employers. They have asymmetric information and hidden intentions that are not revealed to students upon enrollment, causing students to end up in "contract commitments" they cannot afford. While law suits have been filed, and Corinthian colleges is being shut down by the federal government, this does not relieve the many students of their loan debts up to tens of thousands of dollars. The costs of opportunism these students have incurred are far higher than any benefit they received from these colleges.

The Sway and Power of Interest Groups

In his article “Public Policies, Pressure Groups, and Dead Weight Costs,” Gary Becker argues that interest groups do not dominate policies and that there is no reason to be wary of them. However, a study conducted from 1981 to 2002 on 1,779 issues found that interest groups can have a major influence on public policy. The evidence found that business-centered groups and economic elites had the greatest impact, compared to ordinary citizens and groups that try to appeal to the masses. The power the interest groups have, as Olson says, comes from “their characteristic and primary function,” which “is to advance the common interests of groups of individuals.”

Becker demonstrated that interest groups are not a cause for concern because they enact more pressure against inefficient policies than pressure for them. The research by Gilens and Page supports this claim: “A proposed policy change with low support among economically elite Americans is adopted only about 18% of the time, while a proposed change with high support is adopted about 45% of the time. When mass-based and business-oriented interest groups oppose a policy, the probability of its being enacted is only 16%, rising to 47% when they’re strongly favorable.” As Becker argued, these groups will fight against policies that will result in a deadweight loss.