Adam Davidson, in his New York Times article entitled “What Donald Trump Doesn’t Understand About ‘the Deal’”, argues that Donald Trump can be seen as a canny spokesman for a unique sort of economy: rent seeking. We obviously learned in class that rent-seeking is when resources are spent in order to obtain rents which derive from some activity that has negative social value (DWL). Davidson presents the case that Trump’s vision completely matches what rent-seeking behavior is all about. Trump isn’t just a rent-seeker himself based on his rent-seeking behavior to exploit monopoly power in his real estate business in up-state New York; “his whole worldview is based on a rent-seeking vision of the economy, in which there’s a fixed amount of wealth that can only be redistributed, never grow.”
Trump essentially embraces rent-seeking behavior by grabbing more than his share by “cutting deals” as a New York real estate tycoon. Many economists and political scientists think that a higher proportion of the economy comes from rents. There is a wide array of economists of different political biases that agree that reducing rent-seeking behavior is essential to improving overall growth and making “America Great Again.” However, the descent into a rentier economy would only accelerate with a mentality like Trump’s in the White House. Thus, there’s the irony: will Trump actually make “America Great Again”, or will he perpetuate further economic inefficiency and rent-seeking behavior?
Tuesday, November 29, 2016
Sunday, November 20, 2016
Congressional Inefficiency
The federal government is set to spend over $300 billion on
programs with expired authorizations, meaning the programs have not undergone
extensive analysis to determine their efficiency. The process to fund programs
through committees is extremely complicated. Madeline Karon describes this
arduous process in her article and mentions the time consuming nature of the
committee system in Congress. She argues that the committee system is
inefficient and does not positively contribute to Congress. Karon believes the
committee system should be removed as it negatively affects the outcome of
Congress.
Weingast and Marshall analyze the role of Congressional
committees in their paper, “The Industrial Organization of Congress”. They
argue that legislative institutions are organized in committees similar to
market firms. The committee system of Congress as an enforcement mechanism is
essential to ensure success. This contrasts with Karon’s argument as the
Congressional committee system is actually a positive contribution. Weingast
and Marshall propose that the committees, as groups, operate in order to
monitor congress, distribute information, and mobilize support. Congressmen and
women have comparative advantages when acting in Congress, which supports the
theory of committees. Weingast and Marshall disprove Karon’s argument and show
the essentiality of committees in Congress.
The Aging Committee
The Aging Committee in the Senate consists of twenty members- the majority leader is Senator Susan Collins from Maine and the minority leader is Senator Bill Nelson from Florida. It is no surprise that the two chairmen of the committee are from Florida and Maine. This is because Florida and Maine rank #1 and #2 respectively with the highest percentage of populations over 65 years old, according to World Atlas. The committee at large represents over half of the top 25 states with populations over 65. According to Weingast and Marshall, this representation is to be expected. The senators on the aging committee fight in the interest of pro-senior legislation, and being on this committee helps them represent almost a fifth of their possible voting populace.
Three days ago, Pennsylvania Senator Bob Casey was appointed the ranking member on the committee (also unsurprising as PA also ranks within the top ten oldest US state populations). Prior to the appointment, he worked on a subcommittee of the aging committee titled the "Special Committee on Aging", in which he did research into policy changes affecting "long-term care, elder fraud and abuse, [and] prescription drugs" which affect the lives of the elderly (Aging Edge). Having been on the committee since the start of his position, it is plausible to argue he is working his way to a significant position of power, such as chairman, with due time.
Between June and September of 2016, the Committee has unveiled 18 press releases on their website. Of these, 14 out of the 18 releases have been a joint release by the committee. The other four are Republican (since they hold the majority). According to Weingast and Marshall and the venn diagram discussed in class, the releases they pass and legislation and hearings they hold must be moderate enough to be palatable to the majority of the committee and the full Senate. Thus, it is intuitive that the output of the committee are a bipartisan result, rather than predominantly one-sided policies.
Three days ago, Pennsylvania Senator Bob Casey was appointed the ranking member on the committee (also unsurprising as PA also ranks within the top ten oldest US state populations). Prior to the appointment, he worked on a subcommittee of the aging committee titled the "Special Committee on Aging", in which he did research into policy changes affecting "long-term care, elder fraud and abuse, [and] prescription drugs" which affect the lives of the elderly (Aging Edge). Having been on the committee since the start of his position, it is plausible to argue he is working his way to a significant position of power, such as chairman, with due time.
Between June and September of 2016, the Committee has unveiled 18 press releases on their website. Of these, 14 out of the 18 releases have been a joint release by the committee. The other four are Republican (since they hold the majority). According to Weingast and Marshall and the venn diagram discussed in class, the releases they pass and legislation and hearings they hold must be moderate enough to be palatable to the majority of the committee and the full Senate. Thus, it is intuitive that the output of the committee are a bipartisan result, rather than predominantly one-sided policies.
Niskanen and Corruption
In addition to the general bureaucratic benefits, bureaucrats in corrupt nations stand to benefit from their extortion. The size of the budget is positively correlated with the amount of that budget that they can extort. This can lead to corrupt bureaucrats having quite strong reactions in response to budgetary changes, as they did when India expanded its budget for the National Rural Employment Guarantee Scheme. As a paper by Niehaus and Sukhtankar (of UVa!) describes, with the budgetary increase, the availability of future rent from corrupt activities increased, so bureaucrats’ jobs now became more valuable. Thus bureaucrats became more concerned with retaining those jobs. They valued their jobs so much that bureaucrats with a more varied pay structure actually reduced their theft, so that they could limit the probability of their termination. On one hand, this supports the Niskanen model since it demonstrates that bureaucrats aim to maximize their budget. However, it’s less clear how this relates to or supports Nisaken’s emphasis on the senior bureaucrat, since it was the local bureaucrats that stood to gain in India. And even though these local bureaucrats gained from the budgetary increase, how much power did they actually exert to make it happen?
It also opens the question: What happens when a project’s budget doesn’t correspond to that project’s output? The Niskanen model demonstrates that bureaus aim to overproduce, but it hasn’t so far explained the gap between budget and output. Though these gaps and inefficiencies exist in all nations, they are particularly egregious in corrupt nations, where corruption can result in astoundingly high leakage rates. In Uganda, an educational block grant was estimated to have a leakage rate of 87%, meaning that only 13% of the budget actually went to fulfilling the project’s aim.
It also opens the question: What happens when a project’s budget doesn’t correspond to that project’s output? The Niskanen model demonstrates that bureaus aim to overproduce, but it hasn’t so far explained the gap between budget and output. Though these gaps and inefficiencies exist in all nations, they are particularly egregious in corrupt nations, where corruption can result in astoundingly high leakage rates. In Uganda, an educational block grant was estimated to have a leakage rate of 87%, meaning that only 13% of the budget actually went to fulfilling the project’s aim.
Airlines Flying High with Government Subsidies
George Stigler wrote about groups, regulation and the use of the state. He determined that there are four types of public policies and uses of the state that industries seek. One type is that which deals with substitutes and complements. In his paper, Stigler mentions an example that “the airline industry actively supports the federal subsidies to airports,” and I have decided to do some research on what he is talking about.
In 1978, the “Essential Air Service (EAS) program was put into place to guarantee that small communities that were served by certificated air carriers before airline deregulation maintain a minimal level of scheduled air service,” which involves subsidizing some flights and air carriers through its support of small airports. This program was supposed to last only a few years to give the airline industry a boost, but is still going strong in 2016. Some are calling for an end to in light of the current budget deficit but others like Rural Air Service Alliance Inc, a small lobby advocating for rural airports is hoping that it will stay in effect. Those that are fighting for the program's end, feel as though the government is paying for empty seats, citing several occasions where there has only been one or two passengers on an entire flight and focus some of their research on an airport in Alamosa, Colorado. The airport in Alamosa received 1.85 million dollars from the government in 2010 and in 2011 had a low load factor for flights of 29.1 to 53.85. The load factor being "miles a passenger has been in a seat in proportion to the miles the seat was empty." The Rural Air Service Alliance Inc, coupled with support from Boutique Air, the airline who flies out of Alamosa, however is fighting back. With their help, the airport has continued to receive federal money and has seen its subsidy increase to 2.6 million, arguing that this money is necessary to stimulate and maintain economic growth in the area. Initially the Department of Transportation put a pause on this year's funds as they exceeded a cap of $200 per passenger but a week ago the hold on the funds was lifted and the airports received the money, as many local officials in Alamosa, including the state congressional delegation and governor voiced their support of the subsidy citing growth and touting Boutique Air's commendable record. The example in Alamosa shows how the airline industry is interested in supporting federal subsidies to airports because they receive the benefit as well, thus proving Stigler's third type of public policies sought by industries.
Trump and Lobbyists: Is Stigler Correct?
In this episode of 60 Minutes, Donald Trump, President Elect is interviewed one on one and asked multiple probing questions. Right at the outset, Trump is asked about the fact that during his campaign he has condemned career politicians because they were 'owned' by lobbyists and big donors, yet he is now appointing and working with those lobbyists himself. This is exactly the sort of action that Stigler points out as well: politics are largely influenced by firms that own politicians and are seeking regulation in their self interests. The irony is that, although Trump has constantly trashed politicians that are influenced by lobbyists, he is now relying on these same lobbyists himself to help run the government until he can "get rid of them." According to Trump, they are the ones that know the government inside and out and he is forced to work with them as they are more adept at political maneuvering than he is.
Interestingly, Trump's claims that he will not be beholden to lobbyists and large firms seems to be folding in on itself the way Stigler would predict. He may not need their dollars, but he does need their votes, and because of this he will be beholden to them just the same. Stigler claims that government has become captured by industry to do their bidding, and Trump agreed with this throughout his campaign. It will remain to be seen whether or not he will be able to follow through on his promises to be different or if he will become captured by industry as well...
Interestingly, Trump's claims that he will not be beholden to lobbyists and large firms seems to be folding in on itself the way Stigler would predict. He may not need their dollars, but he does need their votes, and because of this he will be beholden to them just the same. Stigler claims that government has become captured by industry to do their bidding, and Trump agreed with this throughout his campaign. It will remain to be seen whether or not he will be able to follow through on his promises to be different or if he will become captured by industry as well...
Uber vs. Taxis in NYC's L Train Crisis
This summer New York City confirmed plans for repairs on its L Train, which runs between Manhattan and Brooklyn, that will require the train to be shut down for a year and a half starting in 2019. New Yorkers are prediciting an "L Train Apocalypse" given that line currently serves heavily populated Brooklyn neighborhoods and will drastically increase the commute times of Brooklynites working on the other side of the river in Manhattan.
Uber and the city's many taxi services now find themselves in a race to replace the L Train, seeing potential for a massive revenue boost as many commuters in wealthy neighborhoods like Williamsburg seek to minimize their transportation time. Uber has announced plans for a new feature called Commuting Together, designed to match riders with other commuters who are already driving in the same direction, allowing many car owners to make money for a drive they would be making anyway. Uber hopes to get Brooklyn residents to work in the 18 months that they are without the L Train while also decreasing rush hour traffic on the already-congested Williamsburg bridge.
New York taxi services, however, are lobbying for industry regulation to limit Uber's growing foothold in the city. "Uber's absurd proposal is a street safety hazard waiting to happen," said David Baer, president of the Committee for Taxi Safety, a lobbying group supporting the taxi industry. Baer also cited Vision Zero, a traffic safety program adopted by NYC mayor Bill de Blasio in 2014 to decrease risk for pedestrians, as a policy infringed upon by Uber's innovations. As the above cited Newsweek article points out, the proposed regulations would require Uber carpoolers to "first spend three months getting a license from the Taxi & Limousine Commission, get special license plates for their vehicle, spend thousands of dollars on special commercial insurance, and take over 40 hours of training classes." The taxi industry's lobbying for regulation is a case of rent-seeking. As Stigler points out, lobbyists often point to public interest claims (Uber puts our pedestrians at risk) as justification for industry regulations. While driver and pedestrian safety are of high importance, the taxi industry is seeking extreme regulation to prevent Uber from dominating in the chaos that results from the L Train closure.
Uber and the city's many taxi services now find themselves in a race to replace the L Train, seeing potential for a massive revenue boost as many commuters in wealthy neighborhoods like Williamsburg seek to minimize their transportation time. Uber has announced plans for a new feature called Commuting Together, designed to match riders with other commuters who are already driving in the same direction, allowing many car owners to make money for a drive they would be making anyway. Uber hopes to get Brooklyn residents to work in the 18 months that they are without the L Train while also decreasing rush hour traffic on the already-congested Williamsburg bridge.
New York taxi services, however, are lobbying for industry regulation to limit Uber's growing foothold in the city. "Uber's absurd proposal is a street safety hazard waiting to happen," said David Baer, president of the Committee for Taxi Safety, a lobbying group supporting the taxi industry. Baer also cited Vision Zero, a traffic safety program adopted by NYC mayor Bill de Blasio in 2014 to decrease risk for pedestrians, as a policy infringed upon by Uber's innovations. As the above cited Newsweek article points out, the proposed regulations would require Uber carpoolers to "first spend three months getting a license from the Taxi & Limousine Commission, get special license plates for their vehicle, spend thousands of dollars on special commercial insurance, and take over 40 hours of training classes." The taxi industry's lobbying for regulation is a case of rent-seeking. As Stigler points out, lobbyists often point to public interest claims (Uber puts our pedestrians at risk) as justification for industry regulations. While driver and pedestrian safety are of high importance, the taxi industry is seeking extreme regulation to prevent Uber from dominating in the chaos that results from the L Train closure.
Rational Abstention hurts Clinton
The results of the presidential election were on all accounts, shocking. Many of us, including myself, thought the race would not even be close. Leading up to the election, many polls such as FiveThirtyEight or the New York Times had Hillary's chances of winning the election between 70 and 90 percent. But to their dismay, Trump won the election and decisively at that. So what happened?
I would like to postulate that the polls who had Hillary winning the election so convincingly, actually contributed to her eventual loss. In the months leading up to the election, when undecided or relatively ambivalent voters saw that it was a forgone conclusion that Hillary would win, they became disinterested and complacent.
(1) If an individual voter concludes that the race is all but decided even before they vote, they are even further incentivized to abstain. Why should I take the time out of my day to go to the polls and vote if the outcome has already been decided? (2) Furthermore, the societal pressure applied by family members and friends is reduced when the election is expected to be a blowout. Conversely, in a tighter race there is more societal pressure applied to undecided voters and undecided voters are more likely to perceive their vote as potentially decisive.
Effects (1) and (2) can be explained by the rational abstention equation outlined in Mueller chapter 14 and Johnson's paper Voting, Rational Abstention and Rational Ignorance. The readings state that voters must satisfy the equation (p)*B + D > C in order to vote. The two forces mentioned above decrease the left side of the equation. Effect (1) decreases (p) and effect (2) decreases D. By decreasing the left side of the equation voters are further incentivized to abstain.
Because of these two forces, on-the-fence voters had increased incentives to abstain from voting. In turn this caused noticeably lower voter turnout - 55% ( the lowest in 20 years). In the end, those who abstained were in large part moderate voters who Hillary was counting on to win this election.
I would like to postulate that the polls who had Hillary winning the election so convincingly, actually contributed to her eventual loss. In the months leading up to the election, when undecided or relatively ambivalent voters saw that it was a forgone conclusion that Hillary would win, they became disinterested and complacent.
(1) If an individual voter concludes that the race is all but decided even before they vote, they are even further incentivized to abstain. Why should I take the time out of my day to go to the polls and vote if the outcome has already been decided? (2) Furthermore, the societal pressure applied by family members and friends is reduced when the election is expected to be a blowout. Conversely, in a tighter race there is more societal pressure applied to undecided voters and undecided voters are more likely to perceive their vote as potentially decisive.
Effects (1) and (2) can be explained by the rational abstention equation outlined in Mueller chapter 14 and Johnson's paper Voting, Rational Abstention and Rational Ignorance. The readings state that voters must satisfy the equation (p)*B + D > C in order to vote. The two forces mentioned above decrease the left side of the equation. Effect (1) decreases (p) and effect (2) decreases D. By decreasing the left side of the equation voters are further incentivized to abstain.
Because of these two forces, on-the-fence voters had increased incentives to abstain from voting. In turn this caused noticeably lower voter turnout - 55% ( the lowest in 20 years). In the end, those who abstained were in large part moderate voters who Hillary was counting on to win this election.
Rationally Ignorant about the Board of Visitors
The Board of Visitors at the University of Virginia plays a very influential and powerful role. According to UVA's site: "The Board approves the policies and budget for the University, and is entrusted with the preservation of the University's many traditions, including the Honor System." As the BoV is able to significantly shape students' experiences during their time at the University, I would expect students to be aware of the BoV's activities and the issues on which they vote. However, according to an article from The Cavalier Daily, "nearly 60 percent of students do not know enough about the Board of Visitors to form an opinion about them". This is an example of rational ignorance. Learning about the Board of Visitors takes time, and it is evident that the marginal benefit would be less than its associated marginal cost, if students were to gain additional knowledge about the BoV.
The student member of the BoV is trying to lower the marginal cost of acquiring knowledge on the BoV by "actively working to make information about the Board more transparent and accessible to the student body,” However, perhaps the reason the majority of students are not knowledgeable about the BoV is not because the marginal cost is too high, but because the marginal benefit of acquiring knowledge about them is too low. In this case, these students don't perceive the activities of the BoV to significantly affect their lives. Assuming they are acting rationally in their best interest, there is not much we can do!
The student member of the BoV is trying to lower the marginal cost of acquiring knowledge on the BoV by "actively working to make information about the Board more transparent and accessible to the student body,” However, perhaps the reason the majority of students are not knowledgeable about the BoV is not because the marginal cost is too high, but because the marginal benefit of acquiring knowledge about them is too low. In this case, these students don't perceive the activities of the BoV to significantly affect their lives. Assuming they are acting rationally in their best interest, there is not much we can do!
Jason Kander vs. the NRA
Although the 2016 presidential election captured most of the public's political attention this year, down-ballot races brought just as much intrigue. In fact, some of the best political ads of the season stemmed from congressional races, including a bold ad from Jason Kander on the topic of gun background checks. In the incredibly effective ad, Kander, a Democrat, goes far to prove to his audience that he cares about their Second Amendment rights--a stance many Democrats would be loath to so brazenly address.
Why did Kander feel the need to come out strong in support of gun rights while balancing his desire for strong background checks? Kander was running for Senate in Missouri, a deeply red state in which Second Amendment issues get attention. Kander had previously received an "F" from the NRA on defending pro-gun legislation, and clearly felt compelled to address this low rating, implying the NRA's significant influence in Missouri. This is a classic example of Weingast and Marshall's first assumption: congressmen represent interest groups powerful in their districts, and if they fail to faithfully represent, the group will report this failure and mobilize against them. In this case, the interest group--rather than the effective ad--won the day; Kander lost to his opponent on November 8, lending validity to W&M's first assumption.
*As a sidenote, while Kander's ad was well done, I don't know if anybody can beat this ad from Gerald Dougherty.
Why did Kander feel the need to come out strong in support of gun rights while balancing his desire for strong background checks? Kander was running for Senate in Missouri, a deeply red state in which Second Amendment issues get attention. Kander had previously received an "F" from the NRA on defending pro-gun legislation, and clearly felt compelled to address this low rating, implying the NRA's significant influence in Missouri. This is a classic example of Weingast and Marshall's first assumption: congressmen represent interest groups powerful in their districts, and if they fail to faithfully represent, the group will report this failure and mobilize against them. In this case, the interest group--rather than the effective ad--won the day; Kander lost to his opponent on November 8, lending validity to W&M's first assumption.
*As a sidenote, while Kander's ad was well done, I don't know if anybody can beat this ad from Gerald Dougherty.
Saturday, November 19, 2016
Net Neutrality and Donald Trump
Over the past years, debate about net neutrality, which Google defines as "the principle that Internet service providers should enable access to all content... regardless of the source... without favoring or blocking particular products or websites" has presented a contentious issue. Typically, Democrats and the current presidency have advocated for net neutrality, while Republicans have been more opposed.
Currently, net neutrality is required by law. However, Donald Trump may pose a threat to net neutrality, and this has greatly concerned large internet companies such as Google. Google has long been a supporter of the Obama administration, and has supported regulation requiring net neutrality. Without net neutrality, Google would lose money to internet providers like Comcast. Stigler would categorize Google's lobbying as rent seeking, as Google is seeking regulation about
a. how internet providers interact with complimentary goods (i.e. Google), and
b. how internet service is priced.
Since this issue is so important to Google, Olson would categorize Google as part of a privileged group- Google would be a benefactor because they would be incentivized to lobby for net neutrality by themselves. But, since Google donated much more to Hilary Clinton than Donald Trump, it may end up not getting its if regulations change.
Interestingly, Google shares have dropped since the election, while Comcast shares have increased by 7.7%.
Currently, net neutrality is required by law. However, Donald Trump may pose a threat to net neutrality, and this has greatly concerned large internet companies such as Google. Google has long been a supporter of the Obama administration, and has supported regulation requiring net neutrality. Without net neutrality, Google would lose money to internet providers like Comcast. Stigler would categorize Google's lobbying as rent seeking, as Google is seeking regulation about
a. how internet providers interact with complimentary goods (i.e. Google), and
b. how internet service is priced.
Since this issue is so important to Google, Olson would categorize Google as part of a privileged group- Google would be a benefactor because they would be incentivized to lobby for net neutrality by themselves. But, since Google donated much more to Hilary Clinton than Donald Trump, it may end up not getting its if regulations change.
Interestingly, Google shares have dropped since the election, while Comcast shares have increased by 7.7%.
A Powerful Vote
Ecuador’s journalism and media have been experiencing
limitations for the last couple of years. The government has imposed certain
communication laws, which have limited freedom of speech for reporters and
journalists. There are testimonies from well-known press figures that demonstrate
how people cannot express their opinion freely. The restrains for the
Ecuadorian press started to be more critical during the presidential elections
of 2009. Why? Because there were concerns from the government about the
influence the press could have on voters, in favor of their opposition.
Therefore, some reporters’ votes were a threat for being decisive or influential
in the elections.
Carlos Vera, has been one of the most popular television
journalists in Ecuador, and he has always been open towards politics by
expressing his opinions. However, during the presidential elections of 2009, he
was asked to leave his news show, because he had expressed some thoughts
against the President Rafael Correa. This happened three weeks before the
election.
After learning about how one vote in an election can be more
valuable because of the impact it may have, I can better understand why Vera
was denied his freedom of speech. There were worries from the government of the
influence he will have on the population, and their voting decision. His vote itself
was very unlikely to be decisive. However the influence of his choice and
opinions on the thousands of people who listen to his broadcast nationally,
increased the possibility of these votes collectively to be decisive. The expressive
value of his vote was very high. Therefore it seems that his vote was
considered very valuable by the government as they went through many actions
in order for him to stop broadcasting his opinions. Thus, in order to avoid potential
influences, and future conflicts, the news channel fired him.
Wal-Mart: Say NO to OUR App!
OUR, Wal-Mart’s
labor group founded with the help of the United Food and Commercial Workers
International (UFCW), recently designed a new application called WorkIt that allows the company’s
employees to chat about workplace policies and employee rights. However, Wal-Mart
instructed its store managers to advise their employees not to download the app
because it was just a scheme to get personal and private information from its
workers. Given Wal-Mart’s long history of fighting union activities and organizations
in its stores, it is only normal that employees feel skeptical about following this
advice. However, OUR might not have enough influence to convince employees to
use the app either.
OUR (Organization
United for Respect) isn’t like other workers’ unions; its members don’t have collective
bargaining rights and have been shut down by Wal-Mart many times for alleged
illegal protests, which is in turn illegal
according to Federal Law. Moreover, organizing a worker’s union for a company
like Wal-Mart hasn’t been easy. In 2005, there was an attempt to build a group named
Wake Up Walmart, a precursor to OUR, but the effort went nowhere. The UFCW also
attempted and failed for many years, before OUR decided to separate from it last
year, to organize workers at all Wal-Mart’s US stores.
Thursday, November 17, 2016
Bureaucracy in Action- Wastebook
While browsing around the internet looking for inspiration for this blog post, I stumbled across this article in 2011 that introduced me to the waste book. Orginally created by retired Senator Tom Coburn (R-OK), this book is published every year by a senator holding a seat in Congress highlighting the 100 federal government projects that are the most "outrageous ways government wastes your money." My next logical step was to find 2015's edition. It turns out that the project was continued by Senator Jeff Flake (R-AZ) and the most up-to-date edition even spoofs one of the most popular movies of last year. The 2015 version came out last December calling itself Wastebook-The Farce Awakens. In the introduction, Flake writes that "Proving once again that no matter how mired in gridlock Washington appears, there is always one area of agreement-spending more. Washington equates caring with the amount of dollars spent" (Wastebook, 6).
This is where Flake connects to Niskanen's traditional model of governmental bureaucracy. Flake emphasizes the first and third reasons for why governments produce inefficient output. In these two sentences, he explains that it is difficult to gauge efficiency when the only data is found in measuring the inputs or "spending more". Similarly, a larger budget typically leads to a bigger bureau to manage, more power, and higher wages for the Senior Bureaucrat in change of the department. Similarly, "Spending more" is often equated with caring more for the American people, or so it seems. Furthermore, the waste book reflects Niskanen by showing the desire for bureaus to produce above the sponsor's optimal level where MPB=MPC, pushing out farther along the marginal public cost curve. In this way, there are incentives to grow as large as possible and to approve as many projects as possible. While humorous to read the ridiculous proposals approved by a myriad of government departments, the Wastebook becomes a strong example for the traditional approach to bureaucracy focusing on the Senior bureaucrat and highlighting the inefficiencies found in the federal government.
If you have time, leaf through the projects approved by the federal government documented in the 286 pages. I found them very funny in a dark, "every fiber of my being thinks this is wrong" sort of way.
This is where Flake connects to Niskanen's traditional model of governmental bureaucracy. Flake emphasizes the first and third reasons for why governments produce inefficient output. In these two sentences, he explains that it is difficult to gauge efficiency when the only data is found in measuring the inputs or "spending more". Similarly, a larger budget typically leads to a bigger bureau to manage, more power, and higher wages for the Senior Bureaucrat in change of the department. Similarly, "Spending more" is often equated with caring more for the American people, or so it seems. Furthermore, the waste book reflects Niskanen by showing the desire for bureaus to produce above the sponsor's optimal level where MPB=MPC, pushing out farther along the marginal public cost curve. In this way, there are incentives to grow as large as possible and to approve as many projects as possible. While humorous to read the ridiculous proposals approved by a myriad of government departments, the Wastebook becomes a strong example for the traditional approach to bureaucracy focusing on the Senior bureaucrat and highlighting the inefficiencies found in the federal government.
If you have time, leaf through the projects approved by the federal government documented in the 286 pages. I found them very funny in a dark, "every fiber of my being thinks this is wrong" sort of way.
Wednesday, November 16, 2016
Where Health Groups Oppose a Cigarette Tax Increase, Big Tobacco Champions It
On November 2, 2016, NPR published an article about Missouri's Constitutional Amendment 3 which calls for an increase in the state's cigarette tax. Three key interest groups have rallied support and opposition for the amendment. Big tobacco companies hope the cigarette tax will pass, and health groups and small tobacco firms want the electorate to vote against it.
The three interest groups' positions seem unusual, but upon deeper analysis, their position corresponds with their goals. Health groups, like the American Lung Association, argue that the proposed tax increase of $0.60 per pack is not high enough to deter smokers. On the other hand, big tobacco companies like R.J. Reynolds have spent millions to support Amendment 3 because it will harm their small tobacco competitors. As the result of a national settlement in the late '90s, big tobacco companies currently pay a special fee that their smaller competitors don't face. This fee allows smaller tobacco companies to undercut large tobacco companies' cigarette prices because they don't have to pay the fee. Small tobacco hopes to continue undercutting their prices which is why these companies have spent millions to oppose Amendment 3.
Olson would predict that the small tobacco companies and small health interest groups will successfully block Amendment 3's passage because they face less of a freerider problem than bigger groups like big tobacco companies. Although votes are still coming in, the results have been called at 2.7M votes to turn down the cigarette tax increase. It seems that Olson's hypothesis has proven correct in this case.
The three interest groups' positions seem unusual, but upon deeper analysis, their position corresponds with their goals. Health groups, like the American Lung Association, argue that the proposed tax increase of $0.60 per pack is not high enough to deter smokers. On the other hand, big tobacco companies like R.J. Reynolds have spent millions to support Amendment 3 because it will harm their small tobacco competitors. As the result of a national settlement in the late '90s, big tobacco companies currently pay a special fee that their smaller competitors don't face. This fee allows smaller tobacco companies to undercut large tobacco companies' cigarette prices because they don't have to pay the fee. Small tobacco hopes to continue undercutting their prices which is why these companies have spent millions to oppose Amendment 3.
Olson would predict that the small tobacco companies and small health interest groups will successfully block Amendment 3's passage because they face less of a freerider problem than bigger groups like big tobacco companies. Although votes are still coming in, the results have been called at 2.7M votes to turn down the cigarette tax increase. It seems that Olson's hypothesis has proven correct in this case.
Sunday, November 13, 2016
AIPAC: Political Powerhouse
AIPAC is the American Israeli Public Affairs Committee, a pro-Israel lobbying firm. In 2015 alone, out of the $4,189,000 dedicated to Pro-Israel lobbying, "AIPAC accounted for $3,388,700 of that" (Geier) (over 80%!). This article concerns the political "juice" the lobbying firm. The firm, with an estimated 500 employees, lobbies in advocacy for support of Israel and Israeli- American public relations.
As mentioned in class, the firm offers selective benefits for membership. Clear to set the bar high, their lowest tier of membership, with a $1,800 entrance fee is the washington club, which offers special events featuring "some of America and Israel's most important policymakers" and exclusive "monthly conference calls" and briefings. The highest membership is Minyan, which offers meetings with the Israeli Prime Minister, Bill Clinton, Condoleezza Rice, and more for a price of $100,000. More information can be found here.
Additionally, while the lobby group does advocate for Israeli relations, it was unintended byproducts of its lobbying. Every year AIPAC holds a policy conference, of which almost every influential political figure is in attendance. If a policymaker chooses to not attend, AIPAC can use their influence to donate, or strategically not donate to those policymakers. I would classify the group as a latent group, who uses selective benefits to influence membership and thus influence policy decisions and candidate endorsements.
As mentioned in class, the firm offers selective benefits for membership. Clear to set the bar high, their lowest tier of membership, with a $1,800 entrance fee is the washington club, which offers special events featuring "some of America and Israel's most important policymakers" and exclusive "monthly conference calls" and briefings. The highest membership is Minyan, which offers meetings with the Israeli Prime Minister, Bill Clinton, Condoleezza Rice, and more for a price of $100,000. More information can be found here.
Additionally, while the lobby group does advocate for Israeli relations, it was unintended byproducts of its lobbying. Every year AIPAC holds a policy conference, of which almost every influential political figure is in attendance. If a policymaker chooses to not attend, AIPAC can use their influence to donate, or strategically not donate to those policymakers. I would classify the group as a latent group, who uses selective benefits to influence membership and thus influence policy decisions and candidate endorsements.
Puerto Rico, Becker, and Olson
As the Puerto Rican debt crisis has escalated, groups with vested interests into the future of that economic situation has helped to illustrate one of the most important elements of Becker's model. Because Puerto Rico is a U.S. territory, lobby groups have been called upon in order to influence the outcome of the economic crisis. On one side, the Puerto Rico government is attempting to change legislation by supporting a bill allowing the territory to file for Chapter 9 bankruptcy. They are doing so by hiring the services of SKD Knickerbocker and Podesta Group. These two lobby groups hope to alter financial policy and give Puerto Rico breathing room from creditors. On the other side, six investment management firms have hired lobbyists Venable and Gibson Dunn to protect the price of the Puerto Rican Electric Power Authority (PREPA) bonds as well as their investors. Also opposing the bill is the 60 Plus Association, "a seniors advocacy group that casts itself as a conservative alternative to the AARP...backed by a donor network organized by Charles and David Koch." They are attempting to protect "investors who put their trust in Puerto Rico-backed investment."
The question that needs to be addressed is who wins this fight? A perfect example of Becker's model, the equations found could give us some insight into the eventual winner of this lobbying battle. Using the information found in the article, it appears that as far as lobby groups are concerned, their effects will cancel each other out. If both sides of the argument have hired two large lobbying groups with similar numbers of supporters and opponents with arguably the same budgets, Becker's statement is correct and advocacy groups on opposite sides will negate each other's effects. That being said, Olson still has a reason to stay up at night. The presence of the 60 Plus Association allows for a latent group to enter the equation with large numbers and less free riders. If there is no other equally powerful latent group to negate or reduce the effects of this group, it would appear that Olson's fears are realized in this situation and the opposition can quell this bill using the power of the By-Product theory.
Results: On further investigation, it appears that the bill examined above was blocked, but Obama signed another bill to aid Puerto Rico and set up a board to organize debt payments. The opposition was successful in preventing bankruptcy in Puerto Rico. Instead, the Senate and Obama passed a bill that set up an "oversight board" which was mentioned in the first article as an acceptable alternative by those opposing the bill. It appears that Olson and Becker's models were successful in predicting the fate of this bill.
The question that needs to be addressed is who wins this fight? A perfect example of Becker's model, the equations found could give us some insight into the eventual winner of this lobbying battle. Using the information found in the article, it appears that as far as lobby groups are concerned, their effects will cancel each other out. If both sides of the argument have hired two large lobbying groups with similar numbers of supporters and opponents with arguably the same budgets, Becker's statement is correct and advocacy groups on opposite sides will negate each other's effects. That being said, Olson still has a reason to stay up at night. The presence of the 60 Plus Association allows for a latent group to enter the equation with large numbers and less free riders. If there is no other equally powerful latent group to negate or reduce the effects of this group, it would appear that Olson's fears are realized in this situation and the opposition can quell this bill using the power of the By-Product theory.
Results: On further investigation, it appears that the bill examined above was blocked, but Obama signed another bill to aid Puerto Rico and set up a board to organize debt payments. The opposition was successful in preventing bankruptcy in Puerto Rico. Instead, the Senate and Obama passed a bill that set up an "oversight board" which was mentioned in the first article as an acceptable alternative by those opposing the bill. It appears that Olson and Becker's models were successful in predicting the fate of this bill.
Clinton, Trump, and the Median Voter Theorem
Since Donald Trump defeated Hillary Clinton in last Tuesday's presidential election many have wondered how the polls failed to predict a Republican win. On Tuesday FiveThirtyEight.com gave Clinton a 71% chance of victory, the New York Times gave her an 85% chance of victory, and the Huffington Post gave her a 98% chance of victory. I think that the Median Voter Theorem provides an answer to questions of how most major polls overestimated Clinton's chances of winning.
According to MVT, the median voter is decisive, and parties therefore seek to win the median vote. In this election major media outlets may have misunderstood distribution of American voters and therefore misjudged the location of the median voter. Polls may have assumed that American voters had a relatively normal distribution (as in the graph below), or even assumed that the voter distribution skewed to the left. The graph below shows how, in an assumed normal distribution, Clinton's policy's put her slightly left of center, while Trump's policies put him far to the right, approaching the right tail of the distribution. By this model she would have won the vast majority of votes to the left of the median and encroached quite far into the right side of the distribution. Trump would then be left with only the votes to his right (in the relatively insignificant tail of the distribution), and a portion of the votes to his left that does not reach the median. In this scenario it makes sense to think that Clinton was on track for a comfortable victory. But the results did not play out as expected, and the median voter is likely not where anyone thought was.
We can never know the exact location of the median voter, but Trump's victory suggests that it is likely much farther to the right than most pundits realized. This would mean that the distribution skews to the right (it may also be bi- or multimodal, but in either case it skews right). Under MVT even in a skewed distribution the median voter will be decisive. If we assume that candidates and parties are flexible in their policies and want above all to win votes, then I think it is fair to predict that we will see a shift in the policies of both parties over the next four to eight years. The Republican Party will adjust to appeal to the voters that are right of its traditional establishment, but I expect the Democratic Party to take efforts to win these votes as well. Whether through electing a more populist candidate in the future (someone like Bernie Sanders), or moving policies to the right, I think we can expect these election results to reshape the core stances of both parties.
According to MVT, the median voter is decisive, and parties therefore seek to win the median vote. In this election major media outlets may have misunderstood distribution of American voters and therefore misjudged the location of the median voter. Polls may have assumed that American voters had a relatively normal distribution (as in the graph below), or even assumed that the voter distribution skewed to the left. The graph below shows how, in an assumed normal distribution, Clinton's policy's put her slightly left of center, while Trump's policies put him far to the right, approaching the right tail of the distribution. By this model she would have won the vast majority of votes to the left of the median and encroached quite far into the right side of the distribution. Trump would then be left with only the votes to his right (in the relatively insignificant tail of the distribution), and a portion of the votes to his left that does not reach the median. In this scenario it makes sense to think that Clinton was on track for a comfortable victory. But the results did not play out as expected, and the median voter is likely not where anyone thought was.
How has Ecuador increased their voting turnout?
In the US, there is
a big percentage of the population that does not vote. As we have seen in
class, it is rational to abstain from voting because the costs of voting are
most likely higher than the benefits. This rational behavior was shown during
the recent elections, since even though there were multiple campaigns that
tried to incentivize Americans to vote, the voter turnout remained low at around 56.9%.
In Ecuador, the voter
turnout from the last election held in 2013 was 81.03%, a lot higher. Why are
these numbers so different? Primarily, because Ecuadorians want to avoid the
consequences that arise if one does not vote. Voting is a right and a decision, however in Ecuador when you vote you receive an ID card, like a
sticker that says you voted. This sticker is very valuable, because it is
required to acquire certain goods and services, both private and
public. For instance, in order to open a bank account, you need to provide a copy of your card that confirms you have participated in the last elections. This document
is needed to get a passport, enroll in utilities and even needed to enroll in
college. For example, I was not able to vote in the last elections, because I
was not in the country. In order to open my first bank account, I had to go to
a government agency and justify why I did not vote in order to get this ID.
This process was time consuming, and required some paper work, which would have
been something I could have avoided if I voted.
Thus, we can see
how in Ecuador, the utility gained from voting, for many, is higher than the costs, because of all
the additional benefits that voting brings. A citizen will still obtain value from voting in spite of having the decisive vote (PB). The utility gained is D, from our formula PB+D > C, so the left hand side is greater than the costs for many people. Therefore, given that not
voting will restrain you from multiple goods and services, the costs of not
doing so are high, so it could be argued that in order to minimize voter's costs, and have a marginal benefit greater than costs, it is rational to vote for many Ecuadoreans. Therefore, this would explain the high voter turn out statistics of the country.
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