Rent-Seeking and Cable Boxes

The Federal Communication Commission (FCC) voted in February for a tentative proposal that would essentially allow third party programmers to provide cable services that currently only companies like Comcast and Time Warner can. The FCC ruled that cable companies must build apps that can be used in other devices, like an AppleTV or Tivo, allowing a choice for customers instead of having to rent a set-top box to access cable. Proponents of this plan argue that allowing more producers would promote competition in the cable TV industry.

According to the rent-seeking model that we have discussed in class, the current cable companies like Comcast and Time Warner will be willing to spend almost all of the rent that they earn from having control over the cable industry lobbying the government, or in this case, the FCC, to maintain the current standards that allow them to be the only suppliers of cable TV. In relation to Stigler, the current cable companies are lobbying to maintain their ability to control the entry of new rivals in the industry. It is not the rent that these companies earn that is the issue, but instead it is the rent-seeking efforts where resources, like labor, are inefficiently used: the resources are being taken away from production and are instead used to lobby the government to allow them to keep earning these rents.

Rent-seeking Lives Among the Dead

When a family member dies, mourning is usually interrupted by the several decisions one has to make. At the center center of all the questions lies the most important one: how should our loved one be mourned? The “right” answer can vary according to many factors including religious beliefs, household income, social norms, etc. The growing popularity of home funerals during the last couple of years in the United States triggered commercial funeral firms to engage in serious rent-seeking. After all, this is one more industry trying to get the most profit over all the other competing alternatives, just like many other firms in different industries do when they feel challenged.

In the United States, 16 states require that human remains be embalmed or refrigerated usually within 24-48 hours. Virginia is one of the most particular cases. Virginia State Senator Kenneth Alexander proposed a bill that requires the remains to be refrigerated at a temperature of no more than 40 degrees. However, this law has no scientific base. The temperature at which remains must be refrigerated is not strictly that, and cooling via dry ice or other means is perfectly fine, from a biological point of view. This and other similar regulations are supposed to avoid potential health hazards caused by human remains. Nonetheless, science has proved that un-refrigerated human remains don’t really pose significant public health risks. So, what is the real reason authorities are inclined to these regulations that place heavy burdens on families and religious communities that want to take personal care of their deceased relatives? Well, it happens to be that Senator Kenneth Alexander is a funeral director himself who is knowledgeable about this topic, so he has good reasons to impose these regulations… And apparently he has been successfully spreading his advice to other state Senators across the country. 

Who would have said this industry was also an opportunity for entrepreneurs?

Public Policy Negative Externality: Mandatory Helmet Laws

In a recent WSJ article, an argument is made the mandatory bike laws have resulted unintended consequences. When mandatory helmet laws are established, some places see a decline in head injuries in bike crashes. However, the helmet laws result in two different actions. Many bikers stop biking because they don't want to wear a helmet, resulting in a net negative health consequence for them. Additionally, some researchers have found that when a biker wears a helmet the surrounding cars in fact drive closer to the biker (which can lead to more dangerous crashes).

As related back to Friedman and Gruber, the government is faced with an interesting public good problem. The governments, in an act to keep their citizens safe, have enacted a policy that itself causes its own externality. This policy also touches upon a Coasian solution. By mandating bikers to wear helmets, bikers endure the cost of purchasing the helmet to keep themselves safe rather than forcing drivers to drive further from the bikers. The government defaults to putting the cost on the biker, when other alternatives could be considered.

http://www.wsj.com/articles/do-bike-helmet-laws-do-more-harm-than-good-1444662837

StudCo Lowers Students' Costs of Voting

Earlier this semester, Student Council launched numerous initiatives in efforts to increase student voter turnout. Some of these are UVAVotes.com (an online hub where students can locate important registration voter deadlines and locations), transportation to polling places on Election Day, and accesible locations to register on Grounds. StudCo is attempting to make it easier for students to both register beforehand and vote. These efforts and more collectively lower students’ costs of voting (C), the costs an individual expects to incur while participating in a vote. By lowering costs for students, StudCo is affecting the proposed voting equation:

            pB + D > C

Where p is the probability that your vote is decisive, B is the marginal benefit of casting a decisive vote, D is the utility derived from the act of voting itself, and C is the cost of voting.

By decreasing the right side of the equation, C, StudCo is increasing the chance that a student will vote in the election as it would take less for the benefits of voting to outweigh the costs. Indeed, voter registration rates are higher at UVA than in years past. Student groups including StudCo have registered over 3,000 students this year alone. Some part of StudCo’s initiative is taking hold. 

StudCo largely seems to ignore the pB in the above equation, the expected benefit of casting a decisive vote. While this is interesting, it makes sense. There is little that can be done to affect this probability. Virginia is somewhat a swing state, but there is nothing StudCo can do to change this. It is better for them to devote their resources to decrease C. Come Election Day, we will see whether or not StudCo’s initiatives decreased the costs of voting enough for marginal benefits to outweigh marginal costs to convince students to show up the polls.

The Economist: The Winning Policy Platform

I happened to stumble upon an article entitled Defining Realignment from The Economist, which analyzes where the American electorate stands on policy choices and priorities alone, freeing them from party labels to see what kind of winning policy platforms might emerge in the future.  When I saw the thesis of the article, I immediately knew that this related to Hotelling & the median-voter theorem as a tool to win an election based on simple majority rule. What this article is doing is the homework on what those winning policy platforms may be so that Candidate X and Y can use this research to attract most votes from a broad electorate. 

A quick summary on Downs and Hotelling in its relation to the class:  Hotelling argues that a rational voter would choose a candidate whose views showed most “proximity” to its own; so, it incentivizes political parties to take positions most likely to convince the voter in the electorate’s ideological middle. 

Researchers from The Economist used an online poll of “over 7,000 registered voters, which asked respondents both to express their preferences on 12 different issues and how much they cared.”  They then multiplied each position by its importance and added them up for all voters.  Using analysis, they can find which party they might support. 

The Conclusion:  Using the candidates’ actual platforms in the 2016 race, the results indicated that 52% of registered voters were closer to Hillary Clinton’s basket of policies than to Donald Trump’s.  Remember that this approach removes the error of any party loyalties.  This means that Hotelling’s median voter sits to the left of the midpoint between the presidential candidates.  The results also matched with Hotelling’s argument that the most ideologically extreme platforms are not worth it because the margins of the median voter theorem curve just don’t garner much votes compared to the middle. 

Implications for the two parties:  The winning coalition, or suggested “secret formula”, could be built around an anti-globalization message.  The Economist argues that “the candidate would have to take centrist positions on abortion, gay marriage and gun control, and alienate business by backing popular but costly government benefits like national health insurance.”  IF you combined this with supporting a border wall, opposing the North American Free Trade Agreement and ignoring climate change, this basket would secure 51.2% of the vote against a more socially liberal platform backing NAFTA and immigration: close enough to maintain a stable two-party system across election cycles.

I think it’s important to remember that Hotelling & Down’s model does fail to account for turnout, since its big assumption is that there are no abstentions.  While this is not a fatal problem - especially if the demographic studies are "likely voters" instead of "eligible voters", it does add a degree of uncertainty and risk - a politician may be deterred from repositioning even if it apparently makes sense if it risks alienating and lowering turnout among the base. This creates a degree of "stickiness" in terms of policy positioning.

Clinton Campaign: Using Illegal Immigrants to appeal to Legal Voters

   A hot topic in this election cycle is illegal immigration and how to reform the laws surrounding it. On June 15, 2012 DACA was established with support from President Obama. DACA stands for Consideration of Deferred Action for Childhood Arrivals and establishes guidelines and procedures for how people who came to the US as immigrants as children should be treated in terms of citizenship and deportation. Some of the guidelines for whether or not a person may request DACA are it they "were under the age of 31 as of June 15, 2012, came to the United States before reaching [their] 16th birthday [and] have not been convicted of a felony." While on the surface the country seems to be divided over this issue, a recent CNN-ORC poll shows that this is not the case. When asked "Thinking about the way the U.S. government deals with the issue of illegal immigration, which of the following policy goals should be the government’s top priority: (RANDOM ORDER)," the results were as follows:
 

These results show that a majority (with a 15% margin) believes that the government should do what it can to help illegal immigrants who are productive members to society become legal citizens. Another question from this poll asks: "Do you think the government should attempt to deport all people currently living in the country illegally or should the government not attempt to do that," with the overwhelming majority (66% of people surveyed) saying that the government should not. These two questions and their subsequent responses show that a majority of Americans feel positively about illegal immigrants living in our country and one day gaining legal status. 

 

   The reason I am discussing this today is because Hillary Clinton's campaign is being helped by "a group of undocumented immigrants [that] is knocking on doors in Northern Virginia" and in other places trying to mobilize voters on their behalf. They are doing this because they are "kind of in limbo, unsure about whether their status would be renewed under a President Trump and concerned that their family members could be deported.” In an earlier campaign this strategy was actually proven to be successful in helping to "stir up anti-Trump sentiments in Prince William County." I find that what this group, called CASA, is doing is very interesting in terms of what we learned in Johnson's writings about voter rational and the costs and benefits associated with voting. He concludes that "it is the rational voter who stays home and refuses to vote and the irrational one who votes,"but what would he say about someone who can't vote but is spending their time convincing others to vote for candidate who's policies are more favorable to them? I feel as though the whole thing is turned on its head as I question, "is it rational for the members of CASA to spend their time incurring large 'costs' with uncertain 'benefits'  (especially since they will not receive the benefit of voting)?" Costs referring to time and gas spent going door to door, etc. Johnson outlines several benefits with one of the biggest being the feeling of having made a difference and voicing ones opinion, but is this what is happening here? In terms of the elements of his equation, I feel like B is non existent and P is not their vote but rather their outreach and V1 and V2 being the biggest determine factors for the members of CASA. I feel as though the uncertainty of how the people with whom CASA members speak to will end up voting and the uncertainty of whether or not Clinton will actually continue the DACA initiative more than outweigh the cost, and I wonder if Johnson would agree with me. I feel as though perhaps CASA would be more efficient if they created a special interest group or worked on a larger scale than door to door knocking. In any event, on November 8th (or is it the 28th?) we will see if they are successful. 

Are Trump and Clinton ~Down~ with Downs's Median Voter Theorem?

This hilarious clip from Saturday Night Live's version of the Final Presidential Debate is remarkably close to what actually happened. Although it started off as a fairly 'normal' debate, with both candidates trying to portray themselves nicely to voters, shots were quickly fired. While I sat there watching the actual debate, I found myself infuriated by many things both sides had to say. I consider myself fairly close to what the median voter might be, so I wondered to myself if either of these candidates were successful in navigating themselves to capture the median voter from Downs's model?

This is an atypical election in that the voter population distribution is so polarized and bimodal that even the median voters are being alienated by candidates who are (supposedly) moving towards the median position! Hotelling would say that in any major election, the candidates function similarly to competitive firms, meaning that there are little -- if any -- distinguishing features between the two in an effort to gain the most votes. This could not be further from the truth this time around! Trump seems to alienate people by simply opening his mouth and pandering mostly to wealthy elites and white supremacists. But this makes at least a little bit of sense since he is not a career politician and therefore may not be well versed in the art of formulating a campaign that suits the voters' preferences instead of his own agenda (which we can debate over the values of this, just maybe in a less extreme candidate). Meanwhile Hillary Clinton, the career politician knows fully the importance of winning the median vote, but has flip-flopped so many times that she has ALSO alienated many voters! The SNL skit goes so far as to say: who do you want, Trump, or the Republican?! Trump is given his own category, meaning according to SNL he hasn't even come close to a platform supported by a median voter. Comparing Clinton to a republican is a testament to her attempts to gain more votes, but her more "moderate" platform may not be enough as she has already alienated people from her constant changes of pace, who's to say she won't change her mind again when she's sworn in?

These are all points that may come into conflict with the Downs's Median Voter Theorem, but it still is not enough to discredit it. If there exist two completely different candidates with voter distributions that do not even overlap AT ALL (which is slightly more extreme than even that of the 2016 election), then it will simply come down to how many voters there are in each of those distributions, and how many people either candidate has alienated within their own distribution. In other words, there will still be a winner, but it probably won't be one the true majority of Americans are genuinely happy about. (I wonder if we had another election system such as the Hare, Coombs, or Borda Count would the election look a bit different?)

Rent-Seeking in Poverty Statistics

It’s no secret that the Official Poverty Measure (OPM) reported by the Census Bureau is practically devoid of meaning. For one, its only measurement of income is pre-tax income. So, it completely ignores the effects of anti-poverty programs, since it doesn’t account for the effects of food stamps, of welfare, of even the Earned Income Tax Credit! If it doesn’t even reflect the measures taken by the government to combat poverty, then what even is its use! This useless tool, though, is the primary measure used by politicians in determining government benefit allocation.

So why haven’t politicians started using a better measure? Not for a lack of alternate measures, there are plenty. One explanation is rent-seeking. Changing the poverty measure results in winners and losers. A new poverty measure would mean a reallocation of benefits. So, if the new poverty measure reported a lower poverty rate for a certain group, then that group would get less benefits from the government. And so, that group would fight a change in the poverty measure. That group would rent seek. Since, as Mueller guesses, losers are (irrationally) more strongly motivated to fight against a policy change than winners are to fight for it, the losers dominate in their rent-seeking efforts.

However, taking a turn from typical rent-seeking groups, some of the biggest winners and losers are states and their state politicians. So, it’s likely that fewer resources would be spent rent-seeking since the federal politicians already have a pretty strong incentive to align with their home state’s interests, and thus don't need additional financial motivation. But, some states might be unaffected by a change in poverty measure, and so other states might put resources in fighting for the unaffected states’ federal representatives’ votes.

There are plenty of reasons outside of rent-seeking that the OPM still holds so much sway. For one, it's a partisan issue since with the OPM Republicans can claim that anti-poverty efforts aren't working and Democrats can claim we aren't doing enough. And, as previously discussed, this has a lot of elements of a politician-pursuing-votes issue. Still, rent-seeking is likely a fair part of it. And still, it's concerning that even something as supposedly impartial as government-reported statistics has a politics of its own.

Rahm Emanuel meets Tiebout

For the city of Chicago, 2016 has been a tough year thus far. By March of 2016 Chicago had seen their murder rate rise 72% and shootings surge 88% from the preceding year. With 141 murders and 677 shootings, Mayor Rahm Emanuel received significant criticism for not keeping his city safe. The problem was promulgated by the growing national debate over Police relations. Problems continued through the summer for Chicago as the number of shootings passed 3,000 in early September; in 2015 there were roughly 2900 shooting in the entire year.

This trend has been devastating for the citizens of Chicago and it's reputation across the nation. The most recent census report shows Chicago population dropping by about 10,000 people from 2014 to 2015. Furthermore, Chicago Tribune reporter, William Lee, attributes the population decline in part to "violence and lack of community interest".

Approximately a month ago, Police Superintendent, Eddie Johnson, alongside Mayor Emanuel announced a program that would increase the Chicago Police force by nearly 1,000 officers. Emanuel hopes the initiative will be incorporated into the 2017 budget.

Economist Charles Tiebout's theory of local expenditures explains the behavior above. Individuals have widely differing preferences - heterogeneity. If we view the revenue expenditure patterns of localities as a product, then we will see citizens sorting themselves into the localities that suit their preferences best. In the eyes of many Chicago citizens, the revenue expenditure pattern of Chicago was less desirable than other localities. So they moved. The city of Chicago in turn altered its revenue expenditure pattern, by adding more police, in order attract more individuals and maintain the ones living their now. In the end, this example and Tiebout's theory help solve the problem of preference revelation and increases efficient allocation by keeping power at the local level.

Occupational Licenses and Rent Seeking

Many jobs that require an occupational license do so because they have high consequences if the job is done poorly. I want to know that my doctor, accountant, or surgeon has completed appropriate training before trusting them to take care of my health, manage my money, or operate on my body. It would be too costly to investigate each doctor's background and competitively compare them. A medical license ensures that a person has certain knowledge of what they are doing because the job has high consequences. In cases where the consequence of a job is serious, an occupational license not only serves as a barrier to entry for that industry, but also as an appropriate screening mechanism in the interest of the general public.

There are, however, many jobs that require occupational licenses where the stakes aren't so high -- such as a barber, librarian, or interior designer. In order to get a license to be a barber in Nevada, it takes over two and a half years for the appropriate training. If you want to become an interior designer in NV, LA, FL, or DC it will cost you $400 and six years to get a license. While there is a clear argument for why a license is required to practice law or medicine, the same can not be said for more inconsequential professions such as interior decorators and barbers. The license requirements for these jobs are a result of rent seeking behavior. Existing merchants divert funds from their business in order to pay lobbyists to influence legislation. The funds directed toward influencing legislation are inefficiently used because they don't create anything "new" in the economy while hurting competition. Although this form of rent seeking is a huge inefficiency, Tullock brilliantly points out that the biggest inefficiency of all might come from merchants who were unsuccessful in their lobbying efforts. Perhaps its not the 2.5 years of training to become a barber that is most inefficient, but what this license requirement represents. The notion that the government is willing to promote an anticompetitive market for barbers in NV. And if it can be done in NV, why should other companies not try the same thing in their industry?

Will You Say Anything to get Elected?

During the first Democratic debate of this election cycle, Anderson Cooper "confronted Hillary Clinton with a laundry list of issues where her position has shifted."  Over a 25 year career, it appears that Clinton's values have changed drastically on many major issues (Keystone XL, Iraq War, War on Drugs).  On the other side of the aisle, Donald Trump appears to have crammed that same amount of policy change in a year of campaigning for the presidency. While their time in the political arena contrast vastly, the criticism from each candidates' opponents is almost the same.  For Clinton, the perception is "will you say anything to get elected?" For Trump, it's sifting through his statements to find "the most elusive presidential platform in modern history," Different candidates, Different levels of political experience, the same criticism of inconsistency in values.

Does this line up with Hotelling and Downs models? In both theories, the shifting of policies in order to gain voters is generally encouraged. Hotelling argues that it is in this competition that true stability among political parties is found. There is no limit to the number of changes a candidate can make in order to grab votes while also not alienating their supporters.  The main takeaway of each model is that eventually, whether in the political spectrum or grocery stores, the two opposing parties will end up as close as possible to the midpoint to gain the most voters and shoppers as possible. If Downs' assumptions hold, the "voters have as their goal the attainment of a government responsive to their wants" (Downs, 12). Using this statement, wouldn't it be beneficial for the voters when Clinton and Trump change their policies based on the perceived desires and values of the electorate?

Perhaps there needs to be further examination of the Downs' model. If it takes many changes in policy to reach the median, will the number of alienated voters increase due to the perception that the candidate is more concerned with "political expediency" than the values of the people? Furthermore, could this new metric of measuring alienation influence the deterministic voting model presented by Mueller if the candidate moves too far from their position on the political spectrum? In essence, would the perception that the candidate does not take into account the wishes of the people cause more alienation among voters so that they abstain.  If this is true, it makes sense that their opponents would accuse them of "political expediency" regardless of their time in office.

The Olympics & Rent-Seeking

The 2018 Winter Olympic Games will be held in Pyeongchang. The Republic of Korea (RoK) sees this as an honor and opportunity to boost its economy via tourism, the latter which can be seen as potential rents for their economy.

Stakes were high in 2009. By then, the RoK had already lost bids to host the 2010 and 2014 Winter games. The resources it had taken to submit appealing bids to the IOC could not be recovered. Thus, before the bidding process to host the 2018 Winter Olympics had begun, the RoK President pardoned former Samsung chairman, Lee Kun-hee, who had been convicted of tax evasion and breach of trust, and accused of bribery. This was so Lee Kun-hee could resume his activities at the IOC and "boost the country's chances of hosting the 2018 Winter Olympics". In the end, Pyeongchang won 63 of the 95 first round votes securing the bid. Since Samsung had sponsored the IOC since 1997, Lee Kun-hee's role as a lobbyist was undoubtedly essential in securing the bid.

Rent-seeking has resulted in the expenditure of resources to (1) convince IOC voters to vote for Pyeongchang, and (2) restore the damaged perception of RoK's rule of law after pardoning Mr. Lee. Both are significant costs to society. Now, we can only hope that the rent value will exceed the costs of rent-seeking that have already been incurred.

Food for thought: Research has shown that "Hosting the Olympics is a terrible investment". In past Olympics, host countries have well exceeded their budgets in preparing to host the games. This calculation likely does not consider the rent-seeking costs that have been incurred by businesses to win contracts to build Olympic stadiums.

Cuomo's Donors vs. Airbnb

New York Governor Andrew Cuomo signed a law on Friday targeting short term apartment rentals. Anyone caught advertising a short-term rental apartment on a home-sharing site can now be fined up to $7,500. This is a transparent attempt to harm Airbnb's flourishing business, in a similar vein to the laws targeting Uber in many cities across the U.S and the Texas liquor laws Professor Elzinga described. According to the Wall Street Journal's editorial board, "The politicians are responding to hoteliers and unions that claim that mini-Donald Trumps are buying up properties and renting them as 'illegal hotels.'" But per the Board, this doesn't add up. "The real complaint is that Airbnb is unwelcome competition," says the Board, thus "This is a classic restraint of trade."

If the Journal's Editorial Board's suspicions are correct, then this is a clear example of rent-seeking. Hoteliers are spending resources to undercut competition and rig the game, rather than try to get better at it by improving their business. This will create negative social value, but it's totally rational behavior. If it's cheaper for entrenched interests like the Holliday Inn to simply donate to malleable politicians that will gut Holliday's Inn most disruptive competitor, rather than for Holliday Inn to actually innovate to find ways to cut its own costs, then Holliday Inn will prefer the former tactic. This highlights the importance of Tullock's paper. Not only does the new law create a dead weight loss, there are even more costs: all the resources rational firms diverted from productive avenues to instead lobby the New York state legislature for a new law to protect their business from competition. 

McMullin: Utah's Condorcet Winner?

In a fascinating recent article, FiveThirtyEight detailed the head-scratching situation in which Utah, a traditionally deeply red state, currently finds itself: deadlocked between Trump and Clinton, with Evan McMullin closing ground quickly.  In fact, McMullin is doing so well in Utah that the FiveThirtyEight Nowcast assigns a 9.7% probability of McMullin winning Utah if the election were held today--a number the author claims is far too conservative, given the facts that McMullin is Mormon, Trump finished third in the Utah Republican caucus, and that McMullin is already beginning to leverage Romney's leftover email list infrastructure from 2012.

I believe it's quite possible that McMullin is Utah's Condorcet winner.  According to FiveThirtyEight, Clinton and Trump both enjoy support from 26% of the electorate, McMullin enjoys 22%, and the rest of the electorate prefers another candidate.  What if McMullin were to go up pairwise against Clinton or Trump?  Well, in 2012, Obama only received 25% of the popular vote, with Romney reaping a hefty 73%.  2012 Obama voters tend to be 2016 Clinton supporters, so it's quite possible that her current 26% represents the loyal Democratic Utahn core. Would she receive much more than this if she went head-to-head against a Mormon candidate with traditional conservative values?  Likely not; McMullin would win Utah. Because Trump was Utah's third choice during the primaries, and because McMullin is already doing uncharacteristically well as a third candidate, I think it's very likely that McMullin would beat Trump in a pairwise election as well.

All that's left to see now is if Utah's county-by-county voting will yield the Condorcet winner on November 8.

A Sweet Deal That Leaves Costly Cavities

I'm writing about US sugar production. Believe it or not, I'm not the first. I didn't find it, but I'm sure there's an article from some paper complaining about it when it was "temporarily" instituted in 1934. Regardless, I believe examining this example from Stigler's perspective can help us to understand the durability of such poor policy. In some ways, the sugar industry is climbing an uphill battle at maintaining this domestic advantage. According to one paper FOR the American Sugar Alliance, less than .1% of America's employees and about .1% of America's economy comes from the US sugar industry. Additionally, the median per capita income of those in the industry is likely low and the occupation is located in rural areas. However, the US sugar industry does have an extremely cohesive oppositional presence to the reduction or elimination of these subsidies. While not every politician supports this (A 2013 Senate amendment to scale back the program garnered 45 votes), 46 percent of House members received money from American Crystal Sugar in the 2014 election cycle. With an estimated $1.9 billion annual cost, there is clear incentive and means to fund whoever needs be funded in order to perpetuate this cycle. This combined with the long-standing tenure of the sugar lobbying presence and the high number of candidates supporting these measures, makes it is difficult for voters to understand and effectively vote in their best interest on this particular issue. Maybe confectioners will make headway in reducing their input costs, but given their working relationship with the sugar industry, they may ultimately decide against confronting the status quo.

Rent Seeking in Wallonia

The EU and Canada are currently discussing a trade deal, CETA, that would eliminate 98% of tariffs between the two regions.  However, recently the vote on this deal was postponed because of opposition from Wallonia, a French-speaking region in Southern Belgium, who believes that CETA will disadvantage its local farmers as they will have a tough time competing with imported Canadian products.

Tullock believes that rent-seeking occurs when resources are diverted by attempts to seek rents derived from activities that have negative social value. In Wallonia, thousands of people are protesting, votes have been delayed, and negotiations have been complicated because the Wallonians have been attempting to preserve their tariffs.  These rent-seeking activities waste time and money, and while they may protect individual farmers, they do not increase total social value.  In this case, the tariffs are already in place, so the Wallonians simply want to preserve them, but even this wastes resources.  While some Wallonians may be better off from the tariffs, overall, the EU and Canada would likely benefit from more free trade and increased competition, as trade creates value. 

With less competition, the Wallonian farmers can charge higher prices, but Canada's entrance into the market would increase supply and therefore lower prices.  So, consumer surplus would increase, but profits for Wallonian farmers would fall. Therefore, it is rational for the farmers to seek tariffs to protect their own profits, even though it hurts consumers and Canadian producers. 

합리적 무지

Almost 20 years ago, the state of California passed a law that severely restricted bilingual education in public schools. They argued that students were lingering in their native language, which put them behind when they had to learn and use English in higher grades. If the state could somehow create a barrier to students using their bilingual skills they thought that this would help the merging into American society, but this is quite the contrary. For example, once a Korean student in Los Angeles switched from a dual language program to an English-only honors program, he lost his ability to write and speak Korean, which meant he couldn’t speak to his Korean speaking family. Activists are working to overturn this law and implement a unified program where half of teaching is taught in a foreign language such as Korean, Spanish, or Vietnamese, and the other half English.  

In our class we’ve discussed the Rational Ignorance model that shows that there is an optimal level of ignorance. In this case the state of California back in 1998 argued that there is an optimal level of ignorance of say the Korean language for the native Korean speaking student, and most of the time should be devoted to learning English. But with the help of activists this type of thinking has changed. This change may be hard to accomplish because due to an increase in marginal costs like time, training, and wages for teaching staff, it may seem that it’s optimal to have more ignorance with a foreign language, but the present level of ignorance regarding the foreign language is showing to provide negative externalities for the student like loss of culture and identity, and the alternative provides positive externalities. With an extended bilingual program, students can succeed with achievements like graduating high school with a seal of biliteracy and broaden the way people can communicate within their community, in business, and with their families.

Rent-Seeking: the DNC and donations from lobbyists

As discussed in class, rent-seeking occurs when resources are spent to obtain rents which derive from some activity that has negative social value. The issue itself is not the rent, but the rent-seeking, as it rediverts resources and produces a deadweight loss.

Mueller briefly touches on the issue of rent-seeking as it applies to political donations, lobbying, and government representatives voting on pertinent legislation. He reviews particular studies that find a correlation between political action committee contributions, and the way congressmen vote on protectionist legislation. Mueller writes that the studies “found a positive and significant effect of the size of political contributions from the interest group, and the probability that a congressman voted in favor of the protective legislation” (351).

Incorporating funds from lobbyists and PACs has been a contentious issue for the Democratic National Convention. In 2008, Obama introduced a restriction that “banned donations from federal lobbyists and political action committees,” according to this Washington Post article. Yet in February of 2016, the DNC reversed that decision, and ended the ban on donations from lobbyists and PACs. The Wall Street Journal projected that through June, registered lobbyists alone donated $7 million to Clinton’s campaign.

Given that lobbying is an example of rent-seeking, it will be interesting to see the cumulative effects of the DNC’s decision. As businesses divert more resources toward obtaining rents, a greater social welfare cost will be imposed upon society.

Energy Oligopoly in Virginia develops from FERC regulations

The much discussed Atlantic Coast Pipeline, designed to improve the reliability of gas delivery, is reaching the final stages before construction.  As the number of customers for Piedmont Natural Gas and Virginia Natural Gas continues to grow, the 550 mile long pipeline will allow for price stability and will ensure that customers will have continuous access to the natural gas to heat their homes and businesses, especially on the coldest day of the year. While at first met with fairly strong opposition, recent polls have shown a strong voter support for the pipeline.

So what's the holdup? In order to begin construction, the Atlantic Coast Pipeline must first be approved by the Federal Energy Regulatory Committee (FERC). As environmental assessments have already been completed, the final decision is left to the FERC. This committee was created to determine if there is a need for this additional infrastructure and whether this pipeline is an economic solution to the demonstrated need.

Tullock would argue that this additional step is unnecessary in the market economy and wastes resources by diverting them to get approval for this project. While the Virginia natural gas market is more similar to an oligopoly than a monopoly, the same rent-seeking problems exist. In order for companies to expand and grow, they must devote significant resources to "obtain rents," or permits, that allow them to expand. These permits have a negative social value and create dead weight loss because the resources and capital spent on obtaining them could have been put into the economy instead, thus creating additional growth. While I understand the need to regulate energy to create a safer community and to protect the environment, there is already strong demonstrated support from the market for this pipeline, leading me to think that Tullock would argue the additional analysis from the FERC is unnecessary.

Corruption in the Crescent City: Tullock on Rent-Seeking

     New Orleans has a colorful political history to say the least. Remarkably, the previous mayor is the first in the city's history to go to jail for corruption. C Ray Nagin, who was in office from 2002-2010, is now federal prisoner number 32751-034. Ray Nagin was found guilty on 20 of 21 charges of fraud, bribery, false tax returns, conspiracy, and money laundering resulting from kickback schemes in cooperation with city contractors. Among his misdeeds, Nagin gave preferential contracts to city contractors who included his son's granite company in their bids for municipal work; he was sent on extravagant vacations in order for firms to secure million dollar contracts, and he also received outright bribes.
     The welfare loss due to the unjust distribution of city contracts is concerning. Instead of putting together the best bids possible and therefore the best city projects as possible, crony capitalism led to those with the right connections receiving the bids. This is harmful to the taxpayers whose money isn't being used as efficiently and who will be using these public goods. However, this is not the sole loss as Tullock is clear to point out in his paper. The costs of the bribes themselves and the effort put forth by the contractors to secure the windfalls from the extravagant city contracts add significantly to the welfare cost. The plane tickets from New Orleans to Las Vegas, Hawaii, Chicago and many places in between add up, as do the luxurious meals and hotel stays. Furthermore, the efforts put forth by Nagin and the politicians around him to be in a position to receive bribes contribute to the welfare loss. The corruption and bribery under Nagin's watch led to less qualified applicants receiving city contracts and a welfare loss resulting from rent seeking, particularly harmful in Katrina's wake.

Carbon Tax as a Solution to Fossil-Fuel Negative Externalities

Bill McKibben, a leader environmentalist who has written extensively on the impact of global warming, has long argued for some kind of price on global warming pollution. Specifically, McKibben is trying to push for a carbon tax price because it isn't fair that the "fossil fuel industry is allowed to put out their waste for free, using the atmosphere as an open sewer." He sums this up as a massive negative externality imposed upon the world, having been caused by the fossil fuel industry. McKibben's solution is to simply tax carbon directly since many alternative schemes (cap-and-trade systems, etc.) have not worked effectively. This removes the "arbitraging games and artful dodges that have helped undermine many schemes" to combat emissions and global warming. Another proposal that he favors even more is the "fee-and-dividend" approach: it sets a price on carbon, and then rebates the revenue straight to the citizens by sending them a monthly check. It's a mind-boggling proposal where it will increase what we pay at the pump, which is good, because then we ride bikes more; yet, the check will cover the increased cost. Everyone’s made whole, and if you push up the tax you push up the rebate too. McKibben quotes it as a "kind of perpetual motion machine, a virtuous cycle."


His reasoning resonates with our reading "Public Finance and Public Policy" by Gruber. Specifically in Chapters 5 & 7, Gruber outlines Public-Sector remedies for externalities. Gruber details the argument for corrective taxation in which there is a tax to the perpetrator of the negative externality that can effectively internalize the externality and lead to the socially optimal outcome. The perpetrator in this case would be the fossil-fuel industries who have allowed to spill over high pollution at no cost. For the "fee-and-dividend" approach, McKibben is using Gruber's concept of subsidies as a solution to positive production externalities by making the consumers who drive less and produce less carbon emissions a "check" (subsidy) to incentivize them to save more and more.

Does Clinton Appeal to the Moderate Voter?

It is argued in Downs that in the primaries, one can see a bimodal distribution between the leftists and the rightists. Once a candidate is chosen on both sides there is a race to the median voter by both candidates. Whichever candidate can better appeal to the median voter receives the most votes and wins the election. One of the nuances of the transition from a party appeal to a general appeal is the appeal to the extreme voters. As an extreme voter you can either vote for the candidate that is from your party (although they no longer represent the platform you truly want) or to abstain from voting because you feel alienated by the new platform.

This article argues that the DNC divide from the primaries between Clinton and Sanders has left the  Sanders supporters (viewed generally as more extreme) feeling largely alienated from Clinton. A poll from YouGov released mid-September "showed that only 51% of Sanders supporters plan to vote Hillary". That is a substantial base of the democratic party, and one that could ruin Clinton's chance at the office if the supporters hold true to their poll vote. Even further, the author argues "the divisions between Democrats may be far more deep-seated and electorally consequential". To put it in Downs-ian graphical lingo, he sees there may be a rift that questions the idea of the unimodal median distribution, where voters vote for their aligned party candidate although they have altered their platforms for the moderate voter. This begs the question, is it time for a third party coalition to form for the extreme liberals? Only November will show if far-left voters will follow the Hotelling model and vote for Hillary, despite their qualms with her stances or if they will abstain in an expression of intolerance for the liberal party's acceptance of her moderate platform.  

http://www.thedailybeast.com/articles/2016/10/02/despite-donald-trump-many-bernie-sanders-supporters-won-t-forgive-hillary-clinton.html

Tiebout is True: Northern Virginia's Population Growth

According to population data from the University ofVirginia's Weldon Cooper Center for Public Service, northern Virginia counties and the city of Alexandria drove more than half of the population growth for the state. The amenities offered by the northern Virginia area attract more citizens than the amenities offered by other regions in Virginia. This holds true in my own experience of moving in Virginia. My family moved to Reston, Virginia, an area in northern Virginia, from Dahlgren, Virginia, a very small town more south. The better public schools, proximity to D.C., and number of restaurants and things to do attracted my family to relocate. This long-term drastic growth of northern Virginia proves Tiebout’s model of consumer voters voting with their feet to match his or her preferences to a local government’s expenditure plan. Instead of Virginians changing their locality’s expenditure plan to match their preferences, they move to the area that already has the amenities they desires. 

There are some assumptions to Tiebout’s model that do not necessarily hold in real life, such as perfect information and no costs associated with moving. However, I found in my situation that in the long-term these assumptions do not interfere with the model itself. For example, while in the short-term the cost of moving stopped my family from moving, in the long run this cost proved less than the benefits we received from relocating. I believe that in the long term the assumptions of the Tiebout model such as no moving costs can be held true.

An Overseen Presidential Election in 2016

With the whole world on top of these coming US elections, I had forgotten Nicaragua’s [my home country] presidential elections are also happening this coming November. Do I just care more about the country in which I’ve been living for the past 3 years? Johnson would agree with me in that it has nothing to do with a lack of patriotism or moral responsibility. Through Johnson’s Rational Abstention model, we were able to conclude that the costs of voting are higher than the benefits, and that people vote because they derive some utility from voting and to minimize the maximum potential regret from abstaining. However, this theory assumes no other external costs/obstacles, like faulty institutions. Nonetheless, in Nicaragua, like many other Latin American countries, this obstacle has a lot of weight on many Nicaraguans’ decision to abstain from voting.


Current Nicaraguan president, Daniel Ortega (from the socialist National Sandinista Liberation Front party), changed the country’s constitution last year, for the second time, to run for re-election for his third consecutive period. Fortunately for Ortega, Nicaragua’s National Assembly “randomly decided” to destitute the now ex-candidate of the Independent Liberal party (opposition), Luis Callejas, together with 28 congressmen from the same party. The reason: A legal dispute against the Liberal party that started back in 2007 and that was “suddenly” brought up to court earlier this year; during the least appropriate time. Weird huh? Well, the list of random incidents keeps going. It was decided (there’s still a debate over who really made this decision) that the new candidate of the Liberal party would be Pedro Reyes a.k.a The Stranger. To be fair to Mr. Reyes, the Supreme Electoral Court accepted his request to dismiss the few congressmen left of the opposition party who did not accept his leadership. I know this post is already too long, but to end the list I want to put one more fun-fact out there. Ortega’s vice-president became ill earlier this year, which forced him to relinquish to his position, leaving the first Sandinista congresswoman as the new vice-president. Any guesses? None other than his wife, Rosario Murillo.


There’s no doubt 2016 was by far the luckiest year for Daniel Ortega. 

Beating the Presidential Elections

The coming presidential elections for Ecuador will happen in February 2017. This election is considered critical, as it could create significant economic and political impact for the country in the long run. Ecuador’s current president, Rafael Correa is the representative of the socialist party Alianza Pais (PAIS Alliance), considered to be from the left. This party has held office for the last ten years, and if reelected their power could be maintained indefinitely, thus, the importance of this election.  Many people disagree with the political ideologies of this party, which has given strength to the opposition. At the beginning of the presidential campaigns, there were many “strong” candidates running for office representing the major political parties, opposing the current president. However, now as the election time approaches, the opposition leader, Jaime Nebot, a political activist, suggests that the main opponents of Alianza Pais unite their parties, in order to gain the most votes and win elections.

The scenario presented can be directly related to Downs and the median voter theory. Nebot has made an intelligent suggestion, by saying that the main opposition candidates, Guillermo Lasso, Paco Moncayo and Cynthia Viteri, should combine their ideologies, and select one candidate in order to increase their chances of winning the elections. By having so many candidates in the elections, the votes are dispersed between the parties. Thus, according to Downs theory, in a multiparty system, the equilibrium allocation depends of the distribution, which cannot be clearly determined. Therefore, it is difficult to predict who the winner of the election will be. If the candidates are reduced, to two major ones, being Alianza Pais and the opposition, the candidate who reaches to the median voter will win. If the new party formed by these three candidates, unites their ideologies and political perspectives, then they will move towards the median of the population. If this happens, voters who do not support the government will have a unifying force to vote for a candidate, increasing the likelihood of winning the elections. 

What's Wrong With This Election??

I've never been one for the show Dirty Jobs, but after reading what celebrity Mike Rowe had to say to a fan asking him to encourage his fans to vote, I instantly gained a massive amount of respect for the guy. While agreeing with his fan that voting is fundamentally important, Mike goes one step further and acknowledges what so many people fail to: that the very voters celebrities encourage to head to the polls are also some of the most ill-informed people. This touches directly on the issue of rational ignorance. Without using those exact words, Mike Rowe addressed one of the underlying issues with our political system. With such a large number of voters, a fraction of those people will be well educated and well versed in the major issues at hand each election cycle. To encourage those who do not take the time to study economics, history, politics, and other relevant subjects, is to encourage ignorant people to make decisions for the whole country.

Not only does Mike address the idea of rational ignorance, but he takes the stance that voting is not a duty or a moral obligation but is instead a fundamental right. With that, he likens encouraging people to go out and vote without first educating themselves to encouraging people who know nothing about guns to go buy an AR-15. Does this seem responsible to you? He pushes back against celebrities using their visibility to send people to the polls by saying that kind of ignorance is how we have arrived at our current predicament with two downright lousy presidential candidates. This is because the rationally ignorant voter is just as likely to vote for issues/candidates that are against their self-interest as they are to vote correctly in line with their beliefs. Mike would therefore relax the assumption in the Downsian model of no abstentions, and even encourage people to abstain from voting if they wish to remain rationally ignorant. He sees abstaining from voting as a positive if the people who would otherwise show up to the polls choose poorly. Because of these poor choices, now it is a game of 'who do we hate the least' instead of selecting the most qualified person for the job.

Mills Godwin's Downsian Switch

Mills Godwin Jr. served as Virginia's governor twice, from 1966 to 1970 and from 1974 to1978. He is remembered as a the father of Virginia's Community College system, the architect of the 1971 Virginia State Constitution and the institutor of Virginia's sales tax. What people often forget, is the massive political transformation he underwent between the two terms.

From World War II until the early 1970's, the Byrd Organization and the Democratic Party dominated state politics in Virginia. The Byrd Organization was a political machine that effectively controlled the election of state officials ranging from localities to the state level. Godwin's career blossomed under the Byrd Organization's support in the early 1950's, and he remained a prominent member of the organization until he became governor in 1966.

Following the supreme court decision in Brown v. Board of Education (1954), numerous conservative state legislators balked at the idea of integrating and instead began a movement know as "massive resistance". The Byrd Organization fully supported massive resistance and Godwin followed suit. Despite massive resistance's early success, with the signing of the Civil Rights Act 1964 by President Johnson and the efforts by civil right activists, by the late 1960's and early 1970's school integration was inevitable. Massive resistance and the Byrd Organization were ousted in 1970 when Virginia elected its first Republican, non-Byrd, pro-integration candidate since the Civil War - Linwood Holton. Holton won the election by garnering African American support and exposing the corruption of the Byrd Organization.

The following election, in 1974, Godwin ran again and won. This time as a Republican, a non-Byrd candidate and an advocate of integration.

This massive political realignment can only be explained by the economist, Anthony Downs. As Downs says "parties (and candidates) formulate policies in order to win elections, rather than win elections in order to formulate policies." In this case we can clearly see Godwin's political platform reflecting the Downsian hypothesis. Linwood Holton's success ushered in a new era of politics. With the growing number of African American voters starting in the 1960's, candidates could no longer stand by segregationist policies without jeopardizing their chances of winning. As Downs proposes in his essay - assuming candidates are vote maximizers, they have the tendency to adjust their policies towards the median voter. In this case, we see that the distribution of voters and the median voter are evolving. Therefore, we see candidates, like Godwin, altering their platform to maximize votes.

Swiss Bliss or Swiss Miss? Rational Abstention or Irrational Irrelevance ?

      I spent last semester studying abroad in Geneva, Switzerland, so when we started talking about low voter turn-out rates in Switzerland, I immediately wanted to know more. I did think it was odd that during my time living in Geneva there was almost no mention of Swiss politics, with the favorite political conversation being about Donald Trump. I saw no political advertisements in newspapers or around the city and I left knowing no more about the political system than when I first arrived. Johnson tells us that “ the only country with a voting turnout lower than the United States is Switzerland." Only about 40% of people in Switzerland vote. 

      This article, while not refuting that fact, explains that “'selective voters'” constitute the bulk of the electorate, simply picking and choosing which votes to take part in” and thus showing that disinterest is not the sole determining factor, but it is rather disinterest in or ignorance of some issues. Per this article, Switzerland has seen a decrease over the years, but in contrast to the US, they are asked to vote three or more times per year. Another reason voter turnout is so low is attributed to the fact that the political parties are not as polarized and conflicting as they are here, and that the same “four main parties have held the seven cabinet seats for more than half a century under a power-sharing agreement.” It seems that even though in my opinion Switzerland is the ideal place to live, (a fact that is backed up by Forbes which places Switzerland as the 3rd happiest country), the lack of interest in voting is a problem that is being remedied by online voting. It remains to be seen whether or not this will make a difference and change things for the better. So in summary, the reasons the Swiss don't vote are perhaps the high frequency of being asked to vote, the consistency of their political system and a strong interest in some issues over others. I would ask, is it really that bad that people aren't voting? Rational abstention and rational ignorance about some issues are very real but clearly they are working for the country, so why are they seen as something that needs to be fixed? 

                                         

Brexit and Tiebout

In a well-known, controversial vote held in June, the people of the United Kingdom voted to leave the European Union - a decision universally known as "Brexit." The "leave" camp passed by a vote of 52% to 48%, with a voter turn out of over 70%.

While, of course, there are numerous views regarding the advantages and disadvantages of this decision, Tiebout likely would have said that the vote should not have even occurred in the first place. If UK citizens were unsatisfied with the revenue-expenditure patterns of their government, the best option would be to vote with their feet and move to another "community," or in this case, country. Tiebout's argument is based around the fact that individuals have heterogeneous preferences, and so providing goods in a heterogeneous fashion eliminates forced conformity. Tiebout asserts that the governments' revenue-expenditure patterns should be taken as given and individuals should move to the locality in which that system best meets their preferences; in this case, the best option would have been for unhappy individuals to move to a different community.

Downs and McMullin

In "The Statics and Dynamics of Party Ideologies," Anthony Downs distinguishes between two types of new parties: The first is designed to win elections, and the second to influence already existing parties. The first is concerned with the present, the second with the future; Downs describes this second type of party as forming simply to blackmail existing parties. Given this criteria, how do we categorize Evan McMullin?

The New York Times reported last Friday that McMullin -- a former GOP staffer and independent candidate running as the only "true conservative" in the presidential race -- is quickly gaining in the polls in Utah. McMullin began his campaign as essentially a protest candidate, someone able to give Republican voters a candidate they can vote for without feeling like they have to take a shower immediately afterward. However, McMullin has focussed his efforts almost entirely on winning Utah in the hopes of throwing the election to the House by depriving both Trump and Clinton of 270 electoral votes; this is an unlikely but plausible scenario if Trump wins enough swing states (see attached map for one scenario). The fact that his team does have a strategy for winning the White House would suggest McMullin's candidacy is more than just protest or blackmail.

In my view, how McMullin fits into Downs' party categories depends not on if he wins the White House (he won't--Clinton is poised to win in a blowout), but on what path the GOP takes after the election. Contra Trump, McMullin is a typical Republican in that he's an advocate of free trade and the TPP, and a staunch critic of Trump's isolationism and Muslim ban. If after November 8th the GOP reverts back to its traditional positions of free trade and interventionism, McMullin will forever be known as a protest candidate--i.e. one who springs into action only if his party drifts too far from its original ideological position. However, if the GOP embraces Trumpism and becomes an Americanized version of France's National Front, I think McMullin and his backers will see no choice but to officially start a new party committed to the GOP's former principles. The first option seems more likely, but the second is more fun to think about.

Why the Borda Count Makes Sense for MLB MVP Election, Not for U.S. Politics

In class we mentioned a few of the rare real world examples of a Borda Count. One of these examples is the Major League Baseball election of the Most Valuable Player. The Borda Count is used in many such sports elections, but this system makes far more sense in sports than it does in politics. Although the Borda Count is the voting system with the highest Condorcet Efficiency, it has some practical pitfalls in the political realm. The United States has one of the lowest voter turnout rates of any country in the world, due at least in part to the high number of opportunities we have to vote. With so many elections, Americans can often plead rational ignorance. The Borda Count, like other forms of Ranked Choice Voting, requires voters to know enough about every candidate to rank them in order of preference. A Simple Majority Vote, by contrast, allows voters to be more selective in their engagement. The MLB MVP is elected by the Baseball Writers' Association of America (BBWA), a selection of national and beat reporters from across the country. It is part of these writers' jobs to be well informed on the statistics of the best baseball players in the country, so, unlike in the case of American political voters, MLB voters have a high incentive to be informed.

The other issue often raised about the Borda Count is strategic voting: the incentive for voters to put their candidate's rival or biggest threat at the bottom of their rankings, even if this candidate would not actually be their their last choice. In American political elections this is a real danger. It is not hard to imagine Republican voters ranking a Democratic nominee below a third party candidate, or vice versa, even if that third party candidate is clearly unqualified for the job. Again, MLB voting differs. Sportswriters do not have an explicit stake in the outcome of an MVP vote. While an American political voter may risk seeing his taxes raised or rights infringed upon, the sportswriter is simply trying to reward the best player in the league. Sportswriters also tend to have a level of objectivity, a willingness to vote for a candidate that they don't like personally but respect professionally, that is rarely achieved in American political voting.