Fed up with Adelphia?

The U.S. Supreme Court has agreed to hear a case this session on cable internet service deregulation. In 2002, the F.C.C. enacted a policy based on the 1996 Telecommunications act that classified cable internet service as an "information service" not a "telecommunication service." Classified as such, cable companies are not subject to the common carrier rules that mandate that phone companies must allow competition on their lines. If independent internet service providers like Earthlink and Brand X get their way, cable companies will be forced to compete with them on the same lines they use to deliver TV to homes. The Bush administration is appealing the U.S. Ninth Circuit Court of Appeals ruling that reverses the F.C.C.'s policy. It mandates that cable companies are subject to the same rules that phone companies are subject to in providing internet, and that the F.C.C. incorrectly classifies cable internet as "information service." Currently, phone companies that provide broadband internet service are subject to regulation and must open their line up to competition from alternative service providers. This case is an example of where the government is more responsive to the wishes to special interests than it is to the interests of average citizens. If cable is regulated it will push prices down as companies are faced with competition. In the U.S., we pay up to 30 times more for broadband than Japanese customers do, and up to 10 times more than Koreans do. This is a clear cut case of special interest politics that allow companies to maintain a monopoly and extract rents from their customers. Interestingly enough, the cable companies' main competitiors are backing them in this case. Phone companies like Verizon have filed amicus curiae briefs in favor of deregulation. If the F.C.C. can win, phone companies stand to be able to seek less regulation in the future. Perhaps the F.C.C. would also then classify DSL lines, which are open to competition as "information service" and allow phone companies to block competiton as well. read about this at the NY Times or at the LA Times

Economic Regulation and the Wine Industry

There has been a significant amount of national attention recently focused on interstate wine regulation. Currently, many states directly or functionally prohibit interstate wine shipments. In six of these states, a conviction constitutes a felony. While Virginia does not ban wine shipments from other states, it does have regulatory limits in place. In March of 2004, the Federal Trade Commission’s (FTC’s) Department of Economics provided comments, upon the request of the state of New York, as the effects of, "bills [that] would allow out-of-state vendors to ship wine directly to New York consumers if the vendors comply with certain regulatory requirements, such as labeling delivery packages and reporting sales to state authorities. Some concerns included the effect on minors as well as the effect on the wine market. The FTC’s comments, which can be viewed from the link in the following press release, concluded that removing these regulations would help both consumers and the industry. The study indicated that removing the current regulations would lead to lower wine prices, especially for many fine wines, and that there was little reason for believing that minors would be able to acquire wine at an increased rate. The wine issue, however, is still one that the nation’s wine consumers are contending with, as shown by the high number of states that still employ regulations described by Jon Bonne of MSNBC as, “rigid rules of the Prohibition-era system.” Why are these regulations still in place if they are hurting the industry and consumers? Lobbyists contend that, “these rules are the best way to ensure public safety, and pose no threat to the wine industry's rapid expansion.” Let’s think back to our theories of regulation. Clearly, this statement alludes to the reasoning that regulation benefits some subset of society. And yet, the FTC, George Stigler, and I would disagree. Stigler purported that all regulation in place was supported by industry. So, is it really public concern that holds these regulations in place or some industry? The quote from above was made by none other than a state liquor wholesaler. The wine-regulations effectively provide a barrier to entry for wine, which is most likely viewed by these liquor wholesalers as an adequate substitute for their product. Interstate wine sales and the legality of shipping barriers is currently being review by the Supreme Court.

Senate Changes Committee Appointment System

I came across two interesting articles discussing the recent changes that Senate Republicans have made in determining committee appointments. The main article is from a Maine newspaper called the Press Herald and is called Moderates Feeling Squeezed while the other is from CNN and is entitled A Change in Pace – and Rules – in Congress. The new change in the rules allows the caucus leader to make committee appointments, rather than letting members choose their assignments based on seniority in the chamber. Essentially, it gives him the power to make appointments without regard to seniority. This was very intriguing news and of surprise to me because we had just discussed this issue in class. Both articles discuss the change made in mid-November and even moderate Republican senators are calling this change a “mistake” because it would “reward supporters and punish recalcitrant members”. It’s interesting that moderate Republicans are against this change because now they will have to take into consideration how they vote on issues brought to the floor if they ever want to be considered for chairmanship of a committee. It’s hard for them because as a moderate Republican they may not agree with their party on every issue, but now “it raises concerns about people constantly jockeying for position or worrying that their votes are going to be used against them". The change was approved narrowly (27-26 vote) and now Majority Leader Frist will have the power to reward his supporters by giving them chairmanship over committees and deny this opportunity to other members who he considers unmanageable or who don’t “toe the party line”. Frist will be able to use this power to “discipline moderates and keep conservatives in control”. The actual change means that he will be able to name his own choices to the first two vacancies on any committee. The rest would be filled as they are now, based on the seniority of lawmakers who want a given seat. It gives an incredible amount of power to the majority leader to shape and form the committees to his liking. This topic is relevant to our class because it goes against one of the assumptions in the model presented by the Weingast and Marshall paper. Their second assumption states that parties place no constraints on the behavior of individual representatives. But with this new change to the rules a Republican will now have to rethink if he/she is going to vote against his party on an issue. The consequences are much more serious than there were before if he/she votes differently from their party. The senator is now torn between serving the wishes of their district or ensuring a future position on a committee. This leads into the principle-agent problem where the legislator may note be serving in the best interest of his constituents. Another issue discussed in the Weingast and Marshall Paper that is affected by this new change in the Senate is the legislative committee system. The second condition states that there exists a property rights system over committee seats called the “seniority system”. Leadership positions within the committee (chairmanship) are allocated by seniority and the right to committee positions cannot be sold or traded with others. However, with this new rule, this condition does not hold as strongly because you now have to be on favorable terms with the majority leader to be able to gain the chairmanship. It no longer holds that if you are new on the committee you have to start from the bottom because you may earn chairmanship if you have the support of the caucus leader. Also, the value in staying on a committee has diminished. You are not rewarded for the time and effort you’ve put into the committee because someone else with less experience or none at all can come in and chair it. A good issue brought up in the article is a contest for the leader's position and Senator Collins says that "in a case like that, you can be sure that the candidates are going to be trading committee assignment promises for votes." This should be an interesting topic to watch out for when the next majority leader is elected. Weingast and Marshall’s paper shows that without the assumption that parties do no place constraints on individual representation and the conditions of seniority of determining chairmanship then the committee legislative model does not hold. It will be interesting to see how the committee appointments over the next few years affect the workings of the Senate.

Two Issues From Yesterday's Class

First, I alluded to the pork-barrel tendencies of validations yesterday and claimed that Republicans are no different than democrats. So, here is an article in slate from yesterday which compares the appropriations habits of this current Republican House of Representatives with the Democratically held house of the early 1990s. Second, our good friend Brett Jerasa came through with some statistices to help bolster my claim that the current UVA football teams is one of the best UVA football teams of all times. Here are his statistics which report the ranking of the football team at the end of the season:

Year, record, rank; 1951 (8-1) 13; 1984 (8-2-2) 20; 1989 (10-3) 18; 1990 (8-4) 23; 1994 (9-3) 15; 1995 (9-4) 16; 1998 (9-3) 18; 2002 (9-5) 22;

The Wahoos are currently ranked 18th in both polls. They will certainly win their bowl game (even on blue carpet), which may move them up a slot or two. Under any circumstances, only the 1951 team seems clearly better.

Solutions to the Social Dilemma of Free Riding

Our class topic on free riding and public goods interested me because it just seemed so unfair. Why do some people in collective action do the right thing and some people just free ride on other people’s efforts? There are many different solutions to this social dilemma of free riding but they all do not seem to solve the problem that well. In this article written by Leon Felkins http://www.perspicuity.net/sd/sd.html, he states various solutions to this social dilemma. Firstly, he talks about morality and how we should build a community with a strong set of morals and values. Secondly, he suggests government as a force to control us. Thirdly, he goes on to say how religion can be a solution, however, it only assumes that the cooperation will result in a greater good for everyone. Lastly, he talks about privatization and metering. He says that privatization can sometimes be successful to solve the problem but not every public good can be privatized. Good examples of privatization working well is with toll roads and the metering of the usage of water so that the people who use it more will be charged more and this will hopefully also, keep people from wasting water. In my opinion, I think that morality is the only answer to solving this social dilemma of free riding. When an individual is in a large group they will naturally reason that his/her own actions will make no serious impact on the group. For example, this is just like voting and thinking that your vote won’t make a difference. If no one voted we would have a huge problem. Another good example is applauding for a performance. We all know that it would not matter that much if we did not contribute to the applauding, however, if everyone thought this way we would have no applauding at all. Therefore, if everyone acts rationally the public good would just disappear. The only answer I can agree with is trying to maintain and build a just and moral society. However,in order for this to work all the members of the group must be very honest and trustworthy. As a society we should focus mainly on raising children to become individuals with strong moral values. I don’t think that religion, government or privatization can necessarily solve these problems. Sure, privatization works with some public goods but it can result in a loss of economic efficiency. For example, what if we all had to build our own roads or just do everything by ourselves. This would not work! We would all be losing out. I think we can only privatize to a certain extent. Another problem with privatization is the enforcement of contracts. What if we have arguments about the usage and property. Moreover, government does not seem to work either. Government just ends up worsening the situation instead of solving it. I agree with Leon Felkins when he said that “supplying a new set of rules is the equivalent of providing another public good, the problem faced by a set of principals is that obtaining these new rules is a second-order collective dilemma.” In other words, that if the government is to solve the social dilemma, then the government which is a public good itself will create a new social dilemma possibly much worse than the original party? What do we do then? Lastly, I do not think that religion works either. Religion may work well at bringing people together and getting cooperation, however, what usually needs to happen to get it this to work is a lot of cheating, fear and manipulation. Therefore, we can see how there is no easy solution to the social dilemma of free riding. The only way to solve this problem is just to simply build a more moral society and hope for the best.

Unified or Forced Majority?

I found a really interesting article in The Washington Post that brings to mind many topics discussed in the Weingast and Marshall article about committees, and their structure and relevance when it comes to legislation and interest groups. The article is called “The Trouble With Unity” and can be found HERE. First, the article discusses conformity and unity within Congress and other political institutions as the best way to push for legislative reforms and various interests of the different committees. Florida Rep. Mark Foley states “We have more loyal soldiers than independent rebels.” Foley is also “a member of the Republican revolutionary class of 1994 that pushed for legislative and institutional reforms and saw itself as the conscience of the new majority. "We're very unified," he says. "Everybody's fallen into the conformity of Congress."” This issue brings to mind the assumptions from Weingast and Marshall’s model, stating that Congressmen represent the interest groups in their districts and majority rule is a binding constraint. By going after issues that involve legislators’ specific districts and needs, they are trying to maximize their votes for future elections by gaining the respect and praise of their own district. As far as majority is concerned, acting alone will not create a positive outcome for the individual committees and legislators, and therefore generates vote exchanges and cooperation among the various groups. This creates the majority voting system, by which committees that belong to the same party come together and vote for eachother’s issues. “The desire for party unity trumped leaders' commitment to legislative change, even on a measure on national security. "We don't bring bills to the floor that divide our conference," said Stuart Roy, DeLay's spokesman.” It brings up another good point in the fact that Congressmen believe that if you want to get something achieved, changed, or passed, you must have the people in your committee and/or party supporting you and not lobbying for too many other issues at once. This brings up the point of diversity of interest. It is quite believable that maybe parties do place constraint on the behavior of their members in order to get what they want passed. Paul Weyrich, chairman of the conservative Free Congress Foundation states that "…you have a chance to get an agenda through. If you allow people to go all over the place, you're not going to do that." I believe his point contradicts Weingast and Marshall’s second assumption that diversity exists on committees because sometimes it seems to be unwanted. With too much logrolling and vote exchanges, there could be a price to pay. If committees exchange votes and then change their mind and decide not to vote for a particular issue that they were supposed to vote for, things could start to get ugly. A really interesting quote having to do with this issue states the following: “As it stands, dissent carries risks. Rank-and-file Republicans have watched some of their colleagues lose leadership posts or get passed over for key committee chairmanships in retaliation for defying Hastert and DeLay. Rep. Christopher Shays of Connecticut, a moderate Republican who led the fight for campaign finance reform in the House, was next in line to oversee the Government Reform Committee in 2002. But the leadership, which didn't support the campaign finance measure, anointed Thomas M. Davis III of suburban Virginia, who aligned himself closely with DeLay in order to ascend the leadership ladder.” Overall, this article talked about many underlying issues discussed in class and everyone should read it!

UN Reform: Fruitful or Futile?

Over the sixty years of the UN’s existence, critics have consistently questioned its utility in world affairs. But, in the light of its recent failures, even the supporters of the UN acknowledge its inefficacy. These failures include the ongoing war in Iraq, unchecked genocide in Darfur, nuclear development in North Korea and the now apparent corruption in the Oil-for-Food program. Lack of action, which derives from voting structure, is the most encompassing criticism of the UN. For those who don’t know: The UN consists of 191 member countries all of which have a voice and a vote. There are six main divisions: the General Assembly, Security Council, Economic and Social Council, Trusteeship Council, Secretariat, and International Court of Justice. In the General Assembly every member nation has a vote, but in the Security Council the voting structure is more complicated and less representative. There are currently 15 council members. Five of those members- China, France, Russian Federation, United Kingdom and United States- are permanent members with veto power. The remaining ten are elected by the General Assembly for two year terms. Council decisions require nine yes votes, and are subject to veto by any of the five permanent council members. Since matters of international peace and security have extremely high external costs, the 3/5 required approval is economically sound. The inefficiency lies in the 5 veto powers. Vetoes eliminate the decisiveness of the majority vote and the incentive to reach a resolution. Moreover, placing that veto power in the hands of 5 different countries with polarized interests is begging for constant stalemate. Today the Security Council has the same structure as it did at its origin in 1945, which most agree is not representative of the current world. In response to widespread dissapproval, a blue-ribbon panel commissioned by Secretary General , Kofi Annan, has proposed two Security Council reform alternatives (deatiled here). While both of these reform alternatives address the council’s representation flaw, neither one proposes a change in the climate of inaction. National sovereignty is way too highly valued for any of the five permanent member countries to relinquish their veto power. That said, will any amount of restructuring beneath that tier improve this organization’s capacity to effect peace in international relations?

Intelligence Reorganization Bill Stalemates in House

Today I found two articles on CNN.com, GOP Senator: Bush Pushing for Intelligence Bill and No Compromise Yet on Intelligence Bill, that pertain to our class discussion this morning. The Intelligence Reorganization Bill is currently pending in the House of Representatives. This bill would establish many of the recommendations made by the 9/11 Commission including a new post of Director of National Intelligence. However, Speaker of the House Dennis Hastert has refused to schedule a floor vote due to objections raised by certain House members. What is fascinating about this article and particularly applicable to today’s lesson is the fact that this bill is being thwarted by two influential Republican Congressmen, House Armed Services Chairman Duncan Hunter, R-California, and House Judiciary Chairman James Sensenbrenner, R-Wisconsin, despite heavy pressure from top Republican leaders, including President Bush, Vice President Cheney, Defense Secretary Donald Rumsfeld, and top White House advisor Karl Rove to pass the bill before the end of the year. This suggests that party is not the key determinant in legislators’ voting behavior. Congressman Hunter objects on grounds that the bill shifts too much control from the military to the intelligence director. The new Intelligence Director would report to the Intelligence Committee, not the Armed Services Committee. It is not surprising that the Chairman of the Armed Services Committee, interested in maintaining and maximizing his influence over policy outcomes, would be against such a movement. The Intelligence Reorganization bill would decrease Hunter’s ability to provide sanctions and rewards, and therefore constrict his power to affect agency behavior. This real life example is consistent with Weingast and Moran. Moreover, James Sensenbrenner is against the Intelligence Reorganization Bill because he wants tighter restrictions on illegal immigration, particularly by preventing states from giving licenses to illegal immigrants. Perhaps this is a pertinent issue in Sensenbrenner’s district as Wisconsin is a state bordering Canada. Interestingly, Sensenbrenner has refused compromises suggested by other legislators to vote for the tighter immigration controls demanded by Sensenbrenner in a floor vote next year in exchange for his vote on the Intelligence Reorganization Bill. Sensenbrenner has long refused this proposal, which is consistent with Weingast and Marshall’s theory of non-simultaneous exchange. Also, this stalemate may be viewed as an example of strategic behavior when unanimity is required for decision-making. Even though this bill has already passed a conference committee, and most members of the House are prepared to vote for the bill, Hastert has cancelled the vote because two influential members object to it. Essentially, these two members have veto power preventing the bill’s passage. As a result, they are holding out for their desired provisions and are the strategically exploiting their veto position. Given the unlikelihood of Hunter agreeing to relinquish some of his influence or Sensenbrenner engaging in a non-simultaneous exchange, we must hope that Hastert ceases to secure veto power for Hunter and Sensenbrenner and instead allows the bill to go to the floor for a majority vote. If the bill does not get passed by the end of the year, the new Congress will have to start from scratch, wasting months of discussion and compromise. http://www.cnn.com/2004/ALLPOLITICS/11/28/intelligence.bill/index.html http://www.cnn.com/2004/ALLPOLITICS/12/02/intelligence.bill/index.html Michelle

Public Education Privatized

In reading an article from the “Reason Public Policy Institute” I discovered an interesting blend of educational advancement and big business profit. Education can be defined as a public good in the sense that the results of higher education can lead to improvements in future technology. Education can do this by further instructing students to perform more effectively; therefore we can all benefit in the future from improvements in education today. While forms of education are usually provided in either a private manner (revenues mainly from tuition) or a public manner (revenues mainly from the state) there has been a proposed merger between the two. However, the merger that has formed has been a synergy between “big business” and public schools. In Buchanan’s “Economic Theory of Clubs” he closes “the awesome gap between the purely private good and the purely public good” essentially developing a model defining that all goods have both some “publicness” and some “privateness” as long as exclusion is possible. Also the “quantity of the good and the cost-sharing arrangements must be determined simultaneously”. This article enhances Buchanan’s theory by illustrating that there are economics advantages of privatizing this public good (education). This article describes how big corporations (e.g. The Mall of America, American Bankers Insurance Group, etc.) have been aligning their interest with public schools to provide them with: “classroom space, buildings or land, furnishing or equipping existing classroom space, equipment, maintenance services and utilities, teaching programs, and managing schools or school districts.” By doing so these corporations gain public support, marketing capability, and, most importantly, tax breaks. This mutual agreement maintains the balance between the cost-sharing arrangements in Buchanan’s model. The economic advantage is that teachers now have an incentive structure to perform and teach more effectively. Public educators often lack “incentives to produce results, to innovate, to be efficient, to make the kinds of difficult changes that private firms operating in a competitive market must make to survive.” Where as private practice, or contracted teaching, “breaks this monopoly and offers benefits to students, schools, and teachers.” These include increased competition among education providers, and the availability of parental choice. This merge of big business and public schooling clearly leads to a more economically beneficially educational system - therefore improving our future “brain capital”; all while supporting Buchanan’s Theory of Clubs.

Fighting the System: Are Chinese Import Qoutas Unfair?

The pressure of domestic textile industries on the government for limits on Chinese textile imports had induced a large number of domestic retailers to band together and file suit against the Bush Adminstration. The article discusses the end to an international system, allowing any country to ship as much of their product to the United States as they wish. The lawsuit focuses US policy to single out China in the textile import market, even though China remains a minor player in the industry, largely due to restrictions placed on the country following its initiation into the World Trade Organization in 2001. The U.S. Association of Imports and Apparel is arguing that new qoutas are being considered based solely on the fear of a surge in imports from China, and that many areas in which domestic firms are seeking protection are not ones in which domestic firms actually produce any goods. We talked in class about import restrictions and how discouraging foreign markets can boost sales domestically. In this case however, discouraging China, a country that isn't currently a major player in the U.S. textile market, from exporting goods to the U.S. does not make sense economically. If the domestic market is opening up to foreign competition, then restricting one source of competition does nothing to stop the flow of textiles into the country, it merely encourages other foreign sources to produce a greater quantity. If the domestic textile companies wish to help out their waning industry, then they must look in new directions for answers. The Bush Administration needs to realize what's going on likewise, and realize that their current policies do not make a whole lot of sense.

Mozambique is resticted in purchasing autonomy over ARVs.

In keeping true to his State of the Union Address, countries are beginning to receive the $15 billion administered through Bush's Emergency Plan for Aids Relief (Pepfar) program. One of these countries is Mozambique, and this BBC Article explores the stipulations connected to the $15 billion. Countries drawing funds from Pepfar, such as Mozambique, are only allowed to buy “FDA Approved” drugs. AAA-HAA! A barrier to entry emerges. It costs roughly $750 a year to buy the name brand antiretroviral drugs (ARVs), a fraction of the $9,600 to $12,000 a year it would cost in an OECD member country, which is a sum that is roughly double the $350-$450 a year cost for the generic ARVs. This is inefficient. The countries could treat almost double the number of patients if they were allowed to buy the generic ARVs. That is, it is only inefficient if you consider the countries most afflicted with AIDs as the principals. If you consider the US pharmaceutical companies as the principals, then the Pepfar program is the perfect regulation for them. It is quite interesting that the US FDA still has not started to approve generic ARVs. It restricts entry into the market and insures that the US pharmaceutical companies can act as “Price Setters” as opposed to “Price Receivers” based on the market price. Another case of a regulation benefiting the companies that are supposed to be monitored by the regulatory agency. Makes you wonder how much the US pharmaceutical companies paid in lobbying for this regulation.

Vote Selling

One afternoon I heard on the news that a Missouri man was charged with attempting to sell his vote for this past presidential election on eBay. Click here for a short account of the story. In class we saw the benefits of log rolling to pass bills in both situations where the total benefits exceeded costs and when the benefits did not exceed the costs, heck, we were even tested on it. How and what can we apply what we know about log rolling to this case? We know that the idea of log rolling is almost universally frowned upon by society. Applied to this case, we see that society looks down on vote selling enough to make it illegal. Laws and morals aside, was not Mr. Hubbard just acting as a rational Homo Economicus? If he were truly indifferent about our next President, clearly he would derive the most utility from voting in the interest of his highest bidder and collecting his money. In the same vein, the highest bidder be deriving more utility by knowing he/she was doing all they could to secure their pick for the next President. This outcome appears to be a Pareto improvement over the situation where Mr. Hubbard cannot sell his vote. Even though I personally do not agree with what Mr. Hubbard was trying to do, we must conclude that what he attempted was economically rational. The idea of vote selling is tenuous moral ground shared with ideas along the lines of selling organs, minus some of the inherent bodily danger. Allowing vote selling would give an upper hand to more well off individuals in securing the candidate they desired. Yet at the same time, the practice of legalized vote selling could allow uninformed, destitute, or indifferent voters an outlet to generating some needed revenue. Our sound economic reasoning here may sound callous and unpatriotic to outsiders. The privilege and honor associated with voting is something that Economics has a hard time measuring.

Negative Externalities of Two Dams Prove Caveats to Coase Theorem

When the Bonneville and Glen Canyon Dams were constructed over 40 years ago, they were viewed as a public good that would bring affordable and efficient power to thousands of people surrounding the dams. However, the negative externalities of the two dams were not realized until completion of the dam and were exacerbated in the ensuing decades. As a result, the once abundant salmon population near the Bonneville Dam is currently nearing extinction. Additionally, the Glen Canyon Dam has altered the amount of water all along the Colorado River reaching as far down as Mexico, which has resulted in negatively altered ecosystems and negatively altered lifestyles for communities along the Colorado River. So...what can be done to remedy these unforeseen negative externalities? The Coase Theorem states that "In the absence of transaction and bargaining costs, affected parties to an externality will agree on an allocation of resources that is both allocatively efficient and independent of any prior assignment of property rights." Therefore, according to the Coase theorem, involved parties could derive an economically efficient outcome independently. However, in these two situations, there are a couple of reasons that prevent this from occuring. First, how can one quantify the worth of salmon and their lives? Are their lives more important than the power produced by the dam? These questions are basically impossible to agree on and make negotiations extremely hard. Secondly, in both cases there are very many parties involved, which makes it nearly impossible for all parties to negotiate a solution that everyone can live with. Therefore, I conclude that in these two situations, the Coase theorem cannot and will not hold, and government intervention is necessary.

One man interest group

I came across an article that deals with interest group lobbying, but it had a new spin on it. Commerce Secretary Nominee shows how Kellogg executive Carlos Gutierrez is nominated to become the new United States Commerce Secretary, yet he still has a great amount of stock in Kellogg. Last year Gutierrez spent $300,000 lobbying for, among other things, sugar reform and sugar quotas between the United States and Mexico. Gutierrez was forced to open more factories in Mexico for Kellogg, leaving the U.S. behind due to the high price of sugar in America. As Commerce Secretary he will have control over the sugar issue in the U.S., possibly using his position to improve his financial standing. This process seems like they cut out the middleman of the elected official, and simply made a member of the interest group the representative. He has the ability to act just how the interest group wants, because he himself is the interest group. White House officials are meeting with the Office of Government Ethics and Commerce to see whether or not he can be involved in issues for which he has lobbied in the past. He is also meeting with ethics officials to see whether he should sell his stock in Kellogg or just put it in a blind trust. Also, this appointment marked the first time in a while that the nomination did not go to someone directly tied to political fund raising for that party. However, Jose Fanjul, president of Florida Crystals and contributor of over $200,000 to Bush’s reelection bid, was pleased to see Gutierrez appointed hoping that there was no need to step away from the sugar issue in America. With this nomination Bush ensured that several donating interest groups were still kept happy. If that link did not work here is the website: http://www.cnn.com/2004/ALLPOLITICS/11/30/gutierrez.commerce.ap/index.html

Agenda Manipulation and the Intelligence-Overhaul Bill

A bill that would mean major intelligence reform based on the 9-11 commission’s recommendations has not moved swiftly through Congress as had been anticipated. As a result, President Bush has been criticized for being unable to manage a Republican-controlled Congress. Analysts and politicians have expressed surprise that the bill has had such trouble moving through Congress. According to a New York Times article, Thomas Keane, the chairman of the 9-11 commission, noted that, "I have never heard of a bill that had the strong support of the president, the vice president, the speaker of the House, the Senate majority leader, the minority leaders of both houses and a large majority of the American people and that didn’t pass.” The cause for the bill’s lack of progress in Congress, it would seem, lies with the Congressman who has the power to set the agenda. If the bill is not brought before the House, it cannot be voted upon, and thus, cannot be approved:

“The intelligence bill, which includes several other provisions intended to force the nation's long-battling intelligence agencies to work together, including establishment of a national counterterrorism center, was derailed this month when Speaker J. Dennis Hastert refused to allow the bipartisan legislation to be brought to a vote despite strong endorsements from the White House and Senate Republicans. His move followed the announcement by two powerful members of his party - Representatives Duncan Hunter of California, the chairman of the Armed Services Committee, and F. James Sensenbrenner Jr. of Wisconsin, the chairman of the Judiciary Committee - that they opposed the bill."

If we assume, under the median voter theory, that the House would pass this bill, we can see the power that Speaker Hastert has in his ability to decide on whether the bill comes to the floor. As reported noted in the above excerpt from the Times article, in this case, several key members of the House are able to control the agenda, and until they allow the bill to come to the floor, the House can neither approve it nor vote it down.

U.S. Will Limit Shrimp Imports From China and Vietnam

This article talks about the decision by the Bush administration to "try to fend off overseas competition" in the shrimp market. The decision was made after observing the sharp rise in U.S. imports of Chinese and Vietnamese shrimp from 2001 to 2003. The Commerce Department determined that there was enough evidence in order to qualify this rise as dumping on the part of China and Vietnam.

The decision came after the U.S. shrimp industry had complained about unfair competition from overseas in the course of the past few weeks. Although American shrimp companies claim that consumers will not have to pay a higher price for the product, U.S. importers are sure that the limits which are to be imposed upon Chinese and Vietnamese shrimp will affect them and quite possibly consumers as well.

I thought that this case related to what we talked about in class when we were looking at rent-seeking (and it also relates in part to the first question on the midterm). The U.S. government will now put tariffs on Chinese and Vietnamese shrimp imports in order to satisfy the demands of the shrimp industry. The decrease in the quantity of overseas imports will cause an increase in the quantity which domestic shrimp companies produce, which might result in an increased price that domestic firms can put on shrimp. The profit from such a price increase would represent the rent that goes to the U.S. shrimp companies.

The article also points out that Chinese and Vietnamese imports represent only a small portion of the overall imports, but at this point the Commerce Department still needs to bring a decision as to whether Brazil, Ecuador, India, and Thailand are also dumping their shrimp in the U.S. market. If tariffs are imposed on the imports from all of those countries, the benefits for domestic firms would look a lot better.

Is the FDA Dominated by Congress?

With two recent mishaps, one wonders if the FDA is actually under the thumb of Congress. Many speculate that the FDA recently failed its duty to protect American citizens and ignored safety concerns about Merck’s very popular painkiller, Vioxx. In the case of Vioxx, David Graham, an FDA reviewer, warned that the risks posed by Vioxx were so high that patients should not use the drug. The study found that Vioxx causing roughly 27,785 deaths from 1999 to 2003. In his Senate testimony, Graham said that senior bureaucrats pressured him to soften those conclusions. He went on to say, "The FDA as currently configured is incapable of protecting America, [and raising safety concerns within the agency is] extremely difficult.” His entire testimony can be found here. Since the FDA approves a drug in the first place and then takes regulatory action against it post-marketing, there is an inherent conflict of interest. The Office of Drug Safety has no regulatory power and therefore must convince the new drug reviewing division that a problem exists before anything beneficial to the public can be done. One of the FDA’s own reviewers as well as outside scientists brought up the dangerousness of this drug, but the FDA called the reviewer a maverick who did not follow agency protocol. Lester Crawford, the Senior Bureaucrat, said “ the FDA's well-documented and long-standing commitment to openness and transparency in its review of marketed drugs” should be taken into consideration. The FDA initiated reviews of Vioxx after it hit the market, evidence [that] the system is working.” Crawford’s only rebuttal to the Senate’s questioning comes far short of an explanation of what the FDA does with taxpayer money. Did the agency ignore risks, then intimidated its own reviewers when they pointed to safety concerns? Merck’s study found an increased risk of heart attack and stroke while taking Vioxx for 18 months. How did the FDA allow a drug on the market that had not been tested for more than 18 months? Is this bureaucratic agency under Crawford’s command acting with impunity? After the hearing, Sen. Chuck Grassley, R-Iowa, said, “ A picture is emerging of an agency that can't see the forest for the trees. Merck knew it had trouble on its hands and took action. At the same time, instead of acting as a public watchdog, the Food and Drug Administration was busy challenging its own expert.” His complete testimony can be found here I sincerely hope that soon some agency will be created to test drugs after the FDA to ensure that nothing slips through the cracks. Such an agency should have equal power to that of the FDA, and maybe they should share the same budget as to add even more accountability to the FDA. More on this here

FDA Under Scrutiny

I read an interesting article http://www.economist.com/business/displayStory.cfm?story_id=3429205 today in the business section of the Economist. This article discussed some of the recent news concerning the efficiency of a familiar government agency known as the Food and Drug Administration. The pharmaceutical industry has been plagued with chronic criticism, and many of the big drug firms facing huge lawsuits because of damages incurred through drug usage are now pointing the finger at the FDA. In recent testimony to the Finance Committee, David Graham, a scientist with the FDAto the article cites the testimony of David Graham who is a scientist with the FDA "testified that the FDA overvalues the benefits of drugs and seriously undervalues, disregards and disrespects drug safety." The FDA is also described as having become "too chummy with the industry it regulates." The concern here is that the FDA having been criticized for its inefficiency and corruption will likely be held accountable for many of the damages that have been incurred by patients taking drugs which caused serious side effects and damage. The fact that the FDA has not been doing an effective job in regulating approved drugs has led to a suggestion of the creation of a new regulator. This article is filled with many of the recent topics we have covered in public choice. First, there are two principal agent relationships evident. One relationship is between the government which provides the funding and therefore acts as the principal while the agent is the FDA that is the agency carrying out the interests of the government in regulating the Food and Drug Industry for public benefit. It is evident from the article that there are problems with monitoring the behavior of the bureau. One of the problems we mentioned in class was the difficulty in measuring the output of the bureau since the FDA provides a service output which is not easily measured as would be a market output. The role of the FDA is to test and regulate certain drugs based on strict standards so that they can be readily and safely consumed by the public. Sometimes, it takes years to discover that a certain drug is unsafe and potentially harmful and many of the problems reported by patients to drug firms are not rectified or taken seriously by the pharmaceutical companies. A second problem with monitoring the behavior of the FDA arises because it is a monopoly supplier. It is the only Federally funded and approved agency that is charged with the responsibility of Food and Drug regulation. It has standardized procedures and without FDA approval many drugs and foods without much consumer confidence or legitimacy in the marketplace. There are virtually no other alternative sources of information regarding food and drug safety so the FDA has a monopoly in the industry. This does however lead to problems such as lack of incentive for efficiency and lack of innovation because there are no competitors. As mentioned in the article, "in the 1990's, the agency took flack for being too slow and too cautious in the way it approved new drugs, adding costs to the system and denying patients potentially life saving medicines." This lack of innovation has led to major ineffeciency problems within the FDA. The other principal agent relationship is between the FDA which acts as the principal that regulates the agents who are in this case the drug firms. The principal agent problem arises in this relationship because the agents may not necessarily act in the best interest of the principal and will likely act in their own best interest. The FDA must be more aware and active in tracking and monitoring the drug firms' products even after approval. As mentioned in the article, "the FDA's current reliance on the willingness of drug companies to report problems with products that can potentially earn them billions of dollars a year is likely to change." The FDA must work on this problem through more monitoring and improved research into safety standards of new drugs. I do not believe however that increasing the budget of the FDA as mentioned in the article will be the solution in resolving this problem. A rechanneling of existing resources with more careful monitoring and a stronger incentive system for both the FDA and the drug companies will prove to be a better solution.

CIA's New Director

This post will be addressing an article on 11/16 on CNN.com entitled "Goss continues effort to reshape CIA" 11/16 and a related article on 11/18 on CNN.com entitled "Officials: CIA memo not an order to 'back Bush'" 11/18. The first article deals with the shakeup in the CIA by the newly appointed and confirmed director, Porter Goss. Before Bush handpicked him for director of the CIA, Goss was the chairmen of the House Permanent Select Committee on Intelligence. Two top CIA officials have already resigned because of "personality and policy disputes" with the staff that Goss brought with him from Congress. Ranking Democrat of the the House Permanent Select Committee on Intelligence, California Rep. Jane Harman called the staff Goss brought with him to the CIA a "highly partisan, inexperienced staff" and said "both sides of the aisle in our committee were happy to see them go." Sen. John McCain called the CIA a "a dysfunctional agency, and in some ways a rogue agency" that need to be reformed. But also said that Porter Goss "is on the right track." Senator Bill Frist dismissed concerns about upheaval in the CIA by saying that some turnover is to be expected with new leadership.

The second article deals with a headline in the New York Times that stated "Chief of CIA tells his staff to Back Bush." Apparently Goss sent a memo to his staff regarding in his words the "rules of the road." He wrote, "We support the administration, and its policies, in our work as agency employees," he said. "We do not identify with, support or champion opposition to the administration or its policies. We provide the intelligence as we see it -- and let the facts alone speak to the policy-maker." A spokesman for the CIA said the memo was a "a statement about the nonpartisan nature of what this agency does." A White House spokesman also chimed in that the memo was "misconstrued and that "The role of the CIA is intelligence gathering, intelligence analysis and intelligence dissemination. It is to provide policy-makers with the best possible intelligence. It's not to set policy." He also added that, "the role of policy-makers is not to get involved with the CIA, either." Not everyone is dismissing this memo as the media making something out of nothing. Cal. Sen. Dianne Feinstein, a key Democrat on the Senate Intelligence Committee said the contents of the memo "need to be explored" and the memo was not "even-handed." She added that the intelligence community "should not support or oppose an administration." Some Democrats are worried about whether or not Goss will run the agency in a nonpartisan manner and Feinstein worries that Goss, at the urging of the White House, will get rid of people who are deemed liberal or disloyal to the president. Feinstein thinks a "politically motivated purge" of the CIA would be detrimental to the intelligence committee.

According to Weingast and Morand, an incentive-based system involving appropriations, oversight committees, and confirmations will keep agencies in line and not an autonomous or a rogue agency. So I did some research on US.gov to see who Goss, the senior democrat of the CIA, is accountable to.

On CIA.gov in the Frequently asked question I found out how the CIA explains how it is accountable.

"Who oversees the CIA? Does it act on its own initiative?

Both the Congress and the Executive Branch oversee the Central Intelligence Agency’s activities. In addition, the CIA is responsible to the American people through their elected representatives, and, like other government agencies, acts in accordance with US laws and executive orders. In the Executive Branch, the National Security Council—including the President, the Vice President, the Secretary of State, and the Secretary of Defense—provides guidance and direction for national foreign intelligence and counterintelligence activities. In Congress, the Senate Select Committee on Intelligence and the House Permanent Select Committee on Intelligence, as well as other committees, closely monitor the Agency’s reporting and programs. The CIA is not a policy-making organization; it advises policymakers on matters of foreign intelligence, and it conducts covert actions only at the direction of the President."

Let's take a look at Congress: In the House Permanent Select Committee on Intelligence where Goss used to serve as chairman, there are 11 Republicans and 9 Democrats with the chairman being Republican Rep. Hoekstra who scored a 10 on the ADA ratings. (The ADA ratings rate politicians on a scale of 0-100 with 0 being a perfect Republican and 100 being a perfect Deomocrat.) In the Senate Intelligence Committee, there are 9 Republicans and 8 Democrats with the chairman being Republican Senator Pat Roberts who scored a 0 on the ADA Ratings. In the Executive Branch, Goss is accountable to President Bush, the man who appointed him, and the rest of the people on Bush's team.

Goss is therefore accountable to a groups that are dominated by Republicans while he himself is a former Republican Congressman that was rated as being a perfect Republican by the ADA. This is not to say that Goss will automatically politicize the CIA and make it a pawn of the Republican Party, but it may have a little Republican lean to it due to the circumstances. This lean might materialize in just the fact that news from the CIA may be presented in a way that either makes the administration look good or atleast doesn't make the administration look bad.

The Kerry-Edwards Ticket

On March 3rd of 2004, Senator John Edwards dropped out of the democratic candidate running. John Kerry was instantly predicted to carry the title as the Democratic Presidential Nominee. Many analysis’s also predicted Edwards to be the primary candidate for vice presidency, supporting a Kerry-Edwards election ticket. This is precisely what occurred this past election, buy why in fact was Edwards chosen? I will choose to leave the Republican Party out of this scenario since Bush naturally selected Cheney as his running mate. It seems to be the case that the vice president hopeful for the democratic campaign must be someone to compliment the presidential hopeful. Therefore there are many single issues that we must look closer at in an effort to realize the positions, and backgrounds of each individual. Their respective backgrounds are viewed before the presidential elections for both John Kerry and John Edwards. Of note in each biography of these two senators are their achievements and social characteristics. Let us look at one issue on a one-dimensional issue space (which is one of the prerequisites for the median voter theorem). Kerry on one hand has served as an Assistant district attorney for 2 years, a Massachusetts lieutenant governor for 2 years, and as a senator since his election in 1984. Edwards on the other hand was elected into the senate in 1998 and before that was working as a trial lawyer. Our single issue in the policy space for this example is in public service positions (such as mayor, governor, senator...). Kerry then will appeal to those voters who derive much of their utility from an official in office with vast public service experience. Others in the single issue policy space will derive more utility from a public official with less experience in the hope, perhaps, that he will have more modern ideas that have not been dissolved after years in office. Therefore, the two men acting as one unit can derive votes from either end of the single issue policy space for their party. Both those who like past experience and those who do not like past experience in public office will have a reason to vote for the democratic party in the election. Let us consider the converse. If both Kerry and Edwards were lacking any public office experience, those deriving utility from this public office experience would likely cast their vote elsewhere in an effort to maximize utility. Both holding many years of public office experience holds the converse as well. Therefore, Edwards must compliment the President in single issues, to maximize the votes of the median voter. If the Presidential hopeful is on one end of the spectrum, then the vice president hopeful should be in the middle or opposite him. (I would note here, that this holds true for mainly social characteristics, and not political issues for which each stands. I in no way intend to conclude that the vice president candidate will disagree on issues with the presidential candidate.) Another characteristic of note for the two gentlemen is in Demographics. Kerry is predominately the voter’s choice in the northeastern states, namely Massachusetts. Edwards then was selected to cover the southeastern states, due to his many years of living in North Carolina. Kerry is not the epitome of attraction at the age of 60, however Edwards is a clean cut handsome man at 50 years old. There are many other issues as well that the democratic party must look at for maximizing votes for their candidates. The pair seeks to gain extra votes through various qualities that each possesses, in order to collectively appear as the most capable team running.

THe Value of the Blogosphere

In case you need another reason to blog, here are six, from Tyler Cowen at Marginal Revolution.

Externalities of Professional Sports

I happened upon this post on Marginal Revolution regarding the externalities of professional sports teams. The paper that accompanies the post speaks to the externalities received by the residents of cities with professional sports teams, football teams in particular. It is claimed that housing values go up with the presence of an NFL team. The poster also talks about the other external benefits received by fans who live close to their favorite teams. He offers that he, and others he knows, would be willing to pay a small tax in order to keep the team nearby even though football teams only have eight home games. He feels it is worth the money to be able to go to games and follow the team closely. The cities also feel it is beneficial to have the teams in their city, shown by the hundreds of millions of dollars cities offer to shell out to build stadiums to lure teams. The teams create jobs for local workers and often revive the commercial activity of areas surrounding the stadium by rejuvinating the area. These are valuable commodities to the community and inhabitants that the team itself do not receive compensation for. It seems that all these externalities are positive and would make any city more than happy to have a professional team. But this does not explain Los Angeles' inability to maintain a professional football team. There are parts of Los Angeles that could do with some economic boosts. It has been shown that the building of a stadium, such as Coors Field in Colorado, can help to clean up a neighborhood to further help the nurturing of an increased commercial aura. Los Angeles is a very large city, there must be a great deal of people who would greatly benefit from being able to go to games, following and rooting for their team, introducing their kids to the thrill of sporting events. Los Angeles is capable of maintaining two basketball teams and a baseball team, how is it that one of America's primary cities does not wish to benefit from the same externalities as New York, Chicago, or Atlanta? This piece also does not account for some areas desire to not have a professional sports team. Despite strong support, there is also a large faction of opposers in Northern Virginia for the relocation of the Montreal Expos to their neighborhood. There are also negative externalities that accompany the presence of a professional team; construction (initially) and the noise and commotion that comes with it, increased traffic problems, increased cost of living, trash, scalpers, light polution, noise of the games. Perhaps the significantly larger number of home games for a baseball team could lead to more attention to these negative externalities, but football stadiums are often twice as big as baseball stadiums. The theory that the externalities of an NFL team benefits a community does not seem to take into account all the negative externalities as well, it seems to disregard non-sports fans. The voting structure for acceptance of these plans are obviously not unanimity because they would never pass due to the costs to some members of society. With a simple majority, whatever the opinion on the sports team of the median voter will determine whether or not a city will get a professional sports team.

Elections in Ukraine

Ukraine, former member of the Soviet Union, now finds itself in an unresolved political election. On November 24, Ukraine declared Prime Minister Viktor Yanukovich, handpicked by current President Leonid Kuchma, as the winner. On that same day, US Secretary of State Colin Powell said that the US would not accept these results. "We cannot accept this result as legitimate because it does not meet international standards," Mr. Powell said, "and because there has not been an investigation of the numerous and credible reports of fraud and abuse."

"This is a critical moment," Mr. Powell said at the State Department. "If the Ukrainian government does not act immediately and responsibly, there will be consequences for our relationship, for Ukraine's hopes for Euro-Atlantic integration, and for individuals responsible for perpetrating fraud."

According to Russian President Vladimir Putin, the outcome of the vote in Ukraine was "perfectly clear" - 49.46 percent for Prime Minister Viktor F. Yanukovich, and 46.61 percent for the opposition candidate, Viktor A. Yushchenko. President Kuchma initially validated these results although strongly recommended by the US and Europe not to do so. On November 27, the Ukrainian parliament declared the election invalid. No date has been set for a new election. It has been a long time since Ukraine has been a member of the Soviet Union, yet the legacy of Russian influence is still very present. While Moscow gives full support to Mr. Viktor Yanukovich, who is clearly more "Easternized" and pro-Russia, the US and Western Europe aligned with Mr.Yuschenko.

The future of Ukraine's presidency is now uncertain. It is still not known when the Ukrainian population will be able to vote again. In order to represent the interests of the majority, the new elections must be "clean" and absent of frauds and violation. Because it is to the advantage of Mr. Kuchma that Mr. Yanukovich wins, perhaps international agency should be considered. Although this is an unrealistic proposition, it would be for the best if Russia and the US did not intervene for the sake of their interests (after all, the Cold War is over!). The fact that the parliament decided to reject the results has definitely been a victory for the US, but while President Kuchma is still in power, Putin's interests will have a comparative advantage. http://www.nytimes.com/2004/11/28/weekinreview/28whit.html http://www.nytimes.com/2004/11/24/international/europe/24russia.html

Electoral College: time for a change?

While browsing the Internet I came across an article of particular interest to me. The article is titled Time to abolish outdated Electoral College and it about the numerous flaws of the voting system used by the United States. As pointed out in the article, "it disconnects each individual popular vote from the electoral outcome. The winner-take-all method reduces third-party participation and inflates the impact of voter fraud. It often results in a president who is not representative of the majority's will." Also "the Electoral College minimizes the chances of third-party candidates running, or encourages people to not 'waste' their vote for them when they do run. In 1992, Ross Perot received 19 percent of the popular vote, but zero electoral votes." Most importantly the article shows that "the Electoral College does provide unequal representation of states, over representing states with the smallest populations. Indeed, Wyoming has four times as much weight as California, with 165,000 people per electoral vote to California's 628,000. But does such 'extra' representation really protect the rights of the smaller states? No. Regardless of size, "safe" states that historically vote for one party (like New York or Massachusetts) tend to be ignored. Campaigning there becomes pointless. Less policy is aimed at these states and the incentive for residents to vote is reduced." Perhaps the worst flaw of the Electoral College is that the candidate who wins the popular vote in each state, then usually receives all electoral votes from that state, despite the closeness of the popular vote. Not only does this cause candidates to focus their campaigns only on swing states, but it also makes voters in "safe" states feel like that their vote doesn't matter and so they are discouraged to vote. When the Founding Fathers decided on the Electoral College "they publicly illustrated a commitment to democracy, while privately fearing the 'unthinking' masses." But times have changed, people have changed, and its time for how we elect a president to change. A president should be elected by popular vote, even if this means that a few populous areas will elect the president. Every person is important and his or her vote should count equally in deciding who is elected president. Perhaps if each individual vote had an equal weight in deciding the presidency more people would vote. The chance of an individuals vote being decisive is already an extremely low probability, and the Electoral College only alienates voters even more. In addition, as learned in class, the Electoral College does not always satisfy the three criteria used to evaluate the methods used to elect candidates. First the Electoral College could not be Condorcet efficient. In order for it to be Condorcet efficient than the candidate who would defeat all others in pair wise elections would have to always be elected. Second, the Electoral College does not take into account ordering information. Last, the Electoral College does not minimize incentives for strategic behavior, since candidates will focus policy only on swing states instead of acting out their true preferences. However few voting methods satisfy all three criteria and even allowing the popular vote to elect the president may not be the best solution.