Econ 3330 loves Gander Mountain

Gander Mountain and guns seem to be a reoccurring subject in our class recently. After talking about Olson, Becker and interest groups, it occurred to me… how does the NRA get members to join?

According to this article, the NRA claims to have about 4.5 million members. We learned in class that Olson favors smaller groups because there is a free rider problem for larger groups. When a group gets larger, the individual contribution of the next member decreases, so people start free riding the benefits without incurring any costs. On the other hand, Becker would contradict Olson and argue that NRA is powerful because of their large membership base. With more people, there are more resources for the group to use and the free rider problem is mitigated.

The NRA has an annual membership fee of $35. That means the group gets roughly 150 million dollars a year for their collective goods (safety programs, gun advocacy, lobbying against gun restrictions, etc.), which upholds Becker's theory. However, Olson does explain that large groups like the NRA exist because the NRA is organized to promote firearm competency, safety, and ownership (lobbying is a byproduct), which lessens the free rider problem and their members enjoy selective incentives. Examples of positive selective incentives from joining the NRA would be discounts on restaurants, attorney referral services, and insurance. Negative incentives: exclusion from private shooting clubs because public shooting locations are rare. So join today!

Christmas is Coming Early For Venezuela This Year

            This week the Venezuelan President, Nicolas Maduro declared the official arrival of “early Christmas.” As this article explains, Venezuelan early Christmas means all workers will receive two-thirds of their holiday bonuses this week, nearly two months before the 25^th of December.

            While participating in a variety of holiday traditions this week, Madura said “Merry Christmas 2013, Christmas early, early victory, early happiness for the whole family," leading many to believe his recent actions are nothing more than a tactic to gain votes in the upcoming December 8^th elections. While early Christmas and bonuses may be appealing to many Venezuelans, Maduro’s Christmas movement says nothing of his position or policy plans for the future and is therefore not informative campaigning. Aside from having nothing to do with Madero’s actual political beliefs, the new Christmas policy benefits every one of his constituents in an effort to bring all voters closer to his platform without driving any farther away.

            Maduro’s tactic is an example of persuasive campaigning because the new Christmas policies are nothing more than an attempt to gain votes.  His unconventional new holiday policy is targeting every single Venezuelan regardless of their political beliefs and is aimed at “persuading” voters of all kinds to support Madero in the upcoming election. 

US-Israeli Relations

      In one of my foreign policy classes I am writing a paper on US-Israeli relations and one of the books I came across is particularly pertinent to this class.  The NYT's article here gives a nice summary of the arguments presented by two of the most prominent realist thinkers in the field.  Their first argument is that a long, well documented, and violent history of anti-Semitism has resulted in such a climate that makes it nearly impossible to criticize Israel.  They argue that the Israel Lobby is just like any interest group- the NRA, AARP, etc- except they have no counter-balancing organization.  Therefore, they possess disproportionate influence, or using Olson's terminology "asymmetric power." They argue that because the public views anything other than pro-Israel as anti-semetic, the costs to a politician of questioning the current policies are extremely high.
     Their second argument is about the concentrated benefits of this policy. Because the benefits are concentrated in such a small group of people, they have massive incentives to organize and lobby politicians.  It is not that there is a vast, pernicious, well-connected conspiracy as racists argue. There exists a group who has strong incentives to organize, over-come collective action problems, and capture the concentrated benefits available to them.  It is true that organizations have successfully lobbied for pro-Israel policies, but using Olson, and other authors we've read in this class, we see the sober person can see how concentrated benefits have given a group an incentive to organize and exert its influence.                      
     Mearsheimer and Walt, do however, come to the dreary conclusion that Olson predicted. They argue that the US's consistent support for Israel has negatively effected US national security. To them, the latent group has not been brought to life by selective incentives and because the general public is such a large group it consistently falls short of the optimal amount of the collective good, in this case, national security.

Should the Government Control Toilet Paper Production?

    The country of Venezuela has found themselves in a sticky situation. After the government placed a price ceiling on toilet paper (thinking it would help make it more affordable for all) Venezuela has found itself deep in a toilet paper shortage. The government induced price ceiling left producers of toilet paper in Venezuela no incentive to produce at the lower price. Even after limiting purchases to 12 rolls a customer, and importing 50,000 rolls from abroad, citizens of Venezuela are struggling to find toilet paper--a good in high demand! Lines extend far beyond stores, and there is even an app that can help people find stores with toilet paper.
   The government's new solution to the problem (after importing didn't seem to work) is to take control of the production of toilet paper. They have recently taken over one of the largest the toilet paper factories. Many citizens are upset seeing that it was the government who got them in the mess in the first place. The government seeks to blame private companies for charging prices too high, but this begs the question, is it really the role of government to control the production of a good like toilet paper? Free market Economists like Friedman would argue that all might be better off if the production of toilet paper was left to the private market. Considering the government's track record, this may be something better left to the private market and not a role of the government.

Illinois Unions Hold Strong

In this article published on November 3rd, Sara Burnett discusses the recent debate between political parties in Illinois over collective bargaining and the surprising stronghold that organized labor still has in Illinois despite the hits it has taken in other states across the nation. Burnett notes Illinois as an exception because its public employees are still receiving their defined benefit pensions and unions are still collecting dues from their members.

As we discussed in class, many southern states in the U.S. have adopted "right-to-work" policies that prohibit unions from requiring their members to pay dues; however, in Illinois, Burnett tells us that "a right-to-work bill introduced earlier this year didn't get as much as a committee hearing." While Olson in The Logic of Collective Action, demonstrates that he is scared of such collective interest groups bringing down the industry through their asymmetric power, high-profile government officials in both political parties in Illinois are showing a slightly positive acceptance of the significant role of the state's organized labor groups. As quoted at the end of the article, "In Illinois, 'there's an acceptance that the labor movement isn't alien [...] and isn't bad." Perhaps legislative officials in Illinois would side more with Becker in his argument that the presence of special interest groups isn't of highest concern, but instead we should attempt to attain optimal pressure, determined by the effect of the state's political expenditures on the individual members' utilities. 

Sriracha Shortage? Not Quite Yet

For about a day, food-lovers everywhere were upset at the prospect of a Sriracha shortage when a lawsuit was brought against Huy Fong Foods, Inc. One of their plants in southern California was creating a chili odor in the air that was so strong that it was said to be a public nuisance, causing "burning eyes, irritated throats, and headaches." Luckily, a judge denied the town’s attempt to get the plant to cease production until they can reduce the odor. This article on the recent development of the suit says, “Huy Fong executives said they were cooperating with the city to reduce the smell, but balked at the city's suggestion of putting in a new, $600,000 filtration system that may not be necessary. The company said it was looking into other alternatives when the city sued”.

This odor is an example of a negative externality of production. It is reducing the well being of others who are not being compensated by the firm. In this case, the town of Irwinsville attempted to implement a solution to the externality similar to the example of the confectioner that we looked at in lecture. The producer is liable, but the marginal benefit of production is greater than the marginal cost of production, therefore the output is still produced. This still requires negotiations in order to reach a solution. As Huy Fong agrees, jumping to the solution of spending $600,000 on a new filtration system might lead to a lower level of odor but that does not mean it is the optimal solution. In order to internalize the externality, government action might be necessary. A corrective tax seems like a reasonable solution to this externality; Huy Foods would pay the tax, which would be an input cost, raising their MC of production (PMC curve shifts up) and reaching the socially optimal level.

Mining in Maine

     In his, Logic of Collective Action, Olson argues that an agent will pursue collective action until the marginal benefit of their share of the collective benefit is greater than their personal cost incurred in obtaining the benefit. When the group size is incredibly small, the cost of coordinating efforts is low and the greater the expected payoff, the greater the incentive becomes to contribute towards the acquisition. A fantastic example of this is the newest piece of mining regulation set to pass the Maine State Legislature. As this article outlines, one single private actor, J.D. Irving Ltd., has essentially dictated the State's environmental policy in this area. At issue in this case is the loosening of regulations concerning metallic mining practices that environmentalist claim protect the community from pollution and contamination.  Irving is the owner of Bald Mountain, and after presumably discovering it's money making potential, Irving has, "begun considering the possibility of mining on the land and pushed to write new regulations more favorable to the industry." Legislators have been extremely responsive to Irving's 'request', justified as an attempt to create '700 jobs', and the regulation weakening bill is set to pass the house in January. The incredible responsiveness of Maine's Department of Environmental Protection to Irving's request demonstrates the power of Olson's theory, that an extremely small group with an incredible amount to gain will be highly efficient in it's lobbying efforts.

Wisconsin Organic Farmers Seek Regulation

According to this article from two weeks ago in the LaCrosse Tribune, approximately half of organic farmers in Wisconsin will be denied their $750 annual federal subsidy this year, which has traditional gone towards the certification process required to be “certified organic.” The program for the subsidy was cancelled back in January, but many small time farmers are realizing only now that they will not be eligible to receive their funds. This change in regulation effects mostly small-time farmers for whom $750 is a relatively large percentage of the value of their crop. Being certified organic is absolutely necessary for these farmers, as it is more of a niche market and non-organic farms are able to produce much more food at lower costs.

            One of Stigler’s four ways that the State can benefit an industry is through the direct subsidy of money, and this is exactly the type of regulation these Wisconsin farmers are being denied and so desperately are seeking. In an economy when so many people think that good-producing firms are all for free markets and Laissez Faire government, it is interesting to see these small time farmers fighting and appealing for the government to step back into the picture and provide the regulation that they desperately need.  

Regulation on Cigarette Packaging in Australia - For the Public Good?

This article discusses new regulations on cigarette packaging in Australia aimed at reducing smoking. No longer are brand images allowed to appear on cigarette wrappers - rather, it is required that cigarettes have “drab wrappers” with warning labels and graphic images of the negative health effects of smoking. This has severely limited the ability of tobacco manufacturers to brand and market their products in Australia, and has prompted significant backlash against regulations by large tobacco companies and cigarette-producing countries alike. Several countries are filing WTO cases against Australia on the grounds that the country is using these regulations as a way to limit cigarette imports rather than simply to improve health.

The other countries’ fight against Australia’s cigarette packaging regulation struck me as interesting. In class we discussed advertising regulations as actually proving beneficial to cigarette companies, as they limit the entry of new firms into the industry. The WTO cases brought against Australia prove that cigarette companies see the reduction in their sales due to packaging restrictions as greater than the gain due to the entry restrictions it imposes, however. This case seems to run counter to Stigler’s theory, which says that regulation is acquired by an industry and is designed and operates for its benefit. It seems here that an alternative explanation of regulation - that it is for the public good - seems most applicable. Unless there are deeper issues at work here, Australia’s cigarette packaging regulations seem to be aimed at promoting health rather than protecting the cigarette industry.

Profit-maximizers in Utah

Coming to the United States “the land of freedom” I never thought to encounter rules such as blue laws and/or alcohol beverage restrictions that help create monopoly markets. Last readings and the Thursday class were a bit of a shock to me so I started reading more on the subject. I realized that Utah has one of the strictest alcohol distribution and consumption regulations. A Fox News article explains how these rules make it hard to get a drink in Utah. For example, you cannot order a drink at a restaurant without having food first, there are three different license categories for restaurants that allow them to sell alcohol at a certain time period and specify the kinds of alcoholic beverages to be served, and wine and beer are only to be supplied by a state-run store (at 86% markup). Francis Liong, an LA relocate that owns Lamb's Grill in Salt Lake City expressed that "makes it hard for a restaurant to appease guests and to make money, too." Not only that but recent regulations require that new restaurants and bars keep a curtain over the location of alcohol in restaurants and bars. The justification that the Utah Department of Alcoholic Beverage Control gives is that

"The purpose of control is to make liquor available to those adults who choose to drink responsibly -- but not to promote the sale of liquor,” the department states on its website. “By keeping liquor out of the private marketplace, no economic incentives are created to maximize sales, open more liquor stores or sell to underage persons."

However, as Coppock’s students, we know that the reasoning behind such restrictions is the rent-seeking opportunities they bring for the local government and the old-dominant restaurants and bars. These restrictions exemplify three of Stigler’s types of regulations: control over entry by new rivals, regulation on related industries (substitutes in this case), and price-fixing.