The Fall of Communism

As I have done before, I enjoy applying theories of Public Choice to what I am learning in my Fall of Communism class. The Soviet Union’s collapse was ultimately a result of its leaders acting in their own self-interest. Given opposition movements in Eastern Europe, domestic reforms and openness, and mounting nationalism in Soviet republics, the Communist Party leaders realized that they could best preserve their power by becoming what the people wanted, thus dissolving the Soviet Union on December 8, 1991. In Armageddon Averted, Stephen Kotkin writes, “It was the central elite, rather than the independence movements of the periphery, that cashiered the Union” (107).

Ideology aside, Soviet leaders were rational, utility-maximizing agents acting in political markets, just as Buchanan and Tullock established as the foundation of public choice economics. More specifically, their actions are consistent with Downs’ assumption of political actors as vote-maximizers. Domestic reforms (in hopes of rejuvenating communism) in the late 1980s increased the channels through which citizen voters could reveal their preferences, including through public gatherings, published letters to the editor, and independent political organization. Foreseeing their ideology’s doom, Soviet leaders abandoned the Communist Party to become nationalist leaders. This continuity was true for eight out of the fifteen newly independent nations. Consumed with uncertainty, however, the following years would be plagued with policy zigzags and troubled reform. As Downs argues, these individuals formulated policies to win elections rather than won elections in order to formulate policies. Ex-Communist leaders were vote-maximizers.

Free Riding and High School Sports

My high school had over 3,000 students. Sports were a huge part of our high school culture. My field hockey team only had about 25 members. With so few teammate, you had to give your all in practice or you ran the risk of coach turning practice into the sprinting scene from Miracle. The small size of the team allowed us to overcome the free rider problem, making us a more effective group. Our practices were tough, but truly prepared us for our games and this lead us to States.

Many of the girls on field hockey would run track in the off season to stay in shape. Our track team had almost 100 people on it, and it was most athletes’ secondary sport. On this team, the free riding problem was rampant. With 100 athletes and only 3 coaches, there was no way for the coaches or even the captains to ensure each teammate fully participated. Many times, on our “fun run” days, there would inevitably be kids who would hide around the corner away from the coaches’ view while the rest of the team ran. They would wait for everyone to come back, and then fall in line as if they had ran the whole thing! The large size of the team encouraged the free rider problem. Additionally, there were no selective incentives. Track tends to be an individualistic endeavor. An individual, not the whole team, qualifies for States. So it was difficult to get individuals who were not as heavily invested in track to pay in to the common goals of the team. Who knew high school track teams could be examples of latent groups! 

Social Incentives and the Gubernatorial Election

Tomorrow is November 7th, which means that Virginians will be flooding to the polls to cast their vote in this year's gubernatorial election... right? Well, maybe. Gubernatorial elections in Virginia have a history of drawing substantially fewer voters than presidential elections do. Johnson explains that the decision whether or not to vote is based on several factors, including the marginal benefit and probability of casting a decisive vote, as well as the social climate that the potential voters are surrounded by. In most cases, it is actually irrational for a person to vote because the chance of their vote being decisive is infinitesimally low.

Polls for tomorrow's election show that Ralph Northam and Ed Gillespie both have a fair chance of winning, with the latest poll by Siena Research Institute showing that Northam is leading by just 3%. This means that the probability of casting a decisive vote is certainly greater than it would be in, for example, Texas' gubernatorial election in 2014. However, Virginia's last gubernatorial election, in 2013, was very closely contested as well and still only drew just over 40% of eligible voters to the polls. I would predict that tomorrow's turnout would be similar, if it weren't for the way that last year's Presidential election went. My theory is that since last year's election was such a dramatic shock to much of the public, Virginians will approach this election with new zeal. I personally have experienced much more social pressure to vote for this gubernatorial election than I've seen for any other (granted, this is the only gubernatorial election that I've been old enough to vote in). This social pressure has been applied in the form of incessant reminders from friends, offers of transportation to polls, and emphatic phone calls from my mother. All of these factors have made the utility that I will get out of voting tomorrow increase, because I will be able to tell everyone to calm down because, yes, I did vote.

My Latent Family

When professor Coppock spoke about latent interest groups as ones that had a lot of potential but were very difficult to organize, I couldn’t help but think of my family. Just for some context, I have 2 parents, 9 siblings, 6 in-laws, and 25 nieces/nephews. We make an interest group of our own in which membership is made possible by birth or marriage, but only those who really buy in (invest time, energy, and oneself in other members of the family) really reap the benefits of being part of a family. Those who buy in end up making many various connections in fields ranging from pastoring to beer brewing, as well as receiving the great benefits of community and endless entertainment from some very eclectic people. However, even organizing those who buy in to this group is extremely difficult because of a few problems. 

This biggest issue is communicating a single message to every single member in a timely fashion. One of my brothers got married this past weekend, and the process of gathering together every single child, sibling, and cousin (totaling about 50 people) together to take a few pictures took about 15 minutes. When my brother’s wife’s family (about 12 people including cousins) gathered for their photo with the newlyweds, it took them a little more than a minute to get everything straightened away. As a latent group, it took a lot to mobilize my family to do a single task for a few minutes. As soon as the pictures were taken, everyone scattered and it became nearly impossible to do anything together with every single other member present. Even gathering everyone together for the wedding weekend was extremely difficult, as we had two families coming from overseas and someone should have taken the lead in coordinating all of our actions. However, with no centralized leader established (as there would be in a privileged group), we had to resort to using a group text to determine who would do whatever needed to be done (airport pickups, child watch duty, etc...), which often led to miscommunications. 

However, by the end of the weekend, all the seemingly insurmountable challenges of mobilizing my latent family were totally worth overcoming for the wonderful benefit that is the joy of each other's company.

Pizza Hut and Hotelling

This past spring, Pizza Hut opened a new dine-in location on W Main St. A few weeks ago some friends and I decided to stop in for their Thursday night karaoke (I highly recommend). As we left I wondered why anyone would go to Pizza Hut beside karaoke night when there are other pizza places that are much closer to, even if you’re coming from the opposite direction we came from. To the east of Pizza Hut along University Avenue is Mellow Mushroom and Christian’s Pizza, and only 100 yards away to the west along W. Main St. is Benny Deluca’s.

Hotelling’s law says that a business should get as close as possible to the largest number of customers in comparison to other firms that sell homogeneous products. If we view the route from which customers approach Pizza Hut as linear, meaning all customers must come from along one end of W. Main St. or another, and we assume all the pizza places on the street sell homogeneous products (very debatable, but helpful to assume), then Pizza Hut chose a location where few people will dine because almost everyone coming from either side will come upon another pizza place before Pizza Hut. If Pizza Hut had chosen a location to maximize customers based on Hotelling’s law they would have built their location either just to the east of Benny’s on West Main in order to capture all pizza lovers coming from the direction of downtown, or built along University Ave to the west of pizza places on the corner to capture people seeking pizza coming from Rugby Rd and UVA. The city is obviously not two dimensional and there are a lot of other factors involved in choosing a store location, but Pizza Hut put itself in a tough place to draw in diners traveling along W. Main.

Return-Free Filing and Rent-Seeking

A few weeks ago, I came across the concept of Return-Free Tax Filing, which led me to further research from a Morning Edition report on NPR from March 2013. Return-free tax filing essentially lets the government do your taxes for you, thereby easing some of the difficulties associated with taxes (i.e. gathering all your forms, paying a tax preparer) for people with straightforward tax returns. Not only would this new tax-filing system save a lot of time and money for consumers, it would also create more accurate returns for the IRS, which would lead to fewer audits. Maybe most interesting, the idea of return-free filing was supported by Ronald Reagan in 1985, and Barack Obama in 2007. If return-free filing is supported by both Republican and Democrat presidents and would be beneficial to the average American consumer, why would return-free filing not be the law of the land? Rent-seeking may be the answer.

According to an article from Propublica, Intuit (makers of TurboTax) and H&R Block spent more than $2 million and $3 million respectively in 2016 to lobby against legislation “that would permanently bar the government from offering taxpayers pre-filled returns.” By lobbying against this legislation (Free File Act of 2016 from Sen. Elizabeth Warren), Intuit and H&R Block are diverting resources to secure profits from their consumers and ensure their services are not obsolete.  This means consumers are paying more money and spending more time filing taxes, which is not socially beneficial or efficient. Intuit and H&R Block lobbying against return-free filing is a clear example of Tullock’s concept of rent-seeking behavior, and is the reason return-free tax filing may never be fully instituted in the United States.

Free Riding for Exam Review

Last night my friend sent me a text asking me to clarify the exam review procedures for a class she is in. Dave (the professor) gives the class three options for what they will do for the class before the exam. All options depend on how many people Slack him a question the day before the review class. The first option is when 9 or less people send in a question. In this case the 9 (or fewer) respondents get an immediate A on the exam and therefore do not have to take it. As for everyone else, he assumes that the material is too easy and will then create a harder exam. If exactly 10 people send him questions then those 10 people will get the exam exemption and in class they will review those topics sent in, the exam remains at the same difficulty as originally planned. And the third option is if more than 10 people send questions. All questions are then entertained in class, no exam exemptions are given, and the exam is at the original difficulty.

The class has 321 students, therefore these procedures produce a massive free-rider problem when it comes to exam review. On a typical lecture day only about half the class shows up for lecture. Therefore if only 3% of the class cares enough to send in a question, the rest of the class benefits with an easier test and a review session, especially those who do not show up to lecture regularly. Dave could minimize the free-riding by either not holding the review lecture or meeting individually with students in office hours, which may become too time consuming if a lot of people ask questions. 

Opioid Epidemic and Rent-seeking

You’ve probably heard of the opioid epidemic. If not, a quick summary: in the past 10 years or so, there has been a dramatic increase in the use of both prescription and non-prescription opioid drugs, which are painkillers such as Oxycontin and heroin. These drugs are extremely addicting and can ruin lives. In 2016, drug overdoses killed more Americans than the wars in Vietnam and Iraq combined.  Public health officials are trying to figure out how regular U.S. citizens are accessing these prescription drugs from pill distributors, but according to this video from the Daily Show, maybe they need to start talking to economists and legislators.

I realize that late night talk shows are not the best source of news, but if you skip to the 1:00 min mark in the video, Trevor starts talking about the rent-seeking activities of the pharmaceutical industry. Drug makers spend more than any other industry to lobby for certain legislation from Congress. In this case, the rent that the industry received was greater legal restrictions on the actions that the DEA could take to stop them from selling opioid pills. This is a form of protection of the pharmaceutical industry that allowed them to sell more pills and make positive economic profits. Not only was the $246 million in actual lobbying a waste of resources that could’ve been used for other productive activities, but the outcome of the lobbying, the new law, seems to have done way more harm than good to the public as the opioid epidemic gets worse everyday.