Why Bezos Should Build HQ2 in Northern Virginia

An article from CNBC ranks the cities that have been selected as top choices for the new Amazon HQ, ranking Northern Virginia a B+. These are the reasons why I think Northern Virginia should receive an A.

There are some missing factors in this analysis. Since businesses in the same industry tend to converge in location (the beach and hot dog stand example from class), Amazon would benefit from the growing concentration of tech companies in Northern Virginia. These companies have began to slowly merge together in Northern Virginia, which makes it an optimal location for the new headquarters because, where there is a great technical presence, there is a great supply of talented technical workers for amazon to feed from. Amazon will also create a positive production externality in the Northern Virginia area. Not only will the creation of Amazon's second headquarters produce a spike in job growth, but it will also help to spike infrastructure growth, since many governments, including that of Virginia, have promised to expand infrastructure as a result of the creation of a new Amazon headquarters, outlined in an article by the Washington post. This, in the long run, will create economic rent for Amazon as a result of the subsidies it receives, because Amazon's resources that they build in Virginia will create a return greater than the opportunity cost of production in the form of tax breaks and infrastructure benefits.

In conclusion, it is likely that Jeff Bezos will build the new head quarters in Northern Virginia because he owns the Washington Post. Since Bezos owns the Washington post, he cares about the people of the organization, causing his utility function to depend on that of the people of the Post, with an alpha level greater than one. This fact is solidified with a quote by Bezos from the Washington Post article: “Ultimately the decision (where HQ2 will be built) will be made with intuition after gathering and studying a lot of data ... you immerse yourself in that data but then you make the decision with your heart.”

Friends S09E19: The One with the Coasian Solution

Friends is an all-time great show. However, with Rachel being a fashion designer, Ross being a paleontologist, Monica being a chef, Phoebe being a masseuse/freelance musician, Joey being an actor, and Chandler being an IT procurement manager who specializes in statistical analysis and data reconfiguration, there is a clear lack of economics knowledge. Normally this wouldn't be a problem; however, in the 19th episode of the penultimate season, Monica and Phoebe's friendship is almost ruined over a problem that could've been solved if either read up on their Coase. In this episode, Monica notes how her restaurant is doing so well that they're booked for the next month. This causes Phoebe, who recently lost her masseuse license, to sing outside Monica's restaurant to try to make some extra cash. However, Phoebe's music has some negative production externalities on Monica's restaurant, as several customers say they were turned off by the music (songs about buying human spleens don't really say "fine dining").

Monica's solution was to politely tell Phoebe that her music didn't fit with the classy-theme of the restaurant. Phoebe agreed, but then arrived the next night singing the same songs, just in a fancy dress (she even buys a top hat and spectacles to appear fancy). This leads Monica to directly tell Phoebe that it's the songs that don't go with the theme, which sparks a fight among friends. Phoebe criticizes Monica's small portions and over-garlicky dishes and Monica continues to criticize Phoebe's singing ability.  However, since Monica does not own the sidewalk in front of her restaurant, Phoebe has the property rights and begins singing targeted songs to drive away customers, singing "the food here at Javu, will kill you."

Now let's take a Coasian approach and see what would've happened if Coase had written this episode. Monica would've noticed that Phoebe's singing was driving away n customers a day. At an average cost per meal per customer of c dollars, Monica would value Phoebe not singing at n*c dollars per night. Phoebe on the other hand, was probably making a (relatively) large amount of money singing for this wealthy crowd compared to her normal singing at Central Perk coffee house. Thus, her value of singing outside Javu is the difference between what she makes outside Javu and what she would have made outside Central Perk, let's call it j and assume that j < n*c (which it most likely is if Phoebe's accusations of over-priced meals are accurate). Thus, Coase would suggest that Monica pay Phoebe somewhere between j and n*c dollars to not sing outside the restaurant.

However, there is a reason Coase is not the writer for Friends because if Monica went to Phoebe and paid her to not play her music, Phoebe would probably react much worse than the way she reacted initially. While Phoebe and Monica made up in the episode, they may not have made up in Coase's version of it (and you can't put a price on the lost friendship). Coase may work for independent business agreements; however, when it comes to friends, money might not be the answer. Friends don't need money to settle arguments, because when it hasn't been your day, your week, your month, or even your year - they'll be there for you.

When Rational Ignorance Wasn't So Rational

As we discussed in class, it is just not rational to be 100% knowledgeable on every subject. Becoming 100% knowledgeable is very costly, and eventually, the cost of an additional unit of information way out ways the benefit. One subject that I lack knowledge on is spelling. Much like Professor Coppock, spelling is not something that comes naturally to me, and putting in the effort to memorize how to spell words just doesn't seem like a valuable use of my time and energy. In this day and age, not knowing how to spell has very little cost. One source in The Huffington Post however, claims that "the benefits of spelling are endless" and that it is instrumental to the English language. But still others claim the only benefit to spelling is "to understand writing, to aid communication and ensure clarity" and that there is "no additional reason, other than snobbery, for spelling rules" (Huffington Post). I would have to agree with the latter.  For example, as I've been writing this, my computer has been automatically checking my spelling and helping me out when I keep forgetting how many 'e's are in the word knowledgeable. However, not knowing how to spell was not always the cost-less cake walk it is today.

Back in 4th grade, not knowing how to spell was very costly. Spelling was a whole subject of its own on my report card. Now, if given a list of words to memorize and repeat back on a spelling test, I would have been fine. The problem though, was that we didn't have spelling tests. Instead, my teacher would just grade our writing from other subjects such as History or English for spelling. She expected us to have a much higher level of knowledge on spelling than I had because we were not given set words to learn. The possibilities for spelling errors were endless. As a result, I ended up with a C in spelling on my report card! I was so upset and had no idea what to do. The only solution seemed to be to become 100% knowledgeable in spelling. The problem? I had very important fourth grade things to attend to! I decided it was just too costly to learn how to spell. I didn't want to have to give up time playing outside or watching Spongebob. I still think I made the rational decision to stay ignorant, but I'm sure my 4th grade teacher would disagree.

Crowd Out and Climate Change

I'm from New Orleans, Louisiana. Aside from its unique food, festivities, and history, it should be noted that it has the distinction as one of the 7 major US cities that could be underwater in 80 years. Its position right off the Gulf Coast has shaped the rich culture and seafood industry of this port city, but it has made it increasingly susceptible to sea level rise. Surely this would lead to strong interest and activism against this issue from the residents of Southeast Louisiana, right? On the contrary, this 67-year-old man from Houma who lives on an "extremely vulnerable" part of the coast refuses to believe that climate change has anything to do with the changes in the place he's always called home. That's why the map of Louisiana actually looks like this.

Beliefs of skeptics aside, there is a dangerous trend in both New Orleans and the country as a whole through which action against climate change is underproduced. In order to mitigate the effects of climate change, sweeping reform is needed in the form of new policies to reconsider energy consumption, carbon emissions, and more. But at the same time, the small actions we take as individuals have an effect on us, making us feel that we are making a difference in our own small way. I remember feeling that I was saving the world when in fifth grade I planted marsh grasses on a barrier island for a service project, and most people are able to comfort themselves just by knowing that they "did their part" through their small energy-saving actions such as turning off the lights or recycling their trash.

This a classic example of economic "crowd out" in which household actions crowd out the actions of the government. While both pathways to fighting climate change are valid, they are each necessary in their own right, and one is not sufficient without the other. In section 2.1, Mueller discusses the differing opinions of Taylor and Frey on the level of intervention of the state in the production of a community want (in this case, the community want is action against climate change). While Taylor advocates for more government intervention for the ease of the citizens, Frey argues that state-initiated policies destroy the "intrinsic motivation of individuals to behave morally and as good citizens" and essentially crowd out any private actions.

In this case, the tables are turned. Government policies are not crowding out the private interests of citizens. On the contrary, household actions are crowding out policies of the government. As the coastline of Louisiana wastes away, citizens all over this country seek to take individual action to break their own bad habits. The common fads of recycling and composting have given us a false hope that if we just do our small part, the climate can be salvaged, when we should be focusing on showing our support for big picture policies to cut our emissions and change our energy usage as a nation. Just like other instances of economic crowd out, the end result is a weaker-than-intended battle against the given problem, in this case climate change. Combined with a clock that never stops running and a current administration that makes the government intervention even more difficult, it's time to reconsider our approach and attack this problem in a new way.

No, Pepsi is Not Okay

Currently, I am sitting in Alderman drinking a Diet Pepsi that came with my Chinese dinner special. Although it was “free”, I cannot stand the taste and am about to run down to the basement to buy a Diet Coke, incurring both the cost of having purchased 2 sodas and the loss of studying time.  Clearly, (Diet) Coke and Pepsi are not perfect substitutes to me. 

Debates over taste preferences aside, the competition between Coke and Pepsi seems to represent a practical application of Downs’ Median Voter Theorem. Coke and Pepsi are homogenous goods operating in a duopoly. In their attempt to gain customers, Coke and Pepsi have essentially just raced towards the median consumer-voter. Both companies sell the same variety of bottle shapes, a variety of similar flavors, and advertise and sponsor big events in similar ways. To the naked eye, and indeed to many restaurants, they are perfect substitutes. 

However, returning to the question of taste makes me question this application of the median voter theorem. According to the “Golden Straitjacket” theory, by needing to provide the same basic ingredients (or political policies) to their customers (i.e. sugar, bubbles, caffeine, that “cola” taste), Coke and Pepsi, like political parties, have converged and it is hard to find differences between the two. But if this were the case, shouldn’t the formulas (or ideologies) of each drink also have converged, and therefore shouldn’t I be just as fine drinking a “free” Pepsi as I am drinking a $2 Coke? 

Perhaps, however, the Coke-Pepsi dichotomy offers hope for parties who advertise their ideologies rather than their policies, since Coke and Pepsi do in fact taste different. While they may look similar from the outside, they have managed to retain their true value – their original flavors. All I know for sure is that next time I order a Diet Coke and the waitress asks if Pepsi is okay, I will be saying no. 

Pro-Life Democrats and the Limits of the Big Tent

I like to start my mornings by listening to “The Daily,” a New York Times podcast that produces new shows every weekday morning. Last week, “The Daily” ran a show about Missouri Democrats and their struggle to retain power in a once-purple state. Missouri used to vote for a mix of Republicans and Democrats in statewide and national elections. In 2016, however, Democrats lost every statewide election except one, and now hold only 25% of seats in the legislature. Joan Barry, a long-time state legislator, recognized that many Republican-voting Missourians are pro-lifers whose political beliefs align closely with the Democratic party on all issues except abortion. This summer, she suggested that the Missouri Democratic Committee modify their platform to include pro-life Democrats. She “worried that the Democratic Party had moved too far left on abortion,” and hoped the change would bring the party back to the center.

Perhaps Barry is familiar with Harold Hotelling’s spatial model of competition. Hotelling argued that if voters were spaced linearly between two options, candidates would be forced to move towards the middle to gain more votes. This paints a rosy view of democracy as always tending towards a middle ground. If Hotelling’s idea applied to Missouri politics, we would expect that Barry’s move would bring the Democratic Party closer to the center on the abortion issue, expanding the Democratic tent and bringing in more voters.  The reaction to the changed platform from Missouri Democrats was swift and scathing: immediately, hundreds of progressives hopped on social media to express their anger. Many vowed to stop contributing financially to the party. Where did Hotelling and Barry go wrong? Hotelling’s model requires that voters would prefer whatever option is “closest” -- even extreme progressives or conservatives prefer centrist candidates who lean slightly to the left or right, respectively. According to our Downes reading, Arthur Smithies improved Hotelling’s model “by introducing elastic demand at each point on the scale” (117). When a party moves too far towards the center, it risks losing or “alienating” the voters at the tail end. This is what happened to Missouri’s Democratic Party. While Barry’s move could have brought in voters with moderate or conservative views on abortion, the change alienated those voters with views farther to the left. Ultimately, the Missouri Democratic Party changed their platform back, suggesting that even a slight shift towards the center lost the party more voters than it gained.