Rent-Seeking and Economic Regulation Hurts Those in Mourning in Maryland

This 2006 article from the Baltimore Sun discusses how expensive funeral services are in Maryland (not to mention everywhere else in America) due to an early 20^th century state law that was passed in order to protect consumers from unreliable morticians; the article goes on to reveal that this law is actually popular amongst funeral business owners today in Maryland because they can use it to prevent legitimate funeral service businesses from opening up around them. The author of this article states that “funeral directors couldn't engineer this protection by themselves; they've had help from state lawmakers who have prevented attempts to reform the funeral laws. Few Marylanders are aware that one of Annapolis's more generous political benefactors is the Maryland State Funeral Directors Association.”

With this quote, the problem of rent-seeking within the funeral service business in Annapolis, Maryland becomes obvious. In terms we have discussed in class via Tullock’s chapter on the topic, because of the monetary gains that can be obtained from keeping regulatory state laws in place, there is an incentive for funeral business owners today to give money to the Maryland state government (aka spend resources on rent-seeking expenditures), and thus money is spent away from the natural direction of the market. Funeral home owners have fought innovations in the funeral service business that would lower funeral costs by “working with their politician friends…they have defended and strengthened anti-competitive funeral regulations aimed at stemming the tide of Internet casket sales, the expansion of funeral home chains and the popularity of cremations.”

In this rent-seeking case in Maryland, resources were wasted trying to obtain the “rent” of regulation to entry in the funeral service business. Therefore, I also felt as though this article was interesting because it provided a real life example that tied Tullock’s article on rent-seeking to Stigler’s article on economic regulation. The author of this article states that “people usually think that businesses dislike regulation. But businesses often find it profitable to have regulations crafted to impede would-be competitors. This allows politically well-connected businesses to charge higher prices and manipulate consumers' choices.” With this quote, Stigler’s argument of how businesses like government regulation because it gives them market power and control is proven. The funeral business owners give money to the government (rent-seeking) in order to make sure that it is hard for new funeral service businesses to open up and therefore their prices can stay high (theory of economic regulation).

My question after reading this article is, how will this cycle of rent-seeking and unnecessary regulation over entry into a market be fixed? Or will people in Maryland just always have to pay more for their funeral services?

The Economics Behind 'The Bachelor Pad'

Of the many hours I wasted watching the Bachelor Pad, I have found a way to gain some value from it—blog about it. This show relies on the economics of public choice in order to create unpredictability and drama. For those of you that are not familiar with it, it’s a TV show in which past bachelors and bachelorettes (From the TV shows of The Bachelor or The Bachelorette) compete for $250,000 and a chance of finding love along the way. At the end of each week an elimination ceremony takes place where all of the women vote individually on the man they would like to eliminate and the men do the same for the women. .

Right off the bat, the contestants divided into the “insiders” (contestants that knew each other before the show) and the “outsiders”. As a result, the women of the insider group would collaborate with the men on the insider group in order to see which man they should voted off. In return for granting the insider-men their wish, the men would place their vote based on what the insider-women requested. The outsider’s did the same. I think this is a great example of logrolling. These mutual agreements lead to both sides (men and women) gaining a better chance at achieving their preferences. Furthermore, just as Mueller describes it in Chapter 5.9, the bluffing problem certainly made its appearance on the Bachelor Pad, creating a good amount of drama. .

Mueller also mentions the problem that occurs when voting is done in sequence, as was the case on the Bachelor Pad. The holdout problem proved to be a very popular strategy for some contestants. Many times right before the last contestant was going to place his/her vote, the contestant most worried about being voted off would strike deals with the last voter. For example, Kip was on the verge of being sent home and Nikki was the last women to vote leaving Kips fate in her hands. Kip bargained with here by promising his loyalty to her in the future—a benefit Nikki only received because she was the last voter.

Finally, at the end of the show only one woman (Natalie) and one man (Dave) were left standing. Natalie and Dave were sent into separate rooms and were given the decision to either share the money or to keep it all to themselves. Who would receive the money was decided in the following manner:

• If both Natalie and Dave decided to keep the money, neither would receive it and the quarter million dollars would be divided among all other Bachelor Pad contestants.

• If one of them decided to share and the other decided to keep the money, the person that chose ‘keep’ would receive the whole $250,000.

• If both decided to share the money, each would receive half of the $250,000.

This is a typical prisoner’s dilemma. In class we discussed that the dominant strategy would be for both of them to decide to keep the money, which would leave both with nothing. However, if there are other convincing incentives put in place (like an inmate breaking the leg of the person who confesses) then this may be avoided. So the burning question the show left its viewers with was whether “love” was enough of an incentive for both Natalie and Dave to decide to share the money. I’ll leave it at that…

Tobacco ban in Britain

Tobacco advertising was to be banned in Britain by the end of 2002. This initiative, called the Tobacco Advertising and Promotion Act, also prohibits the promotion of tobacco products through free gifts, coupons, and spam mail. The government predicted the ban would have saved 3,000 lives a year and reduce National Health Service bills by £340m.

However, there is no evidence of a clear connection between tobacco advertising and numbers of smokers :

Conservative health spokesman Tim Loughton argued a clear link between advertising and smoking numbers had not been proved." Nobody is disputing that smoking is harmful - it is, it's a filthy habit, we hate it, we would like it to be rather less prevalent among the population, particularly the young," he said. Tim Lord, chief executive of the Tobacco Manufacturers Association said: "We have always believed that banning all forms of tobacco advertising will not achieve the Government's aim of reducing smoking. "We are particularly disheartened that we will lose the right to talk to our adult consumers." Our main focus is now to co-operate with the Government and officials to ensure that the regulations governing implementation of the Bill are as practical and workable as possible, particularly from the point of view of retailers."

From the social point of view, ban for advertising in such industry as tobacco can be easily justified. It is a bad habit that most smokers want to get rid of, and it is even harmful to nonsmokers. But are the acts of bureaucrats driven only by the desire to stop smoking? As we found in class, this is not the case. In such an oligopolic industry as tobacco, major firms might invest resources to induce the government (income of the government officials is often supplemented by bribes and gifts) to grant them market power through promotion of the advertising ban. This prevents other firms from breaking into the market, which drives prices up and creates rent for the major firms.

What a difference the rules make

Every spring University students head to the polls to decide on referenda and elect officials for a variety of organizations, such as Student Council, the Honor Committee, the University Judiciary Committee, class councils, and school councils. The University Board of Elections (UBE) is tasked with overseeing the elections, and as stated in its Rules and Regulations, UBE elections use an instant runoff process.

The process, which is based off the Hare system, requires voters to rank the candidates for each office from most preferred to least preferred. When the UBE tallies the votes, if no candidate has received a majority of the vote, the person who received the least number of votes is eliminated. The eliminated candidate’s supporters then have their votes redistributed to their second-choice candidate, and the process repeats until one candidate has received a majority of the vote, who is then declared the winner.

This system of voting made headlines due to the spring 2010 election for Third-Year Council Vice President. As this article in The Cavalier Daily shows, the race had four candidates: Abebe Kebede, Natalia Mercado, Chris Mullen, and Nitya Reddy. After the initial round of voting nobody had a majority, so Chris Mullen, the last-place candidate, was eliminated and his votes were redistributed. Still, nobody had a majority, so the next candidate with the fewest votes, Nitya Reddy, was eliminated and her votes were redistributed. The final round pitted Kebede against Mercado, and Mercado emerged as the victor by one vote – 664 to 663.

After the results were released Kebede considered challenging the results, particularly because in early rounds of the runoff process he had a plurality of the vote but he did not have a majority. Once candidates were eliminated and their votes were redistributed, however, Mercado had a majority and was declared the winner, even though it was only by one vote. Ultimately, with the UBE standing by the process and its results, Kebede conceded the race to Mercado.

The article’s ending does an excellent job summarizing this election’s lessons. One of the biggest problems with this electoral system is voters do not understand it in detail, which opens the door to skewed results. Moreover, Mercado believes that the system is “the most fair type of elections that we have at the University.” Is this really the case? Should the UBE consider switching to a different system?

New Vegas Hotel Comes Equipped With Death Ray

One of Las Vegas’s newest resorts, the Vdara is an architectural marvel that towers 57 stories over the famed Strip. Located within mere blocks of some of the world’s best-known casinos, the Vdara was built as part of the new CityCenter development project that many hope will provide a boost to a sagging Vegas economy. Envisioned as a straight luxury resort without a theme, a nightclub, or a casino, the Vdara was built with a unique concave design and highly reflective bluish windows that give it a distinctive look. Each of its 1,495 luxurious suites and condos come fully equipped with their own gourmet kitchen, there is a fabulous spa that adjoins the Strip, and the building is fully outfitted with its very own death ray.

What?

Despite what Vdara's bartenders, pool attendants and visitors mockingly call it, the problem is technically known as "solar convergence." The sun's heat is amplified as it reflects off the curved building, creating areas of increased heat that, during a midday Monday visit by AOL News, made the metal parts of some chairs dangerous to touch.

The Vdara’s curved architecture and highly reflective windows actually have a similar effect to a magnifying glass when exposed to the sun’s rays – the building creates areas of extreme heat that are unsafe for hotel patrons to inhabit. Naturally, hotel patrons are less than pleased.

"It was fine here a little while ago, but then all of a sudden I felt like I was frying," said pool patron Danielle Civello, visiting from Dallas. "That's weird."

This seems like a somewhat large oversight that has the potential to impose large external costs on the patrons of the Vdara as well as anyone unfortunate enough to wander into the death ray’s danger zone. Despite the fact that solar convergence is a well-known phenomenon in architectural circles, currently circulating documents have confirmed that while MGM Resorts International was aware of the potential problem, they decided to go ahead with the Vdara’s construction and even turned down offers from architectural firms to coat the windows with anti-reflective film. Now that the hotel’s construction is complete and it is open for business, the problem is proving to be exceedingly difficult to fix due to the danger zone’s propensity to migrate throughout the day. This means that for the foreseeable future, visitors to the Strip might want to be mindful of the potential of 57-story death rays to ruin their day.

The Rise of the Middle

By now most people are aware of the Tea Party movement to represent the extremes but most have not hear of the new political group that is beginning to make noise called the “Militant Middle.” This group is made up of disillusioned independents and moderates who feel that current government policies are being dominated by the extremes. The “Militant Middle” has even found a vocal supporter in Jon Stewart:

Stewart tells his devoted audience, "We live in troubled times with real people facing very real problems; problems that have real if imperfect solutions that I believe 70 to 80 percent of our population could agree to try and could ultimately live with. Unfortunately the conversation and process is controlled by the other 15 to 20 percent."

Political scientists say that the Republican and Democrats are picking more extremely partisan candidates because it is easier for them to get funding within the party in the initial stages and it is easier to distinguish them from other candidates in their campaign. Voters who would normally steer towards the middle are being forced to pick polarized candidates (because those are their only options—something that could help this is allowing people other than registered party members vote in primaries) so voters appear to be more partisan than they actually are.

Advocates of the middle seem to suggest that Downs’ Median Voter Theorem is actually not working. The “Militant Middle” is arguing that the Democrats and Republicans and their candidates are actually not moving towards the middle but rather forcing the middle to choose a side (like making you walk that extra mile to get a hotdog instead of competing for your business). Even though parties are fully informed of the middle’s preferences, they are simply not conforming to them. One interesting thing to note is the complaints by some contributors that President Obama promised policies that suggested a movement towards the middle after winning the primaries (like the theory predicts might happen) but they feel that he has not delivered on these.

Even if this movement fails to bring any real candidates to the political forefront, the party can serve the same purpose as the aforementioned Green Party by putting partisan Republicans and Democrats on notice in an attempt to bring the extremes back to the middle.

Take the Green Out of Blue and You Get Red

There was much ado about the hanging chad in the 2000 Election, but another costly reason Al Gore lost Florida had to do with Ralph Nader running on the Green Party Platform.

Nader was the Green Party nominee again in 2000. He actively campaigned and raised money, and was supported by several high-profile celebrities. He significantly increased his national vote total, receiving 2,882,955 votes, or 2.74 percent. But it was the 97,488 votes Nader received in Florida that brought him the wrath of Democrats once Gore lost the state and the election.

Those one hundred thousand votes came almost solely from Democratic voters, greatly damaging Gore's chances in Florida, which he lost be an astonishingly close 537 votes. Nader's platform called for far greater emphasis placed upon environmental issues, especially as related to greenhouse gas emissions. While Nader claims he was running under the hope of actually winning the election, it is clear that he was mostly intending to get the issues of the Green Party on to the national forum, and in turn, allow the Gore the option of regaining Nader's voters in return for adopting a more 'Green' party line. However, Gore ignored this option, which is clearly defined in Downs' work An Economic Theory of Democracy.Downs spells out this theory on page 131:

When one of the parties in a two-party system has drifted away from the extreme nearest it toward the moderate center, its extremist supporters may form a new party to pull the policies of the old one back toward them [...] This party cannot possibly win itself, but it can throw the election to the opponent by diverting extremists votes from the moderate party. To get rid of this menace, the moderate party must adopt some of the extremists' policies, thus moving back from the center.

Gore chose to more or less ignore the Green Party, resulting in scenario one (throwing the election to the opponent). Had he co-opted the Green Party from the start, he would have had the advantage of accruing those votes and likely winning the Presidency.

Of course Nader cannot be the only source of blame for Gore's defeat. His inability to win his own home state amongst other blunders all contributed to George W Bush winning he election. But maybe if Gore had a keener understanding on simple majority in the two party system, he would have used Nader to his advantage and kept the Presidency under the Democrats for (at least) 4 more years.

O' What A Game

A recent Washington Post article illustrates a perfect example of the spatial location theory in the realm of sports franchises. Washington recently received a new baseball team, the Nationals, after the Baltimore Orioles had the only team in the area for several years, effectively breaking the local baseball monopoly. The two teams now compete for fans from the affluent suburbs of Maryland and Northern Virginia, a battle that the Nationals appear to be winning.

"Since the Nats came to town, they've wrestled with the O's for undecided voters, especially in wealthy suburbs in Maryland between the two ballparks. This season has finally done the trick."

The Nationals and the Orioles are located in efficient points where in an ideal world they would offer the lowest costs to consumers meaning that they are located close enough to fans in their respective areas. Fans from Northern Virginia no longer have to travel long distances to Maryland to go see a baseball game when they can just cross the border over to DC. This theoretical equilibrium is thrown off however because the two teams are not selling identical products. For one, the Nationals are a much better team with a brand new stadium which is preferred by some to the older Baltimore stadium. Also, the rich suburbs of Virginia are expanding rapidly giving the nationals a wealthier fan base than the one in the surrounding Baltimore area. Would it make sense for the Orioles to move their team to gain better access to customers, or would simply improving their product be a more cost effective move?

How Tiebout is true in NYC

This article was published in the spring of 2009, and it focuses on various New Yorkers’ approach to their children’s education in the wake of the Great Recession that started in the fall of 2008. The article discusses how there has been an increase in interest and in applications for public schools in certain New York City areas because some families can no longer afford to pay private school tuition for their children. The areas mentioned in the article are ones that are typically thought of to be inhabited by wealthier families (like the Upper East Side and Upper West Side of Manhattan). The article also shows how some couples without children (but who plan on having them in the future) are now looking to buy/rent apartments in areas with established public school systems because the education of their future children is very important to them, and they do not know if the economy will have turned around by the time their future children reach school-age.

I felt as though this article tied in well with our discussion of Charles Tiebout’s “A Pure Theory of Local Expenditures” and the concept of “voting with one’s feet.” The article provides several examples of people who had purchased apartments in an area of New York before the recession hit, and their education preferences were not factored in to their apartment location because they assumed that they would send their children to private school. However, the recession is causing these families to alter their preferences to include their children’s public school education, as private school is no longer economically feasible. Many of the families mentioned in the article are either trying to sell/sublet their current apartment and move in/rent a new apartment located in a better public school zone. Although not all of the assumptions of Tiebout’s model hold in this article (some of the people interviewed mention the high costs associated with moving), Tiebout’s overall conclusion that people reveal their true preferences by their location is realized.

After reading this article, I was curious to see if the local government of New York responded to the changing preferences of these New York families. Not surprisingly, I found another article (which was published after the first one) about the opening of a new public middle school (the first new public school building built on the Upper East Side in almost 50 years!) in one of the areas mentioned in the first article that had seen an increase in public school applications. As Tiebout suggested, local provision and adjusting was done within the public school district by the voter based on where they live; the government saw both the movement of families to a certain area and the increase in public school applications in that area and responded by allowing a new public school to be built in said area. A pretty good real-life example of Tiebout’s argument in my opinion!

Minimax Regret and Pascal's Wager

Why do people vote and why do people believe in God? The Minimax Regret argument and Pascal's Wager offer similar logic to answer those questions.

The Minimax Regret theory offered by Ferejohn and Fiorina (1974) creates two states and two alternatives. A vote is decisive or not decisive, and an individual either votes or does not. According to the logic of the argument, an individual wants to minimize the maximum regret he or she will have in the future. Therefore, the individual will always vote because casting a decisive vote provides a benefit greater than 1) the cost of voting and 2) the regret of not voting when it would have been decisive. Even though the probably of casting a decisive vote may be small, the risk of incurring the regret from not voting when it would have been decisive supposedly gives people an incentive to vote.

The French philosopher Pascal offered a similar argument in the 17^th century to justify belief in God. The argument presents two states: God exists or God does not exist. It also has two alternatives: live as if God exists or live as if God does not exist. If God does not exist, the individual gains and loses nothing. If God does exist and the individual lives as if God exists, he or she gains “positive infinity” in going to heaven. If God exists and the individual lives as if God does not exist, he or she gains “negative infinity” in going to hell. Therefore, a rational individual would choose to live as if God exists because he or she has everything to gain and nothing to lose.

	God exists	God does not exist
Live as if God exists	Gain all (+∞)	Status Quo
Live as if God does not exist	Misery (-∞)	Status Quo

Unlike a good economist, Pascal fails to recognize the cost of living as if God exists. He does not take into account the cost of time spent praying, attending church services, and performing good deeds. There is a fiscal cost of giving money to a church and to the poor. Finally, by leading a morally upright life, an individual faces a high opportunity cost for all the sinful and immoral activities he or she is no longer experiencing. For a present-oriented individual who completely discounts the future, the cost of living as if God exists is not worth the benefit. The rational hedonist would therefore choose to live as if God does not exist.

Screaming children NOT tolerated

This video that I came across on cnn.com describes how a restaurant in North Carolina instituted a policy that doesn’t allow screaming children; the sign at the entrance states, “screaming children will not be tolerated.” Brenda Armes, the restaurant’s owner, says she is tired of customers complaining about the screaming children; in other words, she believes that screaming children impose external costs on customers that are attempting to have a meal in peace. One could object to this policy by saying that it also keeps a lot of customers away. One example would be a mother of two toddlers that was also interviewed. She vehemently expressed her disapproval and said that “personally, if I saw that I wouldn’t come in your restaurant.” Mrs. Armes though claims that it has “brought in more customers that it’s ever kept away.” [How would she measure this?]

In order to deal with this negative externality in consumption (of the restaurant’s services/property/goods) the restaurant erected this harsh rule. Perhaps an alternative solution to this dilemma would be a voluntary agreement between the restaurant owners and customers with screaming children. This contract would involve having customers pay for the external cost produced by their screaming kids so that it would compensate the restaurant’s loss. A price could be determined at a point at which the marginal cost of screaming children on the restaurant’s revenue equals the marginal benefit that customers enjoy while eating at the restaurant. One problem with this solution is that it would be difficult to determine the exact cost of having screaming children at the restaurant. So should Mrs. Armes reconsider her policy? Or should she also be allowed to reject people that smell bad?

Are Long Weekends always a good thing?

Friday's Cavalier Daily held a column reporting on a proposition for Virginia state employees - obviously of concern for the University. Associate Editor Rebecca Rubin tells us that the Virginia state government is reviewing a proposal to place many government workers under a four-day work week of 10-hour days, maintaining forty hours per week. The idea, according to Isaac Wood of the Centre for Politics, is to save possibly more than $3 million in energy costs.

Wood apparently ignores the social costs or externalities of the proposal, calling the cuts "really painless" before he asks "do the benefits to the state outweigh the costs?" Rubin is more economically astute and (though without calling them such) assesses some negative externalities that the proposal could inflict. She highlights the inability of the public to work with the affected agencies for the additional day each week. Are there more externalities hidden here, positive or negative?

The Effect of Education on Global Health

This recent Washington Post article details the effect that a mother’s education level has on her child’s health. The article claims that an increase in women’s education indirectly leads to improved care for children because mothers are more likely to take their children to health clinics when sick and they are more aware of treatments and disease prevention methods. Increased schooling of women also results in these women having fewer children and children who are more widely spaced in age. The effects of women’s education have been seen in poor and wealthy countries alike and show that investments in education seem to be just as important as direct investments in health care. Here the author discusses the magnitude of the results:

Half the reduction in child mortality over the past 40 years can be attributed to the better education of women, according to the analysis published in the journal Lancet. For every one-year increase in the average education of reproductive-age women, a country experienced a 9.5 percent decrease in the child deaths.

This article provides further evidence that education has many positive externalities in consumption, something that economists have long been saying. A young girl can have a positive effect on the future of her family and the world by obtaining an education. Of course, the article does not provide a “threshold” level of education at which the biggest effects may be seen and in poorer countries, where the benefits of increased education would presumably be highest, obtaining even low levels of education is surely difficult. One final point from this article is that developing countries have options to improve their health prospects aside from simply investing in medical resources. The positive effect of education shows that investment in other public goods like clean water and roads should also have a profound effect on global health.

Student Financial Binds Eased By Honor Loans

The Ivey F. Lewis Honor Loan Endowment is a stand-alone fund established to aid full-time University students in meeting their small, short-term financial needs by issuing interest-free loans for a maximum of $600. The Honor Loan program began in 1939 and is completely student run. To qualify for the Honor Loan, students must simply be enrolled as full-time undergraduate or graduate students and must be in good standing with the University.

This school year, I am privileged enough to be the Ivey F. Lewis Loan Officer. I hold ten office hours a week in the Office of the Dean of Students and meet with graduate and undergraduate students in need of emergency aid. My job is to analyze the financial situation of students and ensure that they meet the loan criteria. The University allocates about $100,000 for this fund. Because the loans are interest fee, the University does not make any profit from issuing these loans. The fund is simply there to be used as a “public good” for all University of Virginia students. It is not a purely public good because the only students who have access to this fund are University of Virginia students. The theory of clubs would apply when classifying this loan fund as a good because exclusion is possible. Something along the lines of federal student aid through the U.S. Department of Education would be a better example of a purely public good because all US citizens are open to apply for that type of aid, but as Buchanan stated in his Economic Theory of Clubs, “The range of ‘publicness’ is infinite.” This loan fund also has a characteristics of a public good in that it is non-rivalrous.

The Cavalier Daily published an article dated March 20, 1969 about the loan fund, which was then located in the Rotunda. The maximum loan value then was $25 and the value now is $600. Even taking inflation into account inflation, the amount of money available to students has greatly increased, and the money the fund has available has increased as well. The loan fund has enough money to meet the student demand for loans, and has many positive externalities, with little or no negative externalities. Negative externalities would occur if a student did not pay back the loan in the time-frame agreed upon, but that is expected to happen a few times. Overall it is a great program. So if you are a full-time student in need of emergency aid, come to the Office of the Dean of Students and take advantage of this good that is available to you.

A 'New' Road in Northern Virginia...50 Years Later

In a few weeks officials in Northern Virginia will open the missing two-mile segment of the Fairfax County Parkway, ending a 50-year struggle to build a central road through Fairfax County. This Washington Post article about the Parkway begins by recounting the process to get the road completed. The road was first envisioned over 50 years ago, but due to intermittent funding from all levels of government the Parkway has been built in pieces. With the money to complete the final segment nowhere to be found, the project was on hold until funds from the American Recovery and Reinvestment Act finally broke the gridlock. Nevertheless, if Milton Friedman were still alive he would probably use the Parkway as an example of government inefficiencies and why government should not provide roads as a public good.

After discussing the road’s funding saga, the article talks about the Parkway’s positive and negative externalities. On the positive side, the road has an external benefit in production because it is a critical link to highways and other roads throughout Northern Virginia. Not only that, but it allows for the continued commercial and residential growth that helps Fairfax County remain one of the economic pillars of the Washington, D.C. metro area. (On a personal note, my neighborhood would likely not have been built if the Parkway wasn’t right next to it.) This growth is one of the main reasons why the road needed to be completed: the Parkway allows for easy access to Fort Belvoir, which is in the process of adding thousands of jobs due to the Defense Department’s Base Realignment and Closure plan.

Unfortunately, these positive externalities contribute to a major negative externality in consumption: traffic. The same Parkway that is a transportation link and engine of economic growth has led to the addition of thousands of cars on Northern Virginia’s roadways. I personally know how congested the Parkway becomes when both commuters and local residents are on the road during rush hour. In fact, in a perfect world transportation officials ought to be working on widening the road, though with both Virginia and Fairfax County still working to recover from the Great Recession, funding will likely not be available anytime soon.

Note: You might have to register for a washingtonpost.com account to see the article. You can also log in using a Facebook account to read the article.

Don't Know What You Got 'Til It's Gone

Last summer, the fourth biggest city in New York, Yonkers, was forced to cut a great deal of teachers and almost all of its extracurricular funding due to an ever increasing deficit. While many of the cuts resonate greatly with the community, one of the most surprising was the overwhelming vitriol directed against the decision to completely cut Athletics from the school districts. It has long been argued that children who play sports often see positive external benefits of consumption from playing sports; namely better grades, better health, and the decreased likelihood of consuming drugs and alcohol. But the comment from one of the students raises another potential lost benefit:

Darius Lofton, the quarterback on Gorton High School’s football team, told the meeting, “Without sports I am not going to college.”

The cutting of programs in this city has had overarching effects on the lives of its citizens, and many of these cannot be overlooked. For these students, the lack of sports leads to a very traumatic change in their potential future earnings. The benefits of saving money do not outweigh the negative consequences, at least with regards to the sub-group of student athletes. However, whatever happened to doing your work and going to college on your own merit? Maybe he can raise his grades in the free time he has now that he doesn’t have practice multiple hours every day and games every Friday night.

When Silly Bandz Get Serious

This Daily Progress article discusses the newest craze among school-aged kids - Silly Bandz. These "bandz" are being worn by people of all ages (I'll admit I have 3), but kids in elementary and middle school can be seen with enough silly bandz to cover half their arm. Schools across the country are citing the bandz as a major distraction to a proper learning environment and have resorted to banning the bandz. Cale Elementary School is the first school in Albermarle County to have banned these stretchy bracelets. "When you think about a distraction to the learning environment, it's through a multitude of things, whether that is arguing over them, [trade deals or] people accusing other students of stealing their Silly Bandz," said Lisa Jones, the principal at Cale. The schools banning these bracelets are arguing that there is a negative externality in the consumption of the bandz. It appears that the benefit to the school as a whole is much less than the private benefit to the consumers of these bandz - really cool 7 year olds. If schools continue to ban these bandz the fad that took the nation by storm this past summer probably won't last much longer.

Hairy Logic

In a recent a recent Yahoo! Sports article, the iconic dreadlocks of baseball star Manny Ramirez have come under attack by his new team's personal conduct policy. The Chicago White Sox have a rule that players must have a "neat" haircut, which would mean the unfortunate demise of Manny's flowing locks that have come to symbolize his larger than life personality that his fans adore. Ken Williams, the general manager of the White Sox explains, "from my understanding, it's not going to be an issue, and he's going to make an adjustment and conform to how we like to have our players represented out there."

This policy assumes that any player with hair that is not "neat" would therefore be imposing a negative externality on the team. It is the view of the management that such an unkempt appearance would tarnish the professional reputation of the ball club, and cause fans to consume less of their product in the form of ticket sales and merchandise.

This logic ignores the marginal benefits produced by Manny's hair. A large part of Manny's appeal as an athlete is his laid back goofball attitude, which is embodied by his wild looking hair. When fans pay to see Manny play or buy his uniform, part of it is due to the persona he has made for himself, not just for his production as a player. Furthermore, by forcing him to cut his hair, it could harm his on-field performance by damaging a source of his confidence. The question remains, do the benefits outweigh the costs of a haircut of this magnitude?

British Petroleum Externalities

This post by the New York times makes an overview of the greatest accidental oil spill in history. On the 20^th of April an explosion caused by a drilling rig working on a well for the BP oil company one mile below the surface of a gulf stream of Mexico lead to a major oil leak which continued for 86 days before 15^th of July when for the first time oil was prevented from gushing into the gulf. According to the press, the oil slick damaged the ecology as well as the fishery and tourism industries of many regions:

The oil from the gulf spill first made landfall in Louisiana. But in June, tar balls and oil mousse began to reach the shores of Mississippi, Alabama and Florida. Shortly thereafter it began to hit shore, smearing tourist beaches, washing onto the shorelines of sleepy coastal communities and oozing into marshy bays that fishermen have worked for generations. It announced its arrival on the Louisiana coast with a fittingly ugly symbol: brown pelicans, the state bird, dyed with crude.

Without using the economic lingo the press describes the scenario, which is a classic example of what we defined in class as a negative production externality. Various remedies can be applied to these problems to internalize the externality. One of those can be the Coasian Solution which is to hold one party liable for the damage and make it clean the spilled areas (which will bring the socially optimal quantity of pollution) and compensate the suffering parties for the damage. However, as there are huge numbers of people and various industries involved which makes the task of compensating everyone almost impossible. It is also hard to evaluate the damages the leak caused. What if the fisherman were going to have a bad year catching shrimp anyway? And how is it possible to evaluate how many tons of shrimp they would have caught without the spill? And how do you know exactly how much money was lost in tourism indsutry? Furthermore, according to the article the long run negative externalities caused by the spill are still uncertain as large amount of oil is being spread underwater rather than staying on the surface which arises the possibility of risk from oil in deep waters. But regardless of what the solution to the problem is, government needs to create incentives for the oil companies to invest in their technologies and account for the risk better to prevent such disasters before they actually happen in the future.

Some Taxes Might Make Our Future Society Healthier.

This New York Times article discusses the various arguments that economists and others make for imposing taxes on consumption as a possible way to raise tax revenue during tough economic times. The article states that there has often been economic support of “taxing consumption rather than income, on the grounds that consumption taxes do less to discourage saving, investment and economic growth.” The author of the article then proceeds to argue that consumption taxes are usually placed on goods which, when consumed, produce unfavorable effects on third parties not involved in the consumption of the good, aka (in terms we have used in class) goods that have negative external costs in consumption. The author argues that a lot of the time, when the government imposes a specific tax on the consumption of a good with negative externalities, like gasoline, the consumer will internally think more about the costs their gasoline consumption has on the environment, road traffic, and their neighbors’ daily activities, which is good for society as a whole (especially if the consumer decreases their gasoline consumption).

However, this article was especially interesting to me because it introduced new information about consumption taxes and the role of government in individuals’ lives that I had not thought about before. In the instance of a good like cigarettes, is the negative externality produced when the good is consumed more detrimental to society or to the consumer himself? The article argues that “if the consumption induces say, smoking- or obesity-related illness, it raises health care costs, which we all pay for through higher taxes or insurance premiums…Yet this argument has a flip side: if consumers of these products die earlier, they will also collect less in pension payments, including Social Security .” When considering all of these elements, what is the actual external cost of consumption of cigarettes on society? How does the government know how to tax cigarettes appropriately (as cigarettes will always be taxed)?

On a similar note, the article also addresses the issue of negative costs of consumption on the actual consumer in the future aka “the person today enjoys consumption, but the person tomorrow and every day after pays the price of increased risk of illness.” As the title of this article suggests, should we give the right to tax specific goods which produce negative costs of consumption for the consumer, like drinking soda, to the government in order to save our future selves from our current selves? If we do, this means society acknowledges that one’s present self is a different person from one’s future self, which is an interesting idea to consider. Also, would taxing soda and other high sugar goods have a positive effect on society today? Or just in the future? How would individuals in society feel about the government placing taxes on goods that they deem unhealthy for future society? Is this giving the government too much control? This article raises many valid points as to how negative costs associated with consumption can be appropriately taxed, but it also seeks to question if it is in the public’s best interest to give the government the right to decide what is healthy and what is not for individuals.