Benefactors of Immigration Lobby

            Nearly six months ago Facebook’s Mark Zuckerberg teamed up with other tech industry big names like Bill Gates, Netflix’s CEO, and founders of companies like Dropbox and LinkedIn to form FWD.us. As this article highlights, FWD.us is an organization that lobbies for immigration reform; specifically an increase in the number of H-1B Visas which are visas for high-skilled STEM workers. Because of the STEM shortage in the United States tech companies across the country are desperately seeking qualified work to fill their growing demand for STEM employees and have begun to look overseas to find that talent.

            While nearly all technology companies would like to see an increase in the H-1B visa cap, FWD.us is composed of only a few major tech firms that are collectively funding a major lobbying effort on behalf of their entire industry, making the members of FWD.us benefactors to a privileged group.

            This is an example of a privileged group because members of FWD.us have enough to gain from H-1B reform that they are willing to bear lobbying costs on behalf of the entire high-tech industry while smaller firms have the opportunity to free-ride on FWD.us’ efforts. As discussed in class, whatever gains FWD.us receives will greatly benefit the industry, and will help FWD.us’ members, but will never quite reach Q* for the entire high-tech market because of the smaller firms who are free-riding on the group’s lobbying efforts.

Airline Regulations eased or new ones added?

          This CNN article describes major airline reactions to the latest change to Airline regulations  electronic devices are now allowed during all parts of a flight.  The only hitch is that you have to get each aircraft approved by the FAA to be able to do this.  US Air and Southwest will be among the first to  receive approval (They are also among the largest airlines in the US).  Spirit Airlines (a smaller airline) on the other hand did not give a time table of when their aircraft will be approved.
          While this may seem like deregulation, this could be another example of rent seeking by the large players in the airline industry.  The cost of filing the additional paperwork to get the luxury of allowing electronics at all times on aircraft is more easily covered by the incumbents in the industry with larger market shares and deeper pockets.  At first glance, this appears to benefit passengers, but the new regulations could concentrate the market even further raising both profits for larger airlines and prices for their passengers.

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.

Changing Regulation by the FAA

For years, airplane passengers have been told to turn off all their electronic devices while the plane is taking off or landing, as required by the Federal Aviation Administration (FAA). However, an announcement this week by the FAA, as outlined in this WSJ article, indicates that passengers will be able to use their electronic devices at ANY altitude, as long as the cell signal is turned off. The only requirement to offer this service is passing a five-step safety process proving that electronic signals will not affect the aircraft.

Building off of what we learned in class and from the Stigler paper, this apparent reduction in legislation could actually be viewed as additional legislation, acquired and most likely designed by the airline industry itself. The article seems to confirm this, as it mentions the FAA made its decision after "embracing recent recommendations by a high-level advisory group," no doubt made up of many airline executives.

The ability to offer better service to passengers, and the "costs" of going through the safety process, will most likely allow the airlines to justify higher prices to their customers. The additional safety guidelines relating to electronic devices, including the costs of setting up effective Wi-fi in the air, will also deter new airlines from entering the industry due to the higher costs. Thus, this new regulation will allow airlines to raise their prices and deter new entrants at the same time.

Sober Santa

In the United States, the alcohol industry has self-regulatory bodies that determine appropriate standards of advertising.  Large alcohol companies avoid government regulation by agreeing to abide by a set of strict rules they impose on each other.  One of the largest self-regulating bodies is called DISCUS, The Distilled Spirits Council of the United States.  Their website lists all members which include Bacardi, Moet Hennessy, and Patrón.  The organization represents 70% of all distilled spirit brands sold in the US. 

As a part of my summer internship at a marketing firm, I had to research the rules on alcoholic beverage advertising in the United States.  Their “Code of Responsible Practices” is exhaustive.  I found one rule particularly comical; “Beverage alcohol advertising and marketing materials should not contain the name of or depict Santa Claus.”  No one wants his or her child to see Santa Claus boozing it up on a commercial during family time. 

Alcohol companies are content with society believing these rules are for the “public good.”  However, the Stigler article we read suggests that regulation can be beneficial for already established companies because it strengthens barrier to entry.  If the “Code of Responsible Practices” makes it difficult or near impossible for emerging companies to advertise, then companies will have more difficultly selling their products and entering the market.  Large and previously established companies love these regulations because they reduce competition.  I guess Santa Claus will just have to stick to milk and cookies this Christmas.

Regulations to Blame for HeathCare.gov Failure?

      Ever since the HealthCare.gov website went live there has been a never-ending string of frustrations and complaints with the website’s inability to perform its job.  This article highlights this was not really a surprising outcome as “94 percent of large federal information technology projects over the past 10 years were unsuccessful.” The article credits the HealthCare.gov’s and other government technologies’ failures to the regulation surrounding the bid process for contracting out these jobs.

            Of the types of regulation discussed in class, the article blames entry restrictions on rivals as the cause of government technologies failures.  With over 1,800 pages of legal code the article points to the Federal Acquisition Regulation as the main regulatory barrier claiming it “all but ensure(s) that the companies that win government contracts… are those that can navigate the regulations best, but not necessarily do the best job.”

            Basically, this regulatory code prevents smaller firms from entering the contract award process because they cannot sift through all the regulation despite their ability to build better technologies. The regulation serves as a barrier to the government information-technology sector, ensuring the large firms who support the regulation continue to win contracts, collect profits, and create poor systems while new firms cannot break in to win contracts.

Will Madagascar's New President be a Condorcet Winner?

Madagascar is waiting on the results of the 2013 presidential election, the first after four years of political deadlock. Since president Marc Ravalomanana was ousted in 2009, Madagascar has been in a state of political turmoil and there have been severe social, environmental and economic costs as a result of this crisis. This article explains the progress of the current election. Over the next few days, results will continue to trickle in but as of right now, “Richard Jean-Louis Robinson has about 30% of the votes so far, while his main rival Hery Martial Rakotoarimanana Rajaonarimampianina has just over 15%.” Only a small portion of the polling stations has released results as of today. The article then goes on to explain that if no candidate receives 50% of the votes, a runoff election will be held.

            The use of a runoff election in democracy is discussed in Mueller Chapter 7 along with other alternatives to the simple majority rule. In majority rule with a runoff, if no candidate receives a majority, the top two candidates with the most votes compete to reach a majority. The importance of the runoff method lies in that it is decisive and picks a winner. This winner might not always be a Condorcet winner, but studies have shown that when there are two candidates, the probability of a Condorcet winner is 100% and given a high number of candidates, runoff elections result in a Condorcet winner still around 60% of the time. In this election, there are around 30 approved candidates in the running, which means that even if there are two front-runners, votes given to the other candidates could be enough to warrant a runoff. Because of the reliability of a majority rule with a runoff, hopefully a Condorcet winner can restore political stability to Madagascar.

Externalities and Rent Seeking caused by Fracking

     This article describes how in recent years the development of new drilling methods (i.e. fracking) have allowed oil companies to tap into places never thought possible.  While this has brought increased profits to companies, it has brought negative externalities (stemming from production) to neighboring landowners who have to deal with the hazards and annoyances of oil wells.  

     The Coase theorem (or some application of it) appears to have been used in cases where landowners also own mineral rights and can thereby demand royalties from the oil companies.  However, in many cases, landowners do not own the mineral rights, and so they do not receive royalty payments.  In cases where landowners lack mineral rights, Coase might suggest paying the oil companies not to drill or to at least put up sound barriers.   

     Interestingly, the article mentions a nonprofit group (i.e. a special interest group) that looks to "preserve quality of life and protect the environment while helping the economy." Those affected by the externality and without mineral rights could have much to gain from an interest group like this one.  Rent seeking could result from this situation if disgruntled landowners begin going head to head with oil companies by spending money on this or other interest groups in an effort to lobby local and state governments for a share of the profit.  

One Year Later - Hurricane Sandy Destruction

It has now been about one year since Hurricane Sandy hit the East Coast, yet restoration in some beachfront cities is still underway. This article published by News 13 discusses a $40 million restoration project that will begin at the start of November. Although the hurricane stayed off of Florida's coast, the wind and severe weather pushed back on the beaches and caused significant erosion, leaving the waterfront properties very vulnerable and exposed should another round of severe storms come.

The project is being funded partially by the state and the Brevard County Tourism Development Commission, but the Army Corps of Engineers is footing the majority of the cost with $29.6 million. This project is an example of a public good as we discussed at the beginning of the semester because it is both non-excludable and non-rivalrous. Also, this specific project undoubtedly brings up the Free Rider Problem. The individuals who are living on the beachfront will receive the direct benefits of the restored beaches but have not paid at all or if so, only minimally through some sort of state taxation. However, the Tourism Commission and the state believes that the benefits of investing in this restoration project exceed the costs and therefore are going ahead with the project and will begin pumping sand onto the beaches next month.

The cost of rent-seeking for abortion legislation

After learning about the inefficiency of rent-seeking activities in class, I decided to see just how much money American lobbyist groups out towards an issue they are fighting for. I looked at a topic of much debate: pro-choice vs. pro-life. On a site about Abortion Policy Lobbyists, I found lobbyist groups for and against abortion spent over 1 million dollars in 2013 alone.  And it's not even a major election year. 

For all the money the two lobbyist groups contribute to political campaigns to get them to support their cause, the candidate will only chose to support one group.  In addition, abortion rights are such a controversial issue, it will be nearly impossible for one group to get their policies (for either pro-life pro-choice) passed completely.   So, is all of this money spent on lobbying rational? Is it efficient?  Or is it even democratic to try to buy up support for policies?

This rent-seeking looks use resources (lobbyist money)  to increase one's share of wealth (or in this case, political support) rather than creating their own.  As a result, it is inefficient because it decreases net wealth (using up resources without creating anymore).  In my opinion, I do not think it is ratioaln to keep spending more and more money lobbying becasue the opposing group will keep spending more also, as we saw in class.  In addition, spending the most money does not guarantee your policies will pass, so the probability of the contributions making a difference are low.  Lastly, I don't think lobbying is very democratic.  It is scary that big lobbyists dollars can have a bigger impact on political decisions than citizens opinions.  

Americans Want Third Party After Shutdown

A recent Gallup poll revealed that 60% of Americans believe a third major political party is necessary, with only 26% saying that the current two are adequate. This survey was conducted during the recent government shutdown and was an attempt to gauge the effect the shutdown was having on public opinion of congress. I think it also reflects an implicit understanding on the part of the American people of the importance of having a correct threshold for action.

In the case of the government shutdown, we're actually talking about a threshold for inaction. As we discussed in class recently, the greater the perceived importance of an issue the higher we'll think the threshold for action should be. In the case of the shutdown, the action in question was allowing the government to be shutdown which only required a simple majority to fail to vote "yes" on a spending bill. The Republican controlled house refused to vote for liberal bills, and the Democrat controlled senate refused to pass conservative ones. If a third prominent political party emerged that shared some beliefs of both democrats and republicans, then it would be easier to gain the majority needed to pass measures in the house and senate. While not explicitly raising the threshold for inaction, it effectively makes it harder to shutdown the government. I think that the shutdown, seen by many as the epitome of incompetence, has caused many Americans to reevaluate the importance of the decision of whether or not to shutdown the government, and to conclude that the threshold should be higher.

Rent Seeking, Sugar Reform, and Sen. Menendez

      Last year, while running for re-election, Senator Bob Menendez was embroiled in what soon became a twisted political scandal.  With rumors swirling of under-aged prostitution, illegal campaign contributions, and improper intervention on behalf of donors, no one knew what to believe or what would come out next.  Then, seemingly out of nowhere, sugar became part of the picture. Our class discussions and readings have shown us the lengths firms will go to seek rent but I don't think many people would expect a situation like this.

     Over the last decade or so a coalition of policy makers has begun to emerge advocating sugar reform and the end of the subsidies we talked about in class today.  Sen. Menendez introduced a bill that would attack these subsidies and apparently big sugar wanted to send a message to congress that these subsidies should not be touched.  As the story goes, the Fanjul brothers, owner's of Domino Sugar -likely the sugar you put in your coffee this morning - in an attempt to bring down Sen. Menendez, paid a couple of Dominican prostitutes to say that Sen. Menendez was a client of theirs.  Additionally it emerged that he had flown to the Dominican on a private jet, owned by a wealthy donor after he had intervened on port negotiations on this donor's behalf. 

     This story touches on a number of topics we have talked about in this class.  First, the general principles of rent-seeking and its incentives are an important part of this story.  The Fanjul brothers must   have placed an incredible amount of weight on these subsidies because they staked their credibility and power on bringing down Sen. Menendez.   Their tactic did not pay off and it is likely they lost massive support through their bold, bare-knuckled, open, intimidation tactics. Second, it touches on the collective action problems we worked with earlier in the year and that we reintroduced in Mueller 15.4.2.  When you think of sugar, you likely think of Domino Sugar.  They control an incredible percentage of the market making sugar a highly concentrated industry. Therefore, they have huge incentives to ensure that these subsidies continue.  Two brothers will have very little trouble organizing their efforts to pressure congress and likely do not have to overcome the free-rider problem.  Because the lobbying effort has been largely carried out the Fanjul brothers, it will be interesting to see how long these subsidies continue in light of their recent exposure.  

     This topic also touches on an interesting point in 15.4.3.  That is, "The Duesenberry effect" that shows people become accustomed to subsidies and lobby "much more vigorously against its removal than they do for its introduction."  Regardless of the subsidy's history and whether the Fanjul brothers had anything to do with its introduction, they have incorporated it into their business model and have tremendous incentives to see its continuation.   

Rent Seeking in the Farm Industry

 
  In this recent Washington Post article, Brad Plumer discusses the recent farm bill passed by House Republicans this past week. As indicated by the article's title, it seems surprising that these sort of bills pass, considering how few farmers remain in the United States, and especially considering the espoused fiscal conservatism of the Republican Party in particular. Though the author ultimately concludes that voting habits and pressure at the voting booth are responsible for the passage of these bills, a dubious conclusion considering how this graphic shows that the majority of subsidies go to the wealthiest minority recipients, an alternate explanation mentioned in the paper was that, "wealthy agribusinesses are somehow paying off Republicans to vote their way". While it is unlikely that Republican Congressman are literally being paid off (although who knows), agribusiness like Monsanto and Archer Daniels Midland, among the top recipients of the subsidies, do spend an extraordinary amount of time, energy and money lobbying in Washington for these subsidy prizes, as this article outlines. It mentions how the, "The agribusiness industry plowed more than $80 million into lobbying last year, according to the nonprofit Center for Responsive Politics". This all resulted in a $955 billion bill proposed recently by the House, more than making up the impressive expense racked up by agribusiness interest. This incredible waste has spurred efforts from anti-farm subsidy lobby groups, however, rent seeking theory tells us that the agribusiness industry would be willing to pay substantially more to secure the subsidy rents, meaning that it is unlikely that we will see legitimate reform.

A Divided Congress is not Ideal for Decision-Making

During class last Thursday, we discussed a "non-question" on the exam that would show why the default decision-making process is a simple majority vote. The argument for simple majority, and why it most often minimized the sum of external and decision-making costs, was that if less than a majority can pass a law, we would see instances of Law A and Law ~A (which merely reverses or nullifies Law A) both being passed and nothing getting done.

This made me think of the House vs. Senate stand-off before the government shutdown a few weeks ago, mentioned in this WSJ article. The main issue was that the budget passed in the Republican-controlled House would eliminate funding for Obamacare, kept being rejected by the Democrat-controlled Senate in favor of a bill that kept Obamacare fully funded, and vice versa. Although both the House and Senate use simple majority to pass their bills, unanimity is required between the two chambers. This means that if either one of the two bodies is controlled by a minority, bills can be passed with less than a simple majority, if we assume the decision-making body as a whole to be both the House and Senate combined. Thus, we can place the Obamacare funding/no-funding fight perfectly into the framework of a "Law A and Law ~A" situation that constantly pass and cancel each other out.

This leads me to believe that based on Chapter 6 in the Calculus of Consent, Buchanan and Tullock would not consider a Congress with the House and Senate being controlled by different parties to be an efficient decision-making system at all. The budget fight and resulting government shutdown provides a lot of evidence to support this.

Collective action without conformity: the ACA and the "Death Spiral"

The Affordable Care Act has accurately been described as a wealth transfer from the young and healthy to the older and less healthy population. However, this cross-subsidy in turn relies on conformity of the younger population to participate in the exchanges. According to this article, the regulation needs 2.7 million young, healthy participants out of the total 7 million expected in order to sustain the program. If this does not happen, insurers will lose money, be forced to increase premiums in compliance with other new coverage regulations, and this could exacerbate the problem.

An issue that's been widely covered the past couple of weeks is the failure of the new ACA website to enroll people in the exchanges. It is a very complicated system, and many people have attempted and failed to enroll on the website multiple times due to bugs and data extraction problems. Performing all the steps required to enroll in the exchanges takes a lot of time, especially given the issues with the website. Some economists and commentators worry that this could lead to an adverse selection problem. The people earning the subsidies (those who are elderly and sick) will be more likely to work through the issues with the website and costly application process, while the young and healthy will be less likely to bear the transaction costs associated with the exchanges, opting to take the $95 (or 1% of income) tax penalty. This could lead to the aforementioned problem, which is now known as the "death spiral". The issues with the website and nature of the tax penalty seem to incentivize an outcome with fewer young, healthy people than needed to sustain the program.

The threat of the death spiral shows that conformity with collective action should not be taken for granted, and I believe the existence of the death spiral is a testament of the inability of politicians to recognize the importance of incentives in achieving desired outcomes.

The Welfare Effects of Internet Piracy

This article, published in BBC News, discusses the shutdown of ISOHunt, a website offering downloads of pirated materials. After losing a lawsuit by the MPAA, ISOHunt has agreed to close its doors and pay $110 million in damages to the association. Chris Dodd, president of the MPAA, calls this a “landmark lawsuit” and claims that it will help to prevent future exploitation of those working in creative industries by piracy websites. The ISOHunt story clearly does not stand alone: The issue of internet piracy and copyright infringement in the Information Age has been widely discussed.

In thinking about this issue, I couldn’t help consider the welfare costs of both internet piracy and its prevention in light of the Tullock chapter we read last week. Internet piracy, like theft, involves a transfer of surplus - with internet piracy producer surplus in the entertainment industry shrinks, while consumer surplus rises as movies, music, etc. are made available at no cost. Interestingly, though, this is probably not a pure transfer: Many consumers of pirated material would choose not to consume if they were required to pay, so the loss of revenues resulting from internet piracy are likely less than than the benefit derived by those consuming pirated materials. This means that consumer surplus will rise more than producer surplus will fall, and the social welfare effects of internet piracy could actually be positive.

What about the costs of prevention? While ISOHunt’s payment of damages to the MPAA may simply be seen as compensation for foregone revenues, such payments are not the only costs of prevention. Regulating internet piracy also involves expenditures of time and money locating piracy websites and pursuing legal action. These expenditures are unproductive and involve the diversion of resources that could be better utilized elsewhere. While internet piracy may actually increase social welfare, then, attempts to prevent it serve the opposite end. True to Tullock’s argument, the actual welfare costs of internet piracy may be more in attempts to prevent it than in its actual practice.

Rent Seeking and Penny Auctions

Many internet shoppers have heard of or even used Quibids, a “penny auction” site that entices consumers with promises of up to 80% of retail prices on popular products like iPads or big-screen televisions. The way Quibids works is by auctioning off these retail items with starting prices in the single digits, and each bid that a consumer makes raises the price by only a few cents. However, Quibids charges the bidder $.60 per bid, whether or not you win the auction.  Therefore, even if one lucky bidder wins an iPad for $40, it probably took him and all the other bidders hundreds of bids before the auction ended, resulting in Quibids making a lot of money off of everyone who participated in the auction.

                The idea of rent seeking is about resources wasted in attempting to gain the rent, or extraordinary returns you may not find in a competitive environment. In the case of Quibids and other penny auctions, the rent is the prize sought by the bidders, and the money spent on each bid is the resources wasted in seeking the rent. Similar to the Tullock Auction demonstrated in class, penny auctions are a great way to demonstrate the harmful effects that rent seeking can have on the consumer, when you start bidding not to increase personal profit, but to decrease personal loss.

A Public Good Turns Private

Lately, I hopped on the Banksy bandwagon, finding the street artist's anonymous and spontaneous creations really interesting.  This month, the unknown artist has taken up residency in New York City, releasing one piece of public art every day.  This exhibition is called "Better Out Than In" and is already gaining a lot of attention.  His art is sometimes chiseled from walls and sold for thousands of dollars to fans and enthusiasts. 

This week however, random people  that lived near one of the pieces charged $20 for enthusiasts to take pictures. 

"The amateur curators used cardboard to shield the well-known British graffiti artist’s piece in their East New York neighborhood and will remove it only for a price."

The two conditions for a public good are that they are non-rivalrous and non-exclusionary.  Usually, Banksy's art meets this conditions as one person looking at a public wall with art doesn't detract from another's viewing, and it is (usually) not possible to charge someone to look a public wall.  However, Banksy's work has been changed into a private good as people living near the work have made it exclusionary, to those only willing to pay $20 to see it. 

Shutdown: A Condorcet Winner?

     This article in the Washington Post and its accompanying article on Yahoo.com show that 21 Republicans would vote for a clean continuing resolution which would re-open the government and fund ObamaCare. Attached is a chart I made in excel highlighting each winning coalition that kept the government running, eventually brought about its shutdown, and would hypothetically bring about its reopening.  Since we are only looking at whether the government will open or close we only need to look at the second letter.  However, looking at both letters tells an interesting story.
       First, lets look at the pre-shutdown vote tally.  Here, all 432 voting members of the House (there are currently 3 vacant seats) would vote to keep the government running independent of a vote on ObamaCare.  That makes sense, the government indeed was running.  It also tells us that 232 members would vote to defund ObamaCare independently of a vote on whether to keep the government open.  That too makes sense.  We know that numerous times the House has voted to defund ObamaCare.  Here, we see that the clear Condorcet winners - independent of each other - are to keep the government open and defund ObamaCare.  Between the last CR fight and October first, this was the state of the House.
      The second tally tells us a more interesting story.  The vote to shutdown brought these two issues together and Congressmen now had to vote on them together on whether to pass a CR that funds ObamaCare and keeps the government open or defunds ObamaCare and effectively closes the government.  This resulted in a forced, manufactured majority in regards to shutting down the government.  There were 21 Congressmen that were split on this vote and given the opportunity to vote on them separately we would see a continuation of the first chart and a natural majority for open government (Blue Highlight).  Instead, they had to vote on them together.  Given that at this point they valued defunding ObamaCare more than they valued an open government, (remember at this point you can only compare NN>YY) this manufactured an illegitimate majority of votes to shut down the government, and resulted in a non-condorcet winner in regards to shutting down the government. This was not their first preference, but given the preference table they were given, NN or YY, they chose to shut down the government.
     Democrats are currently working on a measure to bring a clean CR (YY) to the floor.  Given that 21 moderate Republicans now favor YY>NN,  this would again result in a manufactured majority, this time leading to the illegitimate funding of ObamaCare.  Here we see how rules of the game effect the outcome and lead to non-condorcet winners an inefficient allocation of public goods.  Here is a relatively clean example of how combining bills together can force Congressman to vote in ways they normally would not.  One can only think of how many inefficiently allocated public goods are dolled out in omnibus transportation bills through logrolling.

New Emphasis Put on Absentee Voting in Charlottesville

On September 30th, NBC29.com posted a video addressing the concern in Charlottesville of a lack of voter turnout for the upcoming election. On Tuesday, November 5th, the General Election for state and local offices will take place. Governor, Lieutenant Governor, Attorney General, Member House of Delegates, Commonwealth's Attorney, Sheriff, Commissioner of Revenue, Treasurer, two Members of City Council, and 3 Members of the School Board will be on the ballot. Clearly, the results of the election will affect many in the Charlottesville community. With the upcoming deadline to register of October 15th quickly approaching, voter registrars are making a last push to encourage eligible voters to register for voter registration forms and for absentees ballots.

Johnson, in his essay, "Voting, Rational Abstention, and Rational Ignorance," addresses this issue of a decline in voter turnout. He states that it was "around the turn of the century [that] the percentage of eligible individuals exercising their franchise began to drop [...] until only about one-half of the eligible population went to the polls during the 1980s" (Johnson 129). He also acknowledges a trend towards making voting easier, less restrictive, and more convenient. This is exactly what we see in this video. The voter registrars are making it much easier for the first time to be able to register for an absentee ballot online at the Virginia Board of Elections website. With the prediction of only a 40% voter turnout rate on November 5th, this push toward more convenient voting may (they hope) incentivize voters. Additionally, this low voter turnout rate may reflect what Johnson calls rational abstention theory - that is, that a rational individual would not vote, finding that the cost of voting will almost always be greater than the benefits obtained from voting, according to Johnson. Ironically, rational abstention theory is one of the most damaging theories to the democratic self-rule on which our country was founded.

A Factional Split in the GOP?

This article, recently published in The Economist, discusses factional splits in existing political parties. The author claims that it is nearly impossible to build a new party from the ground up in the U.S. as voters, despite their ideological preferences, will only vote for one of the two main parties for fear of wasting their votes. When a new party forms due to a factional split in an existing party, however, this wasted-vote risk is diminished, as the new party already has power in Congress.  As long as the splinter party has a coherent ideology and a large enough voter base, then, it stands a chance at winning subsequent elections. The author of the article believes that tea-party Republicans have what it takes to eventually form a competitive third party in the U.S., with a coherent agenda and a strong voter base that is likely to follow them.

This article is clearly directly relevant to Downs’ Median Voter Theorem. If part of the Republican party stands a chance at breaking off and forming its own party, this suggests that a significant contingent of voters must feel alienated by the current system. This implies an asymmetric distribution of voters, with a sizable number of voters concentrated towards one extreme of the distribution. This asymmetric voter distribution is currently not an issue for the tea party, as theirs is the dominant Republican agenda. As more conservative Republican voters near the median begin to feel alienated and begin to abstain from voting, however, Republican ideology may begin to shift back towards the center and tea party members will then feel alienated. In either case, a significant contingent of the Republican party is alienated, meaning there is good reason to think a split in the party could be successful. Voters that feel alienated are likely to abstain, meaning that more moderate Republicans are less likely to vote where tea party ideology dominates and vice versa. In order to be able to satisfy both contingents, it is possible that the Republican party may need to split into two, thereby leading to a significant change in the American political landscape. 

McAuliffe appealing to Moderate voters in Virginia's Gubernatorial Race

          Ken Cuccinelli isn't the only one displaying more moderate views in the Virginia gubernatorial race, Democratic candidate McAuliffe appears to be shifting his views too.  As this article from the Washington Post reports, McAuliffe did not support offshore oil drilling for Virginia in 2009, but starting in May he began to support offshore oil drilling.  His spokesman attributed his change of heart to "technological progress," but the median voter theorem offers another reason for McAuliffe’s change in stance.

          According to the median voter theorem, a candidate in an election by majority will adopt the platform most preferred by the median voter.  In the case of Virginia offshore oil drilling, a stance against offshore oil drilling would generally be considered on the liberal side of the spectrum and a stance in favor of offshore oil drilling would be on the other side.  Assuming McAuliffe is only looking to win votes, shifting his stance to being in favor of ‘responsible’ oil drilling enables him to pick up votes from the middle, while keeping the votes from his liberal base.

          Conservative groups have already accused him of flip-flopping on the issue, and the Sierra Club’s Virginia chapter (an organization generally seen as very liberal) has expressed discontent with his and other politicians’ shifting positions.  If the assumptions in the median voter theorem hold, the shift will be to his benefit, but if the environmental groups get an unusually large number of liberal voters to abstain from voting, it could hurt his chances. Time will tell if moderating his position ultimately helps or hurts McAuliffe.