Congress at a Snail's Pace

 People like to complain about how slowly Congress makes decisions. It's popular to pick on partisan politics as the  source of Congress's sluggishness, especially in connection to COVID relief packages. In an article from CNN, the writer does just that, stating "Congress was slow to oversee US response to crisis amid partisan battles."  What the writer does not recognize is that Congress's slow pace is, though frustrating, a feature of its structure that has potential benefits for society. 

According to Weingast and Marshall in "The Industrial Organization of Congress... ", the committee system under which Congress operates makes it durable against opportunistic behavior. That is, while there are many interest groups trying to gain benefits from the COVID relief packages and rapidly changing information as the virus spreads through the US, Congress's resistance to changes in circumstances protect it from individual congressmen trying to secure opportunistic benefits for their constituents among the panic. If Congress were to rush through legislation as is implied by media sources lamenting their delay, it is likely that the legislation would be less allocatively efficient than the current result. 

Farm Subsidies & Theory of Regulation

This year, federal subsidies to famers is predicted to hit $46 billion, more than any other industry. In fact, this is the largest contribution to the farm sector in over 15 years. While the economic slowdown caused by Covid has impacted American farmers, one reason for such a huge influx in spending is to help President Trump secure the rural base in the South and Midwest ahead of this weeks election. Opponents have gone so far as to say these subsidies are a "power grab used to buy political support." Despite the criticism, this strategy seems to be working, as his approval rating among this group is 10 points higher than the national average.

While this politically motivated act may be shocking and upsetting to many people, I think it makes total sense when looked at through the view of Stigler's Theory of Economic Regulation. In Stigler's model,  Trump is a representative seeking job security through re-election. Because the average voter displays rational ignorance and no incentive to vote, politicians will focus on winning support from special interest groups. Stigler says that if an incumbent denies large interest groups their subsidies, they will likely lose their seat ("the stakes are that important"). In this case, agricultural and related industries account for 5.2% of the GDP and 10.9% of American jobs. Clearly, this is an important industry to have support from, so if Trump has to secure a few billion in additional subsidies to win their support, then he is willing to do that to protect his job.

Perhaps if Trump really wanted to secure the support from agriculture, he would push legislation that would create more barriers to entry in the industry. According to Stigler, this is what interest groups want most, as it is the most effective way to get long term economic profit. If Trump is attempting to fully win the agricultural sectors vote, he should give them the policy that will benefit their profit the most. 

LeBron James: The GOAT Externality?

    When LeBron James is talked about, it generally has to do with his greatness on the basketball court.  The debate over whether LeBron James vs Michael Jordan is the GOAT, greatest of all time, is covered ad nauseam.  However, when I hear LeBron’s name, I think of all the benefits he has brought to the people and communities in the cities he has played in.  When he returned to his hometown team, the Cleveland Cavaliers, people besides die hard Cavalier fans profited greatly.

    The local media and official TV station of the Cavaliers, Fox Sports Ohio, experienced record viewership.  With increased eyes on their product, the TV channel can then charge more for advertisements and increase their revenues.  During LeBron James’ first tenure with the Cavaliers, Fox Sports Ohio had “...ratings that were between 45% and 215%...” ahead of their normal viewership during the 2013-2014 season.  Those increases provided a huge increase in revenue to the TV station.  The Cavaliers also benefited from LeBron James on and off the court.  When Fox Sports Ohio signed on again to be the flagship station of the Cavaliers, the Cavaliers brought in an exorbitant amount of money.  The most recent TV contract between these two parties just ended this season, and it was worth between $35 million and $38 million per year, one of the highest in the entire NBA.  Cleveland is considered a medium sized market if not a small one so these numbers are eye popping.  LeBron James brought the city of Cleveland their only NBA title ever as well as a slew of positive externalities along with him.  Even though he has moved onto the Lakers, Cleveland is still reaping the benefits of a generational type player like LeBron playing in its city.

Principal-Agent Problem with Managing Sororities During COVID

When we discussed principal-agent issues this past week in class, I realized that I constantly find myself dealing with this problem being the Vice President of my sorority. In this situation, I am the agent, helping to act on behalf of two principals, the members of the sorority and “Nationals,” the national sorority organization. Due to COVID, this year has been especially difficult when trying to assist our President and other executive leaders in managing the sorority. I constantly find myself facing conflicting interests and incentives between Nationals, friends in my sorority that are not on the executive board, and myself. 

As a VP, I try to please and fulfill the wants and needs of Nationals, as well as all the members, myself included. Everyone wanted our dues to be significantly less this year due the lack of in-person activities and benefits we would be receiving from the organization because of COVID-19. Many other organizations at other universities cut back on semester and yearly dues too, but a lot of the conflicting interests lie in how significant these reductions in dues should be. Of course, I wanted the same as most members in my sorority and thought the only logical answer was to significantly decrease dues during this pandemic and economic crisis. Yet, Nationals made this incredibly difficult, as they have their own economic interests quite different from ours. Additionally, I am able to shirk with Nationals without many consequences. Nationals does not have any control over our elections, instead our own members elect our own executive board members, so this has made me inclined to focus on the incentives of the members more so than National’s incentives. These are the people who elected me, not Nationals. That being said, I am not running for reelection once my term ends in the Spring since I am graduating, so I have the option to shirk with my fellow members too, but I have not wanted to do this that much thus far. The executive board has worked hard to bring the dues down for everyone as much as possible, and I have made my friends interests a priority quite a lot. I have been frustrated with Nationals, as I think they need to be more understanding about the current situation, and therefore have found that my amount of slack has increased and that my incentives as an agent are not directly aligned with those of the other principal in this situation, “Nationals.” 

Erie and Tariffs

My mother's side of the family is from Erie, Pennsylvania. It was once a booming manufacturing city on the Great Lakes. For about a century beginning in the late 19th century, my family had called this city their home. When I discovered a family reunion invitation list from the 1930's (containing addresses of the entire extended family), I noticed that everyone invited had an Erie address. This was shocking to me because the majority of my mom's family currently lives scattered throughout the country. Why did this happen?

Over the summer, I visited my Nana who still lives in Erie. For the first time in my life, I noticed the decaying quality of the roads and infrastructure as I was driving around. The buildings that once housed the companies that employed my family were abandoned and left for a slow, painful destruction. With the disappearance of industrial strongholds from the Great Lakes region, the jobs have evaporated as well.

The fact that Pennsylvania made a significant flip in the last election could be attributed to the fact of Trump's strong position on tariffs intended to strengthen our manufacturing sector of the economy. This could be evidence of the residents of Erie preferring the gains from the larger producer surplus rectangle over the losses experienced in the small triangles of DWL in our tariff model. The people of Erie and the rest of rural PA want their cities and towns to be vibrant once again. After experiencing the rust belt in my mom's hometown, I can understand why Erie County switched from a democratic majority in 2012 to securing a majority for Donald Trump with trade protections in mind. I believe that this happened throughout the state of Pennsylvania, which had a part in finally breaking down the "Blue Wall"

Wyoming, the State of Art Lovers?

As we were learning about capture theory in class, I was reminded of the funny threads on twitter enumerating ridiculous laws that appeared to serve no purpose. 10 year old me just chalked this up to not understanding "politics" and thinking lawmakers must have done this to be funny. I now realize that legislators would never enact a law without either a concrete benefit to their constituency or for the public good, especially since every piece of legislation requires an immense amount of time and effort. On average, a bill takes 263 days to become a law.

In Wyoming, article 16-6-802 states that any construction of a new building that costs over $100,000 must dedicate 1% of the budget towards art for the building. On the surface, this law is justified by the government desiring to spread arts for the public good. While this may be partially true, the enactment of this law can be directly attributed to pressure from the NASAA - the National Assembly of State Arts Agencies. This situation is a perfect example of Stigler's capture theory. Capture theory is the idea that regulation is acquired by the industry and is designed and operated primarily for its benefit. In this case, the "industry" is artists and art sellers who profit from this mandatory increase in art sales. Without this regulation, those constructing new buildings (given the choice) would likely choose to spend significantly less than 1% of the budget on the purchase of art. This sets a quantity minimum on art sales that is directly proportional to the construction of new buildings. 

When industries seek regulation, there is a hole that the private sector cannot fill for the firms. The solution for the industry lies in the fact that the government "can ordain physical movements of resources and the economic decisions of firms without their consent" (Stigler 4). The NASAA states that they lobby for governmental regulation in the arts because the private sector falls short in several ways. Firstly, philanthropic giving to the arts is geographically disproportional, favoring urban art communities and neglecting rural ones. Additionally, the goals of corporations in purchasing art may be worthy, but they might not address the broad art community needs. Less "basic" artists are often neglected, forcing artists to focus only on art that will be commercially successful rather than committing to the integrity of their work. This regulation would increase the overall profits flowing into the art community of Wyoming, as well as, increasing the focus on art. 

Football Resource Misallocation

 In football the measure of success is the number of wins in a season. The economic strategy that athletic departments apparently take is that the more money spent on coaches, the more wins they will have. This has lead to significant inflation of university coaches salaries- as evidence by the multimillion dollar coaching salaries throughout the power 5 conferences. In fact the average head coach salary for a power 5  exceeds four million dollars. 

The concept that paying coaches leads to more wins is dependent on other teams not paying their coaches more. This is similar to the example given by Tullock where the value of a lock is dependent on the investment the thief makes towards their lock picking. All else equal, School A increasing a coach’s salary increases the average cost of a win in the market since the number of overall wins is static.  If no other school follows suit, School A will win X more games while all other schools will collectively lose X more games. Conversely, if all other schools increase coach’s salaries the same amount, School A will not win more games since all schools are now simply paying more to maintain the current number of wins.

Regardless of how “other” schools respond, School A increasing the coach’s salary can be seen as a misallocation of resources because the sole final result is an increase of the cost of the win. Bottom line, there is incremental cost yet it creates no value (once again, because the number of wins in the total market remains the same).  The win is more expensive, yet it is not more valuable. It is also a “never ending cycle” since all schools want to increase the number of wins, which is not possible.

The Truth About Alcohol Regulation

 

Last week’s reading of Stigler’s Theory of Economic Regulation got me thinking about regulations in the beer industry. The industry is heavily regulated and has a mandated three-tiered system, with wholesale distributors as middle men. This was created after Prohibition in an effort to control overconsumption. Critics of the industry (Stigler would be one) would tell you that wholesalers add no value to the industry and make undue profits. To this I have a few responses… 

First off, I want to say that the three-tiered system does benefit the consumer in that there is more variety to choose from. If there were no wholesalers, AB InBev (Anheuser-Busch), Miller-Coors, and Constellation Brands (Corona and Modelo) would control the entire market, pushing the small brewers out. To prove this, take a look at Coca-Cola and PepsiCo’s domination of the soda industry. Without distributors, the barriers to entry are enormous. Distribution is heavily reliant on economies of scale , and because of this new entrants would lose before they gain, which can be a risky undertaking. In the beer industry, new entrants do not need to make such large investments on the front end as they rely on distributors to take on those costs.

Secondly, I want to argue that the public safety of communities would be threatened without the three-tiered system we have in place today. Prior to Prohibition, there were what are called “tied-houses”. A tied-house is a restaurant or bar that is in some way obligated to a specific alcohol manufacturer. The manufacturer would offer deals such as low interest loans, discounted kegs, and free draft systems in exchange for being treated as a monopoly. This created dangerously low prices for beer. A worker could go into the pub and get intoxicated without making a dent in his paycheck (and workers did...often!). Industry giants were impossible to hold accountable when these tied-house saloons got out of hand. By contrast, the local, licensed wholesaler who by law cannot offer such deals can be very easily controlled. By using the wholesaler as a means to mandate higher prices and keep the industry in check at the local level, communities can ensure reasonably high prices that limit overconsumption. As we can all agree as economists, an increase in price decreases demand.

 

 I could go further into this topic, but given this is a blog post, I will stop here. Bottom line, wholesalers, while they do make a profit and benefit greatly from this system (they would be out of jobs without it), are not the only winners here. Consumers do in fact pay higher prices but this is for a greater good for society. On top of that, it is not all high prices and boring safety regulation for consumers: with the system craft beer can exist!

Special Interest Groups and "Dark Money"

When I read Gary Becker's assertion on page 102 that "the condemnation of special interest groups is excessive," I thought immediately of Rhode Island Senator Sheldon Whitehouse. Whitehouse (with a fitting name given his long career in politics) would likely disagree vehemently with Becker. The senator is perhaps the most vocal critic of special interest groups in Congress. He presses his Senate colleagues and other high-profile politicians to publicly disclose the names of their donors, citing concerns about "dark money." He alleges that when anonymous, private corporations spend millions on lobbying using "front groups and hidden money," they undermine the independence of the legislative branch and cement pro-corporate interests as top government priorities, no matter the negative consequences for average citizens. 

As a member of the Senate Judiciary Committee presiding over now-Justice Amy Coney Barrett's confirmation hearings, Whitehouse has made headlines in recent weeks for his accusation that "dark money" has infiltrated the Supreme Court nomination process. Becker might agree with Whitehouse on this point if the senator were to prove that "there is highly unequal access to political influence" among special interest groups targeting the judiciary with aforementioned "hidden money." If the groups that Whitehouse identified, including the Federalist Society and the Judicial Crisis Network, could "secure the implementation of policies [or Court rulings] that benefit them while reducing social output," then Becker would deem Whitehouse's condemnation "more justified."

On the other hand, some accuse the senator of hypocrisy for allegedly accepting anonymous donations from "dark-money" organizations himself. In the hyperlinks, I tried to present both sides of that particular argument, and will leave the class to form their own conclusions.  

  

The Meat Industry: Expert Rent Seekers

In late middle and early high school, I would spend a lot of my time watching documentaries and listening to podcasts about the meat and dairy industry in the United States. I found the intense hold they had over our government and our food choices fascinating. Our readings and lectures on rent seeking and capture theory made me realize that this is exactly what is going on. “Big Meat” (the name given to the meat industry) spends huge sums of money on lobbying every year to ensure their place in the US economy, even when the outcomes are inefficient. In June of 2018, Missouri passed a law that banned meat alternative brands from using words like “meat”, “beefy”, “sausage” to name or describe their products. Industry giants like Tysons and Perdue and major meat industry lobbyists were backers of the bill. South Dakota, Mississippi, Wyoming, and Louisiana followed suit shortly after. In Arkansas, the word “veggie burger” is banned. Laws like this are as a result of rent seeking and could be looked at as a form of capture theory (control over substitutes). Brands like Impossible Foods and Beyond Meat argue that their product is best advertised and described to consumers using the very words they are now banned from using. This could result in slipping sales for meat alternatives as confused customers turn to what they know - plain old meat. Stigler points out that the most effective way for an industry to ensure long run profits is to have barriers to entry. Legislation like this could be seen as a barrier to entry for new meat alternative brands. With limited ability to advertise accurately, potential new businesses might choose to quit before they even try.

This comes on the heels of falling meat sales and skyrocketing popularity for meat alternatives, especially as major fast food chains start to add them to their menus (Burger King’s Impossible Whopper). According to many surveys, the American public is becoming more aware of the extremely damaging effects of livestock, especially cows, on the environment. 14.5% of all emissions come from cows and ⅓ of the world’s arable land is used to raise livestock. Furthermore, many Americans now actively try to limit their (red) meat consumption for health purposes. 

In class, we learned that rent seeking is the diversion of resources from valuable places and instead spent on activities that have negative social value. In 2018, the animal agriculture industry spent $18 million on lobbying and $22 million on campaign contributions. This rent seeking money in order to keep profits up is being diverted from productive uses. This is money that could be used to find climate solutions or money that could be put into transitioning livestock land into land that grows soybeans (used in meat alternatives and reduces emissions significantly). Instead, it is being pumped into an industry that is arguably fading somewhat in relevance.

Regulatory Capture and Taxi Medallions

As Stigler points out, every industry that has the requisite political power will try to restrict entry. One of the most egregious examples is New York City’s taxi industry. In 1937, New York City began to issue taxi medallions, a license that a taxi driver is required to purchase to operate in the city. At the beginning of this program 13,585 medallions were issued at a cost of $10 each. Over time, taxi companies and independent drivers began to view their medallions as an asset and restricted new medallions from being issued. Despite an explosion in New York’s population, only two additional medallions have been issued since 1937. By 2013, the price for a medallion had risen to $1.3 million dollars. 

The taxi medallion example also demonstrates the consequences of an industry that can no longer limit competition. Because of the high costs of entry, New York taxis can charge higher rates than the competitive market would allow. In the last few years this has allowed Uber and Lyft drivers to undercut taxi rates without having to purchase a medallion. As a result of increased competition, the value of taxi medallions has plummeted to around $250,000. Those who purchased the medallions at their peak value are now left with a greatly depreciated asset. As this story demonstrates, regulatory capture has the potential not only to harm consumers, but also workers within the restricted industry. 

As this article points out a major argument in favor of taxi medallions is their ability to limit congestion. While congestion is an important negative externality to account for, it does not necessitate the use of medallions. New York City already places a congestion surcharge on every trip taken by taxi or ride sharing app. Another argument made in favor of medallions is that they raise the wages of taxi drivers. While this may be true, the use of medallions also puts forth massive fixed costs to enter the industry and burdens medallion owners with a risky asset.  

The Power of a Cup of Tea

 Today as I was trying to think of what to write about for my first blog post I found myself struggling with finding a topic. Every idea I came up with felt a bit forced and implausible. I was also having a hard time concentrating because my friend was playing an online game on their xbox. And then it hit me. The subject matter for my post was literally right in front of me. My friend was producing a negative externality with the amount of noise they were emitting while shouting at the tv and I wanted them to quiet down so that I could do my work. Now I just had to figure out how to fix the externality so that I could focus on my homework and have a happy ending for my blog post.

The living room is a public space with the seating and communal tv being public goods that I could not exclude my friend from using. So I had to think of another solution. I could just go do my homework in my room and that would be that but I know I work better outside of my bedroom. I landed on looking to Coase to find an answer. Coase says that I need to first see if the person producing the externality is liable for it. If they are then I can choose to force them to stop or I can accept payment from them that equates to what I have lost because of the externality being produced. If I couldn’t hold my friend liable then I would have to decide if I was willing to pay them to stop producing the externality. I started by determining if I had rights to a certain level of noise pollution in a public space. I found an article that stated that people do have rights to a certain level of noise pollution and that government agencies are responsible for regulating noise in workplaces. I had some legal standing to force my friend to quiet down but I certainly wasn't going to involve the state or local government in my little issue and I wasn't sure if I could argue that my living room constituted a workplace. If I couldn’t hold my friend liable for the externality then I would have to find a way to pay them to keep their voice down. I wasn’t just going to offer my friend money to quiet down because I’m a broke college student. What I do know is that my friend loves tea but they hate the work that goes into making it. Therefore I took it upon myself to make my friend some tea with the condition that they would lower their voice for the remainder of the time that I was using the living room. And might I just say that it worked beautifully. Ten minutes of work out of my day provided me with the perfect environment to work in, a happy friend, and an extra cup of tea for myself to get me through my homework.

It's Not a Public Restroom

I work at a local coffeeshop. For a time, the customer restroom was out of order, and some customers really didn't like to hear that. We have an employee restroom exclusive to the baristas, but some people would barge through to it as if it was a public restroom and ignored the signage. We now block off the entrance to that restroom with a heavy table, which isn't a perfect solution to exclude people from using it, but it works the vast majority of the time. It seems a lot of people think that restrooms should be provided as public goods by private businesses, and now that the customer restroom is fixed, we are noticing many people go back to use it who aren't customers. 

It is legal in most states for businesses to exclude people from using their restroom if the person is not a paying customer. Although, exclusion becomes more infeasible depending on how many people frequent a business, and this is a problem where I work. However, public restrooms are rivaled in consumption and access to a restroom could not be a pure public good, even if restricting access was completely illegal. The more people who use a restroom, the worse the experience will be for people trying to use it as time goes on until it is cleaned. There can also be a wait to use it, depending on the place. One survey says that 64% of Americans make the choice to be a patron at a business that provides a cleaner restroom over one that doesn't, and this is only possible by exclusion. Therefore, I personally don't believe that businesses should have to provide restrooms to the general public.

NBA Awards Voting Process

With the NBA season finishing up a few weeks ago, awards were distributed to the best players over the past season. There are individual based awards such as MVP and Defensive/Offensive Player of the Year, as well as team based awards such as First and Second Team Offense/Defense. Both individual and team based accolades are awarded based on Borda Count voting systems. Individual awards are voted on by over 130 members of the sports media, who rank their top players, assigning more points to higher rankings. The player with the highest cumulative point total wins. All-NBA teams are decided based on a similar Borda Count voting system, voted on by the 30 league coaches instead of the media.

 

Although the different award systems have independent voting bases and objectives, there has been uproar from players and the media who believe the voting systems to be overly complicated and sometimes unfair. For example, in 2013, Marc Gasol won league wide Defensive Player of the Year (DPOY), but then failed to make First Team Defense. As a result, some reporters have advocated for combining the voter bases and moving to a majority rule system, citing its simplicity and ability to prevent supposedly contradictory results. The economic analysis seems to indicate that the current system better represents league wide voting practices. While both awards recognize a player’s basketball strengths, there are clearly two sets of distinctly different preferences being expressed. The members of the media are voting for players that individually demonstrate their greatness, while coaches vote for players based on how well they mesh into a team environment. Secondly, combining the voter bases and moving to a majority rule system of voting would likely reduce the chance of choosing the Condorcet winner, the winner that defeats all others in pairwise elections. Public Choice analysis has shown the Borda Count method to lead to the Condorcet efficient outcome more often than Majority rule voting, as the number of candidates increases. Additionally, by pooling all voters into one voter base, the influence of any one particular member on the outcome is reduced. This could encourage rational ignorance, as voters are less likely to educate themselves when their chance of casting a decisive vote decreases. While to some, NBA voting practices might seem irrational, the current system best reflects the preferences for each type of award and likely leads to the Condorcet efficient outcome.

Why I Always Do the Dishes

  I think it's fair to say that most people hate housework. Taking out the trash is a nuisance. No one likes the sight of a sink filled to the brim with dishes. Yet the dishes still get done, the trash still gets taken out, these collective goods almost always get achieved/consumed at some point or another. This is because as the consumption of these collective goods is delayed, the benefit from completing them goes up. For example, the value of taking out the trash when it's empty is zero, but as more trash is thrown out the total benefit of taking out the trash. This means that the marginal benefit for each roommate to take out the trash grows as well until one roommate's marginal benefit exceeds their marginal cost of taking out the trash. This happens because, in the small interest group of my roommates, there becomes a point where the group shifts from an intermediate group to a privileged group. As Stigler suggests, a privileged group will have one person bear the costs and all members will receive the benefit, in this case, the taking out of the trash. However, the matter of who takes out the trash and bears the cost is uncertain in this instance.

  For my roommates and me, I always do the dishes. This is because I enjoy cooking and cook practically every day of the week. While my marginal cost of doing the dishes is about the same as everyone else, my marginal benefit is significantly higher. I need to be able to use the sink, whether it be for straining pasta or something else. Since my benefit is much higher, I reach the point of MB = MC much faster than my roommates and therefore end up almost always doing the dishes. This means that there is no incentive for anyone else to do the dishes because I reach this point faster than anyone else, and they can free-ride off of my actions. 

Deciding on a Movie

It’s Saturday night & I don’t have much work to do. In other words, it’s movie night. I tell my housemate Charlie I’m thinking about watching Phantom Thread, but Charlie says he actually wants to watch Chitty Chitty Bang Bang. Hmm… Chitty Chitty Bang Bang… not really what I want to watch tonight. We ask our 3rd housemate John to break the tie, but instead, he throws in a 3rd option: Avengers: Endgame!

Good news: I have a trick up my sleeve. I’m pretty sure I know everyone’s preferences, so I say: “Would we rather watch Chitty Chitty Bang Bang or Avengers?” Avengers wins 2-1. “Ok, now that we know that, would we rather watch Avengers or Phantom Thread?” Phantom Thread wins 2-1. (See diagram below). Just when I think I’m a genius, Charlie calls me out. I forgot I told him about the Condorcet Paradox, Vote Ordering, and Cycling not long ago (they would both rather watch Chitty Chitty Bang Bang than Phantom Thread). Seems like simple majority isn’t working. I thought about trying to reach a Coasian-esque solution by paying John (& Charlie) to watch Phantom Thread, but I concluded I wouldn’t like that since we have interdependent utility (I wouldn’t enjoy pressuring John to watch a film he doesn’t want to).

After realizing that each film imposes a moderately strong negative cost on the person who least prefers it, we begin discussing alternatives. We deliberated and watched trailers for about 30 minutes, checked lists that don’t match our Saturday night preferences, and scrolled through my personalized preferences on Netflix. Eventually we landed on Airplane 2.

In our household, vote-rigging gets called out & unanimity rules for movie selection. We would rather incur high decision-making costs to chose a movie we’ll all enjoy than chose one that only 2 of us will. We’re just a simple, 3 person household with vaguely interdependent utilities.

Rent Seeking: Is Lobbying Around for Good?

   Rent seeking is defined as when resources are spent to obtain rents, which derives from an activity that has negative social value. Lobbying falls under the rent seeking umbrella. The term lobbyists generally has a negative connotation surrounding it, and people often question the need for lobbyists. There has even been talk about banning lobbyists due to the shadiness that can be associated with the "industry." But, "...lobbying is not only constitutionally protected, it's fundamental to a working Republic. Lobbying gives people the power to petition the government." With an essential part of the government, Congress, and the law on its side, lobbying will not be going anywhere. Since lobbying will continue to be around, let's see how successful it is.

    Corporate lobbying has the highest return on investment. When a corporation spends one dollar on lobbying, they receive on average 760 dollars in federal support and tax savings. Based on that statistic, the return on on investment within corporate lobbying is calculated to be 76,000%! The lobbying process is inefficient and has negative social value since the lobbyists time, efforts, and resources could be better utilized by society elsewhere. However, it helps the people in an immense way who control the power to change the system. There are citizens trying to fight the system through petitions and get rid of the corruption that oftentimes goes along with lobbying. But, they are fighting an uphill battle. The dead weight losses and inefficiencies will continue until the individuals and corporations with political power stop making money hand over fight via lobbying.

The Capture Theory and the Airline Industry

 The capture theory states that regulation is sought by and acquired by and industry so that it can benefit that industry. The airline industry is a perfect example of this. There are hundreds (maybe thousands) of regulations on airlines in the United States. The basic purpose of all of it, is that no one can obtain a certification to fly commercially until they have met all of these criteria. The airlines have an excellent argument to make for these regulations: no one else can possibly fly safely without these regulations. This is a difficult argument to oppose and it results in the industry being strictly and increasingly regulated.

As a result of all of these rules, there are severe limits to entry into the airline industry. Meeting all of the requirements to obtain a license is time consuming and expensive: you must have adequate and functioning safety mechanisms on all aircraft, must pay for gates at an airport, must not use any copyrighted material, must train and hire enough staff to run your operation smoothly every single day without fail, etc. All of these things are strictly monitored by the FAA and failure to meet any one of them could result in not earning a certification. This enormous barrier to entry has immensely benefited the large companies within the airline industry (over 80% of the market is controlled by just four airlines). 

A Llama Farm Camping Conundrum

Last summer, my friend Natalie and I went on an amazing camping trip on a llama farm. When my roommates heard about my trip, they were freshly inspired by TikTok videos of people on wholesome camping trips with their friends. Determined to make the videos a reality for themselves, they implored me to take them to the llama farm.

When it was just me and Natalie, the planning process was seamless. Since the responsibility of achieving our common interest of going camping fell on our shoulders alone, with no one else to defer responsibility to, we were extremely efficient in our planning of the trip. Unfortunately, now that I’m planning with all of my roommates, I feel like I’m in one of Olsen’s “Privileged Groups,” and it’s solely up to me to deliver the collective good. As we’ve seen so many times in Public Choice, as the size of the group increases, so too does the potential for free-riders. It’s become clear that the responsibility has been deferred to me to create the reservation, gather camping gear, and plan the logistics of our trip. In this privileged group, it would seem I am the benefactor who enables the others to free ride.

As I plan our trip, I face a dilemma of marginal costs. If we were to go camping on a Thursday, we would receive a weekday discount of $10. As a result, the marginal cost of going on a Friday instead would be $10. But because we have class on Thursdays, we wouldn’t arrive at the farm until 8 pm, so we’d have less time camping. On the other hand, going on a Friday would allow us to begin our trip much earlier in the day. However, the Friday we are considering falls on the 13th. My marginal cost of going on Friday the 13th is likely greater than that of my roommates, given that I am the only one with any camping experience. Should disaster strike, I’d become responsible not only for my own safety, but for that of my ignorant, helpless roommates as well. And so, the predicament I face is this: do the marginal benefits of going on Friday outweigh the marginal costs? If you see us in the newspaper because I chose Friday, at least you’ll know that I weighed the costs and benefits like a true economist.

Minimax Regret Strategy in Interview Preparation

Given that the economy has partially shut down due to COVID and, as a result, the job market has become increasingly sparse, college grads are finding the job search more stressful than ever. I am a soon-to-be grad on the job hunt and I recently realized that my preparation methods for final round interviews are highly irrational, but that this is a fairly natural behavior. 

As you spend more hours preparing for an interview, the chance of an additional hour being the one that will swing the employer's decision in your favor decreases significantly. At a certain point the rational interviewee will realize that he/she has prepared for most possible interview questions and that the likelihood of receiving a question not prepared for and that holds a large bearing on the outcome of the interview is lower than the marginal cost of studying for another hour to prepare for even more potential questions. In a "Super Day" with up to 8 interviews, the likelihood of any one question having a significant bearing on the outcome is small. The marginal cost for the extra hour of preparation is the time and effort expended, and the opportunity cost of getting more sleep the night before or spending time on other work. The expected benefit of preparing for a job interview is the idea that you may receive a job offer if you answer all of the questions effectively. However, due to the lack of certainty and perfect information in interview situations (the interviewee does not exactly know what to prepare for), this threshold can seem ambiguous and scary. 

Due to a natural human tendency towards ambiguity aversion and my desire to find a job in a difficult job market, I have become an extremely inefficient minimax regret strategist when it comes to interview preparation. A minimax regret strategist would prepare for as many potential questions as possible, greatly surpassing the threshold where MC > MB. A minimax strategy is one that minimizes the maximum regret. In an interview prep situation, I would suffer from maximum regret if I am unprepared for a question that I could have anticipated and easily spent an extra 30 minutes preparing for, and if this results in my not getting an offer. There have been many situations where I have done essentially everything I can to prepare, however, I still choose to continue to spend time preparing so that I can walk away from the interview feeling zero regret if I do not receive an offer because I did everything I could have with the time I had to prepare. 

Making Progress Possible Again

 When we started discussing different voting systems in class a few weeks ago, I realized that my current project would not work in a ranked choice voting (Hare) system. A few months ago, I co-founded The Decency Project PAC, a pro-Biden independent expenditure political action committee (super PAC) ahead of November’s election. We are creating and running targeted ads for progressive youth voters in swing states in order to help flip these states blue in this presidential election. We encourage strategic voting. 

    Our target audience is full of young people who are vehemently anti-Trump, but might be hesitant about voting for Biden. Our premier message demonstrates our project’s belief that in order to be truly anti-Trump in this election you ought to be voting for Joe Biden. It can be found at the top of our website here. This messaging works to promote strategic voting because it is predicated on the idea that a vote for any candidate other than Joe Biden, or a refusal to vote, however well-meaning, effectively functions to aid Trump’s chance of winning re-election. We have also worked closely with another group named, “Settle For Biden.” Although our messaging is slightly different (they are more begrudgingly pro-Biden), they also encourage the same strategic voting that we do.

    Placing aside the critique of our work based on the rational voter hypothesis, I realize that our project would not work in a ranked-choice voting system, because in this system voters would not be incentivized to pick the “lesser of two evils” or be afraid of “throwing away their vote.” Voters would be able to vote according to their preferences without concern of potentially “helping out” the candidate they despise the most.

    Mueller writes about strategic voting under the plurality rule on pg. 296, stating “for strategic voting to lead to two dominant parties, however, voters must judge the chances of the third party’s candidate winning a seat to be significantly lower than for the second-place candidate.” We know this is the case in this election, and thus are confident in the importance of our message.

    A quick note: We realize that some people reading our messaging might be deciding between voting for Trump and voting third party, not voting, etc. Our messaging is not intended for this audience (and will be largely absent from their feeds from our advertisements), but it seems that our logical stance would be to support these voters in voting third party in order to take away would-be Trump votes. 

 

Blue Books vs Green Books

    Almost every college student must buy a “Blue Book” to take an exam at some point in their college career. Recently we had to purchase one for our midterm in Public Choice. These books are extremely cheap, costing approximately one dollar at any university convenience store. I went to Corner Grocery on Main St to get mine where they cost 99 cents per book. When I arrived at Corner Grocery I was very interested to see a pile of “Green Books” next to the pile of Blue Books, and this Green Book also cost 99 cents. These Green books are each made with 30% post-consumer recycled product, compared to Blue Book’s 0%.

    When I saw the two books in front of me, my economic mind began to race. I remembered that Professor Coppock said that he preferred Blue Books because blue is his favorite color. Blue is also my favorite color--my backpack is blue, I have many blue shirts, and overall I just appreciate the color blue more than other colors. But at the same time, I worried about the negative consumption externality I may be placing on society with the purchase of the Blue Book. If I actively chose to purchase the Blue Book instead of the Green book, then I was consuming 30% more non-recycled paper than I would be if I purchased the Green Book. Another cost I had to consider was whether my exam grade would truly be affected by my choice of Green Book over Blue Book, and I assumed given Professor Coppock’s fair and principled teaching approach in the classroom, that he would not penalize me for wanting to be environmentally conscious. Upon analyzing and predicting these costs I decided to purchase the Green Book. While this application of negative externality analysis may seem a bit silly and exaggerated, I do wonder why Corner Grocery would be selling Blue Books at all. On Amazon, a case of Blue Books costs the same price as a case of Green Books, so I sort of think Corner Grocery would produce positive consumption externalities if they choose to only purchase and sell Green Books at all. Maybe I should contact the managers...

The Median Voter Theorem and the American Electorate

 

An implication of Downs’s discussion of the Median Voter Theorem is that the political parties will reflect the distribution of the electorate as a whole. The example often used is that of a normal distribution, where the largest number of voters are in the middle of the political spectrum. Here, the median, mean, and mode are all the same and the median voter will in the middle of the ideological spectrum. Because the median voter decides the election, both parties will have an incentive to moderate their positions. 

This Pew survey compares the ideological spectrum of American voters from 1994 to 2017. The idealized Median Voter scenario presented above seems to fit the United States in 1994. The Median Republican and the median Democrat are both near the center of the ideological spectrum and there is significant overlap between the two bases. By 2017, however, the situation had dramatically changed. The U.S. electorate developed a pronounced bimodal distribution as Democrats and Republicans drifted from the center of the political spectrum. From this data we can predict a shift in who is likely to vote or join a party. The growing ideological distinction between the two parties may lower indifference and encourage extremists to vote. Moderates, on the other hand, will be increasingly alienated from both parties.

Section one of this report from 2014 shows how the parties have changed in response to this polarization.  Fifty years ago, it was typical for Republicans and Democrats in Congress to adopt both liberal and conservative stances. By 2014, however, there was no ideological overlap between the two groups- the most liberal Republican was further right that the most conservative Democrat. Unfortunately, as Downs argues, polarization among the parties tends to produce instability in governance, as each party will implement policies that are radically opposed by the other party (120). 

Rent-Seeking: Grade Appeals Edition

 Rent-seeking activities are typically found in the political and corporate worlds, but there are corollaries in everyday academic life. It's midterms season at UVA, which means as students receive unsatisfactory  results on their fall exams, they turn to their instructors and the grade appeals process. In an article from the Georgia State Signal, one student's course grade improved from a failing grade to a B- following the appeals process. Many universities have similar, simple processes.

Here's where the economics comes in -- the grade appeals process is simply a form of academic rent-seeking. It is an activity that uses resources (the time of both students and their instructors) to gain economics profits (additional grade points), diverting resources from otherwise valuable uses (their next exam, academic research, etc.). 

In the name of "fairness" that regularly drives political lobbyists seeking extra protection for their industries, students seek point redistribution that will not only increase their grades, but hurt those of their classmates. In curved courses, and an improvement in the average caused by an increase in one student's grade will harm others in the final tallying of their letter grade. 

This is not to say that grade appeals are not logical. For a utility-maximizing, rational student, the expected utility of a grade appeal is often very high. The process has additional merits, like potential learning opportunities before the next exam, but that is not to say that it is does not have demerits. 

Social Cost of Not Getting the Coronavirus Vaccine

Recently I was thinking about how many percent of Americans would get vaccinated if the coronavirus vaccine would be offered. According to a Pew Research survey, only %21 percent say that they would “definitely”, %30 say they would “probably get the vaccine. On the other hand, %24 of Americans say they would “definitely not”, %25 say they would “probably not” get the vaccine. Scientists worry that the low vaccination rate would not prevent the spread of the virus because the herd immunity would not be possible with that low participation rate. Experts estimate that %70 of the US population should have immunity to reach the herd immunity threshold. 

Rational people in this survey think about the marginal benefit and marginal cost of getting the vaccination when they express their preferences. %49 of people calculated their MC as bigger than their MB. What they don’t think about is the social marginal benefit of getting vaccinated. On the contrary to the voting in the elections, getting vaccinated has more decisive results in each individual’s life. Therefore, people who don't get the vaccination will probably observe someone in their social circles to get sick and may even see their elder ones to die because of the virus. This situation would cause them to feel great regret. Hence, the group state that they would probably not get the vaccine (%25) would choose to get vaccinated if the government would be able to inform the citizens about how great their regret would be if they remain to not get vaccinated. Thus, by persuading most of the %25 percent group, it would be possible to achieve herd immunity. 

Economic Dodgeball

 As I watched some analysis after the Vice Presidential Debate a couple weeks ago, the headline on a talk show caught my eye: "Breaking News: Pence, Harris Dodge Questions in VP Debate." As Downs says in The Statics and Dynamics of Party Ideologies, it is rational for political candidates to be vague about their policy platforms if it will further their own interests. And when the choices are to answer difficult and perhaps incriminating questions on national television or to give a noncommittal answer, it is pretty clear that it makes sense for candidates to choose the latter option. There is no surprise when candidates allow their policy stances to be ambiguous according to economic theory.

The candidates dodged questions about presidential incapacity, healthcare, court packing, and abortion, to name a few. In my opinion, what stands out to me is that it was considered "breaking news" that they dodged questions. How would that not be expected! On the contrary, it would have been breaking news if the candidates had not dodged any questions. That would have been singular indeed. What I think this example illustrates is that the general public, including the news anchors, knows comparatively little about economic reasoning. If they did know more about it, people would have so much more insight into the voting process, the incentives affecting candidate behaviors, and campaign strategies. And if they knew these things, it could lead to more thoughtful, understanding, and reasonable approaches to choosing which candidate to support rather than focusing on vitriol and tangential considerations.

Prisoners in our Apt: Real Life Prisoner's Dilemma

We are all spending much more time in our houses/apartments/dorms and with our roommates/families than is usual, thanks to covid (I am a prisoner of my own apartment, if you will). This article proves I am not alone. For me, this has meant headbutting with roommates a lot over things like vacuuming, who is walking the dog, and the kitchen - with the kitchen by far being the biggest point of contention. My apartment kitchen often reminds me of the Prisoner’s Dilemma. The Prisoner’s Dilemma describes a paradox in which two individuals acting out of self interest (following their dominant strategies) produce results that are not Pareto Efficient. In my situation, there are two strategies - contributing to cleaning and not contributing. Cleaning includes things like rinsing pots and pans, loading and unloading the dishwasher, and generally keeping the kitchen crumb and spill free. Clearly, one’s payoff is higher when the kitchen is clean and they do not have to take time out of their day to do the cleaning. My roommates and I all have a dominant strategy of not contributing. This is pareto inefficient (Q*<Qae). If no one contributes, we have to exist in a dirty kitchen that could lead to a situation where undesirable creatures are attracted. Clearly, if we all contributed (the pareto efficient equilibrium), payoffs would be the highest. 

(A,B)	Contribute (B)	Don’t Contribute (B)
Contribute (A)	19,7	6,11
Don’t Contribute (A)	22,1	9,3

I have a relatively low tolerance for messes so often, I will take time out of my day to make sure the kitchen is clean. What is the solution? Mueller used the prisoner’s dilemma as a rationale for government because by making sure we all play by the rules, we can get to the PE outcome. It seems unreasonable to instate rules or chore charts (whoever made one of those would definitely be the least favorite roommate). Mueller also discusses the idea that in this matrix, the cooperative solution could emerge as an outcome in a supergame - where prisoner’s dilemma games are repeated over and over. So, for now, I guess I will have faith and wait and see what happens….

Politicains Play Cops and Robers as People Suffer

In his chapter on Welfare Costs of Tariffs, Monopolies, and Theft, Tullock uses the example of theft to explore the wasteful social costs of attempting to transfer wealth or attain rent, that are ignored by the Harberger method. In Tullock's example, as thieves invest more into trying to transfer wealth from others to themselves, those people and even the thieves themselves, invest more in trying to prevent this wealth transfer and therefore, reduce the the potential returns on the thieves' investment. And though the act of purely taking or retaining belongings is not a cost to society, allocating resources towards wealth transfer and protecting against wealth transfer carry an opportunity cost that, according to Tullock, is wasteful, "from the standpoint of society as a whole"(Tullock,  47). Which is why societies put in place laws, police, and courts, to prevent this type of wealth transfer as best as possible. 

Though political parties are not thieves and homeowners, their fight to influence the government and the country can be explained by examining their activities through a similar lens. Republicans currently control the Senate, the Presidency, and have more of their judges on the Supreme court and federal benches across the country. If we consider this power as units of wealth, Republicans have much they need to protect, which explains why they are wasting no time to confirm Amy Coney Barrett to the Supreme Court right after the death of Justice Ruth Bader Ginsburg. But Democrats clearly want to take this power for themselves and have broke fundraising records trying to do so. In fact, Democrats and progressive groups raised a record $90 million, directly after Justice Ginsburg's death. Therefore, as democrats' investments have increased the chance that they will take over the senate and win the presidency, Republicans have stalled coronavirus relief negotiations and have invested time and resources into their last best chance at protecting their wealth, and in their view Americans' wealth, by putting a conservative judge on the Supreme court that may be able to use the judiciary to reduce the amount of power or return that democrats will get from their investment in controlling the white house and congress.  

Finally, though Democrats or Republicans having power or wealth is not a cost to the American public, the large amount of time and resources that both parties are using have a large opportunity cost to society as a whole. Opportunity costs are especially large now due to the fact that both parties could be investing this time and resources in fighting the coronavirus that has taken over 200,000 lives and has caused an economic recession.

Maybe if it still took 60 senators to confirm a supreme court justice or if we had public funding of elections, we could prevent this type of wasteful wealth transfer.

What Truly Caused Maine's Voting System to Change

After our discussion about different voting systems, I was curious why Maine's rank-choice voting system was passed. This seems like a very significant change to our voting system; something unprecedented. Mr. Coppock's comment about Maine's former conservative Governor got me thinking in terms of political parties and strategies used to maximize votes. It reminded me of the Democrat-supported abolishment of the electoral college and their attempts to change various American systems in order to gain power. After looking into the rank-choice voting bill breakdown, my suspicions were confirmed that the change to the voting system was less of a question of fairness due to the voter, but rather an example of a self-interested political party achieving changes that increase their chances of winning.

In the Maine rank-choice bill that passed earlier this year, it is obvious that the move to this new system was fueled by pursuing the self-interest of the party rather than the voter's best interest in mind. Simply looking at the breakdown of the voting patterns, we can see that all Republicans and Democrats voted on party lines while only one Democrat voted against the bill. The fact that a strong, conservative Governor was able to secure the victory in a state such as Maine must have been the cause of such a drastic change to our democratic system supported by Democrats. We can debate about which system maximizes voter happiness, but when it comes down to it, these types of decisions boil down to one party's self-interest in winning elections. Viewing political parties as vote maximizers rather than a representative body of 'public despots' helps the citizen understand why Republicans and Democrats support the legislation they do.

Trader Joe’s Against Rent-Seeking

After grocery shopping at my favorite grocery store, Trader Joe’s, this week, I started to think about all the things that make TJ’s so great and unique. Our discussion about rent seeking in class got me thinking about all the shelf space in grocery stores and why you see certain products more than others, and more frequently on that “eye-level” shelf. Majority of grocery stores take part in charging suppliers a “slotting fee.” This fee means that suppliers have to pay a fee in order to secure shelf space in the grocery store, and particularly more for the “better shelves.”

 

Think about it, usually the popular and go-to products tend to be right in front of you when you are looking at the grocery store shelves. You rarely have to dig deep for goods like Goldfish, Coca-Cola, Oreos, etc. – they’re all right there at eye-level. This is because these large corporations are able to buy that shelf space and hold a monopoly on it, pushing other competitors to the bottom shelves. This is a form of rent-seeking and leads to an inefficient allocation of resources. Suppliers try to outbid each other and spend resources to obtain these “rents” of the best and most shelf space from the retailers. Suppliers may even try to bribe or lobby retailers to put their product in the best location. These suppliers are looking to establish a monopoly with their product on that particular goods’ shelf space in grocery stores. This is a problem because this action may not lead to the supplier with the best, most deserving or healthy product getting the shelf space it deserves. Additionally, more slotting fees lead to higher prices for the customers. So, just to add to the list of things that make Trader Joe’s so fantastic and customer-friendly – they do not charge their supplies a slotting fee and therefore allow for the proper distribution of products on shelves and an efficient allocation of resources.

Is Lobbying "sweet" or a Misallocation of Resources?

 In Mueller’s discussion regarding rent-seeking, he identifies one way that rent-seeking may be “socially wasteful” as exerting effort and resources in order to attain greater than normal profits. Our discussion about lobbying and the potential for the misallocation of resources made me think about my dad’s job representing the U.S. Sugar beet Growers. I gave him a call the other day after class, and I can confirm, there is a lot of resource misallocation of resources happening in the sugar beet industry. The main purpose of having lobbyist for sugar beet growers is to protect them in all capacities—providing relief in years when crop yield is low, protecting them from changes in sugar price, and providing job security.

While there are many examples of misallocations of resources, I am going to share two—protective tariffs on sugar from other countries, and campaign contributions. One major effort by those representing sugar farmers is protecting them from the dumping of sugar by foreign countries into the U.S. market (which would drop the price of sugar and hurt farmers), with Mexico being the biggest example in the past decade. The U.S. sugar beet industry spends an exceptional amount of money, time, and resources to litigate for the protection of the current sugar price. It is difficult to say whether the monetary costs of protecting the sugar price outweighs the eventual benefit, but the industry claims the fight for protecting the sugar price in turn boosts the U.S. economy as a whole and provides hundreds of thousands of stable jobs to Americans. In my opinion, I may go as far to say that the lobbying group impedes trade and reduces potential consumer surplus as they push for tariffs on sugar imports.  Secondly, as lobbyists do, the organization representing U.S. sugar beet farmers host fundraisers and donates to the campaigns of members of congress. However, the representatives who receive donations do not always end up voting in favor of legislation that is beneficial to sugar beet farmers. This is an example of a large misallocation of resources in an effort to attain some “rent” or benefit that could come from some particular litigation. All in all, we can see a multitude of the problems associated with rent-seeking in lobbying, but the existence of such a function in our country goes to show that many people somehow see the potential benefits of lobbying outweighing the substantial misallocation of resources. 

Coase Still Impacting the City of Chicago

    Sports owners are constantly trying to find new avenues to increase their revenues.  Every team brings in money from ticket sales, concessions, and TV money to name a few of the largest sources of revenue streams.  However, there has been a movement towards teams owning all of the area surrounding their stadium as well.  By doing this, the team can increase revenues via restaurants, bars, and hotels that all encapsulate the full game day experience for fans.  A family can go see their favorite team play for an entire weekend and never have to leave the vicinity of the stadium for food or lodging.

    As this type of money is emerging from the areas immediately surrounding the stadium, more and more people want a piece of the pie.  Chicago is no different.  The rooftops of the tall buildings around the stadium are able to see into Wrigley Field and give the people on the roof a great view of the game.  These rooftop tickets are often much more affordable as well.  The owners of these buildings have taken advantage of the situation and sold tickets to watch the games up there.  This hurts the Cubs business as people who might normally buy tickets to the game are now paying less to watch it from outside the stadium.  This represents a Coasian problem.  In theory, the Cubs owners and the surrounding building owners should be able to negotiate a solution to the problem since property rights are defined.  However, there are high transaction costs between the two parties that inhibit a deal being reached.  Over the years, the owners of the Cubs have bought out some of the buildings and companies that offer these rooftop tickets for a view of the game.  To impede the businesses that they did not acquire, the Cubs built large obstructions such as a huge scoreboard to block the view from those locations.  When there is millions of dollars on the line, a mutually agreed upon arrangement is very difficult to reach.  With the help of Coase, this problem could have been solved in a more efficient manner long ago.