Virginia Political Economy

Not all tobacco companies support advertising restrictions...

As we discussed in class, the Capture Theory suggests that the cigarette industry wants restrictions on advertising.  Counterinuititve at first, advertising restrictions place a barrier to entry in the cigarette industry, leading to economic profit and reduced costs if no one can spend a lot of money on advertising.  In general, I believe this holds for the cigarette industry, most notably with the market leader, Philip Morris, which consistently backs legislation restricting advertising. 

What is of note, however, is the other cigarette companies (in desperate attempts to gain market share in an declining industry) do not show this support of more legislation and have pushed the advertising restrictions to the edge.  These companies do not want the government "captured."

Philip Morris vocally supported the tobacco bill that went through congress this past Spring that would allow the F.D.A. to regulate tobacco.  Other major companies, including RJR (2nd in market share), threatened Congress with a filibuster over the legislation.  Philip Morris spins their support as "doing the right thing"--but really, the more legislation surrounding tobacco, the harder it will be for competitors to keep up, the more market share the company will gain.  This past June, the bill passed in the Senate, a cause for celebration for Philip Morris and to the dismay of RJR.

Also, RJR notoriously has pushed the current marketing restrictions to the limit in order to gain market share, either by scantly clad females in bar promotions or in promoting its new Camel No. 9 cigarette targeted toward females.

Clearly, the market leader supports the Capture theory in regards to cigarette advertising restrictions.  Another consequence of this is the response of those companies forced to compete, perhaps irresponsibly in this case, within these restrictions.

 

Bureaucracy: 30 years to make a decision.

I find myself almost always fed up with bureaucracy, because it seems like I am constantly wasting inordinate amounts of time while people in charge pretend that they are trying to help me.  I have gone to the DMV and left because the line was too long and more than a few times I have hung up the phone after waiting on hold for what seems like hours while I try to figure out why the business office lost two of my past three checks.  I think that the situations I have to deal with are bad, but after reading an article published in the LA Times about Indian tribes waiting over thirty years to hear back from government officials I realized some people have it much worse.

The Department of Interior says they try to let Indian tribes know within 25 months whether or not they can be formally recognized by the US government.  This recognition then enables tribes to qualify for economic assistance and land grants.  The process however is terribly flawed and in some instances, “It took 31 years for the tribe to get a negative decision after being told a decade ago that approval was likely.”  One has to wonder what these agents have been doing with their time.  Finally, last week after a US Senate oversight hearing, they have pledged to improve the process.  The acting deputy assistant secretary for the interior, however, has said that “his agency would begin drafting new regulation…those new rules could take a year to develop and then another year to be adapted.”  Does this really mean 10 years and then another twenty to make a final decision?

The Bureau of Indian affairs is obviously a flawed bureaucracy but how long will it take to fix it.  The main problem with this agency is that there is no way to monitor their output because at the end of the year there is no necessary amount of tangible output.  Also, the agency is a bilateral monopoly because there is no alternative source of information.  The Bureau of Indian Affairs is the only governmental organization that has all the information and therefore they are the experts, and as a result it is very difficult for anyone to argue with their pace of work and final outcome.  These bureaucrats spend their money and time in ways that look really necessary, but in the end it takes these government officials over thirty years to make contentious decisions. 

Health Care Bill: The Public Choice Perspective

You really don't know who to believe. Democrats claim this bill is necessary for the "survival of our country", the same group of people who often cite The Day After Tomorrow for global warming reform. Republicans claim that this will lead to an "end of democracy and freedom for Americans", but given recent republican legislation and actions (something about Patriots and Prisons), I highly doubt they know what democracy, freedom and Americans really mean. What we can look at is what dear ol' Professor Coppock might teach us to say, for we know that he will wrong us not.

http://www.cnn.com/SPECIALS/2009/health.care/

Health Care insurance is an instance of a natural monopoly, because the more people in a collective, the cost of each claim will be more defrayed by the population. Public Choice economists, such as Friedman, would strongly support regulations for the Health Care Industry in this light. There exists regulations for health care industry, but they are actually capture for the health care companies as opposed to regulations against this natural monopoly. Silly Chicago economists such as Sam Peltzman would claim that this process would be economically efficient through competing interest groups, but then again, that's why they're silly. The group that provides health insurance is vastly smaller than the people who receive health insurance, allowing them to organize more efficiently to lobby congress, whereas the group of people who needs/receives health insurance (read: every human being) suffer from massive free-rider problems. Organizations that require membership costs simply wouldn't make sense for health right lobbyists simply because people who need it most can barely afford insurance and the benefits it can give can't outweigh that of actually health insurance. Yet despite all this, many legislation prior to the current bill has been struck down due to the massive amount of "campaign contributions" that senators received to ignore the right to health of individuals.

Government sponsored health care system will have interesting public choice consequences. Niskanen would argue that beaurocracies are inefficient and thus something so massive as health care ought not be provided by the government. Even if it were true, let's see how it would affect the private sector of health. First, it would actually help the health care industries as a form of capture, significantly raising entry costs into the field and crowding out existing smaller firms, reducing the competition in the private sector. Second, while competitions within the private firms decrease, the government itself would lead to a large price-setting entity within the market for health care. I don't buy the claim that price will be naturally driven down, rather, the government will create an artifical price ceiling through some "faux" competition. The government isn't a profit maximizing entity, but rather a vote maximizing machine. This will create a market check though against health care industries nickeling and diming individuals as they have in the past (see: Sicko by Michael Moore).

There is 2 aspects that haven't been touched on, but are worth considering. First is the social ramification, as increased health standard only leads to increased productivity per capita, which would increased market efficiency. The second thing is the nature of the policy plan is that the government health care policy might not include controversial plans like abortion and probably won't include a death panel, so there will be an increased diversification within the industry. Though the logic of the median voter theorem would suggest that health care policies will still straddle the middle to get as many customers as possible.

Wow, I'm really sorry, this is really freaking long.

The food industry's hold on the USDA leads to false nutritional facts?

Author and CNN writer Jonathan Safran Foer composed two essays for CNN.com on the consequences of eating meat. In the second, Foer discusses the "distorting influence of the meat industry on the information about nutrition we receive from the government and medical professionals". He begins his essay by criticizing the American Dietetic Association for "taking a conservative stand" on portraying vegetarian diets by "leaving out well-documented health benefits attributable to reducing the consumption of animal products". He brings evidence to the table that completely dispels the "myth" that meat-eaters consume a healthier level of protein. And Foer's claim as to why the ADA and other health agencies don't try to get more vegetarians out there is simply due to a conflict of interest: "Our nation gets its federally endorsed nutritional information from an agency that must support the food industry". Foer cites a public-health expert, Marion Nestle, who argues that the food industry will lobby Congress to eliminate regulations perceived as unfavorable... and will co-opt food and nutrition experts by supporting professional organizations and research".

For example, the National Dairy Council is the marketing group for Dairy Management Inc., "whose sole purpose is to 'drive increased sales of and demand for US dairy products'". The National Dairy Council promotes dairy consumption despite proven negative effects of dairy consumption. The worst part about it, says Foer, is that the US government has allowed the Council to become "arguably the largest and most important suppliers of nutritional-education materials in the nation". An even more controversial example is the US Department of Agriculture, a government department that lobbies to make factory farming the norm in America, that is also the sole decision-maker when it comes to determining federal "nutritional guidelines". 

It's an interesting situation because it seems like the food industry doesn't even have to lobby the USDA hard to get the regulations (or lack of) that they want simple because it's the USDA's job to promote the food industry. However, the USDA is also the institution we have placed in charge of informing us when certain foods are dangerous! "The USDA has a monopoly on the most important advertising space in the nation, those little nutritional boxes we find on virtually everything we eat." And through the USDA, the food industry has "crafted our national nutrition policy, which influences everything from what foods are stocked in the health-food aisle at the local grocery store to what our children eat at school."

The Moving Median

The results of recent state and local elections have been a fine example of the accuracy Hotelling-Downs median voter theorem. Democrats, who won handily in 2008, largely lost to Republican candidates in this 2009 election, due to shifts in the preferences of median voters.

According to one New York Times' op-ed, Democrats, perhaps expecting to ride the coat tails of their momentum in the 2008 election, did not cater their campaign platforms to the shifting expectations of a voting population of a country which has undergone significant change in the past 12 months. At present, median voters, according to columnist David Brooks, comprise largely of "anxious suburban independents who think [Obama] is moving too fast". The recent recession, which has had over a year to settle into its permanence from the 2008 election season, has hit these median-independent voters hardest, with unemployment at a 26-year high. As a result, the economic views of median voters have shifted further away from those of the Obama Democrats, as a recent Gallup poll has shown, "the share of independents who describe their views as conservative has moved from 29 percent last year to 35 percent today".

Independent, median voters desire more than anything "stability and order". The tide of median voter preferences is shifting as a result of recent instability and disorder, and with it, the median vote.

Young Bureaucrats Wanted

How many of your friends and classmates have expressed a desire to enter the working world as government bureaucrats upon graduation? It seems that there is a dearth of young people who pursue careers in civil service. The average age of bureaucrats in many developed countries has risen steadily in recent years as fewer graduates look to the public sector for employment, opting instead to enter the private workforce or a non-profit. The financial compensation in the private sector far outstips what can be earned in the public sphere, and the esteem attached to "saving the world" at an NGO can be more attractive than any prestige associated with bureaucratic careers.

The most interesting point that the article makes is that many bureaucracies are not initiating special recruitment efforts despite the talent shortage and the increasingly significant role that bureaucracies play in economies as regulators. Given Niskanen's model in which bureaucracies are budget-maximizers, one would anticipate that bureaucrats would try to expand their responsibilities and their staff sizes at every opportunity. The recent economic crisis and the resulting emphasis on improving market regulation has provided just such an opportunity for bureaucracies to grow their capabilities. If budget maximization is in fact the goal for a senior bureaucrat, competing for human capital against the private sector is a great justification to provide to legislative sponsors for raising salaries and other perquisites. I know I would reconsider my career opportunities.

Soda Tax Calls for Lobbying Activities

    In the past year, soft drink companies, and fast food businesses alike, have spent millions campaigning against what they fear of as a national movement to raise money for national healthcare, by taxing sweetened beverages. Around $24 million has been spent on such lobbying, $5 million of which has been geared towards promoting a newly formed interest group: American Against Food Taxes.  The group has about 400 or so members, however a few powerhouse firms in the fast food industry, such as Burger King Corporation, Coca Cola, Pepsico and others, dominate the group. 

            Health experts have argued that Soft Drinks have been a key contributor to childhood obesity over the years.  Supporters for a tax on soda have compared the market to that of the tobacco industry, claiming that the tax would help offset healthcare cost, generating revenue, and help cutting back on overall consumption.  However, lobbyist for such groups have argued that is unfair to single out the soft drink companies as the reason for childhood obesity.

            In Olson’s Theory of Group’s and Organizations, he provides a taxonomy or classification of groups: the monopoly “group,” which consists of a single individual in the market, seeking a collective good, an oligopoly group, and latent group.  A situation in which a firm’s action in the market has a noticeable effect on other firms in that market, is recognized as an oligopoly. In context of the above article, the groups that are formed in the fast food industry would be that of the oligopoly type, as defined in the Olson article. 

            Oligopoly can be further divided into two classifications, a privileged group, in which there are dominant firms, and all others are privileged, and an intermediate group.  The groups in the fast food and soda industries, I believe would be classified more as privileged.  This is because the members of the group would gain more from a public good than it would cost them to provide it unilaterally. Whereas, in an intermediate group, if any members of the group do not contribute, there is a noticeable decrease in supply of the good, or at least a rise in the cost to other contributors. With dominant firms such as Coca Cola and Pepsico, it would seem that the others smaller firms in the industry would benefit off of their lobbying activities towards the government, being privileged.

            As predicted by Olson, there is a presumption that in a group that is privileged, the collective good will be provided. With a rise in the talk of a tax on junk food products such as sodas, from President Obama, and other government officials on Capitol Hill, we will have to see what the outcomes of these interest groups activities will be.  However, it does seem as if the concerns of soda are catching on in some of the big time states, such as California, who are holding meetings to further research the link between childhood obesity and soda consumption. 

Citizens Angry with FEMA, Again

For the last 6 years, FEMA (Federal Emergency Management Agency) has been working to replace decades-old paper flood maps with updated digital versions. In Massachusetts, these revised maps are creating a great deal of controversy. Many homeowners are finding out from the local government that their property has been put into a newly designated flood zone, forcing them to buy additional insurance coverage. For a $250,000 house, the policy runs about $2,177. Property owners across the state, confused and upset about the zoning changes, are calling local officials to complain and seek more information. One such owner is outraged that FEMA never notified him of the pending changes when a lower insurance rate was still available. When the owner went to the county office to seek information, he was told they did not even know how the re-zoning was done.

This story reminded me of our discussion in class about people's negative experiences with bureaucracy. Because FEMA is the so-called "expert" on natural disasters, it is impossible for citizens to argue against FEMA's decision. Also, it is hard to measure whether FEMA did sufficient research before making their determinations about how to remap areas. As one person said, "It was a typical federal bureaucratic reaction to the screw-up in New Orleans," while another added that he "shouldn’t be forced to pay higher insurance rates and face lower property values because of the inaccuracies of their study." If FEMA does not change course and provide more reasoning behind the flood zone changes, their lack of transparency will continue to cause homeowners in Massachusetts to gripe about the federal bureaucracy.

The Heisman Vote vs. NFL MVP Voting

Earlier this semester, we studied various voting systems and their relative effectiveness.  Being slightly obsessed with sports, I decided to study the various systems in place for both college and professional football.  What I found was that the Heisman system employs the Borda Count system, which is believed by many to be the most Condorcet efficient.  The NFL MVP system, on the other hand, uses a simple majority approach, tallying the votes of 50 sportswriters.

One might be led to believe that the Heisman system is most efficient - it is interesting to note, however, that Tim Tebow currently leads the Scripps Heisman vote despite not receiving the most first-place votes.  In addition, there have been many controversial Heisman winners; in fact, many people dispute the validity of the Heisman because of its "regional" voting system.  The country is divided into 6 separate regions with a noted media member in charge of each region. This member then chooses a select group of other voters that are football writers, reporters, or TV personalities to also cast votes.  Dividing the country up is supposed to assure there will be no regional bias for any one player; however, this has not always been the case.

Likewise, there have been complaints about the NFL system.  Last year, Peyton Manning ran away with the MVP title, yet the argument could have been made for several players including current Redskins DT Albert Haynesworth.  Finally, one is forced to ask what is so special about the 50 sportswriters in the voting process; why not include fans or analysts of the NFL, who are arguably more knowledgeable?

Each voting system has had its controversies and complaints and it is difficult to state which one is more efficient in the long run.  Regardless, the voting processes always make for good sports conversation.

Bureaucracy in the Public School System

If any of you were wondering why some your public high school teachers were so terrible and never got fired, maybe they had tenure.  This article explains that "most of America's public school teachers believe tenure protects teachers from district politics, favoritism, and the threat of losing their jobs to newcomers who would earn less."  It also explains that many teachers who receive tenure shouldn't, and it makes it very hard to fire them. They don't even perform the required task or they perform the tasks badly. Bad teachers receiving tenure has many problems, such as the students do not learn what they should or anything beyond what is required.  They also are able to gain seniority more easily, which provides them with higher pay each year. 

In class we talked about the problems in bureaucracy, and some of the problems that extend to this particular case are that the teachers’ outputs are hard to measure, they are not competing for work, and that they have no incentive to work harder.  It’s difficult to measure their output without giving tests to student at the end of the year to see what they have learned.  Virginia does this in the form of the SOL, but in my experience the test biased. The test aims to prove that the teacher has completed their requirements because students can take the tests multiple times and have the threat of not graduating if they don’t pass.  The teachers also have no incentive to work harder because they already have tenure and do not get paid by how much they work.  They do just enough to get by, meaning that they don’t do anything bad enough to get enough attention to get fired.  They also have no competition because tenure was introduced specifically to prevent competition.

This is an example of a bureaucracy that seems inefficient, but to the school principal or to the superintendent, it must cost less to keep the tenured, bad teacher employed than hire a new teacher that will work harder for less pay or they would fire the teacher.  There are costs of hiring and training a new teacher, costs of paperwork and possible court cases after getting rid of the teacher, and the sunk cost that many would consider of getting rid of a teacher that has already taught for them for so long.  This costs more than the benefit of getting to pay the new teacher less money, but this makes me wonder if they also take into account the amount the students actually learn because in my experience because it seems like the benefit of having a good teacher should outweigh the costs if only for the benefit of having students who learn as much as possible, graduate, and go to college.

Capturing Online Gambling Legislation

In July of 2006 the United States House of Representatives passed a law that essentially banned online gambling. The bill passed by a vote of 317-93 with broad bipartisan support. The legislation permits law enforcement authorities to work with Internet providers in order to block US residents from accessing online gambling websites. The main public good argument behind this law is that these sorts of websites are incredibly hard to track and could easily be used by drug or terrorist networks to launder money.

Of course this law also aides gambling institutions that aren’t based online by eliminating an easily accessed competitor. The bill was supported by many casinos, states that have lotteries, and even pro-sports, for which gambling is an important source of revenue. The bill goes out of its way to shelter local gambling that is based out of the United States, such as online gambling based around horse and dog racing. Most of the online gambling businesses that will be impacted are run from overseas, which means that their ability to lobby American politicians is limited (they cannot donate to American politicians or, of course, vote in this country). American online gamblers, while a large group, are also spread out across the country and almost impossible to organize. Since 2006, Internet gambling has reemerged, using loopholes in this legislation, but the businesses are less efficient and casinos, lotteries, etc. still benefit.

Increase the Benefits, Decrease the Costs, Of Voting

Dealing with the issue of voter turnout, Garden City, Idaho is considering alternative voting procedures to encourage a higher percentage of voter participation.  In a recent election for a single candidate, voter turnout was only 0.2%.  Considering the average cost of conducting an election in Garden City is $5,000, this article argues that these funds could be used more wisely.

One idea is to combine elections in order to save costs.  Many of the minor issues voted upon  could easily be consolidated into a single election.  The voter will have a greater incentive to participate in the election process because of the multitude of issues.  Additionally, consolidating multiple issues into one election will be cost saving for the town.

Another alternative, voting online, aims to decrease the opportunity cost of voting.  This allows people to vote from anywhere and at a time that is convenient for them.  For now, however, Garden City has decided to reduce its expenses by consolidating it's elections beginning 2011.

UK Legislators as Senior Bureaucrats

In class, we discussed Niskansen’s model in terms of a sponsor (Congress) and the bureau (Department of Defense). What about an example of legislators acting as bureaucrats and citizen voters as sponsors?

 

In the United Kingdom, certain rules regarding legislative perks have been suggested amidst the expense-claim scandal that has ended several careers and hurt the reputation of the “self-styled mother of all Parliaments.” Such embarrassing revelations have included reimbursements for everything from toilet seats to interest payments on mortgages that no longer exist.

 

The proposed rules are thus meant to build "safeguards for the taxpayer," or the sponsor, into the system. However, some MPs have countered by stating that the new rules are an overreaction that will increase bureaucracy and “make being a politician so expensive that only the wealthy will be able to do it.” Yeah, right...

Returning to the Niskansen model, then, it appears that legislators have stretched their luck too far. There has been an excess of output, quantified in this situation by the monetary amount of perquisites, and the surplus benefit to the sponsor—citizen voters—has fallen below its breakeven point. Regardless if the proposed changes pass or not, the legislators will have to face the judgments of an angry public in an election next year.

College Lifestyle + Shunning Swine Flu Vaccine? = Not a GREAT Idea...

While checking my email today, three messages caught my eye: the first was one from my mother with FLU SHOT LISA?!?!??!!? in the subject - nothing in the body of the email. The other two were regarding both the flu shot clinic and the limited supply of the H1N1 vaccine that is now available. My immediate reaction was that I will be first in line for both ASAP (mostly to avoid my mother's annoying emails), but some college students have decided that even though they are the most susceptible group to this illness, they will not get the vaccine. The Washington Post recently interviewed some fraternity brothers at George Washington University who are convinced that they will be just fine if they contract the swine flu, and also believe that refusing the shot is just as risky as other activities they participate in.

Although I wish I could agree with Olson in this situation and say that a small "interest group" (in this case a small group of mothers and significant others of these college students) will be easy to organize and convince the students to get the vaccine, very little will actually be able to convince them. However, we can anticipate a Free Rider Problem with this vaccine. According to Olson, the Free Rider Problem will worsen as a group gets larger. In this case, if 4 fraternity brothers who are roommates decide to get the vaccine, one brother may decide to not get it because he feels he is vaccinated through his roommates, and does not want to have to spend the money on protecting himself. However, if all the 30 fraternity brothers decide to get the shot, more brothers than just one will decide that they are protected enough by the majority of the brothers receive the shot. They will not feel as bad about "shunning"the vaccine as the 1 brother out of four who does not receive it because it will be much easier to conceal who is free riding in a larger group. The few brothers who opt out will also feel more protected than the 1 brother who opts out because of the larger network of vaccinated brothers. Hopefully, but not likely, all college students will decide to receive the vaccine, but if not, the Free Rider Problem will definitely exist, especially in larger student groups.

Why Did Virginia Students Vote or Not Vote?

            Yesterday’s gubernatorial election brought victory to Virginia’s Republicans, while ringing the bells of defeat for the Democrats. As I sat and read the Cavalier Daily this morning, I wondered who voted, why and how people feel today.

            Matt Conover, author of the article, noted that votes of University students were down, due to “apathy or general lack of interest about the commonwealth’s latest political events.” However, I wonder if people were just trying to minimize their costs. As we learned in class recently, there is a greater probability that you will get run over by a car on your way home from voting than there is for your vote to break a tie or to be the one that makes one candidate win. Perhaps the low turn out in this election was not due to apathy, but to proactive awareness of the real life effect one may have on voting. Though Virginia is a “purple” state, the probability of one person’s vote having a great effect on the election is very low, and to many, produced a benefit that did not exceed the costs.

            So why did many UVA students still vote?  People probably still voted in this election because they wanted to be seen voting, fulfill their civic duty, and/or minimize their regret. If the election had come down to one vote, and they had not voted, they would have had a very large amount of regret.

            Though Venable elementary school is literally across the street from me, and the cost of voting would have been pretty low, after learning about the vote motive, and probability of having an impact, I decided to stay in and take a nap. 

It's not just greedy cabbies asking for regulation of taxis

As Professor Coppock has mentioned in class a few times, the taxi industry is regulated in most U.S. cities.  At first pass, this is strange because taxis are not a natural monopoly and there could be viable competition without regulation.  Stigler would argue the taxi drivers are the ones who push the most for this regulation--the higher the barriers to entry, the most economic profit available for the remaining cabbies.  I think, however, there is a strong public interest argument for taxi regulation in large cities, like NYC, and decided to dig a little further into the topic.

Who pushed for regulation in the U.S. to begin with? Regulation of modern taxis today began in the 1920s and 1930s at the local level due to demands from local residents, consumers and cabbies themselves.  In 1933, there were 19,000 cabs in NYC--compared with the 12,187 allowed today due to regulation. Basically, cabbies were making less money with the increased competition because they drove around vacant longer looking for passengers, when passengers were finally picked up, cabbies had stronger incentives to try to exploit the consumer for more money (since prices were based on mileage and time), so consumers were unhappy, and residents of the city were upset due to the increased pollution and overcrowded streets. 

Would taxis be more efficient without this regulation?  It turns out, a few major cities have experimented with deregulation recently, and most of which have re-regulated the taxi system within a few years. 

So who pushed for the re-regulation?  Clearly, the cabbies themselves complained and wanted barriers to entry so they could make more money.  But what is interesting is that a very strong voice in pushing for re-regulation was consumers and residents.  In St. Louis, taxis were deregulated in '98 and fares rose 35% with a significant decrease in service quality and safety.  In Dublin, when taxi's were deregulated, the number of cabs increased 355%, prompting complaints from local residents for overcrowded streets and more pollution.

Externalities like overcrowding and pollution, as well as a rise in fares for consumers, have clearly lead local residents to push for re-regulation of taxis.  There are a few other forces at work here, besides the taxicab industry capturing the government, that have lead to regulation in most U.S. cities.

Regulations causing voters to get out

Last year, Maryland officials found themselves spending more than they collected in taxes.  To offset this disparity, governor Martin O’Malley had the brilliant idea of increasing the taxes of the wealthiest in the state: the millionaires.  Unfortunately for him, he did not have any foresight- instead of collecting over a $100 million more in taxes this year, Maryland tax collectors collected $100 million less than last year.  This $200 million gap is cutting into the state’s finances and citizens are feeling the effects, but fortunately, I live in DC so it's not of the direst consequence to me.

O’Malley is probably scratching his head, thinking, what happened?  It is not likely O’Malley studied much economics while in college, for had he, he would have been able to foresee the problem that might arise from increasing the millionaires’ taxes so much.  Had he read Peltzman’s paper on regulation, he would have been able to see the effects of an extreme increase in regulation on a small subset of very powerful individuals.  The probability that the millionaires opposed the tax increased so tremendously that his plan backfired and the millionaires realized they could save a fortune by relocating to a new home or their second home in a state that had a much lower tax rates, so that’s exactly what they did.                                                                                                          

One way O’Malley plans on saving the state’s dwindling finances is by implementing a 5 cent increase on alcohol. Instead of changing the tax rate again, I personally think Marylanders should look into changing their governor. 

Stronger Coase Theorem

The Coase Theorem provides a counterintuitive but elegant solution to the problems of externalities. The theorem states that given zero transaction costs and well defined property rights, the most efficient outcome will prevail, regardless of how the property rights were initially distributed. The reasoning is that the party which can reap higher economic gains in the use of a certain property would find it advantageous to pay the others for the rights to said property. Property rights can contracts and rights on top of physical pieces of land and capital.

I challenge that there needs to be well defined property rights prior to the transaction. I argue that even if property rights weren't well defined prior to the exchange, that the most efficient market allocation will still occur. Even when nobody has rights assigned to a property, the side that receive the biggest economic gain would still find it advantageous to engage in trade and create contracts over said property. It's illogical to think that rational utility maximizing parties
would be unwilling to engage in trade when they can benefit from that exchange, and efficient property rights allocation is created as a result. This theorem is stronger because it obtains the same result with fewer restrictions.

One common objection to the lack of well-defined property rights in a Coasian transaction is the violence objection. That one party, without predefined property rights, would, through the means of force, violently take property from others where there doesn't exist property rights in the start state. That objection is myopic for 2 reasons. 1st, the weaker objection, is that having to hire people to patrol and regulate a transaction's success is transaction costs, which is assumed away by Coase. The stronger objection is that an economic state assumes the retainment of individual autonomy. Violence is an issue even if you have well defined property rights, because it would oftentime be more favorable for one party to buy a handgun and threaten the life of another's family to sign a contract over property rights. The Mafia constantly engages in these "offer they can't refuse". Remember, trade guarantees value only when both sides consent to that trade (Econ 202, Rotunda Symbol #2, by some professor, I forget who). Thus rendering the violence objection void and null.

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Don't Trust a Table-er

As I was walking home after class on Thursday, I was bombarded with the usual “table-ers” attempting to pass out their flyers with the lure of some type of food, and received this flyer from a table with a particularly large and alluring candy bowl. Instead of throwing away the flyer, which is what usually happens, I decided to read it and was shocked at its irrational logic. I would like to refute each reason given on this flyer, of “why I should vote” in the upcoming gubernatorial election.

 

1. UVA is a public school, yes, but the majority of its funding comes from private donors as it is moving toward becoming a purely private school in the next 10 years. Also, since I will be graduating this year, I will not have as much vested interest in the school and its funding from the state.
2. I did vote last year in the state of Virginia, which actually was a swing state in last year’s presidential election, but I highly doubt my individual vote out of the votes of millions had a “big impact” on the final decision.
3. Statistically speaking, the probability of me getting in a car accident on the way to the voting polls is greater than the probability of my individual vote “breaking the tie” in the upcoming election. The dangerous cost of voting clearly outweighs the expected benefit and utility of my preferred candidate winning the election. (Unless I used a minimax regret strategy….)
4. “Civic duty” is a vague term that still doesn’t explain the irrationality of me voting in an election in which the probability of my vote making a difference is  slim to none.
5. Ok, I get candy, which is pretty exciting considering I love free food, but after Halloween weekend, I will be in a sugar coma and won’t want to see a piece of chocolate for weeks. Also, the marginal benefit of consuming one candy does not outweigh the cost of voting and registration which is time consuming and tedious.

 

None of the reasons for voting given by the UVA legislative Affairs Committee are economically sound. With all this being said, however, I will actually vote in this year’s election. My minimax regret strategy has started to take over and the potential regret I would feel if I didn’t vote and I could’ve been the tie breaker is leading me to the polls. (or maybe it actually is the candy…)

Public Health Care Option: AMA vs. Its Doctors

In class last week, we talked about Olson’s claim that people join a group because of common interests; however individuals within the group also have personal interests that may or may not coincide with the group’s interests.  This idea can be applied to doctors facing the new health care proposal.  Doctors must decide whether or not they personally support the public option.  As we also discussed in class, many doctors are members of the AMA, or American Medical Association.  The AMA has been consistently opposed to the public option because they are worried about the government putting too many limitations on doctors.

However, recent studies have shown that 63% of doctors nationwide, including a large portion of doctors that are members of the AMA, support the public health care option.  These doctors’ interests directly contradict those of the AMA, and therefore they may not act in the best interest of the group, but rather in their own interest.  Without support from their members, the AMA will not be as successful as a whole.  It will be interesting to see if the AMA continues its opposition to the proposal, or if they decide to better represent the interests of their doctors.  In order to thrive as a group, they must find common ground somewhere.

I try really hard not to like Mickey D's.

    In high school we always referred to the cafeteria meat as mystery meat because quite honestly sloppy joes tasted like a combination of chicken and rubber, and if you dropped your hamburger patty on the floor it literally bounced.  I can tolerate a lot of pretty gross things but I refuse to eat feces, feathers, chicken feed, and fragments of dead organisms that accumulate on chicken farms.  According to an article in the LA Times this week, one to two million tons of this precise combination is fed to cattle every year, and that is why food and consumer groups are trying to get the FDA to outlaw this method of feeding cows.  This regulation would benefit the public at large by reducing the incidences of mad cow disease and contamination as well as improve overall health.
    This regulation can also be seen as an example of the capture theory because the article mentions that, “McDonald's Corp., the nation's largest restaurant user of beef, also wants the FDA to prohibit the feeding of so-called poultry litter to cattle.”  McDonald's is tired of all the negative press they have been getting in recent years and therefore is a strong proponent of a bill preventing farms from using this type of feed.  If everyone was forced to change their practices it would hurt the smaller firms more, because a lot of them just cannot afford to have quality feed for their cattle.  All consumers would benefit in terms of health, be hurt in terms of cost, and McDonald's would benefit on all fronts. Stigler mentions that it is only rational for firms to seek their own interest and this is precisely what McDonald’s is doing by supporting a bill to increase quality of feed. This regulation would harm local beef producers and also prevent local farmers from entering the market.
    The article finishes with a quote from the professor emeritus of food safety at UC Davis saying that we should feel lucky because in the old days, “what came out the back end of the cows was eaten by pigs, and what came out the end of pigs was eaten by chickens…anything that hit the ground was fair game.”  And that is precisely why we should all steer clear of mystery meat, and in the end a double cheeseburger from the dollar menu might just not be worth it.

Governor race question importance of vote motivation

    In class we have been talking about who is actually going to vote on November 3^rd in the Virginia governor election.  In this article “Va. Governor’s Race May Lack Voter Excitement”, they discuss that the republican party feels that winning the election is all about voter turnout and motivating the republican citizens of Virginia.  Although Virginia went democratic last year in the presidential election, they believe this will not hurt, but help motivate republicans to go vote. The party in the White House has always lost the Virginia’s governor race since 1977, could this be do to lack of their parties vote motivation?

With the minimax regret strategy, you can see that Republicans have more to lose.  The republicans are more likely to take action and go vote because they have a higher potential regret.  Since Obama is already in office and the democrats are dominating and pushing for higher taxes and more regulation from Washington, the republicans in Virginia want a republican governor to stand up for them.  So the McDonnell campaign hopes that this will motivate individual republicans to go out and vote on November 3^rd.  If they do not vote, Deeds wins, and there vote would have mattered than they will have a very high regret. 

            On the other hand the article claims that Democrats are less likely to vote because they are unworried.  Since Obama is already in office, they have won the past two governor elections, and hold both senate seats, the individual voters have less to lose.  In the article Tom Davis, a Former Republican Congressman, says, “With Bush gone at this point, he was the energy source for Democrats in terms of donations, turnout and voter motivation. He's gone. They got rid of him. So they're complacent”.   If this is correct the individual democratic voter has less motivation to vote, since the cost of voting probably outweighs the individual benefit, seeing that their potential regret isn’t too high. 

Questionable Voter Turnout in Afghan Runoff

On August 20th, Afghans went to the polls to elect a President from a pool of 51 individuals. After more than a million votes were thrown out due to suspected “irregularities”, the results gave Afghan President Hamid Karzai 49% of the votes and challenging Independent Abdullah Abdullah 32% of the votes. Under increasing pressure from the United States, last week Karzai called for a runoff between himself and Abdullah. However, the Taliban has renewed its threats “to attack polling stations and close roads on the day of voting” (November 7th). In our discussion on voter rationality, we mentioned that “the probability of being run over by a car going to or returning from the polls is similar to the probability of casting the decisive vote” (Mueller). Clearly, in this context, the probability of being injured somehow or of having to travel farther to get to the polls is significantly higher than being hit by a car simply because of the Taliban’s well-known, militant stronghold over the country. So, why did 5 million Afghans (although a small proportion of registered voters) show up to vote?

As TIME reports, the costs of voting in the upcoming runoff are increasing in more ways than just threats from the Taliban. While extensive measures are being taken to reduce fraud (“tamper-proof boxes and indelible ink”), “Afghanistan’s election commission has decided to cut the number of polling stations by about 2,000 out of 25,000”. Many rural voters in regions with available polls still face an equally prominent obstacle to voting in that “it’s too late” for those living in the mountains because the snows and ice have set in preventing them from getting to the polls.

Weather conditions aside, TIME points out that the most significant barrier to a high voter turnout is simply voter apathy. Voters are turned off by “the long wait for results, political accusations between parties, and a prevailing sense of international intervention”. Only 5 million of approximately 12-16 million registered voters turned out in the first round. Of the initial 5 million, certainly a large portion will be discouraged to vote again by the controversial first round results feeling their vote won’t matter or will have no effect on the legitimacy of the results.

All of these factors taken into account, voters will still turn out and maybe in increasing numbers if one reconsiders a particular explanation to the voter paradox that Mueller believes to be insufficient. The hypothesis is that “the greater the number of other voters I expect will rationally abstain, the more rational it is for me to vote” because the more likely my vote will matter. Mueller refers back to the psychic benefits from voting (civic/moral duty) as being a stronger determinant because voters are “uncertain about the costs of voting for other citizens”. But in the context of the upcoming Afghan runoff election, the costs of voting are clearer than ever, as discussed above.

Debate over Regulation of Financial Industry

Treasury Secretary Timothy Geithner recently defended the Obama administration’s plan for an overhaul of the regulation of the financial industry. The legislation drafted by the Treasury Department and Rep. Barney Frank, chairman of the House Financial Services Committee, would give federal officials power to seize and dismantle large financial firms whose failure would pose a risk to the economy. The plan also would allow regulators to impose tougher requirements on these large firms to reduce their risk of failure and make it less attractive to become so large.

This article is relevant to our discussion of Stigler’s theory of economic regulation. The Obama administration is trying to use the public benefit view, saying that the legislation is intended to protect the public from another economic crisis.  Geithner even noted that “we need to build a system in which individual firms, no matter how large or important, can fail without risking catastrophic damage to the economy.”  Taxpayers were very angry after the last bailout, so putting rules in place would increase transparency about how the government would deal with a similar situation in the future. Frank also argues the plan will reduce the moral hazards that are now present at institutions deemed too big to fail.

Many Republicans are skeptical of this plan, including the fact that it places no limit on how much money the government could spend after it stepped in to prevent a bankruptcy. Republicans challenge the notion that the plan is in the public interest, saying that taxpayers will be first in line to bear the losses when the government gets involved. Additionally, some firms are worried about the government overregulating their industry, so it is possible they will try to “capture” the government and get them to change the bill so that it primarily benefits them. It will be interesting to see how this plays out over the next few weeks, and if Frank’s bill is able to pass without radical changes being made to it.

Regulating Childhood Obesity

    With growing numbers in childhood obesity, government officials have begun to wonder how they can halt, or at least slow down this epidemic.  Last month the Institute for Medicine and the National Research council announced new plans for local governments to fight childhood obesity. These plans included zoning and land regulations that would restrict where fast food restaurants could place their stores.   Part of the reason for such regulations is because statistics show that when looking at communities of lower socio-economic status, there is quite a large inclination for fast food restaurants to be in those areas.

       Further reports from committees geared towards preventing childhood obesity have offered multiple strategies to local governments to help promote healthy eating and increasing physical activity for children.  Some of these plans include placing a higher tax on unhealthy food, “to discourage consumption of foods and beverages that have minimal nutritional value.” Here are some other plans that have been offered:

-     Mandate and implement strong nutrition standards for foods and beverages available in government-run or regulated after-school programs, recreation centers, parks and child care facilities (which includes limiting access to calorie-dense, nutrient-poor foods).

-     Implement a tax strategy to discourage consumption of foods and beverages that have minimal nutritional value, such as sugar-sweetened beverages.

-     Promote “breastfeeding friendly communities” and adopt practices in hospitals modeled after those used by the United Nations Children’s Fund and the World Health Organization.

-    Adopt land use and zoning policies that restrict fast food establishments near school grounds and public playgrounds.

    A few classes back, Professor Coppock spoke of economic regulation. Specifically, we talked about George Stigler’s article on The Theory of Economic Regulation.  There were three alternatives or reasons for regulation: it was for the public benefit, there is no rational explanation, and capture.  After reading this particular article, I would say that the regulations the local governments would place on the fast-food industry, whether it be higher taxes, or zoning laws, would be enacted to benefit society, or the public, at large. 

    However, until these regulations are implemented, we better not get in the way of some children and their pork products.

Waxman-Markey Bill Developed Because of "Green" Rent Seeking

The U.S. Chamber of Commerce is opposing the Waxman-Markey Bill, legislation that would promote green practices at the expense of economic stability.  The author claims  that this bill has been strongly lobbied for in Washington and as a result only benefits those firms that have a vested interest in “green” technology.

The bill proposes such practices as mandating that 20 percent of our energy come from renewable sources by 2020, vastly increasing energy costs for the average consumer.  In addition, $30 billion would be spent to subsidize wind turbines, solar energy, and other energy sources.  It is not hard to see that producers of wind and solar energy will benefit most from this bill, companies such as General Electric.  As the article states, “This bill is pure 'rent seeking' by GE.”

Whether or not you support the Waxman-Markey Bill, it is hard to deny that this bill will greatly benefit those companies with a vested interest in “green” business practices.

Regulation of Functional Foods: Public Interest or Capture?

Regulators in the United States and Europe have recently targeted food companies for questionable claims about the health benefits of their products. The products under increasing scrutiny are functional or fortified foods, which conflate the division between food and medicine by offering specific health effects (lower cholesterol, better digestion, stronger bones, reduced cancer risk, improved attentiveness, etc.). These items typically command higher margins and are attractive to consumers pursuing a healthier diet.

What is the motivation of the Food and Drug Administration and the European Food Safety Authority to require companies to provide better evidence to corroborate these alleged benefits? It could be, as the public interest view of regulation would suggest, that these officials are genuinely interested in protecting consumers from misleading health claims. George Stigler would beg to differ. For large, established food companies the cost of funding research to appease regulators is far less burdensome than it is for smaller new entrants. It's thus possible that the largest food companies have captured this regulatory crackdown to keep out new firms. In another explanation motivated by the capture theory of regulation, it's possible that firms offering products with tangible health benefits are pushing for the stricter rules. If these firms have scientific evidence that their products are healthier, they would be interested in exposing the specious health claims of competitors. As companies such as Nestlé and Groupe Danone put fortified foods at the heart of their competitive strategies (Danone's corporate mission statement is "Bringing health through food to as many people as possible"), it seems reasonable that they would like to keep fraudulent health claims out of the market.

Cole Hamels: team player or self-centered?

This week, we discussed Mancur Olsen's theory of collective action which attempts to explain why certain groups are more successful than others in attaining their goals.  One such example of a group is the Philadelphia Phillies, the reigning world champions of Major League Baseball.  Finding themselves in the World Series once again, the Phillies have the collective goal of winning once again for the the benefit of the team.  However, one crucial component has been stalling the team's effort thus far: left-handed "ace" Cole Hamels.

Last postseason, Hamels was lights out for the Phillies, going 4-0 with a 1.80 ERA in five postseason starts along with being named the MVP of the NLCS and World Series.  However, as AP reporter Rob Maaddi describes, Hamels entered the season boasting of Cy Young potential and throwing no hitters.  Thus far this season he has been a flop, and has had an earned-run average (ERA) above 6.00 this postseason.  In addition, Hamels had to leave a game early to rush to the hospital to witness the birth of his son.

Olsen would likely declare that Hamels is more likely to pursue his personal interests and goals rather than help the team to win another championship.  His interest in promoting his own ability is obviously not a team-oriented goal; in addition, he is likely distracted (justifiably) by the birth of his first son just a few weeks ago.  His individual interests seem to be superceding the team's goal of another world championship, and his erratic play reflects this assertion.  

Hamels will be starting game 3 for the Phillies saturday night with the series at 1-1.  In order for the Phillies to be succesffuly, they need to bring Cole's personal interests in line with the team; otherwise, they may find themselves in a rather large hole against the Yankees. 

Landline Phones Still Exist!

In Ohio, law makers are proposing a bill that would deregulate “basic landline telephone service.” What? People still use land lines? Two interest groups, the Ohio Consumer Council and American Association of Retired Persons (AARP) are lobbying congress opposing this legislation claiming that it would cause an increase in price of basic landline service. This increase in price negatively affects senior citizens because they generally have a fixed income so an increase in price would take away from some other aspect of their life.

Lawmakers argue that it would benefit the greater good in that this new legislation would create jobs and make the Ohio landline market more competitive. Currently, to raise prices, companies must prove that competition exists and with this new legislation companies could increase price on their own.  Groups who oppose the bill claim that wireless service is a direct competitor to landline service.  With committee groups meeting soon it should be interesting to see which politicians care for /need the senior citizen vote and how the AARP lobbies these legislators.