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I’ve been thinking about what assumptions we should make about the motivations political actors. Clearly their motivations are self-interested, but that self interest isn’t always obvious. Downs posited that politicians were motivated to maximize their chance for re-election, but I think it is clear that is not their only motivation.

In The Economics of Collective Choice (p. 195) I found a good starting point,

Breton (1974) suggested that an elected political supplier [politician] “can be characterized by a utility function defined for a probability of re-election (or election) variable and for variables such as personal pecuniary gains, personal power, his own image in history, the pursuit of lofty personal ideals, his personal view of the common good, and others which are peculiar to each politician”

I think this can be refined somewhat. First, I think this motivational assumption can apply to appointed political actors as well as elected ones. I think of appointees as being elected like other politicians but elected by a different electorate and under different rules (for example, some get life tenure).

Second, the desire for re-election can be decomposed into other motivations, primarily the desire for personal power and the desire for personal pecuniary gains.

Third, I think “personal view of the common good” is largely a synonym for ideology.

Here is how I would state these motivations (arguments to a utility function)

• desire for material gains and other quality of life gains (family time, for example)
• desire for power and control over resources and people
• desire to implement ideology/personal conception of the common good
• desire for a good historical image
• desire to think of self as “good person”

Macroeconomic news often talks about “job creation”, “job destruction” and “net jobs creation” to describe the state of the labor market. The “jobs” metric always seemed a little odd to me, but I think it makes some sense as a short term macroeconomic indicator. As a long term indicator, it seems completely meaningless.

As I understand the metrics, jobs created means the number of positions offered by firms, while jobs destroyed means the number of people discharged from their jobs. In the short run, a worsening economy will generally lead to losses of employment, meaning that “net jobs” will be negative; an improving economy will lead to positive “net jobs” in the short run.

In the long run, however, total employment should be determined by supply and demand, and largely independent of the state of the economy, because while pay may vary with the state of the economy, almost everyone needs to work no matter what the state of the economy is, so the quantity of laborers (the employment rate) supplied should be mostly constant.

That’s why this article by David Leonhardt which tries to analyze the long term trend in job creation and destruction is confusing to me

The biggest problem with the job market isn’t the jobs that are being eliminated, shipped overseas or filled by temporary workers. The biggest problem is on the other end of the equation. There are far fewer jobs being created by new or expanding companies than there were throughout the 1990s.

[...]

But whatever the benefits of the long-term trend, we’re still left with an economy that simply is not generating enough jobs. Economists don’t completely understand why, but the pattern is pretty stark.

The labor market could be good for workers or it could be bad for workers; I don’t follow macroeconomic statistics closely, so I don’t have an informed opinion, but I don’t think that job creation and destruction is a useful metric for evaluating the long run rewards to workers.

The new farm bill is stalled in the Senate and under threat of veto from Bush. Brief details at the site for a long-running Australian radio program and Wikipedia. And here’s a rather uncritical CNN story (just look at how they frame the issue with the headline — “those poor farmers!”).

Proponents of subsidies argue that farming is a risky business. But many industries are risky and do just fine. So it seems to me like the comfortable beliefs of (rationally) incautious voters are enabling unjustified handouts to a small group.

One argument in favor of subsidies might be that the existence of agriculture in the US creates a positive externality, in that many people seem to be sentimental about farming. However, it’s difficult to know just how much people value the existence of domestic farms, and it’s also unclear whether it matters if there a few farms here and there or a big industry like we have now. Perhaps the warm fuzzies could still be had if a few historic farms were spruced up and turned into parks. Plus, the alternative to no subsidies might not be (realistically) whatever ideal government program we can dream up but rather something more distortionary like what we have now.

I have considered discussing vote selling for a while, and now Greg Mankiw has brought up the subject

Professor Sandel asked a fascinating question (and I am paraphrasing), “If you economists are so in favor of voluntary exchange, would you extend that conclusion to letting a person sell his right to vote to another?”

I said No. It is true that both parties in the transaction must be better off if they agreed to the deal. Nonetheless, the standard argument for unfettered voluntary exchange does not apply because there are externalities. That is, when one person sells his vote to another, that transaction may affect unrelated third parties through the electoral process.

I think Mankiw’s answer is correct. Economists should not favor vote markets, at least vote markets which can include transactions other than pure vote for vote trading. I also think the reason for this is that voting decisions have large externalities, but I’d like to elaborate a little bit on Mankiw’s reasoning.

As I have discussed here many times before, people generally do not vote in their material self interest, and thus voting is a reasonably good way of providing for public goods. However, if vote selling is allowed, the people buying votes are likely to use the votes in their material self interest, so there would be a shift in the type of people who make voting decisions from those who are likely to seek public goods to those who are likely to seek private goods. This is the essence of the problem.

Let’s do a little math to show that buying a presidential election would be possible in a vote market. I suspect that in any given election, most people would currently be willing to sell their vote for about $15, and there are about 220 million potential voters in the U.S (source). That means that to buy 1/2 of all the votes in the U.S. would cost approximately $1.7 billion. It is definitely within the power of the President to divert much more than $1.7 billion to a private company over the course of 4 years, so a presidential candidate could buy the election through a vote broker by promising to pay them over $1.7 billion if he is elected.

There are two major bad outcomes that would result from a vote market. First, in such a political system, government policy will be designed to maximize rent extraction, through high taxes, tariffs etc.. Consider the simple world where politicians buy votes to be elected dictator and make all policy decisions except how to conduct elections. Votes would have a rather large market price because they would be worth a great deal to politicians because the government manages a great deal of money. I envision that votes would be sold contingently; people would sell their vote to a politician on a contract which pays out several thousand dollars if the politician wins. In order to continue offering more and more money for votes, politicians would have to extract more and more money via rent extraction. Politicians would have little incentive to provide for public goods because, by definition, public goods are non-excludable and would not help them get votes. The resulting wealth distribution would be very egalitarian because the winning politician would switch quite often, so everyone would get paid for their vote fairly often, so this might sound good, but this would be achieved by maximizing rent extraction, which is clearly a very harmful and inefficient practice.

The second bad outcome is that the country would likely eventually collapse into an actual authoritarian system. In a political system with a vote market, there would be no way to limit control of a ruler over elections and law enforcement because politicians would compete solely on vote prices and not at all on policies. Politicians who are completely free to establish their own policies would inevitably do away with elections and establish some type of oligarchy. Politicians could even state so openly because vote holders would have no incentive to favor non-authoritarian politicians over authoritarian politician.

Addendum: Bryan Caplan also weighs in

The lesson: If you’re afraid of vote-selling, you should be afraid of voting as well.

I think he is too pessimistic.

Students at New York University claim their voting rights are worth a lot to them,

Only 20 percent [of NYU students surveyed] said they’d exchange their vote for an iPod touch. But 66 percent said they’d forfeit their vote for a free ride to NYU. And half said they’d give up the right to vote forever for $1 million.

The most obvious explanation for this is that you can’t always trust people to do what they say they will do. Talk is cheap. I find it extremely unlikely that more than 1% of students would not give up their voting rights for $1 million. If some people value their voting rights in excess of $1 million how voting come voter turnouts are around 30%? These students are not giving realistic answers.

Now let me draw a parallel between surveys about voting and elections. In both cases the costs of answering “incorrectly” are very low. In surveys there is no individual benefit for answering truthfully. In elections, the material benefits of an individually preferable outcome to any individual voter are significant, but the individual benefit of voting intelligently is very small because of the tiny impact that an individual vote has on the outcome of the election. However, In both cases there are significant psychological benefits to answering or voting in ways that feel good. In the case of survey about voting, it feels good to fool yourself into thinking that you value your voting rights very highly because thinking that you are a civically minded person is pleasurable. In the case of elections, it feels good to vote for proposals which sound good without investing many resources into determining if proposals are actually a good idea.

A couple of entertaining links from Jeff:

The first quarterly economic newsletter for the virtual world of Eve Online has been released. Eyjolfur Gudmundsson, economist at CCP Games, is already pointing an example of real world relevance in the report. The fast pace of the game world relative to the real world makes the weaknesses of using a fixed basket of goods to estimate inflation especially obvious. Instead, Gudmundsson uses a chained price index.

A fixed basket price index looks at the percent change over time in a representative set of goods (based on how much consumers purchase of different goods in the starting year). The idea is that price changes should be weighted by how much of a good is consumed. However, new goods appear and old ones fade, altering the purchasing patterns of the typical consumer so that a basket isn’t representative for long. One solution is to use a chained index, constructing a new basket every year and then “chain” a series of one-year price changed together. The price of each basket is observed for the year it was created and the year after, allowing the percent change in the price level over the one-year period to be calculated. From these one-year price changes, we can find the price change over a longer period. (More info.)

In other news, a pair of economists and a pair of psychologists did a study on dating preferences at Columbia University (Slate). The researchers ran a speed dating service, with men and women randomly paired for four minute dates and asked afterwards if they would like to see the same person again. It appears men prefer looks and women brains and ambition. An unexpected finding was that men discriminate much less than women based on race. And, yes, the most common interracial match was a white guy with an asian girl, per the stereotype, although the reason for it is not that white guys prefer asian girls but that asian girls discriminate less against white guys than they do against other ethnicities.

Link.

It would have been nice to see the experiment play out.

Voucher opponent Rep. Sheryl Allen said, “It [improving education] goes beyond choice.” But choice lights the fire under school administrators to imitate successful practices.

In New York, Michael Bloomberg is trying to design competition into the existing public school system (article in the Economist). But, as the Economist points out, what happens if his successor decides to do something else or is less competent? A law creating vouchers might be more durable than a good mayor. Read the rest of this entry »

For a while now, my internal model for the the balance of power between the executive branch and the legislative branch has been that the balance is mostly chosen and adjusted by the Supreme Court. The Supreme Court is a deliberative body and has the final say on a lot of similar issues. The court’s members are also chosen jointly by the executive branch and the legislative branch (although, the executive branch certainly has a bigger say), so it makes sense for the two branches to defer to the court on the issue of balance of powers. Opining on Charlie Savage’s Takeover, Stephen Griffin offers an alternative explanation

In Savage’s imperial narrative, power-hungry presidents seem to parachute in from outside the constitutional system promoting novel theories that have no true historical antecedents. But this ignores that such power would be hard to acquire and wield without the support of millions of Americans. While it may be hard for congressionalists to understand, many Americans do believe the president is head of the government and best able to respond to foreign policy crises.

I am skeptical of the idea that voters have preferences for how power is distributed among the branches. The balance of powers is a very esoteric issue, so I think voters are unlikely to care about it. Griffin also mentions elite opinions, which, I think are much more likely to care about the balance of powers, but elite opinions affect public policy in different ways than voter opinion (in ways which I don’t have a good internal model for). Consider elite opinions on farm subsidies. My impression is that there is basically a consensus that farm subsidies are bad, but we will probably continue to have farm subsidies for a long time.

Still, I read The Power of Separation, which is on the separation of powers, recently, and I got the impression that a lot of balance of powers issues are handled without court intervention.

I think if you wanted to make the judicial branch more responsible for the balance of powers, you would have to make it much easier for congress and the president to challenge actions taken by each other.

Addendum: Griffin also notes two interesting theories about political parties. First, Savage asserts that political parties in the American system “can make Congress behave more like a subordinate and deferential arm of the executive branch than like the independent and coequal institution the Founders intended it to be.” Second, Griffin asserts that “parties helped overly separate branches work together to create public policy.” Both interesting theories.

Per John’s request, I am posting my comment to his post “A logic for rational voting” that discussed a paper by Bryan Caplan and others on a model for voter altruism.

My first impression is that there ought to be a constant tacked on to the formula for expected benefits from voting, to account for benefits that aren’t affected by the probability of casting a deciding vote (like feeling good about carrying your civic duty, etc.). Also, I was confused for a moment before realizing that B-social refers to per capita social benefits (hence the need to multiply by N).

Is it possible for people to make errors in either direction with regard to low probability events? Or is the evidence that they discount them too often? Seems like sometimes we are overly scared of events with extremely low probability (terrorist attacks vs. car accidents).

I am not well versed in macroeconomics, the advice Brad DeLong gives to his undergraduate students seems really interesting (link)

• At a time horizon of 0-3 years, be a Keynesian: the most important things are the fluctuations in unemployment, in real demand, and in capacity utilization.
• At a time horizon of 3-8 years, be a demand-side monetarist: you can assume (provisionally) that fluctuations in employment, real demand, and capacity utilization die out; the most important things are the fluctuations in the composition of real demand (investment vs. consumption vs. government vs. net exports) and in inflation- and deflation-causing nominal demand assuming (provisionally) stable growth of the economy’s productive capacity.
• At a time horizon of 8 years or greater, be a sane supply-sider: the most important things are the processes of investment in physical, human, and organizational capital that raise the economy’s productive capacity.

I wonder whether this type of advice is common, and whether these numbers are based on empirical evidence or if they are based on DeLong’s own individual judgment of the time frames in which those models are predictive.

I’m on an iPhone, so including a link is difficult. Just google “Italy Romanians.” It would appear that Romanians are more prone to commit crime (presumably due to cultural differences) than native Italians. As a consequence, a relatively lax criminal justice system in Italy has lured a disproportionate number of criminals since Romania’s recent entry into the European Union in January. Another consequence of liberalizing migration is competition in punishment, I guess. I would think this wouldn’t be a problem for the US - our system isn’t exactly known for being lax. Then again, I don’t know how ours compares to, say, Mexico’s. If we had an arrangement with Mexico allowing citizens of each country to live and work freely in the other, would we face similar difficulties? A question to think about for those of us who would like to see freer movement of people between nations.

For voters with ‘social’ preferences, the expected utility of voting is
approximately independent of the size of the electorate, suggesting that
rational voter turnouts can be substantial even in large elections.

That’s from a paper by Edlin, Gelman (who talks about it here) and Kaplan. Their logic goes like this:

The probability that a voter’s vote is decisive is

p = K / n

Where K is a constant (on the order of 10 for close elections) and n is the number of voters. The potential benefits of voting are

B = Bself +α N B social

Where Bself are the selfish benefits of voting, α is a constant to correct for the fact that benefits are altruistic (they don’t accrue to the voter),  N is the number of people in the population, and Bsocial is the benefits to society as percieved by  the voter

 Bexpect = (K / n) (Bself +α N B)

When n is large (pretty much in any realistic case) this simplifies to

Bexpect =  α Bsocial K N / n

If α = .1 (I discount benefits to others by 10 relative to benefits to me) and K = 10, which the authors state is reasonable and Bsocial = B$25 which seams plausible, and N / n = 3 meaning 1/3rd of the population votes, which is again, plausible, then

Bexpect = $75

Which would certainly make voting rational.

My main qualm is that the authors do not discuss people’s tendency to discount low probability events even when those events have large consequences (see risk framing). It is very difficult to have an intuitive understanding of low probability events. Often this effect is unimportant because low probabilities mean that the expected effect is small, but when the expected effect is large this effect can be important. I very much doubt that voters have an intuitive grasp of the calculus involved in determining the expected value of voting.

It would be cool to do research like this paper from Maria Petrova.

The author does, however, assume that better informed voters will vote for better policy – “independent media is important for the quality of governance.” Thinking of Caplan’s book, I was skeptical at first but realized that his argument seeks to explain why the collective decisions of the electorate are as bad as they are given some level of information (is this right, John?). A better informed electorate might vote relatively well, though still poorly by economists’ standards. Of course, for many poorer countries, “relatively well” means a huge step up.

It might also be possible for the quality of voting to decline as the public becomes more aware of what their representatives are doing, depending on your point of view. For example, Petrova mentions in her paper that “countries with low media freedom. . .have lower level[s] of social spending (Petrova 2007).” As elected officials become more responsive to the public, Caplan’s preferences over beliefs become more of a problem. So, increasing the amount of independent information (where non-independent information is assumed to be discounted by voters and thus doesn’t create incentives for politicians) available to voters has mixed effects. Voters usually dislike corruption but applaud trade barriers. This ties in with that article about the success of China’s authoritarian government. Looking at the world today, though, it looks like countries with freer media and hence more information tend to perform well more consistently than ones where information is more limited. MR had a post about growth in democracies vs. non-democracies a while back.

Sandy Levinson discusses another way in which the presidency has a good deal of market power in the appointment process (link)

 If one tries to be at least somewhat fair to Sen. Schumer, though, one might look at one justification that he offered, his fears that George W. Bush would simply name someone far worse–and one can easily think of people who are worse that Mukasey–to a recess appointment. This would, of course, completely eliminate any role of the Senate in deciding who serves as the country’s highest legal officer within the Executive Branch. This is a realistic fear, but, of course, it’s a fear that arises only because we have a Constitution that includes the recess appointment power.

The recess appointment power gives the presidency another way to reduce the importance of the Senate in the appointment process.

A commenter notes that the constitutional clause that allows recess appointments has been interpreted quite broadly

The plain language of the Constitution is that recess appointments may be made to fill vacancies “that may happen during the Recess of the Senate”. In other words, recess appointments are available when an office becomes vacant while the Senate is in recess. If an office becomes vacant while the Senate is in session, the President has no power to make an appointment merely because he fails to obtain the consent of the Senate to his nominee.

I am aware that there is a legal literature on both sides of this question, but I find the prevailing opinion incomprehensible.

This type of interpretation is probably a result of the fact the presidency has so much market power in appointing Supreme Court Judges sympathetic to executive power.

People get to this blog using some pretty interesting web searches, but I think the best one so far has to be “How do I approach someone who flatulates all the time?“

I started reading An Economic Theory of Democracy with high expectations, but I quickly became frustrated. The book has some good points but there were numerous parts that disappointed me.

I liked the main point of the book, which is that in two party democracy parties converge on the views of the median voter (wiki entry). The broad point that uncertainty can make parties diverge was also a well made, although I thought that the specific mechanisms the book used to make the point were not very good. I suspect that one of the major contribution was viewing political parties as working to reach political office for the private rewards of political service, prestige, pay and seedier rewards, but I tend to discount this because I am so familiar with this argument.

I was disappointed by the lack of mathematical models used in the book, by the presence of omissions and by the use of numerous arguments which I thought were poor. I was probably wrong to expect formal models to be used in the book because those are generally reserved for academic papers, but I want to give examples of what I perceived as omissions and faulty reasoning.

First, although the low individual returns to voting are repeatedly discussed, the idea that intelligent voting is a public good was completely omitted. There are two distinct ways to think about this. If assumes that voters vote in their material self-interest, then voting intelligently for those material self-interests is a public good to those who share those material interests. If one assumes that voters vote altruistically, then intelligent voting is a public good to everyone. Either way, intelligent voting is very likely to be under-provided. The book continually skirts this issue; it mentions the fact that any given vote has a very small probability of affecting the outcome and therefore has an extremely low individual return, and it mentions that government is largely in the business of providing collective goods, but it does not connect these ideas.

Second, I was disappointed that Downs’ work failed to apply the logic he had developed earlier about party convergence to multiparty systems. Downs argues that multiparty systems lead to less centrist government than two party systems, but uses faulty reasoning to reach this conclusion; his logic works like this:

Consider 5 parties on a one dimensional spacial political spectrum (see figure 1), and assume that each party receives an even proportion of the vote.

Figure 1. The distribution of political parties with equal voting power.

No one party or even two parties can rule by themselves; three parties must form a coalition in order to form a government. Downs assumes that party C can come together with the two parties on either extreme (A/B and D/E) to form a government which is centered on either middle extreme party (B and D), and therefore produces more extreme political results than two party democracy.

However, this logic ignores individual party incentives. Assuming that parties A/B and D/E automatically form coalitions (for simplicity), according to Downs’ own logic, the coalitions at both extremes have incentives to offer party C the chance to be in coalition with a policy point which is closer to C’s ideal point than the one center point in the offer given by the coalition on the other side, because the parties want to be in office. These incentives ensure that the equilibrium policy point converges on the median party’s (party C in this case) ideal point.

I think Downs’ error here lies in that he thinks of people voting to “select a government” and not to influence which government is selected. He does not seem to consider how parties in a multiparty system can act as good agents for voter’s political desires.

My overall opinion of An Economic Theory of Democracy is much like that of The Calculus of Consent. Both books include numerous dubious arguments, but both manage to make some very important arguments. I like both books in retrospect, even if I didn’t appreciate them very much when I was reading them.

A provocative article. I am a little troubled that the author isn’t more cautious about trusting government officials. A nondemocratic first world nation is an intriguing idea, but let’s focus our attention on why the incentives that Chinese bureaucrats face are apparently so good and how they could be better.

While searching for something unrelated, I came across this bill that was introduced in the House a few months back that tried to make recruiters and employers more accountable for abuses of guest workers. It struck me as odd that proponents of this legislation name the source of the problem, that guest workers are tied to a particular employer, but want to solve it by regulating employers and recruiters. Regulation might deter abuse, but it might also deter recruiting, making it more difficult for guest workers to come work here and enjoy a higher income. Why not tackle the problem at the source and disentangle guest worker visas from particular employers? Then, as with US residents, firms would compete for guest workers and not have the ability to treat them like quasi-slaves. I have a feeling that the reason for tying visas to jobs has something to do with employers needing to “prove” that they have a “need” for labor that domestic workers will not fill.

Okay, time to get a little informal. I’ve been scornful of moralizing lately, but this is just too compelling. Man, the idea of “proving a need for foreign workers” is such total BS. Read the rest of this entry »

How important is the separation of powers? I am talking here specifically about the separation between executive and legislative powers. Judicial independence is a separate issue.

I should differentiate between strong separation of powers and weak separation of powers. In systems with strong separation of powers, the election of the executive branch and the legislative branch are independent of each other (though they could happen at the same time). The American system is a system with strong separation of powers; the president and the legislature are independently elected. Systems with weak separation of powers do not independently elect the executive branch and legislative branch.

In systems with weak separation of powers, the election of one branch is tied up with the election of the other, so the subordinate branch represents the interests of the directly elected branch to some extent.  The most common form of weak separation of powers is legislative dominance. Parliamentary systems are dominated by the legislature. When the legislature dominates, it is responsible for electing the executive branch, but there are usually institutional constraints which prevent the legislature from easily replacing the executive branch, so the executive branch has some degree of autonomy.

I have been a pretty strong supporter of the separation of powers based on the theoretical arguments for it. The argument that separated powers will tend to check each other’s excesses because they do not represent each other’s institutional interests is a strong one, but I have never really seen any empirical evidence or strong anecdotal evidence that power separation is a good thing. Do developed nations with weak separation of powers have problems that are attributable to that weak separation?

Heretical thoughts are nice, so here’s one: why should the death of a volunteer soldier be more outrageous than the death of a fisherman (sexist?), a coal miner, or, poignantly, a private security contractor? Everyone admits that the premature death of a human being is tragic, but the outrage expressed toward the government in this case goes beyond that. The sentiment seems more like what you would expect if a police officer were to shoot and kill someone needlessly. It is as if the state has put these men and women in harm’s way against their will. What about their role in it? They signed up.

However, after joining the armed forces, a soldier is forced to stay for a period of time, and there’s where I can see a basis for outrage. In particular, I could imagine that some individuals who entered the military before 2003 would have chosen not to do so, had they known that the US would soon be engaged in deadly low-intensity warfare for a number of years in Iraq. Though it is commonplace to work under a contract, you can’t sign away your liberties, except in the case of the military (and perhaps some other government organizations?). Read the rest of this entry »

There is a little intra-blog disagreement at Free Exchange over school vouchers. One author thinks vouchers are unlikely to improve school quality, and a second author disagrees.  The first author argues that  school vouchers are unlikely to increase school quality for poor children because the thing that creates good schools is parents who actively work for better schools, and if the parents of poor children actively worked for better schools, there wouldn’t be a problem in the first place.

While I think it is clearly true that good schools come largely from parental activism, the second part of this logic ignores two very important features of vouchers. First, vouchers drastically reduce the cost to parents of actively working for better schools. With vouchers, parents who want to improve their child’s schooling do not have to invest time to complain to principals and school boards, they can simply change schools. The second is that vouchers turn parental activism for improved schooling from a public good into a private good; a family that actively agitates for better schooling in a public school system primarily benefits the community while a family in a private school system that moves their children to a better school reaps most of the rewards of doing so. When we turn a public good into a private good, we should expect more optimal levels of the good to be provided.

That said, changing the public school system from a government managed system to a voucher system would seems monumentally difficult to me, so caution and moderation are probably in order.

I also found this quote from the second author post fascinating

Both African Americans and Hispanics are markedly more likely to support vouchers than are whites. Indeed, 68 percent of African Americans and 61 percent of Hispanics favor vouchers, compared to 38 percent of whites. Only 15 percent of African Americans and 23 percent of Hispanics oppose vouchers, compared to 40 percent of whites.