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American Government

by: Margie Kozey

American Government POL 10100

Margie Kozey
GPA 3.65

Glenn Parker

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Glenn Parker
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This 161 page Class Notes was uploaded by Margie Kozey on Saturday September 19, 2015. The Class Notes belongs to POL 10100 at Purdue University taught by Glenn Parker in Fall. Since its upload, it has received 43 views. For similar materials see /class/208141/pol-10100-purdue-university in Political Science at Purdue University.


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Date Created: 09/19/15
Lecture 6 We have seen that 1 collective goods are provided both privately and through the auspices of government 2 problems such as freeriding and exploitation tragedy of the commons arise in the provision of collective goods 3 coercion is government s solution to freeriding problems while other organizations providing collective goods American Association of Retired People AARP rely upon selective incentives and their small size 4 those groups best able to overcome problems of freeriding are most successful in influencing governmental policies and 5 since both private and public entities can supply public goods the question of whether to turn an activity over to government hinges upon any number of considerations like the external costs and the motives of public officials This issue arises throughout society and time It is simply the question of what should be in the realm of governmental responsibility and what should remain in the purview of private citizens We now turn to another activity of government namely resolving thorny social issues And one of the thorniest has to do with balancing the interests of the majority against those of the minority Or put another way how does government ensure that in acceding to the demands of majority opinion it doesn t trample on the rights of minorities One way the Founding Fathers Madison et al addressed this issue was to assemble an intricate set of institutional checks and balances which has become our political process As discussed in class there are numerous hurdles to be surmounted before bills become laws and majorities have to be mobilized at each point along the way then again there are also numerous points Senate filibuster when even a majority cannot rule So the underlying premise of the formation of our checks and balances system specifically that majorities if left unconstrained will tyrannize the minority is problematic forthese reasons First majorities rarely rule As noted the legislative process provides numerous veto points for minorities special interests to modify legislation or bring it to a screeching halt And elections are coalitions of groups many with quite narrow interests taxes once the election is decided then narrow special interests influence governmental policies until the next election So our political system is quite sensitive to the demands of minorities in society regardless of the structure of government Indeed better protections of the rights of minorities arise from the socializing experiences and agents family schools that foster an appreciation and respect for the rules of the gamequot that is those political actions and beliefs that are supported by a strong societal consensus and describe what are appropriate attitudes and proper behavior and a similar level of support for policies advantaging certain groups eg social security Medicare In short the institutional checks and balances ie separate institutions sharing power Supreme Court Presidency Congress that are generally believed to explain the inability of majorities to impose their will on minorities ironically hasjust the opposite effect majorities are often stymied by the actions of narrow interests within society Make sense Lecture 2 We continue our discussion of what governments do generally by focusing on how they provide public goods programs resources etc for society the problems encountered in doing so and how collective goods might be provided through some other means aside from government coercion Governments do other things aside from provide collective goods like ensuring the rights of minorities dealing with public nuisances and resolving social dilemmas but now we concentrate on the provision of collective goods Governments can be thought of as supplying goods for society in the same sense that GMC Ford and Chrysler turn out cars for private citizens barbershops supply haircuts for customers and grocery stores provide a variety of consumer goods A major difference however is that the goods provided by government are public rather than private in the sense that individuals cannot be excluded from the use of the good once it is provided to one individualipublic goods are nondiscriminatory in this wayiand an individual s usage of a public good eg clean air does not detract from its consumption by othersithat is there is nonrival consumption of public goods Governments are often viewed as the proper vehicle for the provision of collective goods because they perform functions that are unlikely to be undertaken by private parties since no pro t can be derived from them and pro t is of course what lies at the foot of private enterprise that is government is stuck with the unpro table jobs Nonetheless as we point out later with respect to lighthouses and as we have done already with respect to other public goods sometimes private individuals and businesses pro t through the provision of public goods like running prisons and owning leasing highwaysiie toll roads This points to another tangential but important issue in the provision of public goodsinamely government is not the only entity that supplies collective goods For instance labor unions also supply collective goods by bargaining with management over employee bene ts that extend to all workers Thus negotiated bene ts like medical treatment retirement pay and overtime compensation bene t everyone although only union members pay for them hence to ensure that there is no freeriding unions resort to coercioniie forcing members to join the union and pay dues or not work at that place It is interesting to note that both unions and governments rely upon coercion to induce cooperation for instance contributing time and money to a cause There is an undeniable rationale to such coercion unfortunately rational individuals will not be motivated simply by appeals to work for the cause since they can obtain whatever bene t derives from that collective effort without contributing in any way whatsoever to the effort itself Problems arise for all organizations involved in providing collective goods For one thing individuals will conceal their preferences for such goods to avoid having to foot the bill while still enjoying the resulting bene ts Second as noted above free riding plagues collective enterprises Third collective goods promote more than simple freeriding they also induce overutilization of collective goods for example over shing and overgrazing Likewise congestion also sets in and reduces the value individuals derive from collective goods Despite these obstacles collective goods are provided in all types of organizations think for example about the NRA National Ri e Association AMA American Medical Association AARP American Association of Retired People which seek to advance programs and policies bene cial to entire categories of the populationigun owners doctors and older citizens respectivelyithat cannot be forced to pay for the political effort These organizations spend enormous sums of money to lobby Congress on behalf of their causes However rational individuals would not give them a cent since any results their efforts accomplish will bene t them whether or not they contribute to the cause And not all organizations are privileged like governments and unions to employ coercion to force support for collective goods and minimize freeriding So how do these organizations support their lavish efforts eg lobbying to provide collective goods to their members knowing that nonmembers of the organization enjoy these bene ts too For one thing large organizations often use selective incentives to generate the necessary membership support especially nancial Large organizations provide personalindividual bene ts to people like magazine subscriptions tee shirts blankets in return for their contribution eg membership dues to the organization and the nancing of its efforts to provide a collective good for members and nonmembers alike Also small groups are better equipped to supply collective goods since they bene t from their sizeisocial pressures are more meaningful in small groups than large ones and the payoff to individual members is greater for individuals in a small group than a large one since the spoils rewards are shared with fewer individuals This explains why small groups seem to be more effective in politicsi they can more easily mount organized collective efforts because they are better able to deal with problems arising from free riding Another less coercive way for collective indeed public goods to be provided is through the implementation of some preference reveling process Under such a condition preferences for collective goods can be taxed accordingly those demanding enjoying more of the public good pay higher taxes Granted individuals have incentives to conceal their true preferences for collective goods to avoid having to pay the cost in their provision but there are means to induce citizens to reveal their preferences for collective goods similar to the revelation of preferences that occurs when individuals go on a shopping spree of some sorts For example municipalities presently offer different packages of collective goods like education and clean water along with different tax packages to support these expenditures citizens vote or reveal their preferences for these collective goods by moving to these areas and then being taxed by the municipal governments therein Thus if your parents have an af nity for a certain community because of the highquality schools presumed to exist within they locate there and pay their proportion of the costs necessary to support that high level of education collective good which is incorporated into the tax structure compare for example the quality of schools and taxes in West Lafayette with those in Lafayette So by moving to that community your parents reveal their preferences for education and their willingness to pay the price that the provision of that good requires If the nonexcludible assumption of collective goods is lifted or ignored the institution of clubs for instance paying dues to join a swimming club golf club etc solves the collective goods dilemma Finally informal agreements or contracts can at times be constructed that provides for the provision of collective goods as in the custom of the orchids through cooperative arrangements and policed through social sanctions and pressures eg gossip Make sense Lecture 10 Governments distribute rents to special interests by granting them exclusive rights otherwise most assuredly those gains would be competed away in the classic transitionalgains trap By securing quasimonopoly rights in this way special interests ensure that their advantages ie rents are not reduced through future competition hence the solution to the transitional gains trap is to restrict access to these programs or grant special interests monopoly control over them Simply put monopolies provide benefits that are not competed away Normally these monopolylike rents are obtained through some sort of regulation control over compliments and supplements establishing entry barriers pricefixing and subsidies that is designed to implement 39 g39 39 quot andor39 quot Anricinnc One reason we have so much rent seeking is due to the value it returns eg profit to special interests and politicians another reason is simply that governments respond to intensely held feelings which usually means the preferences of special interests since they are sufficiently concerned about policies and earn considerable income there to make their preferences known And as you might expect government is even more sensitive to the preferences of small groups since they are best able to overcome the costs plaguing collective efforts to influence policy and supply a collective good for group and nongroup members alike Given the attractiveness of rents It might seem that special interests should descend on Washington every opportunity they get I am certain they wish it were that easy Lucky for us voters and the rationally ignorant political costs mitigate some of the influence of special interests For instance the political process invites outsiders to participate so for example deliberations about natural resources include oil and gas interests along with environmentalists commercials users homeowners and the like This raises the costs for example campaign funds of getting regulations and legislation enacted And as noted the political process benefits small groups which further increases the costs to large groups in trying to influence public policies Of course there are also the costs stemming from the administrative regulations that fall on industries resulting from the regulations simply regulations create paperwork and paperwork costs business time and money Up until this point we have characterized special interests as seeking benefits which politicians like legislators supply through the political process That is in order to obtain campaign support politicians sell legislation and regulations for that matter to special interests Makes sense But this implies that politicians only obtain payoffs through enacting legislation wrong They also can extort money from special interests by threatening them with laws and regulations that expropriate some of their special interests industries wealth or capital That is politicians threaten to enact laws if they do not receive the tribute demanded and when they do they merely retract or forgo the threatened action You guessed it that s political extortion So politicians obtain rents by extracting payment for their services they demand some sort of pay for either passing legislation or regulations or refraining from action and therefore imposing costs onto special interests Page 2 Consequently society suffers Institutions involved in allocating rents eg Congress are likely to attract individuals with strong preferences for monetary gain hence adverse selection in the membership as members valuing noneconomic gain leave and are replaced by those valuing wealth Accordingly the new arrivals modify the political process to enhance wealthearning opportunities which results in opportunistic corrupt and unethical behavior Businesses fearing that they will be heldup by politicians demanding rents and threatening punitive legislation and regulations if not receiving such invest less in their companies business investments are squandered in acquiring information about the future availability of rents and regulations and trade restrictions go to those with greatest political muscle Perhaps most important there is a high degree of social waste Consider all the resources companies waste to obtain a monopoly For example if a 1 billion dollar bank charter was up for sale 10 potential recipients would willingly spend say 900 million to obtain that charter however only the single bidder who obtains the charter profits So the actual cost of efforts to obtain the bank charter was 9 billion with a gain to society of 1 billion See the point And there is also the diversion of resources that accompanies attempts to obtain rents Businesses shift their resources into those activities that produce the greatest profit and if that means rent seeking rather than product research and development that makes perfect economic sense this results in a redirection of productive efforts There are also problems that result from the demand for positions in government that influence the distribution or allocation of rents for instances licenses of some sort Because of the monetary gain obtained by officials in these positions say offbudget pay like bribes the positions are in high demand which results in a ratchetingup of the qualifications forthe job Consequently the people in these positions tend to be overqualified thereby distorting the allocations of human capital in society employees should be in positions commensurate with their skills and qualifications if society is to make the best use of its human capital Lecture 4 In today s lecture we returned to the topic of the motives of public of cials and how that their motives affects what functions rational individuals should turn over to government This is of course a major issue confronting societiesiwhat should be in the realm of government and what should be left to private individuals Indeed this question has occupied the publics interest since the institution of governments Since many public goods can be provided both by government and privately think of prisons private security rms private schools home schools the question is how to decide where to put what functions and programsithat is in the hands of government or the private sector One consideration should be the motives of government of cials In this regard reelection looms important because it is the central goal of politicians and even if not the primary objective the realization of other ends money power requires it So rationality dictates that politicians curry the favor of voters we wouldn t have it any other way would we Consequently politicians are likely to look favorably on programs that provide any bene ts whatsoever even if the bene ts are less than the costs For example just about any worthless project bene ts district voters to a greater degree than the costs of the project because the bene ts of the project fall to district residents while the costs fall on all taXpayers in the US Hence when deciding to shift a function to government eXpect politicians to encourage it since it increases their ability to funnel bene ts to voters Politicians reason along these lines They realize that constituents are impressed by the amount of federal largess eg federal funds grants contracts etc diverted to the district or state and vote to continue in of ce those supplying these bene ts But they also know that voters abhor taxesiie the revenue necessary to support the expenditures that voters want Thus politicians need to supply votegenerating goods eg projects like roads and parks to the district but without alerting voters to the costs entailed hence scal illusionidisguising such costs through using revenue sources that are unobserved or not entirely observed by citizens This gives citizens a false notion of the taxes paid and programs provided thereby enabling politicians to eXpand the scope of government and be reelected for doing so Accordingly we shouldn t eXpect much reluctance or resistance on the part of government politicians to absorbing more functions and taking over those already performed privately Why should they They bene t electorally and voters are none the wiser In sum the electoral bene ts and possibility of scal illusion means that politicians will embrace the eXpansion of government through the addition of programs and functions because they can fool voters into underestimating the costs by concealing them in revenue sources that are not fully transparent to citizens Make sense Lecture 9 The rational behavior of individuals whether politicians or voters provides insights into the mechanisms of government both the explicit processes such as lawmaking and the implicit ones as when groups influence bureaucratic rulings For instance the reelection motive results in the production of inefficient projects transitional gains legislation fiscal illusion and the like likewise the rational behavior of voters results in rational ignorance which politicians rely upon and special interests benefit from We now turn attention to the role of special interests in society Here again we use the same notion of rationality to describe the functioning of special interests in American government Continuing with the conceptual framework with regard to interest groups that is characterizing politics as rational leads to a couple of questions These are the same questions that run through the entire course First what are the rational underpinnings of interestgroup politics why does it exist Second what are the costs stemming from the rational behavior of special interests There is a lot to recommend interest groups For one thing in a society with diverse interests there may be few other ways to cheaply uncover the preferences of individuals which politicians need to do to realize their rational ambitions of staying in office Also group competition ensures that group demands will be 39 39 39 a group 39 39 39 so characteristic of special interest groups mitigates extremism which is detrimental to a stable democracy ie a collective good For those who hate coercion groups are one of the least coercive ways to govern since group decisions funneled through a receptive bureaucracy are simply ratified by the legislature or agreed to by competing interests before reaching the bureaucracy or legislature for that matter by collusive arrangements among them Costs aside such a mechanism avoids the nastiness associated with public policy tussles among adversaries or competitors also neither party need reduce its take since each group s demands are simply bundled together In addition the costs of uncovering the preferences of citizens remember rational citizens will attempt to deceive government of its true wants to avoid paying the bill may be lower not because interest group leaders are easier to read ie learn of their preferences than rational citizens but because those leaders are involved in an ongoing or continuous game with political decision makers so that a reputation for honesty and truthfulness is valuable for them in future negotiations Finally how else will government be able to incorporate the intensity of feelings into its decisions It is not simply how many people majority rule that counts in American Politics more often than not it is the intensity with which those feelings are held And since organizing for political influence is costly ie groups need to absorb freeriding costs 5 by quot a to the a 39 39 is actually merely using intensity to weight opinions and preferen es In this way opinion intensities enter political decisions Clever eh It might seem hard not to like special interests however like all political arrangements they also entail costs The costs to the interestgroup society are indeed many For instance rational behavior on the part of workers results in freeriding so that those electing group leaders group voters may be unrepresentative of the group hence they elect or select individuals who are Page 2 themselves also atypical of group membership Consequently their preferences will not be representative of the group they allegedly represent Moreover the lack of membership participation can lead to decisions that lack majority approval In addition some groups are poorly represented because of the difficulties in overcoming freerider problems which plague organized political activity since the end result is a collective good for example consumers Accordingly small groups will be more influential in politics at the expense of larger ones And of course we cannot ignore the coerciveness that goes along with group politics how else can they alleviate organizationallydebilitating freerider problems And the degree of competition among groups is no doubt exaggerated because rational behavior on the part of special interests suggests that they benefit from colluding and logrolling their conflicts so that each gets whatever they want Competition be gone And specialinterest politics results in federal agencies like the Departments of Labor Agriculture and Commerce being captured by narrow special interests Since Congress delegates powers to agencies to create laws regulations designed to implement legislation but nonetheless having the force of law don t obey them and they can fine you or throw you in the slammer special interests gravitate to those agencies with responsibility for programs beneficial to them Since agencies and programs are narrow in scope only a few interest groups are normally involved which makes collusion that much easier resulting in policies benefiting a small number of narrow interests at the expense of the larger public We can only surmise by the existence of the interestgroup society that in general the American public approves of the persistence of this system Perhaps this is because they are unaware of the implicit costs of the interestgroup society a rentseeking society the next lecture Lecture 1 The emphasis of the course is on understanding politics in terms of its rational underpinnings We use two propositions or assumptionsinamely political actors are self interested and behave rationally that is preferring more to less and basing decisions on weighing the bene ts and costs to alternatives choicesdecisionsito explain political behavior and the organization and operation of political institutions One need in all societies is the provision of public or collective goods e g national defense police protection Public goods can be defined as goods such that individuals cannot be excluded from the consumption or use of the good once it is provided to others and one individual s use does not detract from consumption of the good by others One of the functions we expect to be performed in a society is for government and other large organizations like labor unions to supply collective or public goods doing so however creates freerider problems where individuals can enjoy collective goods without paying the costs For instance why would rational employees freely make contributions to labor unions when they can enjoy whatever contractual benefits the unions leadership is able to extract from management whether or not they contribute Such behavior is characterized as freeriding where individuals enjoy the benefits of the provision of the collective good without footing any of its costs Freerider problems result in overutilization of the public good as in congestions and the tragedy of the commons and an under provision of the collective good We will discuss such problems on Thursday as well as how collective goods are provided in societies STUDY QUESTIONS FOR PRESIDENTIAL POWER AND THE MODERN PRESIDENTS BY Richard Nuestadt 1 Why are presidents considered clerks 2 Why is the president not assured of the support of everyone even though everyone depends on him for some services 3 What is necessary for the execution of presidential orders 4 Why is the separation of institutions sharing power so important 5 What advantages in persuading others does a president have 6 How are a president s advantages in bargaining and persuasion checked 7 What is the essence of a president s persuasive task 8 What is a president s reputation composed of 9 Describe the Washington community 10 Describe the law of anticipated reactions 1 A What is the greatest danger to a president s influence 12 What shapes a president s bargaining advantages 13 What are the goals that underlie a president s reputation 14 What shapes a president s reputation 15 How is the influence of presidents shaped by the public standing of the president 16 What is officialdom s pragmatic substitute for public opinion 17 What is the dynamic factor in a president s prestige 18 What threatens a president s prestige 19 What is the importance of events 20 What is the significance of events in the president s role as teacher STUDY QUESTIONS FOR HOME STYLE BY RICHARD FENNO 1 What are the three components of home styles 2 How do legislators perceive their constituencies 3 What factors structure how legislators allocate their resources 4 What is the major objective of presentationof self 5 What are the components of home styles that promote constituent trust 6 How do legislators convey qualification identification and empathyquot to voters 7 What do legislators believe is the singlemost important thing constituents want from their legislators 8 What are explanations 9 How do legislators explain power to their constituents 10 What is the basic underpinning of the ability of legislators to obtain voting leeway in Washington 11 How do members think about explaining orjustifying their votes to constituents 12 What are the two stages to congressional careers 13 Have legislators altered their home styles over time If so how If not why not 14 What types of districts provide legislators with the greatest latitude in choosing a presentational style 15 Do issues help legislators to hold voter support 16 Do House members change their explanations of Washington activity depending upon the audience 17 What legislators are more attentive to their constituencies Why POL 101 Dr Glenn R Parker American Government and Politics Distinguished Professor Spring 2011 Dept of Political Science Lecture Tuesday Thursday Office 2221 Beering Place Mathematical Sciences 175 Time 130245 INTRODUCTION TO Making Sense of AMERICAN GOVERNlVIENT AND POLITICS o o o D 14 a n 14 ml H 1 1 11 1 1H m rrvrnvnvv h finih f lnn Hm 1 m vii191 vlu Lu u wuu mu 1 va 91L m by u m 7 39 14 7 7 39 f n 39 39 f fin1 TTvn39ww 1 W1 n mnln 10 w m m JV J mu H u my u m pm 1 J 739 7 H D vi C 39n h 1 TN D TTam39nnn 1 77 7 7 r 7 fin1 A L 1111 11 w My H J 1 mu u IBM39an 1h nv m n 7 714 f quotfin1 39 f f f Lm m 11 m Mr Hm 91L upltwbp um um 9 VJ my VJ wwmuu byth WW An mu m m HAnun vnvv n 1 WM 4 1n hm a n f 39 f 14 f Hm w u u w J u u WV J um H V J J m m fan 4 n 111 1 ml 7 39 39 1H m m Aquot m m 139 H V J MW vu J w m WM v 1 mm H 1n 1 nifJ In mn f 739 TLmm h u 7 l H u 1 w u H Um fn nmln l f 79 n nyman 7C 10 77 um 4 4 J Lecture Outline and Notes These notes are not for commercial reproduction or use without the expressed written permission of the instructor 1 What is the role of government or what should government do a Provide collectivepublic goods ie bene ts that when provided to one person cannot be denied to others Two characteristics distinguish public goods 1 bene ts are nonexcludable with both payers and nonpayers obtaining the good once it is provided 2 nonrival consumption one user s consumption of these bene ts does not detract from the consumption opportunities available to others Public goods have frequently been viewed as necessitating government involvement because private individuals are unable to obtain a pro t in the performance of these functions or the costs thereof preclude privatesector investment in taking over these functions example national defense police and re pnnec oneduca onhouiabouthgh unmessee mg l rational behavior problems with collective or pubhd goods a rational individuals would rather conceal than reveal preferences for public goods so as to avoid being taxed for the conmnnp onlt 1hegoodsandsendce provided in this way they can leverage a better deal for themselves Thus rational individuals are unlikely to reveal how much they really want a project program or funding area such as national defense What results however is an underprovision ofcoHec vegoods b freeriding problem occurs as individuals enjoy collective goods without paying the costs associated with the consumption of the goods example bees pollinating fruit trees ie unpaid factor of production since the bees also feed on the apple blossom and may also pollinate adjoining property If orchards are located close to one another one who hires bees to pollinate hisher own orchards will in some degree bene t hisher neighbors c tragedy oflhe commons also results from rational behavior on the part of citizens with respect to collective goods rational individuals have incentives to overutilize collective goods ultimately reducing their value to everyone Think of the irrational exuberance that af icts most of us because of large gains in some economic sector say real estate or intemet sales individuals enter this market to reap these extraordinary gains Now the in ux of all these individuals erodes these gains so that eventually all are earning suboptimal returns d as in the tragedy of the commons problem rational behavior can also result in congestion since incentives are created in the consumption of collective goods to use the good as much as possible and for everyone to do so this like the tragedy of the commons results in a reduction of the value of collective goods to any individual example swimming pools highways 2 how are collective goods supplied or how to get bene ciaries to foot the bill for collective goods and reduce freeriding a selective incentives tied sales and joint offerings are ways of tying an individual bene t or selective incentive to the contribution to a collective good examples AARPA discounts on hotels magazine NRA gun insurance magazine b coercion taxes government strikes picket lines and closedchops labor unions also induce or coerce contributions to a collective good example government has a monopoly over the legitimate use of force or do they c group size small groups are better able to provide collective goods because they are twice blessed per capita gain is larger in small groups than larger ones fewer people means larger returns gains for each person and size mobilizes interpersonal controls like ridicule and social pressures Reading Assignment T he Lighthouse in Economics Ronald Coase I 9 74 Journal of Law and Economics 35 7 76 d since individuals have no incentives to reveal how much they truly value governmentalsupplied bene ts we could create mechanisms that incline citizens to reveal their true preferences for public goods then tax these individuals in terms of the bene ts they derive from government Indeed marketlike mechanisms eXist so that individuals do in fact reveal their preferences for collective goods they vote with their feet so to speak By moving or locating in areas they nd desirable they reveal preferences for local government expenditures and the willingness to pay the taxes to support these services Charles Tiebout This mechanism works in the following manner 1 municipalities supply different expenditure packages tied to the taxes they levy So for instance some cities might emphasize schools while others stress recreational facilities residents of these communities are taxed accordingly 2 individuals gravitate to those communities that provide the most attractive expendituretax packages thereby revealing their preferences for certain public goods and in the process their willingness to pay the necessary costs for the consumption of them e if we relax the exclusionary principle associated with the provision of certain collective goods ie allowing exclusion from the consumption of a collective good we can reduce collectivegood problems by creating clubs where membership dues limit issues of freeriding and congestion Now the provision of the collective good is equated with the willingness of individuals to join the club and pay the required dues example health clubs f contrach or informal agreements for example the fable of the bees A social rule exists custom of the orchards that takes the place of explicit contracting during the pollination period the owner of an orchard either keeps bees himself or hires as many hives per area as are employed in the neighboring orchards of the same type These informal agreements are poliid through social sanctions eg wordof mouth gossip that affect the market for the product 3 collective goods are provided through a variety of sources both private and public Some examples include national defensemercenaries coining moneybarter system for instance haircuts for oil changes police protectionprivate security firms running prisonsunder private control distributing foreign aidCARE Doctors without Borders So what should determine what is in the realm of government and what should remain in the domain of the private citizen Considerations in turning over an activity to government ie putting it in the public sphere a externaliz ies external costs on non consenting parties resulting from decisions made by the few in government However externalities give rise to private entrepreneurial behavior eg the selling of Asian carp for fertilizer b decisionmaking costs costs for instance time of reaching agreement these costs are generally smaller in a smaller body of decision makers c how much coercion is desirable For instance we can rank the following levels of coerciveness voluntary organizations least private sector such as firms government most d applicable voting rules unanimity for example is a good decision rule to determine what is placed in the public domain when external damages can be significant since it ensures the absence of external costs 16 e motives ofgovernmenl a cials perhaps the government is intent upon exploiting its power over citizens to the maximum degree 1 gain reelection or favor with voters by funneling or diverting federal money to constituencies through taxes that are less visible to voters Since voters like federal monies spent in the district but despise taxes politicians seek less visible ways of finding sources of revenue Fiscal illusion there are certain revenue sources available to the government that are unobserved or not fully observed by citizens hence certain features of the tax code eg complexity give citizens a false notion of the taxes they pay by underestimating them thereby leading to excess demand for governmental services and goods ie greater than would be demanded if the true weight of taxes were known the assumption is that citizens measure the size of government in terms of the taxes they pay Thus to bring about an increase in government size for which citizens are not willing to pay voluntarily requires that politicians increase the citizens taX burden in such a way that they are unaware that they are paying more in taxes if taX burdens can be disguised in this manner unlike cigarette and liquor taxes which are more direct and visible citizens will have the illusion that the burden of government is smaller than it actually is and that government and its programs are not growing beyond the preferences of citizens therefore spending revenue from sources that are hidden from the citizens view by scal illusion should increase the popularity of the government and thus those in government who seek reelection have incentives to spend revenue subject to scal illusion and to seek revenue that embodies this characteristic Some categories of scal illusion a taX burden is more dif cult to judge the more complex the tax structure renters are less able to judge their share of property taxes than homeowners builtin tax increases because of the progressiveness of the taX 19 structure are less clearly perceived than legislated changes implicit future tax burdens inherent in the issuance of debt bonds are more difficult to evaluate than are equivalent taxes manipulation of interest rates give taX payers a false sense of prosperity since they can afford more or so they believe hence they may agree to expanding governmental programs 2 government as leviathan collusion between the legislature and the bureaucracy Orederal agencies is designed to maximize the size of the federal government which expands the bureaucracy thereby leading to greater power for bureaucrats and legislators Government growth is of course fueled by spending As the following 20 table shows government spending has indeed grown relative to the domestic economy so you could say that government growth is real man 2mm And the growth ofgovernment is also evident in the increases inthe number of employees mm Calculated a Fedeval u 5 Census amsau Local H 5 Census amsau a another subtle but often overlooked element of governmental growth is the proliferation of advisory committees which tend to stick around forever see following table Few are terminated and when they are dismantled others take their place TERMINATED AND NEW COMMITTEES 19722003 X b E 1 3 9 9 9 A A c 391 v Q Q Q r155 q0 19 TERMINATEDCOMMITTEES Q h bb bh b 6 b gtQgtQgt gt Jcb QQ 5 eeeYEbeaee r19q amazch 21quot O DURABILITY OF ADVISORY COMMITTEES BY ESTABLISHMENTAUTHORITY 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 VEAR AgencyAuthurIty Authori2ed by Law Presidenua Authority Mandated by Congress 2007 2008 ammgcz 110 mzgtmlt DURABILITY OF ADVISORY COMMITTEES BY LEGISLATIVE ACTION FOR TERMINATION 1997 1998 1999 2000 2001 2002 2003 20011 2005 2006 2007 2008 YEARS l Legislation Required for Termination l Legislation Not Required forTermInatlon f Political competition is an ineffective constraint on government due to rational ignorance on the part of voters for instance they lack an understanding of their true taX bills the full impact of debt or the manipulation of the money supply and collusion among elected officials the only effective constraints on government in the long run are contained in constitutional rules 25 limiting government s power to taX issue debt and print money g transitional gains associated with governmental programs may encourage the continuation of inef cient and worthless programs because they provide some groups in society with gains albeit shortlived ones With government unlike the private sector policy or programmatic failures may persist because governmental of cials have no incentives to end them government programs designed to help groups or an industry generate transitional ginitial gains for the companies in the industry but competition for these abnormal returns erodes these gains so that the companies are eventually doing no better than normal however termination of the program would lead to large losses by entrenched interests since these gains have already been capitalized de ned to treat an expenditure 26 as an addition to assets rather than treating it as a deductible expense into the value of the resource eg land Take for example blue laws legislation or regulations requiring stores to be closed on Sunday stores will be able to take advantage through greater sales at fewer costs as consumers force their purchases into a siXday rather than a sevenday week this results in consumer congestion and greater economic returns to stores eg no employees no electricity costs etc which leads to more stores being built to take advantage of the blue laws But eventually through competition among stores these gains are competed away by the large number of stores now open siXdays a week Thus even though the initial bene ts of the monopoly have been competed away doing away with the bene cial regulation will result in increased costs to the bene ciaries 27 hence they support the continuation of inef cient policies 1 so when government establishes special privileges for a group of people the successors to the original bene ciaries will not normally make exceptional pro ts but they will be injured by cancellation of the original gift 2 in agriculture for instance the value of subsidies is capitalized into the cost or price of the land Whoever owned the land at the time the subsidy was rst introduced made immense gains as the value of land soared on the other hand individuals or corporations that subsequently purchased this land would suffer losses in the subsidy were removed b Resolve social dilemmas One of the major roles of democratic governments is to protect the rights of 28 minorities Despite the nobleness of this function there is a dilemma so aptly articulated within the works of James Madison ie how can government protect minority rights while at the same time implementing the will of the majority l Historically we have put a lot of faith in the Madisonian system of checks and balances to ensure the protection of minority rights This could eXplain why the political process is so rent with obstacles to the passage of legislation Here are the steps in general in how legislation is enacted with apologies to making sausages Bill are introduced to the House by any member assigned to a substantive committee sometimes jointly or sequentially to two or more by the Speaker and then subsequently assigned to usually one but occasionally more than one subcommittee the assigned subcommittee reports bill favorably to the full committee the full committee then reports the legislation to the House bill goes to the Rules Committee to obtain 29 rules indicating how the legislation will be debated and amended on the oor of the House the legislation is now ready to be scheduled for debate the scheduling of which is in the purview of the majority party Speaker and majority leader next the bill goes to Senate where it is assigned to a substantive committee and then subcommittee the subcommittee reports the bill to the full committee and the full committee reports bill to Senate unanimous agreement is sought among senators on the scheduling of debate because of unlimited debate filibuster rule in the Senate Unlike the House the Senate proceeds with multipletrack deliberation of various bills shifting from one to another bill when there appear to be problems or obstacles that cannot be readily resolved on the oor of the Senate most bills passing the House and Senate use different language ie pass the branches in different form thereby necessitating a conference between the two houses where they 30 work out their differences so that a majority of conferees from each branch approve of the composite House Senate version then the bill is sent back to the respective chambers for approval nally the bill is sent to the president for approval a twothirds vote necessary to override presidential veto The following is a simpli ed chart of the ow of the process a the major assumption underlying our system ofchecks and balances First and foremost While majorities should rule if le unchecked they Will Mannize the minori example In a Florida school in 2008 a elementary school teacher took a Vote 32 among classmates as to whether to exclude a student from class she believed to be unruly I suspect however rather lukewarm feelings on the part of the students about this matter as compared to those undoubtedly possessed by the teacher b we need to address the question of whether majorities actually tyrannize minorities Evidence leaves a different impression Maj orities don t really rule even in elections coalitions of small groups of voters determine outcomes hence majority tyranny is unlikely more apt is minority tyranny c if anything minorities in the form of narrow societal interests exercise greater in uence than majorities because special interests control the public agenda eg issues policies between elections elections are merely coalitions of nonmajorities 33 d checks and balances only prevent majorities from ruling by permitting vetoes throughout the political process by the few example libuster rule in the Senate 2 overlooked mechanisms for protecting minority rights a broad societal consensus on rules of the game eg freedom of speech and policies eg social security provide protections of minority rights to a greater degree than constitutional rules example transferring power after elections rather than assassinations and civil disobedience eg Mexico 2006 b supportive infrastructures eg schools family inculcate and socialize individuals to these rules of the game c Mitigate constrain or eliminate market failures de nition market failures can be viewed as situations or scenarios in which individuals39 pursuit of self interest leads to bad results for society as a whole to 34 avoid these situations government determines what should be public in the realm of governmental authority and what should remain in the purview of private individuals for example education and school vouchers 1 while we are all aware of private goods and services being handed over to government at times there are conversions of public goods into private ones ie takings Unlike conversions of private to public where government pays private individuals for the taking a far more modest amount is paid to say copyright goods in the public sphere and restrict their use for private economic purposes But this may beg the question should we even allow public goods to become private without some kind of vote or public approval a the Olympic seal b replicamodels of privatelybuilt government aircraft 35 c baseball statistics collected and sold privately fantasy baseball leagues for example d Deal with public nuisances Government by statute or through an administrative agency may in dealing with a nuisance decree that certain methods of production should or should not be used eg pollution devices or may con ne certain types of businesses to certain types of districts Is government involvement necessary in dealing with and controlling harmful effects falling on a large number of people Intertwined or underlying nuisances like pollution is the economic problem namely is avoid the more serious harm therefore the question in economic terms amounts to something like this should A be allowed to harm B or B allowed to harm A since there is an interdependence of costs associated with behavior in society That is the costs associated with some action or ceasing that action impose costs on both parties involved Then the problem we face in dealing with actions that have harmful effects is not 36 simply one of restraining those responsible for them What has to be decided is whether the gain from preventing the harm is greater than the loss su ered elsewhere as a result of stopping the action which produced the harm Thus activities which we would like to see stopped or curtailed may be socially justified when consideration is given weighing up so to speak the gains that would accrue from eliminating these harmful effects against the gains that accrue to allowing them to continue example noise from a candymaker disturbs doctors medical practice hence the issue is whether more doctoring is needed at the expense of candylike products The benefits of environmental protection results in costs suffered elsewhere too 1 a marketlike perspective to resolving nuisances It is always possible to modify through transactions in the market the initial establishment and delineation of rights for example through some form of bargaining side 37 payments or contracts And if such market transactions were costless such rearrangements would always occur if they would lead to an increase in the value of production throughout society That is if left unconstrained individual resources will gravitate to their most valued use so as to maximize production in society Thus the market handles problems of nuisances by allowing the parties to negotiate their differences so they are able to maximize their individual gains Note the smooth operation of markets depends on such implicit assumptions as the absence of external costs public goods and prohibitively high transactions cost for a description of these costs see below A market is a mechanism for the voluntary exchange of property rights that is the right to do something a harmful effect is a factor in the production of some good or service so that the cost of exercising that right of using this factor of production is the loss which is suffered 38 elsewhere as a consequence of the exercise of that right In the case of the farmer and rancher does it matter who is liable Such marketarrangements entail transaction costs a search costs the costs of locating information about opportunities for exchange b negotiation costs costs of negotiating the terms of the exchange c enforcement costs costs of enforcing the contract 2 as a result of these costs different types of economic arrangements can maximize production by mitigating reducing or minimizing these costs For instance within the rm or corporation administrative decisions superiors directing the actions of subordinates are substituted for market negotiations so that bargains contracts with those supplying factors of production or used therein are 39 unnecessary Nonetheless all arrangements entail costs rms subject to administration costs of organizing transactions We de ne such costs as expenses incurred in controlling and directing an organization but not directly identi able with nancing marketing or production operations Salaries of senior executives and costs of general services such as accounting contracting and industrial relations fall under this heading Administrative costs are related to the organization as a whole government may be able to get some things done more cheaply but not without its own particular costs governmental administrative machinery is subject to political pressure and operates without competitive checks Indeed regulations are applied in some cases where they are clearly not relevant 40 3 in determining costs of different types of arrangements for resolving matters of nuisances levels of coercion need to also be considered from lowest to highest voluntary agreements privatesector organization and government e Redistribute wealth Government attempts to incorporate the ethics of society as to how income should be distributed such as a progressive taX code What if you were to pass through a veil of ignorance at birth so that you had no idea of your eventual place in society or your subsequent and eventual endowments Now what would the structure of social welfare be like 2 What is the role of special interests within society a Special interests are groups that go to government to obtain some advantage for their members companies within an industry or economic sector for example the AARP American Association of Retired People the NAM National Association of Manufacturers AMA American Medical Association When we speak of special interests 41 we are referring to all the organizations from farm associations to labor unions which seek some particular or special treatment for their members If you think about it we are all probably members of some group acting on our behalf to obtain bene ts from government 1 in defense of pluralism ie allowing groups a role in formulating public policy a aggregation of interests necessary to represent societal opinion because of the diversity of interests in society and the difficulties inherent in uncovering individual preferences for public policies b group competition ensures compromise as each group tempers their own interests in order to ensure the passage of legislation c multiplicity of interests so everyone is represented by some group d overlapping group memberships mitigate extremism and promote group compromise Since individuals are members of many 42 groups their diverse loyalties prevent polarization of group interests and extremism in group actions and goals e formation organization and actions of groups incorporates the intensity of preferences into the policymaking process because these efforts entail costs that only the intense would be willing to incur 2 problems with the practice of pluralism a the eXistence of freeriding in groups means that not all of those involved in a group have the same interest in contributing to the group s collective interest hence the extent to which groups represent the interests of their members or whether there is even agreement on those interests is problematic b success of small groups relative to large groups in their ability to ef ciently create and apply political pressure hence small groups have a legup in affecting 43 governmental decisions because they can be more easily mobilized c lack of member participation in groups hence decisions are made without the consent of the vast majority of members in many circumstances What often occurs is an unrepresentative group leadership example union leaders tend to be more Democratic in the party af liation than their union s membership d coerciveness of groups ie unions and strikes Special interests such as labor unions can be quite coercive e collusion among interest groups resulting in logrolling con icts rather than compromising For instance policies supported by groups antagonistic to one another are bundled together to provide a united front in lobbying the legislature rather than forcing compromises One consequence is that such logrolling behavior 44 increases the federal budget with the inclusion of unnecessary federal expenditures f some societal groups are not easily represented through groups like consumers or cannot be effectively mobilized g special interests find the bureaucracy a relatively effective and cheap way to in uence public policy They identify those agencies dealing with policies relevant to their interests and then develop cozy relationships both personal and business wise with personnel in these federal agencies responsible for programs benef1ting benefit them This ensures them a say in how laws made in Congress are implemented by the agency and how the results of appeals of the regulations subsequently issued in implementing the law are handled In simple terms an agency has become captured so to speak by an interest 45 group and all of society is the worse off because of it Here s how the process plays out in politics legislatures inevitably delegate authority to agencies to implement vague public policies in doing so agencies fashion regulations which have the effect of law special interests with a concern over policies administered by federal agencies are generally few rather than many and their interests are also narrow this enhances the possibilities of collusion among groups and agency personnel as a result agency policies are structured to promote the interests of narrow interests at the expense of the larger public b Rentseekingdef1ned returns in excess of opportunity costs opportunity cost defined highest 46 valued alternative use of your time In short gains beyond a normal return or pro t an unnecessary payment or expenditure to secure a service or privilege l rents are obtained through the use of the political process to gain market advantages over competitors without marketlike investments eg research advertising Groups obtain legislative actions providing marketlike bene ts yielding an economic advantage oftentimes monopolistic control de ned exclusive control by one group of the means of producing or selling a commodity or service Monopolies frequently arise from government support or from collusive agreements among individuals businesses corporations In short rents can be viewed as rights granted by government providing for exclusive control over a speci ed commercial activity to a single party example restricting exports to American ships earmarks that specify that a 47 particular industry institution universities or geographical area is to receive a federal bene t from the general treasury a as noted gains in rentseeking are normally transitional primarily going to those with initial access to the rent eventually these rents are diminished through competition for instance the price of land increases due to governmental subsidies hence the initial owners of land nd the price of their land has increased but those who purchase the land from these owners will have the subsidy bene t incorporated into the price of the land and therefore receive no further value from the subsidy a transitional gain b monopolies in contrast provide a bene t that cannot be competed away 48 hence special interests invest in obtaining monopolies through governmental action c even though all groups suffer from losses in efficiency through their efforts to obtain rents because successful groups are normally small the losses too are small relative to the gains and net benefits larger than the harmful effects on economy or society that they suffer You might say that small groups are not only successful but thankfully so 2 the political process is designed to respond to strongly held preferences but voters know little about matters before the legislature due to rational ignorance and the costs of information hence their preferences will be rather noisy gross or crude ie difficult to discern This favors industries in society eg pharmaceutical financial institutions a industries seeking policies go to the appropriate seller for example political 49 parties and offer to purchase say a regulation at a certain price which re ects the party s need for votes and resources b costs of legislation price to special interests increase with the size of the industry since larger industries seek programs that costs society more and arouse therefore more opposition 3 while we normally think of businesses as despising regulations and they do often regulations are sought by special interest because they yield economic bene ts a control over compliments and supplements example bread and butter beer and beer nuts b establishing entry barriers example tariffs licenses c pricef1xing example price of chocolate newspaper article 50 d subsidies examples farm supports such as wheat rice dairy Problem as more individuals and groups attempt to musclein on the subsidy the per capita gain from the subsidy decreases with the increase in demand 4 in calculating the pro tability of obtaining policies or regulations from government special interests consider the following costs a the costs of legislation is increased because the political process allows outsiders to participate decisions involve all those with an interest in an issue Political process permits groups access at many points in the legislative process several literally functioning as showstoppers such as committee deliberations This means that industries have to balance the bene ts of the legislation against the fact that the 51 political process ensures that opposition to their policies will naturally arise thereby necessitating greater industry expenditures eg lobbying campaign contributions b political process rearranges market control so that small rms have greater in uence than they would possess in a competitive market thereby again raising the costs necessary to induce a favorable legislative response since smallness is bene cial in politics if not the market ie better able to overcome collective action problem small groups may have greater political clout thus reducing the costs involved in mobilizing group pressure but increasing the costs for large special interests c costs of using the process the procedural rules the obstacles in the political process and the administrative costs to regulations prevents special interests from obtaining 52 pro tmaximizing legislation since potential pro ts are eroded because of the costs incurred in using the process d rational ignorance of voters means that politicians listen to the betterinformed so special interests have an edge here e interest groups have stores of campaign resources that they can deliver to politicians and unlike citizens groups have the wherewithal to monitor the behavior of politicians in their speci c areas of policy interest In short groups have the resources that politicians need to stay in of ce and the ability as well as incentives to monitor politicians which better ensures that the politicians will serve group interests 5 rent extractions by politicians through threats of action rather than laws Politicians can be viewed as more than merely brokers who facilitate or redistribute wealth transfers to competing private demands special interests 53 but as independent actors making demands to which private actors respond Politicians gain by threatening action but then foregoing the action a form of political blackmail a the passage of sharply focused taxes and regulations will reduce the returns that private capital owners receive from their investments b in order to protect these returns private owners have incentives to strike bargains with legislators as long as the side payments to politicians are lower than the expected losses from compliance with the threatened law c politicians gain therefore by for a price not exercising their right to impose burdensome costs on private actors examples imported drugs and pharmaceutical PACS give money to prevent changes in law allowing importing of drugs from Canada FTC 54 actions on lemon laws and campaign contributions to legislators Milker bills is a term used by politicians to describe proposals intended to squeeze private producers for payments not to pass the rentextracting actions eg legislation 6 effects of a rentseeking society a adverse selection in the membership of institutions as the type of entrant changes to re ect changes in the incentives for institutional service rents and monetary gain replace other lei predatory and opportunistic motives like power publicity notoriety example individuals coming to Congress in the recent past more likely to be attracted by nancial gain than the intrinsic gain derived from prestige power notoriety spend and raise more campaign money more likely to 55 become lobbyists once exiting Congress and more likely to increase their salaries by going to Congress b the federal budget regulations trade restrictions for instance tariffs and quotas and direct transfers of money can be viewed as rents up for grabs to those who can exert the most political clout or muscle c increased investments in information to anticipate rent transfers since prior knowledge of the future distribution of rents can enable individuals to make wise and pro table investments say in the stock market d social waste entrepreneurs invest to gain monopoly customers invest to prevent monopolies investments made by others to musclein on eXisting monopolies 56 each successful establishment of a monopoly stimulates attempts by others to do the same and organize for further transfers efforts and investments of unsuccessful as well as successful in pursuing monopolies when aggregated are greater than the returns to the monopoly e competition for rents Since interests compete to obtain rents the following results occur competition leads to diverting factors of production to rentearning gains such as obtaining licenses Businesses devote and redirect resources to obtaining rents thereby ignoring more productive uses of their resources such as innovation and marketing Likewise competition for entry into the group of recipients of the governmental privilege 57 can lead to the redirection of productive effort to gain such admission competition to acquire positions that distribute rents Distortions in the labor market individuals gravitate to positions that distribute rents because of better rate of return on their investment may result in under employment for most talented individuals as individuals gravitate to highestearning activities Because of demand for these positions the tests and quali cations increase As a consequence individuals quali ed by examinations and requirements are overqualif1ed for the responsibilities and duties of the job example individuals may seek governmental employment because of the sidepayments offered eg bribes resulting in more talented individuals 58 serving in government but being underemployed by doing so f the possibility that government may reduce returns to their invested capital unless paid off reduces rms incentives to invest in the rst place hence some of the loss from politicians abilities to extract returns from private capital eXist also in the investments that are never made in threatened industries c The nature of politiciangroup exchanges Groups choose legislators based on the legislators price for supplying the requested service This supply price is determined by the cost to the legislator of providing the service ie what opportunities will have to be given up or sacri ced in providing the service opportunity cost The cost to the legislator depends on the productivity of the legislator for example party leaders have an easier time delivering favors than newly elected legislators as well as the preferences of the voters toward the policy requested 59 by the group since the legislator must be compensated for votes lost by serving group interests if voters are angered by legislator s serving the group 1 what s bought a access b legislative assistance legislation earmarks c cooperation legislative action and political advice d bureaucratic intercessions regulations e labor specialization shapes the policy views of current of cial and makes for good employees after of ceholding 2 how is it paid for a postelective jobs as lobbyists See the table below for statistics on employment as lobbyists b campaign contributions Recent Supreme Court decision views campaign contributions as akin to freedom of speech rights and like the rights enjoyed by 60 individuals ruled 54 that they cannot be limited through law c personal gifts golf clubs d offbudget items travel underpriced sales of property and yachts free dinners at lobbyist owned restaurants access to Capitol Hill condos owned by lobbyists e familydirected bene ts eg positions for familymembers in businesses represented by groups 3 who do groups lobby a mobilize supporters rather than convert the opposition to their point of view I avoid opponents since contact provides opportunities for them to learn of arguments and tactics which may aid in designing counter measures 2 difficult or more costly to stimulate attitude change on the part of opponents 61 b those with those lowest supply prices that is those that can get the job done at the least cost for example those in the party leadership and senior members due to their in uence and institutional powers c Congress see the table below Federal Agencies Lobbied Most 19982009 Agency Reportsquot US House of Representatives 328002 US Senate 325007 Dept of Defense 50645 Dept of Health amp Human Services 23502 Dept of Treasury 21029 Dept of Transportation 193 50 Dept of Commerce 18092 Dept of Energy 18080 Total number of lobby reports led NOTE All lobbying expenditurereports computed here from the Senate Of ce of Public Records Data for the most recent year was downloaded on January 25 2010 Source the Center for Responsive Politics 2010 4 what do we know 62 a interests groups and legislators agree on policy b groups contribute to legislators on committees who can aid group causes c interest groups contact their supporters rather than legislative opponents d interest groups behave as if they were riskaverse ie preference is to avoid all and every hazardous or risky venture by providing campaign funds to both political parties e many eXlegislators indeed politicians in general take positions with the special interests they regulated while in office 5 Given the mutually beneficial relationship between special interests and legislators the so called revolving door between private and public employment see following table the fact that eXlegislators end up working for special interests leads to the uncomfortable question of 63 whether politicians take jobs with special interest due to skills acquired in of ce or the favors provided groups For example many legislators leave Congress as lobbyists although very few enter from the lobbying trade So do legislators become lobbyists due to the training they have acquired in Congress which has equipped them for a narrow set of vocations namely lobbying or because these jobs constitute exit prizes awarded those who have faithfully served special interests while in of ce 64 Revolving Door between Government and Lobbying Agency Personnel White House Office 481a Dept of Defense 456 Dept of Commerce 342 US House of Representatives 313 Dept of Health and Human Services 266 Dept of State 183 Dept of Agriculture 178 Dept of Treasl 164 Dept of Justice 152 Vice President s Office 146 Dept of Interior 142 Federal Communications Commission 139 Dept of Army 136 Dept of Energy 128 Executive Office of the President 120 ObamaBiden Transition Project 1 17 Environmental Protection Agency 1 15 Office of Management and Budget 1 13 Dept of Transportation 111 Office of the Attorney General 109 a Number of revolvingdoor personnel ie those moving from government employment to become lobbyists Source Center for Responsive Politics 2010 The information that forms the basis of this database is compiled from a combination of proprietary and publicly available sources The primary source for the core data is a set of 7745 people with details biographical or education entries in the comprehensive online directory 65 of lobbyists published by Columbia Books Inc at wwwlobbyistsinfo as of September 29 2006 6 The durability of legislatorgroup arrangements One problem in legislatorgroup agreements is that there are no instruments to ensure compliance Nonetheless these agreements are generally durable because a repeat business the force of return customers and the fear of being blacklisted b reputation and the sunk investments therein that will be lost through reneging c frictionless relationship between groups and politicians since both View policy problems and their solutions from the same perspective due to specialization on the part of both groups and legislators d nearcontemporaneous exchanges quid pro quo but these transactions are most susceptible to legal prosecution 66 3 How do voters make up their minds How do political parties and the party incharge of government make decisions a Voters attempt to achieve goals through policies advancing their interests hence they should rationally vote on the basis of issues But do they 1 retrospective and prospective evaluations party differentials current and expected what the party in power did while in of ce compared to what the other party would have done during the same period current what the parties will do in the future expected current party differential is the major in uence on expected differential In deciding between two candidates the voter weighs the different streams of utility derived from the policies promised by the candidates the voter subsequently votes for the candidates supplying the greatest amount of utility or bene t 67 2 the problem of parties matching policies Once a party has been successful there are incentives for the opposition party to offer similar if not identical policies that is mimic the other party s policies Success breeds copying stands and policies This is why parties seem so similar in the policies they promise a change versus no change decisions result b performance evaluations as standard for determining whether change is necessary 3 minimal information of voters rational ignorance of voters Voters are hampered in trying to make sense of politics because most lack the necessary information and attitudinal consistency and stability to do so a black and white model Phillip Converse dichotomy in population some have hard core opinions on issues which are wellcrystallized and stable over time but 68 rmemmmmhnf wnmwpqmmmm opinions are random and lack stability b organization of more speci c attitudes into wideranging belief systems ie con gura onsofideasandzu tudesin which the elements are bound together by some form of constraint or functional nuerdependenceisabsentasvvernovelioni the politicallysophisticated to the grass roots mass public llackofideologicalthinkingir1the mass public only political elites have ideological awareness resulting from gmMmamwNommmmmmamw w education Lrteraey test dlrns clown s bld forBrazll eongress Posted 9272010 4 39 PM ET AP Franerseo Srlya aprofesslonal elown and Sao Paulo s federal deputy aJudge to prove he ls hter By Bradley Brooks Assoerated Press n W accordw t the polls 4 rneet a legal requrrernent that lawmakers be able to read and wnte and proseeutors sald Monday they want to force Tlnnca 7 a narne that rneans grumpy m H out ln ito Otherw of ce lfhe Wms Tlnnca Rr l Wl w w hld It can t get any Worse and What does a federal deputy do7 Truly I dont know But vote for rne and you ll nd out eandldate upward of 1 rnllhon ballots 70 But this weekend Epoca magazine reported that people who have worked with Silva on his TV shows and a book credited to him say he is illiterate like about 10 of Brazil s population A video on Epoca s website shows a reporter reading questions from an election poll to Silva He is then asked to read one of the questions himself Visibly shaken he hesitates before campaign aides rush to the rescue and read it for him Silva s campaign press manager Daniela Rocha did not immediately return emailed requests for comment Monday The Epoca report cited an unnamed campaign manager as saying Silva knows how to read but that backers would not make him available to prove it Now however Silva may have to prove it before a judge Prosecutor Pedro Barbosa has asked an electoral court to intervene If he fails to convince a judge he can read and write Barbosa said Silva could be removed from office In a statement Sao Paulo39s electoral court said Silva s candidacy could not be stopped before the vote because the court had already approved his application to run for Congress 7 which includes a document in which Silva swears he can read and write Epoca obtained Silva s written statement to the court and samples of autographs he gave to fans and reported the signatures are vastly different with the autographs looking like illegible circles The effort to get Silva elected despite his profession is serious business Under Brazil39s election laws the 513seat lower house of Congress is filled using an openlist proportional representation system that allocates seats to parties according to the total number of votes their candidates win As an extremely popular candidate who stands to win three times as many votes as his nearest competitor a big win by Silva could pull in another three or four candidates from his party which is in a coalition with the ruling Workers Party 71 2 belief systems can be categorized in terms of the abstractness of the ideas contained within them percentage of mass population classi ed as such in parentheses a ideologues rely upon abstract and farreaching conceptual dimensions 25 b nearideologues use abstract ideas in a peripheral way but do not appear to place much evaluative dependence upon them 9 c gouQlrealmenZ view politics as an arena of group interests unless an issue directly concerns their grouping in an obviously rewarding or punishing way they lack the contextual abstract complex knowledge to recognize how to respond without 72 being told by political elites they trust 42 d nature of the limes parties and candidates blamed or praised primarily because of their temporal association in the past with broad social issues of war and peace prosperity and depression 24 e no policy relevant information 225 c political attitudes formed early in childhood especially through family shape later learning adolescent political socialization however also occurs since friends are powerful forces of opinion change on salient and obscure issues Indeed friends are capable of supplying individuals not merely with information but also with opinions that are readily adopted and remain stable and consistent This 73 occurs because the friendship bond supplies assurance that the opinion delivered serves well the interests of the friend in this way the friendship bond is a form of collateral voters only interact with those who have similar attitudes so there is no exchange of divergent opinions among voters diverse discussion groups discourage participation because of crosspressures on members of these groups or these discussions function as substitutes for other forms of civic involvement like voting 4 since information is costly to acquire that is something must be given up to do so opportunity cost or the highestvalued activity that must be sacri ced minimizing costs of information makes sense and can be accomplished by a accepting subsidized information 74 b shifting analysis to others such as use of gossip from friends political pundits c use of selection principles like group identi cation d ideological shortcuts 1 party ideologies differentiate parties 2 parties need to differentiate product for fear that if no differences seem large extreme supporters will not go to the polls 3 politicians as search goods so voters know where they stand ie ideology on issues prior to electing them earch goods consumers know the quality of the product prepurchase altematiVely politicians may be experience goods consumers must use the product or observe 75 its operation over a period of time before passing judgments of its quality 5 cost considerations a likelihood of changing an existing preference b cost of gathering data c consequences of making a wrong decisions d informeduninformed returns from acquiring data neither those that care about who wins nor those who don t have incentives to become informed e value of the m in deciding whether to vote a rational voter must calculate the probability that the vote will be decisive ie make or break a tie f if there is no rationality to voting then why do people vote Explanations for t Paradox of Voting 76 a taste for voting private gains in terms of psychic income or bene ts utility a sense of civic duty for example lead individuals to vote despite the costs of doing so minimaxregret strategy one calculates not the actual payoff for each of the two strategies available to the voter that is voting or not voting and the two possible outcomes or state oftheworld combinations ie preferred candidate wins or loses but the loss one would experience in choosing a given strategy should a certain state of the world occur with the two states of the world being 1 the outcome of the election is independent of whether one votes or 2 by voting the individual produces a Victory for hisher preferred candidate by either breaking a tie vote or forcing Election Outcome Independent of Vote Voted Abstain Regrets Voting No Regrets 77 a runoff which the preferred candidate wins Thus the decision reduces to whether to vote or abstain One then chooses the action that minimizes regret What action minimizes regret in figure Vote Determines Outcome No Regrets Maximum Regrets expressive voting to show or exhibit solidarity with other like minded individuals express an opinion as to who should be elected to demonstrate civic consciousness little lapel label to express preferences that deviate from what one would do if their 78 vote were in fact decisive or to express views of what is good for society and which candidate will pursue those ends Think of fans cheering on their favorite team knowing that there shouts will have no measurable impact on the nal outcome but they do so nonetheless the ethical voter Voters have both sel sh ie one s own utility and ethical sets of preferences and ethical preferences govern voting situations hence voters vote due to ethical obligations they feel perhaps believing that the quality of political outcomes is improved when all vote or that it helps to preserve democratic institutions b Government lobjective is to win elections by doing what voters want majoritypleasing in the truest sense of the word 79 a marginal changes on budgetary priorities indeed governmental changes tend to occur at the margins in everything for the most part b value of some activities are worth the cost that is the cost in votes in less than the gain in votes by continuing these services or the gain in votes by reducing the costs of the revenue to support these services does not equal the loss in votes that occurs from failing to continue the services c government often calculates the net value of its expenditures on voters utility favoring particular interests at some points in time and other interests at other points in time hence that all experience a net gain in utility d incrementalism in most decisions that is small marginal changes to eXisting policies 80 e intelligence of democracy multiple decisionmakers correcting the errors of others as they pursue their own interests remedial decision making Charles Lindblom f decentralization marks American government each institution or bureaucracy with its own interests and constituencies 1 federalism layers of governments from local governments state governments to national government 2 federal bureaucracy numerous agencies representing functional and programmatic areas of governmental service 3 national government Congress Supreme Court Executive branch 2 if governments please a majority of voters can they ever be defeated for reelection Defeating maj oritypleasing governments 81 a matching policies except for one issue that has no majority opinion example choices facing voters about Iraq setting a deadline for leaving stay and support existing government phased pullout none of which were supported by a sizeable majority of voters b coalition of minorities as in minority opinion works because over time incumbent government has to alienate subsets of the electorate in following majority opinion If they don t follow majority opinion they will be replaced at the next election by the party supporting such neglected majority opinion If these minoritypreferring individuals care about those minority opinions they harbor more so than those they share with a majority of voters then a party championing minority positions can win election Arrow s Paradox 82 c matching policies and depend upon performance ratings because no differences between the parties assumes that voters are worseoff at present than could be normally expected and so vote to change 3 why governments listen to groups 1 rational ignorance of voters 2 groups possess greater expertise 3 disposable electoral resources 4 better able to afford the costs of in uence eg gathering data preparing arguments because the discount rate is lower since fewer involved in in uencing government also payoff is large 5 supply of postelective benefits like employment c Political Parties 1 design policies to win elections 2 position policies where mass of voters locate 83 3 ambiguity and equivocation are strategies designed to appeal to as many voters as possible Consequences a confused irrational voting b variances in party positions as well as the average or mean position of the parties stands thereby complicating the voting process for the individual voter even further 4 distribution of voters determines the number of parties in a political system in a multiparty system there are numerous clumps or clusters of voters along the ideological spectrum 5 median voter model if there are two major candidates or parties one of which will be given the power to make public policies until the next election and voters cast their vote for the party or candidate closest to their most preferred feasible policy it turns out that the candidate or party that is closest to the median voter always wins the election This follows because the candidate or party closest to the median voter is also closest 84 to the ideal points or preferences of more than half of the electorate a If candidates or parties can freely choose policy positions to maximize their share of the votes both candidates will attempt to adopt policy platforms that are closer to the ideal policies of the median voter than the other Consequently major party candidates will both tend to select platforms that are relatively close to the median voter39s preferred or ideal policies Moreover as each candidate competes for the favor of the median voter the positions of both candidates converge toward the policy positions that maximize the median voter39s welfare A Normal Curve Representation of the Distribution of Voters Yolal avaa V u 30 Liberal Cons erVatiVe Decimals represent the percentage of Voters located in segmenw recorded in standard deviations from the mean across the ideological continuum 86 b implications 1 public policies will tend to be moderate middleoftheroad policies e g drawn from the exact middle of the political spectrum Such policies can be regarded as quotmoderatequot essentially by de nition 2 many perhaps most people will be at least partially displeased with the policies chosen by the political parties since voters tend to have different ideal points insofar as their tastes age income tastes ideology or information differ 3 minority interests do not directly affect policies by definition and thus every majoritarian policy is likely to impose externalities on the minority 4 even within the majority votes rather than the intensity or willingness to pay determine policy in electoral 87 settings Some voters who feel intensely about an issue may be willing and able to compensate others to adopt policies that differ from those otherwise favored by the median voter Unrealized gains from trade may exist 6 political parties are reliable do what they say and responsible consistency in positions If elected it makes sense to fulfill the promises that won election reliability since these were what got them elected in the first place If they were not reliable when in the opposition their words their only means of attracting voters would be heavily discounted and they would never be elected Responsibility saves costs to voters of predicting future policy positions hence voters value it and parties are driven by competition with one another to exhibit it 4 What are the roles of political institutions in democracy Institutions mitigate the externalities that arise in selfinterested behavior 88 a The legal system 1 return to the notion of special interests wanting policies or rents from Congress now think of the costs involved in transacting agreements in the market search contracting and especially policingenforcing the bargain There are many reasons for the existence of an independent judiciary but one overlooked reason is that the existence of an independent judiciary eg Supreme Court enhances the durability of legislation by enforcing the decisions made by past legislature in terms of original intent of legislature precedent a private sales and contracts carry sanctions for noncompliance but there are no legal sanctions for a legislature failing to carry out its bargains with an interest group There are no legal mechanisms analogous to longterm contracts by which the enacting Congress can prevent subsequent congresses 89 from amending the legislation in a way unfavorable to the former b such prospects reduce the value of legislation and therefore the price legislators could receive for the policies sold to interest groups would be lower since for those legislators not party to the original deal the bene ts from repudiating a previous Congress may outweigh the costs For example leveraging extortion money through campaign contributions c both legislators and groups would be worseoff as a result of such circumstances hence an element of stability and continuity in political bargains is necessary for interest group politics to survive to the bene t of both legislators and groups This is supplied by l procedural rules required for changing eg amending previous legislation and 2 an independent judiciag 90 which enhance the durability of legislative deals d legislatures eg Congress avoid interfering in the business of independent judiciaries because of the bene ts derived from the durability it supplies to legislation 1 legislation can be sold for a mgm 1m due to its durability A longer shelflife makes durable legislation more valuable to groups since they don t have to repurchase the legislature as frequently 2 increases demand for legislation which also results from its durability With assurances that eXisting legislative bargains will not be negated in the near future groups seek more bene ts in the form of legislation from the legislature In short demand for legislation increases 91 3 there is of course a price to pay for having an independent judiciary independent judges may refuse to enforce legislation they do not like however this is a necessary price to pay for a system where interest groups will have incentives to invest in legislation that yields bene ts over an extended period of time 4 there is also the constraint that a present Congress faces should it try to coerce to coerce the independent judiciary it would harm the judiciary s functioning impair its ability to uphold contracts and impose costs on beneficiaries of legislation passed by the present Congress e judges need not yet nonetheless do follow precedent but why 1 judges are aware that there are some tools available to the legislature and the 92 executive to reprimand a recalcitrant Court this ensures that the Court will consistently support precedent Congress for instance can freeze justices salaries refuse to appropriate funds for the maintenance of the Court alter its appellate jurisdiction and initiate impeachment proceedings 3 by following precedent the Court can maintain its independence from the executive and legislative branches f other sources of durability in legislation 1 the Constitution is just another means to instill durability to contracts made with important interest groups example First Amendment protects the right of newspapers pamphleteers and journalists who derive pecuniary and nonpecuniary benefits from advocacy 93 2 durability also arises from the procedures in legislature which make it difficult to amend or change a law g motivations of judges Judges bene t from judicial independence which enables them to make decisions favoring one party or another because it pleases them This is how they derive utility namely by making decisions favoring one litigant over the other In short judges gain utility by consuming the gratif1cation derived from having ruled in favor of one of the litigants 2 enforcement of laws Level of enforcement depends therefore upon a degree of honesty of enforcers for a given bribe some will condone offenses that others would prosecute b repetition of violation repetitive violations establish reliable relationships between violators and enforcers that might lead to a greater likelihood of friendly 94 relationships that translate into favorable treatment for crooks and bribery c existence of victims victims have a stake in apprehending violators especially if they receive restitution say in the form of the recovery of their property d incentives for honesty such incentives should be embedded in the remuneration of enforcers So for example enforcers might post a bond equal to the temptation of malfeasance receive the income on the bond as long as they are employed and have the bond returned if they behave themselves until retirement ie they forfeit their bond if they are red for malfeasance 3 punishment The issue can be thought of as how many resources and how much punishment should be used to enforce laws a sup1 y or number of criminal offenses can be viewed as equaling the probability of conviction per offense and or plus the 95 punishment per o ense So the number of murders is a function of the probability of conviction plus the level of punishment b since offenders tend to be risk preferrers they minimize the likelihood of apprehension or assign it a low probability hence they are more deterred by the probability of conviction than the punishment when convicted So Whether crime pays is related to the attitudes of offenders toward risk and not directly related to the effort spent combating crime c in fashioning an effective criminal punishment system therefore we need to consider 1 damages from the offenses 2 costs of apprehending offending parties 3 costs of convicting offenders 4 social costs of punishments social costs of punishment costs to 96 offenders foregone earnings and consumption costs to others d one alternative to a system of incarceration would be to institute nes in lieu of imprisonment hence such a system translates nes or punishments into social costs Fines are prices for crimes measured in dollars while imprisonments are prices measured in units of time 1 how would such a system operate The monetary value of the penalties should equal the harm caused by offenses and the fine should compensate for harm caused that is offenders have to compensate for the costs of catching them as well as the harm they directly do a general operating principle harm cannot exceed the resources of offenders if Victims are to be fully compensated For really 97 heinous crimes nes would be supplemented with prison since in these cases Victims cannot be fully compensated by offenders b legal proceedings assessment of harm criminal actions are uncompensated harm to others 2 what bene ts could we derive from such a system While probation and imprisonment use up societal resources nes are simply transfer payments Furthermore nes fully compensate Victims but do not require Victims to spend additional resources to carry out punishments for instance testifying at judicial procedures In addition since the nes compensate the Victims additional retribution is unlikely to occur after the punishment 98 Reading Assignment Law Enforcement Malfeasance and Compensation of Enforcers Gary S Becker and George J Stigler 1974 Journal of Legal Studies 118 b Legislatures Two prominent features of legislatures are the provision of representation and in the execution of that function vote trading Both functions pose problems for the political system For one thing the rational interests of elected agents such as legislators act in ways that are not always consistent with the best interests of the principals they represent voters and when they do so with the help of trading a vote here and there society is worseoff as a result These problems stem from the desire to be reelected which while an important attribute of democracies actually entails external costs 1 representation There are numerous problems in the legislatorvoter relationship a incomplete contracts and unforeseen contingencies impair contractual relationships between agents legislators and principals voters 99 b shirking trading work for leisure or voting one s principles rather than the preferences of constituents principals in team production situations like the legislative process because individual effort is difficult to ob serve and therefore reward eg group projects c dif culties in monitoring promote discretionmaximizing behavior where legislators can spend accumulated margins of electoral safety in pursuing their own personal interests and goals The difficulties encountered in monitoring legislators create barriers to accountability to voters party leaders and even special interests for instance legislative procedures often conceal behavior e g executive sessions d lastperiod problems e g retirement from of ce No longer facing the constraints of reelection legislators can give 100 full rein to their personal interests and desires prior to leaving of ce e asymmetries in information differences in amount quality depth etc of information between individuals such as buyers and sellers voters and politicians yields advantages to legislators l adverse selection hidden information In a market where buyers cannot accurately gauge the quality of the product that they are buying it is likely that the marketplace will contain generally poor quality products For instance there is a tendency for those with severe health problems to buy health insurance people going to dangerous places such as war zones to buy more life insurance and companies employing workers in dangerous occupations to buy more worker39s compensation coverage In order to 101 combat the problem of adverse selection insurance companies try to reduce their exposure to large claims by either raising premiums or limiting the availability of coverage to such applicants example used care market Akerlof s market for lemons Recent generations of legislators more likely to I raise and spend large amounts of campaign funds 2 slough off their campaign debt on to special interests and 3 become lobbyists than preVious generations 2 moral hazards hidden motives The agent usually has more information about his or her actions or intentions than the principal does because the principal usually cannot completely monitor the agent Thus agents may 102 have incentives to act inappropriately from the Viewpoint of the principal if their interests are not aligned example car repairs insurance claims to avoid giVingin to pressures by party leaders legislators may claim the eXistence of constituency forces acting upon them like interest groups in the district that may be impossible to observe f public information about legislators is often biased in favor of incumbent legislators because they have a monopoly over its formulation Most information reported in local presses has its origins in congressional off1ces thereby creating a symbiotic relationship where the local media need news about Washington politics to impress their readers and listeners and legislators need good press back home 103 g lack of competition Legislators establish barriers to competition so they need not worry about following district opinion since voters have few real choices at election time Just take a look at these graphs regarding competition in US House elections The gure reports the number of congressional races won by 55 or less of the twoparty vote Note the dramatic decline over time The Disappearance of Marginal Districts Electoral Returns Q Cu K BQ bWb Dr 9 936644 eeeeeee 0 499er gt999 Year 104 2 vote trading The general belief is that vote trading is good since it allows the intensity of preferences to be taken into account So one legislator trades his vote over a matter he or she cares little about in return for another legislator s vote on a matter that he or she cares more about or at least their constituents care more about it However this creates something of a paradox because such vote trading results in unnecessarily increasing the federal budget as rather worthless projects pork are added to budgets to facilitate vote trades This in fact also produces something of a paradox legislators who neglect to engage in vote trading on behalf of their constituents so the latter forego some piece of the federal budget find that their constituents still end up paying but now for pork located in the districts of other legislators This is the paradox of voting vote trading makes everyone actually worseo than if there were no vote trading in terms of the infusion of worthless pork into the 105 federal budget but if vote trading occurs which is highly likely in legislatures driven by electoral outcomes tied to bringing federal money to the district then those legislators who fail to engage in vote trading are m worseo or at least their constituents are Under such conditions electoral threat cannot be far behind 3 reelection motive Although an obvious requisite for any democratic political system there are some rather perverse consequences that result a organization and design of institutions 1 committees serve electoral needs by traf cking in particularistic bene ts ie those capable of being targeted at constituencies 2 of ce allowances help to propagandize voters 3 legislative of ces in district and Washington enable legislators to provide personal touch to services 106 and perform electorallyvaluable constituent services 4 positiontaking creditclaiming advertising 5 norms universalism aids pork barreling specialization promotes expertise creditclaiming and deference which enhances monopolypowers of committees and their members b processes eg logrolling facilitate reelection c policy effects 1 cozy triangles between committees agencies and groups resulting in governmental growth and larger budgets 2 lawmaking takes a back seat to constituency service 107 costs of lawmaking all laws alienate someone and they usually incite some level of controversy while constituency service is pure pro t 3 vague laws and resulting bureaucratic screwups legislators write vague laws so that bureaucrats will make mistakes of commission and omission in implementing legislative intent Vague laws also enhance f1Xit services and talents of politicians as bureaucracies make errors that special interests want corrected in their favor which politicians oblige them legislators intervene on constituents behalf persuade bureaucracy to resolve the problem in favor of their 108 constituents as if they need any persuasion and win the gratitude of their constituents both those helped and those who feel that they could be helped some time in the future through such a contriyance legislators are able to safely win reelection agencies get higher budgets and constituents have their problems with the bureaucracy satisfactorily resolved 4 politicaleconomic cycle to elections why does it occur the belief among politicians that economic change in the months preceding an election decides its outcome with voters rewarding politicians 109 for prosperity and punishing them for recessions coupled with the conviction that shortterm economic spurts immediately before elections bene ts incumbents how does it occur politicians use economic policy instruments that are m and chk to start up eg real disposable income transfer payments such as social security timing of these bene ts postponement of taX increases economic policy instruments must yield M and immediate bene ts to a large number of voters or large segments of the population eg llO unemployment reduction and transfer payments like veterans bene t increases increases in social security bene ts for retirees when does it economicelectoral cycle occur Since presidential concurrence is necessary the electoral priorities of presidents take precedence on year election president seeking reelection midterm congressional elections onyear elections incumbent president not seeking reelection oddnumbered years example In the United States with a 2year cycle in the growth of 111 real disposable income accelerations in even numbered years and decelerations in oddnumbered years and a 4year cycle in the unemployment rate downturns preceding elections and upturns 1218 months after the election 5 servicing organized groups 6 wrapping public policies with a particularistic cast to them 7 delay on nonparticularized bene ts 8 emphasis on symbolism since positions earn votes as much as actual action 9 building inef cient constituency projects 112 a distributive policies concentrate bene ts in a speci c geographic constituency while nancing them from gm taxation b the bene ts of constituency placed federal projects include the pecuniary gain to a factor owner of production within the constituency like a business or factory and to consumers of the project c these projects continue to be funded because 1 the gains are targeted at constituents but the losses or costs widely dispersed 2 it is hard for citizens to link the higher prices they pay to the costs of projects 3 gainers are better organized politically with better abilities to reward legislators 4 ll3 legislators exaggerate the gains from projects and minimize the losses voters suffer as a consequence d other selfinterested motives of legislators l altruism Some legislative votes are cast to support collective bene ts like environmental controls on pollution Also service to a cause such as AIDS or universal health care underlie legislative behavior 2 wealth There is money to be obtained through public of ce senators stock holdings return a better rate than the DOW and some legislators increase their salaries by going to Congress approximately 174000 2010 excluding deductions such as living expenses while in DC 114 Also rent extractions are always a possibility Leaders of the House and Senate are paid a higher salary than rankand le members Senate Leadership 2010 Majority Party Leader 193400 Minority Party Leader 193400 House Leadership 2010 Speaker of the House 223500 Majority Leader 193400 Minority Leader 193400 A costof liVingadjustment COLA increase takes effect annually unless Congress votes to not accept it 3 career changes Congress provides numerous opportunities for legislators to specialize and in the process acquire skills suitable to new vocations and many legislators do in fact switch 115 from their preelective occupations once they leave Congress 4 power There are numerous opportunities for legislators to acquire and exercise power for instance through control over expenditures and sources of revenue in the budget and the monitoring of executive and regulatory agencies 5 national visibility Since Congress is the major forum for discussion and debate of public policies membership in the institution provides readyaccess to the news media and all the notoriety it provides on a national scale 6 leeway or discretion Legislators like most of us want the freedom to do what they want to do unconstrained by the in uence power or preferences of others their own person so to speak 116 Congress provides just such opportunities 4 internal legislative functions Legislatures like all organizations have internal needs that have to be met for the smooth functioning of the institution In legislatures and especially Congress these roles are assigned to the committee system and party leaders They keep a watchful eye over the operations of Congress but are also quite responsive to the needs of individual legislators as well Committees in Congress a reduce opportunism and reneging on legislative deals uphold legislative bargains through exclusive control over legislation because of jurisdictions X post veto Iakez39l orleaveit nature of conference agreements and committee control over selection of 117 conferees ensures last word for committees b distribute property rights over agenda for example by allowing committees more opportunities to amend committee legislation thereby avoiding tragedy of the commons where rational selfinterested members would inundate the agenda with their own private matters c reciprocity and deference reinforce committee power trading minor control over many issues for exclusive control over a small number of issues d provide opportunities for legislators to develop and practice political skill sets with marketable value ie training in politics is just as in the construction trade in the sense that education is onthej ob and instruction is by practitioners of the trade just as in university programs that feature internships All elected officials must contemplate 118 someday leaving of ce so they prepare for such prospects while in office Political institutions couple learning about politics with production lawmaking so politicians eXit legislatures wellversed in how to in uence and manipulate the political process talents in high demand by special interests 1 specialized policy information helpful for career changes after leaVing Congress 2 general information about ins and outs of government paysoff in salary after leaVing Congress 3 what is marketed to special interests bureaucratic and political contacts knowledge and information expertise in political issues awareness of norms 119 manufacturing earmarks and regulations political processes and procedures howto know how about bureaucratic f1Xit services political skills skills in bargaining and legislative strategies use of killer and saving amendments involvement in logrolling etc public relations high level public or private sector jobs often require experience confronting angry legislative committees or corporate boards stockholders consumers voters and the like experiences which 120 political service supplies on a neardaily basis e access for special interests control over agency budgets ensures groups receive bene cial treatment such as sidetracking governmental sanctions and investigations f promote chamber expertise through specialization Reading Assignment The Industrial Organization of Congress or Why Legislatures Like Firms Are Not Organized as Markets Barry R Weingast and William J Marshall 1988 Journal of Political Economy 132163 Party Leaders a keeping the legislature productive earns favors Party leaders serve as middlepeople in vote trades by pairing up demanders of public policies with suppliers to clear the marketdemand for legislation Legislative leaders have incentives to keep the legislature productive because it earns more favors Incentives to keep the legislature 121 ef cient arise from the fact that the fewer favors used to in uence the course of legislation and deliver on agreements the more that leaders can use for their own private purposes b agenda setting functions through control over assignments to important committees and procedural and party powers c controlling opportunism ie devious selfinterest through 1 scheduling final voting in legislatures minimizes moral hazards within legislatures 2 control over assignments to hi ghly valued agendasetting committees these bene ts distributed to those who keep the institution a oat providing the collective good necessary for the smooth functioning of an institution riddled with members out to gain reelection and little else 122 Reading Assignments Home Style Richard Fenno 19 78 or most recent edition Chapters 16 appendix Information and Learning in a Congressional District A Social Experiment Stephanie Larson 1990 American Journal of Political Science 11021118 5 controlling legislators a social punishments like snubbing another member are rare live and let live mentality because of the persistent and incalculable need for votetrading partners b elections might be Viewed as a good way of ridding the institution of its worst but incumbents win more than 95 of the time c ethics reforms 1 minimal standards are the only ones that are maximally enforceable and the only ones likely to gain majority support in a legislature populated with selfinterested members 123 2 few incentives to criticize fellow members 3 existence of loopholes for instance few real controls on lobbying by spouses 4 weak formal sanctions 5 lack of informal sanctions 6 low probability of punishment example recent congressional page scandal involving legislative leaders in coveringup for Representative Foley s excesses and immoral behavior 1 legacies and political family names control shirking because of fear of ruining political careers of future generations Politicians leaving of ce can maintain their political in uence and specialinterest earnings if their progeny also assume political careers hence they have incentives to behave properly to ensure the political 124 future of their daughters and sons and continue to consume the political in uence they enjoyed in of ce while out of of ce e reputation behaves like selfenforcing contracts and induces self policing 1 sunk costs of time and effort in establishing political career 2 premiums for honesty in politics electoral safety and prestigious post elective employment f repeated electoral Mg screens out poor constituency agents ie those at odds with the political preferences of their constituents g congratulationrationalization effect winners congratulate voters on making an informed decision based upon political issues losers rationalize their electoral defeats as due to a lack of an informed public Therefore winners may behave in of ce as if the electorate is better informed 125 than they actually are in addition legislators are likely to hear from the better informed segments of their constituencies thereby reinforcing the perception of an informed electorate capable of monitoring behavior in of ce h pay wages above marketvalue the minimum level necessary to attract people to public of ce so that loss of of ce is greater than the gain that comes from cheating or supplying favors to special interests i greater frequency in elections that is a shorter time span between elections This would narrow window in which legislator excesses could occur without electoral reaction Businesses are reluctant to cheat customers if the period of repeat purchases is short j self policing prospects of future employment reduces the attraction of last period behavior since legislators do not 126 want to diminish the demand price paid for instance for their services once they leave Congress by appearing to be potentially slovenly or dishonest employees such behavior leaves the impression that future employeepoliticians possess poor work habits are unreliable untrustworthy and signals potential employers of a looming principalagent problem 6 shattering some myths about legislators a they obtain high paying jobs after leaving Congress well on average about 247 000 but most suffer salary losses in excess of 11000 b most become lobbyists after leaving Congress less than onein four 23 take jobs as lobbyists immediately after leaving Congress but about 37 nd their way into lobbying in their journeys along their post elective career paths 127 c legislators are attracted to lobbying because of the high salaries paid this is actually a statistically insigni cant effect more important is their political training which occurs concurrently with the performance of their jobs as legislators Legislative service equips politicians for very few vocations aside from some sort of lobbying position although they are quali ed to do more It is the specialized political training that most legislators receive that equips them for such a narrow set of occupations to the chagrin of many legislators d legislators return to previous occupations after leaving Congress or simply retire not really about 43 nd other vocations e once a lobbyist always a lobbyist not so many legislators leave the vocation after spending some time there 128 c Administration of laws regulations and programs the role of the Federal bureaucracy For example U S Departments of Energy State Defense Treasury Homeland Security General Services Agriculture 1 motivations of bureaucrats An understanding of bureaucratic behavior requires an awareness of the incentives bureaucrats face These incentives create different types of bureaucrats pursuing particular goals Such behavior results in characteristics of agencies bureaus within the federal government a bureaucratic types can be envisioned as idealized An ideal type is formed from characteristics and elements of the given phenomena but it is not meant to correspond to all of the characteristics of any one particular case It is not meant to refer to perfect things moral ideals nor to statistical averages but rather to stress certain elements common to most cases of the given phenomena 129 l climbers seek to maximize their power income and prestige through promotion in the existing bureaucracy increase the power income or prestige associated with the present job or rank or jump to a new and more satisfactory job outside the present bureaucracy 2 conservers seek to maximize their security and convenience ie reducing one s efforts to the minimum level possible These individuals are change avoiders because they believe that such change cannot improve their lot and could in fact harm them greatly for instance they have low expectations about promotions in the future a there are pressures to become conservers in the long run in every bureaucracy due to such things as the length of time in a position the 130 frustrations endured along the way and age which forecloses future advancement The following graph shows the extent to which conservers populate federal agencies 6000 5000 4000 3000 2000 1000 000 PERCENTAGE OF FEDERAL WORKFORCE OLDER THAN 50 YEARS OF AGE BY AGENCY 2006 FederalAgency l Agency Personnel Over 50 Years of Age 131 b conservers stick to the rules rigidly applying rules of procedure promulgated by higher authorities because this strategy acts as a shield protecting them from being blamed by their superiors for mistakes and even from having to obey any orders that con ict with the book 3 advocates tend to promote everything within the bureau since their incentives are based upon overall performance of the agency 4 zealots focus on or advocate a narrow set of interests or policies regardless of the breadth of their responsibilities thereby ignoring important bureau functions and antagonizing others by their lack of impartiality and singlemindedness 132 5 statesmen loyal to the nation or the society as a whole and often encountered at the lowest levels because such individuals are rarely promoted since they possess no strong loyalties to the agency and also the highest levels because these positions have sufficient breadth or scope to make the statesmen s loyalties appropriate of the bureaucracy b budget maximization Bureaucrats seek to maximize the discretionary aspects of the budget namely the difference between the total budget and the minimum cost of producing the expected output As a consequence governmental budgets will be larger than preferred by either the median legislator or median voter overspending By this notion the ef ciency of an agency bureau is negatively related to its size since it is harder to keep tabs on larger 133 agencies and their activities and positively related to competition for the supply or delivery of similar services for instance private firms supplying the service or good Because bureaucrats rewards are speci c to their tenure in that position they prefer present spending to future spending and emphasize large capital investments like of ce furnishings and staff 2 bureaucraticorganizational change and evolution a new bureaus arise as the result of the aggressive action and agitation by a small group of zealots who have particular ideas they want to put into practice on a large scale b organizations experiencing rapid growth like new ones provide excellent opportunities for promotion thereby attracting climbers conversely such bureaus also experience a decline in 134 conservers because rapid growth is normally accompanied by uncertainty and hard work characteristics antagonistic to conservers goals c as the proportion of climbers entering an organization rises a higher proportion of their efforts is devoted to internal politics and rivalry and less to the performance of the agency s societal functions d when organizational growth slows or subsides opportunities for promotion also diminish thereby leading climbers to jump to other bureaus hence the proportion of climbers is reduced and the proportion of conservers in key positions increases e at this stage the agelump phenomenon materializes soon after an initial spurt of growth every bureau s growth rate slows which means that a high proportion of its total membership consists of persons who joined the bureau during the 135 fastgrowing period thereby constituting a lump of personnel all about the same age As they grow older the average age of the bureau rises resulting in the following 1 squeeze on members regarding promotion since so many attain the necessary quali cations all at once 2 increasing age and frustration leads a high proportion of the bureau to become conservers 3 climbers leave because of the squeeze on promotions and generally speaking the most talented leave because they have better opportunities elsewhere hence the bureau becomes dominated by individuals of mediocre abilities 4 difficult to attract climbers to the bureau because they see the road upward as already clogged and zealots 136 will be discouraged by all the conservers in the bureau 5 a crisis of continuity occurs when the age lump arrives at retirement age and all the top echelon positions are vacated resulting in troubles involving control over policies and resources f there is another aspect of bureaucratic change that is sometime overlooked change in Administrations When there is a change in Presidents especially when there is a partisan change some highranking bureaucratic of cials who were appointed in the previous Administration attempt to have there jobs converted into career positions Moving from an appointed position to a career job is known as burrowing in It39s not illegal and often not inappropriate but it can look like the x is in While such conversions may occur at any 137 time frequently they do so during the transition period when one administration is preparing to leave office and another administration is preparing to assume office Burrowers make up a very small portion of the government39s 19 million civilian workforce Nonetheless the trend seems to be upward Conversions of fixedterm M appointees to career service for example have leaped in recent years from 266 in fiscal year 2003 to 734 in 2007 Perhaps most of those who do convert from appointed to career positions are well quali ed for their new jobs but there is a concern much greater than the numbers The danger is in the appearance valid or not of favoritism The rankandflle might view converted employees as intruders taking opportunities from civil servants Or some in the bureaucracies might be suspicious that the converted may seek to undermine the 138 work of the new Administration whose policies may be at odds with those that he or she espoused when serving in the appointed capacity 3 the problem of internal bureaucratic control Controlling subordinates is important because the latter have their own interests and goals which may run counter to their superiors a bureaucrats can be thought of as having the following biases l exaggerate data that re ect favorably upon them 2 biased toward policies that advance their interests and against those that fail to do so 3 vary the degree to which additional responsibilities and risks are sought out 4 vary compliance with directives depending upon whether they advance 139 personal interests for instance feet dragging on orders opposing their interests b there are several ways of dealing or controlling the tendencies of bureaucrats to seek policies and actions that further their own personal interests 1 issuing orders that require minimal review the less ambiguous and general the less discretion delegated 2 creating information necessary to discover what subordinates are doing for instance written reports that are not only informative but serve to remind subordinates that certain standards are expected 3 selecting only a small portion of all activity for review 4 using antidistortion devices to obtain compliance like personal and irregular visits and requiring 140 coordination before any action can be taken 5 separate monitoring agencies for inspecting and reporting on performance 6 use of personal staff external to the hierarchy unfortunately staff normally favors expanding functions they are entrusted with thereby creating their own biases and control problems 7 nepotism is bene cial because a modes of perceiVing and interpreting reality like that of the appointing off1cial b intimate knowledge of relatives and family helps to understand and identify their biases more quickly c their interests are closely identi ed with that of the official 141 d relatives are loyal to one another for nonrational reasons which increases goal consensus between leader and key subordinates 4 the problem of exercising control over agencies Creating agencies with discretionary authority to make policy decisions causes a potentially important problem the agency may make decisions that depart from the policies desire by Congress and the President a bureaucrats have personal preferences that depart from those of elected leaders like members of Congress and the President While the choices of the latter are disciplined by elections choices of bureaucratic officials are not hence bureaucrats efforts are likely to serve their personal interests 142 b expertise of agencies provides them with an informational advantage over elected of cials c shirking leisure by bureaucrats yielding an undersupply of agency output This is the old lazy bureaucrat caricature d subject to capture by special interests with stakes in agency programs and policies thereby biasing decisions to the bene t of these groups e since monitoring and enforcement are not costless no method for controlling or in uencing administrative decisions will be perfect elected representatives face a trade off between the extent of compliance they can command and the effort necessary to be eXpended to assure it ie opportunity cost Legislators have substantial discretion in the use of their time and staff resources Some uses have bene ts that are largely speci c to their own constituencies or reelections 143 Monitoring agencies however is a public good within the legislature since the bene ts of monitoring accrue to the whole population in terms of lower taxes thereby creating a freerider problem and the expectation that monitoring activities will be undersupplied Legislators pay little attention to monitoring because 1 district or powerful special interests may be affected 2 agency complexity requires expertise that many legislators just don t possess 3 legislators have incentives to create friendly relationships with bureaucrats to help in delivering federal contracts and monies to constituent interests and resolving voter bureaucratic complaints both votegenerating mechanisms and 4 their districts pay such a small share of the total taxes needed to support these programs that their time is 144 better spent on activities speci c to their districts f delegation has value to politicians since it expands the scope of politicallyrelevant opportunities so imperfect compliance is a cost of delegation that has to be compared to its benef1t that is to subject a greater range of agency activity to political in uence g informational asymmetries exist because Congress doesn t know the true costs of some programs thus bureaucrats are able to exaggerate the costs of programs and use the surplus to bene t themselves for example by easing their workload by hiring additional staff or taking overseas trips 5 how agencies are controlled a firealarm system Congress establishes a system of rules procedures and informal practices that enable citizens and organized groups to examine administrative decisions to charge executive 145 agencies with violating congressional goals and mandates and to seek remedies from agencies courts and even Congress Consequently Congress rarely engages in fullscale investigation of agencies without being prompted by angered voters or groups The ef ciency of this system is certainly relevant but its survival is more likely due to the bene ts legislators derive from it 1 opportunity costs Legislators spend less time examining agency decisions that do not violate legislative goals or harm voters hence a f1realarm system where constituents notify their representative of problems makes better use of the time of legislators 2 violations that do harm are brought to legislators attention hence few errors are missed 3 costs of the f1realarm are borne by groups administrative agencies and 146 the courts rather than legislators themselves in addition the legislator s responsibility for imposing these costs is rather remote so that he she will be able to escape blame b procedural requirements affect the institutional environment in which agencies make decisions and limit range of agency actions So elected officials can design procedures that mitigate informational disadvantage faced by politicians and procedures can enfranchise certain constituents in agency decisionmaking process thereby assuring agencies are responsive to their interests This is what politics does on a regular basis namely allows outsiders to be present when decisions are made eg environmental groups and lumbering interests 1 Administrative Procedures Act 1946 imposes due process 147 procedures The entire sequence of decision making notice of regulation comment from interested parties participation by groups and the public in decisions and deliberations collection of evidence testimony and the necessity to rationalize and demonstrate a link between the evidence and their decisions afford opportunities for political principals to in uence agency decisions 2 Freedom of Information Act and Government in the Sunshine Act limits the extent to which decision making remains hidden from public view c judicial review of agency decisions includes examination of conformity to its mandate which is based on or derived from legislation committee reports oor debates presidential messages etc and the conformity of the legislation and agency 148 decisions with individual rights and democratic values 1 since legislative mandates are vague and broad they place only loose boundaries on agency decisions 2 even when suf ciently precise it is impossible to foresee all the contingents circumstances that might arise which inevitably leaves discretion to administrative off1cials d rewarding and punishing agencies removal from office in extreme circumstances top agency officials can be impeached by Congress appropriations and authorization bills provide means for targeting agencies hearings and investigations reorganization through legislative or executive order to reallocate policymaking authority by shuf ing responsibilities Most means are not effective because costs of monitoring 149 limitations in range of rewards and punishments asymmetries in information and costs to elected of cials in implementing rewards and punishments e monitoring through oversight by congressional committees and agencyarms of Congress such as Government Accountability Of ce GAO To facilitate monitoring politicians impose information and reporting requirements on agencies Nonetheless this information is supplied by the agencies themselves they both keep the books and supply the gures for the audit if they also don t perform the audit themselves Even then noncompliance may be dif cult to detect Monitoring imposes costs on politicians There is an opportunity cost associated with monitoring agencies time that could be spent in some personal or votegenerating activitiesIndeed absent illegal activity the sanctions available to


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