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Sunday, October 31, 2010

 

 

Outside groups contribute most to campaign spending this year.

As I was reading the news today, an interesting story appeared in the Christian Science Monitor saying that Colorado was the number one destination for outside interest groups spending money on campaign ads. Even more interesting was that much of this money was from undisclosed spenders. The seventh congressional district in Colorado where Republican Ryan Frazier is seeking to defeat incumbent Democrat Ed Perlmutter is the number 1 destination for special interest money, according to the article “Total undisclosed outside spending for this House race alone (the Colorado 7th) is nearly $3.5 million – in a district with just 287,402 registered voters.”

In the past, campaign money usually came primarily from the Republican and Democratic Party committees but in the 2010 election spending from special interest has greatly overtaken spending by either of the parties. This year, political spending by outside interest groups is through the roof totaling a record high of nearly $455 million. Furthermore, a lot of this money, almost a fourth, has come from undisclosed donors.

Some of this spending could be contributed to a recent Supreme Court decision which struck down a ban on political advocacy ads by corporations and unions. However, the article says that much of this spending could have taken place anyway through various other means. As has historically been the case in politics, the candidate with the most spending usually has an edge in a political race, especially in races with no incumbent, but it seems this is even more the case now since 168 congressional races have been affected by outside spending (according to the article.)

Special interest groups and their attempts to influence the political process are exactly what we have been talking about in our discussion of Rise and Decline of Nations. The idea that campaign spending is more important than anything else is a scary one. This makes races not so much about the candidates but about the ads running against them since most ads these days seem to be negative ones. Hopefully voters can see through these ads and do their own research, but, as we have learned in class, this is unlikely and voters will more than likely get most of their election information from ads, leading credence to the idea that congressional seats can, in fact, be bought.

Sources: http://www.csmonitor.com/USA/Election-2010/2010/1031/Outside-groups-dominate-2010-campaign-spending


 

Planning For Death

U.S. Rep. Cynthia Lummis is saying that some people are planning to stop life extending treatments such as dialysis so they die before December 31st. At the beginning of next year estate taxes will be reenacted. The current tax cuts cover large inheritances but once the new year rolls in the tax will go from 0 to a maximum 55 percent. As we talked in class when we use estate taxes we are diminishing wealth. People that have built up wealth to pass it on to their families, not have it taken away. When taking the money from the people that have earned it, the government is using that money for people that don't have as much. The people on welfare use this money for income and once they spend the money the wealth is gone. With higher and higher estate taxes there will be less incentive for people to accumulate wealth to pass on to their loved ones. People will figure out new ways to pass money onto their relatives without the government knowing. If their absolutely needs to be an estate tax it needs to be reasonable because the if the rates get too high there will be people avoiding the government when it comes to wealth transfer and the government will be collecting a lot less estates.

 

Boy Scouts... of America??

I read an article recently about a mother and father whose two elementary school-aged sons were members of Boy Scout “pack,” sponsored by a Presbyterian (which falls under the umbrella of Protestant) Church. The couple enthusiastically volunteered for leadership positions in the pack, and the church was pleased to have them… until it was discovered that the family was Mormon. The parents were told that the boys could stay, but they would have to step down as leaders. The issue at hand is not if the church had the right to disallow the Mormon parents to be leaders. The article mentions court cases in which judges have ruled that packs can assign leaders as they choose.

(To be clear, this post is absolutely not anti-religious. It is pro-tolerance).

In Mancur Olson’s book, The Rise and Decline of Nations, he discusses incentives that cause some groups to choose to become exclusive and to limit the diversity of members’ values. According to Olson, groups remain exclusive because:
1) As a group becomes larger, each member receives a smaller share of the collective benefit;
2) If a group allows members from outside its wider social group (or class) in, its own social group receives “less of the pie” (or less of the collective good); and
3) Collective action is easier if the group is socially interactive.
Of course, in the context of the implication (Implication 8, specifically), Olson discusses distributional coalitions, but I think the basic theory can apply to any group—in other words, any exclusive group sees their incentives as Olson describes them.

So, as Olson’s theories are difficult to disprove, I can only think that individual (or individuals) believed some combination, or all, of the following:
1) The Mormon parents provided the children in the pack with less of a benefit than they would with a Christian leader;
2) the Mormon parents somehow created less of a benefit and/or tainted the good of Boy Scouts as a whole; and
3) by having Mormon leaders, the group as a whole (most likely the other parents, including ones largely uninvolved in the organization) would be less interactive and the pack would accomplish less. For example, maybe they believed that the Christian parents would not want to interact with the Mormon parents at all, and as a result would not attend special meetings and activities intended for the entire family, or participate in fundraising activities.

It’s kind of sad that an organization that stresses character building would discriminate against a family because of their religion. What’s worse is that this occurred in an organization called “Boy Scouts of America,” when America was built upon the doctrine of “Separation of Church and State.” Yes, they did say the boys could stay in the pack (the parents elected to withdraw them anyway), but of course the other children would ask why the boys’ parents were no longer leaders, and of course they would find out why, and of course if the church leaders and other parents discriminate, the other children will too. Would you leave your child in that type of environment? And do you think the church didn’t anticipate that?

Source: http://www.npr.org/templates/story/story.php?storyId=130682153

 

Social Contract Theory

The United States of America is considered to be one of the most prosperous nations in history. The country fares well in traditional economic rankings such as GDP, and has a history full of innovation and progress. The founders of this great country set out to develop a new nation in the sight of God. However, they did not create their new society from scratch. They were profoundly influenced by a variety of authors from the 1700s. Whether one believes Locke or Montesquieu was their chief resource does not matter for the matter at hand. It cannot be debated that the founders had read the writings of John Locke. Locke along with many of his contemporaries embraced the notion of a social contract between people that served as the foundation of government. Yet in his book The Logic of Collective Action, Mancur Olson posits that large groups are unlikely to mobilize for the provision of a collective good without some type of selective incentive or the use of force. Olson examines many societies in various periods of history. The purpose of this blog is not to suggest a new political theory, but to point out an oft unnoticed aspect of social contract theory.

Olson explains that the purpose of a group is the provision of a collective good which is something that benefits everyone in the group’s associated area regardless of whether or not individuals help the group obtain the good. The collective good nature of groups means that people will have an incentive to avoid working for the group since they will get the good whether or not they help out. In small groups Olson provides examples for how this can be overcome with a major player who places such a high value on the collective good that he or she will provide it in some quantity with or without help from the group, but he shows that in large groups the members will not help provide a collective good. To any member of a large group the costs of providing a collective good will outweigh his or her personal benefit. The very idea of social contract implies a large group of people bound by no similarity other than a common locality and a desire for some occurrence that will lead to easy protection of person and property.

The first person to develop the idea of social contact was Thomas Hobbes. According to Hobbes, a social contract between members of a society in necessary to move men from war, the state of nature, to peace. Men are able to achieve peace only by signing their alienable rights over to a ruling body that is created to uphold the contract. Inalienable rights such as the right to self-defense and the right to resist slavery are not given up, but other rights are consigned to the government for all time. The contract is a “voluntary act: and of the voluntary acts of every man, the object is some good to himself” (Hobbes 88). Social contract theorists are correct in asserting that man could conceivably achieve a benefit from signing over alienable rights to government if that ends the unpromising state of nature. However, signing the contract requires the formation of a large group. Every individual has an incentive to be a hold out and not sign the contract. People would encourage their neighbors to sign and thereby become less dangerous neighbors, but the encourager would have no incentive to sign on before everyone else. In fact, being one of the first to sign on could be dangerous. Signing early would require trusting the forming government to protect one’s property against vagabonds that had not yet signed on. Even more significant are the doubts individuals would have about the contract’s authenticity. They would have no reason to trust even their fellow signers since just days before they had been at war with each other. Furthermore, what individual would have the incentive to go around educating others about the possibility of a contract? This individual would need some way to have his person and property protected as he or she traveled.

It seems that a social contract would be difficult to achieve. With this difficulty it is unlikely that man would ever have moved from the state of nature whether that was war as Hobbes suggested or the less fearsome state Locke proposed. Given the situation force could be used to compel other potential members of society to agree, but forced contracts are not considered binding by the law. People would have had one more reason to renege under a forced contract. Therefore, social contracts must rely on some type of selective incentive to fit in with Mancur Olson’s theory.

References:

Hobbes, Thomas. Leviathan. Oxford University Press, 1651. Print.

Olson, Mancur. The Logic of Collective Action. Print.

 

Innovation

Innovation is something that I believe most people can agree is a good thing and helps a society to become more prosperous. The argument on this subject begins when bringing government into the equation. Is more government control beneficial in fostering increased innovation or does it hurt innovation? There are both arguments for and against bigger government but Steven Johnson the author of the article titled “Innovation: It Isn’t a Matter of Left or Right” in The New York Times argues that there is no clear answer.

Johnson argues that there are four types of innovation:
“First, there is the classic solo entrepreneur, protecting innovations in order to benefit from them financially; then the amateur individual, exploring and inventing for the love of it. Then there are the private corporations collaborating on ideas while simultaneously competing with one another. And then there is what I call the “fourth quadrant”: the space of collaborative, nonproprietary innovation, exemplified in recent years by the Internet and the Web, two groundbreaking innovations not owned by anyone.”

I believe that these four distinct categories of innovation that Johnson sites seem to complicate the issue because most instances of innovation probably do not fall into just one of these categories. I believe that using what we have learned in Olson’s book we can conclude that yes the question of more or less government control is still a relevant issue. The more the government is able to use its force, the more entrepreneurs will choose to attempt to rent-seek for profit instead of to innovate and produce. In the case of more government control and its ability to “take” I believe that Olson explained that much effort that would have been used to be productive may be instead directed toward the taking from others and even fighting against technological advance by others. It seems to me that Johnson did not give the issues that Olson discussed the true consideration that they deserve.

 

Babies and laws and special interest groups, oh my!

The health care law has always been a great controversy, and now the controversy continues over what was meant by the wording within the law. One of the current issues is whether the law is meant to cover birth control. This is where the special interest groups come in. In this case Planned Parenthood is fighting that it is included in the law, while the National Catholic Bioethics Center is arguing that birth control is a lifestyle choice, and other religious organizations are saying they will join the fight against birth control being included if the morning after pill is included under birth control. Since they are unable to agree, there now has to be meetings and conferences and votes as to what constitutes birth control, and if it is covered under the act. There are also major research projects being conducted that to see if more women will take birth control if it is free, also what kind of birth control they will choose. Planned Parenthood advocates for free birth control, because that is their special interest, while it is in the interest of the religious groups to not allow free birth control because it goes against their beliefs. However, in reality, they don’t have to take it, and while the law may not be the best on the books, if we can make it less costly for us that would probably be our best option.

The head-butting that is visible over this issue, is a clear example of how special interest groups create inefficiency as Olson says. Given that the bill has been passed, these special interest groups are creating even more friction about it. It probably would have helped if the people in congress had read the bill prior to voting, but I suppose we have to put the past behind us, now that the bill is in place special interest groups are having their little quarrels making it more time consuming and more costly, exactly as Olson said. Unfortunately it appears that this will be our future unless we begin to follow Olson’s advice, and get things to begin to change somehow.


 

Political Climate and Recent Rallies/ Protests

The emergence of rallies and protests during this midterm political season coupled with the study of Olson's works has been quite interesting. Although I may have little in terms of historical context to compare the contemporary movements with, I feel as if the unrest and uncertainty is manifesting itself not only in the form of Tea Parties but also as such: Glenn Beck's "Restoring Honor Rally," Ed Schultz's "One Nation," and, most recent, Jon Stewart and Steven Colbert's "Rally to Restore Sanity and/or Fear."

Many rallies and protests can be a healthy and peaceful means of expressing one's concern or utter disgust with political economic policy. However, it can also serve as a means or source of divisiveness and the very rational ignorance and irrationality that we should try to avoid. And, as we all have seen over the past year, our economy has been on the brink of collapse. We have discussed during class how Olson has pondered the implications of political and economic stability and its nurturing of the very coalitions who eventually serve only themselves, to the detriment of the very society that caused their existence. Sometimes shaking things up can help diminish the power of the status quo or at least provide an example as to the result of a culture that is fed up with a government and the policies that it pushes. Recently, France has been a shining example of this: many of their citizens have taken to the streets in protest and riot of the seemingly inevitable raising of the retirement age, the result of which has been a near shutting down of the infrastructure and utilities: Trash piles up in the streets, children discard class time in order to participate.

The France issues, as far as I know, have little to nothing to do with special interest groups, at least directly. So, what does this mean if a country like ours has had enough of the special interest groups and the lobbying and the pandering and allowing of rent-seeking by our government? Hopefully nothing similar to the rioting of current France, but even if it were the case, I am not certain that our crippling polarizations would allow us to recognize the very issues that affect our government and, by extension, our entire citizenship.

As Jon Stewart said at the rally this past Saturday, "we can have animus and not be enemies." This made me consider an extension to something we have discussed in class: Can or will our society ever shed its rational irrationality to the degree necessary to come together and do the things, both easy and difficult, vital for our political economy to remain at the forefront of global influence? I think so, but it may take far more communication and compromise than we have seen recently.

 

The Mayor Project--A Matter of Encompassing Interests

Election Day is rapidly approaching and with it one issue that has particularly caught my attention: the Mayor Project (Initiative 300). This initiative advocates a change in the structure of the Colorado Springs city government from a Council/Manager format, where an elected city council appoints a city manager, to a Mayor/Council format, where the citizen body directly elects a mayor. Proponents of the initiative tout the democratic nature of a popularly elected mayor over the current “undemocratic” processes of appointing a manager. However, reading and critically considering Mancur Olson’s books has led me to question this conclusion that would otherwise seem quite benign.

In chapter 1 of Power and Prosperity, Mancur Olson states that “the more encompassing the interest…the less the social losses from its redistributions to itself” (18). In other words, if a leader/government represents an encompassing organization, it will tend to promote a more productive society: citizens will be incentivized to produce more, and leaders/governments will tend to redistribute less. Thus, there will be fewer net losses. In The Rise and Decline of Nations, Olson’s fifth implication generates the same general idea: “Encompassing organizations have some incentive to make the society in which they operate more prosperous, and an incentive to redistribute income to their members with as little excess burden as possible” (53).

Ultimately, the Mayor Project advocates a change from a more encompassing interest to a less encompassing interest. If a mayor is popularly elected, he must, in theory, remain accountable to only a slight majority of voters. In actuality, he does not even need to remain accountable to this majority. Since voters remain rationally ignorant, he can and will represent special interest groups rather than the city as a whole. On the other hand, if a manager is appointed by the council, he must remain accountable to the council and, therefore, to the city as a whole. Assuming the council is not corrupt or run by any special interest groups, he cannot be as influenced by prospective special interests because they are not the ones voting him into office: he will not benefit in any direct way from representing special interests. An appointed manager is therefore more accountable and will ultimately promote a more productive society than a popularly elected mayor will. Thus, this idea that Initiative 300 will somehow result in a “better” society is, in actuality, misguided. The city of Colorado Springs will, it seems, be more prosperous under the structure of government currently in place.

 

So would you change your vote?

In class a couple of weeks ago Dr. Eubanks asked the class a question... "knowing what you know now, would it change your vote"? I didn't feel as though I was able to answer this completely so for this month I thought I'd provide some insight into my answer.

I feel that modern day politics, unfortunately, impacts two major aspects of our lives, social and economic. Socially speaking politics has determined which class of people have what sort of rights and at times crosses over with the economic side giving certain groups of people with various economic and tax benefits. Married couples, racial and gender bias, sexual orientation discrimination. Past examples of major political movements that have resulted in social victories have been the abolishment of slavery, the right of women to vote and so forth. And despite all of our social progress there are still socially straited groups that are not given the same rights as their counterparts. The social change that political policy can affect is powerful and important.

On the economic side they take and redistribute wealth, they affect our income, trade, work and do all sorts of economic maleficence. They license and legislate often with seemingly reckless abandon. As we have discussed in class the way the legislature is configured rent-seeking and the ability to control rent-seeking is a way of life, it is the way incentives are aligned for those who are elected to office and we shouldn't be surprised that they react to those incentives. The economic impact of the legislation that's passed today will, in aggregate as Olson mentions slowly erode away our potential.

With this in mind I find it interesting that out of the two major political parties we have the one that is economically conservative is socially liberal and vice versa. That the party that boasts small government is the first to impose restrictions on a women's right to her body and decides who can and can't marry. This for me is my main quandary, and knowing that despite all good intentions the incentives of being in office aren't going to change, and that the elected officials are going to provide rent-seeking, each in their own respective way and that the incentives of being in the legislature aren't going to change I will side with the party I feel is most likely to affect social change for the groups that still don't' have the same rights as the rest of the citizenry. So as soon as that happens I will change my vote. As soon as I stop hearing religious rhetoric find it's way into political positioning I will change my vote. If we can come closer to social equality then I'll feel more comfortable in changing my vote. So until the parties can keep their nose and their campaigns out of people's personal lives my vote is going to stay the same.

Friday, October 29, 2010

 

Two Takes on Political Donations

I think you will be interested in this comment on interest group contributions.

Wednesday, October 27, 2010

 

Guilds in Europe

Our conversation in class regarding guilds sparked my interest. I started to wonder what exactly they were about and wondered how they impacted the communities they lived in and how they fell from ruling these towns. As I started research, I started to focus on the guilds in Europe, although there were many forms of guilds across many different geographical areas.

The definition of a guild is ‘an association of craftsmen or merchants formed for mutual aid and protection and for the furtherance of their professional interests.” The merchant guilds consisted of merchants in a particular town who sold various goods either locally or from town to town. Craft guilds were specialized for a particular industry such as wool weavers, butchers, blacksmiths etc. What surprised me when doing my research is that when guilds were first organizing, they actually helped the community in which they lived in. In Europe during the 12th to 15th centuries, guilds provided a decent form of government and supported locals by contributing to building schools, roads and churches. In a way, I suppose they had a small encompassing interest rather than being a strict special interest group (at first anyway).

Their impact in the economy as time goes on tells us a different story. They had established significant monopoly power within their communities by establishing quality standards for goods, prices, and trading practices. They would control the towns they lived in as well as the local government (if it existed) to further the interests of their members at the sake of others and to achieve their common economic goals. They were established to protect and regulate the trades of the members, which eventually lead to the establishment of a monopoly over the entire community.

Guilds were consistent with the logic in that they had selective incentives such as providing insurance and social benefits for its members. However, they tried to limit members by placing fees upon journeymen and restricting entry to descendants of those who were already members. Some merchants were discriminated against and prohibited from ever becoming a member of the guild for the trade they specialized in. They were distributional coalitions that used their power to control labor, production, distribution and trade in the towns they lived in. In the 13th century, most of the guilds were consisted of wealthy people (maybe another type of discrimination/inequality), who had eventually dominated their city governments and were able to exert power and influence over legislative issues. Olson says that guilds were more like cartels, say rather than a union, which is apparent now. They even had their own rules for participating members. They would take an individual to guild court for complaints of work ethic or competition and place fines on its own members.

The fall of the guilds occurred when towns became economically integrated. Jurisdictional integration caused the guilds to lose political influence and monopoly power. Consumers had a wider range of choices due to the free movement of production. New markets and capital resources made the guilds less and less powerful within the communities. They were unable to maintain a monopoly, and their exclusive membership base with rigid entrance policies was starting to impact the economy. They could not control the new markets and industries in a nationwide jurisdiction like they could in a local jurisdiction. Advancements in technology, transportation, and trade permitted the guilds from maintaining control and power over their communities.

Olson said that implication 4 (special interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive )and 7 (distributional coalitions slow down a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth). In researching this topic, I found that Olson was indeed consistent with these implications. The distributional coalitions of guilds clearly inhibited the towns and cities from economic growth. The ‘restrictive membership, price-fixing, long apprenticeships from which the sons or relatives of members are often exempt, and rules limiting output and innovation…[have] the same harmful effects in economic efficiency and growth whatever the culture.’ There were many different types of guilds in various countries (although I focused on Europe) and Olson’s theory holds true here, as I would also expect it to with any type of guild in any country.

Based on The Logic, we know that small groups are more able to act more efficiently. Therefore, the guilds were able to provide a form of stable government and function like government in the relatively small communities they lived in by enforcing their rules and practices. The guilds and distributional coalitions interrupted the free flow or transport of good between communities and countries. We know from Olson that the typical organization for collective action will have little or no incentive to make sacrifices in the interest of society as a whole, and individuals in a group will try to make their size of the production pie bigger at the expense of society, which is consistent with the guilds.

The coalition does not want to share their wealth, so if they discriminate and have limited entry to specific apprentices and journeymen to join their group, they do not have to share their resources with as many members. This obviously inhibits growth of the society and makes society worse off. However, it enables the coalition to be better off. This explains implication number eight, which says that distributional coalitions, once big enough to succeed, are exclusive and seek to limit the diversity of incomes values of their membership. They begin to exclude groups to maintain their own power, which is also what the guilds were able to accomplish with limiting the number of apprentices and journeymen in certain trades.

Sorry guys this is longer than I intended the guilds caught my eye and I got carried away.

 

From the Mouths of Babes

When the study of economics first bit me, I wondered whether Social Security will have a check waiting for me upon retirement. Lately I've wondered whether our proud nation will remain financially solvent by the time I graduate. Such thoughts never crept into my mind as a child. During that blissful era, our country enjoyed decent growth rates, internal peace and freedom from foreign military invasion. Such were the ingredients for the perfect recipe to create a historically unique situation in which I engorged upon the fruits of millenia of hard work by millions of men and women and their accumulated sacrifices for future consumption. But those good times seem more distant now. Even the state governments with which we entrust our hard-earned tax dollars can't seem to avoid the decline that Mancur Olson predicted would come at the hands of distributional coalitions. The recipe for future generations seems soured with indebtedness to the rent-seekers of the present.

Eileen Norcross of the Mercatus Institute at George Mason University studies the funding of all the state employees' retirement accounts. An October 16th article in The Economist cites her finding that "21 states have failed to make their full contributions to their pension funds over the past five years." While this chronic underfunding may not cause alarm bells to ring in the popular media, its implications are deeply disturbing.

America owes much to its public sector - literally. At the municipal and state levels, millions of service employees are scheduled to receive defined-benefit pensions, which link retirement income to salary. While the private sector switches to defined-contribution plans in which employees bear the investment risk, civil workers' rent-seeking organizations and lobbies have successfully negotiated with elected, vote-seeking representatives to achieve unprecedented levels of retirement payments to be paid with an increasing share of tax revenues. During periods of strong economic growth, many governments have increased the promised pension payment to employees, partly as a means to attract new hires in a shrunken pool of available labor, as well as to keep the existing ones from leaving for the free market. These promises of future public wealth to a small percentage of the working force serve two functions: they lead to more votes from organized labor and the beneficiaries of public projects, and they spend the potential capital accumulation of the young and their offspring.

Predictions of fund growth by state pension advisors are criminally unrealistic. How could a rational person, especially one considered knowledgeable in finance and wealth management, expect pension funds to return 9% growth per year EVERY year? Yet this was the expected return presented to many state treasurers, who subsequently recommended lower taxes and lower payroll contributions, bragged of balanced budgets, and rode the wave to reelection by a deceived electorate. Across this country, the majority of state governments gave in to pressure from employees' groups and promised unsustainable benefits ($5.3 trillion). That means that We the People are legally bound to maintain payments and benefits to retirees who, in many cases, may live at least 25 years in retirement. Since our elected officials and their agents agreed to pay public service retirees an amount that requires unprecedented market returns, one can only conclude that those who signed away the wealth of future generations were either fools or unjust.

The laws of this country hold parties to a contract, like public employees' pension plans, bound by the terms and duties. What about our duty to those we burden who currently have no voice?

Tuesday, October 26, 2010

 

Republican or Democcrat it does not matter

It is an unfortunate time in American history, many people on main street feel that by voting in the Republicans at this midterm election that the changes needed to turn around the economy will prevail. Not true. Until both parties realize that the special interest groups and lobbyists that have gained more power than the people the politicians represent are dissolved, the issues with our economy will continue. Where does it say in the Constitution that these cantankerous money grabbing parisites have any right to dictate the decisions made through our politicians, that dictates the policies for main street. This is clearly defined through the readings in "The Rise and Decline of Nations" by Mancur Olsen.

Olsen clearly identifies the destruction of a stable society by these distributional coalitions. It is obvious that they do affect efficiency and growth, directing capital resources away from production, towards politicians and cartel activity. Therefore burdening the stable society, causing failure by redistributing income, and not creating it. Main street does not understand this agenda and until this is brought to light in a easier understanding format the necessary steps needed to abolish this inefficient activity will be delayed.

In no way will either party change there association with these distributional coalitions until a clever minded rebellion occurs by main street. It may come in the form of a total boycott, paralizing the establishments that benefit from this inefficient behavior. The emphasis of the distributional coalitions is to consume main streets capital, therefore main street must refuse to pay its bills, causing the revolt needed to cleanse the system.

Friday, October 22, 2010

 

Illegal Immigrants: Harmful or Helpful?

As I read through Rise and Decline I was struck by how an influx of labor in an already densely populated country like the United States grew faster after the increase in labor than before. I was immensely puzzled by this statement so I decided to do some thinking (yes I needed Tylenol) and some research. One argument I could find for letting illegals work in the US is that they help correct for the inflated price of labor by the controlling labor unions. Illegal immigrant labor provides competition to a labor market that normally gets what they want in terms of wages. By competing against labor unions illegal immigrants help bring the market price for labor back towards equilibrium.

As I researched more I found a lot of negative benefits to having illegal immigrants flock across the border. Among them is that each immigrant (not just illegal immigrants) costs tax payers about $9,000 a year. There is no doubt that illegal immigrants put a stress on our economy because they are not subject to the same economic laws that legal citizens are. My interpretation of Olsen's theory is that an influx of legal labor would be a good for an economy. An advantage to having illegal immigrants is that a truer price for labor would emerge.

Right now labor unions and minimum wage have distorted the true value of labor in this country. By having illegal immigrants work in this country they are not subject to any rules or regulations as to how they should be paid. This could help correct for government policies that create inefficiencies in the wages of workers. The costs of illegal immigrants as stated above must also be considered. Overall, I believe that Mancur Olsen was not necessarily speaking to illegal immigrants but towards there being a more competitive market for labor. More competition in the labor market would increase productivity, which is what I think Olsen was getting at.

Wednesday, October 20, 2010

 

The Dynamics of Prosperity

According to The American Heritage Dictionary, prosperity is “the condition of being prosperous,” which in turn means “having success; flourishing.” An intrinsic aspect of this definition is that it is dynamic, not static. After all, in order for something to flourish, something must be changing for the better (i.e., advancing). Dr. Eubanks has emphasized again and again that Olson’s theories are dynamic and that we should think in a dynamic manner. In reality, everything in the world is constantly changing in response to the world around it. People are always responding to incentives, which change with each new piece of information that they acquire. The world is a dynamic place.

Olson emphasizes this in The Rise and Decline of Nations. First of all, he examines the change in group formation over time. Small groups rise more quickly, but over time, the number of groups in a stable society will grow. Someone has the incentive to sustain old, out-of-date groups and new groups will form (The Rise and Decline of Nations). Therefore, numbers are growing, a dynamic process.

In addition to the change in numbers of distributional coalitions, these groups will change the dynamics of the society. They rent-seek to increase their share of the pie, but in so doing, they use resources that could have been spent on an increase in productivity. Therefore, these exclusive groups reduce efficiency. By limiting their numbers and excluding others from the group, they also reduce equity (The Rise and Decline of Nations). These groups then reduce prosperity.

As we can see, this is a dynamic process. Everything is constantly changing as incentives change and groups grow, changing more incentives. In order for prosperity to increase, the incentives will have to change; the groups that contribute to the emergence of perverse incentives must dissolve; and the incentives to innovate and produce will have to emerge. All of these involve a dynamic world. However, is prosperity in and of itself dynamic, or does it exist forever once it is established?

Prosperity itself is a dynamic process that requires time, incentives, and innovation. People must work to maintain and advance prosperity (i.e., to continue and increase growth and advancement). Otherwise, the nation will become stable and distributional coalitions will form and incentives will change, morphing prosperity. I think that this relates to the question we briefly addressed in class a few weeks ago regarding whether or not prosperity can be passed on. Each generation can learn from the successes and failures of the previous ones. However, this is learned, not genetic. We must study to learn from the past and to build upon previous work; we are not born with that knowledge. In addition, since prosperity is dynamic, the next generation must promote prosperity or it will be lost. In other words, we can inherit a prosperous nation, but without the continuance of proper incentives and the innovation that follows, we will not be able to maintain prosperity. Instead, the nation’s growth will slow, stagnate, or even regress.

All of this shows that the world is a dynamic place, and as Dr. Eubanks continues to emphasize, we need dynamic theories to explain our dynamic world. Olson’s theories meet this necessary criterion.

Saturday, October 16, 2010

 

China’s Labor Strikes & Business Models

I mentioned in class that I was not much of a China watcher. I just ran across a news article about China, and here is a little bit that would seem relevant to thinking about the logic and its implications in China:
"Manufacturing costs have risen rapidly here in response to nagging labor shortages and worker demands for higher wages to help offset soaring food and property prices.

Those pressures were evident a few months ago, when a series of big labor strikes in southern China disrupted several Japanese auto factories and resulted in hefty pay raises."
Does "labor strikes" mean there are unions?

Wednesday, October 13, 2010

 

Do Rise and Fall Theories Apply to Russia?

As discussed in Rise and Fall, the countries Germany, France, and Japan all thrived post WWII partly because the rebuilding of the nation eliminated a lot of the organization that had hindered economic growth. These organizations are what has also hindered economic growth in countries like Britain. Although Olsen mainly discusses these three countries I am quite interested in how Olsen theories apply to other countries, mainly Russia.

Russia is a different case than most because of the nature of their communist economy. If totalitarianism, instability, and war reduce special interest organizations and lead to prosperous growth in a new regime like Olsen says happened to Japan and Germany, Russia should also be examined. Between being a communist country, having a horrific revolution in the early 1900's, and being decimated in both WWI and WWWII, Russia definitely fits the bill for Olsen's theories. While I could not find in my research whether Russia allowed labor unions or organizations, I highly doubt that they existed under communist rule. I did find that the government had many subgroups or subcommittees that regulated specific parts of the economy. During the Soviet Union era most of the economic information was kept secret so I do not have much information on communist performance. Looking at Olsen's theories, most of them could only apply to an economy where there is freedom of opportunity, or basic freedoms that are natural to human life. Communism goes against many of the Olsen's assumptions.

Right after the wall fell and communism went away Russia adopted a market economy. Their economy struggled mightily at first, which partly goes against Olsen's theory. A lot of this has to do with the still prevalent culture of a command economy. Around 1998 the Russian economy showed sign of perking up. Perhaps this was due to the complete embracing of the market economy, although this is highly doubtful because Russia to this day still has many command market features in their economy. The more likely reason is that many the big organizations prevalent in older countries had not had time to form yet in the new type of economy, which gives validity to Olsen's theory. Around 2004 the Russian economy took a sharp turn for the worst. Although not involved in any sort of major conflict the upcoming presidential elections and the ever nearer absence of President Putin did provide some instability for the Russian population. As of now Russia's GDP Real Growth Rate is almost quadruple that of Germany, Japan, and the United States. All of this evidence suggests that Olsen's theories do not necessarily apply to communists countries and that eventually Russia's economic behavior doesfall in line with Olsen's Rise and Decline theories.

What is really interesting about Russia's recent success compared to Japan or Germany's success is that the number of Russians that died in WWII has been estimated around 46 million people (military and civilian). Thus far the Rise and Decline of nations has net yet discussed what effects that a huge reduction in population will have on a country. It seems as though the economic development of the 2000's in Russia could possibly be due to the population finally recovering from the tragic loss of so many lives. I do not have a full understanding of how Russia and Olsen's theories apply but I'm sure as we progress through the Rise and Decline of Nations a more thorough understanding will be had.


Tuesday, October 12, 2010

 

Political Forces In Germany

As a student of economics, I am an avid reader of The Economist, Forbes, Businessweek, WSJ, and any other publication even remotely economic that I can lay my hands on. For the better part of two years I have been reading about Germany's growth, relatively strong economy, and how they are the backbone of the EU economy. While reading Chapter 4 in Rise and Decline, Olsen speaks to his prediction that Germany's growth should have slowed due to the amount of time the country has been stable since the end of WWII and the growth of distributional coalitions. After reading this, my curiosity was piqued because it conflicts with what I've understood based on my other readings. What I found was fascinating.

I began by looking at Germany's GDP growth from 1970 to present day and comparing it with Japan's. While there has been a slight decline in Germany's real GDP since the late 80's, it is nowhere near what has happened with Japan and not exactly what I expected based on Chapter 4. Post reunification and through present day, Germany has continued to grow at a regular and healthy rate, including having survived the current financial "crisis" better than most.

One aspect of Germany that make its unique to Rise and Decline is the form of government that has been in place since WWII reconstruction and post reunification. Similar to our states rights, Germany maintains a federated union with a weaker central government. The majority of power is held in the 16 federal states with much less overlap of powers than found in the US. More on why this matters in a moment.

I next examined the existence of distributional coalitions. While the German society encompasses more than 1000 registered lobbying organization, they are organized much differently than in the US. Many of the major interest associations in Germany channel their interests into large, encompassing, unified, non competitive organizations with a direct relationship to the legislative bodies. The 4 large, major organizations are also a federation of the looser, more specific type coalitions. The interests of these parties is institutionalized in Germany and they play a large part in policy formation.

So, based on Olsen's writing, how can we explain Germany's rather steady rate of growth? Well, I think between The Logic and Rise and Decline, Olsen very much predicted what has happened in Germany, he just didn't know it would happen in Germany! Based on The Logic, we know that small groups or federated larger ones are more likely to act and to be successful than large latent organizations. Thus the federated nature of both the distributional coalitions and the form of government in Germany are more inclined to act on an agenda. What is the agenda based on? Well, according to implication 5 in Rise and Decline, we know that encompassing distributional coalitions may have an incentive to make their society more prosperous. Furthermore, compared to other EU nations, Germany's social programs and wealth redistribution programs are significantly lower per capita than the other nations present to us in Rise and Decline. Olsen also predicts this in implication 5 because the encompassing coalition will not seek to redistribute in excess of the shared burden. THAT is what I believe has happened in Germany. The extension of the propensity to act given to us in The Logic, combined with the incentive provided in Rise and Decline provide us a tool to view the Rise and Decline of Germany. Although Olsen gives us the example of Sweden to view in this light, I believe Germany may be a better example.

Sources: CIA Worldbook, Worldbank: World Development Indicators, http://www.germanculture.com/

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