Chapter 28

 The Goal of our Economy is to maximize consumer satisfaction and economic efficiency  In the past few chapters, we have looked at what makes markets to have failure (or inefficiencies):  Externalities  Public goods  Common goods  The Government (or Public Sector) plays a key role in making these things more efficient through taxes, fees, subsidies, etc.

 Market Failure Q

 Public Goods 7L_s

Private Goods – “Excludable (quantity) and Rivalrous” (quality)  Private Goods paid for by private consumers Public Goods – Non-excludable and non- rivalrous A light house and a fireworks show Who pays? Government usually does because who wants to pay for others to benefit for free

 Rivalrous in consumption and non-excludable The “Tragedy of the Commons” – Garrett Harden 1968  Hunting to extinction – American Bison  Crowded National Parks  Cattle Free Grazing Ranges  Traffic Congestion  Fishing in Recharge Lake 

 Provide Public Goods  National Defense  Police Protection  Money Supply  Judicial System  Prison System  Social Goods?  Collect Taxes

"the use of economic tools to deal with traditional problems of political science“ This can lead to Government Failure (or inefficiency) This chapter examines public choice theory and the sources of government failure

 If you think about it, voters (Public Sector) are similar to consumers in the private sector  Consumers in the private sector can express there desires more specifically than the public sector.  However, voters vote for the political “policies” that they favor or prefer not for each specific issue (I want strong defense, but no social security program…)

 As voters we may not be completely satisfied with every choice our candidate makes, but we accept it because he/she was the best of the choices available.  Pizza in the Caf: Must vote for one (next 4 yrs)

 A characteristic of US elections is low turnout  NYC school board election in 2012 has 1.2% turnout.  Presidential election of 2012 was 57.5%

Why low turnout?  Voters feel like they have little impact on outcome (unless you are Bud Johnson)  They do not anticipate any benefits  Rely on pre-election polls  Have a weak candidate connection  Voter Laziness

 Rational ignorance is the option of an person not to acquire or process information about some subject.  Ordinarily used to describe a citizen's choice not to pay attention to political issues or information, because paying attention has costs in time and effort, and the perceived benefits are less than the effort  I am educated, but I chose not to be informed!  Who pays for that attitude? We both do!

 Republican, Democrat, Independent  Liberal, Conservative, Moderate Also:  Fiscal Policy (high or low taxes)  Defense Policy  Foreign Policy  Family Values/Personal Choice  Anti-Obamacare  Deficit Spending

 Political Parties  Candidates  Voters  House of Representatives  Senate  Special Interest Groups  Lobbyists

 7IK4 7IK4  This is why we make very inefficient choices and experience economic government failure

Today’s successful Candidate will aim for the largest segment of voter…the people in the middle  Aim for the middle-of-the-road voter  Label opponents as extremists  Adjust position in response to polls  Speak in generalities rather than specifics

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 Short Run Focus – Winning the next election is more important than solving long range problems  Influence of Special Interests Groups – These very small segments are impacted greatly by certain government policies. They are active, well financed and influential.

 Voter turnout is low – they get there members to vote in huge numbers  Rational Ignorance – They inform people about their interests (commercials, movies, printed material, etc…)  Lobbying –Professional influencers that live in Washington and have access to political leaders. Huge campaign contributions.

 Detroit, Wichita KS, San Francisco (cars, aircraft, technology)  Logrolling  Pork Barrel Legislation

Logrolling A practice common in the U.S. Congress and in many other legislative assemblies in which two (or more) legislators agree for each to trade his vote on one bill he cares little about in exchange for the other's vote on a bill that is personally much more important to him. Logrolling is especially common when the legislators are relatively free of control by their national party leaders and are trying to secure votes for bills that will concentrate sizable benefits on their own home districts while spreading most of the costs out over taxpayers in the rest of the country. Local projects such as Federally funded dams, bridges, highways, housing projects, VA hospitals, job-training centers, military bases and the like are often pushed through by logrolling.

 Pork barrel is the appropriation of government spending for localized projects secured solely or primarily to bring money to a representative's district.  The usage originated in American English. In election campaigns, the term is used in derogatory fashion to attack opponents.  However, scholars use it as a technical term regarding legislative control of local appropriations.

 The have no profit incentive- efficiency, waste  They have no owner – common good  They usually face no competition – unresponsive to supply and demand laws  They seek to grow – only real motivation is to expand

 Voter Flaws  Candidates pursuit of the median voter  Short run focus of elected officials  Special interest groups influence  Government bureau inefficiency Also: Gov. spending large for little marginal social benefit Tax system inefficient (IRS too large) Income redistribution (tax laws are many times unfair) Majority rule inefficient Government stops creative destruction due to tech advances

 MJabM MJabM