Indiana Rep Proposes "Entrepreneur Auction"

Story:

Sue Ellspermann (R-74) says she has filed a bill allowing recent college graduates to pitch their business ideas to local leaders, who would then decide if they want to make an offer to locate the startup in their community.

Under the plan, entrepreneurs could have several offers which would then be reviewed to decide which community would make the best fit.

I can think of several advantages and disadvantages to this proposal, but I think the bottom line is going to have to be "Winner's Curse."

Happy Meal Legal Issues

Looks like McDonald's is getting sued over their Happy Meals or, more specifically, that they include toys with their Happy Meals. Says the plaintiff herself:

Parham, a 41-year old state employee, says her kids repeatedly ask for Happy Meals, mainly for the toys. "We have to say no to our kids so many times and McDonald's makes that so much harder to do. I object to the fact that McDonald's is getting into my kids' heads without my permission and actually changing what my kids want to eat."

Doesn't this invalidate all advertising for kids products-- if it's not the Happy Meal that's the problem but the "into my kids' heads" aspect of it? Further-- are doctors then prohibited from giving out lollipops after shots?

Also, the fantastically-named Center for Science in the Public Interest is along for the ride.

Elected Property Assessors: A Denver Case Study

From the Denver Post (Hat Tip to Zach):

The Adams County assessor has slashed millions of dollars from the taxable value of properties owned by the largest contributors to his election campaigns, a Denver Post investigation found.

[...]

The review of assessments on properties owned by top contributors to Reyes' campaigns found that his leading donor, a California-based warehouse company, has won reductions in taxable value totaling $23 million on 11 buildings. Those reductions saved the company more than $800,000 in property taxes this year alone.

I share this, in part, for self-promotional purposes. Here is my paper on elected versus appointed property assessors.

Pittsburgh's devil is in the details

I just got back from a lunch meeting outlining, among other things, the financial problems facing the city of Pittsburgh due to their pension program. Some details:

- There are a number of reasons that this problem has surfaced; one of them is that the population of the city of Pittsburgh has seen a remarkable decline over the last half-century. Pittsburgh proper's population was about 600,000 in 1960; Census projections put the figure at about 300,000 for the current Census.

That people are leaving city center's is not a Pittsburgh-specific problem. However, many other cities annex nearby locales and grow their land area-- some of them to a pretty remarkable extent. Houston went from about 150 square miles in 1950 to nearly 600 square miles today; you could say much the same about Phoenix as well.

Why can't Pittsburgh pull the same tricks? The way that the Pennsylvania state code is written to deal with this issue is that both the annexing and the annexed city would need to pass a referendum vote on the issue. That's not easy to do. The last time Pittsburgh annexed a nearby city was around 1930.

I'm not saying that annexation is a good thing...but that's been the outcome.

- Another reason for the shortcoming in Pittsburgh comes from the city's inability to control a tax revenue stream that comes from companies doing business in Pennsylvania using out-of-state casualty insurance. The revenue was designed for cities with financial troubles that were having issues funding their pension system. For the first five years of the tax, it served the Pittsburgh pension system quite well-- but then the law was reinterpreted to allow for cities with decent finances but poorly performing pension systems to secure revenue from this source as well. What's this create the incentive to do? Cities with fine finances can structure their pension system so as to qualify for need-based assistance. Some cities stopped contributing to their pension system altogether to claim their share of the funds. So Pittsburgh's share of tax revenue dropped by about 50%-- they're currently at about $20M-$30M per year less than where they'd be without the reinterpretation of the statute.

Again, not saying any of this is desirable...but that's the been the outcome.

- Pension systems use some sort of metric to determine the level of pay once retirement hits. The Pittsburgh system-- like many others-- use some sort of average of income earned over the final years of employment. The intention is to get a feel for the traditional income of an employee, and then the pension provides the appropriate level of replacement income. Well, this also creates the incentive for individuals to take on as much overtime as possible over the last few years of employment to maximize the pension payment. It's a process known as pension spiking. Once more, it's a process of the letter of the law not accurately reflecting the spirit.

Again, not arguing for publicly-funded pensions...but that's been the outcome.

- One of the solutions proposed for the pension shortfall has been to sell the parking assets of the city of Pittsburgh to the Pittsburgh Parking Authority (PPA). The PPA would then issue a bond to cover the sale, then using the increased parking revenues to pay the bond off over the coming decades.

Alright...but guess who owns the PPA? It's mostly a city of Pittsburgh enterprise. (There was a question concerning this at the meeting; somehow it's not entirely a public enterprise, but the mayor appoints the board of directors and they can float public bonds. I'm still a bit confused by this.) And guess what else? Issuing bonds to cover pension shortfalls are subject to taxes that bonds to cover asset purchases aren't. So while it's no small secret that this proposal is, in effect, a bond issuance to cover pension debts, the IRS won't see it as such.

Again, not arguing for any further debt for the city of Pittsburgh, bond or otherwise...but that's been the outcome.

Basically, you could make the argument that the pension troubles that exist today (as well as one of the potential solutions) are at least partially a function of laws written in a way so at to be open for interpretation or re-interpretation by groups looking to grab what they can.

Paging Professor Stigler

From Wired:

“An Act to Ensure That A Local Government That Competes with Private Companies in Providing Communication Services Has The Support Of Its Citizens” was sponsored by a prominent state lawmaker and backed by incumbent ISPs, including the cable lobby. But it’s not like those ISPs actually wrote the now-discarded bill, right?

[...]

When the I-Team asked him if the cable industry drew up the bill, Senator Hoyle responded, “Yes, along with my help.”

Why would anyone have expected different?

Rent-Seeking Fail

A twofer:
Rent-Seeking Fail #1: The New Jersey education commissioner gets caught in a lie over a paperwork error that probably cost the state a $400 million grant from the Federal Government.

Rent-Seeking Fail #2: This prompts a call for his resignation from the governor, and responds by saying out-loud what is only to be implied:

Schundler said he was asked to resign, but he requested to be fired instead so he could collect unemployment insurance.

"I have a mortgage to pay and a daughter about to start college," he said.

Hat Tip to KipEsquire for the find.

A Room With Two Views

Editorial from WSJ (gated), titled "The IRS Targets Incompetent Tax Preparers: That's The Good News. But the Agency is Going Overboard."

The article describes the new regulations to be unnecessarily complicated and burdensome for the more "legitimate" establishment.

I would like this to be a taste of their own medicine. Tax preparers are among the special interest groups that pressure for a complex and evolving tax code so that they keep plenty of business. However, it is more likely that this will devolve into a bootlegger and baptist story.

Finally, I would like to suggest that another way of making tax preparers less incompetent is to make the tax code less complicated, thereby reducing the need for specialists.

On Lobbying: Remember the Symmetry!

When it comes to lobbying, there is Supply and Demand. Everyone is good at remembering and complaining about supply, but demand is often forgotten. If small groups can be targeted, then politicians have a strong incentive to use that as a weapon to solicit rents. Politicians want lobbying.

Now, from Yahoo News (HT: KipEsquire):

WASHINGTON – Dozens of current and former corporate executives have a message for Congress: Quit hitting us up for campaign cash.

Roughly 40 executives from companies including Playboy Enterprises, ice cream maker Ben & Jerry's, the Seagram's liquor company, toymaker Hasbro, Delta Airlines and Men's Wearhouse sent a letter to congressional leaders Friday urging them to approve public financing for House and Senate campaigns. They say they are tired of getting fundraising calls from lawmakers — and fear it will only get worse after Thursday's Supreme Court ruling.

Stealing as Charity: The Distributional Analysis is Interesting but Incorrect

From CNN:

Tim Jones, parish priest of St Lawrence and St Hilda, told his congregation in York, northern England: "My advice, as a Christian priest, is to shoplift."
[...]

He continued: "I do not offer such advice because I think that stealing is a good thing, or because I think it is harmless, for it is neither.

"I would ask that they do not steal from small family businesses, but from large national businesses, knowing that the costs are ultimately passed on to the rest of us in the form of higher prices."

If you read the entire argument in context, the shoplifting aspect is not very interesting or even relevant. People who have exhausted all other means might have to resort to stealing if it means survival, and they don't need a priest to tell them that. What is interesting is his distinction between large and small businesses and how "we" pay the social costs.

In essence, his argument is that an individual in a democratic society which has not elected for "enough" benefits should, when at the point of deciding to steal, impose those costs in dispersed form back onto that society rather than concentrating them on any particular individual. That is a really creative argument, but it leaves something to be desired. (It's also an "eye-for-an-eye" argument, which is a bit strange coming from a priest.)

That which is to be desired is the misplaced view that it is a free lunch for society when a small family business fails due to shoplifting. Competition is competition, no matter how large. There is no reason, ex-ante, to think that smaller businesses failing due to shoplifting would have a smaller impact on market prices than large businesses incurring higher costs that are passed on to consumers. Both cases disperse costs far and wide, and perhaps a few individuals will incur a disproportionate share.

Presidential Lobbying

Do those on the receiving end of lobbying efforts become good lobbyists themselves? Has anyone looked at this? I'd love to see someone try to tackle that one. Maybe political returns to businesses with former Congressmen on their board of directors?

Anyway, here's Obama heading to Denmark in an attempt to get the Olympics in Chicago in 2016. (Which, I just realized, would be at the end of his second term, if he makes it that far, and would conceivably be a boon for the Democratic party in that fall's presidential election.)

Rent-Seeking: No Such Thing as Free Eye-Candy

From the Journal of Urban Economics, "Marriage and the City: Search Frictions and Sorting Singles." Abstract:

This paper develops and tests a model where cities play an important role as marriage markets. The idea is simple. Cities are dense areas where singles can meet more potential partners than in rural areas. To enjoy those benefits, they are willing to pay a premium in terms of higher housing prices. Once married, the benefits from meeting more potential partners vanish and married couples move out of the city. Attractive singles benefit most from a dense market and are therefore more likely to move to the city. Those predictions are tested and confirmed with a unique Danish dataset.

So existing property owners would benefit from increased density in the form of having more attractive buyers bidding up their price. Another way to think about this is that as you move further away from the dense city center, you are exposed to less attractive people, but are compensated for it with lower rents.

Rent-Seeking: No Such Thing As A Free Census Count

From the AP:

FALCON HEIGHTS, Minn. (AP) -- State governments and civic groups are sinking scarce dollars into the phone banks, TV ads and door-knocking commonly seen in political campaigns to pump up numbers in the upcoming census.

They've got a vested interest in going beyond the U.S. Census Bureau's planned $300 million blitz to try to persuade households to fill out the 10-question form they will receive early next year. Clout in Congress and billions of future federal dollars ride on the once-a-decade head count.

When it is all said and done, it would be fun to estimate the dollar value of the consequences of this by state, and then compare to its expenditures here. Examining which states over or under dissipated the gains with their rent-seeking would be an interesting paper.

Census Politics

How can the political process possibly get entangled with the decennial head count?

"Officials [in Utah] are in a dither because the bureau won’t count all those Mormon missionaries sent overseas.

...

In the most recent Census, taken in 2000, Utah fell just 857 people short of receiving the last available U.S. House seat and this discrepancy in how Americans are counted overseas made all the difference."

Whether more representatives in the House mean more funding is not clearly established. More representatives mean more people, and that directly means more federal money, but the applicable question is whether more representatives means more money per capita. There's actually a line of research that says that smaller states get more funding, known as the small state bias, since these states are, in population terms, over-represented in the U.S. Senate.

Nonetheless, the perception is that more representatives get more money, and that's got Utah none too pleased.

What Policy Implications Can Be Learned From Speed Dating?

In speed dating, it turns out that the party that sits is more selective while the party that rotates is more aggressive. From the Scientific Fundamentalist:

What they discovered was truly astonishing. In the traditional “men rotate, women sit” arrangement, men were significantly less selective in their mate choice; they checked “yes” for a larger number of women than women did for men, and they experienced greater sexual attraction and romantic chemistry with the women than women did with men. This is not at all surprising, as it is what evolutionary psychology would predict and it is what we normally observe in real life (less selective, more aggressive men, and choosier and more coy women). In sharp contrast, in the novel “women rotate, men sit” arrangement, women were just as aggressive and, as a result, less selective, as men were in their mate choice; they checked as many “yeses” for men as men did for women, and they experienced as much sexual attraction and romantic chemistry for the men as men did for women.

Finkel and Eastwick explain the reversal of the pattern with their embodied cognition hypothesis. Research on embodied cognition has uncovered some pretty interesting (if wholly mysterious) findings. For example, seated experimental subjects who place their palms on the bottom of a table and press up (a gesture associated with approach) rate neutral Chinese ideographs as more appealing than those who place their palms on the top of the table and press down (a gesture associated with avoidance). In other words, because they view the ideographs while they are engaged in the approaching gesture, they come to view them more positively.

In lobbying, I think it would be most appropriate to think of politicians as being those who remain seated in a speed dating game. At least part of a congressman's face time is spent with lobbyists that actively seek them out. If this speed dating study carries external validity, then politicians are more selective with extra-aggressive special interest groups than they would be otherwise.

For Fun: Suppose we could reverse the setting, and congressmen were required to attend something resembling a job fair, with prospective lobbyists instead of prospective employers. As a result politicians become more aggressive and special interests become more selective.

What are the consequences of this kind of institutional change? How do politicians manifest this "aggressiveness"? Better policy? More exploitative policy? Do the matches between politicians and lobbyists become more efficient (think Chicago School of Public Choice)? Is it just a transfer of surplus from politicians to lobbyists?

Markets in Everything: Homeless Line-Holders Contracted by Lobbyists

From CNN, we learn what happens when quantity supplied is less than quantity demanded:

For big hearings with limited availability, line-standers may wait 20 to 30 hours. They're paid anywhere from $11 to $35 an hour.

Gomes was living in a shelter when he started line-standing. He said working in the halls of Congress gave him the motivation and money he needed to get off the streets. He now makes extra money by recruiting men for the line-standing services from the homeless shelters where he used to stay.

[...]

Many of the contracted line-standers are homeless or formerly homeless like Gomes.

Gasp! You mean there is no free lunch!?! Surely someone can stop this! Who will be our hero?

Critics see the practice as just another way lobbyists are buying influence on Capitol Hill. In 2007, Sen. Claire McCaskill of Missouri introduced legislation to ban the practice of line-standing.

"I have no problem with lobbyists being in hearings, but they shouldn't be able to buy a seat," McCaskill said. "It seems to me that if we are going to make sure lobbyists aren't buying meals for senators, and we are going to make sure lobbyists aren't buying elected officials gifts, then we ought to make sure they aren't buying seating at a public hearing."

They are going to ban standing in line? I'm not sure how people will get in the building. I would prefer we simply make it less valuable for lobbyists to get in the building in the first place.

This is where we must cue the sentiments from an activist who will reveal they care far less about outcomes, and instead demonstrate a bunch of self-serving moral indignation under the ruse of saving the homeless from being "used" or "exploited."

Maria Foscarinis, an advocate for the homeless, thinks it's ironic that some of the most powerful people in the country are using some of the most vulnerable to hold a place in line for them.

Hat Tip: TC @ MR for the Markets in Everything Theme

Corporate Rent Seeking

Here is an interesting piece on the corporate umbrella of Target and the attention it is receiving from one of its large scale investors. The following passage highlights that rent seeking is an issue in governance, not just government.

Yet Target's actions suggest otherwise: Far from treating Ackman like a mere irritant, it is spending some $11 million to promote its own candidates -- money, Steinhafel notes, that would be better spent improving its business. "This is a very challenging economic environment," he says, "and it's unfortunate that we are having to invest our time in [fighting] a proxy contest."

As a side note-- I was unaware that Target was apparently competing well with Wal-Mart and the stats in the article are, upon a second reading, a bit misleading. The only fundamentals-related information shows Wal-Mart up on 2008 and Target down, and the bit on Target's relative edge in stock price gains likely benefits from a favorable choice in start and end dates. All in all, I think that's about as favorable a reading of the retail tea leaves as Target could hope for.