Professor Jane Leuthold

1
The Political Process

• Professor Jane Leuthold
• Department of Economics
• University of Illinois

Economics 214
2
Agenda for today ...

• Who is the median voter and why is she important?
• Is logrolling good or bad?
• Special interests and campaign finance reform
• Effect of bureaucracy on the size of the public
  sector

3
Voting rules

• Dictatorship
• Majority rule
• Does not account for intensity of preferences
• May lead to cycling if preferences are multiple-
  peaked
• Qualified majority rule
• Unanimity rule
• Only Pareto efficient changes will be approved
• Involves high transactions costs

4
Political equilibrium with unanimity rule
6
MB
How would you get these voters to agree
unanimously on the efficient output of the public
good?
MB
MC
3
MBCarol
2
MBDon
1
MBRyan
6
Public good
0
3
5
The median voter and political parties

• If preferences are single-peaked (MB curves are
  downward sloping), the median voter is decisive
  in a majority rule election.
• Do you think parties and political candidates
  understand and use the median voter theorem? How?

6
The position of candidates
Number of Voters
Locate Gore and Bush on this graph.
Median Voter
Right
Left
7
Nearing an election
What would you expect to happen to the position
of the candidates as we near November?
Number of Voters
Median Voter
Right
Left
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Effect of non-voters

• Why might the median voter phenomenon cause
  non-voting?
• What effect will non-voting have on the political
  equilibrium?

Number of Voters
Gore
Bush
Non-voters
Non-voters
Median Voter
Right
Left
9
Voting on more than one issue

• When more than one issue is voted on
  simultaneously, logrolling or vote trading may
  occur.
• Logrolling may be explicit (Ill vote for your
  issue if you vote for mine!) or implicit (when
  issues are paired on the same ballot).
• Do you think logrolling is a good or a bad thing?
  Why?

10
Logrolling benefits society

• Which outcome maximizes social welfare?
• Which outcome will result without logrolling?
• Which outcome will result with logrolling?

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Logrolling hurts society

• Which outcome maximizes social welfare?
• Which outcome will result without logrolling?
• Which outcome will result with logrolling?

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So is logrolling good or bad?

• Logrolling allows minorities to express the
  intensity of their preferences. It provides a
  safety valve in a democratic society.
• Logrolling may cause efficiency gains or
  efficiency losses depending on the intensities of
  preferences.

13
Special interest groups

• Special interest groups lobby to support issues
  that benefit them. They are currently the target
  of campaign finance reform.
• Is campaign finance reform needed? Should
  individuals, corporations, and special interest
  groups be limited in the amount of money they can
  contribute to political campaigns? What do you
  think?

14
Whats money?
Hard money -- Contributions to federal
candidates, PACs and parties regulated by federal
law. Individual donors and PACs are limited in
the size of their contributions. Soft money --
Under a loophole in federal campaign laws,
wealthy contributors can give unlimited amounts
to political parties for so-called party-building
activities. Corporations and unions, which are
banned from giving hard money, can give this
soft money.''
15
Soft money raised by parties
Source Washington Post Special Report
16
Gender Gap
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Discussion

• Missouri and Oregon have initiatives before
  voters that would finance political campaigns
  with public money. What rationale is there for
  funding campaigns publicly?
• "That's the one way I'll go socialist," he said.
  "Each candidate gets a certain amount of money,
  and how they spend it is up to them." Jesse
  Ventura
• John McCain favors outlawing soft money
  contributions to election campaigns. Agree?

18
Bureaucrats and bureaucracies

• Policy decisions are implemented through
  bureaucracies
• What goals guide bureaucrats behaviors?
• Do bureaucratic decisions lead to efficient
  government outputs?

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Niskanens bureaucracy model

• Bureaucrats maximize power by acting to maximize
  the bureau's budget.
• This leads to output XB, which is greater than
  the efficient output, X.
• Are there any checks that do or could prevent
  this kind of bureaucratic inefficiency?

TSB

TSC
Output

MSC
MSB
XB
Output
20
Discussion

• The Senate just voted to lift trade restrictions
  on China. How did each of the following likely
  influence this decision
• The median voter
• Special interest groups
• Logrolling

21
Soap Box
Select ONE economic issue (for example, welfare
reform, health care, defense spending, social
security, etc.) that you think will be important
in the November Presidential election. Summarize
what you think would be the position of the
median American voter on this issue.
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Next time ...
Tues Review for Exam Thurs First Exam No Soap
Box or Quiz next week.