Professor Mark J. Perry's Blog for Economics and Finance
Saturday, November 04, 2006
The Case for Low Voter Turnout
People often complain about low voter turnout in the U.S. - 50-55% in presidential election years, and 35-40% in non-presidential election years like 2006. See voter turnout since 1960 at this link. Notice that voter turnout has decreased in the last 45 years by more than 10 percentage points, from 63.1% in the presidential election of 1960 to less than 50% in 1996, and from 48.4% in 1966 to 36.4% in 1998.
Many people are probably upset by this trend, but not I, and here is why: In almost all cases, higher voter turnout would NOT have changed the outcome of the election, and so we get the same election outcome/results at a lower cost to society (measured in the opportunity cost of our time).
I have never heard those who complain about low voter turnout make the argument that higher voter turnout would CHANGE the outcome of the election, they usually just say that more people should vote for other reasons: exercise our right to vote, fulfill our civic duty, participate in democracy, etc.
But I have never heard anyone say "More people should vote because low voter turnout leads to unreliable results," or "more people should vote because that would change the outcome/results of the election. " Mostly, I think people would simply "feel better" if we had the same results with 80% turnout, compared to having those same election results with 40% turnout.
But think about it - would you feel any better about a blood test if they took two pints of your blood compared to 20 ccs? Probably not.
There are about 160 million registered voters in the U.S. From sampling theory, a sample size of 16,639 would accurately and reliably represent the entire population of 160m at a 99% confidence level, with an error of only 1%.
What this means is that if the first 16,000 people who vote when the polls first open in the morning are random voters who represent the population of voters, almost all elections are already decided by 9 a.m. or so in the morning. The rest of the voters are really just wasting their time, in the sense that their votes will not affect the outcome of the election. It is like increasing the blood sample - the blood test will still be positive or negative regardless of the sample size.
The possible exception to this would be an extremely close presidential election like 2000, where "every vote mattered" in a sense, but this was an extreme case. Of course, you don't know ahead of time which elections will be that close, so you could justify always voting, just in case.
But in almost all elections, I would argue that voter turnout has NO effect on the outcome of the election, and the same results would prevail with 20% turnout as 100% turnout. Although most people would "feel better" about the election with 100% turnout, that is irrational in my opinion. If the results are same, I would prefer the 20% turnout, because of the significant saving of time for the 80% who did not vote.
Voting is expensive when measured in its full cost: our time. An hour spent voting is an hour lost forever doing something else. As Gatemouth Brown said (see an earlier post): "My time is expensive, I gotta make it last."
I like low voter turnout, because the election results are almost always exactly same as for high voter turnout, and low voter turnout saves and conserves our most precious non-renewable resource: our time, and therefore it is socially more efficient than high voter turnout.
Weekend Voting or Voting Holiday?
Turnout among eligible voters in the U.S. for presidential elections is only 50-55%. Turnout in non-presidential years like this year will be far lower. By comparison, turnout is 70-75% in Canada and over 80% in most other democracies. Even many fragile new democracies have turnout levels far higher than ours.
One reason for low voter turnout in the U.S. is the opportunity cost of time for voting here is very high, because we vote on a weekday that is also a workday and not a holiday. This probably made sense in the 1700s and 1800s when the U.S. was an agriculture-based economy, - farmers had flexible schedules and probably weren't too busy on a Tuesday in November after the fall harvest.
The United States is one of the few Western democracies that do not schedule elections on weekends or a designated holiday. Some countries also have voting on more than one day (Saturday and Sunday) or even for a full week. Advocates for a voting holiday in the U.S. point to higher turnout in countries that give a day off to vote or hold elections on the weekend. They also look to Puerto Rico, where a full day off (voting holiday) is dedicated to the election, and turnout in 2004 was the highest in the U.S. at over 82 percent.
The demand curve for voting slopes downward like other demand curves and follows the Law of Demand, i.e. there is an inverse relationship between the cost of voting and the number of votes.
1. There is a significant opportunity cost of time to vote in an election, and that opportunity cost is probably higher on weekdays that are not holidays.
2. If you lower the opportunity cost of voting with weekend voting, voting holidays, electronic voting, Internet voting, etc. the number of votes will increase, ceteris paribus.
That is, if you want higher voter turnout, simply lower the cost of voting.
Friday, November 03, 2006
Are You Economically Literate?
Take the Minneapolis Federal Reserve Bank's Economic Literacy test here - there are 13 multiple choice questions.
Unemployment Rate Falls to 4.4%
You Say Bangalore, They Say Bengalooru
From today's NY Times Business section, an article about Bangalore, India changing its name this week to the original, traditional name Bengalooru, and the controversy the name-change is causing.
Infosys and its domestic rival Wipro, each with thousands of employees, are among the companies credited with building the city’s brand name around the world. Bangalore is now home to more than 1,000 technology firms, ranging from tiny two-person start-ups to large multinational companies like Intel, Texas Instruments and Cisco Systems. In a teeming city of seven million, the industry employs about 300,000 workers, who are turning into a rising middle-class that is giving rise to some resentment.I guess you can't be "Bangalored" any more if you lose your job to outsourcing, you'll be "Bengaloorued" from now on?
Bangalore represents a cosmopolitan, multicultural brand,” said Nandan M. Nilekani, chief of Infosys Technologies, the outsourcing company, adding: “It is not prudent to abandon the name of India’s most global city.”
Thursday, November 02, 2006
Let's Vote in April, or Pay Taxes in November
If you vote next Tuesday, November 7, 2006, it will have been 206 days since you paid taxes on April 15, 2006. From November 17, 2006 until you pay taxes next year on April 15, it will be 159 days. If two dates occur once a year, the farthest away those two dates can be is 182.5 days (365 / 2) or about 6 months. Therefore, the day we vote in November is about as far away from the day we pay taxes in April as possible. It's been more than 6 months since the last tax day (4/15/06), and almost six months before the next tax day (4/15/07), and November is probably the time of the year that we are least likely to be thinking about April 15 and taxes.
1. Abolish withholding taxes, and require all taxpayers to write a check once a year for their entire tax liability - for someone making $100,000 that would mean a check to the IRS of about $25,000.
2. Move Voting Day to April 16 right after we pay taxes, or move Tax Day to early November right before we vote.
Here is an exercise: What is your monthly car payment, and what is your monthly mortgage or rent payment? Most people know immediately what those payment amounts are, because most of us write out a check for those expenses. Now, what is your monthly tax liability for federal income taxes, and what is the amount of state income taxes you owe monthly? Most of us have no idea what our tax liabilities are, because we don't write monthly checks for federal and state taxes, employers withhold those taxes and make payments on our behalf. In fact, most employees have TOO much taken out of their checks, resulting in a refund in April!
Wednesday, November 01, 2006
Standard of Livings Keep Rising, Even for Min Wage Teens
According to W. Michael Cox, senior vice president and chief economist at the Federal Reserve Bank of Dallas, a typical college student arrives on campus today with household possessions that his parents often didn’t acquire until they were 40 or even 50 years old, reflecting the relentless rise in living standards over time.
One way to measure the significant advances in US standards of living over time is to consider what a 19-year old could buy with summer earnings at the minimum wage at different points in time.
The summer job, a rite of passage involving ten or so weeks of work between the end of high school and college, provides a useful starting point for looking at the prospects of young people entering college. Taking a job at the minimum wage of $5.15/hour in 2001, a worker could have easily pocketed $2,000 over the summer.
The earnings of one summer’s employment pack quite a lot of buying power in today's economy. The money would be enough to fill a dormitory room or small apartment with all kinds of electronics, gadgets and gizmos:
Go back to 1970, when the minimum wage was $1.60, and summer earnings at the minimum wage would have been $618, enough to only buy the following items:
What about 1950? At the minimum wage of $.75, a teenage worker would have only earned about $282 over the summer months, and his or her entire earning would have been exhausted after purchasing only 4 items, and most of the earnings would have been spent on just buying a TV:
Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one. And even if real wages are flat, the explosion of new products over time at lower and lower prices translates into a rising standard of living for all income groups, even minimum wage workers. Teenagers today can afford things like cell phones with cameras, and iPods that even a billionaire couldn't have purchased 20 years ago.
No Grade Inflation Here
The Cato Institute released its Fiscal Policy Report Card on America's Governors: 2006, the eighth biennial fiscal policy report card on the nation's governors. The report card's grading is based on 23 objective measures of fiscal performance. Governors who have cut taxes and spending the most receive the highest grades. Those who have increased spending and taxes the most receive the lowest grades.
Only one governor receives an A this year — Republican Matt Blunt of Missouri. Nine governors received a grade of F: Montana, Alabama, Washington, Arkansas, Nevada, Delaware, North Carolina, Arizona, Louisiana. Overall the grades are: 1 A, 6Bs, 17Cs, 13Ds, and 9Fs. Cato is a tough grader.
See the list of grades here.
Tuesday, October 31, 2006
Go to Google and search for the word "failure." How does that work?
More Internet Porn, Less Rape?
From University of Rochester economist Steven E. Landsburg, author of "Armchair Economist: Economics and Everyday Experience," a new article in today's Slate.com titled "How the Web Prevents Rape." Here are some excerpts:
"Does pornography breed rape? Quite the opposite, it seems.
What happens when more people view more of porn? The rise of the Internet offers a gigantic natural experiment. Better yet, because Internet usage caught on at different times in different states, it offers 50 natural experiments.
The bottom line on these experiments is, "More Net access, less rape." A 10 percent increase in Net access yields about a 7.3 percent decrease in reported rapes. States that adopted the Internet quickly saw the biggest declines. And, according to Clemson professor Todd Kendall, the effects remain even after you control for all of the obvious confounding variables, such as alcohol consumption, police presence, poverty and unemployment rates, population density, and so forth."
Monday, October 30, 2006
NYC Taxi Cartel, I Mean Commission
Over the last 5 years, NYC taxi medallion prices have more than doubled from $200,000 in October 2001 to an all-time high of $450,000 in 2006! Click here for a better view of the graph above. Note that a $450,000 medallion is the license required to operate only ONE taxicab in NYC!
Why so expensive? A medallion is the membership fee to join a taxi cartel, with a strict limit on the number of members competing for business in NYC. With such high barriers to entry, and strict limits on competition, the taxi cab cartel can charge monopoly prices, which then justifies paying $450,000 to join the cartel.
According to the NYC Taxi and Limousine Commission, the official name of the NYC Taxi Cartel: "In 1937, the number of taxicab medallions was limited to those that existed at that time. By the late 1940s, this number settled at 11,787 and was capped by law. Today there are currently only 12,779 yellow medallion taxicabs operating in New York City. A new medallion is a rare opportunity."
Yes, a rare opportunity to join a cartel. Membership has its privileges.
London Stock Exchange Trivia
Stock prices are quoted on the London Stock Exchange in British "pence" and not British "pounds." For example, British Airways is trading at about 457.75, which is 457.75 pence and not 457.75 pounds.
Strange, but true. See the list of stocks in the FTSE-100 here, note that there is a "p" after each stock price.
Michigan vs. France
Michigan's September unemployment rate of 7.1% is considered high for the U.S., second highest in the country next to Mississippi (7.2%). But if Michigan was a country in Europe, it would be considered much better than average compared to the 7.9% average unemployment rate for OECD Europe countries.
Germany's unemployment rate is 8.5% for August, France is 8.8%, Finland 7.8%, and Belgium 8.6%.
From today's Investor's Business Daily, an editorial about the persistent unemployment problems in France, despite the mandatory maximum 35-hour work week that was supposed to create jobs:
No longer able to withstand the rigors of a normal schedule, the French had to cut back to a 35-hour workweek. Six years later, and the rotten fruit of socialism is being harvested.
With fewer hours worked, the state predictably has been collecting fewer taxes. The shorter workweek, Finance Minister Thierry Breton reported this week, has added roughly $126 billion to the national debt. For a country obsessed with the safety net, this was deflating news.
But the lost productivity and the drag on economic growth are even worse. All told, the 35-hour week has cost France hundreds of billions of dollars in lost output.
The 35-hour workweek, introduced by I-saw-Karl-Marx-in-my-dreams Socialist Prime Minister Lionel Jospin, was peddled as a solution for France's high unemployment rate. With employees working fewer hours — down from 39 a week before overtime kicked in — businesses would be forced to hire more people.
Has it worked? No. France's jobless rate continues to stagnate in the 9% area — just modestly better than the 5 1/2-year high of 10.2% between March and May of last year, but not much. Nine percent is about where it was when President Jacques Chirac took office more than 10 years ago.
It can take up to 100 days of bureaucratic dithering to get rid of an employee in a big company. As a result, businesses are shy about hiring because they fear they can't fire a worker for not doing his or her job.
French business leaders want the 35-hour workweek abolished. That's a good idea. Unfortunately, fierce resistance from the socialists might be too much to overcome.
Google stock price is approaching $500 per share. It originally sold for about $100 in August 2004 when it went public, and has doubled in less than 18 months, since May 2005 when it was $222.
Google's market capitalization of $145 billion is more than IBM, Hewlett-Packard, Intel, McDonald's, Merck and Coca-Cola. It is worth 4X the market value of Yahoo! and 3X the market value of Ebay.
It is worth about the same as the combined market value of GM, Ford, ChryslerDaimler and Boeing.
Graphs above are from the website GradeInflation.Com, run by a retired Duke University professor.
Also, there is an article titled "When Bs Are Better" in the current issue (subscription required) of The Chronicle for Higher Education (subscription required) by a Rutgers management professor:
In the fall of 2001, The Boston Globe reported that 91 percent of the seniors who had graduated from Harvard University the previous June had received honors, prompting an investigation that concluded grade inflation was indeed a serious problem at Harvard.
Faculty members have not fulfilled the responsibilities associated with their proclaimed right to be the final judges of student performance. In shirking that duty, they have also neglected their broader obligations to society: Teachers weaken rather than bolster the commonweal when they fail to award meaningful grades. Grading laxness at all levels of American education has contributed directly or indirectly to a variety of problems, including declining scores on the SAT, decreases in the ability of American undergraduate and graduate students to understand prose, and poor training in mathematics and science, which puts American students behind their peers in many European and Asian countries.
Could more-realistic grading stem the tide? Ample evidence shows that students learn more when the bar for success is raised rather than lowered. For example, Valen Johnson's Grade Inflation contains analyses demonstrating that students who took prerequisite courses from teachers who were tough graders performed better in upper-division classes than did students whose prerequisite courses were taught by easier graders.
What are universities doing?
A few universities have established grading standards, and their administrators monitor professors' compliance. Perhaps the most heralded example is Princeton University's adoption of limits on the percentage of A's given in undergraduate courses. And in the M.B.A. programs at the University of Chicago and New York University's Leonard N. Stern School of Business, online grade-reporting systems will not accept an instructor's grades in certain courses if the grades exceed school or departmental standards.
Sunday, October 29, 2006
Big and Slow Doesn't Work, Big and Fast Might
From today's (Sunday) NY Times article "Now Playing in Europe: The Future of Detroit:"
“There’s no case anywhere in the world of any previously dominant manufacturer retaining much more than 20 percent once the market is opened to full global competition,” said G.M.’s vice chairman, Robert A. Lutz.
While some national loyalty lingers in Europe, as it does in the United States, no company can rely on such loyalty to sell cars. Carmakers are forced to continually update their brand images in order to stand out in a crowded market. At the same time, like their European counterparts, America’s unionized autoworkers must also adjust. They cannot count much longer on the cushy contracts that typified their jobs in the past, because new deals at new factories have chipped away at pay and benefits while emphasizing more-productive work methods.
European companies have long competed this way, but it is a new reality for American carmakers who were so dominant for much of the last century. As recently as 1990, G.M., Ford and Chrysler together sold more than 70 percent of the cars bought in the United States; G.M. alone accounted for more than one-third of auto sales.
Now those companies’ American market share has dropped to around 50 percent, while the influence of Toyota and other foreign manufacturers is growing. Though G.M. remains on top, its share has slipped below one-quarter, and the battleground has become the section between 10 percent and 20 percent of the market. That is the area where Ford and Chrysler have slipped and where Toyota and Honda have grown.
David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said that American carmakers must change, and fast, or risk disaster. “For an automobile manufacturer, big and slow doesn’t work anymore,” he said. “Big and fast gives you a chance.”