Month: October 2012

Now that the internet has become such an integral part of our lives, it is only natural for the government to reevaluate its relationship with this special technology. Most of the time when public discussion broaches this topic, it is only to demand that government bureaucrats leave the internet as it is. Recently, there was an outcry over SOPA and PIPA, two bills that were being considered by congress to combat online piracy. Critics of the bills said they went too far by forbidding search engines from linking to websites suspected to have pirated material and by requiring Internet Service Providers to block access to entire domains even if only one webpage within that domain contained pirated material. This crude approach was denounced by many popular websites and the bills have been postponed indefinitely.

Another common flashpoint for debate is net neutrality. Essentially, net neutrality refers to the current government regulation that Internet Service Providers (ISP’s) may not block or restrict your access to any website or network. This regulation is meant to prevent ISP’s from favoring (possibly for a fee) certain content or services over others. Ironically, in this case most internet users favor maintaining the state of government regulation, rather than reducing it.

But there is one aspect of the internet that would be improved dramatically by new government intervention: Internet ID. Internet ID can be thought of as analagous to your driver’s license. It refers to any system that certifies who you are to the people you are interacting with online. An effective system could enhance trust and facilitate exchange in the growing online economy. Furthermore, scammers and other criminals would have more trouble exploiting people on the internet. In an environment where everyone knows your name, reputations become important and behavior should improve accordingly. To be clear, I am not advocating for the end of anonymity everywhere on the internet. That certainly has its place as a safe guard for free speech, but the time has come to give internet users the choice to externally certify who they are when they’re online.

Most of us already have a form of an Internet ID: a Facebook profile. Not only does your profile signal to other Facebook users who you are, but many other websites are beginning to use Facebook accounts to verify identities as well. This should concern many people because Facebook is a private company with private interests (namely, maximize profits). Even though Mark Zuckerberg claims that “we don’t build services to make money; we make money to build better services,” color me skeptical. Mark’s intentions may be pure, but as a society we cannot leave such an important service up to the vagaries of a single man. Imagine if one company had a monopoly on drivers’ licenses. Do you really think they would be as cheap as they are today? My intuition tells me that the profit maximizing price is somewhere higher on the y-axis than it is now. But if Internet ID is such a desirable service to provide, then why aren’t competitors able to compete with Facebook?

Network effects. Network effects occur when the value of a service to a consumer depends on the number of other people using the service. As the number of people increases, the value of the service increases (e.g. telephones). Once a network gets going, there is a virtuous feedback loop that makes growth accelerate exponentially. After a network becomes established, people have very little incentive to switch to a new network and therefore no new firms enter the market. To date, Facebook and Twitter have harnessed the power of network effects most successfully, but there is a key difference between the two sites. While Facebook uses real ID, meaning your profile name must be your real name, Twitter allows users to register anonymously. This difference is the reason Facebook is the leader in Internet ID, and Twitter isn’t.

Though government intervention in the marketplace is rarely optimal or efficient, the presence of network effects necessitates the government to step in. While regulators could invoke the Sherman Antitrust Act and move to bust Facebook’s monopoly, I am merely suggesting the government creates a program that allows people to verify who they are online. This idea is already in the works, but progress has been disappointing so far. In April of 2011, the Commerce Department announced the development of a new cyber-identity system called The National Strategy for Trusted Identities in Cyberspace. That was over a year and a half ago. In that time, a Silicon Valley startup could have launched and failed a dozen times. The US government needs to prioritize this program and make it, or something like it, the cornerstone of its internet strategy (after all, people love the rest of the internet as it is). To accomplish this it needs to decrease the timeframes on its pilot projects and iterate quickly the way private firms do. Time is of the essence; Mark Zuckerberg is growing attached to his laminating machine.

Note: This post was motivated by Arizona Proposition 121, a ballot initiative that will change how Arizonans vote in primary elections. Though this blog’s main focus is economics, the branch of political science that studies elections, psephology, is a field that uses similar game theory and statistical methods to conduct research on electoral systems.

Before I dive into the analysis portion of this post, it is probably a good idea to explain what exactly a “nonpartisan blanket primary” is. Also known as a top-two primary or a qualifying primary, a nonpartisan blanket primary is way of selecting the top two candidates for the general election without using the standard Republican and Democratic closed primaries.

Let’s break down this terminology just to be as clear as possible. First, “nonpartisan” just means that the primary is not controlled by any political party and, importantly, the candidates standing for election have not necessarily been endorsed by any political party. Candidates are usually allowed to state a party preference, using around 16 characters, but that does not mean the specified party supports the candidate or that the candidate actually holds the views of that party.

This may sound like splitting hairs, but the difference between being endorsed by political parties and merely stating a party preference is the main reason the United States Supreme Court ruled nonpartisan blanket primaries to be constitutional in Washington State Grange v. Washington State Republican Party in 2008. Before this ruling, nonpartisan blanket primaries were considered unconstitutional because when candidates listed their party affiliation (n.b. this is distinct from stating a party preference), the political parties felt they were being forced to endorse candidates whom they might not actually support.

Next, “blanket” means that the primary consists of all the candidates running for a given elected office, regardless of political party. And finally, “primary” refers to the fact that this stage of the election process is used to winnow down the field before the general election. Generally, if no single candidate in the primary receives a majority of the votes, then the top-two vote getters will advance to a general election. It is also important to note that this type of primary is an “open” system, meaning that all registered voters are eligible to vote. This contrasts with closed primaries where only registered voters of a particular political party can vote. While not all Republican and Democratic primaries are closed, many of them are, which means independent voters are often excluded from a critical stage of the voting process.

Now that you understand what a nonpartisan blanket primary is (hopefully), I want to show you that, when structured properly, it is superior to our current primary system. First, what are the goals of a nonpartisan blanket primary? Proponents of this system contend that by including independent voters in the primary process, each party’s base will have less influence on who gets elected. They hope this more inclusive approach to elections will have a moderating effect on politicians and incentivize bipartisanship. According to DW-Nominate, a scaling method that uses congressional roll-call votes to measure polarization, the current congress is the most polarized it has been in decades. The video below shows how polarization has changed throughout the years.

In August of this year, the approval rating of Congress hit an all-time low of 10%, so it’s fair to assume that this level of polarization is not healthy for the institution in the long-run. With few examples to study, political scientists are still researching whether nonpartisan blanket primaries are effective in decreasing polarization. Since we lack hard data to back up the supporters of top-two primaries, let’s address the system’s critics. I dismiss out of hand the main criticism from incumbent politicians that the proposed change is an attack on political parties. That’s exactly what it’s supposed to be! Politicians view any change as a negative because they have been very successful playing by the rules as they are currently written.

There are, however, two genuine criticisms of nonpartisan blanket primaries. The first is that incumbents will be further entrenched because the “anti-incumbent” vote will be split among numerous challengers, meaning the incumbent will get a majority of the vote in the primary and will not have to compete in a runoff election (this is how Louisiana conducts its primaries). Fortunately, this one is easy to address: don’t do that. Even if a candidate gets a majority vote share, the top-two finishers in the primary should automatically advance to the general election, which is how Prop 121 is designed. Consider the case where an incumbent receives 51% of the vote in the primary and three challengers receive 17%, 16%, and 16% each. By not automatically ending the election because the incumbent got a majority share of the vote, the 17% challenger has 3 months to gain name recognition and create an anti-incumbent coalition. Come the general election, it is plausible that the outcome will be flipped on the incumbent congressman.

The second criticism is that nonpartisan blanket primaries incentivize political parties to only have two affiliated candidates contest a primary. Consider the case where two Republican-affiliated candidates each receive 20% of the vote and four Democratic-affiliated candidates each receive 15% of the vote. In this case, the two Republicans would advance to the general election and this liberal-leaning district would be robbed of a left-of-center choice. While there is an actual risk of this situation occurring, I think it would be a rare occurrence in an open system. When anyone can run in the primary and state a party preference, it will be difficult for party bosses to control the composition of the slate of candidates.

Lastly, there is a minor criticism that top-two primaries encourage strategic voting, i.e. members of political parties voting for weak candidates of the opposing party to increase their preferred candidate’s chances in the general election. Again, I think this criticism assumes far too much cooperation and coordination among thousands of people. The voting behavior of your fellow citizens is too unpredictable to incentivize that kind of voting strategy.

I hope this “primer” helped you understand how a nonpartisan blanket primary works, what its supporters hope it achieves, and why criticisms of the proposed changes are largely unfounded.

Education is said to have positive externalities. That means there are significant benefits to people who are external to the exchange between teacher and student. Even though teachers are the only ones who are paid to educate students and students gain human capital by attending school, conventional wisdom holds that society as a whole benefits from having a more educated citizenry. A quick look at the available data shows that people with more education are less likely to be unemployed and can expect to receive a higher income for their work. Higher incomes means higher tax revenue for the government and more disposable income for the people who earn them. Now, though these data merely show a correlation between education and employment benefits, there are many reasons to believe there is causation as well. Even if you don’t think high school and college actually increase the knowledge of students (there are skeptics), it is a fact that many recruiters focus their time and resources on college campuses and that lots of jobs require a certain degree to even apply (this is known as credentialism).

But these are just the most common arguments for why investing in education is worthwhile. If those haven’t fully succeeded in convincing taxpayers that their money is being well spent, what else can be said to persuade them? One of the basic assumptions of economics is that people are self-interested and will only do what is best for themselves. While this is clearly a gross simplification, a few hours of interaction with most people will tell you this is at least on target. So if you want to increase public investment in education, you must make a more convincing argument for its positive externalities, i.e. the value for everyone apart from the students and teachers. This is where Condorcet’s jury theorem comes in. In short, the theorem is concerned with determining the probability that a group comes to a correct decision under majority voting. If the probability (p) of an individual in the group voting for the correct decision is greater than 1/2, then adding people to the group will make it more likely the group will come to the correct decision. Conversely, if p < 1/2, then adding more people to the group will only decrease the likelihood of the group reaching the correct decision (in this case the optimal number of voters would be 1). Now, political scientists say that Condorcet’s jury theorem provides a theoretical basis for democracy, but they often overlook the importance of the assumption that p > 1/2. If it is not, the theorem dooms democracy rather than provides a basis for it.

The key here is that there is a tipping point. If p is less than 1/2, with a population of more than 300 million people, we are fated to choose suboptimal outcomes. But once p passes the 1/2 threshold, the reverse begins to hold true: we are extremely likely to make the correct decision, i.e. choose good public policy. I believe that if we improve our education system, we can increase p dramatically. When people have taken classes in Economics, Finance, English, Math, Science, etc., they are better prepared to challenge harmful policies and their proponents. More educated citizens will also be more well-equipped to analyze ballot propositions and the positions of candidates for public office. Education reformers disagree about how to best improve our education system, but if we begin to realize how important it is to the quality of our democracy, our policymakers will devote more time to answering these questions. Until then, we should pursue an “all-of-the-above” approach, preferably through randomized field trials. Just to name a few options, we could increase government funding (see chart below), improve school choice, and incorporate new technology into classrooms. Once we determine which of these approaches is the most cost effective, we should devote more resources in that direction.

Unfortunately we don’t seem to be doing very well on the “increasing funding” part. In fact, we are doing the opposite:

So the next time someone says we shouldn’t prioritize education, refer them to Condorcet’s jury theorem and ask them how we can afford not to.

Hi, world. I decided to start this blog for two reasons: to practice my writing and analysis skills and to participate more fully in the economics blogosphere. Though the blog will be primarily focused on issues relating to economics, my aim is to write in a way that anyone can read and enjoy (no economics degree required). I will do my best to avoid using econ jargon, but when that’s not possible I’ll explain terminology and link to further reading. I plan on using lots of charts, graphs, and data whenever possible to help illustrate my arguments.

With that said, I want to start off this blog with an excerpt from Jimmy Valvano’s 1993 ESPY’s speech. That speech is the reason I decided to stop putting off starting this blog. “Time is very precious to me. I don’t know how much I have left, and I have some things that I would like to say. Hopefully, at the end, I’ll have something that will be important to other people too.”

Please check back on Sunday for the first full-length post. My goal is to publish one post per day from there on.