Thursday, July 29, 2010

Advantages and Disadvantages of Majority Vote and Super Majorities, thoughtful Thursday

  1. James M. Buchanan and Gordon Tullock, The Calculus of Consent Ann Arbor Paperbacks
  2. Kenneth O. May, "A Set of Independent Necessary and Sufficient Conditions for Simple Majority Decision" Econometrica Volume Twenty, Number Four, October 1952 , pages 680 to 684.
  3. Dean Lacy and Emerson M. S. Niou, "A Problem with Referendums" May Tenth 1998. (online, but appears to be a copy of "A Problem with Referencums" Journal of Theoretical Politics 12 (1, January) 5,31.
  4. Hannu Nurmi, "Referendum Design: An Exercise in Applied Social Choice" Scandinavian Political Studies Volume Twenty Number One 1997.
  5. Anthony McGainn, the Tyranny of the Super Majoirty: Howe Majority Rule Protects Minorities

Majority Rule--all decisions should require 50% + one to pass, whether it is an election, in a legislature or on a referendum. Dr. Buchanan says that in an ideal world, if we could only overcome the costs of reaching a decision, we should require unanimity. Assuming that person X is voting on the referendum to select a constitution. He should want one where decisions must be unanimous. He would never be taxed for programs he did not like. He would never be required to obey regulations, say to limit his use of the land in certain ways to protect endangered species.

It would take time to bargain to get people to protect environmental treasures that he cared about or accept taxation for things he felt important whether they be the traditional right-wing roads, courts and armies or other programs such as an opera house. Under either a Lindahl Equilibrium or with side payments, it should be possible to find some combination of taxes and expenditures to which everyone would agree. It just takes time and haggling, as people engage in "strategic behavior" by mispecifying their Lindahl taxes.

But even the assumptiont that we could deal with these problems, there would still be a few obstinate souls. Jeannette Pickering Ranking voted against the first declaration of the war United States entering World War II (as well as War I). (She voted present on declaring war against Italy and Germany after they declared war against the U. S.) And those countries that have home-grown terrorists could expect that they would refuse to vote for the most basic measures, even under the most severe threats.

The equivalence of majority vote and some conditions

But the familiar 50% plus one has some strong theoretical support from 1952, Dr. May said any way of deciding, a "group decision function" taking as input everybody's yea, nay or don't care, should obey the following properties. The set of inputs, which he postulated as a list of -1, 0, 1 for every voters, I will call I for shorthand
  1. It should give an answer for every possible I It should not say I don't know. I postulated some cases where I don't know might be appropriate. If two candidates for president were very close, perhaps both should win, and should they conflict on a particular decision, that decision be sent to a sortition jury or even a full plebiscite.
  2. If we swap a -1 vote from voter x with a 1 vote from voter y, it should not matter. In other words, the votes should count equally. Dr. Dahl's specified this in his definition of procedural democracy.
  3. The decision function should be unbiased. If all the 1's were replaced with 0's, and all the 0's replaced with 1's, the decision function should give the opposite result. A supermajority would favors the status quo.
  4. The decision system should be monotonic. If everyone who voted for first of the two alternatives continued to do so and then some who voted for the second switched their vote, one should not find that the function was more likely to report the second. In other words, as people switched their vote, it should make it more likely that the new alternative succeeded.
Dr. May proved that having this conditions means that the only decision is the familiary majority vote system, and of course, the majority rule fulfills these conditions.

But this only helps when there is one alternative to be decided. If there are multiple candidates, we have all the problems of voting rules and Arrow's Paradox.

One by one or multiple times

Dean Lacy and Dr. Emerson Niou have not read the combinatorial auction literature--this was Dr. Lacy's Ph.D. Dissertaion. They pointed out that when a group care about a combination of things, you cannot just have them vote one-by-one. Assume everybody in a town wants to pass two out of three bond issues. They all feel that this is what the town can afford. However, they all disagree as to which two of the three the town should construct.

In fact it is very bad. If there is one combination of bonds that everyone agrees is better than every other one, voting one by one may lead to a different result. And, voting for several issues may lead to a combination that every single voter would say was worse than some other combination! However, if each election is held separately, ... IN other words, they vote on one bond, let everyone know whether it succeeded, then vote on the next bond, etc. does help. (Kadane reported on nine states that sent several changes to their state consitution to voters. Five states that just had one proposition with all the changes had them all defeated. Four states divided the changes into individual changes and either all passed or all but one passed.)

If the votes are done sequentially, it does help a little. The combination that wins will not be a Condorcet loser that would lose to each other combinations and will not be considered the worst of the combinations by every single voter.

Dr. Lacy points out that the population could vote by set, how many want YYY? How many want YYN? How many want YNY? How many want NYN? etc. However, if there were 2000 alternatives, there would be 22000 sets. No voter, or even computer, could specify that many. Dr. Nisan discussed "languages" or ways that a bidder in an auction could give all their preferences without having to specify something for every conceivable combination of issues? Are these applicable to choices in a political system? Dr. Lacy says that a representative deomocracy can vote trade and do sophisticated voting--but a series of referendums for participatory democracy cannot. A statement he did not support.

His table six listed the results for different combinations.

  • Do the voters do better than a leader, or small group of representatives. If the voters are .50001 right and .49999 wrong, then taking a majority will be more likely right than a few leaders even if they are more expert. But, I am sure you read in history of a farsighted leader who would make peace when the population was still angry. And if everyone is probably wrong, a majority of the population will definitely be wrong. So those who say we should have wise representatives and a wise president decide things rather than the ignorant masses believe that the individuals are each more likely wrong than right. Dr. Nurmi shows this from the Condorcet voter theory or more basically, probability theory. And he shows similarly, that if people are more likely to vote their true interests than incorrectly, they are better off in a participatory democracy, than in another system. Most of the errors cancel. This is related to Dr. Surowieckis argument that people's misinformation on each side of the issue cancels, leaving the correct information in the majority determining the voting. the correct information in the majority. I mentioned that a supermajority is appropriate for the judicial rule. More precisely when some appointed group of people is in charge to make sure that every law respects individual rights, obeys the religious beliefs under which the country was founded, or is logical or budget-balanced, then when that group disagrees among itself, then the decision should go to plebiscite. Thus, a five-to-four or six-to-three supreme Court Decision on Constitutionality should go to plebiscite.

    Dr. Buchanan believes that super-majorities help favor minorities, otherwise two thirds (or less) can simply vote to tax the minority without giving them any benefits in return (July 22nd Thoughtful Thursday). On January 27th, 2010, another Nobel Prize Winner, Paul Krugman, said that unless the United States removes the requirement of 60 percent to stop fillibusters in the Senate, "we're headed for full banana-republic status." But some of the comments were negative - saying that Bush, who is the enemy in his blog, could have done anything. And Mr. Randall said the Republicans win a majority in a few years, they could undo health care reform. Nine states of U.S. require a supermajority to pass a budget under certain conditions, often if the budget is not passed in time.. California requires a supermajority for all but education and Rhode Island requires a supermajority to appropriate money for local or private purposes. But the National Conference of State Legislatures say that it is not sure what the end result of this is. I suspect that most readers are familiar with the problems California has had with its budget, some of which has been blamed on the supermajority requirement.

    Anthony McGann points out that use core/coalition/game theory/Rawlians concepts, that under majority ruling, one is most likely to be able to form a coalition to defeat some policy that one would not like. My game theory course did not cover it saw that in E. M. Barron's book.) (Dr. McGann discusses checks and balances and the writings and beliefs of Madison and John Calhoun on how these may help protect minorities. I will cover them in a future Thoughtful Thursday.) But he had some powerful diagrams of how voters or legislators might decide an issue that had two parameters. These could be a budget with the amount of spending and the amount of taxes--the difference would be the deficit or borrowing. Assume that eight voters cluster as follows at three positions (forming a triangle)

    NameNumber of Voters
    Under majority voting, there is no core, so that all could bargain for a proposal that they would like. However, if six are needed to pass a proosal, then c becomes disenfrancharged. Dr. McGann shows even more pathological cases; a status quo can remain that is nowhere near the center of the majority voters, opinions. Lani Guinier, a noted fighter for civil rights, argued that super-majorities protect minorities as well as a variety of voting rules. Yet, it was the filibuster that slowed down civil rights legislation.

    But majority rule is subject to cycles when there are three or more alternatives, A would B in a single contest, B would beat C in a single contest and but C would beat A. And Dr. Buchanan I believe from the citations I have read that Riker--he is on the list for a Thoughtful Thursday, argues that representative democracy is less likely to have cycling than a participatory democracy system and Miller (1993)was cited for the same thing.

    Obviously, the status quo is favored in super majority systems, whatever law was passed last year or last century. But as technology changes, this may not be the people, or their children, who voted for it wanted. Union rights were not important when ninety percent of us were farmers. Our fourth Amendment rights may become more important as spying technology allows a more intrusive state or more of a problem if terrorists gain the potential of genetically engineering a superbug. Or as Brunel-Petron put it, the status quo is a set of legal formalisms, not a set of outcomes. And the executives, bureaucrats and judiciary gain more power if the legislature or participatory democracy needs more votes to do something about it. An example. The Environment Protection Administration is coming out with regulations limiting carbon dioxide emissions as a pollutant. (The Supreme Court ruled that they could.) Congress persons have several proposals to block these EPA regulations, probably for two years.)

    At the end, Dr. McCann sites several articles. Voting cycles help minorities have a voice. But that better be another Thoughtful Thursday.

    for Future Thoughtful Thursdays

    1. Davis, Otto A , M. H. DeGroot and Melvin J. Hinich 1972 "Social preference orderings and Majority Rule" Econometrica 40 147 to 57
    2. Denzau Arthur T. and Robet P. Parks 1977, "A Problem with Public Sector Preferences" Journal of Economic Theory 14 454 to 457
    3. Denzau, Arthur T and Robert P. Parks 1983, "Existence of Voting-Market Equilibria" Journal of Economic Theory 30 243 to 265
    4. Diba Behzad and Allan M. Feldman, 1984, Utility Functions for Public Outputs and Majority Voting" Volume 24 1984, 1 to 2, 235 to 243, Journal of Public Economics
    5. De Donder, Philippe, Le Breton, Eugenio Peluso, "Majority Voting in Multidimensional Policy Spaces: Kramer-Shelpsle versus Stacklberg"
    6. Farquharson, Robin, 1969, Theory of Voting
    7. Kadane, Joseph, 1972, "On Division of the Question" Public Choice 13 47 to 54
    8. Kramer, Gerald H. 1972, "Sophisticated Voting Over Multidimensional Choice Spaces" Journal of Mathematical Sociology 2: 165 to 180.
    9. Koehler David H. 1975 "Vote Trading and the Voting Paradox: A Proof of Logical Equivalence" American Political Science Review 69 954 to 960.
    10. Gibbard, A. 1973 "Manipuation of Voting Schems" Econometrica 41 587 to 601
    11. Satterthwaite M. (1975) Strategy Proofness and Arrow's Conditions: Exitence and Correspondence Theorems for voting Procedures and Social Choice Functions Journal of Economic Theory 10: 187 to 217
    12. Saari D. G. (1989) A Dictionary of Voting Paradoxes, Journal of Economic Theory 48 443 to 475
    13. Saari D. G. (1994) Geometry of Voting New York
    14. Saari D. G. (2000) Mathematical Structure of Voting Paradoxes Economic Theory 15 1 to 53, 55 to 102
    15. Feld, S. L. and Grofman B. (1992) Who is afraid of the big bad cycle? Evidence from 36 elections Journal of Theoretical Politics 4 231 to 237
    16. Miller, N. R. 1980 "A new Solution Set for Tournaments and Majority Voting" American Jouranl of Political Science 24 68 to 96
    17. Miller N. 1983 "Social Choice and Pluralism" American Political Science Review 77.3 734 to 747
    18. Nakamura K. 1979 "The Vetoers in a Simple Game with Ordinal Preferences" International Journal of Game Theory 8, 55 to 61
    19. Gibbard, A. 1973, "Manipulation of Voting Schems" Econometrica 41 587 to 601.
    20. Riker, W, 1982, Liberalism versus Populism: A Confrontation Between the Theory of Democracy and the Theory of Social Chocice San Francisco: Freeman
    21. Greenberg, J. 1979, "Consistent Majority Rules and Compact Sets of Alternatives" Econometrica 47.3 627 to 63
    22. Lijphart, A. 1977, Democracy in Plural Societies Yale University Press
    23. Lijphart A. 1999 Patterns of Democracy: Government Forms and Performance in Thirty-Six Countries New Haven, Yale University
    24. McKelvey R. 1976 "Intransivities in Multidimensional Voting Models and Some Implications for Agenda Control" Journal of Economic Theory 16:472-82
    25. McKelvey R. 1979 "General Conditions for Global Intransitivities in Formal Voting Models" Econometrica 1085 to 1112
    26. Enelow J. and Hinich M. Advances in the Spatial Theory of Voting
    27. Guinier, Lani, 1994 The Tyranny of the Majority: Fundamental Fairness in Representative Democracy New York: The Free Press.
  • Monday, July 26, 2010

    Government Secrets

    United States vs. Reynolds established the state secret privelege. A routine negligence claim in a B-29 on a secret mission. Three civilian were on board when it crashed in 1948 due to an engine crashed. The United States government said that revealing the accident report would reveal the state secrets. The lower courts wanted an in camera inspection of the accident report. The Supreme Court said to just believe the government when they utter the words "national security at risk." In 1990 when it was finally released, the daughter found that there was no secret information in the report or information.

    The lawyers at the time lied when they said there was secret information. (The Supreme Court declined to look into the matter fifty years later.) And the report acknowledged that there was a major record of negligence on the B-29 and a history of trouble. And United States vs. Reynolds has been used many times to throw out negligence cases.

    Now, I think most people believe that the government does have information that had better be kept secret. We could rely on in camera inspections by judges. But who says that judges are the best people to do this. Are they most likely to weigh well the publics right to know vs. legitimate secrets. Are judges the most likely to not leak important information. Dr. Bailey talked about the problems from the Gulf of Tonkin and dishonesty by the government. The State Secrets Protection Act in Congress was introduced twice with no result to require in camera inspections by the judge. The judge coudl require that the plaintiff would have an attorney with appropriate security clearance appointed.

    The other possibility is that people be selected whose integrity is impeccable. Individuals like just retiring general McChrystal, Norman Schwartkopf, Congressional Medal of Honor winners. They would review documents and decide which ones should be released or perhaps be the sortition jury to decide to such cases. What a wonderful way of using these individual's talents, integrity and credibility!

    Financial System Posts (with no comment)

    Thursday, July 22, 2010

    Buchanan, On Majority Voting and Budgets, Thoughtful Thursday

    James M. Buchanan and Gordon Tullock, The Calculus of Consent Ann Arbor Paperbooks, the University of Michigan Press, 1965.

    A majority voting system can lead to wasteful expenditure. It does so because a majority can vote not to give the minority its fair share. A population has money to spend on education. It can even come from a higher government or from the petroleum that the country owns. Assume, there are three ethnic groups, A, B and C. Each are equal size and are as likely to exercise their franchise. A and B can vote together to spend all the money on educating their children and not appropriate any money for the schools that C uses. Assuming that the constitution or their morality did not prevent it, the coalition of A and B could vote that C pays all taxes and get none of the benefit. Of course, there is some question of the stability of a coalition, because the next year, Cand B could team up to shaft group A. In game theory terms, any of these voting patterns dominates A, B and C voting equal amounts of money to each group's schools. But nothing in game theory says which coalition will form and how long it will stay together.

    But let us assume now that all three groups do have good schools and the question is whether to build a brand new school. As before, assume that groups A and B form a coalition to shaft C. They can spend ten million dollars on schools, but this will give only nine million dollars pleasure or utility total to A and B. And we will assume that A and B are not so crass as to simply take the cash out right from taxes and distribute as a cash grant to themselves. It is to their advantage to vote for the school buildings, since they get $4.5 million each of utility but only pay $3.33 million in taxes--part of their schools are paid by the hapless C. This is why one says that the democratic process leads to waste.

    There is an apocryphal quote, A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that democracy always collapses over loose fiscal policy." But as Loren Collins showed, it is not clear where this came from.

    But representative democracy is even worse. Assume that there are fourty-nine people divided into seven districts. On a bill, their opposing and aye'ing is as follows.

    Four Aye, Three Naye Four Aye, Three Naye Four Aye, Three Naye Four Aye, Three NayeSeven Naye Seven Naye Seven Naye
    Assume that we are fortunate enough to have representatives that alwaus vote what the majority of their districts want. Then, in Congress there will be four Aye's and three Naye's. This is even though of the population only sixteen aye's out of fourty-nine in favor. And it gets worse with larger populations, Dr. Buchanan and Turlock have an example of 39601 voters in 199 districts--only 10,000 voters would be noted to get an aye.

    And the good doctors give an example of bicameral systems under total arrangement diversity. Here fourty-nine voters are arranged as follows:

    Here sixteen of the voters can get a measure passed or defeated--again assuming that our representatives simply vote what the majority of their constituents want. But assume one of the red voters, Q defect. Then two others are needed to replace them, e. g. the purple ones. In a logrolling situation, this would allow the two purple voters to command more money to change their vote than the other electors (black).

    A lot of these problems are solved by a proportional list system, a subject for a future Thoughtful Thursday.

    As even they admit, they came out strongly in favor of logrolling and point out that side payments among voters are beneficial. Let's go back to the school example. Assume that A and B groups would like a new school system but group C really needs one--either they have more children or their school is crumbling or they just love their children more. Group C can give A or B--whoever wants a school least some money to vote against a school upgrade for their school. In fact, the good doctors say that many of the disorders of majority voting can be solved with side payments or "logrolling." Specifically, those who feel strongly on a particular issue can pay money to those voters who care little one way or the other. On the other hand it does give the wealthy more say so. (This is in contrast to the popular view. Dr. Hansen says that buying is illegal in every state as well as federal elections and refers to the "almost universal condemnation."

    For Future Thoughtful Thursdays

    Richard L. Hasen, "Vote Buying" California Law Review October 2000, 88 Calif. L. Rev. 1323

    Tuesday, July 20, 2010

    feinberg gulf coast claims

    Last night, CSPAN had an interview with Ken Feinberg who administered the 9/11 reimbursement fund, the Virginia Shooting fund, the pay for the top twenty-five people for seven institutions that received extensive bail outs under TARP. He is now beginning administering his payment of the escrow funds for the BP oil disaster. Earlier, he acted as Special Master for Agent Orange and asbestos litigation.

    He began his speech by saying that every so often, government has a problem that calls for out-of-the-box thinking--where we have to try something new and conventional thinking won't get the job done. He has awarded the funding. He is designing a plan for the BP oil disaster. He is setting rules and procedures for common classes of victims: shrimpers, crabbers, motel owners, restaurant owners on the Gulf. He has exclusive authority to design the plan. Thus, he does not have to individually decide each claim.

    (I was intrigued that people can receive an emergency payment representing six months without giving up their right to sue. Some time in the next thirty months, they can file for an extensive payment. They can decide whether to accept the amount after it has been calculated or can then decided to leave that amount and sue. If they do accept the funds, it WILL close off their right to sue, and they can weight until they know what the damages will be. Mr. Feinberg said that with the oil gusher finally stopped, people can assess what it cost them. And Mr. Feinberg said that BP promised that they would pay additional funds if the claims added up to more than twenty billion dollars. That is just what is in escrow.

    Could the same thing happen in a participatory democracy? Is this the new thing that would work. The claimants would still come. Since jurors are cheap, it would not be necessary to have a lump sum payment. People can come each month with their business losses for that month. As long as the money is there, or BP keeps paying, they can charge. The same problem was with the 9/11 respiratory claims. Some people did know how severely their lungs were injured and how much it would cost for their medical treatment. Courts are geared to closing cases, making a final settlement even if it is a structured settlement. Thus people are caught between the Scylla of not getting enough for their reasonable expenses or the Charybdis of getting money for possible health problems that may simply never occur. Particpatory democracies would take the companie's income each month or year and allocate it to tort victims as they have medical bills, etc. The challenge is drawing lines of what will fund. What about a restaurant owner in boston that features Gulf Coast Shrimp? What about a golf course fifty miles from the gulf that can document a decline in their users compared to last year? Can the participatory democracy juror do a better job than Mr. Feinberg? And what about the person who had a cash business but was not reporting same to the Internal Revenue Service? I wrote on handling immigration decisions with participatory democracy. I wrote on handling taxes with participatory democracy. In both cases, the demos has an option. Assign a variety of cases to each jury, or specialize jury panels. In the Gulf Coast claims, one could have one jury panel for shrimpers, one for crabbers, one for restaurants. Or one juror could be dealing with a mix.

    One of the problems that Mr. Feinberg had with the 9/11 was the speed that Congress passed the legislation and he got started. "Mr. Feinberg, you are coming here to offer me two million dollars and my husband has not even been recovered from the 9/11 disaster."

    Citibank and Citibank Financial borrowed money to repay the taxpayer "to get out from under my thumb" (Mr. Feinberg on pay.) Mr. Feinberg said that other parts of administration are concerned with executive pay across the board.

    Sunday, July 18, 2010

    Unemployment, Participatory Democracy is Counter Cyclical

    Our nation and the world are not doing a good job of utilizing the time of those who lost their job. On average, Americans sleep eight hours and fourty minutes and are watching TV another twelve minutes. They are not volunteering more. On average an American over fifteen is only working three hours and thirty two minutes. That is down seventeen minutes from 2007. The article proposes that unemployed Americans might spend more time doing household chores and the like rather than paying for a service. That is not happening. Household chores stayed constant at one hour and fourty-eight minutes. (The Federal Government runs a time-use study every two years. This compared 2007 and 2009.) (1)

    Participatory democracy is uniquely counter-cyclical. Sortiton juries could distribute money on the "Wait Til We See Whether You Truly Are Worth it?" plan. This would be a time to review how individual doctors did. Those just laid off would report to a sortiotion jury reviewing the work of physicians and the like. Those who id well could be given a huge chunk of money. They would be told to go out buy a nice house and all the furnishings--you deserve it and we need to stimulate the economy. And those who invested in well-performing health-care companies would get a nice sum of money. Sortition juries would review the claims of those who were victims of malpractice at this time. Certainly, those who are victims of accidents or other torts at the beginning of a boom should not wait seven years for a recession to receive compensation. However, law suits generally take a few years to go through te system. There is no reason that this can't be dramatically accelerated when recession hits, and giving a reasonable compensation to the sortition jurors.

    States run the unemployment system. Employers in each state pay a payroll tax to put money into the funds--and the states pay the benefits. Many are in a hole as one expect during unemployment--The Federal Government lends the difference. New York owes 3.2 billion for this purpose.

    Certainly, participatory democracy is not the only way that we can absorb the time of our unemployed. We can plan for unemployment by giving all individuals in high school training for something public-service oriented that they can do when inevitable job loss hits. That could be Certified Nurse Assistant training so they can help those who need help with the Physical Activities for Daily Living. Thus, during a recession, those eligible for a home health aid for three hours a week might get six hours a week--a care givers for a spouse or parent with Alzheimer's who might get a few hours per week of respite care might have that doubled to twice per week. Individuals could get training on being a police officer. The minimal training is only four hundred hours or the unemployed could report for some basic training. Although they might not enlist then, we would be better prepared should the nation have to mobilize for a major conflict like World War II.

    Our nation has a shortage of nurses and teachers. These are obviously not roles that one can take on with a few hundred hours of training. But they could use assistance. Instead of giving teachers a few thousand dollar raise--during the recession, municipalities are cutting back on raises. But they could be assigned twenty hours per week of house-hold care or child care from the unemployed, with assignments based upon quality. Mr. Excellent Teacher, we don't have money for a raise. But we do award you twenty hours per week of help. You have your choice of the following ten individuals who just got pink slips. (Participatory democracy sortition jurors could decide which teachers earned this merit.) And teachers could get a phalynx of graders and tutors. In high school, a good algebra student could be selected to help the following year. (The American Educator, the magazine for my union, had an article on the struggle that teachers have to keep up with their grading. A high school teacher might have ninety to one-hundred twenty students. If they decide to give each class one assignment per week that needs ten minutes apiece to grade, that adds up to twenty hours per week. And one assignment per week is far from ideal--perhaps that is why high school students aren't spending enough time on homework.) Should they lose their job ten years later, they could be assigned to an algebra teacher to give them a hand with grading and individual assistance.

    Of course, we must recognize that many unemployed need time from nine to five for interviews. But the things I proposed can be scheduled for evenings and weekends.

    Unemployment is a happiness killer. Dr Diener, a.k.a Dr. Happiness, gave a talk at my University. He talked a permenant notch in happiness experienced by those who lose their jobs. An econometric regression showed that unemployment has a negative effect of -2.8 percent on happiness as compared to -1.2% for inflation That means that a one percent increase in unemployment decreases satisfaction by 2.8 units on a one to four scale. We do want to provide flexibility for structural changes in the workforce. And it will take time for a well educated, well trained and person with specialized experience to find a job that utilizes his needs--society should engineer itself so that these people are usefully employed, instead of their time "squandered," that verb used in 1.

    1. Justin Lahart and Emmeline Zhao, "What would you do with an Extra Hour?" Wall Street Journal June 23rd 2010, Pages D1 and D3 Volume CCLV NO 145
    2. Jacob Gershman, "Fund Debt Fans Fears of Spike in Taxes" Wall Street Journal June 23rd 2010, Pages A19 and A23, Volume CCLV, NO 145
    3. Di Tella, Rafael, MacCulloch, Robert and Oswald, Andrew J. "Preferences Over Inflation and Unemployment: Evidence from Surveys of Happiness" The American Economic Review Volume 91, No 1, March 2001 pages 335 to 341

    Thursday, July 15, 2010

    New Financial Regulations Too Complicated

    The 2300 pages of the new financial reform system will require 243 formal rule-makings.

    Game Theory Thoughtful Thursday

    I just completed at Columbia a game theory course. Of course, I won't try and reproduce all I learned, let a lone all of game theory. There are plenty of good explanations such as Wikipedia, the first two chapters of our textbook by Osborne, and the entire text of A Course in Game Theory. But a basic problem is Prisoner's Dilemma, about which many of you have heard. For us, Dr Clarke reworded the problem as a public goods problem 1. Two neighbors share a yard. It costs $150.00 a year to plant and maintain a nice garden in the yard. Each would get $100.00 worth of enjoyment should the garden be planted. Each neighbor has a choice of contributing to what is a public good or reneging. The payoff matrix is

    Do Not ContributeContribute
    Do not Contribute 0,0$100,-$50.00
    We assume that a person will continue planting once they started, even if the other person was not contributing their share. In a classic Nash equilibria, the parties would be stuck at both do not contribute. They just don't see the optimal solution Some look at it as a min-max solution or as Stahl put it, a no-regrets solution. I see it as both parties stuck at a local equilibrium. We studied the "Stag-Hare" problem. Here k out of n hunters can cooperate to get a Stag that they would share. It could just as easily be k people in a community building a community center or paying a share of any public good. Or they could all just do their own thing, hunt a "hare." The two Nash equilibria are everyone does their own thing or k people hunt a Stag. If everyone does their own thing, then one person isn't going to go off and hunt a Stag. They just won't catch it. Similarly if k hunters are happily searching for their Stag, there is reason for one to go off and do their own thing as they lose their chance to catch the Stag. The Nash equilibria theory simply does not provide for k people agreeing to hunt the Stag and does not say which equilibrium they would end up at. It just says they will get stuck at one like a hill climbing algorithm. (I asked my professor, aren't you just saying that the people will be stuck at a local equilibrium. She said yes.)

    The mathematical theory says that the same thing would happen if both of our two homeowners knew they would share the yard for fifty years. The Subgame Perfect Equilibria of the finitely repeated game gives the same result. However, if the game is repeated indefintely, then both parties would contribute yielding the net benefit for both of them. The assumption is there is a discount factor that determines how much a garden in the future is worth compared to a garden this syear. If both parties are infinitely patient then the lower right result of both parties contributing to the garden prevails-- exactly opposite the Nash Equilibrium approach! If Party A decides to welch, not contributing while allowing the other party plant the garden, the other party welches the next time--the famous tit-for-tat. If Party A is somewhat impatient, it might take a few more seasons of "punishment" to get Party B to cooperate. The Nash Folk Theorem says that we can get the parties cooperating if the parties are sufficiently patient.

    Hotelling used game theory to show that in a two-way election like we have with the two-party system, the parties will say about the same thing. If Candidate A is off to one side of the median position, then Candidate B will go to the median and win the election. And as Theiss-Morse showed, the American people on average think the government is at the right place on the left-right spectrum. (As many people think the government should be further to the left as further to the right.) But they would like to see more participatory democracy.


    1. Clarke, Demand Revelation and the Provision of Public Goods Ballinger Press, Cambridge, 1980.

    Wednesday, July 14, 2010


    Political scientists have discovered that many individuals will dig in their heels when presented with facts contradicting their opinions. They call this backfire. That is when those who have entrenched beliefes and are given facts that say their beliefs are "objectively, provably false" they will entrench themselves even deeper. NPR Talk of the Nation just discussed this last Tuesday on 2011 and discussed various conspiracy theories and "Voodoo History" such as 9/11 or OBama was not legally born in the United States as is required for the United States Presidency.

    Now, the question for this blog is whether backfire creates more of a problem for representative democracy or participatory democracy. Mr. Milbank suggests that many voters view democracy as a team sport--they want their team to win regardless of the facts. This is different from buying a refrigerator. If Mr. Milbank is correct, perhaps people will not think that they want the health reform to succeed or fail because they are democrats or republicans, they just want America to have the best health plan. That would mean that putting the health care plans up for referendum would do better than letting the representatives hash it out. Although backfire was a problem for both self-identified liberals and conservatives, the conservatives had more problems adjusting their beliefs after a correction.

    Mr. Milbank pointed out that we have wonderful services like FactCheck and PolitFact, but people who are shown up by one of these services just attack the service.

    For future Thoughtful Thursdays:

    Brendan Nyhan, "When Corrections Fail: The Persistence of Political Misperceptions" June 2010 issue of Journal of Political Behavior

    Monday, July 12, 2010

    Iraq Assassinations

    Iraq has been a victim of assassinations aimed at high level officials, particularly representatives of the Iraquiya party which has the most seats in the recent elections. This is in contrast to a relatively low level of violence in Iraq. One advantage of a participatory democracy system is the deemphasis or zero high-level targets for this type of rage and evil. a Participatory Democracy system would have to spend less money on Secret Service (or the equivalent) protection.

    Source: "Killers Stalk Politicians as Iraq Seeks Government" New York Times Thursday July First 2010, Page A4,

    Sunday, July 11, 2010

    Switzerland Direct Democracy

    I assume everyone here has heard of Switzerland's Practice of using Referenda. I found a very well written very information and concise explanation of the options Swiss Citizens have to practice Direct Democracy. from And I suspect that we all know that Switzerland has banking secrecy adn Washington was trying to get the names of people who had swiss bank accounts but did not pay their taxes, tax cheats and evaders. I just learned that there was concern that this would go before the Swiss people in a referendum.

    Friday, July 9, 2010

    Rich Strategic mortgage defaulters

    Seeking Alpha documented that the wealthy are most likely to Welch on their mortgage when they could in fact pay their mortgage. Twenty Three Percent of luxury home mortgages are over three months overdue! This is much more than conventional homes.

    And eight percent of current mortgages are no-documentation or "liar" loans.

    Thursday, July 8, 2010

    Robert Dahl, Procedural Democracy, Thoughtful Thursday

    "Procedural Democracy" by Dr. Robert Dahl which appeared in Democracy, Liberty and Equality and Contemporary Political Philosophy--the latter which shows up in Google Books.

    What procedures are necessary for democracy and who must have a vote or right to particpate?

    Certainly, we need decisions to be made! But there are two types of decisions, rules and individuals. In the doctrine of rule by law, everything is a law. We have a tax code? In rule by sortition, each case is decided independently and we rely on the law of large numbers to remove the arbitrariness and to achieve some measure of consistency? If we always take a random sample of 1000 people and we present them with similar individuals This also resolves Dr. Dahl's claim that "equally valid claims justify equal shares." This is a tautology--Dr. Dahl admits it is close to one. we should not automatically decide cases in favor of a particular ethnic group. We claim that each person's claim is equally valid even though one person is from ethnic group A and the other from ethnic group Q. A bigot would say that group A is inferior to group Q and therefore, their claims are not equally valid and it is perfectly fine to rule against the first person solely because they are of ethnic group A.

    And the binding decisions should be made by the members, directly or indirectly. And the members can delegate the rights to make decisons. Most of the times this is for convenience. That is the justification for representative democracy rather than having all decisions made by referendum. It is also the justification for administrative boards such as the Environmental Protection Administration at the Federal level or a planning board in a municipatlity. Many nations have generated certain powers to their constitutional court. This allows certain principles to be preserved, typically human or civil rights issues.

    And Dr. Dahl said that citizens should have the right to set the agenda as well as vote. That is a major limitation in current systems, and one on which invention, research and implementation should be done to allow individuals together to create complicated legal codes. And of course, a sortition-based approach resolves this problem, as each case rather than a set of cases as defined by a law is brought individually.

    Now who gets to vote, or from what pool do we choose the sortition jurors, or otherwise participate in the decison process. Should everyone affected by the decisions of an organization have a right to vote on them. We certainly have voluntary associations. They either invite and admit their own members--some cooperatives work that way. Before one can buy a share and live there, the coop board must screen you. Other organizations have non-discretionary admission process--if you pay the fee, you are a member and have a vote or professional organizations like the American Society of Mechanical Engineers or Institute of Electrical Engineers require a degree of other indicia that you are an engineer. They have associate members who pay dues but have limited voting rights (IEEE Constitution, online). The American Society of Mechanical Engineers (ASME) has a similar arrangement where members must have eight years of experience as an engineer. This lack of democracy is not a major concern, an associate member aggrieved simply does not renew the folowing year.

    Schumpeter suggested that every "demos" can define itself. Thus ethnic group A can govern and simply define that members of ethnic group B have no right to vote. That is what happened to the Cherokee Nation. John Marshall said that the Cherokee were in "a state of pupilage" and the relation "resembles that of a ward to his guardian" and he remarked that should a foreign prince attack the Cherokee, it would be considered as would any other invasion of the United States. Alexander Tocqueville watched one of the Choctaw removals-- he asked one of the Native Americans why they were leaving. He said to be free of American laws. So here is an example of a demos defining itself to affect those who got no vote. (Many Native Americans became United States Citizen by assimilating or by serving in the armed forces. And even after the 1924 law granting citizenship, it was not until 1948 that all had the right to vote.)

    Related is the right of the conqueror to set up courts and the like. This was establidged in Hefferman vs. Porter which said that a Union military commander could set up a court in Tennessee. And these decisions would be binding.

    Locke and Rosseau said that the Constitution must be approved unanimously, but then laws could be passed by only an approval. But unanimously by whom?

    and of course, there is a question of Children. And there are others who might sufficiently developmentally disabled as to not understand the voting process. One might argue that all such wards would vote as their guardians or caregivers directed. But effectively that happens now. Each State is given representation in the House of Representatives proportional to their population. Thus the votes of those groups who have lots of children have more power in Congress than those groups that choose to practice more birth control. Would there thus be any harm in allowing young children or developmentally-disabled adults to vote, knowing full well that their parents would be pulling the lever "on their behalf."

    And if we allow exclusion of the incompetents, is that a slippery slope to literacy tests for voting or to become a citizen?

    And what about tourists? They are subject to the laws--but do not get a vote. Obviously in conventional elections, where the election is for a four year term, it is not fair to allow a person who just happens to be in the country that week to vote. And in a participatory democracy, it is in appropriate to allow a one-week tourist to vote on a plan to build a nuclear power plant whose construction would start well after they left and would exist for many years afterward. However, for continuous expenditures, there is no problem. Each person gets to cast their vote for the public expenditures on entitlement programs, the police department, etc. they prefer. They also enter their preference of tax rates. They enter all manners of preferences as to numbers, how many minutes busses can idle, the number of years in jail a burglar should receive, etc. All these nubmers are combined by a median to determine the rate. As new voters become competent, e. g., when they reach eighteen eyars of age, their number is included in the median calculation. When they die or lose their voting rights as a felon, their numbers are subtracted. There is no problem for the tourist. They could enter their numbers upon entry to the country and it gets subtracted when they leave at the end of their one-week vacation. If medians are used, if the tourists are very far from the "real citizens," then their numbers would not have much of an effect.

    And there is a local question. Non-residents pay property tax. Non-residents pay income tax. New York City has a non-resident income tax. Yet these people do not have a vote. The owner of a business in a state is subject to the laws of that state--yet they certainly have no vote in that State And the blog raised the question, should a person possessing property in multiple states or cities have a vote in each, while a person ownly owning one home only get to vote in one locality. Dr. Bailey proposed many mechanisms in his proposed constitution for a future country that helps address these issues. A person possessing property or a business owner could file a Lindahl tax or a Thompson insurance to express their concerns. Yet since this costs them money, and would cost more money to do it inn three cities than one, it does not give unfair advantage to them.

    And states and countries base their residency upon address or abode. This can be a permanent location to which one intends to return, even though one never set foot there. Thus, assume A is working in New York State. A's family moves from Nevada to Tennessee. A never was in Tennessee. But A does intend to join his loving family upon completin of his work project. A is a resident of Tennessee and can vote absentee out of Tennessee. And does a person who is in a state for several years to complete a project a resident? And we hear about countries setting up special polling places in the United States for their citizens who are displaced here.

    And immigration is an issue. I proposed a system of panels and allocating of quota by median. A simple rule that might be added is, Noone is admitted into the country as an immigrant who does not receive fifty percent vote from a sortition panel.

    Dahl mentioned that Rosseau considered Geneva and Venice as "true republics" but the demos was only a minority. In Venice it was 0.1% of the population.

    For Future Thoughtful Thursdays:

    "In the Courts of the Conqueror: The Ten Worst Indian Law Cases Ever Decided" by Walter R. Echo-Hawk.

    Tuesday, July 6, 2010

    Casino Economics

    Cantor Fitzgerald, a famous bond and derivatives house, just set up a casino in Las Vegas. They are applying the same techniques that are used in setting up derivatives. It allows people to bet on sports results while the game is being played. This is different where people had to place their bets before the event started. I heard of the Casino Economics. Business Week had a famous article on Casino Society, that says that much of modern finance is nothing more than a game devoid of economic substance.

    Thursday, July 1, 2010

    Initiatives, Thoughtful Thursday

    Shaun Bowler, Todd Donovan, "Measuring the Effect of Direct Democracy on State Policy: Not All Initiatives Are Created Equal" State Politics and Policy Quarterly Volume Four, Number Three, Fall 2004, pages 345 to 363.

    States vary in

    1. how difficult it is to get an initiative on the ballot.
      1. Some states simply need more signatures
      2. there is little time to get the signatures. I. E. the people have to collect the signatures, e. g. between March Seventh and April Fourteenth
      3. One needs a specific number of signatures in each county. In other words, it is not enough just to get 100,000 signatures. For example, one must get at least 2000 in at least half the counties.
      4. Some states don't accept initiatives in all areas.
    2. And the Legislature may have some power:
      1. Worse in some states, the legislature can simply repeal the initiave by voting against it, sometimes immediately.
      2. States restrict initiatives to one item
      3. States limit the substance of the initiative
      4. some states only allow the people to vote on ordinary statues and not amend their constitution

    As one would expect, these affect the number of initiatives per year. 1.58 versus 0.50. And the second set of restrictions is correlated highly (0.74) with the first set. And the states that added an initiative in the 1900's have initiatives easy to get on the ballot; the legislature cannot undo these. Other states added initiatives later but here the legislature can easily reverse the effect and worse, and they are hard to get on the ballot in the first place.

    Drs. Bowler and Donovan looked at how closely the State abortion policy matched public opinion. The states that made it easier to get an initiative on the ballot had a policy that closer matched public opinion on this controversial question.

    States that frequently used the initiative and states that made it easier to enact initiative and keep them in place, had stronger campaign finance policies.

    And states that had a progressive initiative policy were more likely to have term limits on their state legislatures and to have stricter ones. Twenty-one states have legislative term limits. Twenty of these hd initiative policies! (I note that the Federal Government has no initiative and no legislative term limits.)

    The point of this article is that making the initiative easy and not restricting it will have real effects on how it is used and will make the laws of the state reflect what the citizens want and not what the legislators want. Drs. Bowler and Donovan criticize earlier studies for simply looking at the initiative as an either-or proposition (a dummy variable in regression terms)--that is the point of the article.