1 00:00:00,000 --> 00:00:02,520 The following content is provided under a Creative 2 00:00:02,520 --> 00:00:03,970 Commons license. 3 00:00:03,970 --> 00:00:06,360 Your support will help MIT OpenCourseWare 4 00:00:06,360 --> 00:00:10,660 continue to offer high-quality educational resources for free. 5 00:00:10,660 --> 00:00:13,320 To make a donation or view additional materials 6 00:00:13,320 --> 00:00:17,190 from hundreds of MIT courses, visit MIT OpenCourseWare 7 00:00:17,190 --> 00:00:20,390 at ocw.mit.edu. 8 00:00:20,390 --> 00:00:21,390 RICHARD SCHMALENSEE: OK. 9 00:00:21,390 --> 00:00:26,650 Today, we're going to talk about public policy. 10 00:00:26,650 --> 00:00:28,310 It'll be a little US-centric. 11 00:00:28,310 --> 00:00:30,430 We're going to walk through Madison, 12 00:00:30,430 --> 00:00:32,650 talk about interest group liberalism, 13 00:00:32,650 --> 00:00:34,900 other political processes, and then 14 00:00:34,900 --> 00:00:39,040 begin the discussion of that clean coal/dirty air trading 15 00:00:39,040 --> 00:00:42,160 filth case, with mostly background 16 00:00:42,160 --> 00:00:44,240 and a couple of questions. 17 00:00:44,240 --> 00:00:48,490 So I want to review from way back in February. 18 00:00:48,490 --> 00:00:51,220 This is almost the same slide, not quite. 19 00:00:51,220 --> 00:00:54,610 We talked about differences between market processes 20 00:00:54,610 --> 00:00:57,190 and political processes. 21 00:00:57,190 --> 00:01:00,490 I will remind you that governments 22 00:01:00,490 --> 00:01:04,420 tend to have, need to have, a near monopoly of force. 23 00:01:04,420 --> 00:01:07,240 And if they're stable, they tend to have legitimacy. 24 00:01:07,240 --> 00:01:12,040 That is to say there tends to be a general acceptance that it's 25 00:01:12,040 --> 00:01:13,750 OK that they make laws and rules, 26 00:01:13,750 --> 00:01:17,780 that the processes are OK, that people are OK generally. 27 00:01:17,780 --> 00:01:20,530 Obviously, not everybody agrees, and there 28 00:01:20,530 --> 00:01:24,460 are people in various parts of this country who 29 00:01:24,460 --> 00:01:26,830 think the US government should be overthrown. 30 00:01:26,830 --> 00:01:31,480 But by and large, Syria is an interesting example. 31 00:01:31,480 --> 00:01:33,580 The government has a near monopoly of force, 32 00:01:33,580 --> 00:01:36,490 clearly has very little legitimacy. 33 00:01:36,490 --> 00:01:39,410 And whether it's a near monopoly of force or not quite enough, 34 00:01:39,410 --> 00:01:40,540 we will see. 35 00:01:40,540 --> 00:01:42,880 We will see. 36 00:01:42,880 --> 00:01:46,690 Somalia, nobody has either. 37 00:01:46,690 --> 00:01:56,150 So the differences between political processes and market 38 00:01:56,150 --> 00:01:57,980 processes-- in market processes, we 39 00:01:57,980 --> 00:02:01,160 think about individuals pursuing self-interest. 40 00:02:01,160 --> 00:02:04,070 In the political sphere, individuals 41 00:02:04,070 --> 00:02:06,980 are actors and so are groups. 42 00:02:06,980 --> 00:02:10,430 And self-interest is not the only thing that people pursue. 43 00:02:10,430 --> 00:02:14,660 They pursue their view of what's good for everybody else. 44 00:02:14,660 --> 00:02:16,400 An awful lot of government actions 45 00:02:16,400 --> 00:02:21,470 are what's good for you, not just what's good for the actor. 46 00:02:21,470 --> 00:02:25,160 Collective choice-- choice made for all of us, public goods, 47 00:02:25,160 --> 00:02:30,470 things that affect all of us, and in market processes, 48 00:02:30,470 --> 00:02:32,870 we think about individuals' preferences. 49 00:02:32,870 --> 00:02:34,970 What do I want? 50 00:02:34,970 --> 00:02:37,010 In political processes, you really 51 00:02:37,010 --> 00:02:38,780 have to think about ideologies. 52 00:02:38,780 --> 00:02:42,740 Ideologies are views of the proper function of society, 53 00:02:42,740 --> 00:02:47,000 the proper organization of society, what's good for you 54 00:02:47,000 --> 00:02:49,610 or what's good for all of us, but certainly 55 00:02:49,610 --> 00:02:52,190 what's good for you. 56 00:02:52,190 --> 00:02:53,960 That doesn't arise in the market. 57 00:02:53,960 --> 00:02:56,845 It does arise in politics inevitably. 58 00:02:56,845 --> 00:02:58,220 When you're making decisions that 59 00:02:58,220 --> 00:03:00,350 affect the whole community, you have 60 00:03:00,350 --> 00:03:02,960 to have some notion of what those decisions should 61 00:03:02,960 --> 00:03:05,730 look like, how they should be made, and so forth. 62 00:03:05,730 --> 00:03:08,420 So ideology always matters. 63 00:03:08,420 --> 00:03:12,590 Market processes, we think mostly about competition. 64 00:03:12,590 --> 00:03:15,320 But competition is not the only process 65 00:03:15,320 --> 00:03:16,340 in the political sphere. 66 00:03:16,340 --> 00:03:18,620 Certainly as we go into elections, 67 00:03:18,620 --> 00:03:20,750 we will think about influence. 68 00:03:20,750 --> 00:03:24,170 As you watch people lining up behind Romney, 69 00:03:24,170 --> 00:03:27,410 you think about cooperation as a key part 70 00:03:27,410 --> 00:03:29,090 of the political process. 71 00:03:29,090 --> 00:03:32,430 And as you see people lining up behind Romney, 72 00:03:32,430 --> 00:03:35,870 who don't much like Romney, you see the influence of loyalty. 73 00:03:35,870 --> 00:03:39,830 All those processes matter-- influence, cooperation, 74 00:03:39,830 --> 00:03:42,245 and loyalty matter in the political sphere. 75 00:03:44,870 --> 00:03:47,930 In politics, power is a goal for most 76 00:03:47,930 --> 00:03:53,060 of the actors, a goal in and of itself-- 77 00:03:53,060 --> 00:03:56,870 the ability to get other people to act in my interest 78 00:03:56,870 --> 00:04:00,720 or in the public interest, not in their interest. 79 00:04:00,720 --> 00:04:03,320 And finally, I remind you that there is no there 80 00:04:03,320 --> 00:04:05,850 is no perfect system. 81 00:04:05,850 --> 00:04:10,380 We talked briefly about this voting paradox 82 00:04:10,380 --> 00:04:12,180 back in February-- 83 00:04:12,180 --> 00:04:14,700 that it's quite possible. 84 00:04:14,700 --> 00:04:18,279 Just to remind you what it looks like, 85 00:04:18,279 --> 00:04:22,770 we have three individuals, individual one, two, and three. 86 00:04:22,770 --> 00:04:29,340 Three alternatives-- individual one prefers A to B to C, 87 00:04:29,340 --> 00:04:32,310 individual two-- 88 00:04:32,310 --> 00:04:36,240 let me be sure I get this right-- 89 00:04:36,240 --> 00:04:42,030 individual two prefers C to A to B, 90 00:04:42,030 --> 00:04:56,620 and individual three prefers B to C to A. So if we vote, 91 00:04:56,620 --> 00:05:02,650 two people prefer A to B, so A beats B. 92 00:05:02,650 --> 00:05:08,320 Two people prefer B to C, B beats C, 93 00:05:08,320 --> 00:05:15,490 and two people prefer C to A, So C beats A. 94 00:05:15,490 --> 00:05:19,030 So voting with those preferences cannot produce consistent 95 00:05:19,030 --> 00:05:20,240 decisions. 96 00:05:20,240 --> 00:05:25,390 There's no sense in asking what the optimal decision is here. 97 00:05:25,390 --> 00:05:29,110 If I can control the agenda, I can determine the outcome, just 98 00:05:29,110 --> 00:05:31,390 the order of voting. 99 00:05:31,390 --> 00:05:42,860 If I want if I want A to win, I will first vote B against C. B 100 00:05:42,860 --> 00:05:43,360 will win. 101 00:05:43,360 --> 00:05:45,850 I'll then vote A against B. A will win. 102 00:05:45,850 --> 00:05:48,670 And you can see if you can choose the order, 103 00:05:48,670 --> 00:05:50,690 you can choose the outcome. 104 00:05:50,690 --> 00:05:56,600 So the political system is more complicated in many dimensions 105 00:05:56,600 --> 00:05:58,300 than the economic system. 106 00:05:58,300 --> 00:06:01,360 And this last point basically says the notion 107 00:06:01,360 --> 00:06:05,350 that there is an optimal design for government-- 108 00:06:05,350 --> 00:06:08,550 this is something basically Ken Arrow 109 00:06:08,550 --> 00:06:11,940 got a Nobel Prize for proving in a very, very general way 110 00:06:11,940 --> 00:06:16,240 in 1950 in one of the shortest doctoral dissertations 111 00:06:16,240 --> 00:06:18,180 in economics-- 112 00:06:18,180 --> 00:06:20,970 the notion that there is an optimal design for government 113 00:06:20,970 --> 00:06:22,480 is a dream. 114 00:06:22,480 --> 00:06:24,320 There isn't. 115 00:06:24,320 --> 00:06:26,360 This says without a dictator, you can't even 116 00:06:26,360 --> 00:06:28,740 get a consistent system. 117 00:06:28,740 --> 00:06:31,110 And that's a very general result. 118 00:06:31,110 --> 00:06:34,790 So questions about any of this before we go? 119 00:06:34,790 --> 00:06:36,710 We talked about all of this stuff earlier. 120 00:06:36,710 --> 00:06:42,213 I'm just trying to get you in a political frame of mind here. 121 00:06:42,213 --> 00:06:43,255 Then let's go to Madison. 122 00:06:46,730 --> 00:06:53,350 So Madison is writing in the context 123 00:06:53,350 --> 00:06:56,210 of designing a government. 124 00:06:56,210 --> 00:06:58,420 It's easy to forget this. 125 00:06:58,420 --> 00:07:01,090 Having just read this very long biography of Hamilton, 126 00:07:01,090 --> 00:07:03,760 I will do a little history lesson. 127 00:07:08,180 --> 00:07:10,295 When the country started, if you think about it, 128 00:07:10,295 --> 00:07:12,670 when they sat down to figure out how the government ought 129 00:07:12,670 --> 00:07:16,570 to be organized, there weren't any obvious models. 130 00:07:16,570 --> 00:07:19,240 There weren't any republics of any size. 131 00:07:19,240 --> 00:07:22,690 Venice had sort of had one, but there weren't any republics 132 00:07:22,690 --> 00:07:24,310 of any size currently. 133 00:07:24,310 --> 00:07:27,163 England had a king, and they didn't want to do a king. 134 00:07:27,163 --> 00:07:29,080 So how do you run a government without a king? 135 00:07:29,080 --> 00:07:32,530 Well, you could look back to Rome, you could look to Athens. 136 00:07:32,530 --> 00:07:33,520 They lasted a while. 137 00:07:33,520 --> 00:07:35,020 They fell. 138 00:07:35,020 --> 00:07:39,640 The Roman Republic became a dictatorship, basically, 139 00:07:39,640 --> 00:07:42,610 and Athens fell for a variety of reasons, 140 00:07:42,610 --> 00:07:45,260 and really was a democracy, which 141 00:07:45,260 --> 00:07:46,510 they didn't think they wanted. 142 00:07:46,510 --> 00:07:48,250 They wanted a republic. 143 00:07:48,250 --> 00:07:50,590 How would you do a republic? 144 00:07:50,590 --> 00:07:53,230 So it is quite extraordinary if you read 145 00:07:53,230 --> 00:07:54,940 what they wrote at the time. 146 00:07:54,940 --> 00:07:59,340 It was, like, well, we can look at what the Romans did. 147 00:07:59,340 --> 00:08:01,790 But if you look at the details of the Roman setup, 148 00:08:01,790 --> 00:08:03,530 it was very strange. 149 00:08:03,530 --> 00:08:04,790 And you wouldn't want to-- 150 00:08:04,790 --> 00:08:07,370 people held office for a year and the nobility 151 00:08:07,370 --> 00:08:09,320 were the office holders. 152 00:08:09,320 --> 00:08:11,805 You wouldn't want to do that. 153 00:08:11,805 --> 00:08:12,680 So what would you do? 154 00:08:12,680 --> 00:08:14,660 The first thing they did during the Revolution, 155 00:08:14,660 --> 00:08:16,490 they set up the Articles of Confederation. 156 00:08:16,490 --> 00:08:19,910 And that really was a deal between 13 157 00:08:19,910 --> 00:08:24,470 independent colonies, each one a sovereign state 158 00:08:24,470 --> 00:08:26,180 in its own eyes. 159 00:08:26,180 --> 00:08:29,510 And the Articles of Confederation 160 00:08:29,510 --> 00:08:31,070 didn't have any executive branch. 161 00:08:31,070 --> 00:08:32,090 They had Congress. 162 00:08:32,090 --> 00:08:34,940 Didn't set up any courts, and the Congress 163 00:08:34,940 --> 00:08:37,770 didn't have the power to raise money. 164 00:08:37,770 --> 00:08:42,150 So the Congress had the power to borrow money. 165 00:08:42,150 --> 00:08:47,150 And Congress could ask the states to please send in money. 166 00:08:47,150 --> 00:08:48,550 And that had mixed results. 167 00:08:48,550 --> 00:08:50,330 So at the end of the Revolution, there 168 00:08:50,330 --> 00:08:52,460 was a lot of national debt. 169 00:08:52,460 --> 00:08:55,520 We debt financed the Revolution, because the states 170 00:08:55,520 --> 00:08:56,600 by and large-- 171 00:08:56,600 --> 00:08:58,010 states also borrowed a lot. 172 00:08:58,010 --> 00:09:00,410 So there was a lot of debt floating around, 173 00:09:00,410 --> 00:09:02,767 but you couldn't tax. 174 00:09:02,767 --> 00:09:04,850 We tried to run a government that way for a while, 175 00:09:04,850 --> 00:09:07,980 but that didn't make any sense. 176 00:09:07,980 --> 00:09:10,670 So they sat down and they drafted the Constitution. 177 00:09:10,670 --> 00:09:13,790 You will notice that's 10 years later, more or less. 178 00:09:13,790 --> 00:09:16,580 So they tried it for a while during and after 179 00:09:16,580 --> 00:09:20,540 the Revolution, and then they wrote the Constitution 180 00:09:20,540 --> 00:09:23,510 that we now have, which everybody sort of 181 00:09:23,510 --> 00:09:25,550 treats as, yes, of course. 182 00:09:25,550 --> 00:09:27,500 That's what you would do. 183 00:09:27,500 --> 00:09:34,130 At the time it was enormously controversial. 184 00:09:34,130 --> 00:09:37,220 It was not clear it would be ratified. 185 00:09:37,220 --> 00:09:40,160 There was intense opposition, particularly in New York, 186 00:09:40,160 --> 00:09:43,550 also in Virginia, the two leading colonies, 187 00:09:43,550 --> 00:09:46,050 very organized opposition. 188 00:09:46,050 --> 00:09:48,260 The Governor of New York opposed it. 189 00:09:48,260 --> 00:09:50,540 They did not want a centralized power, which 190 00:09:50,540 --> 00:09:51,950 is what the Constitution did. 191 00:09:51,950 --> 00:09:54,170 It took power to the central government. 192 00:09:54,170 --> 00:09:58,370 So we think of the Federalist Papers 193 00:09:58,370 --> 00:10:06,500 as sort of reflections, idle commentary, people with time 194 00:10:06,500 --> 00:10:08,570 on their hands talking about what we intended 195 00:10:08,570 --> 00:10:10,130 when we wrote the Constitution. 196 00:10:10,130 --> 00:10:12,410 These were political documents. 197 00:10:12,410 --> 00:10:14,960 Madison was, all these guys, were arguing here 198 00:10:14,960 --> 00:10:16,970 are reasons to ratify. 199 00:10:16,970 --> 00:10:19,530 Please ratify. 200 00:10:19,530 --> 00:10:24,480 So this was an explicitly political document 201 00:10:24,480 --> 00:10:27,240 at a somewhat different level than many political documents 202 00:10:27,240 --> 00:10:30,990 we see today, but it's important to recognize 203 00:10:30,990 --> 00:10:32,310 this was in the heat of combat. 204 00:10:32,310 --> 00:10:34,470 This was something you dash off over a weekend 205 00:10:34,470 --> 00:10:36,720 and then get to the next one. 206 00:10:36,720 --> 00:10:39,910 This was not written at leisure in the study. 207 00:10:39,910 --> 00:10:43,600 So that's Madison. 208 00:10:43,600 --> 00:10:50,670 And what's the problem he's addressing in Federalist 10? 209 00:10:53,770 --> 00:10:54,620 Max. 210 00:10:54,620 --> 00:10:55,420 AUDIENCE: Faction. 211 00:10:55,420 --> 00:10:57,574 RICHARD SCHMALENSEE: Faction, what's faction? 212 00:10:57,574 --> 00:11:00,418 AUDIENCE: [INAUDIBLE] people get together 213 00:11:00,418 --> 00:11:02,788 for a common goal [INAUDIBLE]. 214 00:11:05,513 --> 00:11:07,680 RICHARD SCHMALENSEE: So it's not just a common goal, 215 00:11:07,680 --> 00:11:14,640 it's get what they want, which is not a good thing. 216 00:11:14,640 --> 00:11:17,500 He defines "faction," as you said, they get together. 217 00:11:17,500 --> 00:11:19,890 They're united and actuated by a common impulse-- 218 00:11:19,890 --> 00:11:21,680 I think that should be "or passion." 219 00:11:21,680 --> 00:11:24,720 That's my typo, or maybe it's "passion of." 220 00:11:24,720 --> 00:11:27,600 In any case, the key is this last part-- 221 00:11:27,600 --> 00:11:29,280 "adverse to the rights of other citizens 222 00:11:29,280 --> 00:11:33,360 or the permanent and aggregate interests of the community." 223 00:11:33,360 --> 00:11:38,850 At the end of the thing in one of his illustrative remarks, 224 00:11:38,850 --> 00:11:43,380 he talks about a "rage for paper money 225 00:11:43,380 --> 00:11:47,130 or for any other improper or wicked project," dot, dot, dot. 226 00:11:47,130 --> 00:11:49,080 So that's the kind of thing he has in mind, 227 00:11:49,080 --> 00:11:51,900 that a faction might actually advocate what we carry around 228 00:11:51,900 --> 00:11:55,170 in our pockets every day, which when he was writing 229 00:11:55,170 --> 00:11:57,000 was viewed as evil. 230 00:11:57,000 --> 00:11:58,860 Let's look at-- that's the problem. 231 00:11:58,860 --> 00:12:04,680 How, in a representative republic or a democracy, 232 00:12:04,680 --> 00:12:09,220 where you want the will of the people to drive decisions, 233 00:12:09,220 --> 00:12:11,760 how do you guard against a set of people 234 00:12:11,760 --> 00:12:14,130 who want to do things that basically 235 00:12:14,130 --> 00:12:18,510 trample on the rights of others or would harm the community? 236 00:12:18,510 --> 00:12:19,610 How do you fix that? 237 00:12:19,610 --> 00:12:22,320 That's kind of an interesting design problem. 238 00:12:22,320 --> 00:12:25,010 So let's walk through it. 239 00:12:25,010 --> 00:12:27,800 First, could you eliminate factions? 240 00:12:27,800 --> 00:12:30,890 What do you say about that or what do you think about that? 241 00:12:30,890 --> 00:12:33,830 Could you avoid groups of people who 242 00:12:33,830 --> 00:12:36,350 want to do things that would trample on the rights of others 243 00:12:36,350 --> 00:12:40,290 or be adverse to the long-term interests of the community? 244 00:12:40,290 --> 00:12:41,250 Could you eliminate it? 245 00:12:44,227 --> 00:12:46,310 I can't call on you again, because you've actually 246 00:12:46,310 --> 00:12:47,250 read the thing. 247 00:12:47,250 --> 00:12:48,080 I can tell. 248 00:12:48,080 --> 00:12:48,980 Anybody else? 249 00:12:48,980 --> 00:12:49,670 Kirsten. 250 00:12:49,670 --> 00:12:51,320 AUDIENCE: [INAUDIBLE] to eliminate the cause, 251 00:12:51,320 --> 00:12:53,445 you'd have to either eliminate the people's liberty 252 00:12:53,445 --> 00:12:56,500 to choose or eliminate their capability to think. 253 00:12:56,500 --> 00:12:59,160 That would be against-- 254 00:12:59,160 --> 00:13:03,330 RICHARD SCHMALENSEE: Well, apart from universal free beer, 255 00:13:03,330 --> 00:13:06,420 I'm not sure how you eliminate their ability to think. 256 00:13:06,420 --> 00:13:09,270 He points in another direction, though, doesn't he? 257 00:13:09,270 --> 00:13:15,350 He says, first you can eliminate their liberty, 258 00:13:15,350 --> 00:13:19,440 but then suppose they were all alike. 259 00:13:19,440 --> 00:13:21,320 Suppose everybody were the same. 260 00:13:21,320 --> 00:13:24,533 If you could do that, you wouldn't have this problem. 261 00:13:24,533 --> 00:13:27,431 AUDIENCE: OK, not likely, given that everybody 262 00:13:27,431 --> 00:13:30,329 can think for themselves, and [INAUDIBLE] 263 00:13:30,329 --> 00:13:31,590 people reason through things. 264 00:13:31,590 --> 00:13:34,090 RICHARD SCHMALENSEE: People come with different conclusions. 265 00:13:34,090 --> 00:13:37,000 He also points to something else that leads to differences. 266 00:13:37,000 --> 00:13:37,600 You're right. 267 00:13:37,600 --> 00:13:39,760 He says, you can't eliminate liberty 268 00:13:39,760 --> 00:13:42,610 because that's the whole point of the exercise. 269 00:13:42,610 --> 00:13:45,250 You can't eliminate differences because people 270 00:13:45,250 --> 00:13:46,810 will have different opinions. 271 00:13:46,810 --> 00:13:49,090 He points to a particular, and something 272 00:13:49,090 --> 00:13:52,120 we see these days, a particularly important source 273 00:13:52,120 --> 00:13:53,170 of differences of view. 274 00:13:55,680 --> 00:13:56,337 Casey. 275 00:13:56,337 --> 00:13:57,420 AUDIENCE: Was it property? 276 00:13:57,420 --> 00:13:59,400 RICHARD SCHMALENSEE: It was property, yeah. 277 00:13:59,400 --> 00:14:05,413 He says just the way life goes, people accumulate. 278 00:14:05,413 --> 00:14:07,330 Some are rich, some are poor, some have a lot, 279 00:14:07,330 --> 00:14:08,340 some have a little. 280 00:14:08,340 --> 00:14:10,332 That divides their interests. 281 00:14:10,332 --> 00:14:12,540 Rich people and poor people have different interests. 282 00:14:12,540 --> 00:14:14,530 They're going to have different views. 283 00:14:14,530 --> 00:14:17,520 So you can't keep them from expressing 284 00:14:17,520 --> 00:14:18,930 their different views. 285 00:14:18,930 --> 00:14:20,430 That would be to eliminate liberty. 286 00:14:20,430 --> 00:14:21,450 That would be unwise. 287 00:14:21,450 --> 00:14:23,310 And it would be impractical, he says. 288 00:14:25,860 --> 00:14:27,510 Of course, the Communist argument 289 00:14:27,510 --> 00:14:29,160 was, no, no, no, we should eliminate differences 290 00:14:29,160 --> 00:14:29,660 in property. 291 00:14:29,660 --> 00:14:32,040 That will take care of it. 292 00:14:32,040 --> 00:14:33,720 He calls that "impractical," which 293 00:14:33,720 --> 00:14:38,730 is pretty good diagnosis in advance of Marx. 294 00:14:38,730 --> 00:14:41,310 So if you're going to have factions, 295 00:14:41,310 --> 00:14:44,700 how do you deal with, let's say, a small one? 296 00:14:44,700 --> 00:14:45,870 Is that a problem? 297 00:14:45,870 --> 00:14:47,620 Is that a problem you have to worry about? 298 00:14:50,307 --> 00:14:52,640 We don't have tot have read Madison to think about this. 299 00:14:52,640 --> 00:14:54,650 Suppose you're voting. 300 00:14:54,650 --> 00:14:56,420 Is a minority faction a problem? 301 00:14:59,390 --> 00:15:00,760 Say why. 302 00:15:00,760 --> 00:15:03,197 AUDIENCE: As long as they accept the [INAUDIBLE] outcomes. 303 00:15:03,197 --> 00:15:04,780 RICHARD SCHMALENSEE: As long as you're 304 00:15:04,780 --> 00:15:07,510 staying within the rules of the game, a minority faction loses. 305 00:15:07,510 --> 00:15:09,080 They lose the vote. 306 00:15:09,080 --> 00:15:14,840 OK, that ought to take care of that. 307 00:15:14,840 --> 00:15:21,015 Now he says, suppose you have a pure democracy. 308 00:15:21,015 --> 00:15:22,390 You have a small number of people 309 00:15:22,390 --> 00:15:25,420 gathered in a room, or a small village, 310 00:15:25,420 --> 00:15:29,290 and it's one person, one vote. 311 00:15:29,290 --> 00:15:31,120 Can you ever eliminate the problem 312 00:15:31,120 --> 00:15:33,430 of a majority faction, which is clearly now 313 00:15:33,430 --> 00:15:35,210 the problem to deal with? 314 00:15:35,210 --> 00:15:36,790 You have the problem of a majority 315 00:15:36,790 --> 00:15:40,870 that wants to trample on the rights of others. 316 00:15:40,870 --> 00:15:44,410 Can you make that unlikely, or rule it out, or rule out 317 00:15:44,410 --> 00:15:47,980 its effects when you're small enough 318 00:15:47,980 --> 00:15:49,750 to have a pure democracy-- 319 00:15:49,750 --> 00:15:52,030 no representation, just everybody votes? 320 00:15:58,430 --> 00:16:00,050 Charlotte, you keep waving your hand. 321 00:16:00,050 --> 00:16:02,930 I keep thinking you're raising, but you're not raising it, 322 00:16:02,930 --> 00:16:03,570 are you? 323 00:16:03,570 --> 00:16:05,940 AUDIENCE: I mean, no, you can't eliminate it [INAUDIBLE] 324 00:16:05,940 --> 00:16:06,440 democracy-- 325 00:16:06,440 --> 00:16:06,805 RICHARD SCHMALENSEE: Exactly. 326 00:16:06,805 --> 00:16:07,580 AUDIENCE: Because that's how it is, 327 00:16:07,580 --> 00:16:09,520 unless you change the way they're thinking, 328 00:16:09,520 --> 00:16:11,228 which [INAUDIBLE] can't do. 329 00:16:11,228 --> 00:16:14,600 But if more people want it one way, then they're going to win. 330 00:16:14,600 --> 00:16:16,350 RICHARD SCHMALENSEE: They're going to win. 331 00:16:16,350 --> 00:16:18,980 And majority factions can happen because you can do influence. 332 00:16:18,980 --> 00:16:20,520 You can do various other things. 333 00:16:20,520 --> 00:16:23,000 So his answer is, no, you can't. 334 00:16:23,000 --> 00:16:26,780 So he says, OK, and then he makes an argument 335 00:16:26,780 --> 00:16:29,510 that what you really want is a large republic. 336 00:16:29,510 --> 00:16:33,920 That's the way to deal with the problem of majority factions. 337 00:16:33,920 --> 00:16:36,140 Why? 338 00:16:36,140 --> 00:16:40,660 He gives two basic reasons, one of which I think is wrong. 339 00:16:49,720 --> 00:16:50,230 Jessica. 340 00:16:50,230 --> 00:16:51,938 AUDIENCE: One of the things is because he 341 00:16:51,938 --> 00:16:54,070 gives some sense of equal power, so the bigger 342 00:16:54,070 --> 00:16:59,640 party that can decide where that faction is going. 343 00:16:59,640 --> 00:17:01,920 RICHARD SCHMALENSEE: Well, I don't know 344 00:17:01,920 --> 00:17:03,300 what you mean by "equal power." 345 00:17:03,300 --> 00:17:07,020 He says if it's large, there'll be diversity. 346 00:17:07,020 --> 00:17:09,750 But push that a little more. 347 00:17:09,750 --> 00:17:11,087 What do you mean by-- 348 00:17:11,087 --> 00:17:13,670 AUDIENCE: A greater-- the people ruling no matter 349 00:17:13,670 --> 00:17:16,790 how [INAUDIBLE] will be able to somewhat-- it's 350 00:17:16,790 --> 00:17:18,730 sort of to the [? knowledge ?] in a way, 351 00:17:18,730 --> 00:17:20,000 to have one of the final says. 352 00:17:20,000 --> 00:17:23,190 And then it's not a pure democracy. 353 00:17:23,190 --> 00:17:27,180 RICHARD SCHMALENSEE: Well, he has in mind a republic 354 00:17:27,180 --> 00:17:28,810 or a representative democracy. 355 00:17:28,810 --> 00:17:31,140 He has in mind a situation where people 356 00:17:31,140 --> 00:17:33,480 are elected from around the country, 357 00:17:33,480 --> 00:17:36,480 and those people are the ultimate decision makers. 358 00:17:36,480 --> 00:17:41,340 So where they're elected, you could imagine a majority 359 00:17:41,340 --> 00:17:43,080 faction, maybe. 360 00:17:43,080 --> 00:17:45,695 But Kirsten, you wanted to-- 361 00:17:45,695 --> 00:17:47,070 AUDIENCE: You made the assumption 362 00:17:47,070 --> 00:17:49,290 that elected officials would represent 363 00:17:49,290 --> 00:17:53,610 the public good, [INAUDIBLE] particularly necessary. 364 00:17:53,610 --> 00:17:54,697 And he-- 365 00:17:54,697 --> 00:17:57,030 RICHARD SCHMALENSEE: He kind of hints at that direction, 366 00:17:57,030 --> 00:18:00,010 but he points someplace else. 367 00:18:00,010 --> 00:18:01,390 He does sort of say that. 368 00:18:01,390 --> 00:18:04,740 And then he does say, at some point, 369 00:18:04,740 --> 00:18:07,030 that you can't count on it. 370 00:18:07,030 --> 00:18:12,420 He says, "It is vain to say that enlightened statesmen will 371 00:18:12,420 --> 00:18:15,450 be able to adjust these clashing interests. 372 00:18:15,450 --> 00:18:20,730 Enlightened statesmen will not always be at the helm." 373 00:18:20,730 --> 00:18:25,590 So he points in that direction and then backs off. 374 00:18:25,590 --> 00:18:28,710 Somebody else? 375 00:18:28,710 --> 00:18:31,590 Julian, what do you think? 376 00:18:31,590 --> 00:18:35,253 Forget Madison, what might solve it? 377 00:18:35,253 --> 00:18:36,693 AUDIENCE: [INAUDIBLE]. 378 00:18:36,693 --> 00:18:38,610 RICHARD SCHMALENSEE: Yeah, but he's not there. 379 00:18:38,610 --> 00:18:39,235 He's not there. 380 00:18:39,235 --> 00:18:40,122 Yeah. 381 00:18:40,122 --> 00:18:41,580 AUDIENCE: You can induce compromise 382 00:18:41,580 --> 00:18:45,660 by having representatives be responsible for being 383 00:18:45,660 --> 00:18:48,780 accountable to lots of people or by having enough people 384 00:18:48,780 --> 00:18:52,570 that, on any given issue, they might fall into a faction, 385 00:18:52,570 --> 00:18:56,010 but you start compromising because different sets of you 386 00:18:56,010 --> 00:18:58,710 will be in different [INAUDIBLE] issues. 387 00:18:58,710 --> 00:19:00,720 RICHARD SCHMALENSEE: That's a process issue, 388 00:19:00,720 --> 00:19:03,570 and maybe you can make sure that kind of process 389 00:19:03,570 --> 00:19:05,880 is followed, although if you look 390 00:19:05,880 --> 00:19:07,800 at how the Constitution works in the US, 391 00:19:07,800 --> 00:19:10,530 you don't necessarily see that happening. 392 00:19:10,530 --> 00:19:14,670 But he has in mind a structural difference that-- 393 00:19:18,390 --> 00:19:20,978 think back to what the country looked 394 00:19:20,978 --> 00:19:22,020 like when he was writing. 395 00:19:25,950 --> 00:19:27,540 No electronic media. 396 00:19:27,540 --> 00:19:31,920 Weeks, months to communicate north to south, 397 00:19:31,920 --> 00:19:37,020 east to west, lousy roads. 398 00:19:37,020 --> 00:19:39,750 Most rapid, most efficient communication 399 00:19:39,750 --> 00:19:43,560 would be by sail, by the ocean or on riverboats. 400 00:19:46,470 --> 00:19:48,930 Boston to Philadelphia would be, say, 401 00:19:48,930 --> 00:19:50,610 to go to the Constitutional Convention, 402 00:19:50,610 --> 00:19:54,390 would be measured not in hours but in days, or maybe weeks, 403 00:19:54,390 --> 00:19:56,754 depending. 404 00:19:56,754 --> 00:19:59,880 You had very different interests. 405 00:19:59,880 --> 00:20:02,760 You had people trading on the coasts. 406 00:20:02,760 --> 00:20:05,190 You had people farming inland. 407 00:20:05,190 --> 00:20:09,840 You had heavily slave-dependent societies in the South. 408 00:20:09,840 --> 00:20:13,630 You had some slavery in the North, but not as much. 409 00:20:13,630 --> 00:20:20,040 And he basically argued that that might be enough to do it. 410 00:20:20,040 --> 00:20:22,040 How could that work? 411 00:20:22,040 --> 00:20:23,790 That might be enough to solve the problem. 412 00:20:23,790 --> 00:20:25,320 I mean, he doesn't say that explicitly, 413 00:20:25,320 --> 00:20:27,112 but that's the world in which he's writing. 414 00:20:30,840 --> 00:20:33,517 OK, Chad, you want to take a shot? 415 00:20:33,517 --> 00:20:34,600 Don't want to take a shot. 416 00:20:34,600 --> 00:20:35,590 Andrew, you want to take a shot? 417 00:20:35,590 --> 00:20:36,430 Go ahead. 418 00:20:36,430 --> 00:20:40,850 AUDIENCE: OK, so I'm just thinking this way 419 00:20:40,850 --> 00:20:42,730 and that's probably confused [INAUDIBLE].. 420 00:20:42,730 --> 00:20:48,760 And I think it's if we have bigger majority, 421 00:20:48,760 --> 00:20:51,590 it will be smaller relative to the other one, 422 00:20:51,590 --> 00:20:54,853 meaning if the republic is bigger, 423 00:20:54,853 --> 00:20:57,603 then the majority will not be as big as [INAUDIBLE].. 424 00:20:57,603 --> 00:20:59,270 RICHARD SCHMALENSEE: That's close to it. 425 00:20:59,270 --> 00:21:04,400 He argues if it's big, you're likely to have local factions. 426 00:21:04,400 --> 00:21:05,450 That'll happen. 427 00:21:05,450 --> 00:21:10,430 You could have a majority of the people in South Carolina 428 00:21:10,430 --> 00:21:12,905 want slavery forever in the Constitution 429 00:21:12,905 --> 00:21:14,030 or not in the Constitution. 430 00:21:14,030 --> 00:21:18,710 They want some law strongly favoring slavery, 431 00:21:18,710 --> 00:21:20,430 but that's South Carolina. 432 00:21:20,430 --> 00:21:23,900 And if there's enough diversity, you 433 00:21:23,900 --> 00:21:27,190 could have local factions, but not national factions. 434 00:21:27,190 --> 00:21:28,700 This is his basic argument. 435 00:21:28,700 --> 00:21:31,170 He has two arguments. 436 00:21:31,170 --> 00:21:36,020 One is he says if there are larger districts, if you have 437 00:21:36,020 --> 00:21:38,270 a large republic, then everybody's going 438 00:21:38,270 --> 00:21:40,310 to be elected by more people. 439 00:21:40,310 --> 00:21:43,380 And you'll probably get better candidates that way. 440 00:21:43,380 --> 00:21:46,550 And he says, let me get this-- 441 00:21:50,750 --> 00:21:52,880 "The proportion of fit characters 442 00:21:52,880 --> 00:21:55,880 be not less in the large than in the small republic, 443 00:21:55,880 --> 00:21:57,980 the former will present a greater option 444 00:21:57,980 --> 00:22:01,430 and consequently, a greater probability of a fit choice." 445 00:22:01,430 --> 00:22:03,290 And he says also, "As each representative 446 00:22:03,290 --> 00:22:05,870 will be chosen by a greater number of citizens in the large 447 00:22:05,870 --> 00:22:08,240 than in the small republic, it will 448 00:22:08,240 --> 00:22:11,300 be more difficult for unworthy candidates 449 00:22:11,300 --> 00:22:15,290 to practice, with success, the vicious arts by which elections 450 00:22:15,290 --> 00:22:17,840 are too often carried." 451 00:22:17,840 --> 00:22:21,230 He was not thinking of attack ads on television, 452 00:22:21,230 --> 00:22:24,230 however, which are more easily done in large 453 00:22:24,230 --> 00:22:25,940 than in small districts. 454 00:22:25,940 --> 00:22:30,140 So I'm not persuaded by that. 455 00:22:30,140 --> 00:22:36,830 His second argument, though, is the one we were inching toward, 456 00:22:36,830 --> 00:22:40,040 is extend the sphere. 457 00:22:40,040 --> 00:22:40,880 Make it larger. 458 00:22:40,880 --> 00:22:42,650 Make it more diverse. 459 00:22:42,650 --> 00:22:46,760 You make it less likely that a majority of the whole country 460 00:22:46,760 --> 00:22:52,790 will coalesce around a particular bad idea, a majority 461 00:22:52,790 --> 00:22:54,990 of the whole. 462 00:22:54,990 --> 00:22:58,190 Or if, in fact, a lot of people think that, 463 00:22:58,190 --> 00:23:00,200 just because the place is spread out-- again, 464 00:23:00,200 --> 00:23:03,080 no electronic communications-- the place is spread out. 465 00:23:03,080 --> 00:23:05,340 They won't be able to find each other. 466 00:23:05,340 --> 00:23:07,670 It'll be harder for them to discover their own strength 467 00:23:07,670 --> 00:23:09,140 and act in unison. 468 00:23:09,140 --> 00:23:13,670 So he argues we can deal with this, basically, 469 00:23:13,670 --> 00:23:16,400 by you have a large republic. 470 00:23:16,400 --> 00:23:19,430 You have a lot of parties and interests-- 471 00:23:19,430 --> 00:23:23,600 and I'm going to spend time on parties and interests. 472 00:23:23,600 --> 00:23:26,930 You make it less likely that among all that diverse regional 473 00:23:26,930 --> 00:23:29,900 and industrial and whatever interest, 474 00:23:29,900 --> 00:23:33,380 you will get a majority of the whole country pointed 475 00:23:33,380 --> 00:23:35,600 in an unpleasant direction. 476 00:23:35,600 --> 00:23:39,590 You'll get competing, diverse interests. 477 00:23:39,590 --> 00:23:43,070 He also is relying on the fact that it 478 00:23:43,070 --> 00:23:47,630 will be hard to organize if they're all spread out. 479 00:23:47,630 --> 00:23:49,130 I'm going to come back to that, too. 480 00:23:49,130 --> 00:23:51,060 I don't think it's as true now as it was then, 481 00:23:51,060 --> 00:23:53,900 but there's still truth to it. 482 00:23:53,900 --> 00:23:56,000 You see, this one I think is a little odd. 483 00:23:59,910 --> 00:24:05,810 I once remember-- you've never heard of Alan Simpson 484 00:24:05,810 --> 00:24:07,730 unless you really follow politics closely 485 00:24:07,730 --> 00:24:09,980 and you've heard of the Simpson-Bowles Deficit 486 00:24:09,980 --> 00:24:11,660 Reduction Panel. 487 00:24:11,660 --> 00:24:16,130 Alan Simpson was about 6 foot 5, one of the funniest men 488 00:24:16,130 --> 00:24:16,778 in Washington. 489 00:24:16,778 --> 00:24:19,070 And he was a Senator from Wyoming, a Republican Senator 490 00:24:19,070 --> 00:24:23,960 from Wyoming, who had a whole set of opinions 491 00:24:23,960 --> 00:24:26,180 on a whole set of issues that were not particularly 492 00:24:26,180 --> 00:24:29,600 orthodox Republican positions. 493 00:24:29,600 --> 00:24:31,250 And I remember somebody telling me 494 00:24:31,250 --> 00:24:33,830 that Wyoming's a small state. 495 00:24:33,830 --> 00:24:36,830 He can actually sit down and explain himself to people. 496 00:24:36,830 --> 00:24:39,440 In California, you have to communicate by television 497 00:24:39,440 --> 00:24:42,260 in 30-second spots. 498 00:24:42,260 --> 00:24:45,650 Simpson can go around and talk. 499 00:24:45,650 --> 00:24:50,450 So it's not clear to me you get better candidates and better 500 00:24:50,450 --> 00:24:54,020 positions in large districts. 501 00:24:54,020 --> 00:24:58,820 But that's the solution. 502 00:24:58,820 --> 00:25:05,840 And in this solution, you get a model of politics, sort of. 503 00:25:05,840 --> 00:25:08,330 The model of politics is a great variety 504 00:25:08,330 --> 00:25:11,990 of parties and interests competing, 505 00:25:11,990 --> 00:25:19,370 making it impossible or unlikely that a big, single group will 506 00:25:19,370 --> 00:25:21,650 form and trample on the rights of the minority, 507 00:25:21,650 --> 00:25:24,920 or be able to get something stupid passed-- 508 00:25:24,920 --> 00:25:28,660 something really stupid passed. 509 00:25:28,660 --> 00:25:31,210 Make some sense? 510 00:25:31,210 --> 00:25:32,192 Yeah. 511 00:25:32,192 --> 00:25:34,150 AUDIENCE: --argue that the same process kind of 512 00:25:34,150 --> 00:25:37,213 makes it harder to get anything passed, get anything done. 513 00:25:37,213 --> 00:25:39,130 RICHARD SCHMALENSEE: Well, the US Constitution 514 00:25:39,130 --> 00:25:44,170 is distinctive internationally in how many obstacles 515 00:25:44,170 --> 00:25:46,960 it puts in front of getting anything done. 516 00:25:46,960 --> 00:25:49,180 There was this great fear of mob rule. 517 00:25:49,180 --> 00:25:51,160 There was this great fear. 518 00:25:51,160 --> 00:25:53,290 They'd had a king, so you don't want the president 519 00:25:53,290 --> 00:25:54,740 to be too powerful. 520 00:25:54,740 --> 00:25:55,870 So you put a House. 521 00:25:55,870 --> 00:25:57,070 You put a Senate. 522 00:25:57,070 --> 00:26:00,760 And you're afraid that the House may be governed by mob rule 523 00:26:00,760 --> 00:26:02,480 because it turns over every two years. 524 00:26:02,480 --> 00:26:04,063 So you have the Senate that's supposed 525 00:26:04,063 --> 00:26:07,870 to be deliberative, and more aristocratic, and slower. 526 00:26:07,870 --> 00:26:11,530 And then, although they hadn't really thought of it, 527 00:26:11,530 --> 00:26:12,850 they got it pretty quickly-- 528 00:26:12,850 --> 00:26:15,400 you have the Supreme Court that has the ability 529 00:26:15,400 --> 00:26:18,190 to say this violates the Constitution. 530 00:26:18,190 --> 00:26:20,620 It isn't in the Constitution that the Supreme Court can 531 00:26:20,620 --> 00:26:22,662 do that, but the Supreme Court asserted it could, 532 00:26:22,662 --> 00:26:25,430 and it did, and has. 533 00:26:25,430 --> 00:26:28,330 So the US system-- 534 00:26:28,330 --> 00:26:30,835 it's actually hard to explain to people outside the US 535 00:26:30,835 --> 00:26:32,710 that we do not have a government in the sense 536 00:26:32,710 --> 00:26:34,150 that they have a government. 537 00:26:34,150 --> 00:26:38,320 In a parliamentary system, the coalition that 538 00:26:38,320 --> 00:26:43,180 controls parliament names the prime minister. 539 00:26:43,180 --> 00:26:47,080 If the government of which the prime minister is the head 540 00:26:47,080 --> 00:26:49,810 introduces a major law or introduces a budget 541 00:26:49,810 --> 00:26:51,560 and it doesn't pass, the government falls. 542 00:26:51,560 --> 00:26:53,320 You have another election. 543 00:26:53,320 --> 00:26:55,360 So when the prime minister says we're 544 00:26:55,360 --> 00:26:59,500 going to ratify this treaty, he either ratifies the treaty 545 00:26:59,500 --> 00:27:02,170 or he's gone. 546 00:27:02,170 --> 00:27:03,460 We have nothing like that. 547 00:27:03,460 --> 00:27:06,910 We don't have a government that can make promises. 548 00:27:06,910 --> 00:27:08,223 Most countries do. 549 00:27:08,223 --> 00:27:08,890 So you're right. 550 00:27:08,890 --> 00:27:12,790 We set it up so we don't have a king. 551 00:27:12,790 --> 00:27:15,640 We don't have the House of Representatives in charge. 552 00:27:15,640 --> 00:27:18,580 To a first approximation, we don't have anybody in charge. 553 00:27:18,580 --> 00:27:23,770 Now, in the 18th century, this was considered a good thing. 554 00:27:23,770 --> 00:27:25,870 It still has its merits. 555 00:27:25,870 --> 00:27:31,720 It means it's hard to act in haste. 556 00:27:31,720 --> 00:27:34,180 One of the critiques of parliamentary systems 557 00:27:34,180 --> 00:27:36,610 is they can go from a set of left-wing policies 558 00:27:36,610 --> 00:27:39,910 to a set of right-wing policies with one election. 559 00:27:39,910 --> 00:27:44,410 We move more slowly, for better or for worse. 560 00:27:44,410 --> 00:27:46,840 But you're right-- the whole Constitution 561 00:27:46,840 --> 00:27:51,800 is designed to prevent action to a first approximation. 562 00:27:51,800 --> 00:27:59,510 OK, Madison's model, then, is one of competing interest 563 00:27:59,510 --> 00:28:00,010 groups. 564 00:28:04,230 --> 00:28:07,530 Factions are inevitable, but if they're weak, 565 00:28:07,530 --> 00:28:10,530 if they're small and weak, they don't dominate. 566 00:28:10,530 --> 00:28:14,310 And it's interesting-- if you go from Madison, 567 00:28:14,310 --> 00:28:18,210 and I must say I'm sure you all find [? Loewy ?] easy to read. 568 00:28:18,210 --> 00:28:19,740 I find him almost incomprehensible, 569 00:28:19,740 --> 00:28:24,530 but this is a standard text. 570 00:28:24,530 --> 00:28:28,380 He argues-- this is written in the '60s, but I think 571 00:28:28,380 --> 00:28:31,290 it's still implicitly true-- 572 00:28:31,290 --> 00:28:34,230 that competition among interest groups 573 00:28:34,230 --> 00:28:40,400 has been both an accepted description of US politics, 574 00:28:40,400 --> 00:28:42,440 and politics in some other settings, 575 00:28:42,440 --> 00:28:45,410 and implicitly, an ideal. 576 00:28:45,410 --> 00:28:48,800 If you go to Washington and look in the phone book, 577 00:28:48,800 --> 00:28:53,600 look in buildings on K Street, you will see-- 578 00:28:53,600 --> 00:28:56,300 I spoke yesterday to an interest group 579 00:28:56,300 --> 00:29:01,260 composed of large industrial users of electricity. 580 00:29:01,260 --> 00:29:06,320 I was preceded by a spokesperson for the American Public Power 581 00:29:06,320 --> 00:29:11,000 Association, which represents municipal and cooperative power 582 00:29:11,000 --> 00:29:11,720 consumers. 583 00:29:14,420 --> 00:29:17,540 We were sharing quarters with the American Forest Products 584 00:29:17,540 --> 00:29:22,580 Association, which represents timber harvesters. 585 00:29:22,580 --> 00:29:25,850 You can go up and down the street 586 00:29:25,850 --> 00:29:28,130 and there's the Department of Agriculture, 587 00:29:28,130 --> 00:29:31,430 set up as an interest group, basically, 588 00:29:31,430 --> 00:29:34,740 to represent the farm community, and on, and on. 589 00:29:34,740 --> 00:29:38,485 So the argument [? Loewy ?] makes is that we've moved. 590 00:29:38,485 --> 00:29:39,860 And I think though he was writing 591 00:29:39,860 --> 00:29:41,780 in the '60s that isn't bad. 592 00:29:41,780 --> 00:29:46,550 That has become both an accepted description. 593 00:29:46,550 --> 00:29:48,290 Think about how politics are described 594 00:29:48,290 --> 00:29:52,040 in the press, not presidential politics, but any kind 595 00:29:52,040 --> 00:29:53,840 of legislative decision. 596 00:29:53,840 --> 00:29:57,530 The environmental community, the Black community, women-- 597 00:29:57,530 --> 00:30:02,450 we describe the political process in terms of groups, 598 00:30:02,450 --> 00:30:04,470 often-- 599 00:30:04,470 --> 00:30:07,270 the Cuban community in Atlanta, blah, blah, blah. 600 00:30:07,270 --> 00:30:09,540 I mean, we do a lot of group description. 601 00:30:09,540 --> 00:30:16,050 And it's almost-- here's the next step-- 602 00:30:16,050 --> 00:30:17,460 it's viewed as a good thing. 603 00:30:20,050 --> 00:30:23,730 And the question is, is it a good thing? 604 00:30:23,730 --> 00:30:26,700 First of all, is it an accurate description of politics? 605 00:30:26,700 --> 00:30:31,380 And I'll come back to that-- sometimes yes, sometimes no. 606 00:30:31,380 --> 00:30:36,240 But first, [? Loewy ?] has a nice, little statement 607 00:30:36,240 --> 00:30:43,340 about if politics looked like that, could it be a good thing? 608 00:30:43,340 --> 00:30:47,780 And he argues you'd sort of need three pieces. 609 00:30:47,780 --> 00:30:53,390 First, you'd need clearly defined groups. 610 00:30:53,390 --> 00:30:56,450 Large consumers of electricity is a pretty clearly defined 611 00:30:56,450 --> 00:30:58,580 group, but you can see it blurs. 612 00:30:58,580 --> 00:31:02,570 But certainly cooperative and municipal utilities 613 00:31:02,570 --> 00:31:05,730 that buy electricity-- that's a well-defined group. 614 00:31:05,730 --> 00:31:08,120 The Forest Products Association probably is. 615 00:31:11,010 --> 00:31:13,010 And then there's this-- 616 00:31:13,010 --> 00:31:15,050 I think of it mathematically as [? spanning-- ?] 617 00:31:15,050 --> 00:31:21,350 the notion is that the organized groups pretty much 618 00:31:21,350 --> 00:31:23,480 cover the universe. 619 00:31:23,480 --> 00:31:25,460 Pretty much every interest that matters 620 00:31:25,460 --> 00:31:30,110 is represented well by an organized group, 621 00:31:30,110 --> 00:31:31,430 so that everybody's covered. 622 00:31:31,430 --> 00:31:35,610 Everybody has a group, or not everybody, every interest. 623 00:31:35,610 --> 00:31:37,790 So you may be represented by several groups, 624 00:31:37,790 --> 00:31:40,970 depending on what you're thinking about at the moment. 625 00:31:40,970 --> 00:31:44,750 And then if you believe that as a statement of ideology, 626 00:31:44,750 --> 00:31:47,793 as a statement about how the world should work, 627 00:31:47,793 --> 00:31:49,460 that the role of government is basically 628 00:31:49,460 --> 00:31:54,510 to balance and reconcile, to do deals among various groups. 629 00:31:54,510 --> 00:31:58,130 You ensure access so all groups can participate. 630 00:31:58,130 --> 00:32:00,290 And this is his language-- 631 00:32:00,290 --> 00:32:02,930 "You ratify the agreements and adjustments 632 00:32:02,930 --> 00:32:05,600 worked out among them." 633 00:32:05,600 --> 00:32:09,440 So again, you hear legislative deals in Congress. 634 00:32:09,440 --> 00:32:14,810 And we'll talk about at length the time 635 00:32:14,810 --> 00:32:19,820 after next in this case where people explicitly say, look, 636 00:32:19,820 --> 00:32:21,290 these guys won in Congress. 637 00:32:21,290 --> 00:32:23,450 And so our job is to make sure they get it. 638 00:32:23,450 --> 00:32:25,580 They get the fruits of their victory. 639 00:32:25,580 --> 00:32:32,310 So do those makes sense as descriptions of the world 640 00:32:32,310 --> 00:32:33,450 as you know it? 641 00:32:33,450 --> 00:32:36,540 Does that make sense as a description of a good world? 642 00:32:41,160 --> 00:32:43,080 Catherine. 643 00:32:43,080 --> 00:32:52,200 AUDIENCE: So I agree that having organized [INAUDIBLE] 644 00:32:52,200 --> 00:32:54,963 but the problem that he talked about business interests, 645 00:32:54,963 --> 00:32:56,380 like generally the interest group, 646 00:32:56,380 --> 00:33:00,772 but there was money [INAUDIBLE] given that Representatives 647 00:33:00,772 --> 00:33:05,140 in the Senate and House, they want to get re-elected. 648 00:33:05,140 --> 00:33:08,770 And so the group that has the most money 649 00:33:08,770 --> 00:33:11,257 can have a larger [INAUDIBLE]. 650 00:33:11,257 --> 00:33:13,840 RICHARD SCHMALENSEE: So you're pointing-- and I think I would, 651 00:33:13,840 --> 00:33:14,470 too-- 652 00:33:14,470 --> 00:33:23,020 you're pointing sort of to the second of those assumptions, 653 00:33:23,020 --> 00:33:26,350 particularly the "adequately represent" part of it. 654 00:33:26,350 --> 00:33:31,930 So what you're saying is not all groups are created equal. 655 00:33:31,930 --> 00:33:33,370 I think that's fair. 656 00:33:33,370 --> 00:33:35,680 Are all possible interests represented 657 00:33:35,680 --> 00:33:38,770 by organized groups? 658 00:33:38,770 --> 00:33:45,130 AUDIENCE: No, but I think that a group has a view, 659 00:33:45,130 --> 00:33:50,100 and if New York was [INAUDIBLE] large enough to influence, 660 00:33:50,100 --> 00:33:51,866 then I think [INAUDIBLE]. 661 00:33:54,528 --> 00:33:56,570 RICHARD SCHMALENSEE: Who represents the interests 662 00:33:56,570 --> 00:34:00,380 of mobile phone users? 663 00:34:00,380 --> 00:34:03,830 Is there an organized group? 664 00:34:03,830 --> 00:34:08,150 Or buyers of milk-- 665 00:34:08,150 --> 00:34:10,040 we have a federal milk price support 666 00:34:10,040 --> 00:34:14,159 program that's designed to raise the price of whole milk. 667 00:34:14,159 --> 00:34:18,250 The dairy farmers are an effectively organized group. 668 00:34:18,250 --> 00:34:22,320 People who give milk to their kids, not so much. 669 00:34:22,320 --> 00:34:23,810 So I would point to both parts. 670 00:34:23,810 --> 00:34:24,659 I agree with you. 671 00:34:24,659 --> 00:34:26,360 I agree with you on the second-- 672 00:34:26,360 --> 00:34:28,770 not all groups are created equal, 673 00:34:28,770 --> 00:34:33,889 so you don't necessarily get the kind of balance you might like. 674 00:34:33,889 --> 00:34:37,730 But I'm not sure they fill up most 675 00:34:37,730 --> 00:34:40,730 of the sectors of our lives. 676 00:34:40,730 --> 00:34:46,070 And what's interesting-- yesterday 677 00:34:46,070 --> 00:34:48,050 was a good day for anecdotes. 678 00:34:48,050 --> 00:34:52,520 So the speaker from the Public Power Association 679 00:34:52,520 --> 00:34:55,520 said she was very happy to be addressing 680 00:34:55,520 --> 00:34:59,810 these large industrial consumers because, she said, 681 00:34:59,810 --> 00:35:02,540 your group and my group are the only ones that 682 00:35:02,540 --> 00:35:07,710 represent consumers of electricity, which probably 683 00:35:07,710 --> 00:35:08,580 makes sense. 684 00:35:08,580 --> 00:35:13,290 Small businesses aren't represented in Washington 685 00:35:13,290 --> 00:35:16,410 as consumers of electricity. 686 00:35:16,410 --> 00:35:19,240 There is a National Federation of independent Businesses, 687 00:35:19,240 --> 00:35:22,210 but it's got a lot of issues. 688 00:35:22,210 --> 00:35:25,570 Nobody's representing me as a consumer of electricity, 689 00:35:25,570 --> 00:35:28,150 as far as I can tell. 690 00:35:28,150 --> 00:35:33,310 So when we were talking particularly about the FERC, 691 00:35:33,310 --> 00:35:36,970 when there is a proceeding, a regulatory proceeding 692 00:35:36,970 --> 00:35:39,590 at the FERC, a notice goes out. 693 00:35:39,590 --> 00:35:40,430 You don't see it. 694 00:35:40,430 --> 00:35:41,750 I don't see it. 695 00:35:41,750 --> 00:35:42,350 They see it. 696 00:35:42,350 --> 00:35:43,070 That's their job. 697 00:35:43,070 --> 00:35:44,270 They're in Washington. 698 00:35:44,270 --> 00:35:46,040 And they respond to it. 699 00:35:46,040 --> 00:35:50,480 And with some luck, they respond as consumers of electricity, 700 00:35:50,480 --> 00:35:51,980 but they're consumers of electricity 701 00:35:51,980 --> 00:35:55,520 with particular interests. 702 00:35:55,520 --> 00:35:58,840 They don't necessarily represent me. 703 00:35:58,840 --> 00:36:01,172 AUDIENCE: [INAUDIBLE]. 704 00:36:01,172 --> 00:36:02,630 RICHARD SCHMALENSEE: Yeah, but look 705 00:36:02,630 --> 00:36:04,560 at all the residential users of electricity. 706 00:36:04,560 --> 00:36:07,160 That's a lot of volume. 707 00:36:07,160 --> 00:36:11,090 Hard to organize, though, hard to organize. 708 00:36:11,090 --> 00:36:14,090 So that's one kicker. 709 00:36:14,090 --> 00:36:15,170 Anybody else? 710 00:36:15,170 --> 00:36:16,770 I picked on Catherine enough. 711 00:36:16,770 --> 00:36:17,270 Charlotte. 712 00:36:17,270 --> 00:36:19,263 AUDIENCE: I just had a question. 713 00:36:19,263 --> 00:36:21,680 So one of the things you were listing earlier about things 714 00:36:21,680 --> 00:36:23,263 that Madison was considering factions, 715 00:36:23,263 --> 00:36:24,890 like slavery or trade, those are all 716 00:36:24,890 --> 00:36:27,560 things that I think of as having to go with a political party, 717 00:36:27,560 --> 00:36:29,270 whereas the things you're talking about now as factions 718 00:36:29,270 --> 00:36:30,590 are things that I wouldn't think about having 719 00:36:30,590 --> 00:36:31,798 to do with a political party. 720 00:36:31,798 --> 00:36:34,760 So I guess how is Madison relating factions 721 00:36:34,760 --> 00:36:37,183 to political parties or what was the situation then? 722 00:36:37,183 --> 00:36:38,600 RICHARD SCHMALENSEE: They actually 723 00:36:38,600 --> 00:36:41,540 hoped, a number of them early on, 724 00:36:41,540 --> 00:36:44,387 that you wouldn't have parties, which was really pretty-- 725 00:36:44,387 --> 00:36:45,220 [INTERPOSING VOICES] 726 00:36:45,220 --> 00:36:46,440 AUDIENCE: There'd been a loyalist person that 727 00:36:46,440 --> 00:36:48,868 [? hadn't ?] developed another one yet [INAUDIBLE].. 728 00:36:48,868 --> 00:36:50,660 RICHARD SCHMALENSEE: No, I mean, Washington 729 00:36:50,660 --> 00:36:52,910 had sufficient charisma that until you 730 00:36:52,910 --> 00:36:57,440 began to coalesce opposition to Washington, and in particular 731 00:36:57,440 --> 00:36:58,940 to Hamilton-- 732 00:36:58,940 --> 00:37:01,890 Hamilton had a particular agenda for the central government, 733 00:37:01,890 --> 00:37:03,620 which is to strengthen it. 734 00:37:03,620 --> 00:37:09,230 And Jefferson, and soon Madison, opposed that strongly. 735 00:37:09,230 --> 00:37:11,616 But-- 736 00:37:11,616 --> 00:37:16,610 AUDIENCE: [INAUDIBLE] also some sort faction [INAUDIBLE]?? 737 00:37:16,610 --> 00:37:20,720 RICHARD SCHMALENSEE: It's interesting. 738 00:37:20,720 --> 00:37:24,420 And that was a fear, that if you manage 739 00:37:24,420 --> 00:37:28,370 to get a large parity as faction, 740 00:37:28,370 --> 00:37:31,618 you could have exactly the problem that Madison 741 00:37:31,618 --> 00:37:34,160 thought of, which is one reason why they didn't like parties. 742 00:37:37,160 --> 00:37:43,580 Traditionally, American political parties 743 00:37:43,580 --> 00:37:46,010 have been pretty big tents. 744 00:37:46,010 --> 00:37:50,210 They've represented a lot of different interests 745 00:37:50,210 --> 00:37:52,940 that didn't see eye to eye on all issues. 746 00:37:52,940 --> 00:37:56,520 In the European tradition, parties tended to be narrower. 747 00:37:56,520 --> 00:37:59,400 So you'll have the Labor Party in Britain, 748 00:37:59,400 --> 00:38:01,820 which is was a left party, but traditionally 749 00:38:01,820 --> 00:38:05,150 really was aligned with the labor movement, 750 00:38:05,150 --> 00:38:08,660 as the Democratic Party was and is, 751 00:38:08,660 --> 00:38:12,500 but much more tightly than the Democratic Party. 752 00:38:12,500 --> 00:38:14,630 So I think it depends on the nature of the party. 753 00:38:14,630 --> 00:38:16,670 And in some parliamentary systems, 754 00:38:16,670 --> 00:38:19,040 you have very little parties that are 755 00:38:19,040 --> 00:38:21,140 focused on particular issues. 756 00:38:21,140 --> 00:38:23,780 Think about the ultra-orthodox parties in Israel, 757 00:38:23,780 --> 00:38:27,290 for instance, or some of the far left parties 758 00:38:27,290 --> 00:38:30,380 in European politics. 759 00:38:30,380 --> 00:38:33,410 Our parties have traditionally not been easily identified 760 00:38:33,410 --> 00:38:35,180 with particular factions. 761 00:38:35,180 --> 00:38:37,790 And there isn't a-- 762 00:38:37,790 --> 00:38:39,260 well, I'm going to talk about this, 763 00:38:39,260 --> 00:38:44,120 but most of the interest groups we see in the US try very hard 764 00:38:44,120 --> 00:38:46,700 not to be identified with one party or another. 765 00:38:46,700 --> 00:38:49,108 Because you don't want to-- if you could possibly 766 00:38:49,108 --> 00:38:50,900 be friends with everybody, you can survive. 767 00:38:53,690 --> 00:38:59,660 Pro-choice, pro-life, they have not been able to do that trick. 768 00:38:59,660 --> 00:39:02,270 There's a Republican side and a Democratic side, 769 00:39:02,270 --> 00:39:03,890 and there they are. 770 00:39:03,890 --> 00:39:09,020 But most-- the Forest Products Association, I am sure, 771 00:39:09,020 --> 00:39:12,200 contributes to people from both parties. 772 00:39:12,200 --> 00:39:14,540 The large consumers of electricity, I'm sure, 773 00:39:14,540 --> 00:39:17,260 contribute to people, et cetera, et cetera. 774 00:39:17,260 --> 00:39:18,920 So good question, though. 775 00:39:18,920 --> 00:39:21,230 Anything else? 776 00:39:21,230 --> 00:39:30,110 OK, so I guess I'm inclined to agree with, 777 00:39:30,110 --> 00:39:35,780 I think with Catherine, that this probably doesn't 778 00:39:35,780 --> 00:39:38,603 work as well as one might like. 779 00:39:38,603 --> 00:39:40,520 I don't know whether it's an ideal, whether it 780 00:39:40,520 --> 00:39:42,770 would work as an ideal or not. 781 00:39:42,770 --> 00:39:44,600 It's not a bad story. 782 00:39:44,600 --> 00:39:48,890 But the notion that pretty much all interests are represented 783 00:39:48,890 --> 00:39:54,560 and they're well represented, and that government is about-- 784 00:39:54,560 --> 00:40:00,050 modulo the role of parties-- is about refereeing agreements 785 00:40:00,050 --> 00:40:01,670 and adjustments among interest groups, 786 00:40:01,670 --> 00:40:04,790 is not a bad description sometimes-- 787 00:40:04,790 --> 00:40:07,540 sometimes. 788 00:40:07,540 --> 00:40:09,820 Once again, sometimes. 789 00:40:09,820 --> 00:40:12,580 But I'm not sure it's an ideal. 790 00:40:12,580 --> 00:40:16,990 OK, let me move on. 791 00:40:16,990 --> 00:40:19,870 A little bit about interest group competition-- 792 00:40:19,870 --> 00:40:26,720 first, if you think about interest groups, 793 00:40:26,720 --> 00:40:31,730 their ability to organize is really key. 794 00:40:31,730 --> 00:40:33,620 Those large consumers of electricity-- 795 00:40:33,620 --> 00:40:35,792 there are about 40 of them-- 796 00:40:35,792 --> 00:40:37,640 they're the big industrial buyers. 797 00:40:37,640 --> 00:40:40,280 They sit in a room. 798 00:40:40,280 --> 00:40:43,555 Small consumers of electricity-- there are many of us. 799 00:40:43,555 --> 00:40:44,930 We also have different interests. 800 00:40:44,930 --> 00:40:46,638 We're in different parts of the country-- 801 00:40:46,638 --> 00:40:48,350 hard to organize. 802 00:40:48,350 --> 00:40:53,120 The more important an issue is-- 803 00:40:53,120 --> 00:40:56,323 that should be higher dollar "stake," not "stage." 804 00:40:56,323 --> 00:40:58,490 I'm looking at that and saying that makes no sense-- 805 00:40:58,490 --> 00:40:58,990 "stake." 806 00:41:02,060 --> 00:41:05,240 Electricity is 2% of the average family budget. 807 00:41:05,240 --> 00:41:06,950 You're not going to get families to rally 808 00:41:06,950 --> 00:41:08,930 around electricity rate reform. 809 00:41:08,930 --> 00:41:10,610 It's just not important enough. 810 00:41:10,610 --> 00:41:13,040 It's a big deal to the big guys. 811 00:41:13,040 --> 00:41:15,380 They'll send people to Washington. 812 00:41:15,380 --> 00:41:18,710 And there are a small number of them, so they organize. 813 00:41:18,710 --> 00:41:26,060 So a classic example is debates about airline deregulation 814 00:41:26,060 --> 00:41:26,970 back in the '70s. 815 00:41:26,970 --> 00:41:29,000 The airlines were well organized, 816 00:41:29,000 --> 00:41:31,700 were very important in Congress. 817 00:41:31,700 --> 00:41:33,560 Most did not want to be deregulated, 818 00:41:33,560 --> 00:41:36,260 thank you very much. 819 00:41:36,260 --> 00:41:39,050 Travelers did not have an interest group. 820 00:41:39,050 --> 00:41:41,210 There is an Airline Passengers Association. 821 00:41:41,210 --> 00:41:42,920 I have no idea who belongs to it, 822 00:41:42,920 --> 00:41:46,820 but not a particularly important group. 823 00:41:46,820 --> 00:41:48,860 Nonetheless, they were deregulated, 824 00:41:48,860 --> 00:41:50,510 something we may come back to. 825 00:41:50,510 --> 00:41:55,580 But the shorthand in politics is a concentrated interest, 826 00:41:55,580 --> 00:41:58,010 an interest that affects a small number of people 827 00:41:58,010 --> 00:42:00,290 and has a big stake for each one, 828 00:42:00,290 --> 00:42:02,580 tends to be a potent interest. 829 00:42:02,580 --> 00:42:06,080 So back to are all interest groups created equal? 830 00:42:06,080 --> 00:42:07,640 Well, no. 831 00:42:07,640 --> 00:42:09,950 Some groups don't organize. 832 00:42:09,950 --> 00:42:13,280 Back to regulating electric utilities-- 833 00:42:13,280 --> 00:42:15,980 the utility cares an enormous amount 834 00:42:15,980 --> 00:42:18,060 about the outcome of regulation. 835 00:42:18,060 --> 00:42:20,570 Those of us who buy care a little bit. 836 00:42:20,570 --> 00:42:22,550 There are a lot of us. 837 00:42:22,550 --> 00:42:25,100 We don't have that much influence, 838 00:42:25,100 --> 00:42:26,630 except from time to time. 839 00:42:26,630 --> 00:42:31,130 So a key factor is how easy is it to organize in terms 840 00:42:31,130 --> 00:42:35,120 of interest group competition. 841 00:42:35,120 --> 00:42:44,430 Money-- money is interesting. 842 00:42:44,430 --> 00:42:48,690 The simple assumption is that you buy votes 843 00:42:48,690 --> 00:42:52,740 with campaign contributions, and some of that does happen. 844 00:42:52,740 --> 00:42:56,130 But if you look at the pattern of spending, 845 00:42:56,130 --> 00:43:00,353 people contribute to politicians of both sides. 846 00:43:00,353 --> 00:43:02,520 If you become chairman of a congressional committee, 847 00:43:02,520 --> 00:43:04,590 you will get campaign contributions 848 00:43:04,590 --> 00:43:08,742 from anybody your committee touches. 849 00:43:08,742 --> 00:43:10,950 Usually, what you want to do is you want to make sure 850 00:43:10,950 --> 00:43:13,300 your friends win. 851 00:43:13,300 --> 00:43:18,940 It's harder to make somebody make a 180-degree turn, or even 852 00:43:18,940 --> 00:43:21,190 a 90-degree turn on an issue than it 853 00:43:21,190 --> 00:43:24,730 is to elect somebody who already agrees with you. 854 00:43:24,730 --> 00:43:27,940 So an awful lot of what goes on is electing friends 855 00:43:27,940 --> 00:43:31,320 and getting access. 856 00:43:31,320 --> 00:43:33,820 Getting access-- if you've given a lot of money to somebody, 857 00:43:33,820 --> 00:43:36,100 they will return your phone call. 858 00:43:36,100 --> 00:43:40,450 But it's amazing-- people who have 859 00:43:40,450 --> 00:43:44,350 no challenge, no effective opposition, 860 00:43:44,350 --> 00:43:48,130 will get campaign contributions from people who disagree 861 00:43:48,130 --> 00:43:50,380 with them on issues, just because I want 862 00:43:50,380 --> 00:43:52,990 to be able to get in the door. 863 00:43:52,990 --> 00:43:54,880 I want you to think well of me. 864 00:43:54,880 --> 00:43:57,340 If I think you can be beaten by somebody who I like better, 865 00:43:57,340 --> 00:43:59,890 I will pay a lot for them. 866 00:43:59,890 --> 00:44:02,830 But it's pretty hard to buy votes 867 00:44:02,830 --> 00:44:04,330 with campaign contributions. 868 00:44:04,330 --> 00:44:08,270 The other thing-- and this all merits discussion-- 869 00:44:08,270 --> 00:44:10,120 the other thing that has to be mentioned 870 00:44:10,120 --> 00:44:14,290 is the Citizens United decision, which is this recent Supreme 871 00:44:14,290 --> 00:44:16,030 Court decision that said corporations 872 00:44:16,030 --> 00:44:20,280 are people and limits on spending are limits on speech. 873 00:44:20,280 --> 00:44:24,000 So you saw it in the primary. 874 00:44:24,000 --> 00:44:26,670 You didn't see it here particularly, 875 00:44:26,670 --> 00:44:29,070 but other people saw it. 876 00:44:29,070 --> 00:44:30,690 There's really no limit on what can 877 00:44:30,690 --> 00:44:37,750 be spent to support a candidate by wealthy individuals, 878 00:44:37,750 --> 00:44:39,070 mainly, more than corporations. 879 00:44:39,070 --> 00:44:43,360 We talked about corporate political action. 880 00:44:43,360 --> 00:44:47,620 But that may change things dramatically. 881 00:44:47,620 --> 00:44:52,330 And it goes back to Catherine's point about money. 882 00:44:52,330 --> 00:44:55,210 If you're free to speak with your $5, 883 00:44:55,210 --> 00:44:57,670 and I'm free to speak with my $50 million, 884 00:44:57,670 --> 00:45:01,150 we have different impact. 885 00:45:01,150 --> 00:45:05,350 So can I get my friends elected? 886 00:45:05,350 --> 00:45:07,990 Well, yeah, probably. 887 00:45:07,990 --> 00:45:09,550 Can I buy votes with it? 888 00:45:09,550 --> 00:45:10,540 Buying votes is hard. 889 00:45:10,540 --> 00:45:13,850 Getting friends elected is easier. 890 00:45:13,850 --> 00:45:17,980 So we're going to see more of that. 891 00:45:17,980 --> 00:45:20,800 We're going to see a lot of-- 892 00:45:20,800 --> 00:45:22,420 this will be a very ugly Fall. 893 00:45:22,420 --> 00:45:23,920 That's all I have to say. 894 00:45:23,920 --> 00:45:28,060 Comments on any of this before I go to the last one, last point 895 00:45:28,060 --> 00:45:28,600 here? 896 00:45:28,600 --> 00:45:29,620 Reactions, thoughts? 897 00:45:32,600 --> 00:45:34,370 Jacob, you look disturbed. 898 00:45:34,370 --> 00:45:35,250 David is disturbed. 899 00:45:35,250 --> 00:45:35,750 David. 900 00:45:35,750 --> 00:45:37,970 AUDIENCE: Don't [INAUDIBLE] speak with their money, 901 00:45:37,970 --> 00:45:41,160 and you determine what you care about more. 902 00:45:41,160 --> 00:45:43,238 So I buy electricity. 903 00:45:43,238 --> 00:45:45,530 It's only 2% of what I have, so I don't care about that 904 00:45:45,530 --> 00:45:48,650 that much, but maybe I care more about milk or something. 905 00:45:48,650 --> 00:45:50,330 So how do I choose? 906 00:45:52,970 --> 00:45:56,420 How do I vote what percentage of my care 907 00:45:56,420 --> 00:45:59,060 I want to send each group? 908 00:45:59,060 --> 00:46:01,638 [INAUDIBLE] 909 00:46:01,638 --> 00:46:03,680 RICHARD SCHMALENSEE: I mean, you as an individual 910 00:46:03,680 --> 00:46:05,150 or you as a really rich person? 911 00:46:07,287 --> 00:46:09,370 AUDIENCE: Rich people are individuals, too, right? 912 00:46:09,370 --> 00:46:12,100 RICHARD SCHMALENSEE: Yes, yes, yes, yes. 913 00:46:12,100 --> 00:46:17,710 Which are you imagining yourself to be, you or a Warren Buffett? 914 00:46:17,710 --> 00:46:20,240 Because the answer differs. 915 00:46:20,240 --> 00:46:22,053 AUDIENCE: OK, yeah, for someone who maybe 916 00:46:22,053 --> 00:46:23,220 doesn't have a lot of money. 917 00:46:23,220 --> 00:46:24,595 RICHARD SCHMALENSEE: Somebody who 918 00:46:24,595 --> 00:46:26,830 doesn't have a lot of money, you basically 919 00:46:26,830 --> 00:46:28,630 belong to an organization. 920 00:46:28,630 --> 00:46:31,360 You care about gun rights, you belong to the National Rifle 921 00:46:31,360 --> 00:46:32,530 Association. 922 00:46:32,530 --> 00:46:38,170 You care about abortion, you contribute 923 00:46:38,170 --> 00:46:42,430 to the National Abortion Rights Act, whatever the thing is, 924 00:46:42,430 --> 00:46:44,560 or Planned Parenthood. 925 00:46:44,560 --> 00:46:48,040 You can contribute to organizations 926 00:46:48,040 --> 00:46:51,100 or you can contribute to candidates. 927 00:46:51,100 --> 00:46:55,750 If you're Warren Buffett, you can set up a political action 928 00:46:55,750 --> 00:46:57,970 committee-- 929 00:46:57,970 --> 00:47:01,750 he doesn't do this-- put a few tens of millions of in it, 930 00:47:01,750 --> 00:47:04,510 look around the country for candidates you like, 931 00:47:04,510 --> 00:47:06,197 and spend for them. 932 00:47:06,197 --> 00:47:07,280 You can't give it to them. 933 00:47:07,280 --> 00:47:08,920 You can spend for them. 934 00:47:08,920 --> 00:47:10,750 You can hire people to write attack ads 935 00:47:10,750 --> 00:47:15,300 against their opponents and put a lot of money in television, 936 00:47:15,300 --> 00:47:17,100 or you can also find interest groups. 937 00:47:19,690 --> 00:47:22,030 AUDIENCE: My question is if I care a lot about-- 938 00:47:22,030 --> 00:47:25,900 I have a [INAUDIBLE] because I buy electricity [INAUDIBLE],, 939 00:47:25,900 --> 00:47:29,200 but maybe I really care about guns or something. 940 00:47:29,200 --> 00:47:32,710 So what would the ideal system be 941 00:47:32,710 --> 00:47:35,680 in which I can have interest in all these different groups, 942 00:47:35,680 --> 00:47:40,150 but the ones that I care about more get more of my support. 943 00:47:40,150 --> 00:47:42,520 RICHARD SCHMALENSEE: Well, if there are organizations-- 944 00:47:42,520 --> 00:47:44,110 I mean, the National Rifle Association 945 00:47:44,110 --> 00:47:45,525 is politically active. 946 00:47:45,525 --> 00:47:46,900 So if you care about guns, that's 947 00:47:46,900 --> 00:47:48,348 a place you can send money. 948 00:47:48,348 --> 00:47:49,390 They'll spend it for you. 949 00:47:51,930 --> 00:47:54,820 If you're old you, the American Association of Retired 950 00:47:54,820 --> 00:47:55,320 Persons-- 951 00:47:55,320 --> 00:47:57,243 I mean, there are plenty of pockets. 952 00:47:57,243 --> 00:47:59,160 AUDIENCE: The things that I care a lot about I 953 00:47:59,160 --> 00:48:03,930 can give more money to than other things. 954 00:48:03,930 --> 00:48:04,770 So that works-- 955 00:48:04,770 --> 00:48:05,220 [INTERPOSING VOICES] 956 00:48:05,220 --> 00:48:05,610 RICHARD SCHMALENSEE: Sort of. 957 00:48:05,610 --> 00:48:07,068 AUDIENCE: --money But then my voice 958 00:48:07,068 --> 00:48:09,383 is smaller because I have less money in total. 959 00:48:09,383 --> 00:48:11,550 So someone who maybe doesn't care as much about this 960 00:48:11,550 --> 00:48:14,920 can give a little money, too, but still larger than my voice. 961 00:48:14,920 --> 00:48:18,780 So money seems like the most efficient system that I can 962 00:48:18,780 --> 00:48:22,020 think of that allows people to contribute to things they care 963 00:48:22,020 --> 00:48:24,420 about a lot, and have their voices heard there, 964 00:48:24,420 --> 00:48:26,370 whereas things they don't care about, 965 00:48:26,370 --> 00:48:27,825 but they're part of, they don't-- 966 00:48:27,825 --> 00:48:29,850 RICHARD SCHMALENSEE: The issue that disturbs 967 00:48:29,850 --> 00:48:31,925 people is sort of twofold. 968 00:48:31,925 --> 00:48:33,300 One of the things that's happened 969 00:48:33,300 --> 00:48:37,140 in this country over the last 30 years, 970 00:48:37,140 --> 00:48:39,090 maybe goes back a little farther, 971 00:48:39,090 --> 00:48:43,530 is increasing inequality of income and wealth. 972 00:48:43,530 --> 00:48:48,120 I think it's very hard to point a policy finger at what's 973 00:48:48,120 --> 00:48:50,190 done that, and it's very complicated 974 00:48:50,190 --> 00:48:52,350 to figure out what's done it, but it has 975 00:48:52,350 --> 00:48:54,580 happened one way or another. 976 00:48:54,580 --> 00:48:56,760 And so the thing that upsets people 977 00:48:56,760 --> 00:49:02,450 is the difference in the size of Warren Buffett's 978 00:49:02,450 --> 00:49:04,910 voice and your voice. 979 00:49:04,910 --> 00:49:07,340 If it's one person, one vote, we don't all 980 00:49:07,340 --> 00:49:11,750 have equal impact on the process with contributions. 981 00:49:11,750 --> 00:49:17,780 In fact, they differ by several multiple orders of magnitude. 982 00:49:17,780 --> 00:49:18,830 That's the upset. 983 00:49:18,830 --> 00:49:22,310 I have no problem with-- and the campaign finance laws 984 00:49:22,310 --> 00:49:24,410 were supposed to deal with that. 985 00:49:24,410 --> 00:49:26,600 The idea was A, corporations can't 986 00:49:26,600 --> 00:49:30,830 make political contributions, and B, 987 00:49:30,830 --> 00:49:33,530 there's a limit on how much an individual can spend. 988 00:49:33,530 --> 00:49:36,110 That was intended to equalize voice. 989 00:49:36,110 --> 00:49:38,330 You can still give to various organizations 990 00:49:38,330 --> 00:49:43,220 as much as you want, but in terms of the electoral process, 991 00:49:43,220 --> 00:49:44,850 there were limits. 992 00:49:44,850 --> 00:49:48,120 Those laws are no longer relevant because 993 00:49:48,120 --> 00:49:49,568 of Citizens United. 994 00:49:49,568 --> 00:49:50,610 I mean, that's the issue. 995 00:49:50,610 --> 00:49:54,720 I mean, I've got no problem with people spending money. 996 00:49:54,720 --> 00:50:00,000 I'm not profoundly upset at the current system, 997 00:50:00,000 --> 00:50:04,500 but the huge difference in the ability of somebody 998 00:50:04,500 --> 00:50:07,620 like this casino owner who gave $15 million 999 00:50:07,620 --> 00:50:10,950 to the Newt Gingrich campaign-- 1000 00:50:10,950 --> 00:50:14,830 that's one guy carrying a presidential campaign. 1001 00:50:14,830 --> 00:50:15,330 Wow. 1002 00:50:18,600 --> 00:50:23,370 That no longer sounds like Athenian democracy. 1003 00:50:23,370 --> 00:50:24,334 Yeah. 1004 00:50:24,334 --> 00:50:26,890 AUDIENCE: Two points-- one, couldn't a voucher system 1005 00:50:26,890 --> 00:50:28,260 solve this problem? 1006 00:50:28,260 --> 00:50:31,208 Like something proposed by Lawrence Lessig. 1007 00:50:31,208 --> 00:50:33,750 RICHARD SCHMALENSEE: Say what you mean by a "voucher system." 1008 00:50:33,750 --> 00:50:35,333 AUDIENCE: So what Lawrence Lessig says 1009 00:50:35,333 --> 00:50:39,390 is that each individual has $50 tax credit, 1010 00:50:39,390 --> 00:50:41,850 and that money goes towards funding a candidate. 1011 00:50:41,850 --> 00:50:43,430 And there's no other outside-- 1012 00:50:43,430 --> 00:50:43,890 [INTERPOSING VOICES] 1013 00:50:43,890 --> 00:50:46,390 RICHARD SCHMALENSEE: Yeah, it's the "no other outside money" 1014 00:50:46,390 --> 00:50:48,810 that violates the Constitution, almost certainly. 1015 00:50:48,810 --> 00:50:52,253 So let me move forward a little bit. 1016 00:50:52,253 --> 00:50:53,670 AUDIENCE: [INAUDIBLE] second part. 1017 00:50:53,670 --> 00:50:54,530 RICHARD SCHMALENSEE: Yeah, please. 1018 00:50:54,530 --> 00:50:55,947 AUDIENCE: Wouldn't pure capitalism 1019 00:50:55,947 --> 00:50:58,560 solve this problem because the governments 1020 00:50:58,560 --> 00:50:59,737 aren't involved then. 1021 00:50:59,737 --> 00:51:02,070 And if you're buying milk, it's the consumer [INAUDIBLE] 1022 00:51:02,070 --> 00:51:03,330 supply. 1023 00:51:03,330 --> 00:51:04,913 RICHARD SCHMALENSEE: Oh, you're saying 1024 00:51:04,913 --> 00:51:07,300 that you should limit the scope of government 1025 00:51:07,300 --> 00:51:09,120 so you can limit the mischief it can do. 1026 00:51:09,120 --> 00:51:11,357 AUDIENCE: In theory. 1027 00:51:11,357 --> 00:51:12,440 RICHARD SCHMALENSEE: Sure. 1028 00:51:12,440 --> 00:51:14,780 Why are we trying to raise the price of milk, 1029 00:51:14,780 --> 00:51:15,920 for heaven's sakes? 1030 00:51:15,920 --> 00:51:18,570 Because dairy farmers are a very effective 1031 00:51:18,570 --> 00:51:19,820 organized group and have been. 1032 00:51:19,820 --> 00:51:21,278 Why do we raise the price of sugar? 1033 00:51:21,278 --> 00:51:25,790 Because if we didn't have barriers to trade in sugar, 1034 00:51:25,790 --> 00:51:27,920 we would undoubtedly buy Cuban sugar, 1035 00:51:27,920 --> 00:51:30,200 and we don't wish to buy Cuban sugar. 1036 00:51:30,200 --> 00:51:34,670 Oh, and by the way, they're sugar producers. 1037 00:51:34,670 --> 00:51:40,640 Anyway, lobbying-- let me urge you read the short piece 1038 00:51:40,640 --> 00:51:42,710 by [? Kline ?] and [? Steller. ?] It's not 1039 00:51:42,710 --> 00:51:45,560 on the syllabus because it came out this spring. 1040 00:51:45,560 --> 00:51:48,980 It's a very nice description consistent with all 1041 00:51:48,980 --> 00:51:54,130 my experience of how lobbying works. 1042 00:51:54,130 --> 00:51:56,770 Effective lobbyists don't walk in with bags of money 1043 00:51:56,770 --> 00:51:57,940 to buy votes. 1044 00:51:57,940 --> 00:52:01,360 Effective lobbyists make friends. 1045 00:52:01,360 --> 00:52:04,210 They get in to talk. 1046 00:52:04,210 --> 00:52:07,300 They provide information. 1047 00:52:07,300 --> 00:52:11,140 The information is, of course, slanted, but it's your friend. 1048 00:52:11,140 --> 00:52:13,060 It's a very interesting description 1049 00:52:13,060 --> 00:52:15,820 of what the guy calls a "gift economy," where 1050 00:52:15,820 --> 00:52:18,790 basically you're doing favors. 1051 00:52:18,790 --> 00:52:20,800 You have a complicated piece of legislation. 1052 00:52:20,800 --> 00:52:24,730 I'll discuss it with you when we play golf next Saturday. 1053 00:52:24,730 --> 00:52:25,960 We're good friends. 1054 00:52:25,960 --> 00:52:27,707 How did I get hired as a lobbyist? 1055 00:52:27,707 --> 00:52:29,290 Because I'm friends with these people. 1056 00:52:29,290 --> 00:52:30,880 That's how I got hired as a lobbyist, 1057 00:52:30,880 --> 00:52:34,990 so they'll play golf with me, so I can tell them this stuff. 1058 00:52:34,990 --> 00:52:37,390 Yeah, maybe I give them some tickets, 1059 00:52:37,390 --> 00:52:39,700 but I'm not going to buy their votes with money 1060 00:52:39,700 --> 00:52:41,210 for a whole set of reasons. 1061 00:52:41,210 --> 00:52:44,200 First of all, you go to jail for that if you're caught. 1062 00:52:44,200 --> 00:52:47,830 And second of all, most people in Congress 1063 00:52:47,830 --> 00:52:50,320 don't think of themselves as crooks. 1064 00:52:50,320 --> 00:52:54,310 They think of themselves as trying to do the right thing. 1065 00:52:54,310 --> 00:52:59,260 So the process of lobbying is very, very nicely 1066 00:52:59,260 --> 00:53:01,300 described in that article. 1067 00:53:01,300 --> 00:53:02,860 And again, it's because I've seen it, 1068 00:53:02,860 --> 00:53:04,610 it's consistent with everything I've seen. 1069 00:53:07,960 --> 00:53:11,170 You become an effective lobby not because you have more money 1070 00:53:11,170 --> 00:53:13,600 to swing around, but because you can hire 1071 00:53:13,600 --> 00:53:15,520 people who have connections. 1072 00:53:15,520 --> 00:53:20,560 You can get information prepared that's useful, 1073 00:53:20,560 --> 00:53:24,040 and you have the ability to affect campaign contributions. 1074 00:53:24,040 --> 00:53:25,360 That does matter. 1075 00:53:25,360 --> 00:53:28,130 But it's a very different process. 1076 00:53:28,130 --> 00:53:31,780 It's a process of influence, not a process of bribery. 1077 00:53:31,780 --> 00:53:32,950 So I urge you to read that. 1078 00:53:32,950 --> 00:53:34,060 It's short. 1079 00:53:34,060 --> 00:53:41,230 So quickly, [? Loewy ?] makes the point interest group 1080 00:53:41,230 --> 00:53:44,320 competition is one kind of politics. 1081 00:53:44,320 --> 00:53:47,260 It really is inside baseball. 1082 00:53:47,260 --> 00:53:52,540 But if you look at various kinds of political action 1083 00:53:52,540 --> 00:53:55,210 and various kinds of governmental action, 1084 00:53:55,210 --> 00:53:56,750 it doesn't all fit. 1085 00:53:56,750 --> 00:53:59,180 This is a set of possibilities. 1086 00:53:59,180 --> 00:54:01,690 This is impact on the Federal Reserve. 1087 00:54:01,690 --> 00:54:04,000 Well, is that interest groups? 1088 00:54:04,000 --> 00:54:08,110 Antitrust policy-- is that interest groups? 1089 00:54:08,110 --> 00:54:11,500 Reapportionment-- well, that's more complicated. 1090 00:54:11,500 --> 00:54:17,830 Tariffs-- tariff policy is winners and losers. 1091 00:54:17,830 --> 00:54:23,320 Milk price supports is aiding constituents. 1092 00:54:23,320 --> 00:54:27,520 Regulation-- can you make products safety 1093 00:54:27,520 --> 00:54:28,840 regulation interest groups? 1094 00:54:28,840 --> 00:54:30,560 Not too easily. 1095 00:54:30,560 --> 00:54:32,320 So the [? Loewy ?] point, and you 1096 00:54:32,320 --> 00:54:35,080 can read the text around this to interpret this diagram, 1097 00:54:35,080 --> 00:54:40,600 is that that doesn't always describe politics well. 1098 00:54:40,600 --> 00:54:43,660 I'm going to come back to that when we talk about regulation. 1099 00:54:43,660 --> 00:54:45,340 There's also other models. 1100 00:54:45,340 --> 00:54:48,310 Now, this is the piece by Whitt. 1101 00:54:48,310 --> 00:54:53,470 And Whitt is a Marxist, so Whitt is very big on class dialectic. 1102 00:54:53,470 --> 00:54:56,270 And if you can make sense out of that, you're one up on me. 1103 00:54:56,270 --> 00:55:01,210 But I think the middle column, the split between the two 1104 00:55:01,210 --> 00:55:02,590 columns is interesting. 1105 00:55:02,590 --> 00:55:05,200 If you think about politics in China 1106 00:55:05,200 --> 00:55:07,450 or if you think about traditional politics 1107 00:55:07,450 --> 00:55:09,160 in Latin American countries, where 1108 00:55:09,160 --> 00:55:11,260 they would talk about the oligarchy, 1109 00:55:11,260 --> 00:55:15,850 you would think about this middle column. 1110 00:55:15,850 --> 00:55:20,330 You would think about politics by the elite. 1111 00:55:20,330 --> 00:55:26,870 Read descriptions of politics in Haiti, et cetera. 1112 00:55:26,870 --> 00:55:29,630 There are a number of situations in which it makes sense 1113 00:55:29,630 --> 00:55:31,250 to think about. 1114 00:55:31,250 --> 00:55:35,810 And if you read older descriptions 1115 00:55:35,810 --> 00:55:39,680 in Boston of the vault, which is what 1116 00:55:39,680 --> 00:55:41,840 all the business and civic leaders 1117 00:55:41,840 --> 00:55:45,770 would get together in the vault of the Bank of Boston, 1118 00:55:45,770 --> 00:55:50,523 you sort of have a politics that doesn't look so much like this. 1119 00:55:50,523 --> 00:55:52,190 This is really a [? Loewy ?] description 1120 00:55:52,190 --> 00:55:54,950 over here, a very nice [? Loewy ?] description 1121 00:55:54,950 --> 00:55:56,870 of how it ought to work. 1122 00:55:56,870 --> 00:56:01,590 But in fact, there are situations in which in essence, 1123 00:56:01,590 --> 00:56:03,500 there is a relatively small elite that 1124 00:56:03,500 --> 00:56:04,700 controls the government. 1125 00:56:04,700 --> 00:56:07,250 They may control the government for exploitation. 1126 00:56:07,250 --> 00:56:09,750 They may control the government for who knows what, 1127 00:56:09,750 --> 00:56:11,070 but it's a club. 1128 00:56:11,070 --> 00:56:13,580 It's a small club. 1129 00:56:13,580 --> 00:56:15,920 And there are situations that look like that. 1130 00:56:15,920 --> 00:56:19,400 The US doesn't look like that so much because our politics are 1131 00:56:19,400 --> 00:56:20,810 less well organized. 1132 00:56:20,810 --> 00:56:23,300 Latin countries always used to look like that. 1133 00:56:23,300 --> 00:56:25,280 They're less so now. 1134 00:56:25,280 --> 00:56:31,400 But again, listen to [? Evita ?] and hear 1135 00:56:31,400 --> 00:56:34,610 them talk about the oligarchy. 1136 00:56:34,610 --> 00:56:36,050 So there are a number of settings 1137 00:56:36,050 --> 00:56:38,660 in which it makes sense to think about the politics 1138 00:56:38,660 --> 00:56:43,130 as elite control, not interest group competition. 1139 00:56:43,130 --> 00:56:45,350 You might think about that. 1140 00:56:45,350 --> 00:56:49,670 There are also situations that don't fit any of these, 1141 00:56:49,670 --> 00:56:53,630 and I'll talk about some of those. 1142 00:56:53,630 --> 00:56:57,170 What I want to do now is begin the lead 1143 00:56:57,170 --> 00:57:04,070 into the discussion of clean air as an example 1144 00:57:04,070 --> 00:57:07,010 where a number of these and some other things surface. 1145 00:57:07,010 --> 00:57:09,090 So I realize that to do that case, 1146 00:57:09,090 --> 00:57:11,780 you have to have a little background on the structure 1147 00:57:11,780 --> 00:57:13,460 of federal regulation. 1148 00:57:13,460 --> 00:57:14,660 And let me do that now. 1149 00:57:14,660 --> 00:57:17,930 Please try to stay awake. 1150 00:57:17,930 --> 00:57:26,450 The way the US system works, typically, is laws are vague. 1151 00:57:26,450 --> 00:57:29,480 Laws say things like, "EPA must set a standard 1152 00:57:29,480 --> 00:57:34,700 to protect human health," or "the public utility commission 1153 00:57:34,700 --> 00:57:37,580 shall ensure that electricity prices are just, reasonable, 1154 00:57:37,580 --> 00:57:40,670 and not unduly discriminatory." 1155 00:57:40,670 --> 00:57:44,870 Very commonly, this is a very standard-- sometimes 1156 00:57:44,870 --> 00:57:47,043 that's handed to a cabinet department-- 1157 00:57:47,043 --> 00:57:49,460 the Department of Agriculture, the Department of Interior, 1158 00:57:49,460 --> 00:57:50,030 whatever. 1159 00:57:50,030 --> 00:57:51,860 Sometimes, it's handed to an agency. 1160 00:57:51,860 --> 00:57:56,000 We're talking here mostly about agencies. 1161 00:57:56,000 --> 00:57:59,228 They come in two forms-- 1162 00:57:59,228 --> 00:58:00,770 they're either independent or they're 1163 00:58:00,770 --> 00:58:03,033 part of the executive branch. 1164 00:58:03,033 --> 00:58:04,700 If they're part of the executive branch, 1165 00:58:04,700 --> 00:58:07,310 like EPA, the President appoints the head. 1166 00:58:07,310 --> 00:58:09,950 The President can fire the head. 1167 00:58:09,950 --> 00:58:12,650 If they're independent, the President 1168 00:58:12,650 --> 00:58:15,800 will be able to appoint the head but not remove them, 1169 00:58:15,800 --> 00:58:18,200 except to show cause. 1170 00:58:18,200 --> 00:58:20,840 You can fire the head of EPA because he or she ticked you 1171 00:58:20,840 --> 00:58:22,040 off. 1172 00:58:22,040 --> 00:58:25,130 To fire the head of FERC, you have to show cause. 1173 00:58:25,130 --> 00:58:27,450 That can be challenged in court, and so forth. 1174 00:58:27,450 --> 00:58:29,900 So they are independent. 1175 00:58:29,900 --> 00:58:33,920 They were invented around in the teens of the last century. 1176 00:58:33,920 --> 00:58:35,810 The idea was to make them-- well, 1177 00:58:35,810 --> 00:58:37,400 there were some earlier examples, 1178 00:58:37,400 --> 00:58:40,280 but it was really pushed then. 1179 00:58:40,280 --> 00:58:41,870 The idea was these will be expert 1180 00:58:41,870 --> 00:58:43,340 bodies immune to politics. 1181 00:58:43,340 --> 00:58:46,520 The Federal Trade Commission is one such like that it. 1182 00:58:46,520 --> 00:58:48,980 It has its own building. 1183 00:58:48,980 --> 00:58:51,080 It gets its money from Congress. 1184 00:58:51,080 --> 00:58:53,720 It doesn't report to the President. 1185 00:58:53,720 --> 00:58:56,480 The President appoints people with the consent of Congress, 1186 00:58:56,480 --> 00:58:58,130 can't fire them. 1187 00:58:58,130 --> 00:59:00,890 Often, they have to be bipartisan-- 1188 00:59:00,890 --> 00:59:03,500 two Republicans, two Democrats, something like that. 1189 00:59:06,037 --> 00:59:06,995 They could be captured. 1190 00:59:12,740 --> 00:59:15,740 They could be captured by the regulated interests. 1191 00:59:15,740 --> 00:59:17,870 It's argued that FERC is captured by the utilities. 1192 00:59:17,870 --> 00:59:20,760 I don't think that's true, but you can make the case. 1193 00:59:20,760 --> 00:59:23,030 And the idea of putting EPA, which 1194 00:59:23,030 --> 00:59:25,010 is a later creation, in the executive branch 1195 00:59:25,010 --> 00:59:28,430 was to make it responsive to politics, make it responsible. 1196 00:59:31,940 --> 00:59:35,270 It affects the kind of oversight. 1197 00:59:35,270 --> 00:59:39,410 Rules passed by EPA, rules proposed by EPA, 1198 00:59:39,410 --> 00:59:43,190 are reviewed by the Office of Information and Regulatory 1199 00:59:43,190 --> 00:59:46,100 Analysis in the Office of Management and Budget. 1200 00:59:46,100 --> 00:59:48,170 They can be called in on the carpet. 1201 00:59:48,170 --> 00:59:50,000 They can be fired. 1202 00:59:50,000 --> 00:59:51,530 All kinds of things could happen. 1203 00:59:51,530 --> 00:59:54,200 The Federal Communications Commission, or the FERC, 1204 00:59:54,200 --> 00:59:55,910 or state public utility commissions, 1205 00:59:55,910 --> 00:59:59,378 are not reviewed in that fashion by the President, 1206 00:59:59,378 --> 01:00:01,170 or the President's people, or the governor, 1207 01:00:01,170 --> 01:00:03,060 or the governor's people. 1208 01:00:03,060 --> 01:00:08,220 But all decisions by regulatory agencies 1209 01:00:08,220 --> 01:00:11,100 can be reviewed in the courts. 1210 01:00:11,100 --> 01:00:13,260 So here's the architecture. 1211 01:00:13,260 --> 01:00:16,080 The law says it's got to be just and reasonable. 1212 01:00:16,080 --> 01:00:20,340 It's got to protect, blah, blah, blah. 1213 01:00:20,340 --> 01:00:22,980 In some cases, the President or the governor 1214 01:00:22,980 --> 01:00:25,620 can review it, more commonly not. 1215 01:00:25,620 --> 01:00:29,640 It gets reviewed by the courts under the Administrative 1216 01:00:29,640 --> 01:00:34,170 Procedures Act of 1946, or related state acts. 1217 01:00:34,170 --> 01:00:38,760 The court can reject an action that's 1218 01:00:38,760 --> 01:00:41,040 arbitrary and capricious, an abuse of discretion, 1219 01:00:41,040 --> 01:00:43,420 or not otherwise in accordance with the law. 1220 01:00:43,420 --> 01:00:47,070 So the law says you have to protect human health. 1221 01:00:47,070 --> 01:00:50,040 The agency has no evidence on health. 1222 01:00:50,040 --> 01:00:52,620 The court will say, that's arbitrary and capricious, 1223 01:00:52,620 --> 01:00:54,390 and throw it out. 1224 01:00:54,390 --> 01:00:59,770 Or you didn't take into account public comment. 1225 01:00:59,770 --> 01:01:04,080 So here is where organized interest groups matter. 1226 01:01:04,080 --> 01:01:06,180 So the agency is going to make a decision. 1227 01:01:06,180 --> 01:01:08,445 It has to take comments, usually. 1228 01:01:11,360 --> 01:01:17,300 And the American Public Power Association 1229 01:01:17,300 --> 01:01:20,210 will file comments on everything. e 1230 01:01:20,210 --> 01:01:21,685 which is this electricity consumers 1231 01:01:21,685 --> 01:01:23,810 organization, will file comments on everything that 1232 01:01:23,810 --> 01:01:25,310 has to do with electricity. 1233 01:01:25,310 --> 01:01:27,810 You and I won't. 1234 01:01:27,810 --> 01:01:32,050 As will every utility in the land, and who knows, 1235 01:01:32,050 --> 01:01:33,300 General Electric. 1236 01:01:33,300 --> 01:01:36,390 Organized interest groups will file comments. 1237 01:01:36,390 --> 01:01:39,480 And the courts will reject a rule 1238 01:01:39,480 --> 01:01:43,450 that doesn't take adequate account of public comment. 1239 01:01:43,450 --> 01:01:49,500 So if somebody proves that a chemical is cancer causing, 1240 01:01:49,500 --> 01:01:54,180 and EPA says, no, it'll be thrown out. 1241 01:01:54,180 --> 01:01:57,330 You've got to consider the evidence that's 1242 01:01:57,330 --> 01:02:00,060 submitted in the process. 1243 01:02:00,060 --> 01:02:02,580 That's the regulatory process, particularly as it relates 1244 01:02:02,580 --> 01:02:06,050 to environmental regulation-- 1245 01:02:06,050 --> 01:02:10,520 fairly vague laws, not always, not on all terms, 1246 01:02:10,520 --> 01:02:13,040 but usually fairly vague, hands it off, 1247 01:02:13,040 --> 01:02:15,290 delegates to the agency. 1248 01:02:15,290 --> 01:02:20,300 Sometimes, in the case of EPA, reviewed by the White House, 1249 01:02:20,300 --> 01:02:21,290 sometimes not. 1250 01:02:21,290 --> 01:02:25,570 Always reviewable by the courts, always 1251 01:02:25,570 --> 01:02:27,640 a requirement to take into account comments. 1252 01:02:32,860 --> 01:02:35,410 You might ask, who would work in a regulatory agency? 1253 01:02:35,410 --> 01:02:37,480 And we'll talk about that briefly. 1254 01:02:37,480 --> 01:02:42,460 But is that process reasonably straightforward? 1255 01:02:42,460 --> 01:02:43,106 Yeah. 1256 01:02:43,106 --> 01:02:44,255 AUDIENCE: Would it take into account 1257 01:02:44,255 --> 01:02:45,338 who's making the comments? 1258 01:02:49,780 --> 01:02:50,780 RICHARD SCHMALENSEE: No. 1259 01:02:50,780 --> 01:02:54,030 You take into account the evidence provided. 1260 01:02:54,030 --> 01:02:57,470 So if the large electricity consumers, say, 1261 01:02:57,470 --> 01:03:00,200 we think that rates too high, well, there's 1262 01:03:00,200 --> 01:03:02,210 nothing to take into account. 1263 01:03:02,210 --> 01:03:09,110 If they say, here's a study that shows that 10% of our members 1264 01:03:09,110 --> 01:03:12,050 will be driven bankrupt by these prices, 1265 01:03:12,050 --> 01:03:18,540 and the study is not junk, they have to consider that. 1266 01:03:18,540 --> 01:03:22,340 So they're not obliged, in fact, they're almost obliged 1267 01:03:22,340 --> 01:03:25,580 not to take into account the source, 1268 01:03:25,580 --> 01:03:29,810 but to focus on the content, which is sort of sensible. 1269 01:03:29,810 --> 01:03:30,890 Yeah. 1270 01:03:30,890 --> 01:03:33,850 Anything else? 1271 01:03:33,850 --> 01:03:37,850 Yeah, you actually have to make arguments. 1272 01:03:37,850 --> 01:03:42,892 OK, so we've been talking about interest group politics. 1273 01:03:42,892 --> 01:03:44,100 We're talking about factions. 1274 01:03:48,750 --> 01:03:51,760 How did that act get passed? 1275 01:03:51,760 --> 01:03:54,477 Was that interest group competition? 1276 01:03:54,477 --> 01:03:56,060 Did interest group competition give us 1277 01:03:56,060 --> 01:04:00,620 the Clean Air Act of 1970? 1278 01:04:00,620 --> 01:04:01,970 And if so list the groups. 1279 01:04:05,590 --> 01:04:08,200 Clean Air Act of 1970 was a strong assertion 1280 01:04:08,200 --> 01:04:10,250 of federal power over the environment. 1281 01:04:10,250 --> 01:04:13,510 It in effect-- didn't quite, but in effect-- created EPA. 1282 01:04:16,260 --> 01:04:20,280 Put in the architecture for air pollution control, water 1283 01:04:20,280 --> 01:04:21,240 pollution control-- 1284 01:04:21,240 --> 01:04:22,890 well, the air pollution control-- 1285 01:04:22,890 --> 01:04:25,140 that still governs. 1286 01:04:25,140 --> 01:04:27,720 Took power from the states. 1287 01:04:27,720 --> 01:04:29,393 Interest group competition? 1288 01:04:34,130 --> 01:04:34,936 Brendan. 1289 01:04:34,936 --> 01:04:36,610 AUDIENCE: [INAUDIBLE] competition 1290 01:04:36,610 --> 01:04:40,990 between environmentalists and those maybe people who 1291 01:04:40,990 --> 01:04:42,615 were using chemicals that the Clean Air 1292 01:04:42,615 --> 01:04:46,000 Act was [INAUDIBLE] against? 1293 01:04:46,000 --> 01:04:47,969 RICHARD SCHMALENSEE: Well, environmentalists-- 1294 01:04:52,960 --> 01:04:56,020 let me push you a little farther. 1295 01:04:56,020 --> 01:05:01,150 If you go back to 1960, could you find environmentalists? 1296 01:05:01,150 --> 01:05:01,902 AUDIENCE: No. 1297 01:05:01,902 --> 01:05:03,360 RICHARD SCHMALENSEE: What happened? 1298 01:05:03,360 --> 01:05:05,730 I think it was 1970 or close to 1970. 1299 01:05:05,730 --> 01:05:07,700 There was a big event. 1300 01:05:07,700 --> 01:05:08,650 AUDIENCE: [INAUDIBLE]. 1301 01:05:08,650 --> 01:05:09,942 RICHARD SCHMALENSEE: Earth Day. 1302 01:05:09,942 --> 01:05:10,570 Earth Day. 1303 01:05:10,570 --> 01:05:12,190 That was when people started talking 1304 01:05:12,190 --> 01:05:14,650 not about environmentalists, but about the environmental 1305 01:05:14,650 --> 01:05:16,370 movement. 1306 01:05:16,370 --> 01:05:19,210 You began to hear the word "movement," 1307 01:05:19,210 --> 01:05:23,170 just as you start to hear about the Tea Party 1308 01:05:23,170 --> 01:05:26,680 movement, the Occupy Movement. 1309 01:05:26,680 --> 01:05:29,410 You started to hear about the environmental movement, 1310 01:05:29,410 --> 01:05:32,530 the civil rights movement. 1311 01:05:32,530 --> 01:05:34,880 Those aren't really interest groups. 1312 01:05:34,880 --> 01:05:37,870 We'll talk Monday about what they are, 1313 01:05:37,870 --> 01:05:41,320 but social movements are a bit distinct 1314 01:05:41,320 --> 01:05:42,670 from organized interest groups. 1315 01:05:42,670 --> 01:05:46,660 They're certainly distinct from organized political parties. 1316 01:05:46,660 --> 01:05:50,440 Yet every so often, they get something like that passed. 1317 01:05:50,440 --> 01:05:54,330 Richard Nixon was not an avid environmentalist. 1318 01:05:54,330 --> 01:05:57,360 This was not a Republican issue, to say the least. 1319 01:06:00,610 --> 01:06:03,670 There was no industrial support for the cleanup, maybe 1320 01:06:03,670 --> 01:06:05,830 a little industrial support, because the state 1321 01:06:05,830 --> 01:06:08,780 rules differed and that was a little problematic, 1322 01:06:08,780 --> 01:06:13,810 but not much, not noticeable industrial support. 1323 01:06:13,810 --> 01:06:16,750 That was a social movement. 1324 01:06:16,750 --> 01:06:18,400 Who was it was telling me about all 1325 01:06:18,400 --> 01:06:22,090 the "No fracking" signs in New York State, 1326 01:06:22,090 --> 01:06:23,720 somebody who sits over here? 1327 01:06:23,720 --> 01:06:25,600 AUDIENCE: [INAUDIBLE]. 1328 01:06:25,600 --> 01:06:28,780 RICHARD SCHMALENSEE: Yeah, that's a social movement. 1329 01:06:28,780 --> 01:06:31,090 That's not an organized interest group 1330 01:06:31,090 --> 01:06:34,780 in the sense that the American Forest Products Association is 1331 01:06:34,780 --> 01:06:37,390 or the American Public Power Association. 1332 01:06:37,390 --> 01:06:40,060 That's a bunch of people who get very upset about fracking, 1333 01:06:40,060 --> 01:06:42,520 and who by god make noise. 1334 01:06:42,520 --> 01:06:44,320 That's what got us the Clean Air Act. 1335 01:06:47,650 --> 01:06:49,900 We may need that to do something about climate change, 1336 01:06:49,900 --> 01:06:52,108 but we don't have a social movement in that direction 1337 01:06:52,108 --> 01:06:54,220 quite yet. 1338 01:06:54,220 --> 01:06:58,080 But we did have interest groups after '71. 1339 01:06:58,080 --> 01:07:01,400 So who were they? 1340 01:07:01,400 --> 01:07:04,700 Who were the interest groups affecting SO2 regulation 1341 01:07:04,700 --> 01:07:06,095 from power plants? 1342 01:07:06,095 --> 01:07:08,220 And we're going to walk through the case next week. 1343 01:07:08,220 --> 01:07:10,730 So please, please do get it. 1344 01:07:10,730 --> 01:07:12,680 Anybody? 1345 01:07:12,680 --> 01:07:14,100 Has somebody looked at the case? 1346 01:07:14,100 --> 01:07:14,933 Who were the groups? 1347 01:07:18,290 --> 01:07:19,175 Sarah. 1348 01:07:19,175 --> 01:07:21,360 AUDIENCE: [INAUDIBLE] coal power plants 1349 01:07:21,360 --> 01:07:25,575 who [INAUDIBLE] their facilities and where they get their coal. 1350 01:07:25,575 --> 01:07:28,200 RICHARD SCHMALENSEE: So you had utilities with coal-fired power 1351 01:07:28,200 --> 01:07:29,550 plants. 1352 01:07:29,550 --> 01:07:30,740 Who else? 1353 01:07:30,740 --> 01:07:34,820 AUDIENCE: You had utilities as well, utilities. 1354 01:07:34,820 --> 01:07:37,320 RICHARD SCHMALENSEE: Utilities, yeah, with coal-fired power. 1355 01:07:37,320 --> 01:07:37,987 They owned them. 1356 01:07:37,987 --> 01:07:40,290 Everybody was vertically integrated in those days. 1357 01:07:40,290 --> 01:07:42,245 Utilities with coal-fired power plants and-- 1358 01:07:42,245 --> 01:07:43,620 AUDIENCE: Environmental concerns. 1359 01:07:43,620 --> 01:07:45,495 RICHARD SCHMALENSEE: Environmentalists, yeah. 1360 01:07:45,495 --> 01:07:47,186 They were pretty well organized by then. 1361 01:07:47,186 --> 01:07:48,900 AUDIENCE: Coal producers in the East and in the West. 1362 01:07:48,900 --> 01:07:50,858 RICHARD SCHMALENSEE: Coal producers in the East 1363 01:07:50,858 --> 01:07:53,415 and in the West, two distinct groups. 1364 01:07:56,880 --> 01:08:00,030 Eastern and Western producers, electric utilities, 1365 01:08:00,030 --> 01:08:02,580 Western states a little bit on some 1366 01:08:02,580 --> 01:08:06,300 of the prevention of significant deterioration, 1367 01:08:06,300 --> 01:08:15,040 and the environmentalists-- 1368 01:08:15,040 --> 01:08:16,420 who wasn't represented? 1369 01:08:16,420 --> 01:08:17,560 Anybody? 1370 01:08:17,560 --> 01:08:21,979 To go back to [? Loewy, ?] are there any interests, not 1371 01:08:21,979 --> 01:08:22,670 interest groups. 1372 01:08:22,670 --> 01:08:24,755 Are there any interests, David? 1373 01:08:24,755 --> 01:08:26,880 AUDIENCE: We all buy the electric power [INAUDIBLE] 1374 01:08:26,880 --> 01:08:29,149 price [INAUDIBLE] affects us [INAUDIBLE].. 1375 01:08:29,149 --> 01:08:30,770 RICHARD SCHMALENSEE: So consumers 1376 01:08:30,770 --> 01:08:33,080 weren't represented, except maybe indirectly 1377 01:08:33,080 --> 01:08:36,439 by electric utilities who wanted to keep their costs down. 1378 01:08:36,439 --> 01:08:42,090 So you're not represented as a consumer of electric power. 1379 01:08:42,090 --> 01:08:43,384 Any other interest, Charlotte? 1380 01:08:43,384 --> 01:08:45,884 AUDIENCE: Maybe the people who are near the power plants who 1381 01:08:45,884 --> 01:08:47,359 would be affected by pollution. 1382 01:08:47,359 --> 01:08:49,790 RICHARD SCHMALENSEE: People who breathe air, right. 1383 01:08:49,790 --> 01:08:51,380 Yeah. 1384 01:08:51,380 --> 01:08:53,810 So the environmental groups, in a sense, 1385 01:08:53,810 --> 01:08:58,160 are indirectly representing that interest. 1386 01:08:58,160 --> 01:09:01,020 As we'll see, they also had other interests. 1387 01:09:01,020 --> 01:09:04,310 So I don't know, I think those are 1388 01:09:04,310 --> 01:09:06,770 the main ones that I think of. 1389 01:09:06,770 --> 01:09:08,040 You had more. 1390 01:09:08,040 --> 01:09:09,200 Oh, I thought you were-- 1391 01:09:09,200 --> 01:09:12,170 just waving, OK. 1392 01:09:12,170 --> 01:09:16,609 OK, how did the act set it up? 1393 01:09:16,609 --> 01:09:17,300 Who did what? 1394 01:09:17,300 --> 01:09:18,350 What did EPA have to do? 1395 01:09:18,350 --> 01:09:19,910 What did the states do? 1396 01:09:19,910 --> 01:09:20,960 What about new plants? 1397 01:09:20,960 --> 01:09:22,220 What about old plants? 1398 01:09:22,220 --> 01:09:23,990 What was the design? 1399 01:09:23,990 --> 01:09:28,040 Who did what, the '70 act set up. 1400 01:09:28,040 --> 01:09:28,892 Casey. 1401 01:09:28,892 --> 01:09:32,149 AUDIENCE: The EPA set overarching air pollution 1402 01:09:32,149 --> 01:09:33,745 limits, and then each state would 1403 01:09:33,745 --> 01:09:35,800 have to figure out how they were going to [INAUDIBLE].. 1404 01:09:35,800 --> 01:09:36,850 RICHARD SCHMALENSEE: So the EPA would 1405 01:09:36,850 --> 01:09:39,460 set air quality standard, national ambient air quality 1406 01:09:39,460 --> 01:09:40,300 standards. 1407 01:09:40,300 --> 01:09:43,960 And then it would, as regards existing plants and existing 1408 01:09:43,960 --> 01:09:49,090 facilities, ask the states for state implementation plans 1409 01:09:49,090 --> 01:09:51,069 to meet those requirements. 1410 01:09:51,069 --> 01:09:52,090 Absolutely right. 1411 01:09:52,090 --> 01:09:53,735 What about new power plants? 1412 01:09:53,735 --> 01:09:56,152 AUDIENCE: There's a different set of regulations for them. 1413 01:09:56,152 --> 01:09:57,457 [INAUDIBLE] 1414 01:09:57,457 --> 01:09:58,665 RICHARD SCHMALENSEE: Set by-- 1415 01:09:58,665 --> 01:10:00,468 AUDIENCE: Set by the EPA. 1416 01:10:00,468 --> 01:10:02,010 RICHARD SCHMALENSEE: Set by the EPA-- 1417 01:10:02,010 --> 01:10:06,660 so the EPA didn't set standards or rules for existing plants. 1418 01:10:06,660 --> 01:10:09,120 It set air quality standards. 1419 01:10:09,120 --> 01:10:11,310 Let the states figure out how to do that. 1420 01:10:11,310 --> 01:10:15,870 But for new plants, there were national standards 1421 01:10:15,870 --> 01:10:16,545 for new plants. 1422 01:10:19,300 --> 01:10:20,670 What's the basic rationale? 1423 01:10:20,670 --> 01:10:24,010 Why would you treat new and old plants so differently? 1424 01:10:24,010 --> 01:10:25,480 Matthew. 1425 01:10:25,480 --> 01:10:27,860 AUDIENCE: Because the existing plants, 1426 01:10:27,860 --> 01:10:30,730 in order to retrofit them, you would need expensive equipment. 1427 01:10:30,730 --> 01:10:33,117 It might not even be worth it. 1428 01:10:33,117 --> 01:10:37,080 But the new ones, they can design it so that [INAUDIBLE].. 1429 01:10:37,080 --> 01:10:39,580 RICHARD SCHMALENSEE: So that's the basic rationale exactly-- 1430 01:10:39,580 --> 01:10:43,630 that new plants, in a sense, you've 1431 01:10:43,630 --> 01:10:45,290 got a blank sheet of paper. 1432 01:10:45,290 --> 01:10:48,490 And you can design the plant to meet this standard. 1433 01:10:48,490 --> 01:10:51,010 Old plants differ in so many ways 1434 01:10:51,010 --> 01:10:55,090 that there's no easy way to use the same standard 1435 01:10:55,090 --> 01:10:56,290 across all old plants. 1436 01:10:56,290 --> 01:10:58,690 It would be easy for some, impossible for others. 1437 01:10:58,690 --> 01:11:01,150 Let the states figure it out. 1438 01:11:01,150 --> 01:11:04,930 That is exactly the basic rationale. 1439 01:11:04,930 --> 01:11:08,770 We'll come back to sort of how that worked. 1440 01:11:08,770 --> 01:11:12,310 So what we're going to do in the next two sessions, 1441 01:11:12,310 --> 01:11:17,490 we're going to talk about social movements on Monday. 1442 01:11:17,490 --> 01:11:20,160 And one of the reasons we're talking about social movements 1443 01:11:20,160 --> 01:11:27,300 is that that's what got the '70s act passed. 1444 01:11:27,300 --> 01:11:31,320 The Civil Rights movement got civil rights legislation 1445 01:11:31,320 --> 01:11:32,040 passed-- 1446 01:11:32,040 --> 01:11:35,310 not an organized party, not quite an interest group, 1447 01:11:35,310 --> 01:11:38,220 not the American Forest Products Association. 1448 01:11:38,220 --> 01:11:40,230 And then we'll come back to this case, 1449 01:11:40,230 --> 01:11:46,620 and we'll talk about how we got the politics of the standards, 1450 01:11:46,620 --> 01:11:49,740 the two sets of standards, the acid rain impasse, emissions 1451 01:11:49,740 --> 01:11:53,010 trading, other stuff. 1452 01:11:53,010 --> 01:11:54,860 Thank you.