Economics 102: The Law of Supply and Demand

I am not an economist and I do not play one on TV. I do, however, have some economic hypotheses that I apply when thinking about certain government policies. Before we can get to that I need to lay out some basic premises for my ideas.

At the beginning of this month I posted a short piece Economics 101: What’s in it for Number One? in which I posited that as a general rule people will tend to act in what they perceive to be their (economic, political, social) best interest.

The second building block for the discussion that will come later is the well-known “law of supply and demand”: all other things being equal, as supply of an economic good increases, its price will decrease and vice versa. It also works from the other side, as the demand a good increases, its price will increase.

Often supply limits will be imposed to keep prices higher than they would otherwise be. There might be limits on the quantity of goods allowed to be produced (for example, the tobacco quota in effect through 2004) or limits in the number of persons licensed to provide the good or service (liquor licenses and taxicab medallions).((Other licensing programs, although not formally designed to limit competition, and thus increase prices, may also have that effect. Where a professional license requires the applicant to pass an examination, the exam itself can be designed (or the passing score determined) in such a way to control the number of persons who successfully complete the exam each time it is administered and thus limit the number of new licensees.)) Patents have this effect as the inventor is granted a time-period during which competitors cannot make use of the patented technology. Once the patent expires, generic goods can enter the market; this increase in supply should result in a lower price.

Much of the action I plan to discuss later happens on the demand side. The effect of demand on a market is similar to auction. Where there is one of a particular commodity, the bidder who is willing to pay the most for it “wins.” In the economic marketplace there are usually more than one of a particular good and the bidding process is not formalized, but it is to be expected that sellers will try to get the highest price they can (because they perceive it to be in their best interest to do so). If the initial seller prices the good too low, a secondary market may spring up in which the initial buyers re-sell rather than consume the good (think concert tickets). Where demand is low, the good will be deeply discounted (here think clearance sales).

One important point that I do not often see in discussions of supply and demand is that “demand” includes, but means more than, mere “want” or “desire” for an item. The potential consumer must be able to pay for the item. No matter how much I may want an Italian villa,((This is merely an example, I do not really have any great, or even middling, desire to own an Italian villa.)) I cannot afford it, so any theoretical desire will have no impact on that market. My “demand” is ineffective.

You might respond that if I really, really wanted that villa, I would find a way to pay for it, and there is some truth in that sentiment. Demand is not simply a combination of desire and wherewithal, but involves the consumer’s choosing where to allocate resources or increase them. I may be able to “afford” something if I value it more than something else I might spend money on — the pearl of great price for which the desirer sells everything he has to purchase. Or, if I want something very much I may seek a better or second job or other means to increase those resources (wherewithal) to convert my desire into “effective” demand. Hold these thoughts for later posts.

Jay Bohn
May 31, 2021

A Brief Review of Select Alternate Voting Systems

In two recent posts (Redesigning the New Jersey Legislature and Ruminations on the Party List) I discussed the “party list” voting system whereby voters select an entire slate rather than individual candidates, with members of the slate being deemed elected in a set order and in proportion to the number of votes the slate receives as compared to all other slates.. In this post I want to discuss very briefly some other alternate voting systems.

First, however, I should explain the system to which these others are alternatives.

Most elections to which we are used designate as the winner the candidate who receives a greater number of votes than any other candidate. Such a candidate is said to have won a plurality, not necessarily a majority, of the valid votes cast.((Hereafter I will simply refer to the total votes cast, but I mean the valid votes, excluding ballots that are invalidated, say for voting for more candidates than permitted by the rules of the election.)) This system is also sometimes called “first past the post.”

A variation on this system, having gained recent fame for being used in the 2020 U.S. Senate elections in Georgia, provides a runoff between the two top vote getters if no candidate obtains a majority in the first round.((Yet another variation, not really practical for a popular election but possible for bodies that actually assemble for an election, is a runoff where only the candidate receiving the fewest votes is eliminated before the next round of voting. The elimination and new round of voting continues until one candidate receives a majority.)) An advantage of the runoff is that it reduces the chance that a third (or fourth or fifth) candidate will play the role of spoiler and allows voters to vote in accordnace with their actual preferences without worrying that they are wasting a vote by voting for a candidate unlikely to win . A disadvantage is that it requires multiple elections.

Ranked choice voting (sometimes called the instant runoff) can provide at least some of the advantages of the runoff system without requiring multiple rounds of voting. In this system the voter indicates a ordered preference among the candidates (say by writing “1,” “2,” etc. next to their names). The first choice ballots are counted and, if no candidate receives a majority, the candidate receiving the fewest first choice votes is eliminated and that candidate’s votes are redistributed to the other candidates according to the second preferences, and so on until someone has a majority. The counting of ballots in this system is more complicated as it must be done in multiple rounds.

So far it has been assumed that the election is choosing among multiple candidates in an election that will produce a single winner. Sometimes, however, the will be several winners, such as New Jersey general assembly elections (two members chosen from each legislative district) and many municipal governing body and school board races. In this scenario it becomes a bit more complicated to talk about anyone (other than perhaps the top vote getter) having received a majority.

Where the particular race is designed to result in multiple winners, it is, I think, more common for each voter to have the same number of votes as there are positions to be filled, but these votes may not usually be cumulated for any one of the candidates but either cast (or forfeited) no more than one per candidate. Thus, in a school board election among candidates A, B, C, D, E, and F, where three winners are chosen, a voter may cast one vote for each of one, two or three of the candidates, but not two or three votes for Candidate A.

The next variation is called “cumulative voting” and it does allow the voter to cast more than one vote for the same candidate.

The final system I am going to discuss is that used for the Dáil Éireann, the first house of the Irish Parliament (Oireachtas). The chamber consists of 160 members elected from 39 constituencies, each electing from three to five members, using what is called the “single transferable vote” system of proportional representation. Like the ranked choice system, the voter indicates a preference among the candidates. A formula using the variables of votes cast and seats to be filled determines the quota, the number of votes a candidate needs to be elected. After the first round of counting any candidate who obtains the quota is deemed elected and any excess votes are transferred to the other candidates in accordance with the next preference.((This is where it starts to get really complicated as the next preference will likely be different for different voters and only the excess votes are transferred. If A gets the quota, the next preferences of all voters who voted for A must be considered and excess votes transferred to each of the other candidates in the same proportion as each candidate was listed as the next preference. As counting rounds increase, it can become even more complicated.)) In each succeeding round the votes (including transferred votes) for the remaining candidates are counted to see if anyone receives the quota. If in any round no candidate receives the quota (and thus there are no excess votes to transfer), then the candidate with the least votes is eliminated, and that candidate’s votes transferred, etc. etc.

Jay Bohn
May 27, 2021

Eliminating the Requirement that the USPS Pre-Fund Retiree Health Benefits Would Be Irresponsible

In its May 23, 2021, edition the Star Ledger carried an article from the Washington Post about a recently introduced Senate bill that would, among other things, eliminate the requirement that the United States Postal Service pre-fund retiree healthcare benefits, which requirement, according to the article, costs the USPS $5 billion a year.

By way of brief background (a more detailed explanation can be found here), in 2006 Congress passed a law that relieved the postal service from some pension funding obligations, but also required it to make contributions to a retiree healthcare benefit fund.

The rhetoric from the postal service is usually to the effect that no other company is required to pre-fund retiree healthcare benefits. True, but private companies can simply cancel those benefits, while the postal service is required by federal law to offer them.

There is also frequently the claim that this requirement has cost the postal service billions of dollars in needed cash flow and prevented necessary investments. This claim is false because the postal service has not actually made the payment since 2012. The obligation is accrued on its balance sheet and contributes to its paper losses, but it does not impact the postal service’s cash flow.

The postal service and, surprisingly, its unions want to pay for retiree health benefits in what they call a “pay as you go” system where the premiums for current retirees are paid from current revenues, which means that today’s postal customers are paying for services performed years ago. (To put it another way, tomorrow’s customers will pay part of the labor cost for services rendered today. In the words of Popeye’s friend Wimpy, “I will gladly pay you on Tuesday for a hamburger today.”) Under a true “pay as you go” system, today’s customers would, by means of the pre-funding, pay for all of the services received today and not saddle future customers with such legacy costs.

As noted above, the postal unions seem to support eliminating the requirement, and I have to wonder why. Here in New Jersey the state employee unions have been pushing for years to have their pension funds fully funded to provide security that the promised benefits will in fact be paid. The postal unions must be awfully sure that when (I wish I could say “if”) the service finds itself unable to pay retiree healthcare costs in the future, there will be a taxpayer bailout.

Jay Bohn
May 24, 2021

Ruminations on the Party List

In my recent post Redesigning the New Jersey Legislature, I suggested that one of that body’s houses, the senate, be selected via the party list method of proportional representation rather than by districts each selecting one senator.((The other house, the general assembly, is elected from the same legislative districts, but each district elects two assemblymembers.))

Under the party list system the list sponsor issues a ranked list of its candidates and, based on its share of the vote, the first so many candidates on the list are elected.

There are lots of potential variables.

In the first place, I would not limit potential list sponsors to major political parties, but I would set a reasonable signature threshold for any group to circulate petitions to put forward a list.((Some sub-questions: Should all list sponsors have to list as many candidates as there are seats to be awarded? If not, what if the list overperforms and is awarded more seats than it has candidates? Could a single candidate propose a list with only that candidate’s name?))

Then there is the question of who does the ranking. So far I have assumed that the same group the selects the candidates who compose the list would also rank the candidates (this is called a “closed list”), but there are systems that allow the voters to rank the candidates within a list (an “open list”).((To the voter who is more concerned about the individuals being elected than the candidate’s party, an open list could be a problem : I may want A elected and vote for the party slate if A is sufficiently highly ranked that I think A’s election is likely, but I may not want to support the party if other voters may elevate other candidates over A.))

Should a candidate be able to appear on multiple lists? This could be argued either way, but I would be concerned that this would unduly increase the actual number of lists.

Should a candidate be able to be placed on a list without the candidate’s consent? I think not as the most likely reason to do so (using that candidate’s popularity to support the list as a whole) probably conflicts with the candidate’s free speech rights).

The list system also suggests a possibility for filling vacancies: the candidates on the list not deemed elected would fill vacancies that occur among the candidates who were elected, at least for some period after the election if not the full term.

It is rare, but not too rare, that a member elected as the nominee of a political party under the current system may switch parties. If a list member does so, should that senator be replaced by the next loyal member on the list? I think not, because we do still want senators to be able to vote their conscience and not be bound to toe the party line.

Things to think about.

Jay Bohn
May 20, 2021

Virtual Public Meetings Should Continue After the Pandemic

Part of my day job is being a land use attorney. This means that I often attend planning board/board of adjustment meetings to represent applicants, objectors and sometimes the board itself. By and large these meetings take place at night. Municipal governing bodies also hold most of their meetings in the evening.

These meetings are public, and the decisions made directly effect the residents of the municipality. Public attendance is, however, usually quite modest unless there is some particular application that becomes a cause celeb.

In the early days of the coronavirus pandemic, stay-at-home orders, capacity limitations, and quarantines led may governmental bodies to hold their meetings partially or entirely virtually. Remote public meetings via Zoom or similar video-conferencing technology have become routine for land use meetings as we became familiar with the technology and how to adapt it to continuing to provide due process for all participants. Many meetings are held entirely by remote means while others are hybrid: some attend in person and some remotely.

I have discovered many advantages to remote meetings. For one thing, I can attend from home. The moment the meeting is over, I’m home — no hour-long drive. It makes it possible sometimes for a professional to attend multiple meetings in one night without travel time from one town to another. Also, it can be much easier to look up relevant ordinance sections and other pieces of information from your computer while participating in the meeting than it would ever be while sitting in a folding chair in the municipal meeting room. It can also benefit the members of the public who attend virtually — no need to arrange child care and drive to the municipal building, just attend from home while finishing dinner. Everyone can see exhibits that are displayed using screen sharing or were uploaded to the municipal website in advance of the meeting.

Now that Governor Murphy is suggesting that the public health emergency may be permitted to expire next month, we are facing the end of virtual public meetings. Most of the legal authorization to conduct public meetings remotely is premised upon one or more of the governor’s emergency declarations and will disappear as they expire.

As we go back to in-person meetings, I hope that towns and boards do what they can to preserve remote participation as a supplement to physical attendance. While board members, applicants, their attorneys and witnesses will almost certainly have to be physically present for public hearings, the option for remote attendance may result in greater citizen involvement, perhaps encouraging participation more often than when everyone just wants to tar and feather the applicant. Citizens should see their government at work and those who govern should know they are being watched.

Jay Bohn
May 17, 2021

Redesigning the New Jersey Legislature

As I observed in my post A Problem of Bicameralism (April 19, 2021), New Jersey’s Legislature is composed of members elected from 40 legislative districts, with each electing one senator and two members of the general assembly. The districts are almost always represented by a senator and two assemblymembers from the same party.

There are those who would argue that this facts means that we should eliminate one house (as Nebraska did) and have a unicameral legislature. Although I see the point, I disagree, as long as membership in the second house can be selected on some varying principle.

As I also noted in that post, that varying principle cannot be the equal representation of counties as court decisions have rejected the so-called “federal analogy” to the selections of members of Congress. I think it would be just as difficult to create constituencies based upon economic sectors, as in the Senate of Ireland.

Instead, I would suggest that the senate be chosen by the “party list” method. Each party would put forth in advance of the election of list of its candidates for the senate in whatever order the party chooses.1 Voters would vote for which list they prefer, and each party would be awarded a number of senators in proportion to the votes its list get compared to all valid votes.

If there is no need to elect three legislators from the same district, I submit there is equally no need to elect two. Therefore, as a further modification, I would also split the 40 districts into 80 so that each elected a single member of the general assembly. I have to believe that the smaller constituency will bring the legislators closer to the voters and allow for greater geographic diversity.

I have a hypothesis (but unfortunately not the math to check it out) that a greater number of districts will decrease the potential impact of gerrymandering.2 My thinking goes this way: because the smallest theoretical district (composed of one voter) and the largest such district (the entire state) cannot be gerrymandered, there must be some point in between where gerrymandering can have the greatest effect. If (and this is something I cannot prove) the current number of districts is near that point, doubling the number of districts will decrease the potential effect, without adding to the number of members.

While on the topic of legislative reform, another change I would make is to retire the idea that being a state legislator is a part-time job. I certainly understand the nostalgia for the idea of citizen-legislators briefly assembling in Trenton to pass needed laws, and then for most of the year returning to their communities and being part of the governed. If that was ever the reality, it ended long ago. We would now be better served by recognizing that being a legislator is a full-time job. That recognition, however, should come with the requirement that the legislators treat it as such and hold no outside employment, public or private.3 This reform would reduce conflicting interests.

The reality of a full time legislature could be accompanied by the requirement that the Legislature do its job and at least severely curtail its questionable but extensive delegation of legislative power to administrative agencies in the form of regulations.

Jay Bohn
May 13, 2021

  1. This is called the closed list system; there is a variation that allows the voters to control the ranking of candidates on the list. I may discuss this at a later time. ↩︎
  2. See my post Some Weaknesses in Current Arguments Against Gerrymandering for a discussion of that topic. ↩︎
  3. I’m thinking essentially the restrictions that apply to full-time judges. ↩︎

What’s More Important: Process or Substance?

My biggest issue with the rule by decree that many governors have implemented during the COVID pandemic is not so much the substance of the decisions they have made, limiting capacities, requiring social distancing, and mandating the wearing of masks, but that these decisions were made by the executive and not the legislature. In this I suspect I am in the minority.

Certainly, there are others who will complain about this use of emergency powers, but for most I think they are for or against it based upon the substance of the decision made. Efforts to limit the length of an emergency are opposed because of the fear that the legislature will not continue the same restrictions.

While many might accept rule by an all wise and benevolent despot, remember the democracy is a process.

Jay Bohn
May 10, 2021

Economics 101: What’s in it for Number One?

This post is fairly brief because I do not expect much debate that my thesis is accurate, as opposed to whether it is a good thing. This is just one building block of an economic argument I will develop in later posts.

My thesis is that as a general rule people will tend to act in what they perceive to be their (economic, political, social) best interest.

Thus, the cynics among us will even look for a hidden motive where an action appears altruistic.

Jay Bohn
May 6, 2021

Some Weaknesses in Current Arguments Against Gerrymandering

In anticipation of redistricting following the 2020 census, in light of several pending court challenges, and possibly because Republicans are seen as the current beneficiaries, there has been much comment in the news media about political gerrymandering. Although I agree that the ideal means of drawing district boundaries would not consider the partisan make-up of the district, the current criticisms of gerrymandering are inadequate because they do not propose sufficient standards as to how districts should be drawn and seek a judicial remedy without an adequate textual basis in, or manageable standards drawn from, the Constitution.

To start with basics: Where a legislature consists of representatives of particular geographic constituencies that do not have any significance apart from the selection of legislators, it is necessary for someone to draw the boundaries that will define those constituencies, typically called “districts” in American parlance, hence the term “redistricting.” The term “gerrymander” in relation to the drawing of districts to maximize the electoral success of one party, comes from criticism of Massachusetts state senate districts established by legislation signed by then-governor Elbridge Gerry (a signer of the Declaration of Independence, delegate to the constitutional convention who voted against the Constitution, and vice president of the United States).

In our two-party system, expected voters for each party are not equally distributed on a geographical basis. Some areas will have more Republicans than Democrats, and vice-versa. A perfectly gerrymandered district layout would concentrate the expected voters for the party not controlling the redistricting process into as few districts as possible where its candidates would be expected to win by large majorities. Expected voters for the controlling party are, on the other hand, put into districts where they have much smaller, but still safe, majorities. Modern statistical methods allow for gerrymandering to be very effective. This, the editorials tell us, is bad because electoral results should mirror the votes case for each party. (I am not convinced that a vote for a candidate running under the “Party A” label is necessarily the same as a vote for Party A to have a legislative majority. Voters can choose individuals despite their party labels.)

As a very simple example, imagine a state with 500,000 voters equally divided between supporters of Party A and Party B (250,000 each) and the need to create five districts, each with 100,000 voters. (In this example I am ignoring the distinction between voters and non-voter residents.) If Party A is in control of the redistricting process, it would seek to pack as many Party B supporters as possible into one district (let’s say that the geographic distribution allows for a district of 90,000 expected Party B voters and 10,000 Party A voters). That leaves 240,000 expected Party A voters and 160,000 expected Party B voters. If Party A can allocate each group equally into the four remaining districts, it is to be expected that Party A will safely obtain four of the five districts in every election, despite equal support in the state as a whole.

Redistricting does not affect the United States Senate because the districts from which Senators are chosen are whole states whose boundaries are not subject to change for the purpose of choosing Senators. Redistricting is also inapplicable to smaller legislatures whose members are chosen on an “at large” basis.

While it is theoretically possible to base legislative representation on otherwise existing geographical units, the practice has been found to be unconstitutional because it results in districts that are too far divergent in population, a consideration that trumps other concerns. (For example, as I mentioned elsewhere, in the New Jersey Senate, each county was formerly represented by one senator, until the rejection of the so-called “federal analogy” by Reynolds v. Sims, 377 U.S. 533, 84 S. Ct. 1362, 12 L. Ed. 2d 506 (1964), eventually resulted in the current structure, in place since the 1973 election: 40 legislative districts, with substantially equal population, each electing one senator and two members of the general assembly.) The composition of the United States Senate is specifically set forth in the Constitution and therefore it is probably the only elected legislative body in the United States that is not subject to a population equality standard for its electoral districts.

It is a basic fact of human existence that people will tend to act in what they perceive to be their own self-interest. Politicians are hardly immune from this tendency. Therefore, given the opportunity to design favorable districts, the party controlling the redistricting process will naturally seek to create them. Politicians will avoid drawing new districts that pit incumbents against each other, but this is also a factor likely to result in oddly shaped districts

The need for substantial equality of population requiring the drawing of district lines and generally overriding other limits on how the districts are delineated (such as respect for the boundaries of political subdivisions) makes it difficult to articulate standards that might make gerrymandering less effective. Most of the recent editorials bemoaning political gerrymandering and applauding or hoping for judicial intervention fail to articulate standards by which districts are to be created or structural methods for their creation.

What are the important affirmative standards that should inform the drawing of district lines? If respect for boundaries of political subdivisions or areas defined by natural boundaries is important, do we not have the technological tools to judge redistricting plans (assuming that the proposed districts meet a reasonable standard for population parity) by the degree to which they show this respect and use that as the basis for choosing the best?

If, on the other hand, the important thing is that the electoral fortunes of each party reflect the votes cast for its candidates, then the time has come to abandon election from districts and to adopt a proportional voting system, such as a party list or multi-member constituencies with a transferrable vote as in the Republic of Ireland.

While there might be general agreement that gerrymandering is not the best way to draw legislative districts, the present debate as reflected in editorial pages has not identified any constitutional basis to prohibit it. Courts may override legislative judgments only as a matter of constitutional imperative, not because they believe some other way would be better , or even more democratic.

This lack of an affirmative guide for the drawing of districts is part of the reasons that courts are ill-suited to devise a remedy or to draw districts themselves. Absent an ascertainable standard drawn from the text of the Constitution, such plans, especially where judges are elected, are likely to be no less political than those emanating from the other branches.

Thus, the remedy for political gerrymandering is not simply to ban or limit the practice, but to articulate and adopt a comprehensive and coherent set of principles for how districts (if there are to be districts) should be drawn. Only then can there be manageable objective standards by which to evaluate any particular redistricting scheme.

Jay Bohn
May 3, 2021