ECO 481: Public Choice Theory Week 10: Government Exploitation & Schools Dr. Dennis Foster

Exploitation “Purposive political or rent-seeking efforts [that] increase one’s wealth or income at the expense of others.” In private sector, profit = social gain. In public sector, profit (rent) = misallocation. What is the most powerful entity in society? The Government!!!

Exploitation - Taxation State sets the rules, but there are limits. SR LR Taxes Rate T’ T* Laffer Curve & taxes: --Long run vs. short run. --In SR . . .  rates =  revenue Minn. 13.95% inc. tax! Illinois Increasing to 5%.

Exploitation - Bureaucracy MB MC Q* Q’ $ Tend to find Q where TB = TC. Asymmetric information issue. [Niskanen] Voting with our feet is costly. Wage issue Higher/benefits Overpaid? Not if XS S. “The public bureaucracy is overstaffed, overpaid, overqualified, and well protected.”

Exploitation: Manipulating Median Voters Choose budget or doom! If Xr = revision budget, voter will take up to Xb. BOAPW - Set Xr = 0!!! Do median voters know what is efficient? Also, small incremental tax hikes hardly muster opposition. Private Text Error Public Xr X Xb

Manipulating Voters Zach Erica James X* Pub Pri X* Pub Pri X* Pub Pri Xr’ Xr’ Xr’ Xr Xr Xr No! No! No! Yes! Yes! Yes! By choosing the optimal revision budget, the school district can entice voters to pass it’s preferred budget, X*.

Exploitation - Education K-12: violating consumer sovereignty Is it really free? School, curriculum, teachers, pedagogy Elitism? Why is monopoly good? What’s wrong with vouchers? Universal pre-K? What’s next? Homeschooling & charter schools.

Exploitation - Education The University – a riddle wrapped … “Following … Buchanan … one might say that [the university] combines students as consumers who do not buy with faculties or producers who do not sell and taxpayers or owners who do not control.” Administration – growth & income Bloat data Faculty – min. workload & tenure & income Controllable – research, admissions, peers Elitism & Rhetorical extremism.

Exploitation - Education Some observations from NAU +/- Workloads can be varied, but … Research requirements, Professional qualifications, Service requirements. Accreditation as oversight. Standards lowest in AZ – ABOR “Our job is to graduate students” vs. reputation. AZ - post tenure review; ASU-West. Individual college differ FCB & CEFNS vs. Ed.

Limits on Exploitation Consumers will move over time. Demographic map. Sprawl beyond Flagstaff city limits. Charter schools. More competition with on-line universities. Straining budgets are bursting.

Percent change in residential population, 2000-2010

ECO 481: Public Choice Theory Week 10: Government Exploitation & Schools Dr. Dennis Foster