Buying the Marginal Vote

Economists say that prices are set at the margin. By that we mean that the last one purchased in the market sets the price. Apparently, the price for a vote in congress is falling. In July the price for a vote for the cap and trade bill in the House was $3.5 billion.

When House Democratic leaders were rounding up votes Friday for the massive climate-change bill, they paid special attention to their colleagues from Ohio who remained stubbornly undecided.

They finally secured the vote of one Ohioan, veteran Democratic Rep. Marcy Kaptur of Toledo, the old-fashioned way. They gave her what she wanted - a new federal power authority, similar to Washington state's Bonneville Power Administration, stocked with up to $3.5 billion in taxpayer money...

Yesterday, in the Senate, they only had to pay $300 million for the last vote.

To help secure her vote, Reid included a provision in the bill sought by Landrieu to provide increased Medicaid funds for states recovering from major disasters such as 2005’s Hurricane Katrina that devastated New Orleans and parts of Louisiana, Mississippi and Alabama. When the bill is closely examined, however, the provision provides immense financial support for only one state: Landrieu's Louisiana.

Landrieu defended the inclusion of the provision and said Republican critics who accuse her of selling her vote for $100 million are wrong and that she has the support of Louisiana Gov. Bobby Jindal (R) and Health and Human Services Secretary Kathleen Sebelius.

Then, in a statement sure to be repeated by Republicans endlessly over the coming weeks of Senate health care debate, the senator flaunted the inclusion of the provision. “I will correct something. It’s not $100 million, it’s $300 million, and I’m proud of it and will keep fighting for it,” Landrieu told reporters after her floor speech...

Economists debate whether deflation is a good thing or a bad thing. They tend to think it is a bad thing.

Pictures of Chinese GDP Growth

Two views of Chinese GDP growth.

The pretty one. HT: Marginal Revolution

The ugly one. HT: Coyote Blog

Branding Best Western

We just finished up monopolistic competition in class with a look at how firms differentiate themselves with branding. An article in today's paper looks at the branding problem at Best Western.

Cara Vickery posted a glowing online review of the Best Western Inn of Sedona after a three-night stay last month.

"I am somewhat of a snob when it comes to hotels," the Ohio woman said on TripAdvisor .com. "I was leery of a Best Western, but this exceeded my expectations."

Best Western President and CEO David Kong cringes when he hears raves like that. "It might be a compliment for the hotel, but it's not a compliment for the brand," he said. "How much business are we losing because the expectation is not set properly?"

The Phoenix-based chain, the world's largest by locations under one brand name, is weighing a controversial plan to erase traveler confusion and boost bookings and revenue.

Executives have proposed creating three tiers of Best Westerns based on their design and amenities to give travelers a better idea of what to expect at its 2,300 independently owned hotels...

Best Western's problem is that the reality is more diverse than the brand suggests. The proposed solution - three brands all including the name Best Western - looks like a non-starter to me. To differentiate the brand you need a new name for the higher end and perhaps another for the lower end. Otherwise, confusion will reign.

Mackay on Welch on Interdependence

Harvey Mackay had a column last week on knowing what can go wrong in order to do things right. He starts out with a story about former GE CEO Jack Welch.

When Jack Welch was chairman of General Electric, he would regularly ask the top managers in the company's 14 major businesses a series of questions about the global competition. These questions apply to nearly every business, and I think they are worth sharing.

* What are your global market dynamics today, and where will they be over the next several years?
* What actions have your competitors taken in the last three years to upset those global dynamics?
* What have you done in the last three years to affect those dynamics?
* What are the most dangerous things your competitor could do in the next three years to upset those dynamics?
* What are the most effective things you could do to bring your desired impact on those dynamics?

I like this strategy; it acknowledges the power of other forces and people to upset our apple carts. We like to think we control our own destinies, but that is true only to a certain point.

Mackay then goes on to talk about strategy in business. What struck me was that Welch obviously knew what kind of market structure GE was competing in. It's an oligopoly. All of the questions revolve around the interdependence of GE's divisions and their competition.

Best Blogs for Economics Students

I read several of these (no where near all) on a daily basis. If you want to know what economists are currently talking about, this is a great place to start.

HT: Marginal Revolution

Economic Development in Gilbert

Now this makes a lot of sense as an economic development strategy.

Gilbert may emerge as a Valley leader in clean and renewable energy, if the town's economic-development effort goes as planned...

Patton led the town in attracting Arizona BioDiesel, an alternative-fuel company that turns the cooking oil
that restaurants throw away into fuel that any diesel engine can burn.

AZ BioDiesel started in Chandler, then moved to Phoenix, but faced difficulties meeting
those cities' codes, owner Dan Rees said.

Patton invited Rees to a meeting with every member of town staff the business would have to deal with to open.

"They didn't understand why the other cities were giving us such a hard time," Rees said.

Beats the heck out of giving away tax credits and tax rebates. Increases efficiency as well.

Jobs and Costs, Then and Now.

As I was writing the previous post, I remembered an ongoing case from a couple of years ago that involved Arizona exporting electric power to California. I did a couple of posts on it here and here. Southern California Edison needed to build new transmission lines from here to there and the Arizona Corporation Commission opposed them.

What's interesting is the apparent change in position on the part of the commission and Chairwoman Mayes. Back then, lower future costs for Arizona utility customers were most important, and the Arizona jobs didn't matter. Now it seems that it's the jobs that matter not lower prices for utility customers.

The ACC should reconsider their decision opposing the transmission line. A lot of electricians and construction workers could use the work.

APS as a Jobs Program

Apparently the Arizona Corporation Commission Chairwoman now sees APS as a public jobs program. APS is taking bids for IT work, perhaps from offshore. The objective is to lower costs and hence prices for rate payers.

However, the Chairwoman has other concerns.

Arizona Corporation Commission Chairwoman Kris Mayes, whose organization regulates APS and other utilities, said the APS price shopping was a concern.

"Obviously, they are asking for these quotes because they think they will be able to find cheaper labor somewhere else," Mayes said. "I don't think that APS and our other utilities have to go looking for workers in India in order to cut costs. I know there are other cost savings APS can engage in without shipping Arizona jobs overseas."

As for the other cost savings, Mayes did provide an example.

Mayes said she would prefer to see APS cut other expenses such as lobbying, and that the cost savings for using offshore labor do not compensate for the lost jobs in Arizona.

This doesn't make a lot of sense. Mayes is inserting herself and the ACC into a business decision by a private company. She then wants them to cut back on trying to influence elected officials like herself and the other commissioners. Seems to me her actions here would cause APS to increase their lobbying efforts, not decrease them. If you can't make a basic business decision based on costs without getting permission from a politician, then you need to spend more time working with the politician. This is known as lobbying.

She goes on.

"We are not talking about a competitive industry here," Mayes said. "It is a monopoly utility that is supported by Arizona consumers."

She said there likely were unemployed computer programmers in Arizona who could use the work from APS...

"The company has an obligation to do everything it can to keep these jobs in Arizona," Mayes said. "The jobs are being financed by Arizona ratepayer dollars. I have hard time seeing Arizona ratepayer dollars going to India and Ireland."

So apparently APS is now the ACC's own public jobs program. It's not about lower costs and hence lower prices for utility customers, it's about jobs for Arizona.

Fighting over Solar Subsidies

The Arizona Corporation Commission through APS levies a tax on homeowners to fund solar incentives. The tax on homes is $3.17 a month. Businesses pay a larger tax. (I know, this is called a tariff by the ACC, but from an economic standpoint, it is a tax.)

Now the debate is how to divvy up the money that they have to spend. Note that this is a political debate. This isn't about efficiency or consumer preferences which would be sorted out in a free market. This is about which constituency gets the government subsidy.

The debate has flared because, although APS has plenty of money from the tariff, including the $3.17 residential customers pay each month, the company is required to divide some of the funds between rebates to homeowners and business owners.

APS said it has so many applications for big solar arrays on businesses that it won't have enough money in that program this year for commercial projects at schools.

It has a separate pot of money from the tariff to give solar rebates to homeowners, and APS expects to have lots of that money left over at the end of the year because residential installations are not as popular as anticipated, especially during the recession, officials said.

As with most solar installations, the school projects aren't cost-effective without rebates from the utility and the federal government.

Read the article to get an idea of what each constituency is fighting for.