PS418/618 Examination No. 2
Professor Russell Renka
November 2, 2008

These 18 questions cover Munger from Chapter 6 onward, and the Nine-Eleven Commission Report. Do six of them, two per section. Each is valued at a maximum of 17 points (17 x 6 = 102). Due date: by midnight Saturday, November 8 at the Drop Box under Essay 2 subheading.

Section 1 (items 1-6):
1. Munger says in Chapter 6 that the customary American political decision rule of single-district election by plurality has several significant problems. Some of these can be resolved by methods such as the Borda count. What are the advantages to a Borda count over plurality election?

2. Per Munger 6, one inherent problem cannot be eliminated for sure by any democratic election procedure, including the Borda count or approval voting. What is that problem? If this problem were cited to James Madison amidst the Philadelphia Convention in 1787, his reaction would be: (you fill this part in!).

3. P.J. O'Rourke and lots of other liberty-loving folks dislike use of collective-coercive solutions to problems. First define what such a solution is. Cite an example or two to illustrate this definition, from O'Rourke or other sources. Then specify at least one circumstance where this approach is justified, and another where it is not justified.

4. Munger Ch. 7 cites a "diamonds and water paradox" (pp. 213-215) to compare the relative value of potable drinking water to gem-class diamonds. Why is consumer surplus so miniscule with diamonds and so large with water? Which of these two things is more costly? Which is more valuable? Explain the general distinction between "cost" and "value" illustrated by this paradox. (Don’t forget to consider elasticity of demand here!)

5. Calculating social or public demand for private goods isn't difficult, but there are special problems in deciding how to calculate demand for public goods like thoroughfare roads and national defense. How does Lindahl handle this problem (via the Lindahl equilibrium, pp. 225-226)? And finally, how are progressive income taxes justified on basis of Lindahl's reasoning?

6. I explained some characteristics of the home mortgage deduction on the federal individual tax return. How does this tax provision work? What's the relationship between the deduction and the progressive federal income tax? Finally, what would you recommend for reducing the home mortgage deduction's market-distorting impact upon the construction marketplace (of housing, and other construction projects such as residential apartments or commercial buildings)?

Section 2 (items 7-12):
7. Munger says there is an inherent favoritism in political decision-making toward a certain category of American of citizens. This is based in part on the difference between the median voter position, and the mean voter position, among citizens (p. 260, Chapter 8). Why is this done? Which position gets treated most favorably by politicians in a democracy? Cite evidence to support your conclusions. You may want to use the Forum submission on federal flood insurance (and termination thereof) in beachfront Florida.

8. A single federal program--Social Security--is responsible for lifting more people out of poverty than all other federal income transfer programs combined. Munger discusses the problems this program confronts, with three alternative specifications on when the SS Trust Fund will run out. Based on those findings, is this program facing a true policy crisis? What do you recommend be done, if anything, in anticipation of the baby boom generation's retirement from the American workforce during 2010 to 2025?

9. What are the characteristics of political decision-making with respect to academic grants in aid to American colleges and universities? If those decisions in 2004 were farmed out to expertise-based administrators at the National Science Foundation (NSF) and National Endowment of the Arts (NEA), what are the likely effects of that change?

10. Let's now consider snow removal and purchase of snow movers by a city. In cost/benefit analysis, we always use discounting. Discounting is based on two factors: assumption of risk, and passage of time. First, specify the difference between risk and uncertainty. Then, explain why Munger insists that we employ such discounting at all? Next, cite the mistake the City Manager committed that got her seeking new employment (see p. 306; and remember the distinction between "analyst heaven" and "analyst hell").

11. Cost-benefit analysis often is accompanied by the political provision of side payments, yet does not stipulate that anything has to be done along that line. Why is there no formal provision in cost-benefit analysis for doing so? Why is it frequently done despite the lack of formal provision or stipulation prescribing side payments?

12. Senator Max Baucus of Montana objected to a proposal from the Army Corps of Engineers, and in the process invoked the flood control project at the Fort Peck Reservoir in his State of Montana where the upper reaches of the Missouri River are located (from which it flows through the Dakotas and down to Missouri to meet the Mississippi in our favorite baseball town). What is the basis for the Senator’s objection? How does Munger (in Ch. 11) defend the Army Corps against this objection?

Section 3 (items 13-18):
13. The 9-11 Commission Report documents a slow unfolding of a large disaster or catastrophic event, complete with numerous indications that the nation might have gotten wind of this or otherwise done something to stop it or reduce its catastrophic extent. What are the key things the Clinton and Bush Administrations could have done to prevent the attack of 9/11/01 from taking place and being successful?

14. How did the CIA and the FBI differ in their respective missions and their specialties (with respect to the danger culminating in the 9-11 attack). What what the pre-9/11 informational "wall" between the two?

15. How did al Q'aeda (up to the 9/11 attack) prove to be different in purpose, mode of operation, and organizational characteristics from other terrorist organizations that America and other nation-states have confronted in recent decades? What were the vulnerabilities of those sent by al Q'aeda to carry out the 9/11 attack? And why did America fail to take advantage of those weaknesses in time to curb or stop the attack?

16. The Report referred to governmental design for fighting the Cold War even 10 years after the Cold War was concluded. What problems did this mind-set create for the nation's ability to overcome al Q'aeda and the 9/11 attack?

17. The Forum contains several items addressing the political practice of pork barreling, including one on homeland security funding for Wyoming. What is the Nine-Eleven Commission Report's recommendation on this practice (with respect to homeland security funds)? What do they recommend be done instead of that? And what's the basis for this decision?

18. The Commission in its original July 2004 publication made 41 specific recommendations. Your 2006 edition has another 9 (Introduction to This Edition, pp. x-xiii), plus a set of Progress Reports (with letter grades) on pp. 701-746. Richard Posner in August 2004 issued several criticisms of the original 41, noting the tendency to centralize intelligence rather than maintain its traditional many-headed and multi-agency structure (with 15 separate agencies, mostly but not all under Pentagon direction and funding). Which among these recommendations are the most important ones? Has the nation made good progress on any of these?
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