Sunday, November 22, 2015

FCS Playoff Bracket Released

The NCAA has released the 2015 FCS Playoff Bracket.  Go here for an interactive version and here for a printable version.  The tournament includes 24 teams, 8 of which --- the top seeded teams --- have byes in the first round.   Here are the teams with the 8 highest seeds: (1) Jacksonville State, (2) Illinois State, (3) North Dakota State,   (4) McNeese State, (5) James Madison, (6) Portland State, (7) Richmond, and (8) Charleston Southern.  

William and Mary is one of four CAA teams (JMU, W&M, Richmond, and New Hampshire) making a tournament appearance.  The Tribe will host the Duquesne Dukes, from the Northeast Football Conference.  The Dukes, 5-1 in the conference and 8-3 overall solidified their conference title with a win over St. Francis yesterday.  This will be the first meeting between the two programs. 

The game will take place at Zable Stadium in Williamsburg on Saturday, November 28th.  Kickoff is at 3:30 PM.  (This post will be updated as additional information becomes available.) 

Friday, November 20, 2015

Capital Cup in 12 Hours!

Tomorrow will mark the 125th gridiron clash between William and Mary and the University of Richmond.    The teams first played in 1898, and Richmond prevailed 15-0.  (The Tribe went 1-1 for the 1898 "season.")  Indeed, William and Mary lost the first four meetings between the two teams, before steadying itself with a 15-6 victory in 1904.  Overall William and Mary holds a slight edge in the series, with a 61-58-5 record, but Richmond has won 8 of the last 10 meetings between the two teams.   (For a collection of "All Time Game Results," updated in 2014, go here.)  Kickoff is at noon in Richmond.

As previously noted, the W&M v. Richmond rivalry is tied with the Minnesota/Wisconsin rivalry as the fourth most prolific college football rivalry and the most prolific in the South. Once known as the I-64 Bowl, in honor of the interstate highway that links the two cities, the game has been known as the "Capital Cup" since 2009. The name reflects the fact that Williamsburg preceded Richmond as the Commonwealth's capital. (See this post for a photo of the cup.) Since the schools renamed the series, Richmond leads 4-2.

The Capital Cup is not the only accolade at stake tomorrow.  If victorious, the Tribe, currently ranked 7th in FCS and 93rd overall in college football, will end the season with a 9-2 record, sole possession of the CAA title and presumably a spot in the FCS playoffs.  (The Tribe earned an exclusive conference title in 1996, winning the Yankee Conference after a 9-2 season.)     For a detailed preview of tomorrow's game, read this post on the William and Mary Sports Blog as well as the "game notes" prepared by the William and Mary Athletics Department.  (See here for notes prepared by the Richmond Athletics Department.)

Twenty games in this series have been decided by 3 or fewer points, and the William and Mary Sports Blog is predicting a 34-31 W&M victory.  Look for a close, exciting and high scoring game tomorrow.  Go Tribe!

Economic Science, The Fossil Fuel Divestment Movement and the Role of Universities in Political Debate

Students and Faculty at some universities are calling upon such institutions to sell investments in companies that extract or refine so-called "fossil fuels."  These advocates invoke scientific evidence purporting to establish that reliance on such fuels is causing "Global Climate Change," previously known as "Global Warming."  They also claim that, by investing in such companies, endowments are "funding climate change," and that divestment by various universities will visit economic harm on such firms, discouraging the production of such fuels.

Science is often a useful guide to Public Policy.  However, as previously explained on this blog (see here, here and here), so-called Progressives often reject the dictates of basic economic science when formulating policy recommendations or interpreting economic events. Unfortunately, proponents of such divestment have invoked science selectively.  The purchase of common stock traded on a national exchange does not "fund" that firm, which presumably issued the shares in question long ago in an initial public offering. Moreover, as Professor Todd Henderson at the University of Chicago Law School explains, divestment will not alter firms' stock prices and thus will not put financial pressure on publicly-traded firms.  Stock prices reflect "an estimate of the cash flow that ownership of the stock will produce in the future."  Moreover, sales by university endowments or other investors do not impact the demand or supply of coal or oil and thus have no impact on any firm's future cash flow.  Thus, as Henderson points out, after any divestment, the economic value of individual stocks will remain unchanged, and "others will stand ready to buy the shares at the current market price."

Henderson also explains how divestment will force schools "to accept lower returns than would otherwise be available" and thus deprive schools of much-needed endowment income.  As Henderson points out, Swathmore, with an endowment of $1.5 billion, estimates that such divestment would cost the school $20 million annually, or over $12,000 per student.  (See here for the size of Swathmore's student body.)  Thus, divestment would require schools to raise tuition significantly and/or substantially reduce the quality of their teaching and/or research.  So far as this author is aware, proponents of divestment have not identified alternate sources of revenue to replace that which would disappear following divestment.

It should go without saying that debates within the academy about institutional policies should consist of reasoned argument supported by evidence and logic. As the divestment movement spreads, Henderson has done Higher Education a useful service by reminding us that the economic logic behind much pro-divestment rhetoric does not withstand scrutiny.  Hopefully academic proponents of divestment will adhere to academic norms, heed the teachings of economic science, and develop alternative rationales to support their demands and/or channel their efforts to reduce carbon emissions in other directions.  Indeed, Henderson himself suggests that, in lieu of divestment, schools could "source their energy from more renewable sources[.]"  Presumably such re-sourcing would increase schools' energy costs --- otherwise schools would have already engaged in such re-sourcing simply to reduce costs.  In fact, many schools have already followed Henderson's advice, overtly investing resources in efforts to reduce carbon emissions for the sake of doing so, independent of whether such efforts reduce energy costs.

Should schools embrace Henderson suggestion and invest resources in reducing their carbon emissions?  This blogger respectfully disagrees with any suggestion that schools invest scarce resources in reducing their carbon emissions unless, of course, such investments produce net reductions in the school's energy costs.  Such investments necessarily divert resources from teaching and research, in service of ideological objectives entirely unrelated to the academic mission of a university.  As Henderson's colleague Geoffrey Stone recently explained "universities should not take ideological or political positions."  Moreover, as previously explained on this blog, a university that purports to provide a liberal education should not consider itself authorized to inculcate its students with the school's own version of moral or political virtue.  In the same way, such universities should not consider themselves authorized to expend scarce resources furthering ideological objectives unrelated to teaching and research.  Universities are not politically-oriented think tanks or service organizations. Instead, they exist to create and transmit knowledge, including knowledge about the existence, causes and possible cures for social problems like climate change.  Diversion of resources away from academic programs to unrelated projects hampers the achievement of this core mission and blurs the lines between research and education, on the one hand, and political activism, on the other.

Sunday, November 8, 2015

Will Breaking Up Monopolists Help Low Income Consumers?

Might Condemn Facebook

A recent article in the Wall Street Journal examines evidence that a new phenomenon is responsible for apparent income inequality, namely, inequality between firms.  To be precise, some evidence suggests that the gap between profits (measured by return on capital) earned by median firms and those earned by the most profitable firms has widened considerably over the past few decades.  As a result, it is said, some firms are able to pay their lowest paid employees far more than other, less profitable, firms pay individuals in the same occupation.  The article summarizes the findings of a study by Peter Orszag and Jason Furman as follows:

"A company at the 90th percentile—that is, more profitable than 90% of all other companies—saw its return on invested capital jump from 22% in 1982 to 99% in 2014. For the median company, the return climbed from 9% to just 16%, and for the company at the 25th percentile it stayed the same, at 6%."

The article attributes such high profits to excessive market power, gained by firms, particularly those in the technology industry, that dominate their respective markets.  Thus, the article reports that Apple recently announced a 25 raise for its shuttle bus drivers, Google's parent Alpha made its security guards full time employees with benefits, and Facebook has raised wages for its cafeteria staff and custodians to $15.00 per hour. 

If accurate (and there is no reason to believe that it is not), this evidence could have significant implications for public policy.  The article itself advocates more intrusive "competition policy," in the form of aggressive anti-merger policy and less robust patent protection for inventions.  The article concludes with the following claim: "[m]ore competition isn’t just good for customers; it’s good for workers, too."

The article and the academic it invokes are important contributions to the debate over the causes and possible cures for income inequality.  Too often policy makers assume that the source of income inequality is "occupational," e.g., that all fast food workers earn low wages compared to individuals in most occupations, with the result that society can fight inequality by increasing the wages of such such workers.  The data highlighted by this article suggest that the issue is far more complicated.

At the same time, policymakers should not embrace the article's conclusions without further inquiry and reflection. For instance, the article seems to mis-describe the harm that supposedly results from the conduct it documents.   To be sure, an exercise of market power, other things being equal, injures consumers in the market served by firms exercising such power.  Such an exercise of market power will to that extent alter the distribution of income compared to that which would obtain in a competitive market, as consumers pay higher prices and thus see real wages fall.  Eliminating such market power (again, other things being equal) would thus reduce prices and increase the welfare of consumers (including some workers) previously injured by exercises of such power.  However, the elimination of such power, while reducing the wages of individuals working for once-dominant firms, would not increase the wages of those working for firms in competitive markets.  Thus, such increased competition would only be "good for workers" qua worker if such workers feel better off because their fellow workers in other industries are now worse off.

More fundamentally, it seems unlikely that more intrusive competition policy would in fact increase the welfare of consumers apparently harmed by the exercise of market power by dominant firms.  Firms like Google, Facebook and Apple apparently did not obtain their dominant positions via horizontal mergers but instead through internal expansion that took advantage of so-called network effects.   Thus, more aggressive anti-merger policy likely will not prevent the next Apple or Facebook from dominating its market.  Only active deconcentration, that is, breaking up such firms into several rivals, could render such markets more competitive and thus reduce market power.  However, such a policy would not be without its costs.  Social media and other high technology markets are often characterized by network effects, whereby the value of the product to any given user increases as the number of users rises.  Such markets tend toward monopoly because a dominant firm can, other things being equal, provide a more valuable product to consumers than would, say, a firm with a ten percent share of the market.  (Imagine if there were ten different social media platforms like Facebook, none of which dominated the industry.  An individual who wished to reach "friends" on each such platform would have to post ten different times.)  Thus, while breaking such firms into constituent parts could appear to reduce consumer prices, quality, too, would suffer.  The new and smaller firms might also have to incur higher costs to replicate the quality once provided by the dominant firm.  As a result, society's given stock of resources would produce less value than before the break up.

There was a time, of course, when antitrust law appeared to condemn firms that achieved and/or maintained their dominant positions by producing a better product at a lower price.  Most famously, in United States v. Aluminum Company of America, 148 F.2d 416 (2d Cir. 1945), the Second Circuit Court of Appeals, in an opinion by judge Learned Hand (pictured above), found that ALCOA had violated Section 2 of the Sherman Act because it repeatedly expanded production to meet rising demand, thereby preempting possible entry by rivals.  The court did not assert that ALCOA had priced below cost or engaged in other predatory tactics.  It was enough that ALCOA was what antitrust scholars now call an "efficient monopolist," that is, a firm that acquired or maintained its market dominance by realizing efficiencies that actual or potential rivals could not replicate. Fortunately courts (including the Second Circuit itself) have since rejected Judge Hand's hostility toward efficient monopolies, holding that a firm may acquire and/or maintain a monopoly by realizing efficiencies that exclude or disadvantage rivals, even if such dominance results in higher prices.    In so doing, courts have implicitly recognized that such efficiencies likely outweigh the negative impact of dominance on the allocation of resources (the so-called "dead weight loss" effect), with the result that efficient monopolists likely improve society's welfare, including the welfare of poor consumers.  (See here, for a discussion of the development of Section 2 standards governing efficient monopolists and here for an analysis of the welfare implications of different standards governing conduct that creates both market power and efficiencies).

Similar logic likely compels rejection of any proposal to employ an anti-concentration program as a means of enhancing income equality.  There are, however, other mechanisms, such as the earned income tax credit previously discussed on this blog (see here and here), for reducing income inequality more directly. Hopefully the data surveyed in this article will advance public discussion about these and other possible remedies for income inequality.  

Saturday, November 7, 2015

Tribe Still Climbing in the Polls

William and Mary has climbed again in the national FCS rankings, following its thrilling victory over James Madison last Saturday at Zable Stadium.  Running back Kendell Anderson, shown above hitting a gaping hole in the JMU defense, led the way with 138 rushing yards, while quarterback Steve Cluley contributed 235 yards passing. Mikal Abdul-Saboor added 68 yards rushing on a mere 12 carries. For a thorough account of the game, which some are calling a "classic shoot out," go here at the William and Mary Sports Blog. The Tribe now, 5-1 in the CAA and 6-2 overall, ranks 12th in both the STATS and the FCS Coaches Poll and stands second in the CAA standings behind the University of Richmond.   

The Tribe takes on CAA rival Elon today at noon.  The Phoenix, 3-5 overall and 2-3 in the CAA, are coming off an impressive 21-7 victory over Stonybrook and should be tough at home.  Hopefully the Tribe will emerge victorious and continue their march to the FCS playoffs!  Go Tribe! 

Saturday, October 31, 2015

Yes, Free Speech Sometimes Costs Money

Agent of Plutocracy? 

In a recent blog post, one Jim Hightower claims that: "[b]izarrely the Supreme Court decreed in its Citizens United ruling that money is a form of free speech."  As a result, he says, people with more money can engage in more free speech, and speech is "no longer free," with the result that we live in a '"Plutocracy, not a Democracy." 

Citizens United did not equate the expenditure of money with speech.  Instead, the Court simply held that quintessential speech --- there a movie critical of a political candidate --- did not lose its status as free speech because production and distribution of the movie cost money.   This was not a novel conclusion.  In New York Times v. Sullivan, 376 U.S. 254 (1964), the Supreme Court, in an opinion by Justice William Brennan (pictured above) held that states cannot punish speech --- there a newspaper advertisement --- absent proof of "actual malice" by the speaker.  In so doing, the Court expressly rejected the claim that the speech in that case --- a full page statement in the New York Times by various civil rights leaders and their supporters --- lost First Amendment protection because it was a paid advertisement.  (The advertisement, placed in 1960, cost $4,830, over $38,000 in 2015 dollars.)  According to Justice Brennan's opinion, which was unanimous on this point:

"[The advertisement] communicated information, expressed opinion, recited grievances, protested claimed abuses, and sought financial support on behalf of a movement whose existence and objectives are of the greatest public concern [citation omitted].  That the Times was paid for publishing the advertisement is as immaterial in this connection as is the fact that newspapers and books are sold..."

Far from "bizarre," this holding is unremarkable. The exercise of individual liberties often consumes scarce resources, and free societies rely upon the price mechanism to allocate such resources. In such a system, wealthy individuals will be able to exercise certain constitutional rights more often and or in different ways. For instance, as previously noted on this blog, the Constitution protects the right to travel, a bulwark of competitive federalism. Travel can be expensive, with the result that wealthy individuals can exercise this right more often than others, if they so choose. Moreover, the Bill of Rights protects the right to counsel, pursuant to which a criminal defendant can hire the best lawyer she can find. The framers and ratifiers of the Constitution would not have been surprised to learn that wealth individuals can hire more and better lawyers than the poor as a result.  Wealth individuals can also purchase more books, movies or art than the poor. As Eugene Volokh has pointed out, a law placing on ceiling on expenditures employed to exercise constitutional rights violates those rights in a straightforward way.  A ceiling on expenditures for movies, books, art, advertisements or handbills is no different. It is difficult to reconcile the views of those who disagree with the basic premises of a free society.