Political Futures Index: Vol. VII

This month's focus on your political investments comes with a dismal twist

Email | Print By Ken Whitehouse

06-27-2008 6:22 AM —

Break out your pencils and paper and dust off that old Texas Instruments calculator. It's time for another installment of the Political Futures Index, this time featuring flashbacks to our long-ago economics classes.

We could this month take shots at any number of Tennessee political figures, from Lt. Gov. Ron Ramsey likely moving up the boards to Congressman Lincoln Davis moving down. But we thought we'd try something different.

Economics is chock full of theories, curves, paradoxes and a number of other methods that financial forecasters use to analyze the past and predict the future. Tweaked slightly, those same tools can apply to politics.

Now, before you call Art Laffer's office on West End and ask him to comment on our tweaks, humor us and remember that he is well-known for being smart while we only pretend to be.

The following list anything but a complete guide – a mere starter kit, if you will. Feel free to add your own in the comment section below or e-mail your thoughts to ken.whitehouse@nashvillepost.com.

Economies of Agglomeration

This term is used in urban economics to describe the benefits firms obtain when locating near each other. An example could be a Starbucks next to a Kinko’s. Both stores likely feed off the other's proximity.

In politics, lesser-known and less well-versed politicians gain by closely aligning their views with a more prominent member of their political party. They might not drink all of the Kool-Aid, but for practical purposes their views are indecipherable from those of the higher-profile, senior representative.

By spouting off the more prominent politician's talking points, the lesser-known politician will be more likely to draw his supporters. "Lesser-known," being more accessible, is then charged with motivating these new supporters and keeping them active for both the campaigns, thus benefiting both candidates.

Gresham's Law

Sir Thomas Gresham (1519–1579) is credited with the rule commonly stated as "Bad money drives out good." The same goes in politics – in campaign fund-raising as well as with candidates and policies.

If you found out that the candidate you were about to donate money to was accepting cash from white supremacist David Duke, you probably wouldn't write the check. But you would also be reluctant to support legitimate causes that were closely identified with a recently disgraced politician.

Think of the causes championed by someone like former New York Gov. Eliot Spitzer. Spitzer was the bad money that drove out the good.

The Bertrand Paradox

The French mathematician Joseph Bertrand (1822–1900) created a paradox that describes a situation in which two entities reach a state of equilibrium. The entities have an identical commodity – with the same costs of production and distribution – and both sell their commodity at approximately the same price.

According to the paradox, neither entity will set a higher price than the other because doing so would yield the entire market to the rival. If they set the same price, the companies will share both the market and profits. The only real difference for the customer is the label.

Ask most voters what the difference is between two candidates are and they will likely tell you the label: One is a Democrat, the other a Republican, but the average voter can't tell the difference. This is more true at the local level than it is in statewide or national campaigns.

Diminishing Returns

While we are all familiar with the phrase, few know where it comes from. It was originally an concern of a group of early economists that included Thomas Malthus and David Ricardo.

They were concerned that farmland - a limited commodity - would have diminishing yields over time. In 19th-century England, when these men were formulating their hypothesis, farmers would have less and less fertile land to farm and what they did have would have to farmed more aggressively. Thus their work required more effort over time but returned less on the effort.

In politics, this is a very common occurence. An example could be the term "9/11." Politicians on both sides of the aisle have used the term as warning that if they don't get what they're asking for, there will be "another 9/11."

As time has passed, those who rely on "9/11 politics" have had to work harder to get their point across because the public has become more suspicious of those who seem to politicizing the tragedy. More talk, fewer results.

Finally, we were going to take a stab at the Laffer Curve and how its "taxable income elasticity" relates to political campaigns. But then we remembered that Laffer lives in town and we figured it better to "laissez faire" this article as is.

Have an economic concept that can be tweaked to the political arena? Let everyone know in the comment box below or send an e-mail to ken.whitehouse@nashvillepost.com. Your econ professor would be proud.