Arnold Kling  

Coase and Dean

Water Privatization, Continued... Predicting Drug Price Controls...

Everett Ehrlich invokes Nobel Laureate Ronald Coase as Ehrlich interprets the success of Howard Dean in terms of reduced transactions costs in setting up a political organization.

the Internet has changed all that in one crucial respect that wouldn't surprise Coase one bit. To an economist, the "trick" of the Internet is that it drives the cost of information down to virtually zero. So according to Coase's theory, smaller information-gathering costs mean smaller organizations. And that's why the Internet has made it easier for small folks, whether small firms or dark-horse candidates such as Howard Dean, to take on the big ones.

On the other hand, in Montgomery County, Maryland, the Gazette writes,

Against a backdrop of a fiscal crisis for the county and strong sentiment against raising taxes, the County Council and the Duncan administration are looking for ways to trim expenses. The teachers believe their health benefits might be a prime target.

The Nov. 3 newsletter of the Montgomery County Education Association, which represents the school system's 11,000 teachers in contract negotiations, took on the issue.

I'll believe that the structure of politics has changed the day that someone can get elected to the local School Board or County Council without the endorsement of the teacher's union.

UPDATE: Professor Bainbridge correctly points out that Ehrlich failed to demonstrate a connection between the Coase theory of the firm and politics.

For Discussion. Is a reduction in communication costs the critical factor in Dean's success?

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CATEGORIES: Microeconomics

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The author at in a related article titled Ronald Coase Does Not Explain Howard Dean: Political Parties and the Transaction Cost Economics of Voting writes:
    A student forwarded to me a Washington Post article by economist Everett Ehrlich, which purports to use Nobel laureate economist Ronald Coase's 1937 article The Nature of the Firm to explain the rise of Howard Dean:Back in 1937, an economist [Tracked on December 17, 2003 6:35 PM]
The author at QandO in a related article titled The information diffusion writes:
    Everett Ehrlich writes an interesting column on the effect of the internet on politis. Specifically, he suggests that Ronald Coase's insight - "The cost of gathering information determines the size of organizations" - when added to the explosion of the... [Tracked on January 24, 2004 1:09 PM]
COMMENTS (8 to date)
Steve writes:

-->Is a reduction in communication costs the critical factor in Dean's success?

Eric Krieg writes:

The critical factor in the Dean candidacy is RAGE. There are a lot of pissed off Democrats out there. They're pissed about Florida 2000. They're pissed about the tax cuts. They're pissed about "No Child Left Behind" (ask a teacher about it sometime to hear the rage). They're pissed about Iraq (probably more so now that Sadaam is in our custody).

Basically, they're pissed that Dubya is OBVIOUSLY on a mission from GOD. And how can you compete with that?

Steve writes:

Eric--I'll see your "RAGE" and raise you a "FEAR and LOATHING".

Eric Krieg writes:

Fear and loathing it is.

You remember who invented that phrase, right? Seems like the perfect poster boy for the Democrats. Johhny Depp even made a movie, perfect for the illiterate Democrat masses!

In any case, the internet has nothing to do with it. In fact, Dean has come on strong only after "the mainstream media" discovered him.

Steve writes:

Ghephardt will still give him a run. Gep's got my vote in the primary, unless Ross decides to jump back into the GOP and run.

mcwop writes:

His success is due to rage, and blogs.

Lawrance George Lux writes:

The cheaper Costs of communication have relatively little to do with it. Dean enjoyed many advantages before the Internet. He is an ex-Governor of a State, proving to the American people that he can administrate; remember, The American Electorate favors ex-Governors--Carter, Reagan, Clinton, George W. Bush. This prior Governorship introduced him to national Democratic leadership, and built his political campaign organization with its political contribution network. Dean would have been a Contender anyway. lgl

Monte writes:

The GOP is more responsible for Dean’s success than low-cost communications. They’re behind the Dean media juggernaut because they believe he’s the ideal candidate for Bush to beat. He’s too far left for most voters, he approves of Bush’s foreign policy (regarding Israeli/Palestinian relations and our intervention in Liberia), and he’s polarized his party more than any other democratic candidate. Finally, in spite of all the hype about internet contributions, he’s not likely to raise enough money to contend with Bush’s $500 million campaign kitty. Talk about the perfect foil!

I suspect there’s going to be a lot of cross-over voting done toy soldier republicans in the Democratic primary to ensure Dean gets set up for failure. In the spirit of the season, perhaps the RNC’s clandestine operations squad should rubber stamp this one “Operation: Nutcracker” (sorry).

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