Lecture 3 Lecture 2 Outline I In the news a Groundwork for a strike against Syria b Congressional authorization c Is the US justified in getting involved II Weird news Kim Jong Un and Antony Weiner III What is Politics a Harold Laswell b Negotiation bargaining compromise IV Collective Decisions buying a dog where to go on vacation who becomes president a How can government use these institutions to resolve conflict i Coercive power V Rational Choice Theory VI Hobbesian World Without government life would be brutal and short VII Collective action program Individual rationality leads to collective irrationality VIII Is cartel behavior good i Boycott or not 1 Luxury items 2 Essential items PSYC 107 1St Edition Lecture 3 Outline I Current Events a President postpones the Syrian strike Are there political consequences i House members might say no since they are facing immediate reelection ii Congress maybe yes because only 1 3 of them have to deal with reelection iii Dangers of going public so impulsively what is the end game Would it help end it all quickly or will it just be the beginning II Collective Action Problems Recap a Where people are trying to achieve a group goal at the price of the individual III Ways to Reduce Collective Action without Government Involvement a Characteristics of the group characteristics of the situation IV Housing Crisis Collective Action Failure a Irrational Exuberance b 9 11 hit and Federal Reserve Bank lowers interest rates to stimulate economic recovery c Real estate agents and lenders were also to blame d Wall street and ratings agencies i Wall street did not care if they were using regression models to minimize risk found international investors e Politicians Lecture 3 Notes I Current Events a President postpones the Syrian strike Are there political consequences i Asked for congressional authorization for the use of force ii Is he required to do this No technically he has 60 days to put troops on the ground before congressional approval needs to be granted However he does have to notify them iii At the end of the day congress does not want to look dis unified form the president iv Maybe he doesn t want to take the fall for it in case something goes wrong Although it does look bad because he went back and forth b What happened next i Some members of congress do not know if an air strike is the best idea or if it is even necessary ii Some do not think that an air strike is enough iii Fractions in the GOP more heavy conservatives versus moderate ones c House members might say no since they are facing immediate reelection d Congress maybe yes because only 1 3 of them have to deal with reelection e Congress says no and he strikes anyways i Potential constitutional crisis ii Loses the confidence of crisis f If they say no and he doesn t strike i Doesn t seem divided but he seems weak ii He could blame it on congress if it were to escalate iii Undermined presidential credibility iv Rogue states are watching v Dangers of going public so impulsively what is the end game Would it help end it all quickly or will it just be the beginning II Collective Action Problems Recap a Where people are trying to achieve a group goal at the price of the individual Can t always trust the members in a large group the individual and group incentives often conflict b Implications i Even when people agree with the goal it is often difficult to achieve ii Government exists to reduce collective action problems iii Individuals will rarely cooperate unless compelled of punished to do so iv What is best for the collectivity 1 Can be good or bad depending on the point of view 2 Government is about who gets what when and how and how does one decide who the government works for III Ways to Reduce Collective Action without Government Involvement a Characteristics of the group i Small and repeated interaction b Characteristics of the situation i Availability of substitute ii Non necessities c Sense of duty i Purposive benefit ii If people really believe or invest in the goal they are more likely to succeed iii Benefits withheld from the non contributor 1 Maintenance benefits tangible 2 Solidary benefits friendship social status place 3 Purposive intrinsic belief IV Housing Crisis Collective Action Failure a How did we get to this point i Plenty of blame to go around ii Clinton administration Bush administration Obama inherited iii Logic of collective action is the common thread everyone doing best for self 1 Irrational Exuberance a Robert Shiller b People are jubilant about something for greater than what it s value is iv In 2005 people were gaining 8 10 on their houses v May 2005 people were giddy for housing and everyone way buying in this was right before the crash b 9 11 hit and Federal Reserve Bank lowers interest rates to stimulate economic recovery i They kept the rates too low for too long ii Interest caused crash in 2008 iii Low interest rates increased purchasing power for buyers 100 000 at 8 800 a month 1 Interest rates up prices down inverse relationship iv People saw friends and family buying in and they wanted in too before they got left out Psychological motivating factor c Real estate agents and lenders were also to blame i Wanted to sell as much as possible because they were paid on commission Sell to whoever is willing and able to buy even if they didn t seem legitimate ii Mortgage lenders had incentive to underestimate the risky loans and sell that debt to someone else and get it off of their books This is also known as a CEO or collateralized debt obligation 1 They essentially broadened the pool of borrowers 2 Made this more feasibly for non legitimate people to purchase expensive real estate 3 Deflation increased good for producers and bad for spenders d Wall street and ratings agencies i Wall street did not care if they were using regression models to minimize risk found international investors 1 Bundles loans to sell as CEOs around world 2 Ireland bought a lot of this debt and they crashed 3 Credit Default Swaps a This market became completely unregulated and the insurance companies ran out of money to back this up eventually 4 Ratings agencies were supposed to assign risk to each CEO but they were essentially paid off by the same people whose CEOs were being rated ii Basically everyone was doing to selfish thing and this created a suboptimal environment e Politicians i Repealed the glass steagall act and created banks that were too big to fail because they