Political Economy of the United States. How Economics and Politics Affect Each Other. I. Why study political economy?. Politics Defined: Who Gets What? – or “The authoritative allocation of resources and values .” Implication: Politics creates winners and losers Key Terms:
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Political Economy of the United States
How Economics and Politics Affect Each Other
a. Credible Commitment -- Conditional support
b. Outreach -- Publicity, Money, Media Access
c. Persuasion -- Information to representatives
a. Logrolling: You scratch my back, I’ll scratch yours
From the early American practice of neighbors gathering to help clear land by rolling off and burning felled timber.
a. Enforcement of laws
a. Judicial Review: Power of courts to review laws
b. Economic regulation: Chevron deference
IN GENERAL: Retrospective economic voting overwhelms prospective economic voting
% of two-party vote for incumbent party
% change in per capita real disposable income (p. 109) in election year
Who pays? Who gets what?
1. Tax code is best place for political favors.
a. Permanence -- Tax law remains unless someone repeals it. Spending requires reauthorization every year.
b. Less visible -- Public doesn’t understand tax code
i. Must be renewed by Congress or funding ceases
ii. Defense is largest discretionary expenditure
USA: $586.25 billion in FY 2007 ($666 b in 2008)
China Russia Japan UK France Italy India Israel Iran North Korea
Germany S. Arabia S. Korea Syria
0 50 100 150 200 250 300 350 400 450 500 550
2006 2007 2008 2009
Who were the winners and losers?
a. No budget for “welfare”
b. Jointly funded: States pay about one-third
Israel and Egypt were the top two from 1979 to 2002 and in the top five ever since 9/11 (along with Iraq, Afghanistan, and Pakistan – countries where US forces have been fighting). Why?
1. Unusual for sheer size: $700 Billion for TARP, $800 billion for Stimulus Bill
TARP + Stimulus
Low Salience: Balanced Budgets Don’t Win Elections