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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

Political Economy of the United States

How Economics and Politics Affect Each Other


I why study political economy
I. Why study political economy?

  • Politics Defined: Who Gets What? – or “The authoritativeallocation of resources and values.”

    • Implication: Politics creates winners and losers

    • Key Terms:

      • Authority: Government has a monopoly on the legitimate use of force, so it is the only one with the authority to allocate.

      • Resource Allocation: Money, labor, and even commodities

      • Allocation of Values: Deciding between incompatible moral or ethical principles


B political economy
B. Political Economy

  • Definition: The effect of politics on the economy and of the economy on politics

  • Economic effects of politics:

    • Will more government spending help the economy?

    • Does the law reward productive activity?

    • Does defense spending reduce growth?

    • Is dictatorship necessary for development?

  • Political effects of the economy:

    • Do people vote based on their pocketbooks?

    • Is economic growth the key to military dominance?

    • Who wins and loses when free trade pacts are signed?



A agenda setting
A. Agenda-Setting allocated?

  • Proposing alternatives to the status quo

    • Status Quo: The way things are (the current system)


1 individuals
1. Individuals allocated?


1 individuals1
1. Individuals allocated?







4 benefits of organization
4. Benefits of Organization agenda

a. Credible Commitment -- Conditional support

b. Outreach -- Publicity, Money, Media Access

c. Persuasion -- Information to representatives


5 how to initiate change in the us
5. How to Initiate Change in the US agenda

  • Representatives: The Elected

    • Use Money, Votes, Publicity

      • Math for politicians:

      • Anything + Money = Anything Else

  • b. Bureaucrats: Experts and Career Officials

    • Use Information, Targeted Ads

  • c. Appointees: Judges, Cabinet, etc.

    • Indirect: Target Appointers

    • Direct: Information, Lobbying, or Lawsuits

  • d. ALL: Illegal bribes, Influence Peddling, etc.


B government action 1 legislation

a. Logrolling: You scratch my back, I’ll scratch yours agenda

b. Partisanship

From the early American practice of neighbors gathering to help clear land by rolling off and burning felled timber.

B. Government Action1. Legislation


2 bureaucratic change
2. Bureaucratic Change agenda

a. Enforcement of laws

  • Example: Equal employment opportunity for women

    b. Regulation

  • Example: Wireless Internet


3 judicial change
3. Judicial Change agenda

a. Judicial Review: Power of courts to review laws

  • Examples: Income tax, child labor, regulatory “takings,” and the “switch in time that saved nine”

    b. Economic regulation: Chevron deference


C citizen response
C. Citizen Response agenda

  • The Media

    • Economic Ideology: Generally “conservative” – both owners and reporters critical of deficits, taxes, wasteful spending, limits on trade and immigration, etc.

    • Citation Bias: Fox (Right), Other Broadcast Networks (Left)


C citizen response1
C. Citizen Response agenda

  • The Media

    • Economic Ideology: Generally “conservative” – both owners and reporters critical of deficits, taxes, wasteful spending, limits on trade and immigration, etc.

    • Citation Bias: Fox (Right), Other Broadcast Networks (Left)

    • Effect of Bias: Remarkably small, due to self-selection by voters


2 economic voting
2. Economic Voting agenda

  • Prospective voting: Voting based on expectations of policy/outcomes

    Examples:

  • McKinley 1896: “The Full Dinner Pail”

  • 2008: From Obama and McCain


B retrospective voting
b. Retrospective Voting agenda

  • 1932: FDR against Hoover

  • 1952: Eisenhower asks, Who Raised Prices?

  • 1984: The Train: Retrospective success

  • 1992: How Ya Doin’? Retrospective Failure

    IN GENERAL: Retrospective economic voting overwhelms prospective economic voting


Economic voting presidential elections 1948 2008
Economic Voting: Presidential Elections, 1948-2008 agenda

Bush 2004

% of two-party vote for incumbent party

Gore 2000

McCain 2008

% change in per capita real disposable income (p. 109) in election year


2008 agenda


3 behavior
3. Behavior agenda

  • Protest: “Bonus Marchers,” “Battle of Seattle,” “Tea Parties”

  • Non-compliance: Tax Evasion, Failure of “WIN” Campaign


Iii the federal budget an overview
III. The Federal Budget: An Overview agenda

Who pays? Who gets what?


A revenues microeconomic effects who pays
A. Revenues: Microeconomic Effects (Who pays?) agenda

1. Tax code is best place for political favors.

Why?

a. Permanence -- Tax law remains unless someone repeals it. Spending requires reauthorization every year.

b. Less visible -- Public doesn’t understand tax code


2 class differences a progressive taxes wealthy pay higher of income
2. Class differences agendaa. Progressive taxes (Wealthy pay higher % of income)

  • Income Tax: Tax on earned income. Does not apply to investments.

  • Capital-Gains Tax: Tax on investment income.

  • Estate Tax: Tax on wealth over $2 million ($4 million if married) after death (2009 figures)


B regressive taxes poor pay higher of income
b. Regressive taxes (Poor pay higher agenda% of income)

  • Excise Taxes: Tobacco, Alcohol, Gasoline, etc.


B regressive taxes poor pay higher of income1
b. Regressive taxes (Poor pay higher agenda% of income)

  • Excise Taxes: Tobacco, Alcohol, Gasoline, etc.

  • State Taxes:

    • Sales tax (poor consume larger fraction of income)

    • Property tax: Effect on rent tends to make tax regressive (poor pay larger share of income for housing)



B regressive taxes poor pay higher of income2
b. Regressive taxes (Poor pay higher agenda% of income)

  • Excise Taxes: Tobacco, Alcohol, Gasoline, etc.

  • State Taxes:

    • Sales tax (poor consume larger fraction of income)

    • Property tax: Effect on rent tends to make tax regressive (poor pay larger share of income for housing)

  • Payroll Taxes (depends on definition): Social Security and Medicare taxes. Paid only on the first $90,000 of wages. Not paid on investments or on wages over $90,000 (2005 figure).


C flat taxes
c. Flat Taxes agenda

  • Also known as Proportional Taxation

    • Definition: Everyone pays same % of income, regardless of source

  • US System

    • Consists of progressive and regressive taxes

    • Federal taxes > State taxes

    • Only moderately progressive: Middle income range is nearly “flat”

  • If progressive taxes become flat taxes, overall system becomes regressive





1 categories of spending
1. Categories of Spending agenda

  • Discretionary – About 1/3 of the budget

  • Mandatory – About 2/3 of the Budget


A mandatory spending
a. “Mandatory” Spending agenda

  • Some laws commit Congress to spend money in the future. These programs get funding each year if Congress does nothing:

    • Social Security

    • Medicare

    • Medicaid

    • Income Security

    • Interest







Net interest increases as deficits increase but interest rates are unpredictable
Net Interest Increases as Deficits Increase – But Interest Rates are Unpredictable

  • 1998-2007 data and 2008-2010 projections


B discretionary spending
b. Discretionary Spending Rates are Unpredictable

i. Must be renewed by Congress or funding ceases

ii. Defense is largest discretionary expenditure



Iv usa vs everyone else 2007
iv. USA vs. Everyone Else (2007) Rates are Unpredictable

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

Next 50

0 50 100 150 200 250 300 350 400 450 500 550


C programs of interest
C. Programs of Interest Rates are Unpredictable

  • These are already included in the earlier figures

    BUT

  • These programs have generated public and Congressional debate out of proportion to their budgets



A department creation must pass perfect for interest groups
a. Department Creation = “Must Pass” – Perfect for Interest Groups

Unrelated Amendments:

  • Eli Lilly: Immunizes drug makers from lawsuits over vaccines

  • Allows formerly American companies that move to foreign tax havens like the Cayman Islands to win federal contracts

    Who were the winners and losers?


B large increases in funding further opportunities for interest groups
b. Large Increases in Funding = Further Opportunities for Interest Groups

  • Authorized in the FY2004 budget:

    • $2,000,000 to the Great Lakes Region to purchase an Icebreaker so that commercial ships can go through during the winter

    • $2.5 billion for “highway security,” which consists of building and improving roads.

    • $70,000,000 for the Homeland Security Fellowship Program for students and universities.

    • $6,400,000 for the Intellectual Property Rights Center in the FBI. The center’s focus is to combat intellectual property crime – the RIAA and MPAA lobbied strongly for this provision.


2 programs of interest welfare
2. Programs of Interest: Welfare Interest Groups

a. No budget for “welfare”

  • Social welfare programs include Social Security, Medicare, Medicaid, many others

  • Most people mean cash, food, and medical aid to the poor: “Means-Tested Assistance”

    b. Jointly funded: States pay about one-third





D where does tanf money go less cash than afdc more child care and work
d. Where does TANF money go? Interest Groups-- Less cash than AFDC, more Child Care and Work


E tanf state flexibility many states spend money on unique programs
e. TANF Interest Groups State flexibility: Many states spend money on unique programs





B top three recipients of us aid fy 2001 fy 2009 and 2010 request
b. Top Three Recipients of US Aid: Interest GroupsFY 2001 – FY 2009 (And 2010 Request)

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?



D one time expenses tarp and the 2009 stimulus bill american recovery and reinvestment act of 2009
D. One-Time Expenses: TARP and the 2009 Stimulus Bill (American Recovery and Reinvestment Act of 2009)

1. Unusual for sheer size: $700 Billion for TARP, $800 billion for Stimulus Bill

TARP + Stimulus


2 stimulus components from recovery gov
2. Stimulus Components (from Recovery.gov) (American Recovery and Reinvestment Act of 2009)



3 timeline actual spending is staggered over several fiscal years
3. Timeline: Actual Spending is staggered over several fiscal years

  • FY 2010 begins Oct 1, 2009


E budget deficits
E. Budget Deficits fiscal years

  • Definition: Spending > Revenue

  • Balanced Budget = No Budget Deficit

    • Technically, no surplus either, but no one objects to a little surplus.


1 effects of budget deficits
1. Effects of Budget Deficits fiscal years

  • Interest payments – If economy grows slower than interest paid on debt, interest becomes larger fraction of GDP  requires future spending

  • Increased interest rates – Government borrowing raises the cost of borrowing for everyone else  slows growth and increases net interest payments

  • Less investment – Government investment may “crowd out” private investment  lower future growth

  • Decreased unemployment and increased inflation – more government spending (or personal consumption from tax cuts) means higher demand  should lead to higher employment and rising prices





5 public opinion
5. Public Opinion Deficits

Low Salience: Balanced Budgets Don’t Win Elections


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