Transcript Economic_Policy_Lecture_Slides

Government and Politics of the USA
Hillary Term, Lecture 26
American Economic Policy
Dr Andrew Glencross ~ [email protected]
Hillary Term Essay
• Submit essay online via www.turnitin.com and hard copy to Jane
Suiter: Deadline: 5pm, Monday 10th of March (Hillary term wk 10)
• Choose 1 of 3 titles; strict 2,000 word limit (excluding bibliography)
– “In practice, Congress functions not as a unified institution, but as a
collection of semi-autonomous committees that seldom act in
unison“. Discuss this view, and explain your response.
– What are the consequences of pluralism and federalism for the
policy-making process in the US? Evaluate these consequences
with reference to at least two policy areas.
– Discuss the role played by money in US Presidential elections.
Elaborate your response in the context of attempts at campaign
finance reform since the 1970s and the 2008 Presidential election.
• Details on course website - http://uspoliticstcd.pbwiki.com/Courseassessment
Readings for today
Required reading…
– McKay chap. 17
– Singh chap. 13
Additional resources…
• Chalmers Johnson, Why the US Has Really
Gone Broke, Le Monde Diplomatique, Feb 2008
http://mondediplo.com/2008/02/05military
• A. Brandolini and T Smeeding, Patterns of
Economic Inequality in Western Democracies,
Political Science and Politics, Jan 2006
• www.economicmobility.org
Definitions
• Keynesianism: ‘the belief that the
state has to intervene the prevent and
respond to market failure’
• Laissez-Faire: ‘the belief that markets
work best when the state does not
interfere’
Agenda
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Overview of American Economic Policy
Current Issues in Economic Policy
Interest Groups and Economic Policy
Evaluating Recent Economic Policy
Economic Policy and the 2008 Election
Overview of American Economic Policy
• Energy
• Big Business
• Labour Force
Current Issues in Economic Policy
• Stimulating the economy: emergency 150bill
package in Bush budget to counteract effects of
sub-prime mortgage crisis
• Income Tax: to keep or not to keep the Bush tax
cuts? Making the cuts permanent will affect…
• The Budget Deficit: set to be 400 bill in 2009,
which affects…
• The Exchange Rate of the Dollar: as more
debt issued, increasingly purchased by other
countries, the dollar falls in value affecting
international trade…
• Foreign Economic Policy: promoting free trade
but worries over deficit in balance of trade with
China, dependence on foreign energy supplies,
worries over foreign ownership of US debt and
role of sovereign wealth funds
Current Issues in Economic Policy
The Problem of Economic Mobility
• Last three decades have seen growing
economic inequality
• Between 1979-2004, the real after-tax income of
the poorest one-fifth of Americans rose by
9%, that of the richest one-fifth by 69%, and that
of the top 1% by 176%.
• Between 1978-2005, CEO pay increased from
35 times to nearly 262 times the average
worker’s pay
Current Issues in Economic Policy
The Problem of Economic Mobility
• Two out of three Americans have higher
incomes than their parents, while one third
are falling behind.
• But that does not necessarily mean they are
moving up the economic ladder compared to
their parents or to other families. Only one third
are “upwardly mobile.” Another third is
“downwardly mobile.”
• Moreover, about one quarter are “riding the
tide” making more than their parents, but
remaining in the same economic position as
their parents.
Interest Groups and Economic Policy
• 2001 Repeal of Inheritance Tax – a classic tale
of interest group activity
• Federal Estate Tax prior to 2001 affected 2.3%
of population, raising $25 billion
• Abolished in 2001: WHY?
Interest Groups and Economic Policy
• Early 90s group of Rep congressmen seek to
build a “Kill the Death Tax Coalition”
• Two key strategies: framing the issue in human
terms with personal stories, finding research to
back up repeal
• So tax framed as “death tax”, affecting family
businesses and entrepreneurs who struggled
against adversity
• Funded Heritage Foundation report on why
repealing tax makes economic sense
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Interest Groups and Economic Policy
Generating Publicity: opinion polls showed
that 40% of Americans thought they would
eventually be affected by death tax; 70%
thought it was unfair
Democrats outmaneuvered as refused to
contest estate tax on principle of
fairness
Yet at same time the tax did not raise
huge amounts and the super-rich
typically able to minimise their liabilities
But is it the thin end of the wedge?
Evaluating Recent Economic Policy
The Good News
• Continuing low unemployment – currently
4.9%, above OECD average employment rate at
71%, Bush presidency saw zero job creation in
first term but nearly 6 million since 2004
• US economy resilient – survived dotcom
meltdown, 9/11 and 600 billion war in Iraq,
economic growth outpaces EU
• Federal reserve acted decisively – cutting
interest rates significantly after financial crises,
latest being sub-prime
• Very successful in comparative terms at
integrating immigrants through employment
Evaluating Recent Economic Policy
The Bad News
• US economy heavily dependent on credit end of housing bubble leads to credit crunch and
less consumption, last quarter 2007 saw lowest
growth for 4 years
• Economic mobility stalling – foundation of
American dream, greater uncertainty for middle
classes and low-skilled
• Growing public debt – reluctance to raise taxes
• Weak dollar and pricey petrol
• A backlash against free trade?
Economic Policy and the 2008 Election
It’s the economy stupid
What do you think is
the most important
problem facing this
country today?
Economy
38%
Iraq
21%
(CBS News Poll. Jan. 30-Feb. 2)
Health
6%
See www.pollingreport.com
Immigration 4%
Terrorism
3%
Economic Policy and the 2008 Election
• Taxes – McCain promises no new taxes, Obama
and Clinton against enshrining Bush tax cuts
• Housing – McCain sees federal intervention as
last resort, Clinton proposes freeze on adjustable
subprime mortgages, Obama a 10 bill fund for
preventing foreclosure
• Energy – McCain in favour of nuclear power and
credits for carbon emissions, Clinton seeks to
encourage renewables and biofuels, Obama
wants international agreement on climate change
and fed investment in clean energy
Next Week
• Foreign Economic Policy (read MHW
chap 16, Singh chap 15)
• Health and Social Policy (read McKay
chap 16, Singh chap 17)
• Keep an Eye on the Primaries
• 19 February: Hawaii Caucus (D),
Washington and Wisconsin