Studied by 1 person
What percent does this make up on the test?
20% - 27%
What is a linkage institution?
A structure in society that links the people to the government.
What are some linkage institutions?
Political parties, interest groups, political action committees (PACs), 527 groups, elections, and the media.
Rational Choice Voting
Rational choice voting is based on what is perceived to be in the citizen's individual interest.
Retrospective Voting
Retrospective voting involves the decision of whether a party or candidate in power should be reelected based on recent history and per-formance.
Prospective Voting
Prospective voting is based on the potential performance of a party or candidate should they be elected.
Party-Line Voting
Party-line voting occurs when an individual votes for a candidate from one political party for all public offices.
Political Parties
A political party is an organization that coordinates candidates to compete in a particular country's elections. It is common for the members of a party to hold similar ideas about politics, and parties may promote specific ideological or policy goals. The United States has two major political parties: Democrats and Republicans. This two-party or bipartisan system is reinforced by the nations electoral system.
What are some facts about political parties?
Parties serve as intermediaries between the people and the government.
Parties are made up of grassroots members, activist members, and leadership.
Parties are organized to raise money, present positions on policy, and get their candidates elected to office.
Parties were created outside of the Constitution—they are not mentioned in the document but were developed in the 1790s.
Parties develop a party platform, which is a list of goals that outlines the party's positions on both issues and priorities.
Primary
Party members vote for the best candidate that will represent them in the general election.
Closed primary - Only a party's registered voters are eligible to cast a ballot
Open primary - Party members, independents, and sometimes members of the other party are allowed to participate
Caucus
Party members select the best candidate through a series of discussions and votes.
What are the three major subdivisions of political parties?
The party among the electorate. Voters enroll in and identify with political parties. They generally vote for candidates who represent their party.
The party in government. Government officials belong to political parties. They act together to pursue common goals, although regional and ideological differences sometimes subvert their efforts.
The party organization. A group of people who are neither elected officials nor average voters, the party organization is made up of political professionals who recruit candidates and voters, organize campaign events, and raise money to promote the party.
Recruit and Nominate Candidates (Functions of Political Parties)
The parties are the major players in electoral politics. They seek candidates to run in their primary elections. They also create the rules by which candidates seek their nominations. In nearly all elections, nomination by one of the major parties is a prerequisite to victory. For example, in the 2008 Democratic primary, Barack Obama and Hillary Clinton continued to campaign until Obama had enough delegates to secure the nomination, at which point the Democratic Party formally announced him as their candidate.
Educate and Mobilize Voters (Functions of Political Parties)
Political parties fund propaganda campaigns to persuade voters to choose their candidates. They send mailings, hold rallies, and run advertisements. They target regions in which their support is strong and campaign to persuade voters in those regions to vote on election day.
Provide Campaign Funds and Support (Functions of Political Parties)
The national parties have committees dedicated to raising funds for House and Senate campaigns. State parties also raise funds for candidates for both state and national offices. Although most candidates rely primarily on their own personal campaign support staff, they also need the help of the state or national party organizations.
Organize Government Activity (Functions of Political Parties)
Parties act as an organizing force in government. The House and Senate organize their leadership and committee systems strictly along party lines, as do state legislatures.
Provide Balance through Opposition of Two Parties (Functions of Political Parties)
Each party serves as a check on the other by constantly watching for and exposing weakness and hypocrisy. The minority party (provided a single party controls both the White House and the Congress) performs the role of the loyal opposition, constantly critiquing the performance of the party in power.
Reduce Conflict and Tension in Society (Functions of Political Parties)
The two-party system promotes compromise and negotiation in two ways: by encouraging parties to accommodate voters and encouraging voters to accept compromises in policy. The Republican Party, for example, includes both religious social conservatives and libertarians. To assemble winning coalitions, the party must somehow appease both groups.
The groups, in turn, must be willing to compromise if they wish to prevent the Democrats from prevailing.
The National Convention
The largest party event, in which the final candidate that party will be sponsoring for president is selected.
Are parties in decline?
Yes, more Americans are identifying as independent. Also, in terms of presidents, not so much smaller campaigns, they have taken control of their own election campaigns without the help of the party.
Coalitions
A sect in a political party of like minded people. For example, in the Republican Party their is a coalition of Christian conservatives.
Republican Coalitions in 2020
social conservatives
Christian conservatives
libertarians
opponents of affirmative action
supporters of federal budget cuts, including to social welfare programs
supporters of more restrictive immigration laws and enforcement
skeptics of banks and large corporations (populists)
rural dwellers
Democrat Coalitions in 2020
econonic and social liberals
Socialists
racial minority groups
moderates on immigration, funding of the miliary, and crime laws
environmentalists
racial justice activists
skeptics of American dominance of foreign affairs
city dwellers
Democrats vs Republicans Graph
Ex.
Party Realignment
Party realignment occurs when the coalitions making up the two parties fall apart, such as when many of the groups that make up the majority party defect to the minority party. Realignments are very rare and usually occur as a result of some major traumatic event, such as an economic depression or a war. They are signaled by what is called a critical election, when a new party comes to dominate politics. Realignments occur over a period of time and show permanence. The New Deal coalition of the 1930s lasted for decades. There have been no realignments since the 1930s.
Dealignment
The trend today seems to be toward dealignment.
Dealignment is usually a result of party members becoming disaffected as a result of some policy position taken by the party. These disaffected party members join no political party and vote for the candidate rather than the party they belong to. Since the 1960s, membership in the Democratic Party has declined significantly, while the number of Republicans has declined modestly. During the same time period, the number of voters self-identifying as independents has increased dramatically along with membership in third parties, such as the Democratic Socialists of America.
Splinter/bolter parties
Parties that unite around a feeling that the major parties are not responding to the demands of some segment of the electorate. Example: The Reform Party
Doctrinal Party
These are parties that form to represent an ideology, considered two radical by the mainstream parties. Example: the socialist party and libertarian party.
Single-Issue Party
These parties formed to promote one principle. For example, the American independent party, which sponsored the segregationist candidate of George C Wallace.
Independent Canidates
Not to be confused with third-party candidates. These candidates run without party affiliation.
Why do third parties fail?
They lack funding and recognition to compete.
States are almost always winner-takes-all meaning it’s hard for them to win electorates.
Finally, by voting for a third-party you’re taking votes away from a larger party that you might favor second. This results in betterment for your opposition.
Interest Groups
Interest groups are organizations dedicated to a particular political goal or to a set of unified goals, whose members educate voters and officeholders about an issue, lobby on behalf of the issue, draft legislation, and mobilize members to work with legislators and government agencies to achieve their goal.
Economic Interest Groups
Economic groups are formed to promote and protect members economic interests. They include peak business groups such as the U.S. Chamber of Commerce, which represents the interests of all businesspeople. Other groups represent specific trades and industries; among these are the American Farm Bureau Federation and the American Nuclear Energy Council. Labor groups such as the AFL-CIO and the United Auto Workers represent union members. Professional groups include the American Medical Association and the American Bar Association. Most economic groups have existed for a time and have developed strong ties with legislators and bureaucrats. They are also very large, highly influential, and extremely well-funded, well funded, and they either represent or employ large constituencies. As a result, they are usually the most powerful interest groups in Washington, D.C.
Public Interest Groups
Public interest groups are nonprofit organizations that are generally organized around a well-defined set of public policy issues. Consumer groups usually work to promote safer products and more informative labeling; the most prominent of these groups is Public Citizen, founded by Ralph Nader. Environmental groups, such as the Sierra Club, advocate for the preservation of wildlife and wilderness areas. Religious groups such as the Christian Coalition attempt to influence public policy in such a way as to promote or protect their beliefs. Other groups promote causes such as women's rights, minority rights, and political reform.
Single-issue groups like the National Rifle Association (NRA) and Mothers Against Drunk Driving (MADD) are often among the most powerful public interest groups because of the intensity of their supporters. Single-issue constituents are more likely than other voters to use a single issue as a litmus test for candidates. Thus, a candidate who advocates gun control runs the risk of losing the votes of all three million NRA members.
Government Interest Groups
Most states, many cities, and other localities maintain lobbying organizations in the nation's capital. A separate group represents the nation's governors, and yet another represents mayors. Most foreign governments and businesses lobby the government as well.
How Interest Groups Influence Government: Direct Lobbying
Representatives of the interest group meet privately with government officials to suggest legislation and to present arguments supporting their positions. Lobbyists are often the source for a great deal of information to young congress members who are trying to learn about new bills. Some would argue that the lobbyists need to give relatively good information to those congress members in order to maintain a good relationship with them; this way, they can lobby them again later on their issues.
How Interest Groups Influence Government: Testifying before Congress
Interest groups provide expert witnesses at committee hearings.
How Interest Groups Influence Government: Socializing
Social events in Washington, D.C., are often political events as well. Interest groups hold social functions and members attend other functions to meet and forge relationships with government officials.
How Interest Groups Influence Government: Political Donations
Interest groups provide financial support to candidates and parties that champion their causes. Corporations, trade groups, and often unions do so by forming political action committees (PACs) and super PACs for that purpose.
How Interest Groups Influence Government: Endorsements
Many groups announce their support for specific candidates. Some groups rate legislators on the basis of their voting records; a high rating constitutes an implicit endorsement of that candidate.
How Interest Groups Influence Government: Court Action
Interest groups file lawsuits or class action suits to protect and advance their interests. They will also submit amicus curiae (friend of the court) briefs in lawsuits to which they are not a party so that judges may consider their advice with respect to matters of law that directly affect the case in question.
How Interest Groups Influence Government: Rallying their Membership
Public interest groups often engage in grassroots campaigning by contacting members and asking them to write, phone, or email their legislators in support of a particular program or piece of legislation. In addition, members may engage in demonstrations and rallies promoting their cause.
How Interest Groups Influence Government: Propaganda
Propaganda. Interest groups send out press releases and run advertisements promoting their views. Propaganda can take the form of television commercials, social media campaigns, and adver-tisements.
Influence Peddling
The practice of using personal friendships and insight information to get political advantage. Laws exist to counteract. Former house members must wait one year and former senators must wait two years before lobbying Congress directly. “Revolving door.”
Changes to Campaign Financing
In January of 2010, the Supreme Court changed many of the campaign finance rules in the case of Citizens United v. Federal Election Commission (required case). The court ruled that corporations have a First Amendment right to expressly support political candidates for Congress and the White House. The ruling struck down restrictions that had prevented corporations from spending company money directly on campaign advertising right before an election. It is still important to learn how and why these groups function by reading the following sections.
Following the Citizens United decision, debates have increased over free speech and competitive and fair elections with regards to money and campaign finance. The Court's holding brought to the forefront the fact that people are hesitant to allow the wealthy to control the trajectory of American politics, but are similarly hesitant to restrict the individual liberties of an individual to participate in the electoral process. While proponents of Citizens United believe the Court's holding was imperative to protect their political advertising, opponents have coined the phrases "Corporations aren't peo-ple" and "Money isn't speech" to show their disdain for the ruling.
The Long History of PACS and SUPER PACS
The 1974 Federal Election Campaign Act (FECA) allowed corporations, unions, and trade associations to form political action committees as a means of raising campaign funds. FECA set restrictions on contributors and contributions, and stipulated that corporate, union, and trade PACs must raise money from employees and members and may not simply draw it from their treasuries. Corporations, unions, and trade associations are not the only groups that form PACs. Many other interest groups form PACs to collect and distribute contributions, as do legislators (these are referred to as leadership PACs).
After that change, the Bipartisan Campaign Reform Act (BCRA) of 2002 (also known as the McCain-Feingold Act) further regulated campaign finance and PAC donations by prohibiting unregulated contributions (soft money) to national political parties and limited the use of corporate and union money for ads discussing political issues within 60 days of a general election and 30 days of a primary.
The Long History of PACS and SUPER PACS Part 2: Citizens United
Then in 2010, in Citizens United v. Federal Election Commission (required case), the Supreme Court overturned BCRA's limits on PAC fundraising for "corporate independent expenditures." Under the terms of the Citizens United decision, PACs that donate to specific candidates must operate under limits on their contributors and their donations, but PACs that do not donate to specific candidates as long as they do not directly coordinate with specific candidates-are not limited in their fundraising In this context, political donations are considered free speech. These unlimited PACs have come to be known as Super PACs and are generally financed by the ultra-rich; however, because of disclosure laws affecting such Super PACs, it can be difficult to identify donors.
For regular PACs, donations from single-candidate PACs to individual candidates cannot exceed $3,300 ($5,000 for a multi-candidate PAC). Such PACs' donations to national political committees cannot exceed $15,000 from multi-candidate PACs and $41,300 from single-candidate PACs. Though Super PACs avoid limits by not directly or officially coordinating with specific candidates, the Citizens United decision is vague on what constitutes coordination.
Hard vs Soft Money
For the exam, you should be familiar with the terms "hard money" and "soft money." "Hard money" refers to tightly regulated contributions to candidates, while "soft money" refers to unregulated, unlimited contributions to political parties for general party-building activities such as get-out-the vote drives, voter registration efforts, and ads that say "Vote for Democrats" or "Vote for Republicans." Potential uses of soft money were limited by Congress with the passage of the McCain-Feingold Act.
527 Groups
A 527 group (named after the section of the tax code that allows such groups) is a tax-exempt organization that promotes a political agenda, although such a group cannot expressly advocate for or against a specific candidate. The term is generally used to refer to political organizations that are not regulated by the FEC (Federal Election Commission) and are not subject to the same contribution limits as PACs. They avoid regulation by the FEC because 527s are "political organizations" but are not registered as "political committees" subject to campaign finance law contribution limits. Sounds confusing, huh? The line between issue advocacy and candidate advocacy is a huge source of contention and disagree-ment. The BCRA changed soft money rules to make establishing new 527s a more attractive option than traditional PACs and allowing outside organizations to circumvent the hard money limits of the BCRA. The Citizens United decision, however, makes Super PACs another viable alternative for avoiding such limits.
How often are elections held?
Every two years
What to remember about elections outside of the presidency.
The AP U.S. Government and Politics Exam always asks at least one question about the incumbent advantage. Be sure you know the following two facts, as they will almost certainly be tested on the exam: (1) politicians who run for reelection win approximately 90% of the time; and (2) while incumbent senators have a tremendous electoral advantage, House incumbents have an even greater advantage. Senators must run statewide, and they almost always face a serious challenger. On the other hand, House members run in their home districts, where constituents are often overwhelmingly of one party due to gerrymandering (partisan redrawing of congressional district borders). In such races, victory in the primary election virtually guarantees victory in the general election. In fact, each year a number of House incumbents run for reelection unopposed.
The two phases of elections…
Elections consist of two phases; nominations, during which the parties choose their candidates for the general elections, and general elections, during which voters decide who will hold elective office.
Closed Primary
This is the most common type. In a closed primary, voting is restricted to registered members of a political party. Voters may vote only for candidates running for the nomination of their declared party. Democrats choose among the candidates for the Democratic nomination, while Republicans choose among Republican hopefuls.
Open Primary
In open primaries, voters may vote only in one party's primary, but they may vote in whichever party primary they choose. Voters select the party primary in which they wish to participate in the privacy of the voting booth. Critics argue that open primaries allow voters to sabotage their opponents' primaries by crossing party lines to vote for the candidate least likely to win the general election. This is likely to happen only when there are no close contests in one party, however.
Blanket Primary
Blanket primaries use the same procedure as that used in the general elections. In blanket primaries, voters may vote for one candidate per office of either party.
Primaries Countinued…
In primary voting for legislators and state officials, the candidate who receives a plurality (greatest number of votes, but not more than half the total votes cast) or majority (more than half) in each primary is declared the winner. Some states require the winner to receive a minimum percentage of the vote, however. If no candidate receives the required share of votes, a runoff primary is held between the top two. Runoffs occur most often when many challengers vie for an open office, especially when none of them are well known.
In primary elections for the presidency, voters also choose delegates pledged to a particular presidential candidate. Winning delegates attend their party's national convention. Some states select presidential convention delegates at state caucuses and conventions. This process begins with local meetings of party members, who select representatives to send to statewide party meetings. Compared with primaries, the state caucus and convention process usually attracts fewer participants. Those who participate tend to be more politically active and better informed than typical voters.
Superdelegates (Democrats Only)
The Democratic Party uses a third method to choose some delegates to its national convention. It grants automatic delegate status to many elected party leaders, including congresspersons and important state leaders. These superdelegates generally support the front-runner. Critics complain that the superdelegates dilute the importance of the primary elections by making it easier for the party elite to control the nominating process. The Republican Party does not have superdelegates. To promote diversity within the delegate pool, the McGovern-Fraser Commission was created in 1968. It recommended that delegates be represented by the proportion of their population in each state.
More Election Info…
General elections for federal office are held on the first Tuesday after the first Monday of November. Elections in which the president is chosen are called presidential elections. Those that occur berween presidential elections are called midterm elections.
What must candidates do before they run for president?
They must test the waters. They must make sure elite like them, furthermore that people will actually sponsor them. This is important because good candidates need both influence and money.
Steps toward Presidential Nomination Graph
Ex.
Financing Campaigns
Presidential campaigns require substantial funding for staff, travel, consultants, pollsters, and advertising.
Candidates must excel at fundraising.
Federal Matching Funds: Primary candidates earning over 10% of the vote can receive matching funds for contributions ≤ $250, but must adhere to spending limits. Losing eligibility occurs after <10% in two consecutive primaries.
General Election:
Major party nominees can receive federal funding if they avoid other donations (except $51,850 of personal funds). Independents are ineligible.
Recent Trends:
2004: Bush ($272.5M) and Kerry ($250.3M) declined matching funds to bypass limits.
2012: Obama-Romney campaigns totaled $7B due to corporate and union donations without limits.
2016: Only Martin O’Malley sought public financing.
Congressional Campaigns:
No public financing or spending limits.
Individual and committee donations are capped under the Bipartisan Campaign Reform Act (BCRA) of 2002.
Donations Chart
Ex.
Primary Season
Campaigning Begins: By January 1, candidates deliver stump speeches, participate in debates, and stage media events to boost positive coverage.
Early Primaries: Early wins (e.g., New Hampshire) increase media exposure, ease fundraising, and attract major donors. Poor performance often forces candidates to drop out, especially if they lose federal matching funds (after <10% vote in two consecutive primaries).
Front-Loading: States push primaries earlier (e.g., Super Tuesday) to gain influence, pressuring candidates to succeed early. Critics argue this forces early voter decisions before candidates are well-known.
National Conventions
Purpose: Conventions confirm nominees, unify the party after divisive primaries, and display unity to appeal to undecided voters. Events are choreographed for media impact.
Brokered Conventions: Rare, last occurred in 1952 (Democrats) and 1948 (Republicans). Parties design primaries to avoid these, as they can divide the party.
Party Platform & Negotiations: Delegates debate the party platform and negotiate to secure factional support, though the platform holds little practical significance.
Running Mates: Nominees often announce running mates at conventions, adding drama.
Impact: Conventions can harm campaigns (e.g., 1968 Democratic riots, 1992 Republican ultraconservative image) but usually provide a post-convention bump in approval ratings.
Modern Conventions: Now symbolic coronations, as primary elections typically decide nominees before conventions begin.
The General Election
Campaigning: Similar to primaries but shifts focus from intraparty differences to general policy and philosophical contrasts between parties. Candidates court their base in primaries, then move toward the center to attract undecided voters in the general election.
Electoral College: Emphasizes state-by-state results; winning a states popular vote secures all its electoral votes (e.g., 55 in California vs. 3 in Vermont).
Swing States: Campaigns focus on closely contested states (e.g., Ohio, Colorado) rather than states reliably voting for one party (e.g., New York, Texas).
Electoral Strategy: Candidates adapt to opponents plans (e.g., Nixon’s 1968 Southern Strategy shifted Republican focus to weakening Democratic dominance in the South).
Electoral College
Candidates planning their campaign strategies must consider the nature of the Electoral College. This institution was created by the framers of the Constitution as a means of insulating the government from the whims of a less-educated public. Critics feel this system is antiquated, but no one has successfully proposed an amendment to change it. Presidential elections therefore continue to be determined not by the final popular vote but by this institution. Each state is given a number of electors equal to the sum of its federal legislators (senators plus representatives). The winner of the presidential election in each state wins all of that state's electors' (which is why it is often referred to as a winner-take-all system).
Media Influence on the Election
Media's Role: Candidates rely on news media to reach voters. News often focuses on poll standings ("horse race") over complex, rarely changing issue positions, emphasizing campaign dynamics over agendas.
Campaign Ads: Candidates use ads to build positive public images and attack opponents.
Negative Ads: Particularly effective when voters know little about a candidate (e.g., 1988 ads against Michael Dukakis eroded his lead by portraying him as weak and soft on crime).
Election Day
Voter Turnout: Of ~200M registered voters, 154.6M voted in 2020, an increase from 2016. Turnout is rising for midterms (47.5% in 2018). U.S. turnout lags behind countries like Uruguay and Peru.
Patterns: Higher turnout among educated, older voters (40+); lowest under 20. Close races increase turnout, as seen in 2020 (COVID-19 crisis and Trump vs.
Biden).
Legislation: Motor Voter Act (1993) increased registration; photo ID laws depress turnout (reduce fraud vs. limit access for impoverished voters).
Media: Reports exit polls (age, gender, race, income, region) to analyze voter behavior and satisfaction.
Mandates: Winners interpret results as mandates (e.g., Bill Clinton in 1992), but unclear mandates can lead to failed initiatives (e.g., military integration, healthcare reform).
Split Ticket Voting
Voting for a presidential candidate of one party and legislators of the other-has grown more common. Split-ticket voting leads to divided government, when one party controls the Senate or House or both and the other controls the White House. An example of this comes from the composition of the government in 2015: following the 2014 elections, Republicans had House and Senate majorities, while Democrats controlled the White House. This can create policy gridlock because these two branches are often at odds with each other.
Conversely, it can cause them to work together in the creation of moderate public policy. Lastly, it encourages party dealignment because voters do not align with their parties as uniformly as they once did.
Policy Making
Process:
Identify the problem.
Decide how to solve it.
Purposes:
Solve social problems: (e.g., crime, unemployment, poverty).
Counter threats: (e.g., terrorism, war).
Pursue objectives: (e.g., highways, space exploration, cancer research).
Methods:
Prohibit behaviors: (e.g., murder, robbery, polygamy).
Protect activities: (e.g., patents, environmental protection, workplace safety).
Promote activities: (e.g., tax deductions for charitable donations).
Provide benefits: (e.g., roads, libraries, hospitals, subsidies, student loans).
Challenges:
Public opinion: Fickle and influenced by the issue-attention cycle (e.g., energy prices).
Trade-offs: Balancing competing goods (e.g., energy vs. wildlife conservation).
Unforeseen results: Can lead to disputes or opposition.
Strategies:
Incrementalism: Gradual, step-by-step policy changes.
Inaction: Maintaining the status quo (e.g., Social Security, healthcare reform).
Policy Making : Process
Five Main Steps:
1. Define the Role of Government
Political left: larger, more active government.
Political right: smaller, limited government.
2. Agenda Setting
Identify and rank social/economic problems.
Influenced by:Socioeconomic status (e.g., poor prioritize job training, rich prioritize tax cuts).
Moneyed interests (e.g., energy corporations influence agenda).
Events (e.g., wars, crises).
Scholars/research studies.
Goal: Balance competing interests (e.g., environmentalists vs. petroleum producers).
3. Policy Formulation and Adoption
Methods:
Legislative process in Congress.
Executive orders from the president.
Regulatory agency rules.
Supreme Court decisions (e.g., Brown v. Board of Education).
4. Policy Implementation
Enforced by government agencies.
Includes timetables, rules, and anticipating challenges.
Concerns: Unintended consequences (e.g., “three-strike rule” led to more trials and overloaded courts).
5. Policy Evaluation
Analyze effectiveness and identify issues.
Provides feedback for modifications or termination.
Obstacles to Policy Making
1. Dispersed Power:
Framers designed the system to prevent tyranny and corruption.
Result: a "policy-making nightmare" with slow, cumbersome processes.
2. Policy Fragmentation:
Multiple pieces of legislation address parts of a problem but fail to solve the whole issue.
3. Policy Coordination Issues:
Example: The drug war requires cooperation among competing agencies.
Solutions Attempted:
Interagency task forces address conflicts.
Congressional oversight adjusts agency jurisdiction to improve coherence.
4. Influence of Interest Groups:
•Thousands of lobbyists compete to shape policy at every level, adding further complexity.
Mixed Economics
Capitalist free-market systems in which both government and private industry play a role.
Laissez-faire Economics
Laissez-faire economists believe that the government should never become involved in economic issues. They believe that the narrow pursuit of individual profit serves the broader interest of society. Central to laissez-faire economics is the belief that free markets are governed by the laws of nature and government should not interfere with those laws. In vogue with rugged individualists in the 19th century, laissez-faire economics was not a viable government policy option during the Great Depression of the 1930s.
An economic theory that advocates for government intervention to stabilize economic cycles. It suggests the that increased government spending and lower taxes can stimulate demand during economic downturns.
Definition
Fiscal policy involves government actions such as:
Lowering or raising taxes, which affects consumer spending.
Government spending programs, e.9, highways or hospitals.
Key Economic Theories
Keynesian Economics:
During downturns, the government should spend money to stimulate the economy.
Less concern about deficits; a prosperous economy increases tax revenue to eventually correct deficits.
Suggests saving surplus taxes during economic booms to fund spending during recessions.
Supply-Side Economics:
Inflation arises from too many dollars chasing too few goods,
Solution: Increase the supply of goods by cutting taxes and reducing domestic program spending to stimulate production.
Example: 1980s "Reaganomics"- Tax cuts and welfare reductions brought inflation down but caused massive budget deficits due to military spending.
The Modern Challenges
Deficit Trends:
1990s: Budget surpluses reduced the deficit.
Post-2000s: Deficits rose due to tax cuts, the War on Terror, and government stimulus.
2020: Federal deficit hit a record $3.1 trillion, driven by pandemic-related spending and lost revenue.
Monetary Policy
Definition: Government controls the money supply and credit through the Federal Reserve Board.
Key Mechanisms:
Reserve Requirement - Raising it reduces available money (higher interest rates), lowering it increases money (lower interest rates).
Discount Rate - Lowering it makes borrowing cheaper, increasing spending; raising it does the opposite.
Open Market Operations - Buying bonds injects money (lowers interest rates),selling bonds pulls money out (raises interest rates).
Economic Impact: Lower interest rates - more borrowing, higher inflation.
Higher interest rates → less borrowing, economic slowdown.
Monetarist View (Milton Friedman):
Government should only control the money supply at a steady rate.
Tax and interest rate manipulation has little impact.
Example: 1990s economic expansion credited to Fed policy under Alan Greenspan.
Fiscal vs Monetary Policy
Ex.
Mandatory vs Discretionary Spending
Mandatory spending is required by law, while discretionary spending is approved by Congress each year.
Explanation
Mandatory spending
This type of spending is required by law and is also known as direct spending. It includes entitlement programs like Social Security, Medicare, and Medicaid. It also includes interest payments on the federal debt.
Discretionary spending
This type of spending is approved by Congress each year through the appropriations process. It includes funding for programs like defense, education, transportation, and environmental protection.
Examples
Mandatory spending
Social Security, Medicare, Medicaid, military pensions, veterans benefits, and interest payments on the federal debt
Discretionary spending
Defense programs, education, transportation, environmental protection, law enforcement, border security, and international assistance
Trade Policy
Foreign nations depend on the United States as a market for their products, as we depend on them for ours. The ratio of imported products to exported products is called the balance of trade. Trade deficits occur when imports exceed exports. Trade deficits cause wealth to flow from a nation. When nations face trade deficits, they often place restrictions on imported goods. The nation facing the restrictions can take retaliation by imposing high import taxes or unfair regulations on prod-ucts, effectively keeping out foreign goods. Trade wars can result, stopping trade between countries. Trade surpluses are the result of more money flowing into a country than out. The oil-producing nations have huge amounts of money flowing into their treasuries and therefore have large trade surpluses when prices are high.
To promote trade, the U.S. signed the World Trade Organization (WTO) agreement and the North American Free Trade Agreement (NAFTA) in 1994. NAFTA aimed to remove tariffs between the U.S., Canada, and Mexico but faced criticism for job losses and harm to Mexican farmers. It was replaced by the United States-Mexico-Canada Agreement (USMCA) in 2018.
Domestic Policy
Domestic policy is often more contentious than economic policy, as it addresses the core purposes of government. Liberals advocate for government support of social welfare, while conservatives view such programs as infringements on individual responsibility, creating dependency. Moderates believe in limited government assistance during difficult times.
The role of government in social welfare changed drastically after the Great Depression, leading to job creation, housing, and food programs. The Great Society programs expanded welfare, but many were reduced under Reagan due to costs and effectiveness concerns.
Social-welfare programs fall into two categories:
1. Social insurance programs (e.g., Social Security), which are funded by taxes and viewed as earned benefits.
2. Public assistance programs, which are not seen as earned and are based on need, often viewed as handouts. This perception has led to policies aimed at encouraging work or job training for recipients.
Social Security
Social Security is an entitlement program mandated by law.
Medicare provides government assistance to people older than 65 for health care. For those retirees who pay an additional tax on their social security benefit, Medicare Part B will pay approximately 80% of their doctor's bills. The high and rising cost of health care has led some to question the solvency of this program, but recent reports note that it is more than able to cover 100% of its costs through at least 2030.
Medicaid provides medical and health-related services for low-income parents, children, seniors, and people with disabilities. It is jointly funded by the states and federal government and is managed and run by the individual states.
Social Welfare
Programs designed to provide assistance to individuals and families in need, addressing issues such as poverty, unemployment, and healthcare.
GDP
The total goods and services produced in a year.
Health Care Programs
Government initiatives designed to ensure access to medical services for various populations, including Medicare for the elderly and low-income individuals, and Medicaid for low-income families.
