GOV 358 intro to public policy final

Who said “it’s the economy stupid?”

James Carville about Clinton’s high approval ratings

Why were bill Clinton’s approval rates increasing during his administration?

The economy was booming

What political actors are effected by economic performance?

Incumbents at every level

Why do voters put such urgency on the economy?

The economy has universal effects, is felt by everybody, effects people’s every day lives, and gets high media coverage

What is communism?

A system in which most of the GDP and industries are controlled by the government

Why is communism associated with non democratic systems of government?

People will vote to give themselves more economic freedom if given the chance, so when the government retains so much control of the economy, it is typically due to authoritarianism

What is capitalism?

An economic system which sets prices based on demand; a competitive system with efficient information processing and information flow

What are foundational economic policies?

Baseline economic policies that all governments are involved in

What are examples of the foundational economic policies?

Guarantee currency (set the value of money), print money, enforce contracts/patents, regulating and providing space for the stock market, trade agreements, and investing in infrastructure

What was the economic policy of the Great Depression?

• economic policy becomes a clear responsibility of the government due to widespread economic collapse

• Shift from individual to institutional causal stories around poverty

• Creation of monetary and fiscal policy

What is monetary policy?

Economic policy regarding the central bank such as controlling the money supply in order to balance inflation with demand

How does the federal reserve balance inflation?

By changing interest rates

Why is monetary policy nonpartisan?

Everyone wants the same thing: for the economy to be good

Why are members of the federal reserve appointed?

So they are not constrained by whether the policy they execute is popular or not, they only need to focus on if it benefits the economy

Who is the lender of last resort?

The federal reserve

Who does the federal reserve lend money to?

Banks

What is the prime rate?

The interest rate the federal reserve charges banks; determines how expensive it is to borrow money

What does raising the prime rate do?

Takes money out of circulation and makes it more expensive for individuals and corporations to borrow money (less money borrowed)

When will the fed increase the prime rate?

When it is trying to lower inflation

What is fiscal policy?

Economic policy regarding spending and taxing

Who is in charge of fiscal policy?

Congress and the treasury department

What is the goal of fiscal policy?

To even out the phases of the economic business cycle

What is the economic business cycle?

The tendency of the economy to go through cycles of boom (expansion) and bust (recession/depression)

What causes economic contraction according to Keynes?

A demand spiral

What is a demand spiral?

an exogenous shock to the market causing people to lose wealth and spend less money, causing businesses to make less money (hire and invest less), causing people to lose their jobs and thus have less money to spend

How can the government help with breaking out of a demand spiral?

by incentivizing people to spend money

How does the government incentivize people to spend money?

Tax cuts (especially to low income people because they have a higher marginal propensity to consume (spend money faster) than higher income people), direct government spending

What is the main advantage of the federal government’s ability to go into debt?

It allows them to spend money and put money back into circulation to break out of a demand spiral

What is inflation?

The process by which the purchasing power of money decreases over time

What leads to inflation?

Economic expansion

What is the ideal inflation rate?

2-3%

Why does rapid expansion lead to rapid inflation?

Inflation rises faster than wages and people have less purchasing power

What is the fiscal policy response to high inflation?

Reducing spending to slow down the rate at which money is cycling through the economy

How does the government reduce spending?

Increasing tax rates and cutting spending

What is counter-cyclical spending?

Demand-side economics/Keynesian economics; adding money into circulation during economic downturns and subtracting money from circulation during excessive inflation

what is the conservative response to keynesian economics?

supply-side economics/trickle down economics in the 1980s

what is supply-side/trickle down economics?

the idea that cutting taxes for the wealthy and companies will encourage these agents to invest this disposable income in ways that will bolster the economy, thus encouraging investment and job creation (no guarantee)

do republicans only enact supply-side economics?

no; they enact major government spending when necessary (keynesian/demand-side)

what is a deficit?

when the government spends more than it earns in taxes

what increases the deficit?

tax cuts and more government spending

what affects the urgency a person feels around the deficit?

how a person feels about the president and party in power

what is the green lantern theory?

the idea that people tend to overestimate the ability of policymakers and individual presidents to have a tangible effect on the economy; in theory economic policy can have a big effect on economic performance, but effects are often small and hard to isolate in practice

what is the area of economic policy in which the president has the most influence and levrage?

trade policy (chief diplomat)

why are free trade agreements usually good economics?

because they make countries richer

what has the trend in global trade been since WWII?

open trade (EU, NAFTA)

how do countries economically punish other countries who do things they dont like?

by excluding them from open trade networks

what are some consequences of open trade?

environmental consequences from sourcing resources from countries with poor environmental standards, open trade agreements may shield multinational corporations from legal consequences, unequal economic gains between consumers and manufacturers (on average country gets richer, but consumers tend to get richer whereas manufacturers tend to get poorer)

what are some policy solutions to the consequences of open trade?

to redistribute gains from free trade to regions of the country that are suffering because of it (historically have underdelivered/have been underfunded)

what are the dimensions on inequality?

vertical inequality and horizontal inequality

what is vertical inequality?

income and wealth inequality

what is horizontal inequality?

inequality across different groups such as race and gender pay gaps

what undesirable social consequences stem from economic inequality?

economic stagnation (harder to enter and exit the market due to monopolies and people not having the resources to enter the market), health issues, political polarization, increased role of money in politics, social unrest, exclusion/unfairness/unequal application of the law

which economic group’s economic gains grow exponentially in times of high economic inequality?

the top 1% and top 0.1%

what is wealth inequality?

the unequal distribution of wealth

what does wealth inequality look like in periods of high economic inequality?

the poor have negative wealth whereas the rich get wealthier

what is household income?

how much a household collectively earns

what is the wealth distribution in the US?

the bottom 80% hold 7% of total wealth whereas the top 1% own 40% of total wealth

what misconception do people hold about median household income?

that it is higher than it actually is (median household income is lower than most people believe it to be)

what does the geographic distribution of median household income look like in the US?

the northeast and the coasts tend to have higher median household incomes, whereas the south and the midwest tend to have lower median household incomes

what do surveys reveal about American views on inequality?

Americans on average are okay with some degree of inequality, but would like a lot less than what actually exists

how do governments solve policy problems?

through redistribution

what reduces inequality?

redistribution (taxes and transfers, social programs)

how does the US compare globally in regards to addressing economic inequality?

the US government does less than many other rich countries to reduce market generated income inequality

what do US income gains look like over time?

income gains have grown across all levels, but after the 1980s the rich have been getting richer while the poor have stagnated or have lost income

what is the power law?

if you have wealth, it’s easy to get more wealth, and if you don’t have wealth, it’s much harder to gain wealth (positive feedback loop)

when did inequality begin to rise in the US?

the 1980s

what are some reasons that economic inequality increased in the 1980s?

the decline of unions, tax cuts for the wealthy and corporations, rise of globalization and free trade

why does globalization and free trade increase economic inequality?

free trade negatively affects manufacturers and blue collar workers, it becomes increasingly difficult to compete and do well in modern economies due to an increased need for specialized information and operations, the speed of innovation has outpaced the ability of people to get educated (gap between those who do and do not have a college degree)

what type of tax system does the US have?

a progressive tax system/marginal tax system

what is the marginal/progressive tax system?

a tax system in which there are tax brackets that increase the marginal tax rate as one moves into high tax brackets (the income one earns above the cutoff for a tax bracket is taxed the marginal tax rate for that tax bracket)

what type of tax system is the most redistributive?

a more progressive tax system (more tax brackets and more marginal tax rates)

what is the relationship between tax rates for the rich and level of inequality?

inverse; the higher tax rates for the rich, the lower inequality is and vice versa

why is the decline of unions a cause of income inequality?

shifts the balance of power towards management and away from workers, lower wages for workers

what is the relationship between union membership and the share of income going to the top 10%?

inverse; as union membership declines more income goes to the top 10% and vice versa

how does most policy affect inequality?

most major pieces of legislation and programs reduce inequality and move the system in a liberal direction (ACA, NCLB), many public goods benefit less well-off people disproportionately (medicare, social security, public schools)

what economic group benefits disproportionately from tax rate changes?

the wealthy

what policies have had unintended negative effects in inequality?

criminal justice policy

what is the major cause of inequality along racial lines?

public policy (jim crow; mexican-americans in the southwest)

what is the number 1 source of wealth for most americans?

their house

what is one reason for such great wealth inequality between races in the US?

policies that systemically excluded african americans from the housing market in the 1960s (i.e. redlining)

what is the economic perspective of inequality?

inequality is an inevitable consequence of market forces

what is the political science perspective on inequality?

inequality is a preventable phenomenon fostered by policy

how can health problem be measured?

directly (how many people are being infected and dying) and indirectly by measuring other factors that contribute to the health of a population (culture, foods available, stress, tendency to drink and drive, etc.); average quality of care, research and development, access to and how people pay for health care

what are the 3 models of paying for health care?

public provision, market and society, and mixed systems

what is public provision?

medicare for all, single payer option

what is the market and society model?

health care through privatized insurance companies

what is the mixed system model?

a subsidized baseline public health care option with private provisions

how important is health policy in governance?

very; one of the largest areas of policy attention since 1950s and a fundamental aspect of governance

what are the two motivating frames of how we think about health care?

can those with means access the best possible care (innovation)? and can those without means access any care at all (health care as a right)?

what major health policy reforms came out of the great society?

amendments to social security to create medicare and medicaid, economic opportunity act, food stamps act, elementary and secondary education act

how is medicaid an example of dual federalism?

the federal government is providing states with the money to implement the program, but the states have a lot of discretion as to how the program will be implemented

what is medicare?

a single-payer health care system (the government is the single payer) that covers the elderly. it was originally meant for the military and is the most expensive line item in the budget (slowly declining)

what is medicaid?

health insurance for poor adults and children paid for by both states and the federal government

how do most americans get their insurance?

through their employer (privatized health insurance)

what are the two major qualms people have with the US’ privatized health care system?

high costs and poor outcomes

what population costs the US the most on health care spending?

those who need very expensive procedures (5%)

why is life expectancy slowing down/declining?

increased polarization and decreased mental health (deaths of despair), but mainly due to wealth and income inequality

why do markets not work as well in the case of health care?

markets require transparency to function properly and the health care industry is not transparent (people don’t go hospital to hospital looking for the best deal and it is difficult to gauge how much health care is going to cost each individual, making it easier for health companies to charge exorbitant prices)

what does the US do well in terms of health care?

very high pharmaceutical innovation, subsidizes the cost of drugs for other countries by incurring the cost of R&D

what is the relationship between life expectancy and inequality?

inverse; countries with high levels of inequality have lower life expectancy and vice versa