lect 5 - 6 flash cards + txtbook 6 , 7

[L5] According to the slides, what is the proper role of government?

Promoting the general welfare (from the Preamble to the US Constitution)

Corporate Social Responsibility (CSR)

[L5] Fill in the blank: Businesses want to make a profit for owners, and they also have an ethical / reputational duty to some level of ______.

Regulations

[L5] What happens when a business's activities conflict with the government's goal to promote the general welfare?

[L5] What are the 3 dangers to always consider with regulation?

1) too much regulation 2) too little regulation 3) unenforced or poorly enforced regulation

True - it adds costs and barriers to entry

[L5] True or False: Too much regulation can make it harder to start a business.

[L5] True or False: Too much regulation can help existing companies by keeping new competitors out.

True - fewer competitors means costs stay high

[L5] Consider a company in a country with heavy regulation. Which problem could it have versus international competitors?

It may be uncompetitive

[L5] Consider the Gujarat, India air pollution case (1996). What was the rule about audits?

A regulation required third-party audits, paid for by the companies being audited

[L5] In the Gujarat case, what did the audits report versus what was true?

Audits said only 7% of plants violated the standard, but 59% were actually emitting too much

[L5] Why were the Gujarat audits not accurate?

Conflict of interest - the factories paid the auditors, so the auditors had a reason to please them

[L5] What type of regulation problem was Gujarat an example of?

Unenforced (or poorly enforced) regulation

[L5] What were the 3 parts of the new auditing system in Gujarat?

1) auditors paid from a pool of money collected from the factories 2) auditors randomly assigned to factories 3) bonus for accurate reports (and the auditors were audited too)

The auditor was not in a long-term relationship with the firm being audited, so less conflict of interest

[L5] Why did random assignment of auditors help?

[L5] What were the results of the new Gujarat system?

Auditors were 80% less likely to falsely report compliance; pollution readings were 50-70% higher than under the traditional model

much

[L5] Fill in the blank: The central tension of regulation is how ______ regulation is necessary.

[L5] The NYT survey (June 2024) asked two views of regulation. What were they?

"Regulation is necessary to protect the public" vs "Regulation usually does more harm than good" - answers differed a lot by political party

[L5] Consider COVID mask and vaccine mandates. How did Democrat-leaning areas respond?

Government was more willing to impose rules - they prioritized the collective good

[L5] Consider COVID mask and vaccine mandates. How did Republican-leaning areas respond?

Government was less willing to impose rules, and states often stopped businesses from making their own rules - they prioritized individual liberty

[L5] Why did lawmakers add more regulation in the 1930s (New Deal)?

Many Americans thought under-regulated financial markets helped cause the Great Depression

disclosure

[L5] Fill in the blank: The Securities Act of 1933 is called the ______ Act.

[L5] What is the purpose of the Securities Act of 1933?

Make sure buyers have enough information to make an informed decision about a security

[L5] True or False: The Securities Act of 1933 guarantees that the information sellers provide is accurate.

False - it only requires disclosure. Inaccurate statements can lead to civil or criminal action

[L5] Under the 1933 Act, what must a seller file before selling a security?

A registration statement and a prospectus (which summarizes the security and outlines the risks)

[L5] What does "material" information mean in the 1933 Act?

Important information that a buyer needs to make an informed decision

[L5] What does the Securities Act of 1934 require?

Publicly traded corporations must be independently audited, so shareholders get an unbiased view

[L5] Name 2 kinds of government control of the economy during WWII.

Wage and price controls; rationing

[L5] Which period had light government regulation of business?

The 1950s

Mid 1960s through the early 1970s (a big increase in regulation)

[L5] Which period added the EPA, Civil Rights Acts, OSHA, and the Consumer Product Safety Act?

[L5] Which period was a time of deregulation (airlines and trucking)?

Late 1970s through the 1990s

[L5] Why did regulation increase again in the mid 2000s?

Scandals like Enron and the dot-com crash - for example, Sarbanes-Oxley

[L5] What happened in the 2007-2009 global financial crisis?

Several huge banks failed and threatened the whole economy; significant financial regulations were passed in response

[L5] How did regulation change from 2009 to today? (Obama, Trump I, Biden, Trump 2)

Obama: regulation by rulemaking; Trump I: moderate deregulation; Biden: more regulation; Trump 2: the most deregulation in modern history

[L5] List 3 ways Trump 2 is deregulating, per the slides.

Firing regulators or telling them not to work; not appointing regulators (no quorum); closing agencies; appointing leaders who don't believe in the agency's mission; not spending money Congress gave; rolling back rules

True - without a quorum the board can't do anything

[L5] True or False: Leaving regulatory boards without enough members can stop them from acting.

[L5] Why would an administration fire the people who enforce regulations?

If you can't end a regulation, you can blunt its impact by removing the people who enforce it

do

[L6] Fill in the blank: Public policy is what the government chooses to ______ or not do, within its lawful authority.

Legislation, administrative rule making, executive orders, common law, and (in Washington State) initiatives

[L6] Name the ways the government acts (per the slides).

Inputs, goals, tools, effects

[L6] What are the 4 elements of public policy?

policy "inputs"?

External pressures that shape the government's decisions and strategies to address a problem

policy "goals"?

What the policy is trying to achieve - they can be broad and subjective, and different policy makers may have different goals

[L6] True or False: One person's policy "goal" may be another person's "burden."

True - regulations always limit freedom and often cost money

"tools" of public policy?

Policy instruments - penalties and incentives (carrots and sticks)

Fines to make a company start or stop doing something; legal action to close a business (take away its license)

[L6] Give 2 examples of penalty tools.

[L6] Consider the Postmates case (Aug 2022). What was the issue?

Seattle extended paid sick leave to gig workers during the pandemic, and Uber's Postmates violated the rule - so it faced a penalty

[L6] What are policy "effects"?

The outcomes - both intended and unintended results

[L6] Consider Seattle's high minimum wage. What kind of effect did the slides use it to show?

An unintended consequence (the NPR story linked in class was about how the minimum wage affected restaurant hygiene)

[L6] How many reasons for regulation did the slides list?

9 (more than the text lists)

1) market failure

2) externalities

3) government-approved monopolies

4) promote ethical conduct

5) self-regulation has limits

6) tort lawsuits are inadequate

7) caveat emptor

8) guard rails

9) cost-benefit analysis

[L6] What are the 9 reasons for regulation?

government-approved monopolies 4) promote ethical conduct 5) self-regulation has limits 6) tort lawsuits are inadequate 7) caveat emptor 8) guard rails 9) cost-benefit analysis

Market failure - when people can set their own fees and the other person has no say, trouble follows

[L6] Consider the $800 tow and guardianship fees. Which reason for regulation do they show?

[L6] What does the Washington guardianship rule (RCW 11.130.105) say about pay?

The court must approve compensation that does not exceed the typical amount for comparable services in the community

externality.

A cost or byproduct of producing, distributing, or using a product that is not paid by the business or consumer but by the public

The producer, the consumer, or the public

[L6] Consider pollution. Who might pay the bill for an externality?

[L6] What are the 4 choices government has for handling an externality?

1) producers pay 2) consumers pay 3) the public pays 4) ban the activity if the others aren't practical

The consumer (you, or your parents) - an example of "consumers pay"

[L6] Consider garbage disposal. Who pays?

[L6] Consider microbeads. What did Congress do?

Banned them in soap and body wash (phased out starting in 2017) - an example of banning the activity

[L6] Why does it make sense to allow a government-approved monopoly for sewers or electricity grids?

Two expensive systems would waste society's resources, so one company runs it and the government regulates the prices it can charge

[L6] What is the quid pro quo for a government-approved monopoly?

The company gets a protected market and an assured return on investment; in return the government regulates its prices

They get an assured return on investment because prices are regulated

[L6] Why are public utilities seen as steady, but not spectacular, investments?

[L6] How can regulation promote ethical conduct?

With penalties (like a speeding ticket) and with rewards for good conduct

[L6] What is the False Claims Act (qui tam)?

A law that rewards whistleblowers with a percentage of the money recovered when their company cheats the government

[L6] How do the Federal Sentencing Guidelines reward companies?

For voluntarily disclosing misconduct and telling the government who in the company was responsible

self-regulation?

When an industry says it can police itself, so the government doesn't need to be involved

[L6] True or False: Most students in class said they trust businesses to self-regulate.

False - a majority said they "do not usually" or "never" trust businesses to self-regulate

[L6] What is the Entertainment Software Rating Board (ESRB)?

The video game industry's self-regulation system (ratings for games like Grand Theft Auto)

The books were created with AI, the travel writer didn't exist, and the information was often flawed - yet 73% of the class rated them excellent or good

[L6] Consider the AI-written travel books on Amazon. What did the NYT reveal?

[L6] Why is a tort lawsuit sometimes an inadequate remedy?

It only works if the person you sue has money or insurance - so we need regulations (like required car insurance)

[L6] What was Bill Gates' point about AI and tort law?

AI could cause losses far bigger than the companies and their insurers could pay

[L6] What does caveat emptor mean?

"Let the buyer beware"

[L6] How do regulations guard against caveat emptor?

By making sellers provide information so consumers can make better decisions

A rule that protects the system (like freeway guardrails) because people would otherwise follow only their self-interest - example: insider trading rules

[L6] What is a regulatory "guard rail"? Give an example.

Cost-benefit analysis - it costs you some freedom and money, but society believes the net benefit is bigger

[L6] Consider the Washington motorcycle helmet law. Which reason for regulation is it?

Cost-benefit analysis - it costs you some freedom and money, but society believes the net benefit is bigger

[L6] Consider the Washington motorcycle helmet law. Which reason for regulation is it?

[L6] After a deadly disaster, what two questions do we usually ask?

"Why did this happen?" and "What can we do to prevent it from happening again?"

[L6] Consider Florida parasailing. What do its only rules cover?

Weather and insurance - an example of not learning the lessons

freedom

[Ch6] Fill in the blank: Democracy refers broadly to the presence of political ______.

[Ch6] Per Arthur Lewis, who should have the right to participate in a decision?

All who are affected by it, either directly or through chosen representatives

affected by it, either directly or through chosen representatives

[Ch6] How does the UN define democracy?

By fair elections, independent media, separation of powers, and the right to form independent organizations

False - Freedom House says 80% live in countries rated Not Free or Partly Free

[Ch6] True or False: Most people in the world today live in free countries.

[Ch6] What is a free enterprise system?

Assets are privately owned and exchanged in a free, open market, based on voluntary exchange

[Ch6] What is a system of central state control?

The central government owns property used to produce goods and services; private ownership may be forbidden or restricted

[Ch6] What is a mixed system?

Some industries are state controlled and others are privately owned

[Ch6] What is "authoritarian capitalism"? Give an example.

A market economy combined with political control by non-elected elites - example: China (also Russia, Hungary, Turkey)

[Ch6] How did the US rank on the Heritage Foundation index of economic freedom (2024)?

25th out of 176 countries

[Ch6] Name 2 of the freest and 2 of the most repressed nations on the Heritage index.

Freest: Singapore, Switzerland, Ireland, Taiwan; most repressed: North Korea, Cuba, Venezuela

[Ch6] What is a collaborative government-business relationship? Give an example.

They work together toward shared goals - example: Asian "collective family" view, European teamwork (unions on boards), tech companies and the Commerce Dept on privacy

[Ch6] Why did tech companies want to work with the federal government on privacy?

To pre-empt state-by-state rules that would create a burdensome patchwork

[Ch6] What is an adversarial government-business relationship? Give an example.

They work in opposition - example: EU fined Apple 1.8 billion euros, and the US DOJ filed an antitrust suit against Apple

[Ch6] Why might a business welcome regulation?

It sets minimum standards for all firms, builds public confidence in safety, creates a fair playing field, or creates barriers to entry

False - the relationship is constantly changing

[Ch6] True or False: A cooperative relationship on one issue guarantees cooperation on another.

[Ch6] What is a legitimacy issue for business?

Doing business in a country whose government's right to be in power is questioned (rigged elections, force)

[Ch6] Consider South Africa in the 1970s. What did many US firms do?

Withdrew operations to protest apartheid - some believe this helped end the regime

economic sanctions and embargoes?

Government orders not to do business with another country (sanctions); embargoes are bans on trade

[Ch6] What are public (collective) goods?

Things most efficiently provided by government for everyone - like the military, police, and fire departments

public policy (textbook).

A plan of action by government officials to achieve a broad purpose affecting a substantial part of a nation's citizens

The constitution and common law (past court decisions)

[Ch6] What are 2 sources of government authority in democratic nations?

Monarchy (Saudi Arabia), military dictatorship (Myanmar), religious authority (Iran)

[Ch6] What are 3 sources of power in non-democratic societies?

[Ch6] Consider distracted driving. What are the policy inputs?

Pressures like safety data, public concern, interest groups, and media attention

[Ch6] Consider distracted driving. What is the policy goal?

Prevent deaths and serious injuries caused by distracted drivers