In the news (8/27/2013)______________________________________Country faces a number of challengesGrowing national debt- Mounting debt $17 TrillionProposals to solve debtDecrease spendingIncrease taxesPartisan bickeringRepublicans and democrats arguingPolitical ScandalsSex scandalsNational security (Snowden)Persistent unemploymentForeclosuresOwe more money than how much houses are actually worthOngoing military operationsAfghanistanIraqSyria- using nerve gas on own people, US stepping in (Russia and China on Syria’s side)Environmental concernsPollutionWhat going to do, if anything at allPeople think badly about governmentMedia reports bad newsHigh expectations- presidential candidates make promisesSeparation of Powers- checks and balancesFederalism- state laws and national laws inconsistentGood things the government doesCommon defenseArmy and navyFree education systemEducation free and paid for by government from K-12th gradeCenter for disease controlMonitor threatsSocial servicesSchool lunch programsSocial securityHighwayPolice/Fire departmentMonitoring water, air, food (USDA, FDA….)Invest in new technologyGPSComputersMicrochipInternetHow to make a difference where government falls shortsVotingGet involvedJoin interest groupIn the news (8/29/2013)______________________________________President lays groundwork for US military strike against SyriaObama, Syria’s chemical weapons requires “ clear and decisive, but limited” actionUnclear who ordered chemical attack (Rebels or dictators or others)US trying to assemble international supportUN Security Council and Arab League do not support USBritish and French were supporting US andMC call on President that congress seeks authorizationRussia and China not supportivePolitics- struggle between who gets what, when, and howResolving conflict in a peaceful wayNegotiating, bargaining and compromise (similar to war)Exists when you have to make collective decisions (interdependent)Collective decisionsCommonality- cant have two policies simultaneouslyChoices about alternatives = conflictPolitical institutions- rules by which conflict is resolvedElectoral LawsCongressPresidencyBureaucracyJudicial SystemChannel and resolve conflictIncreases of complexity of conflict leads to increases in complexity of institutionsGovernment- collective set of political institutionsGovernment has coercive powerHas monopoly on legitimate use of forceEnforce collective agreements because of powerHobbesian world- in absence of government life would be solitary, poor, nasty, brutish and shortRestricting is better for the groupConsumer- restricted supply drives up pricesCartelConsumer boycott- whether something is a necessity or notCollective action- people think their individual impact won’t matter, people end up cheatingCollective action fails when groups goals costs the individualCan’t trust others in groupIndividual and group incentives conflictIn the news (9/03/2013)______________________________________President postpones Syrian strikeAsks for congressional authorization for the use of forceNot required to ask for authorizationWithin 48 hours has to notify congress60 days to keep troops, after has to seek congressional authorizationPresident wants to share the blameCongressIf congress says no, and he attacks still then he could be impeached, useless to have congress authorizeConstitutional debateImplicationsGroup’s goal fails even when people agreeGovernment helps overcome collective action problemsIndividuals will rarely cooperate with each other, even if they agree (Unless punished)Who should government work for?Reduce collective action problemSmall group- hold each other accountableRepeated interactionSubstitutes available- necessity or luxuryPurposive benefit- sense of dutyMaterial benefit- get an award (touch or feel…money)Solidary benefit- friendship or statusHousing crisisWorst economic crisis since depressionPlenty to blameClinton/Bush administration- started hereCommon threadIrrational Exuberance- people excited, people disconnected from fundamental housingCase-Shiller home price- home prices kept going upSuddenly prices dropHow did it start?911 hit & Federal reserve bank lowers interest rates to stimulate an economic recovery (Caused recession)Kept interests rates too low for too long (increased inflation)Interest rates go up, prices go downIndividualLow interest rates=increase purchasing power for buyersDrives prices up higherObserve friends and family making money without doing anythingAfraid they would lose opportunity to get into housing marketReal estate agents & lendersWanted to sell as many houses as possible, didn’t care if they foreclosed on people at endMortgage lenders, incentives to underwrite risky loans to boost profits (Didn’t care if borrower defaulted)Wanted to sell mortgage to wall streetMore exotic loan optionsSubprime- low credit rating, still get good interest rateOption ARMs- people pick how to pay mortgageAlternative-A- people could get a loan without any documentationWall Street & ratings agenciesWall street didn’t care about quality of loan, because they were using elaborate regression models designed to minimize riskInternational investors- had investments in US, but made them go bankruptInsured by Credit Default Swap (CDS)- didn’t have money to pay for insuranceRating agencies- grade CDO, were paid for ratingPoliticiansRepealed laws which would prevent banks from collateralizing debtRepeal of Glass Steagall created that were “too big to fail”Prevented regulators from overseeing insurance policiesPoliticians promoted the American dream (everyone owns a home)Everyone is doing what is rational for themselvesNow everyone has to pay09/05/2013 In the news_______________________________________Senate Foreign Relations committee authorizes use of force in SyriaResolution sets 60 day time limit, and prohibits ground force50/50 in Senate supportHouse of Representatives only small minority in favorDifferences between house and senateHouse has more republicansAll up for reelectionSenate more democraticLonger term (Six years)ForeclosuresPeople would cash in and refinance homesUnderwater on mortgagePeople owe more money than the house is worthSo many people make foreclosures that banks are backed upBanks couldn’t process foreclosures fast enoughLosses value of houseRational Choice TheoryIndividuals have goalsEvaluate options based on goalsChoose option that increases benefits and minimizes costPeople are