Chapter 1 Markets Politics Concepts Market Efficiency Equity Market Failure o Monopolies o Externalities o Information asymmetries o Collective Action Problems Efficiency Scarcity implies the need to ration goods and services o Many ways to do this o Goods are efficiently providing to the extent that they provide maximum benefits to the society Net benefits benefits costs Benefits to consumers Market Efficiency and services Market economics allocate goods through the price mechanism Assertion 1 open competitive markets efficiently provide goods o Competition lowers costs of production therefore lowers o Caveat certain conditions must be met price for consumers Example The market for apples What would happen if an orchard used expensive labor paid its workers 20 per hour to pic apples o Their apple prices would be higher than other apple orchards o Grocery stores would go to the cheaper orchards o The orchard would have to use cheaper labor or go out of Planned Economies business Isn t there a lot of waste in market economies o Planned economy a committee decides how goods and o What information does the committee have access to services will be allocated Generally not as Efficient as market economies That goods are allocated according to need or some other criteria Does everyone who needs a salad have a salad Assertion 2 Markets Are often inequitable Equity Market Failure Instances when free markets produce an inefficient allocation of resources o i e we could produce the good or service cheaper or that Examples provides more benefits o Monopolies o Externalities o Information Asymmetries o Collective Action Problems Monopoly Exists when a single business provides a good for which there are no close substitutes o No competition o Consequences Antitrust laws Also note oligopolies Natural Monopolies Natural Monopoly Externalities o A single business can supply a good or service to the entire market at a smaller cost than could two or more businesses o Ex s Regulations The uncompensated impact of one persons actions on the well Two Types being of a bystander o Negative Externality external cost o Positive Externality External benefit impose costs on a bystander propose benefits on a bystander One persons actions One persons actions One person in a market transaction has more information than another Incomplete information for consumers to make good decisions on their own Not a problem for certain items like food Information Asymmetry Information Asymmetry Problems o Not complex items we can understand their purchase o We consume them frequently o Health insurance o College loans o Home purchases o Care purchases repairs Collective Action Problems larger group society Doing what is in your own self interest is not in the interest of the o Cooperative problems o If everyone cooperated we would all be better off but each has its own incentive to be uncooperative Chapter 2 Policymaking Concepts Policy Gridlock Separation of Powers Trends in Govt Growth Federalism o Cooperative Federalism o Dual Federalism Policy Gridlock A situation where it is difficult to advance new policy or change policies usually only change gradually rapid changes in policy Most of US policies go in fits and starts existing policy o Incrementalism incrementally o Punctuation Why Gridlock Gridlock is by design Federalism Separation of powers o Separates policy between states central govt o Separates policy between legislative executive and judicial branches Gun Control Interest Groups next class Newtown other high profile shootings Partisan issue but 85 90 of Americans support background check at gun shows Why no change in policy internet sales Legislative Branch Legislating means passing laws o Bicameral system House Senate o Committee system division specialization of labor Policy tools in the U S o Bill Law o Authorization making laws o Appropriation funding o Oversight o Confirmation confirm executive judicial appointments of o Senate filibuster extended debate requires 60 majority the President Why Legislative Gridlock A lot of points where policy can be thwarted Partisanship Regional representation o Good for country or good for your constituents Executive Branch Executive Executes or implements the law Structure o Executive office of the president direct control OMB National Security Council Council of economic advisors o Bureaucracy more autonomy Cabinet Agencies homeland security Independent agencies EPA Policy Tools o Directly implements enforce laws Executive orders Agency Rulemaking code of federal regulations o Veto power over legislation o Appoint judges Why Executive Gridlock Limited in direct policymaking by congressional authorization o Tension to stretch these powers Bush Obama stimulus spending for 2008 financial crisis Obamas recess appointments to national labor Power to declare war relations board o Limited control over bureaucracy Judicial Branch Structure o Supreme court o Federal Appeals courts 13 o Federal District courts 94 o Special jurisdictions and appellate courts for military o Judicial review over executive and legislative actions Reactive rather that proactive cannot make direct Policy tools policy Trends in Govt Growth Keep in mind o Spending is a part of policy but its not the whole story Govt Spending provides benefits o Basic research GPS Internet o Defense policy judiciary o Infrastructure Key Trends Reconciling the evidence grown substantially high in the past 50 years Federal govt spending is very high by historical standards and has State govt spending has increased slightly over the past 50 years Govt employment is down since 2008 We make fewer and fewer laws policies We have fewer and fewer govt employees to carry out these But we are spending much more money So what s going on Growth of entitlements Two big drivers of spending o Gridlock policies Some Explanations o Iraq war war in Afghanistan o Stimulus in 2008 Origins of Federalism Health care plan could increase spending in the future Articles of Confederation 1776 Constitutional Convention 1787 o Alexander Hamilton Federalist o Thomas Jefferson anti federalist o James madison pragmatist o Banking currency o Slavery The constitution seems intentionally vague on many issues Evolution of Federalism Dual Federalism o States tend to focus on some issues education o The federal govt focuses on others defense international o The govt acts in parallel to each other transportation trade The civil War o Cooperative
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