National and International Policy Unit Notes
National and International Policy Unit Notes V160
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January 31 2013 Schuck amp Wilson Chapter 4 Friedman What is exceptional about the American Economy Work hard Initiative and Entrepreneurship Oriented around nonbank markets rely on banks and don t rely on banks Large Can become whatever we want in the economy because no set economypolitical classes least restrictive public policy EXCEPTONAL MAY MEAN DIFFERENT NOT NECESSARILY GOOD Huge resources we usually do well with resourceshuge resources in countries tend to corruption Baseline of exceptionalism what makes it exceptional Flexibility exceptional in the way that America has produced consistently high income levels for two centuries sustained economic growth America s exceptionalism has to be seen in change in the industries family farm to factory from coal industry to steel industry from sales to finance no country with that big of a population and that high of an income level no country that has had the same kind of institutional consistency in currency is America now undermining the value of it s currency Will we continue to be exceptional Who is he comparing the American Economy to European countries Luxembourg France Germany Northern and southern European countries very productive Japan 3rCI 4th largest economy What is wrong with the analysis Less welfare health Says economy is failing but throughout most of analysis he said it has been so successful and is exible Not substantial argumentinfo about rich and poor gap Talks about number of years in school but not the quality making generalizations Perceived Americans as hard working and other countries see us as lazy Americans put in HUGE hours far more than other societies Written from perspective of 2000 outdated because says we were untouchable from an economic standpoint but not so much the case anymore 0 Element of happy talk excessively optimistic didn t raise much question or information about the problems 0 Missing a big part of Asian development India and China china is growing at much faster rate but starting from much lower base Essential role of economic system is to generate goods and services after every boom and bust cycles America comes out stronger and almost better than before we have regulation and adaptive policy govt who intervenes when necessary and tries to get out of the way when not necessary High level of consumption can be a bad thing HUGE debt for reasons that wont help economy in future not investment or infrastructure Huge productivity in nance because of the amount of time we spend working service industry participation of women in the workforce more capitalcomputerstechnologies More schooling betteror not more educated populationworkforce Less generous welfare state than Europe more generous than Asia have to have a job mealticket for life and have to have high rates of savings and a family network Labor Unions enhance productivity we have problem now with public sector unions Low savings rates NOW used to have higher because the price of lots of things are going up like gas and education and healthcare become more of a spending culture have to borrow from other countries so we can keep buying their goods and there are not safe investment systemsno country with a developed stock market or investment to put their money makes a problem for the rest of the world which becomes our problem Very regulated stock market hypercompetitive nancial sector can be a virtue and a problem Challenges not enough workers for social security but will be paying for it rest of the world is becoming more competitive other societies are growing older faster than America Income inequality low immigrant income not because business is bad America is a quotget aheadquot culture general equality in the US people don t generally want to work as much but in America there is still hard work Americans work hard to prove themselves individual society for ourselves working ahead to get ahead of othersnegative or to be the best I can be to make a better place for everyone to bene t positive we work hard because we have anxiety for this The salient single characteristic of American society the absence of de ned political social and economic classes based on birth equality of condition Society offers a sense of obligation in principle ANYONE can get ahead economically and so in practice EVERYONE felt obligated to strive toward that end America s central bank pursues both price stability and full employment as equal objectives US govt intervenes in times of nancial crises or threat US Treasury SEC Fed Reserve SEC Securities and Exchange Commission Financial Market Advantages in US Oriented around nonbank capital markets Diversi ed nancial markets different kinds of nancial institutions participating that are decentralized in their decision making American nancial markets attract far wider public participation than do other comparable markets elsewhere lPO s Initial Public Offerings Important in providing funds for new innovative companies capable of pushing out the frontier of economic technology Monetary policy key tool for steering aggregate economic activity like p ces The legal and accounting professions are combinations of both governmentimposed and selfregulation for the result of giving investors con dence that rms nancial statements and other claims are seldom fraudulent and that the market prices of shares are not regularly manipulated Most signi cant advantages of US richly developed institutions for gathering funds from households or business rms with excess income and allocating it to other households or businesses that need funds to spend in excess of their current income level Dye Chapter 10 Thesis Our economy is in a sense forced into nonincrementalism trend in economic policy is toward nonincrementalism Dye is skeptical of this Fiscal Policy brings in money for state 0 Decisions about taxing spending and de cit levels 0 Made in the annual preparation of the federal budget by the president and OMB and considered by Congress in the review these decisions determine the overall federal spending levels 0 Determine the size of the federal govt s annual de cits or surpluses 0 Generally speaking we have had an incremental scal policy but may be starting to move away from this 0 Executive branch and legislative branch working together Monetary Policy necessary to maintain price stabilitymoney supply regulation 0 Decisions about the money supply and interest rates 0 The principal responsibility of the powerful and independent Federal Reserve Board which can expand or contract the money supply through its oversight of the nation s banking system 0 Federal Reserve Controls Congress not really involved Prez appts Chairman of Fed Reserve and is then independent of the Prez Semiprivate and semipublic Every country has monetary and scal policy 0 Bad monetary policyArgentina 0 Good scal policy Germany 0 Bad scal policy Greece Economic Theories 0 Party Breakdown Economic theory on the right Republicanclassical liberals generally more geared toward free market economyClassical Economics The left Democrats generally more geared toward 0 Classical theory Adam Smith from Scotland founder of modern economics wrote The Wealth ofNations in 1776 is modern classical theory Classical economists generally view a market economy as a selfadjusting mechanism that will achieve and equilibrium full employment maximum productivity and stable prices if left alone by the government Relies on the free movement of prices to counter both recession and in ation What goes up must come down Doesn t believe don t need a government need for courts defense etc but govt should leave the economy alone laissez faire opposed to too much intervention because think that the govt will bounce back and be self correcting as well as don t want government to have too much control because govt intervention begins to rewards those who haven t worked for it and rewards people who have political in uenceconnections in Washington even if they don t need it Republicans may talk this way but not always actgovern that way 0 Example Bush spent a lot signed the initial stimulusbailout of the banks Milton FreedmanChicago school economics CLASSICAL thinks Fed Reserve contributes to bank runsfailuresright People who criticize classical theory use a strawman argument by suggesting that it is completely anti stateist don t have lot of time for the state rewarding people who have access to government government will have a program in effect even after problem goes away Wall street Journal Milton freedman o Keynesian Theory John Maynard Keynes From Britain invented modern macroeconomics amp its mathematical application 1930 s problem during this time that he sought to address high unemployment rateseconomic downturnsno spending of consumers and start paying down the debt so during these times we have to quotprime the pumpquot or have injections of govt spending to get the economy going 0 Example Great Society Main economic theory on the left Both unemployment and lower wages reduce the demand for goods Keynes said when a time is bad you pay a lotgovt spends BUT when times are good govt shouldn t spend pay down the deth go against the cyclecountercyclical Dominant from 1930 s1970 s Once society has an economic downturn can t get out of it without government help Aggressive government intervention to pump money into economy to stimulate growth because best 0 Suppl equipped to mobilize govt has to be consumer of last resort Economic instability is a product of uctuations in demand Suggests that the economy could fall into a recession and stay there and that only government could take the necessary countercyclical steps to expand demand by spending more money itself and lowering taxes NY Times Obama Administration Argument against this the more the govt tries to add and intervene the more it distorts the economy ySide Argues that attention to longterm economic growth is more important than short term manipulation of demand The free market is better equipped than government to bring about lower prices and more supplies of what people need and want Heresy of Classical Don t worry about economic de cits and debt by lowering tax rate it will stimulate the economy kind of reverse Keynesian To blame for Bush s economic policy in relation to Smith economics 0 All modern economic debates are variations of this 0 Problem with medicare expanding payments to people over 65 and 30 million will be there the money isn t therein our society unless raise taxes to pay for it or make serious budget cuts Measuring the performance of the US economy 0 Trends in US economy 0 Economic Growth only about 2 GDP nation s total production of goods and services for a single year valued in terms of market prices counts only nal purchases of goods and services ignores purchase of steel used to make a car excludes nal transactions like the sales of stocks and bonds as well as income transfers from govt to households that don t add to the production of goods and services How high is the GDP of the country 0 Unemployment 7 HUGE European level unemployment becoming tolerated but have high productivityproductive people work hard and have to pay into the welfare system and those who don t work get the transfer payments Percentage of the civilian labor force who are looking for work or waiting to return to or begin a job Different from not working students retirees etc have to be actively looking for work and can t nd it o ln ation a form of taxation hidden taxation Instead of govt paying bills by raising taxes or cutting back so will print more money Revolt of savers Tea pa rty 0 Middle age people who have worked hard and done well and feel like expansive monetary and scal policy are hurting themeroding their savings govt is taxing them wo the guts to say it Problem of well In order to keep up have to increase and increase and increase ifjust maintain your position in the competitive international economy you are losing because others improve Reason why Keynesian economics came to an end because led to low growth and high in ationmoney being pumped into economy Erodes the value of savings reduces the incentive to save and hurts people living off xed incomes Currency economy strong currency goes up economy weak currency goes down if goes up too much bad US currency not as strong as before going down Canada and Euro are stronger than US 0 Higher buying power because will sell more things to them If value of currency goes down in ation more expensive to buy things overseas because value down why save lf have no savings in economy no economic growth because standard of living will be affected Banks and investors raise interest rates on loans when they anticipate in ation in order to cover the anticipated lower value of repayment dollars Higher interest rates make it more dif cult for new or expanding businesses to borrow money for home buyers to acquire mortgages and for consumers to make purchases on credit 0 In ation and high interest rates slow economic growth US may not have as much of a problem with in ation because the huge debt of 16 trillion will have to be paid back less to creditors way of passing tax on people indirectly Sometimes incremental policies aren t goodone non incrememntal policy came in 2007 under Bush during wall street bailout Bailing out big banks was good because if they closed they would take the economy down with it quotMORAL HAZARD ISSUEquot bank failures have a spill over effectdisease that spreads very quickly because one bank failing leads to chain reactions Obama stimulus in 2009 big keynsian pushwas probably done poorly if investing in something that you get a return on like infrastructure that helps the economy if investing in transfer payments and paychecks that may not be the best way to go 0 Recession 2 or more quarters of negative economic growth declines in GDP entail a rise in unemployment and declines in consumer spending and capital investment 0 Dawd Frank regulation Federal Reserve Central Bank in Washing DC and 12 member banks around the country 0 Created in 1913 Progressive Era last industrial country in the world to have a central bank Don t like centralized institutions Prez Andrew Jackson closed the central banks in the 1920 s because thought it was in the pocket of rich bankers very populist against central bankers lf didn t have a central bank each state would have a bank and would have to go to international monetary markets to borrow credit rating was very good easier to borrow money 0 When bank closes huge panic because doesn t keep 100 of reservesFed Reserve exists to prevent bank runsfailures o What makes American Central Bank exceptional may not be good Controls the money supply buy and sell Treasury billsbondsnotesetc Can do this because good credit of US 0 Keynesian pumping money into economy When economy is high reduce money supply to avoid price in ation because value of dollar goes down and creates uncertainty low rate of in ation desirable about 4 0 Federal Reserve Chairman Ben Bernanke appointed by Bush 0 Paul Volcer apt by carter and then reappointed by Reagan the one who really brought down in ation which gave the illusion of being more wealthy than we were Allan Greenspan Fed Reserve past chairs 0 All of our money goes through the federal reserve circulates money and controls money policy 0 Decentralized Member banks centralized bank broken into these have a board each fed bank in every region that circulates money in those places Chicago St Louis etc 0 Task Regulate the money supply and by doing so to help avoid both in ation and recession 0 Oversees the operation of the nation s 12 Federal Reserve Bankers which issue the national currency 0 Hold the deposits or quotreservesquot of banks lend money to banks at quotdiscount ratesquot that the Fed determines buy and sell US Government Treasury bonds and assure regulatory compliance by private banks and protection of depositors against fraud 0 If the Fed sees that there is too much money in the economy in ation it can raise the reserve requirement reducing what a bank can create in demand deposits reserve ratio 0 Change the interest rate it charges for member banks to borrow reserve 0 Buy and sell US Treasury bonds and notes in what is called quotopen market operationsquot assets if buys the money supply increases if sells the money supply decreases one branch buying from another branch of govt get things going when things are bad and slow things down when too good moderate the economy generally speaking has been cautious Federal Reserve Board decisions are made independently 0 Not rati ed by Prez Congress courts etc 0 Government Spending Growth o Notching spending up in societysociety will have to pay more and more because of incremental changes in American society People living longer social security created with idea that life expectancy was in 60 s70 syounger Lot more people from 4565 age range because of baby boomersless people in our generation paying more for a larger greying population Japan Korea etc greying society 0 Challenging lncrementalism has incrementalism of federal reserve been modi ed overtime Used to be that fed reserve made minor changes so as to not upset the market since 2008 the Fed Reserve has gone through 3 bailouts pumping MASSIVE amounts of money into economy 1st probably important to save economy now everyone around the world expects the fed reserve to pump money into economy indirectly helps other countries though not the point Consequence of this massive debt personally in debt toothis is nonincremental only want nonincremental in a crisesthe problem with the quotjust do somethingquot approach is okay but at a certain point if keep doing this problems arise because take away the capability to make corrections 0 Entitlement Spending Something you are entitled to by law medicare social security veterans bene t etc Largest share of fed govt s budget is devoted to entitlements Spending items determined by past policies of Congress and represent commitments in future federal budgets Entitlements provide classes of people with legally enforceable rights to bene ts and they account for about 60 of all fed spending including Social Security Medicare and Medicaid welfare and food stamps federal employees retirement and veteran bene ts Social Security and Medicare are the two largest entitlement programs 0 Indexing of Bene ts 0 Increasing Costs of lnKind Bene ts 0 Backdoor Spending 0 Federal Debt 0 Spend more than we used to o 40 years ago spent more on defense than social programs ipped now 0 Deal with debt BowlesSimpson Commission Prez Obama suggested that this committee meet that made reccommendations on dealing with the debt 0 Prez Obama ignored itwent nowhere because it was politically unpopular with his party 0 Bipartisanelements of both party republicans didn t follow suit after Obama ignored it Letting this die problematic Baker Commission 0 Bush used it to get through Iraq and get reelection and then ignored it 0 Federal Budgets o OMB Treasury CEA does the numbers send it to Congress Congress approves l Bargaining approach 0 Takes about 16 months 0 Federal Reserve does it on its own Trade Policy Chapter 12 DYE 0 Driven by elites gain from trade 0 Elite theory 0 Trade policy is driven by bargainfairness Global Economy 0 International Trade buying and selling of goods and services between individuals and rms located in different countries 0 14 of the world s total output is sold in a country other than the one it was produced 0 A lot more trade in the world in the global economy 0 Certain economies are dependent on exporting US not dependent on high tradeit s the market everyone wants to export to Expanded because US markets were relatively open for global tradeUS then began to move away from itony traded if was bene cial Business elites have become more open to trade because of bigger marketsove the tariff tax on foreign imports 0 Consumers don t like the tariff because they pay for it US changed because after the Cold War we were friends with most of the world and were richest nation in the worldbut then much more aggressive with military spending panic in the 1930 s and govts shut out everyone and complete trade wars happen which caused all the great industrial companies to closeshut down Great Depression put stress on all countries trade wars 0 This caused the US to set up the Brettonwoods institutions to prevent trade wars GA1T General Agreement in Tariff and Trade 0 Set up in 1944 right before the end of WW2 US govt took the lead in this 0 Liberal Trade organization that the US has helped set up 0 No longer existshas become the WTO World Trade Organization set up in 1995 by US but based in Switzerland US pushed for WTO why 0 Purpose to facilitate international trade allowing nations to borrow to stabilize their balance of trade payments 0 When economically weak nations incur chronic balance of trade de cits and perhaps face deferral or default on international debts the IMF may condition its loans on changes in a nation s economic policies WB World Bank 0 Makes long term loans mostly to developing nations to assist in economic development 0 Works closely with IMF in investigating the economic conditions of nations applying for loans and imposes IMF requirements on these nanns o Promotes trade part of IMF tried to contain trade wars and trade con ict International Trade buying and selling of goods and services between individuals and rms in different countries 0 Has expanded rapidly in recent decades US exports 12 GDP and imports 17 America trading partners Canada Mexico China Japan Germany and Great Britain Changing Elite Preferences for World Trade Business elites make trade policy Business elites used to be more protectionistfavored high tariffs tax on imcoming goods against free trade but then moved to global trade because before 1945 US was not export oriented so didn t need tariffs but now has become more export market 0 Ta riffs O O O O O Tariffs taxes on foreign imports Before WW2 ranged 3050 eliminating most foreign competition from USlowered so they could get cheap importssell exports Firms could raise prices to just below price of imported goods with their high tariffs attached gt pro t margins and poor rms could survive and prosper under tariff protection Less pressure to cut wages and downsize work forces since US didn t have to face foreign competition American consumers paid more for goods that couldn t enter without tariffs ex steel automobiles electrical appHances Consumers don t like businesses like it because make more money on exports Quotas O 0 Trade quotas in which foreign producers are prohibited from selling more than a speci ed number of units in the US Protect domestic manufacturers Don t bring revenue to the US government as tariffs do allow the foreign rms exercising them to reap all the bene ts Tariffs and Quotas as well as other barriers to free trade serve as quotprotectionismquot Before 1980 US had positive trade balance imports lt exports but since 1980 has had a de cit trade balance 0 Elites bene t from trade 0 Comparative advantage argument Free trade is based on the principle of quotcomparative advantagequot Focuses on what each nation does relatively better than the other Even if one country is best at both if both do different tasks they will have a greater comparative advantage because the combined output will be greater than if each specialized 0 194445 Bretton Woods O 0000 000 O O O O IMF WB WTO GATT GA39IT most important His systems prevent nations from undermining themselves 1944 World Bank Euro for reconstruction GATT General Agreement on Tariffs and Trade no longer exists Created following WW2 for the purpose of regulating international trade Series of trade rounds that lowered tariffs on imports Dominated by business banking and commercial interests in Western nations seeking multilateral tariff reductions and relaxation of quotas quotUruguay Roundquot in 1993 resulted in the creation of WTO because the WTO was given power to adjudicate trading disputes among countries and monitor and enforce the trade agreements under GATI39 WTO set up by US but based in Switzerland 0 Why Clinton administration pushed for WTO because US wanted to copyright protection of goods has courts to regulatemonitor violators of this American nance is hyper competitive want to open other countries for US banks In interest of American business as well as global interest 1940519705 very successful period of world trade IMF International Monetary Fund in DC 1995 Uruguay round last round of GATI39 was replaced with WTO World Trade Organization in Switzerland has court of arbitration re ects elite preferences Republicans love tariffs good for manufacturing Democrats wanted free trade agriculture Dems and Reps now reversed Brought in revenue never had deficit Multinational Corporations MNCs wanted to go overseas o WTO nancial elites wanted this brings intellectual property protection ex Apple 0 0 Countries bring disputes to the WTO Describes itself as a quotdemocratic organization that seeks to quotimprove the welfare of peoples of member countries through trade liberalizationquot Ministerial Conference highest decisionmaking body Democrats 0 Progressive trade agreements that re ect laborincrease with control Obama 0 Populists less trade no IMF or WB RepubHcans 0 Traditional nance and manufacturing national security tough on rules Romney 0 Liberals protectionist no lMFWB outsiders skewing US policy Protectionism negative notion blocks free trade and makes production inef cient and less productive o Protecting industries when don t have a comparative advantage because someone can do it much cheaper 0 Ex US protecting textiles in Korea 0 What kind of industries would you want to protect as an economic planner National security infant industrynew technology something that will growproceed overtime this isn t really protectionism may have tremendous economic gains You are manufacturing this there are certain countries you cannot trade with Strategic trade want protectionism for increased productivity in smaller industries infant industry protection US trade representative Ron Kirk essentially cabinet rank weak trade representatives Realist Republicans much more free trade Democratic elites free trade party of agriculturewanted to expand to other markets Became more free trade under FDR 1944 when US trade policy changedwil promote Bretton Woods GA39IT lessening tariffs on imported goods Mass Losses From Trade Global trade has raised aggregate income for the nation worsened inequality 0 Why is trade creating inequality More trade lowers the wages consumers bene t from trade lower prices American worker may not bene t but business owners who can outsource work for lower wages bene t 0 More computerizationjob killer more developed economy will probably cause more jobs to be taken away because don t want to pay workers pensions healthcares etc investing in robotics becoming cheaper and more bene cial to businesses Elite gainsmass losses US is outsourcing jobs to developing countries for lower wages for less skilled workers and higher wages for executive and highlyskilled workers worsens inequality Policy options 0 Raising wages is problematic o More Immigration less wagesraises 0 Two streams of immigration low skillwage vs high skillwage 0 Policy typically to import not produce best and brightest 0 Elite response to wage inequality stress the need for American workers to improve their productivity through better education and increased training and allow low income workers to take advantage of the technological changes that raise productivity 0 Low wage immigration on collision course with Tea Party and Blue Collar Why Who are these people People at bottom and on the brink 4050 white working class D populists and Rliberals Black working class hit downfall Moving towards high end service jobs and low end service jobs no in between 0 Different countries have radically different trade policies EliteMass Differences Over Immigration Losing faith in Americans assimilatingAmericanization o Assimilating new comers Eliteseconomic elites Business elites in both Rep and Dem Hollywood in Dem and Manufacturing in Rep lllegals in the US approximately 415 million Come for economic opportunity and most personify the traits we typically think of as American ambition perseverance initiative and a willingness to work hard Republicans traditionalDemocrats progressive like immigration Republicans for trade Democrats for progressive movement Democrats populists unions gt immigration Republican liberals social contractrulesnational security Immigrants now account for 12 of the population Elite support of immigration 0 Powerful industry groups that bene t from the availability of legal and illegal immigrants have led the ght in Washington to keep America s doors open worked to expand legal immigration but also to weaken enforcement of laws against illegal immigration Low wages 0 Speak in terms of civil rights pro immigration won t come out and say they want low wages hide behind immigration religion civil rights groups etc Current US immigration policy the admission of more than 1 million legal immigrants per year and weak enforcement of laws against illegal immigrants largely driven by large industries to lower their labor costs Agriculture Hospitality Services HotelsRestaurants Middle class tend to like immigration but not huge on it Open immigration until 1880 s until rst restriction against Asians o Pushed by labor groupsunions equivalentsdidn t want competition from groups with low wage skills who wouldn t be part of unions 1920 s rst wide spread restriction wanted to restrict Poland Russian Europeansbecause it was after WW1 0 High jewish Antisemetic feel 0 1919 Soviets really consolidated power US was worried about communism spreading in the United States 0 19191965 Could only enter country with quotas quotas existed o No quotas today fundamentally changed immigration policy 1 million immigrants per year 675000 seal Both high and low wage immigrants contribute to economy but affect distribution Bipartisan Immigration Reform Compromise proposal in 2007 700 miles of fence legal rights to those already here visas etc shot down by conservatives and Barack Obama and unions Canada much tougher immigration policy than America 0 Wants high wage Asian immigration high skill set 0 National Immigration Policy Nation of immigrants from the beginning of the country pilgrims Immigration policy responsibility of govt Immigration Act 1921 max numbers of new immigrants each year and set a quota for each foreign country and 3 of the of that nation s foreign born living in the US in 1890 o Re ected antiimmigration feelings Immigration Reform and Control Act of 1986 control immigration by placing principal responsibility on employers set nes for knowingly hiring an illegal alien 5th and 14th Amendments require that every person not just citizens be afforded due process of law US Supreme Court has mandated that state and local governments may not exclude legal and illegal immigrants from public education and perhaps any other bene ts or services available to citizens US is civic nationalism not ethnonationalism we are united by Constitution not language and ethnicity Mass Opinion eventual citizenship pay taxes etc Review US implemented Bretton Woods 194445 institutions for the bene t of the world and US both after global collapse of 1930 s Protectionism protecting industries that couldn t otherwise stand alone good protectionism sunriseinfantindustry ChicagoLiberal more trade get rid of GATE IMF WB Keynesian favor GATE IMF WB Left dividedRight divided in immigration Schuck and Wilson Chapter 12 US in 18th Century open to immigration immigration picked up in 1819 when explorers came and saw that it was diverse African Americans majority in certain areas 1820 s biggest wave of immigration Irish refugees because of potato famine o literate and poor 0 Assimilation started in this period antiirish prejudice in this period lots of nativism directed toward Irish less so for Germans German Americans biggest ethnic group in US Irish Americans 2 African Americans 3rCI 1840s Chinese immigration Irish Americans often become cops remen and teachers and priests involved in local government 0 Black Americans very similar jewish Americans came in 18805 and Asian Americans like higher educations owning small business and professions Hispanic Americans and Italian Americans big on small business home ownership etc 0 Suggests economic groups supporting immigration are very strong those who don t favor immigration are typically very weak 0 A thumbnail History of Immigration to the US 0 ScotsIrish very confrontational settled frontier gun people quotJacksoniansquot o Nativism is problematic 0 Groups that favor immigration big business low wages 0 Lots of liberalism and nativism in US immigration policy Immigration Policy Debates Effects of Immigration 0 Plays into federalism cost money to jail hospitals etc but costs local tax money while adding federal payroll money immigrations can put burdens on local governments which may have crimes and local governments stressed 0 Crime is particular 2nCI generation effect fall away from nativism and begin to assimilate with American culture begin to feel quothybridquot crime groups immigrants are not more prone to crime but children of certain immigrant groups are more prone to crimewhy Become hybrid of the worst of America and worst of culture left behind when immigrate bring most of culture with youboth good and bad worst of Mexican trafficking and worst of American materialism 0 Immigration Integration 0 Maybe don t assimilate but DO integrate Those that don t assimilate may have better advantage but must know English and be educated not assimilating not such a bad thing but some that don t assimilate don t learn English 0 Language policy and bilingualism inhibit immigration 0 Bilingualism encourages knowing less English 0 Very open immigration policy until 1920 s D 19605 quotQuota systemquot this because of communism spreading and growing antisemitism quotNativistquot movement Quota system ended in 1965 by the Immigration and Nationality act of 1965 Business went along with this union movements 0 Canada uses point system want skills language pro ciency assimilation skills nancial assets US probably needs to go to point system Ending with Muslims and Hispanics 0 Muslims in Britain differ from US 0 In France fundamentalists increasing 2nCI generation effect 0 o In America from many different regions and may include converts more willing to assimilate 0 Hispanic Americans are pushing Spanishspeaking 0 Suggested decline in quotwhitesquot 0 Increase in Catholics Evangelicals Fundamentalists by Hispanics o Illiberalism Nativism tensions in American history GermanAmerican s largest ethnic group in US 0 Those favoring immigration are often economically strong open immigration has tremendous support in business 0 Continued immigration may put stress on local institutionstate govt quotrich get richer poor get poorerquot non sense because sometimes can go both ways Stereotypes he says to get away from them because immigrants have LESS crime but 2nCI generation effects immigration and crime have always been connected though immigrants hardly go to the police 0 Immigration integration earlier generations were assimilated much more into American society bad for immigrants Better for American society Suggests the melting pot idea may not be the most bene cial for American Society may ghettoize immigrants limited English pro ciency will not help in economy 0 National Culture Segmented Assimilated assimilate downwardassimiate into both bad parts of cultures old and American 0 Religion Catholic church loves Hispanic immigration high religious rates with immigrants Muslims in America compares them to muslims in Europe says role of muslims in America is probably better than muslims in Europe more second generation effect in Europe 0 It s naive to think there aren t any economic and socialcultural issues associated with immigration but its not necessarily bad because America is based on immigration 0 Who does immigration Department of Homeland Security headed by Janet Napolitano ICE Immigration Customs Exportation John Kerry Secretary of State 0 Dennis McDonough White House Chief of State 0 Jack Lew Was Chief of State and is now nominated to be Secretary of Treasury IRS located in Treasury Department Chapter 11 Dye on Tax Policy Controlling Model of this chapter Tax policy is controlled by special interests Special Interest seems to be pluralism hidden certain wants that people come together for their own interest but trying to convince its in the best for the society Constitution gives power to legislative to write the code Ways and Means Committee and executive to enforce IRS Interest Groups and Tax Policy lnterplay of interest groups in policymaking is often praised as pluralism Public policy often portrayed by interest group theory as the equilibrium in the struggle between interest groups Group theory get together and in uence their special in uence behind the scene Federal Tax System 16th Amendment gave power to tax created federal income tax The federal government derives its revenues from a variety of sources the individual income tax Social Security and Medicare payroll deductions the corporate income tax excise taxes on gasoline liquor tobacco phones air travel and other consumer items estate and gift taxes custom duties and wide variety of charges and fees Supreme Court Justice Stephen J Field 0 Struck down unconstitutional progressive income tax enacted by Congress 100 years ago Predicted it would lead to class wars Top rate 35 about 12 the population pays income taxes 1 stream Personal income tax 0 federal government s largest single source of revenue 0 Income Tax taken out of paycheck o If self employed have to pay your own taxes often quarterly About half of all personal income is NOT taxed 0 Tax laws distinguish between adjusted gross income which is an individual s total money income minus expenses incurred in earning it and taxable income that part of adjusted gross income subject to taxation l federal tax rates apply only to taxable income 0 Top 50 pays about 96 of income tax top 25 pays about 80 top 1 pays about 40 bottom pays about 31 of income tax l huge income tax doing well is in higher tax bracket but they have to pay for it is the counter argument 0 Progressive system wealthy pay a larger portion of their income the richer you are the more you pay the poorer you are the less you pay Half of all people don t pay income tax escape through deductions exemptions special treatment etc ltalian business is extremely ef cient but state is very corrupt lots of quotunder the tablequot Customs is taxable people coming into country Without taxes don t have a civilized society defense roads etc as a developed society want a high savings rate and social services Tax expenditures is a term meant to identify revenues that are lost to the federal government because of exemptions deductions and special treatments in tax laws Earned income tax credit EITC 0 Direct payment to lowincome taxpayers who le for it 0 Payment to the working poor Tax avoidance legal means Tax evasion illegal means of dodging taxes 0 Costs fed govt billions of dollars Federal personal income taxhighly progressive o Largest source of fed income Second Stream Social Security Taxes 1935 institution average life expectancy is much lower 0 Transfer payment from young workers in the workforce to young retirees 0 Pay as you go social welfare system 0 Regressive poor pay more of a share 0 Bene ts do not correspond with what you put into the system Second largest source of federal revenue 0 Employers pay half of these taxes directly and withhold half from employees wages 0 Using what should be in a trust fund for social securitymedicareetc for other things like defense 0 Considered an entitlement deserve to get it backit is my right what govt pays doesn t always correspond to what people to put inthis is a problem because younger generation may pay for it may not get itmay not be enough money 0 Extremely large source of federal revenue use the obligation as a source of general revenue covers up that some people who are young and paying now for the O retiring population but may not receive it in their retirement spend a lot more on paying out social security than people pay in 0 SS taxes rose incrementally in two ways A gradual increase in the combined employer employee tax rate A gradual increase in the maximum earnings base of the tax 0 OASDI Old Age Survivors and Disability Insurance 0 Limited to the rst 106800 of income 30 Stream Corporate Income Taxes 0 quotDouble Taxationquot 0 Provides about 13 of the federal government s total income 0 Tax Reform Act of 1986 reduced the top corporate income tax from 46 to 34 Congress raised it to 35 in 1993 o Notorious for loopholes Lobbyists representing individual corporations and interest groups representing speci c industries have inserted so many exemptions deductions an special treatments into corporate tax laws that most corporate pro ts go untaxed 0 Incidence who actually bears the burden of the tax is inconclusiveunsure 0 Religious charitable and educational organizations and labor unions are exempt from corporate income taxes 0 Taxation Fairness and Growth Have to have money to spend so government can do its functions fair equitable that promotes growth US tax system is not simple want tax policy not only to get money but also to redistribute wealth l tax system that is fair how much Under what principles Who bene ts What is fair Who bene ts from the complexity of the tax code 0 Those looking for loopholes businesses that get tax exemptions tax preparers Progressive and Regressive system 0 Poor pay a higher share regressive 0 Most states have Progressive income taxes most localities have progressive property taxes social security is regressive 0 Some states have no income taxes higher sales taxes 0 If make 400000 a year paying taxes at top rate but only at the level that it starts not on the full 400000ony paying 39 on the amount after for example 300000 or whatever the limit is Universality o All types of income should be subject to the same tax rates 0 0 Income earned from investments should be taxed at the same rate as income earned wages Capital gains Pro ts from the buying and selling of property including stocks bonds and real estate Lower taxation on capital gains encourages investment and economic growth 0 Argument behind Progressive tax 0 O Marginal Utility Theory If you are rich after dollar value there is not much of a loss the more you have of something the less you will miss if government taxes something people who do not believe this want a at tax proportional tax everyone pays at the same rate rid exemptions Real estate doesn t like this because end to deductions in housing Tax preparers don t like this either Argument against want to be able to take some of income to redistribute but still want them to work harddon t want to demotivate if people don t work no one should be rewarded for not working but on the ip side there is also a sense that want poor to do the best they can to contribute social justice side but more wanting poor to contribute to bene t society and make living standard as high as possible Who would not like a progressive tax Elites because richer you are the more you pay charities people who bene t from the current tax code Congress likes the complex tax code because they can trade favors Economic growth 0 0 High tax rates discourage economic growth Excessively high rates cause investors to seek quottax sheltersquot to use their money to produce more business and employment but rather to produce tax breaks for themselves High tax rates discourage work savings and productive investment also encourage costly tax avoidance and tax evasion 0 Tax cuts don t necessarily create government de cits its actually argued that with lower rates the result may be an increase in govt revenue because people would work harder and start new business knowing they could keep a larger share of their earnings 0 Every society needs taxes for revenue for what it provides 0 3 goals of taxes society provides promotes home ownership children etc deductions take taxesrevenue but still allow economy to grow Politics and Tax Rates Grand Bargain 0 Tax Reform 1986 o The Tax Reform Act of 1986 under President Reagan one the most heavily lobbied pieces of legislation in the history of the Congress of the US 0 President Reagan offered this reform bill as a trade off a reduction in tax rates in exchange for the elimination of tax breaks Brought two tax reductions 15 and 28 The wealthy really liked this middle class liked the reduction of tax breaksexemptions l makes it fair for everyonemaking rate simpler and fairer for everyone 0 The nation s largest investment rms lobbied heavily to keep preferential treatment of capital gains pro ts from the sales of stocks and bonds Middle man real estate agents stock brokerage rms high end nancial services Wall Street like this 0 After this tax code under George H W Bush raised tax reductions to three 0 Raising Top Marginal Rates Again 0 Bill Clinton s plan to reduce de cits centered on major tax increases on upperincome Americans raised taxes further 0 The Bush Tax Cuts raised taxes marginally and really restored capital gains tax margins o Dividends Corporate stock dividends were taxed at a low 15 rather than at the same rate as earned income 0 Marriage penalty For married couples the new law made the standard personal deduction twice than of a single person 0 Child s tax credit The per child tax credit was raced to 1000 from 600 politically popular change 0 Capital Gains Chipped away again at the tax on capital gains pro ts from the sale of investments held at least one yearcapita gains tax reduced from 20 to 15 Preferential Treatment for Capital Gains A central reform in the Reagan Tax Reform Act of 1986 was the elimination of preferential treatment for income from capital gains When Prez George W Bush and Congress agreed to increase the top marginal rate to 31 in 1990 they quietly made this increase applicable only to earned income income from capital gains continued to be taxed at a top rate of 28 This plow succeeded in restoring preferential treatment to capital gains 0 Republicans continued to urge reductions in capital gains taxann 0 Obama campaign promised to raise the capital gains tax 0 Bush package approved l the Republicancontrolled House and Senate on largely party line votes 0 Complex tax codes written by legislative branch allows for trading favors and such carried out by executive House in US is as important as the senate in writing the tax code 0 Tax code written by Ways and Means Committee 0 IRS collects income taxesenforces Internal Revenue Service 0 Obama Redistributing lncome Via the Tax Code 0 Promise to lower taxes on middle class and low income class promise to raise taxes on upperincome Americans 250000 per year or more 0 quotMaking Work Payquot tax payments of 400 to individuals with incomes under 75000 and 800 to families with incomes under 150000 Compromise The Tax Package of 2010 0 Multiple lssues lnspire Compromise The Tax Package Extended thingsPreserved Bush Tax Cuts 0 Revenue concerns that still needed to be met Greater expenses 0 Democrats wanted to raise the taxes higher but unwise during a recession so extending the Bush Tax Cuts extended for two years for all income levels top marginal tax rate remained at 35 child tax credit of 1000 was retained as well as relief from the marriage penalty a two year patch was affixed to the AMT to prevent its application to millions of additional middleclass taxpayers Looks like Nancy Pelosi and Obama want to raise taxes and increase spending House Republicans want to really cut spending and either leave taxes as they are or cut them in a stand off right now because Senate is unsure where it standssome agree with Obama some don t Capital Gains Controversy Preferential Treatment for Capital Gains O O O A central reform in the Reagan Tax Reform Act of 1986 was the elimination of preferential treatment for income from capital gains When Prez George W Bush and Congress agreed to increase the top marginal rate to 31 in 1990 they quietly made this increase applicable only to earned income income from capital gains continued to be taxed at a top rate of 28 This plow succeeded in restoring preferential treatment to capital gains Republicans continued to urge reductions in capital gains taxann Obama campaign promised to raise the capital gains tax Replacing the Income Tax The Flat Tax 0 O 0 Would eliminate all exemptions exclusions deductions and special treatments and replace the current progressive tax rates with a at 19 tax on all forms of income Removing progressive rates would create incentives to work save and invest in America It would lead to more rapid economic growth and improve efficiency by directing investments to their most productive uses rather than to tax avoidance Many Americans support deductions for home mortgages and charitable contributesThis suggests a major political weakness in the at tax idea even if enacted politicians would gradually erode the uniformity fairness and simplicity of a at tax by introducing popular deductions No tax breaks end of charitable contribution gets rid of special interests virtue AND a problem VAT Value Added Tax Europe has this 0 Taxes manufacturing taxes every stage of production of manufacturing tax glass production rubber production etc If have a consumption tax may have to raise income take from one hand feed the other Conservatives like this undertax income overtax consumptions but also worried it could add another stream to America s tax streams The National Sales Tax 0 0 By taxing sales rather than income it would penalize consumption rather than production By eliminating taxes on income Americans would be encouraged to engage in all of the activities that produce income working investing starting business and so on It would encourage people to save money by levying taxes on their SPENDING rather than their savings would discourage people from borrowing to purchase goods Increased savings and reduced borrowing would bring about lower interest rates making it easier for people to buy homes and cars Encouraging Savings 0 Taxpayers can use Roth IRA s Tradition IRA s 401k retirement plans and 529 college plans to exclude limited amounts of savings from current taxation 0 To encourage savings the tax code could be changed to tax people only on the money they spend that is to exempt all savings from taxation 0 Tax rates would rise on the money people spend Reining in the IRS 0 IRS is the most intrusive of all govt agencies Simplifying the Tax Code 0 Tax reformers have dreamed for decades of tax ling on a O O postcard or through a simple Website Despite the lure of simpli cation tax laws will remain complex Powerful interests have a stake in maintaining the thousands of exemptions deductions exclusions and special treatments that have accumulated in the tax code over decades Grand Bargain quotSimpson and Bolds ideaquot 0 Commission saying there are things in society that need to be done reduce corporate rate tax dividends and capital gains at ordinary tax rates get rid of capital gains increase gasoline tax etc Environmental Issues Dye Chapter 13 How do environmental issues affect me directly We pay taxes for environmental cleanups Location of toxic waste dumps how food is genetically altered genetic changes in puberty earlier obesity etc nuclear waste in oceans US has become much cleaner and safer than 30 years ago China and India heavy emitters because have to industrialize to grow If don t have industrial economic growth you don t have money to support society but then have to pay to clean it up to stay healthy and safe trade off BiasPerspective of Dye Very skeptical of environmentalists 0 Make the trade off but cant be a perfectionist going to have to live with some degree of pollution will have some form of pollution so have to tolerate some degree of it but saying to still clean it up 0 Perfectionism would be very economically expensive 0 pollution is not possible and very expensive Externalities Spill over effect 0 Producing something as a factory for people to buy but pollutingside effects 0 Negative externalities pollution in order to produce this there will be pollution that needs to be paid for in the future 0 Positive externalities social good that would come from something don t see the advantages in monetary terms but its there getting power in health policy public educann Problems Solid waste Disposal Water Pollution Air Pollution Who deals with such problems Government all levels local state federal etc 0 Congress created the EPA in 19705 Environmental Protection Agency Headed by a person in the Cabinet Lisa Jackson Environmental problems became a large political issue because of bottom up legislation set forth by Rachel Carson s book Silent Sp ng Super fund in 1880 Clean Air Act of 1990 Canada tired of US polluting their country with acid rain Congress and Executive get together to deal with such problemsissues agenda setting elites legitimation creating new things positive and negative externalities Clay needs to be at the bottom of land lls so things don t seep through Social trade off goal how to have economic growthprosperity but also have it clean as society gets richer more desire of cleanliness as a good Traditional environmental policy command and control in Washington now more taxes How we set up our environmental policy 0 Started in 1960 bottom up agenda setting Rachel Carson s Silent Spring 0 Led Congress to write legislation which then set up the EPA clean air clean water acts etc kept adding to EPA Headed by Lisa Jackson 0 Much cleaner society than 30 years ago US is a very wasteful society heavy polluter but ef cient polluter Interest group effects 0 Dye believes environmentalists are complete perfectionists don t really look at the costs Bene t is not equal to cost Sometimes they can be unrealistic Suggests they are wealthier uppermiddle class so not so worried about costnot in industry not workers etc lmplies either economic elites that would bene t from cleaner policies because they are home owners faults people for not saying this is my economic interest but instead saying its in societal s interest innuendo May be right or wrong Suggesting that if we can do Radicals Progressive Populists Real Conserv Libert 0 Modern environmentalism is a more progressiveradical issuewant more govt more international regimes to deal with it as a social justice issue but probably doesn t explain it very much NIMBY power 0 quotNot in my back yardquot don t want pollution in backyardike land lls dumb factories o Hypocrite Use land llbut don t want it in my area because lowers property value 0 Don t want nuclear waste in my state put into Nevada on a mountain Nevada is not happy about this but fed govt gives the state lots of money to have it there DomesticInternational Global Warming Dye implies that people who overworry about global warming are alarmist o A lot of people who are really concerned environmentalistsradical liberals are Mathusian Economy unmanageable As the population grows there is more people than there are resources Carrying capacity apocalyptic dire extreme distablizing synonyms 0 Extreme environmentalists believe that changes in weather forest res glacial melting rising sea levels etc are human made How do we set up an international regime to x International regime When countries get together and create an international bureaucracy to deal with a problem 0 Example IMF WTO international economic regime world trade organization based in Switzerland Dream of Progressives is to set up an international regime like WTO Rio Diginero brazil met here with lots of non govt institutions like environmental groups 0 Voluntary o Pushed for green house gas limits we ll voluntarily reduce green house gases When it comes time to pay pull out Kyoto protocol stalled international treaty to set up an international regime to limitreduce green house gases o Mandatory signing a contract to reduce if sign contract then obliged to do it countries forced to do itfollow through because international bureaucracy will try to enforce but cant always enforce with certain countries problem 0 Challenges some countries were exempted because late developers etc Problem some countries pay 40 some pay 5 lead country like US would have to pay more than other countnes When powerful countries like the US want a policy like this put through is usually when it gets through Much more for the developed countries to pay 1997 Bill Clinton was president signed Kyoto protocol but didn t send it to the Senate because they were gonna reject it 0 Didn t even try to get it through 0 Wanted to be on the good side of environmentalists but didn t do anything George W Bush didn t agree with itsupport it 0 At least knew where he stood US officially took name off Kyoto protocol 0 Chinese outmaneuvered Obama cant nish international deals Countries with high patent laws are very advanced in pharmaceuticals Alternative to Kyoto US and nonpolluted countries are going to have to say if you are heavy pollutors and pro ting from it that give global costs were going to have to tax you the way we will use trade policy Energy policy Different because environmental issues mean economic growth and negative spillovers Energy can mean both negative spillovers and resourcesoilwater etc going down Oilgas some countries like Saudi Arabia have lots of resources 0 Lots of oil tends to mean corrupt country or overly dependent on oil Undermines economy