Chapter 12: The Economy and Politics Case Study: Liar’s Loans Section 1: The Economic Institution Section 2: The United States Economy Section 3: The Political Institution Section 4: The United States Political System Simulation: Applying What You’ve Learned

Case Study: Liar’s Loans During the first decade of the 2000s, the United States financial system faced a crisis caused by banks and other lenders making loans to people who could not pay their loans back. In previous years, lenders made money on these risky loans by selling them to other financial institutions. Eventually, however, these weak loans led to a financial crisis that some likened to the beginning of the Great Depression.

Section 1 at a Glance The Economic Institution Societies develop economic institutions to decide how to allocate their resources. Economic systems have three basic sectors: primary, secondary, and tertiary. The two main economic models are capitalism and socialism.

The Economic Institution Main Idea Societies develop economic institutions in order to distribute limited resources. Reading Focus How do economic basics affect society? What three sectors do all economic systems have? What are the two main economic models?

Do you think you could survive without money?

Economic Basics Everybody has needs (such as food and water) and wants (such as a new car or stereo). Every society creates a system of roles and norms that governs the production, distribution, and consumption of goods and services. This system is called the economic institution. People’s needs and wants are unlimited, but resources are limited. Three questions of an economy: What goods and services should be produced? How should these goods and services be produced? For whom should these goods and services be produced? Answers depend on the factors of production, or resources needed to produce goods and services (such as land and labor).

What three questions must every society answer? Reading Check Find the Main Idea What three questions must every society answer? Answer: What goods and services must be produced? How should these goods and services be produced? For whom should these goods and services be produced?

Economic Systems Basic Sectors Industrial Societies Primary sector: extracting raw materials from the environment Secondary sector: use of raw materials to manufacture goods Tertiary sector: providing services Industrial Societies Advances in technology helps move focus to secondary sector Higher levels of agricultural production allows for more people Job specialization increases Preindustrial Societies Very little technological development All economic activity carried out by human and animal labor Focuses on primary sector Postindustrial Societies Focus is on tertiary sector Greater emphasis placed on knowledge and the collection and distribution of information

What type of economic society is the United States? Reading Check Analyze What type of economic society is the United States? Answer: capitalist

Economic Models Capitalism Socialism Capitalism: Factors of production owned by individuals; profit and competition regulate activity Law of supply: Producers will supply products with high profit Law of demand: Demand will increase as the price decreases Laissez-faire capitalism: No government regulation Free-enterprise systems: Limited government control of business Socialism Socialism: Factors of production owned by the government; government regulates economic activity Economic activity controlled by social need and central governmental planning Ideal communism is a political and economic system in which property is communally owned and social classes cease to exist All economies fall somewhere in between these two idealized systems. Over time, economies have moved toward the center of this continuum.

What are the two main economic models? Reading Check Find the Main Idea What are the two main economic models? Answer: capitalism and socialism

Section 2 at a Glance The United States Economy The United States economy became the strongest in the world in the 1900s. New economic developments have changed the way the U.S. economy works.

The United States Economy Main Idea The United States has one of the world’s richest and most diverse economies. Reading Focus Why are the 1900s sometimes called “the American Century”? What recent developments have transformed the American economic system?

An Immigrant’s Dream of Prosperity What does the United States economy offer that so many immigrants want?

The American Century Rise of Corporate Capitalism Corporation: A business organization owned by stockholders and treated by law as if it were an individual person Oligopoly: A few large companies control an industry Protectionism: The use of trade barriers to protect domestic manufacturers from foreign competition Free trade: Unrestricted trade between countries Globalization of Corporate Capitalism Multinational: A corporation that has factories and offices in several countries Generally headquartered in one country Some large multinationals have a bigger economy than some poor nations Some sociologists see global capitalism as the decline of nation-states

What two trends have increased U.S. economic power? Reading Check Find the Main Idea What two trends have increased U.S. economic power? Answer: the rise of corporate capitalism and globalization

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Recent Developments The Changing Nature of Work E-commerce In the United States, work has shifted from an industrial base to a service base. Companies have cut costs by moving jobs to other countries and by eliminating jobs. The service sector has not absorbed displaced workers. E-commerce Business conducted over the Internet Internet allows companies to automate many purchases Internet allows customers to purchase at home Concerns about personal information and keeping it safe

Recent Developments Trouble Ahead? Challenges include government debt, Social Security system, subprime mortgage crisis, and rising fuel prices About half of Americans carry debt on a credit card, with an average debt of $10,000 Americans owe about $2.5 trillion

What three factors led to a reduction in U.S. manufacturing jobs? Reading Check Analyze What three factors led to a reduction in U.S. manufacturing jobs? Answer: advances in technology, globalization (relocation of jobs to newly industrialized countries), elimination of less-skilled jobs

Section 3 at a Glance The Political Institution Societies exercise power over their members through political institutions. Legitimate power is authority; power exercised through force is coercion. The two basic types of government are democratic and authoritarian.

The Political Institution Main Idea Political institutions around the world exercise power in many different ways. Reading Focus How does sociology view politics? What gives legitimacy to a person or group in power? What types of government do sociologists recognize?

Two Koreas Two Political Systems Can a country's politics really make a difference?

Sociological View of Politics For society to run smoothly, people must often act together for the common good. In complex societies power is exercised by the state—the primary political authority in society. A political institution is the system of roles and norms that governs the distribution and exercise of power in society. Political institutions have evolved over time. Functionalists see the state as centering on the task of maintaining order in society. Conflict theorists look at the way in which political institution affects social change.

What are two sociological view of politics? Reading Check Find the Main Idea What are two sociological view of politics? Answer: functionalists—analyze the political institution in terms of the functions of the state; conflict theorists—focus on how the political institution brings about social change

Legitimacy of Power Legitimacy refers to whether those in power are viewed as having the right to control, or govern, others. Authority is legitimate power. Traditional authority is power that is based on custom. Rational-legal authority is based on rules and regulations. Charismatic authority is based on the personal characteristics of an individual exercising power. Authority Coercion is power used through force and based on fear. All societies use coercion to an extent, but an illegitimate system has coercion as its main method of maintaining order. The more that a government relies on coercion, the less stable that government will be. Coercion –

Reading Check Draw Conclusions What type of authority is the most difficult to sustain from one leader to the next? Answer: charismatic

Types of Government The state is the combined political structures of a society such as the presidency, Congress, and Supreme Court in the United States. The government is the people who direct the power of the state. Power is exercised through the people. Those who are governed take part in the governing process. Representational democracies are those in which voters elect representatives. Representatives make political decisions. Constitutional monarchies have monarchs, but ultimate power rests with elected officials. Democratic Systems –

Conditions for Democracy Industrialization Most democratic societies are industrialized. Lenski says the educated urban population of industrial societies expect a voice. Access to Information Democracy requires well-informed voters. Democracies are strongest in societies where the public and media have open access to information. Limits on Power All governments exercise power, but in democracies there are clear limits placed on government power. One way to do this is to spread power among many groups. Shared Values Although the right to hold opposing views is a cornerstone of democracy, a shared set of basic values is essential.

Authoritarian Systems In a government based on authoritarianism, power rests firmly with the state. However, this is not Weber’s authority of legitimate power. An absolute monarchy is an authoritarian system in which the hereditary ruler holds absolute power. A dictatorship is an authoritarian system in which power is in the hands of a single individual. A junta is an authoritarian system in which a small group has seized power from the previous government by force. Totalitarianism occurs when those in power exercise complete authority over the lives of individual citizens.

What are the two basic types of government? Reading Check Summarize What are the two basic types of government? Answer: democratic and authoritarian

Section 4 at a Glance The United States Political System The United States is one of the few countries with a two-party system. Politicians are influenced by more than just the voters. People develop political beliefs through political socialization.

The United States Political System Main Idea The United States is a democracy, but American voters are not the only group that influences the government. Reading Focus How does the number of political parties influence a country’s political system? How do sociologists analyze who rules the United States? What is political socialization?

Fighting the System Why aren't third parties more successful?

Political Parties Multiparty Systems The Two-Party System Topics of special interest to sociologists are political parties, special-interest groups, voter participation, political models, and political socialization. A political party is an organization that seeks to gain power legitimately. Most democracies have multiparty systems in which different parties appeal to people on different issues. This works because of proportional representation—seats in government are decided by proportions of votes. Multiparty Systems Nearly all elected U.S. officials since the Civil War have been members of either the Democratic Party or the Republican Party. Critics claim that this method of election prevents growth of third parties. The Two-Party System –

What type of political party system do most democratic countries have? Reading Check Compare What type of political party system do most democratic countries have? Answer: multiparty system

Who Rules the United States? Interest Groups Interest groups leverage political power to influence policies. They use lobbyists, monetary donations, collection of petitions, organized letter-writing campaigns, and media campaigns. Political Participation United States has one of the lowest rates of voter participation. Only about 60 percent of voting-age people vote. Race and ethnicity, age, and education level affect rates of voting. Political Models The power-elite model states that political power is exercised by and for the privileged few. The pluralist model states that the political process is controlled by interest groups that compete with one another for power.

What methods do interest groups use to gain politicians’ support? Reading Check Summarize What methods do interest groups use to gain politicians’ support? Answer: lobbying, campaign contributions, petitions, letter-writing campaigns

Political Socialization Family Children begin learning political beliefs from their parents and other relatives. Parents may also conduct deliberate socialization activities such as taking a child to vote. Mass Media The political viewpoint of the mass media is not always announced directly. Political messages become explicit during a campaign season. School Children recite the Pledge of Allegiance every day. Students learn the political histories of the country and of their states. Peer Groups People with similar characteristics tend to share political beliefs. Economic status and age are two of the major factors that influence a person’s political views.

Reading Check Draw Conclusions How is reciting the Pledge of Allegiance a form of political socialization? Answer: social norm, instills American value of democratic government

Simulation: Applying What You’ve Learned There Should Be a Law! How do special-interest groups influence the creation of laws? In this simulation, you will learn how compromise and conflict play a part in ensuring our laws reflect all of society. Work in groups to write a bill that benefits your group. 1. Introduction Assign a moderator, a secretary, researchers, and a presenter. Choose a special interest and draft a bill that would benefit it. Each group will propose their bill to the whole class. 2. Simulation –

Simulation (cont.) 3. Discussion What did you learn from this lab? As a group, discuss the following: How difficult was it to originate an idea for a law? What do you think causes society to rely on government to create laws and sanctions to reflect our values? Do special interest groups help or hurt the lawmaking process? Should the lawmaking process be simplified? More difficult?