Political Economy O’Connor, Chapter 18 & 816-819.

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Presentation transcript:

Political Economy O’Connor, Chapter 18 &

Political Economy –Study of relationships among politics and economics and governments and markets (the relationship between the state and the markets). –To paraphrase Calvin Coolidge, 1925: “The business of America is business.”

Political Economy Laissez-Faire = “Let do” Market Economy Command Economy State-Directed Economy

Political Economy Terms GDP – Recession Unemployment Rate –Why so important? Inflation Stagflation

Congress and Fiscal Policy Fiscal Policy –Economic policies involving taxing, spending, and deficit levels. Mandatory Spending Minimum Wage 16 th Amendment Progressive Taxation –Ability-to-Pay Principle Regressive Taxation Proportional Taxation

Balanced Budget –Government budget in which expenditures & revenues are equal, so that no deficit or surplus exists.

In Texas…Balanced Budget Requirement Biennial –2001, Texas had a $10 billion deficit. No taxes were raised, but… Should we have a balanced budget amendment for the federal govt.?

If you don’t balance the budget you get… Deficit Spending –When govt. expenditures exceed govt. revenue. National Debt –Total current debt owed by the federal government: $6.9 trillion. How do you finance the debt? –Bonds –Treasury Department: Secretary John Snow

Federal Receipts 255/2422/02feb /ww w.gpoaccess.gov/usbudget/fy0 5/pdf/hist.pdfhttp://a255.g.akamaitech.net/7/ 255/2422/02feb /ww w.gpoaccess.gov/usbudget/fy0 5/pdf/hist.pdf outlays-summary.phphttp:// outlays-summary.php

Federal Outlays Tax Burden in US Tax Burden in Texas – Comptroller: State’s chief tax collector, auditor.

Texas Political Economy –State Revenues 1.Federal Funds (29%) 2.Sales Tax (28%) 3.Licenses 4.Fees & Fines 5.Land 6.Lottery Local Revenues Property Tax State Expenditures 1.Education (44%) 2.Health and Human Services (30%) 3.Business and Economic Development (12%) 4.Public Safety and Criminal Justice (8%)

Income Tax in Texas? Yes A broad-based tax structure helps alleviate the pressures of a recession. No Not having an income tax spurs business investment in Texas.

Monitoring the Economy Federal Reserve Board (the Fed) –Independent agency of the executive branch charged with overseeing the nation’s monetary policy. Chairman: Alan Greenspan

Economic Theories Keynesian Theory Fight recessions/ unemployment by –Increasing government spending & –Incurring government deficits. Fight inflation by –Curtailing government spending & –Take in a tax surplus. Supply-Side Theory Government taxing & spending are detrimental to growth: –Tax cuts allow entrepreneurs to invest their tax savings, which creates higher productivity, jobs and profits. –Allows the entrepreneur & his new workers to pay even more taxes, even at lower rates. –Laffer Curve