Political Economy
O’Connor, Chapter 18 &
816-819
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
– Http://www.bartleby.com/151/a62.html
• 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
• 16th 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.
• http://www.brillig.com/debt_clock/
• http://www.budgetsim.org/nbs/shortbudget04.html
• How do you finance the debt?
– Bonds
– Treasury Department: Secretary John Snow
Federal Receipts
• http://a255.g.akamaitech.net/7/
255/2422/02feb20041242/ww
w.gpoaccess.gov/usbudget/fy0
5/pdf/hist.pdf
• http://www.truthandpolitics.org/
2004-outlays-summary.php
Federal Outlays
• Tax Burden in US
• Tax Burden in Texas
– http://www.cppp.org/products/fastfacts/txgovt.html
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