Next, we want to analyze the role of government in economic affairs and evaluate the economic performance of states. Political Scientists examine the political economy (essentially how politics can influence the economy and how the economy can influence politics). On one end of the spectrum, states can have a very “hands on” role in economic affairs such as implementing taxes on foreign goods/services (tariffs), limit how many goods can be imported (quotas), providing free infrastructure, utilities, land, etc. to domestic businesses to give them an advantage against foreign competition. In general, these policies are considered neo-mercantalist as they favor the state and domestic employment.
On the other end of the spectrum, the state can have a very “hands off” role in the economy, such as promoting free trade (reduced or no restrictions on foreign goods and services i.e. no tariffs, quotas, etc.) These policies can be described as neoliberalist or a free market economy. Other politics associated with neoliberalism are keeping taxes, government spending, and regulations on businesses low. In reality, nearly every state is somewhere in between these ends of the spectrum and can best be described as a mixed economy. Please see the spectrums below as a way to visually represent these political economy theories.
Neoliberalism ←--------------------------------> Neomercantalism
Free Market<--------<Mixed Economy>------->Centrally Planned
What measurements, variables, or factors can you use to assess/diagnose the type of political economy a State has? See the examples below from the Heritage Foundation Economic Freedom Rankings (this is an excellent site to compare and contrast State’s political economies) Generally speaking principles of economic liberalism/neoliberalism would suggest the following:
- Protect and promote the rule of law, property rights, government integrity, judicial effectiveness
- Limit the size of govt., such as % of GDP by government spending, Taxes Collected as % of GDP,
- Fiscal health: limit budget deficits and national debt
- Regulatory freedom: limit regulation of business, labor, health & safety, examples could be minimum wage, parental leave, etc.
- Open markets, promote free trade, reduce government bureaucracy, attract foreign investment
- Privatization of all or nearly all industries
- Limit inflation
Neomercantalism (sometimes also referred to as centrally planned economy/statism) would promote the following principles;
- promote domestic industries at the expense of foreign industries through protectionism: tariffs, quotas, non-tariff barriers
- Import substitution and export driven economy
- Nationalize industries if necessary
Watch the lecture I gave on tariffs and global trade and answer the questions below, by providing examples from the video:
1) What is the impact of free trade and tariffs politically, such as international relations and domestic politics?
2) What are the benefits and drawbacks of free trade?
3) What are the benefits and drawbacks of tariffs and protectionism? Identify and briefly explain 3 benefits and three drawbacks that you find most compelling?
4) What was one part of the lecture that stood out to you (something you found interesting, surprising, confusing)?
5) What is your stance on tariffs, do you support or oppose them and why?
Next, we will examine how several Nordic states handle their political economy. Watch the two videos and then answer the questions below: The Nordic social welfare model and Why Do Nordic Countries Work So Well For Everyone? | Ways To Change The World
6) What is the Nordic model?
7) How are Nordic States' public policies different from the United States?
8) What are the benefits and drawbacks of these differences?
Next, we will examine how successful various economies have been in recent years, particularly in the aftermath of the global pandemic. Please read the article, Falling inflation, rising growth give U.S. the world’s best recovery David J. Lynch. Washington Post. 1/28/24 to examine which states performed best in economic recovery and reducing inflation the fastest.9) How did the U.S. recovery compare to the other States/countries examined in this article? Please cite data to support your claims.
10) What policies did the U.S. engage in that appear to have made a difference?
11) What downsides or negatives might have U.S. policy created according to the article?
Lastly we will examine the fiscal problems facing most Western governments. You will need to watch this YouTube video from a presentation I gave on the national debt and deficit in late 2023. Use the information from the video to answer all the questions.
12) What is a budget deficit (definition)?
13) What is the current deficit in the U.S?
14) How does the U.S. budget deficit compare to other countries?
15) How does the U.S. budget deficit in 2023 compare to previous budget deficits as a percentage of the GDP?
16) What is the national debt (definition)?
17) How much is the current U.S. national debt?
18) What are the five negatives associated with rising deficits:
19) What are three problems of rising interest payments
20) What two (maybe three) fiscal policy options are there to reduce the deficit?
21) Does the U.S. spend more than the similar countries?
22) Are U.S. tax rates high compared to OECDcountries?
23) Are U.S. marginal tax rates high compared to previous years?
Finally, based upon what you have learned regarding fiscal policy: revenue and spending, you should open the link: Debt Fixer | Committee for a Responsible Federal Budget
Your goal is to make decisions to reduce the U.S. debt to 98% of GDP by 2033 and 60% of GDP by 2050. This website provides many different options you can choose from to reduce the projected deficit over the next decade. These are not the only options Congress could potentially choose from, but do include major categories of revenue and spending. As you make individual choices you can see the impact it has on the 10 year projection under my budget on the far right in blue. Keep in mind there are many tradeoffs with the choices you are deciding between. Some choices are considered investments and will actually add to the deficit, but might improve infrastructure, citizens quality of life and that may improve economic growth or society in the future. As easy as it might be to click on an individual option, please keep in mind there are also downsides to your choices. You may be asking people to pay more in taxes, receive less in benefits that have counted on, etc. The fact that Congress hasn’t acted on most of these options already is in large part due to their concern that they wouldn’t be popular and could lead to them losing reelection.
24) When you have completed the task you should copy and paste the summary of your spending and revenue selections below (it will have subtotals for revenue and spending as well as total deficit deduction.
Requirements: 2-3 | .doc file