PS 202 Study Guide #2

What is one economic and one political problem with rising income inequality?

1979-2007, wealth for the top 1% grew exponentially, middle-class income only rose by roughly 37%

Why is a positive balance of trade generally considered smart economic policy?

A positive balance of trade is considered smart because it means that aside from your GDP, you are making more money than you are spending on goods. This is healthy for a national government, and leads to an increase in opportunity for the nation to protect it's citizen's financial interests. (See: Norway's diversified investment portfolio)

What is a "progressive" tax code?

A progressive tax code is one that taxes people at progressively higher rates based on their wealth.

How does the Federal Reserve control interest rates?

By controlling the amount of money in circulation. Put in and take out money to control cost.

Other than personal income taxes, what are three other sources of tax revenue?

Corporate income tax, payroll taxes (social security, medicare), excise tax

What is "cost-effectiveness analysis" and what is one example?

Cost effectiveness avoids the exclusion of intangible costs by comparing alternative methods at a fixed cost (What's the most bang for my buck?) One example of this is the 1990's Oregon Health Plan revisions, surveying many sources to find the best way to serve the public at a set Health Plan budget.

What is the logic behind "demand-side" economics, and what is one critique of this doctrine?

Demand-side economics dictates that a poor economy is tied to a lack of spending. This leads to cash stimulus plans, providing everyone with additional funds to stimulate spending within the economy. One critique of this plan is that many citizens would prefer to save the additional cash assets, rather than spending them to stimulate the economy.

What is EITC?

EITC is Earned Income Tax Credit: a tax refund for low-income working individuals and families. This form of benefit has broader bipartisan support, as it involves rewarding employment

Why is there an inherent tension between the imperatives of politics and science?

Effectiveness: By the numbers quoted in the Roberts article, a carbon tax could be slightly effective, but only if the rate of taxation was unrealistically high. Efficiency: While the carbon tax would hit coal and electric power hard, it leaves other sources of carbon emissions wide open. For example, the auto industry would get hit with a reduction of all of 2%. Equity: In line with efficiency, not all sources of carbon emissions are treated equally under a flat carbon tax, and how the money received is spent is yet to be decided. Ethical & Political values: while it seems from the Roberts article like carbon taxes are receiving bipartisan support, it also appears that no one can agree on what an effective carbon tax would look like.

How is the official definition of poverty (FPL) calculated?

FPL is calculated as 3x a subsistence diet (circa 1960)

What is the "fiscal policy" tool and which part of government uses it?

Fiscal policy has to do with stimulating economic growth through bb either cutting taxes (hoping individuals will spend more) or investing in the market to help it stabilize (bailouts). These tools are typically used by the President and Congress.

What is the basic tension between politics and economic policy, making rational policy development difficult?

Good politics is not always good economics. Especially during election year! An example of good economics would be a reasonable tax hike. Typically, nobody is going to vote for the candidate who will raise taxes.

. What are three explanations for rising health care costs?

Hospitals and doctors make money off of medical procedures and expenditures, rather than keeping patients well. Spending emphasis on drugs and medical technology, not routine primary care or prevention Fee-for-service approach can lead to overutilization, with little incentive for efficiency.

What is the major critique of CBA as a means of evaluating policies?

In practice, far more complicated: What about benefits/costs that are not so easily monetized. (Ecosystem Services is a good example of this)

What is the basic advantage/appeal of reliance on cost-benefit analysis (CBA) for evaluating policies?

In theory, CBA is straightforward: Identify and compare all short/long-term costs & benefits.

Why did employer-based health insurance take off in the 1950s?

It gained popularity as a tax-deductible means of attracting a workforce.

Why is deficit reduction particularly difficult during economic downturns?

Kanesian/conventional economics dictates that when you are in a downturn, you must invest more deeply and increase spending to pull yourself out of the downturn.

What is the basic "solvency" problem facing the Social Security program?

Life expectancy is creeping upward, and by 2034 social security will not be able to meet it's financial obligations to retirees.

What are three explanations for persistent poverty in the United States?

Low Productivity,economic stagnation, discrimination, culture of poverty, family structure, etc.

Why are government subsidies often a controversial tool of economic policy?

Many constituents see it as an issue of fairness

What are two reasons why a trade deficit may not necessarily be a bad thing?

Many economists argue for a theory of comparative advantage, where it is good for a nation to import goods that cost a lot to produce natively.

What is Medicaid and what was/is the big Medicaid conflict relating to Obamacare?

Medicaid is a "means-tested" program, with eligibility set at an income of 138% of the Federal Poverty Line. the ACA sought to insure everyone. This led to issues with double coverage.

What are two problems with official poverty numbers?

Official poverty numbers are based on very specific qualifying metrics (such as the FPL). poverty numbers can be overestimated, as outside assistance is not counted. Poverty numbers can also be underestimated, as only food expenses are counted. Housing, childcare, etc. are not factored.

What is the logic behind "ecosystem services" in the context of CBA?

Often, the benefit of ecosystem services is selfish. The cost of not taking care of the environment can be dire.

What is Medicare and what is one advantage and challenge with expanding this program to cover more Americans?

One advantage of medicare to cover more Americans is that the infrastructure is already present. However one challenge is that this program mostly supports those who are living via social security already. If the base of eligibility is broadened, this could become much worse.

How is the unemployment rate linked to the inflation rate?

People who are unemployed have less money to spend. The higher the unemployment rate is, the less currency will be circulating through spending, and inflation may fall. On the other hand, a low unemployment rate informs the market such that they can likely charge more, as the majority of their clientele are employed. This may cause a rise in inflation.

Why is there an inherent tension between the imperatives of politics and science?

Politics is about values first, facts second. Science relies on factual analysis.

What is the difference between process and outcome equity, and what is one example?

Process equity refers to the decision making process. Was it voluntary, open, and fair to all? Outcome equity refers to the fair distribution of societal goods such as wealth, income, and political power.

What are three solutions for reforming Social Security?

Raise the age of retirement to be equally proportionate to life expectancy Raise the cap on taxed income Reduction of benefits to wealthy retirees

What is SNAP?

SNAP is Supplemental Nutrition Assistance Program. This is also commonly known as food stamps, or an EBT card.

What is "single-payer" healthcare, and what are two advantages of this system?

Single-payer healthcare is when one entity (in this case the US government) foots the bill for everyone's healthcare, in exchange for a premium.

What is Social Security, and what was the basic rationale for creating this program in 1935?

Social Security is social insurance for the elderly or disabled, funded by compulsory contributions.

What are two basic ways in which the 1996 welfare reform changed the welfare system?

States received "Block grants" giving them access to more flexible funding. States were required to ensure recipients were actively trying to move off of welfare and into the workforce.

What is the basic problem with relying on "economic growth" (e.g. GDP) as a core objective of economic policy?

Strengthening the economy doesn't always mean good things for the citizenry. For example, a 100% profit-efficient nation would have almost no social welfare systems in place.

What are two critiques of the changes resulting from the 1996 welfare reform?

TANF was meant to assist cash welfare, instead it essentially absorbed it into a more restrictive system. TANF was also poorly implemented, and many who qualified for it never received the benefit.

What are two ways in which the ACA (aka "Obamacare") can be regarded as a success?

The ACA increased the total number of people insured, as well as assisting to regulate the healthcare market.

What are two areas where there is still room for progress/improvement under the ACA?

The ACA was still unaffordable for many, and was costly in that it did little to actually lower the price of care.

What was the basic economic argument behind the auto and bank bailouts at the start of the Great Recession, and what was the basic ethical critique of such bailouts?

The argument made was that banks and the auto industry were "too big to fail", leading taxpayers to fund the mistakes of large industries. The ethical dilemma is whether or not the federal government should be on the hook to pay for the failure of a private sector. Ultimately, the bank and auto industries survived, but taxpayers lost roughly 9 billion dollars.

What is the logic behind "supply-side" economics, and what is one critique of this doctrine?

The logic behind supply-side economics is that a poor economy is a supply issue, caused by a lack of investment. This leads to tax cuts for the wealthy, freeing them up to invest more liquid funds into the economy. One critique of this is that it makes reduction of a deficit challenging.

What is the "monetary policy" tool, which part of government uses it, and what are two examples?

The monetary policy tool is an economic tool that deals with controlling the amount of currency in circulation, or "money supply".

What are the two basic ways that "full employment" (target rate) solves the deficit problem?

The more your citizenry is employed, the more income you as a nation have to tax. Additionally, fewer people will be in immediate need of social welfare services.

What is the argument that the "welfare state" saved capitalism from itself?

The primary argument for this statement is the success of the new deal in the face of the great depression. Other arguments can be made for more modern economic recovery efforts, such as the auto bailout during the great recession.

What are the two basic challenges associated with risk assessment?

The primary challenge associated with risk assessment is that there is no 100% certainty. This means that the end of the process is still a value judgement by those involved, although it is a better informed value judgement. Another challenge is the exploitation of this uncertainty to push certain interests.

What is the major "conservative" critique of welfare policy, especially prior to the 1996 reforms?

The primary conservative critique, especially prior to1996, was that Welfare programs were open to fraud. In truth, fraud only accounts for about 3% of the total welfare system.

How do the challenges of risk assessment enable politicization of public policy conflicts?

There is an uncertainty to risk assessment that can be spun to politicize certain perspectives.

What is the basic political obstacle ("all talk, no action") to reducing deficits?

Typically, a reduction in deficit usually means either decreasing spending, or increasing taxes. Both ideas are hard to sell, politically.

Why is the VA healthcare system considered our one example of truly "socialized" health care?

Unlike other forms of healthcare, VA hospitals are government run, and the medical staff are federal employees.

What is the fundamental paradox U.S. health care system?

We spend more than any other nation, yet see fewer results.

What is the fundamental difference between Social Security and welfare programs?

Welfare is Means-tested, and needs based rather than contribution based. It is redistributive, whereas Social Security is based in compulsory contributions, and is tied to the amount you've contributed.

How is "political feasibility" as a consideration of policy development illustrated in the Roberts article on the carbon tax?

While a few of the questions also focus on efficacy, the purpose of the remaining questions is exclusively to determine the economic viability. These questions can be boiled down to two primary lines of thinking: "Will this work?" and "Is it affordable?" both of these core questions are related to the political feasibility, such that politicians who support plans that cost a lot or don't work, tend not to get re-elected.

What are three ways in which the 2017 tax reform law (TCJA) has thus far failed to deliver on promises/expectations? (Weissmann)

Workers have not seen a decrease in tax collection or an increase in pay even though tax collections are falling, while stock buybacks boom for investors and shareholders, and business investment hasn't jumped up as much as predicted.