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American Dilemmas Models and Economic Approaches 1/24/2012 Learning Objectives • • Critically analyze social problems by identifying value perspectives and applying concepts of sociology, political science, and economics; Use knowledge and analyses of social problems to evaluate public policy, and to suggest policy alternatives, with special reference to questions of social justice, the common good, and public and individual responsibility. Opportunities to discuss course content • Today- 11:45-2:00 • Wednesday- 10-2:00 Paper Proposal • Due in class on 2/7 • 5% of your final Grade • Involves submitting 2 Parts – Worksheet – 2 page paper ECONOMIC MODELS What are Perspectives/Models • Methods that each discipline uses to understand social problems • Simplified representations of some aspect of the real world – Simplify and clarify difficult problems – Help understand what is important and unimportant ECONOMIC MODELS Rationalism • Cost- benefit • Cost Effectiveness • Risk assessment Cost Benefit Analysis • What is it? • How Do you Conduct it? • How do you put a value on Human life? Cost-Benefit II • Advantages • Criticisms of C-B Cost Effectiveness • How it Works • Fixed-Budget Analysis • Slot Machine strategy Cost Effectiveness II • Fixed- Effectiveness • Criticisms Risk Assessment • What is it? • How does it Work? • What are its' criticisms? – Overestimating error – Lowering Risk is Expensive A Cross-over Model Rational/Public Choice Rational/Public Choice • The application of economic analyses to public policymaking • In economics, people pursue their selfinterests in the market. • In policy you try to maximize your personal benefits Public Choice Actors • Can be applied to any unit of analysis (state, person, interest group, etc) • People will join collective organizations when it benefits them. POLITICAL MODELS Incrementalism • Select policies based on the existing order. • Policy is a continuation of past government activities with only incremental modifications • A policy conservative and expedient way of making change. • Downsides? Political Feasibility • What is it • How Does it work Economics The Dismal Science Economics • Fiscal Policy • Monetary Policy The Economy as a series of sectors The Modern U.S. Economy • A Shift Away from the First Two Sectors • A Service Based Economy – Affluent service jobs – Welfare service – Service Jobs The Economy as a series of “Collar” Jobs • • • • White Collar Blue Collar Pink Collar Green Collar Collar does not always equate with income Who Does it ECONOMIC POLICY MAKERS Key actors in Economic Policy • We do not have a single economic policy • The federal government is the key player here, why? – The Power to Tax – Regulate foreign trade – Coin Money and set its value States and municipalities are also Big Players • They can also tax • They can provide incentives for economic growth • Provide services for its residents Economic Growth: Goal #1 • An Increase in the GDP each year • More Money means more tax revenue • uncontrolled growth, however, is not a good thing Historical GDP Change Low Unemployment: Goal 2 • What is Unemployment • Who does this Exclude? • What it doesn’t measure? The Positive aspects of Low Unemployment • More Tax Revenue • Fewer people receiving benefits • Lower Crime Unemployment in U.S. Our Unemployment compared to other Nations • Historically, it has been much lower • Even in our poor economy, it is lower than the EU region The Decline of Labor Unions The Economic and Political Effect of Unions • Union Workers earn 10% to 15% than nonunion workers in similar occupations • A large player in “special interest” politics Why the decline in Organized Labor • The Growth in “RTW” States • The decline in manufacturing jobs and large factories • Globalization of the economy • Government has assumed many of labor’s roles Economic Goal 3: Low Inflation • What causes inflation? • The Government wants low levels of inflation, why? The Consumer Price Index • What it includes • What it excludes • How it has changed over time Goal 4: A positive Balance of Trade • A Nation Wants to Export more than it Imports • The United States is the reverse The Big Mac Index • A way of measuring the strength of the dollar • Big Mac’s involve a fixed product • What it involves • http://www.youtube.com/watch?v=sz656YOEixI Big Mac Index Our Trade Deficit Why We have a Trade deficit • Where it comes from • What are the reasons The Advantages and Disadvantages of a Trade Deficit • Disadvantages • Advantages