PATTS College of Aeronautics The Governments Economic Role Discussion
Description
The government has come to play a large role in the economy in contemporary U.S. capitalism. How can one explain the expansion of the government’s economic role? What classes and groups have benefited from this expansion? In particular, How is the capitalist class able to exercise influence over state policy despite being a small minority of the population?
What effect does a capitalist economic system tend to have on the natural environment? Carefully explain why it has these effects. Discuss the various possible methods to solve global climate change.
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class 12
the economy & the
natural environment
3/7/2022
Last Class
?
?
?
Discussed the role of
the government in
capitalism.
Discussed how that
role has changed.
Identified ways that
players pressed for
changes.
2
Todays class
?
?
?
Is capitalism geared
to natural
destruction?
Who wins/loses?
Why?
3
What weve
seen so far
4
Political economy approac
The economy is a series of
labor processes, made up of
human relationships.
The economy is embedded
within the environment.
As the economy changes,
our relationships with
nature and our relationships
5
with people change.
Evolution of
Environmental
Concerns
6
late 19th / early 20th
upper-class concern with
preserving wilderness
Sierra Club. Reprinted from ‘A journal of ramblings,’
privately printed in 1875.”
Library of Congress, General Collections, Manuscript Division, Prints and
Photographs Division, and Rare Book and Special Collections Division
7
1950s-70s
Environmental damage as a health problem
1962
1963
1965
1965
1970
8
1980s to today
Environmental damage as threat to human civilization
Magdoff & Foster (2010): multifaceted, complex, and rapidly accelerating
character of the planetary environmental crisis (p. 25)
Consequences of human-induced increases in carbon dioxide, methane,
nitrous oxide, and other gases from burning fossil fuels?
? Extreme heat, damaging regional ecosystems
? Drought, water shortages leading to crop failures
? Rising sea levels
? Extinction of thousands of species of plants, animals, and insects
? Greater transmission of infectious diseases
? Avoidable exposures to known or suspected cancer-causing agents.
9
Does economic activity lead to damage
of the natural environment? Why?
think
pair
share.
10
How is
capitalism
geared toward
ecological
destruction?
class 8
11
a) Competition compels accumulation which
requires increasing production & consumption.
b) Growing consumption is necessary to create
jobs under capitalism as productivity increases.
c) Growing consumption stabilizes an unequal
system.
12
Profit-driven technological change
Rapid succession of new materials and
processes
Some may be harmful
High likelihood of ignorance effect
13
? The profit motive creates
an incentive to pollute.
? A technology that uses
nature as a free resource
is likely to be cheaper
than one that does not.
14
? Market purchases lead
consumers to choose the
lowest price product, without
knowing the environmental
effect of its production
? Markets encourage
individualistic, short-sighted
decisions.
15
Capitalism and the Environment
The capitalist system introduces a new and
powerful reason for environmental
damage.
A capitalist economic system creates
strong incentives for economic decisionmakers to damage the environment.
16
Who benefits?
Who loses?
Who decides?
17
Why are winners able to impose
costs on the losers?
1.
2.
3.
Losers belong to
future generations.
Losers lack
information.
Losers lack power.
18
Purchasing Power
? Depends on income and wealth
distribution
? Effective demand in markets
? Shadow markets: affects valuation
of benefits and costs
? Affects willingness to pay or
willingness to accept
19
Agenda
Political Power
The power to keep
questions off (or
on) the table.
Decision
The power to prevail
in situations where
people prefer
different outcomes, in
private and public
spheres.
The power to alter the
circumstances that others face
by presenting them as facts on
the ground.
The power to shape
others preferences
to coincide with
ones own.
Event
Value
20
Political economy approac
The economy is a series of
labor processes, made up of
human relationships.
The economy is embedded
within the environment.
As the economy changes,
our relationships with
nature and our relationships
21
with people change.
Does economic
inequality cause
environmental
degradation?
22
The Environmental Impact of
Inequality: Two Hypothesis
? Environmental harm is not randomly
distributed. It follows the distribution of
wealth and power.
? The magnitude of environmental harm
depends on the extent of inequality.
23
1. Write down on a piece of paper a sentence or two
explaining what each hypothesis means, in your
own words.
2. What is the difference between the two?
3. Can you think of an example of each?
24
Hypothesis One
? Environmental harm is not randomly distributed. It
follows the distribution of wealth and power.
? Relatively wealthy secure more benefits
? from pollution in the form of profits and prices
? From environmental protection
? Relatively poor bear higher proportion of costs
? Lower prices and some jobs, not profits
? Environmental justice: Race, not just poverty
25
Hypothesis Two
? The total magnitude of environmental harm depends on the
extent of inequality.
? Societies with wider inequalities of wealth and power tend to
have more pollution.
? Societies with less economic and political disparities tend to
have less pollution.
? When those who bear the costs are relatively more powerful,
they act effectively to reduce pollution.
26
Hypothesis Two
? The total magnitude of environmental harm depends on the
extent of inequality.
? Greater segregation along racial and ethnic lines is correlated
with worse environmental health and outcomes for all groups
? U.S. states with more equitable distributions of power
(measured by voter participation, education, tax fairness,
Medicaid access)
? Stronger environmental policies
? Better environmental outcomes.
27
4. Why does more power
inequality lead to more
pollution (and not just
more unequally
distributed pollution)?
1. Write down on a piece of paper a sentence or two
explaining what each hypothesis means, in your
own words.
2. What is the difference between the two?
3. Can you think of an example of each?
28
DATE: December 12, 1991
Fr: Lawrence H. Summers
Subject: GEP
Dirty Industries: Just between you and me, shouldnt the World Bank be encouraging MORE
migration of the dirty industries to the LDCs? I can think of three reasons:
1. The measurements of the costs of health impairing pollution depends on the foregone
earnings from increased morbidity and mortality. From this point of view, a given amount
of health impairing pollution should be done in the country with the lowest cost, which will
be the country with the lowest wages. I think the economic logic behind dumping a load
of toxic waste in the lowest wage country is impeccable and we should face up to that.
2. The costs of pollution are likely to be non-linear as the initial increments of pollution
probably have very low cost. Ive always thought that under-populated countries in Africa
are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared
to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is
generated by non-tradable industries (transport, electrical generation) and that the unit
transport costs of solid waste are so high prevent world welfare enhancing trade in air
pollution and waste.
29
Sources
? https://www.counterpunch.org/1999/06/15/larr
y-summers-war-against-the-earth/
? Jim Boyce Economics, the Environment, and
our Common Wealth (Elgar 2013)
? Free-use pictures from unsplash.com
? Slide Carnival
30
fys 11/17/21
the economy & the
natural environment
Last Class
? Powerful reasons to pollute in
capitalism
? Who benefits from destruction of the
environment? Who loses?
? Why do losers accept the cost of
environmental damage?
? Power: Purchasing, decisionmaking, agenda, value, event
? How does inequality play a role in the
magnitude and effects of
environmental degradation?
2
Todays class
?
What are possible
responses to the
threats of global
climate change?
3
Response to climate change
?
Denial that
human
economic
activity is
affecting the
climate.
4
Postponement
? Postpone the
response into the
future when society
will be richer and
better able to afford
the cost of
responding to this
threat.
5
Engineering Solutions
? Carbon Sequestration:
Bury carbon dioxide
underground or in the
oceans.
? Sunlight reflectors:
Construct reflective
devices on the ground
or in orbit.
6
Engineering Solutions
? Supporters: This would allow us to continue
burning greenhouse gases.
? Critics: This is impractical on the scale needed
and would risk giving rise to harmful
consequences (earthquakes, killing sea life,
poisoning the atmosphere)
7
Averts ecological disaster
Doesnt cost too much
Equitableburden doesnt fall too heavily on poor
Doesnt threaten jobs
Legislators will vote for it
Doesnt make U.S. uncompetitive in world
economy
Administratively simple
8
Regulations
Rules and standards
Incentive-based
approaches
Taxes
Cap and Permit Systems
9
Types of Regulations
? Mandated technologies
? Source-based standards
? Ambient concentration
standards
? Mandated Disclosure
10
Mandated Technology
Ambient
concentration
e.g., water
standards quality
standards
e.g., catalytic
converters for all cars
sold in the U.S.
Source-based standards
e.g., auto
emission
limits
11
Mandated Disclosure
e.g., U.S. Emergency Planning and
Community Right-to-Know Act (1986)
EPA Toxics Release Inventory
Formal regulation:
information transparency
requirements
Informal regulation:
public pressure.
The abandoned Union Carbide factory in
Bhopal (Raj Sarma)
12
think
pair
13
share.
Regulation: Pros
? Modest administrative and enforcement costs
? Straightforward, easily understood
? The environment is not for sale
14
Regulation: Cons
? How to set the regulations?
? Scope for lobbying
? Bureaucratic discretion
? Appropriate regulations may vary across
locations and/or time
? Marginal abatement costs (costs of complying
with regulations) may vary among firms
15
The Regulatory Process
? Setting the regulations: uncertainty and
incomplete information, scope for reasonable
people to disagree
? Interests and incentives for different parties to
come to different conclusions (e.g., firms v.
environmental NGOs).
16
Regulatory Process
? Contestation at each state of the process:
? Initial hearings
? Drafting of legislation
? Translation of legislative objectives into
regulations
? Enforcement
? Determination of guilt when violation alleged
? Determination of penalties when guilt is
established.
17
Imperfect information
? What is known?
? Who should have the burden of proof?
? The firm?
? The government?
? Example:
Companies have to prove that
their product is safe
Regulators have to prove that
a chemical is harmful.
18
https://www.epa.gov/sites/default/files/2016-06/documents/npwdr_complete_table.pdf
1000s chemicals are
in our water bodies,
drinking waters
less
pressure to consume more
3. Technological change could be directed towards
reducing the workweek.
4. Could direct technological change toward reducing
resource use and waste generation, whether
profitable or not.
36
Potential Advantages of a Democratic
Socialist Planned Economy
? It would not favor private forms of
consumption over public forms of
consumption if that is what citizens want.
? A planned economy can transform the
systems of energy, transportation, and
manufacturing much more rapidly than a
market system. Could make it possible to
avoid going past tipping points in planetary
boundaries.
37
Criticism of Democratic Planned
Socialism
? High cost of radical change
? Belief that a socialist planned economy
? Would be economically inefficient
? Would make citizens dependent on the
state and eliminate individual freedom
38
class 14
inequality
3/14/22
Last Class
? Environmental Policies
? Regulations & Incentives
? Pros & Cons
? Restructuring of the energy sector
? Critics/Supporters
? Restructuring the economy
? Environmental record of socialist
countries
? Potential advantages
? Potential criticisms
You can learn more about the
interactions between the
economy and the environment
and environmental policies in
ECON 205 (Ecological Economics)
and ECON 455 (Environmental &
Resource Economics).
2
Todays Class
? Inequality
? How do we measure inequality?
? Why does the U.S. have relatively high level of
inequality?
? Why has it gotten higher?
? Is a high degree of inequality undesirable?
? What does it mean to be rich?
3
Income: A flow of buying power from all
sources received per period.
Forms of income
wages & salaries, pensions, property
income, government transfers.
4
Wealth: The value of what someone
owns at a moment in time.
Includes
Income-generating wealth
(stocks, bonds) and wealth-foruse (homes, cars).
5
Measuring Inequality
? Quintile table: Shows the percentage of total income
received by the poorest 20%, the next highest 20%,
up to the richest 20%.
? Maximum equality: Each quintile would receive 20%
of total income.
? Maximum inequality: The richest quintile gets all the
income.
6
FIGURE 14.4
Income shares by quintile in the U.S., 1967 and 2014
This f igure shows increasing income inequality among U.S. households from 1967 to 2014. For each y ear, households were ranked by income and then div ided into five equal groups (quintiles). In 2014, for example, the poorest
quintile receiv ed 3.1 percent of total income (less than in 1967), while the richest quintile received 51.2 percent of all income, considerably more than in 1967.
Source: U.S. Census Bureau, Historical Income TablesHouseholds. Table H-2: Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households, All Races: 1967 to 2014, av ailable at
http://www.census.gov/hhes/www/income/data/historical/household/.
Samuel Bow les, Frank Roosevelt, Richard Edw ards, Mehrene Larudee
Understanding Capitalism, Fourth Edition, Copyright © 2018 Oxford University Press
The US has long had a high degree of
inequality of income and wealth.
The US has long had the highest degree of
income inequality among the developed
capitalist countries.
The degree of income inequality in the US
rose sharply during 1979-today, whereas it had
declined gradually during 1948-79.
8
19
20
19
23
19
26
19
29
19
32
19
35
19
38
19
41
19
44
19
47
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
Income Shares of Richest 1% and Richest 0.1% as a Percentage of Total Income
30
25
20
15
10
5
0
Top 1%
Top 0.1%
9
Ratio of CEO Pay to Average Worker Compensation for
Large Corporations in the US
350
331
300
250
200
150
100
50
20.1
0
1965
2013
10
Why does a capitalist system
always have significant
income inequality?
think
pair
11
share.
Why does a capitalist system
always have significant
income inequality?
Ownership of income
generating property is
concentrated among a small
share of the population.
Those who have, get
Some people can work harder
than others.
Some people have good luck
and others have rotten luck.
People have different levels of
talent. Some peoples talents are
valued more than others.
12
Capitalism and Inequality
? A capitalist economy generates two
kinds of inequality:
? Inequality between capitalists and
workers.
? Inequality among workers.
13
Inequality between capitalists and
workers
? In a capitalist economy, a small group owns
the major means of production, and the
majority are wage earners who work for the
capitalists.
? One capitalist: Receives surplus produced by
many workers, in the form of property income.
14
Two Other Classes
? New Middle Class: Those who control the labor of others
but dont own the means of production. (Managers of
various types). They can get high salaries but not as high as
the capitalists who employ them.
? Old Middle Class: Those who work with their own means
of production and supply the labor. They are largely found
in very competitive sectors, and their average income is not
high. Those who are very successful become capitalists.
15
Inequality among Workers
? Capitalism generates a high degree of
inequality among workers.
? Wages depend mainly on the bargaining
power of the workers in a particular
occupation or sector of the economy.
? Bargaining power varies greatly across the
economy -> big variation in wages/salaries.
16
Inequality among Workers
? High bargaining power: longshore
workers, airline pilots, construction
equipment operators, star athletes.
? Low bargaining power: restaurant
workers, clerical workers, nursing home
employees.
17
Determinants of Workers Bargaining
Power
? Presence of a strong labor union
? The technology used. If labor cost is a small
part of total cost, workers have more
bargaining power.
? Education/training, which makes it harder to
replace workers.
? Race and gender minorities and women
have less bargaining power because they face
discrimination in the labor market.
18
What are some factors that
can reduce income
inequality?
think
pair
19
share.
Factors that Reduce Inequality
? Government income maintenance programs boost
?
?
?
?
income of low-income households.
Large sector of public employees: less inequality of pay
in the public sector.
Progressive taxation system redistributes income to
reduce inequality.
Strong labor unions boost wages especially of lower
paid workers.
Low unemployment rate increases worker bargaining
power, especially for low wage workers.
20
Why inequality in the US is high
compared to other countries
? Government income maintenance programs
are less generous and comprehensive.
? Public employment relative to total
employment is lower.
? Labor unions are weaker and represent a
smaller share of the labor force.
21
Why inequality rose after 1979
? Government income maintenance programs cut back
or abolished.
? Many public sector jobs contracted out the private
sector at lower wages.
? Federal taxation became less progressive.
? Labor unions became weaker.
? Unemployment rate higher than before on average.
? Growing competition from low-wage countries due to
22
globalization.
Monthly Benefit per Recipient under Aid to Families with Dependent
Children or Temporary Assistance for Needy Families in 2009 Dollars
$260
$240
$220
$200
$180
$160
$140
23
Federal Hourly Minimum Wage in 2011 Dollars, 19602007
$11
$10
$9
$8
$7
$6
$5
24
Top Federal Marginal Tax Rates, 1952-2007
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Ordinary Income
Capital Gains
Corporate Income
25
Union Members as a Percentage of All Employees,
1973-2012
30%
25%
20%
15%
10%
5%
0%
26
Average Annual Unemployment Rate
6.8%
7.0%
6.1%
6.0%
5.0%
4.8%
4.0%
3.0%
2.0%
1.0%
0.0%
1949-1973
1974-1979
1980-2007
27
Do you think income
inequality is a problem that
should be addressed? Why?
think
pair
28
share.
Arguments that high inequality is not
a problem
? Belief in property rights: Every person should have the
right to keep what he/she obtains in an economy through
her/his own labor, investment, or inheritance.
? Distribution of income is fair in a market economy:
Everyones income is based on the value of his/her
economic contribution.
? Inequality fosters economic growth: Inequality -> rich
have more to invest -> faster economic growth ->
everyone benefits.
? Trickle-down Theory
29
Arguments that high inequality is not
a problem
? Inequality is necessary for incentive reasons: Big pay
differences are necessary to provide incentives for people
to work hard and effectively.
? Equality of Opportunity: Inequality in a capitalist
economy is fair because everyone has an equal
opportunity to get rich.
30
Arguments that a high degree of
inequality is undesirable
? Poverty is a creation of the state. Society has the
right to redistribute income if redistribution has a
social benefit.
? Pay differences are not based on contribution in a
market economy. The huge differences in pay are
not the result of different level of economic
contribution but the result of
? Unequal power relations
? Strategic location in the economy.
31
Arguments that a high degree of
inequality is undesirable
? Higher inequality is associated with slower growth, not
faster growth.
? Several studies have found this result.
? Keynesian argument: Less inequality -> more
consumer spending -> faster growth.
? Innovation argument: Less inequality-> employers
have to pay high wages -> pressure to innovate to
raise labor productivity.
? Cost of inequality argument: More inequality ->
higher cost of maintaining public order -> less output
32
available for productive investment.
Arguments that a high degree of
inequality is undesirable
? Incentive effect requires only small pay differences.
? Equal opportunity is not possible if there is a high
degree of inequality.
? The rich can pass on big advantages to their
children.
? Egalitarian Values: Every member of society has the
right to a decent living standard, along with the
obligation to contribute to economic production
based on her/his ability.
33
Arguments that a high degree of
inequality is undesirable
? Utilitarian Argument: A high degree of inequality
reduces total social welfare.
? Transferring $10 from a rich person to a poor
person adds more welfare for the poor person
than it takes away from the rich person.
? Democratic values: Democracy cannot function if
there is a high degree of economic inequality.
? The very rich are bound to have extra political
power.
34
What is being rich?
Can anyone become rich in
the United States?
Can everyone become rich in
the United States?
35
Not everyone can become rich
? If everyone were rich, no would be rich.
? If everyone were rich, there would be no one
to make the luxury cars, build the mansions,
etc.
? Being rich is not a relation between people
and money.
? It is a relation between people.
? It is the power to make other people make
things and do things for you.
36
Is Equal Opportunity Enough?
Problem with equal opportunity: If the structure of the
economy creates positions with huge differences in pay
and benefits, then equal opportunity would still result in a
high degree of inequality.
37
class 15
global inequalities
3/16/22
Last Class
You can learn more about the history of and
economic implications for race, class, and
gender inequalities in ECON 240 (spring 23).
? Income inequality in the U.S. Also feel free to ask me any
? Historical trends
questions about Economics
course offerings in Fall 2022!
? Basic measures (quintile table)
? Why capitalist systems create inequality
? Between workers and capitalists
? Among workers
? High versus low bargaining power
? Is inequality desirable?
? Policies that reduce inequality
4
Todays Class
? Measures of global inequalities
? What explains these inequalities within global
capitalism?
? Can we identify policies to promote a more
evenly developed global economy?
5
6
7
8
9
10
11
12
Culture
Natural resources
Denmark and Japan: rich + resource poor
Relative incomes change faster
than culture.
DR of Congo: resource rich + poor
13
virtuous + vicious circles of economic development.
The world economy is cumulative. The winners in each round start with
an advantage over the competitors in the next.
14
Economies of Scale
? Biggest producers have
lowest costs and dominate
the market.
? Hard for latecomers to
compete and establish
EOS
? Small countries have
small markets, require
EOS for exporting on
large scale.
Huge start up costs make it difficult for small
firms to compete with already established
companies.
15
Technology Gap
? Firms have little motive to
share technological secrets
? Without best technology, its
difficult to innovate newest
technology
? Hard to attract manufacturing
plants that use latest
technology
? Difficult to risk innovation if
poor (hard to divert scarce
resources away from current
use)
16
Intellectual
Property Rights
? Import price versus
Export price
? Rich countries with
patents can sell at
monopoly prices.
? Seeds + Medicines
The US Supreme Court allowed patenting
seeds in 1980, prohibiting farmers from saving
seeds for additional harvests.
17
Stephanie McMillan,
minimumsecurity.net
Field Guide to the U.S. Economy
18
How can vicious circles be
broken?
think
pair
19
share.
South Korea
? East Asian Miracle
? Established Hyundai
in the 1980s as a
competitor with US
auto industry
? Government
encouragement,
pressure, and
support
20
South Korea
? Infant Industry Support
? Government negotiations of technology
transfers
? Licensing agreement to produce a good
from a foreign patent, meet strict quality
standards
? No competition between Korean firms for
contracts
21
Government Interventions
? Repress labor unions,
keep wages low
? Strict capital controls
? Government directed
private investment of
banks or did public
investment
? POSCO, steel plant,
privatized by 2000
22
What does a country need for
economic development?
think
pair
23
share.
Stability & Peace
Health
Infrastructure
Access to foreign
markets
Education
Well-functioning
government
Financing
24
Skills useful to industry,
agriculture, and public
service
Development during Globalization
? World Trade Organization (est.
1995) enforced seed patents
? WTO makes it difficult to impel
technology transfers
? Benefits rich countries at
expense of poor ones
? IMF loans conditional on structural
adjustment programs include limits
on tariffs, capital controls, and labor
market policies
Stephanie McMillan, minimumsecurity.net
Field Guide to the U.S. Economy
25
R. Jay Magill
Field Guide to
the US
Economy
26
Foreign Investment and
Development
? Multinational Corporations
? Most US investment goes to developed
countries
? Larger markets
? High productivity
? Infrastructure
? Little risk
? Tax Havens
27
28
U.S. Trade Balance as Percent of GDP, 1960-2014
Source: BEA, International Transactions, International Services, and International Investment Position
Tables, Table 1.1 (U.S. International Transactions) and current GDP data, bea.gov
29
Profits outside the U.S. as share of all profits of U.S.-based corporations
Source: U.S. Bureau of Economic Analysis, National Income and Product Accounts, Tables 6.16B, 6.16C, and 6.16D: Corporate pro fits by industry, Line 6:
Receipts from the rest of the world, divided by Line 1: Corporate profits with inventory valuation and capital consumption ad justments; bea.gov.
30
What do you think should be
the highest priorities for a
government of a poor country?
think
pair
31
share.
Purchase answer to see full
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Explanation & Answer:
2 pages
Tags:
economics
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governments economic role
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