Economics Dr.

Katie Sauer

Chapter 8 Reading Guide: The Power of Organized Interests I. Introduction Even when economists reach consensus on policies that would society as a whole economically better off, those policies often run into political opposition. International Trade Example: Economists think: Others think: Many policies that are passed by Congress do not promote the economic interest of society as a whole. Mohair Example: Original intent: No longer necessary when: Removed in ________________________ and reinstituted in _______. How is it possible that the average tax payer didnt notice the mohair subsidy? Why do politicians allow the mohair subsidy?

Ethanol Example: Taxed less than pure gasoline because: Scientists and environmentalists say: The GAO says: Other problems with ethanol: Politicians think:

II. A Theory of Political Behavior When it comes to interest group politics, it pays to be small. Nobel Prize winner Gary Becker theorized that small, well-organized groups are most successful in the political process. Explain why and use ethanol as an example.

Interesting Farming Example: In countries where farmers are a small part of the population, the governments

provide large subsidies for ________________________________________. In countries where the farming population is large, the governments provide large subsidies for ___________________________________________________.

III. The Economic Effects A. Death by a thousand subsidies Each individual subsidy is trivial when compared with the size of the US economy, but they all add up. If the price of milk is too low that some dairy farmers cant make a living without government milk subsidies, then economics tells that the real problem is ___________________________________________________.

B. Regulation Seeking Nobel Prize winner George Stigler proposed a counterintuitive theory:

Public School teacher certification example:

Other aspects of the teacher certification requirement: Private school teachers:

Certification requirements and student achievement:

Illinois example:

C. Tyranny of the status quo 2

Joseph Schumpeter gave us the term creative destruction. Explain how it is good for society as a whole but problematic for some individuals and some firms.

Assistance can be given to the individuals who lose out during the creative destruction process. NAFTA:

Tobacco farmers:

There is a crucial distinction between using the political process to build a safety net for those harmed by creative destruction and using the political process to stop creative destruction in the first place. Pony Express:

The economic benefits of competition are huge and spread over society as a whole; the costs are smaller but are highly concentrated. International Trade is good for American consumers:

International Trade is bad for workers in industries that would be in competition with lowskilled workers from around the globe:

The term Luddite is often used to describe someone who is slow to adopt (or begrudgingly adopts) new technologies. Explain where this term originally comes from.

China used to be the most advance nation in the world. Why wasnt it the origin of the Industrial Revolution?

One institution that has been developed to help the greater good prevail over narrow interest is the Presidents fast-track authority. Explain. D. We are all special interests 3

Authors townhouse association:

There is a saying that goes where you stand depends on where you sit. Give some examples of a group that you are in that has a narrower interest than society as a whole.

Explain what an earmark is.

Would campaign finance reform change anything?

___________________________________________________________________________________ In your own words, summarize the main points of this chapter.