Nov 13, 2006

OUTLINE

The Challenge of Change 
 
I.  The central principles of the founding:  
  A.  Create a 'good society' that benefits all 
  B.  Implement ideals of the Dec. of Independence 
  C.  Design govt to maximize individual freedom,  
      minimize tyranny and anarchy 
  D.  Develop a political economy that provides individual 
      opportunity and general prosperity 
  E.  Establish justice 
 
II.  Jefferson’s World vs Hamilton’s World 
  A.  Shift from rural to urban by 1920 
  B.  American industrialization  
 
III.  Market Weaknesses in a Changing World 
  A.  Imperfect Information 
  B.  Externalities 
  C.  Public Goods 
  D.  Monopoly Power 
  E.  Economic Instability 
  F.  Economic Injustice 
 
IV.  The Rich 
  A.  System greases the skids 
    1.  No income tax 
    2.  Pro-business supreme court 
  B.  Robber Barons 
 
V.  And the Poor 
  A.  Immigration

LECTURE NOTES

Central Principles of the Founding


Create a "good society" that benefits all, not just a few
Implement ideals of the Declaration of Independence: all equal, with same rights, all consent to government
Design a government to maximize individual freedom, minimize tyranny and anarchy
Develop a political economy that provides individual opportunity and general prosperity
Establish Justice

The founders felt there should be large gaps between rich and poor

[previous]

We will be talking about these principles for the rest of the semester

There were 2 different visions of the USA

Jefferson's Vision vs Hamilton's Vision

Jefferson
-agricultural
-independent yeoman farmer
-no masters

Hamilton
-model after great european countries
-great art
-large banks

Deep Change
-by 1920 more people lived in urban places than rural (agricultural places)
-results of rapid industrialization
-population growth
-immigration
-improved life expectancy
-growing consumer expenses

MEDIA CLIP: dawn of 1920s
-entering a new era
-after WWI an eagerness to embrace the new
-Number of millionaires jumped 400% in the 1920s
-America was electrified (to cities) with electric power
-Strong economic growth
-Cars, radios, bridges, roads linking country
-Swinging 20s

Adam Smith believed in a simple market economy with minimal government intervention

In the 1920s in the USA, there was a market weakness called in economics 'imperfect information', and there was a lot of fraud that hurt consumers,

Market Weaknesses in a Changing World
-Imperfect Information
--Growth in market complexity made many of its processes less visible to individuals, increased opportunities for deceit, fraud

MEDIA CLIP: "Don't judge too quickly"
-you can't always trust what you see
-Cat, Sauce, and knife on ground

laws of supply and demand are too simple (farm economy, barter economy)
as the market grew fraud was rampant

in a larger economy there is more than just the buyer and the seller, there are externalities (sometimes harmful)

Market Weaknesses in a Changing World
-Externalities
--Market exchange benefited buyer and seller (A and B), but could also affect third parties (C) in harmful ways
-Public Goods
--Some things benefit those who don't pay for them (free riders). Hence, there is no market for them, and no market signals to indicate how much is needed.


MEDIA CLIP: smokers
-how a 3rd party can be affected by an exchange between a buyer and a seller

Market Weaknesses in a Changing World
Monopoly Power
-The ability of powerful businesses to drive out competition; and the temptation for businesses to collude to limit production, raise prices ("cartels")

MEDIA CLIP: Microsoft
-Microsoft faces anti-trust allegations for its monopoly of the windows operating system
-Bill Gates

Gates was the subject of a lot of negative attention for monopolistic activities in the 90s

Walmart now gets a lot of negative attention for monopolistic activities

Market Weaknesses in a Changing World
Economic Instability
-A side effect of market mechanisms
--Inflation: Rising prices, excessive money in circulation
--Recession: 2 consecutive quarters of decline in gross domestic product (GDP)

MEDIA CLIP: Denver, Colorado in recession
-Recession started in 2001
-1200 layoffs
-denver depends on tourism, but lost 2 billion dollars due to fires
-Denver's budget is funded by sales tax

Market Weaknesses in a Changing World
Economic Injustice
-Unequal distribution of wealth (gap between rich and poor)

MEDIA CLIP: Alex Rodriguez coming to New York
-3 sports players at NY combine for $40 million
-supply of pitchers who can pitch like alex rodriguez are few so they can demand large salaries

There was no income tax in the first part of "the Gilded Age" (rich age, 1920s) so rich people didn't have to give back

At the time the supreme court was pro-business
At the time the supreme court used a due process clause to protect businesses by equating businesses to people

MEDIA CLIP: Vanderbilt family in North Carolina
-Rich woman in the 1920s feed expensive food for their dogs
-before 1913 there was no income tax
-the rich had cash to spare
-if you have it, flaunt it
-Average millionaire had 40 servants
-Vanderbilt is the most expensive house in the USA
-most people worked 10 hours a day, 6 days a week

The Gilded Age really defines conspicuous consumption. Some of the leading rich people in the Gilded age were often called Robber Barons,
-JP Morgan
-Andrew Carnegie
-John D. Rockefeller
-Leland Stanford
Problems:
-Trust crushed competition
-Too much political influence

These businessmen had too much power, they even bossed the government around and crushed competitors
Some political cartoons showed how the rich people were turning into the lords and barons of the 18th century

This was an era of great immigration coming from european countries.

America's contradictory response to immigration
-Pro: Emma Lazarus, "The New Colossus"
-Con: "No Irish Need Apply"

MEDIA CLIP: American tale (cartoon)
-depicts american immigration during this period
-there are no cats in america (not bad things)