Political Science 271 (Introduction to American Political Economy)
Professor: Larry M. Hall
9:30-10:45 TR

PURPOSE

Political Science 271 introduces students to the study of the interrelationship of the American political and economic systems. The class focuses most heavily on developing an understanding of the key concepts and ideas that are encompassed in American Political Economy. As well, significant attention is devoted to contemporary policy and institutional problems and potential mechanisms or strategies for improvement. Specifically, the course will investigate problems related to public finance, public goods and externalities, market and government failure(s), and types and theories of taxation and expenditures.

CLASS METHOD

Classes are oriented heavily toward discussion focusing upon the many important concepts and issues surrounding the relationship of government and the market. Class preparation, attendance, and participation are essential. The instructor will facilitate the class; students may be expected to carry the bulk of class conversation.

TEXTBOOKS/READINGS

Joseph Stiglitz, Economics of the Public Sector, 3rd edition (New York: WW Norton, 2000).

William Mitchell and Randy Simmons, Beyond Politics: Markets, Welfare, and the Failure of Bureaucracy (Boulder: Westview Press, 1994).

Virginia Postrel, The Future and Its Enemies: The Growing Conflict over Creativity, Enterprise, and Progress. (New York: Free Press, 1999).

COURSE REQUIREMENTS

The course requirements are as follows:

Two in-class exams (this includes a non-comprehensive final exam): 50%
A mid-term take-home exam: 20%
A extended (10-13 pages, typed) review of the Postrel book: 15%
Class participation and presentations: 15%

1. The In-Class Exams: 50% (25 % each)
Each exam will cover classroom discussions and the readings from the assigned chapters. The tests will entail a combination of short answer and essay questions. The first in-class exam is scheduled for October 10. The second in-class exam is scheduled for the final exam period at 8:00 AM on December 7.

2. Mid-Term Take-Home Exam: (20%)
Students will also complete a take-home exam focusing on issues and problems arising from our discussions of national government expenditure programs. The exam shall be due on November 7 by the beginning of class. Late papers will be penalized.

2. Extended Book Review (15%)
Each student is responsible for carefully reading the Postrel book and developing an extended review of the work as it regards its potential impact on the study and implementation of American Political Economy. The paper must be typed (double-spaced) and approximately thirteen (13) pages long (students may anticipate grade reductions for failure to meet length requirements). The essay is due on November 16 by 5:00 PM. Late papers will lose 10% for each day past due, including weekends. No excuses--repeat, NO EXCUSES--will be accepted for late papers.

The essay will be evaluated based upon such factors as the sophistication of content and argumentation, its coherence and organization, and the degree of thought put into the effort. The review should focus on the relationship of Postrel’s thesis to contemporary American Political Economy. It should succinctly but fully outline and evaluate her central arguments, their strengths and weaknesses, their relevance to modern problems, and their potential for impacting contemporary policy and debate. The essay should pay special attention to the "larger picture," i.e., is the general approach underlying Postrel's thesis the most effective/feasible one given the complex interrelationships that exist across individuals, communities, and nations today?

4. Class Participation/Presentations (15%)
Every student is expected to be a prepared and active participant in class. Obviously, if one is absent or late, he/she cannot meet this expectation adequately. As well, these inappropriate behaviors adversely affect one's colleagues in the class. Hence, each absence will reduce one final participation grade by three (3) points. Each tardy will lower the final grade by one (1) point. Overall participation grades will be determined based upon the quality and quantity of a student’s involvement in the class.

Grade Distributions

Student letter grades will be distributed based on the following divisions:

A	92.5-100
A-	90-92.5
B+	87.5-90
B	82.5-87.5
B-	80-82.5
C+	77.5-80
C	72.5-77.5
C-	70-72.5
D+	67.5-70
D	62.5-67.5
D-	60-62.5
F	Below 60

COURSE OUTLINE

Aug 24: Introduction to the Class and to Political Economy

PART I: Theoretical Foundations of Political Economy

Aug 29: What is the “Public” Sector in a Mixed Economy? Read: Stiglitz, Chapters 1-2

Aug 31-Sept 7: Markets and Governments, as if either Worked Ideally Read: Stiglitz, Chapter 3 Mitchell/Simmons, Chapter 2

Sept 5-7: Market Failure and Welfare Economics Read: Stiglitz, Chapter 4 Mitchell/Simmons, Chapter 1

Sept 12-14: Government Failure and Public Choice Theory Read: Stiglitz, Chapter 7 Mitchell/Simmons, Chapters 3-4

Sept 19-21: Public Goods Theory Read: Stiglitz, Chapter 6 Mitchell/Simmons, Chapter 5

Sept 26: Public Productivity Read: Stiglitz, Chapter 8

Sept 28: Externality Theory Read: Stiglitz, Chapter 9

Oct 3: Politics for Private Gain: Part I Read: Mitchell/Simmons, Chapter 6-8

Oct 5: Politics for Private Gain: Part II/ In class Role Playing Exercise (see below) Read: Mitchell/Simmons, Chapter 9-11

Oct 10: First Mid-Term Examination (In-Class)

PART II: GOVERNMENT PROGRAMS AND ECONOMIC EXPENDITURES

Oct 12: Introduction to Expenditures Issues Read: Stiglitz, Chapters 10-11

Oct 17: Introduction to Health Care Expenditures Read: Stiglitz, Chapter 12

Oct 24: Introduction to Social Insurance Expenditures Read: Stiglitz, Chapter 14

Oct 26: Introduction to Welfare/Redistribution Expenditures Read: Stiglitz, Chapter 15

Oct 31: Introduction to Health Care Expenditures Read: Stiglitz, Chapter 16

Take-Home Exam Provided
Due: November 7 by Class Time

PART III: THEORIES AND FORMS OF TAXATION

Nov 2: Introduction to Taxation Read: Stiglitz, Chapters 17-18

Nov 7: Taxation and Efficiency Read: Stiglitz, Chapters 19-20

Nov 7: Take-Home Exam Due by Class Time

Nov 9: Forms of Taxation: Personal Income Taxes Read: Stiglitz, Chapter 22

Nov 14: Forms of Taxation: Corporation Taxes Read: Stiglitz, Chapter 23

Nov 16: Taxation Reform and Reaction Read: Stiglitz, Chapters 24-25

Nov 16: Postrel Review due by 5:00 PM

Nov 21: Fiscal Federalism Read: Stiglitz, Chapters 26-27

Nov 28: The Issue of Deficits Read: Stiglitz, Chapter 28

Nov 30: Alternatives to the Status Quo Read: Mitchell/Simmons, Chapters 12-13

Dec 5: Wrap-Up Day

Dec 7: 8:00 AM: Final Examination

In-Class Role Playing Exercise
Building a Public Park in a Isolated Community

You represent a household in our isolated neighborhood. Like any rational economic actor, you always seek to maximize your (you and your family) benefits and minimize your costs.

In a recent town meeting (of course, you were there to rent-seek and rent-avoid, so your attendance was a rational act), discussions began concerning how great it would be to have a commonly shared park and recreation area for all folks in the neighborhood. Being the "fair" types, all the discussants thought the only way to provide the park would be to allow open access to everyone. Some individuals (especially some of the children--and, as with any "moral" community, these youngsters' needs receive far greater subjective value), they surmised, are "under-privileged," and these households should not be denied access solely on those grounds--it "just wouldn't be fair." So, the group immediately passed an ordinance making it illegal to deny any law-abiding citizen from using a "neighborhood facility" (like our imagined park).

In a moment of altruistic, moral fervor, several attendees volunteered to do a study to determine how much this project would cost. Their indisputable findings: To build and maintain appropriately the park for ten years would cost the neighborhood 600 dollars. This figure would be unchanged even if new neighbors moved into the community, or if "outsiders" utilized the park, i.e., the marginal cost of adding additional users into the imagined future was essentially zero.

Speeches were given, telling us of the great virtues of a neighborhood park. Kids would play--rather than do drugs, smoke cigarettes, and/or watch MTV. Fat old men would jog. Mothers with six children would sit on the benches with the trees and flowers all around and imagine "what-could-have-been's." Young lovers would picnic on blankets. Dogs would fetch sticks and only bark politely. Chipmunks would frolic, and we would watch with glee. Politicians and preachers would give only entertaining speeches and sermons. Everyone went away from the meeting clear that this park had some doggoned, important value to the neighborhood.

A few among us got so caught up in the fervor that we agreed to direct the fund-raising for the construction project. Surely, with so many benefits to so many neighbors, our task would be a snap. The collective benefit to the community clearly outweighed the small costs of the park! (In other words, from the economic perspective, our willingness to satisfy the collective activity of doing the fund-raising was founded upon the perception that the psychic satisfaction of gratification and prestige gained among our neighbors for a job well done easily exceeded the costs for a task that so clearly would be easy.) If you have a star on your provided card, you were one of those reaching this conclusion. You shall be responsible for fund-raising among your neighbors.

Each "household" is provided a card that expresses your actual demand for the park. To keep it simple, utility for each home is measured in dollars. As there are 16 "households" and the project costs 600 dollars, the average burden would be $37.50 if all parties were to provide equal amounts. Of course, all parties do not value the project the same, though. And the funds are to be collected (initially, at least) by voluntary persuasion and collection.

Obviously, we don't know other households' "demand curves" prior to entering the fund raising. Even after this point, we only know their demonstrated preferences. Each household's goal is to best maximize its outcomes, using whatever economic or political strategies work best.

Let's build our neighborhood park! (Or not.)