American Political Economy

American Political Economy An essay developed as a teaching document for classes in American Government and Public Policy for courses taught at the University of North Florida in Jacksonville, Florida and Middle Georgia State University in Cochran, Georgia. Abstract This paper discusses the nuances of the American Political Economy. In particular it looks at the structural features of the American Economic System as well as the dominant paradigmatic traditions developed by political economists to analytically theorize and methodologically render the contours of the American economic materialscape. Introduction The American political economy has two facets to it; the first is its real world appearance as a manifestation of the type, extent, and degree of interaction between the entities and processes of politics as well as their co-variants in the macro-economy. The second is an analytical endeavor which studies and prescribes political economic theories for application in the before-mentioned real world. In this commentary, we will discuss the definitional background necessary to understand the intricacies of the American political economy. This part is of particular value to those readers who have had only a limited amount of training in economics. Next, we will look at the extant case of the American structural, macro, and micro economies in order to place this commentary within a larger empirical background. Then, we will examine two alternative approaches both for empirical and normative reasons which have been employed to try and understand APE (i.e., the American Political Economy). Finally we will contextualize these broad approaches within the current and historical frames of APE regarding their relationship(s) to political partisanship, ideology, and philosophies of government and governance. Body of the Paper From a definitional standpoint, APE is built off certain categorizing factors these include: (1) levels of analysis for political-economic interactions, (2) a notion regarding the existence of markets in relation to the mode and means of production, distribution, and ultimately, consumption. As well as the idea that, (3) a correlation between economies and political regimes exists which buttresses and in some cases controls the economic manipulations of the time and place in which they occur (Able, Bernanke, and Croushore 2011). Economies are seen to be best understood as being embodied in an inter-related set of structures that exist at ever higher or lower levels of aggregation according to the units of analysis involved. Thus, there is a convention in economics to claim that at the highest level of the world or even of regional levels economies are structurally bound together. An example of this occurs in the modern capitalist world system whereby all units (in this case nation-states), are inter-connected by the free market system of capital exchange. At the next lower level of study lies the nation-state itself, seen in economics terms as the “macro-economy.” At this level, the aggregated economic transactions emanating out of all corporations, firms, banks, households, and even individuals compose the “single economy” of the country as a whole (Able, Bernanke, and Croushore 2011). In the U.S. and other countries, an example of this can be found in the measures of Real Gross National Product and Real Gross Domestic Product. These two measures look at the “amount of worth” that has been accumulated by a nation-state society (like the U.S.) over a period of time (usually a single calendar year) (2011). The U.S. has had the highest GDP (or GNP for that matter) in the world since 1895, making America the single richest country in the history of world civilization (Gordon 2004). Note: the term Real is used to indicate that inflation is being held constant by measuring all transactions in a single year’s currency; this prevents a biasing of the numbers because money actually declines in value over time (usually) due to the relative rise in prices and the increase in wages/salaries that occurs in most economies during times of economic growth (which is most of the time, in most places). Most recently (i.e., 2010), Real GDP in America was about $15T (a macro-economic figure), which accounted for about 20% of the world’s structural economy (Statistical Abstract of the United States 2012, Income, expenditures, and poverty http://www.census.gov/compendia/statab/cats/income_expenditures_poverty_wealth.html). At the next level below the macro, lies the micro; wherein, individuals, households, firms, banks, corporations, or some other economic sub-unit (the unit is the macro-economy of the nation-state) is examined for its contributions to economic growth or decline (Hall & Lieberman 2008). This is an individuated effort and is the most nuanced and hence least understood area of economic study (2008). At this level, you find the most variability, lowest levels of prediction for economic forecasting, and the most contextualized phenomena being influenced as much, if not more, by external as they are by internal factors (2008). The economy that you deal with the most is at this level, it is also the place where political-economy is least present, regardless of the economic and/or political regime in place. Individual and corporate tax rates are applied at this level of economy, wages/salaries are set, adjusted, and made manifest at this level, and purchases for large or small commodities as well as basic living expenses are leveled at this place within the economy (2008). Finally, and as segue into the next section, economic perspectives are felt but largely left unseen at the micro-economic level. The concept of markets is a highly fungible one (meaning many facets and a multiplicity of applications), at its basic notion, a market is a system of exchange, therefore, in the writ large sense most if not all interactions can be thought of as “markets.” However, most economists, political and otherwise, dispute this broad notion by claiming that markets must involve some kind of material transference of resources regarding production, allocation, and distribution (Aspers 2011). What differentiates one market type from another is the extent to which the market transactions are controlled regarding the setting, influencing, or complete abstention from intervention with the supply and demand “curves.” There is a long held notion by traditional and Keynesian economists that there is a natural relationship between supply and demand in any economy that takes on an inverse form—meaning that when one is “up” the other is “down” and vice versa (2011). Marxists and other socialist thinkers tend to reject the above claim noting that ownership of the means and mode of production dominate the conduct of markets (Lukacs 1971). As an example, Marxists claim that capitalism is a distinct mode of production that displaced feudalism in the time of transference between the Middle and Modern Ages and its corresponding development in means was the rise of industrialism and urbanism at the expense of agrarianism and ruralism during the same time period. But, to a traditional or Keynesian this same period is defined as the change in rates of supply and demand as technology, socio-demographic, and political alterations to the societies and polities of the Modern Age began to emerge out of the ashes of Medieval Times. Ultimately, what divides socialists from capitalists is a differing orientation toward the degree of “control” placed over the supply and demand functions of the market place (Swedberg 1994). Socialists call for public control, usually administered by the state, in what is referred to as “the command market economy” (1994). At the opposite end of the spectrum, capitalists call for private control, done through a laissez-faire (meaning “hands off”) approach to ownership of the mode and means of production and allowing the “invisible hand” of supply and demand to dictate the flows of the economy on its own without state intervention, referred to as “the free market economy” (1994). In truth, these are ideal points only as no actual nation-state has ever attained a completely socialized economy, though the U.S.S.R. came close during the time of Brezhnev (1964-1983) and the U.S.A. is often seen as the canonical case of capitalism and has been so since our colonial past. There are two dominant approaches to the study of APE, one is traditionalism which was founded by the liberal philosopher and product of the Scottish Enlightenment—Adam Smith (Harvey 2005). The other also originated in Britain and was associated with the economist John Maynard Keynes during the time of the Great Depression (2005). Both are capitalist promoting theories, however, they differ as to their view of the stability of the free market and the employment of government intervention in order to hold off the negative impacts (called externalities) of “market failures” like depressions and recessions. The traditionalists claim that markets are basically stable and self-adjusting, thus there is neither need nor desire for governmental intervention (Smith 1776). More modern applications of traditionalism (often with a “neo” for new as a prefix), accept some level of intervention but it is leveled at monetary or supply side intervention like manipulating interest rates or promoting tax and spending cuts as stimulation exercises for the economy. Meanwhile, the Keynesians suggest that markets have unstable characteristics and need to be routinely adjusted by a neutral broker which in democratic societies in particular can be the state (Keynes 1936). Specifically, they often offer up fiscal policies built on government spending during lean times and tax rising (to offset the previous spending) during more robust economic times (1936). Later versions (again, with the “neo” prefix), implemented ongoing spending for social advancement of marginalized groups, employing taxes as redistributive mechanisms, and using targeted incentives like tax cuts or specified spending projects to uplift troubled areas, individuals, and groups within the economy in a systematic manner. Over time, the U.S. has tended to follow the traditionalists path more frequently than the Keynesian, however, during the Populist and Progressive Eras as well as the New Deal response to the Great Depression and the New Frontier/Great Society Programs of the 1960’s there was a pronounced turn to Keynesian-esque procedures (Harvey 2005). Recently, in the waning days of the second Bush administration and in the Obama presidency there has been a tendency to return to the Keynesian scheme as exemplified in some of the recent policies regarding increased government regulation of industry and in certain re-distributive mechanisms aimed at the poor, working class, and lower middle class regarding unemployment extensions, expansion of healthcare insurance guarantees, monies for higher and vocational education, increased veterans’ benefits, etc… However, even in these times, there has been almost as much traditionalism with maintenance of the Bush tax cut regime, financial protections, and most importantly perhaps, the bailout of major sectors of the economy including housing and the auto industry. Thus, the U.S. actually practices a mixed bag of neo-traditionalist and neo-Keynesian economic models. However, there is a clear difference in general support levels among elites and masses for these. For instance, Republicans, especially conservatives overwhelmingly favor the traditionalist camp while Democrats and liberals especially tend to favor the Keynesian version. These are some things you should keep in the back of your mind when making assessments on candidate or party choice in the upcoming elections. Conclusion In this short commentary, we have discussed the virtues and perhaps implied some of the vices of American Political Economy. We looked at its structure, its component ideas, and its existence in the real world of politics, economy, and society. Bibliography Able, A., Bernanke, B., & Croushore, D. (2011). Macroeconomics, 7th edition, Boston, MA: Addison-Wesley/Pearson. Aspers, P. (2011). Markets Cambridge, MA: Polity Press. Gordon, J. S. (2004). An Empire of Wealth: The Epic History of American Economic Power, New York: Harper Collins. Hall, R. & Lieberman, M. (2008). Microeconomics: Principles and Applications, 4th edition, Mason, OH: Thomson-Southwestern. Harvey, D. (2005). A Short History of Neoliberalism, New York: Oxford University Press. Keynes, J.M. (1936). The General Theory of Employment, Interest, and Money. London, Eng.: Macmillan. Lukács, G. (1971). History and Class Consciousness, R. Livingstone (tr.), London, Eng.: Merlin Press. Statistical Abstract of the United States (2012). “Income, Expenditures, and Poverty,” http://www.census.gov/compendia/statab/cats/income_expenditures_poverty_wealth.html, accessed on March 29, 2012. Smith, A. {1776 (2003)}. The Wealth of Nations: Introduction by Alan Krueger, New York: Bantam Books. Swedberg, R. (1994). “Markets as Social Structures,” in The Handbook of Economic Sociology, N. Smelser & R. Swedberg (eds.), Princeton, NJ: Princeton University Press.