sociology 36 hours

Lecture Notes, SOC 1020 Lecture Eleven

Prof. D. Fasenfest

Economy and Politics We live in a capitalistic economy that is founded on the notion of free enterprise. For the most part, despite its problems, our economy succeeds. That doesn’t mean it’s perfect, however. In spite of our great wealth as a nation we have a significant portion of our society living in relative poverty (almost 20%, and more if we use a standard of comfort and security rather than simply measuring those who are unable to provide for their most basic needs), and a core of our society lives in what we call persistent poverty. Clearly the system is not perfect. As a result, we do attempt to put some controls on capitalism. We can see how the system leads at times to excesses and why government involvement is deemed necessary. In the early days of the industrial era in this country (and others—we are focusing on the US) we have a few families, like the Rockefellers, who controlled markets. Using unscrupulous business practices as well as their ability to manipulate supply and demand, they were able to put any competitors out of business. Rockefeller was especial adept at these tactics, though by no means the only one. One example is the way he used the railroad to build a financial empire. At first, he controlled some rail lines and started charging less for freight than it cost him to ship the items, but in doing so he slowly drove his competitors under and then offered fire sale prices to buy up their assets. This continued until he controlled a lion’s share of the track and rolling stock, and then he was free to charge what he wanted with no fear of competition. He needed government support to prevent competitors from getting land right-of-way to lay new tracks and in short order this monopoly allowed him to control other things (remember, in those days there were no trucks or highways, there was no air freight, and for a growing country rail shipping was the only way to transport everything to and from markets). His subsequent control over the rail lines meant he could control the cost of shipping oil, and in this way, he gained a big advantage over other oil producers, soon becoming the largest and richest oil company of his day—Standard Oil, the foundation of many of today’s oil giants. We have since passed laws that make it illegal to have a monopoly on any market today. We also have laws that make price fixing illegal. A few years ago, the formula companies in the US were found guilty of price fixing. Basically, the major companies had agreed to charge the same price for their infant formula. With no true competition in the market, they were free to charge whatever they wanted and soon the costs for baby formula became exorbitant. Unfortunately, families who would most benefit from the economic boost of not buying formula, may have the least ability to breast feed an infant, as this requires either the mom to stay home, or to be provided with a private area at work to express milk several times a day. Formula companies were fined and ordered to pay customers in the class action suit $1500 per child who had been formula age during the price fixing. But is this applied selectively? To find any competitive pricing in gasoline, you have to cross state lines. Michigan on average is 30 cents more per gallon than Ohio. But gas in Detroit more or less costs the same as gas in Flint regardless of which company’s gas station we visit. Do we really have a competitive market in gas pricing? Or is it legally sanctioned price fixing?

Interlocking directorates refers to the fact that a very small group of people serves as directors of a large number of corporations. This means that the same folks in the U.S are making all marketing decisions. This doesn’t mean that every company that practices price fixing. The Walmart phenomenon is much more common in our society. When a Walmart opens in a small rural area, the local business can’t compete and so they close their doors. However, Kmart and Target, to name but two of the large department stores, can compete and do. So while the little business suffers due to “big box” stores like Walmart, the general population gets better deals and more competition in pricing. However, one way these kinds of stores can keep prices down is to keep wages low and not provide benefits. Soon people pointed out the Walmart employees could not even shop at Walmart. We can get a good idea of the problems faced by low wage workers in big box stores in Barbara Ehrenreich’s book Nickel and Dimed One important aspect of our economy is its link to the political system. Our politicians run their campaigns on donations. The backbone of these donations comes from special interest groups and political action groups who can bundle large dollar amounts. These groups are designed to represent and support politicians who represent the goals of their group. This has led to unfair advantages to some political candidates as money flowed into campaign accounts from wealthy contributors. Campaign reform tried to put a check on the influence of such groups as it limits the amount of a single donation to $2,000. There were also limits placed on how much a political action group could give and much one individual could donate. This was done to see that politicians would vote their conscience on issues, rather than being bought and paid for by the wealthy or by very strong special interest groups. We divide our political landscape into conservatives and liberals. Conservatives tend to be viewed as folks who are very personally conservative, believing in family values etc. However, they are technically those individuals who believe in a conservative interpretation of the Constitution. They believe that the political and economic systems work as they should. Liberals believe in a liberal interpretation of the Constitution and argue for providing more social benefits to the population, such as a national health care plan. Another term being bandied about is Centrists…these are folks who fall into the middle of the spectrum for the most part, though they may lean more in one direction than the other. I took an online test that my sister sent me…she believes that I am a bleeding-heart liberal…and it indicated that I am a Libertine. A Libertine believes in a government that provides the basic needs for its citizens…health care, education, etc…. but also believes in a lot of personal freedom for the citizenry. Many recent candidates have been called Centrists…i.e., liberal Republicans or conservative Democrats. We are now faced with some real hard economic choices in the political arena. Anyone watching political news has heard about the problems of providing health insurance to everyone so that the most common problems do not become catastrophic problems. The most obvious in the current political environment is how we make economic choices when balancing political decisions. How do we compare one set of political goals against another set of economic realities? Without taking a specific position, the American Friend’s Service (commonly known as Quakers) make a case against war, any war, on the grounds that it costs a lot more than the sacrifices of men and women carrying out government policy. We don’t need to debate the merits of going to war, but we should always consider what economists call the opportunity costs

of spending money in different ways…this http://www.youtube.com/watch?v=Wnq6cD5jk1Q is their contribution to the calculus we are making whether or not we know it. Any society is making implicit choices as it spends its resources. If all of us, through our elected officials, knowingly say—yes, that is what we want to do, then so be it. But we must also ask who was confronted with the social and economic alternatives when assessing the decision to go to war? During the Second World War a national dialogue determined that the objectives were so important everyone agreed to sacrifice—though it was shown that many profited from the war effort (and a large part of those people were punished with fines and/or imprisonment). Do we always have national discussions or debates about how to spend our collective wealth? Today we face similar challenges and choices. This country has spent untold billions of dollars in military aid to Ukraine in response to Russia’s invasion. No one thinks coming to their aid is a problem. But what is a problem is that on one hand we have no question we can spend those dollars for military aid and at the same time we do not have the money for childcare programs, early education, housing needs and other serious social problems. Part of the reason is that somehow people in the government have decided this military spending is not part of our “budgeting” process while social services must be “paid for” somehow by either increasing taxes or shifting funds from other programs. Whether we like it or now, we are making choices or rather choices are made for us. Clearly in an environment of choice we often must decide on one program versus another. We have seen the consequence of the health care problems in this country and that is another set of choices. What we must keep in mind is that all political choices have economic consequences, and all economic actions have political ramifications as well as political origins. We must be educated so that we can make good political choices—and then we can agree to live with the consequences of our choices. However, as this chapter shows, the connection between the economy and politics is a tricky one and even the highest minded can make mistakes that have deep consequences for us all. We are now embroiled in a discussion about costs of government, revenues, and resources. The question raised is should we reduce the deficit, and how to do it? What programs need to be cut, but at the same time who should carry the burden? What is the responsibility of any government to its citizens and who/how id a fair share determined? Do we want to live in a society where a company like Exxon/Mobile can have billions in profits and not owe or pay any taxes? What does it say about our society when the top 74 earners (yes, that is seventy-four individuals who declare an earned income to the Social Security Administration) have a combined income equal to the bottom 19 million earners in this country?