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Course 3: American Job Security
1 The National Self Governing Will 3: American Job Security
Table of Contents
I. Introduction ............................................................................................................. 3 II. The Wealth of Nations ............................................................................................. 3 ◦ Debt and Effect ............................................................................................ 4 III. Prosperity and Job Security ................................................................................... 8 ◦ Cap-and-Trade Energy Taxes ..................................................................... 8 ◦ Government Bailouts and American Free Enterprise................................ 9 ◦ Prosperity and Job Security ...................................................................... 10 IV. Economics & the Basics of Prosperity.................................................................. 11 V. The Keys to Prosperity ........................................................................................... 13 VI. A Nation of Takers, Not Makers .......................................................................... 29 VII. A Path to Prosperity ............................................................................................ 31 ◦ Debt Worries of the (Near) Future............................................................ 35 ◦ For Further Reading.................................................................................. 35 VIII. Protecting Your Prosperity ............................................................................... 36 IX. Glossary of Terms ................................................................................................. 37
$15,155,585,220,522 - US National Debt: http://www.usdebtclock.org/ “When people have the right information, they will make the right decisions.” - Thomas Jefferson What affect does Washington have on job security? In truth, everything. Unemployment numbers can be tied to economic policies. These policies are the rules and regulations that we covered in the previous course. These policies often make it more difficult for business to create jobs and force an increase in unemployment or underemployment. Therefore job security - your personal security for your Self Governing Will of independence and to ‘make your way’ in the world - is inevitably tied to American civil policy. By this time in the subject you certainly are drawing the comparisons of the development of the National Self Will to the personal will. The nation, like young Benjamin Franklin, is a canvas of creation and will. To be able to draw a landscape, the correct policy must be available, or the paint will simply dry up. Just as patriots of the young nation had a duty to their nations will to independence, the nation - and its elected civil servants - have a duty to ensure the will of the individual, the will to thrive.
II. The Wealth of Nations
One way to frame job security is to go back sometime and take a look at Adam Smith’s ‘The Wealth of Nations’. When demand exceeds supply, the price goes up. When the supply exceeds demand, the price goes down. Simple concepts of supply and demand are taken into the context of job creation in a global free market.
"A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate. The price of monopoly is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion, indeed, but for any considerable time together. The one is upon every occasion the highest which can be squeezed out of the buyers, or which, it is supposed, they will consent to give: the other is the lowest which the sellers can commonly afford to take, and at the same time continue their business." “By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never 3
known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.”
What Smith is stating here, the economic genius that he of course is, is that free market enterprise is the driving ‘hand’ the driving force of economic growth and security. What stymies this hand is policy which makes it unprofitable or impossible to do business. The result of this is the transfer/loss of jobs overseas, or else, bankruptcy. Government of course does not create jobs. It is the companies of the country that create jobs and help to ensure economic security of the nation, and with that, economic security of the people of the nation.
Debt and Effect
This course started off just minutes ago with a quote of the current national debt. This was literally just moments ago. Already, millions in debt have accrued to this total, now at $15,155,672,211,455. Imagine a ticking clock…or is it a ticking time bomb. Based on global collapses in 2011, most notably in Greece, the effects of a debt is alarming and cause for immediate concern. National debt is affected by domestic policy, budgeting and spending. We have not always been in debt. In 1835 Andrew Jackson made the final installment of national debt making Andrew Jackson the only president of a debt free United States. A bit of history on old hickory. Andrew Jackson was the seventh US President (1829-1837) and was born March 15, 1767 in a log cabin on the frontier between the Carolinas. He was the first President not born of wealth, a fact that was not missed by the common people, who loved him. In addition to his presidency, Jackson was known for his military successes and for laying the groundwork for the modern Democratic Party. Because of his toughness and his fiery iron will, he was given the nickname "Old Hickory." Jackson's father died days before his birth. One brother was killed in the Revolutionary War, while his other brother and mother died of smallpox. At the age of fourteen, Jackson was orphaned. His grandfather had left him an inheritance of $300, which Jackson used to study law. Later he moved to Nashville, Tennessee, where he began a practice. In 1791, he married Rachel Robards, who, although she thought she was divorced, was still married to someone else. The Jackson marriage was re-consecrated when Rachel's divorce was legal. In 1796 Andrew Jackson was elected as Tennessee's delegate to the United States House of Representatives. The next year he was called upon to fill the unexpired term of his state's Senator. In 1798 he retired to private life, vowing never to return to politics. Within a few years he was appointed a state superior judge, and from 1804-1812 he worked on his plantation, the Hermitage, raising horses. He was known as a man with a
fast temper and was often drawn into fights and duels, many of them over comments about the irregularity of his marriage. In 1802, Jackson was a general of the Tennessee militia. Jackson fought in the Creek Indian Wars, during which he wrested twenty three million acres of land from tribal people. He was given the rank of major general by President Madison and commanded forces in the War of 1812. In 1815, with a mere 5,000 troops, he defeated a British force of 10,000 in the Battle of New Orleans, while sustaining only twenty losses. This was one of the worst British defeats in history, and it made Jackson a national hero. In 1818, he led an attack against the Seminole Indians and captured Pensacola, involving the United States in conflicts with both Spain and Britain. Jackson claimed that the British were using the town as a base, and he executed two Englishmen for inciting the Indians. His success in Florida influenced Spain to sell the territory to the United States. In 1819, John Quincy Adams completed the purchase of Florida, and in 1820, Jackson was appointed Governor. In 1823, he was elected Senator from Tennessee, and in 1824 the Tennessee legislature nominated Andrew Jackson for President. Although Jackson received the most votes, he lost the election. Because no candidate had received a majority of the votes, the contest was decided in the House of Representatives. John Quincy Adams was declared the winner amidst allegations that his Secretary of State, Henry Clay, had influenced the election in a "corrupt bargain". After that unsuccessful bid, Jackson won the election of 1828 as a Democrat. He and Martin Van Buren were responsible for creating the political organization that was the basis for the modern Democratic Party. Andrew Jackson believed the presidency represented the will of the people, and, as such, should have broad authority. He was widely criticized for expanding the power of the presidency. He was known for rewarding his political supporters with government jobs. When reproached, he responded by claiming he was replacing aristocrats with the common man. It was Jackson who coined the phrase "To the victor go the spoils," and thus the spoils system of politics was born. The edge was taken off Jackson's victory when, shortly after the election, his wife died of a heart attack. Even though his supporters were wealthy landowners, bankers, and businessmen, to the public Jackson was "the peoples' President." He held meetings in the kitchen of the White House, and those present were called the Kitchen Cabinet. Jackson vetoed more bills than all previous Presidents combined. His denial of a bill to re-charter a Second Bank of the United States was an important issue in the 1832 election, in which he defeated Henry Clay. States Rights was a volatile issue until Jackson threatened to send federal troops into states that would not collect tariffs. Jackson used these monies to close the Second Bank and pay off the National Debt. Speculation in western lands caused Jackson to issue the Specie Circular, which required all public
lands to be paid for with legal tender, which at the time was either gold or silver. This accelerated the Panic of 1837. Andrew Jackson was loved by the common people and, at the same time, hated by his political enemies, who sometimes referred to him as "King Andrew I." He was a great war hero who became associated with increasing participation of the common man in government; yet his enemies in the Senate accused him of being dictatorial and acting in ways that were unconstitutional. They even voted to censure him, and he was the first President to receive such a rebuke. Jackson and his friends fought for three years before finally having all evidence of the censure removed from the Senatorial Record. Before the next President Martin Van Buren was sworn into office, Jackson saw that the run on the banks leveled out and did not wipe out the country as anticipated. He was more popular when he left the presidency than he had been when he was elected. His legacy may not match that of the greatest Presidents, but he did strengthen the two-party system through his shrewdness. He also proved that being a common man and a military figure are factors that attract voters. On Jan. 8, 1835, all the big political names in Washington gathered to celebrate what President Andrew Jackson had just accomplished. A senator rose to make the big announcement: "Gentlemen ... the national debt ... is PAID." That was the one time in U.S. history when the country was debt free. It lasted exactly one year. By 1837, the country would be in panic and headed into a massive depression. We'll get to that, but first let's figure out how Andrew Jackson did the impossible. It helps to remember that debt was always a choice for America. After the revolution, the founding fathers debated whether or not to just wipe clean all those financial promises made during the war. Deciding to default "would have ruined our credit and would have left the economy on a very agricultural, subsistence basis," says Robert E. Wright, a professor at Augustana College in South Dakota. So the U.S. agreed early on to consolidate the debts of all the states — $75 million. During the good times, the country tried to pay down the debt. Then there would be another war, and the debt would go up again. The politicians never liked the debt. "What the battle was really about was how quickly to pay off the national debt, not whether to pay it off or not," Wright says. But, just like today, it was not easy for politicians to slash spending — until Andrew Jackson came along. "For Andrew Jackson, politics was very personal," says H.W. Brands, an Andrew Jackson biographer at the University of Texas. "He hated not just the federal debt. He hated debt at all."
Before he was president, Jackson was a land speculator in Tennessee. He learned to hate debt when a land deal went bad and left him with massive debt and some worthless paper notes. So when Jackson ran for president, he knew his enemy: banks and the national debt. He called it the national curse. People ate it up. In Jackson's mind, debt was "a moral failing," Brands says. "And the idea you could somehow acquire stuff through debt almost seemed like black magic." So Jackson decided to pay off the debt. To do that, he took advantage of a huge realestate bubble that was raging in the Western U.S. The federal government owned a lot of Western land — and Jackson started selling it off. He was also ruthless on the budget. He blocked every spending bill he could. "He vetoed, for example, programs to build national highways," Brands says. "He considered these to be unconstitutional in the first place, but bad policy in the second place." When Jackson took office, the national debt was about $58 million. Six years later, it was all gone. Paid off. And the government was actually running a surplus, taking in more money than it was spending. That created a new problem: What to do with all that surplus money? Jackson had already killed off the national bank (which he hated more than debt). So he couldn't put the money there. He decided to divide the money among the states. But, according to economic historian John Steele Gordon, the party didn't last for long. The state banks went a little crazy. They were printing massive amounts of money. The land bubble was out of control. Andrew Jackson tried to slow everything down by requiring that all government land sales needed to be done with gold or silver. Bad idea. "It was a huge crash, and the beginning of the longest depression in American history," Gordon says. "It actually lasted six years before the economy began to grow again." During the depression, the government started borrowing money again. No one says that paying off the debt caused the depression. The bubble was going to pop sometime. But the result was that we had to kiss a debt-free U.S. goodbye. The country never came close again. Fast Forward now to Friday 8/5/11 when the Standard & Poors removed the US’s AAA credit rating, lowering it to AA+. The immediate effects of this were dramatic and spirit breaking. On Monday, 8/8/11 - the first day of trading on the stock market - stocks fell over animosity by over 600 points - costing the US $2.3 trillion dollars in one day. At that moment, the national debt stood at $14.33 trillion dollars. To add to the insult it was announced that Apple had more cash than the US. The National Debt has continued to increase an average of $3.96 billion per day since September 28, 2007.
III. Prosperity and Job Security
The formula for prosperity has been made clear throughout history. Limited government and individual liberties are the foundation of American economic dominance. In the American system, governments are supposed to operate within constitutional limits. Governments that do so behave in predictable ways, allowing businesses and families to plan for and take economic risks without fear of interference. Government takeovers of entire industries, like health care, and unnecessary regulatory schemes, like cap-andtrade, exceed constitutional limitations and harm overall prosperity because of the uncertainty of government intervention. A government dedicated to individual liberties is one that understands that private property is to be protected, not taken or taxed. When they are allowed to make decisions about their own lives and property, people will make some bad decisions along the way. But on the whole, individuals will make better decisions than government institutions. Obviously, people never have complete control over their property - government always takes some of it in taxes. Government does have a role to play, but we must remember that taxes always limit freedom. Every dollar government spends is one that an individual who worked for it cannot spend as he or she wishes. Government must be a wise steward of our tax dollars and it must provide society with fair rules by which to play. A stable set of guidelines is necessary, as is a national defense, but government takeovers and big government spending are not. They harm good, taxpaying citizens, and they harm the economy as a whole. A controlled and scaled government will help to promote individual liberties and increase America’s prosperity. A controlled and scaled government will also help to control spending, and hopefully, reduce our national debt.
Cap-and-Trade Energy Taxes
An example of a government policy and it affect on job security is Cap and Trade. The cap is an enforceable governmentally mandated limit on emissions that is usually lowered over time, aiming towards a national emissions reduction target. The limit or cap is allocated or sold to firms in the form of emissions permits which represent the right to emit or discharge a specific volume of the specified pollutant. Firms are required to hold a number of permits (or carbon credits) equivalent to their emissions. The total number of permits cannot exceed the cap, limiting total emissions to that level. Firms that need to increase their emission permits must buy permits from those who require fewer permits. The transfer of permits is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. Thus, in theory, those who can reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest cost to society. There are active trading programs in several air pollutants. For greenhouse gases the largest is the European Union Emission Trading Scheme, whose purpose is to avoid dangerous climate change. In the United States there is a national market to reduce acid
rain and several regional markets in nitrogen oxides. Markets for other pollutants tend to be smaller and more localized. Cap-and-Trade energy taxes have resulted in the pilfering of nearly $1 trillion from the private sector. Here is a bit more information on Cap and Trade as a history. o The U.S. House of Representatives passed the Waxman-Markey cap-and-trade bill on June 26, 2009. The U.S. Senate has been unable to pass companion legislation but they continue to try. o According to the nonpartisan Congressional Budget Office, the Waxman-Markey bill would increase government revenues by $846 billion. o Politically vulnerable companies would be forced to buy permits in order to stay in business. They would have to pass these costs along to you, the consumer. o The National Association of Manufactures and the American Council of Capital Formation conducted an intensive study and found that by 2030 the WaxmanMarkey bill, if passed, would: • Destroy between 1.8 and 2.4 million jobs • Drive up electricity prices by up to 50 percent • Hike gasoline prices by up to 26 percent o In addition to the national efforts, cap-and-trade advocates are working to ensure states are involved in three regional cap-and-trade energy tax programs. o For more information on Waxman-Markey and cap-and-trade, visit: • http://blog.heritage.org/?p=36369 • http://www.aei.org/outlook/100057
Government Bailouts and American Free Enterprise
Under a free market, which America was so defined and created as, the most efficient businesses would thrive and competition would drive job creation, new inventions, and improved quality of life. However, this premise of free enterprise where businesses work diligently to thrive or suffer the consequences of their failures is being fundamentally destroyed by bailouts. o General Motors, AIG and Citigroup became the most well known recipients of bailouts funds, collecting more than $300 billion. These companies are still largely owned by the federal government. o The financial reform bill passed in 2010 institutionalizes bailouts by providing unlimited access to Treasury funds to “wind down” firms that are deemed to be unstable. o Congress seeks more bailouts beyond Wall Street to make small businesses reliant on Government subsidies as well. Congress is working to pass a roughly $30 billion package for small businesses. o Unlike the federal government, most state constitutions require balanced budgets.
For more information on the bailouts, visit: o http://www.aei.org/article/101890 o http://www.cato.org/pub_display.php?pub_id=11586 Really the key here is that a free market operates just as the young nation of America was designed to, with the American value of Self Governing Will. In a free market job security becomes a reality because jobs are created by the thriving business and innovation that improves lives. We must then be wary of government spending. o Despite claims that the $862 stimulus package would keep unemployment below 8 percent, the country has continued to struggle and unemployment went over 10 percent. These stimulus plans do have a price tag, which attaches itself to our national debt. o The 2010 budget: • Borrows 42 cents for every dollar spent • Runs a $1.6 trillion deficit (for only one year) • Projects the national debt to over $18 trillion • Spends $36,000 for every household o On average, private sector employees made $61,051 in 2009, which is less than half of what the average federal civilian employee made ($123,049) in the same calendar year. o For more information on the stimulus, visit: o http://nostimulus.com/?q=fact s o http://blog.heritage.org/2009/01/27/stimulus-101-the-pelosi-reid-obamadebtplan/ o http://politicalticker.blogs.cnn.com/2010/01/08/u-s-unemployment-ratestays-at-10-percent/ o http://www.whitehouse.gov/omb/budget/Overview/ o http://www.reuters.com/article/idUSTRE60U00220100201 o http://www.cbsnews.com/stories/2010/08/10/eveningnews/main6761340.s html
Prosperity and Job Security
Prosperity. We all want prosperity - we all work for it at Menards. We want to dream, create, achieve, and prosper. But how is prosperity created? How is it protected or destroyed? Why are some countries prosperous and some in a state of economic chaos? What conditions need to be place in order for citizens to personally prosper? The answers may surprise you. Our Founding Fathers came from a variety of economic, educational, and occupational backgrounds. However, their combined years of experience led to a collective wisdom that was innovative, revolutionary, and visionary. They envisioned a society that would
offer economic freedom to all; a society that rewarded new ideas, hard work, and an entrepreneurial spirit of discovery and creativity. It was an experiment, but it worked. The American Experiment was launched, and in just a few short years, America became a leader in the world economy. It may seem surprising but our nation’s founding documents provide a valuable road map to economic prosperity. The time-proven values of individual freedom, limited government, and free enterprise have served to guide the United States into economic prosperity and global leadership. We are the nation that people will risk their lives to reach, the nation that offers opportunities to all, regardless of creed and color. The values embodied in our founding documents and the liberties have become a guiding light. Every American can benefit from understanding the founding principles that made our nation great. Our documents of freedom are easily accessible, easily understood, and timeless in their relevance to our daily lives.
IV. Economics & the Basics of Prosperity – by Herman Cain1
“Prosperity” is not a dirty word. Our founding fathers had prosperity in mind when they founded this country on the principles of life, liberty, and the pursuit of happiness. They believed every man, woman and child should have an opportunity to pursue their dream – the American dream. Prosperity is exactly what was intended when this great country was founded. This section will include: a basic explanation about profit and economics and will include candid truths about national, corporate, and personal prosperity. Let’s start with the basics: What is Profit? Profit is the difference between production cost and retail price. Put simply, it is the difference between the cost to produce an item and the final selling price. Profit margin is your profit dollars expressed as a percentage of your retail price. Let’s look at an example: Retail price of Product A Cost to produce Product A Profit Profit Margin % $100.00 $90.00 $10 10%
Let’s say you are entrepreneurial enough to hold costs down to $75.00 in the above example, or to sell Product A for $115.00. Your profit would jump to $25.00 and your profit margin to 25%.
This section is prefaced from Herman Cain. 11
Different businesses have different levels of profit and different levels of profit margins. Some businesses make more profit and some make less. Why Must a Business Make a Profit? When a business does not make a profit it is broke – it is without any money. If a company is broke it will eventually be bankrupt and/or it will shut down and close. Broke, bankrupt, or non-operating businesses cannot create jobs, hire people, or maintain positions for current employees. Businesses that do not make money (profit) do not pay taxes. Businesses that do not make money (profit) are responsible for all the taxes collected by the government. Thus, businesses making a profit provide money to the government for essential government functions. Whether you look at it from the point of the worker or the government, making a profit is a good thing. Making more profit is a better thing. What Limits Profit? Remember our earlier example of profit margin? Anything that increases the cost of producing a product, or decreases the price someone would pay for the product, makes profit smaller. Taxation, regulation, and legislation can all have this affect on businesses and make it more difficult for a business to make a profit. Burdensome taxation, regulation, and legislation will, in the end, negatively affect all of us. They make profits smaller, and smaller profits mean fewer jobs and less tax revenue collected by the government. What is the Free Market System? Our economy is based on the simple principle of supply and demand – businesses will make only what the market wants and sell it only at price the market can bear – with as little government interference as possible. America has the greatest economy in the world because of the free market system. However, our system is gradually changing to include more regulation and taxation by government, and that is not good for business. If you look back at our history, people exercising their free will in a free market system is what made this country great. But it is under attack by too much legislation, regulation, and taxation. This has been increasing over decades, but today it is out of control. We must work to get it back under control where we have limited government and limited taxes to protect our prosperity for today and tomorrow. This is necessary to ensure our children and grandchildren can achieve their American dream. What Can You Do? There are three things you can do to protect your personal prosperity. First, you can become informed about threats to your prosperity. Secondly, be involved. Register to vote and make sure you vote in elections. You can be involved by being connected to an
organization that reflects your values and helps to express your view. Last but no least, be impactful. Voting makes an impact, but also be ready to protect your right to prosperity with your voice. Your voice and your votes are the two major weapons you can use to make sure we get this nation back on track. What is Your Responsibility? My father left the farm at the age of eighteen, with just the clothes on his back and the dream to give his own children a little bit better start in life. He did provide us with better opportunities – thanks to his hard work, his free will, and the free market system that enabled him to chase his American dream. This is probably a very similar story to the dream your parents had and perhaps it is your dream. He believed, as I do, that this is the greatest country in the world because of free men with free will and free markets – but we have to keep it that way. It is our responsibility not only to us, but also to our children and grandchildren and all the future citizens of this great country.
V. The Keys to Prosperity2 - By Stephen Moore & Tyler Grimm
Supply (how much of something is available) and demand (how much of something is wanted) drive every economy, but the degree to which government interferes with this process affects prosperity. History shows us that when government policies interrupt business activities, even with good intentions, it almost always results in unintended consequences that hold back growth. American economic policy is in the midst of its darkest days. The financial crisis of 2008 left the country desperate for solutions. In early 2009, President Barack Obama told us, “Only government can break the vicious cycle where lost jobs lead to people spending less money which leads to even more layoffs.” Nine months into government’s attempt to stimulate the economy, 4.5 million fewer Americans were working than when he was elected. Our country is now in the middle of an experiment based on broken economic premise: government can drive demand and stimulate growth. This experiment was inspired by the ideas of John Maynard Keynes, who in the 1930s suggested that when the economy suffers a major downturn, we should pay workers to dig ditches and then pay them to fill them again, in order to get money circulating in the economy. This foolish concept was the rationale for the Obama administration’s ‘Cash for Clunkers’ program which paid Americans $3,000 to $4,000 to trade in their old cars and buy a new car with better gas mileage. The program was wildly popular as Americans rushed to new car showrooms to get their check for often ten times that tradein value of their car. It was like winning the lottery. But taking good cars off the road and destroying them so people will buy new cars makes
This section is prefaced from Stephen Moore & Tyler Grimm 13
as much economic sense as paying Americans to burn down their houses so that construction crews could be put to work building new ones. The Henry Hazlett book, “Economics in One Lesson” proved this theory wrong. Mr. Hazlett reminded us that there is no wealth created by taking rocks and sledgehammers and breaking the windows of every building in order to put people to work and pay them handsomely to build new ones. Real and sustainable economic growth is generate by businesses competing with each other to provide goods and services for willing buyers, in the most efficient way possible. It is not generated by businesses striving to take advantage of government financial assistance. The keys to prosperity are simple and timeless: low taxes, a strong dollar, free trade, and low regulation. Ronald Reagan understood this formula better than any president in recent history. The tax cuts that took place under the Reagan administration were largely inspired by his experience as an actor. Reagan explained that actors in his day would only make three movies a year. If they made a fourth, their tax rate would go up to such a point that it would be unprofitable. Reagan knew that the same logic applied to other sectors of the economy and in August of 1981, he signed into law the largest tax cut in history. He also controlled inflation with Paul Volker at the helm of the Federal Reserve and quickly lifted many burdensome regulations. This was the beginning of the greatest period of prosperity in the history of the world. Between 1981 and today, more wealth has been created than in the prior 200 years. We can only get back to the path to prosperity when economic thinking goes beyond politics. Good ideas do not come from Republicans or Democrats, they come from leaders willing to put America’s prosperity before special interest groups. John F. Kennedy’s supply side tax cuts in 1961 serve as a shining example of good policy overcoming partisanship. President Kennedy knew that high tax rates were restricting growth so much that the federal government could increase revenue by cutting taxes. “It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rate will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise he revenues in the long run is the cut the rates low. “ In the Reagan era, conservatives advocated a theory known as “starve the beast,” which held that by cutting taxes and therefore “starving government of revenue”, government would have to shrink. We are now in the midst of what seems to be a “feed the beast” mentality. Washington is spending so much money that taxes will inevitably increase. The debt is currently an unprecedented $15 trillion. You might be surprised to learn that this does not include the $56 trillion in unfunded promises that will have to be paid if
entitlement programs like Social Security and Medicare are not reformed. While the spending stops growth now, the real victims are future generations who will face high tax burdens to pay for our generation’s economic mistakes. We cannot spend and regulate our way to prosperity. If this was possible, Japan would not have lost a decade of economic growth and China may have leapt forward instead of into famine under Mao. Hopefully, the consequences of American policymakers’ latest flirtation with big government will serve as a lasting lesson. The only true safeguard for prosperity is constant watchfulness against policies that misguidedly seek to use government intervention as a shortcut to economic growth. “In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.” - John F. Kennedy
The Greatest Story Never Told
S&P 500: Nominal vs. Real Price Appreciation: January 1960 – October 2010
Past performance is no guarantee of future results. Source: Laffer Associates, Monthly Report based on Data from Standard and poor’s. * Note: Inflation adjusted S and P is defined as the stock market returns adjusted each year for the change in the inflation rate.
High inflation undermines growth. When you adjust the stock market for inflation, it is easy to see that inflationary periods had only artificial growth.
Tax Cuts Attract Capital
Source: Bureau of Economic Analysis, Table 1.1: International Transactions
After the Reagan tax cuts in 1981, investors the world over flocked to America with their capital.
Share the Wealth?
Top Marginal Income Tax Rates and Income Tax Share for the Top 1% of Earners 1970-2006
Source: IRS Tax cuts increase the incentive to work and invest. This is especially true when the potential rewards are greater. As marginal tax rates came down, tax revenue went up as a result of robust growth.
Bottom 95 Percent Pays Less than Top 1 Percent
Source: Internal Revenue Service, Statistics on Income, “Number of Returns, Shares of AGI and Total Income Tax, AGI Floor on Percentiles in Current and Constant Dollars, and Average Tax Rates,” Table 1. Available at: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html
Many people love to say that the rich are not paying their fair share. How many of them are aware that for the first time, the top 1% are paying more in personal income taxes than the entire bottom 95%?
Rich Pay More Than Their Fair Share
2007 Income and Income Tax Shares
Source: Internal Revenue Service, Statistics on Income, “Number of Returns, Shares of AGI and Total Income Tax, AGI Floor on Percentiles in Current and Constant Dollars, and Average Tax Rates,” Table 1. Available at: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html 17
But the rich earn more, so they should be paying more in taxes. The reality is that the share of income held by the top 1% is very disproportionate to the amount of income tax paid. The top 1% pays far more in taxes than they earn.
The Laffer Curve
Art Laffer’s legendary napkin sketch, the “Laffer Curve,” started a pro-growth revolution. When tax rates are too high, they prohibit growth and decrease the incentive to work, save and invest. Decreasing marginal tax rates increases these incentives and, by growing the economy, can also increase revenue. Government transfers are money given to individuals by the government, not earned through work; notably the various government welfare programs. These transfers are now at an all-time high as a share of personal income. At the same time, the burden of government on working Americans has sky rocketed. Why work for what the government will give you to sit on the couch?
The Laffer Curve
Real Federal Revenues and the Top Marginal Income Tax Rate
As top marginal tax rate have come down, federal receipts have gone up. This chart is vindication of the Laffer Curve.
Inflation Rate, 1950-2010
The 1970s saw double-dip inflation as a result of loose-money policies of President Carter and Ford. This high, corrosive inflation only subsided after Ronald Reagan appointed Paul Volker to bring sound money policies as Federal Reserve Chairman. As the next chart shows, high inflation is a looming threat to future prosperity.
Show Me The Money?
Year on Year Monetary Base Growth, bi-weekly, percent, Through August 2009
Source:Federal Reserve Bank of St. Louis, Monetary base Growth, Available at: http://research.stlouisfed.org/fred2/series/BASE
This chart shows the monetary base; the amount of money printed by the Federal Reserve. If not reined in, this increase in the monetary base could turn into high inflation. As Milton Friedman taught us, inflation is too many dollars chasing too few goods.
10 Year Treasury Note Yield
October 1955 to February 2009
Source: U.S. Treasury Department, Treasury Yield Curve Rates, Available at: http://www.treasury.gov/resource-center/data-chart-center/interest-
Investors have lost confidence in the Federal Government as a profitable place to lend money.
Education and Medical Prices Skyrocket While Import Prices Drop
CPI, Percent Change, 2000 to 2009
Bureau of Labor Statistics, Consumer Price Index, Available at: http://www.bls.gov/data/#prices
This chart is a very simple way to explain the benefits of free trade. The categories in red (education, medical care, and energy) are goods and services that are produced, for the most part, domestically and are often highly regulated. The categories in the blue (new vehicles, apparel, software, and computers) are goods and services that are largely imported. Since 2000, prices for the categories in red have soared, while those for the categories in blue have dropped. The more we can engage the global economy, the more we can enjoy widespread prosperity.
This chart debunks the myth of stagnating incomes. When we examine per capita income and total compensation (which includes benefits, not just income) we see that things have been improving for all Americans, not just those at the top.
The Ever-Improving American Dream
Source: Census Bureau. Household Income, Available at: http://www.census.gov/hhes/www/income/index.html
This chart tells the real story about America’s middle class. Those considered middle class (making up the middle quintile of American families) has increased from those making between $33,408 and $44,800 in 1967 to those making between $45,021 and $68,304 in 2005 (in inflation adjusted terms).
Number of Years It Took for Major Technologies to Reach 50% of American Homes
This chart shows that the amount of time it has taken for the new products to penetrate 50% of American homes has been steadily declining. It took 71 years for telephones to become affordable for half of American households, yet iPods have become affordable within four years. As an editorial note to this, think back to the chart depicting free trade and the changes
put into place in 1981 – and even to Herman Cain’s points. This affordability for technology has come through free trade and the capability for business to achieve more efficiently, which is spurred by demand. Think now to your own life and the technology advances in your life and how quickly you have been able to afford these. Examples include laptops, smart phones, GPS units, etc. We are in the Renaissance of Technology and we will certainly see technology improve more quickly and come to market more quickly than ever to meet the demand. For those of us who are Generation X and older, think back to your parent’s TV when you were a kid and growing up. I’ll bet there is a good chance that the one you had when you were young was the same from your adolescence. It was 19” at best, black and white, got two channels – one being fuzzy – an aluminum foil encased antennae and a broken knob to change the channel. This TV would have been costly for the family. This year in our Cyber Monday sale, Menards offered a 46” LED HDTV with internet capable access for streaming web and video at the sale price of $699. What a change from just a generation before! Again, the free market, so eloquently shown in the chart above in the form of technology, drives innovation. That innovation requires a job market, creating jobs, and with the prosperity of growth comes the prosperity of the worker.
Guns and Butter: Discretionary Spending Explodes 1992 -2008
Under Clinton and Bush, discretionary spending (the amount allocated by Congress) exploded.
Where Your Federal Tax Dollar Goes
If any private company wasted money like the federal government does, you can be sure they would be audited and their executives thrown in jail.
Hog Wild Spending
Federal Outlays, 2001-2008
Source: Free Enterprise Fund
President Obama likes to talk about Bush’s “investment deficit”. Indeed, George W. Bush was one of the most irresponsible spenders in U.S. history. As this chart shows, spending (or “investments”) in social welfare soared under Bush. Obama is now using the “investment deficit” story to double-down on these increases. After the Bush tax cuts, employment soared. Unfortunately, many of these gains have
been wiped away by the financial crisis. Another supply side stimulus is what is needed to get employment back on track.
The World Really is Flat
Flat Tax Nations and Their Rates
Source: Center for Freedom and Prosperity
The last couple of decades have seen the rest of the world beginning to understand the virtues of supply-side economics while the U.S. has been retreating. Many countries formerly beholden to socialism now embrace tax systems far more pro-growth than the U.S. system.
More 18 to 34 Year Olds Believe in UFOs Than Social Security
More 18 – 34 year olds believe in UFOs than social security! It would be a fiscal impossibility to not reform social security without completely bankrupting the federal government.
A simplified tax reform?!
Free Countries are Wealthier and Healthier
This chart above should be the battle flag of those advocating free enterprise [and job security]. Countries that are most economically free are also richer and have longer life expectancies. The American tax burden will likely soar even more under President Obama. The tax increases in the health care reform and the included “value added tax” are not even included in this chart.
High Corporate Taxes Make the US Uncompetitive
The rest of the world has been lowering is corporate tax rate while the U.S. has held on to its punitively high rate. The U.S. now has the 2nd highest tax rate in the world. The effect of this is that fewer businesses want to do business in the U.S. Cutting the tax rate means that we are open to business. This is as Ronald Reagan understood in 1981, which helped us to achieve incredible prosperity as a country. One of the greatest threats currently in the U.S. is our competitiveness in the global market, which from a business sense, we have essentially shot ourselves in the foot with such an uncompetitive tax rate. One can easily wager that China is keenly interested and mindful of our follies as it opens opportunity for them. This is a trend that is alarming. It is an attack on American job security and our future securities as leader in the free market and free world.
Real Federal Funds Rate
January 1990 –September 2009
The areas in red show when the real federal funds rate has been negative. During these periods, the federal reserve was essentially paying people to borrow money. The long
period of red played a large role in the 2008 financial crisis.
Gold Shows Dollar Weakness and Inflation Risk
January 1971 –November 2010
Gold is a good predictor of the strength of the dollar and the risk of inflation. Investors retreat to gold when they do not have confidence in the stock market. The sky-rocketing price of gold over the last several years is an ominous sign.
Dollar at Record Lows
Dollar Index, August 2000 – November 2010
Source: Federal Reserve Bank, Nominal Major Currencies Dollar Index Note: “Major Currencies Index” is defined the composite of the currencies of U.S. major trading partners.
After a slight upsurge, the dollar is again trending toward record lows. This trend must be reversed if America is to remain a beacon of prosperity.
VI. A Nation of Takers, Not Makers3 – By Stephen Moore
If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government. It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers. Nearly half of the $2.2 trillion cost of state and local governments are the $1 trillion-a-year tab for pay and benefits of state and local employees. Is it any wonder that so many states and cities cannot pay their bills? Every state in America today except for two—Indiana and Wisconsin—has more government workers on the payroll than people manufacturing industrial goods. Consider California, which has the highest budget deficit in the history of the states. The not-so Golden State now has an incredible 2.4 million government employees—twice as many as people at work in manufacturing. New Jersey has just under two-and-a-half as many government employees as manufacturers. Florida's ratio is more than 3 to 1. So is New York's. Even Michigan, at one time the auto capital of the world, and Pennsylvania, once the steel capital, have more government bureaucrats than people making things. The leaders in government hiring are Wyoming and New Mexico, which have hired more than six government workers for every manufacturing worker. Now it is certainly true that many states have not typically been home to traditional manufacturing operations. Iowa and Nebraska are farm states, for example. But in those states, there are at least five times more government workers than farmers. West Virginia is the mining capital of the world, yet it has at least three times more government workers than miners. New York is the financial capital of the world—at least for now. That sector employs roughly 670,000 New Yorkers. That's less than half of the state's 1.48 million government employees. Do not expect a reversal of this trend anytime soon. Surveys of college graduates are finding that more and more of our top minds want to work for the government. Why? Because in recent years only government agencies have been hiring, and because the offer of near lifetime security is highly valued in these times of economic turbulence. When 23-year-olds are not willing to take career risks, we have a real problem on our hands. Sadly, we could end up with a generation of Americans who want to work at the
This section is prefaced from Stephen Moore. 29
Department of Motor Vehicles. The employment trends described here are explained in part by hugely beneficial productivity improvements in such traditional industries as farming, manufacturing, financial services and telecommunications. These produce far more output per worker than in the past. The typical farmer, for example, is today at least three times more productive than in 1950. Where are the productivity gains in government? Consider a core function of state and local governments: schools. Over the period 1970-2005, school spending per pupil, adjusted for inflation, doubled, while standardized achievement test scores were flat. Over roughly that same time period, public-school employment doubled per student, according to a study by researchers at the University of Washington. That is what economists call negative productivity. But education is an industry where we measure performance backwards: We gauge school performance not by outputs, but by inputs. If quality falls, we say we did not pay teachers enough or we need smaller class sizes or newer schools. If education had undergone the same productivity revolution that manufacturing has, we would have half as many educators, smaller school budgets, and higher graduation rates and test scores. The same is true of almost all other government services. Mass transit systems spend more and more every year and yet a much smaller share of Americans use trains and buses today than in past decades. One way that private companies spur productivity is by firing underperforming employees and rewarding excellence. In government employment, tenure for teachers and near lifetime employment for other civil servants shields workers from this basic system of reward and punishment. It is a system that breeds mediocrity, which is what we have gotten. Most reasonable steps to restrain public-sector employment costs are smothered by the unions. Study after study has shown that states and cities could shave 20% to 40% off the cost of many services—fire fighting, public transportation, garbage collection, administrative functions, even prison operations—through competitive contracting to private providers. But unions have blocked many of those efforts. Public employees maintain that they are underpaid relative to equally qualified private-sector workers, yet they are deathly afraid of competitive bidding for government services. The only way to retool our economy is to make things, not to overly fund the sector that takes things. In a study entitled States Can’t Tax Their Way Back To Prosperity: Lessons Learned from the 1990-91 Recession, author Stephen Moore found that states that cut personal and corporate income taxes in the 1990s had a higher average rate of population, employment, and real personal income growth than states that increased such taxes
during the 1990-2001 period.
VII. A Path to Prosperity
A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional privatesector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage's analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year. Here are its major components:
Reducing spending: This budget proposes to bring spending on domestic government agencies to below 2008 levels, and it freezes this category of spending for five years. The savings proposals are numerous, and include reforming agricultural subsidies, shrinking the federal work force through a sensible attrition policy, and accepting Defense Secretary Robert Gates's plan to target inefficiencies at the Pentagon. Welfare reform: This budget will build upon the historic welfare reforms of the late 1990s by converting the federal share of Medicaid spending into a block grant that lets states create a range of options and gives Medicaid patients access to better care. It proposes similar reforms to the food-stamp program, ending the flawed incentive structure that rewards states for adding to the rolls. Finally, this budget recognizes that the best welfare program is one that ends with a job—it consolidates dozens of duplicative job-training programs into more accessible, accountable career scholarships that will better serve people looking for work.
As we strengthen and improve welfare programs for those who need them, we eliminate welfare for those who do not. Our budget targets corporate welfare, starting by ending the conservatorship of Fannie Mae and Freddie Mac that is costing taxpayers hundreds of billions of dollars. It gets rid of the permanent Wall Street bailout authority that Congress created last year. And it rolls back expensive handouts for uncompetitive sources of energy, calling instead for a free and open marketplace for energy development, innovation and exploration. Health and retirement security: This budget's reforms will protect health and retirement security. This starts with saving Medicare. The open-ended, blank-check nature of the
Medicare subsidy threatens the solvency of this critical program and creates inexcusable levels of waste. This budget takes action where others have ducked. But because government should not force people to reorganize their lives, its reforms will not affect those in or near retirement in any way. Starting in 2012, new Medicare beneficiaries will be enrolled in the same kind of healthcare program that members of Congress enjoy. Future Medicare recipients will be able to choose a plan that works best for them from a list of guaranteed coverage options. This is not a voucher program but rather a premium-support model. A Medicare premiumsupport payment would be paid, by Medicare, to the plan chosen by the beneficiary, subsidizing its cost. In addition, Medicare will provide increased assistance for lower-income beneficiaries and those with greater health risks. Reform that empowers individuals—with more help for the poor and the sick—will guarantee that Medicare can fulfill the promise of health security for America's seniors. We must also reform Social Security to prevent severe cuts to future benefits. This budget forces policy makers to work together to enact common-sense reforms. The goal of this proposal is to save Social Security for current retirees and strengthen it for future generations by building upon ideas offered by the president's bipartisan fiscal commission. Budget enforcement: This budget recognizes that it is not enough to change how much government spends. We must also change how government spends. It proposes budgetprocess reforms—including real, enforceable caps on spending—to make sure government spends and taxes only as much as it needs to fulfill its constitutionally prescribed roles. Tax reform: This budget would focus on growth by reforming the nation's outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%. It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and leave some corporations paying no income taxes at all. This is America's moment to develop a plan for prosperity. Our budget offers the nation a model of government that is guided by the timeless principles of the American idea: freemarket democracy, open competition, a robust private sector bound by rules of honesty and fairness, a secure safety net, and equal opportunity for all under a limited constitutional government of popular consent. We can reform government so that people do not have to reorient their lives for less. We can grow our economy, promote opportunity, and encourage upward mobility. This budget is the new House majority's answer to history's call. It is now up to all of us to
keep America exceptional.
Debt Worries of the (Near) Future
U.S. Debt on Track to Fuel Economic Crisis Like Greece
Greece continues to dominate the headlines as the country faces an increasingly dire economic situation and now political uncertainty as well. Prime Minister George Papandreou plans to resign once an interim government is formed, but there is no telling if the political leadership will be able to avoid expulsion from the euro zone. Greece’s troubles might seem a world away from what the United States is experiencing, but a new report and video from the Joint Economic Committee suggest the two countries have troubling similarities. It is tempting for Americans to take comfort in the belief that the size and strength of the U.S. economy will protect us from the consequences now facing Greece, but no nation is exempt from the basic laws of mathematics and economics. A closer inspection of the Greek crisis suggests that the United States may not be far behind on the road to ruin and we ignore the lessons of Greece at our own peril. As the chart from Heritage’s 2011 Budget Chart Book shows, the United States is rapidly
increasing its share of publicly held debt as a percentage of the economy. Projections put the United States on a path to reach the same levels as other troubled countries in a matter of years.
For Further Reading:
Keep yourself informed! The internet provides you with an indispensable resource for new and vital information regarding the US labor market and job security. Here are some great articles to get you started:
o STRAW MAN CAPITALISM AND A NEW PATH TO PROSPERITY STEPHEN
MOORE* & TYLER GRIMM:
o RichStates, Poor States by Arthur B. Laffer Stephen Moore Jonathan Williams
o Center for Freedom & Prosperity: Limited Government
More to Consider:
o http://www.cato-at-liberty.org/obamacares-cost-could-top-6-trillion/ o http://online.wsj.com/article/SB100014240527487043624045754801617496088 0.html o http://blog.heritage.org/?p=36369 o http://www.aei.org/outlook/100057 o http://www.aei.org/article/101890 o http://www.cato.org/pub_display.php?pub_id=11586 o http://nostimulus.com/?=facts o http://blog.heritage.org/2009/01/27/stimulus-101-the-pelosi-reid-obamadebt- plan/ o http://freedomandprosperity.org/videos/economics-101-series/
VIII. Protecting Your Prosperity
There are definite foundations and policies that affect our national prosperity, and in turn, corporate and personal prosperity. This prosperity amounts to our job security, but also the security of our freedoms and the sanctity of the United States. The link between what happens legislatively or judicially at state and national levels and what happens to your net worth is one that few people understand. For us as Team Members, we have an annual reminder of the affect of prosperity in IPS – Instant Profit Sharing. Profit Sharing is made possible by being profitable, through prosperity that is shared amongst the stores. The reason government does not run efficiently is because it does not run to the same standards as business. They tend to share the profits prior to the profitability. Did you know that you can have a large impact on public policy and that by choosing to be proactive and informed you can influence policymakers in many ways? Remember, our government was formed to be of the people, by the people…NOT just by and for those who are in control of policy decisions. Never forget that elected officials are in position to represent you, not themselves or special interests. It is a public office, to serve the public. It is a responsibility, not a right. Your can hold them accountable by becoming engaged in the political process. It is not difficult and will only take a few minutes of your time. The results will be worth the effort. As a rule, if an elected official receives a phone call or letter from a constituent, they realize that at least one hundred others hold the same view. Your voice can count for as much as 100 others – use it! Taking just a few minutes out of your day to contact your elected officials about important issues can send a powerful message. The diligence of a few can alter votes on critical issues. If the official does not listen to the voice of the people, we have the incredible weight of our votes to change that course. It is important to support those who will stand firm to support free market and limited government principles. It is equally as important to remove from office those who do not vote in accordance with our Constitution and in a way to endanger our future as a free and prosperous people. Free enterprise policies are what made this country strong and prosperous and opened the doors to people to share in the hope and dream of prosperity and economic, religious and political freedom. Our prosperity is not endangered. Our job security hinges on the actions we take as responsible and conscientious voters. Taking a stand to protect economic freedom helps you, your children, and your grandchildren – just as our grandparents and founding fathers did for us. You must be involved in the process to remain prosperous. Job security only comes through business prosperity. Personal prosperity comes from thriving businesses that are able to share in profitability. In the current trend of things, such opportunity is endangered. Business prosperity can only be achieved through free market, free enterprise policies.
America offers the liberty that people yearn for and will risk their lives to experience. The longing for freedom is a universal fire that rages in the heart of man, and America sparks the flame that burns brightly across the world. You can help that flame of freedom grow to illuminate future generations. The time is now. Do not wait. Act now to protect the security of your job, the prosperity of your family, and the freedom of your country. “What is Freedom? It is the sum total of all our freedoms. To be free, on one’s own responsibility, to thin and to act, to speak, and to write, to labor and to exchange, to teach and to learn – this alone is freedom.” - Frederic Bastiat (1801 – 1850)
IX. Glossary of Terms
Administration: The organized apparatus of the state for the preparation and implementation of legislation and policies, also called bureaucracy. Agenda-setting: Controlling the focus of attention by establishing the issues for public discussion. Anarchic Order: Order resulting from mutual coordination in the absence of a higher authority. Anarchism: A stateless society that allows total individual freedom. Anomic group: Spontaneously formed interest group with concern over a specific issue. Aristocracy: A form of government in which a minority rules under the law. Associational Group: Formally organized group which articulates the interests of its members over long periods of time. Asymmetrical Federalism: A federal system of government in which powers are unevenly divided between provinces, i.e. some provinces have greater responsibilities or more autonomy than others. Auction Politics: A danger in democratic politics in which state power may be "sold" to the highest bidding groups. Auditor General: The official of Parliament whose staff audit the expenditures of government departments and who provides an annual report on instances of funds being unlawfully or unwisely spent. Authoritarianism: A system of government in which leaders are not subjected to the test
of free elections. Authority: A form of power based on consensus regarding the right to issue commands and make decisions. Backbencher: Members of Parliament on the government side who sit on the backbenches and are not in cabinet, or those similarly distant from shadow cabinet posts in opposition parties. Balance of Payments: A state's running account of economic transactions (exports and imports) with the rest of the world. Balance of Power Policy: The active prevention of any one state becoming too strong by the major powers in the system. Balance of Power: The distribution of power in a system such that no one state may overwhelm others. Behavioral Revolution: The introduction of more empirical analysis into the study of government and politics. Bicameralism: A system of government in which the legislature is divided into two chambers, an upper and lower house. Bill: A piece of legislation under consideration by a legislative body. Binational State: Two nations co-existing within one state. Bipolar: An international system in which there are two dominant nation-states. Bourgeoisie: A Marxist term referring to those who own the means of production. Bureaucracy: A type of administration characterized by specialization, professionalism, and security of tenure. Cabinet Solidarity: A convention that all cabinet ministers publicly support whatever decisions the cabinet has taken, regardless of their personal views. Caucus: A meeting of legislators of any one party to discuss parliamentary strategy and party policy. Central Agency: Government agencies such as the PMO, the PCO, the Treasury Board, and the Finance Department that have certain coordinating functions across the whole federal public service.
Charismatic Authority: Authority based on the admiration of personal qualities of an individual. Checks and Balances: A system of government in which power is divided between the executive, legislative and judicial branches of government, and these powers check and balance each other. Citizenship: Legal membership in a community known as a nation-state. Classical Liberalism: A liberal ideology entailing a minimal role for government in order to maximize individual freedom. Coalition Government: A parliamentary government in which the cabinet is composed of members of more than one party. Coalition: An alliance between two or more political units in response to opposing forces. Code Civil: The unique system of civil law used in Quebec. Code of Law: A comprehensive set of interrelated legal rules. Coercion: A form of power based on forced compliance through fear and intimidation. Collective (public) Goods: Goods and services enjoyed in common and not divisible among individuals. Collective Defense: An alliance among states against external threats. Collective Security: A commitment by a number of states to join in an alliance against member states that threaten peace. Common Law: The accumulation of judicial precedents as the basis for court decisions. Communications (mass) Media: A general term for all modern means of conveying information. Comparative Politics: An area of political study concerned with the relative similarities and differences of political systems. Confederation: A federal system of government in which sovereign constituent governments create a central government but balance of power remains with constituent governments.
Confidence: Support for the government by the majority of the members of parliament. Consent of the Governed: People's acceptance of the form of government under which they live. Conservationism: The attempt to manage natural resources in order to maximize benefits over a long period of time. Conservatism: A political ideology generally characterized by a belief in individualism and minimal government intervention in the economy and society; also a belief in the virtue of the status quo and general acceptance of traditional morality. Constituency: An electoral district with a body of electors who vote for a representative in an elected assembly. Constitution: The fundamental rules and principles by which a state is organized. Constitutionalism: The belief that governments will defer to the rules and principles enshrined in a constitution and uphold the rule of law. Constructive Vote of Confidence: A system in which the majority in the lower house can bring down the government, but not until that majority approves another government (e.g. in Germany). Contracting Out: The hiring of private organizations to provide public services. Convention: A practice or custom followed in government although not explicitly written in the constitution or in legislation. Corporatism: The organization of liberal democracies in such a way that the state is the dominant force in society and the activities of all interests in society are subordinate to that force. Coup d’état: A forceful and unconstitutional change of government, often by a faction within the military or the ruling party. Credit: Any transaction which brings money into the country (e.g. payments for the export of goods). Crown corporation: Corporations owned by the government that assume a structure similar to a private company and that operate semi-independently of the cabinet. Current Accounts Surplus: A state selling more to the world than it is buying.
Custom: A generally accepted practice or behaviour developed over time. Customary Law: Rules of conduct developed over time and enforceable in court. Debit: Any transaction which sends money out of the country (e.g. payments for the import of goods). Deep Ecology: A form of environmentalism holding that nature and the natural order should be valued over individual human happiness. Deficit: Occurs when the value of a state's imports is more than the value of its exports. Delegate: A representative role in which the individual subordinates his/her views to those of their constituents. Democratic Centralism: The concentration of power in the leadership of the communist party, which in theory acts in the interests of the people. Department of Finance: The government department that has overall responsibility for the government's finances and its role in the economy. Deputy Minister: The Canadian public servant who heads each government department, manages the department, and advises the minister. Deregulation: A government policy designed to remove regulations on market activity. Devolution: A system of government in which the sovereign central government devolves (delegates) power to regional governments. Despotism: An individual ruling through fear without regard to law and not answerable to the people. Dictator: In Roman Law, an appointed individual given exceptional powers in times of crisis. Diplomacy: A system of formal, regularized communication that allows states to peacefully conduct their business with each other. Direct Democracy: A system of government based on public decisions made by citizens meeting in an assembly or voting by ballot. Disallowance: A power given to the federal government in the Constitution Act, 1867, under which the cabinet can nullify any provincial law, even though it has received royal assent from the lieutenant-governor of the province.
Discretion: The flexibility afforded government to decide something within the broader framework of rules. Distributive Laws: Laws designed to distribute public goods and services to individuals in society. Downsizing: Reduction of the size and scope of government. Doxa: Greek word for an opinion that may be at least partly true but cannot be fully expounded. Electoral College: The body which formally chooses the president of the United States. Elite: A small group of people with a disproportionate amount of public decision-making power. Empirical: Political analysis based on factual and observable data in contrast to thoughts or ideas. Episteme: Greek word for knowledge that can be demonstrated by logical argument from first principles. Equality of Opportunity: The equalization of life chances for all individuals in society, regardless of economic position. Equality of Result: The equalization of outcomes of social and economic processes. Equality of Right: Application of the law in the same way to all. Equality Rights: A section of the Charter of Rights and Freedoms (s. 15) that prohibits governments from discriminating against certain categories of people. Ethnic Group: A group whose common identity is based on racial, national, or religious association. Executive: A small group of elected officials who direct the policy process, and oversee the vast array of departments and agencies of government. Executive Federalism: A federal process directed by extensive federal-provincial interaction at the level of first ministers, departmental ministers, and deputy ministers. Extractive Laws: Laws designed to collect taxes from citizens to pay for governing society.
Faction: An association of individuals organized for the purpose of influencing government actions favorable to their interests, now known as interest groups. Federalism: A system of government in which sovereignty is divided between a central government and several provincial or state governments. Formal–Legal: Institutions which are explicitly created by a constitution. Fragment Theory: A theory (proposed by Louis Hartz) which argues that colonial societies such as Canada originated as fragments of the larger European society and that these societies have remained marked throughout their history by the conditions of their origin. Free Riders: Those who enjoy a collective good without helping to pay for it. Free Vote: A legislative vote in which members are not required to toe the party line. Functions: The special activity or purpose structures serve in the political process; for example interest groups to articulate interests. Gerrymander: Manipulating constituency boundaries for partisan election purposes. government. A specialized group of individuals, institutions and agencies which make and enforce public decisions. Head of Government: The person in effective charge of the executive branch of government; the prime minister in a parliamentary system. Head of State: An individual who represents the state but does not exercise political power. Human Rights: Rights thought to belong to all people simply because they are human beings. Ideological Party: A type of political party which emphasizes ideological purity over the attainment of power. Ideology: A system of beliefs and values that explains society and prescribes the role of government. Informal Institutions: Institutions which are an integral part of the political process, but which are not established by a constitution. Initiative: The initiation of legislative action on a particular issue by way of a voters' petition.
Institutional Group: Groups which are closely associated with the government and act internally to influence public decisions. Interest (pressure) Group: Organizations whose members act together to influence public policy in order to promote their common interest. Interest Party: A political party with a single interest or purpose, such as the Green Party. International Law: The body of rules governing the relationships of states with each other. International Monetary Fund: An international organization created to prevent another collapse in the world monetary system through the stabilization of national currencies throughout the world. International Order: The combination of major actors, rules, mechanisms and understandings to manage the co-existence and interdependence of states. International Regimes: The pattern of regular cooperation governed by implicit and explicit expectations between two or more states. International Relations: An area of political study concerned with the interaction of independent states. Intervention: In a court case, the presentation of a view on the law without representing one of the parties in the litigation. Item Veto: The power of an American president or state governor to veto particular components of a bill rather than reject the entire legislation. Judicial Activism: The willingness and inclination of judges to overturn legislation or executive action. Judicial Review: The power of the courts to declare legislation unconstitutional (ultra vires). Judiciary: The branch of government with the power to resolve legal conflicts that arise between citizens, between citizens and governments, or between levels of government. Junta: A Spanish word meaning a group of individuals forming a government, especially after a revolution or coup d'etat. Jurisprudence: The philosophy and analysis of law.
Justice: The virtue of protecting individuals' possessions within the acknowledged rules of conduct. Laissez-faire: The non-intervention of the state in the economy. Legal Positivism: A theory holding that law is the command of the sovereign. Legislature: A representative assembly responsible for making laws for society. Legislature: The branch of government responsible for making laws for society. Legitimacy: Belief in the "rightness" of rule. Liberal Democracy: A system of government characterized by universal adult suffrage, political equality, majority rule and constitutionalism. Limited Government: A state restricted in its exercise of power by the constitution and the rule of law. List System: A form of proportional representation in which the elector votes not for individuals but for parties who have lists of candidates running for office. Lobbying: An activity of interest groups aimed at influencing governors and the public to achieve a favorable policy decision(s). Logrolling: The act of vote-trading among legislators in the process of getting legislation passed. Magna Carta (Great Charter): A document signed by King John in 1215, conceding that the king is subject to law. Majority Government: A parliamentary government in which the party in power has over 50 percent of the seats in the legislature. Merit Recruitment: A system of hiring public servants on the basis of qualifications rather than on party preference or other considerations. Microcosm: The idea that a governing body should be a miniature replica of the society it represents. Modernization: The gradual replacement of traditional authority with legal authority. Monarchy: Form of government in which a single person rules under the law.
Monism: Exclusive emphasis on a single principle or interest. Movement Party: A type of political party which emerges from a political movement, such as a national liberation movement. Multinational State: Three or more nations co-existing under one sovereign government. Multiparty system: A party system in which there are three or more major contenders for power. Nation: Individuals whose common identity creates a psychological bond and a political community. National Interest: Interests specific to a nation-state, including especially survival and maintenance of power. Nationalism: The feeling of loyalty and attachment to one's nation or nation-state, and strong support for its interests. Nation-state: A state with a single predominant national identity. Natural Authority: Authority based on spontaneous deference to an individual's knowledge or social position. Natural Law: Rules of conduct binding on humankind by virtue of human rationality alone. Neo-Conservatism: An ideological term characterizing parties or politicians who not only advocate an end to government expansion, but believe in reducing its role via downsizing, privatization, and deregulation. New International Economic Order: A revision of the international economic system in favor of Third World countries. Nonassociational (latent) Group: A group which lacks formal organization but has the potential for mobilizing politically. Normative: Political analysis based on values, commitments and ideas. Oligarchy: A form of government in which a minority rules outside the law. Ombudsman: An official with the power to investigate complaints against government administration.
One-Party-Dominant System: A party system in which there are political alternatives but a single political party dominates the political process as a result of the overwhelming support of the electorate. Opposition: Those members of Parliament who are not part of the government of the day. Order-in-Council: Decision by Cabinet which carries legal force. Philosopher–King: Plato's view of the ideal individual who rules in the common interest and is directed by wisdom and virtue rather than the constraint of law. Plebiscite: Another term for an advisory referendum. Pluralism: The open competition of political interests. Plurality: A voting decision based on assigning victory to the largest number of votes, not necessarily a majority. Policy Community: The network of individuals and organizations deeply involved in a particular area of public policy. Political Party: An organized group that makes nominations and contests elections in the hope of influencing the personnel and policy of government. Political Process: The interaction of organized political structures in making and administering public decisions for a society. Precedent: A previous judicial case used as an example for deciding the case at hand. Preferential (alternative) Ballot: Electoral system in which voters rank the candidates. Proclamation: The announcement of the official date a new law will take effect. Progressive Tax: A tax rate which increases as the amount of one's income increases. Public Debt: The accumulated sum owed by the government to its creditors. Referendum: A decision on policy proposals by a direct vote of the electorate. Regressive Tax: A tax that weights more heavily on low incomes. Regulative Laws: Laws that control individual and organizational behavior.
Separation of Powers: The separation of powers between executive, legislative, and judicial branches of government. Single-Party System: A party system in which there exists only one party and no political alternatives are legally tolerated. Society: A self-sufficient group of individuals living together under common rules of conduct. Special (ad hoc) Committee: Legislative committees appointed for special, temporary purposes, such as to investigate a problem before the government prepares legislation on the subject. Spoils System: The assumption that, after successfully winning an election, the political executive is entitled to appoint large numbers of supporters to the bureaucracy. Spontaneous Order: The pattern of mutual coordination that emerges as individuals pursue their own interests in society. Statute: A specific piece of legislation. Totalitarianism: A modern form of despotic rule in which the state undertakes to remake society according to an ideological design. Two-Party System: A party system in which there are two credible contenders for power and either is capable of winning any election. Veto: The authorized power of a president to reject legislation passed by Congress. Welfare state: The provision for redistributive benefits such as education and health services by the state. Zionism: Jewish nationalist movement advocating establishment of a Jewish nation-state.
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