GLOSSARY OF POLITICAL AND ECONOMIC TERMS

R - Z

Rational Choice Theory: A branch of political science that attempts to explain voter outcomes by economic theory and game theory. There are many parallels to economics and politics. Both companies and governments provide goods and services in exchange for money. Customers vote with their dollars; voters vote with their ballots. Both customers and voters are self-interested, seeking the best goods and services for the least money. Companies and politicians that do not perform well go bankrupt or are voted out of office. These similarities have led economists to apply their theories to political science. Although this may be possible in principle, critics observe that all the pathologies that afflict economics also afflict rational choice theory. For example, voting models make assumptions of perfect or homogenous starting conditions that do not exist in real life. As a result, rational choice theory enjoys no predictive success or empirical support beyond obvious or banal observations. A particularly famous failure of rational choice theory is why people vote. According to theory, the costs of voting (getting off work, driving to the polling site, getting picked for jury duty) far outweigh the potential rewards (which would occur only if the individual cast the deciding vote). A perfectly rational individual should therefore take a "free ride" and let others decide the election for him. The fact that people don't think or act this way suggests fundamental problems with this school of analysis. (See also game theory.)

Rational Expectations: An economic theory forged by Robert Lucas that enjoyed a mass following in the 1970s and early 80s. Lucas argued that, during a recession, the government's monetary policy can only cause harm, if it does anything at all. If the Fed has a predictable response to a recession -- for example, expanding the money supply by a certain amount for each percentage point that the unemployment rate climbs -- businessmen will simply come to expect this increase, and raise their prices by the anticipated amount. The result will be more inflation, not job creation. Therefore, for monetary policy to be effective, it has to surprise businessmen with unexpected monetary expansions. But the only way to surprise them is to be completely random, which would do more harm than good. Lucas won a Nobel prize for the insight that businessmen can form rational expectations of monetary policy. However, other aspects of his theory have not stood the test of time, and his once large following in academia has slowly disappeared. Lucas himself has devoted his efforts in recent years to other projects. Much of this was due to the lessons of the 1980-82 recession, where the Fed's proposed monetary expansion was widely debated in the press, and yet resulted in job creation, not inflation, when it was finally put into effect. (See also business cycle; central bank; Keynesianism; monetary policy; recession.)

Real dollars: See constant dollars.

Recession: Economists do not yet know the ultimate cause of recessions, but most accept John Maynard Keynes' description of them. In a healthy economy, there is a circular flow of money as my spending becomes part of your earnings, and your spending becomes part of my earnings. For various reasons, however, consumers may lose confidence in the economy, and start hoarding money. But your decision to hoard makes things harder on me; so I start hoarding as well, which only makes things harder on you. Although hoarding seems a rational strategy for individuals, it has disastrous consequences for the group: a full-blown recession. Keynes suggested that the way to return confidence to the economy is for the central bank to expand the money supply, putting more money in the hands of individuals, thus giving them more confidence to start spending again. (See also business cycle; monetary policy; Keynesianism.)

Referendum: The referring of a proposed bill or newly passed law by the legislature to a popular vote. In some cases, legislatures are required by law to refer bills or laws to the voters, as in the case of constitutional amendments. Sometimes a voter signature drive can force a newly passed law onto the ballot for referendum; sometimes a legislator can call for one. The difference between an initiative and a referendum is point of origin. Initiatives begin with the voters; referenda begin in the legislature. (See also initiative, direct democracy.)

Regression towards the mean: The tendency of things to gravitate towards the center of a spectrum, as long as they start on either end and have the ability to fluctuate. This statistical phenomenon is often used as a deception. For example, consider income mobility. Suppose everyone in society made between $0 and $100,000 a year, and individual incomes fluctuated over time between these two points. Further suppose that at the start, we arranged everyone on a spectrum, dividing them into the poorest 20 percent, the next poorest 20 percent, etc. Those in the bottom quintile would have nowhere to go but up, while those in the top quintile would have nowhere to go but down. They would be replaced, of course, by those coming in the other direction, away from the center. But if you wanted to lie with statistics, you could do a study of all those who started in the bottom quintile, compared to all those who started in the top quintile. Over time, you could demonstrate that those starting in the bottom quintile saw their incomes rise by, say, 33 percent, while those in the top saw their incomes fall 33 percent. However, incomes are not really converging; this method ignores all the people who took their place. And the deception still holds if the top incomes gradually climb, from $100,000 to $120,000 to $140,000. The effect is somewhat diluted here, but still visible: the bottom quintile may see their incomes rise 33 percent (no faster than before), while the top quintile sees their income rise only 5 percent. You might then claim the poor were climbing faster than the rich, but this would still be entirely wrong. In reality, the income gap between the rich and poor is growing, and your argument is a statistical phenomenon only.

Regressive tax: A tax where low incomes are taxed at a higher percentage than high incomes. For example, a person earning $10,000 a year might be taxed at 30 percent, while a person earning $60,000 a year might be taxed at 5 percent. Although regressive taxes are indefensible by just about any ideology, they do in fact occur. In the U.S., the effective rates (not to be confused with the marginal rates) of state and local taxes are deeply regressive. So are payroll taxes (Social Security, Medicare, etc.). Needless to say, regressive taxes are hyper-accelerators of income inequality. (See also progressive tax; flat tax; meritocracy.)

Republic: A representative democracy. In a republic, the people's elected representatives, not the people themselves, vote on legislation. The rationale is that the democratic process would be otherwise degraded by mob rule and voter ignorance. (See also democracy.)

Rights: The definition of rights has been the subject of much debate in political philosophy. Many conservatives define rights as extensions of natural law, or the law of God. They believe that rights are natural, inalienable and self-evident. Liberals believe that rights are social constructs, that rights and responsibilities are whatever voters or their elected representatives agree to in the nation's social contract, namely, its constitution and laws. (See also natural law; property; social contract.)

Roaring 20s: The 1920s, a heyday of laissez-faire capitalism under three Republican presidents: Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933). Conservatives praise the period for its robust economic growth. Liberals criticize the period for its growing income inequality and monopolization, which ended in the Great Depression.

Science: 1) A branch of human knowledge that arranges and systematizes facts or truths and shows the operation of general laws. 2) The study of data and formulation of theories according to the scientific method. (See also scientific method.)

Scientific Consensus: Agreement on a question or issue by a majority of qualified, high-level scientists. Scientific consensus is hardly a foolproof test of truth, but many philosophers of science argue that it the best practical measure that we have. The opinions of scientists are certainly more educated and coherent than those of lay people, and a consensus among them means that a theory or argument is so convincing that it has swayed the majority of their minds. It is also crucial that scientific consensus be measured only among scientists qualified in their field; for example, the biological opinions of an astronomer hold much less weight than the scientific consensus of biologists. In a similar manner, the widespread opinions of journalists on economics hold much less weight than the scientific consensus of economists. (See also crank.)

Scientific Method: The recognized method by which science is conducted, to minimize error. The scientific method is still evolving, and the subject of some debate. However, there are at least four accepted criteria for a healthy scientific theory. A theory must have predictive value, must be coherent (that is, internally consistent), must be falsifiable (or verifiable), and must explain at least those phenomena explained by the currently dominant theory. Healthy theories also have several tendencies. One is that they are relatively simple, not a complicated patchwork of ad hoc explanations. For example, before Newton, explanations of how objects moved in the universe were a complicated mess. Newton's theories, while still complex, offered a much more simplified and elegant explanation of physics. Another tendency is to open up doors to other scientific disciplines. Newton's physics, for example, led to the creation of calculus. (See science.)

SES: See socioeconomic status.

Social contract: According to liberals, a group agreement that coordinates individual behavior into group effort, and establishes personal rights and responsibilities. Such group agreement is necessary for any organized, interdependent group behavior. The social contract in modern democracies is to be found in its constitution and laws. Their contents are whatever voters or their elected representatives agree to. Breaking the law constitutes breach of contract, and legitimates the appropriate law enforcement response. Libertarians and some conservatives argue that such a contract does not exist, that they never agreed to one. (See also natural law; rights; democracy.)

Social democracy: The most commonly proposed form of socialism, calling for worker ownership of the means of production and centralized democratic government. In democratic elections, workers would vote for 1) their supervisors, 2) their representatives to a local and national council of their industry or service, and 3) their representatives to a central congress representing all the industries and services. (See also socialism.)

Socialism: A proposed economic system in which workers, not private capitalist individuals, own and control the means of production. (This includes factories, stores, farmland, machinery, etc.) Not to be confused with the "socialism" nominally practiced by the Soviet Union, which was no more than a dictatorship over workers by a ruling elite. True socialism on a national level has never been tried anywhere in the world. (It is sometimes practices at the company level, with employee-owned firms.) Socialism has been proposed in many forms, ranging from anarcho-socialism to social democracy. However, in those variants where socialism advocates a centralized government, that government is always democratic. (Compare to anarcho-socialism; communism; Marxism; social democracy; Stalinism.)

Socio-economic status: A classification of people using income and other social markers, like education, occupation, residence, etc. This is often a better measure than pure income alone, because being "middle class" is often a state of mind -- an identification or association with an educational, professional or residential group that may experience wide disparities in income.

Sovereignty: Absolute, 100-percent ownership and control over property by a person, class, organization or nation.

Special interest group: Any group that has a shared set of concerns, which attempts to argue its case before legislators prior to the passage of laws affecting their interests. Examples of such groups include individual business firms, businesses from the same field, labor unions, trade unions, environmentalist groups, senior citizens groups, academics, etc. (See also Political Action Committee; lobbying.)

Stalinism: 1) The type of dictatorial government practiced by Joseph Stalin in the Soviet Union. This system was characterized by totalitarian control not only of society, but the economy as well. Stalinism was not socialist (if it had been, workers would have voted on all government policy), nor was it communist (in which case the state would have disappeared completely). However, Stalin co-opted these terms to describe his rule, and they are still used to describe it today. 2) The type of government practiced by all nations in the Soviet and Red Chinese empires after Stalin. (See also communism; socialism.)

Superfund: After the widely publicized environmental disaster at Love Canal, Congress created the Superfund program to clean up the nation's thousands of toxic dump sites. The polluters responsible are supposed to defray the cleanup costs, but corporations sue in court to minimize their liability. Between 1986 and 1989, insurers spent $1.3 billion on Superfund clean-up and litigation -- with $1.2 billion of that going to their lawyers alone

Supply-side economics: The theory that lowering tax rates will increase economic growth and tax collections. Specifically, tax cuts allow entrepreneurs to invest their tax savings in new jobs and equipment, causing more people to earn more money, who collectively pay more taxes, albeit at lower individual rates. The Laffer Curve was an attempt to graph such a relationship between tax rates and tax collections. To critics in the early 80s who said that tax cuts without spending cuts would increase the deficit, supply-siders claimed that growth would be so tremendous that the economy would simply outgrow the deficit. Early supply-side economists also believed in Say's Law ("Supply creates its own demand"), hence the name, supply-side economics. Academia has completely and utterly rejected supply-side economics. It is widely viewed as a crank theory, and should not be confused with mainstream conservative economics, which believes in tax cuts for reasons other than expanding tax collections. In the early 80s, at the height of supply-side fame, the multi-partisan American Economics Association had 18,000 members. Only 12 called themselves supply-side economists. In American universities, there is no major economics department that could be called "supply-side," and there is no supply-side economist at any major department. Even David Stockman, one of the central figures of the supply-side revolution, has since denounced it as a fraud and a "Trojan Horse" for cutting tax rates on the rich. (See also Laffer curve.)

Sustainable economy: A proposed economic system in which resources are not used faster than they can be replaced. Liberals call for a sustainable economy to limit the population explosion and environmental destruction caused by growth-based economies.

Tragedy of the commons: A phenomenon where individuals attempt to exploit the group, but only harm themselves when everyone adopts the same strategy. For example, suppose you and 30 other people attend a banquet at a restaurant, and everyone agrees to split the check equally. You may have originally decided to order a $5 meal, because you were on a tight budget. But now that you know the check will be split evenly, you decide to switch to a $20 steak and lobster meal. This is an attempt to exploit the group, because if everyone else orders a $5 meal, your share of the final bill will be only $5.48. The group will have absorbed the extra cost. Unfortunately, if everyone else attempts the same thing, they will all order steak and lobster, and in the end your bill will be $20.00 anyway. Conservatives argue that the same thing happens in a welfare state with a guaranteed safety net. People fall into the safety net, thinking others will support them, but when everyone does this, there is no one left holding the net. The challenge to liberals is to devise social policy that avoids the tragedy of the commons. This can be done by requiring welfare recipients to look for work, for example.

Unemployment: The percentage of the labor force without jobs. In this case, the labor force is defined as those with jobs and those who are seeking them. There are three types of unemployment. Frictional unemployment refers to those workers who are between jobs, who are seeking jobs more closely matched to their skills and salary expectations. Structural unemployment refers to workers who have lost their jobs because technological changes have made their jobs obsolete, as in the case of bank tellers replaced by automatic teller machines. Cyclical unemployment refers to workers who are laid off during a recession, and will probably return to work once the recovery is in progress. Of these three, only frictional unemployment is desirable, because the economy is more efficient when workers are better matched to their jobs. The other two suggest that labor is being wasted and under-utilized.

Unicameral legislature: A legislature where there is only one chamber of representatives. Most legislatures in the world are unicameral. Advocates claim that unicameral governments eliminate corruption, rivalry, inefficiency and ill-considered compromises. Most notably, they eliminate the conference committee, the place where both chambers of a bicameral government meet in secret to hammer out compromises and insert special interest amendments. Lacking a conference committee, unicameral legislatures are held to be much more open and honest. Critics of unicamerals point out that they lack the checks and balances of a bicameral, and that two chambers are useful for slowing down mob rule. (See also bicameral legislature.)

War on Poverty: The increased anti-poverty spending begun by Lyndon Johnson, which reduced poverty from 18 percent in 1964 to 11 percent in 1973, the lowest poverty rate in American history.

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