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.
Go to Previous Section: O-Q
Return to Glossary Home Page