Democraticc Republic

Is the United States a democracy?
Yes, the United States is a democracy, since we, the people, hold the ultimate political power. We’re not a “direct democracy,” but we are a “representative democracy.”

This is where our history education might add some confusion. We are commonly taught that democracy is a product of ancient Greece. It’s their word – demokratia – after all. The city-state of Athens is credited with implementing a system of government of and by the people, whereby eligible citizens would congregate to make decisions. They’d make these decisions themselves (or “directly”), not through any elected representatives.

That system of government, better understood today as direct democracy, lives on in the United States in the form of ballot initiatives and referenda. Some states and localities afford their citizens the right to use these measures to directly enact, change, or repeal laws themselves.

More commonly, we exercise our political power in a different way: by voting in elections to choose our representatives. That’s representative democracy.

The Constitution does not use the term “democracy.” It’s true. But as Eugene Volokh notes in the Washington Post, John Adams, Thomas Jefferson, Noah Webster, Justice James Wilson and Chief Justice John Marshall all used the word. These scholars understood representative democracy – the American variety – to be democracy all the same.

Is the United States a republic?
Yes. The United States is a republic because our elected representatives exercise political power.

History also tells us that Rome was a republic, unlike Athens. When its monarchy was overthrown, Rome developed a republican system of government whereby citizens elected officials who were empowered to make decisions for the public. That’s the core of how our government works. While “democracy” and “republic” have been historically pitted against one another, the reality is that the two terms enjoy considerable overlap.

So, which term should I use?
It’s really up to you. In practice, the word “republic” has the same meaning as the term “representative democracy.” And a representative democracy is a form of democracy in the same way that a Granny Smith apple is a form of apple. We wouldn’t say it’s inaccurate to use “apple” to describe a Granny Smith apple, so it’s OK to follow in the footsteps of Jefferson, Adams, Webster, and Chief Justice Marshall and simply call our “representative democracy” a “democracy.”

But it’s also accurate to call the United States a “republic.” It’s mostly about your preference of words. Hopefully, this post will help lower the heat in the online debate. Let’s put our energy toward working to fix our government so it represents the people!

What type of government is the US, exactly?
To be very specific, the United States could be defined as a “federal constitutional representative democracy.” You might also call it a “federal constitutional republic.” Let’s break those terms down.

Constitutional: Our system of government is considered constitutional, because the power exercised by the people and their representatives is bound by the constitution and the broader rule of law.

Federal: Our government is also a federal system, since power is shared between a national government, representing the entire populace, and regional and local governments.

These two terms can come in handy when you want to get really exact with your description. It’s accurate to call our government a “federal constitutional republic” or a “federal constitutional democracy,” but it’s probably overkill to be that specific. These terms just help us further define our governmental structure, especially when comparing the United States to other countries.

Is the United States still a democracy/republic?
In the literal sense of the word, yes. In practice, the answer is more complicated. In 2016, The Economist Intelligence Unit downgraded the United States from a “full democracy” to a “flawed democracy” in its Democracy Report, an annual study of the “state of democracy” around the world.

There were a number of reasons the nation’s rating fell, but one of the most important was the American public’s declining trust in government. Our system of government depends on citizens being able to freely elect leaders who will represent their interests. Unfortunately, that doesn’t always happen. In a study published 2014, two political scientists found that, on average, the policies representatives pursue are not in fact dictated by public opinion. This is the mark of a flawed democracy/republic: election without true representation.
So, is the United States a democracy or a republic?

The United States is both a democracy and a republic.

PROVIDE BY REPRESENT US

Kittens

 

Capitalism

Capitalism is a system of largely private ownership that is open to new ideas, new firms and new owners—in short, to new capital. Capitalism’s rationale to proponents and critics alike has long been recognized to be its dynamism, that is, its innovations and, more subtly, its selectiveness in the innovations it tries out. At the same time, capitalism is also known for its tendency to generate instability, often associated with the existence of financial crises, job insecurity and failures to include the disadvantaged.

There are basic questions about capitalism that have hardly begun to be studied.  

1. What economic and social institutions engender innovation in the more capitalist of today’s advanced economies, and what institutions function badly in this regard? 
2. How large are the benefits of this system both in productivity and more broadly in the rewards to its participants? 
3. How much worse (if at all) is this system with respect to stability and inclusion - compared with corporatist systems found in continental western Europe and east Asia? 
4. What changes or additions to those institutions and policies could be hoped to improve its dynamism, stability or inclusiveness? 
5. Are capitalists systems more or less prone to financial crises than corporate ones? 

The mandate of Columbia’s Center on Capitalism and Society is to advance our scholarly understanding of capitalism’s workings, its social benefits and costs, and its place in a democracy.

The Debate Over Capitalism
The claims for capitalism differ from the classical case for a competitive market economy. Adam Smith’s thesis two centuries ago was that the presence of many buyers and many sellers competing with one another in the marketplace would weed out wasteful resource allocations “as if by an invisible hand.” (So, in equilibrium conditions, one person’s earnings could not be further increased except at the expense of another’s.) This valuable ability of unimpeded markets could not be matched by a central government bureau, as Ludwig von Mises warned the socialists in the 1920s. But Smith’s insights left it unclear how or whether economic change might be generated. Would competition among firms suffice to generate change, with or without private ownership?

A few central European economies twice became laboratories in recent decades for testing competition without private ownership. From the late 1960s to the late 1980s they allowed each state-owned firm to set their own prices, outputs, wages and workforce in competition with the others. Whether or not efficiency improved, it was clear that economic dynamism did not ensue. It was said in defense of these state firms that their managers’ plans for them were often blocked by the state and that the managers knew they could get their losses covered by the state so they didn’t need to take chances. In the 1990s, the state firms were put on their own. This time, with their backs to the wall, they began innovating like mad, hoping that with luck it would be their ticket to survival. But these state firms were not able to innovate successfully.1 Competition, it appears, is not sufficient for economic dynamism.

More recently, it has come to be argued that the corporatist economies of east Asia, which had achieved wonders when there was a yawning gap with the West, ran into trouble in the 1990s because state intervention in the corporate sector through permissions, subsidies and guarantees led ultimately to mass overinvestment and insolvency.2 On this thesis, private ownership is not sufficient for dynamism either: capitalism, in which capital is free to go in new directions without a green light from the state, becomes necessary at some point in economic development if dynamism is to continue.  READ MORE...

Snow Sled Ring

 

Socialism

Many people wonder what heaven is like -- so many, in fact, that philosophers and scholars over the years have hypothesized about how heaven on Earth can be achieved. The term "utopia" was coined in 1515 by British writer Thomas More. Utopia describes a perfect place or society, where everyone is equal socially and economically.

The political and economic theory of socialism was created with the vision of a utopian society in mind. Contrary to other economic systems, there is no real consensus on how the ideal socialist society should function. Dozens of forms of socialism exist, all with differing ideas about economic planning, community size and many other factors. Despite the variations in socialist thought, every version advocates the benefits of cooperation among the people, steering clear of the "evils" of competition associated with capitalism.

True socialists advocate a completely classless society, where the government controls all means of production and distribution of goods. Socialists believe this control is necessary to eliminate competition among the people and put everyone on a level playing field. Socialism is also characterized by the absence of private property. The idea is that if everyone works, everyone will reap the same benefits and prosper equally. Therefore, everyone receives equal earnings, medical care and other necessities.

As we've learned, socialism is difficult to define because it has so many incarnations. One of the things socialists agree on is that capitalism causes oppression of the lower class. Socialists believe that due to the competitive nature of capitalism, the wealthy minority maintains control of industry, effectively driving down wages and opportunity for the working class. The main goal of socialism is to dispel class distinctions by turning over control of industry to the state. This results in a harmonious society, free of oppression and financial instability. Some of the other forms of socialism include these goals:

Guild socialism: Based in early 19th-century England, workers' guilds (similar to unions) were responsible for control and management of goods.

Utopian socialism: Advocates social ownership of industry and a voluntary, nonviolent surrender of property to the state. Implemented in communities like Robert Owens' New Lanark.

State socialism: State socialism allows major industries to be publicly owned and operated.

Christian socialism: Developed in England in 1948, this branch was born from the conflict between competitive industry and Christian principles. Christian socialist societies are characteristically led by religious leaders, rather than socialist groups.

Anarchism: Opposes domination by the family, state, religious leaders and the wealthy. Anarchism is completely opposed to any form of repression and has been associated with some radical events, including assassinations in Italy, France and Greece. U.S. President William McKinley was assassinated by an anarchist.

Market Socialism: Often referred to as a compromise between socialism and capitalism. In this type of society, the government still owns many of the resources, but market forces determine production and demand. Government workers are also enticed with incentives to increase efficiency.

Agrarianism: Form of socialism that features the equitable redistribution of land among the peasants and self-government similar to that in communal living. Agrarian ideals were popular in the rural United States well into the 1900s, although increasing government control deterred their growth.  READ MORE...

Lion

Kissing in the Rain

 

Demand Side Economics

Demand-side economics is frequently referred to as “Keynesian economics” after John Maynard Keynes, a British economist who outlined many of the theory’s most important attributes in his General Theory of Employment, Interest, and Money.

According to Keynes’ theories, economic growth is driven by the demand for (rather than the supply of) goods and services. Simply put, producers won’t create more supply unless they believe there’s demand for it.

Demand-side theory directly counters classical and supply-side economics, which hold that demand is driven by available supply. This may seem like a chicken-and-egg distinction, but it has some major ramifications for how you look at the economy and the government’s role in it.

In contrast to supply-siders, Keynesians place less emphasis on overall levels of taxation, and believe much more in the importance of government spending, especially during periods of weak demand.

Here’s how demand-side economics differs from supply-side:

• Demand-side economists argue that instead of focusing on producers, as supply-side economists want to, the focus should be on the people who buy goods and services, who are far more numerous.
• Demand-side economists like Keynes argue that when demand weakens—as it does during a recession—the government has to step in to stimulate growth.
• Governments can do this by spending money to create jobs, which will give people more money to spend.
• This will create deficits in the short-term, Keynesians acknowledge, but as the economy grows and tax revenues increase, the deficits will shrink and government spending can be reduced accordingly.

There are two-prongs to demand-side economic policies: 

• an expansionary monetary policy
• a liberal fiscal policy.

In terms of monetary policy, demand-side economics holds that the interest rate largely determines the liquidity preference, i.e., how incentivized people are to spend or save money. During times of economic slowness, demand-side theory favors expanding the money supply, which drives down interest rates. This is thought to encourage borrowing and investment, the idea being that lower rates make it more appealing for consumers and businesses to buy goods or invest in their businesses—valuable activities that increase demand or create jobs.

When it comes to fiscal policy, demand-side economics favors liberal fiscal policies, especially during economic downturns. These might take the form of tax cuts for consumers, like the Earned Income Tax Credit, or EITC, which was an important part of the Obama administration’s efforts to fight the Great Recession.

Another typical demand-side fiscal policy is to promote government spending on public works or infrastructure projects. The key idea here is that during a recession it’s more important for the government to stimulate economic growth than it is for the government to take in revenue. Infrastructure projects are popular options because they tend to pay for themselves in the long term.  READ MORE...

Bad Boys

 

Supply Side Economics

Supply-side economics is better known to some as "Reaganomics," or the "trickle-down" policy espoused by 40th U.S. President Ronald Reagan.

President Reagan and his Republican contemporaries popularized the controversial idea that greater tax cuts for wealthy investors and entrepreneurs provide them with incentives to save and invest, and produce economic benefits that trickle down into the overall economy.

He often quoted the aphorism "a rising tide lifts all boats" to explain his take on the theory.

Understanding Supply-Side Economics
Like most economic theories, supply-side economics tries to explain both macroeconomic phenomena and—based on these explanations—offer policy prescriptions for stable economic growth.

In general, the supply-side theory has three pillars: tax policy, regulatory policy, and monetary policy. However, the single idea behind all three pillars is that production (i.e. the "supply" of goods and services) is most important in determining economic growth.

The supply-side theory is typically held in stark contrast to the Keynesian theory which, among other facets, includes the idea that demand can falter, so if lagging consumer demand drags the economy into recession, the government should intervene with fiscal and monetary stimuli.

This is the single big distinction: a pure Keynesian believes that consumers and their demand for goods and services are key economic drivers, while a supply-sider believes that producers and their willingness to create goods and services set the pace of economic growth.

The Argument That Supply Creates Its Own Demand
In economics, we review the supply and demand curves. The chart below illustrates a simplified macroeconomic equilibrium: aggregate demand and aggregate supply intersect to determine overall output and price levels. (In this example, the output may be the gross domestic product, and the price level may be the Consumer Price Index.)  READ MORE...

Shaky Shaky

 

Basic Economics

Economics is a complex subject filled with a maze of confusing terms and details which can be difficult to explain. Even economists have trouble defining exactly what economics means. Yet, there is no doubt that the economy and the things we learn through economics affects our everyday lives.

In short, economics is the study of how people and groups of people use their resources. Money certainly is one of those resources, but other things can play a role in economics as well. In an attempt to clarify all this, let's take a look at the basics of economics and why you might consider studying this complex field.

The Field of Economics
Economics is divided into two general categories: microeconomics and macroeconomics. One looks at the individual markets while the other looks at an entire economy.

From there, we can narrow economics into a number of subfields of study. These include econometrics, economic development, agricultural economics, urban economics, and much more.

If you have an interest in how the world works and how financial markets or industry outlooks affect the economy, you might consider studying economics. It's a fascinating field and has career potential in a number of disciplines, from finance to sales to the government.

Two Essential Concepts of Economics
Much of what we study in economics has to do with money and the markets. What are people willing to pay for something? Is one industry doing better than another? What is the economic future of the country or world? These are important questions economists examine and it comes with a few basic terms.

Supply and Demand is one of the first things we learn in economics. Supply speaks to the quantity of something that's available for sale while demand refers to the willingness to purchase it. If the supply is higher than the demand, the market is thrown off balance and costs typically decrease. The opposite is true if demand is greater than the supply available because that commodity is more desirable and harder to obtain.

Elasticity is another key concept in economics. Essentially, here we're talking about how much the price of something can fluctuate before it has a negative impact on sales. Elasticity ties into demand and some products and services are more elastic than others.  READ MORE...

Kissing

 

Falling Snow

 

Tax Basics

Most of us loathe the very idea of doing our U.S. personal income taxes, not because we expect to get fleeced each April 15 (or 16) but simply because we don't know an adjusted gross income from a standard deduction. For the many tax code illiterates among us, Salary.com has combed through the Internal Revenue Service website, taking inspiration from Sarah Young Fisher and Susan Shelly's book The Complete Idiot's Guide to Personal Finance, to come up with a checklist that may help simplify your tax-filing experience.

Taxable and nontaxable income
To get things started with the very basics, below is a list of everything the government considers taxable income.

• Your salary, less any money put into a retirement plan.
• Interest on any bank accounts.
• Interest on all bonds except municipal (tax-free) bonds.
• Dividends on investments.
• Severance pay, bonuses, and sick pay from your employer.
• Unemployment compensation.
• Tips.
• Capital gains on mutual funds and other investments.
• Bartering, royalties, gambling gains, and lottery winnings.
• Most withdrawals from an individual retirement account or an annuity.

The following nontaxableincome is safe from Uncle Sam's clutches.

• Money contributed to retirement accounts such as your 401(k) or IRA.
• Gifts from anyone.
• Disability income on benefits you paid for with after-tax money.
• Childcare financed through a plan at work.
• Return of invested capital.
• 401(k) money rolled over into another plan.
• Child support receipts.
• Money received by you as repayment for a loan.

Adjustments
Everybody wants to reduce his or her taxable income as much as possible. The first place to start is with adjustments, which are special types of tax breaks or deductions the government lets you subtract from your income, thus reducing the amount of tax you pay. One adjustment that might save you quite a bit is if you have contributed as much as possible to tax-sheltered accounts. Another type of adjustment is the expense you incur from moving. For example, if you took a new job at least 50 miles from your old one, you could deduct the cost of changing homes and driving expenses. A third adjustment is possible if, for example, you're still in the first 60 months of repaying student loans, in which case you may deduct interest paid (up to $2,500). Other potential adjustments would be alimony paid and bad debts, but they are subject to strict rules and can be researched further at the IRS website.

Standard and itemized deductions
Deductions can be beautiful if you figure out which ones apply to you. While legal deductions are many and varied, don't expect a free-for-all. If you start itemizing a broad spectrum of expenses you must prove you qualify with supporting documents. Everyone gets to chose between a standard deduction and an itemized deduction. The goal is to use the one that most reduces your taxable income.

If your financial situation is reasonably simple - that is, if you don't own property, run a business from home, or manage a lot of investments - you're probably best off taking the standard deduction. The standard deduction is a fixed dollar amount Congress allows all taxpayers to subtract from their income, even if they don't participate in activities that are deemed deductible by the government. For the year 2000, single persons get a standard deduction of $4,400. Those filing as head of household, which typically refers to divorced or single parents, get a standard deduction of $6,450. Married persons filing jointly, or qualifying widows and widowers, get a standard deduction of $7,350, while married persons filing separately get $3,675. You cannot take the standard deduction if you or your spouse claim itemized deductions.

Itemized deductions are accounted for on Schedule A of IRS form 1040. Itemizing simply means listing the specific items that are deductable according to current tax rules, and then subtracting their costs from your taxable income. This may be the best option for you if your financial life is somewhat complicated or, if, for example, you've had a large number of medical bills, or significant loss. 

The following expenses can be itemized as legitimate deductions.

• Taxes (such as local income, state, real estate, foreign, and personal property taxes).
• Medical and dental expenses.
• Interest expenses on mortgages, home equity loans, and real estate.
• Charitable work or contributions to tax-exempt organizations.
• Casualty and theft losses.
• Job expenses.
• Impairment-related expenses for persons with disabilities.

The following expenses can also be itemized, but only if they total more than 2 percent of your adjusted gross income.

• Job-related car expenses.
• Business expenses not covered by your employer.
• Educational expenses.
• Professional dues, tools, uniforms, and legal expenses incurred to collect income.
• Tax preparation fees.
• Investment fees.
• Cellular telephones used for business.
• Passport fees (provided the travel is for business).
• Safe deposit box fees, if used for investment protection.
• Subscriptions to professional journals and research.
• The cost of a home computer, if used for work.

Unfortunately, none of the following qualifies as a valid deduction.

1. Political contributions.
2. Trash collection fees.
3. Home owners' association dues.
4. Water bills.
5. Car loan interest.
6. Credit card interest (except for a business).
7. Real estate points, if you are the seller.
8. Estate, inheritance, legacy, or succession taxes

Audrey Arkins, Salary.com contributor

The Kiss

 

What is Inflation?

How do you measure inflation?

Statistical agencies start by collecting the prices of a very large number of goods and services. In the case of households, they create a “basket” of goods and services that reflects the items consumed by households. The basket does not contain every good or service, but the basket is meant to be a good representation of both the types of items and the quantities of items households typically consume.

Agencies use the basket to construct a price index. First, they determine the current value of the basket by calculating how much the basket would cost at today’s prices (multiplying each item’s quantity by its price today and summing up). Next, they determine the value of the basket by calculating how much the basket would cost in a base period (multiplying each item’s quantity by its base period price). The price index is then calculated as the ratio of the value of the basket at today’s prices to the value at the base period prices. 

There is an equivalent but sometimes more convenient formulation to construct a price index that assigns relative weights to the prices of items in the basket. In the case of a price index for consumers, statistical agencies derive the relative weights from consumers’ expenditure patterns using information from consumer surveys and business surveys. We provide more details on how a price index is constructed and discuss the two primary measures of consumer prices—the consumer price index (CPI) and the personal consumption expenditures (PCE) price index—in the Consumer Price Data section.

A price index does not provide a measure of inflation—it provides a measure of the general price level compared with a base year. Inflation refers to the growth rate (percentage change) of a price index. To calculate the rate of inflation, the statistical agencies compare the value of the index over some period in time to the value of the index at another time, such as month to month, which gives a monthly rate of inflation; quarter to quarter, which gives a quarterly rate; or year to year, which gives an annual rate.

In the United States, the statistical agencies that measure inflation include the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS).

Why are there so many different price indexes and measures of inflation?
Different groups typically care about the price changes of some items more than others. For example, households are particularly interested in the prices of items they consume, such as food, utilities, and gasoline, while commercial companies are more concerned with the prices of inputs used in production, like the costs of raw materials (coal and crude oil), intermediate products (flour and steel), and machinery. Consequently, a large number of price indexes have been developed to monitor developments in different segments of an economy.

The most broad-based price index is the GDP deflator, as it tracks the level of prices related to spending on domestically produced goods and services in an economy in a given quarter. The CPI and the PCE price index focus on baskets of goods and services consumed by households. The producer price index (PPI) focuses on selling prices received by domestic producers of goods and services; it includes many prices of items that firms buy from other firms for use in the production process. There are also price indexes for specific items such as food, housing, and energy.

What is "underlying" inflation?
Some price indexes are designed to provide a general overview of the price developments in a broad segment of the economy or at different stages of the production process. Because of their comprehensive coverage, these aggregate (also called “total,” “overall,” or “headline”) price indexes are of considerable interest to policymakers, households, and firms. However, these measures by themselves do not always give the clearest picture of what the “more sustained upward movement in the overall level of prices,” or underlying inflation, happens to be. 

This is because aggregate measures can reflect events that are exerting only a temporary effect on prices. For example, if a hurricane devastates the Florida orange crop, orange prices will be higher for some time. But that higher price will produce only a temporary increase in an aggregate price index and measured inflation. Such limited or temporary effects are sometimes referred to as “noise” in the price data because they can obscure the price changes that are expected to persist over medium-run horizons of several years—the underlying inflation rate.

Underlying inflation is another way of referring to the inflation component that would prevail if the transitory effects or noise could be removed from the price data. From the perspective of a monetary policymaker, it is easy to understand the importance of distinguishing between temporary and more persistent (longer-lasting) movements in inflation. 

If a monetary policymaker viewed a rise in inflation as temporary, then she may decide there is no need to change interest rates, but if she viewed a rise in inflation as persistent, then her recommendation might be to raise interest rates in order to slow the rate of inflation. Consumers and businesses can also benefit from differentiating between temporary and more persistent movements in inflation. For these reasons, a number of alternative measures have been developed to measure underlying inflation.  READ MORE...

Merry-go-round

 

Our Government Spending

In 2021, the government spent $6.82 trillion.

Like households, the federal government must live within the confines of a budget. However, those confines are much, much larger than the spending limits of the average household — or any household, for that matter.

How large? The federal government is projected to spend $5.7 trillion in 2021, according to the Congressional Budget Office. If you’re wondering where that money comes from and where it goes, here’s what you need to know about the federal budget and how it impacts you.
NOTE: Our government spent $1.1 Trillion than expected...

How the Federal Budget Process Works
If you think staying on top of your household budget is tedious, consider the process the federal government must go through each year. Actually, the process takes more than a year. The U.S. government doesn’t budget for the calendar year starting on Jan. 1 but rather a fiscal year starting on Oct. 1 and going through Sept. 30 of the following year. The process for creating the budget begins a year and a half before the fiscal year begins.

Step 1: Government agencies start compiling their spending proposals in the spring (1 1/2 years before the fiscal year begins) to submit to the White House Office of Management and Budget.

Step 2: Using the agencies’ request, the OMB and president create a budget request that typically is submitted to Congress by the first Monday in February.

Step 3: The House of Representatives and Senate budget committees draft budget resolutions. Then a House-Senate conference committee resolves the differences between the two resolutions to create one budget resolution that both the House and Senate are supposed to approve by April 15.   READ MORE...

In 2021, the federal government collected $4.05 trillion in revenue.
In 2021, the federal government spent $6.82 trillion.

Deficit: ($2.77) trillion

SOURCE:  Datalab

COVID PANDEMIC
The U.S. government spent at least $5.2 trillion to combat the covid-19 crisis. It stands as one of the most expensive, ambitious experiments in U.S. history. And it succeeded.

A final phase of that assistance could begin this week, when the Treasury Department starts a $110 billion program of child tax credit payments for millions of Americans. Those benefits are set to run through the end of the year.

But even that program will run out, assuming it is not renewed. And policymakers will be undertaking an equally uncertain experiment by letting most other covid-19 relief aid run its course. Businesses and households that were able to navigate the coronavirus pandemic with large levels of government aid will soon test their ability to forge ahead on their own.

Previous attempts to let pandemic-related benefits expire were met with last-minute extensions, as economic updates remained dismal and hardship remained prominent. But the White House appears ready to let the training wheels come off this year as positive indicators pile up.  READ MORE...

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