Lecture #3

2. THE AMERICAN WELFARE STATE
Week 2

3. The Political Economy
Refers to the interaction of political
and economic theories in
understanding society.

4. Democratic Capitalism
• An open and representative form of government
that coexists with a market economy.
• Social welfare policy plays an important role in
stabilizing society by modifying the play of market
forces and softening the social and economic
inequalities generated by the marketplace.

5. The U.S. Economic Continuum
• Keynesian economics
• Classical or free market economics
• Democratic socialism

6. Basic Keynesian Principles
• Formed the economic basis for the modern
welfare state
• Keynesians believe that social welfare
expenditures are investments in human
capital
• Government must spend when the private
sector won’t/can’t in order to continue to
create supply and demand

7. Free Market Basics
• Based in the belief that many small buyers and
sellers who exchange homogeneous products
with information in a setting in which each can
freely enter and exit the marketplace at will
• Welfare spending exists only for altruistic rather
than economic reasons
• Based in the belief that welfare programs erode
the workforce and take resources that could be
invested in the private sector

8. Basics of democratic socialism
• Based in the belief that radical economic
change can occur within a democratic context
• Radical worldview, poverty is directly linked to
structural inequality
• Social welfare is viewed as a form of social
control

9. Group Discussion
The authors identify three characteristics of a free market
on page 7- many buyers and seller, perfect information,
and free entry and exit. Many buyers and sellers make it
impossible for one buyer or seller to influence the price
of any product. Perfect information places neither buyer
nor seller at a competitive disadvantage. Free entry and
exit into the market eliminates barriers for both buyers
and sellers to get the best price.
Class Exercise:
Break into teams of 3 and identify specific companies or
products that clearly indicate that the free market does
not accurately describe the American economy.

10. The Politics of the Republican &
Democratic Parties
• http://images4.fanpop.com/image/photos/22
700000/Left-vs-Right-US-Political-Spectrum-
us-republican-party-22707903-1415-1022.jpg

11. The U.S. Political Continuum
• Liberalism
• Neoliberalism
• The self-reliance school
• Classical conservatives
• Neoconservatism
• Libertarianism
http://commons.wikimedia.org/wiki/File:Political_spectr
um_graphic.svg

12. The Risk Shift
• What is the great risk shift?

13. Group Discussion
Break into your small groups again. Identify risks
that you believe we all should share from risks
that only the individual or family should face.
How are these risks different? If the current
political trend were more liberal, would any of
the risks you identified be in another category?

14. Thursday!
• Reading: Trattner Chapters 3, 4, 5
• Due: 1 page Summary of Trattner Chapters 1-5