1. Chapter 12: The Economy and Politics
Case Study: Liar’s Loans
Section 1: The Economic Institution
Section 2: The United States Economy
Section 3: The Political Institution
Section 4: The United States Political System
Simulation: Applying What You’ve Learned

2. Case Study: Liar’s Loans
During the first decade of the 2000s, the United States financial system faced a crisis caused by banks and other lenders making loans to people who could not pay their loans back. In previous years, lenders made money on these risky loans by selling them to other financial institutions. Eventually, however, these weak loans led to a financial crisis that some likened to the beginning of the Great Depression.

4. Section 1 at a Glance The Economic Institution
Societies develop economic institutions to decide how to allocate their resources.
Economic systems have three basic sectors: primary, secondary, and tertiary.
The two main economic models are capitalism and socialism.

5. The Economic Institution
Main Idea
Societies develop economic institutions in order to distribute limited resources.
Reading Focus
How do economic basics affect society?
What three sectors do all economic systems have?
What are the two main economic models?

6. Do you think you could survive without money?

7. Economic Basics
Everybody has needs (such as food and water) and wants (such as a new car or stereo).
Every society creates a system of roles and norms that governs the production, distribution, and consumption of goods and services. This system is called the economic institution.
People’s needs and wants are unlimited, but resources are limited.
Three questions of an economy:
What goods and services should be produced?
How should these goods and services be produced?
For whom should these goods and services be produced?
Answers depend on the factors of production, or resources needed to produce goods and services (such as land and labor).

8. What three questions must every society answer?
Reading Check
Find the Main Idea
What three questions must every society answer?
Answer: What goods and services must be produced? How should these goods and services be produced? For whom should these goods and services be produced?

9. Economic Systems Basic Sectors Industrial Societies
Primary sector: extracting raw materials from the environment
Secondary sector: use of raw materials to manufacture goods
Tertiary sector: providing services
Industrial Societies
Advances in technology helps move focus to secondary sector
Higher levels of agricultural production allows for more people
Job specialization increases
Preindustrial Societies
Very little technological development
All economic activity carried out by human and animal labor
Focuses on primary sector
Postindustrial Societies
Focus is on tertiary sector
Greater emphasis placed on knowledge and the collection and distribution of information

10. What type of economic society is the United States?
Reading Check
Analyze
What type of economic society is the United States?
Answer: capitalist

11. Economic Models Capitalism Socialism
Capitalism: Factors of production owned by individuals; profit and competition regulate activity
Law of supply: Producers will supply products with high profit
Law of demand: Demand will increase as the price decreases
Laissez-faire capitalism: No government regulation
Free-enterprise systems: Limited government control of business
Socialism
Socialism: Factors of production owned by the government; government regulates economic activity
Economic activity controlled by social need and central governmental planning
Ideal communism is a political and economic system in which property is communally owned and social classes cease to exist
All economies fall somewhere in between these two idealized systems. Over time, economies have moved toward the center of this continuum.

14. What are the two main economic models?
Reading Check
Find the Main Idea
What are the two main economic models?
Answer: capitalism and socialism

15. Section 2 at a Glance The United States Economy
The United States economy became the strongest in the world in the 1900s.
New economic developments have changed the way the U.S. economy works.

16. The United States Economy
Main Idea
The United States has one of the world’s richest and most diverse economies.
Reading Focus
Why are the 1900s sometimes called “the American Century”?
What recent developments have transformed the American economic system?

17. An Immigrant’s Dream of Prosperity
What does the United States economy offer that so many immigrants want?

18. The American Century Rise of Corporate Capitalism
Corporation: A business organization owned by stockholders and treated by law as if it were an individual person
Oligopoly: A few large companies control an industry
Protectionism: The use of trade barriers to protect domestic manufacturers from foreign competition
Free trade: Unrestricted trade between countries
Globalization of Corporate Capitalism
Multinational: A corporation that has factories and offices in several countries
Generally headquartered in one country
Some large multinationals have a bigger economy than some poor nations
Some sociologists see global capitalism as the decline of nation-states

19. What two trends have increased U.S. economic power?
Reading Check
Find the Main Idea
What two trends have increased U.S. economic power?
Answer: the rise of corporate capitalism and globalization

20. Click on the image below to play the Interactive.

21. Recent Developments The Changing Nature of Work E-commerce
In the United States, work has shifted from an industrial base to a service base.
Companies have cut costs by moving jobs to other countries and by eliminating jobs.
The service sector has not absorbed displaced workers.
E-commerce
Business conducted over the Internet
Internet allows companies to automate many purchases
Internet allows customers to purchase at home
Concerns about personal information and keeping it safe

22. Recent Developments Trouble Ahead?
Challenges include government debt, Social Security system, subprime mortgage crisis, and rising fuel prices
About half of Americans carry debt on a credit card, with an average debt of $10,000
Americans owe about $2.5 trillion

23. What three factors led to a reduction in U.S. manufacturing jobs?
Reading Check
Analyze
What three factors led to a reduction in U.S. manufacturing jobs?
Answer: advances in technology, globalization (relocation of jobs to newly industrialized countries), elimination of less-skilled jobs

25. Section 3 at a Glance The Political Institution
Societies exercise power over their members through political institutions.
Legitimate power is authority; power exercised through force is coercion.
The two basic types of government are democratic and authoritarian.

26. The Political Institution
Main Idea
Political institutions around the world exercise power in many different ways.
Reading Focus
How does sociology view politics?
What gives legitimacy to a person or group in power?
What types of government do sociologists recognize?

27. Two Koreas Two Political Systems
Can a country's politics really make a difference?

28. Sociological View of Politics
For society to run smoothly, people must often act together for the common good.
In complex societies power is exercised by the state—the primary political authority in society.
A political institution is the system of roles and norms that governs the distribution and exercise of power in society.
Political institutions have evolved over time.
Functionalists see the state as centering on the task of maintaining order in society.
Conflict theorists look at the way in which political institution affects social change.

29. What are two sociological view of politics?
Reading Check
Find the Main Idea
What are two sociological view of politics?
Answer: functionalists—analyze the political institution in terms of the functions of the state; conflict theorists—focus on how the political institution brings about social change

30. Legitimacy of Power
Legitimacy refers to whether those in power are viewed as having the right to control, or govern, others.
Authority is legitimate power.
Traditional authority is power that is based on custom.
Rational-legal authority is based on rules and regulations.
Charismatic authority is based on the personal characteristics of an individual exercising power.
Authority
Coercion is power used through force and based on fear.
All societies use coercion to an extent, but an illegitimate system has coercion as its main method of maintaining order.
The more that a government relies on coercion, the less stable that government will be.
Coercion –

32. Reading Check
Draw Conclusions
What type of authority is the most difficult to sustain from one leader to the next?
Answer: charismatic

33. Types of Government
The state is the combined political structures of a society such as the presidency, Congress, and Supreme Court in the United States. The government is the people who direct the power of the state.
Power is exercised through the people. Those who are governed take part in the governing process.
Representational democracies are those in which voters elect representatives.
Representatives make political decisions.
Constitutional monarchies have monarchs, but ultimate power rests with elected officials.
Democratic Systems –

34. Conditions for Democracy
Industrialization
Most democratic societies are industrialized.
Lenski says the educated urban population of industrial societies expect a voice.
Access to Information
Democracy requires well-informed voters.
Democracies are strongest in societies where the public and media have open access to information.
Limits on Power
All governments exercise power, but in democracies there are clear limits placed on government power.
One way to do this is to spread power among many groups.
Shared Values
Although the right to hold opposing views is a cornerstone of democracy, a shared set of basic values is essential.

35. Authoritarian Systems
In a government based on authoritarianism, power rests firmly with the state. However, this is not Weber’s authority of legitimate power.
An absolute monarchy is an authoritarian system in which the hereditary ruler holds absolute power.
A dictatorship is an authoritarian system in which power is in the hands of a single individual.
A junta is an authoritarian system in which a small group has seized power from the previous government by force.
Totalitarianism occurs when those in power exercise complete authority over the lives of individual citizens.

36. What are the two basic types of government?
Reading Check
Summarize
What are the two basic types of government?
Answer: democratic and authoritarian

37. Section 4 at a Glance The United States Political System
The United States is one of the few countries with a two-party system.
Politicians are influenced by more than just the voters.
People develop political beliefs through political socialization.

38. The United States Political System
Main Idea
The United States is a democracy, but American voters are not the only group that influences the government.
Reading Focus
How does the number of political parties influence a country’s political system?
How do sociologists analyze who rules the United States?
What is political socialization?

39. Fighting the System
Why aren't third parties more successful?

40. Political Parties Multiparty Systems The Two-Party System
Topics of special interest to sociologists are political parties, special-interest groups, voter participation, political models, and political socialization. A political party is an organization that seeks to gain power legitimately.
Most democracies have multiparty systems in which different parties appeal to people on different issues.
This works because of proportional representation—seats in government are decided by proportions of votes.
Multiparty Systems
Nearly all elected U.S. officials since the Civil War have been members of either the Democratic Party or the Republican Party.
Critics claim that this method of election prevents growth of third parties.
The Two-Party System –

41. What type of political party system do most democratic countries have?
Reading Check
Compare
What type of political party system do most democratic countries have?
Answer: multiparty system

42. Who Rules the United States?
Interest Groups
Interest groups leverage political power to influence policies.
They use lobbyists, monetary donations, collection of petitions, organized letter-writing campaigns, and media campaigns.
Political Participation
United States has one of the lowest rates of voter participation.
Only about 60 percent of voting-age people vote.
Race and ethnicity, age, and education level affect rates of voting.
Political Models
The power-elite model states that political power is exercised by and for the privileged few.
The pluralist model states that the political process is controlled by interest groups that compete with one another for power.

45. What methods do interest groups use to gain politicians’ support?
Reading Check
Summarize
What methods do interest groups use to gain politicians’ support?
Answer: lobbying, campaign contributions, petitions, letter-writing campaigns

46. Political Socialization
Family
Children begin learning political beliefs from their parents and other relatives.
Parents may also conduct deliberate socialization activities such as taking a child to vote.
Mass Media
The political viewpoint of the mass media is not always announced directly.
Political messages become explicit during a campaign season.
School
Children recite the Pledge of Allegiance every day.
Students learn the political histories of the country and of their states.
Peer Groups
People with similar characteristics tend to share political beliefs.
Economic status and age are two of the major factors that influence a person’s political views.

47. Reading Check
Draw Conclusions
How is reciting the Pledge of Allegiance a form of political socialization?
Answer: social norm, instills American value of democratic government

48. Simulation: Applying What You’ve Learned
There Should Be a Law!
How do special-interest groups influence the creation of laws?
In this simulation, you will learn how compromise and conflict play a part in ensuring our laws reflect all of society.
Work in groups to write a bill that benefits your group.
1. Introduction
Assign a moderator, a secretary, researchers, and a presenter.
Choose a special interest and draft a bill that would benefit it.
Each group will propose their bill to the whole class.
2. Simulation –

49. Simulation (cont.) 3. Discussion
What did you learn from this lab? As a group, discuss the following:
How difficult was it to originate an idea for a law?
What do you think causes society to rely on government to create laws and sanctions to reflect our values?
Do special interest groups help or hurt the lawmaking process?
Should the lawmaking process be simplified? More difficult?