Edward Song 1 Prof. Brant.

Govt-2302 Writing Assignment #1

Due to the growing debt crisis and the unstable conditions of the economy, the public has made the financial debate a concerned topic of discussion. Through social contracts, organizations can work towards managing the budget, but there are three dilemmas that hinder this process, the collective action problems, principal agent problems, and choice rules and agenda setting problems.

Collective action problems exist from the choices people make that are rational, but results in a groups that seem irrational. If everyone in a group engages in collective action, then people can work all together towards a common goal. The problem with collective action in budget spending is that there are three social classes that exist. Since our overall budget relies on tax revenue, accumulating more taxes and cutting budget spending could be a solution to our rising debt. Since the Obama administration "proposed raising taxes by $1.5 trillion, mostly on the wealthy." (Applebaum), this becomes a problem because the upper, middle and lower classes fight to be in the lower tax brackets. The solution would be to take collective action and increase taxes in order to reduce the debt ceiling, but raising taxes creates a problem within the social classes. In order to solve this debate, the government needs to create incentives for each class because they are all self-interested.

In a principle agent problem, the elected official's interests differ from the interest of the people. A good example of this is Boehner's statement about the lame duck sessions and prospects of a big deficit plan. He says a lot of retiring members and defeated members vote on really big bills.(Sherman). Retiring politicians could lack interest of the people and become

Edward Song 2 Prof. Brant. Govt-2302 Writing Assignment #1

self-interested, supporting bills that go against their norms. Elected officials need delegation in so they wont deviate from the main topic at hand. Contracts are a good way to ensure that the principle-agent relationship does not become a problem. An administration can also be established to monitor the norms of the principle. In choosing choice rules and agenda setting issues, problems rely in how informed the public is so that they may make choices based on their rationality. In an agenda setting process, if the media portrays a political issue often, the public will view the issue as an importance thus affecting their choice. This problem is partly due to the polarization of the extreme democrats and republicans and the demise of the moderate party members. In theory, the dearth of moderates means it will be even harder next year for Congress which failed to put together even mundane measures like farm and highway legislation without a fight this session to pass bills. (Steinhauer). Dominate choices supported by extremist party members, become the majority of the publics choice, if centrist support diminishes. To regulate the agenda setting, an institution can be created to establish the rules that everyone must follow. A set of broad choices from all conditions can inform the people of appropriate set of decisions. Sources: Applebaum, Binyamin. In Deficit Plan, Obama Drops Compromise for Confrontation. New York Times. 2011. 18 Oct, 2012. < http://www.nytimes.com/2011/09/20/us/politics/in-deficitplan-obama-drops-compromise-for-confrontation.html?hp> Sherman, Jake. John Boehner wary of lame-duck deficit total. Politico. 2012. 18 Oct, 2012. <http://www.politico.com/news/stories/1012/82105.html> Steinhauer, Jennifer. Weighing the Effect of an Exit of Centrists. New York Times. 2012. 18 Oct, 2012 <http://www.nytimes.com/2012/10/09/us/politics/pool-of-moderates-in-congressis-shrinking.html?pagewanted=1&_r=2&hp>