Lecture 2 - Federalism and the Role of the State in the Economy

Question 1

Who was Alexander Hamilton?

Answer 1

Alexander Hamilton was a founding father who supported a powerful central government

Question 2

What were the key features of Hamilton’s belief in a powerful central government?

Answer 2

• He advocated for national control over trade, taxation and defence to promote economic stability
• He believed in fostering industrialisation through government support of manufacturing and infrastructure (eg. Tariffs, subsidies)
• National bank creation was part of Hamilton ‘s plan to stabilise currency and finances (active banking system to supply credit and consolidate the US debt)

Question 3

What was Hamilton’s role in economic development and politics?

Answer 3

Hamilton laid the foundation for a strong centralized economy that enabled industrial growth and pioneered the two-party political system

Question 4

Define Federalism

Answer 4

Federalism is the division of powers between national and state governments

Question 5

What are the 3 key principles of Federalism?

Answer 5

1- Dual Sovereignty: Both levels of government have distinct areas of authority
2- Checks and Balances: Federalism balances power between state and national governments
3- States’ Rights vs National Interests: Early US debates centred around how much autonomy states should have

Question 6

What did federalism help to do?

Answer 6

Federalism helped unify the individual colonies into a strong, cohesive United States while retaining local control

Question 7

Define Centralization

Answer 7

Centralization is the concentration of power at the national level (Hamilton’s Vision)

Question 8

What are the benefits of Centralization?

Answer 8

• National Coordination
• Uniform policies
• Stronger response to crises

Question 9

What are the drawbacks of Centralization?

Answer 9

• Potential for overreach
• Reduced local flexibility

Question 10

Define Decentralization

Answer 10

Decentralization is when power is distributed across state and local governments

Question 11

What are the benefits of Decentralization

Answer 11

• It allows for local governance tailored to regional needs

Question 12

What are the drawbacks of Decentralization?

Answer 12

• There is potential for inconsistency
• Conflict between state and federal laws

Question 13

Explain the evolution of federalism in the US

Answer 13

• Early years: More decentralized with strong emphasis on State’s rights
• Post-Civil War and 20th century: Gradual expansion of federal power (eg. New deal)
• Modern era: Continued debate on the appropriate balance (eg. Healthcare, education policies)

Question 14

What are public goods?

Answer 14

Public goods are goods which have non-excludability and non-rivalry in their consumption

Question 15

How does the market typically provide public goods?

Answer 15

Markets typically under-provide public goods because of individual incentives to free ride (free rider problem)

Question 15

What does market failure create scope for?

Answer 15

Market failure creates scope for government intervention

Question 16

Who is responsible for the provision of public goods?

Answer 16

Central government and state governments share responsibilities in the provision of public goods