Economic Policy

1
Economic Policy

• Chapter 18

2
Roots of Economic Policy

• The early years of our nation were marked by a
  laissez faire economic policy.
• Interstate Commerce Commission (ICC)- 1st attempt
  at govt regulation in 1887.

3
Consumer Protection(Progressive Era)

• Sherman Anti-Trust Act of 1890
• Meat Inspection Act (1906)
• Federal Reserve Act (1913)

4
Great Depression/ New Deal

• The economy collapsed in 1929
• FDRs New Deal created programs that were
  supposed to safeguard our economy.
• Laissez faire replaced with interventionism-
  govt having an active role in the economy

5
Government Regulation

• The decades of the 1930s thru the 1970s were
  marked by economic and social regulation.
• Social activism combined with grandstanding
  politicians led the way for government regulation.

6
Deregulation

• A reduction in market controls in favor of market
  based competition began in the mid 1970s.
• Starting with Jimmy Carter, most presidents have
  continued to deregulate industries with mixed
  results.

7
Fiscal Policy

• Congress controls Fiscal policy- government
  expenditures, revenues, and debt
• It is conducted through the federal budget
  process.

8
The Budget

• The Budget Account Act of 1921
• This created the OMB and delegated budget power
  to the President.
• The Congressional Budget Act of 1974
• This created new procedures for the budget.
  First, the President submits the budget. Then,
  the House and Senate budget committees analyze
  the budget with the Congressional Budget Office
  (CBO).
• 2/3 of spending is on entitlements A government
  program that guarantees and provides benefits to
  a particular group. This is uncontrollable
  spending.

9
Budget

• The primary purpose of the budget is to fund
  government programs.
• Most spending goes toward national defense and
  human resource spending.
• Mandatory vs discretionary spending

10
Entitlements

• Entitlement programs are benefits paid to
  American citizens who meet criteria set by the
  government.
• Examples social security, medicaid, food
  stamps, etc.

11
Social Security

• Insurance for the unemployed and elderly
• insurance program- created for the unemployed and
  the elderly
• Everybody would be taxed and all would be
  eligible for insurance
• Assistance program- created for the blind,
  dependent children, and aged
• Only poor ( by the means test) are considered for
  assistance

12
Problems with social security

• 1) baby boomers reaching retirement age
• 2) not as many workers as recipients
• 3) payouts not progressing with cost of living
  increases
• Surplus projected to disappear in next few years.

13
Deficits/Debt

• Deficit- expenditures gt revenues
• Debt- collection of yearly deficits
• Most our our debt is owned by China

14
Monetary Policy

• The Federal Reserve System (the Fed) manages
  monetary policy
• They control the money supply and interest rates.

15
Machinery of Economic Policy Making

• There is fragmented policy-making that is not
  under the presidents full control because within
  the executive branch, numerous organizations
  influence policy.
• Congress is most important in economic policy
  making. It approves all taxes and most
  expenditures. It consents to wage and price
  controls. It can influence the Fed by threatening
  to reduce it powers.

16
Path to Reducing Spending

• The Gramm-Rudman Balanced Budget Act of 1985 was
  unsuccessful.
• New Strategy of 1990
• If entitlements increase, then taxes have to
  increase

17
Levying Taxes

• Policies on Taxing
• The tax burden is too low on citizens, however,
  there are loopholes for industry (client
  politics).
• The rise of Income tax
• The 16th amendment (1913)
• Usually, taxes increase during wartime and
  decrease during peace.