Economic Policy

1
Economic Policy

• Chapter 16

2
Politics of Economic Prosperity

• Voters can see a connection between the nation
  and their own situation. Economy is the number
  one reason person gets voted for or against. For
  example The economy was solid while he was in
  office so the people viewed him as a solid
  president and he was re-elected.
• Because of that, politicians are more likely to
  think short-term and satisfy the voters.
• Ideology
• Democrats want to reduce unemployment
• Republicans want to reduce inflation

3
Taxing and Spending

• Congress controls Fiscal policy- government
  expenditures, revenues, and debt
• The Federal Reserve Board (The Fed) controls
  the Monetary policy money supply and interest
  rates.

4
What The People Want

• Low Taxes
• Less Debt
• Favored Programs funded such as education,
  medical care and the environment. (ENTITLEMENTS)

5
Theories of Economics

• Monetarism Inflation is caused when too much
  money is chasing too few goods. The government
  should increase money supply at the rate of
  economic growth and control the money in the
  economy by making sure prices are not too high or
  too low. (The Fed)
• Keynesianism The economy needs people to spend
  money to save money. The government should put
  money into the economy if were not spending
  enough and tax us or inflate the economy if we
  spend too much.

6

• Planning The government should plan parts of the
  economy but not wage and price controls.
• Supply-side tax cuts Lower taxes help investors.
  With more money, we spend more and the economy is
  good.
• Reaganomics A combination of supply-side tax
  cuts, monetarism, and domestic budget cutting.
  Reduces the size of the federal government while
  increasing military strength.
• Some results of this are that the military
  increased, the national debt increased and the
  unemployment rate decreased.

7
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.

8
Organizations That Influence Policy

• Council of Economic Advisors (CEA) They forecast
  economic trends and prepare the annual economic
  report that the President sends to Congress
• Office of Management and Budget (OMB) They
  prepare estimates or amounts spent by government
  agencies and ensure legislative proposals are
  compatible with the presidents program. (MOST
  IMPORTANT bureaucratic agency)
• Secretary of Treasury He/she reflects the view
  of the financial community and provide estimates
  of government revenues.
• The Federal Reserve Board (The Fed) There are
  7 members. They serve a 14 year term. This is a
  somewhat independent organization that controls
  interest rates and money supply.

9
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.

10
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

11
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.