Economic Policy and Foreign Policy

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• Economic Policy and Foreign Policy
• Session 27

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Economic Policy

• There has been vast unemployment before and there
  will be again. There will be depression and
  inflation just as the tides ebb and flow. I
  would have little enthusiasm for any proposed
  remedy that seeks palliation or tonic from the
  Public Treasury.

Warren G. Harding, 1921
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• A Fundamental Change in Attitudes Toward
  Government Involvement in the Economy
• The duration, scale, and persistence of the Great
  Depression
• New techniques for monitoring and analyzing the
  economy
• Maynard Keynes (1936)
• World War II spending

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• Economic Stability economic growth, rising
  national income, high levels of employment,
  consistent prices for goods and services
• Economic Instability inflation or recession

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Government Influence on the Economy

• Monetary Policy regulation of the supply of
  money (removed from politics)
• The Fed
• Chairman (Allan Greenspan)
• four year term (since 1987)
• Reserve requirements higher
• percentage means less money is
• available for
• economic development and growth
• Discount rate ? interest rates
• When the economy is growing too fast, the Fed
• makes less money available. When it is growing
• too slowly, it makes more money available.

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• Fiscal Policy taxing and spending, budgetary
  process (highly political)
• Congress and the president
• Demand (resulting in jobs) corporate spending
  consumer spending government spending
• The government adjusts using spending or tax cuts
  these are two sides of the same coin
• The amount of spending has an influence
• on the possibility of inflation or recession
• About the deficit and the debt
• . . . I will always put lettuce in
• the crisper

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• Progressive Tax
• A tax graduated so that people with higher
  incomes pay a larger fraction of their incomes
  than people with lower incomes

• Regressive Tax
• A tax where people with lower incomes pay a
  higher fraction of their income than people with
  higher incomes

Lottery Tax on people who are bad at math
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Where the Money Comes From

• Individual income taxes
• Corporate income taxes
• Payroll receipts
• Excise taxes
• Customs duties and tariffs
• Borrowing

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Taxes Where the Money Comes From
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Spending Where the Money Goes
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The Budget Process

• Gross Domestic Product
• Entitlement Programs
• Players in the Process
• The Executive Branch and OMB
• The Legislative Branch and CBO and GAO
• The Politics of Taxing and Spending
• The Tax Burden
• Progressive Income Tax
• Excise Tax
• Sales Tax

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Other Areas of Economy Policymaking

• Business
• Regulating business - DOJ
• Anti-trust policy
• Price fixing
• Benefiting business
• Department of Commerce
• Small Business Administration

• Consumer policy
• Food and Drug Administration
• Federal Trade Commission
• Labor and Government
• Protections for union activity
• Minimum wage

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Foreign Policy

• Conflicting and Contradictory Goals
• We want to promote democratic values abroad, yet
  we also want to ensure the security of our energy
  supply
• We want to protect the environment, yet also
  support American business overseas
• We want to support human rights in countries such
  as China, but we want China to buy our airplanes
  and other products
• We want to reprimand India and Pakistan for
  testing nuclear bombs, but economic sanctions
  would hurt those businesses that export to those
  countries
• We want to remain the premier global power, but
  we balk at the costs

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Vital Interests in the 21st Century

• Defining Vital Interests
• Security
• Economic interests
• Democratic values
• The Bush Administrations priorities
• Military strength
• Free trade and a stable international monetary
  system
• Relationships with allies
• Relationships with major powers
• Dealing with the threat of rogue regimes

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New Foreign Policy Challenges

• Nuclear and Biological Arms Control
• Population Growth and Poverty
• Trade with Japan and China
• The Chemical Weapons Convention
• The Former Soviet Union and Eastern Europe
• The EU and NATO
• Drug Trafficking
• The Global Environment
• Budgeting for an Effective Foreign Policy

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Key Players in Foreign Policy

• The presidents foreign policy advisers
• The National Security Council
• The State Department
• The foreign service
• Intelligence and the CIA

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The Politics of Making Foreign and Defense Policy

• Public opinion
• Special interests
• Foreign countries
• Political parties
• The role of Congress
• Foreign policy in a democracy