Chapter Eighteen Economic Policy

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Chapter EighteenEconomic Policy

• American Government and Politics Deliberation,
  Democracy, and Citizenship

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Chapter Eighteen Learning Objectives

• Sketch the history of economic policy and its
  relationship to citizenship
• Describe the elements of fiscal policy
• Explain why the tax system is so complex

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Chapter Eighteen Learning Objectives

• Analyze the mechanics of monetary policy
• Summarize the elements of regulatory policy,
  especially in matters of finance
• Understand the politics of trade policy

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Chapter Eighteen Learning Objectives

• Discuss how policymakers and citizens deliberate
  on economic policy

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Introduction

• Most agree on certain economic goals
• Economic growth (change in GDP)
• Low unemployment
• Low inflation (general rise in prices)

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Introduction

• Economic policy includes
• Fiscal policy
• Monetary policy
• Regulatory and trade policy

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A Brief History of Economic Policy

• Founding an economy
• Laissez-faire approach
• Government fostered economic growth through
  communication and transportation
• Creation of Banks of the United States

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A Brief History of Economic Policy

• Civil War and Progressivism
• Economic policy caused rift between North and
  South
• Laws passed to create uniform national currency
• Progressive movement influenced economic policy

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A Brief History of Economic Policy

• World Wars and their aftermaths
• Government finances difficult to track
• New Deal programs created annual deficit
• Tax withholding authorized in 1943

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A Brief History of Economic Policy

• An age of uncertainty
• 1970s saw high inflation, economic stagnation,
  and unemployment
• Supply-side economics became more prevalent
  economic theory and Ronald Reagan was a strong
  supporter of this idea

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Fiscal Policy Taxes

• What are the costs and benefits of the federal
  governments complex system of income taxes?

National archives
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Fiscal Policy Taxes

• Types of taxes
• Individual income taxes
• Corporate payroll taxes
• Payroll taxes
• Excise and sales taxes

Harley Schwadron/Reprinted by permission of
www.CartoonStock.com
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Myths and Misinformation

• Income tax tales
• A quick search of the Internet will reveal many
  myths about how much citizens owe on their taxes.
  
• The IRS warns against using such misinformation.

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Fiscal Policy Spending and the Budget

• How do the executive and legislative branches
  deliberate about fiscal policy?
• Two considerations
• Economic impact of fiscal policy
• Must consider the components of the budget

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Fiscal Policy Spending and the BudgetThe
Budget Process
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Pledges and Promises

• Full faith and credit of the United States
• The full faith and credit of the federal
  government backs the payments on public debt.
• What would happen if the government failed to pay
  its debts?

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Fiscal Policy Limits of Fiscal Policy

• Limits of fiscal policy include
• Proposals take months to become law, so there may
  be a policy lag
• Much of federal spending is outside the
  appropriations process
• Uncertainty about future economic conditions

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Fiscal Policy Deficits, Surpluses, and the Debt

• Why do deficits happen?
• Deficits may grow because policy goals often
  override fiscal goals.
• A president may be insistent on a policy without
  regard to the long-term economic impact of that
  policy.

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Monetary Policy Organization and Policy

• It is the responsibility of the Federal Reserve
  Board (the Fed) to assist in managing the supply
  of money and credit.
• The goal of the Federal Reserve Board is economic
  stability.

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Monetary PolicyOrganization and Policy

• The Fed does not directly dictate interest rates,
  rather it has power over the federal funds rate.
• The Fed does not have unlimited power as it is
  limited by global economic conditions and federal
  government deficits.

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Monetary PolicyOrganization and Policy
Source The Federal Reserve System,
www.federalreserveeducation.org/FED1015FHTML/ str
ucture/, accessed May 7, 2009.
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Monetary Policy Deliberation and the Fed

• A member of the Federal Open Market Committee
  explained that his research is not only based on
  hard data, but also personal accounts and
  anecdotal evidence.
• How does that approach contribute to
  deliberation?

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Regulatory and Trade Policy

• What is the appropriate role for the government
  in policing economic activity?
• Do international trade agreements infringe on
  American sovereignty?

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Regulatory and Trade PolicyRegulating the
Marketplace

• Four goals of financial regulation
• Protect consumers from fraud, deception, or
  unfair practices
• Ensure the integrity and fairness of markets to
  prevent fraud and manipulation

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Regulatory and Trade PolicyRegulating the
Marketplace

• Four goals of financial regulation
• Monitor the safety and soundness of institutions
• Ensure the stability of the overall financial
  system

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Regulatory and Trade PolicyTrade

• International trade is a source of conflict.
• Those that profit from exports typically support
  free trade and those who are concerned about
  foreign competition typically support
  protectionism.

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International Perspectives

• Economic and political freedom
• According to the data presented, does there
  appear to be a relationship between economic and
  political freedom?
• Where does the United States rank?

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Economic Debate and Deliberative Democracy

• Deliberation depends on knowledge of basic
  information and shared goals but, when it comes
  to economic policy, Americans often disagree
  about how to achieve goals.
• Disagreements underlie deliberations about
  economic policy.

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Deliberation, Citizenship, and You

• Catching waste and abuse
• The federal government is encouraging citizens to
  report waste and abuse with government money
  through the Internet, toll-free phone hotlines
  and fax.

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Summary

• Federal budget large part of economy, but private
  sector is larger
• United States part of global economy
• No one government economic policy
• Many ways to appraise economic policy