gia17

8/7/2019 GIA17

1/18

Economic PolicymakingEconomic Policymaking

Chapter 17

8/7/2019 GIA17

2/18

Government and the Economy


Introduction

Capitalism:

An economic system in which individuals andcorporations, not the government, own the principlemeans of productions and seek profits.

Mixed Economy:

An economic system in which the government isdeeply involved in economic decisions through itrole as regulator, consumer, subsidizer, taxer,employer and borrower.

8/7/2019 GIA17

3/18



Its the Economy, Stupid: Voters,

Politicians, and Economic Policy

Economic trends affect who the voters vote for

Economic conditions are the best predictor of

voters evaluation of the president (GOP 2008)

Republicans worry about inflation Democrats stress importance of unemployment

8/7/2019 GIA17

4/18



Two Major Worries: Unemployment and Inflation

Unemployment rate: Measured by the BLS, the

proportion of the labor force actively seekingwork, but unable to find jobs.

Inflation: The rise in prices for consumer

goods.

Consumer Price Index: The key measure of

inflation that relates the rise in prices over time.

(Jimmy Carter called it the misery index)

8/7/2019 GIA17

5/18



Unemployment: Joblessness in America, 1960-2002 (Figure 17.1)

8/7/2019 GIA17

6/18



Inflation: Increases in the Cost of Living, 1960-2002 (Figure 17.2)

8/7/2019 GIA17

7/18

Instruments for Controlling theInstruments for Controlling the

EconomyEconomyMonetary Policy and the Fed

The manipulation of the supply of money in

private hands too much cash and credit

produces inflation. (monetarism)

Money supply affects the rate of interest paid.

Main policymaker is the Board of Governors ofthe Federal Reserve System the Fed. (7

members, 14-yr. terms

8/7/2019 GIA17

8/18


EconomyEconomy Monetary Policy and the Fed continued

The Feds instruments to influence the supply of money

in circulation: Sets discount rates (interest charged on loans they

receive)

Sets reserve requirements

Buys and sells government bonds Through the use of these actions, the Fed can affect the

economy by expanding or contracting the money

supply.

8/7/2019 GIA17

9/18


EconomyEconomy Fiscal policy: Keynesian Versus Supply-

Side Economics

Fiscal Policy: The policy that describes the

impact of the federal budget on the economy.

Keynesian Economic Theory: Government

spending and deficits help the economy weatherits normal ups and downs.

Governments job to increase demand of goods

8/7/2019 GIA17

10/18


EconomyEconomy Fiscal policy: Keynesian Versus Supply-

Side Economics, continued

Supply-Side policy: The policy that says thereis too much taxation and not enough money topurchase goods and services. (Trickle downeconomics)

Reduce taxation and government regulationthen people will work harder, and thus create agreater supply of goods.

8/7/2019 GIA17

11/18

Obstacles to Controlling theObstacles to Controlling the

EconomyEconomy Some think politicians manipulate the economy to

win reelection.

But there are problems with that But things like the budget are prepared in advance of

when they go into effect.

Some benefits are indexed. (set)

Capitalism can also affect the economy.

Government is more important in setting the rules

of the game.

8/7/2019 GIA17

12/18

Arenas of EconomicArenas of Economic

PolicymakingPolicymaking Business and Public Policy: Regulations

and Subsidies

Corruption and Concentration

Increased incidence of bankruptcy and scandals.

Concentration into multinational corporations

Govern

men

t must fin

d ways to con

trol the excesspower in this new economy.

8/7/2019 GIA17

13/18


PolicymakingPolicymaking Business and Public Policy: Subsidies Amid

Regulations, continued

Regulating Business Antitrust policy: policies designed to ensure competition and

prevent monopolies

Antitrust cases are lengthy and expensive

Securities and Exchange Commission: regulates stock fraud

(Madoff and Ponzi)

Benefiting Business

Government may loan businesses money.

Government collects data that business use.

8/7/2019 GIA17

14/18


PolicymakingPolicymaking Consumer Policy: The Rise of the Consumer

Lobby

Consumers historically have had littlegovernment protection.

FDA: Created in 1913; approves foods and

drugs sold in the U.S.

FTC: Responsible for regulating false and

misleading trade practices, which now includes

consumer lending practices. (2008 fed to

protect credit card solicitors)

8/7/2019 GIA17

15/18


PolicymakingPolicymaking Labor and Government

Government historically sided with business over laborunions.

NLRB (Wagner Act): regulates labor-managementrelations and guaranteed collective bargaining

Collective bargaining: union representatives andmanagement determine pay & working conditions

Taft-Hartley Act (1947) gives the president power to

halt strikes State right-to-work laws forbid requirements that

workers must join a union.

Government now provides unemploymentcompensation and a minimum wage.

8/7/2019 GIA17

16/18


PolicymakingPolicymaking Taft-Hartley Act (1947)

gives the president

power to halt strikes

State right-to-work laws

forbid requirements that

workers must join a

union.

Government nowprovides unemployment

compensation and a

minimum wage.

8/7/2019 GIA17

17/18


PolicymakingPolicymaking New Economy, New Policy Arenas

The new economy has shifted focus onnew

information (the Internet).

The new economy has shifted focus on

internationalism (multinational corporations,

trade).

8/7/2019 GIA17

18/18

Understanding EconomicUnderstanding Economic

PolicymakingPolicymaking Democracy and Economic Policymaking

As voting power increased, so did the demands forgovernment action to restrict business.

Some economic freedoms were given up for the greatergood of society.

Economic Policymaking and the Scope ofGovernment

Liberals ten

d to favor more govern

men

t in

volvemen

t in

the economy.

Conservatives tend to favor less governmentinvolvement in the economy.

gia17

Documents