Economic Policy

1
Economic Policy

• Supplemental Lecture

2
Theories of Government Involvement in the Economy

• Classical Economic Theory (laissez-faire
  economics)
• Adam Smith The Wealth of Nations (1776)
• The economy works best when the government stays
  out of it.
• Private businesses should be left alone to make
  their own production and distribution decisions.
• Government intervention in the economy should be
  restricted to regulating monopolies and enforcing
  contracts

3
Keynesian Economics

• John Maynard Keynes
• Developed in response to the Great Depression
• The normal operation of the economy produces
  cycles of boom and bust.
• The government should use its taxing, spending
  and borrowing powers (fiscal policy) in order to
  counteract these business cycles.

4
Marxian Economics

• Karl Marx
• Capitalism exploits workers by not paying them
  the full value of their labor.
• If workers owned the means of production, the
  economy would operate in the interests of all the
  people, not just business owners.
• Child labor laws, 40-hour work week, minimum wage
  laws

5
Government Regulation of Business

• Promote Fairness
• Prevent monopolies
• Control prices and provision of service in
  certain industries
• Protecting Consumers
• Product safety
• Right to return product
• Laws concerning product content, labeling,
  advertising, etc.

6
Government Regulation of Business

• Worker protection
• Minimum wage laws
• Safety regulations and handling precautions
• Collective bargaining laws
• Unemployment benefits
• Prohibiting discrimination in hiring and promotion

7
Government Regulation of Business

• Protecting the environment
• Clean air and water laws
• Pollution controls on businesses
• Auto emissions and mileage standards
• Deregulation removing existing government
  regulations in order to improve efficiency
• Often benefits businesses at the expense of
  consumers/workers/the environment