Chapter 18 Economic Policy

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Chapter 18Economic Policy

• US Government AP

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The Economy

• Hard to predict how policy will impact the
  economy over the long term
• Natural business cycle

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The Business Cycle

• Over time a business gains and loses
• This is normal

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The Impact of Government

• Policy goal is to keep the line as straight as
  possible, with steady growth
• Becomes a valence issue

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The Debt

• To eliminate it
• Raise taxes or Reduce spending
• Or a combination of both
• Enter valanceDems vs Reps

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1990s

• We had a budget surplus
• Had to compromise
• (did both)

• Dems
• -start new programs

• Reps
• -give a tax cut

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The players in Fiscal Policy

• OMB
• CBO
• Congress
• President
• Cabinet Departments
• Agencies (GAO)
• Interest groups

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Other Players-Monetary Policy

• The Federal Reserve Board
• Sets interest rates
• Is independent
• Congress
• Approves taxes
• Approves the budget (CBO)
• Foreign policy laws (NAFTA)

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Triple play.

• OMB Director
• Chair of the Council of Economic Advisors
• Treasury Secretary
• These 3 offices are the closest advisors to the
  President on the economy

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Economy and Elections

• Pocket Book issues during an election help/hurt
  incumbents (2008)
• Unemployment
• Inflation
• Older voters/Fixed income

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Econ and Elections II

• Makes politicians tempted to look at short term
  policy
• Try to improve it at election time
• IMPOSSIBLE TO DO
• D ? unemployment R ? inflation

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The Perfect Policy

• Have nice Govt. programs
• Have less debt (Lower spending)
• Keep taxes low
• mission impossible

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6 Economic theories

1. Monetarism
2. Keynesianism
3. Planning
4. Supply Side tax cuts
5. Reaganomics
6. Ideology/Theory

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5 theories

• Each President chooses advisors who have his
  point of view on policies

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The Budget

1. October 1 to September 30
2. Executive branch and Congress
3. President/OMB put it out
4. Congress (H/S) go over itput ceilings in place
5. Changes are usually small

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Entitlements

• Most of the Budget is money that must be spent
  (66)
• Social Security
• Medicare
• Bond payments

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The Budget-The End

• Is out of control
• Deficit spending allows the budget to be whatever
  it needs to be
• Current deficit 15 trillion
• (Growing at 1.3 million a minute today)
• (your share?-50,000)

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The Perfect Policy

• Have nice Govt. programs
• Have less debt (Lower spending)
• Keep taxes low
• mission impossible

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3 Things that Matter in Economic Policy

1. The economic health of the nation (real vs.
   perceived) (interest group)
2. The types of govt. spending (client, interest
   group)
3. Taxes- rates and distribution of benefits
   (majoritarian or client)