Download File - Political Penguins

X.
Economic Policy
A. Competing Politics and Economic Goals
1.
Ensure the prosperity of the nation through a healthy
economy
2.
Ensure the collection of revenue for government
programs
B. Cross-cutting Pressures Created in Minds of Voters
1.
Everyone wants tax cuts and economic prosperity
2.
Everyone wants more spending on their favorite
government programs
C. Goals
1.
Full Employment
a.
Ideally 5-6% Unemployment
b.
Major Issue for Democrats
2.
Stable Prices – Ideally a 3% Inflation rate Annually
3.
Economic Growth – GDP Growth of 3-4% Annually
4.
Favorable Balance of Trade
5.
Limited Governmental Growth
a.
Growth of Federal Budget should be less than the
inflation rate
b.
Major Issue for Republicans
D. Two Types of Economic Policies
1.
Fiscal Policy – Carried out by Congress
a.
Federal Budget – Taxation and Spending
b.
OMB v. CBO Proposals
2.
Monetary Policy – Carried out by Federal Reserve
a.
Independent Regulatory Agency
b.
Regulation of Interest Rates
E. Major Economic Theories
1.
Monetarism – Milton Friedman
a.
Increase Money Supply in Relation to Economic
Growth
b.
Price stabilization through stable monetary value
2.
“Pump Priming” – John Maynard Keynes
a.
Government spending revives economy during
recessions
b.
Government deficit spending is necessary
3.
“Reaganomics”
a.
Monetarism
b.
Supply-Side Tax Cuts
c.
Cut Government Domestic Spending
F. Machinery of Economic Policy-Making
1.
Executive Branch
a.
Council of Economic Advisors – President’s
Advisors
b.
Office of Management and Budget
Department of the Treasury – Financial
Community
d.
Federal Reserve Board – “Independent” Agency
Legislative Branch
a.
Revenue
i.
Land and Tariffs until 1913
ii.
1913 – 16th Amendment – Federal Income
Tax
b.
No Unified Budget Process until the 1930s
c.
Congressional Budget Act of 1974
i.
CBO Created
ii.
Formalized the Budget Legislative Process
1. President Submits Budget
2. Congress Analyzes Budget
3. Budget Resolution each May
Establishes Budget Ceilings
4. Congress Adopts Second Resolution
Reconciling Budget Ceilings with Total
Appropriations from Individual Bills
iii.
Problems
1. Interest-Group Pressure to Increase
Spending
2. Entitlements Command Most of the
Budget – Past Commitments that
Cannot be Altered
a.
National Debt
b. Social Security
c.
Government Contracts
d. Long-Time Popular Programs
3. Tax Policy
a. Perceived Fairness
b. Progressive v. Flat Tax
c. Loopholes
i. Deductions and Tax Credits
ii. Investment Loopholes
iii. Inheritance Loopholes
Desire for a Balanced Federal Budget
a.
Deficit Spending since New Deal
b.
Reagan’s Appeal
c.
Gramm-Rudman Act of 1985
d.
Call for a Balanced Budget Amendment
e.
Clinton Balances the Budget
f.
How to Maintain a Balanced Budget?
g.
Impact of the George W. Bush Administration
c.
2.
3.