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Goals of Economic Policy GOVT 2305. Module 16 In fiscal year (FY) 2016, the U.S. government spent how much money funding government programs? $390,000 $3,900,000 $3,900,000,000 $3,900,000,000,000 That’s $3.9 trillion. Goal #1: Fund Government Services “A billion here, a billion there, pretty soon, you’re talking real money.”—the late Everette Dirksen, R., Illinois * 2015 data Major (>5 %) or Minor (< 5%)? Big Education 1.7 % Medicare 13.7 % Foreign Big Big aid 1.5 % Transportation 1 % Scientific & 1.3 % Medical ResearchBig Social Security 21.6% National DefenseBig 18.2 % Space Exploration 0.5 % 0.6 % Agriculture Energy & the 1.6 % Environment Interest on the Debt 6.5 % Social Safety Net 12.9 % (welfare, unemployment, etc.) Medicaid, SCHIP 7.7 % What are outlays? Expenditures Welfare State Every wealthy democracy has a welfare state in which the government takes responsibility for the welfare of its citizens through programs in public health, housing, old-age pensions, unemployment compensation, and the like. Note: Much of federal spending goes to fund the welfare state. Social Safety Net Some programs that are part of the welfare state are also sometimes referred to as a social safety net because they protect individuals from the worst effects of the catastrophes of life, such as ill health, unemployment, poverty, aging, etc. Safety Net Programs What threats to personal security do each of these programs address? Social Security Medicare Medicaid Food Stamps Unemployment Compensation Housing Assistance CHIP Disability Other Expenditure Categories Which categories of expenditures can be justified as necessary to defend the national security and protect American interests around the world? Continued on next slide . . Which categories of expenditures can be justified as investments in the nation’s future, designed to lead to future economic growth? Nat’t Security? Investment? Social Safety Net? Education Investment Space Exploration Safety net Agriculture Healthcare Safety net Energy & the Foreign aid Nat’l Sec. Investment Environment Investment Transportation Interest on the Debt Scientific & Medical Social Safety Net Research Investment (welfare, Social Security Safety net unemployment, etc.) National Investment Defense Nat’l Sec. Safety net The government encourages certain activities through tax breaks or subsidies. A subsidy is financial incentive given by government to an individual or a business interest to accomplish a public objective. In contrast, government can discourage activities by taxing them. Goal 2: Encourage/ Discourage Economic Activity Taxes and Subsidies Taxes and Subsidies Does government use economic policy to encourage or discourage each of the following? If so, how? Discourage by taxing Smoking Attending college Encourage with financial aid Purchasing a home Encourage with tax breaks Encourage with farm subsidies Growing tobacco Drinking Discourage with taxes Building nuclear power plants Encourage with tax breaks More Taxes and Subsidies Encourage with tax breaks for oil offshore Encourage with subsidies Producing ethanol Growing peanuts Encourage with subsidies Giving to charity Encourage with tax breaks Purchasing flood insurance Encourage with subsidy Attracting or retaining a sports franchise Drilling Encourage with subsidies Income redistribution involves the government taking items of value, especially money, from some groups of people and then giving items of value, either in cash or services, to other groups of people. Goal 3: Redistribute Income Income Redistribution Pros Income inequality is incompatible with democracy. Places with large income disparities have high rates of crime and drug use. Cons Government policies should encourage economic growth, not redistribution. Government should reward hard work, not punish it. Redistribution Policies Tax structure that falls more heavily on the wealthy. Programs to help the poor. Minimum wage laws. Support for education to promote social mobility. Goal: Promote Economic Growth with Stable Prices • • • • Encourage economic growth Promote full employment Control inflation Counter effects of recession and depression Economic Stabilization What is a recession? How does it differ from a depression? What economic indicators are used to measure a recession or a depression? A recession is an economic downturn characterized by high unemployment. A depression is longer lasting than a recession. Measures include unemployment rate and GDP growth. What Is Inflation? How is it measured? We Have Answers Inflation is a decline in the purchasing power of the currency. It is measured by the consumer price index (CPI), a measure of inflation that is based on the changing cost of goods and services. What You Have Learned What are the goals of U.S. economic policy? What are the major federal government spending categories? What is the welfare state? The Social Safety net? What is a Recession? What is inflation?
