Download Federal Budget and Economic Policy

FEDERAL BUDGET AND
ECONOMIC POLICY
SO WHAT DO WE SPEND MONEY ON?
That’s right! 8% of
our money goes to
just paying for the
interest on all the
money we have
borrowed
TYPES OF SPENDING


Mandatory
Spendingprograms that
require that the
federal government
pay back the
contributions
previously taxed
from the citizens
Discretionary
Spendingspending on
programs like
defense, roads,
schools, and
running the
government
DISCRETIONARY SPENDING
Of discretionary
spending, National
Defense is clearly
the largest
expenditure.
PAST PRESIDENTIAL ECONOMIC PROGRAMS
Trust
Busting/Progressivism
T. Roosevelt
Early 1900’s
These efforts were results of the late 1800’s
Populist votes and growing demands for
industrial reforms
New Deal
FDR 1930’s
Massive help from government programs was
needed and became key social efforts.
Fair Deal
H.Truman 40’s
Early efforts at civil rights equality began in
federal programs such as the military & housing
New Frontier
J.Kennedy 60’s
Civil rights laws get passed. Early forms of
affirmative action and environmental plans.
Great Society
L.Johnson 60’s
Vast attempts were made to rebuild inner cities,
give jobs, and provide assistance.
Price Controls
New Federalism
R.Nixon 70’s
Rapid inflation was met with attempts to stop
price increases through mandates
Whip Inflation Now
(WIN)
G. Ford 70’s
More federal attempts at stopping rapid price
increases were required but did not help.
Reaganomics/TrickleDown
Supply Side/Devolution
R. Reagan 80’s
The goals were to cut federal programs and
business regulations. Tax cuts in the name of
econ expansion were central programs.
TWO SCHOOLS OF ECONOMIC THOUGHT

Laissez-Faire, Supply-side policies,
Reaganomics
Allows the private sector to compete and run the
economy on their own
 Taxes should be low, profit motives should be
rewarded, and helping the rich conduct more
business will help the middle class and poor find
more jobs.
 Trickle down Economics/Voodoo Economics


Reduce regulations on business and business will be able to
create more jobs (and therefore wealth) for poorer
TWO SCHOOLS OF ECONOMIC THOUGHT

Keynesian
Named after economist John Maynard Keynes
 New Deal type policies
 Argues that when the economy stalls and falls into
recessions/depressions, Congress should lower taxes and
create jobs. When the economy overheats and suffers from
inflation, congress should raise taxes and cut jobs.
 Assumption is that laissez-faire policy leaves the nation
vulnerable to drastic cycle swings.


Monetary Policy

When the economy is in recession, government should force
lower interest rates (the Fed does that) and buy bonds from
the public (like the Bailout) Most conservatives also believe
in this intervention
9 REQUIREMENTS FOR A MARKET
ECONOMY
1. Establishing Law and Order
 2. Defining Rules of Property
 3. Enforcing Contracts
 4. Governing Rules of Exchange
 5. Setting Market Standards
 6. Providing Public Goods
 7. Creating a Labor Force
 8. Ameliorating Externalities
 9. Promoting Competition

PROPERTY AND
PUBLIC GOOD
To provide public
goods often the
government must
seize private
property, called
expropriation.
 The governmental
power that the
government claims in
order to expropriate
is called eminent
domain.

HOW DOES THE GOVERNMENT PROMOTE
OR DISCOURAGE ACTIVITIES
Categorical Grants-in-Aid- A way for the
Federal government to lure states into promoting
policies (ex: highway funds for lowering BAC
level of drunk drivers)
 Subsidies- Government grants of cash or other
valuable items to promote activities desired by
the government. (ex: My house!, agriculture
subsidies to promote farming and keep food
prices low)
 Taxes- usually done at the state level, called sin
taxes. (ex: cigarette taxes, alcohol taxes)

MONETARY POLICY





Federal Reserve System- (the Fed) 12 Banks that
facilitate exchanges of cash, checks, and credit; it
regulates member banks; and it uses monetary
policies to fight inflation and deflation.
Discount Rate- the interest on loans given by the
Fed to member banks.
Reserve Requirement- the proportion of money
that the Fed requires member banks hold in their
vaults (ex: 5% of the banks holdings)
Open-market operations- the buying and selling of
Treasury Securities to absorb or release dollars.
Federal Funds Rate- the interest rate that banks
can charge one another on loans.
TAXES
Progressive- Taxation that hits the upper
income brackets more heavily. (Ex: Federal
Income Tax)
 Regressive- Taxation that hits the lower income
brackets more heavily. (Ex: social security)
 Why is income tax progressive?


Policy of redistribution- an objective of the
graduated income tax whereby revenue is raised in
such a way as to reduce the disparity of wealth
between the lowest and the highest income brackets.