Download Government, Politics, and the Economy

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STEPS IN POLICY MAKING
• Agenda Building – policies are
formulated to address problems/needs.
Sources include interest groups, court cases,
and government officials.
• Policy Formulation – when enough
people agree that action is required, plans
are formulated with input from all interested
and affected parties. Compromise is key!!!
• Policy Adoption – the government takes
action in the form of legislation, executive or
bureaucratic order, or court order.
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STEPS IN POLICY MAKING
• Policy Implementation - The
government must now apply the policy to
real-life situations. The public must be
informed and a means of enforcement
devised, including who enforces and the
consequences for non-compliance.
• Policy Evaluation – Judging the good or
bad of policies takes time. Effects are
evaluated and adjustments may be made. It
is a cyclical process that can be affected by
partisan politics.
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
Government, Politics, and the Economy
LO 17.1: Assess the role that government plays
in our mixed economy.
• Capitalism
• Individuals and corporations own the
principal means of production and seek
profits.
• Mixed Economy
• Government is deeply involved in
economic decisions as regulator,
consumer, subsidizer, taxer, employer, and
borrower.
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LO 17.1
Government, Politics, and the Economy
• Multinational Corporations
• Businesses with vast holdings in many
countries.
• Products flow between regions and jobs
move to regions where they can be
performed more cheaply.
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LO 17.1
Government, Politics, and the Economy
• Economic Policy at Work: Wal-Mart
• “It’s the Economy, Stupid”: Voters,
Politicians, and Economic Policy
• Two Major Worries: Unemployment
and Inflation
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LO 17.1
Government, Politics, and the Economy
• Economic Policy at Work: Wal-Mart
• World’s 3rd largest company with $406
billion in revenue in 2009.
• It has low prices – Negotiates with
suppliers and has low wages.
• In U.S., it helps keep inflation rate low and
had 12% of all productivity growth in
1990s.
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LO 17.1
Government, Politics, and the Economy
• Economic Policy at Work: Wal-Mart
(cont.)
• Securities and Exchange Commission
(SEC) – Federal agency regulates stock
market.
• Buyers of Wal-Mart stock are entitled to
accurate knowledge from the company,
and Wal-Mart is required to hire an auditor
and publish an annual review.
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LO 17.1
Government, Politics, and the Economy
• Economic Policy at Work: Wal-Mart
(cont.)
• Minimum wage – The legal minimum
hourly wage to which most workers are
entitled.
• Wal-Mart’s employees are entitled to a
minimum wage of $7.25 per hour.
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LO 17.1
Government, Politics, and the Economy
• Economic Policy at Work: Wal-Mart
(cont.)
• Labor union – An organization of workers
intended to engage in collective
bargaining.
• Collective bargaining – How labor union
representatives and management
negotiate pay and acceptable working
conditions.
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LO 17.1
Government, Politics, and the Economy
• Economic Policy at Work: Wal-Mart
(cont.)
• Wal-Mart workers are protected by
regulations governing worker safety and
hiring and other employment policies.
• Wal-Mart cannot discriminate on the basis
sex, race, or age in hiring, firing, and
promotions.
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LO 17.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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LO 17.1
Government, Politics, and the Economy
• Economic Policy at Work: Wal-Mart
(cont.)
• Most of the merchandise in Wal-Mart
comes from other countries.
• In 2002, Wal-Mart is estimated to have
imported $12 billion in goods from China,
one-tenth of China’s total 2002 U.S.
exports.
• Wal-Mart’s low costs have forced many
factories to move overseas.
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LO 17.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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LO 17.1
Government, Politics, and the Economy
• “It’s the Economy, Stupid”: Voters,
Politicians, and Economic Policy
• Economic conditions are the best single
predictors of voters’ evaluation of the
president.
• Democrats stress the importance of
employment, and Republicans stress
importance of inflation.
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LO 17.1
Government, Politics, and the Economy
• Unemployment and Inflation
• Unemployment rate – Proportion of the
labor force seeking work but unable to find
jobs.
• 125,000 new monthly needed just to keep
up with new entrants into the labor force.
• 10% unemployment rate in late 2009 with
economic recession.
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LO 17.1
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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LO 17.1
Government, Politics, and the Economy
• Unemployment and Inflation (cont.)
• Underemployment rate – Statistic that
includes the unemployed, discouraged
workers, and people who are working parttime that cannot find full-time work.
• In July 2010, the national unemployment
rate was 9.5% and underemployment rate
was 16.5%.
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LO 17.1
Government, Politics, and the Economy
• Unemployment and Inflation (cont.)
• Inflation – A rise in price of goods and
services.
• Consumer price index – Change in the
cost of buying a fixed basket of goods and
services.
• The annual inflation rate in the United
States has consistently been below 4%.
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Policies for Controlling the Economy
LO 17.2: Identify the two main policy tools
that American government can employ to
address economic problems.
• Laissez-Faire
• Principle that government should not
meddle in the economy.
• The 1929 stock market crash sent
unemployment soaring, but Hoover clung
to laissez-faire.
• Roosevelt’s New Deal involved the
government in the economy during the
Great Depression.
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LO 17.2
Policies for Controlling the Economy
• Monetary Policy and the “Fed”
• Fiscal Policy: Keynesian Versus
Supply-Side Economics
• Why It Is Hard to Control the
Economy
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LO 17.2
Policies for Controlling the Economy
• Monetary Policy and the “Fed”
• Monetary policy – Affects supply of
money in private hands.
• Monetarism – Too much cash and credit
in circulation producing inflation.
• Federal Reserve System – Makes
monetary policy and regulates the lending
practices of banks.
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LO 17.2
Policies for Controlling the Economy
• Monetary Policy and the “Fed” (cont.)
• Federal funds rate – What banks can
charge each other for loans.
• Fed buys and sells government bonds to
determine amount of money banks have to
lend out.
• Borrowing is cheaper when banks have
more money and expensive when they
have less money.
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LO 17.2
Policies for Controlling the Economy
• Fiscal Policy: Keynesian Versus
Supply-Side Economics
• Fiscal policy – Use of federal budget to
influence economy and is almost entirely
determined by Congress and the president.
• Keynesian economic theory – That
government spending and deficits can help
the economy deal with its ups and downs.
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LO 17.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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LO 17.2
Policies for Controlling the Economy
• Fiscal Policy: Keynesian Versus
Supply-Side Economics
• Supply-side economics – Cutting tax
rates will stimulate the supply of goods.
• Supply-siders – Lower tax rates stimulate
supply of goods, as people are motivated
to work longer, increase savings and
investments, and produce more.
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LO 17.2
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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LO 17.2
Policies for Controlling the Economy
• Why It Is Hard to Control the
Economy
• Most policies must be decided a year or
more before their full impact will be felt on
economy.
• Budgetary process is dominated by
uncontrollable expenditures mandated by
law, and many benefits automatically
increase with the cost of living.
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LO 17.2
Policies for Controlling the Economy
• Why It Is Hard to Control the
Economy
• Capitalist system make it hard to control
the economy because the private sector is
much larger than the public sector.
• Federal government spends about 25% of
GDP, but consumers and businesses
make the majority of our economic
decisions.
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LO 17.5
Understanding Economic Policymaking
• Democracy and Economic
Policymaking
• One consequence of democracy for
economic policymaking is that it is difficult
to make decisions that hurt particular
groups or that involve accepting short term
pain in return for long-term gain.
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LO 17.5
Copyright © 2011 Pearson Education, Inc. Publishing as Longman
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LO 17.5
Understanding Economic Policymaking
• Economic Policymaking and the
Scope of Government
• Government involvement in the economy –
Liberals tend to want more and
conservatives tend to want less.
• Democrats are more concerned with
curbing unemployment, and Republicans
are more concerned with controlling
inflation.
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