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Chapter Eighteen
Economic Policy
American Government and Politics: Deliberation,
Democracy, and Citizenship
Chapter Eighteen: Learning Objectives
•
Sketch the history of economic policy
and its relationship to citizenship
•
Describe the elements of fiscal policy
•
Explain why the tax system is so
complex
Chapter Eighteen: Learning Objectives
•
Analyze the mechanics of monetary
policy
•
Summarize the elements of regulatory
policy, especially in matters of finance
•
Understand the politics of trade policy
Chapter Eighteen: Learning Objectives
•
Discuss how
policymakers and
citizens deliberate on
economic policy
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Introduction
Most agree on certain economic goals
•
Economic growth (change in GDP)
•
Low unemployment
•
Low inflation (general rise in prices)
Introduction
Economic policy includes
1.
Fiscal policy
2.
Monetary policy
3.
Regulatory and trade policy
A Brief History of Economic Policy
Founding an economy
•
Laissez-faire approach
•
Government fostered economic growth through
communication and transportation
•
Creation of Banks of the United States
A Brief History of Economic Policy
Civil War and Progressivism
•
Economic policy caused rift between North and
South
•
Laws passed to create uniform national currency
•
Progressive movement influenced economic
policy
A Brief History of Economic Policy
World Wars and their aftermaths
•
Government finances difficult to track
•
New Deal programs created annual deficit
•
Tax withholding authorized in 1943
A Brief History of Economic Policy
An age of uncertainty
•
1970s saw high inflation, economic stagnation,
and unemployment
•
Supply-side economics became more prevalent
economic theory and Ronald Reagan was a
strong supporter of this idea
Fiscal Policy: Taxes
What are the
costs and
benefits of the
federal
government’s
complex system
of income
taxes?
National archives
Fiscal Policy: Taxes
Types of taxes
•
Individual income taxes
•
Corporate payroll taxes
•
Payroll taxes
•
Excise and sales taxes
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www.CartoonStock.com
Myths and Misinformation
Income tax tales
A quick search of the Internet will reveal
many myths about how much citizens
owe on their taxes.
The IRS warns against using such
misinformation.
Fiscal Policy: Spending and the Budget
How do the executive and legislative
branches deliberate about fiscal policy?
Two considerations
•
Economic impact of fiscal policy
•
Must consider the components of the budget
Fiscal Policy: Spending and the Budget:
The Budget Process
Pledges and Promises
Full faith and credit of the United States
The “full faith and credit” of the federal
government backs the payments on
public debt.
What would happen if the government
failed to pay its debts?
Fiscal Policy: Limits of Fiscal Policy
Limits of fiscal policy include
•
Proposals take months to become law, so
there may be a policy lag
•
Much of federal spending is outside the
appropriations process
•
Uncertainty about future economic conditions
Fiscal Policy: Deficits, Surpluses,
and the Debt
Why do deficits happen?
Deficits may grow because policy goals
often override fiscal goals.
A president may be insistent on a policy
without regard to the long-term
economic impact of that policy.
Monetary Policy:
Organization and Policy
It is the responsibility of the Federal
Reserve Board (the Fed) to assist in
managing the supply of money and
credit.
The goal of the Federal Reserve Board
is economic stability.
Monetary Policy:
Organization and Policy
The Fed does not directly dictate
interest rates, rather it has power over
the federal funds rate.
The Fed does not have unlimited power
as it is limited by global economic
conditions and federal government
deficits.
Monetary Policy:
Organization and Policy
Source: “The Federal Reserve System,”
www.federalreserveeducation.org/FED101%5FHTML/
structure/, accessed May 7, 2009.
Monetary Policy:
Deliberation and the Fed
A member of the Federal Open Market
Committee explained that his
research is not only based on hard
data, but also personal accounts and
anecdotal evidence.
How does that approach contribute to
deliberation?
Regulatory and Trade Policy
What is the appropriate role for the
government in policing economic
activity?
Do international trade agreements
infringe on American sovereignty?
Regulatory and Trade Policy:
Regulating the Marketplace
Four goals of financial regulation
1.
Protect consumers from fraud,
deception, or unfair practices
2.
Ensure the integrity and fairness of
markets to prevent fraud and
manipulation
Regulatory and Trade Policy:
Regulating the Marketplace
Four goals of financial regulation
3.
Monitor the safety and soundness of
institutions
4.
Ensure the stability of the overall
financial system
Regulatory and Trade Policy:
Trade
International trade is a source of
conflict.
Those that profit from exports typically
support free trade and those who are
concerned about foreign competition
typically support protectionism.
International Perspectives
Economic and political freedom
According to the data presented, does
there appear to be a relationship
between economic and political
freedom?
Where does the United States rank?
Economic Debate and
Deliberative Democracy
Deliberation depends on knowledge of
basic information and shared goals
but, when it comes to economic
policy, Americans often disagree
about how to achieve goals.
Disagreements underlie deliberations
about economic policy.
Deliberation, Citizenship, and You
Catching waste and abuse
The federal government is encouraging
citizens to report waste and abuse with
government money through the
Internet, toll-free phone hotlines and
fax.
Summary
•
Federal budget large part of economy,
but private sector is larger
•
United States part of global economy
•
No one government economic policy
•
Many ways to appraise economic policy