Download Chapter 1 The Political Landscape

Chapter 18
Economic Policy
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To Accompany Comprehensive, Alternate, and Texas Editions
American Government: Roots and Reform, 10th edition
Karen O’Connor and Larry J. Sabato
 Pearson Education, 2009
Roots of Economic Involvement
 Regulation was limited in the nineteenth century.
 Prevailing attitude was laissez-faire.
 As business cycles changed, need for intervention grew.
 Growth in tariffs.
 Railroads required interstate regulation.
 Sherman Anti-Trust Act of 1890.
Progressive Era
 Increased regulation of railroads, business, and banking.
 Growth in regulation of food industry.
 Creation of the Federal Reserve System.
 Establishment of Federal Trade Commission.
Depression and the New Deal
 Laissez-faire state becomes interventionist.
 Creation of Federal Deposit Insurance Corporation.
 Founding of Securities and Exchange Commission.
 Passing Agricultural Adjustment Acts.
 Ratification of new labor and industrial regulations.
Social Regulation Era
 Economic regulation controls business and industry.
 Social regulation sets quality and safety standards.
 Social regulation emerges in 1960s and 1970s.
 Agencies like EPA, OSHA, NTSA.
 Brings new businesses into governmental regulation.
Deregulation
 Reduction in market controls in favor of competition.
 Airlines are first to be deregulated in 1978.
 Attempts to end crop subsidies in mid-1990s.
 Radio deregulated in 1996.
 Mixed results and calls to “reregulate.”
Stabilizing the Economy
 Economic stability is condition of economic growth.
 Instability involves inflation or recession.
 Inflation occurs when demand is high and prices rise.
 Recession is marked by a decline in the economy.
Monetary Policy
 Money establishes a system of exchange for goods.
 Supply controlled by Federal Reserve.
 Board of Governors sets rules and regulations.
 System of banks governed by reserve requirements.
 Establish discount rate of interest.
 Work within open market operations.
 Must cooperate with Congress and executive branch.
Fiscal Policy
 Use of public policy to maintain economic stability.
 Discretionary fiscal policy is choice of deficit or surplus.
 First serious use was in 1960s.
 Large partisan divide over appropriate policy.
 International economy has a important influence.
 Globalization creates new priorities and wage systems.
The Budget Process
 Government raises money form a variety of sources.
 Spending goes largely to defense and human resources.
 President prepares budget and submits to Congress.
 Congress authorizes all spending.
 Major budget conflicts can emerge.
 Bush administration spent record amounts.
Budget Deficits and the Debt
 A deficit is the amount that spending exceeds revenue.
 Debt is the total of all deficits, plus interest.
 Continual effort to limit deficits.
 Attempts to mandate balanced budgets have failed.
 Bush administration brought about record deficits.
Funding the War in Iraq
 Wars cost tremendous amounts of money.
 Cost of Iraq war could exceed $2 trillion.
 These costs place serious burden on the budget.
 They also detract from domestic spending.
The Subprime Mortgage Crisis
 Low interest rate, low down payment mortgages.
 Source of crisis may go back to Clinton administration.
 Low interest rates after 9/11 also contributed.
 Government was forced to intervene.
 Took over Fannie Mae and Freddie Mac.
 Congress passed $700 billion bailout bill.
AV- Deficit Projection
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Figure 18.1- Federal Reserve System
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Figure 18.2- Minimum Wage Growth
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Figure 18.3- Federal Revenues
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Figure 18.4- Discretionary Spending
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Table 18.1- Federal Budget Process
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