Download Government, Politics, and the Economy

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
• 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
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
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
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”
• 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
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
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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Politics, Policy, and the International
Economy
LO 17.3: Analyze the impact of the global
economy on American economic
policymaking.
• Foreign-Owned Assets
• At end of 2008, foreigners owned $23,357
billion in assets in U.S., and Americans
owned $19,888 billion in assets in other
countries.
• Protectionism
• Shielding economy from imports.
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LO 17.3
Politics, Policy, and the International
Economy
• World Trade Organization
• International organization that promotes
free trade.
• International trade creates long term gain
and short term pain.
• Markets gained for American businesses in
developing countries may cost jobs at
home.
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Arenas of Economic Policymaking
LO 17.4
• Business and Public Policy
• Antitrust policy – Designed to ensure
competition and prevent monopoly.
• Antitrust legislation permits the Justice
Department to sue in federal court to break
up companies that control too much of the
market.
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Arenas of Economic Policymaking
LO 17.4
• Business and Public Policy (cont.)
• In 2008, the government purchased
troubled mortgage assets from banks to
help them loan money to businesses and
consumers to prevent a depression.
• In 2010, Goldman Sachs was fined $550
million for not disclosing mortgage
investments it sold as the housing market
took a dive.
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Arenas of Economic Policymaking
LO 17.4
• Consumer Policy: The Rise of the
Consumer Lobby
• Food and Drug Act of 1906 prohibited the
interstate transportation of dangerous or
impure foods and drugs.
• Food and Drug Administration can
regulate contents, marketing,
manufacturing, and labeling of foods and
drugs sold.
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Arenas of Economic Policymaking
LO 17.4
• Consumer Policy: The Rise of the
Consumer Lobby (cont.)
• Consumer Product Safety Commission
can ban hazardous products from the
market.
• Federal Trade Commission – Truth in
advertising and regulations on product
labeling, exaggerated product claims, and
the use of celebrities in advertising.
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Arenas of Economic Policymaking
LO 17.4
• Consumer Policy: The Rise of the
Consumer Lobby (cont.)
• Consumer Financial Protection Bureau
works to ban deceptive practices, to
ensure the safety and fairness of new
consumer financial products that come on
to the market, and to promote equal
access to financial services for all
consumers.
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Arenas of Economic Policymaking
LO 17.4
• Labor and Government
• Clayton Antitrust Act of 1914 exempted
unions from antitrust laws.
• National Labor Relations Act of 1935
(Wagner Act) guarantees workers the right
of collective bargaining, sets down rules to
protect unions and organizers.
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Arenas of Economic Policymaking
LO 17.4
• Labor and Government (cont.)
• National Labor Relations Board, created
by Wagner Act, regulates labor–
management relations.
• The Taft-Hartley Act of 1947 prohibited
unfair practices by unions, and gave the
president power to halt major strikes by
seeking a court injunction for an 80-day
“cooling off” period.
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Arenas of Economic Policymaking
LO 17.4
• Labor and Government
• The Taft-Hartley Act of 1947 also
permitted states to adopt right-to-work
laws, which forbid labor contracts from
requiring workers to join unions to hold
their jobs.
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Arenas of Economic Policymaking
LO 17.4
• Labor and Government (cont.)
• Labor Unions have had 2 notable
successes:
• Government provides unemployment
compensation to employees during lay-offs
that is paid for by workers and employers.
• Government guarantees a minimum wage
to be paid to employees.
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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
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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