Economic Policy

ECONOMIC POLICY

Thank goodness for AP Econ next semester, so… we’re gonna skip this!

ECONOMIC POLICY

• President & Congress held responsible for economic “health” of nation

• Policy involves improving overall economic health of nation through gov’t spending & taxation policies

Raising Revenue

• Gov’t raises revenue through collection of taxes (federal gov’t collects individual income taxes, corporate income taxes, social insurance taxes, excise taxes, customs duties, & estate & gift taxes)

• Gov’t also raises revenue through sale of gov’t securities by Fed Reserve & through collection of fees for services provided (e.g. patent fees)

Government Spending

• May be discretionary or mandatory– Discretionary – spending about which gov’t

planners may make choices– Mandatory – required by existing laws for current

programs• Recently, mandatory has grown while

discretionary has decreased

Government Spending

• Discretionary includes defense spending, education, student loans, scientific research, environmental cleanup, law enforcement, disaster aid, & foreign aid

• Mandatory includes interest on national debt & social welfare programs (Social Security, Medicare, Medicaid, veterans’ pensions, & unemployment insurance)

Historical View

Monetary policy:

• Role of the Federal Reserve

– Purpose & structure

–Methods of control

– Independence …

How to Control the Economy?

Fiscal policy

• Keynesian policy

• Supply-side policy

Why is the economy hard to control??

How to Control the Economy?

• Political differences in groups interested in policymaking–Most want benefits, protections from

economic hardship

• 3 main players:–Businesses–Consumers–Labor

Players in Econ Policy Game

Econ Policy & Business• Began with antitrust policy in 1890

– Sherman Act 1890 – “trust-busting”

– 1914 Clayton Anti-trust Act

• Political differences in regulation of market consolidation

– ex: Bush vs. Obama administrations

Econ Policy & Business• Role of the SEC

• Late 90s thru 2000s – corporate scandals and frauds

– Ex: Enron, Goldman Sachs

• Starting in 08: TARP used to protect market & prevent business bankruptcy

• Consumer protection policy begins with 1906 Food & Drug Act

– Created FDA

• Today, FDA regulates manufacturing, contents, marketing, & labeling

• 60s/70s: rise in focus on consumer issues

– CPSC: hazardous products

– FTC: truth in advertising & labeling

Econ Policy & Consumers

Econ Policy & Labor• Issues: wages & hours,

contracts/collective bargaining, child labor, safety

• Until 1914 Clayton Act, gov’t involved in disrupting unions

• 1935 National Labor Relations Act/Wagner Act

– Created Natl Labor Relations Board

– Collective bargaining, unionizing protection

Econ Policy & Labor• 1947 Taft-Hartley Act: some

restrictions on union behavior

– Prez can halt major strikes thru injunction

– Allowed for “right-to-work” states

• 2 major labor successes:

– Unemployment $

–Minimum wage

• Partisan differences in views of regulation

• Two types of regulatory agencies:

– Independent regulatory commissions

– Independent (executive) agencies

Regulating the Economy

Regulation: the Environment• 1970s, Clear Air & Water Acts: limited

pollution; regulated many corporate behaviors regarding environmental treatment–Created the EPA to enforce

• Environmental impact statements: controversial requirement for projects using federal funds –Pros & Cons …

Regulation: the Environment• 1990, Clean Air Act: tighter control

on auto industry• Clean Air Act & Clean Skies use profit

motive to encourage businesses to self-regulate–“cap-and-trade” policies