Economic Policy Last time: the politics of domestic policy Today: affecting economic policy – the politics of blame –fiscal policy, monetary policy and the prez’s advisory role

Domestic policy distributive: benefit allocations from a common pool of (renewable) “found” resources; prez can help negotiate logrolls; veto threat may hold down size regulatory: command-and-control policies governing economic and social interactions, using the police powers of the government to shape incentives; statutes are hard to change; prez can influence implementation –choice of agency heads  discretion over enforcement agenda; discretion over enforcement actions (policy “drift”) redistributive: transfers of wealth or income from members of one group to members of another group; statutes are hard to change; prez can influence implementation –choice of agency heads  slowdown or speedup of case work; policy “drift”

Presidents and bureaucrats What do bureaucrats want? What do prez & Congress want vis-à-vis bureaucrats? –If prez and Congress have different interests, MCs may abdicate control over parts of the bureaucracy –can MCs be held collectively responsible for macro-economic or social outcomes? Not easily. But prez can be. –blame game: MCs may prefer to position-take rather than actually try to control policy outcomes Delegation problems: hidden info, hidden action; Madison’s dilemma Managing delegations: –screening and selection mechanisms –contract design –monitoring and reporting requirements –institutional checks

Prez management tools Signing statements and Executive orders –we will talk about these friday Appointment/removal powers –changing singleton administrators can have a greater impact at the margin than changing a board member Central clearance: seeking to control information flows to the legislature

Managing the economy Fiscal policy: taxes, spending, borrowing (the budget) –presidents report on budgetary facts and propose changes per 1921 Budget Act –presidents can use veto threats to shape changes to reversionary policies (debt limits, new spending, tax changes) –presidents have variously been delegated discretionary authorities on some limited categories of spending –presidents try to manage the flow of budgetary information to Congress from bureaucrats

Monetary and banking policies Congress established the Federal Reserve system in 1913 –Privately owned, but publicly controlled; national banks were required to invest in the Fed when it was established –12 Federal Reserve banks; responsible for lending to private banks and conducting clearinghouse processes for them –the Board of Governors of the Fed administers the system; 7 members nominated by the prez for 14-year terms

The Fed The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall –maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. (1977 amendments)

Prez and advisory economic policy Employment Act of 1946: –created Jt. Economic Committee in Congress and the Council of Economic Advisors –Council of Economic Advisors helps prez prepare annual Economic Report, required by 1946 Act; and gives prez economic advice –Jt. Committee receives the annual report and does studies/holds hearings; no legislative jurisdiction These are about information transmission and position-taking