 How much obligation does the government have to keep the economy running smoothly?

 What is it?  What is GOOD money?  Widely accepted  Portable  Divisible  Holds its value

 The Federal Reserve Bank, or “Fed” controls monetary policy  How much money is out there  How high interest rates are  “Hitler teaches monetary policy” video

 Lower interest rates makes it easier for businesses and consumers to borrow money, so  Businesses build more factories and stores and hire more people  Consumers buy more cars and homes and refrigerators, etc., creating more jobs  Unemployment goes down, income and profits go up; everybody’s happy!

 EXPECTATIONS. If consumers and businesses EXPECT the economy to stay weak, they’re not going to expand their businesses or make major purchases no matter how low interest rates are.  “You can lead a horse to water, but you can’t make him drink”

 Changes in government spending and taxes, in order to affect the economy  What are the two ways to pay for more govt. spending?

 But people don’t like that, so politicians rarely do that  Besides, if the government adds money to the economy by spending more, and then takes away by taxing more, there is no net gain.  So, yeah – that’s generally not gonna work

 Spend now, pay later! It’s the American way!  The cost is less obvious to people  Who ends up paying? (Hint: What’s happening to the cost of college, and your overall future prospects?

 Tax cuts  Deregulation  Subsidies  Training & education  Research & development  Privatization  Improve infrastructure  Reduce unemployment benefits  Free trade

 More jobs, more profits, and lower prices!  “Supply-side policies have delivered the closest thing to a free lunch I have seen in my 25 years in this business” – Robert Lucas, Nobel Prize winner in Economics, 1995

 Higher income inequality  Less consumer protection  Fewer services for low-income people  Plus, many policies take a long time to work (but then so do many demand side policies)