Chamberlain

Political Agenda The rules, regulations and programs the government creates to provide solutions to such issues as Education, Poverty, Civil Rights, Consumer rights, Illegal immigration, etc. The question is – Should the government worry about these types of issues?

Creating Public Policy Matter of Shared political values Custom and Tradition – Remember, not everyone is completely sold on the idea of the government getting involved in their lives Expected -War, Depression, Natural disasters, Etc. Changes in the way political elites think and talk about politics??? A discussion about illegal immigrants today contrasted to one from 1900

Why is the government scope getting larger? Many people with many ideas about what should be done… Expectation – Housing market No cause sometimes Affirmative action Non-partisan process Traditional Republican stands for smaller government but today both parties have expanded the government’s scope

A growing government scope Groups Unions, Corporations, Ethnic minorities Relative Deprivation? Having less than your peers Institutions Courts – Shape issues Bureaucracy Congress – specifically the Senate Media

Who pays? Cost vs. Benefits Greatly affected by perception Who really pays and benefits? Should they benefit? No surprise – We want lots of benefits at as little cost as possible

Who pays? Widely Distributed Cost or benefit Road construction comes from gas tax Narrowly Concentrated Cost or Benefit Arena is built partially by an Entertainment Tax Is the cost or benefit legitimate???

Majoritarian Politics Distributed Benefits Distributed Costs Interest groups – not a factor Basically – Most everyone pays and most everyone benefits

Interest Group Politics Concentrated Cost and Benefit International Dark Sky Association Atlanta and Chicago’s tallest buildings are dimming their lights Town in Virginia wants to ban plastic bags at grocery stores

Client Politics Concentrated Benefit Distributed cost Think Pork Barrel Projects School taxes and a $1 million turf field Farm Bill and proposed Ethanol requirements This means corn is heavily subsidized (Taxes) and farmers make out

Entrepreneurial Politics Distributed Benefits Concentrated Costs Pollution issues – We all benefit from laws that try to restrict pollution but it is the factories, power plants and car companies that have to make the changes Children’s healthcare funded by cigarette taxes

Ch. 16 US Economic Policy The government does many things to try to “help” the economy. Recession – Economic Slowdown Inflation Deflation Stagflation Unemployment Brainstorm – What are some ways the federal government tries to combat economic problems?

Pocket Book Issue Elected officials have been known for trying to manipulate the economy the year of an election Scenarios: You lost your job over the last 2-3 years If the country is going through economic problems but you are okay What is your biggest concern when it comes to the economy

Politics of Economic Prosperity Even if people are doing well they hold the government responsible for economic problems Incumbents often lose their seats Low Income Focus on Unemployment Tendency to vote Democrat High Income Focus on Inflation and the value of the dollar Tendency to vote Republican

Politics of Taxing and Spending People want prosperity but they also want No increase in taxes No Government Deficit or Debt Increase spending on “popular” programs Politicians at the same time want to Reduce unemployment Cut inflation Lower interest rates and Increase income

Methods for “boosting” the economy Subsidies Tax Cuts – Individuals Companies Tax Rebates Estate Tax Cuts Social Programs Tax deductions

4 Theories on how to manage the economy Monetarism Keynesianism Supply-Side Tax Cuts Planning

Monetarism Government actions often impede on economic growth Recession – government puts too much money in the economy, which causes inflation Increase debt because of social programs/Rise in taxes Inflation – government cuts back on money supply causing increase in interest rates Overall, unbalanced budget and increase in welfare programs Suggestion: Steady increase in money supply relative to economic productivity Let the Free Market operate Milton Friedman

Keynesianism John Maynard Keynes Advisor to FDR – New Deal Economy’s health depends on the people’s income and how they spend it Save too much – economy slows, and unemployment goes up Spend too much – demand rises, price rises, shortages occur During depression fear amongst business owners: economy is too risky to take a chance

Keynesianism Government’s role is to create the “right” level of demand – How? Demand too low? Government should purposely incur a debt and spend more then it takes in from taxes Create public works programs Social security/Welfare More productive economy = more revenue for gov’t Demand to high? Government should increase taxes or cut federal expenditures Focus has been on the first part Activist government

Supply-Side Tax Cuts Productivity too low? Need less government involvement Suggestion: Cut Taxes Incentive to work Incentive to Spend and Invest More investments = more jobs Great economic productivity = more spending, more workers means more income tax, even if taxes are low

Planning Some economists have little faith in workings of the free market Price and wage controls Fear of corporations having complete control of prices Fear of unions pushing up wages too high During economic hard times – government should control maximum/minimum prices/wages Industrial Policy Government needs to plan investments so that declining industries will recover or a new/better industry would take its place

Reaganomics Changes in economic policy dictated by Combination of Monetarism, Supply side tax cuts and domestic budget cutting Skeptics: Reduce spending on social programs but increased spending on Defense Large deficits incurred But Government spending decreased Money supply was controlled

Congress Most important aspect to economic policy making Approves all taxes Consent to price controls and wage controls Can alter power of the Federal Reserve

Creating a budget Budget: Announcement of tax collections (revenue) and expenditures, including how the money will be spent Fiscal Policy Major source of federal revenue – Income Tax 1913 No federal budget before 1921 Usually no regard for how MUCH spent compared to how much they HAVE to spend Congressional Budget Act 1974 President submits Council of Economic Advisors - Forecasts Office of Management and Budget – Estimates costs Secretary of the Treasury - Advises House and Senate Budget Committees analyze Congressional Budget Office

Creating a Budget Committees create a budget proposal for each spending area Congress passes and the president must sign it Drastic changes in budget are not going to happen 2/3 of government spending is tied up in entitlements (Mandatory) Social Security and Medicare Veteran’s Benefits Interest on debt! Creates a challenge to cut government spending

Tax Burden Comparisons US 31.&% Japan 29% Canada 37% Sweden 55.6%

The Federal Reserve (Fed) Monetary Policy – Money supply Federal Reserve Board (7 Members) – Chair Ben Bernanke Regional Federal Reserve Banks (12) 6000 Member Banks Regulate the Economy Buying and selling bonds and treasury notes Regulating the amount banks must keep in reserve Change interest rates