ECONOMIC POLICY (Or… “How Many Harvard Economists Does It Take to Craft an Economy Policy?”

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Presentation transcript:

ECONOMIC POLICY (Or… “How Many Harvard Economists Does It Take to Craft an Economy Policy?”

FISCAL VS. MONETARY POLICY FISCAL POLICY Tax and spend to affect economy Deficit vs. Surplus MONETARY POLICY Use interest rates to control economy Lower rates encourage borrowing and spending

KEYNESIANISM (CANE-ZEE-AN-ISM) John Maynard Keynes

The market will not automatically operate at full-employment, low inflation Emphasis on savings vs. spendings The key is to create the right demand If demand is too low, government should pump $ into economy (public works, etc) If demand is too great, government should taken $ out of circulation by raising taxes and/ or spending less. Government activism Liberal FISCAL POLICY

MONETARISM Milton Friedman ( )

Inflation occurs when there is too much money, and too few goods Value of dollar decreases Gov’t should have a steady, predictable increase in the money supply equal to growth Generally, gov’t should leave matters alone (Free Market) Conservative MONETARY POLICY

Price & Wage Controls John Kenneth Galbraith ( )

Government should regulate the max prices charged and wages paid in larger industries to control inflation Socialism

INDUSTRIAL POLICY Robert Reich (1946- )

Government should invest to keep key industries healthy or plan for replacements Socialism

SUPPLY-SIDE THEORY Arthur Laffer (1940- ) Paul Craig Roberts (1939- )

Less government interference Cut taxes a lot to encourage people to work, save, and invest Increased investment will lead to more jobs Conservative FISCAL POLICY

REAGANOMICS

Reduced government spending on social programs Increased military spending Sharp income tax cuts Increased social security taxes Result: HUGE budget deficit that lowered unemployment and helped the rich

WHO HELPS CRAFT ECONOMIC POLICY? CEA (Council of Economic Advisors) OMB (Office of Management and Budget) Secretary of Treasury The Federal Reserve Board (the Fed) -7 members appointed by Pres, confirmed by Senate for 14 year terms -Regulates the supply and price (interest rates) of money -Congress must approve all expenditures -Can control Fed by threatening to reduce its power BUDGET -Pres submits to Congress in Feb -Analyzed by the CBO (Congressional Budget office) -Budget Resolutions come out of committee

THE BUDGET President submits budget to Congress in February Budget is analyzed by the CBO (Congressional Budget Office) Budget resolutions come out of committees