Chapter 17: Economic Policymaking

Chapter 17: Economic Policymaking
Brief Contents of Chapter 17: Economic Policymaking Government, Politics, and the Economy Policies for Controlling the Economy Politics, Policy, and the International Economy Arenas of Economic Policymaking Understanding Economic Policymaking Summary

Government, Politics, and the Economy
Lecture Outline Government, Politics, and the Economy In the United States, the political and economic sectors are closely intermingled in a mixed economy, where the government, while not commanding the economy, is still deeply involved in economic decisions. The United States operates under capitalism an economic system in which individuals and corporations own the principal means of production, through which they seek to reap profits. Yet the American system is not one of pure capitalism; it actually has a mixed economy a system in which the government, while not commanding the economy, is still deeply involved in economic decisions. Capitalism Individuals and corporations own the principal means of production and seek profits. Mixed Economy Government is deeply involved in economic decisions as regulator, consumer, subsidizer, taxer, employer, and borrower. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman

LO 17.1 Government, Politics, and the Economy Lecture Outline Government, Politics, and the Economy The economy is dominated by multinational corporations—businesses with vast holdings in many countries, such as Disney, Coca-Cola, and Microsoft. It is characterized by the flow of products between regions and by the movement of jobs to regions where they can be performed more cheaply. Your phone call to a service desk is likely to be answered by one of the quarter million or so people in India to whom this work has been outsourced. Your neighborhood Wal-Mart is one of the biggest distributors of products made in China. In this challenging global environment, government and the economy have become more closely intertwined. So have politics and the economy: People expect government to keep the economy moving; rightly or wrongly, voters often punish politicians when the economy turns sour. Multinational Corporations Businesses with vast holdings in many countries. Products flow between regions and jobs move to regions where they can be performed more cheaply. To Learning Objectives

LO 17.1 Government, Politics, and the Economy Lecture Outline Economic Policy at Work: Wal-Mart Government Regulation of Business One government regulatory agency crucially involved in the regulation of big business is the Securities and Exchange Commission (SEC), which was created in 1934 and regulates stock transactions and the stock market. Wal-Mart is a publicly traded company, listed on the New York Stock Exchange (its “ticker symbol” is WMT), and thus the trading of its stock is regulated by the SEC. Wal-Mart’s officers cannot, for example, enrich themselves by buying and selling Wal-Mart stock on the basis of insider knowledge. Buyers of Wal-Mart stock are entitled to accurate knowledge from the company, and Wal-Mart is required to hire an auditor and publish an annual review. Securities and Exchange Commission (SEC) – Federal agency regulates stock market. Report requirements Insider Trading ban Triggers for closure Effect of digital era To Learning Objectives

LO 17.1 Government, Politics, and the Economy Lecture Outline Economic Policy at Work: Wal-Mart Government Regulation of Business Government also regulates business in the area of labor practices. About 1.4 million people work for Wal-Mart—about 1 out of every 100 workers in the United States. Most American workers, including Wal-Mart’s employees, are entitled to a minimum wage, $7.25 per hour in 2010. Labor: Minimum wage – The legal minimum hourly wage to which most workers are entitled. Federal gov’t: employees are entitled to a minimum wage of $7.25 per hour. To Learning Objectives

LO 17.1 Government, Politics, and the Economy Lecture Outline Economic Policy at Work: Wal-Mart Government Regulation of Business A 1935 law protects the right of workers to form and join labor unions to engage in collective bargaining about wages and working conditions with their employers under rules controlled by the National Labor Relations Board, an agency that the law established. Labor union – An organization of workers intended to engage in collective bargaining. Collective bargaining – How labor union representatives and management negotiate pay and acceptable working conditions. To Learning Objectives

LO 17.1 Government, Politics, and the Economy Lecture Outline Economic Policy at Work: Wal-Mart Government Regulation of Business Wal-Mart has discouraged its employees from joining labor unions, and, indeed, the rise of companies like Wal-Mart, along with the decline of the manufacturing sector, has contributed to a decline in labor union membership and power in the United States. Workers at Wal-Mart, as at other companies, are protected by government regulations governing worker safety and hiring and other employment policies. Worker safety, for example, is governed by the rules of the Occupational Safety and Health Administration. American companies cannot employ undocumented workers, and in 2003, federal immigration officers raided 67 Wal-Marts, arresting 250 illegal aliens working on cleaning crews. Because of yet other regulations, Wal-Mart cannot discriminate on the basis of a person’s sex, race, or age in hiring, firing, and promoting employees. workers are protected by regulations governing worker safety and hiring and other employment policies. cannot discriminate on the basis sex, race, or age in hiring, firing, and promotions. To Learning Objectives

LO 17.1 Government, Politics, and the Economy Lecture Outline Economic Policy at Work: Wal-Mart Wal-Mart and the World Economy Most of the merchandise in Wal-Mart comes from other countries. In 2002, for example, Wal-Mart is estimated to have imported $12 billion in goods from China, one-tenth of China’s total exports to the United States that year. Wal-Mart’s “hard line on costs has forced many factories to move overseas. In short, Wal-Mart in many ways symbolizes the new U.S. economy. It is a major player in the globalization of the economy, and is enmeshed in challenges and opportunities of this globalization. Globalization Most of the merchandise in stores comes from other countries. In 2002, Wal-Mart is estimated to have imported $12 billion in goods from China, one-tenth of China’s total 2002 U.S. exports. NAFTA and intense price competition have forced many factories to move overseas. To Learning Objectives

LO 17.1 To Learning Objectives
LO 17.1 Manufacturing Workers’ Compensation in Developing Countries as Compared to the U.S. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman

LO 17.1 Government, Politics, and the Economy Lecture Outline “It’s the Economy, Stupid”: Voters, Politicians, and Economic Policy Studies by political scientists have reaffirmed Harry S. Truman’s observations about voters and their pocketbooks. Policymakers worry constantly about the state of the economy, and voters often judge officeholders by how well the economy performs. Traditionally in American politics, Democrats stress the importance of employment while Republicans are worried about inflation. This reflects their constituencies. “It’s the Economy, Stupid”: Voters, Politicians, and Economic Policy Economic conditions are the best single predictors of voters’ evaluation of the president. Democrats stress the importance of employment, and Republicans stress importance of inflation. To Learning Objectives

LO 17.1 Government, Politics, and the Economy Lecture Outline Two Major Worries: Unemployment and Inflation Measuring how many and what types of workers are unemployed is one of the major jobs of the Bureau of Labor Statistics (BLS) in the Department of Labor. No one questions using a survey to determine the unemployment rate, but some economists do challenge the BLS’s definition of this rate (the proportion of the labor force actively seeking work but unable to find a job). To carry out this task, the BLS conducts a huge statistical survey of 60,000 households every month. It then announces the nation’s unemployment rate. The number of U.S. jobs has to increase by about 125,000 every month just to keep up with new entrants into the labor force (college graduates, for example) and thus avoid an increase in the unemployment rate. Of course, the unemployment rate varies from time to time and group to group. For example, it rose to 10 percent in late 2009 with the economic recession, and it tends to be higher for young adults than for other groups. Unemployment and Inflation Unemployment rate – Proportion of the labor force seeking work but unable to find jobs. 125,000 new monthly needed just to keep up with new entrants into the labor force. 10% unemployment rate in late 2009 with economic recession. To Learning Objectives

LO 17.1 Government, Politics, and the Economy Lecture Outline Two Major Worries: Unemployment and Inflation The BLS also now releases what is known as the underemployment rate, which includes both the unemployed and discouraged workers. In July 2010, the national unemployment rate was 9.5 percent while the underemployment rate was 16.5 percent. When the unemployment rate increases, public opinion often pushes policymakers to “do more” to “expand employment.” Unemployment and Inflation (cont.) Underemployment rate – Statistic that includes the unemployed, discouraged workers, and people who are working part-time that cannot find full-time work. In July 2010, the national unemployment rate was 9.5% and underemployment rate was 16.5%. To Learning Objectives

LO 17.1 Government, Politics, and the Economy Lecture Outline Two Major Worries: Unemployment and Inflation The problem of inflation is the other half of policymakers’ regular economic concern. The Consumer Price Index (CPI) is the key measure of inflation. Each month, BLS data gatherers fan out over the country looking at the prices of some 80,000 items from eggs to doctor visits. The goal of the CPI is to create a measure that reflects changes over time in the amount that consumers need to spend to achieve a certain standard of living. Inflation has risen sharply during three periods since 1970, with each of these sharp rises tied to soaring prices for energy. The first inflationary shock occurred in 1973 and 1974, when Arab oil-producing nations cut off the flow of oil to the United States to protest American support for Israel during its war with Egypt and Syria. The second occurred when the Iranian revolution of 1979 again disrupted the flow of oil from the Persian Gulf. Long lines and higher prices at the gas pumps were accompanied by an annual rate of inflation of 11% in 1979 and 14 percent during the election year of 1980. (cont.) Unemployment and Inflation (cont.) Inflation – A rise in price of goods and services. Consumer price index – Change in the cost of buying a fixed basket of goods and services. The annual inflation rate in the United States has consistently been below 4%. To Learning Objectives

Policies for Controlling the Economy
Lecture Outline Finally, in 1991 when Iraq’s invasion of Kuwait led to the Gulf War, there was a moderate surge in inflation as oil prices increased in anticipation of possible shortages (which actually never occurred). Since then, the annual inflation rate in the United States has consistently been below 4 percent. However, in the summer of 2008, the specter of high inflation suddenly loomed as the inflation rate briefly exceeded 5 percent for a couple months due to the surge of world-wide oil prices to over $100 a barrel. --- Policies for Controlling the Economy The impact of government on the economic system is substantial, but it is also sharply limited by a basic commitment to a free enterprise system. When the stock market crash of 1929 sent unemployment soaring, President Herbert Hoover clung to the laissez-faire principle that government should not meddle with the economy. In the next presidential election, Hoover was handily defeated by Franklin D. Roosevelt, whose New Deal experimented with dozens of new federal policies to put the economy back on track. Government has been actively involved in steering the economy since the Great Depression and the New Deal. The American political economy uses two important tools to guide the economy—monetary policy and fiscal policy. Laissez-Faire Principle that government should not meddle in the economy. The 1929 stock market crash sent unemployment soaring, but Hoover clung to laissez-faire. Roosevelt’s New Deal involved the government in the economy during the Great Depression. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman

LO 17.2 Policies for Controlling the Economy Lecture Outline Monetary Policy and the “Fed” Monetary policy involves the manipulation of the supply of money and credit in private hands. An economic theory called monetarism holds that the supply of money is the key to the nation’s economic health. Monetarists believe that having too much cash and credit in circulation generates inflation. The main agency for making monetary policy is the Board of Governors of the Federal Reserve System (otherwise known as “the Fed”). Created by Congress in 1913 to regulate the lending practices of banks and thus the money supply, the Federal Reserve System is intended to be formally beyond the control of either the president or Congress. Its seven-member Board of Governors is appointed by the president (and confirmed by the Senate) for 14-year terms—a length of the time designed to insulate them from political pressures; the general finding is that the Fed actually is responsive to the White House, but at times the chief executive can be left frustrated by the politically insulated decisions of the Fed. Monetary Policy and the “Fed” Monetary policy – Affects supply of money in private hands. Monetarism – Too much cash and credit in circulation producing inflation. Federal Reserve System – Makes monetary policy and regulates the lending practices of banks. To Learning Objectives

LO 17.2 Policies for Controlling the Economy Lecture Outline Monetary Policy and the “Fed” The Fed has several tools for affecting the supply of money and credit. Its policymaking body, the Federal Open Market Committee (FOMC), meets eight times a year and, taking into consideration a vast amount of economic data, sets a target for the “federal funds rate,” the interest rate banks can charge each other for overnight loans. The Fed also buys and sells government bonds, and by doing this, determines whether banks have more or less money to lend out. The more money banks have to lend, the cheaper borrowing is; if banks have less to lend, borrowing becomes more expensive, and interest rates rise. Monetary Policy and the “Fed” (cont.) Federal funds rate – What banks can charge each other for loans. Fed buys and sells government bonds to determine amount of money banks have to lend out. Borrowing is cheaper when banks have more money and expensive when they have less money. To Learning Objectives

LO 17.2 Policies for Controlling the Economy Lecture Outline Fiscal Policy: Keynesian Versus Supply-Side Economics Fiscal policy describes the impact of the federal budget—taxing, spending, and borrowing—on the economy. Fiscal policy is shaped mostly by the Congress and the president. Whether bigger government or smaller government best ensures a strong economy has become the central issue in economic policymaking. On the side of big government, Democrats lean more toward Keynesian economic theory, which holds that government must stimulate greater demand, when necessary, with bigger government (such as federal job programs). Fiscal Policy: Keynesian Versus Supply-Side Economics Fiscal policy – Use of federal budget to influence economy and is almost entirely determined by Congress and the president. Keynesian economic theory – That government spending and deficits can help the economy deal with its ups and downs. To Learning Objectives

LO 17.2 Policies for Controlling the Economy Lecture Outline Fiscal Policy: Keynesian Versus Supply-Side Economics Many Republicans advocate supply-side economics, which calls for smaller government (such as tax cuts) to increase the incentive to produce more goods. Rather than public works programs to stimulate demand, Americans received tax cuts under President Reagan and President George W. Bush to stimulate supply. Supply-siders argue that lowering tax rates stimulates the supply of goods, as people are motivated to work longer, increase their savings and investments, and produce more. Fiscal Policy: Keynesian Versus Supply-Side Economics Supply-side economics – Cutting tax rates will stimulate the supply of goods. Supply-siders – Lower tax rates stimulate supply of goods, as people are motivated to work longer, increase savings and investments, and produce more. To Learning Objectives

LO 17.2 Policies for Controlling the Economy Lecture Outline Policies for Controlling the Economy Politicians—and even economists—do not understand the workings of the economy sufficiently well to always choose the correct adjustments to ensure prosperity. Most policies must be decided on a considerable time before they can be implemented, let alone have their full impact on the economy. The president’s budget, for example, is prepared many months in advance of its enactment into law, and once enacted, it is usually quite a while before new policies will have their full impact on the economy. Furthermore, the budgetary process is dominated by “uncontrollable expenditures,” which are mandated by law, and many benefits such as Social Security go up automatically as the cost of living increases. Why It Is Hard to Control the Economy Most policies must be decided a year or more before their full impact will be felt on economy. Budgetary process is dominated by uncontrollable expenditures mandated by law, and many benefits automatically increase with the cost of living. To Learning Objectives

LO 17.2 Policies for Controlling the Economy Lecture Outline Policies for Controlling the Economy The American free enterprise system imposes the biggest restraint on controlling the economy. The billions of economic choices made by consumers and businesses are more important in their impact than are government policies. Because the private sector is much larger than the public sector, it dominates the economy. Big as the federal government is, it still spends only about a quarter of our GDP. Consumers and businesses make the vast majority of our economic decisions. Why It Is Hard to Control the Economy Capitalist system make it hard to control the economy because the private sector is much larger than the public sector. Federal government spends about 25% of GDP, but consumers and businesses make the majority of our economic decisions. To Learning Objectives

Politics, Policy, and the International Economy
Lecture Outline Politics, Policy, and the International Economy Policymakers’ difficulties in controlling the U.S. economy are compounded in this era of increasing globalization. Today’s economy is worldwide. The U.S. economy depends heavily on international trade, as do other countries’ economies; roughly a quarter of the world GDP is based on exports. Foreign-owned assets in the United States totaled $23,357 billion at the end of 2008; at the same time, Americans owned $19,888 billion in assets in other countries. Foreign-Owned Assets At end of 2008, foreigners owned $23,357 billion in assets in U.S., and Americans owned $19,888 billion in assets in other countries. Protectionism Shielding economy from imports. To Learning Objectives Copyright © 2011 Pearson Education, Inc. Publishing as Longman

Politics, Policy, and the International Economy
LO 17.3 Politics, Policy, and the International Economy Lecture Outline Politics, Policy, and the International Economy President Clinton had to overcome the resistance of unions and many of his fellow Democrats to pass the World Trade Agreement Treaty, creating a World Trade Organization (WTO), an organization promoting free trade and punishing protectionist restrictions. Unions feared that free trade would essentially promote “a race to the bottom,” where massive international corporations would “constantly ransack the globe searching for low costs and high returns. Jobs lost to foreign trade are only half the story, as jobs are also gained from international trade. For example, Catherine Mann, an economist with the Institute for International Economics, predicts that increased trade will lead to a new surge of technology employment in the United States. International trade almost usually creates long-term gain, but it may also well create short-term pain. Markets that are gained for American businesses in developing countries may come at the cost of jobs at home. Such tradeoffs present policymakers with difficult value judgments to make. World Trade Organization International organization that promotes free trade. International trade creates long term gain and short term pain. Markets gained for American businesses in developing countries may cost jobs at home. To Learning Objectives

Arenas of Economic Policymaking
LO 17.4 Arenas of Economic Policymaking Lecture Outline Business and Public Policy Government regulation of business is at least as old as the first antitrust act, the Sherman Act of 1890. The purpose of antitrust policy is to ensure competition and prevent monopoly (control of a market by one company). Today, antitrust legislation permits the Justice Department to sue in federal court to break up companies that control too much of the market. Business and Public Policy Antitrust policy – Designed to ensure competition and prevent monopoly. Antitrust legislation permits the Justice Department to sue in federal court to break up companies that control too much of the market. To Learning Objectives

LO 17.4 Arenas of Economic Policymaking Lecture Outline Business and Public Policy In 2010, corporate fraud was again in the news. Goldman Sachs—the nation’s largest investment institution—agreed to pay a $550 million fine after the SEC charged that it had defrauded investors by failing to disclose a conflict of interest on mortgage investments it sold as the housing market went sour. Not surprisingly, these reports of corporate scandals led to calls for tightening up disclosure requirements for corporations, by Democrats and Republicans alike. In American economic policymaking, the TARP (short for Temporary Asset Relief Program) was conceived to prevent the financial system from ruin in the fall of 2008. Warning of clogged credit markets and an economic shutdown that could rival the depression of the 1930s, Treasury Secretary Henry Paulson told President Bush and congressional leaders that immediate action was necessary to save financial institutions crippled by bad real estate investments. His plan, which came to be known as TARP, involved having the federal government purchase troubled mortgage related assets from firms such as Bank of America, Wells Fargo, Citigroup, AIG, and many others. Paulson argued that without help from the government, these companies would be unable to continue to loan money to businesses and consumers, and that the American economy would soon not just decline, but crash. Business and Public Policy (cont.) In 2008, the government purchased troubled mortgage assets from banks to help them loan money to businesses and consumers to prevent a depression. In 2010, Goldman Sachs was fined $550 million for not disclosing mortgage investments it sold as the housing market took a dive. To Learning Objectives

LO 17.4 Arenas of Economic Policymaking Lecture Outline Consumer Policy: The Rise of the Consumer Lobby The first major consumer protection policy in the United States was the Food and Drug Act of 1906, which prohibited the interstate transportation of dangerous or impure foods and drugs. Today, the Food and Drug Administration (FDA) has broad regulatory powers over the manufacturing, contents, marketing, and labeling of food and drugs. It is the FDA’s responsibility to ascertain the safety and effectiveness of new drugs before approving them for marketing in the United States. Consumer Policy: The Rise of the Consumer Lobby Food and Drug Act of 1906 prohibited the interstate transportation of dangerous or impure foods and drugs. Food and Drug Administration can regulate contents, marketing, manufacturing, and labeling of foods and drugs sold. To Learning Objectives

LO 17.4 Arenas of Economic Policymaking Lecture Outline Consumer Policy: The Rise of the Consumer Lobby Consumerism was a sleeping political giant until the 1960s, when consumer activists such as Ralph Nader uncovered and publicized clear cases of unsafe products and false advertising and argued that it was the government’s responsibility to protect consumers. As these activists garnered broad public support, the 1960s and 1970s saw a flood of consumer protection legislation. Created in 1972, the Consumer Product Safety Commission (CPSC) has broad powers to ban hazardous products from the market. Today the CPSC regulates the safety of items ranging from toys to lawn mowers. The Federal Trade Commission (FTC), traditionally responsible for regulating trade practices, become a defender of consumer interests in truth in advertising and has issued regulations on such matters as product labeling, exaggerated product claims, and the use of celebrities in advertising. Consumer Policy: The Rise of the Consumer Lobby (cont.) Consumer Product Safety Commission can ban hazardous products from the market. Federal Trade Commission – Truth in advertising and regulations on product labeling, exaggerated product claims, and the use of celebrities in advertising. To Learning Objectives

LO 17.4 Arenas of Economic Policymaking Lecture Outline Consumer Policy: The Rise of the Consumer Lobby In response to practices that contributed to the downturn of 2008, the landmark financial reform bill that President Obama signed into law in 2010 created the Consumer Financial Protection Bureau. The bureau’s mandate is to make sure that consumers can make informed decisions about financial products and services and to protect them from unfair lending practices. Financial transactions falling under its jurisdiction include mortgages, credit cards, student loans, auto loans, and payday loans. The bureau works to ban deceptive practices, to ensure the safety and fairness of new consumer financial products that come on to the market, and to promote equal access to financial services for all consumers. Consumer Policy: The Rise of the Consumer Lobby (cont.) Consumer Financial Protection Bureau works to ban deceptive practices, to ensure the safety and fairness of new consumer financial products that come on to the market, and to promote equal access to financial services for all consumers. To Learning Objectives

LO 17.4 Arenas of Economic Policymaking Lecture Outline Labor and Government Until the Clayton Antitrust Act of 1914 exempted unions from antitrust laws, the federal government spent more time busting unions than trusts. The major turning point in government policy toward labor took place during the New Deal. In 1935, Congress passed the National Labor Relations Act (often called the Wagner Act), which guaranteed workers the right of collective bargaining—the right to have labor union representatives negotiate with management to determine working conditions—and set rules to protect unions and organizers. Labor and Government Clayton Antitrust Act of 1914 exempted unions from antitrust laws. National Labor Relations Act of 1935 (Wagner Act) guarantees workers the right of collective bargaining, sets down rules to protect unions and organizers. To Learning Objectives

LO 17.4 Arenas of Economic Policymaking Lecture Outline Labor and Government National Labor Relations Board, created by Wagner Act, regulates labor–management relations. The Taft-Hartley Act of 1947 continued to guarantee unions the right of collective bargaining, but also prohibited various unfair practices by unions. The act also gave the president power to halt major strikes by seeking a court injunction for an 80-day “cooling off ” period. Labor and Government (cont.) National Labor Relations Board, created by Wagner Act, regulates labor–management relations. The Taft-Hartley Act of 1947 prohibited unfair practices by unions, and gave the president power to halt major strikes by seeking a court injunction for an 80-day “cooling off” period. To Learning Objectives

LO 17.4 Arenas of Economic Policymaking Lecture Outline Labor and Government The Taft-Hartley Act of 1947 also law permitted states to adopt what union opponents call right-to work laws—laws that forbid labor contracts from requiring workers to join unions in order to hold their jobs. Labor and Government The Taft-Hartley Act of 1947 also permitted states to adopt right-to-work laws, which forbid labor contracts from requiring workers to join unions to hold their jobs. To Learning Objectives

LO 17.4 Arenas of Economic Policymaking Lecture Outline Labor and Government Unions have had two notable successes. Partly as the result of successful union lobbying, the government provides unemployment compensation. Since the era of the New Deal, government has guaranteed a minimum wage for hourly employees. Labor and Government (cont.) Labor Unions have had 2 notable successes: Government provides unemployment compensation to employees during lay-offs that is paid for by workers and employers. Government guarantees a minimum wage to be paid to employees. To Learning Objectives

Understanding Economic Policymaking
LO 17.5 Understanding Economic Policymaking Lecture Outline Democracy and Economic Policymaking It would be a vast exaggeration, however, to say that democracy regularly facilitates an economic policy that looks after the general rather than specific interests. As you have seen throughout this text, the decentralized American political system often works against efficiency in government. In particular, groups that may be adversely affected by an economic policy have many avenues through which they can work to block it. Therefore, one of the consequences of democracy for economic policymaking is that it is difficult to make decisions that hurt particular groups or that involve accepting short term pain in return for long-term gain. Of course, this is the way most Americans presumably want it to be. Democracy and Economic Policymaking One consequence of democracy for economic policymaking is that it is difficult to make decisions that hurt particular groups or that involve accepting short term pain in return for long-term gain. To Learning Objectives

Understanding Economic Policymaking
LO 17.5 Understanding Economic Policymaking Lecture Outline Economic Policymaking and the Scope of Government Liberals and conservatives disagree about the scope of government involvement in the economy. Liberals focus on the imperfections of the market and what government can do about them; conservatives focus on the imperfections of government. The two parties have different economic policies, particularly with respect to unemployment and inflation; Democrats try to curb unemployment more than Republicans, though they risk inflation in so doing, and Republicans are generally more concerned with controlling inflation. Economic Policymaking and the Scope of Government Government involvement in the economy – Liberals tend to want more and conservatives tend to want less. Democrats are more concerned with curbing unemployment, and Republicans are more concerned with controlling inflation. To Learning Objectives

LO 17.1 Summary Government, Politics, and the Economy
LO 17.1: Assess the role that government plays in our mixed economy. Government, Politics, and the Economy The federal government regulates stock transactions, corporate accounting practices, labor practices, workers’ collective bargaining rights, and set the minimum wage. To Learning Objectives

LO 17.1 Summary Government, Politics, and the Economy (cont.)
LO 17.1: Assess the role that government plays in our mixed economy. Government, Politics, and the Economy (cont.) Voters expect politicians to keep the economy humming along, and will often vote them out of office if they fail to do. Two particular concerns of voters and politicians alike are unemployment and inflation. To Learning Objectives

LO 17.1 Summary Government, Politics, and the Economy (cont.)
LO 17.1: Assess the role that government plays in our mixed economy. Government, Politics, and the Economy (cont.) Democrats tend to focus more on keeping unemployment low. Republicans tend to place more emphasis on keeping inflation in check. To Learning Objectives

inflation; employment employment; inflation trade; business practices
In their economic policies, Democrats have tended to focus on _______ whereas Republicans have tended to focus on _______. In their economic policies, Democrats have tended to focus on whereas Republicans have tended to focus on . B. employment; inflation (LO 17.1) inflation; employment employment; inflation trade; business practices business practices; trade To Learning Objectives

LO 17.2 Summary Policies for Controlling the Economy
LO 17.2: Identify the two main policy tools that American government can employ to address economic problems. Policies for Controlling the Economy Two major instruments are available to government for managing the economy: monetary policy and fiscal policy. Republicans are the party of supply side economics, believing that tax cuts will lead to economic growth and jobs. To Learning Objectives

LO 17.2 Summary Policies for Controlling the Economy (cont.)
LO 17.2: Identify the two main policy tools that American government can employ to address economic problems. Policies for Controlling the Economy (cont.) Democrats stick with Keynesian economic theory, which recommends government spending in order to stimulate demand for goods during economic downturns. To Learning Objectives

its control over trade policy. its control over government subsidies.
The most important tool the government has for directing the economy is The most important tool the government has for directing the economy is _____. D. its control over the money supply. (LO 17.2) its control over trade policy. its control over government subsidies. its control over labor laws. its control over the money supply. To Learning Objectives

LO 17.3 Summary Politics, Policy, and the International Economy
LO 17.3: Analyze the impact of the global economy on American economic policymaking. Politics, Policy, and the International Economy The American economy has become quite dependent on trade with other countries. Both imports and exports now constitute over 10 percent of the nation’s gross domestic product (GDP), with imports regularly exceeding exports. To Learning Objectives

LO 17.3 Summary LO 17.3: Analyze the impact of the global economy on American economic policymaking. Politics, Policy, and the International Economy (cont.) American jobs are often lost when we import goods that are made more cheaply in countries with low labor costs. Sending U.S. dollars overseas opens foreign markets for U.S. companies to sell their products to, thereby creating new jobs. To Learning Objectives

In recent years the gap between U.S. imports and exports has generally
LO 17.3 In recent years the gap between U.S. imports and exports has generally In recent years the gap between U.S. imports and exports has generally ______. A. widened. (LO 17.3) widened. closed. tighten. decreased. To Learning Objectives

LO 17.4 Summary Arenas of Economic Policymaking
LO 17.4: Describe the economic policy interests of business, labor unions, and consumers. Arenas of Economic Policymaking Businesses generally want lower taxes and less regulation by the government. Yet, they sometimes profit from government antitrust actions, which ensure that individual companies do not control too much of the market. To Learning Objectives

LO 17.4 Summary Arenas of Economic Policymaking (cont.)
LO 17.4: Describe the economic policy interests of business, labor unions, and consumers. Arenas of Economic Policymaking (cont.) In 2008, the government stepped in to prevent many firms in the financial services industry from going bankrupt. Labor unions want government support to organize workers, get a high minimum wage, and to get unemployment insurance benefits. To Learning Objectives

LO 17.4 Summary Arenas of Economic Policymaking (cont.)
LO 17.4: Describe the economic policy interests of business, labor unions, and consumers. Arenas of Economic Policymaking (cont.) Consumer groups seek government protection from business practices that can harm the buying public, such as the defective products or deceptive lending practices. To Learning Objectives

Antitrust legislation is intended to restrict the
LO 17.4 Antitrust legislation is intended to restrict the Antitrust legislation is intended to restrict the ______. D. establishment of monopolies by businesses. (LO 17.4) influence of business lobbyists. unethical management practices of businesses. nationalization of businesses. establishment of monopolies by businesses. To Learning Objectives

LO 17.5 Summary Understanding Economic Policymaking
LO 17.5: Assess the impact of economic policies on the scope of government and democracy in America. Understanding Economic Policymaking Liberal focus on free enterprise problems and involve expanding the scope of government. Conservative focus on problems that can arise from excessive government intervention in the economy and involve reducing the scope of government. To Learning Objectives

LO 17.5 Summary Understanding Economic Policymaking (cont.)
LO 17.5: Assess the impact of economic policies on the scope of government and democracy in America. Understanding Economic Policymaking (cont.) Through the democratic process, Americans seek to enact regulations that will protect businesses, labor, and consumers alike without impinging upon fundamental economic freedoms. To Learning Objectives

conservatives; liberals liberals; conservatives
LO 17.5 Whereas _______ focus on the imperfections of the market and what government can do about them, _______ focus on the imperfections of government. Whereas focus on the imperfections of the market and what government can do about them, focus on the imperfections of government. B. liberals; conservatives (LO 17.5) conservatives; liberals liberals; conservatives conservatives; moderates moderates; liberals To Learning Objectives

Text Credits Bureau of Labor Statistics. U.S. Census Bureau, Foreign Trade Division. To Learning Objectives

Photo Credits 502: Chip Somodevilla/Getty Images
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Chapter 17: Economic Policymaking

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