Transcript Aim: ECONOMIC POLICY

Aim: ECONOMIC POLICY
POLITICS OF ECONOMIC PROSPERITY
• Economy and elections
• “pocketbook issue”
• “It’s the economy stupid”
• Unemployment
• inflation
Aim: ECONOMIC POLICY
POLITICS OF TAXING AND SPENDING
Fiscal policy = taxation (revenues) and
spending (expenditures)
• What Americans want is inconsistent?
• What Congress/President give – tends to
“feed” public inconsistency.
• Produces budget deficits
Aim: ECONOMIC THEORIES – to
promote national economic
goals
BUT FIRST, WHAT ARE THE BIG THREE
ECONOMIC GOALS?
• economic growth
• full employment
• price stability
Aim: ECONOMIC THEORIES – to
promote national economic
goals:
MONETARY THEORY (MONETARISM)
• “too much money chasing too few
goods”
• Stable – growth in money supply = to
growth of economy’s productivity
• Curb inflation
• Federal Reserve
• Tools – reserve requirements, OMOs,
discount rates
Aim: ECONOMIC THEORIES
KEYNESIAN ECONOMICS
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John Maynard Keynes
Demand-side economics
Deficit-spend during recession to stimulate the economy
Increase government spending (Public works)
Leads to increase demand
Increase productivity
Increase employment
When recession is over, balance the budget
Aim: ECONOMIC THEORIES
PLANNING
• Price and wage controls
• During inflationary times
• Industrial policy (gov’t direct industry –
development/investment)
Aim: ECONOMIC THEORIES
SUPPLY-SIDE TAX CUTS
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Don’t need more planning but less government involvement
Government involvement = government interference with
market mechanisms
Instead CUT TAXES
Leads to more money to SAVE, SPEND, AND INVEST
“Trickledown”
• “Reaganomics”
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Cut taxes, domestic spending
Increase military spending
Aim: ECONOMIC THEORY
IDEOLOGY AND THEORY
• Democrats (Liberals)
-Keynesian, Planning
• Republicans (Conservatives)
-supply-side, monetarists
Aim: ECONOMIC POLICY
REVIEW BUDGETARY PROCESS
• President
• OMB
• Congress
• Key Committees
• CBO
• Reporting out of each house
• POLITICS OF THE PROCESS!!!
TAXES: GRESSIVITY
• “Gressivity” – tax rate relative to
income
• Progressive – tax rate increases as
income increases
• Proportionate – tax rate is the same at
every income level
• Regressive – tax rate increases as
income decreases
• EXAMPLES OF EACH??