Chapter 1 The Political Landscape
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Transcript Chapter 1 The Political Landscape
Chapter 18
Economic Policy
To Accompany Comprehensive, Alternate, and Texas Editions
American Government: Roots and Reform, 10th edition
Karen O’Connor and Larry J. Sabato
Pearson Education, 2009
Roots of Economic Involvement
Regulation was limited in the nineteenth century.
Prevailing attitude was laissez-faire.
As business cycles changed, need for intervention grew.
Growth in tariffs.
Railroads required interstate regulation.
Sherman Anti-Trust Act of 1890.
Progressive Era
Increased regulation of railroads, business, and banking.
Growth in regulation of food industry.
Creation of the Federal Reserve System.
Establishment of Federal Trade Commission.
Depression and the New Deal
Laissez-faire state becomes interventionist.
Creation of Federal Deposit Insurance Corporation.
Founding of Securities and Exchange Commission.
Passing Agricultural Adjustment Acts.
Ratification of new labor and industrial regulations.
Social Regulation Era
Economic regulation controls business and industry.
Social regulation sets quality and safety standards.
Social regulation emerges in 1960s and 1970s.
Agencies like EPA, OSHA, NTSA.
Brings new businesses into governmental regulation.
Deregulation
Reduction in market controls in favor of competition.
Airlines are first to be deregulated in 1978.
Attempts to end crop subsidies in mid-1990s.
Radio deregulated in 1996.
Mixed results and calls to “reregulate.”
Stabilizing the Economy
Economic stability is condition of economic growth.
Instability involves inflation or recession.
Inflation occurs when demand is high and prices rise.
Recession is marked by a decline in the economy.
Monetary Policy
Money establishes a system of exchange for goods.
Supply controlled by Federal Reserve.
Board of Governors sets rules and regulations.
System of banks governed by reserve requirements.
Establish discount rate of interest.
Work within open market operations.
Must cooperate with Congress and executive branch.
Fiscal Policy
Use of public policy to maintain economic stability.
Discretionary fiscal policy is choice of deficit or surplus.
First serious use was in 1960s.
Large partisan divide over appropriate policy.
International economy has a important influence.
Globalization creates new priorities and wage systems.
The Budget Process
Government raises money form a variety of sources.
Spending goes largely to defense and human resources.
President prepares budget and submits to Congress.
Congress authorizes all spending.
Major budget conflicts can emerge.
Bush administration spent record amounts.
Budget Deficits and the Debt
A deficit is the amount that spending exceeds revenue.
Debt is the total of all deficits, plus interest.
Continual effort to limit deficits.
Attempts to mandate balanced budgets have failed.
Bush administration brought about record deficits.
Funding the War in Iraq
Wars cost tremendous amounts of money.
Cost of Iraq war could exceed $2 trillion.
These costs place serious burden on the budget.
They also detract from domestic spending.
The Subprime Mortgage Crisis
Low interest rate, low down payment mortgages.
Source of crisis may go back to Clinton administration.
Low interest rates after 9/11 also contributed.
Government was forced to intervene.
Took over Fannie Mae and Freddie Mac.
Congress passed $700 billion bailout bill.
AV- Deficit Projection
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Figure 18.1- Federal Reserve System
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Figure 18.2- Minimum Wage Growth
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Figure 18.3- Federal Revenues
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Figure 18.4- Discretionary Spending
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Table 18.1- Federal Budget Process
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