Transcript Econ & Regulatory Policy

Making Public Policy
•Problem Recognition & Definition
Making
assumptions
about the
world
•Agenda Setting
Identifying
the problem
to be solved
•Policy Formulation
•Policy Adoption
•Budgeting
Deciding
whether to
act or not
•Policy Implementation
•Policy Evaluation
Determining
policy
effectiveness
Making rules
for
implementation
Choosing a
tool for solving
the problem
Deciding how
much to do
Policy-Making Process
Economic Policy
•Fiscal Policy
•Taxation and government spending
•Types of Taxes
•Income
•Sales
•Property
•Excise
•Progressive
•Regressive
Economic Policy
•Fiscal Policy
•Taxation and government spending
•Monetary Policy
•Interest Rates
•Inflation
•Money supply
•Unemployment
Federal Reserve Chairman Ben Bernanke
Fiscal Policy
•The Federal Budget
•Where the Money Comes From
•Where the Money Goes
•The Budget Process
•The Executive Branch
•The Legislative Branch
•The Politics of Taxing and
Spending
•Tax Expenditures
The Federal Government Dollar
Trends in the Gross
Federal Debt
Amount
Year
(billions)
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2008
2009
2010
$256.8
$274.3
$290.5
$322.3
$380.9
$541.9
$909.0
1,817.5
3,206.5
4,921.0
5,686.3
7,206.9
9,985.7
12,069.5
14,456.3
Percentage
of GDP
94.2%
69.4
56.1
46.9
37.7
34.9
44.3
33.4
56.4
68.5
59.4
58.0
70.2
85.2 est.
98.1 est.
SOURCE: Budget of the U.S.
Government, Aug. 2009.
What's a trillion dollars?
A trillion dollars = $1,000,000,000,000.
That's 12 zeroes to the left of the decimal point.
A trillion is a million, million dollars.
If you laid one dollar bills end to end, you could
make a chain that stretches from earth to the
moon and back again 200 times before you ran
out of dollar bills!
One trillion dollars would stretch nearly from
the earth to the sun.
What's a trillion dollars?
100 packs =
$1 million
One hundred $100 bills = $10,000
One Billion
Dollars
One Trillion Dollars
To Transport…
500,000,000 Dollars
Billion Dollars
in
in
in
Trillion Dollars
2000 Trucks
Trends in the Gross
Federal Debt
Trends in the Gross Federal Debt
Trends in the Gross Federal Debt
Trends in the
Gross Federal
Debt
Steps in the Budget Process, Fiscal Year 2011
Feb-Dec 2009 Executive branch agencies develop requests for
funds, which are reviewed by the Office of
Management and Budget and forwarded to the
president for final decision.
Dec 2009
The formal budget documents are prepared.
Jan-Feb 2010 The budget is transmitted to Congress as a formal
message from the president.
Mar-Sept 2010 Congress reviews the president’s proposed budget,
develops its own budget, and approves spending and
revenue bills.
Oct 1, 2010
Fiscal year 2011 begins.
Oct. 1, 2010-Sept. 30, 2011
Executive branch agencies execute the
budget provided in law.
Oct-Nov 2011 Data on actual spending and receipts for the
completed fiscal year become available.
Steps in the Budget Process, Fiscal Year 2011
Fiscal Policy: The Federal Deficit
Obama
2008-11
Percentage
of Wages
Full Time
Workers Pay
in Income
Taxes in
Selected
Countries
Fiscal Policy
The Politics of Taxing and Spending
• Taxes promote economic growth and
reward certain types of behavior.
• As much as taxpayers complain about
taxes most taxpayers want more of virtually
everything the federal government provides.
• There is considerable disagreement about
the best type of tax, either a progressive
income tax (also called a graduated income
tax), a regressive tax, or a consumption tax.
Monetary Policy
$
Monetary policy is the second way the federal
government manages the economy
$
Advocates of aggressive monetary policy contend that
the money supply is the key factor affecting the
economy’s performance.
The Federal Reserve System
$
$
Monetary policy is not made by Congress or the president.
$
Interest rates go up and down through decisions by the
Federal Reserve Board.
The Fed has several basic tools for influencing the
economy.
Monetary Policy Tools
$
Reserve Ratio - Minimum percentage of deposits that a
financial institution must keep on hand
$
Federal Funds Rate - The interest rate that banks
charge each other for overnight loans
$
Prime Rate - Interest rate that a bank charges its best
customers
$
Discount Rate - The rate the Fed charges member
banks for short-term loans
$
Open-Market Operations - The buying and selling of
securities by the Federal Reserve Board to manipulate
the money supply
Monetary Policy
The Federal Reserve
System - designed to be
politically neutral
Federal Funds Rate, 1998 - 2010
• Federal Open
market Committee
(FOMC) is the
Fed’s policymaking
arm
• Government and
Economic Policy
Government and Economic Policy
Should the government stimulate the economy?
The Great Depression of the 1930s tested
competing theories about helping the economy.
Laissez-faire economics
Keynesian economics
Theory that opposes
governmental interference
in economic affairs beyond
what is necessary to protect
life and property
Economic theory based on
the principles of John
Maynard Keynes stating that
government spending should
increase during business
slumps and be curbed
during booms
U.S. Economic Policy
Promoting Economic Growth
•Promoting Business
•Promoting International Trade
•Removing Barriers to Trade
• The North American Free Trade Agreement
(NAFTA)
• World Trade Organization
• GATT
Regulating the Economy
•Regulation Defined
•Types of Regulation
•Regulating Corporations
•Regulating Competition
•Regulating the Use of Labor
•Regulating Corporate Markets
•Regulating the Environment
Regulating Corporations
Monopoly
Domination of the industry by a single
company; also the company that
dominates the industry
Antitrust Legislation
• Sherman Antitrust Act (1890)
• Clayton Act (1914)
Regulating the Economy
Corporate Responsibility
• Many corporations have been dealing with the
increased pressure to be more responsible.
• Corporate social responsibility: Efforts by
corporations to improve their reputations by
paying attention to their contributions to the
social good.
Some Regulatory Agencies and their Missions
Agency
Year Est.
Primary Functions
Federal Trade
Commission (FTC)
1914
Administers certain anti- trust
laws concerning advertising,
labeling, and packaging to protect
consumers from unfair practices.
Food and Drug
Administration (FDA)
1931
Establishes regulations
concerning purity, safety, and
labeling accuracy of certain foods
and drugs; issues licenses for
manufacturing and distribution.
Federal Communications
Commission (FCC)
1934
Licenses civilian radio and
television communication;
licenses and sets rates for interstate
and international communication.
Animal and Plant Health
Inspection Service
1953
Sets standards; inspects and
enforces laws relating to meat,
poultry, and plant safety.
Some Regulatory Agencies and their Missions
Agency
Year Est.
Primary Functions
Environmental Protection
Agency (EPA)
1970
Develops environmental quality
standards; approves state
environmental plans.
Occupational Safety and
Administration (OSHA)
1972
Develops and enforces Health
worker safety and health regulations.
Bureau of Alcohol, Tobacco
and Firearms (ATF)
1972
Enforces laws and regulates legal
flow of these materials.
Consumer Product Safety
1972
Establishes mandatory product
safety standards and bans sales of
products that do not comply.
National Regulatory
Commission (NRC)
1974
Licenses the construction and
operation of nuclear reactors and
similar facilities; regulates nuclear
materials; licenses the export of
nuclear reactors and the export and
import of uranium and plutonium.
Some Regulatory Agencies and their Missions
Agency
Year Est.
Primary Functions
National Nuclear Security
2000
Monitors the nation’s nuclear
bomb- building laboratories;
overseas the military’s stockpile of
nuclear weapons; protects the
secrecy of U.S. weapons research.
Transportation Security
Administration (TSA)
2001
Controls passenger and baggage
screening; regulates what
passengers can carry; requires
airlines to check bags through
electronic screens; overseas all
airport, land, and maritime security.
Securities & Exchange
Commission
1934
Five members, five-year terms;
created to protect the public from
investing in securities on the basis
of false or misleading claims;
registers brokers; regulates stock
exchanges.
Regulating Labor
Federal regulations protect workers in
the following areas, among others:
Public Contracts
Industrial Safety and Occupational
Health
Wages and Hours
Child Labor
Other Types of Regulation
• Regulating markets
• Regulating and
protecting the
environment
The Deregulation Movement
• Deregulation is a policy promoting cutbacks in the amount of
federal regulation in specific areas of economic activity.
• In the past, airlines, trucking, and railroads have been granted
considerable freedom in conducting their operations.
Transportation
• In 1978 the Civil
Aeronautics Board
was abolished and
aviation deregulated
• Trucking and railroads
have also been
granted more freedom
in recent decades
Telecommunications
Telecommunications
Act of 1996
– The “V-chip”
requirement
– Regulation of
internet content
The Cost of Regulation
Evaluating Regulatory Policy
• Regulation disrupts the operation of the market
• Regulation may discourage competition
• Regulation may discourage technological
development
• Regulation increases costs to industry and consumers
A Continued Federal Role
• Congress and the president understand that the
federal government must be active in the economic
life of the nation.
• Citizens exert a great deal of influence on economic
policy.