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Economic Policymaking

Economic Policymaking. Chapter 17. Government and the Economy. Definitions: Capitalism: An economic system in which individuals and corporations, not the government, own the principle means of productions and seek profits. Mixed Economy:

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Economic Policymaking

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  1. Economic Policymaking Chapter 17

  2. Government and the Economy • Definitions: • Capitalism: • An economic system in which individuals and corporations, not the government, own the principle means of productions and seek profits. • Mixed Economy: • An economic system in which the government is deeply involved in economic decisions through it role as regulator, consumer, subsidizer, taxer, employer and borrower.

  3. Government and the Economy • Unemployment and Inflation • Unemployment rate: Measured by the BLS, it is the proportion of the labor force actively seeking work, but unable to find jobs. • Inflation: The rise in prices for consumer goods. • CPI: Consumer Price Index- The key measure of inflation that relates the rise in prices over time.

  4. Government and the Economy Figures 17.1 and 17.2

  5. Government and the Economy • Elections and the Economy • Economic trends affect what the voters vote for • Unemployment rates affect presidential votes • Political Parties and the Economy • Republicans tolerate unemployment • Democrats tolerate inflation

  6. Instruments for Controlling the Economy • Monetary Policy and “the Fed” • The manipulation of the supply of money in private hands- too much cash and credit produces inflation. • Money supply affects the rate of interest paid. • Main policymaker is the Board of Governors of the Federal Reserve System- the “Fed.”

  7. Instruments for Controlling the Economy • Monetary Policy and “the Fed” continued… • The Feds instruments to influence the supply of money in circulation: • Sets discount rates • Sets reserve requirements • Buying / selling government bonds • Through the use of these actions, the Fed can affect the economy.

  8. Instruments for Controlling the Economy • Fiscal policy: Keynesian Versus Supply-Side Economics • Fiscal Policy: The policy that describes the impact of the federal budget on the economy. • Keynesian Economic Theory: Government spending and deficits help the economy weather its normal ups and downs. • Government’s job to increase demand of goods

  9. Instruments for Controlling the Economy • Fiscal policy: Keynesian Versus Supply-Side Economics, continued… • Supply-Side policy: The policy that says there is too much taxation and not enough money to purchase goods and services. • Reduce taxation and government regulation then people will work harder, and thus create a greater supply of goods.

  10. Obstacles to Controlling the Economy • Some think politicians manipulate the economy to win reelection. • But there are problems with that… • But things like the budget are prepared in advance of when they go into effect. • Some benefits are indexed. • Foreign problems can affect our economy. • Capitalism can also affect the economy. • So it is difficult for politicians to control the economy.

  11. Arenas of Economic Policymaking • Business and Public Policy: Subsidies Amid Regulations • The changing Face of Corporate Capitalism. • Lots of mergers and acquisitions since 1980- some creating transnational corporations. • Corporation battle for profits from the new technology economy. • Government must find ways to control the excess power in this new economy.

  12. Arenas of Economic Policymaking • Business and Public Policy: Subsidies Amid Regulations, continued… • Regulating Business. • Antitrust policy: policies designed to ensure competition and prevent monopolies. • Antitrust cases are lengthy and expensive • Benefiting Business. • Government may loan businesses money • Government collects data that business use.

  13. Arenas of Economic Policymaking • Consumer Policy: The Rise of the Consumer Lobby • Consumers historically had little government protection. • FDA: Created in 1913 and approves foods and drugs sold in the U.S. • FTC: Responsible for regulating false and misleading trade practices, which now includes consumer lending practices.

  14. Arenas of Economic Policymaking • Labor and Government • Government historically sided with business over labor unions. • NLRB: regulates labor-management relations • Collective bargaining: union representatives and management determine pay & working conditions • Government now provides unemployment compensation and a minimum wage.

  15. Arenas of Economic Policymaking • New Economy, New Policy Arenas • The new economy is more information centered • There are still differences in information equality- • More men than women have access • More whites than minorities have access • Differences are getting wider between the races

  16. Understanding Economic Policymaking • Democracy and Economic Policymaking • As voting power increased, so did the demands for government action to restrict business. • Some economic freedoms were given up for the greater good of society. • Economic Policymaking and the Scope of Government • Liberals and conservatives have different policy ideas. • One wants less government, the other wants more.

  17. Internet Resources • Council of Economic Advisors • Federal Reserve Board • Federal Trade Commission • DOJ Antitrust Division

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