Economic Policy


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Economic Policy

  1. 1. Economic Policy What are the Democrats and the Republicans economic goals? What is the best way to achieve this objective? Why is it important to have a strong economy?
  2. 2. Types of Capitalism <ul><li>Liberal (Free) Market Capitalism </li></ul><ul><li>Coordinated Market Economies </li></ul>“ What we see emerge now is an ideological rift. On one side is the American Model of free-market capitalism, which was emulated by Margaret Thatcher's United Kingdom. On the other milder, European model that includes a stronger social safety net with attributes such as nationalized health care system and government- funded retirement and unemployment plans. Most Europeans and Canadians are very attached to this model.” (Chau, 243)
  3. 3. World Economy <ul><li>11 Global Giants </li></ul><ul><ul><li>Exxon Mobil (US) </li></ul></ul><ul><ul><li>BP (UK) </li></ul></ul><ul><ul><li>Wal-Mart (US) </li></ul></ul><ul><ul><li>Royal Dutch/Shell (NL) </li></ul></ul><ul><ul><li>GM (US) </li></ul></ul><ul><ul><li>Chevron (US) </li></ul></ul><ul><ul><li>Ford (US) </li></ul></ul><ul><ul><li>Daimler/Chrysler (US/DE) </li></ul></ul><ul><ul><li>Toyota (Japan) </li></ul></ul><ul><ul><li>GE (US) </li></ul></ul><ul><ul><li>Total (France ) </li></ul></ul>1% of the world’s population owns as much as 57% of the poorest. (Chua, 245)
  4. 4. US Corporate Giants <ul><li>Private industries are more efficient </li></ul><ul><li>US Fortune 100 Top 5 (2006) </li></ul><ul><ul><li>(Revenues $ millions) </li></ul></ul><ul><ul><ul><li>ExxonMobil $339,938 </li></ul></ul></ul><ul><ul><ul><li>Wal-Mart $315,654 </li></ul></ul></ul><ul><ul><ul><li>GM $192,604 </li></ul></ul></ul><ul><ul><ul><li>Chevron $189,481 </li></ul></ul></ul><ul><ul><ul><li>Ford $177,210 </li></ul></ul></ul>
  5. 5. Ideas <ul><li>What is happening in the cartoon? </li></ul><ul><li>How are government programs viewed? </li></ul><ul><li>What might be a better option? </li></ul>
  6. 6. Ideas <ul><li>In the 1960’s, CEO’s earned 40 X the average worker on the assembly line. </li></ul><ul><li>Today, the average CEO makes 300 to 400x the average work. </li></ul><ul><li>CEO salaries and bonuses surged 15% in a year salaries for rank-and-file workers averaged 3.2%. </li></ul>
  7. 7. US Economic Mind Set <ul><li>“American culture is uniquely prone to the ‘too good to miss’ fallacy. ‘Opportunity’ is our favorite word. What may seem reckless and feckless and hapless to people in many parts of the world seems a justifiable risk to Americans.” </li></ul><ul><li>-Robert Reich </li></ul><ul><li>Former Secretary of Labor </li></ul>
  8. 8. Incongruence in Public Consensus: Ideas <ul><li>Over 50% believe that Wall Street is dominated by greed and selfishness </li></ul><ul><li>57% want to see stronger regulation of Wall Street </li></ul><ul><li>80% of Americans expressed the belief that a system of free enterprise is needed in order for the continued existence of a free government </li></ul>
  9. 9. Goals of Economic Policy <ul><li>Democrats and Republicans both seek economic growth and prosperity, but they have different approaches in achieving this goal. </li></ul>
  10. 10. Economic Indicators <ul><li>Consumers' assessment of present-day conditions was less favorable in October than in September. </li></ul><ul><li>The economy is &quot;bad&quot; rose to 17.1 percent from 15.6 percent. </li></ul><ul><li>The economy is &quot;good,&quot; increased to 28.1 percent from 27.3 percent. </li></ul>Consumer Confidence Inflation Unemployment 2006 Indicators
  11. 11. Ideas: Theories in Economic Policy <ul><li>Laissez Faire: </li></ul><ul><ul><li>Adam Smith-Government should keep its “hands off” of the economy </li></ul></ul><ul><ul><li>Allow “invisible hand”- market forces (law of supply and demand) guide economic decisions. </li></ul></ul><ul><ul><li>Government regulations only make the economy inefficient. </li></ul></ul>
  12. 12. Theory on Supply and Demand
  13. 13. Theory on Supply and Demand 4,000 20,000 $8 6,000 18,000 $7 8,000 16,000 $6 10,000 14,000 $5 12,000 12,000 $4 14,000 10,000 $3 16,000 8,000 $2 18,000 6,000 $1 Supply Demand Price
  14. 14. The Invisible Hand, efficient?
  15. 15. Ideas: Theories in Economic Policy <ul><li>Keynesian Economics </li></ul><ul><ul><li>John Maynard Keyes- Opposite view of Smith. </li></ul></ul><ul><ul><li>Government must intervene to compensate for failures of the market. </li></ul></ul><ul><ul><ul><li>Disequilibrium in supply and demand will result in unemployment and economic recession. </li></ul></ul></ul>
  16. 16. Ideas: Theories in Economic Policy <ul><li>Supply-Side Economics (aka.Trickle Down Economics and Reganomics)- </li></ul><ul><ul><li>Reduce taxes in order to expand free movement of capital. </li></ul></ul><ul><ul><li>Market forces will help people find their comparative advantage, which will foster economic efficiency and expansion. </li></ul></ul>
  17. 17. Institutions: Government Players in Policy Creation <ul><li>President </li></ul><ul><ul><li>The Council of Economic Advisors </li></ul></ul><ul><ul><li>The National Economic Council </li></ul></ul><ul><ul><li>The Office of Management and Budget </li></ul></ul><ul><ul><li>The Federal Reserve Board </li></ul></ul>
  18. 18. Institutions: Government Players in Policy Creation <ul><li>The Cabinet and Agencies </li></ul><ul><ul><li>The Secretary of Labor </li></ul></ul><ul><ul><li>The Secretary of Commerce </li></ul></ul><ul><ul><li>The Secretary of Treasury </li></ul></ul><ul><ul><li>SEC </li></ul></ul><ul><ul><ul><li>Established in wake of stock market crash of 1929 </li></ul></ul></ul><ul><ul><ul><li>Protects investors and maintain integrity of the securities markets </li></ul></ul></ul>
  19. 19. Institutions: Government Players in Policy Creation <ul><li>Congress </li></ul><ul><ul><li>Targets of both pro-business and anti-business interests </li></ul></ul><ul><ul><ul><li>Committee on Apportionment </li></ul></ul></ul><ul><ul><ul><li>Budget Committee </li></ul></ul></ul><ul><ul><ul><li>Finance Committee </li></ul></ul></ul><ul><ul><ul><li>Ways and Means Committee </li></ul></ul></ul>
  20. 20. Interests: Corporate Players Attempt to Influence Policy <ul><li>Business Actors </li></ul><ul><ul><li>Financial Intermediaries </li></ul></ul><ul><ul><ul><li>Banks </li></ul></ul></ul><ul><ul><ul><li>Mutual Funds </li></ul></ul></ul><ul><ul><ul><li>Insurers </li></ul></ul></ul><ul><ul><ul><li>Pension Funds </li></ul></ul></ul><ul><ul><li>Corporate Management </li></ul></ul><ul><ul><li>Diversified Shareholders </li></ul></ul>
  21. 21. Interests: Organized Groups Attempt to Influence Policy <ul><li>Interest/Lobby Groups </li></ul><ul><ul><li>PAC </li></ul></ul><ul><ul><ul><li>Black America’s Political Action Committee </li></ul></ul></ul><ul><ul><ul><li>Conservative Political Action Committee </li></ul></ul></ul><ul><ul><li>Unions </li></ul></ul><ul><ul><ul><li>American Federation of Labor </li></ul></ul></ul><ul><ul><ul><li>Industrial Workers of the World </li></ul></ul></ul><ul><ul><ul><li>United Mine Workers </li></ul></ul></ul><ul><ul><li>Special Interest </li></ul></ul><ul><ul><ul><li>Association of Tax Fairness </li></ul></ul></ul><ul><ul><ul><li>Consumer Protection groups </li></ul></ul></ul>
  22. 22. Tools in Economic Policy <ul><li>Tools </li></ul><ul><ul><li>Fiscal Policy- </li></ul></ul><ul><ul><ul><li>Cut taxes to stimulate demand. </li></ul></ul></ul><ul><ul><ul><li>Increasing public spending to stimulate demand. </li></ul></ul></ul><ul><ul><ul><li>Allocate budget to areas to create growth. </li></ul></ul></ul><ul><ul><ul><li>Eliminate budgetary spending on wasteful services. </li></ul></ul></ul>
  23. 23. Tools in Economic Policy <ul><ul><li>Monetary Policy- control the supply of money </li></ul></ul><ul><ul><ul><li>Interest rates controlled by the Federal Reserve </li></ul></ul></ul><ul><ul><ul><li>“ Cool down” the economy by increasing interest rates. </li></ul></ul></ul><ul><ul><ul><li>Simulate the economy by decreasing interest rates. </li></ul></ul></ul>Chairman-Ben Bernanke
  24. 24. Tools in Economic Policy <ul><li>Tools </li></ul><ul><ul><li>International Trade Policy- </li></ul></ul><ul><ul><ul><li>WTO (World Trade Organization) </li></ul></ul></ul><ul><ul><ul><li>NAFTA (North American Free Trade Agreement) </li></ul></ul></ul><ul><ul><ul><li>Balance of Payment (Trade Deficit) </li></ul></ul></ul>
  25. 25. Quiz <ul><li>Read NYT article about the ramifications of Bush’s tax cuts. </li></ul><ul><li>Which economic policy theory is the government using? </li></ul><ul><li>Do you believe this policy is working? </li></ul>
  26. 26. Vocabulary <ul><li>Capitalism </li></ul><ul><li>Market Economy </li></ul><ul><li>Monetary Policy </li></ul><ul><li>Fiscal Policy </li></ul><ul><li>Interest Rates </li></ul><ul><li>Equity Markets </li></ul><ul><li>Bond Markets </li></ul><ul><li>Inflation </li></ul><ul><li>Economic Growth </li></ul><ul><li>Recession </li></ul><ul><li>GDP (Gross Domestic Product) </li></ul><ul><li>GNP (Gross National Product) </li></ul><ul><li>Federal Reserve </li></ul><ul><li>Deficit </li></ul>