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  1. 1. Chapter Eighteen Economic Policy American Government and Politics: Deliberation, Democracy, and Citizenship
  2. 2. Chapter Eighteen: Learning Objectives <ul><li>Sketch the history of economic policy and its relationship to citizenship </li></ul><ul><li>Describe the elements of fiscal policy </li></ul><ul><li>Explain why the tax system is so complex </li></ul>
  3. 3. Chapter Eighteen: Learning Objectives <ul><li>Analyze the mechanics of monetary policy </li></ul><ul><li>Summarize the elements of regulatory policy, especially in matters of finance </li></ul><ul><li>Understand the politics of trade policy </li></ul>
  4. 4. Chapter Eighteen: Learning Objectives <ul><li>Discuss how policymakers and citizens deliberate on economic policy </li></ul>MARK RALSTON/AFP/Getty Images
  5. 5. Introduction <ul><li>Most agree on certain economic goals </li></ul><ul><li>Economic growth (change in GDP) </li></ul><ul><li>Low unemployment </li></ul><ul><li>Low inflation (general rise in prices) </li></ul>
  6. 6. Introduction <ul><li>Economic policy includes </li></ul><ul><li>Fiscal policy </li></ul><ul><li>Monetary policy </li></ul><ul><li>Regulatory and trade policy </li></ul>
  7. 7. A Brief History of Economic Policy <ul><li>Founding an economy </li></ul><ul><li>Laissez-faire approach </li></ul><ul><li>Government fostered economic growth through communication and transportation </li></ul><ul><li>Creation of Banks of the United States </li></ul>
  8. 8. A Brief History of Economic Policy <ul><li>Civil War and Progressivism </li></ul><ul><li>Economic policy caused rift between North and South </li></ul><ul><li>Laws passed to create uniform national currency </li></ul><ul><li>Progressive movement influenced economic policy </li></ul>
  9. 9. A Brief History of Economic Policy <ul><li>World Wars and their aftermaths </li></ul><ul><li>Government finances difficult to track </li></ul><ul><li>New Deal programs created annual deficit </li></ul><ul><li>Tax withholding authorized in 1943 </li></ul>
  10. 10. A Brief History of Economic Policy <ul><li>An age of uncertainty </li></ul><ul><li>1970s saw high inflation, economic stagnation, and unemployment </li></ul><ul><li>Supply-side economics became more prevalent economic theory and Ronald Reagan was a strong supporter of this idea </li></ul>
  11. 11. Fiscal Policy: Taxes <ul><li>What are the costs and benefits of the federal government’s complex system of income taxes? </li></ul>National archives
  12. 12. Fiscal Policy: Taxes <ul><li>Types of taxes </li></ul><ul><li>Individual income taxes </li></ul><ul><li>Corporate payroll taxes </li></ul><ul><li>Payroll taxes </li></ul><ul><li>Excise and sales taxes </li></ul>Harley Schwadron/Reprinted by permission of
  13. 13. Myths and Misinformation <ul><li>Income tax tales </li></ul><ul><li>A quick search of the Internet will reveal many myths about how much citizens owe on their taxes. </li></ul><ul><li>The IRS warns against using such misinformation. </li></ul>
  14. 14. Fiscal Policy: Spending and the Budget <ul><li>How do the executive and legislative branches deliberate about fiscal policy? </li></ul><ul><li>Two considerations </li></ul><ul><li>Economic impact of fiscal policy </li></ul><ul><li>Must consider the components of the budget </li></ul>
  15. 15. Fiscal Policy: Spending and the Budget: The Budget Process
  16. 16. Pledges and Promises <ul><li>Full faith and credit of the United States </li></ul><ul><li>The “full faith and credit” of the federal government backs the payments on public debt. </li></ul><ul><li>What would happen if the government failed to pay its debts? </li></ul>
  17. 17. Fiscal Policy: Limits of Fiscal Policy <ul><li>Limits of fiscal policy include </li></ul><ul><li>Proposals take months to become law, so there may be a policy lag </li></ul><ul><li>Much of federal spending is outside the appropriations process </li></ul><ul><li>Uncertainty about future economic conditions </li></ul>
  18. 18. Fiscal Policy: Deficits, Surpluses, and the Debt <ul><li>Why do deficits happen? </li></ul><ul><li>Deficits may grow because policy goals often override fiscal goals. </li></ul><ul><li>A president may be insistent on a policy without regard to the long-term economic impact of that policy. </li></ul>
  19. 19. Monetary Policy: Organization and Policy <ul><li>It is the responsibility of the Federal Reserve Board (the Fed) to assist in managing the supply of money and credit. </li></ul><ul><li>The goal of the Federal Reserve Board is economic stability. </li></ul>
  20. 20. Monetary Policy: Organization and Policy <ul><li>The Fed does not directly dictate interest rates, rather it has power over the federal funds rate . </li></ul><ul><li>The Fed does not have unlimited power as it is limited by global economic conditions and federal government deficits. </li></ul>
  21. 21. Monetary Policy: Organization and Policy Source: “The Federal Reserve System,” structure/, accessed May 7, 2009.
  22. 22. Monetary Policy: Deliberation and the Fed <ul><li>A member of the Federal Open Market Committee explained that his research is not only based on hard data, but also personal accounts and anecdotal evidence. </li></ul><ul><li>How does that approach contribute to deliberation? </li></ul>
  23. 23. Regulatory and Trade Policy <ul><li>What is the appropriate role for the government in policing economic activity? </li></ul><ul><li>Do international trade agreements infringe on American sovereignty? </li></ul>
  24. 24. Regulatory and Trade Policy: Regulating the Marketplace <ul><li>Four goals of financial regulation </li></ul><ul><li>Protect consumers from fraud, deception, or unfair practices </li></ul><ul><li>Ensure the integrity and fairness of markets to prevent fraud and manipulation </li></ul>
  25. 25. Regulatory and Trade Policy: Regulating the Marketplace <ul><li>Four goals of financial regulation </li></ul><ul><li>Monitor the safety and soundness of institutions </li></ul><ul><li>Ensure the stability of the overall financial system </li></ul>
  26. 26. Regulatory and Trade Policy: Trade <ul><li>International trade is a source of conflict. </li></ul><ul><li>Those that profit from exports typically support free trade and those who are concerned about foreign competition typically support protectionism . </li></ul>
  27. 27. International Perspectives <ul><li>Economic and political freedom </li></ul><ul><li>According to the data presented, does there appear to be a relationship between economic and political freedom? </li></ul><ul><li>Where does the United States rank? </li></ul>
  28. 28. Economic Debate and Deliberative Democracy <ul><li>Deliberation depends on knowledge of basic information and shared goals but, when it comes to economic policy, Americans often disagree about how to achieve goals. </li></ul><ul><li>Disagreements underlie deliberations about economic policy. </li></ul>
  29. 29. Deliberation, Citizenship, and You <ul><li>Catching waste and abuse </li></ul><ul><li>The federal government is encouraging citizens to report waste and abuse with government money through the Internet, toll-free phone hotlines and fax. </li></ul>
  30. 30. Summary <ul><li>Federal budget large part of economy, but private sector is larger </li></ul><ul><li>United States part of global economy </li></ul><ul><li>No one government economic policy </li></ul><ul><li>Many ways to appraise economic policy </li></ul>