The document discusses the economic policies of President Bill Clinton, known as Clintonomics. It describes how Clintonomics aimed to balance the budget through tax increases, reduce inflation through moderate monetary policy appointments to the Federal Reserve, enact limited deregulation, reform welfare programs to increase work requirements, and pursue low inflation and unemployment rates. Overall, Clintonomics combined elements of both Republican and Democratic economic ideas to modernize government and distribute more authority locally while reducing the federal deficit.

1. PHILIPPINE CHRISTIAN UNIVERSITY
1648 Taft Avenue, Corner Pedro Gil St. Manila
Policy Formulation and Implementation
Topic:
Formal and InformalPolicyEvaluation Process
In Partial Fulfillment of the course
Master in Management Major in Public Administration
Submitted by:
EVELYN F. MUÑIZ
Submitted to:
MR. ENRIQUE DERONIA RODRIGO, BSC, MBA, MPA, PHD
Professor

2. Supply-Side Economics
By Arthur Laffer
Definition:
Supply-side economics is the theory that says the supply of
money, labor, and goods or services, creates demand. It
recommends lower tax rates and deregulation to
boost economic growth.
Supply-side economics is better known as the "trickle-
down" policy which implies that greater tax cuts for investors and entrepreneurs
provide incentives to save and invest, and produce economic benefits that trickle down into the
overall economy. The supply-side theory is typically held in stark contrast to Keynesian
theory which, among other facets, includes the idea that demand can falter, so if lagging
consumer demand drags the economy into recession, the government should intervene with fiscal
and monetary stimuli. The distinct characteristic between the two theories is that a pure
Keynesian believes that consumers and their demand for goods and services are key economic
drivers, while a supply-sider believes that producers and their willingness to create goods and
services set the pace of economic growth.

3. How supply-side economics is supposed to work:
A corporate tax cut gives businesses more money to hire workers, invest in capital
equipment and produce more goods and services. An income tax cut increases the rate per hour
worked, increasing workers' incentive to remain employed, and thereby increasing labor. This
increase in supply boosts economic growth.
Businesses can raise prices, and workers can then bargain for higher wages, which will
translate back into higher tax revenues. Some supply-side proponents even argue that, over time,
any lost tax revenue will be recouped through greater tax receipts from a booming economy.
Theory Behind Supply-Side Economics
Supply-side economics is based on the Laffer Curve which was developed in 1979 by
economist Arthur Laffer. He argued that the effect of tax cuts on the federal budget are
immediate. They are also on a 1-for-1 basis. For every dollar cut in taxes reduces government
spending (and its stimulative effect) by exactly one dollar. However, that same tax cut has a
multiplier effect on economic growth. Every dollar cut in taxes translates into increased demand.
That's because it stimulates business growth, which results in additional hiring. How much effect
tax cuts have depends on whether the economy is growing, how high taxes were to begin with,
and which taxes are cut. If taxes were in the prohibitive zone, then cuts will have the best effect.
If taxes are already low, then cuts will only reduce government revenue and increase deficits

4. without boosting growth enough to offset the revenue lost. This theory is best illustrated by the
Laffer Curve.
What is the 'Laffer Curve'
The Laffer curve, invented by Arthur Laffer,
shows the relationship between tax rates and tax
revenue collected by governments. The chart below
shows the Laffer Curve.
The curve suggests that, as taxes increase from low levels, tax revenue collected by the
government also increases. It also shows that tax rates increasing after a certain point (T*) would
cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax
rates reached 100% (the far right of the curve), then all people would choose not to work because
everything they earned would go to the government.
Three Pillars
Like most economic theories, supply-side economics tries to explain
both macroeconomic phenomena that offer policy prescriptions for stable economic growth. In
general, supply-side theory has three pillars: tax policy, regulatory policy and monetary
policy.
However, the single idea behind all three pillars is that production (i.e. the "supply" of goods and
services) is most important in determining economic growth.

5. The three supply-side pillars follow from this premise. On the question of tax policy,
supply-siders argue for lower marginal tax rates. In regard to a lower marginal income tax,
supply-siders believe that lower rates will induce workers to prefer work over leisure (at the
margin). In regard to lower capital-gains tax rates, they believe that lower rates induce investors
to deploy capital productively. At certain rates, a supply-sider would even argue that the
government would not lose total tax revenue because lower rates would be more than offset by a
higher tax revenue base - due to greater employment and productivity.
On the question of regulatory policy, supply-siders tend to ally with traditional political
conservatives - those who would prefer a smaller government and less intervention in the free
market. This is logical because supply-siders - although they may acknowledge that government
can temporarily help by making purchases - do not think this induced demand can either rescue a
recession or have a sustainable impact on growth.
The third pillar, monetary policy, is especially controversial. By monetary policy, we are
referring to the Federal Reserve's ability to increase or decrease the quantity of dollars in
circulation (i.e. where more dollars mean more purchases by consumers, thus creating liquidity).
A Keynesian tends to think that monetary policy is an important tool for tweaking the economy
and dealing with business cycles, whereas a supply-sider does not think that monetary policy can
create economic value.
While both agree that the government has a printing press, the Keynesian believes this
printing press can help solve economic problems. But the supply-sider thinks that the
government (or the Fed) is likely to create only problems with its printing press by either (a)
creating too much inflationary liquidity with expansionary monetary policy, or (b) not

6. sufficiently "greasing the wheels" of commerce with enough liquidity due to a tight monetary
policy. A strict supply-sider is therefore concerned that the Fed may inadvertently stifle growth.
Conclusion
Economists still debate whether tax cuts lead to increased economic growth over the
long-term. The Treasury Department study did mention that, in the short-term and in an economy
that is already weak, tax cuts will provide an immediate boost. Tax cuts create larger budget
deficits unless spending is also cut. Over the long term, and in a healthy economy, this will put
downward pressure on the dollar which could ultimately increase inflation through higher prices
for imports. In time, if inflation is high enough and the economy is strong enough, it could
convince the Federal Reserve to initiate contractionary monetary policy, such as higher interest
rates. The result of that is slower economic growth.

7. Reaganomics
By Ronald Reagan
What Is Reaganomics?
Reaganomics describes President Ronald Reagan's
conservative approach for dealing with the 1980 recession.
Voters were being pummeled by stagflation -- an economic
contraction combined with double-digit inflation.
Reaganomics would fix stagflation by reducing government -
- a policy that was dramatically different from the status quo.
Reagan promised to reduce:
1. The growth of government spending.
2. Both income and capital gains taxes.
3. Regulation.
4. Inflation by controlling the growth of the money supply.
Reaganomics was based on the theory of supply-side economics, which states that tax
cuts give companies more cash to hire new workers, expand their businesses and create a supply
of goods and services. Cuts give workers more incentive to work, increasing the supply of

8. labor. Eventually, economic growth expands the tax base enough to replace the government
revenue initially lost from the cuts.
During the campaign of 1980, Ronald Reagan announced a recipe to fix the nation's economic
mess. He claimed an undue tax burden, excessive government regulation, and massive social
spending programs hampered growth. Reagan proposed a phased 30% tax cut for the first three
years of his Presidency. The bulk of the cut would be concentrated at the upper income levels.
Tax relief for the rich would enable them to spend and invest more. This new spending
would stimulate the economy and create new jobs. Reagan believed that a tax cut of this nature
would ultimately generate even more revenue for the federal government. The Congress was not
as sure as Reagan, but they did approve a 25% cut during Reagan's first term.
The results of this plan were mixed. Initially, the FEDERAL RESERVE BOARD
believed the tax cut would re-ignite inflation and raise interest rates. This sparked a deep
recession in 1981 and 1982. The high interest rates caused the value of the dollar to rise on the
international exchange market, making American goods more expensive abroad. As a result,
exports decreased while imports increased. Eventually, the economy stabilized in 1983, and the
remaining years of Reagan's administration showed national growth.
Did Reaganomics Work?
President Reagan delivered on each of his four major policy objectives, although not to the
extent that he and his supporters had hoped according to William A. Niskanen, a member of

9. President Reagan's Council of Economic Advisers from 1981 to 1985, and a founder of
Reaganomics. Inflation was tamed -- thanks to monetary, not fiscal policy. Reagan's tax cuts did
end the recession. However, government spending wasn't lowered, just shifted from domestic
programs to defense. Which resulted to tripled Federal debt, from $997 billion in 1981 to $2.857
trillion in 1989.
Taxes Were Cut
Tax rates were cut significantly, stimulating consumer demand. By Reagan's last year in office,
the top income tax rate was down to 28% for everyone making $18,550 or more. Anyone making
less paid no taxes at all. That was a significant drop from the 1980 top tax rate of 70% for
individuals earning $108,000 or more. Also, Reagan made sure tax brackets were indexed for
inflation. These tax cuts were somewhat offset by several tax increases in the Social Security
payroll tax and some excise taxes, and some deductions that were eliminated. The corporate tax
rate was also cut, from 46% to 40%. However, the effect of this break was muddied. Reagan
changed the tax treatment of many new investments. The complexity meant that the results of his
corporate tax changes couldn't be measured.
Growth in Spending Was Reduced
Government spending still grew, just not as fast as under President Carter. Reagan increased
spending by 2.5% a year, mostly for defense. Cuts to other discretionary programs only occurred
in his first year. Reagan did not cut Social Security or Medicare payments at all. In fact, Reagan's
budget was 22% of GDP (total economic output). Nevertheless, the growth in spending was less
than President Carter's 4% annual increase.

10. Regulations Were Somewhat Reduced
Reagan continued to eliminate the Nixon-era price controls. These constrained the free-market
equilibrium that would have prevented inflation. Reagan further removed controls on oil and
natural gas, cable TV, long-distance telephone service, interstate bus service, and ocean
shipping. Bank regulation was eased, helping to create the Savings and Loan crisis of 1989.
Reagan increased not decreased, import barriers. He doubled the number of items that were
subject to trade restraint from 12% in 1980 to 23% in 1988. He did little to reduce other
regulations affecting health, safety, and the environment. In fact, although Reagan reduced
regulations, it was at a slower pace than under Carter.
Inflation Was Tamed -- at a Cost
Reagan was fortunate that he had Federal Reserve Chairman Paul Volcker already in place.
Volcker was vigorously attacking the double-digit inflation of the 1970s, using contractionary
monetary policy, despite the potential for a double-dip recession. In 1979, Volcker began
steadily raising the Fed funds rate. By December 1980, it was at a historically high 20%.
Although inflation was tamed, these rates also choked off economic growth. Volcker's policy
triggered the recession of 1981-1982. Unemployment rose to 10.8% and stayed above 10% for
ten months.
Why Is Reaganomics Relevant Today?
Reaganomics is the economic policy advocated by conservatives, especially followers of the Tea
Party in 2011 and the Republican Presidential candidates in 2016. However, the theoretical basis
of Reaganomics reveal why it worked so well in the 1980s, but could harm growth based on
economic conditions in 2016.

11. Reaganomics and supply-side economics are based on the theoretical underpinning provided by
the Laffer Curve. Developed in 1979 by economist Arthur Laffer, the curve showed how tax cuts
could stimulate the economy to the point where the tax base expanded. That's because tax cuts
reduced the federal budget immediately, and dollar-for-dollar. These same cuts, however, have a
multiplier effect on economic growth. Tax cuts mean more money in consumers' pockets, which
they spend. That stimulates business growth and additional hiring. A larger tax base was
established, however, the effect tax cuts have depends on whether the economy is growing, how
high taxes were to begin with, and which taxes are cut.
For example, President Bush cut taxes in 2001 (JGTRRA) and 2003 (EGTRRA). The economy
grew, and revenues increased. Supply-siders, including the President, said that was because of
the tax cuts. Other economists point to lower interest rates as the real stimulator of the economy.

12. Clintonomics
By Bill Clinton
What Is Clintonomics?
Clintonomics refers to the economic policies of United
States President Bill Clinton during the 1990s. Moreover,
the term Clintonomics has generally been applied to
economic policies supported by his staff, the term may
also refer to the economic policies that Bill Clinton
supported during his presidency. According to American
political scientist Jack Godwin, Clintonomics was more
than a set of economic, fiscal and monetary policies. It was a governing philosophy with political
and economic elements, which routinely appropriated nominally "Republican" and "Democratic"
ideas. In general, Clinton's approach entailed modernizing the federal government, making it
more entrepreneurial, and distributing more authority to state and local governments. This meant
making the government smaller, more flexible, less wasteful, and better suited for the global era.

13. HISTORICAL BACKGROUND
During the 1992 presidential campaign America had undergone twelve years of
conservative policies implemented by Ronald Reagan and George H. W. Bush. Clinton ran on
the economic platform of balancing the budget, lowering inflation, lowering unemployment, and
continuing the traditionally conservative policies of free trade. In 1992, Bill Clinton was elected
President of the United States of America. During Clinton's presidency (1993 to 2001), the
economic policies he put into place for the U.S. were termed Clintonomics.
MONETARY POLICY
Clinton had the once celebrated economist Alan Greenspan as the Chair of the Federal
Reserve's board of governors throughout his presidency ; he also appointed two widely
considered "moderate advocates of tight money": Alice Rivlin and Laurence Meyer. Other
appointments to the central bank perpetuated this trend of moderates in other nominations. The
effects of appointing tight money proponents to the Fed showed up in the Consumer Price Index
(CPI), which stabilized during the 1990s at a fairly low rate -- never rising above 5 percent
during the Clinton presidency.
REGULATORY POLICY
The only laws that could be considered deregulatory were The Telecom Reform Act of
February 8, 1996, which eliminated ownership restrictions on radio and television; "agriculture
and the pesticides legislation of 1996; and the Food and Drug Administration overhaul of 1997.

14. All were signed into law by President Clinton. Clinton also signed the Financial Services
Modernization Act of 1999, which allowed banks, insurance companies and investment houses
to merge, thus repealing the Glass-Steagall Act, which had been in place since 1932. Some point
to this as a partial cause of the financial meltdown of 2008.
FISCAL POLICY
Clinton signed the Omnibus Budget Reconciliation Act of 1993 into law. This act created a 36
percent to 39.6 income tax for high-income individuals in the top 1.2% of wage earners.
Businesses were taxed at a rate of 35%. The cap was repealed on Medicare. The taxes were
raised 4.3 cents per gallon on transportation fuels and the taxable portion of Social Security
benefits was increased. The Personal Responsibility and Work Opportunity Act of 1996
represented a fundamental shift in both methods and goal of the federal cash assistance to the
poor. The law fulfilled Clinton's 1992 campaign promise to "end welfare as we have come to
know it.”
MACROECONOMIC POLICIES
Bill Clinton's macroeconomic policies of his presidency can best be looked at through three main
categories: gross domestic product (GDP), inflation rates, and unemployment rates. The first
factor we will examine will be the GDP. Among many parts of Clinton's policy to lower the
deficit, he allowed for the passing of laws that raised the money in the U.S. Treasury.
The pursuit of low inflation rates was another important aspect of Bill Clinton's macroeconomic
policies. He, unlike most other post-war Democrats, worked to keep the inflation rates low, and

15. succeeded. The mean inflation rates of Bill Clinton were at 2.3%, which are low when
considering the fact that that is about half of the rates of Republican Presidents.
Lower unemployment rates were another large part of Clinton's macroeconomic policies. Many
argue that Clinton cost many Americans jobs because he supported free trade, which caused the
U.S. to lose jobs to countries like China. Even if Clinton did cost Americans some jobs because
of free trade support, he enabled the creation of more jobs than were lost because the
unemployment rate of his presidency, and especially his second term, were the lowest they had
been in thirty years.
What exactly did Clinton do?
Bill Clinton enacted contractionary fiscal policy. First, he raised taxes with the Omnibus
Budget Reconciliation Act of 1993 (Deficit Reduction Act), his first budget. It raised the top
income tax rate from 28% to 36% for those earning more than $115,000, and 39.6% for income
above $250,000. It increased the corporate income tax from 34% to 36% for corporations with
incomes over $10 million.
It also ended some corporate subsidies, taxed Social Security benefits for high-income
earners, and created the earned income tax credit for incomes under $30,000. It raised the gas tax
by $.043 per gallon and limited the ability of corporations to claim entertainment tax deductions.
Second, he cut spending by reforming the TANF program, commonly known as welfare.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 required
recipients to get a job within the first two years. It limited the total time they could receive

16. benefits to five years. The number of TANF recipients fell by two-thirds. It went from 12.2
million in 1994 to 4.5 million in 2004.
Third, he successfully passed the North American Free Trade Agreement (NAFTA). It
eliminated tariffs between the United States, Canada, and Mexico.
Clinton regrets that he did not restructure Social Security and Medicare. He also failed to
achieve healthcare reform. In a June 20, 2004, interview with 60 Minutes, he admitted, "I'm
sorry on the home front that we didn't reform health care and that we didn't reform Social
Security." (Source: Bill Clinton, Pros and Cons, ProCon.org)
Criticisms
Clinton has been heavily criticized for overseeing the creation of the North American
Free Trade Agreement (NAFTA), which made it more affordable for manufacturing companies
to outsource jobs to foreign countries and then import their product back to the United States.
This policy caused a significant decrease in the amount of unskilled jobs in the United States.

17. REFERENCES:
“Clintonomics.” Boundless U.S. History. Boundless, 21 Jul. 2015.
Bill Clinton, Pros and Cons, ProCon.org
New York Federal Reserve
Library of Economics and Liberty,Reaganomics, William A. Niskanen
http://www.ushistory.org/us/59b.asp
http://www.investopedia.com/articles/05/011805.asp