Economic Policy
ECONOMIC
POLICY
Thank goodness for AP Econ next
semester, so… we’re gonna skip this!
ECONOMIC POLICY
• President & Congress held responsible for
economic “health” of nation
• Policy involves improving overall economic
health of nation through gov’t spending &
taxation policies
Raising Revenue
• Gov’t raises revenue through collection of
taxes (federal gov’t collects individual income
taxes, corporate income taxes, social
insurance taxes, excise taxes, customs duties,
& estate & gift taxes)
• Gov’t also raises revenue through sale of gov’t
securities by Fed Reserve & through collection
of fees for services provided (e.g. patent fees)
Government Spending
• May be discretionary or mandatory
– Discretionary – spending about which gov’t
planners may make choices
– Mandatory – required by existing laws for current
programs
• Recently, mandatory has grown while
discretionary has decreased
Government Spending
• Discretionary includes defense spending,
education, student loans, scientific research,
environmental cleanup, law enforcement,
disaster aid, & foreign aid
• Mandatory includes interest on national debt
& social welfare programs (Social Security,
Medicare, Medicaid, veterans’ pensions, &
unemployment insurance)
Historical
View
How to Control the Economy?
Monetary policy:
• Role of the Federal Reserve
– Purpose & structure
– Methods of control
– Independence …
How to Control the Economy?
Fiscal policy
• Keynesian policy
• Supply-side policy
Why is the economy hard to control??
Players in Econ Policy Game
• Political differences in groups interested in
policymaking
– Most want benefits, protections from economic
hardship
• 3 main players:
– Businesses
– Consumers
– Labor
Econ Policy & Business
• Began with antitrust policy in 1890
– Sherman Act 1890 – “trust-busting”
– 1914 Clayton Anti-trust Act
• Political differences in regulation of
market consolidation
– ex: Bush vs. Obama administrations
Econ Policy & Business
• Role of the SEC
• Late 90s thru 2000s – corporate
scandals and frauds
– Ex: Enron, Goldman Sachs
• Starting in 08: TARP used to protect
market & prevent business bankruptcy
Econ Policy & Consumers
• Consumer protection policy begins with
1906 Food & Drug Act
– Created FDA
• Today, FDA regulates manufacturing,
contents, marketing, & labeling
• 60s/70s: rise in focus on consumer issues
– CPSC: hazardous products
– FTC: truth in advertising & labeling
Econ Policy & Labor
• Issues: wages & hours,
contracts/collective bargaining, child
labor, safety
• Until 1914 Clayton Act, gov’t involved in
disrupting unions
• 1935 National Labor Relations
Act/Wagner Act
– Created Natl Labor Relations Board
– Collective bargaining, unionizing protection
Econ Policy & Labor
• 1947 Taft-Hartley Act: some
restrictions on union behavior
– Prez can halt major strikes thru injunction
– Allowed for “right-to-work” states
• 2 major labor successes:
– Unemployment $
– Minimum wage
Regulating the Economy
• Partisan differences in views of regulation
• Two types of regulatory agencies:
– Independent regulatory commissions
– Independent (executive) agencies
Regulation: the Environment
• 1970s, Clear Air & Water Acts: limited
pollution; regulated many corporate
behaviors regarding environmental
treatment
– Created the EPA to enforce
• Environmental impact statements:
controversial requirement for projects
using federal funds
– Pros & Cons …
Regulation: the Environment
• 1990, Clean Air Act: tighter control on
auto industry
• Clean Air Act & Clean Skies use profit
motive to encourage businesses to selfregulate
– “cap-and-trade” policies