Aim: ECONOMIC POLICY
POLITICS OF ECONOMIC PROSPERITY

Economy and elections

“pocketbook issue”

“It’s the economy stupid”

Unemployment

inflation
Aim: ECONOMIC POLICY
POLITICS OF TAXING AND SPENDING
Fiscal policy = taxation (revenues) and
spending (expenditures)

What Americans want is inconsistent?

What Congress/President give – tends to
“feed” public inconsistency.

Produces budget deficits
Aim: ECONOMIC THEORIES –
to promote national
economic goals
BUT FIRST, WHAT ARE THE BIG THREE
ECONOMIC GOALS?

economic growth

full employment

price stability
Aim: ECONOMIC THEORIES – to
promote national economic goals:
MONETARY THEORY (MONETARISM)
“too much money chasing too few
goods”
 Stable – growth in money supply = to
growth of economy’s productivity
 Curb inflation
 Federal Reserve
 Tools – reserve requirements, OMOs,
discount rates

Aim: ECONOMIC THEORIES
KEYNESIAN ECONOMICS

John Maynard Keynes

Demand-side economics

Deficit-spend during recession to stimulate the economy

Increase government spending (Public works)

Leads to increase demand

Increase productivity

Increase employment

When recession is over, balance the budget
Aim: ECONOMIC THEORIES
PLANNING

Price and wage controls

During inflationary times

Industrial policy (gov’t direct industry –
development/investment)
Aim: ECONOMIC THEORIES
SUPPLY-SIDE TAX CUTS

Don’t need more planning but less government involvement

Government involvement = government interference with market
mechanisms

Instead CUT TAXES

Leads to more money to SAVE, SPEND, AND INVEST

“Trickledown”

“Reaganomics”

Cut taxes, domestic spending

Increase military spending
Aim: ECONOMIC THEORY
IDEOLOGY AND THEORY

Democrats (Liberals)
-Keynesian, Planning

Republicans (Conservatives)
-supply-side, monetarists
Aim: ECONOMIC POLICY
REVIEW BUDGETARY PROCESS
 President
 OMB
 Congress
 Key Committees
 CBO
 Reporting out of each house
 POLITICS OF THE PROCESS!!!
TAXES: GRESSIVITY
“Gressivity” – tax rate relative to
income
 Progressive – tax rate increases as
income increases
 Proportionate – tax rate is the same at
every income level
 Regressive – tax rate increases as
income decreases
 EXAMPLES OF EACH??
