Economic Policy
Wilson 18A
Objective Questions
Who Governs?

Who in the federal
government can make our
economy strong?
To What Ends?

Why does the federal
government ever have a
budget deficit?
Federal Budgets



Deficit – spending < revenues throughout year
Debt – cumulative deficits year after year
GDP – yearly production of G/S



Have always had debt
Ratio of debt to GDP increasing
Got surplus in late ‘90s



Clinton budget showdown with House
Gingrich “Contract with America”
Booming technology and housing sector
Budget Proposals

Liberals – raise taxes


Conservatives – cut spending


Spend surplus on programs
Return surplus to taxpayers
Economic Growth and Tax Relief Reconciliation Act
“Bush Tax Cuts” – 2001




Bad estimates = CBO, OMB
9/11, housing and banking crisis, recession
Extensions, some made permanent
Fiscal cliff, sequester
Politics of Prosperity


Voters tend to hold elected officials responsible for the
state of the economy
Pocketbook issues

Economy as a whole or individual circumstances


More responsive to national conditions – sociotropic
Short-run POV when running for reelection


Macroeconomy is complicated
Ideological positions


Dems = unemployment
Reps = inflation
Fiscal Politics

Taxing and spending

Contradictions in voter demands




Less taxes + more spending = reduce deficits
Increasing spending more popular with voters
Attempt to raise taxes on “other people”
Monetary Policy

Federal Reserve Board



Open Market Operations
Required Reserve Ratio
Interest Rate
Theories




Monetarism – use of Fed tools to keep money supply
equal to economic productivity – Friedman
Keynesianism – use of federal budget to influence
total demand – Keynes
Planning – use of price controls and industrial policy
to direct economy – Galbraith
Supply-side – free markets and create incentives for
growth through targeted tax cutting – Laffer

Reaganomics – combined monetarism and supply-side
policies for mixed results (ended up more Keynesian)