An economist is a trained professional paid to guess wrong about the economy.

1. Fiscal Policy An economist is a trained professional paid to guess wrong about the economy. • http://www.youtube.com/watch?v=LyePCRkq620&feature=player_embedded#!

2. The Role of Government Current Economics Texts 1) Correct Externalities 2) Provide a legal system 3) Promote competition 4) Provide “public goods” 5) Ensure economy-wide stability 6) Government sponsored / inhibited goods 7) Income redistribution The U. S. Constitution 1) Form more perfect union 2) Establish justice 3) Insure domestic tranquility 4) Provide the common defense 5) Promote the general welfare 6) Secure the blessings of liberty to ourselves 7) And to our posterity

3. Fiscal Policy: Definition Blue Pill Answer: Changes in government spending and taxing policies to affect the macroeconomy (business cycle) Red Pill Answer: Tax and spend Enacted by Congress Two types: Discretionary & Automatic

4. Fiscal Policy: Theory A 1) Point A = Full Employment Macro Long-Run Equilibrium

5. Fiscal Policy: Theory A A B 1) Point A = Full Employment Macro Long-Run Equilibrium 2) Point B = Decrease in business Investment = drop in Aggregate Demand How does fiscal policy get the economy get back to full employment?

6. Fiscal Policy: Theory A A A B + G 1) Point A = Full Employment Macro Long-Run Equilibrium 2) Point B = Decrease in business Investment = drop in Aggregate Demand How does fiscal policy get the economy get back to full employment? Increase spending (stimulus) and/or lower taxes.

7. Fiscal Policy: Theory C C 1) Point C = Full Employment Macro Long-Run Equilibrium

8. Fiscal Policy: Theory D C 1) Point C = Full Employment Macro Long-Run Equilibrium 2) Point D = Increase in business Investment = increase in Aggregate Demand How does fiscal policy get the economy get back to full employment?

9. Fiscal Policy: Theory D C C - G 1) Point C = Full Employment Macro Long-Run Equilibrium 2) Point D = Increase in business Investment = increase in Aggregate Demand How does fiscal policy get the economy get back to full employment? Decrease government spending and/or raise taxes.

10. Fiscal Policy: Theory A 1) Point A = Full Employment Macro Long-Run Equilibrium

11. Fiscal Policy: Theory A B 1) Point A = Full Employment Macro Long-Run Equilibrium 2) Point B = Increase in resource prices (oil) = decrease in Short Run AS How does fiscal policy get the economy get back to full employment?

12. Fiscal Policy: Theory C A B 1) Point A = Full Employment Macro Long-Run Equilibrium 2) Point B = Increase in resource prices (oil) = decrease in Short Run AS How does fiscal policy get the economy get back to full employment? Increase government spending and/or lower taxes.

13. Fiscal Policy: Actual We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises.... I say after eight years of this Administration we have just as much unemployment as when we started.... And an enormous debt to boot! Henry Morgenthau, Jr., Secretary of the Treasury, testimony to the House Ways and Means Committee, May 9, 1939 (17.2% unemployment)

14. Fiscal Policy: Actual

15. Fiscal Policy: Actual

16. Fiscal Policy: Actual

17. Fiscal Policy: Problems 1) Time Lags Recognition (6 mo.) Action (6 mo.) Effect (6 mo.) 6 6 6

18. Fiscal Policy: Problems 2) Crowding Out Two Sectors: Private & Public (Government)

19. Fiscal Policy: Problems 2) Crowding Out (direct) P P1 G1 G

20. Fiscal Policy: Problems 2) Crowding Out (indirect) 1 - Government Borrows 2 - Private supply of savings falls 3 - Interest rates rise 4 - Quantity of investment falls Government deficits crowd out private spending

22. Fiscal Policy: Problems 3) Deficit 4) Debt Deficit: Government spending exceeds tax revenue Debt: Accumulation of all deficits

23. Fiscal Policy: Problems Deficit and Debt

24. Fiscal Policy: Problems Deficit and Debt

25. Fiscal Policy: Problems Deficit and Debt

26. Fiscal Policy: Problems Deficit and Debt

27. Fiscal Policy: Problems Deficit and Debt

28. Fiscal Policy: Problems Deficit and Debt

29. Fiscal Policy: Problems Deficit and Debt

30. Fiscal Policy: Problems Deficit and Debt

31. Fiscal Policy: Problems Deficit and Debt

32. Fiscal Policy: Problems Deficit and Debt

33. Fiscal Policy: Problems Deficit and Debt

34. Fiscal Policy: Problems Deficit and Debt

35. Fiscal Policy: Problems Deficit and Debt

36. Fiscal Policy: Problems Deficit and Debt

37. Fiscal Policy: Problems Deficit and Debt

38. Fiscal Policy: Problems Deficit and Debt

39. Fiscal Policy: Problems Deficit and Debt

40. Fiscal Policy: Problems Deficit and Debt

41. Fiscal Policy: Problems Deficit and Debt Deficit reduction: Overspending this year by less than we overspent last year!

42. Fiscal Policy: Problems Deficit and Debt http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

43. Fiscal Policy: Problems Deficit and Debt http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

44. Fiscal Policy: Problems Deficit and Debt

45. Fiscal Policy: Problems TOTAL DEBT & UNFUNDED OBLIGATIONS. $7.7 Trillion Total Money Supply (Debt - all borrowed money) $57.0 Trillion Total Combined Debt (National, Business & Personal) $65.5 Trillion Unfunded Obligation (Soc. Sec., Medicare, Medicaid, etc.) $23.7 Trillion TARP Bailouts (and you thought it was only $700 Billion) $3.27 Trillion Stimulus $2.0 Trillion The Federal Reserve Will Not Disclose $1.0 Trillion Line of Credit to Greece $0.275 Trillion Foreclosure Rescue(UPDATED)plus $99.0 Trillion Unfunded Pensions and Health Care Liabilities $259.445 TRILLION in DEBT

46. Fiscal Policy: Problems • This says nothing about the $1.5 Quadrillion derivatives market. • It's worse than you are being told and the fix is easier than you can imagine. The FIX. • http://moneyaswealth.blogspot.com/2010/06/i-was-just-doing-little-math.html http://zfacts.com/p/461.html http://www.usdebtclock.org/

47. 1.6 trillion dollar deficit • http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=86&FirstYear=1999&LastYear=2017&Freq=Qtr&Java=Y#mid http://www.youtube.com/watch?v=Yk_jToBbpWU&feature=youtube_gdata_player

48. Fiscal Policy: Problems 5) Violation of the Constitution

49. Fiscal Policy Income Tax rates “Christmas is the time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell government what they want and their kids pay for it.”

50. What caused the Great Depression? “What did cause the Great Depression, then? Today most economists who have studied the period blame poor economic policymakingboth in the United States and in other major industrialized countries.” - Ben Bernanke [current chairman of the Federal Reserve Bank], Principles of Economics, Third Ed. P. 474. “Despite the devastating loss of wealth, chaos in our financial markets, and a loss of confidence so great that it nearly destroyed Americans’ fundamental faith in capitalism, the economy came back. Indeed, the growth between 1933 and 1937 was the highest we have ever experienced outside of wartime. Had the U.S. not had the terrible policy-induced setback in 1937, we, like most other countries in the world, would probably have been fully recovered before the outbreak of World War II.” - “Lessons from the Great Depression for Economic Recovery in 2009,” Christina D. Romer, Council of Economic Advisers [to president Obama], Presented at the Brookings Institution, Washington, D.C., March 9, 2009 “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton [Freidman] and Anna [Schwartz]: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.” - Remarks by [Fed] Governor Ben S. Bernanke, At the Conference to Honor Milton Friedman, University of Chicago, Chicago, Illinois November 8, 2002, on Milton Friedman's ninetieth birthday.