Monetary, Fiscal, and Regulatory Policies

1. Monetary, Fiscal, and Regulatory Policies

2. Economic Policy: The Big Picture • Global economic system • Most large companies do not really “belong” to any one nation – KFC, Walmart, Apple examples. • International economic organizations – WTO, World Bank, NAFTA agreements,etc – lay down rules. • Mixed development / mixed regulatory economy • United States has never been truly ‘lassiez faire’ – Hamilton, Lincoln and more examples. • Development interests versus Regulatory interests • Government Economic Interests v Social Interests • Must distinguish between social aid and policy like welfare, language, culture, etc and economic interest • Unemployment control, inflation regulation, prevention of labor unrest, are primarily economic. • Monetarism, Keynesianism, Supply Side Theory

3. What Revenue Are We Collecting?

4. So What Are We Spending On?

5. Fiscal Policy: Taxation • Progressive Tax Bracket System • Personal income taxes, corporate taxes • Tax credits vstax deductions • Social policy through taxation • Mortgage deduction, investment deduction • Marriage brackets, dependent credits • Payroll Tax Systems • Matching contributions earmarked for programs. • Medicaid, Social Security, others. • Regressive Sales/Excise Tax System • Goods, property, and transaction taxes • Primary source of income for states • Impact different income groups differently • Trade taxes and tariffs

7. Fiscal Policy: Keynesian Economics • Government should run a deficit providing aid to individuals or buy goods and services in recessions, later raise taxes to pay it off. • Federal Aid To States • Grants for development, science, education. • Rules allowing states more financial flexibility • Joint funding of major programs, Disaster relief • Federal Industrial Aid • Separate from regulatory policy. • Contracts, research, tax preferences. • Can include bailouts and other aid. • Federal Direct Spending • Government spending on infrastructure, military programs and social programs, poverty aid, etc.

9. Fiscal Policy: Supply-Side Economics • Government should stimulate production, favor large and small companies to increase supply. • New Federalism • Block grants and matching-grants preferred. • Aims to decrease federal spending and control. • Lower Tax Burdens • Tax cuts, not targeted exemption or raises to fund programs or pay off debt, are focus. • Government spending should be a small % of GDP • Lower taxes stimulate harder work and better rewards for businesses and individuals – Laffer Curve • Lower Regulatory Burdens • Federal regulations should cover only basic health and safety – anything else artificially restricts supply • The Modern Fiscal Consensus

10. Monetary Policy • Monetarism • More than fiscal policy, money supply, interest rates, and investment governs macroeconomic change. • Money Supply • Amount of money – not physical currency – available in the whole economy. • Fractional Reserve Banking • M0  M3, MB, Velocity • Inflation and Deflation • Inflation  money supply increases faster than demand, wages etc causing price increases. • Deflation  Money supply cannot keep up with expanding demand, wages etc, causing price and wage decreases (debt, and invetment effect). • Non-Monetarists / Goldbugs

11. The Federal Reserve • Conducts monetary policy • Emphasize price stability, moderate inflation. • Create environment for maximum possible employment • Monitor and stabilize long-term interest rates. • Affects liquidity and creation of liquidity in economy • Supervision and regulation of member banks • Reserve requirements and overnight loans. • Financial services to member banks • Open market operations • Discount windows. • Financial Services to the federal government • Buy and sell federal securities and bonds • Circulate and check currency levels

16. Regulatory Policy: Labor • Historical Roots • Illegality and suppression of labor unions • Wagner Act of 1935 – Protection of collective bargaining • Taft-Hartley Act of 1947 – Allows right-to-work • National Labor Relations Board • Regulatory board – five people, five years. • Wide array of functions including monitoring union elections, mediating negotiations, contract periods. • Department of Labor • Cabinet department with bureaus/departments. • Enforces non-NLRB regulations like minimum wage, employee leave,, unemployment, and more. • New Versus Old Unions • Rapid decline in labor union membership and clout. • New unions – lobbying or mass action organizations?

18. Regulatory Policy: Business • Mergers, Monopolies, and More • Federal Trade Commission – five commissioners head a large independent agency., 3/5 party rule. • Anticompetitive practices division monitors business practices and mergers – Microsoft example. • Civil versus criminal enforcement. • Financial disclosures and accounting standards • Securities and Exchange Commission • Open accounting for publicly held companies – regular disclosure, open to audit and “checkup:. • Preferential treatment and patents • Department of Commerce, others • Who gets a grant? Who gets the patent rights? • Nonprofits and Agriculture

20. Regulatory Policy: Banking + Stocks • Reserve Requirements and Transparency • 1980s S&L crisis – loopholes in transparency. • Reserve requirements – monetary and regulatory policy • FDIC – Consumer protection and regulatory policy • Rules, Rules, Rules! • Many rules enforced by Federal Reserve Board • Some rules by the CFTC, FTC, Commerce, etc • Separating different types of banks and accounts. • Non discriminatory loaning practices • Privacy of consumer credit and information • Monitoring board activity and membership • Credit card use and fairness • Public versus private issue of stocks

21. Regulatory Policy: Consumer Protection • Historical Roots • From industrial economy to consumer economy. • Pure Food and Drug Act of 1908, Square Deal ideas. • Rise of “Consumer Lobbies” on the 1960s and 1970s • Unsafe at Any Speed, drug scandals, etc • Food And Drug Administration • Consumer Product Safety Commission • Evolution of FDA practices on wider field of products • Can only choose some investigations/practices. • Lead paint, plastic toys, lawnmower blades and more. • Federal Trade Commission • Monitors fraudulent advertising, practices. • Product labeling standards and more! • Consumer Finance Protection Bureau?

22. Regulatory Policy: The Environment • Historical Roots • Conservationism in the early 20th Century (T.R.) / DoI • Growing evidence of massive damage – Love Canal • Environmental Protection Agency • Founded in 1970 in response to high profile disasters. • Proactive functions: cleanup, investigation, Superfund • National Environmental Policy Act (1969) • Clean Air Act and Water Pollution Act (1970-2) • Endangered Species Act 1973 • Today is single most active regulatory agency. • Interest Groups and Lobbyists • Sierra Club, Greenpeace, and more – EIPs and lawsuits • International Concerns and Cooperation • 1997 Kyoto Accords – issues and abandonment • Failure of 2009 Copenhagen talks.

23. Regulatory Policy: Energy Policy • 2nd Largest energy consumer, largest per capita*** • Consumer and Commercial Electricity • Electric power is 41% of total energy use • 48% of domestic electricity produced by coal. • Crucial to consumer economy and everyday life. • Transportation • Transportation is about 28% of total energy use. • 93% of transportation energy is produced by oil. • US is one of the most car-dependent nations. • Mo’ Fuel, Mo’ Problems • Nuclear power • Alternative Fuels and Regulatory fixes • Energy efficiency in homes, cars, etc. • Investment in solar, wind, hydro, hyrdrogen, hybrids…