Chapter 18 Economic Policy

1. Chapter 18Economic Policy  To Accompany Comprehensive, Alternate, and Texas Editions American Government: Roots and Reform, 10th edition Karen O’Connor and Larry J. Sabato  Pearson Education, 2009

2. Roots of Economic Involvement • Regulation was limited in the nineteenth century. • Prevailing attitude was laissez-faire. • As business cycles changed, need for intervention grew. • Growth in tariffs. • Railroads required interstate regulation. • Sherman Anti-Trust Act of 1890.

3. Progressive Era • Increased regulation of railroads, business, and banking. • Growth in regulation of food industry. • Creation of the Federal Reserve System. • Establishment of Federal Trade Commission.

4. Depression and the New Deal • Laissez-faire state becomes interventionist. • Creation of Federal Deposit Insurance Corporation. • Founding of Securities and Exchange Commission. • Passing Agricultural Adjustment Acts. • Ratification of new labor and industrial regulations.

5. Social Regulation Era • Economic regulation controls business and industry. • Social regulation sets quality and safety standards. • Social regulation emerges in 1960s and 1970s. • Agencies like EPA, OSHA, NTSA. • Brings new businesses into governmental regulation.

6. Deregulation • Reduction in market controls in favor of competition. • Airlines are first to be deregulated in 1978. • Attempts to end crop subsidies in mid-1990s. • Radio deregulated in 1996. • Mixed results and calls to “reregulate.”

7. Stabilizing the Economy • Economic stability is condition of economic growth. • Instability involves inflation or recession. • Inflation occurs when demand is high and prices rise. • Recession is marked by a decline in the economy.

8. Monetary Policy • Money establishes a system of exchange for goods. • Supply controlled by Federal Reserve. • Board of Governors sets rules and regulations. • System of banks governed by reserve requirements. • Establish discount rate of interest. • Work within open market operations. • Must cooperate with Congress and executive branch.

9. Fiscal Policy • Use of public policy to maintain economic stability. • Discretionary fiscal policy is choice of deficit or surplus. • First serious use was in 1960s. • Large partisan divide over appropriate policy. • International economy has a important influence. • Globalization creates new priorities and wage systems.

10. The Budget Process • Government raises money form a variety of sources. • Spending goes largely to defense and human resources. • President prepares budget and submits to Congress. • Congress authorizes all spending. • Major budget conflicts can emerge. • Bush administration spent record amounts.

11. Budget Deficits and the Debt • A deficit is the amount that spending exceeds revenue. • Debt is the total of all deficits, plus interest. • Continual effort to limit deficits. • Attempts to mandate balanced budgets have failed. • Bush administration brought about record deficits.

12. Funding the War in Iraq • Wars cost tremendous amounts of money. • Cost of Iraq war could exceed $2 trillion. • These costs place serious burden on the budget. • They also detract from domestic spending.

13. The Subprime Mortgage Crisis • Low interest rate, low down payment mortgages. • Source of crisis may go back to Clinton administration. • Low interest rates after 9/11 also contributed. • Government was forced to intervene. • Took over Fannie Mae and Freddie Mac. • Congress passed $700 billion bailout bill.

14. AV- Deficit Projection  Back

15. Figure 18.1- Federal Reserve System  Back

16. Figure 18.2- Minimum Wage Growth  Back

17. Figure 18.3- Federal Revenues  Back

18. Figure 18.4- Discretionary Spending  Back

19. Table 18.1- Federal Budget Process  Back