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A brief summary on the changing course of economic action in the US, leading to Trickle-down Theory and Reaganomics.

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Presentation on theme: "A brief summary on the changing course of economic action in the US, leading to Trickle-down Theory and Reaganomics."— Presentation transcript:

1 A brief summary on the changing course of economic action in the US, leading to Trickle-down Theory and Reaganomics.

2 Briefly discuss the basis of economic theory in American politics Discuss the causes of stagflation and the recession of 1977 Discuss the different economic approaches to fiscal and monetary policy Discuss Reagans economic views on government Discuss how Reagans economic policy will effect his overall governmental policy

3 Yes. Economic policy is by nature a major game changer and a large factor by which to determine the success of a president. Reagans divergent economic policy is a common target for AP MX questions and FRQ’s. Economic Policy will undoubtedly effect you for the rest of your life, mine as well learn it now.

4 John Maynard Keynes Founder of modern macroeconomics Believed that government needed control over the “commanding heights” of the economy Dictates that government action is necessary at times to relieve high unemployment

5 Friedrich Von Hayek Austrian School of economics- Ludwig Von Mises The Road to Serfdom I hate to burst your bubble, but you can’t create wealth. Life in Chicago and being awarded a Nobel Prize

6 John Maynard Keynes “Long run is a misleading guide to current affairs. In the long run we are all dead.” Relief from unemployment must come in the short-run, help those who are hurting now. “I have arrived at the conviction that the neglect by economists to discuss seriously what is really the crucial problem of our time is due to a certain timidity about soiling their hands by going from purely scientific questions into value questions.” Friedrich Hayek

7 Common Keynesians:Common Classicalists:

8 Franklin D. Roosevelt FDR and the great Depression. Alphabet soup sends government spending through the roof. “I ask Congress for a declaration of war, on the depression!”

9 Fiscal Policy Decisions and actions made by Congress which effect the US economy as a whole. Raising or lowering taxes Increasing or lowering spending Printing more money Enacting federal regulation Decisions and actions made by the Federal Reserve Board which effect the US economy as a whole. Increasing or decreasing unemployment Increasing or decreasing inflation Changing the Federal rates of exchange Monetary Policy

10 Richard M. Nixon Nixon runs on a campaign of fiscal and monetary conservatism Promises to lower inflation Ends up leaving the gold standard, uses Keynesian economic theory

11 Jimmy Carter Carter’s failing moral obligations in the middle east cause an oil embargo. The beginnings of stagflation are then present in the economy. High Unemployment + high inflation = disaster What do we do?

12 Paul Volcker Appointed head of the Federal Reserve Board by Jimmy Carter Wants to lower inflation as a means of escape from stagflation Original target rate is far too high Meeting with Reagan and hitting the Bullseye

13 Ronald Reagan The most terrifying words in the English language are: I'm from the government and I'm here to help. Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. Republicans believe every day is the Fourth of July, but the democrats believe every day is April 15.

14 Fiscal Policy: Reaganomics Cut taxes, especially for corporations and business owners. Cut government spending to reduce the “crowding out” effect. Stop regulating business and let the market do what it does best. Encourage growth of aggregate supply Keep inflation low Appreciate US currency Let the trickle-down effect create wealth for all people Monetary Policy: Supply Side Economics

15 At first times are hard, inflation decreases but unemployment is at a stand still. Monetary policy brings value to the currency. Fiscal policy brings an end of stagflation. Lessons which we should have learned.

16 “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!”

17 Laissez faire government End of government regulation on corporations ATC strike An economic and GDP boom Not much time for other concerns: civil rights and women's concerns Sandra Day O’Connor

18 Jerry Falwell Foundation of the Christian right Born out of the “degenerate society” Attaches to the moral principles found in Hayek's economic theory

19 The election of 1984 Bears out Americans feelings on the economic policy Reagan convinces Americans are over-taxed and then delivers on cutting taxes Moral majority or economic boom?

20 Reagan’s compromise The debtor nation $200 Billion dollar increase in national debt Consistency leads to complacency The AIDS problem The War on drugs Immigration: Shifting Long Run Supply The failures of Trickle-down theory Works when businesses need to recover capital and labor. Increasing the corporate profit margin Stopping the fountain

21 Keynesian Presidents Used spending as a tool to win re-election Artificially lower unemployment Use the tools of economics to influence current events without foresight for the future Relinquishes the reigns on business to maximize profit and American economic growth Cuts spending and reduces inflation with a mindset to help future generations Low in practicality Classical Reaganomics

22 Economics and politics go hand-in-hand, economics will always shape the course of history, even in moral obligations Prosperity always has a price; for us and for future generations What looks good on paper doesn’t always work in real life A successful president must have a good hold on economics

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