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

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.

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.

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.

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.

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

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.

Monetary Policy Money establishes a system of exchange for goods. Supply controlled by Federal Reserve.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.

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.wage systems

The Budget Process Government raises money form a variety of sources.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.Major budget conflicts can emerge Bush administration spent record amounts.

Budget DeficitsBudget 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.

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.

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.

AV- Deficit Projection Back

Figure Federal Reserve System Back

Figure Minimum Wage Growth Back

Figure Federal Revenues Back

Figure Discretionary Spending Back

Table Federal Budget Process Back