1. ECONOMIC POLICY

2. Industrialization
Life generally better than when all worked in agriculture, but….
National problems such as…
fluctuations between periods of economic prosperity and economic downturn
Industrial accidents
Disease outbreaks
Labor conflict
Unemployment and the exploitation of workers
were too large and complex for state governments alone.

3. Laissez-Faire Doctrine
A French term meaning “to allow to do, to leave alone.”
It is a hands-off governmental policy that is based on the belief that governmental regulation of the economy is wrong.
Essentially, what businesses thought of as laissez-faire, was an economic system and a set of governmental policies that would be supportive of the amassing of profits.

4. The Progressive Era (1901-1917)
The Progressive Movement was a middle class reform movement designed to change the political, economic, and social system of the United States.
In general, Progressive reformers like Mother Jones wanted to rein in corporate power and make it more responsive to society and the democratically elected government.

5. The Great Depression / New Deal
The Great Depression (a catastrophic worldwide economic downturn) began with
a stock market collapse
followed by bank failures and decreased buying
falling production and dropping prices
rising unemployment
and financial panic.
President Hoover announced that there was nothing wrong and the economy was fundamentally sound. Panic ensued.
FDR called for and Congress enacted a "New Deal" for Americans. This legislation allowed for strong government participation in the economy to relieve the nation’s economic distress.

6. Income Security
FDR’s administration started many programs to help the needy.
In 1935 the Social Security Act made the government a major contributor to income security.
Three programs were created out of this act:
old age insurance (what we now call Social Security)
public assistance for the needy, aged, blind, and families with dependent children (the disabled were added later)
unemployment insurance

7. The Post-World War II Era
As WWII came to an end, many policymakers worried that the conversion from a wartime to a peacetime economy might trigger yet another great depression.
With the passing of
The Employment Act and the
The Taft-Hartley Act
the US government stayed involved in maintaining high levels of employment.

8. The Social Regulation Era
In the 1960s and 1970s our government turned to social regulations which deal with the quality and safety of products.
Agencies created such as the
Consumer Product Safety Commission
Occupational Safety and Health Administration
Environmental Protection Agency
National Transportation Safety Administration
“Great Society” welfare programs
Medicare
Medicaid

9. Deregulation A reduction in market controls over some industries.
In theory, deregulation would increase market competition and lead to lower prices for consumers.
Ford administration made deregulation a major objective.
Conservative Republican
Priority of the Carter and especially Reagan Administrations
Airlines, Telecommunications and Banking, to name a few
Significant price reductions and increase in product choices followed
Agricultural regulation still controversial.
2002 Bush signed into law a six-year agricultural bill with a price tag of $100 billion.

11. Stabilizing the Economy
Since FDR and the Great Depression, the government has taken a participatory approach to macroeconomic problems.
Goals: Economic Stability
Balanced, sustained economic growth & rising national income
High job employment
Low inflation (steadiness in the general level of prices)
The US government primarily uses three instruments to influence the economy…
Monetary policy
Fiscal policy
Trade Policy

12. Monetary Policy
Monetary policy involves the regulation of the country's money supply and interest rates.
Low or decreasing money supply: Economy & inflation may shrink
High or increasing money supply: Economy & inflation may grow, especially if money supply and consumer demand outrun production
The primary responsibility for monetary policy rests with the Federal Reserve Board (“The Fed”).
The Federal Reserve System was created in 1913 consists of:
the Federal Reserve Board
the Federal Open Market Committee
12 Federal Reserve Banks

13. The Federal Reserve System
The Fed is made up of seven members appointed by the president for 14 year overlapping terms with approval of the Senate.
The Fed has a number of tools including:
manipulating the reserve requirement
changing the discount rate
open market operations – the buying and selling of securities by the Fed

14. Fiscal Policy
Following the economist John Maynard Keynes government spending has been used to offset a decline in private spending and help maintain
levels of spending
production
employment.
Fiscal policy involves taxation and government spending policies to influence the overall operation of the economy.
John Kennedy was the first president to actively use fiscal policy. He deliberately cut taxes, continued to spend and ran a deficit in order to fuel economic growth.

15. Taxes & Outlays of the Federal Government

17. Entitlements and Discretionary Spending, 1963-2007

18. Year 2000 Fed Tax Rates

19. 2000 Singles Rate Tax example
Single making $26,000 would pay $2820, or 11% of income in Federal Income Tax
Single making $260,000 would pay $80,533, or 31% of income in Federal Income Tax, almost 29 X more.

20. 2000 Married Tax Rate Example
Married Couple, two children, making $43,000 would pay $3668, or 9% of income in Federal Income Tax
Married Couple, two children, making $260,000 (6 X more) would pay $74,484, or 29% of income in Federal Income Tax, 23 X more.

21. Year 2003 Fed Tax Rates

22. 2003 Singles Rate Tax example
Single making $26,000 would pay $2380, or 9% of income in Federal Income Tax
Single making $260,000 (10 X more) would pay $70,797, or 27% of income in Federal Income Tax, almost 30 X more.

23. 2003 Married Tax Rate Example
Married Couple, two children, making $43,000 would pay $2495, or 6% of income in Federal Income Tax
Married Couple, two children, making $260,000 (6 X more) would pay $60,414, or 23% of income in Federal Income Tax, 24 X more.

24. Global Trade
Around $5 TRILLION worth of trade crosses international borders each year.
Expectations are that foreign direct investment flows for 2000 exceeded $1 trillion.
Only 20 years ago that number stood at $60 billion and 10 years ago at $210 billion.
The global system of production is both deepening and broadening.
There are now 63,000 transnational companies with about 700,000 affiliates.

25. The Global Economy
While we are moving into a truly global economy industrialized trading blocks – regional free-trade areas – have developed in
Asia
Europe
North America
Free trade and globalization have been beneficial to many Americans and to some foreign economies but they are not supported by all.
For example, labor unions and some domestic manufacturers have been critical of free trade initiatives.

26. Trade Issues Economists generally believe in Free Trade
Claim cheaper products bring greatest good
Free vs Fair Trade: Dumping & Barriers
Subsidies, Tariffs, Quotas, VER, Distribution
Balance of Payments
Environmental & Human Rights
Protectionism for Political Gain
National Security Industries?
Steel, Arms, Aircraft, computers

27. The Economics of Regulating Environmental Activity
Environmental policy has many economic trade-offs.
If we want clean air we must pay more for cars that have emission controls.
If we want clean rivers and lakes we have to pay more for plastics and manufactured products because it is more expensive to get rid of wastes in environmentally friendly ways.
We may decide that the jobs of loggers are more important than the habitat of the spotted owl.