1. Aim: ECONOMIC POLICY POLITICS OF ECONOMIC PROSPERITY
Economy and elections
“pocketbook issue”
“It’s the economy stupid”
Unemployment
inflation

2. Aim: ECONOMIC POLICY
POLITICS OF TAXING AND SPENDING Fiscal policy = taxation (revenues) and spending (expenditures)
What Americans want is inconsistent?
What Congress/President give – tends to “feed” public inconsistency.
Produces budget deficits

3. Aim: ECONOMIC THEORIES – to promote national economic goals
BUT FIRST, WHAT ARE THE BIG THREE ECONOMIC GOALS?
economic growth
full employment
price stability

4. Aim: ECONOMIC THEORIES – to promote national economic goals:
MONETARY THEORY (MONETARISM)
“too much money chasing too few goods”
Stable – growth in money supply = to growth of economy’s productivity
Curb inflation
Federal Reserve
Tools – reserve requirements, OMOs, discount rates

5. Aim: ECONOMIC THEORIES
KEYNESIAN ECONOMICS
John Maynard Keynes
Demand-side economics
Deficit-spend during recession to stimulate the economy
Increase government spending (Public works)
Leads to increase demand
Increase productivity
Increase employment
When recession is over, balance the budget

6. Aim: ECONOMIC THEORIES
PLANNING
Price and wage controls
During inflationary times
Industrial policy (gov’t direct industry – development/investment)

7. Aim: ECONOMIC THEORIES
SUPPLY-SIDE TAX CUTS
Don’t need more planning but less government involvement
Government involvement = government interference with market mechanisms
Instead CUT TAXES
Leads to more money to SAVE, SPEND, AND INVEST
“Trickledown”
“Reaganomics”
Cut taxes, domestic spending
Increase military spending

8. Aim: ECONOMIC THEORY Democrats (Liberals) -Keynesian, Planning
IDEOLOGY AND THEORY
Democrats (Liberals)
-Keynesian, Planning
Republicans (Conservatives)
-supply-side, monetarists

9. Aim: ECONOMIC POLICY REVIEW BUDGETARY PROCESS President OMB Congress
Key Committees
CBO
Reporting out of each house
POLITICS OF THE PROCESS!!!

10. TAXES: GRESSIVITY “Gressivity” – tax rate relative to income
Progressive – tax rate increases as income increases
Proportionate – tax rate is the same at every income level
Regressive – tax rate increases as income decreases
EXAMPLES OF EACH??