Economic PolicymakingLaura Buitrago

Terms History

The Father of American Economy Alexander Hamilton

was secretary of Treasury while Thomas Jefferson was in power.

Even thought the word CAPITALISM was coined yet, Hamilton’s economic system created the basis for it.

Hamilton’s system created a MIXED ECONOMY.

The constitution gave powers of the economy to the National Government. It was Hamilton's job to put them in operation.

But even he could not foresee the world we live in today. People expect government to keep economy moving . Voters even punish politicians when economy crashes.

From your backyard to presidential candidates issues about government and economy are vital

Big corporations are growing and tuning into MULTINATIONAL CORPORAITONS.

Gov’t, Politics, and the Economy The goal is not to

understand how economy works, that is why “Economics” is a required course. The goal is to understand how policies affect the economy, and how I turn the economy affects the creation of policies.

Economic Policy at work (illustrated) Wal-mart Generated $273 B in 2003 Ranked 1st in Fortune’s 500 12% of all growth in the 90’s Generated as much revenue as Cali. It’s partly responsible for low rate inflation in

U.S.

Reg. & business Practices Gov’t regulation also affect walmart. The SEC regulates tock transactions. Since Wal-

mart is listed on the NYSE its trading is regulated by the SEC. These type of companies are required to hire and auditor and publish annual review.

(Fun fact: My dad is an auditor )If crooked handling of the company takes place

this might lead to its demise.

1.4 m. people work for wal-mart, that is 1 out of 10 americans

Workers are entitled to minimum wage. When they feel that they are treated unfairly

they take it up with their labor union. They bargain collectively for the workers.

The feds also regulate working conditions and hiring practices. Like discrimination against sex, religion, race, or disability.

Wal-mart and World economy U.S. gross domestic product

accounted for by international trade has tripled to about 30%.

Economic conditions affect voting and presidential approval. Voters, parties, ad politicians are riveted on economic issues especially at election time.

Harry S. Truman said voters pay attention to the most sensitive part of their anatomies their pocketbooks.

Economic conditions are the best predictor on voters view as to how the president is doing. But this predictor is not on individual basis but on overall.

(15% of pple without jobs vs. I don’t have a job the president sucks)

Parties have different economic centers of gravity.

Differences in Parties Republicans worried about inflation Appeal to the “investor class” Professionals business people

Democrats Stress importance of employment Appeal to working class voters, poorer

people, union members, and minorities.

Policies for Controlling the Economy Since the Great Depression and the New Deal, gov’t

has actively been involved in steering the economy. With the 1930’s stock market crash Herbert Hoover

clung the LAISSEZ FAIRE In the next presidency Franklin D. Roosevelt’s New

Deal programs experimented with new gov’t policies to put economy back on track

American Economy provides guide with monetary policy and fiscal policy.

Fiscal Policy of Presidents and Parties Congress is in charge of the FISCAL POLICY According to the constitution, congress got the most

economic power. Both parties have had great economic leaders Democrats

have Federal D. Roosevelt the Republicans have Ronald Reagan

Roosevelt was president during KEYNESIAN ECONOMIC THEORY. He was the architect of the Social Security System

Reagan brought new theory that the role of government is to stimulate the supply side of the goods, not their demand. SUPPLY SIDE ECONOMICS

Congress is in charge of the FISCAL POLICY According to the constitution, congress got the most

economic power. Both parties have had great economic leaders Democrats

have Federal D. Roosevelt the Republicans have Ronald Reagan

Roosevelt was president during KEYNESIAN ECONOMIC THEORY. He was the architect of the Social Security System

Reagan brought new theory that the role of government is to stimulate the supply side of the goods, not their demand. SUPPLY SIDE ECONOMICS

Monetary Policy and “The Fed” Government’s main economic policy is the

MONETARY POLICY MONETARISM hold’s that supply of money

is key to out nation’s economic health. Main agency making monetary policy is “

THE FED”

How “THE FED” WorksHow “THE FED” Works

Continued Theory held that government regulated and

taxed gross domestic product too much by cutting taxes this could give the incentive for people to invest therefore increasing revenue.

Both Reagan and W.Bush were committed to this system. Bush used this to justify his $1.3 Trillion, 10 year tax cuts of 2001.

The Book makers were clearly democrats

Why is it too hard to control the Economy?

Many economist believe that politicians have little to nothing effect on the short economy, even though some say that they use economy to win elections.

The economic policies are slow, they take at least a year to be approved and then to be implemented even more.

The decision made about economy in America are mostly made by businesses and the consumer.

Politics, policy, and International Economy If it’s difficult to control U.S. economy it is

harder to control global economy. The U.S. depends on international trade for its survival. In the world ¼ of GDP is based on exports.

Foreign owned assets in U.S. quadrupled in the 90’s to $8t.

Most emerging economies follow policy of PROTECTIONISM

PP&IE Continued… After WW2 gov’ts moved toward free trade

and reduction of tariffs. Clinton helped create the WTO which would

become an international organization promoting free trade

Arenas of Economic Policy Making Economic interest outnumber any other

interest group (everyone wants to reap the benefits)

Business, consumers, and labor a 3 major actors in government economic policy

Business One of reasons Washington is good to

lobbyist is because they are well organized and funded.

The corporation stood at center of American economy, in the 90’s they were symbols of success, but as the century turned they did too into symbols of excess.

Corruption did not cost cheap it was estimated it would cost $35B on 2002

Success vs. excess

At turn of the 20th century, titans took entire industries. It was called era of monopolies. Then came government regulation and ANTITRUST POLICY

Congress passed law in 2002 that provided tough penalties on stock fraud. It also created an Accounting Oversight Board within the SEC to regulate accounting industry practices.

Business lobbying has been around for decades consumer groups are something new

Consumer Policy First major consumer protection was

Food and Drug Act of 1996 Today FDA has broad regulatory powers over all things related with food and drugs.

Federal Trade Commission also helped with consumer protection in the 60’s and 70’s becoming defender of consumer interest in advertising.

Labor and Government In most of the 20th century government allied

with business but this changed in the new deal era.

1935 congress passed the National Labor Relations Act that guarantees collective bargaining, sets down rules to protect the union and created National Labor Relations Board to regulate labor-management relaitons.

Continued… Unions have had some success over the years

and became a staple of American economy, but lately membership has dropped.

Union member’s aren’t voting democratic anymore.

Terms

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Capitalism

Economic system in which individuals and

corporations own the

principal means of production, through which

they seek to reap profits.

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Mixed Economy While government does not command the

economy, it is deeply involved in economic decisions.

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Multinational Corporation Business with vas holdings in many countries.

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Laissez-Faire The principle that government should not

meddle with the economy.

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Monetarism They believe that having too much cash and

credit in circulation generates inflation.

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Monetary Policy Manipulation of the supply of money and

credit in private hands.

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Fiscal Policy The impact of the federal budget – taxing

spending borrowing

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The Fed Board of

Governors of the Federal Reserve System.

Created by congress 1913 to regulate lending practices of banks.

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The guys at “the FED” meet 8 times a year to review economic data.

They set the “Federal Funds Rate” which is the interest rate that banks can charge each other for an overnight loan. The fed purchases or sells government bonds from banks. This way they determine how much money a bank has. The more money the bank has the cheaper it is to give a loan, the more money on the street the more inflation.

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Keynesian economic theory Theory emphasizing that government

spending and deficits can help the economy weather its normal ups and downs. Proponents of this theory advocate using power of government to stimulate the economy when it is lagging

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Supply-side economics An economic theory advocate by President

Reagan holding that too much income goes to taxes so too little money is available for purchasing, and the solution is to cut taxes and return purchasing power to consumers

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Cartoon

Protectionism Economic policy of shielding an economy

from imports

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WTO World Trade Organization regulates

international trade

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Antitrust Policy Policy designed to ensure competition and

prevent monopoly.

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Food and Drug Administration Federal agency formed in 1913 and assigned

to approve all food and drug products sold in U.S. (all but Tobacco)

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Food and Drug Act of 1906 Prohibited the interstate transport of

dangerous or impure foods and drugs.

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SEC Securities and

Exchange Commission

Fed agency created in 1934 to regulate stock fraud.

This regulatory agency responsible for regulation of business practices.

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 chairman of the NASDAQ stock market