Patterson ch15

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Chapter 15

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Government as Regulator of the Economy

Efficiency through government interventionPromoting competitionMaking business pay for indirect costsDeregulation and underregulation

Equity through government interventionThe politics of regulatory policy

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Government as Protector of the Environment

Conservationism: the older waveDual use of federal lands: recreation and resource use

Environmentalism: the newer waveClean air, water, and land legislationEnvironmental Protection Agency, 1970Global warming and energy policy

Carbon-based greenhouse gasesKyoto Protocol, 1997Republican unwillingness to address the problem

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Government as Promoter of Economic Interests

Promoting businessGovernment-provided loansSpecial tax breaksSubsidiesTraditional services: education, transportation, and defense

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Government as Promoter of Economic Interests

Promoting laborNational Labor Relations Act of 1935Minimum wageMaximum work weekUnemployment benefitsNondiscriminatory hiring practices

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Government as Promoter of Economic Interests

Promoting agricultureHomestead Act of 1862Farm programs to eliminate some farming riskFederal payments account for more than a fifth of net

agricultural incomeAmerican farmers among the most heavily subsidized in

the worldStrong support for subsidies from rural members of

Congress

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Fiscal Policy as an Economic ToolDemand-side policy

Emphasizes the consumer (demand) component of the supply–demand equation.

Government spending to alleviate economic depression or recession

Generally preferred by Democratic lawmakersCan result in higher budget deficits and an increased

national debt

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Fiscal Policy as an Economic ToolSupply-side policy

Emphasizes the business (supply) component of the supply–demand equation

Tax breaks for firms and upper-income individuals intended to encourage business investment with resulting increases in employment and income

Generally preferred by Republican lawmakers Can result in higher budget deficits and an increased

national debt

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Fiscal Policy as an Economic ToolFiscal policy: practical and political limits

Republican and Democratic lawmakers are far apart on how best to deal with recessionary periods

Both parties enact policies that increase the national debt

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Monetary Policy as an Economic Tool

The FedControl over money supply

Raise/lower the cash reserve required of member banksRaise/lower interest rate on member banks

Fighting an economic downturnDecreasing interest rate on loans to member banksLowering reserve rateBuying government securities (bonds, notes, etc.)

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Monetary Policy as an Economic Tool

The Fed and control of inflationOpposite of fighting an economic downturnIncreasing interest rate on loans to member banksRaising reserve rateSelling government securities (bonds, notes, etc.)

The politics of the FedIs the Fed representative?Is the Fed accountable?

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