Economic Policy

Economic PolicyEconomic Policy

What are the Democrats and the Republicans economic goals?

What is the best way to achieve this objective?Why is it important to have a strong economy?

Types of CapitalismTypes of Capitalism

Liberal (Free) Market Capitalism

Coordinated Market Economies

“What we see emerge now is an ideological rift. On one side is the American Model of free-market capitalism, which was emulated by Margaret Thatcher's United Kingdom. On the other milder, European model that includes a stronger social safety net with attributes such as nationalized health care system and government- funded retirement and unemployment plans. Most Europeans and Canadians are very attached to this model.” (Chau, 243)

World EconomyWorld Economy

11 Global Giants Exxon Mobil (US)Exxon Mobil (US) BP (UK)BP (UK) Wal-Mart (US)Wal-Mart (US) Royal Dutch/Shell (NL)Royal Dutch/Shell (NL) GM (US)GM (US) Chevron (US)Chevron (US) Ford (US)Ford (US) Daimler/Chrysler (US/DE)Daimler/Chrysler (US/DE) Toyota (Japan)Toyota (Japan) GE (US)GE (US) Total (FranceTotal (France))

1% of the world’s population owns as much as 57% of the poorest. (Chua, 245)

US Corporate GiantsUS Corporate Giants

Private industries are more efficientPrivate industries are more efficient US Fortune 100 Top 5 (2006)US Fortune 100 Top 5 (2006)

(Revenues $ millions)(Revenues $ millions) ExxonMobil $339,938ExxonMobil $339,938 Wal-Mart $315,654Wal-Mart $315,654 GM $192,604GM $192,604 Chevron $189,481Chevron $189,481 Ford $177,210Ford $177,210

IdeasIdeas

What is happening in the cartoon?

How are government programs viewed?

What might be a better option?

IdeasIdeas

In the 1960’s, CEO’s earned 40 X the average worker on the assembly line.

Today, the average CEO makes 300 to 400x the average work.

CEO salaries and bonuses surged 15% in a year salaries for rank-and-file workers averaged 3.2%.

US Economic Mind SetUS Economic Mind Set

“American culture is uniquely prone to the ‘too good to miss’ fallacy. ‘Opportunity’ is our favorite word. What may seem reckless and feckless and hapless to people in many parts of the world seems a justifiable risk to Americans.”

-Robert Reich

Former Secretary of Labor

Incongruence in Public Consensus: Ideas

Incongruence in Public Consensus: Ideas

Over 50% believe that Wall Street is Over 50% believe that Wall Street is dominated by greed and selfishness dominated by greed and selfishness

57% want to see stronger regulation of Wall 57% want to see stronger regulation of Wall StreetStreet

80% of Americans expressed the belief that a 80% of Americans expressed the belief that a system of free enterprise is needed in order for system of free enterprise is needed in order for the continued existence of a free governmentthe continued existence of a free government

Goals of Economic PolicyGoals of Economic Policy

Democrats and Republicans both seek economic growth and prosperity, but they have different approaches in achieving this goal.

Economic IndicatorsEconomic Indicators

Indicators 2006

Unemployment

Inflation

Consumer Confidence Consumers' assessment of present-day conditions was less favorable in October than in September. The economy is "bad" rose to 17.1 percent from 15.6 percent. The economy is "good," increased to 28.1 percent from 27.3 percent.

Ideas: Theories in Economic Policy


Laissez Faire: Adam Smith-Government should keep its

“hands off” of the economy Allow “invisible hand”- market forces (law of

supply and demand) guide economic decisions.

Government regulations only make the economy inefficient.

Theory on Supply and DemandTheory on Supply and Demand

Theory on Supply and DemandTheory on Supply and Demand

Price Demand Supply

$1 6,000 18,000

$2 8,000 16,000

$3 10,000 14,000

$4 12,000 12,000

$5 14,000 10,000

$6 16,000 8,000

$7 18,000 6,000

$8 20,000 4,000

The Invisible Hand, efficient?The Invisible Hand, efficient?


Ideas: Theories in Economic Policy Keynesian Economics

John Maynard Keyes- Opposite view of Smith.

Government must intervene to compensate for failures of the market.

Disequilibrium in supply and demand will result in unemployment and economic recession.



Supply-Side Economics (aka.Trickle Down Economics and Reganomics)- Reduce taxes in order to expand free

movement of capital. Market forces will help people find their

comparative advantage, which will foster economic efficiency and expansion.

Institutions: Government Players in Policy Creation


President The Council of Economic Advisors The National Economic Council The Office of Management and Budget The Federal Reserve Board



The Cabinet and Agencies

The Secretary of Labor The Secretary of

Commerce The Secretary of

Treasury SEC

Established in wake of Established in wake of stock market crash of stock market crash of 19291929

Protects investors and maintain integrity of the securities markets



Congress Targets of both pro-business and anti-Targets of both pro-business and anti-

business interests business interests Committee on Apportionment Budget Committee Finance Committee Ways and Means Committee

Interests: Corporate Players Attempt to Influence Policy

Interests: Corporate Players Attempt to Influence Policy

Business Actors Financial IntermediariesFinancial Intermediaries

BanksBanks Mutual FundsMutual Funds InsurersInsurers Pension Funds Pension Funds

Corporate ManagementCorporate Management Diversified ShareholdersDiversified Shareholders

Interests: Organized Groups Attempt to Influence Policy

Interests: Organized Groups Attempt to Influence Policy

Interest/Lobby Groups PAC

Black America’s Political Action Committee Conservative Political Action Committee

Unions American Federation of Labor Industrial Workers of the World United Mine Workers

Special Interest Association of Tax Fairness Consumer Protection groups

Tools in Economic PolicyTools in Economic Policy

Tools Fiscal Policy-

Cut taxes to stimulate demand.

Increasing public spending to stimulate demand.

Allocate budget to areas to create growth.

Eliminate budgetary spending on wasteful services.


Monetary Policy- control the supply of money

Interest rates controlled by the Federal Reserve

“Cool down” the economy by increasing interest rates.

Simulate the economy by decreasing interest rates.

Chairman-Ben Bernanke


Tools International Trade

Policy- WTO (World Trade

Organization) NAFTA (North

American Free Trade Agreement)

Balance of Payment (Trade Deficit)

QuizQuiz

Read NYT article about the ramifications of Bush’s tax cuts.

Which economic policy theory is the government using?

Do you believe this policy is working?

VocabularyVocabulary

Capitalism Market Economy Monetary Policy Fiscal Policy Interest Rates Equity Markets Bond Markets Inflation

Economic Growth Recession GDP (Gross

Domestic Product) GNP (Gross National

Product) Federal Reserve Deficit