US Politics
Economic Policy
Overview
• Basics of Public Policy• Basic Goals of Economic Policy
– Market Failures (public goods, externalities, monopolies)
– Economic Growth
• Basic Tools– Fiscal Policy – Monetary Policy
• Basic Strategies
Public Policy
• Problem Identification
• Agenda Setting
• Policy Formulation
• Policy Legitimation
• Policy Implementation
• Policy Evaluation
Participants:Congress, Pres,
IG, media, public
Is the problema “political”
problem?
Public Policy
• Problem Identification
• Agenda Setting
• Policy Formulation
• Policy Legitimation
• Policy Implementation
• Policy Evaluation
Participants:Congress, Pres,
IG, media, public
What issues needto be addressed
first?
Public Policy
• Problem Identification
• Agenda Setting
• Policy Formulation
• Policy Legitimation
• Policy Implementation
• Policy Evaluation
Participants:Congress, Pres,
IG, media, public
What policy is bestsuited to resolve
or solve theproblem?
Public Policy
• Problem Identification
• Agenda Setting
• Policy Formulation
• Policy Legitimation
• Policy Implementation
• Policy Evaluation
Participants:Congress, Pres,
Courts,IG, media, public
From the options,enact one into
law
Public Policy
• Problem Identification
• Agenda Setting
• Policy Formulation
• Policy Legitimation
• Policy Implementation
• Policy Evaluation
Participants:Pres, bureaucracy,
IG
Develop the administrativeprotocol andprocedures
Public Policy
• Problem Identification
• Agenda Setting
• Policy Formulation
• Policy Legitimation
• Policy Implementation
• Policy Evaluation
Participants:Congress, Pres,
bureaucracyIG, media, public
Is the programaccomplishing
what it wasmeant to?
Economic Policy
Goals of Economic Policy
• Primary goal is smooth running of a capitalist economy
• Maintain those features necessary for a market economy
1. Stability/Security
2. Fair Competition/Anti Monopoly
Goals of Economic Policy
Price
Quantity
Who determines the“price” of a good,buyers or sellers?
Goals of Economic Policy
Price
Quantity
Demand Curve
What would a“demand” curve
look like?
Goals of Economic Policy
Price
Quantity
Demand Curve
When price is high, buy fewer goods
Goals of Economic Policy
Price
Quantity
Demand Curve
When price is high, buy fewer goods
As price drops, buy more goods
Goals of Economic Polcy
Price
Quantity
Supply Curve
What wouldthe “supply”curve look
like?
Goals of Economic Polcy
Price
Quantity
Supply Curve
When price is low, try to sell fewer goods
As price rises, try to sell more goods
Goals of Economic Policy
Price
Quantity
Market Price
Who setsthe price ofthe good?
supply
demand
Goals of Economic Policy
• Market price is determined by the “invisible hand” of the market
• Buyers and sellers making individual decisions about what is best for them as consumers or sellers lead to market price that is best for all concerned
Goals of Economic Policy
Free market (laissez-faire) economics requires:
1. widespread information among buyers and sellers about the general tendencies and status of the market
Goals of Economic Policy
Free market (laissez-faire) economics requires:
2. Competition among buyers and sellers• monopoly: no competition among sellers
• monopsony: no competition among buyers
3. Rational preference schedules among participants:A>B, B>C A>C
Goals of Economic Policy
• Market Failures– Ensure fair competition
• Play by same rules• No monopolies/monopsonies
– Provide public goods• Minimum wage, consumer protection,
unemployment insurance
– Protect market externalities• e.g., anti pollution laws
Goals of Economic Policy
• For most of the country’s history, economic growth was not a government priority
• Market was responsible for the market
• Great Depression brings expanded government involvement
Tools of Economic Policy
• Fiscal Policy– Government’s ability to tax and spend
• Monetary Policy– Control the money supply through the
manipulation of interest rates
Tools of Economic Policy
• Tax revenue streams:– income (personal/corporate)– property– capital gains– sales– usage
• List of US tax forms
Tools of Economic Policy
• Types of taxes– Progressive Taxes
• Taxes increase (in percentage) as wealth increases– e.g., Income Tax
– Regressive Taxes• Taxes decrease (in percentage) as wealth increases
– e.g., Social Security tax– Proportional
• Taxes rise as percentage of some fixed measure– e.g., sales tax (you pay more as cost of good increases)
– Flat• Tax is same rate regardless of cost, income, etc.
– e.g., cigarette tax, user fees for driver’s license, parks, etc.
Basic Strategies
• Keynesian Economics– John Maynard Keynes
• Use government tools to manage economic growth
• Control the booms and limit impact of the busts in economic cycle
Basic Strategies
GDPGrowth
Years
“Normal” EconomicCycles
Basic Strategies
GDPGrowth
Years
“Normal” EconomicCycles
Managed EconomicGrowth
Basic Strategies
If economy is in downturn:
Government spending, Taxes
If economy is heating up too quickly:
Governmnt spending, Taxes
Basic Strategies
• Long term impact though has been steady increase in federal deficit and debt– Current Federal Budget Debt– Current foreign government ownership of the
debt– Historic data on the debt
Monetary Policy
• Control the circulation of money in the economy through the manipulation of interest rates
• Basically determines the “price” of money
• Determined by the Federal Reserve Board (the Fed)
Fed Chairman Ben Bernanke
Monetary Policy
If economy is in downturn:
Decrease rate
If economy is heating up too quickly:
Increase rate
Implications
• Debt obligations limit new government initiatives
• Ability of social security system and/or state pension systems to meet demands of retiring population.
• Ability for foreign governments to impact US government policy
Economic Inequality
Economic Inequality
Economic Inequality
Economic Inequality
Economic Inequality
Economic Inequality
Economic Inequality
Economic Inequality
Economic InequalityEconomic Inequality
Poverty in US
• Design a budget– Family of 4 in Hudson County– Calculate monthly expenses then determine the
yearly income necessary for those expenses
Poverty in US
Poverty rates for selected racial demographic groups
Poverty in US
• Beginning in 1930s, federal government began to put poverty relief on the public policy agenda
• Created:– Social Security
– Medicare
– AFDC (Aid for Families with Dependent Children)
– Food Stamp Program
– Unemployment Insurance
Poverty in US
• 1960s “Great Society” programs under Lyndon Johnson expanded federal involvement in poverty relief– Created Medicaid– Expanded Food Stamp– New programs to help poor families
• e.g. Head Start
Poverty in US
• Poverty has stabilized since 1970s, despite the expansion of federal dollars on the problem, and new efforts made to transform welfare to limit costs
• 1996 Welfare Reform Act– Shifts program from federal to state
administered system– Eliminated AFDC and created TANF
• (Temporary Assistance to Needy Families)
Poverty in the US
• 2008 Poverty Rate Guidelines (HHS)• HHS FAQ file on Poverty Rates and Poverty• Census bureau poverty data• Main Federal Poverty Programs
– TANF (HHS)
– HHS reports to Congress on TANFTANF data sets
– Food Stamps (Agriculture)