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Transcript of Gov!
national debt in the US: Economic,
Substantive, and Political. Economic Substantive Political Economic: A debt is important
only insofar as the gov’t
cannot make the payments
on its bonds in a currency
that people regard as stable
and valuable. Substantive: Argument is: what do we buy with our $money$? Our government borrows money whenever it needs it without much regard for what it gets. Political: Politicians publicly oppose debt, they offer two ways to combat it: cutting spending(conservative), or raising taxes(liberal) which often leads to no change at all. CEA OMB FRB Congress The CEA is a council of economic advisors composed of three diffrent proffessional economists and a small staff. It was made in 1946. Impartied group of experts responcible for predicting economic trends, analyzing economic reports, and report to the president. The people in the CEA picked by the president. OMB (office of managment and budget) was founded in 1921 prepares estimates of an amount that will be spent by the federal agency. to negociate with other departments over the size of their budget, and for making certain legislative proposals are in accordance with presidents program. In part impartial expert, in part activist The Federal Reserve System is composed of seven members appointed by the president with the consent of congress. Each member has a fourteen year nonrenewable term and can not be removed from their position except for a distict reason. The FRB is independent from both the Congress and the President. The group regulates the supplt and price of money, as well as sets the moretary policy. Show how voters have contradictory attitudes regarding their own and others' economic beliefs You would think people would only care about their own unemployment and their own economic woes. Instead, people see connections between their own well-being and that of the nation, and they tend to hold politicians responsible for the state of the country. So one would think that the public would only care about themselves, but actually, people are concerned for the nation as a whole. Reason for this might be that even if one person isn’t affected by unemployment, their friends of family members might be. Also, people mostly understand what the government can and cannot be responsible for. SUMMARY!!
1. Voters see connections between nation as a whole and their own situations
2. Voting behavior and economic conditions are not always correlated at national and individual levels
a. People understand what government can and cannot be held accountable for
b. People see economic conditions having indirect effects on them even when they are doing well
1.) Monetarism: Example: Milton Friedman. Inflation occurs when there is too much money chasing too few goods. Inflation occurs when the government prints too much money as it is within their power to do. Suggests best thing for government to do is to have a steady, predictable increase in the money supply at a rate about equal to the growth in the economy’s productivity. Beyond that, the government should leave it alone and let the free market operate. Monetarists favor a passive government. Economic Policy 2.) Keynesianism: John Maynard Keynes, economist that died in 1946 believed in this. Thought market would not automatically operate at a full-employment, low-inflation level. Health depends on what people spend or save of their income. If they save too much, then there will be too little demand, production will decline, and unemployment will rise. If there is too much spending, demand rises too fast, prices will go up, and shortages will develop. The key to Keynesianism is to create the right level of demand, through the government pumping more money into the economy or taking money out depending on if demand is too low or too high. Keynesianism favors an activist government. 3.) Economic Planning: These economists believe that the government should plan some part of the country’s economic activity. Main theory as followed by John Kenneth Galbraith and others is that government should use price and wage controls to regulate the maximum prices to be charged and the wages that can be paid in larger industries. 4.) Supply-side Economics: Arthur Laffer and Paul Craig Roberts theorize that instead of government planning, less government interference is needed. They believe that sharp tax cuts and fewer regulations will stimulate the economy by making it more productive, and therefore creating greater revenue for the government because the income they would be taxing would be greater overall. Seen as opposite of supply-side economics. Reaganomics: The technical definition is the belief that a combination of monetarism, lower federal spending, and supply-side economics will stimulate the economy. Reaganomics was instated by Ronald Reagan during his presidency. (Hence the name) Reagan wanted to achieve several goals at the same time, stimulation of economic growth, a decrease in the size of the federal government, and an increase in military strength. He didn’t quite accomplish what he wished. He reduced spending on some domestic programs, which slowed the rate of growth of federal spending, but did not decrease it. He also sharply increased military spending. Also, the most important change, was that Reagan made across the board cuts in personal income taxes, but were almost entirely offset by an increase in Social Security taxes. Lowering taxes and increasing the spending helped with unemployment and stimulated the economy as intended, but led to a huge increase in national debt and “large” effects on productivity and investment. (No clue what exactly this entails, book did not specify) Economic Theory + Reaganomics Federal Fiscal Policy Holders of the debt want larger interest payments to compensate for what they perceive as an increasing risk that they won't be repaid. This added interest payment expense usually forces a government to keep debt within reasonable limits. Client Politics: This political policy affects the federal fiscal policy by causing the government to tax the majority of the people for the benefit of the few on welfare. Entrepreneurial Politics: Changes in the tax laws on companies have been a result of these politics. People such as Ralph Nader and organizations such as Superfund and the EPA have changed the federal fiscal policy by forcing big business and companies to pay for the safety and other benefits that all consumers enjoy. Interest group Politics: Since Congress creates the federal fiscal policy, interest groups have a large impact on what is changed or what spending and tax laws are created or used. Interest groups lead to the creation of foreign trade laws, laws abolishing tariffs, and to things that reward certain groups within the US such as steel. Interest group politics also led to the NAFTA agreement passed in 1993. Marjoritarian Politics: Social Security and government sponsored research of cancer are examples of how the federal fiscal policy also works to benefit all by all taxpayers sharing the costs. Everyone pays for both the research and Social Security through taxes set down in law, and everyone benefits from these policies. In Chapter 17 four types of policymaking politics were introduced. Client, Entrepreneurial, Interest group, and Marjoritarian. Each of these policies affects the federal fiscal policy. Congress must approve all taxes and almost all expenditures. There are no wage or price contents without its consent. Congress can also alter FRB policy. trace the history of federal government budgeting practices up to the present day:
--there was no federal budget before 1921 and there was no presidential unified budget until the 1930's
--in 1974 the Congressional Budget Act a plan was made- now after the pres submits his budget two budget committees (one in the house and one in the Senate) study his overall package and then obtain an analysis of it from the Congressional Budget Office.
*in May congress is to adopt these budget resolutions, intending them to be targets to guide the work of each legislative committee as it decides what should be spent in its area
*in reality the government can change only about 1/3 of the federal spending in one year
--in 1981- each committee of Congress had to make cuts in the programs for which it was resposible
--the first cap was the Blanced Budget Act of 1985 the law required that each year from 1986-1991 the bedget would automatically be cut untill the federal deficit had disappeared. --1990- President Bush signed a tax increase, the top rate was 31%
--1993- president Clinton proposed another tax increase, would raise the top rate over 39%
-- there is no telling what will happen next