Power Point Presentation

1. Power Point Presentation By: Forrest Brewster and Maggie Salmons

2. PART IV Public Policy

3. Chapter 15 Economic and Environmental Policy: Contributing to Prosperity

4. In This Chapter • Government as Regulator of the Economy • Government as Protector of the Environment • Government as Protector of Economic Interests • Fiscal Policy: Government as Manager of the Economy, I • Monetary Policy: Government as Manager of Economy, II

5. Main Ideas • Though regulation, the U.S. government imposes restraints on business activity that are designed to promote economic efficiency and equity. • Through regulatory and conservation policies, the U.S. government seeks to protect and preserve the environment from the effects of business firms and consumers. • Through promotion, the U.S. government helps private interests achieve their economic goals. • Through its taxing and spending decisions (fiscal policy), the U.S. government seeks to maintain a level of economic supply and demand that will keep the economy prosperous. • Through its money-supply decisions (monetary policy), the U.S. government seeks to maintain a level of inflation consistent with sustained, controllable economic growth.

6. Government as Regulator of the Economy • Economy- A system of production and consumption of goods and services that are allocated through exchange. • Ex. A shopper chooses groceries at a store and pays money for them. This is one of million daily exchanges that make up the economy. • U.S. government plays a substantial economic role through the regulation of privately owned businesses. • U.S, firms are not free to act as they please but must operate within production and distribution set by the federal regulations

7. Extreme Economic Theories Adam Smith Karl Marx Collective economy: workers own mean of productions and the economy will operate in the interests of all people Kapital (Capital, 1867) • Laissez-faire doctrine: private individuals and firms should be left alone to make their own production and distribution decisions • Wealth of Nations (1776)

8. Efficiency and Equity through Government Intervention • Efficiency-the relationship of inputs (the labor and materials that go into making a product or service) to outputs (the product or service itself). • Representative action taken by government to promote efficiency: preventing restraint on trade; requiring producers to pay the costs of damage to the environment; reducing restrictions on business that cannot be justified on a cost-benefit basis. • Adam Smith and other classical economist believed free market trade to be the most optimal means of achieving an efficient economy. • Equity-when the outcome of an economic transaction is fair to each party • Representative actions taken by government to promote equity: Requiring firms to bargain in good faith and labor; protecting consumers in their purchases; protecting workers’ safety and health. • Specific Examples-1907 Food and Drug Act; 1934 Securities and Exchange Act and Banking Act; 1938 Fair Labor Standards Act

9. Prevention Restraint of Trade • Profit motif- drives produces to respond to demand. • If a producer gains a monopoly on a good or colludes with other producers to fix its price, consumers are forced to pay an artificially high price. The producer will charge as high of a price as the market will bear. • Trade restraint prevalent in the U.S. in the late 19th century • Example-1887 Interstate Commerce Commission-regulated railroad practices and fairs. • Business competition today is regulated by a wide range of federal agencies • Examples- Federal Trade Commission, the Food and Drug Administration, the Antitrust Division of the Justice Department • U.S. government acceptant of corporation giants (oil, automobiles, and other industries in which high capital make it difficult for smaller firms to compete) • General policy toward corporate giants who act within restraint is to penalize financially.

10. Making Businesses Pay for Indirect Costs • Economic inefficiencies can result failure of businesses or consumers to pay the full costs of resources used in production. • Externalities- burdens that society incurs when firms fail to pay the full costs of production. • Example- pollution that results when corporations dump industrial wastes into lakes and rivers. • Not required until the 1960s. • Clean Air Act of 1963 and Water Quality Act of 1965. • The Environmental Protection Agency was created in 1970 to monitor firms and ensure their compliance with federal regulations governing air and water quality and the disposal of toxic wastes.

11. The Politics of Regulatory Policy • Changes in national conditions can produce intermittent bursts of social consciousness. • Reforms of the Progressive and New Deal Era- • Progressive Era- Reformers fought to break the power of the trusts by placing constraints on unfair business practices. • New Deal Era- Reformers sought to stimulate economic recovery through regulatory policies that were designed as much to save business as to restrain it. • The Era of New Social Regulation- • 1960s and 1970s • Dealt with three major policy areas: environmental protection, consumer protection, and worker safety.

12. Government as Protector of the Environment • Turning point of government involvement in the U.S. environment was in 1960s . • Clean Air Act(1963) and Water Quality Act(1965) • 1970- creation of Earth day by Senator Gaylord Nelson 197; Environmental Protection Agency created. • Government conservation since late 1870 with the creation of Yellowstone (the country’s first national park) • Nat parks run by National Park Service under the Department of Interior and managed by U.S. Forest Service under the Department of Agriculture. • Pollution in heavily populated cities has declined due to toxic waste emissions being cut in half and bodies of water being revitalized, with air pollution decreasing by 70 percent. • Energy efficiency has increased in recent years but is an ongoing source of controversy. • Example- Government involvement in controlling carbon emissions said to contribute to global warming.

13. Government as Promoter of Economic Interests • Corporations are not always against government regulation of business, just that which causes a decrease in profits. • Government provides: loans, tax breaks, direct loans, loan guarantees, tax credits, and tax deductions to big businesses to stimulate the economy. • In today’s economy, the individual tax payer has a 5:1 tax burden when compared to large corporations. • The laissez-faire policy has changed to a more labor friendly policy. • Nation Relations Act of 1935 guaranteed workers the right to bargain collectively and prohibited businesses from black listing union employees and tampering with union activities. • Government aided labor- legislating minimum wages, max work hours, unemployment benefits, and safer working conditions and non-discriminating hiring practices. 

14. Promoting Agriculture • Through the 20th century, the dominate business in the U.S. was agriculture. • Homestead Act of 1862- opened government owned lands to settlement, creating spectacular land rushes. • Farm programs today provide assistance to large and small farm owners. • Agricultural businesses (large farms) costs the federal government billions of dollars annually. • 1996 Congress passed legislation that trimmed longstanding crop subsidy and allocation programs. The goal was to let the free trade market largely determine the prices farmers would get for their crops and to let farmers decide themselves on the crops they would plant. • Example- 2002 Farm Bill put farmers in line for hundreds of billions of dollars in government assistance in future years.

15. Fiscal Policy: Government as Manager of the Economy • Great Depression of 1930s brought an end to traditional economics in the U.S. • FDR’s government spending and job programs were designed to stimulate the economy and put Americans to work.

16. Taxing and Spending Policy • Annual federal budget is the foundation of fiscal policy. • Fiscal policy- government effort to maintain a thriving economy through its taxing and spending decisions. • Budget allocates federal expenditures among government programs and identifies the revenues and borrowed funds to be used for these programs. • Federal programs include- farmers who get price supports, defense firms, and retirees • Fiscal policy has its origins in the theories of John Maynard Keynes: The General Theory of Employment, Interest, and Money (1936) • Keynes claimed severe economic downturns are shortened by increased government spending (deficit spending). This places money in hand of consumers and investors, which stimulates the economy.

17. Demand-Side Stimulation • Emphasizes the consumer “demand” of the supply demand equation. • When consumers have additional money to spend, they have more of a demand to buy products. This stimulates the economy • WWII the U.S. economy was improved due to government war production. After the war the economy went into budget deficit from lack of revenue. • In the late 1990s, U.S. government had a balanced budget for first time since 1969 and eventually a budget surplus. • In 2000, the economy slowed down and so did government tax revenues. With conflicts in Iraq and Afghanistan, the government went back into debt. This also attributed to the large amounts of money the government is currently spending on domestic programs.

18. Supply-Side stimulation • President Reagan’s economic program theory emphasized the supply component of the supply demand equation. • Reagan administration believed the economic growth occurred from business stimulation as well as consumer stimulation. Reagan overestimated the effect of its tax cuts policy. • Reagan’s cuts allowed business firms to spend more on capital investments. This enabled higher investment Americans to put more money into stock markets, which provided funds for business investments.

19. Controlling Inflation • Inflation- increase in the average level of prices of goods and services. • To fight inflation the government cuts spending and raises personal income taxes.

20. The Budgetary Process • The Office of Management and Budget controls the U.S. government budget and follows the presidents directives. • The budget is reviewed by the House Appropriations Committee and its sub-committees. • Example- (1995) President Clinton and his Representative Congress deadlocked on budget issues, shutting down non-government essential programs for a period of time.

21. Partisan Differences •  Democratic Coalition supports lower class income working Americans. Republicans work to protect and stimulate large businesses. • Democrats favor graduated income tax and personal income tax. Republicans favor low taxes on upper incomes. • Example-These differences were evident in the battle of the Economic Growth and Tax Relief in 2001.

22. Monetary policy: Government as Manager of Economy • Monetary policy is based on the amount of money in circulation. • Milton Freedman holds that the control of the money supply is the key to maintaining a healthy economy.

23. The Fed • Control over money supply is under the Federal Reserve System. • The Fed decides how much money to add or subtract from the economy to prevent inflation. • One way to do this is by lowering the interest rates of banks that borrow money from the Fed Reserve. • Members appointed by the president and are not subject to removal. • Restraints on the Fed are much weaker than those on popularly elected institutions. • The Politics of the Fed • Who the Fed serves often remains unclear. • The Fed is said to be an example of elitist politics at work. • The Fed is typically more concerned with rising inflation rather than employment.

24. The End.