12 Economic Policies

Economic Policies

Government as Promoter of Economic Interests

  • Government regulations are typically acceptable to business firms unless they harm their interests.

  • Some regulatory agencies may align with industries instead of strictly enforcing public interest regulations.

Regulation

  • Definition: Government restrictions imposed on the economic activities of private firms.

Economy

  • Definition: A system for the production and consumption of goods and services, involving exchanges among producers and consumers.

Promoting Business

  • Government promotes business through financial assistance such as loans and tax breaks.

  • Types of Assistance:

    • Loan guarantees, direct loans, and tax credits for capital investment.

    • Tax deductions for capital depreciation.

    • Shifting tax burdens from corporations to individuals (e.g., TRAIN Law).

Deregulation

  • Definition: Repealing government regulations to enhance economic efficiency.

Education and Workforce Development

  • Role of colleges and universities in providing:

    • Graduates

    • Research

    • A professional and technical workforce for product development.

Promoting Labor

  • Historically, a laissez-faire approach may dominate government perspectives on labor.

  • Economic downturns (e.g., Great Depression) can reshape labor conditions.

Legislative Support for Labor

  • National Labor Relations Act of 1935:

    • Grants workers the right to bargain collectively.

    • Protects against disruptions in union activities and discrimination against union employees.

Labor Support Systems

  • Minimum wage laws, maximum hour guarantees, unemployment benefits, safe working conditions, non-discriminatory hiring practices.

  • Comparatively, government support for labor is less extensive than for business.

Fiscal Policy as an Economic Tool

  • Pre-1930s beliefs held that the economy self-regulated post-downturn.

  • Fiscal Policy: Government tool for stabilizing the economy through taxation and spending decisions.

Laissez-Faire Economics

  • Philosophy advocating that private firms and individuals should independently manage their production and distribution choices.

Impact of the Great Depression

  • The Great Depression dismantled the idea of a self-correcting economy.

    • Characterized as the longest and deepest global economic recession primarily occurring in the 1930s in the U.S.

Government Intervention

  • President Franklin Roosevelt's programs aimed to stimulate the economy and employment.

Demand-Side Policy

  • Origin: Based on John Maynard Keynes' theories.

  • Observations:

    • Employers reduce production and workforce in economic downturns.

    • Necessity for government spending to counteract decreases in private spending.

Keynesian Response

  • The government's spending response should match the downturn's severity:

    • Massive spending during depressions.

    • Lesser spending increases during recessions.

Key Definitions

  • Depression: A severe economic downturn.

  • Recession: A moderate economic decline.

  • Emphasis on demand-side economics to stimulate recovery.

Economic Recovery Strategies

  • Government can facilitate recovery via increased spending, thereby putting money in consumers' hands.

2009 Economic Stimulus

  • Act: $787 billion American Economic Recovery and Reinvestment Act.

    • Aimed to address economic decline from the financial market collapse.

    • Funded construction projects and bolstered unemployment benefits.

Bailout and Stimulus

  • Bailout: Financial assistance provided to prevent failure or bankruptcy.

  • Stimulus: Measures using monetary or fiscal policy to invigorate the economy.

Economic Management

  • Excessive spending, budget deficits, and mounting national debt require careful application and management.

Budgetary Powers

  • The government's ability to create, present, and control the national budget established a framework for fiscal responsibility.

Key Financial Terms

  • Deficit: Occurs when expenditures exceed revenues.

  • National Debt: Total amount the government owes.

  • Balanced Budget: Revenues equate to expenditures.

  • Surplus: Revenues exceed expenditures.

Supply-Side Policy

  • A fiscal approach advocating for direct support to producers.

  • Often favored by Republicans; focuses on stimulating business through tax cuts rather than spending programs.

Reaganomics

  • Involves tax reductions aimed at encouraging investment and economic growth.

Economic Growth Effects of Tax Cuts

  • Tax reductions lead to increased investments, job creation, and consumer spending.

Bush Administration Fiscal Policies

  • Tax reductions included reductions in personal income tax and capital gains tax.

Effects of Tax Cuts

  • Tax reductions allegedly spur economic activity; however, revenue loss from tax cuts often surpasses gains from increased activity.

Economic Consequences under Bush

  • Bonded with rising national debt and increasing budget deficits.

    • Example: National debt rose from $5.7 trillion to $10 trillion during his presidency.

Economic Challenges

  • Issues such as increased personal and business bankruptcies, stagnant incomes, and rising prices contribute to inflation and stagflation.

Definitions

  • Inflation: General increase in the prices of goods and services.

  • Stagflation: Slow economic growth paired with rising prices.

Monetary Policy

  • A government tool manipulating the money supply to manage the economy.

  • Practitioners are known as monetarists.

Milton Friedman

  • Advocated for the control of supply and demand through managing the money supply, linking increased money circulation to inflation risks.

Money Supply Management

  • Monetary authorities adjust the money supply based on economic conditions to promote stable growth without inducing inflation.

Central Bank Structure

  • Describes the organizational framework of the Bangko Sentral, including sectors responsible for monetary policy and financial supervision.

Policy Implementation Methods

  1. Cash Reserves: Adjusting the percentage of total deposits banks must maintain, influencing lending capacity.

  2. Interest Rates: Raising rates to curb borrowing or lowering rates to stimulate borrowing and increase money supply.

Effectiveness and Comparison of Policies

  • Debate exists concerning the superiority of fiscal vs. monetary policy, with monetary policy often being more agile.

  • Delayed implementation of fiscal policy noted, contrasting faster adjustments in monetary policy.

Efficiency in Economics

  • Definition: The necessity for firms to meet societal needs with minimal resource consumption, promoting productive efficiency.

Externalities

  • Burdens imposed on society when firms do not internalize production costs, e.g., pollution from industrial waste.