Ideology and Economic Policy

Ideology & Economic Policy

Essential Question

  • What are the economic policy views of the major political ideologies in America?

  • Lesson: AP Ideology & Economic Policy

What is Economic Policy?

  • Fiscal Policy:

    • Definition: Government spending and tax policies designed to influence the economy.

    • Actions are taken by Congress and the President.

    • Examples:

    • Stimulus spending during a recession.

    • Tax cuts on businesses.

  • Fiscal vs. Monetary Policy:

    • Two ways government helps economy stay on track.

Fiscal Policy

  • Defined as actions related to government spending and taxation.

Monetary Policy

  • Definition: Government control of the money supply and interest rates to achieve economic growth.

    • These actions are taken by the Federal Reserve (The Fed).

    • The Fed:

    • An independent government agency (not part of a cabinet department) aiming for maximum employment and price stability.

    • Examples:

    • Raising interest rates to combat inflation.

    • Lowering bank reserve requirements to encourage business growth.

Goals of Monetary Policy

  • Fun Fact:

    • Janet Yellen emphasizes the importance of low unemployment, stable inflation, and maintaining a robust economy.

Importance of Economic Policy

  • Can help end recessions or avoid them in the first place.

Keynesian Economics

  • An ideological perspective on fiscal policy known as "Keynesianism."

    • Named after John Maynard Keynes, a British economist influential during the Great Depression and World War II.

    • Definition:

    • To ensure economic growth, the government should:

      • Increase spending during recessions.

      • Cut spending when inflation occurs.

    • Opposes “austerity,” which suggests when government revenue decreases, spending should also decrease.

    • Going into debt is justified to jumpstart the economy.

    • Examples:

    • The New Deal and stimulus checks during the COVID-19 pandemic.

National Response to the Coronavirus

  • Lessons from The Great Recession that highlight the risks of government doing too little:

    • Stabilization of the economy with one-time payouts.

    • Unleashing a bold stimulus package totaling $870 billion (4% of GDP) in new spending.

    • Proposals include $2,000 checks for every adult and $1,000 per child.

    • Recommendation to automatically renew stimulus if unemployment exceeds 4%.

Supply Side Economics

  • Another ideological perspective on fiscal policy is "Supply Side Economics."

    • Based on the economic principles of Supply and Demand.

    • Seen as an alternative to Keynesianism.

    • Definition:

    • To ensure economic growth, the government should lower taxes and remove regulations.

    • Lower taxes and regulations can lead to a greater supply of money in the economy, stimulating economic growth.

    • Lowering taxes may increase revenue due to enhanced economic growth (referred to as the "Laffer Curve").

    • Examples:

    • Reaganomics and Trump's tax cuts.

What Reaganomics Did

  • President Ronald Reagan (1981-1989) pledged to make cuts in four key areas:

    1. The growth of government spending.

    2. Reductions in both income taxes and capital gains taxes.

    3. Reductions in regulations on businesses.

    4. Expansion of the money supply.

American Political Ideologies & Economic Ideology

  • Typically:

    • Liberals & Progressives: Support Keynesian Economics.

    • Conservatives & Libertarians: Support Supply Side Economics.

  • However:

    • Progressives usually oppose cutting spending on government programs during inflation.

    • Example: Biden's post-COVID spending.

    • Conservatives often support increased spending during recessions.

    • Example: W. Bush's 2008 bank bailouts.

    • Right-wing populists do not fit neatly into Keynesian or Supply-Side policies.

    • Example: Trump's repeal of environmental regulations and spending increases.

Tax Policy Ideologies

  • Progressives: Increase taxes to fund social programs.

  • Liberals: Increase taxes, but only on the wealthy, to fund social programs.

  • Conservatives: Decrease taxes and reduce funding for social programs.

  • Right Wing Populists: Decrease taxes without reducing social program spending.

  • Libertarians: Decrease taxes, eliminate social programs, and rely on private charities.

Tax Rate Opinions by Income Level

  • Majorities of Democrats across income levels favor raising taxes on households earning over $250,000:

    • Total:

    • 16% believe tax rates should be lowered a lot.

    • 11% believe tax rates should be lowered a little.

    • Republicans/Lean Republican:

    • 36% suggest keeping tax rates the same.

    • 22% believe they should be raised a little.

    • 21% think they should be raised a lot.

    • Democrats/Lean Democratic:

    • 58% suggest tax rates should be raised a lot.

    • Increasing proportions in lower income brackets favor increased taxes on high earners, with data indicating 71% of families earning less than $30,000 supporting such increases.

Banking Policy Ideologies

  • Progressives: Heavily regulate banks to protect the poor.

  • Liberals: Regulate banks to ensure a stable economy.

  • Conservatives: Reduce regulations on banks to encourage economic growth.

  • Right Wing Populists: Regulate banks to prevent corrupt elites from controlling the economy.

  • Libertarians: Do not regulate banks; allow the free market to direct the banking industry.

Corporate Policy Ideologies

  • Progressives: Heavily regulate big businesses to prevent worker exploitation.

  • Liberals: Regulate businesses to prevent anti-competitive practices and ensure safety.

  • Conservatives: Reduce regulations on businesses to encourage economic growth.

  • Right Wing Populists: Regulate big corporations to protect small businesses.

  • Libertarians: Do not regulate businesses; allow the free market to dictate business growth.

Trade Policy Ideologies

  • Progressives: Regulate trade to protect domestic workers.

  • Liberals: Promote free trade to improve quality of life.

  • Conservatives: Promote free trade to enhance the competitiveness of American companies globally.

  • Right Wing Populists: Regulate trade to safeguard domestic workers.

  • Libertarians: Promote free trade to minimize government influence over the global economy.

Pet Peeve: "Late-Stage Capitalism"

  • The phrase has been popularized to describe an economy perceived as deteriorating under capitalism.

    • The term originated in socialist and communist theory, suggesting contemporary economic problems cannot be solved under the existing capitalist system, necessitating socialism or communism.

    • The notion is considered overly fatalistic, as many economic issues have been resolved since WWII without resorting to communism.

    • Not all economic flaws are purely product of capitalism; government can address market failures without abandoning capitalism entirely.