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Module4Lecture.pptxEconomic Policies
We have looked at government from the level of roles, from a theoretical perspective, and from an historical perspective. Now we look at it from an economic perspective.
(This is essentially a rapid overview of Economics 200 and 202 or their equivalent)
Difference between micro and macroeconomics
Microeconomics looks at how human incentives (e.g., profits from hard work), and disincentives (e.g., laws criminalizing certain behaviors) work in an economic setting.
Macroeconomics is the science that looks at how whole national economies work. Areas of interest in macroeconomics include fiscal policies (i.e., tax levels, how taxes are spent, and levels of public debt), money supply, interest rates, anti-recessionary actions, trade, and capital flows.
Microeconomic policies
Size-of-sectors policy: division of responsibilities
Wholly government-run system: communist governments like North Korea
Large government sector: socialistic systems such as Scandinavia and contemporary Venezuela (comprehensive health care, oil, other national commodities, power, extensive public transportation, etc.)
Capitalist systems in which the public sector is significantly smaller than private sector: Switzerland, Singapore
Governments are charged with regulating and influencing all sectors (including the government sector itself) by establishing prohibitions, requirements, and legal standards such as laws against fraud.
Influence by direct regulation: (1) patents, debts, contracts, (2) monopolies and restraints on financial system, (3) protection of employees, (4) customer protections, and (5) environmental protection
Financial leverage: tax breaks, subsidies, infrastructure development, free services and procurement, below market use of government resources or land
Bully pulpit: encourage and promote civic or good behaviors, encourage volunteerism
Information symmetry policy: regulating the market to make it more “perfect”
Buyer beware policies work relatively well when markets are simple, goods are not complex, and frequent transactions make buyers better informed
Regulation assists when markets are
highly complex such as automobiles and homes
“cheating” or errors are likely, and all buyers must constantly be hyper-vigilant such as with food or the use of undesirable substances
Summary of US policies
Macroeconomic policies
Revenue policy: taxes, tariffs, governmental assets
Expenditure policy: e.g., domestic versus defense and foreign policy
Debt policy: level, timing (also relates to recessionary policy)
Monetary policy: setting interest rates and regulating bank activity
Recessionary policy: use or non-use of counter-recessionary measures
Trade policy: rules about transactions involving goods moving across borders, currency exchange, trade balance policy, etc.
Capital flow policy: investment outflow restraints, foreign direct investment caps, land ownership prohibitions, currency exchange restrictions
Summary of US policies
