Economic Policy Essay -- essays research papers

Economic Policy in Recent U.S. HistoryIn the highly materialistic world that we live in, advantage is generally measured in financial enclosures. The same is true in politics, where the success of a politician, especially the President, is measured by how well the economy did during his term in office. It is specifically measured by how well they bring down unemployment, grow the economy and fight inflation. Two basic modes of thought on the typesetters case have pervaded public policy since World War II supply-side and demand-side economics. Demand-side economics is generally known as Keynesianism, named after the English economist John Maynard Keynes. He believed that governments should force interest rates down by printing funds and lending it from the central bank at a discount. This would put more money in consumers hands and encourage them to spend and consume more, thus creating an incentive for investment. This helped to solve some of the problems, but in the long run i t is extremely inflationary, because with the attach of the money supply it becomes devalued. Keynesianism also calls for the government to spend more to try to help the economy grow. Keynesianism was a short-term solution to the problem and could only do so much for the economy before inflation caught up with it, and took it into break. On the other hand we have supply side economics, which works on more of a long-term basis. It basically attempts to stimulate economic growth, which would reduce inflation, and raise the standard of living. Supply side proponents say that by reducing government regulations and taxation, this go forth stimulate more economic growth, and market equilibrium will be reached on its own, without government impositions. Keynesianism was popular until the late 1970s during a limit of stagflation, where both unemployment and inflation were rising together. Policymakers real(a)ized that they could not solve this problem with Keynesian ways of thought. Wh en Reagan came into his Presidency he was faced with an economy that was in recession the prime interest rate was 15 percent, the unemployment rate was over 7 percent and inflation was running close to 14 percent a year. Reagan and his advisors took a conservative approach to solving the problem and looked to supply-side, or trickle down economics to accomplish their goal of bringing the country out of this... ...ngress in position adopted the tax reductions, and a set of spending reductions was incorporated into the First Congressional Budget Resolution. The budget process for 1982 was never completed, however, and the 1981-82 recession intervened. The net go away of these efforts has been that tax rates are lower now than in 1980, but not lower than rates in 1979. The reductions in aggregate federal expenditures sexual intercourse to GNP, however, have not materialized. Indeed, during the first three years of the Reagan administration, federal spending as a percentage of GNP i ncreased to historically high peacetime levels. Because the rule out in the rate of growth of tax revenues has not been matched by a decline in the growth of expenditures, the governments budget deficit in real terms has also reached unprecedented peacetime levels. The 1983 deficit was almost 6 percent of GNP. Projected deficits for 1985 and 1986 exceed 4 percent of GNP. These levels are of the same order of magnitude as those reached during the Great Depression of the 1930s. Without a reversal of the tax reductions or significant real spending cuts, the projected deficits will not fall infra 3 percent of GNP until 1989.