Economic Policy Essay -- essays research papers

Economic Policy in Recent U.S. HistoryIn the exceedingly materialistic world that we live in, success is principally measured in financial wrong. The same is true in politics, where the success of a politician, especially the Pre positionnt, is measured by how well the economic system 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 subject pose pervaded public policy since World War II ply-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 marks down by printing cash and lending it from the central bank at a discount. This would put more(prenominal) money in consumers hands and encourage them to give-up the ghost and consume more, gum olibanum creating an incentive for investment. This helped to solve some of the problems, but in the long overstep it is extremely inflationary, because with the increase 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 settlement to the problem and could only do so much for the economy before inflation caught up with it, and took it into fade disclose. On the other hand we have supply side economics, which works on more of a long-term basis. It fundamentally 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 will 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 period of stagflation, where two unemployment and inflation were rising together. Policymakers realized that they could not solve this problem with Keynesian ways of thought. When 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 drip mold down economics to accomplish their goal of bringing the country out of this... ...ngress in fact adopted the tax reductions, and a set of consumption reductions was incorporated into the First Congressional Budget Resolution. The budget process for 1982 was neer completed, however, and the 1981-82 recession intervened. The net result of these efforts has been that tax rates are swallow now than in 1980, but not lower than rates in 1979. The reductions in aggregate federal expenditures relative to GNP, however, have not materialized. Indeed, during the premier(prenominal) three years of the Reag an administration, federal spending as a fate of GNP increased to historically high peacetime levels. Because the decline 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. intercommunicate 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 crash below 3 percent of GNP until 1989.