Lecture notes for 4/5/99

Whether the policy promotes general welfare is a key aspect in deciding whether to accept
     the policy or not.
Congress has the power of the purse, the power to tax...how does the president play a role in this?
     -The president has many helpers in deciding policies.
          -Office of Management and Budget:  prepares budget for proposal
          -Department of Treasury:  estimates revenues the federal government is going
               to have for the purpose of making sure they have adequate funds for funding
               -The department manages the national debt by:
                    -Selling bonds
                    -Altering tax system proposals
                    -Borrowing money
          -Counsil of Economic Advisors:  small team of economists that makes
               recommendations of economic policies
          -Because the helpers are political employess, they usually give advice that the
               president wants to hear.

Federal Reserve Board (feds):  nation's/banker's bank
     -Lends money to banks (discount rate)
     -Oversees other banks (oversight responsibility)
     -Clearing house for checks and balances
     -Controls money supply (greatest power) by:
          -Setting interest rates
          -Setting reserve requirements for banks (the bank must keep 'x' percent of the money
               in the bank as reserve; can't loan this money)
          -Setting discount rate for member banks
          -Buy/sell bonds
     -Members of the reserve board are appointed by president.
          -Seven members, each one for 14-year terms
               -Appointed for 14 years to take the members out of the politics in Washington

The 1970's
     -During Jimmy Carter's presidency:
          -Formation of oil cartels
          -Iran Hostage
          -Stagflation (hurt Jimmy Carter's reputation as a leader)
               -Politically speaking, the government should attack unemployment first.
               -However, some disagree and said the government should focus on inflation.

The 1980's
     -During Ronald Reagan's presidency:
          -Economic Recovery Act of 1981
          -Reagan believed that cutting taxes was the solution to stagflation.
          -Economically speaking, can't attack both inflation and unemployment at one time
               -Reagan chose interest rates/inflation because by improving the inflation situation,
                    other aspects will stabilize, thus unemployment will go down.
          -Paul Volker:  chairman of the feds during the early 1980's
          -Alan Greenspan:  became chairman in 1987
          -Paul Volker resigned due to becoming too involved politically and disagreeing
               against Reagan in what the feds should do.
               -Replacing Volker, Greenspan did what should be done for a stronger economy.
                    -Inflation should be attacked first.
                    -Lower the unemployment rate (incur deficits if necessary)
                    -National debt will increase, but there will be a budget surplus as a result
                         of not using the revenue to pay off the national debt.
                    -Finally, after stabilization, lower the national debt.

Bill Clinton
     -Said social security should be saved first.
     -Alan Greenspan, however, said the government should address the national debt situation
          first before anything else.