An economist is a trained professional paid to guess wrong about the economy. Fiscal Policy ...

An economist is a trained professional paid to guess wrong about the economy.

Fiscal Policy

http://www.youtube.com/watch?v=LyePCRkq620&feature=player_embedded#!

The Role of Government

Fiscal Policy: Definition

Blue Pill Answer:

Changes in government spending and taxing policies to affect the macroeconomy (business cycle)

Red Pill Answer: Tax and spend

Enacted by Congress

Two types: Discretionary & Automatic

Fiscal Policy: Theory

A

1) Point A = Full Employment Macro Long-Run Equilibrium


A


2) Point B = Decrease in business Investment = drop in Aggregate Demand

How does fiscal policy get the economy get back to full employment?

A

B


A


2) Point B = Decrease in business Investment = drop in Aggregate Demand


Increase spending (stimulus) and/or lower taxes.

+ G

B

A

A


C

1) Point C = Full Employment Macro Long-Run Equilibrium

C


C

D


2) Point D = Increase in business Investment = increase in Aggregate Demand



C

D


2) Point D = Increase in business Investment = increase in Aggregate Demand


Decrease government spending and/or raise taxes.

C

- G


A



AB


2) Point B = Increase in resource prices (oil) = decrease in Short Run AS



A


2) Point B = Increase in resource prices (oil) = decrease in Short Run AS


Increase government spending and/or lower taxes.

B

C

Fiscal Policy: ActualWe have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises.... I say after eight years of this Administration we have just as much unemployment as when we started.... And an enormous debt to boot! Henry Morgenthau, Jr., Secretary of the Treasury, testimony to the House Ways and Means Committee, May 9, 1939 (17.2% unemployment)

Fiscal Policy: Actual



Fiscal Policy: Problems1) Time Lags Recognition (6

mo.)

Action (6 mo.)

Effect (6 mo.)

6 6 6

Fiscal Policy: Problems2) Crowding OutTwo Sectors: Private & Public (Government)

Fiscal Policy: Problems2) Crowding Out (direct)

P

G G1

P1

Fiscal Policy: Problems2) Crowding Out (indirect) 1 - Government

Borrows

2 - Private supply of savings falls

3 - Interest rates rise

4 - Quantity of investment falls

Government deficits crowd out private spending

Fiscal Policy: Problems3) Deficit

4) Debt

Deficit: Government spending exceeds tax revenue

Debt: Accumulation of all deficits

Fiscal Policy: ProblemsDeficit and Debt

Year Tax Revenue Government Spending

Deficit Debt

1

2

3

4

5



Deficit Debt

1 100

2

3

4

5



Deficit Debt

1 100 100

2

3

4

5



Deficit Debt

1 100 100 0 0

2

3

4

5



Deficit Debt

1 100 100 0 0

2 100 125

3

4

5



Deficit Debt

1 100 100 0 0

2 100 125 25

3

4

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3

4

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25

4

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50

4

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4 125

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4 125 150

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4 125 150 25

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4 125 150 25 75 +

5



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4 125 150 25 75 +

5 150



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4 125 150 25 75 +

5 150 165



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4 125 150 25 75 +

5 150 165 15



Deficit Debt

1 100 100 0 0

2 100 125 25 25

3 100 125 25 50 +

4 125 150 25 75 +

5 150 165 15 90+


Deficit reduction:

Overspending this year by less than we overspent last year!


Interest Expense Fiscal Year 2011

February $21,759,253,957.26

January $21,122,729,715.18

December $104,700,174,845.03

November $19,396,316,137.56

October $24,142,491,931.22

Fiscal Year Total (5 mo.) $191,120,966,586.25

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

Fiscal Policy: ProblemsDeficit and DebtAvailable Historical Data Fiscal Year End

2010 $413,954,825,362.17

2009 $383,071,060,815.42

2008 $451,154,049,950.63

2007 $429,977,998,108.20

2006 $405,872,109,315.83

2005 $352,350,252,507.90

2004 $321,566,323,971.29

2003 $318,148,529,151.51

2002 $332,536,958,599.42

2001 $359,507,635,242.41

2000 $361,997,734,302.36 http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm


TOTAL DEBT & UNFUNDED OBLIGATIONS.$7.7 Trillion Total Money Supply (Debt - all borrowed money)$57.0 Trillion Total Combined Debt (National, Business &

Personal)$65.5 Trillion Unfunded Obligation (Soc. Sec., Medicare,

Medicaid, etc.)$23.7 Trillion TARP Bailouts (and you thought it was only $700

Billion)$3.27 Trillion Stimulus$2.0 Trillion The Federal Reserve Will Not Disclose$1.0 Trillion Line of Credit to Greece $0.275 Trillion Foreclosure

Rescue (UPDATED)plus

$99.0 Trillion Unfunded Pensions and Health Care Liabilities$259.445 TRILLION in DEBT

Fiscal Policy: Problems

http://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html

http://grandfather-economic-report.com/debt-nat.htm

http://www.fms.treas.gov/fr/08frusg/08frusg.pdf

http://abcnews.go.com/Business/Politics/story?id=8140184

http://blog.heritage.org/2009/02/12/true-cost-of-stimulus-327-trillion/

Fiscal Policy: ProblemsThis says nothing about the $1.5 Quadrillion derivatives market.

It's worse than you are being told and the fix is easier than you can imagine. The FIX.

http://moneyaswealth.blogspot.com/2010/06/i-was-just-doing-little-math.html

http://zfacts.com/p/461.html

http://www.usdebtclock.org/

• 1.6 trillion dollar deficit

• http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=86&FirstYear=1999&LastYear=2017&Freq=Qtr&Java=Y#mid

http://www.youtube.com/watch?v=Yk_jToBbpWU&feature=youtube_gdata_player

Fiscal Policy: Problems5) Violation of the Constitution

Fiscal Policy

Income Tax rates

“Christmas is the time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell government what they want and their kids pay for it.”

What caused the Great Depression?• “What did cause the Great Depression, then? Today most economists who

have studied the period blame poor economic policymaking both in the United States and in other major industrialized countries.” - Ben Bernanke [current

chairman of the Federal Reserve Bank], Principles of Economics, Third Ed. P. 474.

• “Despite the devastating loss of wealth, chaos in our financial markets, and a loss of confidence so great that it nearly destroyed Americans’ fundamental faith in capitalism, the economy came back. Indeed, the growth between 1933 and 1937 was the highest we have ever experienced outside of wartime. Had the U.S. not had the terrible policy-induced setback in 1937, we, like most other countries in the world, would probably have been fully recovered before the outbreak of World War II.” - “Lessons from the Great Depression for Economic Recovery in 2009,” Christina D. Romer, Council of Economic Advisers [to president Obama], Presented at the Brookings Institution, Washington, D.C., March 9, 2009

• “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton [Freidman] and Anna [Schwartz]: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.” - Remarks by [Fed] Governor Ben S. Bernanke, At the Conference to Honor Milton Friedman, University of Chicago, Chicago, Illinois November 8, 2002, on Milton Friedman's ninetieth birthday.

President Obama says that "economists from across the political spectrum agree" on the need for massive government spending to stimulate the economy. In fact, many economists disagree. Hundreds of them, including Nobel laureates and other prominent scholars, have signed a statement that the Cato Institute has placed in major newspapers across the United States.

“There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy.”

— PRESIDENT-ELECT BARACK OBAMA, JANUARY 9, 2009

Economists Agree on Fiscal Policy

With all due respect Mr. President, that is not true.

Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

Burton Abrams, Univ. of Delaware Douglas Adie, Ohio University Ryan Amacher, Univ. of Texas at Arlington J.J. Arias, Georgia College & State University Howard Baetjer, Jr., Towson University Stacie Beck, Univ. of Delaware Don Bellante, Univ. of South Florida James Bennett, George Mason University Bruce Benson, Florida State University Sanjai Bhagat, Univ. of Colorado at Boulder Mark Bils, Univ. of Rochester Alberto Bisin, New York University Walter Block, Loyola University New Orleans Cecil Bohanon, Ball State University Michele Boldrin, Washington University in St. Louis Donald Booth, Chapman University Michael Bordo, Rutgers University Samuel Bostaph, Univ. of Dallas Scott Bradford, Brigham Young University Genevieve Briand, Eastern Washington University George Brower, Moravian College

James Buchanan, Nobel laureate Richard Burdekin, Claremont McKenna CollegeHenry Butler, Northwestern University William Butos, Trinity College Peter Calcagno, College of Charleston Bryan Caplan, George Mason University Art Carden, Rhodes College James Cardon, Brigham Young University Dustin Chambers, Salisbury University Emily Chamlee-Wright, Beloit College V.V. Chari, Univ. of Minnesota Barry Chiswick, Univ. of Illinois at Chicago Lawrence Cima, John Carroll University J.R. Clark, Univ. of Tennessee at Chattanooga Gian Luca Clementi, New York University R. Morris Coats, Nicholls State University John Cochran, Metropolitan State College John Cochrane, Univ. of Chicago John Cogan, Hoover Institution, Stanford University John Coleman, Duke University Boyd Collier, Tarleton State University

Robert Collinge, Univ. of Texas at San Antonio Lee Coppock, Univ. of Virginia Mario Crucini, Vanderbilt University Christopher Culp, Univ. of Chicago Kirby Cundiff, Northeastern State University Antony Davies, Duquesne University John Dawson, Appalachian State University Clarence Deitsch, Ball State University Arthur Diamond, Jr., Univ. of Nebraska at Omaha John Dobra, Univ. of Nevada, Reno James Dorn, Towson University Christopher Douglas, Univ. of Michigan, Flint Floyd Duncan, Virginia Military Institute Francis Egan, Trinity College John Egger, Towson University Kenneth Elzinga, Univ. of Virginia Paul Evans, Ohio State University Eugene Fama, Univ. of Chicago W. Ken Farr, Georgia College & State University Hartmut Fischer, Univ. of San Francisco Fred Foldvary, Santa Clara University

Murray Frank, Univ. of Minnesota Peter Frank, Wingate University Timothy Fuerst, Bowling Green State University B. Delworth Gardner, Brigham Young University John Garen, Univ. of Kentucky Rick Geddes, Cornell University Aaron Gellman, Northwestern University William Gerdes, Clarke College Michael Gibbs, Univ. of Chicago Stephan Gohmann, Univ. of Louisville Rodolfo Gonzalez, San Jose State University Richard Gordon, Penn State University Peter Gordon, Univ. of Southern California Ernie Goss, Creighton University Paul Gregory, Univ. of Houston Earl Grinols, Baylor University Daniel Gropper, Auburn University R.W. Hafer, Southern Illinois University, Edwardsville Arthur Hall, Univ. of Kansas Steve Hanke, Johns Hopkins

Stephen Happel, Arizona State University Frank Hefner, College of Charleston Ronald Heiner, George Mason University David Henderson, Hoover Institution, Stanford University Robert Herren, North Dakota State University Gailen Hite, Columbia UniversitySteven Horwitz, St. Lawrence University John Howe, Univ. of Missouri, Columbia Jeffrey Hummel, San Jose State University Bruce Hutchinson, Univ. of Tennessee at Chattanooga Brian Jacobsen, Wisconsin Lutheran College Jason Johnston, Univ. of Pennsylvania Boyan Jovanovic, New York University Jonathan Karpoff, Univ. of Washington Barry Keating, Univ. of Notre Dame Naveen Khanna, Michigan State University Nicholas Kiefer, Cornell University Daniel Klein, George Mason University Paul Koch, Univ. of Kansas Narayana Kocherlakota, Univ. of Minnesota Marek Kolar, Delta College

Roger Koppl, Fairleigh Dickinson University Kishore Kulkarni, Metropolitan State College of Denver Deepak Lal, UCLA George Langelett, South Dakota State University James Larriviere, Spring Hill College Robert Lawson, Auburn University John Levendis, Loyola University New Orleans David Levine, Washington University in St. Louis Peter Lewin, Univ. of Texas at Dallas Dean Lillard, Cornell University Zheng Liu, Emory University Alan Lockard, Binghampton University Edward Lopez, San Jose State University John Lunn, Hope College Glenn MacDonald, Washington University in St. Louis Michael Marlow, California Polytechnic State University Deryl Martin, Tennessee Tech University Dale Matcheck, Northwood University Deirdre McCloskey, Univ. of Illinois, Chicago

John McDermott, Univ. of South Carolina Joseph McGarrity, Univ. of Central Arkansas Roger Meiners, Univ. of Texas at Arlington Allan Meltzer, Carnegie Mellon University John Merrifield, Univ. of Texas at San Antonio James Miller III, George Mason University Jeffrey Miron, Harvard University Thomas Moeller, Texas Christian University John Moorhouse, Wake Forest University Andrea Moro, Vanderbilt University Andrew Morriss, Univ. of Illinois at Urbana-Champaign Michael Munger, Duke University Kevin Murphy, Univ. of Southern California Richard Muth, Emory University Charles Nelson, Univ. of Washington Seth Norton, Wheaton College Lee Ohanian, Univ. of California, Los Angeles Lydia Ortega, San Jose State University Evan Osborne, Wright State University Randall Parker, East Carolina University Donald Parsons, George Washington University

Sam Peltzman, Univ. of Chicago Mark Perry, Univ. of Michigan, Flint Christopher Phelan, Univ. of Minnesota Gordon Phillips, Univ. of Maryland Michael Pippenger, Univ. of Alaska, Fairbanks Tomasz Piskorski, Columbia University Brennan Platt, Brigham Young University Joseph Pomykala, Towson University William Poole, Univ. of Delaware Barry Poulson, Univ. of Colorado at Boulder Benjamin Powell, Suffolk University Edward Prescott, Nobel laureate Gary Quinlivan, Saint Vincent College Reza Ramazani, Saint Michael's College Adriano Rampini, Duke University Eric Rasmusen, Indiana University Mario Rizzo, New York University Richard Roll, Univ. of California, Los Angeles Robert Rossana, Wayne State University James Roumasset, Univ. of Hawaii at Manoa John Rowe, Univ. of South Florida Charles Rowley, George Mason University

Juan Rubio-Ramirez, Duke University Roy Ruffin, Univ. of Houston Kevin Salyer, Univ. of California, Davis Pavel Savor, Univ. of Pennsylvania Ronald Schmidt, Univ. of Rochester Carlos Seiglie, Rutgers University William Shughart II, Univ. of Mississippi Charles Skipton, Univ. of Tampa James Smith, Western Carolina University Vernon Smith, Nobel laureate Lawrence Southwick, Jr., Univ. at Buffalo Dean Stansel, Florida Gulf Coast University Houston Stokes, Univ. of Illinois at Chicago Brian Strow, Western Kentucky University Shirley Svorny, California State University, Northridge John Tatom, Indiana State University Wade Thomas, State University of New York at Oneonta Henry Thompson, Auburn University Alex Tokarev, The King's College Edward Tower, Duke University Leo Troy, Rutgers University

David Tuerck, Suffolk UniversityCharlotte Twight, Boise State University Kamal Upadhyaya, Univ. of New Haven Charles Upton, Kent State University T. Norman Van Cott, Ball State University Richard Vedder, Ohio University Richard Wagner, George Mason University Douglas M. Walker, College of CharlestonDouglas O. Walker, Regent University Christopher Westley, Jacksonville State University Lawrence White, Univ. of Missouri at St. Louis Walter Williams, George Mason University Doug Wills, Univ. of Washington Tacoma Dennis Wilson, Western Kentucky University Gary Wolfram, Hillsdale College Huizhong Zhou, Western Michigan University Lee Adkins, Oklahoma State University William Albrecht, Univ. of Iowa Donald Alexander, Western Michigan University Geoffrey Andron, Austin Community College Nathan Ashby, Univ. of Texas at El Paso George Averitt, Purdue North Central University

Charles Baird, California State University, East Bay Timothy Bastian, Creighton University John Bethune, Barton College Robert Bise, Orange Coast College Karl Borden, University of Nebraska Donald Boudreaux, George Mason University Ivan Brick, Rutgers University Phil Bryson, Brigham Young University Richard Burkhauser, Cornell University Edwin Burton, Univ. of Virginia Jim Butkiewicz, Univ. of Delaware Richard Cebula, Armstrong Atlantic State University Don Chance, Louisiana State University Robert Chatfield, Univ. of Nevada, Las Vegas Lloyd Cohen, George Mason University Peter Colwell, Univ. of Illinois at Urbana-Champaign Michael Connolly, Univ. of Miami Jim Couch, Univ. of North Alabama Eleanor Craig, Univ. of Delaware Michael Daniels, Columbus State University A. Edward Day, Univ. of Texas at Dallas Stephen Dempsey, Univ. of Vermont

Allan DeSerpa, Arizona State University William Dewald, Ohio State University Jeff Dorfman, Univ. of Georgia Lanny Ebenstein, Univ. of California, Santa Barbara Michael Erickson, The College of Idaho Jack Estill, San Jose State University Dorla Evans, Univ. of Alabama in Huntsville Frank Falero, California State University, Bakersfield Daniel Feenberg, National Bureau of Economic Research Eric Fisher, California Polytechnic State University Arthur Fleisher, Metropolitan State College of Denver William Ford, Middle Tennessee State University Ralph Frasca, Univ. of Dayton Joseph Giacalone, St. John's University Adam Gifford, California State Unviersity, Northridge Otis Gilley, Louisiana Tech University J. Edward Graham, University of North Carolina at Wilmington Richard Grant, Lipscomb University Gauri-Shankar Guha, Arkansas State University Darren Gulla, Univ. of Kentucky Dennis Halcoussis, California State University, Northridge Richard Hart, Miami University

James Hartley, Mount Holyoke College Thomas Hazlett, George Mason University Scott Hein, Texas Tech University Bradley Hobbs, Florida Gulf Coast University John Hoehn, Michigan State University Daniel Houser, George Mason University Thomas Howard, University of Denver Chris Hughen, Univ. of Denver Marcus Ingram, Univ. of Tampa Joseph Jadlow, Oklahoma State University Sherry Jarrell, Wake Forest University Carrie Kerekes, Florida Gulf Coast University Robert Krol, California State University, Northridge James Kurre, Penn State Erie Tom Lehman, Indiana Wesleyan University W. Cris Lewis, Utah State University Stan Liebowitz, Univ. of Texas at Dallas Anthony Losasso, Univ. of Illinois at Chicago John Lott, Jr., Univ. of Maryland Keith Malone, Univ. of North Alabama Henry Manne, George Mason University Richard Marcus, Univ. of Wisconsin-Milwauke

Timothy Mathews, Kennesaw State University John Matsusaka, Univ. of Southern California Thomas Mayor, Univ. of Houston W. Douglas McMillin, Louisiana State University Mario Miranda, The Ohio State University Ed Miseta, Penn State Erie James Moncur, Univ. of Hawaii at Manoa Charles Moss, Univ. of Florida Tim Muris, George Mason University John Murray, Univ. of Toledo David Mustard, Univ. of Georgia Steven Myers, Univ. of Akron Dhananjay Nanda, University of Miami Stephen Parente, Univ. of Minnesota Allen Parkman, Univ. of New Mexico Douglas Patterson, Virginia Polytechnic Institute and University Timothy Perri, Appalachian State University Mark Pingle, Univ. of Nevada, Reno Ivan Pongracic, Hillsdale College Richard Rawlins, Missouri Southern State University Thomas Rhee, California State University, Long Beach Christine Ries, Georgia Institute of Technology

Nancy Roberts, Arizona State University Larry Ross, Univ. of Alaska Anchorage Timothy Roth, Univ. of Texas at El Paso Atulya Sarin, Santa Clara University Thomas Saving, Texas A&M University Eric Schansberg, Indiana University Southeast John Seater, North Carolina University Alan Shapiro, Univ. of Southern California Frank Spreng, McKendree University Judith Staley Brenneke, John Carroll University John E. Stapleford, Eastern University Courtenay Stone, Ball State University Avanidhar Subrahmanyam, UCLA Scott Sumner, Bentley University Clifford Thies, Shenandoah University William Trumbull, West Virginia University Gustavo Ventura, Univ. of Iowa Marc Weidenmier, Claremont McKenna College Robert Whaples, Wake Forest University Gene Wunder, Washburn University John Zdanowicz, Florida International University Jerry Zimmerman, Univ. of Rochester Joseph Zoric, Franciscan University of Steubenville

Wall Street Journal, Jan 29, 2009

What is Fiscal Policy?

'Need' now means wanting someone else's money.

'Greed' means wanting to keep your own.

'Compassion' is when a politician arranges the transfer.

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An economist is a trained professional paid to guess wrong about the economy. Fiscal Policy ...

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