Domestic Policy

• Taxes• Spending• Social Security•Medicare•Medicaid• Education

• Transportation• Environment• Crime

Budget

Overall Spending

Debt

Basics on Economics

Keynesian• Bad- – cut taxes– Lower interest rates

(FED)– Increase government

spending– Borrow money

Side Effects

– Debt– Inflation– More government

Basics

• Keynesian

• Good– Raise Taxes– Raise Interest rates– Reduce government

spending– Pay off debt

Side Effects

– Lower the debt– Deflation– Job losses?

Bonds• The Way Government borrows money

• To put more money “into” the economy– Buy bonds back from banks– Thus more “cash” to loan at lower rate

• To take money “out” of the economy– Sell bonds to banks at a favorable rate to banks– Thus “cash” taken out of the economy

Debt

• IF the government is borrowing too much to fund its own debt…less money for people who wish to borrow

• Debt leads to inflation because money is worth “less”…less buying power

– You like this if you have to pay off old loans– You don’t like if you have made an old loan at fixed

rate

How much of the economy is spending?

Deficits and Debt

Entitlements

The Budget

Federal Revenue

Real World

• 1980s- bad economy…– High unemployment– High inflation, – High interest rates

• “Misery Index”

• HOW DO WE GET THE ECONOMY GOING?

Real World

• Reagan- tax cuts and cut regulation– Its partially the governments fault– Part of his inaugural address

• GOVERNMENT must TAKE ACTION against itself and reduce taxes

• Taxes are too high Keynesian economics not working

Real World• Reagan used “honeymoon” to push his

policies through a DEMOCRAT Congress• He gets a 25% TAX cut– Despite calls from Democrats and the press that

he will hurt poor people and cause deficits– He was called cruel, only help the rich, press

talked about in real examples how he would hurt– Class warfare

• RECOVERY takes longer than anticipated– Partially because they delayed the tax cuts

Real World

• Economic Recovery by 1983– Economy soars– Low unemployment, inflation, and interest rates– “America is BACK!”

• Side effects– Deficits continued…they did not cut spending as

much and thus despite growth, still deficits

• Political fights still go on today about the plan