Economic Policy Assignment The biblical an

PADM 550

Discussion: Economic Policy Assignment Instructions

Overview

The purpose of this Discussion is to begin to analyze and formulate the “May” of governmental authority to enact policy from a Biblical worldview and Constitutional foundations.

Instructions

For this Discussion, you will interact in a free-flowing discussion of the biblical and constitutional parameters for the policy focus of federal economic or budgetary policy. The thread should be short and succinct (3-5 sentences at most per topic) and should encourage greater interaction with your classmates. Thus, you are to post according to the following guidelines:

· Biblical: One paragraph (3-5 sentences) applying the Biblical principles (section one of the Synthesis Paper Assignment) such as natural law, inalienable rights, sphere sovereignty/covenant, the Sin/Crime distinction and the institutional separation of Church and State to a specific policy. Please remember that simply citing scripture does not constitute a Biblical worldview analysis. You must apply the Biblical principles as discussed in the course.

· Constitutional: One paragraph (3-5 sentences) referencing the enumerated powers, Articles and Amendments from the Constitution which are relevant to the assigned policy area. NOTE: Avoid the use of the General Welfare Clause as a justification for the legislation unless you can definitively demonstrate that the entire U.S. population will benefit from the legislation, or provide significant Supreme Court rulings to support the use of the clause.

· There must be two separate paragraphs. Both paragraphs must focus on the general policy area for the assigned module. For instance, when the course module focuses on criminal justice, the Biblical post must focus on what the Bible says about what government may or may not do in fighting crime. Likewise, the Constitutional post must focus on what the Constitution says about what government may or may not do in fighting crime. Specific examples should be used and cited.

You must use the following sources:

1. the Bible,

2. relevant presentations and articles from Module 1: Week 1 – Module 2: Week 2 which focus on biblical and constitutional ideas, including the “Biblical Principles of Government” article,

3. the required reading from the assigned module, and

4. any additional relevant sources that you would like to use.

,

CHGAPER 7

Page 206 processes. As the year 2018 came to a close, we saw yet another government shutdown that started on December 22 and continued well into January, becoming the longest shutdown in American history. Congress and the president were unable to come to an agreement on a budget or continuing resolution to keep the government open. As is often the case with government shutdowns, this one had to do with strong disagreements between the branches and especially between the two major political parties. Over the years, and most notably in recent history, such gridlock and partisanship have been increasingly common in federal budgetary decisions, and they lead to government shutdowns or to the use of continuing resolutions and omnibus legislation to fund government operations at existing levels without going through normal congressional hearings and debate over federal spending priorities. In this case, though, there was a changing political dynamic that also entered the picture. The results of the 2018 midterm elections saw the Democrats capturing the House of Representatives by a historically wide margin, thus shifting the balance of power within Washington.

A meeting prior to the shutdown between President Donald Trump, Senate Minority Leader Chuck Schumer, and incoming House Speaker Nancy Pelosi showcased the changing dynamics. In an extraordinary session that was open to the press, these leaders spoke bluntly of their budgetary disagreements, particularly as they related to funding of a wall on the U.S. border with Mexico. The president had been seeking funding for the wall since the beginning of his term, even though during the campaign he often said that Mexico would pay for it. During the Oval Office meeting in December, the Democratic leaders held the line that such funding would not be forthcoming and the votes were not there to support it in either the House or the Senate. Nonetheless, President Trump continued to argue that the wall was critical to national border security and needed to be part of any budget agreement that he was prepared to sign. In yet another extraordinary situation, the president stated he would be “proud” to shut down the government over border wall funding, and thus take “blame” for the shutdown.

The government shutdown came at a particularly bad time for the U.S. economy and the Trump administration. The month of December had seen a highly volatile stock market that included at one point a nearly 12 percent drop in the market’s valuation.1 The Federal Reserve Board continued its increases in interest rates in an attempt to curb inflation. In addition, there continued to be questions regarding the various trade wars that the Trump administration had initiated, particularly with China and Canada. Many farmers suffered as a result of these trade policies, and in response the administration authorized an additional $12 billion in aid to offset the losses caused by its trade actions; the shutdown, however, kept at least some of that money from reaching the farmers.2 These events, along with uncertain turnover within the administration, increased uncertainty over the economy, and it appeared that the market responded to that uncertainty even though it later regained a good portion of its loss in the first two months of 2019. This breakdown in political dialogue that resulted in the late 2018–early 2019 shutdown was somewhat typical. Yet as the uncertainty of governmental operations dragged on, the nation and the economy suffered, illustrating once again the serious consequences of such partisan battles. In particular, the thorough debates and discussions that we expect over federal budget and policy priorities do not happen as they should. As a result, work doesn’t get done, time runs out, and Congress and the president then turn to omnibus legislation, often following threats of, or actual, federal government shutdowns. Yet these kinds of short-term fixes are no substitute for the critical debates over national funding needs and priorities that help to build legislative consensus and public support over governmental operations. Political legitimacy itself is harmed in the process. These concerns highlight the ongoing discussions regarding the size of government and government spending that often are brought up in the context of the federal deficit and national debt. Deficits occur when the amount expended by the government is greater than the revenue raised through taxes and other avenues. Almost everyone understands government spending on programs and projects. These expenditures can take many forms and may include items such as dollars to build infrastructure such as roads and bridges, military weapons contracts, or Pell Grants for low-income students attending college.

In deficit policy, one way to reduce the deficit is by decreasing such spending on government programs. On the other hand, government can address deficits by turning to the revenue side of the equation. For example, an increase in tax revenue or implementation of a user fee for entry into a national park might be such a choice. From a deficit reduction perspective, both reducing government spending and increasing revenue are economically neutral. In the former case, there is less expenditure, and in the other, the government generates more revenue. Both are perfectly acceptable economic tools for deficit reduction. Yet, politically, these choices are quite distinct. Conservatives have traditionally been much more interested in cutting spending than raising revenue, but frankly there has not been much concern given to the deficit in recent years where we have seen continued spending and tax policies that have decreased revenue.

The next election is never too far off, and the major parties are always reluctant to anger their base supporters. A sitting president never wants to see a suffering economy going into an election season. Presidents are often held accountable for economic hardships of the nation, yet they rarely receive any credit during economic boom times. The reality is that the economy is extremely complex, and presidential policies can only have a limited effect on it. Nevertheless, politicians will try to claim credit or avoid blame. As noted in the case above, politicians also use or do not use certain words (political spin or issue framing) in describing the economy. For example, the term recession is avoided like the plague and is sometimes referred to as the “R word” because of the potential implications that such an admission may carry.

The U.S. economy had been slowly recovering since President Obama’s election in 2008 by almost any of the traditional measures used. Yet, listening to the Republican candidates for president in 2016, you would think the nation had been in the midst of a depression. Nonetheless, the slow and uneven economic recovery had a big impact on the nation. It led to considerable anxiety, even anger, within much of the American public, which in turn likely contributed to the success of Donald Trump’s campaign in that year and, to a lesser extent, to Bernie Sanders’s surprising successes throughout 2016 in the contest for the Democratic Party nomination. President Trump’s proposed policies, particularly a large tax cut, were intended to address that perceived slowness of the economic recovery. It is clear from both the 2016 campaign and previous elections that the economy will continue to be a major issue in elections in the future as well.

Page 207 These debates will likely focus on several critical issues. The strength of the economy, and especially the economic status of the electorate, is certain to be one. The appropriate role of government in these situations is another. Democrats may well ask about the extent to which the much discussed Republican tax cuts enacted in late 2017 improved the economy. Perhaps more substantive are the longer-term issues associated with an increasing deficit and federal debt. While deficits decreased during the Obama administration, they have been increasing again since 2016. The fiscal year 2019 deficit was estimated at $896 billion, and Congressional Budget Office (CBO) projections show continued increases given current scenarios, with the deficit going over $1 trillion by 2029.3

Entitlement spending continues to eat up an increasing portion of the entire budget, and certain programs such as Medicare and Social Security in particular face dire financial straits in the future attributable to increasing demands by the very large baby boom generation that has begun to retire and collect benefits.4 Infrastructure funding is insufficient for the needs of the nation; emergency spending continues to be necessary, as the natural disasters associated with storms, flooding, and tornadoes over the past few years showed convincingly; and billions continue to be spent. It appears that the nation will be “in the red” for a long time to come. Not surprisingly, the parties remain quite far apart in terms of how to address the deficit.

The economic health of the nation and more specific concerns such as the federal deficit are highly dynamic, and they can change dramatically in a short period of time. For example, deficit projections can easily change because they are based on a series of assumptions that may not hold over time. Moreover, the projected deficits become less reliable as one begins to extend the forecasts out two, five, or even ten years. The CBO does provide such projections, however. As noted above, the United States saw an estimated $896 billion deficit in 2019 and can expect continued deficits in the coming years. Yet these budget projections are not necessarily reliable. As we discussed in chapter 6, long-term forecasting of this kind can be accurate only to the extent that the initial assumptions continue to be reasonable. What might change to make them unreasonable? For one thing, economic growth may be less than projected, which would lead to less revenue coming into the Treasury. For another, new laws could be enacted that would require more government spending, a decrease in taxes, or both. Or natural disasters such as a major hurricane or forest fire might require the federal government to spend a great deal more money to assist victims and reconstruct damaged areas. Or a prolonged recession and a change in political leadership may dictate particular economic policies. Any one of these scenarios could throw off future deficit (or surplus) projections.

This chapter explores how economic policy attempts to address such issues as the deficit and other goals of economic policy. It assesses economic policy in the United States through a broad review of the powers of government to influence the economy, including the role of the budget. The chapter concentrates on the major goals that policymakers attempt to promote while coping with the inevitable value conflicts and policy choices. The tools and approaches of policy analysis are as appropriate to assessing economic policy as they are to the other policy areas covered in the chapters that follow.

Background page 208

Managing national deficits and debt is only one of the economic and budgetary tasks to which the federal government must attend on a continuous basis. For much of the latter part of the twentieth century, the federal deficit dominated discussions regarding economic policy, and it clearly had major impacts on the nation’s capacity to support other policy actions. Indeed, massive tax cuts at the beginning of President Ronald Reagan’s administration in 1981 and the subsequent decline in government revenues greatly constrained spending by the U.S. Congress across a range of public programs. In addition, the U.S. national debt soared during the 1980s, and continues to do so.

Economic policy is critical to all other government functions, but most people probably do not recognize it as readily as they do other substantive policy areas such as the environment, education, health care, or welfare. One reason is that the general public does not connect actions such as tax cuts with attempts to influence economic growth or unemployment. In addition, so much attention is given to the Federal Reserve Board’s monetary policy and its impact on the economy that the public tends to forget that the government’s fiscal policies—its taxing and spending decisions—also have major impacts on the economy. A cut in tax rates or a decision to spend more money on highway construction—both forms of fiscal policy—can have significant effects on the nation’s economy. It is generally only during extremely difficult economic times that the population pays much attention to government activities as they relate to economic policy. For example, in 2008, as the nation’s economy continued in a recession, interest in tax rebates, the role of the government in the home mortgage crisis, and other economic policy issues became more salient. Continued disagreements regarding the Affordable Care Act led to an impasse in the federal budget process, which ultimately led to a government shutdown in 2013. And in 2017, Congress passed, and President Trump signed, a large tax cut bill, which became front-page news.

Economic policymaking is crucial to almost everything the government does. In a narrow sense, economic policy is the development of programs and policies that are intended to affect economic conditions in the nation, such as reducing unemployment or increasing economic growth. Public policy students should be aware, however, that the development and implementation of other public policies also have substantial effects on the economy and subsequently on the economic policies that the government pursues. For example, conservatives argue that too much government regulation to protect the environment retards economic growth. Because one of government’s major economic goals is to encourage such growth, conflict between the two policy goals is likely. For this reason, as well as others, environmentalists emphasize the idea of sustainable development, which they believe can help reconcile economic and environmental goals that may be at odds (K. Portney 2013).

Since the 1980s, the United States has generally been burdened by large federal deficits. As noted, the CBO projected a deficit of $896 billion for 2019, meaning that the government spent $896 billion more than it brought into the Treasury during the 2019 fiscal year. Economists often debate the potential impacts of deficits, and sometimes politicians will make choices knowing that little money is available. But in recent history, there seems to have been little done around the deficit issue. The tax cuts of 2017 ushered in greater deficits that tended to be ignored. There were some discussions that the increasing deficits would provide Republicans with the excuse needed to cut entitlement programs such as Medicare and Medicaid, but the 2018 elections that shifted the House to Democratic control will likely halt such talk. A strong economy can often address such deficit concerns. And while most traditional measures showed the economy improving during the Obama administration, there continued to be a sense of unease regarding the recovery and its impact, particularly for those on the lower rungs of the economic ladder.

To achieve its economic goals, the government uses fiscal policy—the sum of all taxation and spending policies—as well as the monetary policy tools of the Federal Reserve Board (the Fed, as it is called) to influence the U.S. economy. It does so with varying degrees of success. In addition, government regulation of business has become prevalent since the Great Depression of the 1930s. Business regulation also increased in the 1960s and 1970s, as citizens demanded more government assurances that health, safety, and the environment would be protected. These regulations have major effects on the budget and economic goals of the United States. The looming deficits in the late twentieth century worried public officials and introduced another major goal for them to consider as they developed economic policy.

When the traditional indicators of economic growth suggested a healthy economy during the 1990s, policymakers were eager to find ways to maintain that strength. With the economic downturn since 2007 and the slow recovery, policymakers were just as concerned with making policy choices that could return the nation to economic good times, particularly with the consideration of tax cuts and government spending to stimulate economic growth. Both options have a significant impact on the size of the projected deficit over the next several years and the extent to which this deficit is reduced or increased.

Goals of Economic Policy

Policymakers try to promote various goals and objectives in relation to economic policy. Government officials in Congress, the White House, and the Treasury Department, and those who sit on the independent Federal Reserve Board, have a number of tools to use in pursuing these goals. What is taking place at the federal level is paralleled in states and localities, as their public officials attempt to promote certain economic goals, such as the growth of local and regional businesses. State and local governments also regulate business practices related to health, safety, the environment, and consumer protection, much as the federal government does. Recent concerns regarding listeria contamination of frozen vegetables remind us of the role that government plays in ensuring safety for certain products, including medications. Yet such regulation may impose costs on businesses, influence economic competition, and affect a range of other economic values. Yet the major economic goals that government attempts to promote are nonetheless fairly constant. They are economic growth, low levels of unemployment, low levels of inflation, a positive balance of trade, and management of deficits and debt.

Economic Growth

Economic growth means an increase in the production of goods and services each year, and it is expressed in terms of a rising gross domestic product (GDP). Such growth usually means that, on average, people’s incomes increase from year to year. Many benefits flow from economic growth. First, a strong economy is likely to add to the government’s tax revenues. The last time the government had budget surpluses was in the late 1990s and early 2000s, and it was largely due to strong economic growth that generated increased tax revenues. A low rate of economic growth can be a sign of an impending recession, which is generally defined as negative growth over two or more consecutive quarters. Like the federal government, many state governments benefited from economic growth for years and enjoyed budget surpluses. We subsequently saw between 2007 and 2011 economic slowdowns in the states and declining tax revenues, prompting budget cuts in many programs, including higher education.

Second, economic growth may make redistributive programs palatable because people are more likely to accept policies that redirect some of their money to others if they have experienced an increase in their own wealth. Economic growth also allows more people to receive benefits or increases in existing benefits from government programs. For a simple explanation, imagine the government is dealing with four areas of expenditures in a given year. If in the following year the economy grows, the budget pie becomes larger. From a budgeting perspective, this means that each of the four areas also can become larger. But if there is little or no economic growth, in order for one program to gain, it must take from one or more of the other three programs, which will likely cause political conflict.

Percent changes in the GDP over the past twenty years have ranged from a low of −2.0 (2009) to a high of 6.7 (2005). The rate of growth since 2010 has remained somewhat consistent at 3.5 to 5.4 percent per year in current dollars—that is, unadjusted for inflation.5 Vigorous economic growth and the resulting tax revenues, while obviously welcome news, also send up warning flags. If the economy grows too fast, it could lead to damaging levels of inflation, which the government seeks to avoid. Theoretically, high levels of growth cause wages to go up; and, if people have more money, they can spend more on houses, cars, and other goods. Higher prices usually follow strong consumer demand, particularly for products or services in scarce supply. A high level of economic growth may lead to a budget surplus, at which point government needs to make decisions regarding how to deal with it. Should spending be increased? Should taxes be cut? Should surplus funds be used instead to reduce the federal debt? Or perhaps we need some combination of such policy decisions. On the other hand, low levels of growth can contribute to a budget deficit, which raises different questions on how to address the budget shortfall. We turn to these policy challenges in the focused discussion at the end of the chapter.

Low Levels of Unemployment PAE211

Low unemployment, or full employment, has obvious benefits to the economy as well as to individuals. In the United States, jobs and people’s ability to help themselves are regarded as better alternatives to government social programs to assist the poor. Americans are generally more comfortable than citizens of many other nations in helping individuals find jobs and use their abilities to improve their standard of living than they are providing public assistance; therefore, Americans have chosen low levels of unemployment as a policy goal.

Unemployment not only harms the people without jobs but also has two deleterious effects on the economy and the government’s budget. First, the higher the number of people who are unemployed, the lower the number of people who are paying income or Social Security taxes, and that means less revenue is coming into the Treasury to pay for government programs. Second, the unemployed may be eligible for a number of government programs geared toward people with low incomes, such as Medicaid, food stamps, or welfare payments. So the government needs to pay out more money when unemployment levels rise. Most of these programs are entitlements, meaning that the government is required to pay all those who are eligible. If this number is higher than expected, budget estimates will be thrown off. For most of our recent history, the United States has succeeded in keeping unemployment levels at a reasonable rate. Unemployment in the United States stayed between 4 and 6 percent between 1997 and 2008, but it increased to over 9 percent in 2009 and continued at these higher rates for a few years before showing a continuous decline since 2011, getting as low as 3.7 percent in late 2018 before rising to 4.0 percent in early 2019.6 These rates, of course, can vary greatly from state to state and city to city. When unemployment rates are very low, businesses may find it difficult to hire qualified employees. For a recent college graduate, that is good news; jobs are plentiful, and opportunities abound. But low unemployment levels can be problematic for local or state economies because businesses cannot expand without an available labor supply, and that constrains economic development. Businesses may be forced to offer generous incentives to attract and keep their most valued employees. In turn, the businesses may demand that local and state policymakers reduce their tax burdens or provide some other financial benefits. It is probably safe to say, though, that policymakers very much prefer a situation of unemployment being too low compared to being too high.

Although the overall unemployment rate has been low in recent years, the rate is not distributed evenly across the population. There are often geographic, ethnic, and age differentiations in these unemployment data. The Bureau of Labor Statistics compiles these kinds of data for the Labor Department. See the box “Steps to Analysis: Employment and Unemployment Statistics,” where you can explore variations in unemployment statistics by demographics and geographic location, particularly differences among the states. Another aspect of employment that influences public policy is the changing character of jobs in the U.S. economy and in other advanced, industrialized nations. During most of the twentieth century, many of the best jobs for those without a college education were in manufacturing, but a shift from this traditional sector to the service economy has occurred, and, in general, jobs in the service sector do not pay as much as factory jobs. Workers at fast-food restaurants or sales personnel in retail stores may earn the minimum wage or just a little more. Many workers who had jobs that paid quite well, often supported by unions, now see fewer positions of this kind, as competition from abroad and greater efficiencies in production have reduced the need for skilled labor. Some of these workers have been forced to move to the service sector to find employment.

Low Levels of Inflation PAGE 214

A simple definition of inflation is an increase in the costs of goods and services. Inflation is an inevitable part of the U.S. economy, but policymakers try to keep it under control—that is, no more than about 3 percent a year. If wages are increasing at the same rate, the rising prices of goods and services carry little significance to most people. They would be of greater concern, understandably, for those on fixed incomes. If inflation continues and grows worse, however, it eventually affects all citizens, which is probably why government policymakers often seem more concerned with inflation than unemployment. To demonstrate this tendency, one has only to check the various government responses and political rhetoric that have occurred as gasoline prices rise. In some cases, state policymakers proposed suspending their state gasoline taxes, and even members of Congress suggested that the federal government partially suspend its excise taxes. These actions were in direct response to the public outcry about the rising price and the potential political fallout of not doing anything about it.

In the recent past, the United States had a good record on inflation. During the past ten years, inflation, as measured by the Consumer Price Index (CPI), was between −0.4 percent and 3.2 percent, although in 2009 the CPI actually was a negative number, suggesting deflation in the economy. A CPI between 1 and 4 percent is one that most government policymakers can accept as tolerable. What is interesting is that many believe that even this small number may overstate the actual level of inflation because of the way the CPI is calculated. A commission headed by Michael Boskin, who served as President George H. W. Bush’s chief economic adviser, found that the CPI overstates inflation by about 1.1 percent.7 Why should this seemingly small discrepancy matter? Many government programs such as Social Security are tied directly to the CPI as the official measure of inflation. Increases in Social Security benefits are based on the calculated CPI. If these inflation estimates were reduced by 1 percent, it would save the government a substantial amount of money in cost-of-living adjustments over a sustained period. The box “Working with Sources: The Consumer Price Index” explains how the CPI is calculated.

Tools of Economic Policy PAGE 217

Governments have a variety of policy tools to help them achieve their goals and deal with economic issues. Fiscal policy is a term that describes taxing and spending tools, but governments have other mechanisms, such as regulations or subsidies, that can also be effective. In addition, monetary policy, which is the Fed’s responsibility, is another major tool of economic policy. The Fed receives quite a bit of media attention compared to other economic policymakers in the federal government (besides the president), but it is only part of the picture. This section examines the various tools used to influence the economy and some of the consequences invariably associated with t

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