Current Economic Policy Flashcards
What are the general U.S. economic policies?
The United States has maintained economic policies that have effectively promoted international competitiveness and economic growth. Compared with other developed democracies, the United States has had generally low taxes, less regulation, lower levels of unionization and greater openness to foreign trade. Although its pro-business policies have had some social costs, the country has enjoyed superior levels of growth, capital formation and competitiveness.
What has been the recent fiscal policy of the Fed?
The United States continued a moderately expansionary fiscal policy with the Federal Reserve Board (the Fed) maintaining steady, comparatively low interest rates.
What was the result of “tax reform” in 2017?
In late 2017, the Republican Congress passed a major “tax reform” which included a tax cut for corporations and high-income individuals. Along with increases in defense spending and Trump’s rejection of spending cuts for middle-class social benefits (Medicare and Social Security), the tax cut produced a sharp increase in the already unsustainable long-term budget deficit.
What is the current state of international trade in the United States?
Throughout 2017 and 2018, Trump carried on a sustained attack on foreign trade, holding firm to his campaign claims that the United States has been treated unfairly in most of its trading relationships. The United States pulled out of the Trans-Pacific Partnership trade agreement. Trump demanded that revisions be made to the North American Free-Trade Agreement with Canada and Mexico, after imposing major increases in tariffs affecting both countries. He provoked a trade war with China, imposing major tariffs that China met with firm retaliatory measures, along with lesser conflicts with the European Union and Japan.
What is the “current” state of the U.S. Labor Market?
The United States has one of the least regulated and least unionized labor markets in the OECD, with less than 7% of private sector workers and only 36% of public-sector workers holding union membership. Some states have “right-to-work” laws that prevent unions from requiring membership as a condition for employment and federal labor policy has not responded to evolving management strategies for avoiding union organizing. The low levels of unionization should generally promote employment, by lowering the price of labor. The U.S. government otherwise plays a minimal role in promoting labor mobility or providing support for training and placement. I
What has been the trend for unemployment?
Unemployment in 2018 continued its long slow decline since the 2008 and 2009 recession, with the official unemployment rate of 4% In addition, the tightening labor market led to the first gains in average wages in two decades. However, unemployment rates remain far higher among racial minorities and in inner cities. With the rise of COVID-19, unemployment rates have sharply risen.
What is the general state of taxation in the United States?
The U.S. tax system does not produce enough revenue to eliminate the deficit, tax policy is highly responsive to special interests (resulting in extreme complexity and differing treatment of different categories of income) and the redistributive effect of the tax system is very low. The tax system has performed poorly with respect to equity, both horizontally and vertically. Many high-income earners pay an effective tax rate that, after deductions, is lower than the rate for middle-class earners. The United States derives a large share of revenue from corporate taxes, a fact that has encouraged some firms to move operations abroad.
What is the state of the U.S. Budget?
Long-term deficits are by all accounts seriously beyond acceptable levels. As the Congressional Budget Office has testified, “federal debt appears to be on an unsustainable path.” The primary cause of long-term deficits, in addition to the severe limits on revenues, is the growth of the elderly population and the generous terms of the Medicare (health care for the elderly) and Social Security (retirement) programs.
In 2018, the annual deficit jumped by about 17% over the previous year. Under current policy, the deficit is projected to increase over the next ten years and reach 5.7% of GDP by 2028 – with spending on Social Security, Medicare and Medicaid now accounting for about half of the federal budget.
How does the U.S. invest in research, innovation, and infrastructure?
The United States has traditionally invested heavily in research and development, but the recession and the country’s problematic budget politics have compromised this support. Certain public institutions stand out, particularly the National Science Foundation, the several federal laboratories, the National Institute of Health, and research institutions attached to federal agencies. In addition, there is a vast array of federally supported military research, which often has spillover benefits.
In its first two years, the Trump administration has made research and innovation, apart from defense, a low priority. Trump has cut scientific and engineering personnel in environmental and resource related agencies and withdrawn support for alternative energy development.
What has been the United States role in the global financial system?
Prior to the Trump presidency, the United States had generally promoted prudent financial services regulation at the international level. This includes participation in international reform efforts at the G-20, in the Financial Stability Board (FSB), and in the Basel Committee on Banking Supervision (BCSC).
What is the Dodd-Frank Act?
The Dodd-Frank Wall Street Reform and Consumer Protection Act targeted the sectors of the financial system that were believed to have caused the 2008 financial crisis, including banks, mortgage lenders, and credit rating agencies.
Critics of the law argue that the regulatory burdens it imposes could make United States firms less competitive than their foreign counterparts.
In 2018, Congress passed a new law that rolled back some of Dodd-Frank’s restrictions.
What is the Volcker Rule?
The Volcker Rule is a federal regulation that generally prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with hedge funds and private equity funds, also called covered funds. The Volcker Rule aims to protect bank customers by preventing banks from making certain types of speculative investments that contributed to the 2008 financial crisis.
On June 25, 2020, the FDIC loosened restrictions in the Volcker rule on bank capital requirements and investments banks can make in private equity and similar funds.
How can the President influence taxing and spending?
Most of the spending done by the government is dictated by existing federal laws and is spent automatically, so there is very little that can be changed by the President. But, he or she does have to ask for several specific types of funding, discretionary spending, changes to entitlement and to social welfare programs such as Social Security, and changes to the tax code.
What is discretionary spending?
Discretionary programs are government initiatives that must have their funding renewed each year.
Examples of discretionary funding are education, health, and many programs within the Department of Transportation and the Department of Defense.
What is the dual mandate on the Fed from Congress?
The Fed has a “dual mandate” from Congress to pursue stable prices and “maximum employment.” It does so primarily by cutting interest rates to stimulate economic activity in a weak economy and raising interest rates to restrain economic activity in an overheating economy.
