Economic Perspectives - Topics for Further Study

1. When and why were most entitlement programs, such as Social Security, Medicare, and Medicaid, implemented? How successful have these programs been at achieving their stated objectives?

2. Is Social Security a retirement plan or a social safety net? Which should it be?

3. Which entitlement program has the largest fiscal crisis? Is it Social Security, Medicare, or Medicaid? What steps can be taken to ensure the solvency of these social programs?

4. Explain the difference between traditional conservatism and neoconservatism. What values do they have in common? In what sense are their principles conservative?

5. Explain the difference between traditional liberalism, social liberalism, libertarianism, and neoliberalism. What values do they have in common? In what sense are their principles liberal?

25. Entitlement programs, such as Social Security, Medicare, and Medicaid, will become an increasing portion of federal government spending.

25. The future of entitlement programs, such as Social Security, Medicare, and Medicaid, will be important, controversial economic issues in our lifetimes. An entitlement program is a government program that provides benefits to a group that meets established criteria. Social Security is the federal government entitlement program designed to ensure that elderly and disabled Americans and their dependents have enough income to buy the necessities of life. Medicare is the federal government entitlement program that pays medical bills for elderly Americans. Medicaid is the federal government entitlement program that pays medical bills for low-income Americans.

The retirement of the baby boom generation may have a substantial effect on the U.S. economy. There was a significant increase in the number of births in North America from 1946 to 1964. People born in 1946 will reach age 65 in 2011. As baby-boomers retire, there will be a significant decrease in the number of people paying into the system (through payroll taxes) and a significant increase in the number of people collecting entitlement program benefits. This will require either an increase in revenues, a reduction in social benefits, or further increases in the public debt, which pass these obligations to future generations. This topic is further discussed in module 10 (Fiscal Policy).

24. The public debt is the accumulation of federal budget deficits over time.

24. The public debt is the accumulation of federal budget surpluses and deficits over time. The public debt is the net amount of money borrowed by the federal government. A substantial portion of annual tax revenues pays interest on money borrowed by the government in previous years when expenditures exceeded revenues. Paying down the debt would free the money from those annual obligations to be given back to taxpayers or to provide other government services. The public debt is discussed in greater detail in module 10 (Fiscal Policy).

The national debt clock in March 2006.

23. The U.S. political system is biased toward fiscal irresponsibility.

23. The U.S. political system is biased toward fiscal irresponsibility. Voters tend to prefer politicians who promise to cut taxes and increase government spending. Increased government expenditures without additional revenues increase the public debt, however. The public debt is discussed in greater detail in module 10 (Fiscal Policy).

22. Fiscal policy has a large political bias because politicians are reluctant to increase taxes or cut spending on constituents.

22. Fiscal policy has a large political bias because politicians are reluctant to increase taxes or cut spending on constituents. If the economy needs a stimulus, fiscal policy is a popular political choice. Most people like politicians who cut taxes and increase the benefits provided to them by additional government spending. Yet it is very difficult to use fiscal policy when the economy needs dampening. People tend to dislike politicians who raise their taxes or reduce the benefits provided to them by government. In 2005, for example, the U.S. Department of Defense attempted to save U.S. taxpayers millions of dollars in annual expenditures when they announced plans to decommission the U.S.S. John F. Kennedy, an aircraft carrier based at the Mayport Naval Station near Jacksonville, Florida. Because the carrier provided benefits to the region, such as employment opportunities for workers and increased incomes for area businesses, Florida politicians, including conservatives who profess to favor smaller government, fought to prevent this reduction in government expenditures. Fiscal policy is discussed in module 10.

21. Fiscal policy is taxation and government spending.

21. Fiscal policy is taxation and government spending. Expansionary fiscal policy occurs when the government increases government purchases of goods and services or decreases taxes. Increased government purchases increase overall spending directly. Lower taxes encourage more consumption and investment spending by leaving households and businesses with more disposable income. Disposable income is the amount of income a person has after the payment of taxes. For example, a typical pay stub states the amount of money earned and the amounts deducted for income and social insurance (FICA ) taxes. The remaining income, as represented by the amount of the paycheck, is disposable income. Contractionary fiscal policy occurs when the government decreases government purchases of goods and services or increases taxes. Decreased government purchases decrease overall spending directly. Higher taxes discourage consumption and investment spending by leaving households and businesses with less disposable income. Fiscal policy is explained in greater detail in module 10.

20. One of the most powerful people in the world in the chairman of the Board of Governors of the Federal Reserve System.

Ben Bernanke

20. One of the most powerful people in the world is the chairman of the Board of Governors of the Federal Reserve System (the Fed), which affects the economy by influencing overall spending by influencing the amount of money banks create when they issue loans. The Chairman of the Board of Governors of the Federal Reserve System (the Fed) is the individual who oversees the operation of the Fed and thus has primary responsibility for the conduct of monetary policy in the United States. Ben Bernanke has served as the Chairman of the Board of Governors since February 1, 2006. He succeeded Alan Greenspan, who served on the Board from August 11, 1987 to January 31, 2006 and was designated Chairman by Presidents Ronald Reagan, George H.W. Bush, Bill Clinton, and George W. Bush. The role of the Fed in conducting monetary policy is discussed in module 9 (Monetary Policy).

A December 20, 2008 article in Newsweek magazine ranked Ben Bernanke as the fourth most powerful person in the world. The fifth and sixth people on the list are also the heads of central banks: Jean-Claude Trichet of the European Central Bank (ECB) and Masaaki Shirakawa of the Bank of Japan. The top three most powerful people are: (1) U.S. President Barack Obama; (2) Hu Jintao, the president of China; (3) Nicolas Sarkozy, the president of France.

According to the article, the world's 50 most powerful people are:
1: Barack Obama
2: Hu Jintao
3: Nicolas Sarkozy
4-5-6: Economic Triumvirate
7: Gordon Brown
8: Angela Merkel
9: Vladimir Putin
10: Abdullah bin Abdulaziz Al-Saud
11: Ayatollah Ali Khamenei
12: Kim Jong Il
13-14: The Clintons
15: Timothy Geithner
16: Gen. David Petraeus
17: Sonia Gandhi
18: Luiz Inácio Lula da Silva
19: Warren Buffett
20: Gen. Ashfaq Parvez Kayani
21: Nuri al-Maliki
22-23: The Philanthropists
24: Nancy Pelosi
25: Khalifa bin Zayed Al Nahyan
26: Mike Duke
27: Rahm Emanuel
28: Eric Schmidt
29: Jamie Dimon
30-31: Friends of Barack
32: Dominique Strauss-Kahn
33: Rex Tillerson
34: Steve Jobs
35: John Lasseter
36: Michael Bloomberg
37: Pope Benedict XVI
38: Katsuaki Watanabe
39: Rupert Murdoch
40: Jeff Bezos
41: Shahrukh Khan
42: Osama bin Laden
43: Hassan Nasrallah
44: Dr. Margaret Chan
45: Carlos Slim Helú
46: The Dalai Lama
47: Oprah Winfrey
48: Amr Khaled
49: E. A. Adeboye
50: Jim Rogers

19. Monetary policy is the Federal Reserve System's use of the banking system to influence overall spending in the economy.

19. Monetary policy is the Federal Reserve System's use of the banking system to alter the money supply and interest rates to influence overall spending in the economy. Expansionary monetary policy occurs when the Federal Reserve System increases the money supply and decreases interest rates. Lower interest rates encourage more consumption and investment spending by making it cheaper to borrow money. These loans, in turn, increase overall spending in the economy. Contractionary monetary policy occurs when the Federal Reserve System decreases the money supply and increases interest rates. Higher interest rates discourage consumption and investment spending by making it more expensive to borrow money. Fewer loans, in turn, decrease overall spending in the economy. Module 9 is devoted to explaining monetary policy.

18. The government manages the economy by using monetary and fiscal policies to influence spending in the economy.

18. The government plays an active role in managing the economy by using the macroeconomic policy tools, monetary and fiscal policies, to influence the amount of spending in the economy. Expansionary monetary and fiscal policies stimulate the economy by increasing overall spending in the economy. Expansionary policies are appropriate for fighting unemployment. Contractionary monetary and fiscal policies dampen the economy by decreasing overall spending in the economy. Contractionary policies are appropriate for fighting inflation.

The Great Depression was a period of severe economic hardship during the 1930s. Prior to the Great Depression, the predominant economic philosophy was Classical economics, which suggested the economy would correct any problems, such as unemployment or inflation, without any government intervention. The failure of the economy to correct itself in the 1930s helped popularize the idea that the government can play an active role in managing the economy. Macroeconomic policy tools are discussed in detail in modules 9 (Monetary Policy) and 10 (Fiscal Policy).

17. Inflation occurs when there is too much spending in the economy.

17. Inflation occurs when there is too much spending in the economy. The typical way to fight inflation is by reducing overall spending in the economy. Decreased spending reduces the upward pressure on the level of prices in the economy. Inflation is explained more fully in module 8 (Low Inflation).

16. Unemployment occurs when there is not enough spending in the economy.

16. Unemployment occurs when there is not enough spending in the economy. The typical way to fight unemployment is by increasing overall spending in the economy. Increased spending means more goods and services are purchased. These increased sales allow businesses to hire more workers. Module 7 is devoted to explaining unemployment.

15. Relatively high rates of unemployment and inflation reduce economic growth and result in a lower standard of living than would occur in their abse

15. Relatively high rates of unemployment and inflation reduce economic growth and result in a lower standard of living than would occur in their absence. Consequently, low unemployment and low inflation are macroeconomic policy goals. Unemployment and inflation are discussed in modules 7 and 8.

14. Increased trade with the rest of the world and investments in physical capital, education, and technology are the keys to increased productivity a

14. Increased trade with the rest of the world and investments in physical capital, education, and technology are the keys to increased productivity and economic growth. Trade creates wealth by allowing specialization. When people specialize in activities they do relatively well, they are able to produce more. Productivity also can be increased by investment in physical capital, human capital, and technology.

Countries that devote more economic resources to investment can expect more economic growth and a larger improvement in the standard of living than countries that invest fewer resources. Module 6 is devoted to explaining economic growth.

13. The three primary macroeconomic policy goals are economic growth, low unemployment and low inflation.

13. The three primary macroeconomic policy goals are economic growth, low unemployment, and low inflation. Economic growth is an increase in a country’s standard of living. Unemployment is the condition of wanting, but not having, a paid job. Inflation is a general increase in the price level, which is the general level of prices for goods and services in an economy. A price index is used to measure the price level. All three goals are important because of their influence on the standard of living. Economic growth is the primary determinant of the standard of living, however, and is thus the ultimate macroeconomic goal. Economic policy goals are discussed in greater detail in modules 6 (Economic Growth), 7 (Low Unemployment), and 8 (Low Inflation).

12. Traditional liberals believe government, and thus taxes, should be relatively large.

12. Traditional liberals believe government, and thus taxes, should be relatively large. Liberals tend to believe that market failures are relatively large and that the government is fairly effective at correcting them. This concept is most relevant to module 10 (Fiscal Policy).