The key players in economic policy making 545four principal functions: “to coordinate policy-making for domestic and international
economic issues, to coordinate economic policy advice for the President, to ensure that
policy decisions and programs are consistent with the President’s economic goals, and
to monitor implementation of the President’s economic policy agenda.”^22 The NEC
coordinates policy by bringing together cabinet secretaries who work on economic
issues, such as the Treasury secretary, budget director, Commerce secretary, CEA
chairman, and Labor secretary. The NEC initially appeared to challenge the CEA’s
turf, but a division of labor has preserved an important role for each: the NEC is the
political arm that coordinates economic policy, and the CEA is the technical arm that
provides information about the economy.
Though we have described the roles of Congress and the president separately,
understanding the interactions between these government branches is central to
understanding economic policy. If the president’s party controls Congress, then the
president’s budget becomes the starting point for congressional negotiations over the
budget. If the opposing party controls Congress, then the president’s budget is usually
considered “dead on arrival” and Congress creates its own document. In 2018, Trump’s
budget was ignored by congressional leadership, although the president and the
leadership belonged to the same party. Of course, the president can use the veto threat to try
to move Congress closer to his or her position, but when the budget is contained in one large
package that must be signed or vetoed in its entirety, it is difficult to carry out such threats.^23The Bureaucracy
All the departments explained so far could be considered part of the larger
bureaucracy, but they are included within the Executive Office of the President and
therefore are usually considered in conjunction with the president. Here, we will
focus on two bureaucratic agencies that are key in creating monetary policy: the
Federal Reserve System (an independent agency) and the Treasury Department (a
cabinet-level department). While the Fed and the Treasury are the most important
agencies for economic policy making, many other agencies are important for both
making regulatory policy (which we discuss later) and implementing spending on a
broad range of policies, from agricultural subsidies to building highways to defense
spending. All of these bureaucratic decisions have an impact on the economy.The Federal Reserve System The Federal Reserve Act of 1913 established the
Federal Reserve System (commonly known as “the Fed”) to bring stability and
continuity to the nation’s banking system. The Federal Reserve Reform Act of 1977
gave the Fed a dual mandate of pursuing stable prices and maximum employment.
The chair, vice-chair, and five other governors serve on the Federal Reserve Board.
The governors have 14-year overlapping terms and are appointed by the president
and approved by the Senate. The president selects the chair and vice-chair from the
sitting governors for 4-year terms; they may be renominated for additional terms as
chair or vice-chair until their terms on the Board of Governors expire. The board is
responsible for establishing monetary policy for the nation, which includes influencing
interest rates and the money supply, and regulating the lending activity of member
banks (discussed in more detail later in the chapter). There are 12 regional Federal
Reserve banks and more than 3,000 member banks out of the more than 8,000 banks
in the nation.^24 We examine the Fed’s operations in the section on monetary policy,
but briefly, the regional banks lend money to banks, hold reserves for them, supply
currency and coins, buy and sell government securities, and report on the state of the
economy in their respective regions.Federal Reserve System
An independent agency that serves
as the central bank of the United
States to bring stability to the nation’s
banking system.
Treasury Department
A cabinet-level agency that is
responsible for managing the federal
government’s revenue. It prints
currency, collects taxes, and sells
government bonds.Federal Reserve Board
The group of seven presidential
appointees who govern the Federal
Reserve System.Full_16_APT_64431_ch15_530-571.indd 545 15/11/18 2:34 PM