American Politics Today - Essentials (3rd Ed)

434 CHAPTER 14|ECONOMIC AND SOCIAL POLICY

Chapter 8). A ARP has had an especially strong voice on behalf of Social Security

and Medicare. Many other interest groups and think tanks work on behalf of the

poor, homeless, and other disadvantaged people, but Washington is generally less

responsive to their concerns because these groups are not politically powerful.

Lately, interest groups and social movements have gotten involved in eco-

nomic policy. The Tea Party advocates less government spending and more focus

on the debt, while the Occupy movement directs attention to income inequality

and the need for more regulation of Wall Street. More long-standing groups, such

as the Concord Coalition, have organized to infl uence fi scal policy in Washington.

Economic Policy

Here we take a closer look at the goals and theories that infl uence specifi c eco-

nomic policies passed by the government. We also examine the trade-off s among

various goals.

Goals of Economic Policy

Policy makers have specifi c goals in mind when they try to infl uence the economy.

Ma ny seem obv ious, such a s f u l l employ ment (it ’s bet ter to have more people work-

ing than not working), but others may be less clear. Also, it is diffi cult to pursue all

the goals simultaneously because there are trade-off s among some of them.

FULL EMPLOYMENT

Employment seems like a good starting point for a healthy economy. If people

have jobs, they pay taxes and do not depend on the government for support. Despite

this, full employment was not an explicit goal of economic policy until 1946,

when Congress passed the Employment Act. Leaders were concerned that with

millions of returning World War II veterans and the wartime economy gearing

down, the nation might slide back into the economic depression that had cre-

ated so much hardship in the 1930s. Although the act was largely symbolic (there

was no guaranteed right to employment), it did create the Council of Economic

Advisers, which provides the president with economic information and advice.

A more concrete eff ort to ensure that returning veterans could fi nd jobs was the

Servicemen’s Readjustment Act (the GI Bill). Enacted in 1944, it provided higher

education assistance and low-interest home mortgages for millions of veterans.

Today the government seeks to support the creation of as many jobs as possible

through a strong economy.

STABLE PRICES

The importance of price stability is not as obvious as the need for jobs. Why are

rising prices—infl ation—a problem? This is a common question during periods

of low infl ation. Especially for workers who have automatic raises (cost of living

adjustments, or COLAs) as part of their basic pay package, moderate infl ation isn’t

much of a problem. For example, if your rent goes up by 4 percent, the price of gro-

EXPLAIN THE MAIN

PURPOSE OF

GOVERNMENT

INVOLVEMENT IN THE

ECONOMY AND HOW

FISCAL, MONETARY,

REGULATORY, AND TRADE

POLICIES INFLUENCE THE

ECONOMY

full employment The theoretical
point at which all citizens who want
to be employed have a job.

economic depression A deep,
widespread downturn in the
economy, like the Great Depression
of the 1930s.

Council of Economic Advisers
A group of economic advisers, created
by the Employment Act of 1946, which
provides objective data on the state
of the economy and makes economic
policy recommendations to the
president.

infl ation The increase in the price
of consumer goods over time.