Conservative Fiscal Policy

AP Macro Economics 5th Period

07 May 2013

Conservative Fiscal Policy

Fiscal policy is "the policy of a government in controlling its own expenditures and taxation, which together make up the budget" (Fiscal). Conservatives and Liberals both have two different views. Liberals believe in high government spending and taxation, while conservatives have an opposite viewpoint. In a recession conservatives think there should be deregulation, low taxes, and government spending. Conservatives also believe that the government should stop spending their funds on useless projects.

Deregulation is the process by which government removes its control over an industry or a commodity (Deregulation). It is needed so that the government does not become involved in everything that we do. An example of this the airline industry. Deregulation in this industry makes fares lower and increases productivity for the airlines, which means more jobs for Americans (Miller). Deregulation also makes the government more efficient, as it doesn't have to do as many things at once. If the government focuses all of its energy in fewer areas and leaves the corporations alone, then the companies are left with more money to work with, giving them higher profits and making them more productive. "Economic growth is most effectively created by lowering barriers for people to produce goods and services (Supply - Side)."

We believe that lowering taxes and government spending will have the greatest impact on the national economy. "Tax revenue automatically decreases during recession" (McConnell). If the government immediately tries to raise taxes to combat the problem, they actually end up hurting the population even more. This happens because during a recession, people do not have enough money to spend in the first place, and the added burden of high taxes cripples a family's economic status. "Kennedy, [in 1958] convinced Congress to pass a law giving businesses tax credits on investments (Economics Today)." Kennedy wanted to expand the work force by leaving businesses more money though tax cuts, enabling them to hire additional workers.

"In 1964 President Lyndon Johnson signed into law a tax cut of $11 billion. Keynesian economists believe that as a result, unemployment fell from 5.2 percent in 1964 to 4.5 percent in 1965. This stimulated investment and consumer spending (Economists Today)."

Another benefit of lowering taxes is that it allows consumers to spend more. "Stability rests on the amount of money in circulation (Brue)." Leaving the consumers more money allows them to both boost the economy more effectively through the effects of the multiplier effect, and allows consumers to spend and invest in areas that they see fit. The multiplier effect comes into play due