Macroeconomics and Democracy While Macroeconomic Term Paper

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The new products are highly priced and, through competition, are reduced quickly. This rising of new and falling of old prices is the closest thing to stable average prices possible in an ever-expanding market such as exists now. Democratic politics have always balked at manipulation of the economy through controls over it, but it appears to be necessary in order to keep the value of the dollar even. However, it has never been attempted to allow the dollar free rein to inflate and deflate on its own. When this occurred in the early part of the twentieth century, it came to a crashing halt. It is this fear that makes the democratic voter tremble and step aside as the President appoints a Federal Chief who, with his Board Member cohorts would be able to control and decide the future of the American economy (the Economist, M).

To summarize, the government and the Federal Banks want the American economy to grow without becoming inflated and without unemployment.

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The way they do it goes against democratic principles in that they control and manipulate the way interest and money supply change, either increasing or decreasing (recession or inflation). The monetary policy is kept on an even keel through this control. However, taxes and public spending (fiscal policy) is decided by representatives of the masses. The fiscal policy is well-known to experience frequent fluctuations as the public well knows, and fear and awe keeps them at bay, fearing to challenge this first and last bastion of "democratic" economic policies. Thus the government must watch the Gross Domestic Product and growth indicators, such as unemployment, and keep tight control of the Federal Bank's distributions and limitations set on interest. The monetary policy is the only thing the government really can control, "through the Central Bank's power to influence real variables such as interest rates and output levels" (Harris 15).

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