What are the main differences between the Republican and Democratic approaches to regulating the economy?

By Ryan C. Fuhrmann AAA
A:

Generally speaking, the Republican Party is considered more business friendly and favors a more limited role of government in terms of regulating the economy. This includes less regulation on business, such as restrictions that might seek to relegate the pursuit of profits to environmental concerns, labor union interests, healthcare benefits and retirement payouts. Given this more pro-business bias, Republicans tend to receive support from the owners of business and investment capital, as opposed to the labor component that constitutes workers and their interests.
Democrats are said to rely more heavily on government intervention to influence the economy's direction and keep the profit motive of businesses more at bay. Higher regulation comes with increased costs, which Democrats can support through higher taxation. As a result, the party is also described as "tax and spend," with a belief that businesses are more focused on earning a return for shareholders and willing to cut corners in terms of protecting the overall social good.

During economic downturns, Democrats will therefore tend to believe that deficit spending is necessary to help stimulate the economy until private business prospects improve. Influencing government spending levels is referred to as fiscal policy. They might also look to enhance and extend welfare programs to help citizens that have lost their jobs or are more in need due to more challenging economic conditions. Republicans would tend to rely less on government intervention, but might push more monetary levels, which seek to alter the money supply. Lowering the Federal funds rate and the banking reserve ratios qualify as monetary policy levers they can pull.

The reality is that the lines between what are considered traditional Republican and Democratic approaches to regulating the economy are more blurred. The U.S. has run a budget deficit for nearly three decades, meaning it has spent more than it has taken in. This has increased the role of government in the economy and has meant that spending has continued in good times or bad. Government politicians also have personal differences in how they manage the economy, but knowing their party affiliation can still be a solid indicator in the approach they may take in influencing the economy.

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