An economy is a hard thing to try to control, and yet there are two important forces at work with exactly that aim. The U.S. government has in place two specific types of tools it can use to tweak the workings of the economy. They are fiscal policy and monetary policy. But first, why would the government want to keep its hands in the economy? Shouldn’t they leave it alone and it’ll regulate itself? This was the view of many once upon a time. It was referred to as laissez faire, a French phrase literally meaning “let do†or “let it beâ€. The laissez faire view of Economics held that the state should not interfere in the economic activity of private parties. This view was mostly abandoned after the Great Depression and the introduction of the Keynesian school of economics. John Maynard Keynes, lauded by many as the savior of the modern economic system that brought us out of the Great Depression, developed his ideas around the need for governments to break with the laissez faire view and intervene in the economic systems they had left alone for so long. His proposals contained elements of both fiscal and monetary policies to right the floundering ship of the economy. The first of these policies we’ll look at is fiscal policy. Fiscal policy uses changes in government spending and taxation to stimulate or regulate the economy. Many times public programs, such as a proposed boost in infrastructure revitalization by the federal government, have the aim of not only fixing the underlying issues (such as bridges and roads) but also to stimulate the economy. That is government spending working to boost economic activity by putting unemployed people back to work. Changes in taxation can also be used to boost the economy. Such is the case when an economic stimulus bill is passed that sends out tax rebate checks to taxpayers. The hope is that taxpayers will become consumers, spending the extra money and that will have a positive effect on the economy. Check out my next post for a little bit on monetary policy.