Economic Policymaking

1
Economic Policymaking
2
Government, Politics, and the Economy

• Introduction
• Capitalism
• An economic system in which individuals and
  corporations, not the government, own the
  principle means of productions and seek profits.
• Mixed Economy
• An economic system in which the government is
  deeply involved in economic decisions through it
  role as regulator, consumer, subsidizer, taxer,
  employer and borrower.
• Multinational Corporations
• Businesses with vast holdings in many countries.

3
Government, Politics, and the Economy

• Economic Policy at Work An Illustration
• Wal-Mart is the worlds largest company.
• Government Regulation and Business Practices
• Securities and Exchange Commission regulates
  stock fraud.
• Minimum wage The legal minimum hourly wage for
  large employers.
• Labor union An organization of workers intended
  to engage in collective bargaining.
• Collective bargaining Negotiations between labor
  unions and management to determine pay and
  working conditions.

4
Government, Politics, and the Economy

• Wal-Mart and the World Economy
• Wal-Mart epitomizes Americas imbedding in the
  world economy.
• The proportion of U.S. GDP accounted for by
  international trade is 30.
• Wal-Mart takes full advantage of comparative
  advantage.
• Offshore outsourcing is a key concern of the new
  global economy.

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Government, Politics, and the Economy

• Its the Economy, Stupid Voters, Politicians,
  and Economic Policy
• Economic trends affect who the voters vote for.
• Economic conditions are the best predictor of
  voters evaluation of the president.
• Republicans worry about inflation.
• Democrats stress importance of unemployment.

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Government, Politics, and the Economy

• Two Major Worries Unemployment and Inflation
• Unemployment rate Measured by the BLS, the
  proportion of the labor force actively seeking
  work, but unable to find jobs.
• Inflation The rise in prices for consumer goods.
• Consumer Price Index The key measure of
  inflation that relates the rise in prices over
  time.

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Government, Politics, and the Economy

• Unemployment Joblessness in America, 1960-2002
  (Figure 17.1)

8
Government, Politics, and the Economy

• Inflation Increases in the Cost of Living,
  1960-2002 (Figure 17.2)

9
Policies for Controlling the Economy

• Monetary Policy and the Fed
• The manipulation of the supply of money in
  private hands too much cash and credit produces
  inflation.
• Money supply affects the rate of interest paid.
• Main policymaker is the Board of Governors of the
  Federal Reserve System the Fed.

10
Policies for Controlling the Economy

• Monetary Policy and the Fed continued
• The Feds instruments to influence the supply of
  money in circulation
• Sets the federal funds rate
• Buys and sells government bonds
• Through the use of these actions, the Fed can
  affect the economy.

11
Policies for Controlling the Economy

• Fiscal Policy of Presidents and Parties
• Fiscal Policy The policy that describes the
  impact of the federal budget on the economy.
• Keynesian Economic Theory Government spending
  and deficits help the economy weather its normal
  ups and downs.
• Governments job is to increase demand of goods.

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Instruments for Controlling the Economy

• Fiscal Policy of Presidents and Parties,
  continued
• Supply-Side economics The policy that says there
  is too much taxation and not enough money to
  purchase goods and services.
• Reduce taxation and government regulation then
  people will work harder, and thus create a
  greater supply of goods.

13
Why it is Hard to Control the Economy

• Some think politicians manipulate the economy to
  win reelection.
• But there are problems with that
• Things like the budget are prepared in advance of
  when they go into effect.
• Some benefits are indexed.
• Capitalism can also affect the economy.
• Government is more important in setting the rules
  of the game.

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Politics, Politics, and the International Economy

• Protectionism The economic policy of shielding
  an economy from imports.
• World Trade Organization (WTO) The international
  organization that regulates international trade.
• Free trade is controversial as jobs have
  increasingly been outsourced.

15
Arenas of Economic Policymaking

• Business and Public Policy
• Corporate Corruption and Concentration
• Increased incidence of bankruptcy and scandals.
• Increased number of corporate mergers
• Antitrust policy A policy designed to ensure
  competition and prevent monopoly.

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Arenas of Economic Policymaking

• Business and Public Policy, continued
• Regulating and Benefiting Business
• Congress has taken steps to regulate accounting
  industry practices.
• The Securities and Exchange Commission regulates
  stock fraud
• Government may loan businesses money.
• Government collects data that business use.

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Arenas of Economic Policymaking

• Consumer Policy The Rise of the Consumer Lobby
• Consumers historically have had little government
  protection.
• FDA Created in 1913 approves foods and drugs
  sold in the U.S.
• FTC Responsible for regulating false and
  misleading trade practices, which now includes
  consumer lending practices.

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Arenas of Economic Policymaking

• Labor and Government
• Government historically sided with business over
  labor unions.
• NLRB regulates labor-management relations
• The Taft-Hartley Act (1947) continued to
  guarantee unions the right of collective
  bargaining, but prohibited various unfair
  practices by unions.
• Government now provides unemployment compensation
  and a minimum wage.

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Understanding Economic Policymaking

• Democracy and Economic Policymaking
• Voters expect more of politicians that they can
  control.
• Sometimes economic theory and democratic theory
  may be at cross purposes.
• It is difficult to make decisions that hurt
  groups or involve short-term pain for long-term
  gain.
• Economic Policymaking and the Scope of Government
• Liberals tend to favor more government
  involvement in the economy.
• Conservatives tend to favor less government
  involvement in the economy.

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Social Welfare Policymaking
21
What is Social Policy and Why is it so
Controversial?

• Social welfare policies provide benefits to
  individuals, either through entitlements or
  means-testing.
• Entitlement programs Government benefits that
  certain qualified individuals are entitled to by
  law, regardless of need.
• Means-tested programs Government programs only
  available to individuals below a poverty line.

22
Income, Poverty, and Public Policy

• Whos Getting What?
• Income amount of funds collected between any two
  points in time.
• Wealth amount of funds already owned.

23
Income, Poverty, andPublic Policy

• Whos Poor in America?
• Poverty Line considers what a family must spend
  for an austere standard of living.
• In 2003 the poverty line for a family of three
  was 14,824.
• Many people move in and out of poverty in a
  years time.
• Feminization of poverty high rates of poverty
  among unmarried women

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Income, Poverty, and Public Policy

• Poverty Rates by Race and Hispanic Origin
  1959-2003 (Figure 18.1)

25
Income, Poverty, andPublic Policy

• What Part Does Government Play?
• Taxation.
• Progressive tax people with higher incomes pay a
  greater share.
• Proportional tax all people pay the same share
  of their income.
• Regressive tax opposite of a progressive tax
• Earned Income Tax Credit negative income tax
  that provided income to very poor people.

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Income, Poverty, andPublic Policy

• What Part Does Government Play?
• Government Expenditures.
• Transfer payments benefits given by the
  government directly to individuals.
• Some transfer benefits are actual money.
• Other transfer benefits are in kind benefits
  where recipients get a benefit without getting
  actual money, such as food stamps.
• Some are entitlement programs, others are
  means-tested.

27
Helping the Poor? Social Policy and Poverty

• Welfare as We Knew it
• Social Security Act of 1935 was the first major
  step by the federal government to help protect
  people against absolute poverty.
• The Social Security Act set up AFDC, a national
  assistance program for poor children.
• President Johnson declared a war on poverty and
  created many new social welfare programs.

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Helping the Poor? Social Policy and Poverty

• Welfare as We Knew it (continued)
• President Reagan cut welfare benefits and removed
  people from benefit rolls.
• Conservatives argued that welfare programs
  discouraged the poor from solving their problems.
• Attitudes toward welfare became race coded, the
  belief that most people on welfare were African
  Americans.

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Helping the Poor? Social Policy and Poverty

• Ending Welfare as we Knew it The Welfare Reforms
  of 1996
• Personal Responsibility and Work Opportunity Act
• Each state to receive a fixed amount of money to
  run its own welfare programs
• People on welfare would have to find work within
  two years.
• Lifetime limit of five years placed on welfare.
• AFDC changed to Temporary Assistance for Needy
  Families (TANF)

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Living on Borrowed Time Social Security

• The New Deal, the Elderly, and the Growth of
  Social Security
• Social Security has grown rapidly since 1935,
  adding Medicare in 1965.
• Employers and employees contribute to the Social
  Security Trust Fund.
• The Trust Fund is used to pay benefits.
• The ratio of workers to beneficiaries is
  narrowing. The Trust Fund will soon be in the red.

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Living on Borrowed Time Social Security

• The Future of Social Security
• The number of Social Security contributors
  (workers) is growing slowly, the number of
  recipients (retired) is growing rapidly.
• At some time, payouts will exceed income.
• Solutions of cutting benefits or raising taxes
  are hard choices.
• Republicans favor privatizing Social Security.

32
Social Welfare Policy Elsewhere

• Many industrialized nations are more generous
  than the U.S.
• But the tax rates are higher in those countries
  than in the U.S.
• Other countries (especially European) have worked
  to reform their welfare programs.

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Understanding Social Welfare Policy

• Social Welfare Policy and the Scope of Government
• The growth of government has been driven by the
  growth of social welfare policies.
• The American social welfare system grows
  generation by generation.
• Democracy and Social Welfare
• The U.S. has the smallest social welfare system.
• There is considerable unequal political
  participation by those that use the programs.

34
Policymaking for Health Care and the Environment
35
Health Care Policy

• The Health of Americans
• Americans generally lag behind in some key health
  statistics
• Specifically a lower life expectancy and higher
  infant mortality rate.
• The Cost of Health Care
• Americans spend more than any other country.
• Reasons for high costs private insurance pays
  much of the cost, emphasis on new and expensive
  technology, increase in malpractice suits results
  in defensive medicine.

36
Health Care Policy

• Uneven Coverage, Uneven Care
• Health Insurance
• About 43 million Americans have no health
  insurance.
• Often linked to having a job - lose the job, lose
  the health insurance.
• Health insurance is closely tied to race and
  income.

37
Health Care Policy

• Uneven Coverage, Uneven Care
• Managed Care
• HMO provide health care for a yearly fee through
  contracts or insurance companies. Covers about 60
  percent of Americans.
• Designed to reduce costs through oversight and
  limiting patient choices.
• Patients bill of rights would give patients
  rights against medical providers, including right
  to sue.

38
Health Care Policy

• The Role of Government in Health Care
• Government in the United States has the smallest
  role.
• Medicare provides hospitalization insurance for
  elderly and optional coverage for other medical
  expenses.
• Medicaid public assistance program to provide
  health care for the poor. Paid for by national
  and state governments.

39
Health Care Policy

• Policymaking for Health Care
• The Politics of Health Care
• Equality of care and cost containment take a back
  seat to technological advance.
• Interest groups (medical profession, elderly,
  business, insurance companies) play a major role
  in health care policy making.

40
Health Care Policy

• Policymaking for Health Care
• The Clinton Heath Care Reform Plan.
• Main concern guaranteeing health care coverage
  for all
• Paid for by requirement for employer insurance
  and tax increases
• Health alliances would collect premiums, bargain
  with health plans, and handle payments.
• Interest groups lobbied hard against this
  bureaucratic and complicated plan.
• Eventually died in Congress.

41
Health Care Policy

• Policymaking for Health Care
• The Health Policy Issues ahead
• Polls show Americans are fairly satisfied but
  want reform.
• Main concerns are access and cost.
• Remains complex, confusing and expensive with all
  the providers and governments involved.

42
Environmental Policy

• Environmental Policies in America
• Environmental Impacts.
• Environmental Impact Statements report that
  specifies likely environmental impact of a
  proposed action - filed with the EPA.
• Used by environmental groups to challenge and
  delay projects they object to.
• Clean Air.
• Clean Air Act of 1970 reduce auto pollution.
• 1990 amendments allowed emissions trading.

43
Environmental Policy

• Environmental Policies in America
• Clean Water.
• Water Pollution Control Act of 1972 intended to
  clean up the nations rivers and lakes requiring
  the use of pollution control technology.
• Has helped reclaim numerous rivers and lakes
  since its passage.
• But it misses runoff pollution from city
  streets and other areas.

44
Environmental Policy

• Environmental Policies in America
• Wilderness Preservation
• The U.S. is a world leader in wilderness
  preservation.
• The national parks and national forests may be
  restricted to keep them for future generations.
• Endangered Species
• Government protects those species listed as
  endangered - regardless of costs (Endangered
  Species Act).
• Exceptions may be made in some instances.

45
Environmental Policy

• Environmental Policies in America
• Toxic Wastes
• Superfund was created by Congress in 1980 to
  clean up hazardous waste sites.
• Has virtually eliminated haphazard dumping of
  toxic waste, but less successful in cleaning up
  existing waste.
• Nuclear waste presents a serious challenge.

46
Energy Policy

• Energy Sources and Energy Politics
• 87 of the nations energy comes from coal, oil
  and natural gas.
• Coal is the most abundant fuel, but also the
  dirtiest.
• Oil accounts for 40 of our energy, but creates a
  dependence on foreign (especially Middle East)
  sources.
• Most controversial energy source is nuclear.

47
Energy Policy

• The Global Warming Debate Heats Up
• Scientists argue about the effects of
  accumulations of carbon dioxide in the
  atmosphere.
• The only way to reduce the problem is to reduce
  the amount produced.
• The costs to do this are immediate, but the
  effects wont be visible for decades, if ever.

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Groups, Energy, and the Environment

• The issue is political since it puts public
  goods against other private concerns.
• There are more groups and more people getting
  involved in protecting the environment.
• They are still opposed by those who want to use
  the land for their own purposes.
• Policies will be controversial expensive.

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Understanding Health Care and Environmental Policy

• Democracy, Health Care, and Environmental Policy
• The issues involve all levels of governments.
• High-tech issues limit citizens participation.
• Relies heavily on group participation.
• Groups can afford the research into the science
  and policy of the issues.

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Understanding Health Care and Environmental Policy

• The Scope of Government and Health Care and
  Environmental Policy
• As citizens want more health care reform, the
  size of government will increase.
• Increased environmental protection will also
  cause the size of government to go up.
• With party divisions, incremental change is most
  likely.

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National Security Policymaking
52
American Foreign Policy Instruments, Actors, and
Policymakers

• Instruments of Foreign Policy
• Three types of tools
• Military
• Economic
• Diplomatic
• Military is the oldest and still used
• Economic is becoming more powerful
• Diplomatic is the quietest of the tools

53
American Foreign Policy Instruments, Actors, and
Policymakers

• Actors on the World Stage
• International Organizations (UN)
• Regional Organizations (NATO, EU)
• Multinational Corporations
• Nongovernmental Organizations
• Individuals

54
American Foreign Policy Instruments, Actors, and
Policymakers

• The Policymakers
• The President
• The Diplomats (secretary of state)
• The National Security Establishment (secretary of
  defense, Joint Chiefs of Staff, NSC, CIA)
• Congress

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American Foreign PolicyAn Overview

• Isolationism
• Foreign policy where the U.S. tries to stay out
  of other nations conflicts, particularly in
  Europe.
• Monroe Doctrine
• U.S. official statement of isolationism
• World War I
• Basically ended the policy of isolationism

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American Foreign PolicyAn Overview

• The Cold War
• Containment Abroad and Anti-Communism at Home
• The Swelling of the Pentagon (arms race)
• The Vietnam War

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American Foreign PolicyAn Overview

• The Era of Détente
• Détente a slow transformation from conflict to
  cooperation
• Strategic Arms Limitations Talks effort to limit
  the growth of nuclear arms
• Originally applied to the Soviet Union, and then
  to China
• Not favored by everyone

58
American Foreign PolicyAn Overview

• The Reagan Rearmament
• Defense budget had been declining since the
  mid-1950s.
• Reagan added some 32 billion to the defense
  budget in his first term in office to oppose the
  Soviet buildup.
• Strategic Defense Initiative using computers and
  other equipment to defend against Soviet missiles
  from space (Star Wars).

59
American Foreign PolicyAn Overview

• The Final Thaw in the Cold War.
• George H.W. Bush proposed to move beyond
  containment to integrate the Soviet Union into
  the community of nations.
• Leadership of the Soviet Union supported the
  ending of communism and split into separate
  nations.
• East and West Germany united.

60
American Foreign Policy An Overview

• The War on Terrorism
• War on terrorism became highest priority of
  George W. Bush administration after 9/11.
• Bush supported preemptive strikes against
  terrorists and hostile states.
• International relations has entered an era of
  improvisation.

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The Politics of Defense Policy

• Defense Spending
• Currently takes up about one-fifth of the federal
  budget.
• Conservatives argue against budget cuts that
  would leave the military unprepared.
• Liberals argue for budget cuts to provide more
  money for programs here in the U.S.
• Military spending is hard to cut since it means a
  loss of jobs in congressional districts.

62
The Politics of Defense Policy

• Personnel
• 1.4 million active and reserve troops
• More reliance on National Guard and reserve
  troops.
• Weapons
• Reliance on nuclear triad (ICBMs, SLBMs, and
  strategic bombers) is expensive.
• Treaties (START) were signed to reduce some
  nuclear missiles.
• High-tech non-nuclear weapons are becoming more
  important.

63
The New Global Agenda

• The Decreasing Role of Military Power
• Military power is losing much of its utility in
  resolving many international issues.
• Economic Sanctions
• Nonmilitary penalties imposed on foreign
  countries as an attempt to modify their behavior.
• Generally the first shot in a crisis.
• Can be effective, but critics argue they only
  hurt U.S. businesses and provoke a nationalist
  backlash.

64
The New Global Agenda

• Nuclear Proliferation
• Only a few countries have known nuclear weapon
  capabilities.
• Fear is that other rogue countries will have
  nuclear weapons capabilities and use them against
  their neighbors or the U.S.
• U.S. will focus on discouraging the deployment of
  developed nuclear weapons.

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The New Global Agenda

• The Spread of Nuclear Weapons (Figure 20.3)

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The New Global Agenda

• The International Economy
• Interdependency Mutual dependency, in which the
  actions of nations reverberate and affect one
  anothers economic lifelines.
• International Trade
• Tariffs (a tax on imported goods) are used to
  protect American business.
• NAFTA and GATT are ways to lower tariffs and
  increase trade.
• Balance of Trade The ratio of what is paid for
  imports to what is earned for exports.

67
The New Global Agenda
68
The New Global Agenda

• The International Economy (continued)
• Energy
• America depends on imported oil, but not as much
  as other nations.
• Much of the recoverable oil is in the Middle East
  which is often the site of military economic
  conflicts.
• OPEC controls the price of oil and amount its
  members produce and sell.

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The New Global Agenda

• The International Economy (continued)
• Foreign Aid
• Foreign aid is used to stabilize nations friendly
  to the United States.
• A substantial percentage of foreign aid is
  military.
• Foreign aid has never been very popular with
  Americans

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Understanding National Security Policymaking

• National Security Policymaking and Democracy
• Americans are more interested in domestic than
  foreign policy.
• The opinions of the people are rarely ignored.
• Pluralism is pervasive in foreign policymaking.
• Foreign and Defense Policymaking and the Scope of
  Government