PUBLIC POLICY

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PUBLIC POLICY
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Take Five

• When and why has our government grown?

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The Great Depression (1930s)
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The Cold War (1950s)
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Terrorism
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COSTS vs. BENEFITS

• Cost any burden that a group must bear
• Benefit any satisfaction that a group will
  enjoy from a policy

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Take Five

• What does the perception of costs mean?

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COSTS vs. BENEFITS

• Costs and Benefits can be widely distributed or
  narrowly concentrated
• Widely-distributed costs Income tax, Social
  security tax
• Narrowly-concentrated costs Factory air emission
  standards
• Widely-distributed benefits Social Security
  benefits, national defense
• Narrowly-concentrated benefits farm subsidies

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4 Types of Policies
Widespread Costs
Narrow Costs
Interest Group Ex. Tariffs
Client Politics Ex. Pork Barrel Project
Narrow Benefits
Entrepreneurial Ex. Consumer Product Safety
Majoritarian Ex. Soc. Sec., Nat Defense
Widespread benefits
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4 types of Policies

• Majoritarian Widely distributed costs and widely
  distributed benefits
• EX Social Security, National Defense
• Interest Group narrowly concentrated costs and
  narrowly concentrated benefits
• EX Tariffs on imports and exports

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4 types of Policies

• Client Widely distributed costs and narrowly
  concentrated benefits
• EX Pork barrel pet projects for Senators states
  (Alaskas Bridge to nowhere)
• Entrepreneurial narrowly concentrated costs and
  widely distributed benefits
• EX Consumer product safety legislation

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Economic Public Policy
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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.

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Taxing and Spending

• Progressive taxes a tax where the tax rate
  increases with increased wealth
• Regressive taxes a tax that places a higher
  burden on those with lower income

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Taxing and Spending

• Sources of Federal Revenue
• Individual Income taxes 49
• Social Insurance (payroll) taxes 33
• Corporate taxes 10
• Excise taxes 3
• Borrowing varies depending upon deficit
• Other 4

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Taxing and Spending

• Discretionary Spending Government has a choice
  in how money is spent
• Nondiscretionary Government must spend the money
  for programs or commitments previously made
• Where the money is spent
• Direct benefit payments to individuals (Social
  Security, Medicare, Medicaid) 55
• National Defense 16
• Interest on National Debt 10
• Nondefense discretionary Spending 19

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Take Five

• What is an entitlement? Give an example.

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Taxing and Spending

• Entitlements
• Automatically spent (without annual review of
  other programs)
• Ex Social Security, Medicare, Federal Pensions,
  Interest on National Debt
• 2/3 of federal budget. Problem becomes that
  Congress and the President cannot control much of
  spending.

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Taxing and Spending

• Budget Process
• Agencies prepare their budget needs and submit to
  Presidents Office of Management and Budget (OMB)
• OMB makes recommendations to President
• President submits budget to Congress
• Congressional Budget Office (CBO) checks
  Presidents budget
• Ways and Means committee in house review taxes
  and revenues. Appropriations committees review
  spending
• Agencies lobby for money
• Majority vote in both houses passes budget
• President signs or vetoes bill (no line-item veto)

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Managing the Economy

• 2 types of Economic Policies
• Fiscal Policy taxing and spending (budget).
  Handled by Congress and the President
• Monetary policy regulation of the money supply
  by the Federal Reserve Board (the Fed).
  Adjustments of Interest rates

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Take Five

• Name one solution to fix the US budget woes of
  the past.

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Managing the Economy

• Economic Theories
• 1. Keynesian economics Government can manipulate
  the health of an economy through spending.

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Managing the Economy

• Economic Theories
• 2. Supply-side economics Cuts in taxes will
  produce business investment that will offset loss
  of due to lower taxes.
• 3. Monetarism Money supply is the most important
  factor for determining the health of the economy

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Take Five

• How has the US government regulated foreign trade
  in the past? Has it been effective?

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Managing the Economy

• Trade Policy
• Trade deficits (US imports more goods from other
  nations than it exports) have led to calls for
  protectionism
• Recent push for Free trade
• GATT
• NAFTA

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Government Regulation

• Rules imposed by government on business to
  achieve a desired goal
• Antitrust policies 1890s-1910s to counter ill
  effects of capitalism
• Creation of regulatory agencies like FTC, FCC and
  SEC

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Take Five

• Take a guess.what is the worlds largest
  corporation?

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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.

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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)

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Government, Politics, and the Economy

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

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Take Five

• What causes inflation?

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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.

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Policies for Controlling the Economy

• 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.

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Take Five

• Why is it so difficult to control the economy?

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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 automatically renewed (SS)
• Capitalism can also affect the economy.
• Government is more important in setting the rules
  of the game.

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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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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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Environmental Policy Social Welfare
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Environmental Policy

• Key issue is the extent to which the environment
  should be protected and the costs of doing so.
• Key legislation
• Clean Air acts and Clean water Acts
• EPA created in 1970

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Take Five

• What is a government subsidy? What is the
  purpose of it?

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Government Subsidies

• Government Financial Support
• Cash (ie TANF- Temporary Assistance for Needy
  Families)
• Tax Incentives (Home mortgage interest payments
  are tax deductible)
• Credit subsidies- Veterans Administration
  provides Home loans
• Benefit in kind subsidies Non cash benefits
  (foods stamps, Medicare, Medicaid)

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Government Subsidies

• Purpose to encourage a particular type of
  private sector action.
• EX - Homeownership is encouraged by the
  government, so Mortgage interest is tax
  deductible.

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Government Subsidies

• Business Subsidies
• Oil companies receive tax breaks to encourage oil
  production to make us less dependent upon foreign
  oil
• Airlines received government aid post 9/11 to
  help offset lost revenue.
• Government pays farmers to not plant certain
  crops to keep production down and stabilize prices

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Government Subsidies

• Social Welfare Subsidies
• Social Security (no means test, i.e. one does not
  have to prove that one lacks the means in order
  to qualify for the benefit.) Financed by FICA
  payroll tax
• Medicare (no means test)
• Unemployment Insurance (no means test)
• Temporary Assistance to Needy Families (TANF
  means test)
• Supplemental Security Income (means test)
• Food Stamps (means test)
• Medicare federal medical coverage for people on
  TANF or SSI (means test)

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Foreign Policy
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Foreign Policy

• President and Congress Share powers
• President is commander in chief and can deploy
  troops, while Congress controls the money funding
  the military and can declare war.
• President makes appointment for ambassadors, but
  Senate approves
• President makes treaties, but Senate ratifies
  (some presidents use Executive Agreements, which
  do not need to be ratified to get around this)

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Take Five

• What is the War Powers Act? What type of impact
  has it had on our military?

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Foreign Policy

• President and Congress Share powers
• WAR POWERS ACT
• Response to Vietnam
• President must notify Congress within 48 hours of
  deploying troops
• President must bring troops home after 60 days
  unless further authorized by Congress to keep
  troops in hostile situation
• Act has had little impact on the execution of our
  military policy

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Foreign Policy

• Presidential Support for Foreign policy
• Secretary of State
• Secretary of Defense
• Director of National Intelligence
• CIA
• NSA
• National Security Council-NSC (coordinates
  efforts that effect National Security)
• President, VP, Sec of State, Sec of Defense, CIA
  head, National Security Advisor