POLICYMAKING

Economic, Social Welfare, Environmental, and National Security

PEARSON EDUCATION, INC., LONGMAN © 2008

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“The earth belongs to the living generation: they may manage it, then and what proceeds from it, as they please, during their usufruct.”

Thomas Jefferson, 1789

ECONOMIC POLICY

POLITICS AND THE ECONOMY

Introduction Capitalism:

An economic system in which individuals and corporations, not the government, own the principal means of productions and seek profits

Mixed Economy: An economic system in which the government is deeply involved

in economic decisions through its role as regulator, consumer, subsidizer, taxer, employer and borrower

Multinational Corporations: Businesses with vast holdings (facilities) in at least one other

country than it’s home country

Examples: Nike (U.S.), Honda (Japan), BMW (gERMAN

POLITICS AND THE ECONOMY

Economic Policy at Work: An Illustration Government Regulation and Business

Practices Securities and Exchange Commission regulates

stock fraud

Minimum wage:

Labor union:

Collective bargaining:

POLITICS AND THE ECONOMY

“It’s the Economy, Stupid”: Voters, Politicians, and Economic Policy

Economic trends affect who voters vote for.

Economic conditions are the best predictor of voters’ evaluation of the president.

Republicans worry about inflation.

Democrats stress importance of unemployment.

POLITICS AND THE ECONOMY

Two Major Worries: Unemployment and Inflation

Unemployment Rate: measured by the Bureau of Labor Statistics (BLS)

Inflation: Sustained increase in the general level of prices for goods and services.

For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year

PEARSON EDUCATION, INC., LONGMAN © 2008

Monetary Policy and “the Fed”

Monetary Policy: 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, more money = higher interest rates

Main policymaker is the Board of Governors of the Federal Reserve System–the “Fed” Created in 1913 to regulate lending practices of banks

and thus the money they supply

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

Laissez-faire: principle that government should not meddle in 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’s job is to increase demand of goods

Supply-Side Economics: Reduce taxation and government regulation then

people will work harder, and thus create a greater supply of goods

POLITICS AND 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

Government makes economic policy slowly

Some benefits are indexed

Capitalism can also affect the economy

Federal government spends less than 20 percent of GDP

THE BUDGET

Budget: a document that announces how much the government will collect in taxes and spend in revenues and how those expenditures will be allocated among various programs

Fiscal year: time period covered by the budget, running from October 1 to September 30 of the following year

CONGRESSIONAL BUDGET ACT, 1974

President submits budget

House and Senate budget committees analyze the budget, with the Congressional Budget Office

Each committee proposes to its house a budget resolution that sets a total budget ceiling and ceilings for each of several spending areas

Congress considers appropriations bills and sees whether they are congruent with the budget resolution

Appropriations bills cannot make big changes in the budget because approximately 2/3 of government spending is on entitlements

SOCIAL WELFARE POLICY

INCOME & POVERTY

Who’s Getting What? Income: Amount of Money You

Receive (Paycheck) Wealth: (Your accumulated

assets)

INCOME & POVERTY

U.S. has one of the largest income gaps in the world Income Distribution is extremely uneven

Income Distribution: 1% of the total population possesses more than 1/3 of all wealth Total assets of that 1% are actually higher than the total worth of 90% of

Americans

INCOME & POVERTY

Who’s Poor in America? Poverty Line: considers what a family must spend

for an “austere” standard of living

In 2012 the poverty line for a family of four was $23,492—46.5 million Americans—about 15 percent—poor in 2012

Many people move in and out of poverty in a year’s time.

Feminization of poverty: Poverty rate 38% higher

INCOME & POVERTY

INCOME & POVERTY

What Part Does Government Play? Taxation

Progressive tax:

Proportional tax:

Regressive tax:

Earned Income Tax Credit:

INCOME & POVERTY

What Part Does Government Play?

Government Expenditures Transfer payments:

Some transfer benefits are actual money, such as social security—entitlements

Other transfer benefits are “in kind” benefits where recipients get a benefit without getting actual money, such as food stamps—means tested

WHAT IS SOCIAL POLICY AND WHY IS IT SO CONTROVERSIAL?

Social welfare policies provide benefits to individuals, through:

Entitlement programs:

Means-tested programs:

INCOME & POVERTY

HELPING THE POOR?

“Welfare” as We Knew it

Social Security Act of 1935—first major step by the federal government to help protect people against absolute poverty Set up Social Security Program and AFDC,

a national assistance program for poor children

President Johnson declared a “war on poverty” and created many new social welfare programs.

HELPING THE POOR?

“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.

HELPING THE POOR?

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) Welfare rolls declined, even though income of TANF

recipients is still low

LIVING ON BORROWED TIME: SOCIAL SECURITY

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 Europe) have worked to reform their welfare programs, as their programs are in trouble, too.

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, which grow 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. Elderly are well-organized and influential; poor are not

ENVIRONMENTAL POLICY

ENVIRONMENTAL POLICY

Environmental Policies in America

Environmental Protection Agency: A federal agency created in 1970 Administers all the government’s

environmental legislation Administers policies dealing with toxic

wastes The largest independent regulatory agency

ENVIRONMENTAL POLICY

Environmental Policies in America (cont.)

Clean Air Clean Air Act of 1970: Groundbreaking

Expanded the federal mandate, requiring comprehensive federal and state regulations for both stationary (industrial) pollution sources and mobile sources.

1990 amendments addressed acid rain, ozone depletion and toxic air pollution

2004 EPA data show: Lead has been cut to zero

Carbon monoxide and sulfur dioxide by two-thirds

Particulates by nearly three-quarters

ENVIRONMENTAL POLICY

Environmental Policies in America

Toxic Wastes Superfund: created by Congress in 1980 to clean up

hazardous waste sites; money comes from taxing chemical products

Has virtually eliminated haphazard dumping of toxic waste, but less successful in cleaning up existing waste

Nuclear waste presents a serious challenge—Yucca Flats in Nevada as home for nuclear waste, failed for political reasons

ENERGY POLICY

Energy Sources and Energy Politics 87% of the nation’s energy comes from coal, oil,

and natural gas.

Coal is the most abundant fuel—90 percent of nation’s energy resources—but also the dirtiest.

Oil accounts for 40% of our energy, but creates a dependence on foreign (especially Middle East) sources.

The most controversial energy source is nuclear.

ENERGY POLICY

The Global Warming Gridlock

Earth is warming to between two and six degrees by 2100, due to carbon dioxide

Total costs could be $5 trillion.

United States is leading producer of carbon dioxide, but has not ratified Kyoto treaty Kyoto requires reduction in greenhouse gas emissions

to levels that would not affect the climate.

States, like California, are reducing emissions.

GROUPS, ENERGY, AND THE ENVIRONMENT

Environmental clean up is political since it puts “public” goods against other private concerns.

Explosion of groups formed to protect the environment in 1960s and 1970s.

Others oppose strict environmental laws, claiming it may hurt economy.

Policies will be controversial and expensive.

NATIONAL SECURITY POLICY

AMERICAN FOREIGN POLICY

Instruments of Foreign Policy

Three types of tools: Military: oldest and still used

Limited wars

Economic: becoming more powerful

Trade regulations, tariffs, and monetary policies

Diplomatic: the quietest of the tools

Negotiations and summits

AMERICAN FOREIGN POLICY

Actors on the World Stage International Organizations

United Nations (UN):

Regional Organizations NATO: created in 1949; combined military forces of U.S.,

Canada, and most of Western Europe and Turkey EU: transnational government composed of Western

European countries that coordinates economic policies

Multinational Corporations

Nongovernmental Organizations—groups such as Greenpeace or Amnesty International

Individuals

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.

“Axis of evil”

International relations has entered an era of improvisation

Afghanistan and Iraq

Attack against Afghanistan Taliban regime harbored Osama bin Laden and al-Qaeda network

War in Iraq Postwar planning was poor.

Public support has declined.

Terrorism beyond Afghanistan and Iraq will be difficult to combat.

POLITICS OF DEFENSE SPENDING

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.

Trend in reductions reversed after 911

TRENDS IN DEFENSE SPENDING

POLITICS OF DEFENSE SPENDING

Personnel 1.3 million active and reserve troops

More reliance on National Guard and reserve troops due to cuts in defense spending

Weapons Reliance on nuclear triad (ICBMs, SLBMs, and strategic

bombers) is expensive—$5.5 trillion

Treaties (START) signed to reduce nuclear missiles

High-tech non-nuclear weapons becoming more prevalent

Reforming Defense Policy

NEW GLOBAL AGENDA

The Changing Role of Military Power Military might is no longer the primary instrument

in foreign policy.

Losing its utility to resolve many international issues

Economic Sanctions Nonmilitary penalties imposed on foreign countries as an

attempt to modify their behavior

Generally the first resort in a crisis

Can be effective, but critics argue they only hurt U.S. businesses and provoke a nationalist backlash

NEW GLOBAL AGENDA

The International Economy Interdependency: mutual dependency in which the

actions of nations reverberate and affect one another’s economic lifelines

International Trade Tariffs: a tax on imported goods to raise the price,

thereby protecting American businesses and workers NAFTA and GATT are ways to lower tariffs and increase

trade. Congress approved the Central American-Dominican

Republic Free Trade agreement in 2005.

Balance of Trade Ratio of what is paid for imports to what is earned for

exports

WAR POWERS ACT OF 1973

All commitments of troops in hostile situations must be reported within forty-eight hours

Only a sixty-day commitment of troops can be made unless there is a declaration of war or a specific statutory authorization

Every president since the passage of the War Powers Act has sent troops abroad without congressional approval

Presidents deny that the War Powers Act is constitutional