Chapter 13 Social and Economic Policy Pearson Education, Inc. © 2006 American Government 2006 Edition (to accompany the Essentials Edition) O’Connor and Sabato

Pearson Education, Inc. © 2006 The Policy Process  Public Policy An intentional course of action followed by government in dealing with some problem or matter of concern. Based on law.  Authoritative and binding on people.  Those who do not comply can be penalized. The impact or meaning of a policy depends on whether it is vigorously enforced, enforced only in some instances, or not enforced at all.

Pearson Education, Inc. © 2006 Theories of Public Policy  Elite Theory Chosen few or elite make all important decisions in society. Unequal distribution of power is normal and inevitable.  Other views Bureaucratic Theory Interest Group Theory Pluralist Theory

Pearson Education, Inc. © 2006 A Model of the Policy-Making Process  Sequence of stages or functional activities. Policies do not just happen; rather they are the products of a predictable pattern of events. Problems must first be recognized and defined.  A problem that disturbs or distresses people gives rise to demands for relief, often through governmental action.

Pearson Education, Inc. © 2006 A Model of the Policy-Making Process  Problem must get on the governmental agenda.  Formulation of alternatives for dealing with the problem.  Policy adoption is the formal enactment or approval of an alternative.  Budgeting provides financial resources to carry out the approved alternative.  Policy implementation is the actual administration or application of the policy.  Policy evaluation determines the policy’s actual accomplishments, consequences, or shortcomings.

Pearson Education, Inc. © 2006 Stages of the Public Policy Process

Pearson Education, Inc. © 2006 Problem Recognition and Definition  Not everything qualifies as a problem deserving of government intervention.  Perceptions of government responsibility play a role. These have changed over time.  Usually there is not a single agreed- on definition of a problem. Political struggles may occur at this stage.

Pearson Education, Inc. © 2006 Agenda Setting  Agenda A set of issues to be discussed or given attention.  Systemic Agenda All public issues are viewed as requiring governmental attention; a discussion agenda.  Governmental (Institutional Agenda) The changing list of issues to which governments believe the should address themselves.

Pearson Education, Inc. © 2006 Getting on the Congressional Agenda  President is an important agenda-setter for Congress.  Interest groups are major actors and initiators in the agenda-setting process.  Major problems that evolve from crisis or other extraordinary event may receive automatic agenda status.  Individuals may also push issues to the congressional agenda. Private citizens, members of Congress, other officials  Agenda setting is a competitive process.

Pearson Education, Inc. © 2006 Policy Formulation  The crafting of appropriate and acceptable proposed courses of action to ameliorate or resolve public problems.  Routine formulation A repetitive and essentially changeless process of reformulating similar proposals within an issue area that is well established on the government agenda.  Analogous formulation Handles new problems by drawing on experience with similar problems of the past.  Creative formulation Involves attempts to develop new or unprecedented proposals that represent a departure from existing practices.

Pearson Education, Inc. © 2006 Policy Adoption  The approval of a policy proposed by the people with the requisite authority, such as a legislature.  Major legislation requires much negotiation, bargaining, and compromise. Complex legislation takes time to pass. Legislation passed is often incremental.

Pearson Education, Inc. © 2006 Budgeting  Most policies require money in order to be carried out. A policy can be nullified by a refusal to fund.  Noise Control Act  Having the potential to curb funding can be a powerful tool for congressional committee chairs.

Pearson Education, Inc. © 2006 Policy Implementation  The process of carrying out public policy through governmental agencies.  Some are enforced by other means such as the courts. Product liability Product dating

Pearson Education, Inc. © 2006 Techniques used by Administrative Agencies  Authoritative techniques Rests on the notion that people’s actions must be restrained by government in order to prevent or eliminate activities or products that are unsafe, evil or immoral.  Incentive techniques Encourage people to act in their own best interest by offering payoffs or financial inducements to get them to comply.  Capacity techniques Provide people with information, education, training or resources that will enable them to participate in desired activities.  Hortatory techniques Encourage people to comply with policy by appealing to their better instincts. “Just Say No.”

Pearson Education, Inc. © 2006 Policy Evaluation  The process of determining whether a course of action is achieving its intended goals.  Important players in this process Congressional committees Presidential commissions Private research organizations General Accountability Office (GAO)  Evaluation research and studies can stimulate attempts to modify or terminate policies and restart the policy process.

Pearson Education, Inc. © 2006 Roots of Social Welfare Policy  Early 19 th century attitudes toward social welfare were focused on belt-tightening and charity. NO governmental intervention.  Late 19 th century Farmers and rural Americans sought help  Failing commodity prices; exploitation of railroads  1890s severe economic depression  Acceptance and expectance of government intervention

Pearson Education, Inc. © 2006 Social Security Costs and Revenues,

Pearson Education, Inc. © 2006 Income Security  Great Depression Social and economic thinking began to change f Idea that government could and should be used as a positive influence in society FDR elected in 1932  Unemployment extremely high; bad for economy  Created Civil Works Administration by executive order to put people to work Creation of Social Security  1935 law established old-age insurance (Social Security) and assistance for the needy, children, and others, and unemployment insurance.

Pearson Education, Inc. © 2006 Health Care  National health insurance considered at time Social Security legislation was passed AMA strongly opposed it; so it was omitted  1945 Truman put health insurance on the national policy agenda again. First idea received favorably by public. AMA opposed again. Fearful of regulation.  Medicare introduced by Johnson Provide hospital care for the elderly already covered by Social Security. Wilbur Mills (D-AR) Chair Ways and Means  Expanded policy: included Medicaid

Pearson Education, Inc. © 2006 Social Welfare Policies Today: Income Security Programs  Protect people against loss of income due to retirement, disability, unemployment or deal or absence of family breadwinner. Non-means-based programs  Social insurance  Old age, survivors and disability insurance  Unemployment insurance Means-tested programs  May either come as cash or in-kind benefits, such as food stamps.  Supplemental Security Income  Family and Child Support

Pearson Education, Inc. © 2006 Welfare Reform of 1996  Personal Responsibility and Work Opportunity Reconciliation Act of 1996 Required single mothers with a child over five years of age to work within two years of receiving funds Included a provision that unmarried mothers under the age of 18 be required to live with an adult and attend school in order to receive welfare benefits Set a five-year lifetime limit for aid from block grants

Pearson Education, Inc. © 2006 Welfare Reform of 1996  Personal Responsibility and Work Opportunity Reconciliation Act of 1996 Included a requirement that mothers must provide information about a child’s father in order to receive full welfare payments Cut off food stamps and SSI for legal immigrants Cut off cash welfare benefits and food stamps for convicted drug felons Limited food stamps to three months in a t hree year period for persons 18 to 50 years old who are not raising children and not working.

Pearson Education, Inc. © 2006 Earned Income Tax Credit Program  Designed to help the working poor Helps them by subsidizing their wages and provides an incentive for people to go to work. Results in a net cash rebate for many low-income tax payers who pay no federal income tax.  Created in 1975 – Senator Russell Long (D-LA)

Pearson Education, Inc. © 2006 Food Stamp Program  Initial program was an effort to expand the domestic market for farm commodities. Provided the poor with the ability to buy more food, thus increasing demand for American agricultural produce Made permanent in 1964 Extended nationwide in 1974 Benefits low income families. Combats hunger and reduce malnutrition. Food stamps went to over 21 million beneficiaries in 2003 at cost of $2.9 billion. Average participant’s monthly disbursement: $84 in food stamps

Pearson Education, Inc. © 2006 The Effectiveness of Income Security Programs  Entitlement programs Income security programs to which all those meeting eligibility criteria are entitled. Spending for such programs is mandatory.  Funds must be provided for them unless laws creating the programs are changed.  Difficult to control spending for this reason.  Often a matter of considerable debate.  Range of such programs are characteristic of all democratic industrial societies.

Pearson Education, Inc. © 2006 Health Care  U.S. government spends billions on health Medicare  Part A: automatic at age 65  Part B: optional; covers payment for items not covered by part A.  Financed by a payroll tax of 1.45 percent paid by both employees and employers on the total amount of a person’s wages. Medicaid  Provides comprehensive health care to all who qualify as needy.  In 2002, Medicaid served over 40 million people at a cost of 284 billion.  Jointly financed by national and state governments  Some variation by state in terms of who is covered Aids Funding High Cost of Health Care

Pearson Education, Inc. © 2006 The Roots of Economic Policy  During the nation’s first century states bore the responsibility of managing economic affair.  Nineteenth Century Government long role in economy Tax, tariff, public lands disposal, and public works projects and the national bank But national regulatory programs were few and restricted. State governments active in promoting and regulating private economic activity.

Pearson Education, Inc. © 2006 The Nineteenth Century  After Civil War, U.S. experienced rapid economic growth. Large scale manufacturing enterprises New problems arose Business cycle: fluctuations between expansion and recession that is a part of modern capitalist economics. During recessions people lose their jobs and income, and the economy experiences a low or even negative growth rate.

Pearson Education, Inc. © 2006 The Progressive Era  Laissez-faire economics A French term literally meaning “to allow to do, to leave alone.” It is a hands-off governmental policy that is based on the belief that governmental involvement in the economy is wrong.  Major reform Interstate Commerce Act 1887 Sherman Antitrust Act 1890 Establishment of the Department of Agriculture (1862) Homestead Act Morrill Land Grant Act

Pearson Education, Inc. © 2006 Financial Reforms  Bank holiday Only financially sound banks were permitted to reopen.  New banking laws Glass-Steagall Act (1933)  Required the separation of commercial and investment banking and set up of the FDIC Securities Act (1933)  Required that prospective investors be given full and accurate information about the stocks or securities being offered to them. Securities Exchange Act (1934)  Created the Securities and Exchange Commission authorized to regulate the stock exchange and to reduce the number of stocks bought on margin (on borrowed money).

Pearson Education, Inc. © 2006 Agriculture  Agricultural Adjustment Act (1933) Sought to boost farm income by restricting agricultural production in order to being it into better balance with demand. Supreme Court found it unconstitutional. Constitution did not grant Congress the authority to regulate commerce in Article 1. Replaced by the Soil Conservation and Domestic Allotment Act.  Did not work well. Congress passed a second AAA  Provided subsidies to farmers to limit their crops.  Protected farmers, but many thought it a wasteful program.

Pearson Education, Inc. © 2006 Labor  National Labor Relations Act of 1935 (Wagner Act) Guaranteed worker’s rights to organize and bargain collectively through unions of their own choosing  National Labor Relations Board Created to carry out the act and to conduct elections to determine which union, if any, employees wanted to represent them.  Fair Labor Standards Act (1938) Intended to protect the interests of low-paid workers, the law set 25 cents per hour and 44 hours per week as initial minimum standards.

Pearson Education, Inc. © 2006 Labor Industry Regulations Federal Communications Commission (1934)  Given extensive jurisdiction over the radio, telephone, and telegraph industries. The Civil Aeronautics Board (1938)  Put into place to regulate the commercial aviation industry. Motor Carrier Act (1935)  Put the trucking industry under the jurisdiction of the Interstate Commerce Commission.

Pearson Education, Inc. © 2006 Economic and Social Regulation  Economic regulation Governmental regulation of business practices, industry rates, routes, or areas serviced by particular industries.  Social regulation Governmental regulation of the quality and safety of products as well as the conditions under which goods and services are produced.

Pearson Education, Inc. © 2006 The Social Regulation Era  From the 1960s to the mid-1970s the national government passed social regulatory legislation on such topics as: Consumer protection Health and safety Environmental protection  All based on commerce clause authority Set up new regulatory agencies to implement the new regulations More industries affected by government.

Pearson Education, Inc. © 2006 Why the surge of social regulations?  The late 1960s and early 1970s were a time of social activism. The consumer and environmental movements were at the peak of their influence.  The public had become much more aware of the dangers to health, safety, and the environment associated with various modern products.  Members of Congress saw the advocacy of social regulation as a way to gain visibility and national prominence.  The presidents in office during most of this period each gave support to the social regulation movement.

Pearson Education, Inc. © 2006 Deregulation  A reduction in market controls.  In theory, deregulation would increase market competition and lead to lower prices for consumers.  Ford administration made deregulation a major objective. Conservative Republican  Senator Ted Kennedy held hearings on airline deregulation.  Priority of the Carter Administration as well.  Agricultural regulation still controversial Bush signed into law a six-year agricultural bill with a price tag of $100 billion.

Pearson Education, Inc. © 2006 Stabilizing the Economy  Massive scale and persistence of the Great Depression led to the Employment Act of 1946  Committed the government to maintaining “maximum employment, production, and purchasing power”  Keynes Argued that deficit spending by a government could supplement the total or aggregate demand for good and services.

Pearson Education, Inc. © 2006 Stabilizing the Economy  Economic stability A situation in which there is economic growth, rising national income, high unemployment, and steadiness in the general level of prices.  Inflation A rise in the general prices levels of an economy.  Recession A short-term decline in the economy that occurs as investment sags, production falls off, and unemployment increases.

Pearson Education, Inc. © 2006 Monetary Policy: Controlling the Money Supply  Monetary Policy A form of government regulation in which the nation’s money supply and interest rates are controlled.  Money A system of exchange for goods and services that includes currency, coins and bank deposits.  Federal Reserve Board A seven-member board that sets member banks’ reserve requirements, controls the discount rate, and makes other economic decisions.

Pearson Education, Inc. © 2006 Monetary Policy: Controlling the Money Supply  Reserve requirements Governmental requirements that a portion of member banks’ deposits must be retained to back loans made.  Discount rate The rate of interest at which member banks can borrow money from their regional Federal Reserve Bank.  Open Market Operations The buying and selling of government securities by the Federal Reserve Bank in the securities market.

Pearson Education, Inc. © 2006 Fiscal Policy: Taxing and Spending  Federal government policies on taxes, spending, and debt management  Intended to promote the nation’s macroeconomic goals, particularly with respect to employment, price stability, and growth.  Revenue Act of 1964 Reduced personal and corporate income tax rates  Tax cuts to stimulate the economy Reagan in 1981 and G.W. Bush in 2001 and 2003