1. 15: Economic and Environmental Policy
Contributing to Prosperity
16: Income, Welfare, and Education Policy
Providing for Personal Security

2. Public Policy under a Constitutional System
The Process of Policy Making
Problem identification
Policy agenda
Policy formulation
Policy enactment
Policy implementation
Policy evaluation
Key Questions
What is the definition of public policy? How does government balance the cost and benefits of a policy?
public policy:
Intentional actions of government designed to achieve a goal.
problem identification:
The first step in the policy-making process, in which a problem in politics, the economy, or society is recognized as warranting government action.
policy agenda:
The second step in the policy-making process, in which a problem that has been identified gets the attention of policy makers.
policy formulation:
The third step in the policy-making process, in which those with a stake in the policy area propose and develop solutions to the problem.
policy enactment:
The fourth step in the policy-making process, in which Congress passes a law that authorizes a specific governmental response to the problem.
policy implementation:
The fifth step in the policymaking process, in which the executive branch develops the rules that will put the policy into action.
policy evaluation:
The final step in the policy-making process, in which the policy is evaluated for its effectiveness and efficiency; if changes are needed, the issue is placed back on the policy agenda, and the cycle starts again.
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3. The Public Policy-Making Process
Figure 16.2
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4. Public Policy under a Constitutional System
The Regulatory Process
Administrative Procedures Act
Regulations
Federal Register
Blocking Implementation
Hobby Lobby v. Kathleen Sebelius
regulatory process:
System of rules that guide how a law is implemented; also called the rule-making process.
regulations:
Guidelines issued by federal agencies for administering federal programs and implementing federal law.
Federal Register:
Official published record of all executive branch rules, regulations, and orders
Key Question
What role can citizens play in the regulatory process?
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5. Copyright © 2016 Cengage Learning. All rights reserved.
Domestic Policy
Entitlement Programs, Income Security, and Health Care Review
Social Security
Medicare
Medicaid
Affordable Health Care Act
Social Security:
Federal pension program that makes a monthly payment to retired elderly workers and disabled persons.
Entitlement programs:
Federal programs, such as Social Security, Medicare, or Medicaid, that pay out benefits to individuals based on a specified set of eligibility criteria.
Medicare:
Federal health insurance program for the elderly and disabled.
Medicaid:
Shared Federal and state health insurance program for low-income persons.
Key Question
What policy goals do entitlement programs address?
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6. Major Federal Programs
Table 16.1
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Domestic Policy
The Affordable Care Act (ACA)
Constitutionality of Act was challenged
Major problems from the start
States vital in implementation process
Key Question
Why has the implementation of the Affordable Care Act been so complicated?
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8. Figure 16.4 The Cost of Health Care Insurance
The Affordable Care Act expanded the opportunity for individuals who were previously unable to purchase health care
insurance to buy it through state or federal run insurance exchanges. Figure 16.4 show the estimated costs of health care
insurance to individuals depending on personal circumstances.
Source: Kaiser Family Foundation, “Visualizing Health Policy: What Americans Pay for Health Insurance under the ACA ,” March 19, 2014, accessed March 19, 2014,
© 2016 Cengage Learning
Figure 16-4 p549

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Domestic Policy
Immigration Policy Overview
The legal immigration process
Visa to enter country
Issued green card
Proof of employment
Medical exam
The debate over unauthorized immigration
1986 Immigration Reform and Control Act
DREAM Act
Key Questions
How do immigrants become naturalized citizens?
Why is immigration the responsibility of the federal government? Should that change—why or why not?
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10. Copyright © 2016 Cengage Learning. All rights reserved.
Domestic Policy
Immigration Policy Overview
Local and federal action on unauthorized immigration
Mexican border
Arizona’s and Alabama’s negative laws
California, Texas, and New Mexico positive laws
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11. Figure 16-1 Income Share of America’s Lower, Middle, and Upper Economic Classes, 1970 and 2015
Between 1970 and 2015, the nation’s income shifted to the upper class, such that it now gets nearly half of all income that Americans receive each year. Note: Middle-income households are those whose annual household income is two-thirds to double the U.S. median household income after incomes have been adjusted for household size. In terms of 2014 U.S. dollars, this amounts to $42,000 to $126,000 annually for a household of three. Lower-income households have adjusted incomes below $42,000 while upper-income households have adjusted incomes above $126,000.
Source: Pew Research Center, 2015.

12. Figure 16-2 Inflation-Adjusted Annual Income, 1970 to 2010
During the 40 years beginning in 1970, the bottom 60 percent of income earners had virtually no increase in their real income, whereas those in the top 40 percent, and particularly those at the very top, had large increases in their real income. Note: Dollar amounts are expressed in dollars to eliminate the effect of inflation on changes in wages.
Source: U.S. Census Bureau figures.

13. Parallel Changes
Top earners have done well in recent decades primarily due to tax policy
In the period after World War II, tax policy kept inequality in check
Gap widened in the 1980s with the presidency of Ronald Reagan and his pursuit of supply-side economics
Tax cuts were also pursued by president George W. Bush
High earners also benefited from a cut in the capital gains tax: the tax individuals pay on gains in capital investments
Note the income gains from the Reagan and Bush tax cuts came from government borrowing

14. Figure 16-3 Cumulative Income Tax Savings from Bush-Era Tax Cuts, 2004–2012
The Bush-era tax cuts were in effect for nine years and resulted in tax savings for all income groups, but high-income households had by far the biggest tax savings. Households with incomes in the top fifth in the nation saved an average of $62,682 in taxes. The top 1 percent saved $522,062.
Source: Center on Budget and Policy Priorities, based on constant FY2012 dollars.

15. Parallel Changes (2)
Wage stagnation in recent decades is mainly a result of changes in the nation’s job market
No change in real income since 1970
Dominance of American goods and services following World War II gradually gave way to a competitive global market
Union membership has declined
Job growth has primarily been in the service sector
Lower wages
Decreased economic activity potential

16. Welfare Politics and Policies
Roughly one in seven American families lives in poverty
More poverty than other fully industrialized democracies
Poverty line: set at the annual cost of a thrifty food budget multiplied by three
2016, roughly $24,000 for a family of four
America’s poor are concentrated in certain groups
Children
More urban and rural residents than suburbanites
Minority-group members
Single-parent, female-headed families

17. Jump to long image description
Child Poverty Rates
Based on the government-defined poverty line, about one in five American children live in poverty. However, poverty is spread unevenly among the states.
Jump to long image description
Source: U.S. Census Bureau, 2016.

18. Public Assistance Programs (2)
Federal government’s role has since expanded
The Great Depression
Welfare programs initially opposed by Republican leaders
Most were meant to be temporary
Antipoverty programs of the 1960s
Food stamps
Subsidized housing
Medicaid
Affordable Care Act of 2010

19. Welfare Reform Act of 1996
The Welfare Reform Act of 1996 placed a five-year limit on welfare eligibility and requires able-bodied recipients to take job training and apply for work. The legislation has had a dramatic impact on the welfare rolls.
Source: U.S. Department of Health and Human Services,

20. Social Insurance Programs
Social insurance: eligibility restricted to individuals who pay special payroll taxes while working
Unemployment insurance
Social security
Medicare
Entitlement program: any individual who meets the eligibility criteria is entitled to the benefit
Social security and Medicare are entirely federal programs that are highly efficient

21. Education Politics and Policies
Nearly all Americans endorse the principle of equality of opportunity: that all people should have a reasonable chance to succeed if they make the effort
Americans do not start life on an equal footing
Equality of opportunity is the ideal driving public education

22. Education Performance
In the most recent Organization for Economic Cooperation and Development (OECD) assessment of student performance in reading, math, and science, the United States ranked 36 out of 65 countries, trailing nearly ever Asian and western European country.
Source: Organization for Economic Cooperation and Development, 2014.

23. The Federal Government’s Role in Education Policy
Education is mainly the responsibility of state and local governments; but since the 1960s the federal government has played a larger role
1965 Elementary and Secondary Education Act
Head Start
1965 Higher Education Act
Pell Grants
Federal student loans

24. Figure 16-6 Student Loan and Credit Card Debt
In recent decades, state and local governments have reduced their spending on public colleges and universities, which has shifted a larger share of the cost to students. Student loan debt in the United States now exceeds what Americans owe on their credit cards.
Source: Federal Reserve Bank of New York; figures are for

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Domestic Policy
Energy, Environmental Policy, and Climate Change Overview
Clean Air Act
Environmental Protection Agency
Energy sources
Clean Air Act:
Broad federal legislation that expanded the federal government’s ability to monitor and protect the environment against pollution.
Key Question
What is the federal government’s role in protecting the environment?
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26. History of Energy Consumption in the United States 1776-2012
Figure 16.5
Energy sources have evolved over the course of American history, starting with wood and coal and moving toward oil, natural gas, and nuclear energy. Figure 16.5 shows how U.S. energy use has changed over time.
Source: U.S. Energy Information Administration, “Energy Sources have changed throughout the history of the
United States,”
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27. Figure 16.6 Keystone Pipeline Map
© Cengage Learning, Source: Laris Karklis/The Washington Post.
-with-part-of-keystone-pipeline/2012/02/27/glQAvJftdR_story.html/; for the state of Nebraska,
+Keystone+pipeline+proposed+through+Nebraska/ /story.html.
Figure 16-6 p557

28. Copyright © 2016 Cengage Learning. All rights reserved.
Economic Policy
An Overview: Intervention in the Economy
Recession
Fiscal Policy
Taxing and spending
Monetary Policy
Federal Reserve Board
Key Question
How can the federal government intervene in the economy during periods of economic recession?
recession:
A period of time marked by successive quarters of lower economic output.
Federal Reserve Board:
Independent regulatory commission that affects the money supply by setting the reserve requirements of member banks, establishing a discount rate for loans to member banks, and buying or selling government securities.
Key Question
What roles do fiscal and monetary policy play in the economy?
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29. Government as Regulator of the Economy
Economy: a system of production and consumption of goods and services allocated through exchange
The Wealth of Nations (1776), Adam Smith
Advanced the doctrine of laissez-faire economics
Demand guiding supply: the “invisible hand”
Acknowledged that laissez-faire capitalism has limits
Need for regulation of banking, currency, and contracts
Today’s mixed economy

30. Efficiency through Government Intervention
Promoting competition:
Free market argument for economic efficiency
Markets are not always competitive
Price fixing, monopolies etc.
Federal Trade Commission and other agencies provide oversight
Deregulation and underregulation:
Regulation is intended to increase economic efficiency
Overregulation has been curbed with deregulation
Deregulation carried too far: the 2008 mortgage crisis
Dodd-Frank Wall Street Reform and Consumer Protection Act

31. The Subprime Mortgage Crisis
The subprime home mortgage crisis triggered the near collapse of the financial sector in Financial regulations had been reduced to allow banks to grant mortgages to a wider range of borrowers. By 2006, a third of mortgages were being given to people with weak or unconfirmed credit records. When the economy went into a severe downturn, banks found themselves in possession of millions of empty houses.

32. Equity through Government Intervention
Economic equity: a transaction fair to each party
Equity regulation has come in waves
First wave: the Progressive Era, early twentieth century
Sought to stop corrupt business practices
Food and Drug Administration founded, 1907
Second wave: New Deal, 1930s
Sought to restrict destructive business practices
Investor and organized labor protections; minimum wage
Third wave: 1960s and 1970s
Environmental and consumer protections; worker safety
Unsafe products: cigarettes; leaded paint and gasoline

33. Table 15-1 The Main Objectives of Regulatory Policy
Definition
Representative Actions by Government
Efficiency
Fulfillment of society’s needs with as few of its resources as possible. The greater the output for a given input, the greater the efficiency.
Preventing restraint of trade; requiring producers to pay the costs of environmental damage; regulating business only when justified on a cost–benefit basis.
Equity
Ensuring that the outcome of an economic transaction is fair to each party.
Requiring firms to treat workers and consumers fairly.

34. The Politics of Regulatory Policy
Progressive Era and New Deal regulatory agencies were charged with overseeing particular industries
Industry opposition diminished as regulated industries began to influence agency regulators in their favor
Most newer agencies were granted a broader mandate
Regulate an activity across a variety of industries
No single industry can easily influence their decisions

35. Environmental Protection
Environmental Protection Agency (EPA), 1970
Responsible for enforcing environmental law
EPA moved quickly to issue a wide range of regulations
Business criticism and a sluggish economy halted support for more regulation
Today’s emphasis is on enforcement of the laws put in place in the 1960s and 1970s
Regulation has led to dramatic improvements in air and water quality

36. Global Warming and Energy Policy
Global warming receives more attention today than any other environmental issue
Scientific consensus: greenhouse gas emissions are to blame; and the result will be water shortages, rising sea levels, and extreme heat waves
There is a lack of consensus among U.S. policymakers
Most policy efforts have been stymied
Some success: Energy Independence and Security Act
U.S. lags behind in greenhouse gas reduction efforts
No single nation can solve the problem on their own

37. Figure 15-1 Average Temperature of the Earth’s Surface
The average surface temperature of the earth has risen substantially in the past century and has done so at an accelerating pace in the past three decades.
Source: National Weather Service, Great Britain, 2014.

38. Carbon-Fuel Emissions and Global Warming
Data from the European Commission indicate the five leading sources of carbon-fuel emissions account for two-thirds of the world’s total.

39. Government as Promoter of Economic Interests
United States has a long history of promoting its economic interests
Tariff on goods brought into the U.S. on foreign ships, 1789
Importers switched to a greater reliance on American ships
Support continues today for a variety of interests

40. Figure 15-4 Increase in National Debt under Recent Presidents
The national debt, which is the total cumulative amount the federal government owes to its creditors, jumped under Presidents Bush and Obama, owing to overly steep tax cuts, wars in the Middle East, and the severe economic downturn that began in The debt burden could limit future administrations’ ability to apply a supply-side or demand-side stimulus in response to a recession.
Source: Federal Reserve.

41. Federal Taxes and Benefits: Winners and Losers
Fiscal policy varies in its effect on the states, as data from the Tax Foundation indicate. This map categorizes the tax-to-spend ratio of each state—that is, the amount of taxes paid compared to the amount taxpayers get back in federal spending in their state.
Jump to long image description

42. Table 15-2 Monetary Policy: A Summary of the Fed’s Policy Tools
Description
Reserve Rate
Amount of their assets that member banks must keep on hand. The rate can be lowered to increase the money supply or raised to decrease it.
Interest Rate
Interest rate charged to member banks when they borrow from the Fed. The rate can be lowered to increase the money supply or raised to decrease it.
Buying of Securities
By buying securities, the Fed gives money to the seller, which increases the money supply. By selling securities, the Fed receives money from the buyer, which decreases the money supply.

43. The Fed and Control of Inflation
Inflation: increases in the average level of prices of goods and services while wages stagnate
Impact of inflation rate of 13 percent in 1979 was substantial
To fight inflation, the Fed reduces the currency in circulation
Increasing the interest rate on loans to member banks
Raising the reserve rate
Selling government securities (bonds, notes, etc.)

44. Comparison of Fiscal and Monetary Policy
Table 16.2
Actions by Congress and the president affect fiscal policy, while actions by the Federal Reserve Board affect monetary policy. © Cengage Learning
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45. Figure 16.9 U.S. National Debt, 1980–2014
Source: The White House, Office of Management and Budget, Table 7.1, Federal Debt at the End of Year: 1940–2019, U.S. Budget for FY 2015,
Figure 16-9 p563