Chapter 17 Economic Policymaking€¦ · Copyright © 2009 Pearson Education, Inc. Publishing as...

Chapter 17Economic Policymaking

Government in America: People, Politics, and PolicyUpdated with 15

thEdition

Edwards/Wattenberg/Lineberry

Copyright © 2009 Pearson Education, Inc. Publishing as Longman.

Voters, Politicians and the Economy

Economic conditions are the best single predictor of how voters perceive the president is doing his job (pocketbook voting)Economy in 2008 was a major factor in Obama taking office (“It’s the Economy, Stupid”)Democrats stress keeping unemployment low (who are their constituents?)Republicans worry about inflation (who are their constituents?)


Unemployment (*)¡Unemployment Rate: • measured by the Bureau of Labor Statistics (BLS)• defined as the proportion of the labor force actively

seeking work, but unable to find jobs.

¡Bad economy = social problems (higher suicide and homicide rates, drug and alcohol related deaths, depression, etc.)

¡Unemployment impacts minorities 2-3 times more than whites, young more than middle aged

¡BLS now also releases an UNDERemployment rate


Inflation (*)– Inflation: the rise in prices for consumer goods– Consumer Price Index: the key measure of inflation. Goal is

to reflect changes over time in the amount consumers need to spend to maintain a certain standard of living. How is CPI measured?

– Three major time periods of inflation:• 1973 and 1974 – OPEC cut oil supplies because of US

support of Israel during war with Egypt and Syria• 1979 - Iranian revolution – oil supply cut from Middle

East• 1991 – Iraq invaded Kuwait, people worried that oil

supplies would be affected– People on fixed incomes are hit particularly hard by inflation


Government, Politics, and the Economy

What do you think this graph would look like if it were extended out to today?


Government, Politics, and the Economy

What has happened to the cost of consumer goods recently? Do you notice any changes?


Instruments for Controlling the Economy (*)

- The government has great impact on the economy but it is limited by a commitment to the free enterprise system

Historically –1929 Stock Market Crash – Hoover, Laissez faire policiesNew Deal – federal policies aimed at putting the US economy back on trackGovernment has been very active in steering the economy since the Great Depression and the New DealUS Government has 2 tools to help guide the economy– Monetary policy– Fiscal policy


Policies for Controlling the Economy (*)

Monetary Policy and “the Fed”– The head of the Federal Reserve Board is Janet Yellen.

She has more power over the US economy than even the president

– Monetary Policy: the manipulation of the supply of money and credit in private hands; controlled by “the Fed”

– Monetarism – economic theory that holds that the supply of money is the key to the country’s economic health

– Too much cash and credit produces inflation, too little and we see credit tighten and unemployment rise

– The money supply affects the interest rates we pay for houses, cars, businesses, etc.


The Federal Reserve System (*)– 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 supply• They are beyond the control of the President

and the Congress• Seven member board appointed by the

President, for 14 year terms. From the board members, a chairman is chosen. Current chairperson of the Fed is Janet Yellen.



Monetary Policy and “the Fed” (continued)– The Fed’s instruments to influence the supply of

money in circulation:• Sets the discount rate (rate at which banks borrow

money from the Fed)• Sets reserve requirements (how much money

banks have to have on reserve at all times)• Buys and sells government bonds

– Through the use of these actions, the Fed can affect the economy.



Pearson Education, Inc., Longman © 2008

Fiscal Policy of Presidents and Parties– Fiscal Policy: the policy that describes the impact of

the federal budget on the economy (How much is the government taxing, borrowing and spending?)

– Fiscal policy is controlled by the President and the Congress

– There are 2 different schools of thought:• Keynesian Economic Theory: government

spending helps the economy weather its normal ups and downs, creation of federal jobs programs, etc may be necessary

• Supply-side economics: tax cuts will stimulate the supply


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. Favored by Republicans (Reagan, Bush, etc.)

– Reduce taxation and government regulation then people will work harder, and thus create a greater supply of goods

– Also called “trickle down economic theory”


Politics, Politics, and the Internat’l 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.– But short-term pain equals long-term gain


Arenas of Economic Policymaking


Business and Public Policy (continued)– Regulating and Benefiting Business

• New wave of regulation– Congress passed law in 2002 that toughened

penalties for stock fraud– Creation of Accounting Oversight Board to

regulate accounting industry• Businesses benefit from regulation, too

– Copyrights and patents– Government may loan businesses money.– Government collects data that business use.




Consumer Policy: The Rise of the Consumer Lobby– Consumers historically have had little government

protection.– Food and Drug Administration (FDA): created in

1913; regulates the manufacturing, contents, marketing, and labeling of food and drugs

– “Consumerism” – Ralph Nader, 1960s– Federal Trade Commission (FTC): responsible for

regulating false and misleading trade practices, which now includes consumer lending practices




Labor and Government– Government historically sided with business over labor

unions.– National Labor Relations Board (NLRB): regulates

labor-management relations; created in 1935 by the Wagner Act, guarantees workers the right of collective bargaining

– The Taft-Hartley Act (1947) continued to guarantee unions the right of collective bargaining, but prohibited various unfair practices by unions.

• President can halt major strikes through court injunction

• States are permitted to pass “right to work” laws– Two notable successes gained by unions are that the

government now provides unemployment compensation and a minimum wage.


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 while conservatives

favor less government involvement in the economy.


Summary


Political and economic sectors are closely intermingled.Voters expect a lot from politicians, more than they can deliver on the economyTwo major instruments available to government for managing the economy—monetary and fiscal policies


Social Welfare Policymaking

Chapter 18

Edwards, Wattenberg, and LineberryGovernment in America: People, Politics, and Policy

Brief Tenth Edition


What Is Social Policy and Why Is It So Controversial? (*)

Social welfare policies provide benefits to individuals, through:– 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


Income, Poverty, and Public Policy (*)

Who’s Getting What?– Income distribution: the “shares” of

the national income earned by various groups

– Income: amount of funds collected between any two points in time

– Wealth: value of assets already owned– One-third of America’s wealth is held

by one percent of the population.


Income, Poverty, and Public Policy


Income, Poverty, andPublic Policy (*)

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

for an “austere” standard of living– In 2014 the poverty line for a family of 3 is $19,790;

family of four is $23,850; family of five $27,910.– More than 46 million Americans—about 13

percent—are poor in 2014. About 20% of America’s children are poor.

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

– Feminization of poverty: high rates of poverty among unmarried women


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: burden falls relatively more heavily on low-income groups—opposite of a progressive tax

• Earned Income Tax Credit: “negative income tax” that provided income to very poor people in lieu of charging them income tax


Helping the Poor? Social Policy and Poverty


Helping the Poor? Social Policy and Poverty (*)

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? Social Policy and Poverty

Welfare “as We Knew it”– 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? Social Policy and Poverty (*)

Ending “Welfare as We Know 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


Immigration and Social PolicyImmigration Policy and Politics– Immigration has had little support

throughout American history– Illegal immigration is a new issue, as the

distinction between legal and illegal immigration did not exist for the century of American history.

– Illegal immigration has been a major—though difficult—issue in presidential politics.


Immigration and Social Policy

Washington . . . – No general immigration policy until the 20th

Century.• Congress banned Chinese immigration in 1882.

– 1924: Quota system favors northwestern Europeans and discriminates against others (including eastern Europe).

– Immigration from Latin America climbs after World War II.


Immigration and Social Policy (*)

Simpson-Mazzoli Act (1986)– Path to citizenship (“amnesty”) for existing

illegal immigrants.• 3 million immigrants become citizens.

– Employers forbidden from hiring illegal immigrants but they cannot challenge documentation.

– Despite several proposals, no major policy changes since.


Immigration and Social Policy

. . . and the States– States are hardest hit by the costs of illegal

immigration– Proposition 187 (CA) cut off public services

to illegal immigrants; mostly found unconstitutional

– Some states punish employers by taking away business licenses

– Many battles over college tuition breaks


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 “bank account” into which Social Security contributions are “deposited” and used to pay out eligible recipients.

• The Trust Fund will soon be in the red as the ratio of workers to beneficiaries is narrowing.


Living on Borrowed Time: Social Security (*)

The Future of Social Security– The problem: number of Social Security

contributors (workers) is growing slowly, while number of recipients (retired) is growing rapidly

– At some time—currently 2038—payouts will exceed income.

– Solutions of cutting benefits or raising taxes are hard choices.


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


National Security PolicymakingChapter 20

Edwards, Wattenberg, and LineberryGovernment in America: People, Politics, and Policy

Fourteenth Edition


Instruments, Actors, and Policymakers (*)

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


Actors on the World Stage– International Organizations

• United Nations (UN): created in 1945; an organization whose members agree to renounce war and respect certain human and economic freedoms

– 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



Actors on the World Stage– Multinational Corporations– Nongovernmental Organizations—groups

such as Greenpeace or Amnesty International

– Individuals

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—formed after WWII to advise the president and gather intelligence

– Congress



American Foreign Policy:An Overview


American Foreign Policy:An Overview (*)

Isolationism:– Foreign policy where the U.S. tries to stay

out of other nation’s conflicts, particularly in Europe

Monroe Doctrine:– U.S. official statement of isolationismWorld War I (1914-1918):– Basically ended the policy of isolationism



The Cold War– Containment Abroad and Anti-Communism at

Home• Containment doctrine: foreign policy strategy that called

for the United States to isolate the Soviet Union, contain its advances, and resist its encroachments by peace or force

• McCarthyism: the fear, prevalent in the 1950s, that international communism was conspiratorial, insidious, bent on world domination, and infiltrating American government and cultural institutions—named after Senator Joseph McCarthy

– The Swelling of the Pentagon• Arms race: competition between U.S. and U.S.S.R. that led

to increased procurement of military weapons– The Vietnam War



The Era of Détente– Détente: a slow transformation from conflict

to cooperation designed to relax tensions between the superpowers• Originally applied to the Soviet Union, and then

to China– Strategic Arms Limitations Talks: effort to

limit the growth of nuclear arms; a product of détente



The Reagan Rearmament– Defense budget had been declining since the

mid-1950’s (with exception of Vietnam War)– 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”


American Foreign Policy:An 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.


The War on Terrorism (*)

War on Terrorism – Highest priority of George W. Bush

administration after 9/11Bush supported preemptive strikes against terrorists and hostile states.– “Axis of evil”International relations has entered an era of improvisation.


The War on Terrorism (*)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.


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.– Trend in reductions reversed after 911


The Politics of Defense Policy


The Politics of Defense Policy (*)Personnel– 1.4 million active and reserve troops– More reliance on National Guard and reserve

troops due to cuts in defense spendingWeapons– 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

prevalentReforming Defense Policy


The Politics of Defense Policy


The New Global AgendaThe 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


The New Global Agenda

Nuclear Proliferation– Only a few countries have known nuclear

weapon capabilities.– Fear that other “rogue” countries will have

nuclear weapons capabilities and use them against their neighbors or the U.S.

– The U.S. will focus on discouraging the deployment of developed nuclear weapons.


The 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


The New Global Agenda (*)The International Economy– Energy

• America depends on imported oil, about 60 percent, but not as much as other countries like Japan.

• Much of the recoverable oil is in the Middle East which is often the site of military and economic conflicts.

• Organization of Petroleum Exporting Countries (OPEC): controls the price of oil and amount its members produce and sell to other nations


The New Global Agenda (*)

The International Economy– 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 and is typically cut by Congress.


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.– Separation of powers are important.– Pluralism is pervasive in foreign policymaking.

National Security Policy and the Scope of Government– Scope of government is large


Summary

The United States has maintained a sizeable defense capability, from the Cold War to the War on Terrorism.Nuclear proliferation, terrorism, and international economy dictate U.S. foreign policy and international involvement.

Chapter 17 Economic Policymaking€¦ · Copyright © 2009 Pearson Education, Inc. Publishing as...

Documents

Transcript of Chapter 17 Economic Policymaking€¦ · Copyright © 2009 Pearson Education, Inc. Publishing as...