Unit 6 Final Review Public Policymaking

What is public policy? Laws and acts of the government that seek to – Fix social problems (high crime rates, unemployment) – Counter threats (terrorism) – Pursue an objective (build a highway; cure cancer) Examples of policy – Giving tax deductions for charitable contributions – Granting copyrights and patents – Student loans, building hospitals, …

Making Policy Involves: Defining the role of government in solving social and economic problems Agenda setting: redefines social and economic problems in political terms Policy formulation and adoption can be through Congress passing laws, the P making an executive order; Supreme Court and bureaucracy can also Policy implementation puts policy into effect Policy evaluation evaluates if the policy works

Obstacles to Policy Making Many factors lead to policy fragmentation— where many pieces of legislation deal with parts of policy problems but not the entire problem Pluralism / competing interests water down policy Federalism creates many layers of policies Separation of powers creates three policymaking centers

Economic Policy: Theory -Mixed economies both government and private industry play a role in the free market; the government helps during times of downturns – Laissez-faire economists believe that the gov’t should never become involved in economic issues – Keynesian economists believe the gov’t can smooth out business cycles through fiscal and monetary policy; gov’t spending is key – Supply-side economists believe tax cuts allows citizens to stimulate the economy through their own spending

Fiscal Policy Refers to the government either lowering or raising taxes, which results in more or less consumer spending and/or government spending Congress and the President set fiscal policy Revenues (taxes) and expenditures (spending)

Fiscal Policy Supply-Side – 1980’s Reagan championed the idea that government should cut taxes and spending on domestic programs to stimulate greater production in downturns – Believe Keynesian policy can lead to inflation Keynesians – Believe government should spend during economic downturns to stimulate the economy; – They are less worried about deficit spending – Tax surpluses should be saved to spend in leaner times

Monetary Policy Is the process by which the government controls the supply of money in circulation and supply of credit The Federal Reserve Board (The Fed) sets the government’s policy here – Fed increases money in circulation by lowering interest rates which make borrowing less expensive; can cause inflation – Fed decreases money in circulation by raising interest rates; is deflationary and results in lower prices and wages The Fed operates fairly independently

Monetary Policy The Fed can implement monetary policy in three ways – By manipulating the reserve requirement which raises or lowers the amount of money banks are required to keep on hand – By manipulating the discount rate, which raises or lowers the interest banks pay to the Fed for borrowing money – By manipulating open market operations, as the Fed buys and sells US Government bonds

Budget Process Office of Management and Budget (OMB) – Responsible for initiating the budget process – Works with the President to write the budget and submit to Congress House Ways and Means Committee Deals with taxing aspects of budget Authorization committees in both houses decide what programs Congress wants to fund Appropriations Committees in both houses then decide how much money to spend for programs

Budget Process Is complicated and politically divisive Budget Reform Act, 1974 which created the Office of Mgmt and Budget and the Congressional Budget Office 1990 Budget Enforcement Act categorized expenditures as either – Mandatory (required i.e. entitlements like social security, payment on debt) or – Discretionary (education, highways, gov’t operations)

Trade Policy Balance of Trade: ratio of imports to exports Trade deficits occur when imports exceed exports General Agreement on Tariffs and Trade (GATT), was an effort to promote trade (now is WTO) NAFTA, 1994 removed import tariffs between US, Canada and Mexico

Domestic Policy What is the purpose of government? Liberals believe government has an obligation to provide for social welfare, to help the needy Conservatives believe social-welfare programs are encroachments on individual liberties and responsibilities and can create a permanent class of underprivileged

Social Security An entitlement mandated by law Government must pay benefits to all who meet requirements Changing the law would require Congressional action Covers those over 65, the permanently disabled, Medicare (health care for elderly) and Medicaid (medical for low income) Entitlements account for the largest expense in the federal budget

Social Welfare Two types Social insurance programs require employers and employees to pay taxes into an insurance program (entitlement) Public assistance programs are not perceived as earned and are based on need (means tested) Welfare Reform Act, 1996: social welfare programs are funded by both state and feds (thru block grants); much discretion was left to state as to how to spend the money and set requirements

Health Care Policy Americans pay 17% of our GDP on healthcare US has most expensive health care system Is the only industrialized country without national healthcare program (until now?) Most get insurance through jobs Government still pays more for insurance than any other entity in US (about 50%)

Environmental Policy Endangered Species Act Lists species and sets aside land to protect habitat Clean Air Act and Clean Water Act establish pollution targets and monitors industries Environmental Protection Agency enforces most environmental laws and regulates industry