Public Policy
0 Economic, Social, Foreign
0 Outcome of struggle among citizens, groups, public
officials
0 who gets what, where, and how
0 Creates winners and losers; advantages to some,
disadvantages to others
0 Capitalism and democracy
0 Policies debated openly, determined within democratic
institutions
0 Outcomes responsive (at least in part) to public opinion, what
mobilized groups demand
0 Democratic features constrained, distorted by
0 Advantages capitalism confers
0 Patterns of inequality
0 Uneven access to political institutions
Economic Policy
0 Fiscal, Monetary, and Regulatory
0 Gross Domestic Product (GDP) = total goods and
services produced
0 Government has grown since 1950s (Table 9.1)
0 increasing activities of government (social welfare and
defense)
0 Small in comparison
0
0
0
0
Tax burden light: lower % of GDP in form of taxes (Figure 9.1)
Spends less as % of GDP (Figure 9.2)
Leaner benefits, fewer public services
Small public sector employment
0 Government lacks power to manage economy,
significantly influence behavior of private firms
0 Corporate managers enjoy greater autonomy
0 Firms subject to fewer government regulations
Fiscal Policy
0 Manipulation of total government revenue and
spending to manage overall demand
0 Budget deficits stimulate economy (unemployment)
0 Budget surpluses restrain economy (inflation)
0 Budget also establishes priorities, values of
government
0 Determines winners and losers; distributes costs and
benefits
0 Reveals relationships of power
0 Budget process involves partisan, institutional, and
interest group conflict
0 Starts with President and goes to Congress (budget
committees)
0 Appropriations bills emerge and are sent to President
Taxes
0 Receipts rose (1983-2000, 20% GDP)
0 Bush’s tax cuts reversed trend (16.5% by 2003)
0 Decline in revenue, rising federal deficits  debt payments strain
government’s ability to provide services
0 Federal government (Table 9.2)
0 Corporate income taxes declined (loopholes, credits, accounting
gimmicks, shelters); supposed to be 35% (not 20%)
0 Excise taxes (alcohol, cigarettes, gas) down
0 Social Security payroll taxes up
0 Progressive or Regressive?
0 Regressive (Figure 9.3): tax burden roughly same for all income
groups
0 Incentives through exemptions, rebates, deductions (mortgage
interest; depreciation for equipment; IRAs)
0 Tax expenditures = public subsidies through favored tax
treatment; “subterranean politics”  complex tax code
Spending
0 Groups struggle over how much should be spent and on what
0 Government expenditures have increased (1950, 15.6% of
GDP; 2008, 21%)
0 Government does more (Social Security; Medicare/Medicaid;
EPA; other functions)
0 Federal outlays for defense and welfare (Table 9.3)
0 Welfare state expenses account for 63.6% of all spending (2008)
0 Welfare and warfare account for 93% of all outlays
0 All other tasks get remaining 7%
0 2/3 of all government spending mandatory (debt, entitlement
programs (e.g., Social Security, food stamps, Medicare))
0 1/3 discretionary spending (jurisdiction of Appropriations
Committees)
0 Largest is defense (1/2 of all discretionary spending)
Monetary Policy
0 Manipulation of interest rates
0 High rates slow economy; low rates encourage borrowing,
spending
0 Controlled by Federal Reserve Board (FED)
0 Interest rate banks pay to borrow money (low rates increase
money supply)
0 Buys and sells government bonds (puts more money into
circulation)
0 Sets reserve rate banks must hold on deposits (higher rates
decrease money supply)
0 FED (created in 1913) substantial autonomy (independent
from Congress and President) insulates monetary policy
from democratic control
0 Subject to capture by banks  representatives in
policymaking bodies; mobilization of bias (what is good for
banks is good for economy)
Regulation
0 Authorized by Congress, bureaucracy sets rules firms must follow
0 U.S. has comparatively low level of government regulation
0 Government regulation necessary  markets not self-regulating;
will not protect public interest and social values
0 Progressive and New Deal Eras (first wave) popular pressure 
regulation for specific industries
0 Interstate Commerce Commission (1887); Federal Trade Commission
(1914); Food and Drug Administration (1931); Securities and Exchange
Commission (1934)
0 Second wave (1960s)  social regulation across industries
0 Civil rights agencies; Environmental Protection Agency (1970);
Occupational Safety and Health Administration (1970); Consumer
Products Safety Commission (1972)
0 Business counteroffensive calling for “regulatory reform” (1970s)
0 Ongoing conflict over standards, enforcement, and industry capture