Public Policy
0 Results from battles among citizens, groups, and
public officials
0 Determines who gets what, where, and how
0 Shapes future outcomes
0 Creates arrangements that confer advantages to some
political actors and disadvantages to others
0 Occurs in context of tension between capitalism and
democracy
0 Policies debated openly and determined within democratic
institutions
0 Outcomes responsive (at least in part) to public opinion and
what mobilized groups demand
0 Democratic features of policy making constrained and
distorted by
0 Advantages capitalism confers
0 Patterns of inequality
0 Uneven access to political institutions
Economic Policy
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 Size of government 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 and fewer public services
Small public sector employment
0 Government lacks power to manage economy and significantly
influence behavior of private firms
0 Corporate managers enjoy greater autonomy
0 Firms subject to fewer government regulations
0 Modes and institutional constraints: Fiscal (budget) and
monetary policy (interest rates)
0 Fiscal policy divided between Congress and President
0 Monetary policy controlled by “independent” Federal Reserve Board
(FED)
Fiscal Policy
0 Manipulates total amount of government revenue and
spending to manage overall demand
0 Budget deficits stimulate economy (unemployment)
0 Budget surpluses restrain economy (inflation)
0 Budget more than fiscal tool – establishes priorities
and 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 Highly contentious – level, types, shares
0 Receipts rose from 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 (rich pay larger proportion of income) or Regressive
(tax rates same regardless of income)?
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; not as visible; less likely to arouse conflict
0 “subterranean politics” results in very complex tax code
Spending
0 Groups struggle over how much should be spent; what it should
be spent on
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, cost of money
0 High rates slow economy; low rates encourage borrowing, spending
0 Differential impact on groups
0 Controlled by Federal Reserve Board (FED)
0 Determines 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 (independence 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)
0 Changes under Bernanke (took over from Greenspan, 2008)
0 Support for regulation of financial sector; FED lender of last resort
0 Purchases and guarantees (over $5 trillion) dwarfs bailout money
0 More active, more regulatory oversight, more investments (make it more
target of lobbying, jeopardizes independence)
0 Remains very cozy with financial sector (What’s good for Wall Street is
good for America)
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 because markets are not self-regulating, will not
protect public interest and social values
0 Progressive and New Deal Eras (first wave) popular pressure prompted government to
create economic regulation for specific industries (prices, standards, competition,
licenses)
0 Interstate Commerce Commission (1887) – regulate railroad rates and routes
0 Federal Trade Commission (1914) – protect consumers from unfair business practices
0 Food and Drug Administration (1931) – protect consumers from tainted foods, harmful
drugs
0 Securities and Exchange Commission (1934) – protect investors from fraud
0 Agencies often captured by industry; “revolving door”; serve interests of industry
rather than public
0 Second wave (1960s) demanded social regulation, across industries
(antidiscrimination, environmental regulations, workplace safety)
0 Civil rights agencies – protect against discrimination
0 Environmental Protection Agency (1970) – develop/enforce environmental standards
0 Occupational Safety and Health Administration (1970) – establish/monitor workplace
safety and health standards
0 Consumer Products Safety Commission (1972) – ensure product safety
0 Prompted counteroffensive by business community calling for “regulatory reform”
0 Ongoing conflict over standards, enforcement, and industry capture