POLICY MAKING

1. POLICY MAKING Economic, Social, Foreign

2. Goals of Economic Policy • Full Employment • People who work are paying taxes • Not dependent on the govt. for support • Council of Economic Advisors provides economic info. and advice to President • Today, govt. tries to create as many jobs as possible • Full employment means unemployment is around 5-5.5%

3. Goals of Economic Policy • Stable Prices • Inflation…rising prices…is a problem • Usually runs3-4% • 1979-1980=12-14% • Double digit inflation=serious effects on economy • People see erosion of their purchasing power (prices go up, wages do not) • High inflation penalizes savers and rewards debtors • Savings interest rates may be outstripped by inflation • Savings=less over time but repaying debt with cheaper dollars in the future • Long-term econ, planning by businesses becomes more difficult • ‘78-’79, long-term interest rates hit 18% vs. typical 6-8%=recession

4. Stable Prices cont. • High unempl. and inflation brought new econ. terms • Stagflation • Stagnant economy w/inflation • Misery Index • Sum of inflation rate and unempl. rate • Nixon announced 90 day wage in 1971 • After reelection-wage and price controls • Abandoned in 1974-interfering with market forces and not working • Dems tend to be more concerned re: employment (labor unions/blue-collar workers) • Reps tend to be more concerned re: inflation (Wall Street and investors-inflation erodes income)

5. Promote Free Market Growth • Capitalism=economic decisions made by individuals and firms for mutual benefit • Govt. GENERALLY stays out of market except to regulate surplus and for public interest (pollution) • Economic growth is central goal • Growing econ.=better standard of living for each generation • Ensures property rights-also includes intellectual property (people were invest their own $ and time to research, create, etc.) • SEC provides oversight • FDIC provides secure banking system

6. Promote Free Market Growth cont. • Govt. supports economic infrastructure • Subsidizes transportation and regulates telecomm. • Built interstate highways in ‘50 and 60s • Boosted job/economic expansion • Supports research in science and medicine through National Science Foundation and National Institutes of Health • Gross Domestic Product (GDP) • Measure of overall output and activity of the country

7. Balanced Budgets. • Deficits in budget=concern • Diminish spending because $ goes ti finance federal debt • Went to people who own federal bonds and securities • Did not buy a single soldier’s uniform or improve a school or highway or student loan • Debt is burden on future generations • Public borrowing “crowds out” private borrowing-finite pool of $$$$s that people willing to invest • Money goes to pay the debt, not for private borrowing that could be creating jobs

8. Key Players on Economic Policy Making • “Power of the Purse”=power over taxing and spending • Committees directly related to econ. Policy • Budget • Appropriations • Tax • House Ways and Means • Senate Finance • Banking committees oversee nation’s monetary policy • Control money and interest rates (domain of the Fed. Reserve Board)

9. Budget Making • Congress used to have control over budget until Nixon stepped on toes by exerting unprecedented power over budget (in addition to price and wage controls) • Nixon impounded appropriated money • Refused to spend money on Congressionally authorized • Congress passed Budget and impoundment Control Act of 1974 programs • Unless Congress passed a bill agreeing w/ President’s impoundment w/in 45 days, impoundment was cancelled • Restored institutional balance btwn Congress and the President on budget by creating budget committees in the House and Senate • Budget reconciliation forces committees to meet specific spending targets • All changes are combined into a huge reconciliation bill

10. The President • Has several advisors • Office of Management and Budget (OMB) • Solicits spending requests from all federal agencies • Responsible for putting together the Pres. Budget • Which is then submitted to Congress • Oversees reorg. Plans and recommends improvements in depts. • Council of Economic Advisors (CEA) • Provides Pres w/objective data on state of economy and provides expert advice on econ. policy • National Economic Council (NEC) • Coordinates policy by bringing together Cabinet secretaries who work on economic issues • Treasury Sec’y • Budget director • Commerce Sec’y • CEA • Labor chairman

11. The Bureaucracy • Federal Reserve • Independent Agency • Est. 1913 to bring stability to nation’s banking • Est. monetary policy for nation…interest rates, regulating lending activity • 12 regional Fed. Reserve Banks • Goal-stable econ with slow, steady growth • Can make their own $$$ • Treasury • Cabinet Dept. • Manages fed. finances • Collects taxes and pays fed. Bills • Produces currency and coin

12. 2008 • Collapse of housing mkt., tight-credit and problems stemming form sub-prime (high risk) putting pressure on economy • Fed. Govt. took over Federal National Mortgage Agency (Fannie Mae) and Federal Home Mortgage Corp. (Freddie Mac)-fund most of the home mortgages • Investment banks Lehman Bros. and Merrill Lynch unstable b/c of sub-prime and high debt • Washington Mutual Bank failed • Fed bailout of $700 billion

13. The Courts • Contract and patent law • Banking and finance law • Property rights

14. Economic Policy • Fiscal Policy • Use of govt’s taxing and spending power to influence direction of the economy • Keynesian economics • Govt. should use economic policy, like tax and spend, to maintain stability in the market • Tax cuts put $$$$s in people’s pockets=increase in spending • Govt. spending stimulates the economy b/c it purchases goods-military equipment, etc.

15. Economic Policy • Supply-side Economics • Reagan tax cuts in 1981 • Ways that tax policy and regulations affect labor supply • Focus was on how tax rates affect how people work rather than how they spend • Lower tax rates will stimulate the economy by encouraging people to invest, save and produce more goods and services

16. Social Policy • Social safety net=policies to help poor and disadvantaged • Income support-unemployment compensation, retirement support, worker training, housing, health care, education and food and nutrition (Katrina) • Federalism can undermine social policy (Katrina) • Who should respond-LA, MS or feds?

17. Key Players in Social Policy Making • Congress and the President • 14 of 2o years of Dem. Presidents, Dems also controlled Congress (1960-2006) • 4 of 27 years, Reps. enjoyed unified govt. (1960-2006) • Times when Pres. takes lead-FDR New Deal, LBJ Great Society • Times when Congress takes lead-welfare reform in 1996 • Must work together to find common ground

18. The Bureaucracy • Agencies carry out policy • Social Security Administration • Can analyze and solve problems, create new programs and plan and administer programs efficiently

19. The States • Welfare administered at state and local level w/ varying degrees of national control • Medicaid and education almost completely controlled by states • Education policy has been leaning toward more fed. involvement

20. Interest Groups • Not as strong as groups in other areas, such as business, labor and NRA • Exception is AARP • One of most powerful lobbies in US • Voice on behalf of Soc. Sec. and Medicare

21. Social Policy • Social Security=third rail of politics • Any politician who touches it risks political death • Popularity • Universal quality-nearly everyone who works gets it • Cuts across class lines=Bill Gates and McDonald’s burger flipper collect • It works • Accomplished central goal of helping most American have adequate income after retirement • Nearly half of elderly would live in poverty today w/o Soc. Sec.

22. Issues with Social Security • Baby Boomers born btwn. 1946 and 1964 retiring • Btwn. 2000-2030, # of people over 65 will more than double • # under 65 will grow by 18%= fewer workers to support retirees • Soc. Sec. is a pay as you go system • People living longer and retiring later (used to mandatory 65)

23. Social Policy • Social Security=third rail of politics • Any politician who touches it risks political death • Popularity • Universal quality-nearly everyone who works gets it • Cuts across class lines=Bill Gates and McDonald’s burger flipper collect • It works • Accomplished central goal of helping most American have adequate income after retirement • Nearly half of elderly would live in poverty today w/o Soc. Sec.

24. Social Policy • Social Security=third rail of politics • Any politician who touches it risks political death • Popularity • Universal quality-nearly everyone who works gets it • Cuts across class lines=Bill Gates and McDonald’s burger flipper collect • It works • Accomplished central goal of helping most American have adequate income after retirement • Nearly half of elderly would live in poverty today w/o Soc. Sec.