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Economic and Domestic Policy. Should the Government Be Involved And, If So, How Much?. Beliefs about the proper level of government involvement depend on beliefs about how the economy works Three key theories Laissez-faire capitalism Keynesianism Monetarism. Laissez-faire Capitalism.

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Economic and Domestic Policy

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Economic and domestic policy l.jpg

Economic and Domestic Policy


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Should the Government Be Involved And, If So, How Much?

  • Beliefs about the proper level of government involvement depend on beliefs about how the economy works

  • Three key theories

    • Laissez-faire capitalism

    • Keynesianism

    • Monetarism


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Laissez-faire Capitalism

  • Based on Adam Smith’s “invisible hand”

  • Market will work, just leave it alone

  • Advocates minimal government involvement

  • Focus is on overall productivity, not inequalities

  • Was popular pre-Great Depression

  • Regaining popularity since 1970s


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Keynesianism

  • Based on work of John Maynard Keynes

  • Gross inequalities in wealth reduce demand for goods and hurt economy

  • Govt.: make sure middle class and working poor have money to spend

    • Cut income taxes to middle class and poor

    • Create jobs through public employment


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Monetarism

  • Key player: Milton Friedman

  • Government cannot act quickly enough to “fine-tune” economy

  • Instead, should focus on stability in economy by controlling the money supply to banks

  • Became popular in late 1970s

  • Practically, emphasis is on controlling interest rates

  • Gives the Chair of the Federal Reserve enormous power


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Ben Bernanke – Chair of the Federal Reserve Chair


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Comparison of the “Big Three”


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What Policies Can Govt. Use to Control Economy?

  • Monetary policies

  • Fiscal policies

  • Regulation

  • Subsidies and Contracting


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Monetary Policies

  • Set interest rates

  • Control banking regulations (affects how much money banks have to “play with” and lend to consumers)


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Fiscal Policies

  • Tax

    • Tax rates determine how much money government has and, conversely, how much money consumers have to spend

    • Progressive v. Regressive tax schemes

    • Progressive taxes help redistribute wealth

  • Spend

    • Can create jobs

    • Affect overall health of economy


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Regulation

  • Break up monopolies (antitrust policy)

  • Set minimum wages and work hour limits

  • Child labor laws

  • Safety and health requirements


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Subsidies and Contracting

  • Get people to do things they wouldn’t otherwise do by offering benefits for the behavior

  • Subsidies

    • Examples: NSF grants, crop subsidies, land grants to “settlers” in 1800s

  • Contracts

    • Examples: providing contracts to new industries to help them develop, requiring firms who contract w/ govt. to engage in fair employment practices


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Social Welfare Policy

Income Support


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Types of Social Welfare Programs

  • Contributory (Social Insurance)

  • Noncontributory (Public Assistance)

  • Tax Expenditures


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Contributory Programs

  • Financed by taxes or contributions from current or future recipients

  • Not necessarily “pure” insurance programs

  • Examples:

    • Social security (old age and survivor benefits)

    • Medicare insurance

    • Unemployment compensation insurance


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Social Security: Keynesian Economic Policy in Action

  • Original plan, the “Townsend Plan”


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Social Security: Keynesian Economic Policy in Action

  • Original plan, the “Townsend Plan”

  • How is this Keynesian?

    • Puts money in the pockets of the poor, makes them spend it  creates demand for goods

    • Elderly (over 60) get the money for NOT working more jobs for young people


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Public Assistance Programs

  • Eligibility based on need rather than contributions (“means test”)

  • May involve cash payments or “in kind benefits”

  • Examples:

    • Medicaid

    • Food stamps

    • Supplemental security income

    • HUD housing programs

    • Temporary Assistance to Needy Families (formerly Aid to Families with Dependent Children)


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TANF: Example of the Policy Process

  • Agenda Setting

    • Clinton scores in 1992 – “end welfare as we know it”

    • 1994 Republican “Contract with America”

  • Policy Deliberation

    • Interest groups, Congress, economists, and media debated alternatives

    • Polls consistently showed support for “reform”


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TANF: Example of the Policy Process

  • Policy Enactment: AFDC  TANF

    • Shifted control over program from federal to state governments

    • Created work requirements for recipients

    • Limited benefit eligibility (5 years)

    • Teen parents must live w/ adults, not on their own

    • Required single mothers to disclose information about fathers to receive full benefits


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TANF: Example of the Policy Process

  • Policy Implementation

    • States revised their welfare plans

  • Policy Output

    • Many families no longer eligible for benefits

    • Reduction in those applying for benefits


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TANF: Example of the Policy Process

  • Policy Outcomes

    • Good: “Teen moms” living with parents seem to have higher educational achievement

    • Good/bad: Number of enrollees declining, even during economic downturn

    • Bad: Teenagers in recipient families (both parents now working) less likely to finish school

  • Agenda-Setting

    • Fine-tuning the program . . . How do we increase the good outcomes, decrease the bad?


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Tax Expenditure Programs

  • The “Shadow Welfare State”

  • Tax breaks to encourage certain behaviors by making them “cheaper”

  • Examples:

    • Write-offs for employers’ contributions to health insurance premiums and pension programs

    • Write-offs for interest paid on mortgages

    • Earned Income Tax Credits


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Education Policy

A Quick and Dirty Overview


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Why Do We Have Public Education?

Hint: The answer has changed over the years!


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Public Education: Rationale

  • States began creating public schools and mandating attendance in early 1800s

    • Rationale: equality of opportunity

  • Number of states w/ public ed increased dramatically in late 1800s

    • Rationale: inculcation of American values and civic education


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Public Education: Rationale

  • Federal government got involved in the late 1950s

    • Embarrassment over Sputnik

    • Focus originally on math and science

    • Rationale: collective benefits of educated populace (specifically, economic benefits)


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Federal Involvement in Public Education

  • 1950 – 1980, federal government involved in funding public education

  • Used money to dictate

    • Focus of curriculum

    • Certain social policies (anti-discrimination, for example)

  • Did not concern itself with issues of quality


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Federal Involvement in Public Education

  • Reagan and Bush (I) administrations

    • Began urging higher standards in schools

    • But suggestions were just that: suggestions . . . Purely advisory

  • Bush (II) administration

    • No Child Left Behind Act

    • Mandates standardized testing

    • Identifies “failing schools” and allows parents to move their kids out of failing schools


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Current Controversies and Issues in Education Policy

  • School funding

  • Discrimination in education

  • Students with disabilities


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School Funding

  • Frequently states fund with property tax – means wealthy communities have better schools

  • Robin Hood

  • Other alternatives??


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Discrimination in Education

  • Brown v. Board of Education

  • Title IX of Education Amendments of 1972

  • Students with disabilities (physical and cognitive)


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Students With Disabilities

  • Individuals With Disabilities Education Act (IDEA) – 1975

  • “Free Appropriate Public Education” (FAPE)

  • How much can schools afford to pay to provide FAPE?

  • Also, re: No Child Left Behind, how do we assess students with learning disabilities?


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