Economic Policymaking

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1 Government in America: People, Politics, and Policy Updated with 15 th Edition Edwards/Wattenberg/Lineberry Chapter 17 Economic Policymaking

2 Voters, Politicians and the Economy Economic conditions are the best single predictor of how voters perceive the president is doing his job (pocketbook voting) Economy in 2008 was a major factor in Obama taking office ( It s the Economy, Stupid ) Democrats stress keeping unemployment low (who are their constituents?) Republicans worry about inflation (who are their constituents?)

3 Unemployment (*) Unemployment Rate: measured by the Bureau of Labor Statistics (BLS) defined as the proportion of the labor force actively seeking work, but unable to find jobs. Bad economy = social problems (higher suicide and homicide rates, drug and alcohol related deaths, depression, etc.) Unemployment impacts minorities 2-3 times more than whites, young more than middle aged BLS now also releases an UNDERemployment rate

4 Inflation (*) Inflation: the rise in prices for consumer goods Consumer Price Index: the key measure of inflation. Goal is to reflect changes over time in the amount consumers need to spend to maintain a certain standard of living. How is CPI measured? Three major time periods of inflation: 1973 and 1974 OPEC cut oil supplies because of US support of Israel during war with Egypt and Syria Iranian revolution oil supply cut from Middle East 1991 Iraq invaded Kuwait, people worried that oil supplies would be affected People on fixed incomes are hit particularly hard by inflation

5 Government, Politics, and the Economy What do you think this graph would look like if it were extended out to today?

6 Government, Politics, and the Economy What has happened to the cost of consumer goods recently? Do you notice any changes?

7 Instruments for Controlling the Economy (*) - The government has great impact on the economy but it is limited by a commitment to the free enterprise system Historically 1929 Stock Market Crash Hoover, Laissez faire policies New Deal federal policies aimed at putting the US economy back on track Government has been very active in steering the economy since the Great Depression and the New Deal US Government has 2 tools to help guide the economy Monetary policy Fiscal policy

8 Policies for Controlling the Economy (*) Monetary Policy and the Fed The head of the Federal Reserve Board is Janet Yellen. She has more power over the US economy than even the president Monetary Policy: the manipulation of the supply of money and credit in private hands; controlled by the Fed Monetarism economic theory that holds that the supply of money is the key to the country s economic health Too much cash and credit produces inflation, too little and we see credit tighten and unemployment rise The money supply affects the interest rates we pay for houses, cars, businesses, etc.

9 The Federal Reserve System (*) Main policymaker is the Board of Governors of the Federal Reserve System the Fed Created in 1913 to regulate lending practices of banks and thus the money supply They are beyond the control of the President and the Congress Seven member board appointed by the President, for 14 year terms. From the board members, a chairman is chosen. Current chairperson of the Fed is Janet Yellen.

10 Policies for Controlling the Economy (*) Monetary Policy and the Fed (continued) The Fed s instruments to influence the supply of money in circulation: Sets the discount rate (rate at which banks borrow money from the Fed) Sets reserve requirements (how much money banks have to have on reserve at all times) Buys and sells government bonds Through the use of these actions, the Fed can affect the economy.

11 Policies for Controlling the Economy (*) Fiscal Policy of Presidents and Parties Fiscal Policy: the policy that describes the impact of the federal budget on the economy (How much is the government taxing, borrowing and spending?) Fiscal policy is controlled by the President and the Congress There are 2 different schools of thought: Keynesian Economic Theory: government spending helps the economy weather its normal ups and downs, creation of federal jobs programs, etc may be necessary Supply-side economics: tax cuts will stimulate the supply Pearson Education, Inc., Longman 2008

12 Instruments for Controlling the Economy Fiscal Policy of Presidents and Parties, (continued) Supply-Side Economics: the policy that says there is too much taxation and not enough money to purchase goods and services. Favored by Republicans (Reagan, Bush, etc.) Reduce taxation and government regulation then people will work harder, and thus create a greater supply of goods Also called trickle down economic theory Pearson Education, Inc., Longman 2008

13 Politics, Politics, and the Internat l Economy Protectionism: the economic policy of shielding an economy from imports World Trade Organization (WTO): the international organization that regulates international trade Free trade is controversial as jobs have increasingly been outsourced. But short-term pain equals long-term gain Pearson Education, Inc., Longman 2008

14 Arenas of Economic Policymaking Business and Public Policy (continued) Regulating and Benefiting Business New wave of regulation Congress passed law in 2002 that toughened penalties for stock fraud Creation of Accounting Oversight Board to regulate accounting industry Businesses benefit from regulation, too Copyrights and patents Government may loan businesses money. Government collects data that business use. Pearson Education, Inc., Longman 2008

15 Arenas of Economic Policymaking Consumer Policy: The Rise of the Consumer Lobby Consumers historically have had little government protection. Food and Drug Administration (FDA): created in 1913; regulates the manufacturing, contents, marketing, and labeling of food and drugs Consumerism Ralph Nader, 1960s Federal Trade Commission (FTC): responsible for regulating false and misleading trade practices, which now includes consumer lending practices Pearson Education, Inc., Longman 2008

16 Arenas of Economic Policymaking Labor and Government Government historically sided with business over labor unions. National Labor Relations Board (NLRB): regulates labor-management relations; created in 1935 by the Wagner Act, guarantees workers the right of collective bargaining The Taft-Hartley Act (1947) continued to guarantee unions the right of collective bargaining, but prohibited various unfair practices by unions. President can halt major strikes through court injunction States are permitted to pass right to work laws Two notable successes gained by unions are that the government now provides unemployment compensation and a minimum wage. Pearson Education, Inc., Longman 2008

17 Understanding Economic Policymaking Democracy and Economic Policymaking Voters expect more of politicians that they can control Sometimes economic theory and democratic theory may be at cross purposes. It is difficult to make decisions that hurt groups or involve short-term pain for long-term gain. Economic Policymaking and the Scope of Government Liberals tend to favor more while conservatives favor less government involvement in the economy. Pearson Education, Inc., Longman 2008

18 Summary Political and economic sectors are closely intermingled. Voters expect a lot from politicians, more than they can deliver on the economy Two major instruments available to government for managing the economy monetary and fiscal policies Pearson Education, Inc., Longman 2008

19 Edwards, Wattenberg, and Lineberry Government in America: People, Politics, and Policy Brief Tenth Edition Chapter 18 Social Welfare Policymaking

20 What Is Social Policy and Why Is It So Controversial? (*) Social welfare policies provide benefits to individuals, through: Entitlement programs: government benefits that certain qualified individuals are entitled to by law, regardless of need Means-tested programs: government programs only available to individuals below a poverty line

21 Income, Poverty, and Public Policy (*) Who s Getting What? Income distribution: the shares of the national income earned by various groups Income: amount of funds collected between any two points in time Wealth: value of assets already owned One-third of America s wealth is held by one percent of the population.

22 Income, Poverty, and Public Policy

23 Income, Poverty, and Public Policy (*) Who s Poor in America? Poverty Line: considers what a family must spend for an austere standard of living In 2014 the poverty line for a family of 3 is $19,790; family of four is $23,850; family of five $27,910. More than 46 million Americans about 13 percent are poor in About 20% of America s children are poor. Many people move in and out of poverty in a year s time. Feminization of poverty: high rates of poverty among unmarried women

24 Income, Poverty, and Public Policy (*) What Part Does Government Play? Taxation Progressive tax: people with higher incomes pay a greater share Proportional tax: all people pay the same share of their income Regressive tax: burden falls relatively more heavily on low-income groups opposite of a progressive tax Earned Income Tax Credit: negative income tax that provided income to very poor people in lieu of charging them income tax

25 Helping the Poor? Social Policy and Poverty

26 Helping the Poor? Social Policy and Poverty (*) Welfare as We Knew it Social Security Act of 1935 first major step by the federal government to help protect people against absolute poverty Set up Social Security Program and AFDC, a national assistance program for poor children President Johnson declared a war on poverty and created many new social welfare programs.

27 Helping the Poor? Social Policy and Poverty Welfare as We Knew it President Reagan cut welfare benefits and removed people from benefit rolls. Conservatives argued that welfare programs discouraged the poor from solving their problems. Attitudes toward welfare became race coded, the belief that most people on welfare were African Americans.

28 Helping the Poor? Social Policy and Poverty (*) Ending Welfare as We Know it : The Welfare Reforms of 1996 Personal Responsibility and Work Opportunity Act Each state to receive a fixed amount of money to run its own welfare programs People on welfare would have to find work within two years. Lifetime limit of five years placed on welfare. AFDC changed to Temporary Assistance for Needy Families (TANF) Welfare rolls declined, even though income of TANF recipients is still low

29 Immigration and Social Policy Immigration Policy and Politics Immigration has had little support throughout American history Illegal immigration is a new issue, as the distinction between legal and illegal immigration did not exist for the century of American history. Illegal immigration has been a major though difficult issue in presidential politics.

30 Immigration and Social Policy Washington... No general immigration policy until the 20 th Century. Congress banned Chinese immigration in : Quota system favors northwestern Europeans and discriminates against others (including eastern Europe). Immigration from Latin America climbs after World War II.

31 Immigration and Social Policy (*) Simpson-Mazzoli Act (1986) Path to citizenship ( amnesty ) for existing illegal immigrants. 3 million immigrants become citizens. Employers forbidden from hiring illegal immigrants but they cannot challenge documentation. Despite several proposals, no major policy changes since.

32 Immigration and Social Policy... and the States States are hardest hit by the costs of illegal immigration Proposition 187 (CA) cut off public services to illegal immigrants; mostly found unconstitutional Some states punish employers by taking away business licenses Many battles over college tuition breaks

33 Living on Borrowed Time: Social Security (*) The New Deal, the Elderly, and the Growth of Social Security Social Security has grown rapidly since 1935, adding Medicare in Employers and employees contribute to the Social Security Trust Fund the bank account into which Social Security contributions are deposited and used to pay out eligible recipients. The Trust Fund will soon be in the red as the ratio of workers to beneficiaries is narrowing.

34 Living on Borrowed Time: Social Security (*) The Future of Social Security The problem: number of Social Security contributors (workers) is growing slowly, while number of recipients (retired) is growing rapidly At some time currently 2038 payouts will exceed income. Solutions of cutting benefits or raising taxes are hard choices.

35 Understanding Social Welfare Policy (*) Social Welfare Policy and the Scope of Government The growth of government has been driven by the growth of social welfare policies, which grow generation by generation. Democracy and Social Welfare The U.S. has the smallest social welfare system. There is considerable unequal political participation by those that use the programs. Elderly are well-organized and influential; poor are not

36 Edwards, Wattenberg, and Lineberry Government in America: People, Politics, and Policy Fourteenth Edition Chapter 20 National Security Policymaking

37 Instruments, Actors, and Policymakers (*) Instruments of Foreign Policy Three types of tools: Military: oldest and still used Limited wars Economic: becoming more powerful Trade regulations, tariffs, and monetary policies Diplomatic: the quietest of the tools Negotiations and summits

38 Instruments, Actors, and Policymakers (*) Actors on the World Stage International Organizations United Nations (UN): created in 1945; an organization whose members agree to renounce war and respect certain human and economic freedoms Regional Organizations NATO: created in 1949; combined military forces of U.S., Canada, and most of Western Europe and Turkey EU: transnational government composed of Western European countries that coordinates economic policies

39 Instruments, Actors, and Actors on the World Stage Multinational Corporations Nongovernmental Organizations groups such as Greenpeace or Amnesty International Individuals Policymakers

40 Instruments, Actors, and Policymakers (*) The Policymakers The President The Diplomats Secretary of State The National Security Establishment Secretary of Defense, Joint Chiefs of Staff, NSC, CIA formed after WWII to advise the president and gather intelligence Congress

41 American Foreign Policy: An Overview

42 American Foreign Policy: An Overview (*) Isolationism: Foreign policy where the U.S. tries to stay out of other nation s conflicts, particularly in Europe Monroe Doctrine: U.S. official statement of isolationism World War I ( ): Basically ended the policy of isolationism

43 American Foreign Policy: An Overview (*) The Cold War Containment Abroad and Anti-Communism at Home Containment doctrine: foreign policy strategy that called for the United States to isolate the Soviet Union, contain its advances, and resist its encroachments by peace or force McCarthyism: the fear, prevalent in the 1950s, that international communism was conspiratorial, insidious, bent on world domination, and infiltrating American government and cultural institutions named after Senator Joseph McCarthy The Swelling of the Pentagon Arms race: competition between U.S. and U.S.S.R. that led to increased procurement of military weapons The Vietnam War

44 American Foreign Policy: An Overview (*) The Era of Détente Détente: a slow transformation from conflict to cooperation designed to relax tensions between the superpowers Originally applied to the Soviet Union, and then to China Strategic Arms Limitations Talks: effort to limit the growth of nuclear arms; a product of détente

45 American Foreign Policy: An Overview (*) The Reagan Rearmament Defense budget had been declining since the mid-1950 s (with exception of Vietnam War) Reagan added some $32 billion to the defense budget in his first term in office to oppose the Soviet buildup. Strategic Defense Initiative: using computers and other equipment to defend against Soviet missiles from space Star Wars

46 American Foreign Policy: An Overview The Final Thaw in the Cold War George H.W. Bush proposed to move beyond containment to integrate the Soviet Union into the community of nations. Leadership of the Soviet Union supported the ending of communism and split into separate nations. East and West Germany united.

47 The War on Terrorism (*) War on Terrorism Highest priority of George W. Bush administration after 9/11 Bush supported preemptive strikes against terrorists and hostile states. Axis of evil International relations has entered an era of improvisation.

48 The War on Terrorism (*) Afghanistan and Iraq Attack against Afghanistan Taliban regime harbored Osama bin Laden and al-qaeda network War in Iraq Postwar planning was poor. Public support has declined. Terrorism beyond Afghanistan and Iraq will be difficult to combat.

49 The Politics of Defense Policy (*) Defense Spending Currently takes up about one-fifth of the federal budget Conservatives argue against budget cuts that would leave the military unprepared. Liberals argue for budget cuts to provide more money for programs here in the U.S. Military spending is hard to cut since it means a loss of jobs in congressional districts. Trend in reductions reversed after 911

50 The Politics of Defense Policy

51 The Politics of Defense Policy (*) Personnel 1.4 million active and reserve troops More reliance on National Guard and reserve troops due to cuts in defense spending Weapons Reliance on nuclear triad (ICBMs, SLBMs, and strategic bombers) is expensive $5.5 trillion Treaties (START) signed to reduce nuclear missiles High-tech non-nuclear weapons becoming more prevalent Reforming Defense Policy

52 The Politics of Defense Policy

53 The New Global Agenda The Changing Role of Military Power Military might is no longer the primary instrument in foreign policy. Losing its utility to resolve many international issues Economic Sanctions Nonmilitary penalties imposed on foreign countries as an attempt to modify their behavior Generally the first resort in a crisis Can be effective, but critics argue they only hurt U.S. businesses and provoke a nationalist backlash

54 The New Global Agenda Nuclear Proliferation Only a few countries have known nuclear weapon capabilities. Fear that other rogue countries will have nuclear weapons capabilities and use them against their neighbors or the U.S. The U.S. will focus on discouraging the deployment of developed nuclear weapons.

55 The New Global Agenda

56 The New Global Agenda (*) The International Economy Interdependency: mutual dependency in which the actions of nations reverberate and affect one another s economic lifelines International Trade Tariffs: a tax on imported goods to raise the price, thereby protecting American businesses and workers NAFTA and GATT are ways to lower tariffs and increase trade. Congress approved the Central American-Dominican Republic Free Trade agreement in Balance of Trade Ratio of what is paid for imports to what is earned for exports

57 The New Global Agenda

58 The New Global Agenda (*) The International Economy Energy America depends on imported oil, about 60 percent, but not as much as other countries like Japan. Much of the recoverable oil is in the Middle East which is often the site of military and economic conflicts. Organization of Petroleum Exporting Countries (OPEC): controls the price of oil and amount its members produce and sell to other nations

59 The New Global Agenda (*) The International Economy Foreign Aid Foreign aid is used to stabilize nations friendly to the United States. A substantial percentage of foreign aid is military. Foreign aid has never been very popular with Americans and is typically cut by Congress.

60 Understanding National Security Policymaking (*) National Security Policymaking and Democracy Americans are more interested in domestic than foreign policy. The opinions of the people are rarely ignored. Separation of powers are important. Pluralism is pervasive in foreign policymaking. National Security Policy and the Scope of Government Scope of government is large

61 Summary The United States has maintained a sizeable defense capability, from the Cold War to the War on Terrorism. Nuclear proliferation, terrorism, and international economy dictate U.S. foreign policy and international involvement.

CHAPTER 17 NATIONAL SECURITY POLICYMAKING CHAPTER OUTLINE

CHAPTER 17 NATIONAL SECURITY POLICYMAKING CHAPTER OUTLINE I. American Foreign Policy: Instruments, Actors, and Policymakers (pp. 547-556) A. Foreign Policy involves making choices about relations with