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Chapter 13
Social and Economic
American Government
2006 Edition
(to accompany the Essentials Edition)
O’Connor and Sabato
Pearson Education, Inc. © 2006
The Policy Process
 Public Policy
 An intentional course of action followed by
government in dealing with some problem or
matter of concern.
 Based on law.
 Authoritative and binding on people.
 Those who do not comply can be penalized.
 The impact or meaning of a policy depends on
whether it is vigorously enforced, enforced only
in some instances, or not enforced at all.
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Theories of Public Policy
 Elite Theory
 Chosen few or elite make all important decisions
in society.
 Unequal distribution of power is normal and
 Other views
 Bureaucratic Theory
 Interest Group Theory
 Pluralist Theory
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A Model of the Policy-Making
 Sequence of stages or functional
 Policies do not just happen; rather they
are the products of a predictable pattern
of events.
 Problems must first be recognized and
 A problem that disturbs or distresses
people gives rise to demands for relief,
often through governmental action.
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A Model of the Policy-Making
 Problem must get on the governmental agenda.
 Formulation of alternatives for dealing with the
 Policy adoption is the formal enactment or approval of
an alternative.
 Budgeting provides financial resources to carry out
the approved alternative.
 Policy implementation is the actual administration or
application of the policy.
 Policy evaluation determines the policy’s actual
accomplishments, consequences, or shortcomings.
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Stages of the Public
Policy Process
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Problem Recognition and
 Not everything qualifies as a problem
deserving of government
 Perceptions of government
responsibility play a role.
 These have changed over time.
 Usually there is not a single agreedon definition of a problem.
 Political struggles may occur at this
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Agenda Setting
 Agenda
 A set of issues to be discussed or given
 Systemic Agenda
 All public issues are viewed as requiring
governmental attention; a discussion agenda.
 Governmental (Institutional Agenda)
 The changing list of issues to which
governments believe the should address
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Getting on the Congressional
 President is an important agenda-setter for Congress.
 Interest groups are major actors and initiators in the
agenda-setting process.
 Major problems that evolve from crisis or other
extraordinary event may receive automatic agenda
 Individuals may also push issues to the congressional
 Private citizens, members of Congress, other officials
 Agenda setting is a competitive process.
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Policy Formulation
 The crafting of appropriate and acceptable proposed
courses of action to ameliorate or resolve public
 Routine formulation
 A repetitive and essentially changeless process of
reformulating similar proposals within an issue area
that is well established on the government agenda.
 Analogous formulation
 Handles new problems by drawing on experience with
similar problems of the past.
 Creative formulation
 Involves attempts to develop new or unprecedented
proposals that represent a departure from existing
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Policy Adoption
 The approval of a policy proposed by
the people with the requisite
authority, such as a legislature.
 Major legislation requires much
negotiation, bargaining, and
 Complex legislation takes time to pass.
 Legislation passed is often incremental.
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 Most policies require money in order
to be carried out.
 A policy can be nullified by a refusal to
 Noise Control Act
 Having the potential to curb funding
can be a powerful tool for
congressional committee chairs.
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Policy Implementation
 The process of carrying out public
policy through governmental
 Some are enforced by other means
such as the courts.
 Product liability
 Product dating
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Techniques used by
Administrative Agencies
Authoritative techniques
Incentive techniques
Encourage people to act in their own best interest by
offering payoffs or financial inducements to get them to
Capacity techniques
Rests on the notion that people’s actions must be
restrained by government in order to prevent or eliminate
activities or products that are unsafe, evil or immoral.
Provide people with information, education, training or
resources that will enable them to participate in desired
Hortatory techniques
Encourage people to comply with policy by appealing to
their better instincts. “Just Say No.”
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Policy Evaluation
 The process of determining whether a
course of action is achieving its intended
 Important players in this process
Congressional committees
Presidential commissions
Private research organizations
General Accountability Office (GAO)
 Evaluation research and studies can
stimulate attempts to modify or terminate
policies and restart the policy process.
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Roots of Social Welfare Policy
 Early 19th century attitudes toward social
welfare were focused on belt-tightening and
 NO governmental intervention.
 Late 19th century
 Farmers and rural Americans sought help
 Failing commodity prices; exploitation of
 1890s severe economic depression
 Acceptance and expectance of government
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Social Security Costs and
Revenues, 1970-2080
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Income Security
 Great Depression
 Social and economic thinking began to change f
 Idea that government could and should be used as a
positive influence in society
 FDR elected in 1932
 Unemployment extremely high; bad for economy
 Created Civil Works Administration by executive
order to put people to work
 Creation of Social Security
 1935 law established old-age insurance (Social
Security) and assistance for the needy, children, and
others, and unemployment insurance.
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Health Care
 National health insurance considered at time Social
Security legislation was passed
 AMA strongly opposed it; so it was omitted
 1945 Truman put health insurance on the national
policy agenda again.
 First idea received favorably by public.
 AMA opposed again. Fearful of regulation.
 Medicare introduced by Johnson
 Provide hospital care for the elderly already covered
by Social Security.
 Wilbur Mills (D-AR) Chair Ways and Means
 Expanded policy: included Medicaid
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Social Welfare Policies Today:
Income Security Programs
 Protect people against loss of income due
to retirement, disability, unemployment or
deal or absence of family breadwinner.
 Non-means-based programs
 Social insurance
 Old age, survivors and disability insurance
 Unemployment insurance
 Means-tested programs
 May either come as cash or in-kind benefits,
such as food stamps.
 Supplemental Security Income
 Family and Child Support
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Welfare Reform of 1996
 Personal Responsibility and Work
Opportunity Reconciliation Act of 1996
 Required single mothers with a child over five
years of age to work within two years of
receiving funds
 Included a provision that unmarried mothers
under the age of 18 be required to live with an
adult and attend school in order to receive
welfare benefits
 Set a five-year lifetime limit for aid from block
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Welfare Reform of 1996
 Personal Responsibility and Work
Opportunity Reconciliation Act of 1996
 Included a requirement that mothers must
provide information about a child’s father in
order to receive full welfare payments
 Cut off food stamps and SSI for legal
 Cut off cash welfare benefits and food stamps
for convicted drug felons
 Limited food stamps to three months in a t hree
year period for persons 18 to 50 years old who
are not raising children and not working.
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Earned Income Tax Credit
 Designed to help the working poor
 Helps them by subsidizing their wages
and provides an incentive for people to
go to work.
 Results in a net cash rebate for many
low-income tax payers who pay no
federal income tax.
 Created in 1975 – Senator Russell
Long (D-LA)
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Food Stamp Program
 Initial program was an effort to expand the domestic
market for farm commodities.
 Provided the poor with the ability to buy more food,
thus increasing demand for American agricultural
 1939-1943
 Made permanent in 1964
 Extended nationwide in 1974
 Benefits low income families. Combats hunger and
reduce malnutrition.
 Food stamps went to over 21 million beneficiaries in
2003 at cost of $2.9 billion.
 Average participant’s monthly disbursement: $84 in
food stamps
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The Effectiveness of Income
Security Programs
 Entitlement programs
 Income security programs to which all those
meeting eligibility criteria are entitled.
 Spending for such programs is mandatory.
 Funds must be provided for them unless laws
creating the programs are changed.
 Difficult to control spending for this reason.
 Often a matter of considerable debate.
 Range of such programs are characteristic
of all democratic industrial societies.
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Health Care
U.S. government spends billions on health
 Medicare
Part A: automatic at age 65
Part B: optional; covers payment for items not covered by part
Financed by a payroll tax of 1.45 percent paid by both
employees and employers on the total amount of a person’s
Provides comprehensive health care to all who qualify as needy.
In 2002, Medicaid served over 40 million people at a cost of 284
Jointly financed by national and state governments
Some variation by state in terms of who is covered
Aids Funding
High Cost of Health Care
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The Roots of Economic Policy
 During the nation’s first century states bore
the responsibility of managing economic
 Nineteenth Century
 Government long role in economy
 Tax, tariff, public lands disposal, and public
works projects and the national bank
 But national regulatory programs were few and
 State governments active in promoting and
regulating private economic activity.
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The Nineteenth Century
 After Civil War, U.S. experienced rapid
economic growth.
 Large scale manufacturing enterprises
 New problems arose
 Business cycle: fluctuations between expansion
and recession that is a part of modern capitalist
 During recessions people lose their jobs and
income, and the economy experiences a low or
even negative growth rate.
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The Progressive Era
 Laissez-faire economics
 A French term literally meaning “to allow to do, to
leave alone.” It is a hands-off governmental policy
that is based on the belief that governmental
involvement in the economy is wrong.
 Major reform
 Interstate Commerce Act 1887
 Sherman Antitrust Act 1890
 Establishment of the Department of Agriculture
 Homestead Act
 Morrill Land Grant Act
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Financial Reforms
 Bank holiday
Only financially sound banks were permitted to reopen.
 New banking laws
Glass-Steagall Act (1933)
Securities Act (1933)
Required the separation of commercial and investment banking
and set up of the FDIC
Required that prospective investors be given full and accurate
information about the stocks or securities being offered to
Securities Exchange Act (1934)
Created the Securities and Exchange Commission authorized to
regulate the stock exchange and to reduce the number of
stocks bought on margin (on borrowed money).
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 Agricultural Adjustment Act (1933)
Sought to boost farm income by restricting agricultural
production in order to being it into better balance with
Supreme Court found it unconstitutional. Constitution did
not grant Congress the authority to regulate commerce in
Article 1.
Replaced by the Soil Conservation and Domestic Allotment
 Did not work well.
Congress passed a second AAA
 Provided subsidies to farmers to limit their crops.
 Protected farmers, but many thought it a wasteful
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 National Labor Relations Act of 1935 (Wagner Act)
 Guaranteed worker’s rights to organize and bargain
collectively through unions of their own choosing
 National Labor Relations Board
 Created to carry out the act and to conduct elections
to determine which union, if any, employees wanted
to represent them.
 Fair Labor Standards Act (1938)
 Intended to protect the interests of low-paid workers,
the law set 25 cents per hour and 44 hours per week
as initial minimum standards.
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Industry Regulations
 Federal Communications Commission (1934)
 Given extensive jurisdiction over the radio,
telephone, and telegraph industries.
 The Civil Aeronautics Board (1938)
 Put into place to regulate the commercial
aviation industry.
 Motor Carrier Act (1935)
 Put the trucking industry under the jurisdiction
of the Interstate Commerce Commission.
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Economic and Social Regulation
 Economic regulation
 Governmental regulation of business
practices, industry rates, routes, or areas
serviced by particular industries.
 Social regulation
 Governmental regulation of the quality
and safety of products as well as the
conditions under which goods and
services are produced.
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The Social Regulation Era
 From the 1960s to the mid-1970s the
national government passed social
regulatory legislation on such topics as:
 Consumer protection
 Health and safety
 Environmental protection
 All based on commerce clause authority
 Set up new regulatory agencies to implement
the new regulations
 More industries affected by government.
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Why the surge of social
 The late 1960s and early 1970s were a time of social
 The consumer and environmental movements were
at the peak of their influence.
 The public had become much more aware of the
dangers to health, safety, and the environment
associated with various modern products.
 Members of Congress saw the advocacy of social
regulation as a way to gain visibility and national
 The presidents in office during most of this period
each gave support to the social regulation movement.
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 A reduction in market controls.
 In theory, deregulation would increase market
competition and lead to lower prices for consumers.
 Ford administration made deregulation a major
Conservative Republican
 Senator Ted Kennedy held hearings on airline
 Priority of the Carter Administration as well.
 Agricultural regulation still controversial.
2002 Bush signed into law a six-year agricultural bill with a
price tag of $100 billion.
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Stabilizing the Economy
 Massive scale and persistence of the Great
Depression led to the
 Employment Act of 1946
 Committed the government to maintaining
“maximum employment, production, and
purchasing power”
 Keynes
 Argued that deficit spending by a government
could supplement the total or aggregate demand
for good and services.
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Stabilizing the Economy
 Economic stability
 A situation in which there is economic growth,
rising national income, high unemployment, and
steadiness in the general level of prices.
 Inflation
 A rise in the general prices levels of an economy.
 Recession
 A short-term decline in the economy that occurs
as investment sags, production falls off, and
unemployment increases.
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Monetary Policy: Controlling the
Money Supply
 Monetary Policy
 A form of government regulation in which the nation’s
money supply and interest rates are controlled.
 Money
 A system of exchange for goods and services that
includes currency, coins and bank deposits.
 Federal Reserve Board
 A seven-member board that sets member banks’
reserve requirements, controls the discount rate, and
makes other economic decisions.
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Monetary Policy: Controlling the
Money Supply
 Reserve requirements
 Governmental requirements that a portion of member
banks’ deposits must be retained to back loans made.
 Discount rate
 The rate of interest at which member banks can
borrow money from their regional Federal Reserve
 Open Market Operations
 The buying and selling of government securities by
the Federal Reserve Bank in the securities market.
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Fiscal Policy: Taxing and
 Federal government policies on taxes, spending,
and debt management
 Intended to promote the nation’s macroeconomic
goals, particularly with respect to employment,
price stability, and growth.
 Revenue Act of 1964
 Reduced personal and corporate income tax rates
 Tax cuts to stimulate the economy
 Reagan in 1981 and G.W. Bush in 2001 and 2003
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