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Chapter 13
Social and Economic
Policy
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.
Pearson Education, Inc. © 2006
Theories of Public Policy
 Elite Theory
 Chosen few or elite make all important decisions
in society.
 Unequal distribution of power is normal and
inevitable.
 Other views
 Bureaucratic Theory
 Interest Group Theory
 Pluralist Theory
Pearson Education, Inc. © 2006
A Model of the Policy-Making
Process
 Sequence of stages or functional
activities.
 Policies do not just happen; rather they
are the products of a predictable pattern
of events.
 Problems must first be recognized and
defined.
 A problem that disturbs or distresses
people gives rise to demands for relief,
often through governmental action.
Pearson Education, Inc. © 2006
A Model of the Policy-Making
Process
 Problem must get on the governmental agenda.
 Formulation of alternatives for dealing with the
problem.
 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.
Pearson Education, Inc. © 2006
Stages of the Public
Policy Process
Pearson Education, Inc. © 2006
Problem Recognition and
Definition
 Not everything qualifies as a problem
deserving of government
intervention.
 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
stage.
Pearson Education, Inc. © 2006
Agenda Setting
 Agenda
 A set of issues to be discussed or given
attention.
 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
themselves.
Pearson Education, Inc. © 2006
Getting on the Congressional
Agenda
 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
status.
 Individuals may also push issues to the congressional
agenda.
 Private citizens, members of Congress, other officials
 Agenda setting is a competitive process.
Pearson Education, Inc. © 2006
Policy Formulation
 The crafting of appropriate and acceptable proposed
courses of action to ameliorate or resolve public
problems.
 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
practices.
Pearson Education, Inc. © 2006
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
compromise.
 Complex legislation takes time to pass.
 Legislation passed is often incremental.
Pearson Education, Inc. © 2006
Budgeting
 Most policies require money in order
to be carried out.
 A policy can be nullified by a refusal to
fund.
 Noise Control Act
 Having the potential to curb funding
can be a powerful tool for
congressional committee chairs.
Pearson Education, Inc. © 2006
Policy Implementation
 The process of carrying out public
policy through governmental
agencies.
 Some are enforced by other means
such as the courts.
 Product liability
 Product dating
Pearson Education, Inc. © 2006
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
comply.
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
activities.
Hortatory techniques

Encourage people to comply with policy by appealing to
their better instincts. “Just Say No.”
Pearson Education, Inc. © 2006
Policy Evaluation
 The process of determining whether a
course of action is achieving its intended
goals.
 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.
Pearson Education, Inc. © 2006
Roots of Social Welfare Policy
 Early 19th century attitudes toward social
welfare were focused on belt-tightening and
charity.
 NO governmental intervention.
 Late 19th century
 Farmers and rural Americans sought help
 Failing commodity prices; exploitation of
railroads
 1890s severe economic depression
 Acceptance and expectance of government
intervention
Pearson Education, Inc. © 2006
Social Security Costs and
Revenues, 1970-2080
Pearson Education, Inc. © 2006
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.
Pearson Education, Inc. © 2006
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
Pearson Education, Inc. © 2006
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
Pearson Education, Inc. © 2006
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
grants
Pearson Education, Inc. © 2006
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
immigrants
 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.
Pearson Education, Inc. © 2006
Earned Income Tax Credit
Program
 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)
Pearson Education, Inc. © 2006
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
produce.
 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
Pearson Education, Inc. © 2006
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.
Pearson Education, Inc. © 2006
Health Care

U.S. government spends billions on health
 Medicare




Medicaid






Part A: automatic at age 65
Part B: optional; covers payment for items not covered by part
A.
Financed by a payroll tax of 1.45 percent paid by both
employees and employers on the total amount of a person’s
wages.
Provides comprehensive health care to all who qualify as needy.
In 2002, Medicaid served over 40 million people at a cost of 284
billion.
Jointly financed by national and state governments
Some variation by state in terms of who is covered
Aids Funding
High Cost of Health Care
Pearson Education, Inc. © 2006
The Roots of Economic Policy
 During the nation’s first century states bore
the responsibility of managing economic
affair.
 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
restricted.
 State governments active in promoting and
regulating private economic activity.
Pearson Education, Inc. © 2006
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
economics.
 During recessions people lose their jobs and
income, and the economy experiences a low or
even negative growth rate.
Pearson Education, Inc. © 2006
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
(1862)
 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
them.
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).
Pearson Education, Inc. © 2006
Agriculture
 Agricultural Adjustment Act (1933)



Sought to boost farm income by restricting agricultural
production in order to being it into better balance with
demand.
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
Act.
 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
program.
Pearson Education, Inc. © 2006
Labor
 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.
Pearson Education, Inc. © 2006
Labor
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.
Pearson Education, Inc. © 2006
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.
Pearson Education, Inc. © 2006
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.
Pearson Education, Inc. © 2006
Why the surge of social
regulations?
 The late 1960s and early 1970s were a time of social
activism.
 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
prominence.
 The presidents in office during most of this period
each gave support to the social regulation movement.
Pearson Education, Inc. © 2006
Deregulation
 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
objective.

Conservative Republican
 Senator Ted Kennedy held hearings on airline
deregulation.
 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.
Pearson Education, Inc. © 2006
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.
Pearson Education, Inc. © 2006
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.
Pearson Education, Inc. © 2006
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.
Pearson Education, Inc. © 2006
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
Bank.
 Open Market Operations
 The buying and selling of government securities by
the Federal Reserve Bank in the securities market.
Pearson Education, Inc. © 2006
Fiscal Policy: Taxing and
Spending
 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
Pearson Education, Inc. © 2006