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US Politics Economic Policy Overview • Basics of Public Policy • Basic Goals of Economic Policy – Market Failures (public goods, externalities, monopolies) – Economic Growth • Basic Tools – Fiscal Policy – Monetary Policy • Basic Strategies Public Policy • • • • • • Problem Identification Agenda Setting Policy Formulation Policy Legitimation Policy Implementation Policy Evaluation Is the problem a “political” problem? Participants: Congress, Pres, IG, media, public Public Policy • • • • • • Problem Identification Agenda Setting Policy Formulation Policy Legitimation Policy Implementation Policy Evaluation What issues need to be addressed first? Participants: Congress, Pres, IG, media, public Public Policy • • • • • • Problem Identification Agenda Setting Policy Formulation Policy Legitimation Policy Implementation Policy Evaluation What policy is best suited to resolve or solve the problem? Participants: Congress, Pres, IG, media, public Public Policy • • • • • • Problem Identification Agenda Setting Policy Formulation Policy Legitimation Policy Implementation Policy Evaluation From the options, enact one into law Participants: Congress, Pres, Courts,IG, media, public Public Policy • • • • • • Problem Identification Agenda Setting Policy Formulation Policy Legitimation Policy Implementation Policy Evaluation Develop the administrative protocol and procedures Participants: Pres, bureaucracy, IG Public Policy • • • • • • Problem Identification Agenda Setting Policy Formulation Policy Legitimation Policy Implementation Policy Evaluation Is the program accomplishing what it was meant to? Participants: Congress, Pres, bureaucracy IG, media, public Economic Policy Goals of Economic Policy • • Primary goal is smooth running of a capitalist economy Maintain those features necessary for a market economy 1. Stability/Security 2. Fair Competition/Anti Monopoly Goals of Economic Policy Price Who determines the “price” of a good, buyers or sellers? Quantity Goals of Economic Policy Demand Curve Price What would a “demand” curve look like? Quantity Goals of Economic Policy Demand Curve Price When price is high, buy fewer goods Quantity Goals of Economic Policy Demand Curve Price As price drops, buy more goods When price is high, buy fewer goods Quantity Goals of Economic Polcy Supply Curve Price Quantity What would the “supply” curve look like? Goals of Economic Polcy Supply Curve Price As price rises, try to sell more goods When price is low, try to sell fewer goods Quantity Goals of Economic Policy supply Price Market Price Who sets the price of the good? demand Quantity Goals of Economic Policy • Market price is determined by the “invisible hand” of the market • Buyers and sellers making individual decisions about what is best for them as consumers or sellers lead to market price that is best for all concerned Goals of Economic Policy Free market (laissezfaire) economics requires: 1. widespread information among buyers and sellers about the general tendencies and status of the market Goals of Economic Policy Free market (laissez-faire) economics requires: 2. Competition among buyers and sellers • • monopoly: no competition among sellers monopsony: no competition among buyers 3. Rational preference schedules among participants: A>B, B>C A>C Goals of Economic Policy • Market Failures – Ensure fair competition • Play by same rules • No monopolies/monopsonies – Provide public goods • Minimum wage, consumer protection, unemployment insurance – Protect market externalities • e.g., anti pollution laws Goals of Economic Policy • For most of the country’s history, economic growth was not a government priority • Market was responsible for the market • Great Depression brings expanded government involvement Tools of Economic Policy • Fiscal Policy – Government’s ability to tax and spend • Monetary Policy – Control the money supply through the manipulation of interest rates Tools of Economic Policy • Tax revenue streams: – – – – – income (personal/corporate) property capital gains sales usage • List of US tax forms Tools of Economic Policy • Types of taxes – Progressive Taxes • Taxes increase (in percentage) as wealth increases – e.g., Income Tax – Regressive Taxes • Taxes decrease (in percentage) as wealth increases – e.g., Social Security tax – Proportional • Taxes rise as percentage of some fixed measure – e.g., sales tax (you pay more as cost of good increases) – Flat • Tax is same rate regardless of cost, income, etc. – e.g., cigarette tax, user fees for driver’s license, parks, etc. Basic Strategies • Keynesian Economics – John Maynard Keynes • Use government tools to manage economic growth • Control the booms and limit impact of the busts in economic cycle Basic Strategies “Normal” Economic Cycles GDP Growth Years Basic Strategies “Normal” Economic Cycles Managed Economic Growth GDP Growth Years Basic Strategies If economy is in downturn: Government spending, Taxes If economy is heating up too quickly: Governmnt spending, Taxes Basic Strategies • Long term impact though has been steady increase in federal deficit and debt – Current Federal Budget Debt – Current foreign government ownership of the debt – Historic data on the debt Monetary Policy • Control the circulation of money in the economy through the manipulation of interest rates • Basically determines the “price” of money • Determined by the Federal Reserve Board (the Fed) Fed Chairman Ben Bernanke Monetary Policy If economy is in downturn: Decrease rate If economy is heating up too quickly: Increase rate Implications • Debt obligations limit new government initiatives • Ability of social security system and/or state pension systems to meet demands of retiring population. • Ability for foreign governments to impact US government policy Economic Inequality Economic Inequality Economic Inequality Economic Inequality Economic Inequality Economic Inequality Economic Inequality Economic Inequality Economic InequalityEconomic Inequality Poverty in US • Design a budget – Family of 4 in Hudson County – Calculate monthly expenses then determine the yearly income necessary for those expenses Poverty in US Poverty rates for selected racial demographic groups Poverty in US • Beginning in 1930s, federal government began to put poverty relief on the public policy agenda • Created: – – – – – Social Security Medicare AFDC (Aid for Families with Dependent Children) Food Stamp Program Unemployment Insurance Poverty in US • 1960s “Great Society” programs under Lyndon Johnson expanded federal involvement in poverty relief – Created Medicaid – Expanded Food Stamp – New programs to help poor families • e.g. Head Start Poverty in US • Poverty has stabilized since 1970s, despite the expansion of federal dollars on the problem, and new efforts made to transform welfare to limit costs • 1996 Welfare Reform Act – Shifts program from federal to state administered system – Eliminated AFDC and created TANF • (Temporary Assistance to Needy Families) Poverty in the US • • • • 2008 Poverty Rate Guidelines (HHS) HHS FAQ file on Poverty Rates and Poverty Census bureau poverty data Main Federal Poverty Programs – TANF (HHS) – HHS reports to Congress on TANF TANF data sets – Food Stamps (Agriculture)
