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Making Public Policy •Problem Recognition & Definition Making assumptions about the world •Agenda Setting Identifying the problem to be solved •Policy Formulation •Policy Adoption •Budgeting Deciding whether to act or not •Policy Implementation •Policy Evaluation Determining policy effectiveness Making rules for implementation Choosing a tool for solving the problem Deciding how much to do Policy-Making Process Economic Policy •Fiscal Policy •Taxation and government spending •Types of Taxes •Income •Sales •Property •Excise •Progressive •Regressive Economic Policy •Fiscal Policy •Taxation and government spending •Monetary Policy •Interest Rates •Inflation •Money supply •Unemployment Federal Reserve Chairman Ben Bernanke Fiscal Policy •The Federal Budget •Where the Money Comes From •Where the Money Goes •The Budget Process •The Executive Branch •The Legislative Branch •The Politics of Taxing and Spending •Tax Expenditures The Federal Government Dollar Trends in the Gross Federal Debt Amount Year (billions) 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2008 2009 2010 $256.8 $274.3 $290.5 $322.3 $380.9 $541.9 $909.0 1,817.5 3,206.5 4,921.0 5,686.3 7,206.9 9,985.7 12,069.5 14,456.3 Percentage of GDP 94.2% 69.4 56.1 46.9 37.7 34.9 44.3 33.4 56.4 68.5 59.4 58.0 70.2 85.2 est. 98.1 est. SOURCE: Budget of the U.S. Government, Aug. 2009. What's a trillion dollars? A trillion dollars = $1,000,000,000,000. That's 12 zeroes to the left of the decimal point. A trillion is a million, million dollars. If you laid one dollar bills end to end, you could make a chain that stretches from earth to the moon and back again 200 times before you ran out of dollar bills! One trillion dollars would stretch nearly from the earth to the sun. What's a trillion dollars? 100 packs = $1 million One hundred $100 bills = $10,000 One Billion Dollars One Trillion Dollars To Transport… 500,000,000 Dollars Billion Dollars in in in Trillion Dollars 2000 Trucks Trends in the Gross Federal Debt Trends in the Gross Federal Debt Trends in the Gross Federal Debt Trends in the Gross Federal Debt Steps in the Budget Process, Fiscal Year 2011 Feb-Dec 2009 Executive branch agencies develop requests for funds, which are reviewed by the Office of Management and Budget and forwarded to the president for final decision. Dec 2009 The formal budget documents are prepared. Jan-Feb 2010 The budget is transmitted to Congress as a formal message from the president. Mar-Sept 2010 Congress reviews the president’s proposed budget, develops its own budget, and approves spending and revenue bills. Oct 1, 2010 Fiscal year 2011 begins. Oct. 1, 2010-Sept. 30, 2011 Executive branch agencies execute the budget provided in law. Oct-Nov 2011 Data on actual spending and receipts for the completed fiscal year become available. Steps in the Budget Process, Fiscal Year 2011 Fiscal Policy: The Federal Deficit Obama 2008-11 Percentage of Wages Full Time Workers Pay in Income Taxes in Selected Countries Fiscal Policy The Politics of Taxing and Spending • Taxes promote economic growth and reward certain types of behavior. • As much as taxpayers complain about taxes most taxpayers want more of virtually everything the federal government provides. • There is considerable disagreement about the best type of tax, either a progressive income tax (also called a graduated income tax), a regressive tax, or a consumption tax. Monetary Policy $ Monetary policy is the second way the federal government manages the economy $ Advocates of aggressive monetary policy contend that the money supply is the key factor affecting the economy’s performance. The Federal Reserve System $ $ Monetary policy is not made by Congress or the president. $ Interest rates go up and down through decisions by the Federal Reserve Board. The Fed has several basic tools for influencing the economy. Monetary Policy Tools $ Reserve Ratio - Minimum percentage of deposits that a financial institution must keep on hand $ Federal Funds Rate - The interest rate that banks charge each other for overnight loans $ Prime Rate - Interest rate that a bank charges its best customers $ Discount Rate - The rate the Fed charges member banks for short-term loans $ Open-Market Operations - The buying and selling of securities by the Federal Reserve Board to manipulate the money supply Monetary Policy The Federal Reserve System - designed to be politically neutral Federal Funds Rate, 1998 - 2010 • Federal Open market Committee (FOMC) is the Fed’s policymaking arm • Government and Economic Policy Government and Economic Policy Should the government stimulate the economy? The Great Depression of the 1930s tested competing theories about helping the economy. Laissez-faire economics Keynesian economics Theory that opposes governmental interference in economic affairs beyond what is necessary to protect life and property Economic theory based on the principles of John Maynard Keynes stating that government spending should increase during business slumps and be curbed during booms U.S. Economic Policy Promoting Economic Growth •Promoting Business •Promoting International Trade •Removing Barriers to Trade • The North American Free Trade Agreement (NAFTA) • World Trade Organization • GATT Regulating the Economy •Regulation Defined •Types of Regulation •Regulating Corporations •Regulating Competition •Regulating the Use of Labor •Regulating Corporate Markets •Regulating the Environment Regulating Corporations Monopoly Domination of the industry by a single company; also the company that dominates the industry Antitrust Legislation • Sherman Antitrust Act (1890) • Clayton Act (1914) Regulating the Economy Corporate Responsibility • Many corporations have been dealing with the increased pressure to be more responsible. • Corporate social responsibility: Efforts by corporations to improve their reputations by paying attention to their contributions to the social good. Some Regulatory Agencies and their Missions Agency Year Est. Primary Functions Federal Trade Commission (FTC) 1914 Administers certain anti- trust laws concerning advertising, labeling, and packaging to protect consumers from unfair practices. Food and Drug Administration (FDA) 1931 Establishes regulations concerning purity, safety, and labeling accuracy of certain foods and drugs; issues licenses for manufacturing and distribution. Federal Communications Commission (FCC) 1934 Licenses civilian radio and television communication; licenses and sets rates for interstate and international communication. Animal and Plant Health Inspection Service 1953 Sets standards; inspects and enforces laws relating to meat, poultry, and plant safety. Some Regulatory Agencies and their Missions Agency Year Est. Primary Functions Environmental Protection Agency (EPA) 1970 Develops environmental quality standards; approves state environmental plans. Occupational Safety and Administration (OSHA) 1972 Develops and enforces Health worker safety and health regulations. Bureau of Alcohol, Tobacco and Firearms (ATF) 1972 Enforces laws and regulates legal flow of these materials. Consumer Product Safety 1972 Establishes mandatory product safety standards and bans sales of products that do not comply. National Regulatory Commission (NRC) 1974 Licenses the construction and operation of nuclear reactors and similar facilities; regulates nuclear materials; licenses the export of nuclear reactors and the export and import of uranium and plutonium. Some Regulatory Agencies and their Missions Agency Year Est. Primary Functions National Nuclear Security 2000 Monitors the nation’s nuclear bomb- building laboratories; overseas the military’s stockpile of nuclear weapons; protects the secrecy of U.S. weapons research. Transportation Security Administration (TSA) 2001 Controls passenger and baggage screening; regulates what passengers can carry; requires airlines to check bags through electronic screens; overseas all airport, land, and maritime security. Securities & Exchange Commission 1934 Five members, five-year terms; created to protect the public from investing in securities on the basis of false or misleading claims; registers brokers; regulates stock exchanges. Regulating Labor Federal regulations protect workers in the following areas, among others: Public Contracts Industrial Safety and Occupational Health Wages and Hours Child Labor Other Types of Regulation • Regulating markets • Regulating and protecting the environment The Deregulation Movement • Deregulation is a policy promoting cutbacks in the amount of federal regulation in specific areas of economic activity. • In the past, airlines, trucking, and railroads have been granted considerable freedom in conducting their operations. Transportation • In 1978 the Civil Aeronautics Board was abolished and aviation deregulated • Trucking and railroads have also been granted more freedom in recent decades Telecommunications Telecommunications Act of 1996 – The “V-chip” requirement – Regulation of internet content The Cost of Regulation Evaluating Regulatory Policy • Regulation disrupts the operation of the market • Regulation may discourage competition • Regulation may discourage technological development • Regulation increases costs to industry and consumers A Continued Federal Role • Congress and the president understand that the federal government must be active in the economic life of the nation. • Citizens exert a great deal of influence on economic policy.