domestic policy

Domestic PolicyDomestic Policy(Economic and Social Policy)

Chapter 17

IntroductionIntroduction

• Public Policy Process– The political interactions that lead to

the emergence and resolution of public policy issues.

– Three stage process:• Problem recognition• Policy formation• Policy implementation


• Problem Recognition– The stage of the policy process where

conditions in society become recognized as a public policy problem

• Policy Formation– The stage of the policy process where

a policy is formulated for dealing with a policy problem.


• Policy Implementation– The stage of the policy process where

a policy is put into effect and evaluated.

Economic PolicyEconomic Policy

• Economy– A system for the exchange of goods

and services between the producers of those goods and services and the consumers of them.


• Gross Domestic Product (GDP)– A statistic that measures all goods

and services produced by a nation’s economy.


• Laissez-faire economics– Holds that the owners of business should

be allowed to make their own production and distribution decisions without government regulation or control

– Advocated by Adam Smith in The Wealth of Nations (1776)

– Smith argued that producers will supply a good when there is a demand for it.

– A “free market capitalist” system


• Communism– Holds that free-market systems

exploit employees because they work for wages below their contributions, while owners of business reap the greatest rewards.

– A system whereby production is collectively owned.

– “From each according to their ability, to each according to their need”


• Mixed Economies– The most common free market

economy today.– The main focus is on private firms and

transactions, but a substantial role is also given to the government.

– United States is a mixed economy– The free market is allowed to exist, but

government steps in when needed, usually through regulation.


• The Economic Policies of the United States are broken into two distinct types:– Fiscal Policy– Monetary Policy


• Fiscal Policy– Policy designed to improve the

economy through spending and taxation.


• Fiscal policy originates in the economic theories of John Maynard Keynes and his work The General Theory of Employment, Interest and Money (1936).

• Keynes advocated that an economic downturn could only be shorted by increased government spending.


• Economic Depression– A very severe and sustained economic

downturn. Depressions are rare in the United States, with the last one in the 1930s

• Economic Recession– A moderate but sustained downturn in the

economy. Recessions are part of the economy’s normal cycle of ups and downs.

– When GDP drops in size for two consecutive quarters


• Deficit Spending– The situation when the government

spends more than it collects in taxes and other revenues

– This can be accomplished through the borrowing and printing of money.

– This can be used to place money in the hands of consumers, which they will spend, which will stimulate production, which will create jobs and improve the economy.


• Demand Side Economics– A form of fiscal policy that

emphasizes “demand” (consumer spending). Government can use increased spending or tax cuts to place more money in consumer’s hands and thereby increase demand.


• Budget Deficit– The situation when the government’s

expenditures exceed its tax and other revenues.

• Public Debt (National Debt)– The total amount of money that the

federal government owes.– National Debt

http://www.brillig.com/debt_clock/


• Balanced Budget– The situation when the government’s

tax and other revenues for the year are roughly equal to tis expenditures.

• Budget Surplus– The situation when the government’s

tax and other revenues exceed its expenditures.


• Supply-side economics– A form of fiscal policy that

emphasizes “supply” (production). – Example: Tax cut for business.– Designed to encourage investment in

business and capital markets, creating economic growth that results in new employment and income. As jobs increase so does spending, creating economic growth.


• Advocated by Ronald Reagan in his “trickle down economics”

• Also advocated by George W Bush, who initiated sharp cuts in the capital gains tax.

• Capital gains tax– The tax that individuals pay on money

gained from the sale of a capital asset, such as property or stocks.


• Progressive Tax– “The more you earn, the higher a

percentage you pay” – Income Tax

• Regressive Tax– “The less you earn, the higher a

percentage you pay” – Sales tax

The Federal Budget The Federal Budget ProcessProcess

• Step 1: (Spring) The President consults the advice of the Office of Management and Budget (OMB) and informs them of special budget instructions for other agencies.

• Step 2: (Summer) OMB relays these instructions and the agencies begin preparing their individual budgets.


• Step 3: (September) OMB reviews the proposed budgets of the agencies.

• Step 4: (December) OMB prepares a final budget for the President, including all executive agencies.


• Step 5: (January) President submits executive budget proposal to Congress for approval. This budget is just a request, and does not have to be followed)

• Step 6: (April) Congress adopts budget resolution (to establish overall spending and revenue levels)


• Step 7: (summer) The House and Senate Appropriations Committees and Sub-Committees review budget items and make recommendations


• Step 8: (September) Work House and Senate versions of the appropriations bills concludes, and conference committees work out any differences between the two. This final version is sent to the President to the signed or vetoed.

• Step 9: (October 1st) Fiscal Year begins.


• Monetary Policy– Policy designed to improve the

economy by controlling the supply of available money.


• Federal Reserve Board ( “The Fed”)– Has control over the money supply– Created by the Federal Reserve Act of

1913– Board of 7 governors appointed by the

President (subject to Senate confirmation) for 14 year terms

– Regulates all National Banks and all State Banks which choose to become members of the Federal Reserve System


• Affects the money supply in two ways:– Deciding how much money is in

circulation by raising or lowering the cash reserve member banks are required to deposit with the Fed.

– Lowering or raising the interest rate that member banks are charge when they borrow from the Federal Reserve. Banks that aren’t in the Federal Reserve System will still usually mimic the fluctuations in the interest rate.


• Controlling inflation is a function of both fiscal and monetary policy.

• Inflation– A general increase in the average level of

prices of goods and services.– Fiscally, inflation control occurs when taxes

are increased, thus reducing demand.– Monetarily inflation control occurs when

money is removed from circulation, this reducing the potential for demand.

Income Security PolicyIncome Security Policy

• Poverty Line– The annual cost of a thrifty food budget for

an urban family of four, multiplied by three to allow also for the cost of housing, clothes and other expenses.

– As defined by the federal government: $22,050 (for a family of four)

– Families below the poverty line are considered poor and are eligible for certain forms of public assistance.


• Transfer Payments– Government benefits that are given

directly to individuals, as in the case of social security payments to retirees.

– Most transfer payments are distributed through entitlement programs.


• Entitlement Programs– Any of a number of individual-benefit

programs, such as social security, that require government to provide a designated benefit to any person who meets the legally defined criteria for eligibility.

– Same force of law as taxes. Once a person meets a certain criteria, they are entitled by law to receive an entitlement.


• Social Insurance• Public Assistance


• Social Insurance– Social welfare programs based on the

“insurance” concept, requiring that individuals pay into the program in order to be eligible to receive funds from it.


• Social Security• Unemployment Insurance• Medicare


• Social Security was established in 1935 with the intent of providing a type of insurance for a large segment of the public.

• Social Security is not a pension fund. • Workers Per Retiree

– Initially for every recipient of Social Security there were forty workers paying into the general fund—a one-to-forty ratio. Today, the ratio is more like one-to-three, and it will get worse in future years.

Workers Per RetireeWorkers Per Retiree

US Life ExpectancyUS Life Expectancy

Income Security PolicyIncome Security Policy• Public Assistance

– A term that refers to social welfare programs funded through general tax revenues and available only to financially needy.

– Available to those who qualify under a means test.

• Means Test– The requirement that applicants for public

assistance must demonstrate that they are poor in order to be eligible for the assistance.


• Food Stamps• Subsidized Housing• Medicaid


• Temporary Assistance for Needy Families– Established new work requirements

for welfare recipients and limits on the number of years an individual can receive assistance


• In-Kind Benefit– A government benefit that is a cash

equivalent, such as food stamps or rent vouchers. This form of benefit ensures that recipients will use public assistance in a specialized way.

Healthcare PolicyHealthcare Policy

• Medicare– A federal health insurance program that

covers US residents over the age of sixty-five. The costs are met by a tax on wages and salaries.

• Medicaid– A joint state-federal program that provides

medical care to the poor. The program is funded out of general government revenues.

Healthcare PolicyHealthcare Policy

• Universal Coverage– “Coverage for all”– More than 40 million Americans are without

health insurance

• National Health Insurance– A plan under which the government

provides basic health insurance to all citizens. In most of these plans, the program is funded by taxes on wages or salaries.

domestic policy

Documents

economic downturn

economic policydemand

economic policyeconomya

stage process

government regulation

increased government

common free market economy

nations economy