shea chapter 14

14

The Policy Process and Economic Policy

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Making Public Policy

The Steps of Policymaking

Identifying the Problem

Setting an Agenda

Formulating and Legitimizing Policy

Implementing Policy

14.1

FIGURE 14.1: Public Policy Equation 14.1

The Steps of Policymaking

Policy Process Model Problem identification Policy formation Policy evaluation

The struggle over ideas Ideas are at the center of all political conflict How people interpret ideas and values How people use values to identify problems and

propose solutions

14.1

FIGURE 14.2: Uninsured Americans Under Age 65

14.1

FIGURE 14.3: The Policymaking Process

14.1

Identifying the Problem

Example: Global Warming Proponents of immediate government action point to

retreating glaciers, record temperatures Opponents of immediate government action suggest too

little evidence of human impact

Types of events Focusing event Trigger mechanism

14.1

Setting an Agenda

Getting an issue on the agenda People and groups with access to policymakers are

more successful

Keeping an issue on the agenda Issue-attention cycle – some issues will stay on agenda,

others will fade away Example: water quality following contamination in

Milwaukee, Wis.

14.1

Driving while texting 14.1

Formulating and Legitimizing Policy

Formulating Policy Crafting solutions to identified problems How a problem is identified affects its solutions

Legitimizing Policy Involves fairness, formal rules and transparency Absence of legitimacy may lead to coercion

14.1

Implementing Policy

Executive Branch Responsible for the bulk of the implementation Exercises reasonable discretion

Legislative Branch Provides legislative oversight Reauthorization and investigation

14.1

Evaluating Policy

Did the policy work? Establish criteria for evaluation Evaluation of policy effectiveness more complex and

less conclusive than in business

Medicare example Voucher program could have reduced deficit and been

declared a policy success Voucher program could have reduced quality of

healthcare for seniors and been declared a policy failure

14.1

14.1 Which of the following terms describes a situation which launches an issue into the consciousness of the public and policymakers?

14.1

a. Trigger mechanism

b. Issue-attention cycle

c. Focusing event

d. Coercion

Types of Public Policy

Categorizing Policies by Basic Functions of Government

Categorizing Policies by Tangible or Symbolic Benefits

Economic Policy

14.2

Categorizing Policies by Basic Functions of Government Distribution

Government distributes society’s resources by giving benefits to specific groups

Regulation Government uses legislative, military or judicial power

to either stop or compel certain actions

Redistribution Larger segment of society benefits from distribution

14.2

Categorizing Policies by Tangible or Symbolic Benefits Tangible Benefit Experienced in a material way Federal assistance for hurricane victims Health care insurance (Medicare)

Symbolic Benefit Does not offer concrete, material benefits Provides theoretical solution to a problem Feeling of security from investigation of intelligence

failures leading up to 9/11

14.2

Economic Policy

All policies have economic ramifications For the government that creates policies, or For the citizens affected by the policies

Some policies more directly connected to economics

Fiscal policy Monetary policy

14.2

14.2 Which of the following is not an example of a tangible benefit?

14.2

a. A city’s July 4th celebration

b. A tax deduction for student loan interest

c. A check from FEMA following a flood

d. Insurance that lowers the cost for

prescription drugs

14.2 Which of the following is not an example of a tangible benefit:

14.2

a. A city’s July 4th celebration

b. A tax deduction for student loan interest

c. A check from FEMA following a flood

d. Insurance that lowers the cost for

prescription drugs

Measuring Economic Performance

Inflation

Unemployment

Gross Domestic Product

Balance of Trade

The Budget Deficit

14.3

Inflation and Unemployment

Inflation The rate at which prices increase Consumer Price Index Deflation

Unemployment Percentage of Americans who are out of work Doesn’t include those not looking for work “Good” unemployment rate is 5% During recent recession unemployment rose to 10

percent before dropping to 8 percent now

14.3

FIGURE 14.4: Unemployment Rate 14.3

Gross Domestic Product and Balance of Trade

Gross Domestic Product (GDP) The value of all goods and services produced in a nation Measures size of American economy 3 or 4 percent growth rate is good

Balance of Trade Difference between imports and exports Trade surplus versus trade deficit United States has a trade deficit

14.3

The Budget Deficit

Budget deficit The amount, in a given year, by which government

spending exceeds government revenue

Budget surplus When revenue outstrips expenditures

National debt The net sum of the budget deficit minus the surplus is the

national debt What the government owes

14.3

FIGURE 14.5: Federal Deficits and Surpluses

14.3

14.3 What is a “good” rate of unemployment ?

14.3

a. 0 percent

b. 5 percent

c. 8 percent

d. 10 percent

Explore Economic Policy: Who Broke the Economy?

14.3

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The Key Players in the Development of Economic Policy

Major Actors

Key Congressional Players

14.4

Major Actors and Key Congressional Players

Major Actors Congressional Budget Office Office of Management and Budget Council of Economic Advisors

Key Congressional Players Committees

14.4

OMB Director Jeffrey Zients

14.4

14.4 The politics of taxing and spending is better known as:

14.4

a. Economic policy

b. Monetary policy

c. Fiscal policy

d. Budgetary policy

Revenue

Income Taxes

Payroll Taxes

The Tax Burden

Corporate Taxes

Other Taxes

Tax Analysis

14.5

FIGURE 14.6: The Federal Revenue Budget

14.5

Video: In Context 14.5


Income Taxes, Payroll Taxes, and the Tax Burden

Income Taxes Marginal tax bracket Taxable income

Payroll Taxes Employees pay half; employers pay half Tax split obscures full impact of its burden

The Tax Burden Top 10 percent of earners pay 50 percent of taxes; bottom

20 percent pay only 1 percent CBO analysis measures income, not wealth

14.5

TABLE 14.1: Tax Brackets, 2012 14.5

Video: In the Real World 14.5


Corporate Taxes and Other Taxes

Corporate Taxes Generate about 15 percent of the federal

government’s revenue Tops out at 35 percent, but many deductions and

credits reduce revenue Opportunities for numerous write-offs

Other Taxes Excise taxes, customs duties, inheritance taxes and

other miscellaneous

14.5

New York Stock Exchange14.5

Tax Analysis

Laffer curve There exists a tax rate above which government

revenue drops

Supply side economics Theory states cutting taxes will grow the economy

14.5

FIGURE 14.7: The Laffer Curve 14.5

Tax Analysis

Current reform proposals Flat tax versus national sales tax “Buffet Rule”

14.5

Video: Thinking Like a Political Scientist

14.5


14.5 All Americans pay this percentage of individual income tax on their first dollar of taxable income:

14.5

a. 6.2 percent

b. 10 percent

c. 15 percent

d. 25 percent

Expenditures

Social Security

Defense

Income Security

Government Medical Care

Interest and Other Spending

14.6

Social Security

Independent, off-budget program Intended to be self-financing Started running a deficit in the 1970s

Social Security Trust Fund Raised the retirement age Increased payroll taxes Treasury has borrowed from the Social Security Trust Fund

14.6

Defense

Personnel Salaries and health care Housing, family support and base operations

Weapons systems F-22 fighters or Joint Strike Fighters

War on Terror Defense spending at record levels, but still smaller percentage

of budget than during final stages of Cold War

14.6

Income Security and Government Medical Care

Income Security Earned-income credit, child tax credit, supplemental

security income, unemployment compensation and food stamps

Government Medical Care Medicare – health insurance program for retirees Medicaid – health insurance program for qualified low

income Americans

14.6

Medicare recipient 14.6

FIGURE 14.8: Social Security, Medicare, and Medicaid as a Percentage of GDP

14.6

Interest and Other Spending

Interest Interest on the debt for 2012 is $242 billion Almost 7 percent of the budget goes to interest Financing costs can change with interest rate changes

Entitlements Account for three out of every five dollars spent Social Security, Medicare, Medicaid

14.6

FIGURE 14.9: President Obama’s 2013 Proposed Budget (in Billions)

14.6

14.6 Spending on these programs accounts for about 60 percent of federal expenditures:

14.6

a. Entitlements

b. Defense

c. Entitlements and defense together

d. Transportation

Monetary Policy

The Federal Reserve Board

The Fed in Action

Monetary Policies versus Fiscal Policies

14.7

The Federal Reserve Board

Federal Open Market Committee (FOMC) The Fed’s policy making arm – uses five key tools as part of

monetary policy: Reserve ratios – cash on hand requirements Federal funds rate – market-driven interest rate Open-market operations – money manipulator Discount rate – interest Fed charges member banks Buy and sell foreign currencies

14.7

The Fed in Action

The Reign of Paul Volcker Appointed chairman in 1979, when the economy was

teetering on the edge of disaster Time of “stagnation” – combined stagnant GDP, rising

unemployment and rapid inflation Volcker cut the money supply, which cut inflation but

increased unemployment

The Reigns of Alan Greenspan and Ben Bernanke Focused more on inflationary risk and interest rates

14.7

Secretary of the Treasury Timothy Geithner and Federal Reserve Chairman Ben Bernanke

14.7

Monetary Policies Versus Fiscal Policies

Do not always work together Fed chairman frets about deficits Congress complains about too-tight money supply Fed could make federal government borrowing – and

thus deficits – more expensive

14.7

14.7 Which of these Fed chairman risked – and received – higher unemployment when he tightened the money supply?

14.7

a. Ben Bernanke

b. Timothy Geithner

c. Alan Greenspan

d. Paul Volcker

14.7 Which Fed chairman risked – and received – higher unemployment when he tightened the money supply?

a. Ben Bernanke

b. Timothy Geithner

c. Alan Greenspan

d. Paul Volcker

14.7

Explore the Simulation: You Are the Federal Reserve Chair

14.7

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Further Review: On MyPoliSciLab

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14

shea chapter 14

News & Politics

policy work

policy failure

public policy equation

policy success voucher

problem example

agenda issueattention

unemployment inflation

following terms