1 Domestic Policy (1). Outline the various economic theories proposed for managing the economy. (1)....

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1 Domestic Policy Domestic Policy (1). (1). Outline the various Outline the various economic theories economic theories proposed for proposed for managing the economy. managing the economy. (2). Contrast (2). Contrast fiscal policy fiscal policy and and monetary policy monetary policy , and explain the , and explain the key role of key role of the Fed the Fed .” .” (3). Assess Government's ability to manage the economy in (3). Assess Government's ability to manage the economy in view of the view of the Lucas critique Lucas critique . . (4). Discuss US distribution of (4). Discuss US distribution of income & wealth income & wealth and the role and the role of of supply-side economics supply-side economics. (5). Assess whether the US should pursue an (5). Assess whether the US should pursue an industrial policy industrial policy or remain a or remain a free market free market . . (6). Describe the basic concepts & categories of how the (6). Describe the basic concepts & categories of how the Government regulates business. Government regulates business. (7). Describe the key government (7). Describe the key government economic economic and and social social regulatory agencies regulatory agencies & their role.. & their role.. (8). Assess the effectiveness and projected impact of (8). Assess the effectiveness and projected impact of current current environmental policy. environmental policy. (9). Describe the various (9). Describe the various concepts concepts and and categories categories of of Social Social Welfare policy Welfare policy . . (10). Contrast (10). Contrast social insurance social insurance w/ w/ public public assistance assistance & explain the & explain the role of role of means testing means testing. (11). Outline (11). Outline Social Welfare Policy Social Welfare Policy and assess impact of the and assess impact of the Social Security Act of 1935 Social Security Act of 1935 . . (12). Assess the current and future status of (12). Assess the current and future status of Social Social

Transcript of 1 Domestic Policy (1). Outline the various economic theories proposed for managing the economy. (1)....

Page 1: 1 Domestic Policy (1). Outline the various economic theories proposed for managing the economy. (1). Outline the various economic theories proposed for.

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Domestic PolicyDomestic Policy • (1).(1). Outline the various Outline the various economic theorieseconomic theories proposed for managing the economy. proposed for managing the economy.• (2). Contrast (2). Contrast fiscal policyfiscal policy and and monetary policymonetary policy, and explain the key role of , and explain the key role of ““the the

FedFed.”.”• (3). Assess Government's ability to manage the economy in view of the (3). Assess Government's ability to manage the economy in view of the Lucas Lucas

critiquecritique..• (4). Discuss US distribution of (4). Discuss US distribution of income & wealthincome & wealth and the role of and the role of supply-side supply-side

economicseconomics..• (5). Assess whether the US should pursue an (5). Assess whether the US should pursue an industrial policyindustrial policy or remain a or remain a free free

marketmarket..• (6). Describe the basic concepts & categories of how the Government regulates (6). Describe the basic concepts & categories of how the Government regulates

business.business.• (7). Describe the key government (7). Describe the key government economiceconomic and and social social regulatory agenciesregulatory agencies & their & their

role..role..• (8). Assess the effectiveness and projected impact of current (8). Assess the effectiveness and projected impact of current environmental policy.environmental policy.• (9). Describe the various (9). Describe the various concepts concepts andand categories categories of of Social Welfare policySocial Welfare policy..• (10). Contrast (10). Contrast social insurancesocial insurance w/w/publicpublic assistanceassistance & explain the role of & explain the role of means means

testingtesting..• (11). Outline (11). Outline Social Welfare Policy Social Welfare Policy and assess impact of the and assess impact of the Social Security Act of Social Security Act of

19351935..• (12). Assess the current and future status of (12). Assess the current and future status of Social SecuritySocial Security, , WelfareWelfare, and , and Health Health

PolicyPolicy

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Managing the EconomyManaging the EconomyA Brief Historical OverviewA Brief Historical Overview

• From Government From Government RestraintRestraint to Government to Government Intervention:Intervention:– 1800 to early 1900s dominated by late 181800 to early 1900s dominated by late 18 thth century economic century economic

theory:theory:• Classical economicsClassical economics=> => lassez faire*lassez faire*

An economic theory, dominant at the start of the twentieth century, that argued that the federal government's only role in the economy was to ensure a stable supply of money.

Theory applied to Hoover’s balanced budget as solution to

what major economic crisis?

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Managing the EconomyManaging the EconomyA Brief Historical Overview (2)A Brief Historical Overview (2)

• Start of the Start of the Great DepressionGreat Depression=> => 25% unemployment25% unemployment

• 1929 stock market crash=> 1929 stock market crash=> – ““Hoovervilles”Hoovervilles” to protest lack of aggressive Federal action to protest lack of aggressive Federal action

– Public impatient with inability of Government to fix problemPublic impatient with inability of Government to fix problem

• 1932 Presidential election => 1932 Presidential election => landslide election oflandslide election of FDRFDR– First Hundred DaysFirst Hundred Days => => aggressive Federal action to fix $$$aggressive Federal action to fix $$$

– New DealNew Deal programs=> Federal projects & spending programs=> Federal projects & spending

– ObjectiveObjective: spur economy to life=> get America back to work: spur economy to life=> get America back to work

• Examine FDR’s economic policy to spur economyExamine FDR’s economic policy to spur economy

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• Major economic events and actions of FDR’s Presidency:

•Became President in 1933

•During Great Depression the U.S. suffered 25% unemployment

•Roosevelt’s Administration instituted the New Deal

• At first employed public works programs.

• Later used government spending to spur on the economy

FDR’s Economic PolicyFDR’s Economic Policy

What kind of Government economic policy uses spending to spur $$$?

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Using the federal government's control

over taxes and spending to influence the condition of the national economy.

Fiscal PolicyFiscal Policy

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Managing the Economy: Managing the Economy: Fiscal PolicyFiscal Policy • Fiscal PolicyFiscal Policy => =>

– Government policy to Government policy to Tax and SpendTax and Spend

– What economic theorist came up with this concept?What economic theorist came up with this concept?

• John Maynard Keynes John Maynard Keynes – 2020thth century economic theorist century economic theorist

– Wrote: Wrote: General Theory of Employment, Interest, & General Theory of Employment, Interest, & MoneyMoney

– Less jobs=> less $$$=> low consumption=> low Less jobs=> less $$$=> low consumption=> low GDPGDP

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Keynesian EconomicsKeynesian Economics

• Active government role in the Nation’s economy: Active government role in the Nation’s economy: – CreateCreate surplus & deficitsurplus & deficit – how?– how?

– Through manipulation of the BudgetThrough manipulation of the Budget

• ObjectiveObjective: : – Stimulate or retard aStimulate or retard a “Boom or Bust” economy “Boom or Bust” economy

• How achieved?=>How achieved?=> – Federal action: Federal action: taxtax (less $$ in economy) or… (less $$ in economy) or…

– spendspend (put more $$ in economy) (put more $$ in economy)

– Forever after associated withForever after associated with “New Deal Democrats” “New Deal Democrats”

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An economic theory, based on the work of British economist John Maynard Keynes, that contends that the national government can manage the economy by running budget surpluses and budget deficits. A measure of a country's

total economic output in any given year.

GDP

Keynesian Economics

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Application of Application of Keynesian EconomicsKeynesian Economics

• During During RecessionRecession:*:*• Government should Government should

spend to raise demand & spend to raise demand & thus spur economythus spur economy

• Okay to run a budget Okay to run a budget deficitdeficit

• Overheated economyOverheated economy::• Government should cut Government should cut

spending to controlspending to control inflation inflation (How?)(How?)

• Raise taxes to take $$ out Raise taxes to take $$ out of economyof economy

• This will cut demand & This will cut demand & slow economy downslow economy downComplication to above theory:

counter-cycle programs

Automatic government programs “kick in” to counter downturn Food Stamps Public Assistance Unemployment compensation

Examine Recession cycle in greater detail*

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Supply and

demand for goods

and services

fall

Because businesses can’t sell goods, they

fire workers and produce less

Because people

have less money, they buy

less

Unemployment rises and the

overall GDP falls

Cycle of Cycle of RecessionRecession

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Managing the EconomyManaging the Economy

• Besides Besides Fiscal Policy Fiscal Policy (or Federal (or Federal Tax & SpendingTax & Spending))– What’s the other way to manage the economy?What’s the other way to manage the economy?

• Controlling theControlling the Money SupplyMoney Supply

• What economic theory advocates control of money supply?What economic theory advocates control of money supply?

• Monetary TheoryMonetary Theory::– Nation’s money supplyNation’s money supply is is primaryprimary to economy’s health to economy’s health

– Therefore Therefore controlling the circulation of moneycontrolling the circulation of money in in Nation’s economy will control inflation or spur Nation’s economy will control inflation or spur economic growtheconomic growth

• WhoWho controls the Nation’s money supply and controls the Nation’s money supply and howhow does it does it control it?control it?

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The Federal ReserveThe Federal Reserve

• An An independent regulatory commissionindependent regulatory commission that Congress that Congress created in 1913 to oversee the nation's money supply.created in 1913 to oversee the nation's money supply.

• How does Federal Reserve control the money supply?How does Federal Reserve control the money supply?

• Control of Nation’s money supply by “Control of Nation’s money supply by “The FedThe Fed””

– Set the Set the discount rate discount rate => => (i.e. (i.e. short term interest rates)short term interest rates)

– Buy or sell Buy or sell U.S. Treasury SecuritiesU.S. Treasury Securities=> => (Savings Bonds)(Savings Bonds)

– Change required Change required reserve ratioreserve ratio

• Ratio of money Bank must hold in reserve & can’t loanRatio of money Bank must hold in reserve & can’t loan

• Examine structure of the Examine structure of the Federal ReserveFederal Reserve=>=>

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The The Federal ReserveFederal Reserve

• Four Key PartsFour Key Parts:: 1. The1. The Board of GovernorsBoard of Governors 2. The 2. The Federal Open Market CommitteeFederal Open Market Committee 3. Twelve 3. Twelve Regional Federal Reserve BanksRegional Federal Reserve Banks 4. The 4. The commercial bankscommercial banks that are that are

membersmembers of of Federal Reserve System*Federal Reserve System*

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Federal Reserve SystemFederal Reserve System

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Government Management of the EconomyGovernment Management of the Economy

• AssessmentAssessment: :

– Can the Government effectively manage the economy?Can the Government effectively manage the economy?

• Role & impact of the Role & impact of the Lucas critiqueLucas critique

– Public’s & private corporations’ response to Gov. Public’s & private corporations’ response to Gov. actions to counter its ill effects on their $$ interestsactions to counter its ill effects on their $$ interests

• The “new Keynesians” (math models & sticky wages)The “new Keynesians” (math models & sticky wages)

• Debate & disagreements centered around following: Debate & disagreements centered around following:

– How economy worksHow economy works & & proper Gov. policy to be appliedproper Gov. policy to be applied

• Bottom LineBottom Line: : – No sure resolution on Gov. role (big or small role)No sure resolution on Gov. role (big or small role)

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Current Status of Economic StewardshipCurrent Status of Economic Stewardship

• 12 economists with 13 conflicting opinions12 economists with 13 conflicting opinions

• Applying Applying Fiscal & MonetaryFiscal & Monetary controls=> controls=>

– AimAim: economic stability: economic stability

• Impact on economy of Government management actions: Impact on economy of Government management actions:

– Gradual dampening of Boom & Bust swingsGradual dampening of Boom & Bust swings**

– Recent trends since 1950*Recent trends since 1950*

• Continuing disagreements over how to manage economy:Continuing disagreements over how to manage economy:

– Distribution of Income & WealthDistribution of Income & Wealth

– Supply-side economicsSupply-side economics & the “trickle down” effect & the “trickle down” effect

– Industrial PolicyIndustrial Policy (as practiced in Japan) (as practiced in Japan)

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A Century of US Economic GrowthA Century of US Economic Growth

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Debate on Management of EconomyDebate on Management of Economy

• Continuing disagreements over how to manage economy:Continuing disagreements over how to manage economy:

– Growing gap: Growing gap: Distribution of Income & Wealth:Distribution of Income & Wealth:

05

101520253035404550

1980 1998

Richest 20%Poorest 20%

U.S. income distribution as a percentage of income earned

2005

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Wealth: income, real estate, stocks, bonds, and material goods.

Top 1% ($2.3M+)

Control 40% of all wealth in United States

Top 20% ($1.8K+)

Control 80% of all wealth in the United States

US Wealth & Income DistributionUS Wealth & Income Distribution

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An economic theory that argues that if the government cuts taxes, reduces spending, and eliminates

regulations, resources will be freed up to fuel the economy to produce even more goods and services.

Debate of Management of Economy (2)Debate of Management of Economy (2)Supply Side Economics*Supply Side Economics* & the & the “Trickle Down” Effect“Trickle Down” Effect

•Another proposal to manage economy?

•Industrial Policy* (as practiced in Japan)

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Government Aid

The government selects an industry that it thinks can be a world leader and spur

on the economy

Tax Incentives

R & D Funds

Regulation Exemption

Industrial Policy*Industrial Policy*

Any downside to this approach?

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Industrial PolicyIndustrial Policy Challenge Challenge

• How accurate can government bureaucrats predict How accurate can government bureaucrats predict which particular industry or corporation will be which particular industry or corporation will be the next up and coming winner?the next up and coming winner?– Past government track record & efficiency in spending Past government track record & efficiency in spending

money don’t inspire confidencemoney don’t inspire confidence

• What if investors in the market or future consumers What if investors in the market or future consumers disagree with the government’s selection & don’t disagree with the government’s selection & don’t buy it or go another direction instead?buy it or go another direction instead?

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Regulating BusinessRegulating Business• Regulatory policyRegulatory policy

– Origins: Origins: Interstate Commerce Act of 1887Interstate Commerce Act of 1887 (Box 17-1) (Box 17-1)• Purpose: Purpose: Control unfair & monopolistic practices of who?Control unfair & monopolistic practices of who?

– ““Short” versus “Long Haul” prices to market?Short” versus “Long Haul” prices to market?

• Public attitude towards Public attitude towards regulatory policy=>regulatory policy=>– Mixed & many times conflicting – Mixed & many times conflicting – why?why?

• Theory versus realityTheory versus reality– TheoryTheory: : Government should stay out of business Government should stay out of business versus?versus?

– Reality: Reality: Consumer protection & small businessesConsumer protection & small businesses

• Two major categories Two major categories Regulatory policyRegulatory policy? ? – Economic regulationEconomic regulation

– Social regulationSocial regulation

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• Rules affecting business practices

• Seeks to ensure competition and prevent illegal monopolies

Economic Regulations*

Social Regulations*

• Rules that protect citizens from dangerous or unfair practices associated with how businesses produce products or with the products themselves.

RegulationsRegulations

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Objectives of Economic RegulationObjectives of Economic Regulation • Government influences competitive practices of industryGovernment influences competitive practices of industry

– Promote competitionPromote competition (prevent monopolies- (prevent monopolies- MicrosoftMicrosoft))• Stifle competition & innovations in softwareStifle competition & innovations in software

– Control firms’ entryControl firms’ entry into industry or control industry’s into industry or control industry’s pricesprices• When a Monopoly is necessary-When a Monopoly is necessary- examples? examples?

• Role of Role of Interstate Commerce Commission of 1889Interstate Commerce Commission of 1889 (RR)(RR)

• Disagreement in principle & practiceDisagreement in principle & practice

– Impact of recent trends in Impact of recent trends in deregulationderegulation• Savings & Loans (1980s)Savings & Loans (1980s)

• AirlinesAirlines

• How has economic regulation evolved over US history?How has economic regulation evolved over US history?– Evolved in three major phases*Evolved in three major phases*

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• Congress responds to farmers’ and small Congress responds to farmers’ and small businesses’ complaints about major monopolies businesses’ complaints about major monopolies & trusts& trusts– 1887 establishes1887 establishes Interstates Commerce Interstates Commerce

Commission (ICC)Commission (ICC)• Commission with no real enforcement capabilityCommission with no real enforcement capability

– 18901890 Sherman Antitrust Act Sherman Antitrust Act (against monopolies)(against monopolies)• General statement of intent (still lacked teeth to enforce)General statement of intent (still lacked teeth to enforce)

– 19141914 Clayton Antitrust ActClayton Antitrust Act• Fix above weakness- established enforcement mechanismFix above weakness- established enforcement mechanism

– 1914 1914 Federal Trade Commission ActFederal Trade Commission Act• (Same as above)(Same as above)

Important Events in Economic RegulationImportant Events in Economic RegulationPhase IPhase I

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Events in Economic RegulationEvents in Economic RegulationPhase IIPhase II

• More regulation following events leading to More regulation following events leading to DepressionDepression

– 1934 1934 Federal Communications Commission (FCC)Federal Communications Commission (FCC)

– 1934 1934 Securities and Exchange Commission (SCC)Securities and Exchange Commission (SCC)

– 1938 1938 Civil Aviation Board (CAB)Civil Aviation Board (CAB)

• 1960s=> Federal Government established 1960s=> Federal Government established four key areasfour key areas of economic regulatory policy:of economic regulatory policy:– Antitrust-Antitrust- Prevent monopolies & encourage competition Prevent monopolies & encourage competition

(Microsoft suit)(Microsoft suit)

– Financial Institutions-Financial Institutions- Savings & Loans/SEC/Enron debacleSavings & Loans/SEC/Enron debacle

– TransportationTransportation- - Air/Ground/RailAir/Ground/Rail

– Communication- FCCCommunication- FCC (Radio & TV)(Radio & TV)

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Events in Economic RegulationEvents in Economic RegulationPhase IIIPhase III

• Economic Regulation=>Economic Regulation=> 1970s through present: 1970s through present:– DeregulationDeregulation=> benefits & unintended consequences=> benefits & unintended consequences

– Mixed bag- sometimes good & sometimes bad:Mixed bag- sometimes good & sometimes bad:

• DeregulationDeregulation is is goodgood for consumer when: for consumer when:– Competition rises & prices fallCompetition rises & prices fall

• Telecoms, Computers, AirlinesTelecoms, Computers, Airlines

• Deregulation Deregulation can be can be very badvery bad for the public when: for the public when:– Corporate greed leads to poor service & risky business decisionsCorporate greed leads to poor service & risky business decisions

• Airline services to passengersAirline services to passengers

• Savings & Loan default (tax payers pick up tab)Savings & Loan default (tax payers pick up tab)

• Stock Market price manipulation & fraudulent accounting Stock Market price manipulation & fraudulent accounting (Enron)(Enron)

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Social RegulationSocial Regulation

• Social RegulationSocial Regulation focus on focus on conditionsconditions under which=>under which=>

– Goods & services Goods & services are producedare produced

• When contrasted withWhen contrasted with economic regulationeconomic regulation::

– Social regulationsSocial regulations cut acrosscut across industries industries • (vice focus on a specific industry)(vice focus on a specific industry)

– Regulations grounded in Regulations grounded in specific technical legislationspecific technical legislation • Very specific & detailedVery specific & detailed

• vice vague & general guidelines of vice vague & general guidelines of economic regulationseconomic regulations

• Aim: Aim: protect public interest protect public interest

• Principal Federal Agencies established to administer: Principal Federal Agencies established to administer: – Social regulationSocial regulation from 1930 through 1975 ( from 1930 through 1975 (See Table 17-1)See Table 17-1)**

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AgencyAgency YearYearFood and Drug AdministrationFood and Drug Administration 19301930

National Labor Relations BoardNational Labor Relations Board 19351935

Equal Employment Opportunity Equal Employment Opportunity CommissionCommission

19641964

Environmental Protection AgencyEnvironmental Protection Agency 19701970

Occupational Safety and Health Admin.Occupational Safety and Health Admin. 19701970

National Highway and Traffic SafetyNational Highway and Traffic Safety 19701970

Consumer Product Safety AgencyConsumer Product Safety Agency 19721972

Nuclear Regulatory CommissionNuclear Regulatory Commission 19751975

Social RegulationSocial Regulation Agencies Agencies

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Protecting Worker Safety and HealthProtecting Worker Safety and Health

• Occupational Safety and Health Act of 1970Occupational Safety and Health Act of 1970– Created Created OSHAOSHA => => regulate industry=> worker safetyregulate industry=> worker safety

• Problems & criticismProblems & criticism– Too detailed & complicated regulationsToo detailed & complicated regulations

– Employers complaints (time & $$$ to comply)Employers complaints (time & $$$ to comply)

• Labor Union & consumer advocates => support Labor Union & consumer advocates => support – Posted regulations Posted regulations (see example p.623)(see example p.623)

• Debate Debate OSHAOSHA’s’s over proper role continues over proper role continues – Debate centered around Debate centered around costs versus benefitscosts versus benefits

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OSHAOSHA Regulations Regulations

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Protecting the EnvironmentProtecting the Environment • Evolution of Evolution of Environmental PolicyEnvironmental Policy (Silent Spring) (Silent Spring)

– 1960s => environmental activists movement1960s => environmental activists movement– Union Oil of California Union Oil of California oil spill off oil spill off Santa BarbaraSanta Barbara=> =>

• VIP & public outcry (who owns homes off West Coast?)VIP & public outcry (who owns homes off West Coast?)

• National Environmental Policy Act (1969)National Environmental Policy Act (1969)::– Requirement for Requirement for Environmental impact statementEnvironmental impact statement– Required for all government agenciesRequired for all government agencies– Later exploited by environmental activists Later exploited by environmental activists

• ((Endangered Species ActEndangered Species Act))

• Nixon Nixon consolidates various agencies intoconsolidates various agencies into EPA EPA (1970) (1970) – Vast array of laws & regulations ensuedVast array of laws & regulations ensued (Table 17-2 (Table 17-2))**

• (It was the early 70s after all)(It was the early 70s after all)

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EPA EPA ResponsibilitiesResponsibilities

So what areas exactly does the EPA regulate?

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The Environmental Protection Agency regulates:

•Air Quality

•Water Quality

•Disposal of Hazardous Waste

•Chemicals

•Noise Levels

Protecting the EnvironmentProtecting the Environment

Any problem* with Government regulations to protect the environment?

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Congress

President

EnvironmentalPolicy impact

Public

Republicans Democrats

Political Conflict & Who is effectedPolitical Conflict & Who is effected

Why?

regulationsregulations

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Environmental Policy Conflict & Its ImpactEnvironmental Policy Conflict & Its Impact

• Political conflicts of Political conflicts of Environmental ProtectionEnvironmental Protection– Environmental policies creates: Environmental policies creates: Winners & losersWinners & losers – Due to those affected by Due to those affected by benefits vs. costsbenefits vs. costs

– Somebody has to pay for itSomebody has to pay for it

• Other related factorsOther related factors::– Diffused benefitsDiffused benefits (to Public) (to Public) with with specific costsspecific costs to a few to a few

(Industry)(Industry)

– Benefits often hard to measureBenefits often hard to measure

– Measuring extent of environmental problem very difficultMeasuring extent of environmental problem very difficult

– Costs rise significantlyCosts rise significantly for each incremental improvements at for each incremental improvements at the marginthe margin

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Future DirectionsFuture Directions

• Future Directions for Environmental PolicyFuture Directions for Environmental Policy– Conflicting guidance=> to the Conflicting guidance=> to the EPA EPA

– Democrats (want more regulation) vs. Democrats (want more regulation) vs.

– GOP (who want less regulation)GOP (who want less regulation)

• Options for Options for how government protectshow government protects environment environment – Three different methodsThree different methods::

– 1. Command & control1. Command & control**

– 2. Market incentives2. Market incentives

– 3. Pollution prevention3. Pollution prevention

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Command and ControlMarket Incentives &

Pollution Prevention• Agencies draft

regulations

• Agencies dictate enforcement mechanisms

• Establish allowable pollution levels

• Issue permits to pollute

• Recipients can trade and sell permits

Differing Options to Protect EnvironmentDiffering Options to Protect EnvironmentA Comparison:A Comparison:

Debate & great conflict over environmental policy to continue

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Government programs that provide goods and services to citizens to improve the

quality of their lives.

SocialSocial Welfare PolicyWelfare Policy

What is Social Welfare Policy?

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PromotingPromoting Social WelfareSocial Welfare

• Federal government runs broad range of programsFederal government runs broad range of programs– Several specifically designed to promote social welfareSeveral specifically designed to promote social welfare

• Basic Concepts and Categories of Basic Concepts and Categories of Social Welfare PolicySocial Welfare Policy – Fed programs=> Fed programs=>

• goods & services to improve Public’s quality of lifegoods & services to improve Public’s quality of life

• What are the two major categories ofWhat are the two major categories of Social WelfareSocial Welfare??– Social InsuranceSocial Insurance programs & qualificationsprograms & qualifications

• You pay in to the program=> you qualify You pay in to the program=> you qualify (example?)(example?)

– Public AssistancePublic Assistance => => means testedmeans tested programs programs

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Social welfare strategiesSocial welfare strategies

• What are the three What are the three social welfaresocial welfare strategies? strategies?– 1. 1. Alleviative Alleviative

• (food stamps & “Meals on Wheels”)(food stamps & “Meals on Wheels”)

– 2. 2. PreventativePreventative • (Unemployment Compensation & Social Security)(Unemployment Compensation & Social Security)

– 3. 3. CurativeCurative • (“Head Start” & job training)(“Head Start” & job training)

If given an example, can you ID the proper strategy?!

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Social WelfareSocial Welfare Programs Programs

• Income maintenanceIncome maintenance programs programs

• NutritionNutrition programs programs

• HealthHealth programsprograms

• HousingHousing programs programs

• EducationEducation programs programs

• Social servicesSocial services programs programs

What are the different types of Social Welfare Programs?

See Table 17-3 for specific associated programs by type

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The Evolution of The Evolution of Social Welfare PolicySocial Welfare Policy

• Welfare as Welfare as privateprivate sector & sector & local responsibilitylocal responsibility

– True for first half of our Nation’s historyTrue for first half of our Nation’s history

• Federal government initial involvement: “Federal government initial involvement: “deserving poordeserving poor”” – 1880s thru 1910s => 1880s thru 1910s =>

• Focused on Focused on disabled & elderly Veteransdisabled & elderly Veterans

• State government also expanded State government also expanded selective benefitsselective benefits – Addressed needs of other poor citizensAddressed needs of other poor citizens

– Both Federal & State governments targetBoth Federal & State governments target “ “deserving poordeserving poor” ” onlyonly

• Then what major event caused both to reconsider who Then what major event caused both to reconsider who should take lead in addressing needs of its citizens?should take lead in addressing needs of its citizens? * *

– What major legislation was enacted as a result?*What major legislation was enacted as a result?*

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• Act established Federal programs providing goods & services to improve the lives of American citizens in two major areas:

• 1. Provided Social Insurance programs for elderly and disabled

• 2. Established Public Assistance programs to help blind, elderly, and dependent children

Impact of Impact of Great DepressionGreat Depression & the & the New DealNew Deal

Social Security Act of 1935Social Security Act of 1935**

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Nationalizing Nationalizing Social WelfareSocial Welfare – A Summary– A Summary

• Social Security Act of 1935Social Security Act of 1935 – Significantly expanded FederalSignificantly expanded Federal government’s welfare rolegovernment’s welfare role

• Social insuranceSocial insurance programs programs (elderly & unemployed) (elderly & unemployed)– Created as old age & survivors programCreated as old age & survivors program

– 1956: Congress adds 1956: Congress adds Disability InsuranceDisability Insurance

• Social SecuritySocial Security has grown significantly over the years has grown significantly over the years – Both in number of Both in number of ““entitledentitled”” and costs of administration and costs of administration

– BeneficiariesBeneficiaries grew fromgrew from 222K222K in 1940 in 1940 to to 46.4 Million46.4 Million by 2003 by 2003

– Increased costs: $Increased costs: $32M 32M (1940) to (1940) to $454 Billion$454 Billion in pay out in 2003 in pay out in 2003

• Cost increase due toCost increase due to inflationinflation & & COLACOLA over 60 year spanover 60 year span

• FICA FICA deductions have also increased (Chapter 16)deductions have also increased (Chapter 16)

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Public AssistancePublic Assistance Programs Programs

• Administration left to states => Administration left to states => – Care for elderly, poor, blindCare for elderly, poor, blind

• 1972: Congress standardized benefits & eligibility1972: Congress standardized benefits & eligibility– Supplemental Security Income (SSI)Supplemental Security Income (SSI)

– Cost grew:Cost grew: from $495 from $495 MillionMillion in 1940 to in 1940 to 32.232.2 Billion Billion in 2001in 2001

• 1960s: 1960s: ADCADC => => AFDCAFDC (controversial from start)(controversial from start)– (1996: (1996: AFDCAFDC replaced by replaced by TANFTANF ) )

• 1964: LBJ’s 1964: LBJ’s War on PovertyWar on Poverty– Number of additional program createdNumber of additional program created

– Economic Opportunity ActEconomic Opportunity Act of 1964 of 1964

– Job Corps & Head StartJob Corps & Head Start (associated with what strategy?) (associated with what strategy?)

– Food Stamp programFood Stamp program (significantly grew over decades)(significantly grew over decades)

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Public AssistancePublic Assistance Programs- problems Programs- problems

• Many Many War on Poverty War on Poverty programs eventually phased programs eventually phased outout – – why?why?

• Activists poor challenged established powerActivists poor challenged established power– Traditional establishments controlled distribution of Traditional establishments controlled distribution of

Public Assistance (and resented this challenge to Power)Public Assistance (and resented this challenge to Power)

– Political bias Political bias forfor alleviative/preventativealleviative/preventative & & against against curative curative programsprograms

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Health CareHealth Care

• Two major categoriesTwo major categories of Health Care? of Health Care?

Medicare* Medicaid**(versus)

What’s the difference between the two?

*A social insurance program that provides basic hospital insurance and supplementary insurance for doctors' bills and other health care expenses for people over the age of 65 or older

(Entitlement)

**A public assistance program that provides publicly subsidized health care to

low-income Americans.

(Means Tested)

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Current Status ofCurrent Status of Social Welfare PolicySocial Welfare Policy

• CriteriaCriteria used used to measureto measure Social Welfare PolicySocial Welfare Policy status:status:– 1. Social welfare Policies of 1. Social welfare Policies of other Industrial other Industrial

DemocraciesDemocracies

– 2. Social Welfare vs. 2. Social Welfare vs. other typesother types of U.S. government of U.S. government spendingspending

– 3. 3. Spending Spending on on different typesdifferent types of Social Welfare of Social Welfare programsprograms

– 4. 4. Objective measurements Objective measurements of success of Social Welfare of success of Social Welfare ProgramsPrograms

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1. Policies of other Industrial Democracies1. Policies of other Industrial DemocraciesA ComparisonA Comparison

• Full Health care provided by other Industrial Full Health care provided by other Industrial DemocraciesDemocracies

• US spends less on social welfare than Japan & US spends less on social welfare than Japan & EuropeEurope– US spends 30% of Budget vs. 40% of European budgetsUS spends 30% of Budget vs. 40% of European budgets

– Europeans receive greater amount of government Europeans receive greater amount of government servicesservices

– Health care paid in full by governmentHealth care paid in full by government

• American tradition of relying on private sectorAmerican tradition of relying on private sector– Strong bias againstStrong bias against big government & social medicine big government & social medicine

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2. 2. Social WelfareSocial Welfare vs. other types of spending vs. other types of spending

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YearYear Social Social Insur-Insur-anceance

Public Public AidAid

Health/ Health/ MedicalMedical

Veteran’s Veteran’s ProgramsPrograms

EducationEducation HousingHousing OtherOther

19701970 49.5%49.5% 14.3%14.3% 18.8%18.8% 10.8%10.8% 0.6%0.6% 1.3%1.3% 0.1%0.1%

20002000 42.0%42.0% 10.5%10.5% 41.8%41.8% 2.5%2.5% 1.1%1.1% 3.0%3.0% 0.2%0.2%

3. Spending on different types of Social Welfare3. Spending on different types of Social Welfare

Distribution of Social Welfare Expenditures Across Programs

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4. Measuring success of Social Welfare4. Measuring success of Social Welfare• Conservative positionConservative position: complete failure: complete failure

– Traps poor in poverty cycle=> permanent underclassTraps poor in poverty cycle=> permanent underclass• Liberal positionLiberal position: : work in progresswork in progress

– Needs moderate reform but still effectiveNeeds moderate reform but still effective• Objective measuresObjective measures => reveals mixed success => reveals mixed success

– Poverty has fallen since 1970 (from 13%)Poverty has fallen since 1970 (from 13%)– 20002000: fell to 11.3% : fell to 11.3% poverty ratepoverty rate=> then back up to => then back up to 12.512.5 in in 20032003

– Nevertheless: major gap exists between two groups:Nevertheless: major gap exists between two groups:• Old (10.2%) vs. children (17.6% in 2003) & growingOld (10.2%) vs. children (17.6% in 2003) & growing

– Infant mortality rateInfant mortality rate has fallen to 7 per 1000 births has fallen to 7 per 1000 births• Social effects on society also reveal some negatives: Social effects on society also reveal some negatives:

– Significant increase in Significant increase in divorce, single parent families, & crimedivorce, single parent families, & crime

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The Future ofThe Future of Social Welfare PolicySocial Welfare Policy

• Social SecuritySocial Security – two debated questions – two debated questions– 1. 1. On whom should government spend $$$ (old or young?)On whom should government spend $$$ (old or young?)

– 2. 2. Is Is Social SecuritySocial Security headed forheaded for insolvency insolvency??**• (and (and what should we do about it if it is?what should we do about it if it is?))

• Welfare PolicyWelfare Policy – the uneasy balance in conflict: – the uneasy balance in conflict:– The The safety netsafety net versus theversus the free ridefree ride – 1996 Welfare Reform law1996 Welfare Reform law::

• Abolished Abolished AFDC AFDC => => TANFTANF - striking a proper balance? - striking a proper balance?• ConcernsConcerns: : Impact of the Impact of the economic recessioneconomic recession on unemployed? on unemployed?• Poor & unemployedPoor & unemployed trying to make ends meet at the trying to make ends meet at the

marginmargin

• Health PolicyHealth Policy** => Two major concerns: => Two major concerns: cost & accesscost & access– How to stem costsHow to stem costs & & who should have accesswho should have access

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Social SecuritySocial Security

Options to address problem?

Increase taxes, reduce benefits, restrict eligibility

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Major concerns with Major concerns with Health CareHealth Care system system

• Access Access andand Cost Cost

Who pays the costs of the uninsured?

Impact of Baby Bommers

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Domestic Policy- Domestic Policy- Key TermsKey Terms

• Counter-cyclical programsCounter-cyclical programs: : Government programs that automatically increase Government programs that automatically increase spending when the economy slows down and unemployment rises, and decrease spending when the economy slows down and unemployment rises, and decrease spending when the economy speeds up.spending when the economy speeds up.

• Economic regulationEconomic regulation:: Laws and governmental rules that affect the competitive Laws and governmental rules that affect the competitive practices of private business.practices of private business.

• Environmental impact statementEnvironmental impact statement:: A document federal agencies must issue that A document federal agencies must issue that analyzes the environmental impact of any significant actions they plan to take.analyzes the environmental impact of any significant actions they plan to take.

• Federal Reserve SystemFederal Reserve System:: An independent regulatory commission that Congress An independent regulatory commission that Congress created in 1913 to oversee the nation’s money supply.created in 1913 to oversee the nation’s money supply.

• Fiscal policyFiscal policy:: Using the federal government’s control over taxes and spending to Using the federal government’s control over taxes and spending to influence the condition of the national economy.influence the condition of the national economy.

• Food Stamp programFood Stamp program:: A public assistance program established in 1964 that A public assistance program established in 1964 that provides stamps (or coupons) to low-income people to buy food.provides stamps (or coupons) to low-income people to buy food.

• Gross domestic product (GDPGross domestic product (GDP):): A measure of a country’s total economic output A measure of a country’s total economic output in any given year.in any given year.

• Industrial policyIndustrial policy:: The policy of seeking to strengthen selected industries by The policy of seeking to strengthen selected industries by targeting them for governmental aid rather than letting the forces of the free targeting them for governmental aid rather than letting the forces of the free market determine their fates.market determine their fates.

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Domestic Policy- Domestic Policy- Key Terms Key Terms (2)(2)• Keynesian economicsKeynesian economics:: An economic theory, based on the work of British An economic theory, based on the work of British

economist John Maynard Keynes, that contends that the national government can economist John Maynard Keynes, that contends that the national government can manage the economy by running budget surpluses and budget deficits.manage the economy by running budget surpluses and budget deficits.

• Laissez faireLaissez faire:: An economic theory, dominant at the start of the twentieth An economic theory, dominant at the start of the twentieth century, that argued that the federal government’s only role in the economy was century, that argued that the federal government’s only role in the economy was to ensure a stable supply of money.to ensure a stable supply of money.

• Lucas critiqueLucas critique:: An economic theory that contends that if people act rationally, An economic theory that contends that if people act rationally, then their reactions to changes in government policy will often negate the intent then their reactions to changes in government policy will often negate the intent of those changes.of those changes.

• Means testMeans test:: A requirement that people must fall below certain income and A requirement that people must fall below certain income and wealth requirements to qualify for government benefits.wealth requirements to qualify for government benefits.

• MedicaidMedicaid:: A public assistance program that provides publicly subsidized health A public assistance program that provides publicly subsidized health care to low-income Americans.care to low-income Americans.

• MedicareMedicare:: A social insurance program that provides basic hospital insurance A social insurance program that provides basic hospital insurance and supplementary insurance for doctors’ bills and other health care expenses for and supplementary insurance for doctors’ bills and other health care expenses for people over the age of 65.people over the age of 65.

• Monetary theoryMonetary theory:: An economic theory that contends that a nation’s money An economic theory that contends that a nation’s money supply, or the amount of money in circulation, is the primary if not sole supply, or the amount of money in circulation, is the primary if not sole determinant of the health of the national economy.determinant of the health of the national economy.

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Domestic Policy- Domestic Policy- Key Terms Key Terms (3)(3)• Public assistancePublic assistance:: Government programs, such as Medicaid and food stamps, that are Government programs, such as Medicaid and food stamps, that are

funded out of general tax revenues and that are designed to provide benefits only to low-funded out of general tax revenues and that are designed to provide benefits only to low-income people.income people.

• Regulatory policyRegulatory policy:: Laws and government rules targeting private business for the purpose Laws and government rules targeting private business for the purpose of (1) protecting consumers and other businesses from what the government deems unfair of (1) protecting consumers and other businesses from what the government deems unfair business practices; (2) protecting workers from unsafe or unhealthy working conditions; business practices; (2) protecting workers from unsafe or unhealthy working conditions; (3) protecting consumers from unsafe products; and (4) protecting a number of groups (3) protecting consumers from unsafe products; and (4) protecting a number of groups from discrimination.from discrimination.

• Social insuranceSocial insurance:: Government programs such as Social Security and Medicare that Government programs such as Social Security and Medicare that require those who will receive benefits to make contributions (otherwise known as taxes) require those who will receive benefits to make contributions (otherwise known as taxes) and that distribute those benefits without regard to the recipient’s level of income.and that distribute those benefits without regard to the recipient’s level of income.

• Social regulationSocial regulation:: Laws and governmental rules designed to protect Americans from Laws and governmental rules designed to protect Americans from dangers or unfair practices associated with how private businesses produce their products dangers or unfair practices associated with how private businesses produce their products as well as from dangers associated with the products themselves.as well as from dangers associated with the products themselves.

• Social welfare policySocial welfare policy:: Government programs that provide goods and services to citizens Government programs that provide goods and services to citizens for the purpose of improving the quality of their lives.for the purpose of improving the quality of their lives.

• Supply-side economicsSupply-side economics:: An economic theory that argues that if the government cuts An economic theory that argues that if the government cuts taxes, reduces spending, and eliminates regulations, resources will be freed up to fuel the taxes, reduces spending, and eliminates regulations, resources will be freed up to fuel the economy to produce even more goods and services.economy to produce even more goods and services.

• Temporary Assistance for Needy Families (TANF):Temporary Assistance for Needy Families (TANF): A public assistance program that A public assistance program that provides government aid to low-income families with children for a limited amount of provides government aid to low-income families with children for a limited amount of time.time.