Chapter 16Economic and Social Welfare PolicymakingJenna Grunwald, Hannah Schaeffer, Rachel

Seagren, Brooke Knutson and Hannah Schaeffer

16.1 Economic Policymaking● "Sociotropic" voting- assessing overall rate of

employment and unemployment more than individual circumstances

● Social Welfare Policies: Policies that provide benefits, cash or in-kind, to individuals, based on either entitlement or means testing

● Democrats stress importance of keeping unemployment low- appeal to working class concerned w/employment

Republicans prioritize battle against inflation- appeal to voters w/more money to save and invest

16.1 Two major worriesUnemployment and inflation● Unemployment rate: (Measured by the Bureau of labor

Statistics) the proportion of the labor force actively seeking work but unable to find jobs

● BLS conducts surveys of 60,000 households each month- reports on first Friday

● Unemployment rate higher for young adults than other groups

● Underemployment rate: (Measured by BLS) statistic includes (1) people who aren't working and are actively seeking a job, (2) those who would like to work but have given up looking, and (3) those who are working part-time because they can't find full time position

16.1 cont...● Inflation: a rise in price of goods and services● BLS uses consumer price index (CPI): the

change in cost of buying a fixed basket of good and services

● Inflation rises:o 1973- Arab oil-producing nations cut off flow of oil to

US to protest American support for Israel during war w/ Egypt and Syria

o 1979- Iranian revolution disrupted flow of oil from Persian Gulf

o 1991- Iraq invasion of Kuwait, rose in anticipation of shortages

● Since then rate below 4%, briefly exceeded 5% in 2008

16.1 Policies for controlling Economy● Laissez-faire: the principle that

government should not meddle in the economyo President Herbert Hoover's strategy

during 1929 stock market crash and unemployment, crushed next election by Roosevelt's New Deal programs

● Since then both parties recognize capitalism must be somewhat regulated by federal government

16.1 Monetary PolicyMonetary Policy and the Fed● Chairman of Federal Reserve Board most important

economist- doesn’t need congressional support, huge impact, deliberates in secret w/public statements as clues to future actions

● Monetary Policy: government manipulation of supply of money and credit in private hands

● Monetarism: economic theory holding that the supply of money is the key to a nation’s economic health, with too much cash and credit in circulation producing inflation

● Monetarist advise rate of growth of money supply should not exceed gross domestic product (GDP)

16.1 cont...● Federal Reserve System: main instrument for

making monetary policy in the US. Created by Congress in 1913 to regulate lending practices of banks and thus the money supply (Fed)

● Buy + sell bonds to see if banks have money to lend

● Federal Open Market Committee (FOMC)- policy making body

● 1977 amendment to Federal Reserve Act- Congress imposed dual mandate: to promote max sustainable output and employment and to promote “stable” prices

16.1 Fiscal PolicyKeynesian v Supply-side Economics● Fiscal Policy: use of federal budget-- taxes, spending,

borrowing-- to influence economy. Almost entirely determined by President and Congress

● Keynesian economic theory: (John Maynard Keynes) government spending and deficits can help economy deal w/ups and downs

● Supply-side economics: (first applied during Reagan administration) key task for fiscal policy is to stimulate supply of goods, as by cutting tax rates

● Agree on one fundamental point: government’s responsibility to use fiscal policy to control economy

16.1 Controlling the Economy● billions of economic choices made by

businesses and consumers● Private sector larger than public

sector and dominates economy● Government spends only ¼ of GDP● cannot control- uncontrollable

expenditures (Social Security)● takes time to implement economic

policy

16.2 Types of Social Welfare ProgramsEntitlement Programs: Government programs providing benefits to qualified individuals regardless of need● Often referred to as Social Insurance programs● Rarely controversial and often overwhelmingly

popular since everyone is entitled to them● Do not have to be poor to get entitlement, nor

does being rich disqualify youo Ex: Social Security and Medicare

16.2 cont...Means-Tested Programs: Government programs providing benefits only to individuals who qualify based on specific needs● When the poor is seen as “Victims”, these are not

controversialo Liberals- see these programs as helping others

when they are going through hard times● When poor seen as “lazy”, there is much more

controversyo Conservatives- these programs can encourage

dependency and discourage work● Ex: Food Stamps and Medicaid

16.3 Income, Poverty & Public Policy● The US has one of the world’s highest

per capita incomes.● 2010 median household income:

$49,445● No industrialized country has wider

extremes than the US, and these extremes continue to widen.

16.3 Who get’s what?Income Distribution: The way the national income is divided into “shares” ranging from poor to rich● In the US, the rich have gotten richer, and

others have seen their incomes stagnate.Relative Deprivation: A perception by an individual that he or she is not doing well economically in comparison to others

16.3 The increase in income inequality & the rise of the top 1 percent:

16.3 Income vs. WealthIncome: The amount of money collected between any two points in time

Wealth: The value of assets owned

● Studies of wealth show even more inequality than those of income.

16.3 PovertyPoverty Line: The income threshold below which people are considered poor, based on what a family must spend for an "austere" standard of living, traditionally set at three times the cost of a subsistence diet.

16.3 Orshansky vs. ObamaStatistician Orshansky:Poverty line is the cost of the department of Agriculture's subsistence diet multiplied by three.

Obama Administration: Takes into account housing utilities, child care, medical treatment and variations in cost of living.

● Legislation was made based on the first one, so it remains the official measure of poverty.

16.3 Poverty & Distribution of Wealth In US in 2010: ● 46.6 million in poverty

or 15.2% of the population

● Over half of Americans between 25 and 75 will spend at least one year in poverty during their lives.

16.3 Characteristics of PovertyFeminization of Poverty: The increasing concentration of poverty among women, especially unmarried women and their children. ● 30% of single mom families are in poverty

compared to 10% of two parent families.● Poverty rates are higher for: African Americans,

Hispanics, Unmarried women, children, and inner-city residents.

● Poverty used to be a large problem for the elderly until Social Security.

16.3 Poverty Rates for persons with selected characteristics

16.3 How Public Policy Affects IncomeSince government spends 1 out of every 3 dollars in the American Economy, it is bound to have a major impact on citizen’s income & wealth. The two principal ways government affects income & wealth are through:1.Taxing Powers2.Expenditure Policies

16.3 TaxationProgressive Tax: A tax by which the government takes a greater share of the income of the rich than of the poor - for example, when a rich family pays 50% of its income to taxes, and a poor family pays 5%Proportional Tax: A tax by which the government takes the same share of income from everyone, rich and poor alikeRegressive Tax: A tax in which the burden falls relatively more heavily on low-income groups than on wealthy taxpayers. The opposite of a progressive tax, in which tax rates increase as income increasesEarned Income Tax Credit: Also known as the EITC, a refundable federal income tax credit for low- to moderate-income working individuals and families, even if they did not earn enough money to be required to file a tax return

16.3 Government ExpendituresTransfer Payments: Benefits given by the government directly to individuals - either cash transfers, such as Social Security payments, or in-kind transfers, such as food stamps and low-interest college loans● The poverty rate for the elderly declined from

35% in 1959 to 9% in 2010 because of social security & medicare.

● Many poor people have been raised above the poverty line from transfer payments.

16.3 Major Social Welfare Programs

16.4 Helping the Poor? Social Policy and the Needy ● Social Security Act of 1935: Created

both the Social Security Program and a national assistance program for poor families, usually called Aid to Families with Dependent Children

● Created by Franklin D. Roosevelt to deal with the depression

16.4 cont...War on Poverty:● Launched by Lyndon Johnson in 1964● Spurred by civil rights movement● Food stamps and other programsWar on Anti Poverty programs:● Ronald Reagan in 1981● cut welfare benefits and lower number receiving● “Welfare proved to be a failure”

16.4 cont...One of the major issues of Welfare is the negative connotation it has Stereotypes associated with Welfare:● “Deadbeat dads”- ran out on families leaving

them on Welfare ● “welfare queens”- collect money they don’t

deserve due to the broken system● “race coded”- African Americans, more

commonly on Welfare, perceived as lazy

16.4 Welfare Reform● Personal Responsibility and Work Opportunity

Reconciliation Act (enacted by Clinton): 1996 welfare reform law which implemented Temporary Assistance for Needy Families programo Each state would receive a fixed amount of

money to run its own welfare programso people on welfare would have to find work

within two years or lose all their benefitso There would be a lifetime maximum of five

years for welfare

16.4 cont….● Temporary Assistance for Needy Families

(New name for welfare): Replacing Aid to Families w/Dependent Children as program for public assistance to needy families, requires people on welfare to find work within 2 years and sets lifetime maximum of 5 years

● Due to Welfare reform welfare has been greatly reduced

● Welfare spending remains unpopular compared to most other governmental expenditures

16.4 How Welfare reform drastically reduced the Welfare rolls

16.5 Social Security: Living on Borrowed Time● Social Security Trust Fund: The "account" into

which Social Security employee and employer contributions are "deposited" and used to pay out eligible recipients

● Officially Old Age, Survivors and Disability Insurance (OASDI)

● 2011- first year more paid out of social security than paid in

● when social security was established average life expectancy was 65, now it is 78

● 75 million baby boomers retiring between 2010 and 2030

16.5 Reforming Social SecurityOptions for Social Security in the future:● gradually increase the age by which people

would be entitled to benefits● revise the inflation adjustment formula benefits

so that recipients would receive less of a raise each year

● reduce benefits for the retirees who have substantial income from other sources

● raise the maximum contribution that workers pay in to the system

16.6 Social Welfare Policy EverywhereMost European countries have many more social welfare programs than the U.S.● 50% of a European’s income goes to taxes● Europeans tend to support greater government

responsibility for poverty and social welfare concerns

● Majority of Americans believe it is an individual concern

● Europeans have more trust in their government concerning social welfare than Americans

16.7 Understanding Economic and Social Welfare Policymaking● Seeking balance between both competition and

compassion is at the center of most policy disagreements

● Americans decided to give up certain economic freedoms for the good of society as a whole by regulating minimum working age, and creating safe working conditions

● Social welfare programs are often kept in place even when they exceed budget and increase in size because of tremendous supporters of the programs

16.7 cont...Liberals believe that government should help the “deserving poor” and elderly with social welfare programs and we should help the free market by eliminating its “imperfections”Conservatives believe that government should let the economy do its own thing and more focus on how to fix the “imperfections of government”