Policy ProcessLaws are like sausages, it is better not to see them being made.  

Otto Von Bismarck

Five Steps: 1

• Problem Recognition or Agenda Setting– An issue can be brought to the government’s

attention through citizens, interest group activities, or court cases

– An issue could be related to a party’s position or a campaign promise

* When the parties don’t agree about what issues are important, it can be difficult to get government action

Five Steps: 2

• Policy Formulation– If people agree to act on a problem, one or

more plans must be developed– Plans are commonly generated by politicians

or involved interest groups– When the proposed actions are very different,

compromise becomes vital

Five Steps: 3

• Policy Adoption– The proposed policy becomes official– This is commonly legislation, an executive or

bureaucratic order, or a court decision– Policies are often created through a series of

small actions taken over time

Five Steps: 4

• Policy Implementation– The policy must be put into practice

• The public must be informed• There must be a means of monitoring compliance• The must be a means of enforcement• There must be consequences for non-compliance

Five Steps: 5

• Policy Evaluation– Evaluation of the policy takes place over time

• Some policies have a rough start and recover• Some policies seem great, then experience

unforeseen difficulties or high costs– Changes or corrections start with recognition

that a problem exists, and usually starts the whole cycle over again

– Policy making is a continuous process

Monetary Policy

• Monetary policy – Affects supply of money, interest rates, and control of inflation

• Federal Reserve System – Makes monetary policy and regulates the lending practices of banks• The Fed is intended to be beyond the control of either

the president or Congress• Its seven-member Board of Governors is appointed by

the president (and confirmed by the Senate) for 14-year terms—a length of the time designed to insulate them from political pressures

Tools of the Fed• The Federal Open Market Committee (FOMC)

• sets a target for the “federal funds rate,” the interest rate banks can charge each other for overnight loans

• The Fed also buys and sells government bonds, which determines whether banks have more or less money to lend out.

• The more money banks have to lend, the cheaper borrowing is; if banks have less to lend, borrowing becomes more expensive, and interest rates rise.

Fiscal Policy

• Controlled by the executive and legislative branches through the budget process

• Fiscal policy deals with tax policy and government spending programs

• Laissez-faire economics dominated til FDR, then the government became more active

Keynesian vs. Supply-Side voodoo Economics

On our left…

• Keynesian economic theory – Government spending (and resulting deficits) can help the economy deal with its ups and downs• Results in big government• Favored by Democrats • Government must stimulate greater demand,

when necessary, with bigger government and higher spending (such as federal job programs)

…and to our right…

• Supply-Side Economics – Cutting tax rates will stimulate the supply of goods and creates jobs; greater spending power will increase demand–a.k.a. Reaganomics, Trickle-down

Economics, J-Lo-nomics• Favored by Republicans• Leads to smaller government

Does it matter?• Most policies must be decided a year or more before

their full impact will be felt on economy• Budgetary process is dominated by uncontrollable

expenditures mandated by law, and many benefits automatically increase with the cost of living• The American free enterprise system imposes the biggest restraint on

controlling the economy• The billions of economic choices made by consumers and businesses

are more important in their impact than are government policies• The federal government only spends 25% of our GDP• Consumers and businesses make the vast majority of our economic

decisions because the private sector is much larger than the public sector

Revenue I

• Personal and Corporate Income Tax – Shares of individual wages and corporate revenues collected by the government (progressive tax)

• Today corporate taxes yield only about 12 cents of every federal revenue dollar, compared with 44 cents coming from individual income taxes

• Sixteenth Amendment – Explicitly authorized Congress to levy a tax on income

• Capital Gains Tax – on profits derived from sales of real estate or stock

Revenue II

• Social Insurance Taxes– Both employers and employees pay Social

Security and Medicare taxes (regressive tax)• Unlike other taxes, these payments are specifically

earmarked for the Social Security Trust Fund to pay benefits.

• Social Security taxes have grown faster than any other source of federal revenue (1957 -12 percent of federal revenues; today about 36 percent)

Revenue III

• Excise Tax – tax on the manufacture, sale, or consumption of a good or service

• Estate and Gift Tax – imposed on the assets of someone who dies or gifts over $14,000

• Custom Duties – tariffs on goods brought into the U.S. from abroad

• Borrowing– Treasury Department sells bonds when the

federal government wants to borrow money– Today the federal debt is about $17.5 trillion

Spending I

• Discretionary Spending– Programs not required by law– Government can choose to cut spending

• Defense• Education• Agriculture• Transportation• Research Grants

Spending II

• Mandatory Spending (Entitlements)– Congress and the president cannot change

spending– Over 60% of federal spending falls into this area– Entitlement programs guarantee a level of benefits

to persons who meet the legal requirements• Social Security• Medicare and Medicaid• Food Stamps• Unemployment insurance• Veteran’s pensions

Social Security

• The Social Security Act of 1935– Put in place a social safety net to help those in

need (private charities and local relief overwhelmed)

– Workers contribute to a fund while employed– Workers receive benefits from the fund upon

retirement– Originally 25 workers for each beneficiary– Currently ~ 3 workers for each beneficiary>>>>>>Solutions????

Medicare

• Medicare Act of 1965– Originally only covered hospital bills for citizens 65 and

older– Currently four parts

• Part A – hospitalization• Part B – out patient, doctor visits• Part C – Medicare Advantage (better coverage, higher cost to

participant)• Part D – Prescriptions (closed the “donut hole”)

– Patients often have deductibles, co-pays and other out of pocket costs including premiums• Supplemental programs (Medigap), Medicaid

Medicaid

• Social Security Amendments of 1965– Medical coverage for low income families– Means tested, income based– Co-funded by federal and state– Administered by the states– Affordable Care Act (2010) attempted to force

states to expand Medicaid, deemed unconstitutional by SCOTUS

Domestic Policy

• Agriculture• Drug• Education• Energy • Environmental• Health• Housing• Immigration• Social

Foreign Policy

• International relations• Trade• Defense• Military• Terrorism• Human rights• War on Drugs