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Chapter 12Economic and

Social Policy

Chapter 14

Economic and

Social Policy

Chapter 14: Economic and Social Policy

The Key Players in Economic Policy Making: Congress

• Congress is at the center of economic policy

making.

• Fiscal policies are government decisions

regarding taxing and spending.

• Ways and Means Committee (House) and

Finance Committee (Senate)

• Monetary policies are government decisions

regarding control over the money supply and

interest rates.

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Keynesian Economics

• The key paradigm in fiscal policy is Keynesian

economics:

• the idea that the economy can be fine-tuned

through what John Maynard Keynes called

“countercyclical” taxing and spending

• (cut taxes and raise government spending

during bad times; do the reverse during good

times).

The Key Players in Economic Policy Making

• Congress (cont’d)

• Recall from Chapter 10, “The Congress,” that

budget making is a decentralized endeavor.

• There have been battles between Congress

and the executive branch.

• Nixon and the Budget and Impoundment

Control Act of 1974

• The Congressional Budget Office provides

Congress with independent expertise on

budgetary issues.

The FDIC

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The Key Players in Economic Policy Making: the President

• President has under him:

• Office of Management and Budget

• Council of Economic Advisers

• U.S. Trade Representative

• National Economic Council

The Key Players in Economic Policy Making: the Bureaucracy

The Key Players in Economic Policy Making: Treasury Department

• In general, Treasury:

• Manages federal finances

• Collects taxes

• Produces money (currency and coinage)

• Supervises the national banks

• Advises on all kinds of economic policy

• Enforces federal finance and tax laws

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The Key Players in Economic Policy Making

• Courts

• The courts have no direct involvement in

economic policy making. However, when we

look at the developing world, it becomes clear

that legal matters such as contract law, patent

law, and the like help to create a solid, legal

foundation for economic development.

Goals of Economic Policy: Full Employment and Stable Prices

Goals of Economic Policy: Promote Free Market and Growth

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Goals of Economic Policy: Balanced Budgets

Federal Debt

Tools and Theories of Economic Policy: Fiscal Policy

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Tools and Theories of Economic Policy: Fiscal Policy

Top Marginal Tax Rates, 1913–2010

Tools and Theories of Economic Policy

• Monetary policy

• The Fed uses central monetary policy tools.

• Reserve requirement: the minimum amount of money

a bank must have on hand to back up its assets

• Discount rate: short-term loan interest rates banks

must pay on loans from the Federal Reserve Bank

• Federal funds rate: the interest rate a bank pays on

an overnight loan provided by a different bank

• Open market operations: the process used by the

Fed to buy and sell securities, which influences the

money supply

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Tools and Theories of Economic Policy: Regulatory Policy

• Economic regulation deals with price setting of the

conditions of entry facing firms in a particular

industry, while social regulation concerns itself

with issues of safety and quality.

Case Study: 2008–2009 Economic Crisis

• Problems in the subprime mortgage industry forced the government to intervene in 2008.

• Took coordination among all economic players: Federal Reserve, Treasury, Congress, and the financial industry

• The bailouts were successful in stabilizing the financial sector but were unpopular.

History and Background of Social Policy

• Generally, we think of social policy in terms of a

“social safety net” or welfare.

• A broader interpretation includes government

programs aimed at societal goal such as support

for public schools.

• Throughout much of our nation’s history, the

federal government paid little attention to social

welfare.

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• Civil War pensions (paid between 1880 and 1910)

were among the first forays into social policy.

• After the 1929 stock market crash, presidential

candidate Franklin Roosevelt promised a “new

deal for the American people.” Many of the New

Deal policies required the government to get

involved in the economy.

History and Background of Social Policy: New Deal policies

• Agricultural Adjustment Administration

• National Recovery Administration

• Public Works Administration

• Federal Emergency Relief Administration

• Social Security

• National Labor Relations Act


• The Great Society under President Lyndon Johnson expanded social welfare policy.

• Civil Rights Act

• Voting Rights Act

• War on Poverty

• Many social programs were eliminated during the Reagan years.

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Poverty and Income Inequality

Poverty and Income Inequality

Social Policy Today: Social Security

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Social Policy Today: Social Security

Social Policy Today: Health Care


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• Patient Protection and Affordable Care Act signed in 2010

• Comprehensive coverage

• Electronic medical records

• Comparative effectiveness research

• Law has proven controversial and despite being upheld by the Supreme Court, remains unsettled in the long run

Social Policy Today: Income Support and Welfare

• Income support is broader than welfare.

• Example: the earned income tax credit

• Provides tax credits for workers who do not earn

enough to pay taxes

• Food stamps are government-issued coupons

that can be used to buy groceries (same as cash).

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Participation in Means-Tested Programs

T H E B U D G ET P R O C ES S

1ST MONDAY IN FEB.

The president submitsbudget to Congress.

WITHIN SIX

WEEKS OF

PRESIDENT’S

SUBMISSION

Other committees submit “views and estimates” to budget committees.

Budget Conference Committee reconciles House and Senate

versions of the budget resolution.

EARLYAPRIL

House Budget Committee creates its budget resolution and the House votes on it.

Senate Budget committee creates its budget resolution and the Senate votes on it.

FEB.15TH

CBO issues budget and economic outlook report.

BYAPRIL15TH

House votes onconference version.

Senate votes on conference version.

Start of the fiscal year.

OCT1ST

APPROPRIATIONS

After both houses approve the budget

resolution, appropriations committees

draft legislation authorizing

expenditures. Each appropriations

bill must be passed by both houses

and signed into law by the president.

If not completed by October 1st,

and no temporary measure

(a “continuing resolution”) is in place,

the government will shut down.

ch. 14

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