Public Policy0Results from battles among citizens, groups, and

public officials0 Determines who gets what, where, and how0 Shapes future outcomes0 Creates arrangements that confer advantages to some

political actors and disadvantages to others0Occurs in context of tension between capitalism and

democracy0 Policies debated openly and determined within democratic

institutions0 Outcomes responsive (at least in part) to public opinion and

what mobilized groups demand0Democratic features of policy making constrained and

distorted by0 Advantages capitalism confers0 Patterns of inequality0 Uneven access to political institutions

Economic Policy0 Gross Domestic Product (GDP) = total goods and services

produced0 Government has grown since 1950s (Table 9.1)

0 increasing activities of government (social welfare and defense)0 Size of government small in comparison

0 Tax burden light: lower % of GDP in form of taxes (Figure 9.1)0 Spends less as % of GDP (Figure 9.2)0 Leaner benefits and fewer public services0 Small public sector employment

0 Government lacks power to manage economy and significantly influence behavior of private firms0 Corporate managers enjoy greater autonomy0 Firms subject to fewer government regulations

0 Modes and institutional constraints: Fiscal (budget) and monetary policy (interest rates)0 Fiscal policy divided between Congress and President0 Monetary policy controlled by “independent” Federal Reserve Board

(FED)

Fiscal Policy0Manipulates total amount of government revenue and

spending to manage overall demand0 Budget deficits stimulate economy (unemployment)0 Budget surpluses restrain economy (inflation)

0Budget more than fiscal tool – establishes priorities and values of government0 Determines winners and losers; distributes costs and

benefits0 Reveals relationships of power

0Budget process involves partisan, institutional, and interest group conflict0 Starts with President and goes to Congress (budget

committees)0 Appropriations bills emerge and are sent to President

Taxes0 Highly contentious – level, types, shares0 Receipts rose from 1983-2000 (20% GDP)

0 Bush’s tax cuts reversed trend (16.5% by 2003)0 Decline in revenue, rising federal deficits => debt payments strain

government’s ability to provide services

0 Federal government (Table 9.2)0 Corporate income taxes declined (loopholes, credits, accounting

gimmicks, shelters); supposed to be 35% (not 20%)0 Excise taxes (alcohol, cigarettes, gas) down0 Social Security payroll taxes up

0 Progressive (rich pay larger proportion of income) or Regressive (tax rates same regardless of income)?0 Regressive (Figure 9.3): tax burden roughly same for all income groups

0 Incentives through exemptions, rebates, deductions (mortgage interest; depreciation for equipment; IRAs)0 Tax expenditures = public subsidies through favored tax treatment; not as

visible; less likely to arouse conflict0 “subterranean politics” results in very complex tax code

Spending

0 Groups struggle over how much should be spent; what it should be spent on

0 Government expenditures have increased (1950, 15.6% of GDP; 2008, 21%)0 Government does more (Social Security; Medicare/Medicaid; EPA;

other functions)

0 Federal outlays for defense and welfare (Table 9.3)0 Welfare state expenses account for 63.6% of all spending (2008)0 Welfare and warfare account for 93% of all outlays0 All other tasks get remaining 7%

0 2/3 of all government spending mandatory (debt, entitlement programs (e.g., Social Security, food stamps, Medicare))

0 1/3 discretionary spending (jurisdiction of Appropriations Committees)0 Largest is defense (1/2 of all discretionary spending)

Monetary Policy0 Manipulation of interest rates, cost of money

0 High rates slow economy; low rates encourage borrowing, spending

0 Differential impact on groups0 Controlled by Federal Reserve Board (FED)

0 Determines interest rate banks pay to borrow money (low rates increase money

supply)0 Buys and sells government bonds (puts more money into circulation)0 Sets reserve rate banks must hold on deposits (higher rates decrease money

supply)

0 FED (created in 1913) substantial autonomy (independence from Congress and President) insulates monetary policy from democratic control0 Subject to capture by banks => representatives in policymaking bodies;

mobilization of bias (what is good for banks is good for economy)

0 Changes under Bernanke (took over from Greenspan, 2008)0 Support for regulation of financial sector; FED lender of last resort0 Purchases and guarantees (over $5 trillion) dwarfs bailout money0 More active, more regulatory oversight, more investments (make it more target

of lobbying, jeopardizes independence)0 Remains very cozy with financial sector (What’s good for Wall Street is good for

America)

Regulation0 Authorized by Congress, bureaucracy sets rules firms must follow 0 U.S. has comparatively low level of government regulation0 Government regulation necessary because markets are not self-regulating, will not

protect public interest and social values0 Progressive and New Deal Eras (first wave) popular pressure prompted government to

create economic regulation for specific industries (prices, standards, competition, licenses)0 Interstate Commerce Commission (1887) – regulate railroad rates and routes0 Federal Trade Commission (1914) – protect consumers from unfair business practices0 Food and Drug Administration (1931) – protect consumers from tainted foods, harmful drugs0 Securities and Exchange Commission (1934) – protect investors from fraud

0 Agencies often captured by industry; “revolving door”; serve interests of industry rather than public

0 Second wave (1960s) demanded social regulation, across industries (antidiscrimination, environmental regulations, workplace safety)0 Civil rights agencies – protect against discrimination0 Environmental Protection Agency (1970) – develop/enforce environmental standards0 Occupational Safety and Health Administration (1970) – establish/monitor workplace safety

and health standards0 Consumer Products Safety Commission (1972) – ensure product safety

0 Prompted counteroffensive by business community calling for “regulatory reform”0 Ongoing conflict over standards, enforcement, and industry capture