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Domestic Policy

Domestic Policy. (Economic and Social Policy) Chapter 17. Introduction. Public Policy Process The political interactions that lead to the emergence and resolution of public policy issues. Three stage process: Problem recognition Policy formation Policy implementation. Introduction.

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Domestic Policy

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  1. Domestic Policy (Economic and Social Policy) Chapter 17

  2. Introduction • Public Policy Process • The political interactions that lead to the emergence and resolution of public policy issues. • Three stage process: • Problem recognition • Policy formation • Policy implementation

  3. Introduction • Problem Recognition • The stage of the policy process where conditions in society become recognized as a public policy problem • Policy Formation • The stage of the policy process where a policy is formulated for dealing with a policy problem.

  4. Introduction • Policy Implementation • The stage of the policy process where a policy is put into effect and evaluated.

  5. Economic Policy • Economy • A system for the exchange of goods and services between the producers of those goods and services and the consumers of them.

  6. Economic Policy • Gross Domestic Product (GDP) • A statistic that measures all goods and services produced by a nation’s economy.

  7. Economic Policy • Laissez-faire economics • Holds that the owners of business should be allowed to make their own production and distribution decisions without government regulation or control • Advocated by Adam Smith in The Wealth of Nations (1776) • Smith argued that producers will supply a good when there is a demand for it. • A “free market capitalist” system

  8. Economic Policy • Communism • Holds that free-market systems exploit employees because they work for wages below their contributions, while owners of business reap the greatest rewards. • A system whereby production is collectively owned. • “From each according to their ability, to each according to their need”

  9. Economic Policy • Mixed Economies • The most common free market economy today. • The main focus is on private firms and transactions, but a substantial role is also given to the government. • United States is a mixed economy • The free market is allowed to exist, but government steps in when needed, usually through regulation.

  10. Economic Policy • The Economic Policies of the United States are broken into two distinct types: • Fiscal Policy • Monetary Policy

  11. Economic Policy • Fiscal Policy • Policy designed to improve the economy through spending and taxation.

  12. Economic Policy • Fiscal policy originates in the economic theories of John Maynard Keynes and his work The General Theory of Employment, Interest and Money (1936). • Keynes advocated that an economic downturn could only be shorted by increased government spending.

  13. Economic Policy • Economic Depression • A very severe and sustained economic downturn. Depressions are rare in the United States, with the last one in the 1930s • Economic Recession • A moderate but sustained downturn in the economy. Recessions are part of the economy’s normal cycle of ups and downs. • When GDP drops in size for two consecutive quarters

  14. Economic Policy • Deficit Spending • The situation when the government spends more than it collects in taxes and other revenues • This can be accomplished through the borrowing and printing of money. • This can be used to place money in the hands of consumers, which they will spend, which will stimulate production, which will create jobs and improve the economy.

  15. Economic Policy • Demand Side Economics • A form of fiscal policy that emphasizes “demand” (consumer spending). Government can use increased spending or tax cuts to place more money in consumer’s hands and thereby increase demand.

  16. Economic Policy • Budget Deficit • The situation when the government’s expenditures exceed its tax and other revenues. • Public Debt (National Debt) • The total amount of money that the federal government owes. • National Debt

  17. Economic Policy • Balanced Budget • The situation when the government’s tax and other revenues for the year are roughly equal to tis expenditures. • Budget Surplus • The situation when the government’s tax and other revenues exceed its expenditures.

  18. Economic Policy • Supply-side economics • A form of fiscal policy that emphasizes “supply” (production). • Example: Tax cut for business. • Designed to encourage investment in business and capital markets, creating economic growth that results in new employment and income. As jobs increase so does spending, creating economic growth.

  19. Economic Policy • Advocated by Ronald Reagan in his “trickle down economics” • Also advocated by George W Bush, who initiated sharp cuts in the capital gains tax. • Capital gains tax • The tax that individuals pay on money gained from the sale of a capital asset, such as property or stocks.

  20. Economic Policy • Progressive Tax • “The more you earn, the higher a percentage you pay” – Income Tax • Regressive Tax • “The less you earn, the higher a percentage you pay” – Sales tax

  21. The Federal Budget Process • Step 1: (Spring) The President consults the advice of the Office of Management and Budget (OMB) and informs them of special budget instructions for other agencies. • Step 2: (Summer) OMB relays these instructions and the agencies begin preparing their individual budgets.

  22. The Federal Budget Process • Step 3: (September) OMB reviews the proposed budgets of the agencies. • Step 4: (December) OMB prepares a final budget for the President, including all executive agencies.

  23. The Federal Budget Process • Step 5: (January) President submits executive budget proposal to Congress for approval. This budget is just a request, and does not have to be followed) • Step 6: (April) Congress adopts budget resolution (to establish overall spending and revenue levels)

  24. The Federal Budget Process • Step 7: (summer) The House and Senate Appropriations Committees and Sub-Committees review budget items and make recommendations

  25. The Federal Budget Process • Step 8: (September) Work House and Senate versions of the appropriations bills concludes, and conference committees work out any differences between the two. This final version is sent to the President to the signed or vetoed. • Step 9: (October 1st) Fiscal Year begins.

  26. Economic Policy • Monetary Policy • Policy designed to improve the economy by controlling the supply of available money.

  27. Economic Policy • Federal Reserve Board ( “The Fed”) • Has control over the money supply • Created by the Federal Reserve Act of 1913 • Board of 7 governors appointed by the President (subject to Senate confirmation) for 14 year terms • Regulates all National Banks and all State Banks which choose to become members of the Federal Reserve System

  28. Economic Policy • Affects the money supply in two ways: • Deciding how much money is in circulation by raising or lowering the cash reserve member banks are required to deposit with the Fed. • Lowering or raising the interest rate that member banks are charge when they borrow from the Federal Reserve. Banks that aren’t in the Federal Reserve System will still usually mimic the fluctuations in the interest rate.

  29. Economic Policy • Controlling inflation is a function of both fiscal and monetary policy. • Inflation • A general increase in the average level of prices of goods and services. • Fiscally, inflation control occurs when taxes are increased, thus reducing demand. • Monetarily inflation control occurs when money is removed from circulation, this reducing the potential for demand.

  30. Income Security Policy • Poverty Line • The annual cost of a thrifty food budget for an urban family of four, multiplied by three to allow also for the cost of housing, clothes and other expenses. • As defined by the federal government: $22,050 (for a family of four) • Families below the poverty line are considered poor and are eligible for certain forms of public assistance.

  31. Income Security Policy • Transfer Payments • Government benefits that are given directly to individuals, as in the case of social security payments to retirees. • Most transfer payments are distributed through entitlement programs.

  32. Income Security Policy • Entitlement Programs • Any of a number of individual-benefit programs, such as social security, that require government to provide a designated benefit to any person who meets the legally defined criteria for eligibility. • Same force of law as taxes. Once a person meets a certain criteria, they are entitled by law to receive an entitlement.

  33. Income Security Policy • Social Insurance • Public Assistance

  34. Income Security Policy • Social Insurance • Social welfare programs based on the “insurance” concept, requiring that individuals pay into the program in order to be eligible to receive funds from it.

  35. Income Security Policy • Social Security • Unemployment Insurance • Medicare

  36. Income Security Policy • Social Security was established in 1935 with the intent of providing a type of insurance for a large segment of the public. • Social Security is not a pension fund. • Workers Per Retiree • Initially for every recipient of Social Security there were forty workers paying into the general fund—a one-to-forty ratio. Today, the ratio is more like one-to-three, and it will get worse in future years.

  37. Workers Per Retiree

  38. US Life Expectancy

  39. Income Security Policy • Public Assistance • A term that refers to social welfare programs funded through general tax revenues and available only to financially needy. • Available to those who qualify under a means test. • Means Test • The requirement that applicants for public assistance must demonstrate that they are poor in order to be eligible for the assistance.

  40. Income Security Policy • Food Stamps • Subsidized Housing • Medicaid

  41. Income Security Policy • Temporary Assistance for Needy Families • Established new work requirements for welfare recipients and limits on the number of years an individual can receive assistance

  42. Income Security Policy • In-Kind Benefit • A government benefit that is a cash equivalent, such as food stamps or rent vouchers. This form of benefit ensures that recipients will use public assistance in a specialized way.

  43. Healthcare Policy • Medicare • A federal health insurance program that covers US residents over the age of sixty-five. The costs are met by a tax on wages and salaries. • Medicaid • A joint state-federal program that provides medical care to the poor. The program is funded out of general government revenues.

  44. Healthcare Policy • Universal Coverage • “Coverage for all” • More than 40 million Americans are without health insurance • National Health Insurance • A plan under which the government provides basic health insurance to all citizens. In most of these plans, the program is funded by taxes on wages or salaries.

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