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Economic and Domestic Policy

Explore theories like Laissez-faire Capitalism, Keynesianism, and Monetarism to understand government roles in economic policy. Learn about monetary policies, fiscal policies, and social welfare programs like Social Security and TANF.

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Economic and Domestic Policy

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  1. Economic and Domestic Policy

  2. Should the Government Be Involved And, If So, How Much? • Beliefs about the proper level of government involvement depend on beliefs about how the economy works • Three key theories • Laissez-faire capitalism • Keynesianism • Monetarism

  3. Laissez-faire Capitalism • Based on Adam Smith’s “invisible hand” • Market will work, just leave it alone • Advocates minimal government involvement • Focus is on overall productivity, not inequalities • Was popular pre-Great Depression • Regaining popularity since 1970s

  4. Keynesianism • Based on work of John Maynard Keynes • Gross inequalities in wealth reduce demand for goods and hurt economy • Govt.: make sure middle class and working poor have money to spend • Cut income taxes to middle class and poor • Create jobs through public employment

  5. Monetarism • Key player: Milton Friedman • Government cannot act quickly enough to “fine-tune” economy • Instead, should focus on stability in economy by controlling the money supply to banks • Became popular in late 1970s • Practically, emphasis is on controlling interest rates • Gives the Chair of the Federal Reserve enormous power

  6. Ben Bernanke – Chair of the Federal Reserve Chair

  7. Comparison of the “Big Three”

  8. What Policies Can Govt. Use to Control Economy? • Monetary policies • Fiscal policies • Regulation • Subsidies and Contracting

  9. Monetary Policies • Set interest rates • Control banking regulations (affects how much money banks have to “play with” and lend to consumers)

  10. Fiscal Policies • Tax • Tax rates determine how much money government has and, conversely, how much money consumers have to spend • Progressive v. Regressive tax schemes • Progressive taxes help redistribute wealth • Spend • Can create jobs • Affect overall health of economy

  11. Regulation • Break up monopolies (antitrust policy) • Set minimum wages and work hour limits • Child labor laws • Safety and health requirements

  12. Subsidies and Contracting • Get people to do things they wouldn’t otherwise do by offering benefits for the behavior • Subsidies • Examples: NSF grants, crop subsidies, land grants to “settlers” in 1800s • Contracts • Examples: providing contracts to new industries to help them develop, requiring firms who contract w/ govt. to engage in fair employment practices

  13. Social Welfare Policy Income Support

  14. Types of Social Welfare Programs • Contributory (Social Insurance) • Noncontributory (Public Assistance) • Tax Expenditures

  15. Contributory Programs • Financed by taxes or contributions from current or future recipients • Not necessarily “pure” insurance programs • Examples: • Social security (old age and survivor benefits) • Medicare insurance • Unemployment compensation insurance

  16. Social Security: Keynesian Economic Policy in Action • Original plan, the “Townsend Plan”

  17. Social Security: Keynesian Economic Policy in Action • Original plan, the “Townsend Plan” • How is this Keynesian? • Puts money in the pockets of the poor, makes them spend it  creates demand for goods • Elderly (over 60) get the money for NOT working more jobs for young people

  18. Public Assistance Programs • Eligibility based on need rather than contributions (“means test”) • May involve cash payments or “in kind benefits” • Examples: • Medicaid • Food stamps • Supplemental security income • HUD housing programs • Temporary Assistance to Needy Families (formerly Aid to Families with Dependent Children)

  19. TANF: Example of the Policy Process • Agenda Setting • Clinton scores in 1992 – “end welfare as we know it” • 1994 Republican “Contract with America” • Policy Deliberation • Interest groups, Congress, economists, and media debated alternatives • Polls consistently showed support for “reform”

  20. TANF: Example of the Policy Process • Policy Enactment: AFDC  TANF • Shifted control over program from federal to state governments • Created work requirements for recipients • Limited benefit eligibility (5 years) • Teen parents must live w/ adults, not on their own • Required single mothers to disclose information about fathers to receive full benefits

  21. TANF: Example of the Policy Process • Policy Implementation • States revised their welfare plans • Policy Output • Many families no longer eligible for benefits • Reduction in those applying for benefits

  22. TANF: Example of the Policy Process • Policy Outcomes • Good: “Teen moms” living with parents seem to have higher educational achievement • Good/bad: Number of enrollees declining, even during economic downturn • Bad: Teenagers in recipient families (both parents now working) less likely to finish school • Agenda-Setting • Fine-tuning the program . . . How do we increase the good outcomes, decrease the bad?

  23. Tax Expenditure Programs • The “Shadow Welfare State” • Tax breaks to encourage certain behaviors by making them “cheaper” • Examples: • Write-offs for employers’ contributions to health insurance premiums and pension programs • Write-offs for interest paid on mortgages • Earned Income Tax Credits

  24. Education Policy A Quick and Dirty Overview

  25. Why Do We Have Public Education? Hint: The answer has changed over the years!

  26. Public Education: Rationale • States began creating public schools and mandating attendance in early 1800s • Rationale: equality of opportunity • Number of states w/ public ed increased dramatically in late 1800s • Rationale: inculcation of American values and civic education

  27. Public Education: Rationale • Federal government got involved in the late 1950s • Embarrassment over Sputnik • Focus originally on math and science • Rationale: collective benefits of educated populace (specifically, economic benefits)

  28. Federal Involvement in Public Education • 1950 – 1980, federal government involved in funding public education • Used money to dictate • Focus of curriculum • Certain social policies (anti-discrimination, for example) • Did not concern itself with issues of quality

  29. Federal Involvement in Public Education • Reagan and Bush (I) administrations • Began urging higher standards in schools • But suggestions were just that: suggestions . . . Purely advisory • Bush (II) administration • No Child Left Behind Act • Mandates standardized testing • Identifies “failing schools” and allows parents to move their kids out of failing schools

  30. Current Controversies and Issues in Education Policy • School funding • Discrimination in education • Students with disabilities

  31. School Funding • Frequently states fund with property tax – means wealthy communities have better schools • Robin Hood • Other alternatives??

  32. Discrimination in Education • Brown v. Board of Education • Title IX of Education Amendments of 1972 • Students with disabilities (physical and cognitive)

  33. Students With Disabilities • Individuals With Disabilities Education Act (IDEA) – 1975 • “Free Appropriate Public Education” (FAPE) • How much can schools afford to pay to provide FAPE? • Also, re: No Child Left Behind, how do we assess students with learning disabilities?

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