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Chapter 12
Economic 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.
•Nixonand 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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History and Background of Social Policy
•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
History and Background of Social Policy
•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
Social Policy Today: Health Care

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Social Policy Today: Health Care
Social Policy Today: Health Care
•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
THE BUDGET PROCESS
1ST MONDAY IN FEB.
The president submits
budget 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.
BY
APRIL15TH
House votes on
conference version.
Senate votes on conference version.
Start of the fiscal year.
OCT
1ST
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.