Making Policy
Public policy refers to the actions taken by government — its decisions that are intended to solve problems and improve the quality of life for its citizens. At the federal level, public policies are enacted to regulate industry and business, to protect citizens at home and abroad, to aid state and city governments, to help people such as the poor through funding programs and to encourage social goals. A policy established and carried out by the government goes through several stages from inception to conclusion. These are agenda building, formulation, adoption, implementation and evaluation.
It is impossible to separate policymaking from politics. Many groups with different interests and their own agendas are involved in all stages of policymaking. A good example is the 1996 welfare reform legislation. Passed by the Republican-controlled Congress, the reform law contains provisions for cuts in direct federal aid and new work requirements that troubled many Democrats and organizations representing the poor. President Bill Clinton signed the bill after some hesitation and then indicated that he would seek changes in the law during the next session of Congress.
The formulation and adoption of public policy can be either hampered or advanced by the way things are done in Congress. Bills for the construction of major public works that benefit a particular district or state, such as bridges, dams and highways or the establishment of military bases, are known as pork-barrel legislation. While such programs do create jobs, they may run counter to a broader policy direction, such as the need to cut the federal budget deficit. Often, representatives from different states and even different parties may agree to support each other's legislative agendas. A New York congressman may support a water project in Arizona in return for his Arizona colleague's vote on a mass transit appropriation for the Northeast. This practice is known as logrolling, and it is a way of building coalitions that may back a new policy direction.
There are three broad areas of public policy: domestic policy, economic policy and foreign policy. Some political scientists would include defense policy as a fourth.
Domestic Policy
There are two major categories of domestic policy: regulatory policy and social welfare policy.
Regulatory Policy
Through regulatory policy, the federal government supervises the actions of individuals, businesses
and government institutions. Historically, the desire for regulation grew out of widespread unhappiness with the actions of profit-making businesses. For example, railroads in the late 19th century often charged more for shipping over short distances than over long ones. This pricing made sense for their business needs, but it was politically unacceptable because the nation's numerous small farmers were more likely to send goods a short distance,
and the pricing was perceived as discriminatory. This and other discriminatory rate practices led to the creation of the Interstate Commerce Commission (ICC)
and rates regulation in 1887. During the Progressive Era, exposés about the way the food
and drug industries operated resulted in Congress's passing the Pure Food
and Drug Act (1906), which created the Food and Drug Administration (FDA). Regulatory activities include setting fair prices for goods
and services, granting licenses and franchises, establishing safety standards for the workplace
and transportation, providing resources (such as hydroelectric power from federal dams)
and setting rates, monitoring and enforcing compliance with statutes relating to discrimination
and protecting the environment.
The scope of regulatory policies can be seen in the array of independent commissions
and agencies responsible for their implementation. In addition, there are the Securities
and Exchange Commission (SEC), which watches over the stock markets and stock transactions; the EPA, which safeguards the environment; the Federal Energy Regulatory Commission (FERC); the Occupational Safety
and Health Administration (OSHA) and the Consumer Product Safety Commission (CPSC), both of which were created in response to the failure of business to adequately protect its workers
and customers; and the National
Transportation Safety Board (NTSB). Also, many federal regulatory agencies have their counterparts at the state
and even local levels.
Regulatory policy is usually criticized because of the costs it imposes on business. American consumers and workers generally bear those costs: consumers through the price of products and workers when their place of business must compete with unregulated foreign concerns. Nevertheless, setting domestic policy through regulation is tempting to federal legislators because it allows them to take action on a problem and command a change of course without directly paying for anything they order. Another concern with government regulation of industry is that policy decisions often respond to political considerations rather than technical ones, which may mean hurting businesses for no good reason, or it may give certain businesses the opportunity to manipulate regulations so that they make more profit.
Deregulation began in the 1970s and was based on the notion that regulation was suppressing economic competition. The actual record has been mixed, however. Deregulation does seem to produce greater product innovation and more new company startups, but it has also resulted in the collapse or merger of inefficient large companies. For example, the deregulation of the airline industry decreased fares as numerous small carriers went into operation. Most quickly failed, leading to greater consolidation. In the telephone industry, the deregulation that came with the breakup of AT&T has created a rash of confusing rate charges and services that many people feel are just too complicated to follow. The lack of regulation over the savings industry is seen by many as a cause of the extremely costly savings-and-loan crisis of the late 1980s. In California, the deregulation of investor-owned utilities contributed to rolling blackouts, higher prices and serious financial problems for major power companies.
Social Welfare Policy
Equality of Opportunity
o The ability to freely use individual talents and wealth to reach one's full potential.
o Idea is enshrined in the Declaration of Independence: "all men [and women] are created equal" and have the right to pursue happiness.
o Equal opportunity does not mean equal result. The US is predicated on everyone having an opportunity to succeed, but this is not guaranteed. Different educational opportunities, class backgrounds and discrimination result in different outcomes.
o Premise of equality of opportunity led to antidiscrimination laws, desegregation and mass public education.
The Politics of Redistributive Policy
o Reflect the interests of elected leaders in getting re-elected.
o Power-elite theory: the decisions of the affluent are what guides the society
o Pluralistic theory: Decisions are made as part of a near-constant conflict between groups, with no one group winning consistently.
US Bias against the Welfare State
o Strong faith in individualism
o Frontier alleviated poverty by allowing relocation to Western lands
o Citizens conceive two classes of poor: deserving and undeserving
o Deserving poor are widows, orphans and others rendered dependent by some misfortune.
o Undeserving poor are able-bodied persons who are unwilling to work.
o Private charities take care of the poor, not the government.
Foundations of the Welfare State
Social Security Act of 1935 established two categories of welfare: contributory and noncontributory.
o Contributory programs: such as Social Security (eligibility at 62 with no means test)
o Financed by taxation, known as forced savings.
o "Old age insurance"
o Financed by equal contributions from the employee and employer.
o Current workers support retired workers. Amounts to a slight shift of $ from rich to poor, and a much more significant shift of $ from young to old.
o Medicare, established in 1965, provides medical insurance to those over 65 with no means test. In 2003 prescription drug coverage was added.
o Noncontributory programs
o Known as public assistance programs or “welfare.”
o Eligibility determined by means testing.
o Means testing: procedure that requires applicants to show financial need for assistance.
o Examples
Aid to Families with Dependent Children (1935) – for single parents with children
Medicaid (1965) – medical service for the poor
Supplemental Security Income (1974) – blind and disabled receive support
Food stamps – coupons can be exchanged for food
o Goldberg v. Kelly (1970): inaugurated concept of "entitlement" ... Recipients have a due process right to receive benefits if they are eligible and programs exist (programs can be cut).
o Benefits cannot be terminated without due process.
The Federal Budget Can Be Divided into Three Broad Areas of Spending
o Discretionary Spending: federal spending on the programs that are controlled through the regular budget process
o Entitlements Spending: federal social spending that workers/retirees/disabled/poor/unemployed/sick have been promised by the government through social security, Medicare or other programs, amounts cannot be altered during the budget process
o Interest payments: payments on the federal debt
Arguments Against the Welfare State
o Welfare state costs too much money.
o Welfare state is too paternalistic.
o Welfare state is too redistributive.
o Welfare state is an example of a moral hazard.
o Moral hazard: The danger or probability that a policy will encourage behavior or bring about problem it was designed to prevent.
o Examples
People with theft insurance will not lock their cars as often.
People will not work as hard because welfare programs will make sure they don’t starve.
Encourages women to have more children because they get more $$ per child.
Discourages marriage because male income not needed and would often make women ineligible for entitlements.
Arguments for the Welfare State
o Welfare state is good fiscal policy. It increases consumption in economic downturns.
o Welfare state is paternalistic. It results in enforced savings.
o Welfare state is a savior of capitalism.
o Bismarck: "I will consider it a great advantage when we have 700,000 small pensioners drawing their annuities from the state, especially if they belong to those classes who otherwise do not have much to lose by an upheaval and erroneously believe they can actually gain much by it."
o Welfare state is politically essential.
o Government has a responsibility to its citizens
o Madison: "Justice is the end of government."
Welfare Reform
o Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA)
o Ended program known as AFDC (Aid to Families with Dependent Children).
o Created TANF (Temporary Assistance to Needy Families), which provides block grants to the states.
o Gave states greater flexibility in creating programs (child care, job training, transportation).
o Imposed five-year time limit on TANF benefits.
o Imposed work requirement after two years of receiving benefits.
o Since 1996, welfare rolls reduced by over 50%.
o Has reduced welfare rolls, but not diminished poverty.
o What will happen to former welfare recipients in an economic downturn? (See What it’s like to live on $2 a day in the United States (PDF))
Among PRWORA's provisions, the law eliminated three prior federal assistance programs and replaced them with Temporary Assistance to Needy Families(TANF), a block grant program. This meant that additional federal funds should no longer be used to pay for TANF benefits to any adult for more than a total of 60 months during that person's lifetime. Receipt of TANF benefits came with work requirements, and states were granted flexibility in designing their TANF programs. The law also made lawful permanent residents ineligible to receive federal means-tested benefits for five years after being granted permanent residency. Legislators backed the reform because it was meant to achieve several objectives that would in their view improve family welfare: financial assistance for needy families, promotion of work and marriage, prevention of out-of-wedlock pregnancies and encouragement of two-parent families. Too, turning welfare into a block grant helped hold TANF spending in check. But while TANF
spending may have declined, total spending on antipoverty programs rose dramatically. Federal antipoverty spending alone has more than doubled since 1996 and state spending has risen as well. Yet all of this additional spending has failed to further reduce poverty. Nor has welfare reform had much of an impact on economic mobility. The post‐welfare reform world looks troublingly like the pre‐welfare reform one. If you look beyond TANF, total welfare spending continues to increase rapidly. While that additional spending may well reduce the discomfort of poverty, it does little to help people get out of poverty. Moreover, many of the structural incentive problems with welfare remain. The 1996 Act ultimately reformed a welfare program, but not the welfare system.
Future Social Policy Issues
o Education Reform
o GI Bill (1944): money for secondary education
o National Defense Education Act (1958): federal spending for math and science instruction after Sputnik launch
o School funding is based on local real estate taxes. Results in large disparity in school spending by county.
o Vouchers (school choice) allow parents to spend tax dollars in a school of their choice.
o Creates further pressure on poor schools.
o No Child Left Behind (2001): Regular testing required with attention paid to poor, racial minorities and special education student scores. Consistent failure means students can transfer for free to other schools in the same district.
o Health Care
o Health care is primarily private. Clinton attempted comprehensive reform but failed. Obama succeeded in getting comprehensive reform through Congress but it is still being challenged in the courts and there are continuing efforts by the current Congress and administration to alter or fundamentally change the program.
o Under the Affordable Care Act (ACA), the number of uninsured Americans decreased from 44 million in 2013 (the year before the major coverage provisions went into effect) to 28 million as of the end of 2016.
o Most remaining uninsured people are in working families, with low incomes. Over two-thirds (68%) of the uninsured have been without coverage for long periods of time. Many of those, particularly poor adults in states that did not expand Medicaid, remain ineligible for financial assistance for coverage. (Texas had the largest 2016 uninsured rate: 17.1%.)
o The uninsured rate among children has reached an all-time low of 5%, and most still uninsured children are eligible but not enrolled. Oregon leads state efforts to provide health coverage for children. Half of all uninsured children reside in six states (Arizona, California, Florida, Georgia, New York and Texas).
o Housing Policy
o Urban redevelopment focuses on redistributing housing for the poor to integrate them with the middle class.
o Reproductive Policy
Social welfare policy deals with the causes and effects of poverty. After decades of legislation and federal programs to address the problem, poverty still persists in our affluent society. Efforts such as Lyndon Johnson's War on Poverty produced only limited results. In the 1990s, more than 35 million Americans were poor, as measured by the federal definition of poverty, which is an income of less than about $14,500 per year for a nonfarm family of four.
The first federal attempt to deal with poverty came in 1935 with the Social Security Act. Under the Social Security program, employers deduct money from the paychecks of their employees, match it with an equal amount of their own money, and then send it to the federal government to provide for a pension program. Most people think of Social Security as a form of insurance or savings — that is, they put aside the money, and it is saved for their retirement — but this impression is incorrect. Social Security uses the money paid by today's workers to cover the pensions received by today's elderly. Current workers have no tangible guarantee that society will continue redistributing wealth to the elderly when their turn comes. As the number of able-bodied workers declines and the number of elderly increases, the Social Security program is extremely unlikely to continue paying benefits at the rate it does now.
Several changes in the Social Security program have added to its cost. Money is paid out of the pension program for disabled workers and for the survivors of deceased workers. People who were not provided for in the original legislation — the self-employed and many government workers — are now covered. Benefits are expanded to include cost-of-living adjustments known as COLAs. As a result of all these general benefits, payroll taxes were increased and benefits reduced in the early 1980s — yet the Social Security trust fund is still running out of money. The aging of the population has raised serious questions about the fund's long-term solvency. Responding to the retirement of baby boomers, President George W. Bush proposed partial privatization of Social Security. Under his plan, which did not garner significant support in or out of Congress, workers would have been allowed to invest part of their payroll taxes in the stock market.
The Social Security Administration is also responsible for the Supplemental Security Income (SSI) program established in 1974. SSI is funded by general tax revenues, and provides money to elderly (individuals 65 and older), the blind and disabled people who have little or no income.
Lyndon Johnson's
War on Poverty focused on employment
and healthcare for the elderly and the poor. The Economic Opportunity Act of 1964 created the Jobs Corp, the Neighborhood Youth Corps, Head Start
and community action programs that the poor had a hand in running. With the exception of Head Start, many of these projects had their funding cut as the Vietnam War escalated.
Medicare, enacted in 1965, provides basic health insurance and hospitalization coverage for people over the age of 65 and is paid for by payroll taxes on both employees and employers and on retired persons. The program was recently expanded considerably with the addition of a prescription drug benefit. Medicare, however, may face an even more serious financial crisis than Social Security due to the fact that Americans are living longer and healthcare costs continue to increase. Under Medicaid, medical benefits for the poor are administered by state programs, with the federal government paying for a portion of the costs. Both programs fall far short of a comprehensive national approach to healthcare, yet they are already by far the biggest drain on the national treasury of anything in the federal budget.
Entitlements, the costs associated with such social welfare policies as Social Security
and Medicare, make up a significant portion of the federal budget. These costs increase as more people become eligible for benefits, a situation difficult to control because it is very much tied to the aging of the population. Congress
and several administrations have found it difficult to reduce or eliminate entitlements, particularly for the elderly, who are represented by a powerful lobby in the
American Association of Retired Persons (AARP). Some changes have had to be made, however, such as increasing payroll taxes, reducing COLAs
and extending the retirement
age. For those born in 1960 or later, the retirement age for Social Security is 67.
Budget
cutters have had far more success trimming aid to the poor, who lack the
political clout of the elderly. Social welfare policy also affects other issues, such as immigration
and homelessness. Federal mandates require the states to shoulder a heavy financial burden to assist immigrants. This responsibility has sparked a major debate over just what social services, if any, both legal
and illegal immigrants are entitled to. The country is also trying to find a policy approach to reduce homelessness. The number of homeless in the US has increased significantly beginning in the 1980s, due to a recession
and spending cuts in public housing, drug treatment and mental health programs.
Another Republican Lie About Obamacare Is Exposed
The Last Republican Lie About Obamacare Is Being Exposed
The share of Americans living in poverty fell to a record low in 2021, as government relief programs offset pandemic job losses.
Congress found an easy way to fix child poverty. Then it walked away.
Economic Policy
Background
o Prior to 1929 there was little government intervention in the economy (consistent with Adam Smith).
o The Great Depression convinced many Americans that it was the government’s job to provide job security and a host of New Deal programs that injected the federal government into banking, labor, working conditions, minimum wages and other areas of the economy. (After Sept 11 Congress wrote a $15 billion financial package to prop up the airline industry.)
o How does government make a market economy possible?
o Provide law and order: predictable and stable legal system (no national police force, no national criminal law, no national common law, no national property laws)
o Define the rules of property: labor, ideas, real estate, concrete goods – What do you have control over/what do you not have control over?
o Enforce contracts: Contracts must be legally enforceable or they are worthless.
o Oversee rules of exchange: What can be sold? (not drugs, for example) When can things be sold? (sometimes witnesses needed for agreements to borrow money, for example)
o Set market standards: create standards for products (When can you call something “dark chocolate” or “fresh” or “organic”?), weights and measures (ensure a pound is a pound)
o Provide public goods: provide infrastructure needed by economy – Roads facilitate easy buying and selling. Government involvement needed to avoid “free rider” problem.
o Create a labor force: compulsory education laws, keep social benefits low enough to encourage work
o Ameliorate externalities: means of regulating damaging behavior whose public costs exceed private costs – regulate pollution, worker safety laws, control free-riding (or the tragedy of the commons)
o Promote competition: prevent and/or break up up monopolies, deregulation – reducing or eliminating regulatory restraints on the conduct of individuals or private institutions.
o Therefore, the basis of government involvement in the economy: When the market fails, the government intervenes.
In developing an economic policy, government officials rely on the recommendations of economists who typically base their analyses on theories of how the economy works or should work. As might be expected, economists often disagree on the cause of a stock market decline or the best solution for curbing inflation.
The first,
and for a long time the only, widely accepted economic theory was the laissez-faire theory proposed by Adam Smith in his book, Wealth of Nations (1776). Laissez-faire roughly translates as "to leave alone,"
and it means that government should not interfere in the economy. This theory favors low taxes
and free trade, and it strongly holds that the market is self-adjusting — whatever happens will be corrected over time without the help of the government.
John Maynard Keynes, an English economist, published his General Theory of Employment, Interest and Money (1936) during the Depression. He argued that government should manipulate the economy to reverse the periodic downturns that take place in the market. Keynes maintained that economic depression was due to a lack of consumer demand. This created excess inventories of goods that forced business to cut production and lay off workers, which led to fewer consumers and even lower demand. The solution was to increase demand by increasing government spending and cutting taxes. This fiscal policy, as it became known, left people with more money after taxes and basic obligations to use for goods and services. Factories increased production to meet the demand and hired more workers, thereby ending the cycle.
Franklin Roosevelt used many of Keynes's ideas in the New Deal. The federal government became the "employer of last resort" through such programs as the Civilian Conservation Corps (CCC) and the Works Progress Administration (WPA). These programs did not bring the country out of the Depression, however. The end to the Depression is more attributable to increased defense spending as World War II approached.
In the late 1970s and early 1980s, Keynesian economics fell into disrepute because it did not offer a solution for dealing with
unemployment
and inflation at the same time. Some economists argued that the Keynesian theory invited excessive government intervention. To monetarists, inflation, unemployment
and stagnation were caused by policies that adversely affected an otherwise stable economy. Led by economist Milton Friedman, they argued that the best way to create a healthy economy is to control the supply of money. The machinery to implement this policy already existed in the Federal Reserve system, which was established in 1913.
The Federal Reserve system consists of 12 banks under a board of governors whose members serve staggered 14-year terms. This long term frees the board from the political influence of any one administration. The Federal Reserve Board controls the supply of money by buying and selling federal government securities, regulating how much money Federal Reserve banks have on deposit and setting interest rates that member banks pay when they borrow from the Federal Reserve. The purpose is either to stimulate the economy by loosening the money supply or cool it down by tightening the money supply. In other words, the Fed lowers interest rates when the economy is sluggish and raises rates when inflation threatens.
Another economic problem of the late 1970s was exploding budget deficits. Because the budget is part of fiscal policy, not monetary policy, monetarism did not speak to this problem directly. Another group, called supply-side economists, offered the surprising suggestion that government could raise more money by cutting taxes. Their argument was fairly straightforward: High taxes were limiting national productivity, so lowering taxes would stimulate economic growth and eventually produce more revenue. The Reagan administration accepted this approach, so much so that supply-side economics became known as Reaganomics.
Two problems compromised the success of supply-side policies. The Reagan administration increased defense spending dramatically (something the theory did not take into account). Increased expenses combined with the tax cuts to produce a massive budget deficit. Moreover, much of
consumers' economic windfall went to buy products manufactured in foreign countries,
and so provided little direct stimulus to the US economy. Budget deficits grew even more,
and unemployment remained (at least temporarily) high.
Reaganomics
1. Combination of monetarism, supply-side tax cuts and domestic budget cutting
2. Goals are not consistent.
a. reduction in size of federal government
b. stimulate economic growth
c. increase in military strength
3. Effects
a. The rate of growth of spending slowed but not spending itself.
b. Military spending increased.
c. The money supply was controlled ... so it cut inflation but it allowed interest rates to rise.
d. Personal income taxes were cut but Social Security taxes were increased.
e. Large deficits incurred, dramatically increasing the size of the national debt.
f. It stimulated the economy ... unemployment decreased, business activity increased.
The US Economy, 2015 (PDF)
The Main Goals of US Economic Policy
o Ensure public order and private property rights
o Federal government regulates mail fraud and counterfeiting, but state law handles most business issues.
o Private property is a central value to Americans, but the construction of roads and other public projects requires the government have the right of eminent domain (though the 5th amendment requires due process and fair market value for compensation).
o Eminent Domain: the right of government to take private property for public use, with reasonable compensation awarded for the property.
o Expropriation: confiscation of property with or without compensation (parks, highways, etc)
o Homesteading: A national policy that permits people to gain ownership of property by occupying public or unclaimed lands, living on the land for a specified period of time and making certain minimal improvements on that land. Also known as squatting.
o Maintain a strong economy
o stable prices
o full employment
o economic growth
o Encourage business development
o Often accomplished through Congressional pork projects approved through logrolling.
o Categorical Grants-in-Aid: funds given by Congress to states and localities, earmarked by law for specific categories such as education or crime prevention.
o Subsidies: governmental grants of cash or other valuable commodities such as land to individuals or organizations. Subsidies can be used to promote activities desired by the government, to reward political support or to buy off political opposition.
o The creation of public roads, canals and subsidized railroads opened up markets.
o In the past, railroads were subsidized and land grants were given to settlers. Today, the government subsidies farmers and provides financial incentives and/or tax breaks for businesses.
o Contracts: Government can award contracts aimed at promoting an industry / segment of labor (airlines in the 1930s or equal employment opportunities in the 1960s). Government can also set conditions on companies seeking to sell goods or services to government agencies.
To maintain a strong economy, the federal government seeks to accomplish three policy goals: stable prices, full employment and economic growth. In addition to these three policy goals, the federal government has other objectives to maintain sound economic policy. These include low or stable interest rates, a balanced budget (or at least a budget with a reduced deficit from the previous budget) and a trade balance with other countries.
When prices for goods and services increase sharply, the value of money is reduced and it costs more to buy the same things. This condition is called inflation. When inflation is kept low, prices remain at the same level. Circumstances beyond the government's control can affect prices. A prolonged drought in the corn belt or an early freeze that hits the orange crop in Florida creates shortages that lead to higher prices. Higher prices for certain critical goods, such as oil, can create inflationary prices throughout the economy.
Absolute full employment is impossible to achieve. At any given time, people are quitting their jobs or are unable to work for a variety of reasons. An unemployment rate (the percentage of the labor force that is out of work) of 4% or less is considered full employment. The unemployment rate varies from region to region and from state to state. For example, California's rate was higher than the national average in the early 1990s because of cutbacks in the aerospace industry and companies moving out of the state.
Economic growth is measured by the gross domestic product (GDP), the dollar value of the total output of goods and services in the US. A thriving economy may have a GDP growth rate of 4% per year; a stagnant economy may grow at less than 1% per year. In a stagnant economy, unemployment is high, productivity is low and jobs are hard to find. A recession is defined as two consecutive quarters of negative GDP. In the 1970s, the US experienced a strange combination of high unemployment and high inflation, which is known as stagflation.
Maintaining a Stable and Strong Economy
o Monetary Policies – efforts to regulate the economy through manipulation of the supply of money and credit ... America’s most powerful institution in the area of monetary policy is the Federal Reserve Board.
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o Fiscal Policies: The use of taxing and spending to manipulate the economy.
o Taxation
o Progressive Taxation: hits the upper-income brackets
o Regressive Taxation: hits the lower-income brackets
o Redistribution Policy: An objective of the graduated income tax-to raise revenue in such a way as to reduce the disparities of wealth between the lowest and highest income brackets.
o Government Spending
o Budget Deficit: amount by which government spending exceeds government revenue in a fiscal year
o Mandatory Spending: federal spending that is made up of uncontrollables, budget items that cannot be controlled through the regular budget process (for example, entitlements)
o Uncontrollables: spending beyond the power of Congress to change because the terms are set by law or in contracts, such as interest on the debt
The federal government pursues policies that strive to create a healthy economy that benefits all Americans — not an easy task. An economic policy that benefits one segment of society may be damaging to another. Keeping inflation under control by raising interest rates makes it difficult for businesses to get capital to expand and hire additional workers. That may cause the unemployment rate to increase. Low interest rates, on the other hand, can lead to inflation as spending increases. Many workers may find their pay raises are meaningless because prices have increased.
Because of the complexity of economic policy, elected officials find that the only way they can come to an agreement on any aspect of it is to work out compromises. Even a president whose party controls both houses of Congress finds it difficult to get everything the executive branch wants. Tradeoffs — for example, accepting somewhat higher inflation to keep business expansion going — are essential to economic policy.
The Machinery of Economic Policy Making
A. Fragmented policy making; not under president's full control
B. Executive Branch
1. Council of Economic Advisers (CEA): members chosen are sympathetic to president's view of economics and are professional economists
a. forecasts economic trends and analyzes issues
b. prepares annual economic report that president sends to Congress
2. Office of Management and Budget (OMB)
a. prepares estimates of amounts to be spent by federal government agencies and negotiates department budgets
b. ensures that agencies' legislative proposals are compatible with president's program
3. Secretary of the Treasury: reflects financial community's point of view
a. provides estimates of the government's revenues
b. represents the US with bankers and other nations
4. The Federal Reserve Board (The Fed)
a. members appointed by president and confirmed by Senate ... serve a nonrenewable fourteen-year term (removable for cause)
b. somewhat independent of both president and Congress
c. regulates supply and price of money
C. Congress plays most important role in economic policy making.
1. approves all taxes and almost all expenditures
2. consents to wage and price controls
3. can alter Fed policy by threatening to reduce its powers
4. but also internally fragmented, with numerous committees setting fiscal policy
D. Interest Groups
1. usually majoritarian since economic health is good for all
2. sometimes interest group politics ... example, protectionism in 1980s
Economic Policy Involving Foreign Trade
The United States is part of a global economy. We buy goods from and sell goods to other countries. Foreign companies operate here and American firms have operations overseas. The US position on questions of trade, finance and monetary policy are important to institutions like the United Nations' World Bank and the International Monetary Fund (IMF). The World Bank provides loans and technology assistance for economic development projects in member states and the IMF seeks to promote international monetary cooperation, currency stability and international trade.
In recent years, the principal international economic issue for the US has been trade. The Office of the US Trade Representative within the Executive Office of the President is responsible for developing and implementing the nation's trade policy. The US Trade Representative, who holds cabinet rank, is the principal advisor to the president on trade issues. The US has helped negotiate many different sorts of trade agreements over the years in order to ensure continued access to foreign goods and open markets abroad for goods manufactured in the US. The General Agreement of Tariffs and Trade (GATT), for example, was created after World War II to provide a forum for negotiating international agreements based on free trade principles. It has been superseded by the World Trade Organization (WTO). Through these negotiations, the US has tried not only to keep foreign markets open but also to ensure that other countries respect patents on American products.
The North American Free Trade Agreement (NAFTA), which Congress ratified in 1993 and took effect in 1994, established a free-trade zone between the US, Canada and Mexico. The agreement triggered a major public debate in the US over its benefits and drawbacks. It contributed to an explosion of trade between the three countries and the integration of their economies, but was criticized in the US for contributing to job losses and outsourcing. Organized labor strongly opposed NAFTA, arguing that Mexico's extremely low wages would encourage manufacturers to move their plants to the other side of the border. There were also concerns about the effectiveness of Mexican environmental control and occupational safety laws. H. Ross Perot made opposition to NAFTA the cornerstone of his independent run for the White House in 1992, as did Pat Buchanan in later presidential campaigns.
President
Trump called NAFTA the “worst trade deal ever made” and renegotiated it as the
USMCA. The Obama administration had sought to address the issues with NAFTA in
negotiations for the Trans-Pacific Partnership (TPP), a massive trade
deal with eleven other countries including Canada and Mexico. The TPP was deeply
unpopular and President Trump withdrew the US from the TPP in one of his first
acts in office. In late 2019, the Trump administration won support from
congressional Democrats for the United States–Mexico–Canada Agreement
(USMCA) after agreeing to incorporate stronger labor
enforcement. In early 2020, Congress approved the USMCA with large bipartisan
majorities in both chambers, and the deal entered into force on July 1. Some
critics have complained that the new agreement amounts to government-managed
trade. However, the USMCA is very similar to NAFTA, carrying over many of
the same provisions and making only modest, mostly cosmetic changes and is
expected to make only a minor economic impact. Labor has criticized the labor
standards in the USMCA as unenforceable and toothless. It is feared that a
measure that expands the patent length for biological substances to 10 years,
thus limiting access for new generic drugs to enter the market, will make it
harder to bring down drug prices. It is also feared that the data and IP
provisions of the USMCA run the risk of turning Canadian firms into "data cows"
of foreign big data.
Another regional example is the Dominican Republic-Central America-US Free Trade Agreement (2005) or CAFTA-DR. Its goal is to eliminate tariffs and promote market access for the participants, which include Costa Rica, the Dominican Republic, El Salvador, Guatemala, Nicaragua and the US.
Why do nations pursue protectionism?
o desire to promote fledgling industries (also see political cronyism)
o discourage imports
o ban external investments
o military strategy
o food, steel, arms
o economic strategy
o desire for local high tech
o environmental/health concerns
o gasoline standards
o bovine growth hormone
o labor regulations
o child labor
o unions
How do nations pursue protectionism?
o import taxes, tariffs: raise price of imports
o quotas: create shortage of imports
o subsidies: lower price of exports/domestic goods
o import regulations: sometimes under guise of health/labor/environmental concerns
What are the negative results of protectionism?
o higher taxes
o Import taxes lead to high prices.
o Industry subsidies lead to higher prices.
o Import restrictions lead to higher prices.
o Governments can introduce consumer subsidies but that leads to deficit spending and debt.
o impact on less developed countries
o 3rd world can’t export their goods, which leads to a lack of capital.
o Developing countries with no external investment can’t build industries.
o Borrowing money to develop industries leads to debt and may lead to less social spending.
o No middle class emerges in developing world.
o technological innovations
o Motive to innovate is eliminated.
So what is the solution?
o World Trade Organization (WTO): lower tariffs and establish a court to mediate trade disputes
o North American Free Trade Agreement (NAFTA): free trade and open borders
o World Bank/IMF: loans to mitigate and restructure national debt (austerity measures)
What Are
the Problems with Those Solutions?
o NAFTA/USMCA and the WTO
o loss of jobs in protected industries
o environmental concerns
o child labor
o working conditions
o “A rush to the bottom”
o World Bank/IMF
o Austerity measures can destabilize a country and make the poor even more miserable.
Foreign Policy
Actions taken by the United States to promote its national interests, security and well-being in the world come under the heading of foreign policy. These actions may include measures that support a competitive economy, provide for a strong defense of the nation's borders and encourage the ideas of peace, freedom and democracy at home and abroad. Foreign policy may contain inherent contradictions. For example, an aggressive foreign policy with a country whose activities have been perceived as threatening to US security could result in a confrontation, which might undermine freedom and democracy at home. Foreign policy is never static; it must respond to and initiate actions as circumstances change.
Philosophies of Foreign Policy
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Realism (realpolitik) policy should be guided by self interest (as opposed to ethics and values) and as such will be unilateral. Military force is viewed as necessary. Diplomatic institutions (like the UN) are viewed as not particularly critical.
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Idealism (Wilsonianism or Liberalism) policy should be guided by values (women's rights, capitalism, human rights, democracy, etc). Diplomatic institutions should be the route for resolving disputes. Solutions should be sought multilaterally (with other countries).
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Neo-Conservatism policy should be guided by values but diplomatic institutions cannot be entrusted to always do so. Sometimes the military has to do the job. Because Europe has largely abandoned its leadership role, the US is the only country that can be trusted to spread Western values.
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What Are the Values in American Foreign Policy?
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o The Great Leap to World Power
Multilateralism: A foreign policy that encourages the involvement of several nation-states in coordinated action, usually in relation to a common adversary, with terms and conditions usually specified in a multi-country treaty (NATO).
Containment: The use of political, economic and military power to prevent the spread of communism to developing or unstable countries.
Deterrence: The development and maintenance of military strength for the purpose of discouraging attack.
In his farewell address, George Washington warned the US to steer clear of foreign entanglements. From the conclusion of the War of 1812 to the Spanish-American War (1898), this advice was largely followed. American foreign policy was isolationist ... that is, US leaders saw little reason to get involved in world affairs, particularly outside the Western Hemisphere. The Monroe Doctrine (1823) stated that the US would not interfere in European affairs and it would oppose any European attempt to colonize the Americas. The second part of the doctrine was effectively enforced because it reflected British desires as well. American energies were applied to settling the continent under the banner of Manifest Destiny.
The Spanish-American War marked the emergence of the US as a world power. As a result, Guam, Puerto Rico and the Philippines became American territories. The Hawaiian Islands were annexed separately. A few years later, President Theodore Roosevelt intervened in Central and South America, including supporting the independence of Panama from Columbia in 1903, which led to construction of the Panama Canal. With the European powers carving out spheres of influence for themselves in China, the US called for an Open Door Policy that would allow all nations equal trading access.
The US entered World War I in April 1917, after remaining neutral for three years. President Woodrow Wilson, who hoped his Fourteen Points (1918) would become the basis for the postwar settlement, played an active role in the Paris Peace Conference. The Republican-controlled Senate, however, refused to ratify the Treaty of Versailles, which provided for the creation of the League of Nations. The US returned to isolationism during the interwar period
and never joined the League. In response to the growing threat from Nazi Germany, Congress
passed a series of neutrality acts (1935-1937) that were intended to keep the US out of a European conflict. It was only after the outbreak of World War II (September 1939) that President Franklin Roosevelt was able to shift American foreign policy to aid the Allies.
With the Japanese attack on Pearl Harbor (December 7, 1941), the US formally joined the Grand Alliance that included Great Britain, free France, the Soviet Union and China. During the war, the Allied leaders met on several occasions to plan military strategy and to discuss the structure of the postwar world. The important wartime conferences were Casablanca (January 1943), Teheran (November 1943), Yalta (February 1945) and Potsdam (July-August 1945). Although the status of Eastern Europe was one of the main topics at Yalta and Potsdam, the fate of these countries was not determined by diplomacy but by the facts on the ground. At the end of the war, Soviet troops were in control of most of Eastern Europe behind what Winston Churchill would later call the Iron Curtain.
The American response to the expansion of communism and the influence of the Soviet Union was Containment Policy. The term was coined by State Department staffer George Kennan and was based on the premise that the US must apply counterforce to any aggressive moves by the Soviet Union. This policy was reflected in the creation of a network of political and military alliances, such as the North Atlantic Treaty Organization (NATO), the Southeast Asia Treaty Organization (SEATO) and the Central Treaty Organization (CENTO). Both the Truman Doctrine (1947), which committed the US to protect "free peoples" in Europe from attack, and the Korean War (1950-1953) are examples of containment in practice. American policy also recognized the importance of economic assistance to prevent communism from gaining support. Under the Marshall Plan, named for Secretary of State George C. Marshall, the US pumped billions of dollars into Western Europe to help with reconstruction after World War II. Foreign aid, direct financial aid to countries around the world for both economic and military development, became a key element of American diplomacy.
US foreign policy was also guided by the Domino Theory, the thought that if one country in a region came under communist control, other nations in the area would soon follow. It was the reason the US became involved in Vietnam, which ultimately cost 58,000 American lives, many billions of dollars and a bitterly divided country.
The Cold War was punctuated by periods of thaw in US-Soviet relations. Presidents Eisenhower, Kennedy and Johnson met with the leaders of the Soviet Union in what was known as summit diplomacy. The 1963 Nuclear Test Ban Treaty, which was negotiated in the aftermath of the Cuban Missile Crisis (October 1962), was one of the positive results of these meetings.
American foreign policy took a new direction during the 1970s. Under President Richard Nixon, détente, an easing of tensions between the US
and the Soviet Union, led to increased trade and cultural exchanges and, most important, to an agreement to limit nuclear weapons — the 1972 Strategic Arms Limitation Treaty (SALT I). In the same year, Nixon began the process of normalizing relations with the People's Republic of China.
Superpower rivalry continued for a time, however. The Soviet Union's invasion of Afghanistan resulted in an American-led boycott of the 1980 Moscow Olympics. President Reagan actively supported anti-communist, anti-left-wing forces in both Nicaragua and El Salvador, which he considered client states of the Soviet Union (the "evil empire"). He increased American defense spending significantly during his first term. The Soviet Union simply could not match these expenditures. Faced with a serious economic crisis, Soviet leader Mikhail Gorbachev instituted new policies called glasnost (openness) and perestroika (economic restructuring) that eased tensions with the US. By the early 1990s, the Cold War had effectively come to an end. The Soviet Union ceased to exist with the independence of the Baltic States (Estonia, Latvia and Lithuania), Ukraine, Belarus, Armenia, Georgia and the Central Asian republics.
The collapse of the Soviet Union did not mean an end to conflict around the world. The Iraqi invasion of Kuwait in 1990 prompted the US to put together an international coalition under the auspices of the United Nations (UN) that culminated in the brief Persian Gulf War in 1991. Both the UN and NATO were involved in seeking a resolution to the ethnic conflict in the former Yugoslavia. While the US arranged a settlement in the region known as the Dayton Accords (1995), it did not prevent a new outbreak of fighting between Serbs and ethnic Albanians in the province of Kosovo. NATO aircraft bombed targets in Serbia, including the capital Belgrade, in response. This was the first time that NATO forces conducted combat operations in Europe.
For almost half a century, the main objective of American foreign policy
was to counter the threat from the Soviet Union. While national security questions
and relations with Russia remain high on the foreign-policy agenda, new questions have come to the fore. Increasing global interdependence in economic development, communications
and the environment is blurring the distinction between domestic and foreign policy.
With the collapse of the Soviet Union, the pace of nuclear disarmament quickened but maintaining momentum and confidence in arms control between the US and Russia has proved challenging. The US has worked with the newly independent countries of Belarus, Ukraine and Kazakhstan to dismantle the nuclear arsenals on their territory. Nuclear proliferation and the danger of terrorist groups acquiring weapons of mass destruction (WMDs) — nuclear, biological and chemical weapons — remain major foreign policy concerns. US success in persuading Libya and North Korea to abandon their nuclear programs has been uneven. The belief that Iraq had a stockpile of biological and chemicals weapons and was developing a nuclear arsenal was a key justification for the 2003 invasion. The failure to find any WMDs undermined support for the war. Iran continues to pursue the development of nuclear power, despite United Nations sanctions.
US foreign policy was dramatically affected by the events of September 11. The attacks marked the beginning of the global war on terrorism, the war against the Taliban in Afghanistan and soon the conflict with Iraq. The latter is an example of a new defense strategy known as preemption. The US has the right to use military force to prevent an attack, not just in response to an attack.
Throughout the Cold War, the US relied on NATO to check Soviet expansion in Europe. With that danger removed, the military alliance has expanded both its membership and the scope of its operations. A number of countries from behind what was once the Iron Curtain and from the former Soviet Union are now NATO members, including Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. NATO troops comprise the majority of the force fighting the resurgence of the Taliban in Afghanistan.
Decisions made about international economic policy have a direct domestic impact. Economic policy is also used as a tool in foreign policy. American companies are prohibited from doing business with countries that are identified as state sponsors of terrorism. After the first Persian Gulf War, the US, working through the UN, tried to make sure that Iraq could not sell its oil on the world market to rebuild its military strength. The so-called "oil for food" program was marred by corruption and hurt the Iraqi people more than the regime. The UN also imposed economic sanctions on Iran and North Korea over their nuclear programs.
The environment is a comparatively new issue in foreign policy. The discovery of a hole in the ozone layer over Antarctica and evidence of global warming demonstrate that environmental change has a global impact and requires international action. Through international agreements, progress has been made in reducing the production of chemicals that destroy ozone. Global warming, which many scientists believe has already begun and is traceable to the burning of fossil fuels, is a more difficult problem. The 1997 Kyoto Protocol to the UN Framework on Climate Change, better known simply as the Kyoto Protocol, mandated significant reductions in greenhouse gases (carbon dioxide, for example) for developed countries by 2012. Developing countries, including China and India with their rapidly growing economies, were not required to meet specific emission targets. In Doha, Qatar, in 2012, delegates agreed to extend the Kyoto Protocol until 2020. The Kyoto Protocol has been ratified by 192 countries to date (2021) ... the US is a notable exception. The Senate refused to consider the protocol in 1997 because of the exemptions given to developing countries and President Bush stated in 2001 that he would not submit it for ratification. Failure to support the treaty was seen as an example of unilateralism in American foreign policy.
After a series of conferences mired in disagreements, delegates in Paris, in 2015, signed a global but nonbinding agreement to limit the increase of the world’s average temperature to no more than 2 °C (3.6 °F) above preindustrial levels while at the same time striving to keep this increase to 1.5 °C (2.7 °F) above preindustrial levels. The Paris Climate Agreement, signed by all 196 signatories of the UNFCCC, effectively replaced the Kyoto Protocol. It also mandated a progress review every five years and the development of a fund containing $100 billion by 2020 – to be replenished annually - to help developing countries adopt non-greenhouse-gas-producing technologies.
In 2017, President Donald Trump announced his intention to withdraw the US from the Paris agreement, a step that became official in November 2020. However, in January 2021, newly-elected President Joe Biden committed the US to the Paris Climate Agreement again.
Who Makes and Shapes Foreign Policy?
THERE IS NO SINGLE PLAYER.
o The President
o commander in chief
o negotiate treaties
o select, nominate and receive ambassadors
o the bureaucracy
o CIA, NSA, JCOS (Joint Chiefs), NSC (National Security Counsel), DHS (Department of Homeland Security)
o Congress
o declare war
o ratify treaties
o regulate foreign commerce (tariffs)
o Interest Groups
o power to the people
o single-issue economic groups
o ethnic / country-of-origin groups
o The Media
o security vs. freedom of the press
o imbedded journalism
o the television age
o Other Countries
o examples: France in the late 18th century, Russia in the 20th century
Under the Constitution, both the president and Congress have a role in foreign policy. Each has been given specific powers and has assumed additional authority either through precedent or by relying on other constitutional responsibilities. Since the Vietnam War, Congress has tried to exert more influence and control over foreign policy.
The president negotiates treaties, appoints ambassadors to represent the US overseas and is commander in chief of the armed forces. Throughout US history, presidents have used their power as head of the military to involve the nation in numerous conflicts abroad without a formal declaration of war by Congress and they have found other ways to get around constitutionally imposed limitations on their ability to set the direction of American foreign policy. Even though they are effective only during the term of the president who made them, executive agreements negotiated with another head of state do not require Senate approval. Presidents also have access to discretionary funds that can be (and have been) used to finance both military and diplomatic initiatives. Presidents routinely rely on special envoys, who do not require Senate confirmation, to carry out negotiations with other countries.
The constitutional function of Congress is essentially to act as a check on presidential power. Only Congress can declare war and the Senate must approve all treaties and confirm the president's nominees for ambassadorial and cabinet positions. Congress has additional authority through its appropriation and oversight functions. As must all government programs, the operations of foreign policy must be funded. Congress can cut or increase foreign aid or the budget for a defense project. It can set restrictions on the length of time American troops are deployed during an international crisis by refusing to pay for them beyond a certain date. The Foreign Affairs Committee and the Intelligence Committee of both the House and the Senate have investigated the Iran-Contra affair as well as the operations of the Central Intelligence Agency (CIA)
Congress has used its power to make laws that specifically limit the freedom of action of the president in foreign policy. The Neutrality Acts (1935–1937) are an early example. The 1973 War Powers Act, which was a direct response to the Vietnam War, requires that Congress be consulted whenever the president is ready to commit American troops. It puts a 60-day limit on their deployment (with an additional month for withdrawal) without further congressional approval. Vetoed by President Nixon and generally opposed by his successors, the act's effectiveness has been questioned. Still, President George H. W. Bush sought the support of Congress before the Persian Gulf War, as did President Bill Clinton to send troops to Somalia and Bosnia. Congress also authorized the use of force in Iraq in the fall of 2002.
Foreign policy is formulated and implemented within the executive branch. The principal policy institutions are the departments of State and Defense, the National Security Council (NSC) and the CIA. The Department of State is most directly responsible for the conduct of foreign policy. The secretary of state is, in theory at least, the nation's chief foreign policy official. That role can be assumed by other officials in the administration. President Nixon relied much more heavily on Henry Kissinger when he served as Nixon's national security advisor than on Secretary of State William Rogers. The day-to-day diplomacy of the US is carried out by the Foreign Service, which staffs American embassies and consulates around the world. Although many ambassadors are appointed for their political contributions rather than their knowledge of foreign affairs, the career Foreign Service officers are an invaluable source of information for policymakers.
It is difficult, if not impossible, to separate the military from foreign policy. The Defense Department was created in 1949 through a consolidation of the War Department and the Department of the Navy (which included the Marine Corps), both of which were cabinet-level departments, and the US Air Force. The Secretary of Defense can have tremendous influence on foreign policy, as did Robert McNamara, who served in the post under President John Kennedy and President Lyndon Johnson during the Vietnam War. The Joint Chiefs of Staff, who are the heads of the four branches of the armed services and a chairperson, provide advice to the president on military planning and strategy.
The National Security Council (NSC) is made up of the president
and vice president, the secretaries of defense and state, the director of the CIA, the chair of the Joint Chiefs of Staff (the leadership council for the armed services)
and about a dozen other government officials. It is headed by the national security advisor. The council is responsible for advising the president on foreign policy. The role of the NSC varies from administration to administration. Nixon, who was extremely knowledgeable about foreign affairs, relied on the NSC a great deal. Indeed, his national security advisor, Henry Kissinger, was intimately involved in opening relations with the People's Republic of China
and he represented the US in peace negotiations with North Vietnam. Condoleezza Rice also played an important role in this position during George W. Bush's first term. She was
appointed secretary of state in 2005.
Created at the end of World War II, the Central Intelligence Agency (CIA) collects, analyzes, evaluates and disseminates information (intelligence) relating to the national security of the US. Although the CIA uses a variety of means to gather information, most of it comes from simply reading both official and mass-market publications from around the world. The most controversial of the agency's activities are its covert operations, which have involved assassination, assisting in the overthrow of a government and tampering with elections.
The CIA is not the country's only intelligence gathering arm. In addition, there is the National Security Agency (NSA), the Defense Intelligence Agency (part of the Department of Defense), the intelligence branches within each of the armed services and intelligence units within other executive departments such as State, Treasury, Energy and Homeland Security. The intelligence agencies came in for significant criticism for their failure to fully understand the terrorist threat to the US in the wake of September 11. The 9/11 Commission emphasized the need to restructure intelligence activities. This was accomplished to a degree with the appoint of a National Intelligence Director to head the intelligence community. The director is the main advisor to both the president and the NSC on intelligence as it impacts national security.
What are the Instruments of Modern American Foreign Policy?
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o The United Nations
o organization of nations founded on 1945 to serve as a channel for negotiation and a means of settling international disputes peaceably
o US provides 26% of UN funding
o Economic Aid
o Marshall Plan
o Who profits from foreign aid? Elites or common people?
o Is foreign aid tied closely enough to diplomacy?
o Agriculture, State and Defense Departments
o Collective Security
o work together with other nations to be safe
o multilateralism / bilateralism / unilateralism
o producer of security vs. consumer of security
o Military Deterrence
o MAD: mutually assured destruction
o Is deterrence applicable in our current world?
