Domestic policy

Overview of State Policies

• The state assigns roles in two primary domains: economic policy and social policy.

Economic Policy

• Economic policy is divided into three main types: regulatory, fiscal, and monetary policies.

Regulatory Policy

• Regulatory policy involves the issuance of regulations governing financial institutions.
    - Example: Bank Regulation
      - The distinction between investment banking and consumer banking:
          - Investment banking: targets wealthy individuals and involves high-risk investments, requiring substantial capital contributions, e.g., a minimum of $5,000,000$.
          - Consumer banking: caters to the general public, focused on lower-risk financial products and services.
      - Regulations that prevent banks from simultaneously acting as consumer and investment banks.
      - Regulations requiring banks to maintain a specific ratio of capital to liabilities; the capital ratio must be at least 20 ext{%} to avoid crises like that of $2008$.
        - Liabilities: refers to deposits by consumers which are owed back to them by the bank.

Fiscal Policy

• Fiscal policy mainly involves taxation decisions.
    - Progressive Tax System: imposes a higher tax rate on wealthier individuals compared to lower-income individuals.
    - Regressive Tax System: results where lower-income individuals often pay a higher proportion of their income in taxes (lower tax rate does not apply).
• The significance of taxation:
    - Taxation can redistribute wealth depending on whether the system is progressive or regressive.
    - Regarded as important in managing the economy and addressing income inequality.

Monetary Policy

• Monetary policy focuses on managing interest rates and controlling money supply.
• Interest Rates:
    - High interest rates generally slow economic growth.
    - Low interest rates are implemented to stimulate economic activity, such as mortgage lending.
• The Economic Cycle:
    - The natural pattern of capitalism is characterized by “boom” and “bust” cycles.
    - Monetary policy aims to smooth these cycles through targeted interest rate adjustments and quantitative easing techniques.

Social Policy

• Social policy is further classified primarily into three categories: welfare, social insurance, and social integration programs.

Welfare Programs

• Non-Contributory Welfare: Benefits that do not require prior payments by recipients.
    - Examples:
      - Medicaid: healthcare for low-income individuals without prior contribution.
      - SNAP/Food Stamps: assistance based on income, not requiring prior contributions.
• Contributory Welfare: Benefits depend on contributions made by the beneficiary, often tied to employment.
    - Example: Social Security/Medicare
      - These programs are viewed as social insurance: people pay into the system and receive benefits relative to their contribution.

Social Integration Programs

• Programs aimed at fostering social participation beyond basic welfare, such as:
    - Obamacare (Affordable Care Act): aims at broad healthcare access to promote societal participation.
    - Education grants, like Pell Grants, aim to expand access to higher education and promote equal opportunity.
• The importance of providing shelter and housing as issues of social justice; for instance, France's legislative obligations to provide housing.

Economic Systems Orientation

• The economic orientation can be either demand-oriented or supply-oriented:
    - Demand-oriented policies focus on stimulating consumer spending.
    - Supply-oriented policies emphasize supporting investments and businesses.
• Under the Trump administration, supply-side economic principles were predominant, promoting tax breaks for the wealthy, argued to stimulate jobs.

The Role of Government and Economic Theories

• Discussion on contrasting economic theories:
    - Keynesian Economics: promotes government intervention to stimulate demand.
    - Laissez-faire Economics: promoted by Milton Friedman, advocates for minimal government intervention in the economy and the belief in self-regulation.

Fiscal Policy Goals

• The focus of fiscal policy is whether to tax the rich or measure fiscal spending to stimulate economic conditions.
• The dilemma between supporting investment versus increasing consumer demand through government spending, which can lead to budget deficits.
    - The defense budget and tax breaks are two primary contributors to the national budget deficit.

Monetary Policy Specifics

• Operated mostly by the Federal Reserve Board with two primary aims:
    - Altering interest rates and manipulating the money supply via the purchase/sale of government bonds (quantitative easing).

Regulatory Power of Government

• Government regulations exist to promote competition, but have largely failed to curb monopolistic behaviors in American industry.
  

Conclusion on Social Policy Mechanisms

• The American welfare model centers around incentivizing work rather than providing unconditional assistance.
• The Temporary Assistance for Needy Families (TANF) program exemplifies this approach with conditions tied to employment.
• Critique of social policy emphasizes a systemic failure to address deep-rooted poverty and inequality, discriminative practices against minorities, and the stigmatization stemming from means testing in non-contributory welfare programs.